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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 June 28, 1998
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 July 24, 1998, there were 5,790,685 shares of the registrant's common
stock, par value $.01 per share.
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PJ AMERICA, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page No.
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Item 1. Financial Statements
<S> <C> <C>
Condensed Consolidated Balance Sheets (Unaudited)
June 28, 1998 and December 28, 1997 2
Condensed Consolidated Statements of Income (Unaudited)
Three Months and Six Months Ended June 28, 1998 and
June 29, 1997 3
Condensed Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended June 28, 1998 and June 29, 1997 4
Notes to Condensed Consolidated Financial Statements (Unaudited) 5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 7
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 9
Item 6. Exhibits and Reports on Form 8-K 9
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
PJ AMERICA, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 28, December 28,
1998 1997
(Unaudited) (Note)
----------- ------------
<S> <C> <C>
(In thousands)
Assets
Current assets:
Cash and cash equivalents $ 8,493 $ 6,674
Inventories 372 311
Prepaid expenses and other 289 360
Investments 2,829 9,830
Deferred income taxes 151 111
------- -------
Total current assets 12,134 17,286
Investments 12,333 11,402
Net property and equipment 13,282 9,419
Deferred franchise and development cost, net 2,642 1,308
Other assets 4,371 868
------- -------
Total assets $44,762 $40,283
======= =======
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 677 $ 525
Accrued expenses 3,364 2,420
Notes payable 600 -
------- -------
Total current liabilities 4,641 2,945
Deferred income taxes 721 531
Stockholders' equity:
Common stock 58 58
Additional paid-in capital 32,332 32,197
Retained earnings 7,010 4,552
------- -------
Total stockholders' equity 39,400 36,807
------- -------
Total liabilities and stockholders' equity $44,762 $40,283
======= =======
</TABLE>
Note: The condensed consolidated balance sheet at December 28, 1997 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 SUBSIDIARIES
Condensed Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 28, June 29, June 28, June 29,
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
(In thousands, except per share amounts)
Restaurant sales $16,499 $11,985 $30,717 $22,591
Restaurant operating expenses:
Cost of sales 5,222 3,825 9,707 7,198
Salaries and benefits 4,390 3,077 8,173 5,792
Other operating expenses 3,877 2,899 7,236 5,380
Depreciation and amortization 471 307 871 600
------- ------- ------- -------
13,960 10,108 25,987 18,970
------- ------- ------- -------
Restaurant operating income 2,539 1,877 4,730 3,621
General and administrative expenses 855 715 1,575 1,280
------- ------- ------- -------
Operating income 1,684 1,162 3,155 2,341
Other income 241 168 513 324
------- ------- ------- -------
Income before income taxes 1,925 1,330 3,668 2,665
Income tax expense 635 468 1,210 882
------- ------- ------- -------
Net income $ 1,290 $ 862 $ 2,458 $ 1,783
======= ======= ======= =======
Net income per share - Basic $ 0.22 $ 0.42
======= =======
Net income per share - Diluted $ 0.22 $ 0.41
======= =======
Weighted average shares outstanding - Basic 5,787 5,785
======= =======
Weighted average shares outstanding - Diluted 5,957 5,933
======= =======
Pro forma information:
Income before income taxes $ 1,330 $ 2,665
Pro forma income tax expense 489 979
------- -------
Pro forma net income $ 841 $ 1,686
======= =======
Pro forma net income per share - Basic $ 0.17 $ 0.33
======= =======
Pro forma net income per share - Diluted $ 0.16 $ 0.33
======= =======
Weighted average shares outstanding - Basic 5,054 5,059
======= =======
Weighted average shares outstanding - Diluted 5,169 5,180
======= =======
</TABLE>
See accompanying notes.
3
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PJ AMERICA, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 28, June 29,
1998 1997
-------- --------
<S> <C> <C>
(In thousands)
Cash Flows from Operating Activities
Net cash provided by operating activities $ 4,196 $ 2,321
Cash Flows from Investing Activities
Acquisitions (5,734) -
Purchases of property, equipment, franchise and development fees (3,448) (1,742)
Maturity (Purchases) of investments 6,070 (378)
------- -------
Net cash used in investing activities (3,112) (2,120)
Cash Flows from Financing Activities
Proceeds from exercise of stock options 135 -
Proceeds from issuance of debt 1,000 -
Payments on borrowings (400) (70)
Distributions paid - (781)
------- -------
Net cash provided by (used in) financing activities 735 (851)
Net increase (decrease) in cash and cash equivalents 1,819 (650)
Cash and cash equivalents at beginning of period 6,674 4,076
------- -------
Cash and cash equivalents at end of period $ 8,493 $ 3,426
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</TABLE>
See accompanying notes.
4
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PJ AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 28, 1998
Note 1 - Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance 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 and six months ended June
28, 1998 are not necessarily indicative of the results that may be expected for
the year ending December 27, 1998. 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 28, 1997.
The accompanying unaudited condensed consolidated financial statements
include the accounts of PJ America, Inc. and its wholly-owned subsidiaries, (the
"Company"). All significant inter-company transactions between the consolidated
companies have been eliminated.
Ohio Pizza Delivery (OPD), which was merged into the Company on June 5,
1997 operated as an S corporation from January 1, 1995 through June 5, 1997,
when its S corporation election was terminated. As a result, OPD was not subject
to federal or state income taxes before June 5, 1997. However, OPD was subject
to local income taxes.
The Company adopted SFAS No. 128 Earnings per share in 1997. Net income per
share is based on the weighted average number of shares of common stock
outstanding (Basic) and common stock equivalents during the period (Diluted).
Note 2 - Common Stock Offering
In July, 1997, the Company completed a public offering pursuant to which it
sold 750,000 shares of common stock at a price of $17.75 per share. This
offering resulted in net proceeds to the Company of $12.2 million.
Note 3 - Pro Forma Information - OPD
OPD terminated its status as an S corporation on June 5, 1997. Pro forma
income taxes have been presented to reflect a provision for federal, state, and
local income taxes at an assumed effective rate of 41.0% for OPD.
Note 4 - Business Combinations
In May, 1998, the Company acquired a 22 restaurant Papa John's territory in
Southern Louisiana, which included nine existing restaurants, five restaurants
under development, and development rights for eight additional restaurants. The
purchase price was $4.3 million in cash and a short term note payable to
sellers, plus the assumption of $1.4 million of debt which was immediately
retired. The above acquisition was with certain directors and officers,
including the Chairman of the Board and Chief Executive Officer. The above
business combination was accounted for by the purchase method of accounting,
whereby operating results subsequent to the acquisition date were included in
the Company's financial statements.
5
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Note 5 - PJ Utah, LLC
In April, 1998, the Company and PJ Utah, LLC amended the option agreement
pursuant to which the Company may acquire for cash the Papa John's restaurants
owned by PJ Utah and its development and franchise rights for Papa John's
restaurants in Utah. The option agreement was amended to extend the expiration
date from December 31, 1998 to December 31, 2000, and make the option
exercisable at any time during the period commencing at the earlier of March 29,
1999, or upon the Utah restaurants reaching certain revenue targets. Under the
amended agreement, the Company's option exercise price will now be calculated
primarily by reference to PJ Utah's restaurant revenues, but in no event may the
new exercise price exceed the exercise price as calculated under the original
agreement. The amended agreement also grants the owners of PJ Utah an option,
also expiring December 31, 2000, to sell the operations and rights of PJ Utah to
the Company at a price approximately equal to the original cost of PJ Utah's
real property and leasehold improvements, plus the depreciated cost of PJ Utah's
other property plus the aggregate losses, if any, incurred by PJ Utah after
March 30, 1998. This price also constitutes the minimum price at which the
Company may exercise its option. PJ Utah is substantially owned by certain
officers and directors of the Company.
Note 6 - Central California Development Territory
In April, 1998, the Company obtained additional Central California
development rights for 23 restaurants in exchange for relinquishing its option
to acquire the development rights in Vancouver, Canada.
6
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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,
uncertainties 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; successful implementation of the Company's expansion strategy;
dependence on the success of the Papa John's system; 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 38% to $16.5 million for the
three months ended June 28, 1998 from $12.0 million for the comparable period in
1997, and 36% to $30.7 million for the six months ended June 28, 1998, from
$22.6 million for the comparable period in 1997. These increases were primarily
due to a 44% and 40% increase in the number of equivalent restaurants open
during the three and six months ended June 28, 1998, respectively, as compared
to 1997. "Equivalent restaurants" represents the number of restaurants open at
the beginning of a given period, adjusted for restaurants opened or acquired
during the period on a weighted average basis. Also, comparable sales increased
4.1% and 5.0% in the three and six months ended June 28, 1998, respectively,
over the comparable periods in 1997.
Costs and Expenses. Cost of sales, which consists of food, beverage and
paper costs, decreased as a percentage of restaurant sales to 31.6% for the
three and six months ended June 28, 1998, respectively, from 31.9% for the
comparable periods in 1997. This decrease is primarily attributable to a slight
shallowing of discounts, and lower meat topping prices, partially offset by
higher cheese prices.
Salaries and benefits, which consist of all store level employee wages,
taxes, and benefits increased as a percentage of restaurant sales to 26.6% for
the three and six months ended June 28, 1998, respectively, from 25.7% and
25.6%, respectively, for the comparable periods in 1997. These increases in
salaries and benefits as a percentage of restaurant sales were primarily due to
the increase in minimum wage in September, 1997, and the increase in the
proportion of newer restaurants opened or acquired.
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 decreased as a percentage of
restaurant sales to 23.5% and 23.6% for the three and six months ended June 28,
1998, respectively, from 24.2% and 23.8%, respectively, for the comparable
periods in 1997. These decreases in other operating expenses as a percentage of
restaurant sales are primarily attributable to increased leverage of expenses
and increased purchasing power for various expenses.
7
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Depreciation and amortization was relatively consistent as a percentage of
restaurant sales at 2.9% and 2.8% for the three and six months ended June 28,
1998, respectively, as compared to 2.6% and 2.7%, respectively, for the
comparable periods in 1997.
General and administrative expenses decreased as a percentage of restaurant
sales to 5.2% and 5.1% for the three and six months ended June 28, 1998,
respectively, from 6.0% and 5.7%, respectively, for the comparable periods in
1997. These decreases were primarily due to the OPD merger expenses of $124,000,
which were expensed in the second quarter of 1997.
Other Income. Other income which consists primarily of investment income
increased $.1 million and $.2 million for the three and six months ended June
28, 1998, respectively. These increases in investment income were a result of
earnings on funds received from the secondary stock offering in July, 1997.
Investment balances are considered available to fund growth and acquisitions.
Liquidity and Capital Resources
The Company requires capital primarily for the development and acquisition
of new restaurants. Capital expenditures (which include franchise and
development fees) of approximately $3.4 million for the six months ended June
28, 1998, were primarily funded by cash flow from operations.
Cash flow from operations increased to $4.2 million for the six months
ended June 28, 1998 from $2.3 million for the comparable period in 1997,
primarily due to the higher level of net income for the six months of 1998.
The Company has financed its operations principally from cash provided by
operating activities and proceeds from its recent stock offerings. The Company
received net proceeds of $12.2 million from a secondary stock offering in July,
1997, which were used to fund capital expenditures or were held in various
investments.
Capital expenditures, excluding purchases of existing franchisees, are
expected to be approximately $6.0 million for all of 1998. Approximately $4.5
million is expected to be for restaurant development and existing restaurant
improvements, $.5 million for commissary improvements and equipment, and $1.0
million for general and administrative land, building, and improvements. In May,
1998, the Company acquired a 22 restaurant Papa John's territory in Southern
Louisiana, which included nine existing restaurants, five restaurants under
development and development rights for eight additional restaurants. The
acquisition purchase price utilized approximately $5.7 million in cash.
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 June 28, 1998 include $23.7 million of cash and
investments. The Company plans to fund its capital expenditures through 1998
from available cash and cash generated from operations. The Company has not
sought and does not have any commitments for any credit facilities.
8
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PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Company's annual meeting of stockholders was held on May 20, 1998 at
the Hyatt Regency, 320 West Jefferson Street, Louisville, Kentucky at 11:00 am
(EDT).
At the meeting, the Company's stockholders elected Richard F. Sherman,
Frank O. Keener, and Douglas S. Stephens to serve as directors until the 2001
Annual Meeting of Stockholders. Mr. Sherman, Mr. Keener and Mr. Stephens
received affirmative votes of 4,784,470, 4,784,270, and 4,784,570, respectively,
and abstained votes 200, 400, and 100, respectively. The Company's other
directors continue to serve in accordance with their previous elections: through
1999 - Martin T. Hart and Michael M. Fleishman; and through 2000 - Stephen P.
Langford and Charles W. Schnatter.
The Company's stockholders also ratified an amendment to the Company's 1996
Non-Employee Directors Stock Incentive Plan by a vote of 4,561,555 affirmative
to 219,150 negative and 3,965 abstention votes.
The Company's stockholders also ratified the selection of Ernst & Young LLP
as the Company's independent auditors for the year ending December 27, 1998, by
a vote of 4,783,570 affirmative to 1,100 abstention votes.
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 June 28, 1998.
9
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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: July 24, 1998 /s/ D. Ross Davison
-------------------------------------------
D. Ross Davison
Vice President, Chief Financial Officer
and Treasurer (Principal Financial Officer)
10
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EXHIBIT 11
Statement Re: Computation of Earnings Per Share
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
--------------------- ---------------------
June 28, June 29, June 28, June 29,
1998 1997 1998 1997
--------------------- ---------------------
<S> <C> <C> <C> <C>
(In thousands, except per share amounts)
Average shares outstanding - Basic 5,787 5,054 5,785 5,059
Shares issuable upon the exercise of
outstanding stock options and warrants 170 115 148 121
--------------------- ---------------------
Weighted average shares outstanding - Diluted 5,957 5,169 5,933 5,180
===================== =====================
Net income $1,290 $ 841 $2,458 $1,686
===================== =====================
Net income per share - Basic $0.22 $0.17 $0.42 $0.33
===================== =====================
Net income per share - Diluted $0.22 $0.16 $0.41 $0.33
===================== =====================
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
PJ America's Consolidated Financial Statements for the three months ended June
28, 1998 and June 29, 1997 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 6-MOS
<FISCAL-YEAR-END> DEC-27-1998 DEC-28-1997
<PERIOD-START> DEC-29-1997 DEC-30-1996
<PERIOD-END> JUN-28-1998 JUN-29-1997
<CASH> 8,493 3,426
<SECURITIES> 15,162 12,436
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 372 238
<CURRENT-ASSETS> 12,134 16,333
<PP&E> 17,434 9,713
<DEPRECIATION> (4,152) (2,612)
<TOTAL-ASSETS> 44,762 24,560
<CURRENT-LIABILITIES> 4,641 1,873
<BONDS> 0 0
0 0
0 0
<COMMON> 58 50
<OTHER-SE> 39,342 22,470
<TOTAL-LIABILITY-AND-EQUITY> 44,762 24,560
<SALES> 30,717 22,591
<TOTAL-REVENUES> 30,717 22,591
<CGS> 9,707 7,198
<TOTAL-COSTS> 25,987 18,970
<OTHER-EXPENSES> 1,575 1,280
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (513) (324)
<INCOME-PRETAX> 3,668 2,665
<INCOME-TAX> 1,210 882
<INCOME-CONTINUING> 2,458 1,783
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 2,458 1,783
<EPS-PRIMARY> 0.42 0.35
<EPS-DILUTED> 0.41 0.35
</TABLE>
