Edgar Filing: PAPA JOHNS INTERNATIONAL INC

a50576515.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): February 24, 2013

PAPA JOHN’S INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)

Delaware	0-21660	61-1203323
(State or other jurisdiction of incorporation)	(Commission File Number)	(IRS Employer Identification No.)

2002 Papa John’s Boulevard Louisville, Kentucky	40299-2334
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (502) 261-7272

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

[ ]	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

[ ]	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

[ ]	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

[ ]	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 4.02. Non-Reliance on Previously Issued Financial Statements or a Related Audit Report or Completed Interim Review

(a)

Accounting for Non-Controlling Interests

In connection with a review of the Company’s Annual Report on 2012 Form 10-K among the Audit Committee of the Company’s Board of Directors (the “Audit Committee”), and the Company’s management, with the assistance of Ernst & Young LLP (“Ernst & Young”), the Company’s independent registered public accounting firm, and the Company’s outside legal advisors, the Audit Committee has reassessed the accounting of the Company’s joint venture agreements. On February 24, 2013, the Board of Directors, acting on the recommendation of the Audit Committee and management, concluded that the Company should restate certain previously issued financial statements as described below.

In connection with the evaluation of the accounting for newly formed joint ventures in 2012, the Company reviewed the accounting for its previously existing joint venture arrangements. As a result of the review, the Company determined an error occurred in the accounting for one joint venture agreement, which contained a mandatorily redeemable feature added through a contract amendment in the third quarter of 2009. This provision contained in the 2009 contract amendment was not previously considered in determining the classification and measurement of the noncontrolling interest. In addition, the Company determined that an additional redeemable noncontrolling interest was incorrectly classified in shareholders’ equity and should be classified as temporary equity. As such, the Company is restating its previously issued consolidated financial statements for the years ended December 25, 2011, December 26, 2010, and December 27, 2009 to correct the errors.

Expected Impact of Restatement

In the Annual Report on Form 10-K for the fiscal year ended December 30, 2012, to reflect the appropriate measurement of the mandatorily redeemable noncontrolling interest, the Company will include a $3.7 million charge, net of income taxes, to ending 2009 retained earnings in our consolidated statements of stockholders’ equity to adjust the previously reported balance to its redemption value as of December 27, 2009. Additionally, the Company also will correct the classification errors of its redeemable noncontrolling interests from permanent equity to either other long-term liabilities or redeemable noncontrolling interests in the consolidated balance sheets, as detailed in the tables below.

In the Company’s 2009, 2010 and 2011 consolidated statements of income, interest expense, income tax expense and net income were affected as a result of adjusting the mandatorily redeemable noncontrolling interest to its redemption value. The impact of the restatements on the consolidated balance sheets, consolidated statements of income and consolidated statements of cash flows by year is outlined in the tables below. The corrections had no impact on total revenues, operating income or operating cash flows and had no impact on the Company’s compliance with debt covenants in any periods presented.

The following tables summarize the corrections by financial statement line item (in thousands, except per share data):

	December 25, 2011
	As Previously Reported		Adjustments			As Restated
Consolidated balance sheet
Noncurrent deferred income tax liabilities	$	9,147	$	(2,455	)	$	6,692
Other long-term liabilities		25,611		11,065			36,676
Redeemable noncontrolling interests		-		3,965			3,965
Retained earnings		298,807		(4,006	)		294,801
Noncontrolling interests in subsidiaries		8,569		(8,569	)		-
Total stockholders' equity		218,222		(12,575	)		205,647
Consolidated statement of income
Interest expense	$	1,497	$	1,484		$	2,981
Income before income taxes		86,275		(1,484	)		84,791
Income tax expense		26,888		(564	)		26,324
Net income, including noncontrolling interests		59,387		(920	)		58,467
Net income, net of noncontrolling interests		55,655		(920	)		54,735
Comprehensive income		60,387		(920	)		59,467
Basic earnings per common share		2.22		(0.03	)		2.19
Earnings per common share - assuming dilution		2.20		(0.04	)		2.16
Consolidated statement of cash flows
Net income	$	59,387	$	(920	)	$	58,467
Deferred income taxes		9,909		(564	)		9,345
Other		3,072		1,484			4,556
Net cash provided by operating activities		101,008		-			101,008

	December 26, 2010
	As Previously Reported		Adjustments			As Restated
Consolidated balance sheet
Noncurrent deferred income tax liabilities (assets)	$	341	$	(1,892	)	$	(1,551	)
Other long-term liabilities		26,604		9,972			36,576
Redeemable noncontrolling interests		-		3,512			3,512
Retained earnings		243,152		(3,086	)		240,066
Noncontrolling interests in subsidiaries		8,506		(8,506	)		-
Total stockholders' equity		207,200		(11,592	)		195,608
Consolidated statement of income
Interest expense	$	5,338	$	(1,029	)	$	4,309
Income before income taxes		82,281		1,029			83,310
Income tax expense		26,856		391			27,247
Net income, including noncontrolling interests		55,425		638			56,063
Net income, net of noncontrolling interests		51,940		638			52,578
Comprehensive income		57,358		638			57,996
Basic earnings per common share		1.97		0.03			2.00
Earnings per common share - assuming dilution		1.96		0.03			1.99
Consolidated statement of cash flows
Net income	$	55,425	$	638		$	56,063
Deferred income taxes		4,553		391			4,944
Other		286		(1,029	)		(743	)
Net cash provided by operating activities		92,851		-			92,851

	December 27, 2009
	As Previously Reported			Adjustments			As Restated
Consolidated balance sheet
Noncurrent deferred income tax assets	$	(6,804	)	$	(2,283	)	$	(9,087	)
Other long-term liabilities		16,886			10,960			27,846
Redeemable noncontrolling interests		-			3,215			3,215
Retained earnings		191,212			(3,724	)		187,488
Noncontrolling interests in subsidiaries		8,168			(8,168	)		-
Total stockholders' equity		185,037			(11,892	)		173,145
Consolidated statement of income
Interest expense	$	5,653		$	6,007		$	11,660
Income before income taxes		90,194			(6,007	)		84,187
Income tax expense		28,985			(2,283	)		26,702
Net income, including noncontrolling interests		61,209			(3,724	)		57,485
Net income, net of noncontrolling interests		57,453			(3,724	)		53,729
Comprehensive income		63,943			(3,724	)		60,219
Basic earnings per common share		2.07			(0.13	)		1.94
Earnings per common share - assuming dilution		2.06			(0.13	)		1.93
Consolidated statement of cash flows
Net income	$	61,209		$	(3,724	)	$	57,485
Deferred income taxes		7,469			(2,283	)		5,186
Other		1,071			6,007			7,078
Net cash provided by operating activities		103,826			-			103,826

	As of and For The
	Three Months Ended
	March 25, 2012
	As Previously Reported			As Restated
Condensed consolidated balance sheet
Noncurrent deferred income tax liabilities	$	7,264		$	4,954
Other long-term liabilities		23,795			34,992
Redeemable noncontrolling interests		-			4,777
Retained earnings		315,551			311,782
Noncontrolling interests in subsidiaries		9,895			-
Total stockholders' equity		227,835			214,171
Condensed consolidated statement of comprehensive income
Interest expense (income)	$	288		$	(94	)
Income before income taxes		27,138			27,520
Income tax expense		9,068			9,213
Net income, including noncontrolling interests		18,070			18,307
Net income, net of noncontrolling interests		16,744			16,981
Comprehensive income		18,281			18,518
Basic earnings per common share		0.70			0.71
Earnings per common share - assuming dilution		0.69			0.69
Consolidated statement of cash flows
Net income, including noncontrolling interests	$	18,070		$	18,307
Deferred income taxes		(1,057	)		(912	)
Other		678			296
Net cash provided by operating activities		44,093			44,093

	As of and For The				As of and For The
	Three Months Ended				Six Months Ended
	June 24, 2012				June 24, 2012
	As Previously Reported		As Restated		As Previously Reported		As Restated
Condensed consolidated balance sheet
Noncurrent deferred income tax liabilities	$	9,648	$	7,044	$	9,648	$	7,044
Other long-term liabilities		23,638		35,170		23,638		35,170
Redeemable noncontrolling interests		-		4,458		-		4,458
Retained earnings		330,320		326,071		330,320		326,071
Noncontrolling interests in subsidiaries		9,137		-		9,137		-
Total stockholders' equity		225,546		212,160		225,546		212,160
Condensed consolidated statements of comprehensive income
Interest expense	$	282	$	1,056	$	570	$	962
Income before income taxes		24,240		23,466		51,378		50,986
Income tax expense		8,299		8,005		17,367		17,218
Net income, including noncontrolling interests		15,941		15,461		34,011		33,768
Net income, net of noncontrolling interests		14,769		14,289		31,513		31,270
Comprehensive income		15,490		15,010		33,771		33,528
Basic earnings per common share		0.62		0.60		1.32		1.31
Earnings per common share - assuming dilution		0.61		0.59		1.30		1.29
Consolidated statement of cash flows
Net income, including noncontrolling interests					$	34,011	$	33,768
Deferred income taxes						1,946		1,797
Other						2,480		2,872
Net cash provided by operating activities						65,162		65,162

	As of and For The				As of and For The
	Three Months Ended				Nine Months Ended
	September 23, 2012				September 23, 2012
	As Previously Reported		As Restated		As Previously Reported		As Restated
Condensed consolidated balance sheet
Noncurrent deferred income tax liabilities	$	10,508	$	7,830	$	10,508	$	7,830
Other long-term liabilities		24,611		36,269		24,611		36,269
Redeemable noncontrolling interests		-		4,820		-		4,820
Retained earnings		343,471		339,101		343,471		339,101
Noncontrolling interests in subsidiaries		9,430		-		9,430		-
Total stockholders' equity		217,806		204,006		217,806		204,006
Condensed consolidated statements of comprehensive income
Interest expense	$	284	$	478	$	854	$	1,440
Income before income taxes		21,057		20,863		72,435		71,849
Income tax expense		7,112		7,038		24,479		24,256
Net income, including noncontrolling interests		13,945		13,825		47,956		47,593
Net income, net of noncontrolling interests		13,151		13,031		44,664		44,301
Comprehensive income		15,192		15,072		48,963		48,600
Basic earnings per common share		0.57		0.56		1.89		1.87
Earnings per common share - assuming dilution		0.55		0.55		1.85		1.84
Consolidated statement of cash flows
Net income, including noncontrolling interests					$	47,956	$	47,593
Deferred income taxes						647		424
Other						3,789		4,375
Net cash provided by operating activities						94,773		94,773

	As of and For The
	Three Months Ended
	March 27, 2011
	As Previously Reported		As Restated
Condensed consolidated balance sheet
Noncurrent deferred income tax liabilities (assets)	$	1,138	$	(1,030	)
Other long-term liabilities		12,219		22,677
Redeemable noncontrolling interests		-		3,146
Retained earnings		259,579		256,042
Noncontrolling interests in subsidiaries		7,899		-
Total stockholders' equity		223,416		211,980
Condensed consolidated statement of comprehensive income
Interest expense	$	608	$	1,335
Income before income taxes		26,780		26,053
Income tax expense		9,231		8,955
Net income, including noncontrolling interests		17,549		17,098
Net income, net of noncontrolling interests		16,427		15,976
Comprehensive income		18,822		18,371
Basic earnings per common share		0.64		0.63
Earnings per common share - assuming dilution		0.64		0.62
Consolidated statement of cash flows
Net income, including noncontrolling interests	$	17,549	$	17,098
Deferred income taxes		2,664		2,388
Other		43		770
Net cash provided by operating activities		26,687		26,687

	As of and For The				As of and For The
	Three Months Ended				Six Months Ended
	June 26, 2011				June 26, 2011
	As Previously Reported		As Restated		As Previously Reported		As Restated
Condensed consolidated balance sheet
Noncurrent deferred income tax liabilities	$	3,485	$	1,283	$	3,485	$	1,283
Other long-term liabilities		12,478		23,153		12,478		23,153
Redeemable noncontrolling interests		-		3,648		-		3,648
Retained earnings		271,703		268,110		271,703		268,110
Noncontrolling interests in subsidiaries		8,528		-		8,528		-
Total stockholders' equity		223,801		211,680		223,801		211,680
Condensed consolidated statements of comprehensive income
Interest expense	$	293	$	383	$	901	$	1,718
Income before income taxes		19,067		18,977		45,847		45,030
Income tax expense		6,014		5,980		15,245		14,935
Net income, including noncontrolling interests		13,053		12,997		30,602		30,095
Net income, net of noncontrolling interests		12,124		12,068		28,551		28,044
Comprehensive income		12,539		12,483		31,361		30,854
Basic earnings per common share		0.48		0.47		1.12		1.10
Earnings per common share - assuming dilution		0.47		0.47		1.11		1.09
Consolidated statement of cash flows
Net income, including noncontrolling interests					$	30,602	$	30,095
Deferred income taxes						4,332		4,022
Other						316		1,133
Net cash provided by operating activities						52,925		52,925

	As of and For The				As of and For The
	Three Months Ended				Nine Months Ended
	September 25, 2011				September 25, 2011
	As Previously Reported		As Restated		As Previously Reported		As Restated
Condensed consolidated balance sheet
Noncurrent deferred income tax liabilities	$	7,110	$	4,710	$	7,110	$	4,710
Other long-term liabilities		11,542		22,545		11,542		22,545
Redeemable noncontrolling interests		-		3,558		-		3,558
Retained earnings		282,826		278,910		282,826		278,910
Noncontrolling interests in subsidiaries		8,245		-		8,245		-
Total stockholders' equity		212,554		200,393		212,554		200,393
Condensed consolidated statements of comprehensive income
Interest expense	$	282	$	804	$	1,183	$	2,522
Income before income taxes		16,846		16,324		62,693		61,354
Income tax expense		4,906		4,707		20,151		19,642
Net income, including noncontrolling interests		11,940		11,617		42,542		41,712
Net income, net of noncontrolling interests		11,123		10,800		39,674		38,844
Comprehensive income		11,687		11,364		43,048		42,218
Basic earnings per common share		0.45		0.43		1.57		1.54
Earnings per common share - assuming dilution		0.44		0.43		1.55		1.52
Consolidated statement of cash flows
Net income, including noncontrolling interests					$	42,542	$	41,712
Deferred income taxes						5,219		4,711
Other						1,272		2,611
Net cash provided by operating activities						87,216		87,216

Restatement of Financial Information

The Company will restate its financial results for the 2009, 2010 and 2011 fiscal years as well as the first, second and third quarters of 2012. Accordingly, the annual and interim financial statements for 2009, 2010, and 2011 and interim financial statements for 2012 should no longer be relied upon.

The restated financial statements for fiscal years 2010 and 2011 will be included in the Company’s Annual Report on Form 10-K for its fiscal year ended December 30, 2012, which the Company anticipates filing on February 28, 2013. The Company will also amend its Annual Report on Form 10-K for the year ended December 25, 2011 and the Quarterly Reports on Form 10-Q for the first three quarters of 2012 prior to the filing of its Quarterly Report on Form 10-Q for the quarter ended March 31, 2013.

Section 404 of the Sarbanes-Oxley Act

Under Section 404 of the Sarbanes-Oxley Act, management, including our CEO and CFO, has assessed the effectiveness of our internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control—Integrated Framework. This evaluation identified a material weakness in our internal control regarding our accounting for certain redemption features of the noncontrolling interests of our joint venture agreements. Specifically, the review controls in place with respect to non-routine contractual changes or amendments were not effective. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. As a result, management believes that our internal control over financial reporting was not effective as of December 30, 2012, based on the COSO criteria.

The Company has implemented certain remedial measures including a review of all existing joint venture agreements to ensure the accounting for any such redemption features was in compliance with U.S. generally accepted accounting principles. In addition, we are in the process of developing enhanced control procedures designed to ensure proper accounting for any future non-routine contracts or contract amendments. The material weakness cannot be considered remediated until the applicable remedial controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.

Disclosures About Forward-Looking Statements

This report contains forward-looking statements within the safe harbor provisions of the Private Securities Litigation Report Act of 1995. All statements other than those that are purely historical are forward-looking statements. Words such as “expect,” “will,” “anticipate,” “believe,” “estimate,” “intend,” “plan,” “potential” and similar expressions also identify forward-looking statements. Forward-looking statements include statements regarding expected timing of filings, materiality or significance, the quantitative effects of the restated financial statements, and any anticipated conclusions of the Company, the Audit Committee or management.

Because these forward-looking statements involve risks and uncertainties, there are important factors that could cause our actual results, as well as our expectations regarding materiality or significance, the restatement’s quantitative effects, the effectiveness of our disclosure controls and procedures, and our deficiencies in internal control over financial reporting to differ materially from those in the forward-looking statements. These factors include the risk that additional information may arise prior to the expected filings with the SEC with the restated financial statements, the preparation of our restated financial statements or other subsequent events that would require us to make additional adjustments, as well as inherent limitations in internal controls over financial reporting.

SIGNATURE

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

	PAPA JOHN’S INTERNATIONAL, INC.
	(Registrant)

Date: February 26, 2013	/s/Lance F. Tucker
	Lance F. Tucker
	Chief Financial Officer, Chief Administrative Officer and Treasurer