Papa John’s International, Inc. (NASDAQ: PZZA)
today announced revenues of $262.8 million for the third quarter of
2007, representing an increase of 9.6% from revenues of $239.7 million
for the same period in 2006. Net income for the third quarter of 2007
was $4.8 million, or $0.16 per diluted share (including an after-tax
loss of $7.0 million, or $0.23 per diluted share, from the consolidation
of the results of the franchisee-owned cheese purchasing company, BIBP
Commodities, Inc. (BIBP), a variable interest entity, and a gain of $2.4
million, or $0.08 per diluted share, from the finalization of certain
income tax issues), compared to 2006 third quarter net income of $13.1
million, or $0.40 per diluted share (including an after-tax gain of $3.0
million, or $0.09 per diluted share, from the consolidation of BIBP, and
a gain of $950,000, or $0.03 per diluted share, from the finalization of
certain income tax issues).
Revenues were $779.7 million for the nine months ended September 30,
2007, representing an increase of 7.7% from revenues of $723.6 million
for the same period in 2006. Net income for the nine months ended
September 30, 2007 was $25.0 million, or $0.82 per diluted share
(including a net loss of $12.5 million or $0.41 per diluted share, from
the consolidation of BIBP and a gain of $2.4 million, or $0.08 per
diluted share, from the previously mentioned finalization of certain
income tax issues), compared to last year’s
net income of $44.4 million, or $1.33 per diluted share (including an
after-tax gain of $10.4 million, or $0.31 per diluted share, from the
consolidation of BIBP and a gain of $950,000, or $0.03 per diluted
share, from the previously mentioned finalization of certain income tax
issues).
The following table summarizes the above-mentioned items impacting 2007
earnings per diluted share, as compared to the same periods presented
for the prior year:
Three Months Ended
Nine Months Ended Sept. 30,
Sept. 24, Sept. 30,
Sept. 24, 2007 2006 2007 2006
Earnings per diluted share, as reported
$
0.16
$
0.40
$
0.82
$
1.33
Loss (Gain) from BIBP cheese purchasing entity
0.23
(0.09
)
0.41
(0.31
)
(Gain) from finalization of certain income tax issues
(0.08
)
(0.03
)
(0.08
)
(0.03
)
Earnings per diluted share, excluding noted items
$
0.31
$
0.28
$
1.15
$
0.99
"Our system had an excellent third quarter," commented Papa John's
president and chief executive officer, Nigel Travis. "To run positive
comp sales in this competitive market place, and against strong sales
during the same period last year, is a testament to the strength of our
brand. I am also pleased with our revenue and earnings growth for the
quarter, and our outlook for the remainder of the year. We will continue
to work hard to wow our customers with quality products and superior
service to help our system manage through what continues to be a
challenging cost environment."
Revenues Comparison
Consolidated revenues were $262.8 million for the third quarter of 2007,
an increase of $23.1 million or 9.6%, over the corresponding 2006
period. The increase in revenues was principally due to an $18.8 million
increase in domestic company-owned restaurant revenues, reflecting the
acquisition of 54 domestic restaurants during the last five months of
2006 and the acquisition of 61 domestic restaurants during the first
nine months of 2007. Other sales increased $2.5 million due to expanded
commercial volumes at our print and promotions operations. International
revenues increased $2.0 million due to the acquisition of five
restaurants in Beijing, China in December 2006 and increased royalty
revenues from additional franchised units.
For the nine-month period ending September 30, 2007, consolidated
revenues increased $56.0 million, or 7.7%, principally due to the
reasons mentioned above.
Operating Results and Cash Flow Operating Results
Our pre-tax income from continuing operations for the third quarter of
2007 was $3.8 million, compared to $19.8 million for the corresponding
period in 2006. For the nine months ended September 30, 2007, pre-tax
income was $35.7 million compared to $68.8 million for the corresponding
period in 2006. Excluding the impact of the consolidation of BIBP, third
quarter 2007 pre-tax income from continuing operations was $14.5
million, which is substantially flat with 2006 comparable results, and
pre-tax income for the nine months ended September 30, 2007 was $55.0
million, an increase of $3.2 million (6.3%) over the 2006 comparable
results of $51.8 million. An analysis of the changes in pre-tax income
from continuing operations for the three- and nine-month periods ended
September 30, 2007, respectively (excluding the consolidation of BIBP),
are summarized as follows (analyzed on a segment basis -- see the
Summary Financial Data table that follows for the reconciliation of
segment income to consolidated income below):
Domestic Company-owned Restaurant Segment. Domestic
company-owned restaurants’ operating income
for the three months ended September 30, 2007 was $3.5 million, or a
decrease of $2.1 million, from the comparable 2006 period. For the
nine-month period ended September 30, 2007, operating income was $19.2
million, or a decrease of $3.8 million, from the comparable 2006
period. The decline in operating income for the three- and nine-month
periods is primarily due to an increase in wages (including the impact
of a federal minimum wage increase in July 2007 and certain other
minimum wage increases in various states), increased commodity costs
and increased marketing expenditures at the local market level. The
third quarter 2007 results also include a loss of $500,000 associated
with our plan to sell certain company-owned restaurants in one market.
The nine-month period results were favorably impacted by a $594,000
pre-tax gain associated with the termination of a lease agreement in
the second quarter of 2007.
Domestic Commissary Segment. Domestic commissaries’
operating income increased approximately $1.5 million and $3.6 million
for the three- and nine-month periods ended September 30, 2007,
respectively, from the comparable 2006 periods. These increases are
principally due to increased volumes of higher margin fresh dough
products and improved margins from other commodities.
Domestic Franchising Segment. Domestic franchising operating
income decreased $501,000 and $1.1 million for the three- and
nine-month periods ended September 30, 2007, respectively, from the
comparable 2006 periods. These decreases are principally due to costs
associated with an increase in our field organizational support staff
to improve the performance of our domestic franchise operations.
Royalty revenue was flat, as an approximate 2.0% decrease in
equivalent franchise units due to various acquisitions of franchise
units by the company was offset by a reduction in royalty waivers
granted to franchisees.
International Segment. The international operating results,
which exclude the Perfect Pizza operations in the United Kingdom that
were sold in March 2006, reported losses of $2.0 million and $6.4
million for the three- and nine-month periods ended September 30,
2007, respectively, compared to losses of $2.0 million and $6.8
million, respectively, in the same periods of the prior year. The
improvement in the operating results for the nine-month period was due
to the prior year results including a $470,000 charge incurred in the
second quarter of 2006 related to management reorganization costs in
one of our international operating units. Increased revenues in 2007
due to the growth in number of units and unit volumes were
substantially offset by increased personnel and infrastructure
investment costs.
All Others Segment. The "All others”
reporting segment reported operating earnings of $1.3 million and $4.0
million for the three- and nine-month periods ended September 30,
2007, respectively, compared to $1.1 million and $3.8 million,
respectively, in the same periods of the prior year. The increase of
$242,000 in operating income for the three-month period was primarily
due to an improvement in the operating results of our print and
promotions operations, reflecting an increase in our sales to
commercial customers. The increase of $249,000 for the nine-month
period was primarily due to the improved operating results of our
online operation. The nine-month period operating results at our print
and promotions operations during 2007 are substantially the same as
the 2006 results.
Unallocated Corporate Segment. Unallocated corporate expenses
decreased approximately $1.0 million and $4.0 million for the three-
and nine-month periods ended September 30, 2007, respectively, as
compared to the corresponding periods of 2006. The decreases in both
periods are primarily due to lower general and administrative costs,
including management incentives (as more fully discussed below),
health insurance and legal costs. The nine-month period decrease was
also impacted by the collection of a $650,000 receivable, which had
previously been reserved, from Papa Card, Inc., a nonstock, nonprofit
corporation, which administers the Papa John’s
gift card program.
The following table summarizes our recorded expense (income) associated
with our management incentive programs (in thousands):
Three Months Ended Nine Months Ended Sept. 30, Sept. 24, Sept. 30, Sept. 24, 2007
2006
2007
2006
Stock options
$
1,193
$
1,187
$
3,048
$
3,069
Restricted stock
511
71
759
119
Performance unit plan
(57
)
856
(207
)
2,209
Management incentive bonus plan
1,200
1,587
2,950
5,539
Total expense
$
2,847
$
3,701
$
6,550
$
10,936
Decrease
$
(854
)
$
(4,386
)
The decrease in the executive performance unit incentive plan expense
for the three- and nine-month periods of 2007, as compared to the
corresponding prior year periods, was primarily due to the forfeiture of
units associated with certain executive departures and the change in the
Founder Chairman’s status from an employee
director of the company to a non-employee director during the second
quarter of 2007.
The annual management incentive bonus plan is based on the company’s
annual operating income performance and certain sales measures as
compared to pre-established targets. The decrease in the expense for the
three- and nine-month periods in 2007 as compared to the corresponding
prior year periods was primarily due to updated sales and operating
income projections for the full year and the transition of the Founder
Chairman to a non-employee director status.
Net interest expense included in the unallocated corporate segment,
increased approximately $1.0 million and $3.5 million for the three- and
nine-month periods ended September 30, 2007, respectively, as compared
to the corresponding 2006 periods, principally due to a higher average
debt balance resulting from share repurchase activity under our share
repurchase program and franchise restaurant acquisitions during the last
twelve months. The increase in net interest costs was offset, in this
operating segment, by an increase in allocations to the operating units
receiving corporate support for the three- and nine-months ended
September 30, 2007, as compared to the corresponding periods of 2006,
partially due to an increase in the number of company-owned restaurants.
During the third quarter of 2007, the company recorded a $2.4 million
reduction in its customary income tax expense due to the finalization of
certain income tax issues. The effective income tax rate was 29.9% for
the nine months ended September 30, 2007, compared to 36.1% in the
corresponding 2006 period.
Cash Flow
Cash flow from continuing operations was $47.2 million in the first nine
months of 2007 as compared to $67.9 million for the comparable period in
2006. The consolidation of BIBP decreased cash flow from operations by
approximately $19.4 million in the first nine months of 2007 and
increased cash flow from operations by approximately $17.0 million in
the comparable period in 2006. Excluding the impact of the consolidation
of BIBP, cash flow from continuing operations increased $15.7 million in
the first nine months of 2007 as compared to the corresponding 2006
period, primarily due to an increase in net income and an improvement in
working capital including accounts receivable, inventories and other
liabilities.
Form 10-Q Filing
See the Management’s Discussion and Analysis
of Financial Condition and Results of Operations section of our
quarterly report on Form 10-Q filed with the Securities and Exchange
Commission for additional information concerning our operating results
and cash flow for the three- and nine-month periods ended September 30,
2007.
Comparable Sales, System-wide Sales
and Unit Count
Domestic system-wide comparable sales for the third quarter of 2007
increased 0.2% (composed of a 0.5% increase at company-owned restaurants
and flat sales at franchised restaurants). Domestic system-wide
comparable sales for the nine months ended September 30, 2007 decreased
0.2% (composed of a 0.1% decrease at company-owned restaurants and a
0.3% decrease at franchised restaurants). Comparable sales percentage
represents the change in year-over-year sales for the same base of
restaurants for the same calendar period.
Worldwide system sales increased 4.3% to $524.6 million for the third
quarter of 2007 and increased 3.5% to $1.59 billion for the nine months
ended September 30, 2007, as compared to the same periods of the prior
year. The following table summarizes system-wide sales for the three-
and nine-month periods ended September 30, 2007 and September 24, 2006,
on an actual U.S.
Dollar basis (dollars in thousands):
Three Months Ended
Nine Months Ended Sept. 30,2007
Sept. 24,2006
PercentageIncrease(Decrease) Sept. 30,2007
Sept. 24,2006
PercentageIncrease(Decrease)
Domestic:
Company-owned
$
126,610
$
107,793
17.5%
$
368,287
$
319,957
15.1%
Franchised
352,607
359,070
(1.8%)
1,093,082
1,116,279
(2.1%)
Total Domestic
479,217
466,863
2.6%
1,461,369
1,436,236
1.7%
International
45,413
36,235
25.3%
128,921
100,393
28.4%
Total System-wide Sales
$
524,630
$
503,098
4.3%
$
1,590,290
$
1,536,629
3.5%
During the third quarter of 2007, 38 domestic restaurants (two
company-owned and 36 franchised) were opened, including ten franchised
units in Live Nation amphitheaters under a previously announced
agreement. Additionally, 29 international restaurants (one company-owned
and 28 franchised) were opened, while 13 domestic and five international
franchised restaurants were closed, resulting in 49 net openings
worldwide for the quarter. There were 124 net openings worldwide for the
first nine months of 2007. Our total domestic development pipeline as of
September 30, 2007 included 335 restaurants scheduled to open over the
next nine years.
At September 30, 2007, there were 3,139 Papa John’s
restaurants (660 company-owned and 2,479 franchised) operating in all 50
states and 27 countries. The company-owned unit count includes 130
restaurants operated in majority-owned domestic joint venture
arrangements, the operating results of which are fully consolidated into
the company’s results.
Acquisition Activity
As previously disclosed, the company acquired 31 franchised Papa John’s
restaurants located in Missouri and Kansas on July 2, 2007. The purchase
price of $10.3 million, of which approximately $7.2 million was recorded
as goodwill, was paid in cash. In addition, during the third quarter of
2007, the company completed the acquisition of 11 franchised Papa John’s
restaurants located in the Washington, D.C. area through our 70% owned
joint venture, Colonel’s Limited, LLC. The
purchase price of $6.1 million, of which approximately $4.7 million was
recorded as goodwill, was paid in cash. At this time, the company does
not expect to acquire a significant number of additional restaurants
from the franchisees in the future.
International Update
A total of 29 restaurants were opened in international markets during
the third quarter of 2007, of which nine were located in our
fastest-growing markets, Korea and China. As of September 30, 2007, the
company had a total of 412 corporate and franchised restaurants
operating internationally, of which 129 were located in Korea and China.
Our total international development pipeline as of September 30, 2007
included approximately 800 restaurants scheduled to open over the next
nine years. During October 2007, we entered into a 40-unit development
agreement in Poland and a 50-unit development agreement in Turkey. We
expect the initial unit openings for both new countries will occur in
2008.
Share Repurchase Activity
The company repurchased approximately 990,000 shares of its common stock
at an average price of $26.39 per share, or a total of $26.1 million,
during the third quarter of 2007, and 2.2 million shares of its common
stock at an average price of $27.99 per share, or a total of $61.9
million, during the first nine months of 2007. Subsequent to the third
quarter of 2007, through October 31, 2007, the company repurchased an
additional $10.9 million of common stock (471,000 shares at an average
price of $23.21 per share). A total of 27,000 and 674,000 shares of
common stock were issued upon the exercise of stock options for the
three- and nine-month periods ended September 30, 2007, respectively.
There were 30.0 million diluted weighted average shares outstanding for
the third quarter of 2007 as compared to 32.6 million for the same
period in 2006. Approximately 29.2 million actual shares of the company’s
common stock were outstanding as of September 30, 2007. The company’s
board of directors has authorized the repurchase of up to an aggregate
$675 million of common stock through December 30, 2007, which was
substantially completed as of October 31, 2007.
The company’s share repurchase activity
increased earnings per diluted share from continuing operations by $0.01
for the nine-month period ended September 30, 2007 (no impact on the
third quarter of 2007).
Franchise Agreement Renewals
The company today also announced the completion of the initial
communication to its domestic franchisees of a Franchise Agreement
Renewal Program (the Renewal Program). Substantially all existing
franchise agreements have an initial 10-year term with a 10-year renewal
option. Many of these original agreements have reached or will reach the
end of their initial term in the next few years and will therefore
require renewal.
The company collaborated with the Franchise Advisory Council, which
consists of company and franchisee representatives of domestically owned
restaurants, to develop a revised form of franchise agreement that will
be available for execution upon renewal by existing franchisees (the
Negotiated Agreement). The primary objectives of the negotiation of a
revised form of franchise agreement included:
Providing visibility to franchisees as to the potential timing and
amount of future royalty rate increases;
Ensuring minimum funding levels for the National Marketing Fund given
the scale advantages of our larger competitors;
Providing a funding mechanism for continued investment in maintaining
and enhancing our online technological capabilities; and
Addressing alternative marketing or other business developments to
ensure the new form of franchise agreement is consistent and up to
date.
Under the Renewal Program, the Company is offering certain renewal fee
discounts to encourage all existing franchisees to renew under the
Negotiated Agreement by December 31, 2007. Additionally, existing
franchisees electing not to renew under the Negotiated Agreement by this
date will be offered the then-current standard form of franchise
agreement (the New Standard Agreement) upon their subsequent renewal.
One key provision of the Negotiated Agreement relates to the timing and
amount of future royalty rate increases. A one-quarter percent increase
in royalty rate, to 4.25%, has been announced effective in January 2008
for franchisees renewing under the Negotiated Agreement, which is
expected to include the majority of franchisees. The royalty rate for
all new franchisees and any existing franchisees who elect to renew
under the New Standard Agreement will be 5% in 2008. Specific
information related to this and other key provisions, including the
expected financial impact on the company, is included in the company’s
Form 10-Q filing.
2007 Earnings Guidance Updated
In connection with the second quarter earnings release, the company
revised the original earnings guidance for 2007, excluding the impact of
the consolidation of BIBP, to a range of $1.56 to $1.60 per share. Based
upon actual third quarter operating results, including the impact of the
finalization of certain income tax issues, which resulted in an
additional $0.08 of earnings per share, the company is updating its 2007
EPS guidance, excluding the impact of the consolidation of BIBP, to a
range of $1.64 to $1.68 per share.
Our determination of the updated earnings guidance considered several
factors, including the negative impact on our domestic company-owned
restaurant operating results from the continued increases in
commodities, such as the prices for cheese and wheat, as well as an
increase in labor costs as a result of changes in federal and state
minimum wage regulations.
We do not expect significant variances in the key operating assumption
projections for full year 2007 included in our second quarter earnings
release dated August 7, 2007, other than a modest increase in net
interest expense and a modest decrease in average diluted shares as a
result of share repurchase activity, and a reduction in net unit
openings to a range of 180 to 200 net units due to a combination of
slightly fewer projected openings and slightly greater projected
closings.
Forward-Looking Statements
Except for historical information, this announcement contains
forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. These forward-looking statements
reflect management's expectations based upon currently available
information and data; however, actual results are subject to future
events and uncertainties, which could cause actual results to materially
differ from those projected in these statements. Certain factors that
can cause actual results to materially differ include: the uncertainties
associated with litigation; changes in pricing or other marketing or
promotional strategies by competitors, which may adversely affect sales;
new product and concept developments by food industry competitors; the
ability of the company and its franchisees to meet planned growth
targets and operate new and existing restaurants profitably; general
economic conditions; increases in or sustained high cost levels of food
ingredients and other commodities, paper, utilities, fuel, employee
compensation and benefits, insurance and similar costs; the ability to
obtain ingredients from alternative suppliers, if needed; health- or
disease-related disruptions or consumer concerns about commodities
supplies; the selection and availability of suitable restaurant
locations; negotiation of suitable lease or financing terms; constraints
on permitting and construction of restaurants; local governmental
agencies’ restrictions on the sale of certain
food products; higher-than-anticipated construction costs; the hiring,
training and retention of management and other personnel; changes in
consumer taste, demographic trends, traffic patterns and the type,
number and location of competing restaurants; franchisee
relations; the timing of franchise agreement renewals; the
possibility of impairment charges if our United Kingdom operations or
recently acquired restaurants perform below our expectations; federal
and state laws governing such matters as wages, benefits, working
conditions, citizenship requirements and overtime, including legislation
to further increase the federal and state minimum wage; and labor
shortages in various markets resulting in higher required wage rates.
The above factors might be especially harmful to the financial viability
of franchisees or company-owned operations in under-penetrated or
emerging markets, leading to greater unit closings than anticipated.
Increases in projected claims losses for the company’s
self-insured coverage or within the captive franchise insurance program
could have a significant impact on our operating results. Additionally,
domestic franchisees are only required to purchase seasoned sauce and
dough from our quality control centers (QC Centers) and changes in
purchasing practices by domestic franchisees could adversely affect the
financial results of our QC Centers. Our international operations are
subject to additional factors, including political and health conditions
in the countries in which the company or its franchisees operate;
currency regulations and fluctuations; differing business and social
cultures and consumer preferences; diverse government regulations and
structures; ability to obtain high-quality ingredients and other
commodities in a cost-effective manner; and differing interpretation of
the obligations established in franchise agreements with international
franchisees. Further information regarding factors that could affect the
company's financial and other results is included in the company's Forms
10-Q and 10-K, filed with the Securities and Exchange Commission.
Conference Call
A conference call is scheduled for November 7, 2007 at 10:00 EST to
review third quarter earnings results. The call can be accessed from the
company’s web page at www.papajohns.com
in a listen-only mode, or dial 800-487-2662 (pass code 4893059) for
participation in the question and answer session. International
participants may dial 706-679-8452 (pass code 4893059).
The conference call will be available for replay beginning November 7,
2007, at approximately noon through November 14, 2007, at midnight EST.
The replay can be accessed from the company’s
web page at www.papajohns.com or
by dialing 800-642-1687 (pass code 4893059). International participants
may dial 706-645-9291 (pass code 4893059).
Summary Financial Data Papa John's International, Inc. (Unaudited)
Three Months Ended Nine Months Ended
(In thousands, except per share amounts)
Sept. 30,2007 Sept. 24,2006 Sept. 30,2007 Sept. 24,2006
Revenues
$
262,775
$
239,692
$
779,655
$
723,634
Income from continuing operations before income taxes (1)
$
3,839
$
19,798
$
35,662
$
68,813
Net income
$
4,827
$
13,108
$
24,991
$
44,376
Earnings per share - assuming dilution
$
0.16
$
0.40
$
0.82
$
1.33
Weighted average shares outstanding - assuming dilution
30,027
32,583
30,435
33,296
EBITDA (A)
$
13,418
$
27,101
$
63,236
$
89,972
(1) See information below on a reporting unit basis that
separately identifies the impact of consolidating VIEs on income
from continuing operations before income taxes.
The following is a summary of our income (loss) from continuing
operations before income taxes:
Domestic company-owned restaurants
$
3,493
$
5,562
$
19,243
$
23,012
Domestic commissaries
9,661
8,158
27,592
24,023
Domestic franchising
11,629
12,130
36,737
37,881
International
(2,022
)
(2,003
)
(6,374
)
(6,763
)
VIEs, primarily BIBP
(10,707
)
5,336
(19,370
)
17,027
All others
1,321
1,079
4,045
3,796
Unallocated corporate expenses
(9,369
)
(10,354
)
(25,150
)
(29,172
)
Elimination of intersegment profits
(167
)
(110
)
(1,061
)
(991
)
Income from continuing operations before income taxes
$
3,839
$
19,798
$
35,662
$
68,813
The following is a reconciliation of EBITDA to net income:
EBITDA (A)
$
13,418
$
27,101
$
63,236
$
89,972
Income tax (expense) benefit
988
(6,690
)
(10,671
)
(24,826
)
Net interest
(1,668
)
(629
)
(4,179
)
(1,321
)
Depreciation and amortization
(7,911
)
(6,674
)
(23,395
)
(19,838
)
Income from discontinued operations, net of tax
-
-
-
389
Net income
$
4,827
$
13,108
$
24,991
$
44,376
(A) Management considers EBITDA to be a meaningful indicator of
operating performance from continuing operations before
depreciation, amortization, net interest and income taxes. EBITDA
provides us with an understanding of one aspect of earnings before
the impact of investing and financing transactions and income
taxes. While EBITDA should not be construed as a substitute for
net income or a better indicator of liquidity than cash flows from
operating activities, which are determined in accordance with
accounting principles generally accepted in the United States
(GAAP), it is included herein to provide additional information
with respect to the ability of the company to meet its future debt
service, capital expenditure and working capital requirements.
EBITDA is not necessarily a measure of the company’s
ability to fund its cash needs and it excludes components that are
significant in understanding and assessing our results of
operations and cash flows. In addition, EBITDA is not a term
defined by GAAP and as a result our measure of EBITDA might not be
comparable to similarly titled measures used by other companies.
The above EBITDA calculation includes the operating results of
BIBP Commodities, Inc., a variable interest entity.
For more information about the company, please visit www.papajohns.com.
Papa John's International, Inc. and Subsidiaries Consolidated Statements of Income
Three Months Ended Nine Months Ended September 30, 2007
September 24, 2006 September 30, 2007
September 24, 2006
(In thousands, except per share amounts)
(Unaudited) (Unaudited) (Unaudited) (Unaudited) Revenues: Domestic:
Company-owned restaurant sales
$
126,610
$
107,793
$
368,287
$
319,957
Variable interest entities restaurant sales
1,862
1,320
5,151
6,457
Franchise royalties
13,158
13,186
41,356
41,388
Franchise and development fees
602
792
1,905
1,973
Commissary sales
97,753
98,272
294,176
301,932
Other sales
14,995
12,529
46,841
35,601
International:
Royalties and franchise and development fees
2,514
1,906
7,185
5,202
Restaurant and commissary sales
5,281
3,894
14,754
11,124
Total revenues
262,775
239,692
779,655
723,634
Costs and expenses:
Domestic Company-owned restaurant expenses:
Cost of sales
28,950
21,309
79,867
61,837
Salaries and benefits
38,369
32,291
111,241
95,044
Advertising and related costs
12,998
10,385
35,060
29,398
Occupancy costs
8,652
7,209
23,461
19,735
Other operating expenses
17,330
14,580
50,134
42,157
Total domestic Company-owned restaurant expenses
106,299
85,774
299,763
248,171
Variable interest entities restaurant expenses
1,566
1,112
4,297
5,443
Domestic commissary and other expenses:
Cost of sales
81,006
79,957
243,725
245,366
Salaries and benefits
8,692
7,991
26,496
23,307
Other operating expenses
10,915
11,549
33,060
33,971
Total domestic commissary and other expenses
100,613
99,497
303,281
302,644
Loss (income) from the franchise cheese-purchasing program, net of
minority interest
7,854
(4,337
)
14,032
(14,102
)
International operating expenses
4,557
3,936
13,021
11,242
General and administrative expenses
27,282
26,427
77,903
77,057
Minority interests and other general expenses
1,186
182
4,122
3,207
Depreciation and amortization
7,911
6,674
23,395
19,838
Total costs and expenses
257,268
219,265
739,814
653,500
Operating income from continuing operations
5,507
20,427
39,841
70,134
Net interest
(1,668
)
(629
)
(4,179
)
(1,321
)
Income from continuing operations before income taxes
3,839
19,798
35,662
68,813
Income tax expense (benefit)
(988
)
6,690
10,671
24,826
Income from continuing operations
4,827
13,108
24,991
43,987
Income from discontinued operations, net of tax
-
-
-
389
Net income
$
4,827
$
13,108
$
24,991
$
44,376
Basic earnings per common share:
Income from continuing operations
$
0.16
$
0.41
$
0.83
$
1.35
Income from discontinued operations, net of tax
-
-
-
0.01
Basic earnings per common share
$
0.16
$
0.41
$
0.83
$
1.36
Earnings per common share - assuming dilution:
Income from continuing operations
$
0.16
$
0.40
$
0.82
$
1.32
Income from discontinued operations, net of tax
-
-
-
0.01
Earnings per common share - assuming dilution
$
0.16
$
0.40
$
0.82
$
1.33
Basic weighted average shares outstanding
29,708
31,957
29,942
32,556
Diluted weighted average shares outstanding
30,027
32,583
30,435
33,296
Papa John's International, Inc. and Subsidiaries Condensed Consolidated Balance Sheets
September 30, December 31, 2007 2006 (Unaudited) (Note)
(In thousands)
Assets Current assets:
Cash and cash equivalents
$
8,078
$
12,979
Accounts receivable
21,100
23,326
Inventories
22,622
26,729
Prepaid expenses
5,780
7,779
Other current assets
5,979
7,368
Deferred income taxes
9,310
6,362
Total current assets
72,869
84,543
Investments
522
1,254
Net property and equipment
202,015
197,722
Notes receivable
11,693
12,104
Deferred income taxes
9,320
1,643
Goodwill
86,403
67,357
Other assets
17,745
15,016
Total assets
$
400,567
$
379,639
Liabilities and stockholders' equity Current liabilities:
Accounts payable
$
29,560
$
29,202
Income and other taxes
11,118
15,136
Accrued expenses
56,513
57,233
Current portion of debt
14,400
525
Total current liabilities
111,591
102,096
Unearned franchise and development fees
7,130
7,562
Long-term debt, net of current portion
124,508
96,511
Other long-term liabilities
29,900
27,302
Total liabilities
273,129
233,471
Total stockholders' equity
127,438
146,168
Total liabilities and stockholders' equity
$
400,567
$
379,639
Note: The balance sheet at December 31, 2006 has been derived from
the audited consolidated financial statements at that date, but
does not include all information and footnotes required by
accounting principles generally accepted in the United States for
a complete set of financial statements.
Papa John's International, Inc. and Subsidiaries Consolidated Statements of Cash Flows
Nine Months Ended
(In thousands)
September 30, 2007
September 24, 2006 (Unaudited) (Unaudited) Operating activities
Net income
$
24,991
$
44,376
Results from discontinued operations (net of income taxes)
-
(389
)
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for uncollectible accounts and notes receivable
1,204
2,423
Depreciation and amortization
23,395
19,838
Deferred income taxes
(10,315
)
803
Stock-based compensation expense
3,807
3,188
Excess tax benefit related to exercise of non-qualified stock options
(3,047
)
(4,128
)
Other
4,118
4,199
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable
1,633
(2,717
)
Inventories
4,099
(862
)
Prepaid expenses
1,529
2,462
Other current assets
2,329
1,860
Other assets and liabilities
(2,514
)
(5,087
)
Accounts payable
295
(1,383
)
Income and other taxes
(3,404
)
(501
)
Accrued expenses
(511
)
4,138
Unearned franchise and development fees
(432
)
(360
)
Net cash provided by operating activities from continuing operations
47,177
67,860
Operating cash flows from discontinued operations
-
414
Net cash provided by operating activities
47,177
68,274
Investing activities
Purchase of property and equipment
(23,091
)
(26,606
)
Proceeds from sale of property and equipment
30
69
Purchase of investments
-
(2,014
)
Proceeds from sale or maturity of investments
732
5,599
Loans issued
(5,966
)
(5,008
)
Loan repayments
5,839
6,848
Acquisitions
(24,983
)
(18,858
)
Proceeds from divestiture of restaurants
632
-
Net cash from continuing operations used in investing activities
(46,807
)
(39,970
)
Proceeds from divestiture of discontinued operations
-
8,020
Net cash used in investing activities
(46,807
)
(31,950
)
Financing activities
Net proceeds from line of credit facility
28,000
500
Net proceeds (repayments) from short-term debt - variable interest
entities
13,875
(2,075
)
Excess tax benefit related to exercise of non-qualified stock options
3,047
4,128
Proceeds from exercise of stock options
10,790
13,134
Acquisition of Company common stock
(61,943
)
(63,969
)
Other
862
177
Net cash used in financing activities
(5,369
)
(48,105
)
Effect of exchange rate changes on cash and cash equivalents
98
78
Change in cash and cash equivalents
(4,901
)
(11,703
)
Cash and cash equivalents at beginning of period
12,979
22,098
Cash and cash equivalents at end of period
$
8,078
$
10,395
Restaurant Progression Papa John's International, Inc.
Third Quarter Ended September 30, 2007 Corporate Franchised Domestic
Int'l
Domestic
Int'l
Total Papa John's restaurants
Beginning of period
606
8
2,096
380
3,090
Opened
2
1
36
28
67
Closed
(1
)
-
(12
)
(5
)
(18
)
Acquired
42
2
-
-
44
Sold
-
-
(42
)
(2
)
(44
)
End of Period
649
11
2,078
401
3,139
Third Quarter Ended September 24, 2006 Corporate Franchised Domestic
Int'l
Domestic
Int'l
Total Papa John's restaurants
Beginning of period
510
6
2,125
319
2,960
Opened
5
-
26
17
48
Closed
-
-
(22
)
(8
)
(30
)
Acquired
43
-
-
-
43
Sold
-
-
(43
)
-
(43
)
End of Period
558
6
2,086
328
2,978
Restaurant Progression Papa John's International, Inc.
Nine Months Ended September 30, 2007 Corporate Franchised Domestic
Int'l
Domestic
Int'l
Total Papa John's restaurants
Beginning of period
577
11
2,080
347
3,015
Opened
15
1
96
64
176
Closed
(3
)
-
(38
)
(11
)
(52
)
Acquired
61
2
1
3
67
Sold
(1
)
(3
)
(61
)
(2
)
(67
)
End of Period
649
11
2,078
401
3,139
Nine Months Ended September 24, 2006 Corporate Franchised Domestic
Int'l
Domestic
Int'l
Total Papa John's restaurants
Beginning of period
502
2
2,097
325
2,926
Opened
11
1
82
57
151
Closed
(1
)
-
(47
)
(51
)
(99
)
Acquired
46
3
-
-
49
Sold
-
-
(46
)
(3
)
(49
)
End of Period
558
6
2,086
328
2,978
Corporate Franchised Domestic
Int'l
Domestic
Int'l
Total Perfect Pizza restaurants
Beginning of period
-
-
-
112
112
Closed
-
-
-
(3
)
(3
)
Sold
-
-
-
(109
)
(109
)
End of Period
-
-
-
-
-
Note: The PJUK Perfect Pizza operations were sold in March 2006.
