SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended March 30, 1997
OR
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number: 0-21660
PAPA JOHN'S INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 61-1203323
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) number)
11492 Bluegrass Parkway, Suite 175
Louisville, Kentucky 40299-2334
(Address of principal executive offices)
(502) 266-5200
(Registrant's telephone number, including area code)
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Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days:
Yes X No
----- -----
At May 5, 1997, there were outstanding 28,869,117 shares of the
registrant's common stock, par value $.01 per share.
INDEX
PART I. FINANCIAL INFORMATION Page No.
--------
Item 1. Financial Statements
Condensed Consolidated Balance Sheets --
March 30, 1997 and December 29, 1996 2
Condensed Consolidated Statements of Income --
Three Months Ended March 30, 1997 and March 31, 1996 3
Condensed Consolidated Statements of Stockholders'
Equity -- Three Months Ended March 30, 1997 and
March 31, 1996 4
Condensed Consolidated Statements of Cash Flows --
Three Months Ended March 30, 1997 and March 31, 1996 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 9
Item 6. Exhibits and Reports on 8-K 9
-1-
Papa John's International, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
March 30, 1997 December 29, 1996
(Unaudited) (Note)
-------------- -----------------
(In thousands)
Assets
Current assets:
Cash and cash equivalents $ 16,066 $ 24,063
Accounts receivable 13,475 13,101
Inventories 8,067 6,839
Deferred pre-opening costs 3,287 2,654
Prepaid expenses and other current assets 1,642 1,591
-------- --------
Total current assets 42,537 48,248
Investments 63,197 65,067
Net property and equipment 88,891 80,717
Notes receivable from franchises 10,235 5,053
Other assets 14,068 12,976
-------- --------
Total assets $218,928 $212,061
======== ========
Liabilities and stockholder's equity
Current liabilities:
Accounts payable $ 11,236 $ 13,105
Accrued expenses 12,522 9,062
Current maturities of long-term debt 185 175
Deferred income taxes 703 672
-------- --------
Total current liabilities 24,646 23,014
Unearned franchise and development fees 3,537 3,378
Long-term debt, less current liabilities 1,320 1,505
Deferred income taxes 3,061 3,285
Other long-term liabilities 225 236
Stockholders' equity:
Preferred stock - -
Common stock 288 288
Additional paid-in capital 144,377 143,978
Unrealized gain on investments 363 977
Retained earnings 41,593 35,882
Treasury stock (482) (482)
-------- --------
Total stockholders' equity 186,139 180,643
-------- --------
Total liabilities and stockholders' equity $218,928 $212,061
======== ========
Note: The balance sheet at December 29, 1996 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See accompanying notes.
-2-
Papa John's International, Inc. and Subsidiaries
Condensed Consolidated Statements of Income
(Unaudited)
Three Months Ended
March 30, 1997 March 31, 1996
-------------- --------------
(In thousands, except per share amounts)
Revenues:
Restaurant sales $ 52,882 $ 35,253
Franchise royalties 5,330 3,931
Franchise and development fees 1,241 818
Commissary sales 41,290 31,491
Equipment and other sales 8,900 5,233
-------- --------
Total revenues 109,643 76,726
Costs and expenses:
Restaurant expenses:
Cost of sales 14,006 9,800
Salaries and benefits 14,264 9,487
Advertising and related costs 4,733 3,293
Occupancy costs 2,667 1,787
Other operating expenses 7,471 4,733
-------- --------
43,141 29,100
Commissary, equipment and other expenses:
Cost of sales 38,561 29,360
Salaries and benefits 3,002 2,099
Other operating expenses 4,061 2,413
-------- --------
45,624 33,872
General and administrative expenses 8,444 5,833
Depreciation 2,770 1,902
Amortization 1,282 995
-------- --------
Total costs and expenses 101,261 71,702
-------- --------
Operating income 8,382 5,024
Other income (expense):
Investment income 1,102 528
Other, net (448) 34
-------- --------
Income before income taxes 9,036 5,586
Income tax expense 3,343 2,067
-------- --------
Net income $ 5,693 $ 3,519
======== ========
Net income per share $ 0.20 $ 0.13
======== ========
Weighted average shares outstanding 28,756 26,785
======== ========
See accompanying notes.
-3-
PAPA JOHN'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
ADDITIONAL UNREALIZED TOTAL
COMMON PAID-IN GAIN (LOSS) ON RETAINED TREASURY STOCKHOLDERS'
STOCK CAPITAL INVESTMENTS EARNINGS STOCK EQUITY
------ ---------- -------------- -------- -------- -------------
(In thousands)
Balance at January 1, 1996 $268 $ 88,043 $(263) $18,838 $(604) $106,282
Exercise of stock options 1 275 - - - 276
Stock compensation and
other - 38 - (110) 111 39
Tax benefit related to
exercise of non-qualified
stock options - 482 - - - 482
Change in unrealized gain
(loss) on investments - - (40) - - (40)
Net income - - - 3,519 - 3,519
---- -------- ----- ------- ----- --------
Balance at March 31, 1996 $269 $ 88,838 $(303) $22,247 $(493) $110,558
==== ======== ===== ======= ===== ========
Balance at December 30, 1996 $288 $143,978 $ 977 $35,882 $(482) $180,643
Exercise of stock options - 339 - - - 339
Tax benefit related to
exercise of non-qualified
stock options - 59 - - - 59
Change in unrealized gain
(loss) on investments - - (614) - - (614)
Net income - - - 5,693 - 5,693
Other - 1 - 18 - 19
---- -------- ----- ------- ----- --------
Balance at March 30, 1997 $288 $144,377 $ 363 $41,593 $(482) $186,139
==== ======== ===== ======= ===== ========
See accompanying notes.
-4-
Papa John's International, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended
March 30, 1997 March 31, 1996
-------------- --------------
(In thousands)
Operating activities
Net cash provided by operating activities $ 8,599 $ 5,409
Investing activities
Purchase of property and equipment (11,015) (5,157)
Purchase of investments (8,484) (8,937)
Proceeds from sale or maturity of investments 8,150 131
Loans to franchisees (5,228) -
Deferred systems development costs (550) -
Other 318 (459)
-------------- --------------
Net cash used in investing activities (16,809) (14,422)
Financing activities
Exercise of stock options 339 276
Payments on long-term debt (175) (501)
Tax benefit related to exercise of non-qualified
stock options 59 482
Other (10) (5)
-------------- --------------
Net cash provided by financing activities 213 252
-------------- --------------
Net decreases in cash and cash equivalents (7,997) (8,761)
Cash and cash equivalents at beginning of period 24,063 19,904
-------------- --------------
Cash and cash equivalents at end of period $ 16,066 $ 11,143
============== ==============
See accompanying notes.
-5-
Papa John's International, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
March 30, 1997
Note 1 -- Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S - X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments, consisting
of normal recurring accruals, considered necessary for a fair presentation have
been included. Operating results for the three months ended March 30, 1997, are
not necessarily indicative of the results that may be expected for the year
ended December 28, 1997. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Papa John's
International, Inc. Annual Report on Form 10-K for the year ended December 29,
1996.
Note 2 -- Subsequent Events
Subsequent to quarter end, the Company acquired four Papa John's restaurants in
Arlington, Texas for approximately $500,000 in cash and 16 Papa John's
restaurants in North Carolina for $5 million (consisting of $4,960,000 in cash
and a credit of $40,000 towards future development fees), in transactions
accounted for by the purchase method of accounting. A majority ownership
interest in the franchisee of the North Carolina restaurants was held by certain
directors and officers, including the Chief Executive Officer, of the Company.
-6-
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Restaurant Progression
Three Months Ended
March 30, March 31,
1997 1996
--------- ---------
Company - owned:
- ----------------
Beginning of period 303 217
Opened 22 13
Closed - (1)
Acquired - 1
----- -----
End of Period 325 230
===== =====
Franchised:
- -----------
Beginning of period 857 661
Opened 68 43
Closed - (1)
Sold to Company - (1)
----- -----
End of Period 925 702
===== =====
Total at end of period 1,250 932
===== =====
Results of Operations
Revenues. Total revenues increased 42.9% to $109.6 million for the three months
ended March 30, 1997, from $76.7 million for the comparable period in 1996.
Restaurant sales increased 50.0% to $52.9 million for the three months ended in
March 30, 1997, from $35.3 million for the comparable period in 1996. This
increase was primarily due to an increase of 41% in the number of equivalent
Company-owned restaurants open during the three months ended March 30, 1997,
compared to the same period in the prior year. "Equivalent restaurants"
represent the number of restaurants open at the beginning of a given period,
adjusted for restaurants opened or acquired during the period on a weighted
average basis. Also, sales increased 11.9% for the three months ended March 30,
1997, over the comparable period in 1996, for Company-owned restaurants open
throughout both periods.
Franchise royalties increased 35.6% to $5.3 million for the three months ended
March 30, 1997 from $3.9 million for the comparable period in 1996. This
increase was primarily due to an increase of 31% in the number of equivalent
franchised restaurants open during the three months ended March 30, 1997,
compared to the same period in the prior year. Also, sales increased 7.3% for
the three months ended March 30, 1997, over the comparable period in the 1996,
for franchised restaurants open throughout both periods.
Franchise and development fees increased 51.6% to $1.2 million for the three
months ended March 30, 1997, from $818,000 for the comparable period in 1996.
This increase was primarily due to the 68 franchised restaurants opened during
the three months ended March 30, 1997, versus the 43 opened during the
comparable period in 1996, an increase of 58.1%. The average dollar amount of
fees per franchised restaurant opening may vary from period to period, as
restaurants opened pursuant to older development agreements and "Hometown
restaurants" generally have lower required fees than restaurants opened pursuant
to more recent development agreements. "Hometown restaurants" are located in
smaller markets, generally markets with less than 9,000 households. Commissary
sales increased 31.1% to $41.3 million for the three months ended March 30,
1997, from $31.5 million for the comparable period in 1996. This increase was
primarily the result of the increases in equivalent franchised restaurants and
comparable sales for franchised restaurants noted above.
-7-
Equipment and other sales increased 70.1% to $8.9 million for the three months
ended March 30, 1997, from $5.2 million for the comparable period in 1996. This
increase was primarily due to the increase in equivalent franchised restaurants
open during the three months ended March 30, 1997, as compared to the same
period in 1996, and the increase in franchised restaurants opened during the
three months ended March 30, 1997, as compared to the same period in 1996.
Costs and Expenses. Restaurant cost of sales, which consists of food, beverage
and paper costs, decreased as a percentage of restaurant sales to 26.5% for the
three months ended March 30, 1997, from 27.8% for the same period in 1996. This
decrease was primarily due to a 7.1% decrease in average cheese block market
prices, and more efficient food usage at the restaurant level due to improved
management information provided by point of sale technology and a maturing
restaurant base.
Restaurant salaries and benefits (27.0% vs. 26.9%), advertising and related
costs (9.0% vs. 9.3%) and occupancy costs (5.0% vs. 5.1%) were all relatively
consistent as a percentage of restaurant sales for the three months ended March
30, 1997, as compared to the same period in 1996.
Other restaurant operating expenses increased as a percentage of restaurant
sales to 14.1% for the three months ended March 30, 1997, from 13.4% for the
comparable period in 1996. Other operating expenses include all other
restaurant-level operating costs, the material components of which are
automobile mileage reimbursement for delivery drivers, telephone costs, training
costs and workers compensation insurance. Other operating expenses also include
an allocation of commissary operating expenses equal to 3% of Company-owned
restaurant sales in order to assess a portion of the costs of dough production
and food and equipment purchasing and storage to Company-owned restaurants. The
increase in other operating expenses as a percentage of restaurant sales was
primarily due to higher training costs, as a greater effort was made in 1997
than in the prior year to prepare for the anticipated higher sales volumes
resulting from the 12th Anniversary promotional campaign conducted early in the
second quarter.
Commissary, equipment and other expenses include cost of sales and operating
expenses associated with sales of food, paper, equipment, information systems,
and printing and promotional items to franchisees and other customers. These
costs decreased as a percentage of combined commissary sales and equipment and
other sales to 90.9% for the three months ended March 30, 1997, as compared to
92.2% for the same period in 1996. Cost of sales as a percentage of combined
commissary sales and equipment and other sales decreased to 76.8 % for the three
months ended March 30, 1997, from 79.9% from the comparable period in 1996, due
to the timing of certain favorable commodity price changes. The decrease was
offset by an increase in other operating expenses to 8.1%, for the three months
ended March 30, 1997, from 6.6% for the comparable period in 1996, due primarily
to increased delivery costs resulting from larger commissary service areas and
costs related to the opening of two commissary facilities in 1997.
General and administrative expenses (7.7% vs. 7.6%) and depreciation and
amortization (3.7% vs. 3.8%) were relatively consistent as a percentage of total
revenues for the three months ended March 30, 1997, as compared to the same
period in 1996.
Investment Income. Investment income increased to $1.1 million for the three
months ended March 30, 1997, from $528,000 for the comparable period in 1996.
This increase was primarily the result of higher average investment balances
during the first quarter of 1997 compared to the same period in 1996 due to the
investment of proceeds from the Company's public offering of common stock in May
1996.
Income Tax Expense. Income tax expense reflects a combined federal, state and
local effective tax rate of 37% for the three months ended March 30, 1997 and
March 31, 1996, representing statutory rates reduced by the impact of tax-exempt
income generated by the investment portfolio.
Liquidity and Capital Resources
The Company requires capital primarily for the development and acquisition of
restaurants, the addition of new commissary and support services facilities and
equipment and the enhancement of corporate systems and facilities. Capital
expenditures of $11 million for the three months ended March 30, 1997, were
primarily funded by cash flow from operations supplemented by existing cash
balances.
Cash flow from operations increased to $8.6 million for the three months ended
March 30, 1997, from $5.4 million for the comparable period in 1996, due
primarily to the higher level of net income for the first quarter of 1997.
-8-
In addition to restaurant development and potential acquisitions, significant
capital projects for the next twelve months are expected to include the
construction of new commissary facilities in Des Moines, Iowa and the Pacific
Northwest area. The Company also expects to begin construction during mid-1997
of a 250,000 square foot facility in Louisville, Kentucky, scheduled for
completion in mid-1998, approximately one-half of which will accommodate
relocation and expansion of the Louisville commissary operations and Novel
Approach promotional division and the remainder of which will accommodate
relocation and consolidation of corporate offices. In addition, the Company
expects to provide approximately $8 to $12 million in loans under the franchisee
loan program. The amounts actually funded may vary as the Company continues to
gain experience with the loan program.
Capital resources available at March 30, 1997, include $16.1 million of cash and
cash equivalents, $63.2 million of investment and a $10 million line of credit
expiring in June 1997. The Company expects to fund planned capital expenditures
for the next twelve months from these resources and operating cash flows.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is subject to claims and legal actions in the ordinary course of its
business. The Company believes that all such claims and actions currently
pending against it are either adequately covered by insurance or would not have
a material adverse effect on the Company if decided in a manner unfavorable to
the Company.
Item 6. Exhibits and Reports on Form 8-K.
a. Exhibits
Exhibit
Number Description
------ -----------
27 Financial Data Schedule which is submitted electronically
to the Securities and Exchange Commission for information
only and not deemed to be filed with the Commission.
99.1 Cautionary Statements. Exhibit 99.1 to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 29, 1996 (Commission File No. 0-21660) is
incorporated herein by reference.
b. Current Reports on Form 8-K.
There were no reports filed on Form 8-K during the quarterly period ended
March 30, 1997.
-9-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PAPA JOHN'S INTERNATIONAL, INC.
(Registrant)
Date: May 9, 1997 /s/ E. Drucilla Milby
------------------------- ----------------------------------
E. Drucilla Milby, Chief Financial
Officer and Treasurer
-10-