<PAGE>
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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 September 27, 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 October 19, 1998, there were 5,737,185 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)
September 27, 1998 and December 28, 1997 2
Condensed Consolidated Statements of Income (Unaudited)
Three Months and Nine Months Ended September 27, 1998 and
September 28, 1997 3
Condensed Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended September 27, 1998 and September 28, 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 6. Exhibits and Reports on Form 8-K 10
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
PJ AMERICA, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 27, December 28,
1998 1997
(Unaudited) (Note)
-------------- --------------
<S> <C> <C>
(In thousands)
Assets
Current assets:
Cash and cash equivalents $ 6,811 $ 6,674
Inventories 425 311
Prepaid expenses and other 18 360
Investments 5,656 9,830
Deferred income taxes 151 111
--------- ---------
Total current assets 13,061 17,286
Investments 7,709 11,402
Net property and equipment 17,003 9,419
Deferred franchise and development
costs, net 3,362 1,308
Other assets 4,938 868
--------- ---------
Total assets $ 46,073 $ 40,283
========= =========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 240 $ 525
Accrued expenses 3,726 2,420
Notes payable 600 -
--------- ---------
Total current liabilities 4,566 2,945
Deferred income taxes 821 531
Stockholders' equity:
Common stock 58 58
Additional paid-in capital 32,348 32,197
Retained earnings 8,280 4,552
--------- ---------
Total stockholders' equity 40,686 36,807
--------- ---------
Total liabilities and stockholders'
equity $ 46,073 $ 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 Nine Months Ended
Sept 27, Sept 28, Sept 27, Sept 28,
1998 1997 1998 1997
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
(In thousands, except per share amounts)
Restaurant sales $ 17,789 $ 11,890 $ 48,506 $ 34,481
Restaurant operating expenses:
Cost of sales 5,775 3,742 15,483 10,940
Salaries and benefits 4,735 3,127 12,908 8,919
Other operating expenses 4,133 2,875 11,368 8,263
Depreciation and amortization 560 327 1,431 927
---------- ---------- ----------- -----------
15,203 10,071 41,190 29,049
---------- ---------- ----------- -----------
Restaurant operating income 2,586 1,819 7,316 5,432
General and administrative expenses 901 619 2,476 1,897
---------- ---------- ----------- -----------
Operating income 1,685 1,200 4,840 3,535
Other income 211 247 724 578
---------- ---------- ----------- -----------
Income before income taxes 1,896 1,447 5,564 4,113
Income tax expense 626 492 1,836 1,374
---------- ---------- ----------- -----------
Net income $ 1,270 $ 955 $ 3,728 $ 2,739
========== ========== =========== ===========
Net income per share - Basic $ 0.22 $ 0.17 $ 0.64
========== ========== ===========
Net income per share - Diluted $ 0.22 $ 0.17 $ 0.63
========== ========== ===========
Weighted average shares outstanding - Basic 5,791 5,576 5,787
========== ========== ===========
Weighted average shares outstanding - Diluted 5,900 5,696 5,922
========== ========== ===========
Pro forma information:
Income before income taxes $ 4,113
Pro forma income tax expense 1,471
-----------
Pro forma net income $ 2,642
===========
Pro forma net income per share - Basic $ 0.50
===========
Pro forma net income per share - Diluted $ 0.49
===========
Weighted average shares outstanding - Basic 5,232
===========
Weighted average shares outstanding - Diluted 5,352
===========
</TABLE>
See accompanying notes.
3
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PJ AMERICA, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
Sept 27, Sept 28,
1998 1997
---------- ----------
<S> <C> <C>
(In thousands)
Cash Flows from Operating Activities
Net cash provided by operating activities $ 5,642 $ 4,244
Cash Flows from Investing Activities
Acquisitions (9,049) (1,582)
Purchases of property, equipment, franchise and
development fees (5,074) (2,812)
Maturity (Purchases) of investments - net 7,867 (10,726)
---------- ----------
Net cash used in investing activities (6,256) (15,120)
Cash Flows from Financing Activities
Proceeds from exercise of stock options 151 -
Proceeds from issuance of debt 1,000 -
Payments on borrowings (400) (70)
Distributions paid - (781)
Proceeds from sale of common stock - 12,176
---------- ----------
Net cash provided by (used in) financing
activities 751 11,325
Net increase (decrease) in cash and cash equivalents 137 449
Cash and cash equivalents at beginning of period 6,674 4,076
---------- ----------
Cash and cash equivalents at end of period $ 6,811 $ 4,525
========== ==========
</TABLE>
See accompanying notes.
4
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PJ AMERICA, INC. AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
September 27, 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 nine months ended
September 27, 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.
5
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Note 4 - Business Combinations (continued)
In September, 1998, the Company acquired a 30 restaurant Papa John's territory
in Utah, which included 12 existing restaurants and development rights for 18
additional restaurants. The purchase price was $.8 million in cash plus the
assumption of $2.5 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 combinations were accounted for by the purchase method of
accounting, whereby operating results subsequent to the acquisition date were
included in the Company's financial statements.
Note 5 - Deferred Pre-Opening costs - Commissary
Pre-opening costs, which represent certain expenses incurred before a new
commissary facility opens, are capitalized and amortized on a straight-line
basis over a period of one year from the facility's opening date.
In April 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued a Statement of Position 98-5,
"Reporting on the Costs of Start-Up Activities" (the "SOP") which requires
adoption at the beginning of 1999. The Company's initial application of the SOP
would require the write-off of deferred commissary pre-opening costs as of the
date of adoption, and such write-off would be reported, on a net of tax basis,
as the cumulative effect of a change in accounting principle. The Company does
not expect the adoption of the SOP to significantly impact future operating
results. Deferred pre-opening costs as of September 27, 1998, were approximately
$150,000.
Note 6 - Portland Oregon Development Territory
In September 1998, the Company obtained Portland, Oregon and surrounding area
development rights for 36 restaurants. The Company expects to open its first
restaurant in this territory in the fourth quarter of 1998.
Note 7 - Common Stock Buyback of $5 Million Authorized
In September, 1998, the Board of Directors authorized the Company to purchase up
to $5 million of its common stock in both open market purchases as well as
private transactions. As of September 27, 1998, the Company had not made any
repurchases. As of October 20, 1998, the Company had repurchased 54,500 shares
at various prices totaling $.8 million.
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 50% to $17.8 million for the
three months ended September 27, 1998 from $11.9 million for the comparable
period in 1997, and 41% to $48.5 million for the nine months ended September 27,
1998, from $34.5 million for the comparable period in 1997. These increases were
primarily due to a 53% and 45% increase in the number of equivalent restaurants
open during the three and nine months ended September 27, 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 4.7% and 4.6% in the three and nine months ended September 27, 1998,
respectively, over the comparable periods in 1997.
Costs and Expenses. Cost of sales, which consists of food, beverage and
paper costs, increased as a percentage of restaurant sales to 32.5% and 31.9%
for the three and nine months ended September 27, 1998, respectively, from 31.5%
and 31.7% respectively for the comparable periods in 1997. These increases are
primarily attributable to significantly higher cheese costs in the third quarter
of 1998, partially offset by a slight shallowing of discounts and lower topping
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 nine months ended September 27, 1998, from 26.3% and 25.9%,
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, restaurant pre-opening
expenses and advertising expenses. Other operating expenses decreased as a
percentage of restaurant sales to 23.2% and 23.4% for the three and nine months
ended September 27, 1998, respectively, from 24.2% and 24.0%, 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 advertising
7
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expenses and mileage reimbursement, partially offset by slightly higher
occupancy and other operating expenses for newer stores.
Depreciation and amortization was slightly higher as a percentage of
restaurant sales at 3.1% and 3.0% for the three and nine months ended September
27, 1998, respectively, as compared to 2.8% and 2.7%, respectively, for the
comparable periods in 1997. These increases in depreciation as a percentage of
restaurant sales are primarily attributable to goodwill amortization for
acquired restaurants.
General and administrative expenses decreased as a percentage of restaurant
sales to 5.1% for the three and nine months ended September 27, 1998, from 5.2%
and 5.5%, 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
was consistent and increased $.2 million for the nine months ended September 27,
1998. This increase in investment income was 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 $5.1 million for the nine months ended
September 27, 1998, were primarily funded by cash flow from operations.
Cash flow from operations increased to $5.6 million for the nine months
ended September 27, 1998 from $4.2 million for the comparable period in 1997,
primarily due to the higher level of net income for the nine 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 $7.0 million for all of 1998. Approximately $5.5
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. In
September , 1998, the Company acquired a 30 restaurant Papa John's territory in
Utah, which included 12 existing restaurants. The acquisition purchase price
utilized approximately $3.3 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 September 27, 1998 include
8
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$20.2 million of cash and investments. The Company plans to fund its capital
expenditures through 1999 from available cash and cash generated from
operations. The Company has not sought and does not have any commitments for any
credit facilities.
The Company also may repurchase its common stock from time to time. The
Company's Board has authorized a $5.0 million stock buyback. As of October 20,
1998, the Company had purchased 54,500 shares for $.8 million.
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
A current report on Form 8-K dated September 18, 1998 was filed
announcing the Company's acquisition of the Utah restaurants, the
authorization to purchase $5 million of stock, and the agreement in
principle to acquire Portland, Oregon development rights.
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: October 23, 1998 /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 Nine Months
Ended Ended
-------------------------- ----------------------------
Sept 27, Sept 28, Sept 27, Sept 28,
1998 1997 1998 1997
-------------------------- ----------------------------
<S> <C> <C> <C> <C>
(In thousands, except per share amounts)
Average shares outstanding - Basic 5,791 5,576 5,787 5,232
Shares issuable upon the exercise of
outstanding stock options and warrants 109 121 135 120
-------------------------- ----------------------------
Weighted average shares outstanding - Diluted 5,900 5,696 5,922 5,352
========================== ============================
Net income $1,270 $ 955 $3,728 $2,642
========================== ============================
Net income per share - Basic $ 0.22 $ 0.17 $ 0.64 $ 0.50
========================== ============================
Net income per share - Diluted $ 0.22 $ 0.17 $ 0.63 $ 0.49
========================== ============================
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PJ AMERICA'S
CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 27, 1998
AND SEPTEMBER 28, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> DEC-27-1998 DEC-28-1997
<PERIOD-START> DEC-29-1997 DEC-30-1996
<PERIOD-END> SEP-27-1998 SEP-28-1997
<CASH> 6,811 4,525
<SECURITIES> 13,365 22,784
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 425 248
<CURRENT-ASSETS> 13,061 24,853
<PP&E> 21,715 11,663
<DEPRECIATION> (4,712) (3,051)
<TOTAL-ASSETS> 46,073 38,373
<CURRENT-LIABILITIES> 4,566 2,555
<BONDS> 0 0
0 0
0 0
<COMMON> 58 58
<OTHER-SE> 40,628 35,593
<TOTAL-LIABILITY-AND-EQUITY> 46,073 38,373
<SALES> 48,506 34,481
<TOTAL-REVENUES> 48,506 34,481
<CGS> 15,483 10,940
<TOTAL-COSTS> 41,190 29,049
<OTHER-EXPENSES> 2,476 1,897
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (724) (578)
<INCOME-PRETAX> 5,564 4,113
<INCOME-TAX> 1,836 1,374
<INCOME-CONTINUING> 3,728 2,739
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 3,728 2,739
<EPS-PRIMARY> 0.64 0.50
<EPS-DILUTED> 0.63 0.49
</TABLE>
