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Item 8. Financial Statements and Supplementary Data

2024-02-29 compared with 2023-02-23 · 323 added, 261 removed, 1058 unchanged (36% of the section changed)

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To the Stockholders and the Board of Directors of Papa John’s International, Inc.

and Subsidiaries

Opinion on the Financial Statements

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Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which they relate.

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Measurement and valuation of insurance reserves

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Goodwill 76,206 70,616

Deferred income taxes 1,920 5,156

Other assets 76,725 74,165

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Long-term debt, net 757,422 597,069

Deferred income taxes — 258

Other long-term liabilities 60,192 68,317

Total liabilities 1,317,770 1,133,674

Commitments and contingencies (Note 19)

Redeemable noncontrolling interests 851 1,217

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Earnings Treasury

Stock Noncontrolling

Stock Non-redeemable Noncontrolling

Subsidiaries Total

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

Cumulative effect of adoption of

ASU 2016-13 (2)

— — — — ( 1,066 ) — — ( 1,066 )

Adjusted balance at December 30, 2019 31,894 $ 447 $ 219,047 $ ( 10,185 ) $ 204,631 $ ( 747,327 ) $ 15,665 $ ( 317,722 )

Net income (1)

— — — — 82,098 — 503 82,601

Other comprehensive loss, net of tax — — — ( 3,983 ) — — — ( 3,983 )

Cash dividends on common stock — — 141 — ( 29,503 ) — — ( 29,362 )

Cash dividends on preferred stock — — — — ( 13,649 ) — — ( 13,649 )

Other comprehensive income, net of tax — — — 2,332 — — — 2,332

Dividends on common stock — — 121 — ( 58,927 ) — — ( 58,806 )

Exercise of stock options 43 1 2,251 — — — — 2,252

Acquisition of Company common stock (3)

( 2,523 ) — — — — ( 212,444 ) — ( 212,444 )

Stock-based compensation expense — — 17,924 — — — — 17,924

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Balance at December 31, 2023 32,488 $ 492 $ 452,290 $ ( 7,803 ) $ 219,027 $ ( 1,123,098 ) $ 15,476 $ ( 443,616 )

___________________________________

(1) Net income to the Company for the year ended December 31, 2023 excludes $ 198 allocable to the redeemable noncontrolling interests for our joint venture arrangements.

(2) At December 31, 2023, the accumulated other comprehensive loss of $ 7,803 was comprised of net unrealized foreign currency translation loss of $ 7,490 and a net unrealized loss on the interest rate swap agreements of $ 314 .

(3) Acquisition of Company common stock for the year ended December 31, 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.

Papa John’s International, Inc.

and Subsidiaries

Consolidated Statements of Stockholders’ Deficit

Papa John’s International, Inc.

(In thousands) Common

Outstanding Common

Stock Additional

Capital Accumulated

Comprehensive

Earnings Treasury

Stock Non-redeemable Noncontrolling

Subsidiaries Total

Stockholders’

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

Net income (1)

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Other comprehensive income, net of tax — — — ( 164 ) — — — ( 164 )

Repurchase and conversion of Series B Convertible Preferred Stock 3,489 35 174,631 — ( 110,498 ) — — 64,168

Cash dividends on common stock — — 210 — ( 54,977 ) — — ( 54,767 )

Cash dividends on preferred stock — — — — ( 4,121 ) — — ( 4,121 )

Exercise of stock options 82 1 4,035 — — — — 4,036

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

___________________________________

(1) Net income to the Company for the year ended December 25, 2022 excludes $ 574 allocable to the redeemable noncontrolling interests for our joint venture arrangements.

(2) At December 25, 2022, the accumulated other comprehensive loss of $ 10,135 was comprised of net unrealized foreign currency translation loss of $ 8,696 and a net unrealized loss on the interest rate swap agreements of $ 1,439 .

See accompanying notes.

Papa John’s International, Inc.

and Subsidiaries

Consolidated Statements of Stockholders’ Deficit (continued)

Consolidated Statements of Stockholders’ Deficit

Papa John’s International, Inc.

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Earnings Treasury

Stock Noncontrolling

Stock Non-redeemable Noncontrolling

Subsidiaries Total

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— — — — 120,016 — 2,330 122,346

Other comprehensive income, net of tax — — — ( 164 ) — — — ( 164 )

Other comprehensive loss, net of tax — — — 4,197 — — — 4,197

Repurchase and conversion of Series B Convertible Preferred Stock 3,489 35 174,631 — ( 110,498 ) — — 64,168

Cash dividends on common stock — — 158 — ( 40,514 ) — — ( 40,356 )

Cash dividends on preferred stock — — — — ( 4,121 ) — — ( 4,121 )

Exercise of stock options 212 2 11,967 — — — — 11,969

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___________________________________

(1) Net income to the Company for the years ended December 25, 2022, December 26, 2021 and December 27, 2020 excludes $ 574 , $ 2,609 and $ 824 , respectively, allocable to the redeemable noncontrolling interests for our joint venture arrangements.

(2) As of December 30, 2019, the Company adopted Accounting Standards Update (“ASU”) 2016-13, “ Financial Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments .” See “Note 10.

Allowance for Credit Losses” of “Notes to Consolidated Financial Statements” for additional information.

(3) At December 25, 2022, the accumulated other comprehensive loss of $ 10,135 was comprised of net unrealized foreign currency translation loss of $ 8,696 and a net unrealized loss on the interest rate swap agreements of $ 1,439 .

At December 26, 2021, the accumulated other comprehensive loss of $ 9,971 was comprised of net unrealized foreign currency translation loss of $ 4,869 and a net unrealized loss on the interest rate swap agreements of $ 5,102 .

(1) Net income to the Company for the year ended December 26, 2021 excludes $ 2,609 allocable to the redeemable noncontrolling interests for our joint venture arrangements.

(2) At December 26, 2021, the accumulated other comprehensive loss of $ 9,971 was comprised of net unrealized foreign currency translation loss of $ 4,869 and a net unrealized loss on the interest rate swap agreements of $ 5,102 .

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

Proceeds from the sale of property and equipment 3,457 — —

Other 3,336 ( 520 ) 3,323

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Repayments of term loan — — ( 340,000 )

Principal payments on finance leases ( 8,821 ) ( 5,416 ) ( 4,566 )

Other 28 664 935

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Papa John’s International, Inc.

(referred to as the “Company,” “Papa John’s,” “Papa Johns” or in the first person notations of “we,” “us” and “our”), operates and franchises pizza delivery and carryout restaurants under the trademark “Papa John’s,” in 48 countries and territories as of December 25, 2022.

(referred to as the “Company,” “Papa John’s,” “Papa Johns” or in the first person notations of “we,” “us” and “our”), operates and franchises pizza delivery and carryout restaurants under the trademark “Papa Johns,” in 50 countries and territories as of December 31, 2023.

Our revenues are derived from retail sales of pizza and other food and beverage products to the general public by Company-owned restaurants, franchise royalties and sales of franchise and development rights, printing and promotional items and information systems equipment, and software and related services.

We generate revenues from the operation of our Quality Control Centers (“QC Centers”) which supply pizza sauce, dough, food products, paper products, smallwares and cleaning supplies to restaurants.

We also derive revenue from contributions received into our national marketing funds.

We also derive revenue from contributions received into our national marketing fund.

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.

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Our fiscal year ends on the last Sunday in December of each year.

All fiscal years presented consist of 52 weeks.

All fiscal years presented consist of 52 weeks except for the 2023 fiscal year, which consists of 53 weeks.

Use of Estimates

The preparation of Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the Consolidated Financial Statements and accompanying notes.

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, gift card breakage, insurance reserves and tax reserves.

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, property and equipment, right-of-use assets and lease liabilities, gift card breakage, 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.

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The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a customer.

Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by the Company from a customer, are excluded from revenue.

Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by the

Company from a customer, are excluded from revenue.

Delivery costs, including freight associated with our Domestic commissary and other sales, are accounted for as fulfillment costs and are included in operating costs.

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Domestic Company-owned Restaurant Sales

The Domestic Company-owned restaurants principally generate revenue from retail sales of high-quality pizza, Papadias, which are flatbread-style sandwiches, and side items including breadsticks, Papa Bites, cheesesticks, chicken poppers and wings, dessert items and canned or bottled beverages.

The Domestic Company-owned restaurants principally generates revenues from retail sales of pizza, Papadias, and side items, including breadsticks, Papa Bites, cheesesticks, boneless chicken wings and bone-in chicken wings, dessert items and canned or bottled beverages.

Revenues from Company-owned restaurants are recognized when the products are delivered to or carried out by customers.

Our North American customer loyalty program, Papa Rewards, is a spend-based program that rewards customers with points for each purchase.

Papa Rewards points are accumulated and redeemed for dollar off discounts (“Papa Dough”) to be used on future purchases within a six-month expiration window.

Papa Rewards points are accumulated and redeemed for dollar off discounts (“Papa Dough”), and points expire after a year of inactivity.

Once points are redeemed, Papa Dough may be used on future purchases within a six-month expiration window.

The accrued liability in the Consolidated Balance Sheets, and corresponding reduction of Company-owned restaurant sales in the Consolidated Statements of Operations, is for the estimated reward redemptions at Domestic Company-owned restaurants based upon estimated redemption patterns.

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Franchise royalties, which are based on a percentage of franchise restaurant sales, are recognized as sales occur.

Incentives offered from time to time, including new store incentives, will reduce the contractual royalty rate paid.

Any royalty reductions, including waivers or those offered as part of a new store development incentive or as incentive for other behaviors, including acceleration of restaurant remodels or equipment upgrades, are recognized at the same time as the related royalty, as they are not separately distinguishable from the full royalty rate.

Incentives offered from time to time, including new restaurant incentives, will reduce the contractual royalty rate paid.

Any royalty reductions, including waivers or those offered as part of a new restaurant development incentive or as incentive for other behaviors, including acceleration of restaurant remodels or equipment upgrades, are recognized at the same time as the related royalty, as they are not separately distinguishable from the full royalty rate.

Our current standard franchise agreement requires the franchisee to pay a royalty fee of 5 % of sales, and the majority of our existing franchised restaurants have a 5 % contractual royalty rate in effect.

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The majority of initial franchise license fees and area development exclusivity fees are from International locations.

Initial franchise license fees are billed at the store opening date.

Initial franchise license fees are billed at the restaurant opening date.

The pre-opening services provided to franchisees do not contain separate and distinct performance obligations from the franchise right;

thus, the fees collected will be deferred and amortized on a straight-line basis beginning at the store opening date through the term of the franchise agreement, which is typically 10 years.

thus, the fees collected will be deferred and amortized on a straight-line basis beginning at the restaurant opening date through the term of the franchise agreement, which is typically 10 years.

Franchise license renewal fees for both Domestic and International locations, which generally occur every 10 years, are billed before the renewal date.

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Payments are generally due within 30 days.

There are various incentive programs available to franchisees related to new restaurant openings including discounts on initial commissary orders and new store equipment incentives, at substantially no cost to franchisees.

There are various incentive programs available to franchisees related to new restaurant openings including discounts on initial commissary orders and new restaurant equipment incentives, at substantially no cost to franchisees.

Commissary revenues are reduced to reflect incentives in the form of direct discounts on initial commissary orders.

The new store equipment incentive is also recorded as a reduction of commissary sales over the term of the incentive agreement, which is generally three to five years .

The new restaurant equipment incentive is also recorded as a reduction of commissary sales over the term of the incentive agreement, which is generally three to five years .

Other Revenues

Franchise Marketing Fund revenues represent a required established percentage of monthly restaurant sales collected by PJMF, which is our national marketing fund, and various other international and Domestic marketing funds (“Co-op” or “Co-operative” Funds) where we have determined for purposes of accounting that we have control over the significant activities of the funds.

“Co-operative” Funds) where we have determined for purposes of accounting that we have control over the significant activities of the funds.

PJMF funds its operations with ongoing financial support and contributions from Domestic Papa John’s restaurants, of which approximately 85 % are franchised restaurant members.

Contributions are based on a percentage of monthly restaurant sales and are billed monthly.

When we are determined to be the principal in these

arrangements, advertising fund contributions and expenditures are reported on a gross basis in the Consolidated Statements of Operations.

When we are determined to be the principal in these arrangements, advertising fund contributions and expenditures are reported on a gross basis in the Consolidated Statements of Operations.

Our obligation related to these funds is to develop and conduct advertising activities in a specific country, region, or market, including the placement of electronic and print materials.

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Fees for information services, including software maintenance fees, help desk fees, centralized call center fees, and online ordering fees are recognized as revenue as such services are provided and are included in Other revenues.

Revenues for printing, promotional items, and direct mail marketing services are recognized upon shipment of the related products to franchisees and other customers.

Direct mail advertising discounts are also periodically offered by our Preferred Marketing Solutions subsidiary.

Other revenues are reduced to reflect these advertising discounts.

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

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The Co-op Funds are responsible for developing and conducting advertising activities in a specific market, including the placement of electronic and print materials developed by PJMF.

During 2020 the Company recorded additional amounts of $ 15.0 million to PJMF, representing incremental discretionary marketing fund investments in excess of contractual Company-owned restaurant-level contributions as part of our temporary financial support package to our franchisees.

The marketing fund investments are included in General and administrative expenses within the accompanying Consolidated Statements of Operations.

The marketing fund investments are included in General and administrative expenses within the accompanying Consolidated Statements of Operations and are accrued and expensed when the franchise advertising revenues are recognized, as PJMF is designed to operate at break-even.

Lease expense is recognized on a straight-line basis over the expected life of the lease term for operating leases, whereas lease expense follows an accelerated expense recognition for finance leases.

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Compensation expense for equity grants is estimated on the grant date, net of projected forfeitures, and is recognized over the vesting period (graded vesting over three years ).

We have elected a policy to estimate forfeitures in determining the amount of stock-based employee compensation expense.

Restricted stock is valued based on the market price of the Company’s shares on the date of grant.

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Accounts Receivable

Substantially all accounts receivable is due from franchisees for purchases of food, paper products, point of sale equipment, printing and promotional items, information systems and related services, marketing and royalties.

Credit is extended based

on an evaluation of the franchisee’s financial condition and collateral is generally not required.

Substantially all accounts receivable is due from franchisees for purchases of food, paper products, point of sale equipment, information systems and related services, marketing and royalties.

Credit is extended based on an evaluation of the franchisee’s financial condition and collateral is generally not required.

An allowance for credit losses is an estimate, even if remote, 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.

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Interest income recorded on franchisee loans was approximately $ 1.1 million in 2023, $ 1.3 million in 2022 and $ 1.9 million in 2021 and is reported in Net interest expense in the accompanying Consolidated Statements of Operations.

Inventories, which consist of food products, paper goods and supplies, smallwares, and printing and promotional items, are stated at the lower of cost, determined under the first-in, first-out (FIFO) method, or net realizable value.

Inventories, which consist of food products, paper goods, supplies and smallwares are stated at the lower of cost, determined under the first-in, first-out (FIFO) method, or net realizable value.

Property and Equipment

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Amounts capitalized, which are included in property and equipment, are amortized principally over periods not exceeding five years upon completion of the related information systems project.

Total costs capitalized were approximately $ 4.1 million in 2022, $ 4.1 million in 2021 and $ 3.3 million in 2020.

The unamortized information systems development costs approximated $ 9.6 and $ 10.5 million as of December 25, 2022 and December 26, 2021, respectively.

Total costs capitalized were approximately $ 4.1 million in 2023, 2022 and 2021.

The unamortized information systems development costs approximated $ 9.9 million and $ 9.6 million as of December 31, 2023 and December 25, 2022, respectively.

Intangible Assets — Goodwill

We evaluate goodwill annually in the fourth quarter or whenever we identify certain triggering events or circumstances that would more-likely-than-not reduce the fair value of a reporting unit below its carrying amount.

Such tests are completed separately with respect to the goodwill of each of our reporting units, which includes our Domestic Company-owned restaurants, United Kingdom (“PJUK”), China, and Preferred Marketing Solutions operations.

We evaluate goodwill annually as of the first day of the fourth quarter or whenever we identify certain triggering events or circumstances that would more-likely-than-not reduce the fair value of a reporting unit below its carrying amount.

We may perform a qualitative assessment or move directly to the quantitative assessment for any reporting unit in any period if we believe that it is more efficient or if impairment indicators exist.

We elected to perform a quantitative assessment for our Domestic Company-owned restaurants, PJUK, China, and Preferred Marketing Solutions operations in the fourth quarter of 2022.

Our Domestic Company-owned restaurants, PJUK, China and Preferred Marketing Solutions fair value calculations considered both an income approach and a market approach.

The income approach used projected net cash flows, with various growth assumptions, over a ten-year discrete period and a terminal value, which were discounted using appropriate rates.

The selected discount rate considered the risk and nature of each reporting unit’s cash flow and the rates of return market participants would require to invest their capital in the reporting unit.

In determining the fair value from a market approach, we considered sales multiples and earnings

before interest, taxes, depreciation and amortization multiples that a potential buyer would pay based on third-party transactions in similar markets.

As a result of our quantitative analyses, we determined that it was more-likely-than-not that the fair values of our reporting units were greater than their carrying amounts.

We elected to perform a qualitative assessment for our Domestic Company-owned restaurants, PJUK, and China as of the first day of the fourth quarter of 2023;

we excluded the goodwill associated with our Preferred Marketing Solutions reporting unit, as the business was sold shortly after the date of our assessment and the balance was not material to the consolidated financial statements.

As a result of our qualitative analysis, we determined that it was more-likely-than-not

that the fair values of our reporting units were greater than their carrying amounts.

Subsequent to completing our goodwill impairment tests, no indicators of impairment were identified.

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The Company records estimated losses above retention within its reserve with a corresponding receivable for expected amounts due from insurance carriers.

As of December 25, 2022, our insurance reserve was $ 67.3 million as compared to $ 88.1 million as of December 26, 2021 primarily related to auto liability and workers’ compensation claims.

As of December 31, 2023, our insurance reserve was $ 56.8 million as compared to $ 67.3 million as of December 25, 2022 and was primarily related to auto liability and workers’ compensation claims.

Of these amounts, approximately $ 27.2 million and $ 29.7 million were recorded in Accrued expenses and other current liabilities and $ 29.5 million and $ 37.6 million were recorded in Other long-term liabilities on the Consolidated Balance Sheets as of December 31, 2023 and December 25, 2022, respectively.

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At inception and on an ongoing basis, we assess whether each derivative that qualifies for hedge accounting continues to be highly effective in offsetting changes in the cash flows of the hedged item.

If the derivative meets the hedge criteria as defined by certain accounting standards, depending on the nature of the hedge, changes in the fair value of the derivative are either offset against the change in fair value of assets, liabilities or firm commitments through earnings or recognized in accumulated other comprehensive income/(loss) until the hedged item is recognized in earnings.

In 2021, ou r interest rate swaps were de-designated as cash flow hedges following the issuance of the Notes (as defined in “Note 12.

Debt”) and remained undesignated as hedges through June 26, 2022.

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 London Interbank Offered Rates (“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 AOCL and reclassified to interest expense in the same period or periods during which the hedged transactions affect earnings.

If the derivative meets the hedge criteria as defined by certain accounting standards, depending on the nature of the hedge, changes in the fair value of the derivative are either offset against the change in fair value of assets, liabilities or firm commitments through earnings or recognized in Accumulated other comprehensive loss (“AOCL”) until the hedged item is recognized in earnings.

Refer to “Note 12.

Debt” for additional details related to derivative financial instruments.

Noncontrolling Interests

Papa John’s has joint venture arrangements in which there are noncontrolling interests held by third parties that included 98 and 188 restaurants at December 25, 2022 and December 26, 2021, respectively.

Papa John’s has joint venture arrangements in which there are noncontrolling interests held by third parties that included 98 restaurants at December 31, 2023 and December 25, 2022.

As further described in “Note 22.

Divestitures,” the Company divested its 51 percent interest in one joint venture 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.

Consolidated net income is required to be reported separately at amounts attributable to both the Company and the noncontrolling interests held by third parties.

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 Consolidated Statements of Operations of income attributable to the noncontrolling interest holder.

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The local currency is the functional currency for each of our foreign subsidiaries.

Revenues and expenses are translated into United States (“U.S.”) dollars using monthly average exchange rates, while assets and liabilities are translated using year-end exchange rates and historical rates.

Revenues and expenses are translated into United States (“U.S.”) dollars using monthly average exchange rates, while assets and liabilities are translated using year-end exchange rates.

The resulting translation adjustments are included as a component of AOCL, net of income taxes.

Foreign currency remeasurement gains and losses are included in determining net income.

Recent Accounting Pronouncements

Reference Rate Reform – Hedging

In March 2020, the Financial Accounting Standards Board (“FASB”) issued ASU 2020-04, “ Facilitation of the Effects of Reference Rate Reform on Financial Reporting.

” The ASU provides optional expedients and exceptions for applying guidance on contract modifications and hedge accounting related to the expected market transition from LIBOR and other interbank offered rates to alternative reference rates if certain criteria are met.

This guidance was effective beginning on March 12, 2020, and amendments could be applied prospectively through December 31, 2022.

The hedge accounting expedients may be applied, on an individual hedging relationship basis, to eligible hedge accounting relationships that existed as of the beginning of the effective date of this guidance, and to new eligible hedging relationships entered into after the effective date of this guidance;

however, those expedients generally could not be applied to hedging relationships for periods after December 31, 2022.

The FASB issued ASU 2022-06, “Deferral of the Sunset Date of Topic 848,” which deferred the sunset date from December 31, 2022 to December 31, 2024.

The Company adopted certain optional hedge accounting expedients provided by ASU 2020-04 during fiscal 2020.

The adoption of this guidance did not have a material impact on the Company’s consolidated financial position, results of operations, or cash flows.

Segment Disclosures

In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2023-07, “ Improvements to Reportable Segment Disclosure s.” The ASU expands the scope and frequency of segment disclosures and introduces the concept of a “significant expense principle,” which requires entities to disclose significant expense categories and amounts that are regularly provided to the chief operating decision maker (“CODM”) and included within the reported measure of a segment’s profit or loss.

The ASU also changes current disclosure requirements by allowing entities to report multiple measures of a segment’s profit or loss, provided the reported measures are used by the CODM to assess performance and allocate resources and that the measure closest to GAAP is also provided.

Finally, the ASU requires all segment profit or loss and assets disclosures to be provided on both an annual and interim basis and requires entities to disclose the title and position of the individual identified as the CODM.

The ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024 and shall be applied retrospectively to all periods presented in the financial statements.

The Company is currently evaluating the standard and determining the extent of additional interim and annual segment disclosures that will be required.

Income Tax Disclosures

In December 2023, the FASB issued ASU 2023-09, “ Income Taxes (Topic 740):

Improvements to Income Tax Disclosures.” The ASU provides for additional levels of details within the required rate reconciliation table to include additional categories of information about federal, state, and foreign income taxes and requires entities to further disaggregate information about income taxes paid, net of refunds.

The ASU is effective for fiscal years beginning after December 15, 2024 and shall be applied prospectively.

The Company is currently evaluating the standard and determining the extent of additional disclosures that will be required.

The Company has significant leases that include most Domestic Company-owned restaurant and commissary locations as well as our corporate office located in Atlanta, Georgia.

Other Domestic leases include tractor and trailer leases used by our distribution subsidiary as well as commissary equipment.

Additionally, the Company leases a significant number of restaurants within the United Kingdom (“UK”);

these restaurants are then subleased to the franchisees.

Additionally, the Company leases a significant number of

restaurants within the United Kingdom (“UK”);

these restaurants are then operated as Company-owned restaurants or subleased to franchisees.

The Company’s leases have terms as follows:

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Domestic Company-owned restaurants Five years , plus at least one renewal

UK franchise-owned restaurants 15 years

UK Company-owned and franchise-owned restaurants 15 years

Domestic commissary locations 10 years, plus at least one renewal

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The Company determines if an arrangement is or contains a lease at contract inception and recognizes a right-of-use asset and a lease liability at the lease commencement date.

For all of its leases in which it is a lessee, the Company has elected to include both the lease and non-lease components as a single component and account for it as a lease.

Leases with an initial term of 12 months or less but greater than one month are not recorded on the balance sheet for select asset classes.

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Total lease liabilities $ 208,299 $ 210,195

Lease costs for the years ended December 25, 2022, December 26, 2021 and December 27, 2020 were as follows (in thousands):

December 25, 2022 Year Ended

December 26, 2021 Year Ended

December 27, 2020

Lease costs for the years ended December 31, 2023, December 25, 2022 and December 26, 2021 were as follows:

(Dollars in thousands) Year Ended

December 31, 2023 December 25, 2022 December 26, 2021

Finance lease:

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As of December 31, 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 $ 7.3 million.

This contingent liability is not included in the Consolidated Balance Sheet or future minimum lease obligation.

This contingent liability is not included in the Consolidated Balance Sheets or future minimum lease obligation.

The fair value of the guarantee is not material.

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Right-of-use assets obtained in exchange for new finance lease liabilities $ 16,734 $ 9,875 $ 9,486

Right-of-use assets obtained in exchange for new operating lease liabilities (b)

Right-of-use assets obtained in exchange for new operating lease liabilities

$ 24,380 $ 53,869 $ 64,420

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(a) Included within the change in Other assets and liabilities within the 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 year ended December 25, 2021 associated with the lease commencement of our Atlanta, Georgia corporate office.

Papa John’s Marketing Fund, Inc.

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Accounts receivable, net 18,026 14,780

Income tax receivable — 300

Prepaid expenses and other current assets 2,223 1,815

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Accounts payable $ 1,509 $ 12,428

Income and other taxes payable 8 2

Accrued expenses and other current liabilities 22,245 17,936

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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 Consolidated Balance Sheets.

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

During the years ended December 31, 2023 and December 25, 2022, the Company recognized $ 34.5 million and $ 33.4 million in revenue, respectively, related to deferred revenue.

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

Contract Liabilities

December 31, 2023 December 25, 2022 Change

Franchise fees and unredeemed gift card liabilities $ 30,710 $ 20,410 $ 10,300

Franchise fee liabilities $ 20,564 $ 23,836 $ ( 3,272 )

Unredeemed gift card liabilities 6,955 6,874 81

Customer loyalty program obligations 13,274 13,766 ( 492 )

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Franchise fees $ 2,746 $ 2,628 $ 2,463 $ 2,254 $ 2,004 $ 5,305 $ 17,400

Approximately $ 3.2 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 $ 6.9 million, included in Deferred revenue, will be recognized in Company-owned restaurant revenues when gift cards are redeemed.

Approximately $ 3.2 million of area development fees related to unopened restaurants and International unearned royalties are included in Deferred revenue.

Timing of revenue recognition is dependent upon the timing of restaurant openings and franchisees’ revenues.

Unredeemed gift card liabilities, which are 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.

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Stockholders’ Deficit

Shares Authorized and Outstanding

The Company has authorized 100.0 million shares of common stock as of December 31, 2023 and December 25, 2022, respectively.

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Share Aggregate

Purchased Maximum Dollar

Purchased (a)

Maximum Dollar

Value of Shares

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December 26, 2021 594 $ 121.96 $ 72,499 $ 424,800

Subsequent to year-end, we acquired an additional 319,307 shares at an aggregate cost of $ 27.6 million.

(a) Aggregate cost of shares purchased for year ended December 31, 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.

Of these costs, $ 2.1 million were classified as non-cash financing activities for the year ended December 31, 2023.

We did no t repurchase any shares subsequent to December 31, 2023.

Approximately $ 90.2 million remained available under the Company’s share repurchase program as of February 22, 2024.

The shares repurchased during the year ended December 31, 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.

Refer to “Note 18.

Related Party Transactions” for additional details.

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 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.

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Dividends on Common Stock

The Company paid dividends of approximately $ 54.8 million ($ 1.54 per share), $ 40.4 million and $ 29.4 million to common stockholders for the years 2022, 2021 and 2020, respectively.

The Company paid aggregate cash dividends of approximately $ 58.5 million ($ 1.76 per share), $ 54.8 million ($ 1.54 per share) and $ 40.4 million ($ 1.15 per share) to common stockholders for the years 2023, 2022 and 2021, respectively.

On January 30, 2024, our Board of Directors declared a first quarter 2024 dividend of $ 0.46 per common share, representing a $ 15.1 million aggregate dividend that was paid on February 23, 2024 to stockholders of record as of the close of business on February 12, 2024.

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The Company paid Starboard and the franchisee investors aggregate one-time cash payments of $ 188.6 million for the repurchase and conversion of all of the outstanding shares of Series B Preferred Stock.

The excess of the cash payment over the carrying value of the respective Series B Preferred Stock redeemed resulted in $ 109.9 million of dividends on redemption of Series B Preferred Stock in the Consolidated Statement of Operations, which reduced net income attributable to common stockholders and also reduced diluted earnings per share by $ 3.10 for the year ended December 26, 2021.

On August 3, 2021, the Company filed a Certificate of Elimination (the “Certificate of Elimination”) with the Secretary of State of the State of Delaware to eliminate the Series B Preferred Stock.

Effective upon filing, the Certificate of Elimination eliminated from the Company’s Amended and Restated Certificate of Incorporation all matters set forth in the Certificate of Designation with respect to the Series B Preferred Stock.

The shares that were designated to such series were returned to the status of authorized but unissued shares of preferred stock, par value $ 0.01 per share, of the Company, without designation as to series.

As a result of the repurchase and conversion, there were no shares of Series B Preferred Stock authorized or outstanding at December 25, 2022 or December 26, 2021.

The following table summarizes changes to our Series B Preferred Stock in 2021 (in thousands):

Balance at December 27, 2020 $ 251,901

Accretion 629

Redemption ( 252,530 )

Balance at December 26, 2021 $ —

The excess of the cash payment over the carrying value of the respective Series B Preferred Stock redeemed resulted in $ 109.9 million of dividends on redemption of Series B Preferred Stock in the Consolidated Statements of Operations, which reduced net income attributable to common stockholders and also reduced diluted earnings per share by $ 3.10 for the year ended December 26, 2021.

As a result of the repurchase and conversion, there were no shares of Series B Preferred Stock issued or outstanding at December 31, 2023 or December 25, 2022.

Dividends on Series B Preferred Stock

The Company paid common stock “pass-through” dividends on an as-converted basis to Series B Preferred Stockholders of $ 1.1 million and $ 4.6 million and preferred dividends on the Series B Preferred Stock of $ 3.0 million and $ 9.1 million, in 2021 and 2020, respectively.

The Company paid common stock “pass-through” dividends on an as-converted basis to Series B Preferred Stockholders of $ 1.1 million and preferred dividends on the Series B Preferred Stock of $ 3.0 million in 2021.

The Company also paid $ 1.5 million of common stock deemed dividend distributions in connection with the repurchase and conversion of the Series B Preferred Stock in 2021.

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

The shares of Series B Preferred Stock, which were repurchased by the Company or converted into shares of common stock during the second quarter of 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 or cash payments in excess of their respective carrying values upon redemption was treated as a deemed dividend in the two-class earnings per share calculation.

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.

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

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Dilutive effect of outstanding equity awards (a)

Diluted weighted average common shares outstanding (b)

35,717 35,337 32,717

Diluted weighted average common shares outstanding 33,159 35,717 35,337

Diluted earnings per common share $ 2.48 $ 1.89 $ 0.12

______________________________

(a) Shares subject to options to purchase common stock with an exercise price greater than the average market price for the year were not included in the computation of diluted earnings per common share because the effect would have been antidilutive.

The weighted average number of shares subject to antidilutive options was 100,000 in 2020 ( none in 2022 or 2021).

(b) The Company had 252,500 shares of Series B Preferred Stock outstanding as of December 27, 2020 ( none as of December 25, 2022 or December 26, 2021).

For the fully diluted calculation, the Series B Preferred Stock dividends were added back to net income attributable to common shareholders.

The Company then applied the if-converted method to calculate dilution on the Series B Preferred Stock, which resulted in 5.0 million additional common shares.

This calculation was anti-dilutive in 2020 and as such was excluded.

(a) Excludes 194,846 shares underlying equity awards for the year ended December 31, 2023, as the effect of including such awards would have been anti-dilutive, and no ne in 2022 or 2021.

See “Note 20.

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$ 107 $ — $ 107 $ —

Financial liabilities:

Interest rate swaps (b)

$ 483 $ — $ 483 $ —

December 25, 2022

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$ 30,120 $ 30,120 $ — $ —

Financial liabilities:

Interest rate swaps (b)

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(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 future cash flows are derived based on the terms of our interest rate swaps, as well as considering published discount factors, and projected Secured Overnight Financing Rates (“SOFR”).

Interest rate swaps entered into prior to 2023 were based on LIBOR.

There were no transfers among levels within the fair value hierarchy during fiscal 2023 or 2022.

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The carrying value of notes receivable, net of allowances, also approximates fair value.

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

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 December 31, 2023 and December 25, 2022:

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Noncontrolling Interests

As of December 25, 2022, the Company had three joint venture arrangements comprising 98 restaurants as compared to four joint venture arrangements comprising 188 restaurants at December 26, 2021.

As of December 31, 2023 and December 25, 2022 the Company had three joint venture arrangements comprising 98 restaurants.

As further described in “Note 22.

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$ 1,672 $ 3,136 $ 8,457

Noncontrolling interests 1,577 4,939 2,682

Redeemable noncontrolling interests 198 574 2,609

Nonredeemable noncontrolling interests 503 1,003 2,330

Total net income $ 2,373 $ 4,713 $ 13,396

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Allowance for Credit Losses

The Company adopted ASU 2016-13, “ Financial Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments ,” (“ASU 2016-13”) as of December 30, 2019 (the first day of fiscal 2020) under the modified retrospective transition method.

Topic 326 requires measurement and recognition of expected versus incurred losses for financial assets held.

Financial instruments subject to Topic 326 include trade accounts receivable, notes receivable and interest receivable (classified as Other assets in the Consolidated Balance Sheets) from franchisees.

The impact of the adoption was not material to our consolidated financial statements.

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.

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

Current period provision (benefit) for expected credit losses 16 ( 583 )

Current period provision for expected credit losses, net (a)

Write-offs charged against the allowance ( 2,120 ) ( 1,067 )

Recoveries collected — ( 285 )

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

Current period provision for expected credit losses (a)

Current period provision for expected credit losses, net (b)

Write-offs charged against the allowance ( 1,974 ) ( 191 )

Recoveries collected — ( 25 )

Balance at December 31, 2023 $ 8,353 $ 16,092

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The Company recorded $ 3.7 million of one-time, non-cash reserves in the second half of 2022 for certain accounts receivable and notes receivable primarily associated with the termination of significant franchisees in the UK.

(b) During the fourth quarter of 2023, the Company recorded $ 1.7 million of reserves for certain accounts receivable and notes receivable associated with the termination of a specific franchisee in the UK and $ 0.9 million of reserves for certain accounts receivable related to the conflict in the Middle East.

The following summarizes changes in the Company’s goodwill, by reportable segment (in thousands):

Domestic Company-

owned Restaurants International (a)

owned Restaurants International

All Others Total

Balance at December 26, 2021 $ 64,254 $ 15,942 $ 436 $ 80,632

Acquisitions (a)

1,161 — — 1,161

Divestitures (b)

( 9,908 ) — — ( 9,908 )

Foreign currency adjustments — ( 1,269 ) — ( 1,269 )

Balance at December 25, 2022 $ 55,507 $ 14,673 $ 436 $ 70,616

Acquisitions (b)

Acquisitions (a)

1,102 4,274 — 5,376

Divestitures (c)

Divestitures (b)

— — ( 436 ) ( 436 )

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(a) The International goodwill balances for all years presented are net of accumulated impairment of $ 2.3 million associated with our PJUK reporting unit.

(b) Goodwill from acquisitions was $ 1.2 million in 2022, due to acquisitions of two stores.

(c) In conjunction with the refranchising of our 51.0 % ownership interest in a 90 -restaurant consolidated joint venture in Texas, goodwill was allocated to the disposal group based on relative fair value within the Domestic Company-owned restaurants reporting group.

(a) Goodwill from acquisitions for the year 2023 includes $ 4.3 million from the UK franchisee acquisitions as well as $ 1.1 million related to the Domestic restaurant acquisitions.

See “Note 24.

Acquisitions” for further information.

Goodwill from acquisitions for the year 2022 include $ 1.2 million in 2022, due to acquisitions of two restaurants.

(b) During the year ended December 31, 2023, the Company disposed of $ 0.4 million of goodwill in connection with the sale of our Preferred Marketing Solutions business.

In conjunction with the refranchising of our 51.0 % ownership interest in a 90 -restaurant consolidated joint venture in Texas during the year ended December 25, 2022, goodwill was allocated to the disposal group based on relative fair value within the Domestic Company-owned restaurants reporting group.

See “Note 22.

Divestitures” for further information.

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

The Notes are guaranteed by each of the Company’s existing and future Domestic restricted subsidiaries that are guarantors or borrowers under the Amended Credit Agreement (as defined below) or other certain indebtedness.

The Notes are guaranteed by each of the Company’s existing and future Domestic restricted subsidiaries that are guarantors or borrowers under the Credit Agreement (as defined below) or other certain indebtedness.

The Notes were offered and sold either to persons reasonably believed to be “qualified institutional buyers” pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), or to persons outside the United States under Regulation S of the Securities Act.

Interest on the Notes is payable semi-annually in cash in arrears on March 15 and September 15 of each year, beginning March 15, 2022, at a fixed interest rate of 3.875 % per annum.

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.

In connection with the Notes, the Company recorded $ 7.1 million of debt issuance costs, which are being amortized into Net interest expense over the term of the Notes.

The net proceeds from the Notes, together with borrowings under the Amended Credit Agreement (as defined below), were used to repay outstanding revolver and term loan borrowings under the Company’s Previous Credit Agreement (as defined below).

The net proceeds from the Notes, together with borrowings under the Credit Agreement (as defined below), were used to repay outstanding revolver and term loan borrowings under the Company’s Previous Credit Agreement (as defined below).

The Company may redeem the Notes, in whole or in part, at any time on or after September 15, 2024 at established redemption prices ranging from 97 to 194 basis points depending on when the Notes are redeemed.

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

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

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

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

Concurrently with the issuance of the Notes, the Company entered into an amended and restated credit agreement (the “Amended Credit Agreement”) replacing the previous credit agreement (“Previous Credit Agreement”).

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

Concurrently with the issuance of the Notes, the Company entered into an amended and restated credit agreement (the “Credit Agreement”) replacing the previous credit agreement (“Previous Credit Agreement”).

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.

In connection with the Amended Credit Agreement, the Company recorded $ 2.1 million of debt issuance costs, which are being amortized into net interest expense over the term of the Amended Credit Agreement.

The Credit Agreement was amended on May 30, 2023 to update the borrowing benchmark from LIBOR to SOFR with a fixed credit spread adjustment of 0.10 %.

In connection with the Credit Agreement, the Company recorded $ 2.1 million of debt issuance costs during the year ended December 26, 2021, which are being amortized into Net interest expense over the term of the Credit Agreement.

The remaining availability under the PJI Revolving Facility was $ 236.0 million as of December 31, 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.

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 an earnings calculation, Consolidated EBITDA (as defined in our credit agreement), for the then most recently ended four quarter period (the “Leverage Ratio”).

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 SOFR 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 SOFR 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 an earnings calculation, Consolidated EBITDA (as defined in the 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 incurrence of additional indebtedness and liens, the consummation of certain mergers, consolidations, sales of assets and similar transactions, the making of investments, equity distributions and other restricted payments, and transactions with affiliates.

The Credit Agreement contains customary affirmative and negative covenants that, among other things, require customary reporting obligations, and restrict, subject to certain exceptions, the incurrence of additional indebtedness and liens, the consummation of certain mergers, consolidations, sales of assets and similar transactions, the making of investments, equity distributions and other restricted payments, and transactions with affiliates.

The Company is 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 Consolidated EBITDA (as defined in our credit agreement) plus consolidated rental expense to consolidated interest expense plus consolidated rental expense of 2.00 to 1.00.

(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 December 31, 2023.

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.

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.

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.

PJMF has a 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.

On September 30, 2023, the Company amended the PJMF Revolving Facility to, among other items:

(i) extend the maturity date to September 30, 2024;

(ii) amend the variable interest rate to one-month SOFR plus 1.975 %;

and (iii) expand the capacity from $ 20.0 million to $ 30.0 million.

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

The PJMF Revolving Facility matures on September 30, 2024, but is subject to annual amendments.

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

The borrowings under the PJMF Revolving Facility accrue interest at a variable rate of the one-month SOFR plu s 1.975 % .

There was no debt outstanding under the PJMF Revolving Facility as of December 31, 2023 or December 25, 2022.

The PJMF operating results and the related debt outstanding do not impact the financial covenants under the Amended Credit Agreement.

The PJMF operating results and the related debt outstanding do not impact the financial covenants under the Credit Agreement.

Derivative Financial Instruments

On June 23, 2023, the Company entered into a new interest rate swap with an initial notional value of $ 100.0 million to replace the Company’s prior interest swaps, which had a notional value of $ 125.0 million and matured on April 30, 2023.

The objective of the interest rate swap is to mitigate the Company’s exposure to the impact of interest rate changes associated with our variable rate debt under the PJI Revolving Facility.

We have designated the interest rate swap as a cash flow hedge and will assess hedge effectiveness at regular intervals through the maturity date of June 30, 2025.

The interest rate swaps are recorded at fair value at each reporting date, and any unrealized gains or losses are included in Accumulated other comprehensive loss in the Consolidated Balance Sheets and reclassified to Net interest expense in the Consolidated Statements of Operations in the same period or periods during which the hedged transaction affect earnings.

As of December 31, 2023, we have the following interest rate swap agreements with a total notional value of $ 100.0 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 2021, ou r 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 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.

We recognized income of $ 4.8 million ($ 3.7 million after tax) in 2022 and $ 6.8 million ($ 5.3 million after tax) in 2021, and a loss of $ 7.5 million ($ 5.8 million after tax) in 2020 in other comprehensive income (loss) for the net change in the fair value of our interest rate swaps.

The following table provides information on the location and amounts of our swaps in the accompanying Consolidated Financial Statements (in thousands):

June 23, 2023 through June 30, 2025 $ 50 million 4.55 %

In 2021, ou r prior interest rate swaps, which matured on April 30, 2023, 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 AOCL were reclassified into earnings as adjustments to Net interest expense on a straight-line basis over the remaining life of the originally hedged transactions.

Therefore, beginning in the third quarter of 2022 and through the maturity date of April 30, 2023, our prior interest rate swaps were accounted for utilizing cash flow hedge accounting treatment.

We recognized income of $ 1.5 million ($ 1.1 million after tax), $ 4.8 million ($ 3.7 million after tax) and $ 6.8 million ($ 5.3 million after tax) in 2023, 2022 and 2021, respectively, in other comprehensive income for the net change in the fair value of our interest rate swaps.

The following table provides information on the location and amounts of our swaps in the accompanying Consolidated Balance Sheets (in thousands):

Interest Rate Swap Derivatives

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2023 Fair Value

Other current and long-term assets $ 986 $ —

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

As of December 25, 2022, the portion of the aggregate $ 1.0 million interest rate swap liability that would be reclassified into interest expense during the next twelve months approximates $ 1.0 million.

Prepaid expenses and other current assets $ 107 $ 986

Other long-term liabilities $ 483 $ —

As of December 31, 2023, the portion of the aggregate $ 0.4 million interest rate swap liability that would be reclassified into interest expense during the next twelve months is a benefit of approximately $ 0.1 million.

The effect of derivative instruments on the accompanying Consolidated Financial Statements is as follows (in thousands):

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Reclassified from

Income Total Interest Expense

Income Net Interest Expense

on Consolidated

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Interest rate swaps:

2022 $ 3,663 Interest expense $ ( 2,384 ) $ ( 26,653 )

2021 $ 5,273 Interest expense $ ( 5,965 ) $ ( 19,205 )

2020 $ ( 5,788 ) Interest expense $ ( 5,068 ) $ ( 17,022 )

2023 $ 1,125 Net interest expense $ 173 $ ( 43,469 )

2022 $ 3,663 Net interest expense $ ( 2,384 ) $ ( 25,261 )

2021 $ 5,273 Net interest expense $ ( 5,965 ) $ ( 17,293 )

Interest paid, including payments made or received under the swaps, was $ 37.3 million , $ 24.4 million and $ 13.4 million in fiscal 2023, 2022 and 2021, respectively.

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Marketing $ 37,628 $ 36,858

Insurance reserves, current 29,676 34,661

Salaries, benefits and bonuses 36,491 21,934

Legal settlement accrual (a)

Insurance reserves, current 27,240 29,676

Purchases 24,198 13,789

Interest accrual 8,167 5,235

Litigation accrual (a)

Other 19,443 20,043

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Employee Benefit Plans” for additional information on our non-qualified deferred compensation plan.

Strategic Corporate Reorganization for Long-term Growth

Restructuring

International Restructuring

In December 2023, the Company announced international transformation initiatives (“International Transformation Plan”) designed to evolve our business structure to deliver an enhanced value proposition to our International customers and franchisees, ensure targeted investments and efficient resource management, and better position our largest markets, including the UK, for long-term profitable growth and brand strength.

During the fourth quarter of the year ended December 31, 2023, the Company commenced approved initiatives under the International Transformation Plan related to establishing new regional hubs across APAC (Asia Pacific), EMEA (Europe, Middle East and Africa), and Latin America that will be led by experienced general managers and their teams.

The Company incurred restructuring related costs of $ 2.2 million for the year ended December 31, 2023 related to the International Transformation Plan.

Restructuring related costs associated with the approved initiatives primarily relate to employee severance benefits accounted for under ASC 712, “Compensation - Nonretirement Postemployment Benefits”, professional services, recruiting and relocation costs, and stock-based compensation forfeitures on unvested awards.

These costs were included in General and administrative expenses in the Consolidated Statements of Operations.

Total estimated pre-tax costs associated with approved initiatives in 2023 are approximately $ 3.0 million to $ 6.0 million , all of which will be recorded within our International segment, and we expect to incur the remainder of these costs through 2024.

These estimates will be updated as additional initiatives associated with the International Transformation Plan are developed and approved.

Refer to Note 25.

Subsequent Events for further details on initiatives approved by our Board of Directors subsequent to December 31, 2023.

The following table summarizes restructuring related costs recorded for the year ended December 31, 2023 (in thousands):

Employee severance $ 1,522

Professional services 527

Recruiting 150

Total international transformation costs 2,199

Stock-based compensation forfeitures on unvested awards ( 21 )

Total international transformation costs, net of stock-based award forfeitures $ 2,178

The following table presents changes in the balance of accrued expenses relating to approved initiatives, which are recorded in Accrued expenses and other current liabilities in the Consolidated Balance Sheets (in thousands):

Employee severance Professional services Recruiting Total

Balance as of December 25, 2022 $ — $ — $ — $ —

Charges 1,522 527 150 2,199

Payments ( 295 ) — ( 121 ) ( 416 )

Balance as of December 31, 2023 $ 1,227 $ 527 $ 29 $ 1,783

Strategic Corporate Reorganization (2021)

On September 17, 2020, we announced plans to open an office in Atlanta, Georgia located in Three Ballpark Center at The Battery Atlanta, which opened in October 2021.

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Employees whose positions were relocated to the new Atlanta office were either offered an opportunity to continue with the organization or were offered a severance package.

As a result, we incurred one-time corporate reorganization costs of approximately $ 13.1 million and $ 6.0 million through December 26, 2021 and December 27, 2020, respectively, as detailed in the table below (in thousands).

There were no additional corporate reorganization costs incurred during the year ended December 25, 2022.

2021 December 27,

As a result, we incurred one-time corporate reorganization costs of approximately $ 13.1 million during the year ended December 26, 2021 as detailed in the table below (in thousands).

Employee severance and other employee transition costs $ 5,429

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Total strategic corporate reorganization costs $ 13,094

Stock-based compensation forfeitures on unvested awards — ( 940 )

Total strategic corporate reorganization costs, net of stock forfeitures $ 13,094 $ 5,985

There were no additional corporate reorganization costs incurred during the year ended December 31, 2023 or December 25, 2022, and all costs incurred during 2021 were paid by December 25, 2022.

We record severance as a one-time termination benefit and recognize the expense ratably over the employees’ required future service period.

All other costs, including employee transition costs, recruitment and relocation costs, and third-party costs, are recognized in the period incurred.

All strategic corporate reorganization costs have been recorded in General and administrative expenses on the Consolidated Statement of Operations.

As of December 26, 2021, the estimate of unpaid strategic corporate reorganization costs was included in Accrued expenses and other current liabilities on the Consolidated Balance Sheets.

The following tables summarize the activity for the years ended December 25, 2022 and December 26, 2021, respectively (in thousands):

Balance at December 26, 2021 Charges Payments Balance at December 25, 2022

Employee severance and other employee transition costs $ 2,122 $ — $ ( 2,122 ) $ —

Recruiting and professional fees 92 — ( 92 ) —

Relocation costs 740 — ( 740 ) —

Total strategic corporate reorganization liability $ 2,954 $ — $ ( 2,954 ) $ —

Balance at December 27, 2020 Charges Payments Balance at December 26, 2021

Employee severance and other employee transition costs $ 4,615 $ 5,429 $ ( 7,922 ) $ 2,122

Recruiting and professional fees 145 3,815 ( 3,868 ) 92

Relocation costs 101 3,100 ( 2,461 ) 740

Other costs — 750 ( 750 ) —

Total strategic corporate reorganization liability $ 4,861 $ 13,094 $ ( 15,001 ) $ 2,954

All strategic corporate reorganization costs were recorded in General and administrative expenses on the Consolidated Statements of Operations.

The following table presents the domestic and foreign components of income before income taxes for 2023, 2022 and 2021 (in thousands):

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Balance at December 31, 2023

The Company had approximately $ 10.2 million and $ 8.8 million of state deferred tax assets primarily related to state net operating loss carryforwards as of December 25, 2022 and December 26, 2021, respectively.

The Company had approximately $ 10.3 million and $ 10.2 million of state deferred tax assets in separate company jurisdictions primarily related to state net operating loss carryforwards as of December 31, 2023 and December 25, 2022, respectively.

Our ability to utilize these state deferred tax assets is dependent on our ability to generate earnings in future years in the respective state jurisdictions.

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Our ability to fully utilize these deferred tax assets related to state income tax credit carryforwards is dependent on our ability to generate earnings in future years in the respective state jurisdictions.

In 2022, the Company provided a partial valuation allowance of $ 0.5 million against these state deferred tax assets as we believe that a portion of these state income tax credit carryforwards would not be realizable before expiration.

The Company provided a partial valuation allowance of $ 0.7 million and $ 0.5 million against these state deferred tax assets at December 31, 2023 and December 25, 2022, respectively.

We believe that a portion of these state income tax credit carryforwards would not be realizable before expiration.

The Company had approximately $ 4.6 million and $ 2.2 million of foreign net operating loss and capital loss carryovers as of December 31, 2023 and December 25, 2022, respectively.

The Company had approximately $ 1.2 million of valuation allowances primarily related to the foreign capital losses at both December 25, 2022 and December 26, 2021.

The Company had approximately $ 2.7 million and $ 1.2 million of valuation allowances primarily related to the foreign net operating losses, foreign capital losses and foreign deferred tax assets at both December 31, 2023 and December 25, 2022.

A substantial majority of our foreign net operating losses do not have an expiration date.

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The Company is currently undergoing examinations by various tax authorities.

The Company anticipates that the finalization of these current examinations and other issues could result in a decrease in the liability for unrecognized tax benefits (and a decrease of income tax expense) of approximately $ 68,000 during the next 12 months.

The Company had $ 1.1 million of unrecognized tax benefits at December 31, 2023 which, if recognized, would affect the effective tax rate.

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The Company recognizes accrued interest and penalties related to unrecognized tax benefits as part of income tax expense.

The Company has accrued approximately $ 146,000 and $ 132,000 for the payment of interest and penalties as of December 25, 2022 and December 26, 2021, respectively.

The Company has accrued approximately $ 0.1 million for the payment of interest and penalties as of December 31, 2023 and December 25, 2022.

Related Party Transactions

Shaquille O’Neal

On March 21, 2019, Shaquille O’Neal was appointed to our Board of Directors.

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ABG-Shaq did not receive any additional royalty fees from the Company beyond the cash payment already contemplated under the Original Endorsement Agreement under the Amendment.

In addition, the Company donated one U.S.

In addition, the Company

donated one U.S.

dollar for each unit of the pizza sold in the United States and one Canadian dollar for each unit sold in Canada to The Papa John’s Foundation for Building Community.

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

The Company did not pay ABG-Shaq any royalties in 2022 for the co-branded pizza promotion.

The Company did not pay royalties in 2023 and 2022 for the co-branded pizza promotion.

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

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

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

● 33 % ( 18,632 ) of the RSUs vested on April 12, 2023;

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

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

Effective August 1, 2023, the Company and PJMF entered into Amendment No.

1 to the New Endorsement Agreement (“Amendment No.

As consideration for rights and services granted within Amendment No.

1, the Company agreed to a pay a minimum donation of $ 375,000 for the benefit of The Shaquille O’Neal Foundation, of which $ 125,000 was paid during 2023 with the remaining $ 250,000 to be paid during 2024.

Starboard Share Repurchase

On March 1, 2023, the Company repurchased approximately 2.2 million shares from certain funds affiliated with, or managed by, Starboard Value LP (collectively, “Starboard”), at $ 82.52 per share, for a total 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 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.

Litigation, Commitments and Contingencies

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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.

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.

Papa John’s International, Inc.

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

The proposed settlement is subject to a claims-made process whereby unclaimed funds revert to the Company, and the Company is only responsible for payments to class and collective action members who timely submit a claim form.

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

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.

Subsequent to year end, 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.

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.

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 Consolidated Statements of Operations.

The settlement amount was recorded in General and administrative expenses in the Consolidated Statements of Operations in the first quarter of 2022 and remained accrued in Accrued expenses and other current liabilities in the Consolidated Balance Sheets as of December 31, 2023.

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.

Commitments and Contingencies

We have certain other commercial commitments where payment is contingent upon the occurrence of certain events.

With our insurance programs, we are party to surety bonds with off-balance sheet risk for a total of $ 20.7 million as of December 31, 2023.

The surety bond arrangements expire within one year but have automatic renewal clauses.

These arrangements have not had, and are unlikely to have in the future, a material impact on our Consolidated Balance Sheets or Consolidated Statements of Operations.

We guarantee leases for certain Papa Johns North American franchisees who have purchased restaurants that were previously Company-owned.

We are contingently liable on these leases.

The leases have varying terms, the latest of which expires in 2036.

As of December 31, 2023, the estimate maximum amount of undiscounted payments the Company could be required to make in the event of nonpayment by the primary lessees was approximately $ 7.3 million.

This contingent liability is not included in the Consolidated Balance Sheets or our future minimum lease obligations.

The fair value of the guarantee is not material.

Equity Compensation

We award stock options, time-based restricted stock and performance-based restricted stock units from time to time under the Papa John’s International, Inc.

We award time-based restricted stock, performance-based restricted stock units, and stock options from time to time under the Papa John’s International, Inc.

2018 Omnibus Incentive Plan.

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We recorded stock-based employee compensation expense of $ 17.9 million in 2023, $ 18.4 million in 2022 and $ 16.9 million in 2021.

At December 25, 2022, there was $ 22.2 million of unrecognized compensation cost related to nonvested awards, of which the Company expects to recognize $ 14.6 million in 2023, $ 6.5 million in 2024 and $ 1.1 million in 2025.

At December 31, 2023, there was $ 18.9 million of unrecognized compensation cost related to unvested awards, of which the Company expects to recognize $ 12.4 million in 2024, $ 5.6 million in 2025 and $ 0.9 million in 2026.

Stock Options

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Upon vesting, the shares are issued from treasury stock.

These restricted shares are intended to focus participants on our long-range objectives, while at the same time serving as a retention mechanism.

These restricted

shares are intended to focus participants on our long-range objectives, while at the same time serving as a retention mechanism.

We consider time-based restricted stock awards to be participating securities because holders of such shares have non-forfeitable dividend rights.

We declared dividends totaling $ 467,000 ($ 1.54 per share) in 2022, $ 410,000 ($ 1.15 per share) in 2021 and $ 366,000 ($ 0.90 per share) in 2020 to holders of time-based restricted stock.

We declared dividends totaling $ 0.5 million ($ 1.76 per share) in 2023, $ 0.5 million ($ 1.54 per share) in 2022 and $ 0.4 million ($ 1.15 per share) in 2021 to holders of time-based restricted stock.

We granted 14,000 , 69,000 and 11,000 restricted stock units that are time-based and vest over a period of one to three years in 2023, 2022 and 2021, respectively.

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Employee Benefit Plans

We have established the Papa John’s International, Inc.

401(k) Plan (the “401(k) Plan”), as a defined contribution benefit plan, in accordance with Section 401(k) of the Internal Revenue Code.

The Papa John’s International, Inc.

401(k) Plan (the “401(k) Plan”), is a defined contribution benefit plan in accordance with Section 401(k) of the Internal Revenue Code.

The 401(k) Plan is open to employees who meet certain eligibility requirements and allows participating employees to defer receipt of a portion of their compensation and contribute such amount to one or more investment funds.

In late 2021, the Company adopted a Safe Harbor 401k Plan effective for the 2022 benefit year.

In addition, we maintain a non-qualified deferred compensation plan available to certain employees and directors.

Under this plan, the participants may defer a certain amount of their compensation, which is credited to the participants’ accounts.

The participant-directed investments associated with this plan are included in Other assets ($ 30.1 million and $ 41.9 million at December 25, 2022 and December 26, 2021, respectively) and the associated liabilities ($ 28.3 million and $ 36.2 million at December 25, 2022 and December 26, 2021, respectively) are included in Other long-term liabilities in the accompanying Consolidated Balance Sheets.

We contributed a matching payment of 4.0 % in 2022, up to a maximum of 6.0 % of a participating employee’s earnings deferred into the 401(k) Plan.

At our discretion, the Company contributed 4.0 % in 2021 and 2.1 % in 2020, up to a maximum of 6.0 % of a participating employee’s earnings deferred into both the 401(k) Plan and the non-qualified deferred compensation plan.

The participant-directed investments associated with this plan are included in Other assets ($ 29.4 million and $ 30.1 million

at December 31, 2023 and December 25, 2022, respectively) and the associated liabilities ($ 28.3 million at December 31, 2023 and December 25, 2022) are included in Other long-term liabilities in the accompanying Consolidated Balance Sheets.

We contributed a matching payment of 4 % of a participating employee’s earnings deferred into the 401(k) Plan in 2023 and 2022.

In 2021, we contributed a discretionary matching payment of 4 %, up to a maximum of 6 % of a participating employee’s earnings deferred into both the 401(k) Plan and the non-qualified deferred compensation plan.

Such costs were $ 4.3 million in 2023, $ 4.4 million in 2022 and $ 3.5 million in 2021.

Divestiture of Preferred Marketing Solutions

On October 22, 2023, we sold the operations of Preferred Marketing Solutions, our previously wholly-owned print and promotions company, for upfront consideration of $ 0.6 million as well as a percentage of future revenues to be paid on a quarterly basis over the next ten years .

In connection with the divestiture, we deconsolidated total net assets of approximately $ 1.2 million, which primarily included property and equipment of $ 0.6 million and goodwill of $ 0.4 million associated with Preferred Marketing Solutions.

There was no gain or loss recognized on the sale, and the impact to the Consolidated Financial Statements was not material for the year ended December 31, 2023.

Refranchising Loss

On March 28, 2022, we refranchised our 51.0 % 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 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 .” Goodwill of $ 9.9 million was allocated to the disposal group based on relative fair value within the Domestic Company-owned restaurants reporting group.

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 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 .” Goodwill of $ 9.9 million was allocated to the disposal group based on relative fair value within the Domestic Company-owned restaurants reporting group.

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 of 2022.

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 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 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 Domestic Company-owned restaurant segment consists of the operations of all Domestic Company-owned restaurants and principally generates revenues from retail sales of pizza, Papadias, and side items, including breadsticks, Papa Bites, cheesesticks, boneless chicken wings and bone-in chicken 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 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 Johns 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.

The International segment consists of the operations of all Company-owned restaurants located in the UK, as well as distribution sales to franchised Papa Johns 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.

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.

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.

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North America commissaries 43,316 42,531 39,873

International (b)

International (b) (c)

11,766 17,891 34,896

All others 10,116 10,084 17,704

Unallocated corporate expenses (c)

Unallocated corporate expenses (d)

( 85,353 ) ( 104,419 ) ( 94,114 )

Elimination of intersegment (profits) ( 905 ) ( 695 ) ( 790 )

Elimination of intersegment losses (profits) 27 ( 905 ) ( 695 )

Total operating income $ 147,142 $ 109,030 $ 168,241

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Divestitures” for additional information.

(b) Includes charges of $ 3.5 million related to one-time, non-cash reserves for certain accounts receivable and impairments of reacquired franchise rights due to the financial and operational impact of the conflict in Ukraine and $ 6.1 million of costs associated with the termination of significant franchisees in the UK, including the reserve of certain accounts and notes receivable and operating lease right-of-use assets impairment.

(b) For the year ended December 31, 2023, International includes the following:

• $ 4.2 million of costs associated with repositioning the UK portfolio as well as transaction costs related to the acquisition of restaurants from franchisees.

• $ 2.2 million of costs related to the Company’s International restructuring plan, comprised of $ 1.5 million in severance compensation costs and $ 0.7 million in consulting and professional fees.

• $ 0.9 million one-time non-cash charge related to the reserve of certain accounts receivable related to the conflict in the Middle East.

(c) For the year ended December 25, 2022, International includes charges of $ 3.5 million related to one-time, non-cash reserves for certain accounts receivable and impairments of reacquired franchise rights due to the financial and operational impact of the conflict in Ukraine and $ 6.1 million of costs associated with the termination of significant franchisees in the UK, including the reserve of certain accounts and notes receivable and operating lease right-of-use assets impairment.

See “Note 22.

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Allowance for Credit Losses” for additional information.

(c) For the year ended December 25, 2022, Unallocated corporate expenses includes $ 15.0 million for certain legal settlements, $ 13.9 million of one-time, non-cash reserves of certain notes receivable, and $ 1.5 million of advisory fees and severance costs associated with the transition of certain executives.

For the year ended December 26, 2021, Unallocated corporate expense includes $ 13.1 million of reorganization costs.

See “Note 16.

Strategic Corporate Reorganization for Long-term Growth” for additional information.

(d) For the year ended December 31, 2023, Unallocated corporate expenses includes $ 2.0 million of severance and related costs associated with the transition of certain executives and $ 0.6 million for certain legal settlements.

For the year ended December 25, 2022, Unallocated corporate expenses includes $ 15.0 million for certain legal settlements, $ 13.9 million of one-time, non-cash reserves of certain notes receivable, and $ 1.5 million of advisory fees and severance costs associated with the transition of certain executives.

(In thousands) 2023 2022 2021

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Unallocated corporate 15,768 26,134 27,820

Total expenditures for property and equipment (a)

$ 78,391 $ 68,559 $ 35,652

______________________________

(a) Increases of $ 9.8 million and $ 32.9 million in expenditures for property and equipment in 2022 and 2021, respectively, were primarily driven by investment in growth, including technology and development initiatives.

Total expenditures for property and equipment $ 76,620 $ 78,391 $ 68,559

Disaggregation of Revenue

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

UK Franchisee Acquisitions

As part of our investment to reposition our UK business, in 2023 we acquired a portfolio of Company-owned restaurants in the UK market that were previously franchised.

Our control and ownership of this portfolio enables us to implement operating model enhancements in the restaurants including revenue management capabilities, product and technological innovation and operational efficiencies to improve sales and restaurant-level profitability, and to drive initiatives for future growth and profitability in the Company’s largest market outside of North America.

As part of this investment, the Company acquired 91 Papa Johns restaurants previously operated by the M25 division of Drake Food Service International in the United Kingdom on June 2, 2023 for total consideration of approximately $ 13.7 million.

The Company acquired an additional 27 Papa Johns restaurants in the United Kingdom in the third quarter of 2023 for total consideration of approximately $ 1.5 million.

Collectively, we refer to these acquisitions as the “UK franchisee acquisitions.”

During the year ended December 31, 2023, the Company incurred $ 2.1 million of acquisition and transition costs related to the UK franchisee acquisitions.

These expenses were recorded within General and administrative expenses and within the International segment in the Consolidated Statements of Operations.

The results of operations of the acquired restaurants after their respective acquisition dates are included within the International segment in the Company’s Consolidated Statements of Operations.

The impact of the acquisitions was not material to the Company’s Consolidated Financial Statements.

The UK franchisee acquisitions have been accounted for as business combinations.

As such, the Company concluded that the consideration was measured at fair value and has recorded the preliminary estimated fair value of the assets acquired and liabilities assumed as of the respective acquisition dates.

Total consideration was approximately $ 15.2 million, of which $ 13.7 million was pre-existing accounts receivable and notes receivable and is classified as a noncash investing transaction within the Consolidated Statements of Cash Flows for the year ended December 31, 2023.

Assets acquired include approximately $ 10.6 million of property and equipment, net, $ 0.3 million of inventories and other assets and $ 4.3 million of goodwill.

No measurement period adjustments related to the UK franchisee acquisitions have been recorded during the year ended December 31, 2023

The total goodwill recognized in conjunction with the UK franchisee acquisitions, all of which is expected to be deductible for tax purposes, has been assigned to the International operating segment.

The purchase price exceeded the fair value of the net assets acquired, which resulted in the recognition of goodwill, primarily due to synergies created from expected future benefits stemming from implementation of the Company’s operational capabilities and further control of the

Company’s brand name in our most prominent international market.

Goodwill also includes certain other benefits that do not qualify for recognition as intangible assets, such as an assembled workforce.

Domestic Acquisitions

During the year ended December 31, 2023, we acquired ten Domestic restaurants for a total purchase price of $ 4.1 million, which was classified as cash used in investing activities within the Consolidated Statements of Cash Flows.

The impact of the acquisitions was not material to the Company’s Consolidated Financial Statements.

Acquired assets recorded within the Consolidated Balance Sheets as of December 31, 2023 primarily included restaurant property and equipment of $ 1.6 million, reacquired franchise rights of $ 1.3 million, and goodwill of $ 1.1 million.

These amounts include measurement period adjustments to increase property and equipment and reduce reacquired franchise rights by $ 0.2 million, which were recorded during the fourth quarter of 2023.

The amounts recorded as a result of our preliminary acquisition accounting for the UK franchisee acquisitions and Domestic acquisitions are subject to change and further refinement.

The Company is finalizing its valuation of acquired property and equipment as well as gathering and assessing information regarding leases and other assets.

The Company expects all outstanding items to be finalized prior to the one-year anniversary date of the respective acquisitions.

Subsequent Events

In February 2024, as the next phase of the International Transformation Plan discussed in Note 16, “Restructuring,” the Board of Directors approved a plan to close approximately 50 underperforming Company-owned restaurants in the United Kingdom during the first six months of 2024.

The purpose of this plan is to optimize the Company's restaurant portfolio in the UK and improve overall profitability by closing unprofitable locations and allowing us to focus on improving profitability across our remaining portfolio of Company-owned restaurants and franchisee base in the UK.

As a result of this decision, the Company expects to incur restructuring charges of approximately $ 10.0 million to $ 15.0 million, which will be recognized during 2024 within our International segment.

These charges are expected to primarily consist of lease right-of-use asset and fixed asset impairment charges, employee severance, and other related expenses.

The estimated range of restructuring charges is based on management's best estimate at the time of this filing and is subject to change as additional information becomes available.

The actual charges may differ from the estimates due to various factors, including the evaluation of our ability to sublease the closed restaurant properties and the number of employees affected by the restaurant closures.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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-K

Item 8. Financial Statements and Supplementary Data