UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

	~~(Mark One)~~
	~~[X]~~	~~Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934~~
		~~For the quarterly period ended June 30, 2013~~

(Mark One)

x Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 29, 2014

~~[ ]~~

~~Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934~~

o Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number: 0-21660

PAPA ~~JOHN'S~~JOHN’S INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)

Delaware

~~Delaware~~

61-1203323

(State or other jurisdiction of

~~incorporation or organization)~~

(I.R.S. Employer Identification

~~number)~~

incorporation or organization)

number)

2002 Papa Johns Boulevard

Louisville, Kentucky 40299-2367

(Address of principal executive offices)

(502) 261-7272

(~~Registrant's~~Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes

~~Yes [X] No [ ]~~x

No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes

~~Yes [X] No [ ]~~x

No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ~~[X]~~x		Accelerated filer ~~[ ]~~ o
Non-accelerated filer ~~[ ]~~o		Smaller reporting company ~~[ ]~~o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes

~~Yes [ ] No [X]~~o

No x

At July ~~30, 2013,~~29, 2014, there were outstanding ~~21,732,784~~40,926,449 shares of the registrant’s common stock, par value $0.01 per share.

Table of Contents

INDEX

			Page No.
PART I.	FINANCIAL INFORMATION	~~Page No.~~


Item 1.	Financial Statements

	Condensed Consolidated Balance Sheets – June ~~30, 2013~~29, 2014 and December ~~30, 2012~~29, 2013		2

	Condensed Consolidated Statements of Income – Three and Six Months Ended June ~~30, 2013~~29, 2014 and June ~~24, 2012~~30, 2013		3

	Consolidated Statements of Comprehensive Income – Three and Six Months Ended June ~~30, 2013~~29, 2014 and June ~~24, 2012~~30, 2013		4

	~~Consolidated Statements of Stockholders' Equity – Six Months Ended June 30, 2013 and June 24, 2012~~	5

	Consolidated Statements of Cash Flows – Six Months Ended June 29, 2014 and June 30, 2013 ~~and June 24, 2012~~	6	5

	Notes to Condensed Consolidated Financial Statements	7	6

Item 2.	~~Management's~~Management’s Discussion and Analysis of Financial Condition and Results of Operations	15	14

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		25

Item 4.	Controls and Procedures		26

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings		26

Item 1A.	Risk Factors	26	27

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		27

Item 6.	Exhibits		28

Table of Contents

PART 1. FINANCIAL INFORMATION

Item 1. Financial Statements
Papa John’s International, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands, except per share amounts)

June 29,
2014

December 29,
2013

(Unaudited)

Assets

Current assets:

Cash and cash equivalents

$
19,971

$
13,670

Accounts receivable, net

48,377

53,203

Notes receivable, net

5,862

3,566

Inventories

31,895

23,035

Deferred income taxes

7,673

8,004

Prepaid expenses

14,156

14,336

Other current assets

9,646

9,226

Total current assets

137,580

125,040

Property and equipment, net

218,448

212,097

Notes receivable, less current portion, net

11,534

13,239

Goodwill

82,106

79,391

Other assets

35,532

34,524

Total assets

$
485,200

$
464,291

Liabilities and stockholders’ equity

Current liabilities:

Accounts payable

$
33,719

$
35,653

Income and other taxes payable

5,824

4,401

Accrued expenses and other current liabilities

54,468

57,807

Total current liabilities

94,011

97,861

Deferred revenue

5,579

5,827

Long-term debt

210,000

157,900

Deferred income taxes

12,928

14,660

Other long-term liabilities

45,644

42,835

Total liabilities

368,162

319,083

Redeemable noncontrolling interests

8,433

7,024

Stockholders’ equity:

Preferred stock ($0.01 par value per share; no shares issued)

—

—

Common stock ($0.01 par value per share; issued 43,152 at June 29, 2014 and 42,796 at December 29, 2013)

432

428

Additional paid-in capital

139,705

137,552

Accumulated other comprehensive income

2,765

2,463

Retained earnings

66,944

41,297

Treasury stock (2,297 shares at June 29, 2014 and 1,129 shares at December 29, 2013, at cost)

(101,830
)
(44,066
)
Total stockholders’ equity, net of noncontrolling interests

108,016

137,674

Noncontrolling interests in subsidiaries

589

510

Total stockholders’ equity

108,605

138,184

Total liabilities, redeemable noncontrolling interests and stockholders’ equity

$
485,200

$
464,291

See accompanying notes.
2
~~(In thousands)~~ ~~June 30, 2013~~ ~~December 30, 2012~~
~~(Unaudited)~~
~~Assets~~
~~Current assets:~~
~~Cash~~
Table of Contents
Papa John’s International, Inc. and ~~cash equivalents~~
$ ~~28,236~~ $ ~~16,396~~
~~Accounts receivable, net~~ ~~43,235~~ ~~44,647~~
~~Notes receivable~~ ~~3,440~~ ~~4,577~~
~~Inventories~~ ~~21,722~~ ~~22,178~~
~~Deferred income taxes~~ ~~7,715~~ ~~10,279~~
~~Prepaid expenses~~ ~~10,782~~ ~~12,782~~
~~Other current assets~~ ~~7,804~~ ~~7,767~~
~~Total current assets~~ ~~122,934~~ ~~118,626~~
~~Property~~Subsidiaries
Condensed Consolidated Statements of Income
(Unaudited)

Three Months Ended

Six Months Ended

(In thousands, except per share amounts)

June 29, 2014

June 30, 2013

June 29, 2014

June 30, 2013

North America revenues:

Domestic Company-owned restaurant sales

$
170,000

$
155,153

$
348,193

$
313,051

Franchise royalties

20,983

20,230

43,597

40,963

Franchise and development fees

132

219

276

765

Domestic commissary sales

150,581

140,003

314,628

283,897

Other sales

13,595

12,444

26,345

25,051

International revenues:

Royalties and franchise and development fees

6,317

5,391

12,096

10,458

Restaurant and commissary sales

19,256

15,746

37,106

30,605

Total revenues

380,864

349,186

782,241

704,790

Costs and expenses:

Domestic Company-owned restaurant expenses:

Cost of sales

42,030

37,825

87,186

74,898

Salaries and benefits

45,805

42,053

93,388

85,325

Advertising and related costs

15,354

14,677

31,610

29,470

Occupancy costs

9,446

8,939

18,757

17,650

Other restaurant operating expenses

25,220

22,431

50,507

45,176

Total domestic Company-owned restaurant expenses

137,855

125,925

281,448

252,519

Domestic commissary expenses:

Cost of sales

118,470

107,676

247,394

218,599

Salaries and benefits

6,847

6,084

13,871

12,100

Other commissary operating expenses

16,215

15,185

32,070

30,646

Total domestic commissary expenses

141,532

128,945

293,335

261,345

Other operating expenses

13,221

11,132

24,652

22,584

International restaurant and commissary expenses

15,876

12,983

30,761

25,636

General and administrative expenses

33,562

33,126

70,528

66,284

Other general expenses

1,964

1,597

3,497

2,782

Depreciation and amortization

9,855

8,530

19,019

17,067

Total costs and expenses

353,865

322,238

723,240

648,217

Operating income

26,999

26,948

59,001

56,573

Net interest (expense) income

(763
)
(340
)
(1,355
)
332

Income before income taxes

26,236

26,608

57,646

56,905

Income tax expense

8,397

8,563

19,266

18,541

Net income before attribution to noncontrolling interests

17,839

18,045

38,380

38,364

Income attributable to noncontrolling interests

(1,091
)
(895
)
(2,321
)
(1,908
)
Net income attributable to the Company

$
16,748

$
17,150

$
36,059

$
36,456

Calculation of income for earnings per share:

Net income attributable to the Company

$
16,748

$
17,150

$
36,059

$
36,456

Increase in noncontrolling interest redemption value

(31
)
—

(39
)
—

Net income attributable to participating securities

(81
)
—

(218
)
—

Net income attributable to common shareholders

$
16,636

$
17,150

$
35,802

$
36,456

Basic earnings per common share

$
0.40

$
0.39

$
0.86

$
0.83

Diluted earnings per common share

$
0.40

$
0.39

$
0.85

$
0.81

Basic weighted average common shares outstanding

41,225

43,484

41,501

43,996

Diluted weighted average common shares outstanding

41,970

44,500

42,332

45,086

Dividends declared per common share

$
0.125

$
—

$
0.250

$
—

See accompanying notes.
3

Table of Contents
Papa John’s International, Inc. and ~~equipment, net~~
~~201,942~~ ~~196,661~~
~~Notes receivable, less current portion, net~~ ~~13,839~~ ~~12,536~~
~~Goodwill~~ ~~78,088~~ ~~78,958~~
~~Other assets~~ ~~32,675~~ ~~31,627~~
~~Total assets~~ $ ~~449,478~~ $ ~~438,408~~
~~Liabilities and stockholders’ equity~~
~~Current liabilities:~~
~~Accounts payable~~ $ ~~28,728~~ $ ~~32,624~~
Subsidiaries
Consolidated Statements of Comprehensive Income ~~and other taxes payable~~
~~1,407~~ ~~10,429~~
~~Accrued expenses and other current liabilities~~ ~~51,950~~ ~~60,528~~
~~Total current liabilities~~ ~~82,085~~ ~~103,581~~
~~Deferred revenue~~ ~~6,736~~ ~~7,329~~
~~Long-term debt~~ ~~133,241~~ ~~88,258~~
~~Deferred income taxes~~ ~~11,955~~ ~~10,672~~
~~Other long-term liabilities~~ ~~40,858~~ ~~40,674~~
~~Total liabilities~~ ~~274,875~~ ~~250,514~~
~~Redeemable noncontrolling interests~~ ~~6,846~~ ~~6,380~~
~~Stockholders’ equity:~~
~~Preferred stock~~ - -
~~Common stock~~ ~~373~~ ~~371~~
~~Additional paid-in capital~~ ~~288,214~~ ~~280,905~~
~~Accumulated~~
(Unaudited)

Three Months Ended

Six Months Ended

(In thousands)

June 29, 2014

June 30, 2013

June 29, 2014

June 30, 2013

Net income before attribution to noncontrolling interests

$
17,839

$
18,045

$
38,380

$
38,364

Other comprehensive income (loss), before tax:

��
Foreign currency translation adjustments

959

(586
)
926

(1,721
)
Interest rate swaps (1)

(404
)
190

(447
)
73

Other comprehensive income (loss), before tax

555

(396
)
479

(1,648
)
Income tax effect:

Foreign currency translation adjustments

(355
)
217

(343
)
637

Interest rate swaps (2)

149

(71
)
165

(27
)
Income tax effect

(206
)
146

(178
)
610

Other comprehensive income (loss), net of tax

349

(250
)
301

(1,038
)
Comprehensive income before attribution to noncontrolling interests

18,188

17,795

38,681

37,326

Comprehensive income, redeemable noncontrolling interests

(1,086
)
(895
)
(2,341
)
(1,908
)
Comprehensive (loss) income, nonredeemable noncontrolling interests

(5
)
—

20

—

Comprehensive income attributable to the Company

$
17,097

$
16,900

$
36,360

$
35,418

(1) Amounts reclassified out of accumulated other comprehensive income
~~786~~ ~~1,824~~
~~Retained earnings~~ ~~392,917~~ ~~356,461~~
~~Treasury stock~~ ~~(514,533~~ (“AOCI”) ~~(458,047~~ )
~~Total stockholders’ equity~~ ~~167,757~~ ~~181,514~~
~~Total liabilities, redeemable noncontrolling interests~~ into net interest (expense) income included $250 and ~~stockholders’ equity~~ $ ~~449,478~~ $ ~~438,408~~

~~See accompanying notes.~~

~~Papa John's International, Inc. and Subsidiaries~~

~~Consolidated Statements of Income~~

~~(Unaudited)~~

Three Months Ended Six Months Ended
(In thousands, except per share amounts) June 30, 2013 June 24, 2012 June 30, 2013 June 24, 2012

North America revenues:
Domestic Company-owned restaurant sales $ 155,153 $ 143,527 $ 313,051 $ 287,342
Franchise royalties 20,230 19,101 40,963 39,619
Franchise and development fees 219 206 765 428
Domestic commissary sales 140,003 126,593 283,897 264,203
Other sales 12,444 11,771 25,051 24,029
International revenues:
Royalties and franchise and development fees 5,391 4,701 10,458 9,187
Restaurant and commissary sales 15,746 12,680 30,605 25,047
Total revenues 349,186 318,579 704,790 649,855
Costs and expenses:
Domestic Company-owned restaurant expenses:
Cost of sales 37,825 32,881 74,898 65,337
Salaries and benefits 42,053 39,839 85,325 78,652
Advertising and related costs 14,677 13,278 29,470 25,977
Occupancy costs 8,939 8,619 17,650 16,517
Other operating expenses 22,431 20,830 45,176 41,248
Total domestic Company-owned restaurant expenses 125,925 115,447 252,519 227,731
Domestic commissary and other expenses:
Cost of sales 114,045 104,412 231,823 217,250
Salaries and benefits 10,264 9,218 20,331 18,221
Other operating expenses 15,768 13,498 31,775 27,804
Total domestic commissary and other expenses 140,077 127,128 283,929 263,275
International operating expenses 12,983 10,975 25,636 21,367
General and administrative expenses 33,126 31,463 66,284 63,059
Other general expenses 1,597 1,135 2,782 6,809
Depreciation and amortization 8,530 8,104 17,067 16,031
Total costs and expenses 322,238 294,252 648,217 598,272
Operating income 26,948 24,327 56,573 51,583
Net interest (expense) income (340 ) (861 ) 332 (597 )
Income before income taxes 26,608 23,466 56,905 50,986
Income tax expense 8,563 8,005 18,541 17,218
Net income, including redeemable noncontrolling interests 18,045 15,461 38,364 33,768
Income attributable to redeemable noncontrolling interests (895 ) (1,172 ) (1,908 ) (2,498 )
Net income, net of redeemable noncontrolling interests $ 17,150 $ 14,289 $ 36,456 $ 31,270

Basic earnings per common share $ 0.79 $ 0.60 $ 1.66 $ 1.31
Earnings per common share - assuming dilution $ 0.77 $ 0.59 $ 1.62 $ 1.29

Basic weighted average shares outstanding 21,742 23,733 21,998 23,893
Diluted weighted average shares outstanding 22,250 24,112 22,543 24,270

See accompanying notes.

Papa John's International, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income

(Unaudited)

Three Months Ended Six Months Ended
(In thousands) June 30, 2013 June 24, 2012 June 30, 2013 June 24, 2012

Net income, including redeemable noncontrolling interests $ 18,045 $ 15,461 $ 38,364 $ 33,768
Other comprehensive income (loss), before tax:
   Foreign currency translation adjustments (586 ) (445 ) (1,721 ) (154 )
   Interest rate swap 190 (9 ) 73 (137 )
Other comprehensive income (loss), before tax (396 ) (454 ) (1,648 ) (291 )
Income tax effect:
   Foreign currency translation adjustments 217 - 637 -
   Interest rate swap (71 ) 3 (27 ) 51
Income tax effect 146 3 610 51
Other comprehensive income (loss), net of tax (250 ) (451 ) (1,038 ) (240 )
Comprehensive income, including redeemable
   noncontrolling interests 17,795 15,010 37,326 33,528
Comprehensive income, redeemable noncontrolling interests (895 ) (1,172 ) (1,908 ) (2,498 )
Comprehensive income, net of redeemable
   noncontrolling interests $ 16,900 $ 13,838 $ 35,418 $ 31,030

See accompanying notes.

~~Papa John's International, Inc. and Subsidiaries~~

~~Consolidated Statements of Stockholders' Equity~~

~~(Unaudited)~~

Common Accumulated
Stock Additional Other Total
Shares Common Paid-In Comprehensive Retained Treasury Stockholders'
(In thousands) Outstanding Stock Capital Income (Loss) Earnings Stock Equity

Balance at December 25, 2011 24,019 $ 367 $ 262,456 $ 1,849 $ 294,801 $ (353,826 ) $ 205,647
Comprehensive income:
  Net income, net of redeemable
    noncontrolling interests (1) - - - - 31,270 - 31,270
  Other comprehensive loss - - - (240 ) - - (240 )
Comprehensive income 31,030
Exercise of stock options 361 4 10,396 - - - 10,400
Tax effect of equity awards - - 468 - - - 468
Acquisition of Company
  common stock (957 ) - - - - (38,728 ) (38,728 )
Stock-based compensation expense - - 3,218 - - - 3,218
Issuance of restricted stock 34 - (1,541 ) - - 1,541 -
Other - - (134 ) - - 259 125
Balance at June 24, 2012 23,457 $ 371 $ 274,863 $ 1,609 $ 326,071 $ (390,754 ) $ 212,160

Balance at December 30, 2012 22,241 $ 371 $ 280,905 $ 1,824 $ 356,461 $ (458,047 ) $ 181,514
Comprehensive income:
  Net income, net of redeemable
    noncontrolling interests (1) - - - - 36,456 - 36,456
  Other comprehensive loss - - - (1,038 ) - - (1,038 )
Comprehensive income 35,418
Exercise of stock options 223 2 3,694 - - - 3,696
Tax effect of equity awards - - 1,963 - - - 1,963
Acquisition of Company
  common stock (978 ) - - - - (58,806 ) (58,806 )
Stock-based compensation expense - - 3,784 - - - 3,784
Issuance of restricted stock 68 - (2,148 ) - - 2,148 -
Other - - 16 - - 172 188
Balance at June 30, 2013 21,554 $ 373 $ 288,214 $ 786 $ 392,917 $ (514,533 ) $ 167,757

~~(1)~~

~~Net income at~~$499 for the three and six months ended June 29, 2014, respectively and $44 and $88 for the three and six months ended June 30, 2013, respectively.

(2) The income tax effects of amounts reclassified out of AOCI into net interest (expense) income were $93 and $185 for the three and six months ended June ~~24, 2012 is net~~29, 2014, respectively and $16 and $32 for the three and six months ended June 30, 2013, respectively.

See accompanying notes.

Table of ~~$1,908~~Contents

Papa John’s International, Inc. and ~~$2,498, respectively, allocable~~Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)

	Six Months Ended
(In thousands)	June 29, 2014			June 30, 2013

Operating activities
Net income before attribution to noncontrolling interests	$	38,380		$	38,364
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for uncollectible accounts and notes receivable	936			780
Depreciation and amortization	19,019			17,067
Deferred income taxes	6,298			8,256
Stock-based compensation expense	3,612			3,784
Excess tax benefit on equity awards	(7,890		)	(3,803		)
Other	2,270			694
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable	3,400			496
Inventories	(7,295		)	456
Prepaid expenses	180			2,000
Other current assets	(152		)	(37		)
Other assets and liabilities	(17		)	(1,954		)
Accounts payable	(1,934		)	(3,896		)
Income and other taxes payable	1,423			(9,022		)
Accrued expenses and other current liabilities	(3,970		)	(5,870		)
Deferred revenue	305			(83		)
Net cash provided by operating activities	54,565			47,232

Investing activities
Purchases of property and equipment	(26,239		)	(25,493		)
Loans issued	(2,642		)	(3,103		)
Repayments of loans issued	1,880			2,908
Acquisitions, net of cash acquired	(3,179		)	—
Other	3			319
Net cash used in investing activities	(30,177		)	(25,369		)

Financing activities
Net proceeds on line of credit facility	52,100			44,983
Cash dividends paid	(10,404		)	—
Excess tax benefit on equity awards	7,890			3,803
Tax payments for equity award issuances	(7,498		)	(1,841		)
Proceeds from exercise of stock options	3,361			3,696
Acquisition of Company common stock	(63,304		)	(58,806		)
Contributions from noncontrolling interest holders	100			450
Distributions to noncontrolling interest holders	(600		)	(1,750		)
Other	293			(468		)
Net cash used in financing activities	(18,062		)	(9,933		)
Effect of exchange rate changes on cash and cash equivalents	(25		)	(90		)
Change in cash and cash equivalents	6,301			11,840
Cash and cash equivalents at beginning of period	13,670			16,396
Cash and cash equivalents at end of period	$	19,971		$	28,236

See accompanying notes.

Table of Contents

Papa John’s International, Inc. and Subsidiaries

Notes to ~~the redeemable noncontrolling interests for our joint venture arrangements.~~

~~At June 24, 2012, the accumulated other comprehensive income of $1,609 was comprised of unrealized foreign currency translation gains of $1,718, offset by a net~~

~~unrealized loss on the interest rate swap agreement of $80 and a $29 pension plan liability.~~

~~At June 30, 2013, the accumulated other comprehensive income of $786 was comprised of unrealized foreign currency translation gains of $806, offset by a net~~

~~unrealized loss on the interest rate swap agreement of $20.~~

~~See accompanying notes.~~

~~Papa John's International, Inc. and Subsidiaries~~

Condensed Consolidated Financial Statements (Unaudited)

June 29, 2014

1.~~Consolidated Statements of Cash Flows~~

~~(Unaudited)~~

Six Months Ended
(In thousands) June 30, 2013 June 24, 2012

Operating activities
Net income, including redeemable noncontrolling interests $ 38,364 $ 33,768
Adjustments to reconcile net income to net cash provided by operating activities:
    Provision for uncollectible accounts and notes receivable 780 719
    Depreciation and amortization 17,067 16,031
    Deferred income taxes 8,256 1,797
    Stock-based compensation expense 3,784 3,218
    Excess tax benefit on equity awards (3,803 ) (1,471 )
    Other 694 2,872
    Changes in operating assets and liabilities, net of acquisitions:
         Accounts receivable 496 (75 )
         Inventories 456 533
         Prepaid expenses 2,000 (338 )
         Other current assets (37 ) 755
         Other assets and liabilities (1,954 ) 756
         Accounts payable (3,896 ) (587 )
         Income and other taxes payable (9,022 ) 75
         Accrued expenses and other current liabilities (5,870 ) 3,297
         Deferred revenue (83 ) 3,812
Net cash provided by operating activities 47,232 65,162

Investing activities
Purchases of property and equipment (25,493 ) (15,046 )
Loans issued (3,103 ) (1,206 )
Repayments of loans issued 2,908 1,730
Acquisitions, net of cash acquired - (5,908 )
Proceeds from divestitures of restaurants - 948
Other 319 (4 )
Net cash used in investing activities (25,369 ) (19,486 )

Financing activities
Net proceeds (repayments) on line of credit facility 44,983 (1,489 )
Excess tax benefit on equity awards 3,803 1,471
Tax payments for restricted stock issuances (1,841 ) (822 )
Proceeds from exercise of stock options 3,696 10,400
Acquisition of Company common stock (58,806 ) (38,728 )
Contributions from redeemable noncontrolling interest holders 450 -
Distributions to redeemable noncontrolling interest holders (1,750 ) (1,930 )
Other (468 ) 125
Net cash used in financing activities (9,933 ) (30,973 )
Effect of exchange rate changes on cash and cash equivalents (90 ) (20 )
Change in cash and cash equivalents 11,840 14,683
Cash and cash equivalents at beginning of period 16,396 18,942
Cash and cash equivalents at end of period $ 28,236 $ 33,625

See accompanying notes.

~~Papa John's International, Inc. and Subsidiaries~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

~~June 30, 2013~~

1.	Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation have been included. Operating results for the six months ended June 30, 2013 are not necessarily indicative of the results that may be expected for the fiscal year ended December 29, 2013. For further information, refer to the consolidated financial statements and footnotes thereto included in the Annual Report on Form 10-K for Papa John’s International, Inc. (referred to as the “Company,” “Papa John’s” or in the first person notations of “we,” “us” and “our”) for the year ended December 30, 2012.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation have been included. Operating results for the six months ended June 29, 2014 are not necessarily indicative of the results that may be expected for the fiscal year ended December 28, 2014. For further information, refer to the consolidated financial statements and footnotes thereto included in the Annual Report on Form 10-K for Papa John’s International, Inc. (referred to as the “Company,” “Papa John’s” or in the first person notations of “we,” “us” and “our”) for the year ended December 29, 2013.

Significant Accounting Policies

Reclassifications

Certain prior year amounts in the condensed consolidated statements of income have been reclassified to conform to the current year presentation, which had no effect on current or previously reported net income.

Noncontrolling Interests

Papa John’s has joint ventures in which there are noncontrolling interests, including the following as of June 29, 2014 and June 30, 2013:

	Number of Restaurants	Restaurant Locations	Papa John’s Ownership		Noncontrolling Interest Ownership
June 29, 2014
Star Papa, LP	81	Texas	51	%	49	%
Colonel’s Limited, LLC	52	Maryland and Virginia	70	%	30	%
PJ Minnesota, LLC	34	Minnesota	80	%	20	%
PJ Denver, LLC	25	Colorado	60	%	40	%

June 30, 2013
Star Papa, LP	78	Texas	51	%	49	%
Colonel’s Limited, LLC	52	Maryland and Virginia	70	%	30	%
PJ Minnesota, LLC	31	Minnesota	80	%	20	%
PJ Denver, LLC	24	Colorado	60	%	40	%

We are required to report consolidated net income at amounts attributable to the Company and the noncontrolling interests. Additionally, disclosures are required to clearly identify and distinguish between the interests of the Company and the interests of the noncontrolling owners, including a disclosure on the face of the condensed consolidated statements of income attributable to the noncontrolling interest holder.

Table of Contents

The income before income taxes attributable to the joint ventures for the three and six months ended June 29, 2014 and June 30, 2013 was as follows (in thousands):

	Three Months Ended				Six Months Ended
	June 29,		June 30,		June 29,		June 30,
	2014		2013		2014		2013

Papa John’s International, Inc.	$	1,744	$	1,284	$	3,592	$	2,792
Noncontrolling interests	1,091		895		2,321		1,908
Total income before income taxes	$	2,835	$	2,179	$	5,913	$	4,700

The following summarizes the redemption feature, location within the condensed consolidated balance sheets and the value at which the noncontrolling interests are recorded for each joint venture as of June 29, 2014:

Joint Venture

Redemption Feature

Location within the
Condensed Consolidated
Balance Sheets

Recorded Value

~~Accumulated Other Comprehensive Income~~

~~Effective December 31, 2012, we adopted Accounting Standards Update 2013-02, “Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income,” on a prospective basis.~~ The updated standard requires the reporting of reclassifications out of accumulated other comprehensive income (“AOCI”). We are required to disclose the effect of significant items reclassified out of AOCI into our consolidated statements of income either parenthetically in the consolidated statements of income for each caption impacted or in a note to the condensed consolidated financial statements. ~~For the three and six months ended June 30, 2013 and June 24, 2012, we did not have any significant amounts reclassified out of AOCI.~~

~~Noncontrolling Interests~~

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

~~Papa John’s has joint ventures in which there are redeemable noncontrolling interests, including the following as of June 30, 2013 and June 24, 2012:~~

Number of
Restaurants
Restaurant Locations
Papa John's
Ownership

Reedeemable
Noncontrolling
Interest
Ownership

June 30, 2013
Star Papa, LP 78 Texas 51 % 49 %
Colonel's Limited, LLC 52 Maryland and Virginia 70 % 30 %
PJ Minnesota, LLC 31 Minnesota 80 % 20 %
PJ Denver, LLC 24 Colorado 60 % 40 %

June 24, 2012
Star Papa, LP 76 Texas 51 % 49 %
Colonel's Limited, LLC 52 Maryland and Virginia 70 % 30 %

~~The income before income taxes attributable to the joint ventures for the three and six months ended June 30, 2013 and June 24, 2012 was as follows (in thousands):~~

Three Months Six Months
June 30, June 24, June 30, June 24,
2013 2012 2013 2012

Papa John's International, Inc. $ 1,284 $ 1,854 $ 2,792 $ 3,897
Noncontrolling interests 895 1,172 1,908 2,498
Total income before income taxes $ 2,179 $ 3,026 $ 4,700 $ 6,395

As part of the other joint venture agreements, the noncontrolling interest holders have the option to require the Company to purchase their interests. Since redemption of the noncontrolling interests is outside of the Company’s control, the noncontrolling interests are presented in the caption “Redeemable noncontrolling interests” in the condensed consolidated balance sheets and include the following joint ventures:

●

Colonel’s Limited, LLC	Mandatorily redeemable	Other long-term liabilities	Redemption value
Star Papa, LP	Redeemable	Temporary equity	Carrying value
PJ Denver, LLC	Redeemable	Temporary equity	Redemption value
PJ Minnesota, LLC	No redemption feature	Permanent equity	Carrying value

The Colonel’s Limited, LLC agreement contains a mandatory redemption clause and, accordingly, the Company has recorded this noncontrolling interest as a liability at its redemption value in other long-term liabilities. The redemption value is adjusted at each reporting date and any change is recorded in interest expense. We recorded interest income of $48,000 and interest expense of $36,000 in the second quarter of 2014 and 2013, respectively, and interest income of $21,000 and $773,000 in the first six months of 2014 and 2013 respectively. The redemption value was $11.1 million as of June 29, 2014 and $10.8 million as of December 29, 2013.

The noncontrolling interest holders of two other joint ventures have the option to require the Company to purchase their interests. Since redemption of the noncontrolling interests is outside of the Company’s control, the noncontrolling interests are presented in the caption “Redeemable noncontrolling interests” in the condensed consolidated balance sheets and include the following joint ventures:

·The Star Papa, LP agreement contains a redemption feature that is not currently redeemable, but it is probable to become redeemable in the future. Due to specific valuation provisions contained in the agreement, this noncontrolling interest has been recorded at its carrying value.

●

·The ~~PJ Minnesota, LLC and~~ PJ Denver, LLC ~~agreements contain~~agreement contains a redemption ~~features~~feature that ~~are~~is currently redeemable and, therefore, ~~these~~this noncontrolling ~~interests have~~interest has been recorded at ~~their~~its current redemption ~~values,~~value. The change in redemption value is recorded as an adjustment to “Redeemable noncontrolling interests” and “Retained earnings” in the condensed consolidated balance sheets.

The following summarizes changes in these redeemable noncontrolling interests (in thousands):

Balance at December 29, 2013	$	7,024
Net income	1,370
Change in redemption value	39
Balance at June 29, 2014	$	8,433

We have a fourth joint venture, PJ Minnesota, LLC, that had a redemption feature until a contract amendment removed the redemption feature in the fourth quarter of 2013. The noncontrolling interest was reclassified from

Table of Contents

temporary equity to “Stockholders’ equity” in the condensed consolidated balance sheet at December 29, 2013, at carrying value.

Deferred Income Tax Accounts and Tax Reserves

We are subject to income taxes in the United States and several foreign jurisdictions. Significant judgment is required in determining our provision for income taxes and the related assets and liabilities. The provision for income taxes includes income taxes paid, currently payable or receivable and those deferred. We use an estimated annual effective rate based on expected annual income to determine our quarterly provision for income taxes. Discrete items are recorded in the quarter in which ~~approximate their~~they occur.

Deferred tax assets and liabilities are determined based on differences between financial reporting and tax basis of assets and liabilities and are measured using enacted tax rates and laws that are expected to be in effect when the differences reverse. Deferred tax assets are also recognized for the estimated future effects of tax loss carryforwards. The effect on deferred taxes of changes in tax rates is recognized in the period in which the new tax is enacted. As a result, our effective tax rate may fluctuate. Valuation allowances are established when necessary on a jurisdictional basis to reduce deferred tax assets to the amounts we expect to realize. As of June 29, 2014, we had a net deferred tax liability of approximately $5.3 million.

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

Fair Value Measurements and Disclosures

~~A reconciliation of the beginning and ending recorded values of the redeemable noncontrolling interests for the six months ended June 30, 2013 is as follows (in thousands):~~

Balance at December 30, 2012 $ 6,380
Net income 1,016
Contributions from redeemable noncontrolling interest holders 450
Distributions to redeemable noncontrolling interest holders (1,000 )
Balance at June 30, 2013 $ 6,846

~~Deferred Income Tax Accounts and Tax Reserves~~

Deferred tax assets and liabilities are determined based on differences between financial reporting and tax basis of assets and liabilities, and are measured using enacted tax rates and laws that are expected to be in effect when the differences reverse. Deferred tax assets are also recognized for the estimated future effects of tax loss carryforwards. The effect on deferred taxes of changes in tax rates is recognized in the period in which the new tax is enacted. As a result, our effective tax rate may fluctuate. Valuation allowances are established when necessary on a jurisdictional basis to reduce deferred tax assets to the amounts we expect to realize. As of June 30, 2013, we had a net deferred tax liability of approximately $4.2 million.

~~Fair Value Measurements and Disclosures~~

The Company is required to determine the fair value of financial assets and liabilities based on the price that would be received to sell the asset or paid to transfer the liability to a market participant. Fair value is a market-based measurement, not an entity specific measurement. The fair value of certain assets and liabilities approximates carrying value because of the short-term nature of the accounts, including cash, accounts receivable and accounts payable. The fair value of our notes receivable net of allowances also approximates carrying value. The fair value of the amount outstanding under our revolving credit facility approximates its carrying value due to its variable market-based interest rate. Certain assets and liabilities are measured at fair value on a recurring basis and are required to be classified and disclosed in one of the following categories:

value because of the short-term nature of the accounts, including cash, accounts receivable and accounts payable. The fair value of our notes receivable net of allowances also approximates carrying value. The fair value of the amount outstanding under our revolving credit facility approximates its carrying value due to its variable market-based interest rate. These assets and liabilities are categorized as Level 1 as defined below.

Certain assets and liabilities are measured at fair value on a recurring basis and are required to be classified and disclosed in one of the following categories:

●·

Level 1: Quoted market prices in active markets for identical assets or liabilities.

●·

Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data.

●·

Level 3: Unobservable inputs that are not corroborated by market data.

~~Our financial assets and liabilities that were measured at fair value on a recurring basis as of June 30, 2013 and December 30, 2012 are as follows (in thousands):~~

Balance Sheet Carrying Fair Value Measurements
Location Value Level 1 Level 2 Level 3

June 30, 2013
Financial assets:
   Cash surrender value of
      life insurance policies * Other assets $ 15,155 $ 15,155 $ - $ -

Financial liabilities:
   Interest rate swap Other long-term liabilities 31 - 31 -

December 30, 2012
Financial assets:
   Cash surrender value of
      life insurance policies * Other assets $ 13,551 $ 13,551 $ - $ -

Financial liabilities:
   Interest rate swap Other long-term liabilities 104 - 104 -

* Represents life insurance policies held in our non-qualified deferred compensation plan.

~~There were no transfers among levels within the fair value hierarchy during the six months ended June 30, 2013.~~

The fair value of our interest rate swap is based on the sum of all future net present value cash flows. The future cash flows are derived based on the terms of our interest rate swap, as well as considering published discount factors, and projected London Interbank Offered Rates (“LIBOR”).

~~Subsequent Events~~

~~Dividend~~

On August 2, 2013, our Board of Directors approved the initiation of quarterly cash dividends to its shareholders. A quarterly dividend of $0.25 per common share will be paid on September 20, 2013 to shareholders of record as of the close of business on September 6, 2013. Future dividends will be subject to Board declaration.

~~Interest Rate Swap~~

~~On July 30, 2013, we terminated our existing $50 million interest rate swap and entered into a new $75 million interest rate swap through April 30, 2018. See Note 3 for additional information.~~

~~There were no other subsequent events that required recognition or disclosure.~~

Table of Contents

Our financial assets and liabilities that were measured at fair value on a recurring basis as of June 29, 2014 and December 29, 2013 are as follows (in thousands):

	Carrying		Fair Value Measurements
	Value		Level 1		Level 2		Level 3

June 29, 2014
Financial assets:
Cash surrender value of life insurance policies (a)	$	17,613	$	17,613	$	—	$	—
Interest rate swap (b)	41		—		41		—

Financial liabilities:
Interest rate swap (b)	584		—		584		—

December 29, 2013
Financial assets:
Cash surrender value of life insurance policies (a)	$	16,798	$	16,798	$	—	$	—

Financial liabilities:
Interest rate swap (b)	76		—		76		—

(a)Represents life insurance policies held in our non-qualified deferred compensation plan.

(b)The fair values of our interest rate swaps are based on the sum of all future net present value cash flows. The future cash flows are derived based on the terms of our interest rate swaps, as well as considering published discount factors, and projected London Interbank Offered Rates (“LIBOR”).

There were no transfers among levels within the fair value hierarchy during the six months ended June 29, 2014.

Variable Interest Entities

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 for the purpose of designing and administering advertising and promotional programs for all participating domestic restaurants. PJMF is a variable interest entity as it does not have sufficient equity to fund its operations without ongoing financial support and contributions from its members. Based on the ownership and governance structure and operating procedures of PJMF, we have determined that we do not have the power to direct the most significant activities of PJMF and therefore are not the primary beneficiary. Accordingly, we determined that consolidation is not appropriate.

Recent Accounting Pronouncement

In May 2014, the Financial Accounting Standards Board issued “Revenue from Contracts with Customers” (Accounting Standards update 2014-09), a comprehensive new revenue recognition standard that will supersede nearly all existing revenue recognition guidance under GAAP. This update requires companies to recognize revenue at amounts that reflect the consideration to which the company expects to be entitled in exchange for those goods or services at the time of transfer. In doing so, companies will need to use more judgment and make more estimates than under today’s guidance. Such estimates may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. Companies can either apply a full retrospective adoption or a modified retrospective adoption.

We are required to adopt the new requirements in the first quarter of 2017. We are currently evaluating the impact of the new requirements on our consolidated financial statements. We currently do not believe the impact will be significant.

Table of Contents

~~Debt~~

~~Our debt is comprised entirely of a revolving credit facility. The outstanding balance under this facility was $133.2 million as of June 30, 2013 and $88.3 million as of December 30, 2012.~~

In September 2010, we entered into a five-year, $175 million unsecured revolving credit facility, which was amended in November 2011 to extend the maturity date to November 30, 2016. On April 30, 2013, we amended and restated our revolving credit facility to increase the amount available for borrowing thereunder to $300 million and extend the maturity date to April 30, 2018. Outstanding balances are charged a percentage margin of 75 basis points to 175 basis points over LIBOR or other bank rates at our option. The remaining availability under the revolving credit facility, reduced for outstanding letters of credit, was approximately $147.2 million as of June 30, 2013.

The revolving credit facility has affirmative and negative covenants, including financial covenants requiring the maintenance of specified fixed charges and leverage ratios. At June 30, 2013, we were in compliance with these covenants.

In August 2011, we entered into an interest rate swap agreement that provided for a fixed rate of 0.53%, as compared to LIBOR, with a notional amount of $50.0 million and a maturity date of August 2013. On December 31, 2012, we amended our interest rate swap agreement to extend the maturity date to December 30, 2015. The amendment resulted in a change to the fixed rate of interest (to 0.56% from 0.53%) but did not impact the notional amount of the interest rate swap agreement. The amendment and restatement of our revolving credit facility on April 30, 2013 did not impact our interest rate swap.

Our swap is a derivative instrument that is designated as a cash flow hedge because the swap provides a hedge against the effects of rising interest rates on borrowings. The effective portion of the gain or loss on the swap is reported as a component of AOCI and reclassified into earnings in the same period or periods during which the swap affects earnings. Gains or losses on the swap representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings. Amounts payable or receivable under the swap are accounted for as adjustments to interest expense. As of June 30, 2013, the swap is a highly effective cash flow hedge with no ineffectiveness for the three- and six-month periods ended June 30, 2013.

The weighted average interest rates for our revolving credit facility, including the impact of the swap agreement, were 1.1% for the three and six months ended June 30, 2013 and 1.3% for the three and six months ended June 24, 2012. Interest paid, including payments made or received under the swap, was $424,000 and $232,000 for the three months ended June 30, 2013 and June 24, 2012, respectively, and $802,000 and $482,000 for the six months ended June 30, 2013 and June 24, 2012, respectively.

On July 30, 2013, we terminated our existing $50 million swap and entered into a new $75 million swap. The new swap has an interest rate of 1.42% and a maturity date of April 30, 2018, which coincides with the maturity date of our revolving credit facility. The termination of the existing swap will not have a material impact on our third quarter and full year results.

Stockholders’ Equity

In the fourth quarter of 2013, we completed a two-for-one stock split of our outstanding shares in the form of a stock dividend. The stock dividend was distributed on December 27, 2013 with approximately 21.0 million shares of stock distributed. In conjunction with the stock split, we also retired shares held in treasury. The per-share and share amounts for 2013 in the accompanying condensed consolidated financial statements and notes to the financial statements have been adjusted to reflect the stock split.

Calculation of Earnings Per Share

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

Three Months Ended Six Months Ended
June 30, June 24, June 30, June 24,
2013 2012 2013 2012

Basic earnings per common share:
Net income, net of redeemable noncontrolling interests $ 17,150 $ 14,289 $ 36,456 $ 31,270
Weighted average shares outstanding 21,742 23,733 21,998 23,893
Basic earnings per common share $ 0.79 $ 0.60 $ 1.66 $ 1.31

Earnings per common share - assuming dilution:
Net income, net of redeemable noncontrolling interests $ 17,150 $ 14,289 $ 36,456 $ 31,270

Weighted average shares outstanding 21,742 23,733 21,998 23,893
Dilutive effect of outstanding equity awards 508 379 545 377
Diluted weighted average shares outstanding 22,250 24,112 22,543 24,270
Earnings per common share - assuming dilution $ 0.77 $ 0.59 $ 1.62 $ 1.29

Shares subject to options to purchase common stock with an exercise price greater than the average market price for the quarter are not included in the computation of earnings per common share – assuming dilution because the effect would be antidilutive. The weighted average number of shares subject to antidilutive options was 218,000 and 151,000 for the three and six months ended June 30, 2013, respectively (none for the three and six months ended June 24, 2012).

We compute earnings per share using the two-class method. The two-class method requires an earnings allocation formula that determines earnings per share for common shareholders and participating security holders according to dividends declared and participating rights in undistributed earnings. We consider time-based restricted stock awards to be participating securities because holders of such shares have non-forfeitable dividend rights. Under the two-class method, undistributed earnings allocated to participating securities are subtracted from net income attributable to the Company in determining net income attributable to common shareholders.

Additionally, in accordance with Accounting Standards Codification (“ASC”) 480, Distinguishing Liabilities from Equity, the increase in the redemption value for the noncontrolling interest of PJ Denver, LLC reduces income attributable to common shareholders.

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

	Three Months Ended					Six Months Ended
	June 29,			June 30,		June 29,			June 30,
	2014			2013		2014			2013

Basic earnings per common share:
Net income attributable to the Company	$	16,748		$	17,150	$	36,059		$	36,456
Increase in noncontrolling interest redemption value	(31		)	—		(39		)	—
Net income attributable to participating securities	(81		)	—		(218		)	—
Net income attributable to common shareholders	$	16,636		$	17,150	$	35,802		$	36,456

Weighted average common shares outstanding	41,225			43,484		41,501			43,996
Basic earnings per common share	$	0.40		$	0.39	$	0.86		$	0.83

Diluted earnings per common share:
Net income attributable to common shareholders	$	16,636		$	17,150	$	35,802		$	36,456

Weighted average common shares outstanding	41,225			43,484		41,501			43,996
Dilutive effect of outstanding equity awards (a)	745			1,016		831			1,090
Diluted weighted average common shares outstanding	41,970			44,500		42,332			45,086
Diluted earnings per common share	$	0.40		$	0.39	$	0.85		$	0.81

(a)Excludes 284 and 176 awards for the three and six months ended June 29, 2014 and 218 and 151 awards for the three and six months ended June 30, 2013, as the effect of including such awards would have been antidilutive.

Table of Contents

Debt

Our debt is comprised entirely of a revolving line of credit. The outstanding balance was $210.0 million as of June 29, 2014 and $157.9 million as of December 29, 2013.

In September 2010, we entered into a five-year, $175 million unsecured revolving credit facility, which was amended in November 2011 to extend the maturity date to November 30, 2016. On April 30, 2013, we amended and restated our revolving credit facility to increase the amount available for borrowing thereunder to $300 million and extend the maturity date to April 30, 2018. The interest rate charged on outstanding balances is LIBOR plus 75 to 175 basis points. The commitment fee on the unused balance ranges from 15 to 25 basis points. The remaining availability under the revolving credit facility, reduced for outstanding letters of credit, was approximately $67.5 million as of June 29, 2014.

The revolving credit facility contains customary affirmative and negative covenants, including financial covenants requiring the maintenance of specified fixed charges and leverage ratios. At June 29, 2014, we were in compliance with these covenants.

In August 2011, we entered into an interest rate swap agreement that resulted in a fixed rate of 0.53%, instead of the variable rate of LIBOR, with a notional amount of $50 million and a maturity date of August 2013. On December 31, 2012, we amended our interest rate swap agreement to extend the maturity date to December 30, 2015. The amendment resulted in a change to the fixed rate (to 0.56% from 0.53%) but did not impact the notional amount of the interest rate swap agreement. On July 30, 2013, we terminated the $50 million swap and entered into a new $75 million swap. The new swap has an interest rate of 1.42% and a maturity date of April 30, 2018, which coincides with the maturity date of our revolving credit facility. The termination of the previous swap did not have a material impact on our 2013 results. In May 2014, we entered into a $50 million forward interest rate swap with an interest rate of 1.36%, an effective date of December 30, 2014 and a maturity date of April 30, 2018.

Our swaps are derivative instruments that are designated as cash flow hedges because the swaps provide a hedge against the effects of rising interest rates on borrowings. The effective portion of the gain or loss on the swaps is reported as a component of accumulated other comprehensive income and reclassified into earnings in the same period or periods during which the swaps affect earnings. Gains or losses on the swaps representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings. Amounts payable or receivable under the swaps are accounted for as adjustments to interest expense. As of June 29, 2014, the swaps are highly effective cash flow hedges with no ineffectiveness for the three- and six-month periods ended June 29, 2014.

The weighted average interest rates for our revolving credit facility, including the impact of the previously mentioned swap agreement, were 1.7% and 1.6% for the three and six months ended June 29, 2014, respectively. Interest paid, including payments made or received under the swap, was $853,000 and $424,000 for the three months ended June 29, 2014 and June 30, 2013, respectively, and $1.6 million and $802,000 for the six months ended June 29, 2014 and June 30, 2013, respectively. As of June 29, 2014, the portion of the $543,000 net interest rate swap liability that would be reclassified into earnings during the next twelve months as interest expense approximates $142,000.

6.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 these provisions to reflect the impact of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular case.

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 financial statements. We review these provisions at least quarterly and adjust these provisions to reflect the impact of

Table of Contents

negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular case.

Perrin v. Papa John’s International, Inc. and Papa John’s USA, Inc. is a conditionally certified collective action filed in August 2009 in the United States District Court, Eastern District of Missouri, alleging that delivery drivers were not reimbursed for mileage and expenses in accordance with the Fair Labor Standards Act. Approximately 3,900 drivers out of a potential class size of 28,800 have opted into the action. Additionally, in late December 2013, the District Court granted a motion for class certification in five additional states, which will add approximately 15,000 plaintiffs to the case.

We intend to vigorously defend against all claims in this lawsuit. However, given the inherent uncertainties of litigation, the outcome of this case cannot be predicted and the amount of any potential loss cannot be reasonably estimated. A negative outcome in this case could have a material adverse effect on the Company.

7.~~Agne v. Papa John’s International, Inc. et al~~. is a class action filed on May 28, 2010 in the United States District Court for the Western District of Washington seeking damages for violations of the Telephone Consumer Protection Act and Washington State telemarketing laws alleging, among other things that several Papa John’s franchisees retained a vendor to send unsolicited commercial text message offers primarily in Washington and Oregon. The court granted plaintiff’s motion for class certification in November 2012; we filed a petition for permission to appeal the court’s ruling on class certification to the United States Court of Appeals for the Ninth Circuit.

On February 13, 2013, the parties tentatively agreed to the financial terms of a settlement of the litigation. The court preliminarily approved the terms in June 2013 but final court approval is not expected until later in the year. A reasonable estimate of the total cost of the settlement was provided for at December 30, 2012. Actual costs will be impacted by the claimant participation rate, but we do not expect actual costs to be materially different from our estimates. We expect the majority of the settlement payments to be made in 2013.

~~Perrin v. Papa John’s International, Inc. and Papa John’s USA, Inc.~~ is a conditionally certified collective action filed in August 2009 in the United States District Court, Eastern District of Missouri, alleging that delivery drivers were reimbursed for mileage and expenses in violation of the Fair Labor Standards Act. Approximately 3,900 drivers out of a potential class size of 28,800 have opted into the action. A motion to certify five additional state classes is pending and could result in another 14,000 plaintiffs if granted.

6.	Segment Information

~~We have defined five reportable segments: domestic Company-owned restaurants, domestic commissaries, North America franchising, international operations, and “all other” units.~~

The domestic Company-owned restaurant segment consists of the operations of all domestic (“domestic” is defined as contiguous United States) Company-owned restaurants and derives its revenues principally from retail sales of pizza and side items, such as breadsticks, cheesesticks, chicken poppers, chicken wings, dessert pizza, and soft drinks to the general public. The domestic commissary segment consists of the operations of our regional dough production and product distribution centers and derives its revenues principally from the sale and distribution of food and paper products to domestic Company-owned and franchised restaurants. The North America franchising segment consists of our franchise sales and support activities and derives its revenues from sales of franchise and development rights and collection of royalties from our franchisees located in the United States and Canada. The international operations segment principally consists of our Company-owned restaurants and distribution sales to franchised Papa John’s restaurants located in the United Kingdom, Mexico and China and our franchise sales and support activities, which derive revenues from sales of franchise and development rights and the collection of royalties from our international franchisees. International franchisees are defined as all franchise operations outside of the United States and Canada. All other business units that do not meet the quantitative thresholds for determining reportable segments, which are not operating segments, we refer to as our “all other” segment, which consists of operations that derive revenues from the sale, principally to Company-owned and franchised restaurants, of printing and promotional items, risk management services, and information systems and related services used in restaurant operations, including our online and other technology-based ordering platforms.

Generally, we evaluate performance and allocate resources based on profit or loss from operations before income taxes and intercompany eliminations. Certain administrative and capital costs are allocated to segments based upon predetermined rates or actual estimated resource usage. We account for intercompany sales and transfers as if the sales or transfers were to third parties and eliminate the activity in consolidation.

Our reportable segments are business units that provide different products or services. Separate management of each segment is required because each business unit is subject to different operational issues and strategies. No single external customer accounted for 10% or more of our consolidated revenues.

We have five reportable segments: domestic Company-owned restaurants, domestic commissaries, North America franchising, international operations, and “all other” units.

The domestic Company-owned restaurant segment consists of the operations of all domestic (“domestic” is defined as contiguous United States) Company-owned restaurants and derives its revenues principally from retail sales of pizza and side items, such as breadsticks, cheesesticks, chicken poppers, chicken wings, cookie and dessert pizza and soft drinks to the general public. The domestic commissary segment consists of the operations of our regional dough production and product distribution centers and derives its revenues principally from the sale and distribution of food and paper products to domestic Company-owned and franchised restaurants. The North America franchising segment consists of our franchise sales and support activities and derives its revenues from sales of franchise and development rights and collection of royalties from our franchisees located in the United States and Canada. The international operations segment principally consists of Company-owned restaurants in China and distribution sales to franchised Papa John’s restaurants located in the United Kingdom, Mexico and China and our franchise sales and support activities, which derive revenues from sales of franchise and development rights and the collection of royalties from our international franchisees. International franchisees are defined as all franchise operations outside of the United States and Canada. All other business units that do not meet the quantitative thresholds for determining reportable segments, which are not operating segments, we refer to as our “all other” segment, which consists of operations that derive revenues from the sale, principally to Company-owned and franchised restaurants, of printing and promotional items, risk management services, and information systems and related services used in restaurant operations, including our point-of-sale system, online and other technology-based ordering platforms.

~~Our segment information is as follows (in thousands):~~

Three Months Ended Six Months Ended
June 30, 2013 June 24, 2012 June 30, 2013 June 24, 2012

Revenues from external customers:
Domestic Company-owned restaurants $ 155,153 $ 143,527 $ 313,051 $ 287,342
Domestic commissaries 140,003 126,593 283,897 264,203
North America franchising 20,449 19,307 41,728 40,047
International 21,137 17,381 41,063 34,234
All others 12,444 11,771 25,051 24,029
Total revenues from external customers $ 349,186 $ 318,579 $ 704,790 $ 649,855

Intersegment revenues:
Domestic commissaries $ 46,115 $ 39,953 $ 92,912 $ 81,490
North America franchising 552 561 1,105 1,110
International 73 56 140 110
All others 3,318 2,664 6,486 5,685
Total intersegment revenues $ 50,058 $ 43,234 $ 100,643 $ 88,395

Income (loss) before income taxes:
Domestic Company-owned restaurants $ 8,175 $ 9,358 $ 19,131 $ 21,679
Domestic commissaries 9,642 7,978 19,805 19,144
North America franchising 17,396 16,619 35,618 34,759
International 866 320 1,207 592
All others 1,153 471 1,812 866
Unallocated corporate expenses (10,413 ) (10,799 ) (19,931 ) (25,583 )
Elimination of intersegment profits (211 ) (481 ) (737 ) (471 )
Total income before income taxes $ 26,608 $ 23,466 $ 56,905 $ 50,986

Property and equipment:
Domestic Company-owned restaurants $ 188,119
Domestic commissaries 102,498
International 24,546
All others 39,187
Unallocated corporate assets 150,018
Accumulated depreciation and amortization (302,426 )
Net property and equipment $ 201,942

Table of Contents

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

~~Overview~~

Papa John’s International, Inc. (referred to as the “Company,” “Papa John’s” or in the first person notations of “we,” “us” and “our”) began operations in ~~1985.~~1984. At June ~~30, 2013,~~29, 2014, there were ~~4,252~~4,487 Papa John’s restaurants ~~(705~~(731 Company-owned and ~~3,547~~3,756 franchised) operating in all 50 states and ~~34 countries.~~in 37 international countries and territories. Our revenues are principally derived from retail sales of pizza and other food and beverage products to the general public by Company-owned restaurants, franchise royalties, sales of franchise and development rights, sales to franchisees of food and paper products, printing and promotional items, risk management services, and information systems and related services used in their operations.

The results of operations are based on the preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”). The preparation of consolidated financial statements requires management to select accounting policies for critical accounting areas and make estimates and assumptions that affect the amounts reported in the consolidated financial statements. Significant changes in assumptions and/or conditions in our critical accounting policies could materially impact the operating results. See “Notes 1 and 2” of “Notes to Condensed Consolidated Financial Statements” for a discussion of the basis of presentation and the significant accounting policies.

Restaurant Progression

	Three Months Ended				Six Months Ended
	June 29, 2014		June 30, 2013		June 29, 2014		June 30, 2013

North America Company-owned:
Beginning of period	666		649		665		648
Opened	2		5		4		6
Closed	(1	)	—		(2	)	—
Acquired from franchisees	5		—		5		—
End of period	672		654		672		654
International Company-owned:
Beginning of period	58		50		58		48
Opened	1		1		1		3
End of period	59		51		59		51
North America franchised:
Beginning of period	2,615		2,572		2,621		2,556
Opened	28		32		49		63
Closed	(24	)	(16	)	(51	)	(31	)
Sold to Company	(5	)	—		(5	)	—
End of period	2,614		2,588		2,614		2,588
International franchised:
Beginning of period	1,101		926		1,084		911
Opened	46		43		69		69
Closed	(5	)	(10	)	(11	)	(21	)
End of period	1,142		959		1,142		959
Total restaurants - end of period	4,487		4,252		4,487		4,252

~~Non-GAAP Measures~~

~~In connection with a 2012 multi-year supplier agreement, the Company received a $5.0 million supplier marketing payment in the first quarter~~

Table of 2012, which the Company then contributed to the Papa John’s Marketing Fund (“PJMF”), an unconsolidated, non-profit corporation, for the benefit of domestic restaurants. The Company’s contribution to PJMF was fully expensed in the first quarter of 2012. Contents

FOCUS System

The Company is ~~recognizing~~implementing a new, proprietary point-of-sale system (“FOCUS”) in substantially all domestic system-wide restaurants. As of June 29, 2014, we had installed FOCUS in 383 restaurants (369 Company-owned and 14 franchised), with the ~~supplier marketing payment evenly as income over the five-year term~~majority of the ~~agreement ($250,000 per quarter).~~

~~PJMF elected~~installations expected to ~~distribute~~occur by the ~~$5.0 million supplier marketing payment~~end of 2014.

The costs related to ~~the domestic system as advertising credits in the first quarter of 2012. Our domestic Company-owned restaurants’ portion of the 2012 advertising credits resulted in an increase in~~implementing FOCUS are projected to decrease income before income taxes by approximately $5.0 million in 2014, or an $0.08 negative impact on diluted earnings per share, as compared to 2013. FOCUS had the following impact on our condensed consolidated statements of ~~approximately $1.0 million.~~

~~The overall impact of the two transactions described above, which are collectively defined as the “Incentive Contribution,” increased~~ income ~~before income taxes~~ for the three and six months ended June ~~30, 2013, by $250,000~~29, 2014 (in thousands):

	Three Months			Six Months
	June 29,			June 29,
	2014			2014

Other sales (a)	$	123		$	135
Other operating expenses (b)	(462		)	(651		)
Depreciation and amortization (c)	(529		)	(579		)
Net decrease in income before income taxes	$	(868	)	$	(1,095	)

Diluted earnings per common share	$	(0.01	)	$	(0.02	)

(a)Represents revenues for equipment installed at domestic franchised restaurants.

(b)Includes cost of sales associated with equipment installed at franchised restaurants and ~~$500,000, respectively, increased~~other costs to support the rollout of the program.

(c)Includes depreciation expense for both the capitalized software and for equipment installed at Company-owned restaurants.

Total income before income taxes and other measures excluding FOCUS system rollout costs included within this filing are not measures defined by ~~$250,000 for the three months ended June 24, 2012, and reduced income before income taxes by $3.5 million for the six months ended June 24, 2012.~~

The following table reconciles our GAAP financial results to the adjusted financial results, excluding the impact of the Incentive Contribution, for the three and six months ended June 30, 2013 and June 24, 2012:

Three Months Ended Six Months Ended
June 30, June 24, Increase June 30, June 24, Increase
(In thousands, except per share amounts) 2013 2012 (Decrease) 2013 2012 (Decrease)

Income before income taxes, as reported $ 26,608 $ 23,466 $ 3,142 $ 56,905 $ 50,986 $ 5,919
Incentive Contribution (250 ) (250 ) - (500 ) 3,471 (3,971 )
Income before income taxes, excluding Incentive Contribution $ 26,358 $ 23,216 $ 3,142 $ 56,405 $ 54,457 $ 1,948

Net income, as reported $ 17,150 $ 14,289 $ 2,861 $ 36,456 $ 31,270 $ 5,186
Incentive Contribution (164 ) (164 ) - (329 ) 2,275 (2,604 )
Net income, excluding Incentive
Contribution $ 16,986 $ 14,125 $ 2,861 $ 36,127 $ 33,545 $ 2,582

Earnings per diluted share, as reported $ 0.77 $ 0.59 $ 0.18 $ 1.62 $ 1.29 $ 0.33
Incentive Contribution (0.01 ) - (0.01 ) (0.02 ) 0.09 (0.11 )
Earnings per diluted share, excluding Incentive Contribution $ 0.76 $ 0.59 $ 0.17 $ 1.60 $ 1.38 $ 0.22

~~The financial measures we present in this report, which exclude the Incentive Contribution, are~~GAAP. These non-GAAP measures ~~and~~ should not be construed as ~~a substitute~~substitutes for or a better ~~indicator~~indicators of the ~~Company’s~~company’s performance than the ~~Company’s~~company’s GAAP ~~measures.~~results. Management believes presenting ~~the financial information~~income before income taxes and other measures excluding the ~~impact of the Incentive Contribution~~FOCUS system rollout costs is important for purposes of comparison to prior year results and analyzing each segment’s operating results. In addition, management uses these non-GAAP measures to allocate resources and analyze trends and underlying operating ~~performance. Annual cash bonuses,~~performance of the Company.

As part of the rollout, we have partnered with a third party to offer a financing option for this system to our franchisees. The arrangement with the third party requires us to offer a guarantee for the loans. The term of these loans will be five years or less and ~~certain long-term incentive programs for various levels~~will require us to perform under the guarantee when a franchisee has a late payment in excess of ~~management, were~~60 days. The guarantee is limited to the greater of 10% of all loans or 100% of all loans that have higher risk profiles. Higher risk loan profiles are determined based on ~~financial measures that excluded~~pre-established criteria including length of time in business, credit rating, and other factors. As part of this program, we have the ~~Incentive Contribution. The presentation~~ability to decline funding on higher risk loans.

We will record a liability for the estimated fair value of the ~~non-GAAP measures in this report is made alongside~~guarantee. As of June 29, 2014, we have no recorded liability as the ~~most directly comparable GAAP measures. See “Discussion~~FOCUS franchise rollout has just started.

Table of Contents

Results of Operations

Summary of Operating ~~Results” below~~Results - Segment Review

Discussion of Revenues

Consolidated revenues were $380.9 million for ~~further analysis regarding~~the three months ended June 29, 2014, an increase of $31.7 million, or 9.1%, over the corresponding 2013 period. For the six months ended June 29, 2014, total revenues were $782.2 million, an increase of $77.5 million, or 11.0%, over the corresponding 2013 period. The increases in revenues for the three and six months ended June 29, 2014, were primarily due to the following:

·Domestic Company-owned restaurant sales increased $14.8 million, or 9.6%, and $35.1 million, or 11.2% for the three and six months ended June 29, 2014, respectively, primarily due to increases of 7.5% and 9.5% in comparable sales. “Comparable sales” represents the change in year-over-year sales for the same base of restaurants for the same fiscal periods.

·North America franchise royalty revenue increased approximately $750,000, or 3.7%, and $2.6 million or 6.4%, for the three and six months ended June 29, 2014, respectively, primarily due to increases of 5.4% and 7.2% in comparable sales, partially offset by increases in royalty incentives to franchisees for meeting certain development and performance targets.

·Domestic commissary sales increased $10.6 million, or 7.6%, and $30.7 million, or 10.8%, for the three and six months ended June 29, 2014, respectively, due to increases in the prices of certain commodities, primarily cheese, and increases in sales volumes for the six-month period.

·International royalties and franchise and development fees increased approximately $900,000, or 17.2%, and $1.6 million, or 15.7%, for the three and six months ended June 29, 2014, respectively, primarily due to increases in the number of restaurants and increases in comparable sales of 8.6% and 7.6%, calculated on a constant dollar basis.

·International restaurant and commissary sales increased $3.5 million, or 22.3%, and $6.5 million, or 21.2%, respectively, primarily due to increases in China Company-owned restaurant sales, due to increases in units, and increases in our United Kingdom commissary revenues, due to increases in units and higher comparable sales.

Discussion of Operating Results

Second quarter 2014 income before income taxes was $26.2 million compared to $26.6 million in the prior year comparable period, or a decrease of $372,000, or 1.4%. Excluding FOCUS rollout costs of $868,000, income before income taxes increased $496,000, or 1.9%. Income before income taxes was $57.6 million for the six months ended June 29, 2014, compared to $56.9 million for the prior year comparable period, or an increase of $741,000, or 1.3%. Excluding FOCUS rollout costs of $1.1 million, income before income taxes increased $1.8 million, or 3.2%. See the FOCUS System section for additional information.

Table of Contents

Income before income taxes is summarized in the following table on a reporting segment basis (in thousands):

	Three Months Ended									Six Months Ended
	June 29,			June 30,			Increase			June 29,			June 30,			Increase
	2014			2013			(Decrease)			2014			2013			(Decrease)

Domestic Company-owned restaurants	$	10,651		$	8,175		$	2,476		$	23,936		$	19,131		$	4,805
Domestic commissaries	6,846			9,642			(2,796		)	17,277			19,805			(2,528		)
North America franchising	17,882			17,396			486			37,366			35,618			1,748
International	1,903			866			1,037			2,635			1,207			1,428
All others	(442		)	1,153			(1,595		)	148			1,812			(1,664		)
Unallocated corporate expenses	(10,702		)	(10,413		)	(289		)	(23,163		)	(19,931		)	(3,232		)
Elimination of intersegment losses (profits)	98			(211		)	309			(553		)	(737		)	184
Total income before income taxes	$	26,236		$	26,608		$	(372	)	$	57,646		$	56,905		$	741
FOCUS system rollout costs (a)	868			—			868			1,095			—			1,095
Total income before income taxes, excluding FOCUS system rollout costs (b)	$	27,104		$	26,608		$	496		$	58,741		$	56,905		$	1,836

(a)See the FOCUS System section for additional information.

(b)Represents a measure that is not defined by accounting principles generally accepted in the United States (“GAAP”) . See the FOCUS System section for additional information.

The decrease of $372,000, or 1.4%, and increase of $741,000, or 1.3%, including FOCUS rollout costs, for the three- and six-month periods, respectively, were primarily due to the following:

·Domestic Company-owned Restaurant Segment. Domestic Company-owned restaurants’ income before income taxes increased approximately $2.5 million and $4.8 million for the three and six months ended June 29, 2014, respectively, compared to the corresponding prior year periods. The increases were primarily due to the 7.5% and 9.5% increases in comparable sales, partially offset by the impact of higher commodity costs. The market price for cheese averaged $2.13 and $2.17 per pound for the ~~Incentive Contribution.~~three- and six-month periods in 2014, compared to $1.78 and $1.72 per pound in the prior year comparable periods.

·Domestic Commissary Segment. Domestic commissaries’ income before income taxes decreased approximately $2.8 million and $2.5 million for the three and six months ended June 29, 2014, respectively, compared to the corresponding prior year periods. The decrease for the three-month period was primarily due to a lower margin of approximately $800,000, higher insurance claims costs of approximately $1.1 million and higher costs associated with various ongoing commissary initiatives. The decrease for the six-month period was due to the previously mentioned higher costs, partially offset by incremental profits from higher sales. We manage commissary results on a full year basis and anticipate the 2014 full year profit margin will approximate 2013.

·North America Franchising Segment. North America Franchising income before income taxes increased $486,000 and $1.7 million for the three and six months ended June 29, 2014, respectively, compared to the corresponding prior year periods. The increases were primarily due to higher royalties from the 5.4% and 7.2% comparable sales, partially offset by the previously mentioned increases in royalty incentives.

·International Segment. Income before income taxes increased approximately $1.0 million and $1.4 million for the three and six months ended June 29, 2014, respectively, compared to the corresponding prior year periods. The increases were primarily due to increases in units and comparable sales increases of 8.6% and 7.6%, which resulted in both higher royalties and increases in United Kingdom profits. These increases were partially offset by unfavorable results at our China Company-owned restaurant operations.

Table of Contents

·All Others Segment. The “All Others” reporting segment, which primarily includes our online and mobile ordering business and our wholly-owned print and promotions subsidiary, Preferred Marketing Solutions, decreased approximately $1.6 million and $1.7 million for the three and six months ended June 29, 2014, respectively, compared to the corresponding prior year periods. The decreases were primarily due to higher infrastructure costs to support our digital ordering business and a lower margin at our print and promotions business from a discounted direct mail campaign provided to domestic franchised restaurants.

·Unallocated Corporate Expenses. Unallocated corporate expenses increased approximately $300,000 and $3.2 million for the three and six months ended June 29, 2014, respectively, compared to the corresponding 2013 periods. The components of unallocated corporate expenses were as follows (in thousands):

	Three Months Ended								Six Months Ended
	June 29,			June 30,		Increase			June 29,			June 30,			Increase
	2014			2013		(Decrease)			2014			2013			(Decrease)

General and administrative (a)	$	8,146		$	8,358	$	(212	)	$	18,475		$	17,045		$	1,430
Net interest expense (income) (b)	781			376		405			1,386			(283		)	1,669
Depreciation	1,839			1,638		201			3,614			3,391			223
Other (income) expense	(502		)	41		(543		)	(895		)	(222		)	(673		)
FOCUS system rollout costs (c)	438			—		438			583			—			583
Total unallocated corporate expenses	$	10,702		$	10,413	$	289		$	23,163		$	19,931		$	3,232

(a)The increase in unallocated general and administrative costs for the six-month period was primarily due to higher salaries and benefits and equity compensation costs.

(b)The increase in net interest expense (income) was primarily due to a higher average outstanding debt balance with a higher effective interest rate. Additionally, the 2013 six-month period included an approximate $773,000 benefit from a decrease in the redemption value of a mandatorily redeemable noncontrolling interest in a joint venture.

(c)Includes depreciation expense for capitalized FOCUS software costs and other costs to support the rollout of the program.

Diluted earnings per share were as follows for the three and six months ended June 29, 2014 and June 30, 2013:

	Three Months Ended						Six Months Ended
	June 29, 2014		June 30, 2013		Increase		June 29, 2014		June 30, 2013		Increase

Diluted earnings per share as reported (a)	$	0.40	$	0.39	$	0.01	$	0.85	$	0.81	$	0.04
FOCUS system rollout costs	0.01		—		0.01		0.02		—		0.02
Diluted earnings per share, excluding Focus system rollout costs (b)	$	0.41	$	0.39	$	0.02	$	0.87	$	0.81	$	0.06

(a)Diluted earnings per share increased $0.02 and $0.05 for the three- and six-month periods, respectively, due to reductions in shares outstanding (a 5.7% reduction for the three-month period and a 6.1% reduction for the six-month period).

(b)Represents a measure that is not defined by GAAP. See the FOCUS System section for additional information.

Table of Contents

Review of Consolidated Operating Results

Revenues. Domestic Company-owned restaurant sales were $170.0 million for the three months ended June 29, 2014, compared to $155.2 million for the same period in 2013, and $348.2 million for the six months ended June 29, 2014, compared to $313.1 million for the same period in 2013. The increases of $14.8 million and $35.1 million were primarily due to the previously mentioned increases of 7.5% and 9.5% in comparable sales and increases of 2.5% and 2.3% in equivalent units during the three and six months ended June 29, 2014, respectively. “Equivalent units” represents the number of restaurants open at the beginning of a given period, adjusted for restaurants opened, closed, acquired or sold during the period on a weighted average basis.

North America franchise royalties were $21.0 million and $43.6 million for the three and six months ended June 29, 2014, respectively, representing increases of approximately $750,000, or 3.7%, and $2.6 million, or 6.4%, from the comparable periods in the prior year. The increases in royalties were primarily due the previously mentioned increases of 5.4% and 7.2% in comparable sales and increases of 1.1% and 1.5% in equivalent units during the three and six months ended June 29, 2014, partially offset by increases in royalty incentives for meeting certain development and performance targets. North America franchise sales increased 6.6% to $496.7 million for the three months ended June 29, 2014, compared to $466.2 million for the same period in 2013, and increased 8.5% to $1.03 billion for the six months ended June 29, 2014, compared to $946.3 million for the same period in 2013. Franchise restaurant sales are not included in Company revenues; however, our domestic royalty revenue is derived from these sales.

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

Table of Contents

The comparable sales base and average weekly sales for 2014 and 2013 for domestic Company-owned and North America franchised restaurants consisted of the following:

	Three Months Ended
	June 29, 2014						June 30, 2013
	Company			Franchised			Company			Franchised

Total domestic units (end of period)	672			2,614			654			2,588
Equivalent units	664			2,518			648			2,493
Comparable sales base units	643			2,295			633			2,266
Comparable sales base percentage	96.9		%	91.1		%	97.7		%	90.9		%
Average weekly sales - comparable units	$	19,923		$	15,654		$	18,604		$	14,885
Average weekly sales - total non-comparable units (a)	$	13,084		$	10,226		$	10,880		$	9,381
Average weekly sales - all units	$	19,710		$	15,173		$	18,430		$	14,383

	Six Months Ended
	June 29, 2014						June 30, 2013
	Company			Franchised			Company			Franchised

Total domestic units (end of period)	672			2,614			654			2,588
Equivalent units	660			2,522			646			2,486
Comparable sales base units	641			2,298			633			2,253
Comparable sales base percentage	97.1		%	91.1		%	98.0		%	90.6		%
Average weekly sales - comparable units	$	20,503		$	16,166		$	18,794		$	15,136
Average weekly sales - total non-comparable units (a)	$	13,133		$	10,426		$	11,495		$	9,870
Average weekly sales - all units	$	20,289		$	15,656		$	18,652		$	14,643

(a)Includes 157 traditional and 191 non-traditional units as of June 29, 2014 and 175 traditional and 169 non-traditional units as of June 30, 2013.

Domestic commissary sales increased 7.6% to $150.6 million for the three months ended June 29, 2014, from $140.0 million in the comparable 2013 period and increased 10.8% to $314.6 million for the six months ended June 29, 2014, from $283.9 million in the comparable 2013 period. The increases were primarily due to increases in the prices of certain commodities, primarily cheese, and increases in restaurant sales volumes for the six-month period.

Other sales increased approximately $1.2 million, or 9.2%, and $1.3 million, or 5.2%, for the three and six months ended June 29, 2014, respectively, primarily due to increases in equipment sales to franchisees.

International royalties and franchise and development fees increased approximately $900,000, or 17.2%, for the three months ended June 29, 2014, and increased $1.6 million, or 15.7%, for the six months ended June 29, 2014, from the prior comparable periods. The increases were due to increases in units and comparable sales of 8.6% and 7.6%, calculated on a constant dollar basis, for the three- and six-month periods, respectively. International franchise sales were $140.1 million for the three months ended June 29, 2014, compared to $110.8 million for the same period in 2013, and $270.9 million for the six months ended June 29, 2014, compared to $218.4 million for the same period in 2013. International franchise sales are not included in Company revenues; however, our international royalty revenue is derived from these sales.

International restaurant and commissary sales increased $3.5 million, or 22.3%, for the three months ended June 29, 2014, and increased $6.5 million, or 21.2%, for the six months ended June 29, 2014, from the prior comparable periods. The increases are due to increases in China Company-owned restaurant sales, due to increases in units, and increases in our United Kingdom commissary revenues, due to both increases in units and higher comparable sales at our franchised United Kingdom restaurants.

Table of Contents

Costs and expenses. The restaurant operating margins for domestic Company-owned units were relatively consistent at 18.9% for the three months ended June 29, 2014, compared to 18.8% for the same period in 2013, and 19.2% for the six months ended June 29, 2014, compared to 19.3% for the same period in 2013. The margins were comprised of the following changes for the three and six months ended June 29, 2014:

·Cost of sales was 0.3% and 1.1% higher for the three and six months ended June 29, 2014, as compared to the same periods in 2013, primarily due to higher commodity costs, primarily cheese and meats, somewhat offset by a higher ticket average.

·Salaries and benefits were 0.2% and 0.4% lower as a percentage of sales for the three and six months ended June 29, 2014, as compared to the same periods in 2013. The decreases were primarily due to the benefit of higher sales.

·Advertising and related costs as a percentage of sales were 0.4% and 0.3% lower for the three and six months ended June 29, 2014, as compared to the same periods in 2013, primarily due to the benefit of higher sales.

·Occupancy costs and other operating costs, on a combined basis, were relatively consistent (20.4% and 20.3% for the three months ended June 29, 2014 and June 30, 2013, respectively, and 19.9% and 20.0% for the six months ended June 29, 2014 and June 30, 2013, respectively).

Domestic commissary margin was 6.0% for the three months ended June 29, 2014, compared to 7.9% for the corresponding period in 2013, and 6.8% for the six months ended June 29, 2014, compared to 7.9% for the corresponding period in 2013 and consisted of the following differences:

·Cost of sales was 1.8% and 1.6% higher as a percentage of sales for the three and six months ended June 29, 2014 primarily due to higher cheese costs, which have a fixed-dollar markup. As cheese prices are higher, food cost as a percentage of sales is higher. In addition, commissary margins were lower for the three-month period.

·Salaries and benefits were 4.5% and 4.3% for the three-month periods of 2014 and 2013, respectively, and 4.4% and 4.3% for the six-month periods of 2014 and 2013, respectively. The higher costs were attributable to ongoing commissary initiatives, including in-house distribution.

·Other commissary operating expenses were 0.1% and 0.6% lower as a percentage of sales. The lower operating expenses as a percentage of sales were due to higher sales from higher commodities, including cheese prices. Total operating expenses increased in dollars primarily due to higher insurance claims costs of $1.1 million.

International restaurant and commissary expenses were 82.4% of international restaurant and commissary sales in the second quarter of 2014 as compared to 82.5% in the second quarter of 2013 and were 82.9% for the six months ended June 29, 2014 as compared to 83.8% for the corresponding 2013 period. The decreases as a percentage of sales were primarily due to lower operating expenses in the United Kingdom primarily due to the benefit of higher sales.

General and administrative (“G&A”) costs of $33.6 million, or 8.8%, of revenues for the three months ended June 29, 2014, were relatively consistent with G&A costs of $33.1 million, or 9.5%, of revenues for the same period in 2013. G&A costs were $70.5 million, or 9.0%, of revenues for the six months ended June 29, 2014, compared to $66.3 million, or 9.4%, of revenues for the same period in 2013. The increase of $4.2 million for the six-month period was primarily due to the following:

·Unallocated corporate general and administrative expenses increased due to higher salaries and benefits and equity compensation costs.

·Domestic Company-owned restaurant supervisor bonuses increased due to higher sales.

·International general and administrative costs increased due to infrastructure and promotional activity costs.

·Domestic commissaries general and administrative costs increased due to higher salaries, benefits and travel costs to support in-house distribution and other on-going commissary initiatives.

Table of Contents

Other general expenses reflected net expense of $2.0 million for the three months ended June 29, 2014, compared to $1.6 million for the comparable period in 2013, and $3.5 million for the six months ended June 29, 2014, compared to $2.8 million for the comparable period in 2013, as detailed below (in thousands):

	Three Months Ended								Six Months Ended
	June 29,			June 30,			Increase		June 29,			June 30,			Increase
	2014			2013			(Decrease)		2014			2013			(Decrease)

Franchise and development incentives (a)	$	1,229		$	1,050		$	179	$	2,532		$	2,111		$	421
Supplier marketing income	(250		)	(250		)	—		(500		)	(500		)	—
Other	985			797			188		1,465			1,171			294
Total other general expenses	$	1,964		$	1,597		$	367	$	3,497		$	2,782		$	715

(a)Represents incentives provided to domestic franchisees for opening new restaurants.

Depreciation and amortization was $9.9 million (2.6% of revenues) for the three months ended June 29, 2014, compared to $8.5 million (2.4% of revenues) for the same 2013 period, and $19.0 million (2.4% of revenues) for the six months ended June 29, 2014, compared to $17.1 million (2.4% of revenues) for the 2013 period. The increases in depreciation expense were due to incremental depreciation related to both our New Jersey dough production capital expenditures and our FOCUS capitalized software costs and equipment costs at Company-owned restaurants.

Net interest (expense) income. Net interest (expense) income consisted of the following for the three and six months ended June 29, 2014 and June 30, 2013 (in thousands):

	Three Months Ended									Six Months Ended
	June 29,			June 30,			(Increase)			June 29,			June 30,			(Increase)
	2014			2013			Decrease			2014			2013			Decrease

Interest expense - line of credit (a)	$	(975	)	$	(457	)	$	(518	)	$	(1,711	)	$	(779	)	$	(932	)
Investment income	164			153			11			335			338			(3		)
Change in redemption value of mandatorily redeemable noncontrolling interest in a joint venture (b)	48			(36		)	84			21			773			(752		)
Net interest (expense) income	$	(763	)	$	(340	)	$	(423	)	$	(1,355	)	$	332		$	(1,687	)

(a)The increase in interest expense for the three and six months ended June 29, 2014 was due to a higher average outstanding debt balance and a higher effective interest rate.

(b)The first quarter of 2013 included a benefit from a decrease in the redemption value of a joint venture.

Income tax expense. Our effective income tax rates were 32.0% and 33.4% for the three and six months ended June 29, 2014, respectively, representing a decrease of 0.2% for the three-month period and an increase of 0.8% for the six-month period. Our effective income tax rate may fluctuate from quarter to quarter for various reasons. The higher tax rate for the first six months of 2014 was primarily due to the prior year including both favorable state tax settlements and the reinstatement of certain 2012 tax credits under the American Taxpayer Relief Act of 2012.

Liquidity and Capital Resources

Our debt is comprised entirely of a $300 million revolving credit facility with a maturity date of April 30, 2018. Outstanding balances under this facility were $210.0 million as of June 29, 2014 and $157.9 million as of December 29, 2013. The increase in the outstanding balance was primarily due to borrowings to fund increased share repurchases.

The interest rate charged on outstanding balances is LIBOR plus 75 to 175 basis points. The commitment fee on the unused balance ranges from 15 to 25 basis points. The increment over LIBOR and the commitment fee are

Table of Contents

determined quarterly based upon the ratio of total indebtedness to earnings before interest, taxes, depreciation and amortization (“EBITDA”), as defined by the revolving credit facility. The remaining availability under the revolving credit facility, reduced for outstanding letters of credit, was approximately $67.5 million as of June 29, 2014.

We use interest rate swaps to hedge against the effects of potential interest rate increases on borrowings under our revolving credit facility. On July 30, 2013, we ~~present~~terminated our $50 million interest rate swap agreement, which had a fixed rate of 0.56% instead of the variable rate of LIBOR. Upon termination of the $50 million swap, we entered into a $75 million swap with an interest rate of 1.42% and a maturity date of April 30, 2018, which coincides with the maturity date of our revolving credit facility. In May 2014, we entered into a $50 million forward interest rate swap with an interest rate of 1.36%, an effective date of December 30, 2014 and a maturity date of April 30, 2018. See the notes to condensed consolidated financial statements for additional information.

Our revolving credit facility contains affirmative and negative covenants, including the following financial covenants, as defined by the revolving credit facility:

		Actual Ratio for the
		Quarter Ended
	Permitted Ratio	June 29, 2014

Leverage Ratio	Not to exceed 3.0 to 1.0	1.5 to 1.0

Interest Coverage Ratio	Not less than 3.5 to 1.0	4.9 to 1.0

Our leverage ratio is defined as outstanding debt divided by EBITDA for the most recent four fiscal quarters. Our interest coverage ratio is defined as the sum of consolidated EBITDA and consolidated rental expense for the most recent four fiscal quarters divided by the sum of consolidated interest expense and consolidated rental expense for the most recent four fiscal quarters. We were in compliance with all covenants as of June 29, 2014.

Cash flow provided by operating activities was $54.6 million for the six months ended June 29, 2014, compared to $47.2 million for the same period in 2013. The increase of approximately $7.3 million is primarily due to favorable changes in working capital.

Our free cash flow, ~~in this report, which is~~ a non-GAAP ~~measure. We define free~~financial measure, for the six months ended June 29, 2014 and June 30, 2013 was as follows (in thousands):

	Six Months Ended
	June 29,			June 30,
	2014			2013

Net cash provided by operating activities	$	54,565		$	47,232
Purchases of property and equipment	(26,239		)	(25,493		)
Free cash flow (a)	$	28,326		$	21,739

(a)Free cash flow, a non-GAAP measure, is defined as net cash provided by operating activities (from the consolidated statements of cash flows) less the purchases of property and equipment. We view free cash flow as an important measure because it is one factor that management uses in determining the amount of cash available for discretionary investment. Free cash flow is not a term defined by GAAP and as a result our measure of free cash flow might not be comparable to similarly titled measures used by other companies. Free cash flow should not be construed as a substitute for or a better indicator of our performance than the Company’s GAAP measures. ~~See “Liquidity and Capital Resources” for a reconciliation of free cash flow to the most directly comparable GAAP measure.~~

~~Restaurant Progression~~

Three Months Ended Six Months Ended
June 30, 2013 June 24, 2012 June 30, 2013 June 24, 2012

North America Company-owned:
Beginning of period 649 597 648 598
Opened 5 - 6 -
Closed - (2 ) - (3 )
Acquired from franchisees - 56 - 56
Sold to franchisees - (8 ) - (8 )
End of period 654 643 654 643
International Company-owned:
Beginning of period 50 29 48 30
Opened 1 4 3 4
Closed - - - (1 )
End of period 51 33 51 33
North America franchised:
Beginning of period 2,572 2,498 2,556 2,463
Opened 32 35 63 82
Closed (16 ) (10 ) (31 ) (22 )
Acquired from Company - 8 - 8
Sold to Company - (56 ) - (56 )
End of period 2,588 2,475 2,588 2,475
International franchised:
Beginning of period 926 809 911 792
Opened 43 28 69 51
Closed (10 ) (15 ) (21 ) (21 )
End of period 959 822 959 822
Total restaurants - end of period 4,252 3,973 4,252 3,973

~~Results~~

Table of ~~Operations~~

~~Summary of Operating Results - Segment Review~~

~~Discussion of Revenues~~

Consolidated revenues were $349.2 million for the three months ended June 30, 2013, an increase of $30.6 million, or 9.6%, over the corresponding 2012 period. For the six months ended June 30, 2013, total revenues were $704.8 million, an increase of $54.9 million, or 8.5%, over the corresponding 2012 period. The increases in revenues for the three and six months ended June 30, 2013, were primarily due to the following:

●

Domestic Company-owned restaurant sales increased $11.6 million, or 8.1%, and $25.7 million, or 8.9%, for the three and six months ended June 30, 2013, respectively, primarily due to increases in comparable sales of 6.0% and 4.9% and the net acquisition of 50 restaurants in the Denver and Minneapolis markets from a franchisee in the second quarter of 2012. “Comparable sales” represents the change in year-over-year sales for the same base of restaurants for the same fiscal periods.

●

North America franchise royalty revenue increased approximately $1.1 million, or 5.9%, and $1.3 million, or 3.4%, for the three and six months ended June 30, 2013, respectively, primarily due to increases in comparable sales of 2.6% and 1.7% and increases in net franchise units over the prior year. These increases were partially offset by reduced royalties attributable to the Company’s net acquisition of the 50 restaurants noted above.

●	Domestic commissary sales increased $13.4 million, or 10.6%, and $19.7 million, or 7.5%, for the three and six months ended June 30, 2013, respectively, primarily due to increases in sales volumes as well as increases in the prices of commodities.
●	International revenues increased $3.8 million, or 21.6%, and increased $6.8 million, or 19.9%, for the three and six months ended June 30, 2013, respectively, primarily due to increases in the number of restaurants and increases in comparable sales of 6.8% and 7.5%, calculated on a constant dollar basis.

~~Discussion of Operating Results~~

Second quarter 2013 income before income taxes was $26.6 million compared to $23.5 million in the prior year, or a 13.4% increase. Income before income taxes was $56.9 million for the six months ended June 30, 2013, compared to $51.0 million for the prior year, or an 11.6% increase. The Incentive Contribution (see ”Non-GAAP Measures” above) increased income before income taxes by $250,000 and $500,000 for the three and six months ended June 30, 2013 and increased income before income taxes by $250,000 for the three-month period in 2012 and reduced income before income taxes by $3.5 million for the six-month period in 2012. Excluding the net impact of the Incentive Contribution, income before income taxes was $26.4 million for the second quarter of 2013, an increase of $3.1 million or 13.5%, from $23.2 million in the same period in the prior year and was $56.4 million for the six-month period in 2013, an increase of $1.9 million or 3.6%, from $54.5 million in the same period in the prior year. Income before income taxes is summarized in the following table on a reporting segment basis (in thousands):

Three Months Ended Six Months Ended
June 30, June 24, Increase June 30, June 24, Increase
2013 2012 (Decrease) 2013 2012 (Decrease)

Domestic Company-owned restaurants (a) $ 8,175 $ 9,358 $ (1,183 ) $ 19,131 $ 21,679 $ (2,548 )
Domestic commissaries 9,642 7,978 1,664 19,805 19,144 661
North America franchising 17,396 16,619 777 35,618 34,759 859
International 866 320 546 1,207 592 615
All others 1,153 471 682 1,812 866 946
Unallocated corporate expenses (b) (10,413 ) (10,799 ) 386 (19,931 ) (25,583 ) 5,652
Elimination of intersegment profit (211 ) (481 ) 270 (737 ) (471 ) (266 )
Total income before income taxes $ 26,608 $ 23,466 $ 3,142 $ 56,905 $ 50,986 $ 5,919

~~(a)~~	~~Includes the benefit of a $1.0 million advertising credit from PJMF related to the Incentive Contribution for the six months ended June 24, 2012.~~

~~(b)~~	Includes the impact of the Incentive Contribution in 2013 ($250,000 increase for the three-month period and a $500,000 increase for the six-month period) and 2012 ($250,000 increase for the three-month period and a $4.5 million reduction for the six-month period).

Income before income taxes increased $3.1 million and $5.9 million for the three and six months ended June 30, 2013, respectively ($3.1 million and $1.9 million, respectively, excluding the net impact of the Incentive Contribution). The changes in income before income taxes were due to the following:

●	~~Domestic Company-owned Restaurant Segment.~~ Domestic Company-owned restaurants’ income before income taxes decreased $1.2 million and $1.5 million for the three and six months ended June 30, 2013, respectively, excluding the $1.0 million advertising credit from PJMF in 2012. These decreases were primarily due to higher commodity costs, somewhat offset by incremental profits associated with higher comparable sales of 6.0% and 4.9%. Additionally, the six-month period of 2012 benefited from significant supplier incentives.

●	~~Domestic Commissary Segment.~~ Domestic commissaries’ income before income taxes increased approximately $1.7 million and $700,000 for the three and six months ended June 30, 2013, respectively. The increase of approximately $1.7 million for the three-month period was primarily due to higher volumes and a higher gross margin. The increase of approximately $700,000 for the six-month period was due to higher volumes, partially offset by the higher than usual margin in the first quarter of 2012. We manage commissary results on a full year basis and anticipate the 2013 full year margin will approximate 2012.

●	~~North America Franchising Segment.~~ North America Franchising income before income taxes increased approximately $800,000 and $900,000 for the three and six months ended June 30, 2013, respectively. The increases were due to the previously mentioned royalty revenue increases, partially offset by an increase in development incentive costs and reduced royalties attributable to the Company’s acquisition of the Denver and Minneapolis restaurants.

●	~~International Segment.~~ Income before income taxes increased approximately $500,000 and $600,000 for the three and six months ended June 30, 2013, respectively. The increases were primarily due to higher royalties attributable to the 6.8% and 7.5% comparable sales increases and net unit growth and improvements in our United Kingdom results. The improvement for the six-month period was partially offset by higher expenses in China associated with new Company-owned restaurants.

●	~~All Others Segment.~~ The “All Others” reporting segment income before income taxes increased approximately $700,000 and $900,000 for the three- and six-month periods, respectively, as compared to the corresponding 2012 periods. These increases were primarily due to an improvement in our online operating results due to higher online sales volumes.

●	~~Unallocated Corporate Segment.~~ Unallocated corporate expenses decreased approximately $386,000 and $5.7 million for the three and six months ended June 30, 2013, respectively, compared to the corresponding 2012 periods. The components of unallocated corporate expenses were as follows (in thousands):

Three Months Ended Six Months Ended
June 30, June 24, Increase June 30, June 24, Increase
2013 2012 (Decrease) 2013 2012 (Decrease)

General and administrative $ 8,358 $ 8,039 $ 319 $ 17,045 $ 16,700 $ 345
Supplier marketing (income)
expense (a) (250 ) (250 ) - (500 ) 4,500 (5,000 )
Net interest expense (income) (b) 376 891 (515 ) (283 ) 631 (914 )
Depreciation 1,638 1,819 (181 ) 3,391 3,553 (162 )
Other expense 291 300 (9 ) 278 199 79
Total unallocated corporate
expenses $ 10,413 $ 10,799 $ (386 ) $ 19,931 $ 25,583 $ (5,652 )

~~(a)~~

~~See “Non-GAAP Measures” above for further information about the Incentive Contribution.~~

~~(b)~~

The decrease in net interest was primarily due to a decrease in the change in the redemption value of a mandatorily redeemable noncontrolling interest in a joint venture, partially offset by a higher average outstanding debt balance.

Diluted earnings per share were $0.77 and $0.59 for the three months ended June 30, 2013 and June 24, 2012, respectively ($0.76 and $0.59 for the three-month periods, excluding the impact of the Incentive Contribution, or an increase of $0.17 or 28.8%). For the six months ended June 30, 2013 and June 24, 2012, diluted earnings per share were $1.62 and $1.29, respectively ($1.60 and $1.38 per share for the six-month periods, excluding the impact of the Incentive Contribution, or an increase of $0.22 or 15.9%). Diluted weighted average shares outstanding decreased 7.7% and 7.1% for the three and six months ended June 30, 2013, respectively, from the prior year comparable periods. Diluted earnings per share increased $0.06 and $0.12 for the three- and six-month periods, respectively, due to the reduction in shares outstanding.

~~Review of Consolidated Operating Results~~

~~Revenues.~~Contents Domestic Company-owned restaurant sales were $155.2 million for the three months ended June 30, 2013, compared to $143.5 million for the same period in 2012, and $313.1 million for the six months ended June 30, 2013, compared to $287.3 million for the same period in 2012. The increases of $11.6 million and $25.7 million were primarily due to the previously mentioned increases of 6.0% and 4.9% in comparable sales during the three and six months ended June 30, 2013, respectively. The net acquisition of 50 restaurants in the Denver and Minneapolis markets from a franchisee in the second quarter of 2012 also increased sales for both the three- and six-month periods.

North America franchise sales, which are not included in the Company’s revenues, were $466.2 million for the three months ended June 30, 2013, compared to $447.9 million for the same period in 2012, and $946.3 million for the six months ended June 30, 2013, compared to $917.8 million for the same period in 2012. Domestic franchise comparable sales increased 2.6% for the second quarter and increased 1.7% for the six months ended June 30, 2013, and equivalent units increased 3.7% and 3.2%, respectively, for the comparable periods. “Equivalent units” represents the number of restaurants open at the beginning of a given period, adjusted for restaurants opened, closed, acquired or sold during the period on a weighted average basis. North America franchise royalties were $20.2 million and $41.0 million for the three and six months ended June 30, 2013, respectively, representing increases of 5.9% and 3.4% from the comparable periods in the prior year. The increases in royalties were primarily due to the previously noted increases in franchise sales.

Three Months Ended
June 30, 2013 June 24, 2012
Company Franchised Company Franchised

Total domestic units (end of period) 654 2,588 643 2,475
Equivalent units 648 2,493 626 2,405
Comparable sales base units 633 2,266 614 2,179
Comparable sales base percentage 97.7 % 90.9 % 98.1 % 90.6 %
Average weekly sales - comparable units $ 18,604 $ 14,885 $ 17,746 $ 14,758
Average weekly sales - total non-comparable units (a) $ 10,880 $ 9,381 $ 12,421 $ 10,159
Average weekly sales - all units $ 18,430 $ 14,383 $ 17,650 $ 14,326

~~(a)~~

~~Includes 175 traditional and 169 nontraditional units as of June 30, 2013 and 188 traditional and 140 nontraditional~~ ~~units as of June 24, 2012.~~

Six Months Ended
June 30, 2013 June 24, 2012
Company Franchised Company Franchised

Total domestic units (end of period) 654 2,588 643 2,475
Equivalent units 646 2,486 609 2,409
Comparable sales base units 633 2,253 598 2,186
Comparable sales base percentage 98.0 % 90.6 % 98.2 % 90.7 %
Average weekly sales - comparable units $ 18,794 $ 15,136 $ 18,267 $ 15,082
Average weekly sales - total non-comparable units $ 11,495 $ 9,870 $ 12,060 $ 10,470
Average weekly sales - all units $ 18,652 $ 14,643 $ 18,161 $ 14,655

Domestic commissary sales increased 10.6% to $140.0 million for the three months ended June 30, 2013, from $126.6 million in the comparable 2012 period and increased 7.5% to $283.9 million for the six months ended June 30, 2013, from $264.2 million in the comparable 2012 period. The increases were primarily due to increases in the volume of sales as well as increases in the prices of commodities.

Other sales increased approximately $700,000, or 5.7%, and $1.0 million, or 4.3%, for the three and six months ended June 30, 2013, respectively, primarily due to increased online revenue from higher online sales.

International franchise sales were $110.8 million for the three months ended June 30, 2013, compared to $92.8 million for the same period in 2012, and $218.4 million for the six months ended June 30, 2013, compared to $182.6 million for the same period in 2012. International franchise sales are not included in Company revenues; however, our international royalty revenue is derived from these sales. Total international revenues increased 21.6% to $21.1 million for the three months ended June 30, 2013, from $17.4 million in the prior comparable period, and increased 19.9% to $41.1 million for the six months ended June 30, 2013, from $34.2 million in the prior comparable period. The increases are due to an increase in the number of restaurants in addition to increases of 6.8% and 7.5% in comparable sales, calculated on a constant dollar basis, for the three- and six-month periods, respectively.

~~Costs and expenses.~~ The restaurant operating margin for domestic Company-owned units was 18.8% for the three months ended June 30, 2013, compared to 19.6% for the same period in 2012, and 19.3% for the six months ended June 30, 2013, compared to 20.7% (20.4% excluding the $1.0 million advertising credit from PJMF) for the same period in 2012. The restaurant operating margin decreases of 0.8% and 1.4% for the three and six months ended June 30, 2013, respectively, consisted of the following differences:

●	Cost of sales was 1.5% and 1.2% higher for the three and six months ended June 30, 2013, as compared to the same periods in 2012, primarily due to higher commodity costs. The six-month period benefited from various supplier incentives in 2012.
●	Salaries and benefits were 0.7% and 0.1% lower as a percentage of sales for the three and six months ended June 30, 2013, as compared to the same periods in 2012. The decreases were primarily due to lower bonuses paid to general managers, partially offset by higher labor costs associated with the newly acquired Denver and Minneapolis markets.
●	Advertising and related costs as a percentage of sales were 0.2% and 0.4% higher for the three and six months ended June 30, 2013. The six-month period of 2012 included a $1.0 million advertising credit received from PJMF. The higher costs, excluding the advertising credit from PJMF, were due to increased local advertising, including additional costs for newly acquired markets.
●	Occupancy costs and other operating costs, on a combined basis, were relatively consistent (20.3% and 20.5% for the three months ended June 30, 2013 and June 24, 2012, respectively, and 20.0% and 20.1% for the six months ended June 30, 2013 and June 24, 2012).

Domestic commissary and other margin was 8.1% for both the three months ended June 30, 2013 and June 24, 2012, and 8.1% for the six months ended June 30, 2013, compared to 8.7% for the corresponding period in 2012. The commissary margin decrease from 2012 for the six-month period was primarily driven by higher than usual margins in the prior year.

~~Changes in operating costs for the three- and six-month periods were as follows:~~

●	~~Cost of sales was 0.7% and 0.3% lower as a percentage of revenues for the three and six months ended June 30, 2013, respectively, due to higher pricing.~~
●	Salaries and benefits were 0.1% and 0.3% higher as a percentage of revenues for the three- and six-month periods, respectively. The increases were primarily due to additional commissary staffing to support higher volumes.
●	Other operating expenses as a percentage of sales were 0.6% higher as a percentage of revenues for both the three and six months ended June 30, 2013, respectively, as compared to the same periods in 2012, primarily due to higher distribution costs.

International operating expenses were 82.5% of international restaurant and commissary sales for the three months ended June 30, 2013, compared to 86.6% for the same period in 2012, and 83.8% of international restaurant and commissary sales for the six months ended June 30, 2013, compared to 85.3% for the same period in 2012. The improvement for the three and six months ended June 30, 2013 was primarily due to improved operating results in the United Kingdom.

General and administrative costs were $33.1 million, or 9.5%, of revenues for the three months ended June 30, 2013, compared to $31.5 million, or 9.9%, of revenues for the same period in 2012, and $66.3 million, or 9.4%, of revenues for the six months ended June 30, 2013, compared to $63.1 million, or 9.7%, of revenues for the same period in 2012. The decreases as a percentage of sales were primarily the result of leverage from higher sales.

Other general expenses reflected net expense of $1.6 million for the three months ended June 30, 2013, compared to $1.1 million for the comparable period in 2012, and $2.8 million, for the six months ended June 30, 2013 compared to $6.8 million for the comparable period in 2012, as detailed below (in thousands):

Three Months Ended Six Months Ended
June 30, June 24, Increase June 30, June 24, Increase
2013 2012 (Decrease) 2013 2012 (Decrease)

Supplier marketing (income) expense (a) $ (250 ) $ (250 ) $ - $ (500 ) $ 4,500 $ (5,000 )
Disposition and valuation-related losses 367 151 216 378 116 262
Franchise and development incentives (b) 1,050 769 281 2,111 1,501 610
Other 430 465 (35 ) 793 692 101
Total other general expenses $ 1,597 $ 1,135 $ 462 $ 2,782 $ 6,809 $ (4,027 )

~~(a) See the discussion of the Incentive Contribution included in “Non-GAAP Measures” above for further information.~~

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

Depreciation and amortization was $8.5 million (2.4% of revenues) for the three months ended June 30, 2013, compared to $8.1 million (2.5% of revenues) for the same 2012 period, and $17.1 million (2.4% of revenues) for the six months ended June 30, 2013, compared to $16.0 million (2.5% of revenues) for the 2012 period.

~~Net interest (expense) income.~~ ~~Net interest (expense) income consisted of the following for the three and six months ended June 30, 2013 and June 24, 2012 (in thousands):~~

Three Months Ended Six Months Ended
June 30, June 24, (Increase) June 30, June 24, (Increase)
2013 2012 Decrease 2013 2012 Decrease

Interest expense - line of credit (a) $ (457 ) $ (282 ) $ (175 ) $ (779 ) $ (570 ) $ (209 )
Investment income 153 195 (42 ) 338 365 (27 )
Change in redemption value of mandatorily redeemable
noncontrolling interest in a joint venture (36 ) (774 ) 738 773 (392 ) 1,165
Net interest (expense) income $ (340 ) $ (861 ) $ 521 $ 332 $ (597 ) $ 929

~~(a)~~

~~The increase in interest expense for both the three and six months ended June 30, 2013, was primarily due to a higher average outstanding debt balance.~~

~~Income tax expense.~~ Our effective income tax rates were 32.2% and 32.6% for the three and six months ended June 30, 2013, representing decreases of 1.9% and 1.2% from the prior year rates. The lower effective rates were primarily due to the settlement or resolution of specific state issues in 2013. Additionally, the rate for the six months ended June 30, 2013 reflected the reinstatement of certain 2012 tax credits under the American Taxpayer Relief Act of 2012.

~~Liquidity and Capital Resources~~

Our debt at June 30, 2013 was comprised of a $133.2 million outstanding principal balance on our $300 million unsecured revolving credit facility with a maturity date of April 30, 2018. Outstanding balances are charged a percentage margin of 75 basis points to 175 basis points over the London Interbank Offered Rate (“LIBOR”) or other bank rates at our option. The commitment fee on the unused balance ranges from 15 to 25 basis points. The increment over LIBOR and the commitment fee are determined quarterly based upon the ratio of total indebtedness to earnings before interest, taxes, depreciation and amortization (“EBITDA”), as defined by the revolving credit facility. The remaining availability under the revolving credit facility, reduced for outstanding letters of credit, was approximately $147.2 million as of June 30, 2013.

We use interest rate swaps to hedge against the effects of potential interest rate increases on borrowings under our revolving credit facility. At June 30, 2013, we had a swap with a fixed rate of 0.56%, as compared to LIBOR, with a notional amount of $50.0 million. On July 30, 2013, we terminated our existing $50 million swap and entered into a new $75 million swap. The new swap has an interest rate of 1.42% and a maturity date of April 30, 2018, which coincides with the maturity date of our revolving credit facility. The termination of the existing swap will not have a material impact on our third quarter and full year results. See the notes to condensed consolidated financial statements for additional information.

~~Our revolving credit facility contains affirmative and negative covenants, including the following financial covenants, as defined:~~

		~~Actual Ratio for the~~
		~~Quarter Ended~~
	~~Permitted Ratio~~	~~June 30, 2013~~

~~Leverage Ratio~~	~~Not to exceed 3.0 to 1.0~~	~~1.1 to 1.0~~

~~Interest Coverage Ratio~~	~~Not less than 3.5 to 1.0~~	~~5.3 to 1.0~~

Our leverage ratio is defined as outstanding debt divided by consolidated EBITDA for the most recent four fiscal quarters. Our interest coverage ratio is defined as the sum of consolidated EBITDA and consolidated rental expense for the most recent four fiscal quarters divided by the sum of consolidated interest expense and consolidated rental expense for the most recent four fiscal quarters. We were in compliance with all covenants at June 30, 2013.

Cash flow provided by operating activities was $47.2 million for the six months ended June 30, 2013, compared to $65.2 million for the same period in 2012. The decrease of approximately $17.9 million was primarily due to unfavorable changes in working capital, including the timing of income tax and other payments, partially offset by an increase in net income.

~~Our free cash flow, a non-GAAP financial measure, for the six months ended June 30, 2013 and June 24, 2012 was as follows (in thousands):~~

Six Months Ended
June 30, June 24,
2013 2012

Net cash provided by operating activities $ 47,232 $ 65,162
Purchases of property and equipment (25,493 ) (15,046 )
Free cash flow (a) $ 21,739 $ 50,116

~~(a)~~

Free cash flow is defined as net cash provided by operating activities (from the consolidated statements of cash flows) less the purchases of property and equipment. We believe free cash flow is an important measure because it is one factor that management uses in determining the amount of cash available for discretionary investment. See previous “Non-GAAP Measures” for discussion about this non-GAAP measure, its limitations and why we present free cash flow alongside the most directly comparable GAAP measure.

We require capital primarily for the development, acquisition, renovation and maintenance of restaurants, the development, renovation and ~~commissaries~~maintenance of commissary facilities and equipment and the enhancement of corporate systems and facilities, including technological ~~enhancements.~~ enhancements such as our FOCUS system. Capital expenditures were $26.2 million for the six months ended June 29, 2014, compared to $25.5 million for the six months ended June 30, 2013.

We also require capital for share repurchases and the payment of cash ~~dividends.~~

~~Capital expenditures were $25.5~~dividends, which are funded by cash flow from operations and borrowings on our revolving credit facility. We repurchased $63.3 million and $58.8 million of common stock for the six months ended June 29, 2014 and June 30, 2013, compared to $15.1 million for the six months ended June 24, 2012. The increased purchases of property and equipment primarily relate to expenditures on equipment for New Jersey dough production as well as technology investments.

Additionally, we had common stock repurchases of $58.8 million (978,000 shares at an average price of $60.08 per share) which were funded by cash flow from operations as well as borrowings on our revolving credit facility.respectively. Subsequent to June ~~30, 2013,~~29, 2014, through ~~August 2, 2013,~~July 29, 2014, we repurchased an additional ~~23,000 shares with an aggregate cost~~$8.5 million of ~~$1.5 million and an average cost of $65.41 per share.~~common stock. As of ~~August 2, 2013, $80.1~~July 29, 2014, approximately $50.1 million remained available for repurchase ~~of common stock~~ under our Board of Directors’ authorization. ~~This includes an additional $25.0~~

We paid a cash dividend of approximately $5.2 million ~~authorized by~~($0.125 per common share) during the ~~Board~~second quarter of ~~Directors~~2014. Subsequent to the second quarter, on ~~August 2, 2013.~~

~~On August 2, 2013,~~July 31, 2014, our Board of Directors approved a 12% increase in the ~~initiation of quarterly cash dividends~~Company’s dividend rate per common share, from $0.50 on an annual basis to ~~its shareholders. A quarterly~~$0.56 on an annual basis, and declared a third quarter dividend of ~~$0.25~~$0.14 per common share (approximately ~~$5.5~~$5.7 million based on current shareholders of record). The dividend will be paid on ~~September 20, 2013~~August 22, 2014 to shareholders of record as of the close of business on September 6, 2013. This is the first cash dividend paid to shareholders in the Company’s history. While future dividends will be subject to Board declaration, the Company is initially targeting a dividend payout of $0.25 per quarter.August 13, 2014. The declaration and payment of any future dividends will be at the discretion of ~~the~~our Board of Directors, subject to the ~~Company's~~Company’s financial results, cash requirements, and other factors deemed relevant by ~~the~~our Board of Directors. ~~The initiation of this new quarterly dividend is not a guarantee that a dividend will be declared or paid in any particular period in the future.~~

Forward-Looking Statements

Certain matters discussed in this report, including information within Management’s Discussion and Analysis of Financial Condition and Results of Operations, constitute forward-looking statements within the meaning of the federal securities laws. Generally, the use of words such as “expect,” “estimate,” “believe,” “anticipate,” “will,” “forecast,” “plan,” “project,” or similar words identify forward-looking statements that we intend to be included within the safe harbor protections provided by the federal securities laws. Such forward-looking statements may relate to projections or guidance concerning business performance, revenue, earnings, contingent liabilities, resolution of litigation, commodity costs, profit margins, unit growth, capital expenditures, and other financial and operational measures. Such statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions, which are difficult to predict and many of which are beyond our control. Therefore, actual outcomes and results may differ materially from those matters expressed or implied in such forward-looking statements. The risks, uncertainties and assumptions that are involved in our forward-looking statements include, but are not limited to:

●	~~aggressive changes in pricing or other marketing or promotional strategies by competitors which may adversely affect sales; and new product and concept developments by food industry competitors;~~

·aggressive changes in pricing or other marketing or promotional strategies by competitors, which may adversely affect sales; and new product and concept developments by food industry competitors;

·changes in consumer preferences or consumer buying habits, including the impact of adverse general economic conditions, such as increasing tax rates;

·the impact that product recalls, food quality or safety issues, incidences of foodborne illness and other general public health concerns could have system-wide on our restaurants or our results;

·failure to maintain our brand strength and quality reputation;

·the ability of the Company and its franchisees to meet planned growth targets and operate new and existing restaurants profitably;

·increases in or sustained high costs of food ingredients or other restaurant costs. This could include increased employee compensation, benefits, insurance, tax rates, regulatory compliance and similar costs, including increased costs resulting from federal health care legislation;

·disruption of our supply chain or commissary operations which could be caused by sole or limited source of suppliers or weather, drought, disease or other disruptions beyond our control;

·increased risks associated with our international operations, including economic and political conditions and instability in our international markets and difficulty in meeting planned sales targets and new store growth. This could include our expansion into emerging or underpenetrated markets, such as China,

●	~~changes in consumer preferences and adverse general economic and political conditions, including increasing tax rates, and their resulting impact on consumer buying habits;~~
●	~~the impact that product recalls, food quality or safety issues, and general public health concerns could have on our restaurants;~~
●	~~failure to maintain our brand strength and quality reputation;~~
●	the ability of the company and its franchisees to meet planned growth targets and operate new and existing restaurants profitably, which could be impacted by challenges securing financing, finding suitable store locations or securing required domestic or foreign government permits and approvals;
●	~~increases in or sustained high costs of food ingredients and other commodities;~~
●	~~disruption of our supply chain or our commissary operations due to sole or limited source of suppliers or weather, drought, disease or other disruption beyond our control;~~
●	increased risks associated with our international operations, including economic and political conditions in our international markets and difficulty in meeting planned sales targets and new store growth for our international operations;
●	~~increased employee compensation, benefits, insurance, regulatory compliance and similar costs, including increased costs resulting from federal health care legislation;~~
●	~~the credit performance of our franchise loan program;~~
●	~~the impact of the resolution of current or future claims and litigation, and current or proposed legislation impacting our business;~~
●	~~currency exchange or interest rates;~~
●	~~failure to effectively execute succession planning, and our reliance on the services of our Founder and CEO, who also serves as our brand spokesperson; and~~
●	~~disruption of critical business or information technology systems, and risks associated with security breaches, including theft of company and customer information.~~

Table of Contents

where we have a Company-owned presence. Based on prior experience in underpenetrated markets, operating losses are likely to occur as the market is being established;

·the credit performance of our franchise loan or guarantee programs;

·the impact of the resolution of current or future claims and litigation;

·current or proposed legislation impacting our business;

·the impact of changes in currency exchange and interest rates;

·failure to effectively execute succession planning, and our reliance on the multiple roles of our Founder, Chairman, President and Chief Executive Officer, who also serves as our brand spokesperson;

·disruption of critical business or information technology systems, and risks associated with systems failures and data privacy and security breaches, including theft of Company, employee and customer information. This would include the increased risk associated with the rollout of FOCUS. If prolonged and widespread technological problems are experienced during the rollout, our domestic operations could be disrupted, which could adversely impact sales.

For a discussion of these and other risks that may cause actual results to differ from expectations, refer to ~~“Part~~“Part I. Item 1A. –— Risk Factors” in our Annual Report on Form 10-K for the year ended December ~~30, 2012,~~29, 2013, 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.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

Our debt ~~at June 30, 2013 was~~is comprised entirely of a ~~$133.2 million outstanding principal balance on our $300 million unsecured~~ revolving credit facility with available borrowings of $300 million and a maturity date of April 30, 2018. The outstanding balance under this facility was $210.0 million as of June 29, 2014 and $157.9 million as of December 29, 2013. The interest rate charged on ~~the revolving credit facility was variable and based on the London Interbank Offered Rate (“LIBOR”)~~outstanding balances is LIBOR plus a 75 to 175 basis ~~point spread, tiered based upon debt~~points. The commitment fee on the unused balance ranges from 15 to 25 basis points.

We attempt to minimize interest risk exposure and ~~cash flow levels, or other bank~~to lower our overall long-term borrowing costs for changes in interest rates ~~at our option.~~

~~At June 30, 2013, we had an~~through the utilization of interest rate ~~swap agreement~~swaps, which are derivative financial instruments. Our swaps are entered into with financial institutions and have reset dates and critical terms that ~~provided for~~match those of the underlying debt. By using a ~~fixed rate~~derivative instrument to hedge exposures to changes in interest rates, we expose ourselves to credit risk. Credit risk is the failure of ~~0.56%, as compared~~the counterparty to ~~LIBOR,~~perform under the terms of the derivative contract. We minimize the credit risk by entering into transactions with high-quality counterparties whose credit rating is evaluated on a ~~notional amount of $50.0 million and a maturity date of December 30, 2015.~~ quarterly basis.

On July 30, 2013, we terminated our ~~existing~~$50 million interest rate swap agreement, which had a fixed rate of 0.56% instead of the variable rate of LIBOR. Upon termination of the $50 million swap, ~~and~~we entered into a ~~new~~ $75 million ~~swap. The new~~ swap ~~has~~with an interest rate of 1.42% and a maturity date of April 30, 2018, which coincides with the maturity date of our revolving credit facility. ~~The termination~~In May 2014, we entered into a $50 million forward interest rate swap with an interest rate of ~~the existing swap will not have~~1.36%, an effective date of December 30, 2014 and a ~~material impact on our third quarter and full year results.~~

maturity date of April 30, 2018.

The effective interest rate on the revolving line of credit, ~~facility,~~ including the impact of the interest rate swap agreement, was ~~1.1%~~1.6% as of June ~~30, 2013.~~29, 2014. An increase in the present ~~market~~ interest rate of 100 basis points on the ~~revolving~~line of credit ~~facility~~ balance outstanding as of June ~~30, 2013~~29, 2014, including the impact of both interest rate swaps, would increase interest expense by ~~$582,000.~~

approximately $850,000.

Foreign Currency Exchange Rate Risk

We do not enter into financial instruments to manage foreign currency exchange rates since only ~~5.8%~~6.3% of our total revenues are derived from sales to customers and royalties outside the United States.

Table of Contents

Commodity Price Risk

In the ordinary course of business, the food and paper products we purchase, including cheese (historically representing 35% to 40% of our food cost), are subject to seasonal fluctuations, weather, availability, demand and other factors that are beyond our control. We have pricing agreements with some of our vendors, including forward pricing agreements for a portion of our cheese purchases for our domestic Company-owned restaurants, which are accounted for as normal purchases; however, we still remain exposed to on-going commodity volatility.

The following table presents the actual average block price for cheese by quarter through the second quarter of ~~2013~~2014 and the projected average block price for cheese by quarter through 2014 (based on the July ~~30, 2013~~29, 2014 Chicago Mercantile Exchange cheese futures market prices).:

	2014			2013
	Projected			Actual
	Block Price			Block Price

Quarter 1	$	2.212		$	1.662
Quarter 2	2.131			1.784
Quarter 3	2.029		*	1.740
Quarter 4	1.944		*	1.849
Full Year	$	2.079	*	$	1.759

2014 2013 2012
Projected Projected Actual
Block Price Block Price Block Price

Quarter 1 $ 1.652 * $ 1.662 $ 1.522
Quarter 2 1.695 * 1.784 1.539
Quarter 3 1.790 * 1.759 * 1.750
Quarter 4 1.796 * 1.761 * 1.939
Full Year $ 1.733 * $ 1.742 * $ 1.692

* Amounts are estimates based on futures prices.

Item 4. Controls and Procedures

Under the supervision and with the participation of the Company’s management, including its chief executive officer and chief financial officer, the Company has evaluated the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based upon this evaluation, the chief executive officer and chief financial officer have concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective.

During the most recently completed fiscal quarter, there was no change made in the Company’s internal ~~controls~~control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The ~~information contained~~Company is involved in ~~“Note 5”~~a number of ~~“Notes to Condensed Consolidated Financial Statements” is incorporated by reference into this Item 1. We are party to various legal~~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, but except as set forth herein,~~business. In accordance with Accounting Standards Codification 450, “Contingencies,” the Company has made accruals with respect to these matters, where appropriate, which are reflected in the Company’s financial statements. We review these provisions at least quarterly and adjust these provisions to reflect the impact of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular case.

Table of Contents

Approximately 3,900 drivers out of a ~~party~~potential class size of 28,800 have opted into the action. Additionally, in late December 2013, the District Court granted a motion for class certification in five additional states, which will add approximately 15,000 plaintiffs to the case.

We intend to vigorously defend against all claims in this lawsuit. However, given the inherent uncertainties of litigation, the outcome of this case cannot be predicted and the amount of any ~~legal proceedings that management believes~~potential loss cannot be reasonably estimated. A negative outcome in this case could have a material adverse effect on the Company.

Item 1A. Risk Factors

There have been no material changes in the risk factors previously disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended December ~~30, 2012.~~

29, 2013.

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

Our Board of Directors has authorized the repurchase of up to ~~$1.1~~$1.2 billion of common stock under a share repurchase program that began on December 9, 1999 and expires on ~~March 30,~~December 31, 2014. Through June ~~30, 2013,~~29, 2014, a total of ~~50.7~~104.4 million shares with an aggregate cost of ~~$1.0~~$1.1 billion and an average price of ~~$20.07~~$10.94 per share have been repurchased under this program. Subsequent to June ~~30, 2013,~~29, 2014, through ~~August 2, 2013,~~July 29, 2014, we acquired an additional ~~23,000~~202,000 shares at an aggregate cost of ~~$1.5~~$8.5 million. As of ~~August 2, 2013,~~July 29, 2014, approximately ~~$80.1~~$50.1 million remained available for repurchase of common stock under this authorization.

The following table summarizes our repurchases by fiscal period during the three months ended June ~~30, 2013~~29, 2014 (in thousands, except per-share amounts):

Total Number Maximum Dollar
Total Average of Shares Value of Shares
Number Price Purchased as Part of that May Yet Be
of Shares Paid per Publicly Announced Purchased Under the
Fiscal Period
Purchased Share Plans or Programs Plans or Programs

04/01/2013 - 04/28/2013 271 $61.05 50,569 $91,777
04/29/2013 - 05/26/2013 53 $62.40 50,622 $88,477
05/27/2013 - 06/30/2013 105 $64.85 50,727 $81,638

Our share repurchase authorization increased by $25.0 million on August 2, 2013. For presentation purposes, the maximum dollar value of shares that may be purchased was adjusted retroactively to April 1, 2013.

				Total Number	Maximum Dollar
	Total	Average		of Shares	Value of Shares
	Number	Price		Purchased as Part of	that May Yet Be
	of Shares	Paid per		Publicly Announced	Purchased Under the
Fiscal Period	Purchased	Share		Plans or Programs	Plans or Programs

03/31/2014 - 04/27/2014	325	$	50.38	104,024	$	72,683
04/28/2014 - 05/25/2014	138	$	43.51	104,162	$	66,687
05/26/2014 - 06/29/2014	190	$	42.74	104,352	$	58,571

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

During the second quarter of 2013, shares of the Company’s common stock were acquired from employees to satisfy minimum tax withholding obligations that arose upon (i) vesting of restricted stock granted pursuant to shareholder approved plans, and (ii) distribution of shares of common stock issued pursuant to deferred compensation obligations. The Company acquired approximately 16,000 shares during fiscal period April 2013.

~~Item 6. Exhibits~~Table of Contents

Item 6.

~~Exhibit~~

Exhibits

Exhibit
Number		Description

~~10.1~~ 3.1	Transition Agreement and Release between Papa John’s International, Inc. and Andrew M. Varga dated April 19, 2013. Exhibit 10.1 to our Report on Form 8-K/A as filed on April 23, 2013 is incorporated herein by reference.

~~10.2~~	~~$300,000,000 Revolving Credit Facility / First~~ Amended and Restated Credit Agreement dated April 30, 2013 by and among Papa John’s International, Inc., the Guarantors Party thereto, RSC Insurance Services, Ltd., a Bermuda company, the Banks party thereto, PNC Bank, National Association, as Administrative Agent, JPMorgan Chase Bank, N.A., as Co-Syndication Agent, U.S. Bank National Association, as Co-Syndication Agent, BankCertificate of America, N.A., as Documentation Agent, PNC Capital Markets LLC, as Joint Lead Arranger and as Joint Bookrunner, and J.P. Morgan Securities LLC, as Joint Lead Arranger and as Joint Bookrunner. Exhibit 10.1 to our Report on Form 8-K as filed on May 6, 2013 is incorporated herein by reference.Incorporation.

31.1		Certification of Chief Executive Officer Pursuant to Exchange Act Rule 13a-15(e), As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Chief Financial Officer Pursuant to Exchange Act Rule 13a-15(e), As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101		Financial statements from the quarterly report on Form 10-Q of Papa John’s International, Inc. for the quarter ended June ~~30, 2013,~~29, 2014, filed on August ~~6, 2013,~~5, 2014, formatted in XBRL: (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of ~~Stockholders’ Equity, (v) the Consolidated Statements of~~ Cash Flows and ~~(vi)~~(v) the Notes to Condensed Consolidated Financial Statements.

Table of Contents

SIGNATURE

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

	PAPA JOHN’S INTERNATIONAL, INC.
	(Registrant)



Date: August ~~6, 2013~~5, 2014	/s/ Lance F. Tucker
	Lance F. Tucker
	Senior Vice President,
	Chief Financial Officer,
	Chief Administrative Officer and Treasurer


	Three Months Ended						Six Months Ended
(In thousands, except per share amounts)	June 30, 2013			June 24, 2012			June 30, 2013			June 24, 2012

North America revenues:
Domestic Company-owned restaurant sales	$	155,153		$	143,527		$	313,051		$	287,342
Franchise royalties		20,230			19,101			40,963			39,619
Franchise and development fees		219			206			765			428
Domestic commissary sales		140,003			126,593			283,897			264,203
Other sales		12,444			11,771			25,051			24,029
International revenues:
Royalties and franchise and development fees		5,391			4,701			10,458			9,187
Restaurant and commissary sales		15,746			12,680			30,605			25,047
Total revenues		349,186			318,579			704,790			649,855
Costs and expenses:
Domestic Company-owned restaurant expenses:
Cost of sales		37,825			32,881			74,898			65,337
Salaries and benefits		42,053			39,839			85,325			78,652
Advertising and related costs		14,677			13,278			29,470			25,977
Occupancy costs		8,939			8,619			17,650			16,517
Other operating expenses		22,431			20,830			45,176			41,248
Total domestic Company-owned restaurant expenses		125,925			115,447			252,519			227,731
Domestic commissary and other expenses:
Cost of sales		114,045			104,412			231,823			217,250
Salaries and benefits		10,264			9,218			20,331			18,221
Other operating expenses		15,768			13,498			31,775			27,804
Total domestic commissary and other expenses		140,077			127,128			283,929			263,275
International operating expenses		12,983			10,975			25,636			21,367
General and administrative expenses		33,126			31,463			66,284			63,059
Other general expenses		1,597			1,135			2,782			6,809
Depreciation and amortization		8,530			8,104			17,067			16,031
Total costs and expenses		322,238			294,252			648,217			598,272
Operating income		26,948			24,327			56,573			51,583
Net interest (expense) income		(340	)		(861	)		332			(597	)
Income before income taxes		26,608			23,466			56,905			50,986
Income tax expense		8,563			8,005			18,541			17,218
Net income, including redeemable noncontrolling interests		18,045			15,461			38,364			33,768
Income attributable to redeemable noncontrolling interests		(895	)		(1,172	)		(1,908	)		(2,498	)
Net income, net of redeemable noncontrolling interests	$	17,150		$	14,289		$	36,456		$	31,270

Basic earnings per common share	$	0.79		$	0.60		$	1.66		$	1.31
Earnings per common share - assuming dilution	$	0.77		$	0.59		$	1.62		$	1.29

Basic weighted average shares outstanding		21,742			23,733			21,998			23,893
Diluted weighted average shares outstanding		22,250			24,112			22,543			24,270

See accompanying notes.

Papa John's International, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
(Unaudited)


	Three Months Ended						Six Months Ended
(In thousands)	June 30, 2013			June 24, 2012			June 30, 2013			June 24, 2012

Net income, including redeemable noncontrolling interests	$	18,045		$	15,461		$	38,364		$	33,768
Other comprehensive income (loss), before tax:
Foreign currency translation adjustments		(586	)		(445	)		(1,721	)		(154	)
Interest rate swap		190			(9	)		73			(137	)
Other comprehensive income (loss), before tax		(396	)		(454	)		(1,648	)		(291	)
Income tax effect:
Foreign currency translation adjustments		217			-			637			-
Interest rate swap		(71	)		3			(27	)		51
Income tax effect		146			3			610			51
Other comprehensive income (loss), net of tax		(250	)		(451	)		(1,038	)		(240	)
Comprehensive income, including redeemable
noncontrolling interests		17,795			15,010			37,326			33,528
Comprehensive income, redeemable noncontrolling interests		(895	)		(1,172	)		(1,908	)		(2,498	)
Comprehensive income, net of redeemable
noncontrolling interests	$	16,900		$	13,838		$	35,418		$	31,030

See accompanying notes.

	Common								Accumulated
	Stock					Additional			Other								Total
	Shares			Common		Paid-In			Comprehensive			Retained		Treasury			Stockholders'
(In thousands)	Outstanding			Stock		Capital			Income (Loss)			Earnings		Stock			Equity


Balance at December 25, 2011		24,019		$	367	$	262,456		$	1,849		$	294,801	$	(353,826	)	$	205,647
Comprehensive income:
Net income, net of redeemable
noncontrolling interests (1)		-			-		-			-			31,270		-			31,270
Other comprehensive loss		-			-		-			(240	)		-		-			(240	)
Comprehensive income																		31,030
Exercise of stock options		361			4		10,396			-			-		-			10,400
Tax effect of equity awards		-			-		468			-			-		-			468
Acquisition of Company
common stock		(957	)		-		-			-			-		(38,728	)		(38,728	)
Stock-based compensation expense		-			-		3,218			-			-		-			3,218
Issuance of restricted stock		34			-		(1,541	)		-			-		1,541			-
Other		-			-		(134	)		-			-		259			125
Balance at June 24, 2012		23,457		$	371	$	274,863		$	1,609		$	326,071	$	(390,754	)	$	212,160

Balance at December 30, 2012		22,241		$	371	$	280,905		$	1,824		$	356,461	$	(458,047	)	$	181,514
Comprehensive income:
Net income, net of redeemable
noncontrolling interests (1)		-			-		-			-			36,456		-			36,456
Other comprehensive loss		-			-		-			(1,038	)		-		-			(1,038	)
Comprehensive income																		35,418
Exercise of stock options		223			2		3,694			-			-		-			3,696
Tax effect of equity awards		-			-		1,963			-			-		-			1,963
Acquisition of Company
common stock		(978	)		-		-			-			-		(58,806	)		(58,806	)
Stock-based compensation expense		-			-		3,784			-			-		-			3,784
Issuance of restricted stock		68			-		(2,148	)		-			-		2,148			-
Other		-			-		16			-			-		172			188
Balance at June 30, 2013		21,554		$	373	$	288,214		$	786		$	392,917	$	(514,533	)	$	167,757

Balance at December 30, 2012	$	6,380
Net income		1,016
Contributions from redeemable noncontrolling interest holders		450
Distributions to redeemable noncontrolling interest holders		(1,000	)
Balance at June 30, 2013	$	6,846

	Balance Sheet	Carrying		Fair Value Measurements
	Location	Value		Level 1		Level 2		Level 3

June 30, 2013
Financial assets:
Cash surrender value of
life insurance policies *	Other assets	$	15,155	$	15,155	$	-	$	-

Financial liabilities:
Interest rate swap	Other long-term liabilities		31		-		31		-

December 30, 2012
Financial assets:
Cash surrender value of
life insurance policies *	Other assets	$	13,551	$	13,551	$	-	$	-

Financial liabilities:
Interest rate swap	Other long-term liabilities		104		-		104		-

* Represents life insurance policies held in our non-qualified deferred compensation plan.

	Three Months Ended				Six Months Ended
	June 30,		June 24,		June 30,		June 24,
	2013		2012		2013		2012

Basic earnings per common share:
Net income, net of redeemable noncontrolling interests	$	17,150	$	14,289	$	36,456	$	31,270
Weighted average shares outstanding		21,742		23,733		21,998		23,893
Basic earnings per common share	$	0.79	$	0.60	$	1.66	$	1.31

Earnings per common share - assuming dilution:
Net income, net of redeemable noncontrolling interests	$	17,150	$	14,289	$	36,456	$	31,270

Weighted average shares outstanding		21,742		23,733		21,998		23,893
Dilutive effect of outstanding equity awards		508		379		545		377
Diluted weighted average shares outstanding		22,250		24,112		22,543		24,270
Earnings per common share - assuming dilution	$	0.77	$	0.59	$	1.62	$	1.29

	2014			2013			2012
	Projected			Projected			Actual
	Block Price			Block Price			Block Price

Quarter 1	$	1.652	*	$	1.662		$	1.522
Quarter 2		1.695	*		1.784			1.539
Quarter 3		1.790	*		1.759	*		1.750
Quarter 4		1.796	*		1.761	*		1.939
Full Year	$	1.733	*	$	1.742	*	$	1.692