What changed in this filing

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Item 1. Financial Statements

2022-05-05 compared with 2021-11-04 · 176 added, 255 removed, 470 unchanged (48% of the section changed)

3 unchanged sentences

Condensed Consolidated Balance Sheets

September 26,

(In thousands, except per share amounts)

5 unchanged sentences

Prepaid expenses and other current assets

Assets held for sale

Total current assets

4 unchanged sentences

Deferred income taxes

Liabilities, Series B Convertible Preferred Stock, Redeemable noncontrolling interests and Stockholders’ deficit

Liabilities, Redeemable noncontrolling interests and Stockholders’ deficit

Current liabilities:

5 unchanged sentences

Current operating lease liabilities

Current portion of long-term debt

Liabilities held for sale

Total current liabilities

6 unchanged sentences

Total liabilities

Series B Convertible Preferred Stock;

$ 0.01 par value;

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

Redeemable noncontrolling interests

1 unchanged sentence

Common stock ($ 0.01 par value per share;

issued 48,989 at September 26, 2021 and 45,288 at December 27, 2020)

issued 49,074 at March 27, 2022 and 49,002 at December 26, 2021)

Additional paid-in capital

1 unchanged sentence

Retained earnings

Treasury stock ( 12,806 shares at September 26, 2021 and 12,743 shares at December 27, 2020, at cost)

Treasury stock ( 13,399 shares at March 27, 2022 and 13,205 shares at December 26, 2021, at cost)

Total stockholders’ deficit

1 unchanged sentence

Total Stockholders’ deficit

Total liabilities, Series B Convertible Preferred Stock, Redeemable noncontrolling interests and

Stockholders’ deficit

Total liabilities, Redeemable noncontrolling interests and Stockholders’ deficit

See accompanying notes.

3 unchanged sentences

Three Months Ended

Nine Months Ended

September 26,

September 27,

September 26,

September 27,

(In thousands, except per share amounts)

14 unchanged sentences

Total costs and expenses

Refranchising and impairment loss

Operating income

1 unchanged sentence

Income before income taxes

Income tax expense

Income tax (benefit) expense

Net income before attribution to noncontrolling interests

1 unchanged sentence

Net income attributable to the Company

Calculation of net income (loss) for earnings per share:

Calculation of net income for earnings per share:

Net income attributable to the Company

Dividends on redemption of Series B Convertible Preferred Stock

Dividends paid to participating securities

Net income attributable to participating securities

Net income (loss) attributable to common shareholders

Basic earnings (loss) per common share

Diluted earnings (loss) per common share

Net income attributable to common shareholders

Basic earnings per common share

Diluted earnings per common share

Basic weighted average common shares outstanding

6 unchanged sentences

Three Months Ended

Nine Months Ended

September 26,

September 27,

September 26,

September 27,

(In thousands)

Net income before attribution to noncontrolling interests

Other comprehensive income (loss), before tax:

Other comprehensive income, before tax:

Foreign currency translation adjustments

Interest rate swaps (1)

Other comprehensive income (loss), before tax

Other comprehensive income, before tax

Income tax effect:

2 unchanged sentences

Income tax effect

Other comprehensive income (loss), net of tax

Other comprehensive income, net of tax

Comprehensive income before attribution to noncontrolling interests

2 unchanged sentences

Comprehensive income attributable to the Company

(1) Amounts reclassified out of accumulated other comprehensive loss into net interest expense include ($ 1,644 ) and ($ 5,084 ) for the three and nine months ended September 26, 2021, respectively, and ( $ 1,674 ) and ( $ 3,376 ) for the three and nine months ended September 27, 2020, respectively.

(2) The income tax effects of amounts reclassified out of accumulated other comprehensive loss into net interest expense were $ 368 and $ 1,139 for the three and nine months ended September 26, 2021, respectively, and $ 378 and $ 763 for the three and nine months ended September 27, 2020, respectively.

(1) Amounts reclassified out of accumulated other comprehensive loss into net interest expense include $ 535 and ($ 1,709 ) for the three months ended March 27, 2022 and March 28, 2021, respectively.

(2) The income tax effects of amounts reclassified out of accumulated other comprehensive loss into net interest expense were ($ 120 ) and $ 385 for the three months ended March 27, 2022 and March 28, 2021, respectively.

See accompanying notes.

7 unchanged sentences

Stockholders’

For the three months ended September 26, 2021

Balance at June 27, 2021

Net income (1)

Other comprehensive income, net of tax

Cash dividends on common stock

Exercise of stock options

Acquisition of Company common stock

Stock-based compensation expense

Issuance of restricted stock

Tax effect of restricted stock awards

Distributions to noncontrolling interests

Balance at September 26, 2021

For the nine months ended September 26, 2021

For the three months ended March 27, 2022

Balance at December 26, 2021

1 unchanged sentence

Other comprehensive income, net of tax

Repurchase and conversion of Series B Convertible Preferred Stock

Cash dividends on common stock

Cash dividends on preferred stock

Exercise of stock options

2 unchanged sentences

Issuance of restricted stock

Tax effect of restricted stock awards

Distributions to noncontrolling interests

Balance at September 26, 2021

(1) Net income to the Company for the three and nine months ended September 26, 2021 excludes $ 692 and $ 2,192 , respectively, allocable to the redeemable noncontrolling interests for our joint venture arrangements.

At September 26, 2021, the accumulated other comprehensive loss of $ 9,910 was comprised of net unrealized foreign currency translation loss of $ 3,499 and net unrealized loss on the interest rate swap agreements of $ 6,411 .

Tax payments for equity award issuances

Balance at March 27, 2022

(1) Net income to the Company for the three months ended March 27, 2022 excludes $ 510 allocable to the redeemable noncontrolling interests for our joint venture arrangements.

At March 27, 2022, the accumulated other comprehensive loss of $ 9,316 was comprised of net unrealized foreign currency translation loss of $ 5,533 and net unrealized loss on the interest rate swap agreements of $ 3,783 .

See accompanying notes.

7 unchanged sentences

Stockholders’

For the three months ended September 27, 2020

Balance at June 28, 2020

Net income (2)

Other comprehensive income, net of tax

Cash dividends on common stock

Cash dividends on preferred stock

Exercise of stock options

Stock-based compensation expense

Issuance of restricted stock

Tax effect of restricted stock awards

Distributions to noncontrolling interests

Balance at September 27, 2020

For the nine months ended September 27, 2020

For the three months ended March 28, 2021

Balance at December 27, 2020

Cumulative effect of adoption of ASU 2016-13 (1)

Adjusted Balance at December 30, 2019

Net income (1)

Other comprehensive loss, net of tax

Other comprehensive income, net of tax

Cash dividends on common stock

1 unchanged sentence

Exercise of stock options

Acquisition of Company common stock

Stock-based compensation expense

2 unchanged sentences

Distributions to noncontrolling interests

Balance at September 27, 2020

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

Measurement of Credit Losses on Financial Instruments”.

(2) Net income to the Company for the three and nine months ended September 27, 2020 excludes $ 301 and $ 1,184 , respectively, allocable to the redeemable noncontrolling interests for our joint venture arrangements.

At September 27, 2020, the accumulated other comprehensive loss of $ 18,510 was comprised of net unrealized foreign currency translation loss of $ 6,705 and net unrealized loss on the interest rate swap agreements of $ 11,805 .

Balance at March 28, 2021

(1) Net income to the Company for the three months ended March 28, 2021 excludes $ 787 allocable to the redeemable noncontrolling interests for our joint venture arrangements.

At March 28, 2021, the accumulated other comprehensive loss of $ 11,971 was comprised of net unrealized foreign currency translation loss of $ 2,977 and net unrealized loss on the interest rate swap agreements of $ 8,994 .

See accompanying notes.

2 unchanged sentences

Condensed Consolidated Statements of Cash Flows

Nine Months Ended

September 26,

September 27,

Three Months Ended

(In thousands)

2 unchanged sentences

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

Benefit for allowance for credit losses on accounts and notes receivable

Provision (benefit) for allowance for credit losses on accounts and notes receivable

Depreciation and amortization

Refranchising and impairment loss

Deferred income taxes

16 unchanged sentences

Financing activities

Proceeds from issuance of senior notes

Repayment of term loan

Net proceeds (repayments) of revolving credit facilities

Debt issuance costs

Net proceeds of revolving credit facilities

Proceeds from exercise of stock options

Acquisition of Company common stock

Dividends paid to common stockholders

1 unchanged sentence

Tax payments for equity award issuances

Repurchase of Series B Convertible Preferred Stock

Acquisition of Company common stock

Distributions to noncontrolling interests

Repayments of term loan

Net cash used in financing activities

7 unchanged sentences

Notes to Condensed Consolidated Financial Statements (Unaudited)

September 26, 2021

March 27, 2022

Basis of Presentation

2 unchanged sentences

In the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation have been included.

Operating results for the three and nine months ended September 26, 2021 are not necessarily indicative of the results that may be expected for the fiscal year ending December 26, 2021.

Operating results for the three months ended March 27, 2022 are not necessarily indicative of the results that may be expected for the fiscal year ending December 25, 2022.

For further information, refer to the consolidated financial statements and footnotes thereto included in the Annual Report on Form 10-K for Papa John’s International, Inc.

9 unchanged sentences

PJMF collects a percentage of revenues from Company-owned and franchised restaurants in the United States for the purpose of designing and administering advertising and promotional programs.

PJMF is a variable interest entity (“VIE”) that funds its operations with ongoing financial support and contributions from the domestic restaurants, of which approximately 80 % are franchised ( 85 % following the divestiture of the Company’s interest in one joint venture subsequent to the end of the first quarter that included 90 restaurants as discussed in Note 10) and does not have sufficient equity to fund its operations without these ongoing financial contributions.

Based on an assessment of the governance structure and operating procedures of PJMF, the Company determined it has the power to control certain significant activities of PJMF, and therefore, is the primary beneficiary.

1 unchanged sentence

Noncontrolling Interests

Papa John’s has four joint venture arrangements in which there are noncontrolling interests held by third parties that include 188 and 192 restaurants at September 26, 2021 and September 27, 2020, respectively.

Papa John’s has four joint venture arrangements in which there are noncontrolling interests held by third parties that include 188 restaurants at March 27, 2022 and March 28, 2021.

Subsequent to the end of the first quarter, the Company divested its interest in one joint venture that included 90 restaurants.

See Note 10 for additional information.

Consolidated net income is required to be reported separately at amounts attributable to both the Company and the noncontrolling interests.

Additionally, disclosures are required to clearly identify and distinguish between the interests of the Company and the interests of the noncontrolling owners, including a disclosure on the face of the Condensed Consolidated Statements of Operations of net income attributable to noncontrolling interests.

Net income attributable to these joint ventures for the three and nine months ended September 26, 2021 and September 27, 2020 was as follows (in thousands):

Additionally, disclosures are required to clearly identify and distinguish between the interests of

the Company and the interests of the noncontrolling owners, including a disclosure on the face of the Condensed Consolidated Statements of Operations of net income attributable to noncontrolling interests.

Net income attributable to these joint ventures for the three months ended March 27, 2022 and March 28, 2021 was as follows (in thousands):

Three Months Ended

Nine Months Ended

September 26,

September 27,

September 26,

September 27,

Papa John’s International, Inc.

35 unchanged sentences

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 September 26, 2021 and December 27, 2020 are as follows:

Our financial assets and liabilities that were measured at fair value on a recurring basis as of March 27, 2022 and December 26, 2021 are as follows:

Fair Value Measurements

(in thousands)

September 26, 2021

March 27, 2022

Financial assets:

12 unchanged sentences

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

The Company’s revolving credit facilities and term debt under the Previous Credit Facility 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 September 26, 2021 and December 27, 2020, respectively:

September 26, 2021

The Company’s revolving credit facilities under its credit agreement approximate carrying value due to its 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 has the following estimated fair values and carrying values (excluding the impact of unamortized debt issuance costs) as of March 27, 2022 and December 26, 2021, respectively:

March 27, 2022

December 26, 2021

10 unchanged sentences

Balance at December 26, 2021

Current period benefit for expected credit losses

Current period provision for expected credit losses (1)

Write-offs charged against the allowance

Recoveries collected

Balance at September 26, 2021

Balance at March 27, 2022

(1) The Company recorded $ 14.6 million of one -time, non-cash reserves for certain accounts receivable and notes receivable primarily associated with a master franchisee with operations principally in Russia.

Lessor Operating Leases

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

At September 26, 2021, we leased and subleased approximately 410 Papa John’s restaurants to franchisees in the United Kingdom.

At March 27, 2022, we leased and subleased approximately 430 Papa John’s restaurant properties to franchisees in the United Kingdom.

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

1 unchanged sentence

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.

We recognized total sublease income of $ 9.0 million and $ 7.6 million within Other revenues in the Condensed Consolidated Statements of Operations for the nine months ended September 26, 2021 and September 27, 2020, respectively.

We recognized total sublease income of $ 3.0 million and $ 2.8 million within Other revenues in the Condensed Consolidated Statements of Operations for the three months ended March 27, 2022 and March 28, 2021, respectively.

Lease Guarantees

As a result of assigning our interest in obligations under property leases as a condition of the refranchising of certain restaurants, we are contingently liable for payment of 71 domestic leases.

As a result of assigning our interest in obligations under property leases as a condition of the refranchising of certain restaurants, we are contingently liable for payment of approximately 65 domestic leases.

These leases have varying terms, the latest of which expires in 2036.

As of September 26, 2021, the estimated maximum amount of undiscounted payments the Company could be required to make in the event of nonpayment by the primary lessees was $ 12.1 million.

As of March 27, 2022, the estimated maximum amount of undiscounted payments the Company could be required to make in the event of nonpayment by the primary lessees was $ 10.8 million.

This contingent liability is not included in the Condensed Consolidated Balance Sheet as it is not probable to occur.

The fair value of the guarantee is not material.

Subsequent to quarter-end, we refranchised 90 Company-owned restaurants held in a consolidated joint venture in Texas through the sale of our 51 % ownership in the joint venture, as discussed in Note 10.

As part of this transaction, we are contingently liable for payment of 12 of the 90 domestic leases, and the estimated maximum amount of undiscounted payments the Company could be required to make in the event of nonpayment by the primary lessees for these stores is approximately $ 1.6 million.

Supplemental Cash Flow & Other Information

Supplemental cash flow information related to leases for the periods reported is as follows:

Nine Months Ended

Three Months Ended

(in thousands)

September 26, 2021

September 27, 2020

March 27, 2022

March 28, 2021

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

6 unchanged sentences

(a) Included within the change in Other assets and liabilities within the Condensed 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 nine months ended September 26, 2021 associated with the lease commencement of our Atlanta, Georgia corporate office.

(b) Includes right-of-use assets of approximately $ 14.5 million for the three months ended March 28, 2021 associated with the lease commencement of our Atlanta, Georgia corporate office.

Papa John’s Marketing Fund, Inc.

2 unchanged sentences

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

September 26,

Current assets:

16 unchanged sentences

Our contract liabilities primarily relate to franchise fees, unredeemed gift card liabilities, and loyalty program obligations, which we classify as Deferred revenue on the Condensed Consolidated Balance Sheets.

During the three and nine months ended September 26, 2021, the Company recognized $ 9.2 million and $ 27.3 million in revenue, respectively, related to deferred revenue, compared to $ 8.4 million and $ 24.7 million for the three and nine months ended September 27, 2020.

During the three months ended March 27, 2022 and March 28, 2021, the Company recognized $ 9.3 million and $ 9.1 million in revenue, respectively, related to deferred revenue.

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

Contract Liabilities

September 26, 2021

March 27, 2022

December 26, 2021

4 unchanged sentences

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

As of September 26, 2021 and December 27, 2020, the contract assets were approximately $ 5.6 million and $ 5.1 million, respectively.

For the three and nine months ended September 26, 2021, revenue was reduced approximately $ 0.8 million

and $ 2.2 million, respectively, for the amortization of contract assets over the applicable contract terms.

As of March 27, 2022 and December 26, 2021, the contract assets were approximately $ 5.6 million and $ 5.8 million, respectively.

For both of the three months ended March 27, 2022 and March 28, 2021, revenue was reduced approximately $ 0.8 million 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 Condensed Consolidated Balance Sheets.

9 unchanged sentences

The Company applies the practical expedient in ASC 606-10-50-14 and does not disclose information about remaining performance obligations that have original expected durations of one year or less.

Common Stock and Series B Convertible Preferred Stock

Shares Authorized and Outstanding

The Company has authorized 5.0 million shares of preferred stock (of which none were issued or outstanding at September 26, 2021 and December 27, 2020, respectively) and 100.0 million shares of common stock as of September 26, 2021 and December 27, 2020, respectively.

There were 36.2 million shares of the Company’s common stock outstanding at September 26, 2021 compared to 32.5 million shares at December 27, 2020.

During the second quarter of 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.

Additionally, 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 Convertible Preferred Stock in the Condensed Consolidated Statement of Operations, which reduced net income attributable to common stockholders during the second quarter of 2021.

Diluted earnings per share for the nine months ended September 26, 2021 was reduced by $ 3.14 as a result of this transaction.

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.

No shares of Series B Preferred Stock were issued or outstanding following the repurchase and conversion thereof in the second quarter of 2021.

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.

The Company has authorized 5.0 million shares of preferred stock (of which none were issued or outstanding at March 27, 2022 and December 26, 2021) and 100.0 million shares of common stock as of March 27, 2022 and December 26, 2021.

There were 35.7 million shares of common stock outstanding, net of repurchased shares of common stock at March 27, 2022, compared to 35.8 million shares 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 26, 2021.

Through September 26, 2021, a total of approximately 219,000 shares with an aggregate cost of $ 23.3 million and an average price of $ 106.16 per share were repurchased under this program.

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

Subsequent to September 26, 2021, we acquired an additional 158,000 shares at an aggregate cost of $ 19.8 million and an average price of $ 125.50 per share.

Approximately $ 31.9 million remained available under this share repurchase program as of October 29, 2021.

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

This represents approximately 9.4 % of the Company’s currently outstanding common stock based on the closing stock price as of October 29, 2021.

The new share repurchase program will initially operate alongside the Company’s existing $ 75.0 million share repurchase authorization, which expires on December 26, 2021.

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 three months ended March 27, 2022 and March 28, 2021:

Maximum Dollar

Value of Shares

that May Yet Be

(in thousands, except average price per share)

Purchased Under the

Three Months Ended

Plans or Programs

March 27, 2022

March 28, 2021

Subsequent to March 27, 2022, we acquired an additional 223,000 shares at an aggregate cost of $ 23.0 million and an average price of $ 102.97 per share.

Approximately $ 369.1 million remained available under the Company’s share repurchase program as of April 29, 2022.

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.

2 unchanged sentences

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 $ 33.2 million for the nine months ended September 26, 2021 consisting of the following:

● $ 27.6 million paid to common stockholders ($ 0.80 per share);

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

● $ 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).

On October 28, 2021, our Board of Directors declared a fourth quarter dividend of $ 0.35 per common share, of which approximately $ 12.8 million will be paid to common stockholders.

The common share dividend will be paid on November 19, 2021 to stockholders of record as of the close of business on November 9, 2021.

The Company recorded dividends of approximately $ 12.6 million ($ 0.35 per share) in the first quarter of 2022.

On April 26, 2022, our Board of Directors declared a second quarter dividend of $ 0.35 per common share (approximately $ 12.6 million in the aggregate), which will be paid on May 27, 2022 to stockholders of record as of the close of business on May 16, 2022.

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

Earnings (Loss) Per Share

We compute earnings (loss) per share using the two-class method.

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 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 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.

The calculations of basic and diluted earnings (loss) per common share are as follows (in thousands, except per-share data):

Earnings Per Share

We compute earnings per share using the two-class method.

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

The shares of the Company’s former Series B Convertible Preferred Stock (“Series B Preferred Stock”), all of which were repurchased by the Company or converted into shares of common stock during 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.

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

The calculations of basic and diluted earnings per common share are as follows:

Three Months Ended

Nine Months Ended

September 26,

September 27,

September 26,

September 27,

Basic earnings (loss) per common share

Basic earnings per common share (in thousands, except per share data)

Net income attributable to the Company

Dividends on redemption of Series B Convertible Preferred Stock

Dividends paid to participating securities

Net income attributable to participating securities

Net income (loss) attributable to common shareholders

Net income attributable to common shareholders

Basic weighted average common shares outstanding

Basic earnings (loss) per common share

Diluted earnings (loss) per common share

Net income (loss) attributable to common shareholders

Basic earnings per common share

Diluted earnings per common share (in thousands, except per share data)

Net income attributable to common shareholders

Weighted average common shares outstanding

1 unchanged sentence

Diluted weighted average common shares outstanding (b)

Diluted earnings (loss) per common share

(a) Excludes 132 equity awards for the nine months ended September 27, 2020, as the effect of including such awards would have been anti-dilutive.

(b) The Company had 252.5 shares of Series B Preferred Stock outstanding at September 27, 2020 ( no ne at September 26, 2021).

Diluted earnings per common share

(a) Excludes 21,000 and 18,000 equity awards for the three months ended March 27, 2022 and March 28, 2021, respectively, as the effect of including such awards would have been anti-dilutive.

(b) The Company had 252,500 shares of Series B Preferred Stock outstanding at March 28, 2021 ( no ne at March 27, 2022).

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

The Company then applied the if-converted method to calculate dilution on the Series B Preferred Stock, which resulted in 5.0 million additional common shares for September 27, 2020.

This calculation was anti-dilutive for the September 27, 2020 period and as such was excluded.

The Company then applied the if-converted method to calculate dilution on the Series B Preferred Stock, which resulted in 5.0 million additional common shares for March 28, 2021.

This calculation was anti-dilutive and as such was excluded.

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

September 26,

Revolving facilities

Outstanding debt

Unamortized debt issuance costs

Current portion of long-term debt

Total long-term debt, net

Our outstanding debt as of September 26, 2021 was $ 425.0 million, which was comprised of $ 400.0 million outstanding under our 3.875 % senior notes due 2029 (the “Notes”) and $ 25.0 million under the PJI Revolving Facility (as defined below).

Including outstanding letters of credit, the remaining availability under the PJI Revolving Facility was approximately $ 572.3 million as of September 26, 2021.

On September 14, 2021, the Company issued $ 400.0 million of 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).

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

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

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.

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Amended Credit Agreement

Concurrently with the closing of the Notes, the Company entered into an amended and restated credit agreement (the “Amended Credit Agreement”) replacing the previous $ 800.0 million 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 Company’s amended and restated credit agreement, dated September 14, 2021 (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.

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.

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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:

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 September 26, 2021.

We were in compliance with these financial covenants at March 27, 2022.

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

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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 1.9 % and 2.7 % for the three and nine months ended September 27, 2020, respectively.

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

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

There was no debt outstanding under the PJMF Revolving Facility as of March 27, 2022 or December 26, 2021.

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

As of March 26, 2022, we have the following interest rate swap agreements with a total notional value of $ 350.0 million:

Effective Dates

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January 30, 2018 through August 30, 2022

In September 2021, we de-designated $ 350.0 million of our interest rate swaps as cash flow hedges following the issuance of the Notes.

Our interest rate swaps were de-designated as cash flow hedges 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.

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Interest Rate Swap Derivatives

September 26,

Balance Sheet Location

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The effect of derivative instruments on the accompanying condensed 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 rate swaps for the three months ended:

September 26, 2021

Interest expense

September 27, 2020

Interest expense

Interest rate swaps for the nine months ended:

September 26, 2021

March 27, 2022

Interest expense

September 27, 2020

March 28, 2021

Interest expense

Interest paid, including payments made or received under the swaps, was $ 4.1 million and $ 3.9 million for the three months ended September 26, 2021 and September 27, 2020, respectively, and $ 11.1 million and $ 12.0 million for the nine months ended September 26, 2021 and September 27, 2020, respectively.

Interest paid, including payments made or received under the swaps, was $ 10.1 million and $ 3.4 million for the three months ended March 27, 2022 and March 28, 2021, respectively.

Commitments and Contingencies

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We review these provisions at least quarterly and adjust them to reflect the impact of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular case.

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.

On April 14, 2022, the parties reached a settlement (the “Legal Settlement”) in principle to resolve the case.

Pursuant to the terms of the proposed settlement, in exchange for the Company’s payment of a total aggregate settlement amount of $ 5.0 million and other non-monetary consideration, all claims in the action will be dismissed, the litigation will be terminated, and the Company will receive a release.

The proposed settlement is subject to approval by the District Court and contains certain customary contingencies.

The Company continues to deny any liability or wrongdoing in this matter.

Durling et al v.

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

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

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 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 will 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.

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 $ 17.0 to $ 20.0 million related to employee severance and transition, recruitment and relocation, and third party and other costs through 2021.

Of these costs, we have cumulatively incurred approximately $ 15.3 million through September 26, 2021 which include $ 8.3 million of employee severance and other employee transition costs, $ 4.0 million of recruiting and professional fees, $ 2.9 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.

All other costs, including employee transition costs, recruitment and relocation costs, and third-party costs, are recognized in the period incurred.

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

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

The following table summarizes the activity for the nine months ended September 26, 2021:

September 26,

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 the remainder of 2021 of approximately $ 2.0 to $ 5.0 million.

The Company has no t recorded any liability related to this lawsuit as of March 27, 2022 as it does not believe a loss is probable or reasonably estimable.

Divestitures and Impairment

Assets and Liabilities Held for Sale

On March 28, 2022, we refranchised our 51 % ownership interest in a 90 -restaurant consolidated joint venture in Texas for $ 14.0 million, net of transaction costs.

The assets and liabilities associated with the joint venture are classified as held for sale in the Condensed Consolidated Balance Sheet as of March 27, 2022.

March 27, 2022

Current assets

Property and equipment, net

Operating lease right-of-use assets

Loss on impairment

Total assets held for sale

Accounts payable, taxes payable, accrued expenses and other

Current deferred revenue

Current operating lease liabilities

Long-term operating lease liabilities

Other long-term liabilities

Total liabilities held for sale

Upon reclassification of assets and liabilities held for sale, we recorded a one-time, non-cash charge of $ 8.4 million which reflects net sale proceeds of $ 14.0 million, the noncontrolling interest of $ 4.2 million, and the recognition of an unearned royalty stream of $ 12.2 million to be recognized as revenue over the 10-year term of the franchise agreement executed concurrent with the disposition in accordance with ASC 810, “ Consolidation.” The impairment was recorded in the first quarter of 2022 and realized upon consummation of the sale in the second quarter.

Impairment of Reacquired Master Franchise Rights

In the first quarter of 2022, the Company recorded an impairment of $ 2.8 million for reacquired franchise rights due to the financial and operational impact of the conflict in Ukraine and government actions taken in response to that conflict, including, but not limited to, international sanctions.

The reacquired franchise rights were previously acquired from a former master franchisee and capitalized by the Company.

Segment Information

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Three Months Ended

Nine Months Ended

September 26,

September 27,

September 26,

September 27,

(In thousands)

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Unallocated corporate expenses (3)

Elimination of intersegment losses (profits)

Elimination of intersegment (profits) losses

Total operating income

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Total property and equipment, net

(1) Includes a one-time, non-cash charge of $ 8.4 million associated with the refranchising of the Company’s ownership interest in a 90 -restaurant joint venture, recorded as Refranchising and impairment loss.

See Note 10 for additional information.

(2) Includes $ 3.5 million of one-time, non-cash reserves for certain accounts receivable and impairments of reacquired franchise rights in the first quarter of 2022.

See Notes 2 and 10 for additional information.

(3) For the first quarter of 2022, Unallocated corporate expenses include $ 13.9 million of one-time, non-cash reserves of certain notes receivable and $ 5.0 million for the Legal Settlement.

For the first quarter of 2021, Unallocated corporate expense includes $ 3.9 million of reorganization costs.

See Notes 2 and 9 for additional information.

Disaggregation of Revenue

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Reportable Segments

Three Months Ended September 26, 2021

Major Products/Services Lines

Domestic Company-owned restaurants

North America franchising

North America commissaries

International

Company-owned restaurant sales

Franchise royalties and fees

Commissary sales

Other revenues

Total segment revenues

International other revenues (1)

Total revenues

Reportable Segments

Three Months Ended September 27, 2020

Major Products/Services Lines

Domestic Company-owned restaurants

North America franchising

North America commissaries

International

Company-owned restaurant sales

Franchise royalties and fees

Commissary sales

Other revenues

Total segment revenues

International other revenues (1)

Total revenues

Reportable Segments

Nine Months Ended September 26, 2021

Three Months Ended March 27, 2022

Major Products/Services Lines

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Reportable Segments

Nine Months Ended September 27, 2020

Three Months Ended March 28, 2021

Major Products/Services Lines

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Total revenues

(1) Other revenues as reported in the Condensed Consolidated Statements of Operations include $ 8.5 million and $ 25.1 million of revenue for the three and nine months ended September 26, 2021, respectively, and $ 6.9 million and $ 19.3 million of revenue for the three and nine months ended September 27, 2020, respectively, that are part of the international reporting segment.

(1) Other revenues as reported in the Condensed Consolidated Statements of Operations include $ 8.1 million and $ 8.0 million of revenue for the three months ended March 27, 2022 and March 28, 2021, respectively, that are part of the international reporting segment.

These amounts include marketing fund contributions and sublease rental income from international franchisees in the United Kingdom that provide no significant contribution to operating income but must be reported on a gross basis under accounting requirements.

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

Related Party Transactions

Endorsement Agreement

On April 10, 2022, the Company and PJMF entered into an Endorsement Agreement (the “Endorsement Agreement”), effective March 15, 2022, with ABG-Shaq, LLC (“ABG-Shaq”), an entity affiliated with Shaquille O’Neal, for the personal services of Mr.

O’Neal is a non-independent director of the Company.

The Endorsement Agreement replaces the previous Endorsement Agreement, effective March 15, 2019, by and between the Company, PJMF and ABG-Shaq, as amended (the “Prior Endorsement Agreement”) which expired by its terms on March 15, 2022.

The terms of the Endorsement Agreement, which are detailed below, are substantially similar to the Prior Endorsement Agreement.

Pursuant to the Endorsement Agreement, the Company and PJMF received the right and license to use Mr.

O’Neal’s name, nickname, initials, autograph, voice, video or film portrayals, photograph, likeness and certain other intellectual property rights (individually and collectively, the “Personality Rights”), in each case, solely as approved by ABG-Shaq, in connection with the advertising, promotion and sale of Papa John’s-branded products.

O’Neal will also provide brand ambassador services related to appearances, social media and public relations matters.

The Endorsement Agreement also renewed the offering of the co-branded extra-large pizza product developed among the Company, PJMF and ABG-Shaq under the Prior Endorsement Agreement, and provides that one U.S.

dollar for each unit of the co-branded pizza sold in the United States will be donated to The Papa John’s Foundation for Building Community and one Canadian dollar for each unit sold in Canada will be donated to a charity mutually agreed-upon between the parties.

As consideration for the rights and services granted under the Endorsement Agreement, the Company and PJMF agreed to pay to ABG-Shaq aggregate cash payments of $ 5.625 million over the three years of the Endorsement Agreement.

The Company and PJMF will also pay ABG-Shaq a royalty fee for the co-branded pizza product if the total amount of royalties in a given contract year (calculated as $ 0.20 per co-branded pizza sold) exceeds the contractual cash payment for that year, in which case the amount of the royalty payment will be the excess of the royalties over the cash payment amount.

The Company and PJMF will also pay expenses related to the marketing and personal services provided by Mr.

In addition, the Company agreed to grant 55,898 restricted stock units (the “RSUs”) to Mr.

O’Neal (as agent of ABG) under the Company’s 2018 Omnibus Incentive Plan.

The RSUs will vest into an equivalent number of shares of the Company’s common stock according to the following vesting schedule:

33 % ( 18,632 ) of the RSUs will vest on April 12, 2023;

33 % ( 18,632 ) of the RSUs will vest on March 15, 2024;

33 % ( 18,634 ) of the RSUs will vest on March 15, 2025.

The initial term of the Endorsement Agreement ends on March 15, 2025, with an option for a one-year extension upon the parties’ mutual agreement.

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

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-Q

Item 1. Financial Statements