Papa Johns 2010 Annual Report Download - page 18

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restaurant opens or the agreed-upon development date, whichever comes first. We expect that future
development agreements may limit the amount of potential subfranchising.
Our current standard international master franchise and development agreement provides for payment to
us of a royalty fee of 5% of sales, with no provision for increase during the initial term. The remaining
terms applicable to the operation of individual restaurants are substantially equivalent to the terms of our
domestic franchise agreement. From time to time, development agreements will be negotiated at other-
than-standard terms for fees and royalties.
Non-traditional Restaurant Development. We have entered into a limited number of development and
franchise agreements for non-traditional restaurants. These agreements generally cover venues or areas
not originally targeted for traditional unit development and have terms differing from the standard
agreement. While we expect to have a significant increase in the number of non-traditional units in the
future, to date, these agreements have not had a significant, direct impact on our pre-tax earnings.
Franchise Restaurant Development. We provide assistance to Papa John’s franchisees in selecting sites,
developing restaurants and evaluating the physical specifications for typical restaurants. Each franchisee
is responsible for selecting the location for its restaurants but must obtain our approval of restaurant
design and location based on accessibility and visibility of the site and targeted demographic factors,
including population density, income, age and traffic. Our domestic and international franchisees may
purchase complete new store equipment packages through an approved third-party supplier.
Franchisee Loans. Selected franchisees have borrowed funds from our wholly-owned subsidiary, Capital
Delivery, Ltd., principally for the purchase of restaurants from us or other franchisees or for use in the
construction and development of new restaurants. Loans made to franchisees typically bear interest at
fixed or floating rates and in most cases are secured by the fixtures, equipment and signage of the
restaurant and/or are guaranteed by the franchisees’ owners. At December 26, 2010, net loans
outstanding totaled $17.4 million, which were composed of loans to franchisees. See “Note 9” of “Notes
to Consolidated Financial Statements” for additional information.
Franchise Insurance Program. Our franchisees have the opportunity to purchase various insurance
policies, such as health insurance, non-owned automobile and workers’ compensation, through our
wholly-owned insurance agency, Risk Services Corp. (“Risk Services”). A third-party commercial
insurance company provides fully-insured coverage to franchisees participating in the franchise insurance
program offered by Risk Services. As of December 26, 2010, approximately 46% of domestic franchised
restaurants had obtained insurance coverage through Risk Services.
Franchise Training and Support. Our domestic field support structure consists of franchise business
directors, each of whom is responsible for serving an average of approximately 100 franchised units. Our
franchise business directors maintain open communication with the franchise community, relaying
operating and marketing information and new initiatives between franchisees and us. Franchise business
directors report to one of three regional division vice presidents, who report to the Senior Vice President,
North American Operations.
Every franchisee is required to have a principal operator approved by us who satisfactorily completes our
required training program. Principal operators are required to devote his or her full business time and
efforts to the operation of the franchisee’s restaurants. The full business time requirement is not
mandatory for certain franchisees that operate only non-traditional restaurants; for example, a food
service operator that operates a Papa John’s as part of a food court at a college or university. 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