PAPA JOHNS INTERNATIONAL INC 10-Q

Item 1. Financial Statements ​ Papa John’s International, Inc. and Subsidiaries Condensed Consolidated Balance Sheets ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ March 27, December 26, (In thousands, except per share amounts) ​ 2022 ​ 2021 ​ ​ (Unaudited) ​ ​ Assets ​ ​ ​ ​ ​ ​ Current assets: ​ ​ ​ ​ ​ ​ Cash and cash equivalents ​ $ 80,669 ​ $ 70,610 Accounts receivable, net ​ ​ 81,229 ​ ​ 81,370 Notes receivable, current portion ​ 9,108 ​ 12,352 Income tax receivable ​ ​ 10,537 ​ ​ 9,386 Inventories ​ 38,992 ​ 34,981 Prepaid expenses and other current assets ​ 46,461 ​ 46,310 Assets held for sale ​ ​ 19,273 ​ ​ — Total current assets ​ 286,269 ​ 255,009 Property and equipment, net ​ 216,253 ​ 223,856 Finance lease right-of-use assets, net ​ ​ 20,159 ​ ​ 20,907 Operating lease right-of-use assets ​ ​ 177,767 ​ ​ 176,256 Notes receivable, less current portion, net ​ 22,634 ​ 35,504 Goodwill ​ 71,593 ​ 80,632 Deferred income taxes ​ ​ 6,535 ​ ​ 5,156 Other assets ​ 84,416 ​ 88,384 Total assets ​ $ 885,626 ​ $ 885,704 ​ ​ ​ ​ ​ ​ ​ Liabilities, Redeemable noncontrolling interests and Stockholders’ deficit ​ ​ ​ ​ ​ ​ Current liabilities: ​ ​ ​ ​ ​ ​ Accounts payable ​ $ 35,434 ​ $ 28,092 Income and other taxes payable ​ 27,973 ​ 19,996 Accrued expenses and other current liabilities ​ 156,203 ​ 190,116 Current deferred revenue ​ ​ 19,649 ​ ​ 21,700 Current finance lease liabilities ​ ​ 5,190 ​ ​ 4,977 Current operating lease liabilities ​ ​ 20,938 ​ ​ 22,543 Liabilities held for sale ​ ​ 13,247 ​ ​ — Total current liabilities ​ 278,634 ​ 287,424 Deferred revenue ​ 12,381 ​ 13,846 Long-term finance lease liabilities ​ ​ 15,696 ​ ​ 16,580 Long-term operating lease liabilities ​ ​ 164,738 ​ ​ 160,672 Long-term debt, less current portion, net ​ 528,088 ​ 480,730 Deferred income taxes ​ — ​ 258 Other long-term liabilities ​ 89,210 ​ 93,154 Total liabilities ​ 1,088,747 ​ 1,052,664 ​ ​ ​ ​ ​ ​ ​ Redeemable noncontrolling interests ​ 5,323 ​ 5,498 ​ ​ ​ ​ ​ ​ ​ Stockholders’ deficit: ​ ​ ​ ​ ​ ​ Common stock ($ 0.01 par value per share; issued 49,074 at March 27, 2022 and 49,002 at December 26, 2021) ​ ​ 491 ​ ​ 490 Additional paid-in capital ​ 436,225 ​ 445,126 Accumulated other comprehensive loss ​ ( 9,316 ) ​ ( 9,971 ) Retained earnings ​ 181,124 ​ 183,157 Treasury stock ( 13,399 shares at March 27, 2022 and 13,205 shares at December 26, 2021, at cost) ​ ( 832,603 ) ​ ( 806,472 ) Total stockholders’ deficit ​ ( 224,079 ) ​ ( 187,670 ) Noncontrolling interests in subsidiaries ​ 15,635 ​ 15,212 Total Stockholders’ deficit ​ ( 208,444 ) ​ ( 172,458 ) Total liabilities, Redeemable noncontrolling interests and Stockholders’ deficit ​ $ 885,626 ​ $ 885,704 ​ See accompanying notes. ​ 3 Table of Contents Papa John’s International, Inc. and Subsidiaries Condensed Consolidated Statements of Operations (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ ​ ​ March 27, ​ March 28, (In thousands, except per share amounts) 2022 2021 ​ ​ ​ ​ ​ ​ Revenues: ​ ​ ​ ​ ​ ​ Domestic Company-owned restaurant sales ​ $ 198,765 ​ $ 197,234 North America franchise royalties and fees ​ 34,268 ​ 32,715 North America commissary revenues ​ 209,679 ​ 184,878 International revenues ​ 34,617 ​ ​ 34,607 Other revenues ​ ​ 65,363 ​ ​ 62,312 Total revenues ​ 542,692 ​ 511,746 Costs and expenses: ​ ​ ​ ​ ​ ​ Operating costs (excluding depreciation and amortization shown separately below): ​ ​ ​ ​ ​ ​ Domestic Company-owned restaurant expenses ​ ​ 161,661 ​ ​ 155,888 North America commissary expenses ​ ​ 197,090 ​ ​ 170,684 International expenses ​ ​ 19,914 ​ ​ 19,618 Other expenses ​ ​ 60,555 ​ ​ 55,807 General and administrative expenses ​ 65,937 ​ 50,011 Depreciation and amortization ​ 11,940 ​ 12,876 Total costs and expenses ​ 517,097 ​ 464,884 Refranchising and impairment loss ​ ​ ( 11,160 ) ​ ​ — Operating income ​ 14,435 ​ 46,862 Net interest expense ​ ( 4,264 ) ​ ​ ( 3,647 ) Income before income taxes ​ 10,171 ​ 43,215 Income tax (benefit) expense ​ ( 1,256 ) ​ 7,932 Net income before attribution to noncontrolling interests ​ 11,427 ​ 35,283 Net income attributable to noncontrolling interests ​ ( 933 ) ​ ( 1,400 ) Net income attributable to the Company ​ $ 10,494 ​ $ 33,883 ​ ​ ​ ​ ​ ​ ​ Calculation of net income for earnings per share: ​ ​ ​ ​ ​ ​ Net income attributable to the Company ​ $ 10,494 ​ $ 33,883 Dividends paid to participating securities ​ ( 60 ) ​ ( 3,527 ) Net income attributable to participating securities ​ — ​ ( 3,243 ) Net income attributable to common shareholders ​ $ 10,434 ​ $ 27,113 ​ ​ ​ ​ ​ ​ ​ Basic earnings per common share ​ $ 0.29 ​ $ 0.83 Diluted earnings per common share ​ $ 0.29 ​ $ 0.82 ​ ​ ​ ​ ​ ​ ​ Basic weighted average common shares outstanding ​ 35,927 ​ 32,756 Diluted weighted average common shares outstanding ​ 36,236 ​ 33,090 ​ ​ ​ ​ ​ ​ ​ Dividends declared per common share ​ $ 0.350 ​ $ 0.225 ​ ​ See accompanying notes. ​ 4 Table of Contents ​ ​ Papa John’s International, Inc. and Subsidiaries Condensed Consolidated Statements of Comprehensive Income (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ ​ March 27, ​ March 28, (In thousands) 2022 2021 ​ ​ ​ ​ ​ ​ ​ Net income before attribution to noncontrolling interests ​ $ 11,427 ​ $ 35,283 Other comprehensive income, before tax: ​ ​ ​ ​ ​ ​ Foreign currency translation adjustments ​ ​ ( 861 ) ​ ​ 1,059 Interest rate swaps (1) ​ 1,712 ​ 1,795 Other comprehensive income, before tax ​ 851 ​ 2,854 Income tax effect: ​ ​ ​ ​ ​ ​ Foreign currency translation adjustments ​ 198 ​ ( 244 ) Interest rate swaps (2) ​ ( 394 ) ​ ( 413 ) Income tax effect ​ ( 196 ) ​ ( 657 ) Other comprehensive income, net of tax ​ 655 ​ 2,197 Comprehensive income before attribution to noncontrolling interests ​ 12,082 ​ 37,480 Less: comprehensive (income), redeemable noncontrolling interests ​ ( 510 ) ​ ( 787 ) Less: comprehensive (income), nonredeemable noncontrolling interests ​ ( 423 ) ​ ( 613 ) Comprehensive income attributable to the Company ​ $ 11,149 ​ $ 36,080 ​ ​ (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. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 5 Table of Contents ​ Papa John’s International, Inc. and Subsidiaries Condensed Consolidated Statements of Stockholders’ Deficit (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Papa John’s International, Inc. ​ ​ ​ ​ ​ ​ ​ Common ​ ​ Accumulated ​ ​ ​ ​ ​ ​ Stock ​ ​ ​ ​ Additional ​ Other ​ ​ ​ ​ ​ ​ ​ Noncontrolling ​ Total (In thousands) ​ Shares ​ Common ​ Paid-In ​ Comprehensive ​ Retained ​ Treasury ​ Interests in ​ Stockholders’ For the three months ended March 27, 2022 ​ Outstanding ​ Stock ​ Capital ​ Loss ​ Earnings ​ Stock ​ Subsidiaries ​ Deficit Balance at December 26, 2021 ​ 35,797 ​ $ 490 ​ $ 445,126 ​ $ ( 9,971 ) ​ $ 183,157 ​ $ ( 806,472 ) ​ $ 15,212 ​ $ ( 172,458 ) Net income (1) ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 10,494 ​ ​ — ​ ​ 423 ​ ​ 10,917 Other comprehensive income, net of tax ​ — ​ ​ — ​ ​ — ​ ​ 655 ​ ​ — ​ ​ — ​ ​ — ​ ​ 655 Cash dividends on common stock ​ — ​ ​ — ​ ​ 47 ​ ​ — ​ ​ ( 12,655 ) ​ ​ — ​ ​ — ​ ​ ( 12,608 ) Exercise of stock options ​ 17 ​ ​ — ​ ​ 741 ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 741 Acquisition of Company common stock ​ ( 301 ) ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 32,709 ) ​ ​ — ​ ​ ( 32,709 ) Stock-based compensation expense ​ — ​ ​ 1 ​ ​ 4,175 ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 4,176 Issuance of restricted stock ​ 228 ​ ​ — ​ ​ ( 6,369 ) ​ ​ — ​ ​ — ​ ​ 6,369 ​ ​ — ​ ​ — Tax payments for equity award issuances ​ ( 69 ) ​ ​ — ​ ​ ( 7,461 ) ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 7,461 ) Other ​ 3 ​ ​ — ​ ​ ( 34 ) ​ ​ — ​ ​ 128 ​ ​ 209 ​ ​ — ​ ​ 303 Balance at March 27, 2022 35,675 ​ $ 491 ​ $ 436,225 ​ $ ( 9,316 ) ​ $ 181,124 ​ $ ( 832,603 ) ​ $ 15,635 ​ $ ( 208,444 ) ​ (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. ​ ​ 6 Table of Contents Papa John’s International, Inc. and Subsidiaries Condensed Consolidated Statements of Stockholders’ Deficit (continued) (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Papa John’s International, Inc. ​ ​ ​ ​ ​ ​ ​ Common ​ ​ Accumulated ​ ​ ​ ​ ​ ​ Stock ​ ​ ​ ​ Additional ​ Other ​ ​ ​ ​ ​ ​ ​ Noncontrolling ​ Total (In thousands) ​ Shares ​ Common ​ Paid-In ​ Comprehensive ​ Retained ​ Treasury ​ Interests in ​ Stockholders’ For the three months ended March 28, 2021 ​ Outstanding ​ Stock ​ Capital ​ Loss ​ Earnings ​ Stock ​ Subsidiaries ​ Deficit Balance at December 27, 2020 32,545 ​ $ 453 ​ $ 254,103 ​ $ ( 14,168 ) ​ $ 219,158 ​ $ ( 741,724 ) ​ $ 15,239 ​ $ ( 266,939 ) Net income (1) — ​ — ​ — ​ — ​ 33,883 ​ — ​ 613 ​ 34,496 Other comprehensive income, net of tax — ​ — ​ — ​ 2,197 ​ — ​ — ​ — ​ 2,197 Cash dividends on common stock — ​ — ​ 31 ​ — ​ ( 7,435 ) ​ — ​ — ​ ( 7,404 ) Cash dividends on preferred stock ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 3,412 ) ​ ​ — ​ ​ — ​ ​ ( 3,412 ) Exercise of stock options 41 ​ — ​ 2,298 ​ — ​ — ​ — ​ — ​ 2,298 Acquisition of Company common stock ( 15 ) ​ — ​ — ​ — ​ — ​ ( 1,267 ) ​ — ​ ( 1,267 ) Stock-based compensation expense — ​ — ​ 4,113 ​ — ​ — ​ — ​ — ​ 4,113 Issuance of restricted stock 104 ​ — ​ ( 5,371 ) ​ — ​ — ​ 5,371 ​ — ​ — Tax effect of restricted stock awards — ​ — ​ ( 3,834 ) ​ — ​ — ​ — ​ — ​ ​ ( 3,834 ) Distributions to noncontrolling interests ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 570 ) ​ ​ ( 570 ) Other 6 ​ — ​ ( 55 ) ​ — ​ ( 75 ) ​ 352 ​ — ​ 222 Balance at March 28, 2021 32,681 ​ $ 453 ​ $ 251,285 ​ $ ( 11,971 ) ​ $ 242,119 ​ $ ( 737,268 ) ​ $ 15,282 ​ $ ( 240,100 ) ​ ​ (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. ​ ​ 7 Table of Contents ​ ​ Papa John’s International, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ ​ March 27, ​ March 28, (In thousands) 2022 2021 ​ ​ ​ ​ ​ ​ ​ Operating activities ​ ​ ​ ​ ​ ​ Net income before attribution to noncontrolling interests ​ $ 11,427 ​ $ 35,283 Adjustments to reconcile net income to net cash provided by operating activities: ​ ​ ​ ​ ​ ​ Provision (benefit) for allowance for credit losses on accounts and notes receivable ​ 15,167 ​ ( 1,098 ) Depreciation and amortization ​ 11,940 ​ 12,876 Refranchising and impairment loss ​ ​ 11,160 ​ ​ — Deferred income taxes ​ ( 1,817 ) ​ 2,586 Stock-based compensation expense ​ 4,176 ​ 4,113 Other ​ ( 2,135 ) ​ 325 Changes in operating assets and liabilities, net of acquisitions: ​ ​ ​ ​ ​ ​ Accounts receivable ​ ( 2,503 ) ​ 13,349 Income tax receivable ​ ​ ( 1,151 ) ​ ​ 566 Inventories ​ ( 4,731 ) ​ 2,721 Prepaid expenses and other current assets ​ 77 ​ 711 Other assets and liabilities ​ ( 654 ) ​ ( 7,901 ) Accounts payable ​ 7,359 ​ ( 5,350 ) Income and other taxes payable ​ 8,013 ​ 15,045 Accrued expenses and other current liabilities ​ ( 29,469 ) ​ ( 9,736 ) Deferred revenue ​ ( 1,465 ) ​ ( 273 ) Net cash provided by operating activities ​ 25,394 ​ 63,217 Investing activities ​ ​ ​ ​ ​ ​ Purchases of property and equipment ​ ( 10,233 ) ​ ( 7,076 ) Notes issued ​ ( 272 ) ​ ( 3,417 ) Repayments of notes issued ​ 3,432 ​ 4,864 Acquisitions, net of cash acquired ​ ( 1,250 ) ​ ( 699 ) Other ​ 8 ​ 29 Net cash used in investing activities ​ ( 8,315 ) ​ ( 6,299 ) Financing activities ​ ​ ​ ​ ​ ​ Net proceeds of revolving credit facilities ​ 47,000 ​ 5,000 Proceeds from exercise of stock options ​ 741 ​ 2,298 Acquisition of Company common stock ​ ( 32,709 ) ​ ( 1,267 ) Dividends paid to common stockholders ​ ​ ( 12,608 ) ​ ​ ( 7,404 ) Dividends paid to preferred stockholders ​ — ​ ( 3,412 ) Tax payments for equity award issuances ​ ( 7,461 ) ​ ( 3,834 ) Distributions to noncontrolling interests ​ ( 685 ) ​ ( 1,705 ) Repayments of term loan ​ ​ — ​ ​ ( 5,000 ) Other ​ ( 1,065 ) ​ ( 756 ) Net cash used in financing activities ​ ( 6,787 ) ​ ( 16,080 ) Effect of exchange rate changes on cash and cash equivalents ​ ( 233 ) ​ 230 Change in cash and cash equivalents ​ 10,059 ​ 41,068 Cash and cash equivalents at beginning of period ​ 70,610 ​ 130,204 Cash and cash equivalents at end of period ​ $ 80,669 ​ $ 171,272 ​ ​ See accompanying notes . ​ ​ 8 Table of Contents Papa John’s International, Inc. and Subsidiaries ​ Notes to Condensed Consolidated Financial Statements (Unaudited) ​ March 27, 2022 ​ 1. Basis of Presentation ​ The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete annual financial statements. 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 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. (referred to as the “Company”, “Papa John’s” or in the first-person notations of “we”, “us” and “our”) for the year ended December 26, 2021. ​ 2. Significant Accounting Policies ​ Use of Estimates ​ The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Significant items that are subject to such estimates and assumptions include allowance for credit losses on accounts and notes receivable, intangible assets, contract assets and contract liabilities, including the online customer loyalty program obligation and gift card breakage, right-of-use assets and lease liabilities, insurance reserves and tax reserves. Although management bases its estimates on historical experience and assumptions that are believed to be reasonable under the circumstances, actual results could significantly differ from these estimates. ​ Variable Interest Entity ​ Papa John’s domestic restaurants, both Company-owned and franchised, participate in Papa John’s Marketing Fund, Inc. (“PJMF”), a nonstock corporation designed to operate at break-even as it spends all annual contributions received from the system. 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. The Company has consolidated PJMF in its financial results in accordance with Accounting Standards Codification (“ASC”) 810, “ Consolidations .” ​ Noncontrolling Interests ​ 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 9 Table of Contents 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 ​ ​ March 27, ​ March 28, ​ 2022 2021 ​ ​ ​ ​ ​ ​ ​ Papa John’s International, Inc. ​ $ 1,621 ​ $ 2,349 Noncontrolling interests ​ 933 ​ 1,400 Total net income ​ $ 2,554 ​ $ 3,749 ​ The following summarizes the redemption feature, location and related accounting within the Condensed Consolidated Balance Sheets for these joint venture arrangements: ​ ​ ​ ​ ​ ​ ​ ​ ​ Type of Joint Venture Arrangement Location within the Balance Sheets Recorded Value ​ ​ ​ ​ ​ Joint ventures with no redemption feature Permanent equity Carrying value Joint ventures with option to require the Company to purchase the noncontrolling interest - not currently redeemable or redemption not probable Temporary equity Carrying value ​ Deferred Income Tax Accounts and Tax Reserves ​ We are subject to income taxes in the United States and several foreign jurisdictions. Significant judgment is required in determining Papa John’s provision for income taxes and the related assets and liabilities. The provision for income taxes includes income taxes paid, currently payable or receivable and those deferred. We use an estimated annual effective rate based on expected annual income to determine our quarterly provision for income taxes. The effective income tax rate includes the estimated domestic state effective income tax rate and applicable foreign income tax rates. The effective income tax rate is also impacted by various permanent items and credits, net of any related valuation allowances, and can vary based on changes in estimated annual income. Discrete items are recorded in the quarter in which they occur. ​ Deferred tax assets and liabilities are determined based on differences between financial reporting and tax basis of assets and liabilities and are measured using enacted tax rates and laws that are expected to be in effect when the differences reverse. Deferred tax assets are also recognized for the estimated future effects of tax attribute carryforwards (e.g., net operating losses, capital losses, and foreign tax credits). The effect on deferred taxes of changes in tax rates is recognized in the period in which the new tax rate is enacted. Valuation allowances are established when necessary on a jurisdictional basis to reduce deferred tax assets to the amounts we expect to realize. ​ Tax authorities periodically audit the Company. We record reserves and related interest and penalties for identified exposures as income tax expense. We evaluate these issues on a quarterly basis to adjust for events, such as statute of limitations expirations, court or state rulings or audit settlements, which may impact our ultimate payment for such exposures. ​ 10 Table of Contents Fair Value Measurements and Disclosures ​ 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: ​ ● Level 1: Quoted market prices in active markets for identical assets or liabilities. ● Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data. ● Level 3: Unobservable inputs that are not corroborated by market data. ​ 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 March 27, 2022 and December 26, 2021 are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Carrying ​ Fair Value Measurements (in thousands) Value Level 1 Level 2 Level 3 March 27, 2022 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Financial assets: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash surrender value of life insurance policies (a) ​ $ 34,205 ​ $ 34,205 ​ $ — ​ $ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Financial liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest rate swaps (b) ​ $ 1,528 ​ $ — ​ $ 1,528 ​ $ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 26, 2021 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Financial assets: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash surrender value of life insurance policies (a) ​ $ 41,904 ​ $ 41,904 ​ $ — ​ $ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Financial liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest rate swaps (b) ​ $ 5,536 ​ $ — ​ $ 5,536 ​ $ — ​ (a) Represents life insurance policies held in our non-qualified deferred compensation plan. (b) The fair value of our interest rate swaps is based on the sum of all future net present value cash flows. The future cash flows are derived based on the terms of our interest rate swaps, as well as considering published discount factors, and projected London Interbank Offered Rates (“LIBOR”). ​ 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 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 ​ ​ Carrying ​ Fair ​ Carrying ​ Fair (in thousands) ​ Value ​ Value ​ Value ​ Value 3.875 % Senior Notes ​ $ 400,000 ​ $ 362,000 ​ $ 400,000 ​ $ 396,000 ​ 11 Table of Contents Allowance for Credit Losses ​ 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. 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 and notes receivable: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) ​ Accounts Receivable ​ Notes Receivable Balance at December 26, 2021 ​ $ 2,364 ​ $ 1,500 Current period provision for expected credit losses (1) ​ ​ 2,613 ​ ​ 12,560 Write-offs charged against the allowance ​ ​ ( 126 ) ​ ​ — Recoveries collected ​ ​ — ​ ​ ( 6 ) Balance at March 27, 2022 ​ $ 4,851 ​ $ 14,054 ​ (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. 3. Leases ​ Lessor Operating Leases We sublease certain retail space to our franchisees in the United Kingdom which are primarily operating leases. 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 . 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. 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 approximately 65 domestic leases. These leases have varying terms, the latest of which expires in 2036. 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. ​ ​ ​ ​ ​ ​ 12 Table of Contents Supplemental Cash Flow & Other Information ​ Supplemental cash flow information related to leases for the periods reported is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended (in thousands) ​ March 27, 2022 ​ March 28, 2021 Cash paid for amounts included in the measurement of lease liabilities: ​ ​ ​ ​ ​ ​ Operating cash flows from finance leases ​ $ 262 ​ $ 278 Financing cash flows from finance leases ​ ​ 1,241 ​ ​ 1,059 Operating cash flows from operating leases (a) ​ ​ 9,612 ​ ​ 9,483 Right-of-use assets obtained in exchange for new finance lease liabilities ​ ​ 569 ​ ​ 7,014 Right-of-use assets obtained in exchange for new operating lease liabilities (b) ​ ​ 20,801 ​ ​ 28,428 Cash received from sublease income ​ ​ 3,092 ​ ​ 2,987 ​ ​ ​ ​ ​ ​ ​ (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 $ 14.5 million for the three months ended March 28, 2021 associated with the lease commencement of our Atlanta, Georgia corporate office. ​ ​ 4. Papa John’s Marketing Fund, Inc. ​ 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 for all participating domestic restaurants. Contributions and expenditures are reported on a gross basis in the Condensed Consolidated Statements of Operations within Other revenues and Other expenses. ​ Assets and liabilities of PJMF, which are restricted in their use, included in the Condensed Consolidated Balance Sheets were as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ March 27, ​ December 26, ​ ​ 2022 ​ 2021 ​ ​ ​ ​ ​ ​ ​ Assets ​ ​ ​ ​ ​ ​ Current assets: ​ ​ ​ ​ ​ ​ Cash and cash equivalents ​ $ 24,136 ​ $ 24,481 Accounts receivable, net ​ ​ 13,078 ​ ​ 14,150 Income tax receivable ​ ​ 44 ​ ​ 300 Prepaid expenses and other current assets ​ ​ 2,148 ​ ​ 1,718 Total current assets ​ ​ 39,406 ​ ​ 40,649 Deferred income taxes ​ ​ 604 ​ ​ 614 Total assets ​ $ 40,010 ​ $ 41,263 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Liabilities ​ ​ ​ ​ ​ ​ Current liabilities: ​ ​ ​ ​ ​ ​ Accounts payable ​ $ 2,868 ​ $ 140 Income and other taxes payable ​ ​ 2 ​ ​ 2 Accrued expenses and other current liabilities ​ ​ 35,131 ​ ​ 40,154 Current deferred revenue ​ ​ 4,320 ​ ​ 4,317 Total current liabilities ​ ​ 42,321 ​ ​ 44,613 Deferred revenue ​ ​ 1,399 ​ ​ 2,478 Total liabilities ​ $ 43,720 ​ $ 47,091 ​ ​ 13 Table of Contents 5. Revenue Recognition ​ Contract Balances ​ 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 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 ​ ​ ​ March 27, 2022 ​ ​ December 26, 2021 ​ ​ Change Franchise fees and unredeemed gift card liabilities ​ $ 18,731 ​ $ 20,410 ​ $ ( 1,679 ) Customer loyalty program obligations ​ ​ 13,299 ​ ​ 15,136 ​ ​ ( 1,837 ) Total contract liabilities ​ $ 32,030 ​ $ 35,546 ​ $ ( 3,516 ) ​ Our contract assets consist primarily of equipment incentives provided to franchisees. Equipment incentives are related to the future value of commissary revenue the Company will receive over the term of the incentive agreement. 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. ​ Transaction Price Allocated to the Remaining Performance Obligations ​ The following table (in thousands) includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied at the end of the reporting period. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Performance Obligations by Period ​ ​ Less than 1 Year ​ 1-2 Years ​ 2-3 Years ​ 3-4 Years ​ 4-5 Years ​ Thereafter ​ Total Franchise fees ​ $ 2,011 ​ $ 1,783 ​ $ 1,601 ​ $ 1,390 ​ $ 1,127 ​ $ 2,134 ​ $ 10,046 ​ Approximately $ 3.0 million of area development fees related to unopened stores and international unearned royalties are included in Deferred revenue. Timing of revenue recognition is dependent upon the timing of store openings and franchisees’ revenues. Gift card liabilities of approximately $ 5.7 million, included in Deferred revenue, will be recognized in Company-owned restaurant revenues when gift cards are redeemed. The Company will recognize redemption fee revenue in Other revenues when cards are redeemed at franchised restaurant locations. ​ 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. ​ 6. Common Stock ​ Shares Authorized and Outstanding ​ 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. ​ 14 Table of Contents Share Repurchase Program ​ 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 ​ ​ Total ​ ​ Average ​ ​ Aggregate ​ ​ Value of Shares ​ ​ Number ​ ​ Price ​ ​ Cost of ​ ​ that May Yet Be (in thousands, except average price per share) ​ of Shares ​ ​ Paid per ​ ​ Shares ​ ​ Purchased Under the Three Months Ended ​ Purchased ​ Share ​ ​ Purchased ​ ​ Plans or Programs March 27, 2022 ​ 301 ​ $ 108.76 ​ $ 32,709 ​ $ 392,091 March 28, 2021 ​ 15 ​ $ 84.63 ​ $ 1,267 ​ $ 71,031 ​ 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. 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. ​ Dividends ​ 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. ​ 15 Table of Contents 7. 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. 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 attributable to common shareholders. 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 ​ ​ March 27, ​ March 28, ​ ​ 2022 2021 Basic earnings per common share (in thousands, except per share data) ​ ​ ​ ​ ​ ​ Net income attributable to the Company ​ $ 10,494 ​ $ 33,883 Dividends paid to participating securities ​ ​ ( 60 ) ​ ​ ( 3,527 ) Net income attributable to participating securities ​ — ​ ( 3,243 ) Net income attributable to common shareholders ​ $ 10,434 ​ $ 27,113 ​ ​ ​ ​ ​ ​ ​ Basic weighted average common shares outstanding ​ 35,927 ​ 32,756 Basic earnings per common share ​ $ 0.29 ​ $ 0.83 ​ ​ ​ ​ ​ ​ ​ Diluted earnings per common share (in thousands, except per share data) ​ ​ ​ ​ ​ ​ Net income attributable to common shareholders ​ $ 10,434 ​ $ 27,113 ​ ​ ​ ​ ​ ​ ​ Weighted average common shares outstanding ​ 35,927 ​ 32,756 Dilutive effect of outstanding equity awards (a) ​ 309 ​ 334 Diluted weighted average common shares outstanding (b) ​ 36,236 ​ 33,090 Diluted earnings per common share ​ $ 0.29 ​ $ 0.82 (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 March 28, 2021. This calculation was anti-dilutive and as such was excluded. ​ 16 Table of Contents 8. Debt ​ Long-term debt, net, consists of the following (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ March 27, ​ ​ December 26, ​ ​ ​ ​ 2022 ​ ​ 2021 Senior notes ​ ​ $ 400,000 ​ $ 400,000 Revolving facilities ​ ​ ​ 137,000 ​ ​ 90,000 Outstanding debt ​ ​ $ 537,000 ​ $ 490,000 Unamortized debt issuance costs ​ ​ ​ ( 8,912 ) ​ ​ ( 9,270 ) Total long-term debt, net ​ ​ $ 528,088 ​ $ 480,730 ​ Senior Notes ​ 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. 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 ​ 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. ​ 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”). 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. 17 Table of Contents ​ 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 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 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 % . 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 March 26, 2022, we have the following interest rate swap agreements with a total notional value of $ 350.0 million: ​ ​ ​ ​ ​ ​ ​ ​ ​ Effective Dates Floating Rate Debt Fixed Rates April 30, 2018 through April 30, 2023 ​ $ 55 million ​ 2.33 % April 30, 2018 through April 30, 2023 ​ $ 35 million ​ 2.36 % April 30, 2018 through April 30, 2023 ​ $ 35 million ​ 2.34 % January 30, 2018 through August 30, 2022 ​ $ 100 million ​ 1.99 % January 30, 2018 through August 30, 2022 ​ $ 75 million ​ 1.99 % January 30, 2018 through August 30, 2022 ​ $ 50 million ​ 2.00 % ​ 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. ​ ​ 18 Table of Contents The following table provides information on the location and amounts of our swaps in the accompanying condensed consolidated financial statements (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest Rate Swap Derivatives ​ ​ Fair Value ​ Fair Value ​ ​ March 27, ​ December 26, Balance Sheet Location ​ 2022 ​ 2021 Other current and long-term liabilities ​ $ 1,528 ​ $ 5,536 ​ The effect of derivative instruments on the accompanying condensed consolidated financial statements is as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Location of (Loss) ​ Amount of (Loss) ​ ​ Derivatives - ​ Amount of Gain or ​ or Gain ​ or Gain ​ Total Net Interest Expense Cash Flow ​ (Loss) Recognized ​ Reclassified from ​ Reclassified from ​ on Condensed Hedging ​ in AOCL ​ AOCL into ​ AOCL into ​ Consolidated Statements Relationships ​ on Derivative ​ Income ​ Income ​ of Operations Interest rate swaps for the three months ended: March 27, 2022 ​ $ 1,318 ​ Interest expense ​ $ 535 ​ $ ( 4,264 ) March 28, 2021 ​ $ 1,382 ​ Interest expense ​ $ ( 1,709 ) ​ $ ( 3,647 ) ​ 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. ​ 9. Commitments and Contingencies ​ Litigation ​ The Company is involved in a number of lawsuits, claims, investigations and proceedings, including those specifically identified below, consisting of intellectual property, employment, consumer, commercial and other matters arising in the ordinary course of business. In accordance with ASC 450, “ Contingencies ” the Company has made accruals with respect to these matters where appropriate, which are reflected in the Company’s condensed consolidated financial statements. 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. Papa John’s International, Inc. , is a conditionally certified collective action filed in May 2016 in the United States District Court for the Southern District of New York, alleging that corporate restaurant delivery drivers were not properly reimbursed for vehicle mileage and expenses in accordance with the Fair Labor Standards Act. In July 2018, the District Court granted a motion to certify a conditional corporate collective class and the opt-in notice process has been completed. As of the close of the opt-in period on October 29, 2018, 9,571 drivers opted into the collective class. 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 March 27, 2022 as it does not believe a loss is probable or reasonably estimable. ​ ​ 19 Table of Contents 10. 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 ​ $ 1,632 Property and equipment, net ​ ​ 7,030 Operating lease right-of-use assets ​ 8,924 Goodwill ​ ​ 9,908 Other assets ​ ​ 191 Loss on impairment ​ ​ ( 8,412 ) Total assets held for sale ​ $ 19,273 ​ ​ ​ ​ Accounts payable, taxes payable, accrued expenses and other ​ $ 1,632 Current deferred revenue ​ ​ 1,930 Current operating lease liabilities ​ ​ 2,338 Long-term operating lease liabilities ​ ​ 7,097 Other long-term liabilities ​ ​ 250 Total liabilities held for sale ​ $ 13,247 ​ 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. ​ ​ ​ ​ 20 Table of Contents 11. Segment Information ​ We have four reportable segments: 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. The North America commissary segment consists of the operations of our regional dough production and product distribution centers and derives its revenues principally from the sale and distribution of food and paper products to domestic Company-owned and franchised restaurants in the United States and Canada. The North America franchising segment consists of our franchise sales and support activities and derives its revenues from sales of franchise and development rights and collection of royalties from our franchisees located in the United States and Canada. The international segment principally consists of distribution sales to franchised Papa John’s restaurants located in the United Kingdom and our franchise sales and support activities, which derive revenues from sales of franchise and development rights and the collection of royalties from our international franchisees. 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 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. ​ Our reportable segments are business units that provide different products or services. Separate management of each segment is required because each business unit is subject to different operational issues and strategies. No single external customer accounted for 10% or more of our consolidated revenues. 21 Table of Contents Our segment information is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ ​ ​ March 27, ​ March 28, (In thousands) ​ 2022 2021 Revenues: ​ ​ ​ ​ ​ ​ ​ Domestic Company-owned restaurants ​ ​ $ 198,765 ​ $ 197,234 North America franchising ​ ​ 34,268 ​ 32,715 North America commissaries ​ ​ 209,679 ​ 184,878 International ​ ​ 42,707 ​ 42,604 All others ​ ​ 57,273 ​ 54,315 Total revenues ​ ​ $ 542,692 ​ $ 511,746 ​ ​ ​ ​ ​ ​ ​ ​ Intersegment revenues: ​ ​ ​ ​ ​ ​ ​ North America franchising ​ ​ $ 1,053 ​ $ 1,060 North America commissaries ​ ​ ​ 58,507 ​ ​ 52,070 All others ​ ​ 19,379 ​ 19,148 Total intersegment revenues ​ ​ $ 78,939 ​ $ 72,278 ​ ​ ​ ​ ​ ​ ​ ​ Operating income: ​ ​ ​ ​ ​ ​ ​ Domestic Company-owned restaurants (1) ​ ​ $ 1,989 ​ $ 15,324 North America franchising ​ ​ 32,137 ​ 30,443 North America commissaries ​ ​ 9,334 ​ 9,713 International (2) ​ ​ 4,455 ​ 8,364 All others ​ ​ 3,719 ​ 6,118 Unallocated corporate expenses (3) ​ ​ ( 37,111 ) ​ ( 23,162 ) Elimination of intersegment (profits) losses ​ ​ ( 88 ) ​ 62 Total operating income ​ ​ $ 14,435 ​ $ 46,862 ​ ​ ​ ​ ​ ​ ​ ​ Property and equipment, net: ​ ​ ​ ​ ​ ​ ​ Domestic Company-owned restaurants ​ ​ $ 220,357 ​ ​ ​ North America commissaries ​ ​ ​ 149,503 ​ ​ ​ International ​ ​ ​ 14,857 ​ ​ ​ All others ​ ​ ​ 112,037 ​ ​ ​ Unallocated corporate assets ​ ​ ​ 234,115 ​ ​ ​ Accumulated depreciation and amortization ​ ​ ​ ( 514,616 ) ​ ​ ​ Total property and equipment, net ​ ​ $ 216,253 ​ ​ ​ ​ ​ (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. ​ ​ ​ ​ ​ 22 Table of Contents Disaggregation of Revenue ​ In the following tables, revenues are disaggregated by major product/service line. The tables also include a reconciliation of the disaggregated revenues by the reportable segment (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Reportable Segments ​ ​ Three Months Ended March 27, 2022 Major Products/Services Lines ​ ​ Domestic Company-owned restaurants ​ ​ North America franchising ​ ​ North America commissaries ​ ​ International ​ ​ All others ​ ​ Total Company-owned restaurant sales ​ $ 198,765 ​ $ - ​ $ - ​ $ - ​ $ - ​ $ 198,765 Franchise royalties and fees ​ ​ - ​ ​ 35,321 ​ ​ - ​ ​ 13,435 ​ ​ - ​ ​ 48,756 Commissary sales ​ ​ - ​ ​ - ​ ​ 268,186 ​ ​ 21,182 ​ ​ - ​ ​ 289,368 Other revenues ​ ​ - ​ ​ - ​ ​ - ​ ​ 8,090 ​ ​ 76,652 ​ ​ 84,742 Eliminations ​ ​ - ​ ​ ( 1,053 ) ​ ​ ( 58,507 ) ​ ​ - ​ ​ ( 19,379 ) ​ ​ ( 78,939 ) Total segment revenues ​ $ 198,765 ​ $ 34,268 ​ $ 209,679 ​ $ 42,707 ​ $ 57,273 ​ $ 542,692 International other revenues (1) ​ ​ - ​ ​ - ​ ​ - ​ ​ ( 8,090 ) ​ ​ 8,090 ​ ​ - Total revenues ​ $ 198,765 ​ $ 34,268 ​ $ 209,679 ​ $ 34,617 ​ $ 65,363 ​ $ 542,692 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Reportable Segments ​ ​ Three Months Ended March 28, 2021 Major Products/Services Lines ​ ​ Domestic Company-owned restaurants ​ ​ North America franchising ​ ​ North America commissaries ​ ​ International ​ ​ All others ​ ​ Total Company-owned restaurant sales ​ $ 197,234 ​ $ - ​ $ - ​ $ - ​ $ - ​ $ 197,234 Franchise royalties and fees ​ ​ - ​ ​ 33,775 ​ ​ - ​ ​ 12,208 ​ ​ - ​ ​ 45,983 Commissary sales ​ ​ - ​ ​ - ​ ​ 236,948 ​ ​ 22,399 ​ ​ - ​ ​ 259,347 Other revenues ​ ​ - ​ ​ - ​ ​ - ​ ​ 7,997 ​ ​ 73,463 ​ ​ 81,460 Eliminations ​ ​ - ​ ​ ( 1,060 ) ​ ​ ( 52,070 ) ​ ​ - ​ ​ ( 19,148 ) ​ ​ ( 72,278 ) Total segment revenues ​ $ 197,234 ​ $ 32,715 ​ $ 184,878 ​ $ 42,604 ​ $ 54,315 ​ $ 511,746 International other revenues (1) ​ ​ - ​ ​ - ​ ​ - ​ ​ ( 7,997 ) ​ ​ 7,997 ​ ​ - Total revenues ​ $ 197,234 ​ $ 32,715 ​ $ 184,878 ​ $ 34,607 ​ $ 62,312 ​ $ 511,746 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (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. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 23 Table of Contents Note 12. 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. 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. Mr. 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. O’Neal. 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; and ● 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. ​ ​ ​ 24 Table of Contents