Papa John‘s International, Inc.
Feb 22, 2011

Papa John's Announces Fourth Quarter and Full-Year 2010 Results

Fourth Quarter EPS Increased 24.4% over Prior Year, Excluding BIBP; 2011 Earnings Guidance Reaffirmed

LOUISVILLE, Ky.--(BUSINESS WIRE)-- Papa John's International, Inc. (NASDAQ: PZZA):

Highlights

Papa John's International, Inc. (NASDAQ: PZZA) today announced revenues of $286.8 million for the fourth quarter of 2010, representing an increase of 5.2% from revenues of $272.8 million for the fourth quarter of 2009. Net income for the fourth quarter of 2010 was $14.0 million, or $0.55 per diluted share (including after-tax income of $843,000, or $0.04 per diluted share, from the consolidation of the results of the franchisee-owned cheese purchasing company, BIBP Commodities, Inc. ("BIBP"), a variable interest entity), compared to 2009 fourth quarter net income of $13.7 million, or $0.49 per diluted share (including after-tax income of $1.3 million, or $0.05 per diluted share, from the consolidation of BIBP and a gain of $1.0 million, or $0.03 per diluted share from the finalization of certain income tax issues).

Consolidated revenues for 2010 were $1.13 billion, representing an increase of 4.4% from consolidated revenues of $1.08 billion for 2009. Net income for 2010 was $51.9 million, or $1.96 per diluted share (including after-tax income of $4.3 million, or $0.16 per diluted share, from the consolidation of BIBP), compared to net income of $57.5 million, or $2.06 per diluted share, for 2009 (including after-tax income of $14.6 million, or $0.52 per diluted share, from the consolidation of BIBP and a gain of $1.0 million, or $0.04 per diluted share, from the finalization of certain income tax issues).

"We are very pleased with our results in 2010 in a challenging economy and changing pizza category," commented Papa John's Founder, Chairman and co-Chief Executive Officer, John Schnatter. "For our system to have grown sales and transactions in 2010, in the face of unprecedented levels of competitive media spending and discounting in the pizza category, is a testament to the strength of our brand and the quality of our operators."

"The Papa John's brand continues to grow, with record global restaurant sales, including $1.9 billion for global franchised restaurants and $500 million for global company-owned restaurants, or a combined increase of 3.0%, and 177 net worldwide restaurant openings during 2010," said Papa John's President and co-Chief Executive Officer, Jude Thompson. "Our domestic operators have now posted positive transaction growth for seven consecutive quarters, and this trend has continued into 2011. We look forward to continued growth and momentum in our international business in 2011, as well."

Non-GAAP Measures

Certain financial measures we present in this press release exclude the impact of the consolidation of BIBP and the finalization of certain income tax issues, which are not measures that are defined in accordance with accounting principles generally accepted in the United States ("GAAP"). These non-GAAP measures should not be construed as a substitute for or a better indicator of the company's performance than the company's GAAP measures. Management believes the financial information excluding the impact of BIBP and the finalization of certain income tax issues is important for purposes of comparison to prior periods and development of future projections and earnings growth prospects. Management analyzes the company's business performance and trends excluding the impact of BIBP and the finalization of certain income tax issues because they are not indicative of our principal operating activities. In addition, annual cash bonuses, and certain long-term incentive programs for various levels of management, are based on financial measures that exclude the impact of the consolidation of BIBP and the finalization of certain income tax issues. The presentation of the non-GAAP measures in this press release is made alongside the most directly comparable GAAP measures.

The company provides the following table to reconcile the financial results we present in this press release excluding the impact of BIBP and the finalization of certain income tax issues to our GAAP financial measures for the fourth quarters and years ended December 26, 2010 and December 27, 2009.

  Fourth Quarter   Year Ended
Dec. 26,   Dec. 27, Dec. 26,   Dec. 27,
(In thousands, except per share amounts)   2010     2009     2010     2009  
 
Pre-tax income, net of noncontrolling interests, as reported $ 20,336 $ 18,591 $ 78,796 $ 86,438
Income from BIBP cheese purchasing entity (1)   (1,299 )   (1,560 )   (6,804 )   (22,543 )
Pre-tax income, net of noncontrolling interests,
excluding BIBP (1) $ 19,037   $ 17,031   $ 71,992   $ 63,895  
 
Net income, as reported $ 14,025 $ 13,698 $ 51,940 $ 57,453
Income from BIBP cheese purchasing entity (1) (843 ) (1,300 ) (4,339 ) (14,586 )
Gain from finalization of certain income tax issues (2)   -     (967 )   -     (967 )
Net income, excluding BIBP (1) $ 13,182   $ 11,431   $ 47,601   $ 41,900  
 
Earnings per diluted share, as reported $ 0.55 $ 0.49 $ 1.96 $ 2.06
Income from BIBP cheese purchasing entity (1) (0.04 ) (0.05 ) (0.16 ) (0.52 )
Gain from finalization of certain income tax issues (2)   -     (0.03 )   -     (0.04 )
Earnings per diluted share, excluding BIBP (1) $ 0.51   $ 0.41   $ 1.80   $ 1.50  
 
Cash flow from operations, as reported $ 89,096 $ 100,070
Net cash flows from BIBP cheese purchasing entity (1)   (6,804 )   (22,543 )
Cash flow from operations, excluding BIBP $ 82,292   $ 77,527  
 
 
(1) The fourth quarter and full-year 2010 results exclude the reduction in BIBP's cost of sales of $14.2 million ($9.2 million after-tax or $0.36 per diluted share for the fourth quarter and $0.35 per diluted share for the year) associated with PJ Food Service's agreement to pay to BIBP for past cheese purchases an amount equal to its accumulated deficit.
 
(2) The finalization of tax issues was not significant in 2010.

In this press release, we refer to global restaurant sales, representing global franchised restaurant sales and global company-owned restaurant sales. Management believes global restaurant sales information is useful in analyzing our results because our franchisees pay royalties that are based on a percentage of franchise sales, and franchise sales generate commissary revenue in the United States and in certain international markets. Global restaurant sales information is also useful in analyzing industry trends and the strength of our brand. Franchise restaurant sales are not included in company revenues.

Revenues Comparison

Fourth Quarter

Consolidated revenues were $286.8 million for the fourth quarter of 2010, an increase of $14.1 million, or 5.2%, over the corresponding 2009 period. The increase in revenues was primarily due to the following:

The increases noted above were partially offset by a $1.1 million decline in domestic other sales primarily due to a decline in sales at our print and promotions subsidiary, Preferred Marketing Solutions (Preferred).

Full Year

Consolidated revenues were $1.13 billion for full year 2010, an increase of $47.8 million, or 4.4%, over the corresponding 2009 period. The increase in revenues was primarily due to the following:

The increases noted above were partially offset by a $2.1 million decline in domestic other sales primarily due to a decline in sales at Preferred. Additionally, domestic company-owned restaurant sales decreased approximately $550,000 primarily due to a decrease of 0.6% in comparable sales for domestic company-owned restaurants for the year.

Operating Results and Cash Flow

Operating Results

Our pre-tax income, net of noncontrolling interests, for the fourth quarter of 2010 was $20.3 million, compared to $18.6 million for the corresponding period in 2009. For the year ended December 26, 2010, pre-tax income, net of noncontrolling interests, was $78.8 million compared to $86.4 million for the corresponding period in 2009. Excluding the impact of BIBP, as shown in the previous table, fourth-quarter 2010 pre-tax income, net of noncontrolling interests, was $19.0 million, an increase of $2.0 million from the 2009 comparable results of $17.0 million. For the year ended December 26, 2010, pre-tax income, net of noncontrolling interests, excluding BIBP was $72.0 million, an increase of $8.1 million, or 12.7%, from the 2009 comparable results of $63.9 million.

An analysis of the changes in pre-tax income, net of noncontrolling interests, for the fourth quarter and year ended December 26, 2010, respectively (excluding the impact of BIBP), is summarized as follows (analyzed on a segment basis -- see the Summary Financial Data table that follows for the reconciliation of segment income to consolidated income below):

Restaurant operating margin as externally reported was 18.7% for the fourth quarter of 2010, compared to 19.9% for the fourth quarter of 2009 and 20.2% for the full year 2010, compared to 21.8% for the full year 2009. Excluding the impact of the consolidation of BIBP, restaurant operating margin was 18.4% for the fourth quarter of 2010, compared to 19.6% in the fourth quarter of 2009, and was 19.9% for the full year 2010 compared to 20.7% for the full year 2009. The declines in operating margins were primarily due to increased levels of discounting.

    Fourth Quarter   Year Ended
Dec. 26,   Dec. 27,   Increase Dec. 26,   Dec. 27,   Increase
  2010     2009 (decrease)   2010     2009 (decrease)
 

Operating income before the increase in cost of sales - BIBP agreement

$ 7,761 $ 6,758 $ 1,003 $ 28,338 $ 29,393 $ (1,055 )

Increase in cost of sales - BIBP agreement

  (14,150 )   -   (14,150 )     (14,150 )   -   (14,150 )

Total segment operating income (loss)

$ (6,389 ) $ 6,758 $ (13,147 )   $ 14,188   $ 29,393 $ (15,205 )

Domestic commissaries' operating income, excluding the increase in cost of sales of $14.2 million associated with the agreement to pay BIBP for past cheese purchases in an amount equal to its accumulated deficit, was $7.8 million and $28.3 million for the fourth quarter and full year of 2010, respectively, as compared to $6.8 million and $29.4 million for the corresponding 2009 periods, respectively. The increase of $1.0 million for the fourth quarter was primarily due to a higher dollar gross margin resulting from increased sales volumes, partially offset by an increase in distribution costs due to higher volumes and fuel prices. The decrease of $1.1 million for the full year was primarily due to increased fuel costs, partially offset by an increase in sales volumes, although at a lower gross margin percentage. The full year 2010 gross margin percentage included the impact of commodities cost increases we absorbed for certain vegetable products resulting from harsh Florida winter weather and various rebate programs available to restaurants for achieving certain sales improvement targets. Full year 2009 included approximately $800,000 of management transition costs and $400,000 of costs associated with the closure of one of our commissaries.

    Fourth Quarter   Year Ended
Dec. 26,   Dec. 27,   Increase Dec. 26,   Dec. 27,   Increase
  2010     2009   (decrease)   2010     2009   (decrease)
 
General and administrative (a) $ 5,088 $ 4,189 $ 899 $ 25,823 $ 26,893 $ (1,070 )
Net interest 1,033 1,065 (32 ) 4,120 4,251 (131 )
Depreciation 2,179 2,233 (54 ) 8,873 8,684 189
Franchise support initiatives (b) 2,239 3,961 (1,722 ) 6,489 9,556 (3,067 )

Provision (credit) for uncollectible accounts and notes receivable (c)

(775 ) (188 ) (587 ) (340 ) 1,172 (1,512 )
Other income (d)   (461 )   (194 )   (267 )     (1,699 )   (801 )   (898 )

Total unallocated corporate expenses

$ 9,303   $ 11,066   $ (1,763 )   $ 43,266   $ 49,755   $ (6,489 )

(a) Unallocated general and administrative (G&A) costs increased in the fourth quarter of 2010 primarily due to an increase in short-term incentive compensation expense. The decrease in G&A costs for the full year was primarily due to lower costs of salaries and benefits, resulting from fewer employees and the fact that the prior year included $800,000 in litigation settlement costs. Severance costs, net of forfeitures of unvested stock awards, were approximately $900,000 for the full year 2010, as compared to $1.3 million in the corresponding 2009 period. These reductions were partially offset by an increase in short-term incentive compensation expense.

(b) Franchise support initiatives primarily consist of discretionary contributions to the national marketing fund and other local advertising cooperatives.

(c) The reductions in the provisions for uncollectible accounts and notes receivable for both the fourth quarter and full year were primarily due to the collection of certain accounts that were previously reserved.

(d) The increase in other income for both the fourth quarter and full-year periods of 2010 was primarily due to sales of point-of-sale systems associated with additional domestic openings.

The company recorded reductions in its customary income tax expense of $550,000 in both the fourth quarter and full-year 2010, compared to $1.2 million in both the fourth quarter and full-year 2009, as a result of the finalization of certain income tax issues. Our effective income tax rates were 29.8% and 32.6%, respectively, for the fourth quarter and year ended December 26, 2010, as compared to 25.2% and 32.1%, respectively, for the corresponding 2009 periods (29.5% and 32.3%, respectively, excluding BIBP, for the fourth quarter and year ended December 26, 2010 and 25.9% and 31.1%, respectively, excluding BIBP, for the fourth quarter and year ended December 27, 2009). Our effective income tax rate may fluctuate from quarter to quarter for various reasons, including settlement or resolution of specific federal and state issues.

Cash Flow

Net cash provided by operating activities was $89.1 million for the full year 2010 as compared to $100.1 million in 2009. BIBP contributed approximately $6.8 million of cash flow from operations for the full year 2010 and approximately $22.5 million in 2009. Excluding BIBP, cash flow from operations was $82.3 million in 2010, as compared to $77.5 million in 2009, primarily due to higher net income.

Our net debt position, defined as total debt less cash and cash equivalents, was $52.8 million at December 26, 2010, compared to $73.6 million at December 27, 2009.

Form 10-K Filing

See the Management's Discussion and Analysis of Financial Condition and Results of Operations section of our Annual Report on Form 10-K filed with the Securities and Exchange Commission for additional information concerning our operating results and cash flow for the full year ended December 26, 2010.

Domestic System-Wide Comparable Sales and Unit Count

Domestic system-wide comparable sales for the fourth quarter of 2010 increased 0.7% (comprised of a 2.1% increase at company-owned restaurants and a 0.3% increase at franchised restaurants). Domestic system-wide comparable sales for the year ended December 26, 2010 were even (comprised of a 0.6% decrease at company-owned restaurants and a 0.3% increase at franchised restaurants). An increase in customer traffic for both the fourth quarter and year ended December 26, 2010 was offset by a decline in the average ticket price due to increased levels of discounting. The comparable sales percentage represents the change in year-over-year sales for the same base of restaurants for the same calendar period.

During the fourth quarter of 2010, 50 domestic restaurants (one company-owned and 49 franchised) were opened and 27 domestic franchised restaurants were closed. For the full year of 2010, we opened 174 domestic restaurants (five company-owned and 169 franchised) and closed 84 restaurants (two company-owned and 82 franchised). The franchised restaurant closings included 11 non-traditional units located in Six Flags theme parks in connection with our decision not to renew our sponsorship agreement. The remaining four Six Flags units will close in the first quarter of 2011. Our total domestic development pipeline as of December 26, 2010 included more than 300 restaurants, 80% of which are scheduled to open over the next two to three years.

At December 26, 2010, there were 3,646 Papa John's restaurants (612 company-owned and 3,034 franchised) operating in all 50 states and in 32 countries. The company-owned restaurants include 127 restaurants operated in majority-owned domestic joint venture arrangements, the operating results of which are fully consolidated into the company's results.

International Update

Highlights:

As of December 26, 2010, there were 775 Papa John's restaurants operating internationally in 32 countries (21 company-owned and 754 franchised), of which 226 were located in China and Korea and 182 were located in the United Kingdom and Ireland. Our total international development pipeline as of December 26, 2010 included approximately 1,200 restaurants, the substantial majority of which are scheduled to open over the next seven years.

As previously announced, the company realigned management responsibility for Hawaii, Alaska, and Canada from International to the domestic operations team beginning in 2011 in order to better leverage existing infrastructure and systems. Hawaii, Alaska, and Canada consist solely of franchise operations, and the realigned business segment will be referred to as North America Franchising. This realignment will be initially reflected in financial information reported in the first quarter 2011 earnings release and Form 10-Q. Prior year income statement and segment results will be reclassified at that time to be presented consistently with the new alignment. The realignment is expected to shift approximately $1.4 million of operating income from the International segment to the North America Franchising segment in 2011, and will result in the reclassified International operations having 709 units and a development pipeline of approximately 1,100 units at the beginning of 2011.

Multi-Year National Marketing Fund Agreement

As previously announced, we reached an agreement with franchisees for a multi-year National Marketing Fund contribution rate, which included: (i) PJ Food Service's agreement to pay to BIBP for past cheese purchases an amount equal to its accumulated deficit of approximately $14.2 million at December 26, 2010; and (ii) the opportunity for franchisees to earn quarterly rebates of a portion of the 5.0% royalty upon achieving certain sales growth targets and by making specified re-image investments in their restaurants. We expect this agreement to primarily represent a shift, as opposed to an increase, in total marketing spend, and believe an increase in marketing spend on a national basis will improve the consistency of the overall marketing message and favorably impact brand awareness, particularly in regions of the country where the brand is currently underpenetrated.

Share Repurchase Activity

The company repurchased 143,000 shares of its common stock at an average price of $25.84 per share, or a total of $3.7 million, during the three months ended December 26, 2010, and repurchased 1.9 million shares at an average of $24.94 per share, or a total of $46.9 million, during the full year ended December 26, 2010. A total of 356,000 shares of common stock were issued upon the exercise of stock options during 2010.

Subsequent to year-end through February 15, 2011, the company repurchased 66,000 shares at a total cost of $1.8 million, or $27.93 per share average cost. Approximately $35.0 million remained available under the company's share repurchase program at February 15, 2011.

The company utilizes a written trading plan under Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, to facilitate the repurchase of shares of our common stock under this share repurchase program. There can be no assurance that we will repurchase shares of our common stock either through our Rule 10b5-1 trading plan or otherwise. We may terminate the Rule 10b5-1 trading plan at any time.

There were 25.7 million diluted weighted average shares outstanding for the fourth quarter of 2010, as compared to 27.7 million for the fourth quarter of 2009, a 7.2% decrease. Approximately 25.5 million actual shares of the company's common stock were outstanding as of December 26, 2010.

The company's share repurchase activity increased earnings per diluted share, excluding the impact of the consolidation of BIBP, by $0.03 for the full year of 2010 (no impact for the fourth quarter).

2011 Earnings Guidance Reaffirmed

The company reaffirmed its previously issued guidance for 2011, including earnings per diluted share of a range of $2.00 to $2.12, or an increase of 14% at the mid-point of the range over 2010 earnings per diluted share of $1.80, excluding BIBP. In reaffirming its 2011 guidance, the company noted its belief that the favorable impact of early year sales results is expected to substantially mitigate the unfavorable impact of currently projected commodity cost increases, most notably cheese, throughout the remainder of the year. In connection with the company's waiver of repayment of the BIBP deficit at 2010 year-end, and as a condition to participating in the incentive programs under the Multi-Year National Marketing Fund agreement, domestic franchisees are required to enter into a cheese purchasing agreement that will enable any future differences between the actual and formula price of cheese sold to franchisees to be reported by the company as changes in a payable to, or receivable from, franchisees as opposed to income or expense in the consolidated income statement. With substantially all of our domestic franchisees having signed a cheese purchase commitment, beginning with the first quarter of 2011, the company no longer plans to report earnings and earnings per share results on a pro forma non-GAAP basis to remove the impact of the consolidation of BIBP.

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," "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 statements may relate to projections concerning revenue, earnings, margins, unit growth 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: changes in pricing or other marketing or promotional strategies by competitors which may adversely affect sales, including an increase in or continuation of the aggressive pricing and promotional environment; new product and concept developments by food industry competitors; the ability of the company and its franchisees to meet planned growth targets and operate new and existing restaurants profitably; general economic conditions and resulting impact on consumer buying habits; changes in consumer preferences; increases in or sustained high costs of food ingredients and other commodities, paper, utilities, fuel, employee compensation and benefits, insurance and similar costs (including the impact of the recently passed federal health care legislation); the ability of the company to pass along increases in or sustained high costs to franchisees or consumers; the impact of current or future legal claims and current or proposed legislation impacting our business; the impact that product recalls, food quality or safety issues, and general public health concerns could have on our restaurants; currency exchange and interest rates; and increased risks associated with our international operations, including economic and political conditions in our international markets and difficulty in meeting planned sales targets for our international operations. These and other risk factors are discussed in detail in "Part I. Item 1A. - Risk Factors" of the Annual Report on Form 10-K for the fiscal year ended December 26, 2010. We undertake no obligation to update publicly any forward-looking statements, whether as a result of future events, new information or otherwise.

Conference Call

A conference call is scheduled for February 23, 2011 at 10:00 a.m. Eastern Time to review the fourth quarter and full-year 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 (pass code 83100365) for participation in the question and answer session. International participants may dial 253-237-1189 (pass code 83100365).

The conference call will be available for replay, including by downloadable podcast, beginning February 23, 2011, at approximately noon Eastern Time, through February 27, 2011, at midnight Eastern Time. The replay can be accessed from the company's web site at www.papajohns.com or by dialing 800-642-1687 (pass code 83100365). International participants may dial 706-645-9291 (pass code 83100365).

Summary Financial Data

Papa John's International, Inc.

(Unaudited)

   
Fourth Quarter Year Ended
Dec. 26,   Dec. 27, Dec. 26,   Dec. 27,
(In thousands, except per share amounts)   2010     2009     2010     2009  
 
Revenues $ 286,838   $ 272,777   $ 1,126,397   $ 1,078,550  
 

Income before income taxes, net of noncontrolling interests*

$ 20,336   $ 18,591   $ 78,796   $ 86,438  
 
Net income $ 14,025   $ 13,698   $ 51,940   $ 57,453  
 
Earnings per share - assuming dilution $ 0.55   $ 0.49   $ 1.96   $ 2.06  
 

Weighted average shares outstanding - assuming dilution

  25,687     27,679     26,468     27,909  
 
EBITDA (1) $ 29,692   $ 27,901   $ 115,666   $ 122,908  
 
 
*The following is a summary of our income (loss) before income taxes, net of noncontrolling interests:
 
Fourth Quarter Year Ended
Dec. 26, Dec. 27, Dec. 26, Dec. 27,
(in thousands)   2010     2009     2010     2009  
 
Domestic company-owned restaurants $ 6,015 $ 6,912 $ 31,619 $ 34,894
Domestic commissaries (a) (6,389 ) 6,758 14,188 29,393
Domestic franchising 15,177 14,057 60,908 53,690
International (270 ) (522 ) (3,450 ) (3,050 )
All others 660 1,786 1,847 2,697
Unallocated corporate expenses (9,303 ) (11,066 ) (43,266 ) (49,755 )
Elimination of intersegment profit   (190 )   (52 )   (519 )   (218 )
Income before income taxes, excluding BIBP (a) 5,700 17,873 61,327 67,651
BIBP, a variable interest entity (2) (a) 15,449 1,560 20,954 22,543
Less: noncontrolling interests   (813 )   (842 )   (3,485 )   (3,756 )

Total income before income taxes, net of noncontrolling interests

$ 20,336   $ 18,591   $ 78,796   $ 86,438  
 
(a) PJFS agreed to pay to BIBP the amount equal to its accumulated deficit at December 26, 2010. Accordingly, BIBP recorded a decrease of $14.2 million in cost of sales and PJFS recorded a corresponding increase in cost of sales. This transaction did not have any impact on the company's 2010 consolidated income statement results since both PJFS and BIBP are fully consolidated. Income before income taxes, excluding BIBP was $19.9 million for the fourth quarter of 2010 and $75.5 million for the full year of 2010.

Summary Financial Data (continued)

Papa John's International, Inc.

(Unaudited)

 
The following is a reconciliation of EBITDA to net income (in thousands):
   
Fourth Quarter Year Ended
Dec. 26, Dec. 27, Dec. 26, Dec. 27,
  2010     2009     2010     2009  
 
EBITDA (1) $ 29,692 $ 27,901 $ 115,666 $ 122,908
Income tax expense (6,311 ) (4,893 ) (26,856 ) (28,985 )
Net interest expense (1,071 ) (1,207 ) (4,463 ) (5,024 )
Depreciation and amortization   (8,285 )   (8,103 )   (32,407 )   (31,446 )
Net income $ 14,025   $ 13,698   $ 51,940   $ 57,453  
  The company's free cash flow for the last two years is as follows (in thousands):
 
Year Ended
Dec. 26, Dec. 27,
2010 2009
 
Net cash provided by operating activities $ 89,096 $ 100,070
Pre-tax income from BIBP cheese purchasing entity (6,804 ) (22,543 )
Purchases of property and equipment   (31,125 )   (33,538 )
Free cash flow (3) $ 51,167   $ 43,989  
 

(1) Management considers EBITDA to be a meaningful indicator of operating performance from operations before depreciation, amortization, net interest and income taxes. EBITDA provides us with an understanding of one aspect of earnings before the impact of investing and financing transactions and income taxes. While EBITDA should not be construed as a substitute for net income or a better indicator of liquidity than cash flows from operating activities, which are determined in accordance with accounting principles generally accepted in the United States ("GAAP"), it is included herein to provide additional information with respect to the ability of the company to meet its future debt service, capital expenditure and working capital requirements. EBITDA is not necessarily a measure of the company's ability to fund its cash needs and it excludes components that are significant in understanding and assessing our results of operations and cash flows. In addition, EBITDA is not a term defined by GAAP and as a result our measure of EBITDA might not be comparable to similarly titled measures used by other companies. The above EBITDA calculation includes the operating results of BIBP Commodities, Inc., a variable interest entity.

(2) BIBP reported pre-tax income of approximately $15.4 million in the fourth quarter of 2010, which was composed of a reduction in cost of sales of $14.2 million associated with PJ Food Service's agreement to pay to BIBP for past cheese purchases an amount equal to its accumulated deficit, and income associated with cheese sold to domestic company-owned and franchised restaurants of approximately $300,000 and $1.1 million, respectively, partially offset by interest expense on outstanding debt with Papa John's. For the fourth quarter of 2009, BIBP reported pre-tax income of $1.6 million, which was primarily composed of income associated with cheese sold to domestic company-owned and franchised restaurants of approximately $400,000 and $1.3 million, respectively, partially offset by interest expense on outstanding debt with a third-party bank and Papa John's.

BIBP reported pre-tax income of approximately $21.0 million for the year ended December 26, 2010, which was composed of the previously mentioned $14.2 million reduction in cost of sales, and income associated with cheese sold to domestic company-owned and franchised restaurants of approximately $1.7 million and $5.6 million, respectively, partially offset by interest expense on outstanding debt with Papa John's. For the year ended December 27, 2009, BIBP reported pre-tax income of approximately $22.5 million, which was composed of income associated with cheese sold to domestic company-owned and franchised restaurants of approximately $5.5 million and $18.1 million, respectively, partially offset by interest expense on outstanding debt with a third-party bank and Papa John's.

(3) Free cash flow is defined as net cash provided by operating activities (from the consolidated statements of cash flows) excluding the pre-tax income (loss) impact of BIBP, less the purchases of property and equipment. We view free cash flow as an important measure because it is one factor that management uses in determining the amount of cash available for discretionary investment. 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 performance than the company's GAAP measures.

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 Year Ended

December 26,

2010

 

December 27,

2009

December 26,

2010

 

December 27,

2009

(In thousands, except per share amounts) (Unaudited) (Unaudited)
Revenues:
Domestic:
Company-owned restaurant sales $ 128,620 $ 125,124 $ 503,272 $ 503,818
Franchise royalties 17,136 15,959 68,358 61,012
Franchise and development fees 99 69 340 519
Commissary sales 116,046 107,236 454,506 417,689
Other sales 12,277 13,346 51,951 54,045
International:
Royalties and franchise and development fees 4,038 3,448 14,808 13,244
Restaurant and commissary sales   8,622       7,595     33,162       28,223  
Total revenues 286,838 272,777 1,126,397 1,078,550
 
Costs and expenses:
Domestic Company-owned restaurant expenses:
Cost of sales 29,459 27,079 111,010 100,863
Salaries and benefits 34,925 35,935 137,840 146,116
Advertising and related costs 13,357 11,660 47,174 45,593
Occupancy costs 8,079 7,876 32,343 31,685
Other operating expenses   18,779       17,682     72,997       69,946  
Total domestic Company-owned restaurant expenses 104,599 100,232 401,364 394,203
 
Domestic commissary and other expenses:
Cost of sales 97,241 90,558 382,150 348,265
Salaries and benefits 8,230 7,778 34,063 33,839
Other operating expenses   11,347       10,455     46,890       43,595  
Total domestic commissary and other expenses 116,818 108,791 463,103 425,699
 

Loss (income) from the franchise cheese-purchasing program, net of noncontrolling interest

(1,061 ) (1,343 ) (5,634 ) (18,079 )
International operating expenses 7,596 6,519 29,429 24,356
General and administrative expenses 25,971 24,733 109,954 111,361
Other general expenses 2,410 5,102 9,030 14,346
Depreciation and amortization   8,285       8,103     32,407       31,446  
Total costs and expenses   264,618       252,137     1,039,653       983,332  
 
Operating income 22,220 20,640 86,744 95,218
Net interest expense   (1,071 )     (1,207 )   (4,463 )     (5,024 )
Income before income taxes 21,149 19,433 82,281 90,194
Income tax expense   6,311       4,893     26,856       28,985  
Net income, including noncontrolling interests 14,838 14,540 55,425 61,209
Less: income attributable to noncontrolling interests   (813 )     (842 )   (3,485 )     (3,756 )
Net income, net of noncontrolling interests $ 14,025     $ 13,698   $ 51,940     $ 57,453  
 
Basic earnings per common share $ 0.55     $ 0.50   $ 1.97     $ 2.07  
Earnings per common share - assuming dilution $ 0.55     $ 0.49   $ 1.96     $ 2.06  
 
Basic weighted average shares outstanding   25,543       27,603     26,328       27,738  
Diluted weighted average shares outstanding   25,687       27,679     26,468       27,909  

Papa John's International, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
   
 
December 26, December 27,
2010 2009
(Note) (Note)
(In thousands)
 
Assets
Current assets:
Cash and cash equivalents $ 46,225 $ 25,457
Accounts receivable, net 25,357 22,119
Inventories 17,402 15,576
Prepaid expenses 10,009 8,695
Other current assets 3,732 3,748
Deferred income taxes   9,647   8,408
Total current assets 112,372 84,003
 
Investments 1,604 1,382
Net property and equipment 186,594 187,971
Notes receivable , net 17,354 16,359
Deferred income taxes - 6,804
Goodwill 74,697 75,066
Other assets   23,320   22,141
Total assets $ 415,941 $ 393,726
 
 
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 31,569 $ 26,990
Income and other taxes payable 6,140 5,854
Accrued expenses   52,978   54,241
Total current liabilities 90,687 87,085
 
Unearned franchise and development fees 6,596 5,668
Long-term debt, net of current portion 99,017 99,050
Other long-term liabilities 12,100 16,886
Deferred income taxes   341   -
Total liabilities 208,741 208,689
 
Total stockholders' equity   207,200   185,037
Total liabilities and stockholders' equity $ 415,941 $ 393,726
 
 
Note: The Condensed Consolidated Balance Sheets at December 26, 2010 and December 27, 2009 have been derived from the audited consolidated financial statements at that date, 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.

Papa John's International, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
   
 
Year Ended
(In thousands) December 26, 2010   December 27, 2009
 
 
Operating activities
Net income, net of noncontrolling interests $ 51,940 $ 57,453

Adjustments to reconcile net income to net cash provided by operating activities:

Restaurant impairment and disposition losses 253 657
Provision for uncollectible accounts and notes receivable 917 2,242
Depreciation and amortization 32,407 31,446
Deferred income taxes 4,553 7,469
Stock-based compensation expense 6,066 5,817
Excess tax benefit related to exercise of non-qualified stock options (359 ) (1,035 )
Other 512 1,672
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable (5,022 ) 155
Inventories (1,848 ) 1,096
Prepaid expenses (1,303 ) 595
Other current assets 16 2,009
Other assets and liabilities (935 ) (3,507 )
Accounts payable 4,579 (1,776 )
Income and other taxes payable 286 (3,831 )
Accrued expenses (3,894 ) (144 )
Unearned franchise and development fees   928     (248 )
Net cash provided by operating activities 89,096 100,070
 
Investing activities
Purchases of property and equipment (31,125 ) (33,538 )
Purchases of investments (549 ) (1,187 )
Proceeds from sale or maturity of investments 327 335
Loans issued (2,637 ) (11,635 )
Loan repayments 3,918 8,496
Acquisitions - (464 )
Proceeds from divestitures of restaurants 1,397 830
Other   12     756  
Net cash used in investing activities (28,657 ) (36,407 )
 
Financing activities
Net repayments from line of credit facility - (24,500 )
Net repayments from short-term debt - variable interest entities - (7,075 )
Excess tax benefit related to exercise of non-qualified stock options 359 1,035
Proceeds from exercise of stock options 6,410 9,830
Acquisition of Company common stock (46,936 ) (28,477 )
Noncontrolling interests, net of contributions and distributions 338 (84 )
Other   96     (27 )
Net cash used in financing activities (39,733 ) (49,298 )
 
Effect of exchange rate changes on cash and cash equivalents   62     176  
Change in cash and cash equivalents 20,768 14,541
Cash and cash equivalents at beginning of period   25,457     10,916  
 
Cash and cash equivalents at end of period $ 46,225   $ 25,457  

Restaurant Progression
Papa John's International, Inc.
         
Fourth Quarter Ended December 26, 2010
Corporate Franchised
Domestic Int'l Domestic Int'l Total
Papa John's restaurants
Beginning of period 590 20 2,258 715 3,583
Opened 1 2 49 53 105
Closed - (1) (27) (14) (42)
Acquired - - - - -
Sold - - - - -
End of Period 591 21 2,280 754 3,646
 
 
 
 
Fourth Quarter Ended December 27, 2009
Corporate Franchised
Domestic Int'l Domestic Int'l Total
Papa John's restaurants
Beginning of period 590 23 2,212 633 3,458
Opened - 3 21 40 64
Closed (2) - (40) (11) (53)
Acquired - - - - -
Sold - - - - -
End of Period 588 26 2,193 662 3,469
 
 
Note: Corporate domestic includes 127 majority-owned joint venture restaurants at both December 26, 2010 and December 27, 2009, which are fully consolidated.

Restaurant Progression
Papa John's International, Inc.
         
Year Ended December 26, 2010
Corporate Franchised
Domestic Int'l Domestic Int'l Total
Papa John's restaurants
Beginning of period 588 26 2,193 662 3,469
Opened 5 8 169 143 325
Closed (2) (2) (82) (62) (148)
Acquired - 1 - 12 13
Sold - (12) - (1) (13)
End of Period 591 21 2,280 754 3,646
 
 
 
 
Year Ended December 27, 2009
Corporate Franchised
Domestic Int'l Domestic Int'l Total
Papa John's restaurants
Beginning of period 592 23 2,200 565 3,380
Opened 5 4 79 128 216
Closed (8) (1) (87) (31) (127)
Acquired 11 - 12 - 23
Sold (12) - (11) - (23)
End of Period 588 26 2,193 662 3,469
 
 
Note: Corporate domestic includes 127 majority-owned joint venture restaurants at both December 26, 2010 and December 27, 2009, which are fully consolidated.

Papa John's International, Inc.
David Flanery, 502-261-4753
Chief Financial Officer

Source: Papa John's International, Inc.

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