PAPA JOHNS INTERNATIONAL INC 10-Q

Item 1. Financial Statements Papa John’s International, Inc. and Subsidiaries Condensed Consolidated Balance Sheets (In thousands, except per share amounts) June 26, 2022 December 26, 2021 (Unaudited) Assets Current assets: Cash and cash equivalents $ 52,124 $ 70,610 Accounts receivable, net 87,495 81,370 Notes receivable, current portion 8,333 12,352 Income tax receivable 4,017 9,386 Inventories 38,076 34,981 Prepaid expenses and other current assets 49,743 46,310 Total current assets 239,788 255,009 Property and equipment, net 225,382 223,856 Finance lease right-of-use assets, net 18,642 20,907 Operating lease right-of-use assets 176,719 176,256 Notes receivable, less current portion, net 19,703 35,504 Goodwill 70,731 80,632 Deferred income taxes 8,657 5,156 Other assets 76,650 88,384 Total assets $ 836,272 $ 885,704 Liabilities, Redeemable noncontrolling interests and Stockholders’ deficit Current liabilities: Accounts payable $ 40,845 $ 28,092 Income and other taxes payable 16,785 19,996 Accrued expenses and other current liabilities 146,213 190,116 Current deferred revenue 19,925 21,700 Current finance lease liabilities 5,224 4,977 Current operating lease liabilities 21,485 22,543 Total current liabilities 250,477 287,424 Deferred revenue 23,633 13,846 Long-term finance lease liabilities 14,252 16,580 Long-term operating lease liabilities 164,336 160,672 Long-term debt, less current portion, net 536,446 480,730 Deferred income taxes 236 258 Other long-term liabilities 79,516 93,154 Total liabilities 1,068,896 1,052,664 Redeemable noncontrolling interests 1,174 5,498 Stockholders’ deficit: Common stock ($ 0.01 par value per share; issued 49,096 at June 26, 2022 and 49,002 at December 26, 2021) 491 490 Additional paid-in capital 442,255 445,126 Accumulated other comprehensive loss ( 11,034 ) ( 9,971 ) Retained earnings 193,934 183,157 Treasury stock ( 13,848 shares at June 26, 2022 and 13,205 shares at December 26, 2021, at cost) ( 875,205 ) ( 806,472 ) Total stockholders’ deficit ( 249,559 ) ( 187,670 ) Noncontrolling interests in subsidiaries 15,761 15,212 Total Stockholders’ deficit ( 233,798 ) ( 172,458 ) Total liabilities, Redeemable noncontrolling interests and Stockholders’ deficit $ 836,272 $ 885,704 See accompanying notes. 3 Papa John’s International, Inc. and Subsidiaries Condensed Consolidated Statements of Operations (Unaudited) Three Months Ended Six Months Ended (In thousands, except per share amounts) June 26, 2022 June 27, 2021 June 26, 2022 June 27, 2021 Revenues: Domestic Company-owned restaurant sales $ 171,411 $ 196,124 $ 370,176 $ 393,358 North America franchise royalties and fees 34,917 32,475 69,185 65,190 North America commissary revenues 219,383 186,641 429,062 371,519 International revenues 31,958 37,614 66,575 72,221 Other revenues 64,996 62,154 130,359 124,466 Total revenues 522,665 515,008 1,065,357 1,026,754 Costs and expenses: Operating costs (excluding depreciation and amortization shown separately below): Domestic Company-owned restaurant expenses 142,026 154,293 303,687 310,181 North America commissary expenses 204,470 172,227 401,560 342,911 International expenses 19,236 21,430 39,150 41,048 Other expenses 60,648 56,246 121,203 112,053 General and administrative expenses 44,646 53,698 110,584 103,709 Depreciation and amortization 12,735 12,477 24,674 25,353 Total costs and expenses 483,761 470,371 1,000,858 935,255 Refranchising and impairment loss — — ( 11,160 ) — Operating income 38,904 44,637 53,339 91,499 Net interest expense ( 6,081 ) ( 3,649 ) ( 10,344 ) ( 7,296 ) Income before income taxes 32,823 40,988 42,995 84,203 Income tax expense 7,093 7,398 5,838 15,330 Net income before attribution to noncontrolling interests 25,730 33,590 37,157 68,873 Net income attributable to noncontrolling interests ( 297 ) ( 1,336 ) ( 1,230 ) ( 2,736 ) Net income attributable to the Company $ 25,433 $ 32,254 $ 35,927 $ 66,137 Calculation of net income for earnings per share: Net income attributable to the Company $ 25,433 $ 32,254 $ 35,927 $ 66,137 Dividends on redemption of Series B Convertible Preferred Stock — ( 109,852 ) — ( 109,852 ) Dividends paid to participating securities ( 82 ) ( 2,300 ) ( 141 ) ( 5,827 ) Net income attributable to participating securities ( 111 ) — ( 93 ) — Net income (loss) attributable to common shareholders $ 25,240 $ ( 79,898 ) $ 35,693 $ ( 49,542 ) Basic earnings (loss) per common share $ 0.71 $ ( 2.30 ) $ 1.00 $ ( 1.47 ) Diluted earnings (loss) per common share $ 0.70 $ ( 2.30 ) $ 0.99 $ ( 1.47 ) Basic weighted average common shares outstanding 35,624 34,729 35,775 33,739 Diluted weighted average common shares outstanding 35,824 34,729 36,032 33,739 Dividends declared per common share $ 0.350 $ 0.225 $ 0.700 $ 0.450 4 Papa John’s International, Inc. and Subsidiaries Condensed Consolidated Statements of Comprehensive Income (Unaudited) Three Months Ended Six Months Ended (In thousands) June 26, 2022 June 27, 2021 June 26, 2022 June 27, 2021 Net income before attribution to noncontrolling interests $ 25,730 $ 33,590 $ 37,157 $ 68,873 Other comprehensive (loss) income, before tax: Foreign currency translation adjustments ( 4,109 ) 437 ( 4,970 ) 1,496 Interest rate swaps (1) 1,877 1,817 3,589 3,612 Other comprehensive (loss) income, before tax ( 2,232 ) 2,254 ( 1,381 ) 5,108 Income tax effect: Foreign currency translation adjustments 946 ( 100 ) 1,144 ( 344 ) Interest rate swaps (2) ( 432 ) ( 418 ) ( 826 ) ( 831 ) Income tax effect 514 ( 518 ) 318 ( 1,175 ) Other comprehensive (loss) income, net of tax ( 1,718 ) 1,736 ( 1,063 ) 3,933 Comprehensive income before attribution to noncontrolling interests 24,012 35,326 36,094 72,806 Less: comprehensive (income), redeemable noncontrolling interests ( 18 ) ( 713 ) ( 528 ) ( 1,500 ) Less: comprehensive (income), nonredeemable noncontrolling interests ( 279 ) ( 623 ) ( 702 ) ( 1,236 ) Comprehensive income attributable to the Company $ 23,715 $ 33,990 $ 34,864 $ 70,070 _______________ (1) Amounts reclassified out of accumulated other comprehensive loss into net interest expense include $( 735 ) and $( 200 ) for the three and six months ended June 26, 2022, respectively, and $( 1,730 ) and $( 3,439 ) for the three and six months ended June 27, 2021, respectively. (2) The income tax effects of amounts reclassified out of accumulated other comprehensive loss into net interest expense were $ 165 and $ 45 for the three and six months ended June 26, 2022, respectively, and $ 388 and $ 771 for the three and six months ended June 27, 2021, respectively. See accompanying notes. 5 Papa John’s International, Inc. and Subsidiaries Condensed Consolidated Statements of Stockholders’ Deficit (Unaudited) Papa John’s International, Inc. (In thousands) Common Stock Shares Outstanding Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Loss Retained Earnings Treasury Stock Noncontrolling Interests in Subsidiaries Total Stockholders’ Deficit For the three months ended June 26, 2022 Balance at March 27, 2022 35,675 $ 491 $ 436,225 $ ( 9,316 ) $ 181,124 $ ( 832,603 ) $ 15,635 $ ( 208,444 ) Net income (1) — — — — 25,433 — 279 25,712 Other comprehensive (loss), net of tax — — — ( 1,718 ) — — — ( 1,718 ) Cash dividends on common stock — — 48 — ( 12,541 ) — — ( 12,493 ) Exercise of stock options 22 — 1,167 — — — — 1,167 Acquisition of Company common stock ( 452 ) — — — — ( 42,762 ) — ( 42,762 ) Stock-based compensation expense — — 4,925 — — — — 4,925 Issuance of restricted stock 2 — ( 81 ) — — 81 — — Tax payments for equity award issuances ( 1 ) — ( 65 ) — — — — ( 65 ) Distributions to noncontrolling interests — — — — — — ( 150 ) ( 150 ) Other 2 — 36 — ( 82 ) 79 ( 3 ) 30 Balance at June 26, 2022 35,248 $ 491 $ 442,255 $ ( 11,034 ) $ 193,934 $ ( 875,205 ) $ 15,761 $ ( 233,798 ) For the six months ended June 26, 2022 Balance at December 26, 2021 35,797 $ 490 $ 445,126 $ ( 9,971 ) $ 183,157 $ ( 806,472 ) $ 15,212 $ ( 172,458 ) Net income (1) — — — — 35,927 — 702 36,629 Other comprehensive (loss), net of tax — — — ( 1,063 ) — — — ( 1,063 ) Cash dividends on common stock — — 95 — ( 25,196 ) — — ( 25,101 ) Exercise of stock options 39 — 1,908 — — — — 1,908 Acquisition of Company common stock ( 753 ) — — — — ( 75,471 ) — ( 75,471 ) Stock-based compensation expense — 1 9,100 — — — — 9,101 Issuance of restricted stock 229 — ( 6,450 ) — — 6,450 — — Tax payments for equity award issuances ( 70 ) — ( 7,527 ) — — — — ( 7,527 ) Distributions to noncontrolling interests — — — — — — ( 150 ) ( 150 ) Other 6 — 3 — 46 288 (3) 334 Balance at June 26, 2022 35,248 $ 491 $ 442,255 $ ( 11,034 ) $ 193,934 $ ( 875,205 ) $ 15,761 $ ( 233,798 ) _______________ (1) Net income to the Company for the three and six months ended June 26, 2022 excludes income of $ 18 and $ 528 allocable to the redeemable noncontrolling interests for our joint venture arrangements. At June 26, 2022, the accumulated other comprehensive loss of $ 11,034 was comprised of net unrealized foreign currency translation loss of $ 8,696 and net unrealized loss on the interest rate swap agreements of $ 2,338 . See accompanying notes. 6 Papa John’s International, Inc. (In thousands) Common Stock Shares Outstanding Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Loss Retained Earnings Treasury Stock Noncontrolling Interests in Subsidiaries Total Stockholders’ Deficit For the three months ended June 27, 2021 Balance at March 28, 2021 32,681 $ 453 $ 251,285 $ ( 11,971 ) $ 242,119 $ ( 737,268 ) $ 15,282 $ ( 240,100 ) Net income (1) — — — — 32,254 — 623 32,877 Other comprehensive income, net of tax — — — 1,736 — — — 1,736 Repurchase and conversion of Series B Convertible Preferred Stock 3,489 35 174,631 — ( 110,783 ) — — 63,883 Cash dividends on common stock — — 31 — ( 7,471 ) — — ( 7,440 ) Cash dividends on preferred stock — — — — ( 709 ) — — ( 709 ) Exercise of stock options 107 1 5,801 — — — — 5,802 Acquisition of Company common stock ( 68 ) — — — — ( 6,921 ) — ( 6,921 ) Stock-based compensation expense — — 4,089 — — — — 4,089 Issuance of restricted stock 5 — ( 294 ) — — 294 — — Tax payments for equity award issuances — — ( 52 ) — — — — ( 52 ) Distributions to noncontrolling interests — — — — — — ( 615 ) ( 615 ) Other 1 — 117 — ( 641 ) 76 — ( 448 ) Balance at June 27, 2021 36,215 $ 489 $ 435,608 $ ( 10,235 ) $ 154,769 $ ( 743,819 ) $ 15,290 $ ( 147,898 ) For the six months ended June 27, 2021 Balance at December 27, 2020 32,545 $ 453 $ 254,103 $ ( 14,168 ) $ 219,158 $ ( 741,724 ) $ 15,239 $ ( 266,939 ) Net income (1) — — — — 66,137 — 1,236 67,373 Other comprehensive income, net of tax — — — 3,933 — — — 3,933 Repurchase and conversion of Series B Convertible Preferred Stock 3,489 35 174,631 — ( 110,783 ) — — 63,883 Cash dividends on common stock — — 62 — ( 14,906 ) — — ( 14,844 ) Cash dividends on preferred stock — — — — ( 4,121 ) — — ( 4,121 ) Exercise of stock options 148 1 8,099 — — — — 8,100 Acquisition of Company common stock ( 83 ) — — — — ( 8,188 ) — ( 8,188 ) Stock-based compensation expense — — 8,202 — — — — 8,202 Issuance of restricted stock 109 — ( 5,665 ) — — 5,665 — — Tax payments for equity award issuances — — ( 3,887 ) — — — — ( 3,887 ) Distributions to noncontrolling interests — — — — — — ( 1,185 ) ( 1,185 ) Other 7 — 63 — ( 716 ) 428 — ( 225 ) Balance at June 27, 2021 36,215 $ 489 $ 435,608 $ ( 10,235 ) $ 154,769 $ ( 743,819 ) $ 15,290 $ ( 147,898 ) _______________ (1) Net income to the Company for the three and six months ended June 27, 2021 excludes $ 713 and $ 1,500 allocable to the redeemable noncontrolling interests for our joint venture arrangements. At June 27, 2021, the accumulated other comprehensive loss of $ 10,235 was comprised of net unrealized foreign currency translation loss of $ 2,641 and net unrealized loss on the interest rate swap agreements of $ 7,594 . See accompanying notes. 7 Papa John’s International, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows (Unaudited) Six Months Ended (In thousands) June 26, 2022 June 27, 2021 Operating activities Net income before attribution to noncontrolling interests $ 37,157 $ 68,873 Adjustments to reconcile net income to net cash provided by operating activities: Provision (benefit) for allowance for credit losses on accounts and notes receivable 15,558 ( 1,200 ) Depreciation and amortization 24,674 25,353 Refranchising and impairment loss 11,160 — Deferred income taxes ( 2,993 ) ( 1,397 ) Stock-based compensation expense 9,100 8,202 Other ( 2,071 ) 467 Changes in operating assets and liabilities, net of acquisitions: Accounts receivable ( 9,177 ) 13,299 Income tax receivable 5,369 189 Inventories ( 3,815 ) 430 Prepaid expenses and other current assets ( 3,901 ) 1,092 Other assets and liabilities ( 5,379 ) ( 11,380 ) Accounts payable 12,742 ( 5,874 ) Income and other taxes payable ( 3,175 ) 18,500 Accrued expenses and other current liabilities ( 37,456 ) 12,123 Deferred revenue ( 2,208 ) ( 647 ) Net cash provided by operating activities 45,585 128,030 Investing activities Purchases of property and equipment ( 30,744 ) ( 21,543 ) Notes issued ( 1,098 ) ( 5,263 ) Repayments of notes issued 6,743 7,922 Acquisitions, net of cash acquired ( 1,250 ) ( 699 ) Proceeds from refranchising, net of cash transferred 13,588 — Other 238 116 Net cash used in investing activities ( 12,523 ) ( 19,467 ) Financing activities Net proceeds of revolving credit facilities 55,000 85,000 Proceeds from exercise of stock options 1,908 8,100 Repurchase of Series B Convertible Preferred Stock — ( 188,647 ) Acquisition of Company common stock ( 75,471 ) ( 8,188 ) Dividends paid to common stockholders ( 25,101 ) ( 14,844 ) Dividends paid to preferred stockholders — ( 6,394 ) Tax payments for equity award issuances ( 7,526 ) ( 3,887 ) Distributions to noncontrolling interests ( 835 ) ( 2,320 ) Repayments of term loan — ( 10,000 ) Other 1,348 ( 1,691 ) Net cash used in financing activities ( 50,677 ) ( 142,871 ) Effect of exchange rate changes on cash and cash equivalents ( 871 ) 317 Change in cash and cash equivalents ( 18,486 ) ( 33,991 ) Cash and cash equivalents at beginning of period 70,610 130,204 Cash and cash equivalents at end of period $ 52,124 $ 96,213 See accompanying notes . 8 Papa John’s International, Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements (Unaudited) June 26, 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 and six months ended June 26, 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, 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 percent are franchised ( 85 percent following the divestiture of the Company’s interest in one joint venture in the second 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 joint venture arrangements in which there are noncontrolling interests held by third parties that include 98 and 188 restaurants at June 26, 2022 and June 27, 2021, respectively. As further described in Note 10, we divested our 51 percent interest in one joint venture that owned 90 -restaurants in the second quarter of 2022. The assets and liabilities associated with this joint venture arrangement were classified as held for sale at the end of the first quarter of 2022. 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. 9 Net income attributable to these joint ventures for the three and six months ended June 26, 2022 and June 27, 2021 was as follows (in thousands): Three Months Ended Six Months Ended June 26, 2022 June 27, 2021 June 26, 2022 June 27, 2021 Papa John’s International, Inc. $ 706 $ 2,296 $ 2,327 $ 4,645 Noncontrolling interests 297 1,336 1,230 2,736 Total net income $ 1,003 $ 3,632 $ 3,557 $ 7,381 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. 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. 10 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 June 26, 2022 and December 26, 2021 are as follows: Fair Value Measurements (in thousands) Carrying Value Level 1 Level 2 Level 3 June 26, 2022 Financial assets: Cash surrender value of life insurance policies (a) $ 29,514 $ 29,514 $ — $ — Interest rate swaps (b) $ 672 $ — $ 672 $ — 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 June 26, 2022 and December 26, 2021, respectively: June 26, 2022 December 26, 2021 (in thousands) Carrying Value Fair Value Carrying Value Fair Value 3.875 % Senior Notes $ 400,000 $ 332,000 $ 400,000 $ 396,000 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. 11 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) 3,019 12,534 Write-offs charged against the allowance ( 275 ) — Recoveries collected — ( 14 ) Balance at June 26, 2022 $ 5,108 $ 14,020 (1) The Company recorded $ 14.6 million of one-time, non-cash reserves in the first quarter of 2022 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 June 26, 2022, we leased and subleased approximately 436 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 $ 6.0 million for the three and six months ended June 26, 2022, respectively, and $ 3.3 million and $ 6.1 million for the three and six months ended June 27, 2021, respectively, within Other revenues in the Condensed Consolidated Statements of Operations. 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 62 domestic leases. These leases have varying terms, the latest of which expires in 2036. As of June 26, 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 $ 10.2 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. 12 Supplemental Cash Flow & Other Information Supplemental cash flow information related to leases for the periods reported is as follows: Six Months Ended (in thousands) June 26, 2022 June 27, 2021 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from finance leases $ 510 $ 574 Financing cash flows from finance leases 2,508 2,188 Operating cash flows from operating leases (a) 18,363 19,139 Right-of-use assets obtained in exchange for new finance lease liabilities 569 8,393 Right-of-use assets obtained in exchange for new operating lease liabilities (b) 31,369 35,115 Cash received from sublease income 5,623 5,890 (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 $ 14.3 million for the six months ended June 27, 2021 associated with the lease commencement of our Atlanta, Georgia corporate office. 13 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): June 26, 2022 December 26, 2021 Assets Current assets: Cash and cash equivalents $ 16,886 $ 24,481 Accounts receivable, net 13,523 14,150 Income tax receivable 44 300 Prepaid expenses and other current assets 2,012 1,718 Total current assets 32,465 40,649 Deferred income taxes 592 614 Total assets $ 33,057 $ 41,263 Liabilities Current liabilities: Accounts payable $ 278 $ 140 Income and other taxes payable 2 2 Accrued expenses and other current liabilities 32,805 40,154 Current deferred revenue 3,479 4,317 Total current liabilities 36,564 44,613 Deferred revenue 1,978 2,478 Total liabilities $ 38,542 $ 47,091 14 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 and six months ended June 26, 2022, the Company recognized $ 8.3 million and $ 17.6 million in revenue, respectively, related to deferred revenue, compared to $ 9.0 million and $ 18.2 million for the three and six months ended June 27, 2021. The following table includes a breakout of contract liability balances (in thousands): Contract Liabilities June 26, 2022 December. 26, 2021 Change Franchise fees and unredeemed gift card liabilities $ 30,306 $ 20,410 $ 9,896 Customer loyalty program obligations 13,252 15,136 ( 1,884 ) Total contract liabilities $ 43,558 $ 35,546 $ 8,012 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 June 26, 2022 and December 26, 2021, the contract assets were approximately $ 7.4 million and $ 5.8 million, respectively. For the three and six months ended June 26, 2022, revenue was reduced approximately $ 1.1 million and $ 1.9 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 $ 3,198 $ 2,989 $ 2,811 $ 2,604 $ 2,324 $ 7,888 $ 21,814 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 $ 5.4 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, " Revenue Recognition " 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 June 26, 2022 and December 26, 2021) and 100.0 million shares of common stock as of June 26, 2022 and December 26, 2021. There were 35.2 million shares of common stock outstanding, net of repurchased shares of common stock at June 26, 2022, compared to 35.8 million shares at December 26, 2021. 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 15 million share repurchase authorization, which began on November 4, 2020 and expired on December 26, 2021. The following table summarizes our repurchase activity under our share repurchase programs for the three and six months ended June 26, 2022 and June 27, 2021: (in thousands, except average price per share) Total Number of Shares Purchased Average Price Paid per Share Aggregate Cost of Shares Purchased Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs Three Months Ended June 26, 2022 452 $ 94.56 $ 42,762 $ 349,329 June 27, 2021 68 $ 101.21 $ 6,921 $ 64,110 (in thousands, except average price per share) Total Number of Shares Purchased Average Price Paid per Share Aggregate Cost of Shares Purchased Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs Six Months Ended June 26, 2022 753 $ 100.23 $ 75,471 $ 349,329 June 27, 2021 83 $ 98.23 $ 8,188 $ 64,110 Subsequent to June 26, 2022, we acquired an additional 229,000 shares at an aggregate cost of $ 19.5 million and an average price of $ 85.15 per share. Approximately $ 329.8 million remained available under the Company’s share repurchase program as of July 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 $ 25.1 million ($ 0.70 per share) for the six months ended June 26, 2022. On August 2, 2022, our Board of Directors declared a second quarter dividend of $ 0.42 per common share (approximately $ 14.9 million in the aggregate), which will be paid on August 26, 2022 to stockholders of record as of the close of business on August 15, 2022. The declaration and payment of any future dividends will be at the discretion of our Board of Directors. 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. 16 The calculations of basic and diluted earnings per common share are as follows: Three Months Ended Six Months Ended June 26, 2022 June 27, 2021 June 26, 2022 June 27, 2021 Basic earnings (loss) per common share (in thousands, except per share data) Net income attributable to the Company $ 25,433 $ 32,254 $ 35,927 $ 66,137 Dividends on redemption of Series B Convertible Preferred Stock — ( 109,852 ) — ( 109,852 ) Dividends paid to participating securities ( 82 ) ( 2,300 ) ( 141 ) ( 5,827 ) Net income attributable to participating securities ( 111 ) — ( 93 ) — Net income (loss) attributable to common shareholders $ 25,240 $ ( 79,898 ) $ 35,693 $ ( 49,542 ) Basic weighted average common shares outstanding 35,624 34,729 35,775 33,739 Basic earnings (loss) per common share $ 0.71 $ ( 2.30 ) $ 1.00 $ ( 1.47 ) Diluted earnings (loss) per common share (in thousands, except per share data) Net income (loss) attributable to common shareholders $ 25,240 $ ( 79,898 ) $ 35,693 $ ( 49,542 ) Weighted average common shares outstanding 35,624 34,729 35,775 33,739 Dilutive effect of outstanding equity awards (a) 200 — 257 — Diluted weighted average common shares outstanding 35,824 34,729 36,032 33,739 Diluted earnings (loss) per common share $ 0.70 $ ( 2.30 ) $ 0.99 $ ( 1.47 ) _______________ (a) Excludes 63 and 42 equity awards for the three and six months ended June 26, 2022, respectively, as the effect of including such awards would have been anti-dilutive ( none for the three and six months ended June 27, 2021). 8. Debt Long-term debt, net, consists of the following (in thousands): June 26, 2022 December 26, 2021 Senior notes $ 400,000 $ 400,000 Revolving facilities 145,000 90,000 Outstanding debt $ 545,000 $ 490,000 Unamortized debt issuance costs ( 8,554 ) ( 9,270 ) Total long-term debt, net $ 536,446 $ 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 17 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. The remaining availability under the PJI Revolving Facility was approximately $ 455.0 million as of June 26, 2022. 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 underutilized commitments under the PJI Revolving Facility. Loans outstanding under the PJI Revolving Facility may be prepaid at any time without premium or penalty, subject to customary breakage costs in the case of borrowings for which a LIBOR rate election is in effect. The Amended Credit Agreement also contain provisions specifying alternative interest rate calculations to be used at such time as LIBOR ceases to be available as a benchmark for establishing the interest rate on floating interest rate borrowings. The Amended Credit Agreement contains customary affirmative and negative covenants that, among other things, require customary reporting obligations, and restrict, subject to certain exceptions, the occurrence 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. The Company is also 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 June 26, 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 18 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 June 26, 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 June 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. 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 Balance Sheet Location Fair Value June 26, 2022 Fair Value December 26, 2021 Other current and long-term assets $ 672 $ — Other current and long-term liabilities $ — $ 5,536 The effect of derivative instruments on the accompanying condensed consolidated financial statements is as follows (in thousands): Derivatives - Cash Flow Hedging Relationships Amount of Gain or (Loss) Recognized in AOCL on Derivative Location of (Loss) or Gain Reclassified from AOCL into Income Amount of (Loss) or Gain Reclassified from AOCL into Income Total Net Interest Expense on Condensed Consolidated Statements of Operations Interest rate swaps for the three months ended: June 26, 2022 $ 1,445 Interest expense $ ( 735 ) $ ( 6,081 ) June 27, 2021 $ 1,399 Interest expense $ ( 1,730 ) $ ( 3,649 ) Interest rate swaps for the six months ended: June 26, 2022 $ 2,763 Interest Expense $ ( 200 ) $ ( 10,344 ) June 27, 2021 $ 2,781 Interest Expense $ ( 3,439 ) $ ( 7,296 ) Interest paid, including payments made or received under the swaps, was $ 2.4 million and $ 3.6 million for the three months ended June 26, 2022 and June 27, 2021, respectively, and $ 12.6 million and $ 7.1 million for the six months ended June 26, 2022 and June 27, 2021, respectively. 19 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 settlement amount was recorded in General and Administrative expenses in the Condensed Consolidated Statements of Operations in the first quarter of 2022. 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 not recorded any liability related to this lawsuit as of June 26, 2022 as it does not believe a loss is probable or reasonably estimable. 10. Divestitures Refranchising Loss 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. In connection with the divestiture, we recorded a one-time, non-cash charge of $ 8.4 million as a Refranchising Loss in the Condensed Consolidated Statement of Operations, 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 $ 8.4 million of the one-time, non-cash refranchising loss 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. 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 20 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 Our segment information is as follows: Three Months Ended Six Months Ended (In thousands) June 26, 2022 June 27, 2021 June 26, 2022 June 27, 2021 Revenues: Domestic Company-owned restaurants $ 171,411 $ 196,124 $ 370,176 $ 393,358 North America franchising 34,917 32,475 69,185 65,190 North America commissaries 219,383 186,641 429,062 371,519 International 39,282 46,277 81,989 88,881 All others 57,672 53,491 114,945 107,806 Total revenues $ 522,665 $ 515,008 $ 1,065,357 $ 1,026,754 Intersegment revenues: North America franchising $ 1,048 $ 1,041 $ 2,101 $ 2,101 North America commissaries 52,754 53,428 111,261 105,498 All others 15,889 18,943 35,268 38,091 Total intersegment revenues $ 69,691 $ 73,412 $ 148,630 $ 145,690 Operating income: Domestic Company-owned restaurants (1) $ 5,924 $ 15,361 $ 7,912 $ 30,685 North America franchising 32,624 30,518 64,761 60,961 North America commissaries 10,957 9,778 20,292 19,491 International (2) 7,306 8,683 11,761 17,047 All others 2,187 4,894 5,906 11,012 Unallocated corporate expenses (3) ( 19,344 ) ( 24,617 ) ( 56,454 ) ( 47,779 ) Elimination of intersegment (profits) losses ( 750 ) 20 ( 839 ) 82 Total operating income $ 38,904 $ 44,637 $ 53,339 $ 91,499 Property and equipment, net: Domestic Company-owned restaurants $ 225,755 North America commissaries 151,648 International 15,157 All others 118,496 Unallocated corporate assets 240,431 Accumulated depreciation and amortization ( 526,105 ) Total property and equipment, net $ 225,382 (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 for the six months ended June 26, 2022. 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 for the six months ended June 26, 2022. See Notes 2 and 10 for additional information. (3) Unallocated corporate expenses include $ 13.9 million of one-time, non-cash reserves of certain notes receivable, $ 5.0 million for the Legal Settlement, and $ 1.5 million of advisory fees and severance costs associated with the transition of certain executives for the six months ended June 26, 2022. Unallocated corporate expense includes $ 3.3 million and $ 7.2 million of reorganization costs for the three and six months ended June 27, 2021. See Notes 2 and 9 for additional information. 22 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 June 26, 2022 Major Products/Services Lines Domestic Company-owned restaurants North America franchising North America commissaries International All others Total Company-owned restaurant sales $ 171,411 $ — $ — $ — $ — $ 171,411 Franchise royalties and fees — 35,965 — 12,043 — 48,008 Commissary sales — — 272,137 19,915 — 292,052 Other revenues — — — 7,324 73,561 80,885 Eliminations — ( 1,048 ) ( 52,754 ) — ( 15,889 ) ( 69,691 ) Total segment revenues $ 171,411 $ 34,917 $ 219,383 $ 39,282 $ 57,672 $ 522,665 International other revenues (1) — — — ( 7,324 ) 7,324 — Total revenues $ 171,411 $ 34,917 $ 219,383 $ 31,958 $ 64,996 $ 522,665 Reportable Segments Three Months Ended June 27, 2021 Major Products/Services Lines Domestic Company-owned restaurants North America franchising North America commissaries International All others Total Company-owned restaurant sales $ 196,124 $ — $ — $ — $ — $ 196,124 Franchise royalties and fees — 33,516 — 13,156 — 46,672 Commissary sales — — 240,069 24,458 — 264,527 Other revenues — — — 8,663 72,434 81,097 Eliminations — ( 1,041 ) ( 53,428 ) — ( 18,943 ) ( 73,412 ) Total segment revenues $ 196,124 $ 32,475 $ 186,641 $ 46,277 $ 53,491 $ 515,008 International other revenues (1) — — — ( 8,663 ) 8,663 — Total revenues $ 196,124 $ 32,475 $ 186,641 $ 37,614 $ 62,154 $ 515,008 Reportable Segments Six Months Ended June 26, 2022 Major Products/Services Lines Domestic Company-owned restaurants North America franchising North America commissaries International All others Total Company-owned restaurant sales $ 370,176 $ — $ — $ — $ — $ 370,176 Franchise royalties and fees — 71,286 — 25,478 — 96,764 Commissary sales — — 540,323 41,097 — 581,420 Other revenues — — — 15,414 150,213 165,627 Eliminations — ( 2,101 ) ( 111,261 ) — ( 35,268 ) ( 148,630 ) Total segment revenues $ 370,176 $ 69,185 $ 429,062 $ 81,989 $ 114,945 $ 1,065,357 International other revenues (1) — — — ( 15,414 ) 15,414 — Total revenues $ 370,176 $ 69,185 $ 429,062 $ 66,575 $ 130,359 $ 1,065,357 23 Reportable Segments Six Months Ended June 27, 2021 Major Products/Services Lines Domestic Company-owned restaurants North America franchising North America commissaries International All others Total Company-owned restaurant sales $ 393,358 $ — $ — $ — $ — $ 393,358 Franchise royalties and fees — 67,291 — 25,364 — 92,655 Commissary sales — — 477,017 46,857 — 523,874 Other revenues — — — 16,660 145,897 162,557 Eliminations — ( 2,101 ) ( 105,498 ) — ( 38,091 ) ( 145,690 ) Total segment revenues $ 393,358 $ 65,190 $ 371,519 $ 88,881 $ 107,806 $ 1,026,754 International other revenues (1) — — — ( 16,660 ) 16,660 — Total revenues $ 393,358 $ 65,190 $ 371,519 $ 72,221 $ 124,466 $ 1,026,754 (1) Other revenues as reported in the Condensed Consolidated Statements of Operations include $ 7.3 million and $ 15.4 million of revenue for the three and six months ended June 26, 2022, respectively, and $ 8.7 million and $ 16.7 million for the three and six months ended June 27, 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. 24 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. 25