Papa Johns 2012 Annual Report Download - page 14

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International Development and Franchise Agreements. We opened our first franchised restaurant outside
the United States in 1998. We define “international” as all markets outside the United States and Canada.
In international markets, we have either a development agreement or a master franchise agreement with a
franchisee for the opening of a specified number of restaurants within a defined period of time and
specified geographic area. Under a master franchise agreement, the franchisee has the right to
subfranchise a portion of the development to one or more subfranchisees approved by us. Under our
current standard international development agreement, the franchisee is required to pay total fees of
$25,000 per restaurant: $5,000 at the time of signing the agreement and $20,000 when the restaurant
opens or on the agreed-upon development date, whichever comes first. Under our current standard master
franchise agreement, the master franchisee is required to pay total fees of $25,000 per restaurant owned
and operated by the master franchisee, under the same terms as the development agreement, and $15,000
for each subfranchised restaurant – $5,000 at the time of signing the agreement and $10,000 when the
restaurant opens or on the agreed-upon development date, whichever comes first.
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. We also offer various development incentives to help drive net
unit growth.
Non-traditional Restaurant Development. We had approximately 200 non-traditional restaurants at
December 30, 2012. These agreements generally cover venues or areas not originally targeted for
traditional unit development and have terms differing from the standard agreement.
Franchisee Loans. Selected franchisees have borrowed funds from us, 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 30, 2012, net loans outstanding totaled $17.1 million. See “Note 11” of “Notes to
Consolidated Financial Statements” for additional information.
Domestic Franchise Insurance Program. Our franchisees may elect 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”). Various third-party commercial
insurance companies provide fully-insured coverage for these lines of business to franchisees
participating in the franchise insurance program offered by Risk Services.
Domestic 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 130 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 and Latin American Operations and Global OST.
Every franchisee is required to have a principal operator approved by us who satisfactorily completes our
required training program. Principal operators for traditional restaurants are required to devote their full
business time and efforts to the operation of the franchisee’s traditional restaurants. Each franchised
restaurant manager is also required to complete our Company-certified management training program.
Ongoing supervision of training is monitored by the GOST team. Multi-unit franchisees are encouraged
to appoint training store general managers or hire a full-time training coordinator certified to deliver
Company-approved training programs.