What changed in this filing

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Item 1. Financial Statements

2022-11-03 compared with 2022-08-04 · 161 added, 152 removed, 581 unchanged (35% of the section changed)

3 unchanged sentences

Condensed Consolidated Balance Sheets

(In thousands, except per share amounts) June 26,

(In thousands, except per share amounts) September 25,

2022 December 26,

34 unchanged sentences

Common stock ($ 0.01 par value per share;

issued 49,096 at June 26, 2022 and 49,002 at December 26, 2021)

issued 49,112 at September 25, 2022 and 49,002 at December 26, 2021)

Additional paid-in capital 444,643 445,126

1 unchanged sentence

Retained earnings 187,286 183,157

Treasury stock ( 13,848 shares at June 26, 2022 and 13,205 shares at December 26, 2021, at cost)

Treasury stock ( 14,047 shares at September 25, 2022 and 13,205 shares at December 26, 2021, at cost)

( 892,818 ) ( 806,472 )

7 unchanged sentences

Condensed Consolidated Statements of Operations

Three Months Ended Six Months Ended

(In thousands, except per share amounts) June 26,

2022 June 27,

2021 June 26,

2022 June 27,

Three Months Ended Nine Months Ended

(In thousands, except per share amounts) September 25,

2022 September 26,

2021 September 25,

2022 September 26,

Domestic Company-owned restaurant sales $ 166,050 $ 191,584 $ 536,226 $ 584,942

21 unchanged sentences

Net income attributable to the Company $ 8,331 $ 29,256 $ 44,258 $ 95,393

Calculation of net income for earnings per share:

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

Net income attributable to the Company $ 8,331 $ 29,256 $ 44,258 $ 95,393

8 unchanged sentences

Dividends declared per common share $ 0.42 $ 0.35 $ 1.12 $ 0.80

See accompanying notes.

Papa John’s International, Inc.

1 unchanged sentence

Condensed Consolidated Statements of Comprehensive Income

Three Months Ended Six Months Ended

(In thousands) June 26,

2022 June 27,

2021 June 26,

2022 June 27,

Three Months Ended Nine Months Ended

(In thousands) September 25,

2022 September 26,

2021 September 25,

2022 September 26,

Net income before attribution to noncontrolling interests $ 8,464 $ 30,541 $ 45,621 $ 99,414

2 unchanged sentences

Interest rate swaps (1)

1,169 1,535 4,758 5,147

Other comprehensive (loss) income, before tax ( 3,680 ) 422 ( 5,061 ) 5,530

2 unchanged sentences

Interest rate swaps (2)

( 268 ) ( 353 ) ( 1,094 ) ( 1,184 )

Income tax effect 846 ( 97 ) 1,164 ( 1,272 )

5 unchanged sentences

_______________

(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.

(1) Amounts reclassified out of accumulated other comprehensive loss into net interest expense include $ 1,650 and $ 1,850 for the three and nine months ended September 25, 2022, respectively, and $ 1,644 and $ 5,084 for the three and nine months ended September 26, 2021, respectively.

(2) The income tax effects of amounts reclassified out of accumulated other comprehensive loss into net interest expense were $ 371 and $ 416 for the three and nine months ended September 25, 2022, respectively, and $ 368 and $ 1,139 for the three and nine months ended September 26, 2021, respectively.

See accompanying notes.

13 unchanged sentences

Stockholders’

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 )

For the three months ended September 25, 2022

Balance at June 26, 2022 35,248 $ 491 $ 442,255 $ ( 11,034 ) $ 193,934 $ ( 875,205 ) $ 15,761 $ ( 233,798 )

Net income (1)

— — — — 8,331 — 102 8,433

Other comprehensive (loss), net of tax — — — ( 2,834 ) — — — ( 2,834 )

7 unchanged sentences

Other 2 — ( 67 ) — ( 73 ) 156 — 16

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 September 25, 2022 35,065 $ 491 $ 444,643 $ ( 13,868 ) $ 187,286 $ ( 892,818 ) $ 15,647 $ ( 258,619 )

For the nine months ended September 25, 2022

Balance at December 26, 2021 35,797 $ 490 $ 445,126 $ ( 9,971 ) $ 183,157 $ ( 806,472 ) $ 15,212 $ ( 172,458 )

Net income (1)

— — — — 44,258 — 804 45,062

Other comprehensive (loss), net of tax — — — ( 3,897 ) — — — ( 3,897 )

7 unchanged sentences

Other 8 — ( 64 ) — ( 27 ) 444 ( 3 ) 350

Balance at June 26, 2022 35,248 $ 491 $ 442,255 $ ( 11,034 ) $ 193,934 $ ( 875,205 ) $ 15,761 $ ( 233,798 )

Balance at September 25, 2022 35,065 $ 491 $ 444,643 $ ( 13,868 ) $ 187,286 $ ( 892,818 ) $ 15,647 $ ( 258,619 )

_______________

(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 .

(1) Net income to the Company for the three and nine months ended September 25, 2022 excludes income of $ 31 and $ 559 allocable to the redeemable noncontrolling interests for our joint venture arrangements.

At September 25, 2022, the accumulated other comprehensive loss of $ 13,868 was comprised of net unrealized foreign currency translation loss of $ 12,430 and net unrealized loss on the interest rate swap agreements of $ 1,438 .

See accompanying notes.

Papa John’s International, Inc.

and Subsidiaries

Condensed Consolidated Statements of Stockholders’ Deficit (continued)

Papa John’s International, Inc.

(In thousands) Common

8 unchanged sentences

Stockholders’

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 )

For the three months ended September 26, 2021

Balance at June 27, 2021 36,215 $ 489 $ 435,608 $ ( 10,235 ) $ 154,769 $ ( 743,819 ) $ 15,290 $ ( 147,898 )

Net income (1)

— — — — 29,256 — 593 29,849

Other comprehensive income, net of tax — — — 325 — — — 325

Repurchase and conversion of Series B Convertible Preferred Stock 3,489 35 174,631 — ( 110,783 ) — — 63,883

Cash dividends on common stock — — 48 — ( 12,845 ) — — ( 12,797 )

Cash dividends on preferred stock — — — — ( 709 ) — — ( 709 )

Exercise of stock options 51 1 3,111 — — — — 3,112

5 unchanged sentences

Other 5 — ( 46 ) — 198 278 — 430

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 September 26, 2021 36,183 $ 490 $ 440,742 $ ( 9,910 ) $ 171,378 $ ( 755,035 ) $ 15,289 $ ( 137,046 )

For the nine months ended September 26, 2021

Balance at December 27, 2020 32,545 $ 453 $ 254,103 $ ( 14,168 ) $ 219,158 $ ( 741,724 ) $ 15,239 $ ( 266,939 )

Net income (1)

— — — — 95,393 — 1,829 97,222

Other comprehensive income, net of tax — — — 4,258 — — — 4,258

9 unchanged sentences

Other 12 — 18 — ( 804 ) 706 — ( 80 )

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 .

Balance at September 26, 2021 36,183 $ 490 $ 440,742 $ ( 9,910 ) $ 171,378 $ ( 755,035 ) $ 15,289 $ ( 137,046 )

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

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

See accompanying notes.

2 unchanged sentences

Condensed Consolidated Statements of Cash Flows

Six Months Ended

(In thousands) June 26,

2022 June 27,

Nine Months Ended

(In thousands) September 25,

2022 September 26,

Operating activities

24 unchanged sentences

Proceeds from refranchising, net of cash transferred 13,588 —

Other 238 116

Net cash used in investing activities ( 30,229 ) ( 41,191 )

Financing activities

Proceeds from issuance of senior notes — 400,000

Net proceeds of revolving credit facilities 66,999 15,000

Debt issuance costs — ( 9,179 )

Proceeds from exercise of stock options 2,730 11,211

16 unchanged sentences

Notes to Condensed Consolidated Financial Statements (Unaudited)

June 26, 2022

September 25, 2022

Basis of Presentation

2 unchanged sentences

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

Operating results for the three and 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.

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

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

9 unchanged sentences

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

PJMF is a variable interest entity (“VIE”) that funds its operations with ongoing financial support and contributions from the domestic restaurants, of which approximately 80 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.

PJMF is a variable interest entity (“VIE”) that funds its operations with ongoing financial support and contributions from the domestic restaurants, of which approximately 85 percent are franchised, and does not have sufficient equity to fund its operations without these ongoing financial contributions.

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

1 unchanged sentence

Noncontrolling Interests

Papa John’s has 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.

Papa John’s has joint venture arrangements in which there are noncontrolling interests held by third parties that includ e 98 and 188 restaurants at September 25, 2022 and September 26, 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.

2 unchanged sentences

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

Net income attributable to these joint ventures for the three and six months ended June 26, 2022 and June 27, 2021 was as follows (in thousands):

Three Months Ended Six Months Ended

2022 June 27,

2021 June 26,

2022 June 27,

Net income attributable to these joint ventures for the three and nine months ended September 25, 2022 and September 26, 2021 was as follows (in thousands):

Three Months Ended Nine Months Ended

September 25,

2022 September 26,

2021 September 25,

2022 September 26,

Papa John’s International, Inc.

30 unchanged sentences

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

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

Our financial assets and liabilities that were measured at fair value on a recurring basis as of September 25, 2022 and December 26, 2021 are as follows:

Fair Value Measurements

1 unchanged sentence

Value Level 1 Level 2 Level 3

June 26, 2022

September 25, 2022

Financial assets:

Cash surrender value of life insurance policies (a)

$ 28,488 $ 28,488 $ — $ —

Interest rate swaps (b)

$ 1,355 $ — $ 1,355 $ —

December 26, 2021

1 unchanged sentence

Cash surrender value of life insurance policies (a)

$ 41,904 $ 41,904 $ — $ —

Financial liabilities:

1 unchanged sentence

$ 5,536 $ — $ 5,536 $ —

_______________

(a) Represents life insurance policies held in our non-qualified deferred compensation plan.

4 unchanged sentences

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

September 25, 2022 December 26, 2021

(in thousands) Carrying

9 unchanged sentences

Balance at December 26, 2021 $ 2,364 $ 1,500

Current period provision for expected credit losses (1) 3,019 12,534

Current period provision for expected credit losses (a)

Write-offs charged against the allowance ( 303 ) —

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.

Balance at September 25, 2022 $ 7,113 $ 15,010

(a) 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.

The Company recorded $ 3.2 million of one-time, non-cash reserves in the third quarter of 2022 for certain accounts receivable and notes receivable primarily associated with the termination of a significant franchisee in the United Kingdom.

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.

At September 25, 2022, we leased and subleased approximately 444 Papa John’s restaurant properties to franchisees in the United Kingdom.

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

1 unchanged sentence

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

We recognized total sublease income of $ 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.

We recognized total sublease income of $ 3.0 million and $ 9.0 million for the three and nine months ended September 25, 2022, respectively, and $ 2.9 million and $ 9.0 million for the three and nine months ended September 26, 2021, respectively, within Other revenues in the Condensed Consolidated Statements of Operations.

Lease Guarantees

1 unchanged sentence

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.

As of September 25, 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 $ 9.8 million.

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

2 unchanged sentences

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

Nine Months Ended

(in thousands) September 25, 2022 September 26, 2021

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

6 unchanged sentences

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

(b) Includes right-of-use assets of approximately $ 14.3 million for the six months ended June 27, 2021 associated with the lease commencement of our Atlanta, Georgia corporate office.

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

Papa John’s Marketing Fund, Inc.

2 unchanged sentences

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

September 25,

2022 December 26, 2021

18 unchanged sentences

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

During the three and 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.

During the three and nine months ended September 25, 2022, the Company recognized $ 8.0 million and $ 25.6 million in revenue, respectively, related to deferred revenue, compared to $ 9.2 million and $ 27.3 million for the three and nine months ended September 26, 2021.

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

Contract Liabilities

June 26, 2022 December.

26, 2021 Change

September 25, 2022 December 26, 2021 Change

Franchise fees and unredeemed gift card liabilities $ 29,469 $ 20,410 $ 9,059

3 unchanged sentences

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

As of 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.

As of September 25, 2022 and December 26, 2021, the contract assets were approximately $ 5.1 million and $ 5.8 million, respectively.

For the three and nine months ended September 25, 2022, revenue was reduced approximately $ 0.8 million and $ 2.7 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.

10 unchanged sentences

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.

The Company has authorized 5.0 million shares of preferred stock (of which none were issued or outstanding at September 25, 2022 and December 26, 2021) and 100.0 million shares of common stock as of September 25, 2022 and December 26, 2021.

There were 35.1 million shares of common stock outstanding, net of repurchased shares of common stock at September 25, 2022, compared to 35.8 million shares at December 26, 2021.

Share Repurchase Program

2 unchanged sentences

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:

The following table summarizes our repurchase activity under our share repurchase programs for the three and nine months ended September 25, 2022 and September 26, 2021:

(in thousands, except average price per share) Total

7 unchanged sentences

Three Months Ended

June 26, 2022 452 $ 94.56 $ 42,762 $ 349,329

June 27, 2021 68 $ 101.21 $ 6,921 $ 64,110

September 25, 2022 229 $ 85.15 $ 19,529 $ 329,800

September 26, 2021 104 $ 119.47 $ 12,367 $ 51,743

(in thousands, except average price per share) Total

6 unchanged sentences

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.

Nine Months Ended

September 25, 2022 982 $ 96.71 $ 95,000 $ 329,800

September 26, 2021 187 $ 110.00 $ 20,555 $ 51,743

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

2 unchanged sentences

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

The Company recorded dividends of approximately $ 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.

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 Company recorded dividends of approx imately $ 39.9 million ($ 1.12 per share) f or the nine months ended September 25, 2022.

On October 27, 2022, our Board of Directors declared a fourth quarter dividend of $ 0.42 per common share (approximately $ 14.9 million in the aggregate), which will be paid on November 25, 2022 to stockholders of record as of the close of business on November 14, 2022.

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

Earnings (Loss) Per Share

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

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

The shares of 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.

2 unchanged sentences

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

Three Months Ended Six Months Ended

2022 June 27,

2021 June 26,

2022 June 27,

Three Months Ended Nine Months Ended

September 25,

2022 September 26,

2021 September 25,

2022 September 26,

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

10 unchanged sentences

Dilutive effect of outstanding equity awards (a)

189 332 238 —

Diluted weighted average common shares outstanding 35,448 36,719 35,840 34,619

Diluted earnings (loss) per common share $ 0.23 $ 0.79 $ 1.22 $ ( 0.59 )

_______________

(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).

(a) Excludes 58 and 47 equity awards for the three and nine months ended September 25, 2022, respectively, as the effect of including such awards would have been anti-dilutive ( none for the three and nine months ended September 26, 2021).

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

September 25,

2022 December 26,

16 unchanged sentences

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.

The remaining availability under the PJI Revolving Facility was approximately $ 443.0 million as of September 25, 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.

8 unchanged sentences

(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.

We were in compliance with these financial covenants at September 25, 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.

7 unchanged sentences

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 June 26, 2022 or December 26, 2021.

under the PJMF Revolving Facility accrue interest at a variable rate of a one month Term Secured Overnight Financing Rate ("SOFR") plus 1.60 %.

There was no debt outstanding under the PJMF Revolving Facility as of September 25, 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:

As of September 25, 2022, we have the following interest rate swap agreements with a total notional value of $ 125.0 million:

Effective Dates Floating Rate Debt Fixed Rates

2 unchanged sentences

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.

In the third quarter of 2021, our interest rate swaps were de-designated as cash flow hedges following the issuance of the Notes and remained undesignated as hedges through June 26, 2022.

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.

As of June 27, 2022, the interest rate swaps were re-designated as cash flow hedges to provide a hedge against changes in variable rate cash flows regarding fluctuations in the LIBOR rate utilized on the revolving credit facility.

Therefore, beginning in the third quarter of 2022, our interest rate swaps are accounted for utilizing cash flow hedge accounting treatment.

The interest rate swaps are marked to market at each reporting date and any unrealized gains or losses are included in accumulated other comprehensive income and reclassified to interest expense in the same period or periods during which the hedged transactions affect earnings.

The following table provides information on the location and amounts of our swaps in the accompanying condensed consolidated financial statements (in thousands):

1 unchanged sentence

Balance Sheet Location Fair Value

September 25,

2022 Fair Value

Other current and long-term assets $ 672 $ —

Other current assets $ 1,355 $ —

Other current and long-term liabilities $ — $ 5,536

11 unchanged sentences

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.

September 25, 2022 $ 901 Interest expense ( 1,650 ) $ ( 7,623 )

September 26, 2021 $ 1,182 Interest expense ( 1,644 ) $ ( 3,979 )

Interest rate swaps for the nine months ended:

September 25, 2022 $ 3,664 Interest Expense ( 1,850 ) $ ( 17,967 )

September 26, 2021 $ 3,963 Interest Expense ( 5,084 ) $ ( 11,275 )

Interest paid, including payments made or received under the swaps, was $ 9.6 million and $ 4.1 million for the three months ended September 25, 2022 and September 26, 2021, respectively, and $ 22.2 million and $ 11.1 million for the nine months ended September 25, 2022 and September 26, 2021, respectively.

Commitments and Contingencies

4 unchanged sentences

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.

On April 14, 2022, the parties reached a 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.

3 unchanged sentences

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.

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.

On September 30, 2022, the parties reached a 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 no more than $ 20.0 million subject to a claims-made process, all claims in the action will be dismissed, the litigation will be terminated, and the Company will receive a release.

The proposed settlement also includes resolution of a companion case, Hubbard, et al.

Papa John’s International, Inc.

, pending in the United States District Court for the Western District of Kentucky.

The proposed settlement is subject to a claims-made process whereby unclaimed funds revert to the Company, and the

Company is only responsible for payments to class and collective action members who timely submit a claim form.

Although the return rate for timely claims is unknown and not within the Company's control, the Company estimates its actual exposure resulting from the settlement to be approximately $ 10.0 million and this amount was recorded in General and administrative expenses in the Condensed Consolidated Statements of Operations in the third 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.

Refranchising Loss

8 unchanged sentences

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 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.

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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,

Three Months Ended Nine Months Ended

(In thousands) September 25,

2022 September 26,

2021 September 25,

2022 September 26,

Domestic Company-owned restaurants $ 166,050 $ 191,584 $ 536,226 $ 584,942

10 unchanged sentences

Operating income:

Domestic Company-owned restaurants (1) $ 5,924 $ 15,361 $ 7,912 $ 30,685

Domestic Company-owned restaurants (a)

$ 3,667 $ 9,480 $ 11,579 $ 40,165

North America franchising 31,464 29,830 96,225 90,791

North America commissaries 8,425 9,598 28,717 29,089

International (2) 7,306 8,683 11,761 17,047

International (b)

1,136 9,618 12,897 26,665

All others 2,037 3,848 7,943 14,860

Unallocated corporate expenses (3) ( 19,344 ) ( 24,617 ) ( 56,454 ) ( 47,779 )

Unallocated corporate expenses (c)

( 27,684 ) ( 23,158 ) ( 84,138 ) ( 70,937 )

Elimination of intersegment (profits) losses 416 ( 639 ) ( 423 ) ( 557 )

8 unchanged sentences

Total property and equipment, net $ 230,894

(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.

(a) 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 nine months ended September 25, 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.

(b) The three months ended September 25, 2022 includes a charge of $ 4.1 million related to the reserve of certain accounts and notes receivable and operating lease right-of-use assets impairment associated with the termination of a significant franchisee in the United Kingdom.

The nine months ended September 25, 2022 also includes $ 3.5 million of one-time, non-cash reserves for certain accounts receivable and impairments of reacquired franchise rights.

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.

(c) Unallocated corporate expenses includes $ 10.0 million for certain legal settlements for the three months ended September 25, 2022.

For the nine months ended September 25, 2022, Unallocated corporate expenses includes $ 13.9 million of one-time, non-cash reserves of certain notes receivable, $ 15.0 million for certain legal settlements (see Note 9 for more information), and $ 1.5 million of advisory fees and severance costs associated with the transition of certain executives.

Unallocated corporate expense includes $ 2.2 million and $ 9.4 million of reorganization costs for the three and nine months ended September 26, 2021.

See Notes 2 and 9 for additional information.

3 unchanged sentences

Reportable Segments

Three Months Ended June 26, 2022

Three Months Ended September 25, 2022

Major Products/Services Lines Domestic Company-owned restaurants North America franchising North America commissaries International All others Total

5 unchanged sentences

Total segment revenues $ 166,050 $ 33,712 $ 216,115 $ 37,707 $ 56,928 $ 510,512

International other revenues (1) — — — ( 7,324 ) 7,324 —

International other revenues (a)

— — — ( 6,972 ) 6,972 —

Total revenues $ 166,050 $ 33,712 $ 216,115 $ 30,735 $ 63,900 $ 510,512

Reportable Segments

Three Months Ended June 27, 2021

Three Months Ended September 26, 2021

Major Products/Services Lines Domestic Company-owned restaurants North America franchising North America commissaries International All others Total

5 unchanged sentences

Total segment revenues $ 191,584 $ 31,933 $ 189,224 $ 46,880 $ 53,161 $ 512,782

International other revenues (1) — — — ( 8,663 ) 8,663 —

International other revenues (a)

— — — ( 8,472 ) 8,472 —

Total revenues $ 191,584 $ 31,933 $ 189,224 $ 38,408 $ 61,633 $ 512,782

Reportable Segments

Six Months Ended June 26, 2022

Nine Months Ended September 25, 2022

Major Products/Services Lines Domestic Company-owned restaurants North America franchising North America commissaries International All others Total

5 unchanged sentences

Total segment revenues $ 536,226 $ 102,897 $ 645,177 $ 119,696 $ 171,873 $ 1,575,869

International other revenues (1) — — — ( 15,414 ) 15,414 —

International other revenues (a)

— — — ( 22,386 ) 22,386 —

Total revenues $ 536,226 $ 102,897 $ 645,177 $ 97,310 $ 194,259 $ 1,575,869

Reportable Segments

Six Months Ended June 27, 2021

Nine Months Ended September 26, 2021

Major Products/Services Lines Domestic Company-owned restaurants North America franchising North America commissaries International All others Total

5 unchanged sentences

Total segment revenues $ 584,942 $ 97,123 $ 560,743 $ 135,761 $ 160,967 $ 1,539,536

International other revenues (1) — — — ( 16,660 ) 16,660 —

International other revenues (a)

— — — ( 25,132 ) 25,132 —

Total revenues $ 584,942 $ 97,123 $ 560,743 $ 110,629 $ 186,099 $ 1,539,536

(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.

(a) Other revenues as reported in the Condensed Consolidated Statements of Operations include $ 7.0 million and $ 22.4 million of revenue for the three and nine months ended September 25, 2022, respectively, and $ 8.5 million and $ 25.1 million for the three and nine months ended September 26, 2021, respectively, that are part of the international reporting segment.

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

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

Related Party Transactions

Endorsement Agreement

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

What changed 10-Q

Item 1. Financial Statements