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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 September 26, 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 October 29, 2021, there were outstanding 36,363,904 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 — September 26, 2021 and December 27, 2020

3

Condensed Consolidated Statements of Operations — Three and Nine months ended September 26, 2021 and September 27, 2020

4

Condensed Consolidated Statements of Comprehensive Income — Three and Nine months ended September 26, 2021 and September 27, 2020

5

Condensed Consolidated Statements of Stockholders’ Deficit — Three and Nine months ended September 26, 2021 and September 27, 2020

6

Condensed Consolidated Statements of Cash Flows — Nine months ended September 26, 2021 and September 27, 2020

8

Notes to Condensed Consolidated Financial Statements

9

Item 2.

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

25

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

39

Item 4.

Controls and Procedures

40

PART II.

OTHER INFORMATION

Item 1.

Legal Proceedings

40

Item 1A.

Risk Factors

40

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

41

Item 6.

Exhibits

42

2

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Papa John’s International, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

    

September 26,

    

December 27,

(In thousands, except per share amounts)

2021

2020

(Unaudited)

Assets

Current assets:

Cash and cash equivalents

$

105,813

$

130,204

Accounts receivable, net

79,534

90,135

Notes receivable, current portion

 

13,075

 

11,318

Income tax receivable

599

1,273

Inventories

 

33,490

 

30,265

Prepaid expenses and other current assets

 

39,249

 

43,212

Total current assets

 

271,760

 

306,407

Property and equipment, net

 

209,072

 

200,895

Finance lease right-of-use assets, net

21,917

16,840

Operating lease right-of-use assets

174,119

148,110

Notes receivable, less current portion, net

 

37,263

 

36,538

Goodwill

 

80,906

 

80,791

Deferred income taxes

13,926

10,800

Other assets

 

80,991

 

72,389

Total assets

$

889,954

$

872,770

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

Current liabilities:

Accounts payable

$

42,384

$

37,370

Income and other taxes payable

 

26,221

 

10,263

Accrued expenses and other current liabilities

 

201,528

 

174,563

Current deferred revenue

20,617

19,590

Current finance lease liabilities

4,914

3,545

Current operating lease liabilities

22,455

23,538

Current portion of long-term debt

20,000

Total current liabilities

 

318,119

 

288,869

Deferred revenue

 

12,471

 

13,664

Long-term finance lease liabilities

17,555

13,531

Long-term operating lease liabilities

157,359

124,666

Long-term debt, less current portion, net

 

414,915

 

328,292

Deferred income taxes

 

178

 

948

Other long-term liabilities

 

98,872

 

111,364

Total liabilities

 

1,019,469

 

881,334

Series B Convertible Preferred Stock; $0.01 par value; no shares authorized, issued or outstanding at September 26, 2021, compared to 260.0 shares authorized, 252.5 shares issued and outstanding at December 27, 2020

251,901

Redeemable noncontrolling interests

 

7,531

 

6,474

Stockholders’ deficit:

Common stock ($0.01 par value per share; issued 48,989 at September 26, 2021 and 45,288 at December 27, 2020)

490

453

Additional paid-in capital

 

440,742

 

254,103

Accumulated other comprehensive loss

 

(9,910)

 

(14,168)

Retained earnings

 

171,378

 

219,158

Treasury stock (12,806 shares at September 26, 2021 and 12,743 shares at December 27, 2020, at cost)

 

(755,035)

 

(741,724)

Total stockholders’ deficit

 

(152,335)

 

(282,178)

Noncontrolling interests in subsidiaries

 

15,289

 

15,239

Total Stockholders’ deficit

 

(137,046)

 

(266,939)

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

$

889,954

$

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

Nine Months Ended

September 26,

September 27,

September 26,

September 27,

(In thousands, except per share amounts)

    

2021

    

2020

    

2021

    

2020

Revenues:

Domestic Company-owned restaurant sales

$

191,584

$

178,371

$

584,942

$

526,317

North America franchise royalties and fees

 

31,933

 

25,281

 

97,123

 

68,895

North America commissary revenues

 

189,224

 

181,338

 

560,743

 

504,379

International revenues

 

38,408

33,440

 

110,629

 

87,592

Other revenues

61,633

54,511

186,099

156,240

Total revenues

 

512,782

 

472,941

 

1,539,536

 

1,343,423

Costs and expenses:

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

Domestic Company-owned restaurant expenses

155,477

144,803

465,658

419,082

North America commissary expenses

175,399

167,937

518,310

466,676

International expenses

21,743

19,370

62,791

52,775

Other expenses

56,039

50,917

168,092

148,219

General and administrative expenses

 

54,070

 

52,601

 

157,779

 

148,680

Depreciation and amortization

 

11,477

 

12,764

 

36,830

 

37,436

Total costs and expenses

 

474,205

 

448,392

 

1,409,460

 

1,272,868

Operating income

 

38,577

 

24,549

 

130,076

 

70,555

Net interest expense

 

(3,979)

(3,636)

 

(11,275)

 

(11,230)

Income before income taxes

 

34,598

 

20,913

 

118,801

 

59,325

Income tax expense

 

4,057

 

4,516

 

19,387

 

11,984

Net income before attribution to noncontrolling interests

 

30,541

 

16,397

 

99,414

 

47,341

Net income attributable to noncontrolling interests

 

(1,285)

 

(689)

 

(4,021)

 

(2,576)

Net income attributable to the Company

$

29,256

$

15,708

$

95,393

$

44,765

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

Net income attributable to the Company

$

29,256

$

15,708

$

95,393

$

44,765

Dividends on redemption of Series B Convertible Preferred Stock

(109,852)

Dividends paid to participating securities

 

(137)

 

(3,548)

 

(5,964)

 

(10,546)

Net income attributable to participating securities

 

(158)

 

(703)

 

 

(1,809)

Net income (loss) attributable to common shareholders

$

28,961

$

11,457

$

(20,423)

$

32,410

Basic earnings (loss) per common share

$

0.80

$

0.35

$

(0.59)

$

1.00

Diluted earnings (loss) per common share

$

0.79

$

0.35

$

(0.59)

$

0.99

Basic weighted average common shares outstanding

 

36,387

 

32,616

 

34,619

 

32,347

Diluted weighted average common shares outstanding

 

36,719

 

32,971

 

34,619

 

32,643

Dividends declared per common share

$

0.350

$

0.225

$

0.800

$

0.675

See accompanying notes.

4

Table of Contents

Papa John’s International, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)

Three Months Ended

Nine Months Ended

September 26,

September 27,

September 26,

September 27,

(In thousands)

    

2021

    

2020

    

2021

    

2020

Net income before attribution to noncontrolling interests

$

30,541

$

16,397

$

99,414

$

47,341

Other comprehensive income (loss), before tax:

Foreign currency translation adjustments

(1,113)

1,721

383

(1,438)

Interest rate swaps (1)

 

1,535

 

1,647

 

5,147

 

(9,375)

Other comprehensive income (loss), before tax

 

422

 

3,368

 

5,530

 

(10,813)

Income tax effect:

Foreign currency translation adjustments

 

256

 

(395)

 

(88)

 

332

Interest rate swaps (2)

 

(353)

 

(379)

 

(1,184)

 

2,156

Income tax effect

 

(97)

 

(774)

 

(1,272)

 

2,488

Other comprehensive income (loss), net of tax

 

325

 

2,594

 

4,258

 

(8,325)

Comprehensive income before attribution to noncontrolling interests

 

30,866

 

18,991

 

103,672

 

39,016

Less: comprehensive (income), redeemable noncontrolling interests

 

(692)

 

(301)

 

(2,192)

 

(1,184)

Less: comprehensive (income), nonredeemable noncontrolling interests

 

(593)

 

(388)

 

(1,829)

 

(1,392)

Comprehensive income attributable to the Company

$

29,581

$

18,302

$

99,651

$

36,440

(1)Amounts reclassified out of accumulated other comprehensive loss into net interest expense include ($1,644) and ($5,084) for the three and nine months ended September 26, 2021, respectively, and ($1,674) and ($3,376) for the three and nine months ended September 27, 2020, respectively.

(2)The income tax effects of amounts reclassified out of accumulated other comprehensive loss into net interest expense were $368 and $1,139 for the three and nine months ended September 26, 2021, respectively, and $378 and $763 for the three and nine months ended September 27, 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 September 26, 2021

Outstanding

Stock

Capital

Loss

Earnings

Stock

Subsidiaries

Deficit

Balance at June 27, 2021

36,215

$

489

$

435,608

$

(10,235)

$

154,769

$

(743,819)

$

15,290

$

(147,898)

Net income (1)

29,256

593

29,849

Other comprehensive income, net of tax

325

325

Cash dividends on common stock

48

(12,845)

(12,797)

Exercise of stock options

51

1

3,111

3,112

Acquisition of Company common stock

(103)

(12,367)

(12,367)

Stock-based compensation expense

4,317

4,317

Issuance of restricted stock

15

(873)

873

Tax effect of restricted stock awards

(1,423)

(1,423)

Distributions to noncontrolling interests

(594)

(594)

Other

5

(46)

198

278

430

Balance at September 26, 2021

 

36,183

$

490

$

440,742

$

(9,910)

$

171,378

$

(755,035)

$

15,289

$

(137,046)

For the nine months ended September 26, 2021

Balance at December 27, 2020

 

32,545

$

453

$

254,103

$

(14,168)

$

219,158

$

(741,724)

$

15,239

$

(266,939)

Net income (1)

 

 

 

 

 

95,393

 

 

1,829

 

97,222

Other comprehensive income, net of tax

 

 

 

 

4,258

 

 

 

 

4,258

Repurchase and conversion of Series B Convertible Preferred Stock

3,489

35

174,631

(110,498)

64,168

Cash dividends on common stock

110

(27,750)

(27,640)

Cash dividends on preferred stock

 

 

 

 

 

(4,121)

 

 

 

(4,121)

Exercise of stock options

 

199

 

2

 

11,209

 

 

 

 

 

11,211

Acquisition of Company common stock

(187)

(20,555)

(20,555)

Stock-based compensation expense

 

 

 

12,519

 

 

 

 

 

12,519

Issuance of restricted stock

 

125

 

 

(6,538)

 

 

 

6,538

 

 

Tax effect of restricted stock awards

(5,310)

(5,310)

Distributions to noncontrolling interests

 

 

 

 

 

 

 

(1,779)

 

(1,779)

Other

 

12

 

 

18

 

 

(804)

 

706

 

 

(80)

Balance at September 26, 2021

36,183

$

490

$

440,742

$

(9,910)

$

171,378

$

(755,035)

$

15,289

$

(137,046)

(1)Net income to the Company for the three and nine months ended September 26, 2021 excludes $692 and $2,192, respectively, allocable to the redeemable noncontrolling interests for our joint venture arrangements.

At September 26, 2021, the accumulated other comprehensive loss of $9,910 was comprised of net unrealized foreign currency translation loss of $3,499 and net unrealized loss on the interest rate swap agreements of $6,411.

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 September 27, 2020

Outstanding

Stock

Capital

Loss

Earnings

Stock

Subsidiaries

Deficit

Balance at June 28, 2020

 

32,349

$

451

$

243,577

$

(21,104)

$

212,104

$

(742,600)

$

15,724

$

(291,848)

Net income (2)

 

 

 

 

 

15,708

 

 

388

 

16,096

Other comprehensive income, net of tax

 

 

 

 

2,594

 

 

 

 

2,594

Cash dividends on common stock

 

 

 

78

 

 

(7,414)

 

 

 

(7,336)

Cash dividends on preferred stock

(3,412)

(3,412)

Exercise of stock options

 

131

 

1

 

7,499

 

 

 

 

 

7,500

Stock-based compensation expense

 

 

 

4,328

 

 

 

 

 

4,328

Issuance of restricted stock

 

2

 

 

(105)

 

 

 

105

 

 

Tax effect of restricted stock awards

 

 

 

(86)

 

 

 

 

(86)

Distributions to noncontrolling interests

(697)

(697)

Other

 

3

 

 

(81)

 

 

(75)

 

172

 

 

16

Balance at September 27, 2020

 

32,485

$

452

$

255,210

$

(18,510)

$

216,911

$

(742,323)

$

15,415

$

(272,845)

For the nine months ended September 27, 2020