Papa Johns 2000 Annual Report Download

Download and view the complete annual report

Please find the complete 2000 Papa Johns annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 81

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81

Table of contents

  • Page 1

  • Page 2
    ...what Papa John's is all about sfocus on our commitment to quality ingredients Our focus won't change. We'll continue to keep the Main Thing the Main Thing - make a superior quality traditional pizza. The great thing about a challenge is it makes us stronger as a team. Focus on being the number...

  • Page 3
    ... to reward our commitment to "Better Ingredients. Better Pizza." As reported in The Wall Street Journal in February 2001, Papa John's (for the second straight year) has been rated number one in customer satisfaction among all national fast food restaurants in the American Customer Satisfaction...

  • Page 4
    Revenues (MILLIONS) 2000 1999 1998 1997 $944.7 $805.3 $682.2 $515.7 American Customer Satisfaction Index System-Wide Sales (MILLIONS) All Fast Food Restaurants 1999 Score 2000 Score 2000 1999 1998 1997 $1,751.6 $1,438.3 $1,156.3 $ 867.6 Papa John's Group Average Wendy's Pizza Hut Domino's ...

  • Page 5
    ... incorporation or organization) 61-1203323 (I.R.S. Employer Identification Number) 2002 Papa John's Boulevard Louisville, Kentucky 40299-2334 (Address of principal executive offices) (502) 261-7272 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12...

  • Page 6
    ... of Security Holders Market for Registrant's Common Equity and Related Stockholder Matters Selected Financial Data Management's Discussion and Analysis of Financial Condition and Results of Operations Quantitative and Qualitative Disclosures about Market Risk Financial Statements and Supplementary...

  • Page 7
    ... for Restaurant Development, International Operations, Franchise Sales and Legal. Resource/Support - responsible for Franchise Operations and Business Consulting, Education and Training, Human Resources, Field Marketing and Internal Communications. Strategy Our goal is to build the strongest...

  • Page 8
    ... order food from multiple vendors and commit substantial labor and other resources to dough preparation. Because Papa John' s restaurants have a focused menu and specialize in delivery and carry-out services, each team member can concentrate on a well-defined function in preparing and delivering the...

  • Page 9
    ...Newer domestic market expansion is planned for the West Coast, Mid-Atlantic states, and Rocky Mountain regions, in addition to building out existing markets throughout the country. International expansion in 2001 is planned primarily in Mexico, Puerto Rico, Venezuela, Costa Rica, Guatemala, Honduras...

  • Page 10
    ...Although not required to do so, substantially all Papa John' s franchisees purchase most of their equipment from us. Quality Control Centers; Strategic Supply Chain Management Our domestic QC Centers, comprised of eleven regional production and distribution centers, supply pizza dough, food products...

  • Page 11
    ... were opened in 2000, and a corporate QC Center was opened in Cambridge, Canada. Other international franchised QC Centers are located in Puerto Rico, Costa Rica, Venezuela, and Guatemala. We expect future international QC Centers to be licensed to franchisees; however, we may open Company-owned...

  • Page 12
    7

  • Page 13
    ... of our markets and regional training directors located strategically across the country. We provide an onsite training team three days before and three days after the opening of any Company-owned or franchised restaurant requesting assistance. Each operations vice president, district manager, area...

  • Page 14
    ...the time of signing the agreement, and $20,000 when the restaurant opens or the agreed-upon development date, whichever comes first. Under our current master franchise agreement, the master franchisee is required to pay total fees of $25,000 per restaurant owned and operated by the master franchisee...

  • Page 15
    ... to hire a full-time training coordinator certified to deliver Company approved programs in order to train new team members and management candidates for their restaurants. Our franchise consultants, reporting to the Vice President of Franchise Operations, maintain open communication with 10

  • Page 16
    ... to price, service, location and food quality, and there are many well-established competitors with substantially greater financial and other resources than Papa John' s. Competitors include a large number of international, national and regional restaurant chains, as well as local pizza operators...

  • Page 17
    ... Financial Statements" for additional information. Employees As of December 31, 2000, we employed 17,922 persons, of whom approximately 15,582 were restaurant team members, 770 were restaurant management and supervisory personnel, 681 were corporate personnel and 889 were PJ Food Service and support...

  • Page 18
    ...we or the Papa John' s franchisees will be able to meet planned growth targets, open restaurants in markets now targeted for expansion, or continue to operate in existing markets. 2. The restaurant industry is intensely competitive with respect to price, service, location and food quality, and there...

  • Page 19
    ... time we have attempted to expand the Papa John' s brand in this manner. There can be no assurance that all conversion issues will be identified and successfully addressed in a timely and cost-effective manner or that the existing Perfect Pizza market share can be successfully converted to Papa John...

  • Page 20
    Item 2. Properties As of December 31, 2000, there were 2,612 Papa John' s restaurants and 205 Perfect Pizza restaurants systemwide. Company-owned Papa John's Restaurants Number of Restaurants Colorado ...Delaware ...Florida...Georgia ...Illinois ...Indiana ...Kentucky ...Maryland...Minnesota......

  • Page 21
    Domestic Franchised Papa John's Restaurants Number of Restaurants Alabama...Alaska...Arizona ...Arkansas...California...Colorado ...Connecticut...Delaware...Florida ...Georgia...Hawaii...Idaho ...Illinois ...Indiana...Iowa ...Kansas ...Kentucky...Louisiana...Maine ...Maryland...Massachusetts......

  • Page 22
    Honduras ...Iceland...Mexico...Puerto Rico...Saudi Arabia...Venezuela...United Kingdom...Total International Franchised Papa John' s Restaurants ... 2 1 19 9 4 13 1 69 Most Papa John' s restaurants are located in leased space. The initial term of most restaurant leases is five years or less with ...

  • Page 23
    ...square foot building housing our printing operations and a 247,000 square foot building, approximately 30 to 40% of which accommodates the Louisville QC Center operation and promotional division. The remainder of the building houses our corporate offices. The Perfect Pizza management team is located...

  • Page 24
    We are also 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. ...

  • Page 25
    ... Position Founder, Chairman of the Board, Chief Executive Officer and President President of PJ Food Service, Inc. and Chief Operating Officer Former Vice Chairman and President Senior Vice President, Chief Development Officer, Secretary and General Counsel Senior Vice President and Chief Resource...

  • Page 26
    ... of Financial Planning for American Air Filter. Ms. Milby left the Company in February 2001. Mike Cortino has served as Senior Vice President of Corporate Operations since May 2000 after having served as Vice President of Operations Support since November 1999. Prior to joining Papa John's, Mr...

  • Page 27
    ...' s franchise family. Prior to joining Papa John' s, Mr. Boesel had 17 years of experience in corporate, franchise and international operations with Wendy's International, Inc. Syl Sosnowski has served as Vice President of Marketing since 1995. Mr. Sosnowski also served as Vice President of Support...

  • Page 28
    ...the NASDAQ National Market tier of The NASDAQ Stock Market under the symbol PZZA. As of March 12, 2001, there were approximately 912 record holders of common stock. The following table sets forth for the quarters indicated the high and low closing sales prices of our common stock, as reported by The...

  • Page 29
    ... Domestic revenues: Restaurant sales Franchise royalties Franchise and development fees Commissary sales Equipment and other sales International revenues: Royalties and franchise and development fees Restaurant and commissary sales Total revenues Operating income before special charges Advertising...

  • Page 30
    ... of food and paper products, restaurant equipment, printing and promotional items, risk management services, and information systems and related services used in their operations. We intend to continue to expand the number of Company-owned and franchised restaurants. Our expansion strategy is...

  • Page 31
    Our fiscal year ends on the last Sunday in December of each year. Our 2000 fiscal year consists of 53 weeks, and all other fiscal years presented consist of 52 weeks. 26

  • Page 32
    ... sales Total revenues Costs and expenses: Domestic restaurant cost of sales (1) Domestic restaurant operating expenses (1) Domestic commissary, equipment and other expenses (2) International operating expenses (3) General and administrative expenses (4) Advertising litigation expense (5) Special...

  • Page 33
    ... restaurant base Average sales for Company-owned restaurants included in the year's most recent comparable restaurant base (8) Papa John's Restaurant Progression: 3.0% 534 $782,000 3.5% 492 $754,000 9.0% 407 $750,000 U.S. Company-owned: Beginning of period Opened Closed Acquired from franchisees...

  • Page 34
    ... 29, 1999, we acquired Perfect Pizza Holdings Limited ("Perfect Pizza"), a company located in the United Kingdom which operated and franchised 206 restaurants (see "Note 3" of "Notes to Consolidated Financial Statements"). The Consolidated Statements of Income contain financial results for Perfect...

  • Page 35
    ... affecting the cost of cheese are beyond our control (see "Item 1. Business - Quality Control Centers: Strategic Supply Chain Management" and "Note 12" of "Notes to Consolidated Financial Statements"). Domestic restaurant salaries and benefits increased as a percentage of restaurant sales to 27...

  • Page 36
    ...training and international development, required for our expanded operations as well as the addition of Perfect Pizza. Advertising litigation expense represents costs associated with the lawsuit filed against us by Pizza Hut, Inc. claiming that our "Better Ingredients. Better Pizza." slogan is false...

  • Page 37
    ... of 2000, the Company decided to close 20 field offices to reduce future costs and to allow our operations area supervisors and district managers to spend more time in our restaurants. We also eliminated certain positions in the fourth quarter to reduce future administrative costs. These actions...

  • Page 38
    ... in 2001 approximately $2.1 million as compared to 2000. The closing of the 20 field offices and the severance and exit costs will reduce salaries and operating expenses approximately $900,000 in 2001 as compared to 2000. Pre-opening and other general expenses decreased to $2.2 million in 2000 from...

  • Page 39
    ... affecting the cost of cheese are beyond our control (see "Item 1. Business - Quality Control Centers; Strategic Supply Chain Management" and "Note 12" of "Notes to Consolidated Financial Statements"). Domestic restaurant salaries and benefits increased as a percentage of restaurant sales to 27...

  • Page 40
    ... advertising litigation expense consists primarily of legal costs and costs to discontinue the "Better Ingredients. Better Pizza." slogan. See "Item 3. Legal Proceedings" and "Note 14" of "Notes to Consolidated Financial Statements" for additional information. Pre-opening and other general expenses...

  • Page 41
    ... 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...

  • Page 42
    ... franchisees to obtain suitable locations and financing for new restaurant development; the hiring, training, and retention of management and other personnel; competition in the industry with respect to price, service, location, and food quality; an increase in food cost due to seasonal fluctuations...

  • Page 43
    ... a no-fee basis. Substantially all of our business is transacted in U.S. dollars. Accordingly, foreign exchange rate fluctuations do not have a significant impact on the Company. Cheese, representing approximately 35 to 40% of our food cost, is subject to seasonal fluctuations, weather, availability...

  • Page 44
    ...franchise and development fees Restaurant and commissary sales Total revenues Costs and expenses: Domestic restaurant expenses: Cost of sales Salaries and benefits Advertising and related costs Occupancy costs Other operating expenses Domestic commissary, equipment and other expenses: Cost of sales...

  • Page 45
    ... franchise and development fees Long-term debt, net of current portion Deferred income taxes Other long-term liabilities Common equity put options Stockholders' equity: Preferred stock ($.01 par value per share; authorized 5,000,000 shares, no shares issued) Common stock ($.01 par value per share...

  • Page 46
    ...,054) Comprehensive income: Net income Unrealized loss on investments, net of tax of $84 Other, net Comprehensive income Exercise of stock options Tax benefit related to exercise of non-qualified stock options Acquisition of treasury stock (6,356,984 shares) Common equity put options Other Balance...

  • Page 47
    ...Special charge, net of cash payments Advertising litigation, net of cash payments Depreciation and amortization Deferred income taxes Tax benefit related to exercise of non-qualified stock options Other Changes in operating assets and liabilities: Accounts receivable Inventories Deferred pre-opening...

  • Page 48
    ... Financial Statements 1. Description of Business Papa John' s International, Inc. (referred to as the "Company," "Papa John' s" or in the first person notations of "we," "us" and "our") operates and franchises pizza delivery and carry-out restaurants under the trademark "Papa John' s," currently...

  • Page 49
    ... at fair value as determined primarily through quoted market prices. Unrealized gains and losses for trading securities are included in the statement of income. The cost of securities sold is based on the specific identification method. Available-for-sale securities held at December 26, 1999, are...

  • Page 50
    45

  • Page 51
    .... Advertising and Related Costs Advertising and related costs include t he 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") and local market cooperative advertising...

  • Page 52
    ... number of antidilutive options was 3.7 million in 2000, 986,000 in 1999, and 213,000 in 1998. Accounting Changes In April 1998, the American Institute of Certified Public Accountants issued Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities" (the "SOP"), which requires that...

  • Page 53
    ... acquisition date are included in our consolidated financial statements. On March 28, 1999, we acquired Minnesota Pizza Company, LLC ("Minnesota Pizza"), a franchisee that operated 37 Papa John' s restaurants in the Minneapolis/St. Paul, Minnesota market. We issued 128,119 shares of our common stock...

  • Page 54
    49

  • Page 55
    ...for disposal to be carried at the lower of carrying value or fair value, less costs of disposal, once management has committed to a plan of disposal or closure. The Company determined that certain domestic restaurants were impaired due to specific operational performance indicators. Certain domestic...

  • Page 56
    ... of 2000, the Company decided to close 20 field offices to reduce future costs and to allow our operations area supervisors and district managers to spend more time in our restaurants. We also eliminated certain positions in the fourth quarter to reduce future administrative costs. These actions...

  • Page 57
    ... of our outstanding debt approximates carrying value. In connection with the line of credit facility, Papa John' s entered into a no-fee interest rate collar ("Collar") with a notional amount of $100.0 million, a 30-day LIBOR rate range of 6.36% (floor) to 9.50% (ceiling) and an expiration date of...

  • Page 58
    ...): 2000 1999 Income taxes Other taxes Accrued salaries and benefits Insurance Special charge Rent Accrued purchases Deferred proceeds on sale of restaurants Marketing Accrued interest Restaurant relocations Utilities Facility costs Advertising litigation Other Total $ 8,189 7,746 5,319 3,903...

  • Page 59
    ...of accounting change) follows (in thousands): 2000 1999 1998 Current Federal State and local Deferred (federal and state) Total ...development fees Accrued expenses and other Acquired franchise... of income tax computed at the U.S. federal statutory rate to income tax expense (exclusive of the tax effect...

  • Page 60
    ... to acquire area development rights at reduced development fees and also pay reduced initial franchise fees when restaurants are opened. Following is a summary of transactions and balances with affiliated entities (in thousands): 2000 1999 1998 Revenues from affiliates: Commissary sales Equipment...

  • Page 61
    ...the market price and sells it to our distribution subsidiary, PJ Food Service, Inc. ("PJFS"), at a fixed quarterly price based in part upon historical average market prices. PJFS in turn sells cheese to Papa John' s restaurants (Company-owned and franchised) at a set quarterly price. Gains or losses...

  • Page 62
    ...$11.2 million in 1998. 14. Advertising Litigation In August 1998, Pizza Hut, Inc. filed suit against us in the United States District Court for the Northern District of Texas, claiming that our "Better Ingredients. Better Pizza." slogan constituted false and deceptive advertising in violation of the...

  • Page 63
    ...the Rights Plan, one preferred stock purchase right was distributed as a dividend on each outstanding share of Papa John' s common stock held of record as of the close of business on March 1, 2000. The rights generally will not become exercisable until a person or group acquires beneficial ownership...

  • Page 64
    ... nder the Directors Plan and 1,000,000 under the 1999 Plan. Options granted under all plans generally expire ten years from the date of grant and vest over one-to fiveyear periods, except for certain options awarded under a previous, multi-year operations compensation program that vested immediately...

  • Page 65
    ... information be determined as if we have accounted for our employee stock options granted subsequent to December 25, 1994 under the fair value method of that Statement. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model, which was developed...

  • Page 66
    ... the Papa John' s International, Inc. 401(k) Plan (the "Plan"), as a defined contribution benefit plan, in accordance with Section 401(k) of the Internal Revenue Code. The Plan is open to all employees who meet certain eligibility requirements and allows participating employees to defer receipt of...

  • Page 67
    ... revenues from the sale, principally to Company-owned and franchised restaurants, of restaurant equipment, printing and promotional items, risk management services, and information systems and related services used in restaurant operations. Generally, we evaluate performance and allocate resources...

  • Page 68
    19. Segment Information (continued) Segment information is as follows: (in thousands) Revenues from external customers: 2000 1999 1998 Domestic restaurants Domestic commissaries Domestic franchising International All others Total revenues from external customers Intersegment revenues: $ 456,637 ...

  • Page 69
    ... and $5.4 million related to the special charge. 20. Quarterly Data (unaudited, in thousands, except per share data) Quarter 2000 Total revenues Operating income (loss) Net income (loss) Basic earnings (loss) per common share Earnings (loss) per common share assuming dilution $ $227,049 19...

  • Page 70
    ... in all material respects the information set forth therein. As discussed in Note 2 to the consolidated financial statements, effective for fiscal year 1998, the Company adopted SOP 98-5, "Reporting on the Costs of Start-Up Activities." /s/ Ernst & Young LLP Louisville, Kentucky February 27, 2001...

  • Page 71
    ...the Registrant; Executive Compensation; Security Ownership of Certain Beneficial Owners and Management; and Certain Relationships and Related Transactions: The information required by these items, other than the information set forth in this Report under Part I, "Executive Officers of the Registrant...

  • Page 72
    ... Agreement dated March 29, 1991, between Papa John' s and Richard F. Sherman. Exhibit 10.4 to our Registration Statement on Form S-1 (Registration No. 33-61366) is incorporated herein by reference. 1996 Papa John' s International, Inc. Executive Option Program. Exhibit 10.26 to our Annual Report on...

  • Page 73
    ... facility opened in Des Moines, Iowa. Exhibit 10.29 to our Annual Report on Form 10-K for the fiscal year ended December 29, 1996 is incorporated herein by reference. Lease dated November 27, 1997 by and between Papa John' s and SF Property Investments, LLC, an Oregon limited liability corporation...

  • Page 74
    ... by reference. Agreement for the Sale and Purchase of the Entire Issued Share Capital of Perfect Pizza Holdings Limited Between Geoffrey Street and Others and Papa John' s (UK) Limited and Papa John' s International, Inc. dated November 29, 1999. Exhibit 10.24 to our Annual Report on Form 10-K for...

  • Page 75
    ... Pizza Holdings, Ltd., a United Kingdom corporation 23 Consent of Ernst & Young LLP. a Kentucky 99.1 Cautionary Statements. _____ *Compensatory plan required to be filed as an exhibit pursuant to Item 14(c) of Form 10-K. (b) Reports on Form 8-K 1. We filed a Current Report on Form 8-K dated...

  • Page 76
    ... Executive Officer, President and Director Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Signature Title Date /s/ John H. Schnatter John...

  • Page 77
    EXHIBIT INDEX Sequentially Numbered Page Exhibit Number Description of Exhibit 10.1 Separation Agreement and Release between Papa John' s International, Inc. and E. Drucilla Milby. Subsidiaries of the Company Consent of Ernst & Young LLP. Cautionary Statements 21 23 99.1 72

  • Page 78
    ...Special Charge was $24.1 million, of which, $20.2 million was a reduction to assets and $3.9 million was reserved for future cash payments. The amount reserved was reduced by $204,000 for cash payments made in 2000. See "Note 4" of "Notes to Consolidated Financial Statements" for further information...

  • Page 79
    74

  • Page 80
    ... John's is all aboutw focus on our commitment to quality ingredientsf Our focus won't change. We'll continue to keep the O Main Thing the Main Thing - make a superior M quality traditional pizza. The great thing about a q challenge is it makes us stronger as a team. Focus c on being the number...

  • Page 81
    ... Senior Vice President, Chief Development Officer, Secretary and General Counsel Mike Cortino Senior Vice President of Corporate Operations Tim O' Hern Vice President of Global Development David Flanery Vice President of Finance and Corporate Controller 2002 Papa John's Blvd. • Louisville...