Form: 10-Q

Quarterly report pursuant to Section 13 or 15(d)

November 12, 1998

Documents

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

Published on November 12, 1998



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 27, 1998

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 Identification
incorporation or organization) number)



11492 Bluegrass Parkway, Suite 175
Louisville, Kentucky 40299-2334
(Address of principal executive offices)

(502) 266-5200
(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, 1998, there were outstanding 29,541,529 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 27, 1998 and December 28, 1997 2

Condensed Consolidated Statements of Income --
Three Months and Nine Months Ended September
27, 1998 and September 28, 1997 3

Condensed Consolidated Statements of Stockholders'
Equity -- Nine Months Ended September 27, 1998
and September 28, 1997 4

Condensed Consolidated Statements of Cash Flows --
Nine Months Ended September 27, 1998 and
September 28, 1997 5

Notes to Condensed Consolidated Financial Statements 6

Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7

PART II. OTHER INFORMATION

Item 1. Legal Proceedings 10

Item 6. Exhibits and Reports on Form 8-K 10


1

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements


Papa John's International, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets



September 27, 1998 December 28, 1997
(In thousands) (Unaudited) (Note)
- - -----------------------------------------------------------------------------------------------------------------

Assets
Current assets:
Cash and cash equivalents $ 29,663 $ 18,692
Accounts receivable 15,966 15,132
Inventories 9,105 9,091
Deferred pre-opening costs 2,972 3,827
Prepaid expenses and other current assets 2,626 2,434
- - -----------------------------------------------------------------------------------------------------------------
Total current assets 60,332 49,176

Investments 51,013 57,933
Net property and equipment 157,487 112,601
Notes receivable 12,555 15,080
Other assets 23,111 18,453
- - -----------------------------------------------------------------------------------------------------------------
Total assets $304,498 $253,243
=================================================================================================================

Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 20,278 $ 15,148
Accrued expenses 23,001 15,132
Deferred income taxes 252 102
- - -----------------------------------------------------------------------------------------------------------------
Total current liabilities 43,531 30,382

Unearned franchise and development fees 6,479 4,613
Deferred income taxes 3,441 3,987
Other long-term liabilities 1,339 1,528

Stockholders' equity:
Preferred stock - -
Common stock 295 291
Additional paid-in capital 159,761 149,850
Accumulated other comprehensive income (unrealized
gain on investments, net of tax) 531 321
Retained earnings 89,602 62,752
Treasury stock (481) (481)
- - -----------------------------------------------------------------------------------------------------------------
Total stockholders' equity 249,708 212,733
- - -----------------------------------------------------------------------------------------------------------------

Total liabilities and stockholders' equity $304,498 $253,243
=================================================================================================================


Note: The balance sheet at December 28, 1997 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
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
September 27, 1998 September 28, 1997 September 27, 1998 September 28, 1997
- - ----------------------------------------------------------------------------------------------------------------------------------

(In thousands, except per share amounts)

Revenues:
Restaurant sales $ 80,550 $ 63,645 $ 236,417 $ 180,114
Franchise royalties 8,083 5,971 23,529 17,274
Franchise and development fees 1,545 1,149 3,957 3,774
Commissary sales 64,574 46,466 184,130 133,355
Equipment and other sales 11,676 11,021 33,596 29,590
- - ----------------------------------------------------------------------------------------------------------------------------------
Total revenues 166,428 128,252 481,629 364,107

Costs and expenses:
Restaurant expenses:
Cost of sales 21,664 16,644 62,502 47,398
Salaries and benefits 21,578 17,016 63,440 48,705
Advertising and related costs 6,776 6,058 20,730 16,759
Occupancy costs 4,268 3,493 11,605 9,200
Other operating expenses 10,517 8,503 31,075 24,408
- - ----------------------------------------------------------------------------------------------------------------------------------
64,803 51,714 189,352 146,470

Commissary, equipment and other expenses:
Cost of sales 60,081 44,524 170,420 126,672
Salaries and benefits 4,327 3,248 12,299 9,463
Other operating expenses 5,574 4,611 16,064 13,143
- - ----------------------------------------------------------------------------------------------------------------------------------
69,982 52,383 198,783 149,278

General and administrative expenses 11,474 9,160 34,781 26,990
Depreciation 4,513 3,549 12,763 9,455
Amortization 1,821 1,749 5,490 4,635
- - ----------------------------------------------------------------------------------------------------------------------------------
Total costs and expenses 152,593 118,555 441,169 336,828
- - ----------------------------------------------------------------------------------------------------------------------------------
Operating income 13,835 9,697 40,460 27,279

Other income (expense):
Investment income 1,123 1,175 3,364 3,399
Other, net 266 8 (549) (808)
- - ----------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 15,224 10,880 43,275 29,870
Income tax expense 5,633 4,026 16,012 11,052
- - ----------------------------------------------------------------------------------------------------------------------------------

Net income $ 9,591 $ 6,854 $ 27,263 $ 18,818
==================================================================================================================================

Basic earnings per share $ 0.33 $ 0.24 $ 0.93 $ 0.65
==================================================================================================================================

Diluted earnings per share $ 0.32 $ 0.23 $ 0.90 $ 0.64
==================================================================================================================================

Basic weighted average shares outstanding 29,507 28,972 29,345 28,872
==================================================================================================================================

Diluted weighted average shares outstanding 30,260 29,754 30,267 29,557
==================================================================================================================================


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'
(In thousands) Stock Capital Income Earnings Stock Equity
- - ------------------------------------------------------------------------------------------------------------------------------------

Balance at December 30, 1996 $288 $143,978 $ 977 $35,882 $(482) $180,643
Comprehensive income:
Net income - - - 18,818 - 18,818
Unrealized loss on investments
net of tax of $232 - - (282) - - (282)
-----------
Comprehensive income 18,536
Exercise of stock options 2 2,161 - - - 2,163
Tax benefit related to exercise of
non-qualified stock options - 1,882 - - - 1,882
Other - - - 21 1 22
- - ------------------------------------------------------------------------------------------------------------------------------------
Balance at September 28, 1997 $290 $148,021 $ 695 $54,721 $(481) $203,246
====================================================================================================================================


Balance at December 29,1997 $291 $149,850 $ 321 $62,752 $(481) $212,733
Comprehensive income:
Net income - - - 27,263 - 27,263
Unrealized gain on investments
net of tax of $202 - - 210 - - 210
-----------
Comprehensive income 27,473
Exercise of stock options 4 7,785 - - - 7,789
Tax benefit related to exercise of
non-qualified stock options - 1,887 - - - 1,887
Other - 239 - (413) - (174)
- - ------------------------------------------------------------------------------------------------------------------------------------
Balance at September 27,1998 $295 $159,761 $ 531 $89,602 $(481) $249,708
====================================================================================================================================


See accompanying notes

4

Papa John's International, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)




Nine Months Ended
(In thousands) September 27, 1998 September 28, 1997
- - ---------------------------------------------------------------------------------------------------------------------

Operating activities
Net cash provided by operating activities $ 50,317 $ 32,761

Investing activities
Purchase of property and equipment (52,131) (31,163)
Purchase of investments (30,018) (28,482)
Proceeds from sale or maturity of investments 36,547 35,070
Loans to franchisees (4,139) (10,605)
Loan repayments from franchisees 4,505 805
Deferred systems development costs (846) (1,486)
Acquisitions (1,902) (5,448)
Other 391 293
- - ---------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (47,593) (41,016)

Financing activities
Proceeds from exercise of stock options 7,789 2,163
Payments on long-term debt (1,430) (175)
Tax benefit related to exercise of non-qualified
stock options 1,887 1,882
Other 1 (15)
- - ---------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 8,247 3,855
- - ---------------------------------------------------------------------------------------------------------------------

Net increase (decrease) in cash and cash equivalents 10,971 (4,400)
Cash and cash equivalents at beginning of period 18,692 24,063
- - ---------------------------------------------------------------------------------------------------------------------

Cash and cash equivalents at end of period $ 29,663 $ 19,663
=====================================================================================================================


See accompanying notes.

5

Papa John's International, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements
(Unaudited)

September 27, 1998

1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles 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 generally accepted accounting principles 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
27, 1998, are not necessarily indicative of the results that may be expected for
the year ended December 27, 1998. For further information, refer to the
consolidated financial statements and footnotes thereto included in the Papa
John's International, Inc. Annual Report on Form 10-K for the year ended
December 28, 1997.

2. Advertising and Related Costs

Advertising and related costs include the costs of Company-owned restaurant
activities such as mail coupons, door hangers and promotional items and, through
December 28, 1997, Company-owned restaurant contributions to the Papa John's
Marketing Fund, Inc. (the "Marketing Fund") and local market cooperative
advertising funds as incurred. Contributions by Company-owned and franchised
restaurants to the Marketing Fund and the cooperative advertising funds are
based on an established percentage of monthly restaurant revenues. The Marketing
Fund is responsible for developing and conducting marketing and advertising for
the Papa John's system. The local market cooperative advertising funds are
responsible for developing and conducting advertising activities in a specific
market, including the placement of electronic and print materials developed by
the Marketing Fund. Such funds are accounted for separately and are not included
in our consolidated financial statements, except as described below beginning
with the first quarter of 1998.

Effective December 29, 1997, we began recognizing Company-owned restaurant
contributions to the Marketing Fund and to those local market cooperative
advertising funds deemed to be controlled by us (collectively, the "Controlled
Funds"), as advertising and related costs at the time the Controlled Funds
actually incurred such expenses. Through December 28, 1997, the Controlled Funds
generally incurred expenses as contributions were received; therefore, the
impact of this change was not material.

3. Accounting Pronouncement

In May 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position 98-5,
"Reporting on the Costs of Start-up Activities" (the "SOP"), which will require
adoption at or before the beginning of 1999. Our initial application of the SOP
will require the write-off of deferred pre-opening costs as of the date of
adoption, and such write-off will be reported, on a net of tax basis, as the
cumulative effect of a change in accounting principle. We do not expect the
adoption of the SOP to materially impact future operating income. Deferred pre-
opening costs as of September 27, 1998, amounted to $3.0 million.

6

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

Restaurant Progression


Three Months Ended Nine Months Ended
September 27, September 28, September 27, September 28,
1998 1997 1998 1997
- - ---------------------------------------------------------------------------------------------------------------------------

Company-owned:

Beginning of period 441 367 401 303
Opened 16 22 48 67
Closed - - (1) (1)
Acquired from Franchisees 11 - 21 20
Sold to Franchisees (2) - (3) -
- - ---------------------------------------------------------------------------------------------------------------------------
End of Period 466 389 466 389
- - ---------------------------------------------------------------------------------------------------------------------------

Franchised:

Beginning of period 1,245 976 1,116 857
Opened 78 64 218 206
Closed - (2) (2) (5)
Sold to Company (11) - (21) (20)
Acquired from Company 2 - 3 -
- - ---------------------------------------------------------------------------------------------------------------------------
End of period 1,314 1,038 1,314 1,038
- - ---------------------------------------------------------------------------------------------------------------------------

Total at end of period 1,780 1,427 1,780 1,427
===========================================================================================================================



Results of Operations

Revenues. Total revenues increased 29.8% to $166.4 million for the three months
ended September 27, 1998, from $128.3 million for the comparable period in 1997,
and 32.3% to $481.6 million for the nine months ended September 27, 1998, from
$364.1 million for the comparable period in 1997.

Restaurant sales increased 26.6% to $80.6 million for the three months ended
September 27, 1998, from $63.6 million for the comparable period in 1997, and
31.3% to $236.4 million for the nine months ended September 27, 1998, from
$180.1 million for the comparable period in 1997. These increases were primarily
due to increases of 20.5% and 24.1% in the number of equivalent Company-owned
restaurants open during the three and nine months ended September 27, 1998,
respectively, compared to the same periods in the prior year. "Equivalent
restaurants" represent the number of restaurants open at the beginning of a
given period, adjusted for restaurants opened, acquired, closed or sold during
the period on a weighted average basis. Also, sales increased 8.1% for the
three months ended September 27, 1998, over the comparable period in 1997, and
9.1% for the nine months ended September 27, 1998, over the comparable period in
1997, for Company-owned restaurants open throughout both periods.

Franchise royalties increased 35.4% to $8.1 million for the three months ended
September 27, 1998, from $6.0 million for the comparable period in 1997, and
36.2% to $23.5 million for the nine months ended September 27, 1998, from $17.3
million for the comparable period in 1997. These increases were primarily due
to increases of 26.4% and 28.1% in the number of equivalent franchised
restaurants open during the three and nine months ended September 27, 1998,
respectively, compared to the same periods in the prior year. Also, sales
increased 10.2% for the three months ended September 27, 1998, over the
comparable period in 1997, and 9.8% for the nine months ended September 27,
1998, over the comparable period in 1997, for franchised restaurants open
throughout both periods.

Franchise and development fees increased 34.5% to $1.5 million for the three
months ended September 27, 1998, from $1.1 million for the comparable period in
1997, and 4.8% to $4.0 million for the nine months ended September 27, 1998,
from $3.8 million for the comparable period in 1997. These increases were
primarily due to 78 and 218 franchised restaurants opened during the three and
nine months ended September 27, 1998, versus 64 and 206 opened during the
comparable period in 1997, and the nature and mix of development agreements
under which the restaurants were opened. The average dollar amount of fees per
franchised restaurant opening may vary from period to period, as restaurants
opened pursuant to older development agreements and certain "Hometown
restaurants"

7

generally have lower required fees than restaurants opened pursuant
to more recent development agreements. "Hometown restaurants" are located in
smaller markets, generally markets with less than 9,000 households.

Commissary sales increased 39.0% to $64.6 million for the three months ended
September 27, 1998, from $46.5 million for the comparable period in 1997, and
38.1% to $184.1 million for the nine months ended September 27, 1998, from
$133.4 million for the comparable period in 1997. These increases were
primarily the result of the increases in equivalent franchised restaurants and
comparable sales for franchised restaurants previously noted.

Equipment and other sales increased 5.9% to $11.7 million for the three months
ended September 27, 1998, from $11.0 million for the comparable period in 1997,
and 13.5% to $33.6 million for the nine months ended September 27, 1998 from
$29.6 million for the comparable period in 1997. These increases were primarily
the result of the previously noted increase in equivalent franchised restaurants
and sales of the Papa John's PROFIT System, a proprietary point of sale system,
and related PROFIT support services to franchisees.

Costs and Expenses. Restaurant cost of sales, which consists of food, beverage
and paper costs, increased as a percentage of restaurant sales to 26.9% for the
three months ended September 27, 1998, from 26.2% for the comparable period in
1997, and increased to 26.4% for the nine months ended September 27, 1998, from
26.3% for the comparable period in 1997. These increases were primarily due to
increases in the average cheese block market prices, partially offset by a
decrease in the average cost of certain other commodities. Cheese, representing
approximately 40% of food cost, and other commodities are subject to seasonal
fluctuations, weather, demand and other factors. Most of the factors affecting
the cost of cheese are beyond our control.

Restaurant salaries and benefits as a percentage of restaurant sales increased
to 26.8% for the three months ended September 27, 1998, from 26.7% for the
comparable period in 1997, and decreased to 26.8% for the nine months ended
September 27, 1998, from 27.0% for the comparable period in 1997, as a result of
certain efficiencies gained on a higher sales base, partially offset by an
increase in the federal minimum wage in September 1997. Occupancy costs as a
percentage of restaurant sales decreased to 5.3% for the three months ended
September 27, 1998, from 5.5% for the comparable period in 1997, and decreased
to 4.9% for the nine months ended September 27, 1998, from 5.1% for the
comparable period in 1997, as a result of leveraging against a higher sales
base.

Advertising and related costs decreased to 8.4% for the three months ended
September 27, 1998, from 9.5% for the comparable period in 1997, and decreased
to 8.8% for the nine months ended September 27, 1998, from 9.3% for the
comparable period in 1997. Advertising and related costs were managed to lower
levels during the three months ended September 27, 1998, in anticipation of
increased levels of spending in connection with a national advertising campaign
beginning in October 1998. Our advertising often varies based on the timing of
national or market-level promotions.

Other restaurant operating expenses decreased as a percentage of restaurant
sales to 13.1% for the three months ended September 27, 1998, from 13.4% for the
comparable period in 1997, and decreased as a percentage of restaurant sales to
13.1% for the nine months ended September 27, 1998, from 13.6% for the
comparable period in 1997. Other operating expenses include 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 and food and
equipment purchasing and storage to Company-owned restaurants. The decrease in
other operating expenses as a percentage of restaurant sales was primarily due
to a reduction in delivery costs and lower worker's compensation costs.

Commissary, equipment and other expenses include cost of sales, salaries and
benefits, and other operating expenses associated with sales of food, paper,
equipment, information systems, and printing and promotional items to
franchisees and other customers. Overall, these costs increased as a percentage
of combined commissary sales and equipment and other sales to 91.8% for the
three months ended September 27, 1998, as compared to 91.1% for the same period
in 1997, and decreased to 91.3% for the nine months ended September 27, 1998,
from 91.6% for the comparable period in 1997.

Cost of sales as a percentage of combined commissary sales and equipment and
other sales increased to 78.8% for the three months ended September 27, 1998,
from 77.5% for the comparable period in 1997 and increased to 78.3% for the nine
months ended September 27, 1998, as compared to 77.7% for the comparable period
in 1997, due to higher cheese prices partially offset by the mix of commissary
sales to equipment and other sales which have a higher margin.

Salaries and benefits as a percentage of combined commissary sales and equipment
and other sales were relatively consistent at 5.7% for the three months ended
September 27, 1998, as compared to 5.6% for the comparable period in 1997 and
5.6% for the nine months ended September 27, 1998, as compared to 5.8% for the
comparable period in 1997. Other operating expenses decreased to 7.3% for the
three months ended and 7.4% for the nine months ended September 27, 1998, from
8.0% and 8.1% for the comparable periods in 1997. These decreases were due
primarily to lower costs related to the opening of one commissary facility in
1998, as compared to two commissary facilities in 1997.

8

General and administrative expenses as a percentage of total revenues decreased
slightly to 6.9% for the three months ended September 27, 1998, from 7.1% for
the comparable period in 1997, and decreased to 7.2% for the nine months ended
September 27, 1998, from 7.4% for the comparable period in 1997.

Depreciation and amortization were relatively consistent as a percentage of
total revenues at 3.8%, for the three and nine months ended September 27, 1998,
as compared to 4.1% and 3.9% for the comparable periods in 1997.

Investment Income. Investment income decreased to $1.1 million for the three
months ended September 27, 1998, from $1.2 million for the comparable period in
1997, and remained consistent at $3.4 million for the nine months ended
September 27, 1998, and the comparable period in 1997 due to relatively
consistent invested balances and yields.

Income Tax Expense. Income tax expense reflects a combined federal, state and
local effective tax rate of 37% for the three and nine months ended September
27, 1998 and September 28, 1997, representing statutory rates applied to pre-tax
income as adjusted by the impact of tax-exempt investment income and other
items.

Liquidity and Capital Resources

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. Capital expenditures of $52.1 million for the nine months
ended September 27, 1998, were primarily funded by cash flow from operations.

Cash flow from operations increased to $50.3 million for the nine months ended
September 27, 1998, from $32.8 million for the comparable period in 1997, due
primarily to the higher level of net income for the first nine months of 1998
and changes in working capital.

In addition to restaurant development and potential acquisitions, significant
capital projects for the next 12 months are expected to include the development
of a full-service commissary in Dallas, Texas. In early-1999, we also expect to
open a 240,000 square foot facility in Louisville, Kentucky, approximately 40%
of which will accommodate relocation and expansion of the Louisville commissary
operations and Novel Approach promotional division, and the remainder of which
will accommodate relocation and consolidation of corporate offices.

We have been approved to receive up to $21.0 million in incentives under the
Kentucky Jobs Development Act in connection with the relocation of the corporate
offices. Based upon the expected timing of completion of the facility, we expect
to earn approximately $14.0 million of such incentives through 2007.

Additionally, during the remainder of 1998 we expect to fund up to $2.4 million
in additional loans under existing franchisee loan program commitments.
Approximately $12.6 million was outstanding under this program as of September
27, 1998. We do not currently expect to significantly expand the program beyond
existing commitments.

Capital resources available at September 27, 1998, include $29.7 million of cash
and cash equivalents, $51.0 million of investments and $8.2 million under a line
of credit expiring in June 1999. We expect to fund planned capital expenditures
for the next twelve months from these resources and operating cash flows.

Impact of Year 2000

Some of our older purchased software programs were written using two digits
rather than four to define the applicable year. As a result, time-sensitive
software or hardware recognizes a date using "00" as the year 1900 rather than
the year 2000. This could cause a system failure or miscalculations resulting in
disruptions of important administrative processes, including, among other
things, a temporary inability to process transactions, send invoices, or engage
in similar normal business activities.

We have completed an assessment of our computer systems and will have to modify
or replace certain software and hardware so that they will function properly in
the year 2000 and thereafter. Based on our assessment or representations from
software suppliers, or both, we believe the total Year 2000 project cost is
immaterial to our financial position, net income and liquidity. Much of the cost
related to Year 2000 coincides with existing management plans to replace certain
systems (principally the financial accounting system) in order to accommodate
our planned growth.

About 50% of the new accounting system has been implemented and the remaining
portion is expected to be implemented by June 1999. The timing of implementation
was not materially affected by Year 2000 concerns.

We believe that with the planned modifications to existing software and/or
conversion to new software and hardware as described above, the Year 2000 issue
will not pose significant operational problems. However, if such modifications
and conversions are not made, or are not completed timely, the Year 2000 issue
could have a material impact on certain administrative processes.

We are in the process of querying our significant vendors with respect to Year
2000 issues. Based on the responses received from approximately 75% of the
vendors, we are not aware of any vendors with a Year 2000 issue that would
materially impact results of operations, liquidity, or capital resources.
However, we have no means of ensuring that vendors will be Year 2000 ready. The
inability of vendors to complete their Year 2000 resolution process in a timely
fashion could materially impact us, although the actual impact of non-compliance
by vendors is not determinable. We expect to complete the vendor querying
process by March 1999.

We have no contingency plans in place in the event we do not complete all phases
of the Year 2000 program. We plan to evaluate the status of completion in March
1999 to determine whether such contingency plans are necessary, although at this
time we know of no reason our Year 2000 program will not be completed in a
timely manner.

9

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

We are 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.

On August 12, 1998, Pizza Hut, Inc. filed suit in the United States District
Court for the Northern District of Texas under the federal Lanham Act (the
"Lawsuit") claiming, among other things, that we engaged in acts of unfair
competition through dissemination of "false, misleading and disparaging
advertising", including without limitation, the use of our "Better Ingredients.
Better Pizza." trademark. Pizza Hut is seeking, injunctive relief and damages in
an amount of not less than $12.5 million, attorneys' fees, as well as other
relief. We have also filed a counterclaim against Pizza Hut (the "Counterclaim")
claiming the Lawsuit was filed primarily, if not solely, as a competitive ploy.
We have asked the court for an award of our reasonable attorneys' fees, as well
as for other relief to which we may be entitled. This Lawsuit and Counterclaim
is in the early stages of pleading and discovery. A trial has been scheduled
for October 25, 1999. We do not believe the Lawsuit has merit and intend to
vigorously defend the claims asserted against us.

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

a. Exhibits

Exhibit
Number Description
------ -----------

11 Calculation of Earnings Per Share

27 Financial Data Schedule 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 28, 1997 (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 27, 1998.

10

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 11, 1998 /s/ E. Drucilla Milby
----------------------------------
E. Drucilla Milby, Chief Financial
Officer and Treasurer

11