QUALITY.
QUALITY.
GUARANTEED.
ANNUAL REPORT
2015
“IF YOU’RE GOING TO SAY BETTER, YOU BETTER DELIVER.”
LOVE YOUR PIZZA OR GET
ANOTHER ONE FREE!
“IF YOU’RE GOING TO SAY BETTER, YOU BETTER DELIVER.”
WE DON’T JUST SAY
“BETTER INGREDIENTS. BETTER PIZZA.”
WE GUARANTEE IT.
Papa John’s is committed to using only
the freshest-quality ingredients, and we
don’t use artificial flavors or synthetic
colors in our pizza.
That’s why we introduced Papa’s Quality
Guarantee – if you don’t love your pizza
we’ll give you another one free.
TO OUR SHAREHOLDERS, FRANCHISEES,
SUPPLY PARTNERS, AND TEAM MEMBERS:
Teamwork can do incredible things. Today, more than three decades after making my fi rst pizza
in a broom closet at my dad’s tavern, Papa John’s International, Inc. is one of the largest pizza
companies in the world – and the undisputed leader when it comes to pizza quality.
We ended 2015 on a high note. As of December, we had nearly
4,900 stores in all 50 states and 39 international countries
and territories. We had 100,000 team members at franchised
stores and over 20,000 team members at Papa John’s
corporate stores. We generated approximately $3.5 billion in
global system-wide sales. These numbers wouldn’t be possible
if we weren’t devoted to making traditional, superior-quality
Papa John’s pizzas. On that note, the 2015 American Customer
Satisfaction Index gave Papa John’s the top spot – a refl ection
of our unerring dedication to quality.
Papa John’s continued growth is a testament to the power of
free enterprise. Papa John’s started out as an idea. Through
hard work and determination, we turned that idea into
something that created opportunities for team members,
suppliers, franchisees, and countless millions throughout the
world. All of this happened for one simple reason: Papa John’s
has always tried to make the world a better place. For over 30
years, we have done that by delivering products and services
that improve people’s lives. The results have been incredible.
With 2016 now underway, it’s important that we reaffi rm our
strategy of operating the same store in nearly 4,900 locations.
Last year, this approach allowed Papa John’s to continue
creating signifi cant value, delivering adjusted earnings per
share of $2.09*, representing a 19% increase over 2014; over
the past fi ve years, we have increased earnings per share at
an average growth rate of 18% annually. Most importantly, it
allowed us to run Papa John’s as if it were an independent,
mom-and-pop pizzeria, making traditional, superior-quality
Papa John’s pizzas.
North America and International Growth
North American comparable sales grew by 4.2%, marking the
12th consecutive year of increased or fl at sales growth in our
largest business segment. Our international story remains
strong – with international comparable sales growth of 6.9%
and 182 net restaurant openings. Our UK market led the way,
with double-digit comparable sales and strong net unit opens
of 37. In addition, we continued to see strong performance
in Russia, the Middle East, and Latin America. At year end,
we had 1,505 restaurants open beyond North America’s
shores. Most importantly, we’ve continued to implement our
gold standard ingredients worldwide to make sure all our
pizzas taste the same. This costs a little more, but it’s worth
it in the long run to help us live up to our motto of “Better
Ingredients. Better Pizza.”
Our Mission: The Best Pizza Ingredients Around. Period.
You can’t make good wine from bad grapes. The foundation of
our business is quality and consistency – we’ve always had better
ingredients, and we always will. I learned that quality before I ever
made the fi rst Papa John’s pizza in the broom closet, back when I
was making pizzas at Rocky’s Sub Pub when I was 15. That’s why
we have always strived to invest – and always will invest – in the
best ingredients for our pizza.
Where to start? How about with our fresh, never-frozen,
hand-tossed original dough made with extra virgin olive oil.
Our fresh-packed tomato sauce is also key – it’s made from
ripe, farm-grown California tomatoes, extra virgin olive
oil, salt, sunfl ower oil, sugar, and spices. We’re the rare
major pizza company that refuses to make our pizza sauce
from tomato paste. Why? Because Papa John’s doesn’t
compromise on quality.
Fast forward to today, and that lesson still stands. I recently came
across QSR magazine’s January issue, which included the Top
Fast Food Trends in 2016. The number one trend for this year is a
movement to “Real Food.” The good news is we’ve been devoted to
Real Food since 1984. Papa John’s was built on quality, which is why
we talk so openly about our ingredients. It’s also why we always say,
“Better Ingredients. Better Pizza.” This isn’t just our slogan – it’s a
way of life.
In pursuit of this goal, we’ve
committed over $100 million
a year to have the cleanest
and freshest ingredients we
can source for our pizzas.
This eff ort is already
bearing fruit. We have
one of the cleanest pizza
ingredient labels among
top national pizza brands,
which means we use relatively
959
1,142
1,323
1,505
Ending Store Count
International
1,700
few artifi cial ingredients. We’re also working overtime to eliminate
1,500
the few remaining ones that we do use. Last summer, Panera Bread**
1,300
announced its “No No List” of artifi cial colors, fl avors, sweeteners, and
preservatives it intends to remove from its menu by the end of 2016.
1,100
Papa John’s is ahead of the game; 57 of those ingredients are already
900
not found in Papa John’s traditional, superior-quality pizza.
700
We’re not slowing down, either. Papa John’s recently announced that
its grilled chicken pizza toppings and chicken poppers will consist
500
of poultry that is raised without human and animal antibiotics, and
300
that they are fed a 100% vegetarian diet. We intend to achieve this
2015
goal by summer 2016. In addition, we also became the fi rst among
the top national pizza brands to announce our entire menu is now
free of artifi cial fl avors and synthetic colors. This includes all pizza
ingredients, pizza toppings, dessert items, and sauce selections. You
won’t fi nd fi llers in our meat toppings, or MSG, BHA, BHT, or partially
hydrogenated oils.
2009
2010
2012
2013
2014
2011
709
822
635
Our continued focus on quality not only delivers on our promise of
“Better Ingredients. Better Pizza.” but also ensures that we maintain
the taste that our customers desire. But we need to keep striving
to deliver the best. As consumers continue to expect greater
transparency from the food industry, we’re looking closely at our
labels to ensure that we’re staying true to our promise to constantly
improve. We believe we can continue to improve what’s in our pizzas
– without sacrifi cing the great taste that characterizes our traditional,
superior-quality Papa John’s pizza. That’s why we’re committed to
removing 14 more unwanted ingredients from our menu in 2016.
Quality Guarantee
Just prior to Super Bowl 50, we
announced a brand-new initiative for
our customers: A Quality Guarantee.
This means we guarantee that you’ll
love your Papa John’s pizza, but if
you don’t, you can tell us why and get
another one absolutely free. It’s that
simple. We’ve always been proud of
the quality of what we serve – with the
Quality Guarantee, we’re putting our
money where our mouth is. We believe
quality shouldn’t be a limited-time off er
– it’s our legacy.
LOVE YOUR PIZZA OR GET
ANOTHER ONE FREE!
Speaking of quality, it’s worth
mentioning again that Papa John’s earned the top spot in the 2015
American Customer Satisfaction Index. Specifi cally, we achieved the
highest rating in the pizza category for an unprecedented 14th time
in the past 16 years – and we also earned the highest rating across
all limited-service restaurant companies surveyed. We won’t rest on
our laurels, either. We’ll continue to strive for the highest customer
satisfaction, as shown by our new Quality Guarantee.
Adding Another Quality Ingredient
Adding Another Quality Ingredient
to our All-Star Lineup
In 2015, we continued to “Up our Game”
In 2015, we continued to “Up our Game”
not only with “Better Ingredients. Better
not only with “Better Ingredients. Better
Pizza.” but also with the addition of
Pizza.” but also with the addition of
another elite professional athlete as
another elite professional athlete as
a brand spokesperson: J.J. Watt.
J.J., like Peyton Manning, Paul George
J.J., like Peyton Manning, Paul George
and our other brand spokespeople,
and our other brand spokespeople,
shares my passion for constantly
improving, whether it’s pizza making
improving, whether it’s pizza making
or playmaking.
As the 2015 NFL Defensive Player of
As the 2015 NFL Defensive Player of
the Year and MVP runner-up,
Ending Store Count
International
959
822
709
635
1,700
1,500
1,300
1,100
900
700
500
300
1,505
1,323
1,142
J.J. Watt, Papa John’s
newest spokesperson.
2009
2010
2011
2012
2013
2014
2015
Global System Sales
$2.28B
$2.39B
$2.57B
$3.32B
$3.49B
$2.85B
$3.02B
2009
2010
2011
2012
2013
2014
2015
$4.00
$3.50
$3.00
$2.50
$2.00
$1.50
$1.00
$0.50
55%
50%
45%
40%
35%
30%
25%
20%
$2.30
$2.10
$1.90
$1.70
$1.50
$1.30
$1.10
$0.90
$0.70
$0.50
Earnings Per Share
$1.29
$1.08
$0.92
$0.69
$2.09
$1.75
$1.55
$4.00
$3.50
$3.00
$2.50
$2.00
$1.50
$1.00
$0.50
Global System Sales
$3.32B
$3.49B
$2.85B
$3.02B
$2.28B
$2.39B
$2.57B
2009*
2010*
2011
2012
2013
2014
2015
2009
2010
2011
2012
2013
2014
2015
*Earnings per share for 2009, 2010 and 2015 are presented on a non-GAAP basis for comparability purposes. See page 32 of this annual report for the GAAP to
non-GAAP reconciliation for 2015. See the Investor Relations section of our website which contains the GAAP to non-GAAP reconciliations for 2009 and 2010.
**Panera Bread is a registered trademark of Pumpernickel Associates, LLC.
Earnings Per Share
$1.29
$1.08
$0.92
$0.69
$2.09
$1.75
$1.55
2009*
2010*
2011
2012
2013
2014
2015
$2.30
$2.10
$1.90
$1.70
$1.50
$1.30
$1.10
$0.90
$0.70
$0.50
$2.5
$2.0
$1.5
$1.0
$0.5
Online Sales Mix
Domestic Restaurants
48%
46%
52%
Market Capitalization
$2.2B
$2.1B
$1.9B
$2.5
$2.0
$1.5
$1.0
$0.5
$1.2B
$0.9B
$0.6B
$0.7B
40%
33%
28%
25%
2009
2010
2011
2012
2013
2014
2015
2009
2010
2011
2012
2013
2014
2015
Online Sales Mix
Domestic Restaurants
48%
46%
52%
Market Capitalization
$2.2B
$2.1B
$1.9B
$1.2B
$0.9B
$0.6B
$0.7B
55%
50%
45%
40%
35%
30%
25%
20%
40%
33%
28%
25%
2009
2010
2011
2012
2013
2014
2015
2009
2010
2011
2012
2013
2014
2015
J.J. is a hard-working, high-character individual who embodies the
same values as us. He’s a role model for millions of young people
and football fans. As part of our partnership, we will continue to
support J.J.’s foundation – the Justin J. Watt Foundation – which
supports athletic opportunities for middle school students in the
Houston area. This eff ort will further elevate Papa John’s role as
Offi cial Pizza Sponsor of the NFL and Super Bowl 50. These eff orts
have landed Papa John’s at the top of national TV rankings and
made us one of the most recognized brands among avid NFL fans.
Combined with our partnerships with Joe Montana, Peyton Manning,
and others, our advertising campaigns have driven home our story of
“Better Ingredients. Better Pizza.” for tens of millions of people.
“Better Ingredients. Better Pizza.” for tens of millions of people.
O R T UNITIE
S
O P P
Creating More Meaningful
Opportunities for Young People
This summer, we joined the 100,000
Opportunities Initiative, the nation’s
largest employer-led coalition focused
on youth employment. This is a cause we
deeply believe in. In 2015, we hired over
14,000 young men and women, and we
will continue our commitment to help young
people lead others, fi nd fulfi llment and success, and climb the
ladder of opportunity.
0
0
0
,
0
0
1
I
N
I
T
I
A
T
I
V
E
1,700
1,500
1,300
1,100
900
700
500
300
Ending Store Count
International
959
822
709
635
1,505
1,323
1,142
2009
2010
2011
2012
2013
2014
2015
Global System Sales
$4.00
$3.50
$3.00
$2.50
$2.00
$1.50
$1.00
$0.50
There are tens of thousands of stories I could tell. Over the
years, we’ve had countless young people join our team. For
some, Papa John’s helped support them through school. For
others, it’s been a place where they’ve built careers. Meaningful
work benefi ts everyone, and I have watched thousands of
Papa John’s team members rise through our ranks to become
general managers, franchise owners, and executive leaders.
$2.57B
In fact, our company president, Steve Ritchie, started with
Papa John’s as a customer service representative over 20 years
ago. As someone who started out washing dishes at age 15
before graduating to making pizzas, nothing makes me prouder
than to help build future generations of American leadership.
When our team members succeed, Papa John’s succeeds. And
2015
when Papa John’s succeeds, the world improves.
2009
2010
2013
2012
2014
2011
$3.02B
$2.39B
$2.85B
$2.28B
$3.49B
$3.32B
Two legendary quarterbacks, and one legendary
Pizza Maker: Joe Montana, Peyton Manning & Papa John.
Slice the Bill with Friends
Papa John’s continues to improve the quality of
Papa John’s continues to improve the quality of
our digital customer experience, most notably
our digital customer experience, most notably
with a complete revamp of our website. In
with a complete revamp of our website. In
2015, digital and mobile channels accounted
2015, digital and mobile channels accounted
for 52 percent of our total U.S. sales,
for 52 percent of our total U.S. sales,
both delivery and carryout. Papa John’s
both delivery and carryout. Papa John’s
already has a solid track record of digital
already has a solid track record of digital
“fi rsts.” Fifteen years ago, we were
“fi rsts.” Fifteen years ago, we were
the fi rst commercial pizza chain to
the fi rst commercial pizza chain to
allow system-wide online ordering
allow system-wide online ordering
in our traditional restaurants. We
in our traditional restaurants. We
were also the fi rst pizza brand
to account for 50 percent of
all sales through digital and
mobile channels.
Ending Store Count
International
959
822
709
635
1,700
1,500
1,300
1,100
900
700
500
300
1,505
1,323
1,142
Online Sales Mix
Domestic Restaurants
52%
48%
46%
40%
33%
28%
25%
55%
50%
45%
40%
35%
30%
25%
20%
$2.30
$2.10
$1.90
$1.70
$1.50
$1.30
$1.10
$0.90
$0.70
$0.50
$2.5
$2.0
$1.5
$1.0
$0.5
Earnings Per Share
$1.29
$1.08
$0.92
$0.69
$2.09
$1.75
$1.55
2009*
2010*
2011
2012
2013
2014
2015
Market Capitalization
$2.2B
$2.1B
$1.9B
$1.2B
$0.9B
$0.6B
$0.7B
2009
2010
2011
2012
2013
2014
2015
2009
2010
2011
2012
2013
2014
2015
2009
2010
2011
2012
2013
2014
2015
$4.00
$3.50
$3.00
$2.50
$2.00
$1.50
$1.00
$0.50
55%
50%
45%
40%
35%
30%
25%
20%
Global System Sales
$2.28B
$2.39B
$2.57B
$3.32B
$3.49B
$2.85B
$3.02B
2009
2010
2011
2012
2013
2014
2015
Earnings Per Share
$1.29
$1.08
$0.92
$0.69
$2.09
$1.75
$1.55
2009*
2010*
2011
2012
2013
2014
2015
$2.30
$2.10
$1.90
$1.70
$1.50
$1.30
$1.10
$0.90
$0.70
$0.50
$2.5
$2.0
$1.5
$1.0
$0.5
Online Sales Mix
Domestic Restaurants
48%
46%
52%
Market Capitalization
$2.2B
$2.1B
$1.9B
40%
33%
28%
25%
$1.2B
$0.9B
$0.6B
$0.7B
2009
2010
2011
2012
2013
2014
2015
2009
2010
2011
2012
2013
2014
2015
Quality Above All
Papa John’s will continue to double-down on quality in
2016, whether through the Quality Guarantee, continued
improvements in our menu and ingredients, and more. In
all that we do, we will continue to improve how we deliver
“Better Ingredients. Better Pizza.” We will also double-
down on building stronger relationships between our team
members, our suppliers, our franchisees, our customers, our
communities, and the world around us.
I’ve said it before and I’ll say it again – if we take care of our
employees and look out for them, we will continue to make
traditional, superior-quality Papa John’s pizzas. Together, we
made great strides in 2015. We can do even better in 2016.
Ever since I made the fi rst Papa John’s pizza in the broom
closet over 30 years ago, I’ve believed that if you work hard,
innovate, and put others before yourself, you can truly make
the world a better place. That has always been our vision at
Papa John’s – and it’s exactly what we can do if we keep our
focus on “Better Ingredients. Better Pizza.”
John H. Schnatter
Founder, Chairman, and
Chief Executive Offi cer
In 2015, we unveiled several digital innovations to improve
our customer experience. We completely redesigned our
website and now are one of the only brands in the category
with a fully responsive site. In addition, we redesigned our
iOS app and have signifi cantly improved our rating among
users and against the competition. We have more orders
coming from mobile than ever before and we relaunched our
Papa Rewards loyalty program with new redemption options,
including side items, to add value and variety for all of our
customers. We are still the only national pizza chain with an
e-commerce help desk and extended this service to social
channels as well.
We reached yet another milestone in 2015 when we
announced the introduction of PayShare, a fi rst-of-its-kind
digital solution that lets customers immediately split their
pizza bill on any mobile or online order. It’s a simple, digital
solution that allows our customers to focus on enjoying their
favorite pizza with their friends and family. You can even post
your order on social media to let your friends know what you
ordered. In today’s “sharing economy,” consumers split fares
for car services and share their homes on vacation rental
sites – why not share the pizza bill, too?
“
BETTER
INGREDIENTS.
BETTER PIZZA.
THIS ISN’T JUST
OUR SLOGAN –
IT’S A WAY OF
LIFE .
”– JOHN
“
QUALITY
IS OUR FOUNDATION
AND OUR DISTINCTION.
WE’VE ALWAYS HAD
BETTER INGREDIENTS,
A N D A L W AY S W I L L .
”
Executive Leadership Team
208 Years of Total Service
JOHN H. SCHNATTER
Founder, Chairman and
Chief Executive Offi cer
★ 32 Years
STEVE M. RITCHIE
President and Chief
Operating Offi cer
★ 20 Years
LANCE F. TUCKER
Senior Vice President, Chief
Financial Offi cer, Chief
Administrative Offi cer, and
Treasurer
★ 18 Years
SEAN A. MULDOON
Senior Vice President,
Chief Ingredient Offi cer
★ 16 Years
R. SHANE HUTCHINS
Senior Vice President,
PJ Food Service
★ 18 Years
CYNTHIA A. MCCLELLEN
Senior Vice President,
Information Systems and
Project Management Offi ce
★ 6 Years
TIMOTHY C. O’HERN
Senior Vice President,
Chief Development Offi cer
★ 29 Years
CAROLINE MILLER OYLER
Senior Vice President,
General Counsel
★ 16 Years
EDMOND M. HEELAN
Senior Vice President, North
American Operations and
Global OST
★ 15 Years
ROBERT W. SMITH, JR.
Senior Vice President,
Global Human Resources
★ 13 Years
JACK H. SWAYSLAND
Senior Vice President,
International
★ 9 Years
ROBERT E. THOMPSON
Senior Vice President,
Marketing
★ 16 Years
★ = Represents years working with John Schnatter and/or Papa John’s
Board of Directors
Corporate Information
JOHN H. SCHNATTER
Founder, Chairman and Chief
Executive Offi cer
LAURETTE T. KOELLNER (1, 3)
Business Consultant
OLIVIA F. KIRTLEY (1*, 2)
Business Consultant
MARK S. SHAPIRO (1, 3*)
Chief Content Offi cer, IMG
SONYA E. MEDINA (3)
Government and Public Aff airs
Strategist
W. KENT TAYLOR (2)
Founder, Chairman and
Chief Executive Offi cer of
Texas Roadhouse, Inc.
CHRISTOPHER L. COLEMAN (1, 3)
Managing Director, Rothschild – London
Corporate Headquarters
2002 Papa John’s Boulevard
Louisville, Kentucky 40299
502-261-7272
Stock Listing
Papa John’s stock is listed on the NASDAQ
Global Select Market under the ticker symbol
PZZA
Annual Meeting
The annual meeting of stockholders will be held
Thursday, April 28, 2016, 11:00 A.M. (E.D.T) at:
Papa John’s International, Inc.
2002 Papa John’s Boulevard
Louisville, Kentucky 40299
Independent Public Accountants
Ernst & Young LLP
Transfer Agent
Computershare Shareholder Services
211 Quality Circle, Suite 210
College Station, TX 77845
www.computershare.com/investor
800-622-6757 (US, Canada, Puerto Rico)
781-575-4735 (non-US)
Investor Relations
Lance F. Tucker
Senior Vice President, Chief Financial Offi cer,
Chief Administrative Offi cer, and Treasurer
502-261-7272
Corporate Communications – Media Relations
Peter Collins
Senior Director, Public Relations
502-261-7272
Forward-Looking Statements
This report includes non-historical or “forward-
looking” statements concerning future events
or conditions. Important risk factors, which
could cause actual results to diff er materially
from these statements, are set forth in Item 1A.
Risk Factors in the accompanying Form 10-K.
For More Information
To learn more about Papa John’s, or to order
online, visit our website at www.papajohns.com
NORBORNE P. COLE, JR. (2*, 4)
Business Consultant
Numbers Indicate Board Committees:
(1) Audit Committee
(2) Compensation Committee
(3) Corporate Governance and Nominating Committee
(4) Lead Independent Director
* Committee Chair
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 27, 2015
FORM 10-K
or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from _____________________ to _______________________
Commission File Number: 0-21660
PAPA JOHN’S INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
61-1203323
(I.R.S. Employer
Identification No.)
2002 Papa Johns Boulevard
Louisville, Kentucky
(Address of principal executive offices)
40299-2367
(Zip Code)
(502) 261-7272
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
(Title of Each Class)
Common Stock, $0.01 par value
(Name of each exchange on which registered)
The NASDAQ Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act.
Yes [X] No [ ]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of
the Act.
Yes [ ] No [X]
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website,
if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required
to submit and post such files).
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of
this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
[X]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer [X]
Non-accelerated filer [ ]
Accelerated filer [ ]
Smaller reporting company [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes [ ] No [X]
The aggregate market value of the common stock held by non-affiliates of the Registrant, computed by
reference to the closing sale price on The NASDAQ Stock Market as of the last business day of the Registrant’s
most recently completed second fiscal quarter, June 28, 2015, was $2,235,251,445.
As of February 16, 2016, there were 37,733,506 shares of the Registrant’s common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Part III of this annual report are incorporated by reference to the Registrant’s Proxy Statement for
the Annual Meeting of Stockholders to be held April 28, 2016.
TABLE OF CONTENTS
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters
Item 6.
Item 7.
and Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure
Controls and Procedures
Other Information
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners
and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Page
1
11
19
19
21
22
23
26
27
49
52
85
85
87
87
87
88
88
88
PART IV
Item 15.
Exhibits, Financial Statement Schedules
89
PART I
Item 1. Business
General
Papa John’s International, Inc., a Delaware corporation (referred to as the “Company”, “Papa John’s” or
in the first person notations of “we”, “us” and “our”) operates and franchises pizza delivery and carryout
restaurants and, in certain international markets, dine-in and delivery restaurants under the trademark
“Papa John’s”. Papa John’s began operations in 1984. At December 27, 2015, there were 4,893 Papa
John’s restaurants in operation, consisting of 752 Company-owned and 4,141 franchised restaurants
operating domestically in all 50 states and in 39 countries and territories. Our Company-owned
restaurants include 213 restaurants operated under four joint venture arrangements and 45 units in Beijing
and North China.
Papa John’s has defined five reportable segments: domestic Company-owned restaurants, domestic
commissaries (Quality Control Centers), North America franchising, international operations, and “all
other” business units. North America is defined as the United States and Canada. Domestic is defined as
the contiguous United States. International franchisees are defined as all franchise operations outside of
the United States and Canada. See “Management’s Discussion and Analysis of Financial Condition and
Results of Operations” and “Note 20” of “Notes to Consolidated Financial Statements” for financial
information about our segments.
All of our periodic and current reports filed with the Securities and Exchange Commission (the “SEC”)
pursuant to Section 13(a) or 15(d) of the Securities and Exchange Act of 1934, as amended (the
“Exchange Act”), are available, free of charge, through our website located at www.papajohns.com,
including our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K
and any amendments to those reports. Those documents are available through our website as soon as
reasonably practicable after we electronically file them with the SEC. We also make available free of
charge on our website our Corporate Governance Guidelines, Board Committee Charters, and our Code of
Ethics, which applies to Papa John's directors, officers and employees. Printed copies of such documents
are also available free of charge upon written request to Investor Relations, Papa John’s International,
Inc., P.O. Box 99900, Louisville, KY 40269-0900. You may read and copy any materials filed with the
SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. You may obtain
information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. This
information is also available at www.sec.gov. The references to these website addresses do not constitute
incorporation by reference of the information contained on the websites, which should not be considered
part of this document.
Strategy
Our goal is to build the strongest brand loyalty in the pizza industry. Recognized as a trusted brand and
quality leader in the domestic pizza category, we endeavor to build our brand on a global basis. The key
elements of our strategy include:
High-Quality Menu Offerings. Our menu strategy focuses on the quality of our ingredients. Domestic
Papa John’s restaurants offer high-quality pizza along with side items, including breadsticks,
cheesesticks, chicken poppers and wings, dessert items and canned or bottled beverages. Papa John’s
traditional crust pizza is prepared using fresh dough (never frozen). Papa John’s pizzas are made from a
proprietary blend of wheat flour, 100% real cheese made from mozzarella, fresh-packed pizza sauce made
from vine-ripened tomatoes (not from concentrate) and a proprietary mix of savory spices, and a choice of
high-quality meat and vegetable toppings. Our traditional crust pizza is delivered with a container of our
1
special garlic sauce and a pepperoncini pepper. In addition to our fresh dough traditional crust pizza, we
offer a thin crust pizza, which is a par-baked product produced by a third-party vendor. Each thin crust
pizza is served with a packet of special seasonings and a pepperoncini pepper.
Domestically, all ingredients and toppings can be purchased by our Company-owned and franchised
restaurants from our Quality Control Center (“QC Center”) system, which delivers to individual
restaurants twice weekly. To ensure consistent food quality, each domestic franchisee is required to
purchase dough and tomato sauce from our QC Centers and to purchase all other supplies from our QC
Centers or other approved suppliers. Internationally, the menu may be more diverse than in our domestic
operations to meet local tastes and customs. Most QC Centers outside the U.S. are operated by
franchisees pursuant to license agreements or by other third parties. The Company operates three
international QC Centers in Mexico, the United Kingdom and China. We provide significant assistance to
licensed international QC Centers in sourcing approved quality suppliers. All of the QC Centers are
required to meet food safety and quality standards and to be in compliance with all applicable laws.
We continue to test new product offerings both domestically and internationally, including limited time
offering pizzas. The new products can become a part of the permanent menu if they meet certain
established guidelines.
Efficient Operating System. We believe our operating and distribution systems, restaurant layout and
designated delivery areas result in lower restaurant operating costs and improved food quality, and
promote superior customer service. Our QC Center system takes advantage of volume purchasing of food
and supplies and provides consistency and efficiencies of scale in fresh dough production. This eliminates
the need for each restaurant to order food from multiple vendors and commit substantial labor and other
resources to dough preparation.
Commitment to Team Member Training and Development. We are committed to the development and
motivation of our team members through training programs, incentive and recognition programs and
opportunities for advancement. Team member training programs are conducted for corporate restaurant
team members, and operational training is offered to our franchisees. We offer performance-based
financial incentives to corporate team members and restaurant managers.
Marketing. Our domestic marketing strategy consists of both national and local components. Our national
strategy includes national advertising via television, print, direct mail, digital, mobile marketing and
social media channels. Our online and digital marketing activities have increased significantly over the
past several years in response to increasing consumer use of online and mobile web technology. Local
advertising programs include television, radio, and print materials. We strive to efficiently allocate
resources among television, print, digital, and other media. We also integrate social media into our
various marketing campaigns.
In international markets, our marketing focuses on reaching customers who live or work within a small
radius of a Papa John’s restaurant. Our international markets use a combination of advertising strategies,
including television, radio, digital, and print depending on the size of the local market.
Technology. We use technology to both enhance the customer experience and improve efficiencies in our
Company-owned and franchised restaurants. Our proprietary digital ordering platform allows customers
to order online. Our mobile ordering iPhone® and Android® applications support payment options such as
Google Wallet® and PayShare, a first-of-its-kind digital solution in the pizza industry that lets customers
immediately split their pizza bill. Our Papa Rewards® program is an eCommerce customer loyalty
program designed to increase customer loyalty and frequency. In 2015, we upgraded our domestic
proprietary point-of-sale technology, which we refer to as “FOCUS”. We believe this technology
facilitates fast and accurate order-taking and pricing and is an easy tool for restaurant operators to learn
2
and use. The FOCUS system is also integrated with our digital ordering solutions in all domestic
traditional Papa John’s restaurants, enabling Papa John’s to offer nationwide digital ordering to our
customers.
Strong Franchise System. We are committed to developing and maintaining a strong franchise system by
attracting experienced operators, supporting them to expand and grow their business and monitoring their
compliance with our high standards. We seek to attract franchisees with experience in restaurant or retail
operations and with the financial resources and management capability to open single or multiple
locations. We devote significant resources to provide Papa John’s franchisees with assistance in restaurant
operations, operations training, marketing, site selection and restaurant design.
Our strategy for global unit growth focuses on our strong unit economics model. We strive to eliminate
barriers to expansion in existing international markets, and identify new expansion opportunities. Our
growth strategy varies based on the maturity and penetration of the market and other factors in specific
domestic and international markets, with overall unit growth expected to come increasingly from
international markets.
Restaurant Sales and Investment Costs
We are committed to maintaining strong restaurant unit economics. In 2015, the 667 domestic Company-
owned restaurants included in the full year’s comparable restaurant base generated average annual unit
sales of $1.12 million. Our North American franchise restaurants, which included 2,351 restaurants in
2015, generated average annual unit sales of $858,000. North American franchise restaurant sales are
lower than Company-owned restaurants as a higher percentage of our Company-owned restaurants are
located in more heavily penetrated markets.
With few exceptions, domestic restaurants do not offer a dine-in area, which reduces our restaurant
capital investment. The average cash investment for the 11 domestic traditional Company-owned
restaurants opened during 2015, exclusive of land, was approximately $319,000 per unit, compared to the
$283,000 investment for the 11 domestic traditional units opened in 2014, excluding tenant allowances
that we received. Over the past few years we have experienced an increase in the cost of our new
restaurants primarily as a result of building larger units to accommodate increased sales, an increase in the
cost of certain equipment as a result of technology enhancements, and increased costs to comply with
local regulations.
We define a “traditional” domestic Papa John’s restaurant as a delivery and carryout unit that services a
defined trade area. We consider the location of a traditional restaurant to be important and therefore
devote significant resources to the investigation and evaluation of potential sites. The site selection
process includes a review of trade area demographics, target population density and competitive factors.
A member of our development team inspects each potential domestic Company-owned restaurant location
and substantially all franchised restaurant locations before a site is approved. Papa John’s restaurants are
typically located in strip shopping centers or freestanding buildings that provide visibility, curb appeal
and accessibility. Our restaurant design can be configured to fit a wide variety of building shapes and
sizes, which increases the number of suitable locations for our Company-owned and franchised
restaurants. A typical traditional domestic Papa John’s restaurant averages 1,100 to 1,500 square feet with
visible exterior signage.
“Non-traditional” Papa John’s restaurants generally do not provide delivery service but rather provide
walk-up or carry out service to a captive customer group within a designated facility, such as a food court
at an airport, university or military base or an event-driven service at facilities such as sports stadiums or
entertainment venues. Non-traditional units are designed to fit the unique requirements of the venue and
may not offer the full range of menu items available in our traditional restaurants.
3
All of our international restaurants are franchised, except for 45 Company-owned restaurants in Beijing
and North China. Generally, our international Papa John’s restaurants are slightly smaller than our
domestic restaurants and average between 900 and 1,400 square feet; however, in order to meet certain
local customer preferences, some international restaurants have been opened in larger spaces to
accommodate both dine-in and restaurant-based delivery service, typically with 35 to 140 seats.
Development
A total of 357 Papa John’s restaurants were opened during 2015, consisting of 16 Company-owned and
341 franchised restaurants (106 in North America and 235 international), while 127 Papa John’s
restaurants closed during 2015, consisting of six Company-owned (two in North America and four in
Beijing) and 121 franchised restaurants (72 in North America and 49 international), representing net
global unit growth of 230 restaurants.
Although most of our domestic Company-owned markets are well-penetrated, our Company-owned
growth strategy is to continue to open domestic restaurants in existing markets as appropriate, thereby
increasing consumer awareness and enabling us to take advantage of operational and marketing
efficiencies. Our experience in developing markets indicates that market penetration through the opening
of multiple restaurants in a particular market results in increased average restaurant sales in that market
over time. We have co-developed domestic markets with some franchisees or divided markets among
franchisees and will continue to utilize market co-development in the future, where appropriate.
Of the total 3,388 North American restaurants open as of December 27, 2015, 707 or 20.9% were
Company-owned (including 213 units owned in joint venture arrangements with franchisees in which the
Company has a majority ownership position). Operating Company-owned restaurants allows us to
improve operations, training, marketing and quality standards, for the benefit of the entire system. From
time to time, we evaluate the purchase or sale of units in significant markets, which could change the
percentage of Company-owned units.
Of the 1,505 international restaurants open as of December 27, 2015, 45 or 3.0% were Company-owned
(all of which are located in Beijing and North China). We plan to sell the 45 Company-owned China
restaurants in the next 12 months. Accordingly, as of December 27, 2015, the Company’s China
operations, including these restaurants and a commissary, are classified as held for sale in the
accompanying consolidated financial statements.
During 2016, we expect net unit growth of approximately 180 to 210 units, with approximately 75% of
openings in international franchised markets. International franchised unit expansion includes an
emphasis on existing markets in Latin and South America, the United Kingdom, Europe and the Middle
East.
QC Center System and Supply Chain Management
Our domestic QC Center system, comprised of ten full-service regional production and distribution
centers, supplies pizza dough, food products, paper products, smallwares and cleaning supplies twice
weekly to each traditional restaurant throughout the contiguous United States. This system enables us to
monitor and control product quality and consistency, while lowering food and other costs. We evaluate
the QC Center system capacity in relation to existing restaurants’ volumes and planned restaurant growth,
and facilities are developed or upgraded as operational or economic conditions warrant. In 2016, we have
plans to construct an additional domestic full-service production and distribution center in the Southeast
Region of the United States.
4
We own full-service international QC Centers in the United Kingdom, Mexico City, Mexico and Beijing,
China. Other international QC Centers are licensed to franchisees or non-franchisee third parties and are
generally located in the markets where our franchisees have restaurants.
We set quality standards for all products used in Papa John’s restaurants and designate approved outside
suppliers of food and paper products that meet our quality standards. To ensure product quality and
consistency, all domestic Papa John’s restaurants are required to purchase tomato sauce and dough from
QC Centers. Franchisees may purchase other goods directly from our QC Centers or other approved
suppliers. National purchasing agreements with most of our suppliers generally result in volume discounts
to us, allowing us to sell products to our restaurants at prices we believe are below those generally
available to restaurants in the marketplace. Within our domestic QC Center system, products are
distributed to restaurants by leased refrigerated trucks operated by us.
Marketing Programs
Our local restaurant-level marketing programs target consumers within the delivery area of each
restaurant through the use of local television, radio, print materials, targeted direct mail, store-to-door
flyers, digital display advertising, email marketing, text messages and local social media. Local marketing
efforts also include a variety of community-oriented activities within schools, sports venues and other
organizations supported with some of the same advertising vehicles mentioned above.
Domestic Company-owned and franchised Papa John’s restaurants within a defined market may be
required to join an area advertising cooperative (“Co-op”). Each member restaurant contributes a
percentage of sales to the Co-op for market-wide programs, such as television, radio, digital and print
advertising, and sports sponsorships. The rate of contribution and uses of the monies collected are
determined by a majority vote of the Co-op’s members. The contribution rate for Co-ops generally may
not be below 2% of sales without approval from Papa John’s.
The restaurant-level and Co-op marketing efforts are supported by media, print, digital and electronic
advertising materials that are produced by Papa John’s Marketing Fund, Inc. (“PJMF”). PJMF is an
unconsolidated nonstock corporation designed to operate at break-even for the purpose of designing and
administering advertising and promotional programs for all participating domestic restaurants. PJMF
produces and buys air time for Papa John’s national television commercials, buys digital media such as
banner advertising, paid search-engine advertising, mobile marketing, social media advertising and
marketing, and SMS text and email. It also engages in other brand-building activities, such as consumer
research and public relations activities. Domestic Company-owned and franchised Papa John’s restaurants
are required to contribute a certain minimum percentage of sales to PJMF. The contribution rate to PJMF
can be set at up to 3% of sales, if approved by the governing board of PJMF, and beyond that level if
approved by a supermajority of domestic restaurants. The contribution rate has been 4% since 2011.
Our proprietary digital ordering platform allows customers to order online. Our eCommerce platforms
include “plan ahead ordering,” Spanish-language ordering capability, Google Wallet® alternative
payment and enhanced mobile web ordering for our customers, including Papa John's iPhone® and
Android® applications. In April 2015, we introduced PayShare, a first-of-its-kind digital solution in the
pizza industry that lets customers immediately split their pizza bill. PayShare, powered by Venmo,
provides our customers a safe and secure option to simply and easily split the check on any mobile or
online order. Our Papa Rewards® program is an eCommerce customer loyalty program designed to
increase loyalty and frequency of consumer use of our eCommerce ordering platform. We receive a
percentage-based fee from U.S. franchisees for online sales, in addition to royalties, to defray
development and operating costs associated with our eCommerce ordering platform.
5
Our domestic restaurants offer customers the opportunity to purchase a reloadable gift card referred to as
the “Papa Card.” The Papa Card is sold as either a plastic gift card purchased in our restaurants, or an
online digital card. We sell Papa Cards to consumers on our website and through third-party retailers. We
also sell cards in bulk to business entities and organizations. We continue to explore other Papa Card
distribution opportunities. The Papa Card may be redeemed for delivery, carryout, and eCommerce orders
and is accepted at all Papa John’s traditional domestic restaurants.
We provide both Company-owned and franchised restaurants with pre-approved marketing materials and
catalogs for the purchase of uniforms and promotional items. We also provide direct marketing services to
Company-owned and franchised restaurants using customer information gathered by our proprietary
point-of-sale technology (see “Company Operations – Domestic Point-of-Sale Technology”). In addition,
we provide database tools, templates and training for operators to facilitate local email marketing and text
messaging through our approved tools.
In international markets, our marketing focuses on customers who live or work within a small radius of a
Papa John’s restaurant. Certain markets can effectively use television and radio as part of their marketing
strategies. The majority of the marketing efforts include using print materials such as flyers, newspaper
inserts, in-store marketing materials, and to a growing extent, digital marketing such as display, search
engine marketing, social media, mobile marketing, email, and SMS text. Local marketing efforts, such as
sponsoring or participating in community events, sporting events and school programs, are also used to
build customer awareness.
Company Operations
Domestic Restaurant Personnel. A typical Papa John’s Company-owned domestic restaurant employs a
restaurant manager and approximately 20 to 25 hourly team members, many of whom work part-time.
The manager is responsible for the day-to-day operation of the restaurant and maintaining Company-
established operating standards. We seek to hire experienced restaurant managers and staff and provide
comprehensive training programs in areas such as operations and managerial skills. We also employ
directors of operations who are responsible for overseeing an average of seven Company-owned
restaurants. Senior management and corporate staff also support the field teams in many areas, including,
but not limited to, quality assurance, food safety, training, marketing and technology. We seek to motivate
and retain personnel by providing opportunities for advancement and performance-based financial
incentives.
Training and Education. The Global Operations Support and Training department is responsible for
creating tools and materials for the operational training and development of both corporate and franchise
team members. We believe training is very important to delivering consistent operational execution.
Operations personnel complete our management training program and ongoing development programs,
including multi-unit training, in which instruction is given on all aspects of our systems and operations.
Domestic Point-of-Sale Technology. Our proprietary point-of-sale technology, “FOCUS”, is in place in all
North America traditional Papa John’s restaurants. We believe this technology facilitates fast and accurate
order-taking and pricing, and allows the restaurant manager to better monitor and control food and labor
costs, including food inventory management and order placement from the domestic QC Centers. The
system allows us to obtain restaurant operating information, providing us with timely access to sales and
customer information. The FOCUS system is also integrated with our digital ordering solutions in all
domestic traditional Papa John’s restaurants, enabling Papa John’s to offer nationwide digital ordering to
our customers.
Domestic Hours of Operation. Our domestic restaurants are open seven days a week, typically from
11:00 a.m. to 12:30 a.m. Monday through Thursday, 11:00 a.m. to 1:30 a.m. on Friday and Saturday and
6
12:00 noon to 11:30 p.m. on Sunday. Carry out hours are generally more limited for late night, for
security purposes.
Franchise Program
General. We continue to attract franchisees with significant restaurant and retail experience. We consider
our franchisees to be a vital part of our system’s continued growth and believe our relationship with our
franchisees is good. As of December 27, 2015, there were 4,141 franchised Papa John’s restaurants
operating in all 50 states and 39 countries and territories. During 2015, our franchisees opened an
additional 341 (106 North America and 235 international) restaurants. As of December 27, 2015, we
have development agreements with our franchisees for approximately 200 additional North America
restaurants, the majority of which are committed to open over the next two to three years, and agreements
for approximately 940 additional international franchised restaurants, the majority of which are scheduled
to open over the next six years. There can be no assurance that all of these restaurants will be opened or
that the development schedule set forth in the development agreements will be achieved.
Approval. Franchisees are approved on the basis of the applicant’s business background, restaurant
operating experience and financial resources. We seek franchisees to enter into development agreements
for single or multiple restaurants. We require each franchisee to complete our training program or to hire
a full-time operator who completes the training and has either an equity interest or the right to acquire an
equity interest in the franchise operation. For most non-traditional operations and for operations outside
the United States, we will allow an approved operator bonus plan to substitute for the equity interest.
North America Development and Franchise Agreements. We enter into development agreements with our
franchisees in North America for the opening of a specified number of restaurants within a defined period
of time and specified geographic area. Our standard domestic development agreement includes a fee of
$25,000 before consideration of any incentives. The franchise agreement is generally executed once a
franchisee secures a location. Our current standard franchise agreement requires the franchisee to pay a
royalty fee of 5% of sales, and the majority of our existing franchised restaurants have a 5% royalty rate
in effect.
Over the past several years, we have offered various development incentive programs for domestic
franchisees to accelerate unit openings. Such incentives included the following for 2015 traditional
openings: (1) waiver of the standard one-time $25,000 franchise fee if the unit opens on time in
accordance with the agreed-upon development schedule, or a reduced fee of $5,000 if the unit opens late;
(2) the waiver of some or all of the 5% royalty fee for a period of time; (3) a credit for a portion of the
purchase of certain leased equipment; and (4) a credit to be applied toward a future food purchase, under
certain circumstances. We believe the development incentive programs have accelerated unit openings
and expect they will continue to do so in 2016.
Substantially all existing franchise agreements have an initial 10-year term with a 10-year renewal option.
We have the right to terminate a franchise agreement for a variety of reasons, including a franchisee’s
failure to make payments when due or failure to adhere to our policies and standards. Many state
franchise laws limit our ability as a franchisor to terminate or refuse to renew a franchise.
We provide assistance to Papa John’s franchisees in selecting sites, developing restaurants and evaluating
the physical specifications for typical restaurants. We provide layout and design services and
recommendations for subcontractors, signage installers and telephone systems to Papa John’s franchisees.
Our franchisees can purchase complete new store equipment packages through an approved third-party
supplier. We sell replacement smallwares and related items to our franchisees. Each franchisee is
responsible for selecting the location for its restaurants but must obtain our approval of restaurant design
7
and location based on traffic accessibility and visibility of the site and targeted demographic factors,
including population density, income, age and traffic.
Domestic Franchise Support Initiatives. From time to time, we offer discretionary support initiatives to
our domestic franchisees, including:
• Performance-based incentives;
• Targeted royalty relief and local marketing support to assist certain identified franchisees or
markets;
• Restaurant opening incentives; and
• Reduced-cost direct mail campaigns from Preferred Marketing Solutions (“Preferred,” our wholly
owned print and promotions subsidiary).
In 2016, we plan to offer some or all of these domestic franchise support initiatives.
International Development and Franchise Agreements. We opened our first franchised restaurant outside
the United States in 1998. We define “international” as all markets outside the United States and Canada.
In international markets, we have either a development agreement or a master franchise agreement with a
franchisee for the opening of a specified number of restaurants within a defined period of time and
specified geographic area. Under a master franchise agreement, the franchisee has the right to sub-
franchise a portion of the development to one or more sub-franchisees approved by us. Under our current
standard international development or master franchise agreement, the franchisee is required to pay total
fees of $25,000 per restaurant: $5,000 at the time of signing the agreement and $20,000 when the
restaurant opens or on the agreed-upon development date, whichever comes first. Additionally, under our
current standard master franchise agreement, the master franchisee is required to pay $15,000 for each
sub-franchised restaurant – $5,000 at the time of signing the agreement and $10,000 when the restaurant
opens or on the agreed-upon development date, whichever comes first.
Our current standard international master franchise and development agreements provide for payment to
us of a royalty fee of 5% of sales. For international markets with sub-franchise agreements, the effective
sub-franchise royalty received by the Company is generally 3% of sales and the master franchisee
generally receives a royalty of 2% of sales. The remaining terms applicable to the operation of individual
restaurants are substantially equivalent to the terms of our domestic franchise agreement. From time to
time, development agreements will be negotiated at other-than-standard terms for fees and royalties, and
we may offer various development and royalty incentives to help drive net unit growth and results.
Non-traditional Restaurant Development. We had 228 non-traditional domestic restaurants at December
27, 2015. Non-traditional restaurants generally cover venues or areas not originally targeted for traditional
unit development, and our franchised non-traditional restaurants have terms differing from the standard
agreements.
Franchisee Loans. Selected domestic and international franchisees have borrowed funds from us,
principally for the purchase of restaurants from us or other franchisees or for construction and
development of new restaurants. Loans made to franchisees can bear interest at fixed or floating rates and
in most cases are secured by the fixtures, equipment and signage of the restaurant and/or are guaranteed
by the franchise owners. At December 27, 2015, net loans outstanding totaled $18.9 million. See “Note
11” of “Notes to Consolidated Financial Statements” for additional information.
Domestic Franchise Insurance Program. Our franchisees may elect to purchase various insurance
policies, such as health, general liability, non-owned automobile and workers’ compensation insurance,
through our wholly-owned insurance agency. The Company bears no liability under this program.
8
Various third-party commercial insurance companies provide fully-insured coverage for these lines of
business to franchisees participating in the franchise insurance program.
Domestic Franchise Training and Support. Our domestic field support structure consists of franchise
business directors, each of whom is responsible for serving an average of 130 franchised units. Our
franchise business directors maintain open communication with the franchise community, relaying
operating and marketing information and new initiatives between franchisees and us. Franchise business
directors report to division vice presidents, who report to the Vice President North America Franchise
Operations.
Every franchisee is required to have a principal operator approved by us who satisfactorily completes our
required training program. Principal operators for traditional restaurants are required to devote their full
business time and efforts to the operation of the franchisee’s traditional restaurants. Each franchised
restaurant manager is also required to complete our Company-certified management operations training
program. Ongoing compliance with training is monitored by the Global Operations Support and Training
team. Multi-unit franchisees are encouraged to appoint training store general managers or hire a full-time
training coordinator certified to deliver Company-approved operational training programs.
International Franchise Operations Support. We employ or contract with international business directors
who are responsible for supporting one or more franchisees. The international business directors usually
report to regional vice presidents. Senior management and corporate staff also support the international
field teams in many areas, including but not limited to food safety, quality assurance, marketing,
technology, operations training and financial analysis.
Franchise Operations. All franchisees are required to operate their Papa John’s restaurants in compliance
with our policies, standards and specifications, including matters such as menu items, ingredients, and
restaurant design. Franchisees have full discretion in human resource practices, and generally have full
discretion to determine the prices to be charged to customers, but we have the authority to set maximum
price points for nationally advertised promotions.
Franchise Advisory Council. We have a Franchise Advisory Council (“FAC”) that consists of Company
and franchisee representatives of domestic restaurants. We also have a franchise advisory council in the
United Kingdom (“UK FAC”). The FAC and UK FAC and subcommittees hold regular meetings to
discuss new product and marketing ideas, operations, growth and other business issues. From time to
time, certain domestic franchisees have also formed a separate franchise association for the purpose of
communicating and addressing issues, needs and opportunities among its members.
We currently communicate with, and receive input from, our franchisees in several forms, including
through the FAC, UK FAC, annual operations conferences, system communications, national conference
calls, various regional meetings conducted with franchisees throughout the year and ongoing
communications from franchise business directors and international business directors in the field.
Monthly webcasts are also conducted by the Company to discuss current operational, marketing or other
issues affecting the domestic franchisees’ business. We are committed to communicating with our
franchisees and receiving input from them.
Industry and Competition
The United States Quick Service Restaurant pizza (“QSR Pizza”) industry is mature and highly
competitive with respect to price, service, location, food quality and product innovation. There are well-
established competitors with substantially greater financial and other resources than Papa John’s. The
category is largely fragmented and competitors include international, national and regional chains, as well
as a large number of local independent pizza operators, any of which can utilize a growing number of
9
food delivery services. Some of our competitors have been in existence for substantially longer periods
than Papa John’s and can have higher levels of restaurant penetration and stronger, more developed brand
awareness in markets where we compete. According to industry sources, domestic QSR Pizza category
sales, which includes dine-in, carry out and delivery, totaled approximately $33.8 billion in 2015, or an
increase of 3% from the prior year.
With respect to the sale of franchises, we compete with many franchisors of restaurants and other
business concepts. There is also active competition for management personnel and attractive commercial
real estate sites suitable for Papa John’s restaurants.
Government Regulation
We, along with our franchisees, are subject to various federal, state, local and international laws affecting
the operation of our respective businesses, including laws and regulations related to the preparation and
sale of food, including food safety and menu labeling. Each Papa John’s restaurant is subject to licensing
and regulation by a number of governmental authorities, which include zoning, health, safety, sanitation,
building and fire agencies in the state or municipality in which the restaurant is located. Difficulties in
obtaining, or the failure to obtain, required licenses or approvals could delay or prevent the opening of a
new restaurant in a particular area. Our QC Centers are licensed and subject to regulation by state and
local health and fire codes, and the operation of our trucks is subject to federal and state transportation
regulations. We are also subject to federal and state environmental regulations. In addition, our domestic
system-wide restaurant operations are subject to various federal and state laws governing such matters as
minimum wage requirements, benefits, working conditions, citizenship requirements, and overtime.
We are subject to Federal Trade Commission (“FTC”) regulation and various state laws regulating the
offer and sale of franchises. The laws of several states also regulate substantive aspects of the franchisor-
franchisee relationship. The FTC requires us to furnish to prospective franchisees a franchise disclosure
document containing prescribed information. State laws that regulate the franchisor-franchisee
relationship presently exist in a significant number of states and bills have been introduced in Congress
from time to time that would provide for federal regulation of the U.S. franchisor-franchisee relationship
in certain respects if such bills were enacted. The state laws often limit, among other things, the duration
and scope of non-competition provisions and the ability of a franchisor to terminate or refuse to renew a
franchise. Some foreign countries also have disclosure requirements and other laws regulating franchising
and the franchisor-franchisee relationship. National, state and local government regulations or initiatives,
including health care legislation, “living wage,” legislation imposing “joint employer liability” or other
current or proposed regulations and increases in minimum wage rates affect Papa John’s as well as others
within the restaurant industry. As we expand internationally, we are subject to applicable laws in each
jurisdiction where franchised units are established.
We are increasingly subject to laws and regulations that require us to disclose calorie content and other
specific content of our food, including, fat, trans fat, and salt content. The Patient Protection and
Affordable Care Act of 2010 (ACA) requires us and many restaurant companies to disclose calorie
information on their restaurant menus. The Food and Drug Administration has issued final rules to
implement this provision beginning in December 2016 that would require restaurants to post the number
of calories for most items on menus or menu boards and to make other nutritional information available.
A number of states, counties and cities in which we do business have also enacted menu labeling laws.
Government regulation of nutrition disclosure and advertising could result in increased costs of
compliance and also impact consumer habits in a way that adversely impacts sales at our restaurants. For
further information regarding governmental regulation, see Item 1A, Risk Factors.
10
Trademarks, Copyrights and Domain Names
Our intellectual property rights are a significant part of our business. We have registered and continue to
maintain federal registrations through the United States Patent and Trademark Office (the “USPTO”) for
the marks PAPA JOHN’S, PIZZA PAPA JOHN’S & Design (our logo), BETTER INGREDIENTS.
BETTER PIZZA., PIZZA PAPA JOHN’S BETTER INGREDIENTS. BETTER PIZZA. & Design, and
PAPA REWARDS. We also own federal registrations through the USPTO for several ancillary marks,
principally advertising slogans. Moreover, we have registrations for and/or have applied for PIZZA
PAPA JOHN’S & Design in more than 100 foreign countries and the European Community, in addition
to international registrations for PAPA JOHN’S and PIZZA PAPA JOHN’S BETTER INGREDIENTS.
BETTER PIZZA. & Design in various foreign countries. From time to time, we are made aware of the
use by other persons in certain geographical areas of names and marks that are the same as or
substantially similar to our marks. It is our policy to pursue registration of our marks whenever possible
and to vigorously oppose any infringement of our marks.
We hold copyrights in authored works used in our business, including advertisements, packaging,
training, and promotional materials. In addition, we have registered and maintain Internet domain names,
including “papajohns.com.”
Employees
As of December 27, 2015, we employed approximately 22,350 persons, of whom approximately 19,500
were restaurant team members, approximately 900 were restaurant management personnel, approximately
750 were corporate personnel and approximately 1,200 were QC Center and Preferred personnel. Most
restaurant team members work part-time and are paid on an hourly basis. None of our team members are
covered by a collective bargaining agreement. We consider our team member relations to be good.
Item 1A. Risk Factors
We are subject to various risks that could have a negative effect on our business, financial condition and
results of operations. These risks could cause actual operating results to differ from those expressed in
certain “forward looking statements” contained in this Form 10-K as well as in other Company
communications. Before you invest in our securities you should carefully consider these risk factors
together with all other information included in this Form 10-K and our other publicly filed documents.
Our profitability may suffer as a result of competition in our industry.
The QSR Pizza industry is mature and highly competitive. Competition is based on price, service,
location, food quality, brand recognition and loyalty, product innovation, effectiveness of marketing and
promotional activity, use of technology, and the ability to identify and satisfy consumer preferences.
From time to time, we may need to reduce the prices for some of our products to respond to competitive
and customer pressures, which may adversely affect our profitability. Additionally, when commodity and
other costs increase, we may be limited in our ability to increase prices. With the significant levels of
competition we may be required to increase investment spending in several areas including marketing and
technology, which can decrease profitability.
In addition to competition with our larger and more established competitors who have substantially
greater financial and other resources then we do, we also face competition from new competitors and
concepts such as fast casual pizza concepts. We also face additional competitive pressures from food
delivery concepts using new delivery technologies, some of which may have more effective marketing.
The emergence or growth of new competitors may make it difficult for us to maintain or increase our
market share and could negatively impact our sales and our system-wide restaurant operations.
11
One of our competitive strengths is our Better Ingredients, Better Pizza brand promise. This means that
we may use ingredients which cost more than the ingredients some of our competitors may use. Because
of our investment in higher quality ingredients, we could have lower profit margins than some of our
competitors if we are not able to maintain premium pricing for our products.
Changes in consumer preferences or discretionary consumer spending could adversely impact our
results.
Changes in consumer preferences and trends (for example, changes in dietary preferences that could
cause consumers to avoid pizza or some of its ingredients in favor of foods that are perceived as more
healthful, lower-calorie or otherwise based on their ingredients or nutritional content) or preferences for a
dining experience such as fast casual pizza concepts, could adversely affect our restaurant business. Also,
our success depends to a significant extent on numerous factors affecting consumer confidence and
discretionary consumer income and spending, such as general economic conditions and the level of
employment. Any factors that could cause consumers to spend less on food or shift to lower-priced
products could reduce sales or inhibit our ability to maintain or increase pricing, either of which could
materially adversely affect our results of operations.
Food safety and quality concerns may negatively impact our business and profitability.
Incidents or reports of food- or water-borne illness or other food safety issues, investigations or other
actions by food safety regulators, food contamination or tampering, employee hygiene and cleanliness
failures, improper franchisee or employee conduct, or presence of communicable disease at our
Company-owned and franchised restaurants, QC Centers, or suppliers could lead to product liability or
other claims. If we were to experience any such incidents or reports, our brand and reputation could be
negatively impacted. This could result in a significant decrease in customer traffic and could negatively
impact our revenues and profits. Similar incidents or reports occurring at quick service restaurants
unrelated to us could likewise create negative publicity, which could negatively impact consumer
behavior towards us.
We rely on our domestic and international suppliers, as do our franchisees, to provide quality ingredients
and to comply with applicable laws and industry standards. A failure of one of our domestic or
international suppliers to meet our quality standards, or meet domestic or international food industry
standards, could result in a disruption in our supply chain and negatively impact our brand and our
business and profitability.
Our results depend upon our ability to differentiate our brand and our reputation for quality. Damage to
our brand or reputation could negatively impact our business and financial results. Our brand has been
highly rated in U.S. surveys, and we strive to build the value of our brand as we develop international
markets. The value of our brand and demand for our products could be damaged by any incidents that
harm consumer perceptions of the Company and our brand. As a result of the impact of social media, the
value of our brand and the demand for our products could be quickly and seriously damaged due to the
widespread publicity that can be associated with one or more of these incidents.
We may not be able to effectively market our products or maintain key marketing partnerships.
The success of our system-wide business depends on the effectiveness of our marketing and promotional
plans. We may not be able to effectively execute our national or local marketing plans, particularly if
lower sales result in reduced levels of funds from PJMF. Our marketing strategy utilizes relationships
with well-known sporting events, athletes, celebrity personalities and our brand spokesman to market our
products. Our business could suffer if we are not able to maintain key marketing relationships and
sponsorships, or if we are unable to do so at a reasonable cost, and could require additional investments in
12
alternative marketing strategies. Actions taken by persons endorsing our products that harm their
reputations could also cause harm to our brand.
Changes in privacy law could adversely affect our ability to market our products effectively.
We rely on a variety of direct marketing techniques, including email, text messages and postal mailings.
Any future restrictions in federal, state or foreign laws regarding marketing and solicitation or
international data protection laws that govern these activities could adversely affect the continuing
effectiveness of email, text messages and postal mailing techniques and could force changes in our
marketing strategies. If this occurs, we may need to develop alternative marketing strategies, which could
impact the amount and timing of our revenues.
We may not be able to execute our strategy or achieve our planned growth targets, which could
negatively impact our business and our financial results.
Our growth strategy depends on our and our franchisees’ ability to open new restaurants and to operate
them on a profitable basis. We expect substantially all of our international unit growth and much of our
domestic unit growth to be franchised units. Accordingly, our profitability increasingly depends upon
royalty revenues from franchisees. If our franchisees are not able to operate their businesses successfully
under our franchised business model, our results could suffer. Additionally, we may fail to attract new
qualified franchisees or existing franchisees may close underperforming locations. Planned growth targets
and the ability to operate new and existing restaurants profitably are affected by economic, regulatory and
competitive conditions and consumer buying habits. Increased commodity or operating costs, including,
but not limited to, employee compensation and benefits or insurance costs, could slow the rate of new
store openings or increase the number of store closings. Our business is susceptible to adverse changes in
local, national and global economic conditions, which could make it difficult for us to meet our growth
targets. Additionally, we or our franchisees may face challenges securing financing, finding suitable store
locations at acceptable terms or securing required domestic or foreign government permits and approvals.
Our franchisees remain dependent on the availability of financing to remodel or renovate existing
locations, upgrade systems and enhance technology, or construct and open new restaurants. From time to
time, the Company may provide financing to certain franchisees and prospective franchisees in order to
mitigate store closings, allow new units to open, or complete required upgrades. If we are unable or
unwilling to provide such financing, which is a function of, among other things, a franchisee’s credit
worthiness, the number of new restaurant openings may be slower than expected and our results of
operations may be adversely impacted. To the extent we provide financing to franchisees in domestic and
international markets, our results could be negatively impacted by negative performance of these
franchisee loans.
If we do not meet our growth targets or the expectations of the market for net restaurant openings or our
other strategic objectives, our stock price could decline.
We may be adversely impacted by increases in the cost of food ingredients and other costs.
We are exposed to fluctuations in commodities. An increase in the cost, or sustained high levels of the
cost of cheese or other commodities could adversely affect the profitability of our system-wide restaurant
operations, particularly if we are unable to increase the selling price of our products to offset increased
costs. Cheese, representing our largest food cost, and other commodities can be subject to significant cost
fluctuations due to weather, availability, global demand and other factors that are beyond our control.
Additionally, increases in labor, mileage, insurance and other costs, could adversely affect the
profitability of our restaurant and QC Center businesses. Most of the factors affecting costs in our system-
wide restaurant operations are beyond our control, and we may not be able to adequately mitigate these
13
costs or pass along these costs to our customers or franchisees, given the significant competitive pricing
pressure.
Our dependence on a sole supplier or a limited number of suppliers for some ingredients could result in
disruptions to our business.
Domestic restaurants purchase substantially all food and related products from our QC Centers. We are
dependent on Leprino Foods Dairy Products Company (“Leprino”) as our sole supplier for cheese, one of
our key ingredients. Leprino, one of the major pizza category suppliers of cheese in the United States,
currently supplies all of our cheese domestically and substantially all of our cheese internationally. While
we have no other sole sources of supply for key ingredients, we do source other key ingredients from a
limited number of suppliers. Alternative sources of supply of cheese or other key ingredients may not be
available on a timely basis or may not be available on terms as favorable to us as under our current
arrangements.
Our corporate and franchised restaurants could also be harmed by a prolonged disruption in the supply of
products from or to our QC Centers due to weather, climate change, natural disasters, crop disease, labor
dispute or interruption of service by carriers. In particular, adverse weather or crop disease affecting the
California tomato crop could disrupt the supply of pizza sauce to our and our franchisees’ restaurants.
Insolvency of key suppliers could also cause similar business interruptions and negatively impact our
business.
Natural disasters or other catastrophic events may disrupt our operations or supply chain.
The occurrence of a natural disaster, epidemic, cyber attack or other catastrophic event may result in the
closure of Company-owned or franchised restaurants, our corporate office, any of our QC Centers or the
facilities of our suppliers, any of which could materially adversely affect our results of operations.
Changes in purchasing practices by our domestic franchisees could harm our commissary business.
Although our domestic franchisees currently purchase substantially all food products from our QC
Centers, they are only required to purchase from our QC Centers tomato sauce, dough and other items we
may designate as proprietary or integral to our system. Any changes in purchasing practices by domestic
franchisees, which have become more sensitive to charges and other fees, such as seeking alternative
approved suppliers of ingredients or other food products, could adversely affect the financial results of
our QC Centers and the Company.
Our current insurance may not be adequate and we may experience claims in excess of our reserves.
Our insurance programs for workers’ compensation, owned and non-owned automobiles, general liability,
property and team member health insurance coverage are funded by the Company up to certain retention
levels, generally ranging from $100,000 to $500,000. These insurance programs or our program for cyber
insurance may not be adequate to protect us, and it may be difficult or impossible to obtain additional
coverage or maintain current coverage at a reasonable cost. We also have experienced increasing claims
volatility and higher related costs for workers’ compensation, owned and non-owned automobiles and
health claims. We estimate loss reserves based on historical trends, actuarial assumptions and other data
available to us, but we may not be able to accurately estimate reserves. If we experience claims in excess
of our projections, our business could be negatively impacted, and our franchisees could be similarly
impacted by higher claims experience.
14
Our international operations are subject to increased risks and other factors that may make it more
difficult to achieve or maintain profitability or meet planned growth rates.
Our international operations could be negatively impacted by changes in international economic, political,
security or health conditions in the countries in which the Company or our franchisees operate, especially
in emerging markets. In addition, there are risks associated with differing business and social cultures and
consumer preferences. We may also face limited availability for restaurant locations, higher location costs
and difficulties in franchisee selection and financing. We may be subject to difficulties in sourcing and
importing high-quality ingredients (and ensuring food safety) in a cost-effective manner, hiring and
retaining qualified team members, marketing effectively and adequately investing in information
technology, especially in emerging markets.
Our international operations are also subject to additional risk factors, including import and export
controls, compliance with anti-corruption and other foreign laws, changes in tax laws, difficulties
enforcing intellectual property and contract rights in foreign jurisdictions, and the imposition of increased
or new tariffs or trade barriers. We intend to continue to expand internationally, which would make the
risks related to our international operations more significant over time.
Our international results, which are substantially franchised, depend heavily on the operating capabilities
and financial strength of our franchisees. Any changes in the ability of our franchisees to run their stores
profitably in accordance with our operating procedures, or to effectively sub franchise stores, could result
in brand damage, a higher number of restaurant closures and a reduction in the number of new restaurant
openings. Our Company-owned store presence is currently limited to our stores in China, which are
classified as held for sale. We may find it difficult to find a suitable buyer for our Company-owned stores
in China in a timely fashion, or a new franchisee could develop the market more slowly than we
anticipate, which could delay our growth in this market.
Foreign currency or interest rate risks could adversely affect our financial results.
Sales made by our franchisees in international markets are denominated in their local currencies, and
fluctuations in the U.S. dollar occur relative to the local currencies. Accordingly, changes in currency
exchange rates will cause our revenues and operating results to fluctuate. We have not historically hedged
our exposure to foreign currency fluctuations. Our international revenues and earnings may be adversely
impacted as the U.S. dollar rises against foreign currencies, because the local currency will translate into
fewer U.S. dollars, which occurred in 2015. Additionally, the value of certain assets or loans denominated
in local currencies may deteriorate. Other items denominated in U.S dollars including product imports or
loans may also become more expensive, putting pressure on franchisees’ cash flows.
Under our revolving credit facility, we are exposed to variable interest rates. A significant increase in
interest rates or total borrowings could adversely affect our profitability. Additionally, rising interest rates
could impact our franchisees and their ability to open new restaurants or operate existing restaurants
profitably.
Increasingly complex laws and regulations could adversely affect our business.
We operate in an increasingly complex regulatory environment, and the cost of regulatory compliance is
increasing. Our failure, or the failure of any of our franchisees, to comply with applicable U.S. and
international labor, health care, food, health and safety, consumer protection, anti-bribery and corruption,
competition, environmental and other laws, may result in civil and criminal liability, damages, fines and
penalties. Enforcement of existing laws and regulations, changes in legal requirements, and/or evolving
interpretations of existing regulatory requirements may result in increased compliance costs and create
other obligations, financial or otherwise, that could adversely affect our business, financial condition or
15
operating results. Increased regulatory scrutiny of, and increased litigation and enforcement actions
involving food matters and product marketing claims, may increase compliance and legal costs and create
other obligations that could adversely affect our business, financial condition or operating results.
Governments may also impose requirements and restrictions that impact our business. For example, some
local government agencies have implemented ordinances that restrict the sale of certain food or drink
products.
Compliance with new or additional government laws or regulations, including menu labeling
requirements, could increase costs and be harmful to system-wide restaurant sales. Non-compliance with
laws or government regulations could result in enforcement actions or investigations and could have an
adverse impact on our financial performance and our reputation.
In addition, a change in our tax rates, or new tax legislation impacting our business or the restaurant
industry could negatively impact our results.
Changes in employment and labor laws, including health care legislation and minimum wage increases,
could increase costs for our system-wide operations.
We are subject to federal, state and foreign laws governing such matters as minimum wage requirements,
overtime compensation, benefits, working conditions, citizenship requirements and discrimination and
family and medical leave. Labor costs and labor-related benefits are primary components in the cost of
operation of our domestic system-wide restaurants and QC Centers. Labor shortages, increased employee
turnover and health care mandates could increase our system-wide labor costs.
A significant number of hourly personnel are paid at rates closely related to the federal and state
minimum wage requirements. Accordingly, the enactment of additional state or local minimum wage
increases above federal wage rates or proposed Department of Labor regulations related to exempt
employees could increase labor costs for our domestic system-wide operations. Additionally, social media
may be used to foster negative perceptions of employment in our industry and promote strikes or
boycotts.
The Affordable Care Act, enacted in 2010, requires employers such as us to provide health insurance for
all qualifying employees in the United States or pay penalties for not providing coverage. We, like other
industry competitors, are complying with the law and are providing more extensive health benefits to
employees than we had previously provided, and are subsidizing a larger portion of their insurance
premiums. These additional costs could negatively impact our operational results. In addition, our
franchisees subject to the ACA could face additional cost pressures from compliance with the legislation,
which could reduce their future expansion of units.
Failure to retain the services of our Founder, John Schnatter, as Chief Executive Officer, Chairman and
brand spokesman, or to successfully execute succession planning, could harm our Company and brand.
John H. Schnatter, our Founder, Chairman and Chief Executive Officer, does not serve under an
employment agreement, and we do not maintain key man life insurance on Mr. Schnatter. We also depend
on the continued availability of Mr. Schnatter’s image and his services as spokesman in our advertising
and promotion materials. While we have entered into a license agreement with Mr. Schnatter related to
the use of certain intellectual property related to his name, likeness and image, our business and brand
may be harmed if Mr. Schnatter’s services were not available to the Company for any reason or the
reputation of Mr. Schnatter were negatively impacted. In addition, failure to effectively execute
succession planning with respect to Mr. Schnatter and other senior leaders could harm our Company and
brand.
16
The concentration of stock ownership with Mr. Schnatter may influence the outcome of certain matters
requiring stockholder approval.
The concentration of stock ownership by our Founder, Chairman and Chief Executive Officer allows him
to substantially influence the outcome of certain matters requiring stockholder approval. As of December
27, 2015, he beneficially owned approximately 27% of our outstanding common stock. As a result, he
may be able to substantially influence the strategic direction of the Company and the outcome of matters
requiring approval by our stockholders.
We rely on information technology to operate our businesses and maintain our competitiveness, and any
failure to invest in or adapt to technological developments or industry trends could harm our business.
We rely heavily on information systems, including digital ordering solutions, through which
approximately half of our domestic sales originate. We also rely heavily on point-of-sale processing in
our Company-owned and franchised restaurants for data collection and payment systems for the
collection of cash, credit and debit card transactions, and other processes and procedures. Our ability to
efficiently and effectively manage our business depends on the reliability and capacity of these
technology systems. In addition, we anticipate that consumers will continue to have more options to place
orders digitally, both domestically and internationally. Our failure to adequately invest in new technology,
adapt to technological developments and industry trends, particularly our digital ordering capabilities,
could result in a loss of customers and related market share. Additionally, we are in an environment
where the technology life cycle is short which requires continued reinvestments in technology and
increases the risk that our technology may not be customer centric or could become obsolete, inefficient
or otherwise incompatible with other systems.
We rely heavily on our international franchisees to maintain their own point-of-sale and on line ordering
systems, which are often purchased from third party vendors.
Disruptions of our critical business or information technology systems could harm our ability to compete
and conduct our business.
Our critical business and information technology systems could be damaged or interrupted by power loss,
various technological failures, user errors, sabotage or acts of God. In particular, we may experience
occasional interruptions of our digital ordering solutions, which make online ordering unavailable or slow
to respond, negatively impacting sales and the experience of our customers. If our digital ordering
solutions do not perform with adequate speed, our customers may be less inclined to return to our digital
ordering solutions.
Part of our technology infrastructure, such as our FOCUS point-of-sale system, is specifically designed
for us and our operational systems, which could cause unexpected costs, delays or inefficiencies when
infrastructure upgrades are needed or prolonged and widespread technological difficulties occur.
Significant portions of our technology infrastructure are provided by third parties, and the performance of
these systems is largely beyond our control. Failure of our third-party systems, and backup systems, to
adequately perform, particularly as our online sales grow, could harm our business and the satisfaction of
our customers. In addition, we may not have or be able to obtain adequate protection or insurance to
mitigate the risks of these events or compensate for losses related to these events, which could damage
our business and reputation and be expensive and difficult to remedy or repair.
17
Failure to maintain the integrity of internal or customer data could result in damages to our reputation,
loss of sales, and/or subject us to litigation, penalties or significant costs.
We are subject to a number of privacy and data protection laws and regulations. Our business requires the
collection and retention of large volumes of internal and customer data, including credit card data and
other personally identifiable information of our employees and customers housed in the various
information systems we use. Constantly changing cyber security threats pose risks to the security of our
systems and networks, and the confidentiality of our data. As techniques used in cyber attacks evolve, we
may not be able to timely detect threats or anticipate and implement security measures. The integrity and
protection of that customer, employee, franchisee and Company data are critical to us. The failure to
prevent fraud or security breaches or to adequately invest in data security could harm our business and
revenues due to the reputational damage to our brand. Such a breach could also result in litigation,
regulatory actions, penalties, and other significant costs to us and have a material adverse effect on our
financial results. These costs could be well in excess of our cyber insurance coverage.
We have been and will continue to be subject to various types of investigations and litigation, including
collective and class action litigation, which could subject us to significant damages or other remedies.
We are subject to the risk of investigations and litigation from various parties, including vendors,
customers, franchisees, state and federal agencies, stockholders and employees. From time to time, we are
involved in a number of lawsuits, claims, investigations, and proceedings consisting of intellectual
property, employment, consumer, personal injury, commercial and other matters arising in the ordinary
course of business. We have been subject to claims in cases containing collective and class action
allegations. Plaintiffs in these types of lawsuits often seek recovery of very large or indeterminate
amounts, and the magnitude of the potential loss and defense costs relating to such lawsuits may not be
accurately estimated. Litigation trends involving the relationship between franchisors and franchisees,
personal injury claims, employment law and intellectual property may increase our cost of doing business.
We evaluate all of the claims and proceedings involving us to assess the expected outcome, and where
possible, we estimate the amount of potential losses to us. In many cases, particularly collective and class
action cases, we may not be able to estimate the amount of potential losses and/or our estimates may
prove to be insufficient. These assessments are made by management based on the information available
at the time made and require the use of a significant amount of judgment, and actual outcomes or losses
may materially differ. Regardless of whether any claims against us are valid, or whether we are ultimately
held liable, such litigation may be expensive to defend and may divert resources away from our
operations and negatively impact earnings. Further, we may not be able to obtain adequate insurance to
protect us from these types of litigation matters or extraordinary business losses.
We may not be able to adequately protect our intellectual property rights, which could negatively affect
our results of operations.
We depend on the Papa John’s brand name and rely on a combination of trademarks, service marks,
copyrights, and similar intellectual property rights to protect and promote our brand. We believe the
success of our business depends on our continued ability to exclusively use our existing marks to increase
brand awareness and further develop our brand, both domestically and abroad. We may not be able to
adequately protect our intellectual property rights, and we may be required to pursue litigation to prevent
consumer confusion and preserve our brand’s high-quality reputation. Litigation could result in high costs
and diversion of resources, which could negatively affect our results of operations, regardless of the
outcome.
18
We may be subject to impairment charges.
Impairment charges are possible due to the nature and timing of decisions we make about
underperforming assets or markets, or if previously opened or acquired restaurants perform below our
expectations. This could result in a decrease in our reported asset value and reduction in our net income.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
As of December 27, 2015, there were 4,893 Papa John’s restaurants system-wide. The following tables
provide the locations of our restaurants. We define “North America” as the United States and Canada and
“domestic” as the contiguous United States.
North America Restaurants:
Alabama…………………………………………………………
Alaska...........................................................................................
Arizona ………………………………………………………….
Arkansas………………………………………………………...
California………………………………………………………..
Colorado………………………………………………………...
Connecticut……………………………………………………...
Delaware………………………………………………………...
District of Columbia…………………………………………….
Florida…………………………………………………………...
Georgia ………………………………………………………….
Hawaii...........................................................................................
Idaho…………………………………………………………….
Illinois...........................................................................................
Indiana..........................................................................................
Iowa..............................................................................................
Kansas...........................................................................................
Kentucky………………………………………………………...
Louisiana………………………………………………………..
Maine……………………………………………………………
Maryland………………………………………………………...
Massachusetts…………………………………………………...
Michigan………………………………………………………...
Minnesota.....................................................................................
Mississippi....................................................................................
Missouri........................................................................................
Montana........................................................................................
Nebraska.......................................................................................
Nevada…………………………………………………………..
New Hampshire…………………………………………………
New Jersey………………………………………………………
New Mexico…………………………………………………….
New York……………………………………………………….
North Carolina…………………………………………………..
North Dakota……………………………………………………
Company
-
-
39
-
-
32
-
-
-
47
95
-
-
8
41
-
15
44
-
-
60
-
-
33
-
42
-
-
-
-
-
-
-
99
-
Franchised
83
10
39
27
210
19
17
16
10
235
65
15
11
106
89
24
20
70
62
6
42
24
54
17
29
32
9
17
20
4
64
19
97
83
7
Total
83
10
78
27
210
51
17
16
10
282
160
15
11
114
130
24
35
114
62
6
102
24
54
50
29
74
9
17
20
4
64
19
97
182
7
19
North America Restaurants (continued):
Ohio……………………………………………………………..
Oklahoma………………………………………………………..
Oregon…………………………………………………………..
Pennsylvania…………………………………………………….
Rhode Island…………………………………………………….
South Carolina…………………………………………………..
South Dakota……………………………………………………
Tennessee………………………………………………………..
Texas…………………………………………………………….
Utah……………………………………………………………..
Vermont…………………………………………………………
Virginia………………………………………………………….
Washington………………………………………………….......
West Virginia……………………………………………………
Wisconsin……………………………………………………….
Wyoming………………………………………………………..
Total U.S. Papa John’s Restaurants………………………….
Canada…………………………………………………………..
Total North America Papa John’s Restaurants………………
Company
-
-
-
-
-
8
-
31
87
-
-
26
-
-
-
-
707
-
707
Franchised
163
31
15
96
5
65
13
82
199
32
1
117
54
21
28
9
2,583
98
2,681
International Restaurants:
Azerbaijan……………………………………………………….
Bahrain………………………………………………………….
Belarus………………………………………………………….
Bolivia………………………………………………………….
Cayman Islands…………………………………………............
Chile.............................................................................................
China............................................................................................
Colombia......................................................................................
Costa Rica.....................................................................................
Cyprus..........................................................................................
Dominican Republic.....................................................................
Ecuador.........................................................................................
Egypt............................................................................................
El Salvador...................................................................................
Guam............................................................................................
Guatemala.....................................................................................
India..............................................................................................
Ireland...........................................................................................
Jordan...........................................................................................
Kuwait..........................................................................................
Malaysia.......................................................................................
Mexico..........................................................................................
Nicaragua......................................................................................
Oman............................................................................................
Panama.........................................................................................
Peru...............................................................................................
Philippines....................................................................................
20
-
-
-
-
-
-
45
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
4
21
4
2
2
42
199
26
21
8
14
16
33
18
3
9
72
65
9
31
21
89
4
9
10
32
18
Total
163
31
15
96
5
73
13
113
286
32
1
143
54
21
28
9
3,290
98
3,388
4
21
4
2
2
42
244
26
21
8
14
16
33
18
3
9
72
65
9
31
21
89
4
9
10
32
18
International Restaurants (continued):
Company
Franchised
Total
Puerto Rico...................................................................................
Qatar.............................................................................................
Russia...........................................................................................
Saudi Arabia.................................................................................
Singapore......................................................................................
South Korea.................................................................................
Trinidad........................................................................................
Turkey..........................................................................................
United Arab Emirates...................................................................
United Kingdom...........................................................................
Venezuela.....................................................................................
Total International Papa John’s Restaurants...........................
-
-
-
-
-
-
-
-
-
-
-
45
23
20
71
33
1
102
6
22
41
319
40
1,460
23
20
71
33
1
102
6
22
41
319
40
1,505
Note: Company-owned Papa John’s restaurants include restaurants owned by majority-owned
subsidiaries. There were 213 such restaurants at December 27, 2015 (32 in Colorado, 35 in Maryland, 33
in Minnesota, 87 in Texas, and 26 in Virginia).
Most Papa John’s Company-owned restaurants are located in leased space. The initial term of most
domestic restaurant leases is generally five years with most leases providing for one or more options to
renew for at least one additional term. Generally, the leases are triple net leases, which require us to pay
all or a portion of the cost of insurance, taxes and utilities. Additionally, we lease our Company-owned
restaurant sites in Beijing and North China. At December 27, 2015, we leased and subleased to
franchisees in the United Kingdom 231 of the 319 franchised Papa John’s restaurant sites. The initial
lease terms on the franchised sites in the United Kingdom are generally 10 to 15 years. The initial lease
terms of the franchisee subleases are generally five to ten years.
Seven of our ten domestic QC Centers are located in leased space, including the following locations:
Raleigh, NC; Denver, CO; Phoenix, AZ; Des Moines, IA; Portland, OR; Pittsburgh, PA; and Cranbury,
NJ. We are party to a lease for an eleventh QC Center in Acworth, GA that is expected to open in 2017.
Our remaining three locations are in buildings we own, located in: Orlando, FL; Dallas, TX; and
Louisville, KY. Additionally, our corporate headquarters and our printing operations are located in
Louisville, KY in buildings owned by us. Internationally, we own a full-service QC Center and lease
office space in the United Kingdom. We also lease our QC Centers and office space in Beijing, China
and Mexico City, Mexico.
Item 3. Legal Proceedings
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 Accounting
Standards Codification (“ASC”) 450, “Contingencies,” the Company has made accruals with respect to
these matters, where appropriate, which are reflected in the Company’s 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.
Perrin v. Papa John’s International, Inc. and Papa John’s USA, Inc. is a conditionally certified collective
and class action filed in August 2009 in the United States District Court, Eastern District of Missouri
21
(“the Court”), alleging that delivery drivers were not properly reimbursed for mileage and expenses in
accordance with the Fair Labor Standards Act (“FLSA”). Approximately 3,900 drivers out of a potential
class size of 28,800 opted into the action. In December 2013, the Court granted a motion for class
certification in five additional states, which added approximately 15,000 plaintiffs to the case. The parties
reached a settlement in principle, which was preliminarily approved by the Court in September 2015.
With the preliminary settlement agreement, the Company recorded a pre-tax expense of $12.3 million in
June 2015 under the provisions of ASC 450, Contingencies. This amount is separately reported as Legal
settlement expense in the consolidated statements of income. The Court issued its final order approving
the settlement on January 12, 2016, with no changes to the previously recorded expense. The Company
then remitted funds to the administrator for the payment of claims and plaintiffs’ attorney fees. The
Company continues to deny any wrongdoing in this matter.
Item 4. Mine Safety Disclosures
None.
EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below are the current executive officers of Papa John’s:
Name
John H. Schnatter
Age (a)
54
Founder, Chairman and Chief Executive
Officer
Position
First Elected
Executive Officer
Steve M. Ritchie
41
President and Chief Operating Officer
Timothy C. O’Hern
Lance F. Tucker
52
46
Senior Vice President and Chief
Development Officer
Senior Vice President, Chief Financial
Officer, Chief Administrative Officer
and Treasurer
(a) Ages are as of January 1, 2016.
John H. Schnatter created the Papa John’s concept and started operations in 1984. He currently serves as
Founder, Chairman and Chief Executive Officer. He previously served as Interim Chief Executive Officer
from December 2008 to April 2009, Executive Chairman of the Company from 2005 until May 2007, as
Chairman of the Board and Chief Executive Officer from 1990 until 2005, and as President from 1985 to
1990, from 2001 until 2005 and from 2014 to 2015.
Steve M. Ritchie was appointed President and Chief Operating Officer in July 2015 after serving as
Senior Vice President and Chief Operating Officer since May 2014. Mr. Ritchie has served as a Senior
Vice President since May 2013 and in various capacities of increasing responsibility over Global
Operations & Global Operations Support and Training since July 2010. Since 2006, he also has served as
a franchise owner and operator of multiple units in the Company's Midwest Division.
22
1985
2012
2005
2011
Timothy C. O'Hern was appointed Senior Vice President and Chief Development Officer in July 2012. He
previously served as Senior Vice President, Development since June 2009, a position he previously held
from 2005 until 2007. From 2002 until 2005 and from 2007 until 2009, he managed the operations of a
Papa John's franchisee in which he has an ownership interest. Prior to his departure from Papa John's in
2002, Mr. O'Hern held various positions, including Vice President of Global Development from February
2001 to 2002, Vice President of U.S. Development from March 1997 to February 2001, Director of
Franchise Development from December 1996 to March 1997 and Construction Manager from November
1995 to December 1996. He has been a franchisee since 1993.
Lance F. Tucker was appointed Chief Administrative Officer in July 2012 and Chief Financial Officer
and Treasurer in February 2011. Mr. Tucker previously held the positions of Chief of Staff and Senior
Vice President, Strategic Planning from June 2010 to February 2011, after serving as Chief of Staff and
Vice President, Strategic Planning since June 2009. Mr. Tucker was previously employed by the
Company from 1994 to 1999 working in its finance department. From 2003 to 2009, Mr. Tucker served
as Chief Financial Officer of Evergreen Real Estate, a company owned by John Schnatter. Mr. Tucker is a
licensed Certified Public Accountant.
There are no family relationships between any of the directors or executive officers of the Company.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
Our common stock trades on The NASDAQ Global Select Market tier of The NASDAQ Stock Market
under the symbol PZZA. As of February 16, 2016, there were 785 record holders of common stock.
However, there are significantly more beneficial owners of our common stock than there are record
holders. The following table sets forth, for the quarters indicated, the high and low sales prices of our
common stock, as reported by The NASDAQ Stock Market, and dividends declared per common share:
2015
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
High
$
65.96
76.38
79.40
74.52
$
Low
55.15
60.06
63.96
53.65
2014
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
High
$
55.00
52.72
45.50
57.00
$
Low
44.95
40.00
37.32
39.49
Dividends
Declared
per Share
0.140
$
0.140
0.175
0.175
Dividends
Declared
per Share
$
0.125
0.125
0.140
0.140
23
Our Board of Directors declared a quarterly dividend of $0.175 per share on January 27, 2016 that was
payable on February 19, 2016 to shareholders of record at the close of business on February 8, 2016.
We anticipate continuing the payment of quarterly cash dividends. The actual amount of such dividends is
subject to declaration by our Board of Directors and will depend upon future earnings, results of
operations, capital requirements, our financial condition and other relevant factors. There can be no
assurance that the Company will continue to pay quarterly cash dividends.
Our Board of Directors has authorized the repurchase of up to $1.525 billion of common stock under a
share repurchase program that began December 9, 1999, and expires February 28, 2017. This includes
$125 million authorized in October 2015 and an additional $75 million authorized in February 2016.
Through December 27, 2015, a total of 107.4 million shares with an aggregate cost of $1.3 billion and an
average price of $12.24 per share have been repurchased under this program. Subsequent to year-end, we
acquired an additional 860,000 shares at an aggregate cost of $42.6 million. Approximately $167.1
million remained available under the Company’s share repurchase program as of February 16, 2016.
The following table summarizes our repurchase activity by fiscal period during the fourth quarter ended
December 27, 2015 (in thousands, except per share amounts):
Total
Number
of Shares
Purchased
Average
Price
Paid per
Share
Total Number
of Shares Purchased
as Part of Publicly
Announced Plans
or Programs
Maximum Dollar
Value of Shares
that May Yet Be
Purchased Under the
Plans or Programs
Fiscal Period
09/28/2015 - 10/25/2015
10/26/2015 - 11/22/2015
11/23/2015 - 12/27/2015
174
171
292
$68.76
$63.53
$57.46
106,992
107,163
107,455
$237,335
$226,466
$209,681
Our share repurchase authorization increased from $1.45 billion to $1.525 billion in February 2016. For
presentation purposes, the maximum dollar value of shares that may be purchased was adjusted
retroactively to September 28, 2015.
The Company utilizes a written trading plan under Rule 10b5-1 under the Securities Exchange Act of
1934, as amended, from time to time to facilitate the repurchase of shares of our common stock under this
share repurchase program. There can be no assurance that we will repurchase shares of our common stock
either through a Rule 10b5-1 trading plan or otherwise.
24
Stock Performance Graph
The following performance graph compares the cumulative shareholder return of the Company’s common
stock for the five-year period between December 26, 2010 and December 27, 2015 to (i) the NASDAQ
Stock Market (U.S.) Index and (ii) a group of the Company’s peers consisting of U.S. companies listed on
NASDAQ with standard industry classification (SIC) codes 5800-5899 (eating and drinking places).
Management believes the companies included in this peer group appropriately reflect the scope of the
Company’s operations and match the competitive market in which the Company operates. The graph
assumes the value of the investments in the Company’s common stock and in each index was $100 on
December 26, 2010, and that all dividends were reinvested.
25
Item 6. Selected Financial Data
The selected financial data presented for each of the fiscal years in the five-year period ended December
27, 2015, were derived from our audited consolidated financial statements. The selected financial data
below should be read in conjunction with “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” and the “Consolidated Financial Statements” and Notes thereto
included in Item 7 and Item 8, respectively, of this Form 10-K.
(In thousands, except per share data)
Year Ended (1)
Income Statement Data
North America revenues:
Domestic Company-owned restaurant sales
Franchise royalties (2)
Franchise and development fees
Domestic commissary sales
Other sales
International revenues:
Royalties and franchise and development fees (3)
Restaurant and commissary sales (4)
Total revenues
Dec. 27,
2015
Dec. 28,
2014
Dec. 29,
2013
Dec. 30,
2012
Dec. 25,
2011
52 weeks
52 weeks
52 weeks
53 weeks
52 weeks
$
756,307
95,046
1,010
615,610
64,711
$
701,854
89,443
726
629,492
74,179
$
635,317
81,692
1,181
578,870
53,322
$
592,203
79,567
806
545,924
51,223
$
525,841
73,694
722
508,155
50,912
27,289
77,402
1,637,375
25,730
76,725
1,598,149
21,979
66,661
1,439,022
19,881
53,049
1,342,653
16,327
42,231
1,217,882
Operating income
Legal settlement expense
Investment income
Interest expense
Income before income taxes
Income tax expense
Net income before attribution to noncontrolling interests
Income attributable to noncontrolling interests (5)
Net income attributable to the Company
136,307
(12,278)
794
(5,676)
119,147
37,183
81,964
(6,282)
75,682
$
117,630
-
702
(4,077)
114,255
36,558
77,697
(4,382)
73,315
$
106,503
-
589
(983)
106,109
33,130
72,979
(3,442)
69,537
$
99,807
-
750
(2,162)
98,395
32,393
66,002
(4,342)
61,660
$
87,017
-
755
(2,981)
84,791
26,324
58,467
(3,732)
54,735
$
Net income attributable to common shareholders
$
75,422
$
72,869
$
68,497
$
61,660
$
54,735
Basic earnings per common share
$
1.91
$
1.78
$
1.58
$
1.31
$
1.09
Diluted earnings per common share
$
1.89
$
1.75
$
1.55
$
1.29
$
1.08
Basic weighted average common shares outstanding
Diluted weighted average common shares outstanding
39,458
40,000
40,960
41,718
43,387
44,243
46,916
47,810
50,086
50,620
Dividends declared per common share
$
0.63
$
0.53
$
0.25
$
-
$
-
Balance Sheet Data
Total assets
Total debt
Mandatorily redeemable noncontrolling interests (6)
Redeemable noncontrolling interests
Total stockholders’ equity
$
494,912
256,000
-
8,363
42,206
$
504,555
230,451
-
8,555
98,715
$
464,291
157,900
10,786
7,024
138,184
$
438,408
88,258
11,837
6,380
181,514
$
390,382
51,489
11,065
3,965
205,647
(1) We operate on a 52-53 week fiscal year ending on the last Sunday of December of each year. The
2012 fiscal year consisted of 53 weeks and all other years above consisted of 52 weeks. The
additional week resulted in additional revenues of approximately $21.5 million and additional
income before income taxes of approximately $4.1 million, or $0.05 per diluted share for 2012.
(2) North America franchise royalties were derived from franchised restaurant sales of $2.13 billion in
2015, $2.04 billion in 2014, $1.91 billion in 2013, $1.85 billion in 2012 ($1.82 billion on a 52 week
basis) and $1.71 billion in 2011.
(3) International royalties were derived from franchised restaurant sales of $592.7 million in 2015,
$553.0 million in 2014, $460.0 million in 2013, $388.4 million in 2012 ($379.4 million on a 52 week
basis) and $320.0 million in 2011.
26
(4) Restaurant sales for international Company-owned restaurants were $19.3 million in 2015, $23.7
million in 2014, $22.7 million in 2013, $16.2 million in 2012 and $12.4 million in 2011.
(5) Represents the noncontrolling interests’ allocation of income for our joint venture arrangements.
(6) Represents the redemption value of a mandatorily redeemable noncontrolling interest. Upon removal
of the redemption feature during 2014, the noncontrolling interest was reclassified from other long-
term liabilities to stockholders’ equity in the consolidated balance sheet.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Introduction
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. At December 27, 2015, there were 4,893
Papa John’s restaurants in operation, consisting of 752 Company-owned and 4,141 franchised restaurants.
Our revenues are principally derived from retail sales of pizza and other food and beverage products to
the general public by Company-owned restaurants. Additionally, approximately 43% to 46% of our
domestic revenues in each of the last three years were derived from sales to franchisees of various items
including food and paper products, printing and promotional items, risk management services and
information systems equipment, including the FOCUS point-of-sale system, and software and related
services. We believe that in addition to supporting both Company and franchised profitability and growth,
these activities contribute to product quality and consistency throughout the Papa John’s system.
New unit openings in 2015 were 357 as compared to 388 in 2014 and 386 in 2013 and unit closings in
2015 were 127 as compared to 153 in 2014 and 121 in 2013. We expect net unit growth of approximately
180 to 210 units during 2016, of which 70-80% will be international locations. Our expansion strategy is
to cluster restaurants in targeted markets, thereby increasing consumer awareness and enabling us to take
advantage of operational, distribution and advertising efficiencies.
We continue to generate strong sales in our North America Company-owned restaurants in a very
competitive environment. Average annual Company-owned sales for our most recent domestic
comparable restaurant base were $1.12 million for 2015, compared to $1.06 million for 2014 and
$988,000 for 2013. Average sales volumes in new markets are generally lower than in those markets in
which we have established a significant market position. The comparable sales for domestic Company-
owned restaurants increased 5.9% in 2015, 8.2% in 2014 and 6.6% in 2013. “Comparable sales”
represents sales generated by restaurants open for the entire twelve-month period reported.
We are pleased with the ongoing growth in both our North America and international franchise restaurant
sales. The comparable sales for North America franchised units increased 3.6% in 2015, 6.2% in 2014
and 3.1% in 2013. The comparable sales for International franchised units increased 7.3% in 2015, 7.8%
in 2014 and 7.5% in 2013.
We strive to obtain high-quality restaurant sites with good access and visibility, and to enhance the
appearance and quality of our restaurants. We believe these factors improve our image and brand
awareness. The average cash investment for the 11 domestic traditional Company-owned restaurants
opened during 2015 was approximately $319,000, compared to the $283,000 investment for the 11
domestic traditional units opened in 2014, exclusive of land and any tenant improvement allowances we
received. Over the past few years we have experienced an increase in the cost of our new restaurants
primarily as a result of building larger units to accommodate increased sales, an increase in the cost of
certain equipment as a result of technology enhancements, and increased costs to comply with local
regulations.
27
Planned Sale of China Company-owned Operations
In September 2015, the Company decided to refranchise the China Company-owned market and is
planning a sale of its existing China operations, consisting of 45 Company-owned restaurants and a
commissary. We expect to sell the business during 2016; upon completion of the sale, the Company will
not have any Company-owned international restaurants. We have classified the assets as held for sale
within the consolidated balance sheet. Upon the classification of these assets to held for sale, no loss was
recognized as their fair value exceeded their carrying value.
The Company-owned China operations incurred losses before income taxes of $1.2 million in 2015 and
$3.4 million in 2014, which are recorded in our International segment. The loss in 2014 includes an
impairment and disposition charge of $1.0 million for eleven Company-owned restaurants in China. We
do not expect the sale of our China operations to have a significant impact on our financial results.
See “Note 7” of “Notes to Consolidated Financial Statements” for additional information.
Critical Accounting Policies and Estimates
The results of operations are based on our consolidated financial statements, which were prepared in
conformity with accounting principles generally accepted in the United States (“GAAP”). The preparation
of consolidated financial statements requires management to select accounting policies for critical
accounting areas as well as estimates and assumptions that affect the amounts reported in the consolidated
financial statements. The Company’s significant accounting policies are more fully described in “Note 2”
of “Notes to Consolidated Financial Statements.” Significant changes in assumptions and/or conditions in
our critical accounting policies could materially impact the operating results. We have identified the
following accounting policies and related judgments as critical to understanding the results of our
operations:
Allowance for Doubtful Accounts and Notes Receivable
We establish reserves for uncollectible accounts and notes receivable based on overall receivable aging
levels and a specific evaluation of accounts and notes for franchisees and other customers with known
financial difficulties. Balances are charged off against the allowance after recovery efforts have ceased.
Noncontrolling Interests
The Company has the following four joint ventures in which there are noncontrolling interests as of
December 27, 2015:
Joint Venture
Redemption Feature
Location within the
Consolidated Balance Sheet
Recorded value
Star Papa, LP
PJ Denver, LLC
Colonel’s Limited, LLC No redemption feature
No redemption feature
PJ Minnesota, LLC
Redeemable
Redeemable
Temporary equity
Temporary equity
Permanent equity
Permanent equity
Carrying value
Redemption value
Carrying value
Carrying value
Consolidated net income is required to be reported separately at amounts attributable to both the parent
and the noncontrolling interest. Disclosures are required to clearly identify and distinguish between the
interests of the parent company and the interests of the noncontrolling owners, including a disclosure on
the face of the consolidated statements of income attributable to the noncontrolling interest holder.
28
See “Note 6” of “Notes to Consolidated Financial Statements” for additional information.
Stock Based Compensation
Compensation expense for equity grants is estimated on the grant date, net of projected forfeitures and is
recognized over the vesting period (generally in equal installments over three years). Restricted stock is
valued based on the market price of the Company’s shares on the date of grant. Stock options are valued
using a Black-Scholes option pricing model.
Our specific assumptions for estimating the fair value of options include the following:
Assumptions (weighted average):
Risk-free interest rate
Expected dividend yield
Expected volatility
Expected term (in years)
2015
2014
2013
1.6%
0.9%
28.5%
5.5
1.8%
1.0%
35.7%
6.0
1.1%
0.1%
37.5%
6.0
The risk-free interest rate for the periods within the contractual life of an option is based on the U.S.
Treasury yield curve in effect at the time of grant. The expected dividend yield was estimated as the
annual dividend divided by the market price of the Company’s shares on the date of grant. Expected
volatility was estimated by using the Company’s historical share price volatility for a period similar to the
expected life of the option. See “Note 18” of “Notes to Consolidated Financial Statements” for additional
information.
Intangible Assets – Goodwill
We evaluate goodwill annually in the fourth quarter or whenever we identify certain triggering events or
circumstances that would more-likely-than-not reduce the fair value of a reporting unit below its carrying
amount. Such tests are completed separately with respect to the goodwill of each of our reporting units,
which includes our domestic Company-owned restaurants, China and the United Kingdom (“PJUK”).
We may perform a qualitative assessment or move directly to the quantitative assessment for any
reporting unit in any period if we believe that it is more efficient or if impairment indicators exist.
We elected to perform a qualitative assessment for our domestic Company-owned restaurants and PJUK
reporting units in 2015. As a result of our qualitative analyses, we determined that it was more-likely-
than-not that the fair values of our reporting units were greater than their carrying amounts. We
performed a quantitative analysis for the goodwill of our China reporting unit using a market approach.
The market approach considered earnings before interest, taxes, depreciation and amortization
(“EBITDA”) multiples that a potential buyer would pay based on third-party transactions in similar
markets. The results of our quantitative assessment indicated the fair value significantly exceeded the
carrying amount.
Subsequent to completing our goodwill impairment tests, no indications of impairment were identified.
See “Note 8” of “Notes to Consolidated Financial Statements” for additional information.
29
Insurance Reserves
Our insurance programs for workers’ compensation, owned and non-owned automobiles, general liability,
property, and health insurance coverage provided to our employees are funded by the Company up to
certain retention levels. Retention limits generally range from $100,000 to $500,000 per occurrence.
Losses are accrued based upon undiscounted estimates of the aggregate retained liability for claims
incurred using certain third-party actuarial projections and our claims loss experience. The estimated
insurance claims losses could be significantly affected should the frequency or ultimate cost of claims
differ significantly from historical trends used to estimate the insurance reserves recorded by the
Company. See “Note 12” of “Notes to Consolidated Financial Statements” for additional information.
Deferred Income Tax Accounts and Tax Reserves
Papa John’s is 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.
Deferred tax assets and liabilities are determined based on differences between financial reporting and tax
basis of assets and liabilities, and are measured using enacted tax rates and laws that are expected to be in
effect when the differences reverse. Deferred tax assets are also recognized for the estimated future
effects of tax loss carryforwards. The effect on deferred taxes of changes in tax rates is recognized in the
period in which the new tax rate is enacted. Valuation allowances are established when necessary on a
jurisdictional basis to reduce deferred tax assets to the amounts we expect to realize. As of December 27,
2015, we had a net deferred income tax liability of approximately $2.2 million.
Tax authorities periodically audit the Company. We record reserves and related interest and penalties for
identified exposures as income tax expense. We evaluate these issues and adjust for events, such as statute
of limitations expirations, court rulings or audit settlements, which may impact our ultimate payment for
such exposures. We recognized increases in income tax expense of $731,000 in 2015 and $117,000 in
2014 and a decrease in income tax expense of $909,000 in 2013 associated with the finalization of certain
income tax matters. See “Note 15” of “Notes to Consolidated Financial Statements” for additional
information.
Fiscal Year
Our fiscal year ends on the last Sunday in December of each year. All fiscal years presented in the
accompanying consolidated financial statements consist of 52 weeks.
Two-for-One Stock Split
The Company completed a two-for-one stock split of the Company’s outstanding shares of stock in
December 2013 effected in the form of a stock dividend. Shareholders of record on December 12, 2013
received one additional share for each outstanding share of stock held on the record date. The stock
dividend was distributed effective December 27, 2013. All share and per-share amounts have been
adjusted to reflect the stock split.
30
FOCUS System
As of December 27, 2015, we have implemented FOCUS, our new, proprietary point-of-sale system in
our domestic Company-owned and franchised restaurants. FOCUS had the following impact on our
consolidated statements of income for the years ended December 27, 2015 and December 28, 2014 (in
thousands):
Ye ar Ende d
Dec. 27,
2015
De c. 28,
2014
Franchise royalties (a)
Other sales (b)
Other operating expenses (c)
Depreciation and amortization (d)
Net decrease in income before income taxes
$
$
(2,427)
9,885
(9,983)
(5,014)
(7,539)
(405)
20,143
(20,629)
(2,834)
(3,725)
$
$
Diluted earnings per common share
$
(0.13)
$
(0.06)
(a) Royalty incentive program tied to franchise rollout of FOCUS.
(b) Represents revenues for equipment installed at domestic franchised restaurants.
(c) Includes cost of sales associated with equipment installed at franchised restaurants and other costs
to support the rollout of the program.
(d) Includes depreciation expense for both the capitalized software and for equipment installed at
Company-owned restaurants, which are being depreciated over five and seven years, respectively.
31
Items Impacting Comparability; Non-GAAP Measures
The following table reconciles our GAAP financial results to the adjusted (non-GAAP) financial results,
excluding the 2015 legal settlement expense for Perrin v. Papa John’s International, Inc. and Papa
John’s USA, Inc., a conditionally certified collective and class action that was settled in 2016. We present
these non-GAAP measures because we believe the legal settlement impacts the comparability of our
results of operations. For additional information about the legal settlement, see “Note 17” of “Notes to
Consolidated Financial Statements.”
(In thousands, except per share amounts)
Income before income taxes, as reported
Legal settlement expense
Income before income taxes, as adjusted
Net income, as reported
Legal settlement expense
Net income, as adjusted
Diluted earnings per share, as reported
Legal settlement expense
Diluted earnings per share, as adjusted
Dec. 27,
2015
Year Ended
Dec. 28,
2014
Dec. 29
2013
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
119,147
12,278
131,425
75,682
7,986
83,668
1.89
0.20
2.09
114,255
-
114,255
73,315
-
73,315
1.75
-
1.75
106,109
-
106,109
69,537
-
69,537
1.55
-
1.55
The non-GAAP results shown above and within this document, which exclude the legal settlement,
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 without the
legal settlement is important for purposes of comparison to prior year results. In addition, management
uses this metric to evaluate the Company’s underlying operating performance and to analyze trends. See
“Results of Operations” for further analysis regarding the impact of the legal settlement.
In addition, we present free cash flow in this report, which is a non-GAAP measure. We define free cash
flow as net cash provided by operating activities (from the consolidated statements of cash flows) less the
purchases of property and equipment. We view free cash flow as an important measure because it is one
factor that management uses in determining the amount of cash available for discretionary investment.
Free cash flow is not a term defined by GAAP, and as a result, our measure of free cash flow might not be
comparable to similarly titled measures used by other companies. Free cash flow should not be construed
as a substitute for or a better indicator of our performance than the Company’s GAAP measures. See
“Liquidity and Capital Resources” for a reconciliation of free cash flow to the most directly comparable
GAAP measure.
The presentation of the non-GAAP measures in this report is made alongside the most directly
comparable GAAP measures.
32
Percentage Relationships and Restaurant Data and Unit Progression
The following tables set forth the percentage relationship to total revenues, unless otherwise indicated, of
certain income statement data, and certain restaurant data for the years indicated:
Income Statement Data:
North America revenues:
Domestic Company-owned restaurant sales
Franchise royalties
Franchise and development fees
Domestic commissary sales
Other sales
International revenues:
Royalties and franchise and development fees
Restaurant and commissary sales
Total revenues
Costs and expenses:
Domestic Company-owned restaurant cost of sales (2)
Domestic Company-owned restaurant operating expenses (2)
Domestic commissary cost of sales (3)
Domestic commissary operating expenses (3)
Other operating expenses (4)
International restaurant and commissary expenses (5)
General and administrative expenses
Other general expenses
Depreciation and amortization
Total costs and expenses
Operating income
Legal settlement expense
Net interest expense
Income before income taxes
Income tax expense
Net income before attribution to noncontrolling interests
Income attributable to noncontrolling interests
Net income attributable to the Company
Dec. 27,
2015
Year Ended (1)
Dec. 28,
2014
Dec. 29,
2013
46.2%
5.8
0.1
37.6
3.9
1.7
4.7
100.0
23.7
56.2
76.6
15.7
94.1
82.0
9.6
0.4
2.5
91.7
8.3
(0.7)
(0.3)
7.3
2.3
5.0
(0.4)
4.6%
43.9%
5.6
0.1
39.4
4.6
1.6
4.8
100.0
25.0
56.5
78.3
14.6
95.8
83.0
8.8
0.5
2.5
92.6
7.4
0.0
(0.2)
7.2
2.3
4.9
(0.3)
4.6%
44.2%
5.7
0.1
40.2
3.7
1.5
4.6
100.0
24.6
56.9
77.5
14.8
90.0
84.9
9.3
0.5
2.4
92.6
7.4
0.0
(0.1)
7.3
2.3
5.0
(0.2)
4.8%
33
Dec. 27,
2015
Year Ended (1)
Dec. 28,
2014
Dec. 29,
2013
Restaurant Data:
Percentage increase in comparable domestic
Company-owned restaurant sales (6)
Number of domestic Company-owned restaurants included
in the most recent full year's comparable restaurant base
Average sales for domestic Company-owned restaurants
included in the most recent comparable restaurant base
5.9%
8.2%
6.6%
667
646
633
$1,116,000 $1,064,000
$988,000
Papa John's Restaurant Progression:
North America Company-owned:
Beginning of period
Opened
Closed
Acquired from franchisees
End of period
International Company-owned:
Beginning of period
Opened
Closed
Sold to franchisees
End of period
North America franchised:
Beginning of period
Opened
Closed
Sold to Company
End of period
International franchised:
Beginning of period
Opened
Closed
Acquired from Company
End of period
Total Papa John's restaurants - end of period
686
16
(2)
7
707
49
-
(4)
-
45
2,654
106
(72)
(7)
2,681
1,274
235
(49)
-
1,460
4,893
665
12
(4)
13
686
58
2
(7)
(4)
49
2,621
132
(86)
(13)
2,654
1,084
242
(56)
4
1,274
4,663
648
19
(2)
-
665
48
11
(1)
-
58
2,556
152
(87)
-
2,621
911
204
(31)
-
1,084
4,428
(1) We operate on a fiscal year ending on the last Sunday of December of each year.
(2) As a percentage of domestic Company-owned restaurant sales.
(3) As a percentage of domestic commissary sales.
(4) As a percentage of other sales.
(5) As a percentage of international restaurant and commissary sales.
(6) Represents the change in year-over-year sales for Company-owned restaurants open throughout the
periods being compared.
34
Results of Operations
2015 Compared to 2014
Discussion of Revenues. Consolidated revenues increased $39.2 million, or 2.5%, to $1.64 billion in
2015, compared to $1.60 billion in 2014. Revenues are summarized in the following table on a reporting
segment basis.
Year Ended
Dec. 27,
2015
Dec. 28,
2014
Increase
(Decrease)
$
Increase
(Decrease)
%
(In thousands)
North America Revenues:
Domestic Company-owned restaurant sales
Franchise royalties
Franchise and development fees
Domestic commissary sales
Other sales
$
756,307
95,046
1,010
615,610
64,711
$
701,854
89,443
726
629,492
74,179
$
54,453
5,603
284
(13,882)
(9,468)
International Revenues:
Royalties and franchise and development fees
Restaurant and commissary sales
Total Revenues
27,289
77,402
1,637,375
$
25,730
76,725
1,598,149
$
1,559
677
39,226
$
7.8%
6.3%
39.1%
-2.2%
-12.8%
6.1%
0.9%
2.5%
The increase in revenues in 2015 compared to 2014 was primarily due to the following:
• Domestic Company-owned restaurant sales increased $54.5 million, or 7.8% primarily due to an
increase of 5.9% in comparable sales and a 2.7% increase in equivalent units. “Equivalent units”
represents the number of restaurants open at the beginning of a given period, adjusted for
restaurants opened, closed, acquired or sold during the period on a weighted average basis.
• North America franchise royalty revenue increased approximately $5.6 million, or 6.3%,
primarily due to a 3.6% increase in comparable sales, an increase of 1.0% in equivalent units and
lower royalty incentives.
• Domestic commissary sales decreased $13.9 million, or 2.2%, as lower revenues associated with
lower cheese prices were somewhat offset by increases in restaurant sales volume. Pricing for
cheese is based on a fixed dollar markup; when cheese prices decrease, revenues decrease with no
overall impact on the related dollar margin.
•
• Other sales decreased approximately $9.5 million, or 12.8%, primarily due to lower FOCUS
equipment sales in 2015, as anticipated. The higher levels of FOCUS equipment sales in 2014
had no significant impact on operating results. See the FOCUS System section above for
additional information.
International royalties and franchise and development fees increased approximately $1.6 million,
or 6.1%, primarily due to higher royalties from an increase in the number of franchised
restaurants and a 7.3% increase in franchised comparable sales, calculated on a constant dollar
basis. The negative impact of foreign currency exchange rates reduced our revenues by
approximately $2.7 million in 2015.
International restaurant and commissary sales increased approximately $700,000, or 0.9%,
primarily due to an increase in commissary and other revenues, particularly in the United
Kingdom, with increases in units and higher comparable sales. This increase was somewhat offset
by lower sales at China Company-owned restaurants due to the disposition of eleven restaurants
in 2014 and negative comparable sales. Additionally, sales were negatively impacted $4.8 million
by foreign currency exchange rates.
•
35
Discussion of Operating Results
Our income before income taxes totaled $119.1 million in 2015, as compared to $114.3 million in 2014,
an increase of approximately $4.9 million. Excluding the previously discussed legal settlement, income
before income taxes was $131.4 million in 2015, or an increase of 15.0%. Income before income taxes is
summarized in the following table on a reporting segment basis. Alongside the GAAP income before
income taxes data, we have included “adjusted” income before income taxes for 2015 to exclude the legal
settlement expense. We believe this non-GAAP measure is important for purposes of comparing to prior
year results.
(In thousands)
Domestic Company-owned restaurants
Domestic commissaries
North America franchising
International
All others
Unallocated corporate expenses
Elimination of intersegment profits
Total income before income taxes (a)
Year Ended
As Reported
Dec. 27,
2015
Legal
Settlement
Expense
Adjusted
Dec. 27,
2015
Dec. 28,
2014
Increase
(Decrease)
$
$
$
$
56,452
44,721
83,315
10,891
845
(75,896)
(1,181)
119,147
-
$
-
-
-
-
12,278
-
12,278
$
56,452
44,721
83,315
10,891
845
(63,618)
(1,181)
131,425
40,969
39,317
77,009
7,250
(9)
(49,440)
(841)
114,255
15,483
5,404
6,306
3,641
854
(14,178)
(340)
17,170
$
$
$
$
(a) Includes FOCUS system rollout costs of approximately $7.5 million in 2015 and $3.7 million in
2014. See the “FOCUS System” section above for additional information.
Changes in income before income taxes for 2015 in comparison to 2014 are summarized on a segment
basis as follows:
• Domestic Company-owned Restaurants Segment. Domestic Company-owned restaurants
income before income taxes increased $15.5 million primarily due to higher profits from the 5.9%
increase in comparable sales and lower commodity costs. These increases were partially offset by
higher depreciation expense of $1.1 million associated with FOCUS equipment. The market price
for cheese averaged $1.61 per pound in 2015, compared to $2.12 per pound in the prior year.
• Domestic Commissaries Segment. Domestic commissaries’ income before income taxes
increased $5.4 million primarily due to incremental profits from higher restaurant volumes and a
higher margin, partially offset by incremental insurance expense from higher automobile claims
costs of approximately $1.5 million.
•
• North America Franchising Segment. North America franchising income before income taxes
increased $6.3 million primarily due to higher royalties from increases of 3.6% and 1.0% in
comparable sales and equivalent units, respectively, and lower royalty incentives.
International Segment. The international segment reported income before income taxes of
approximately $10.9 million in 2015 compared to $7.3 million in 2014. The increase of $3.6
million was primarily due to an increase in units and comparable sales of 6.9%, which resulted in
both higher royalties and an increase of approximately $2.4 million in United Kingdom results.
Additionally, our Company-owned China results improved approximately $2.2 million (losses of
approximately $1.2 million in 2015 and $3.4 million in 2014). The improvement in China
Company-owned results was primarily due to lower non-operating costs of $1.5 million for
impairment, disposition and depreciation. The international segment improvement was somewhat
offset by the negative impact of foreign currency exchange rates of approximately $2.8 million.
• All Others Segment. The “All others” reporting segment, which primarily includes our online
and mobile ordering business and our wholly-owned print and promotions subsidiary, Preferred
36
Marketing Solutions, increased approximately $900,000 primarily due to lower infrastructure
costs to support our digital ordering business.
• Unallocated Corporate Expenses. Unallocated corporate expenses increased approximately
$14.2 million, excluding the legal settlement expense, primarily due to higher salaries and
benefits, including an increase in health insurance claims costs, as well as increased interest costs
associated with higher levels of debt and a higher effective interest rate. In addition, management
incentive compensation costs increased in 2015 due to higher annual operating results.
Diluted earnings per common share were $1.89 in 2015 compared to $1.75 in 2014, or an increase of
$0.14, or 8.0%. Diluted earnings per common share were $2.09 in 2015, excluding the $0.20 legal
settlement, or an increase of $0.34, or 19.4%. Diluted earnings per common share increased $0.08 due to
the 4.1% reduction in weighted average shares outstanding. Additionally, FOCUS system costs reduced
diluted earnings per share by $0.13 in 2015 and $0.06 in 2014.
Review of Consolidated Operating Results
Revenues. Domestic Company-owned restaurant sales were $756.3 million for 2015 compared to $701.9
million for 2014. As previously noted, the 7.8% increase was primarily due to a 5.9% increase in
comparable sales and a 2.7% increase in equivalent units.
North America franchise royalties were $95.0 million for 2015, representing an increase of 6.3% over
2014 revenues of $89.4 million. This increase was primarily due to higher North America franchise sales
and lower incentives. North America franchise sales increased 4.2% to $2.13 billion, from $2.04 billion in
2014, as domestic franchise comparable sales increased 3.6% and equivalent units increased 1.0%. North
America franchise sales are not included in our consolidated statements of income; however, our North
America franchise royalty revenue is derived from these sales.
Average weekly sales for comparable units include restaurants that were open throughout the periods
presented below. The comparable sales base for domestic Company-owned and North America franchised
restaurants, respectively, includes restaurants acquired by the Company or divested to franchisees during
the previous twelve months. Average weekly sales for non-comparable units include restaurants that were
not open throughout the periods presented below and include non-traditional sites. Average weekly sales
for non-traditional units not subject to continuous operation are calculated based upon actual days open.
37
The comparable sales base and average weekly sales for 2015 and 2014 for domestic Company-owned
and North America franchised restaurants consisted of the following:
Total domestic units (end of period)
Equivalent units
Comparable sales base units
Comparable sales base percentage
Average weekly sales - comparable units
Average weekly sales - total non-comparable units*
Average weekly sales - all units
Year Ended
December 27, 2015
Domestic
Company-
owned
North
America
Franchised
Year Ended
December 28, 2014
North
America
Franchised
Domestic
Company-
owned
707
684
667
97.5%
21,461
13,773
21,274
$
$
$
2,681
2,546
2,351
92.3%
16,510
10,716
16,066
$
$
$
686
666
646
97.0%
20,451
14,389
20,271
$
$
$
2,654
2,521
2,307
91.5%
16,031
10,588
15,570
$
$
$
*Includes 129 traditional units in 2015 and 150 in 2014 and 228 non-traditional units in 2015 and 213 in 2014.
North America franchise and development fees were approximately $1.0 million in 2015, an increase of
approximately $300,000 from 2014 revenues, primarily due to higher franchise renewal fees.
Domestic commissary sales decreased 2.2% to $615.6 million in 2015, from $629.5 million in the prior
year. The decrease was primarily due to a decrease in cheese prices, which was somewhat offset by an
increase in sales volumes. Pricing for cheese is based on a fixed dollar markup; when cheese prices
decrease, revenues will decrease with no overall impact on the related dollar margin.
Other sales decreased $9.5 million to $64.7 million in 2015 primarily due to lower FOCUS equipment
sales to franchisees. See the FOCUS System section above for additional information.
International royalties and franchise and development fees increased approximately $1.6 million
primarily due to a 14.6% increase in franchised units and a comparable sales increase of 7.3%, calculated
on a constant dollar basis. The negative impact of foreign currency exchange rates reduced our revenues
by approximately $2.7 million. International franchise sales were $592.7 million in 2015, compared to
$553.0 million in 2014. International franchise sales are not included in our consolidated statements of
income; however, our international royalty revenue is derived from these sales.
International restaurant and commissary sales increased approximately $700,000, or 0.9%, primarily due
to an increase in commissary revenues from increases in units and higher comparable sales. The increase
was partially offset by lower sales at China Company-owned restaurants due to the disposition of eleven
restaurants in 2014 and negative comparable sales. Additionally, sales were negatively impacted $4.8
million by foreign currency exchange rates.
Costs and Expenses. The restaurant operating margin at domestic Company-owned units was 20.1% in
2015, compared to 18.5% in 2014 with the following differences by income statement category:
• Cost of sales was 1.3% lower as a percentage of revenues in 2015 primarily due to lower
commodity costs, primarily cheese.
• Salaries and benefits were 0.7% higher as a percentage of sales in 2015, primarily due to higher
performance-based bonuses paid to general managers and minimum wage increases.
• Advertising and related costs as a percentage of revenues were 0.2% lower as a percentage of
sales in 2015 primarily due to the benefit of higher sales.
38
• Occupancy costs and other restaurant operating costs, on a combined basis, were 0.8% lower as a
percentage of revenues in 2015 primarily due to the benefit of higher sales and lower mileage
reimbursement due to lower gas prices.
Domestic commissary operating margin was 7.6% and 7.1% in 2015 and 2014, respectively, with the
following differences by income statement category:
• Cost of sales was 1.7% lower as a percentage of revenues in 2015 primarily due to lower cheese
costs, which have a fixed-dollar markup. As cheese prices are lower, food cost as a percentage of
sales is lower.
• Salaries and benefits and other commissary operating expenses were 1.1% higher as a percentage
of sales due to incremental automobile insurance claims costs of $1.5 million and due to higher
labor costs, including in house distribution. Additionally, commissary revenues are lower due to
lower cheese prices, which increase overall salaries and benefits and other commissary operating
expenses as a percentage of sales.
Other operating expenses as a percentage of other sales were 94.1% in 2015, compared to 95.8% in 2014.
The lower operating expenses were primarily due to the decreasing number of franchise FOCUS systems
sales. FOCUS sales had very high operating expenses and a minimal margin.
International restaurant and commissary expenses were 82.0% in 2015 compared to 83.0% in 2014, as a
percentage of total restaurant and commissary sales. The decrease of 1.0% is primarily due to the benefit
of higher commissary sales volumes.
General and administrative (“G&A”) expenses were $157.4 million, or 9.6% of revenues for 2015, as
compared to $140.6 million, or 8.8% of revenues for 2014. The increase of $16.9 million was primarily
due to the following:
• Corporate G&A costs increased primarily due to increases in salaries and benefits, including an
increase in health insurance claim costs, and management incentive compensation costs due to
higher annual operating results.
• Domestic Company-owned restaurant supervisor bonuses increased due to higher sales and
•
higher operating profits.
International G&A costs increased primarily due to incremental advertising spending and other
international support costs.
Other general expenses decreased $2.0 million to $6.2 million in 2015, from $8.2 million in 2014. The
decrease was primarily due to lower provisions for uncollectible accounts and notes receivable and lower
disposition and valuation related losses. The 2014 year included $1.0 million of these charges for eleven
Company-owned restaurants in China.
Depreciation and amortization was $40.3 million, or 2.5% of revenues for 2015, as compared to $40.0
million, or 2.5% of revenues for 2014.
Net interest expense. Net interest expense increased approximately $1.5 million primarily due to a higher
average outstanding debt balance and a higher effective interest rate.
Income Tax Expense. Our effective income tax rate was 31.2% in 2015 compared to 32.0% in 2014. The
2015 rate includes higher benefits from various tax deductions and credits including the U.S. federal
manufacturing deduction. See “Note 15” of “Notes to Consolidated Financial Statements” for additional
information.
39
2014 Compared to 2013
Discussion of Revenues. Consolidated revenues increased $159.1 million, or 11.1%, to $1.60 billion in
2014, compared to $1.44 billion in 2013. Revenues are summarized in the following table on a reporting
segment basis.
(In thousands)
North America Revenues:
Domestic Company-owned restaurant sales
Franchise royalties
Franchise and development fees
Domestic commissary sales
Other sales
International Revenues:
Royalties and franchise and development fees
Restaurant and commissary sales
Total Revenues
Year Ended
Dec. 28,
2014
Dec. 29,
2013
Increase
(decrease)
$
Increase
(decrease)
%
$
701,854
89,443
726
629,492
74,179
$
635,317
81,692
1,181
578,870
53,322
$
66,537
7,751
(455)
50,622
20,857
25,730
76,725
1,598,149
$
21,979
66,661
1,439,022
$
3,751
10,064
159,127
$
10.5%
9.5%
-38.5%
8.7%
39.1%
17.1%
15.1%
11.1%
The increase in revenues in 2014 compared to 2013 was primarily due to the following:
• Domestic Company-owned restaurant sales increased $66.5 million, or 10.5% primarily due to an
8.2% increase in comparable sales and a 2.6% increase in equivalent units.
• North America franchise royalty revenue increased $7.8 million, or 9.5% primarily due to a 6.2%
increase in comparable sales and a reduced level of performance-based royalty incentives.
• Domestic commissary sales increased $50.6 million, or 8.7%, primarily due to increases in the
prices of certain commodities (primarily cheese and meats), higher sales volumes, and higher
overall margins.
• Other sales increased $20.9 million, or 39.1%, primarily due to FOCUS equipment sales to
•
•
franchisees. See the FOCUS System section above for additional information.
International royalties and franchise and development fees increased $3.8 million or 17.1%
primarily due to an increase in the number of restaurants and a 7.8% increase in comparable sales,
calculated on a constant dollar basis.
International restaurant and commissary sales increased $10.1 million, or 15.1%, primarily due to
an increase in commissary revenues, particularly in the United Kingdom, with increases in units
and higher comparable sales. This was somewhat offset by the 2013 year including an additional
month of revenues at our China Company-owned operations as we changed the reporting cycle in
the fourth quarter of 2013 to no longer consolidate the results one month in arrears. The impact of
this change resulted in incremental revenues of $2.1 million in 2013.
40
Discussion of Operating Results
Our income before income taxes totaled $114.3 million in 2014, as compared to $106.1 million in 2013,
an increase of approximately $8.1 million. Income before income taxes is summarized in the following
table on a reporting segment basis:
(In thousands)
Domestic Company-owned restaurants
Domestic commissaries
North America franchising
International
All others
Unallocated corporate expenses
Elimination of intersegment profits
Total income before income taxes (a)
Year Ended
Dec. 28,
2014
Dec. 29,
2013
Increase
(Decrease)
$
$
$
40,969
39,317
77,009
7,250
(9)
(49,440)
(841)
114,255
34,590
37,804
70,201
2,803
3,490
(41,025)
(1,754)
106,109
6,379
1,513
6,808
4,447
(3,499)
(8,415)
913
8,146
$
$
$
(a) Includes FOCUS system rollout costs of approximately $3.7 million in 2014. See the FOCUS System
section above for additional information.
Changes in income before income taxes for 2014 in comparison to 2013 are summarized on a segment
basis as follows:
• Domestic Company-owned Restaurant Segment. Domestic Company-owned restaurants’
income before income taxes increased $6.4 million due to the 8.2% increase in comparable sales,
partially offset by higher commodities and higher automobile insurance claims costs of
approximately $3.5 million. Additionally, 2014 includes depreciation expense of approximately
$1.2 million associated with FOCUS equipment costs.
• Domestic Commissaries Segment. Domestic commissaries’ income before income taxes
increased $1.5 million primarily due to higher margins and higher sales volumes, which were
somewhat offset by higher workers’ compensation and automobile insurance claims costs of
approximately $2.6 million and higher costs associated with various ongoing commissary
initiatives.
•
• North America Franchising Segment. North America franchising income before income taxes
increased approximately $6.8 million in 2014 due to the previously mentioned royalty revenue
increase.
International Segment. The international segment reported income before income taxes of
approximately $7.3 million in 2014 compared to $2.8 million in 2013. The increase of $4.4
million was primarily due to an increase in units and comparable sales of 7.4%, which resulted in
both higher royalties and contributed to an improvement of $3.1 million in the United Kingdom
results. The increases were partially offset by unfavorable China Company-owned results of
approximately $700,000 (losses of approximately $3.4 million in 2014 and $2.7 million in 2013).
The unfavorable results were primarily due to restaurant disposition costs for 11 restaurants,
which were approximately $700,000 higher in 2014. Additionally, the 2013 China results
included $215,000 of incremental losses associated with the additional month of operations in the
fourth quarter of 2013.
• All Others Segment. The “All others” segment, which primarily includes our online and mobile
ordering business and our wholly-owned print and promotions subsidiary, Preferred Marketing
Solutions, decreased approximately $3.5 million. The decrease was primarily due to higher
infrastructure costs to support our digital ordering business and a lower margin at our print and
41
promotions business, primarily associated with an increased number of discounted direct mail
campaigns in comparison to 2013.
• Unallocated Corporate Expenses. Unallocated corporate expenses increased approximately
$8.4 million due to the following:
(1) Higher G&A costs of approximately $3.8 million, including legal and management
incentive compensation costs, partially offset by lower travel costs.
(2) An increase in net interest expense of approximately $3.0 million primarily due to a
higher average outstanding debt balance with a higher effective interest rate.
Additionally, 2013 included an approximate $1.1 million benefit from a decrease in the
redemption value of a mandatorily redeemable noncontrolling interest in a joint venture.
An amendment in the joint venture agreement during 2014 no longer requires changes in
the value to be recorded in net interest.
(3) FOCUS costs of approximately $1.6 million in 2014, including depreciation expense for
capitalized FOCUS software development costs and other costs to support the rollout of
the program.
Diluted earnings per common share were $1.75 in 2014, compared to $1.55 in 2013, an increase of $0.20,
or 12.9%. Diluted earnings per common share increased $0.10 due to the 5.7% reduction in weighted
average shares outstanding. Additionally, FOCUS system costs reduced diluted earnings per share by
$0.06 in 2014.
Review of Consolidated Operating Results
Revenues. Domestic Company-owned restaurant sales were $701.9 million for 2014 compared to $635.3
million for 2013. As previously noted, the 10.5% increase was primarily due to an 8.2% increase in
comparable sales and a 2.6% increase in equivalent units.
North America franchise sales increased 7.1% to $2.04 billion in 2014, from $1.91 billion in 2013, as
domestic franchise comparable sales increased 6.2% and equivalent units increased 1.2%. North America
franchise sales are not included in our consolidated statements of income; however, our North America
franchise royalty revenue is derived from these sales. North America franchise royalties were $89.4
million for 2014, representing an increase of 9.5% from 2013. As previously noted, this increase is due to
the franchise comparable sales increase and a reduction in performance-based royalty incentives.
42
The comparable sales base and average weekly sales for 2014 and 2013 for domestic Company-owned
and North America franchised restaurants consisted of the following:
Total domestic units (end of period)
Equivalent units
Comparable sales base units
Comparable sales base percentage
Average weekly sales - comparable units
Average weekly sales - total non-comparable units*
Average weekly sales - all units
Year Ended
December 28, 2014
Domestic
Company-
owned
North
America
Franchised
Year Ended
December 29, 2013
North
America
Franchised
Domestic
Company-
owned
686
666
646
97.0%
20,451
14,389
20,271
$
$
$
2,654
2,521
2,307
91.5%
16,031
10,588
15,570
$
$
$
665
649
633
97.5%
18,995
12,167
18,832
$
$
$
2,621
2,492
2,263
90.8%
15,171
10,092
14,704
$
$
$
*Includes 150 traditional units in 2014 and 185 in 2013 and 213 non-traditional units in 2014 and 184 in 2013.
North America franchise and development fees were approximately $700,000 in 2014, a decrease of
approximately $500,000 from 2013 primarily due to lower franchise renewal fees.
Domestic commissary sales increased 8.7% to $629.5 million in 2014, from $578.9 million in the prior
year. As previously discussed, the increase was primarily due to increases in the prices of certain
commodities (primarily cheese and meats), higher sales volumes and higher overall margins. Our
commissaries charge a fixed dollar mark-up on the cost of cheese. Cheese prices are based upon the block
price, which increased to an average of $2.12 per pound in 2014 from $1.76 per pound in 2013.
Other sales increased $20.9 million to $74.2 million in 2014 primarily due to FOCUS equipment sales to
franchisees. See the FOCUS System section above for additional information.
International royalties and franchise and development fees increased approximately $3.8 million in 2014
primarily due to a 17.5% increase in franchised units and a comparable sales increase of 7.8%, calculated
on a constant dollar basis. International franchise restaurant sales were $553.0 million in 2014, compared
to $460.0 million in 2013. International franchise restaurant sales are not included in our consolidated
statements of income; however, our international royalty revenue is derived from these sales.
International restaurant and commissary sales increased $10.1 million, or 15.1%, in 2014 primarily due to
an increase in commissary revenues from increases in units and higher comparable sales, including the
United Kingdom. As previously noted, the 2013 year includes an additional month of revenues at our
China Company-owned operations in the amount of $2.1 million.
Costs and Expenses. The restaurant operating margin at domestic Company-owned units was 18.5% in
both 2014 and 2013 with the following differences by income statement category:
• Cost of sales was 0.4% higher as a percentage of revenues in 2014 primarily due to higher
commodity costs, primarily cheese and meats, somewhat offset by a higher ticket average.
• Salaries and benefits were 0.4% lower as a percentage of sales in 2014, primarily due to the
benefit of higher sales.
• Advertising and related costs as a percentage of revenues were 0.3% lower as a percentage of
sales in 2014, primarily due to the benefit of higher sales.
43
• Occupancy costs and other restaurant operating costs, on a combined basis, were 0.3% higher as a
percentage of revenues in 2014 primarily due to higher restaurant driver insurance claims costs of
approximately $3.5 million.
Domestic commissary operating margin was 7.1% and 7.7% in 2014 and 2013, respectively, with the
following differences by income statement category:
• Cost of sales was 0.8% higher as a percentage of revenues in 2014 primarily due to higher cheese
costs, which have a fixed-dollar markup. As cheese prices are higher, food cost as a percentage of
sales is higher.
• Salaries and benefits and other commissary operating expenses were 0.2% lower as a percentage
of sales due to the benefit of higher sales. The costs were $6.3 million higher in 2014 primarily
due to higher sales volumes, higher workers’ compensation and automobile insurance claims
costs of $2.6 million and higher costs associated with various ongoing commissary initiatives.
Other operating expenses as a percentage of other sales were 95.8% in 2014, compared to 90.0% in 2013.
The higher operating expenses were primarily due to the low margin associated with sales of FOCUS
equipment to franchisees, higher infrastructure costs to support our online operations and the impact of an
increased number of reduced cost direct mail campaigns offered to our domestic franchised restaurants by
Preferred.
International restaurant and commissary expenses were 83.0% in 2014 compared to 84.9% in 2013, as a
percentage of total restaurant and commissary sales. The decrease of 1.9% was primarily due to lower
operating expenses for the United Kingdom primarily due to higher sales.
General and administrative (“G&A”) expenses were $140.6 million, or 8.8% of revenues for 2014, as
compared to $134.2 million, or 9.3% of revenues for 2013. The decrease as a percentage of sales was
primarily the result of higher sales. The increase of $6.3 million was primarily due to the following:
• Unallocated corporate G&A expenses increased primarily due to higher legal and management
incentive compensation costs, partially offset by lower travel costs.
• Domestic Company-owned restaurant supervisor expenses increased, including higher bonuses
•
from higher profits.
International G&A costs were higher due to increased infrastructure, marketing and other support
costs.
Other general expenses reflect net expense of $8.2 million in 2014, as compared to $6.7 million in 2013.
The increase of approximately $1.6 million was primarily due to $1.1 million of higher disposition related
costs, including $700,000 for China Company-owned restaurant closures and divestitures, and higher
provisions for uncollectible accounts and notes receivable of approximately $500,000.
Depreciation and amortization was $40.0 million, or 2.5% of revenues for 2014, as compared to $35.1
million, or 2.4% of revenues for 2013. The increase of $4.9 million is primarily due to incremental
depreciation related to both our New Jersey commissary dough production capital expenditures and our
FOCUS capitalized software costs and equipment costs at Company-owned restaurants.
44
Net interest expense. Net interest expense consisted of the following (in thousands):
Interest expense on long-term debt (a)
Investment income
Change in redemption value of mandatorily redeemable
noncontrolling interest in a joint venture (b)
Net interest (expense) income
Dec. 28,
2014
Year Ended
Dec. 29,
2013
(Increase)
Decrease
$
(4,073)
702
$
(2,131)
589
$
(1,942)
113
(4)
(3,375)
$
1,148
(394)
$
(1,152)
(2,981)
$
(a) The increase in interest expense was due to a higher average outstanding debt balance and a higher
effective interest rate.
(b) 2013 represents the change in redemption value based on the mandatory redemption feature we
previously had for this noncontrolling interest. We eliminated that feature in 2014.
Income Tax Expense. Our effective income tax rate was 32.0% in 2014 compared to 31.2% in 2013. The
higher tax rate in 2014 was primarily due to the prior year including favorable state tax settlements. See
“Note 15” of “Notes to Consolidated Financial Statements” for additional information.
Liquidity and Capital Resources
Debt
Our debt is comprised entirely of an unsecured revolving credit facility with outstanding balances of
$256.0 million as of December 27, 2015 and $230.5 million as of December 28, 2014. The increase in the
outstanding balance was primarily due to borrowings to fund share repurchases and to pay dividends.
The interest rate charged on outstanding balances is LIBOR plus 75 to 175 basis points. The commitment
fee on the unused balance ranges from 15 to 25 basis points. The increment over LIBOR and the
commitment fee are determined quarterly based upon the ratio of total indebtedness to earnings before
interest, taxes, depreciation and amortization (“EBITDA”), as defined by the Credit Facility. The
remaining availability under the Credit Facility, reduced for outstanding letters of credit, was
approximately $120.2 million as of December 27, 2015.
We use interest rate swaps to hedge against the effects of potential interest rate increases on borrowings
under our Credit Facility. As of December 27, 2015, we have the following interest rate swap agreements,
including three forward starting swaps for $125.0 million that become effective in 2018 upon expiration
of the two existing swaps for $125.0 million:
Effective Dates
Debt Amount
Fixed Rates
July 30, 2013 through April 30, 2018
$75 million
December 30, 2014 through April 30, 2018
$50 million
April 30, 2018 through April 30, 2023
April 30, 2018 through April 30, 2023
April 30, 2018 through April 30, 2023
$55 million
$35 million
$35 million
45
1.42%
1.36%
2.33%
2.36%
2.34%
Our Credit Facility contains affirmative and negative covenants, including the following financial
covenants, as defined by the credit facility:
Permitted Ratio
Actual Ratio for the
Year Ended
December 27, 2015
Leverage Ratio
Not to exceed 3.0 to 1.0
Interest Coverage Ratio
Not less than 3.5 to 1.0
1.6 to 1.0
4.8 to 1.0
Our leverage ratio is defined as outstanding debt divided by consolidated EBITDA for the most recent
four fiscal quarters. Our interest coverage ratio is defined as the sum of consolidated EBITDA and
consolidated rental expense for the most recent four fiscal quarters divided by the sum of consolidated
interest expense and consolidated rental expense for the most recent four fiscal quarters. We were in
compliance with all covenants as of December 27, 2015.
Cash Flows
Cash flow provided by operating activities was $160.3 million for 2015 as compared to $122.6 million in
2014. The increase of approximately $37.7 million was primarily due to higher operating income and
favorable changes in inventory and other working capital items. The prior year included higher inventory
levels of equipment to support the rollout of FOCUS to our domestic franchised restaurants. The Perrin
legal settlement does not impact 2015 cash provided by operating activities as it was not paid until
January 2016. Cash flow provided by operating activities increased to $122.6 million in 2014 from
$101.4 million in 2013, primarily due to higher operating income and favorable changes in working
capital.
The Company’s free cash flow for the last three years was as follows (in thousands):
Dec. 27,
2015
Year Ended
Dec. 28,
2014
Dec. 29,
2013
Net cash provided by operating activities
Purchase of property and equipment (a)
Free cash flow (b)
$
$
160,312
(38,972)
121,340
$
122,632
(48,655)
73,977
$
$
101,360
(50,750)
50,610
$
(a) We require capital primarily for the development, acquisition, renovation and maintenance of
restaurants, the development, renovation and maintenance of commissary facilities and
equipment and the enhancement of corporate systems and facilities, including technological
enhancements such as our FOCUS system.
(b) We define free cash flow as net cash provided by operating activities (from the consolidated
statements of cash flows) less the purchases of property and equipment. See “Items Impacting
Comparability; Non-GAAP Measures” for more information about this non-GAAP measure, its
limitations and why we present free cash flow alongside the most directly comparable GAAP
measure.
46
We require capital for share repurchases and the payment of cash dividends. The following is a summary
of our common share repurchases, as adjusted for the stock split, for the last three years (in thousands,
except average price per share):
Fiscal
Year
2013
2014
2015
Number of
Shares
Repurchased
3,538
2,562
1,845
Total Cash
Paid
$118,569
$117,400
$119,793
Average
Price Per
Share
$33.51
$45.82
$64.93
Subsequent to December 27, 2015, we acquired an additional 860,000 shares at an aggregate cost of $42.6
million. Approximately $167.1 million remained available through February 28, 2017 under the
Company’s share repurchase program as of February 16, 2016.
We paid cash dividends of $24.8 million in 2015 ($0.63 per share), $21.7 million in 2014 ($0.53 per
share) and $10.8 million in 2013 ($0.25 per share). Additionally, on January 27, 2016, our Board of
Directors declared a first quarter 2016 cash dividend of $0.175 per share, or approximately $6.6 million.
The dividend was paid on February 19, 2016 to shareholders of record as of the close of business on
February 8, 2016. The declaration and payment of any future dividends will be at the discretion of the
Board of Directors, subject to the Company’s financial results, cash requirements, and other factors
deemed relevant by the Board of Directors.
Contractual Obligations
Contractual obligations and payments as of December 27, 2015 due by year are as follows (in thousands):
Payments Due by Period
Less than 1
Year
1-3 Years
3-5 Years
After 5
Years
Total
Contractual Obligations:
Revolving credit facility (1)
Interest payments (2)
Total debt
Operating leases (3)
Total contractual obligations
$
-
5,497
5,497
41,710
47,207
$
-
$
11,785
11,785
69,825
81,610
$
$
$
256,000
13,367
269,367
42,213
311,580
-
$
15,594
15,594
54,532
70,126
$
$
$
256,000
46,243
302,243
208,280
510,523
(1) We utilize interest rate swaps to hedge against $125 million of our variable rate debt. At December
27, 2015, we had an interest rate swap liability recorded in other current and other long-term
liabilities in the consolidated balance sheet.
(2) Interest payments assume an outstanding debt balance of $256 million until the expiration of the
swaps. Interest payments are calculated based on LIBOR plus the applicable margin in effect at
December 27, 2015, and considers the interest rate swap agreements in effect. The actual interest
rates on our variable rate debt and the amount of our indebtedness could vary from those used to
compute the above interest payments. See “Note 9” of “Notes to Consolidated Financial Statements”
for additional information concerning our debt and credit arrangements.
(3) See “Note 17” of “Notes to Consolidated Financial Statements” for additional information.
47
The above table does not include the following:
• Unrecognized tax benefits of $3.7 million since we are not able to make reasonable estimates of
the period of cash settlement with respect to the taxing authority.
• Redeemable noncontrolling interests of $8.4 million as we are not able to predict the timing of the
redemptions.
Off-Balance Sheet Arrangements
The off-balance sheet arrangements that are reasonably likely to have a current or future effect on the
Company’s financial condition are operating leases of Company-owned restaurant sites, QC Centers,
office space and transportation equipment.
We have certain other commercial commitments where payment is contingent upon the occurrence of
certain events. Such commitments include the following by year (in thousands):
Amount of Commitment Expiration Per Period
3-5
Years
After
5 Years
1-3
Years
Less than
1 Year
Total
Other Commercial Commitments:
Standby letters of credit
$
23,770
$
-
$
-
$
-
$
23,770
We are party to standby letters of credit with off-balance sheet risk associated with our insurance
programs. See “Notes 9, 12 and 17” of “Notes to Consolidated Financial Statements” for additional
information related to contractual and other commitments.
Forward-Looking Statements
Certain matters discussed in this report, including information within Management’s Discussion and
Analysis of Financial Condition and Results of Operations, constitute forward-looking statements within
the meaning of the federal securities laws. Generally, the use of words such as “expect,” “estimate,”
“believe,” “anticipate,” “will,” “forecast,” “plan,” “project,” or similar words identify forward-looking
statements that we intend to be included within the safe harbor protections provided by the federal
securities laws. Such forward-looking statements may relate to projections or guidance concerning
business performance, revenue, earnings, contingent liabilities, resolution of litigation, commodity costs,
profit margins, unit growth, capital expenditures, and other financial and operational measures. Such
statements are not guarantees of future performance and involve certain risks, uncertainties and
assumptions, which are difficult to predict and many of which are beyond our control. Therefore, actual
outcomes and results may differ materially from those matters expressed or implied in such forward-
looking statements. The risks, uncertainties and assumptions that are involved in our forward-looking
statements include, but are not limited to:
•
•
aggressive changes in pricing or other marketing or promotional strategies by competitors, which
may adversely affect sales and profitability; and new product and concept developments by food
industry competitors;
changes in consumer preferences or consumer buying habits, including changes in general
economic conditions or other factors that may affect consumer confidence and discretionary
spending;
48
•
•
•
•
•
the adverse impact on the Company or our results caused by 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;
failure to maintain our brand strength, quality reputation and consumer enthusiasm for our better
ingredients marketing and advertising strategy;
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;
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 automobiles, 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, geopolitical or other disruptions beyond our
control;
increased risks associated with our international operations, including economic and political
conditions, instability in our international markets, especially emerging markets, fluctuations in
currency exchange rates, and difficulty in meeting planned sales targets and new store growth;
the impact of current or future claims and litigation, including labor and employment-related
claims;
current or proposed legislation impacting our business;
failure to effectively execute succession planning, and our reliance on the multiple roles of our
founder, chairman and chief executive officer, who also serves as our brand spokesperson; and
• 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.
•
•
•
These and other risk factors are discussed in detail in “Part I. Item 1A. – Risk Factors” of this Annual
Report on Form 10-K. We undertake no obligation to update publicly any forward-looking statements,
whether as a result of future events, new information or otherwise, except as required by law.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
Our debt is comprised entirely of a $400 million unsecured revolving credit facility with outstanding
balances of $256.0 million as of December 27, 2015 and $230.5 million as of December 28, 2014 and a
maturity date of October 31, 2019. Additionally, we have the option to increase the amount available
under our revolving credit facility by an additional $100 million. The interest rate charged on the
outstanding balances is LIBOR plus 75 to 175 basis points. The commitment fee on the unused balance
ranges from 15 to 25 basis points.
We attempt to minimize interest 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
and have reset dates and critical terms that match those of our existing debt and the anticipated critical
terms of future debt. By using a derivative instrument to hedge exposures to changes in interest rates, we
expose ourselves to credit risk. Credit risk is the failure of the counterparty to perform under the terms of
the derivative contract.
49
As of December 27, 2015, we have the following interest rate swap agreements, including three forward
starting swaps executed in 2015 that become effective in 2018 upon expiration of the two existing swaps
for $125 million:
Effective Dates
Debt Amount
Fixed Rates
July 30, 2013 through April 30, 2018
$75 million
December 30, 2014 through April 30, 2018
$50 million
April 30, 2018 through April 30, 2023
April 30, 2018 through April 30, 2023
April 30, 2018 through April 30, 2023
$55 million
$35 million
$35 million
1.42%
1.36%
2.33%
2.36%
2.34%
The weighted average interest rate on the revolving line of credit, including the impact of the interest rate
swap agreements, was 2.0% for the year ended December 27, 2015. An increase in the present interest
rate of 100 basis points on the line of credit balance outstanding as of December 27, 2015, including the
impact of the interest rate swaps, would increase annual interest expense by $1.3 million.
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 and cash flows. Our international operations
principally consist of Company-owned restaurants in China and distribution sales to franchised Papa
John’s restaurants located in the United Kingdom, Mexico and China and our franchise sales and support
activities, which derive revenues from sales of franchise and development rights and the collection of
royalties from our international franchisees. Approximately 6.4% of our revenues for 2015 and 2014 and
6.2% for 2013 were derived from these operations.
We have not historically hedged our exposure to foreign currency fluctuations. Foreign currency
exchange rate fluctuations had a negative impact on our revenues of $7.5 million in 2015 and a negative
impact on our income before income taxes of $2.8 million in 2015. An additional 10% adverse change in
the foreign currency rates for our international markets would result in an additional negative impact on
annual revenue and income before income taxes of approximately $9.0 million and $2.0 million,
respectively.
Commodity Price Risk
In the ordinary course of business, the food and paper products we purchase, including cheese (our largest
food cost), are subject to seasonal fluctuations, weather, availability, demand and other factors that are
beyond our control. We have pricing agreements with some of our vendors, including forward pricing
agreements for a portion of our cheese purchases for our domestic Company-owned restaurants, which
are accounted for as normal purchases; however, we still remain exposed to on-going commodity
volatility.
50
The following table presents the actual average block price for cheese by quarter in 2015, 2014 and 2013.
Also presented is the projected 2016 average block price by quarter (based on the February 16, 2016
Chicago Mercantile Exchange cheese futures prices for 2016):
2016
Projected
Market
2015
Block
Price
2014
Block
Price
2013
Block
Price
$
$
$
$
Quarter 1
Quarter 2
Quarter 3
Quarter 4
Full Year
1.510
1.551
1.657
1.698
1.604
1.538
1.630
1.684
1.602
1.614
2.212
2.131
2.141
1.991
2.119
$
$
$
$
1.662
1.784
1.740
1.849
1.759
51
Item 8. Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of Papa John’s International, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Papa John’s International, Inc. and
Subsidiaries as of December 27, 2015 and December 28, 2014, and the related consolidated statements of
income, comprehensive income, stockholders' equity, and cash flows for each of the three years in the
period ended December 27, 2015. Our audits also included the financial statement schedule listed in the
Index at Item 15(a)(2). These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial statements and schedule based
on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the
consolidated financial position of Papa John’s International, Inc. and Subsidiaries at December 27, 2015
and December 28, 2014, and the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 27, 2015, in conformity with U.S. generally accepted
accounting principles. Also, in our opinion, the related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly in all material respects the
information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), Papa John’s International, Inc. and Subsidiaries’ internal control over financial
reporting as of December 27, 2015, based on criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013
Framework) and our report dated February 23, 2016, expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Louisville, Kentucky
February 23, 2016
52
Papa John’s International, Inc. and Subsidiaries
Consolidated Statements of Income
(In thousands, except per share amounts)
North America revenues:
Domestic Company-owned restaurant sales
Franchise royalties
Franchise and development fees
Domestic commissary sales
Other sales
International revenues:
Royalties and franchise and development fees
Restaurant and commissary sales
Total revenues
Costs and expenses:
Domestic Company-owned restaurant expenses:
Cost of sales
Salaries and benefits
Advertising and related costs
Occupancy costs and other restaurant operating expenses
Total domestic Company-owned restaurant expenses
Domestic commissary expenses:
Cost of sales
Salaries and benefits and other commissary operating expenses
Total domestic commissary expenses
Other operating expenses
International restaurant and commissary expenses
General and administrative expenses
Other general expenses
Depreciation and amortization
Total costs and expenses
Operating income
Legal settlement expense
Investment income
Interest expense
Income before income taxes
Income tax expense
Net income before attribution to noncontrolling interests
Income attributable to noncontrolling interests
Net income attributable to the Company
Calculation of income for earnings per share:
Net income attributable to the Company
December 27,
2015
Years Ended
December 28,
2014
December 29,
2013
$
756,307
95,046
1,010
615,610
64,711
$
701,854
89,443
726
629,492
74,179
$
635,317
81,692
1,181
578,870
53,322
27,289
77,402
1,637,375
25,730
76,725
1,598,149
21,979
66,661
1,439,022
178,952
207,998
67,164
150,092
604,206
175,733
188,234
63,463
144,628
572,058
156,237
173,316
59,172
128,826
517,551
471,812
96,715
568,527
60,896
63,506
157,421
6,205
40,307
1,501,068
136,307
(12,278)
794
(5,676)
119,147
37,183
81,964
(6,282)
75,682
$
492,940
91,981
584,921
71,068
63,718
140,566
8,223
39,965
1,480,519
117,630
-
702
(4,077)
114,255
36,558
77,697
(4,382)
73,315
$
448,693
85,649
534,342
48,011
56,609
134,228
6,673
35,105
1,332,519
106,503
-
589
(983)
106,109
33,130
72,979
(3,442)
69,537
$
$
75,682
$
73,315
$
69,537
Decrease (increase) in noncontrolling interest redemption value
65
(44)
(510)
Net income attributable to participating securities
Net income attributable to common shareholders
(325)
75,422
$
(402)
72,869
$
(530)
68,497
$
Basic earnings per common share
Diluted earnings per common share
Basic weighted average common shares outstanding
Diluted weighted average common shares outstanding
$
$
1.91
1.89
$
$
1.78
1.75
$
$
1.58
1.55
39,458
40,000
40,960
41,718
43,387
44,243
Dividends declared per common share
$
0.63
$
0.53
$
0.25
Supplemental data (see Note 16):
Revenues - affiliates
See accompanying notes.
$
3,124
$
3,546
$
3,259
53
Papa John's International, Inc. and S ubsidiaries
Consolidated S tatements of Comprehensive Income
(In thousands)
Years Ended
December 27, December 28, December 29,
2014
2013
2015
Net income before attribution to noncontrolling interests
Other comprehensive income (loss), before tax:
Foreign currency translation adjustments
Interest rate swaps (1)
Other comprehensive income (loss), before tax
Income tax effect:
Foreign currency translation adjustments
Interest rate swaps (2)
Income tax effect
Other comprehensive income (loss), net of tax
Comprehensive income before attribution to noncontrolling interests
Comprehensive loss, redeemable noncontrolling interests
Comprehensive (loss) income, nonredeemable noncontrolling interests
Comprehensive income attributable to the Company
$
81,964
$
77,697
$
72,979
(2,133)
(1,846)
(3,979)
(2,584)
(261)
(2,845)
1,065
(51)
1,014
789
683
1,472
(2,507)
79,457
(3,873)
(2,409)
73,175
$
956
97
1,053
(1,792)
75,905
(3,687)
(695)
71,523
$
(394)
19
(375)
639
73,618
(3,466)
24
70,176
$
(1) Amounts reclassified out of accumulated other comprehensive income (“AOCI”) into interest expense included $1,563,
$996 and $501 for the years ended December 27, 2015, December 28, 2014 and December 29, 2013, respectively.
(2) The income tax effects of amounts reclassified out of AOCI into interest expense were $578, $369 and $185 for the
years ended December 27, 2015, December 28, 2014 and December 29, 2013, respectively.
See accompanying notes.
54
Papa John’s International, Inc. and Subsidiaries
Consolidated Balance Sheets
(In thousands, except per share amounts)
Assets
Current assets:
Cash and cash equivalents
Accounts receivable (less allowance for doubtful
accounts of $2,447 in 2015 and $3,814 in 2014)
Accounts receivable - affiliates (no allowance for doubtful
accounts in 2015 and 2014)
Notes receivable (no allowance for doubtful accounts in 2015 and 2014)
Income taxes receivable
Inventories
Prepaid expenses
Other current assets
Assets held for sale
Total current assets
Net property and equipment
Notes receivable, less current portion (less allowance for doubtful
accounts of $3,653 in 2015 and $3,132 in 2014)
Goodwill
Deferred income taxes
Other assets
Total assets
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable
Income and other taxes payable
Accrued expenses and other current liabilities
Total current liabilities
Deferred revenue
Long-term debt
Deferred income taxes
Other long-term liabilities
Total liabilities
Redeemable noncontrolling interests
Stockholders’ equity:
Years Ended
December 27,
2015
December 28,
2014
$
21,006
$
20,122
63,163
55,933
157
7,816
272
21,564
20,372
8,941
9,299
152,590
214,044
114
6,106
9,527
27,394
18,736
9,828
-
147,760
219,457
11,105
79,657
2,415
35,101
494,912
$
12,801
82,007
3,914
38,616
504,555
$
$
43,492
8,527
80,918
132,937
3,190
256,000
4,610
47,606
444,343
$
38,832
9,637
58,293
106,762
4,257
230,451
13,940
41,875
397,285
8,363
8,555
Preferred stock ($0.01 par value per share; no shares issued)
Common stock ($0.01 par value per share; issued 43,731 in 2015 and 43,331 in 2014)
Additional paid-in capital
Accumulated other comprehensive income
Retained earnings
Treasury stock (5,308 shares in 2015 and 3,549 shares in 2014, at cost)
Total stockholders' equity, net of noncontrolling interests
Noncontrolling interests in subsidiaries
Total stockholders' equity
Total liabilities, redeemable noncontrolling interests and stockholders' equity
-
437
158,348
(1,836)
143,789
(271,557)
29,181
13,025
42,206
494,912
$
-
433
147,912
671
92,876
(155,659)
86,233
12,482
98,715
504,555
$
See accompanying notes.
55
Papa John’s International, Inc. and Subsidiaries
Consolidated Statements of Stockholders’ Equity
(In thousands)
Balance at December 30, 2012
Net income attributable to the Company (1)
Other comprehensive income
Cash dividends paid
Exercise of stock options
Tax effect of equity awards
Acquisition of Company common stock
Retirement of Company common stock
Stock-based compensation expense
Issuance of restricted stock
Change in redemption value of
noncontrolling interests
Reclassification from temporary equity to
permanent equity
Contributions from noncontrolling interests
Other
Balance at December 29, 2013
Net income attributable to the Company (1)
Other comprehensive loss
Cash dividends paid
Exercise of stock options
Tax effect of equity awards
Acquisition of Company common stock
Stock-based compensation expense
Issuance of restricted stock
Change in redemption value of
noncontrolling interests
Reclassification from temporary equity to
permanent equity
Contributions from noncontrolling interests
Distributions to noncontrolling interests
Other
Balance at December 28, 2014
Net income attributable to the Company (1)
Other comprehensive loss
Cash dividends paid
Exercise of stock options
Tax effect of equity awards
Acquisition of Company common stock
Stock-based compensation expense
Issuance of restricted stock
Change in redemption value of
noncontrolling interests
Contributions from noncontrolling interests
Distributions to noncontrolling interests
Other
Balance at December 27, 2015
Common
Stock
Shares
Outstanding
44,482
-
-
-
570
-
(3,536)
-
-
138
Common
Stock
742
$
-
-
-
6
-
-
(320)
-
-
Papa John's International, Inc.
Additional
Paid-In
Capital
Accumulated
Other
Comprehensive
Income (Loss)
$
280,534
-
-
41
6,859
1,172
-
(156,380)
7,409
(2,187)
$
1,824
-
639
-
-
-
-
-
-
-
Retained
Earnings
Treasury
Stock
$
356,461
69,537
-
(10,751)
-
-
-
(373,440)
-
-
$
(458,047)
-
-
-
-
-
(118,569)
530,140
-
2,187
Noncontrolling
Interests in
Subsidiaries
-
$
(24)
-
-
-
-
-
-
-
-
Total
Stockholders’
Equity
$
181,514
69,513
639
(10,710)
6,865
1,172
(118,569)
-
7,409
-
-
-
-
13
41,667
-
-
-
535
-
(2,562)
-
133
-
-
-
-
9
39,782
-
-
-
320
-
(1,845)
-
151
-
-
-
15
38,423
-
-
-
-
428
-
-
-
5
-
-
-
-
-
-
-
-
-
433
-
-
-
3
-
-
-
1
-
-
(510)
-
-
-
104
137,552
-
-
87
5,832
1,047
-
8,712
(5,443)
-
-
-
2,463
-
(1,792)
-
-
-
-
-
-
-
-
-
41,297
73,315
-
(21,692)
-
-
-
-
-
-
-
223
(44,066)
-
-
-
-
-
(117,400)
-
5,443
-
-
(44)
-
-
-
-
125
147,912
-
-
100
5,194
(830)
-
9,423
(3,232)
-
-
-
-
671
-
(2,507)
-
-
-
-
-
-
-
-
-
-
92,876
75,682
-
(24,834)
-
-
-
-
-
-
-
-
364
(155,659)
-
-
-
-
-
(119,793)
-
3,231
-
434
100
-
510
695
-
-
-
-
-
-
-
-
11,391
1,086
(1,200)
-
12,482
2,409
-
-
-
-
-
-
-
(510)
434
100
327
138,184
74,010
(1,792)
(21,605)
5,837
1,047
(117,400)
8,712
-
(44)
11,391
1,086
(1,200)
489
98,715
78,091
(2,507)
(24,734)
5,197
(830)
(119,793)
9,423
-
-
-
-
-
$
437
-
-
-
(219)
158,348
$
-
-
-
-
(1,836)
$
65
-
-
-
143,789
$
-
-
-
664
(271,557)
$
-
684
(2,550)
-
13,025
$
65
684
(2,550)
445
42,206
$
(1) Net income to the Company at December 27, 2015, December 28, 2014 and December 29, 2013 excludes $6,282, $4,382 and
$3,442, respectively, allocable to the noncontrolling interests for our joint venture arrangements.
At December 29, 2013, the accumulated other comprehensive income of $2,463 was comprised of unrealized foreign currency
translation gains of $2,561, offset by a net unrealized loss on the interest rate swap agreement of $98.
At December 28, 2014, the accumulated other comprehensive income of $671 was comprised of unrealized foreign currency translation
gains of $933, offset by a net unrealized loss on the interest rate swap agreements of $262.
At December 27, 2015, the accumulated other comprehensive loss of $1,836 was comprised of unrealized foreign currency translation
loss of $411 and a net unrealized loss on the interest rate swap agreements of $1,425.
See accompanying notes.
56
Papa John’s International, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
Operating activities
Net income before attribution to noncontrolling interests
Adjustments to reconcile net income to net cash provided by operating activities:
December 27,
2015
Years Ended
December 28,
2014
December 29,
2013
$
81,964
$
77,697
$
72,979
Provision for uncollectible accounts and notes receivable
Depreciation and amortization
Deferred income taxes
Stock-based compensation expense
Other
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable
Income taxes receivable
Inventories
Prepaid expenses
Other current assets
Other assets and liabilities
Accounts payable
Income and other taxes payable
Accrued expenses and other current liabilities
Deferred revenue
Net cash provided by operating activities
Investing activities
Purchases of property and equipment
Loans issued
Repayments of loans issued
Acquisitions, net of cash acquired
Proceeds from divestitures of restaurants
Other
Net cash used in investing activities
Financing activities
Net proceeds from issuance of long-term debt
Cash dividends paid
Excess tax benefit on equity awards
Tax payments for equity award issuances
Proceeds from exercise of stock options
Acquisition of Company common stock
Contributions from noncontrolling interest holders
Distributions to noncontrolling interest holders
Other
Net cash used in financing activities
Effect of exchange rate changes on cash and cash equivalents
Change in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
See accompanying notes.
1,232
40,307
(6,246)
9,423
4,633
(9,179)
9,255
4,967
(2,425)
829
620
4,804
(1,113)
21,201
40
160,312
(38,972)
(4,741)
5,183
(922)
-
500
(38,952)
1,795
39,965
4,422
8,712
4,738
(5,741)
(9,527)
(2,838)
(4,394)
(387)
915
3,171
5,233
(665)
(464)
122,632
(48,655)
(6,816)
4,254
(4,773)
400
556
(55,034)
1,921
35,105
5,848
7,409
2,767
(11,058)
-
(857)
(1,553)
(1,458)
(3,728)
3,029
(6,027)
(2,536)
(481)
101,360
(50,750)
(6,095)
7,068
-
-
339
(49,438)
25,549
(24,844)
10,151
(10,965)
5,197
(119,793)
684
(6,550)
444
(120,127)
(349)
884
20,122
21,006
$
72,551
(21,735)
10,282
(9,235)
5,837
(117,400)
1,086
(2,800)
491
(60,923)
(223)
6,452
13,670
20,122
$
69,642
(10,797)
4,755
(3,584)
6,865
(118,569)
950
(3,650)
(327)
(54,715)
67
(2,726)
16,396
13,670
$
57
Papa John’s International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. Description of Business
Papa John’s International, Inc. (referred to as the “Company,” “Papa John’s” or in the first person
notations of “we,” “us” and “our”) operates and franchises pizza delivery and carryout restaurants under
the trademark “Papa John’s,” currently in all 50 states and in 39 international countries and territories.
Substantially all revenues are 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, and sales to franchisees of food and paper products, printing and promotional items, risk
management services, and information systems and related services used in their operations.
2. Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Papa John’s and its
subsidiaries. The results of our Company-owned operations in China were consolidated one month in
arrears until fiscal 2013. The inclusion of the additional month of operations in fiscal 2013 resulted in
$2.1 million of incremental international revenues and an incremental loss before income taxes of
$215,000 reported in the international segment. This change in our consolidation policy did not have a
material impact to our financial results for any of the years presented. All intercompany balances and
transactions have been eliminated.
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 for the purpose of
designing and administering advertising and promotional programs for all participating domestic
restaurants. PJMF is a variable interest entity (“VIE”) as it does not have sufficient equity to fund its
operations without ongoing financial support and contributions from its members. Based on the
ownership and governance structure and operating procedures of PJMF, we have determined that we do
not have the power to direct the most significant activities of PJMF and are therefore not the primary
beneficiary. Accordingly, consolidation of PJMF is not appropriate.
Fiscal Year
Our fiscal year ends on the last Sunday in December of each year. All fiscal years presented consist of 52
weeks.
Use of Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally
accepted in the United States requires management to make estimates and assumptions that affect the
amounts reported in the 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, online customer loyalty program obligation, 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.
58
2. Significant Accounting Policies (continued)
Revenue Recognition
Retail sales from Company-owned restaurants and franchise royalties, which are based on a percentage of
franchise restaurant sales, are recognized as revenues when the products are delivered to or carried out by
customers. Franchise fees are recognized when a franchised restaurant begins operations, at which time
we have performed our obligations related to such fees. Fees received pursuant to development
agreements which grant the right to develop franchised restaurants in future periods in specific geographic
areas are deferred and recognized on a pro rata basis as franchised restaurants subject to the development
agreements begin operations.
The Company offers various incentive programs for franchisees including royalty incentives, new
restaurant opening (i.e. development incentives) and other various support initiatives. Royalties, franchise
and development fees and commissary sales are reduced to reflect any incentives earned or granted under
these programs that are in the form of discounts. Direct mail advertising discounts are also periodically
offered. Other sales are reduced to reflect these advertising discounts. Other development incentives for
opening restaurants are offered in the form of Company equipment at no cost. This equipment is
amortized over the term of the agreement, which is generally two to three years, and is recognized in
other general expenses in our consolidated statements of income.
Domestic production and distribution revenues are comprised of food, promotional items and supplies
sold to franchised restaurants located in the United States and are recognized as revenue upon shipment of
the related products to the franchisees. Fees for information services, including software maintenance
fees, help desk fees and online ordering fees are recognized as revenue as such services are provided and
are included in other sales. Insurance commissions are recognized as revenue over the term of the policy
period and are included in other sales.
International revenues are comprised of Company-owned restaurant sales, royalties, franchise fees and
revenues for the production and distribution of food to international franchisees. Revenues are recognized
consistently with the policies applied for revenues generated in the United States.
Advertising and Related Costs
Advertising and related costs include the costs of domestic Company-owned local restaurant activities
such as mail coupons, door hangers and promotional items and contributions to PJMF and various local
market cooperative advertising funds (“Co-op Funds”). Contributions by domestic Company-owned and
franchised restaurants to PJMF and the Co-op Funds are based on an established percentage of monthly
restaurant revenues. PJMF is responsible for developing and conducting marketing and advertising for the
domestic Papa John’s system. The Co-op Funds are responsible for developing and conducting
advertising activities in a specific market, including the placement of electronic and print materials
developed by PJMF. We recognize domestic Company-owned restaurant contributions to PJMF and the
Co-op Funds in which we do not have a controlling interest in the period in which the contribution
accrues. The net assets of the Co-op Funds in which we possess majority voting rights, and thus control
the cooperatives, are included in our consolidated balance sheets.
Leases
Lease expense is recognized on a straight-line basis over the expected life of the lease term. A lease term
often includes option periods, available at the inception of the lease.
59
2. Significant Accounting Policies (continued)
Stock-Based Compensation
Compensation expense for equity grants is estimated on the grant date, net of projected forfeitures, and is
recognized over the vesting period (generally in equal installments over three years). Restricted stock is
valued based on the market price of the Company’s shares on the date of grant. Stock options are valued
using a Black-Scholes option pricing model. Our specific assumptions for estimating the fair value of
options are included in Note 18.
Cash Equivalents
Cash equivalents consist of highly liquid investments with maturity of three months or less at date of
purchase. These investments are carried at cost, which approximates fair value.
Accounts Receivable
Substantially all accounts receivable are due from franchisees for purchases of food, paper products,
restaurant equipment, printing and promotional items, risk management services, information systems and
related services, and royalties. Credit is extended based on an evaluation of the franchisee’s financial
condition and collateral is generally not required. A reserve for uncollectible accounts is established as
deemed necessary based upon overall accounts receivable aging levels and a specific review of accounts
for franchisees with known financial difficulties. Account balances are charged off against the allowance
after recovery efforts have ceased.
Notes Receivable
The Company provides financing to select franchisees principally for use in the construction and
development of their restaurants and for the purchase of restaurants from the Company or other
franchisees. Notes receivable bear interest at fixed or floating rates and are generally secured by the assets
of each restaurant and the ownership interests in the franchise. We establish an allowance based on a
review of each borrower’s economic performance and underlying collateral value. Note balances are
charged off against the allowance after recovery efforts have ceased.
Inventories
Inventories, which consist of food products, paper goods and supplies, smallwares, and printing and
promotional items, are stated at the lower of cost, determined under the first-in, first-out (FIFO) method,
or market.
Property and Equipment
Property and equipment are stated at cost. Depreciation is recorded using the straight-line method over the
estimated useful lives of the assets (generally five to ten years for restaurant, commissary and other
equipment, and 20 to 40 years for buildings and improvements). Leasehold improvements are amortized
over the terms of the respective leases, including the first renewal period (generally five to ten years).
Depreciation expense was $39.7 million in 2015, $39.1 million in 2014 and $34.5 million in 2013.
60
2. Significant Accounting Policies (continued)
Deferred Costs
We defer certain information systems development and related costs that meet established criteria.
Amounts deferred, which are included in property and equipment, are amortized principally over periods
not exceeding five years beginning in the month subsequent to completion of the related information
systems project. Total costs deferred were approximately $2.6 million in 2015, $3.3 million in 2014 and
$3.3 million in 2013. The unamortized information systems development costs approximated $9.1 million
and $8.7 million as of December 27, 2015 and December 28, 2014, respectively.
Intangible Assets – Goodwill
We evaluate goodwill annually in the fourth quarter or whenever we identify certain triggering events or
circumstances that would more-likely-than-not reduce the fair value of a reporting unit below its carrying
amount. Such tests are completed separately with respect to the goodwill of each of our reporting units,
which includes our domestic Company-owned restaurants, China and the United Kingdom (“PJUK”).
We may perform a qualitative assessment or move directly to the quantitative assessment for any
reporting unit in any period if we believe that it is more efficient or if impairment indicators exist.
We elected to perform a qualitative assessment for our domestic Company-owned restaurants and PJUK
reporting units in 2015. As a result of our qualitative analyses, we determined that it was more-likely-
than-not that the fair values of our reporting units were greater than their carrying amounts. We
performed a quantitative analysis for the goodwill of our China reporting unit using a market approach.
The market approach considered earnings before interest, taxes, depreciation and amortization
(“EBITDA”) multiples that a potential buyer would pay based on third-party transactions in similar
markets. The results of our quantitative assessment indicated the fair value significantly exceeded the
carrying amount. Subsequent to completing our goodwill impairment tests, no indications of impairment
were identified.
Deferred Income Tax Accounts and Tax Reserves
We are subject to income taxes in the United States and several foreign jurisdictions. Significant
judgment is required in determining our provision for income taxes and the related assets and liabilities.
The provision for income taxes includes income taxes paid, currently payable or receivable and those
deferred.
Deferred tax assets and liabilities are determined based on differences between financial reporting and tax
basis of assets and liabilities, and are measured using enacted tax rates and laws that are expected to be in
effect when the differences reverse. Deferred tax assets are also recognized for the estimated future
effects of tax loss carryforwards. The effect on deferred taxes of changes in tax rates is recognized in the
period in which the new tax is enacted. As a result, our effective tax rate may fluctuate. Valuation
allowances are established when necessary on a jurisdictional basis to reduce deferred tax assets to the
amounts we expect to realize.
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 and adjust for events, such as statute
of limitations expirations, court rulings or audit settlements, which may impact our ultimate payment for
such exposures.
61
2. Significant Accounting Policies (continued)
Insurance Reserves
Our insurance programs for workers’ compensation, owned and non-owned automobiles, general
liability, property, and health insurance coverage provided to our employees are funded by the Company
up to certain retention levels under our retention programs. Retention limits generally range from
$100,000 to $500,000 per occurrence.
Losses are accrued based upon undiscounted estimates of the liability for claims incurred using certain
third-party actuarial projections and our claims loss experience. The estimated insurance claims losses
could be significantly affected should the frequency or ultimate cost of claims differ significantly from
historical trends used to estimate the insurance reserves recorded by the Company. See Note 12 for
additional information on our insurance reserves.
Derivative Financial Instruments
We recognize all derivatives on the balance sheet at fair value. At inception and on an ongoing basis, we
assess whether each derivative that qualifies for hedge accounting continues to be highly effective in
offsetting changes in the cash flows of the hedged item. If the derivative meets the hedge criteria as
defined by certain accounting standards, depending on the nature of the hedge, changes in the fair value
of the derivative are either offset against the change in fair value of assets, liabilities or firm
commitments through earnings or recognized in AOCI until the hedged item is recognized in earnings.
The ineffective portion of a derivative’s change in fair value, if any, is immediately recognized in
earnings.
We recognized a loss of $1.8 million ($1.2 million after tax) in 2015, a loss of $261,000 ($164,000 after
tax) in 2014 and a loss of $51,000 ($32,000 after tax) in 2013, in AOCI for the net change in the fair
value of our interest rate swaps. See Note 9 for additional information on our debt and credit
arrangements.
Noncontrolling Interests
The Company has the following four joint ventures in which there are noncontrolling interests:
Joint Venture
Redemption Feature
Location within the
Consolidated Balance Sheet
Star Papa, LP
PJ Denver, LLC
Colonel’s Limited, LLC No redemption feature
No redemption feature
PJ Minnesota, LLC
Redeemable
Redeemable
Temporary equity
Temporary equity
Permanent equity
Permanent equity
Recorded value
Carrying value
Redemption value
Carrying value
Carrying value
Consolidated net income is required to be reported separately at amounts attributable to both the parent
and the noncontrolling interest. Additionally, disclosures are required to clearly identify and distinguish
between the interests of the parent company and the interests of the noncontrolling owners, including a
disclosure on the face of the consolidated statements of income attributable to the noncontrolling interest
holder.
See Note 6 for additional information regarding noncontrolling interests.
62
2. Significant Accounting Policies (continued)
Foreign Currency Translation
The local currency is the functional currency for our subsidiaries located in the United Kingdom, Mexico
and China. Revenues and expenses are translated into U.S. dollars using monthly average exchange rates,
while assets and liabilities are translated using year-end exchange rates. The resulting translation
adjustments are included as a component of AOCI net of income taxes.
Recent Accounting Pronouncements
Income Taxes
In November 2015, the Financial Accounting Standards Board (“FASB”) issued “Income Taxes (Topic
740): Balance Sheet Classification of Deferred Taxes” (Accounting Standards Update (“ASU” 2015-17).
ASU 2015-17 requires the Company to classify deferred tax assets and liabilities as noncurrent amounts
in the consolidated balance sheets. Such amounts were previously required to be classified as current and
noncurrent assets and liabilities. The Company is required to adopt the provisions of ASU 2015-17 for
fiscal 2017; however, the Company elected to retrospectively adopt the provisions for fiscal 2015, as
allowed, and reclassified all previously reported current amounts as long-term. The consolidated balance
sheet at December 28, 2014 includes a reclassification of $8.2 million from the previously reported
current deferred income tax asset to a long-term deferred income tax liability.
Deferred Debt Issuance Costs
In April 2015, the FASB issued “Interest – Imputation of Interest: Simplifying the Presentation of Debt
Issuance Costs” (ASU 2015-03). This update will require the Company to report deferred debt issuance
costs as a reduction to long-term debt in the consolidated balance sheets. The Company currently reports
these costs, which approximate $900,000 in 2015 and $1.2 million in 2014 as other noncurrent assets in
the consolidated balance sheets. The Company will adopt ASU 2015-03 beginning in fiscal 2016 for all
retrospective periods, as required.
Revenue from Contract with Customers
In May 2014, the FASB issued “Revenue from Contracts with Customers” (ASU 2014-09), a
comprehensive new revenue recognition standard that will supersede nearly all existing revenue
recognition guidance under GAAP. This update requires companies to recognize revenue at amounts that
reflect the consideration to which the company expects to be entitled in exchange for those goods or
services at the time of transfer. In doing so, companies will need to use more judgment and make more
estimates than under today’s guidance. Such estimates may include identifying performance obligations
in the contract, estimating the amount of variable consideration to include in the transaction price and
allocating the transaction price to each separate performance obligation. Companies can either apply a full
retrospective adoption or a modified retrospective adoption.
We are required to adopt the new requirements in the first quarter of 2018. We are currently evaluating
the method of adoption and impact of the new requirements on our consolidated financial statements. We
currently do not believe the impact will be significant.
63
2. Significant Accounting Policies (continued)
Reclassification
Certain prior year amounts within cash flows provided by operating activities in the consolidated
statements of cash flows have been reclassified to conform to the current year presentation.
3. Stockholders’ Equity
Shares Authorized and Outstanding
The Company has authorized 5.0 million shares of preferred stock and 100.0 million shares of common
stock. The Company’s outstanding shares of common stock, net of repurchased common stock, were 38.4
million shares at December 27, 2015 and 39.8 million shares at December 28, 2014. There were no shares
of preferred stock issued or outstanding at December 27, 2015 and December 28, 2014.
Two-for-one Stock Split and Treasury Retirement
On October 29, 2013, our Board of Directors approved a two-for-one stock split of our outstanding
shares. The stock split was effected in the form of a stock dividend and entitled each shareholder of
record at the close of business on December 12, 2013 to receive one additional share for every
outstanding share of stock held on the record date. The stock dividend was distributed on December 27,
2013 with approximately 21.0 million shares of stock distributed. All per share and share amounts in the
accompanying consolidated financial statements and notes to the financial statements have been adjusted
to reflect the stock split.
In conjunction with the stock split, we retired shares held in treasury as of October 29, 2013, the date of
approval by our Board of Directors.
Share Repurchase Program
Our Board of Directors has authorized the repurchase of up to $1.525 billion of common stock under a
share repurchase program that began on December 9, 1999 and expires on February 28, 2017, including
$125 million authorized in October 2015 and $75 million authorized in February 2016. Funding for the
share repurchase program has been provided through a credit facility, operating cash flow, stock option
exercises and cash and cash equivalents.
We repurchased 1.8 million, 2.6 million and 3.5 million shares of our common stock for $119.8 million,
$117.4 million and $118.6 million in 2015, 2014, and 2013, respectively.
Subsequent to year end through February 16, 2016, the Company acquired an additional 860,000 shares at
an aggregate cost of $42.6 million. As of February 16, 2016, $167.1 million was available for repurchase
of common stock under this authorization.
Cash Dividend
The Company initiated quarterly cash dividends to its shareholders during 2013. The Company paid
dividends of $24.8 million in 2015, $21.7 million in 2014 and $10.8 million in 2013. Subsequent to fiscal
2016, our Board of Directors declared a first quarter 2016 cash dividend of $0.175 per share, or
approximately $6.6 million. The dividend was paid on February 19, 2016 to shareholders of record as of
the close of business on February 8, 2016.
64
4. Earnings per Share
We compute earnings per share using the two-class method. The two-class method requires an earnings
allocation formula that determines earnings per share for common shareholders and participating security
holders according to dividends declared and participating rights in undistributed earnings. We consider
time-based restricted stock awards to be participating securities because holders of such shares have non-
forfeitable dividend rights. Under the two-class method, undistributed earnings allocated to participating
securities are subtracted from net income attributable to the Company in determining net income
attributable to common shareholders.
Additionally, in accordance with Accounting Standards Codification (“ASC”) 480, Distinguishing
Liabilities from Equity, the increase in the redemption value for the noncontrolling interest of PJ Denver,
LLC reduces income attributable to common shareholders.
Basic earnings per common share are computed by dividing net income attributable to common
shareholders by the weighted-average common shares outstanding. Diluted earnings per common share
are computed by dividing the net income attributable to common shareholders by the diluted weighted
average common shares outstanding. Diluted weighted average common shares outstanding consists of
basic weighted average common shares outstanding plus weighted average awards outstanding under our
equity compensation plans, which are dilutive securities.
The calculations of basic earnings per common share and diluted earnings per common share for the years
ended December 27, 2015, December 28, 2014 and December 29, 2013 are as follows (in thousands,
except per share data):
2015
2014
2013
Basic earnings per common share:
Net income attributable to the Company
Decrease (increase) in noncontrolling interest redemption value
Net income attributable to participating securities
Net income attributable to common shareholders
$
$
$
75,682
65
(325)
75,422
73,315
(44)
(402)
72,869
69,537
(510)
(530)
68,497
$
$
$
Weighted average common shares outstanding
Basic earnings per common share
39,458
1.91
$
40,960
1.78
$
43,387
1.58
$
Diluted earnings per common share:
Net income attributable to common shareholders
Weighted average common shares outstanding
Dilutive effect of outstanding equity awards
Diluted weighted average common shares outstanding
Diluted earnings per common share
$
75,422
$
72,869
$
68,497
39,458
542
40,000
1.89
$
40,960
758
41,718
1.75
$
43,387
856
44,243
1.55
$
Shares subject to options to purchase common stock with an exercise price greater than the average
market price for the year were not included in the computation of diluted earnings per common share
because the effect would have been antidilutive. The weighted average number of shares subject to
antidilutive options was 251,000 in 2015, 226,000 in 2014 and 129,000 in 2013.
65
4. Earnings per Share (continued)
See Note 6 for additional information regarding our noncontrolling interests and Note 18 for equity
awards, including restricted stock.
5. Fair Value Measurements and Disclosures
We are required to determine the fair value of financial assets and liabilities based on the price that would
be received to sell the asset or paid to transfer the liability to a market participant. Fair value is a market-
based measurement, not an entity specific measurement. The fair value of certain assets and liabilities
approximates carrying value because of the short-term nature of the accounts, including cash, accounts
receivable and accounts payable. The carrying value of our notes receivable net of allowances also
approximates fair value. The fair value of the amount outstanding under our revolving credit facility
approximates its carrying value due to its variable market-based interest rate. These assets and liabilities
are categorized as Level 1 as defined below.
Certain assets and liabilities are measured at fair value on a recurring basis and are required to be
classified and disclosed in one of the following categories:
• Level 1: Quoted market prices in active markets for identical assets or liabilities.
• Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market
data.
• Level 3: Unobservable inputs that are not corroborated by market data.
Our financial assets and liabilities that were measured at fair value on a recurring basis as of December
27, 2015 and December 28, 2014 are as follows (in thousands):
Carrying
Value
Fair Value Measurements
Level 2
Level 1
Level 3
December 27, 2015
Financial assets:
Cash surrender value of life insurance policies (a)
Financial liabilities:
Interest rate swaps (b)
December 28, 2014
Financial assets:
Cash surrender value of life insurance policies (a)
Financial liabilities:
Interest rate swap (b)
$
17,916
$
17,916
$
-
$
-
2,262
-
2,262
-
$
18,238
$
18,238
$
-
$
-
376
-
376
-
(a) Represents life insurance policies held in our non-qualified deferred compensation plan.
(b) The fair value of our interest rate swaps are based on the sum of all future net present value cash
flows. The future cash flows are derived based on the terms of our interest rate swaps, as well as
considering published discount factors, and projected London Interbank Offered Rates (“LIBOR”).
There were no transfers among levels within the fair value hierarchy during fiscal 2015 or 2014.
66
6. Noncontrolling Interests
Papa John’s has joint ventures in which there are noncontrolling interests, consisting of the following as
of December 27, 2015, December 28, 2014 and December 29, 2013:
Number of
Restaurants
Restaurant
Locations
Papa John's
Ownership
Noncontrolling
Interest
Ownership
December 27, 2015
Star Papa, LP
Colonel's Limited, LLC
PJ Minnesota, LLC
PJ Denver, LLC
December 28, 2014
Star Papa, LP
Colonel's Limited, LLC
PJ Minnesota, LLC
PJ Denver, LLC
December 29, 2013
Star Papa, LP
Colonel's Limited, LLC
PJ Minnesota, LLC
PJ Denver, LLC
87
61
33
32
84
56
35
25
81
52
33
25
Texas
Maryland and Virginia
Minnesota
Colorado
Texas
Maryland and Virginia
Minnesota
Colorado
Texas
Maryland and Virginia
Minnesota
Colorado
51%
70%
70%
60%
51%
70%
70%
60%
51%
70%
80%
60%
49%
30%
30%
40%
49%
30%
30%
40%
49%
30%
20%
40%
The noncontrolling interest holder’s ownership in PJ Minnesota, LLC increased from 20% to 30% in
2014 upon exercise of an option to acquire an additional 10% interest in the joint venture from the
Company.
The income before income taxes attributable to these joint ventures for the years ended December 27,
2015, December 28, 2014 and December 29, 2013 were as follows (in thousands):
2015
2014
2013
Papa John's International, Inc.
Noncontrolling interests
Total income before income taxes
$
9,725
6,282
16,007
$
$
6,932
4,382
11,314
$
$
$
5,121
3,442
8,563
The noncontrolling interests of our Colonel’s Limited, LLC and PJ Minnesota, LLC joint ventures are
recorded at carrying value in “Stockholders’ equity” in the consolidated balance sheets at both December
27, 2015 and December 28, 2014, as the noncontrolling interest holders’ agreements had no redemption
features.
67
6. Noncontrolling Interests (continued)
The noncontrolling interest holders of two joint ventures have the option to require the Company to
purchase their interests. Since redemption of the noncontrolling interests is outside of the Company’s
control, the noncontrolling interests are presented in the caption “Redeemable noncontrolling interests” in
the consolidated balance sheets and include the following joint ventures:
• The Star Papa, LP agreement contains a redemption feature that is not currently redeemable, but
it is probable to become redeemable in the future. Due to specific valuation provisions contained
in the agreement, this noncontrolling interest has been recorded at its carrying value.
• The PJ Denver, LLC agreement contains a redemption feature that is currently redeemable and,
therefore, this noncontrolling interest has been recorded at its current redemption value. The
change in redemption value is recorded as an adjustment to “Redeemable noncontrolling
interests” and “Retained earnings” in the consolidated balance sheets.
The following summarizes changes in our redeemable noncontrolling interests in 2015 and 2014 (in
thousands):
$
7,024
2,487
(1,000)
44
8,555
3,873
(4,000)
(65)
8,363
$
Balance at December 29, 2013
Net income
Distributions to redeemable noncontrolling interest holders
Change in redemption value
Balance at December 28, 2014
Net income
Distributions to redeemable noncontrolling interest holders
Change in redemption value
Balance at December 27, 2015
68
7. Acquisitions and Divestitures
Acquisitions
We acquired restaurants from our domestic franchisees in 2015 and 2014 (none in 2013), which are
summarized as follows:
Number of restaurants acquired
7
13
2015
2014
Location of restaurants acquired
North Carolina,
Missouri and
Colorado
Georgia,
North Carolina,
Illinois and
Texas
Purchase price (in thousands):
Cash payment
Cancellation of accounts and notes receivable
Total purchase price
922
$
-
$
922
$
$
Fair value allocation of purchase price (in thousands):
Property and equipment
Reacquired franchise right
Goodwill
Other, including cash
Total purchase price
$
$
648
113
152
9
922
$
$
4,773
412
5,185
555
844
3,661
125
5,185
The restaurant acquisitions described above were accounted for by the purchase method of accounting,
whereby operating results subsequent to the acquisition date are included in our consolidated financial
results. The excess of the purchase price over the aggregate fair value of net assets acquired was allocated
to goodwill for the Domestic Company-owned restaurants segment and is eligible for deduction over 15
years under U.S. tax regulations.
On January 25, 2016, the Company purchased 19 domestic franchised Papa John’s restaurants in
Alabama and Florida for approximately $11.0 million.
Planned Divestiture
In September 2015, the Company decided to refranchise the China Company-owned market and is
planning a sale of its existing China operations, consisting of 45 Company-owned restaurants and a
commissary. We expect to sell the business during 2016; upon completion of the sale, the Company will
not have any Company-owned international restaurants. We have classified the assets as held for sale
within the consolidated balance sheet. Upon the classification of these assets to held for sale, no loss was
recognized as their fair value exceeded their carrying value.
69
7. Acquisitions and Divestitures (continued)
The following summarizes the associated assets that are classified as held for sale (in thousands):
December 27,
2015
Inventories
Prepaid expenses
Net property and equipment
Goodwill
Other assets
Total assets held for sale
$
667
672
5,571
1,690
699
9,299
$
The Company-owned China operations have incurred losses before income taxes of $1.2 million in 2015,
$3.4 million in 2014, and $2.7 million in 2013. The loss in 2014 includes an impairment and disposition
charge of $1.0 million for eleven Company-owned restaurants in China. These results are reported in our
International segment.
8. Goodwill
The following summarizes changes to the Company’s goodwill, by reporting segment (in thousands):
Domestic
Company-
owned
Restaurants
International (a)
$
$
All
Others
436
$
-
-
-
436
-
-
-
$
436
Total
$
79,391
3,661
(47)
(998)
82,007
135
(1,690)
(795)
79,657
20,388
-
(47)
(998)
19,343
-
(1,690)
(795)
16,858
Balance as of December 29, 2013
Acquisitions (b)
Divestitures (c)
Foreign currency adjustments
Balance as of December 28, 2014
Acquisitions (d)
Reclassification to assets held for sale (e)
Foreign currency adjustments
Balance as of December 27, 2015
58,567
3,661
-
-
62,228
135
-
-
62,363
$
$
$
(a) The international goodwill balances for all years presented are net of accumulated impairment of $2.3
million associated with our PJUK reporting unit, which was recorded in fiscal 2008.
(b) Includes 13 restaurants located in four domestic markets.
(c) Includes four restaurants located in the China market.
(d) Primarily includes seven restaurants located in three domestic markets.
(e) Represents goodwill associated with the Company-owned China market. The goodwill was
reclassified to assets held for sale as we expect to sell the business in 2016. See Note 7 for additional
information.
70
8. Goodwill (continued)
For fiscal year 2015, we performed a qualitative analysis for our domestic Company-owned restaurants
and our PJUK reporting unit and a quantitative analysis for our China reporting unit. For fiscal year 2014,
we performed a quantitative analysis on each reporting unit. For fiscal year 2013, we performed a
qualitative analysis for our domestic Company-owned restaurants and our China reporting unit and a
quantitative analysis for our PJUK reporting unit. No impairment charges were recorded upon the
completion of our goodwill impairment tests in 2013, 2014 and 2015.
9. Debt and Credit Arrangements
Our debt is comprised entirely of an unsecured revolving credit facility (“Credit Facility”). The
outstanding balance was $256.0 million as of December 27, 2015 and $230.5 million as of December 28,
2014.
On October 31, 2014, we amended our Credit Facility to increase the amount available from $300 million
to $400 million and to extend the maturity date from April 30, 2018 to October 31, 2019. Additionally,
we have the option to increase the Credit Facility an additional $100 million. The interest rate charged on
outstanding balances is LIBOR plus 75 to 175 basis points. The commitment fee on the unused balance
ranges from 15 to 25 basis points. The remaining availability under the Credit Facility, reduced for
outstanding letters of credit, was approximately $120.2 million as of December 27, 2015.
The Credit Facility contains customary affirmative and negative covenants, including financial covenants
requiring the maintenance of specified fixed charges and leverage ratios. At December 27, 2015, we were
in compliance with these covenants.
We use interest rate swaps to hedge against the effects of potential interest rate increases on borrowings
under our Credit Facility. In 2015, we executed three additional forward starting swaps for $125.0 million
that become effective in 2018 upon expiration of the two existing swaps for $125.0 million. As of
December 27, 2015, we have the following interest rate swap agreements:
Effective Dates
Debt Amount
July 30, 2013 through April 30, 2018
December 30, 2014 through April 30, 2018
April 30, 2018 through April 30, 2023
April 30, 2018 through April 30, 2023
April 30, 2018 through April 30, 2023
$75 million
$50 million
$55 million
$35 million
$35 million
Fixed
Rates
1.42%
1.36%
2.33%
2.36%
2.34%
Our swaps are derivative instruments that are designated as cash flow hedges because the swaps provide a
hedge against the effects of rising interest rates on borrowings. The newly executed forward starting
swaps are also deemed cash flow hedges based on our intent to replace the existing facility that matures in
2019 with new variable rate debt. The swaps are highly effective cash flow hedges with no
ineffectiveness for all periods presented. The newly executed forward starting swaps are deemed effective
given the probability of future forecasted interest payments.
71
9. Debt and Credit Arrangements (continued)
The effective portion of the gain or loss on the swaps is reported as a component of AOCI and reclassified
into earnings in the same period or periods during which the swaps affect earnings. Gains or losses on the
swaps representing either hedge ineffectiveness or hedge components excluded from the assessment of
effectiveness are recognized in current earnings. Amounts payable or receivable under the swaps are
accounted for as adjustments to interest expense.
The following table provides information on the location and amounts of our swaps in the accompanying
consolidated financial statements (in thousands):
Liability Derivatives
Balance Sheet Location
Fair Value
December 27,
2015
Fair Value
December 28,
2014
Interest rate swaps
Other current and long-term liabilities
$
2,262
$
376
There were no derivatives that were not designated as hedging instruments.
The effect of derivative instruments on the accompanying consolidated financial statements is as follows
(in thousands):
Amount of Gain
or (Loss)
Recognized in
AOCI on
Derivative
(Effective
Portion)
Location of Gain
or (Loss)
Reclassified
from AOCI into
Income
(Effective
Portion)
Amount of Gain
or (Loss)
Reclassified
from AOCI into
Income
(Effective
Portion)
Derivatives -
Cash Flow
Hedging
Relationships
Interest rate swaps:
Location of Gain or
(Loss) Recognized
in Income on
Derivative
(Ineffective Portion
and Amount
Excluded from
Effectiveness
Testing)
Amount of Gain
or (Loss)
Recognized in
Income on
Derivative
(Ineffective
Portion and
Amount Excluded
from
Effectiveness
Testing)
2015
2014
2013
$
$
$
(1,163)
(164)
(32)
Interest expense
Interest expense
Interest expense
$
$
$
(1,563)
(996)
(501)
Interest expense
Interest expense
Interest expense
$
-
$
-
$
-
The weighted average interest rates for the Credit Facility, including the impact of the previously
mentioned swap agreements, were 2.0%, 1.7% and 1.4% in fiscal 2015, 2014 and 2013, respectively.
Interest paid, including payments made or received under the swaps, was $5.3 million in 2015, $3.7
million in 2014 and $2.0 million in 2013. As of December 27, 2015, the portion of the $2.3 million
liability associated with the interest rate swap that would be reclassified into earnings during the next 12
months as interest expense approximates $470,000.
72
10. Net Property and Equipment
Net property and equipment consists of the following (in thousands):
Land
Buildings and improvements
Leasehold improvements
Equipment and other
Construction in progress
Total property and equipment
Accumulated depreciation and amortization
Net property and equipment
11. Notes Receivable
December 27,
2015
$
December 28,
2014
$
32,795
87,010
110,903
333,884
10,970
575,562
(361,518)
214,044
32,880
86,892
110,323
320,480
6,466
557,041
(337,584)
219,457
$
$
Selected franchisees have borrowed funds from the Company, principally for use in the construction and
development of their restaurants. We have also entered into loan agreements with certain franchisees that
purchased restaurants from us or from other franchisees. Loans outstanding were approximately $18.9
million on a consolidated basis as of December 27, 2015 and December 28, 2014, net of allowance for
doubtful accounts.
Notes receivable bear interest at fixed or floating rates and are generally secured by the assets of each
restaurant and the ownership interests in the franchisee. The carrying amounts of the loans approximate
fair value. Interest income recorded on franchisee loans was approximately $731,000 in 2015, $658,000
in 2014 and $527,000 in 2013 and is reported in investment income in the accompanying consolidated
statements of income.
Based on our review of certain borrowers’ economic performance and underlying collateral value, we
established allowances of $3.7 million and $3.1 million as of December 27, 2015 and December 28, 2014,
respectively, for potentially uncollectible notes receivable. The following summarizes changes in our
notes receivable allowance for doubtful accounts (in thousands):
Balance as of December 29, 2013
Recovered from costs and expenses
Additions, net of notes written off
Balance as of December 28, 2014
Recovered from costs and expenses
Additions, net of notes written off
Balance as of December 27, 2015
$
$
3,387
(502)
247
3,132
(100)
621
3,653
73
12. Insurance Reserves
The following table summarizes changes in our insurance program reserves (in thousands):
Balance as of December 29, 2013
Additions
Payments
Balance as of December 28, 2014
Additions
Payments
Balance as of December 27, 2015
$
19,465
33,926
(27,980)
25,411
39,272
(34,133)
30,550
$
We are a party to standby letters of credit with off-balance sheet risk associated with our insurance
programs. The total amount committed under letters of credit for these programs was $23.7 million at
December 27, 2015.
13. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consist of the following (in thousands):
Salaries, benefits and bonuses
Legal costs*
Insurance reserves, current
Purchases
Deposits
Customer loyalty program
Marketing
Rent
Utilities
Consulting and professional fees
Other
Total
December 27,
2015
$
December 28,
2014
$
24,124
13,163
13,382
10,504
2,953
2,734
1,977
1,940
1,621
1,324
7,196
80,918
19,427
995
11,149
8,132
4,120
2,357
1,543
1,626
1,399
2,226
5,319
58,293
$
$
* Includes a $12.3 million legal settlement in 2015 (See Note 17).
74
14. Other Long-term Liabilities
Other long-term liabilities consist of the following (in thousands):
December 27,
2015
December 28,
2014
Deferred compensation plan
Insurance reserves
Accrued rent
Other
Total
15. Income Taxes
$
$
18,483
17,168
5,216
6,739
47,606
17,599
14,262
5,387
4,627
41,875
$
$
A summary of the provision for income taxes follows (in thousands):
2015
2014
2013
Current:
Federal
Foreign
State and local
Deferred (federal and state)
Total
$
$
$
36,077
4,183
3,169
(6,246)
37,183
26,919
2,368
2,849
4,422
36,558
$
$
$
24,231
1,974
1,077
5,848
33,130
Significant deferred tax assets (liabilities) follow (in thousands):
Accrued liabilities
Accrued bonuses
Other assets and liabilities
Equity awards
Other
Foreign net operating losses
Valuation allowance on foreign net operating
and capital losses and foreign deferred tax assets
Total deferred tax assets
Deferred expenses
Accelerated depreciation
Goodwill
Other
Total deferred tax liabilities
Net deferred (liability) asset
December 27,
2015
December 28,
2014
$
19,277
4,621
11,488
6,866
3,662
4,769
$
12,319
3,624
11,109
6,494
3,730
6,322
(2,866)
47,817
(2,932)
40,666
(6,861)
(21,434)
(16,752)
(4,965)
(50,012)
(2,195)
$
(6,141)
(21,425)
(15,725)
(7,401)
(50,692)
(10,026)
$
75
15. Income Taxes (continued)
The Company had approximately $21.9 million and $29.7 million of foreign tax net operating loss
carryovers as of December 27, 2015 and December 28, 2014, respectively. The Company had
approximately $2.9 million of a valuation allowance primarily related to these foreign net operating losses
as of December 27, 2015 and December 28, 2014. The net change in the total valuation allowance was a
decrease of $66,000 in 2015. A substantial majority of our foreign tax net operating losses do not have an
expiration date.
The reconciliation of income tax computed at the U.S. federal statutory rate to income tax expense for the
years ended December 27, 2015, December 28, 2014 and December 29, 2013 is as follows in both dollars
and as a percentage of income before income taxes ($ in thousands):
2015
2014
2013
Income Tax
Expense
Income
Tax Rate
Income Tax
Expense
Income
Tax Rate
Income Tax
Expense
Income
Tax Rate
Tax at U.S. federal statutory rate
State and local income taxes
Foreign income taxes
Income of consolidated partnerships
attributable to noncontrolling interests
Non-qualified deferred compensation
plan (income) loss
Tax credits
Other
Total
$
41,702
2,106
2,432
35.0%
1.8%
2.0%
$
39,989
1,896
2,368
35.0%
1.7%
2.1%
$
37,138
1,820
1,974
35.0%
1.7%
1.9%
(2,311)
(1.9%)
(1,608)
(1.4%)
(1,263)
(1.2%)
218
(4,846)
(2,118)
37,183
$
0.2%
(4.1%)
(1.8%)
31.2%
(171)
(3,906)
(2,010)
36,558
$
(0.2%)
(3.4%)
(1.8%)
32.0%
(599)
(3,161)
(2,779)
33,130
$
(0.6%)
(3.0%)
(2.6%)
31.2%
Income taxes paid were $23.3 million in 2015, $27.0 million in 2014 and $29.3 million in 2013.
The Company files income tax returns in the U.S. federal jurisdiction and various states and foreign
jurisdictions. The Company, with few exceptions, is no longer subject to U.S. federal, state and local, or
non-U.S. income tax examinations by tax authorities for years before 2011. The Company is currently
undergoing examinations by various tax authorities. The Company anticipates that the finalization of
these current examinations and other issues could result in a decrease in the liability for unrecognized tax
benefits (and a decrease of income tax expense) of approximately $550,000 during the next 12 months.
76
15. Income Taxes (continued)
The Company had $3.7 million of unrecognized tax benefits at December 27, 2015 of which, if
recognized, would affect the effective tax rate. A reconciliation of the beginning and ending liability for
unrecognized tax benefits excluding interest and penalties is as follows (in thousands):
Balance at December 29, 2013
Additions for tax positions of prior years
Reductions for lapse of statute of limitations
Balance at December 28, 2014
Additions for tax positions of current year
Additions for tax positions of prior years
Reductions for lapse of statute of limitations
Balance at December 27, 2015
$
2,661
1,167
(1,015)
2,813
344
1,303
(775)
3,685
$
The Company recognizes accrued interest and penalties related to unrecognized tax benefits as a part of
income tax expense. The Company’s 2015 and 2014 income tax expense includes interest benefits of
$141,000 and $35,000, respectively. The Company has accrued approximately $536,000 and $674,000 for
the payment of interest and penalties as of December 27, 2015 and December 28, 2014, respectively.
16. Related Party Transactions
Certain of our officers own equity interests in entities that franchise restaurants. Following is a summary
of full-year transactions and year-end balances with franchisees owned by related parties and PJMF (in
thousands):
2015
2014
2013
Revenues from affiliates:
Commissary sales
Other sales
Franchise royalties
Total
$
$
$
2,298
432
394
3,124
2,679
482
385
3,546
2,426
482
351
3,259
$
$
$
December 27,
2015
December 28,
2014
Accounts receivable - affiliates
$
157
$
114
Accounts payable - affiliates
$
-
$
249
The revenues from affiliates were at rates and terms available to independent franchisees.
We paid $653,000 in 2015, $770,000 in 2014 and $1.1 million in 2013 for charter aircraft services
provided by an entity owned by our Founder, Chairman and Chief Executive Officer.
On November 12, 2013, we repurchased $38.6 million of our common stock (1.0 million shares at the
closing price of $38.61 per share) from our Founder, Chairman and Chief Executive Officer.
77
16. Related Party Transactions (continued)
We had the following transactions with PJMF:
• PJMF reimbursed Papa John’s $841,000, $634,000 and $2.2 million in 2015, 2014, and 2013,
respectively, for certain costs associated with national pizza giveaways awarded to our online
loyalty program customers.
• PJMF reimbursed Papa John’s $1.4 million, $1.2 million, and $782,000 in 2015, 2014, and 2013,
respectively, for certain administrative services (i.e., marketing, accounting, and information
services), graphic design services, services and expenses of our founder as brand spokesman, and
for software maintenance fees.
17. Litigation, 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 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.
Perrin v. Papa John’s International, Inc. and Papa John’s USA, Inc. is a conditionally certified collective
and class action filed in August 2009 in the United States District Court, Eastern District of Missouri
(“the Court”), alleging that delivery drivers were not properly reimbursed for mileage and expenses in
accordance with the Fair Labor Standards Act (“FLSA”). Approximately 3,900 drivers out of a potential
class size of 28,800 opted into the action. In December 2013, the Court granted a motion for class
certification in five additional states, which added approximately 15,000 plaintiffs to the case. The parties
reached a settlement in principle, which was preliminarily approved by the Court in September 2015.
With the preliminary settlement agreement, the Company recorded a pre-tax expense of $12.3 million in
June 2015 under the provisions of ASC 450, Contingencies. This amount is separately reported as Legal
settlement expense in the consolidated statements of income. The Court issued its final order approving
the settlement on January 12, 2016, with no changes to the previously recorded expense. The Company
then remitted funds to the administrator for the payment of claims and plaintiffs’ attorney fees. The
Company continues to deny any wrongdoing in this matter.
Leases
We lease office, retail and commissary space under operating leases, which have an average term of five
years and provide for at least one renewal. Certain leases further provide that the lease payments may be
increased annually based on the fixed rate terms or adjustable terms such as the Consumer Price Index.
PJUK, our subsidiary located in the United Kingdom, leases certain retail space, which is primarily
subleased to our franchisees. We also lease the tractors and trailers used by our distribution subsidiary,
PJFS, for an average period of seven years. Total lease expense was $36.2 million in 2015, $34.7 million
in 2014 and $33.2 million in 2013, net of sublease payments received.
We subleased certain sites to our franchisees and other third parties in 2015, 2014 and 2013 and received
payments of $6.5 million, $6.7 million and $4.9 million, respectively, which are netted against the
corresponding expense.
78
17. Litigation, Commitments and Contingencies (continued)
Future gross lease costs, future expected sublease payments and net lease costs as of December 27, 2015,
are as follows (in thousands):
Gross Lease
Costs
Future
Expected
Sublease
Payments
Net Lease
Costs
$
$
$
41,710
37,672
32,153
25,079
17,134
54,532
208,280
6,457
6,169
6,044
5,852
5,524
33,450
63,496
35,253
31,503
26,109
19,227
11,610
21,082
144,784
$
$
$
Year
2016
2017
2018
2019
2020
Thereafter
Total
The Company’s headquarters facility is leased under a capital lease arrangement with the City of
Jeffersontown, Kentucky in connection with the issuance of $80.2 million in Industrial Revenue Bonds.
The bonds are held 100% by the Company and, accordingly, the bond obligation and investment and
related interest income and expense are eliminated in the consolidated financial statements resulting in the
Company’s net investment cost being reported in net property and equipment.
18. Equity Compensation
We award stock options, time-based restricted stock and performance-based restricted stock units from
time to time under the Papa John’s International, Inc. 2011 Omnibus Incentive Plan.
There are approximately 7.0 million shares of common stock authorized for issuance and remaining
available under the 2011 Omnibus Incentive Plan as of December 27, 2015. Option awards are granted
with an exercise price equal to the market price of the Company’s stock at the date of grant. Options
outstanding as of December 27, 2015 generally expire five or ten years from the date of grant and vest
over a three-year period.
We recorded stock-based employee compensation expense of $9.4 million in 2015, $8.7 million in 2014
and $7.4 million in 2013. The total income tax benefit recognized in the consolidated income statement
for share-based compensation arrangements was $3.5 million in 2015, $3.2 million in 2014 and $2.7
million in 2013. At December 27, 2015, there was $7.8 million of unrecognized compensation cost
related to nonvested option awards, time-based restricted stock and performance-based restricted stock
units, of which the Company expects to recognize $5.3 million in 2016, $2.1 million in 2017 and
$330,000 in 2018.
Stock Options
Options exercised, which were issued from authorized shares, included 441,000 shares in 2015, 759,000
shares in 2014 and 697,000 shares in 2013. The total intrinsic value of the options exercised during 2015,
2014 and 2013 was $20.3 million, $25.3 million and $13.1 million, respectively. Cash received upon the
exercise of stock options was $5.2 million, $5.8 million and $6.9 million during 2015, 2014 and 2013,
respectively, and the related tax benefits realized were approximately $7.5 million, $9.4 million and $4.8
million during the corresponding periods.
79
18. Equity Compensation (continued)
Information pertaining to option activity during 2015 is as follows (number of options and aggregate
intrinsic value in thousands):
Weighted
Average
Weighted Remaining
Outstanding at December 28, 2014
Granted
Exercised
Cancelled
Outstanding at December 27, 2015
Exercisable at December 27, 2015
Number Average Contractual Aggregate
Intrinsic
Value
Term
(In Years)
of
Options
1,564
330
(441)
(34)
1,419
817
Exercise
Price
$24.52
64.51
18.18
53.21
$35.10
$21.77
6.28
4.61
$31,521
$27,429
The following is a summary of the significant assumptions used in estimating the fair value of options
granted in 2015, 2014 and 2013:
Assumptions (weighted average):
Risk-free interest rate
Expected dividend yield
Expected volatility
Expected term (in years)
2015
2014
2013
1.6%
0.9%
28.5%
5.5
1.8%
1.0%
35.7%
6.0
1.1%
0.1%
37.5%
6.0
The risk-free interest rate for the periods within the contractual life of an option is based on the U.S.
Treasury yield curve in effect at the time of grant. The expected dividend yield was estimated as the
annual dividend divided by the market price of the Company’s shares on the date of grant. Expected
volatility was estimated by using the Company’s historical share price volatility for a period similar to the
expected life of the option.
Options granted generally vest in equal installments over three years and expire five or ten years after
grant. The expected term for these options represents the period of time that options granted are expected
to be outstanding. The expected term for 2015 was calculated using historical experience and the expected
term for 2014 and 2013 was calculated using the simplified method prescribed by Securities and
Exchange Commission rules and regulations because the expiration term of our options increased from
five to ten years and there was insufficient historical detail to be used to estimate the expected term.
The weighted average grant-date fair values of options granted during 2015, 2014 and 2013 was $16.93,
$16.48 and $9.87, respectively. The Company granted options to purchase 330,000, 293,000 and 498,000
shares in 2015, 2014 and 2013, respectively.
80
18. Equity Compensation (continued)
Restricted Stock and Restricted Stock Units
We granted shares of restricted stock that are time-based and generally vest in equal installments over
three years (76,000 in 2015, 89,000 in 2014 and 157,000 in 2013). Upon vesting, the shares are issued
from treasury stock. These restricted shares are intended to focus participants on our long-range
objectives, while at the same time serving as a retention mechanism. We consider time-based restricted
stock awards to be participating securities because holders of such shares have non-forfeitable dividend
rights. We declared dividends totaling $110,000 ($0.63 per share) in 2015, $128,000 ($0.53 per share) in
2014 and $86,000 ($0.25 per share) in 2013 to holders of time-based restricted stock.
Additionally, we granted stock settled performance-based restricted stock units to executive management
(12,000 in 2015, 17,000 in 2014, and 3,000 in 2013). The vesting of these awards (a three-year cliff vest)
is dependent upon the Company’s achievement of a compounded annual growth rate of earnings per share
and the achievement of certain sales and unit growth metrics. Upon vesting, the shares are issued from
authorized shares.
The fair value of both time-based restricted stock and performance-based restricted stock units is based on
the market price of the Company’s shares on the grant date. Information pertaining to these awards during
2015 is as follows (shares in thousands):
Total as of December 28, 2014
Granted
Incremental Performance Shares*
Forfeited
Vested
Total as of December 27, 2015
Weighted
Average
Grant-Date
Fair Value
31.81
64.44
18.78
52.10
24.43
51.21
$
Shares
286
88
70
(13)
(247)
184
*Additional shares from the 2012 performance-based restricted stock unit grant due to exceeding the
initial 100% target resulting in a 207% payout.
19. Employee Benefit Plans
We have established the Papa John’s International, Inc. 401(k) Plan (the “401(k) Plan”), as a defined
contribution benefit plan, in accordance with Section 401(k) of the Internal Revenue Code. The 401(k)
Plan is open to employees who meet certain eligibility requirements and allows participating employees
to defer receipt of a portion of their compensation and contribute such amount to one or more investment
funds. At our discretion, we may make matching contribution payments, which are subject to vesting
based on an employee’s length of service with us.
In addition, we maintain a non-qualified deferred compensation plan available to certain employees and
directors. Under this plan, the participants may defer a certain amount of their compensation, which is
credited to the participants’ accounts. The participant-directed investments associated with this plan are
included in other long-term assets ($17.9 million and $18.2 million at December 27, 2015 and December
28, 2014, respectively) and the associated liabilities ($18.5 million and $17.6 million at December 27,
2015 and December 28, 2014, respectively) are included in other long-term liabilities in the
accompanying consolidated balance sheets.
81
19. Employee Benefit Plans (continued)
At our discretion, we contributed a matching payment of 3%, up to a maximum of 6% deferred, in 2015
and contributed 1.5%, up to a maximum of 6% deferred, in 2014 and 2013 of a participating employee’s
earnings deferred into both the 401(k) Plan and the non-qualified deferred compensation plan. Such costs
were $1.5 million in 2015, $734,000 in 2014 and $691,000 in 2013.
20. Segment Information
We have five reportable segments for all years presented: domestic Company-owned restaurants,
domestic commissaries, North America franchising, international operations, and “all other” units. The
domestic Company-owned restaurant segment consists of the operations of all domestic (“domestic” is
defined as contiguous United States) Company-owned restaurants and derives its revenues principally
from retail sales of pizza and side items, including breadsticks, cheesesticks, chicken poppers and wings,
dessert items and canned or bottled beverages. The domestic commissary segment consists of the
operations of our regional dough production and product distribution centers and derives its revenues
principally from the sale and distribution of food and paper products to domestic Company-owned and
franchised restaurants. The North America franchising segment consists of our franchise sales and
support activities and derives its revenues from sales of franchise and development rights and collection
of royalties from our franchisees located in the United States and Canada. The international operations
segment principally consists of our Company-owned restaurants in China and distribution sales to
franchised Papa John’s restaurants located in the United Kingdom, Mexico and China and our franchise
sales and support activities, which derive revenues from sales of franchise and development rights and the
collection of royalties from our international franchisees. International franchisees are defined as all
franchise operations outside of the United States and Canada. All other business units that do not meet the
quantitative thresholds for determining reportable segments, which are not operating segments, we refer
to as our “all other” segment, which consists of operations that derive revenues from the sale, principally
to Company-owned and franchised restaurants, of printing and promotional items, risk management
services, and information systems and related services used in restaurant operations, including our point-
of-sale system, online and other technology-based ordering platforms.
Generally, we evaluate performance and allocate resources based on profit or loss from operations before
income taxes and intercompany eliminations. Certain administrative and capital costs are allocated to
segments based upon predetermined rates or actual estimated resource usage. We account for
intercompany sales or transfers as if the sales or transfers were to third parties and eliminate the activity in
consolidation.
Our reportable segments are business units that provide different products or services. Separate
management of each segment is required because each business unit is subject to different operational
issues and strategies. No single external customer accounted for 10% or more of our consolidated
revenues. The accounting policies of the segments are the same as those described in the summary of
significant accounting policies (see Note 2).
82
20. Segment Information (continued)
Our segment information is as follows:
(In thousands)
2015
2014
2013
Revenues from external customers:
Domestic Company-owned restaurants
Domestic commissaries
North America franchising
International
All others
Total revenues from external customers
Intersegment revenues:
Domestic commissaries
North America franchising
International
All others
Total intersegment revenues
Depreciation and amortization:
Domestic Company-owned restaurants
Domestic commissaries
International
All others
Unallocated corporate expenses
Total depreciation and amortization
Income (loss) before income taxes:
Domestic Company-owned restaurants
Domestic commissaries
North America franchising
International
All others
Unallocated corporate expenses (1)
Elimination of intersegment profits
Total income before income taxes
$
$
$
756,307
615,610
96,056
104,691
64,711
1,637,375
701,854
629,492
90,169
102,455
74,179
1,598,149
$
$
$
635,317
578,870
82,873
88,640
53,322
1,439,022
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
224,067
2,690
292
14,821
241,870
14,841
6,205
2,935
4,829
11,497
40,307
56,452
44,721
83,315
10,891
845
(75,896)
(1,181)
119,147
220,406
2,400
320
22,851
245,977
13,829
6,776
3,903
6,156
9,301
39,965
40,969
39,317
77,009
7,250
(9)
(49,440)
(841)
114,255
191,756
2,222
280
14,197
208,455
13,284
5,690
3,966
5,320
6,845
35,105
34,590
37,804
70,201
2,803
3,490
(41,025)
(1,754)
106,109
$
$
$
(1) Includes a $12.3 million legal settlement expense in 2015. See Note 17 for additional information.
83
20. Segment Information (continued)
(In thousands)
2015
2014
2013
Property and equipment:
Domestic Company-owned restaurants
Domestic commissaries
International
All others
Unallocated corporate assets
Accumulated depreciation and amortization
Net property and equipment
Expenditures for property and equipment:
Domestic Company-owned restaurants
Domestic commissaries
International
All others
Unallocated corporate
Total expenditures for property and equipment
$
$
$
223,246
110,344
14,826
47,481
179,665
(361,518)
214,044
14,631
3,924
4,540
4,701
11,176
38,972
208,488
107,992
25,443
46,013
169,105
(337,584)
219,457
23,475
5,756
1,708
5,906
11,810
48,655
$
$
$
$
$
$
$
$
$
195,526
104,509
27,225
41,064
158,462
(314,689)
212,097
13,149
9,791
3,754
4,689
19,367
50,750
21. Quarterly Data - Unaudited, in Thousands, except Per Share Data
Our quarterly select financial data is as follows:
2015
1st
2nd
3rd
4th
Quarter
Total revenues
Operating income
Net income attributable to the Company (a)
Basic earnings per common share (a)
Diluted earnings per common share (a)
Dividends declared per common share
$
432,284
37,645
22,236
0.56
0.55
0.140
$
$
$
$
398,991
30,996
10,780
0.27
0.27
0.140
$
$
$
$
389,284
27,437
17,971
0.46
0.45
0.175
$
$
$
$
416,816
40,229
24,695
0.63
0.62
0.175
$
$
$
2014
1st
2nd
3rd
4th
Quarter
Total revenues
Operating income
Net income attributable to the Company
Basic earnings per common share
Diluted earnings per common share
Dividends declared per common share
$
401,377
32,002
19,311
0.46
0.45
0.125
$
$
$
$
380,864
26,999
16,748
0.40
0.40
0.125
$
$
$
$
390,399
25,186
16,075
0.39
0.39
0.140
$
$
$
$
425,509
33,443
21,181
0.53
0.52
0.140
$
$
$
(a) The second quarter of 2015 includes an after tax legal settlement expense of $8.0 million and a
negative impact of $0.20 on basic and diluted earnings per share. See Note 17 for additional
information.
All quarterly information is presented in 13-week periods. Quarterly earnings per share on a full-year
basis may not agree to the consolidated statements of income due to rounding.
84
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this report, we carried out an evaluation, under the supervision and
with the participation of our management, including our Chief Executive Officer (“CEO”) and Chief
Financial Officer (“CFO”), of the effectiveness of our disclosure controls and procedures (as defined in
Rules 13a-15(e) and 15d-15(e) of the Exchange Act). Based upon this evaluation, the CEO and CFO
concluded that the Company’s disclosure controls and procedures are effective.
(b) Management’s Report on our Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial
reporting, as such term is defined in Rule 13a-15(f) promulgated under the Exchange Act. Our internal
control system is designed to provide reasonable assurance to our management and the board of directors
regarding the preparation and fair presentation of published financial statements. All internal control
systems, no matter how well designed, have inherent limitations. Therefore, even those systems
determined to be effective can provide only reasonable assurance with respect to financial statement
preparation and presentation.
Under the supervision and with the participation of our management, including our CEO and CFO, we
conducted an evaluation of the effectiveness of our internal control over financial reporting based on the
criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring
Organizations (COSO) of the Treadway Commission (2013 Framework). Based on our evaluation under
the COSO 2013 Framework, our management concluded that our internal control over financial reporting
was effective as of December 27, 2015.
Ernst & Young LLP, an independent registered public accounting firm, has audited the Consolidated
Financial Statements included in this Annual Report on Form 10-K and, as part of its audit, has issued an
attestation report, included herein, on the effectiveness of our internal control over financial reporting.
85
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of Papa John’s International, Inc. and Subsidiaries
We have audited Papa John’s International, Inc. and Subsidiaries’ internal control over financial reporting
as of December 27, 2015, based on criteria established in Internal Control—Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework) (the
COSO criteria). Papa John’s International, Inc. and Subsidiaries’ management is responsible for
maintaining effective internal control over financial reporting, and for its assessment of the effectiveness
of internal control over financial reporting included in the accompanying “Management’s Report on our
Internal Control over Financial Reporting.” Our responsibility is to express an opinion on the company’s
internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether effective internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our
opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles. A company’s internal
control over financial reporting includes those policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the
assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles,
and that receipts and expenditures of the company are being made only in accordance with authorizations
of management and directors of the company; and (3) provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have
a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In our opinion, Papa John’s International, Inc. and Subsidiaries maintained, in all material respects,
effective internal control over financial reporting as of December 27, 2015, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated balance sheets as of December 27, 2015 and December 28, 2014,
and the related consolidated statements of income, comprehensive income, stockholders' equity, and cash
flows for each of the three years in the period ended December 27, 2015 of Papa John’s International, Inc.
and Subsidiaries and our report dated February 23, 2016 expressed an unqualified opinion thereon.
Louisville, Kentucky
February 23, 2016
/s/ Ernst & Young LLP
86
(c) Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended December
27, 2015 that have materially affected, or are likely to materially affect, the Company’s internal control
over financial reporting.
Item 9B. Other Information
None.
Item 10. Directors, Executive Officers and Corporate Governance
PART III
Information regarding executive officers is included above under the caption “Executive Officers of the
Registrant” at the end of Part I of this Report. Other information regarding directors, executive officers
and corporate governance appearing under the captions “Corporate Governance,” “Item 1, Election of
Directors,” “Section 16(a) Beneficial Ownership Reporting Compliance” and “Executive Compensation /
Compensation Discussion and Analysis” is incorporated by reference from the Company’s definitive
proxy statement, which will be filed with the Securities and Exchange Commission no later than 120 days
after the end of the fiscal year covered by this Report.
We have adopted a written code of ethics that applies to our directors, officers and employees. We intend
to post all required disclosures concerning any amendments to or waivers from, our code of ethics on our
website to the extent permitted by NASDAQ. Our code of ethics can be found on our website, which is
located at www.papajohns.com.
Item 11. Executive Compensation
Information regarding executive compensation appearing under the captions “Executive Compensation /
Compensation Discussion and Analysis,” “Compensation Committee Report” and “Certain Relationships
and Related Transactions – Compensation Committee Interlocks and Insider Participation” is
incorporated by reference from the Company’s definitive proxy statement, which will be filed with the
Securities and Exchange Commission no later than 120 days after the end of the fiscal year covered by
this Report.
87
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
The following table provides information as of December 27, 2015 regarding the number of shares of the
Company’s common stock that may be issued under the Company’s equity compensation plans.
(a)
Number of
securities to be
issued upon exercise
of outstanding
options, warrants
and rights
(b)
Weighted
average
exercise price
of outstanding
options, warrants
and rights
(c)
Number of securities
remaining available
for future issuance
under equity
compensation plans,
excluding securities
reflected in column (a)
1,418,539
160,521
1,579,060
$35.10
$35.10
7,027,157
7,027,157
Plan Category
Equity compensation plans
approved by security holders
Equity compensation plans not
approved by security holders *
Total
* Represents shares of common stock issuable pursuant to the non-qualified deferred compensation plan.
The weighted average exercise price (column b) does not include any assumed price for issuance of shares
pursuant to the non-qualified deferred compensation plan.
Information regarding security ownership of certain beneficial owners and management and related
stockholder matters appearing under the caption “Security Ownership of Certain Beneficial Owners and
Management” is incorporated by reference from the Company’s definitive proxy statement, which will be
filed with the Securities and Exchange Commission no later than 120 days after the end of the fiscal year
covered by this Report.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Information regarding certain relationships and related transactions, and director independence appearing
under the captions “Corporate Governance” and “Certain Relationships and Related Transactions” is
incorporated by reference from the Company’s definitive proxy statement, which will be filed with the
Securities and Exchange Commission no later than 120 days after the end of the fiscal year covered by
this Report.
Item 14. Principal Accounting Fees and Services
Information regarding principal accounting fees and services appearing under the caption “Ratification of
the Selection of Independent Auditors” is incorporated by reference from the Company’s definitive proxy
statement, which will be filed with the Securities and Exchange Commission no later than 120 days after
the end of the fiscal year covered by this Report.
88
PART IV
Item 15. Exhibits, Financial Statement Schedules
(a)(1) Financial Statements:
The following consolidated financial statements, notes related thereto and report of independent auditors
are included in Item 8 of this Report:
• Report of Independent Registered Public Accounting Firm
• Consolidated Statements of Income for the years ended December 27, 2015, December 28, 2014
and December 29, 2013
• Consolidated Statements of Comprehensive Income for the years ended December 27, 2015,
December 28, 2014 and December 29, 2013
• Consolidated Balance Sheets as of December 27, 2015 and December 28, 2014
• Consolidated Statements of Stockholders’ Equity for the years ended December 27, 2015,
December 28, 2014 and December 29, 2013
• Consolidated Statements of Cash Flows for the years ended December 27, 2015, December 28,
2014 and December 29, 2013
• Notes to Consolidated Financial Statements
89
(a)(2) Financial Statement Schedules:
Schedule II – Valuation and Qualifying Accounts
(in thousands)
Classification
Fiscal year ended December 27, 2015:
Deducted from asset accounts:
Reserve for uncollectible accounts receivable
Reserve for franchisee notes receivable
Valuation allowance on foreign net operating losses
Fiscal year ended December 28, 2014:
Deducted from asset accounts:
Reserve for uncollectible accounts receivable
Reserve for franchisee notes receivable
Valuation allowance on foreign net operating losses
Fiscal year ended December 29, 2013:
Deducted from asset accounts:
Reserve for uncollectible accounts receivable
Reserve for franchisee notes receivable
Valuation allowance on foreign net operating losses
Balance at
Beginning of
Year
Charged to
(recovered from)
Costs and
Expenses
Additions /
(Deductions)
Balance at
End of
Year
$
$
$
$
$
$
$
$
3,814
3,132
2,932
9,878
4,318
3,387
7,682
15,387
3,057
5,028
8,240
16,325
$
$
$
$
1,332
(100)
(66)
1,166
2,297
(502)
(4,750)
(2,955)
2,416
(495)
(558)
1,363
(1)
(1)
(1)
(1)
(1)
(1)
$
$
(2,699)
621
-
(2,078)
$
$
(2,801)
247
-
(2,554)
$
$
(1,155)
(1,146)
-
(2,301)
$
$
2,447
3,653
2,866
8,966
$
$
3,814
3,132
2,932
9,878
$
4,318
3,387
7,682
15,387
$
(1) Uncollectible accounts written off and reclassifications between accounts and notes receivable reserves.
All other schedules for which provision is made in the applicable accounting regulation of the Securities
and Exchange Commission are not required under the related instructions or are inapplicable and,
therefore, have been omitted.
(a)(3) Exhibits:
The exhibits listed in the accompanying index to Exhibits are filed as part of this Form 10-K.
90
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: February 23, 2016
PAPA JOHN’S INTERNATIONAL, INC.
By:
/s/ John H. Schnatter
John H. Schnatter
Founder, Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by
the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ John H. Schnatter
John H. Schnatter
Founder, Chairman and
Chief Executive Officer
(Principal Executive Officer)
February 23, 2016
/s/ Norborne P. Cole, Jr.
Norborne P. Cole, Jr.
Director
February 23, 2016
/s/ Christopher L. Coleman Director
Christopher L. Coleman
February 23, 2016
/s/ Olivia F. Kirtley
Olivia F. Kirtley
Director
February 23, 2016
/s/ Laurette T. Koellner
Laurette T. Koellner
Director
February 23, 2016
/s/ Sonya E. Medina
Sonya E. Medina
Director
February 23, 2016
/s/ Mark S. Shapiro
Mark S. Shapiro
Director
/s/ W. Kent Taylor
W. Kent Taylor
Director
/s/ Lance F. Tucker
Lance F. Tucker
Senior Vice President, Chief
Financial Officer, Chief Administrative
Officer and Treasurer (Principal Financial
Officer and Principal Accounting Officer)
February 23, 2016
February 23, 2016
February 23, 2016
91
Exhibit
Number
EXHIBIT INDEX
Description of Exhibit
3.1
3.2
4.1
4.2
10.1*
10.2*
10.3*
10.4*
10.5
10.6*
10.7*
Our Amended and Restated Certificate of Incorporation. Exhibit 3.1 to our Quarterly
Report on Form 10-Q for the quarterly period ended June 29, 2014, is incorporated herein
by reference.
Our Amended and Restated By-Laws. Exhibit 3.1 to our Quarterly Report on Form 10-Q
for the quarterly period ended September 27, 2015, is incorporated herein by reference.
Specimen Common Stock Certificate. Exhibit 4.1 to our Annual Report on Form 10-K for
the fiscal year ended December 31, 1995 (Commission File No. 0-21660) is incorporated
herein by reference.
Amended and Restated Certificate of Incorporation and Restated By-Laws (see Exhibits
3.1 and 3.2 above) are incorporated herein by reference.
Employment Agreement between Papa John’s International, Inc. and Steve M. Ritchie
effective March 1, 2015. Exhibit 10.1 to our report on Form 10-K as filed on February
24, 2015 is incorporated herein by reference.
Employment Agreement between Papa John’s International, Inc. and Lance F. Tucker
effective March 1, 2015. Exhibit 10.2 to our report on Form 10-K as filed on February
24, 2015 is incorporated herein by reference.
Employment Agreement between Papa John’s International, Inc. and Timothy C. O’Hern
effective March 1, 2015. Exhibit 10.3 to our report on Form 10-K as filed on February
24, 2015 is incorporated herein by reference.
Employment Agreement between Papa John’s International, Inc. and Robert C. Kraut
effective October 7, 2013. Exhibit 10.4 to our report on Form 10-K as filed on February
24, 2015 is incorporated herein by reference.
$400,000,000 First Amendment to First Amended and Restated Credit Agreement by and
among Papa John’s International, Inc.; the Guarantors party thereto; PNC Bank, National
Association, as a lender and in its capacity as Administrative Agent for the lenders;
JPMorgan Chase Bank, N.A., as a lender and in its capacity as Co-Syndication Agent for
the lenders; U.S. Bank, National Association, as a lender and in its capacity as Co-
Syndication Agent for the lenders; Bank of America, N.A., as a lender and in its capacity
as Documentation Agent for the lenders; and Branch Banking and Trust Company, as a
lender. Exhibit 10.1 to our Report on Form 8-K as filed on November 4, 2014 is
incorporated herein by reference.
Papa John’s International, Inc. Deferred Compensation Plan, as amended through
December 5, 2012. Exhibit 10.1 to our report on Form 10-K as filed on February 28,
2013 is incorporated herein by reference.
Papa John’s International, Inc. 2008 Omnibus Incentive Plan. Exhibit 10.1 to our
Registration Statement on Form S-8 (Registration No. 333-150762) dated May 5, 2008 is
incorporated herein by reference.
92
10.8*
10.9*
10.10*
10.11*
10.12*
21
23
31.1
31.2
32.1
32.2
101
Papa John’s International, Inc. 2011 Omnibus Incentive Plan. Exhibit 4.1 to our report
on Form 8-K as filed on May 3, 2011 is incorporated herein by reference.
Agreement for Service as Chairman between John H. Schnatter and Papa John’s
International, Inc. Exhibit 10.1 to our report on Form 8-K as filed on August 15, 2007 is
incorporated herein by reference.
Agreement for Service as Founder between John H. Schnatter and Papa John’s
International, Inc. Exhibit 10.1 to our report on Form 8-K as filed on August 15, 2007 is
incorporated herein by reference.
Amended and Restated Exclusive License Agreement between John H. Schnatter and
Papa John’s International, Inc. Exhibit 10.1 to our report on Form 8-K as filed on May
19, 2008 is incorporated herein by reference.
Papa John’s International, Inc. Severance Pay Plan. Exhibit 10.1 to our report on Form
10-Q filed on May 1, 2012, is incorporated herein by reference.
Subsidiaries of the Company.
Consent of Ernst & Young LLP.
Section 302 Certification of Chief Executive Officer Pursuant to Exchange Act Rule 13a-
15(e).
Section 302 Certification of Chief Financial Officer Pursuant to Exchange Act Rule 13a-
15(e).
Section 906 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.
Section 906 Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Financial statements from the Annual Report on Form 10-K of Papa John’s International,
Inc. for the year ended December 27, 2015, filed on February 23, 2016, formatted in
XBRL: (i) the Consolidated Statements of Income, (ii) the Consolidated Statements of
Comprehensive Income, (iii) the Consolidated Balance Sheets, (iv) the Consolidated
Statements of Stockholders’ Equity, (v) the Consolidated Statements of Cash Flows and
(vi) the Notes to Consolidated Financial Statements.
__________________
*Compensatory plan required to be filed as an exhibit pursuant to Item 15(c) of Form 10-K.
The Exhibits to this Annual Report on Form 10-K are not contained herein. The Company will
furnish a copy of any of the Exhibits to a stockholder upon written request to Investor Relations,
Papa John’s International, Inc., P.O. Box 99900, Louisville, KY 40269-0900.
93
Papa John’s 39 International Markets*
Canada
Cayman Islands
Dominican Republic
United
Kingdom
Ireland
Cyprus
Belarus
Turkey
Jordan
Azerbaijan
Russia
China
South
Korea
Puerto
Rico
Guam
Mexico
El Salvador
Guatemala
Nicaragua
Costa Rica
India
Malaysia
Trinidad
Venezuela
Egypt
Singapore
Chile
Saudi Arabia
Philippines
Panama
Colombia
Ecuador
Peru
Bolivia
Kuwait
Bahrain
Qatar
United Arab Emirates
Oman
* International Locations as of December 27, 2015
“IF YOU’RE GOING TO SAY BETTER, YOU BETTER DELIVER.”