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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549

FORM 10-Q
(Mark One)
[X]Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended June 24, 2012
For the quarterly period ended March 25, 2012

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)
 
 Delaware61-1203323
 (State or other jurisdiction of(I.R.S. Employer Identification
 incorporation or organization)number)

2002 Papa Johns 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 [X]No [   ]
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).
 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 [X]
Yes [X]    No [   ]
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).
Yes [X]    No  [  ]Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer  [X]Accelerated filer  [   ]
Non-accelerated filer  [   ]Smaller reporting company  [   ]
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 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 [X]

      At April 25, 2012, there were outstanding 23,822,608 shares of the registrant’s common stock, par value $0.01 per share.

At July 26, 2012, there were outstanding 23,439,820 shares of the registrant’s common stock, par value $0.01 per share.
 
 
 
 
INDEX

Page No.
 
Page No.Item 1.
 
   
 
Financial Statements 
 2
   
 
March 25, 2012 and December 25, 2011
2
Condensed Consolidated Statements of Comprehensive Income – Three and Six Months Ended March 25,June 24, 2012 and March 27,June 26, 2011
3
   
 4
   
  
5
   
 5
Notes to Condensed Consolidated Financial Statements
��6
   
13
  
1323
23
 
   
24
   
Quantitative and Qualitative Disclosures About Market Risk
22
Item 4.
Controls and Procedures
23
PART II.
OTHER INFORMATION
Item 1.
Legal Proceedings
23
Item 2.
2324
   
Other Information
24
Item 6.
25
 
 
1
 

PART I.  FINANCIAL INFORMATION
PART I.  FINANCIAL INFORMATION
Item 1. Financial Statements
Papa John’s International, Inc. and Subsidiaries 
Condensed Consolidated Balance Sheets 
       
(In thousands) June 24, 2012  December 25, 2011 
  (Unaudited)  (Note) 
Assets      
Current assets:      
Cash and cash equivalents $33,625  $18,942 
Accounts receivable, net  27,693   28,169 
Notes receivable, net  4,447   4,221 
Inventories  19,695   20,091 
Prepaid expenses  10,548   10,210 
Other current assets  2,880   3,522 
Deferred income taxes  6,240   7,636 
Total current assets  105,128   92,791 
Property and equipment, net  186,567   185,132 
Notes receivable, less current portion, net  10,572   11,502 
Goodwill  78,342   75,085 
Other assets  26,828   25,872 
Total assets $407,437  $390,382 
         
Liabilities and stockholders’ equity        
Current liabilities:        
Accounts payable $32,379  $32,966 
Income and other taxes payable  4,044   3,969 
Accrued expenses and other current liabilities  49,666   44,198 
Total current liabilities  86,089   81,133 
Deferred revenue  8,592   4,780 
Long-term debt  50,000   51,489 
Other long-term liabilities  23,638   22,014 
Long-term accrued income taxes  3,924   3,597 
Deferred income taxes  9,648   9,147 
Stockholders’ equity:        
Preferred stock  -   - 
Common stock  371   367 
Additional paid-in capital  274,863   262,456 
Accumulated other comprehensive income  1,609   1,849 
Retained earnings  330,320   298,807 
Treasury stock  (390,754)  (353,826)
Total stockholders' equity, net of noncontrolling interests  216,409   209,653 
Noncontrolling interests in subsidiaries  9,137   8,569 
Total stockholders’ equity  225,546   218,222 
Total liabilities and stockholders’ equity $407,437  $390,382 
Note:  The balance sheet at December 25, 2011 has been derived from the audited consolidated financial statements at that date, but does not include all information and footnotes required by accounting principles generally accepted in the United States for a complete set of financial statements.
See accompanying notes.
2
Papa John’sJohn's International, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands) March 25, 2012  December 25, 2011 
  (Unaudited)  (Note) 
Assets      
Current assets:      
Cash and cash equivalents $45,112  $18,942 
Accounts receivable, net  30,251   28,169 
Notes receivable, net  4,278   4,221 
Inventories  18,969   20,091 
Prepaid expenses  9,395   10,210 
Other current assets  4,342   3,522 
Deferred income taxes  6,858   7,636 
Total current assets  119,205   92,791 
Property and equipment, net  184,167   185,132 
Notes receivable, less current portion, net  11,498   11,502 
Goodwill  75,328   75,085 
Other assets  26,407   25,872 
Total assets $416,605  $390,382 
         
Liabilities and stockholders’ equity        
Current liabilities:        
Accounts payable $34,953  $32,966 
Income and other taxes payable  13,819   3,969 
Accrued expenses and other current liabilities  46,468   44,198 
Total current liabilities  95,240   81,133 
Deferred revenue  8,478   4,780 
Long-term debt  50,000   51,489 
Other long-term liabilities  23,795   22,014 
Long-term accrued income taxes  3,993   3,597 
Deferred income taxes  7,264   9,147 
Stockholders’ equity:        
Preferred stock  -   - 
Common stock  368   367 
Additional paid-in capital  266,783   262,456 
Accumulated other comprehensive income  2,060   1,849 
Retained earnings  315,551   298,807 
Treasury stock  (366,822)  (353,826)
Total stockholders' equity, net of noncontrolling interests  217,940   209,653 
Noncontrolling interests in subsidiaries  9,895   8,569 
Total stockholders’ equity  227,835   218,222 
Total liabilities and stockholders’ equity $416,605  $390,382 
         
Note: The balance sheet at December 25, 2011 has been derived from the audited consolidated financial 
statements at that date, but does not include all information and footnotes required by accounting principles 
generally accepted in the United States for a complete set of financial statements.     
         
See accompanying notes.        
2
Statements of Comprehensive Income
(Unaudited)
 
  Three Months Ended  Six Months Ended 
(In thousands, except per share amounts) June 24, 2012  June 26, 2011  June 24, 2012  June 26, 2011 
North America revenues:            
Domestic Company-owned restaurant sales $143,527  $127,641  $287,342  $266,312 
Franchise royalties  19,101   18,103   39,619   37,834 
Franchise and development fees  206   124   428   309 
Domestic commissary sales  126,593   121,027   264,203   248,699 
Other sales  11,771   12,370   24,029   25,817 
International revenues:                
Royalties and franchise and development fees  4,701   4,049   9,187   7,811 
Restaurant and commissary sales  12,680   10,220   25,047   19,219 
Total revenues  318,579   293,534   649,855   606,001 
Costs and expenses:                
Domestic Company-owned restaurant expenses:                
Cost of sales  32,881   30,162   65,337   62,262 
Salaries and benefits  39,839   34,367   78,652   72,016 
Advertising and related costs  13,278   11,898   25,977   24,687 
Occupancy costs  8,619   7,939   16,517   15,808 
Other operating expenses  20,830   18,492   41,248   38,407 
Total domestic Company-owned restaurant expenses  115,447   102,858   227,731   213,180 
Domestic commissary and other expenses:                
Cost of sales  104,412   103,529   217,250   209,972 
Salaries and benefits  9,218   8,651   18,221   17,662 
Other operating expenses  13,498   13,084   27,804   26,669 
Total domestic commissary and other expenses  127,128   125,264   263,275   254,303 
International operating expenses  10,975   8,756   21,367   16,484 
General and administrative expenses  31,463   27,617   63,059   56,691 
Other general expenses  1,135   1,459   6,809   2,240 
Depreciation and amortization  8,104   8,425   16,031   16,737 
Total costs and expenses  294,252   274,379   598,272   559,635 
Operating income  24,327   19,155   51,583   46,366 
 Investment income  195   205   365   382 
 Interest expense  (282)  (293)  (570)  (901)
Income before income taxes  24,240   19,067   51,378   45,847 
Income tax expense  8,299   6,014   17,367   15,245 
Net income, including noncontrolling interests  15,941   13,053   34,011   30,602 
Less: income attributable to noncontrolling interests  (1,172)  (929)  (2,498)  (2,051)
Net income, net of noncontrolling interests $14,769  $12,124  $31,513  $28,551 
                 
Basic earnings per common share $0.62  $0.48  $1.32  $1.12 
Earnings per common share - assuming dilution $0.61  $0.47  $1.30  $1.11 
                 
Basic weighted average shares outstanding  23,733   25,464   23,893   25,474 
Diluted weighted average shares outstanding  24,112   25,685   24,270   25,713 
                 
Comprehensive Income $15,490  $12,539  $33,771  $31,361 
See accompanying notes.
 
Papa John's International, Inc. and Subsidiaries
 Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
  Three Months Ended 
(In thousands, except per share amounts) March 25, 2012  March 27, 2011 
North America revenues:      
Domestic Company-owned restaurant sales $143,815  $138,671 
Franchise royalties  20,518   19,731 
Franchise and development fees  222   185 
Domestic commissary sales  137,610   127,672 
Other sales  12,258   13,447 
International revenues:        
Royalties and franchise and development fees  4,486   3,762 
Restaurant and commissary sales  12,367   8,999 
Total revenues  331,276   312,467 
Costs and expenses:        
Domestic Company-owned restaurant expenses:        
Cost of sales  32,456   32,100 
Salaries and benefits  38,813   37,649 
Advertising and related costs  12,699   12,789 
Occupancy costs  7,898   7,869 
Other operating expenses  20,418   19,915 
Total domestic Company-owned restaurant expenses  112,284   110,322 
Domestic commissary and other expenses:        
Cost of sales  112,838   106,443 
Salaries and benefits  9,003   9,011 
Other operating expenses  14,306   13,585 
Total domestic commissary and other expenses  136,147   129,039 
International operating expenses  10,392   7,728 
General and administrative expenses  31,596   29,074 
Other general expenses  5,674   781 
Depreciation and amortization  7,927   8,312 
Total costs and expenses  304,020   285,256 
Operating income  27,256   27,211 
 Investment income  170   177 
 Interest expense  (288)  (608)
Income before income taxes  27,138   26,780 
Income tax expense  9,068   9,231 
Net income, including noncontrolling interests  18,070   17,549 
Net income attributable to noncontrolling interests  (1,326)  (1,122)
Net income, net of noncontrolling interests $16,744  $16,427 
         
Basic earnings per common share $0.70  $0.64 
Earnings per common share - assuming dilution $0.69  $0.64 
         
Basic weighted average shares outstanding  24,053   25,484 
Diluted weighted average shares outstanding  24,438   25,757 
         
Comprehensive income $18,281  $18,822 
         
See accompanying notes.        

 
3
 
 
Papa John's International, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
(Unaudited)
  Papa John's International, Inc.       
  Common        Accumulated             
  Stock     Additional  Other        Noncontrolling  Total 
  Shares  Common  Paid-In  Comprehensive  Retained  Treasury  Interests in  Stockholders' 
(In thousands) Outstanding  Stock  Capital  Income (Loss)  Earnings  Stock  Subsidiaries  Equity 
                         
Balance at December 26, 2010  25,439  $361  $245,380  $849  $243,152  $(291,048) $8,506  $207,200 
Net income  -   -   -   -   28,551   -   2,051   30,602 
Other comprehensive income  -   -   -   759   -   -   -   759 
Exercise of stock options  444   4   10,659   -   -   -   -   10,663 
Tax effect of equity awards  -   -   (1,295)  -   -   -   -   (1,295)
Acquisition of Company                                
  common stock  (817)  -   -   -   -   (26,162)  -   (26,162)
Distributions  -   -   -   -   -   -   (2,029)  (2,029)
Stock-based compensation expense  -   -   3,903   -   -   -   -   3,903 
Issuance of restricted stock  76   -   (1,884)  -   -   1,884   -   - 
Other  -   -   (58)  -   -   218   -   160 
Balance at June 26, 2011  25,142  $365  $256,705  $1,608  $271,703  $(315,108) $8,528  $223,801 
                                 
Balance at December 25, 2011  24,019  $367  $262,456  $1,849  $298,807  $(353,826) $8,569  $218,222 
Net income  -   -   -   -   31,513   -   2,498   34,011 
Other comprehensive loss  -   -   -   (240)  -   -   -   (240)
Exercise of stock options  361   4   10,396   -   -   -   -   10,400 
Tax effect of equity awards  -   -   468   -   -   -   -   468 
Acquisition of Company                                
  common stock  (957)  -   -   -   -   (38,728)  -   (38,728)
Distributions  -   -   -   -   -   -   (1,930)  (1,930)
Stock-based compensation expense  -   -   3,218   -   -   -   -   3,218 
Issuance of restricted stock  34   -   (1,541)  -   -   1,541   -   - 
Other  -   -   (134)  -   -   259   -   125 
Balance at June 24, 2012  23,457  $371  $274,863  $1,609  $330,320  $(390,754) $9,137  $225,546 
See accompanying notes.
4
Papa John's International, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
  Six Months Ended 
(In thousands) June 24, 2012  June 26, 2011 
       
Operating activities      
Net income, including noncontrolling interests $34,011  $30,602 
Adjustments to reconcile net income to net cash provided by operating activities:        
Provision for uncollectible accounts and notes receivable  719   (7)
Depreciation and amortization  16,031   16,737 
Deferred income taxes  1,946   4,332 
Stock-based compensation expense  3,218   3,903 
Excess tax benefit on equity awards  (1,471)  (403)
Other  2,480   316 
Changes in operating assets and liabilities, net of acquisitions:        
     Accounts receivable  (75)  (1,167)
     Inventories  533   1,819 
     Prepaid expenses  (338)  (268)
     Other current assets  755   22 
     Other assets and liabilities  429   816 
     Accounts payable  (587)  (1,970)
     Income and other taxes payable  75   325 
     Accrued expenses and other current liabilities  3,297   (1,611)
     Long-term accrued income taxes  327   403 
     Deferred revenue  3,812   (924)
Net cash provided by operating activities  65,162   52,925 
         
Investing activities        
Purchase of property and equipment  (15,046)  (12,422)
Loans issued  (1,206)  (1,684)
Repayments of loans issued  1,730   3,920 
Acquisitions, net of cash acquired  (5,908)  - 
Proceeds from divestitures of restaurants  948   - 
Other  (4)  51 
Net cash used in investing activities  (19,486)  (10,135)
         
Financing activities        
Net repayments on line of credit facility  (1,489)  (51,000)
Excess tax benefit on equity awards  1,471   403 
Tax payments for restricted stock  (822)  (798)
Proceeds from exercise of stock options  10,400   10,663 
Acquisition of Company common stock  (38,728)  (26,162)
Distributions to noncontrolling interests  (1,930)  (2,029)
Other  125   42 
Net cash used in financing activities  (30,973)  (68,881)
Effect of exchange rate changes on cash and cash equivalents  (20)  82 
Change in cash and cash equivalents  14,683   (26,009)
Cash and cash equivalents at beginning of period  18,942   47,829 
Cash and cash equivalents at end of period $33,625  $21,820 
See accompanying notes.
5
Papa John's International, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements
(Unaudited)

June 24, 2012

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 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 accounting principles generally accepted in the United States for complete 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 six months ended June 24, 2012 are not necessarily indicative of the results that may be expected for the fiscal year ended December 30, 2012. For further information, refer to the consolidated financial statements and footnotes thereto included in the Annual Report on Form 10-K 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 25, 2011.

2.  Significant Accounting Policies

Comprehensive Income

The Company adopted the required Accounting Standards Updates (“ASU”) Nos. 2011-05 and 2011-12, Comprehensive Income: Presentation of Comprehensive Income in the first quarter of 2012 on a retrospective basis. The updated guidance does not change the components of comprehensive income, but eliminates certain options for presenting comprehensive income in the financial statements. In accordance with this updated guidance, we no longer present comprehensive income in our Consolidated Statements of Stockholders’ Equity. Instead, we are now required to present components of comprehensive income in either one continuous financial statement with two sections, net income and comprehensive income, or in two separate but consecutive statements. We elected the one continuous financial statement approach in the accompanying financial statements.

Noncontrolling Interests

The Consolidation topic of the Accounting Standards Codification (“ASC”) requires all entities to report noncontrolling interests in subsidiaries as equity in the consolidated financial statements, but separate from the equity of the parent company. The Consolidation topic further requires that consolidated net income be reported at amounts attributable to the parent and the noncontrolling interest, rather than expensing the income attributable to the noncontrolling interest holder. Additionally, disclosures are required to clearly identify and distinguish between the interests of the parent company and the interests of the noncontrolling owners, including a disclosure on the face of the consolidated statements for income attributable to the noncontrolling interest holder.
6
Papa John’s had two joint venture arrangements as of June 24, 2012 and June 26, 2011, which were as follows:
  
Restaurants as
of  June 24,
2012
 
Restaurants as
of  June 26,
2011
 Restaurant Locations 
Papa John's
Ownership*
 
Noncontrolling
Interest
Ownership*
           
Star Papa, LP 76 75 Texas 51% 49%
Colonel's Limited, LLC 52 52 Maryland and Virginia 70% 30%
*The ownership percentages were the same for both the 2012 and 2011 periods presented in the accompanying consolidated financial statements.
The income before income taxes attributable to the joint ventures for the three and six months ended June 24, 2012 and June 26, 2011 was as follows (in thousands):
  Three Months  Six Months 
  June 24,  June 26,  June 24,  June 26, 
  2012  2011  2012  2011 
             
Papa John's International, Inc. $1,854  $1,518  $3,897  $3,316 
Noncontrolling interests  1,172   929   2,498   2,051 
Total income before income taxes $3,026  $2,447  $6,395  $5,367 
The noncontrolling interest holders’ equity in the joint venture arrangements totaled $9.1 million as of June 24, 2012 and $8.6 million as of December 25, 2011.

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 our 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. We use an estimated annual effective rate based on expected annual income to determine our quarterly provision for income taxes. Discrete items are recorded in the quarter in which they occur.

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 are also recognized for the estimated future effects of tax loss carryforwards. The effect on deferred taxes of changes in tax rates is recognized in the period in which the new tax is enacted. As a result, our effective tax rate may fluctuate. Valuation allowances are established when necessary on a jurisdictional basis to reduce deferred tax assets to the amounts we expect to realize. As of June 24, 2012, we had a net deferred tax liability of approximately $3.4 million.

Tax authorities periodically audit the Company. We record reserves for identified exposures and related interest and penalties. We evaluate these issues on a quarterly basis to adjust for events, such as court rulings or audit settlements, which may impact our ultimate payment for such exposures.

Subsequent Events

The Company evaluated subsequent events through the date the financial statements were issued and filed. There were no subsequent events that required recognition or disclosure.
7
Reclassifications

Certain prior year amounts in the Condensed Consolidated Balance Sheets and the Consolidated Statements of Cash Flows have been reclassified to conform to the current year presentation.

3.Accumulated Other Comprehensive Income (Loss)

Accumulated Other Comprehensive Income (Loss) is comprised of the following (in thousands):
  
Foreign
Currency
  
Interest
Rate
Swaps (a)
  
Defined
Pension
Plan
  
Accumulated
Other
Comprehensive
Income (Loss)
 
Three Months Ended            
Beginning balance - March 27, 2011 $2,122  $-  $-  $2,122 
Current period other comprehensive income (loss)  (514)  -   -   (514)
Ending balance - June 26, 2011 $1,608  $-  $-  $1,608 
                 
Beginning balance - March 25, 2012 $2,163  $(74) $(29) $2,060 
Current period other comprehensive income (loss)  (445)  (6)  -   (451)
Ending balance - June 24, 2012 $1,718  $(80) $(29) $1,609 
                 
Six Months Ended                
Beginning balance - December 26, 2010 $1,008  $(159) $-  $849 
Current period other comprehensive income (loss)  600   159   -   759 
Ending balance - June 26, 2011 $1,608  $-  $-  $1,608 
                 
Ending balance - December 25, 2011 $1,872  $6  $(29) $1,849 
Current period other comprehensive income (loss)  (154)  (86)  -   (240)
Ending balance - June 24, 2012 $1,718  $(80) $(29) $1,609 
 
  Papa John's International, Inc.       
  Common        Accumulated             
  Stock     Additional  Other        Noncontrolling  Total 
  Shares  Common  Paid-In  Comprehensive  Retained  Treasury  Interests in  Stockholders' 
(In thousands) Outstanding  Stock  Capital  Income  Earnings  Stock  Subsidiaries  Equity 
                         
Balance at December 26, 2010  25,439  $361  $245,380  $849  $243,152  $(291,048) $8,506  $207,200 
Net income  -   -   -   -   16,427   -   1,122   17,549 
Other comprehensive income  -   -   -   1,273   -   -   -   1,273 
Exercise of stock options  63   1   1,313   -   -   -   -   1,314 
Tax effect of equity awards  -   -   31   -   -   -   -   31 
Acquisition of Company                                
   common stock  (143)  -   -   -   -   (4,119)  -   (4,119)
Net contributions (distributions) -                                
   noncontrolling interests  -   -   -   -   -   -   (1,729)  (1,729)
Stock-based compensation expense  -   -   1,795   -   -   -   -   1,795 
Other  -   -   (50)  -   -   152   -   102 
Balance at March 27, 2011  25,359  $362  $248,469  $2,122  $259,579  $(295,015) $7,899  $223,416 
                                 
Balance at December 25, 2011  24,019  $367  $262,456  $1,849  $298,807  $(353,826) $8,569  $218,222 
Net income  -   -   -   -   16,744   -   1,326   18,070 
Other comprehensive income  -   -   -   211   -   -   -   211 
Exercise of stock options  116   1   3,727   -   -   -   -   3,728 
Tax effect of equity awards  -   -   (351)  -   -   -   -   (351)
Acquisition of Company                                
   common stock  (372)  -   -   -   -   (13,820)  -   (13,820)
Stock-based compensation expense  -   -   1,694   -   -   -   -   1,694 
Issuance of restricted stock  30   -   (591)  -   -   591   -   - 
Other  -   -   (152)  -   -   233   -   81 
Balance at March 25, 2012  23,793  $368  $266,783  $2,060  $315,551  $(366,822) $9,895  $227,835 
                                 
See accompanying notes.                                
(a)Current period other comprehensive income (loss) is shown net of tax of $3 for the three months ended June 24, 2012 (none in the same period
of 2011) and $89 and $51 for the six months ended June 26, 2011 and June 24, 2012, respectively.
 
4
Papa John's International, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
  Three Months Ended 
(In thousands) March 25, 2012  March 27, 2011 
       
Operating activities      
Net income, including noncontrolling interests $18,070  $17,549 
Adjustments to reconcile net income to net cash provided by operating activities:     
Provision for uncollectible accounts and notes receivable  547   39 
Depreciation and amortization  7,927   8,312 
Deferred income taxes  (1,057)  2,664 
Stock-based compensation expense  1,694   1,795 
Excess tax benefit on equity awards  (129)  (107)
Other  678   43 
Changes in operating assets and liabilities, net of acquisitions:        
     Accounts receivable  (2,670)  (3,011)
     Inventories  1,122   (28)
     Prepaid expenses  815   (324)
     Other current assets  (820)  85 
     Other assets and liabilities  764   (721)
     Accounts payable  1,987   (4,818)
     Income and other taxes payable  9,850   4,874 
     Accrued expenses and other current liabilities  1,221   296 
     Long-term accrued income taxes  396   366 
     Deferred revenue  3,698   (327)
Net cash provided by operating activities  44,093   26,687 
         
Investing activities        
Purchase of property and equipment  (6,403)  (4,823)
Loans issued  (687)  (165)
Repayments of loans issued  703   1,468 
Other  5   - 
Net cash used in investing activities  (6,382)  (3,520)
         
Financing activities        
Net repayments on line of credit facility  (1,489)  (51,000)
Excess tax benefit on equity awards  129   107 
Tax payments for restricted stock  (303)  - 
Proceeds from exercise of stock options  3,728   1,314 
Acquisition of Company common stock  (13,820)  (4,119)
Distributions to noncontrolling interests  -   (1,729)
Other  82   (10)
Net cash used in financing activities  (11,673)  (55,437)
Effect of exchange rate changes on cash and cash equivalents  132   (6)
Change in cash and cash equivalents  26,170   (32,276)
Cash and cash equivalents at beginning of period  18,942   47,829 
Cash and cash equivalents at end of period $45,112  $15,553 
         
See accompanying notes.        
         
5

Papa John's International, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements
(Unaudited)

March 25, 2012

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 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 accounting principles generally accepted in the United States for complete 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 25, 2012 are not necessarily indicative of the results that may be expected for the fiscal year ended December 30, 2012. For further information, refer to the consolidated financial statements and footnotes thereto included in the Annual Report on Form 10-K 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 25, 2011.

2.  Significant Accounting Policies

Comprehensive Income

The Company adopted the required Accounting Standards Updates (“ASU”) Nos. 2011-05 and 2011-12, Comprehensive Income: Presentation of Comprehensive Income in the first quarter of 2012 on a retrospective basis. The updated guidance does not change the components of comprehensive income, but eliminates certain options for presenting comprehensive income in the financial statements. In accordance with this updated guidance, we are no longer permitted to present comprehensive income in our Consolidated Statements of Stockholders’ Equity. Instead, we are now required to present components of comprehensive income in either one continuous financial statement with two sections, net income and comprehensive income, or in two separate but consecutive statements. For the first quarter of 2012, we elected the one continuous financial statement approach.

Noncontrolling Interests

The Consolidation topic of the Accounting Standards Codification (“ASC”) requires all entities to report noncontrolling interests in subsidiaries as equity in the consolidated financial statements, but separate from the equity of the parent company. The Consolidation topic further requires that consolidated net income be reported at amounts attributable to the parent and the noncontrolling interest, rather than expensing the income attributable to the noncontrolling interest holder. Additionally, disclosures are required to clearly identify and distinguish between the interests of the parent company and the interests of the noncontrolling owners, including a disclosure on the face of the consolidated statements for income attributable to the noncontrolling interest holder.
6

Papa John’s had two joint venture arrangements as of March 25, 2012 and March 27, 2011, which were as follows:
  
Restaurants as
of March 25,
2012
 
Restaurants as
of March 27,
2011
Restaurant Locations Papa John's Ownership*  
Noncontrolling Interest
Ownership*
 
              
Star Papa, LP  76   75 Texas  51%  49%
Colonel's Limited, LLC  52   52 Maryland and Virginia  70%  30%
                  
                  
*The ownership percentages were the same for both the 2012 and 2011 periods presented in the accompanying 
consolidated financial statements.              

The income before income taxes attributable to the joint ventures for the three months ended March 25, 2012 and March 27, 2011 was as follows (in thousands):
  March 25,  March 27, 
  2012  2011 
       
Papa John's International, Inc. $2,043  $1,798 
Noncontrolling interests  1,326   1,122 
Total income before income taxes $3,369  $2,920 
         

The noncontrolling interest holders’ equity in the joint venture arrangements totaled $9.9 million as of March 25, 2012 and $8.6 million as of December 25, 2011.

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 our 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. We use an estimated annual effective rate based on expected annual income to determine our quarterly provision for income taxes. Discrete items are recorded in the quarter in which they occur.

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 are also recognized for the estimated future effects of tax loss carryforwards. The effect on deferred taxes of changes in tax rates is recognized in the period in which the new tax is enacted. As a result, our effective tax rate may fluctuate. Valuation allowances are established when necessary on a jurisdictional basis to reduce deferred tax assets to the amounts we expect to realize. As of March 25, 2012, we had a net deferred tax liability of approximately $400,000.

Tax authorities periodically audit the Company. We record reserves for identified exposures. We evaluate these issues on a quarterly basis to adjust for events, such as court rulings or audit settlements, which may impact our ultimate payment for such exposures.
7

Subsequent Events

Effective April 23, 2012, the Company acquired 56 franchised Papa John’s restaurants in the Denver and Minneapolis markets, six of which were subsequently refranchised. The purchase price, which was paid in cash, was $5.1 million net of the divestiture proceeds from the six restaurants sold. The acquisition is not expected to have a material impact on our 2012 operating results.
Reclassifications

Certain prior year amounts in the Condensed Consolidated Balance Sheets and the Consolidated Statements of Cash Flows have been reclassified to conform to the current year presentation.

3.  Accumulated Other Comprehensive Income (Loss)

Accumulated Other Comprehensive Income (Loss) is comprised of the following (in thousands):
  
Foreign
Currency
  
Interest
Rate
Swaps (a)
  
Defined
Pension
Plan
  
Accumulated
Other
Comprehensive Income
 
             
Beginning balance - December 26, 2010 $1,008  $(159) $-  $849 
Current period other comprehensive income  1,114   159   -   1,273 
Ending balance - March 27, 2011 $2,122  $-  $-  $2,122 
                 
Beginning balance - December 25, 2011 $1,872  $6  $(29) $1,849 
Current period other comprehensive income (loss)  291   (80)  -   211 
Ending balance - March 25, 2012 $2,163  $(74) $(29) $2,060 
                 
(a) Amounts are shown net of tax of $89,000 and $47,000 for the three months ended March 27, 2011 
     and March 25, 2012, respectively.                

4.Fair Value Measurements and Disclosures

The Company is required to determine 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. Assets and liabilities carried at fair value are required to be classified and disclosed in one of the following categories:

●  Level 1: Quoted market prices in active markets for identical assets or liabilities.
●  
The Company is required to determine 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. Assets and liabilities carried at fair value are required to be classified and disclosed in one of the following 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.

8
Our financial assets and liabilities that were measured at fair value on a recurring basis as of June 24, 2012 and December 25, 2011 are not corroborated by market data.

8
Our financial assets and liabilities that were measured at fair value on a recurring basis as of March 25, 2012 and December 25, 2011 are as follows (in thousands):
  Carrying  Fair Value Measurements 
  Value  Level 1  Level 2  Level 3 
             
March 25, 2012            
Financial assets:            
   Cash surrender value of life insurance policies * $12,341  $12,341  $-  $- 
                 
Financial liabilities:                
   Interest rate swap  118   -   118   - 
                 
December 25, 2011                
Financial assets:                
   Cash surrender value of life insurance policies * $11,387  $11,387  $-  $- 
   Interest rate swap  11   -   11   - 
                 
* Represents life insurance held in our non-qualified deferred compensation plan.         
                 

There were no transfers among levels within the fair value hierarchy during the three months ended March 25,as follows (in thousands):
  Carrying  Fair Value Measurements 
  Value  Level 1  Level 2  Level 3 
             
June 24, 2012            
Financial assets:            
   Cash surrender value of life insurance policies * $12,438  $12,438  $-  $- 
                 
Financial liabilities:                
   Interest rate swap  127   -   127   - 
                 
December 25, 2011                
Financial assets:                
   Cash surrender value of life insurance policies * $11,387  $11,387  $-  $- 
   Interest rate swap  11   -   11   - 
* Represents life insurance policies held in our non-qualified deferred compensation plan.
There were no transfers among levels within the fair value hierarchy during the six months ended June 24, 2012.

The fair value of our interest rate swap 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 swap, as well as considering published discount factors, and projected London Interbank Offered Rates (“LIBOR”).

5.  Debt

Our debt is comprised entirely of the revolving line of credit.  The balance was $50.0 million as of March 25, 2012 and $51.5 million as of December 25, 2011.

In September 2010, we entered into a five-year, $175.0 million unsecured revolving credit facility (“Credit Facility”). The Credit Facility was amended in November 2011 (the “Amended Credit Facility”), which extended the maturity date of the Credit Facility to November 30, 2016. Under the Amended Credit Facility, outstanding balances are charged interest at 75 basis points to 150 basis points over LIBOR or other bank developed rates at our option (previously charged 100 basis points to 175 basis points above LIBOR). The remaining availability under the Amended Credit Facility, reduced for outstanding letters of credit, approximated $111.5 million as of March 25, 2012. The fair value of the outstanding debt approximates the carrying value since the debt agreements are variable-rate instruments.

The Credit Facility contains customary affirmative and negative covenants, including financial covenants requiring the maintenance of specified fixed charges and leverage ratios. At March 25, 2012, we were in compliance with these covenants.

In August 2011, we entered into a new interest rate swap agreement that provides for a fixed rate of 0.53%, as compared to LIBOR, with a notional amount of $50.0 million. The new interest rate swap agreement expires in August 2013. We had two interest rate swap agreements that expired in January 2011. The previous swap agreements provided for fixed rates of 4.98% and 3.74%, as compared to LIBOR, with each having a notional amount of $50.0 million.

Our swaps are derivative instruments that are designated as cash flow hedges because the swaps provide a hedge against the effects of rising interest rates on borrowings. The effective portion of the gain or loss on the swap is reported as a component of accumulated other comprehensive income and reclassified into earnings in the same period or periods during which the swap affects earnings. Gains or losses on the swap representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings. Amounts payable or receivable under the swap are accounted for as adjustments to interest expense. As of March 25, 2012, the swap is a highly effective cash flow hedge.
9

The weighted average interest rates for our revolving credit facilities, including the impact of the swap agreements, were 1.3% and 3.3% for the three months ended March 25, 2012 and March 27, 2011, respectively. Interest paid, including payments made or received under the swaps, was $249,000 and $878,000 for the three months ended March 25, 2012 and March 27, 2011, respectively. As of March 25, 2012, the portion of the $118,000 interest rate swap liability that would be reclassified into earnings during the next twelve months as interest expense approximates $83,000.

Our long-term debt is comprised of the outstanding balance under our revolving line of credit.  The balance was $50.0 million as of June 24, 2012 and $51.5 million as of December 25, 2011.

In September 2010, we entered into a five-year, $175.0 million unsecured revolving credit facility (“Credit Facility”). The Credit Facility was amended in November 2011 (the “Amended Credit Facility”), which extended the maturity date of the Credit Facility to November 30, 2016. Under the Amended Credit Facility, outstanding balances accrue interest at 75 basis points to 150 basis points over LIBOR or other bank developed rates at our option (previously interest accrued at 100 basis points to 175 basis points above LIBOR). The remaining availability under the Amended Credit Facility, reduced for outstanding letters of credit, was approximately $111.5 million as of June 24, 2012. The fair value of the outstanding debt approximates the carrying value since the debt agreements are variable-rate instruments.

The Amended Credit Facility contains customary affirmative and negative covenants, including financial covenants requiring the maintenance of specified fixed charges and leverage ratios. At June 24, 2012, we were in compliance with these covenants.

In August 2011, we entered into an interest rate swap agreement that provides for a fixed rate of 0.53%, as compared to LIBOR, with a notional amount of $50.0 million. The interest rate swap agreement expires in August 2013. We previously had two interest rate swap agreements that expired in January 2011. The previous swap agreements provided for fixed rates of 4.98% and 3.74%, as compared to LIBOR, with each having a notional amount of $50.0 million.
9
Our swaps are derivative instruments that are designated as cash flow hedges because the swaps provide a hedge against the effects of rising interest rates on borrowings. The effective portion of the gain or loss on the swap is reported as a component of accumulated other comprehensive income and reclassified into earnings in the same period or periods during which the swap affects earnings. Gains or losses on the swap representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings. Amounts payable or receivable under the swap are accounted for as adjustments to interest expense. As of June 24, 2012, the swap is a highly effective cash flow hedge.

The weighted average interest rates for our revolving credit facilities, including the impact of the swap agreements, were 1.3% and 1.2% for the three months ended June 24, 2012 and June 26, 2011, respectively, and 1.3% and 2.4% for the six months ended June 24, 2012 and June 26, 2011, respectively. Interest paid, including payments made or received under the swaps, was $232,000 and $248,000 for the three months ended June 24, 2012 and June 26, 2011, respectively, and $482,000 and $1.1 million for the six months ended June 24, 2012 and June 26, 2011, respectively. As of June 24, 2012, the portion of the $127,000 interest rate swap liability that would be reclassified into earnings during the next twelve months as interest expense approximates $109,000.

6.  
Calculation of Earnings Per Share

The calculations of basic earnings per common share and earnings per common share – assuming dilution are as follows (in thousands, except per-share data):

  Three Months Ended 
  March 25,  March 27, 
  2012  2011 
       
Basic earnings per common share:      
Net income, net of noncontrolling interests $16,744  $16,427 
Weighted average shares outstanding  24,053   25,484 
Basic earnings per common share $0.70  $0.64 
         
Earnings per common share - assuming dilution:        
Net income, net of noncontrolling interests $16,744  $16,427 
         
Weighted average shares outstanding  24,053   25,484 
Dilutive effect of outstanding equity awards  385   273 
Diluted weighted average shares outstanding  24,438   25,757 
Earnings per common share - assuming dilution $0.69  $0.64 

Shares subject to options to purchase common stock with an exercise price greater than the average market price for the quarter were not included in the computation of earnings per common share – assuming dilution because the effect would have been antidilutive. The weighted average number of shares subject to the antidilutive options was 439,000 for the three months ended March 27, 2011 (none for the three months ended March 25, 2012).

The calculations of basic earnings per common share and earnings per common share – assuming dilution are as follows (in thousands, except per-share data):
  Three Months Ended  Six Months Ended 
  June 24,  June 26,  June 24,  June 26, 
  2012  2011  2012  2011 
             
Basic earnings per common share:            
Net income $14,769  $12,124  $31,513  $28,551 
Weighted average shares outstanding  23,733   25,464   23,893   25,474 
Basic earnings per common share $0.62  $0.48  $1.32  $1.12 
                 
Earnings per common share - assuming dilution:                
Net income $14,769  $12,124  $31,513  $28,551 
                 
Weighted average shares outstanding  23,733   25,464   23,893   25,474 
Dilutive effect of outstanding compensation awards  379   221   377   239 
Diluted weighted average shares outstanding  24,112   25,685   24,270   25,713 
Earnings per common share - assuming dilution $0.61  $0.47  $1.30  $1.11 
Shares subject to options to purchase common stock with an exercise price greater than the average market price were not included in the computation of earnings per common share – assuming dilution because the effect would have been antidilutive. The weighted average number of shares subject to the antidilutive options was 269,000 for the three months ended June 26, 2011 and 355,000 for the six months ended June 26, 2011 (none for the three and six months ended June 24, 2012).
7.Acquisition and Divestiture of Restaurants
7.  
On April 23, 2012, we completed the acquisition of 56 franchised Papa John’s restaurants located in the Denver and Minneapolis markets. The purchase price, which was paid in cash, was $5.2 million net of divestiture proceeds of $0.7 million from the sale of six restaurants located in the Denver market to an existing franchisee. This business combination was accounted for by the purchase method of accounting, whereby operating results subsequent to the acquisition date are included in our consolidated financial results.
10
The preliminary purchase price of the acquisition has been allocated based on initial fair value estimates as follows (in thousands):
Property and equipment $1,602 
Reacquired franchise right  245 
Goodwill  3,830 
Other, including cash  239 
Total purchase price $5,916 
The excess of the purchase price over the aggregate fair value of net assets acquired was allocated to goodwill, all of which is expected to be deductible for tax purposes.

8.  Commitments and Contingencies

In connection with the 2006 sale of our former Perfect Pizza operations in the United Kingdom, we remain contingently liable for payment of certain lease agreements, primarily associated with Perfect Pizza restaurant sites for which the Perfect Pizza franchisor was primarily liable. As the initial party to the lease agreements, we are liable to the extent the primary obligor does not satisfy its payment obligations.
On August 1, 2011 the High Court of Justice Chancery Division, Birmingham District Registry entered an order placing Perfect Pizza in administration, thereby providing Perfect Pizza with protection from its creditors in accordance with UK insolvency law. On the same date, the administrators entered into an agreement to sell substantially all of the business and assets of Perfect Pizza. In accordance with the terms of the agreement, the buyer had an option period up to nine months, which expired May 1, 2012, to determine which Perfect Pizza leases they would assume. We remain contingently liable for approximately 40 leases, which have varying terms with most expiring by the end of 2015. The estimated maximum amount of undiscounted rental payments we would be required to make in the event of non-payment under these leases is approximately $1.9 million, net of amounts reserved of approximately $800,000.
In addition, we remain contingently liable for payment under approximately 40 lease agreements, primarily associated with Perfect Pizza restaurant sites for which the Perfect Pizza franchisor was primarily liable. As the initial party to the lease agreements, we are liable to the extent the primary obligor does not satisfy its payment obligations.
On August 1, 2011 the High Court of Justice Chancery Division, Birmingham District Registry entered an order placing Perfect Pizza in administration, thereby providing Perfect Pizza with protection from its creditors in accordance with UK insolvency law. On the same date, the administrators entered into an agreement to sell substantially all of the business and assets of Perfect Pizza. In accordance with the terms of the agreement, the buyer has an option period up to nine months to determine which Perfect Pizza leases they will assume.
10

The buyer is finalizing its lease assessment. Based on communications with the buyer, we believe we will remain contingently liable for the majority of these leases, which have varying terms with most expiring by the end of 2015. The estimated maximum amount of undiscounted rental payments we would be required to make in the event of non-payment under all such leases is approximately $2.0 million, net of amounts previously reserved in 2011 of approximately $800,000.
We are subject to claims and legal actions in the ordinary course of business. We believe that all such claims and actions currently pending against us are either adequately covered by insurance or would not have a material adverse effect on us if decided in a manner unfavorable to us.

8.  9.  Segment Information

We have defined six reportable segments: domestic Company-owned restaurants, domestic commissaries, North America franchising, international operations, variable interest entities (“VIEs”) and “all other” units.

The domestic Company-owned restaurant segment consists of the operations of all domestic (“domestic” is defined as contiguous United States) Company-owned restaurants and derives its revenues principally from retail sales of pizza and side items, such as breadsticks, cheesesticks, chicken strips, chicken wings, dessert pizza, and soft drinks to the general public. The domestic 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. 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 international operations segment principally consists of our Company-owned restaurants and distribution sales to franchised Papa John’s restaurants located in the United Kingdom, Mexico and China 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. BIBP Commodities, Inc., a franchisee-owned corporation, which operated through February 2011, was a VIE in which we were deemed the primary beneficiary, and is the only activity reflected in the VIE segment. All other business units that do not meet the quantitative thresholds for determining reportable segments, which are not operating segments, we refer to as our “all other” segment, which consists of operations that derive revenues from the sale, principally to Company-owned and franchised restaurants, of printing and promotional items, risk management services, and information systems and related services used in restaurant operations, including our online and other technology-based ordering platforms.

We have defined six reportable segments: domestic Company-owned restaurants, domestic commissaries, North America franchising, international operations, variable interest entities (“VIEs”) and “all other” units.

The domestic Company-owned restaurant segment consists of the operations of all domestic (“domestic” is defined as contiguous United States) Company-owned restaurants and derives its revenues principally from retail sales of pizza and side items, such as breadsticks, cheesesticks, chicken strips, chicken wings, dessert pizza, and soft drinks to the general public. The domestic 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. 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 international operations segment principally consists of our Company-owned restaurants in China and distribution sales to franchised Papa John’s restaurants located in the United Kingdom, Mexico and China 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. BIBP Commodities, Inc., a franchisee-owned corporation, which operated through February 2011, was a VIE in which we were deemed the primary beneficiary, and is the only activity reflected in the VIE segment. All other business units that do not meet the quantitative thresholds for determining reportable segments, which are not operating segments, we refer to as our “all other” segment, which consists of operations that derive revenues from the sale, principally to Company-owned and franchised restaurants, of printing and promotional items, risk management services, and information systems and related services used in restaurant operations, including our online and other technology-based ordering platforms.
11
Generally, we evaluate performance and allocate resources based on profit or loss from operations before income taxes and eliminations. Certain administrative and capital costs are allocated to segments based upon predetermined rates or actual estimated resource usage. We account for intercompany sales and transfers as if the sales or transfers were to third parties and eliminate the activity in consolidation.

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. No single external customer accounted for 10% or more of our consolidated revenues.

Our segment information is as follows (in thousands):
  Three Months Ended  Six Months Ended 
  June 24, 2012  June 26, 2011  June 24, 2012  June 26, 2011 
Revenues from external customers:            
Domestic Company-owned restaurants $143,527  $127,641  $287,342  $266,312 
Domestic commissaries  126,593   121,027   264,203   248,699 
North America franchising  19,307   18,227   40,047   38,143 
International  17,381   14,269   34,234   27,030 
All others  11,771   12,370   24,029   25,817 
Total revenues from external customers $318,579  $293,534  $649,855  $606,001 
                 
Intersegment revenues:                
Domestic commissaries $39,953  $35,872  $81,490  $73,972 
North America franchising  561   535   1,110   1,083 
International  56   58   110   105 
Variable interest entities  -   -   -   25,117 
All others  2,664   2,571   5,685   5,126 
Total intersegment revenues $43,234  $39,036  $88,395  $105,403 
                 
Income (loss) before income taxes:                
Domestic Company-owned restaurants $9,358  $7,421  $21,679  $18,304 
Domestic commissaries  7,978   4,321   19,144   13,875 
North America franchising  16,619   16,240   34,759   34,249 
International  320   (250)  592   (1,066)
All others  471   (298)  866   (676)
Unallocated corporate expenses  (10,025)  (8,517)  (25,191)  (18,286)
Elimination of intersegment profits  (481)  150   (471)  (553)
Total income before income taxes $24,240  $19,067  $51,378  $45,847 
                 
Property and equipment:                
Domestic Company-owned restaurants $179,140             
Domestic commissaries  89,308             
International  19,032             
All others  42,668             
Unallocated corporate assets  136,340             
Accumulated depreciation and amortization  (279,921)            
Net property and equipment $186,567             
 
11

Our segment information is as follows (in thousands):

  Three Months Ended 
  March 25, 2012  March 27, 2011 
Revenues from external customers:      
Domestic Company-owned restaurants $143,815  $138,671 
Domestic commissaries  137,610   127,672 
North America franchising  20,740   19,916 
International  16,853   12,761 
All others  12,258   13,447 
Total revenues from external customers $331,276  $312,467 
         
Intersegment revenues:        
Domestic commissaries $41,537  $38,100 
North America franchising  549   548 
International  54   47 
Variable interest entities  -   25,117 
All others  3,021   2,555 
Total intersegment revenues $45,161  $66,367 
         
Income (loss) before income taxes:        
Domestic Company-owned restaurants $12,321  $10,883 
Domestic commissaries  11,166   9,554 
North America franchising  18,140   18,009 
International  272   (816)
All others  395   (378)
Unallocated corporate expenses  (15,166)  (9,769)
Elimination of intersegment profits  10   (703)
Total income before income taxes $27,138  $26,780 
         
Property and equipment:        
Domestic Company-owned restaurants $177,423     
Domestic commissaries  87,014     
International  18,047     
All others  41,053     
Unallocated corporate assets  133,452     
Accumulated depreciation and amortization  (272,822)    
Net property and equipment $184,167     
 
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Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations and Critical Accounting Policies and EstimatesOverview

Papa John’s International, Inc. (referred to as the “Company,” “Papa John’s” or in the first person notations of “we,” “us” and “our”) began operations in 1985. At March 25,June 24, 2012, there were 3,9333,973 Papa John’s restaurants (626(676 Company-owned and 3,3073,297 franchised) operating in all 50 states and 33 countries. Our revenues are principally derived from retail sales of pizza and other food and beverage products to the general public by Company-owned restaurants, franchise royalties, sales of franchise and development rights, sales to franchisees of food and paper products, printing and promotional items, risk management services, and information systems and related services used in their operations.

The results of operations are based on the preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States.States (“GAAP”). The preparation of consolidated financial statements requires management to select accounting policies for critical accounting areas and make estimates and assumptions that affect the amounts reported in the consolidated financial statements. Significant changes in assumptions and/or conditions in our critical accounting policies could materially impact the operating results. We have identified the following accounting policies and related judgments as critical to understanding the results of our operations:

Allowance for Doubtful Accounts and Notes Receivable

We establish reserves for uncollectible accounts and notes receivable based on overall receivable aging levels and a specific evaluation of accounts and notes for franchisees and other customers with known financial difficulties.

Intangible Assets - Goodwill

We evaluate goodwill annually in 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 (defined as an operating segment, or one level below an operating segment) below its carrying amount. Such tests are completed separately with respect to the goodwill of each of our reporting units. Events or circumstances that might indicate an interim evaluation is warranted include, among other factors, unexpected adverse business conditions, macro and reporting unit specific economic factors (for example, worsening results in comparison to projections, commodity inflation, or loss of key personnel), unanticipated competitive activities, and acts by governments or courts.

When evaluating goodwill, we determine, on a reporting unit basis, whether a qualitative or quantitative analysis is warranted. If the qualitative analysis provides a more-likely-than-not conclusion that the fair value is greater than the carrying value, a quantitative analysis is not performed. When a quantitative assessment is performed, we generally calculate the fair value using an income approach that projects net cash flow over a 10-year discrete period and a terminal value, which are discounted using appropriate rates. The selected discount rate considers the risk and nature of the reporting unit’s cash flow and the rates of return market participants would require to invest their capital in the reporting unit. In the fourth quarter of 2011, we performed a qualitative analysis on both our domestic Company-owned restaurants and China reporting units and performed a quantitative analysis of our United Kingdom reporting unit (“PJUK”).

The goodwill allocated to PJUK was approximately $15.1 million at March 25, 2012. We have previously recorded goodwill impairment charges for this entity. We believe our PJUK reporting unit will continue to improve its operating results through ongoing growth initiatives, by increasing Papa John’s brand awareness in the United Kingdom, improving sales and profitability for individual franchised restaurants and increasing PJUK franchised net unit openings over the next several years. Future impairment charges could be required if adverse economic events occur in the United Kingdom or if PJUK is unable to improve its operating results.
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Insurance Reserves

Our insurance programs for workers’ compensation, general liability, owned and non-owned automobiles and health insurance coverage provided to our employees are self-insured up to certain individual and aggregate reinsurance levels. Losses are accrued based upon undiscounted estimates of the aggregate retained liability for claims incurred using certain third-party actuarial projections and our claims loss experience. The estimated insurance claims losses could be significantly affected should the frequency or ultimate cost of claims significantly differ from historical trends used to estimate the insurance reserves recorded by the Company.

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 our 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. We use an estimated annual effective rate based on expected annual income to determine our quarterly provision for income taxes. Discrete items are recorded in the quarter in which they occur.

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 are also recognized for the estimated future effects of tax loss carryforwards. The effect on deferred taxes of changes in tax rates is recognized in the period in which the new tax rate is enacted. As a result, our effective tax rate may fluctuate. Valuation allowances are established when necessary on a jurisdictional basis to reduce deferred tax assets to the amounts we expect to realize. As of March 25, 2012, we had a net deferred income tax liability of approximately $400,000.

Tax authorities periodically audit the Company. We record reserves for identified exposures. We evaluate these issues on a quarterly basis to adjust for events, such as court rulings or audit settlements, which may impact our ultimate payment for such exposures.

Non-GAAP Measures

In connection with a new multi-year supplier agreement, the Company received a $5.0 million supplier marketing payment in the first quarter of 2012. The Company contributed the supplier marketing payment to the Papa John’s National Marketing Fund (“PJNMF”), an unconsolidated, non-profit corporation, for the benefit of domestic restaurants. The Company is recognizing the supplier marketing payment evenly as income over the five-year term of the agreement.agreement ($250,000 per quarter). The Company’sCompany then contributed the supplier marketing payment to the Papa John’s Marketing Fund (“PJMF”), an unconsolidated, non-profit corporation, for the benefit of domestic restaurants. The Company contribution to PJNMFPJMF was fully expensed in the first quarter of 2012. The impact of these transactions in the first quarter of 2012 was a reduction in income before income taxes of $4.7 million (diluted earnings per share reduction of $0.13). The impact for the full-year 2012 will be a reduction in income before income taxes of approximately $4.0 million (diluted earnings per share reduction of $0.11). The Company will recognize the remaining $4.0 million of income associated with the supplier marketing payment evenly over the remaining term of the supplier agreement (2013 through 2016).

PJNMFPJMF elected to distribute the $5.0 million supplier marketing payment to the domestic system as advertising credits in the first quarter of 2012. Our domestic Company-owned restaurants’ portion of the advertising credits resulted in an increase in income before income taxes of approximately $1.0 million (increase in diluted earnings per share of $0.03).
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for the six months ended June 24, 2012.

The overall impact of these transactions, defined as the “Incentive Contribution,” in the first quarter of 2012 was a net reductionincrease to income before income taxes of approximately $3.7 million (diluted earnings per share$250,000 for the three months ended June 24, 2012 and a reduction of $0.10).$3.5 million for the six months ended June 24, 2012. The impact for full-year 2012 will be a reduction to income before income taxes of approximately $3.0 million (diluted(or a reduction to diluted earnings per share reduction of approximately $0.08).
13
The following table reconciles our GAAP financial results to the adjusted financial results, excluding the impact of the Incentive Contribution, for the first quarterthree and six months ended March 25,June 24, 2012:
 
 First Quarter  Three Months Ended  Six Months Ended 
 Mar. 25,  Mar. 27,     June 24,  June 26,  Increase  June 24,  June 26,  Increase 
(In thousands, except per share amounts) 2012  2011  Increase  2012  2011  (decrease)  2012  2011  (decrease) 
                           
Income before income taxes, as reported $27,138  $26,780  $358  $24,240  $19,067  $5,173  $51,378  $45,847  $5,531 
Incentive Contribution  3,721   -   3,721   (250)  -   (250)  3,471   -   3,471 
Income before income taxes, excluding Incentive Contribution $30,859  $26,780  $4,079  $23,990  $19,067  $4,923  $54,849  $45,847  $9,002 
                                    
Net income, as reported $16,744  $16,427  $317  $14,769  $12,124  $2,645  $31,513  $28,551  $2,962 
Incentive Contribution  2,439   -   2,439   (164)  -   (164)  2,275   -   2,275 
Net income, excluding Incentive Contribution $19,183  $16,427  $2,756  $14,605  $12,124  $2,481  $33,788  $28,551  $5,237 
                                    
Earnings per diluted share, as reported $0.69  $0.64  $0.05  $0.61  $0.47  $0.14  $1.30  $1.11  $0.19 
Incentive Contribution  0.10   -   0.10   -   -   -   0.09   -   0.09 
Earnings per diluted share, excluding Incentive Contribution $0.79  $0.64  $0.15  $0.61  $0.47  $0.14  $1.39  $1.11  $0.28 
            
 
The non-GAAP measures we present in this report, which exclude the Incentive Contribution, should not be construed as a substitute for or a better indicator of the Company’s performance than the Company’s GAAP measures. Management believes presenting the financial information excluding the impact of the Incentive Contribution is important for purposes of comparison to prior year results. In addition, management uses these non-GAAP measures to allocate resources, and analyze trends and underlying operating performance. Annual cash bonuses, and certain long-term incentive programs for various levels of management, were based on financial measures that excluded the Incentive Contribution. The presentation of the non-GAAP measures in this report is made alongside the most directly comparable GAAP measures. See Discussion“Discussion of Operating ResultsResults” below for further analysis regarding the impact of the Incentive Contribution.

In addition, we present free cash flow in this report, which is not a term defined by GAAP. We define free cash flow as net cash provided by operating activities (from the consolidated statements of cash flows) less the purchases of property and equipment. We view free cash flow as an important measure because it is one factor that management uses in determining the amount of cash available for discretionary investment. Free cash flow is not a term defined by GAAP and as a result our measure of free cash flow might not be comparable to similarly titled measures used by other companies. Free cash flow should not be construed as a substitute for or a better indicator of our performance than the Company’s GAAP measures. See Liquidity“Liquidity and Capital ResourcesResources” for a reconciliation of free cash flow to the most directly comparable GAAP measure.
 
 
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Restaurant Progression
 
 Three Months Ended  Three Months Ended  Six Months Ended 
 March 25, 2012  March 27, 2011  June 24, 2012  June 26, 2011  June 24, 2012  June 26, 2011 
                  
Papa John's Restaurant Progression:      
North America Company-owned:                  
Beginning of period  598   591   597   592   598   591 
Opened  -   1   -   3   -   4 
Closed  (1)  -   (2)  -   (3)  - 
Acquired from franchisees  56   -   56   - 
Sold to franchisees  (8)  -   (8)  - 
End of period  597   592   643   595   643   595 
International Company-owned:                        
Beginning of period  30   21   29   21   30   21 
Opened  4   2   4   2 
Closed  (1)  -   -   -   (1)  - 
End of period  29   21   33   23   33   23 
North America franchised:                        
Beginning of period  2,463   2,346   2,498   2,371   2,463   2,346 
Opened  47   32   35   35   82   67 
Closed  (12)  (7)  (10)  (13)  (22)  (20)
Acquired from Company  8   -   8   - 
Sold to Company  (56)  -   (56)  - 
End of period  2,498   2,371   2,475   2,393   2,475   2,393 
International franchised:                        
Beginning of period  792   688   809   703   792   688 
Opened  23   23   28   26   51   49 
Closed  (6)  (8)  (15)  (7)  (21)  (15)
End of period  809   703   822   722   822   722 
Total restaurants - end of period  3,933   3,687   3,973   3,733   3,973   3,733 

Results of Operations

Summary of Operating Results - Segment Review

Discussion of Revenues

Consolidated revenues were $331.3$318.6 million for the firstsecond quarter of 2012, an increase of $18.8$25.0 million, or 6.0%8.5%, over the corresponding 2011 period. For the six months ended June 24, 2012, total revenues were $649.9 million, an increase of 7.2% from revenues of $606.0 million for the comparable period in 2011.  The increaseincreases in revenues for the firstsecond quarter ofand six months ended June 24, 2012 waswere primarily due to the following:

●
·Domestic Company-owned restaurant sales increased $5.1$15.9 million, or 3.7%12.4%, reflecting an increase of 3.0%and $21.0 million, or 7.9%, for the three and six months ended June 24, 2012, respectively, due to increases in comparable sales duringof 7.4% and 5.1% and the firstnet acquisition of 50 restaurants in Denver and Minneapolis from a franchisee in the second quarter of 2012. “Comparable sales” represents the change in year-over-year sales generated by restaurants open for the entire twelve-month period reported.same base of restaurants for the same fiscal periods.
  ●
·North America franchise royalty revenue increased approximately $800,000,$1.0 million, or 4.0%5.5%, and $1.8 million, or 4.7%, for the three and six months ended June 24, 2012, respectively, primarily due to an increaseincreases in comparable sales of 5.1% and 2.7% and increases in net franchise units over the prior year. Royalty revenue increases were slightly offset by reduced royalties attributable to the Company’s net acquisition of the 50 restaurants noted above.
15
  ●
·Domestic commissary sales increased $9.9$5.6 million, or 7.8%4.6%, and $15.5 million, or 6.2%, for the three and six months ended June 24, 2012, respectively, primarily due to an increasehigher piece counts resulting in  increases in the volume of sales and increases in the prices of certain commodities.restaurant sales.
  ●
·International revenues increased $4.1$3.1 million, or 32.1%21.8%, and increased $7.2 million, or 26.7%, for the three and six months ended June 24, 2012, respectively, primarily due to an increaseincreases in the number of restaurants and an increaseincreases in comparable sales of 8.4%6.1% and 7.2% calculated on a constant dollar basis.
  ●
Other·The above increases were partially offset by decreases in other sales decreasedof approximately $1.2$600,000, or 4.8%, and $1.8 million, or 8.8%6.9%, for the three and six months ended June 24, 2012, respectively, primarily due to a decline in sales at our print and promotions subsidiary, Preferred Marketing Solutions, partially offset by an increase in online sales.
16

Discussion of Operating Results

FirstSecond quarter 2012 income before income taxes was $27.1$24.2 million compared to $19.1 million in the first quarter of 2011prior year, or a 27.1% increase. Income before taxes was $51.4 million for the six months ended June 24, 2012, compared to $45.8 million for the prior year, or a 12.1% increase. The Incentive Contribution (see ”Non-GAAP Measures” above) increased income before income taxes of $26.8by $250,000 for the second quarter 2012 and decreased income before income taxes by $3.5 million or a 1.3% increase.for the six-month period in 2012. Excluding the net impact of the $3.7 million Incentive Contribution, (see “Non-GAAP Measures”), first quarter 2012 income before income taxes was $30.9$24.0 million for the second quarter 2012, an increase of $4.1$4.9 million or 15.2%, over25.8% compared to the same period in the prior year comparable period.and was $54.8 million for the six-month period in 2012, an increase of $9.0 million or 19.6% compared to the same period in the prior year. Income before income taxes is summarized in the following table on a reporting segment basis (in thousands):
 
 First Quarter  Three Months Ended  Six Months Ended 
 Mar. 25,  Mar. 27,  Increase  June 24,  June 26,  Increase  June 24,  June 26,  Increase 
 2012  2011  (Decrease)  2012  2011  (Decrease)  2012  2011  (Decrease) 
                           
Domestic Company-owned restaurants (a) $12,321  $10,883  $1,438  $9,358  $7,421  $1,937  $21,679  $18,304  $3,375 
Domestic commissaries  11,166   9,554   1,612   7,978   4,321   3,657   19,144   13,875   5,269 
North America franchising  18,140   18,009   131   16,619   16,240   379   34,759   34,249   510 
International  272   (816)  1,088   320   (250)  570   592   (1,066)  1,658 
All others  395   (378)  773   471   (298)  769   866   (676)  1,542 
Unallocated corporate expenses (b)  (15,166)  (9,769)  (5,397)  (10,025)  (8,517)  (1,508)  (25,191)  (18,286)  (6,905)
Elimination of intersegment loss (profit)  10   (703)  713   (481)  150   (631)  (471)  (553)  82 
Total income before income taxes $27,138  $26,780  $358  $ 24,240  $ 19,067  $ 5,173  $ 51,378  $ 45,847  $ 5,531 
            
 
(a)Includes the benefit of a $1.0 million advertising credit from PJNMFPJMF related to the Incentive Contribution in the first quarter ofsix months ended June 24, 2012.

(b)Includes a $4.7 million net reduction related tothe impact of the Incentive Contribution in 2012 ($250,000 increase for the first quarter of 2012.three-month period and a $4.5 million reduction for the six-month period).

First quarter 2012 incomeIncome before income taxes increased $358,000, or 1.3%,$5.2 million and $5.5 million for the three and six months ended June 24, 2012, respectively ($4.14.9 million or 15.2%,and $9.0 million, respectively, excluding the $3.7 millionnet impact of the Incentive Contribution). The changechanges in income before income taxes waswere due to the following:

●  ·
Domestic Company-owned Restaurant Segment. Domestic Company-owned restaurants’ operating income increased $1.4$1.9 million in the firstsecond quarter of 2012, and $3.4 million for the six months ended June 24, 2012, including the $1.0 million advertising credit from PJNMF. The remaining increase of approximately $400,000 wasPJMF. These increases were primarily due to profits from the higherpreviously noted comparable sales results as well asincreases and lower commodity costs for the quarter. Additionally, the six-month period benefited from various supplier incentives, offset somewhat by higher commodities.incentives.

●  ·
Domestic Commissary Segment. Domestic commissaries’ operating income increased approximately $1.6$3.7 million and $5.3 million for first quarterthree and six months ended June 24, 2012, respectively, primarily due to higher piece counts resulting from increased sales volumes from the previously noted increase in net units and comparable sales, slightly offset by higher distribution costs primarily due to higher volumes and fuel prices.prices for the six months ended June 24, 2012.

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●  ·
North America Franchising Segment. North America Franchising operating income increased approximately $100,000 to $18.1 million$379,000 and $510,000 for the first quarter ofthree and six months ended June 24, 2012, as compared to the comparable 2011 period.respectively. The increase wasincreases were due to the previously mentioned royalty revenue increases, substantially offset by an increase in development incentive costs.

●  ·
International Segment. The International Segment reported operating income during the first quarter of 2012$320,000 and $592,000 for the international segment wasthree and six months ended June 24, 2012, respectively. The improvements in operating results of approximately $300,000 as$570,000 and $1.7 million for the three- and six-month periods, respectively, compared to a loss of approximately $800,000 in the first quarter of 2011. The improvement of approximately $1.1 million in the operating results wascorresponding 2011 periods were primarily due to increased royalties due to growth in the number of units and the 8.4% increase6.1% and 7.2% increases in comparable sales in the three and six months ended June 24, 2012, respectively, and improved operating results in our Beijing and North China Company-owned restaurants as well as our United Kingdom commissary.
17

●  
·
All Others Segment. The “All others” reporting segment reported income of approximately $400,000$471,000 and $866,000 for the first quarter ofthree and six months ended June 24, 2012, respectively.  The “All Others” reporting segment results increased approximately $769,000 and $1.5 million for the three- and six-month periods, respectively, as compared to a loss of approximately $400,000 in the first quarter of 2011. The increase of approximately $800,000 wascorresponding 2011 periods.  These increases were primarily due to an improvement in our eCommerce operations due to higher online sales. These improved results were somewhat offset by reduced operating results of Preferred Marketing Solutions due to the previously noted reduction in sales.

●  ·
Unallocated Corporate Segment. Unallocated corporate expenses increased approximately $5.4$1.5 million and $6.9 million for the first quarter ofthree and six months ended June 24, 2012, including the previously discussed $4.7 million related to the Incentive Contribution, asrespectively, compared to the corresponding quarter in 2011.2011 periods. The components of unallocated corporate expenses were as follows (in thousands):
 
  Three Months Ended 
  March 25,  March 27,  Increase 
  2012  2011  (decrease) 
          
General and administrative (a) $8,661  $7,385  $1,276 
Supplier marketing payment (b)  4,750   -   4,750 
Net interest  122   431   (309)
Depreciation  1,735   2,178   (443)
Other income  (102)  (225)  123 
Total unallocated corporate expenses $15,166  $9,769  $5,397 
  Three Months Ended  Six Months Ended 
  June 24,  June 26,  Increase  June 24,  June 26,  Increase 
  2012  2011  (decrease)  2012  2011  (decrease) 
                   
General and administrative (a) $8,039  $5,972  $2,067  $16,700  $13,357  $3,343 
Supplier marketing (income)                        
   payment (b)  (250)  -   (250)  4,500   -   4,500 
Net interest  117   125   (8)  239   559   (320)
Depreciation  1,819   2,240   (421)  3,553   4,418   (865)
Other expense (income)  300   180   120   199   (48)  247 
Total unallocated corporate                        
   expenses $10,025  $8,517  $1,508  $25,191  $18,286  $6,905 
 
 
(a)
Unallocated general and administrative costs increased primarily due to an increase in short-term management incentive costs. The six-month period was also impacted by additional costs related to our operators’ conference and an increase in legal costs.
 
(b)
See previous discussion in “Non-GAAP Measures” above for further information.
 
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Diluted earnings per share were $0.69$0.61 in the firstsecond quarter of 2012 ($0.79 excluding the Incentive Contribution), compared to $0.64$0.47 in the firstsecond quarter of 2011. Excluding2011, an increase of $0.14 or 29.8%. For the six months ended June 24, 2012 and June 26, 2011, diluted earnings per share were $1.30 and $1.11, respectively ($1.39 per share for the six months ended June 24, 2012, excluding the impact of the Incentive Contribution, diluted earnings per share increased $0.15,an increase of $0.28 or 23.4%25.2%). Diluted weighted average shares outstanding decreased 5.1% in6.1% and 5.6% for the first quarter ofthree and six months ended June 24, 2012, respectively, from the prior year period.comparable periods. Diluted earnings per share increased $0.04$0.03 and $0.07 for the three- and six-month periods, respectively, due to the reduction in shares outstanding.

Review of Consolidated Operating Results

 
Revenues. Domestic Company-owned restaurant sales were $143.8$143.5 million for the first quarter ofthree months ended June 24, 2012, an increase of $5.1 million, or 3.7%, compared to $127.6 million for the first quartersame period in 2011, and $287.3 million for the six months ended June 24, 2012, compared to $266.3 million for the same period in 2012.  The increases of 2011,$15.9 million and $21.0 million were primarily due to the previously mentioned increaseincreases of 3.0%7.4% and 5.1% in comparable sales during the firstthree and six months ended June 24, 2012, respectively. The net acquisition of 50 restaurants in Denver and Minneapolis from a franchisee in the second quarter of 2012.2012 also increased sales for both the three- and six-month periods.

North America franchise sales, which are not included in the Company’s revenues, were $447.9 million for the first quarter ofthree months ended June 24, 2012, increased 4.2%compared to $470.0 million from $451.0$415.9 million for the same quarterperiod in 2011, asand $917.8 million for the six months ended June 24, 2012, compared to $866.9 million for the same period in 2011.  Domestic franchise comparable sales increased 5.1% for the second quarter and increased 2.7% for the six months ended June 24, 2012, and equivalent units increased 5.2%.3.1% and 4.1%, respectively, for the comparable periods.  “Equivalent units” represents the number of restaurants open at the beginning of a given period, adjusted for restaurants opened, closed, acquired or sold during the period on a weighted average basis. Franchise restaurant sales are not included in Company revenues. North America franchise royalties were $20.5$19.1 million and $39.6 million for the three and six months ended June 24, 2012, respectively, representing increases of 5.5% and 4.7% from the comparable periods in the first quarter of 2012, compared to $19.7 million in the same quarter of 2011.prior year. The increaseincreases in royalties waswere primarily due to the previously noted increaseincreases in franchise sales.

Average weekly sales for comparable units include restaurants that were open throughout the periods presented below. The comparable sales base for domestic Company-owned and North America franchised restaurants includes restaurants acquired by the Company or divested to franchisees during the previous twelve months. Average weekly sales for non-comparable units include restaurants that were not open throughout the periods presented below and include non-traditional sites. Average weekly sales for non-traditional units that do not have continuous operations are calculated based upon actual days open.

 
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The comparable sales base and average weekly sales for 2012 and 2011 for domestic Company-owned and North America franchised restaurants consisted of the following:

 Three Months Ended  Three Months Ended 
 March 25, 2012  March 27, 2011  June 24, 2012  June 26, 2011 
 Company  Franchised  Company  Franchised  Company  Franchised  Company  Franchised 
                        
Total domestic units (end of period)  597   2,498   592   2,371   643   2,475   595   2,393 
Equivalent units  592   2,413   586   2,293   626   2,405   587   2,333 
Comparable sales base units  582   2,193   578   2,104   614   2,179   582   2,123 
Comparable sales base percentage  98.3%  90.9%  98.6%  91.8%  98.1%  90.6%  99.1%  91.0%
Average weekly sales - comparable units $18,818  $15,404  $18,295  $15,426  $17,746  $14,758  $16,770  $14,109 
Average weekly sales - total non-comparable units $11,631  $10,790  $11,476  $11,817  $12,421  $10,159  $10,698  $9,689 
Average weekly sales - all units $18,702  $14,983  $18,201  $15,128  $17,650  $14,326  $16,714  $13,711 

  Six Months Ended 
  June 24, 2012  June 26, 2011 
  Company  Franchised  Company  Franchised 
             
Total domestic units (end of period)  643   2,475   595   2,393 
Equivalent units  609   2,409   587   2,313 
Comparable sales base units  598   2,186   580   2,114 
Comparable sales base percentage  98.2%  90.7%  98.8%  91.4%
Average weekly sales - comparable units $18,267  $15,082  $17,530  $14,765 
Average weekly sales - total non-comparable units $12,060  $10,470  $11,163  $10,697 
Average weekly sales - all units $18,161  $14,655  $17,456  $14,413 

Domestic commissary sales increased 7.8%4.6% to $137.6$126.6 million for the first quarter ofthree months ended June 24, 2012, from $127.7$121.0 million in the comparable 2011 quarter, reflecting an increaseperiod and increased 6.2% to $264.2 million for the six months ended June 24, 2011, from $248.7 million in the comparable 2011 period.  The increases were primarily due to higher piece counts resulting from increases in the volume of sales and an increase in the prices of certain commodities.restaurant sales.

Other sales decreased $1.2$600,000, or 4.8% and $1.8 million, or 8.8%6.9%, resulting from a declinefor the three and six months ended June 24, 2012, respectively.  The decreases are primarily due to declines in sales at our print and promotions subsidiary, Preferred Marketing Solutions, partially offset by an increase in eCommerce sales, resulting from an increaseincreases in online sales.

International revenues increased 32.1%21.8% to $16.9$17.4 million and 26.7% to $34.2 million for the first quarter ofthree and six months ended June 24, 2012, comparedfrom the prior year comparable periods.  The increases are due to $12.8 million for the comparable quarter in 2011, reflecting an increaseincreases in the number of restaurants in addition to an 8.4% increaseincreases of 6.1% and 7.2% in comparable sales, calculated on a constant dollar basis.basis, for the three- and six-month periods, respectively.

Costs and expenses.  The restaurant operating margin for domestic Company-owned units was 21.9%19.6% for the three months ended June 24, 2012, compared to 19.4% for the same period in the first quarter of 2012 (21.2%2011, and 20.7% (20.4% excluding the $1.0 million advertising credit from PJNMF)PJMF) for the six months ended June 24, 2012, compared to 20.4%20.0% for the same period in 2011. The restaurant operating margin increaseincreases of 1.5%0.2% and 0.7% for the three and six months ended June 24, 2012, respectively, consisted of the following differences:

 
●
·		Cost of sales was 0.7% and 0.6% lower for the first quarter ofthree and six months ended June 24, 2012, as compared to the first quarter of 2011, due tosame periods in 2011. The three-month period benefited from lower commodity costs. The six-month period benefited from various supplier incentives, offset somewhat by higher commodity costs in the first quarter of 2012.incentives.
 
●
·		Salaries and benefits were 0.2% lower0.8% and 0.3% higher as a percentage of sales infor the first quarter ofthree and six months ended June 24, 2012, as compared to the first quarter ofsame periods in 2011, primarily due to the benefit from increased sales.higher bonuses paid to general managers.
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●
·		Advertising and related costs as a percentage of sales were 0.4%0.1% and 0.2% lower due tofor the three and six months ended June 24, 2012. The six-month period included a $1.0 million related to the advertising credit received from PJNMF, slightly offset by an increase in local marketing costs.PJMF.
 
●
·		Occupancy costs and other operating costs, on a combined basis, as a percentage of sales, were 0.3%0.2% lower infor both the first quarter ofthree and six months ended June 24, 2012, primarily due to the benefit from increased sales.
 
Domestic commissary and other margin was 9.2% in8.1% for the first quarter ofthree months ended June 24, 2012, compared to 8.6%6.1% for the samecorresponding period in 2011, and 8.7% for the six months ended June 24, 2012, compared to 7.4% for the corresponding period in 2011, consisting of the following differences:

 
●
·		Cost of sales was 75.3%2.1% and 1.1% lower as a percentage of revenues in the first quarter of 2012, compared to 75.4% for the same period in 2011.three and six months ended June 24, 2012, respectively, due to lower commodity costs, primarily cheese, which has a fixed-dollar markup.
 
●
·		Salaries and benefits were 6.0%relatively flat in comparison to prior year (0.2% higher and 0.1% lower as a percentage of revenues infor the first quarter ofthree and six months ended June 24, 2012, compared to 6.4% of revenues in the first quarter of 2011, reflecting the benefit of increased sales.respectively).
 
●
·		Other operating expenses as a percentage of sales were 9.5% in0.1% lower as a percentage of revenues for both the first quarter ofthree and six months ended June 24, 2012, respectively, as compared to 9.6%the same periods in the prior comparable period, primarily due to the benefit of increased sales, slightly offset by higher distribution costs.2011.

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International operating expenses were 84.0%86.6% of international restaurant and commissary sales asfor the three months ended June 24, 2012, compared to 85.9%85.7% for the same period in 2011, and 85.3% of international restaurant and commissary sales for the first quarter ofsix months ended June 24, 2012, compared to 85.8% for the same period in 2011. The improvementincrease in operating expenses as a percentage of salesfor the three-month period was primarily due to an improvement in operating results in our Beijing and North Chinacosts associated with new Company-owned restaurants and our PJUK commissary.in China.

General and administrative costs were $31.6$31.5 million, or 9.5%9.9%, of revenues infor the first quarter ofthree months ended June 24, 2012, as compared to $29.1$27.6 million, or 9.3%9.4%, of revenues infor the same period in 2011, and $63.1 million, or 9.7%, of revenues for the six months ended June 24, 2012, compared to $56.7 million, or 9.4%, of revenues for the same period in 2011. The increase isincreases for the three- and six-month periods were primarily due to increases in short-term management incentive costs. The six-month period was also impacted by increased costs related to our operators’ conference and an increase in legal costs.

Other general expenses reflected net expense of $5.7$1.1 million includingfor the $4.7 million related to the Incentive Contribution, in the first quarter ofthree months ended June 24, 2012, compared to $781,000$1.5 million for the comparable period in 2011, and $6.8 million, for the six months ended June 24, 2012 compared to $2.2 million for the comparable period in 2011, as detailed below (in thousands):

  March 25,  March 27,  Increase 
  2012  2011  (Decrease) 
          
Supplier marketing payment (a) $4,750  $-  $4,750 
Disposition and valuation-related (gain) loss  (35)  185   (220)
Provision for uncollectible accounts and notes receivable  103   82   21 
Franchise and development incentives (b)  732   272   460 
Other  124   242   (118)
Total other general expenses $5,674  $781  $4,893 
  Three Months Ended  Six Months Ended 
  June 24,  June 26,  Increase  June 24,  June 26,  Increase 
  2012  2011  (Decrease)  2012  2011  (Decrease) 
                   
Supplier marketing (income) payment (a) $(250) $-  $(250) $4,500  $-  $4,500 
Disposition and valuation-related losses  151   200   (49)  116   385   (269)
Provision (credit) for uncollectible accounts                        
   and notes receivable  66   (210)  276   169   (128)  297 
Franchise and development incentives (b)  769   346   423   1,501   618   883 
Other  399   1,123   (724)  523   1,365   (842)
Total other general expenses $1,135  $1,459  $(324) $6,809  $2,240  $4,569 
 
(a)  See previous discussion included in “Non-GAAP Measures” above for further information.

(b)  Includes incentives provided to domestic franchisees for opening new restaurants.

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Depreciation and amortization was $7.9$8.1 million (2.4%(2.5% of revenues) for the first quarter ofthree months ended June 24, 2012, and $8.3compared to $8.4 million (2.7%(2.9% of revenues) for the first quartersame 2011 period, and $16.0 million (2.5% of 2011.revenues) for the six months ended June 24, 2012, compared to $16.7 million (2.8% of revenues) for the 2011 period.

Net interest. Net interest expense was approximately $100,000 in$87,000 for the first quarter ofthree months ended June 24, 2012, as compared to approximately $400,000$88,000 for the same period in 2011, and $205,000 for the first quarter of 2011, reflectingsix months ended June 24, 2012, compared to $519,000 for the same period in 2011. Interest expense was lower for the six-month period due to a lower average outstanding debt balance and a lower effective interest rate.

Income tax expense. TheOur effective income tax rate was 33.4%rates were 34.2% and 33.8% for the first quarterthree and six months ended June 24, 2012, representing increases of 20122.7% and 34.5% for0.6%, from the same period in 2011.prior year rates.  The higher effective rates were primarily due to 2011 including a tax refund associated with the resolution of prior years’ tax matters. The effective raterates may fluctuate from quarter to quarter for various reasons, including discrete items, such as the settlement or resolution of specific federal and state tax issues.

Liquidity and Capital Resources

Our long-term debt is comprised entirely of the outstanding balance under our revolving line of credit. The balance was $50.0 million as of March 25,June 24, 2012 and $51.5 million as of December 25, 2011.

In September 2010, we entered into a five-year, $175.0 million unsecured revolving credit facility (“Credit Facility”). The Credit Facility was amended in November 2011 (the “Amended Credit Facility”), which extended the maturity date of the Credit Facility to November 30, 2016. Under the Amended Credit Facility, outstanding balances are chargedaccrue interest at 75 to 150 basis points over the London Interbank Offered Rate (“LIBOR”) or other bank developed rates at our option (previously chargedinterest accrued at 100 to 175 basis points over LIBOR). The commitment fee on the unused balance under the Credit Facility and Amended Credit Facility ranges from 17.5 to 25.0 basis points. The increment over LIBOR and the commitment fee are determined quarterly based upon the ratio of total indebtedness to earnings before interest, taxes, depreciation and amortization (“EBITDA”), as defined by the Amended Credit Facility.

We have used interest rate swaps to hedge against the effects of potential interest rate increases on borrowings under our revolving credit facility. We currently have a swap with a fixed rate of 0.53%, as compared to LIBOR, with a notional amount of $50.0 million. See the notes to condensed consolidated financial statements for additional information.

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Our Amended Credit Facility contains customary affirmative and negative covenants, including the following financial covenants, as defined by the Amended Credit Facility:

   Actual Ratio for the
   Quarter Ended
 Permitted Ratio March 25,June 24, 2012
    
Leverage RatioNot to exceed 2.5 to 1.00.5 to 1.0
    
Interest Coverage RatioNot less than 3.5 to 1.0 5.4 to 1.0

Our leverage ratio is defined as outstanding debt divided by consolidated EBITDA for the most recent four fiscal quarters. Our interest coverage ratio is defined as the sum of consolidated EBITDA and consolidated rental expense for the most recent four fiscal quarters divided by the sum of consolidated interest expense and consolidated rental expense for the most recent four fiscal quarters. We were in compliance with all covenants at March 25,June 24, 2012.

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Cash flow provided by operating activities was $44.1$65.2 million for the threesix months ended March 25,June 24, 2012, compared to $26.7$52.9 million for the same period in 2011.  The increase of approximately $17.4$12.2 million was primarily due to additional operating income and favorable working capital changes.

Our free cash flow for the threesix months ended March 25,June 24, 2012 and March 27,June 26, 2011 was as follows (in thousands):
 
       
  Three Months Ended 
  March 25,  March 27, 
  2012  2011 
       
Net cash provided by operating activities $44,093  $26,687 
Purchase of property and equipment  (6,403)  (4,823)
Free cash flow (a) $37,690  $21,864 
  Six Months Ended 
  June 24,  June 26, 
  2012  2011 
       
Net cash provided by operating activities $65,162  $52,925 
Purchase of property and equipment  (15,046)  (12,422)
Free cash flow (a) $50,116  $40,503 
 
 (a)FreeWe define free cash flow is defined as net cash provided by operating activities (from the consolidated statements of cash flows) less the purchases of property and equipment. We believe free cash flow is an important measure because it is one factor that management uses in determining the amount of cash available for discretionary investment. See previous “Non-GAAP Measures” above for discussion about this non-GAAP measure, its limitations and why we present free cash flow alongside the most directly comparable GAAP measure.

We require capital primarily for the development, acquisition, renovation and maintenance of restaurants, the development, renovation and maintenance of commissary and print and promotions facilities and equipment and the enhancement of corporate systems and facilities. Capital expenditures were $6.4$15.0 million during the threesix months ended March 25,June 24, 2012.

During the threesix months ended March 25,June 24, 2012, capital expenditures of $6.4$15.0 million and common stock repurchases of $13.8$38.7 million (372,000 shares at an average price of $37.19 per share)(957,000 shares) were funded by cash flow from operations. Subsequent to March 25,June 24, 2012, through April 25,July 26, 2012, we repurchased an additional 264,000287,000 shares with an aggregate cost of $9.9 million and an average cost of $37.63 per share.$13.6 million. As of April 25,July 26, 2012, $47.8$69.2 million remained available for repurchase of common stock under our existing Board of Directors’ authorization.

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Forward-Looking Statements

Certain matters discussed in this report, including information within Management’s Discussion and Analysis of Financial Condition and Results of Operations, and other Company communications constitute forward-looking statements within the meaning of the federal securities laws. Generally, the use of words such as “expect,” “estimate,” “believe,” “anticipate,” “will,” “forecast,” “plan,” “project,” or similar words identify forward-looking statements that we intend to be included within the safe harbor protections provided by the federal securities laws. Such statements may relate to projections concerning business performance, revenue, earnings, contingent liabilities, commodity costs, margins, unit growth, and other financial and operational measures. Such statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions, which are difficult to predict and many of which are beyond our control. Therefore, actual outcomes and results may differ materially from those matters expressed or implied in such forward-looking statements.
 
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The risks, uncertainties and assumptions that are involved in our forward-looking statements include, but are not limited to: aggressive changes in pricing or other marketing or promotional strategies by competitors which may adversely affect sales, including an increase in or continuation of the aggressive pricing and promotional environment; new product and concept developments by food industry competitors; the ability of the Company and its franchisees to meet planned growth targets and operate new and existing restaurants profitably, which could be impacted by challenges securing financing, finding suitable store locations or securing required domestic or foreign government permits and approvals; our ability to successfully integrate the operations of franchised restaurants we acquire; the credit performance of our franchise loan program; adverse macroeconomic or business conditions; general economic and political conditions and resulting impact on consumer buying habits; changes in consumer preferences; increases in or sustained high costs of food ingredients and other commodities, paper, utilities and fuel;fuel, including increases related to drought conditions; increased employee compensation, benefits, insurance and similar costs (including the impact of the implementation of federal health care legislation); the ability of the Company to pass along increases in or sustained high costs to franchisees or consumers; the impact of current or future legal claims and current or proposed legislation impacting our business; the impact that product recalls, food quality or safety issues, and general public health concerns could have on our restaurants; currency exchange and interest rates; credit risk associated with parties to leases of restaurants and commissaries, including those Perfect Pizza locations formerly operated by us, for which we remain contractually liable; risks associated with security breaches, including theft of Company and customer information; and increased risks associated with our international operations, including economic and political conditions in our international markets and difficulty in meeting planned sales targets and new store growth for our international operations. These and other risk factors as discussed in detail in “Part I. Item 1A. – Risk Factors” in our Annual Report on Form 10-K for our 2011 fiscal year could materially affect the Company’s business, financial condition or operating results. We undertake no obligation to update publicly any forward-looking statements, whether as a result of future events, new information or otherwise, except as required by law.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Our long-term debt at March 25, 2011June 24, 2012 was comprised of a $50.0 million outstanding principal balance on our $175.0 million unsecured revolving line of credit. The interest rate on the revolving line of credit is variable and is based on the London Interbank Offered Rate (“LIBOR”) plus a 75 to 150 basis point spread, as amended effective November 2011, tiered based upon debt and cash flow levels, or other bank developed rates at our option.

In August 2011, we entered into a newan interest rate swap agreement that provides for a fixed rate of 0.53%, as compared to LIBOR, with a notional amount of $50.0 million. The new interest rate swap agreement expires in August 2013. We had two previous interest rate swap agreements that expired in January 2011. The previous swap agreements provided for fixed rates of 4.98% and 3.74%, as compared to LIBOR, with each having a notional amount of $50.0 million.

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The effective interest rate on the revolving line of credit, including the impact of the interest rate swap agreement, was 1.3% as of March 25,June 24, 2012. An increase in the present market interest rate of 100 basis points on the line of credit balance outstanding as of March 25,June 24, 2012, net of the swap, would have no impact on interest expense.

We do not enter into financial instruments to manage foreign currency exchange rates since approximately 5% of our total revenues are derived from sales to customers and royalties outside the contiguous United States.

In the ordinary course of business, the food and paper products we purchase, including cheese (historically representing 35% to 40% of our food cost), are affected by changes in commodity prices and, as a result we are subject to on-going volatility in our food costs. We have pricing agreements with our vendors, including forward pricing agreements for a portion of our cheese purchases for our domestic Company-owned restaurants, which are accounted for as normal purchases; however, we still remain exposed to on-going commodity volatility.

Item 4. Controls and Procedures

Our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (“1934 Act”)), as of the end of the period covered by this report. Based upon their evaluation, the CEO and CFO concluded that the disclosure controls and procedures are effective.

We also maintain a system of internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the 1934 Act) designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States. During our most recent fiscal quarter, there have been no changes in our internal control over financial reporting that occurred that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

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PART II.  OTHER INFORMATION

Item 1. Legal Proceedings

We are subject to claims and legal actions in the ordinary course of our business. We believe that none of the claims and actions currently pending against us would have a material adverse effect on us if decided in a manner unfavorable to us.

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

Our Board of Directors has authorized the repurchase of up to $925.0$975.0 million of common stock under a share repurchase program that began on December 9, 1999 and expires on December 31, 2012.June 30, 2013. Through March 25,June 24, 2012, a total of 47.848.4 million shares with an aggregate cost of $867.3$892.2 million and an average price of $18.13 per share have been repurchased under this program. Subsequent to March 25,June 24, 2012, through April 25,July 26, 2012, we acquired an additional 264,000287,000 shares at an aggregate cost of $9.9$13.6 million. As of April 25,July 26, 2012, approximately $47.8$69.2 million remained available for repurchase of common stock under this authorization.

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The following table summarizes our repurchases by fiscal period during the first threesix months of 2012 (in thousands, except per-share amounts):

        Total Number  Maximum Dollar 
  Total  Average  of Shares  Value of Shares 
  Number  Price  Purchased as Part of  that May Yet Be 
  of Shares  Paid per  Publicly Announced  Purchased Under the 
Fiscal Period Purchased  Share  Plans or Programs  Plans or Programs 
             
12/26/2011 - 01/22/2012  60  $37.72   47,533  $69,292 
01/23/2012 - 02/19/2012  -   -*  47,533  $69,292 
02/20/2012 - 03/25/2012  312  $37.19   47,845  $57,719 
     Total Number Maximum Dollar
 Total Averageof Shares Value of Shares
 Number PricePurchased as Part of that May Yet Be
 of Shares Paid perPublicly Announced Purchased Under the
Fiscal PeriodPurchased SharePlans or Programs Plans or Programs
        
12/26/2011 - 01/22/2012               60 $37.72 47,533 $119,292
01/23/2012 - 02/19/2012               -            -    *47,533 $119,292
02/20/2012 - 03/25/2012             312 $37.09 47,845 $107,719
03/26/2012 - 04/22/2012             248 $37.57 48,093 $98,391
04/23/2012 - 05/20/2012               22 $38.67 48,115 $97,561
05/21/2012 - 06/24/2012             315 $46.78 48,430 $82,810
        
* There were no share repurchases during this period.  
 
*   
There were no share repurchases during this period.
Our share repurchase authorization increased from $925 million to $975 million in July 2012. For presentation purposes, the maximum dollar value of shares that may be purchased was adjusted retroactively to December 26, 2011.

The Company utilizes a written trading plan under Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, from time to time to facilitate the repurchase of shares of our common stock under this share repurchase program. There can be no assurance that we will repurchase shares of our common stock either through a Rule 10b5-1 trading plan or otherwise.

In MarchMay 2012, approximately 8,00013,000 shares of the Company’s common stock were acquired from employees to satisfy minimum tax withholding obligations that arose upon (i) vesting of restricted stock granted pursuant to approved plans, and (ii) distribution of shares of common stock issued pursuant to deferred compensation obligations.
Item 5. Other Information
Departure of Directors or Certain Officers
On April 30, 2012, Chris Sternberg, the Company's Senior Vice President, Corporate Communications and General Counsel, notified the Company of his intention to resign from his position in order to resume the private practice of law. It is expected that Mr. Sternberg will continue to provide services to the Company on an interim basis in a transition role.
Compensatory Arrangements of Certain Officers
On April 25, 2012, the Compensation Committee of the Board of Directors approved the Papa John’s International, Inc. Severance Pay Plan (the “Severance Plan”). Pursuant to the terms of the Severance Plan, if employment at the level of vice president or above is terminated without cause as defined in the Severance Plan, provided he or she signs a release of claims, the employee will receive base salary and COBRA benefits continuation for a period of six months following termination, pro-rata portions of any bonus payouts based upon period of service during the year employment terminates under any incentive-based compensation plans then in effect (provided that any applicable performance measures are achieved), and six  months outplacement services.  The Severance Plan also provides for certain benefits for full-time employees below the level of vice president in the event of a loss of employment due to a reduction in force, permanent layoff, or position elimination.

The Company may amend or terminate the Severance Plan at any time, but any termination or amendment will not affect the rights to benefits accrued prior to termination or amendment. As previously disclosed, certain members of the Company’s executive management team are parties to employment agreements with the Company. If an employee is entitled to severance under the Severance Plan and pursuant to any other agreement, the employee shall be limited to the greater of severance payments under the Severance Plan or such other agreement in effect.

The foregoing describes only the material terms of the Severance Plan and is qualified in its entirety by the terms and conditions of the complete plan. A copy of the Severance Plan is attached hereto as Exhibit 10.1 and is incorporated by reference into this Item.

 
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Item 6.  Exhibits

Exhibit 
Number
Number
Description
  
10.1*
Separation and Consulting Agreement and Release between Christopher J. Sternberg and Papa John’s International, Inc.
 10.1*
10.2*Papa John’s International, Inc. Severance Pay Plan.
10.2*Employment Agreement between Papa John’s International, Inc., and Anthony N. Thompson dated March 5, 2012. Exhibit 10.1 to our report on Form 8-K10-Q filed on March 7,May 1, 2012 is incorporated herein by reference.
  
10.3*Employment Agreement between Papa John’s International, Inc., and Christopher J. Sternberg dated March 5, 2012. Exhibit 10.2 to our report on Form 8-K filed on March 7, 2012 is incorporated herein by reference.
10.4*Employment Agreement between Papa John’s International, Inc., and Lance F. Tucker dated March 5, 2012. Exhibit 10.3 to our report on Form 8-K filed on March 7, 2012 is incorporated herein by reference.
10.5*Employment Agreement between Papa John’s International, Inc., and Andrew M. Varga dated March 5, 2012. Exhibit 10.4 to our report on Form 8-K filed on March 7, 2012 is incorporated herein by reference.
31.1Certification of Chief Executive Officer Pursuant to Exchange Act Rule 13a-15(e), As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
  
31.2Certification of Chief Financial Officer Pursuant to Exchange Act Rule 13a-15(e), As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
  
32.1Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
  
32.2Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
  
101Financial statements from the quarterly report on Form 10-Q of Papa John’s International, Inc. for the quarter ended March 25,June 24, 2012, filed on May 1,July 31, 2012, formatted in XBRL: (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Comprehensive Income, (iii) the Consolidated Statements of Stockholders’ Equity, (iv) the Consolidated Statements of Cash Flows and (v) the Notes to Condensed Consolidated Financial Statements.


*A management contract or compensatory plan or arrangement required to be filed as an exhibit to this report pursuant to Item 6 of Form 10-Q.

 
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SIGNATURESSIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



 PAPA JOHN’S INTERNATIONAL, INC.
 (Registrant)
  
  
  
Date:  May 1,July 31, 2012/s/ Lance F. Tucker
 Lance F. Tucker
 Senior Vice President, andChief Financial Officer,
 Chief FinancialAdministrative Officer and Treasurer

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