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Table of Contents

Graphic

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 27, 2021

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)

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, 2021, there were outstanding 36,563,793 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 27, 2021 and December 27, 2020

3

Condensed Consolidated Statements of Operations — Three and Six months ended June 27, 2021 and June 28, 2020

4

Condensed Consolidated Statements of Comprehensive Income — Three and Six months ended June 27, 2021 and June 28, 2020

5

Condensed Consolidated Statements of Stockholders’ Deficit — Three and Six months ended June 27, 2021 and June 28, 2020

6

Condensed Consolidated Statements of Cash Flows — Six months ended June 27, 2021 and June 28, 2020

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

37

Item 4.

Controls and Procedures

38

PART II.

OTHER INFORMATION

Item 1.

Legal Proceedings

38

Item 1A.

Risk Factors

38

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

39

Item 5.

Other Information

40

Item 6.

Exhibits

41

2

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Papa John’s International, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

    

June 27,

    

December 27,

(In thousands, except per share amounts)

2021

2020

(Unaudited)

Assets

Current assets:

Cash and cash equivalents

$

96,213

$

130,204

Accounts receivable, net

75,839

90,135

Notes receivable, current portion

 

11,398

 

11,318

Income tax receivable

1,084

1,273

Inventories

 

29,843

 

30,265

Prepaid expenses and other current assets

 

47,966

 

43,212

Total current assets

 

262,343

 

306,407

Property and equipment, net

 

198,818

 

200,895

Finance lease right-of-use assets, net

22,840

16,840

Operating lease right-of-use assets

166,090

148,110

Notes receivable, less current portion, net

 

34,418

 

36,538

Goodwill

 

81,103

 

80,791

Deferred income taxes

10,388

10,800

Other assets

 

79,744

 

72,389

Total assets

$

855,744

$

872,770

Liabilities, Series B Convertible Preferred Stock, Redeemable noncontrolling interests and Stockholders’ deficit

Current liabilities:

Accounts payable

$

31,496

$

37,370

Income and other taxes payable

 

28,763

 

10,263

Accrued expenses and other current liabilities

 

187,789

 

174,563

Current deferred revenue

20,536

19,590

Current finance lease liabilities

4,726

3,545

Current operating lease liabilities

23,194

23,538

Current portion of long-term debt

20,000

20,000

Total current liabilities

 

316,504

 

288,869

Deferred revenue

 

13,017

 

13,664

Long-term finance lease liabilities

18,555

13,531

Long-term operating lease liabilities

143,940

124,666

Long-term debt, less current portion, net

 

403,810

 

328,292

Deferred income taxes

 

278

 

948

Other long-term liabilities

 

100,699

 

111,364

Total liabilities

 

996,803

 

881,334

Series B Convertible Preferred Stock; $0.01 par value; no shares authorized, issued or outstanding at June 27, 2021, compared to 260.0 shares authorized, 252.5 shares issued and outstanding at December 27, 2020

251,901

Redeemable noncontrolling interests

 

6,839

 

6,474

Stockholders’ deficit:

Common stock ($0.01 par value per share; issued 48,937 at June 27, 2021 and 45,288 at December 27, 2020)

489

453

Additional paid-in capital

 

435,608

 

254,103

Accumulated other comprehensive loss

 

(10,235)

 

(14,168)

Retained earnings

 

154,769

 

219,158

Treasury stock (12,722 shares at June 27, 2021 and 12,743 shares at December 27, 2020, at cost)

 

(743,819)

 

(741,724)

Total stockholders’ deficit

 

(163,188)

 

(282,178)

Noncontrolling interests in subsidiaries

 

15,290

 

15,239

Total Stockholders’ deficit

 

(147,898)

 

(266,939)

Total liabilities, Series B Convertible Preferred Stock, Redeemable noncontrolling interests and
Stockholders’ deficit

$

855,744

$

872,770

See accompanying notes.

3

Table of Contents

Papa John’s International, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)

    

Three Months Ended

Six Months Ended

June 27,

June 28,

June 27,

June 28,

(In thousands, except per share amounts)

    

2021

    

2020

    

2021

    

2020

Revenues:

Domestic Company-owned restaurant sales

$

196,124

$

186,506

$

393,358

$

347,946

North America franchise royalties and fees

 

32,475

 

24,174

 

65,190

 

43,614

North America commissary revenues

 

186,641

 

167,619

 

371,519

 

323,041

International revenues

 

37,614

28,093

 

72,221

 

54,152

Other revenues

62,154

54,231

124,466

101,729

Total revenues

 

515,008

 

460,623

 

1,026,754

 

870,482

Costs and expenses:

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

Domestic Company-owned restaurant expenses

154,293

145,168

310,181

274,279

North America commissary expenses

172,227

154,467

342,911

298,739

International expenses

21,430

18,304

41,048

33,405

Other expenses

56,246

51,345

112,053

97,302

General and administrative expenses

 

53,698

 

48,428

 

103,709

 

96,079

Depreciation and amortization

 

12,477

 

12,377

 

25,353

 

24,672

Total costs and expenses

 

470,371

 

430,089

 

935,255

 

824,476

Operating income

 

44,637

 

30,534

 

91,499

 

46,006

Net interest expense

 

(3,649)

(3,627)

 

(7,296)

 

(7,594)

Income before income taxes

 

40,988

 

26,907

 

84,203

 

38,412

Income tax expense

 

7,398

 

4,956

 

15,330

 

7,468

Net income before attribution to noncontrolling interests

 

33,590

 

21,951

 

68,873

 

30,944

Net income attributable to noncontrolling interests

 

(1,336)

 

(1,337)

 

(2,736)

 

(1,887)

Net income attributable to the Company

$

32,254

$

20,614

$

66,137

$

29,057

Calculation of net (loss) income for earnings per share:

Net income attributable to the Company

$

32,254

$

20,614

$

66,137

$

29,057

Dividends on redemption of Series B Convertible Preferred Stock

(109,852)

(109,852)

Dividends paid to participating securities

 

(2,300)

 

(3,347)

 

(5,827)

 

(6,818)

Net income attributable to participating securities

 

 

(1,560)

 

 

(1,306)

Net (loss) income attributable to common shareholders

$

(79,898)

$

15,707

$

(49,542)

$

20,933

Basic (loss) earnings per common share

$

(2.30)

$

0.49

$

(1.47)

$

0.65

Diluted (loss) earnings per common share

$

(2.30)

$

0.48

$

(1.47)

$

0.65

Basic weighted average common shares outstanding

 

34,729

 

32,335

 

33,739

 

32,214

Diluted weighted average common shares outstanding

 

34,729

 

32,619

 

33,739

 

32,444

Dividends declared per common share

$

0.225

$

0.225

$

0.450

$

0.450

See accompanying notes.

4

Table of Contents

Papa John’s International, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)

Three Months Ended

Six Months Ended

June 27,

June 28,

June 27,

June 28,

(In thousands)

    

2021

    

2020

    

2021

    

2020

 

Net income before attribution to noncontrolling interests

$

33,590

$

21,951

$

68,873

$

30,944

Other comprehensive income (loss), before tax:

Foreign currency translation adjustments

437

(334)

1,496

(3,159)

Interest rate swaps (1)

 

1,817

 

(103)

 

3,612

 

(11,022)

Other comprehensive income (loss), before tax

 

2,254

 

(437)

 

5,108

 

(14,181)

Income tax effect:

Foreign currency translation adjustments

 

(100)

 

77

 

(344)

 

727

Interest rate swaps (2)

 

(418)

 

24

 

(831)

 

2,535

Income tax effect

 

(518)

 

101

 

(1,175)

 

3,262

Other comprehensive income (loss), net of tax

 

1,736

 

(336)

 

3,933

 

(10,919)

Comprehensive income before attribution to noncontrolling interests

 

35,326

 

21,615

 

72,806

 

20,025

Less: comprehensive (income), redeemable noncontrolling interests

 

(713)

 

(707)

 

(1,500)

 

(883)

Less: comprehensive (income), nonredeemable noncontrolling interests

 

(623)

 

(630)

 

(1,236)

 

(1,004)

Comprehensive income attributable to the Company

$

33,990

$

20,278

$

70,070

$

18,138

(1)Amounts reclassified out of accumulated other comprehensive loss into net interest expense included ($1,730) and ($3,439) for the three and six months ended June 27, 2021, respectively, and ($1,372) and ($1,702) for the three and six months ended June 28, 2020, respectively.

(2)The income tax effects of amounts reclassified out of accumulated other comprehensive loss into net interest expense were $388 and $771 for the three and six months ended June 27, 2021, respectively, and $332 and $412 for the three and six months ended June 28, 2020, respectively.

See accompanying notes.

5

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 27, 2021

Outstanding

Stock

Capital

Loss

Earnings

Stock

Subsidiaries

Deficit

Balance at March 28, 2021

32,681

$

453

$

251,285

$

(11,971)

$

242,119

$

(737,268)

$

15,282

$

(240,100)

Net income (1)

32,254

623

32,877

Other comprehensive income, net of tax

1,736

1,736

Repurchase and conversion of Series B Convertible Preferred Stock

3,489

35

174,631

(110,783)

63,883

Cash dividends on common stock

31

(7,471)

(7,440)

Cash dividends on preferred stock

(709)

(709)

Exercise of stock options

107

1

5,801

5,802

Acquisition of Company common stock

(68)

(6,921)

(6,921)

Stock-based compensation expense

4,089

4,089

Issuance of restricted stock

5

(294)

294

Tax effect of restricted stock awards

(52)

(52)

Distributions to noncontrolling interests

(615)

(615)

Other

1

117

(641)

76

(448)

Balance at June 27, 2021

 

36,215

$

489

$

435,608

$

(10,235)

$

154,769

$

(743,819)

$

15,290

$

(147,898)

For the six months ended June 27, 2021

Balance at December 27, 2020

 

32,545

$

453

$

254,103

$

(14,168)

$

219,158

$

(741,724)

$

15,239

$

(266,939)

Net income (1)

 

 

 

 

 

66,137

 

 

1,236

 

67,373

Other comprehensive income, net of tax

 

 

 

 

3,933

 

 

 

 

3,933

Repurchase and conversion of Series B Convertible Preferred Stock

3,489

35

174,631

(110,783)

63,883

Cash dividends on common stock

62

(14,906)

(14,844)

Cash dividends on preferred stock

 

 

 

 

 

(4,121)

 

 

 

(4,121)

Exercise of stock options

 

148

 

1

 

8,099

 

 

 

 

 

8,100

Acquisition of Company common stock

(83)

(8,188)

(8,188)

Stock-based compensation expense

 

 

 

8,202

 

 

 

 

 

8,202

Issuance of restricted stock

 

109

 

 

(5,665)

 

 

 

5,665

 

 

Tax effect of restricted stock awards

(3,887)

(3,887)

Distributions to noncontrolling interests

 

 

 

 

 

 

 

(1,185)

 

(1,185)

Other

 

7

 

 

63

 

 

(716)

 

428

 

 

(225)

Balance at June 27, 2021

36,215

$

489

$

435,608

$

(10,235)

$

154,769

$

(743,819)

$

15,290

$

(147,898)

(1)Net income to the Company for the three and six months ended June 27, 2021 excludes $713 and $1,500 allocable to the redeemable noncontrolling interests for our joint venture arrangements.

At June 27, 2021, the accumulated other comprehensive loss of $10,235 was comprised of net unrealized foreign currency translation loss of $2,641 and net unrealized loss on the interest rate swap agreements of $7,594.

See accompanying notes.

6

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 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, net of tax

 

 

 

 

(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