Papa Johns 1998 Annual Report Download - page 27

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Depreciation and amortization increased as a percentage of total revenues to 3.9% in 1997, from 3.8%
in 1996. This increase was primarily due to additional capital expenditures, intangibles related to
acquisitions, deferred pre-opening costs for newly-opened restaurants and commissaries and other
deferred expenses, primarily systems development costs.
Investment Income. Investment income increased to $4.5 million in 1997, from $3.5 million in 1996. The
increase was the result of higher average amounts outstanding under the franchise loan program which
earn higher average rates of interest in comparison to the securities held in the investment portfolio.
Amounts receivable under the program increased from $5.1 million at December 1996, to $15.1 million
at December 1997.
Income Tax Expense. Income tax expense reflects a combined federal, state and local effective income tax
rate of 37.0% in 1997 and 1996.
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 $69.2 million, acquisitions of $1.9
million, and loans to franchisees of $4.8 million for 1998, were primarily funded by cash flow from
operations and cash generated from the exercise of stock options.
Total 1999 capital expenditures are expected to be approximately $69.0 million, primarily for the
development or relocation of restaurants and construction of commissary facilities and completion
of the Louisville commissary and corporate offices. During 1999, we plan to open approximately 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 approximately 30-40% will accommodate relocation
and expansion of the Louisville commissary operations and Support Services 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 1999 we expect to fund up to $1.1 million in additional loans under existing
franchisee loan program commitments. Approximately $12.5 million was outstanding under this
program as of December 27, 1998. At this time, we do not expect to significantly expand the program
beyond existing commitments.
Capital resources available at December 27, 1998, include $34.0 million of cash and cash equivalents,
$47.4 million of investments and $9.6 million under a line of credit expiring in June 1999. We expect to
fund planned capital expenditures, acquisitions of franchised restaurants and disbursements under the
franchise loan program for the next twelve months from these resources and operating cash flows.