Papa John's Reports Third Quarter Earnings and Revenues
October Comparable Sales Results Announced; Adoption of FIN 46 Delayed Until Q4
LOUISVILLE, Ky., Oct. 28 /PRNewswire-FirstCall/ --
Papa John's International,
Inc. today announced revenues of $219.6 million for the third quarter of 2003,
representing a decrease of 3.6% from revenues of $227.9 million for the same
period in 2002. Net income for the third quarter of 2003 was $3.5 million and
diluted earnings per share was $0.19 (including a $413,000, or $0.02 per share,
cumulative effect adjustment charge discussed below), compared to net income of
$10.5 million, or $0.53 per share, for the comparable period in 2002. The 2003
net income was reduced $2.6 million, or $0.15 per share, as a result of a $4.2
million pre-tax charge related to the closure of 23 company-owned restaurants
and impairment of an additional 25 company-owned restaurants, as compared to a
$200,000 pre-tax impairment charge in the same period of the prior year.
(Logo: http://www.newscom.com/cgi-bin/prnh/20030430/PZZALOGO )
The company adopted Statement of Financial Accounting Standards No. 150,
"Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity" (SFAS 150) during the third quarter of 2003. SFAS 150
requires parent companies, among other things, to record minority interest
liabilities at estimated settlement value if the majority-owned subsidiary has
equity instruments that are redeemable at a fixed date and is certain to occur.
The company has a majority interest in one subsidiary, which owns and operates
23 Papa John's restaurants, that meets these provisions. During the third
quarter of 2003, the company recorded an after-tax cumulative effect adjustment
of $413,000 ($660,000 pre-tax), or $0.02 per share, related to the adoption of
SFAS 150. SFAS 150 is not expected to have a significant impact on future
reported earnings of the company.
Revenues were $678.3 million for the nine months ended September 28, 2003, a
decrease of 4.5% from 2002 revenues of $710.1 million. Net income for the nine
months ended September 28, 2003 was $25.3 million, including the previously
mentioned cumulative effect adjustment charge related to the adoption of SFAS
150 and a $4.7 million pre-tax charge related to restaurant closure or
impairment, compared to net income of $35.7 million in 2002, including a $1.0
million pre-tax charge related to restaurant closure, impairment or
dispositions. Diluted earnings per share decreased to $1.40 for the nine-month
period in 2003 from $1.72 for the comparable period in 2002.
As previously announced, domestic systemwide comparable sales for the third
quarter decreased 4.8% (consisting of a 4.1% decrease at company-owned
restaurants and a 5.0% decrease at franchise restaurants). For the nine months
ended September 28, 2003, domestic systemwide comparable sales decreased 4.8%
(consisting of a 4.7% decrease at company-owned restaurants and a 4.9% decrease
at franchise restaurants). The company believes its sales results for the
three- and nine-month periods continued to be impacted by weakness in the
delivery and carryout pizza segment and competitive pricing and promotional
activity within the segment.
A total of 20 restaurants were opened (one company-owned and 18 franchised Papa
John's restaurants and one franchised Perfect Pizza restaurant) and 16
restaurants were closed (13 franchised Papa John's restaurants and three
franchised Perfect Pizza restaurants) during the quarter. As of September 28,
2003, there were 2,803 Papa John's restaurants (591 company-owned and 2,212
franchised) operating in 49 states and 12 international markets. Papa John's
also has 139 franchised Perfect Pizza restaurants in the United Kingdom.
Third Quarter Operating Results
During the third quarter of 2003, domestic corporate restaurant sales were $98.9
million compared to $102.6 million for the same period in 2002. This 3.7%
decrease is primarily due to a 4.1% decrease in comparable sales for the 2003
quarter. Domestic franchise sales decreased 3.8% to $307.2 million from $319.2
million for the same period in 2002, primarily resulting from a 5.0% decrease in
comparable sales for the 2003 quarter, partially offset by an increase in the
number of equivalent franchise units.
The third quarter comparable sales base for domestic corporate restaurants
consisted of 566 units, or 97.4% of total equivalent units, and the domestic
franchise base consisted of 1,915 units or 96.1% of total equivalent units.
Average weekly sales for restaurants included in the corporate comparable base
were $13,113, while other corporate units averaged $12,072 for an overall
average of $13,086. Average weekly sales for the restaurants included in the
franchise comparable base were $11,935, while other franchise units averaged
$9,954 for an overall average of $11,858.
Domestic franchise royalties were $11.9 million in the third quarter of 2003, a
5.2% decrease from $12.6 million for the comparable period in 2002, primarily
due to the previously mentioned decline in franchised sales. Domestic franchise
and development fees were $402,000 in the quarter, including approximately
$152,000 recognized upon development cancellation or franchise renewal and
transfer, compared to $371,000 for the same period in 2002, as there were 13
domestic franchise restaurant openings in 2003 compared to 18 in 2002.
The restaurant operating margin at domestic company-owned units was 14.9% in the
third quarter of 2003 compared to 20.2% for the same period in 2002, consisting
of the following differences as a percent of company-owned restaurant sales:
* Cost of sales was 0.2% lower in 2003 primarily due to lower cheese and
other commodity costs, substantially offset by the previously announced
portion increases for several core pizza products implemented during the
second quarter of 2003.
* Salaries and benefits were 3.7% higher in 2003 reflecting the impact of
the across-the-board increase in base pay for General Managers and
Assistant Managers implemented during the third quarter of 2002, the
loss of leverage on fixed salaries due to the decrease in sales and
increased health insurance costs. Additionally, in connection with the
field management realignment announced in January, we have increased
restaurant staffing levels.
* Advertising and related costs were 1.0% higher in 2003 primarily due to
increases in national spending and lower than anticipated sales.
* Occupancy costs were 0.7% higher in 2003 due primarily to increased
general insurance and utility costs combined with lower sales.
* Other operating expenses were relatively consistent as a percentage of
sales.
Domestic commissary and other sales decreased to $100.8 million for the third
quarter of 2003 from $104.3 million for the comparable period in 2002, primarily
as a result of lower commissary sales due to reduced volumes and lower cheese
and other commodity costs, and lower equipment sales in 2003 as a result of
outsourcing this function in late 2002, partially offset by an increase in print
services sales and an increase in revenues from insurance- related services
provided to our franchisees.
Domestic commissary and other margin was 7.3% in the third quarter of 2003
compared to 9.7% for the same period in 2002. Cost of sales was 70.0% of
revenues in 2003 compared to 71.1% in 2002 primarily due to lower food costs
incurred by the commissaries (principally cheese, which has a fixed dollar as
opposed to a fixed percentage mark-up), a decrease in lower margin equipment
sales and an increase in the sales of insurance-related services to franchisees.
Salaries and benefits were 0.2% higher as a percentage of sales for 2003 as
compared to 2002 due to the loss of leverage on lower sales. Other operating
expenses increased to 15.4% in 2003 from 12.1% in 2002, primarily as a result of
a $2.1 million increase in claims loss reserves in the third quarter of 2003
related to the franchise insurance program and lower sales by commissaries
(certain operating costs are fixed in nature).
International revenues, which include the Papa John's United Kingdom operations,
were $7.6 million compared to $8.0 million for the same period in 2002, as lower
company-owned restaurant and commissary sales and development fees were
partially offset by a favorable exchange rate impact of $314,000. International
operating margin decreased to 13.2% in 2003 from 15.6% in 2002 primarily due to
lower margins and increased distribution costs associated with the U.K.
commissary operation.
General and administrative expenses were $16.4 million or 7.5% of revenues in
the third quarter of 2003 compared to $18.0 million or 7.9% of revenues in the
same period in 2002. The primary components of the $1.6 million decrease are
the previously mentioned restaurant field management realignment, which
eliminated a layer of management previously included in G&A, and a reduction in
corporate and restaurant field management bonuses. These reductions more than
offset the incremental costs incurred in 2003 related to the 2002 implementation
of certain restaurant quality initiatives, intended to better evaluate and
monitor the quality and consistency of the customer experience.
A provision for uncollectible notes receivable of $229,000 was recorded in the
third quarter of 2003 as compared to $759,000 for the same period in 2002. The
provision was based on our evaluation of our franchise loan portfolio and
primarily relates to specific loans for which certain scheduled payments have
been deferred as part of an overall workout arrangement. At September 28, 2003,
approximately $11.4 million in notes receivable was outstanding from franchisees
and affiliates, net of a $5.4 million reserve for uncollectible amounts,
reflecting net payments of approximately $2.2 million received during 2003.
Other general expenses were $426,000 in the third quarter of 2003 compared to
$1.1 million for the comparable period in 2002. The 2003 amount includes
$14,000 of pre-opening costs, $27,000 of relocation costs and $350,000 of
disposition-related costs of other assets. The 2002 amount includes $79,000 of
pre-opening costs, $125,000 of relocation costs, $358,000 of disposition-
related costs of other assets and $400,000 of costs we agreed to bear in
connection with a refurbishment plan concerning our heated delivery bag
systems.
Depreciation and amortization was $7.7 million (3.5% of revenues) in the third
quarter of 2003 compared to $8.0 million (3.5% of revenues) for the third
quarter of 2002.
As previously announced on October 7, 2003, the company has identified 23
underperforming restaurants for closure. The company recorded a pre-tax closure
charge of $2.1 million in the third quarter and expects to record an additional
$1.2 million in the fourth quarter, related to future net lease obligations, as
the restaurants are closed. Additionally, during the third quarter, the company
identified 25 underperforming restaurants that were subject to impairment
charges in accordance with Statement of Financial Accounting Standards No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets," and recorded a
pre-tax impairment charge of $2.1 million associated with these restaurants. A
majority of the underperforming restaurants identified for impairment or closure
are located in three of the twenty-one markets with company-owned units. The
total charge recorded for restaurant closure and impairment is $4.2 million in
the third quarter of 2003 compared to $200,000 in the third quarter of 2002.
Net interest expense was $1.5 million in the third quarter of 2003 as compared
to $1.6 million in 2002, as the lower outstanding debt balance and lower
effective interest rate on debt were substantially offset by lower interest
income from investments and franchise notes receivable in 2003. The company's
effective income tax rate was 37.5% in both 2003 and 2002.
On October 7, 2003, the company announced its planned adoption of Financial
Accounting Standards Board Interpretation No. 46, "Consolidation of Variable
Interest Entities, an Interpretation of Accounting Research Bulletin No. 51"
(FIN 46) effective at the beginning of the third quarter of 2003. Subsequent to
October 7, 2003, the FASB issued guidance deferring the required implementation
of FIN 46 until the last day of the company's 2003 fiscal year (December 28,
2003). Accordingly, the company will adopt the provisions of FIN 46 at the end
of 2003, resulting in the recording of a cumulative effect adjustment that is
expected to approximate the previously announced $5.4 million ($3.4 million
after tax, or $0.19 per share), representing the sum of the projected
shareholders' deficits, as defined, of all consolidated variable interest
entities at the end of the year. This estimated pre-tax cumulative effect
adjustment could change as a result of any supplemental FIN 46 guidance that
might be issued by the FASB prior to the release of the company's Q4 results, or
any significant transactions undertaken prior to the end of the year by the
variable interest entities of which we are deemed to be primary beneficiary.
Nine Month Operating Results
For the nine months ended September 28, 2003, domestic corporate restaurant
sales were $308.5 million compared to $323.4 million for the same period in
2002. This 4.6% decrease is primarily due to a 4.7% decrease in comparable sales
for the first nine months of 2003. Domestic franchise sales decreased 3.4% in
2003 to $961.4 million primarily resulting from a 4.9% decrease in comparable
sales for the 2003 period partially offset by an increase in the number of
equivalent franchise restaurants and an increase in average sales volumes for
franchise units not included in the comparable sales unit base.
The comparable sales base for domestic corporate restaurants for the nine months
ended September 28, 2003 consisted of 564 units, or 97.5% of total equivalent
units, and the domestic franchise base consisted of 1,906 units or 95.9% of
total equivalent units. Average weekly sales for restaurants included in the
corporate comparable base were $13,732, while other corporate units averaged
$11,204 for an overall average of $13,668. Average weekly sales for the
restaurants included in the franchise comparable base were $12,473, while other
franchise units averaged $10,716 for an overall average of $12,400.
Domestic franchise royalties decreased 4.5% to $36.9 million for the nine months
ended September 28, 2003 primarily due to the decrease in franchise sales noted
above. Domestic franchise and development fees, including amounts recognized
upon development cancellation or franchise renewal and transfer, were $941,000
for the nine months ended September 28, 2003 compared to $1.3 million for the
same period in 2002 as there were 38 domestic franchise unit openings in 2003 as
compared to 57 in 2002.
Restaurant operating margin at domestic company-owned units was 16.8% for the
nine months ended September 28, 2003 compared to 21.3% for the same period in
2002, primarily for the same reasons as those noted for the third quarter margin
decline.
Domestic commissary and other sales decreased 4.5% to $308.5 million for the
nine months ended September 28, 2003 from $322.9 million for the same period in
2002, primarily for the same reasons as those noted for the third quarter sales
decline.
Domestic commissary and other margin was 8.8% for the nine months ended
September 28, 2003 compared to 9.9% for the same period in 2002, primarily for
the same reasons as those noted for the third quarter margin decline. The
increase in claims loss reserves related to the franchise insurance program,
which is included in other operating expenses, for the nine months ended
September 28, 2003 amounted to $4.5 million.
International revenues, which include the Papa John's U.K. operations, decreased
1.1% to $23.5 million for the nine months ended September 28, 2003 compared to
$23.7 million for the same period in 2002, as lower company-owned restaurant and
commissary sales and development fees were offset by a favorable exchange rate
impact of $1.8 million. International operating margin for the nine months
ended September 28, 2003 decreased to 14.2% from 15.6% for the same period in
2002 primarily due to lower margins and increased distribution costs associated
with the U.K. commissary operation.
General and administrative expenses were $49.5 million or 7.3% of revenues for
the nine months ended September 28, 2003 as compared to $55.3 million or 7.8% of
revenues in the same period in 2002. The primary components of the $5.8 million
decrease are the previously mentioned restaurant field management realignment,
which eliminated a layer of management previously included in G&A, and a
reduction in corporate and restaurant field management bonuses. These reductions
more than offset the incremental costs incurred in 2003 related to the 2002
implementation of certain restaurant quality initiatives, intended to better
evaluate and monitor the quality and consistency of the customer experience.
A provision for uncollectible notes receivable of $1.0 million was recorded for
the nine months ended September 28, 2003, based on our evaluation of our
franchise loan portfolio, and primarily relates to specific loans for which
certain scheduled payments have been deferred as part of an overall workout
arrangement. The provision for uncollectible notes receivable was $2.2 million
for the same period in 2002.
Other general expenses (income) reflected net income of $345,000 for the nine
months ended September 28, 2003, as compared to net expense of $3.8 million for
the same period in 2002. The 2003 amount includes $124,000 of pre-opening
costs, $269,000 of relocation costs and $799,000 of disposition- related costs
of other assets, offset by $2 million of income derived from the settlement of a
legal matter during the second quarter of 2003. The 2002 amount includes
pre-opening costs of $153,000, relocation costs of $523,000 and $1.8 million of
disposition-related costs of other assets. The 2002 amount also includes
$900,000 of costs we agreed to bear in connection with a refurbishment plan
concerning our heated delivery bag systems.
Depreciation and amortization was $23.5 million (3.5% of revenues) for the nine
months ended September 28, 2003 as compared to $23.9 million (3.4% of revenues)
for the same period in 2002.
Net interest expense was $4.6 million for the nine months ended September 28,
2003 as compared to $4.8 million for the same period in 2002 as the lower
outstanding debt balance and lower effective interest rate on debt were
partially offset by lower interest income from investments and franchise notes
receivable in 2003. The company's effective income tax rate was 37.5% for both
2003 and 2002.
Cheese Costs
The cost of cheese has historically represented 35% to 40% of restaurant cost of
sales. In January 2000, Papa John's Franchise Advisory Council initiated a
program that allows the cost of cheese to Papa John's restaurants to be
established on a quarterly basis. Accordingly, the company's cheese costs do
not mirror the actual block market price for cheese on a short-term basis;
however, over time, the company's cheese costs will substantially equal the
average block market price. The quarterly equivalent per pound block market
price paid or to be paid by the company for 2002 and 2003 are as follows:
2003 2002 Increase/(Decrease)
Quarter 1 $1.159 $1.403 (17.4%)
Quarter 2 $1.122 $1.323 (15.2%)
Quarter 3 $1.242 $1.450 (14.3%)
Quarter 4 $1.217 $1.290 (5.7%)
Full Year $1.185 $1.367 (13.3%)
Restaurant Initiatives
The company has announced several restaurant initiatives throughout 2002 and
2003, including certain systemwide quality initiatives, increases in General
Manager and Assistant Manager base pay and incentive pay potential, increased
restaurant staffing levels, a realignment of the field management structure for
company-owned restaurants and a systemwide initiative to increase portions for
several core pizza products. The net annualized cost of these initiatives to
the company and its owned restaurants approximates $10 million.
Thus far during 2003, we have seen improved operational trends as a result of
these initiatives, including reduced turnover at the General Manager and
Assistant Manager positions, and improved product quality and consistency.
However, through the end of Q3, the improvements had not yet translated to
increased sales as the overall restaurant industry, the pizza category and the
economy continue to produce a very challenging environment. According to
industry sources, customer traffic count has been relatively flat or declined in
the QSR pizza segment for the latest reported seven consecutive quarters with
data for the most recent June-July-August quarter indicating a 2.8% decline in
transactions for the segment. Given the current industry and overall economic
environment, management cannot predict when operational improvements resulting
from these initiatives, or otherwise, may result in consistently improving sales
trends, although October results as presented below are encouraging.
Franchise Insurance Program
The company established a captive insurance company and began the insurance
program with franchisees in October 2000. The $2.4 million increase in claims
loss reserves recorded in the second quarter of 2003 reflects the results of an
actuarial valuation performed during the second quarter based upon updated
claims loss history. In response to this actuarially projected increase in
required reserve levels, the company engaged an additional independent actuary
to review and evaluate work previously performed. As a result of increasing loss
trends and the refinement of expected loss development factors, the additional
actuarial review performed during the third quarter indicated a further $2.1
million increase in claims loss reserves was necessary.
As a result of these claims loss reserve increases, the captive insurance
company has a deficit of approximately $4.5 million as of September 28, 2003.
Accordingly, premium rates have been increased substantially in an effort to
sufficiently fund expected claims losses and, eventually, recoup the $4.5
million deficit. However, the captive's relatively immature claims history
limits the predictive value of actuarial valuations with respect to ultimate
claims costs. Accordingly, the captive program could continue to incur
significant fluctuations in income or loss from reporting period to reporting
period until such time as the claims history is more mature and predictable. The
company will continue to attempt to identify opportunities to reduce this
volatility to the extent possible and will continue to evaluate this program for
the benefit of franchisees.
Share Repurchase Activity
The company did not repurchase any of its stock during the third quarter or in
October 2003. The company used its free cash flow during the third quarter to
reduce its outstanding debt $15.0 million from the June 29, 2003 balance. The
company's debt at September 28, 2003 totals $90.3 million. The company's Board
of Directors has authorized the repurchase of up to $375 million of common stock
through December 28, 2003. Through September 28, 2003 an aggregate of $349.8
million had been repurchased (representing 13.5 million shares, or approximately
44.3% of shares outstanding at the time the repurchase program was initiated, at
an average price of $25.89 per share). Approximately 17.9 million shares were
outstanding as of September 28, 2003 (approximately 18.0 million shares on a
fully-diluted basis). The company's decision to continue share repurchase
activities under the remaining Board authorization will be based upon an
evaluation of future cash flows, alternative uses of cash flow, debt levels, the
overall economic environment, pizza market segment trends, specific Papa John's
operational trends and other factors.
The company's 2002 and 2003 share repurchase activity increased earnings per
share by approximately $0.11 for the nine months ended September 28, 2003 (no
significant impact on the third quarter 2003 earnings per share).
October 2003 Comparable Sales Results
The company announced October domestic systemwide comparable sales increased
approximately 4.5% (6.2% increase at company-owned restaurants and 4.0% increase
at franchised restaurants). The October 2003 period included the introduction
of Barbeque Chicken & Bacon pizza and a Hawaiian Barbeque Chicken pizza
supported by national television; whereas the prior year period included various
local market option promotions, which were not supported by national
television.
Year-to-date domestic systemwide comparable sales through October decreased
approximately 4.0% (3.8% decrease at company-owned restaurants and 4.1% decrease
at franchised restaurants).
2003 Guidance
As disclosed in our October 7, 2003 announcement, the company reduced its
previous earnings guidance range ($2.20 to $2.26 per share) as a result of the
continued negative domestic comparable sales trends. The earnings impact of
these reduced operational results is expected to approximate $0.15 to $0.17 per
share. Additionally, the impact of closing 23 company-owned restaurants and the
impairment of 25 company-owned restaurants as previously noted will reduce 2003
pre-tax earnings approximately $5.4 million, or $0.19 per share. The earnings
per share are now expected to be in the $1.84 to $1.90 range, excluding the
impact of the adoption of FIN 46 and SFAS 150.
As previously mentioned, the adoption of FIN 46 at the end of 2003 will result
in the company recording a one-time cumulative effect pre-tax charge of
approximately $5.4 million ($3.4 million after tax, or $0.19 per share), subject
to any supplemental FIN 46 guidance that might be issued by the FASB prior to
the release of the company's Q4 results or significant transactions undertaken
prior to the end of the year by the variable interest entities of which we are
deemed to be primary beneficiary. The adoption of SFAS 150 during the third
quarter reduced 2003 earnings $413,000 after-tax, or $0.02 per share, through a
cumulative effect adjustment. The company's earnings per share for the full
year 2003, including the above-noted cumulative effect adjustments related to
FIN 46 and SFAS 150, is expected to be in the range of $1.63 to $1.69.
2004 Guidance
The company is continuing to review its plans for 2004, including projected net
unit growth and initiatives to improve company-owned and franchised restaurant
sales and operating margins. Guidance with respect to these plans will be
issued subsequent to review and approval by the Board of Directors, currently
expected to occur prior to year-end.
As of October 26, 2003, Papa John's had 2,796 restaurants (578 company- owned
and 2,218 franchised) operating in 49 states and 14 international markets. Papa
John's also operates an additional 137 franchised Perfect Pizza restaurants in
the United Kingdom. For more information about the company, please visit
http://www.papajohns.com/.
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; increased advertising, promotions and discounting 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 open new
restaurants and operate new and existing restaurants profitably; increases in
food, labor, utilities, employee benefits and similar costs; and economic and
political and health conditions in the countries in which the company or its
franchisees operate. These factors might be especially harmful to the financial
viability of franchisees in under-penetrated or emerging markets, leading to
greater unit closings than anticipated. Further information regarding factors
that could affect the company's financial and other results is included in the
company's Forms 10Q and 10K, filed with the Securities and Exchange Commission.
Summary Financial Data
Papa John's International, Inc.
Three Months Ended Nine Months Ended
(In thousands, except per share Sept. 28, Sept. 29, Sept. 28, Sept. 29,
amounts) 2003 2002 2003 2002
Revenues $219,589 $227,853 $678,340 $710,101
Net income $3,475 $10,463 $25,314 $35,721
Diluted earnings per share $0.19 $0.53 $1.40 $1.72
Diluted weighted-average shares
outstanding 18,035 19,885 18,019 20,805
EBITDA (1) $15,430 $26,330 $69,240 $85,843
(1) EBITDA represents operating performance before depreciation,
amortization, net interest, income taxes and the cumulative effect of
adopting SFAS 150. The closing and impairment of restaurants reduced
EBITDA approximately $4.2 million for the third quarter of 2003 and
$4.7 million for the first nine months of 2003 as compared to a
reduction of $200,000 for the third quarter of 2002 and $1.0 million
for the first nine months of 2002. 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.
Papa John's International, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
Three Months Ended Nine Months Ended
September September September September
(In thousands, except 28, 29, 28, 29,
per share 2003 2002 2003 2002
amounts) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
Revenues:
Domestic:
Restaurant sales $98,877 $102,638 $308,491 $323,435
Franchise royalties 11,922 12,579 36,919 38,649
Franchise and development
fees 402 371 941 1,323
Commissary sales 88,896 91,869 272,812 286,782
Other sales 11,931 12,402 35,695 36,165
International:
Royalties and franchise
and
development fees 1,434 1,567 4,532 4,472
Restaurant and commissary
sales 6,127 6,427 18,950 19,275
Total revenues 219,589 227,853 678,340 710,101
Costs and expenses:
Domestic:
Restaurant expenses:
Cost of sales 21,930 22,962 67,993 74,019
Salaries and benefits 33,024 30,457 100,601 93,752
Advertising and related
costs 9,088 8,430 28,261 26,659
Occupancy costs 6,631 6,133 19,225 17,695
Other operating
expenses 13,450 13,961 40,651 42,392
84,123 81,943 256,731 254,517
Commissary and other expenses:
Cost of sales 70,558 74,124 215,258 231,412
Salaries and benefits 7,339 7,391 21,741 22,390
Other operating
expenses 15,525 12,595 44,240 37,309
93,422 94,110 281,239 291,111
International operating
expenses 5,321 5,426 16,264 16,271
General and administrative
expenses 16,427 18,023 49,488 55,345
Provision for uncollectible notes
receivable 229 759 1,030 2,228
Restaurant closure, impairment and
dispositions 4,211 200 4,693 1,028
Other general expenses (income) 426 1,062 (345) 3,758
Depreciation and amortization 7,741 7,986 23,458 23,870
Total costs and expenses 211,900 209,509 632,558 648,128
Operating income 7,689 18,344 45,782 61,973
Investment income 117 332 533 874
Interest expense (1,585) (1,935) (5,152) (5,693)
Income before income taxes and
cumulative effect of a change in
accounting principle 6,221 16,741 41,163 57,154
Income tax expense 2,333 6,278 15,436 21,433
Income before cumulative effect
of a change in accounting
principle 3,888 10,463 25,727 35,721
Cumulative effect of accounting
change, net of tax (413) -- (413) --
Net income $3,475 $10,463 $25,314 $35,721
Basic earnings per common share:
Income before cumulative effect
of a change in accounting
principle $0.21 $0.53 $1.43 $1.74
Cumulative effect of accounting
change, net of tax (0.02) -- (0.02) --
Basic earnings per common
share $0.19 $0.53 $1.41 $1.74
Earnings per common share -
assuming dilution:
Income before cumulative effect
of a change in accounting
principle $0.21 $0.53 $1.42 $1.72
Cumulative effect of accounting
change, net of tax (0.02) -- (0.02) --
Earnings per common share -
assuming dilution $0.19 $0.53 $1.40 $1.72
Basic weighted-average shares
outstanding 17,931 19,643 17,918 20,553
Diluted weighted-average shares
outstanding 18,035 19,885 18,019 20,805
Papa John's International, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
September 28, December 29,
2003 2002
(Unaudited) (Note)
(In thousands)
Assets
Current assets:
Cash and cash equivalents $8,156 $9,499
Accounts receivable 18,273 16,763
Inventories 15,527 16,341
Prepaid expenses and other current
assets 10,166 10,955
Deferred income taxes 4,075 3,875
Total current assets 56,197 57,433
Investments 8,497 7,742
Net property and equipment 208,190 223,599
Notes receivable from franchisees and
affiliates 11,389 14,122
Goodwill 48,852 48,756
Other assets 14,794 13,817
Total assets $347,919 $365,469
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $19,981 $23,579
Income and other taxes 17,310 16,230
Accrued expenses 39,728 34,658
Current portion of debt 250 235
Total current liabilities 77,269 74,702
Unearned franchise and development
fees 5,413 3,915
Long-term debt, net of current
portion 90,000 139,850
Deferred income taxes 1,231 2,445
Other long-term liabilities 28,280 22,610
Total liabilities 202,193 243,522
Total stockholders' equity 145,726 121,947
Total liabilities and stockholders'
equity $347,919 $365,469
Note: The balance sheet at December 29, 2002 has been derived from the
audited consolidated financial statements at that date but does not
include all information and footnotes required by generally accepted
accounting principles for a complete set of financial statements.
Restaurant Progression
Papa John's International, Inc.
Third Quarter Ended September
28, 2003
Corporate Franchised
Domestic Int'l Domestic Int'l Total
Papa John's restaurants
Beginning of period 585 5 2,004 203 2,797
Opened 1 -- 13 5 19
Converted -- -- -- -- --
Closed -- -- (9) (4) (13)
Acquired -- -- -- -- --
Sold -- -- -- -- --
End of Period 586 5 2,008 204 2,803
Corporate Franchised
Domestic Int'l Domestic Int'l Total
Perfect Pizza restaurants
Beginning of period -- -- -- 141 141
Opened -- -- -- 1 1
Converted -- -- -- -- --
Closed -- -- -- (3) (3)
Acquired -- -- -- -- --
Sold -- -- -- -- --
End of Period -- -- -- 139 139
Third Quarter Ended September
29, 2002
Corporate Franchised
Domestic Int'l Domestic Int'l Total
Papa John's restaurants
Beginning of period 587 9 2,001 166 2,763
Opened 4 -- 18 5 27
Converted -- -- -- 12 12
Closed (2) -- (15) (3) (20)
Acquired -- -- -- 2 2
Sold -- (2) -- -- (2)
End of Period 589 7 2,004 182 2,782
Corporate Franchised
Domestic Int'l Domestic Int'l Total
Perfect Pizza restaurants
Beginning of period -- 2 -- 169 171
Opened -- -- -- -- --
Converted -- -- -- (12) (12)
Closed -- -- -- (2) (2)
Acquired -- -- -- -- --
Sold -- -- -- -- --
End of Period -- 2 -- 155 157
Restaurant Progression
Papa John's International, Inc.
Nine Months Ended September 28,
2003
Corporate Franchised
Domestic Int'l Domestic Int'l Total
Papa John's restaurants
Beginning of period 585 9 2,000 198 2,792
Opened 6 -- 38 22 66
Converted -- -- -- -- --
Closed (5) (1) (30) (19) (55)
Acquired -- 1 -- 4 5
Sold -- (4) -- (1) (5)
End of Period 586 5 2,008 204 2,803
Corporate Franchised
Domestic Int'l Domestic Int'l Total
Perfect Pizza restaurants
Beginning of period -- -- -- 144 144
Opened -- -- -- 2 2
Converted -- -- -- -- --
Closed -- -- -- (7) (7)
Acquired -- -- -- -- --
Sold -- -- -- -- --
End of Period -- -- -- 139 139
Nine Months Ended September 29,
2002
Corporate Franchised
Domestic Int'l Domestic Int'l Total
Papa John's restaurants
Beginning of period 601 10 1,988 130 2,729
Opened 9 -- 57 22 88
Converted -- 1 -- 31 32
Closed (15) -- (47) (5) (67)
Acquired 3 -- 9 4 16
Sold (9) (4) (3) -- (16)
End of Period 589 7 2,004 182 2,782
Corporate Franchised
Domestic Int'l Domestic Int'l Total
Perfect Pizza restaurants
Beginning of period -- 3 -- 190 193
Opened -- -- -- 2 2
Converted -- (1) -- (31) (32)
Closed -- -- -- (6) (6)
Acquired -- -- -- -- --
Sold -- -- -- -- --
End of Period -- 2 -- 155 157
For more information, contact:
David Flanery
Senior Vice President of Finance
502-261-4753
http://www.newscom.com/cgi-bin/prnh/20030430/PZZALOGO
http://photoarchive.ap.org/
DATASOURCE: Papa John's International, Inc.
CONTACT: David Flanery, Senior Vice President of Finance of Papa John's
International, Inc., +1-502-261-4753
Web site: http://www.papajohns.com/