What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-02-24 compared with 2021-02-25 · 277 added, 357 removed, 901 unchanged (41% of the section changed)

Financial Statements and Supplementary Data

Report of Independent Registered Public Accounting Firm (PCAOB ID 42 )

Consolidated Financial Statements:

● Consolidated Statements of Operations for the years ended December 26, 2021, December 27, 2020 and December 29, 2019

● Consolidated Statements of Comprehensive Income (Loss) for the years ended December 26, 2021, December 27, 2020 and December 29, 2019

● Consolidated Balance Sheets as of December 26, 2021 and December 27, 2020

● Consolidated Statements of Stockholders’ Deficit for the years ended December 26, 2021, December 27, 2020 and December 29, 2019

● Consolidated Statements of Cash Flows for the years ended December 26, 2021, December 27, 2020 and December 29, 2019

● Notes to Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm

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We have audited the accompanying consolidated balance sheets of Papa John’s International, Inc.

and Subsidiaries (the Company) as of December 27, 2020 and December 29, 2019, the related consolidated statements of operations, comprehensive income (loss), stockholders' deficit and cash flows for each of the two years in the period ended December 27, 2020, and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 27, 2020 and December 29, 2019, and the results of its operations and its cash flows for each of the two years in the period ended December 27, 2020, in conformity with U.S.

and Subsidiaries (the Company) as of December 26, 2021 and December 27, 2020, the related consolidated statements of operations, comprehensive income (loss), stockholders' deficit and cash flows for each of the three years in the period ended December 26, 2021, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 26, 2021 and December 27, 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 26, 2021, in conformity with U.S.

generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 26, 2021, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework), and our report dated February 24, 2022, expressed an unqualified opinion thereon.

Adoption of ASU No.

As discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting for leases in 2019 due to the adoption of ASU No.

2016-02, Leases, as amended.

Basis for Opinion

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Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective or complex judgments.

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Measurement and valuation of reserve for franchisee notes receivable

Description of the Matter

As described in Note 2 to the consolidated financial statements, the Company has a reserve for franchisee notes receivable of $3.2 million (“Reserve for Franchisee Notes Receivables”) against a gross balance of franchisee notes receivables of $51.1 million at December 27, 2020.

The Reserve for Franchisee Notes Receivables is estimated to reduce the outstanding notes receivable for expected credit losses after consideration of the fair value of the Company’s collateral rights (e.g., underlying franchisee business, property and equipment) and any guarantees as well as a review of each franchisee’s economic performance, historical loss information, current market conditions, and future economic conditions.

Auditing the valuation of the Reserve for Franchisee Notes Receivables is challenging due to the judgment inherent in estimating the fair value of the Company’s collateral rights, which has a significant effect on the measurement of the Reserve for Franchisee Notes Receivables.

How We Addressed the Matter in Our Audit

We tested management’s controls related to the measurement and valuation of the Reserve for Franchisee Notes Receivables.

For example, we tested controls over management’s review of the progression of outstanding notes receivable and the Reserve for Franchisee Notes Receivable and the overall review of the adequacy of the Reserve for Franchisee Notes Receivable.

Where judgment was exercised by management, our audit procedures included testing controls over management’s evaluation of the assumptions, including the fair value of the collateral rights and guarantees where collateral was taken or personal guarantee given in connection with issuance of the applicable note.

Our control testing also considered management’s review over the completeness and accuracy of the underlying data used in evaluating the measurement and valuation of the Reserve for Franchisee Notes Receivables.

To test the measurement and valuation of the Reserve for Franchisee Notes Receivables, our audit procedures included, among others, evaluating the status of collection of scheduled payments for outstanding notes receivables, analyzing unit economics for franchisees to identify indicators of their financial health, evaluating the estimates of collateral value, and the underlying data used by management.

For example, to evaluate the estimates of collateral value, we compared management’s estimates to those of recently executed market transactions to understand potential market adjustments within the estimation process.

Measurement and valuation of insurance reserves

Description of the Matter

As described in Note 2 to the consolidated financial statements, as of December 27, 2020, the Company has $82.0 million accrued for self-insurance reserves (“Insurance Reserves”).

The Company is self-insured for certain obligations up to stated retention levels under its retention programs related to workers’ compensation, automobile, property and general liability programs and judgments and estimates are used by the Company in determining the potential value associated with reported claims and for events that have occurred but have not been reported.

Auditing the valuation of the Insurance Reserves was highly judgmental and complex due to the significant uncertainty in estimating the potential value of reported claims, estimating the number and potential value of incurred but not reported claims and the use of actuarial valuation methods.

The reserve estimate is sensitive to actuarial assumptions (e.g., future emergence of losses, incurred but not reported claims) used to estimate the ultimate liability for reported claims and to estimate the fair value of claims that have been incurred but have not been reported.

As described in Note 2 to the consolidated financial statements, the Company is self-insured for certain obligations up to stated retention levels under its retention programs related to workers’ compensation, automobile, property and general liability programs.

As of December 26, 2021, the Company has $88.1 million accrued for self-insurance reserves (“Insurance Reserves”).

Judgments and estimates are used by the Company in determining the potential value associated with incurred but not reported claims.

Auditing the valuation of the Insurance Reserves is highly judgmental and complex due to the significant uncertainty in estimating the potential value of reported claims, estimating the number and potential value of incurred but not reported claims and the use of actuarial valuation methods.

The reserve estimate is sensitive to actuarial assumptions (e.g., future emergence of losses, incurred but not reported claims) used to estimate the ultimate liability for reported claims and claims that have been incurred but have not been reported.

How We Addressed the Matter in Our Audit

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For example, we tested controls over management’s review of the assumptions and methods used to establish the estimate, the underlying data, significant actuarial assumptions and the related reconciliations.

To test the measurement and valuation of the Insurance Reserves, our audit procedures included, among others, performing transactional testing over the completeness and accuracy of claims data and vouching payments made to third parties.

To test the measurement and valuation of the Insurance Reserves, our audit procedures included, among others, performing transactional tests of details over the completeness and accuracy of claims data and vouching payments made to third parties.

Furthermore, we involved our actuarial specialists to assist in the evaluation of the key assumptions and methodologies used by management to determine the Insurance Reserves.

Measurement and valuation of allowance for credit losses for franchisee notes receivable

Description of the Matter

As described in Note 10 to the consolidated financial statements, the Company has an allowance for credit losses for franchisee notes receivable of $1.5 million (“Allowance for Credit Losses for Franchisee Notes Receivable”) against a gross balance of franchisee notes receivable of $49.4 million as of December 26, 2021.

The Allowance for Credit Losses for Franchisee Notes Receivable is estimated to reduce the outstanding notes receivable for expected credit losses after consideration of the fair value of the Company’s collateral rights (e.g., underlying franchisee business, property and equipment) and any guarantees as well as a review of each franchisee’s economic performance, historical loss information, current market conditions, and future economic conditions.

Auditing the Allowance for Credit Losses for Franchisee Notes Receivable is challenging due to the judgment inherent in estimating the fair value of the Company’s collateral rights, which has a significant effect on measurement and valuation.

How We Addressed the Matter in Our Audit

We tested controls related to the measurement and valuation of the Allowance for Credit Losses for Franchisee Notes Receivable.

For example, we tested controls over management’s review of the progression of outstanding notes receivable and the Allowance for Credit Losses for Franchisee Notes Receivable and the overall review of its adequacy.

Where judgment was exercised by management, our audit procedures included testing controls over management’s evaluation of the assumptions, including the fair value of the collateral rights and guarantees where collateral is available or personal guarantee given in connection with issuance of the applicable note.

Our control testing also considered management’s review over the completeness and accuracy of the underlying data used in evaluating the measurement and valuation of the Allowance for Credit Losses for Franchisee Notes Receivable.

To test the measurement and valuation of the Allowance for Credit Losses for Franchisee Notes Receivable, our audit procedures included, among others, evaluating the status of collection of scheduled payments for outstanding notes receivable, analyzing unit economics for franchisees to identify indicators of their financial health, evaluating the estimates of collateral value, and the underlying data used by management.

/s/ Ernst & Young LLP

We have served as the Company’s auditor consecutively since 2019.

We have served as the Company’s auditor since 2019.

Louisville, Kentucky

February 24, 2022

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors

Papa John’s International, Inc.

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated statements of operations, comprehensive income, stockholders’ deficit, and cash flows of Papa John’s International, Inc.

and subsidiaries (the Company) for the year ended December 30, 2018, and the related notes and financial statement schedule II (collectively, the consolidated financial statements).

In our opinion, the consolidated financial statements present fairly, in all material respects, the results of operations of the Company and its cash flows for the year ended December 30, 2018, in conformity with U.S.

generally accepted accounting principles.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audit provides a reasonable basis for our opinion.

We served as the Company’s auditor from 2018 to 2019.

Louisville, Kentucky

March 8, 2019

Papa John’s International, Inc.

and Subsidiaries

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Total costs and expenses

Refranchising gains (losses)

Refranchising gains

Operating income

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Net income attributable to the Company

Dividends paid to participating securities and accretion

Dividends on redemption of Series B Convertible Preferred Stock

Dividends paid to participating securities

Net income attributable to participating securities

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Net income before attribution to noncontrolling interests

Other comprehensive loss, before tax:

Other comprehensive income (loss), before tax:

Foreign currency translation adjustments

Interest rate swaps (1)

Other comprehensive loss, before tax

Other comprehensive income (loss), before tax

Income tax effect:

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Income tax effect

Other comprehensive loss, net of tax

Other comprehensive income (loss), net of tax

Comprehensive income (loss) before attribution to noncontrolling interests

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Comprehensive income (loss) attributable to the Company

(1) On June 15, 2018, the Company refranchised 34 Company-owned restaurants and a quality control center located in China.

In conjunction with the transaction, approximately $ 1,300 of accumulated other comprehensive income and $ 300 associated deferred tax related to foreign currency translation were reversed.

See “Note 11” of “Notes to Consolidated Financial Statements” for additional information.

(1) Amounts reclassified out of accumulated other comprehensive loss into interest expense included ($ 5,965 ) , ($ 5,068 ) and $ 660 for the years ended December 26, 2021, December 27, 2020 and December 29, 2019, respectively.

(2) The income tax effects of amounts reclassified out of accumulated other comprehensive loss were $ 1,342 , $ 1,140 and ($ 152 ) for the years ended December 26, 2021, December 27, 2020 and December 29, 2019, respectively.

(4) As of January 1, 2018, we adopted Accounting Standards Update (“ASU”) 2018-02, “Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income,” and reclassified stranded tax effects of approximately $ 455 to retained earnings in the first quarter of 2018.

See accompanying notes.

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$ 0.01 par value;

260.0 shares authorized, 252.5 shares issued and outstanding at December 27, 2020 and December 29, 2019

no shares authorized, issued or outstanding at December 26, 2021 , compared to 260.0 shares authorized, 252.5 shares issued and outstanding at December 27, 2020

Redeemable noncontrolling interests

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Balance at December 30, 2018

Cumulative effect of adoption of ASU 2014-09 (1)

Adjusted balance at January 1, 2018

Net income (1)

Other comprehensive loss, net of tax

Adoption of ASU 2018-02 (3)

Cash dividends on common stock

Cash dividends on preferred stock

Dividends declared on preferred stock

Exercise of stock options

Acquisition of Company common stock

Stock-based compensation expense

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Balance at December 29, 2019

Cumulative effect of adoption of ASU 2016-13 (2)

Adjusted balance at December 30, 2019

Net income (1)

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Cash dividends on preferred stock

Dividends declared on preferred stock

Exercise of stock options

Acquisition of Company common stock

Stock-based compensation expense

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Balance at December 27, 2020

Cumulative effect of adoption:

ASU 2016-13 (4)

Adjusted balance at December 30, 2019

Net income (1)

Other comprehensive loss, net of tax

Other comprehensive income, net of tax

Repurchase and conversion of Series B Convertible Preferred Stock

Cash dividends on common stock

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Balance at December 26, 2021

(1) As of January 1, 2018, the Company adopted ASU 2014-09, “Revenue from Contracts with Customers”.

(1) Net income to the Company at December 26, 2021, December 27, 2020 and December 29, 2019 excludes $ 2,609 , $ 824 and ($ 519 ) , respectively, allocable to the redeemable noncontrolling interests for our joint venture arrangements.

(3) As of January 1, 2018, the Company adopted ASU 2018-02, “Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income,” and reclassified stranded tax effects of approximately $ 455 to retained earnings in the first quarter of 2018.

(2) As of December 30, 2019, the Company adopted ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326):

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See “Note 10” of “Notes to Consolidated Financial Statements” for additional information.

At December 30, 2018, the accumulated other comprehensive loss of $ 3,143 was comprised of net unrealized foreign currency translation loss of $ 6,859 and a net unrealized gain on the interest rate swap agreements of $ 3,716 .

At December 26, 2021, the accumulated other comprehensive loss of $ 9,971 was comprised of net unrealized foreign currency translation loss of $ 4,869 and a net unrealized loss on the interest rate swap agreements of $ 5,102 .

At December 27, 2020, the accumulated other comprehensive loss of $ 14,168 was comprised of net unrealized foreign currency translation loss of $ 3,793 and a net unrealized loss on the interest rate swap agreements of $ 10,375 .

At December 29, 2019, the accumulated other comprehensive loss of $ 10,185 was comprised of net unrealized foreign currency translation loss of $ 5,598 and a net unrealized loss on the interest rate swap agreements of $ 4,587 .

See accompanying notes.

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Adjustments to reconcile net income to net cash provided by operating activities:

(Credit) provision for allowance for credit losses on accounts and notes receivable

(Benefit) provision for allowance for credit losses on accounts and notes receivable

Depreciation and amortization

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Stock-based compensation expense

(Gain) loss on refranchising

Changes in operating assets and liabilities:

(Gain) on refranchising

Changes in operating assets and liabilities, net of acquisitions:

Accounts receivable

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Repayments of notes issued

Acquisitions, net of cash acquired

Proceeds from divestitures of restaurants

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Financing activities

Proceeds from issuance of senior notes

Repayments of term loan

Net (repayments) proceeds of revolving credit facilities

Net proceeds (repayments) of revolving credit facilities

Debt issuance costs

Repurchase of Series B Convertible Preferred Stock

Proceeds from issuance of Series B Convertible Preferred Stock

Issuance costs associated with Series B Convertible Preferred Stock

Acquisition of Company common stock

Proceeds from exercise of stock options

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Tax payments for equity award issuances

Acquisition of Company common stock

Proceeds from issuance of preferred stock

Issuance costs associated with preferred stock

Contributions from noncontrolling interests

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We generated revenues from the operation of our Quality Control Centers (“QC Centers”) which supply pizza sauce, dough, food products, paper products, smallwares and cleaning supplies to restaurants.

We also derived revenue from contributions received by our North America Marketing funds.

We also derived revenue from contributions received by our national marketing funds.

Significant Accounting Policies

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The Co-op Funds are responsible for developing and conducting advertising activities in a specific market, including the placement of electronic and print materials developed by PJMF.

During 2020 and 2019, the Company contributed additional amounts of $ 15.0 million and $ 27.5 million, respectively, to PJMF, representing incremental discretionary marketing fund investments in excess of contractual Company-owned restaurant-level contributions as part of our temporary financial support package to our franchisees.

During 2020 and 2019, the Company recorded additional amounts of $ 15.0 million and $ 27.5 million, respectively, to PJMF, representing incremental discretionary marketing fund investments in excess of contractual Company-owned restaurant-level contributions as part of our temporary financial support package to our franchisees.

The marketing fund investments are included in General and administrative expenses within the accompanying Consolidated Statements of Operations.

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Lease costs also include variable rent, which is primarily related to the Company’s supply chain tractor and trailer leases that are based on a rate per mile.

The Company adopted ASU 2016-02 “ Leases (Topic 842) ” in the first quarter of 2019 and prior periods have not been restated and continue to be reported under the accounting standards in effect for those periods.

Stock-Based Compensation

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Account balances are charged off against the allowance after recovery efforts have ceased.

See Recent Accounting Pronouncements for information regarding the adoption and related accounting impact of ASU 2016-13, “Credit Losses”, which was effective December 30, 2019.

Notes Receivable

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Note balances are charged off against the allowance after recovery efforts have ceased.

Interest income recorded on franchisee loans was approximately $ 2.1 million in 2020, $ 800,000 in 2019 and $ 750,000 in 2018 and is reported in Investment income in the accompanying Consolidated Statements of Operations.

See Recent Accounting Pronouncements for information regarding the adoption and related accounting impact of ASU 2016-13, “Credit Losses”, which was effective December 30, 2019.

Interest income recorded on franchisee loans was approximately $ 1.9 million in 2021, $ 2.1 million in 2020 and $ 0.8 million in 2019 and is reported in Investment income in the accompanying Consolidated Statements of Operations.

Inventories, which consist of food products, paper goods and supplies, smallwares, and printing and promotional items, are stated at the lower of cost, determined under the first-in, first-out (FIFO) method, or net realizable value.

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We capitalize certain information systems development and related costs that meet established criteria.

Amounts capitalized, which are included in property and equipment, are amortized principally over periods not exceeding five years

upon completion of the related information systems project.

Amounts capitalized, which are included in property and equipment, are amortized principally over periods not exceeding five years upon completion of the related information systems project.

Total costs capitalized were approximately $ 4.1 million in 2021, $ 3.3 million in 2020 and $ 3.5 million in 2019.

The unamortized information systems development costs approximated $ 10.5 million and $ 11.5 million as of December 27, 2020 and December 29, 2019, respectively.

The unamortized information systems development costs approximated $ 10.5 million as of December 26, 2021 and December 27, 2020.

Intangible Assets — Goodwill

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We may perform a qualitative assessment or move directly to the quantitative assessment for any reporting unit in any period if we believe that it is more efficient or if impairment indicators exist.

We elected to perform a qualitative assessment for our domestic Company-owned restaurants, PJUK, China, and Preferred Marketing Solutions operations in the fourth quarter of 2020.

We elected to perform a qualitative assessment for all reporting units in the fourth quarter of 2021.

As a result of our qualitative analyses, we determined that it was more-likely-than-not that the fair values of our reporting units were greater than their carrying amounts.

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Insurance Reserves

Our insurance programs for workers’ compensation, owned and non-owned automobiles, general liability, property, and health insurance coverage provided to our employees are funded by the Company up to certain retention levels under our retention programs.

Retention limits generally range from $ 1,000 to $ 1.0 million.

Our insurance programs for workers’ compensation, owned and non-owned automobiles, general liability and property insurance coverage provided to our employees are funded by the Company up to certain retention limits which range up to $ 1.0 million.

Losses are accrued based upon undiscounted estimates of the liability for claims incurred and for events that have occurred but have not been reported using certain third-party actuarial projections and our claims loss experience.

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The Company records estimated losses above retention within its reserve with a corresponding receivable for expected amounts due from insurance carriers.

As of December 26, 2021, our insurance reserve was $ 88.1 million as compared to $ 82.0 million as of December 27, 2020 primarily related to auto liability and workers’ compensation claims.

Our reserves include claim costs above our retention that have a corresponding receivable.

Our insurance receivable for claims above retention totaled $ 48.1 million and $ 32.2 million as of December 26, 2021 and December 27, 2020, respectively.

Of these amounts, approximately $ 18.7 million and $ 12.7 million were recorded in Prepaid expenses and other current assets, and $ 29.4 million and $ 19.5 million were recorded in Other assets on the Consolidated Balance Sheets as of December 26, 2021 and December 27, 2020, respectively.

Derivative Financial Instruments

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If the derivative meets the hedge criteria as defined by certain accounting standards, depending on the nature of the hedge, changes in the fair value of the derivative are either offset against the change in fair value of assets, liabilities or firm commitments through earnings or recognized in accumulated other comprehensive income/(loss) until the hedged item is recognized in earnings.

In 2019, we reduced the notional value of our swaps by $ 50.0 million as a result of paying down a substantial portion of debt under our Revolving Facility using the proceeds received from the sale of our Series B Convertible Preferred Stock (the “Series B Preferred Stock”).

The termination of $ 50.0 million of notional swap value was not significant to our results of operations.

We recognized (loss) income of ($ 7.5 ) million (($ 5.8 ) million after tax) in 2020, ($ 10.8 ) million (($ 8.3 ) million after tax) in 2019, and $ 4.3 million ($ 3.2 million after tax) in 2018 in other comprehensive loss for the net change in the fair value of our interest rate swaps.

During 2021, our interest rate swaps were de-designated as cash flow hedges following the issuance of our 3.875 % fixed senior notes.

For these de-designated hedges, the portion of gains or losses on the derivative instruments previously recognized in accumulated other comprehensive loss will be reclassified into earnings as adjustments to interest expense on a straight-line basis over the remaining life of the originally hedged transactions.

We recognized income (loss) of $ 6.8 million ($ 5.3 million after tax) in 2021, ($ 7.5 ) million (($ 5.8 ) million after tax) in 2020, and ($ 10.8 ) million (($ 8.3 ) million after tax) in 2019 in other comprehensive income (loss) for the net change in the fair value of our interest rate swaps.

See Note 12 for additional information on our debt and credit arrangements.

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Carrying value

See Notes 10 and 11 for additional information regarding noncontrolling interests and divestitures.

See Note 9 for additional information regarding noncontrolling interests.

Foreign Currency Translation

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Recent Accounting Pronouncements

Financial Instruments – Credit Losses

The Company adopted ASU 2016-13, “ Financial Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments ,” (“ASU 2016-13”) as of December 30, 2019 (the first day of fiscal 2020) under the modified retrospective transition method.

Topic 326 requires measurement and recognition of expected versus incurred losses for financial assets held.

Financial instruments subject to ASU 2016-13 include trade accounts receivable, notes receivable

and interest receivable (classified as Other assets in the Consolidated Balance Sheets) from franchisees.

The impact of the adoption was not material to our consolidated financial statements.

Estimates of expected credit losses, even if remote, are based upon historical account write-off trends, facts about the current financial condition of the debtor, forecasts of future operating results based upon current trends of select operating metrics, and macroeconomic factors.

Credit quality is monitored through the timing of payments compared to the prescribed payment terms and known facts regarding the financial condition of the franchisee or customer.

Accounts and notes receivable balances are charged off against the allowance for credit losses after recovery efforts have ceased.

The following table summarizes changes in our allowances for credit losses for accounts receivable, notes receivable and interest receivable:

(in thousands)

Accounts Receivable

Notes Receivable

Interest Receivable

Balance at December 29, 2019

Cumulative effect of adoption of ASU 2016-13

Balance at December 30, 2019

Current period (credit) provision for expected credit losses

Write-offs charged against the allowance

Recoveries collected

Balance at December 27, 2020

Reference Rate Reform – Hedging

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The adoption of this guidance did not have a material impact on the Company’s consolidated financial position, results of operations, or cash flows.

Accounting Standards to be Adopted in Future Periods

Convertible Instruments

In August 2020, the FASB issued ASU 2020-06, “ Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging Contracts in Entity’s Own Equity (Subtopic 815-40):

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity .” This ASU amends FASB’s guidance on convertible instruments and the derivatives scope exception for contracts in an entity’s own equity and improves and amends the related earnings per share (“EPS”) guidance for both Subtopics.

The ASU will be effective for annual reporting periods after December 15, 2021 and interim periods therein, with early adoption permitted.

The Company is currently evaluating the impact this guidance may have on its consolidated financial statements and related disclosures.

Reclassifications

Certain prior year amounts in the Consolidated Balance Sheet and Consolidated Statement of Cash Flows have been reclassified to conform to the current year presentation.

The Company has significant leases that include most domestic Company-owned restaurant and commissary locations.

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Leases with an initial term of 12 months or less but greater than one month are not recorded on the balance sheet for select asset classes.

The lease liability is measured at the present value of future lease payments as of the lease commencement date, or the opening balance sheet date for leases existing at adoption of Topic 842 (the first day of fiscal 2019).

The lease liability is measured at the present value of future lease payments as of the lease commencement date.

The right-of-use asset recognized is based on the lease liability adjusted for prepaid and deferred rent and unamortized lease incentives.

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The Company uses its incremental borrowing rates as the discount rate for its leases, which is equal to the rate of interest the Company would have to pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms.

We have elected to use the portfolio approach in determining our incremental borrowing rate.

The incremental borrowing rate for all existing leases as of the date of adoption of Topic 842 was based upon the remaining terms of the leases;

the incremental borrowing rate for all new or amended leases is based upon the lease terms.

The lease terms for all the Company’s leases include the contractually obligated period of the leases, plus any additional periods covered by Company options to extend the leases that the Company is reasonably certain to exercise.

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Less imputed interest

Total present value of lease liabilities (a)

(a) Excludes expected minimum lease payments of approximately $ 33.0 million associated with our new office in Atlanta, Georgia which is expected to commence in fiscal 2021 .

Total present value of lease liabilities

Lessor Operating Leases

We sublease certain retail space to our franchisees in the United Kingdom which are primarily operating leases.

At December 27, 2020, we leased and subleased 385 Papa John’s restaurants to franchisees in the United Kingdom.

At December 26, 2021, we leased and subleased approximately 425 Papa John’s restaurants to franchisees in the United Kingdom.

The initial lease terms on the franchised sites in the United Kingdom are generally 15 years .

The Company has the option to negotiate an extension toward the end of the lease term at the landlord’s discretion.

Rental income, primarily derived from properties leased and subleased to franchisees in the United Kingdom, is recognized on a straight-line basis over the respective operating lease terms, in accordance with Topic 842, similar to previous guidance.

Rental income, primarily derived from properties leased and subleased to franchisees in the United Kingdom, is recognized on a straight-line basis over the respective operating lease terms.

Lease Guarantees

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December 27, 2020

December 29, 2019

Cash paid for amounts included in the measurement of lease liabilities:

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Right-of-use assets obtained in exchange for new finance lease liabilities

Right-of-use assets obtained in exchange for new operating lease liabilities

Right-of-use assets obtained in exchange for new operating lease liabilities (b)

Cash received from sublease income

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(a) Included within the change in Other assets and liabilities within the Consolidated Statements of Cash Flows offset by non-cash operating lease right-of-use asset amortization and lease liability accretion.

(b) Includes right-of-use assets of approximately $ 21.8 million for the year ended December 26, 2021 associated with the lease commencement of our Atlanta, Georgia corporate office.

Papa John’s Marketing Fund, Inc.

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PJMF also has a wholly-owned subsidiary, Papa Card, Inc., which administers the Company’s gift card programs.

Assets and liabilities of PJMF, which are restricted in their use, included in the Consolidated Balance Sheets were as follows (in thousands):

Assets and liabilities of PJMF, which are utilized solely for the Company’s advertising and promotional programs, were as follows in the Consolidated Balance Sheets (in thousands):

Current assets:

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Total current assets

Deferred income taxes, net

Deferred income taxes

Current liabilities:

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During the years ended December 26, 2021 and December 27, 2020, the Company recognized $ 36.3 million and $ 33.2 million in revenue, respectively, related to deferred revenue.

The contract liability balances are included in the following (in thousands):

The following table includes a breakout of contract liability balances (in thousands):

Contract Liabilities

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December 27, 2020

Franchise fees and unredeemed gift cards

Customer loyalty program

Franchise fees and unredeemed gift card liabilities

Customer loyalty program obligations

Total contract liabilities

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Equipment incentives are related to the future value of commissary revenue the Company will receive over the term of the incentive agreement.

As of December 27, 2020 and December 29, 2019, the contract assets were approximately $ 5.1 million and $ 6.0 million, respectively.

For the years ended December 27, 2020 and December 29, 2019, respectively, revenue was reduced approximately $ 3.2 million and $ 3.5 million for the amortization of contract assets over the applicable contract terms.

December 26, 2021 and December 27, 2020, the contract assets were approximately $ 5.8 million and $ 5.1 million, respectively.

For the years ended December 26, 2021 and December 27, 2020, revenue was reduced approximately $ 3.0 million and $ 3.2 million, respectively, for the amortization of contract assets over the applicable contract terms.

Contract assets are included in Prepaid expenses and other current assets and Other assets on the Consolidated Balance Sheets.

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Shares Authorized and Outstanding

The Company has authorized 5.0 million shares of preferred stock, 100.0 million shares of common stock, and 260,000 shares of Series B Preferred Stock.

The Company has authorized 5.0 million shares of preferred stock (of which no ne were issued or outstanding at December 26, 2021 or December 27, 2020, respectively) and 100.0 million shares of common stock as of December 26, 2021 and December 27, 2020, respectively.

The Company’s outstanding shares of common stock, net of repurchased common stock, were 35.8 million shares at December 26, 2021 and 32.5 million shares at December 27, 2020.

There were 252,530 shares of Series B Preferred Stock outstanding at December 27, 2020 and December 29, 2019.

On May 11, 2021, the Company entered into a Share Repurchase Agreement with certain funds affiliated with, or managed by, Starboard Value LP (collectively, “Starboard”), pursuant to which (i) the Company repurchased from Starboard 78,387 shares of the Series B Convertible Preferred Stock, par value $ 0.01 per share, of the Company (“Series B Preferred Stock”) and (ii) Starboard converted the remaining 171,613 shares of Series B Preferred Stock that it owned into 3,458,360 shares of the Company’s common stock pursuant to the terms of the Certificate of Designation of the Series B Preferred Stock.

On June 3, 2021, the Company entered into agreements with certain franchisee investors to repurchase 1,000 shares of the outstanding Series B Preferred Stock and convert the remaining 1,530 shares of Series B Preferred Stock into 30,769 shares of common stock.

The Company paid Starboard and the franchisee investors aggregate one-time cash payments of $ 188.6 million for the repurchase and conversion of all of the outstanding shares of Series B Preferred Stock.

The excess of the cash payment over the carrying value of the respective Series B Preferred Stock redeemed resulted in $ 109.9 million of dividends on redemption of Series B Preferred Stock in the Consolidated Statement of Operations, which reduced net income attributable to common stockholders and also reduced diluted earnings per share by $ 3.10 for the year ended December 26, 2021.

On August 3, 2021, the Company filed a Certificate of Elimination (the “Certificate of Elimination”) with the Secretary of State of the State of Delaware to eliminate the Series B Preferred Stock.

Effective upon filing, the Certificate of Elimination eliminated from the Company’s Amended and Restated Certificate of Incorporation all matters set forth in the Certificate of Designation with respect to the Series B Preferred Stock.

The shares that were designated to such series were returned to the status of authorized but unissued shares of preferred stock, par value $ 0.01 per share, of the Company, without designation as to series.

As a result of the repurchase and conversion, there were no shares of Series B Preferred Stock authorized or outstanding at December 26, 2021 compared to 260,000 and 252,530 shares of Series B Preferred

Stock authorized and outstanding, respectively, at December 27, 2020.

The Series B Preferred Stock was classified as temporary equity on the Consolidated Balance Sheet as of December 27, 2020.

The following table summarizes changes to our Series B Preferred Stock (in thousands):

Balance at December 29, 2019

Tax deduction on issuance costs

Balance at December 27, 2020

Balance at December 26, 2021

Share Repurchase Program

Our Board of Directors has authorized the repurchase of up to $ 75.0 million of common stock under a share repurchase program that began on November 4, 2020 and is effective through December 31, 2021.

In fiscal 2020, a total of 32,000 shares with an aggregate cost of $ 2.7 million and an average price of $ 83.90 per share were repurchased under this program.

Funding for the share repurchase program has been provided through our operating cash flows.

The Company repurchased 2.7 million shares for $ 158.0 million in 2018, which were funded through a credit facility, operating cash flow, stock option exercises, and cash and cash equivalents.

There were no share repurchases during fiscal 2019.

On October 28, 2021, our Board of Directors approved a share repurchase program with an indefinite duration for up to $ 425.0 million of the Company’s common stock.

This share repurchase program operated alongside our previous $ 75.0 million share repurchase authorization, which began on November 4, 2020 and expired on December 26, 2021.

The following table summarizes our repurchase activity for the years ended December 26, 2021 and December 27, 2020, respectively (none in 2019):

Maximum Dollar

Value of Shares

that May Yet Be

(in thousands, except average price per share)

Purchased Under the

Plans or Programs

December 26, 2021

December 27, 2020

Subsequent to year-end, we acquired an additional 109,000 shares at an aggregate cost of $ 13.3 million.

Approximately $ 411.5 million remained available under the Company’s share repurchase program as of February 17, 2022.

The timing and volume of share repurchases may be executed at the discretion of management on an opportunistic basis, subject to market and business conditions, regulatory requirements and other factors, or pursuant to trading plans or other arrangements.

Repurchases under the new program may be made through open market, block, and privately negotiated transactions, including Rule 10b5-1 plans, at times and in such amounts as management deems appropriate.

under the Company’s share repurchase program may be commenced or suspended from time to time at the Company’s discretion without prior notice.

Funding for the share repurchase program will be provided through our credit facility, operating cash flow, stock option exercises and cash and cash equivalents.

The timing and volume of share repurchases under the Company’s share repurchase programs may be executed at the discretion of management on an opportunistic basis, subject to market and business conditions, regulatory requirements and other factors, or pursuant to trading plans or other arrangements.

Repurchases under the programs may be made through open market, block, and privately negotiated transactions, including Rule 10b5-1 plans, at times and in such amounts as management deems appropriate.

Repurchases under the Company’s share repurchase programs may be commenced or suspended from time to time at the Company’s discretion without prior notice.

Funding for the share repurchase programs will be provided through our credit facility, operating cash flow, stock option exercises and cash and cash equivalents.

The Company recorded dividends of approximately $ 46.0 million for the year ended December 26, 2021 consisting of the following:

● $ 40.4 million paid to common stockholders ( $ 1.15 per share);

● $ 4.6 million in common stock “pass-through” dividends paid to Series B Preferred Stockholders on an as-converted basis ( $ 0.90 per share);

● $ 3.0 million in preferred dividends on the Series B Preferred Stock ( 3.6 % of the investment per annum);

The Company paid common stock dividends of $ 28.6 million and $ 29.0 million in 2019 and 2018, respectively.

Additionally, the Company paid common stock “pass-through” dividends to Series B Preferred Stockholders of $ 4.3 million and $ 5.7 million in preferred dividends on the Series B Preferred Stock in 2019.

There were no dividends to holders of Series B Preferred stock in 2018.

On January 25, 2021 , our Board of Directors declared a first quarter dividend of $ 0.225 per share of common stock (approximately $ 7.4 million was paid to common stockholders and $ 1.1 million was paid as “pass through” dividends to holders of Series B Preferred Stock on an as-converted basis).

The first quarter dividend on outstanding shares of Series B Preferred Stock was also declared on January 25, 2021 .

The common stock dividend was paid on February 19, 2021 to stockholders of record as of the close of business on February 8, 2021 .

The first quarter preferred dividend of $ 2.3 million will be paid to holders of Series B Preferred Stock on April 1, 2021 .

Series B Convertible Preferred Stock

On February 3, 2019, the Company entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with certain funds affiliated with, or managed by, Starboard Value LP (together with its affiliates, “Starboard”) pursuant to which Starboard made a $ 200.0 million strategic investment in the Company’s newly designated Series B Preferred Stock, at a purchase price of $ 1,000 per share.

In addition, on March 28, 2019, Starboard made an additional $ 50.0 million investment in the Series B Preferred Stock pursuant to an option that was included in the Securities Purchase Agreement.

The cash proceeds from the issuance of the Series B Preferred Stock to Starboard was bifurcated between the option and preferred stock at the time of issuance based on a relative fair value allocation approach.

The Company also issued $ 2.5 million of Series B Preferred Stock on the same terms as Starboard to certain franchisees that represented to the Company that they qualify as an “accredited investor” as defined in Rule 501 of Regulation D promulgated under the Securities Act.

The initial dividend rate on the Series B Preferred Stock is 3.6 % per annum of the stated value of $ 1,000 per share (the “Stated Value”), payable quarterly in arrears.

On the third anniversary of the date of issuance, each holder of Series B Preferred Stock will have the right to increase the dividend on the shares of Series B Preferred Stock to 5.6 %, and on the fifth anniversary of the date of issuance, each holder will have the right to increase the dividend on the shares of Series B Preferred Stock to 7.6 %, subject in each case to the Company’s right to redeem some or all of such shares of Series B Preferred Stock for cash.

The Series B Preferred Stock also participates on an as-converted basis in any regular or special dividends paid to common stockholders.

If at any time, the Company reduces the regular dividend paid to common stockholders, the Series B Preferred Stock dividend will remain the same as if the common stock dividend had not been reduced.

The Series B Preferred Stock is convertible at the option of the holders at any time into shares of common stock based on the conversion rate determined by dividing the Stated Value by $ 50.06 .

The Series B Preferred Stock is redeemable for cash at the option of either party from and after the eight-year anniversary of issuance, subject to certain conditions.

Holders of the Series B Preferred Stock also have the right, subject to certain exceptions, to require us to repurchase all or any portion of the Series B Preferred Stock upon certain change of control events.

Holders of the Series B Preferred Stock have the right to vote with common stockholders on an as-converted basis on all matters, without regard to limitations on conversion other than the Exchange Cap, which is equal to the issuance of greater than 19.99 % of the number of shares of common stock outstanding, and subject to certain limitations in the Certificate of Designation for the Series B Preferred Stock.

Upon consummation of a change of control of the Company, the holders of Series B Preferred Stock have the right to require the Company to repurchase the Series B Preferred Stock at an amount equal to the sum of (i) the greater of (A) the Stated Value of the Series B Preferred Stock being redeemed plus accrued and unpaid dividends and interest, and (B) the Change of Control As-Converted Value with respect to the Series B Preferred Shares being redeemed and (ii) the Make-Whole Amount (as each of these terms is defined in the Certificate of Designation).

Since the holders have the option to redeem their shares of Series B Preferred Stock from and after the eight-year anniversary of issuance, which may or may not be exercised, the stock is considered contingently redeemable and, accordingly, is classified as temporary equity of $ 251.9 million on the Consolidated Balance Sheet as of December 27, 2020.

This amount is reported net of $ 7.5 million of related issuance costs.

In accordance with applicable accounting guidance, the Company also recorded a one-time mark-to-market temporary equity adjustment of $ 5.9 million in 2019 for the increase in fair value for both the $ 50.0 million option exercised by Starboard and the shares purchased by franchisees for the period of time the option was outstanding.

The mark-to-market temporary equity adjustment was recorded in General and administrative expenses for $ 5.6 million (Starboard) and as a reduction to North America franchise royalties and fees of $ 0.3 million (Franchisees) within the Consolidated Statement of Operations in 2019 with no associated tax benefit.

Over the initial eight-year term, the $ 251.9 million investment will be accreted to the related redemption value of approximately $ 252.5 million as an adjustment to Retained Earnings.

The following summarizes changes to our Series B Preferred Stock (in thousands):

Balance at December 30, 2018

Issuance of preferred stock

One-time mark-to-market adjustment

Issuance costs

Balance at December 29, 2019

Tax deduction on issuance costs

Balance at December 27, 2020

● $ 1.5 million of common stock deemed dividend distributions in conjunction with the repurchase and conversion of the Series B Preferred Stock;

● $ 1.1 million in common stock “pass-through” dividends paid to Series B Preferred Stockholders on an as-converted basis ( $ 0.45 per share).

The Company paid aggregate common stock dividends of $ 29.4 million and $ 28.6 million in 2020 and 2019, respectively.

Additionally, the Company paid common stock “pass-through” dividends on an as-converted basis to Series B Preferred Stockholders of $ 4.6 million and $ 4.3 million, and preferred dividends on the Series B Preferred Stock of $ 9.1 million and $ 5.7 million, in 2020 and 2019, respectively.

On January 27, 2022 , our Board of Directors declared a first quarter dividend of $ 0.35 per share of common stock, representing an approximate $ 12.7 million aggregate dividend that was paid on February 18, 2022 to common stockholders of record as of the close of business on February 7, 2022 .

The declaration and payment of any future dividends will be at the discretion of our Board of Directors.

Earnings (Loss) per Share

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The two-class method requires an earnings allocation formula that determines earnings (loss) per share for common shareholders and participating security holders according to dividends declared and participating rights in undistributed earnings.

The Series B Preferred Stock and time-based restricted stock awards are participating securities because holders of such shares have non-forfeitable dividend rights and participate in undistributed earnings with common stock.

The shares of Series B Preferred Stock, which were repurchased by the Company or converted into shares of common stock during the second quarter of 2021, and time-based restricted stock awards are participating securities because holders of such shares have non-forfeitable dividend rights and participate in undistributed earnings with common stock.

Under the two-class method, total dividends provided to the holders of participating securities and undistributed earnings allocated to participating securities, are subtracted from net income attributable to the Company in determining net income (loss) attributable to common shareholders.

Additionally, any accretion to the redemption value for the Series B Preferred Stock is treated as a deemed dividend in the two-class EPS calculation.

Additionally, any accretion to the redemption value for the Series B Preferred Stock or cash payments in excess of their respective carrying values upon redemption was treated as a deemed dividend in the two-class earnings per share calculation.

Basic earnings (loss) per common share are computed by dividing net income (loss) attributable to common shareholders by the weighted-average common shares outstanding.

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Net income attributable to the Company

Dividends paid to participating securities and accretion

Dividends on redemption of Series B Convertible Preferred Stock

Dividends paid to participating securities

Net income attributable to participating securities

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(a) Shares subject to options to purchase common stock with an exercise price greater than the average market price for the year were not included in the computation of diluted earnings per common share because the effect would have been antidilutive.

The weighted average number of shares subject to antidilutive options was 100 in 2020 and 1,200 in 2018, respectively ( no ne in 2019).

(b) The Company had 252.5 shares of Series B Preferred Stock outstanding as of December 27, 2020 and December 29, 2019, respectively.

The weighted average number of shares subject to antidilutive options was 100 in 2020 ( no ne in 2021 or 2019, respectively).

(b) The Company had 252.5 shares of Series B Preferred Stock outstanding as of December 27, 2020 and December 29, 2019, respectively ( no ne as of December 26, 2021).

For the fully diluted calculation, the Series B Preferred stock dividends were added back to net income (loss) attributable to common shareholders.

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Fair Value Measurements and Disclosures

The Company is required to determine the fair value of financial assets and liabilities based on the price that would be received to sell the asset or paid to transfer the liability to a market participant.

Fair value is a market-based measurement, not an entity specific measurement.

The fair value of certain assets and liabilities approximates carrying value because of the short-term nature of the accounts, including cash and cash equivalents and, accounts receivable, net of credit losses, and accounts payable.

The carrying value of our notes receivable, net of credit losses, also approximates fair value.

The fair value of the amount outstanding under our term debt and revolving credit facility approximate their carrying values due to the variable market-based interest rate (Level 2).

Certain assets and liabilities are measured at fair value on a recurring basis and are required to be classified and disclosed in one of the following categories:

The Company determines the fair value of financial assets and liabilities based on the price that would be received to sell the asset or paid to transfer the liability to a market participant.

Certain assets and liabilities are measured at fair value on a recurring basis and are required to be classified and disclosed in one of the following three categories:

Quoted market prices in active markets for identical assets or liabilities.

1 unchanged sentence

Unobservable inputs that are not corroborated by market data.

Our financial assets and liabilities that were measured at fair value on a recurring basis as of December 27, 2020 and December 29, 2019 are as follows (in thousands):

Fair value is a market-based measurement, not an entity specific measurement.

Considerable judgment is required to interpret market data to estimate fair value;

accordingly, the fair values presented do not necessarily indicate what the Company or its debtholders could realize in a current market exchange.

Our financial assets and liabilities that were measured at fair value on a recurring basis as of December 26, 2021 and December 27, 2020 are as follows:

Fair Value Measurements

(in thousands)

December 26, 2021

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There were no transfers among levels within the fair value hierarchy during fiscal 2021 or 2020.

The fair value of certain assets and liabilities approximates carrying value because of the short-term nature of the accounts, including cash and cash equivalents, accounts receivable, net of allowances, and accounts payable.

The carrying value of notes receivable, net of allowances, also approximates fair value.

The Company’s revolving credit facilities and term debt under the Company’s credit agreement approximate carrying value due to their variable market-based interest rate.

The Company’s 3.875 % senior notes are classified as a Level 2 fair value measurement since the Company estimates the fair value by using recent trading transactions, and have the following estimated fair values and carrying values (excluding the impact of unamortized debt issuance costs) as of December 26, 2021 (none in 2020):

December 26, 2021

(in thousands)

3.875 % Senior Notes

Noncontrolling Interests

Papa John’s has four joint venture arrangements in which there are noncontrolling interests held by third parties.

These joint venture arrangements include 188 restaurants and 192 restaurants at December 27, 2020 and December 29, 2019 respectively.

These joint venture arrangements include 188 restaurants at December 26, 2021 and December 27, 2020 respectively.

Net income attributable to these joint ventures for the years ended December 26, 2021, December 27, 2020 and December 29, 2019 were as follows (in thousands):

6 unchanged sentences

Balance at December 29, 2019

Contributions

Distributions

Balance at December 27, 2020

1 unchanged sentence

Balance at December 26, 2021

In the fourth quarter of 2019, the Company completed the refranchising of 23 Company-owned restaurants in South Florida for $ 7.5 million in cash proceeds.

The sale resulted in a pre-tax gain of $ 2.9 million shown in Refranchising gains (losses), net on the Consolidated Statement of Operations.

In connection with the divestiture, we wrote off an allocation of the goodwill related to the domestic Company-owned restaurants reporting unit of $ 2.4 million, which represents the pro rata fair value of the refranchised restaurants in comparison to the total fair value of the Company-owned restaurants reporting unit.

In the third quarter of 2019, the Company refranchised 19 Company-owned restaurants in Macon, Georgia for $ 5.6 million in cash proceeds.

The sale resulted in a pre-tax gain of $ 1.7 million shown in Refranchising gains (losses), net on the Consolidated Statement of Operations.

In connection with the divestiture, we wrote off an allocation of the goodwill related to the domestic Company-owned restaurants reporting unit of $ 2.0 million, which represents the pro rata fair value of the refranchised restaurants in comparison to the total fair value of the Company-owned restaurants reporting unit.

In the third quarter of 2018, the Company completed the refranchising of 31 stores owned through a joint venture in the Minneapolis, Minnesota market.

The Company held a 70 % ownership share in the restaurants being refranchised.

Total consideration for the asset sale of the restaurants was $ 3.75 million.

In connection with the divestiture, we wrote off an allocation of the goodwill related to the domestic Company-owned restaurants reporting unit by approximately $ 600,000 , which represents the pro rata fair value of the refranchised restaurants in comparison to the total fair value of the Company-owned restaurants’ reporting unit.

We recorded a pre-tax refranchising gain of approximately $ 930,000 associated with the sale of the restaurants.

In the second quarter of 2018, the Company refranchised 34 Company-owned restaurants and a quality control center located in Beijing and Tianjin, China.

The Company recorded an impairment of $ 1.7 million in 2017 associated with the China operations.

We recorded a pre-tax loss of approximately $ 1.9 million associated with the sale of the restaurants and reversed $ 1.3 million of accumulated other comprehensive income related to foreign currency translation as part of the disposal.

The $ 1.9 million pre-tax loss in 2018 and impairment recorded in 2017 are recorded in refranchising and impairment gains (losses), net on the Consolidated Statements of Operations.

In addition, we also had $ 2.4 million of additional tax expense associated with the China refranchise in the second quarter of 2018.

This additional tax expense is primarily attributable to the required recapture of operating losses previously taken by the Company.

In the first quarter of 2018, the Company refranchised 31 restaurants owned through a joint venture in the Denver, Colorado market.

The Company held a 60 % ownership share in the restaurants being refranchised.

The noncontrolling interest portion of the joint venture arrangement was previously recorded at redemption value within the Consolidated Balance Sheet.

Total consideration for the asset sale of the restaurants was $ 4.8 million, consisting of cash proceeds of $ 3.7 million, including cash paid for various working capital items, and notes financed by Papa John’s for $ 1.1 million.

In connection with the divestiture, we wrote off an allocation of the goodwill related to the domestic Company-owned restaurants reporting unit of $ 700,000 , which represents the pro rata fair value of the refranchised restaurants in comparison to the total fair value of the Company-owned restaurants’ reporting unit.

We recorded a pre-tax refranchising gain of approximately $ 690,000 .

Allowance for Credit Losses

The Company adopted ASU 2016-13, “ Financial Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments ,” (“ASU 2016-13”) as of December 30, 2019 (the first day of fiscal 2020) under the modified retrospective transition method.

Topic 326 requires measurement and recognition of expected versus incurred losses for financial assets held.

Financial instruments subject to Topic 326 include trade accounts receivable, notes receivable and interest receivable (classified as Other assets in the Consolidated Balance Sheets) from franchisees.

The impact of the adoption was not material to our consolidated financial statements.

Credit quality is monitored through the timing of payments compared to the prescribed payment terms and known facts regarding the financial condition of the franchisee or customer.

Account and note balances are charged off against the allowance after recovery efforts have ceased.

The following table summarizes changes in our allowances for credit losses for accounts receivable, notes receivable and interest receivable:

(in thousands)

Accounts Receivable

Notes Receivable

Interest Receivable

Balance at December 29, 2019

Cumulative effect of adoption of ASU 2016-13

Balance at December 30, 2019

Current period (benefit) provision for expected credit losses

Write-offs charged against the allowance

Recoveries collected

Balance at December 27, 2020

Current period (benefit) provision for expected credit losses

Write-offs charged against the allowance

Recoveries collected

Balance at December 26, 2021

The following summarizes changes in the Company’s goodwill, by reportable segment (in thousands):

2 unchanged sentences

Balance as of December 29, 2019

Divestitures (b)

Foreign currency adjustments

3 unchanged sentences

(a) The international goodwill balances for all years presented are net of accumulated impairment of $ 2.3 million associated with our PJUK reporting unit.

(b) Includes 46 restaurants located primarily in two domestic markets.

Long-term debt, net consists of the following (in thousands):

Revolving facilities

Term loan facility

Outstanding debt

2 unchanged sentences

Total long-term debt, net

The Company has a secured revolving credit facility with available borrowings of $ 400.0 million (the “Revolving Facility”), of which $ 10.0 million was outstanding as of December 27, 2020, and a secured term loan facility with an outstanding balance of $ 340.0 million (the “Term Loan Facility”) and together with the Revolving Facility, the “PJI Facilities”.

The PJI Facilities mature on August 30, 2022.

The loans under the PJI Facilities accrue interest at a per annum rate equal to, at the Company’s election, either LIBOR plus a margin ranging from 125 to 250 basis points or a base rate (generally determined by a prime rate, federal funds rate or LIBOR plus 1.00%) plus a margin ranging from 25 to 150 basis points.

On September 14, 2021, the Company issued $ 400.0 million of 3.875 % senior notes (the “Notes”) which will mature on September 15, 2029.

The Notes are guaranteed by each of the Company’s existing and future domestic restricted subsidiaries that are guarantors or borrowers under the Amended Credit Agreement (as defined below) or other certain indebtedness.

The Notes were offered and sold either to persons reasonably believed to be “qualified institutional buyers” pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), or to persons outside the United States under Regulation S of the Securities Act.

Interest on the Notes will be payable semi-annually in cash in arrears on March 15 and September 15 of each year, commencing on March 15, 2022, at a fixed interest rate of 3.875 % per annum.

In connection with the Notes, the Company recorded $ 7.1 million of debt issuance costs, which are being amortized into net interest expense over the term of the Notes.

The net proceeds from the Notes, together with borrowings under the Amended Credit Agreement (as defined below), were used to repay outstanding revolver and term loan borrowings under the Company’s Previous Credit Agreement (as defined below).

The Company may redeem the Notes, in whole or in part, at any time on or after September 15, 2024 at established redemption prices ranging from 97 to 194 basis points depending on when the Notes are redeemed.

At any time prior to September 15, 2024, the Company may also redeem up to 40 % of the Notes with net cash proceeds of certain equity offerings at a redemption price equal to 103.875 % of the principal amount of the Notes to be redeemed, plus accrued and unpaid interest, excluding the redemption date.

In addition, at any time prior to September 15, 2024, the Company may redeem the Notes, in whole or in part, at a redemption price equal to 100 % of the principal amount of the Notes to be redeemed, plus accrued and unpaid interest and an applicable “make-whole” premium.

The Notes also contain customary redemption provisions related to asset sales and certain change of control transactions.

The Indenture governing the Notes contains customary events of default, including, among other things, payment default, failure to comply with covenants or agreements contained in the Indenture or the Notes and certain provisions related to bankruptcy events.

The Indenture also contains customary negative covenants.

Amended Credit Agreement

Concurrently with the issuance of the Notes, the Company entered into an amended and restated credit agreement (the “Amended Credit Agreement”) replacing the previous credit agreement (“Previous Credit Agreement”).

The Amended Credit Agreement provides for a senior secured revolving credit facility in an aggregate available principal amount of $ 600.0 million (the “PJI Revolving Facility”), of which up to $ 40.0 million is available as swingline loans and up to $ 80.0 million is available as letters of credit.

The PJI Revolving Facility will mature on September 14, 2026.

In connection with the Amended Credit Agreement, the Company recorded $ 2.1 million of debt issuance costs, which are being amortized into net interest expense over the term of the Amended Credit Agreement.

The remaining availability under the PJI Revolving Facility was approximately $ 510.0 million as of December 26, 2021.

Up to $ 50.0 million of the PJI Revolving Facility may be advanced in certain agreed foreign currencies, including Euros, Pounds Sterling, Canadian Dollars, Japanese Yen, and Mexican Pesos.

Additionally, the Amended Credit Agreement includes an accordion feature allowing for a future increase of the PJI Revolving Facility and/or incremental term loans in an aggregate amount of up to $ 500.0 million, subject to certain conditions, including obtaining commitments from one or more new or existing lenders to provide such increased amounts and ongoing compliance with financial covenants.

Loans under the PJI Revolving Facility accrue interest at a per annum rate equal to, at the Company’s election, either a LIBOR rate plus a margin ranging from 1.25 % to 2.00 % or a base rate (generally determined according to the greater of a prime rate, federal funds rate plus 0.50 %, or a LIBOR rate plus 1.00 %) plus a margin ranging from 0.25 % to 1.00 %.

In each case, the actual margin is determined according to a ratio of the Company’s total indebtedness to earnings before interest, taxes, depreciation, and amortization (“EBITDA”) for the then most recently ended four quarter period (the “Leverage Ratio”).

The Credit Agreement governing the PJI Facilities (the “PJI Credit Agreement”) places certain customary restrictions upon the Company based on its financial covenants.

These include limiting the repurchase of common stock and not increasing the cash dividend above the lesser of $ 0.225 per share per quarter or $ 35.0 million per fiscal year if the Company’s leverage ratio is above 3.75 to 1.0.

Quarterly amortization payments are required to be made on the Term Loan Facility in the amount of $ 5.0 million.

Loans outstanding under the PJI Facilities may be prepaid at any time without premium or penalty, subject to customary breakage costs in the case of borrowings for which a LIBOR rate election is in effect.

Up to $ 35.0 million of the Revolving Facility may be advanced in certain agreed foreign currencies, including Euros, Pounds Sterling, Canadian Dollars, Japanese Yen, and Mexican Pesos.

The PJI Credit Agreement contains customary affirmative and negative covenants, including financial covenants requiring the maintenance of the Leverage Ratio and a specified fixed charge coverage ratio.

The PJI Credit Agreement allows for a permitted Leverage Ratio of 4.75 to 1.0, decreasing over time to 4.00 to 1.0 by 2022;

and a fixed charge coverage ratio of 2.25 to 1.0, which increases to 2.50 to 1.0 in 2021 and thereafter.

An unused commitment fee ranging from 18 to 30 basis points per annum, determined according to the Leverage Ratio, applies to the unutilized commitments under the PJI Revolving Facility.

Loans outstanding under the PJI Revolving Facility may be prepaid at any time without premium or penalty, subject to customary breakage costs in the case of borrowings for which a LIBOR rate election is in effect.

The Amended Credit Agreement also contain provisions specifying alternative interest rate calculations to be used at such time as LIBOR ceases to be available as a benchmark for establishing the interest rate on floating interest rate borrowings.

The Amended Credit Agreement contains customary affirmative and negative covenants that, among other things, require customary reporting obligations, and restrict, subject to certain exceptions, the incurrence of additional indebtedness and liens, the consummation of certain mergers, consolidations, sales of assets and similar transactions, the making of investments, equity distributions and other restricted payments, and transactions with affiliates.

In addition, the Company will be subject to the following financial covenants:

(1) a maximum Leverage Ratio of 5.25 to 1.00, subject to the Company’s election to increase the maximum Leverage Ratio by 0.50 to 1.00 in connection with material acquisitions if the Company satisfies certain requirements, and (2) a minimum interest coverage ratio defined as EBITDA plus consolidated rental expense to consolidated interest expense plus consolidated rental expense of 2.00 to 1.00.

We were in compliance with these financial covenants at December 26, 2021.

Under the PJI Credit Agreement, we have the option to increase the Revolving Facility or the Term Loan Facility in an aggregate amount of up to $ 300.0 million, subject to the Leverage Ratio of the Company not exceeding 4.00 to 1.00.

The Company and certain direct and indirect domestic subsidiaries are required to grant a security interest in substantially all of the capital stock and equity interests of their respective domestic and first tier material foreign subsidiaries to secure the obligations owed under the PJI Facilities.

Our outstanding debt of $ 350.0 million at December 27, 2020 under the PJI Facilities was composed of $ 340.0 million outstanding under the Term Loan Facility and $ 10.0 million outstanding under the Revolving Facility.

Including outstanding letters of credit, the Company’s remaining availability under the PJI Facilities at December 27, 2020 was approximately $ 344.2 million.

As of December 27, 2020, the Company had approximately $ 1.7 million in unamortized debt issuance costs, which are being amortized into interest expense over the term of the PJI Facilities.

We attempt to minimize interest rate risk exposure by fixing our rate through the utilization of interest rate swaps, which are derivative financial instruments.

Our swaps are entered into with financial institutions that participate in the PJI Credit Agreement.

By using a derivative instrument to hedge exposures to changes in interest rates, we expose ourselves to credit risk due to the possible failure of the counterparty to perform under the terms of the derivative contract.

We use interest rate swaps to hedge against the effects of potential interest rate increases on borrowings under our PJI Facilities.

Obligations under the Amended Credit Agreement are guaranteed by certain direct and indirect material domestic subsidiaries of the Company (the “Guarantors”) and are secured by a security interest in substantially all of the capital stock and equity interests of the Company’s and the Guarantors’ domestic and first tier material foreign subsidiaries.

The Amended Credit Agreement contains customary events of default including, among other things, payment defaults, breach of covenants, cross acceleration to material indebtedness, bankruptcy-related defaults, judgment defaults, and the occurrence of certain change of control events.

The occurrence of an event of default may result in the termination of the PJI Revolving Facility, acceleration of repayment obligations and the exercise of remedies by the Lenders with respect to the subsidiary guarantors.

PJMF Revolving Facility

PJMF has a $ 20.0 million revolving line of credit (the “PJMF Revolving Facility”) pursuant to a Revolving Loan Agreement, dated September 30, 2015 with U.S.

Bank National Association, as lender.

The PJMF Revolving Facility is secured by substantially all assets of PJMF.

The PJMF Revolving Facility matures on September 30, 2022.

The borrowings under the PJMF Revolving Facility accrue interest at a variable rate of the one-month LIBOR plus 1.75 %.

The applicable interest rates on the PJMF Revolving Facility were 2.7 % and 4.1 % in fiscal 2020 and 2019, respectively.

There was no debt outstanding under the PJMF Revolving Facility as of December 26, 2021 or December 27, 2020.

The PJMF operating results and the related debt outstanding do not impact the financial covenants under the Amended Credit Agreement.

Derivative Financial Instruments

As of December 26, 2021, we have the following interest rate swap agreements with a total notional value of $ 350.0 million:

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January 30, 2018 through August 30, 2022

The gain or loss on the swaps is recognized in Accumulated other comprehensive loss and reclassified into earnings as adjustments to interest expense in the same period or periods during which the swaps affect earnings.

Gains or losses on the swaps representing hedge components excluded from the assessment of effectiveness are recognized in current earnings.

Our interest rate swaps were de-designated as cash flow hedges during 2021 following the issuance of the Notes.

For these de-designated hedges, the portion of gains or losses on the derivative instruments previously recognized in accumulated other comprehensive loss (“AOCL”) will be reclassified into earnings as adjustments to interest expense on a straight-line basis over the remaining life of the originally hedged transactions.

The following table provides information on the location and amounts of our swaps in the accompanying Consolidated Financial Statements (in thousands):

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Other current and long-term liabilities

As of December 26, 2021, the portion of the aggregate $ 5.5 million interest rate swap liability that would be reclassified into interest expense during the next twelve months approximates $ 4.8 million.

The effect of derivative instruments on the accompanying Consolidated Financial Statements is as follows (in thousands):

Location of Gain

Amount of Gain

Location of (Loss)

Amount of (Loss)

Derivatives -

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Interest expense

The weighted average interest rates on our PJI Facilities, including the impact of the interest rate swap agreements, were 3.8 % , 4.1 % , and 3.9 % in fiscal 2020, 2019, and 2018, respectively.

Interest paid, including payments made or received under the swaps, was $ 15.8 million in 2020, $ 18.1 million in 2019, and $ 23.5 million in 2018.

As of December 27, 2020, the portion of the aggregate $ 13.5 million interest rate swap liability that would be reclassified into interest expense during the next twelve months approximates $ 7.2 million.

PJMF has a $ 20.0 million revolving line of credit (the “PJMF Revolving Facility”) pursuant to a Revolving Loan Agreement, dated September 30, 2015 (as amended, the “PJMF Loan Agreement”) with U.S.

Bank National Association, as lender.

The PJMF Revolving Facility is secured by substantially all assets of PJMF.

The PJMF Revolving Facility matures on September 30, 2021.

The borrowings under the PJMF Revolving Facility accrue interest at a variable rate of the one-month LIBOR plus 1.75 %.

The applicable interest rates on the PJMF Revolving Facility were 2.7 %, 4.1 %, and 3.4 % in fiscal 2020, 2019, and 2018, respectively.

There was no balance outstanding under the PJMF Revolving Facility as of December 27, 2020 and December 29, 2019.

The PJMF operating results and the related debt outstanding do not impact the financial covenants under the PJI Credit Agreement.

Interest paid, including payments made or received under the swaps, was $ 13.4 million, $ 15.8 million and $ 18.1 million in fiscal 2021, 2020 and 2019, respectively.

Property and Equipment, Net

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Insurance reserves, current

Interest rate swaps, current portion

Strategic corporate reorganization costs

Consulting and professional fees

Other Long-term Liabilities

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Employer payroll taxes (1)

(1) Represents deferred employer payroll taxes under the Coronavirus Aid, Relief, and Economic Security Act, of which approximately half of the deferral is due on December 31, 2021 and December 31, 2022.

(1) Represents deferred employer payroll taxes under the Coronavirus Aid, Relief, and Economic Security Act.

Approximately half of the deferral was paid in 2021, with the remaining $ 9.2 million recorded within Income and other taxes payable within the Consolidated Balance Sheet as of December 26, 2021.

Strategic Corporate Reorganization for Long-term Growth

On September 17, 2020, we announced plans to open an office in Atlanta, Georgia located in Three Ballpark Center at The Battery Atlanta.

The 60,000 square foot modern space will be designed to drive continued menu innovation and optimized integration across marketing, communications, customer experience, operations, human resources, diversity, equity and inclusion, communications, financial planning and analysis, investor relations and development functions.

Our information technology, finance, supply chain, and legal teams will continue to operate in our Louisville, Kentucky office, which remains critical to our success.

We also maintain an office outside of London, UK, where our international operations are managed.

The opening of the office in Atlanta and related organizational changes are projected to be completed by the summer of 2021.

All affected employees were either offered an opportunity to continue with the organization or were offered a severance package.

As a result, we expect to incur certain one-time corporate reorganization costs of approximately $ 15.0 to $ 20.0 million related to employee severance and transition, recruitment and relocation, and third party and other costs through 2021.

On September 17, 2020, we announced plans to open an office in Atlanta, Georgia located in Three Ballpark Center at The Battery Atlanta, which opened in October 2021.

The space is designed to drive continued menu innovation and optimize integration across marketing, communications, customer experience, operations, human resources, diversity, equity and inclusion, financial planning and analysis, investor relations and development functions.

Our information technology, finance, supply chain, and legal teams continue to operate in our Louisville, Kentucky office, which remains critical to our success.

We also maintain an office outside of London, United Kingdom, where our international operations are managed.

Employees whose positions were relocated to the new Atlanta office were either offered an opportunity to continue with the organization or were offered a severance package.

As a result, we incurred one-time corporate reorganization costs of approximately $ 19.1 million through December 26, 2021 which include $ 10.2 million of employee severance and other employee transition costs, $ 5.4 million of recruiting and professional fees, $ 3.4 million of relocation costs, and $ 1.0 million of other costs, offset by ($ 0.9 ) million of stock-based compensation forfeitures on unvested awards.

We record severance as a one-time termination benefit and recognize the expense ratably over the employees’ required future service period.

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All strategic corporate reorganization costs have been recorded in General and administrative expenses on the Consolidated Statement of Operations.

Strategic corporate reorganization costs recorded for the year ended December 27, 2020 consist of the following:

Strategic corporate reorganization costs recorded for the years ended December 26, 2021 and December 27, 2020, respectively, are as follows:

(in thousands)

Employee severance and other employee transition costs

Recruiting and professional fees

Relocation costs

Total strategic corporate reorganization costs

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Total strategic corporate reorganization costs, net of stock forfeitures

As of December 27, 2020, the estimate of unpaid strategic corporate reorganization costs are included in Accrued expenses and other current liabilities on the Consolidated Balance Sheet.

The following table summarizes the activity for the year ended December 27, 2020:

As of December 26, 2021 and December 27, 2020, the estimate of unpaid strategic corporate reorganization costs are included in Accrued expenses and other current liabilities on the Consolidated Balance Sheets.

The following tables summarizes the activity for the years ended December 26, 2021 and December 27, 2020, respectively:

(in thousands)

Employee severance and other employee transition costs

Recruiting and professional fees

Relocation costs

Total strategic corporate reorganization liability

We expect to recognize additional costs associated with the corporate reorganization in 2021 of approximately $ 9.0 to $ 14.0 million, including expenditures related to (i) employee severance and other employee transition costs of approximately $ 2.0 million to $ 3.0 million, (ii) relocation and recruiting costs of $ 6.0 million to $ 9.0 million, and (iii) third-party and other costs of $ 1.0 million to $ 2.0 million.

(in thousands)

Employee severance and other employee transition costs

Recruiting and professional fees

Relocation costs

Total strategic corporate reorganization liability

The following table presents the domestic and foreign components of income (loss) before income taxes for 2021, 2020 and 2019 (in thousands):

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Total income tax expense (benefit)

The reconciliation of income tax computed at the U.S.

federal statutory rate to income tax expense (benefit) for the years ended December 26, 2021, December 27, 2020 and December 29, 2019 is as follows in both dollars and as a percentage of income before income taxes ($ in thousands):

federal statutory rate

State and local income taxes

Foreign income taxes

Income of consolidated partnerships

attributable to noncontrolling interests

Non-qualified deferred compensation plan

Excess tax (benefits) on equity awards

Preferred stock option mark-to-market adjustment

Significant deferred tax assets (liabilities) follow (in thousands):

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Total deferred tax liabilities

Net deferred tax assets (liabilities)

Net deferred tax assets

The following table summarizes changes in the Company’s valuation allowance on deferred tax:

Balance as of December 29, 2019

Charged to costs and expenses

Balance as of December 27, 2020

Charged to costs and expenses

Balance as of December 26, 2021

The Company had approximately $ 8.8 million and $ 8.0 million of state deferred tax assets primarily related to state net operating loss carryforwards as of December 26, 2021 and December 27, 2020, respectively.

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The Company provided a full valuation allowance of $ 18.6 million and $ 14.4 million for these foreign tax credit carryforwards as we believe realization based on the more-likely-than-not criteria has not been met as of December 26, 2021 and December 27, 2020, respectively.

The reconciliation of income tax computed at the U.S.

federal statutory rate to income tax expense (benefit) for the years ended December 27, 2020, December 29, 2019 and December 30, 2018 is as follows in both dollars and as a percentage of income before income taxes ($ in thousands):

federal statutory rate

State and local income taxes

Foreign income taxes

Income of consolidated partnerships

attributable to noncontrolling interests

Non-qualified deferred compensation plan

(income) loss

Excess tax (benefits) expense on equity awards

Preferred stock option mark-to-market adjustment

Disposition of China

Cash for income taxes paid (received) were $ 32.6 million in 2021, $ 19.3 million in 2020 and ($ 6.2 ) million in 2019.

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Reductions for tax positions of prior years

Reductions for lapse of statute of limitations

Balance at December 26, 2021

The Company recognizes accrued interest and penalties related to unrecognized tax benefits as part of income tax expense.

The Company’s 2020 and 2019 income tax expense (benefit) includes interest benefit of ($ 18,000 ) and ($ 11,000 ), respectively.

The Company has accrued approximately $ 132,000 and $ 136,000 for the payment of interest and penalties as of December 26, 2021 and December 27, 2020, respectively.

Related Party Transactions

On March 21, 2019, Mr.

Shaquille O’Neal was appointed to our Board of Directors.

On June 11, 2019, the Company entered into an Endorsement Agreement (the “Endorsement Agreement”), effective March 15, 2019, with ABG-Shaq, LLC (“ABG-Shaq”), an entity affiliated with Mr.

On March 21, 2019, Shaquille O’Neal was appointed to our Board of Directors.

On June 11, 2019, PJMF entered into an Endorsement Agreement (the “Endorsement Agreement”), effective March 15, 2019, with ABG-Shaq, LLC (“ABG-Shaq”), an entity affiliated with Mr.

O’Neal, for the personal services of Mr.

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O’Neal also agreed to provide brand ambassador services related to appearances, social media and public relations matters, and to collaborate with us to develop one or more co-branded products using the Personality Rights.

O’Neal and the Company developed a co-branded extra-large pizza product using the Personality Rights under an amendment to the Endorsement Agreement signed July 27, 2020 (the “First Amendment”).

As consideration for the rights and services granted under the Endorsement Agreement, the Company agreed to pay to ABG-Shaq aggregate cash payments of $ 4.125 million over the three years of the Endorsement Agreement.

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The Endorsement Agreement also includes customary exclusivity, termination and indemnification clauses.

On May 27, 2019, Mr.

O’Neal and the Company entered into a joint venture for the operation of nine Atlanta-area Papa John’s restaurants that were previously Company-owned restaurants.

The Company owns approximately 70 % of the joint venture and Mr.

O’Neal owns approximately 30 % of the joint venture, which is consolidated into the Company’s financial statements.

O’Neal contributed approximately $ 840,000 representing his pro rata capital contribution.

On July 27, 2020, the Company and PJMF entered into Amendment No.

1 (the “Amendment”) to the Endorsement Agreement with ABG-Shaq.

Pursuant to the Amendment, the Company and PJMF developed a co-branded extra-large pizza product using the Personality Rights.

On July 29, 2021, the Company and PJFM entered into Amendment No.

2 (the “ Second Amendment”) to the Endorsement Agreement with ABG-Shaq.

Pursuant to the Second Amendment, the Company was granted the ability to use the Personality Rights for a limited time to promote, advertise, and sell our co-branded extra-large pizza developed under the First Amendment.

ABG-Shaq did not receive any additional royalty fees from the Company beyond the cash payment already contemplated under his Endorsement Agreement under the Amendment.

In addition, the Company donated one U.S.

In addition, the Company donated one

dollar for each unit of the pizza sold in the United States and one Canadian dollar for each unit sold in Canada to The Papa John’s Foundation for Building Community.

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The Company has no t recorded any liability related to this lawsuit as of December 26, 2021 as it does not believe a loss is probable or reasonably estimable.

Papa John’s International, Inc.

On August 30, 2018, a class action lawsuit was filed in the United States District Court, Southern District of New York on behalf of a class of investors who purchased or acquired stock in Papa John's through a period up to and including July 19, 2018.

The complaint alleged violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended.

The District Court appointed the Oklahoma Law Enforcement Retirement System to lead the case.

An amended complaint was filed on February 13, 2019, which the Company moved to dismiss.

On March 16, 2020, the Court granted the Company’s motion to dismiss, on the ground that the complaint failed to state any viable cause of action.

The Plaintiffs subsequently filed a second amended complaint on April 30, 2020, which the Company moved to dismiss.

The Company believes that it has valid and meritorious defenses to the second amended complaint and intends to vigorously defend against the case.

The Company has no t recorded any liability related to this lawsuit as of December 27, 2020 as it does not believe a loss is probable or reasonably estimable .

Subsequent to December 27, 2020, on February 3, 2021, the Company’s motion to dismiss the case was granted with prejudice.

In re Papa John’s Employee & Franchise Employee Antitrust Litigation is a putative class action filed in December 2018 in the United States District Court for the Western District of Kentucky.

The suit alleges that the “no-poaching” provision previously contained in the Company’s franchise agreement constituted an unlawful agreement or conspiracy in restraint of trade and commerce in violation of Section 1 of the Sherman Antitrust Act.

The case is currently in discovery and to date no class has been certified or conditionally certified.

The Company continues to deny any liability or wrongdoing in this matter and is vigorously defending this action.

The Company has not recorded any liability related to this lawsuit as of December 26, 2021 as it does not believe a loss is probable or reasonably estimable.

Equity Compensation

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There are approximately 4.3 million shares of common stock authorized for issuance and remaining available under the 2018 Omnibus Incentive Plan as of December 26, 2021, which includes 5.9 million shares transferred from the Papa John’s International 2011 Omnibus Incentive Plan.

Option awards are granted with an exercise price equal to the market price of the Company’s stock at the date of grant.

Options outstanding as of December 27, 2020 generally expire ten years from the date of grant and generally vest over a three-year period.

We recorded stock-based employee compensation expense of $ 16.9 million in 2021, $ 16.3 million in 2020 and $ 15.3 million in 2019.

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Exercisable at December 26, 2021

The following is a summary of the significant assumptions used in estimating the fair value of options granted in 2019 and 2018 (none in 2020):

The following is a summary of the significant assumptions used in estimating the fair value of options granted in 2019 (none granted in 2021 or 2020, respectively):

Assumptions (weighted average):

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Expected volatility was estimated using the Company’s historical share price volatility for a period similar to the expected life of the option.

Option awards are granted with an exercise price equal to the market price of the Company’s stock at the date of grant.

Options granted generally vest in equal installments over three years and expire ten years after grant.

The expected term for these options represents the period of time that options granted are expected to be outstanding and was calculated using historical experience.

The weighted average grant-date fair values of options granted during 2019 and 2018 was $ 11.69 and $ 15.27 , respectively.

The Company granted options to purchase 353,000 and 456,000 shares in 2019 and 2018, respectively.

There were no options granted in 2020.

The weighted average grant-date fair values of options granted during 2019 was $ 11.69 .

The Company granted options to purchase 353,000 shares in 2019.

There were no options granted in 2021 or 2020, respectively.

Restricted Stock

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Expected volatility was estimated using the Company’s historical share price volatility for a period similar to the expected life of the performance-based restricted stock unit.

The performance-based restricted stock units granted in 2020 vest over three years (cliff vest), expire ten years after grant, and are expensed over the performance period.

The performance-based restricted stock units granted vest over three years (cliff vest) and are expensed over the performance period.

The weighted average grant-date fair value of performance-based restricted stock units granted during 2021, 2020 and 2019 was $ 103.14 , $ 59.52 and $ 44.95 , respectively.

In 2018, the Company granted performance-based restricted stock awards under a three-year cliff vest, and the vesting of the awards is dependent upon the Company’s achievement of a compounded annual growth rate of earnings per share and the achievement of certain sales and unit growth metrics.

Upon vesting, the shares are issued from authorized shares.

The fair value of time-based restricted stock and performance-based restricted stock units is based on the market price of the Company’s shares on the grant date.

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We have four reportable segments:

domestic Company-owned restaurants, North America commissaries, North America franchising and international operations.

domestic Company-owned restaurants, North America franchising, North America commissaries, and international operations.

The domestic Company-owned restaurant segment consists of the operations of all domestic (“domestic” is defined as contiguous United States) Company-owned restaurants and derives its revenues principally from retail sales of pizza, Papadias, which are flatbread-style sandwiches, and side items, including breadsticks, cheesesticks, chicken poppers and wings, dessert items and canned or bottled beverages.

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International franchisees are defined as all franchise operations outside of the United States and Canada.

All other business units that do not meet the quantitative thresholds for determining reportable segments, which are not operating segments, we refer to as “all others,” which consists of operations that derive revenues from the sale, principally to Company-owned and franchised restaurants, of printing and promotional items, franchise contributions to marketing funds and information systems and related services used in restaurant operations, including our point-of-sale system, online and other technology-based ordering platforms.

Certain administrative and capital costs are allocated to segments based upon predetermined rates or actual estimated resource usage.

All other business units that do not meet the quantitative thresholds for determining reportable segments, which are not operating segments, we refer to as “all other,” which consists of operations that derive revenues from the sale, principally to Company-owned and franchised restaurants, of printing and promotional items, franchise contributions to marketing funds and information systems and related services used in restaurant operations, including our point-of-sale system, online and other technology-based ordering platforms.

Generally, we evaluate performance and allocate resources based on operating income and intercompany eliminations.

Certain administrative and capital costs are allocated to segments based upon predetermined rates or estimated resource usage.

We account for intercompany sales and transfers as if the sales or transfers were to third parties and eliminate the activity in consolidation.

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No single external customer accounted for 10% or more of our consolidated revenues.

During the fourth quarter of 2020, we updated our segment profit measure to operating income from income before income taxes.

This change in the segment profit measure eliminated interest expense, the majority of which impacted unallocated corporate expenses.

Prior period amounts have been recast to reflect this change.

Our segment information is as follows:

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Total operating income

(Note) During the fourth quarter of 2020, we updated our segment profit measure to operating income.

Amounts in 2019 and 2018 have been recast to reflect this change.

(1) Includes $ 4.7 million and $ 1.6 million of refranchising gains (losses) in 2019 and 2018, respectively.

See Note 11 for additional information.

(2) Includes a $ 1.9 million net loss associated with refranchising in 2018.

See Note 11 for additional information.

(3) Includes Special charges of $ 14.2 million and $ 25.3 million for the years ended December 29, 2019 and December 30, 2018, respectively.

(1) Includes $ 4.7 million of refranchising gains in 2019.

(In thousands)

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Total expenditures for property and equipment (1)

(1) Increase of $ 32.9 million in expenditures for property and equipment in 2021 primarily driven by investment in growth, including technology and development initiatives.

Disaggregation of Revenue

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International other revenues (1)

International eliminations (1)

Total revenues

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The related expenses for these Other revenues are reported in Other expenses in the Consolidated Statements of Operations.

Quarterly Data - Unaudited, in Thousands, except Per Share Data

Our quarterly select financial data is as follows:

Total revenues

Operating income (a)

Net income attributable to the Company (a)

Basic earnings per common share (a)

Diluted earnings per common share (a)

Dividends declared per common share

Total revenues

Operating income (loss) (b)

Net (loss) income attributable to the Company (b)

Basic (loss) earnings per common share (b)

Diluted (loss) earnings per common share (b)

Dividends declared per common share

(a) The year ended December 27, 2020 was impacted by the following:

The fourth quarter of 2020 includes costs of $ 6.0 million, after tax loss of $ 4.0 million and basic and diluted loss per common share of $ 0.12 from strategic corporate reorganization costs.

(b) The year ended December 29, 2019 was impacted by the following:

The first, second, and third quarters of 2019 include costs of $ 11.0 million, $ 400,000 and $ 2.8 million, respectively;

after tax losses of $ 9.8 million, $ 0.4 million, and $ 2.2 million, respectively;

and basic and diluted loss per common share of $ 0.31 , $ 0.01 , and $ 0.07 , respectively, from Special charges.

The third and fourth quarters of 2019 include gains of $ 1.7 million and $ 2.9 million, respectively;

after tax gains of $ 1.3 million and $ 2.2 million, respectively;

and basic and diluted earnings per common share of $ 0.04 and $ 0.07 , respectively, related to the Company’s refranchising of Company-owned restaurants.

Quarterly earnings per share on a full-year basis may not agree to the Consolidated Statements of Operations due to rounding.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data