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Papa John’s Announces Fourth Quarter and Full-Year 2009 Earnings
Date : 02/23/2010 @ 5:03PM
Source : Business Wire
Stock : Papa John’s International, Inc. (PZZA)
Quote : 24.55 0.52 (2.16%) @ 7:22AM
Papa John’s Announces Fourth Quarter and Full-Year 2009 Earnings
Papa John’s International, Inc. (NASDAQ: PZZA):
Highlights
Fourth quarter earnings per diluted share of $0.49 in 2009 vs. $0.46 in 2008 and full-year earnings per diluted share of $2.06 in 2009 vs. $1.30 in 2008
Fourth quarter earnings per diluted share, excluding noted items, were $0.41 in 2009 vs. $0.48 in 2008 and full-year earnings per diluted share, excluding noted items, were $1.50 in 2009 vs. $1.68 in 2008
Domestic system-wide comparable sales decreased 0.5% for the quarter and were even for the year
International franchise system sales increased 18% for the quarter (13% excluding the impact of foreign currency exchange rates) and 14% for the year (24% excluding the impact of foreign currency exchange rates)
11 net Papa John’s worldwide unit openings during the quarter and 89 net openings during the year
Earnings guidance for 2010 reaffirmed at a range of $1.70 to $1.90 per diluted share, excluding the impact of consolidating BIBP
Papa John’s International, Inc. (NASDAQ: PZZA) today announced revenues of $280.5 million for the fourth quarter of 2009, compared to revenues of $279.6 million in 2008. Net income for the fourth quarter of 2009 was $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 the results of the franchisee-owned cheese purchasing company, BIBP Commodities, Inc. (“BIBP”), a variable interest entity, and a gain of $1.0 million, or $0.03 per diluted share, from the finalization of certain income tax issues), compared to 2008 fourth quarter net income of $12.8 million, or $0.46 per diluted share (including after-tax income of $600,000, or $0.02 per diluted share, from the consolidation of BIBP, a gain of $1.2 million, or $0.04 per diluted share, from the finalization of certain income tax issues and an after-tax charge of $2.2 million, or $0.08 per diluted share, related to restaurant impairment and disposition losses).
Consolidated revenues for 2009 were $1.11 billion, representing a decrease of 2.3% from revenues of $1.13 billion for 2008. Net income for 2009 was $57.5 million, or $2.06 per diluted share (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), compared to net income of $36.8 million, or $1.30 per diluted share, for 2008 (including a net loss of $6.9 million, or $0.24 per diluted share, from the consolidation of BIBP, a gain of $1.7 million or $0.06 per diluted share from the finalization of certain income tax issues and an after-tax charge of $5.5 million, or $0.20 per diluted share, related to restaurant impairment and disposition losses).
“Our system had a solid fourth quarter and a very good 2009 in a challenging consumer environment,” said Papa John’s founder, chairman and chief executive officer, John Schnatter. “The investments made in our system over the last 15 months, supported by a favorable commodities environment, helped drive positive transaction momentum and some of the most profitable unit economics in the history of our company.”
Non-GAAP Measures
Certain components of the financial information we present in this press release that exclude the impact of the consolidation of BIBP, the finalization of certain income tax issues and restaurant impairment and disposition losses 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 the above-mentioned items 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 these items because they are not indicative of the principal operating activities of the company. 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. The presentation of the non-GAAP measures in this press release is made alongside the most directly comparable GAAP measures.
The company has provided the following table to reconcile the financial results we present in this press release excluding the impact of the above-mentioned items to our GAAP financial measures for the fourth quarters and years ended December 27, 2009 and December 28, 2008.
Fourth Quarter Year Ended Dec. 27, Dec. 28, Dec. 27, Dec. 28, (In thousands, except per share amounts) 2009 2008 2009 2008 Pre-tax income, net of noncontrolling interests, as reported $ 18,591 $ 19,435 $ 86,438 $ 56,776 (Gain) loss from BIBP cheese purchasing entity (1,560 ) (887 ) (22,543 ) 10,540 Restaurant impairment and disposition losses (a) - 3,747 - 8,818 Pre-tax income, net of noncontrolling interests, excluding noted items $ 17,031 $ 22,295 $ 63,895 $ 76,134 Net income, as reported $ 13,698 $ 12,776 $ 57,453 $ 36,796 (Gain) loss from BIBP cheese purchasing entity (1,300 ) (576 ) (14,586 ) 6,851 Restaurant impairment and disposition losses (a) - 2,222 - 5,496 Gain from finalization of certain income tax issues (967 ) (1,203 ) (967 ) (1,684 ) Net income, excluding noted items $ 11,431 $ 13,219 $ 41,900 $ 47,459 Earnings per diluted share, as reported $ 0.49 $ 0.46 $ 2.06 $ 1.30 (Gain) loss from BIBP cheese purchasing entity (0.05 ) (0.02 ) (0.52 ) 0.24 Restaurant impairment and disposition losses (a) - 0.08 - 0.20 Gain from finalization of certain income tax issues (0.03 ) (0.04 ) (0.04 ) (0.06 ) Earnings per diluted share, excluding noted items $ 0.41 $ 0.48 $ 1.50 $ 1.68 Cash flow from operations, as reported $ 100,913 $ 73,063 BIBP cheese purchasing entity (22,543 ) 10,540 Cash flow from operations, excluding BIBP $ 78,370 $ 83,603 (a) Amounts were not significant in 2009.
Revenues Comparison
Consolidated revenues were $280.5 million for the fourth quarter of 2009, an increase of $800,000, or 0.3%, over the corresponding 2008 period. The change in revenues for the fourth quarter of 2009 was primarily due to the following:
Domestic company-owned restaurant sales decreased $4.8 million, reflecting the sale of 62 lower-performing company-owned restaurants to franchisees during the fourth quarter of 2008 and a decrease of 1.4% in comparable sales during the fourth quarter of 2009.
Variable interest entities restaurant sales increased $8.5 million due to the consolidation of two additional franchise entities, as compared to the corresponding period in 2008.
Franchise royalties increased $800,000 primarily due to an increase in the royalty rate (increased from 4.25% to 4.50% effective in September 2009).
Domestic commissary sales decreased $3.4 million due to decreases in the prices of certain commodities, primarily cheese and wheat, partially offset by an increase in volumes.
Other sales decreased $1.1 million due primarily to a decline in sales at our print and promotions subsidiary, Preferred Marketing Solutions.
International revenues increased $1.1 million reflecting increases in both the number and average unit volumes of our company-owned and franchised restaurants over the comparable period, partially offset by lower franchise and development fee revenue due to fewer franchise unit openings in the current year period.
Revenues were $1.11 billion for the full year of 2009, a decrease of $26.1 million, or 2.3%, as compared to the corresponding 2008 period. The decrease in revenues for the full year of 2009 was primarily due to the decline in commissary sales reflecting the price decrease in certain commodities, as noted above and a decline in sales at our print and promotions subsidiary. The decrease in company-owned restaurant sales due to the sale of 62 restaurants to franchisees in the fourth quarter of 2008 was substantially offset by the increase in variable interest entities restaurant sales due to the consolidation of two additional franchise entities, as noted above.
Operating Results and Cash Flow
Operating Results
Our pre-tax income, net of noncontrolling interests, for the fourth quarter of 2009 was $18.6 million, compared to $19.4 million for the corresponding period in 2008. For the year ended December 27, 2009, pre-tax income, net of noncontrolling interests, was $86.4 million compared to $56.8 million for the corresponding period of 2008. Excluding the impact of the noted items in the previous table, fourth quarter 2009 pre-tax income, net of noncontrolling interests, was $17.0 million, a decrease of $5.3 million or 23.6%, from the 2008 comparable results of $22.3 million, and was $63.9 million for the year ended December 27, 2009, a decrease of $12.2 million, or 16.1%, from the 2008 comparable results of $76.1 million. An analysis of the changes in pre-tax income, net of noncontrolling interests, for the fourth quarter and full-year 2009, respectively (excluding the consolidation 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):
Domestic Company-owned Restaurant Segment. Domestic company-owned restaurants’ operating income increased $800,000 and $14.9 million for the fourth quarter and full year ended December 27, 2009, respectively, comprised of the following (in thousands):
Fourth Quarter Year Ended Dec. 27, Dec. 28, Increase Dec. 27, Dec. 28, Increase 2009 2008 (Decrease) 2009 2008 (Decrease) Operating income, excluding impairment and disposition losses $ 7,479 $ 7,556 $ (77 ) $ 35,551 $ 26,515 $ 9,036 Impairment and disposition losses (1) (567 ) (1,447 ) 880 (657 ) (6,518 ) 5,861 Total segment operating income $ 6,912 $ 6,109 $ 803 $ 34,894 $ 19,997 $ 14,897 (1) Total 2008 impairment and disposition charges of $3.7 million for the quarter and $8.8 million for the year included $2.3 million of impairment charges reported in the International segment.
Income from operations, excluding impairment and disposition losses, was relatively flat for the fourth quarter of 2009 as compared to the prior year. The increase of $9.0 million in income from operations, excluding impairment and disposition losses, for the full-year period was primarily due to lower commodity costs and the sale of 62 restaurants in late 2008 that were collectively unprofitable.
Restaurant operating margins on an external basis were 19.9% and 21.8% for the fourth quarter and year ended December 27, 2009, respectively, compared to 19.9% and 18.5%, for the comparable 2008 periods. Excluding the impact of the consolidation of BIBP, restaurant operating margins were 19.6% and 20.7% for the fourth quarter and year ended December 27, 2009, respectively, compared to 19.7% and 18.9% in the prior comparable periods.
The restaurant impairment and disposition losses recorded in 2008 primarily relate to the above-mentioned sale of restaurants.
Domestic Commissary Segment. Domestic commissaries’ operating income decreased approximately $1.3 million and $800,000 for the fourth quarter and year ended December 27, 2009, respectively. The decline in operating income for the fourth quarter of 2009, as compared to the corresponding 2008 period, was primarily due to pricing reductions. The decline in our full-year 2009 results, as compared to the corresponding 2008 period, was primarily due to $800,000 of management transition costs and $400,000 of costs associated with the closing of one of our commissaries. The decline in our operating income from reductions in pricing was more than offset by a decline in fuel costs for 2009.
Domestic Franchising Segment. Domestic franchising operating income increased approximately $600,000 to $14.1 million for the fourth quarter 2009, as compared to the corresponding 2008 period, and increased approximately $100,000 to $53.7 million for the year ended December 27, 2009, as compared to the corresponding 2008 period. The increase for the fourth quarter was primarily due to an increase in franchise royalties resulting from a 0.25% increase in the royalty rate (the standard rate increased from 4.25% to 4.50% in September 2009). The impact of the increase in the royalty rate on domestic franchise operating income for the year ended December 27, 2009 was substantially offset by lower franchise and development fees due to fewer unit openings and $500,000 in franchise renewal fees collected in 2008 in connection with the domestic franchise renewal program. The impact of the increased royalty rate for 2009 was also offset partially by additional development incentive programs offered by the company in 2009. During the fourth quarter and full year ended December 27, 2009, incentive payments of $215,000 and $440,000, respectively, were made to certain franchisees under our 25th Anniversary development incentive program for opening new units in advance of previously scheduled dates.
International Segment. The operating loss for the international segment improved $2.2 million and $4.1 million for the fourth quarter and year ended December 27, 2009, respectively, comprised of the following (in thousands):
Fourth Quarter Year Ended Dec. 27, Dec. 28, Increase Dec. 27, Dec. 28, Increase 2009 2008 (Decrease) 2009 2008 (Decrease) Operating income, excluding goodwill impairment and other charges $ (156 ) $ (441 ) $ 285 $ (2,586 ) $ (4,893 ) $ 2,307 Goodwill impairment (a) - (2,300 ) 2,300 - (2,300 ) 2,300 Other (b) (366 ) - (366 ) (464 ) - (464 )
Total segment operating loss
$ (522 ) $ (2,741 ) $ 2,219 $ (3,050 ) $ (7,193 ) $ 4,143 (a) The goodwill impairment charge was associated with our United Kingdom operations. (b) Includes pre-opening costs associated with our commissary in the United Kingdom that is under construction and costs associated with the closure of a company-owned restaurant in China.
The improvement in operating losses, excluding goodwill impairment and other charges, for the fourth quarter and year ended December 27, 2009, reflects increased revenues due to growth in number of units and unit volumes internationally. The rate of year-over-year improvement declined in the last half of 2009 due to slowing sales and unit growth attributable to general worldwide economic conditions.
All Others Segment. Operating income for the “All others” reporting segment decreased approximately $1.8 million and $6.5 million for the fourth quarter and year ended December 27, 2009, respectively, as compared to the corresponding 2008 periods. The decrease for the fourth quarter was primarily due to a decline of $1.2 million in our online ordering system business and due to more favorable adjustments in the 2008 period in claims loss reserves associated with our inactive captive insurance program. The decrease for the year ended December 27, 2009 was primarily due to a $3.9 million decline in our online ordering system business, a $1.3 million decline at our print and promotions subsidiary, Preferred Marketing Solutions, and the previously mentioned favorable adjustments in claims loss reserves in 2008. The decline in the online ordering system business reflected a reduction in the online fee percentage in accordance with our previously disclosed agreement with the domestic franchise system to operate the online business at a break-even level beginning in 2009. The decline in profitability in the print and promotions business was due to lower sales in 2009, as compared to 2008, reflecting the challenging U.S. economic environment.
Unallocated Corporate Segment. Unallocated corporate expenses increased approximately $1.8 million and $13.6 million for the fourth quarter and year ended December 27, 2009, respectively, as compared to the corresponding periods in the prior year. The components of unallocated corporate expenses were as follows (in thousands):
Fourth Quarter Year Ended Dec. 27, Dec. 28, Increase Dec. 27, Dec. 28, Increase 2009 2008 (decrease) 2009 2008 (decrease) General and administrative (a) $ 4,189 $ (974 ) $ 5,163 $ 26,893 $ 16,372 $ 10,521 Net interest 1,065 1,317 (252 ) 4,251 4,961 (710 ) Depreciation 2,233 2,017 216 8,684 7,770 914 Franchise support initiatives (b) 3,961 3,675 286 9,556 3,900 5,656 Provision (credit) for uncollectible accounts and notes receivable (c) (188 ) 3,491 (3,679 ) 1,172 4,082 (2,910 ) Other expense (income) (194 ) (258 ) 64 (801 ) (931 ) 130 Total unallocated corporate expenses $ 11,066 $ 9,268 $ 1,798 $ 49,755 $ 36,154 $ 13,601
(a) The increases in unallocated general and administrative expenses for the fourth quarter and full year ended December 27, 2009, were due to the following factors (in thousands):
Fourth Quarter Year Ended Dec. 27, Dec. 28, Increase Dec. 27, Dec. 28, Increase 2009 2008 (decrease) 2009 2008 (decrease) Severance and other management transition costs (1) $ - $ 125 $ (125 ) $ 1,607 $ 125 $ 1,482 Short- and long-term incentive compensation (2) 3,562 (1,785 ) 5,347 13,145 6,174 6,971 Litigation settlement - - - 1,065 - 1,065 Sponsorship fees (3) 724 563 161 3,907 3,334 573 Other expense (income), net (97 ) 123 (220 ) 7,169 6,739 430 Total unallocated general and administrative expenses $ 4,189 $ (974 ) $ 5,163 $ 26,893 $ 16,372 $ 10,521
(1) In addition to routine management transition costs, the company implemented a reduction-in-force during the third quarter of 2009 in which 35 positions were eliminated, mostly in corporate support areas. Severance and related costs associated with the reduction-in-force were approximately $900,000, and this action is expected to reduce future general and administrative costs by approximately $2.6 million annually.
(2) The increases were primarily due to 2008 reductions in equity-based compensation expense due to awards forfeited by former members of executive management upon resignation and a reduction in the expected payments under certain cash and equity-based compensation programs in 2008. Additionally, expected payments under certain 2009 incentive programs are higher in relation to improved performance versus targets.
(3) The Sponsorship fees are primarily associated with certain nontraditional venues, such as Six Flags.
(b) Franchise support initiatives primarily consist of discretionary contributions to the national marketing fund and other local advertising cooperatives.
(c) The fourth quarter and full-year 2008 provisions for uncollectible accounts and notes receivable included a provision associated with our loan issued in connection with the 2006 sale of the Perfect Pizza operation and increased provisions for various loans to domestic franchisees.
The company recorded reductions in its customary income tax expense of $1.2 million ($1.0 million for Papa John’s and $200,000 for BIBP) in both the fourth quarter and full year of 2009, compared to $1.2 million and $1.7 million for the fourth quarter and full year of 2008, respectively, related to the finalization of certain income tax issues. The effective income tax rate was 25.2% and 32.1% for the fourth quarter and year ended December 27, 2009, respectively, as compared to 33.2% and 34.0% for the fourth quarter and year ended December 28, 2008, respectively (25.9% and 31.1%, excluding BIBP, for the fourth quarter and year ended December 27, 2009, respectively, and 33.2% and 34.1%, excluding BIBP, for the fourth quarter and year ended December 28, 2008, respectively).
Cash Flow
Net cash provided by operating activities was $100.9 million for the full-year 2009 as compared to $73.1 million for 2008. The consolidation of BIBP increased cash flow from operations by approximately $22.5 million in 2009 and decreased cash flow from operations by approximately $10.5 million in 2008. Excluding the impact of the consolidation of BIBP, cash flow from operations was $78.4 million in 2009, as compared to $83.6 million in the comparable period in 2008. The $5.2 million decrease in cash flow from operations, excluding the consolidation of BIBP, was primarily due to reductions in net income from operations, excluding impairment and disposition losses.
Our net debt position, defined as total debt less cash and cash equivalents, was $70.8 million at December 27, 2009, compared to $119.7 million at December 28, 2008.
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 27, 2009.
Domestic Comparable Sales and Unit Count
Domestic system-wide comparable sales for the fourth quarter of 2009 decreased 0.5% (comprised of a 1.4% decrease at company-owned restaurants and a 0.2% decrease at franchised restaurants). Domestic system-wide comparable sales for the full-year 2009 were even (comprised of a 0.5% decrease at company-owned restaurants and a 0.1% increase at franchised restaurants). 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 2009, 21 domestic franchised restaurants were opened and 42 domestic restaurants were closed (two company-owned and 40 franchised). During the full year of 2009, we opened 84 domestic restaurants (five company-owned and 79 franchised) and closed 95 restaurants (eight company-owned and 87 franchised). The 95 closures included 26 non-traditional units closed in connection with the termination of a third-party sponsorship arrangement. Our total domestic development pipeline as of December 27, 2009 included approximately 200 restaurants, a substantial majority of which are scheduled to open over the next four years.
At December 27, 2009, there were 3,469 domestic and international Papa John’s restaurants (614 company-owned and 2,855 franchised) operating in all 50 states and in 29 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:
During the fourth quarter of 2009, we signed development agreements in Columbia (30 units), Morocco (20 units) and Chile (25 units). We anticipate opening our first restaurant in each of these countries during 2010.
During the fourth quarter of 2009, 43 international restaurants were opened (three company-owned and 40 franchised) while 11 international franchised restaurants were closed. For the full-year 2009, 132 international restaurants were opened (four company-owned and 128 franchised) while 32 international restaurants were closed (one company-owned and 31 franchised).
International franchise sales increased approximately 18% to $66.5 million in the fourth quarter of 2009, from $56.3 million in the comparable period in 2008 and increased approximately 14% to $251.8 million for the full-year 2009, from $221.0 million in the comparable period in 2008. Excluding the impact of foreign currency exchange rates, the increases in the fourth quarter and full-year 2009 would have approximated 13% and 24%, respectively.
As of December 27, 2009, there were 688 Papa John’s restaurants operating internationally (26 company-owned and 662 franchised), of which 220 were located in Korea and China and 142 were located in the United Kingdom and Ireland. Our total international development pipeline as of December 27, 2009 included approximately 1,200 restaurants, the substantial majority of which are scheduled to open over the next eight years.
Share Repurchase Activity
The company repurchased 1.0 million shares of its common stock at an average price of $22.52 per share, or a total of $23.5 million, during the fourth quarter of 2009, and repurchased 1.3 million shares at an average price of $21.59 per share, or a total of $28.5 million during all of 2009. A total of 14,000 and 612,000 shares of common stock were issued upon the exercise of stock options for the fourth quarter and full year ended December 27, 2009, respectively. Subsequent to year-end, through February 16, 2010, the company repurchased an additional $967,000 of common stock (43,000 shares at an average price of $22.61 per share). At February 16, 2010, $32.8 million remained available for repurchase under our current authorization.
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 27.7 million diluted weighted average shares outstanding for the fourth quarter of 2009, as compared to 27.6 million for the same period in 2008. Approximately 27.2 million actual shares of the company’s common stock were outstanding as of December 27, 2009.
The company’s share repurchase activity increased earnings per diluted share, excluding the impact of the consolidation of BIBP, by $0.02 for the full year of 2009 (no impact for the fourth quarter).
2010 Earnings and Comparable Sales Guidance Reaffirmed
The company reaffirmed its previously issued guidance for 2010 domestic system-wide comparable sales of a range of negative 1% to positive 1% and for 2010 earnings per diluted share of a range of $1.70 to $1.90, excluding 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, 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; 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; the ability of the company to pass along such increases in or sustained high costs to franchisees or consumers; the company is contingently liable for the payment of certain lease arrangements, approximating $5.8 million, involving our former Perfect Pizza operations that were sold in March 2006; the impact of legal claims and current proposed legislation impacting our business; and increased risks associated with 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 27, 2009. 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 24, 2010 at 10:00 a.m. Eastern Time to review 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 800-487-2662 (pass code 95830124) for participation in the question and answer session. International participants may dial 706-679-8452 (pass code 95830124).
The conference call will be available for replay, including by downloadable podcast, beginning February 24, 2010, at approximately noon Eastern Time, through March 3, 2010, 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 95830124). International participants may dial 706-645-9291 (pass code 95830124).
Summary Financial Data
Papa John's International, Inc.
(Unaudited)
Fourth Quarter Year Ended Dec. 27, Dec. 28, Dec. 27, Dec. 28, (In thousands, except per share amounts) 2009 2008 2009 2008 Revenues $ 280,478 $ 279,646 $ 1,106,033 $ 1,132,087 Income before income taxes, net of noncontrolling interests* $ 18,591 $ 19,435 $ 86,438 $ 56,776 Net income $ 13,698 $ 12,776 $ 57,453 $ 36,796 Earnings per share - assuming dilution $ 0.49 $ 0.46 $ 2.06 $ 1.30 Weighted average shares outstanding - assuming dilution 27,679 27,639 27,909 28,264 EBITDA (1) $ 28,301 $ 28,985 $ 124,279 $ 96,310 *The following is a summary of our income (loss) before income taxes, net of noncontrolling interests: Fourth Quarter Year Ended Dec. 27, Dec. 28, Dec. 27, Dec. 28, (in thousands) 2009 2008 2009 2008 Domestic company-owned restaurants (A) $ 6,912 $ 6,109 $ 34,894 $ 19,997 Domestic commissaries 6,758 8,036 29,393 30,235 Domestic franchising 14,057 13,444 53,690 53,610 International (B) (522 ) (2,741 ) (3,050 ) (7,193 ) All others 1,786 3,618 2,697 9,175 Unallocated corporate expenses (11,066 ) (9,268 ) (49,755 ) (36,154 ) Elimination of intersegment profit (52 ) (49 ) (218 ) (332 ) Income before income taxes, excluding VIEs 17,873 19,149 67,651 69,338 VIEs, primarily BIBP (2) 1,560 887 22,543 (10,540 ) Less: noncontrolling interests (842 ) (601 ) (3,756 ) (2,022 )
Total income before income taxes, net of noncontrolling interests
$ 18,591 $ 19,435 $ 86,438 $ 56,776 (A) Includes pre-tax losses of $1.4 million and $6.5 million in the fourth quarter and year ended December 28, 2008, respectively, associated with restaurant impairment and disposition losses. (B) Includes a goodwill impairment charge of $2.3 million in both the fourth quarter and year ended December 28, 2008, associated with our PJUK operations.
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. 27, Dec. 28, Dec. 27, Dec. 28, 2009 2008 2009 2008 EBITDA (1) $ 28,301 $ 28,985 $ 124,279 $ 96,310 Income tax expense (4,893 ) (6,659 ) (28,985 ) (19,980 ) Net interest (1,220 ) (1,704 ) (5,085 ) (6,688 ) Depreciation and amortization (8,490 ) (7,846 ) (32,756 ) (32,846 ) Net income $ 13,698 $ 12,776 $ 57,453 $ 36,796 The company's free cash flow for the last two years is as follows (in thousands): Year Ended Dec. 27, Dec. 28, 2009 2008 Net cash provided by operating activities $ 100,913 $ 73,063 Gain (loss) from BIBP cheese purchasing entity (22,543 ) 10,540 Purchase of property and equipment (33,538 ) (29,271 ) Free cash flow (3) $ 44,832 $ 54,332
(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 generated pre-tax income of approximately $1.6 million in the fourth quarter of 2009, which was 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 during the fourth quarter. For the fourth quarter of 2008, BIBP reported pre-tax income of $900,000, which was primarily composed of income associated with cheese sold to domestic company-owned and franchised restaurants of approximately $300,000 and $1.0 million, respectively, partially offset by interest expense on outstanding debt with a third-party bank and Papa John’s.
BIBP generated pre-tax income of approximately $22.5 million for the year ended December 27, 2009, 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 debt outstanding with a third-party bank and Papa John’s during 2009. For the year ended December 28, 2008, BIBP reported a pre-tax loss of $10.5 million, which was composed of losses associated with cheese sold to domestic company-owned and franchised restaurants of approximately $2.1 million and $6.3 million, respectively. The remainder of the loss was due to 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 impact of BIBP, less the purchase 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 Years Ended December 27, 2009 December 28, 2008 December 27, 2009 December 28, 2008 (In thousands, except per share amounts) (Unaudited) (Unaudited) Revenues: Domestic: Company-owned restaurant sales $ 125,124 $ 129,923 $ 503,818 $ 533,255 Variable interest entities restaurant sales 10,485 2,035 37,735 8,328 Franchise royalties 15,959 15,122 61,012 59,704 Franchise and development fees 69 239 519 1,600 Commissary sales 104,452 107,896 407,437 429,068 Other sales 13,346 14,493 54,045 61,415 International: Royalties and franchise and development fees 3,448 3,414 13,244 12,868 Restaurant and commissary sales 7,595 6,524 28,223 25,849 Total revenues 280,478 279,646 1,106,033 1,132,087 Costs and expenses: Domestic Company-owned restaurant expenses: Cost of sales 27,079 28,420 100,863 120,545 Salaries and benefits 35,935 37,597 146,116 158,276 Advertising and related costs 11,660 11,814 45,593 48,547 Occupancy costs 7,876 8,446 31,685 34,973 Other operating expenses 17,682 17,767 69,946 72,349 Total domestic Company-owned restaurant expenses 100,232 104,044 394,203 434,690 Variable interest entities restaurant expenses 8,676 1,815 29,672 7,360 Domestic commissary and other expenses: Cost of sales 88,400 91,169 341,775 363,042 Salaries and benefits 7,778 8,270 33,839 35,090 Other operating expenses 10,455 9,660 43,595 45,732 Total domestic commissary and other expenses 106,633 109,099 419,209 443,864 Loss (income) from the franchise cheese-purchasing program, net of minority interest (1,343 ) (1,039 ) (18,079 ) 6,296 International operating expenses 6,519 5,464 24,356 22,822 General and administrative expenses 25,154 19,102 112,909 99,723 Other general expenses 5,464 11,575 15,728 19,000 Depreciation and amortization 8,490 7,846 32,756 32,846 Total costs and expenses 259,825 257,906 1,010,754 1,066,601 Operating income 20,653 21,740 95,279 65,486 Net interest (1,220 ) (1,704 ) (5,085 ) (6,688 ) Income before income taxes 19,433 20,036 90,194 58,798 Income tax expense 4,893 6,659
28,985
19,980 Net income, including noncontrolling interests 14,540 13,377 61,209 38,818 Less: income attributable to noncontrolling interests (842 ) (601 ) (3,756 ) (2,022 ) Net income, net of noncontrolling interests $ 13,698 $ 12,776 $ 57,453 $ 36,796 Basic earnings per common share $ 0.50 $ 0.46 $ 2.07 $ 1.31 Earnings per common share - assuming dilution $ 0.49 $ 0.46 $ 2.06 $ 1.30 Basic weighted average shares outstanding 27,603 27,639 27,738 28,124 Diluted weighted average shares outstanding 27,679 27,639 27,909 28,264 Note: The statements of income for the years ended December 27, 2009 and December 28, 2008 have been derived from the audited consolidated financial statements at those dates, 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 Condensed Consolidated Balance Sheets December 27, December 28, 2009 2008 (Note) (Note) (In thousands) Assets Current assets: Cash and cash equivalents $ 28,219 $ 10,987 Accounts receivable 22,144 23,775 Inventories 15,767 16,872 Prepaid expenses 9,113 9,797 Other current assets 3,748 5,275 Assets held for sale - 1,540 Deferred income taxes 8,408 7,102 Total current assets 87,399 75,348 Investments 1,382 530 Net property and equipment 194,242 189,992 Notes receivable 8,643 7,594 Deferred income taxes 6,804 17,518 Goodwill 76,475 76,914 Other assets 22,150 18,572 Total assets $ 397,095 $ 386,468 Liabilities and stockholders' equity Current liabilities: Accounts payable $ 28,675 $ 29,148 Income and other taxes 5,854 9,685 Accrued expenses 54,241 54,220 Current portion of debt - 7,075 Total current liabilities 88,770 100,128 Unearned franchise and development fees 5,668 5,916 Long-term debt, net of current portion 99,050 123,579 Other long-term liabilities 18,570 18,607 Total liabilities 212,058 248,230 Total stockholders' equity 185,037 138,238 Total liabilities and stockholders' equity $ 397,095 $ 386,468 Note: The balance sheets at December 27, 2009 and December 28, 2008 have been derived from the audited consolidated financial statements at those dates, 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 Years Ended (In thousands) December 27, 2009 December 28, 2008 Operating activities Net income, net of noncontrolling interests $ 57,453 $ 36,796 Adjustments to reconcile net income to net cash provided by operating activities: Restaurant impairment and disposition losses 657 8,818 Provision for uncollectible accounts and notes receivable 2,242 5,769 Depreciation and amortization 32,756 32,846 Deferred income taxes 7,469 (3,608 ) Stock-based compensation expense 5,817 2,564 Excess tax benefit related to exercise of non-qualified stock options (1,035 ) (771 ) Other 1,486 1,255 Changes in operating assets and liabilities, net of acquisitions: Accounts receivable 154 (5,162 ) Inventories 1,114 1,833 Prepaid expenses 706 914 Other current assets 2,009 446 Other assets and liabilities (3,813 ) (2,913 ) Accounts payable (1,879 ) (2,009 ) Income and other taxes (3,831 ) (1,181 ) Accrued expenses (144 ) (2,166 ) Unearned franchise and development fees (248 ) (368 ) Net cash provided by operating activities 100,913 73,063 Investing activities Purchase of property and equipment (33,538 ) (29,271 ) Purchase of investments (1,187 ) (632 ) Proceeds from sale or maturity of investments 335 927 Loans issued (11,635 ) (1,468 ) Loan repayments 8,496 2,017 Acquisitions (464 ) (183 ) Proceeds from divestitures of restaurants 830 2,145 Other 756 233 Net cash used in investing activities (36,407 ) (26,232 ) Financing activities Net repayments from line of credit facility (24,500 ) (10,500 ) Net repayments from short-term debt - variable interest entities (7,075 ) (1,625 ) Excess tax benefit related to exercise of non-qualified stock options 1,035 771 Proceeds from exercise of stock options 9,830 4,623 Acquisition of Company common stock (28,477 ) (37,697 ) Noncontrolling interests, net of contributions and distributions (84 ) 217 Other 734 82 Net cash used in financing activities (48,537 ) (44,129 ) Effect of exchange rate changes on cash and cash equivalents 176 (592 ) Change in cash and cash equivalents 16,145 2,110 Cash recorded from consolidation of VIEs 1,087 - Cash and cash equivalents at beginning of year 10,987 8,877 Cash and cash equivalents at end of year $ 28,219 $ 10,987 Note: The cash flows at December 27, 2009 and December 28, 2008 have been derived from the audited consolidated financial statements at those dates, 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. Restaurant Progression Papa John's International, Inc. 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 Fourth Quarter Ended December 28, 2008 Corporate Franchised Domestic Int'l Domestic Int'l Total Papa John's restaurants Beginning of period 649 21 2,128 519 3,317 Opened 5 1 27 52 85 Closed - - (17 ) (5 ) (22 ) Acquired - 1 62 - 63 Sold (62 ) - - (1 ) (63 ) End of Period 592 23 2,200 565 3,380 Restaurant Progression Papa John's International, Inc. 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 Year Ended December 28, 2008 Corporate Franchised Domestic Int'l Domestic Int'l Total Papa John's restaurants Beginning of period 648 14 2,112 434 3,208 Opened 14 10 98 145 267 Closed (9 ) (2 ) (71 ) (13 ) (95 ) Acquired 1 1 62 - 64 Sold (62 ) - (1 ) (1 ) (64 ) End of Period 592 23 2,200 565 3,380
