Papa Johns 2000 Annual Report Download - page 41

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Operating income was $72.5 million, or 9.0% of total revenues, compared to $53.7 million, or 7.9% of total
revenues, for the comparable period in 1998.
Investment Income. Investment income decreased to $3.4 million in 1999 from $4.1 million in 1998 due to
a lower average balance of franchise loans and a decrease in our average investment portfolio balance.
Interest Expense. Interest expense was $151,000 in 1999 compared to $643,000 in 1998. Interest expense
for both periods relates to debt assumed from the acquisition of Minnesota Pizza.
Income Tax Expense. Income tax expense (exclusive of the cumulative effect of accounting change and
related taxes) reflects a combined federal, state and local effective tax rate of 37.6% for 1999, compared
to 38.8% in 1998. The effective income tax rate for 1998, including an income tax benefit for the
treatment of Minnesota Pizza as a C Corporation (see “Note 3” of “Notes to Consolidated Financial
Statements”), was 37.0%. The effective income tax rate in 1999 increased as compared to the 1998 rate
as a result of a continued decrease in the relative level of tax-exempt investment income to total pre-tax
income.
Liquidity and Capital Resources
Cash flow from operations for 2000 decreased to $76.7 million from $89.6 million in 1999 primarily due to
an increase in working capital requirements, principally increases in inventory levels (including
accumulation of hot bag inventory for continued installa tion in franchise restaurants during 2001), changes
in accounts payable and accrued expense levels and a decrease in tax benefits related to the exercise of
non-qualified stock options.
Cash flow from operations increased $24.6 million in 1999 compared to 1998. This increase is primarily
due to increased net income in 1999 as compared to 1998.
Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA), excluding advertising litigation
and the special charge, increased 12.8% in 2000 to $116.7 million, compared to $103.4 million in 1999.
EBITDA, excluding advertising litigation cost, increased 39.4% in 1999 to $103.4 million from $74.2 million
in 1998.
We require capital primarily for the development and acquisition of restaurants, the addition of new QC
Centers 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. During 2000, common stock share repurchases of $156.2 million, capital expenditures of
$59.4 million, acquisitions of $6.6 million, and net loans to franchisees of $9.0 million were primarily funded
by net advances of $145.0 million on a $200.0 million unsecured revolving line of credit, liquidation of
investments of $15.1 million and cash flow from operations.
Total 2001 capital expenditures are expected to be approximately $30 million to $35 million, about one-half
of which is for the development, relocation or remodeling of restaurants, and about one-half of which is for
QC Centers, Support Services and corporate requirements. During 2001, we plan to open approximately
15 to 20 new Company-owned restaurants and relocate an additional 15 to 20 restaurants.