Form: 10-Q

Quarterly report pursuant to Section 13 or 15(d)

November 7, 2000

Documents

10-Q: Quarterly report pursuant to Section 13 or 15(d)

Published on November 7, 2000



SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549


FORM 10-Q


(MARK ONE)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 24, 2000

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934


COMMISSION FILE NUMBER: 0-21660


PAPA JOHN'S INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)


DELAWARE 61-1203323
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER DENTIFICATION
INCORPORATION OR ORGANIZATION) NUMBER)



2002 PAPA JOHN'S BOULEVARD
LOUISVILLE, KENTUCKY 40299-2334
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

(502) 261-7272
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
- -------------------------------------------------------------------------------


Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days:

Yes X No
--- ---

At November 2, 2000, there were outstanding 22,942,206 shares of the
registrant's common stock, par value $.01 per share.





INDEX




PART I. FINANCIAL INFORMATION Page No.
--------


Item 1. Financial Statements

Condensed Consolidated Balance Sheets --
September 24, 2000 and December 26, 1999 2

Condensed Consolidated Statements of Income --
Three Months and Nine Months Ended September 24,
2000 and September 26, 1999 3

Condensed Consolidated Statements of Stockholders'
Equity - Nine Months Ended September 24,
2000 and September 26, 1999 4

Condensed Consolidated Statements of Cash Flows --
Nine Months Ended September 24, 2000 and
September 26, 1999 5

Notes to Condensed Consolidated Financial
Statements 6

Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8

PART II. OTHER INFORMATION

Item 1. Legal Proceedings 13

Item 6. Exhibits and Reports on Form 8-K 13

Item 7a. Quantitative and Qualitative Disclosures about Market
Risk 14



1




PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

PAPA JOHN'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS




(In thousands) SEPTEMBER 24, 2000 DECEMBER 26, 1999
- -------------------------------------------------------------------------------------------------------
(UNAUDITED) (NOTE)

ASSETS
Current assets:
Cash and cash equivalents $ 21,698 $ 3,698
Accounts receivable 20,067 21,415
Inventories 11,257 10,637
Prepaid expenses and other current assets 6,298 7,378
Deferred income taxes 3,427 2,977
- ------------------------------------------------------------------------------------------------------
Total current assets 62,747 46,105

Investments 5,398 22,086
Net property and equipment 248,722 227,813
Notes receivable from franchisees 15,232 11,743
Intangibles 52,369 47,669
Other assets 16,402 16,635
- ------------------------------------------------------------------------------------------------------

Total assets $ 400,870 $ 372,051
=======================================================================================================

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 21,401 $ 24,947
Accrued expenses 37,565 38,516
Current portion of debt 1,229 5,308
- -------------------------------------------------------------------------------------------------------
Total current liabilities 60,195 68,771

Unearned franchise and development fees 6,912 6,222
Long-term debt, net of current portion 153,210 925
Deferred income taxes 3,890 2,109
Other long-term liabilities 2,520 1,891
Common equity put options 5,616 -

Stockholders' equity:
Preferred stock - -
Common stock 306 305
Additional paid-in capital 191,112 189,920
Accumulated other comprehensive loss (639) (390)
Retained earnings 170,470 134,492
Treasury stock (192,722) (32,194)
- -------------------------------------------------------------------------------------------------------
Total stockholders' equity 168,527 292,133
- -------------------------------------------------------------------------------------------------------

Total liabilities and stockholders' equity $ 400,870 $ 372,051
=======================================================================================================


Note: The balance sheet at December 26, 1999 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.

SEE ACCOMPANYING NOTES.


2


PAPA JOHN'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)




THREE MONTHS ENDED NINE MONTHS ENDED
(In thousands, except per share amounts) SEPT. 24, 2000 SEPT. 26, 1999 SEPT. 24, 2000 SEPT. 26, 1999
- -----------------------------------------------------------------------------------------------------------------

REVENUES:
Restaurant sales $ 109,607 $ 96,538 $ 333,613 $ 289,216
Franchise royalties 12,485 10,261 37,283 29,783
Franchise and development fees 1,423 1,775 4,464 5,020
Commissary sales 88,306 81,002 270,193 227,090
Equipment and other sales 12,982 12,504 37,834 38,706
- ------------------------------------------------------------------------------------------------------------------
Total revenues 224,803 202,080 683,387 589,815

COSTS AND EXPENSES:
Restaurant expenses:
Cost of sales 26,668 26,449 82,268 74,031
Salaries and benefits 30,905 25,746 92,629 78,150
Advertising and related costs 9,081 7,972 30,913 25,245
Occupancy costs 6,094 5,127 17,107 14,377
Other operating expenses 15,988 12,994 46,531 38,865
- ------------------------------------------------------------------------------------------------------------------
88,736 78,288 269,448 230,668
Commissary, equipment and other expenses:
Cost of sales 75,503 72,066 229,705 202,839
Salaries and benefits 7,029 6,135 20,721 17,691
Other operating expenses 7,901 6,659 23,458 20,839
- ------------------------------------------------------------------------------------------------------------------
90,433 84,860 273,884 241,369
General and administrative expenses 17,202 12,446 51,614 40,871
Advertising litigation expense - 1,322 1,017 1,322
Pre-opening and other general expenses
(income) (477) (43) 463 2,552
Depreciation and amortization expense 8,727 6,252 25,389 17,529
- ------------------------------------------------------------------------------------------------------------------
Total costs and expenses 204,621 183,125 621,815 534,311
- ------------------------------------------------------------------------------------------------------------------

Operating income 20,182 18,955 61,572 55,504
Other income (expense):
Investment income 685 831 1,569 2,459
Interest expense (2,380) - (4,854) (151)
- ------------------------------------------------------------------------------------------------------------------

Income before income taxes 18,487 19,786 58,287 57,812
Income tax expense 7,026 7,420 22,309 21,729
- ------------------------------------------------------------------------------------------------------------------
Net income $ 11,461 $ 12,366 $ 35,978 $ 36,083
==================================================================================================================
Basic earnings per share $ 0.48 $ 0.41 $ 1.42 $ 1.20
==================================================================================================================
Diluted earnings per share $ 0.48 $ 0.40 $ 1.41 $ 1.16
==================================================================================================================

Basic weighted average shares outstanding 23,866 30,335 25,331 30,156
==================================================================================================================
Diluted weighted average shares outstanding 24,005 31,228 25,550 31,131
==================================================================================================================


Note: Certain 1999 amounts have been reclassified to conform to the 2000
presentation.

SEE ACCOMPANYING NOTES.


3



PAPA JOHN'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)




ACCUMULATED
ADDITIONAL OTHER TOTAL
COMMON PAID-IN COMPREHENSIVE RETAINED TREASURY STOCKHOLDERS'
(Dollars in thousands) STOCK CAPITAL INCOME (LOSS) EARNINGS STOCK EQUITY
- ----------------------------------------------------------------------------------------------------------------------------------

Balance at December 27, 1998 $ 298 $ 166,209 $ 688 $ 87,456 $ (481) $ 254,170
Comprehensive income:
Net income - - - 36,083 - 36,083
Unrealized gain on investments,
net of tax of $88 - - 193 - - 193
Other, net - - (227) - - (227)
----------
Comprehensive income 36,049
Exercise of stock options 6 12,524 - - - 12,530
Tax benefit related to exercise of
non-qualified stock options - 3,440 - - - 3,440
Deferred tax asset - pooling of interests
business combination - 5,245 - - - 5,245
Other - 69 - (250) - (181)
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at September 26, 1999 $ 304 $ 187,487 $ 654 $ 123,289 $ (481) $ 311,253
=================================================================================================================================
Balance at December 26, 1999 $ 305 $ 189,920 $ (390) $ 134,492 $ (32,194) $ 292,133
Comprehensive income:
Net income - - - 35,978 - 35,978
Unrealized loss on investments,
net of tax of $295 - - (481) - - (481)
Other, net - - 232 - - 232
--------
Comprehensive income 35,729
Exercise of stock options 1 901 - - - 902
Tax benefit related to exercise of
non-qualified stock options - 200 - - - 200
Acquisition of treasury stock
(6,327,000 shares) - - - - (155,468) (155,468)
Common equity put options - - - - (5,060) (5,060)
Other - 91 - - - 91
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at September 24, 2000 $ 306 $ 191,112 $ (639) $ 170,470 $(192,722) $ 168,527
=================================================================================================================================


Note: Certain 1999 amounts have been reclassified to conform to the 2000
presentation.

SEE ACCOMPANYING NOTES.

4


PAPA JOHN'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)




NINE MONTHS ENDED
(In thousands) SEPTEMBER 24, 2000 SEPTEMBER 26, 1999
- -------------------------------------------------------------------------------------------------------------------------

OPERATING ACTIVITIES
Net cash provided by operating activities $ 60,460 $ 66,805

INVESTING ACTIVITIES
Purchase of property and equipment (40,559) (63,302)
Purchase of investments - (22,165)
Proceeds from sale or maturity of investments 15,070 29,703
Loans to franchisees (9,368) (5,236)
Loan repayments from franchisees 6,372 2,752
Acquisitions (6,534) (2,397)
Other 839 262
- -------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (34,180) (60,383)

FINANCING ACTIVITIES
Payments on debt (6,366) (9,815)
Net proceeds from debt issuance and line of credit facility 152,500 2,510
Proceeds from exercise of stock options 902 12,530
Acquisition of treasury stock (155,468) -
Other 470 68
- -------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (7,962) 5,293

Effect of exchange rate changes on cash and cash equivalents (318) -
- -------------------------------------------------------------------------------------------------------------------------

Net increase in cash and cash equivalents 18,000 11,715
Cash and cash equivalents at beginning of period 3,698 33,814
- -------------------------------------------------------------------------------------------------------------------------

Cash and cash equivalents at end of period $ 21,698 $ 45,529
=========================================================================================================================


Note: Certain 1999 amounts have been reclassified to conform to the 2000
presentation.

SEE ACCOMPANYING NOTES.

5


PAPA JOHN'S INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

September 24, 2000

1. BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with accounting principles generally accepted in
the United States for interim financial information and with the instructions
to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by accounting
principles generally accepted in the United States for complete financial
statements. In the opinion of management, all adjustments, consisting of
normal recurring accruals, considered necessary for a fair presentation have
been included. Operating results for the three and nine months ended
September 24, 2000, are not necessarily indicative of the results that may be
expected for the year ended December 31, 2000. For further information, refer
to the consolidated financial statements and footnotes thereto included in
the Annual Report on Form 10-K for Papa John's International, Inc. (referred
to as the "Company", "Papa John's" or in the first person notations of "we",
"us" and "our") for the year ended December 26, 1999.

2. NEW ACCOUNTING PRONOUNCEMENT

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 (SFAS 133), "Accounting for Derivative
Instruments and Hedging Activities", as amended by two subsequent statements.
The new requirements are effective for the Company beginning in the first
quarter of 2001. Due to Papa John's minimal use of derivatives, management
believes that the adoption of SFAS 133 will not have a material effect on the
Company's financial statements.

3. COMPREHENSIVE INCOME

Comprehensive income is comprised of the following:




THREE MONTHS ENDED NINE MONTHS ENDED
(In thousands) SEPT. 24, 2000 SEPT. 26, 1999 SEPT. 24, 2000 SEPT. 26, 1999
- -----------------------------------------------------------------------------------------------------------------

Net income $ 11,461 $ 12,366 $ 35,978 $ 36,083
Unrealized gain (loss) on investments,
net of tax 21 54 (481) 193
Other, net (130) (227) 232 (227)
- -----------------------------------------------------------------------------------------------------------------
Comprehensive income $ 11,352 $ 12,193 $ 35,729 $ 36,049
==================================================================================================================



4. COMMON EQUITY PUT OPTIONS

At September 24, 2000, 250,000 common equity put options were outstanding, all
of which were sold in the third quarter 2000. The options expire at various
dates through March 2001 and have exercise prices between $21.99 and $22.92. The
$5.6 million total exercise price of the options outstanding was classified in
common equity put options at September 24, 2000, and the related offset was
recorded in treasury stock, net of premiums received.


6


5. SEGMENT INFORMATION

Our reportable segments are business units that provide different products or
services. Separate management of each segment is required because each business
unit is subject to different operational issues and strategies. We have
identified three reportable segments: restaurants, commissaries and franchising.
Segment information is as follows:





THREE MONTHS ENDED NINE MONTHS ENDED
(In thousands) SEPT. 24, 2000 SEPT. 26, 1999 SEPT. 24, 2000 SEPT. 26, 1999
- ----------------------------------------------------------------------------------------------------------------------
(NOTE) (NOTE)

REVENUES FROM EXTERNAL CUSTOMERS:
Restaurants $ 109,607 $ 96,538 $ 333,613 $ 289,216
Commissaries 88,306 81,002 270,193 227,090
Franchising 13,908 12,036 41,747 34,803
All others 12,982 12,504 37,834 38,706
- -----------------------------------------------------------------------------------------------------------------------
TOTAL REVENUES FROM EXTERNAL CUSTOMERS $ 224,803 $ 202,080 $ 683,387 $ 589,815
=======================================================================================================================

INTERSEGMENT REVENUES:
Commissaries $ 31,378 $ 30,490 $ 94,638 $ 87,350
Franchising 39 34 118 102
All others 3,949 3,644 12,146 10,519
- ------------------------------------------------------------------------------------------------------------------------
TOTAL INTERSEGMENT REVENUES $ 35,366 $ 34,168 $ 106,902 $ 97,971
========================================================================================================================

INCOME BEFORE INCOME TAXES:
Restaurants $ 3,338 $ 3,022 $ 10,677 $ 11,910
Commissaries 6,242 5,527 21,350 15,997
Franchising 11,832 10,350 35,573 30,005
All others 1,773 1,014 3,781 3,073
Unallocated corporate expenses (A) (4,715) (70) (13,075) (3,058)
Elimination of intersegment (profits)
losses 17 (57) (19) (115)
- ------------------------------------------------------------------------------------------------------------------------
TOTAL INCOME BEFORE INCOME TAXES $ 18,487 $ 19,786 $ 58,287 $ 57,812
========================================================================================================================

FIXED ASSETS:
Restaurants $ 159,127
Commissaries 64,044
All others 6,902
Unallocated corporate assets 106,159
Accumulated depreciation and amortization (87,510)
- -----------------------------------------------------------------
NET FIXED ASSETS $ 248,722
=================================================================


Note: Certain 1999 amounts have been reclassified to conform to the 2000
presentation.

(A) Includes unallocated corporate expense associated with Perfect Pizza
operations of $1.1 million and $3.4 million for the three and nine
months ended September 24, 2000, respectively. Net interest expense
(interest expense less investment income), which is included in
unallocated corporate expense, was $1.7 million for the three months
ended September 24, 2000 compared to net investment income of $831,000
for the three months ended September 26, 1999. For the nine months
ended September 24, 2000, net interest expense was $3.3 million
compared to net investment income of $2.3 million for the comparable
1999 period.


7



ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

RESTAURANT PROGRESSION




THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 24, SEPTEMBER 26, SEPTEMBER 24, SEPTEMBER 26,
2000 1999 2000 1999
- ---------------------------------------------------------------------------------------------------------------

PAPA JOHN'S RESTAURANTS:
U.S. COMPANY-OWNED:
Beginning of period 605 519 573 514
Opened 13 9 29 19
Closed (1) - (2) (1)
Sold to franchisees (2) - (7) (6)
Acquired from franchisees 1 20 23 22
- ---------------------------------------------------------------------------------------------------------------
End of period 616 548 616 548
- ---------------------------------------------------------------------------------------------------------------
INTERNATIONAL COMPANY-OWNED:
Beginning of period 1 - - -
Opened - - 1 -
Converted (A) 5 - 5 -
- ---------------------------------------------------------------------------------------------------------------
End of period 6 - 6 -
- ---------------------------------------------------------------------------------------------------------------
U.S. FRANCHISED:
Beginning of period 1,784 1,523 1,681 1,365
Opened 56 88 185 248
Closed (10) (2) (19) (8)
Sold to Company (1) (20) (23) (22)
Acquired from Company 2 - 7 6
- ---------------------------------------------------------------------------------------------------------------
End of period 1,831 1,589 1,831 1,589
- ---------------------------------------------------------------------------------------------------------------
INTERNATIONAL FRANCHISED:
Beginning of period 46 15 26 6
Opened 10 7 30 16
- ---------------------------------------------------------------------------------------------------------------
End of period 56 22 56 22
- ---------------------------------------------------------------------------------------------------------------
Total at end of period 2,509 2,159 2,509 2,159
===============================================================================================================

PERFECT PIZZA RESTAURANTS:
COMPANY-OWNED:
Beginning of period 12 - 12 -
Closed - - (1) -
Converted (A) (5) (5)
Acquired from franchisees - - 1 -
- ---------------------------------------------------------------------------------------------------------------
End of period 7 - 7 -
- ---------------------------------------------------------------------------------------------------------------
FRANCHISED:
Beginning of period 196 - 194 -
Opened 2 - 5 -
Closed (2) (2)
Sold to Company - - (1) -
- ---------------------------------------------------------------------------------------------------------------
End of period 196 - 196 -
- ---------------------------------------------------------------------------------------------------------------
Total at end of period 203 - 203 -
===============================================================================================================


(A) Represents Perfect Pizza restaurants converted to Papa John's restaurants
during the period.

8



RESULTS OF OPERATIONS

REVENUES. Total revenues increased 11.2% to $224.8 million for the three months
ended September 24, 2000, from $202.1 million for the comparable period in 1999,
and 15.9% to $683.4 million for the nine months ended September 24, 2000, from
$589.8 million for the comparable period in 1999.

Restaurant sales increased 13.5% to $109.6 million for the three months ended
September 24, 2000, from $96.5 million for the comparable period in 1999, and
15.4% to $333.6 million for the nine months ended September 24, 2000, from
$289.2 million for the comparable period in 1999. These increases were primarily
due to increases of 13.2% and 14.1% in the number of equivalent Company-owned
Papa John's restaurants open during the three and nine months ended September
24, 2000, respectively, compared to the corresponding period in the prior year.
"Equivalent restaurants" represent the number of restaurants open at the
beginning of a given period, adjusted for restaurants opened, closed, acquired
or sold during the period on a weighted average basis. Also, sales increased
2.2% for the three months ended September 24, 2000, over the comparable period
in 1999, and 2.7% for the nine months ended September 24, 2000, over the
comparable period in 1999, for Company-owned Papa John's restaurants open
throughout both periods. Sales for the three and nine months ended September 24,
2000, for the Perfect Pizza Holdings Limited ("Perfect Pizza") restaurants
acquired in November 1999, contributed 1.1% and 1.2%, respectively, to the
overall increase.

Franchise royalties increased 21.7% to $12.5 million for the three months ended
September 24, 2000, from $10.3 million for the comparable period in 1999, and
25.2% to $37.3 million for the nine months ended September 24, 2000, from $29.8
million for the comparable period in 1999. These increases were primarily due to
increases of 16.6% and 18.6% in the number of equivalent franchised domestic
Papa John's restaurants open during the three and nine months ended September
24, 2000, compared to the corresponding periods in 1999. Comparable sales for
Papa John's franchised restaurants for the three months ended September 24, 2000
were the same as compared to the corresponding 1999 period. For the nine month
period ending September 24, 2000, franchised restaurant sales increased 2.0%
over the comparable period in 1999. Perfect Pizza franchise royalties
contributed 7.6% and 8.0% to the overall increase for the three and nine months
ended September 24, 2000, respectively.

Franchise and development fees decreased to $1.4 million for the three months
ended September 24, 2000, from $1.8 million for the comparable period in 1999,
and decreased to $4.5 million for the nine months ended September 24, 2000, from
$5.0 million for the comparable period in 1999. These decreases were due to
fewer franchised restaurant openings in the current year comparable periods.

Commissary sales increased 9.0% to $88.3 million for the three months ended
September 24, 2000, from $81.0 million for the comparable period in 1999, and
19.0% to $270.2 million for the nine months ended September 24, 2000, from
$227.1 million for the comparable period in 1999. These increases were primarily
the result of the Perfect Pizza commissary operations, which contributed 6.3%
and 6.9%, respectively, to the overall increase, as well as an increase in the
number of equivalent franchise restaurants, partially offset by lower cheese
sales prices.

Equipment and other sales were $13.0 million for the three months ended
September 24, 2000, compared to $12.5 million in 1999, and $37.8 million for the
nine months ended September 24, 2000, compared to $38.7 million for the
comparable period in 1999.

COSTS AND EXPENSES. Total restaurant expenses as a percentage of restaurant
sales were 81.0% for the three months ended September 24, 2000 compared to 81.1%
for the comparable period in 1999 and increased to 80.8% for the nine months
ended September 24, 2000, from 79.8% for the comparable period in 1999.

Restaurant cost of sales, which consists of food, beverage and paper costs,
decreased as a percentage of restaurant sales to 24.3% for the three months
ended September 24, 2000, from 27.4% for the comparable period in 1999, and
decreased to 24.7% for the nine months ended September 24, 2000, from 25.6% for
the comparable period in 1999. The decrease in the percentage cost for the three
and nine months ended September 24, 2000 over the prior comparable periods is
primarily due to a decrease in cheese costs, partially offset by an increase in
certain other commodity costs.

Restaurant salaries and benefits as a percentage of restaurant sales increased
to 28.2% for the three months ended September 24, 2000, from 26.7% for the
comparable period in 1999, and increased to 27.8% for the nine months ended
September 24, 2000, from 27.0% for the comparable period in 1999. The increase
for the three and nine months ended September 24, 2000 over the prior comparable
periods reflects higher wage rates in response to increasing labor cost

9



pressures. Occupancy costs were 5.6% and 5.1% for the three and nine months
ended September 24, 2000, respectively, as compared to 5.3% and 5.0% for the
comparable periods in 1999.

Restaurant advertising and related costs as a percentage of restaurant sales
were 8.3% for the three months ended September 24, 2000 and September 26, 1999,
and increased to 9.3% for the nine months ended September 24, 2000, from 8.7%
for the comparable period in 1999, as a result of increased marketing activities
in response to the competitive environment and sales trends.

Other restaurant operating expenses increased as a percentage of restaurant
sales to 14.6% for the three months ended September 24, 2000, from 13.5% for the
comparable period in 1999, and increased as a percentage of restaurant sales to
13.9% for the nine months ended September 24, 1999, from 13.4% for the
comparable period in 1999. These increases were primarily due to an increase in
recruitment incentives for staffing and sponsorship fees related to
non-traditional restaurants. Other operating expenses includes an allocation of
commissary operating expenses equal to 3% of Company-owned restaurant sales in
order to assess a portion of the costs of dough production, food, equipment
purchases and storage to Company-owned restaurants.

Commissary, equipment and other expenses include cost of sales and operating
expenses associated with sales of food, paper, equipment, information systems,
and printing and promotional items to franchisees and other customers. These
costs decreased as a percentage of combined commissary sales and equipment and
other sales to 89.3% for the three months ended September 24, 2000, as compared
to 90.8% for the same period in 1999, and decreased to 88.9% for the nine months
ended September 24, 2000, from 90.8% for the same period in 1999.

Cost of sales as a percentage of combined commissary sales and equipment and
other sales decreased to 74.5% for the three months ended September 24, 2000,
from 77.1% for the comparable period in 1999, and decreased to 74.6% for the
nine months ended September 24, 2000, from 76.3% for the comparable period in
1999. These decreases were primarily due to certain commissaries reducing
commodity costs, beginning in late 1999, by blending flour internally.
Previously, the flour blending was outsourced. The commissaries also received a
higher margin on cheese during the third quarter 2000 compared to 1999.
Additionally, higher relative gross margins for the Perfect Pizza commissary
operations contributed 0.5% to the overall cost of sales decrease for the three
months ended September 24, 2000, and 0.4% for the nine months ended September
24, 2000 as compared to 1999.

Salaries and benefits as a percentage of combined commissary sales and equipment
and other sales were 6.9% and 6.7% for the three and nine months ended September
24, 2000, as compared to 6.6% and 6.7% for comparable periods in 1999. The
increase for the three months was primarily due to lower sales prices charged by
the commissaries due to declining cheese prices. Other operating expenses were
7.8% and 7.6% for the three and nine months ended September 24, 2000,
respectively, compared to 7.1% and 7.8% for the same periods in 1999. The
increase for the three months is due to higher delivery costs, which reflect
increased fuel costs as well as lower sales prices charged by the commissaries
due to declining cheese prices. The decrease for the nine months is due to
general operating efficiencies and higher margins for the Perfect Pizza
commissary operations, partially offset by increased delivery costs.

General and administrative expenses as a percentage of total revenues were 7.7%
and 6.2% for the three months ended September 24, 2000 and September 26, 1999,
respectively, and 7.6% and 6.9% for the nine months ended September 24, 2000,
and September 26, 1999, respectively. The increase reflects additional support
services due to expanded operations as well as the addition of Perfect Pizza.
Perfect Pizza contributed 0.3% to the increase for both the three and nine
months ended September 24, 2000.

Advertising litigation expense represents costs associated with the lawsuit
filed against us by Pizza Hut, Inc. claiming that our "Better Ingredients.
Better Pizza." slogan is false and deceptive advertising. Advertising litigation
expense was $1.0 million for the nine months ended September 24, 2000, compared
to $1.3 million for the three and nine months ended September 26, 1999. These
costs consist primarily of legal costs. See "Part II. Other Information - Item
1. Legal Proceedings" for an update on the lawsuit.

Pre-opening and other general expenses (income) was ($477,000) for the three
months ended September 24, 2000, compared to ($43,000) for the comparable period
in 1999, and $463,000 for the nine months ended September 24, 2000, compared to
$2.6 million for the comparable period in 1999. The increase in income for the
three months ended is primarily due to the recognition of a $672,000 gain on the
divestiture of two restaurants and the dissolution of a joint venture


10



arrangement. The decrease in expense for the nine months ended is due to fewer
restaurant relocations in 2000 and the recognition of a $1.3 million gain on the
divestiture of seven restaurants and the dissolution of a joint venture
arrangement compared to a $592,000 loss on the divestiture of five restaurants
and one closure in the prior comparable period.

Depreciation and amortization as a percentage of total revenues increased to
3.9% and 3.7% for the three and nine months ended September 24, 2000,
respectively, from 3.1% and 3.0% for the comparable periods in 1999. These
increases were primarily due to depreciation expense associated with the
relocation of the Company's corporate headquarters to an owned facility and the
continued growth of our commissary system in mid-to-late 1999, and an increase
in amortization expense related to several acquisitions made in late 1999 and
early 2000. The most significant of these was the acquisition of Perfect Pizza
for $32.3 million, which resulted in $30.9 million of goodwill. Total goodwill
amortization is $776,000 and $2.3 million for the three and nine months ended
September 24, 2000, respectively, as compared to $275,000 and $806,000 for the
comparable periods in 1999.

Operating income for the three months ended September 24, 2000 increased 6.5% to
$20.2 million compared to $19.0 million for the comparable period in 1999.
Operating income for the nine months ended September 24, 2000 increased 10.9% to
$61.6 million from $55.5 million for the comparable period in 1999.

INVESTMENT INCOME. Investment income decreased to $685,000 for the three months
ended September 24, 2000, from $831,000 for the comparable period in 1999, and
decreased to $1.6 million for the nine months ended September 24, 2000, from
$2.5 million for the comparable period in 1999. These decreases reflect a
decrease in our average investment portfolio balance, partially offset by an
increase in the average balance of franchise loans. A significant portion of our
investment portfolio was liquidated to fund the repurchase of our common stock.

INTEREST EXPENSE. Interest expense was $2.4 million for the three months ended
September 24, 2000 (none in 1999), and increased to $4.9 million for the nine
months ended September 24, 2000, from $151,000 for the comparable period in
1999, due to amounts borrowed to fund the repurchase of our common stock.

INCOME TAX EXPENSE. Income tax expense reflects a combined federal, state and
local effective tax rate of 38.0% and 38.3% for the three and nine months ended
September 24, 2000, respectively, compared to 37.5% and 37.6% for the comparable
periods in 1999. The effective tax rate in 2000 increased as a result of less
tax-exempt investment income due to the liquidation of investments to fund the
repurchase of common stock.

LIQUIDITY AND CAPITAL RESOURCES

Cash flow from operations decreased to $60.5 million for the nine months ended
September 24, 2000, from $66.8 million for the comparable period in 1999
primarily due to an increase in working capital requirements and a decrease in
tax benefits related to the exercise of non-qualified stock options.

We require capital primarily for the development and acquisition of restaurants,
the addition of new commissary and support services facilities and equipment,
the enhancement of corporate systems and facilities, and the funding of
franchisee loans. Additionally, we began a common stock repurchase program in
December 1999. Common stock share repurchases of $155.5 million, capital
expenditures of $40.6 million, acquisitions of $6.5 million, payments on debt of
$6.4 million and net loans to franchisees of $3.0 million for the nine months
ended September 24, 2000, were funded by advances on an unsecured revolving line
of credit agreement, cash flow from operations and the liquidation of available
investments, cash and cash equivalents.

The Board of Directors has authorized the repurchase of up to $225.0 million of
our common stock through December 31, 2000. During the first nine months of
2000, the Company repurchased 6.3 million shares for $155.5 million at an
average price of $24.57 per share. A total of 7.6 million shares have been
repurchased for $187.2 million at an average price of $24.66 per share since the
repurchase program started in 1999. As of November 2, 2000, there had been no
repurchases subsequent to September 24, 2000.

The Company's debt at September 24, 2000 was $154.4 million compared to $6.2
million at December 26, 1999. The increase in debt is due to the common stock
repurchase program. The debt balance decreased to $139.5 million at November 2,
2000 due to repayments from cash on hand at September 24, 2000. EBITDA,
excluding advertising litigation expense, increased 9.0% to $28.9 million for
the three months ended September 24, 2000, compared to $26.5 million for the
same period in prior year and increased 18.3% to $88.0 million for the nine
months ended September 24, 2000, compared to $74.4 million for the corresponding
1999 period.


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Capital resources available at September 24, 2000, include $21.7 million of cash
and cash equivalents and $5.4 million of investments. Effective October 30,
2000, a $150.0 million, three-year unsecured line of credit agreement expiring
in March 2003 was increased to $200.0 million. During the third quarter 2000, we
obtained a "bridge loan" from PNC Bank, which allowed us to borrow up to $20.0
million. The bridge loan was terminated with the line of credit increase to
$200.0 million. At November 2, 2000, we had approximately $60.5 million
remaining borrowing capacity under the expanded line of credit facility.

FORWARD LOOKING STATEMENTS

Certain information contained in this quarterly report, particularly information
regarding future financial performance and plans and objectives of management,
is forward looking. Certain factors could cause actual results to differ
materially from those expressed in forward looking statements. These factors
include, but are not limited to, our ability and the ability of our franchisees
to obtain suitable locations and financing for new restaurant development; the
hiring, training, and retention of management and other personnel; competition
in the industry with respect to price, service, location and food quality; an
increase in food cost due to seasonal fluctuations, weather or demand; changes
in consumer tastes or demographic trends; litigation; changes in federal or
state laws, such as increases in minimum wage; and risks inherent to
international development, including operational or market risks associated with
the planned conversion of Perfect Pizza restaurants to Papa John's in the United
Kingdom. See "Part I. Item 1. - Business Section - Forward Looking Statements"
of the Form 10-K for the fiscal year ended December 26, 1999 for additional
factors.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

On August 12, 1998, Pizza Hut, Inc. filed suit against us in the United States
District Court for the Northern District of Texas, claiming that our "Better
Ingredients. Better Pizza." slogan constituted false and deceptive advertising
in violation of the Lanham Trademark Act. On November 18, 1999, the jury
returned a verdict that our "Better Ingredients. Better Pizza." slogan was false
and deceptive. On January 3, 2000, the court announced its judgment, awarding
Pizza Hut $468,000 in damages and ordering us to cease all use of the "Better
Ingredients. Better Pizza." slogan. Under the judge's order, we were to cease
using the slogan in print and broadcast advertising, phase out printed
promotional materials and other items containing the slogan and remove the
slogan from restaurant signage, all according to deadlines specified by the
court. We initially estimated that the pre-tax costs of complying with the
court's order and certain related costs could have approximated $12.0 to $15.0
million, of which $6.1 million was recorded as pre-tax charges against 1999
earnings. For the nine months ended September 24, 2000, we incurred $1.0 million
of pre-tax charges related to this issue. We filed an appeal of the verdict and
the court's order and a motion for stay of the court's order pending outcome of
the appeal. On January 21, 2000, the United States Court of Appeals for the
Fifth Circuit granted a stay of the District Court judgment pending our appeal.
Oral arguments related to the appeal were held on April 5, 2000.

On September 19, 2000, the Fifth Circuit vacated the District Court's judgment
in its entirety and remanded the case to the District Court for entry of
judgment in favor of Papa John's. Pizza Hut has until December 18, 2000 to file
a petition for writ of certiorari with the United States Supreme Court. We
cannot predict, if the petition is filed, whether the Supreme Court will accept
the case for hearing or, in the event it is accepted, what the outcome of any
such hearing will be.

We are also subject to claims and legal actions in the ordinary course of our
business. We believe that all such claims and actions currently pending against
us are either adequately covered by insurance or would not have a material
adverse effect on us if decided in a manner unfavorable to us.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

a. Exhibits

Exhibit
Number Description
------ -----------
10.1 Second Amendment to Credit Agreement by and
among Papa John's International, Inc. and The
Guarantors Party Hereto and the Banks Party
Hereto and Bank One, Indiana, NA, as Syndication
Agent and PNC Bank, National Association, as
Lead Arranger and Administrative Agent and
dated as of October 30, 2000.

11 Calculation of Earnings per Share

27 Financial Data Schedule for the nine months
ended September 24, 2000, which is submitted
electronically to the Securities and Exchange
Commission for information only and not deemed
to be filed with the Commission.

99.1 Cautionary Statements. Exhibit 99.1 to our
Annual Report on Form 10-K for the fiscal year
ended December 26, 1999 (Commission File No.
0-21660) is incorporated herein by reference.

b. Current Reports on Form 8-K.

There were no reports filed on Form 8-K during the quarterly period ended
September 24, 2000.



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ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company's debt at September 24, 2000 is principally comprised of a $152.5
million outstanding principal balance on the $150.0 million unsecured revolving
line of credit and $20.0 million bridge loan. The interest rate on the revolving
line of credit is variable and is based on the London Interbank Offered Rate
(LIBOR). An increase in interest rate of 100 basis points would increase
interest expense approximately $1.5 million annually. The weighted average
interest rate on the revolving line of credit was 7.25% as of September 24,
2000. We have entered into a $100.0 million interest rate collar, which is
effective until March 2003. The collar establishes a 6.36% floor and a 9.50%
ceiling on the LIBOR base rate on a no-fee basis.

Substantially all of our business is transacted in U.S. dollars. Accordingly,
foreign exchange rate fluctuations do not have a significant impact on the
Company.

Cheese, representing approximately 35-40% of our food cost, is subject to
seasonal fluctuations, weather, demand and other factors that are beyond our
control. We have entered into a purchasing arrangement with a third-party entity
formed at the direction of the Franchise Advisory Council for the sole purpose
of reducing cheese price volatility. Under this arrangement, we are able to
purchase cheese at a fixed quarterly price, based in part on historical average
cheese prices. Gains and losses incurred by the selling entity will be used as a
factor in determining adjustments to the selling price over time. Ultimately, we
will purchase cheese at a price approximating the actual average market price,
but with less short-term volatility.



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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: November 7, 2000 /s/ E. Drucilla Milby
-------------------- -----------------------------------------
E. Drucilla Milby, Senior Vice President,
Chief Financial Officer and Treasurer



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