PAPA JOHNS INTERNATIONAL INC 10-Q

Item 1. Financial Statements Papa John’s International, Inc. and Subsidiaries Condensed Consolidated Balance Sheets (In thousands, except per share amounts) September 29, 2024 December 31, 2023 (Unaudited) Assets Current assets: Cash and cash equivalents $ 17,550 $ 40,587 Accounts receivable, net 101,804 104,244 Notes receivable, current portion 5,728 5,199 Income tax receivable 2,414 2,577 Inventories 36,488 36,126 Prepaid expenses and other current assets 51,873 42,285 Total current assets 215,857 231,018 Property and equipment, net 266,508 282,812 Finance lease right-of-use assets, net 25,535 31,740 Operating lease right-of-use assets 191,194 164,158 Notes receivable, less current portion, net 7,346 12,346 Goodwill 76,460 76,206 Other assets 77,975 76,725 Total assets $ 860,875 $ 875,005 Liabilities, Redeemable noncontrolling interests and Stockholders’ deficit Current liabilities: Accounts payable $ 62,800 $ 74,949 Income and other taxes payable 10,166 17,948 Accrued expenses and other current liabilities 139,301 158,167 Current deferred revenue 19,645 20,427 Current finance lease liabilities 6,962 9,029 Current operating lease liabilities 26,001 24,076 Current portion of long-term debt 5,650 — Total current liabilities 270,525 304,596 Deferred revenue 18,737 20,366 Long-term finance lease liabilities 19,921 24,144 Long-term operating lease liabilities 180,137 151,050 Long-term debt, less current portion, net 721,355 757,422 Other long-term liabilities 64,882 60,192 Total liabilities 1,275,557 1,317,770 Redeemable noncontrolling interests 937 851 Stockholders’ deficit: Common stock ($ 0.01 par value per share; issued 49,282 at September 29, 2024 and 49,235 at December 31, 2023) 493 492 Additional paid-in capital 449,141 452,290 Accumulated other comprehensive loss ( 6,580 ) ( 7,803 ) Retained earnings 242,269 219,027 Treasury stock ( 16,645 shares at September 29, 2024 and 16,747 shares at December 31, 2023, at cost) ( 1,116,256 ) ( 1,123,098 ) Total stockholders’ deficit ( 430,933 ) ( 459,092 ) Noncontrolling interests in subsidiaries 15,314 15,476 Total Stockholders’ deficit ( 415,619 ) ( 443,616 ) Total Liabilities, Redeemable noncontrolling interests and Stockholders’ deficit $ 860,875 $ 875,005 See accompanying notes. 1 Papa John’s International, Inc. and Subsidiaries Condensed Consolidated Statements of Operations (Unaudited) Three Months Ended Nine Months Ended (In thousands, except per share amounts) September 29, 2024 September 24, 2023 September 29, 2024 September 24, 2023 Revenues: Domestic Company-owned restaurant sales $ 168,672 $ 177,195 $ 518,103 $ 532,841 North America franchise royalties and fees 33,831 35,041 103,937 105,824 North America commissary revenues 210,389 204,887 611,873 624,433 International revenues 33,024 42,927 113,433 108,998 Other revenues 60,891 62,762 181,271 192,295 Total revenues 506,807 522,812 1,528,617 1,564,391 Costs and expenses: Operating costs (excluding depreciation and amortization shown separately below): Domestic Company-owned restaurant expenses 142,403 145,433 419,189 436,922 North America commissary expenses 193,818 189,551 561,316 576,434 International expenses 19,001 29,796 74,424 67,542 Other expenses 55,543 57,587 164,261 177,661 General and administrative expenses 13,553 52,173 129,726 154,441 Depreciation and amortization 17,260 16,404 52,528 46,815 Total costs and expenses 441,578 490,944 1,401,444 1,459,815 Operating income 65,229 31,868 127,173 104,576 Net interest expense ( 10,629 ) ( 11,378 ) ( 32,588 ) ( 31,674 ) Income before income taxes 54,600 20,490 94,585 72,902 Income tax expense 12,812 4,539 25,347 16,546 Net income before attribution to noncontrolling interests 41,788 15,951 69,238 56,356 Net loss (income) attributable to noncontrolling interests 20 ( 90 ) ( 551 ) ( 351 ) Net income attributable to the Company $ 41,808 $ 15,861 $ 68,687 $ 56,005 Basic earnings per common share $ 1.28 $ 0.49 $ 2.10 $ 1.69 Diluted earnings per common share $ 1.27 $ 0.48 $ 2.09 $ 1.68 Basic weighted average common shares outstanding 32,745 32,564 32,701 33,053 Diluted weighted average common shares outstanding 32,930 32,800 32,850 33,287 Dividends declared per common share $ 0.46 $ 0.46 $ 1.38 $ 1.30 See accompanying notes. 2 Papa John’s International, Inc. and Subsidiaries Condensed Consolidated Statements of Comprehensive Income (Unaudited) Three Months Ended Nine Months Ended (In thousands) September 29, 2024 September 24, 2023 September 29, 2024 September 24, 2023 Net income before attribution to noncontrolling interests $ 41,788 $ 15,951 $ 69,238 $ 56,356 Other comprehensive income (loss), before tax: Foreign currency translation adjustments 2,051 ( 1,854 ) 1,670 ( 7 ) Interest rate swaps (1) ( 1,059 ) 1,039 ( 103 ) 2,889 Other comprehensive income (loss), before tax 992 ( 815 ) 1,567 2,882 Income tax effect: Foreign currency translation adjustments ( 453 ) 426 ( 367 ) 1 Interest rate swaps (2) 239 ( 238 ) 23 ( 664 ) Income tax effect ( 214 ) 188 ( 344 ) ( 663 ) Other comprehensive income (loss), net of tax 778 ( 627 ) 1,223 2,219 Comprehensive income before attribution to noncontrolling interests 42,566 15,324 70,461 58,575 Less: comprehensive income, redeemable noncontrolling interests ( 43 ) ( 30 ) ( 233 ) ( 135 ) Less: comprehensive loss (income), nonredeemable noncontrolling interests 63 ( 60 ) ( 318 ) ( 216 ) Comprehensive income attributable to the Company $ 42,586 $ 15,234 $ 69,910 $ 58,224 ___________________________________ (1) Amounts reclassified out of accumulated other comprehensive loss into net interest income (expense) include $ 194 and $ 591 for the three and nine months ended September 29, 2024, respectively, and $ 203 and $( 40 ) for the three and nine months ended September 24, 2023, respectively. (2) The income tax effects of amounts reclassified out of accumulated other comprehensive loss were $( 43 ) and $( 133 ) for the three and nine months ended September 29, 2024, respectively, and $( 46 ) and $ 9 for the three and nine months ended September 24, 2023, respectively. See accompanying notes. 3 Papa John’s International, Inc. and Subsidiaries Condensed Consolidated Statements of Stockholders’ Deficit (Unaudited) Papa John’s International, Inc. (In thousands) Common Stock Shares Outstanding Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Loss (2) Retained Earnings Treasury Stock Noncontrolling Interests in Subsidiaries Total Stockholders’ Deficit For the three months ended September 29, 2024 Balance at June 30, 2024 32,622 $ 493 $ 446,547 $ ( 7,358 ) $ 215,800 $ ( 1,117,140 ) $ 15,518 $ ( 446,140 ) Net income (1) — — — — 41,808 — ( 63 ) 41,745 Other comprehensive income (loss), net of tax — — — 778 — — — 778 Dividends on common stock — — 31 — ( 15,339 ) — — ( 15,308 ) Exercise of stock options 2 — 88 — — — — 88 Stock-based compensation expense — — 3,358 — — — — 3,358 Issuance of restricted stock 14 — ( 632 ) — — 632 — — Tax effect of restricted stock awards ( 4 ) — ( 178 ) — — — — ( 178 ) Distributions to noncontrolling interests — — — — — — ( 141 ) ( 141 ) Other 3 — ( 73 ) — — 252 — 179 Balance at September 29, 2024 32,637 $ 493 $ 449,141 $ ( 6,580 ) $ 242,269 $ ( 1,116,256 ) $ 15,314 $ ( 415,619 ) For the nine months ended September 29, 2024 Balance at December 31, 2023 32,488 $ 492 $ 452,290 $ ( 7,803 ) $ 219,027 $ ( 1,123,098 ) $ 15,476 $ ( 443,616 ) Net income (1) — — — — 68,687 — 318 69,005 Other comprehensive income (loss), net of tax — — — 1,223 — — — 1,223 Dividends on common stock — — 95 — ( 45,445 ) — — ( 45,350 ) Exercise of stock options 22 1 1,020 — — — — 1,021 Stock-based compensation expense — — 5,903 — — — — 5,903 Issuance of restricted stock 171 — ( 6,242 ) — — 6,242 — — Tax effect of restricted stock awards ( 52 ) — ( 3,508 ) — — — — ( 3,508 ) Distributions to noncontrolling interests — — — — — — ( 480 ) ( 480 ) Other 8 — ( 417 ) — — 600 — 183 Balance at September 29, 2024 32,637 $ 493 $ 449,141 $ ( 6,580 ) $ 242,269 $ ( 1,116,256 ) $ 15,314 $ ( 415,619 ) (1) Net income to the Company for the three and nine months ended September 29, 2024 excludes $ 43 and $ 233 , respectively, allocable to the redeemable noncontrolling interests for our joint venture arrangements. (2) At September 29, 2024, the accumulated other comprehensive loss of $ 6,580 was comprised of net unrealized foreign currency translation loss of $ 6,186 and net unrealized loss on the interest rate swap agreements of $ 394 . See accompanying notes. 4 Papa John’s International, Inc. and Subsidiaries Condensed Consolidated Statements of Stockholders’ Deficit (continued) (Unaudited) Papa John’s International, Inc. (In thousands) Common Stock Shares Outstanding Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Loss (2) Retained Earnings Treasury Stock (3) Noncontrolling Interests in Subsidiaries Total Stockholders’ Deficit For the three months ended September 24, 2023 Balance at June 25, 2023 32,394 $ 492 $ 445,964 $ ( 7,289 ) $ 207,461 $ ( 1,127,669 ) $ 15,562 $ ( 465,479 ) Net income (1) — — — — 15,861 — 60 15,921 Other comprehensive income (loss), net of tax — — — ( 627 ) — — — ( 627 ) Dividends on common stock — — 34 — ( 15,190 ) — — ( 15,156 ) Exercise of stock options 18 — 1,134 — — — — 1,134 Stock-based compensation expense — — 4,726 — — — — 4,726 Issuance of restricted stock 7 — ( 315 ) — — 315 — — Tax effect of restricted stock awards ( 2 ) — ( 171 ) — — — — ( 171 ) Distributions to noncontrolling interests — — — — — — ( 328 ) ( 328 ) Other 56 — ( 3,673 ) — — 3,755 — 82 Balance at September 24, 2023 32,473 $ 492 $ 447,699 $ ( 7,916 ) $ 208,132 $ ( 1,123,599 ) $ 15,294 $ ( 459,898 ) For the nine months ended September 24, 2023 Balance at December 25, 2022 34,736 $ 491 $ 449,829 $ ( 10,135 ) $ 195,856 $ ( 922,434 ) $ 15,729 $ ( 270,664 ) Net income (1) — — — — 56,005 — 216 56,221 Other comprehensive income (loss), net of tax — — — 2,219 — — — 2,219 Dividends on common stock — — 88 — ( 43,729 ) — — ( 43,641 ) Exercise of stock options 35 1 1,816 — — — — 1,817 Acquisition of Company common stock (3) ( 2,523 ) — — — — ( 212,444 ) — ( 212,444 ) Stock-based compensation expense — — 13,224 — — — — 13,224 Issuance of restricted stock 234 — ( 6,857 ) — — 6,857 — — Tax effect of restricted stock awards ( 75 ) — ( 6,279 ) — — — — ( 6,279 ) Distributions to noncontrolling interests — — — — — — ( 651 ) ( 651 ) Other 66 — ( 4,122 ) — — 4,422 — 300 Balance at September 24, 2023 32,473 $ 492 $ 447,699 $ ( 7,916 ) $ 208,132 $ ( 1,123,599 ) $ 15,294 $ ( 459,898 ) (1) Net income to the Company for the three and nine months ended September 24, 2023 excludes $ 30 and $ 135 , respectively, allocable to the redeemable noncontrolling interests for our joint venture arrangements. (2) At September 24, 2023, the accumulated other comprehensive loss of $ 7,916 was comprised of net unrealized foreign currency translation loss of $ 8,702 and net unrealized gain on the interest rate swap agreements of $ 786 . (3) Acquisition of Company common stock for the nine months ended September 24, 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. 5 Papa John’s International, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows (Unaudited) Nine Months Ended (In thousands) September 29, 2024 September 24, 2023 Operating activities Net income before attribution to noncontrolling interests $ 69,238 $ 56,356 Adjustments to reconcile net income to net cash provided by operating activities: Provision for allowance for credit losses on accounts and notes receivable 2,936 1,348 Depreciation and amortization 52,528 46,815 Refranchising and impairment loss 17,433 — Deferred income taxes 3,877 3,481 Stock-based compensation expense 5,903 13,224 Gain on disposal of property and equipment ( 42,034 ) — Other 614 331 Changes in operating assets and liabilities, net of acquisitions: Accounts receivable 879 ( 11,643 ) Income tax receivable 232 7,617 Inventories ( 207 ) 3,875 Prepaid expenses and other current assets ( 1,684 ) ( 2,104 ) Other assets and liabilities ( 5,923 ) 2,057 Accounts payable ( 12,389 ) 15,237 Income and other taxes payable ( 7,609 ) 1,087 Accrued expenses and other current liabilities ( 25,837 ) ( 6,579 ) Deferred revenue ( 2,073 ) ( 4,166 ) Net cash provided by operating activities 55,884 126,936 Investing activities Purchases of property and equipment ( 46,931 ) ( 50,905 ) Notes issued ( 154 ) ( 7,310 ) Repayments of notes issued 3,148 5,759 Acquisitions, net of cash acquired — ( 5,599 ) Proceeds from dispositions 49,012 — Other 2,373 401 Net cash provided by (used in) investing activities 7,448 ( 57,654 ) Financing activities Net (repayments) proceeds of revolving credit facilities ( 31,589 ) 185,789 Proceeds from exercise of stock options 1,021 1,816 Acquisition of Company common stock — ( 210,348 ) Dividends paid to common stockholders ( 45,381 ) ( 43,641 ) Tax payments for equity award issuances ( 3,508 ) ( 6,279 ) Distributions to noncontrolling interests ( 627 ) ( 651 ) Principal payments on finance leases ( 6,778 ) ( 5,975 ) Other 278 150 Net cash used in financing activities ( 86,584 ) ( 79,139 ) Effect of exchange rate changes on cash and cash equivalents 215 ( 24 ) Change in cash and cash equivalents ( 23,037 ) ( 9,881 ) Cash and cash equivalents at beginning of period 40,587 47,373 Cash and cash equivalents at end of period $ 17,550 $ 37,492 See accompanying notes. 6 Papa John’s International, Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements (Unaudited) September 29, 2024 1. Basis of Presentation The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP” or “U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete annual financial statements. In the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 29, 2024 are not necessarily indicative of the results that may be expected for the fiscal year ending December 29, 2024. For further information, refer to the consolidated financial statements and footnotes thereto included in the Annual Report on Form 10-K for Papa John’s International, Inc. (referred to as the “Company,” “Papa John’s,” “Papa Johns” or in the first-person notations of “we,” “us” and “our”) for the year ended December 31, 2023. 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 Condensed Consolidated Financial Statements include the accounts of Papa John’s International, Inc. and its subsidiaries. All intercompany balances and transactions have been eliminated. Variable Interest Entity Papa Johns North American 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 and Canada for the purpose of designing and administering advertising and promotional programs. PJMF is a variable interest entity (“VIE”) that funds its operations with ongoing financial support and contributions from the North American 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 .” Use of Estimates The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Significant items that are subject to such estimates and assumptions include 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. Noncontrolling Interests Papa Johns has joint venture arrangements in which there are noncontrolling interests held by third parties that includ ed 98 restaurants at September 29, 2024 and September 24, 2023, respectively. Consolidated net income is required to be reported separately at amounts attributable to both the Company and the noncontrolling interests held by third parties. 7 Net income attributable to these joint ventures for the three and nine months ended September 29, 2024 and September 24, 2023 was as follows: Three Months Ended Nine Months Ended (In thousands) September 29, 2024 September 24, 2023 September 29, 2024 September 24, 2023 Papa John’s International, Inc. $ ( 46 ) $ 196 $ 1,285 $ 821 Redeemable noncontrolling interests 43 30 233 135 Nonredeemable noncontrolling interests ( 63 ) 60 318 216 Total net income $ ( 66 ) $ 286 $ 1,836 $ 1,172 The following summarizes the redemption feature, location and related accounting within the Condensed Consolidated Balance Sheets for these joint venture arrangements: Type of Joint Venture Arrangement Location within the Condensed Consolidated Balance Sheets Recorded Value Joint ventures with no redemption feature Permanent equity Carrying value Joint ventures with option to require the Company to purchase the noncontrolling interest - not currently redeemable or redemption not probable Temporary equity Carrying value Deferred Income Tax Accounts and Tax Reserves We are subject to income taxes in the United States and several foreign jurisdictions. Significant judgment is required in determining 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. We use an estimated annual effective rate based on expected annual income to determine our quarterly provision for income taxes. The effective income tax rate includes the estimated domestic state effective income tax rate and applicable foreign income tax rates. The effective income tax rate is also impacted by various permanent items and credits, net of any related valuation allowances, and can vary based on changes in estimated annual income. Discrete items are recorded in the quarter in which they occur. Deferred tax assets and liabilities are determined based on differences between financial reporting and tax basis of assets and liabilities and are measured using enacted tax rates and laws that are expected to be in effect when the differences reverse. Deferred tax assets 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 due to 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. Deferred tax assets and liabilities are recorded within Other assets and Other long-term liabilities on the Condensed Consolidated Balance Sheets. Tax authorities periodically audit the Company. We record reserves and related interest and penalties for identified exposures as income tax expense. We evaluate these issues on a quarterly basis to adjust for events, such as statute of limitations expirations, court rulings or audit settlements, which may impact our ultimate payment for such exposures. Fair Value Measurements and Disclosures The Company determines the fair value of financial assets and liabilities based on the price that would be received to sell the asset or paid to transfer the liability to a market participant. Certain assets and liabilities are measured at fair value on a recurring basis and are required to be classified and disclosed in one of the following three categories: • Level 1: Quoted market prices in active markets for identical assets or liabilities. • Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data. • Level 3: Unobservable inputs that are not corroborated by market data. 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. 8 Our financial assets and liabilities that were measured at fair value on a recurring basis as of September 29, 2024 and December 31, 2023 are as follows: Fair Value Measurements (In thousands) Carrying Value Level 1 Level 2 Level 3 September 29, 2024 Financial assets: Cash surrender value of life insurance policies (a) $ 30,822 $ 30,822 $ — $ — Financial liabilities: Interest rate swaps (b) $ 479 $ — $ 479 $ — 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 $ — ___________________________________ (a) Represents life insurance policies held in our non-qualified deferred compensation plan, which are classified as Other assets on the Condensed Consolidated Balance Sheets (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 London Interbank Offered Rates (“LIBOR”). There were no transfers among levels within the fair value hierarchy during the three and nine months ended September 29, 2024 or fiscal year 2023. 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 September 29, 2024 and December 31, 2023: September 29, 2024 December 31, 2023 (In thousands) Carrying Value Fair Value Carrying Value Fair Value 3.875 % Senior Notes $ 400,000 $ 368,608 $ 400,000 $ 352,500 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 against the allowance after recovery efforts have ceased. 9 The following table summarizes changes in our allowances for credit losses for accounts receivable and notes receivable: (In thousands) Accounts Receivable Notes Receivable Balance at December 31, 2023 $ 8,353 $ 16,092 Current period provision for expected credit losses, net 1,612 1,324 Write-offs charged against the allowance ( 1,235 ) — Balance at September 29, 2024 $ 8,730 $ 17,416 Impairment of Long-lived Assets The Company evaluates its property and equipment and other long-lived assets for potential indicators of impairment at least annually, or as facts and circumstances arise that indicate the carrying value of the asset group may not be recoverable. For Domestic Company-owned restaurants, the evaluation is performed at the operating market level while International Company-owned restaurants are evaluated at the restaurant level as these represent the lowest level for which identifiable cash flows and are largely independent of the cash flows of other assets and liabilities. If the carrying amount of the long-lived asset group exceeds the amount of estimated future undiscounted cash flows, the fair value of the asset group is estimated and an impairment loss is recorded if the carrying value exceeds the estimated fair value. The assumptions used in the undiscounted cash flow calculation related to future growth are subjective and may be negatively impacted by future changes in operating performance or economic conditions. 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 Lessor Operating Leases The Company subleases certain retail space to our franchisees in the UK, which are primarily operating leases. At September 29, 2024, we leased and subleased approximately 350 Papa Johns restaurants to franchisees in the UK. The initial lease terms on the franchised sites in the UK are generally 15 years. The Company has the option to negotiate an extension toward the end of the lease term at the landlord’s discretion. The initial lease terms of the franchisee subleases are generally five to ten years . Rental income, primarily derived from properties leased and subleased to franchisees in the UK, is recognized on a straight-line basis over the respective operating lease terms. The Company recognized total sublease income of $ 2.7 million and $ 7.1 million for the three and nine months ended September 29, 2024, respectively, 10 and $ 2.3 million and $ 8.0 million for the three and nine months ended September 24, 2023, respectively, within Other revenues in the Condensed Consolidated Statements of Operations. Lease Guarantees As a result of assigning our interest in obligations under property leases as a condition of the refranchising of certain restaurants, we are contingently liable for payment of 75 Domestic leases. These leases have varying terms, the latest of which expires in 2029. As of September 29, 2024, the estimated maximum amount of undiscounted payments the Company could be required to make in the event of nonpayment by the primary lessees was $ 6.9 million. This contingent liability is not included in the Condensed Consolidated Balance Sheets as it is not probable to occur. The fair value of the guarantee is not material. Supplemental Cash Flow & Other Information Supplemental cash flow information related to leases for the periods reported is as follows: Nine Months Ended (In thousands) September 29, 2024 September 24, 2023 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from finance leases $ 1,096 $ 1,128 Financing cash flows from finance leases 6,778 5,975 Operating cash flows from operating leases (a) 30,045 28,394 Right-of-use assets obtained in exchange for new finance lease liabilities 3,809 16,518 Right-of-use assets obtained in exchange for new operating lease liabilities 60,120 17,652 Cash received from sublease income 5,287 7,160 ___________________________________ (a) Included within the change in Other assets and liabilities within the Condensed Consolidated Statements of Cash Flows offset by non-cash operating lease right-of-use asset amortization and lease liability accretion. 4. Papa John’s Marketing Fund, Inc. PJMF, which is a consolidated VIE where the Company has been identified as the primary beneficiary, collects a percentage of revenues from Company-owned and franchised restaurants in the United States for the purpose of designing and administering advertising and promotional programs for all participating Domestic restaurants. Contributions and expenditures are reported on a gross basis in the Condensed Consolidated Statements of Operations within Other revenues and Other expenses. PJMF also has a wholly-owned subsidiary, Papa Card, Inc., which administers the Company’s gift card programs. 11 Assets and liabilities of PJMF, which are utilized solely for the Company’s advertising and promotional programs, were as follows in the Condensed Consolidated Balance Sheets (in thousands): September 29, 2024 December 31, 2023 Assets Current assets: Cash and cash equivalents $ 3,753 $ 5,494 Accounts receivable, net 16,250 18,026 Prepaid expenses and other current assets 7,872 2,223 Total current assets 27,875 25,743 Deferred income taxes 674 674 Total assets $ 28,549 $ 26,417 Liabilities Current liabilities: Accounts payable $ 10 $ 1,509 Accrued expenses and other current liabilities 21,515 22,245 Current portion of long-term debt 5,650 — Current deferred revenue 3,832 4,327 Total current liabilities 31,007 28,081 Deferred revenue 2,165 2,627 Total liabilities $ 33,172 $ 30,708 5. Revenue Recognition Contract Balances Our contract liabilities primarily relate to franchise fees, unredeemed gift card liabilities, and loyalty program obligations, which we classify as Deferred revenue on the Condensed Consolidated Balance Sheets. During the three and nine months ended September 29, 2024, the Company recognized $ 7.8 million and $ 24.1 million in revenue, respectively, related to deferred revenue compared to $ 8.1 million and $ 24.4 million, respectively, for the three and nine months ended September 24, 2023. The following table includes a breakout of contract liability balances (in thousands): Contract Liabilities September 29, 2024 December 31, 2023 Change Franchise fee liabilities $ 19,670 $ 20,564 $ ( 894 ) Unredeemed gift card liabilities 5,997 6,955 ( 958 ) Customer loyalty program obligations 12,715 13,274 ( 559 ) Total contract liabilities $ 38,382 $ 40,793 $ ( 2,411 ) 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. Contract assets were approximately $ 13.4 million and $ 7.9 million, respectively, at September 29, 2024 and December 31, 2023. For the three and nine months ended September 29, 2024 and September 24, 2023, revenue was reduced approximately $ 1.3 million and $ 4.0 million and $ 0.9 million and $ 2.7 million, respectively, for the amortization of contract assets over the applicable contract terms. Contract assets are included in Prepaid expenses and other current assets and Other assets on the Condensed Consolidated Balance Sheets. 12 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 $ 2,991 $ 2,615 $ 2,421 $ 2,175 $ 1,939 $ 4,193 $ 16,334 At September 29, 2024, approximately $ 3.4 million of area development fees related to unopened restaurants and International unearned franchise fees are included in Deferred revenue. Timing of revenue recognition is dependent upon the timing of restaurant openings and franchisees’ revenues. 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, “ Revenue Recognition” and does not disclose information about remaining performance obligations that have original expected durations of one year or less. 6. Common Stock Shares Authorized and Outstanding The Company has authorized 100.0 million shares of common stock as of September 29, 2024 and December 31, 2023. The Company’s outstanding shares of common stock, net of repurchased shares of common stock held as treasury stock, were 32.6 million shares at September 29, 2024, compared to 32.5 million shares at December 31, 2023. Share Repurchase Program On October 28, 2021, our Board of Directors (the “Board”) approved a share repurchase program with an indefinite duration for up to $ 425.0 million of the Company’s common stock. The following table summarizes our repurchase activity under our share repurchase programs for the three and nine months ended September 29, 2024 and September 24, 2023: (In thousands, except average price per share) Total Number of Shares Purchased Average Price Paid per Share Aggregate Cost of Shares Purchased Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs Three Months Ended September 29, 2024 — $ — $ — $ 90,160 September 24, 2023 — $ — $ — $ 90,160 (In thousands, except average price per share) Total Number of Shares Purchased (a) Average Price Paid per Share Aggregate Cost of Shares Purchased (b) Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs Nine Months Ended September 29, 2024 — $ — $ — $ 90,160 September 24, 2023 2,523 $ 83.10 $ 209,640 $ 90,160 (a) Shares repurchased during the nine months ended September 24, 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. (b) Aggregate cost of shares purchased for the nine months ended September 24, 2023 excluded $ 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 during the nine months ended September 24, 2023. The timing and volume of share repurchases under the Company’s share repurchase programs may be executed at the discretion of management on an opportunistic basis, subject to market and business conditions, regulatory requirements and other factors, or pursuant to trading plans or other arrangements. Repurchases under the programs may be made through open market, block, and privately negotiated transactions, including Rule 10b5-1 plans, at times and in such amounts as management deems appropriate. Repurchases under the Company’s share repurchase programs may be commenced or 13 suspended from time to time at the Company’s discretion without prior notice. Funding for the share repurchase programs will be provided through our credit facility, operating cash flow, stock option exercises and cash and cash equivalents. Dividends The Company paid ag gregate cash dividends of approximately $ 45.4 million ($ 1.38 per share) for the nine months ended September 29, 2024. On October 29, 2024, our Board of Directors declared a fourth quarter dividend of $ 0.46 per common share (approximately $ 15.2 million in the aggregate), which will be paid on November 29, 2024 to stockholders of record as of the close of business on November 18, 2024. The declaration and payment of any future dividends will be at the discretion of our Board of Directors. 7. Earnings per Share Basic earnings per common share are computed by dividing net income attributable to common shareholders by the weighted-average common shares outstanding. Diluted earnings per common share are computed by dividing the net income attributable to common shareholders by the diluted weighted average common shares outstanding. Diluted weighted average common shares outstanding consist of basic weighted average common shares outstanding plus weighted average awards outstanding under our equity compensation plans, which are dilutive securities. The calculations of basic and diluted earnings per common share are as follows (in thousands, except per share data): Three Months Ended Nine Months Ended September 29, 2024 September 24, 2023 September 29, 2024 September 24, 2023 Net income available to common stockholders $ 41,808 $ 15,861 $ 68,687 $ 56,005 Basic weighted average number of shares 32,745 32,564 32,701 33,053 Dilutive effect of outstanding equity awards (a) 185 236 149 234 Diluted weighted average number of shares 32,930 32,800 32,850 33,287 Basic earnings per common share $ 1.28 $ 0.49 $ 2.10 $ 1.69 Diluted earnings per common share $ 1.27 $ 0.48 $ 2.09 $ 1.68 ___________________________________ (a) Excludes 345,000 and 384,000 shares underlying equity awards for the three and nine months ended September 29, 2024, respectively, and 48,000 and 147,000 shares underlying awards for the three and nine months ended September 24, 2023, respectively, as the effect of including such awards would have been anti-dilutive. 8. Debt Long-term debt, net, consists of the following (in thousands): September 29, 2024 December 31, 2023 Senior notes $ 400,000 $ 400,000 Revolving facilities (a) 332,412 364,000 Outstanding debt $ 732,412 $ 764,000 Unamortized debt issuance costs ( 5,407 ) ( 6,578 ) Current portion of long-term debt ( 5,650 ) — Total long-term debt, net $ 721,355 $ 757,422 ___________________________________ (a) Revolving facilities as of September 29, 2024 includes $ 5.7 million outstanding under the PJMF Revolving Facility as defined and discussed below. Senior Notes On September 14, 2021, the Company issued $ 400.0 million of 3.875 % senior notes (the “Notes”) which will mature on September 15, 2029. Interest on the Notes is payable semi-annually in cash in arrears on March 15 and September 15 of each year at a fixed interest rate of 3.875 % per annum. Refer to Note 12 of the consolidated financial statements in our 14 Annual Report on Form 10-K for the year ended December 31, 2023 for further description of the provisions and covenant requirements under the Senior Notes. Credit Agreement The Company’s amended and restated credit agreement, dated September 14, 2021 and amended May 30, 2023 (as amended, the “Credit Agreement”), provides for a senior secured revolving credit facility in an aggregate available principal amount of $ 600.0 million (the “PJI Revolving Facility”), of which up to $ 40.0 million is available as swingline loans and up to $ 80.0 million is available as letters of credit. The PJI Revolving Facility will mature on September 14, 2026. The remaining availability under the PJI Revolving Facility was approximately $ 273.2 million as of September 29, 2024. Refer to Note 12 of the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2023 for further description of the provisions and covenant requirements under the Credit Agreement. PJMF Revolving Facility PJMF has a $ 30.0 million revolving line of credit (the “PJMF Revolving Facility”) pursuant to a Revolving Loan Agreement, dated September 30, 2015, and most recently amended on September 30, 2024. The PJMF Revolving Facility is secured by substantially all assets of PJMF. The PJMF Revolving F acility matures on September 30, 2025, but is subject to annual renewals. The borrowings under the PJMF Revolving Facility accrue interest at a variable rate of a one month SOFR plus 1.975 %. The applicable interest rate on the PJMF Revolving facility was 7.2 % for the three months ended September 29, 2024. As of September 29, 2024, t he principal amount of debt outstanding under the PJMF Revolving Facility was approximately $ 5.7 million and is classified as Current portion of long-term debt in the Condensed Consolidated Balance Sheets . The PJMF operating results and the related debt outstanding do not impact the financial covenants under the Company’s 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 rate 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 designated the interest rate swap as a cash flow hedge and 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 Condensed Consolidated Balance Sheets and reclassified to Net interest expense in the Condensed Consolidated Statements of Operations in the same period or periods during which the hedged transaction affect earnings. As of September 29, 2024, we have the following interest rate swap agreements: 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 % The following table provides information on the location and amounts of our current swaps in the accompanying condensed consolidated financial statements (in thousands): Interest Rate Swap Derivatives Balance Sheet Location Fair Value September 29, 2024 Fair Value December 31, 2023 Prepaid and other current assets $ — $ 107 Accrued expenses and other current liabilities $ 479 $ — Other long-term liabilities $ — $ 483 15 The effect of derivative instruments on the accompanying condensed consolidated financial statements is as follows (in thousands): Derivatives - Cash Flow Hedging Relationships Amount of Gain or (Loss) Recognized in AOCL on Derivative Location of (Loss) or Gain Reclassified from AOCL into Income Amount of (Loss) or Gain Reclassified from AOCL into Income Total Net Interest Expense on Condensed Consolidated Statements of Operations Interest rate swaps for the three months ended: September 29, 2024 $ ( 820 ) Interest expense $ 194 $ ( 10,629 ) September 24, 2023 $ 801 Interest expense $ 203 $ ( 11,378 ) Interest rate swaps for the nine months ended: September 29, 2024 $ ( 80 ) Interest expense $ 591 $ ( 32,588 ) September 24, 2023 $ 2,225 Interest expense $ ( 40 ) $ ( 31,674 ) Net interest paid, including payments made or received under the swaps, was $ 13.9 million and $ 34.3 million for the three and nine months ended September 29, 2024, respectively, and $ 11.2 million and $ 28.0 million for the three and nine months ended September 24, 2023, respectively. 16 9. 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. During the first quarter of 2024, the Company commenced the next phase of the International Transformation Plan as approved by the Board, which involves strategic restaurant closures and divestitures in the UK. 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 enhancing profitability across the remaining portfolio of Company-owned restaurants. The execution of this phase of the International Transformation Plan resulted in the closure of 43 underperforming UK Company-owned restaurants and 30 franchised locations closed during the first nine months of 2024. Due to indicators of potential impairment associated with the UK Company-owned and franchised restaurant closures, the Company performed an impairment analysis and determined that the carrying amount of the assets related to the closing UK restaurants were not recoverable. For the three and nine months ended September 29, 2024, we recognized impairment charges of $ 1.1 million and $ 10.1 million for the amount by which the carrying value exceeded the estimated fair value of the asset groups. Fair values were determined based on an income approach, specifically a discounted cash flow ("DCF") model, primarily using estimated sublease income considering market rental rates. Management judgment is involved in determining the estimated fair value and includes uncertainties that under different assumptions and circumstances could drive material changes in the fair value determination. During the second and third quarters of 2024, the Company also completed the refranchising of 60 formerly Company-owned restaurants to primarily existing franchisees, which resulted in a loss on sale of $ 1.7 million during the nine months ended September 29, 2024. We have completed nearly all of the strategic restaurant closures in the UK market and the Company’s efforts are turning towards growth opportunities and mitigating closure-related costs as we complete optimization of the portfolio. The following table summarizes restructuring related costs recorded for the three and nine months ended September 29, 2024 (in thousands): Three Months Ended Nine Months Ended September 29, 2024 September 24, 2024 Long-lived asset impairment charges $ 1,145 $ 10,121 Loss on franchisee notes receivable 171 1,735 Loss on refranchising Company-owned restaurants 7 1,744 Professional services and other related costs 2,029 4,730 Employee termination costs, net (a) 84 452 Operating lease terminations 426 732 Total international transformation costs, net $ 3,862 $ 19,514 (a) Includes noncash reversal of $ 0.1 million related to the forfeiture of unvested stock-based compensation awards during the nine months ended September 29, 2024 The Company has incurred total restructuring related costs of $ 21.7 million since commencement of the International Transformation Plan, all of which were included in General and administrative expenses in the Condensed Consolidated Statements of Operations. Total estimated pre-tax costs associated with the International Transformation Plan are approximately $ 25 million to $ 35 million (inclusive of the $ 21.7 million incurred through the third quarter of 2024), all of which will be recorded within our International segment, and we expect to incur the remainder of these costs through 2024 and 2025. 17 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 Condensed Consolidated Balance Sheets (in thousands): Employee severance Professional services and other related costs Other Total Balance as of December 31, 2023 $ 1,227 $ 527 $ 29 $ 1,783 Charges 542 4,730 — 5,272 Payments ( 1,519 ) ( 4,181 ) ( 29 ) ( 5,729 ) Balance as of September 29, 2024 $ 250 $ 1,076 $ — $ 1,326 10. 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 condensed 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 settlement in principle to resolve the case. Pursuant to the terms of the proposed settlement, in exchange for the Company’s payment of a total aggregate settlement amount of $ 5.0 million and other non-monetary consideration, all claims in the action will be dismissed, the litigation will be terminated, and the Company will receive a release. The settlement amount was recorded in General and administrative expenses in the Condensed Consolidated Statements of Operations in the first quarter of 2022 and remained accrued in Accrued expenses and other current liabilities in the Condensed Consolidated Balance Sheets as of September 29, 2024. The proposed settlement remains subject to approval by the District Court and contains certain customary contingencies. The Company continues to deny any liability or wrongdoing in this matter. 18 11. Divestitures Sale-Leaseback of Texas and Florida Quality Control Centers On August 2, 2024, the Company finalized the sale and subsequent leaseback of two Domestic Quality Control Center properties (“QC Centers”) in Texas and Florida for an aggregate purchase price of $ 46.7 million. Under the terms of the leases, each of which commenced on August 2, 2024, we will lease the QC Centers for 17 years with two five-year renewal options. The Company will pay annual rents under the operating leases of the Texas and Florida QC Centers of $ 2.0 million and $ 1.0 million, respectively, for the first year with annual rents increasing by 2.75 % thereafter. During the three months ended September 29, 2024, we recorded a pre-tax gain on sale of approximately $ 41.3 million, net of transaction costs, which was recorded within General and administrative expenses in the Condensed Consolidated Statements of Operations, and sales proceeds of $ 46.7 million were recorded as investing cash inflows within the Condensed Consolidated Statements of Cash Flows. Refranchising Loss On September 30, 2024, the Company refranchised 15 Domestic Company-owned restaurants to an existing franchisee for a purchase price of approximately $ 2.6 million. In connection with the divestiture, we recorded non-cash charges of $ 1.5 million and $ 5.5 million during the three and nine months ended September 29, 2024 to remeasure the net assets within the disposal group to fair value, less estimated costs to sell. The remeasurement charges were recorded within General and administrative expenses in the Condensed Consolidated Statements of Operations. 12. 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 derives its revenues principally 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. All other business units that do not meet the quantitative thresholds for determining reportable segments, which are not operating segments, we refer to as “all other,” which consists of operations that derive revenues from the sale, principally to Company-owned and franchised restaurants, of information systems and related services used in restaurant operations, including our point-of-sale system, online and other technology-based ordering platforms, as well as franchise contributions to marketing funds. 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 consolidated revenues. 19 The following tables present our segment information. Three Months Ended Nine Months Ended (In thousands) September 29, 2024 September 24, 2023 September 29, 2024 September 24, 2023 Revenues: Domestic Company-owned restaurants $ 168,672 $ 177,195 $ 518,103 $ 532,841 North America franchising 33,831 35,041 103,937 105,824 North America commissaries 210,389 204,887 611,873 624,433 International 39,098 48,481 132,318 128,539 All others 54,817 57,208 162,386 172,754 Total revenues $ 506,807 $ 522,812 $ 1,528,617 $ 1,564,391 Intersegment revenues: North America franchising $ 1,011 $ 1,040 $ 3,101 $ 3,117 North America commissaries 52,063 51,237 151,633 154,640 All others 13,472 16,180 40,422 49,363 Total intersegment revenues $ 66,546 $ 68,457 $ 195,156 $ 207,120 Operating income: Domestic Company-owned restaurants (a) $ ( 1,748 ) $ 6,147 $ 13,388 $ 19,438 North America franchising 31,865 32,234 97,985 97,745 North America commissaries (b) 53,599 10,691 77,337 31,818 International (c) 42 2,270 ( 8,612 ) 13,265 All others 2,834 2,379 8,202 6,879 Unallocated corporate expenses (d) ( 21,106 ) ( 20,792 ) ( 60,346 ) ( 63,859 ) Elimination of intersegment (profits) losses ( 257 ) ( 1,061 ) ( 781 ) ( 710 ) Total operating income $ 65,229 $ 31,868 $ 127,173 $ 104,576 Property and equipment, net: Domestic Company-owned restaurants $ 265,002 North America commissaries 150,527 International 26,902 All others 140,900 Unallocated corporate assets 248,855 Accumulated depreciation and amortization ( 565,678 ) Total property and equipment, net $ 266,508 ___________________________________ (a) The three and nine months ended September 29, 2024 includes $ 1.5 million and $ 5.5 million, respectively, of non-cash impairment and remeasurement charges related primarily to fixed and intangible assets from the refranchising of 15 Domestic restaurants. See “Note 11. Divestitures”. (b) The three and nine months ended September 29, 2024 includes $ 41.3 million pre-tax gain on sale of Texas and Florida QC Center properties, net of transaction costs. See “Note 11. Divestitures”. (c) The three and nine months ended September 29, 2024 includes $ 3.9 million and $ 19.5 million, respectively, of costs related to the International Transformation Plan. See “Note 9. Restructuring” for additional information. The three and nine months ended September 24, 2023 includes $ 1.2 million and $ 2.5 million of costs associated with repositioning the UK portfolio as well as transaction costs related to the acquisition of restaurants from franchisees. (d) The nine months ended September 24, 2023 includes $ 2.0 million of severance and related costs associated with the transition of certain executives. The three and nine months ended September 24, 2023 includes $ 0.6 million for certain legal settlements. 20 Disaggregation of Revenue In the following tables, revenues are disaggregated by major product/service line. The tables also include a reconciliation of the disaggregated revenues by the reportable segment (in thousands): Reportable Segments Three Months Ended September 29, 2024 Major Products/Services Lines Domestic Company-owned restaurants North America franchising North America commissaries International All others Total Company-owned restaurant sales $ 168,672 $ — $ — $ 2,425 $ — $ 171,097 Franchise royalties and fees — 34,842 — 11,999 — 46,841 Commissary sales — — 262,452 18,600 — 281,052 Other revenues — — — 6,074 68,289 74,363 Eliminations — ( 1,011 ) ( 52,063 ) — ( 13,472 ) ( 66,546 ) Total segment revenues 168,672 33,831 210,389 39,098 54,817 506,807 International other revenues (a) — — — ( 6,074 ) 6,074 — Total revenues $ 168,672 $ 33,831 $ 210,389 $ 33,024 $ 60,891 $ 506,807 Reportable Segments Three Months Ended September 24, 2023 Major Products/Services Lines Domestic Company-owned restaurants North America franchising North America commissaries International All others Total Company-owned restaurant sales $ 177,195 $ — $ — $ 14,013 $ — $ 191,208 Franchise royalties and fees — 36,081 — 12,219 — 48,300 Commissary sales — — 256,124 16,695 — 272,819 Other revenues — — — 5,554 73,388 78,942 Eliminations — ( 1,040 ) ( 51,237 ) — ( 16,180 ) ( 68,457 ) Total segment revenues 177,195 35,041 204,887 48,481 57,208 522,812 International other revenues (a) — — — ( 5,554 ) 5,554 — Total revenues $ 177,195 $ 35,041 $ 204,887 $ 42,927 $ 62,762 $ 522,812 Reportable Segments Nine Months Ended September 29, 2024 Major Products/Services Lines Domestic Company-owned restaurants North America franchising North America commissaries International All others Total Company-owned restaurant sales $ 518,103 $ — $ — $ 28,885 $ — $ 546,988 Franchise royalties and fees — 107,038 — 35,598 — 142,636 Commissary sales — — 763,506 48,950 — 812,456 Other revenues — — — 18,885 202,808 221,693 Eliminations — ( 3,101 ) ( 151,633 ) — ( 40,422 ) ( 195,156 ) Total segment revenues 518,103 103,937 611,873 132,318 162,386 1,528,617 International other revenues (a) — — — ( 18,885 ) 18,885 — Total revenues $ 518,103 $ 103,937 $ 611,873 $ 113,433 $ 181,271 $ 1,528,617 21 Reportable Segments Nine Months Ended September 24, 2023 Major Products/Services Lines Domestic Company-owned restaurants North America franchising North America commissaries International All others Total Company-owned restaurant sales $ 532,841 $ — $ — $ 17,031 $ — $ 549,872 Franchise royalties and fees — 108,941 — 36,906 — 145,847 Commissary sales — — 779,073 55,061 — 834,134 Other revenues — — — 19,541 222,117 241,658 Eliminations — ( 3,117 ) ( 154,640 ) — ( 49,363 ) ( 207,120 ) Total segment revenues 532,841 105,824 624,433 128,539 172,754 1,564,391 International other revenues (a) — — — ( 19,541 ) 19,541 — Total revenues $ 532,841 $ 105,824 $ 624,433 $ 108,998 $ 192,295 $ 1,564,391 ___________________________________ (a) Other revenues as reported in the Condensed Consolidated Statements of Operations include $ 6.1 million and $ 18.9 million of revenues for the three and nine months ended September 29, 2024, respectively, and $ 5.6 million and $ 19.5 million of revenues for the three and nine months ended September 24, 2023, respectively, that are part of the International reporting segment. These amounts include marketing fund contributions and sublease rental income from international franchisees in the United Kingdom that provide no significant contribution to 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 Condensed Consolidated Statements of Operations. 22