<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 March 30, 1997
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
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
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 X No
----- -----
At April 17, 1997, there were outstanding 4,755,000 shares of the
registrant's common stock, par value $.01 per share.
<PAGE>
PJ AMERICA, INC. AND SUBSIDIARY
INDEX
<TABLE>
<CAPTION>
<C> <S> <C>
PART I. FINANCIAL INFORMATION Page No.
--------
Item 1. Financial Statements
Condensed Consolidated Balance Sheets --
March 30, 1997 and December 29, 1996 2
Condensed Consolidated Statements of Income --
Three Months Ended March 30, 1997 and
March 29, 1996 3
Condensed Consolidated Statements of Cash Flows --
Three Months Ended March 30, 1997 and March 29, 1996 4
Notes to Condensed Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on 8-K 10
</TABLE>
1
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
PJ AMERICA, INC. AND SUBSIDIARY
Condensed Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
March 30, December 29,
1997 1996
(Unaudited)
------------ ------------
<S> <C> <C>
(In thousands)
Assets
Current assets:
Cash and cash equivalents $ 3,897 $ 3,661
Accounts receivable, net 39 21
Inventories 224 189
Advances to related parties 97 120
Deferred income taxes 104 104
Investments 12,286 12,058
Prepaid expenses and other 115 186
------- -------
Total current assets 16,762 16,339
Net property and equipment 5,958 5,244
Deferred franchise and development costs, net 741 707
Other assets 86 83
------- -------
Total assets $23,547 $22,373
======= =======
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 143 $ 154
Accrued expenses 2,028 1,570
------- -------
Total current liabilities 2,171 1,724
Deferred income taxes 71 71
Stockholders' equity:
Common stock 48 48
Additional paid-in capital 20,031 20,031
Retained earnings 1,226 499
------- -------
Total stockholders' equity 21,305 20,578
------- -------
Total liabilities and stockholders' equity $23,547 $22,373
======= =======
</TABLE>
Note: The condensed consolidated balance sheet at December 29, 1996 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.
See accompanying notes.
2
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PJ AMERICA, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 30, March 29,
1997 1996
------------ ------------
<S> <C> <C>
(In thousands, except per share amounts)
Restaurant sales $8,770 $2,998
Restaurant operating expenses:
Cost of sales 2,777 1,005
Salaries and benefits 2,235 761
Other operating expenses 2,059 677
Depreciation and amortization 253 84
------------ ------------
7,324 2,527
------------ ------------
Restaurant operating income 1,446 471
General and administrative expenses 464 181
------------ ------------
Operating income 982 290
Other income (expense) 155 (18)
------------ ------------
Income before income taxes 1,137 272
Income tax expense 409 -
------------ ------------
Net income $ 728 $ 272
============ ============
Net income per share $ 0.15
============
Weighted average shares outstanding 4,882
===========
Unaudited pro forma information:
Historical net income $ 272
Pro forma income tax expense 99
------------
Pro forma net income $ 173
============
Pro forma net income per share $ 0.10
============
Weighted average shares outstanding 1,764
============
</TABLE>
See accompanying notes.
3
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PJ AMERICA, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 30, March 29,
1997 1996
-----------------------------
<S> <C> <C>
(In thousands)
Cash Flows from Operating Activities
Net cash provided by operating activities $ 1,420 $ 387
Cash Flows from Investing Activities
Purchases of property and equipment (956) (71)
Purchases of investments (228) -
----------- ----------
Net cash used in investing activities (1,184) (71)
Cash Flows from Financing Activities
Payments on bank borrowings - (36)
Payments on stockholder notes - (11)
Distributions paid - (58)
----------- ----------
Net cash used in financing activities - (105)
Net increase in cash 236 211
Cash and cash equivalents at beginning of period 3,661 224
----------- ----------
Cash and cash equivalents at end of period $ 3,897 $ 435
=========== ==========
</TABLE>
See accompanying notes.
4
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PJ AMERICA, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
March 30, 1997
Note 1 - Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with 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 months ended March 30, 1997 are
not necessarily indicative of the results that may be expected for the year
ending December 28, 1997. For further information, refer to the consolidated
financial statements and footnotes thereto included in the PJ America, Inc.
Annual Report on Form 10-K for the year ended December 29, 1996.
The accompanying unaudited condensed consolidated financial statements
include the accounts of PJ America, Inc. and its wholly-owned subsidiary, PJ
Cheese, Inc. (the "Company"). All significant inter-company transactions between
the consolidated companies have been eliminated. Prior to the Company's initial
public offering (the "Offering") and reorganization, the Company's financial
statements represented the combined financial position, results of operations
and cash flows of Extra Cheese, Inc. (Extra Cheese), Textra Cheese Corp.
(Textra) and Twice the Cheese, Inc. (Twice), collectively referred to herein as
the "Alabama Group." Those financial statements excluded the combined financial
position of PJVA, Inc. and PJV, Inc., collectively referred to as the "Virginia
Group" prior to their acquisition on October 30, 1996 (See Note 3).
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 tax before October 30, 1996.
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, Earnings per Share, which is required to be adopted on December 31,
1997. At that time, the Company will be required to change the method currently
used to compute earnings per share and to restate all prior periods. Under the
new requirements for calculating primary earnings per share, the dilutive effect
of stock options and warrants will be excluded. The impact is not expected to
result in an increase in primary earnings per share for the first quarter ended
March 30, 1997 and March 29, 1996. The impact of Statement 128 on the
calculation of fully diluted earnings per share for these quarters is not
expected to be material.
Note 2 - Reorganization
The Company was formed in August, 1996 to succeed to the businesses of five
Papa John's International, Inc. (PJI) 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
5
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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 (the "Reorganization").
Accordingly, the Company is the parent of PJ Cheese, and PJ Cheese owns all of
the Papa John's restaurants which were owned by Extra Cheese, Textra, Twice,
PJVA, Inc. and PJV, Inc. (collectively, the "Predecessor Companies").
Note 3 - Initial Public Offering and Pro Forma Information
The Company completed 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 exercised 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 $1.5 million and expenses
of $1.2 million) were $19.2 million. Such proceeds were partially used to fully
retire the outstanding balance owed to banks and shareholders, pay S Corporation
distributions, and for general corporate purposes.
Note 4 - Pro Forma Information Excluding the Virginia Group Acquisition
(Unaudited)
The Company terminated its status as an S Corporation on October 29, 1996. Pro
forma income taxes for the three months ended March 29, 1996 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%.
Pro forma net income per share is based on the weighted averaged number of
shares of common stock and common stock equivalents outstanding during the
period. The pro forma net income per share amounts were calculated assuming that
the number of shares of common stock in the Offering necessary to generate
sufficient proceeds to fund the payment of the Company's undistributed S
Corporation earnings (excess S Corporation earnings reduce common stock
equivalents). A summary of the components of the weighted average shares of
common stock and equivalents outstanding during the three months ended March 29,
1996 is as follows:
<TABLE>
<CAPTION>
<S> <C>
Total number of common shares outstanding throughout the period 1,770
Adjustment to reflect shares issued to consider excess S Corporation (6)
distributions -----
Total weighted average shares and equivalents outstanding 1,764
=====
</TABLE>
6
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Note 5 - Acquisition of Virginia Group - Pro Forma Information (Unaudited)
Concurrent with the Offering, 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 months ended March 29, 1996 as if the Reorganization occurred at the
beginning of the Company's 1996 fiscal year. Pro forma net income reflects an
assumed corporate income tax rate of 36.5%.
<TABLE>
<CAPTION>
In thousands, except per share data
<S> <C>
Restaurant sales $6,606
======
Net income $ 291
======
Net income per share $ 0.09
======
Weighted average shares outstanding (in thousands) 3,120
======
</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 1996 fiscal year.
7
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SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
Certain statements in this Form 10-Q under "Management's Discussion and Analysis
of Financial Condition and Results of Operations" constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such forward-looking statements involve known and unknown risks,
uncertanties and other factors which may cause the actual results, performance
or achievements of the Company to be materially different from any future
results, performance or achievements expressed or implied by such forward-
looking statements. Such factors include, among others, the following:
competition; success of operating initiatives; advertising and promotional
efforts; adverse publicity; acceptance of new product offerings; availability,
locations and terms of sites for store development; changes in business strategy
or development plans; availability and terms of capital; food, labor and
employee benefit costs; changes in government regulations; regional weather
conditions; and other factors referenced in this Form 10-Q.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Results of Operations
Restaurant Sales. Restaurant sales increased 193% to $8.8 million for the
three months ended March 30, 1997, from $3.0 million for the comparable period
in 1996. The increase was primarily attributable to the 46 restaurants open
throughout the period ended March 30, 1997 (includes 25 Virginia restaurants
acquired on October 30, 1996), as compared to the 15 restaurants open throughout
the period ended March 29, 1996, the three restaurants opened in the first
quarter of 1997, and a 11.9% increase in comparable restaurant sales.
Costs and Expenses. Cost of sales, which consists of food, beverage and
paper costs, decreased as a percentage of restaurant sales to 31.7% for the
three months ended March 30, 1997, from 33.5% for the comparable period in 1996.
This decrease is primarily attributable to the acquisition of the Virginia
restaurants which are included in the period ended March 30, 1997, slightly
lower cheese costs, and a maturing restaurant base.
Salaries and benefits, which consist of all store level employee wages,
taxes, and benefits increased slightly as a percentage of restaurant sales to
25.5% for the three months ended March 30, 1997, from 25.4% for the comparable
period in 1996. The increase in salaries and benefits as a percentage of
restaurant sales was primarily due to the increase in minimum wage in October,
1996, partially offset by better labor utilization.
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, pre-opening expenses and
advertising expenses. Other operating expenses increased as a percentage of
restaurant sales to 23.5% for the three months ended March 30, 1997, from 22.6%
for the comparable period in 1996. This increase is primarily attributable to
the acquisition of the Virginia restaurants, which historically have had higher
operating expenses as a percentage of restaurant sales, partially offset by
increased leverage of expenses as a result of comparable store sales increases
and increased purchasing power for various expenses.
Depreciation and amortization was relatively consistent as a percentage of
restaurant sales at 2.9% for the three months ended March 30, 1997, as compared
to 2.8% for the comparable period in 1996.
8
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General and administrative expenses decreased as a percentage of restaurant
sales to 5.3% for the three months ended March 30, 1997, from 6.0% for the
comparable period in 1996. This decrease was primarily due to the leveraging of
general and administrative expenses as a result of increased sales, partially
offset by additional corporate infrastructure necessary to support planned
growth.
Other Income (Expense). Other income (expense), consisting primarily of
investment income for the quarter ended March 30, 1997, was approximately
$155,000. The increase in investment income is a result of earnings on funds
received from the Offering. Investment balances are considered available to fund
growth and acquisitions.
Income Taxes. The Company did not provide for income taxes in 1996. This
increase was due to the conversion from an S Corporation to a C Corporation on
October 30, 1996, at which time the Company became subject to corporate level
income taxes. Income tax expense reflects a combined federal, state and local
effective tax rate of 36.0%.
Liquidity and Capital Resources
The Company will not have significant receivables or inventory, and
therefore it will require capital primarily for the development of new
restaurants. Capital expenditures of approximately $1 million for the three
months ended March 30, 1997, were primarily funded by cash flow from operations.
Cash flow from operations increased to $1.4 million for the three months
ended March 30, 1997 from $400,000 for the comparable period in 1996, primarily
due to the higher level of net income for the first quarter of 1997.
The Company has financed its operations principally from cash provided by
operating activities and proceeds from bank borrowings and stockholder loans. In
October, 1996, the Company received $19.2 million in net cash proceeds from its
initial public offering. These proceeds were used to fund final S Corporation
distributions of $2.0 million to stockholders, $1.6 million to retire
stockholder indebtedness, and $2.0 million to retire bank indebtedness. The
remaining net proceeds were used to fund capital expenditures in 1996 or were
held in various investments.
Capital expenditures are expected to be approximately $2.8 million for
1997, primarily for restaurant development and existing restaurant improvements.
The Company also may acquire the operations of other Papa John's franchisees if
such operations become available on terms satisfactory to the Company. Capital
resources at March 30, 1997 include $16.2 million of cash and investments. The
Company plans to fund its capital expenditures through 1997 from available cash
and cash generated from operations. The Company has not sought and does not have
any commitments for any credit facilities.
9
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PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Exhibit
Number Description
------ -----------
11 Statement regarding 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
There were no reports filed on Form 8-K during the quarterly period
ended March 30, 1997.
10
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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: April 17, 1997 /s/ D. Ross Davison
--------------------
D. Ross Davison
Vice President, Chief Financial Officer
and Treasurer (Principal Financial Officer)
11
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EXHIBIT 11
Statement Re: Computation of Earnings Per Share
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 30, March 29,
1997 1996
------------ ------------
<S> <C> <C>
(In thousands, except per share amounts)
Primary
Average shares outstanding 4,755 1,770
Adjustment to reflect shares issued
to consider excess S Corporation distributions - (6)
Shares issuable upon the exercise of
outstanding stock options and warrants 127 -
------------ ------------
Total 4,882 1,764
============ ============
Net income $ 728 $ 173
============ ============
Per common share amount $ 0.15 $ 0.10
============ ============
</TABLE>
Fully diluted earnings per Common Share and primary earnings per Common Share
are the same for the three months ended March 30, 1997.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from
PJ America's proforma combined financial statements for the 3 months ended March
30, 1997 and for the year ended December 29, 1996 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS YEAR
<FISCAL-YEAR-END> DEC-28-1997 DEC-29-1996
<PERIOD-START> DEC-30-1996 JAN-01-1996
<PERIOD-END> MAR-30-1997 DEC-29-1996
<CASH> 3,897,002 3,660,843
<SECURITIES> 12,286,300 12,057,972
<RECEIVABLES> 39,131 20,624
<ALLOWANCES> 0 0
<INVENTORY> 224,149 189,078
<CURRENT-ASSETS> 16,763,264 16,338,787
<PP&E> 8,259,358 7,305,188
<DEPRECIATION> (2,301,421) (2,061,138)
<TOTAL-ASSETS> 23,547,809 22,373,321
<CURRENT-LIABILITIES> 2,171,376 1,724,601
<BONDS> 0 0
0 0
0 0
<COMMON> 47,550 47,550
<OTHER-SE> 21,257,703 20,529,990
<TOTAL-LIABILITY-AND-EQUITY> 23,547,809 22,373,321
<SALES> 8,769,605 30,264,352
<TOTAL-REVENUES> 8,769,605 30,264,352
<CGS> 2,776,776 10,115,854
<TOTAL-COSTS> 7,323,458 25,949,920
<OTHER-EXPENSES> 464,522 1,633,812
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (155,428) 86,723
<INCOME-PRETAX> 1,137,053 2,553,315
<INCOME-TAX> 409,339 912,514
<INCOME-CONTINUING> 727,714 1,640,801
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 727,714 1,640,801
<EPS-PRIMARY> 0.15 0.48
<EPS-DILUTED> 0.15 0.48
</TABLE>
