2007 Earnings Guidance Updated; Franchise Renewal Program and Royalty Rate Increase Announced
Highlights
-- Third quarter earnings per diluted share of $0.16 in 2007 vs.
$0.40 in 2006 ($0.39 in 2007 vs. $0.31 in 2006, excluding the
consolidation of the company's franchisee-owned cheese
purchasing entity, BIBP Commodities, Inc. (BIBP))
-- Third quarter EPS includes $0.08 in 2007 and $0.03 in 2006
from the finalization of certain income tax issues
-- 49 net Papa John's restaurant openings worldwide during the
quarter
-- Domestic system-wide comparable sales increase of 0.2% for the
quarter
-- Worldwide system sales increase of 4.3% for the quarter
-- Earnings guidance for 2007 increased to a range of $1.64 to
$1.68 per diluted share, excluding the impact of consolidating
BIBP's results
-- Franchise agreement renewal program announced, including a
royalty rate increase
LOUISVILLE, Ky.--(BUSINESS WIRE)--Nov. 6, 2007--Papa John's International, Inc. (NASDAQ: PZZA) today announced revenues of $262.8 million for the third quarter of 2007, representing an increase of 9.6% from revenues of $239.7 million for the same period in 2006. Net income for the third quarter of 2007 was $4.8 million, or $0.16 per diluted share (including an after-tax loss of $7.0 million, or $0.23 per diluted share, from the consolidation of the results of the franchisee-owned cheese purchasing company, BIBP Commodities, Inc. (BIBP), a variable interest entity, and a gain of $2.4 million, or $0.08 per diluted share, from the finalization of certain income tax issues), compared to 2006 third quarter net income of $13.1 million, or $0.40 per diluted share (including an after-tax gain of $3.0 million, or $0.09 per diluted share, from the consolidation of BIBP, and a gain of $950,000, or $0.03 per diluted share, from the finalization of certain income tax issues).
Revenues were $779.7 million for the nine months ended September 30, 2007, representing an increase of 7.7% from revenues of $723.6 million for the same period in 2006. Net income for the nine months ended September 30, 2007 was $25.0 million, or $0.82 per diluted share (including a net loss of $12.5 million or $0.41 per diluted share, from the consolidation of BIBP and a gain of $2.4 million, or $0.08 per diluted share, from the previously mentioned finalization of certain income tax issues), compared to last year's net income of $44.4 million, or $1.33 per diluted share (including an after-tax gain of $10.4 million, or $0.31 per diluted share, from the consolidation of BIBP and a gain of $950,000, or $0.03 per diluted share, from the previously mentioned finalization of certain income tax issues).
The following table summarizes the above-mentioned items impacting 2007 earnings per diluted share, as compared to the same periods presented for the prior year:
Three Months Ended Nine Months Ended
------------------- -------------------
Sept. 30, Sept. 24, Sept. 30, Sept. 24,
2007 2006 2007 2006
--------- --------- --------- ---------
Earnings per diluted share, as
reported $ 0.16 $ 0.40 $ 0.82 $ 1.33
Loss (Gain) from BIBP cheese
purchasing entity 0.23 (0.09) 0.41 (0.31)
(Gain) from finalization of
certain income tax issues (0.08) (0.03) (0.08) (0.03)
--------- --------- --------- ---------
Earnings per diluted share,
excluding noted items $ 0.31 $ 0.28 $ 1.15 $ 0.99
========= ========= ========= =========
-- Domestic Company-owned Restaurant Segment. Domestic
company-owned restaurants' operating income for the three
months ended September 30, 2007 was $3.5 million, or a
decrease of $2.1 million, from the comparable 2006 period. For
the nine-month period ended September 30, 2007, operating
income was $19.2 million, or a decrease of $3.8 million, from
the comparable 2006 period. The decline in operating income
for the three- and nine-month periods is primarily due to an
increase in wages (including the impact of a federal minimum
wage increase in July 2007 and certain other minimum wage
increases in various states), increased commodity costs and
increased marketing expenditures at the local market level.
The third quarter 2007 results also include a loss of $500,000
associated with our plan to sell certain company-owned
restaurants in one market. The nine-month period results were
favorably impacted by a $594,000 pre-tax gain associated with
the termination of a lease agreement in the second quarter of
2007.
-- Domestic Commissary Segment. Domestic commissaries' operating
income increased approximately $1.5 million and $3.6 million
for the three- and nine-month periods ended September 30,
2007, respectively, from the comparable 2006 periods. These
increases are principally due to increased volumes of higher
margin fresh dough products and improved margins from other
commodities.
-- Domestic Franchising Segment. Domestic franchising operating
income decreased $501,000 and $1.1 million for the three- and
nine-month periods ended September 30, 2007, respectively,
from the comparable 2006 periods. These decreases are
principally due to costs associated with an increase in our
field organizational support staff to improve the performance
of our domestic franchise operations. Royalty revenue was
flat, as an approximate 2.0% decrease in equivalent franchise
units due to various acquisitions of franchise units by the
company was offset by a reduction in royalty waivers granted
to franchisees.
-- International Segment. The international operating results,
which exclude the Perfect Pizza operations in the United
Kingdom that were sold in March 2006, reported losses of $2.0
million and $6.4 million for the three- and nine-month periods
ended September 30, 2007, respectively, compared to losses of
$2.0 million and $6.8 million, respectively, in the same
periods of the prior year. The improvement in the operating
results for the nine-month period was due to the prior year
results including a $470,000 charge incurred in the second
quarter of 2006 related to management reorganization costs in
one of our international operating units. Increased revenues
in 2007 due to the growth in number of units and unit volumes
were substantially offset by increased personnel and
infrastructure investment costs.
-- All Others Segment. The "All others" reporting segment
reported operating earnings of $1.3 million and $4.0 million
for the three- and nine-month periods ended September 30,
2007, respectively, compared to $1.1 million and $3.8 million,
respectively, in the same periods of the prior year. The
increase of $242,000 in operating income for the three-month
period was primarily due to an improvement in the operating
results of our print and promotions operations, reflecting an
increase in our sales to commercial customers. The increase of
$249,000 for the nine-month period was primarily due to the
improved operating results of our online operation. The
nine-month period operating results at our print and
promotions operations during 2007 are substantially the same
as the 2006 results.
-- Unallocated Corporate Segment. Unallocated corporate expenses
decreased approximately $1.0 million and $4.0 million for the
three- and nine-month periods ended September 30, 2007,
respectively, as compared to the corresponding periods of
2006. The decreases in both periods are primarily due to lower
general and administrative costs, including management
incentives (as more fully discussed below), health insurance
and legal costs. The nine-month period decrease was also
impacted by the collection of a $650,000 receivable, which had
previously been reserved, from Papa Card, Inc., a nonstock,
nonprofit corporation, which administers the Papa John's gift
card program.
Three Months Ended Nine Months Ended
------------------- -------------------
Sept. 30, Sept. 24, Sept. 30, Sept. 24,
2007 2006 2007 2006
---------------------------------------
Stock options $1,193 $1,187 $ 3,048 $ 3,069
Restricted stock 511 71 759 119
Performance unit plan (57) 856 (207) 2,209
Management incentive bonus
plan 1,200 1,587 2,950 5,539
---------------------------------------
Total expense $2,847 $3,701 $ 6,550 $10,936
=======================================
Decrease $ (854) $(4,386)
========= =========
Three Months Ended
------------------------------
Percentage
Sept. 30, Sept. 24, Increase
2007 2006 (Decrease)
------------------------------
Domestic:
Company-owned $126,610 $107,793 17.5%
Franchised 352,607 359,070 (1.8%)
------------------------------
Total Domestic 479,217 466,863 2.6%
International 45,413 36,235 25.3%
------------------------------
Total System-wide Sales $524,630 $503,098 4.3%
==============================
Nine Months Ended
--------------------------------
Percentage
Sept. 30, Sept. 24, Increase
2007 2006 (Decrease)
--------------------------------
Domestic:
Company-owned $ 368,287 $ 319,957 15.1%
Franchised 1,093,082 1,116,279 (2.1%)
--------------------------------
Total Domestic 1,461,369 1,436,236 1.7%
International 128,921 100,393 28.4%
--------------------------------
Total System-wide Sales $1,590,290 $1,536,629 3.5%
================================
-- Providing visibility to franchisees as to the potential timing
and amount of future royalty rate increases;
-- Ensuring minimum funding levels for the National Marketing
Fund given the scale advantages of our larger competitors;
-- Providing a funding mechanism for continued investment in
maintaining and enhancing our online technological
capabilities; and
-- Addressing alternative marketing or other business
developments to ensure the new form of franchise agreement is
consistent and up to date.
Summary Financial Data
Papa John's International, Inc.
(Unaudited)
Three Months Ended Nine Months Ended
------------------- -------------------
(In thousands, except per Sept. 30, Sept. 24, Sept. 30, Sept. 24,
share amounts) 2007 2006 2007 2006
--------- --------- --------- ---------
Revenues $262,775 $239,692 $779,655 $723,634
========= ========= ========= =========
Income from continuing
operations before income
taxes (1) $ 3,839 $ 19,798 $ 35,662 $ 68,813
========= ========= ========= =========
Net income $ 4,827 $ 13,108 $ 24,991 $ 44,376
========= ========= ========= =========
Earnings per share - assuming
dilution $ 0.16 $ 0.40 $ 0.82 $ 1.33
========= ========= ========= =========
Weighted average shares
outstanding - assuming
dilution 30,027 32,583 30,435 33,296
========= ========= ========= =========
EBITDA (A) $ 13,418 $ 27,101 $ 63,236 $ 89,972
========= ========= ========= =========
(1) See information below on a reporting unit basis that separately
identifies the impact of consolidating VIEs on income from continuing
operations before income taxes.
The following is a summary of our income (loss) from continuing
operations before income taxes:
Domestic company-owned
restaurants $ 3,493 $ 5,562 $ 19,243 $ 23,012
Domestic commissaries 9,661 8,158 27,592 24,023
Domestic franchising 11,629 12,130 36,737 37,881
International (2,022) (2,003) (6,374) (6,763)
VIEs, primarily BIBP (10,707) 5,336 (19,370) 17,027
All others 1,321 1,079 4,045 3,796
Unallocated corporate expenses (9,369) (10,354) (25,150) (29,172)
Elimination of intersegment
profits (167) (110) (1,061) (991)
--------- --------- --------- ---------
Income from continuing
operations before income
taxes $ 3,839 $ 19,798 $ 35,662 $ 68,813
========= ========= ========= =========
The following is a reconciliation of EBITDA to net income:
EBITDA (A) $ 13,418 $ 27,101 $ 63,236 $ 89,972
Income tax (expense) benefit 988 (6,690) (10,671) (24,826)
Net interest (1,668) (629) (4,179) (1,321)
Depreciation and amortization (7,911) (6,674) (23,395) (19,838)
Income from discontinued
operations, net of tax - - - 389
--------- --------- --------- ---------
Net income $ 4,827 $ 13,108 $ 24,991 $ 44,376
========= ========= ========= =========
(A) Management considers EBITDA to be a meaningful indicator of
operating performance from continuing operations before depreciation,
amortization, net interest and income taxes. EBITDA provides us with
an understanding of one aspect of earnings before the impact of
investing and financing transactions and income taxes. While EBITDA
should not be construed as a substitute for net income or a better
indicator of liquidity than cash flows from operating activities,
which are determined in accordance with accounting principles
generally accepted in the United States (GAAP), it is included herein
to provide additional information with respect to the ability of the
company to meet its future debt service, capital expenditure and
working capital requirements. EBITDA is not necessarily a measure of
the company's ability to fund its cash needs and it excludes
components that are significant in understanding and assessing our
results of operations and cash flows. In addition, EBITDA is not a
term defined by GAAP and as a result our measure of EBITDA might not
be comparable to similarly titled measures used by other companies.
The above EBITDA calculation includes the operating results of BIBP
Commodities, Inc., a variable interest entity.
For more information about the company, please visit www.papajohns.com.
Papa John's International, Inc. and Subsidiaries
Consolidated Statements of Income
Three Months Ended Nine Months Ended
--------------------------- ---------------------------
September 30, September 24, September 30, September 24,
2007 2006 2007 2006
--------------------------- ---------------------------
(In thousands, (Unaudited) (Unaudited) (Unaudited) (Unaudited)
except per
share amounts)
Revenues:
Domestic:
Company-
owned
restaurant
sales $126,610 $107,793 $368,287 $319,957
Variable
interest
entities
restaurant
sales 1,862 1,320 5,151 6,457
Franchise
royalties 13,158 13,186 41,356 41,388
Franchise
and
development
fees 602 792 1,905 1,973
Commissary
sales 97,753 98,272 294,176 301,932
Other sales 14,995 12,529 46,841 35,601
International:
Royalties
and
franchise
and
development
fees 2,514 1,906 7,185 5,202
Restaurant
and
commissary
sales 5,281 3,894 14,754 11,124
--------------------------- ---------------------------
Total revenues 262,775 239,692 779,655 723,634
Costs and
expenses:
Domestic
Company-
owned
restaurant
expenses:
Cost of
sales 28,950 21,309 79,867 61,837
Salaries and
benefits 38,369 32,291 111,241 95,044
Advertising
and related
costs 12,998 10,385 35,060 29,398
Occupancy
costs 8,652 7,209 23,461 19,735
Other
operating
expenses 17,330 14,580 50,134 42,157
--------------------------- ---------------------------
Total
domestic
Company-
owned
restaurant
expenses 106,299 85,774 299,763 248,171
Variable
interest
entities
restaurant
expenses 1,566 1,112 4,297 5,443
Domestic
commissary
and other
expenses:
Cost of
sales 81,006 79,957 243,725 245,366
Salaries and
benefits 8,692 7,991 26,496 23,307
Other
operating
expenses 10,915 11,549 33,060 33,971
--------------------------- ---------------------------
Total
domestic
commissary
and other
expenses 100,613 99,497 303,281 302,644
Loss (income)
from the
franchise
cheese-
purchasing
program, net
of minority
interest 7,854 (4,337) 14,032 (14,102)
International
operating
expenses 4,557 3,936 13,021 11,242
General and
administrative
expenses 27,282 26,427 77,903 77,057
Minority
interests and
other general
expenses 1,186 182 4,122 3,207
Depreciation
and
amortization 7,911 6,674 23,395 19,838
--------------------------- ---------------------------
Total costs and
expenses 257,268 219,265 739,814 653,500
--------------------------- ---------------------------
Operating
income from
continuing
operations 5,507 20,427 39,841 70,134
Net interest (1,668) (629) (4,179) (1,321)
--------------------------- ---------------------------
Income from
continuing
operations
before income
taxes 3,839 19,798 35,662 68,813
Income tax
expense
(benefit) (988) 6,690 10,671 24,826
--------------------------- ---------------------------
Income from
continuing
operations 4,827 13,108 24,991 43,987
Income from
discontinued
operations,
net of tax - - - 389
--------------------------- ---------------------------
Net income $ 4,827 $ 13,108 $ 24,991 $ 44,376
=========================== ===========================
Basic earnings
per common
share:
Income from
continuing
operations $ 0.16 $ 0.41 $ 0.83 $ 1.35
Income from
discontinued
operations,
net of tax - - - 0.01
--------------------------- ---------------------------
Basic earnings
per common
share $ 0.16 $ 0.41 $ 0.83 $ 1.36
=========================== ===========================
Earnings per
common share -
assuming
dilution:
Income from
continuing
operations $ 0.16 $ 0.40 $ 0.82 $ 1.32
Income from
discontinued
operations,
net of tax - - - 0.01
--------------------------- ---------------------------
Earnings per
common share -
assuming
dilution $ 0.16 $ 0.40 $ 0.82 $ 1.33
=========================== ===========================
Basic weighted
average shares
outstanding 29,708 31,957 29,942 32,556
=========================== ===========================
Diluted
weighted
average shares
outstanding 30,027 32,583 30,435 33,296
=========================== ===========================
Papa John's International, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
September 30, December 31,
2007 2006
(Unaudited) (Note)
------------- ------------
(In thousands)
Assets
Current assets:
Cash and cash equivalents $ 8,078 $ 12,979
Accounts receivable 21,100 23,326
Inventories 22,622 26,729
Prepaid expenses 5,780 7,779
Other current assets 5,979 7,368
Deferred income taxes 9,310 6,362
------------- ------------
Total current assets 72,869 84,543
Investments 522 1,254
Net property and equipment 202,015 197,722
Notes receivable 11,693 12,104
Deferred income taxes 9,320 1,643
Goodwill 86,403 67,357
Other assets 17,745 15,016
------------- ------------
Total assets $400,567 $379,639
============= ============
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 29,560 $ 29,202
Income and other taxes 11,118 15,136
Accrued expenses 56,513 57,233
Current portion of debt 14,400 525
------------- ------------
Total current liabilities 111,591 102,096
Unearned franchise and development fees 7,130 7,562
Long-term debt, net of current portion 124,508 96,511
Other long-term liabilities 29,900 27,302
------------- ------------
Total liabilities 273,129 233,471
Total stockholders' equity 127,438 146,168
------------- ------------
Total liabilities and stockholders' equity $400,567 $379,639
============= ============
Note: The balance sheet at December 31, 2006 has been derived from the
audited consolidated financial statements at that date, but does not
include all information and footnotes required by accounting
principles generally accepted in the United States for a complete set
of financial statements.
Papa John's International, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Nine Months Ended
-------------------------------------
(In thousands) September 30, 2007 September 24, 2006
-------------------------------------
(Unaudited) (Unaudited)
Operating activities
Net income $ 24,991 $ 44,376
Results from discontinued
operations (net of income taxes) - (389)
Adjustments to reconcile net
income to net cash provided by
operating activities:
Provision for uncollectible
accounts and notes
receivable 1,204 2,423
Depreciation and
amortization 23,395 19,838
Deferred income taxes (10,315) 803
Stock-based compensation
expense 3,807 3,188
Excess tax benefit related
to exercise of non-
qualified stock options (3,047) (4,128)
Other 4,118 4,199
Changes in operating assets
and liabilities, net of
acquisitions:
Accounts receivable 1,633 (2,717)
Inventories 4,099 (862)
Prepaid expenses 1,529 2,462
Other current assets 2,329 1,860
Other assets and
liabilities (2,514) (5,087)
Accounts payable 295 (1,383)
Income and other taxes (3,404) (501)
Accrued expenses (511) 4,138
Unearned franchise and
development fees (432) (360)
------------------ ------------------
Net cash provided by operating
activities from continuing
operations 47,177 67,860
Operating cash flows from
discontinued operations - 414
------------------ ------------------
Net cash provided by operating
activities 47,177 68,274
Investing activities
Purchase of property and
equipment (23,091) (26,606)
Proceeds from sale of property
and equipment 30 69
Purchase of investments - (2,014)
Proceeds from sale or maturity of
investments 732 5,599
Loans issued (5,966) (5,008)
Loan repayments 5,839 6,848
Acquisitions (24,983) (18,858)
Proceeds from divestiture of
restaurants 632 -
------------------ ------------------
Net cash from continuing
operations used in investing
activities (46,807) (39,970)
Proceeds from divestiture of
discontinued operations - 8,020
------------------ ------------------
Net cash used in investing
activities (46,807) (31,950)
Financing activities
Net proceeds from line of credit
facility 28,000 500
Net proceeds (repayments) from
short-term debt - variable
interest entities 13,875 (2,075)
Excess tax benefit related to
exercise of non-qualified stock
options 3,047 4,128
Proceeds from exercise of stock
options 10,790 13,134
Acquisition of Company common
stock (61,943) (63,969)
Other 862 177
------------------ ------------------
Net cash used in financing
activities (5,369) (48,105)
Effect of exchange rate changes
on cash and cash equivalents 98 78
------------------ ------------------
Change in cash and cash
equivalents (4,901) (11,703)
Cash and cash equivalents at
beginning of period 12,979 22,098
------------------ ------------------
Cash and cash equivalents at end
of period $ 8,078 $ 10,395
================== ==================
Restaurant Progression
Papa John's International, Inc.
Third Quarter Ended September 30, 2007
--------------------------------------
Corporate Franchised
Domestic Int'l Domestic Int'l Total
--------------------------------------
Papa John's restaurants
Beginning of period 606 8 2,096 380 3,090
Opened 2 1 36 28 67
Closed (1) - (12) (5) (18)
Acquired 42 2 - - 44
Sold - - (42) (2) (44)
--------------------------------------
End of Period 649 11 2,078 401 3,139
======================================
Third Quarter Ended September 24, 2006
--------------------------------------
Corporate Franchised
Domestic Int'l Domestic Int'l Total
--------------------------------------
Papa John's restaurants
Beginning of period 510 6 2,125 319 2,960
Opened 5 - 26 17 48
Closed - - (22) (8) (30)
Acquired 43 - - - 43
Sold - - (43) - (43)
--------------------------------------
End of Period 558 6 2,086 328 2,978
======================================
Restaurant Progression
Papa John's International, Inc.
Nine Months Ended September 30, 2007
------------------------------------
Corporate Franchised
Domestic Int'l Domestic Int'l Total
------------------------------------
Papa John's restaurants
Beginning of period 577 11 2,080 347 3,015
Opened 15 1 96 64 176
Closed (3) - (38) (11) (52)
Acquired 61 2 1 3 67
Sold (1) (3) (61) (2) (67)
------------------------------------
End of Period 649 11 2,078 401 3,139
====================================
Nine Months Ended September 24, 2006
------------------------------------
Corporate Franchised
Domestic Int'l Domestic Int'l Total
------------------------------------
Papa John's restaurants
Beginning of period 502 2 2,097 325 2,926
Opened 11 1 82 57 151
Closed (1) - (47) (51) (99)
Acquired 46 3 - - 49
Sold - - (46) (3) (49)
------------------------------------
End of Period 558 6 2,086 328 2,978
====================================
------------------------------------
Corporate Franchised
Domestic Int'l Domestic Int'l Total
------------------------------------
Perfect Pizza restaurants
Beginning of period - - - 112 112
Closed - - - (3) (3)
Sold - - - (109) (109)
------------------------------------
End of Period - - - - -
====================================
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