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 29, 2024 and December 31, 2023 • Consolidated Statements of Operations for the years ended December 29, 2024, December 31, 2023 and December 25, 2022 • Consolidated Statements of Comprehensive Income for the years ended December 29, 2024, December 31, 2023 and December 25, 2022 • Consolidated Statements of Stockholders’ Deficit for the years ended December 29, 2024, December 31, 2023 and December 25, 2022 • Consolidated Statements of Cash Flows for the years ended December 29, 2024, December 31, 2023 and December 25, 2022 • Notes to Consolidated Financial Statements 52 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 29, 2024 and December 31, 2023, the related consolidated statements of operations, comprehensive income, stockholders' deficit and cash flows for each of the three fiscal years in the period ended December 29, 2024, 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 29, 2024 and December 31, 2023, and the results of its operations and its cash flows for each of the three fiscal years in the period ended December 29, 2024, 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 29, 2024, 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 27, 2025 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 disclosure to which it relates. 53 Insurance Reserves Description of the Matter As described in Note 2 to the consolidated financial statements, the Company maintains insurance programs for workers’ compensation, owned and non-owned automobiles, general liability and property insurance coverage. As of December 29, 2024, the Company’s insurance reserve was $65.7 million. The insurance reserves 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 the Company’s claim loss experience. Auditing the insurance reserve was complex and judgmental due to the actuarial valuation methods and assumptions related to the loss development factors and loss trends. How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of controls that address the valuation of the insurance reserve. This included management’s review of the actuarial valuation methods and the assumptions related to the loss development factors and loss trends. To test the valuation of the Company’s insurance reserve, we performed audit procedures that included, among others, assessing the appropriateness of the actuarial valuation methods and testing the significant assumptions discussed above. We also developed an independent range of reserves for comparison to the Company’s recorded amounts, using standard actuarial methods. We involved our actuarial specialists to assist with our audit procedures. /s/ Ernst & Young LLP We have served as the Company’s auditor since 2019. Louisville, Kentucky February 27, 2025 54 Papa John’s International, Inc. and Subsidiaries Consolidated Balance Sheets (In thousands, except per share amounts) December 29, 2024 December 31, 2023 Assets Current assets: Cash and cash equivalents $ 37,955 $ 40,587 Accounts receivable (less allowance for credit losses of $ 8,468 in 2024 and $ 8,353 in 2023) 101,677 104,244 Notes receivable, current portion 4,928 5,199 Income tax receivable 2,214 2,577 Inventories 35,245 36,126 Prepaid expenses and other current assets 48,586 42,285 Total current assets 230,605 231,018 Property and equipment, net 273,272 282,812 Finance lease right-of-use assets, net 28,761 31,740 Operating lease right-of-use assets 184,425 164,158 Notes receivable, less current portion (less allowance for credit losses of $ 15,238 in 2024 and $ 16,092 in 2023) 8,867 12,346 Goodwill 75,460 76,206 Other assets 87,562 76,725 Total assets $ 888,952 $ 875,005 Liabilities, Redeemable noncontrolling interests and Stockholders’ deficit Current liabilities: Accounts payable $ 61,842 $ 74,949 Income and other taxes payable 11,987 17,948 Accrued expenses and other current liabilities 155,579 158,167 Current deferred revenue 15,519 20,427 Current finance lease liabilities 7,280 9,029 Current operating lease liabilities 25,756 24,076 Total current liabilities 277,963 304,596 Deferred revenue 21,287 20,366 Long-term finance lease liabilities 22,885 24,144 Long-term operating lease liabilities 173,557 151,050 Long-term debt, net 741,650 757,422 Other long-term liabilities 64,923 60,192 Total liabilities 1,302,265 1,317,770 Commitments and contingencies (Note 19) Redeemable noncontrolling interests 903 851 Stockholders’ deficit: Common stock ($ 0.01 par value per share; issued 49,283 at December 29, 2024 and 49,235 at December 31, 2023) 493 492 Additional paid-in capital 452,449 452,290 Accumulated other comprehensive loss ( 8,456 ) ( 7,803 ) Retained earnings 241,717 219,027 Treasury stock ( 16,637 shares at December 29, 2024 and 16,747 shares at December 31, 2023, at cost) ( 1,115,729 ) ( 1,123,098 ) Total stockholders’ deficit ( 429,526 ) ( 459,092 ) Noncontrolling interests in subsidiaries 15,310 15,476 Total Stockholders’ deficit ( 414,216 ) ( 443,616 ) Total Liabilities, Redeemable noncontrolling interests and Stockholders’ deficit $ 888,952 $ 875,005 See accompanying notes. 55 Papa John’s International, Inc. and Subsidiaries Consolidated Statements of Operations Year ended (In thousands, except per share amounts) December 29, 2024 December 31, 2023 December 25, 2022 Revenues: Company-owned restaurant sales $ 724,666 $ 760,825 $ 708,389 Franchise royalties and fees 187,032 194,987 186,821 Commissary revenues 899,664 924,648 950,115 Other revenues 83,682 98,037 101,646 Advertising funds revenue 164,343 157,216 155,132 Total revenues 2,059,387 2,135,713 2,102,103 Costs and expenses: Cost of sales 1,478,426 1,558,438 1,557,736 General and administrative expenses 190,515 208,083 215,303 Depreciation and amortization 69,407 64,090 52,032 Advertising funds expense 164,335 157,960 155,937 Total costs and expenses 1,902,683 1,988,571 1,981,008 Refranchising and impairment loss — — ( 12,065 ) Operating income 156,704 147,142 109,030 Net interest expense ( 42,578 ) ( 43,469 ) ( 25,261 ) Income before income taxes 114,126 103,673 83,769 Income tax expense 29,929 20,874 14,420 Net income 84,197 82,799 69,349 Net income attributable to noncontrolling interests ( 711 ) ( 701 ) ( 1,577 ) Net income attributable to the Company $ 83,486 $ 82,098 $ 67,772 Net income attributable to common shareholders $ 83,320 $ 82,098 $ 67,362 Basic earnings per common share $ 2.55 $ 2.49 $ 1.90 Diluted earnings per common share $ 2.54 $ 2.48 $ 1.89 Basic weighted average common shares outstanding 32,717 32,931 35,497 Diluted weighted average common shares outstanding 32,819 33,159 35,717 See accompanying notes. 56 Papa John’s International, Inc. and Subsidiaries Consolidated Statements of Comprehensive Income Year Ended (In thousands) December 29, 2024 December 31, 2023 December 25, 2022 Net income $ 84,197 $ 82,799 $ 69,349 Other comprehensive income (loss), before tax: Foreign currency translation adjustments ( 1,094 ) 1,560 ( 4,970 ) Interest rate swaps (1) 215 1,453 4,757 Other comprehensive income (loss), before tax ( 879 ) 3,013 ( 213 ) Income tax effect: Foreign currency translation adjustments 274 ( 353 ) 1,143 Interest rate swaps (2) ( 48 ) ( 328 ) ( 1,094 ) Income tax effect 226 ( 681 ) 49 Other comprehensive income (loss), net of tax ( 653 ) 2,332 ( 164 ) Comprehensive income before attribution to noncontrolling interests 83,544 85,131 69,185 Less: comprehensive income, redeemable noncontrolling interests ( 274 ) ( 198 ) ( 574 ) Less: comprehensive income, nonredeemable noncontrolling interests ( 437 ) ( 503 ) ( 1,003 ) Comprehensive income attributable to the Company $ 82,833 $ 84,430 $ 67,608 ___________________________________ (1) Amounts reclassified out of accumulated other comprehensive loss into net interest income (expense) include $ 632 , $ 173 and ($ 2,384 ) for the years ended December 29, 2024, December 31, 2023 and December 25, 2022, respectively. (2) The income tax effects of amounts reclassified out of accumulated other comprehensive loss were $( 143 ), $( 39 ) and $ 536 for the years ended December 29, 2024, December 31, 2023 and December 25, 2022, respectively. See accompanying notes. 57 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 31, 2023 32,488 $ 492 $ 452,290 $ ( 7,803 ) $ 219,027 $ ( 1,123,098 ) $ 15,476 $ ( 443,616 ) Net income (1) — — — — 83,486 — 437 83,923 Other comprehensive income, net of tax — — — ( 653 ) — — — ( 653 ) Dividends on common stock ($ 1.84 per share) — — 124 — ( 60,796 ) — — ( 60,672 ) Exercise of stock options 23 1 1,054 — — — — 1,055 Stock-based compensation expense — — 9,590 — — — — 9,590 Issuance of restricted stock 177 — ( 6,539 ) — — 6,539 — — Tax effect of restricted stock awards ( 54 ) — ( 3,619 ) — — — — ( 3,619 ) Distributions to noncontrolling interests — — — — — — ( 603 ) ( 603 ) Other 12 — ( 451 ) — — 830 — 379 Balance at December 29, 2024 32,646 $ 493 $ 452,449 $ ( 8,456 ) $ 241,717 $ ( 1,115,729 ) $ 15,310 $ ( 414,216 ) ___________________________________ (1) Net income for the year ended December 29, 2024 excludes $ 274 allocable to the redeemable noncontrolling interests for our joint venture arrangements. (2) At December 29, 2024, the accumulated other comprehensive loss of $ 8,456 was comprised of net unrealized foreign currency translation loss of $ 8,332 and a net unrealized loss on the interest rate swap agreements of $ 124 . See accompanying notes. 58 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 ($ 1.76 per share) — — 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 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. 59 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 loss, net of tax — — — ( 164 ) — — — ( 164 ) Cash dividends on common stock ($ 1.54 per share) — — 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 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. 60 Papa John’s International, Inc. and Subsidiaries Consolidated Statements of Cash Flows Year ended (In thousands) December 29, 2024 December 31, 2023 December 25, 2022 Operating activities Net income $ 84,197 $ 82,799 $ 69,349 Adjustments to reconcile net income to net cash provided by operating activities: Provision for allowance for credit losses on accounts and notes receivable 2,737 5,393 20,539 Depreciation and amortization 69,407 64,090 52,032 Refranchising and impairment loss 18,340 — 12,065 Deferred income taxes ( 3,037 ) ( 5,991 ) 2,798 Stock-based compensation expense 9,590 17,924 18,388 Gain on disposal of property and equipment ( 41,953 ) — — Other 1,711 146 1,056 Changes in operating assets and liabilities, net of acquisitions: Accounts receivable ( 465 ) ( 4,920 ) ( 28,611 ) Income tax receivable 345 6,212 586 Inventories 851 5,441 ( 7,496 ) Prepaid expenses and other current assets 319 1,212 5,700 Other assets and liabilities ( 8,774 ) ( 11,803 ) ( 13,458 ) Accounts payable ( 10,043 ) 22,031 1,117 Income and other taxes payable ( 5,678 ) 9,087 ( 10,710 ) Accrued expenses and other current liabilities ( 2,035 ) 18,313 5,063 Deferred revenue ( 6,245 ) ( 3,704 ) ( 257 ) Advertising fund assets and liabilities ( 2,635 ) ( 13,175 ) ( 10,353 ) Net cash provided by operating activities 106,632 193,055 117,808 Investing activities Purchases of property and equipment ( 72,484 ) ( 76,620 ) ( 78,391 ) Notes issued ( 154 ) ( 4,338 ) ( 9,296 ) Repayments of notes issued 4,152 4,655 13,045 Acquisitions, net of cash acquired ( 125 ) ( 5,613 ) ( 1,219 ) Proceeds from dispositions and refranchising, net of cash transferred 49,016 3,457 13,588 Other 2,247 3,336 ( 520 ) Net cash used in investing activities ( 17,348 ) ( 75,123 ) ( 62,793 ) Financing activities Net (repayments) proceeds from revolving credit facilities ( 17,268 ) 159,000 115,000 Proceeds from exercise of stock options 1,055 2,252 4,036 Acquisition of Company common stock (including excise tax payment) ( 2,080 ) ( 210,348 ) ( 125,000 ) Dividends paid to common stockholders ( 60,559 ) ( 58,451 ) ( 54,767 ) Tax payments for equity award issuances ( 3,619 ) ( 6,416 ) ( 9,546 ) Distributions to noncontrolling interests ( 825 ) ( 1,320 ) ( 1,211 ) Principal payments on finance leases ( 8,529 ) ( 8,821 ) ( 5,416 ) Other 153 28 664 Net cash used in financing activities ( 91,672 ) ( 124,076 ) ( 76,240 ) Effect of exchange rate changes on cash and cash equivalents ( 244 ) ( 642 ) ( 2,012 ) Change in cash and cash equivalents ( 2,632 ) ( 6,786 ) ( 23,237 ) Cash and cash equivalents at beginning of period 40,587 47,373 70,610 Cash and cash equivalents at end of period $ 37,955 $ 40,587 $ 47,373 See accompanying notes. 61 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 51 countries and territories as of December 29, 2024. 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, 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. The Company has implemented several financial statement changes in this Annual Report on Form 10-K, concurrent with the adoption of Accounting Standard Update (“ASU”) 2023-07, “ Improvements to Reportable Segment Disclosure s.” These changes evolve and modernize our financial statements and footnotes to increase transparency and better reflect management’s key performance metrics. The Consolidated Statements of Operations have been reconfigured to classify revenues and expenses based on the nature of the underlying activities without regard to operating segment. This reconfiguration and the resulting reclassifications did not change previously reported Total revenues, Total costs and expenses, Operating income or Net income for any period. The Consolidated Statements of Cash Flows include reclassifications to a new line item that include the net operating cash flows of the consolidated advertising funds. The reclassifications did not change Net cash provided by operating activities, Net cash used in investing activities or Net cash used in financing activities for any period. Presentation changes to the Consolidated Statements of Operations and the Consolidated Statements of Cash Flows have been applied retrospectively, and as such, the results from the years ended December 31, 2023 and December 25, 2022 have been reclassified for consistency with the current year presentation. Additionally, during the year ended December 29, 2024, the Company updated its internal cost allocation methodology to better reflect current levels of time and effort spent managing our different segments. These updates resulted in a higher allocation of previously unallocated corporate expenses to primarily the North America franchising and International segments. This update in methodology does not impact total reported expenses, and has been implemented prospectively beginning with the year ended December 29, 2024. The comparative information has not been restated. Variable Interest Entity Papa Johns 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 .” 62 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, property and equipment, net and impairment of long-lived assets, 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 Company from a customer, are excluded from revenue. Delivery costs, including freight associated with our Domestic commissaries 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: Company-owned Restaurant Sales Our Company-owned restaurants principally generate revenues from retail sales of pizza and other food and beverage products. 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. 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. 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. 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 63 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 at a fixed markup and are recognized as revenue upon shipment of the related products to the franchisees. Payments are generally due within 30 days. Franchisees have the opportunity to earn incentive-based rebates as they increase volume and open new restaurants, which are recorded as a reduction to Commissary revenues as they are earned based on the estimated rebate amount. Various other incentive programs are offered to franchisees related to new restaurant openings, including new restaurant equipment incentives and discounts on initial commissary orders. New restaurant equipment incentives are recorded as a reduction of Commissary revenues over the term of the related incentive agreement, which is generally three to five years . Other Revenues Other revenues primarily includes revenues derived from our online and mobile ordering business, fees for information services, as well as our previously wholly-owned print and promotions subsidiary. 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. Our gift cards do not have expiration dates and we do not deduct non-usage fees. 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. Rental income, primarily derived from properties leased by the Company and subleased to franchisees in the United Kingdom, is recognized on a straight-line basis over the respective operating lease terms. Advertising Funds Revenue Advertising funds revenue primarily represents contributions made to PJMF, our national marketing fund, via a required established percentage of monthly restaurant sales (subject, in certain instances, to lower rates based on certain incentives). Advertising funds revenue also contains contributions made to a marketing fund designated for Canada, Alaska, and Hawaii, other Domestic local marketing funds (“Co-op” or “Co-operative” funds), and our international marketing funds. 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. Advertising Funds Expense Advertising funds expense includes the costs of developing and administering our advertising and promotional activities, which are administered through PJMF, our marketing fund for Canada, Alaska, and Hawaii, various local market Co-operative advertising funds for the Domestic Papa Johns system, and through our international marketing funds to support our International business. This includes the cost of advertising via television, print, digital, mobile marketing and social media channels as well as local restaurant activities such as mail coupons, door hangers and promotional items. 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. Marketing expenses incurred by PJMF 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 64 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 at fair value on the grant date, net of projected forfeitures, and is recognized over the vesting period. We have elected a policy to estimate forfeitures in determining the amount of stock-based employee compensation expense. Management evaluates its award grants and modifications and will adjust the fair value if any are determined to be spring-loaded. See “Note 20. Equity Compensation” for additional information. 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. 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 of lifetime losses, 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. We establish an allowance for credit losses for franchisee notes receivables to reduce the outstanding notes receivable to their net realizable values based on estimated lifetime losses derived from 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 2024 and 2023 and $ 1.3 million in 2022 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 $ 59.6 million in 2024, $ 54.3 million in 2023 and $ 45.6 million in 2022. 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 $ 4.4 million in 2024 and $ 4.1 million in 2023 and 2022. The unamortized information systems development costs approximated $ 10.3 million and $ 9.9 million as of December 29, 2024 and December 31, 2023, respectively. 65 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, and China operations. 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 performed our annual goodwill impairment testing as of the first day of the fourth quarter of 2024. We elected to perform a qualitative assessment for our Domestic Company-owned restaurants and China reporting units. As a result of our qualitative analysis, we determined that it was more-likely-than-not that the fair values of these reporting units were greater than their carrying amounts. Due to adverse macroeconomic conditions in the United Kingdom (“UK”) and declines in sales from Papa Johns restaurants in the UK business since our most recent quantitative analysis, we elected to perform a quantitative assessment for the UK reporting unit with the assistance of a third-party valuation specialist. The assessment entailed estimating the UK’s fair value, which involved using a combination of both income and market approaches, and comparing these estimations to its carrying value. Our income approach utilized discounted projected net cash flows, which required estimates for future revenue growth rates, operating margins, and a weighted-average cost of capital, which are the most sensitive inputs and require management estimation. Our market approach, which includes the guideline public company method, utilized pricing multiples derived from an analysis of comparable publicly traded companies. We believe the comparable companies we evaluate as market participants serve as an appropriate reference because those companies have similar risks, participate in similar markets, provide similar products and services for their customers and compete with us directly. Based on our quantitative assessment, the fair value of the UK reporting unit substantially exceeded its carrying value, and thus there was no impairment to goodwill. Subsequent to completing our goodwill impairment tests and through the year ended December 29, 2024, 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. Deferred tax assets and liabilities are recorded within Other assets and Other long-term liabilities on the 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 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 $ 0.8 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 complex due to the actuarial valuation methods utilized in determining the reserve and the assumptions related to the loss development factors and loss trends. The estimated insurance claims losses could be 66 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 29, 2024, our insurance reserve was $ 65.7 million as compared to $ 56.8 million as of December 31, 2023 and was primarily related to auto liability and workers’ compensation claims. Of these amounts, approximately $ 32.0 million and $ 27.2 million were recorded in Accrued expenses and other current liabilities and $ 33.7 million and $ 29.5 million were recorded in Other long-term liabilities on the Consolidated Balance Sheets as of December 29, 2024 and December 31, 2023, respectively. Our reserves include claim costs above our retention that have a corresponding receivable. Our insurance receivable for claims above retention totaled $ 45.2 million and $ 34.5 million as of December 29, 2024 and December 31, 2023, respectively. Of these amounts, approximately $ 22.3 million and $ 16.8 million were recorded in Prepaid expenses and other current assets, and $ 22.9 million and $ 17.8 million were recorded in Other assets on the Consolidated Balance Sheets as of December 29, 2024 and December 31, 2023, 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. Noncontrolling Interests Papa Johns has joint venture arrangements in which there are noncontrolling interests held by third parties that included 98 restaurants at December 29, 2024 and December 31, 2023. 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 Recently Adopted Accounting Standards 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 67 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 has expanded its annual segment disclosures in compliance with ASU 2023-07; see “Note 23. Segment Information”. The additional interim segment disclosures will be required beginning in the first quarter of 2025. Accounting Standards Not Yet Adopted 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. In November 2024, the FASB issued ASU No. 2024-03, “ Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses.” The ASU includes required disclosures in the notes to the consolidated financial statements of specific information about certain costs and expenses. The amendments are effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027. Early adoption is permitted and the standard may be applied either prospectively or retrospectively. 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 restaurant support center located in Atlanta, Georgia. Other Domestic leases include tractor and trailer leases used by our distribution subsidiary as well as commissary equipment. Additionally, the Company leases a significant number of restaurants within the UK, many of which contain early termination rights exercisable by the Company; these restaurants are then subleased to franchisees or operated as Company-owned restaurants. 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 Cost of sales 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 68 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 29, 2024 and December 31, 2023 (in thousands): Leases Classification December 29, 2024 December 31, 2023 Assets Finance lease assets, net Finance lease right-of-use assets, net $ 28,761 $ 31,740 Operating lease assets, net Operating lease right-of-use assets 184,425 164,158 Total lease assets $ 213,186 $ 195,898 Liabilities Current finance lease liabilities Current finance lease liabilities $ 7,280 $ 9,029 Current operating lease liabilities Current operating lease liabilities 25,756 24,076 Noncurrent finance lease liabilities Long-term finance lease liabilities 22,885 24,144 Noncurrent operating lease liabilities Long-term operating lease liabilities 173,557 151,050 Total lease liabilities $ 229,478 $ 208,299 Lease costs for the years ended December 29, 2024, December 31, 2023 and December 25, 2022 were as follows: (Dollars in thousands) Year Ended December 29, 2024 December 31, 2023 December 25, 2022 Finance lease: Amortization of right-of-use assets $ 8,831 $ 8,949 $ 5,704 Interest on lease liabilities 1,420 1,542 1,029 Operating lease: Operating lease cost 43,345 41,514 42,815 Short-term lease cost 4,237 4,239 4,171 Variable lease cost 11,096 10,005 9,129 Total lease costs 68,929 66,249 62,848 Sublease income ( 9,748 ) ( 9,842 ) ( 11,654 ) Total lease costs, net of sublease income $ 59,181 $ 56,407 $ 51,194 69 Future minimum lease payments under contractually-obligated leases and associated sublease income as of December 29, 2024 were as follows (in thousands): Fiscal Year Finance Lease Costs Operating Lease Costs Expected Sublease Income 2025 $ 9,077 $ 34,544 $ 7,197 2026 8,077 37,343 6,154 2027 6,822 31,611 5,259 2028 4,159 26,169 4,389 2029 3,115 21,485 3,671 Thereafter 2,497 113,256 6,639 Total future minimum lease payments 33,747 264,408 33,309 Less imputed interest ( 3,582 ) ( 65,095 ) Total present value of lease liabilities $ 30,165 $ 199,313 Lessor Operating Leases The Company subleases certain retail space to our franchisees in the UK which are primarily operating leases. At December 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 $ 9.7 million, $ 9.8 million and $ 11.7 million for the years ended December 29, 2024, December 31, 2023 and December 25, 2022, 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 81 Domestic leases. These leases have varying terms, the latest of which expires in 2034. As of December 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 approximately $ 10.4 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. 70 Supplemental Cash Flow & Other Information The following table presents supplemental cash flow information related to leases for the years ended December 29, 2024, December 31, 2023 and December 25, 2022: (Dollars in thousands) Year Ended December 29, 2024 December 31, 2023 December 25, 2022 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from finance leases $ 1,416 $ 1,542 $ 1,029 Financing cash flows from finance leases $ 8,529 $ 8,821 $ 5,416 Operating cash flows from operating leases (a) $ 40,488 $ 37,814 $ 35,573 Right-of-use assets obtained in exchange for new finance lease liabilities $ 9,076 $ 16,734 $ 9,875 Right-of-use assets obtained in exchange for new operating lease liabilities $ 65,134 $ 24,380 $ 53,869 Cash received from sublease income $ 7,442 $ 8,855 $ 10,847 Weighted-average remaining lease term (in years): Finance leases 4.2 4.3 4.4 Operating leases 9.2 7.8 8.4 Weighted-average discount rate: Finance leases 5.0 % 4.9 % 4.6 % Operating leases 5.8 % 5.6 % 5.6 % ______________________________ (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 Advertising funds revenue and Advertising funds expense. PJMF also has a wholly-owned subsidiary, Papa Card, Inc., which administers the Company’s gift card programs. 71 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 29, 2024 December 31, 2023 Assets Current assets: Cash and cash equivalents $ 12,038 $ 5,494 Accounts receivable, net 17,854 18,026 Prepaid expenses and other current assets 2,683 2,223 Total current assets 32,575 25,743 Deferred income taxes 1,019 674 Other assets 122 — Total assets $ 33,716 $ 26,417 Liabilities Current liabilities: Accounts payable $ — $ 1,509 Income and other taxes payable 298 — Accrued expenses and other current liabilities 30,324 22,245 Current deferred revenue 4,911 4,327 Total current liabilities 35,533 28,081 Deferred revenue 2,783 2,627 Total liabilities $ 38,316 $ 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 within Current deferred revenue and Deferred revenue on the Consolidated Balance Sheets. During the years ended December 29, 2024 and December 31, 2023, the Company recognized $ 36.9 million and $ 34.5 million in revenue, respectively, related to deferred revenue. The following table includes a breakout of contract liability balances (in thousands): December 29, 2024 December 31, 2023 Change Unearned franchise fees and royalties $ 21,860 $ 20,564 $ 1,296 Unredeemed gift card liabilities 7,694 6,955 739 Customer loyalty program obligations 7,252 13,274 ( 6,022 ) Total contract liabilities $ 36,806 $ 40,793 $ ( 3,987 ) 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 29, 2024 and December 31, 2023, the contract assets were approximately $ 16.6 million and $ 7.9 million, respectively. For the years ended December 29, 2024 and December 31, 2023, revenue was reduced approximately $ 5.9 million and $ 3.9 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. 72 Transaction Price Allocated to the Remaining Performance Obligations The following table (in thousands) includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied at the end of the reporting period. Performance Obligations by Period Less than 1 Year 1-2 Years 2-3 Years 3-4 Years 4-5 Years Thereafter Total Franchise fees $ 3,356 $ 2,970 $ 2,761 $ 2,510 $ 2,276 $ 5,381 $ 19,254 Approximately $ 2.6 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 100.0 million shares of common stock authorized as of December 29, 2024 and December 31, 2023, respectively. The Company’s outstanding shares of common stock, net of repurchased common stock held as treasury stock, were 32.6 million shares at December 29, 2024 and 32.5 million shares at December 31, 2023, respectively. 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. The following table summarizes our repurchase activity for the years ended December 29, 2024, December 31, 2023 and December 25, 2022, 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 29, 2024 — $ — $ — $ 90,160 December 31, 2023 2,523 $ 83.10 $ 209,640 $ 90,160 December 25, 2022 1,343 $ 93.07 $ 125,000 $ 299,800 (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 $ 2.1 million related to a 1% excise tax incurred under the Inflation Reduction Act of 2022. These excise taxes were paid during the year ended December 29, 2024 and are classified as a financing cash outflow within the Consolidated Statements of Cash Flows. We did no t repurchase any shares subsequent to December 29, 2024. Approximately $ 90.2 million remained available under the Company’s share repurchase program as of February 21, 2025. 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. Starboard’s Chief Executive Officer is Jeffrey Smith, who previously served as the Company’s Chairman of the Board until his resignation on March 1, 2023. The timing and volume of share repurchases under the Company’s share repurchase programs may be executed at the discretion of management on an opportunistic basis, subject to market and business conditions, access to borrowings, regulatory requirements and other factors, or pursuant to trading plans or other arrangements. Repurchases under the programs may be made through open market, block, and privately negotiated transactions, including Rule 10b5-1 plans, at times and in such amounts as management deems appropriate. Repurchases under the Company’s share repurchase programs may be commenced or suspended from time to time at the Company’s discretion without prior notice. Funding 73 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 $ 60.6 million ($ 1.84 per share), $ 58.5 million ($ 1.76 per share) and $ 54.8 million ($ 1.54 per share) to common stockholders for the years 2024, 2023 and 2022, respectively. On January 24, 2025, our Board of Directors declared a first quarter 2025 dividend of $ 0.46 per common share, representing a $ 15.2 million aggregate dividend that was paid on February 21, 2025 to stockholders of record as of the close of business on February 10, 2025. The declaration and payment of any future dividends will be at the discretion of our Board of Directors. 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 unvested shares have rights to receive non-forfeitable dividends. Under the two-class method, total dividends provided to the holders of participating securities are subtracted from net income attributable to the Company in determining net income attributable to common shareholders. The Company may, at its sole discretion, require any dividends paid on the unvested restricted stock awards to be paid in shares rather than in cash, which could then be forfeited if the employee forfeits the underlying awards. 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 earnings per common share and diluted earnings per common share for the years ended December 29, 2024, December 31, 2023 and December 25, 2022 are as follows (in thousands, except per share data): 2024 2023 2022 Calculation of net income attributable to common shareholders Net income attributable to the Company $ 83,486 $ 82,098 $ 67,772 Dividends paid to participating securities ( 166 ) — ( 306 ) Net income attributable to participating securities — — ( 104 ) Net income attributable to common shareholders $ 83,320 $ 82,098 $ 67,362 Basic earnings per common share Basic weighted average common shares outstanding 32,717 32,931 35,497 Basic earnings per common share $ 2.55 $ 2.49 $ 1.90 Diluted earnings per common share Weighted average common shares outstanding 32,717 32,931 35,497 Dilutive effect of outstanding equity awards (a) 102 228 220 Diluted weighted average common shares outstanding 32,819 33,159 35,717 Diluted earnings per common share $ 2.54 $ 2.48 $ 1.89 ______________________________ (a) Excludes 342,440 and 194,846 shares underlying equity awards for the year ended December 29, 2024 and December 31, 2023, respectively, as the effect of including such awards would have been anti-dilutive ( none in 2022). See “Note 20. Equity Compensation” for additional information regarding our equity awards, including restricted stock. 74 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. Our financial assets and liabilities that were measured at fair value on a recurring basis as of December 29, 2024 and December 31, 2023 are as follows: Carrying Value Fair Value Measurements (in thousands) Level 1 Level 2 Level 3 December 29, 2024 Financial assets: Cash surrender value of life insurance policies (a) $ 30,775 $ 30,775 $ — $ — Financial liabilities: Interest rate swaps (b) $ 161 $ — $ 161 $ — 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. 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”). There were no transfers among levels within the fair value hierarchy during fiscal 2024 or 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 December 29, 2024 and December 31, 2023: December 29, 2024 December 31, 2023 (in thousands) Carrying Value Fair Value Carrying Value Fair Value 3.875 % Senior Notes $ 400,000 $ 356,000 $ 400,000 $ 352,500 75 9. Noncontrolling Interests As of December 29, 2024 and December 31, 2023 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. Net income attributable to these joint ventures for the years ended December 29, 2024, December 31, 2023 and December 25, 2022 was as follows (in thousands): 2024 2023 2022 Papa John’s International, Inc. $ 1,658 $ 1,672 $ 3,136 Redeemable noncontrolling interests 274 198 574 Nonredeemable noncontrolling interests 437 503 1,003 Total net income $ 2,369 $ 2,373 $ 4,713 The following summarizes changes in our redeemable noncontrolling interests in 2024 and 2023 (in thousands): Balance at December 25, 2022 $ 1,217 Net income 198 Distributions ( 564 ) Balance at December 31, 2023 $ 851 Net income 274 Distributions ( 222 ) Balance at December 29, 2024 $ 903 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 25, 2022 $ 6,718 $ 14,499 Current period provision for expected credit losses, net (a) 3,609 1,784 Write-offs charged against the allowance ( 1,974 ) ( 191 ) Balance at December 31, 2023 $ 8,353 $ 16,092 Current period provision for expected credit losses, net (b) 1,613 1,124 Write-offs charged against the allowance ( 1,498 ) ( 1,978 ) Balance at December 29, 2024 $ 8,468 $ 15,238 ______________________________ (a) During the year ended December 31, 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 United Kingdom and $ 0.9 million of reserves for certain accounts receivable related to the conflict in the Middle East. (b) During the year ended December 29, 2024, the Company recorded $ 1.7 million of reserves for certain notes receivable associated with the termination of specific franchisees in the United Kingdom as part of our International Transformation Plan. See “Note 16. Restructuring” for further information. 76 11. Goodwill The following summarizes changes in the Company’s goodwill, by reportable segment (in thousands): Domestic Company- owned Restaurants International All Other Total 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 Divestitures (b) — ( 453 ) — ( 453 ) Acquisition accounting adjustments (c) — ( 95 ) — ( 95 ) Foreign currency adjustments — ( 198 ) — ( 198 ) Balance at December 29, 2024 $ 56,609 $ 18,851 $ — $ 75,460 ______________________________ (a) Goodwill recognized during the year ended December 31, 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. (b) During the year ended December 29, 2024, the Company disposed of $ 0.5 million of goodwill in connection with the refranchising of 60 formerly Company-owned restaurants in the United Kingdom. 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. See “Note 16. Restructuring” and “Note 22. Divestitures” for further information. (c) Acquisition accounting adjustments were recorded during the year ended December 29, 2024 to increase property and equipment to fair value as a result of the finalization of our valuation of acquired property and equipment from the UK franchisee acquisitions. See “Note 24. Acquisitions” for further information. 12. Debt Long-term debt, net consists of the following (in thousands): December 29, 2024 December 31, 2023 Senior notes $ 400,000 $ 400,000 Revolving facilities 346,732 364,000 Outstanding debt 746,732 764,000 Unamortized debt issuance costs ( 5,082 ) ( 6,578 ) Total long-term debt, net $ 741,650 $ 757,422 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). 77 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. In connection with the Credit Agreement, the Company recorded $ 2.1 million of debt issuance costs, which are being amortized into Net interest expense over the term of the Credit Agreement. The Credit Agreement was amended in 2023 to update the borrowing benchmark from LIBOR to SOFR with a fixed credit spread adjustment of 0.10 %. The remaining availability under the PJI Revolving Facility was $ 253.3 million as of December 29, 2024. 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 29, 2024. 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. 78 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 Facility 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 plu s 1.975 % . There was no debt outstanding under the PJMF Revolving Facility as of December 29, 2024 or December 31, 2023. The PJMF operating results and the related debt outstanding do not impact the financial covenants under the Credit Agreement. Derivative Financial Instruments The Company has historically entered into interest rate swaps with the objective of mitigating the Company’s exposure to the impact of interest rate changes associated with our variable rate debt under the PJI Revolving Facility. As of December 29, 2024, 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 % We have designated the interest rate swaps as cash flow hedges and assess hedge effectiveness on a quarterly basis. 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. We recognized income of $ 0.2 million ($ 0.2 million after tax), $ 1.5 million ($ 1.1 million after tax) and $ 4.8 million ($ 3.7 million after tax) in 2024, 2023 and 2022, 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 29, 2024 Fair Value December 31, 2023 Prepaid expenses and other current assets $ — $ 107 Accrued expense and other current liabilities $ 161 $ — Other long-term liabilities $ — $ 483 As of December 29, 2024, the remaining $ 0.2 million interest rate swap liability is current and thus will be reclassified into interest expense during the next twelve months . 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: 2024 $ 167 Net interest expense $ 632 $ ( 42,578 ) 2023 $ 1,125 Net interest expense $ 173 $ ( 43,469 ) 2022 $ 3,663 Net interest expense $ ( 2,384 ) $ ( 25,261 ) Interest paid, including payments made or received under the swaps, was $ 41.1 million , $ 37.3 million and $ 24.4 million in fiscal 2024, 2023 and 2022, respectively. 79 13. Property and Equipment, Net Property and equipment, net consists of the following (in thousands): December 29, 2024 December 31, 2023 Land $ 26,744 $ 28,584 Buildings and improvements 77,515 91,448 Leasehold improvements 159,979 154,441 Equipment and other 572,978 542,608 Construction in progress 10,868 25,610 Total property and equipment 848,084 842,691 Accumulated depreciation and amortization ( 574,812 ) ( 559,879 ) Property and equipment, net $ 273,272 $ 282,812 14. Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities consist of the following (in thousands): December 29, 2024 December 31, 2023 Marketing $ 35,751 $ 37,628 Salaries, benefits and bonuses 33,208 36,491 Insurance reserves, current 32,004 27,240 Purchases 19,386 24,198 Interest accrual 8,777 8,167 Litigation accrual (a) 5,000 5,000 Other 21,453 19,443 Total $ 155,579 $ 158,167 ______________________________ (a) See “Note 19. Litigation, Commitments and Contingencies” for additional information. 15. Other Long-term Liabilities Other long-term liabilities consist of the following (in thousands): December 29, 2024 December 31, 2023 Insurance reserves $ 33,677 $ 29,512 Deferred compensation plan (a) 28,236 28,342 Other 3,010 2,338 Total $ 64,923 $ 60,192 ______________________________ (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 80 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, which involved 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. This resulted in the closure of 43 underperforming UK Company-owned restaurants and 30 franchised locations during 2024. Due to indicators of potential impairment associated with the UK Company-owned and franchised restaurant closures, the Company performed impairment analyses throughout the year and determined that the carrying amount of the assets related to the closing UK restaurants were not recoverable. For the year ended December 29, 2024, we recognized impairment charges of $ 11.7 million for the amount by which the carrying value exceeded the estimated fair value of the asset groups. Fair values were determined based on the income approach, specifically a discounted cash flow model, primarily using estimated sublease income considering market rental rates. Management judgement 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 . We have completed substantially all of the strategic restaurant closures in the UK market and the Company’s efforts have turned towards growth opportunities and mitigating closure-related costs as we complete the optimization of the portfolio. 81 The following table summarizes restructuring related costs recorded for the years ended December 29, 2024 and December 31, 2023, respectively (in thousands): 2024 2023 Long-lived asset impairment charges $ 11,664 $ — Loss on franchisee notes receivable 1,744 — Loss on refranchising Company-owned restaurants 1,745 — Professional services and other related costs 8,599 677 Employee termination costs, net (a) 390 1,501 Lease terminations and other lease related costs (b) 3,131 — Total international transformation costs, net $ 27,273 $ 2,178 (a) Includes noncash reversal of $ 0.1 million related to the forfeiture of unvested stock-based compensation awards during the year ended December 29, 2024. (b) Includes $ 1.1 million in connection with early lease terminations and $ 2.1 million related to our existing leases for closed stores. The Company has incurred total restructuring related costs of $ 29.5 million since commencement of the International Transformation Plan, all of which were included in General and administrative expenses in the Consolidated Statements of Operations. Total estimated pre-tax costs associated with the International Transformation Plan are approximately $ 30.0 million to $ 35.0 million (inclusive of the cumulative $ 29.5 million incurred through the fourth quarter of 2024), all of which will be recorded within our International segment, and we expect to incur the remainder of these costs in 2025 . The following table presents changes in the balance of accrued expenses relating to approved initiatives, which are recorded in Accrued expenses and other current liabilities in the Consolidated Balance Sheets (in thousands): Employee severance Professional services and other related costs Lease terminations and other lease related costs Total Balance as of December 31, 2023 $ 1,227 $ 556 $ — $ 1,783 Charges 480 8,599 2,073 11,152 Payments ( 1,574 ) ( 6,820 ) — ( 8,394 ) Balance as of December 29, 2024 $ 133 $ 2,335 $ 2,073 $ 4,541 17. Income Taxes The following table presents the domestic and foreign components of income before income taxes for 2024, 2023 and 2022 (in thousands): 2024 2023 2022 Domestic income $ 126,681 $ 91,218 $ 65,434 Foreign income ( 12,555 ) 12,455 18,335 Total income $ 114,126 $ 103,673 $ 83,769 Included within the foreign income before income taxes above is $ 19.4 million, $ 24.1 million, and $ 23.6 million of foreign sourced income subject to foreign withholding taxes in 2024, 2023, and 2022, respectively. 82 A summary of the expense (benefit) for income tax follows (in thousands): 2024 2023 2022 Current: Federal $ 22,443 $ 20,742 $ 3,496 Foreign 6,844 3,916 5,335 State and local 3,679 2,207 2,791 Deferred: Federal ( 3,848 ) ( 4,115 ) 4,243 Foreign 2,181 ( 558 ) ( 1,152 ) State and local ( 1,370 ) ( 1,318 ) ( 293 ) Total income tax expense $ 29,929 $ 20,874 $ 14,420 The reconciliation of income tax computed at the U.S. federal statutory rate to income tax expense for the years ended December 29, 2024, December 31, 2023 and December 25, 2022 is as follows in both dollars and as a percentage of income before income taxes (dollars in thousands): 2024 2023 2022 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 $ 23,965 21.0 % $ 21,771 21.0 % $ 17,591 21.0 % State and local income taxes 2,176 1.9 % 1,866 1.8 % 1,422 1.7 % Foreign income taxes 7,242 6.4 % 3,755 3.6 % 4,605 5.5 % Income of consolidated partnerships attributable to noncontrolling interests ( 161 ) ( 0.1 ) % ( 159 ) ( 0.2 ) % ( 355 ) ( 0.4 ) % Non-qualified deferred compensation plan expense (income) ( 750 ) ( 0.7 ) % ( 752 ) ( 0.7 ) % 1,278 1.5 % Excess tax (benefits) on equity awards 1,027 0.9 % ( 539 ) ( 0.5 ) % ( 3,902 ) ( 4.7 ) % Tax credits ( 4,413 ) ( 3.9 ) % ( 7,003 ) ( 6.8 ) % ( 8,981 ) ( 10.7 ) % Non-deductible executive compensation ( 216 ) ( 0.2 ) % 1,341 1.3 % 2,450 2.9 % Foreign-derived intangible income ( 842 ) ( 0.7 ) % ( 1,263 ) ( 1.2 ) % ( 1,452 ) ( 1.7 ) % US deferred offset on foreign deferreds ( 1,883 ) ( 1.7 ) % 270 0.3 % 1,183 1.4 % Foreign tax deduction ( 1,657 ) ( 1.5 ) % — — % — — % Foreign valuation allowance 6,597 5.8 % 1,386 1.3 % 67 0.1 % Other ( 1,156 ) ( 1.0 ) % 201 0.2 % 514 0.6 % Total $ 29,929 26.2 % $ 20,874 20.1 % $ 14,420 17.2 % 83 Significant deferred tax assets (liabilities) follow (in thousands): December 29, 2024 December 31, 2023 Accrued liabilities $ 12,660 $ 12,735 Accrued bonuses 3,148 2,284 Other liabilities and asset reserves 15,536 15,315 Equity awards 7,542 7,988 Lease liabilities 50,500 45,550 Other 5,616 2,825 Net operating losses 18,028 13,759 Foreign tax credit carryforwards 23,071 23,888 Total deferred tax assets 136,101 124,344 Valuation allowances ( 44,463 ) ( 37,609 ) Total deferred tax assets, net of valuation allowances 91,638 86,735 Deferred expenses ( 6,470 ) ( 5,719 ) Accelerated depreciation ( 19,144 ) ( 23,012 ) Goodwill ( 8,090 ) ( 7,881 ) Right-of-use assets ( 45,803 ) ( 41,513 ) Other ( 1,384 ) ( 1,071 ) Total deferred tax liabilities ( 80,891 ) ( 79,196 ) Net deferred tax assets $ 10,747 $ 7,539 The following table summarizes changes in the Company’s valuation allowances on deferred tax (in thousands): Balance at December 25, 2022 $ 32,052 Charged to costs and expenses 5,470 Other 87 Balance at December 31, 2023 $ 37,609 Charged to costs and expenses 6,642 Other 212 Balance at December 29, 2024 $ 44,463 The Company had approximately $ 11.7 million and $ 10.3 million of state deferred tax assets in separate company jurisdictions primarily related to state net operating loss carryforwards as of December 29, 2024 and December 31, 2023, 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 $ 11.7 million and $ 10.3 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 29, 2024 and December 31, 2023, respectively. The Company had approximately $ 3.8 million and $ 3.0 million of state deferred tax assets related to state income tax credit carryforwards as of December 29, 2024 and December 31, 2023, 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 $ 0.5 million and $ 0.7 million against these state deferred tax assets at December 29, 2024 and December 31, 2023, respectively. We believe that a portion of these state income tax credit carryforwards would not be realizable before expiration. The Company had approximately $ 9.2 million and $ 4.6 million of foreign net operating loss, capital loss carryovers and foreign deferred tax assets as of December 29, 2024 and December 31, 2023, respectively. The Company had approximately $ 9.2 million and $ 2.7 million of valuation allowances primarily related to the foreign net operating losses, 84 foreign capital losses and foreign deferred tax assets at both December 29, 2024 and December 31, 2023. A substantial majority of our foreign net operating losses do not have an expiration date. In addition, the Company had approximately $ 23.1 million and $ 23.9 million in foreign tax credit carryforwards as of December 29, 2024 and December 31, 2023, respectively, that expire ten years from inception in years 2028 through 2034. 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 $ 23.1 million and $ 23.9 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 29, 2024 and December 31, 2023, respectively. Cash for income taxes paid were $ 36.3 million in 2024, $ 12.5 million in 2023 and $ 11.7 million in 2022. 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 2020. The Company is currently undergoing examinations by various tax authorities. The Company had $ 1.3 million of unrecognized tax benefits at December 29, 2024 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 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 Additions for tax positions of prior years 276 Reductions for tax positions of prior years ( 45 ) Balance at December 29, 2024 $ 1,289 The Company recognizes accrued interest and penalties related to unrecognized tax benefits as part of income tax expense. The Company has accrued approximately $ 0.2 million for the payment of interest and penalties as of December 29, 2024 and December 31, 2023. 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 Johns-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 85 already contemplated under the Original Endorsement Agreement under the Amendment. In addition, the Company donated one U.S. dollar for each unit of the pizza sold in the United States and one Canadian dollar for each unit sold in Canada to The Papa John’s Foundation for Building Community. 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 vested 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. The one-year extension referenced above was entered into and will be effective for the term April 1, 2025, to March 31, 2026. As consideration for the rights and services granted under this Extension Agreement, the Company and PJMF agreed to pay ABG-Shaq cash payments totaling $ 3.5 million plus a $ 100,000 donation to The Shaquille O’Neal Foundation. 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 and the remaining $ 250,000 paid during 2024. On February 22, 2024, Mr. O’Neal informed the Board of Directors of his decision not to stand for re-election as a director at the Company’s 2024 annual meeting of stockholders. His term expired at the annual meeting on May 2, 2024, at which point Mr. O’Neal was no longer considered a member of management and thus is no longer considered to be a related party under ASC 850. 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 settlement in principle to resolve the case. Pursuant to the terms of the proposed settlement, in exchange for the Company’s 86 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 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. 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 $ 19.3 million as of December 29, 2024. 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 2034. As of December 29, 2024, 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 $ 10.4 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 2.0 million shares of common stock authorized for issuance and remaining available under the 2018 Omnibus Incentive Plan as of December 29, 2024, 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 $ 9.6 million in 2024, $ 17.9 million in 2023 and $ 18.4 million in 2022. At December 29, 2024, there was $ 17.4 million of unrecognized compensation cost related to unvested awards, of which the Company expects to recognize $ 10.9 million in 2025, $ 4.7 million in 2026, $ 1.4 million in 2027 and $ 0.4 million in 2028. Stock Options Options exercised, which were issued from authorized shares, included 23,000 shares in 2024, 43,000 shares in 2023 and 82,000 shares in 2022. The total intrinsic value of the options exercised during 2024, 2023 and 2022 was $ 0.5 million, $ 1.2 million and $ 3.4 million, respectively. There were no options granted in 2024, 2023 or 2022. Information pertaining to option activity during 2024 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 31, 2023 191 $ 57.35 Exercised ( 23 ) 46.64 Cancelled ( 5 ) 61.01 Outstanding at December 29, 2024 163 $ 58.70 2.61 $ — Exercisable at December 29, 2024 163 $ 58.70 2.61 $ — Restricted Stock We granted shares of restricted stock that are time-based and generally vest in equal installments over three years ( 301,000 in 2024, 190,000 in 2023 and 165,000 in 2022). Upon vesting, the shares are issued from treasury stock. These restricted 87 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 nonvested awards receive non-forfeitable dividends. We declared dividends totaling $ 0.6 million ($ 1.84 per share) in 2024, $ 0.5 million ($ 1.76 per share) in 2023 and $ 0.5 million ($ 1.54 per share) in 2022 to holders of time-based restricted stock. We granted 22,000 , 14,000 and 69,000 restricted stock units that are time-based and vest over a period of one to three years in 2024, 2023 and 2022, respectively. Upon vesting, the units are issued from treasury stock. Total dividends declared for these awards were insignificant to the results of our operations. The fair value of time-based restricted stock units is based on the market price of the Company’s shares on the grant date. Additionally, we granted stock-settled performance-based restricted stock units to executive management ( 250,000 units in 2024, 80,000 units in 2023, and 64,000 units in 2022). Historically, the performance-based restricted stock units required the achievement of certain performance and market factors, which consist of the Company’s Total Shareholder Return (“TSR”) relative to a predetermined peer group. Starting in 2024, awards granted include a cumulative system-wide sales metric as measured over the fiscal years 2024, 2025, and 2026 in addition to the TSR metric. Therefore, these awards are comprised of two distinct components each representing 50 % of the total award that each have a separate grant date fair value. The grant-date fair value of the TSR metric was determined using the Monte Carlo simulation model and compensation expense is recognized over the vesting period regardless of the metric being achieved. The grant-date fair value of the cumulative system-wide sales metric was set at the grant date stock price and compensation expense is recognized over the vesting period based on the Company’s expectation of achieving the performance metric. Additional one-time performance-based restricted stock units with a four year cliff vesting period were also granted in 2024, which require the satisfaction of applicable stock price hurdles. The grant-date fair value of these one-time awards were 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 2024, 2023 and 2022: Assumptions: 2024 2023 2022 Risk-free interest rate 3.6 - 4.4 % 4.5 % 1.5 % Expected volatility 34.0 - 34.8 % 38.6 % 45.0 % 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 generally vest over three years (cliff vest) and are expensed over the vesting period. The weighted average grant-date fair value of performance-based restricted stock units granted during 2024, 2023 and 2022 was $ 37.87 , $ 88.43 and $ 113.90 , respectively. Information pertaining to time-based restricted stock and performance-based restricted stock units during 2024 is as follows (shares in thousands): Shares Weighted Average Grant-Date Fair Value Total as of December 31, 2023 483 $ 93.27 Granted 574 51.11 Forfeited ( 225 ) 86.29 Vested ( 185 ) 93.43 Total as of December 29, 2024 647 $ 58.05 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 88 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 ($ 30.8 million and $ 29.4 million at December 29, 2024 and December 31, 2023, respectively) and the associated liabilities ($ 28.2 million and $ 28.3 million at December 29, 2024 and December 31, 2023) 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 2024, 2023 and 2022. Such costs were $ 4.8 million in 2024, $ 4.3 million in 2023 and $ 4.4 million in 2022. 22. 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, the Company 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 year ended December 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 Consolidated Statements of Operations, and sales proceeds of $ 46.7 million were recorded as investing cash inflows within the Consolidated Statements of Cash Flows. Refranchising Transactions 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 impairment and remeasurement charges of $ 5.5 million for the year ended December 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 Consolidated Statements of Operations. The Company recorded a note receivable of $ 2.6 million as consideration received, which was a noncash investing activity during the year ended December 29, 2024. The Company also completed the refranchising of 60 formerly Company-owned restaurants in the UK to primarily existing franchisees, which is described in more detail in “Note 16. Restructuring.” 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. 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 89 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. 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 and other food and beverage products. 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. 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. All other business units that do not meet the quantitative or qualitative thresholds for determining reportable segments, which are not operating segments, we refer to as “All Other”. These consist of operations that derive revenues from 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. Prior to the sale of Preferred Marketing Solutions in the fourth quarter of 2023, All Other included revenues from the sale of printing and promotional items (principally to Company-owned and franchised restaurants). Our chief operating decision maker (“CODM”) is the Chief Executive Officer. The CODM evaluates performance and allocates resources to our segments based on Adjusted operating income. This measure excludes certain general and administrative expenses and other items that do not reflect normal, recurring expenses necessary to operate our business. During the annual budget and forecasting process, the CODM uses Adjusted operating income to allocate resources (including employees, property, and financial or capital resources) to the segments. The CODM regularly reviews trends in Adjusted operating income on at least a quarterly basis to evaluate the profitability of the segments and to make resource allocation decisions. When our CODM reviews balance sheet information, it is at a consolidated level. Certain administrative and capital costs are allocated to our segments based upon predetermined rates or estimated resource usage. In the fourth quarter of 2024, we updated our internal cost allocation methodology to reflect recent changes in the business, including changes to the CODM and ongoing transformation projects. The methodology updates better align corporate cost allocations with how the CODM allocates resources to the segments and evaluates segment profitability, and result in reductions to the Adjusted operating income of our segments. These changes are offset in Unallocated corporate expenses and have no impact on consolidated operating income. We have chosen to prospectively adopt this update in allocation methodology and the comparative information has not been restated. Segment Results The tables below present our operating results by segment (in thousands). The significant expense categories and amounts presented in the tables below align with the segment-level information that is regularly provided to the CODM. A reconciliation to Company results is included in the following section. 90 Year Ended December 29, 2024 Domestic Company-owned restaurants North America franchising North America commissaries International Total Revenues from external customers $ 692,736 $ 139,091 $ 831,774 $ 174,054 $ 1,837,655 Intersegment revenues — 4,150 205,234 — 209,384 Revenues $ 692,736 $ 143,241 $ 1,037,008 $ 174,054 $ 2,047,039 Less costs and expenses (a) : COS - Product Costs $ 207,704 $ — $ 756,170 $ 51,889 $ 1,015,763 COS - Salaries & Benefits 226,325 — 116,645 13,759 356,729 General & Administrative (b) 39,822 35,064 37,690 38,379 150,955 Other Segment Expenses (c) 194,216 — 77,945 56,259 328,420 Adjusted operating income $ 24,669 $ 108,177 $ 48,558 $ 13,768 $ 195,172 Year Ended December 31, 2023 Domestic Company-owned restaurants North America franchising North America commissaries International Total Revenues from external customers $ 726,362 $ 144,550 $ 852,361 $ 182,487 $ 1,905,760 Intersegment revenues — 4,267 210,614 — 214,881 Revenues $ 726,362 $ 148,817 $ 1,062,975 $ 182,487 $ 2,120,641 Less costs and expenses (a) : COS - Product Costs $ 215,545 $ — $ 787,966 $ 54,514 $ 1,058,025 COS - Salaries & Benefits 238,434 — 118,678 17,853 374,965 General & Administrative 40,714 15,017 36,960 31,271 123,962 Other Segment Expenses (c) 198,199 — 76,055 59,794 334,048 Adjusted operating income $ 33,470 $ 133,800 $ 43,316 $ 19,055 $ 229,641 Year Ended December 25, 2022 Domestic Company-owned restaurants North America franchising North America commissaries International Total Revenues from external customers $ 708,389 $ 137,399 $ 869,634 $ 158,682 $ 1,874,104 Intersegment revenues — 4,122 217,570 — 221,692 Revenues $ 708,389 $ 141,521 $ 1,087,204 $ 158,682 $ 2,095,796 Less costs and expenses (a) : COS - Product Costs $ 218,732 $ — $ 820,636 $ 57,781 $ 1,097,149 COS - Salaries & Benefits 237,095 — 113,357 4,117 354,569 General & Administrative 29,510 13,639 33,291 21,889 98,329 Other Segment Expenses (c) 198,674 — 77,389 47,360 323,423 Adjusted operating income $ 24,378 $ 127,882 $ 42,531 $ 27,535 $ 222,326 ______________________________ (a) Costs and expenses excludes certain general and administrative expenses and other items that do not reflect normal, recurring expenses necessary to operate our business (see reconciliation table that follows). 91 (b) As noted in the commentary above, the Company prospectively adjusted for updates in internal cost allocation methodologies in 2024, which increased the amount of internal general and administrative expenses allocated to the segments from Unallocated corporate expenses. The allocation updates resulted in the following increases to segment G&A in 2024: $ 0.4 million to Domestic Company-Owned restaurants, $ 22.9 million to North America franchising, $ 3.3 million to International and $ 0.1 million to North America commissaries. There was no impact on overall company profitability, as the change was offset within Unallocated corporate expenses (see reconciliation table below). (c) Other Segment Expenses represents all operating expenses that are not included in the significant segment expense categories. The components of Other Segment Expenses are: other cost of sales that are not included in “COS - Product Costs” or “COS - Salaries & Benefits” (including, but not limited to, delivery expenses, Company-owned restaurant advertising costs, insurance, rent, utilities, and aggregator fees), advertising costs, depreciation and amortization costs, and other operating expenses. Reconciliation of Segment Results to Company Results The following table reconciles Total Revenues from our segments to Total Revenues and Total Adjusted operating income from our segments to Income before income taxes (in thousands): Year Ended 2024 2023 2022 Total Revenues from our segments $ 2,047,039 $ 2,120,641 $ 2,095,796 All Other revenue (a) 279,385 296,440 298,282 Elimination of intersegment revenue ( 267,037 ) ( 281,368 ) ( 291,975 ) Total Revenues $ 2,059,387 $ 2,135,713 $ 2,102,103 Year Ended 2024 2023 2022 Total Adjusted operating income from our segments $ 195,172 $ 229,641 $ 222,326 All Other profit (a) 4,065 10,116 10,084 Unallocated corporate expenses (b) ( 51,054 ) ( 82,759 ) ( 74,043 ) Elimination of intersegment (profit) loss — 27 ( 905 ) Other income/(expense) adjustments (c) 8,521 ( 9,883 ) ( 48,432 ) Operating income 156,704 147,142 109,030 Net interest expense ( 42,578 ) ( 43,469 ) ( 25,261 ) Income before income taxes $ 114,126 $ 103,673 $ 83,769 ______________________________ (a) As noted in the commentary above, All Other revenue and profit is derived from business units that do not meet the quantitative or qualitative thresholds for determining reportable segments, including: franchise contributions to marketing funds, information systems and related services used in restaurant operations, and sale of printing and promotional items (principally to Company-owned and franchised restaurants). (b) Unallocated corporate expenses represent administrative fees incurred by the restaurant support centers, including: information systems and related services, corporate salaries and bonuses, stock compensation expense, and other corporate costs. (c) Other income/(expense) adjustments represent certain general and administrative expenses and other items that do not reflect normal, recurring expenses necessary to operate our business. As such, management excludes these items from the evaluation of Adjusted operating income. For the periods above, the adjustments include: Year Ended (In thousands) December 29, 2024 December 31, 2023 December 25, 2022 Gain on sale of QC Center properties (See Note 22) $ 41,289 $ — $ — International restructuring costs (See Note 16) ( 27,273 ) ( 2,178 ) — Refranchising and impairment losses ( 5,495 ) — ( 26,702 ) UK repositioning and acquisition-related costs — ( 4,243 ) ( 5,223 ) Legal settlements — ( 577 ) ( 15,000 ) Other costs — ( 2,885 ) ( 1,507 ) Total adjustments $ 8,521 $ ( 9,883 ) $ ( 48,432 ) 92 Depreciation and Amortization by Segment The following table presents depreciation and amortization by segment. (In thousands) 2024 2023 2022 Depreciation and amortization: Domestic Company-owned restaurants $ 16,560 $ 14,184 $ 11,495 North America commissaries 15,780 16,046 13,299 International 4,134 3,167 1,774 All Other 22,396 15,572 12,681 Unallocated corporate expenses 10,537 15,121 12,783 Total depreciation and amortization $ 69,407 $ 64,090 $ 52,032 Disaggregation of Revenue Our segments earn revenue from both external and internal customers. No single external customer accounted for 10% or more of our total revenues. We account for intercompany sales and transfers as if the sales or transfers were to third parties and subsequently eliminate the activity. The accounting policies of our segments are the same as those described in Note 2. Significant Accounting Policies. 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 (in thousands): Year Ended December 29, 2024 Domestic Company-owned restaurants North America franchising North America commissaries International All Other Elimination of Intersegment Revenue Total Company-owned restaurant sales $ 692,736 $ — $ — $ 31,930 $ — $ — $ 724,666 Franchise royalties and fees — 143,241 — 47,941 — ( 4,150 ) 187,032 Commissary revenues — — 1,037,008 67,890 — ( 205,234 ) 899,664 Other revenues — — — 12,701 85,914 ( 14,933 ) 83,682 Advertising funds revenue — — — 13,592 193,471 ( 42,720 ) 164,343 Total Revenues $ 692,736 $ 143,241 $ 1,037,008 $ 174,054 $ 279,385 $ ( 267,037 ) $ 2,059,387 Year Ended December 31, 2023 Domestic Company-owned restaurants North America franchising North America commissaries International All Other Elimination of Intersegment Revenue Total Company-owned restaurant sales $ 726,362 $ — $ — $ 34,463 $ — $ — $ 760,825 Franchise royalties and fees — 148,817 — 50,437 — ( 4,267 ) 194,987 Commissary revenues — — 1,062,975 72,287 — ( 210,614 ) 924,648 Other revenues — — — 12,617 101,789 ( 16,369 ) 98,037 Advertising funds revenue — — — 12,683 194,651 ( 50,118 ) 157,216 Total Revenues $ 726,362 $ 148,817 $ 1,062,975 $ 182,487 $ 296,440 $ ( 281,368 ) $ 2,135,713 93 Year Ended December 25, 2022 Domestic Company-owned restaurants North America franchising North America commissaries International All Other Elimination of Intersegment Revenue Total Company-owned restaurant sales $ 708,389 $ — $ — $ — $ — $ — $ 708,389 Franchise royalties and fees — 141,521 — 49,422 — ( 4,122 ) 186,821 Commissary revenues — — 1,087,204 80,481 — ( 217,570 ) 950,115 Other revenues — — — 14,135 107,194 ( 19,683 ) 101,646 Advertising funds revenue — — — 14,644 191,088 ( 50,600 ) 155,132 Total Revenues $ 708,389 $ 141,521 $ 1,087,204 $ 158,682 $ 298,282 $ ( 291,975 ) $ 2,102,103 24. Acquisitions UK Franchisee Acquisitions During 2023, as part of our investment to reposition our UK business, the Company acquired a portfolio of 118 previously franchised Papa Johns restaurants in the UK market (collectively referred to 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 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. The Company recorded acquisition accounting adjustments of $ 0.1 million during the year ended December 29, 2024 to increase property and equipment to fair value as a result of the finalization of our valuation of acquired property and equipment. 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 expected future benefits stemming from further control of the Company’s brand name in our most prominent international market. Goodwill also includes certain other benefits that do not qualify for recognition as intangible assets, such as an assembled workforce. Domestic Acquisitions We acquired one Domestic restaurant during the year ended December 29, 2024 and ten Domestic restaurants during the year ended December 31, 2023. Cash payments, net of cash acquired related to these acquisitions were $ 0.1 million and $ 4.1 million during the years ended December 29, 2024 and December 31, 2023, respectively, which were classified as cash used in investing activities within the Consolidated Statements of Cash Flows. The effect of the acquisitions was not material to the Company’s Consolidated Financial Statements. 94 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.