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Papa John’s Announces Third Quarter 2012 Results

Stocks in this article: PZZA

Marketing Incentive Contribution

As previously announced, in connection with a new 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 of the adverting credits resulted in an increase in income before income taxes of approximately $1.0 million in the first quarter.

The overall impact of the two transactions described above, which are collectively defined as the “Incentive Contribution,” increased income before income taxes $250,000 in the third quarter of 2012 and reduced income before income taxes by approximately $3.2 million for the nine-month period, as outlined in the table below. The impact for full-year 2012 will be a reduction to income before income taxes of approximately $3.0 million (diluted earnings per share reduction of $0.08).

The following table reconciles our GAAP financial results to the adjusted financial results, excluding the impact of the Incentive Contribution, for the three and nine months ended September 23, 2012:

 
  Three Months Ended     Nine Months Ended
Sept. 23,   Sept. 25, Sept. 23,   Sept. 25,
(In thousands, except per share amounts) 2012 2011 2012 2011
 
Income before income taxes, as reported $ 21,057 $ 16,846 $ 72,435 $ 62,693
Incentive Contribution   (250 )   -   3,221   -

Income before income taxes, excluding Incentive Contribution

$ 20,807   $ 16,846 $ 75,656 $ 62,693
 
Net income, as reported $ 13,151 $ 11,123 $ 44,664 $ 39,674
Incentive Contribution   (159 )   -   2,116   -
Net income, excluding Incentive Contribution $ 12,992   $ 11,123 $ 46,780 $ 39,674
 
Earnings per diluted share, as reported $ 0.55 $ 0.44 $ 1.85 $ 1.55
Incentive Contribution   -     -   0.09   -

Earnings per diluted share, excluding Incentive Contribution

$ 0.55   $ 0.44 $ 1.94 $ 1.55
 

The non-GAAP measures shown above, which exclude the Incentive Contribution, should not be construed as a substitute for or a better indicator of the company’s performance than the company’s GAAP measures. 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, are based on financial measures that exclude the Incentive Contribution.

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