pzza_Current folio_10Q

Table of Contents

 

Picture 60

 

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 March 31, 2019

 

OR

 

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)

 

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 April 30, 2019, there were outstanding 31,778,648 shares of the registrant’s common stock, par value $0.01 per share.

 

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

 

 

 

 


 

Table of Contents

INDEX

 

 

 

Page No.

 

 

 

PART I. 

FINANCIAL INFORMATION

 

 

 

 

Item 1. 

Financial Statements

 

 

 

 

 

Condensed Consolidated Balance Sheets — March 31, 2019 and December 30, 2018

3

 

 

 

 

Condensed Consolidated Statements of Operations — Three months ended March 31, 2019 and April 1, 2018

4

 

 

 

 

Condensed Consolidated Statements of Comprehensive (Loss) Income — Three months ended March 31, 2019 and April 1, 2018

5

 

 

 

 

Condensed Consolidated Statements of Stockholders’ Equity (Deficit) — Three months ended March 31, 2019 and April 1, 2018

6

 

 

 

 

Condensed Consolidated Statements of Cash Flows — Three months ended March 31, 2019 and April 1, 2018

8

 

 

 

 

Notes to Condensed Consolidated Financial Statements

9

 

 

 

Item 2. 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

30

 

 

 

Item 3. 

Quantitative and Qualitative Disclosures About Market Risk

41

 

 

 

Item 4. 

Controls and Procedures

44

 

 

 

PART II. 

OTHER INFORMATION

 

 

 

 

Item 1. 

Legal Proceedings

45

 

 

 

Item 1A. 

Risk Factors

45

 

 

 

Item 2. 

Unregistered Sales of Equity Securities and Use of Proceeds

45

 

 

 

Item 6. 

Exhibits

47

 

 

2


 

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

 

Papa John’s International, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited)

 

 

 

 

 

 

 

 

 

    

March 31,

    

December 30,

(In thousands, except per share amounts)

 

2019

 

2018

 

 

 

 

(Note)

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

29,273

 

$

33,258

Accounts receivable, net

 

 

80,748

 

 

78,118

Notes receivable, net

 

 

5,983

 

 

5,498

Income tax receivable

 

 

5,431

 

 

16,146

Inventories

 

 

26,144

 

 

27,203

Prepaid expenses

 

 

22,488

 

 

30,376

Other current assets

 

 

18,582

 

 

5,678

Assets held for sale

 

 

10,765

 

 

 —

Total current assets

 

 

199,414

 

 

196,277

Property and equipment, net

 

 

217,437

 

 

226,894

Right-of-use assets

 

 

150,216

 

 

 —

Notes receivable, less current portion, net

 

 

23,607

 

 

23,259

Goodwill

 

 

83,193

 

 

84,516

Deferred income taxes, net

 

 

1,244

 

 

1,137

Other assets

 

 

63,957

 

 

63,814

Total assets

 

$

739,068

 

$

595,897

 

 

 

 

 

 

 

Liabilities and stockholders’ (deficit)

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

35,214

 

$

27,106

Income and other taxes payable

 

 

7,336

 

 

6,590

Accrued expenses and other current liabilities

 

 

120,975

 

 

129,167

Deferred revenue current

 

 

2,516

 

 

2,598

Current lease liabilities

 

 

22,546

 

 

 —

     Current portion of long-term debt

 

 

29,982

 

 

20,009

Total current liabilities

 

 

218,569

 

 

185,470

Deferred revenue

 

 

18,562

 

 

20,674

Long-term lease liabilities

 

 

130,391

 

 

 —

Long-term debt, less current portion, net

 

 

346,433

 

 

601,126

Deferred income taxes, net

 

 

5,835

 

 

7,852

Other long-term liabilities

 

 

75,887

 

 

79,324

Total liabilities

 

 

795,677

 

 

894,446

 

 

 

 

 

 

 

Series B Convertible Preferred Stock; $0.01 par value; 260.0 shares authorized, 252.5 shares issued and outstanding at March 31, 2019; no shares issued at December 30, 2018

 

 

251,303

 

 

 —

Redeemable noncontrolling interests

 

 

5,346

 

 

5,464

 

 

 

 

 

 

 

Stockholders’ (deficit):

 

 

 

 

 

 

Common stock ($0.01 par value per share; issued 44,303 at March 31, 2019 and 44,301 at December 30, 2018)

 

 

443

 

 

443

Additional paid-in capital

 

 

193,243

 

 

192,984

Accumulated other comprehensive (loss)

 

 

(4,846)

 

 

(3,143)

Retained earnings

 

 

231,439

 

 

242,182

Treasury stock (12,883 shares at March 31, 2019 and 12,929 shares at December 30, 2018, at cost)

 

 

(748,995)

 

 

(751,704)

Total stockholders’ (deficit)

 

 

(328,716)

 

 

(319,238)

Noncontrolling interests in subsidiaries

 

 

15,458

 

 

15,225

Total stockholders’ (deficit) 

 

 

(313,258)

 

 

(304,013)

Total liabilities, redeemable noncontrolling interests, Series B preferred stock and
stockholders’ (deficit)

 

$

739,068

 

$

595,897

 

Note:  The Condensed Consolidated Balance Sheet has been derived from the audited consolidated financial statements, restated to reflect the consolidation of Papa John’s Marketing Fund, Inc.  See Note 2 of “Notes to Condensed Consolidated Financial Statements” under the heading “Restatement of Previously Issued Consolidated Financial Statements for Immaterial Error Correction” for more details.

 

See accompanying notes.

3


 

Table of Contents

Papa John’s International, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Three Months Ended

 

 

 

 

March 31,

 

April 1,

 

(In thousands, except per share amounts)

    

2019

    

2018

    

 

 

 

 

 

(Note)

 

Revenues:

 

 

 

 

 

 

 

Domestic Company-owned restaurant sales

 

$

161,803

 

$

190,242

 

North America franchise royalties and fees

 

 

17,530

 

 

24,806

 

North America commissary

 

 

148,904

 

 

161,713

 

International

 

 

25,667

 

 

30,114

 

Other revenues

 

 

44,501

 

 

43,247

 

Total revenues

 

 

398,405

 

 

450,122

 

Costs and expenses:

 

 

 

 

 

 

 

Operating costs (excluding depreciation and amortization shown separately below):

 

 

 

 

 

 

 

Domestic Company-owned restaurant expenses

 

 

133,053

 

 

157,574

 

North America commissary

 

 

138,557

 

 

151,681

 

International expenses

 

 

14,305

 

 

19,030

 

Other expenses

 

 

44,097

 

 

42,367

 

General and administrative expenses

 

 

51,135

 

 

39,996

 

Depreciation and amortization

 

 

11,749

 

 

11,539

 

Total costs and expenses

 

 

392,896

 

 

422,187

 

Refranchising and impairment gains/(losses), net

 

 

 —

 

 

204

 

Operating income

 

 

5,509

 

 

28,139

 

Net interest expense

 

 

(6,276)

 

 

(5,075)

 

(Loss) income before income taxes

 

 

(767)

 

 

23,064

 

Income tax expense

 

 

831

 

 

4,978

 

Net (loss) income before attribution to noncontrolling interests

 

 

(1,598)

 

 

18,086

 

Income attributable to noncontrolling interests

 

 

(133)

 

 

(643)

 

Net (loss) income attributable to the Company

 

$

(1,731)

 

$

17,443

 

 

 

 

 

 

 

 

 

Calculation of income for earnings per share:

 

 

 

 

 

 

 

Net (loss) income attributable to the Company

 

$

(1,731)

 

$

17,443

 

Preferred stock dividends

 

 

(2,070)

 

 

 —

 

Net income attributable to participating securities

 

 

 —

 

 

(75)

 

Net (loss) income attributable to common shareholders

 

$

(3,801)

 

$

17,368

 

 

 

 

 

 

 

 

 

Basic (loss) earnings per common share

 

$

(0.12)

 

$

0.52

 

Diluted (loss) earnings per common share

 

$

(0.12)

 

$

0.52

 

 

 

 

 

 

 

 

 

Basic weighted average common shares outstanding

 

 

31,554

 

 

33,279

 

Diluted weighted average common shares outstanding

 

 

31,554

 

 

33,552

 

 

 

 

 

 

 

 

 

Dividends declared per common share

 

$

0.225

 

$

0.225

 

 

 

Note:  The Condensed Consolidated Statement of Operations is unaudited and has been restated to reflect the consolidation of Papa John’s Marketing Fund, Inc.  See Note 2 of “Notes to Condensed Consolidated Financial Statements” under the heading “Restatement of Previously Issued Consolidated Financial Statements for Immaterial Error Correction” for more details.

 

See accompanying notes.

 

4


 

Table of Contents

 

 

Papa John’s International, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive (Loss) Income

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

March 31,

 

April 1,

(In thousands)

    

2019

    

2018

 

 

 

 

 

(Note)

Net (loss) income before attribution to noncontrolling interests

 

$

(1,598)

 

$

18,086

Other comprehensive (loss) income, before tax:

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

1,733

 

 

1,983

Interest rate swaps (1)

 

 

(3,955)

 

 

6,718

Other comprehensive (loss) income, before tax

 

 

(2,222)

 

 

8,701

Income tax effect:

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

(399)

 

 

(473)

Interest rate swaps (2)

 

 

918

 

 

(1,545)

Income tax effect (3)

 

 

519

 

 

(2,018)

Other comprehensive (loss) income, net of tax

 

 

(1,703)

 

 

6,683

Comprehensive (loss) income before attribution to noncontrolling interests

 

 

(3,301)

 

 

24,769

Less: comprehensive loss (income), redeemable noncontrolling interests

 

 

119

 

 

(344)

Less: comprehensive income, nonredeemable noncontrolling interests

 

 

(252)

 

 

(299)

Comprehensive (loss) income attributable to the Company

 

$

(3,434)

 

$

24,126

 


 

(1)

Amounts reclassified out of accumulated other comprehensive income (loss) into net interest income included $148 for the three months ended March 31, 2019 and net interest expense of $108 for the three months ended April 1, 2018.

 

(2)

The income tax effects of amounts reclassified out of accumulated other comprehensive income (loss) into net interest income was $94 for the three months ended March 31, 2019 and net interest expense was $25 for the three months ended April 1, 2018. 

 

(3)

As of January 1, 2018, we adopted ASU 2018-02, “Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income,” and reclassified stranded tax effects of approximately $455 to retained earnings in the first quarter of 2018. 

 

Note: The Condensed Consolidated Statement of Comprehensive (Loss) Income is unaudited and has been restated to reflect the consolidation of Papa John’s Marketing Fund, Inc.  See Note 2 of “Notes to Condensed Consolidated Financial Statements” under the heading “Restatement of Previously Issued Consolidated Financial Statements for Immaterial Error Correction” for more details.

 

 

See accompanying notes.

 

5


 

Table of Contents

 

Papa John’s International, Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders’ Equity (Deficit)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Papa John’s International, Inc.

 

 

 

 

 

 

 

 

    

Common

    

    

 

    

    

 

    

Accumulated

    

    

 

    

    

 

    

    

 

    

Total

 

 

 

Stock

 

 

 

 

Additional

 

Other

 

 

 

 

 

 

 

Noncontrolling

 

Stockholders’

 

 

 

Shares

 

Common

 

Paid-In

 

Comprehensive

 

Retained

 

Treasury

 

Interests in

 

Equity

 

(In thousands)

 

Outstanding

 

Stock

 

Capital

 

Loss

 

Earnings

 

Stock

 

Subsidiaries

 

(Deficit)

 

Balance at December 30, 2018 (Restated)

 

31,372

 

$

443

 

$

192,984

 

$

(3,143)

 

$

242,182

 

$

(751,704)

 

$

15,225

 

$

(304,013)

 

Net loss (1)

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(1,731)

 

 

 —

 

 

252

 

 

(1,479)

 

Other comprehensive loss

 

 —

 

 

 —

 

 

 —

 

 

(1,703)

 

 

 —

 

 

 —

 

 

 —

 

 

(1,703)

 

Cash dividends on common stock

 

 —

 

 

 —

 

 

36

 

 

 —

 

 

(7,161)

 

 

 —

 

 

 —

 

 

(7,125)

 

Cash dividends on preferred stock

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(2,040)

 

 

 —

 

 

 —

 

 

(2,040)

 

Exercise of stock options

 

 3

 

 

 —

 

 

51

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

51

 

Tax effect of equity awards

 

 —

 

 

 —

 

 

(869)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(869)

 

Stock-based compensation expense

 

 —

 

 

 —

 

 

3,731

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

3,731

 

Issuance of restricted stock

 

42

 

 

 —

 

 

(2,454)

 

 

 —

 

 

 —

 

 

2,454

 

 

 —

 

 

 —

 

Distributions to noncontrolling interests

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(19)

 

 

(19)

 

Other

 

 3

 

 

 —

 

 

(236)

 

 

 —

 

 

189

 

 

255

 

 

 —

 

 

208

 

Balance at March 31, 2019

 

31,420

 

$

443

 

$

193,243

 

$

(4,846)

 

$

231,439

 

$

(748,995)

 

$

15,458

 

$

(313,258)

 

 


 

(1)

Net loss to the Company at March 31, 2019 excludes $133 allocable to the noncontrolling interests for our joint venture arrangements.

 

At March 31, 2019, the accumulated other comprehensive loss of $4,846 was comprised of net unrealized foreign currency translation loss of $5,525, partially offset by net unrealized gain on the interest rate swap agreements of $679.

 

See accompanying notes.

6


 

Table of Contents

Papa John’s International, Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders’ Equity (Deficit) (continued)

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Papa John’s International, Inc. (Note)

 

 

 

 

 

 

 

 

    

Common

    

    

 

    

    

 

    

Accumulated

    

    

 

    

    

 

    

    

 

    

Total

 

 

 

Stock

 

 

 

 

Additional

 

Other

 

 

 

 

 

 

 

Noncontrolling

 

Stockholders’

 

 

 

Shares

 

Common

 

Paid-In

 

Comprehensive

 

Retained

 

Treasury

 

Interests in

 

Equity

 

(In thousands)

 

Outstanding

 

Stock

 

Capital

 

Income (Loss)

 

Earnings

 

Stock

 

Subsidiaries

 

(Deficit)

 

Balance at December 31, 2017

 

33,931

 

$

442

 

$

184,785

 

$

(2,117)

 

$

292,251

 

$

(597,072)

 

$

15,757

 

$

(105,954)

 

Cumulative effect of adoption of ASU 2014-09 (1)

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(24,359)

 

 

 —

 

 

 —

 

 

(24,359)

 

Adjusted balance at January 1, 2018

 

33,931

 

 

442

 

 

184,785

 

 

(2,117)

 

 

267,892

 

 

(597,072)

 

 

15,757

 

 

(130,313)

 

Net income (2)

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

17,443

 

 

 —

 

 

344

 

 

17,787

 

Other comprehensive income

 

 —

 

 

 —

 

 

 —

 

 

6,683

 

 

 —

 

 

 —

 

 

 —

 

 

6,683

 

Adoption of ASU 2018-02 (3)

 

 —

 

 

 —

 

 

 —

 

 

(455)

 

 

455

 

 

 —

 

 

 —

 

 

 —

 

Cash dividends on common stock

 

 —

 

 

 —

 

 

36

 

 

 —

 

 

(7,569)

 

 

 —

 

 

 —

 

 

(7,533)

 

Exercise of stock options

 

42

 

 

 1

 

 

1,769

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

1,770

 

Tax effect of equity awards

 

 —

 

 

 —

 

 

(1,342)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(1,342)

 

Acquisition of Company common stock

 

(2,001)

 

 

 —

 

 

(22,000)

 

 

 —

 

 

 —

 

 

(119,736)

 

 

 —

 

 

(141,736)

 

Stock-based compensation expense

 

 —

 

 

 —

 

 

2,475

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

2,475

 

Issuance of restricted stock

 

48

 

 

 —

 

 

(2,517)

 

 

 —

 

 

 —

 

 

2,517

 

 

 —

 

 

 —

 

Distributions to noncontrolling interests

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(432)

 

 

(432)

 

Other

 

 3

 

 

 —

 

 

(8)

 

 

(1)

 

 

507

 

 

194

 

 

589

 

 

1,281

 

Balance at April 1, 2018

 

32,023

 

$

443

 

$

163,198

 

$

4,110

 

$

278,728

 

$

(714,097)

 

$

16,258

 

$

(251,360)

 

 


(1)

As of January 1, 2018, the Company adopted ASU 2014-09, “Revenue from Contracts with Customers”.

(2)

Net income to the Company at April 1, 2018 excludes $643 allocable to the noncontrolling interests for our joint venture arrangements.

(3)

As of January 1, 2018, the Company adopted ASU 2018-02, “Reclassifications of Certain Tax Effects from Accumulated Other Comprehensive Income,” and reclassified stranded tax effects of approximately $455 to retained earnings in the first quarter of 2018.

 

At April 1, 2018, the accumulated other comprehensive gain of $4,110 was comprised of net unrealized gain on the interest rate swap agreements of $5,666, partially offset by net unrealized foreign currency translation loss of $1,556.

 

Note: The Condensed Consolidated Statement of Stockholders’ Equity (Deficit) is unaudited and has been restated to reflect the consolidation of Papa John’s Marketing Fund, Inc.  See Note 2 of “Notes to Condensed Consolidated Financial Statements” under the heading “Restatement of Previously Issued Consolidated Financial Statements for Immaterial Error Correction” for more details.

 

 

See accompanying notes.

 

 

7


 

Table of Contents

 

Papa John’s International, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31,

 

April 1,

 

(In thousands)

    

2019

    

2018

 

 

 

 

 

 

 

(Note)

 

Operating activities

 

 

 

 

 

 

 

Net (loss) income before attribution to noncontrolling interests

 

$

(1,598)

 

$

18,086

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

Provision (credit) for uncollectible accounts and notes receivable

 

 

(50)

 

 

1,539

 

Depreciation and amortization

 

 

11,749

 

 

11,539

 

Deferred income taxes

 

 

(1,309)

 

 

(2,004)

 

Preferred stock option mark-to-market adjustment

 

 

5,914

 

 

 —

 

Stock-based compensation expense

 

 

3,731

 

 

2,475

 

Gain on refranchising

 

 

 —

 

 

(204)

 

Other

 

 

838

 

 

1,903

 

Changes in operating assets and liabilities, net of acquisitions:

 

 

 

 

 

 

 

Accounts receivable

 

 

(3,443)

 

 

2,675

 

Income tax receivable

 

 

10,715

 

 

3,899

 

Inventories

 

 

810

 

 

2,193

 

Prepaid expenses

 

 

7,888

 

 

555

 

Other current assets

 

 

(13,855)

 

 

(1,264)

 

Other assets and liabilities

 

 

(3,258)

 

 

475

 

Accounts payable

 

 

8,108

 

 

2,563

 

Income and other taxes payable

 

 

746

 

 

(466)

 

Accrued expenses and other current liabilities

 

 

(11,003)

 

 

(3,759)

 

Deferred revenue

 

 

(2,170)

 

 

(3,474)

 

Net cash provided by operating activities

 

 

13,813

 

 

36,731

 

Investing activities

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(8,658)

 

 

(9,320)

 

Loans issued

 

 

(859)

 

 

(563)

 

Repayments of loans issued

 

 

925

 

 

1,636

 

Proceeds from divestitures of restaurants

 

 

 —

 

 

3,690

 

Other

 

 

329

 

 

114

 

Net cash used in investing activities

 

 

(8,263)

 

 

(4,443)

 

Financing activities

 

 

 

 

 

 

 

Proceeds from issuance of preferred stock

 

 

252,530

 

 

 —

 

Repayments of term loan

 

 

(5,000)

 

 

(5,000)

 

Net proceeds (repayments) of revolving credit facilities

 

 

(240,026)

 

 

140,308

 

Dividends paid to common stockholders

 

 

(7,125)

 

 

(7,565)

 

Dividends paid to preferred stockholders

 

 

(2,040)

 

 

 —

 

Issuance costs associated with preferred stock

 

 

(7,179)

 

 

 —

 

Tax payments for equity award issuances

 

 

(869)

 

 

(1,342)

 

Proceeds from exercise of stock options

 

 

51

 

 

1,770

 

Acquisition of Company common stock

 

 

 —

 

 

(141,736)

 

Distributions to noncontrolling interest holders

 

 

(19)

 

 

(432)

 

Other

 

 

50

 

 

183

 

Net cash used in financing activities

 

 

(9,627)

 

 

(13,814)

 

Effect of exchange rate changes on cash and cash equivalents

 

 

92

 

 

119

 

Change in cash and cash equivalents

 

 

(3,985)

 

 

18,593

 

Cash and cash equivalents at beginning of period

 

 

33,258

 

 

27,891

 

Cash and cash equivalents at end of period

 

$

29,273

 

$

46,484

 

 

 

 

 

 

 

 

 

 

Note: The Condensed Consolidated Statement of Cash Flows is unaudited and has been restated to reflect the consolidation of Papa John’s Marketing Fund, Inc.  See Note 2 of “Notes to Condensed Consolidated Financial Statements” under the heading “Restatement of Previously Issued Consolidated Financial Statements for Immaterial Error Correction” for more details.

 

See accompanying notes.

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Table of Contents

Papa John’s International, Inc. and Subsidiaries

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

March 31, 2019

 

1.Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete annual financial statements.  In the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2019 are not necessarily indicative of the results that may be expected for the fiscal year ending December 29, 2019.  For further information, refer to the consolidated financial statements and footnotes thereto included in the Annual Report on Form 10-K/A for Papa John’s International, Inc. (referred to as the “Company”, “Papa John’s” or in the first-person notations of “we”, “us” and “our”) for the year ended December 30, 2018.

 

2.Update to Significant Accounting Policies

 

Use of Estimates

 

The preparation of condensed 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 condensed consolidated financial statements and accompanying notes. Significant items that are subject to such estimates and assumptions include allowance for doubtful accounts and notes receivable, intangible assets, contract assets and contract liabilities, including the online customer loyalty program obligation, right-of-use assets and lease liabilities, gift card breakage, insurance reserves and tax reserves. Although management bases its estimates on historical experience and assumptions that are believed to be reasonable under the circumstances, actual results could significantly differ from these estimates. 

 

Restatement of Previously Issued Consolidated Financial Statements for Immaterial Error Correction

 

Papa John’s domestic restaurants, both Company-owned and franchised, participate in Papa John’s Marketing Fund, Inc. (“PJMF”), a nonstock corporation that is designed to 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 80% are franchised. 

 

During the first quarter of 2019, the Company reassessed the governance structure and operating procedures of PJMF and determined that the Company has the power to control certain significant activities of PJMF, as defined by Accounting Standards Codification 810 (“ASC 810”), Consolidations.  Therefore, the Company is the primary beneficiary of the VIE, and per ASC 810, must consolidate the VIE.  Prior to 2019, the Company did not consolidate PJMF.  The Company has concluded the previous accounting policy to not consolidate PJMF was an immaterial error and has determined that PJMF should be consolidated.  The Company has corrected this immaterial error by restating the 2018 condensed consolidated financial statements and related notes included herein to include PJMF. Notes 5, 6, 9, 11, 13 and 14 have been updated to reflect the immaterial restatement.

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Table of Contents

The immaterial impacts of this error correction in fiscal year 2018 are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheet (unaudited)

 

 

 

 

 

December 30, 2018

 

(In thousands)

 

As Reported

 

Change

 

As Restated

 

Cash and cash equivalents

 

$

19,468

 

$

13,790

 

$

33,258

 

Accounts receivable, net

 

 

67,854

 

 

10,264

 

 

78,118

 

Income tax receivable

 

 

16,073

 

 

73

 

 

16,146

 

Prepaid expenses

 

 

29,935

 

 

441

 

 

30,376

 

Other current assets

 

 

5,677

 

 

 1

 

 

5,678

 

Total current assets

 

 

171,708

 

 

24,569

 

 

196,277

 

Deferred income taxes, net

 

 

756

 

 

381

 

 

1,137

 

Total assets

 

 

570,947

 

 

24,950

 

 

595,897

 

Accounts payable

 

 

29,891

 

 

(2,785)

 

 

27,106

 

Accrued expenses and other current liabilities

 

 

105,712

 

 

23,455

 

 

129,167

 

Deferred revenue current

 

 

2,443

 

 

155

 

 

2,598

 

Current portion of long-term debt

 

 

20,000

 

 

 9

 

 

20,009

 

Total current liabilities

 

 

164,636

 

 

20,834

 

 

185,470

 

Deferred revenue

 

 

14,679

 

 

5,995

 

 

20,674

 

Total liabilities

 

 

867,617

 

 

26,829

 

 

894,446

 

Retained earnings

 

 

244,061

 

 

(1,879)