Papa John’s Announces First Quarter 2013 Results

  Papa John’s Announces First Quarter 2013 Results

2013 Earnings Guidance Increased; First Quarter Comparable Sales Increases of
              1.6% for North America and 8.2% for International

Business Wire

LOUISVILLE, Ky. -- May 07, 2013

Papa John’s International, Inc. (NASDAQ: PZZA)  today announced financial
results for the first quarter ended March 31, 2013.


  *First quarter earnings per diluted share of $0.85 in 2013 compared to
    $0.69 in 2012 ($0.84 in 2013 and $0.79 in 2012, or an increase of 6.3%,
    excluding the impact of the 2012 Incentive Contribution)
  *System-wide comparable sales increases of 1.6% for North America and 8.2%
    for international during the quarter
  *34 worldwide net unit openings during the quarter
  *2013 earnings guidance increased to a range of $2.90 to $3.00 per diluted
    share, from prior guidance of $2.85 to $2.95 per diluted share
  *Borrowing capacity on the line of credit increased to $300 million from
    $175 million

“We are pleased to maintain our momentum in the first quarter, with solid
increases in EPS, global comp sales, and unit builds,” said Papa John’s
founder, chairman and chief executive officer, John Schnatter. “We are excited
about both the health of the pizza category and the strength of the Papa
John’s brand as we continue to grow around the world.”

First quarter 2013 revenues were $355.6 million, a 7.3% increase from first
quarter 2012 revenues of $331.3 million. First quarter 2013 net income was
$19.3 million, compared to first quarter 2012 net income of $17.0 million
($19.1 million and $19.4 million, for the first quarter of 2013 and 2012,
respectively, excluding the impact of the previously disclosed 2012 Incentive
Contribution discussed below). First quarter 2013 diluted earnings per share
were $0.85 compared to first quarter 2012 diluted earnings per share of $0.69
($0.84 for the first quarter of 2013 and $0.79 for the first quarter of 2012,
excluding the impact of the 2012 Incentive Contribution).

Marketing Incentive Contribution

The following table reconciles our GAAP financial results to our results
excluding the Incentive Contribution for the first quarter of 2013 versus the
first quarter of 2012:

                                                        First Quarter
                                                         Mar. 31,    Mar. 25,
(In thousands, except per share amounts)                 2013        2012
Income before income taxes, as reported                  $ 30,297     $ 27,520
Incentive Contribution (a)                                (250   )    3,721
Income before income taxes, excluding Incentive          $ 30,047    $ 31,241
Net income, as reported                                  $ 19,306     $ 16,981
Incentive Contribution (a)                                (165   )    2,439
Net income, excluding Incentive Contribution             $ 19,141    $ 19,420
Earnings per diluted share, as reported                  $ 0.85       $ 0.69
Incentive Contribution (a)                                (0.01  )    0.10
Earnings per diluted share, excluding Incentive          $ 0.84      $ 0.79

(a) As previously disclosed, in connection with a 2012 multi-year supplier
agreement, the Company received a $5.0 million supplier marketing payment in
the first quarter of 2012. The Company is recognizing the supplier marketing
payment evenly as income over the five-year term of the agreement ($250,000
per quarter). The Company then contributed the supplier marketing payment to
the Papa John’s Marketing Fund (“PJMF”), an unconsolidated, non-profit
corporation, for the benefit of domestic restaurants. The Company’s
contribution to PJMF was fully expensed in the first quarter of 2012. PJMF
elected to distribute the $5.0 million supplier marketing payment to the
domestic system as advertising credits in the first quarter of 2012. Our
domestic company-owned restaurants’ portion resulted in an increase in income
before income taxes of approximately $1.0 million in the first quarter of
2012. These transactions together are referred to as the “Incentive
Contribution.” The Incentive Contribution resulted in an increase in income
before income taxes of $250,000 in the first quarter of 2013 and a reduction
in income before income taxes of $3.7 million in the first quarter of 2012.

The results shown in the table above and elsewhere in this press release,
which exclude the Incentive Contribution, are not measures defined by
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 results.
Management believes presenting the financial information excluding the impact
of the Incentive Contribution is important for purposes of comparison to prior
year results. In addition, management uses these non-GAAP measures to allocate
resources, and analyze trends and underlying operating performance. Annual
cash bonuses, and certain long-term incentive programs for various levels of
management, were based on financial measures that excluded the Incentive

Global Restaurant and Comparable Sales Information

                                               First Quarter
                                                Mar. 31, 2013  Mar. 25, 2012
Global restaurant sales growth (a)              6.1%            6.1%
Global restaurant sales growth, excluding the
impact of foreign currency (a)                  6.5%            6.3%
Comparable sales growth (b)
Domestic company-owned restaurants              3.9%            3.0%
North America franchised restaurants            0.8%            0.5%
System-wide North America restaurants           1.6%            1.1%
System-wide international restaurants           8.2%            8.4%

(a) Includes both company-owned and franchised restaurant sales.

(b) Represents the change in year-over-year sales for the same base of
restaurants for the same fiscal periods. Comparable sales results for
restaurants operating outside of the United States are reported on a constant
dollar basis, which excludes the impact of foreign currency conversion.

Management believes global restaurant and comparable sales growth information,
as defined in the table above, is useful in analyzing our results since our
franchisees pay royalties that are based on a percentage of franchise sales.
Franchise sales generate commissary revenue in the United States and in
certain international markets. Global restaurant and comparable sales growth
information is also useful in analyzing industry trends and the strength of
our brand. Franchise restaurant sales are not included in company revenues.

Revenue Highlights

Consolidated revenues were $355.6 million for the first quarter of 2013, an
increase of $24.3 million, or 7.3% over the corresponding 2012 period. This
increase in revenues for the first quarter of 2013 was primarily due to the

  *Domestic company-owned restaurant sales increased $14.1 million, or 9.8%,
    primarily due to an increase of 3.9% in comparable sales during the first
    quarter of 2013 and the net acquisition of 50 restaurants in the Denver
    and Minneapolis markets from a franchisee in the second quarter of 2012.
  *North America franchise royalty revenue increased $215,000, or 1.0%, as
    the increase in net franchise units over the prior year and positive
    comparable sales of 0.8% were substantially offset by reduced royalties
    attributable to the company’s net acquisition of the 50 restaurants noted
  *Domestic commissary sales increased $6.3 million, or 4.6%, due to an
    increase in the volume of sales as well as increases in the prices of
    certain commodities.
  *International revenues increased $3.1 million, or 18.2%, primarily due to
    an increase in the number of restaurants and an increase in comparable
    sales of 8.2%, calculated on a constant dollar basis.

Operating Highlights

First quarter 2013 income before income taxes was $30.3 million ($30.0 million
excluding the Incentive Contribution) compared to first quarter 2012 income
before income taxes of $27.5 million ($31.2 million excluding the Incentive
Contribution). The table below summarizes income before income taxes on a
reporting segment basis excluding the Incentive Contribution, as previously

                                         Mar. 31,   Mar. 25,     Increase
(In thousands)                             2013     2012      (Decrease)
Domestic company-owned restaurants         $ 10,956   $ 12,321      $ (1,365 )
Less: Incentive Contribution (a)           -        1,029      (1,029 )
Domestic company-owned
Incentive Contribution                       10,956     11,292        (336   )
Domestic commissaries                        10,163     11,166        (1,003 )
North America franchising                    18,222     18,140        82
International                                341        272           69
All others                                   659        395           264
Unallocated corporate expenses               (9,518 )   (14,784 )     5,266
Less: Incentive Contribution (a)           250      (4,750  )   5,000  
Unallocated corporate expenses,
Incentive Contribution                       (9,768 )   (10,034 )     266
Elimination of intersegment (profit)       (526   )  10         (536   )
Total income before income taxes,
Incentive Contribution (a)                $ 30,047  $ 31,241    $ (1,194 )

(a) See Marketing Incentive Contribution table above for additional details
and GAAP reconciliation.

First quarter 2013 income before income taxes decreased approximately $1.2
million, or 3.8%, excluding the Incentive Contribution. This was primarily
attributable to the following:

  *Domestic company-owned restaurants operating income decreased
    approximately $300,000 primarily due to an increase in commodity costs. In
    addition, the first quarter of 2012 included significant supplier
    incentives. These decreases were substantially offset by incremental
    profits associated with higher comparable sales of 3.9%.
  *Domestic commissaries operating income decreased $1.0 million. The
    decrease was primarily driven by a higher than usual profit margin in the
    first quarter of 2012. The 2013 profit margin was in line with the
    Company's expectations. We manage commissary results on a full year basis
    and anticipate the 2013 full year profit margin will approximate 2012.

These decreases were partially offset by improvements in all remaining
segments, as outlined in the table above. This includes our International
segment, which reported operating income of $341,000 in the first quarter of
2013. This was an improvement of $69,000 over the first quarter of 2012. The
increased profits were primarily due to higher royalties attributable to the
strong 8.2% comparable sales and net unit growth, including improvement in
overall United Kingdom results. These improvements were substantially offset
by higher operating expenses in China associated with new company-owned

The first quarter 2013 effective income tax rate was 32.9%, representing a
decrease of 0.6% from the prior year rate of 33.5%. The lower tax rate in the
first quarter of 2013 was primarily due to the reinstatement of certain 2012
tax credits under the American Taxpayer Relief Act of 2012. Our effective
income tax rate may fluctuate from quarter to quarter for various reasons,
including the settlement or resolution of specific federal and state issues.

The company’s free cash flow, a non-GAAP financial measure, for the first
quarters of 2013 and 2012 was as follows (in thousands):

                                               First Quarter
                                                Mar. 31      Mar. 25,
                                                 2013        2012   
Net cash provided by operating activities (a)   $ 29,914      $ 44,093
Purchase of property and equipment (b)           (13,248 )    (6,403 )
Free cash flow                                  $ 16,666     $ 37,690 

(a) The decrease of approximately $14.2 million was primarily due to
unfavorable changes in working capital including the timing of income tax and
other payments in the first quarter of 2013.

(b) The increased purchases of property and equipment primarily relate to
spend on equipment for the planned New Jersey dough production and technology

We define free cash flow as net cash provided by operating activities (from
the consolidated statements of cash flows) less the purchase of property and
equipment. We view free cash flow as an important measure because it is a
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.

See the Management’s Discussion and Analysis of Financial Condition and
Results of Operations section of our Quarterly Report on Form 10-Q filed with
the Securities and Exchange Commission for additional information concerning
our operating results and cash flow for the three-month period ended March 31,

Global Restaurant Unit Data

At March 31, 2013, there were 4,197 Papa John’s restaurants operating in all
50 states and in 34 countries, as follows:

                 Domestic   Franchised   Total
                Company-  North       North    International  System-wide
                 owned      America      America
First Quarter                                                 
Beginning -
December 30,     648        2,556        3,204     959             4,163
Opened           1          31           32        28              60
Closed           -         (15)        (15)     (11)           (26)
Ending - March   649       2,572       3,221    976            4,197
31, 2013
Restaurant       1         16          17       17             34
unit growth
% increase       0.2%      0.6%        0.5%     1.8%           0.8%

Our development pipeline as of March 31, 2013 included approximately 1,400
restaurants (300 units in North America and 1,100 units internationally), the
majority of which are scheduled to open over the next six years.

Share Repurchase Activity

The following table reflects our repurchases for the first quarter of 2013 and
subsequent repurchases through April 30, 2013 (in thousands):

Period                                Number of  Cost
First Quarter 2013                     549         $ 32,122
April 1, 2013 through April 30, 2013   290         $ 17,733

There were 22.8 million diluted weighted average shares outstanding for the
first quarter, representing a decrease of 6.7% over the prior year comparable
period. Diluted earnings per share increased $0.06 for the first quarter of
2013 due to the reduction in shares outstanding resulting from the share
repurchase program. Approximately 21.9 million actual shares of the company’s
common stock were outstanding as of March 31, 2013.

2013 Earnings Guidance Update

The company raised its 2013 guidance for diluted earnings per share and
reaffirmed all other guidance. The update is as follows:

                            Updated Guidance  Previous Guidance
  Diluted earnings per share $2.90 - $3.00      $2.85 - $2.95

Line of Credit Increased to $300 Million

As announced on May 6, 2013, we have increased the borrowing capacity under
our line of credit to $300 million from $175 million. The amendment to our
line of credit also extended the maturity date to April 2018 and has very
similar terms as our previous line of credit. We are pleased to have this
increased borrowing capacity to provide us greater flexibility in supporting
future growth and driving long term shareholder value.

Conference Call

A conference call is scheduled for May 8, 2013 at 10:00 a.m. Eastern Time to
review our first quarter 2013 earnings results. The call can be accessed from
the company’s web page at in a listen-only mode, or dial
877-312-8816 (U.S. and Canada) or 253-237-1189 (international). The conference
call will be available for replay, including by downloadable podcast, through
May 12, 2013. The replay can be accessed from the company’s web site at or by dialing 855-859-2056 (U.S. and Canada) or 404-537-3406
(international). The Conference ID is 36645921.

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 forward-looking statements may relate to projections or guidance
concerning business performance, revenue, earnings, contingent liabilities,
resolution of litigation, commodity costs, profit margins, 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:

  *aggressive changes in pricing or other marketing or promotional strategies
    by competitors which may adversely affect sales; and new product and
    concept developments by food industry competitors;
  *changes in consumer preferences and adverse general economic and political
    conditions, including increasing tax rates, and their resulting impact on
    consumer buying habits;
  *the impact that product recalls, food quality or safety issues, and
    general public health concerns could have on our restaurants;
  *failure to maintain our brand strength and quality reputation;
  *the ability of the Company and its franchisees to meet planned growth
    targets and operate new and existing restaurants profitably, which could
    be impacted by challenges securing financing, finding suitable store
    locations or securing required domestic or foreign government permits and
  *increases in or sustained high costs of food ingredients and other
  *disruption of our supply chain due to sole or limited source of suppliers
    or weather, drought, disease or other disruption beyond our control;
  *increased risks associated with our international operations, including
    economic and political conditions in our international markets and
    difficulty in meeting planned sales targets and new store growth for our
    international operations;
  *increased employee compensation, benefits, insurance, regulatory
    compliance and similar costs, including increased costs resulting from
    federal health care legislation;
  *the credit performance of our franchise loan program;
  *the impact of the resolution of current or future claims and litigation,
    and current or proposed legislation impacting our business;
  *currency exchange or interest rates;
  *failure to effectively execute succession planning, and our reliance on
    the services of our Founder and CEO who also serves as our brand
    spokesperson; and
  *disruption of critical business or information technology systems, and
    risks associated with security breaches, including theft of company and
    customer information.

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 30, 2012. We undertake no obligation to update publicly any
forward-looking statements, whether as a result of future events, new
information or otherwise.

For more information about the Company, please visit

Papa John's International, Inc. and Subsidiaries
Consolidated Statements of Income
                                               Three Months Ended
                                               March 31, 2013  March 25, 2012
                                               (Unaudited)      (Unaudited)
(In thousands, except per share amounts)
North America:
Domestic Company-owned restaurant sales        $  157,898       $  143,815
Franchise royalties                               20,733           20,518
Franchise and development fees                    546              222
Domestic commissary sales                         143,894          137,610
Other sales                                       12,607           12,258
Royalties and franchise and development fees      5,067            4,486
Restaurant and commissary sales                  14,859        12,367   
Total revenues                                    355,604          331,276
Costs and expenses:
Domestic Company-owned restaurant expenses:
Cost of sales                                     37,073           32,456
Salaries and benefits                             43,272           38,813
Advertising and related costs                     14,793           12,699
Occupancy costs                                   8,711            7,898
Other operating expenses                         22,745        20,418   
Total domestic Company-owned restaurant           126,594          112,284
Domestic commissary and other expenses:
Cost of sales                                     117,778          112,838
Salaries and benefits                             10,067           9,003
Other operating expenses                         16,007        14,306   
Total domestic commissary and other expenses      143,852          136,147
International operating expenses                  12,653           10,392
General and administrative expenses               33,158           31,596
Other general expenses                            1,185            5,674
Depreciation and amortization                    8,537         7,927    
Total costs and expenses                         325,979       304,020  
Operating income                                  29,625           27,256
Net interest income                              672           264      
Income before income taxes                        30,297           27,520
Income tax expense                               9,978         9,213    
Net income, including redeemable                  20,319           18,307
noncontrolling interests
Income attributable to redeemable                (1,013   )     (1,326   )
noncontrolling interests
Net income, net of redeemable noncontrolling   $  19,306      $  16,981   
Basic earnings per common share                $  0.87        $  0.71     
Earnings per common share - assuming           $  0.85        $  0.69     
Basic weighted average shares outstanding        22,256        24,053   
Diluted weighted average shares outstanding      22,806        24,438   

Papa John's International, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
                                   March 31,                December 30,
                                   2013                     2012
(In thousands)                     (Unaudited)              (Note)
Current assets:
Cash and cash equivalents          $      24,551            $      16,396
Accounts receivable, net                  44,792                   44,647
Notes receivable, net                     3,181                    4,577
Inventories                               23,922                   22,178
Deferred income taxes                     7,575                    10,279
Prepaid expenses and other               17,169                  20,549
current assets
Total current assets                      121,190                  118,626
Property and equipment, net               198,559                  196,661
Notes receivable, less                    13,764                   12,536
current portion, net
Goodwill                                  78,065                   78,958
Other assets                             31,707                  31,627
Total assets                       $      443,285           $      438,408
Liabilities and
stockholders' equity
Current liabilities:
Accounts payable                   $      32,218            $      32,624
Income and other taxes                    11,672                   10,429
Accrued expenses and other               53,577                  60,528
current liabilities
Total current liabilities                 97,467                   103,581
Deferred revenue                          6,892                    7,329
Long-term debt                            108,911                  88,258
Deferred income taxes                     9,689                    10,672
Other long-term liabilities              41,326                  40,674
Total liabilities                         264,285                  250,514
Redeemable noncontrolling                 6,294                    6,380
Total stockholders' equity               172,706                 181,514
Total liabilities,
redeemable noncontrolling          $      443,285           $      438,408
interests and stockholders'
Note: The Condensed Consolidated Balance Sheets have been derived from the
audited consolidated financial statements, 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

                                               Three Months Ended
(In thousands)                                 March 31, 2013  March 25, 2012
                                               (Unaudited)      (Unaudited)
Operating activities
Net income, including redeemable               $  20,319        $  18,307
noncontrolling interests
Adjustments to reconcile net income to net
cash provided by
operating activities:
Provision for uncollectible accounts and          314              547
notes receivable
Depreciation and amortization                     8,537            7,927
Deferred income taxes                             3,325            (912     )
Stock-based compensation expense                  1,681            1,694
Excess tax benefit on equity awards               (1,142   )       (129     )
Other                                             (180     )       296
Changes in operating assets and liabilities,
net of acquisitions:
Accounts receivable                               (627     )       (2,670   )
Inventories                                       (1,744   )       1,122
Prepaid expenses and other current assets         3,380            (5       )
Other assets and liabilities                      38               1,160
Accounts payable                                  (406     )       1,987
Income and other taxes payable                    1,243            9,850
Accrued expenses and other current                (4,641   )       1,221
Deferred revenue                                 (183     )      3,698    
Net cash provided by operating activities         29,914           44,093
Investing activities
Purchases of property and equipment               (13,248  )       (6,403   )
Loans issued                                      (1,748   )       (687     )
Repayments of loans issued                        1,916            703
Other                                            319            5        
Net cash used in investing activities             (12,761  )       (6,382   )
Financing activities
Net proceeds (repayments) on line of credit       20,652           (1,489   )
Excess tax benefit on equity awards               1,142            129
Tax payments for restricted stock issuances       (843     )       (303     )
Proceeds from exercise of stock options           2,704            3,728
Acquisition of Company common stock               (32,122  )       (13,820  )
Contributions from redeemable noncontrolling      350              -
interest holders
Distributions to redeemable noncontrolling        (1,000   )       -
interest holders
Other                                            112            82       
Net cash used in financing activities             (9,005   )       (11,673  )
Effect of exchange rate changes on cash and      7              132      
cash equivalents
Change in cash and cash equivalents               8,155            26,170
Cash and cash equivalents at beginning of        16,396         18,942   
Cash and cash equivalents at end of period     $  24,551       $  45,112   


Papa John’s International, Inc.
Lance Tucker, 502-261-4218
Chief Financial Officer
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