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Item 1. Financial Statements

2023-05-04 compared with 2022-11-03 · 205 added, 280 removed, 462 unchanged (51% of the section changed)

3 unchanged sentences

Condensed Consolidated Balance Sheets

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

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

2023 December 25,

23 unchanged sentences

Current operating lease liabilities 24,959 23,418

Current portion of long-term debt 8,200 —

Total current liabilities 272,930 265,157

9 unchanged sentences

Common stock ($ 0.01 par value per share;

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

issued 49,207 at March 26, 2023 and 49,138 at December 25, 2022)

Additional paid-in capital 443,686 449,829

1 unchanged sentence

Retained earnings 203,569 195,856

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

Treasury stock ( 16,851 shares at March 26, 2023 and 14,402 shares at December 25, 2022, at cost)

( 1,130,136 ) ( 922,434 )

7 unchanged sentences

Condensed Consolidated Statements of Operations

Three Months Ended Nine Months Ended

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

2022 September 26,

2021 September 25,

2022 September 26,

Three Months Ended

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

2023 March 27,

Domestic Company-owned restaurant sales $ 179,866 $ 198,765

17 unchanged sentences

Income before income taxes 28,775 10,171

Income tax expense 3,374 4,057 9,212 19,387

Income tax expense (benefit) 6,229 ( 1,256 )

Net income before attribution to noncontrolling interests 22,546 11,427

1 unchanged sentence

Net income attributable to the Company $ 22,376 $ 10,494

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

Calculation of net income for earnings per share:

Net income attributable to the Company $ 22,376 $ 10,494

Dividends on redemption of Series B Convertible Preferred Stock — — — ( 109,852 )

Dividends paid to participating securities — ( 60 )

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 )

Net income attributable to common shareholders $ 22,376 $ 10,434

Basic earnings per common share $ 0.66 $ 0.29

Diluted earnings per common share $ 0.65 $ 0.29

Basic weighted average common shares outstanding 34,155 35,927

5 unchanged sentences

Condensed Consolidated Statements of Comprehensive Income

Three Months Ended Nine Months Ended

(In thousands) September 25,

2022 September 26,

2021 September 25,

2022 September 26,

Three Months Ended

(In thousands) March 26,

2023 March 27,

Net income before attribution to noncontrolling interests $ 22,546 $ 11,427

Other comprehensive (loss) income, before tax:

Other comprehensive income (loss), before tax:

Foreign currency translation adjustments 1,442 ( 861 )

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

Other comprehensive income (loss), before tax 1,778 851

Income tax effect:

3 unchanged sentences

Income tax effect ( 409 ) ( 196 )

Other comprehensive (loss) income, net of tax ( 2,834 ) 325 ( 3,897 ) 4,258

Other comprehensive income (loss), net of tax 1,369 655

Comprehensive income before attribution to noncontrolling interests 23,915 12,082

3 unchanged sentences

___________________________________

(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.

(1) Amounts reclassified out of accumulated other comprehensive income into net interest (expense) income include $( 207 ) and $ 535 for the three months ended March 26, 2023 and March 27, 2022, respectively.

(2) The income tax effects of amounts reclassified out of accumulated other comprehensive loss were $ 47 and $( 120 ) for the three months ended March 26, 2023 and March 27, 2022, respectively.

See accompanying notes.

8 unchanged sentences

Comprehensive

Loss Retained

Earnings Treasury

Stock Noncontrolling

Noncontrolling

Subsidiaries Total

Stockholders’

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

For the three months ended

March 26, 2023

Balance at December 25, 2022 34,736 $ 491 $ 449,829 $ ( 10,135 ) $ 195,856 $ ( 922,434 ) $ 15,729 $ ( 270,664 )

1 unchanged sentence

— — — — 22,376 — 124 $ 22,500

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

Cash dividends on common stock — — 153 — ( 40,102 ) — — ( 39,949 )

Other comprehensive income (loss), net of tax — — — 1,369 — — — $ 1,369

Dividends on common stock — — — — ( 14,663 ) — — $ ( 14,663 )

Exercise of stock options 15 — 614 — — — — $ 614

2 unchanged sentences

Issuance of restricted stock 197 — ( 4,609 ) — — 4,609 — $ —

Tax payments for equity award issuances ( 92 ) — ( 9,426 ) — — — — ( 9,426 )

Tax effect of restricted stock awards ( 72 ) — ( 5,999 ) — — — — $ ( 5,999 )

Distributions to noncontrolling interests — — — — — — ( 23 ) $ ( 23 )

Other 3 — ( 46 ) — — 133 — $ 87

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

Balance at March 26, 2023 32,356 $ 492 $ 443,686 $ ( 8,766 ) $ 203,569 $ ( 1,130,136 ) $ 15,830 $ ( 475,325 )

___________________________________

(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 .

(1) Net income to the Company for the three months ended March 26, 2023 excludes $ 46 allocable to the redeemable noncontrolling interests for our joint venture arrangements.

(2) At March 26, 2023, the accumulated other comprehensive loss of $ 8,766 was comprised of net unrealized foreign currency translation loss of $ 7,586 and net unrealized loss on the interest rate swap agreements of $ 1,180 .

(3) Acquisition of Company common stock for the three months ended March 26, 2023 includes $ 2,804 of transaction costs directly attributable to share repurchases, including a 1% excise tax incurred under the Inflation Reduction Act of 2022.

See accompanying notes.

8 unchanged sentences

Comprehensive

Loss Retained

Earnings Treasury

2 unchanged sentences

Stockholders’

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

For the three months ended

March 27, 2022

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

1 unchanged sentence

— — — — 10,494 — 423 $ 10,917

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 )

Other comprehensive income (loss), net of tax — — — 655 — — — $ 655

Dividends on common stock — — 47 — ( 12,527 ) — — $ ( 12,480 )

Exercise of stock options 17 — 741 — — — — $ 741

2 unchanged sentences

Issuance of restricted stock 228 — ( 6,369 ) — — 6,369 — $ —

Tax payments for equity award issuances — — ( 5,310 ) — — — — ( 5,310 )

Distributions to noncontrolling interests — — — — — — ( 1,779 ) ( 1,779 )

Tax effect of restricted stock awards ( 69 ) — ( 7,461 ) — — — — $ ( 7,461 )

Other 3 — ( 34 ) — — 209 — $ 175

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 .

Balance at March 27, 2022 35,675 $ 491 $ 436,225 $ ( 9,316 ) $ 181,124 $ ( 832,603 ) $ 15,635 $ ( 208,444 )

___________________________________

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

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

See accompanying notes.

2 unchanged sentences

Condensed Consolidated Statements of Cash Flows

Nine Months Ended

(In thousands) September 25,

2022 September 26,

Three Months Ended

(In thousands) March 26,

2023 March 27,

Operating activities

1 unchanged sentence

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 )

Provision for allowance for credit losses on accounts and notes receivable 513 15,167

Depreciation and amortization 14,721 11,940

19 unchanged sentences

Acquisitions, net of cash acquired — ( 1,250 )

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

Net cash used in investing activities ( 18,275 ) ( 8,315 )

Financing activities

Proceeds from issuance of senior notes — 400,000

Net proceeds of revolving credit facilities 208,200 47,000

Debt issuance costs — ( 9,179 )

Proceeds from exercise of stock options 614 741

Repurchase of Series B Convertible Preferred Stock — ( 188,647 )

Acquisition of Company common stock ( 209,640 ) ( 32,709 )

Dividends paid to common stockholders ( 14,603 ) ( 12,608 )

Dividends paid to preferred stockholders — ( 6,394 )

Tax payments for equity award issuances ( 5,999 ) ( 7,461 )

Distributions to noncontrolling interests ( 23 ) ( 685 )

Repayments of term loan — ( 340,000 )

Other ( 1,761 ) ( 1,065 )

8 unchanged sentences

Notes to Condensed Consolidated Financial Statements (Unaudited)

September 25, 2022

March 26, 2023

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.

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP” or “U.S.

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.

Operating results for the three months ended March 26, 2023 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2023.

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.

(referred to as the “Company,” “Papa John’s,” “Papa Johns” or in the first-person notations of “we,” “us” and “our”) for the year ended December 25, 2022.

In discussions of our business, “Domestic” is defined as within the contiguous United States, “North America” includes Canada, and “International” includes the rest of the world other than North America.

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.

Principles of Consolidation

The accompanying Condensed Consolidated Financial Statements include the accounts of Papa John’s International, Inc.

and its subsidiaries.

All intercompany balances and transactions have been eliminated.

Variable Interest Entity

1 unchanged sentence

(“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.

PJMF collects a percentage of revenues from Company-owned and franchised restaurants in the United States and Canada 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 North America 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 .”

The Company has consolidated PJMF in its financial results in accordance with Accounting Standards Codification (“ASC”) 810, “ Consolidation .”

Use of Estimates

Significant items that are subject to such estimates and assumptions include the allowance for credit losses on accounts and notes receivable, intangible assets, contract assets and contract liabilities including the customer loyalty program obligation, right-of-use assets and lease liabilities, unredeemed gift card liabilities, insurance reserves and tax reserves.

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.

Papa John’s has joint venture arrangements in which there are noncontrolling interests held by third parties that includ ed 98 and 188 restaurants at March 26, 2023 and March 27, 2022, respectively.

As further described in “Note 10.

Divestitures” we divested our 51 percent interest in one joint venture in Texas that owned 90 restaurants in the second 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.

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,

Net income attributable to these joint ventures for the three months ended March 26, 2023 and March 27, 2022 was as follows (in thousands):

Three Months Ended

2023 March 27,

Papa John’s International, Inc.

3 unchanged sentences

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

Type of Joint Venture Arrangement Location within the Condensed Consolidated Balance Sheets Recorded Value

Joint ventures with no redemption feature Permanent equity Carrying value

2 unchanged sentences

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.

Significant judgment is required in determining the 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.

4 unchanged sentences

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 and liabilities are netted by tax jurisdiction.

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).

3 unchanged sentences

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.

We evaluate these issues on a quarterly basis to adjust for events, such as statute of limitations expirations, court rulings or audit settlements, which may impact our ultimate payment for such exposures.

Fair Value Measurements and Disclosures

7 unchanged sentences

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

Our financial assets and liabilities that were measured at fair value on a recurring basis as of September 25, 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 March 26, 2023 and December 25, 2022 are as follows:

Fair Value Measurements

1 unchanged sentence

Value Level 1 Level 2 Level 3

September 25, 2022

March 26, 2023

Financial assets:

7 unchanged sentences

$ 30,120 $ 30,120 $ — $ —

Financial liabilities:

Interest rate swaps (b)

6 unchanged sentences

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

The Company’s revolving credit facilities under the Company’s credit agreement approximate carrying value due to their variable market-based interest rate.

The Company’s 3.875 % senior notes are classified as a Level 2 fair value measurement since the Company estimates the fair value by using recent trading transactions, and have the following estimated fair values and carrying values (excluding the impact of unamortized debt issuance costs) as of March 26, 2023 and December 25, 2022:

March 26, 2023 December 25, 2022

(In thousands) Carrying

9 unchanged sentences

Balance at December 25, 2022 $ 6,718 $ 14,499

Current period provision for expected credit losses (a)

Current period provision for expected credit losses 609 24

Write-offs charged against the allowance ( 228 ) —

Recoveries collected ( 84 ) ( 36 )

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.

Balance at March 26, 2023 $ 7,015 $ 14,487

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 subleases certain retail space to our franchisees in the United Kingdom (“UK”), which are primarily operating leases.

At March 26, 2023, we leased and subleased 446 Papa Johns restaurants to franchisees in the UK.

The initial lease terms on the franchised sites in the UK 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.

The initial lease terms of the franchisee subleases are generally five to ten years .

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

The Company recognized total sublease income of $ 2.9 million and $ 3.0 million for the three months ended March 26, 2023 and March 27, 2022, 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.

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 52 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.

As of March 26, 2023, the estimated maximum amount of undiscounted payments the Company could be required to make in the event of nonpayment by the primary lessees was $ 8.7 million.

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

The fair value of the guarantee is not material.

1 unchanged sentence

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

Three Months Ended

(In thousands) March 26, 2023 March 27, 2022

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

2 unchanged sentences

Operating cash flows from operating leases (a)

$ 9,178 $ 9,612

Right-of-use assets obtained in exchange for new finance lease liabilities $ 4,764 $ 569

Right-of-use assets obtained in exchange for new operating lease liabilities (b) 43,639 52,462

Right-of-use assets obtained in exchange for new operating lease liabilities $ 4,721 $ 20,801

Cash received from sublease income $ 2,532 $ 3,092

___________________________________

(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.

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.

PJMF, which is a consolidated VIE where the Company has been identified as the primary beneficiary, 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,

PJMF also has a wholly-owned subsidiary, Papa Card, Inc., which administers the Company’s gift card programs.

Assets and liabilities of PJMF, which are utilized solely for the Company’s advertising and promotional programs, were as follows in the Condensed Consolidated Balance Sheets (in thousands):

2023 December 25, 2022

2 unchanged sentences

Accounts receivable, net 14,254 14,780

Income tax receivable 44 300

Prepaid expenses and other current assets 7,638 1,815

6 unchanged sentences

Accrued expenses and other current liabilities 13,911 17,928

Current portion of long-term debt 8,200 —

Current deferred revenue 4,381 4,395

5 unchanged sentences

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

During the three and nine months ended September 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.

During the three months ended March 26, 2023 and March 27, 2022, the Company recognized $ 8.4 million and $ 9.3 million in revenue, respectively, related to deferred revenue.

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

Contract Liabilities

September 25, 2022 December 26, 2021 Change

March 26, 2023 December 25, 2022 Change

Franchise fees and unredeemed gift card liabilities $ 29,166 $ 30,710 $ ( 1,544 )

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 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.

As of March 26, 2023 and December 25, 2022, the contract assets were approximately $ 7.0 million and $ 6.2 million, respectively.

For the three months ended March 26, 2023 and March 27, 2022, revenue was reduced approximately $ 0.9 million and $ 0.8 million, respectively, 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.

4 unchanged sentences

Franchise fees $ 3,052 $ 2,884 $ 2,702 $ 2,439 $ 2,165 $ 6,485 $ 19,727

Approximately $ 3.1 million of area development fees related to unopened stores and international unearned royalties are included in Deferred revenue.

At March 26, 2023, approximately $ 3.3 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.

3 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 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.

The Company has authorized 100.0 million shares of common stock as of March 26, 2023 and December 25, 2022.

The Company’s outstanding shares of common stock outstanding, net of repurchased shares of common stock held as treasury stock, were 32.4 million shares at March 26, 2023, compared to 34.7 million shares at December 25, 2022.

Share Repurchase Program

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

This share repurchase program operated alongside our previous $ 75.0

million share repurchase authorization, which began on November 4, 2020 and expired on December 26, 2021.

The following table summarizes our repurchase activity 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

Purchased Average

Share Aggregate

Purchased Maximum Dollar

Value of Shares

that May Yet Be

Purchased Under the

Plans or Programs

On October 28, 2021, our Board of Directors (the “Board”) approved a share repurchase program with an indefinite duration for up to $ 425.0 million of the Company’s common stock.

The following table summarizes our repurchase activity under our share repurchase programs for the three months ended March 26, 2023 and March 27, 2022:

(In thousands, except average price per share) Total Number of Shares Purchased Average Price Paid per Share Aggregate Cost of Shares Purchased (a)

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

Purchased Average

Share Aggregate

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

March 26, 2023 2,523 $ 83.10 $ 209,640 $ 90,160

March 27, 2022 301 $ 108.76 $ 32,709 $ 392,091

(a) Aggregate cost of shares purchased for the three months ended March 26, 2023 excludes $ 2.8 million of transaction costs directly attributable to share repurchases, including a 1% excise tax incurred under the Inflation Reduction Act of 2022.

These costs were classified as non-cash financing activities during the three months ended March 26, 2023.

The shares repurchased during the three months ended March 26, 2023 included 2,176,928 shares repurchased on March 1, 2023 from certain funds affiliated with, or managed by, Starboard Value LP (collectively, “Starboard”), at a price of $ 82.52 per share, for aggregate consideration of $ 179.6 million.

The transaction was negotiated by an independent committee of the Board of Directors formed for the purpose of evaluating a possible transaction involving Starboard, and was approved by the full Board of Directors upon such independent committee’s recommendation.

Starboard’s Chief Executive Officer is Jeffrey Smith, who previously served as the Company’s Chairman of the Board until his resignation on March 1, 2023.

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.

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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 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.

The Company paid dividends of approx imately $ 14.6 million ($ 0.42 per share) f or the three months ended March 26, 2023.

On April 25, 2023, our Board of Directors declared a first quarter dividend of $ 0.42 per common share (approximately $ 13.8 million in the aggregate), which will be paid on May 26, 2023 to stockholders of record as of the close of business on May 15, 2023.

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

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.

Time-based restricted stock awards are participating securities because holders of such shares have non-forfeitable dividend rights and participate in undistributed earnings with common stock.

Under the two-class method, total dividends provided to the holders of participating securities and undistributed earnings allocated to participating securities, are subtracted from net income attributable to the Company in determining net income attributable to common shareholders.

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

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

Three Months Ended 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)

Basic earnings per common share are computed by dividing net income attributable to common shareholders by the weighted-average common shares outstanding.

Diluted earnings per common share are computed by dividing the net income attributable to common shareholders by the diluted weighted average common shares outstanding.

Diluted weighted average common shares outstanding consist of basic weighted average common shares outstanding plus weighted average awards outstanding under our equity compensation plans, which are dilutive securities.

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

Three Months Ended

2023 March 27,

Basic earnings per common share

Net income attributable to the Company $ 22,376 $ 10,494

Dividends on redemption of Series B Convertible Preferred Stock — — — ( 109,852 )

Dividends paid to participating securities — ( 60 )

Net income attributable to participating securities — ( 158 ) ( 34 ) —

Net income (loss) attributable to common shareholders $ 8,245 $ 28,961 $ 43,996 $ ( 20,423 )

Net income attributable to common shareholders $ 22,376 $ 10,434

Basic weighted average common shares outstanding 34,155 35,927

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 )

Basic earnings per common share $ 0.66 $ 0.29

Diluted earnings per common share

Net income attributable to common shareholders $ 22,376 $ 10,434

Weighted average common shares outstanding 34,155 35,927

Dilutive effect of outstanding equity awards (a)

189 332 238 —

Diluted weighted average common shares outstanding 34,324 36,236

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).

Diluted earnings per common share $ 0.65 $ 0.29

___________________________________

(a) Excludes 22,000 and 21,000 equity awards for the three months ended March 26, 2023 and March 27, 2022, respectively, as the effect of including such awards would have been anti-dilutive.

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

September 25,

2023 December 25,

Senior notes $ 400,000 $ 400,000

Revolving facilities 157,000 90,000

Revolving facilities (a)

413,133 205,000

Outstanding debt $ 813,133 $ 605,000

Unamortized debt issuance costs ( 7,571 ) ( 7,931 )

Current portion of long-term debt ( 8,200 ) —

Total long-term debt, net $ 797,362 $ 597,069

___________________________________

(a) Revolving facilities as of March 26, 2023 includes $ 8.2 million outstanding under the PJMF Revolving Facility as defined and discussed below.

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

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At any time prior to September 15, 2024, the Company may also redeem up to 40 % of the Notes with net cash proceeds of certain equity offerings at a redemption price equal to 103.875 % of the principal amount of the Notes to be redeemed, plus accrued and unpaid interest, excluding the redemption date.

In addition, at any time prior to September 15, 2024, the Company may

redeem the Notes, in whole or in part, at a redemption price equal to 100 % of the principal amount of the Notes to be redeemed, plus accrued and unpaid interest and an applicable “make-whole” premium.

In addition, at any time prior to September 15, 2024, the Company may redeem the Notes, in whole or in part, at a redemption price equal to 100 % of the principal amount of the Notes to be redeemed, plus accrued and unpaid interest and an applicable “make-whole” premium.

The Notes also contain customary redemption provisions related to asset sales and certain change of control transactions.

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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.

Credit Agreement

The Company’s amended and restated credit agreement, dated September 14, 2021 (the “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.

The remaining availability under the PJI Revolving Facility was approximately $ 195.0 million as of March 26, 2023.

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.

Additionally, the 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”).

In each case, the actual margin is determined according to a ratio of the Company’s total indebtedness to an earnings calculation, Consolidated EBITDA (as defined in our credit agreement), 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 Credit Agreement also contains

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 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.

(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 Consolidated EBITDA (as defined in the Credit Agreement) plus consolidated rental expense to consolidated interest expense plus consolidated rental expense of 2.00 to 1.00.

We were in compliance with these financial covenants at March 26, 2023.

Obligations under the 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 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.

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The PJMF Revolving Facility is secured by substantially all assets of PJMF.

The PJMF Revolving Facility matures on September 30, 2023.

The borrowings

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.

The PJMF Revolving Facility matures on September 30, 2023, but is subject to annual amendments.

The borrowings under the PJMF Revolving Facility accrue interest at a variable rate of a one month LIBOR plus 1.60 %.

The applicable interest rate on the PJMF Revolving facility was 5.9 % for the three months ended March 26, 2023.

As of March 26, 2023, t he principal amount of debt outstanding under the PJMF Revolving Facility was approximately $ 8.2 million and is classified as Current portion of long-term debt in the Condensed Consolidated Balance Sheets .

The PJMF operating results and the related debt outstanding do not impact the financial covenants under the 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:

As of March 26, 2023, we have the following interest rate swap agreements with a total notional value of $ 125.0 million:

Effective Dates Floating Rate Debt Fixed Rates

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Balance Sheet Location Fair Value

September 25,

2023 Fair Value

Other current assets $ 274 $ 986

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

The effect of derivative instruments on the accompanying condensed consolidated financial statements is as follows (in thousands):

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Reclassified from

Income Amount of (Loss)

Income Amount of (Loss) or Gain

Reclassified from

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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.

Commitments and Contingencies

Interest rate swaps:

March 26, 2023 $ 259 Interest Expense $ ( 207 ) $ ( 9,021 )

March 27, 2022 $ 1,318 Interest Expense $ 535 $ ( 4,264 )

Interest paid, including payments made or received under the swaps, was $ 10.9 million and $ 10.1 million for the three months ended March 26, 2023 and March 27, 2022, respectively.

Litigation, Commitments and Contingencies

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.

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

Durling et al v.

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, 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 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.

On December 19, 2022, the District Court granted preliminary approval of the proposed settlement;

however, the settlement remains subject to final approval by the District Court and contains certain customary contingencies.

On January 18, 2023, the Company remitted $ 5.0 million to the settlement administrator as partial funding of the settlement in accordance with the terms of the applicable settlement agreement.

As of March 26, 2023, $ 5.0 million remains in Accrued expenses and other accrued liabilities in the Condensed Consolidated Balance Sheets.

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

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.

The settlement amount was recorded in General and administrative expenses in the Condensed Consolidated Statements of Operations for the three months ended March 27, 2022 and remained accrued in Accrued expenses and other accrued liabilities in the Condensed Consolidated Balance Sheets as of March 26, 2023.

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

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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.

In connection with the divestiture, we recorded a one-time, non-cash charge of $ 8.4 million in Refranchising and impairment loss in the Condensed Consolidated Statements 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.

In the first quarter of 2022 , the Company recorded an impairment of $ 2.8 million in Refranchising and impairment loss in the Condensed Consolidated Statements of Operations 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.

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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 Domestic Company-owned restaurant segment consists of the operations of all Domestic 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 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.

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 International segment principally consists of distribution sales to franchised Papa John’s restaurants located in the UK 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.

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.

Generally, we evaluate performance and allocate resources based on operating income.

Certain administrative and capital costs are allocated to segments based upon predetermined rates or estimated resource usage.

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No single external customer accounted for 10% or more of our consolidated revenues.

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,

The following tables present our segment information.

Three Months Ended

(In thousands) March 26,

2023 March 27,

Domestic Company-owned restaurants $ 179,866 $ 198,765

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International (b)

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

All others 3,157 3,719

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Total operating income $ 37,796 $ 14,435

(In thousands) As of March 26, 2023

Property and equipment, net:

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Total property and equipment, net $ 253,144

(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.

___________________________________

(a) The three months ended March 27, 2022 includes a one-time, non-cash charge of $ 8.4 million associated with the refranchising of the Company’s ownership interest in a 90 -restaurant joint venture, recorded as Refranchising and impairment loss.

See “Note 10.

Divestitures” for additional information.

(b) The three months ended March 27, 2022 includes $ 3.5 million of one-time, non-cash reserves for certain accounts receivable and impairments of reacquired franchise rights.

See “Notes 2.

Significant Accounting Policies” and “10.

Divestitures” for additional information.

(c) The three months ended March 26, 2023 includes $ 1.4 million of severance and related costs associated with the transition of certain executives.

For the three months ended March 27, 2022 , Unallocated corporate expenses includes $ 13.9 million of one-time, non-cash reserves of certain notes receivable and $ 5.0 million for certain legal settlements.

See “Notes 2.

Significant Accounting Policies” and “9.

Litigation, Commitments and Contingencies” for additional information.

Disaggregation of Revenue

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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

Three Months Ended March 26, 2023

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

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Reportable Segments

Nine Months Ended September 25, 2022

Three Months Ended March 27, 2022

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

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Total revenues $ 198,765 $ 34,268 $ 209,679 $ 34,617 $ 65,363 $ 542,692

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)

___________________________________

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.

(a) Other revenues as reported in the Condensed Consolidated Statements of Operations include $ 7.2 million and $ 8.1 million of revenues for the three months ended March 26, 2023 and March 27, 2022, 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.

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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