August 6, 2020 - 10-Q: Quarterly report pursuant to Section 13 or 15(d)

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 28, 2020

☐Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number: 0-21660

PAPA JOHN’S INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)

Delaware		61-1203323
(State or other jurisdiction of		(I.R.S. Employer Identification
incorporation or organization)		number)

2002 Papa John’s Boulevard

Louisville, Kentucky 40299-2367

(Address of principal executive offices)

(502) 261-7272

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class:	Trading Symbol	Name of each exchange on which registered:
Common stock, $0.01 par value	PZZA	The NASDAQ Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes ⌧ No ◻

Indicate by check mark whether the registrant has submitted electronically every interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ⌧ No ◻

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☒		Accelerated filer ☐
Non-accelerated filer ☐		Smaller reporting company ☐
		Emerging growth company ☐

If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.◻

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

At July 30, 2020, there were outstanding 32,814,222 shares of the registrant’s common stock, par value $0.01 per share.

Table of Contents

INDEX

		Page No.

PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements

	Condensed Consolidated Balance Sheets — June 28, 2020 and December 29, 2019	3

	Condensed Consolidated Statements of Operations — Three and Six months ended June 28, 2020 and June 30, 2019	4

	Condensed Consolidated Statements of Comprehensive Income (Loss) — Three and Six months ended June 28, 2020 and June 30, 2019	5

	Condensed Consolidated Statements of Stockholders’ Deficit — Three and Six months ended June 28, 2020 and June 30, 2019	6

	Condensed Consolidated Statements of Cash Flows — Six months ended June 28, 2020 and June 30, 2019	8

	Notes to Condensed Consolidated Financial Statements	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	41

Item 4.	Controls and Procedures	42

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	42

Item 1A.	Risk Factors	42

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	42

Item 6.	Exhibits	43

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Papa John’s International, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets



	June 28,		December 29,
(In thousands, except per share amounts)	2020		2019
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	75,699	$	27,911
Accounts receivable, net		73,530		80,921
Notes receivable, current portion		9,651		7,790
Income tax receivable		755		4,024
Inventories		32,546		27,529
Prepaid expenses and other current assets		33,292		33,371
Total current assets		225,473		181,546
Property and equipment, net		200,581		211,741
Finance lease right-of-use assets, net		8,978		9,383
Operating lease right-of-use assets		141,861		148,229
Notes receivable, less current portion, net		32,158		33,010
Goodwill		79,634		80,340
Deferred income taxes		4,978		1,839
Other assets		64,074		64,633
Total assets	$	757,737	$	730,721

Liabilities, Series B Convertible Preferred Stock, Redeemable noncontrolling interests and Stockholders’ deficit
Current liabilities:
Accounts payable	$	30,699	$	29,141
Income and other taxes payable		11,200		7,599
Accrued expenses and other current liabilities		134,989		120,566
Current deferred revenue		5,382		5,624
Current finance lease liabilities		3,879		1,789
Current operating lease liabilities		22,663		23,226
Current portion of long-term debt		20,107		20,000
Total current liabilities		228,919		207,945
Deferred revenue		13,543		14,722
Long-term finance lease liabilities		5,265		7,629
Long-term operating lease liabilities		118,946		125,297
Long-term debt, less current portion, net		327,932		347,290
Deferred income taxes		859		2,649
Other long-term liabilities		95,627		84,927
Total liabilities		791,091		790,459

Series B Convertible Preferred Stock; $0.01 par value; 260.0 shares authorized, 252.5 shares issued and outstanding at June 28, 2020 and December 29, 2019		251,827		251,133
Redeemable noncontrolling interests		6,667		5,785

Stockholders’ deficit:
Common stock ($0.01 par value per share; issued 45,122 at June 28, 2020 and 44,748 at December 29, 2019)		451		447
Additional paid-in capital		243,577		219,047
Accumulated other comprehensive loss		(21,104)		(10,185)
Retained earnings		212,104		205,697
Treasury stock (12,773 shares at June 28, 2020 and 12,854 shares at December 29, 2019, at cost)		(742,600)		(747,327)
Total stockholders’ deficit		(307,572)		(332,321)
Noncontrolling interests in subsidiaries		15,724		15,665
Total Stockholders’ deficit		(291,848)		(316,656)
Total liabilities, Series B Convertible Preferred Stock, Redeemable noncontrolling interests and Stockholders’ deficit	$	757,737	$	730,721

See accompanying notes.

Table of Contents

Papa John’s International, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)



	Three Months Ended				Six Months Ended
		June 28,	June 30,		June 28,		June 30,
(In thousands, except per share amounts)	2020		2019		2020		2019

Revenues:
Domestic Company-owned restaurant sales	$	186,506	$	163,656	$	347,946	$	325,459
North America franchise royalties and fees		24,174		19,761		43,614		37,291
North America commissary revenues		167,619		147,128		323,041		296,032
International revenues		28,093		25,497		54,152		51,164
Other revenues		54,231		43,581		101,729		88,082
Total revenues		460,623		399,623		870,482		798,028
Costs and expenses:
Operating costs (excluding depreciation and amortization shown separately below):
Domestic Company-owned restaurant expenses		145,168		131,950		274,279		265,003
North America commissary expenses		154,467		136,744		298,739		275,301
International expenses		18,304		14,652		33,405		28,957
Other expenses		51,345		41,970		97,302		86,067
General and administrative expenses		48,428		48,718		96,079		99,853
Depreciation and amortization		12,377		11,521		24,672		23,270
Total costs and expenses		430,089		385,555		824,476		778,451
Refranchising gains		—		163		—		163
Operating income		30,534		14,231		46,006		19,740
Net interest expense		(3,627)		(4,272)		(7,594)		(10,548)
Income before income taxes		26,907		9,959		38,412		9,192
Income tax expense		4,956		1,283		7,468		2,114
Net income before attribution to noncontrolling interests		21,951		8,676		30,944		7,078
Net income attributable to noncontrolling interests		(1,337)		(322)		(1,887)		(455)
Net income attributable to the Company	$	20,614	$	8,354	$	29,057	$	6,623

Calculation of net income for earnings per share:
Net income attributable to the Company	$	20,614	$	8,354	$	29,057	$	6,623
Preferred stock dividends and accretion		(3,347)		(3,486)		(6,818)		(5,556)
Net income attributable to participating securities		(1,560)		—		(1,306)		—
Net income attributable to common shareholders	$	15,707	$	4,868	$	20,933	$	1,067

Basic earnings per common share	$	0.49	$	0.15	$	0.65	$	0.03
Diluted earnings per common share	$	0.48	$	0.15	$	0.65	$	0.03

Basic weighted average common shares outstanding		32,335		31,587		32,214		31,570
Diluted weighted average common shares outstanding		32,619		31,773		32,444		31,746

Dividends declared per common share	$	0.225	$	0.225	$	0.450	$	0.450

See accompanying notes.

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Papa John’s International, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)



	Three Months Ended				Six Months Ended
	June 28,		June 30,		June 28,		June 30,
(In thousands)	2020		2019		2020		2019

Net income before attribution to noncontrolling interests	$	21,951	$	8,676	$	30,944	$	7,078
Other comprehensive loss, before tax:
Foreign currency translation adjustments		(334)		(1,537)		(3,159)		196
Interest rate swaps (1)		(103)		(6,699)		(11,022)		(10,654)
Other comprehensive loss, before tax		(437)		(8,236)		(14,181)		(10,458)
Income tax effect:
Foreign currency translation adjustments		77		354		727		(45)
Interest rate swaps (2)		24		1,532		2,535		2,450
Income tax effect		101		1,886		3,262		2,405
Other comprehensive loss, net of tax		(336)		(6,350)		(10,919)		(8,053)
Comprehensive income (loss) before attribution to noncontrolling interests		21,615		2,326		20,025		(975)
Less: comprehensive (income) loss, redeemable noncontrolling interests		(707)		(32)		(883)		87
Less: comprehensive (income), nonredeemable noncontrolling interests		(630)		(290)		(1,004)		(542)
Comprehensive income (loss) attributable to the Company	$	20,278	$	2,004	$	18,138	$	(1,430)

(1)Amounts reclassified out of accumulated other comprehensive loss into net interest expense included ($1,372) and ($1,702) for the three and six months ended June 28, 2020, respectively, and $231 and $688 for the three and six months ended June 30, 2019, respectively.

(2)The income tax effects of amounts reclassified out of accumulated other comprehensive loss into net interest expense were $332 and $412 for the three and six months ended June 28, 2020, respectively, and ($53) and ($158) for the three and six months ended June 30, 2019, respectively.

See accompanying notes.

Table of Contents

Papa John’s International, Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders’ Deficit

(Unaudited)


	Papa John’s International, Inc.
	Common					Accumulated
	Stock			Additional		Other						Noncontrolling		Total
(In thousands)	Shares	Common		Paid-In		Comprehensive		Retained		Treasury		Interests in		Stockholders’
For the three months ended June 28, 2020	Outstanding	Stock		Capital		Loss		Earnings		Stock		Subsidiaries		Deficit
Balance at March 29, 2020	31,971	$	448	$	220,187	$	(20,768)	$	202,287	$	(744,463)	$	16,009	$	(326,300)
Net income (2)	—		—		—		—		20,614		—		630		21,244
Other comprehensive loss	—		—		—		(336)		—		—		—		(336)
Cash dividends on common stock	—		—		77		—		(7,360)		—		—		(7,283)
Cash dividends on preferred stock	—		—		—		—		(3,412)		—		—		(3,412)
Exercise of stock options	346		3		20,460		—		—		—		—		20,463
Stock-based compensation expense	—		—		4,792		—		—		—		—		4,792
Issuance of restricted stock	30		—		(1,760)		—		—		1,760		—		—
Tax effect of restricted stock awards	—		—		(196)		—		—		—		—		(196)
Distributions to noncontrolling interests	—		—		—		—		—		—		(915)		(915)
Other	2		—		17		—		(25)		103		—		95
Balance at June 28, 2020	32,349	$	451	$	243,577	$	(21,104)	$	212,104	$	(742,600)	$	15,724	$	(291,848)

For the six months ended June 28, 2020
Balance at December 29, 2019	31,894	$	447	$	219,047	$	(10,185)	$	205,697	$	(747,327)	$	15,665	$	(316,656)
Cumulative effect of adoption of ASU 2016-13 (1)	—		—		—		—		(1,066)		—		—		(1,066)
Adjusted Balance at December 30, 2019	31,894		447		219,047		(10,185)		204,631		(747,327)		15,665		(317,722)
Net income (2)	—		—		—		—		29,057		—		1,004		30,061
Other comprehensive loss	—		—		—		(10,919)		—		—		—		(10,919)
Cash dividends on common stock	—		—		132		—		(14,652)		—		—		(14,520)
Cash dividends on preferred stock	—		—		—		—		(6,825)		—		—		(6,825)
Exercise of stock options	373		4		21,700		—		—		—		—		21,704
Stock-based compensation expense	—		—		8,742		—		—		—		—		8,742
Issuance of restricted stock	77		—		(4,468)		—		—		4,468		—		—
Tax effect of restricted stock awards	—		—		(1,579)		—		—		—		—		(1,579)
Distributions to noncontrolling interests	—		—		—		—		—		—		(945)		(945)
Other	5		—		3		—		(107)		259		—		155
Balance at June 28, 2020	32,349	$	451	$	243,577	$	(21,104)	$	212,104	$	(742,600)	$	15,724	$	(291,848)

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

(2)	Net income to the Company for the three and six months ended June 28, 2020 excludes $707 and $883 allocable to the redeemable noncontrolling interests for our joint venture arrangements.

At June 28, 2020, the accumulated other comprehensive loss of $21,104 was comprised of net unrealized foreign currency translation loss of $8,031 and net unrealized loss on the interest rate swap agreements of $13,073.

See accompanying notes.

Table of Contents

Papa John’s International, Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders’ Deficit (continued)

(Unaudited)


	Papa John’s International, Inc.
	Common					Accumulated
	Stock			Additional		Other						Noncontrolling		Total
(In thousands)	Shares	Common		Paid-In		Comprehensive		Retained		Treasury		Interests in		Stockholders’
For the three months ended June 30, 2019	Outstanding	Stock		Capital		Loss		Earnings		Stock		Subsidiaries		Deficit
Balance at March 31, 2019	31,420	$	443	$	193,243	$	(4,846)	$	231,439	$	(748,995)	$	15,458	$	(313,258)
Net income (1)	—		—		—		—		8,354		—		290		8,644
Other comprehensive loss	—		—		—		(6,350)		—		—		—		(6,350)
Cash dividends on common stock	—		—		59		—		(7,203)		—		—		(7,144)
Cash dividends on preferred stock	—		—		—		—		(3,428)		—		—		(3,428)
Exercise of stock options	1		—		42		—		—		—		—		42
Stock-based compensation expense	—		—		3,800		—		—		—		—		3,800
Issuance of restricted stock	2		—		(116)		—		—		116		—		—
Tax effect of restricted stock awards	—		—		(26)		—		—		—		—		(26)
Distributions to noncontrolling interests	—		—		—		—		—		—		(164)		(164)
Other	4		—		(75)		—		(329)		222		—		(182)
Balance at June 30, 2019	31,427	$	443	$	196,927	$	(11,196)	$	228,833	$	(748,657)	$	15,584	$	(318,066)
For the six months ended June 30, 2019
Balance at December 30, 2018	31,372	$	443	$	192,984	$	(3,143)	$	242,182	$	(751,704)	$	15,225	$	(304,013)
Net income (1)	—		—		—		—		6,623		—		542		7,165
Other comprehensive loss	—		—		—		(8,053)		—		—		—		(8,053)
Cash dividends on common stock	—

Form: 10-Q

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