Exhibit 99.1
For more information, contact:
David Flanery
Chief Financial Officer
502-261-4753
PAPA JOHN’S REPORTS
SECOND QUARTER EARNINGS
Domestic comps increase 2.4%; 2008 earnings guidance reaffirmed
Highlights
| · | Second quarter earnings per diluted share of $0.27 in 2008 vs. $0.23 in 2007 |
| · | Comparable second quarter results, excluding the consolidation of BIBP, were $0.41 in 2008 vs. $0.40 in 2007, an increase of 2.5% |
| · | Domestic system-wide comparable sales increase of 2.4% for the quarter |
| · | 32 net Papa John’s worldwide unit openings during the quarter |
| · | Earnings guidance for 2008 reaffirmed at a range of $1.68 to $1.76 per diluted share, excluding the impact of consolidating BIBP |
Louisville, Kentucky (August 5, 2008) – Papa John’s International, Inc. (NASDAQ: PZZA) today announced revenues of $283.4 million for the second quarter of 2008, representing an increase of 10.6% from revenues of $256.3 million for the same period in 2007. Net income for the second quarter of 2008 was $7.6 million, or $0.27 per diluted share (including an after-tax loss of $4.1 million, or $0.14 per diluted share, from the consolidation of the results of the franchisee-owned cheese purchasing company, BIBP Commodities, Inc. (“BIBP”), a variable interest entity), compared to 2007 second quarter net income of $7.0 million, or $0.23 per diluted share (including a net loss of approximately $5.3 million, or $0.17 per diluted share, from the consolidation of BIBP).
Revenues were $572.4 million for the six months ended June 29, 2008, representing an increase of 10.7% from revenues of $516.9 million for the same period in 2007. Net income for the six months ended June 29, 2008 was $16.3 million, or $0.57 per diluted share (including a net loss of $9.3 million, or $0.32 per diluted share, from the consolidation of BIBP), compared to last year’s net income of $20.2 million, or $0.66 per diluted share (including an after-tax loss of $5.5 million, or $0.18 per diluted share, from the consolidation of BIBP).
"Given the brutal commodity and consumer environment, our second quarter comps were very encouraging and our earnings and cash flow yield remained strong," said Papa John's president and chief executive officer, Nigel Travis. "As the commodities market and operating environment remain both difficult and unpredictable, we will continue to look for ways to assist both our corporate and franchise operators through this difficult period while driving top line sales."
Revenues Comparison
Revenues were $283.4 million for the second quarter of 2008, an increase of $27.2 million, or 10.6%, over the corresponding 2007 period. The increase in revenues for the second quarter of 2008 was principally due to the following:
| · | Domestic company-owned restaurant revenues increased $14.2 million or 11.9%, reflecting an increase in comparable sales results of 3.6% and an 8.3% increase in equivalent units due to the acquisition of 42 domestic restaurants during the last six months of 2007. |
| · | Franchise royalties increased $1.0 million, primarily due to the increase in royalty rate from 4.0% to 4.25% for the majority of domestic franchise restaurants effective at the beginning of 2008. |
| · | Domestic commissaries revenues increased $10.1 million due to increases in the price of certain commodities, primarily cheese and wheat. The commissary charges a fixed dollar mark-up on its cost of cheese, and cheese cost is based upon the 40 lb. cheddar block price, which increased from $1.38 per pound in the second quarter of 2007 to $1.75 per pound in the second quarter of 2008, or a 26.8% increase. The cost of wheat, as measured on domestic commodity markets, has increased more than 100% for the first six months of 2008, as compared to the corresponding 2007 period. |
| · | International revenues increased $2.4 million reflecting the increase in both the number and average unit volumes of our company-owned and franchised restaurants over the past year. |
For the six-month period ending June 29, 2008, revenues increased $55.5 million, or 10.7%, principally due to the reasons mentioned above and due to a first quarter increase in other sales from expanded commercial volumes at our print and promotions subsidiary, Preferred Marketing Solutions, Inc.
Operating Results and Cash Flow
Operating Results
Our pre-tax income for the second quarter of 2008 was $12.2 million, compared to $11.1 million for the corresponding period in 2007. For the six months ended June 29, 2008, pre-tax income was $25.8 million compared to $31.8 million for the corresponding period of 2007. Excluding the impact of the consolidation of BIBP, second quarter 2008 pre-tax income was $18.5 million, a decrease of $900,000 or 4.5%, from the 2007 comparable results of $19.4 million and pre-tax income for the six months ended June 29, 2008 was $40.0 million, a decrease of $400,000, or 1.1%, from the 2007 comparable results. An analysis of the changes in pre-tax income for the three- and six-month periods ended June 29, 2008, 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 decreased $400,000 and $800,000 for the three- and six-month periods ended June 29, 2008, respectively. The second quarter of 2007 included a $600,000 pre-tax gain associated with the termination of a lease agreement. Excluding the $600,000 gain associated with this termination, operating income increased $200,000 in the three-month period ended June 29, 2008. The six-month 2008 operating results included a $1.2 million loss on the anticipated sale of company-owned restaurants (see further discussion in the Refranchising Initiative Update section below) and the costs associated with the closing of five restaurants during the first quarter of 2008, compared to a loss of approximately $100,000 in the prior year. Excluding both the incremental $1.1 million loss associated with the disposition of restaurants and the prior year gain on lease termination noted above, domestic company-owned restaurants’ operating income improved approximately $900,000 in the six-month period ended June 29, 2008 as compared to the same period in 2007. This improvement in operating results is primarily the result of the acquisition of 42 restaurants during the last six months of 2007 and the fixed cost leverage associated with increases of 3.6% and 3.1%, respectively, in comparable sales for the three- and six-month periods ended June 29, 2008, substantially offset by the significant rise in commodity costs during the three and six months ended June 29, 2008. Restaurant operating margin on an external basis, excluding the impact of the consolidation of BIBP, decreased as a percentage of sales 1.3% and 1.1% for the three- and six-month periods ended June 29, 2008, respectively. |
| · | Domestic Commissary Segment. Domestic commissaries’ operating income decreased approximately $300,000 and $1.9 million for the three- and six-month periods ended June 29, 2008, respectively, reflecting a reduction in gross margin percentage resulting from increases in the cost of certain commodities and increases in distribution costs due to higher fuel prices. |
| · | Domestic Franchising Segment. Domestic system-wide franchise sales for the second quarter of 2008 increased 2.3% to $372.6 million from $364.1 million for the same period in 2007 and increased 1.9% to $754.4 million for the six months ended June 29, 2008, from $740.5 million for the same period in 2007, primarily resulting from increases of 1.9% and 1.6% in comparable sales for the three- and six-month periods, respectively. Domestic franchising operating income increased $1.0 million, to $13.1 million, for the three months ended June 29, 2008, from $12.1 million in the prior comparable period and increased $2.5 million to $27.6 million for the six-month period ended June 29, 2008, from $25.1 million in the prior comparable period. The increases for both the three- and six-month periods were primarily the result of the 0.25% increase in our royalty rate implemented at the beginning of 2008 (the royalty rate for the majority of domestic franchisees is 4.25% in 2008 as compared to 4.0% in 2007). The increase in the royalty rate was a part of the franchise agreement renewal program announced in the fourth quarter of 2007. This program was completed during the first quarter of 2008, with over 95% of our domestic franchisees renewing under the new form of franchise agreement. Our equivalent franchise units for both the three- and six-month periods ended June 29, 2008 were relatively consistent with the corresponding 2007 periods as net unit openings substantially offset the previously mentioned acquisition of 42 restaurants by the company during the last six months of 2007. |
| · | International Segment. The international segment reported operating losses of $1.5 million and $3.3 million for the three and six months ended June 29, 2008, respectively, compared to losses of $2.0 million and $4.4 million, respectively, in the same periods of the prior year. The improvements of $500,000 and $1.1 million in operating results reflect leverage on the international organizational structure from increased revenues due to growth in the number of units and unit volumes. |
| · | All Others Segment. The operating income for the “All others” reporting segment increased approximately $300,000 and $1.8 million for the three and six months ended June 29, 2008, respectively, as compared to the corresponding 2007 periods. The increases are primarily due to improvements in operating results of our print and promotions subsidiary, Preferred Marketing Solutions, Inc., resulting from increased commercial sales and related margin improvement. |
| · | Unallocated Corporate Segment. Unallocated corporate expenses increased $1.7 million and $2.6 million for the three and six months ended June 29, 2008, as compared to the corresponding periods of the prior year. The components of the unallocated corporate expenses were as follows (in thousands): |
| | | Three Months Ended | | Six Months Ended | |
| | | June 29, | | July 1, | | Increase | | June 29, | | July 1, | | Increase | |
| | | 2008 | | 2007 | | (decrease) | | 2008 | | 2007 | | (decrease) | |
| | | | | | | | | | | | | | | | | | | | |
| General and administrative | | $ | 6,048 | | $ | 4,404 | | $ | 1,644 | | $ | 12,196 | | $ | 9,289 | | $ | 2,907 | |
| Net interest | | | 1,186 | | | 1,406 | | | (220 | ) | | 2,358 | | | 2,698 | | | (340 | ) |
| Depreciation | | | 1,940 | | | 1,587 | | | 353 | | | 3,737 | | | 3,313 | | | 424 | |
| Contributions to the Marketing Fund | | | 75 | | | - | | | 75 | | | 150 | | | 400 | | | (250 | ) |
| Other expense (income) | | | (105 | ) | | 89 | | | (194 | ) | | (78 | ) | | 81 | | | (159 | ) |
| Total unallocated corporate expenses | | $ | 9,144 | | $ | 7,486 | | $ | 1,658 | | $ | 18,363 | | $ | 15,781 | | $ | 2,582 | |
The increases in unallocated general and administrative costs for both the three- and six-month periods were primarily due to increases in executive incentive compensation, including our management incentive program, as a result of (1) an expected higher level of goal achievement in 2008 as compared to 2007; and (2) the fact that the prior year periods included adjustments of approximately $1.2 million for awards forfeited by our Founder Chairman due to a change in status from an employee director of the company to a non-employee director. Additionally, an increase in certain employee benefit costs during 2008, including health insurance, and severance-related costs recorded in the first quarter of 2008 impacted the year-over-year comparison.
The effective income tax rate was 37.2% and 36.9% for the three and six months ended June 29, 2008, respectively, (36.5% and 36.2% for the three- and six-month periods, respectively, excluding BIBP) and 36.9% and 36.6% for the same periods in 2007 (36.5% for both the three- and six-month periods in 2007, excluding BIBP).
Cash Flow
Cash flow from operations was $29.3 million for the first six months of 2008 as compared to $26.2 million for the comparable period in 2007. The consolidation of BIBP decreased cash flow from operations by approximately $14.3 million and $8.7 million in the first six months of 2008 and 2007, respectively. Excluding the impact of the consolidation of BIBP, cash flow from operations was $43.5 million in 2008, as compared to $34.9 million in the corresponding 2007 period. The $8.6 million increase was primarily due to an improvement in working capital, including income and other taxes, accrued expenses and accounts payable.
Form 10-Q Filing
See the Management’s Discussion and Analysis of Financial Condition and Results of Operations section of our quarterly Form 10-Q filed with the Securities and Exchange Commission for additional information concerning our operating results and cash flow for the three- and six-month periods ended June 29, 2008.
Domestic Comparable Sales and Unit Count
Domestic system-wide comparable sales for the second quarter of 2008 increased 2.4% (composed of a 3.6% increase at company-owned restaurants and a 1.9% increase at franchised restaurants). Domestic system-wide comparable sales for the six months ended June 29, 2008 increased 2.0% (composed of a 3.1% increase at company-owned restaurants and a 1.6% increase at franchised restaurants). The comparable sales percentage represents the change in year-over-year sales for the same base of restaurants for the same calendar period.
During the second quarter of 2008, 29 domestic restaurants (five company-owned and 24 franchised) were opened. On a year-to-date basis, we have opened 55 domestic restaurants (nine company-owned and 46 franchised) and 46 restaurants were closed. Our total domestic development pipeline as of June 29, 2008 included approximately 350 restaurants scheduled to open over the next ten years.
At June 29, 2008, there were 3,270 domestic and international Papa John’s restaurants (670 company-owned and 2,600 franchised) operating in all 50 states and 28 countries. The company-owned unit count includes 127 restaurants operated in majority-owned domestic joint venture arrangements, the operating results of which are fully consolidated into the company’s results.
International Update
Highlights:
| | · | During the second quarter, we opened 38 restaurants (two company-owned and 36 franchised) while five restaurants were closed. On a year-to-date basis, we have opened 60 restaurants (five company-owned and 55 franchised) while seven restaurants were closed. |
| | · | International franchise sales increased 30.1% to $55.3 million in the second quarter of 2008, from $42.5 million in the prior year comparable quarter and 31.6% to $107.7 million for the six months ended June 29, 2008, from $81.8 million in the prior year comparable period. |
| | · | As previously announced we entered into an agreement with Berjaya Pizza Company Sdn. Bhd. for the development of 100 restaurants over the next ten years in Malaysia. The first restaurant is scheduled to open later this year. |
| | · | We recently entered into an agreement for the development of 20 units in the Dominican Republic over the next nine years, with the first opening scheduled to occur this year. |
| | · | At the end of June, we reached the milestone of over 500 restaurants operating internationally ten years after the opening of our first restaurant outside of the U.S. |
As of June 29, 2008, the company had a total of 501 restaurants operating internationally (18 company-owned and 483 franchised), of which 160 were located in Korea and China and 109 were located in the United Kingdom and Ireland. Our total international development pipeline as of June 29, 2008 included approximately 1,100 restaurants scheduled to open over the next ten years.
Refranchising Initiative Update
At year-end, the company announced the implementation of a formal refranchising initiative, the goal of which is to increase the percentage of franchised units in the domestic restaurant portfolio over time. The company's goal is to reduce the percentage of domestic-owned company units to below 20% in the next few years (23.5% at June 29, 2008).
The company is working to complete the sale of 21 company-owned restaurants located in two markets. Our goal is to complete the sale of these restaurants during the third quarter of 2008, subject to satisfactory completion of due diligence and finalization of third-party financing by the buyers. The company plans to continue to review additional divestiture opportunities over the next several months.
Share Repurchase Activity
The company’s board of directors has authorized the repurchase of $50.0 million of common stock during 2008. The company repurchased approximately 664,000 shares of its common stock at an average price of $27.13 per share, or a total of $18.0 million, during the second quarter of 2008, and 768,000 shares of its common stock at an average price of $26.40 per share, or a total of $20.3 million, during the first six months of 2008. A total of 26,000 and 50,000 shares of common stock were issued upon the exercise of stock options for the three- and six-month periods ended June 29, 2008, respectively. Subsequent to quarter-end, through July 30, 2008, the company repurchased an additional $6.9 million of common stock (255,000 shares at an average price of $26.99 per share). At July 30, 2008, $22.8 million remains available for repurchase under the repurchase authorization.
There were 28.7 million diluted weighted average shares outstanding for the second quarter of 2008, as compared to 30.6 million for the same period in 2007, a 6.2% decrease. Approximately 28.3 million actual shares of the company’s common stock were outstanding as of June 29, 2008.
The company’s share repurchase activity increased earnings per diluted share, excluding the impact of the consolidation of BIBP, by $0.01 for the three and six months ended June 29, 2008.
2008 Earnings Guidance Reaffirmed
The company reaffirms its previously announced 2008 earnings per diluted share guidance in the range of $1.68 to $1.76 for the year. The projected earnings guidance excludes any impact from the consolidation of the results of BIBP and reflects our expectations of continued commodity price pressures, most notably cheese and wheat, as well as increased fuel costs. We expect that net worldwide unit growth will more likely be near the low end of our previous guidance of a range of 160 to 190 units due to the possibility of reduced unit openings and/or increased unit closings as a result of continued pressures on operating margins related to increased commodity, labor and energy costs. We also reiterate our guidance for domestic system-wide comparable sales to increase in the range of 1.25% to 2.75%.
Non-GAAP Measures
The financial information we present in this press release excluding the impact of the consolidation of BIBP are not measures that are defined in accordance with accounting principles generally accepted in the United States (“GAAP”). These non-GAAP measures should not be construed as a substitute for or a better indicator of the company’s performance than the company’s GAAP measures. Management believes the financial information excluding the impact of the consolidation of BIBP is important for purposes of comparison to prior periods and development of future projections and earnings growth prospects. Management analyzes the company’s business performance and trends excluding the impact of the consolidation of BIBP because the results of BIBP are not indicative of the principal operating activities of the company. In addition, annual cash bonuses, and certain long-term incentive programs for various levels of management, are based on financial measures that exclude BIBP. Management believes these non-GAAP measures provide management and investors with a more consistent view of performance than the closest GAAP equivalent. Management compensates for this by using these measures in combination with the GAAP measures. The presentation of the non-GAAP measures in this press release is made alongside the most directly comparable GAAP measures.
The company has provided the table below to reconcile the financial results we present in this press release excluding the impact of the consolidation of BIBP to our GAAP financial measures.
| | | Three Months Ended | | Six Months Ended | |
| | | June 29, | | July 1, | | June 29, | | July 1, | |
| (In thousands, except per share amounts) | | 2008 | | 2007 | | 2008 | | 2007 | |
| | | | | | | | | | | | | | |
| Pre-tax income, as reported | | $ | 12,186 | | $ | 11,110 | | $ | 25,787 | | $ | 31,823 | |
| Loss from BIBP cheese purchasing entity | | | 6,302 | | | 8,257 | | | 14,253 | | | 8,663 | |
| Pre-tax income, excluding BIBP | | $ | 18,488 | | $ | 19,367 | | $ | 40,040 | | $ | 40,486 | |
| | | | | | | | | | | | | | |
| Net income, as reported | | $ | 7,648 | | $ | 7,009 | | $ | 16,273 | | $ | 20,164 | |
| Loss from BIBP cheese purchasing entity | | | 4,096 | | | 5,289 | | | 9,264 | | | 5,545 | |
| Net income, excluding BIBP | | $ | 11,744 | | $ | 12,298 | | $ | 25,537 | | $ | 25,709 | |
| | | | | | | | | | | | | | |
| Earnings per diluted share, as reported | | $ | 0.27 | | $ | 0.23 | | $ | 0.57 | | $ | 0.66 | |
| Loss from BIBP cheese purchasing entity | | | 0.14 | | | 0.17 | | | 0.32 | | | 0.18 | |
| Earnings per diluted share, excluding BIBP | | $ | 0.41 | | $ | 0.40 | | $ | 0.89 | | $ | 0.84 | |
| | | | | | | | | | | | | | |
| Cash flow from operations, as reported | | | | | | | | $ | 29,252 | | $ | 26,244 | |
| BIBP cheese purchasing entity | | | | | | | | | 14,253 | | | 8,663 | |
| Cash flow from operations, excluding BIBP | | | | | | | | $ | 43,505 | | $ | 34,907 | |
Forward-Looking Statements
Certain information contained in this quarterly report, particularly information regarding future financial performance and plans and objectives of management, is forward-looking. Certain factors could cause actual results to differ materially from those expressed in forward-looking statements. These factors include, but are not limited to: 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 uncertainties associated with litigation; the possibility of impairment charges if PJUK or recently acquired restaurants perform below our expectations; our PJUK operations remain contingently liable for payment under certain lease arrangements with a total value of approximately $10.0 million associated with the sold Perfect Pizza operations; 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. In recent months, the credit markets have experienced instability. Our franchisees may experience difficulty in obtaining adequate financing and thus our growth strategy and franchise revenues may be adversely affected. 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 source high-quality ingredients and other commodities in a cost-effective manner; and differing interpretation of the obligations established in franchise agreements with international franchisees. See “Part I. Item 1A. - Risk Factors” of the Annual Report on Form 10-K for the fiscal year ended December 30, 2007 for additional factors.
Conference Call
A conference call is scheduled for August 6, 2008 at 10:00 EDT to review second 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 32146821) for participation in the question and answer session. International participants may dial 706-679-8452 (pass code 32146821).
The conference call will be available for replay, including downloadable podcast, beginning August 6, 2008, at approximately noon through August 13, 2008, at midnight EDT. The replay can be accessed from the company’s web page at www.papajohns.com or by dialing 800-642-1687 (pass code 32146821). International participants may dial 706-645-9291 (pass code 32146821).
Summary Financial Data
Papa John's International, Inc.
(Unaudited)
| | | Three Months Ended | | Six Months Ended | |
| | | June 29, | | July 1, | | June 29, | | July 1, | |
| (In thousands, except per share amounts) | | 2008 | | 2007 | | 2008 | | 2007 | |
| | | | | | | | | | | | | | |
| Revenues | | $ | 283,408 | | $ | 256,256 | | $ | 572,413 | | $ | 516,880 | |
| | | | | | | | | | | | | | |
| Income before income taxes * | | $ | 12,186 | | $ | 11,110 | | $ | 25,787 | | $ | 31,823 | |
| | | | | | | | | | | | | | |
| Net income | | $ | 7,648 | | $ | 7,009 | | $ | 16,273 | | $ | 20,164 | |
| | | | | | | | | | | | | | |
| Earnings per share - assuming dilution | | $ | 0.27 | | $ | 0.23 | | $ | 0.57 | | $ | 0.66 | |
| | | | | | | | | | | | | | |
| Weighted average shares outstanding - assuming dilution | | | 28,705 | | | 30,600 | | | 28,754 | | | 30,623 | |
| | | | | | | | | | | | | | |
| EBITDA (1) | | $ | 22,211 | | $ | 20,037 | | $ | 45,444 | | $ | 49,818 | |
*The following is a summary of our income (loss) before income taxes (in thousands):
| | | Three Months Ended | | Six Months Ended | |
| | | June 29, | | July 1, | | June 29, | | July 1, | |
| | | 2008 | | 2007 | | 2008 | | 2007 | |
| | | | | | | | | | | | | | |
| Domestic company-owned restaurants | | $ | 7,157 | | $ | 7,535 | | $ | 14,955 | | $ | 15,750 | |
| Domestic commissaries | | | 7,624 | | | 7,917 | | | 16,057 | | | 17,931 | |
| Domestic franchising | | | 13,095 | | | 12,065 | | | 27,567 | | | 25,108 | |
| International | | | (1,520 | ) | | (2,032 | ) | | (3,259 | ) | | (4,352 | ) |
| All others | | | 1,993 | | | 1,679 | | | 4,518 | | | 2,724 | |
| Unallocated corporate expenses | | | (9,144 | ) | | (7,486 | ) | | (18,363 | ) | | (15,781 | ) |
| Elimination of intersegment profits | | | (717 | ) | | (311 | ) | | (1,435 | ) | | (894 | ) |
| Income before income taxes, excluding VIEs | | | 18,488 | | | 19,367 | | | 40,040 | | | 40,486 | |
| VIEs, primarily BIBP (2) | | | (6,302 | ) | | (8,257 | ) | | (14,253 | ) | | (8,663 | ) |
| Total income before income taxes | | $ | 12,186 | | $ | 11,110 | | $ | 25,787 | | $ | 31,823 | |
Summary Financial Data (continued)
Papa John's International, Inc.
(Unaudited)
The following is a reconciliation of EBITDA to net income (in thousands):
| | | Three Months Ended | | Six Months Ended | |
| | | June 29, | | July 1, | | June 29, | | July 1, | |
| | | 2008 | | 2007 | | 2008 | | 2007 | |
| | | | | | | | | | |
| EBITDA (1) | | $ | 22,211 | | $ | 20,037 | | $ | 45,444 | | $ | 49,818 | |
| Income tax expense | | | (4,538 | ) | | (4,101 | ) | | (9,514 | ) | | (11,659 | ) |
| Net interest | | | (1,621 | ) | | (1,338 | ) | | (3,247 | ) | | (2,511 | ) |
| Depreciation and amortization | | | (8,404 | ) | | (7,589 | ) | | (16,410 | ) | | (15,484 | ) |
| Net income | | $ | 7,648 | | $ | 7,009 | | $ | 16,273 | | $ | 20,164 | |
| (1) | Management considers EBITDA to be a meaningful indicator of operating performance from 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. |
| (2) | BIBP incurred an operating loss of $6.3 million in the second quarter of 2008, which was composed of losses associated with cheese sold to domestic company-owned restaurants and franchise restaurants of $1.4 million and $4.4 million, respectively. The remainder of the second quarter 2008 loss was primarily composed of interest expense on outstanding debt with a third-party bank and Papa John’s. For the second quarter of 2007, BIBP reported an operating loss of $8.3 million, which was composed of losses associated with cheese sold to domestic company-owned restaurants and franchise restaurants of $1.9 million and $6.3 million, respectively. The remainder of the loss was primarily composed of interest expense on outstanding debt with a third-party bank. |
BIBP incurred an operating loss of $14.3 million for the six months ended June 29, 2008, which was composed of losses associated with cheese sold to domestic company-owned restaurants and franchise restaurants of $3.3 million and $9.9 million, respectively. The remainder of the 2008 loss was primarily composed of interest expense on outstanding debt with a third-party bank and Papa John’s. For the six months ended July 1, 2007, BIBP reported operating losses of $8.7 million, which was composed of losses associated with cheese sold to domestic company-owned restaurants and franchise restaurants of $2.4 million and $6.2 million, respectively. The remainder of the 2007 loss was primarily composed of interest expense on outstanding debt with a third-party bank.
* * * *
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 | | Six Months Ended | |
| | | June 29, 2008 | | July 1, 2007 | | June 29, 2008 | | July 1, 2007 | |
| (In thousands, except per share amounts) | | (Unaudited) | | (Unaudited) | | (Unaudited) | | (Unaudited) | |
Revenues: | | | | | | | | | |
Domestic: | | | | | | | | | |
| Company-owned restaurant sales | | $ | 133,815 | | $ | 119,633 | | $ | 272,670 | | $ | 241,677 | |
| Variable interest entities restaurant sales | | | 2,239 | | | 1,602 | | | 4,279 | | | 3,289 | |
| Franchise royalties | | | 14,759 | | | 13,746 | | | 30,204 | | | 28,198 | |
| Franchise and development fees | | | 247 | | | 541 | | | 1,167 | | | 1,303 | |
| Commissary sales | | | 106,321 | | | 96,224 | | | 212,368 | | | 196,423 | |
| Other sales | | | 16,434 | | | 17,355 | | | 33,279 | | | 31,846 | |
International: | | | | | | | | | | | | | |
| Royalties and franchise and development fees | | | 3,108 | | | 2,223 | | | 6,128 | | | 4,671 | |
| Restaurant and commissary sales | | | 6,485 | | | 4,932 | | | 12,318 | | | 9,473 | |
Total revenues | | | 283,408 | | | 256,256 | | | 572,413 | | | 516,880 | |
| | | | | | | | | | | | | | |
Costs and expenses: | | | | | | | | | | | | | |
| Domestic Company-owned restaurant expenses: | | | | | | | | | | | | | |
| Cost of sales | | | 30,803 | | | 25,829 | | | 62,375 | | | 50,917 | |
| Salaries and benefits | | | 40,050 | | | 35,928 | | | 81,610 | | | 72,872 | |
| Advertising and related costs | | | 11,913 | | | 11,159 | | | 24,610 | | | 22,062 | |
| Occupancy costs | | | 8,540 | | | 7,520 | | | 17,011 | | | 14,809 | |
| Other operating expenses | | | 18,072 | | | 16,411 | | | 36,379 | | | 32,804 | |
| Total domestic Company-owned restaurant expenses | | | 109,378 | | | 96,847 | | | 221,985 | | | 193,464 | |
| | | | | | | | | | | | | | |
| Variable interest entities restaurant expenses | | | 1,987 | | | 1,352 | | | 3,780 | | | 2,731 | |
| | | | | | | | | | | | | | |
| Domestic commissary and other expenses: | | | | | | | | | | | | | |
| Cost of sales | | | 89,976 | | | 80,944 | | | 179,982 | | | 162,719 | |
| Salaries and benefits | | | 9,127 | | | 9,006 | | | 18,092 | | | 17,804 | |
| Other operating expenses | | | 12,112 | | | 11,147 | | | 23,644 | | | 22,145 | |
| Total domestic commissary and other expenses | | | 111,215 | | | 101,097 | | | 221,718 | | | 202,668 | |
| | | | | | | | | | | | | | |
| Loss from the franchise cheese-purchasing program, net of minority interest | | | 4,364 | | | 6,277 | | | 9,922 | | | 6,178 | |
| International operating expenses | | | 5,818 | | | 4,426 | | | 11,158 | | | 8,464 | |
| General and administrative expenses | | | 27,237 | | | 25,221 | | | 54,451 | | | 50,621 | |
| Minority interests and other general expenses | | | 1,198 | | | 999 | | | 3,955 | | | 2,936 | |
| Depreciation and amortization | | | 8,404 | | | 7,589 | | | 16,410 | | | 15,484 | |
Total costs and expenses | | | 269,601 | | | 243,808 | | | 543,379 | | | 482,546 | |
| | | | | | | | | | | | | | |
Operating income | | | 13,807 | | | 12,448 | | | 29,034 | | | 34,334 | |
| Net interest | | | (1,621 | ) | | (1,338 | ) | | (3,247 | ) | | (2,511 | ) |
Income before income taxes | | | 12,186 | | | 11,110 | | | 25,787 | | | 31,823 | |
| Income tax expense | | | 4,538 | | | 4,101 | | | 9,514 | | | 11,659 | |
Net income | | $ | 7,648 | | $ | 7,009 | | $ | 16,273 | | $ | 20,164 | |
| | | | | | | | | | | | | | |
| Basic earnings per common share | | $ | 0.27 | | $ | 0.23 | | $ | 0.57 | | $ | 0.67 | |
| Earnings per common share - assuming dilution | | $ | 0.27 | | $ | 0.23 | | $ | 0.57 | | $ | 0.66 | |
| | | | | | | | | | | | | | |
| Basic weighted average shares outstanding | | | 28,372 | | | 30,054 | | | 28,536 | | | 30,059 | |
| Diluted weighted average shares outstanding | | | 28,705 | | | 30,600 | | | 28,754 | | | 30,623 | |
Papa John's International, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
| | | June 29, | | December 30, | |
| | 2008 | | 2007 | |
| | (Unaudited) | | (Note) | |
| (In thousands) | | | | | |
| | | | | | |
Assets | | | | | | | |
Current assets: | | | | | | | |
| Cash and cash equivalents | | $ | 8,356 | | $ | 8,877 | |
| Accounts receivable | | | 23,427 | | | 22,539 | |
| Inventories | | | 16,981 | | | 18,806 | |
| Prepaid expenses | | | 9,685 | | | 10,711 | |
| Other current assets | | | 6,087 | | | 5,581 | |
| Assets held for sale | | | 4,450 | | | - | |
| Deferred income taxes | | | 8,430 | | | 7,147 | |
Total current assets | | | 77,416 | | | 73,661 | |
| | | | | | | | |
| Investments | | | 855 | | | 825 | |
| Net property and equipment | | | 196,689 | | | 198,957 | |
| Notes receivable | | | 11,597 | | | 11,804 | |
| Deferred income taxes | | | 18,400 | | | 12,384 | |
| Goodwill | | | 83,194 | | | 86,505 | |
| Other assets | | | 17,255 | | | 17,681 | |
Total assets | | $ | 405,406 | | $ | 401,817 | |
| | | | | | | | |
Liabilities and stockholders' equity | | | | | | | |
Current liabilities: | | | | | | | |
| Accounts payable | | $ | 31,450 | | $ | 31,157 | |
| Income and other taxes | | | 12,570 | | | 10,866 | |
| Accrued expenses | | | 54,923 | | | 56,466 | |
| Current portion of debt | | | 12,225 | | | 8,700 | |
Total current liabilities | | | 111,168 | | | 107,189 | |
| | | | | | | | |
| Unearned franchise and development fees | | | 5,791 | | | 6,284 | |
| Long-term debt, net of current portion | | | 135,195 | | | 134,006 | |
| Other long-term liabilities | | | 26,810 | | | 27,435 | |
Total liabilities | | | 278,964 | | | 274,914 | |
| | | | | | | | |
| Total stockholders' equity | | | 126,442 | | | 126,903 | |
| Total liabilities and stockholders' equity | | $ | 405,406 | | $ | 401,817 | |
| Note: | The balance sheet at December 30, 2007 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
| | | Six Months Ended | |
| (In thousands) | | June 29, 2008 | | July 1, 2007 | |
| | | (Unaudited) | | (Unaudited) | |
Operating activities | | | | | | | |
| Net income | | $ | 16,273 | | $ | 20,164 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | |
| Restaurant closure, impairment and disposition losses (gains) | | | 1,167 | | | (434 | ) |
| Provision for uncollectible accounts and notes receivable | | | 1,264 | | | 1,034 | |
| Depreciation and amortization | | | 16,410 | | | 15,484 | |
| Deferred income taxes | | | (7,178 | ) | | (5,709 | ) |
| Stock-based compensation expense | | | 2,567 | | | 1,855 | |
| Excess tax benefit related to exercise of non-qualified stock options | | | (117 | ) | | (3,025 | ) |
| Other | | | 137 | | | 3,694 | |
| Changes in operating assets and liabilities, net of acquisitions: | | | | | | | |
| Accounts receivable | | | (2,251 | ) | | 1,048 | |
| Inventories | | | 1,825 | | | 1,785 | |
| Prepaid expenses | | | 1,026 | | | (1,723 | ) |
| Other current assets | | | (256 | ) | | 908 | |
| Other assets and liabilities | | | (1,233 | ) | | (892 | ) |
| Accounts payable | | | 293 | | | (2,437 | ) |
| Income and other taxes | | | 1,704 | | | (1,228 | ) |
| Accrued expenses | | | (1,885 | ) | | (3,929 | ) |
| Unearned franchise and development fees | | | (494 | ) | | (351 | ) |
Net cash provided by operating activities | | | 29,252 | | | 26,244 | |
| | | | | | | | |
Investing activities | | | | | | | |
| Purchase of property and equipment | | | (16,010 | ) | | (16,433 | ) |
| Purchase of investments | | | (437 | ) | | - | |
| Proceeds from sale or maturity of investments | | | 407 | | | 671 | |
| Loans issued | | | (681 | ) | | (4,263 | ) |
| Loan repayments | | | 1,078 | | | 2,029 | |
| Acquisitions | | | (100 | ) | | (8,615 | ) |
| Proceeds from divestitures of restaurants | | | - | | | 632 | |
| Other | | | 156 | | | 27 | |
Net cash used in investing activities | | | (15,587 | ) | | (25,952 | ) |
| | | | | | | | |
Financing activities | | | | | | | |
| Net proceeds from line of credit facility | | | 1,102 | | | 19,500 | |
| Net proceeds from short-term debt - variable interest entities | | | 3,525 | | | 10,250 | |
| Excess tax benefit related to exercise of non-qualified stock options | | | 117 | | | 3,025 | |
| Proceeds from exercise of stock options | | | 965 | | | 10,323 | |
| Acquisition of Company common stock | | | (20,287 | ) | | (35,827 | ) |
| Other | | | 339 | | | (675 | ) |
Net cash (used in) provided by financing activities | | | (14,239 | ) | | 6,596 | |
| | | | | | | | |
| Effect of exchange rate changes on cash and cash equivalents | | | 53 | | | 66 | |
| Change in cash and cash equivalents | | | (521 | ) | | 6,954 | |
| Cash and cash equivalents at beginning of period | | | 8,877 | | | 12,979 | |
| | | | | | | | |
Cash and cash equivalents at end of period | | $ | 8,356 | | $ | 19,933 | |
Restaurant Progression
Papa John's International, Inc.
| | | Second Quarter Ended June 29, 2008 | |
| | | Corporate | | Franchised | | | |
| | | Domestic | | Int'l | | Domestic | | Int'l | | Total | |
Papa John's restaurants | | | | | | | | | | | |
| Beginning of period | | | 648 | | | 17 | | | 2,122 | | | 451 | | | 3,238 | |
| Opened | | | 5 | | | 2 | | | 24 | | | 36 | | | 67 | |
| Closed | | | (1 | ) | | (1 | ) | | (29 | ) | | (4 | ) | | (35 | ) |
| Acquired | | | - | | | - | | | - | | | - | | | - | |
| Sold | | | - | | | - | | | - | | | - | | | - | |
| End of Period | | | 652 | | | 18 | | | 2,117 | | | 483 | | | 3,270 | |
| | | Second Quarter Ended July 1, 2007 | |
| | | Corporate | | Franchised | | | |
| | | Domestic | | Int'l | | Domestic | | Int'l | | Total | |
Papa John's restaurants | | | | | | | | | | | |
| Beginning of period | | | 586 | | | 8 | | | 2,086 | | | 364 | | | 3,044 | |
| Opened | | | 9 | | | - | | | 38 | | | 18 | | | 65 | |
| Closed | | | (2 | ) | | - | | | (15 | ) | | (2 | ) | | (19 | ) |
| Acquired | | | 13 | | | - | | | - | | | - | | | 13 | |
| Sold | | | - | | | - | | | (13 | ) | | - | | | (13 | ) |
| End of Period | | | 606 | | | 8 | | | 2,096 | | | 380 | | | 3,090 | |
Restaurant Progression
Papa John's International, Inc.
| | | Six Months Ended June 29, 2008 | |
| | | Corporate | | Franchised | | | |
| | | Domestic | | Int'l | | Domestic | | Int'l | | Total | |
Papa John's restaurants | | | | | | | | | | | | | | | | |
| Beginning of period | | | 648 | | | 14 | | | 2,112 | | | 434 | | | 3,208 | |
| Opened | | | 9 | | | 5 | | | 46 | | | 55 | | | 115 | |
| Closed | | | (6 | ) | | (1 | ) | | (40 | ) | | (6 | ) | | (53 | ) |
| Acquired | | | 1 | | | - | | | - | | | - | | | 1 | |
| Sold | | | - | | | - | | | (1 | ) | | - | | | (1 | ) |
| End of Period | | | 652 | | | 18 | | | 2,117 | | | 483 | | | 3,270 | |
| | | Six Months Ended July 1, 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 | | | 13 | | | - | | | 60 | | | 36 | | | 109 | |
| Closed | | | (2 | ) | | - | | | (26 | ) | | (6 | ) | | (34 | ) |
| Acquired | | | 19 | | | - | | | 1 | | | 3 | | | 23 | |
| Sold | | | (1 | ) | | (3 | ) | | (19 | ) | | - | | | (23 | ) |
| End of Period | | | 606 | | | 8 | | | 2,096 | | | 380 | | | 3,090 | |
