Papa Johns 2007 Annual Report Download - page 18

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11
Franchisee Loans. Selected franchisees have borrowed funds from our subsidiary, Capital Delivery, Ltd.,
principally for use in the construction and development of their restaurants. We have also entered into
loan agreements with certain franchisees that purchased restaurants from us or other franchisees. Loans
made to franchisees typically bear interest at fixed or floating rates and in most cases are secured by the
fixtures, equipment and signage (and where applicable, the land) of the restaurant and the ownership
interests in the franchisee. At December 30, 2007, loans outstanding totaled $11.8 million, which were
composed of $7.0 million of loans to franchisees and a loan balance of $4.8 million with the purchaser of
our Perfect Pizza operations. See “Note 11” of “Notes to Consolidated Financial Statements” for
additional information.
We have a commitment to lend up to $30.0 million to BIBP, a franchisee-owned corporation with an
outstanding balance of $20.5 million at December 30, 2007. See “Notes 5 and 11” of “Notes to
Consolidated Financial Statements” for additional information.
Franchise Insurance Program. Our franchisees have the opportunity to purchase various insurance
policies, such as non-owned automobile and workers’ compensation, through our insurance agency, Risk
Services Corp. (“Risk Services”). In October 2000, we established a captive insurance company
(“Captive”) domiciled in Bermuda, RSC Insurance Services, Ltd., to accommodate this business.
Beginning in October 2004, a third-party commercial insurance company began providing fully-insured
coverage to franchisees participating in the franchise insurance program. Accordingly, this new
agreement eliminates our risk of loss for franchise insurance coverage written after September 2004. As
of December 30, 2007, approximately 50% of domestic franchised restaurants had obtained insurance
coverage through Risk Services. See “Note 12” of “Notes to Consolidated Financial Statements” for
additional information concerning the Captive.
Franchise Training and Support. Our domestic field support structure consists of Franchise Business
Directors (“FBDs”), each of whom is responsible for serving an average of approximately 100 franchised
units. Our FBDs maintain open communication with the franchise community, relaying operating and
marketing information and new ideas between franchisees and us.
Every franchisee is required to have a principal operator approved by us who satisfactorily completes our
required training program and who devotes his or her full business time and efforts to the operation of the
franchisee’s restaurants. Each franchised restaurant manager is also required to complete our Company-
certified management training program. Domestically, we provide an on-site training team three days
before and three days after the opening of a franchisee’s first two restaurants. Internationally, we provide
an on-site training crew five days before and five days after the opening of a franchisee’s first two stores.
Ongoing supervision of training is monitored by the franchise training team. Multi-unit franchisees are
encouraged to appoint training store general managers or hire a full-time training coordinator certified to
deliver Company-approved programs in order to train new team members and management candidates for
their restaurants. Internationally, training is monitored by our international director of training, as well as
regional vice presidents and international business managers assigned to specific franchisee territories.
We also maintain communications with our franchisees through periodic system-wide meetings,
newsletters and regional or national conference calls.
Franchise Operations. All franchisees are required to operate their Papa John’s restaurants in compliance
with our policies, standards and specifications, including matters such as menu items, ingredients,
materials, supplies, services, fixtures, furnishings, decor and signs. Each franchisee has full discretion to
determine the prices to be charged to its customers.