UNITED STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM 8-K
Current Report
Pursuant
to Section 13 or 15(d) of
The
Securities Exchange Act of 1934
Date of Report (Date of earliest event
reported):
August
7, 2018
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) |
2002 Papa Johns Boulevard
Louisville,
Kentucky 40299-2367
(Address
of principal executive offices)
(502) 261-7272
(Registrant’s
telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
⃞ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
⃞ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
⃞ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
⃞ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company [ ]
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
Section 2 – Financial Information
Item 2.02 Results of Operations and Financial Condition
On August 7, 2018, Papa John’s International, Inc. issued a press release announcing second quarter 2018 financial results.
Section 9 – Financial Statements and Exhibits
Item 9.01 Financial Statements and Exhibits
(d) Exhibits
Exhibit |
||
Number |
Description |
|
99.1 |
Papa John’s International, Inc. press release dated August 7, 2018. |
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: August 7, 2018 |
/s/ Joseph H. Smith, IV |
Joseph H. Smith, IV |
|
Senior Vice President, Chief Financial |
|
Officer |
EXHIBIT INDEX
Exhibit |
Description of Exhibit | |
Papa John’s International, Inc. press release dated August 7, 2018. |
Exhibit 99.1
Papa John’s Announces Second Quarter 2018 Results and Updates 2018 Outlook
LOUISVILLE, Ky.--(BUSINESS WIRE)--August 7, 2018--Papa John’s International, Inc. (NASDAQ: PZZA) today announced financial results for the three and six months ended July 1, 2018.
Highlights
“Earlier this year, we began implementing key changes in how we operate and market our products to refocus on quality and better connect with customers,” said Steve Ritchie, President and CEO of Papa John’s. “While results have been challenged by recent events, we are committed to these strategic priorities and continue to believe that they will lead to enhanced performance. We have also begun an external audit of Papa John’s culture and will address any improvements that are recommended at its conclusion. Our entire leadership team understands the importance of getting our culture and business improvements right. We have important work ahead of us, and I feel certain that with the collective efforts of our 120,000 corporate and franchise team members that the best days for Papa John’s are ahead.”
Operating Highlights
(In thousands, except per share amounts) |
||||||||||||||||||
Three Months Ended | Six Months Ended | |||||||||||||||||
July 1, 2018 |
June 25, 2017 |
Increase / (Decrease) % |
July 1, 2018 |
June 25, 2017 |
Increase / (Decrease) % |
|||||||||||||
Total revenue | $ | 407,959 | $ | 434,778 | (6.2 | %) | $ | 835,328 | $ | 884,044 | (5.5 | %) | ||||||
Income before income taxes | 19,705 | 35,458 | (44.4 | %) | 42,067 | 77,329 | (45.6 | %) | ||||||||||
Net income | 11,791 | 23,538 | (49.9 | %) | 28,528 | 51,966 | (45.1 | %) | ||||||||||
Diluted EPS | $ | 0.36 | $ | 0.65 | (44.6 | %) | $ | 0.86 | $ | 1.42 | (39.4 | %) | ||||||
Diluted EPS, adjusted | $ | 0.49 | $ | 0.65 | (24.6 | %) | $ | 0.98 | $ | 1.42 | (31.0 | %) | ||||||
All operating highlights are compared to the same period of the prior year, unless otherwise noted.
Adjusted financial results excluding Special items, which impact comparability, are summarized in the following reconciliation. The table reconciles our GAAP financial results to our adjusted financial results, which are non-GAAP measures. All highlights are compared to the same period of the prior year, unless otherwise noted.
Three Months Ended | Six Months Ended | ||||||||||||
Jul. 1, | Jun. 25, | Jul. 1, | Jun. 25, | ||||||||||
(In thousands, except per share amounts) | 2018 | 2017 | 2018 | 2017 | |||||||||
GAAP Income before income taxes | $ | 19,705 |
|
$ | 35,458 | $ | 42,067 | $ | 77,329 | ||||
Special items: | |||||||||||||
Refranchising losses, net | 2,122 |
|
- | 1,918 | - | ||||||||
Adjusted income before income taxes | $ | 21,827 |
|
$ | 35,458 | $ | 43,985 | $ | 77,329 | ||||
GAAP Net income | $ | 11,791 | $ | 23,538 | $ | 28,528 | $ | 51,966 | |||||
Special items: | |||||||||||||
Refranchising losses, net (1) | 1,647 | - | 1,488 | - | |||||||||
Tax impact of China refranchising | 2,435 | - | 2,435 | - | |||||||||
Adjusted net income | $ | 15,873 | $ | 23,538 | $ | 32,451 | $ | 51,966 | |||||
GAAP Diluted earnings per share | $ | 0.36 | $ | 0.65 | $ | 0.86 | $ | 1.42 | |||||
Special items: | |||||||||||||
Refranchising losses, net | 0.05 | - | 0.05 | - | |||||||||
Tax impact of China refranchising | 0.08 | - | 0.07 | - | |||||||||
Adjusted diluted earnings per share | $ | 0.49 | $ | 0.65 | $ | 0.98 | $ | 1.42 | |||||
(1) Tax effect was calculated using the company's marginal rate of 22.4%. | |||||||||||||
On June 15, 2018, we refranchised our China operations including our 34 company-owned restaurants and the quality control center. The refranchising losses, net of tax, of $1.6 million for the second quarter of 2018 and $1.5 million for the six months ended July 1, 2018 are primarily driven by this China refranchise. We also had $2.4 million of additional tax expense associated with the China refranchise. This additional tax expense is primarily attributable to the required recapture of operating losses previously taken by Papa John’s International.
The non-GAAP adjusted results shown above should not be construed as a substitute for or a better indicator of the company’s performance than the company’s GAAP results. Management believes presenting the financial information excluding these Special items is important for purposes of comparison to prior year results. In addition, management uses these metrics to evaluate the company’s underlying operating performance, to analyze trends, and to determine compensation.
Consolidated revenues decreased $26.8 million, or 6.2%, for the second quarter of 2018 and decreased $48.7 million, or 5.5%, for the six months ended July 1, 2018. These decreases were primarily due to lower comparable sales for North America restaurants that resulted in lower company-owned restaurant revenues, lower royalties and decreased North America commissary sales. These decreases were somewhat offset by higher International revenues due to an increase in equivalent units and the favorable impact of foreign exchange rates and the impact of higher commodity prices on North America commissary revenues. Additionally, 2018 included an increase in revenues of approximately $1.8 million and $4.3 million for the quarter and six months ended July 1, 2018, respectively, primarily due to the required reporting of franchise marketing fund contributions as revenues (previously netted with expenses) under the newly adopted revenue recognition standard, Revenue from Contracts with Customers (“Topic 606”); see the “Revenue Recognition and Income Statement Presentation” section below for more details.
Consolidated income before income taxes of $19.7 million for the second quarter of 2018 decreased $15.8 million, or 44.4%, compared to the second quarter of 2017. Income before income taxes, as a percentage of consolidated revenues, was 4.8% for the second quarter of 2018, as compared to 8.2% for the second quarter of 2017. The $15.8 million decrease was primarily driven by lower North America revenues as explained above, higher restaurant operating costs, higher interest expense and a loss on the sale of our China operations. Significant changes in the components of income before income taxes are as follows:
For the six months ended July 1, 2018 consolidated income before income taxes was $42.1 million, a decrease of $35.3 million, or 45.6%, compared to the six months ended June 25, 2017. Income before income taxes, as a percentage of consolidated revenues, was 5.0% for the six months ended July 1, 2018 compared to 8.7% for the six months ended June 25, 2017. These decreases were primarily due to the same reasons noted above for the three-month period. In addition, for the six months ended July 1, 2018, G&A expenses increased $1.8 million, or 2.3%, primarily due to an increase in various technology initiative costs and higher bad debt expenses and legal fees.
Operating margin is not a measurement defined by GAAP and should not be considered in isolation, or as an alternative to evaluation of the company’s financial performance. In addition to an evaluation of GAAP consolidated income before income taxes, we believe the presentation of operating margin is beneficial as it represents an additional measure used by the company to further evaluate operating efficiency and performance of the various business units. Additionally, operating margin discussion may be helpful for comparison within the industry. The operating margin results detailed herein can be calculated by business unit based on the specific revenue and operating expense line items on the face of the Condensed Consolidated Income Statement. Consolidated income before income taxes reported includes G&A expenses, depreciation and amortization, refranchising losses and net interest expense that have been excluded from this operating margin calculation.
The effective income tax rates were 35.7% and 28.6% for the three and six months ended July 1, 2018, respectively, representing an increase of 6.2% and a decrease of 0.5%, respectively, from the prior year comparable periods. The increase for the three months ended July 1, 2018 was due the impact of the China refranchising, as previously discussed. Excluding the China refranchising impact of 12.4% and 5.8%, the effective income tax rates were 23.4% and 22.8% for the three and six months ended July 1, 2018, respectively.
Diluted earnings per share decreased 44.6% to $0.36 for the second quarter of 2018 and decreased 39.4% to $0.86 for the six months ended July 1, 2018. Adjusted diluted earnings per share decreased 24.6% to $0.49 for the second quarter of 2018 and 31.0% to $0.98 for the six months ended.
Global Restaurant and Comparable Sales Information
Three Months Ended | Six Months Ended | |||||||
July 1, 2018 |
June 25, 2017 |
July 1, 2018 |
June 25, 2017 |
|||||
Global restaurant sales (decline) / growth (a) | (2.3%) | 4.1% | (1.8%) | 4.5% | ||||
Global restaurant sales growth, excluding the impact of foreign currency (a) |
2.3% | 5.1% | 0.6% | 5.3% | ||||
Comparable sales (decline) / growth (b) | ||||||||
Domestic company-owned restaurants | (7.2%) | 2.3% | (6.7%) | 2.7% | ||||
North America franchised restaurants | (5.7%) | 1.1% | (5.3%) | 1.4% | ||||
System-wide North America restaurants | (6.1%) | 1.4% | (5.7%) | 1.7% | ||||
System-wide international restaurants | (0.8%) | 3.9% | (0.3%) | 4.9% | ||||
(a) | Includes both company-owned and franchised restaurant sales. |
(b) | Represents the change in year-over-year sales for the same base of restaurants for the same fiscal periods. Comparable sales results for restaurants operating outside of the United States are reported on a constant dollar basis, which excludes the impact of foreign currency translation. |
We believe North America, international and global restaurant and comparable sales growth information, as defined in the table above, is useful in analyzing our results since our franchisees pay royalties that are based on a percentage of franchise sales. Franchise sales also generate commissary revenue in the United States and in certain international markets. Franchise restaurant and comparable sales growth information is also useful for comparison to industry trends and evaluating the strength of our brand. Management believes the presentation of franchise restaurant sales growth, excluding the impact of foreign currency, provides investors with useful information regarding underlying sales trends and the impact of new unit growth without being impacted by swings in the external factor of foreign currency. Franchise restaurant sales are not included in company revenues.
Free Cash Flow
The company’s free cash flow, a non-GAAP financial measure, was as follows for the first six months of 2018 and 2017 (in thousands):
Six Months Ended | ||||||||
July 1, | June 25, | |||||||
2018 | 2017 | |||||||
Net cash provided by operating activities (a) | $ | 74,201 | $ | 77,863 | ||||
Purchases of property and equipment (b) | (21,562 | ) | (30,457 | ) | ||||
Free cash flow | $ | 52,639 | $ | 47,406 | ||||
(a) | The decrease of $3.7 million was primarily due to lower net income somewhat offset by favorable changes in working capital items. |
(b) | The decrease of $8.9 million was primarily due to higher capital expenditures in 2017 related to the construction of the company’s new domestic commissary in Georgia, which opened in the third quarter of 2017. |
We define free cash flow as net cash provided by operating activities (from the Consolidated Statements of Cash Flows) less the amounts spent on the purchase of property and equipment. We view free cash flow as an important liquidity measure because it is one factor that management uses in determining the amount of cash available for investment. However, it does not represent residual cash flows available for discretionary expenditures. Free cash flow is not a term defined by GAAP, and as a result, our measure of free cash flow might not be comparable to similarly titled measures used by other companies. Free cash flow should not be construed as a substitute for or a better indicator of the company’s liquidity than the company’s GAAP measures.
See the Management’s Discussion and Analysis of Financial Condition and Results of Operations section of our Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission (SEC) for additional information concerning our operating results for the three and six months ended July 1, 2018 and cash flow for the six months ended July 1, 2018.
Global Restaurant Unit Data
At July 1, 2018, there were 5,247 Papa John’s restaurants operating in all 50 states and in 46 international countries and territories, as follows:
Domestic Company- owned |
Franchised North America |
Total North America |
International | System-wide | |||||||||||
Second Quarter |
|||||||||||||||
Beginning - April 1, 2018 | 679 | 2,745 | 3,424 | 1,788 | 5,212 | ||||||||||
Opened | 1 | 26 | 27 | 61 | 88 | ||||||||||
Closed | (2 | ) | (42 | ) | (44 | ) | (9 | ) | (53 | ) | |||||
Acquired | - | - | - | 34 | 34 | ||||||||||
Sold | - | - | - | (34 | ) | (34 | ) | ||||||||
Ending - July 1, 2018 | 678 | 2,729 | 3,407 | 1,840 | 5,247 | ||||||||||
Year-to-date |
|||||||||||||||
Beginning - December 31, 2017 | 708 | 2,733 | 3,441 | 1,758 | 5,199 | ||||||||||
Opened | 5 | 44 | 49 | 114 | 163 | ||||||||||
Closed | (4 | ) | (79 | ) | (83 | ) | (32 | ) | (115 | ) | |||||
Acquired | - | 31 | 31 | 34 | 65 | ||||||||||
Sold | (31 | ) | - | (31 | ) | (34 | ) | (65 | ) | ||||||
Ending - July 1, 2018 | 678 | 2,729 | 3,407 | 1,840 | 5,247 | ||||||||||
Unit growth (decline) | (30 | ) | (4 | ) | (34 | ) | 82 | 48 | |||||||
% increase (decrease) | (4.2 | %) | (0.1 | %) | (1.0 | %) | 4.7 | % | 0.9 | % | |||||
The company has added 159 net worldwide units over the trailing four quarters ended July 1, 2018. Our development pipeline as of July 1, 2018 included approximately 1,210 restaurants (140 units in North America and 1,070 units internationally), the majority of which are scheduled to open over the next six years.
Share Repurchase Activity
The following table reflects our share repurchases for the three and six months ended July 1, 2018 and subsequent repurchases through July 31, 2018 (in thousands):
Period |
Number of Shares |
Cost | |||||||
Three months ended July 1, 2018 | 490 | $ | 28,440 | ||||||
Six months ended July 1, 2018 | 2,491 | 148,390 | |||||||
July 2, 2018 through July 31, 2018 | 134 | 6,518 | |||||||
There were 32.2 million and 32.9 million diluted weighted average shares outstanding for the three and six months ended July 1, 2018, respectively, representing decreases of 13.6% and 11.9% over the prior year comparable periods. Approximately 31.5 million actual shares of the company’s common stock were outstanding as of July 1, 2018.
As previously disclosed, on March 1, 2018 we announced a $100 million accelerated share repurchase agreement (“ASR Agreement”) with Bank of America, N.A. (“BofAML”). Pursuant to the terms of the ASR Agreement, we paid BofAML $100 million in cash. On March 6, 2018, we received an initial delivery of approximately 1.3 million shares of common stock for $78.0 million or 78% of the total ASR Agreement. The remaining $22.0 million of the ASR Agreement was completed May 14, 2018, delivering approximately 400,000 additional shares. Under the completed ASR Agreement, approximately 1.7 million shares were repurchased for $100.0 million.
The company does not expect to repurchase any more shares in 2018 after the current trading plan expires in early August.
Cash Dividend
We paid a cash dividend of approximately $7.2 million ($0.225 per common share) during the second quarter of 2018. Subsequent to the second quarter, on August 1, 2018, our Board of Directors declared a third quarter dividend of $0.225 per common share (approximately $7.2 million based on current shareholders of record). The dividend will be paid on August 24, 2018 to shareholders of record as of the close of business on August 13, 2018. The declaration and payment of any future dividends will be at the discretion of our Board of Directors, subject to the company’s financial results, cash requirements, and other factors deemed relevant by our Board of Directors.
Revenue Recognition and Income Statement Presentation
On January 1, 2018, we adopted the new revenue recognition standard using the modified retrospective method. Under the modified retrospective method, prior period results were not restated to reflect the impact of Topic 606, resulting in reduced comparability between 2018 and 2017 operating results. The impact of adoption includes the following:
(in thousands, except for per share amounts) | ||||||||
Three Months Ended | Six Months Ended | |||||||
July 1, 2018 | July 1, 2018 | |||||||
Total revenue impact (a) | $ | 1,814 | $ | 4,250 | ||||
Pre-tax income impact (b) | (1,375 | ) | (1,860 | ) | ||||
Diluted EPS | (0.03 | ) | (0.04 | ) |
(a) | The increase in total revenues of $1.8 million and $4.3 million for the three and six months ended July 1, 2018, respectively, is primarily due to the requirement to present revenues and expenses related to marketing funds we control on a “gross” basis. This increase was partially offset by lower company-owned restaurant revenues attributable to the revised method of accounting for the loyalty program. The marketing fund gross up is reported in the new financial statement line items, Other revenues and Other expenses, as discussed further below. |
(b) | The $1.4 million and $1.9 million decreases in pre-tax income for the three and six months ended July 1, 2018 are primarily due to the revised method of accounting for the loyalty program, marketing fund co-ops we control and franchise fees. |
Additional detail on the adoption and 2018 impact of the new revenue recognition standard can be found in our Form 10-Q for the quarterly period ended July 1, 2018 filed with the SEC.
While not required as part of the adoption of Topic 606, our income statement includes newly created Other revenues and Other expenses line items. Other revenues and Other expenses include the Topic 606 “gross up” of revenues and expenses derived from certain domestic and international marketing fund co-ops we control, as previously discussed. Additionally, Other revenues and Other expenses include various reclassifications from North America commissary and other, International expenses and G&A expenses to better reflect and aggregate various domestic and international services provided by the company for the benefit of franchisees. Related 2017 amounts have also been reclassified to conform to the new 2018 presentation, as detailed in the “Summary of Income Statement Presentation Reclassifications” included with this press release. These reclassifications had no impact on reported total revenues or total costs and expenses. Refer to the ‘Investor Relations’ section on our company website for details of income statement presentation reclassifications for each quarter of 2017.
Update of Previously Issued Financial Guidance
The recent negative publicity surrounding the company’s brand negatively impacted July sales in North America. Our North America comparable sales for the July period decreased approximately 10.5%. At this time, the company cannot predict how long and the extent to which the negative customer sentiment will continue to impact future sales. In addition, the company expects to incur significant costs as a result of the recent negative publicity including, but not limited to, the following:
Based on the negative consumer sentiment and the expected impact on future sales, the company is lowering its financial and associated outlook items. The below outlook incorporates a range of the potential negative sales impact from these recent events but excludes the related costs the company will incur, as detailed above. The company is still gathering information regarding these costs but has developed a preliminary range of $30 million to $50 million for the remainder of 2018. The below outlook also excludes the $0.13 impact of the China refranchising.
Updated Outlook | Previous Outlook | |||
North America Comparable Sales | (7.0%) to (10.0%) | (3%) to flat | ||
International Comparable Sales | (2%) to 1% | 3.0% - 5.0% | ||
Adjusted Diluted EPS (1) | $1.30 - $1.80 | $2.40 - $2.60 | ||
Net global unit growth | 0.0% - 3.0% | 3.0% - 5.0% | ||
Debt / Adjusted EBITDA ratio (2) | Above 4.0x | 3.0x - 3.5x | ||
Income tax rate (3) | 20% - 24% | 20% - 24% | ||
Capital Expenditures | $45 - $50 million | $45 - $55 million | ||
Block Cheese Prices per lb. | Low $1.60s | Low $1.60s | ||
(1) This adjusted diluted EPS guidance excludes the impact of the China refranchising and the estimated future costs of the above noted items related to the recent negative publicity. We believe excluding these items from adjusted EPS is meaningful to our financial statement users as it presents our core results excluding unusual, non-recurring items. | ||||
(2) We were in compliance with all financial covenants as of July 1, 2018. Based on this revised lower outlook, we plan to work with the banks within our credit facility to evaluate options with the covenants to mitigate the possibility of violating a financial covenant in the future. | ||||
(3) The tax rate excludes any tax impact from the divestiture of our China company-owned operations. | ||||
Conference Call and Website Information
A conference call is scheduled for August 7, 2018 at 5:00 p.m. Eastern Time to review the company’s second quarter 2018 earnings results. The call can be accessed from the company’s web page at www.papajohns.com in a listen-only mode, or dial 877-312-8816 (U.S. and Canada) or 253-237-1189 (international). The conference call will be available for replay, including by downloadable podcast, from the company’s web site at www.papajohns.com. The Conference ID is 5177337.
Investors and others should note that we announce material financial information to our investors using our investor relations website, press releases, SEC filings and public conference calls and webcasts. We intend to use our investor relations website as a means of disclosing information about our business, our financial condition and results of operations and other matters and for complying with our disclosure obligations under Regulation FD. The information we post on our investor relations website, including information contained in investor presentations, may be deemed material. Accordingly, investors should monitor our investor relations website, in addition to following our press releases, SEC filings and public conference calls and webcasts. We encourage investors and others to sign up for email alerts at our investor relations page under Shareholder Tools at the bottom right side of the page. These email alerts are intended to help investors and others to monitor our investor relations website by notifying them when new information is posted on the site.
Forward-Looking Statements
Certain matters discussed in this press release and other company communications constitute forward-looking statements within the meaning of the federal securities laws. Generally, the use of words such as “expect,” “intend,” “estimate,” “believe,” “anticipate,” “will,” “forecast,” “plan,” “project,” or similar words identify forward-looking statements that we intend to be included within the safe harbor protections provided by the federal securities laws. Such forward-looking statements may relate to projections or guidance concerning business performance, revenue, earnings, cash flow, contingent liabilities, resolution of litigation, commodity costs, profit margins, unit growth, unit level performance, capital expenditures, ability of the company to mitigate negative consumer sentiment through advertising, marketing and promotional activity, corporate governance, shareholder and other stakeholder engagement, strategic decisions and actions, the ongoing cultural audit and investigation, share repurchases, dividends, effective tax rates, the impact of the Tax Cuts and Job Act and the adoption of new accounting standards, and other financial and operational measures. Such statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions, which are difficult to predict and many of which are beyond our control. Therefore, actual outcomes and results may differ materially from those matters expressed or implied in such forward-looking statements. The risks, uncertainties and assumptions that are involved in our forward-looking statements include, but are not limited to:
These and other risk factors are discussed in detail in “Part I. Item 1A. – Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017, as updated by “Part II. Item 1A. – Risk Factors” in our Quarterly Report on Form 10-Q for the quarterly period ended July 1, 2018. We undertake no obligation to update publicly any forward-looking statements, whether as a result of future events, new information or otherwise, except as required by law.
For more information about the company, please visit www.papajohns.com.
Papa John's International, Inc. and Subsidiaries | ||||||||||||||||||
Condensed Consolidated Statements of Income | ||||||||||||||||||
Three Months Ended | Six Months Ended | |||||||||||||||||
July 1, 2018 | June 25, 2017 | July 1, 2018 | June 25, 2017 | |||||||||||||||
(In thousands, except per share amounts) | (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | ||||||||||||||
Revenues: | ||||||||||||||||||
Domestic Company-owned restaurant sales | $ | 181,379 | $ | 202,756 | $ | 371,621 | $ | 409,652 | ||||||||||
North America franchise royalties and fees | 23,912 | 26,588 | 48,718 | 54,195 | ||||||||||||||
North America commissary | 153,455 | 160,059 | 315,168 | 331,399 | ||||||||||||||
International | 29,069 | 27,245 | 59,183 | 52,867 | ||||||||||||||
Other revenues | 20,144 | 18,130 | 40,638 | 35,931 | ||||||||||||||
Total revenues | 407,959 | 434,778 | 835,328 | 884,044 | ||||||||||||||
Costs and expenses: | ||||||||||||||||||
Operating costs (excluding depreciation and amortization shown separately below): |
||||||||||||||||||
Domestic company-owned restaurant expenses | 147,781 | 162,433 | 305,100 | 327,852 | ||||||||||||||
North America commissary | 143,300 | 149,472 | 294,981 | 309,429 | ||||||||||||||
International expenses | 18,248 | 17,272 | 37,278 | 33,063 | ||||||||||||||
Other expenses | 20,698 | 17,482 | 41,656 | 35,029 | ||||||||||||||
General and administrative expenses | 38,712 | 40,248 | 78,441 | 76,662 | ||||||||||||||
Depreciation and amortization | 11,731 | 10,654 | 23,270 | 21,111 | ||||||||||||||
Total costs and expenses | 380,470 | 397,561 | 780,726 | 803,146 | ||||||||||||||
Refranchising loss, net | (2,122 | ) | - | (1,918 | ) | - | ||||||||||||
Operating income | 25,367 | 37,217 | 52,684 | 80,898 | ||||||||||||||
Net interest expense | (5,662 | ) | (1,759 | ) | (10,617 | ) | (3,569 | ) | ||||||||||
Income before income taxes | 19,705 | 35,458 | 42,067 | 77,329 | ||||||||||||||
Income tax expense | 7,040 | 10,476 | 12,022 | 22,448 | ||||||||||||||
Net income before attribution to noncontrolling interests | 12,665 | 24,982 | 30,045 | 54,881 | ||||||||||||||
Income attributable to noncontrolling interests | (874 | ) | (1,444 | ) | (1,517 | ) | (2,915 | ) | ||||||||||
Net income attributable to the company | $ | 11,791 | $ | 23,538 | $ | 28,528 | $ | 51,966 | ||||||||||
Calculation of income for earnings per share: | ||||||||||||||||||
Net income attributable to the Company | $ | 11,791 | $ | 23,538 | $ | 28,528 | $ | 51,966 | ||||||||||
Change in noncontrolling interest redemption value | - | 662 | - | 1,182 | ||||||||||||||
Net income attributable to participating securities | (72 | ) | (99 | ) | (147 | ) | (216 | ) | ||||||||||
Net income attributable to common shareholders | $ | 11,719 | $ | 24,101 | $ | 28,381 | $ | 52,932 | ||||||||||
Basic earnings per common share | $ | 0.37 | $ | 0.66 | $ | 0.87 | $ | 1.44 | ||||||||||
Diluted earnings per common share | $ | 0.36 | $ | 0.65 | $ | 0.86 | $ | 1.42 | ||||||||||
Basic weighted average common shares outstanding | 31,941 | 36,732 | 32,610 | 36,771 | ||||||||||||||
Diluted weighted average common shares outstanding | 32,175 | 37,217 | 32,860 | 37,283 | ||||||||||||||
Dividends declared per common share | $ | 0.225 | $ | 0.20 | $ | 0.450 | $ | 0.40 | ||||||||||
Papa John's International, Inc. and Subsidiaries |
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Condensed Consolidated Balance Sheets | ||||||||
July 1, | December 31, | |||||||
2018 | 2017 | |||||||
(In thousands) | (Unaudited) | (Note) | ||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 25,719 | $ | 22,345 | ||||
Accounts receivable, net | 62,973 | 64,644 | ||||||
Notes receivable, net | 5,180 | 4,333 | ||||||
Income tax receivable | - | 3,903 | ||||||
Inventories | 27,109 | 30,620 | ||||||
Prepaid expenses and other current assets | 33,952 | 38,016 | ||||||
Assets held for sale | 2,786 | 6,133 | ||||||
Total current assets | 157,719 | 169,994 | ||||||
Property and equipment, net | 227,722 | 234,331 | ||||||
Notes receivable, less current portion, net | 15,648 | 15,568 | ||||||
Goodwill | 85,064 | 86,892 | ||||||
Deferred income taxes, net | 709 | 585 | ||||||
Other assets | 71,309 | 48,183 | ||||||
Total assets | $ | 558,171 | $ | 555,553 | ||||
Liabilities and stockholders' equity (deficit) | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 33,307 | $ | 32,006 | ||||
Income and other taxes payable | 8,904 | 10,561 | ||||||
Accrued expenses and other current liabilities | 81,197 | 70,293 | ||||||
Deferred revenue current | 2,426 | - | ||||||
Current portion of long-term debt | 20,000 | 20,000 | ||||||
Total current liabilities | 145,834 | 132,860 | ||||||
Deferred revenue | 15,329 | 2,652 | ||||||
Long-term debt, less current portion, net | 556,387 | 446,565 | ||||||
Deferred income taxes, net | 5,140 | 12,546 | ||||||
Other long-term liabilities | 78,515 | 60,146 | ||||||
Total liabilities | 801,205 | 654,769 | ||||||
Redeemable noncontrolling interests | 7,356 | 6,738 | ||||||
Total stockholders' (deficit) | (250,390 | ) | (105,954 | ) | ||||
Total liabilities, redeemable noncontrolling interests and stockholders' (deficit) | $ | 558,171 | $ | 555,553 | ||||
Note: The Condensed Consolidated Balance Sheets have been derived from the audited consolidated financial statements, but do not include all information and footnotes required by accounting principles generally accepted in the United States for a complete set of financial statements. |
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Papa John's International, Inc. and Subsidiaries | ||||||||
Condensed Consolidated Statements of Cash Flows | ||||||||
Six Months Ended | ||||||||
(In thousands) | July 1, 2018 | June 25, 2017 | ||||||
(Unaudited) | (Unaudited) | |||||||
Operating activities | ||||||||
Net income before attribution to noncontrolling interests | $ | 30,045 | $ | 54,881 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
Provision for uncollectible accounts and notes receivable | 3,591 | (1,091 | ) | |||||
Depreciation and amortization | 23,270 | 21,111 | ||||||
Deferred income taxes | (2,511 | ) | 158 | |||||
Stock-based compensation expense | 4,929 | 5,571 | ||||||
Loss on refranchising | 1,918 | - | ||||||
Other | 3,032 | 1,978 | ||||||
Changes in operating assets and liabilities, net of acquisitions: | ||||||||
Accounts receivable | (148 | ) | (355 | ) | ||||
Income tax receivable | 3,678 | (45 | ) | |||||
Inventories | 3,188 | 550 | ||||||
Prepaid expenses and other current assets | 6,683 | 2,594 | ||||||
Other assets and liabilities | (2,202 | ) | (1,559 | ) | ||||
Accounts payable | 2,511 | (3,950 | ) | |||||
Income and other taxes payable | (1,656 | ) | 1,275 | |||||
Accrued expenses and other current liabilities | (2,506 | ) | (3,002 | ) | ||||
Deferred revenue | 379 | (253 | ) | |||||
Net cash provided by operating activities | 74,201 | 77,863 | ||||||
Investing activities | ||||||||
Purchases of property and equipment | (21,562 | ) | (30,457 | ) | ||||
Loans issued | (1,904 | ) | (1,476 | ) | ||||
Repayments of loans issued | 2,720 | 2,125 | ||||||
Acquisitions, net of cash acquired | - | (21 | ) | |||||
Proceeds from divestitures of restaurants | 3,690 | - | ||||||
Other | 146 | 25 | ||||||
Net cash used in investing activities | (16,910 | ) | (29,804 | ) | ||||
Financing activities | ||||||||
Repayments of term loan | (10,000 | ) | - | |||||
Net proceeds of revolving credit facility | 119,400 | 5,156 | ||||||
Cash dividends paid | (14,762 | ) | (14,703 | ) | ||||
Tax payments for equity award issuances | (1,353 | ) | (2,282 | ) | ||||
Proceeds from exercise of stock options | 2,179 | 5,218 | ||||||
Acquisition of Company common stock | (148,440 | ) | (33,968 | ) | ||||
Distributions to noncontrolling interest holders | (1,110 | ) | (1,389 | ) | ||||
Other | 231 | 494 | ||||||
Net cash used in financing activities | (53,855 | ) | (41,474 | ) | ||||
Effect of exchange rate changes on cash and cash equivalents | (62 | ) | 99 | |||||
Change in cash and cash equivalents | 3,374 | 6,684 | ||||||
Cash and cash equivalents at beginning of period | 22,345 | 15,563 | ||||||
Cash and cash equivalents at end of period | $ | 25,719 | $ | 22,247 | ||||
CONTACT:
Papa John’s International, Inc.
Joe Smith,
502-261-7272
Senior Vice President, Chief Financial Officer