☒Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
2022
OR
☐Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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Delaware | 61-1203323 | |||||||
(State or other jurisdiction of |
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incorporation or organization) |
| number) |
(502)
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Title of each class: |
| Trading Symbol |
| Name of each exchange on which registered: | ||||||||||
Common stock, $0.01 par value |
| PZZA |
| The NASDAQ Stock Market LLC |
Large | Accelerated filer |
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Non-accelerated filer |
| Smaller reporting company ☐ | ||||||||||
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| Emerging growth company ☐ |
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| September 26, |
| December 27, | ||
(In thousands, except per share amounts) | | 2021 | | 2020 | ||
| | (Unaudited) | | | ||
Assets | | | | | | |
Current assets: | | | | | | |
Cash and cash equivalents | | $ | 105,813 | | $ | 130,204 |
Accounts receivable, net | | | 79,534 | | | 90,135 |
Notes receivable, current portion | |
| 13,075 | |
| 11,318 |
Income tax receivable | | | 599 | | | 1,273 |
Inventories | |
| 33,490 | |
| 30,265 |
Prepaid expenses and other current assets | |
| 39,249 | |
| 43,212 |
Total current assets | |
| 271,760 | |
| 306,407 |
Property and equipment, net | |
| 209,072 | |
| 200,895 |
Finance lease right-of-use assets, net | | | 21,917 | | | 16,840 |
Operating lease right-of-use assets | | | 174,119 | | | 148,110 |
Notes receivable, less current portion, net | |
| 37,263 | |
| 36,538 |
Goodwill | |
| 80,906 | |
| 80,791 |
Deferred income taxes | | | 13,926 | | | 10,800 |
Other assets | |
| 80,991 | |
| 72,389 |
Total assets | | $ | 889,954 | | $ | 872,770 |
| | | | | | |
Liabilities, Series B Convertible Preferred Stock, Redeemable noncontrolling interests and Stockholders’ deficit | | | | | | |
Current liabilities: | | | | | | |
Accounts payable | | $ | 42,384 | | $ | 37,370 |
Income and other taxes payable | |
| 26,221 | |
| 10,263 |
Accrued expenses and other current liabilities | |
| 201,528 | |
| 174,563 |
Current deferred revenue | | | 20,617 | | | 19,590 |
Current finance lease liabilities | | | 4,914 | | | 3,545 |
Current operating lease liabilities | | | 22,455 | | | 23,538 |
Current portion of long-term debt | | | — | | | 20,000 |
Total current liabilities | |
| 318,119 | |
| 288,869 |
Deferred revenue | |
| 12,471 | |
| 13,664 |
Long-term finance lease liabilities | | | 17,555 | | | 13,531 |
Long-term operating lease liabilities | | | 157,359 | | | 124,666 |
Long-term debt, less current portion, net | |
| 414,915 | |
| 328,292 |
Deferred income taxes | |
| 178 | |
| 948 |
Other long-term liabilities | |
| 98,872 | |
| 111,364 |
Total liabilities | |
| 1,019,469 | |
| 881,334 |
| | | | | | |
Series B Convertible Preferred Stock; $0.01 par value; 0 shares authorized, issued or outstanding at September 26, 2021, compared to 260.0 shares authorized, 252.5 shares issued and outstanding at December 27, 2020 | | | — | | | 251,901 |
Redeemable noncontrolling interests | |
| 7,531 | |
| 6,474 |
| | | | | | |
Stockholders’ deficit: | | | | | | |
Common stock ($0.01 par value per share; issued 48,989 at September 26, 2021 and 45,288 at December 27, 2020) | | | 490 | | | 453 |
Additional paid-in capital | |
| 440,742 | |
| 254,103 |
Accumulated other comprehensive loss | |
| (9,910) | |
| (14,168) |
Retained earnings | |
| 171,378 | |
| 219,158 |
Treasury stock (12,806 shares at September 26, 2021 and 12,743 shares at December 27, 2020, at cost) | |
| (755,035) | |
| (741,724) |
Total stockholders’ deficit | |
| (152,335) | |
| (282,178) |
Noncontrolling interests in subsidiaries | |
| 15,289 | |
| 15,239 |
Total Stockholders’ deficit | |
| (137,046) | |
| (266,939) |
Total liabilities, Series B Convertible Preferred Stock, Redeemable noncontrolling interests and | | $ | 889,954 | | $ | 872,770 |
(In thousands, except per share amounts) | June 26, 2022 | December 26, 2021 | ||||||||||||
(Unaudited) | ||||||||||||||
Assets | ||||||||||||||
Current assets: | ||||||||||||||
Cash and cash equivalents | $ | 52,124 | $ | 70,610 | ||||||||||
Accounts receivable, net | 87,495 | 81,370 | ||||||||||||
Notes receivable, current portion | 8,333 | 12,352 | ||||||||||||
Income tax receivable | 4,017 | 9,386 | ||||||||||||
Inventories | 38,076 | 34,981 | ||||||||||||
Prepaid expenses and other current assets | 49,743 | 46,310 | ||||||||||||
Total current assets | 239,788 | 255,009 | ||||||||||||
Property and equipment, net | 225,382 | 223,856 | ||||||||||||
Finance lease right-of-use assets, net | 18,642 | 20,907 | ||||||||||||
Operating lease right-of-use assets | 176,719 | 176,256 | ||||||||||||
Notes receivable, less current portion, net | 19,703 | 35,504 | ||||||||||||
Goodwill | 70,731 | 80,632 | ||||||||||||
Deferred income taxes | 8,657 | 5,156 | ||||||||||||
Other assets | 76,650 | 88,384 | ||||||||||||
Total assets | $ | 836,272 | $ | 885,704 | ||||||||||
Liabilities, Redeemable noncontrolling interests and Stockholders’ deficit | ||||||||||||||
Current liabilities: | ||||||||||||||
Accounts payable | $ | 40,845 | $ | 28,092 | ||||||||||
Income and other taxes payable | 16,785 | 19,996 | ||||||||||||
Accrued expenses and other current liabilities | 146,213 | 190,116 | ||||||||||||
Current deferred revenue | 19,925 | 21,700 | ||||||||||||
Current finance lease liabilities | 5,224 | 4,977 | ||||||||||||
Current operating lease liabilities | 21,485 | 22,543 | ||||||||||||
Total current liabilities | 250,477 | 287,424 | ||||||||||||
Deferred revenue | 23,633 | 13,846 | ||||||||||||
Long-term finance lease liabilities | 14,252 | 16,580 | ||||||||||||
Long-term operating lease liabilities | 164,336 | 160,672 | ||||||||||||
Long-term debt, less current portion, net | 536,446 | 480,730 | ||||||||||||
Deferred income taxes | 236 | 258 | ||||||||||||
Other long-term liabilities | 79,516 | 93,154 | ||||||||||||
Total liabilities | 1,068,896 | 1,052,664 | ||||||||||||
Redeemable noncontrolling interests | 1,174 | 5,498 | ||||||||||||
Stockholders’ deficit: | ||||||||||||||
Common stock ($0.01 par value per share; issued 49,096 at June 26, 2022 and 49,002 at December 26, 2021) | 491 | 490 | ||||||||||||
Additional paid-in capital | 442,255 | 445,126 | ||||||||||||
Accumulated other comprehensive loss | (11,034) | (9,971) | ||||||||||||
Retained earnings | 193,934 | 183,157 | ||||||||||||
Treasury stock (13,848 shares at June 26, 2022 and 13,205 shares at December 26, 2021, at cost) | (875,205) | (806,472) | ||||||||||||
Total stockholders’ deficit | (249,559) | (187,670) | ||||||||||||
Noncontrolling interests in subsidiaries | 15,761 | 15,212 | ||||||||||||
Total Stockholders’ deficit | (233,798) | (172,458) | ||||||||||||
Total liabilities, Redeemable noncontrolling interests and Stockholders’ deficit | $ | 836,272 | $ | 885,704 |
(Unaudited)
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| Three Months Ended | | Nine Months Ended | ||||||||
| | | September 26, | | September 27, | | September 26, | | September 27, | |||
(In thousands, except per share amounts) |
| 2021 |
| 2020 |
| 2021 |
| 2020 | ||||
| | | | | | | | | | | | |
Revenues: | | | | | | | | | | | | |
Domestic Company-owned restaurant sales | | $ | 191,584 | | $ | 178,371 | | $ | 584,942 | | $ | 526,317 |
North America franchise royalties and fees | |
| 31,933 | |
| 25,281 | |
| 97,123 | |
| 68,895 |
North America commissary revenues | |
| 189,224 | |
| 181,338 | |
| 560,743 | |
| 504,379 |
International revenues | |
| 38,408 | | | 33,440 | |
| 110,629 | |
| 87,592 |
Other revenues | | | 61,633 | | | 54,511 | | | 186,099 | | | 156,240 |
Total revenues | |
| 512,782 | |
| 472,941 | |
| 1,539,536 | |
| 1,343,423 |
Costs and expenses: | | | | | | | | | | | | |
Operating costs (excluding depreciation and amortization shown separately below): | | | | | | | | | | | | |
Domestic Company-owned restaurant expenses | | | 155,477 | | | 144,803 | | | 465,658 | | | 419,082 |
North America commissary expenses | | | 175,399 | | | 167,937 | | | 518,310 | | | 466,676 |
International expenses | | | 21,743 | | | 19,370 | | | 62,791 | | | 52,775 |
Other expenses | | | 56,039 | | | 50,917 | | | 168,092 | | | 148,219 |
General and administrative expenses | |
| 54,070 | |
| 52,601 | |
| 157,779 | |
| 148,680 |
Depreciation and amortization | |
| 11,477 | |
| 12,764 | |
| 36,830 | |
| 37,436 |
Total costs and expenses | |
| 474,205 | |
| 448,392 | |
| 1,409,460 | |
| 1,272,868 |
Operating income | |
| 38,577 | |
| 24,549 | |
| 130,076 | |
| 70,555 |
Net interest expense | |
| (3,979) | | | (3,636) | |
| (11,275) | |
| (11,230) |
Income before income taxes | |
| 34,598 | |
| 20,913 | |
| 118,801 | |
| 59,325 |
Income tax expense | |
| 4,057 | |
| 4,516 | |
| 19,387 | |
| 11,984 |
Net income before attribution to noncontrolling interests | |
| 30,541 | |
| 16,397 | |
| 99,414 | |
| 47,341 |
Net income attributable to noncontrolling interests | |
| (1,285) | |
| (689) | |
| (4,021) | |
| (2,576) |
Net income attributable to the Company | | $ | 29,256 | | $ | 15,708 | | $ | 95,393 | | $ | 44,765 |
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Calculation of net income (loss) for earnings per share: | | | | | | | | | | | | |
Net income attributable to the Company | | $ | 29,256 | | $ | 15,708 | | $ | 95,393 | | $ | 44,765 |
Dividends on redemption of Series B Convertible Preferred Stock | | | — | | | — | | | (109,852) | | | — |
Dividends paid to participating securities | |
| (137) | |
| (3,548) | |
| (5,964) | |
| (10,546) |
Net income attributable to participating securities | |
| (158) | |
| (703) | |
| — | |
| (1,809) |
Net income (loss) attributable to common shareholders | | $ | 28,961 | | $ | 11,457 | | $ | (20,423) | | $ | 32,410 |
| | | | | | | | | | | | |
Basic earnings (loss) per common share | | $ | 0.80 | | $ | 0.35 | | $ | (0.59) | | $ | 1.00 |
Diluted earnings (loss) per common share | | $ | 0.79 | | $ | 0.35 | | $ | (0.59) | | $ | 0.99 |
| | | | | | | | | | | | |
Basic weighted average common shares outstanding | |
| 36,387 | |
| 32,616 | |
| 34,619 | |
| 32,347 |
Diluted weighted average common shares outstanding | |
| 36,719 | |
| 32,971 | |
| 34,619 | |
| 32,643 |
| | | | | | | | | | | | |
Dividends declared per common share | | $ | 0.350 | | $ | 0.225 | | $ | 0.800 | | $ | 0.675 |
See accompanying notes.
(Unaudited)
Three Months Ended | Six Months Ended | |||||||||||||||||||||||||
(In thousands, except per share amounts) | June 26, 2022 | June 27, 2021 | June 26, 2022 | June 27, 2021 | ||||||||||||||||||||||
Revenues: | ||||||||||||||||||||||||||
Domestic Company-owned restaurant sales | $ | 171,411 | $ | 196,124 | $ | 370,176 | $ | 393,358 | ||||||||||||||||||
North America franchise royalties and fees | 34,917 | 32,475 | 69,185 | 65,190 | ||||||||||||||||||||||
North America commissary revenues | 219,383 | 186,641 | 429,062 | 371,519 | ||||||||||||||||||||||
International revenues | 31,958 | 37,614 | 66,575 | 72,221 | ||||||||||||||||||||||
Other revenues | 64,996 | 62,154 | 130,359 | 124,466 | ||||||||||||||||||||||
Total revenues | 522,665 | 515,008 | 1,065,357 | 1,026,754 | ||||||||||||||||||||||
Costs and expenses: | ||||||||||||||||||||||||||
Operating costs (excluding depreciation and amortization shown separately below): | ||||||||||||||||||||||||||
Domestic Company-owned restaurant expenses | 142,026 | 154,293 | 303,687 | 310,181 | ||||||||||||||||||||||
North America commissary expenses | 204,470 | 172,227 | 401,560 | 342,911 | ||||||||||||||||||||||
International expenses | 19,236 | 21,430 | 39,150 | 41,048 | ||||||||||||||||||||||
Other expenses | 60,648 | 56,246 | 121,203 | 112,053 | ||||||||||||||||||||||
General and administrative expenses | 44,646 | 53,698 | 110,584 | 103,709 | ||||||||||||||||||||||
Depreciation and amortization | 12,735 | 12,477 | 24,674 | 25,353 | ||||||||||||||||||||||
Total costs and expenses | 483,761 | 470,371 | 1,000,858 | 935,255 | ||||||||||||||||||||||
Refranchising and impairment loss | — | — | (11,160) | — | ||||||||||||||||||||||
Operating income | 38,904 | 44,637 | 53,339 | 91,499 | ||||||||||||||||||||||
Net interest expense | (6,081) | (3,649) | (10,344) | (7,296) | ||||||||||||||||||||||
Income before income taxes | 32,823 | 40,988 | 42,995 | 84,203 | ||||||||||||||||||||||
Income tax expense | 7,093 | 7,398 | 5,838 | 15,330 | ||||||||||||||||||||||
Net income before attribution to noncontrolling interests | 25,730 | 33,590 | 37,157 | 68,873 | ||||||||||||||||||||||
Net income attributable to noncontrolling interests | (297) | (1,336) | (1,230) | (2,736) | ||||||||||||||||||||||
Net income attributable to the Company | $ | 25,433 | $ | 32,254 | $ | 35,927 | $ | 66,137 | ||||||||||||||||||
Calculation of net income for earnings per share: | ||||||||||||||||||||||||||
Net income attributable to the Company | $ | 25,433 | $ | 32,254 | $ | 35,927 | $ | 66,137 | ||||||||||||||||||
Dividends on redemption of Series B Convertible Preferred Stock | — | (109,852) | — | (109,852) | ||||||||||||||||||||||
Dividends paid to participating securities | (82) | (2,300) | (141) | (5,827) | ||||||||||||||||||||||
Net income attributable to participating securities | (111) | — | (93) | — | ||||||||||||||||||||||
Net income (loss) attributable to common shareholders | $ | 25,240 | $ | (79,898) | $ | 35,693 | $ | (49,542) | ||||||||||||||||||
Basic earnings (loss) per common share | $ | 0.71 | $ | (2.30) | $ | 1.00 | $ | (1.47) | ||||||||||||||||||
Diluted earnings (loss) per common share | $ | 0.70 | $ | (2.30) | $ | 0.99 | $ | (1.47) | ||||||||||||||||||
Basic weighted average common shares outstanding | 35,624 | 34,729 | 35,775 | 33,739 | ||||||||||||||||||||||
Diluted weighted average common shares outstanding | 35,824 | 34,729 | 36,032 | 33,739 | ||||||||||||||||||||||
Dividends declared per common share | $ | 0.350 | $ | 0.225 | $ | 0.700 | $ | 0.450 |
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| | Three Months Ended | | Nine Months Ended | ||||||||
| | September 26, | | September 27, | | September 26, | | September 27, | ||||
(In thousands) |
| 2021 |
| 2020 |
| 2021 |
| 2020 | ||||
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Net income before attribution to noncontrolling interests | | $ | 30,541 | | $ | 16,397 | | $ | 99,414 | | $ | 47,341 |
Other comprehensive income (loss), before tax: | | | | | | | | | | | | |
Foreign currency translation adjustments | | | (1,113) | | | 1,721 | | | 383 | | | (1,438) |
Interest rate swaps (1) | |
| 1,535 | |
| 1,647 | |
| 5,147 | |
| (9,375) |
Other comprehensive income (loss), before tax | |
| 422 | |
| 3,368 | |
| 5,530 | |
| (10,813) |
Income tax effect: | | | | | | | | | | | | |
Foreign currency translation adjustments | |
| 256 | |
| (395) | |
| (88) | |
| 332 |
Interest rate swaps (2) | |
| (353) | |
| (379) | |
| (1,184) | |
| 2,156 |
Income tax effect | |
| (97) | |
| (774) | |
| (1,272) | |
| 2,488 |
Other comprehensive income (loss), net of tax | |
| 325 | |
| 2,594 | |
| 4,258 | |
| (8,325) |
Comprehensive income before attribution to noncontrolling interests | |
| 30,866 | |
| 18,991 | |
| 103,672 | |
| 39,016 |
Less: comprehensive (income), redeemable noncontrolling interests | |
| (692) | |
| (301) | |
| (2,192) | |
| (1,184) |
Less: comprehensive (income), nonredeemable noncontrolling interests | |
| (593) | |
| (388) | |
| (1,829) | |
| (1,392) |
Comprehensive income attributable to the Company | | $ | 29,581 | | $ | 18,302 | | $ | 99,651 | | $ | 36,440 |
Three Months Ended | Six Months Ended | |||||||||||||||||||||||||
(In thousands) | June 26, 2022 | June 27, 2021 | June 26, 2022 | June 27, 2021 | ||||||||||||||||||||||
Net income before attribution to noncontrolling interests | $ | 25,730 | $ | 33,590 | $ | 37,157 | $ | 68,873 | ||||||||||||||||||
Other comprehensive (loss) income, before tax: | ||||||||||||||||||||||||||
Foreign currency translation adjustments | (4,109) | 437 | (4,970) | 1,496 | ||||||||||||||||||||||
Interest rate swaps (1) | 1,877 | 1,817 | 3,589 | 3,612 | ||||||||||||||||||||||
Other comprehensive (loss) income, before tax | (2,232) | 2,254 | (1,381) | 5,108 | ||||||||||||||||||||||
Income tax effect: | ||||||||||||||||||||||||||
Foreign currency translation adjustments | 946 | (100) | 1,144 | (344) | ||||||||||||||||||||||
Interest rate swaps (2) | (432) | (418) | (826) | (831) | ||||||||||||||||||||||
Income tax effect | 514 | (518) | 318 | (1,175) | ||||||||||||||||||||||
Other comprehensive (loss) income, net of tax | (1,718) | 1,736 | (1,063) | 3,933 | ||||||||||||||||||||||
Comprehensive income before attribution to noncontrolling interests | 24,012 | 35,326 | 36,094 | 72,806 | ||||||||||||||||||||||
Less: comprehensive (income), redeemable noncontrolling interests | (18) | (713) | (528) | (1,500) | ||||||||||||||||||||||
Less: comprehensive (income), nonredeemable noncontrolling interests | (279) | (623) | (702) | (1,236) | ||||||||||||||||||||||
Comprehensive income attributable to the Company | $ | 23,715 | $ | 33,990 | $ | 34,864 | $ | 70,070 |
(1) | Amounts reclassified out of accumulated other comprehensive loss into net interest expense include $(735) and $(200) for the three and six months ended June 26, 2022, respectively, and $(1,730) and $(3,439) for the three and six months ended June 27, 2021, respectively. | ||||
(2) | The income tax effects of amounts reclassified out of accumulated other comprehensive loss into net interest expense were $165 and $45 for the three and six months ended June 26, 2022, respectively, and $388 and $771 for the three and six months ended June 27, 2021, respectively. |
See accompanying notes.
Papa John’s International, Inc. | ||||||||||||||||||||||||||||||||||||||||||||||||||
(In thousands) | Common Stock Shares Outstanding | Common Stock | Additional Paid-In Capital | Accumulated Other Comprehensive Loss | Retained Earnings | Treasury Stock | Noncontrolling Interests in Subsidiaries | Total Stockholders’ Deficit | ||||||||||||||||||||||||||||||||||||||||||
For the three months ended June 26, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at March 27, 2022 | 35,675 | $ | 491 | $ | 436,225 | $ | (9,316) | $ | 181,124 | $ | (832,603) | $ | 15,635 | $ | (208,444) | |||||||||||||||||||||||||||||||||||
Net income (1) | — | — | — | — | 25,433 | — | 279 | 25,712 | ||||||||||||||||||||||||||||||||||||||||||
Other comprehensive (loss), net of tax | — | — | — | (1,718) | — | — | — | (1,718) | ||||||||||||||||||||||||||||||||||||||||||
Cash dividends on common stock | — | — | 48 | — | (12,541) | — | — | (12,493) | ||||||||||||||||||||||||||||||||||||||||||
Exercise of stock options | 22 | — | 1,167 | — | — | — | — | 1,167 | ||||||||||||||||||||||||||||||||||||||||||
Acquisition of Company common stock | (452) | — | — | — | — | (42,762) | — | (42,762) | ||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation expense | — | — | 4,925 | — | — | — | — | 4,925 | ||||||||||||||||||||||||||||||||||||||||||
Issuance of restricted stock | 2 | — | (81) | — | — | 81 | — | — | ||||||||||||||||||||||||||||||||||||||||||
Tax payments for equity award issuances | (1) | — | (65) | — | — | — | — | (65) | ||||||||||||||||||||||||||||||||||||||||||
Distributions to noncontrolling interests | — | — | — | — | — | — | (150) | (150) | ||||||||||||||||||||||||||||||||||||||||||
Other | 2 | — | 36 | — | (82) | 79 | (3) | 30 | ||||||||||||||||||||||||||||||||||||||||||
Balance at June 26, 2022 | 35,248 | $ | 491 | $ | 442,255 | $ | (11,034) | $ | 193,934 | $ | (875,205) | $ | 15,761 | $ | (233,798) | |||||||||||||||||||||||||||||||||||
For the six months ended June 26, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at December 26, 2021 | 35,797 | $ | 490 | $ | 445,126 | $ | (9,971) | $ | 183,157 | $ | (806,472) | $ | 15,212 | $ | (172,458) | |||||||||||||||||||||||||||||||||||
Net income (1) | — | — | — | — | 35,927 | — | 702 | 36,629 | ||||||||||||||||||||||||||||||||||||||||||
Other comprehensive (loss), net of tax | — | — | — | (1,063) | — | — | — | (1,063) | ||||||||||||||||||||||||||||||||||||||||||
Cash dividends on common stock | — | — | 95 | — | (25,196) | — | — | (25,101) | ||||||||||||||||||||||||||||||||||||||||||
Exercise of stock options | 39 | — | 1,908 | — | — | — | — | 1,908 | ||||||||||||||||||||||||||||||||||||||||||
Acquisition of Company common stock | (753) | — | — | — | — | (75,471) | — | (75,471) | ||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation expense | — | 1 | 9,100 | — | — | — | — | 9,101 | ||||||||||||||||||||||||||||||||||||||||||
Issuance of restricted stock | 229 | — | (6,450) | — | — | 6,450 | — | — | ||||||||||||||||||||||||||||||||||||||||||
Tax payments for equity award issuances | (70) | — | (7,527) | — | — | — | — | (7,527) | ||||||||||||||||||||||||||||||||||||||||||
Distributions to noncontrolling interests | — | — | — | — | — | — | (150) | (150) | ||||||||||||||||||||||||||||||||||||||||||
Other | 6 | — | 3 | — | 46 | 288 | (3) | 334 | ||||||||||||||||||||||||||||||||||||||||||
Balance at June 26, 2022 | 35,248 | $ | 491 | $ | 442,255 | $ | (11,034) | $ | 193,934 | $ | (875,205) | $ | 15,761 | $ | (233,798) |
| | | | | | | | | | | | | | | | | | | | | | | |
| | Papa John’s International, Inc. | | | | | | | |||||||||||||||
|
| Common |
|
| |
|
| |
| Accumulated |
|
| |
|
| |
|
| |
| | ||
| | Stock | | | | | Additional | | Other | | | | | | | | Noncontrolling | | Total | ||||
(In thousands) | | Shares | | Common | | Paid-In | | Comprehensive | | Retained | | Treasury | | Interests in | | Stockholders’ | |||||||
For the three months ended September 26, 2021 | | Outstanding | | Stock | | Capital | | Loss | | Earnings | | Stock | | Subsidiaries | | Deficit | |||||||
Balance at June 27, 2021 | | 36,215 | | $ | 489 | | $ | 435,608 | | $ | (10,235) | | $ | 154,769 | | $ | (743,819) | | $ | 15,290 | | $ | (147,898) |
Net income (1) | | — | | | — | | | — | | | — | | | 29,256 | | | — | | | 593 | | | 29,849 |
Other comprehensive income, net of tax | | — | | | — | | | — | | | 325 | | | — | | | — | | | — | | | 325 |
Cash dividends on common stock | | — | | | — | | | 48 | | | — | | | (12,845) | | | — | | | — | | | (12,797) |
Exercise of stock options | | 51 | | | 1 | | | 3,111 | | | — | | | — | | | — | | | — | | | 3,112 |
Acquisition of Company common stock | | (103) | | | — | | | — | | | — | | | — | | | (12,367) | | | — | | | (12,367) |
Stock-based compensation expense | | — | | | — | | | 4,317 | | | — | | | — | | | — | | | — | | | 4,317 |
Issuance of restricted stock | | 15 | | | — | | | (873) | | | — | | | — | | | 873 | | | — | | | — |
Tax effect of restricted stock awards | | — | | | — | | | (1,423) | | | — | | | — | | | — | | | — | | | (1,423) |
Distributions to noncontrolling interests | | — | | | — | | | — | | | — | | | — | | | — | | | (594) | | | (594) |
Other | | 5 | | | — | | | (46) | | | — | | | 198 | | | 278 | | | — | | | 430 |
Balance at September 26, 2021 |
| 36,183 | | $ | 490 | | $ | 440,742 | | $ | (9,910) | | $ | 171,378 | | $ | (755,035) | | $ | 15,289 | | $ | (137,046) |
| | | | | | | | | | | | | | | | | | | | | | | |
For the nine months ended September 26, 2021 | | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 27, 2020 |
| 32,545 | | $ | 453 | | $ | 254,103 | | $ | (14,168) | | $ | 219,158 | | $ | (741,724) | | $ | 15,239 | | $ | (266,939) |
Net income (1) |
| — | |
| — | |
| — | |
| — | |
| 95,393 | |
| — | |
| 1,829 | |
| 97,222 |
Other comprehensive income, net of tax |
| — | |
| — | |
| — | |
| 4,258 | |
| — | |
| — | |
| — | |
| 4,258 |
Repurchase and conversion of Series B Convertible Preferred Stock | | 3,489 | | | 35 | | | 174,631 | | | — | | | (110,498) | | | — | | | — | | | 64,168 |
Cash dividends on common stock | | — | | | — | | | 110 | | | — | | | (27,750) | | | — | | | — | | | (27,640) |
Cash dividends on preferred stock |
| — | |
| — | |
| — | |
| — | |
| (4,121) | |
| — | |
| — | |
| (4,121) |
Exercise of stock options |
| 199 | |
| 2 | |
| 11,209 | |
| — | |
| — | |
| — | |
| — | |
| 11,211 |
Acquisition of Company common stock | | (187) | | | — | | | — | | | — | | | — | | | (20,555) | | | — | | | (20,555) |
Stock-based compensation expense |
| — | |
| — | |
| 12,519 | |
| — | |
| — | |
| — | |
| — | |
| 12,519 |
Issuance of restricted stock |
| 125 | |
| — | |
| (6,538) | |
| — | |
| — | |
| 6,538 | |
| — | |
| — |
Tax effect of restricted stock awards | | — | | | — | | | (5,310) | | | — | | | — | | | — | | | — | | | (5,310) |
Distributions to noncontrolling interests |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| (1,779) | |
| (1,779) |
Other |
| 12 | |
| — | |
| 18 | |
| — | |
| (804) | |
| 706 | |
| — | |
| (80) |
Balance at September 26, 2021 | | 36,183 | | $ | 490 | | $ | 440,742 | | $ | (9,910) | | $ | 171,378 | | $ | (755,035) | | $ | 15,289 | | $ | (137,046) |
At SeptemberJune 26, 2021,2022, the accumulated other comprehensive loss of $9,910$11,034 was comprised of net unrealized foreign currency translation loss of $3,499$8,696 and net unrealized loss on the interest rate swap agreements of $6,411.
$2,338.
Papa John’s International, Inc. | ||||||||||||||||||||||||||||||||||||||||||||||||||
(In thousands) | Common Stock Shares Outstanding | Common Stock | Additional Paid-In Capital | Accumulated Other Comprehensive Loss | Retained Earnings | Treasury Stock | Noncontrolling Interests in Subsidiaries | Total Stockholders’ Deficit | ||||||||||||||||||||||||||||||||||||||||||
For the three months ended June 27, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at March 28, 2021 | 32,681 | $ | 453 | $ | 251,285 | $ | (11,971) | $ | 242,119 | $ | (737,268) | $ | 15,282 | $ | (240,100) | |||||||||||||||||||||||||||||||||||
Net income (1) | — | — | — | — | 32,254 | — | 623 | 32,877 | ||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income, net of tax | — | — | — | 1,736 | — | — | — | 1,736 | ||||||||||||||||||||||||||||||||||||||||||
Repurchase and conversion of Series B Convertible Preferred Stock | 3,489 | 35 | 174,631 | — | (110,783) | — | — | 63,883 | ||||||||||||||||||||||||||||||||||||||||||
Cash dividends on common stock | — | — | 31 | — | (7,471) | — | — | (7,440) | ||||||||||||||||||||||||||||||||||||||||||
Cash dividends on preferred stock | — | — | — | — | (709) | — | — | (709) | ||||||||||||||||||||||||||||||||||||||||||
Exercise of stock options | 107 | 1 | 5,801 | — | — | — | — | 5,802 | ||||||||||||||||||||||||||||||||||||||||||
Acquisition of Company common stock | (68) | — | — | — | — | (6,921) | — | (6,921) | ||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation expense | — | — | 4,089 | — | — | — | — | 4,089 | ||||||||||||||||||||||||||||||||||||||||||
Issuance of restricted stock | 5 | — | (294) | — | — | 294 | — | — | ||||||||||||||||||||||||||||||||||||||||||
Tax payments for equity award issuances | — | — | (52) | — | — | — | — | (52) | ||||||||||||||||||||||||||||||||||||||||||
Distributions to noncontrolling interests | — | — | — | — | — | — | (615) | (615) | ||||||||||||||||||||||||||||||||||||||||||
Other | 1 | — | 117 | — | (641) | 76 | — | (448) | ||||||||||||||||||||||||||||||||||||||||||
Balance at June 27, 2021 | 36,215 | $ | 489 | $ | 435,608 | $ | (10,235) | $ | 154,769 | $ | (743,819) | $ | 15,290 | $ | (147,898) | |||||||||||||||||||||||||||||||||||
For the six months ended June 27, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at December 27, 2020 | 32,545 | $ | 453 | $ | 254,103 | $ | (14,168) | $ | 219,158 | $ | (741,724) | $ | 15,239 | $ | (266,939) | |||||||||||||||||||||||||||||||||||
Net income (1) | — | — | — | — | 66,137 | — | 1,236 | 67,373 | ||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income, net of tax | — | — | — | 3,933 | — | — | — | 3,933 | ||||||||||||||||||||||||||||||||||||||||||
Repurchase and conversion of Series B Convertible Preferred Stock | 3,489 | 35 | 174,631 | — | (110,783) | — | — | 63,883 | ||||||||||||||||||||||||||||||||||||||||||
Cash dividends on common stock | — | — | 62 | — | (14,906) | — | — | (14,844) | ||||||||||||||||||||||||||||||||||||||||||
Cash dividends on preferred stock | — | — | — | — | (4,121) | — | — | (4,121) | ||||||||||||||||||||||||||||||||||||||||||
Exercise of stock options | 148 | 1 | 8,099 | — | — | — | — | 8,100 | ||||||||||||||||||||||||||||||||||||||||||
Acquisition of Company common stock | (83) | — | — | — | — | (8,188) | — | (8,188) | ||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation expense | — | — | 8,202 | — | — | — | — | 8,202 | ||||||||||||||||||||||||||||||||||||||||||
Issuance of restricted stock | 109 | — | (5,665) | — | — | 5,665 | — | — | ||||||||||||||||||||||||||||||||||||||||||
Tax payments for equity award issuances | — | — | (3,887) | — | — | — | — | (3,887) | ||||||||||||||||||||||||||||||||||||||||||
Distributions to noncontrolling interests | — | — | — | — | — | — | (1,185) | (1,185) | ||||||||||||||||||||||||||||||||||||||||||
Other | 7 | — | 63 | — | (716) | 428 | — | (225) | ||||||||||||||||||||||||||||||||||||||||||
Balance at June 27, 2021 | 36,215 | $ | 489 | $ | 435,608 | $ | (10,235) | $ | 154,769 | $ | (743,819) | $ | 15,290 | $ | (147,898) |
Papa John’s International, Inc.(1) Net income to the Company for the three and Subsidiaries
Condensed Consolidated Statements of Stockholders’ Deficit (continued)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| | Papa John’s International, Inc. | | | | | | | |||||||||||||||
|
| Common |
|
| |
|
| |
| Accumulated |
|
| |
|
| |
|
| |
| | ||
| | Stock | | | | | Additional | | Other | | | | | | | | Noncontrolling | | Total | ||||
(In thousands) | | Shares | | Common | | Paid-In | | Comprehensive | | Retained | | Treasury | | Interests in | | Stockholders’ | |||||||
For the three months ended September 27, 2020 | | Outstanding | | Stock | | Capital | | Loss | | Earnings | | Stock | | Subsidiaries | | Deficit | |||||||
Balance at June 28, 2020 |
| 32,349 | | $ | 451 | | $ | 243,577 | | $ | (21,104) | | $ | 212,104 | | $ | (742,600) | | $ | 15,724 | | $ | (291,848) |
Net income (2) |
| — | |
| — | |
| — | |
| — | |
| 15,708 | |
| — | |
| 388 | |
| 16,096 |
Other comprehensive income, net of tax |
| — | |
| — | |
| — | |
| 2,594 | |
| — | |
| — | |
| — | |
| 2,594 |
Cash dividends on common stock |
| — | |
| — | |
| 78 | |
| — | |
| (7,414) | |
| — | |
| — | |
| (7,336) |
Cash dividends on preferred stock | | — | | | — | | | — | | | — | | | (3,412) | | | — | | | — | | | (3,412) |
Exercise of stock options |
| 131 | |
| 1 | |
| 7,499 | |
| — | |
| — | |
| — | |
| — | |
| 7,500 |
Stock-based compensation expense |
| — | |
| — | |
| 4,328 | |
| — | |
| — | |
| — | |
| — | |
| 4,328 |
Issuance of restricted stock |
| 2 | |
| — | |
| (105) | |
| — | |
| — | |
| 105 | |
| — | |
| — |
Tax effect of restricted stock awards |
| — | |
| — | |
| (86) | |
| — | |
| — | |
| — | |
| — | | | (86) |
Distributions to noncontrolling interests | | — | | | — | | | — | | | — | | | — | | | — | | | (697) | | | (697) |
Other |
| 3 | |
| — | |
| (81) | |
| — | |
| (75) | |
| 172 | |
| — | |
| 16 |
Balance at September 27, 2020 |
| 32,485 | | $ | 452 | | $ | 255,210 | | $ | (18,510) | | $ | 216,911 | | $ | (742,323) | | $ | 15,415 | | $ | (272,845) |
| | | | | | | | | | | | | | | | | | | | | | | |
For the nine months ended September 27, 2020 | | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 29, 2019 |
| 31,894 | | $ | 447 | | $ | 219,047 | | $ | (10,185) | | $ | 205,697 | | $ | (747,327) | | $ | 15,665 | | $ | (316,656) |
Cumulative effect of adoption of ASU 2016-13 (1) |
| — | |
| — | |
| — | |
| — | |
| (1,066) | |
| — | |
| — | |
| (1,066) |
Adjusted Balance at December 30, 2019 |
| 31,894 | | $ | 447 | | $ | 219,047 | | $ | (10,185) | | $ | 204,631 | | $ | (747,327) | | $ | 15,665 | | $ | (317,722) |
Net income (2) |
| — | |
| — | |
| — | |
| — | |
| 44,765 | |
| — | |
| 1,392 | |
| 46,157 |
Other comprehensive loss, net of tax |
| — | |
| — | |
| — | |
| (8,325) | |
| — | |
| — | |
| — | |
| (8,325) |
Cash dividends on common stock |
| — | |
| — | |
| 210 | |
| — | |
| (22,066) | |
| — | |
| — | |
| (21,856) |
Cash dividends on preferred stock | | — | |
| — | |
| — | |
| — | |
| (10,237) | |
| — | |
| — | |
| (10,237) |
Exercise of stock options |
| 505 | |
| 5 | |
| 29,199 | |
| — | |
| — | |
| — | |
| — | |
| 29,204 |
Stock-based compensation expense |
| — | |
| — | |
| 13,071 | |
| — | |
| — | |
| — | |
| — | |
| 13,071 |
Issuance of restricted stock |
| 79 | |
| — | |
| (4,573) | |
| — | |
| — | |
| 4,573 | |
| — | |
| — |
Tax effect of restricted stock awards |
| — | |
| — | |
| (1,665) | |
| — | |
| — | |
| — | |
| — | | | (1,665) |
Distributions to noncontrolling interests | | — | | | — | | | — | | | — | | | — | | | — | | | (1,642) | | | (1,642) |
Other |
| 7 | |
| — | |
| (79) | |
| — | |
| (182) | |
| 431 | |
| — | |
| 170 |
Balance at September 27, 2020 |
| 32,485 | | $ | 452 | | $ | 255,210 | | $ | (18,510) | | $ | 216,911 | | $ | (742,323) | | $ | 15,415 | | $ | (272,845) |
At SeptemberJune 27, 2020,2021, the accumulated other comprehensive loss of $18,510$10,235 was comprised of net unrealized foreign currency translation loss of $6,705$2,641 and net unrealized loss on the interest rate swap agreements of $11,805.
$7,594.
| | | | | | |
| | | ||||
| | Nine Months Ended | ||||
| | September 26, | | September 27, | ||
(In thousands) |
| 2021 |
| 2020 | ||
| | | | | | |
Operating activities | | | | | | |
Net income before attribution to noncontrolling interests | | $ | 99,414 | | $ | 47,341 |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | |
Benefit for allowance for credit losses on accounts and notes receivable | |
| (920) | |
| (334) |
Depreciation and amortization | |
| 36,830 | |
| 37,436 |
Deferred income taxes | |
| (5,113) | |
| (4,696) |
Stock-based compensation expense | |
| 12,519 | |
| 13,071 |
Other | |
| 1,052 | |
| 1,233 |
Changes in operating assets and liabilities, net of acquisitions: | | | | | | |
Accounts receivable | |
| 5,955 | |
| (4,378) |
Income tax receivable | | | 674 | | | 3,131 |
Inventories | |
| (3,217) | |
| (1,173) |
Prepaid expenses and other current assets | |
| 11,277 | |
| 14,393 |
Other assets and liabilities | |
| (8,627) | |
| 18,080 |
Accounts payable | |
| 5,014 | |
| 3,147 |
Income and other taxes payable | |
| 15,958 | |
| 2,435 |
Accrued expenses and other current liabilities | |
| 24,001 | |
| 40,112 |
Deferred revenue | |
| (1,193) | |
| (1,251) |
Net cash provided by operating activities | |
| 193,624 | |
| 168,547 |
Investing activities | | | | | | |
Purchases of property and equipment | |
| (41,328) | |
| (24,269) |
Notes issued | |
| (14,637) | |
| (13,240) |
Repayments of notes issued | |
| 15,352 | |
| 8,906 |
Acquisitions, net of cash acquired | |
| (699) | |
| — |
Other | |
| 121 | |
| 15 |
Net cash used in investing activities | |
| (41,191) | |
| (28,588) |
Financing activities | | | | | | |
Proceeds from issuance of senior notes | | | 400,000 | | | — |
Repayment of term loan | | | (340,000) | | | (15,000) |
Net proceeds (repayments) of revolving credit facilities | |
| 15,000 | |
| (5,000) |
Debt issuance costs | | | (9,179) | | | — |
Proceeds from exercise of stock options | |
| 11,211 | |
| 29,204 |
Dividends paid to common stockholders | | | (27,640) | | | (21,856) |
Dividends paid to preferred stockholders | |
| (6,394) | |
| (10,237) |
Tax payments for equity award issuances | |
| (5,310) | |
| (1,665) |
Repurchase of Series B Convertible Preferred Stock | | | (188,647) | | | — |
Acquisition of Company common stock | |
| (20,555) | |
| — |
Distributions to noncontrolling interests | |
| (2,914) | |
| (1,778) |
Other | |
| (2,630) | |
| (1,105) |
Net cash used in financing activities | |
| (177,058) | |
| (27,437) |
Effect of exchange rate changes on cash and cash equivalents | |
| 234 | |
| (383) |
Change in cash and cash equivalents | |
| (24,391) | |
| 112,139 |
Cash and cash equivalents at beginning of period | |
| 130,204 | |
| 27,911 |
Cash and cash equivalents at end of period | | $ | 105,813 | | $ | 140,050 |
Six Months Ended | ||||||||||||||||||||||||||
(In thousands) | June 26, 2022 | June 27, 2021 | ||||||||||||||||||||||||
Operating activities | ||||||||||||||||||||||||||
Net income before attribution to noncontrolling interests | $ | 37,157 | $ | 68,873 | ||||||||||||||||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||||||||||||||
Provision (benefit) for allowance for credit losses on accounts and notes receivable | 15,558 | (1,200) | ||||||||||||||||||||||||
Depreciation and amortization | 24,674 | 25,353 | ||||||||||||||||||||||||
Refranchising and impairment loss | 11,160 | — | ||||||||||||||||||||||||
Deferred income taxes | (2,993) | (1,397) | ||||||||||||||||||||||||
Stock-based compensation expense | 9,100 | 8,202 | ||||||||||||||||||||||||
Other | (2,071) | 467 | ||||||||||||||||||||||||
Changes in operating assets and liabilities, net of acquisitions: | ||||||||||||||||||||||||||
Accounts receivable | (9,177) | 13,299 | ||||||||||||||||||||||||
Income tax receivable | 5,369 | 189 | ||||||||||||||||||||||||
Inventories | (3,815) | 430 | ||||||||||||||||||||||||
Prepaid expenses and other current assets | (3,901) | 1,092 | ||||||||||||||||||||||||
Other assets and liabilities | (5,379) | (11,380) | ||||||||||||||||||||||||
Accounts payable | 12,742 | (5,874) | ||||||||||||||||||||||||
Income and other taxes payable | (3,175) | 18,500 | ||||||||||||||||||||||||
Accrued expenses and other current liabilities | (37,456) | 12,123 | ||||||||||||||||||||||||
Deferred revenue | (2,208) | (647) | ||||||||||||||||||||||||
Net cash provided by operating activities | 45,585 | 128,030 | ||||||||||||||||||||||||
Investing activities | ||||||||||||||||||||||||||
Purchases of property and equipment | (30,744) | (21,543) | ||||||||||||||||||||||||
Notes issued | (1,098) | (5,263) | ||||||||||||||||||||||||
Repayments of notes issued | 6,743 | 7,922 | ||||||||||||||||||||||||
Acquisitions, net of cash acquired | (1,250) | (699) | ||||||||||||||||||||||||
Proceeds from refranchising, net of cash transferred | 13,588 | — | ||||||||||||||||||||||||
Other | 238 | 116 | ||||||||||||||||||||||||
Net cash used in investing activities | (12,523) | (19,467) | ||||||||||||||||||||||||
Financing activities | ||||||||||||||||||||||||||
Net proceeds of revolving credit facilities | 55,000 | 85,000 | ||||||||||||||||||||||||
Proceeds from exercise of stock options | 1,908 | 8,100 | ||||||||||||||||||||||||
Repurchase of Series B Convertible Preferred Stock | — | (188,647) | ||||||||||||||||||||||||
Acquisition of Company common stock | (75,471) | (8,188) | ||||||||||||||||||||||||
Dividends paid to common stockholders | (25,101) | (14,844) | ||||||||||||||||||||||||
Dividends paid to preferred stockholders | — | (6,394) | ||||||||||||||||||||||||
Tax payments for equity award issuances | (7,526) | (3,887) | ||||||||||||||||||||||||
Distributions to noncontrolling interests | (835) | (2,320) | ||||||||||||||||||||||||
Repayments of term loan | — | (10,000) | ||||||||||||||||||||||||
Other | 1,348 | (1,691) | ||||||||||||||||||||||||
Net cash used in financing activities | (50,677) | (142,871) | ||||||||||||||||||||||||
Effect of exchange rate changes on cash and cash equivalents | (871) | 317 | ||||||||||||||||||||||||
Change in cash and cash equivalents | (18,486) | (33,991) | ||||||||||||||||||||||||
Cash and cash equivalents at beginning of period | 70,610 | 130,204 | ||||||||||||||||||||||||
Cash and cash equivalents at end of period | $ | 52,124 | $ | 96,213 |
See accompanying notes.
September
|
|
2022
|
|
26, 2021.
Papa John’s domestic restaurants, both Company-owned and franchised, participate in Papa John’s Marketing Fund, Inc. (“PJMF”), a nonstock corporation designed to operate at break-even as it spends all annual contributions received from the system. PJMF collects a percentage of revenues from Company-owned and franchised restaurants in the United States for the purpose of designing and administering advertising and promotional programs. PJMF is a variable interest entity (“VIE”) that funds its operations with ongoing financial support and contributions from the domestic restaurants, of which approximately 80%80 percent are franchised (85 percent following the divestiture of the Company’s interest in 1 joint venture in the second quarter that included 90 restaurants as discussed in Note 10) and does not have sufficient equity to fund its operations without these ongoing financial contributions. Based on an assessment of the governance structure and operating procedures of PJMF, the Company determined it has the power to control certain significant activities of PJMF, and therefore, is the primary beneficiary. The Company has consolidated PJMF in its financial results in accordance with Accounting Standards Codification (“ASC”) 810, “Consolidations.“Consolidations.”
liabilities associated with this joint venture arrangement were classified as held for sale at the end of the first quarter of 2022.
Net income attributable to these joint ventures for the three and ninesix months ended SeptemberJune 26, 20212022 and SeptemberJune 27, 20202021 was as follows (in thousands):
| | | | | | | | | | | | |
|
| | | | ||||||||
|
| Three Months Ended | | Nine Months Ended | ||||||||
| | September 26, | | September 27, | | September 26, | | September 27, | ||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 | ||||
| | | | | | | | | | | | |
Papa John’s International, Inc. | | $ | 2,171 | | $ | 1,292 | | $ | 6,816 | | $ | 4,743 |
Noncontrolling interests | |
| 1,285 | |
| 689 | |
| 4,021 | |
| 2,576 |
Total net income | | $ | 3,456 | | $ | 1,981 | | $ | 10,837 | | $ | 7,319 |
Three Months Ended | Six Months Ended | ||||||||||||||||||||||
June 26, 2022 | June 27, 2021 | June 26, 2022 | June 27, 2021 | ||||||||||||||||||||
Papa John’s International, Inc. | $ | 706 | $ | 2,296 | $ | 2,327 | $ | 4,645 | |||||||||||||||
Noncontrolling interests | 297 | 1,336 | 1,230 | 2,736 | |||||||||||||||||||
Total net income | $ | 1,003 | $ | 3,632 | $ | 3,557 | $ | 7,381 |
|
|
|
|
| ||||||||||
|
|
| ||||||||||||
Type of Joint Venture Arrangement | Location within the Balance Sheets | Recorded Value | ||||||||||||
|
|
|
|
| ||||||||||
Joint ventures with no redemption feature | Permanent equity | Carrying value | ||||||||||||
Joint ventures with option to require the Company to purchase the noncontrolling interest - not currently redeemable or redemption not probable | Temporary equity | Carrying value |
•Level 1: Quoted market prices in active markets for identical assets or liabilities.
Fair value is a market-based measurement, not an entity-specific measurement. Considerable judgment is required to interpret market data to estimate fair value; accordingly, the fair values presented do not necessarily indicate what the Company or its debtholders could realize in a current market exchange.
Fair Value Measurements | ||||||||||||||||||||||||||
(in thousands) | Carrying Value | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||||
June 26, 2022 | ||||||||||||||||||||||||||
Financial assets: | ||||||||||||||||||||||||||
Cash surrender value of life insurance policies (a) | $ | 29,514 | $ | 29,514 | $ | — | $ | — | ||||||||||||||||||
Interest rate swaps (b) | $ | 672 | $ | — | $ | 672 | $ | — | ||||||||||||||||||
December 26, 2021 | ||||||||||||||||||||||||||
Financial assets: | ||||||||||||||||||||||||||
Cash surrender value of life insurance policies (a) | $ | 41,904 | $ | 41,904 | $ | — | $ | — | ||||||||||||||||||
Financial liabilities: | ||||||||||||||||||||||||||
Interest rate swaps (b) | $ | 5,536 | $ | — | $ | 5,536 | $ | — |
| | | | | | | | | | | | | |
| | Carrying | | Fair Value Measurements |
| ||||||||
(in thousands) |
| Value |
| Level 1 |
| Level 2 |
| Level 3 |
| ||||
September 26, 2021 | | | | | | | | | | | | | |
Financial assets: | | | | | | | | | | | | | |
Cash surrender value of life insurance policies (a) | | $ | 40,482 | | $ | 40,482 | | $ | — | | $ | — | |
| | | | | | | | | | | | | |
Financial liabilities: | | | | | | | | | | | | | |
Interest rate swaps (b) | | | 8,162 | | | — | | | 8,162 | | | — | |
| | | | | | | | | | | | | |
December 27, 2020 | | | | | | | | | | | | | |
Financial assets: | | | | | | | | | | | | | |
Cash surrender value of life insurance policies (a) | | $ | 37,578 | | $ | 37,578 | | $ | — | | $ | — | |
| | | | | | | | | | | | | |
Financial liabilities: | | | | | | | | | | | | | |
Interest rate swaps (b) | | | 13,452 | | | — | | | 13,452 | | | — | |
The fair value of certain assets and liabilities approximates carrying value because of the short-term nature of the accounts, including cash and cash equivalents, accounts receivable, net of allowances, and accounts payable. The carrying value of notes receivable, net of allowances, also approximates fair value. The Company’s revolving credit facilities and term debt under the Previous Credit Facilityits credit agreement approximate carrying value due to theirits variable market-based interest rate. The Company’s 3.875% senior notes are classified as a Level 2 fair value measurement since the Company estimates the fair value by using recent trading transactions, and havehas the following estimated fair values and carrying values (excluding the impact of unamortized debt issuance costs) as of SeptemberJune 26, 2022 and December 26, 2021, and December 27, 2020, respectively:
| | | | | | | | | | | | |
| | September 26, 2021 | | December 27, 2020 | ||||||||
| | Carrying | | Fair | | Carrying | | Fair | ||||
(in thousands) | | Value | | Value | | Value | | Value | ||||
3.875% Senior Notes | | $ | 400,000 | | $ | 401,000 | | $ | — | | $ | — |
June 26, 2022 | December 26, 2021 | |||||||||||||||||||||||||
(in thousands) | Carrying Value | Fair Value | Carrying Value | Fair Value | ||||||||||||||||||||||
3.875% Senior Notes | $ | 400,000 | $ | 332,000 | $ | 400,000 | $ | 396,000 |
The following table summarizes changes in our allowances for credit losses for accounts receivable and notes receivable:
| | | | | | |
| | | | |||
(in thousands) | | Accounts Receivable | | Notes Receivable | ||
Balance at December 27, 2020 | | $ | 3,622 | | $ | 3,211 |
Current period benefit for expected credit losses | | | (80) | | | (563) |
Write-offs charged against the allowance | | | (1,212) | | | (843) |
Recoveries collected | | | — | | | (277) |
Balance at September 26, 2021 | | $ | 2,330 | | $ | 1,528 |
(in thousands) | Accounts Receivable | Notes Receivable | ||||||||||||
Balance at December 26, 2021 | $ | 2,364 | $ | 1,500 | ||||||||||
Current period provision for expected credit losses (1) | 3,019 | 12,534 | ||||||||||||
Write-offs charged against the allowance | (275) | — | ||||||||||||
Recoveries collected | — | (14) | ||||||||||||
Balance at June 26, 2022 | $ | 5,108 | $ | 14,020 |
(1) | The Company recorded $14.6 million of one-time, non-cash reserves in the first quarter of 2022 for certain accounts receivable and notes receivable primarily associated with a master franchisee with operations principally in Russia. |
Operations.
| | | | | | |
| | Nine Months Ended | ||||
(in thousands) | | | September 26, 2021 | | | September 27, 2020 |
Cash paid for amounts included in the measurement of lease liabilities: | | | | | | |
Operating cash flows from finance leases | | $ | 864 | | $ | 435 |
Financing cash flows from finance leases | | | 3,358 | | | 1,438 |
Operating cash flows from operating leases (a) | | | 28,830 | | | 27,965 |
Right-of-use assets obtained in exchange for new finance lease liabilities | | | 9,190 | | | 1,056 |
Right-of-use assets obtained in exchange for new operating lease liabilities (b) | | | 52,462 | | | 18,421 |
Cash received from sublease income | | | 8,728 | | | 7,641 |
| | | | | | |
(a) Included within the change in Other assets and liabilities within the Condensed Consolidated Statements of Cash Flows offset by non-cash operating lease right-of-use asset amortization and lease liability accretion. | ||||||
(b) Includes right-of-use assets of approximately $21.8 million for the nine months ended September 26, 2021 associated with the lease commencement of our Atlanta, Georgia corporate office. |
12
Six Months Ended | ||||||||||||||||||||||||||
(in thousands) | June 26, 2022 | June 27, 2021 | ||||||||||||||||||||||||
Cash paid for amounts included in the measurement of lease liabilities: | ||||||||||||||||||||||||||
Operating cash flows from finance leases | $ | 510 | $ | 574 | ||||||||||||||||||||||
Financing cash flows from finance leases | 2,508 | 2,188 | ||||||||||||||||||||||||
Operating cash flows from operating leases (a) | 18,363 | 19,139 | ||||||||||||||||||||||||
Right-of-use assets obtained in exchange for new finance lease liabilities | 569 | 8,393 | ||||||||||||||||||||||||
Right-of-use assets obtained in exchange for new operating lease liabilities (b) | 31,369 | 35,115 | ||||||||||||||||||||||||
Cash received from sublease income | 5,623 | 5,890 | ||||||||||||||||||||||||
(a)Included within the change in Other assets and liabilities within the Condensed Consolidated Statements of Cash Flows offset by non-cash operating lease right-of-use asset amortization and lease liability accretion. | ||||||||||||||||||||||||||
(b)Includes right-of-use assets of approximately $14.3 million for the six months ended June 27, 2021 associated with the lease commencement of our Atlanta, Georgia corporate office. |
| | | | | | |
| | | | | | |
| | September 26, | | December 27, | ||
| | 2021 | | 2020 | ||
| | | | | | |
Assets | | | | | | |
Current assets: | | | | | | |
Cash and cash equivalents | | $ | 32,629 | | $ | 9,394 |
Accounts receivable, net | | | 13,078 | | | 23,711 |
Income tax receivable | | | 191 | | | 192 |
Prepaid expenses and other current assets | | | 1,802 | | | 1,914 |
Total current assets | | | 47,700 | | | 35,211 |
Deferred income taxes | | | 595 | | | 588 |
Total assets | | $ | 48,295 | | $ | 35,799 |
| | | | | | |
| | | | | | |
Liabilities | | | | | | |
Current liabilities: | | | | | | |
Accounts payable | | $ | 9,810 | | $ | 5,429 |
Income and other taxes payable | | | 2 | | | 2 |
Accrued expenses and other current liabilities | | | 39,663 | | | 32,578 |
Current deferred revenue | | | 3,235 | | | 3,938 |
Total current liabilities | | | 52,710 | | | 41,947 |
Deferred revenue | | | 1,881 | | | 2,419 |
Total liabilities | | $ | 54,591 | | $ | 44,366 |
June 26, 2022 | December 26, 2021 | |||||||||||||
Assets | ||||||||||||||
Current assets: | ||||||||||||||
Cash and cash equivalents | $ | 16,886 | $ | 24,481 | ||||||||||
Accounts receivable, net | 13,523 | 14,150 | ||||||||||||
Income tax receivable | 44 | 300 | ||||||||||||
Prepaid expenses and other current assets | 2,012 | 1,718 | ||||||||||||
Total current assets | 32,465 | 40,649 | ||||||||||||
Deferred income taxes | 592 | 614 | ||||||||||||
Total assets | $ | 33,057 | $ | 41,263 | ||||||||||
Liabilities | ||||||||||||||
Current liabilities: | ||||||||||||||
Accounts payable | $ | 278 | $ | 140 | ||||||||||
Income and other taxes payable | 2 | 2 | ||||||||||||
Accrued expenses and other current liabilities | 32,805 | 40,154 | ||||||||||||
Current deferred revenue | 3,479 | 4,317 | ||||||||||||
Total current liabilities | 36,564 | 44,613 | ||||||||||||
Deferred revenue | 1,978 | 2,478 | ||||||||||||
Total liabilities | $ | 38,542 | $ | 47,091 |
2021.
| | | | | | | | | |
| | Contract Liabilities | |||||||
| | | September 26, 2021 | | | December 27, 2020 | | | Change |
Franchise fees and unredeemed gift card liabilities | | $ | 17,949 | | $ | 19,890 | | $ | (1,941) |
Customer loyalty program obligations | | | 15,139 | | | 13,364 | | | 1,775 |
Total contract liabilities | | $ | 33,088 | | $ | 33,254 | | $ | (166) |
Contract Liabilities | ||||||||||||||||||||
June 26, 2022 | December. 26, 2021 | Change | ||||||||||||||||||
Franchise fees and unredeemed gift card liabilities | $ | 30,306 | $ | 20,410 | $ | 9,896 | ||||||||||||||
Customer loyalty program obligations | 13,252 | 15,136 | (1,884) | |||||||||||||||||
Total contract liabilities | $ | 43,558 | $ | 35,546 | $ | 8,012 |
13
and $2.2$1.9 million respectively, for the amortization of contract assets over the applicable contract terms. Contract assets are included in Prepaid expenses and other current assets and Other assets on the Condensed Consolidated Balance Sheets.
| | | | | | | | | | | | | | | | | | | | | |
| | | Performance Obligations by Period | ||||||||||||||||||
| | Less than 1 Year | | 1-2 Years | | 2-3 Years | | 3-4 Years | | 4-5 Years | | Thereafter | | Total | |||||||
Franchise fees | | $ | 2,242 | | $ | 2,003 | | $ | 1,766 | | $ | 1,550 | | $ | 1,294 | | $ | 2,477 | | $ | 11,332 |
Performance Obligations by Period | ||||||||||||||||||||||||||||||||||||||||||||
Less than 1 Year | 1-2 Years | 2-3 Years | 3-4 Years | 4-5 Years | Thereafter | Total | ||||||||||||||||||||||||||||||||||||||
Franchise fees | $ | 3,198 | $ | 2,989 | $ | 2,811 | $ | 2,604 | $ | 2,324 | $ | 7,888 | $ | 21,814 |
The Company applies the practical expedient in ASC 606-10-50-14606, "Revenue Recognition" and does not disclose information about remaining performance obligations that have original expected durations of one year or less.
During the second quarter of 2021, the Company entered into a Share Repurchase Agreement with certain funds affiliated with, or managed by, Starboard Value LP (collectively, “Starboard”), pursuant to which (i) the Company repurchased from Starboard 78,387 shares of the Series B Convertible Preferred Stock, par value $0.01 per share, of the Company (“Series B Preferred Stock”) and (ii) Starboard converted the remaining 171,613 shares of Series B Preferred Stock that it owned into 3,458,360 shares of the Company’s common stock pursuant to the terms of the Certificate of Designation of the Series B Preferred Stock. Additionally, the Company entered into agreements with certain franchisee investors to repurchase 1,000 shares of the outstanding Series B Preferred Stock and convert the remaining 1,530 shares of Series B Preferred Stock into 30,769 shares of common stock. The Company paid Starboard and the franchisee investors aggregate one-time cash payments of $188.6 million for the repurchase and conversion of all of the outstanding shares of Series B Preferred Stock. The excess of the cash payment over the carrying value of the respective Series B Preferred Stock redeemed resulted in $109.9 million of dividends on redemption of Series B Convertible Preferred Stock in the Condensed Consolidated Statement of Operations, which reduced net income attributable to common stockholders during the second quarter of26, 2021. Diluted earnings per share for the nine months ended September 26, 2021 was reduced by $3.14 as a result of this transaction.
On August 3, 2021, the Company filed a Certificate of Elimination (the “Certificate of Elimination”) with the Secretary of State of the State of Delaware to eliminate the Series B Preferred Stock. No shares of Series B Preferred Stock were issued or outstanding following the repurchase and conversion thereof in the second quarter of 2021. Effective upon filing, the Certificate of Elimination eliminated from the Company’s Amended and Restated Certificate of Incorporation all matters set forth in the Certificate of Designation with respect to the Series B Preferred Stock. The shares that were designated to such series were returned to the status of authorized but unissued shares of preferred stock, par value $0.01 per share, of the Company, without designation as to series.
14
Share Repurchase Program
Our Board of Directors has authorized the repurchase of up to $75.0 million of common stock under a share repurchase program that began on November 4, 2020 and is effective through December 26, 2021. Through September 26, 2021, a total of approximately 219,000 shares with an aggregate cost of $23.3 million and an average price of $106.16 per share were repurchased under this program. Funding for the share repurchase program has been provided through our operating cash flows. Subsequent to September 26, 2021, we acquired an additional 158,000 shares at an aggregate cost of $19.8 million and an average price of $125.50 per share. Approximately $31.9 million remained available under this share repurchase program as of October 29, 2021.
Subsequent to the end of the third quarter, on
The following table summarizes our repurchase activity under our share repurchase programs for the three and six months ended June 26, 2022 and June 27, 2021:
(in thousands, except average price per share) | Total Number of Shares Purchased | Average Price Paid per Share | Aggregate Cost of Shares Purchased | Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs | ||||||||||||||||||||||
Three Months Ended | ||||||||||||||||||||||||||
June 26, 2022 | 452 | $ | 94.56 | $ | 42,762 | $ | 349,329 | |||||||||||||||||||
June 27, 2021 | 68 | $ | 101.21 | $ | 6,921 | $ | 64,110 | |||||||||||||||||||
(in thousands, except average price per share) | Total Number of Shares Purchased | Average Price Paid per Share | Aggregate Cost of Shares Purchased | Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs | ||||||||||||||||||||||
Six Months Ended | ||||||||||||||||||||||||||
June 26, 2022 | 753 | $ | 100.23 | $ | 75,471 | $ | 349,329 | |||||||||||||||||||
June 27, 2021 | 83 | $ | 98.23 | $ | 8,188 | $ | 64,110 |
2022. On October 28, 2021,August 2, 2022, our Board of Directors declared a fourthsecond quarter dividend of $0.35$0.42 per common share of(approximately $14.9 million in the aggregate), which approximately $12.8 million will be paid to common stockholders. The common share dividend will be paid on November 19, 2021August 26, 2022 to stockholders of record as of the close of business on November 9, 2021.August 15, 2022. The declaration and payment of any future dividends will be at the discretion of our Board of Directors.
15
The calculations of basic and diluted earnings (loss) per common share are as follows (in thousands, except per-share data):
| | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | ||||||||
| | September 26, | | September 27, | | September 26, | | September 27, | ||||
| | 2021 |
| 2020 |
| 2021 |
| 2020 | ||||
| | | | | | | | | | | | |
Basic earnings (loss) per common share | | | | | | | | | | | | |
Net income attributable to the Company | | $ | 29,256 | | $ | 15,708 | | $ | 95,393 | | $ | 44,765 |
Dividends on redemption of Series B Convertible Preferred Stock | | | — | | | — | | | (109,852) | | | — |
Dividends paid to participating securities | | | (137) | | | (3,548) | | | (5,964) | | | (10,546) |
Net income attributable to participating securities | |
| (158) | |
| (703) | |
| — | |
| (1,809) |
Net income (loss) attributable to common shareholders | | $ | 28,961 | | $ | 11,457 | | $ | (20,423) | | $ | 32,410 |
| | | | | | | | | | | | |
Basic weighted average common shares outstanding | |
| 36,387 | |
| 32,616 | |
| 34,619 | |
| 32,347 |
Basic earnings (loss) per common share | | $ | 0.80 | | $ | 0.35 | | $ | (0.59) | | $ | 1.00 |
| | | | | | | | | | | | |
Diluted earnings (loss) per common share | | | | | | | | | | | | |
Net income (loss) attributable to common shareholders | | $ | 28,961 | | $ | 11,457 | | $ | (20,423) | | $ | 32,410 |
| | | | | | | | | | | | |
Weighted average common shares outstanding | |
| 36,387 | |
| 32,616 | |
| 34,619 | |
| 32,347 |
Dilutive effect of outstanding equity awards (a) | |
| 332 | |
| 355 | |
| — | |
| 296 |
Diluted weighted average common shares outstanding (b) | |
| 36,719 | |
| 32,971 | |
| 34,619 | |
| 32,643 |
Diluted earnings (loss) per common share | | $ | 0.79 | | $ | 0.35 | | $ | (0.59) | | $ | 0.99 |
Three Months Ended | Six Months Ended | ||||||||||||||||||||||
June 26, 2022 | June 27, 2021 | June 26, 2022 | June 27, 2021 | ||||||||||||||||||||
Basic earnings (loss) per common share (in thousands, except per share data) | |||||||||||||||||||||||
Net income attributable to the Company | $ | 25,433 | $ | 32,254 | $ | 35,927 | $ | 66,137 | |||||||||||||||
Dividends on redemption of Series B Convertible Preferred Stock | — | (109,852) | — | (109,852) | |||||||||||||||||||
Dividends paid to participating securities | (82) | (2,300) | (141) | (5,827) | |||||||||||||||||||
Net income attributable to participating securities | (111) | — | (93) | — | |||||||||||||||||||
Net income (loss) attributable to common shareholders | $ | 25,240 | $ | (79,898) | $ | 35,693 | $ | (49,542) | |||||||||||||||
Basic weighted average common shares outstanding | 35,624 | 34,729 | 35,775 | 33,739 | |||||||||||||||||||
Basic earnings (loss) per common share | $ | 0.71 | $ | (2.30) | $ | 1.00 | $ | (1.47) | |||||||||||||||
Diluted earnings (loss) per common share (in thousands, except per share data) | |||||||||||||||||||||||
Net income (loss) attributable to common shareholders | $ | 25,240 | $ | (79,898) | $ | 35,693 | $ | (49,542) | |||||||||||||||
Weighted average common shares outstanding | 35,624 | 34,729 | 35,775 | 33,739 | |||||||||||||||||||
Dilutive effect of outstanding equity awards (a) | 200 | — | 257 | — | |||||||||||||||||||
Diluted weighted average common shares outstanding | 35,824 | 34,729 | 36,032 | 33,739 | |||||||||||||||||||
Diluted earnings (loss) per common share | $ | 0.70 | $ | (2.30) | $ | 0.99 | $ | (1.47) |
(a) | Excludes |
|
|
| | | | | | | |
| | | | September 26, | | | December 27, |
| | | | 2021 | | | 2020 |
Outstanding debt | | | $ | 425,000 | | $ | 350,000 |
Unamortized debt issuance costs | | | | (10,085) | | | (1,708) |
Current portion of long-term debt | | | | — | | | (20,000) |
Total long-term debt, net | | | $ | 414,915 | | $ | 328,292 |
Our outstanding debt as of September 26, 2021 was $425.0 million, which was comprised of $400.0 million outstanding under our 3.875% senior notes due 2029 (the “Notes”) and $25.0 million under the PJI Revolving Facility (as defined below). Including outstanding letters of credit, the remaining availability under the PJI Revolving Facility was approximately $572.3 million as of September 26, 2021.
June 26, 2022 | December 26, 2021 | ||||||||||
Senior notes | $ | 400,000 | $ | 400,000 | |||||||
Revolving facilities | 145,000 | 90,000 | |||||||||
Outstanding debt | $ | 545,000 | $ | 490,000 | |||||||
Unamortized debt issuance costs | (8,554) | (9,270) | |||||||||
Total long-term debt, net | $ | 536,446 | $ | 480,730 |
16
the Securities Act. Interest on the Notes will beis payable semi-annually in cash in arrears on March 15 and September 15 of each year commencing on March 15, 2022, at a fixed interest rate of 3.875% per annum. In connection with the Notes, the Company recorded $7.1 million of debt issuance costs, which are being amortized into net interest expense over the term of the Notes.
The net proceeds from the Notes, together with borrowings under the Amended Credit Agreement (as defined below), were used to repay outstanding revolver and term loan borrowings under the Company’s Previous Credit Agreement (as defined below).
Concurrently with the closing of the Notes, the Company entered into an
June 26, 2022.
17
will be is also subject to the following financial covenants: (1) a maximum Leverage Ratio of 5.25 to 1.00, subject to the Company’s election to increase the maximum Leverage Ratio by 0.50 to 1.00 in connection with material acquisitions if the Company satisfies certain requirements, and (2) a minimum interest coverage ratio defined as EBITDA plus consolidated rental expense to consolidated interest expense plus consolidated rental expense of 2.00 to 1.00. We were in compliance with these financial covenants at SeptemberJune 26, 2021.
2022.
Guarantors.
| | | | | | | |
Effective Dates |
| Floating Rate Debt |
| Fixed Rates |
| ||
April 30, 2018 through April 30, 2023 | | $ | 55 | million | | 2.33 | % |
April 30, 2018 through April 30, 2023 | | $ | 35 | million | | 2.36 | % |
April 30, 2018 through April 30, 2023 | | $ | 35 | million | | 2.34 | % |
January 30, 2018 through August 30, 2022 | | $ | 100 | million | | 1.99 | % |
January 30, 2018 through August 30, 2022 | | $ | 75 | million | | 1.99 | % |
January 30, 2018 through August 30, 2022 | | $ | 50 | million | | 2.00 | % |
In September 2021, we de-designated $350.0 million of our
Effective Dates | Floating Rate Debt | Fixed Rates | ||||||||||||
April 30, 2018 through April 30, 2023 | $ | 55 million | 2.33% | |||||||||||
April 30, 2018 through April 30, 2023 | $ | 35 million | 2.36% | |||||||||||
April 30, 2018 through April 30, 2023 | $ | 35 million | 2.34% | |||||||||||
January 30, 2018 through August 30, 2022 | $ | 100 million | 1.99% | |||||||||||
January 30, 2018 through August 30, 2022 | $ | 75 million | 1.99% | |||||||||||
January 30, 2018 through August 30, 2022 | $ | 50 million | 2.00% |
| | | | | | |
| | Interest Rate Swap Derivatives | ||||
| | Fair Value | | Fair Value | ||
| | September 26, | | December 27, | ||
Balance Sheet Location | | 2021 | | 2020 | ||
Other current and long-term liabilities | | $ | 8,162 | | $ | 13,452 |
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Interest Rate Swap Derivatives | ||||||||||||||
Balance Sheet Location | Fair Value June 26, 2022 | Fair Value December 26, 2021 | ||||||||||||
Other current and long-term assets | $ | 672 | $ | — | ||||||||||
Other current and long-term liabilities | $ | — | $ | 5,536 |
The effect of derivative instruments on the accompanying condensed consolidated financial statements is as follows (in thousands):
| | | | | | | | | | | | |
| | | | | | | | | | | ||
| | | | Location of Gain | | Amount of Gain | | | ||||
Derivatives - | | Amount of Gain or | | or (Loss) | | or (Loss) | | Total Net Interest Expense | ||||
Cash Flow | | (Loss) Recognized | | Reclassified from | | Reclassified from | | on Condensed | ||||
Hedging | | in AOCL | | AOCL into | | AOCL into | | Consolidated Statements | ||||
Relationships | | on Derivative | | Income | | Income | | of Operations | ||||
Interest rate swaps for the three months ended: | ||||||||||||
September 26, 2021 | | $ | 1,182 | |
| Interest expense | | $ | (1,644) | | $ | (3,979) |
September 27, 2020 | | $ | 1,268 | |
| Interest expense | | $ | (1,674) | | $ | (3,636) |
| | | | | | | | | | | | |
Interest rate swaps for the nine months ended: | ||||||||||||
September 26, 2021 | | $ | 3,963 | | | Interest expense | | $ | (5,084) | | $ | (11,275) |
September 27, 2020 | | $ | (7,219) | |
| Interest expense | | $ | (3,376) | | $ | (11,230) |
Derivatives - Cash Flow Hedging Relationships | Amount of Gain or (Loss) Recognized in AOCL on Derivative | Location of (Loss) or Gain Reclassified from AOCL into Income | Amount of (Loss) or Gain Reclassified from AOCL into Income | Total Net Interest Expense on Condensed Consolidated Statements of Operations | ||||||||||||||||||||||
Interest rate swaps for the three months ended: | ||||||||||||||||||||||||||
June 26, 2022 | $ | 1,445 | Interest expense | $ | (735) | $ | (6,081) | |||||||||||||||||||
June 27, 2021 | $ | 1,399 | Interest expense | $ | (1,730) | $ | (3,649) | |||||||||||||||||||
Interest rate swaps for the six months ended: | ||||||||||||||||||||||||||
June 26, 2022 | $ | 2,763 | Interest Expense | $ | (200) | $ | (10,344) | |||||||||||||||||||
June 27, 2021 | $ | 2,781 | Interest Expense | $ | (3,439) | $ | (7,296) |
Contingencies
|
|
Litigation
The Company is involved in a number of lawsuits, claims, investigations and proceedings, including those specifically identified below, consisting of intellectual property, employment, consumer, commercial and other matters arising in the ordinary course of business. In accordance with ASC 450, “Contingencies” the Company has made accruals with respect to these matters where appropriate, which are reflected in the Company’s condensed consolidated financial statements. We review these provisions at least quarterly and adjust them to reflect the impact of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular case.
is a putative class action filed in December 2018 in the United States District Court for the Western District of Kentucky. The suit alleges that the “no-poaching” provision previously contained in the Company’s franchise agreement constituted an unlawful agreement or conspiracy in restraint of trade and commerce in violation of Section 1 of the Sherman Antitrust Act. On April 14, 2022, the parties reached a settlement (the “Legal Settlement”) in principle to resolve the case. Pursuant to the terms of the proposed settlement, in exchange for the Company’s payment of a total aggregate settlement amount of $5.0 million and other non-monetary consideration, all claims in the action will be dismissed, the litigation will be terminated, and the Company will receive a release. The settlement amount was recorded in General and Administrative expenses in the Condensed Consolidated Statements of Operations in the first quarter of 2022. The proposed settlement is subject to approval by the District Court and contains certain customary contingencies. The Company continues to deny any liability or wrongdoing in this matter.
19
We record severance as a one-time termination benefit and recognize the expense ratably over the employees’ required future service period. All other costs, including employee transition costs, recruitment and relocation costs, and third-party costs, are recognizedRefranchising Loss in the period incurred. All strategic corporate reorganization costs have been recorded in General and administrative expenses on the Condensed Consolidated Statement of Operations.
AsOperations, which reflects net sale proceeds of September 26, 2021$14.0 million, the noncontrolling interest of $4.2 million, and December 27, 2020, the estimaterecognition of incurred but unpaid strategic corporate reorganization costs are included in Accrued expenses and other current liabilities onan unearned royalty stream of $12.2 million to be recognized as revenue over the Condensed Consolidated Balance Sheets. The following table summarizes10-year term of the activity for the nine months ended September 26, 2021:
| | | | | | | | | | | |
| Balance at | | | | | | | | Balance at | ||
| December 27, | | | | | | | | September 26, | ||
| 2020 | | Charges | | Payments | | 2021 | ||||
Employee severance and other employee transition costs | $ | 4,615 | | $ | 3,576 | | $ | (7,235) | | $ | 956 |
Recruiting and professional fees | | 145 | | | 2,431 | | | (2,576) | | | — |
Relocation costs | | 101 | | | 2,608 | | | (1,677) | | | 1,032 |
Other costs | | — | | | 749 | | | (749) | | | — |
Total strategic corporate reorganization liability | $ | 4,861 | | $ | 9,364 | | $ | (12,237) | | $ | 1,988 |
We expect to recognize additional costs associatedfranchise agreement executed concurrent with the corporate reorganizationdisposition in accordance with ASC 810, “Consolidation.” The $8.4 million of the one-time, non-cash refranchising loss was recorded in the remainderfirst quarter of 20212022 and realized upon consummation of approximately $2.0the sale in the second quarter.
the financial and operational impact of the conflict in Ukraine and government actions taken in response to that conflict, including, but not limited to, international sanctions. The reacquired franchise rights were previously acquired from a former master franchisee and capitalized by the Company.
20
|
|
We have 4 reportable segments: domestic Company-owned restaurants, North America franchising, North America commissaries, and international operations. 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, Papadias, which are flatbread-style sandwiches, and side items, including breadsticks, cheesesticks, chicken poppers and wings, dessert items and canned or bottled beverages. The North America commissary
Our segment information is as follows:
| | | | | | | | | | | | | |
| | | Three Months Ended | | Nine Months Ended | ||||||||
| | | September 26, | | September 27, | | September 26, | | September 27, | ||||
(In thousands) | |
| 2021 |
| 2020 |
| 2021 |
| 2020 | ||||
Revenues: | | | | | | | | | | | | | |
Domestic Company-owned restaurants | | | $ | 191,584 | | $ | 178,371 | | $ | 584,942 | | $ | 526,317 |
North America franchising | | |
| 31,933 | |
| 25,281 | |
| 97,123 | |
| 68,895 |
North America commissaries | | |
| 189,224 | |
| 181,338 | |
| 560,743 | |
| 504,379 |
International | | |
| 46,880 | |
| 40,328 | |
| 135,761 | |
| 106,846 |
All others | | |
| 53,161 | |
| 47,623 | |
| 160,967 | |
| 136,986 |
Total revenues | | | $ | 512,782 | | $ | 472,941 | | $ | 1,539,536 | | $ | 1,343,423 |
| | | | | | | | | | | | | |
Intersegment revenues: | | | | | | | | | | | | | |
North America franchising | | | $ | 1,037 | | $ | 824 | | $ | 3,138 | | $ | 2,291 |
North America commissaries | | | | 53,454 | | | 50,306 | | | 158,952 | | | 142,169 |
All others | | |
| 18,522 | |
| 27,168 | |
| 56,613 | |
| 66,509 |
Total intersegment revenues | | | $ | 73,013 | | $ | 78,298 | | $ | 218,703 | | $ | 210,969 |
| | | | | | | | | | | | | |
Operating income: | | | | | | | | | | | | | |
Domestic Company-owned restaurants | | | $ | 9,480 | | $ | 8,439 | | $ | 40,165 | | $ | 33,852 |
North America franchising | | |
| 29,830 | |
| 23,353 | |
| 90,791 | |
| 62,855 |
North America commissaries | | |
| 9,598 | |
| 8,208 | |
| 29,089 | |
| 24,579 |
International | | |
| 9,618 | |
| 7,986 | |
| 26,665 | |
| 16,836 |
All others | | |
| 3,848 | |
| 3,193 | |
| 14,860 | |
| 5,030 |
Unallocated corporate expenses | | |
| (23,158) | |
| (26,921) | |
| (70,937) | |
| (71,978) |
Elimination of intersegment losses (profits) | | |
| (639) | |
| 291 | |
| (557) | |
| (619) |
Total operating income | | | $ | 38,577 | | $ | 24,549 | | $ | 130,076 | | $ | 70,555 |
| | | | | | | | | | | | | |
Property and equipment, net: | | | | | | | | | | | | | |
Domestic Company-owned restaurants | | | $ | 237,155 | | | | | | | | | |
North America commissaries | | | | 147,186 | | | | | | | | | |
International | | | | 15,026 | | | | | | | | | |
All others | | | | 103,054 | | | | | | | | | |
Unallocated corporate assets | | | | 229,359 | | | | | | | | | |
Accumulated depreciation and amortization | | | | (522,708) | | | | | | | | | |
Total property and equipment, net | | | $ | 209,072 | | | | | | | | | |
Three Months Ended Six Months Ended (In thousands) June 26,
2022June 27,
2021June 26,
2022June 27,
2021Revenues: Domestic Company-owned restaurants $ 171,411 $ 196,124 $ 370,176 $ 393,358 North America franchising 34,917 32,475 69,185 65,190 North America commissaries 219,383 186,641 429,062 371,519 International 39,282 46,277 81,989 88,881 All others 57,672 53,491 114,945 107,806 Total revenues $ 522,665 $ 515,008 $ 1,065,357 $ 1,026,754 Intersegment revenues: North America franchising $ 1,048 $ 1,041 $ 2,101 $ 2,101 North America commissaries 52,754 53,428 111,261 105,498 All others 15,889 18,943 35,268 38,091 Total intersegment revenues $ 69,691 $ 73,412 $ 148,630 $ 145,690 Operating income: Domestic Company-owned restaurants (1) $ 5,924 $ 15,361 $ 7,912 $ 30,685 North America franchising 32,624 30,518 64,761 60,961 North America commissaries 10,957 9,778 20,292 19,491 International (2) 7,306 8,683 11,761 17,047 All others 2,187 4,894 5,906 11,012 Unallocated corporate expenses (3) (19,344) (24,617) (56,454) (47,779) Elimination of intersegment (profits) losses (750) 20 (839) 82 Total operating income $ 38,904 $ 44,637 $ 53,339 $ 91,499 Property and equipment, net: Domestic Company-owned restaurants $ 225,755 North America commissaries 151,648 International 15,157 All others 118,496 Unallocated corporate assets 240,431 Accumulated depreciation and amortization (526,105) Total property and equipment, net $ 225,382
(1) | Includes a one-time, non-cash charge of $8.4 million associated with the refranchising of the Company’s ownership interest in a 90-restaurant joint venture, recorded as Refranchising and impairment loss for the six months ended June 26, 2022. See Note 10 for additional information. |
(2) | Includes $3.5 million of one-time, non-cash reserves for certain accounts receivable and impairments of reacquired franchise rights for the six months ended June 26, 2022. See Notes 2 and 10 for additional information. |
(3) | Unallocated corporate expenses include $13.9 million of one-time, non-cash reserves of certain notes receivable, $5.0 million for the Legal Settlement, and $1.5 million of advisory fees and severance costs associated with the transition of certain executives for the six months ended June 26, 2022. Unallocated corporate expense includes $3.3 million and $7.2 million of reorganization costs for the three and six months ended June 27, 2021. See Notes 2 and 9 for additional information. |
| | | | | | | | | | | | | | | | | | |
| | Reportable Segments | ||||||||||||||||
| | Three Months Ended September 26, 2021 | ||||||||||||||||
Major Products/Services Lines | | | Domestic Company-owned restaurants | | | North America franchising | | | North America commissaries | | | International | | | All others | | | Total |
Company-owned restaurant sales | | $ | 191,584 | | $ | - | | $ | - | | $ | - | | $ | - | | $ | 191,584 |
Franchise royalties and fees | | | - | | | 32,970 | | | - | | | 14,031 | | | - | | | 47,001 |
Commissary sales | | | - | | | - | | | 242,678 | | | 24,377 | | | - | | | 267,055 |
Other revenues | | | - | | | - | | | - | | | 8,472 | | | 71,683 | | | 80,155 |
Eliminations | | | - | | | (1,037) | | | (53,454) | | | - | | | (18,522) | | | (73,013) |
Total segment revenues | | $ | 191,584 | | $ | 31,933 | | $ | 189,224 | | $ | 46,880 | | $ | 53,161 | | $ | 512,782 |
International other revenues (1) | | | - | | | - | | | - | | | (8,472) | | | 8,472 | | | - |
Total revenues | | $ | 191,584 | | $ | 31,933 | | $ | 189,224 | | $ | 38,408 | | $ | 61,633 | | $ | 512,782 |
| | | | | | | | | | | | | | | | | | |
| | Reportable Segments | ||||||||||||||||
| | Three Months Ended September 27, 2020 | ||||||||||||||||
Major Products/Services Lines | | | Domestic Company-owned restaurants | | | North America franchising | | | North America commissaries | | | International | | | All others | | | Total |
Company-owned restaurant sales | | $ | 178,371 | | $ | - | | $ | - | | $ | - | | $ | - | | $ | 178,371 |
Franchise royalties and fees | | | - | | | 26,105 | | | - | | | 10,703 | | | - | | | 36,808 |
Commissary sales | | | - | | | - | | | 231,644 | | | 22,737 | | | - | | | 254,381 |
Other revenues | | | - | | | - | | | - | | | 6,888 | | | 74,791 | | | 81,679 |
Eliminations | | | - | | | (824) | | | (50,306) | | | - | | | (27,168) | | | (78,298) |
Total segment revenues | | $ | 178,371 | | $ | 25,281 | | $ | 181,338 | | $ | 40,328 | | $ | 47,623 | | $ | 472,941 |
International other revenues (1) | | | - | | | - | | | - | | | (6,888) | | | 6,888 | | | - |
Total revenues | | $ | 178,371 | | $ | 25,281 | | $ | 181,338 | | $ | 33,440 | | $ | 54,511 | | $ | 472,941 |
| | | | | | | | | | | | | | | | | | |
| | | Reportable Segments | |||||||||||||||
| | | Nine Months Ended September 26, 2021 | |||||||||||||||
Major Products/Services Lines | | | Domestic Company-owned restaurants | | | North America franchising | | | North America commissaries | | | International | | | All others | | | Total |
Company-owned restaurant sales | | $ | 584,942 | | $ | - | | $ | - | | $ | - | | $ | - | | $ | 584,942 |
Franchise royalties and fees | | | - | | | 100,261 | | | - | | | 39,396 | | | - | | | 139,657 |
Commissary sales | | | - | | | - | | | 719,695 | | | 71,233 | | | - | | | 790,928 |
Other revenues | | | - | | | - | | | - | | | 25,132 | | | 217,580 | | | 242,712 |
Eliminations | | | - | | | (3,138) | | | (158,952) | | | - | | | (56,613) | | | (218,703) |
Total segment revenues | | $ | 584,942 | | $ | 97,123 | | $ | 560,743 | | $ | 135,761 | | $ | 160,967 | | $ | 1,539,536 |
International other revenues (1) | | | - | | | - | | | - | | | (25,132) | | | 25,132 | | | - |
Total revenues | | $ | 584,942 | | $ | 97,123 | | $ | 560,743 | | $ | 110,629 | | $ | 186,099 | | $ | 1,539,536 |
| | | | | | | | | | | | | | | | | | |
| | Reportable Segments | ||||||||||||||||
| | Nine Months Ended September 27, 2020 | ||||||||||||||||
Major Products/Services Lines | | | Domestic Company-owned restaurants | | | North America franchising | | | North America commissaries | | | International | | | All others | | | Total |
Company-owned restaurant sales | | $ | 526,317 | | $ | - | | $ | - | | $ | - | | $ | - | | $ | 526,317 |
Franchise royalties and fees | | | - | | | 71,186 | | | - | | | 27,962 | | | - | | | 99,148 |
Commissary sales | | | - | | | - | | | 646,548 | | | 59,630 | | | - | | | 706,178 |
Other revenues | | | - | | | - | | | - | | | 19,254 | | | 203,495 | | | 222,749 |
Eliminations | | | - | | | (2,291) | | | (142,169) | | | - | | | (66,509) | | | (210,969) |
Total segment revenues | | $ | 526,317 | | $ | 68,895 | | $ | 504,379 | | $ | 106,846 | | $ | 136,986 | | $ | 1,343,423 |
International other revenues (1) | | | - | | | - | | | - | | | (19,254) | | | 19,254 | | | - |
Total revenues | | $ | 526,317 | | $ | 68,895 | | $ | 504,379 | | $ | 87,592 | | $ | 156,240 | | $ | 1,343,423 |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Reportable Segments Three Months Ended June 26, 2022 Major Products/Services Lines Domestic Company-owned restaurants North America franchising North America commissaries International All others Total Company-owned restaurant sales $ 171,411 $ — $ — $ — $ — $ 171,411 Franchise royalties and fees — 35,965 — 12,043 — 48,008 Commissary sales — — 272,137 19,915 — 292,052 Other revenues — — — 7,324 73,561 80,885 Eliminations — (1,048) (52,754) — (15,889) (69,691) Total segment revenues $ 171,411 $ 34,917 $ 219,383 $ 39,282 $ 57,672 $ 522,665 International other revenues (1) — — — (7,324) 7,324 — Total revenues $ 171,411 $ 34,917 $ 219,383 $ 31,958 $ 64,996 $ 522,665 Reportable Segments Three Months Ended June 27, 2021 Major Products/Services Lines Domestic Company-owned restaurants North America franchising North America commissaries International All others Total Company-owned restaurant sales $ 196,124 $ — $ — $ — $ — $ 196,124 Franchise royalties and fees — 33,516 — 13,156 — 46,672 Commissary sales — — 240,069 24,458 — 264,527 Other revenues — — — 8,663 72,434 81,097 Eliminations — (1,041) (53,428) — (18,943) (73,412) Total segment revenues $ 196,124 $ 32,475 $ 186,641 $ 46,277 $ 53,491 $ 515,008 International other revenues (1) — — — (8,663) 8,663 — Total revenues $ 196,124 $ 32,475 $ 186,641 $ 37,614 $ 62,154 $ 515,008 Reportable Segments Six Months Ended June 26, 2022 Major Products/Services Lines Domestic Company-owned restaurants North America franchising North America commissaries International All others Total Company-owned restaurant sales $ 370,176 $ — $ — $ — $ — $ 370,176 Franchise royalties and fees — 71,286 — 25,478 — 96,764 Commissary sales — — 540,323 41,097 — 581,420 Other revenues — — — 15,414 150,213 165,627 Eliminations — (2,101) (111,261) — (35,268) (148,630) Total segment revenues $ 370,176 $ 69,185 $ 429,062 $ 81,989 $ 114,945 $ 1,065,357 International other revenues (1) — — — (15,414) 15,414 — Total revenues $ 370,176 $ 69,185 $ 429,062 $ 66,575 $ 130,359 $ 1,065,357
Reportable Segments | |||||||||||||||||||||||||||||||||||
Six Months Ended June 27, 2021 | |||||||||||||||||||||||||||||||||||
Major Products/Services Lines | Domestic Company-owned restaurants | North America franchising | North America commissaries | International | All others | Total | |||||||||||||||||||||||||||||
Company-owned restaurant sales | $ | 393,358 | $ | — | $ | — | $ | — | $ | — | $ | 393,358 | |||||||||||||||||||||||
Franchise royalties and fees | — | 67,291 | — | 25,364 | — | 92,655 | |||||||||||||||||||||||||||||
Commissary sales | — | — | 477,017 | 46,857 | — | 523,874 | |||||||||||||||||||||||||||||
Other revenues | — | — | — | 16,660 | 145,897 | 162,557 | |||||||||||||||||||||||||||||
Eliminations | — | (2,101) | (105,498) | — | (38,091) | (145,690) | |||||||||||||||||||||||||||||
Total segment revenues | $ | 393,358 | $ | 65,190 | $ | 371,519 | $ | 88,881 | $ | 107,806 | $ | 1,026,754 | |||||||||||||||||||||||
International other revenues (1) | — | — | — | (16,660) | 16,660 | — | |||||||||||||||||||||||||||||
Total revenues | $ | 393,358 | $ | 65,190 | $ | 371,519 | $ | 72,221 | $ | 124,466 | $ | 1,026,754 |
(1) | Other revenues as reported in the Condensed Consolidated Statements of Operations include |
services.
Capital Allocation Strategy. During the quarter we executed on a key component of our capital allocation strategy with the issuance of $400.0 million of 3.875% senior notes which will mature on September 15, 2029 and the concurrent refinancing of our revolving credit facility. Subsequent to the end of 2025, relative to the quarter, we announced a new $425.0 million share repurchase program to further enhance shareholder returns as we continue to invest in our long-term growth. These initiatives, paired with our previously announced annual dividend rate increase and the repurchase and conversionstart of all of our Series B Convertible Preferred Stock (the “Series B Preferred Stock”) in the second quarter, strengthen our financial position, optimize our capital structure and provide value to our shareholders.
2022.
Coronavirus (“COVID-19”)Restaurant Staffing and Related Market Impact.ImpactThe COVID-19 outbreak. Throughout the first six months of 2022, our restaurants continued to navigate a challenging staffing environment. This has presented evolving risksimpacted customer service and, developments domesticallyin limited cases, our ability to deliver or take orders. Our integrations with the aggregator marketplaces and internationally, as well as new opportunities for our business. Our delivery and carryout model positionednationwide integrations with Delivery-as-a-Service providers have been key tools allowing us to continue to experienceserve our customers during peak times. Though these Delivery-as-a-Service transactions are slightly lower margin versus using our own drivers, they are incremental, profitable orders that otherwise may have gone unfulfilled. Papa Call, our centralized order taking and customer service center is another example of our long-term investment to make our team members productive and help them focus on making and delivering great pizza. We will continue to invest capital in technology innovations that can make our teams more productive. Further, we remain focused on continuing to hire great employees and reducing turnover by providing competitive compensation, a great working environment, benefits and compelling career paths. Our goal is to be the employer of choice in our industry, and we've taken many actions to create a strong demandculture and support our people. In the second quarter of 2022, we released our 2021 Corporate Responsibility Report, outlining our progress against our priorities to create a positive impact on people, pizza and the planet that sets us up for long-term success. Papa John's is the first major publicly traded pizza chain to announce that our products. Increased demand partly driven byexecutive compensation plan now includes Environmental Social and Governance metrics.
We believe the pandemic has accelerated our previously announced efforts to innovate and bring new and former customers to the Papa John’s system. We believe that as the pandemic-related restrictions are lifted we will benefit in the long-term from the increase in customers we have experienced during the duration of the pandemic due to our menu innovation, customer loyalty programs and our offerings of high-quality pizza and other menu items. Due to the substantial uncertainty related to the effects of the pandemic, its duration and the related market impacts, including the economic stimulus activity, we are unable to predict thedelivering premium value, not hitting specific impact the pandemic and related restrictions (including the lifting or re-imposing of restrictions due to the Delta variant or otherwise) will have on our results of operations, liquidity or long-term financial
25
condition, including whether and to what extent the increased demand for our products will continue. For a discussion of the risks to our business presented by the COVID-19 pandemic, see the risk factors disclosed in the Company’s Annual Report on Form-10-K for the fiscal year ended December 27, 2020.
Strategic Corporate Reorganization for Long-term Growth. In the third quarter of 2020, we announced plans to open an office in Atlanta, Georgia located in Three Ballpark Center at The Battery Atlanta. The Atlanta office is part of a broader strategic reorganization of corporate functions reflecting the Company’s ongoing transformation into a brand and culture that can effectively and efficiently deliver on the Company’s purpose, values and strategic business priorities. Affected employees who did not relocate to Atlanta were offered a separation package. As a result, we expect to incur certain one-time corporate reorganization costs of approximately $17.0 to $20.0 million related to employee severance and transition, recruitment and relocation and other third-party costs through 2021. Of that amount, we have incurred costs of approximately $15.3 million as of September 26, 2021 ($6.0 million in 2020 and $2.2 million and $9.4 million for the three and nine months ended September 26, 2021, respectively). See “Items Impacting Comparability; Non-GAAP Measures” for additional information.
26
Global Restaurant Sales Information
| | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | ||||||||
|
| September 26, 2021 |
| September 27, 2020 |
| September 26, 2021 |
| September 27, 2020 | ||||
Comparable sales growth: | | | | | | | | | | | | |
Domestic Company-owned restaurants | | | 7.4% | | | 18.2% | | | 11.6% | | | 15.6% |
North America franchised restaurants | | | 6.8% | | | 25.6% | | | 12.3% | | | 20.0% |
North America restaurants | | | 6.9% | | | 23.8% | | | 12.1% | | | 19.0% |
International restaurants | | | 8.3% | | | 20.7% | | | 17.1% | | | 9.4% |
Total comparable sales growth | | | 7.3% | | | 23.0% | | | 13.4% | | | 16.5% |
System-wide restaurant sales growth: | | | | | | | | | | | | |
(excluding the impact of foreign currency) | | | | | | | | | | | | |
Domestic Company-owned restaurants | | | 7.3% | | | 8.3% | | | 11.1% | | | 7.3% |
North America franchised restaurants | | | 8.0% | | | 26.2% | | | 13.1% | | | 20.4% |
North America restaurants | | | 7.9% | | | 21.8% | | | 12.7% | | | 17.3% |
International restaurants | | | 21.4% | | | 22.9% | | | 28.2% | | | 12.2% |
Total global system-wide restaurant sales growth | | | 11.2% | | | 22.1% | | | 16.2% | | | 16.0% |
| | | | | | | | | | | | |
Restaurant Progression | | Three Months Ended | | Nine Months Ended | ||||||||
|
| September 26, 2021 |
| September 27, 2020 |
| September 26, 2021 |
| September 27, 2020 | ||||
North America Company-owned: | | | | | | | | | | | | |
Beginning of period | |
| 589 | |
| 598 | |
| 588 | |
| 598 |
Opened | |
| 2 | |
| — | |
| 2 | |
| 1 |
Closed | |
| — | |
| (1) | |
| — | |
| (2) |
Acquired | |
| — | |
| — | |
| 1 | |
| — |
End of period | |
| 591 | |
| 597 | |
| 591 | |
| 597 |
North America franchised: | | | | | | | | | | | | |
Beginning of period | |
| 2,720 | |
| 2,686 | |
| 2,701 | |
| 2,690 |
Opened | |
| 21 | |
| 14 | |
| 57 | |
| 38 |
Closed | |
| (9) | |
| (11) | |
| (25) | |
| (39) |
Sold | | | — | | | — | | | (1) | | | — |
End of period | |
| 2,732 | |
| 2,689 | |
| 2,732 | |
| 2,689 |
International franchised: | | | | | | | | | | | | |
Beginning of period | |
| 2,214 | |
| 2,063 | |
| 2,111 | |
| 2,107 |
Opened | |
| 71 | |
| 40 | |
| 210 | |
| 83 |
Closed | |
| (39) | |
| (29) | |
| (75) | |
| (116) |
End of period | |
| 2,246 | |
| 2,074 | |
| 2,246 | |
| 2,074 |
Total restaurants – end of period | |
| 5,569 | |
| 5,360 | |
| 5,569 | |
| 5,360 |
| | | | | | | | | | | | |
Trailing four quarters net store growth | |
| 209 | |
| 17 | |
| | | | |
Three Months Ended | Six Months Ended | ||||||||||||||||||||||
June 26, 2022 | June 27, 2021 | June 26, 2022 | June 27, 2021 | ||||||||||||||||||||
Comparable sales growth (decline): | |||||||||||||||||||||||
Domestic Company-owned restaurants | (1.5)% | 5.6% | (1.3)% | 13.8% | |||||||||||||||||||
North America franchised restaurants | 1.4% | 5.2% | 2.1% | 15.1% | |||||||||||||||||||
North America restaurants | 0.9% | 5.2% | 1.4% | 14.8% | |||||||||||||||||||
International restaurants | (8.0)% | 21.2% | (3.6)% | 22.2% | |||||||||||||||||||
Total comparable sales growth | (1.4)% | 9.0% | 0.1% | 16.6% | |||||||||||||||||||
System-wide restaurant sales growth (decline): | |||||||||||||||||||||||
(excluding the impact of foreign currency) | |||||||||||||||||||||||
Domestic Company-owned restaurants | 1.2% | 5.2% | 8.9% | 13.1% | |||||||||||||||||||
North America franchised restaurants | 2.7% | 6.4% | 1.4% | 15.8% | |||||||||||||||||||
North America restaurants | 2.4% | 6.2% | 2.8% | 15.2% | |||||||||||||||||||
International restaurants | 3.4% | 35.7% | 8.3% | 32.2% | |||||||||||||||||||
Total global system-wide restaurant sales growth | 2.6% | 12.2% | 4.2% | 19.0% |
Restaurant Progression | Three Months Ended | Six Months Ended | |||||||||||||||||||||
June 26, 2022 | June 27, 2021 | June 26, 2022 | June 27, 2021 | ||||||||||||||||||||
North America Company-owned: | |||||||||||||||||||||||
Beginning of period | 608 | 589 | 600 | 588 | |||||||||||||||||||
Opened | 1 | — | 8 | — | |||||||||||||||||||
Acquired | — | — | 1 | 1 | |||||||||||||||||||
Refranchised | (90) | — | (90) | — | |||||||||||||||||||
End of period | 519 | 589 | 519 | 589 | |||||||||||||||||||
North America franchised: | |||||||||||||||||||||||
Beginning of period | 2,746 | 2,709 | 2,739 | 2,701 | |||||||||||||||||||
Opened | 17 | 24 | 32 | 36 | |||||||||||||||||||
Closed | (16) | (13) | (23) | (16) | |||||||||||||||||||
Refranchised | 90 | — | 90 | — | |||||||||||||||||||
Sold | — | — | (1) | (1) | |||||||||||||||||||
End of period | 2,837 | 2,720 | 2,837 | 2,720 | |||||||||||||||||||
International franchised: | |||||||||||||||||||||||
Beginning of period | 2,170 | 2,170 | 2,311 | 2,111 | |||||||||||||||||||
Opened | 72 | 71 | 127 | 139 | |||||||||||||||||||
Closed | (27) | (27) | (35) | (36) | |||||||||||||||||||
Suspended (a) | — | — | (188) | — | |||||||||||||||||||
End of period | 2,215 | 2,214 | 2,215 | 2,214 | |||||||||||||||||||
Total restaurants – end of period | 5,571 | 5,523 | 5,571 | 5,523 | |||||||||||||||||||
Trailing four quarters net store growth (b) | 236 | 176 |
| | | | | | | | | | | | | |
| | Three Months Ended | | | | ||||||||
| | September 26, 2021 | | September 27, 2020 | | | | ||||||
| | | | % of Related | | | | % of Related | | | Increase | ||
($ in thousands) | | | | Revenues | | | | Revenues | | | (Decrease) | ||
Revenues: | | | | | | | | | | | | | |
Domestic Company-owned restaurant sales | | $ | 191,584 | | | | $ | 178,371 | | | | | |
North America franchise royalties and fees | | | 31,933 | | | | | 25,281 | | | | | |
North America commissary revenues | | | 189,224 | | | | | 181,338 | | | | | |
International revenues | | | 38,408 | | | | | 33,440 | | | | | |
Other revenues | | | 61,633 | | | | | 54,511 | | | | | |
Total revenues | | | 512,782 | | | | | 472,941 | | | | | |
Costs and expenses: | | | | | | | | | | | | | |
Operating costs (excluding depreciation and amortization shown separately below): | | | | | | | | | | | | | |
Domestic Company-owned restaurant expenses | | | 155,477 | | 81.2% | | | 144,803 | | 81.1% | | | 0.1% |
North America commissary expenses | | | 175,399 | | 92.7% | | | 167,937 | | 92.6% | | | 0.1% |
International expenses | | | 21,743 | | 56.6% | | | 19,370 | | 57.9% | | | (1.3)% |
Other expenses | | | 56,039 | | 90.9% | | | 50,917 | | 93.4% | | | (2.5)% |
General and administrative expenses | | | 54,070 | | 10.5% | | | 52,601 | | 11.1% | | | (0.6)% |
Depreciation and amortization | | | 11,477 | | 2.2% | | | 12,764 | | 2.7% | | | (0.5)% |
Total costs and expenses | | | 474,205 | | 92.5% | | | 448,392 | | 94.8% | | | (2.3)% |
Operating income | | | 38,577 | | 7.5% | | | 24,549 | | 5.2% | | | 2.3% |
Net interest expense | | | (3,979) | | (0.8)% | | | (3,636) | | (0.8)% | | | 0.0% |
Income before income taxes | | $ | 34,598 | | 6.7% | | $ | 20,913 | | 4.4% | | | 2.3% |
| | | | | | | | | | | | | |
| | Nine Months Ended | | | | ||||||||
| | September 26, 2021 | | September 27, 2020 | | | | ||||||
| | | | % of Related | | | | % of Related | | Increase | |||
($ in thousands) | | | | Revenues | | | | Revenues | | (Decrease) | |||
Revenues: | | | | | | | | | | | | | |
Domestic Company-owned restaurant sales | | $ | 584,942 | | | | $ | 526,317 | | | | | |
North America franchise royalties and fees | | | 97,123 | | | | | 68,895 | | | | | |
North America commissary revenues | | | 560,743 | | | | | 504,379 | | | | | |
International revenues | | | 110,629 | | | | | 87,592 | | | | | |
Other revenues | | | 186,099 | | | | | 156,240 | | | | | |
Total revenues | | | 1,539,536 | | | | | 1,343,423 | | | | | |
Costs and expenses: | | | | | | | | | | | | | |
Operating costs (excluding depreciation and amortization shown separately below): | | | | | | | | | | | | | |
Domestic Company-owned restaurant expenses | | | 465,658 | | 79.6% | | | 419,082 | | 79.6% | | | 0.0% |
North America commissary expenses | | | 518,310 | | 92.4% | | | 466,676 | | 92.5% | | | (0.1)% |
International expenses | | | 62,791 | | 56.8% | | | 52,775 | | 60.3% | | | (3.5)% |
Other expenses | | | 168,092 | | 90.3% | | | 148,219 | | 94.9% | | | (4.6)% |
General and administrative expenses | | | 157,779 | | 10.2% | | | 148,680 | | 11.1% | | | (0.9)% |
Depreciation and amortization | | | 36,830 | | 2.4% | | | 37,436 | | 2.8% | | | (0.4)% |
Total costs and expenses | | | 1,409,460 | | 91.6% | | | 1,272,868 | | 94.7% | | | (3.1)% |
Operating income | | | 130,076 | | 8.4% | | | 70,555 | | 5.3% | | | 3.1% |
Net interest expense | | | (11,275) | | (0.7)% | | | (11,230) | | (0.8)% | | | 0.1% |
Income before income taxes | | $ | 118,801 | | 7.7% | | $ | 59,325 | | 4.5% | | | 3.2% |
| | | | | | | | | | | | | |
28
Three Months Ended | ||||||||||||||||||||||||||||||||
June 26, 2022 | June 27, 2021 | |||||||||||||||||||||||||||||||
($ in thousands) | % of Related Revenues | % of Related Revenues | Increase (Decrease) | |||||||||||||||||||||||||||||
Revenues: | ||||||||||||||||||||||||||||||||
Domestic Company-owned restaurant sales | $ | 171,411 | $ | 196,124 | (12.6) | % | ||||||||||||||||||||||||||
North America franchise royalties and fees | 34,917 | 32,475 | 7.5 | % | ||||||||||||||||||||||||||||
North America commissary revenues | 219,383 | 186,641 | 17.5 | % | ||||||||||||||||||||||||||||
International revenues | 31,958 | 37,614 | (15.0) | % | ||||||||||||||||||||||||||||
Other revenues | 64,996 | 62,154 | 4.6 | % | ||||||||||||||||||||||||||||
Total revenues | 522,665 | 515,008 | 1.5 | % | ||||||||||||||||||||||||||||
Costs and expenses: | ||||||||||||||||||||||||||||||||
Operating costs (excluding depreciation and amortization shown separately below): | ||||||||||||||||||||||||||||||||
Domestic Company-owned restaurant expenses | 142,026 | 82.9% | 154,293 | 78.7% | 4.2% | |||||||||||||||||||||||||||
North America commissary expenses | 204,470 | 93.2% | 172,227 | 92.3% | 0.9% | |||||||||||||||||||||||||||
International expenses | 19,236 | 60.2% | 21,430 | 57.0% | 3.2% | |||||||||||||||||||||||||||
Other expenses | 60,648 | 93.3% | 56,246 | 90.5% | 2.8% | |||||||||||||||||||||||||||
General and administrative expenses | 44,646 | 8.5% | 53,698 | 10.4% | (1.9)% | |||||||||||||||||||||||||||
Depreciation and amortization | 12,735 | 2.4% | 12,477 | 2.4% | —% | |||||||||||||||||||||||||||
Total costs and expenses | 483,761 | 92.6% | 470,371 | 91.3% | 1.2% | |||||||||||||||||||||||||||
Operating income | 38,904 | 7.4% | 44,637 | 8.7% | (1.2)% | |||||||||||||||||||||||||||
Net interest expense | (6,081) | (1.2) | % | (3,649) | (0.7) | % | (0.5) | % | ||||||||||||||||||||||||
Income before income taxes | $ | 32,823 | 6.3% | $ | 40,988 | 8.0% | (1.7)% |
Six Months Ended | ||||||||||||||||||||||||||||||||
June 26, 2022 | June 27, 2021 | |||||||||||||||||||||||||||||||
($ in thousands) | % of Related Revenues | % of Related Revenues | Increase (Decrease) | |||||||||||||||||||||||||||||
Revenues: | ||||||||||||||||||||||||||||||||
Domestic Company-owned restaurant sales | $ | 370,176 | $ | 393,358 | (5.9) | % | ||||||||||||||||||||||||||
North America franchise royalties and fees | 69,185 | 65,190 | 6.1 | % | ||||||||||||||||||||||||||||
North America commissary revenues | 429,062 | 371,519 | 15.5 | % | ||||||||||||||||||||||||||||
International revenues | 66,575 | 72,221 | (7.8) | % | ||||||||||||||||||||||||||||
Other revenues | 130,359 | 124,466 | 4.7 | % | ||||||||||||||||||||||||||||
Total revenues | 1,065,357 | 1,026,754 | 3.8 | % | ||||||||||||||||||||||||||||
Costs and expenses: | ||||||||||||||||||||||||||||||||
Operating costs (excluding depreciation and amortization shown separately below): | ||||||||||||||||||||||||||||||||
Domestic Company-owned restaurant expenses | 303,687 | 82.0% | 310,181 | 78.9% | 3.2% | |||||||||||||||||||||||||||
North America commissary expenses | 401,560 | 93.6% | 342,911 | 92.3% | 1.3% | |||||||||||||||||||||||||||
International expenses | 39,150 | 58.8% | 41,048 | 56.8% | 2.0% | |||||||||||||||||||||||||||
Other expenses | 121,203 | 93.0% | 112,053 | 90.0% | 2.9% | |||||||||||||||||||||||||||
General and administrative expenses | 110,584 | 10.4% | 103,709 | 10.1% | 0.3% | |||||||||||||||||||||||||||
Depreciation and amortization | 24,674 | 2.3% | 25,353 | 2.5% | (0.2)% | |||||||||||||||||||||||||||
Total costs and expenses | 1,000,858 | 93.9% | 935,255 | 91.1% | 2.9% | |||||||||||||||||||||||||||
Refranchising and impairment loss | (11,160) | (1.0) | % | — | — | % | (1.0) | % | ||||||||||||||||||||||||
Operating income | 53,339 | 5.0% | 91,499 | 8.9% | (3.9)% | |||||||||||||||||||||||||||
Net interest expense | (10,344) | (1.0) | % | (7,296) | (0.7) | % | (0.3) | % | ||||||||||||||||||||||||
Income before income taxes | $ | 42,995 | 4.0% | $ | 84,203 | 8.2% | (4.2)% |
Revenues
Consolidated revenues increased $39.8$7.7 million, or 8.4%1.5% to $512.8$522.7 million, and $196.1$38.6 million, or 14.6%3.8% to $1.54$1.1 billion for the three and ninesix months ended SeptemberJune 26, 2021,2022, respectively, compared to prior year comparable periods. Excluding the impact of the Company refranchising its 51% ownership in a 90-restaurant consolidated joint venture, consolidated revenues increased $25.6 million, or 5.2%, and $56.9 million, or 5.7%, for the three and six months ended June 26, 2022, respectively.
Excluding the impact of refranchising, Domestic Company-owned restaurant sales increased $13.2$2.0 million, or 7.4%1.2%, and $58.6$3.0 million, or 11.1%0.9%, for the three and ninesix months ended SeptemberJune 26, 2021,2022, respectively, primarily due to innovations and strategic pricing actions to help offset food and labor inflation.
North America franchise royalties and fees increased $6.7 million, or 26.3%, and $28.2 million, or 41.0% for the three and nine months ended September 26, 2021, respectively, compared to the prior year comparable periods. The increases were primarily due to positive comparable sales increases of 6.8% and 12.3% for the three and nine months ended September 26, 2021, respectively. Additionally, the three and nine months ended September 26, 2021 benefited fromperiod on a higher effective royalty rate and higher franchise royalties of $3.5 million and $14.3 million, respectively, compared to the prior comparable periods primarily as a result of ending our temporary franchise assistance program in the third quarter of 2020. The franchise assistance program was above and beyond the level of franchise assistance the Company would incur in the ordinary course of its business.
weighted average basis.
as a result of increased underlying costs associated with commodity price increases, partially offset by lower volumes.
contracting PJUK market where consumer sentiment is reaching historical lows.
International franchise restaurant sales increased 21.4% to $320.3$281.3 million and 28.2% to $906.7$585.9 million for the three and ninesix months ended SeptemberJune 26, 2021, respectively, excluding2022, respectively. Excluding the impact of foreign currency, primarily due to increases in comparableinternational franchise restaurant sales increased 3.4% and equivalent units.8.3% for the three and six months ended June 26, 2022, respectively. International franchise restaurant sales are not included in Company revenues; however, our international royalty revenue is derived from these sales.
29
Costs and Expenses
cost. Our strategic pricing actions implemented in the first six months of 2022 helped reduce the impact of the underlying cost pressures.
International expenses were $21.7 million, or 56.6% of related revenues for the three months ended September 26, 2021 compared to expenses of $19.4 million, or 57.9% of related revenues for the prior year comparable period. International expenses were $62.8 million, or 56.8% of related revenues, for the nine months ended September 26, 2021, compared to $52.8 million, or 60.3% of related revenues for the prior year comparable period. The 1.3% and 3.5% decreases in expenses as a percentage of revenues were primarily due to lower operating costs on higher royalties due to 8.3% and 17.1% increases in comparable sales for the three and nine months ended September 26, 2021, respectively.
Other expenses were $56.0 million, or 90.9% of related revenues for the three months ended September 26, 2021 compared to expenses of $50.9 million, or 93.4%92.3% of related revenues for the prior year comparable period. For the ninesix months ended SeptemberJune 26, 2021, Other2022, North America commissary expenses were $168.1$401.6 million, or 90.3%93.6% of related revenues, as compared to $148.2$342.9 million, or 94.9%92.3% of related revenues for the prior year comparable period. The 2.5% and 4.6% decreases in expenses, as a percentage of related revenues, increased 0.9% and 1.3%, respectively, primarily due to rising commodity prices, principally in cheese, proteins and wheat, and higher delivery cost.
the customer experience.
| | | | | | | | | | | |
| | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended | ||||||||
| | Sep. 26, | | | Sep. 27, | | | Sep. 26, | | | Sep. 27, |
| | 2021 | | | 2020 | | | 2021 | | | 2020 |
Administrative expenses (a) | $ | 51,398 | | $ | 43,680 | | $ | 148,533 | | $ | 134,532 |
Strategic corporate reorganization costs (b) | | 2,153 | | | — | | | 9,364 | | | — |
Other general expenses (c) | | 519 | | | 8,921 | | | (118) | | | 14,148 |
General and administrative expenses | $ | 54,070 | | $ | 52,601 | | $ | 157,779 | | $ | 148,680 |
30
Three Months Ended | Six Months Ended | ||||||||||||||||||||||
June 26, 2022 | June 27, 2021 | June 26, 2022 | June 27, 2021 | ||||||||||||||||||||
Administrative expenses (a) | $ | 42,889 | $ | 51,052 | $ | 88,979 | $ | 97,135 | |||||||||||||||
Special items (b) (c) | 1,507 | 3,328 | 21,143 | 7,211 | |||||||||||||||||||
Other general expenses | 250 | (682) | 461 | (637) | |||||||||||||||||||
General and administrative expenses | $ | 44,646 | $ | 53,698 | $ | 110,583 | $ | 103,709 |
Depreciation and amortization expense was $11.5 million, or 2.2% of revenues, and $36.8 million, or 2.4% of revenues, forFor both the three and ninesix months ended SeptemberJune 26, 2021, respectively, compared to $12.82022, Administrative expenses decreased $8.2 million or 2.7% of revenues, and $37.4 million, or 2.8% of revenues, for the prior year comparable periods, respectively. The 0.5% and 0.4% decreases in expenses as a percentage of revenues, respectively, were primarily due to the timing of fully depreciated assets.
Operating Income by Segment
Operating income increased approximately $14.0 million and $59.5 million for the three and nine months ended September 26, 2021, respectively, compared to the prior year comparable periods. Operating income is summarizedperiods primarily due to lower incentive compensation costs, partially offset by higher labor, travel, and occupancy cost associated with the re-opening of corporate headquarters in the following table on a reporting segment basis. Alongsidefirst quarter of 2022.
| | | | | | | | | | | | | | | |
| | Three Months Ended | |||||||||||||
| | Reported | | Special | | Adjusted | | Reported | | Adjusted | |||||
|
| Sep. 26, | | items | | Sep. 26, | | Sep. 27, | | Increase | |||||
(In thousands) | | 2021 | | in 2021 | | 2021 | | 2020 | | (Decrease) | |||||
| | | | | | | | | | | | | | | |
Domestic Company-owned restaurants | | $ | 9,480 | | $ | — | | $ | 9,480 | | $ | 8,439 | | $ | 1,041 |
North America franchising | |
| 29,830 | |
| — | |
| 29,830 | |
| 23,353 | |
| 6,477 |
North America commissaries | |
| 9,598 | |
| — | |
| 9,598 | |
| 8,208 | |
| 1,390 |
International | |
| 9,618 | |
| — | |
| 9,618 | |
| 7,986 | |
| 1,632 |
All others | |
| 3,848 | |
| — | |
| 3,848 | |
| 3,193 | |
| 655 |
Unallocated corporate expenses | |
| (23,158) | |
| 2,153 | |
| (21,005) | |
| (26,921) | |
| 5,916 |
Elimination of intersegment losses (profits) | |
| (639) | |
| — | |
| (639) | |
| 291 | |
| (930) |
Total | | $ | 38,577 | | $ | 2,153 | | $ | 40,730 | | $ | 24,549 | | $ | 16,181 |
| | | | | | | | | | | | | | | |
| | Nine Months Ended | |||||||||||||
|
| Reported |
| Special |
| Adjusted |
| Reported |
| Adjusted | |||||
| | Sep. 26, | | items | | Sep. 26, |
| Sep. 27, | | Increase | |||||
(In thousands) |
| 2021 |
| in 2021 |
| 2021 |
| 2020 |
| (Decrease) | |||||
| | | | | | | | | | | | | | | |
Domestic Company-owned restaurants | | $ | 40,165 | | $ | — | | $ | 40,165 | | $ | 33,852 | | $ | 6,313 |
North America franchising | | | 90,791 | | | — | | | 90,791 | | | 62,855 | | | 27,936 |
North America commissaries | | | 29,089 | |
| — | |
| 29,089 | | | 24,579 | |
| 4,510 |
International | | | 26,665 | | | — | | | 26,665 | | | 16,836 | | | 9,829 |
All others | | | 14,860 | | | — | | | 14,860 | | | 5,030 | | | 9,830 |
Unallocated corporate expenses | | | (70,937) | | | 9,364 | | | (61,573) | | | (71,978) | | | 10,405 |
Elimination of intersegment losses (profits) | | | (557) | | | — | | | (557) | | | (619) | | | 62 |
Total | | $ | 130,076 | | $ | 9,364 | | $ | 139,440 | | $ | 70,555 | | $ | 68,885 |
The increase in operating income, excluding
Three Months Ended | ||||||||||||||||||||||||||||||||||||||||||||
(In thousands) | Reported June 26, 2022 | Special items in 2022 (a) | Adjusted June 26, 2022 | Reported June 27, 2021 | Special items in 2021 (b) | Adjusted June 27, 2021 | Adjusted Increase (Decrease) | |||||||||||||||||||||||||||||||||||||
Domestic Company-owned restaurants | $ | 5,924 | $ | — | $ | 5,924 | $ | 15,361 | $ | — | $ | 15,361 | $ | (9,437) | ||||||||||||||||||||||||||||||
North America franchising | 32,624 | — | 32,624 | 30,518 | — | 30,518 | 2,106 | |||||||||||||||||||||||||||||||||||||
North America commissaries | 10,957 | — | 10,957 | 9,778 | — | 9,778 | 1,179 | |||||||||||||||||||||||||||||||||||||
International | 7,306 | — | 7,306 | 8,683 | — | 8,683 | (1,377) | |||||||||||||||||||||||||||||||||||||
All others | 2,187 | — | 2,187 | 4,894 | — | 4,894 | (2,707) | |||||||||||||||||||||||||||||||||||||
Unallocated corporate expenses | (19,344) | 1,507 | (17,837) | (24,617) | 3,328 | (21,289) | 3,452 | |||||||||||||||||||||||||||||||||||||
Elimination of intersegment losses (profits) | (750) | — | (750) | 20 | — | 20 | (770) | |||||||||||||||||||||||||||||||||||||
Total | $ | 38,904 | $ | 1,507 | $ | 40,411 | $ | 44,637 | $ | 3,328 | $ | 47,965 | $ | (7,554) |
Six Months Ended | ||||||||||||||||||||||||||||||||||||||||||||
(In thousands) | Reported June 26, 2022 | Special items in 2022 (a) | Adjusted June 26, 2022 | Reported June 27, 2021 | Special items in 2021 (b) | Adjusted June 27, 2021 | Adjusted Increase (Decrease) | |||||||||||||||||||||||||||||||||||||
Domestic Company-owned restaurants | $ | 7,912 | $ | 8,412 | $ | 16,324 | $ | 30,685 | $ | — | $ | 30,685 | $ | (14,361) | ||||||||||||||||||||||||||||||
North America franchising | 64,761 | — | 64,761 | 60,961 | — | 60,961 | 3,800 | |||||||||||||||||||||||||||||||||||||
North America commissaries | 20,292 | — | 20,292 | 19,491 | — | 19,491 | 801 | |||||||||||||||||||||||||||||||||||||
International | 11,761 | 3,515 | 15,276 | 17,047 | — | 17,047 | (1,771) | |||||||||||||||||||||||||||||||||||||
All others | 5,906 | — | 5,906 | 11,012 | — | 11,012 | (5,106) | |||||||||||||||||||||||||||||||||||||
Unallocated corporate expenses | (56,454) | 20,376 | (36,078) | (47,779) | 7,211 | (40,568) | 4,490 | |||||||||||||||||||||||||||||||||||||
Elimination of intersegment losses (profits) | (839) | — | (839) | 82 | — | 82 | (921) | |||||||||||||||||||||||||||||||||||||
Total | $ | 53,339 | $ | 32,303 | $ | 85,642 | $ | 91,499 | $ | 7,211 | $ | 98,710 | $ | (13,068) |
31
Net Interest Expense
The
in addition to an overall decrease in pre-tax income.
Quarter Ended | Six Months Ended | ||||||||||||||||||||||
June 26, 2022 | June 27, 2021 | June 26, 2022 | June 27, 2021 | ||||||||||||||||||||
Income before income taxes | $32,823 | $40,988 | $42,995 | $84,203 | |||||||||||||||||||
Income tax expense | $7,093 | $7,398 | $5,838 | $15,330 | |||||||||||||||||||
Effective tax rate | 21.6% | 18.0% | 13.6% | 18.2% |
32
repurchase and conversion of all shares of previously outstanding the Company's former Series B Convertible Preferred Stock ("Series B Preferred Stock during the second quarter. This reduction reflectsStock") in May 2021. These reductions reflect the excess of the one-time cash payment over the carrying value of the Series B Preferred Stock. See “Items Impacting Comparability; Non-GAAP Measures” for additional information.
The table below reconciles our GAAP financial results to our adjusted financial results, which are non-GAAP measures (collectively defined as “Special items”).measures. We present these non-GAAP measures because we believe the Special items in 2021 impact the comparability of our results of operations.
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| | September 26, | | September 27, | | September 26, | | September 27, | ||||
(In thousands, except per share amounts) |
| 2021 |
| 2020 | | 2021 |
| 2020 | ||||
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GAAP operating income | | $ | 38,577 | | $ | 24,549 | | $ | 130,076 | | $ | 70,555 |
Strategic corporate reorganization costs (1) | | | 2,153 | | | — | | | 9,364 | | | — |
Adjusted operating income | | $ | 40,730 | | $ | 24,549 | | $ | 139,440 | | $ | 70,555 |
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GAAP net income/(loss) attributable to common shareholders | | $ | 28,961 | | $ | 11,457 | | $ | (20,423) | | $ | 32,410 |
Strategic corporate reorganization costs (1) | | | 2,153 | | | — | | | 9,364 | | | — |
Repurchase and conversion of Series B Preferred Stock (2) | | | — | | | — | | | 109,852 | | | — |
Tax effect of strategic corporate reorganization costs (3) | | | (483) | | | — | | | (2,098) | | | — |
Adjusted net income attributable to common shareholders | | $ | 30,631 | | $ | 11,457 | | $ | 96,695 | | $ | 32,410 |
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GAAP diluted earnings/(loss) per common share | | $ | 0.79 | | $ | 0.35 | | $ | (0.59) | | $ | 0.99 |
Strategic corporate reorganization costs (1) | | | 0.05 | | | — | | | 0.27 | | | — |
Repurchase and conversion of Series B Preferred Stock (2) | | | — | | | — | | | 3.14 | | | — |
Tax effect of strategic corporate reorganization costs (3) | | | (0.01) | | | — | | | (0.06) | | | — |
Adjusted diluted earnings per share | | $ | 0.83 | | $ | 0.35 | | $ | 2.76 | | $ | 0.99 |
operations.
See “Note 2”, “Note 9”, and “Note 10” of “Notes to Condensed Consolidated Financial Statements,” for additional information about the Special items.
Three Months Ended | Six Months Ended | |||||||||||||||||||||||||
(In thousands, except per share amounts) | June 26, 2022 | June 27, 2021 | June 26, 2022 | June 27, 2021 | ||||||||||||||||||||||
GAAP operating income | $ | 38,904 | $ | 44,637 | $ | 53,339 | $ | 91,499 | ||||||||||||||||||
Refranchising and impairment loss (1) | — | — | 25,796 | — | ||||||||||||||||||||||
Legal settlement (2) | — | — | 5,000 | — | ||||||||||||||||||||||
Strategic corporate reorganization costs (3) | — | 3,328 | — | 7,211 | ||||||||||||||||||||||
Other costs (4) | 1,507 | — | 1,507 | — | ||||||||||||||||||||||
Adjusted operating income | $ | 40,411 | $ | 47,965 | $ | 85,642 | $ | 98,710 | ||||||||||||||||||
GAAP net income attributable to common shareholders | $ | 25,240 | $ | (79,898) | $ | 35,693 | $ | (49,542) | ||||||||||||||||||
Refranchising and impairment loss (1) | — | — | 25,796 | — | ||||||||||||||||||||||
Legal settlement (2) | — | — | 5,000 | — | ||||||||||||||||||||||
Strategic corporate reorganization costs (3) | — | 3,328 | — | 7,211 | ||||||||||||||||||||||
Other costs (4) | 1,507 | — | 1,507 | — | ||||||||||||||||||||||
Repurchase and conversion of Series B Preferred Stock | — | 109,852 | — | 109,852 | ||||||||||||||||||||||
Tax effect of Non-GAAP adjustment on special items (4) | (339) | (745) | (7,269) | (1,615) | ||||||||||||||||||||||
Adjusted net income attributable to common shareholders | $ | 26,408 | $ | 32,537 | $ | 60,727 | $ | 65,906 | ||||||||||||||||||
GAAP diluted earnings per common share | $ | 0.70 | $ | (2.30) | $ | 0.99 | $ | (1.47) | ||||||||||||||||||
Refranchising and impairment loss (1) | — | — | 0.72 | — | ||||||||||||||||||||||
Legal settlement (2) | — | — | 0.14 | — | ||||||||||||||||||||||
Strategic corporate reorganization costs (3) | — | 0.10 | — | 0.22 | ||||||||||||||||||||||
Other costs (4) | 0.05 | — | 0.04 | — | ||||||||||||||||||||||
Repurchase and conversion of Series B Preferred Stock | — | 3.15 | — | 3.23 | ||||||||||||||||||||||
Tax effect of Non-GAAP adjustment on special items (5) | (0.01) | (0.02) | (0.20) | (0.04) | ||||||||||||||||||||||
Adjusted diluted earnings per common share | $ | 0.74 | $ | 0.93 | $ | 1.69 | $ | 1.94 |
(1)Includes on a pre-tax basis (a) a one-time, non-cash charge of $8.4 million ($0.23 loss per diluted share) associated with the refranchising of the Company’s controlling interest in the 90-restaurant joint venture, recorded as Refranchising and impairment loss; and (b) $17.4 million ($0.48 million loss per diluted share) in one-time, non-cash expense related to the reserve of certain loans and impairment of reacquired franchised rights related to the reserve of certain loans and impairment of reacquired franchised rights related to the conflict in Ukraine and subsequent international government actions and sanctions, which were recorded as Refranchising and impairment loss of $2.8 million and General and administrative expenses of $14.6 million. (2)Represents an accrual of the Legal Settlement, recorded in General and administrative expenses. (3)Represents strategic corporate reorganization costs associated with our new office in Atlanta, Georgia. (4)Other costs of $1.5 million for the second quarter of 2022 include advisory fees and severance costs associated with the transition of certain executives. (5) |
The tax effect for Special items was calculated by applying the marginal tax rate of 22.5% and 22.4% for the three and six months ended June 26, 2022 and June 27, 2021, respectively.
33
Liquidity and Capital Resources
Six Months Ended | |||||||||||
June 26, 2022 | June 27, 2021 | ||||||||||
Total cash provided by (used in): | |||||||||||
Operating activities | $ | 45,585 | $ | 128,030 | |||||||
Investing activities | (12,523) | (19,467) | |||||||||
Financing activities | (50,677) | (142,871) | |||||||||
Change in cash and cash equivalents, excluding the impact of foreign currency | $ | (17,615) | $ | (34,308) |
2022.
On September 14, 2021, the Company issued $400.0 million of Notes which will mature on September 15, 2029. Concurrently with the closing of the Notes, the Company entered into an
The net proceeds from the Notes, together with borrowings under the PJI Revolving Facility, were used to repay outstanding revolver and term loan borrowings under the Company’s Previous2021 (the "Amended Credit Agreement.
As of September 26, 2021, we have the following interest rate swap agreements with a total notional value of $350.0 million:
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In September 2021, we de-designated $350.0 million of our interest rate swaps as cash flow hedges following the issuance of the Notes. For these de-designated hedges, the portion of gains or losses on the derivative instruments previously recognized in accumulated other comprehensive loss will be reclassified into earnings as adjustments to interest expense on a straight-line basis over the remaining life of the originally hedged transactions.
Our Amended Credit AgreementAgreement") contains affirmative and negative covenants includingthat, among other things, require customary reporting obligations and restrict, subject to certain exceptions, the occurrence of additional indebtedness and liens, the consummation of certain mergers, consolidations, sales of assets and similar transactions, the making of investments, equity distributions and other restricted payments, and transactions with affiliates. The Company is also subject to certain financial covenants, as shown in the following financial covenants:
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Interest coverage ratio | Not less than 2.00 to 1.0 |
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2022.
Papa John’s Marketing Fund, Inc. (“PJMF”), our national marketing fund, has a $20.0 million revolving line of credit (the “PJMF Revolving Facility”) pursuant to a Revolving Loan Agreement, dated September 30, 2015 with U.S. Bank National Association, as lender. There was 0no debt outstanding under the PJMF Revolving Facility as of SeptemberJune 26, 20212022 or December 27, 2020.26, 2021. The PJMF operating results and the related debt outstanding do not impact the financial covenants under the PJIAmended Credit Agreement.
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Cash Flows
Cash flow provided by operating activities was $193.6 million for the nine months ended September 26, 2021 compared to $168.5 million for the corresponding period of 2020. The increase of $25.1 million was primarily due to higher net income, offset by unfavorable working capital.
Cash flow used in investing activities was $41.2 million for the nine months ended September 26, 2021 compared to $28.6 million for the same period in 2020, or an increase of $12.6 million. The increase in cash flow used in investing activities was primarily due to an increase in capital expenditures.
Cash flow used in financing activities was $177.1 million for the nine months ended September 26, 2021 compared to $27.4 million for the same period of 2020. The increase of $149.7 million in cash flow used in financing activities was primarily due to the payment of cash consideration to affiliates of Starboard Value LP and certain franchisees for the repurchase and conversion of all of the Company’s Series B Preferred Stock outstanding which occurred during the second quarter of 2021, offset by net proceeds from the issuanceAs part of our Noteslong-term growth and refinancing ofcapital allocation strategy, we are committed to investing in share repurchases to provide ongoing value and enhanced returns to our revolving credit facility in the third quarter of 2021.
Dividends
The Company recorded dividends of approximately $33.2 million for the nine months ended September 26, 2021 consisting of the following:
shareholders. On October 28, 2021, our Board of Directors approved a share repurchase program with an indefinite duration for up to $425.0 million of the Company’s common stock. The share repurchase program operated alongside our previous $75.0 million share repurchase authorization, which began on November 4, 2020 and expired on December 26, 2021.
(in thousands, except average price per share) | Total Number of Shares Purchased | Average Price Paid per Share | Aggregate Cost of Shares Purchased | Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs | ||||||||||||||||||||||
Three Months Ended | ||||||||||||||||||||||||||
June 26, 2022 | 452 | $ | 94.56 | $ | 42,762 | $ | 349,329 | |||||||||||||||||||
June 27, 2021 | 68 | $ | 101.21 | $ | 6,921 | $ | 64,110 | |||||||||||||||||||
(in thousands, except average price per share) | Total Number of Shares Purchased | Average Price Paid per Share | Aggregate Cost of Shares Purchased | Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs | ||||||||||||||||||||||
Six Months Ended | ||||||||||||||||||||||||||
June 26, 2022 | 753 | $ | 100.23 | $ | 75,471 | $ | 349,329 | |||||||||||||||||||
June 27, 2021 | 83 | $ | 98.23 | $ | 8,188 | $ | 64,110 |
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Free Cash Flow
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Net cash provided by operating activities | | $ | 193,624 | | $ | 168,547 |
Purchases of property and equipment | | | (41,328) | | | (24,269) |
Dividends paid to preferred stockholders (1) | |
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| (10,237) |
Free cash flow | | $ | 145,902 | | $ | 134,041 |
(1) Excludes $188.6 million
Six Months Ended | |||||||||||
June 26, 2022 | June 27, 2021 | ||||||||||
Net cash provided by operating activities | $ | 45,585 | $ | 128,030 | |||||||
Purchases of property and equipment | (30,744) | (21,543) | |||||||||
Dividends paid to preferred stockholders | — | (6,394) | |||||||||
Free cash flow | $ | 14,841 | $ | 100,093 |
36
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For a discussion of these and other risks that may cause actual results to differ from expectations, refer to “Part I. Item 1A. – Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 26, 2021 and “Part II. Item IA. – Risk Factors” in our Quarterly Report on Form 10-Q for the quarter end March 27, 2020.2022, as well as subsequent filings. 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.
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7.0% for the prior year comparable periods.
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The following table presents the actual average block price for cheese by quarter through the thirdsecond quarter of 20212022 and the projected average block price by quarter for 20212022 (based on the OctoberJuly 29, 20212022 Chicago Mercantile Exchange cheese futures market prices):
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Quarter 1 |
| $ | 1.676 |
| $ | 1.857 |
Quarter 2 | |
| 1.680 | |
| 1.679 |
Quarter 3 | |
| 1.676 | |
| 2.262 |
Quarter 4 | |
| 1.780 | |
| 2.235 |
Full Year |
| $ | 1.703 | * | $ | 2.008 |
2022 | 2021 | |||||||||||||
Projected Block Price | Actual Block Price | |||||||||||||
Quarter 1 | $ | 1.966 | $ | 1.676 | ||||||||||
Quarter 2 | 2.296 | 1.680 | ||||||||||||
Quarter 3 | 2.018 | 1.676 | ||||||||||||
Quarter 4 | 2.085 | 1.786 | ||||||||||||
Full Year | $ | 2.091 | * | $ | 1.705 |
There
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Our
PJI Revolving Facility.
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| | | Total | | Average | | of Shares Purchased | | Value of Shares | ||
| | | Number | | Price | | as Part of Publicly | | that May Yet Be | ||
| | | of Shares | | Paid per | | Announced Plans | | Purchased Under the | ||
Fiscal Period | |
| Purchased |
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6/28/2021 - 7/25/2021 | |
| 41 | | $ | 104.47 |
| 157 | | $ | 59,800 |
7/26/2021 - 8/22/2021 | |
| — | | $ | — |
| — | | $ | — |
8/23/2021 - 9/26/2021 | |
| 62 | | $ | 129.42 |
| 219 | | $ | 51,743 |
Fiscal Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs | ||||||||||||||||||||||
3/28/2022 - 4/24/2022 | 168 | $ | 103.94 | 168 | $ | 374,655 | ||||||||||||||||||||
4/25/2022 - 5/22/2022 | 102 | $ | 96.24 | 102 | $ | 364,800 | ||||||||||||||||||||
5/23/2022 - 6/26/2022 | 182 | $ | 84.98 | 182 | $ | 349,329 | ||||||||||||||||||||
Total | 452 | $ | 94.56 | 452 | $ | 349,329 |
July 29, 2022.
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101 |
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| Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
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PAPA JOHN’S INTERNATIONAL, INC. | ||||||
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Date: |
| /s/ Ann B. Gugino | ||||
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| Ann B. Gugino | ||||
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| Chief Financial Officer | ||||
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