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) September 25, 2022 December 26, 2021 (Unaudited) Assets Current assets: Cash and cash equivalents $ 36,618 $ 70,610 Accounts receivable, net 95,855 81,370 Notes receivable, current portion 7,556 12,352 Income tax receivable 10,533 9,386 Inventories 42,448 34,981 Prepaid expenses and other current assets 46,514 46,310 Total current assets 239,524 255,009 Property and equipment, net 230,894 223,856 Finance lease right-of-use assets, net 22,692 20,907 Operating lease right-of-use assets 167,470 176,256 Notes receivable, less current portion, net 17,397 35,504 Goodwill 69,476 80,632 Deferred income taxes 4,969 5,156 Other assets 77,326 88,384 Total assets $ 829,748 $ 885,704 Liabilities, Redeemable noncontrolling interests and Stockholders’ deficit Current liabilities: Accounts payable $ 44,263 $ 28,092 Income and other taxes payable 18,171 19,996 Accrued expenses and other current liabilities 152,893 190,116 Current deferred revenue 19,925 21,700 Current finance lease liabilities 6,072 4,977 Current operating lease liabilities 22,403 22,543 Total current liabilities 263,727 287,424 Deferred revenue 22,987 13,846 Long-term finance lease liabilities 17,468 16,580 Long-term operating lease liabilities 155,952 160,672 Long-term debt, less current portion, net 548,753 480,730 Deferred income taxes 362 258 Other long-term liabilities 77,912 93,154 Total liabilities 1,087,161 1,052,664 Redeemable noncontrolling interests 1,206 5,498 Stockholders’ deficit: Common stock ($ 0.01 par value per share; issued 49,112 at September 25, 2022 and 49,002 at December 26, 2021) 491 490 Additional paid-in capital 444,643 445,126 Accumulated other comprehensive loss ( 13,868 ) ( 9,971 ) Retained earnings 187,286 183,157 Treasury stock ( 14,047 shares at September 25, 2022 and 13,205 shares at December 26, 2021, at cost) ( 892,818 ) ( 806,472 ) Total stockholders’ deficit ( 274,266 ) ( 187,670 ) Noncontrolling interests in subsidiaries 15,647 15,212 Total Stockholders’ deficit ( 258,619 ) ( 172,458 ) Total liabilities, Redeemable noncontrolling interests and Stockholders’ deficit $ 829,748 $ 885,704 See accompanying notes. 1 Papa John’s International, Inc. and Subsidiaries Condensed Consolidated Statements of Operations (Unaudited) Three Months Ended Nine Months Ended (In thousands, except per share amounts) September 25, 2022 September 26, 2021 September 25, 2022 September 26, 2021 Revenues: Domestic Company-owned restaurant sales $ 166,050 $ 191,584 $ 536,226 $ 584,942 North America franchise royalties and fees 33,712 31,933 102,897 97,123 North America commissary revenues 216,115 189,224 645,177 560,743 International revenues 30,735 38,408 97,310 110,629 Other revenues 63,900 61,633 194,259 186,099 Total revenues 510,512 512,782 1,575,869 1,539,536 Costs and expenses: Operating costs (excluding depreciation and amortization shown separately below): Domestic Company-owned restaurant expenses 138,299 155,477 441,986 465,658 North America commissary expenses 203,129 175,399 604,689 518,310 International expenses 18,196 21,743 57,346 62,791 Other expenses 59,249 56,039 180,452 168,092 General and administrative expenses 57,935 54,070 168,519 157,779 Depreciation and amortization 13,338 11,477 38,012 36,830 Total costs and expenses 490,146 474,205 1,491,004 1,409,460 Refranchising and impairment loss ( 905 ) — ( 12,065 ) — Operating income 19,461 38,577 72,800 130,076 Net interest expense ( 7,623 ) ( 3,979 ) ( 17,967 ) ( 11,275 ) Income before income taxes 11,838 34,598 54,833 118,801 Income tax expense 3,374 4,057 9,212 19,387 Net income before attribution to noncontrolling interests 8,464 30,541 45,621 99,414 Net income attributable to noncontrolling interests ( 133 ) ( 1,285 ) ( 1,363 ) ( 4,021 ) Net income attributable to the Company $ 8,331 $ 29,256 $ 44,258 $ 95,393 Calculation of net income (loss) for earnings per share: Net income attributable to the Company $ 8,331 $ 29,256 $ 44,258 $ 95,393 Dividends on redemption of Series B Convertible Preferred Stock — — — ( 109,852 ) Dividends paid to participating securities ( 86 ) ( 137 ) ( 228 ) ( 5,964 ) Net income attributable to participating securities — ( 158 ) ( 34 ) — Net income (loss) attributable to common shareholders $ 8,245 $ 28,961 $ 43,996 $ ( 20,423 ) Basic earnings (loss) per common share $ 0.23 $ 0.80 $ 1.23 $ ( 0.59 ) Diluted earnings (loss) per common share $ 0.23 $ 0.79 $ 1.22 $ ( 0.59 ) Basic weighted average common shares outstanding 35,259 36,387 35,602 34,619 Diluted weighted average common shares outstanding 35,448 36,719 35,840 34,619 Dividends declared per common share $ 0.42 $ 0.35 $ 1.12 $ 0.80 See accompanying notes. 2 Papa John’s International, Inc. and Subsidiaries Condensed Consolidated Statements of Comprehensive Income (Unaudited) Three Months Ended Nine Months Ended (In thousands) September 25, 2022 September 26, 2021 September 25, 2022 September 26, 2021 Net income before attribution to noncontrolling interests $ 8,464 $ 30,541 $ 45,621 $ 99,414 Other comprehensive (loss) income, before tax: Foreign currency translation adjustments ( 4,849 ) ( 1,113 ) ( 9,819 ) 383 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 Income tax effect: Foreign currency translation adjustments 1,114 256 2,258 ( 88 ) Interest rate swaps (2) ( 268 ) ( 353 ) ( 1,094 ) ( 1,184 ) Income tax effect 846 ( 97 ) 1,164 ( 1,272 ) Other comprehensive (loss) income, net of tax ( 2,834 ) 325 ( 3,897 ) 4,258 Comprehensive income before attribution to noncontrolling interests 5,630 30,866 41,724 103,672 Less: comprehensive (income), redeemable noncontrolling interests ( 31 ) ( 692 ) ( 559 ) ( 2,192 ) Less: comprehensive (income), nonredeemable noncontrolling interests ( 102 ) ( 593 ) ( 804 ) ( 1,829 ) Comprehensive income attributable to the Company $ 5,497 $ 29,581 $ 40,361 $ 99,651 _______________ (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. 3 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 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 ) Cash dividends on common stock — — 57 — ( 14,906 ) — — ( 14,849 ) Exercise of stock options 16 — 823 — — — — 823 Acquisition of Company common stock ( 229 ) — — — — ( 19,529 ) — ( 19,529 ) Stock-based compensation expense — — 5,146 — — — — 5,146 Issuance of restricted stock 50 — ( 1,671 ) — — 1,760 — 89 Tax payments for equity award issuances ( 22 ) — ( 1,900 ) — — — — ( 1,900 ) Distributions to noncontrolling interests — — — — — — ( 216 ) ( 216 ) Other 2 — ( 67 ) — ( 73 ) 156 — 16 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 ) Cash dividends on common stock — — 153 — ( 40,102 ) — — ( 39,949 ) Exercise of stock options 55 1 2,730 — — — — 2,731 Acquisition of Company common stock ( 982 ) — — — — ( 95,000 ) — ( 95,000 ) Stock-based compensation expense — — 14,246 — — — — 14,246 Issuance of restricted stock 279 — ( 8,122 ) — — 8,210 — 88 Tax payments for equity award issuances ( 92 ) — ( 9,426 ) — — — — ( 9,426 ) Distributions to noncontrolling interests — — — — — — ( 366 ) ( 366 ) Other 8 — ( 64 ) — ( 27 ) 444 ( 3 ) 350 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 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. 4 Papa John’s International, Inc. and Subsidiaries Condensed Consolidated Statements of Stockholders’ Deficit (continued) (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 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 Cash dividends on common stock — — 48 — ( 12,845 ) — — ( 12,797 ) Exercise of stock options 51 1 3,111 — — — — 3,112 Acquisition of Company common stock ( 103 ) — — — — ( 12,367 ) — ( 12,367 ) Stock-based compensation expense — — 4,317 — — — — 4,317 Issuance of restricted stock 15 — ( 873 ) — — 873 — — Tax payments for equity award issuances — — ( 1,423 ) — — — — ( 1,423 ) Distributions to noncontrolling interests — — — — — — ( 594 ) ( 594 ) Other 5 — ( 46 ) — 198 278 — 430 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 Repurchase and conversion of Series B Convertible Preferred Stock 3,489 35 174,631 — ( 110,498 ) — — 64,168 Cash dividends on common stock — — 110 — ( 27,750 ) — — ( 27,640 ) Cash dividends on preferred stock — — — — ( 4,121 ) — — ( 4,121 ) Exercise of stock options 199 2 11,209 — — — — 11,211 Acquisition of Company common stock ( 187 ) — — — — ( 20,555 ) — ( 20,555 ) Stock-based compensation expense — — 12,519 — — — — 12,519 Issuance of restricted stock 125 — ( 6,538 ) — — 6,538 — — Tax payments for equity award issuances — — ( 5,310 ) — — — — ( 5,310 ) Distributions to noncontrolling interests — — — — — — ( 1,779 ) ( 1,779 ) Other 12 — 18 — ( 804 ) 706 — ( 80 ) 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. 5 Papa John’s International, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows (Unaudited) Nine Months Ended (In thousands) September 25, 2022 September 26, 2021 Operating activities Net income before attribution to noncontrolling interests $ 45,621 $ 99,414 Adjustments to reconcile net income to net cash provided by operating activities: Provision (benefit) for allowance for credit losses on accounts and notes receivable 18,576 ( 920 ) Depreciation and amortization 38,012 36,830 Refranchising and impairment loss 12,065 — Deferred income taxes 519 ( 5,113 ) Stock-based compensation expense 14,246 12,519 Other ( 466 ) 1,052 Changes in operating assets and liabilities, net of acquisitions: Accounts receivable ( 19,584 ) 5,955 Income tax receivable ( 1,146 ) 674 Inventories ( 8,185 ) ( 3,217 ) Prepaid expenses and other current assets 2,065 11,277 Other assets and liabilities ( 4,919 ) ( 8,627 ) Accounts payable 16,188 5,014 Income and other taxes payable ( 1,789 ) 15,958 Accrued expenses and other current liabilities ( 32,404 ) 24,001 Deferred revenue ( 2,246 ) ( 1,193 ) Net cash provided by operating activities 76,553 193,624 Investing activities Purchases of property and equipment ( 48,424 ) ( 41,328 ) Notes issued ( 2,248 ) ( 14,637 ) Repayments of notes issued 8,125 15,352 Acquisitions, net of cash acquired ( 1,346 ) ( 699 ) Proceeds from refranchising, net of cash transferred 13,588 — Other 76 121 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 Repurchase of Series B Convertible Preferred Stock — ( 188,647 ) Acquisition of Company common stock ( 95,000 ) ( 20,555 ) Dividends paid to common stockholders ( 39,949 ) ( 27,640 ) Dividends paid to preferred stockholders — ( 6,394 ) Tax payments for equity award issuances ( 9,426 ) ( 5,310 ) Distributions to noncontrolling interests ( 1,090 ) ( 2,914 ) Repayments of term loan — ( 340,000 ) Other ( 3,480 ) ( 2,630 ) Net cash used in financing activities ( 79,216 ) ( 177,058 ) Effect of exchange rate changes on cash and cash equivalents ( 1,100 ) 234 Change in cash and cash equivalents ( 33,992 ) ( 24,391 ) Cash and cash equivalents at beginning of period 70,610 130,204 Cash and cash equivalents at end of period $ 36,618 $ 105,813 See accompanying notes . 6 Papa John’s International, Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements (Unaudited) September 25, 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 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. (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 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. 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 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. 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. 7 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, 2021 Papa John’s International, Inc. $ 314 $ 2,171 $ 2,642 $ 6,816 Noncontrolling interests 133 1,285 1,363 4,021 Total net income $ 447 $ 3,456 $ 4,005 $ 10,837 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. 8 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 September 25, 2022 and December 26, 2021 are as follows: Fair Value Measurements (in thousands) Carrying Value Level 1 Level 2 Level 3 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 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 September 25, 2022 and December 26, 2021, respectively: September 25, 2022 December 26, 2021 (in thousands) Carrying Value Fair Value Carrying Value Fair Value 3.875 % Senior Notes $ 400,000 $ 328,000 $ 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. 9 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 (a) 5,052 13,524 Write-offs charged against the allowance ( 303 ) — Recoveries collected — ( 14 ) 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. 3. Leases Lessor Operating Leases 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. 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 $ 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 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 55 domestic leases. These leases have varying terms, the latest of which expires in 2036. 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. The fair value of the guarantee is not material. 10 Supplemental Cash Flow & Other Information Supplemental cash flow information related to leases for the periods reported is as follows: Nine Months Ended (in thousands) September 25, 2022 September 26, 2021 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from finance leases $ 754 $ 864 Financing cash flows from finance leases 3,854 3,358 Operating cash flows from operating leases (a) 26,771 28,830 Right-of-use assets obtained in exchange for new finance lease liabilities 5,980 9,190 Right-of-use assets obtained in exchange for new operating lease liabilities (b) 43,639 52,462 Cash received from sublease income 8,251 8,728 (a) Included within the change in Other assets and liabilities within the Condensed Consolidated Statements of Cash Flows offset by non-cash operating lease right-of-use asset amortization and lease liability accretion. (b) Includes right-of-use assets of approximately $ 21.8 million for the nine months ended September 26, 2021 associated with the lease commencement of our Atlanta, Georgia corporate office. 11 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): September 25, 2022 December 26, 2021 Assets Current assets: Cash and cash equivalents $ 4,349 $ 24,481 Accounts receivable, net 23,677 14,150 Income tax receivable 44 300 Prepaid expenses and other current assets 2,512 1,718 Total current assets 30,582 40,649 Deferred income taxes 587 614 Total assets $ 31,169 $ 41,263 Liabilities Current liabilities: Accounts payable $ 24 $ 140 Income and other taxes payable 3 2 Accrued expenses and other current liabilities 30,139 40,154 Current deferred revenue 3,319 4,317 Total current liabilities 33,485 44,613 Deferred revenue 1,892 2,478 Total liabilities $ 35,377 $ 47,091 12 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 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 September 25, 2022 December 26, 2021 Change Franchise fees and unredeemed gift card liabilities $ 29,469 $ 20,410 $ 9,059 Customer loyalty program obligations 13,443 15,136 ( 1,693 ) Total contract liabilities $ 42,912 $ 35,546 $ 7,366 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 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. 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 $ 3,135 $ 2,945 $ 2,768 $ 2,552 $ 2,253 $ 7,503 $ 21,156 Approximately $ 3.1 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 $ 5.2 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 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 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 13 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 nine months ended September 25, 2022 and September 26, 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 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 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 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. 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 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. 7. 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. 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. 14 The calculations of basic and diluted earnings per common share are as follows: Three Months Ended Nine Months Ended September 25, 2022 September 26, 2021 September 25, 2022 September 26, 2021 Basic earnings (loss) per common share (in thousands, except per share data) Net income attributable to the Company $ 8,331 $ 29,256 $ 44,258 $ 95,393 Dividends on redemption of Series B Convertible Preferred Stock — — — ( 109,852 ) Dividends paid to participating securities ( 86 ) ( 137 ) ( 228 ) ( 5,964 ) Net income attributable to participating securities — ( 158 ) ( 34 ) — Net income (loss) attributable to common shareholders $ 8,245 $ 28,961 $ 43,996 $ ( 20,423 ) Basic weighted average common shares outstanding 35,259 36,387 35,602 34,619 Basic earnings (loss) per common share $ 0.23 $ 0.80 $ 1.23 $ ( 0.59 ) Diluted earnings (loss) per common share (in thousands, except per share data) Net income (loss) attributable to common shareholders $ 8,245 $ 28,961 $ 43,996 $ ( 20,423 ) Weighted average common shares outstanding 35,259 36,387 35,602 34,619 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 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). 8. Debt Long-term debt, net, consists of the following (in thousands): September 25, 2022 December 26, 2021 Senior notes $ 400,000 $ 400,000 Revolving facilities 157,000 90,000 Outstanding debt $ 557,000 $ 490,000 Unamortized debt issuance costs ( 8,247 ) ( 9,270 ) Total long-term debt, net $ 548,753 $ 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 15 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 $ 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. 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 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. 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, 2023. The borrowings 16 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 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 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 % 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): Interest Rate Swap Derivatives Balance Sheet Location Fair Value September 25, 2022 Fair Value December 26, 2021 Other current assets $ 1,355 $ — Other current and long-term liabilities $ — $ 5,536 17 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: 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. 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 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. 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. v. 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 18 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. 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 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. 19 Our segment information is as follows: Three Months Ended Nine Months Ended (In thousands) September 25, 2022 September 26, 2021 September 25, 2022 September 26, 2021 Revenues: Domestic Company-owned restaurants $ 166,050 $ 191,584 $ 536,226 $ 584,942 North America franchising 33,712 31,933 102,897 97,123 North America commissaries 216,115 189,224 645,177 560,743 International 37,707 46,880 119,696 135,761 All others 56,928 53,161 171,873 160,967 Total revenues $ 510,512 $ 512,782 $ 1,575,869 $ 1,539,536 Intersegment revenues: North America franchising $ 996 $ 1,037 $ 3,097 $ 3,138 North America commissaries 51,330 53,454 162,591 158,952 All others 15,562 18,522 50,830 56,613 Total intersegment revenues $ 67,888 $ 73,013 $ 216,518 $ 218,703 Operating income: 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 (b) 1,136 9,618 12,897 26,665 All others 2,037 3,848 7,943 14,860 Unallocated corporate expenses (c) ( 27,684 ) ( 23,158 ) ( 84,138 ) ( 70,937 ) Elimination of intersegment (profits) losses 416 ( 639 ) ( 423 ) ( 557 ) Total operating income $ 19,461 $ 38,577 $ 72,800 $ 130,076 Property and equipment, net: Domestic Company-owned restaurants $ 229,480 North America commissaries 153,604 International 14,601 All others 122,927 Unallocated corporate assets 246,006 Accumulated depreciation and amortization ( 535,724 ) Total property and equipment, net $ 230,894 (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. (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. (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. 20 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 September 25, 2022 Major Products/Services Lines Domestic Company-owned restaurants North America franchising North America commissaries International All others Total Company-owned restaurant sales $ 166,050 $ — $ — $ — $ — $ 166,050 Franchise royalties and fees — 34,708 — 11,619 — 46,327 Commissary sales — — 267,445 19,116 — 286,561 Other revenues — — — 6,972 72,490 79,462 Eliminations — ( 996 ) ( 51,330 ) — ( 15,562 ) ( 67,888 ) Total segment revenues $ 166,050 $ 33,712 $ 216,115 $ 37,707 $ 56,928 $ 510,512 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 September 26, 2021 Major Products/Services Lines Domestic Company-owned restaurants North America franchising North America commissaries International All others Total Company-owned restaurant sales $ 191,584 $ — $ — $ — $ — $ 191,584 Franchise royalties and fees — 32,970 — 14,031 — 47,001 Commissary sales — — 242,678 24,377 — 267,055 Other revenues — — — 8,472 71,683 80,155 Eliminations — ( 1,037 ) ( 53,454 ) — ( 18,522 ) ( 73,013 ) Total segment revenues $ 191,584 $ 31,933 $ 189,224 $ 46,880 $ 53,161 $ 512,782 International other revenues (a) — — — ( 8,472 ) 8,472 — Total revenues $ 191,584 $ 31,933 $ 189,224 $ 38,408 $ 61,633 $ 512,782 Reportable Segments Nine Months Ended September 25, 2022 Major Products/Services Lines Domestic Company-owned restaurants North America franchising North America commissaries International All others Total Company-owned restaurant sales $ 536,226 $ — $ — $ — $ — $ 536,226 Franchise royalties and fees — 105,994 — 37,097 — 143,091 Commissary sales — — 807,768 60,213 — 867,981 Other revenues — — — 22,386 222,703 245,089 Eliminations — ( 3,097 ) ( 162,591 ) — ( 50,830 ) ( 216,518 ) Total segment revenues $ 536,226 $ 102,897 $ 645,177 $ 119,696 $ 171,873 $ 1,575,869 International other revenues (a) — — — ( 22,386 ) 22,386 — Total revenues $ 536,226 $ 102,897 $ 645,177 $ 97,310 $ 194,259 $ 1,575,869 21 Reportable Segments Nine Months Ended September 26, 2021 Major Products/Services Lines Domestic Company-owned restaurants North America franchising North America commissaries International All others Total Company-owned restaurant sales $ 584,942 $ — $ — $ — $ — $ 584,942 Franchise royalties and fees — 100,261 — 39,396 — 139,657 Commissary sales — — 719,695 71,233 — 790,928 Other revenues — — — 25,132 217,580 242,712 Eliminations — ( 3,138 ) ( 158,952 ) — ( 56,613 ) ( 218,703 ) Total segment revenues $ 584,942 $ 97,123 $ 560,743 $ 135,761 $ 160,967 $ 1,539,536 International other revenues (a) — — — ( 25,132 ) 25,132 — Total revenues $ 584,942 $ 97,123 $ 560,743 $ 110,629 $ 186,099 $ 1,539,536 (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. 22