<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 29, 1996
OR
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
COMMISSION FILE NUMBER: 0-21587
PJ AMERICA, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 61-1308435
(I.R.S. Employer (State or other jurisdiction of
Identification Number) incorporation or organization)
9109 PARKWAY EAST
BIRMINGHAM, ALABAMA 35206
(Address of principal executive offices)
(205) 836-1212
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days:
Yes No X
----- -----
At November 11, 1996, there were outstanding 4,755,000 shares of the
registrant's common stock, par value $.01 per share.
<PAGE>
PJ AMERICA, INC.
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page No.
<S> <C> <C>
Item 1. Financial Statements
Condensed Combined Balance Sheets --
September 29, 1996 and December 31, 1995 2
Condensed Combined Statements of Income --
Three Months and Nine Months Ended September 29, 1996
and September 24, 1995 3
Condensed Combined Statements of Stockholders'
Equity -- Nine Months Ended September 29, 1996 and
September 24, 1995 4
Condensed Combined Statements of Cash Flows --
Nine Months Ended September 29, 1996 and
September 24, 1995 5
Notes to Condensed Combined Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on 8-K 10
</TABLE>
1
<PAGE>
PJ AMERICA, INC.
CONDENSED COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
September 29, December 31,
1996 1995
(Unaudited) (Note)
------------- ------------
<S> <C> <C>
Assets
Current assets:
Cash........................................ $ 193,213 $ 224,379
Accounts receivable, net.................... 20,446 24,010
Inventories................................. 91,390 58,288
Advances to related parties................. 53,578 132,725
Deferred offering costs..................... 544,114 --
Prepaid expenses and other.................. 26,044 5,183
---------- ----------
Total current assets........................... 928,785 444,585
Net property and equipment..................... 2,185,475 1,820,828
Deferred franchise and development costs, net.. 275,042 225,194
---------- ----------
Total assets................................... $3,389,302 $2,490,607
========== ==========
Liabilities and stockholders' equity
Current liabilities:
Accounts payable............................ $ 99,512 $ 8,481
Accrued expenses............................ 1,141,645 343,656
Current maturities of bank debt............. 240,000 148,887
Notes payable to stockholders............... 818,525 742,846
---------- ----------
Total current liabilities...................... 2,299,682 1,243,870
Note payable to bank, less current maturities.. 680,000 174,138
Stockholders' equity:
Common stock................................ 3,085 3,085
Additional paid-in capital.................. 446,260 446,260
Retained (deficit) earnings................. (39,725) 623,254
---------- ----------
Total stockholders' equity..................... 409,620 1,072,599
---------- ----------
Total liabilities and stockholders' equity..... $3,389,302 $2,490,607
========== ==========
</TABLE>
Note: The balance sheet at December 31, 1995 has been derived from the audited
financial statements at that date but does not include all information and
footnotes required by generally accepted accounting principles for complete
financial statements.
The accompanying notes to the condensed combined financial statements are an
integral part of these statements.
2
<PAGE>
PJ AMERICA, INC.
CONDENSED COMBINED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 29, September 24, September 29, September 24,
1996 1995 1996 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Restaurant sales ............................. $3,484,710 $2,518,082 $9,681,982 $7,143,905
Restaurant operating expenses:
Cost of sales ............................ 1,176,971 843,202 3,244,620 2,370,210
Salaries and benefits .................... 870,589 626,823 2,434,060 1,819,357
Depreciation and amortization ............ 94,806 70,000 268,369 195,000
Other operating expenses ................. 797,557 578,098 2,197,919 1,631,523
---------- ---------- ---------- ----------
2,939,923 2,118,123 8,144,968 6,016,090
---------- ---------- ---------- ----------
Restaurant operating income .................. 544,787 399,959 1,537,014 1,127,815
General and administrative expenses .......... 192,088 133,731 687,054 381,298
---------- ---------- ---------- ----------
Operating income ............................. 352,699 266,228 849,960 746,517
Other expense, net ........................... 29,080 18,570 68,355 41,363
---------- ---------- ---------- ----------
Net income ................................... $ 323,619 $ 247,658 $ 781,605 $ 705,154
========== ========== ========== ==========
Historical net income ........................ $ 323,619 $ 247,658 $ 781,605 $ 705,154
Unaudited pro forma income tax expense .. (118,121) (90,395) (285,286) (257,381)
---------- ---------- ---------- ----------
Unaudited pro forma net income ............... $ 205,498 $ 157,263 $ 496,319 $ 447,773
========== ========== ========== ==========
Pro forma net income per share: .............. $ 0.12 $ 0.09 $ 0.28 $ 0.25
========== ========== ========== ==========
Weighted average shares outstanding ...... 1,778,906 1,801,596 1,768,815 1,788,381
========== ========== ========== ==========
</TABLE>
The accompanying notes to the condensed combined financial statements are an
integral part of these statements.
3
<PAGE>
PJ AMERICA, INC.
CONDENSED COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Additional Retained Total
Common Paid-In Earnings Stockholders'
Stock Capital (Deficit) Equity
---------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
Balance at December 25, 1994 ...................... $2,085 $446,260 $ 546,639 $ 994,984
Net income, nine months ended September 24, 1995 ... -- -- 705,154 705,154
S Corporation distributions ........................ -- -- (932,234) (932,234)
Incorporation of Twice ............................. 1,000 -- -- 1,000
------ -------- ----------- -----------
Balance at September 24, 1995 ...................... $3,085 $446,260 $ 319,559 $ 768,904
====== ======== =========== ===========
Balance at December 31, 1995 ....................... $3,085 $446,260 $ 623,254 $ 1,072,599
Net income, nine months ended September 29, 1996 ... -- -- 781,605 781,605
S Corporation distributions ........................ -- -- (1,444,584) (1,444,584)
------ -------- ----------- -----------
Balance at September 29, 1996 ...................... $3,085 $446,260 $ (39,725) $ 409,620
====== ======== =========== ===========
</TABLE>
The accompanying notes to the condensed combined financial statements are an
integral part of these statements.
4
<PAGE>
PJ AMERICA, INC.
CONDENSED COMBINED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 29, 1996 September 24, 1995
------------------ ------------------
<S> <C> <C>
Operating activities
Net cash provided by operating activities ... $ 1,365,180 $ 858,838
Investing activities
Purchases of property and equipment ............. (624,416) (394,025)
----------- ---------
Net cash used in investing activities ....... (624,416) (394,025)
Financing activities
Proceeds from bank borrowings ................... 1,000,000 450,000
Payments on bank borrowings ..................... (403,025) (91,726)
Issuance of stockholder notes ................... 75,679 311,221
Distributions paid .............................. (1,444,584) (932,234)
Capital contributions ........................... -- 1,000
----------- ---------
Net cash used in financing activities ....... (771,930) (261,739)
Net (decrease) increase in cash ................. (31,166) 203,074
Cash at beginning of period ..................... 224,379 155,293
----------- ---------
Cash at end of period ........................... $ 193,213 $ 358,367
=========== =========
</TABLE>
The accompanying notes to the condensed combined financial statements are an
integral part of these statements.
5
<PAGE>
PJ AMERICA, INC.
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS
(Unaudited)
September 29, 1996
NOTE 1 -- BASIS OF PRESENTATION
The accompanying unaudited condensed combined financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments, consisting
of normal recurring accruals, considered necessary for a fair presentation have
been included. Operating results for the three and nine months ended September
29, 1996, are not necessarily indicative of the results that may be expected for
the year ending December 29, 1996. A description of the Company's accounting
policies and other financial information is included in its audited combined
financial statements included in the prospectus that forms a part of the
Company's Registration Statement on Form S-1 (Reg. No. 333-11253).
The unaudited condensed combined financial statements represent the combined
financial position, results of operations and cash flows of PJ America, Inc.(the
Company), Extra Cheese, Inc. (Extra Cheese), Textra Cheese Corp. (Textra) and
Twice the Cheese, Inc. (Twice), collectively referred to herein as the "Alabama
Group." The financial statements exclude the combined financial position of
PJVA, Inc. and PJV, Inc., collectively referred to as the "Virginia Group." The
Company had no operations prior to the completion of the initial public offering
(see Note 4).
Extra Cheese, Textra, and Twice operated as S Corporations through October 30,
1996, when their S Corporation elections were terminated. As a result, they
were not subject to federal or state income taxes before October 30, 1996.
Pro forma information for the three and nine month periods ended September 29,
1996 and September 24, 1995 have been presented as if the Company had been
treated as a C corporation rather than an S corporation, with an assumed
effective income tax rate of 36.5%.
NOTE 2 -- REORGANIZATION
The Company was formed in August 1996 to succeed to the businesses of five Papa
John's International franchisees. Extra Cheese entered into an Agreement dated
June 10, 1996, as amended on July 10, 1996, and a Plan of Merger with Twice,
Textra, PJVA, Inc. and PJV, Inc. pursuant to which all such corporations agreed
to be merged into PJ Cheese, Inc. (PJ Cheese), a wholly-owned subsidiary of
Extra Cheese, in exchange for shares of common stock of Extra Cheese. On
October 30, 1996, concurrent with the completion of the Offering (i) all such
corporations merged into PJ Cheese; (ii) Extra Cheese contributed to PJ Cheese
all of the assets of Extra Cheese relating to its restaurants, with PJ Cheese
assuming all of Extra Cheese's liabilities relating thereto; and (iii) Extra
Cheese merged into the Company with the stockholders of Extra Cheese receiving
an aggregate of 3,000,000 shares of Common Stock of the Company. Accordingly,
the Company will be the parent of PJ Cheese, and PJ Cheese will own all of the
Papa John's restaurants which were owned by Extra Cheese, Textra, Twice, PJVA,
Inc. and PJV, Inc. (collectively the Predecessor Companies).
The Reorganization was an exchange of nonmonetary assets by stockholders and has
been accounted for at historical cost. The financial information related to
Extra Cheese, the acquiring company for accounting purposes, has been combined
with that of Twice and Textra, as all three entities were operated under common
control.
6
<PAGE>
NOTE 3 -- DEBT
At September 29, 1996, the Company had outstanding bank loans and shareholder
loans of $920,000 and $818,525, respectively. The Company utilized a portion of
the proceeds from the Offering (see Note 4) to payoff the outstanding balances
of all debt.
NOTE 4 -- SUBSEQUENT EVENTS
The Company completed an underwritten initial public offering (the "Offering")
of its Common Stock on October 30, 1996, pursuant to which the Company sold
1,755,000 shares of its Common Stock, including 135,000 shares excercised to
cover underwriter over-allotments, at an initial public offering price of $12.50
per share. Net proceeds from the Offering (after deducting the underwriting
discount of $1,535,625 and estimated expenses of $950,000 incurred in connection
with the Offering) were $19,451,875. Such proceeds were partially used to fully
retire the outstanding balances owed to banks and shareholders, pay S
corporation distributions, and for general corporate purposes. Approximately,
$14.0 million has been invested in short-term securities.
Concurrent with the Reorganization, the Company acquired PJVA, Inc. and PJV,
Inc. (see Note 2). The acquisition was accounted for at historical cost, with
the shareholders of PJVA, Inc. and PJV, Inc. receiving an aggregate of 1,230,000
shares of Common Stock of the Company (these shares are included in the
3,000,000 shares of Common Stock discussed in Note 2).
The following represents the unaudited pro forma results of operations for the
three and nine months ended September 29, 1996 as if the Reorganization occurred
at the beginning of the Company's fiscal year. PJVA, Inc. and PJV, Inc.
operated as S Corporations through October 30, 1996, when their S Corporation
elections were terminated. Pro forma net income reflects an assumed corporate
income tax rate of 36.5%.
<TABLE>
<CAPTION>
Three Months ended Nine Months ended
September 29, 1996 September 29, 1996
<S> <C> <C>
Restaurant sales $7,626,965 $21,724,287
Net income $ 382,346 $ 1,003,957
Net income per share $ 0.12 $ 0.32
</TABLE>
This pro forma information is not indicative of the results of operations that
actually would have been obtained if the transactions had occurred at the
beginning of the Company's fiscal year. The pro forma information is not
intended to be a projection of future results.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS
Restaurant Sales. Restaurant sales increased 38.4% to $3.5 million for the
three months ended September 29, 1996, from $2.5 million for the comparable
period in 1995, and 35.5% to $9.7 million for the nine months ended September
29, 1996, from $7.1 million for the comparable period in 1995.
These increases were primarily due to the six new restaurants opened between
September 24, 1995 and September 29, 1996. Also, comparable restaurant sales
increased 1.8% and 2.6% for the three months and nine months ended September
29, 1996, respectively, over the comparable periods in 1995.
Costs and Expenses. Cost of sales, which consists of food, beverage and
paper costs, increased as a percentage of restaurant sales to 33.8% for the
three months ended September 29, 1996, from 33.5% for the comparable period in
1995, and increased as a percentage of restaurant sales to 33.5% for the nine
months ended September 29, 1996, from 33.2% for the comparable period in 1995.
Increasing cheese prices were the primary reason for the higher cost of sales
for the three and nine month periods. However, the impact of higher cheese
prices in the third quarter was offset by generally lower product costs, other
than cheese.
Restaurant salaries and benefits, which consist of all store level employee
wages, taxes, and benefits increased slightly as a percentage of restaurant
sales to 25.0% for the three months ended September 29, 1996, from 24.9% for the
comparable period in 1995. Restaurant salaries and benefits decreased as a
percentage of restaurant sales to 25.1% for the nine months ended September 29,
1996, from 25.5% for the comparable period in 1995. The decrease in salaries
and benefits as a percentage of restaurant sales was primarily due to better
labor utilization.
Depreciation and amortization was relatively consistent as a percentage of
restaurant sales at 2.7% and 2.8% for the three and nine months ended September
29, 1996, respectively, as compared to 2.8% and 2.7%, respectively, for the
comparable periods in 1995.
Other operating expenses include other restaurant level operating costs,
the material components of which are automobile mileage reimbursement for
delivery drivers, rent, royalties, utility expenses and advertising expenses.
Other operating expenses decreased slightly as a percentage of restaurant sales
to 22.9% for the three months ended September 29, 1996, from 23.0% for the
comparable period in 1995. Other operating expenses decreased slightly as a
percentage of restaurant sales to 22.7% for the nine months ended September 29,
1996, from 22.8% for the comparable period in 1995.
General and administrative expenses increased as a percentage of restaurant
sales to 5.5% for the three months ended September 29, 1996, from 5.3% for the
comparable period in 1995 and increased as a percentage of restaurant sales to
7.1% for the nine months ended September 29, 1996, from 5.3% for the comparable
period in 1995. The increases are primarily due to relocation expenses of
$120,000 for two executives relocating to the Company's offices in Birmingham,
Alabama, and the addition of restaurant supervisory and corporate support
personnel.
Other expense, which consists primarily of interest expense, as a
percentage of restaurant sales for the three and nine months ended September 29,
1996 was relatively consistent with the comparable periods in 1995.
8
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary capital requirements are for the development of new
restaurants. The Alabama Group's capital expenditures for the nine months
ended September 29, 1996 and September 24, 1995 were $624,000 and $394,000,
respectively. In addition, the Alabama Group made distributions to their
stockholders with respect to S corporation earnings during the nine months ended
September 29, 1996 and September 24, 1995 of $1.4 million and $930,000,
respectively. Capital requirements were funded by cash provided by operating
activities and proceeds from bank borrowings and stockholder loans.
Cash flow from operations increased to $1.4 million for the nine months
ended September 29, 1996, from $900,000 for the comparable period in 1995. Net
borrowings by the Alabama Group totalled approximately $700,000 for the nine
months ended September 29, 1996 and September 24, 1995.
On October 30, 1996, the Company completed an underwritten initial offering
of 1,755,000 shares of its Common Stock to the public raising aggregate net
proceeds of approximately $19.5 million. Such proceeds were partially used to
fully retire the outstanding balances owed to banks and shareholders and to fund
the payment of the amount of undistributed S corporation earnings to the
shareholders of the Predecessor Companies. Approximately $14.0 million has
been invested in short-term securities.
9
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON 8-K.
<TABLE>
<CAPTION>
(a) Exhibits.
Exhibit
Number Description
------ -----------
<S> <C>
11 Statement re Computation of Earnings per
Common Share
27 Financial Data Schedule which is submitted
electronically to the Securities and Exchange
Commission for information only and not deemed to
be filed with the Commission
(b) Current Reports on Form 8-K.
</TABLE>
There were no reports filed on Form 8-K during the quarterly period
ended September 29, 1996.
10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PJ AMERICA, INC.
Date: November 11, 1996 /s/ D. Ross Davison
-----------------------------------
D. Ross Davison, Vice President
- Chief Financial Officer and
Treasurer (Principal Financial Officer)
11
<PAGE>
EXHIBIT 11
STATEMENT RE: COMPUTATION OF EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 29, 1996 September 29, 1996
------------------ ------------------
<S> <C> <C>
PRO FORMA:
Primary
Average shares outstanding 1,770,000 1,770,000
Adjustment to reflect shares issued to
reflect S corporation distributions 8,806 (1,185)
---------- ----------
Total 1,778,806 1,768,815
========== ==========
Pro forma net income $ 205,498 $ 496,319
========== ==========
Per Common Share amount $ 0.12 $ 0.28
========== ==========
</TABLE>
Fully diluted earnings per Common Share and primary earnings per Common Share
are the same for the three and nine months ended September 29, 1996.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from
PJ America's proforma combined financial statements for the 9 months ended
September 29, 1996 and for the year ended December 31, 1995 and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 12-MOS
<FISCAL-YEAR-END> DEC-29-1996 DEC-31-1995
<PERIOD-START> JAN-01-1996 DEC-26-1994
<PERIOD-END> SEP-29-1996 DEC-31-1995
<CASH> 1,065,412 478,459
<SECURITIES> 0 0
<RECEIVABLES> 99,065 33,188
<ALLOWANCES> 0 0
<INVENTORY> 175,064 136,357
<CURRENT-ASSETS> 2,151,848 937,280
<PP&E> 6,803,264 5,984,999
<DEPRECIATION> (1,828,025) (1,195,583)
<TOTAL-ASSETS> 7,875,685 6,344,722
<CURRENT-LIABILITIES> 1,846,294 863,601
<BONDS> 2,020,000 1,708,739
<COMMON> 5,125 5,085
0 0
0 0
<OTHER-SE> 2,417,921 2,271,451
<TOTAL-LIABILITY-AND-EQUITY> 7,875,865 6,344,722
<SALES> 21,724,287 23,099,050
<TOTAL-REVENUES> 21,724,287 23,099,050
<CGS> 7,342,172 7,827,113
<TOTAL-COSTS> 11,385,295 12,194,515
<OTHER-EXPENSES> 1,224,597 1,042,714
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 208,217 234,798
<INCOME-PRETAX> 1,581,034 1,813,242
<INCOME-TAX> 577,077 661,833
<INCOME-CONTINUING> 1,003,957 1,151,409
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,003,957 1,151,409
<EPS-PRIMARY> 0.32 0.37
<EPS-DILUTED> 0.32 0.37
</TABLE>
