UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended ~~March 29,~~June 28, 2020

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

Commission File Number: 0-21660

PAPA JOHN’S INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)

Delaware		61-1203323
(State or other jurisdiction of		(I.R.S. Employer Identification
incorporation or organization)		number)

2002 Papa John’s Boulevard

Louisville, Kentucky 40299-2367

(Address of principal executive offices)

(502) 261-7272

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class:	Trading Symbol	Name of each exchange on which registered:
Common stock, $0.01 par value	PZZA	The NASDAQ Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes ⌧ No ◻

Indicate by check mark whether the registrant has submitted electronically every interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ⌧ No ◻

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

Large accelerated filer ☒		Accelerated filer ☐
Non-accelerated filer ☐		Smaller reporting company ☐
		Emerging growth company ☐

If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.◻

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

At ~~April 28,~~July 30, 2020, there were outstanding ~~32,466,249~~32,814,222 shares of the registrant’s common stock, par value $0.01 per share.

Table of Contents

INDEX

		Page No.

PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements

	Condensed Consolidated Balance Sheets — ~~March 29,~~June 28, 2020 and December 29, 2019	3

	Condensed Consolidated Statements of Operations — Three and Six months ended ~~March 29,~~June 28, 2020 and ~~March 31,~~June 30, 2019	4

	Condensed Consolidated Statements of Comprehensive ~~Loss~~Income (Loss) — Three and Six months ended ~~March 29,~~June 28, 2020 and ~~March 31,~~June 30, 2019	5

	Condensed Consolidated Statements of Stockholders’ Deficit — Three and Six months ended ~~March 29,~~June 28, 2020 and ~~March 31,~~June 30, 2019	6

	Condensed Consolidated Statements of Cash Flows — ~~Three~~Six months ended ~~March 29,~~June 28, 2020 and ~~March 31,~~June 30, 2019	8

	Notes to Condensed Consolidated Financial Statements	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2324

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3741

Item 4.	Controls and Procedures	3842

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	3842

Item 1A.	Risk Factors	3842

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3942

Item 6.	Exhibits	3943

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Papa John’s International, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets



	March 29,		December 29,		June 28,		December 29,
(In thousands, except per share amounts)	2020		2019		2020		2019
	(Unaudited)				(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	36,376	$	27,911	$	75,699	$	27,911
Accounts receivable, net		77,607		80,921		73,530		80,921
Notes receivable, current portion		9,343		7,790		9,651		7,790
Income tax receivable		4,101		4,024		755		4,024
Inventories		29,810		27,529		32,546		27,529
Prepaid expenses and other current assets		27,956		33,371		33,292		33,371
Total current assets		185,193		181,546		225,473		181,546
Property and equipment, net		205,035		211,741		200,581		211,741
Finance lease right-of-use assets, net		9,365		9,383		8,978		9,383
Operating lease right-of-use assets		144,160		148,229		141,861		148,229
Notes receivable, less current portion, net		36,527		33,010		32,158		33,010
Goodwill		79,739		80,340		79,634		80,340
Deferred income taxes		1,694		1,839		4,978		1,839
Other assets		56,555		64,633		64,074		64,633
Total assets	$	718,268	$	730,721	$	757,737	$	730,721

Liabilities, Series B Convertible Preferred Stock, Redeemable noncontrolling interests and Stockholders’ deficit
Current liabilities:
Accounts payable	$	33,745	$	29,141	$	30,699	$	29,141
Income and other taxes payable		8,167		7,599		11,200		7,599
Accrued expenses and other current liabilities		121,835		120,566		134,989		120,566
Current deferred revenue		6,250		5,624		5,382		5,624
Current finance lease liabilities		1,913		1,789		3,879		1,789
Current operating lease liabilities		23,118		23,226		22,663		23,226
Current portion of long-term debt		20,623		20,000		20,107		20,000
Total current liabilities		215,651		207,945		228,919		207,945
Deferred revenue		12,694		14,722		13,543		14,722
Long-term finance lease liabilities		7,555		7,629		5,265		7,629
Long-term operating lease liabilities		121,368		125,297		118,946		125,297
Long-term debt, less current portion, net		342,611		347,290		327,932		347,290
Deferred income taxes		607		2,649		859		2,649
Other long-term liabilities		86,227		84,927		95,627		84,927
Total liabilities		786,713		790,459		791,091		790,459

Series B Convertible Preferred Stock; $0.01 par value; 260.0 shares authorized, 252.5 shares issued and outstanding at March 29, 2020 and December 29, 2019		251,893		251,133
Series B Convertible Preferred Stock; $0.01 par value; 260.0 shares authorized, 252.5 shares issued and outstanding at June 28, 2020 and December 29, 2019						251,827		251,133
Redeemable noncontrolling interests		5,962		5,785		6,667		5,785

Stockholders’ deficit:
Common stock ($0.01 par value per share; issued 44,775 at March 29, 2020 and 44,748 at December 29, 2019)		448		447
Common stock ($0.01 par value per share; issued 45,122 at June 28, 2020 and 44,748 at December 29, 2019)						451		447
Additional paid-in capital		220,187		219,047		243,577		219,047
Accumulated other comprehensive loss		(20,768)		(10,185)		(21,104)		(10,185)
Retained earnings		202,287		205,697		212,104		205,697
Treasury stock (12,805 shares at March 29, 2020 and 12,854 shares at December 29, 2019, at cost)		(744,463)		(747,327)
Treasury stock (12,773 shares at June 28, 2020 and 12,854 shares at December 29, 2019, at cost)						(742,600)		(747,327)
Total stockholders’ deficit		(342,309)		(332,321)		(307,572)		(332,321)
Noncontrolling interests in subsidiaries		16,009		15,665		15,724		15,665
Total Stockholders’ deficit		(326,300)		(316,656)		(291,848)		(316,656)
Total liabilities, Series B Convertible Preferred Stock, Redeemable noncontrolling interests and Stockholders’ deficit	$	718,268	$	730,721	$	757,737	$	730,721

See accompanying notes.

Table of Contents

Papa John’s International, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)

Three Months Ended

March 29,

March 31,
(In thousands, except per share amounts)

2020

2019

Revenues:

Domestic Company-owned restaurant sales

$
161,440

$
161,803
North America franchise royalties and fees

19,440

17,530
North America commissary revenues

155,422

148,904
International revenues

26,059

25,667
Other revenues

47,498

44,501
Total revenues

409,859

398,405
Costs and expenses:

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

Domestic Company-owned restaurant expenses

129,111

133,053
North America commissary expenses

144,272

138,557
International expenses

15,101

14,305
Other expenses

45,957

44,097
General and administrative expenses

47,651

51,135
Depreciation and amortization

12,295

11,749
Total costs and expenses

394,387

392,896
Operating income

15,472

5,509
Net interest expense

(3,967)

(6,276)
Income (loss) before income taxes

11,505

(767)
Income tax expense

2,512

831
Net income (loss) before attribution to noncontrolling interests

8,993

(1,598)
Net income attributable to noncontrolling interests

(550)

(133)
Net income (loss) attributable to the Company

$
8,443

$
(1,731)

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

Net income (loss) attributable to the Company

$
8,443

$
(1,731)
Preferred stock dividends and accretion

(3,471)

(2,070)
Net income (loss) attributable to common shareholders

$
4,972

$
(3,801)

Basic earnings (loss) per common share

$
0.15

$
(0.12)
Diluted earnings (loss) per common share

$
0.15

$
(0.12)

Basic weighted average common shares outstanding

32,093

31,554
Diluted weighted average common shares outstanding

32,320

31,554

Dividends declared per common share

$
0.225

$
0.225



	Three Months Ended				Six Months Ended
		June 28,	June 30,		June 28,		June 30,
(In thousands, except per share amounts)	2020		2019		2020		2019

Revenues:
Domestic Company-owned restaurant sales	$	186,506	$	163,656	$	347,946	$	325,459
North America franchise royalties and fees		24,174		19,761		43,614		37,291
North America commissary revenues		167,619		147,128		323,041		296,032
International revenues		28,093		25,497		54,152		51,164
Other revenues		54,231		43,581		101,729		88,082
Total revenues		460,623		399,623		870,482		798,028
Costs and expenses:
Operating costs (excluding depreciation and amortization shown separately below):
Domestic Company-owned restaurant expenses		145,168		131,950		274,279		265,003
North America commissary expenses		154,467		136,744		298,739		275,301
International expenses		18,304		14,652		33,405		28,957
Other expenses		51,345		41,970		97,302		86,067
General and administrative expenses		48,428		48,718		96,079		99,853
Depreciation and amortization		12,377		11,521		24,672		23,270
Total costs and expenses		430,089		385,555		824,476		778,451
Refranchising gains		—		163		—		163
Operating income		30,534		14,231		46,006		19,740
Net interest expense		(3,627)		(4,272)		(7,594)		(10,548)
Income before income taxes		26,907		9,959		38,412		9,192
Income tax expense		4,956		1,283		7,468		2,114
Net income before attribution to noncontrolling interests		21,951		8,676		30,944		7,078
Net income attributable to noncontrolling interests		(1,337)		(322)		(1,887)		(455)
Net income attributable to the Company	$	20,614	$	8,354	$	29,057	$	6,623

Calculation of net income for earnings per share:
Net income attributable to the Company	$	20,614	$	8,354	$	29,057	$	6,623
Preferred stock dividends and accretion		(3,347)		(3,486)		(6,818)		(5,556)
Net income attributable to participating securities		(1,560)		—		(1,306)		—
Net income attributable to common shareholders	$	15,707	$	4,868	$	20,933	$	1,067

Basic earnings per common share	$	0.49	$	0.15	$	0.65	$	0.03
Diluted earnings per common share	$	0.48	$	0.15	$	0.65	$	0.03

Basic weighted average common shares outstanding		32,335		31,587		32,214		31,570
Diluted weighted average common shares outstanding		32,619		31,773		32,444		31,746

Dividends declared per common share	$	0.225	$	0.225	$	0.450	$	0.450

See accompanying notes.

Table of Contents

Papa John’s International, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive ~~Loss~~Income (Loss)

(Unaudited)

Three Months Ended

March 29,

March 31,
(In thousands)

2020

2019

Net income (loss) before attribution to noncontrolling interests

$
8,993

$
(1,598)
Other comprehensive loss, before tax:

Foreign currency translation adjustments

(2,825)

1,733
Interest rate swaps (1)

(10,919)

(3,955)
Other comprehensive loss, before tax

(13,744)

(2,222)
Income tax effect:

Foreign currency translation adjustments

650

(399)
Interest rate swaps (2)

2,511

918
Income tax effect

3,161

519
Other comprehensive loss, net of tax

(10,583)

(1,703)
Comprehensive loss before attribution to noncontrolling interests

(1,590)

(3,301)
Less: comprehensive (income) loss, redeemable noncontrolling interests

(176)

119
Less: comprehensive (income), nonredeemable noncontrolling interests

(374)

(252)
Comprehensive loss attributable to the Company

$
(2,140)

$
(3,434)



	Three Months Ended				Six Months Ended
	June 28,		June 30,		June 28,		June 30,
(In thousands)	2020		2019		2020		2019

Net income before attribution to noncontrolling interests	$	21,951	$	8,676	$	30,944	$	7,078
Other comprehensive loss, before tax:
Foreign currency translation adjustments		(334)		(1,537)		(3,159)		196
Interest rate swaps (1)		(103)		(6,699)		(11,022)		(10,654)
Other comprehensive loss, before tax		(437)		(8,236)		(14,181)		(10,458)
Income tax effect:
Foreign currency translation adjustments		77		354		727		(45)
Interest rate swaps (2)		24		1,532		2,535		2,450
Income tax effect		101		1,886		3,262		2,405
Other comprehensive loss, net of tax		(336)		(6,350)		(10,919)		(8,053)
Comprehensive income (loss) before attribution to noncontrolling interests		21,615		2,326		20,025		(975)
Less: comprehensive (income) loss, redeemable noncontrolling interests		(707)		(32)		(883)		87
Less: comprehensive (income), nonredeemable noncontrolling interests		(630)		(290)		(1,004)		(542)
Comprehensive income (loss) attributable to the Company	$	20,278	$	2,004	$	18,138	$	(1,430)

(1)Amounts reclassified out of accumulated other comprehensive loss into net interest expense included ($~~330)~~1,372) and ~~$148~~($1,702) for the three and six months ended ~~March 29,~~June 28, 2020, respectively, and ~~March 31,~~$231 and $688 for the three and six months ended June 30, 2019, respectively.

(2)The income tax effects of amounts reclassified out of accumulated other comprehensive loss into net interest expense were ~~$80~~$332 and ~~$94~~$412 for the three and six months ended ~~March 29,~~June 28, 2020, respectively, and ~~March 31,~~($53) and ($158) for the three and six months ended June 30, 2019, respectively.

See accompanying notes.

Table of Contents

Papa John’s International, Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders’ Deficit

(Unaudited)

Papa John’s International, Inc.


Common







Accumulated











Stock

Additional

Other

Noncontrolling

Total

(In thousands)

Shares

Common

Paid-In

Comprehensive

Retained

Treasury

Interests in

Stockholders’

For the three months ended March 29, 2020

Outstanding

Stock

Capital

Loss

Earnings

Stock

Subsidiaries

Deficit

Balance at December 29, 2019

31,894

$
447

$
219,047

$
(10,185)

$
205,697

$
(747,327)

$
15,665

$
(316,656)

Cumulative effect of adoption of ASU 2016-13 (1)

—

—

—

—

(1,066)

—

—

(1,066)

Adjusted balance at December 30, 2019

31,894

447

219,047

(10,185)

204,631

(747,327)

15,665

(317,722)

Net income (2)

—

—

—

—

8,443

—

374

8,817

Other comprehensive loss

—

—

—

(10,583)

—

—

—

(10,583)

Cash dividends on common stock

—

—

55

—

(7,292)

—

—

(7,237)

Cash dividends on preferred stock

—

—

—

—

(3,412)

—

—

(3,412)

Exercise of stock options

27

1

1,240

—

—

—

—

1,241

Stock-based compensation expense

—

—

3,950

—

—

—

—

3,950

Issuance of restricted stock

47

—

(2,707)

—

—

2,707

—

—

Tax effect of restricted stock awards

—

—

(1,383)

—

—

—

—

(1,383)

Distributions to noncontrolling interests

—

—

—

—

—

—

(30)

(30)

Other

3

—

(15)

—

(83)

157

—

59

Balance at March 29, 2020

31,971

$
448

$
220,187

$
(20,768)

$
202,287

$
(744,463)

$
16,009

$
(326,300)


	Papa John’s International, Inc.
	Common					Accumulated
	Stock			Additional		Other						Noncontrolling		Total
(In thousands)	Shares	Common		Paid-In		Comprehensive		Retained		Treasury		Interests in		Stockholders’
For the three months ended June 28, 2020	Outstanding	Stock		Capital		Loss		Earnings		Stock		Subsidiaries		Deficit
Balance at March 29, 2020	31,971	$	448	$	220,187	$	(20,768)	$	202,287	$	(744,463)	$	16,009	$	(326,300)
Net income (2)	—		—		—		—		20,614		—		630		21,244
Other comprehensive loss	—		—		—		(336)		—		—		—		(336)
Cash dividends on common stock	—		—		77		—		(7,360)		—		—		(7,283)
Cash dividends on preferred stock	—		—		—		—		(3,412)		—		—		(3,412)
Exercise of stock options	346		3		20,460		—		—		—		—		20,463
Stock-based compensation expense	—		—		4,792		—		—		—		—		4,792
Issuance of restricted stock	30		—		(1,760)		—		—		1,760		—		—
Tax effect of restricted stock awards	—		—		(196)		—		—		—		—		(196)
Distributions to noncontrolling interests	—		—		—		—		—		—		(915)		(915)
Other	2		—		17		—		(25)		103		—		95
Balance at June 28, 2020	32,349	$	451	$	243,577	$	(21,104)	$	212,104	$	(742,600)	$	15,724	$	(291,848)

For the six months ended June 28, 2020
Balance at December 29, 2019	31,894	$	447	$	219,047	$	(10,185)	$	205,697	$	(747,327)	$	15,665	$	(316,656)
Cumulative effect of adoption of ASU 2016-13 (1)	—		—		—		—		(1,066)		—		—		(1,066)
Adjusted Balance at December 30, 2019	31,894		447		219,047		(10,185)		204,631		(747,327)		15,665		(317,722)
Net income (2)	—		—		—		—		29,057		—		1,004		30,061
Other comprehensive loss	—		—		—		(10,919)		—		—		—		(10,919)
Cash dividends on common stock	—		—		132		—		(14,652)		—		—		(14,520)
Cash dividends on preferred stock	—		—		—		—		(6,825)		—		—		(6,825)
Exercise of stock options	373		4		21,700		—		—		—		—		21,704
Stock-based compensation expense	—		—		8,742		—		—		—		—		8,742
Issuance of restricted stock	77		—		(4,468)		—		—		4,468		—		—
Tax effect of restricted stock awards	—		—		(1,579)		—		—		—		—		(1,579)
Distributions to noncontrolling interests	—		—		—		—		—		—		(945)		(945)
Other	5		—		3		—		(107)		259		—		155
Balance at June 28, 2020	32,349	$	451	$	243,577	$	(21,104)	$	212,104	$	(742,600)	$	15,724	$	(291,848)

(1)	As of December 30, 2019, the Company adopted Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”.

(2)	Net income to the Company ~~at March 29,~~for the three and six months ended June 28, 2020 excludes ~~$176~~$707 and $883 allocable to the redeemable noncontrolling interests for our joint venture arrangements.

At ~~March 29,~~June 28, 2020, the accumulated other comprehensive loss of ~~$20,768~~$21,104 was comprised of net unrealized foreign currency translation loss of ~~$7,774~~$8,031 and net unrealized loss on the interest rate swap agreements of ~~$12,994.~~$13,073.

See accompanying notes.

Table of Contents

Papa John’s International, Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders’ Deficit (continued)

(Unaudited)

Papa John’s International, Inc.


Common







Accumulated











Stock

Additional

Other

Noncontrolling

Total

(In thousands)

Shares

Common

Paid-In

Comprehensive

Retained

Treasury

Interests in

Stockholders’

For the three months ended March 31, 2019

Outstanding

Stock

Capital

Loss

Earnings

Stock

Subsidiaries

Deficit

Balance at December 30, 2018

31,372

$
443

$
192,984

$
(3,143)

$
242,182

$
(751,704)

$
15,225

$
(304,013)

Net loss (1)

—

—

—

—

(1,731)

—

252

(1,479)

Other comprehensive loss

—

—

—

(1,703)

—

—

—

(1,703)

Cash dividends on common stock

—

—

36

—

(7,161)

—

—

(7,125)

Cash dividends on preferred stock

—

—

—

—

(2,040)

—

—

(2,040)

Exercise of stock options

3

—

51

—

—

—

—

51

Stock-based compensation expense

—

—

3,731

—

—

—

—

3,731

Issuance of restricted stock

42

—

(2,454)

—

—

2,454

—

—

Tax effect of restricted stock awards

—

—

(869)

—

—

—

—

(869)

Distributions to noncontrolling interests

—

—

—

—

—

—

(19)

(19)

Other

3

—

(236)

—

189

255

—

208

Balance at March 31, 2019

31,420

$
443

$
193,243

$
(4,846)

$
231,439

$
(748,995)

$
15,458

$
(313,258)


	Papa John’s International, Inc.
	Common					Accumulated
	Stock			Additional		Other						Noncontrolling		Total
(In thousands)	Shares	Common		Paid-In		Comprehensive		Retained		Treasury		Interests in		Stockholders’
For the three months ended June 30, 2019	Outstanding	Stock		Capital		Loss		Earnings		Stock		Subsidiaries		Deficit
Balance at March 31, 2019	31,420	$	443	$	193,243	$	(4,846)	$	231,439	$	(748,995)	$	15,458	$	(313,258)
Net income (1)	—		—		—		—		8,354		—		290		8,644
Other comprehensive loss	—		—		—		(6,350)		—		—		—		(6,350)
Cash dividends on common stock	—		—		59		—		(7,203)		—		—		(7,144)
Cash dividends on preferred stock	—		—		—		—		(3,428)		—		—		(3,428)
Exercise of stock options	1		—		42		—		—		—		—		42
Stock-based compensation expense	—		—		3,800		—		—		—		—		3,800
Issuance of restricted stock	2		—		(116)		—		—		116		—		—
Tax effect of restricted stock awards	—		—		(26)		—		—		—		—		(26)
Distributions to noncontrolling interests	—		—		—		—		—		—		(164)		(164)
Other	4		—		(75)		—		(329)		222		—		(182)
Balance at June 30, 2019	31,427	$	443	$	196,927	$	(11,196)	$	228,833	$	(748,657)	$	15,584	$	(318,066)
For the six months ended June 30, 2019
Balance at December 30, 2018	31,372	$	443	$	192,984	$	(3,143)	$	242,182	$	(751,704)	$	15,225	$	(304,013)
Net income (1)	—		—		—		—		6,623		—		542		7,165
Other comprehensive loss	—		—		—		(8,053)		—		—		—		(8,053)
Cash dividends on common stock	—		—		95		—		(14,364)		—		—		(14,269)
Cash dividends on preferred stock	—		—		—		—		(5,470)		—		—		(5,470)
Exercise of stock options	4		—		93		—		—		—		—		93
Stock-based compensation expense	—		—		7,531		—		—		—		—		7,531
Issuance of restricted stock	44		—		(2,570)		—		—		2,570		—		—
Tax effect of restricted stock awards	—		—		(895)		—		—		—		—		(895)
Distributions to noncontrolling interests	—		—		—		—		—		—		(183)		(183)
Other	7		—		(311)		—		(138)		477		—		28
Balance at June 30, 2019	31,427	$	443	$	196,927	$	(11,196)	$	228,833	$	(748,657)	$	15,584	$	(318,066)

(1)	Net ~~loss~~income to the Company ~~at March 31,~~for the three and six months ended June 30, 2019 excludes $32 and ($~~119)~~87), respectively, allocable to the redeemable noncontrolling interests for our joint venture arrangements.

At ~~March 31,~~June 30, 2019, the accumulated other comprehensive loss of ~~$4,846~~$11,196 was comprised of net unrealized foreign currency translation loss of ~~$5,525, partially offset by~~$6,709 and net unrealized ~~gain~~loss on the interest rate swap agreements of ~~$679.~~$4,487.

See accompanying notes.

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Papa John’s International, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

Three months ended

March 29,

March 31,
(In thousands)

2020

2019

Operating activities

Net income (loss) before attribution to noncontrolling interests

$
8,993

$
(1,598)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Provision (credit) for uncollectible accounts and notes receivable

768

(50)
Depreciation and amortization

12,295

11,749
Deferred income taxes

1,185

(1,309)
Preferred stock option mark-to-market adjustment

—

5,914
Stock-based compensation expense

3,950

3,731
Other

234

838
Changes in operating assets and liabilities:

Accounts receivable

(1,839)

(3,443)
Income tax receivable

932

10,715
Inventories

(2,281)

810
Prepaid expenses

6,118

7,888
Other current assets

(532)

(13,855)
Other assets and liabilities

2,670

(3,258)
Accounts payable

4,604

8,108
Income and other taxes payable

568

746
Accrued expenses and other current liabilities

(1,903)

(11,003)
Deferred revenue

(2,028)

(2,170)
Net cash provided by operating activities

33,734

13,813
Investing activities

Purchases of property and equipment

(5,933)

(8,658)
Loans issued

(7,413)

(859)
Repayments of loans issued

3,790

925
Other

1

329
Net cash used in investing activities

(9,555)

(8,263)
Financing activities

Proceeds from issuance of preferred stock

—

252,530
Repayments of term loan

(5,000)

(5,000)
Net proceeds (repayments) of revolving credit facilities

640

(240,026)
Dividends paid to common stockholders

(7,237)

(7,125)
Dividends paid to preferred stockholders

(3,412)

(2,040)
Issuance costs associated with preferred stock

—

(7,179)
Tax payments for equity award issuances

(1,383)

(869)
Proceeds from exercise of stock options

1,241

51
Distributions to noncontrolling interest holders

(30)

(19)
Other

(350)

50
Net cash used in financing activities

(15,531)

(9,627)
Effect of exchange rate changes on cash and cash equivalents

(183)

92
Change in cash and cash equivalents

8,465

(3,985)
Cash and cash equivalents at beginning of period

27,911

33,258
Cash and cash equivalents at end of period

$
36,376

$
29,273



	Six Months Ended
	June 28,		June 30,
(In thousands)	2020		2019

Operating activities
Net income before attribution to noncontrolling interests	$	30,944	$	7,078
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for uncollectible accounts and notes receivable		1,051		676
Depreciation and amortization		24,672		23,270
Deferred income taxes		(1,502)		(3,096)
Preferred stock option mark-to-market adjustment		—		5,914
Stock-based compensation expense		8,742		7,531
Gain on refranchising		—		(163)
Other		1,090		1,999
Changes in operating assets and liabilities:
Accounts receivable		(8,571)		(1,092)
Income tax receivable		4,278		11,699
Inventories		(5,017)		326
Prepaid expenses and other current assets		9,657		(5,383)
Other assets and liabilities		8,065		(2,094)
Accounts payable		1,558		5,410
Income and other taxes payable		3,601		565
Accrued expenses and other current liabilities		10,269		(17,297)
Deferred revenue		(1,179)		(3,168)
Net cash provided by operating activities		87,658		32,175
Investing activities
Purchases of property and equipment		(13,795)		(17,836)
Notes issued		(9,596)		(4,757)
Repayments of notes issued		6,462		2,234
Proceeds from divestitures of restaurants		—		225
Other		14		568
Net cash used in investing activities		(16,915)		(19,566)
Financing activities
Proceeds from issuance of preferred stock		—		252,530
Repayments of term loan		(10,000)		(10,000)
Net (repayments) proceeds of revolving credit facilities		(9,884)		(230,776)
Dividends paid to common stockholders		(14,520)		(14,269)
Dividends paid to preferred stockholders		(6,825)		(5,470)
Issuance costs associated with preferred stock		—		(7,250)
Tax payments for equity award issuances		(1,579)		(895)
Proceeds from exercise of stock options		21,704		93
Contributions from noncontrolling interest holders		—		840
Distributions to noncontrolling interest holders		(945)		(183)
Other		(704)		168
Net cash used in financing activities		(22,753)		(15,212)
Effect of exchange rate changes on cash and cash equivalents		(202)		1
Change in cash and cash equivalents		47,788		(2,602)
Cash and cash equivalents at beginning of period		27,911		33,258
Cash and cash equivalents at end of period	$	75,699	$	30,656

See accompanying notes.

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Papa John’s International, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

~~March 29,~~June 28, 2020

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 annual financial statements. In the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation have been included. Operating results for the three and six months ended ~~March 29,~~June 28, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending December 27, 2020. 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, 2019.

2.	Update to Significant Accounting Policies

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Significant items that are subject to such estimates and assumptions include allowance for doubtful accounts and notes receivable, intangible assets, contract assets and contract liabilities, including the online customer loyalty program obligation, right-of-use assets and lease liabilities, gift card breakage, insurance reserves and tax reserves. Although management bases its estimates on historical experience and assumptions that are believed to be reasonable under the circumstances, actual results could significantly differ from these estimates.

Variable Interest Entity

Papa John’s domestic restaurants, both Company-owned and franchised, participate in Papa John’s Marketing Fund, Inc. (“PJMF”), a nonstock corporation designed to operate at break-even as it spends all annual contributions received from the system. PJMF collects a percentage of revenues from Company-owned and franchised restaurants in the United States for the purpose of designing and administering advertising and promotional programs. PJMF is a variable interest entity (“VIE”) that funds its operations with ongoing financial support and contributions from the domestic restaurants, of which approximately 80% are franchised, and does not have sufficient equity to fund its operations without these ongoing financial contributions. Based on an assessment of the governance structure and operating procedures of PJMF, the Company determined it has the power to control certain significant activities of PJMF, and therefore, is the primary beneficiary. The Company has consolidated PJMF in its financial results in accordance with Accounting Standards Codification (“ASC”) 810, “Consolidations.”

Noncontrolling Interests

Papa John’s has 4 joint venture arrangements in which there are noncontrolling interests held by third parties that include 192 restaurants at ~~March 29, 2020. At March 31, 2019, there were 183 restaurants held in 3 joint ventures.~~both June 28, 2020 and June 30, 2019.

Consolidated net income ~~(loss)~~ is required to be reported separately at amounts attributable to both 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 Operations of income attributable to the noncontrolling interest holders.

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~~The~~Net income ~~before income taxes~~ attributable to these joint ventures for the three and six months ended ~~March 29,~~June 28, 2020 and ~~March 31,~~June 30, 2019 was as follows (in thousands):



	Three Months Ended				Three Months Ended				Six Months Ended
	March 29,		March 31,		June 28,		June 30,		June 28,		June 30,
	2020		2019		2020		2019		2020		2019

Papa John’s International, Inc.	$	1,131	$	464	$	2,320	$	708	$	3,451	$	1,172
Noncontrolling interests		550		133		1,337		322		1,887		455
Total income before income taxes	$	1,681	$	597
Total net income					$	3,657	$	1,030	$	5,338	$	1,627

The following summarizes the redemption feature, location and related accounting within the Condensed Consolidated Balance Sheets for these joint venture arrangements:



Type of Joint Venture Arrangement	Location within the Balance Sheets	Recorded Value

Joint ventures with no redemption feature	Permanent equity	Carrying value
Joint ventures with option to require the Company to purchase the noncontrolling interest - not currently redeemable or redemption not probable	Temporary equity	Carrying value

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 Papa John’s 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. The effective income tax rate includes the estimated domestic state effective income tax rate and applicable foreign income tax rates. The effective income tax rate is also impacted by various permanent items and credits, net of any related valuation allowances, and can vary based on changes in estimated annual income. Discrete items are recorded in the quarter in which they occur.

Deferred tax assets and liabilities are determined based on differences between financial reporting and tax basis of assets and liabilities and are measured using enacted tax rates and laws that are expected to be in effect when the differences reverse. Deferred tax assets are also recognized for the estimated future effects of tax attribute carryforwards (e.g., net operating losses, capital losses, and foreign tax credits). The effect on deferred taxes of changes in tax rates is recognized in the period in which the new tax rate is enacted. Valuation allowances are established when necessary on a jurisdictional basis to reduce deferred tax assets to the amounts we expect to realize.

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 or state rulings or audit settlements, which may impact our ultimate payment for such exposures.

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 and cash equivalents, accounts receivable, net of allowances, and accounts payable. The carrying value of notes receivable, net of allowances, also approximates fair value. The fair value of the ~~amounts~~amount outstanding under our term debt ~~and revolving credit facility approximate their~~approximates the carrying ~~values~~value due to the variable market-based interest rate (Level 2).

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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 ~~March 29,~~June 28, 2020 and December 29, 2019 are as follows (in thousands):


	Carrying		Fair Value Measurements						Carrying		Fair Value Measurements
	Value		Level 1		Level 2		Level 3		Value		Level 1		Level 2		Level 3
March 29, 2020
June 28, 2020
Financial assets:
Cash surrender value of life insurance policies (a)	$	27,787	$	27,787	$	—	$	—	$	32,155	$	32,155	$	—	$	—

Financial liabilities:
Interest rate swaps (b)		17,020		—		17,020		—		17,050		—		17,050		—

December 29, 2019
Financial assets:
Cash surrender value of life insurance policies (a)	$	33,220	$	33,220	$	—	$	—	$	33,220	$	33,220	$	—	$	—

Financial liabilities:
Interest rate swaps (b)		6,168		—		6,168		—		6,168		—		6,168		—

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

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

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Accounting Standards Adopted

Financial Instruments – Credit Losses

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” which requires measurement and recognition of expected versus incurred losses for financial assets held. The Company adopted ASU 2016-13 as of December 30, 2019 (the first day of fiscal 2020) under the modified retrospective transition method. Financial instruments subject to ASU 2016-13 include trade accounts receivable, notes receivable and interest receivable (classified as Other assets in the Condensed Consolidated Balance Sheet) from franchisees. The impact of the adoption was not material to our condensed consolidated financial statements. Upon adoption, the Company recorded a cumulative effect adjustment to retained earnings of $1.1 million, net of $0.3 million of income taxes, on the opening Condensed Consolidated Balance Sheet as of December 30, 2019.

Estimates of expected credit losses, even if remote, are based upon historical account write-off trends, facts about the current financial condition of the debtor, forecasts of future operating results based upon current trends of select operating metrics, and macroeconomic factors. Credit quality is monitored through the timing of payments compared to the prescribed payment terms and known facts regarding the financial condition of the franchisee or customer. Account and note balances are charged off against the allowance after recovery efforts have ceased.

The following table summarizes changes in our allowances for credit losses for accounts receivable, notes receivable and interest receivable:



(in thousands)	Accounts Receivable		Notes Receivable		Interest Receivable		Accounts Receivable		Notes Receivable		Interest Receivable
Balance at December 29, 2019	$	7,341	$	3,572	$	910	$	7,341	$	3,572	$	910
Cumulative effect of adoption of ASU 2016-13		911		463		-		912		463		-
Balance at December 30, 2019		8,253		4,035		910		8,253		4,035		910

Current period provision for expected credit losses		625		-		144		833		74		144
Write-offs charged against the allowance		(380)		-		-		(431)		(10)		-
Recoveries collected		-		(22)		-		-		(56)		-
Balance at March 29, 2020	$	8,498	$	4,013	$	1,054
Transfers								-		1,054		(1,054)
Balance at June 28, 2020							$	8,655	$	5,097	$	-

Accounting Standards to be Adopted in Future Periods

Reference Rate Reform – Hedging

In March 2020, the FASB issued ASU 2020-04, “Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” The ASU is intended to provide temporary optional expedients and exceptions to the US GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from LIBOR and other interbank offered rates to alternative reference rates. This guidance was effective beginning on March 12, 2020, and the Company may elect to apply the amendments prospectively through December 31, 2022. The Company is currently evaluating the impact this guidance may have on its condensed consolidated financial statements and related disclosures.

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3. Leases

Lessor Operating Leases

We sublease certain retail space to our franchisees in the United Kingdom which are primarily operating leases. At ~~March 29,~~June 28, 2020, we leased and subleased approximately 370 Papa John’s restaurants to franchisees in the United Kingdom. The initial lease terms on the franchised sites in the United Kingdom are generally 15 years. The Company has the option to negotiate an extension toward the end of the lease term at the landlord’s discretion. Rental income, primarily derived from properties leased and subleased to franchisees in the United Kingdom, is recognized on a straight-line basis over the respective operating lease terms. We recognized total sublease income of ~~$2.5~~$5.0 million and ~~$2.3~~$4.8 million ~~as of March 29,~~for the six months ended June 28, 2020 and ~~March 31,~~June 30, 2019, respectively.

Lease Guarantees

As a result of assigning our interest in obligations under property leases as a condition of the refranchising of certain restaurants, we are contingently liable for payment of approximately ~~113~~89 domestic leases. These leases have varying terms, the latest of which expires in 2036. As of ~~March 29,~~June 28, 2020, the estimated maximum amount of undiscounted payments the Company could be required to make in the event of nonpayment by the primary lessees was ~~$17.9~~$15.9 million. This contingent liability is not included in the Condensed Consolidated Balance Sheet as it is not probable to occur. The fair value of the guarantee is not material.

Supplemental Cash Flow & Other Information

Supplemental cash flow information related to leases for the periods reported is as follows:


	Three Months Ended				Six Months Ended
(in thousands)		March 29, 2020		March 31, 2019		June 28, 2020		June 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from finance leases	$	151	$	—	$	295	$	—
Financing cash flows from finance leases		466		—		939		—
Operating cash flows from operating leases (a)		9,480		10,116		18,744		20,307
Right-of-use assets obtained in exchange for new finance lease liabilities		19		—		19		—
Right-of-use assets obtained in exchange for new operating lease liabilities		7,451		1,040		13,370		6,180
Cash received from sublease income		2,494		2,061		5,014		4,662

(a) Included within the change in Other assets and liabilities within the Condensed Consolidated Statements of Cash Flows offset by non-cash operating lease asset amortization and liability accretion.	(a) Included within the change in Other assets and liabilities within the Condensed Consolidated Statements of Cash Flows offset by non-cash operating lease asset amortization and liability accretion.				(a) Included within the change in Other assets and liabilities within the Condensed Consolidated Statements of Cash Flows offset by non-cash operating lease asset amortization and liability accretion.

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4. Papa John’s Marketing Fund, Inc.

PJMF collects a percentage of revenues from Company-owned and franchised restaurants in the United States, for the purpose of designing and administering advertising and promotional programs for all participating domestic restaurants. Contributions and expenditures are reported on a gross basis in the Condensed Consolidated Statements of Operations within Other revenues and Other expenses.

Assets and liabilities of PJMF, which are restricted in their use, included in the Condensed Consolidated Balance Sheets were as follows (in thousands):



	March 29,		December 29,		June 28,		December 29,
	2020		2019		2020		2019

Assets
Current assets:
Cash and cash equivalents	$	3,677	$	4,569	$	3,465	$	4,569
Accounts receivable, net		10,408		11,196		11,824		11,196
Income tax receivable		103		103		112		103
Prepaid expenses		649		1,316		434		1,316
Total current assets		14,837		17,184		15,835		17,184
Deferred income taxes, net		419		410		458		410
Total assets	$	15,256	$	17,594	$	16,293	$	17,594


Liabilities
Current liabilities:
Accounts payable	$	755	$	764	$	4,045	$	764
Accrued expenses and other current liabilities		12,478		14,287		10,884		14,287
Current deferred revenue		3,914		3,252		3,070		3,252
Debt		623		-		107		-
Total current liabilities		17,770		18,303		18,106		18,303
Deferred revenue		513		2,094		1,591		2,094
Total liabilities	$	18,283	$	20,397	$	19,697	$	20,397

5. Revenue Recognition

Contract Balances

Our contract liabilities primarily relate to franchise fees and unredeemed gift card liabilities, which we classify as Deferred revenue, and customer loyalty program obligations which are classified as Accrued expenses and other current liabilities. During the three and six months ended ~~March 29,~~June 28, 2020, ~~and March 31, 2019,~~ the Company recognized ~~$8.0~~$8.4 million and ~~$7.4~~$16.3 million in revenue, respectively, related to deferred revenue and the customer loyalty ~~program.~~program, compared to $8.4 million and $15.8 million for the three and six months ended June 30, 2019, respectively.

The contract liability balances are included in the following (in thousands):


	Contract Liabilities						Contract Liabilities
		March 29, 2020		December 29, 2019		Change		June 28, 2020		December 29, 2019		Change
Deferred revenue	$	18,944	$	20,346	$	(1,402)	$	18,925	$	20,346	$	(1,421)
Customer loyalty program		11,868		12,049		(181)		12,269		12,049		220
Total contract liabilities	$	30,812	$	32,395	$	(1,583)	$	31,194	$	32,395	$	(1,201)

Our contract assets consist primarily of equipment incentives provided to franchisees. Equipment incentives are related to the future value of commissary revenue the Company will receive over the term of the agreement. As of ~~March 29,~~June 28, 2020, and December 29, 2019, the contract assets were approximately ~~$5.4~~$4.9 million and $6.0 million, respectively. For the three and six months ended ~~March 29,~~June 28, 2020, ~~and March 31, 2019,~~ revenue was reduced approximately ~~$0.9~~$0.7 million and ~~$0.8~~$1.6 million, respectively, for

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~~respectively, for~~ the amortization of contract assets over the applicable contract terms. Contract assets are included in Prepaid expenses and other current assets and Other assets on the Condensed Consolidated Balance Sheets.

Transaction Price Allocated to the Remaining Performance Obligations

The following table (in thousands) includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied at the end of the reporting period.


		Performance Obligations by Period														Performance Obligations by Period
	Less than 1 Year		1-2 Years		2-3 Years		3-4 Years		4-5 Years		Thereafter		Total		Less than 1 Year		1-2 Years		2-3 Years		3-4 Years		4-5 Years		Thereafter		Total
Franchise fees	$	2,335	$	2,138	$	1,922	$	1,636	$	1,404	$	3,264	$	12,699	$	2,312	$	2,110	$	1,883	$	1,612	$	1,382	$	3,153	$	12,452

Approximately $1.8 million of area development fees related to unopened stores and international unearned royalties are included in Deferred revenue. Timing of revenue recognition is dependent upon the timing of store openings and franchisees’ revenues. Gift card liabilities of approximately ~~$4.4~~$4.7 million, included in Deferred revenue, will be recognized in Company-owned restaurant revenues when gift cards are redeemed. The Company will recognize redemption fee revenue in Other revenues when cards are redeemed at franchised restaurant locations.

The Company applies the practical expedient in ASC 606-10-50-14 and does not disclose information about remaining performance obligations that have original expected durations of one year or less.

6. Common Stock and Series B Convertible Preferred Stock

Shares Authorized and Outstanding

The Company has authorized 5.0 million shares of preferred stock, 100.0 million shares of common stock, and 260,000 shares of Series B Convertible Preferred Stock (the “Series B Preferred Stock”). The Company’s outstanding shares of common stock were ~~32.0~~32.3 million shares at ~~March 29,~~June 28, 2020 and 31.9 million shares at December 29, 2019.

There were 252,530 shares of Series B Preferred Stock outstanding at both ~~March 29,~~June 28, 2020 and December 29, 2019. The Series B Preferred Stock is classified as temporary equity on the Condensed Consolidated Balance Sheets as of ~~March 29,~~June 28, 2020 and December 29, 2019.

Dividends

The Company recorded dividends of approximately ~~$10.7~~$21.3 million in the ~~first quarter of~~six months ended June 28, 2020 consisting of the following:

●

$~~7.3~~14.5 million paid to common stockholders ($~~0.225~~0.45 per share);

●

$~~1.1~~2.3 million in common stock “pass-through” dividends paid to Series B Preferred Stockholders on an as-converted basis ($~~0.225~~0.45 per share); and

●

$~~2.3~~4.5 million in preferred dividends on the Series B Preferred Stock (3.6% of the investment per annum) ~~were declared with a record date of March 16, 2020 and paid on April 1, 2020.~~.

On ~~April 30,~~July 31, 2020, our Board of Directors declared a ~~second~~third quarter dividend of $0.225 per common share (of which approximately ~~$7.3~~$7.4 million will be paid to common stockholders and $1.1 million will be paid as “pass through” dividends to holders of Series B Preferred Stock on an “as converted basis”). The ~~second~~third quarter preferred dividend was also declared on ~~April 30,~~July 31, 2020. The common share dividend will be paid on ~~May 22,~~August 21, 2020 to stockholders of record as of the close of business on ~~May~~August 11, ~~2020.~~ 2020. The ~~second~~third quarter preferred dividend of $2.3 million will be paid to holders of Series B Preferred Stock on ~~July~~October 1, 2020.

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7. Earnings ~~(Loss)~~ Per Share

We compute earnings ~~(loss)~~ per share using the two-class method. The two-class method requires an earnings allocation formula that determines earnings ~~(loss)~~ per share for common stockholders and participating security holders according to dividends declared and participating rights in undistributed earnings. The Series B Preferred Stock and time-based restricted stock awards are participating securities because holders of such shares have non-forfeitable dividend rights and participate in undistributed earnings with common stock. Under the two-class method, total dividends provided to the holders of Series B Preferred Stock, including common stock dividends and undistributed earnings allocated to participating securities, are subtracted from net income ~~(loss)~~ attributable to the Company in determining net income ~~(loss)~~ attributable to common stockholders. Additionally, any accretion to redemption value for the Series B Preferred Stock is treated as a deemed dividend in the two-class EPS calculation.

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


	Three Months Ended				Three Months Ended				Six Months Ended
	March 29,		March 31,		June 28,		June 30,		June 28,		June 30,
	2020		2019		2020		2019		2020		2019

Basic earnings (loss) per common share:
Net income (loss) attributable to the Company	$	8,443	$	(1,731)
Basic earnings per common share
Net income attributable to the Company					$	20,614	$	8,354	$	29,057	$	6,623
Preferred stock dividends and accretion		(3,471)		(2,070)		(3,347)		(3,486)		(6,818)		(5,556)
Net income (loss) attributable to common shareholders	$	4,972	$	(3,801)
Net income attributable to participating securities						(1,560)		—		(1,306)		—
Net income attributable to common shareholders					$	15,707	$	4,868	$	20,933	$	1,067

Basic weighted average common shares outstanding		32,093		31,554		32,335		31,587		32,214		31,570
Basic earnings (loss) per common share	$	0.15	$	(0.12)
Basic earnings per common share					$	0.49	$	0.15	$	0.65	$	0.03

Diluted earnings (loss) per common share:
Net income (loss) attributable to common shareholders	$	4,972	$	(3,801)
Diluted earnings per common share
Net income attributable to common shareholders					$	15,707	$	4,868	$	20,933	$	1,067

Weighted average common shares outstanding		32,093		31,554		32,335		31,587		32,214		31,570
Dilutive effect of outstanding equity awards (a)		227		—		284		186		230		176
Diluted weighted average common shares outstanding (b)		32,320		31,554		32,619		31,773		32,444		31,746
Diluted earnings (loss) per common share	$	0.15	$	(0.12)
Diluted earnings per common share					$	0.48	$	0.15	$	0.65	$	0.03

(a)	Excludes ~~382~~145 and 170 equity awards for the three and six months ended ~~March 29,~~June 28, 2020, respectively, and 1,561 and 1,469 equity awards for the three and six months ended June 30, 2019, respectively, as the effect of including such awards would have been anti-dilutive.

(b)

The Company had ~~252,530~~252.5 shares of Series B Preferred Stock outstanding as of ~~March 29,~~June 28, 2020 and December 29, 2019. For the fully diluted calculation, the Series B Preferred stock dividends were added back to net income attributable to common stockholders. The Company then applied the if-converted method to calculate dilution on the Series B Preferred Stock, which resulted in 5.0 million additional common shares. This calculation was anti-dilutive for both periods ~~presented.~~presented and as such was excluded.

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Debt

Long-term debt, net, consists of the following (in thousands):


		March 29,		December 29,		June 28,		December 29,
		2020		2019		2020		2019
Outstanding debt	$	365,623	$	370,000	$	350,107	$	370,000
Unamortized debt issuance costs		(2,389)		(2,710)		(2,068)		(2,710)
Current portion of long-term debt		(20,623)		(20,000)		(20,107)		(20,000)
Total long-term debt, net	$	342,611	$	347,290	$	327,932	$	347,290

The Company has a secured revolving credit facility with available borrowings of $400.0 million (the “Revolving Facility”), of which ~~$10.0 million~~0 balance was outstanding as of ~~March 29,~~June 28, 2020, and a secured term loan facility with an outstanding balance of ~~$355.0~~$350.0 million (the “Term Loan Facility”) and together with the Revolving Facility, the “PJI Facilities”. The PJI Facilities mature on August 30, 2022. The loans under the PJI Facilities accrue interest at a per annum rate equal to, at the Company’s election, either LIBOR plus a margin ranging from 125 to 250 basis points or a base rate (generally determined by a prime rate, federal funds rate or LIBOR plus 1.00%) plus a margin ranging from 25 to 150 basis points. In each case, the actual margin is determined according to a ratio of the Company’s total indebtedness to earnings before interest, taxes, depreciation and amortization (“EBITDA”) for the then most recently ended 4-quarter period (the “Leverage Ratio”). The Credit Agreement governing the PJI Facilities (the “PJI Credit Agreement”) places certain customary restrictions upon the Company based on its financial covenants. These include limiting the repurchase of common stock and not increasing the cash dividend above the lesser of $0.225 per share per quarter or $35 million per fiscal year if the Company’s leverage ratio is above 3.75 to 1.0. Quarterly amortization payments are required to be made on the Term Loan Facility in the amount of $5.0 million. Loans outstanding under the PJI Facilities may be prepaid at any time without premium or penalty, subject to customary breakage costs in the case of borrowings for which a LIBOR rate election is in effect. Up to $35.0 million of the Revolving Facility may be advanced in certain agreed foreign currencies, including Euros, Pounds Sterling, Canadian Dollars, Japanese Yen, and Mexican Pesos.

The PJI Credit Agreement contains customary affirmative and negative covenants, including financial covenants requiring the maintenance of the Leverage Ratio and a specified fixed charge coverage ratio. The PJI Credit Agreement allows for a permitted Leverage Ratio of 5.00 to 1.0, decreasing over time to 4.00 to 1.0 by 2022; and a fixed charge coverage ratio of 2.25 to 1.0, which increases over time to 2.50 to 1.0 in 2021 and thereafter. We were in compliance with these financial covenants at ~~March 29,~~June 28, 2020.

Under the PJI Credit Agreement, we have the option to increase the Revolving Facility or the Term Loan Facility in an aggregate amount of up to $300.0 million, subject to the Leverage Ratio of the Company not exceeding 4.00 to 1.00. The Company and certain direct and indirect domestic subsidiaries are required to grant a security interest in substantially all of the capital stock and equity interests of their respective domestic and first tier material foreign subsidiaries to secure the obligations owed under the PJI Facilities.

Our outstanding debt of ~~$365.0~~$350.0 million at ~~March 29,~~June 28, 2020 under the PJI Facilities was composed of ~~$355.0~~$350.0 million outstanding under the Term Loan ~~Facility and $10.0 million outstanding under the Revolving~~ Facility. Including outstanding letters of credit, the Company’s remaining availability under the PJI Facilities at ~~March 29,~~June 28, 2020 was approximately ~~$343.8~~$353.8 million.

As of ~~March 29,~~June 28, 2020, the Company had approximately ~~$2.4~~$2.1 million in unamortized debt issuance costs, which are being amortized into interest expense over the term of the PJI Facilities.

We attempt to minimize interest rate risk exposure by fixing our rate through the utilization of interest rate swaps, which are derivative financial instruments. Our swaps are entered into with financial institutions that participate in the PJI Credit Agreement. By using a derivative instrument to hedge exposures to changes in interest rates, we expose ourselves to credit risk due to the possible failure of the counterparty to perform under the terms of the derivative contract. We use interest rate swaps to hedge against the effects of potential interest rate increases on borrowings under our PJI Facilities.

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As of ~~March 29,~~June 28, 2020, we have the following interest rate swap agreements with a total notional value of $350 million:


Effective Dates	Floating Rate Debt			Fixed Rates
April 30, 2018 through April 30, 2023	$	55	million	2.33	%
April 30, 2018 through April 30, 2023	$	35	million	2.36	%
April 30, 2018 through April 30, 2023	$	35	million	2.34	%
January 30, 2018 through August 30, 2022	$	100	million	1.99	%
January 30, 2018 through August 30, 2022	$	75	million	1.99	%
January 30, 2018 through August 30, 2022	$	50	million	2.00	%

The gain or loss on the swaps is recognized in Accumulated other comprehensive loss (“AOCL”) and reclassified into earnings as adjustments to interest expense in the same period or periods during which the swaps affect earnings. Gains or losses on the swaps representing hedge components excluded from the assessment of effectiveness are recognized in current earnings.

The following table provides information on the location and amounts of our swaps in the accompanying condensed consolidated financial statements (in thousands):

Interest Rate Swap Derivatives

Fair Value

March 29,

December 29,

June 28,

December 29,

Balance Sheet Location

2020

2019

2020

2019

Other current and long-term liabilities

17,020

6,168

17,050

6,168

The effect of derivative instruments on the accompanying condensed consolidated financial statements is as follows (in thousands):

Location of Gain

Amount of Gain

Location of Gain

Amount of Gain

Derivatives -

Amount of Gain or

or (Loss)

Total Net Interest Expense

Amount of Gain or

or (Loss)

Total Net Interest Expense

Cash Flow

(Loss) Recognized

Reclassified from

on Condensed

(Loss) Recognized

Reclassified from

on Condensed

Hedging

in AOCL

AOCL into

Consolidated Statements

in AOCL

AOCL into

Consolidated Statements

Relationships

on Derivative

Income

of Operations

on Derivative

Income

of Operations

Interest rate swaps for the three months ended:

March 29, 2020

(8,408)

Interest expense

(330)

(3,967)

March 31, 2019

(3,037)

Interest expense

148

(6,276)

June 28, 2020

(79)

Interest expense

(1,372)

(3,627)

June 30, 2019

(5,167)

Interest expense

231

(4,272)

Interest rate swaps for the six months ended:

June 28, 2020

(8,487)

Interest expense

(1,702)

(7,594)

June 30, 2019

(8,204)

Interest expense

688

(10,548)

The weighted average interest rates on our PJI Facilities, including the impact of the interest rate swap agreements, were 3.8% ~~and 4.5%~~ for the ~~three months~~three- and six-month periods ended ~~March 29,~~June 28, 2020, compared to 4.3% and ~~March 31,~~4.4 % for the three- and six-month periods ended June 30, 2019, respectively. Interest paid, including payments made or received under the swaps, was ~~$4.1~~$4.0 million and ~~$6.7~~$4.4 million for the three months ended ~~March 29,~~June 28, 2020 and ~~March 31,~~June 30, 2019, respectively, and $8.1 million and $11.1 million for the six months ended June 28, 2020 and June 30, 2019, respectively. As of ~~March 29,~~June 28, 2020, the portion of the aggregate ~~$17.0~~$17.1 million interest rate swap liability that would be reclassified into net interest expense during the next twelve months approximates ~~$6.6~~$7.2 million.

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six months ended June 30, 2019. As of ~~March 29,~~June 28, 2020, ~~the principal amount~~there was approximately $100,000 of debt outstanding under the PJMF Revolving Facility ~~was approximately $0.6 million and is classified as current debt (NaN~~(none at December 29, 2019). The PJMF operating results and the related debt outstanding do not impact the financial covenants under the PJI Credit Agreement.

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9.	Commitments and Contingencies

Litigation

The Company is involved in a number of lawsuits, claims, investigations and proceedings, including those specifically identified below, consisting of intellectual property, employment, consumer, commercial and other matters arising in the ordinary course of business. In accordance with ASC 450, “Contingencies” the Company has made accruals with respect to these matters where appropriate, which are reflected in the Company’s condensed consolidated financial statements. We review these provisions at least quarterly and adjust them to reflect the impact of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular case.

Durling et al v. Papa John’s International, Inc., is a conditionally certified collective action filed in May 2016 in the United States District Court for the Southern District of New York, alleging that corporate restaurant delivery drivers were not properly reimbursed for vehicle mileage and expenses in accordance with the Fair Labor Standards Act. In July 2018, the District Court granted a motion to certify a conditional corporate collective class and the opt-in notice process has been completed. As of the close of the opt-in period on October 29, 2018, 9,571 drivers opted into the collective class. The Company continues to deny any liability or wrongdoing in this matter and intends to vigorously defend this action. The Company has 0t recorded any liability related to this lawsuit as of ~~March 29,~~June 28, 2020 as it does not believe a loss is probable or reasonably estimable.

Danker v. Papa John’s International, Inc. et al. On August 30, 2018, a class action lawsuit was filed in the United States District Court, Southern District of New York on behalf of a class of investors who purchased or acquired stock in Papa John's through a period up to and including July 19, 2018. The complaint alleged violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended. The District Court appointed the Oklahoma Law Enforcement Retirement System to lead the case. An amended complaint was filed on February 13, 2019, which the Company moved to dismiss. On March 16, 2020, the Court granted the Company’s motion to dismiss, on the ground that the complaint failed to state any viable cause of action. The Plaintiffs subsequently filed a second amended complaint on April 30, ~~2020.~~2020, which the Company moved to dismiss. The Company believes that it has valid and meritorious defenses to the second amended complaint and intends to vigorously defend against the case. The Company has 0t recorded any liability related to this lawsuit as of ~~March 29,~~June 28, 2020 as it does not believe a loss is probable or reasonably estimable.

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~~10. Other General Expenses (Income)~~

~~Other general expenses (income) are included within General and administrative expenses and primarily consist of the following (in thousands):~~

Three Months Ended

March 29,

March 31,

2020

2019
Other general expenses (income) (a)
$
4,674

$
(100)
Special charges (b)

-

10,619
Administrative expenses (c)

42,977

40,616
General and administrative expenses
$
47,651

$
51,135

~~(a)~~

Other general expenses (income) increased $4.8 million for the first quarter ended March 29, 2020 compared to the prior comparable period primarily due to a $5.0 million discretionary marketing fund investment made as part of our previously announced temporary financial support package to our franchisees.

~~(b)~~

~~The Special charges for the three months ended March 31, 2019 include the following:~~

●

$5.0 million of advisory and legal costs primarily associated with the review of a wide range of strategic opportunities that culminated in a strategic investment in the Company by affiliates of Starboard as well as certain litigation costs associated with legal proceedings initiated by our founder; and

●

$5.6 million one-time mark-to-market adjustment related to the increase in the fair value of the Starboard option to purchase Series B Preferred Stock that culminated in the purchase of additional preferred stock in late March 2019.

~~(c)~~

The increase in administrative expenses of $2.4 million for the first quarter ended March 29, 2020, compared to the prior year comparable period was primarily due to higher management incentive costs and legal fees.

~~11.~~10.

Segment Information

We have 4 reportable segments: domestic Company-owned restaurants, North America commissaries, North America franchising and international operations. The domestic Company-owned restaurant segment consists of the operations of all domestic (“domestic” is defined as contiguous United States) Company-owned restaurants and derives its revenues principally from retail sales of pizza and side items, including breadsticks, cheesesticks, chicken poppers and wings, dessert items and canned or bottled beverages. The North America 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 in the United States and Canada. 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 segment principally consists of distribution sales to franchised Papa John’s restaurants located in the United Kingdom 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 “all other,” which consists of operations that derive revenues from the sale, principally to Company-owned and franchised restaurants, of printing and promotional items, franchise contributions to marketing funds and information systems and related services used in restaurant operations, including our point-of-sale system, online and other technology-based ordering platforms.

Generally, we evaluate performance and allocate resources based on income ~~(loss)~~ 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. NaN single external customer accounted for 10% or more of our consolidated revenues.

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Our segment information is as follows:

Three Months Ended

March 29,

March 31,
(In thousands)

2020

2019
Revenues:

Domestic Company-owned restaurants

$
161,440

$
161,803
North America commissaries

155,422

148,904
North America franchising

19,440

17,530
International

32,152

31,500
All others

41,405

38,668
Total revenues

$
409,859

$
398,405

Intersegment revenues:

North America commissaries

$
44,506

$
45,555
North America franchising

674

673
International

—

97
All others

20,955

15,411
Total intersegment revenues

$
66,135

$
61,736

Income (loss) before income taxes:

Domestic Company-owned restaurants

$
8,667

$
4,597
North America commissaries

7,509

7,512
North America franchising

17,326

15,691
International

4,499

5,317
All others

(259)

(506)
Unallocated corporate expenses

(26,051)

(32,465)
Elimination of intersegment (profits)

(186)

(913)
Total income (loss) before income taxes

$
11,505

$
(767)

Property and equipment:

Domestic Company-owned restaurants

$
223,539

North America commissaries

143,279

International

15,468

All others

85,775

Unallocated corporate assets

212,537

Accumulated depreciation and amortization

(475,563)

Property and equipment, net

$
205,035


	Three Months Ended				Six Months Ended
	June 28,		June 30,		June 28,		June 30,
(In thousands)	2020		2019		2020		2019
Revenues:
Domestic Company-owned restaurants	$	186,506	$	163,656	$	347,946	$	325,459
North America commissaries		167,619		147,128		323,041		296,032
North America franchising		24,174		19,761		43,614		37,291
International		34,366		31,420		66,518		62,920
All others		47,958		37,658		89,363		76,326
Total revenues	$	460,623	$	399,623	$	870,482	$	798,028

Intersegment revenues:
North America commissaries	$	47,357	$	46,962	$	91,863	$	92,517
North America franchising		793		787		1,467		1,460
International		—		94		—		191
All others		18,386		17,985		39,341		33,396
Total intersegment revenues	$	66,536	$	65,828	$	132,671	$	127,564

Income before income taxes
Domestic Company-owned restaurants	$	16,746	$	7,712	$	25,413	$	12,309
North America commissaries		8,567		7,792		16,076		15,304
North America franchising		22,176		17,910		39,502		33,601
International		4,589		5,403		9,088		10,720
All others		1,983		(1,209)		1,724		(1,715)
Unallocated corporate expenses		(26,430)		(27,891)		(52,481)		(60,356)
Elimination of intersegment (profits) losses		(724)		242		(910)		(671)
Total income before income taxes	$	26,907	$	9,959	$	38,412	$	9,192

Property and equipment:
Domestic Company-owned restaurants	$	226,404
North America commissaries		143,474
International		15,493
All others		88,602
Unallocated corporate assets		213,517
Accumulated depreciation and amortization		(486,909)
Property and equipment, net	$	200,581

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Disaggregation of Revenue

In the following tables, revenues are disaggregated by major ~~product~~product/service line. The tables also include a reconciliation of the disaggregated revenues by the reportable segment (in thousands):


		Reportable Segments												Reportable Segments
		Three Months Ended March 29, 2020												Three Months Ended June 28, 2020
Major Products/Services Lines		Domestic Company-owned restaurants		North America commissaries		North America franchising		International		All others		Total		Domestic Company-owned restaurants		North America commissaries		North America franchising		International		All others		Total
Company-owned restaurant sales	$	161,440	$	-	$	-	$	-	$	-	$	161,440	$	186,506	$	-	$	-	$	-	$	-	$	186,506
Commissary sales		-		199,928		-		16,543		-		216,471		-		214,976		-		20,350		-		235,326
Franchise royalties and fees		-		-		20,114		9,516		-		29,630		-		-		24,967		7,743		-		32,710
Other revenues		-		-		-		6,093		62,360		68,453		-		-		-		6,273		66,344		72,617
Eliminations		-		(44,506)		(674)		-		(20,955)		(66,135)		-		(47,357)		(793)		-		(18,386)		(66,536)
Total segment revenues	$	161,440	$	155,422	$	19,440	$	32,152	$	41,405	$	409,859	$	186,506	$	167,619	$	24,174	$	34,366	$	47,958	$	460,623
International other revenues (1)		-		-		-		(6,093)		6,093		-		-		-		-		(6,273)		6,273		-
Total revenues	$	161,440	$	155,422	$	19,440	$	26,059	$	47,498	$	409,859	$	186,506	$	167,619	$	24,174	$	28,093	$	54,231	$	460,623

		Reportable Segments												Reportable Segments
		Three Months Ended March 31, 2019												Three Months Ended June 30, 2019
Major Products/Services Lines		Domestic Company-owned restaurants		North America commissaries		North America franchising		International		All others		Total		Domestic Company-owned restaurants		North America commissaries		North America franchising		International		All others		Total
Company-owned restaurant sales	$	161,803	$	-	$	-	$	-	$	-	$	161,803	$	163,656	$	-	$	-	$	-	$	-	$	163,656
Commissary sales		-		194,459		-		15,866		-		210,325		-		194,090		-		15,948		-		210,038
Franchise royalties and fees		-		-		18,203		9,801		-		28,004		-		-		20,548		9,549		-		30,097
Other revenues		-		-		-		5,930		54,079		60,009		-		-		-		6,017		55,643		61,660
Eliminations		-		(45,555)		(673)		(97)		(15,411)		(61,736)		-		(46,962)		(787)		(94)		(17,985)		(65,828)
Total segment revenues	$	161,803	$	148,904	$	17,530	$	31,500	$	38,668	$	398,405	$	163,656	$	147,128	$	19,761	$	31,420	$	37,658	$	399,623
International other revenues (1)		-		-		-		(5,930)		5,930		-		-		-		-		(6,017)		6,017		-
International eliminations (1)		-		-		-		97		(97)		-		-		-		-		94		(94)		-
Total revenues	$	161,803	$	148,904	$	17,530	$	25,667	$	44,501	$	398,405	$	163,656	$	147,128	$	19,761	$	25,497	$	43,581	$	399,623

														Reportable Segments
														Six Months Ended June 28, 2020
Major Products/Services Lines														Domestic Company-owned restaurants		North America commissaries		North America franchising		International		All others		Total
Company-owned restaurant sales													$	347,946	$	-	$	-	$	-	$	-	$	347,946
Commissary sales														-		414,904		-		36,893		-		451,797
Franchise royalties and fees														-		-		45,081		17,259		-		62,340
Other revenues														-		-		-		12,366		128,704		141,070
Eliminations														-		(91,863)		(1,467)		-		(39,341)		(132,671)
Total segment revenues													$	347,946	$	323,041	$	43,614	$	66,518	$	89,363	$	870,482
International other revenues (1)														-		-		-		(12,366)		12,366		-
International eliminations (1)														-		-		-		-		-		-
Total revenues													$	347,946	$	323,041	$	43,614	$	54,152	$	101,729	$	870,482

														Reportable Segments
														Six Months Ended June 30, 2019
Major Products/Services Lines														Domestic Company-owned restaurants		North America commissaries		North America franchising		International		All others		Total
Company-owned restaurant sales													$	325,459	$	-	$	-	$	-	$	-	$	325,459
Commissary sales														-		388,549		-		31,814		-		420,363
Franchise royalties and fees														-		-		38,751		19,350		-		58,101
Other revenues														-		-		-		11,947		109,722		121,669
Eliminations														-		(92,517)		(1,460)		(191)		(33,396)		(127,564)
Total segment revenues													$	325,459	$	296,032	$	37,291	$	62,920	$	76,326	$	798,028
International other revenues (1)														-		-		-		(11,947)		11,947		-
International eliminations (1)														-		-		-		191		(191)		-
Total revenues													$	325,459	$	296,032	$	37,291	$	51,164	$	88,082	$	798,028

(1)	Other revenues as reported in the Condensed Consolidated Statements of Operations include ~~$6.1~~$6.3 million and ~~$5.8~~$12.4 million of revenue for the three and six months ended ~~March 29,~~June 28, 2020, respectively, and ~~March 31,~~$5.9 million and $11.8 million

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for the three and six months ended June 30, 2019, respectively, that are part of the international reporting segment. These amounts include marketing fund contributions and sublease rental income from international franchisees in the United Kingdom that provide no significant contribution to income ~~(loss)~~ before income taxes but must be reported on a gross basis under accounting requirements. The related expenses for these Other revenues are reported in Other expenses in the Condensed Consolidated Statements of Operations.

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

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 1984. As of ~~March 29,~~June 28, 2020, there were ~~5,378~~5,347 Papa John’s restaurants ~~(599~~(598 Company-owned and ~~4,779~~4,749 franchised) operating in 4948 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, contributions received from franchisees for domestic and international marketing funds we control, revenues for printing and promotional items, and information systems and related services used in their operations.

Recent Developments and Trends

Coronavirus (“COVID-19”). The COVID-19 outbreak has presented evolving risks and developments domestically and ~~internationally. The outbreak began~~internationally, as well as new opportunities for our business. In response to result in disruption in certain of our international markets beginning in January 2020, which negatively impacted our operations in affected locations, including causing temporary closures of franchise locations in China and South Korea. Subsequently, the outbreak, ~~was characterized as a pandemic by the World Health Organization on March 11, 2020 and declared a national emergency in the United States during the same timeframe. In response,~~ governments and other authorities around the world have imposed measures to attempt to control the spread of COVID-19, includingrestrictions on freedom of movement and business operations such as travel bans, social distancing requirements, including limitations on gatherings, shelter-in-place orders and quarantines, and mandated business closures, which have resulted in significant changes in commercial activity and consumer behavior. ~~In addition,~~Our delivery and carryout model has positioned us to continue to experience strong demand for our products. To ensure we can continue to meet the ~~pandemic has resulted in an overall contraction in global economic activity~~demand of our customers, we continue to monitor our supply chain and ~~rising unemployment. We have been in discussions with our major suppliers and currently~~ have not experienced material ~~disruptions in our supply chain.~~disruptions.

Our primary focus continues to be the safety of our team members, franchisees, and customers. The Company has taken steps to mitigate the impact of the COVID-19 pandemic by implementing extra health and safety measures across our business, including No Contact Delivery and enhanced cleaning and sanitization measures, for the protection of both our customers and team members. We have expanded our employee benefits to include free virtual doctor visits. This is in addition to existing employee benefits of no-cost mental health support, affordable health plan options and access to the Papa John’s Team Member Emergency Relief Fund, if and when needed. In addition, the Company ~~is in the process~~has hired thousands of ~~hiring thousands of~~new restaurant team members to help serve our customers.

Of the Company’s ~~approximately 2,100~~2,063 international franchised stores, ~~approximately 375 are~~225 stores were temporarily closed as of June 28, 2020, principally in ~~Europe (140 stores),~~ Latin America ~~(130 stores),~~ and ~~the Middle East (95 stores)~~Europe, in accordance with government policies. In China and South Korea, our markets which were impacted the earliest by the COVID-19 outbreak, a limited number of restaurants remain closed. Some international markets are open predominantly for delivery only, such as in the United Kingdom. In North America, ~~substantially~~almost all ~~our~~ traditional restaurants remain open and fully operational. A number of non-traditional restaurants located in universities and stadiums are temporarily closed; these non-traditional locations are not significant to our revenues and operating results.

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Although March sales in North America were negatively impacted by the cancellation of large gatherings, including major sporting events, our domestic businesses have performed well, as customers and communities rely on us and others in the food delivery industry. The demand for carry-out and delivery across our markets has increased over the past several ~~weeks.~~months. Our second quarter comparable sales ~~results by month for the first quarter,~~information and our preliminary, estimated Period 7 comparable sales ~~information for the first month of the second quarter of 2020 (Period 4)~~ are as follows:

First

Period 1

Period 2

Period 3

Quarter

Period 4

Dec. 30,

Jan. 27,

Feb. 24,

Three

Mar. 30,

2019, to

2020, to

2020, to

months

2020, to

Jan. 26,

Feb. 23,

Mar. 29,

ended

Apr. 26,

2020

2020

2020

Mar. 29, 2020

2020
Comparable sales growth/(decline)(a):

Domestic Company-owned restaurants

9.4%

7.6%

2.5%

6.1%

22.0%
North America franchised restaurants

7.1%

4.8%

3.9%

5.1%

28.4%
Systemwide North America restaurants

7.6%

5.4%

3.6%

5.3%

26.9%

System-wide international restaurants

4.9%

2.9%

(0.6%)

2.3%

1.4%



	Quarter 2	Period 7
	March 30, 2020, to	June 29, 2020, to
	June 28, 2020	July 26, 2020
Comparable sales growth (a):
Domestic Company-owned restaurants	22.6%	23.6%
North America franchised restaurants	29.7%	32.4%
System-wide North America restaurants	28.0%	30.3%

System-wide international restaurants (b)	5.3%	13.9%

~~(a)~~

(a)

Represents the change in year-over-year sales for the same base of restaurants for the same fiscal periods. Comparable sales results for restaurants operating outside of the United States are reported on a constant-dollar basis, which excludes the impact of foreign currency translation. We believe North America and international comparable sales growth information is useful in analyzing our results since our franchisees pay royalties and marketing fund contributions that are based on a percentage of franchise sales. Franchise sales also generate commissary revenue in the United States and in certain international markets. Franchise restaurant and comparable sales growth information is also useful for comparison to industry trends and evaluating the strength of our brand. Franchise restaurant sales are not included in the Company’s revenues.

(b)

Includes the impact of approximately 170 temporarily closed stores as of July 26, 2020, principally located in Latin America and Europe. Excluding these stores, comparable sales growth for system-wide international restaurants would have been approximately 13.3% and 17.2% for the second quarter and Period 7, respectively.

WeAlthough our sales have ~~sufficient cash on hand to support our current operations and we have access to approximately $350 million from our secured revolving credit facility, should we need it.~~

~~Due~~improved during the pandemic, due to the substantial uncertainty related to and the rapidly changing nature of the pandemic, we are unable to predict the specific impacts of the outbreak on our results of operations, liquidity or long-term financial condition. For a discussion of the risks to our business presented by the COVID-19 pandemic, please see ~~Part II, Item 1A, “Risk Factors” of this~~the risk factors disclosed in the Company’s Annual Report on Form-10-K for the fiscal year ended December 29, 2019 and Quarterly Report on Form ~~10-Q.~~

10-Q for the quarterly period ended March 29, 2020.

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Restaurant Progression

Three Months Ended

March 29, 2020

March 31, 2019

North America Company-owned:

Beginning of period

598

645
Opened

1

1
Closed

—

—
Sold to franchisees

—

(1)
End of period

599

645
North America franchised:

Beginning of period

2,690

2,692
Opened

15

26
Closed

(19)

(28)
Acquired from Company

—

1
End of period

2,686

2,691
International franchised:

Beginning of period

2,107

1,966
Opened

18

49
Closed

(32)

(15)
End of period

2,093

2,000
Total restaurants – end of period

5,378

5,336


	Three Months Ended				Six Months Ended
	June 28, 2020		June 30, 2019		June 28, 2020		June 30, 2019

North America Company-owned:
Beginning of period		599		645		598		645
Opened		—		1		1		2
Closed		(1)		(2)		(1)		(2)
Sold to franchisees		—		(1)		—		(2)
End of period		598		643		598		643
North America franchised:
Beginning of period		2,686		2,691		2,690		2,692
Opened		9		17		24		43
Closed		(9)		(33)		(28)		(61)
Acquired from Company		—		1		—		2
End of period		2,686		2,676		2,686		2,676
International franchised:
Beginning of period		2,093		2,000		2,107		1,966
Opened		25		34		43		83
Closed		(55)		(8)		(87)		(23)
End of period		2,063		2,026		2,063		2,026
Total restaurants – end of period		5,347		5,345		5,347		5,345

Note: Temporary closures as a result of the COVID-19 outbreak are not reflected as “closed” in the restaurant progression above. ~~See “Recent Development and Trends” section above.~~

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Items Impacting Comparability; Non-GAAP Measures

Effective as of the first quarter of 2020, the Company modified its presentation of adjusted (non-GAAP) financial results to no longer present certain financial assistance provided to the North America system in the form of royalty relief and discretionary marketing fund investments as Special charges. This financial assistance, which began in the third quarter of 2018 in response to declining sales in North America, will continue through the third quarter of 2020, as announced in a formal plan in July 2019. The adjusted financial results for the ~~quarter~~three and six months ended ~~March 31,~~June 30, 2019 have been revised to remove these items. See “Temporary Franchise Support” for additional information regarding this change in presentation.

The table below reconciles our GAAP financial results to our adjusted financial results, which are non-GAAP ~~measures.~~measures (collectively defined as “Special items”). We present these non-GAAP measures because we believe the Special ~~charges~~items in ~~the first quarter of~~ 2019 impact the comparability toof our ~~first quarter 2020 results.~~results of operations.

Three Months Ended

March 29,

March 31,
(In thousands, except per share amounts)

2020

2019

GAAP income (loss) before income taxes

$
11,505

$
(767)
Special charges:

Legal and advisory fees (1)

—

5,067
Mark-to-market adjustment on option valuation (2)

—

5,914
Adjusted income before income taxes

$
11,505

$
10,214

GAAP net income (loss) attributable to common shareholders

$
4,972

$
(3,801)
Special charges:

Legal and advisory fees (1)

—

5,067
Mark-to-market adjustment on option valuation (2)

—

5,914
Tax effect of Legal and advisory fees (3)

—

(1,176)
Adjusted net income attributable to common shareholders

$
4,972

$
6,004

GAAP diluted earnings (loss) per share

$
0.15

$
(0.12)
Special charges:

Legal and advisory fees (1)

—

0.16
Mark-to-market adjustment on option valuation (2)

—

0.19
Tax effect of Legal and advisory fees (3)

—

(0.04)
Adjusted diluted earnings per share

$
0.15

$
0.19



	Three Months Ended				Six Months Ended
	June 28,		June 30,		June 28,		June 30,
(In thousands, except per share amounts)	2020		2019		2020		2019

GAAP income before income taxes	$	26,907	$	9,959	$	38,412	$	9,192
Special charges:
Legal and advisory fees (1)		—		396		—		5,463
Mark-to-market adjustment on option valuation (2)		—		—		—		5,914
Refranchising gains		—		(163)		—		(163)
Adjusted income before income taxes	$	26,907	$	10,192	$	38,412	$	20,406

GAAP net income attributable to common shareholders	$	15,707	$	4,868	$	20,933	$	1,067
Special charges:
Legal and advisory fees (1)		—		396		—		5,463
Mark-to-market adjustment on option valuation (2)		—		—		—		5,914
Refranchising gains		—		(163)		—		(163)
Tax effect of Non-GAAP items (3)		—		(22)		—		(1,197)
Adjusted net income attributable to common shareholders	$	15,707	$	5,079	$	20,933	$	11,084

GAAP diluted earnings per share	$	0.48	$	0.15	$	0.65	$	0.03
Special charges:
Legal and advisory fees (1)		—		0.01		—		0.17
Mark-to-market adjustment on option valuation (2)		—		—		—		0.19
Tax effect of Non-GAAP items (3)		—		—		—		(0.04)
Adjusted diluted earnings per share	$	0.48	$	0.16	$	0.65	$	0.35

(1)

Represents advisory and legal costs incurred in 2019 primarily associated with the review of a wide range of strategic opportunities that culminated in the strategic investment in the Company by affiliates of Starboard Value LP (“Starboard”) as well as certain litigation costs associated with legal proceedings initiated by our founder.

(2)	Represents a one-time mark-to-market adjustment of $5.9 million primarily related to the increase in the fair value of the Starboard option to purchase Series B Preferred Stock that culminated in the purchase of additional preferred stock in late March 2019.

(3)	The tax effect for Legal and advisory fees and Refranchising gains was calculated by applying the 2019 full year marginal rate of ~~23.2%~~22.6%. The mark-to- market adjustment on option valuation was non-deductible for tax purposes.

The 2019 non-GAAP adjusted results shown above and within this document, which exclude the Special ~~charges,~~items, should not be construed as a substitute for or a better indicator of the Company’s performance than the Company’s GAAP results. Management believes presenting certain financial information excluding the Special ~~charges~~items is important for purposes of comparison to prior year results. In addition, management uses these metrics to evaluate the Company’s underlying operating performance and to analyze trends.

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Temporary Franchise Support. As previously mentioned, effective as of the first quarter of 2020, the Company no longer presents certain royalty relief and discretionary marketing fund investments, included herein as “Temporary Franchise Support,” as Special charges within its adjusted financial results. The prior period adjusted financial measures presented above in “~~Items~~“Items Impacting Comparability; Non-GAAP Measures” have also been revised to remove the impact of these items.

Temporary Franchise Support investments were ~~$10.7 million (or approximately $0.26 per diluted share) in the first quarter ended March 29, 2020, compared to $4.9~~$5.1 million (or approximately $0.12 per diluted share) inand $15.8 million (or approximately $0.38 per diluted share) for the ~~first quarter~~three and six months ended ~~March 31,~~June 28, 2020, respectively, compared to $5.0 million (or approximately $0.12 per diluted share) and $9.8 million (or approximately $0.24 per diluted share) for the three and six months ended June 30, 2019, as follows (in thousands):

Three Months Ended

March 29,

March 31,

2020

2019
Royalty relief (a)

$
5,656

$
4,873
Marketing fund investments (b)

5,000

-
Total Temporary Franchise Support (c)

$
10,656

$
4,873



	Three Months Ended				Six Months Ended
	June 28,		June 30,		June 28,		June 30,
	2020		2019		2020		2019
Royalty relief (a)	$	5,145	$	2,466	$	10,801	$	7,339
Marketing fund investments (b)		—		2,500		5,000		2,500
Total Temporary Franchise Support (c)	$	5,145	$	4,966	$	15,801	$	9,839

(a)

Represents financial assistance provided to the North America system in the form of temporary royalty reductions that are above and beyond the level of franchise assistance the Company would incur in the ordinary course of its business. Beginning in the third quarter of 2018, the Company began providing various forms of support and financial assistance to the North America franchise system in response to declining North America sales. In July 2019, the Company announced a formal relief program to provide our North America franchisees with certainty regarding the availability and schedule of the temporary relief through the third quarter of 2020. These royalty reductions are not an expense, but rather consist of the amount of waived royalties that the Company would otherwise have been entitled to absent the waiver. The waived royalties are not included in North America franchise royalties and fees revenues.

(b)

Represents incremental discretionary marketing fund investments in excess of contractual Company-owned restaurant-level contributions, which were made as part of our previously announced temporary financial support package to our franchisees. The marketing fund investments are included in Unallocated corporate expenses.

(c)

The Company expects to provide approximately ~~$15~~$12 to ~~$20~~$15 million of Temporary Franchise Support in the ~~second and~~ third ~~fiscal quarters~~quarter of ~~2020.~~2020, of which the majority is expected to be marketing fund investments. The ~~formal relief program~~Temporary Franchise Support will conclude in the third quarter of 2020.

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Results of Operations

Discussion of Revenues. Consolidated revenues increased ~~$11.5~~$61.0 million, or ~~2.9%~~15.3%, ~~to $409.9~~and $72.5 million, or 9.1%, for the ~~first quarter of~~three and six months ended June 28, 2020, ~~compared to $398.4 million for the first quarter of 2019.~~respectively. Revenues are summarized in the following table (dollars in thousands).

Three Months Ended


Mar. 29,

Mar. 31,

Increase

Percent

2020

2019

(Decrease)

Change
Domestic Company-owned restaurant sales

$
161,440

$
161,803

$
(363)

(0.2)
%
North America franchise royalties and fees

19,440

17,530

1,910

10.9
%
North America commissary

155,422

148,904

6,518

4.4
%
International

26,059

25,667

392

1.5
%
Other revenues

47,498

44,501

2,997

6.7
%
Total Revenues

$
409,859

$
398,405

$
11,454

2.9
%



	Three Months Ended
	Jun. 28,		Jun. 30,				Percent
	2020		2019		Increase		Change
Domestic Company-owned restaurant sales	$	186,506	$	163,656	$	22,850	14.0	%
North America franchise royalties and fees		24,174		19,761		4,413	22.3	%
North America commissary		167,619		147,128		20,491	13.9	%
International		28,093		25,497		2,596	10.2	%
Other revenues		54,231		43,581		10,650	24.4	%
Total Revenues	$	460,623	$	399,623	$	61,000	15.3	%

	Six Months Ended
	Jun. 28,		Jun. 30,				Percent
	2020		2019		Increase		Change
Domestic Company-owned restaurant sales	$	347,946	$	325,459	$	22,487	6.9	%
North America franchise royalties and fees		43,614		37,291		6,323	17.0	%
North America commissary		323,041		296,032		27,009	9.1	%
International		54,152		51,164		2,988	5.8	%
Other revenues		101,729		88,082		13,647	15.5	%
Total Revenues	$	870,482	$	798,028	$	72,454	9.1	%

Domestic Company-owned restaurant sales ~~decreased $0.4~~increased $22.9 million, or ~~0.2%~~14.0%, and $22.5 million, or 6.9%, for the three and six months ended ~~March 29,~~June 28, 2020, ~~primarily due~~respectively, compared to the prior year comparable period. Excluding the impact of refranchising of 46 restaurants in 2019 primarily located in South Florida and ~~Georgia. Excluding the impact of refranchising, Domestic~~Georgia, domestic Company-owned restaurant sales increased ~~$10.8~~$33.7 million, or ~~7.2%.~~22.0%, and $44.3 million, or 14.6% for the three and six months ended June 28, 2020, respectively. The ~~increase was~~increases were primarily due to positive comparable sales increases of ~~6.1%.~~22.6% and 14.4% for the three and six months ended June 28, 2020, respectively. “Comparable sales” represents the change in year-over-year sales for the same base of restaurants for the same fiscal periods.

North America franchise royalties and fees increased ~~$1.9~~$4.4 million, or ~~10.9%~~22.3%, and $6.3 million, or 17.0%, for the three and six months ended ~~March 29,~~June 28, 2020, respectively, compared to the ~~three months ended March 31, 2019.~~prior year comparable periods. Excluding the impact of refranchising, North America franchise royalties and fees increased ~~$1.3~~$3.7 million and $5.0 million for the three and six months ended June 28, 2020, respectively. The increases were primarily due to positive comparable sales increases of ~~5.1%.~~29.7% and 17.2% for the three and six months ended June 28, 2020, respectively.

North America franchise restaurant sales increased ~~5.9%~~29.4% to ~~$559.2~~$662.7 million and 17.5% to $1.2 billion for the three and six months ended ~~March 29, 2020.~~June 28, 2020, respectively, compared to the prior year comparable periods. North America franchise restaurant sales are not included in Company revenues; however, our North America franchise royalties are derived from these sales.

North America commissary sales increased ~~$6.5~~$20.5 million, or ~~4.4%~~13.9%, and $27.0 million, or 9.1%, for the three and six months ended ~~March 29,~~June 28, 2020, respectively, primarily due to higher volumes. The six-month period also increased due to pricing associated with higher commodities ~~costs, primarily cheese.~~costs.

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International revenues increased ~~$0.4~~$2.6 million, or ~~1.5%~~10.2%, and $3.0 million, or 5.8%, for the three and six months ended ~~March 29, 2020.~~June 28, 2020, respectively, compared to the prior year comparable period. Excluding the impact of refranchising our Quality Control Center in Mexico in the first quarter of 2019, International revenues increased ~~$1.4~~$4.0 million, or ~~5.6%~~7.9%, for the ~~three~~six months ended ~~March 29,~~June 28, 2020. The ~~increase~~increases of ~~$1.4~~$2.6 million ~~was~~and $4.0 million were primarily due to higher United Kingdom commissary revenues and higher royalties from increased equivalent units and higher comparable sales of ~~2.3%.~~5.3% and 3.8% for the three and six months ended June 28, 2020, respectively. The higher ~~sales~~revenues were partially offset by ~~lower development fees~~royalty support provided to certain franchisees and unfavorable foreign exchange rates. “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.

International franchise restaurant sales increased ~~8.1%~~5.5% to ~~$235.5~~$232.0 million and 6.8% to $467.5 million for the three and six months ended ~~March 29,~~June 28, 2020, respectively, excluding the impact of foreign currency, primarily due to increases in equivalent units and positive comparable sales. International franchise restaurant sales are not included in Company revenues; however, our international royalty revenue is derived from these sales.

Other revenues increased ~~$3.0~~$10.7 million, or ~~6.7%~~24.4%, and $13.6 million, or 15.5%, for the three and six months ended ~~March 29, 2020.~~June 28, 2020, respectively, compared to the prior year comparable period. The ~~increase was~~increases were primarily due to higher marketing fund revenue primarily due to an increase in franchise sales and an increase in the national marketing fund contribution rate in 2020 and higher online revenues.

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Discussion of Operating Results

Income ~~(loss)~~ before income taxes is summarized in the following table on a reporting segment basis. Income ~~(loss)~~ before income taxes increased approximately ~~$12.3~~$16.9 million and $29.2 million for the ~~first quarter of~~three and six months ended June 28, 2020, ~~over~~respectively, compared to the ~~first quarter of 2019.~~prior year comparable periods. Alongside the GAAP income ~~(loss)~~ before income taxes data, we have included “adjusted” income ~~(loss)~~ before income taxes for the ~~first quarter of~~three and six months ended June 30, 2019 to exclude Special ~~charges.~~items. We believe this non-GAAP measure is important for purposes of comparing to 2020 results.

Three Months Ended

Reported

Reported

Special

Adjusted

Adjusted

Mar. 29,

Mar. 31,

charges

Mar. 31,

Increase

(In thousands)

2020

2019

in 2019

2019

(Decrease)

Domestic Company-owned restaurants

$
8,667

$
4,597

$
—

$
4,597

$
4,070

North America commissaries

7,509

7,512

—

7,512

(3)

North America franchising

17,326

15,691

—

15,691

1,635

International

4,499

5,317

—

5,317

(818)

All others

(259)

(506)

—

(506)

247

Unallocated corporate expenses

(26,051)

(32,465)

10,981

(21,484)

(4,567)

Elimination of intersegment profits

(186)

(913)

—

(913)

727

Adjusted income (loss) before income taxes

$
11,505

$
(767)

$
10,981

$
10,214

$
1,291


	Three Months Ended
	Reported		Reported		Special		Adjusted		Adjusted
	Jun. 28,		Jun. 30,		items		Jun. 30,		Increase
(In thousands)	2020		2019		in 2019		2019		(Decrease)

Domestic Company-owned restaurants	$	16,746	$	7,712	$	(163)	$	7,549	$	9,197
North America commissaries		8,567		7,792		—		7,792		775
North America franchising		22,176		17,910		—		17,910		4,266
International		4,589		5,403		—		5,403		(814)
All others		1,983		(1,209)		—		(1,209)		3,192
Unallocated corporate expenses		(26,430)		(27,891)		396		(27,495)		1,065
Elimination of intersegment (profits) losses		(724)		242		—		242		(966)
Adjusted income before income taxes	$	26,907	$	9,959	$	233	$	10,192	$	16,715

	Six Months Ended
	Reported		Reported		Special		Adjusted		Adjusted
	Jun. 28,		Jun. 30,		items		Jun. 30,		Increase
(In thousands)	2020		2019		in 2019		2019		(Decrease)

Domestic Company-owned restaurants	$	25,413	$	12,309	$	(163)	$	12,146	$	13,267
North America commissaries		16,076		15,304		—		15,304		772
North America franchising		39,502		33,601		—		33,601		5,901
International		9,088		10,720		—		10,720		(1,632)
All others		1,724		(1,715)		—		(1,715)		3,439
Unallocated corporate expenses		(52,481)		(60,356)		11,377		(48,979)		(3,502)
Elimination of intersegment profits		(910)		(671)		—		(671)		(239)
Adjusted income before income taxes	$	38,412	$	9,192	$	11,214	$	20,406	$	18,006

The ~~increase~~increases in adjusted income before income taxes of ~~$1.3~~$16.7 million, or ~~12.6%~~164.0%, and $18.0 million, or 88.2%, for the ~~first quarter of~~three- and six-month periods in 2020, respectively, excluding Special ~~charges~~items in 2019, ~~was~~were primarily due to the following:

●

Domestic Company-owned Restaurant Segment. Domestic Company-owned restaurants ~~income before income taxes~~ increased ~~$4.1~~$9.2 million inand $13.3 million for the ~~first quarter of~~three and six months ended June 28, 2020, respectively, compared to the ~~same quarter of the~~ prior year comparable periods. The increases were primarily due to higher profits from positive comparable sales of ~~6.1%~~22.6% and ~~lower loyalty program costs,~~14.4% for the three and six months ended June 28, 2020, respectively, partially offset by higher labor and bonus expense. The six-month period also included higher commodities ~~primarily cheese.~~costs compared to the prior year comparable period.

●

North America Commissaries Segment. North America Commissaries increased $800,000 for three and six months ended June 28, 2020, primarily due to higher profits from higher volumes.

Table of Contents

●

North America Franchising Segment. North America franchising ~~income before income taxes was $1.6~~increased $4.3 million ~~higher~~and $5.9 million for the ~~first quarter of~~three and six months ended June 28, 2020, respectively, compared to the ~~same quarter of the~~ prior year comparable periods, primarily due to higher comparable sales of ~~5.1%.~~29.7% and 17.2%, respectively, partially offset by a lower effective royalty rate due to higher temporary royalty relief which is part of our franchise assistance program discussed in “Temporary Franchise Support.”

●

International Segment. International ~~income before income taxes~~ decreased approximately ~~$0.8~~$800,000 and $1.6 million infor the ~~first quarter of~~three and six months ended June 28, 2020, respectively, compared to the ~~same quarter of the~~ prior year comparable period, primarily due to ~~lower development fee revenues, higher general and administrative costs~~royalty support provided to certain franchisees, as previously mentioned, and the unfavorable impact of foreign exchange ~~rates,~~rates. These decreases were partially offset by lower travel costs due to COVID-19 restrictions and higher royalty ~~revenues~~revenue and PJUK commissary income attributable to increased units and higher comparable sales.

●

All Others. All Others, ~~income before income taxes,~~ which primarily includes our online and mobile ordering business, our wholly-owned print and promotions subsidiary ~~Preferred Marketing Solutions,~~ and our marketing funds, increased ~~$0.2~~$3.2 million and $3.4 million for the ~~first quarter of~~three and six months ended June 28, 2020, respectively, compared to the ~~same quarter of the~~ prior year comparable periods, primarily due to higher ~~profits on our~~ online ~~and mobile ordering business from higher sales.~~revenues.

●

Unallocated Corporate Expenses. Unallocated corporate expenses ~~increased~~decreased approximately ~~$4.6~~$1.1 million for the ~~first quarter of~~three months ended June 28, 2020, ~~compared to the same quarter of the prior year. The increase was~~ primarily due to the 2019 period including a ~~$5.0~~$2.5 million discretionary marketing fund investment ~~as part of the formal relief program, as described above~~discussed in “Temporary Franchise Support,” savings from the cancellation of our annual operators’ conference and reduced travel as a result of COVID-19, lower professional and consulting fees and lower interest expense. These decreases were partially offset by higher management incentive costs. For the six months ended June 28, 2020, Unallocated corporate expenses increased $3.5 million primarily due to higher management incentive costs and ~~legal fees. These increases were~~higher discretionary marketing fund investments ($5.0 million in the first six months of 2020 compared to $2.5 million in the comparable period of 2019), partially offset by ~~a decrease in interest expense~~savings from athe cancellation of our annual operators’ conference, lower ~~average debt balance~~travel, professional and consulting fees and lower interest ~~rates.~~ costs.

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Review of Consolidated Results

Revenues. For the reasons discussed above, consolidated revenues increased ~~$11.5~~$61.0 million, or ~~2.9%~~15.3%, to ~~$409.9~~$460.6 million and $72.5 million, or 9.1%, to $870.5 million for the ~~first quarter of~~three and six months ended June 28, 2020, ~~compared to $398.4 million for the first quarter of 2019.~~respectively.

Three Months Ended

March 29, 2020

March 31, 2019

% of Related

% of Related

Increase
($ in thousands)

Revenues

Revenues

(Decrease)
Revenues:

Domestic Company-owned restaurant sales

$
161,440

$
161,803

North America franchise royalties and fees

19,440

17,530

North America commissary revenues

155,422

148,904

International revenues

26,059

25,667

Other revenues

47,498

44,501

Total revenues

409,859

398,405

Costs and expenses:

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

Domestic Company-owned restaurant expenses

129,111

80.0%

133,053

82.2%

(2.2%)
North America commissary expenses

144,272

92.8%

138,557

93.1%

(0.3%)
International expenses

15,101

57.9%

14,305

55.7%

2.2%
Other expenses

45,957

96.8%

44,097

99.1%

(2.3%)
General and administrative expenses

47,651

11.6%

51,135

12.8%

(1.2%)
Depreciation and amortization

12,295

3.0%

11,749

2.9%

0.1%
Total costs and expenses

394,387

96.2%

392,896

98.6%

(2.4%)
Operating income

15,472

3.8%

5,509

1.4%

(2.4%)
Net interest expense

(3,967)

(1.0%)

(6,276)

(1.6%)

0.6%
Income (loss) before income taxes

$
11,505

2.8%

$
(767)

(0.2%)

3.0%


	Three Months Ended
	June 28, 2020			June 30, 2019
			% of Related			% of Related	Increase
($ in thousands)			Revenues			Revenues	(Decrease)
Revenues:
Domestic Company-owned restaurant sales	$	186,506		$	163,656
North America franchise royalties and fees		24,174			19,761
North America commissary revenues		167,619			147,128
International revenues		28,093			25,497
Other revenues		54,231			43,581
Total revenues		460,623			399,623
Costs and expenses:
Operating costs (excluding depreciation and amortization shown separately below):
Domestic Company-owned restaurant expenses		145,168	77.8%		131,950	80.6%	(2.8%)
North America commissary expenses		154,467	92.2%		136,744	92.9%	(0.7%)
International expenses		18,304	65.2%		14,652	57.5%	7.7%
Other expenses		51,345	94.7%		41,970	96.3%	(1.6%)
General and administrative expenses		48,428	10.5%		48,718	12.2%	(1.7%)
Depreciation and amortization		12,377	2.7%		11,521	2.9%	(0.2%)
Total costs and expenses		430,089	93.4%		385,555	96.5%	(3.1%)
Refranchising gains		-	0.0%		163	0.0%	0.0%
Operating income		30,534	6.6%		14,231	3.6%	3.0%
Net interest expense		(3,627)	(0.8%)		(4,272)	(1.1%)	0.3%
Income before income taxes	$	26,907	5.8%	$	9,959	2.5%	3.3%

	Six Months Ended
	June 28, 2020			June 30, 2019
			% of Related			% of Related	Increase
($ in thousands)			Revenues			Revenues	(Decrease)
Revenues:
Domestic Company-owned restaurant sales	$	347,946		$	325,459
North America franchise royalties and fees		43,614			37,291
North America commissary revenues		323,041			296,032
International revenues		54,152			51,164
Other revenues		101,729			88,082
Total revenues		870,482			798,028
Costs and expenses:
Operating costs (excluding depreciation and amortization shown separately below):
Domestic Company-owned restaurant expenses		274,279	78.8%		265,003	81.4%	(2.6%)
North America commissary expenses		298,739	92.5%		275,301	93.0%	(0.5%)
International expenses		33,405	61.7%		28,957	56.6%	5.1%
Other expenses		97,302	95.6%		86,067	97.7%	(2.1%)
General and administrative expenses		96,079	11.0%		99,853	12.5%	(1.5%)
Depreciation and amortization		24,672	2.8%		23,270	2.9%	(0.1%)
Total costs and expenses		824,476	94.7%		778,451	97.5%	(2.8%)
Refranchising gains		-	0.0%		163	0.0%	0.0%
Operating income		46,006	5.3%		19,740	2.5%	2.8%
Net interest expense		(7,594)	(0.9%)		(10,548)	(1.3%)	0.4%
Income before income taxes	$	38,412	4.4%	$	9,192	1.2%	3.2%

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Costs and expenses. Total costs and expenses were approximately ~~$394.4~~$430.1 million, or ~~96.2%~~93.4% of total revenues, for the ~~first quarter of~~three months ended June 28, 2020 as compared to ~~$392.9~~$385.6 million, or ~~98.6%,~~96.5% of total revenues, for the ~~first quarter~~prior year comparable period. For the six months ended June 28, 2020, total costs and expenses were approximately $824.5 million, or 94.7% of ~~2019.~~total revenues, as compared to $778.5 million, or 97.5% of total revenues for the prior year comparable period. The ~~decrease~~increases in total costs and expenses, as a percentage of revenues, ~~was~~were primarily due to the following:

Domestic Company-owned restaurant expenses were ~~$129.1~~$145.2 million, or 77.8% of related revenues, for the ~~first quarter of~~three months ended June 28, 2020, ~~or 80.0% of related revenues,~~ as compared to expenses of ~~$133.1~~$132.0 million, or ~~82.2% of related revenues. The 2.2% decrease in expenses, as a percentage~~80.6% of related revenues, for the prior year comparable period, primarily due to lower operating expenses on higher sales and lower food costs including the favorable impact of current year promotions, partially offset by higher labor and bonus expense. For the six months ended June 28, 2020, Domestic Company-owned restaurant expenses were $274.3 million, or 78.8% of related revenues, compared to expenses of $265.0 million, or 81.4% or related revenues, for the prior year comparable period. The 2.6% decrease was primarily due to the lower operating expenses on higher sales and lower food costs including the favorable impact of current year promotions, which more than offset higher commodities ~~costs, primarily cheese.~~costs. These increases were partially offset by previously mentioned higher labor and bonus expense.

North America commissary expenses were ~~$144.3 million for the first quarter of 2020, or 92.8% of related revenues compared to $138.6~~$154.5 million, or ~~93.1%~~92.2% of related revenues, for the ~~first quarter~~three months ended June 28, 2020, compared to $136.7 million, or 92.9% of related revenues for the comparable period in 2019. North America commissary expenses were $298.7 million, or 92.5% of related revenues, for the six months ended June 28, 2020, compared to $275.3 million, or 93.0% of related revenues, for the prior year comparable period. The ~~0.3% decrease~~0.7% and 0.5% decreases in expenses, as a percentage of related revenues, ~~was~~for the three- and six-month periods, respectively, were primarily due to lower operating costs ~~primarily~~on higher volumes and lower delivery ~~costs, partially offset by lower profits from cheese which has a fixed dollar markup.~~costs.

International expenses were ~~$15.1 million for the first quarter of 2020, or 57.9% of related revenues, compared to expenses of $14.3~~$18.3 million, or ~~55.7%~~65.2% of related revenues, for the ~~first quarter~~three months ended June 28, 2020 compared to expenses of ~~2019.~~$14.7 million, or 57.5% of related revenues, for the prior year comparable period. International expenses were $33.4 million, or 61.7% of related revenues, for the six months ended June 28, 2020, compared to $29.0 million, or 56.6% of related revenues for the prior year comparable period. The ~~increase of 2.2%~~7.7% and 5.1% increases in expenses as a percentage of ~~related~~ revenues ~~was~~were primarily due to lower ~~development fee revenues, the unfavorable impact of currency conversion on revenues and a lower margin~~margins at our United Kingdom ~~commissary.~~commissary and lower revenues from royalty support provided to certain franchisees.

Other expenses were ~~$46.0 million for the first quarter of 2020, or 96.8% of related revenues, compared to expenses of $44.1~~$51.3 million, or ~~99.1%~~94.7% of related revenues, for the ~~first quarter~~three months ended June 28, 2020 compared to expenses of ~~2019. The 2.3% decrease in expenses, as a percentage~~$42.0 million, or 96.3% of related revenues ~~was~~for the prior year comparable period. For the six months ended June 28, 2020, Other expenses were $97.3 million, or 95.6% of related revenues, as compared to $86.1 million, or 97.7% of related revenues, for the prior year comparable period. The 1.6% and 2.1% decreases for the three- and six- month periods, respectively, were primarily due to higher ~~revenues~~margins from our online and mobile ordering ~~business.~~business, partially offset by lower revenues at our printing subsidiary.

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General and administrative expenses (“G&A”) were ~~$47.7~~$48.4 million, or ~~11.6%~~10.5%, and $96.1 million, or 11.0% of revenues, infor the ~~first quarter of~~three and six months ended June 28, 2020, respectively, compared to ~~$51.1~~$48.7 million, or ~~12.8%~~12.2%, and $99.9 million, or 12.5%, for the ~~first quarter of 2019.~~corresponding 2019 periods, respectively. G&A consisted of the following (in thousands):



	Three Months Ended				Six Months Ended
		June 28,		June 30,		June 28,		June 30,
		2020		2019		2020		2019
Other general expenses (a)	$	553	$	3,713	$	5,227	$	3,613
Special charges (b)		—		396		—		11,015
Administrative expenses (c)		47,875		44,609		90,852		85,225
General and administrative expenses	$	48,428	$	48,718	$	96,079	$	99,853

(a)

The ~~increase~~decrease in other general expenses ~~(income)~~ of ~~$4.8~~$3.2 million for the three months ending June 28, 2020 was primarily due to a ~~$5.0~~$2.5 million discretionary marketing fund investment in 2019 made as part of our previously announced temporary financial support package to our franchisees. The increase in other general expenses of $1.6 million for the six months ending June 28, 2020 was primarily due to $5.0 million discretionary marketing fund investment in 2020 as compared to $2.5 million for the prior year comparable period. See “Temporary Franchise Support” for additional information.

(b)

See “Items Impacting Comparability; Non-GAAP Measures” for additional detail.

(c)

~~The increase in administrative~~Administrative expenses ~~of $2.4~~increased $3.3 million and $5.6 million for the ~~first quarter~~three and six months ended ~~March 29,~~June 28, 2020, ~~compared to the prior year comparable period, was~~respectively, primarily due to higher management incentive costs, partially offset by savings from the cancellation of our 2020 annual operators’ conference and ~~legal~~reduced travel costs due to COVID-19 restrictions and lower professional and consulting fees.

Depreciation and Amortization.Depreciation and amortization expense was ~~$12.3~~$12.4 million, or ~~3.0%~~2.7% of revenues, inand $24.7 million, or 2.8% of revenues, for the ~~first quarter of~~three and six months ended June 28, 2020, respectively, compared to ~~$11.7~~$11.5 million, or 2.9%, and $23.3 million, or 2.9% of revenues, for the corresponding periods in ~~the first quarter of 2019.~~2019, respectively.

Net interest expense. Net interest expense decreased approximately ~~$2.3~~$645,000 and $3.0 million for the ~~first quarter of~~three and six months ended June 28, 2020, ~~primarily~~respectively, due to lower interest rates and a decrease in the average debt ~~balance and lower interest rates.~~balance. Total debt outstanding was ~~$365.6~~$350.0 million as of ~~March 29,~~June 28, 2020 ~~including approximately $0.6 million~~and there was no significant outstanding debt balance associated with Papa John’s Marketing Fund, Inc. (“PJMF”).

Income ~~(loss)~~ before income taxes. For the reasons discussed above, income ~~(loss)~~ before income taxes increased approximately ~~$12.3~~$17.0 million, or 170.2%, and $29.2 million, or 317.9%, for the ~~first quarter of~~three and six months ended June 28, 2020, respectively, over the ~~first quarter of 2019.~~prior year comparable periods.

Income tax expense. ~~Income~~The effective income tax ~~expense was $2.5 million~~rates were 18.4% and 19.4% for the ~~first quarter~~three and six months ended June 28, 2020, representing an increase of ~~2020, for an effective tax rate~~5.5% and a decrease of ~~21.8%~~3.6%, ~~compared to $0.8 million for~~respectively, from the ~~first quarter of~~prior year comparable periods. The six months ended June 30, 2019 ~~for an effective tax rate of 108.3%. The change in the effective rate was due to higher income before income taxes in the first quarter of 2020 and the~~included a non-deductible $5.9 million expense associated with the one-time mark-to-market increase in the fair value of the Starboard Value LP (“Starboard”) option to purchase Series B ~~Preferred Stock~~convertible preferred stock in the first quarter of ~~2019.~~2019, as previously mentioned. Excluding the $5.9 million expense for the six months ended June 30, 2019, the effective rates were higher for the three and six months ended June 28, 2020 due to the impact of similar tax credits on higher income before income taxes in the current periods.

Diluted earnings ~~(loss)~~ per common share. Diluted earnings per common share was ~~$0.15~~$0.48 for the ~~first~~second quarter of 2020, compared to diluted ~~loss~~earnings per common share of ~~$0.12 in~~$0.15 for the ~~first~~second quarter of 2019, an increase of 220%. For the six months ended June 28, 2020, diluted earnings per share was $0.65, compared to diluted earnings per share of $0.03 ($0.35 excluding Special items mentioned above) for the prior year period, an increase of 85.7% excluding special items in 2019.

Diluted earnings per common share was reduced by approximately $0.05 and $0.04 for the three and six months ended June 28, 2020, respectively, due to additional income attributable to participating securities, including Series B Preferred Stockholders, based on the amount of undistributed earnings for the periods.

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Liquidity and Capital Resources

As previously mentioned, the coronavirus (COVID-19) outbreak has presented evolving developments domestically and internationally, including an overall contraction in global economic activity and volatility in the financial markets. ~~The outbreak was characterized as a pandemic by the World Health Organization on March 11, 2020 and declared a national emergency in the United States during the same timeframe.~~ Despite these recent developments, ~~we have not experienced any notable reduction in~~ our liquidity position remains strong. Our cash ~~flows,~~flow has increased, and we have ~~not materially increased~~no borrowings on our secured revolving credit facility. As of ~~March 29,~~June 28, 2020, we had approximately ~~$343.8~~$353.8 million available for borrowing under our secured revolving credit facility, as described below. We plan to closely monitor our liquidity needs in response to the evolving situation.

Debt

The Company has a secured revolving credit facility with available borrowings of $400.0 million (the “Revolving Facility”), of which ~~$10.0 million~~no balance was outstanding as of ~~March 29,~~June 28, 2020 and a secured term loan facility with an outstanding balance of ~~$355.0~~$350.0 million (the “Term Loan Facility”) and together with the Revolving Facility, the “PJI Facilities”. The PJI Facilities mature on August 30, 2022. The loans under the PJI Facilities accrue interest at a per annum rate equal to, at the Company’s election, either LIBOR plus a margin ranging from 125 to 250 basis points or a base rate (generally determined by a prime rate, federal funds rate or LIBOR plus 1.00%) plus a margin ranging from 25 to 150 basis points. In each case, the actual margin is determined according to a ratio of the Company’s total indebtedness to earnings before interest, taxes, depreciation and amortization (“EBITDA”) for the then most recently ended four-quarter period (the “Leverage Ratio”). The Credit Agreement governing the PJI Facilities (the “PJI Credit Agreement”) places certain customary restrictions upon the Company based on its financial covenants. These include limiting the repurchase of common stock and not increasing the cash dividend above the lesser of $0.225 per share per quarter or $35 million per fiscal year if the Company’s leverage ratio is above 3.75 to 1.0. Quarterly amortization payments are required to be made on the Term Loan Facility in the amount of $5.0 million. Loans outstanding under the PJI Facilities may be prepaid at any time without premium or penalty, subject to customary breakage costs in the case of borrowings for which a LIBOR rate election is in effect. Up to $35.0 million of the Revolving Facility may be advanced in certain agreed foreign currencies, including Euros, Pounds Sterling, Canadian Dollars, Japanese Yen, and Mexican Pesos.

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We use interest rate swaps to hedge against the effects of potential interest rate increases on borrowings under our PJI Facilities.

As of ~~March 29,~~June 28, 2020, we have the following interest rate swap agreements with a total notional value of $350 million:


Effective Dates	Floating Rate Debt		Fixed Rates
April 30, 2018 through April 30, 2023	$	55 million	2.33	%
April 30, 2018 through April 30, 2023	$	35 million	2.36	%
April 30, 2018 through April 30, 2023	$	35 million	2.34	%
January 30, 2018 through August 30, 2022	$	100 million	1.99	%
January 30, 2018 through August 30, 2022	$	75 million	1.99	%
January 30, 2018 through August 30, 2022	$	50 million	2.00	%

The gain or loss on the swaps is recognized in Accumulated other comprehensive loss and reclassified into earnings as adjustments to interest expense in the same period or periods during which the swaps affect earnings. Gains or losses on the swaps representing hedge components excluded from the assessment of effectiveness are recognized in current earnings.

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


		~~Actual Ratio for the~~
		~~Quarter Ended~~Actual Ratio as of
	Permitted Ratio	~~March 29,~~June 28, 2020
Leverage ratio	Not to exceed 5.00 to 1.0	~~3.4~~2.9 to 1.0

Interest coverage ratio	Not less than 2.25 to 1.0	~~2.9~~3.3 to 1.0

As stated above, our leverage ratio is defined as outstanding debt divided by consolidated EBITDA, as defined, 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 financial covenants as of ~~March 29,~~June 28, 2020.

PJMF has a $20.0 million revolving line of credit (the “PJMF Revolving Facility”) pursuant to a Revolving Loan Agreement, dated September 30, 2015 (as amended, the “PJMF Loan Agreement”) with U.S. Bank National Association, as lender (“U.S. Bank”). The PJMF Revolving Facility is secured by substantially all assets of PJMF. The PJMF Revolving Facility matures on September 30, 2020. The borrowings under the PJMF Revolving Facility accrue interest at a variable rate of the one-month LIBOR plus 1.75%. The applicable interest rates on the PJMF Revolving Facility were ~~3.4%~~2.3% and ~~4.5%~~2.8% for the three and six months ended ~~March 29,~~June 28, 2020, respectively, compared to 4.2% for both the three and ~~March 31, 2019, respectively.~~six months ended June 30, 2019. As of ~~March 29,~~June 28, 2020, ~~the principal amount~~there was approximately $100,000 of debt outstanding under the PJMF Revolving Facility ~~was $0.6 million and is classified as current debt~~ (none at December 29, 2019). The PJMF operating results and the related debt outstanding do not impact the financial covenants under the PJI Credit Agreement.

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Cash Flows

Cash flow provided by operating activities was ~~$33.7~~$87.7 million for the six months ended June 28, 2020 compared to $32.2 million in the ~~first quarter of 2020 compared to $13.8 million~~corresponding period in ~~the first quarter of~~ 2019. The increase of ~~$19.9~~$55.5 million was primarily due to higher net income and favorable working capital changes including timing of payments.

The Company’s free cash flow, a non-GAAP financial measure, was as follows infor the ~~first quarter~~six-month periods of 2020 and 2019 (in thousands):

Three Months Ended

March 29,

March 31,

2020

2019

Net cash provided by operating activities

$
33,734

$
13,813
Purchases of property and equipment

(5,933)

(8,658)
Dividends paid to preferred shareholders

(3,412)

(2,040)
Free cash flow (a)

$
24,389

$
3,115


	Six Months Ended
	June 28,		June 30,
	2020		2019

Net cash provided by operating activities	$	87,658	$	32,175
Purchases of property and equipment		(13,795)		(17,836)
Dividends paid to preferred shareholders		(6,825)		(5,470)
Free cash flow (a)	$	67,038	$	8,869

(a)

Free cash flow, a non-GAAP measure, is defined as net cash provided by operating activities (from the Condensed Consolidated Statements of Cash Flows) less the purchases of property and equipment and less the payment of dividends to preferred stockholders. We view free cash flow as an important liquidity measure because it is one factor that management uses in determining the amount of cash available for discretionary investment. However, it does not represent residual cash flows available for discretionary expenditures. 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 liquidity or performance than the Company’s GAAP measures.

Cash flow used in investing activities was ~~$9.6~~$16.9 million for the ~~first quarter of~~six months ended June 28, 2020 compared to ~~$8.3~~$19.6 million infor the ~~first quarter of~~same period in 2019, or ~~an increase~~a decrease of ~~$1.3~~$2.7 million. The ~~increase~~decrease in cash flow used in investing activities was primarily due to ~~higher net franchise loans issued, partially offset by~~ lower purchases of property and equipment.

Cash flow used in financing activities was ~~$15.5~~$22.8 million for the ~~first quarter of~~six months ended June 28, 2020 compared to ~~$9.6~~$15.2 million for the same period in ~~the first quarter of~~ 2019. ~~The increase in cash flow used in financing activities was primarily due to proceeds from the issuance of Series B Preferred Stock in 2019, offset by higher preferred dividend payments in 2020.~~ We require capital for the payment of cash dividends, which are funded by cash flow from operations, borrowings from our Credit Agreement and, in 2019, proceeds from the issuance of preferred stock. In the first quarter of 2019, we received gross proceeds of $252.5 million from the issuance of Series B Preferred Stock and incurred ~~$7.5~~$7.2 million of direct costs associated with the issuance. The net proceeds of the Series B Preferred Stock were primarily used ~~to pay down our Revolving Facility~~for debt repayments of $240.8 million, resulting in ~~2019.~~ a net cash inflow of $4.5 million. In the first six months ended June 28, 2020, net debt repayments were $19.9 million. Additionally, we received $21.7 million of proceeds from the exercise of stock options in the first six months of 2020.

The additional borrowing availability under the Revolving Facility as a result of the debt repayment provides financial flexibility that enables the Company to make investments in the business and to use for general corporate purposes.

The Company recorded dividends of approximately ~~$10.7~~$21.3 million infor the ~~first quarter of~~six months ended June 28, 2020 consisting of the following:

●

$~~7.3~~14.5 million paid to common stockholders ($~~0.225~~0.45 per share);

●

$~~1.1~~2.3 million in common stock “pass-through” dividends paid to Series B Preferred Stockholders on an as-converted basis ($~~0.225~~0.45 per share); and

●

$~~2.3~~4.5 million in preferred dividends on the Series B Preferred Stock (3.6% of the investment per annum) ~~were declared with a record date of March 16, 2020 and paid on April 1, 2020.~~.

On ~~April 30,~~July 31, 2020, our Board of Directors declared a ~~second~~third quarter dividend of $0.225 per common share (of which approximately ~~$7.3~~$7.4 million will be paid to common stockholders and $1.1 million will be paid as “pass through” dividends to holders of Series B Preferred Stock on an “as converted basis”). The ~~second~~third quarter preferred dividend ~~of $2.3 million~~ was also declared ~~on April 30, 2020. The common share dividend will be paid on May 22, 2020 to stockholders of record~~

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on July 31, 2020. The common share dividend will be paid on August 21, 2020 to stockholders of record as of the close of business on ~~May~~August 11, 2020. The ~~second~~third quarter preferred dividend of $2.3 million will be paid to holders of Series B Preferred Stock on ~~July~~October 1, 2020.

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,” “intend,” “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 include or may relate to the preliminary estimated same store sales growth and related trends, projections or guidance concerning business performance, revenue, earnings, cash flow, earnings per share, the financial impact of the temporary business opportunities, disruptions and temporary changes in demand we are experiencing related to the current outbreak of the novel coronavirus disease (COVID-19), including the projections for sales trends and comparable sales, ~~temporary restaurant closures,~~ our cash on hand and access to our credit facilities, commodity costs, currency fluctuations, profit margins, unit growth, unit level performance, capital expenditures, restaurant and franchise development, the duration of changes in consumer behavior caused by the pandemic, the duration and number of temporary store closures,royalty relief, the effectiveness of our strategic turnaround efforts and other business initiatives, marketing efforts, liquidity, compliance with debt covenants, stockholder and other stakeholder engagement, strategic decisions and actions, dividends, effective tax rates, regulatory changes and impacts, adoption of new accounting standards, 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:

●

the ability of the Company to manage difficulties associated with or related to the COVID-19 pandemic, including risks related to: the impact of governmental restrictions on freedom of movement and business operations including quarantines, social distancing requirements and mandatory business closures; the virus’s impact on the availability of our workforce; the potential disruption of our supply chain; changes in consumer demand or behavior; the overall contraction in global economic activity, including rising unemployment; our liquidity position; ~~and~~ our ability to navigate changing governmental programs and regulations relating to the pandemic; and the increased risk of phishing and other cyber-attacks;

●

the assumption that the store closures in international markets and non-traditional restaurants in North America are not expected to be permanent; the assumption that our delivery restaurants will continue to stay open and be deemed essential businesses by national, state and local authorities in most of the jurisdictions in which we operate;

●

increased costs for branding initiatives and launching new advertising and marketing campaigns and promotions to improve consumer sentiment and sales trends, and the risk that such initiatives will not be effective;

●

the ability of the Company to ensure the long-term success of the brand through significant investments committed to our U.S. franchise system, including marketing fund investments and royalty relief;

●

~~the ability of the Company to improve customer sentiment and sales trends through advertising, marketing and promotional activities;~~

●

risks related to social media, including publicity adversely and rapidly impacting our brand and reputation;

●

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

●

changes in consumer preferences or consumer buying habits, including the growing popularity of delivery aggregators, as well as changes in general economic conditions or other factors that may affect consumer confidence and discretionary spending, including higher unemployment;

●

the adverse impact on the Company or our results caused by global health concerns, product recalls, food quality or safety issues, incidences of foodborne illness, food contamination and other general public health concerns about our Company-owned or franchised restaurants or others in the restaurant industry;

●

the effectiveness of our technology investments and changes in unit-level operations;

●

the ability of the Company and its franchisees to meet planned growth targets and operate new and existing restaurants profitably, including difficulties finding qualified franchisees, store level employees or suitable sites;

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●

increases in food costs or sustained higher other operating costs. This could include increased employee compensation, benefits, insurance, tax rates, new regulatory requirements or increasing compliance costs;

●

increases in insurance claims and related costs for programs funded by the Company up to certain retention limits, including medical, owned and non-owned vehicles, workers’ compensation, general liability and property;

●

disruption of our supply chain or commissary operations which could be caused by our sole source of supply of cheese or limited source of suppliers for other key ingredients or more generally due to weather, natural disasters including drought, disease, or geopolitical or other disruptions beyond our ~~control;~~control, including COVID-19;

●

increased risks associated with our international operations, including economic and political conditions and risks associated with the withdrawal of the United Kingdom from the European Union, instability or uncertainty in our international markets, especially emerging markets, fluctuations in currency exchange rates, difficulty in meeting planned sales targets and new store growth;

●

the impact of current or future claims and litigation and our ability to comply with current, proposed or future legislation that could impact our business including compliance with the European Union General Data Protection Regulation;

●

the Company's ability to continue to pay dividends to shareholders based upon profitability, cash flows and capital adequacy if restaurant sales and operating results decline;

●

failure to effectively manage recent transitions within our executive leadership team or to otherwise successfully execute succession planning;

●

disruption of critical business or information technology systems, or those of our suppliers, and risks associated with systems failures and data privacy and security breaches, including theft of confidential Company, employee and customer information, including payment cards; and

●

changes in Federal or state income, general and other tax laws, rules and regulations and changes in generally accepted accounting principles.

For a discussion of these and other risks that may cause actual results to differ from expectations, refer to “Part I. Item 1A. – Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 29, 2019, as updated by “Part II. Item 1A – Risk Factors” of ~~this~~our Quarterly Report on Form 10-Q for the quarter ended March 29, 2020, as well as subsequent filings. We undertake no obligation to update publicly any forward-looking statements, whether as a result of future events, new information or otherwise, except as required by law.

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Item 3.Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

We are exposed to the impact of interest rate changes on our secured revolving credit facility and our secured term loan facility, which comprise the PJI Credit Facilities. We attempt to minimize interest rate risk exposure by fixing our rate through the utilization of interest rate swaps, which are derivative financial instruments. Our swaps are entered into with financial institutions that participate in the PJI Facilities. By using a derivative instrument to hedge exposures to changes in interest rates, we expose ourselves to credit risk due to the possible failure of the counterparty to perform under the terms of the derivative contract. We do not enter into contracts for trading purposes and do not use leveraged instruments. The market risks associated with our debt obligations as of ~~March 29,~~June 28, 2020 have not changed from those reported in “Part II. Item 7A. Quantitative and Qualitative Disclosure About Market Risk” in our Annual Report on Form 10-K for the fiscal year ended December 29, 2019. See Note 8 of “Notes to Condensed Consolidated Financial Statements” for additional information on our debt obligations and derivative instruments.

Foreign Currency Exchange Rate Risk

We are exposed to foreign currency exchange rate fluctuations from our operations outside of the United States, which can adversely impact our revenues, net income ~~(loss)~~ and cash flows. Our international operations principally consist of distribution sales to franchised Papa John’s restaurants located in the United Kingdom 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. For each of the periods presented, approximately 6% of our revenues were derived from these operations.

We have not historically hedged our exposure to foreign currency fluctuations. Foreign currency exchange rate fluctuations had an unfavorable impact of approximately ~~$0.6~~$1.7 million and ~~$1.7~~$2.3 million on International revenues for the three and six months ended ~~March 29,~~June 28, 2020, respectively, and ~~March 31,~~a $1.3 million and $3.0 million unfavorable impact for the three and six months ended June 30, 2019, respectively. Foreign currency exchange rate fluctuations had no significant impact on income ~~(loss)~~ before income taxes for the three and six months ended ~~March 29,~~June 28, 2020 and ~~March 31,~~June 30, 2019.

Commodity Price Risk

In the ordinary course of business, the food and paper products we purchase, including cheese (our largest individual food cost item), 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 remain exposed to on-going commodity volatility.

The following table presents the actual average block price for cheese by quarter through the ~~first~~second quarter of 2020 and the projected average block price for cheese by quarter through 2020 (based on the ~~April 28,~~July 30, 2020 Chicago Mercantile Exchange cheese futures market prices):


	2020			2019		2020			2019
	Projected			Actual		Projected			Actual
	Block Price			Block Price		Block Price			Block Price

Quarter 1	$	1.857		$	1.490	$	1.857		$	1.490
Quarter 2		1.375			1.696		1.679			1.696
Quarter 3		1.544			1.898		2.202			1.853
Quarter 4		1.652			1.984		1.803			1.840
Full Year	$	1.607	*	$	1.767	$	1.885	*	$	1.720

*The full year estimate is based on futures prices and does not include the impact of forward pricing agreements we have for a portion of our cheese purchases for our domestic Company-owned restaurants. Additionally, the price charged to restaurants can vary somewhat by quarter from the actual block price based upon our monthly pricing mechanism.

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Item 4. Controls and Procedures.

Under the supervision and with the participation of the Company’s management, including its chief executive officer and interim principal financial and accounting 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 interim principal financial and accounting officer have concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective.

Changes in Internal Control Over Financial Reporting

During the most recently completed fiscal quarter, there was no change made in the Company’s internal control over financial reporting (as defined in Rules 13a-15(e) and 15d-15(e) 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 Company is involved in a number of lawsuits, claims, investigations and proceedings consisting of intellectual property, employment, consumer, commercial and other matters arising in the ordinary course of business. In accordance with Financial Accounting Standards Board Accounting Standards Codification 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. The legal proceedings described in Note 9 of “Notes to the Condensed Consolidated Financial Statements” are incorporated herein by reference.

Item 1A. Risk Factors

~~Except as set forth below, there~~There have been no material changes to the risk factors disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, ~~2019:~~

~~We are subject to the risks related to pandemic outbreaks, including COVID-19, which may have a material adverse effect on our business, financial condition or results of operations.~~

~~We are subject to the risks related to the outbreak of the coronavirus (COVID-19), which was recognized~~2019, as supplemented by the ~~World Health Organization on March 11, 2020 as a global pandemic. In response, governments and other authorities around~~risk factors disclosed in the ~~world have imposed measures to attempt to control the spread of COVID-19, including~~restrictions on freedom of movement and business operations such as travel bans, social distancing requirements, including limitations on gatherings, shelter-in-place orders and quarantines, and mandated business closures, which have resulted in significant changes in commercial activity and consumer behavior. In addition, the pandemic has had, and is expected to continue to have, significant adverse impacts on economic and market conditions and has resulted in global economic contraction and rising unemployment. As millions of cases have been confirmed, including in China, Europe, and the U.S., we expect COVID-19 to interfere with general commercial activity related to our customer base, which could have a material adverse effect on our business, financial condition, or results of operations in future periods. To the extent that COVID-19 continues or worsens, restrictions imposed by governments may not be lifted, or additional restrictions may be imposed. As a result, businesses such as our restaurants or Quality Control Centers may be required to shut down, our employees may be prohibited from working, and our supply chains may be interrupted. It may be challenging to obtain and process ingredients and raw materials to support our business needs, and individuals could become ill, quarantined or otherwise unable to work and/or travel due to health reasons or governmental restrictions. Also, governments may impose other laws, regulations or taxes which could adversely impact our business, financial condition or results of operations. Further, if our customers’ economic conditions are similarly affected, they might delay or reduce purchases from us, which could adversely affect our business, financial condition or results of operations. If a significant number of our restaurants are required to close,

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or if our sales decline precipitously as a result of the outbreak, then we may be required to incur additional debt or take other actions to finance our operations on terms that may not be favorable to us if available at all.

~~The potential effects of COVID-19 also could include heightening many of the risks discussed in Part 1, Item 1A of our Annual~~Company’s Quarterly Report on Form ~~10-K~~10-Q for the ~~year~~quarter ended ~~December~~March 29, 2019, including, but not limited to our profitability; ability to meet consumer demand through the continued availably of our workforce; laws and regulations affecting our business; increased cyber risks and reliance on technology infrastructure to support our business and operations, including through remote-work protocols due to COVID-19; fluctuations in foreign currency markets; the availability of future borrowings; the costs of current and future borrowings; credit risks of our customers and counterparties; our business transformation initiative; and impairment of long-lived assets, the carrying value of goodwill or other indefinite-lived intangible assets. However, given the evolving health, economic, social, and governmental environments, the specific impact that COVID-19 could have on these risks remains uncertain.2020.

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

During the fiscal quarter ended ~~March 29,~~June 28, 2020, the Company acquired ~~approximately 23,542~~2,779 shares of its common stock from employees to satisfy minimum tax withholding obligations that arose upon (i) vesting of restricted stock granted pursuant to approved plans and (ii) distribution of shares of common stock issued pursuant to deferred compensation obligations.

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Item 6. Exhibits

Exhibit
Number		Description

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 Interim Principal Financial and Accounting 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 Interim Principal Financial and Accounting 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 ~~March 29,~~June 28, 2020, filed on ~~May~~August 6, 2020, formatted in iXBRL: (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Comprehensive ~~Loss,~~Income (Loss), (iv) the Condensed Consolidated Statements of Stockholders’ Deficit, (v) the Condensed Consolidated Statements of Cash Flows and (vi) the Notes to Condensed Consolidated Financial Statements.
104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

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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: ~~May~~August 6, 2020		/s/ Steven R. Coke
		Steven R. Coke
		Interim Principal Financial and Accounting Officer

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				First
	Period 1	Period 2	Period 3	Quarter	Period 4
	Dec. 30,	Jan. 27,	Feb. 24,	Three	Mar. 30,
	2019, to	2020, to	2020, to	months	2020, to
	Jan. 26,	Feb. 23,	Mar. 29,	ended	Apr. 26,
	2020	2020	2020	Mar. 29, 2020	2020
Comparable sales growth/(decline)(a):
Domestic Company-owned restaurants	9.4%	7.6%	2.5%	6.1%	22.0%
North America franchised restaurants	7.1%	4.8%	3.9%	5.1%	28.4%
Systemwide North America restaurants	7.6%	5.4%	3.6%	5.3%	26.9%

System-wide international restaurants	4.9%	2.9%	(0.6%)	2.3%	1.4%



	Three Months Ended
	Mar. 29,		Mar. 31,		Increase		Percent
	2020		2019		(Decrease)		Change
Domestic Company-owned restaurant sales	$	161,440	$	161,803	$	(363)	(0.2)	%
North America franchise royalties and fees		19,440		17,530		1,910	10.9	%
North America commissary		155,422		148,904		6,518	4.4	%
International		26,059		25,667		392	1.5	%
Other revenues		47,498		44,501		2,997	6.7	%
Total Revenues	$	409,859	$	398,405	$	11,454	2.9	%