EX-99.1 2 a06-5977_1ex99d1.htm EXHIBIT 99

Exhibit 99.1

 

 

For more information, contact:

David Flanery

Chief Financial Officer

502-261-4753

 

PAPA JOHN’S REPORTS FOURTH

QUARTER AND FULL-YEAR 2005 EARNINGS

 

February Comparable Sales Results Announced;

2006 Earnings Guidance Reaffirmed

 

Highlights

 

•                  Fourth quarter earnings per share of $0.42 in 2005 vs. $0.28 in 2004 ($0.36 in 2005 vs. $0.33 in 2004, excluding the consolidation of BIBP Commodities, Inc. (BIBP)).

•                  Fourth quarter 2005 EPS includes $0.02 related to gains on the sale of restaurants to franchisees, net of an impairment charge related to our United Kingdom subsidiary.

•                  Fourth quarter 2004 EPS includes a $0.03 charge associated with certain lease and leasehold accounting adjustments.

•                  60 restaurant openings and 29 closures during the quarter.

•                  Domestic system-wide comparable sales for the quarter increased 6.4%.

•                  Domestic system-wide comparable sales for February increased 4.6% (January increased 3.4%, as previously announced).

 

Louisville, Kentucky (February 28, 2006) – Papa John’s International, Inc. (Nasdaq: PZZA) today announced revenues of $248.4 million for the fourth quarter of 2005, representing an increase of 2.0% from revenues of $243.4 million for the same period in 2004. Net income for the fourth quarter of 2005 was $14.4 million, or $0.42 per share (including a net gain of $2.0 million, or $0.06 per share, from the consolidation of the results of the franchisee-owned cheese purchasing company, BIBP Commodities, Inc. (BIBP), a variable interest entity), compared to last year’s net income of $9.4 million, or $0.28 per share (including a net loss of $1.9 million, or $0.05 per share, from the consolidation of BIBP).

 


 

As more fully described below, the company has developed a plan to sell its Perfect Pizza operations. The company believes that a sale will be completed within the next 12 months. Accordingly, the Perfect Pizza operations have been classified as “discontinued operations” in the attached financial statements.

 

The 2005 pre-tax income from continuing operations increased $2.1 million, or $0.04 per share, related to the previously reported sale of 84 company-owned restaurants located in Minnesota and Colorado at the beginning of the fourth quarter, and the additional sale of five company-owned restaurants in Florida at the end of the fourth quarter. The $2.1 million gain on sale of restaurants was partially offset by a $1.1 million, or $0.02 per share, impairment charge associated with an updated valuation of our United Kingdom subsidiary (see further discussion below).

 

The fourth-quarter 2004 pre-tax income from continuing operations included a pre-tax charge of $1.9 million ($1.2 million after tax, or $0.03 per share), associated with certain lease and leasehold accounting adjustments applicable to prior periods.

 

A two-for-one split of the Company’s outstanding shares of common stock, effected in the form of a stock dividend, entitled each shareholder of record at the close of business on December 23, 2005 to receive one additional share for every outstanding share of common stock held on the record date. The stock dividend was distributed effective January 13, 2006. All share and per-share amounts in this press release have been adjusted to reflect the stock split.

 

“We are very pleased with our fourth quarter and full-year results,” said Papa John’s President and CEO, Nigel Travis. “In addition to substantial investment spending during the first three quarters of 2005, during the fourth quarter the company contributed $1.8 million to our national production fund to support the roll-out of our new pan pizza. The investment paid off with outstanding comp sales during the quarter and great momentum heading into 2006.”

 

        Revenues were $968.8 million for the full year ended December 25, 2005, representing an increase of 4.7% from 2004 revenues of $925.3 million. Net income for 2005 was $46.1 million, or $1.34 per share (including a net gain of $2.8 million, or $0.08 per share, from the consolidation of BIBP), compared to last year’s net income of $23.2 million, or $0.67 per share (including a net loss of $14.7 million, or $0.42 per share, from the consolidation of BIBP).

 

Revenues Comparison

 

The primary reason for the $5.0 million increase in revenues for the fourth quarter 2005, as compared to the same period in 2004, was an increase in commissary sales due to an increase in volume sold to franchisees and higher commodity prices, primarily cheese. The revenues for company-owned restaurants were relatively flat in the fourth quarter of 2005 as the 9.9% increase in comparable sales for the quarter was offset by a

 

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decline in the number of company-owned units reflecting the above-noted sale of the 84 company units at the beginning of the fourth quarter.

 

The $43.4 million increase in revenues for full-year 2005, as compared to full-year 2004, was primarily due to an increase in domestic comparable sales for both company-owned and franchised restaurants (see more detailed information below), and the impact of higher commodity prices, primarily cheese, on domestic commissary sales, partially offset by the fourth quarter 2005 sale of company units noted above.

 

Operating Results and Cash Flow

 

Operating Results

 

Our pre-tax income from continuing operations for the fourth quarter of 2005 was $21.7 million compared to $13.8 million for the corresponding period in 2004. Our pre-tax income from continuing operations for the full-year 2005 was $69.6 million compared to $32.1 million for 2004. Excluding the impact of the consolidation of BIBP, fourth quarter pre-tax income from continuing operations was $18.5 million, an increase of $1.7 million over 2004 comparable results, and pre-tax income from continuing operations for the full-year 2005 was $65.2 million, an increase of $9.7 million over comparable 2004 results. The increase of $1.7 million and $9.7 million, respectively, in pre-tax income from continuing operations for the three months and full-year ended December 25, 2005 as compared to the same periods in the previous year (excluding the consolidation of BIBP) is principally due to the following (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 increased $8.5 million for the quarter, including the previously mentioned gain of $2.1 million from the sale of 89 company-owned restaurants, primarily due to fixed cost leverage associated with the noted increase in comparable sales for the period, and improved margin from an increase in restaurant pricing. Operating income for 2005 increased $20.2 million, as compared to 2004, and for the full-year comparison, the fixed cost leverage and improvement in margin were partially offset by increased commodity costs (primarily cheese).

 

•                  Domestic Commissary Segment. Domestic commissaries’ operating income increased approximately $800,000 for the quarter primarily due to lower administrative costs. On a full-year basis, operating income increased $5.6 million primarily as a result of improved operating margin and lower administrative costs. These increases are net of higher fuel costs, which approximated $900,000 for the quarter and $2.0 million for 2005 as compared to the prior year. The 2005 operating income also includes a first-quarter pre-tax

 

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charge of $925,000 associated with the closing of the Jackson, Mississippi facility at the end of March 2005.

 

•                  International Segment. The international segment, which excludes the Perfect Pizza operations expected to be sold within the next 12 months, reported an operating loss of $2.3 million in the fourth quarter of 2005 as compared to an operating loss of $1.0 million in 2004. For the full year 2005, international reported an operating loss of $5.0 million compared to an operating loss of $4.3 million in 2004. The decrease in operating results for the fourth quarter and full year is principally due to a $1.1 million impairment charge associated with the United Kingdom subsidiary.

 

•                  All Others Segment. The operating income for the “All others” reporting segment increased approximately $300,000 in the fourth quarter of 2005, and $1.7 million for the full year 2005 as compared to the corresponding 2004 periods, primarily due to increased sales from our print and promotions operations during 2005 and an incremental $1.0 million charge incurred by the franchise insurance program during the second quarter of 2004 related to claims loss reserves.

 

•                  Unallocated Corporate Segment. The unallocated corporate expenses increased $7.2 million for the quarter and $20.1 million for the full year, as compared to the corresponding prior year periods, primarily due to the following (in millions):

 

 

 

Increase (decrease)

 

 

 

Quarter

 

Year-to-date

 

 

 

 

 

 

 

Business unit and corporate management bonuses

 

$

3.0

 

$

7.3

 

Equity compensation and executive performance unit incentive plan

 

1.2

 

2.1

 

Professional fees

 

0.5

 

3.7

 

Employee benefits costs

 

0.2

 

1.6

 

Contribution to the Marketing Fund

 

1.8

 

1.8

 

Reduced allocation to operating units and other

 

2.4

 

5.5

 

Lease accounting adjustments recorded in 2004

 

(1.9

)

(1.9

)

Total increase

 

$

7.2

 

$

20.1

 

 

The increase in business unit and corporate management bonuses is the result of meeting pre-established performance goals in 2005 as compared to minimal bonuses earned in 2004. The increased equity compensation charge is primarily related to the performance unit component of the 2005 executive incentive compensation program, as previously disclosed in the 2005 proxy statement and third-quarter Form 10-Q. The ultimate cost associated with the performance units  is based on the company’s ending stock price and total shareholder return relative

 

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to a peer group over a three-year performance period ending in December 2007, with the awards paid in cash at the end of the performance period. There were no such performance units outstanding in 2004.

 

The increased professional fees are primarily related to consulting expenses associated with certain marketing and franchisee effectiveness projects, as reported in the prior quarters. The increase in employee benefits costs consists primarily of payroll taxes associated with an increased level of stock option exercises and an increase in the employer portion of FICA taxes paid on employee tips and increased health insurance costs. As previously announced, the company made a discretionary contribution to the Papa John’s Marketing Fund to fund an additional national television flight in the fourth quarter of 2005 related to the launch of Papa’s Perfect Pan Pizza. The fourth-quarter 2004 results included certain lease and leasehold accounting adjustments applicable to prior periods.

 

The decline in net interest cost for the fourth quarter and full-year 2005, as compared to corresponding 2004 periods, is due to a decrease in our average outstanding debt balance, and an increase in investment income as a result of increased interest rates.

 

The income tax rate was 35.2% for the fourth quarter of 2005 and 36.4% for the full year as compared to 37.5% for both periods in 2004. The decrease in the income tax rate was primarily related to an increase in FICA tax credits associated with an increase in the employer portion of FICA taxes paid on employee tips, which is reported in general and administrative expenses.

 

Cash Flow

 

Cash flow from continuing operations increased to $82.1 million for the full-year 2005 from $38.6 million for 2004. The consolidation of BIBP increased cash flow from operations by approximately $4.5 million in 2005 and reduced cash flow from operations by approximately $23.5 million in 2004. The primary reason for the remaining $15.5 million increase in cash flow from continuing operations for 2005, as compared 2004 (prior to BIBP consolidation), was the above noted net increases in operating income from continuing operations, net of income taxes, favorable working capital changes, including income taxes, accounts receivable and prepaid expenses, and the tax benefit related to the exercise of non-qualified stock options.

 

Form 10-K Filing

 

See the Management Discussion & Analysis section of our Annual Report on Form 10-K filed with the Securities and Exchange Commission for additional information concerning the operating results and cash flows for the year-ended December 25, 2005.

 

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Comparable Sales and Unit Count

 

As previously announced, domestic system-wide comparable sales for the fourth quarter increased 6.4% (composed of a 9.9% increase at company-owned restaurants and a 5.5% increase at franchised restaurants). Total system-wide international sales increased 12.4% (the increase was 25.2% excluding Perfect Pizza operations) for the quarter, on a constant U.S. dollar basis, over the comparable period last year.

 

Domestic system-wide comparable sales for the year-ended December 25, 2005 increased 5.1% (composed of a 7.4% increase at company-owned restaurants and a 4.3% increase at franchised restaurants). Total system-wide international sales increased 13.0% (the increase was 26.9% excluding Perfect Pizza operations) for the full year, on a constant U.S. dollar basis, over full-year 2004.

 

The company today announced that domestic system-wide comparable sales for the four weeks ended February 19, 2006 increased approximately 4.6% (composed of a 7.0% increase at company-owned restaurants and a 3.9% increase at franchised restaurants). Total system-wide international sales increased 15.5% (the increase was 26.5% excluding Perfect Pizza operations) for the four weeks ended February 19, 2006, on a constant U.S. dollar basis, over the comparable period last year.

 

During the fourth quarter of 2005, 27 domestic and 33 international restaurants were opened (four company-owned and 54 franchised Papa John’s restaurants and two franchised Perfect Pizza restaurants in the United Kingdom), and 16 domestic and 13 international restaurants closed (26 franchised Papa John’s restaurants and three franchised Perfect Pizza restaurants).

 

For the full-year 2005, 108 domestic and 96 international restaurants were opened (eight company-owned and 190 franchised Papa John’s restaurants and six franchised Perfect Pizza restaurants) and 74 domestic and 39 international restaurants closed (one company-owned and 101 franchised Papa John’s restaurants and 11 franchised Perfect Pizza restaurants).

 

At December 25, 2005, there were 2,926 Papa John’s restaurants (504 company-owned and 2,422 franchised) operating in 49 states and 22 countries.  The company-owned unit count includes 114 restaurants owned in domestic joint venture arrangements, the operations of which are fully consolidated into the company’s results. The company is also the franchisor of 112 Perfect Pizza restaurants in the United Kingdom.

 

Acquisition and Divestiture Activity

 

As previously disclosed, the sale of 84 company-owned restaurants in Colorado and Minnesota to a new franchise group, PJCOMN Acquisition Corporation, an affiliate of Washington, DC-based private equity firm Milestone Capital Management, LLC, was completed on September 26, 2005 (the first day of our fiscal fourth quarter). The total consideration was $12 million, including $1 million of prepaid royalties, and was

 

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received in cash at closing. A gain of approximately $1.1 million was recorded in the fourth quarter on the sale. The primary factors impacting the decision to sell these markets were the opportunities to tighten the geographic focus of corporate operations and to add an experienced, well-capitalized franchise organization to the system.

 

Effective December 25, 2005, the company sold five restaurants located in South Florida for $1.3 million and recorded a gain of approximately $1.0 million.

 

Effective at the beginning of the fourth quarter, the acquisition of six franchise restaurants in the Austin, Texas market was completed by Star Papa, LP, the joint venture between Papa John’s and Blue and Silver Ventures, Ltd., an entity affiliated with the National Football League’s Dallas Cowboys and Cowboys owner Jerry Jones. Subsequent to this acquisition, Star Papa owns a total of 78 Papa John’s restaurants in Texas.

 

During the fourth quarter, the company acquired a total of 12 franchised restaurants in the Philadelphia market. In addition, we purchased an additional three franchise units in this market effective January 23, 2006 (the beginning of our February period). We expect to open an additional 20 company-owned units in the Philadelphia market over the next four to five years in order to achieve greater market penetration and awareness. This “buy and build” approach may be used in additional under-penetrated domestic franchise markets over time to enhance overall net unit growth and successful market development.

 

International Update

 

During the fourth quarter, the initial Papa John’s restaurant was opened in four markets, United Arab Emirates, Pakistan, Nicaragua and South China. A total of 33 restaurants were opened in all international markets during the quarter and 96 were opened for all of 2005, of which 39 have occurred in our fastest growing markets of Korea and China. At the end of 2005, we had a total of 65 restaurants open and contractual agreements for an additional 490 Papa John’s restaurants to be opened over the next nine years in these two countries. We also have a 100-unit development agreement for Northern India, the first unit of which is expected to open in the second quarter of 2006. Our total international development pipeline as of the end of 2005 included 848 restaurants to be opened over the next 11 years.

 

In the fourth quarter, we terminated the master franchise agreement in Mexico. In January and February, 17 franchised and subfranchised restaurants in Mexico closed. We expect that a substantial majority of the 22 remaining franchised and subfranchised restaurants in Mexico will close by the end of the first quarter. The royalty income earned from the restaurants closed or expected to close was not material to our 2005 operating results. We are committed to the development of Mexico as an important international market and are currently evaluating our alternatives, including potential direct investment via a joint venture or other methods.

 

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In the United Kingdom, the company manages both the Papa John’s brand (89 units as of the end of 2005) and the Perfect Pizza brand (112 units at the end of 2005).  The United Kingdom subsidiary has reported deteriorating operating results for the past three years primarily due to lower sales by Perfect Pizza restaurants and a decrease in net franchise units due primarily to Perfect Pizza restaurant closings. During the fourth quarter, the company developed a plan to sell its Perfect Pizza operations, consisting of the franchised units and related distribution operations. The company believes the sale of the Perfect Pizza operations will be completed within the next 12 months. In accordance with U.S. accounting principles, we have classified the Perfect Pizza operating results, including directly associated G&A expenses, as “discontinued operations” and the associated assets as “held for sale” in the 2005 financial statements.  The following summarizes the discontinued operations for the last three years (in 000’s):

 

 

 

2005

 

2004

 

2003

 

Net sales

 

$

13,632

 

$

17,080

 

$

17,255

 

 

 

 

 

 

 

 

 

Pre-tax income

 

$

2,838

 

$

5,095

 

$

5,187

 

 

 

 

 

 

 

 

 

Net income

 

$

1,788

 

$

3,184

 

$

3,242

 

 

In conjunction with our plan to sell the Perfect Pizza operations, we updated our assessment of the fair value of the PJUK operations. We recorded a $1.1 million impairment charge to reduce the carrying value of the remaining PJUK investment to its updated fair value. The $1.1 million charge is included in the “Other general expenses” caption on the Consolidated Statement of Income.

 

Share Repurchase Activity

 

The company repurchased approximately 1.5 million shares of its common stock during the fourth quarter at an average price of $25.70 per share.  During the full-year 2005 the company repurchased a total of 3.3 million shares of common stock at an average price of $23.07, or a total of $75.3 million, and a total of 2.8 million shares of common stock were issued upon the exercise of stock options. Subsequent to year-end, through February 21, 2006, the company repurchased an additional 121,000 shares of common stock at an average price of $31.30 per share.

 

As a result, there were 34.2 million diluted weighted-average shares outstanding for the fourth quarter of 2005 as compared to 34.0 million for the same period in 2004.  Approximately 33.1 million actual shares of the company’s common stock are outstanding as of December 25, 2005.  The company’s board of directors has authorized the repurchase of up to an aggregate $525 million of common stock through December 31, 2006, and through February 21, 2006, approximately 34.8 million shares have been repurchased at a total cost of $499.7 million (average price of $14.35).

 

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The company’s share repurchase activity during the past twelve months increased earnings per share from continuing operations by approximately $0.02 for the fourth quarter of 2005 and $0.04 for the full-year 2005.

 

2006 Earnings Guidance Reaffirmed

 

The company reaffirms its previously announced 2006 earnings per share guidance in the range of $1.38 to $1.46 for the
53-week year, excluding any potential impact from the consolidation of BIBP, which is required by FIN 46. The timing of the sale of the Perfect Pizza operations is not significant to the previously announced 2006 earnings guidance. As previously disclosed, the impact of the additional week of operations in 2006 is expected to represent approximately $0.07 of earnings per share as reflected in the guidance range.

 

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; increases in or sustained high levels of food, 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; economic, political and health conditions in the countries in which the company or its franchisees operate; the selection and availability of suitable restaurant locations; negotiation of suitable lease or financing terms; constraints on permitting and construction of restaurants; 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; federal and state laws governing such matters as wages, working conditions, citizenship requirements and overtime; 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 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. Our international operations are subject to additional factors, including currency regulations and fluctuations; differing business and social cultures and consumer preferences; diverse government regulations and structures; ability to source high-quality

 

9


 

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 Wednesday, March 1, 2006, at 10:00 AM EST to review fourth quarter and full-year 2005 earnings results and to review guidance for 2006. 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 for participation in the question and answer session. International participants may dial
706-679-8452.

 

The conference call will be available for replay beginning Wednesday, March 1, 2006 at approximately 11:00 EST through Friday, March 3, 2006, at midnight EST. The replay can be accessed from the company’s web page at www.papajohns.com or by dialing 800-642-1687 (passcode 5626514). International participants may dial 706-645-9291 (passcode 5626514).

 

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Summary Financial Data

Papa John’s International, Inc.

 

 

 

Three Months Ended

 

Year Ended

 

(In thousands, except per share

 

Dec. 25,

 

Dec. 26,

 

Dec. 25,

 

Dec. 26,

 

amounts)

 

2005

 

2004

 

2005

 

2004

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

248,377

 

$

243,417

 

$

968,788

 

$

925,346

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations before income taxes (1)

 

$

21,668

 

$

13,792

 

$

69,632

 

$

32,058

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

14,408

 

$

9,445

 

$

46,056

 

$

23,221

 

 

 

 

 

 

 

 

 

 

 

Earnings per share - assuming dilution

 

$

0.42

 

$

0.28

 

$

1.34

 

$

0.67

 

 

 

 

 

 

 

 

 

 

 

Weighted-average shares outstanding - assuming dilution

 

34,186

 

34,038

 

34,316

 

34,810

 

 

 

 

 

 

 

 

 

 

 

EBITDA (A)

 

$

29,075

 

$

23,136

 

$

101,450

 

$

67,841

 

 

 

 

 

 

 

 

 

 

 

(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

 

$

10,024

 

$

1,488

 

$

25,284

 

$

5,069

 

Domestic commissaries

 

6,884

 

6,060

 

25,446

 

19,797

 

Domestic franchising

 

13,039

 

12,120

 

49,821

 

46,076

 

International

 

(2,312

)

(1,033

)

(5,006

)

(4,309

)

VIEs, primarily BIBP

 

3,208

 

(2,965

)

4,472

 

(23,459

)

All others

 

1,616

 

1,271

 

4,298

 

2,620

 

Unallocated corporate expenses

 

(10,578

)

(3,373

)

(34,172

)

(14,035

)

Elimination of intersegment (profits) losses

 

(213

)

224

 

(511

)

299

 

Income from continuing operations before income taxes

 

$

21,668

 

$

13,792

 

$

69,632

 

$

32,058

 

 

 

 

 

 

 

 

 

 

 

The following is a reconciliation of EBITDA to net income:

 

 

 

 

 

 

 

 

 

 

EBITDA (A)

 

$

29,075

 

$

23,136

 

$

101,450

 

$

67,841

 

Income tax expense

 

(7,617

)

(5,171

)

(25,364

)

(12,021

)

Net interest

 

(514

)

(1,337

)

(3,068

)

(4,624

)

Depreciation and amortization

 

(6,893

)

(8,007

)

(28,750

)

(31,159

)

Income from discontinued operations, net of tax

 

357

 

824

 

1,788

 

3,184

 

Net income

 

$

14,408

 

$

9,445

 

$

46,056

 

$

23,221

 

 

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(A)                                 EBITDA represents operating performance before depreciation, amortization, net interest and income taxes. While EBITDA should not be construed as a substitute for operating 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, 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.

 

*   *   *   *

 

As of February 19, 2006, Papa John’s had 2,917 restaurants (508 company-owned and 2,409 franchised) operating in 49 states and 22 countries. Papa John’s also franchises an additional 110 Perfect Pizza restaurants in the United Kingdom. For more information about the company, please visit www.papajohns.com.

 

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Papa John’s International, Inc. and Subsidiaries

Consolidated Statements of Income

 

 

 

Three Months Ended

 

Year Ended

 

(In thousands, except per share amounts)

 

December 25, 2005

 

December 26, 2004

 

December 25, 2005

 

December 26, 2004

 

 

 

(Unaudited)

 

(Unaudited)

 

 

 

 

 

Revenues:

 

 

 

 

 

 

 

 

 

Domestic:

 

 

 

 

 

 

 

 

 

Company-owned restaurant sales

 

$

106,012

 

$

106,146

 

$

434,525

 

$

412,676

 

Variable interest entities restaurant sales

 

2,132

 

4,438

 

11,713

 

14,387

 

Franchise royalties

 

13,704

 

13,168

 

52,289

 

50,292

 

Franchise and development fees

 

828

 

705

 

3,026

 

2,475

 

Commissary sales

 

107,177

 

101,753

 

398,372

 

376,642

 

Other sales

 

13,511

 

12,434

 

50,474

 

53,117

 

International:

 

 

 

 

 

 

 

 

 

Royalties and franchise and development fees

 

1,928

 

1,757

 

6,529

 

5,010

 

Restaurant and commissary sales

 

3,085

 

3,016

 

11,860

 

10,747

 

Total revenues

 

248,377

 

243,417

 

968,788

 

925,346

 

 

 

 

 

 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

Domestic Company-owned restaurant expenses:

 

 

 

 

 

 

 

 

 

Cost of sales

 

22,379

 

25,455

 

93,255

 

99,743

 

Salaries and benefits

 

30,816

 

32,828

 

131,654

 

130,642

 

Advertising and related costs

 

8,989

 

10,505

 

37,942

 

38,258

 

Occupancy costs

 

6,215

 

6,399

 

26,392

 

25,950

 

Other operating expenses

 

14,290

 

13,489

 

57,117

 

54,015

 

Total domestic Company-owned restaurant expenses

 

82,689

 

88,676

 

346,360

 

348,608

 

 

 

 

 

 

 

 

 

 

 

Variable interest entities restaurant expenses

 

1,864

 

3,883

 

10,188

 

12,667

 

 

 

 

 

 

 

 

 

 

 

Domestic commissary and other expenses:

 

 

 

 

 

 

 

 

 

Cost of sales

 

90,884

 

83,192

 

330,495

 

309,746

 

Salaries and benefits

 

6,845

 

7,094

 

28,583

 

28,458

 

Other operating expenses

 

11,153

 

13,869

 

49,140

 

57,100

 

Total domestic commissary and other expenses

 

108,882

 

104,155

 

408,218

 

395,304

 

 

 

 

 

 

 

 

 

 

 

Loss (income) from the franchise cheese-purchasing program, net of minority interest

 

(2,855

)

2,044

 

(4,662

)

16,599

 

International operating expenses

 

3,465

 

3,014

 

11,865

 

10,632

 

General and administrative expenses

 

22,138

 

17,778

 

88,464

 

71,047

 

Other general expenses

 

3,119

 

731

 

6,905

 

2,648

 

Depreciation and amortization

 

6,893

 

8,007

 

28,750

 

31,159

 

Total costs and expenses

 

226,195

 

228,288

 

896,088

 

888,664

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

22,182

 

15,129

 

72,700

 

36,682

 

Net interest

 

(514

)

(1,337

)

(3,068

)

(4,624

)

Income from continuing operations before income taxes

 

21,668

 

13,792

 

69,632

 

32,058

 

Income tax expense

 

7,617

 

5,171

 

25,364

 

12,021

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

14,051

 

8,621

 

44,268

 

20,037

 

Income from discontinued operations, net of tax

 

357

 

824

 

1,788

 

3,184

 

Net income

 

$

14,408

 

$

9,445

 

$

46,056

 

$

23,221

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per common share:

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

0.42

 

$

0.26

 

$

1.32

 

$

0.58

 

Income from discontinued operations

 

0.01

 

0.02

 

0.05

 

0.09

 

Basic earnings per common share

 

$

0.43

 

$

0.28

 

$

1.37

 

$

0.67

 

 

 

 

 

 

 

 

 

 

 

Earnings per common share - assuming dilution

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

0.41

 

$

0.25

 

$

1.29

 

$

0.58

 

Income from discontinued operations

 

0.01

 

0.03

 

0.05

 

0.09

 

Earnings per common share - assuming dilution

 

$

0.42

 

$

0.28

 

$

1.34

 

$

0.67

 

 

 

 

 

 

 

 

 

 

 

Basic weighted-average shares outstanding

 

33,431

 

33,602

 

33,594

 

34,414

 

Weighted-average shares outstanding - assuming dilution

 

34,186

 

34,038

 

34,316

 

34,810

 

 

13


 

Papa John’s International, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

 

 

 

December 25,

 

December 26,

 

(In thousands)

 

2005

 

2004

 

 

 

(Note)

 

(Note)

 

 

 

 

 

 

 

Assets

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

22,098

 

$

14,698

 

Accounts receivable

 

21,300

 

26,460

 

Inventories

 

26,030

 

22,851

 

Prepaid expenses and other current assets

 

13,456

 

15,208

 

Deferred income taxes

 

7,085

 

7,624

 

Assets of discontinued operations held for sale

 

2,039

 

2,303

 

Total current assets

 

92,008

 

89,144

 

 

 

 

 

 

 

Investments

 

6,282

 

8,552

 

Net property and equipment

 

178,447

 

196,795

 

Notes receivable from franchisees and affiliates

 

7,667

 

6,828

 

Deferred income taxes

 

1,899

 

6,117

 

Goodwill

 

41,878

 

42,627

 

Other assets

 

13,772

 

15,672

 

Assets of discontinued operations held for sale

 

8,609

 

8,752

 

Total assets

 

$

350,562

 

$

374,487

 

 

 

 

 

 

 

Liabilities and stockholders’ equity

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

 

$

28,937

 

$

35,934

 

Income and other taxes

 

16,862

 

17,270

 

Accrued expenses

 

49,634

 

44,771

 

Current portion of debt

 

6,100

 

15,709

 

Total current liabilities

 

101,533

 

113,684

 

 

 

 

 

 

 

Unearned franchise and development fees

 

7,256

 

8,208

 

Long-term debt, net of current portion

 

49,016

 

78,521

 

Other long-term liabilities

 

31,478

 

34,851

 

Total liabilities

 

189,283

 

235,264

 

 

 

 

 

 

 

Total stockholders’ equity

 

161,279

 

139,223

 

Total liabilities and stockholders’ equity

 

$

350,562

 

$

374,487

 

 

Note:      The balance sheets at December 25, 2005 and December 26, 2004 have been derived from the audited consolidated financial statements at those dates, but do not include all information and footnotes required by generally accepted accounting principles for a complete set of financial statements.

 

14


 

Papa John’s International, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

 

 

 

Year Ended

 

(In thousands)

 

December 25, 2005

 

December 26, 2004

 

 

 

 

 

 

 

Operating activities

 

 

 

 

 

Income from continuing operations

 

$

44,268

 

$

20,037

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

Restaurant closure, impairment and disposition losses

 

(2,039

)

(203

)

Goodwill impairment

 

1,050

 

—

 

Provision for uncollectible accounts and notes receivable

 

4,367

 

2,799

 

Depreciation and amortization

 

28,750

 

31,159

 

Deferred income taxes

 

4,385

 

(16,280

)

Tax benefit related to exercise of non-qualified stock options

 

5,629

 

2,869

 

Other

 

2,995

 

1,736

 

Changes in operating assets and liabilities:

 

 

 

 

 

Accounts receivable

 

(231

)

(10,476

)

Inventories

 

(3,811

)

(5,927

)

Prepaid expenses and other current assets

 

2,715

 

(3,247

)

Other assets and liabilities

 

(2,971

)

(795

)

Accounts payable

 

(5,860

)

6,082

 

Income and other taxes

 

(408

)

5,199

 

Accrued expenses

 

4,230

 

3,348

 

Unearned franchise and development fees

 

(952

)

2,298

 

Net cash provided by operating activities from continuing operations

 

82,117

 

38,599

 

Operating cash flows from discontinued operations

 

2,168

 

3,183

 

Net cash provided by operating activities

 

84,285

 

41,782

 

 

 

 

 

 

 

Investing activities

 

 

 

 

 

Purchase of property and equipment

 

(17,546

)

(20,950

)

Proceeds from sale of property and equipment

 

61

 

3,648

 

Purchase of investments

 

(8,565

)

(6,049

)

Proceeds from sale or maturity of investments

 

10,880

 

5,014

 

Loans to franchisees and affiliates

 

(5,875

)

(3,648

)

Loan repayments from franchisees and affiliates

 

7,434

 

4,144

 

Acquisitions

 

(4,475

)

—

 

Proceeds from divestitures of restaurants

 

11,000

 

78

 

Net cash used in investing activities

 

(7,086

)

(17,763

)

 

 

 

 

 

 

Financing activities

 

 

 

 

 

Net proceeds (repayments) from line of credit facility

 

(29,500

)

17,500

 

Net proceeds (repayments) from short-term debt - variable interest entities

 

(7,975

)

14,032

 

Payments on long-term debt

 

—

 

(253

)

Proceeds from issuance of common stock from treasury stock

 

1,001

 

—

 

Proceeds from exercise of stock options

 

42,095

 

18,186

 

Acquisition of treasury stock

 

(75,325

)

(68,911

)

Proceeds from formation of joint venture

 

—

 

2,500

 

Other

 

300

 

(31

)

Net cash used in financing activities

 

(69,404

)

(16,977

)

 

 

 

 

 

 

Effect of exchange rate changes on cash and cash equivalents

 

(395

)

331

 

Change in cash and cash equivalents

 

7,400

 

7,373

 

Cash resulting from consolidation of variable interest entities

 

—

 

254

 

Cash and cash equivalents at beginning of period

 

14,698

 

7,071

 

 

 

 

 

 

 

Cash and cash equivalents at end of period

 

$

22,098

 

$

14,698

 

 

15


 

Restaurant Progression

Papa John’s International, Inc.

 

 

 

Fourth Quarter Ended December 25, 2005

 

 

 

Corporate

 

Franchised

 

 

 

 

 

Domestic

 

Int’l

 

Domestic

 

Int’l

 

Total

 

Papa John’s restaurants

 

 

 

 

 

 

 

 

 

 

 

Beginning of period

 

571

 

1

 

2,017

 

305

 

2,894

 

Opened

 

3

 

1

 

24

 

30

 

58

 

Converted

 

—

 

—

 

—

 

—

 

—

 

Closed

 

—

 

—

 

(16

)

(10

)

(26

)

Acquired

 

18

 

—

 

90

 

—

 

108

 

Sold

 

(90

)

—

 

(18

)

—

 

(108

)

End of Period

 

502

 

2

 

2,097

 

325

 

2,926

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate

 

Franchised

 

 

 

 

 

Domestic

 

Int’l

 

Domestic

 

Int’l

 

Total

 

Perfect Pizza restaurants

 

 

 

 

 

 

 

 

 

 

 

Beginning of period

 

—

 

—

 

—

 

113

 

113

 

Opened

 

—

 

—

 

—

 

2

 

2

 

Converted

 

—

 

—

 

—

 

—

 

—

 

Closed

 

—

 

—

 

—

 

(3

)

(3

)

End of Period

 

—

 

—

 

—

 

112

 

112

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fourth Quarter Ended December 26, 2004

 

 

 

Corporate

 

Franchised

 

 

 

 

 

Domestic

 

Int’l

 

Domestic

 

Int’l

 

Total

 

Papa John’s restaurants

 

 

 

 

 

 

 

 

 

 

 

Beginning of period

 

566

 

1

 

2,001

 

236

 

2,804

 

Opened

 

2

 

—

 

30

 

28

 

60

 

Converted

 

—

 

—

 

—

 

1

 

1

 

Closed

 

—

 

—

 

(34

)

(2

)

(36

)

Acquired

 

—

 

—

 

—

 

—

 

—

 

Sold

 

—

 

—

 

—

 

—

 

—

 

End of Period

 

568

 

1

 

1,997

 

263

 

2,829

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate

 

Franchised

 

 

 

 

 

Domestic

 

Int’l

 

Domestic

 

Int’l

 

Total

 

Perfect Pizza restaurants

 

 

 

 

 

 

 

 

 

 

 

Beginning of period

 

—

 

—

 

—

 

121

 

121

 

Opened

 

—

 

—

 

—

 

—

 

—

 

Converted

 

—

 

—

 

—

 

(1

)

(1

)

Closed

 

—

 

—

 

—

 

(2

)

(2

)

End of Period

 

—

 

—

 

—

 

118

 

118

 

 

16


 

 

 

Year Ended December 25, 2005

 

 

 

Corporate

 

Franchised

 

 

 

 

 

Domestic

 

Int’l

 

Domestic

 

Int’l

 

Total

 

Papa John’s restaurants

 

 

 

 

 

 

 

 

 

 

 

Beginning of period

 

568

 

1

 

1,997

 

263

 

2,829

 

Opened

 

7

 

1

 

101

 

89

 

198

 

Converted

 

—

 

—

 

—

 

1

 

1

 

Closed

 

(1

)

—

 

(73

)

(28

)

(102

)

Acquired

 

20

 

—

 

92

 

—

 

112

 

Sold

 

(92

)

—

 

(20

)

—

 

(112

)

End of Period

 

502

 

2

 

2,097

 

325

 

2,926

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate

 

Franchised

 

 

 

 

 

Domestic

 

Int’l

 

Domestic

 

Int’l

 

Total

 

Perfect Pizza restaurants

 

 

 

 

 

 

 

 

 

 

 

Beginning of period

 

—

 

—

 

—

 

118

 

118

 

Opened

 

—

 

—

 

—

 

6

 

6

 

Converted

 

—

 

—

 

—

 

(1

)

(1

)

Closed

 

—

 

—

 

—

 

(11

)

(11

)

End of Period

 

—

 

—

 

—

 

112

 

112

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended December 26, 2004

 

 

 

Corporate

 

Franchised

 

 

 

 

 

Domestic

 

Int’l

 

Domestic

 

Int’l

 

Total

 

Papa John’s restaurants

 

 

 

 

 

 

 

 

 

 

 

Beginning of period

 

568

 

2

 

2,006

 

214

 

2,790

 

Opened

 

6

 

—

 

97

 

70

 

173

 

Converted

 

—

 

—

 

—

 

1

 

1

 

Closed

 

(5

)

—

 

(107

)

(23

)

(135

)

Acquired

 

—

 

—

 

1

 

1

 

2

 

Sold

 

(1

)

(1

)

—

 

—

 

(2

)

End of Period

 

568

 

1

 

1,997

 

263

 

2,829

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate

 

Franchised

 

 

 

 

 

Domestic

 

Int’l

 

Domestic

 

Int’l

 

Total

 

Perfect Pizza restaurants

 

 

 

 

 

 

 

 

 

 

 

Beginning of period

 

—

 

—

 

—

 

135

 

135

 

Opened

 

—

 

—

 

—

 

2

 

2

 

Converted

 

 

 

 

 

 

 

(1

)

(1

)

Closed

 

—

 

—

 

—

 

(18

)

(18

)

End of Period

 

—

 

—

 

—

 

118

 

118

 

 

17