PAPA JOHNS INTERNATIONAL INC 10-K

Item 8. Financial Statements and Supplementary Data Report of Independent Registered Public Accounting Firm (PCAOB ID: 42 ) Consolidated Financial Statements: • Consolidated Balance Sheets as of December 31, 2023 and December 25, 2022 • Consolidated Statements of Operations for the years ended December 31, 2023, December 25, 2022 and December 26, 2021 • Consolidated Statements of Comprehensive Income for the years ended December 31, 2023, December 25, 2022 and December 26, 2021 • Consolidated Statements of Stockholders’ Deficit for the years ended December 31, 2023, December 25, 2022 and December 26, 2021 • Consolidated Statements of Cash Flows for the years ended December 31, 2023, December 25, 2022 and December 26, 2021 • Notes to Consolidated Financial Statements 54 Table of Contents Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of Papa John’s International, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Papa John’s International, Inc. and subsidiaries (the Company) as of December 31, 2023 and December 25, 2022, the related consolidated statements of operations, comprehensive income, stockholders' deficit and cash flows for each of the three years in the period ended December 31, 2023, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2023 and December 25, 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 29, 2024, expressed an unqualified opinion thereon. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter 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. 55 Table of Contents Measurement and valuation of insurance reserves Description of the Matter As described in Note 2 to the consolidated financial statements, the Company is self-insured for certain obligations up to stated retention levels under its retention programs related to workers’ compensation, automobile, property and general liability programs. As of December 31, 2023, the Company has $56.8 million accrued for self-insurance reserves (“Insurance Reserves”). Judgments and estimates are used by the Company in determining the potential value associated with incurred but not reported claims. Auditing the measurement and valuation of the Insurance Reserves is highly judgmental and complex due to the significant uncertainty in estimating the potential value of reported claims, estimating the number and potential value of incurred but not reported claims and the use of actuarial valuation methods. The reserve estimate is sensitive to actuarial assumptions (e.g., future emergence of losses, incurred but not reported claims) used to estimate the ultimate liability for reported claims and claims that have been incurred but have not been reported. How We Addressed the Matter in Our Audit We tested controls related to the measurement and valuation of the Insurance Reserves. For example, we tested controls over management’s review of the assumptions and methods used to establish the estimate, the underlying data, significant actuarial assumptions and the related reconciliations. To test the measurement and valuation of the Insurance Reserves, our audit procedures included, among others, performing transactional tests of details over the completeness and accuracy of claims data and vouching payments made to third parties. Furthermore, we involved our actuarial specialists to assist in the evaluation of the key assumptions and methodologies used by management to determine the Insurance Reserves. /s/ Ernst & Young LLP We have served as the Company’s auditor since 2019. Louisville, Kentucky February 29, 2024 56 Table of Contents Papa John’s International, Inc. and Subsidiaries Consolidated Balance Sheets (In thousands, except per share amounts) December 31, 2023 December 25, 2022 Assets Current assets: Cash and cash equivalents $ 40,587 $ 47,373 Accounts receivable (less allowance for credit losses of $ 8,353 in 2023 and $ 6,718 in 2022) 104,244 102,533 Notes receivable, current portion 5,199 6,848 Income tax receivable 2,577 8,780 Inventories 36,126 41,382 Prepaid expenses and other current assets 42,285 44,123 Total current assets 231,018 251,039 Property and equipment, net 282,812 249,793 Finance lease right-of-use assets, net 31,740 24,941 Operating lease right-of-use assets 164,158 172,425 Notes receivable, less current portion (less allowance for credit losses of $ 16,092 in 2023 and $ 14,499 in 2022) 12,346 21,248 Goodwill 76,206 70,616 Other assets 76,725 74,165 Total assets $ 875,005 $ 864,227 Liabilities, Redeemable noncontrolling interests and Stockholders’ deficit Current liabilities: Accounts payable $ 74,949 $ 62,316 Income and other taxes payable 17,948 8,766 Accrued expenses and other current liabilities 158,167 142,535 Current deferred revenue 20,427 21,272 Current finance lease liabilities 9,029 6,850 Current operating lease liabilities 24,076 23,418 Total current liabilities 304,596 265,157 Deferred revenue 20,366 23,204 Long-term finance lease liabilities 24,144 19,022 Long-term operating lease liabilities 151,050 160,905 Long-term debt, net 757,422 597,069 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 Stockholders’ deficit: Common stock ($ 0.01 par value per share; issued 49,235 at December 31, 2023 and 49,138 at December 25, 2022) 492 491 Additional paid-in capital 452,290 449,829 Accumulated other comprehensive loss ( 7,803 ) ( 10,135 ) Retained earnings 219,027 195,856 Treasury stock ( 16,747 shares at December 31, 2023 and 14,402 shares at December 25, 2022, at cost) ( 1,123,098 ) ( 922,434 ) Total stockholders’ deficit ( 459,092 ) ( 286,393 ) Noncontrolling interests in subsidiaries 15,476 15,729 Total Stockholders’ deficit ( 443,616 ) ( 270,664 ) Total Liabilities, Redeemable noncontrolling interests and Stockholders’ deficit $ 875,005 $ 864,227 See accompanying notes. 57 Table of Contents Papa John’s International, Inc. and Subsidiaries Consolidated Statements of Operations Year ended (In thousands, except per share amounts) December 31, 2023 December 25, 2022 December 26, 2021 Revenues: Domestic Company-owned restaurant sales $ 726,362 $ 708,389 $ 778,323 North America franchise royalties and fees 144,550 137,399 129,310 North America commissary revenues 852,361 869,634 761,305 International revenues 157,187 129,903 150,771 Other revenues 255,253 256,778 248,712 Total revenues 2,135,713 2,102,103 2,068,421 Costs and expenses: Operating costs (excluding depreciation and amortization shown separately below): Domestic Company-owned restaurant expenses 587,889 585,307 621,871 North America commissary expenses 787,554 811,446 703,622 International expenses 103,198 76,001 87,286 Other expenses 235,483 238,810 226,320 General and administrative expenses 210,357 217,412 212,265 Depreciation and amortization 64,090 52,032 48,816 Total costs and expenses 1,988,571 1,981,008 1,900,180 Refranchising and impairment loss — ( 12,065 ) — Operating income 147,142 109,030 168,241 Net interest expense ( 43,469 ) ( 25,261 ) ( 17,293 ) Income before income taxes 103,673 83,769 150,948 Income tax expense 20,874 14,420 25,993 Net income before attribution to noncontrolling interests 82,799 69,349 124,955 Net income attributable to noncontrolling interests ( 701 ) ( 1,577 ) ( 4,939 ) Net income attributable to the Company $ 82,098 $ 67,772 $ 120,016 Calculation of net income for earnings per share: Net income attributable to the Company $ 82,098 $ 67,772 $ 120,016 Dividends on redemption of Series B Convertible Preferred Stock — — ( 109,852 ) Dividends paid to participating securities — ( 306 ) ( 6,091 ) Net income attributable to participating securities — ( 104 ) — Net income attributable to common shareholders $ 82,098 $ 67,362 $ 4,073 Basic earnings per common share $ 2.49 $ 1.90 $ 0.12 Diluted earnings per common share $ 2.48 $ 1.89 $ 0.12 Basic weighted average common shares outstanding 32,931 35,497 35,007 Diluted weighted average common shares outstanding 33,159 35,717 35,337 Dividends declared per common share $ 1.76 $ 1.54 $ 1.15 See accompanying notes. 58 Table of Contents Papa John’s International, Inc. and Subsidiaries Consolidated Statements of Comprehensive Income Year Ended (In thousands) December 31, 2023 December 25, 2022 December 26, 2021 Net income before attribution to noncontrolling interests $ 82,799 $ 69,349 $ 124,955 Other comprehensive income (loss), before tax: Foreign currency translation adjustments 1,560 ( 4,970 ) ( 1,397 ) Interest rate swaps (1) 1,453 4,757 6,848 Other comprehensive income (loss), before tax 3,013 ( 213 ) 5,451 Income tax effect: Foreign currency translation adjustments ( 353 ) 1,143 321 Interest rate swaps (2) ( 328 ) ( 1,094 ) ( 1,575 ) Income tax effect ( 681 ) 49 ( 1,254 ) Other comprehensive income (loss), net of tax 2,332 ( 164 ) 4,197 Comprehensive income before attribution to noncontrolling interests 85,131 69,185 129,152 Less: comprehensive income, redeemable noncontrolling interests ( 198 ) ( 574 ) ( 2,609 ) Less: comprehensive income, nonredeemable noncontrolling interests ( 503 ) ( 1,003 ) ( 2,330 ) Comprehensive income attributable to the Company $ 84,430 $ 67,608 $ 124,213 ___________________________________ (1) Amounts reclassified out of accumulated other comprehensive loss into interest expense included $ 173 , ($ 2,384 ) and ($ 5,965 ) for the years ended December 31, 2023, December 25, 2022 and December 26, 2021, respectively. (2) The income tax effects of amounts reclassified out of accumulated other comprehensive loss were $( 39 ), $ 536 and $ 1,342 for the years ended December 31, 2023, December 25, 2022 and December 26, 2021, respectively. See accompanying notes. 59 Table of Contents Papa John’s International, Inc. and Subsidiaries Consolidated Statements of Stockholders’ Deficit Papa John’s International, Inc. (In thousands) Common Stock Shares Outstanding Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Loss (2) Retained Earnings Treasury Stock Non-redeemable Noncontrolling Interests in Subsidiaries Total Stockholders’ Deficit Balance at December 25, 2022 34,736 $ 491 $ 449,829 $ ( 10,135 ) $ 195,856 $ ( 922,434 ) $ 15,729 $ ( 270,664 ) Net income (1) — — — — 82,098 — 503 82,601 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 Issuance of restricted stock 240 — ( 7,149 ) — — 7,149 — — Tax effect of restricted stock awards ( 77 ) — ( 6,416 ) — — — — ( 6,416 ) Distributions to noncontrolling interests — — — — — — ( 756 ) ( 756 ) Other 69 — ( 4,270 ) — — 4,631 — 361 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. 60 Table of Contents Papa John’s International, Inc. and Subsidiaries Consolidated Statements of Stockholders’ Deficit Papa John’s International, Inc. (In thousands) Common Stock Shares Outstanding Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Loss (2) Retained Earnings Treasury Stock Non-redeemable Noncontrolling Interests in Subsidiaries Total Stockholders’ Deficit Balance at December 26, 2021 35,797 $ 490 $ 445,126 $ ( 9,971 ) $ 183,157 $ ( 806,472 ) $ 15,212 $ ( 172,458 ) Net income (1) — — — — 67,772 — 1,003 68,775 Other comprehensive income, net of tax — — — ( 164 ) — — — ( 164 ) Cash dividends on common stock — — 210 — ( 54,977 ) — — ( 54,767 ) Exercise of stock options 82 1 4,035 — — — — 4,036 Acquisition of Company common stock ( 1,343 ) — — — — ( 125,000 ) — ( 125,000 ) Stock-based compensation expense — — 18,388 — — — — 18,388 Issuance of restricted stock 285 — ( 8,443 ) — — 8,443 — — Tax effect of restricted stock awards ( 94 ) — ( 9,546 ) — — — — ( 9,546 ) Distributions to noncontrolling interests — — — — — — ( 486 ) ( 486 ) Other 9 — 59 — ( 96 ) 595 — 558 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. 61 Table of Contents Papa John’s International, Inc. and Subsidiaries Consolidated Statements of Stockholders’ Deficit Papa John’s International, Inc. (In thousands) Common Stock Shares Outstanding Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Loss (2) Retained Earnings Treasury Stock Non-redeemable Noncontrolling Interests in Subsidiaries Total Stockholders’ Deficit Balance at December 27, 2020 32,545 $ 453 $ 254,103 $ ( 14,168 ) $ 219,158 $ ( 741,724 ) $ 15,239 $ ( 266,939 ) Net income (1) — — — — 120,016 — 2,330 122,346 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 Acquisition of Company common stock ( 594 ) — — — — ( 72,499 ) — ( 72,499 ) Stock-based compensation expense — — 16,919 — — — — 16,919 Issuance of restricted stock 132 — ( 6,970 ) — — 6,970 — — Tax effect of restricted stock awards — — ( 5,847 ) — — — — ( 5,847 ) Distributions to noncontrolling interests — — — — — — ( 2,357 ) ( 2,357 ) Other 13 — 165 — ( 884 ) 781 — 62 Balance at December 26, 2021 35,797 $ 490 $ 445,126 $ ( 9,971 ) $ 183,157 $ ( 806,472 ) $ 15,212 $ ( 172,458 ) ___________________________________ (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 . See accompanying notes. 62 Table of Contents Papa John’s International, Inc. and Subsidiaries Consolidated Statements of Cash Flows Year ended (In thousands) December 31, 2023 December 25, 2022 December 26, 2021 Operating activities Net income before attribution to noncontrolling interests $ 82,799 $ 69,349 $ 124,955 Adjustments to reconcile net income to net cash provided by operating activities: Provision (benefit) for allowance for credit losses on accounts and notes receivable 5,393 20,539 ( 852 ) Depreciation and amortization 64,090 52,032 48,816 Refranchising and impairment loss — 12,065 — Deferred income taxes ( 5,991 ) 2,798 3,753 Stock-based compensation expense 17,924 18,388 16,919 Other 66 1,056 581 Changes in operating assets and liabilities, net of acquisitions: Accounts receivable ( 8,049 ) ( 29,167 ) 4,023 Income tax receivable 6,212 586 ( 8,113 ) Inventories 5,441 ( 7,496 ) ( 4,708 ) Prepaid expenses and other current assets 817 5,587 2,866 Other assets and liabilities ( 11,803 ) ( 13,458 ) ( 20,077 ) Accounts payable 23,371 ( 8,350 ) ( 9,278 ) Income and other taxes payable 9,087 ( 10,710 ) 9,733 Accrued expenses and other current liabilities 7,402 4,846 15,875 Deferred revenue ( 3,704 ) ( 257 ) 182 Net cash provided by operating activities 193,055 117,808 184,675 Investing activities Purchases of property and equipment ( 76,620 ) ( 78,391 ) ( 68,559 ) Notes issued ( 4,338 ) ( 9,296 ) ( 16,132 ) Repayments of notes issued 4,655 13,045 18,555 Acquisitions, net of cash acquired ( 5,613 ) ( 1,219 ) ( 699 ) 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 Net cash used in investing activities ( 75,123 ) ( 62,793 ) ( 63,512 ) Financing activities Proceeds from issuance of senior notes — — 400,000 Net proceeds of revolving credit facilities 159,000 115,000 80,000 Debt issuance costs — — ( 9,179 ) Proceeds from exercise of stock options 2,252 4,036 11,969 Repurchase of Series B Convertible Preferred Stock — — ( 188,647 ) Acquisition of Company common stock ( 210,348 ) ( 125,000 ) ( 72,499 ) Dividends paid to common stockholders ( 58,451 ) ( 54,767 ) ( 40,356 ) Dividends paid to preferred stockholders — — ( 6,394 ) Tax payments for equity award issuances ( 6,416 ) ( 9,546 ) ( 5,847 ) Distributions to noncontrolling interests ( 1,320 ) ( 1,211 ) ( 5,942 ) Repayments of term loan — — ( 340,000 ) Principal payments on finance leases ( 8,821 ) ( 5,416 ) ( 4,566 ) Other 28 664 935 Net cash used in financing activities ( 124,076 ) ( 76,240 ) ( 180,526 ) Effect of exchange rate changes on cash and cash equivalents ( 642 ) ( 2,012 ) ( 231 ) Change in cash and cash equivalents ( 6,786 ) ( 23,237 ) ( 59,594 ) Cash and cash equivalents at beginning of period 47,373 70,610 130,204 Cash and cash equivalents at end of period $ 40,587 $ 47,373 $ 70,610 See accompanying notes. 63 Table of Contents Papa John’s International, Inc. and Subsidiaries Notes to Consolidated Financial Statements 1. Description of Business 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 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 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. 2. Significant Accounting Policies Principles of Consolidation The accompanying Consolidated Financial Statements include the accounts of Papa John’s International, Inc. and its subsidiaries. All intercompany balances and transactions have been eliminated. Variable Interest Entity Papa John’s Domestic restaurants, both Company-owned and franchised, participate in Papa John’s Marketing Fund, Inc. (“PJMF”), a nonstock corporation designed to operate at break-even as it spends all annual contributions received from the system. PJMF collects a percentage of revenues from Company-owned and franchised restaurants in the United States for the purpose of designing and administering advertising and promotional programs. PJMF is a variable interest entity (“VIE”) that funds its operations with ongoing financial support and contributions from the Domestic restaurants, of which approximately 85 percent are franchised, and does not have sufficient equity to fund its operations without these ongoing financial contributions. Based on an assessment of the governance structure and operating procedures of PJMF, the Company determined it has the power to control certain significant activities of PJMF, and therefore, is the primary beneficiary. The Company has consolidated PJMF in its financial results in accordance with Accounting Standards Codification (“ASC”) 810, “ Consolidation .” Fiscal Year Our fiscal year ends on the last Sunday in December of each year. 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, 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. Revenue Recognition Revenue is measured based on consideration specified in contracts with customers and excludes waivers or incentives and amounts collected on behalf of third parties, primarily sales tax. 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 64 Table of Contents 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. The following describes principal activities, separated by major product or service, from which the Company generates its revenues: Domestic Company-owned Restaurant Sales 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”), 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. The liability related to Papa Rewards is calculated using the estimated redemption value for which the points and accumulated rewards are expected to be redeemed. Revenue is recognized when the customer redeems the Papa Dough reward and when the points or Papa Dough reward expires. Franchise Royalties and Fees 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 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. Franchise royalties are billed on a monthly basis. The majority of initial franchise license fees and area development exclusivity fees are from International locations. 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 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. Fees received for future license renewal periods are deferred and amortized over the life of the renewal period. Area development exclusivity fees are billed upon execution of the development agreements which grant the right to develop franchised restaurants in future periods in specific geographic areas. Area development exclusivity fees are allocated on a pro rata basis to all restaurants opened under that specific development agreement. These fees are deferred and amortized over the term of the related franchise agreements, which is typically 10 years. Commissary Revenues Commissary revenues are comprised of food and supplies sold to franchised restaurants and are recognized as revenue upon shipment of the related products to the franchisees. 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 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 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 65 Table of Contents “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. 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. There are no expiration dates and we do not deduct non-usage fees from outstanding gift cards. While the Company and the franchisees continue to honor all gift cards presented for payment, the likelihood of redemption may be determined to be remote for certain cards due to long periods of inactivity. In these circumstances, the Company recognizes breakage revenue for amounts not subject to unclaimed property laws. Based upon our analysis of historical gift card redemption patterns, we can reasonably estimate the amount of gift cards for which redemption is remote. Breakage revenue is recognized over time in proportion to estimated redemption patterns as Other revenues. Commissions on gift cards sold by third parties are recorded as a reduction to Deferred revenue and a reduction to Other revenues based upon estimated redemption patterns. 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. 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. Advertising and Related Costs Domestic Company-owned advertising and related costs of $ 53.9 million, $ 55.2 million and $ 61.7 million in 2023, 2022, and 2021, respectively, include the costs of Domestic Company-owned local restaurant activities such as mail coupons, door hangers and promotional items and advertising activities administered through PJMF and various local market cooperative advertising funds. PJMF is responsible for developing and conducting marketing and advertising for the Domestic Papa John’s system. 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. 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. Leases 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. A lease term often includes option periods, available at the inception of the lease. Lease expense is comprised of operating and finance lease costs, short-term lease costs, and variable lease costs, which primarily include common area maintenance, real estate taxes, and insurance for the Company’s real estate leases. Lease costs also include variable rent, which is primarily related to the Company’s supply chain tractor and trailer leases that are based on a rate per mile. Stock-Based Compensation 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. Management evaluates its award grants and modifications and will adjust the fair value if any are determined to be spring-loaded. Cash Equivalents Cash equivalents consist of highly liquid investments with maturity of three months or less at date of purchase. These investments are carried at cost, which approximates fair value. 66 Table of Contents Accounts Receivable 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. Account balances are charged off against the allowance after recovery efforts have ceased. Notes Receivable The Company has provided financing to select Domestic and International franchisees principally for use in the construction and development of their restaurants and for the purchase of restaurants from the Company or other franchisees. Most notes receivable bear interest at fixed or floating rates and are generally secured by the assets of each restaurant and the ownership interests in the franchise. The Company has provided long-term financing to certain franchisees with royalty payment plans. We establish an allowance for credit losses for franchisee notes receivables to reduce the outstanding notes receivable to their net realizable values based on a review of each franchisee’s economic performance and market conditions after consideration of the fair value of our underlying collateral rights (e.g., underlying franchisee business, property and equipment) and any guarantees. Note balances are charged off against the allowance after recovery efforts have ceased. 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 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 Property and equipment are stated at cost. Depreciation is recorded using the straight-line method over the estimated useful lives of the assets (generally five to ten years for restaurant, commissary and other equipment, twenty to forty years for buildings and improvements, and five years for technology and communication assets). Leasehold improvements are amortized over the shorter of their estimated useful lives or the terms of the respective leases, including the first renewal period (generally five to ten years ). Depreciation expense was $ 54.3 million in 2023, $ 45.6 million in 2022 and $ 43.0 million in 2021. Deferred Costs We capitalize certain information systems development and related costs that meet established criteria. 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 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 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. 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, which were sold on October 22, 2023. 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 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 67 Table of Contents 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. See “Note 11. Goodwill” for additional information. Deferred Income Tax Accounts and Tax Reserves We are subject to income taxes in the United States and several foreign jurisdictions. Significant judgment is required in determining the provision for income taxes and the related assets and liabilities. The provision for income taxes includes income taxes paid, currently payable or receivable and those deferred. Deferred tax assets and liabilities are determined based on differences between financial reporting and tax basis of assets and liabilities and are measured using enacted tax rates and laws that are expected to be in effect when the differences reverse. Deferred tax assets and liabilities are netted by tax jurisdiction. Deferred tax assets are also recognized for the estimated future effects of tax attribute carryforwards (e.g., net operating losses, capital losses, and foreign tax credits). The effect on deferred taxes of changes in tax rates is recognized in the period in which the new tax rate is enacted. Valuation allowances are established when necessary on a jurisdictional basis to reduce deferred tax assets to the amounts we expect to realize. Tax authorities periodically audit the Company. We record reserves and related interest and penalties for identified exposures as income tax expense. We evaluate these issues and adjust for events, such as statute of limitations expirations, court rulings or audit settlements, which may impact our ultimate payment for such exposures. See “Note 17. Income Taxes” for additional information. Insurance Reserves Our insurance programs for workers’ compensation, owned and non-owned automobiles, general liability and property insurance coverage provided to our employees are funded by the Company up to certain retention limits which range up to $ 0.5 million. Losses are accrued based upon undiscounted estimates of the liability for claims incurred and for events that have occurred but have not been reported using certain third-party actuarial projections and our claims loss experience. The determination of the recorded insurance reserves is highly judgmental and complex due to the significant uncertainty in the potential value of reported claims and the number and potential value of incurred but not reported claims, the application of significant judgment in making those estimates and the use of various actuarial valuation methods. The estimated insurance claims losses could be significantly affected should the frequency or ultimate cost of claims differ significantly from historical trends used to estimate the insurance reserves recorded by the Company. The Company records estimated losses above retention within its reserve with a corresponding receivable for expected amounts due from insurance carriers. 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. Our reserves include claim costs above our retention that have a corresponding receivable. Our insurance receivable for claims above retention totaled $ 34.5 million and $ 38.4 million as of December 31, 2023 and December 25, 2022, respectively. Of these amounts, approximately $ 16.8 million and $ 17.0 million were recorded in Prepaid expenses and other current assets, and $ 17.8 million and $ 21.4 million were recorded in Other assets on the Consolidated Balance Sheets as of December 31, 2023 and December 25, 2022, respectively. Derivative Financial Instruments We recognize all derivatives on the balance sheet at fair value. 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 loss (“AOCL”) until the hedged item is recognized in earnings. Refer to “Note 12. Debt” for additional details related to derivative financial instruments. 68 Table of Contents Noncontrolling Interests 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 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. The following summarizes the redemption feature, location and related accounting within the Consolidated Balance Sheets for these joint venture arrangements: Type of Joint Venture Arrangement Location within the Consolidated Balance Sheets Recorded Value Joint ventures with no redemption feature Permanent equity Carrying value Joint venture with option to require the Company to purchase the noncontrolling interest - not currently redeemable or redemption not probable Temporary equity Carrying value See “Note 9. Noncontrolling Interests” for additional information regarding noncontrolling interests. Foreign Currency Translation 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. 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 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. 3. Leases 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 69 Table of Contents 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: Average lease term Domestic Company-owned restaurants Five years , plus at least one renewal UK Company-owned and franchise-owned restaurants 15 years Domestic commissary locations 10 years, plus at least one renewal Domestic and International tractors and trailers Five to seven years Domestic and International commissary and office equipment Three to five years 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. The lease liability is measured at the present value of future lease payments as of the lease commencement date. The right-of-use asset recognized is based on the lease liability adjusted for prepaid and deferred rent and unamortized lease incentives. An operating lease right-of-use asset is amortized on a straight-line basis over the lease term and is recognized as a single lease cost against the operating lease liability. A finance lease right-of-use asset is amortized on a straight-line basis, with interest costs reported separately, over the lesser of the useful life of the leased asset or lease term. Operating lease expense is recognized on a straight-line basis over the lease term and is included in Operating costs or General and administrative expenses. Variable lease payments are expensed as incurred. The Company uses its incremental borrowing rates as the discount rate for its leases, which is equal to the rate of interest the Company would have to pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms. The lease terms for all the Company’s leases include the contractually obligated period of the leases, plus any additional periods covered by Company options to extend the leases that the Company is reasonably certain to exercise. Certain leases provide that the lease payments may be increased annually based on the fixed rate terms or adjustable terms such as the Consumer Price Index. Future base rent escalations that are not contractually quantifiable as of the lease commencement date are not included in our lease liability. The following schedule details the total right-of-use assets and lease liabilities on the Consolidated Balance Sheets as of December 31, 2023 and December 25, 2022 (in thousands): Leases Classification December 31, 2023 December 25, 2022 Assets Finance lease assets, net Finance lease right-of-use assets, net $ 31,740 $ 24,941 Operating lease assets, net Operating lease right-of-use assets 164,158 172,425 Total lease assets $ 195,898 $ 197,366 Liabilities Current finance lease liabilities Current finance lease liabilities $ 9,029 $ 6,850 Current operating lease liabilities Current operating lease liabilities 24,076 23,418 Noncurrent finance lease liabilities Long-term finance lease liabilities 24,144 19,022 Noncurrent operating lease liabilities Long-term operating lease liabilities 151,050 160,905 Total lease liabilities $ 208,299 $ 210,195 70 Table of Contents 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: Amortization of right-of-use assets $ 8,949 $ 5,704 $ 4,980 Interest on lease liabilities 1,542 1,029 1,140 Operating lease: Operating lease cost 41,514 42,815 43,072 Short-term lease cost 4,239 4,171 2,032 Variable lease cost 10,005 9,129 8,572 Total lease costs 66,249 62,848 59,796 Sublease income ( 9,842 ) ( 11,654 ) ( 12,039 ) Total lease costs, net of sublease income $ 56,407 $ 51,194 $ 47,757 Future minimum lease payments under contractually-obligated leases and associated sublease income as of December 31, 2023 were as follows (in thousands): Fiscal Year Finance Lease Costs Operating Lease Costs Expected Sublease Income 2024 $ 10,266 $ 31,274 $ 8,318 2025 8,616 35,153 7,949 2026 7,588 31,254 7,229 2027 5,550 25,418 6,565 2028 2,610 19,903 5,990 Thereafter 1,970 78,136 27,945 Total future minimum lease payments 36,600 221,138 63,996 Less imputed interest ( 3,427 ) ( 46,012 ) — Total present value of lease liabilities $ 33,173 $ 175,126 $ 63,996 Lessor Operating Leases The Company subleases certain retail space to our franchisees in the UK which are primarily operating leases. At December 31, 2023, we leased and subleased approximately 322 Papa John’s restaurants to franchisees in the UK. The initial lease terms on the franchised sites in the UK are generally 15 years. The Company has the option to negotiate an extension toward the end of the lease term at the landlord’s discretion. The initial lease terms of the franchisee subleases are generally five to ten years . Rental income, primarily derived from properties leased and subleased to franchisees in the UK, is recognized on a straight-line basis over the respective operating lease terms. The Company recognized total sublease income of $ 9.8 million, $ 11.7 million and $ 12.0 million for the years ended December 31, 2023, December 25, 2022 and December 26, 2021, respectively, within Other revenues in the Consolidated Statements of Operations. Lease Guarantees As a result of assigning our interest in obligations under property leases as a condition of the refranchising of certain restaurants, we are contingently liable for payment of approximately 48 Domestic leases. These leases have varying terms, the latest of which expires in 2036. 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 Sheets or future minimum lease obligation. The fair value of the guarantee is not material. There were no leases recorded between related parties. 71 Table of Contents Supplemental Cash Flow & Other Information The following table presents supplemental cash flow information related to leases for the years ended December 31, 2023, December 25, 2022 and December 26, 2021: (Dollars in thousands) Year Ended December 31, 2023 December 25, 2022 December 26, 2021 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from finance leases $ 1,542 $ 1,029 $ 1,140 Financing cash flows from finance leases $ 8,821 $ 5,416 $ 4,566 Operating cash flows from operating leases (a) $ 37,814 $ 35,573 $ 38,530 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 $ 24,380 $ 53,869 $ 64,420 Cash received from sublease income $ 8,855 $ 10,847 $ 11,597 Weighted-average remaining lease term (in years): Finance leases 4.30 4.43 4.51 Operating leases 7.81 8.44 8.30 Weighted-average discount rate: Finance leases 4.87 % 4.59 % 5.08 % Operating leases 5.62 % 5.63 % 6.20 % ______________________________ (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. 4. Papa John’s Marketing Fund, Inc. PJMF, which is a consolidated variable interest entity where the Company has been identified as the primary beneficiary, collects a percentage of revenues from Company-owned and franchised restaurants in the United States, for the purpose of designing and administering advertising and promotional programs for all participating Domestic restaurants. Contributions and expenditures are reported on a gross basis in the Consolidated Statements of Operations within Other revenues and Other expenses. PJMF also has a wholly-owned subsidiary, Papa Card, Inc., which administers the Company’s gift card programs. 72 Table of Contents Assets and liabilities of PJMF, which are utilized solely for the Company’s advertising and promotional programs, were as follows in the Consolidated Balance Sheets (in thousands): December 31, 2023 December 25, 2022 Assets Current assets: Cash and cash equivalents $ 5,494 $ 17,174 Accounts receivable, net 18,026 14,780 Prepaid expenses and other current assets 2,223 1,815 Total current assets 25,743 33,769 Deferred income taxes 674 655 Total assets $ 26,417 $ 34,424 Liabilities Current liabilities: Accounts payable $ 1,509 $ 12,428 Accrued expenses and other current liabilities 22,245 17,936 Current deferred revenue 4,327 4,395 Total current liabilities 28,081 34,759 Deferred revenue 2,627 2,503 Total liabilities $ 30,708 $ 37,262 5. Revenue Recognition Contract Balances 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): December 31, 2023 December 25, 2022 Change 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 ) Total contract liabilities $ 40,793 $ 44,476 $ ( 3,683 ) Our contract assets consist primarily of equipment incentives provided to franchisees. Equipment incentives are related to the future value of commissary revenue the Company will receive over the term of the incentive agreement. As of December 31, 2023 and December 25, 2022, the contract assets were approximately $ 7.9 million and $ 6.2 million, respectively. For the years ended December 31, 2023 and December 25, 2022, revenue was reduced approximately $ 3.9 million and $ 3.4 million, respectively, for the amortization of contract assets over the applicable contract terms. Contract assets are included in Prepaid expenses and other current assets and Other assets on the Consolidated Balance Sheets. 73 Table of Contents Transaction Price Allocated to the Remaining Performance Obligations The following table (in thousands) includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied at the end of the reporting period. Performance Obligations by Period Less than 1 Year 1-2 Years 2-3 Years 3-4 Years 4-5 Years Thereafter Total Franchise fees $ 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 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. The Company applies the practical expedient in ASC 606-10-50-14 and does not disclose information about remaining performance obligations that have original expected durations of one year or less. 6. 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. The Company’s outstanding shares of common stock, net of repurchased common stock held as treasury stock, were 32.5 million shares at December 31, 2023 and 34.7 million shares at December 25, 2022. Share Repurchase Program On October 28, 2021, our Board of Directors approved a share repurchase program with an indefinite duration for up to $ 425.0 million of the Company’s common stock. This share repurchase program operated alongside our previous $ 75.0 million share repurchase authorization, which began on November 4, 2020 and expired on December 26, 2021. The following table summarizes our repurchase activity for the years ended December 31, 2023, December 25, 2022 and December 26, 2021, respectively: (In thousands, except average price per share) Year Ended Total Number of Shares Purchased Average Price Paid per Share Aggregate Cost of Shares Purchased (a) Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs December 31, 2023 2,523 $ 83.10 $ 209,640 $ 90,160 December 25, 2022 1,343 $ 93.07 $ 125,000 $ 299,800 December 26, 2021 594 $ 121.96 $ 72,499 $ 424,800 (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 74 Table of Contents open market, block, and privately negotiated transactions, including Rule 10b5-1 plans, at times and in such amounts as management deems appropriate. Repurchases under the Company’s share repurchase programs may be commenced or suspended from time to time at the Company’s discretion without prior notice. Funding for the share repurchase programs will be provided through our credit facility, operating cash flow, stock option exercises and cash and cash equivalents. Dividends on Common Stock 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. The declaration and payment of any future dividends will be at the discretion of our Board of Directors. Preferred Stock The Company has authorized 5.0 million shares of preferred stock (of which none were issued or outstanding at December 31, 2023 or December 25, 2022, respectively). On May 11, 2021, the Company entered into a Share Repurchase Agreement with certain funds affiliated with, or managed by, Starboard Value LP (collectively, “Starboard”), pursuant to which (i) the Company repurchased from Starboard 78,387 shares of the Series B Convertible Preferred Stock, par value $ 0.01 per share, of the Company (“Series B Preferred Stock”) and (ii) Starboard converted the remaining 171,613 shares of Series B Preferred Stock that it owned into 3,458,360 shares of the Company’s common stock pursuant to the terms of the Certificate of Designation of the Series B Preferred Stock. On June 3, 2021, the Company entered into agreements with certain franchisee investors to repurchase 1,000 shares of the outstanding Series B Preferred Stock and convert the remaining 1,530 shares of Series B Preferred Stock into 30,769 shares of common stock. 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 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 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. 7. Earnings per Share We compute earnings per share using the two-class method. The two-class method requires an earnings allocation formula that determines earnings per share for common shareholders and participating security holders according to dividends declared and participating rights in undistributed earnings. 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. Diluted earnings per common share are computed by dividing the net income attributable to common shareholders by the diluted weighted average common shares outstanding. Diluted weighted average common shares outstanding consist of basic weighted average common shares outstanding plus weighted average awards outstanding under our equity compensation plans, which are dilutive securities. 75 Table of Contents The calculations of basic earnings per common share and diluted earnings per common share for the years ended December 31, 2023, December 25, 2022 and December 26, 2021 are as follows (in thousands, except per share data): 2023 2022 2021 Basic earnings per common share Net income attributable to the Company $ 82,098 $ 67,772 $ 120,016 Dividends on redemption of Series B Convertible Preferred Stock — — ( 109,852 ) Dividends paid to participating securities — ( 306 ) ( 6,091 ) Net income attributable to participating securities — ( 104 ) — Net income attributable to common shareholders $ 82,098 $ 67,362 $ 4,073 Basic weighted average common shares outstanding 32,931 35,497 35,007 Basic earnings per common share $ 2.49 $ 1.90 $ 0.12 Diluted earnings per common share Net income attributable to common shareholders $ 82,098 $ 67,362 $ 4,073 Weighted average common shares outstanding 32,931 35,497 35,007 Dilutive effect of outstanding equity awards (a) 228 220 330 Diluted weighted average common shares outstanding 33,159 35,717 35,337 Diluted earnings per common share $ 2.48 $ 1.89 $ 0.12 ______________________________ (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. Equity Compensation” for additional information regarding our equity awards, including restricted stock. 8. Fair Value Measurements and Disclosures The Company determines the fair value of financial assets and liabilities based on the price that would be received to sell the asset or paid to transfer the liability to a market participant. Certain assets and liabilities are measured at fair value on a recurring basis and are required to be classified and disclosed in one of the following three categories: • Level 1: Quoted market prices in active markets for identical assets or liabilities. • Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data. • Level 3: Unobservable inputs that are not corroborated by market data. Fair value is a market-based measurement, not an entity specific measurement. Considerable judgment is required to interpret market data to estimate fair value; accordingly, the fair values presented do not necessarily indicate what the Company or its debtholders could realize in a current market exchange. 76 Table of Contents Our financial assets and liabilities that were measured at fair value on a recurring basis as of December 31, 2023 and December 25, 2022 are as follows: Carrying Value Fair Value Measurements (in thousands) Level 1 Level 2 Level 3 December 31, 2023 Financial assets: Cash surrender value of life insurance policies (a) $ 29,449 $ 29,449 $ — $ — Interest rate swaps (b) $ 107 $ — $ 107 $ — Financial liabilities: Interest rate swaps (b) $ 483 $ — $ 483 $ — December 25, 2022 Financial assets: Cash surrender value of life insurance policies (a) $ 30,120 $ 30,120 $ — $ — Interest rate swaps (b) $ 986 $ — $ 986 $ — ______________________________ (a) Represents life insurance policies held in our non-qualified deferred compensation plan. See “Note 21. Employee Benefit Plans” for additional information. (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 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. The fair value of certain assets and liabilities approximates carrying value because of the short-term nature of the accounts, including cash and cash equivalents, accounts receivable, net of allowances, and accounts payable. The carrying value of notes receivable, net of allowances, also approximates fair value. The Company’s revolving credit facilities under 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: December 31, 2023 December 25, 2022 (in thousands) Carrying Value Fair Value Carrying Value Fair Value 3.875 % Senior Notes $ 400,000 $ 352,500 $ 400,000 $ 339,500 9. Noncontrolling Interests 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. Divestitures,” the Company divested its 51 percent interest in one joint venture that owned 90 restaurants in the second quarter of 2022. 77 Table of Contents Net income attributable to these joint ventures for the years ended December 31, 2023, December 25, 2022 and December 26, 2021 was as follows (in thousands): 2023 2022 2021 Papa John’s International, Inc. $ 1,672 $ 3,136 $ 8,457 Redeemable noncontrolling interests 198 574 2,609 Nonredeemable noncontrolling interests 503 1,003 2,330 Total net income $ 2,373 $ 4,713 $ 13,396 The following summarizes changes in our redeemable noncontrolling interests in 2023 and 2022 (in thousands): Balance at December 26, 2021 $ 5,498 Net income 574 Distributions ( 4,855 ) Balance at December 25, 2022 $ 1,217 Net income 198 Distributions ( 564 ) Balance at December 31, 2023 $ 851 10. Allowance for Credit Losses Estimates of expected credit losses, even if remote, are based upon historical account write-off trends, facts about the current financial condition of the debtor, forecasts of future operating results based upon current trends of select operating metrics, and macroeconomic factors. Credit quality is monitored through the timing of payments compared to the prescribed payment terms and known facts regarding the financial condition of the franchisee or customer. Account and note balances are charged off against the allowance after recovery efforts have ceased. The following table summarizes changes in our allowances for credit losses for accounts receivable and notes receivable: (In thousands) Accounts Receivable Notes Receivable Balance at December 26, 2021 $ 2,364 $ 1,500 Current period provision for expected credit losses, net (a) 6,474 14,066 Write-offs charged against the allowance ( 2,120 ) ( 1,067 ) Balance at December 25, 2022 $ 6,718 $ 14,499 Current period provision for expected credit losses, net (b) 3,609 1,784 Write-offs charged against the allowance ( 1,974 ) ( 191 ) Balance at December 31, 2023 $ 8,353 $ 16,092 ______________________________ (a) The Company recorded $ 14.6 million of one-time, non-cash reserves in the first quarter of 2022 for certain accounts receivable and notes receivable primarily associated with a master franchisee with operations principally in Russia. The Company recorded $ 3.7 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. 78 Table of Contents 11. Goodwill The following summarizes changes in the Company’s goodwill, by reportable segment (in thousands): Domestic Company- 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 (a) 1,102 4,274 — 5,376 Divestitures (b) — — ( 436 ) ( 436 ) Foreign currency adjustments — 650 — 650 Balance at December 31, 2023 $ 56,609 $ 19,597 $ — $ 76,206 ______________________________ (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. 12. Debt Long-term debt, net consists of the following (in thousands): December 31, 2023 December 25, 2022 Senior notes $ 400,000 $ 400,000 Revolving facilities 364,000 205,000 Outstanding debt 764,000 605,000 Unamortized debt issuance costs ( 6,578 ) ( 7,931 ) Total long-term debt, net $ 757,422 $ 597,069 Senior Notes On September 14, 2021, the Company issued $ 400.0 million of 3.875 % senior notes (the “Notes”) which will mature on September 15, 2029. 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 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 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). 79 Table of Contents 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. The Notes also contain customary redemption provisions related to asset sales and certain change of control transactions. The Indenture governing the Notes contains customary events of default, including, among other things, payment default, failure to comply with covenants or agreements contained in the Indenture or the Notes and certain provisions related to bankruptcy events. The Indenture also contains customary negative covenants. 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. 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 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 SOFR rate election is in effect. 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 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 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. 80 Table of Contents PJMF Revolving Facility 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. 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 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 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 June 23, 2023 through June 30, 2025 $ 50 million 4.55 % 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. 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 previously utilized under the PJI Revolving Facility. 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 Balance Sheet Location Fair Value December 31, 2023 Fair Value December 25, 2022 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. 81 Table of Contents The effect of derivative instruments on the accompanying Consolidated Financial Statements is as follows (in thousands): Derivatives - Cash Flow Hedging Relationships Amount of Gain or (Loss) Recognized in AOCL on Derivative Location of (Loss) or Gain Reclassified from AOCL into Income Amount of (Loss) or Gain Reclassified from AOCL into Income Net Interest Expense on Consolidated Statements of Operations Interest rate swaps: 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. 13. Property and Equipment, Net Property and equipment, net consists of the following (in thousands): December 31, 2023 December 25, 2022 Land $ 28,584 $ 31,679 Buildings and improvements 91,448 91,462 Leasehold improvements 154,441 136,095 Equipment and other 542,608 498,792 Construction in progress 25,610 32,265 Total property and equipment 842,691 790,293 Accumulated depreciation and amortization ( 559,879 ) ( 540,500 ) Property and equipment, net $ 282,812 $ 249,793 14. Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities consist of the following (in thousands): December 31, 2023 December 25, 2022 Marketing $ 37,628 $ 36,858 Salaries, benefits and bonuses 36,491 21,934 Insurance reserves, current 27,240 29,676 Purchases 24,198 13,789 Interest accrual 8,167 5,235 Litigation accrual (a) 5,000 15,000 Other 19,443 20,043 Total $ 158,167 $ 142,535 ______________________________ (a) See “Note 19. Litigation, Commitments and Contingencies” for additional information. 82 Table of Contents 15. Other Long-term Liabilities Other long-term liabilities consist of the following (in thousands): December 31, 2023 December 25, 2022 Insurance reserves $ 29,512 $ 37,624 Deferred compensation plan (a) 28,342 28,285 Other 2,338 2,408 Total $ 60,192 $ 68,317 ______________________________ (a) See “Note 21. Employee Benefit Plans” for additional information on our non-qualified deferred compensation plan. 16. 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): December 31, 2023 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): 83 Table of Contents 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. The space is designed to drive continued menu innovation and optimize integration across marketing, communications, customer experience, operations, human resources, diversity, equity and inclusion, financial planning and analysis, investor relations and development functions. Our information technology, finance, supply chain, and legal teams continue to operate in our Louisville, Kentucky office, which remains critical to our success. We also maintain an office outside of London, UK, where our International operations are managed. 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 during the year ended December 26, 2021 as detailed in the table below (in thousands). December 26, 2021 Employee severance and other employee transition costs $ 5,429 Recruiting and professional fees 3,815 Relocation costs 3,100 Other costs 750 Total strategic corporate reorganization costs $ 13,094 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 were recorded in General and administrative expenses on the Consolidated Statements of Operations. 17. Income Taxes The following table presents the domestic and foreign components of income before income taxes for 2023, 2022 and 2021 (in thousands): 2023 2022 2021 Domestic income $ 91,218 $ 65,434 $ 115,221 Foreign income 12,455 18,335 35,727 Total income $ 103,673 $ 83,769 $ 150,948 Included within the foreign income before income taxes above is $ 24.1 million, $ 23.6 million, and $ 22.4 million of foreign sourced income subject to foreign withholding taxes in 2023, 2022, and 2021, respectively. 84 Table of Contents A summary of the expense (benefit) for income tax follows (in thousands): 2023 2022 2021 Current: Federal $ 20,742 $ 3,496 $ 10,591 Foreign 3,916 5,335 8,812 State and local 2,207 2,791 2,837 Deferred: Federal ( 4,115 ) 4,243 2,430 Foreign ( 558 ) ( 1,152 ) 769 State and local ( 1,318 ) ( 293 ) 554 Total income tax expense $ 20,874 $ 14,420 $ 25,993 The reconciliation of income tax computed at the U.S. federal statutory rate to income tax expense for the years ended December 31, 2023, December 25, 2022 and December 26, 2021 is as follows in both dollars and as a percentage of income before income taxes (dollars in thousands): 2023 2022 2021 Income Tax Expense (Benefit) Income Tax Rate Income Tax Expense (Benefit) Income Tax Rate Income Tax Expense (Benefit) Income Tax Rate Tax at U.S. federal statutory rate $ 21,771 21.0 % $ 17,591 21.0 % $ 31,699 21.0 % State and local income taxes 1,866 1.8 % 1,422 1.7 % 2,317 1.5 % Foreign income taxes 5,159 4.9 % 4,672 5.6 % 9,144 6.1 % Income of consolidated partnerships attributable to noncontrolling interests ( 159 ) ( 0.2 ) % ( 355 ) ( 0.4 ) % ( 1,110 ) ( 0.7 ) % Non-qualified deferred compensation plan expense (income) ( 752 ) ( 0.7 ) % 1,278 1.5 % ( 911 ) ( 0.6 ) % Excess tax (benefits) on equity awards ( 539 ) ( 0.5 ) % ( 3,902 ) ( 4.7 ) % ( 3,697 ) ( 2.5 ) % Tax credits ( 7,003 ) ( 6.8 ) % ( 8,981 ) ( 10.7 ) % ( 8,830 ) ( 5.9 ) % Non-deductible executive compensation 1,341 1.3 % 2,450 2.9 % 2,636 1.7 % Foreign-derived intangible income ( 1,263 ) ( 1.2 ) % ( 1,452 ) ( 1.7 ) % ( 1,519 ) ( 1.0 ) % US deferred offset on foreign deferreds 270 0.3 % 1,183 1.4 % 238 0.2 % Other 183 0.2 % 514 0.6 % ( 3,974 ) ( 2.6 ) % Total $ 20,874 20.1 % $ 14,420 17.2 % $ 25,993 17.2 % 85 Table of Contents Significant deferred tax assets (liabilities) follow (in thousands): December 31, 2023 December 25, 2022 Accrued liabilities $ 12,735 $ 17,424 Accrued bonuses 2,284 351 Other liabilities and asset reserves 15,315 14,607 Equity awards 7,988 7,905 Lease liabilities 45,550 45,646 Other 2,825 2,904 Net operating losses 13,759 11,738 Foreign tax credit carryforwards 23,888 20,198 Total deferred tax assets 124,344 120,773 Valuation allowances ( 37,609 ) ( 32,052 ) Total deferred tax assets, net of valuation allowances 86,735 88,721 Deferred expenses ( 5,719 ) ( 5,756 ) Accelerated depreciation ( 23,012 ) ( 31,098 ) Goodwill ( 7,881 ) ( 7,690 ) Right-of-use assets ( 41,513 ) ( 41,892 ) Other ( 1,071 ) ( 365 ) Total deferred tax liabilities ( 79,196 ) ( 86,801 ) Net deferred tax assets $ 7,539 $ 1,920 The following table summarizes changes in the Company’s valuation allowances on deferred tax (in thousands): Balance at December 26, 2021 $ 28,598 Charged to costs and expenses 3,454 Balance at December 25, 2022 $ 32,052 Charged to costs and expenses 5,470 Other 87 Balance at December 31, 2023 $ 37,609 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. The Company provided a full valuation allowance of $ 10.3 million and $ 10.2 million for these state deferred tax assets as we believe realization based on the more-likely-than-not criteria has not been met as of December 31, 2023 and December 25, 2022, respectively. The Company had approximately $ 3.0 million and $ 2.0 million of state deferred tax assets related to state income tax credit carryforwards as of December 31, 2023 and December 25, 2022, respectively. 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. 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 $ 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. 86 Table of Contents In addition, the Company had approximately $ 23.9 million and $ 20.2 million in foreign tax credit carryforwards as of December 31, 2023 and December 25, 2022, respectively, that expire ten years from inception in years 2027 through 2033. Our ability to utilize these foreign tax credit carryforwards is dependent on our ability to generate foreign earnings in future years sufficient to claim foreign tax credits in excess of foreign taxes paid in those years. The Company provided a full valuation allowance of $ 23.9 million and $ 20.2 million for these foreign tax credit carryforwards as we believe realization based on the more-likely-than-not criteria has not been met as of December 31, 2023 and December 25, 2022, respectively. Cash for income taxes paid were $ 12.5 million in 2023, $ 11.7 million in 2022 and $ 32.6 million in 2021. The Company files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. The Company, with few exceptions, is no longer subject to U.S. federal, state and local, or non-US income tax examinations by tax authorities for years before 2019. The Company is currently undergoing examinations by various tax authorities. The Company had $ 1.1 million of unrecognized tax benefits at December 31, 2023 which, if recognized, would affect the effective tax rate. A reconciliation of the beginning and ending liability for unrecognized tax benefits excluding interest and penalties is as follows, which is recorded in Other long-term liabilities in the Consolidated Balance Sheets (in thousands): Balance at December 26, 2021 $ 896 Additions for tax positions of prior years 331 Reductions for tax positions of prior years ( 65 ) Balance at December 25, 2022 $ 1,162 Additions for tax positions of prior years 217 Reductions for tax positions of prior years ( 321 ) Balance at December 31, 2023 $ 1,058 The Company recognizes accrued interest and penalties related to unrecognized tax benefits as part of income tax expense. The Company has accrued approximately $ 0.1 million for the payment of interest and penalties as of December 31, 2023 and December 25, 2022. 18. Related Party Transactions Shaquille O’Neal On March 21, 2019, Shaquille O’Neal was appointed to our Board of Directors. On June 11, 2019, PJMF entered into an Endorsement Agreement (the “Original Endorsement Agreement”), effective March 15, 2019, with ABG-Shaq, LLC (“ABG-Shaq”), an entity affiliated with Mr. O’Neal, for the personal services of Mr. O’Neal. Pursuant to the Original Endorsement Agreement, the Company received the right and license to use Mr. O’Neal’s name, nickname, initials, autograph, voice, video or film portrayals, photograph, likeness and certain other intellectual property rights (individually and collectively, the “Personality Rights”), in each case, solely as approved by ABG-Shaq, in connection with the advertising, promotion and sale of Papa John’s-branded products. Mr. O’Neal also agreed to provide brand ambassador services related to appearances, social media and public relations matters, and to collaborate with us to develop one or more co-branded products using the Personality Rights. Mr. O’Neal and the Company developed a co-branded extra-large pizza product using the Personality Rights under an amendment to the Original Endorsement Agreement signed July 27, 2020 (the “First Amendment”). As consideration for the rights and services granted under the Original Endorsement Agreement, the Company agreed to pay to ABG-Shaq aggregate cash payments of $ 4.1 million over the three years of the Original Endorsement Agreement. The Company also paid expenses related to the marketing and personal services provided by Mr. O’Neal. In addition, the Company agreed to grant 87,136 restricted stock units to Mr. O’Neal (as agent of ABG) under our 2018 Omnibus Incentive Plan. On July 29, 2021, the Company and PJMF entered into Amendment No. 2 (the “Second Amendment”) to the Original Endorsement Agreement with ABG-Shaq. Pursuant to the Second Amendment, the Company was granted the ability to use the Personality Rights for a limited time to promote, advertise, and sell our co-branded extra-large pizza developed under the First Amendment. 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 87 Table of Contents 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. On March 15, 2022, the Original Endorsement Agreement expired by its terms. On April 10, 2022, the Company and PJMF entered into a new Endorsement Agreement (the “New Endorsement Agreement”), effective March 15, 2022, with ABG-Shaq, LLC (“ABG-Shaq”), to replace the Original Endorsement Agreement. The terms of the New Endorsement Agreement are substantially similar to the Original Endorsement Agreement. As consideration for the rights and services granted under the New Endorsement Agreement, the Company and PJMF agreed to pay to ABG-Shaq aggregate cash payments of $ 5.6 million over the three years of the New Endorsement Agreement. The Company and PJMF will also pay ABG-Shaq a royalty fee for the co-branded pizza product if the total amount of royalties in a given contract year (calculated as $ 0.20 per co-branded pizza sold) exceeds the contractual cash payment for that year, in which case the amount of the royalty payment will be the excess of the royalties over the cash payment amount. The Company 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. O’Neal. In addition, the Company agreed to grant 55,898 restricted stock units (the “RSUs”) to Mr. O’Neal (as agent of ABG) under the Company’s 2018 Omnibus Incentive Plan. The RSUs will vest into an equivalent number of shares of the Company’s common stock according to the following vesting schedule: ● 33 % ( 18,632 ) of the RSUs vested on April 12, 2023; ● 33 % ( 18,632 ) of the RSUs will vest on March 15, 2024; and ● 33 % ( 18,634 ) of the RSUs will vest on March 15, 2025. The initial term of the New Endorsement Agreement ends on March 15, 2025, with an option for a one-year extension upon the parties’ mutual agreement. 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. 1”). 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. 19. Litigation, Commitments and Contingencies Litigation The Company is involved in a number of lawsuits, claims, investigations and proceedings, including those specifically identified below, consisting of intellectual property, employment, consumer, commercial and other matters arising in the ordinary course of business. In accordance with ASC 450, “ Contingencies ,” the Company has made accruals with respect to these matters, where appropriate, which are reflected in the Company’s consolidated financial statements. 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. 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 88 Table of Contents 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 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. 20. Equity Compensation 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. There were approximately 3.0 million shares of common stock authorized for issuance and remaining available under the 2018 Omnibus Incentive Plan as of December 31, 2023, which includes 5.9 million shares transferred from the Papa John’s International 2011 Omnibus Incentive Plan. 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 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 Options exercised, which were issued from authorized shares, included 43,000 shares in 2023, 82,000 shares in 2022 and 212,000 shares in 2021. The total intrinsic value of the options exercised during 2023, 2022 and 2021 was $ 1.2 million, $ 3.4 million and $ 10.1 million, respectively. There were no options granted in 2023, 2022 or 2021. Information pertaining to option activity during 2023 is as follows (number of options and aggregate intrinsic value in thousands): Number of Options Weighted Average Exercise Price Weighted Average Remaining Contractual Term (In Years) Aggregate Intrinsic Value Outstanding at December 25, 2022 235 $ 56.53 Exercised ( 43 ) 52.56 Cancelled ( 1 ) 70.96 Outstanding at December 31, 2023 191 $ 57.35 3.60 $ 3,681 Exercisable at December 31, 2023 191 $ 57.35 3.60 $ 3,681 Restricted Stock We granted shares of restricted stock that are time-based and generally vest in equal installments over three years ( 190,000 in 2023, 165,000 in 2022 and 130,000 in 2021). Upon vesting, the shares are issued from treasury stock. These restricted 89 Table of Contents 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 $ 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. Upon vesting, the units are issued from treasury stock. Total dividends declared for these awards were insignificant to the results of our operations. Additionally, we granted stock settled performance-based restricted stock units to executive management ( 80,000 units in 2023, 64,000 units in 2022, and 61,000 units in 2021). The performance-based restricted stock units require the achievement of certain performance and market factors, which consist of the Company’s Total Shareholder Return (“TSR”) relative to a predetermined peer group. The grant-date fair value of the performance-based restricted stock units was determined through the use of a Monte Carlo simulation model. The following is a summary of the significant assumptions used in estimating the fair value of the performance-based restricted stock units granted in 2023, 2022 and 2021: Assumptions: 2023 2022 2021 Risk-free interest rate 4.5 % 1.5 % 0.2 % Expected volatility 38.6 % 45.0 % 48.3 % The risk-free interest rate for the periods within the contractual life of the performance-based restricted stock unit is based on the U.S. Treasury yield curve in effect at the time of grant. Expected volatility was estimated using the Company’s historical share price volatility for a period similar to the expected life of the performance-based restricted stock unit. The performance-based restricted stock units granted vest over three years (cliff vest) and are expensed over the performance period. The weighted average grant-date fair value of performance-based restricted stock units granted during 2023, 2022 and 2021 was $ 88.43 , $ 113.90 and $ 103.14 , respectively. The fair value of time-based restricted stock and performance-based restricted stock units is based on the market price of the Company’s shares on the grant date. Information pertaining to these awards during 2023 is as follows (shares in thousands): Shares Weighted Average Grant-Date Fair Value Total as of December 25, 2022 518 $ 91.23 Granted 283 84.13 Forfeited ( 92 ) 95.18 Vested ( 226 ) 75.88 Total as of December 31, 2023 483 $ 93.27 21. Employee Benefit Plans 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 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 ($ 29.4 million and $ 30.1 million 90 Table of Contents 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. 22. Divestitures 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 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 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. 23. Segment Information We have four reportable segments: Domestic Company-owned restaurants, North America franchising, North America commissaries, and International operations. The Domestic Company-owned restaurant segment consists of the operations of all Domestic 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 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 91 Table of Contents 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. Certain administrative and capital costs are allocated to segments based upon predetermined rates or estimated resource usage. We account for intercompany sales and transfers as if the sales or transfers were to third parties and eliminate the activity in consolidation. Our reportable segments are business units that provide different products or services. Separate management of each segment is required because each business unit is subject to different operational issues and strategies. No single external customer accounted for 10% or more of our total revenues. The following tables present our segment information. (In thousands) 2023 2022 2021 Revenues: Domestic Company-owned restaurants $ 726,362 $ 708,389 $ 778,323 North America franchising 144,550 137,399 129,310 North America commissaries 852,361 869,634 761,305 International 182,487 158,682 184,099 All others 229,953 227,999 215,384 Total revenues $ 2,135,713 $ 2,102,103 $ 2,068,421 Intersegment revenues: North America franchising $ 4,267 $ 4,122 $ 4,179 North America commissaries 210,614 217,570 215,393 All others 66,487 70,283 75,366 Total intersegment revenues $ 281,368 $ 291,975 $ 294,938 Depreciation and amortization: Domestic Company-owned restaurants $ 14,184 $ 11,495 $ 11,728 North America commissaries 16,046 13,299 11,974 International 3,167 1,774 2,326 All others 15,572 12,681 9,928 Unallocated corporate expenses 15,121 12,783 12,860 Total depreciation and amortization $ 64,090 $ 52,032 $ 48,816 Operating income: Domestic Company-owned restaurants (a) $ 33,470 $ 15,966 $ 49,628 North America franchising 133,800 127,882 120,949 North America commissaries 43,316 42,531 39,873 International (b) (c) 11,766 17,891 34,896 All others 10,116 10,084 17,704 Unallocated corporate expenses (d) ( 85,353 ) ( 104,419 ) ( 94,114 ) Elimination of intersegment losses (profits) 27 ( 905 ) ( 695 ) Total operating income $ 147,142 $ 109,030 $ 168,241 ______________________________ (a) Includes a one-time, non-cash charge of $ 8.4 million associated with the refranchising of the Company’s ownership interest in a 90 -restaurant joint venture, recorded as Refranchising and impairment loss for the year ended December 25, 2022. See “Note 22. Divestitures” for additional information. (b) For the year ended December 31, 2023, International includes the following: 92 Table of Contents • $ 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. Divestitures” and “Note 10. Allowance for Credit Losses” 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. 93 Table of Contents (In thousands) 2023 2022 2021 Property and equipment, net: Domestic Company-owned restaurants $ 257,318 $ 238,658 $ 241,050 North America commissaries 161,303 149,920 149,218 International 32,083 16,080 14,642 All others 138,028 131,210 109,052 Unallocated corporate assets 253,959 254,425 236,132 Accumulated depreciation and amortization ( 559,879 ) ( 540,500 ) ( 526,238 ) Property and equipment, net $ 282,812 $ 249,793 $ 223,856 Expenditures for property and equipment: Domestic Company-owned restaurants $ 25,016 $ 23,057 $ 16,108 North America commissaries 10,654 5,729 4,007 International 6,518 5,175 1,979 All others 18,664 18,296 18,645 Unallocated corporate 15,768 26,134 27,820 Total expenditures for property and equipment $ 76,620 $ 78,391 $ 68,559 Disaggregation of Revenue In the following tables, revenues are disaggregated by major product line. The tables also include a reconciliation of the disaggregated revenues by the reportable segment: Reportable Segments (In thousands) Year Ended December 31, 2023 Major Products/Services Lines Domestic Company-owned restaurants North America franchising North America commissaries International All others Total Company-owned restaurant sales $ 726,362 $ — $ — $ 34,463 $ — $ 760,825 Franchise royalties and fees — 148,817 — 50,437 — 199,254 Commissary sales — — 1,062,975 72,287 — 1,135,262 Other revenues — — — 25,300 296,440 321,740 Eliminations — ( 4,267 ) ( 210,614 ) — ( 66,487 ) ( 281,368 ) Total segment revenues 726,362 144,550 852,361 182,487 229,953 2,135,713 International other revenues (a) — — — ( 25,300 ) 25,300 — Total revenues $ 726,362 $ 144,550 $ 852,361 $ 157,187 $ 255,253 $ 2,135,713 Reportable Segments (In thousands) Year Ended December 25, 2022 Major Products/Services Lines Domestic Company-owned restaurants North America franchising North America commissaries International All others Total Company-owned restaurant sales $ 708,389 $ — $ — $ — $ — $ 708,389 Franchise royalties and fees — 141,521 — 49,422 — 190,943 Commissary sales — — 1,087,204 80,481 — 1,167,685 Other revenues — — — 28,779 298,282 327,061 Eliminations — ( 4,122 ) ( 217,570 ) — ( 70,283 ) ( 291,975 ) Total segment revenues 708,389 137,399 869,634 158,682 227,999 2,102,103 International other revenues (a) — — — ( 28,779 ) 28,779 — Total revenues $ 708,389 $ 137,399 $ 869,634 $ 129,903 $ 256,778 $ 2,102,103 94 Table of Contents Reportable Segments (In thousands) Year Ended December 26, 2021 Major Products/Services Lines Domestic Company-owned restaurants North America franchising North America commissaries International All others Total Company-owned restaurant sales $ 778,323 $ — $ — $ — $ — $ 778,323 Franchise royalties and fees — 133,489 — 53,148 — 186,637 Commissary sales — — 976,698 97,623 — 1,074,321 Other revenues — — — 33,328 290,750 324,078 Eliminations — ( 4,179 ) ( 215,393 ) — ( 75,366 ) ( 294,938 ) Total segment revenues 778,323 129,310 761,305 184,099 215,384 2,068,421 International other revenues (a) — — — ( 33,328 ) 33,328 — Total revenues $ 778,323 $ 129,310 $ 761,305 $ 150,771 $ 248,712 $ 2,068,421 ______________________________ (a) Other revenues as reported in the Consolidated Statements of Operations include $ 25.3 million, $ 28.8 million and $ 33.3 million of revenue for the years ended December 31, 2023, December 25, 2022, and December 26, 2021 respectively, that are part of the International reporting segment. These amounts include marketing fund contributions and sublease rental income from International franchisees in the UK that provide no significant contribution to income before income taxes but must be reported on a gross basis under accounting requirements. The related expenses for these Other revenues are reported in Other expenses in the Consolidated Statements of Operations. 24. Acquisitions 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 95 Table of Contents 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. 25. 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. 96 Table of Contents Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.