Papa Johns 1998 Annual Report Download

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Table of contents

  • Page 1

  • Page 2
    ... beginning of 1998 averaged more than $1 million in annual sales. â- Our system experienced 9.8% positive same-store sales growth, our best in the last three years. effect of a change in accounting for pre-opening costs). We ended the year with the strongest balance sheet in our history, including...

  • Page 3
    ...,000 franchise and corporate team members, and â- And we maintained our methodical development program, opening a record 372 restaurants, including our first international units in Mexico and Puerto Rico. At Papa John's, our goal is to build the strongest brand loyalty of all pizzerias in the world...

  • Page 4
    ...cumulative effect of a change in accounting principle Income per share before cumulative effect of a change in accounting principle: Basic Diluted Percentage increase in comparable restaurant sales: Company-owned Franchised Systemwide (Dollars in millions, except per share amounts) 1997 $ 867.7 508...

  • Page 5
    America Discovers A Better Pizza! "Can anyone stoppa the Papa?" asked Time magazine in a three-page retrospective of Papa John's growth appearing in the October 26, 1998, issue. The article goes on to say, "In the $22 billion pizza industry, in which the thickness of tomato sauce and the texture of...

  • Page 6
    ... in customer satisfaction among national pizza chains for three years running in the prestigious Restaurants and Institutions' Choice in Chains survey â- The Dallas Morning News - "Fast-Growing Papa John's Chain Takes on Pizza Hut" (February 1, 1998) â- Wall Street Journal - "Taste Test Wars Heat...

  • Page 7
    ... a record 372 new restaurants (60 corporate and 312 franchised) - more than one per day! Our growth included a record 106 restaurants in the fourth quarter alone, beating the previous record of 97 restaurants in 2Q In January, we celebrated the opening of Papa John's 1,500th restaurant systemwide in...

  • Page 8
    ... finishing the year in 46 states plus the District of Columbia, 1998 was the year Papa John's went international, opening four franchised restaurants in Mexico City and two in Puerto Rico. Plans for 1999 call for continued development in those countries as well as Venezuela and Central America. Our...

  • Page 9
    Hawaii â- â- â- Existing Development Areas Committed Development Areas Restaurant Locations â- â- Commissary Locations Future Commissary Locations Mexico Puerto Rico Central America Costa Rica Venezuela 6

  • Page 10
    ... Carolina Franchised Restaurants . . 45 Corporate Restaurants ...47 Total ...92 INTERNATIONAL Mexico Franchised Restaurants ...4 Iowa Franchised Restaurants . . 13 Kansas Franchised Restaurants . . 18 North Dakota Franchised Restaurants ...2 Puerto Rico Franchised Restaurants ...2 Kentucky...

  • Page 11
    ...restaurant sales averages, to record annual sales, to a record number of million-dollar restaurants - all records that have been broken for five years in a row! We continue to emphasize People, Product and Service as our mission critical priorities. Papa John's 1998 International Pizza Games winners...

  • Page 12
    ... This combined effort helped full-year comparable sales for both corporate and franchised restaurants to trend closer together than ever - 8.6% corporate and 10.3% franchised for a combined comp sales average of 9.8%. Founder and CEO John Schnatter with 1998 Manager of the Year Kelly Summey, Raleigh...

  • Page 13
    ... the crust of every Papa John's traditional pizza, made with fresh dough (never frozen) prepared with clear-filtered water in our regional kitchens. We use only fresh-packed tomato sauce made from vine-ripened tomatoes, cheese made with 100% mozzarella and other high-quality toppings. In 1998, as in...

  • Page 14
    ... proud to share with you in this Annual Report is the Papa John's Tomato Story. The Papa John's Tomato Story Superior-quality pizza sauce begins with superior-tasting, fresh tomatoes. That's why the tomatoes used in Papa John's sauce are grown only in the rich, fertile valley of central California...

  • Page 15
    ... to improve reporting options, reduce operating costs for weekly payroll processing and check production and improve service levels for restaurant-level team members. to become the Papa John's People Department. Papa John's Core Values Focus Accountability Superiority PAPA (People Are Priority...

  • Page 16
    .... PJ Food Service - Introduced the Circle of Perfection Ambassador program recognizing leadership and to continuously measure and improve product and service. Corporate Communications - Introduced The Main Thing and The Front Lines newsletters to better tell the Papa John's story to corporate and...

  • Page 17
    ... regional markets, Papa John's is committed to giving back to the communities where our pizzerias are located. We try to forge relationships with schools, youth and community programs and charitable organizations by sharing not only our product but also our time, talent and treasure. On a national...

  • Page 18
    ... Louisville and the opening of the new Papa John's Cardinal Stadium on the University of Louisville campus. Papa John's and its Founder and CEO John Schnatter made a significant financial contribution toward construction of the 42,000 seat facility - the new home for the UofL Cardinals football team...

  • Page 19
    760 740 $725 720 $757 Sales Average Annual Sales - Company-owned Restaurants 700 680 660 640 620 600 $698 1996 1997 (in thousands) 1998 Comps Comparable Sales Increases 1996 Corporate 11.9% Franchise 5.9% Systemwide 6.7% 1997 9.3% 7.4% 7.9% 1998 8.6% 10.3% 9.8% 16

  • Page 20
    ... from retail sales of pizza to the general public by Company-owned restaurants, franchise royalties, sales of franchise and development rights, sales to franchisees of food and paper products, restaurant equipment, printing and promotional items, risk management services, and information systems and...

  • Page 21
    support services subsidiary, Papa John's Support Services. We believe that, in addition to supporting both Company and franchised growth, these subsidiaries contribute to product quality and consistency throughout the Papa John's system. We continually strive to obtain high quality sites with ...

  • Page 22
    ... 1998 Income Statement Data: Revenues: Restaurant sales Franchise royalties Franchise and development fees Commissary sales Equipment and other sales Total revenues Costs and expenses: Restaurant cost of sales (1) Restaurant operating expenses (1) Commissary, equipment and other expenses (2) General...

  • Page 23
    ... (3) End of period 478 Number of U.S. franchised restaurants: Beginning of period Opened Closed Sold to Company Acquired from Company End of period Number of international franchised restaurants: Beginning of period Opened Closed Sold to Company Acquired from Company End of period Total restaurants...

  • Page 24
    ... the number of new restaurant equipment packages sold to franchisees that opened restaurants in 1998 as compared to 1997. A portion of the equipment and other sales increase was also attributable to an increase in sales of the Papa John's PROFIT System, a proprietary point of sale system. Costs and...

  • Page 25
    ... 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. These costs were consistent as a percentage of combined commissary sales and equipment...

  • Page 26
    ...1996, and the increase in franchised restaurants opened during 1997 as compared to 1996. A portion of the equipment and other sales increase was also attributable to the increase in sales of the Papa John's PROFIT System, a proprietary point of sale system, and related PROFIT support services to the...

  • Page 27
    ... 35 new Company-owned restaurants, acquire approximately 60 franchised Papa John's restaurants, and relocate an additional 17 restaurants. We plan to open a full service commissary in Dallas, Texas, by mid 1999. We also plan to open a 247,000 square foot facility in Louisville, Kentucky, of which...

  • Page 28
    ...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 which include the financial accounting and payroll/human resource systems in order to accommodate our planned growth. About 70% of...

  • Page 29
    ... increases in costs, particularly labor, employee benefits or food costs, could have a significant impact on us. Forward Looking Statements Certain information contained in this annual report, particularly information regarding future financial performance and plans and objectives of management...

  • Page 30
    ... the current year's presentation. (3) Reflects the cumulative effect on income and earnings per share of a change in accounting principle, net of tax, as required by Statement of Position 98-5 "Reporting the Costs of Start-Up Activities." See "Note 2" of "Notes to Consolidated Financial Statements...

  • Page 31
    ...$ 619.2 $ 251.2 616.5 $ 867.7 Millions $ 324.9 831.4 $1,156.3 1996 1997 1998 Revenues Total Revenues 1996 â- Restaurant sales â- Franchise royalties â- Franchise and development fees â- Commissary sales â- Equipment and other sales Total $ 168.0 17.8 4.3 143.0 27.0 $ 360.1 1997 $ 251.2 24...

  • Page 32
    Papa John's International, Inc. and Subsidiaries Consolidated Statements of Income (In thousands, except per share amounts) December 27, 1998 Revenues: Restaurant sales Franchise royalties Franchise and development fees Commissary sales Equipment and other sales Total revenues Costs and expenses: ...

  • Page 33
    ... before cumulative effect of a change in accounting principle (millions) $ 18.6 $ 26.9 â- Operating income (millions) $ 26.1 $ 38.1 $ 37.8 $ 55.5 1996 1997 1998 Highlights Balance Sheet Highlights 1996 â- Cash and investments â- Stockholders' equity â- Total assets $ 89.1 $180.6 $212.1 1997...

  • Page 34
    Papa John's International, Inc. and Subsidiaries Consolidated Balance Sheets (Dollars in thousands, except per share amounts) Assets Current assets: Cash and cash equivalents Accounts receivable Accounts receivable-affiliates Inventories Deferred pre-opening costs Prepaid expenses and other current ...

  • Page 35
    Papa John's International, Inc. and Subsidiaries Consolidated Statements of Stockholders' Equity Accumulated Additional Other Paid-In Comprehensive Capital Income (Loss) $ 88,043 - - 50,534 1,429 1,315 2,602 55 143,978 - - 3,533 2,339 - 149,850 - - 11,668 2,953 239 $ 164,710 (In thousands) Balance ...

  • Page 36
    ... and amortization Deferred income taxes Other Changes in operating assets and liabilities: Accounts receivable Inventories Deferred pre-opening costs Prepaid expenses and other current assets Other assets Accounts payable Accrued expenses Unearned franchise and development fees Net cash provided by...

  • Page 37
    ... retail sales of pizza to the general public by Company-owned restaurants, franchise royalties, sales of franchise and development rights, and sales to franchisees of food and paper products, restaurant equipment, printing and promotional items, risk management services, and information systems and...

  • Page 38
    ..., store equipment and printing and promotional items, are stated at the lower of cost, determined under the first-in, first-out (FIFO) method, or market. Deferred Pre-Opening Costs In April 1998, the American Institute of Certified Public Accountants issued Statement of Position 98-5, "Reporting the...

  • Page 39
    ... Consolidated Financial Statements (continued) 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 contributions to the Papa John's Marketing Fund, Inc. (the "Marketing Fund...

  • Page 40
    ...-for-sale securities as of December 27, 1998, and December 28, 1997, follows (in thousands): Gross Gross Estimated Amortized Unrealized Unrealized Fair December 27, 1998 Cost Gains Losses Value Corporate debt securities Municipal bonds Mortgage-backed securities Fixed income mutual funds Equity...

  • Page 41
    ... to Consolidated Financial Statements (continued) Amortized Cost Due in one year or less Due after one year through three years Mortgage-backed securities Fixed income mutual funds Equity securities Interest receivable Total $ 18,463 14,048 239 10,822 1,998 446 $ 46,016 Estimated Fair Value $ 18...

  • Page 42
    ... $9.6 million at December 27, 1998. 8. Income Taxes A summary of the provision for income taxes (exclusive of the tax effect related to the cumulative effect of accounting change) follows (in thousands): 1998 1997 1996 Current Federal State and local Deferred (federal and state) Total $ 18,849 3,247...

  • Page 43
    ... or in part at any time within five years from the closing date of the IPO, and the purchase price of each share of common stock pursuant to the warrant is $11.25 per share (90% of the IPO price of $12.50 per share). The warrant was issued by PJ America to Papa John's in consideration for the grant...

  • Page 44
    ... MPG were accounted for by the equity method until the remaining 51% was acquired in 1998. Also during the fourth quarter of 1997, we acquired three Papa John's restaurants near Denver, Colorado, for $720,000 in cash. These restaurants were owned by the Chief Executive Officer of Papa John's and his...

  • Page 45
    ... Statements (continued) Pro forma information regarding net income and earnings per share is required by SFAS No. 123, which also requires that the information be determined as if we have accounted for our employee stock options granted subsequent to December 25, 1994, under the fair value method...

  • Page 46
    ...the sale of restaurant equipment, printing and promotional items, risk management services, and information systems and related services used in restaurant operations principally to Company-owned and franchised restaurants. Generally, we evaluate performance and allocate resources based on profit or...

  • Page 47
    ... Income before income taxes: Restaurants Commissaries Franchising All others Unallocated corporate expenses Elimination of intersegment profits Total income before income taxes Gross fixed assets: Restaurants Commissaries All others Unallocated corporate assets Accumulated depreciation Net...

  • Page 48
    ..., except per share data) Year ended December 27, 1998 1st Total revenues Operating income: As previously reported As restated Income before cumulative effect of a change in accounting principle Net income: As previously reported As restated Basic earnings per share: Income before cumulative effect...

  • Page 49
    ... sheets of Papa John's International, Inc. and subsidiaries (the "Company") as of December 27, 1998 and December 28, 1997, and the related consolidated statements of income, stockholders' equity and cash flows for the three years in the period ended December 27, 1998. These financial statements...

  • Page 50
    ... Stock Transfer Agent National City Bank Corporate Trust Administration P. O. Box 94915 Cleveland, Ohio 44101-4915 216/575-2494 Independent Auditors Ernst & Young LLP Louisville, Kentucky Legal Counsel Greenebaum Doll & McDonald, PLLC Louisville, Kentucky Corporate Office Papa John's International...

  • Page 51
    ...Milby Senior Vice President, Chief Financial Officer and Treasurer Creed Branson Regional Vice President, Southwest Operations Wade S. Oney Chief Operating Officer Louis DiFazio, Jr. Vice President, Corporate Operations Robert J. Wadell President, PJ Food Service J. David Flanery Vice President...

  • Page 52
    ...Larry Roberts Regional Vice President, Southeast Operations Julie Larner Vice President, Finance and Administration, PJ Food Service Syl J. Sosnowski Vice President, Marketing Mary Ann Palmer Vice President, People Department Christopher J. Sternberg Vice President, Corporate Communications and...

  • Page 53
    ... Gaunce Principal, Gaunce Management Richard F. Sherman Chairman, PJ America and Private Investor Blaine E. Hurst Vice Chairman and President John H. Schnatter Founder, Chairman and Chief Executive Officer Charles W. Schnatter Senior Vice President, General Counsel and Secretary Jack A. Laughery...

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