Papa Johns 2011 Annual Report Download - page 82

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15. Commitments and Contingencies (continued)
Future gross lease costs, future expected sublease payments and net lease costs as of December 25, 2011,
are as follows (in thousands):
Future
Expected
Gross Lease Sublease Net Lease
Year Costs Payments Costs
2012 29,760$ 3,675$ 26,085$
2013 26,430 3,583 22,847
2014 22,394 3,330 19,064
2015 17,703 3,068 14,635
2016 12,853 2,777 10,076
Thereafter 29,703 15,653 14,050
Total 138,843$ 32,086$ 106,757$
In connection with the 2006 sale of our former Perfect Pizza operations in the United Kingdom, we
remain contingently liable for payment under approximately 40 lease arrangements, primarily associated
with Perfect Pizza restaurant sites for which the Perfect Pizza franchisor is primarily liable. As the initial
party to the lease agreements, we are liable to the extent the primary obligor does not satisfy its payment
obligations. The leases have varying terms, the latest of which expires in 2017, with most expiring by the
end of 2014. As of December 25, 2011, the estimated maximum amount of undiscounted rental payments
we would be required to make in the event of non-payment under all such leases was approximately $2.5
million, excluding the $832,000 charge discussed below.
On August 1, 2011 the High Court of Justice Chancery Division, Birmingham District Registry entered an
order placing Perfect Pizza in administration, thereby providing Perfect Pizza with protection from its
creditors in accordance with UK insolvency law. On the same date, the administrators entered into an
agreement to sell substantially all of the business and assets of Perfect Pizza. In accordance with the terms
of the agreement, the buyer has an option period up to nine months to determine which Perfect Pizza
leases they will assume.
The buyer is continuing to assess most restaurant leases but has identified certain leases that will not be
assumed. Accordingly, for the year ended December 25, 2011, we recorded an expense of $832,000 in
other general expenses in the accompanying consolidated statements of income, representing the
remaining rentals, taxes and insurance related to these specific leases. Given the uncertainty of the
remaining restaurant locations, we are unable to reasonably estimate any potential additional liability for
those locations and therefore, no amount has been recorded in the consolidated financial statements as of
December 25, 2011 with respect to the remaining restaurant locations.
The Company’s headquarters facility is leased under a capital lease arrangement with the City of
Jeffersontown, Kentucky in connection with the issuance of $80.2 million in Industrial Revenue Bonds.
The bonds are held 100% by the Company and, accordingly, the bond obligation and investment and
related interest income and expense are eliminated in the consolidated financial statements.
We are subject to claims and legal actions in the ordinary course of business. We believe that all such
claims and actions currently pending against us are either adequately covered by insurance or would not
have a material adverse effect on us if decided in a manner unfavorable to us.