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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 24, 2000
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)
2300 Resource Drive
Birmingham, Alabama 35242
(Address of principal executive offices)
(205) 981-2800
(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 ___
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At October 9, 2000, there were 4,324,648 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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<S> <C> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets (Unaudited) -
September 24, 2000 and December 26, 1999 2
Condensed Consolidated Statements of Income (Unaudited) -
Three Months and Nine Months Ended September 24, 2000 and
September 26, 1999 3
Condensed Consolidated Statements of Cash Flows (Unaudited) -
Three Months and Nine Months Ended September 24, 2000 and September
26, 1999 4
Notes to Condensed Consolidated Financial Statements (Unaudited) 5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 6
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 9
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
PJ AMERICA, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
Sept. 24, December 26,
2000 1999
(Unaudited) (Note)
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(In thousands)
Assets
Current assets:
Cash and cash equivalents $ 1,792 $ 2,648
Inventories 618 910
Prepaid expenses and other 448 420
Investments - 2,879
Deferred income taxes 294 294
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Total current assets 3,152 7,151
Investments 100 4,050
Net property and equipment 33,485 28,187
Deferred franchise and development costs,
net of accumulated amortization 3,979 3,854
Goodwill, net of accumulated amortization 4,286 4,413
Other assets 310 282
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Total assets $ 45,312 $ 47,937
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Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses $ 4,646 $ 4,908
Credit line 5,000 -
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Total current liabilities 9,646 4,908
Deferred income taxes 1,990 1,491
Stockholders' equity:
Common stock 43 54
Additional paid-in-capital 25,078 31,675
Retained earnings 8,555 9,809
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Total stockholders' equity 33,676 41,538
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Total liabilities and stockholders' equity $ 45,312 $ 47,937
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Note: The condensed consolidated balance sheet at December 26, 1999 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
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Sept. 24, Sept. 26, Sept. 24, Sept. 26,
2000 1999 2000 1999
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<S> <C> <C> <C> <C>
(In thousands, except per share amounts)
Restaurant sales $ 27,483 $ 24,425 $ 80,949 $ 70,282
Restaurant operating expenses:
Cost of sales 8,315 7,761 24,348 21,698
Salaries and benefits 8,090 6,814 23,487 19,655
Other operating expenses 7,353 5,820 21,040 16,729
Depreciation and amortization 1,103 846 3,041 2,345
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24,861 21,241 71,916 60,427
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Restaurant operating income 2,622 3,184 9,033 9,855
General and administrative expenses 1,804 1,224 4,807 3,529
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Operating income 818 1,960 4,226 6,326
Other income (expense) (119) 166 8 490
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Income before income taxes and cumulative
effect of change in accounting principle 699 2,126 4,234 6,816
Income tax expense 246 723 1,483 2,318
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Income before cumulative effect of change
in accounting principle 453 1,403 2,751 4,498
Cumulative effect of change in accounting
principle, net of taxes - - - (181)
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Net income $ 453 $ 1,403 $ 2,751 $ 4,317
========= ========= ========= =========
Basic earnings per share:
Income before cumulative effect of change
in accounting principle $ 0.10 $ 0.24 $ 0.56 $ 0.78
Cumulative effect of accounting change,
net of taxes - - - (0.03)
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Net income per share - Basic $ 0.10 $ 0.24 $ 0.56 $ 0.75
========= ========= ========= =========
Diluted earnings per share:
Income before cumulative effect of
change in accounting principle $ 0.10 $ 0.24 $ 0.56 $ 0.75
Cumulative effect of accounting change,
net of taxes - - - (0.03)
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Net income per share - Diluted $ 0.10 $ 0.24 $ 0.56 $ 0.72
========= ========= ========= =========
Weighted average shares outstanding - Basic 4,529 5,750 4,877 5,781
========= ========= ========= =========
Weighted average shares outstanding - Diluted 4,529 5,964 4,884 6,001
========= ========= ========= =========
</TABLE>
3
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PJ AMERICA, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended
------------------------
Sept. 24, Sept. 26,
2000 1999
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(In thousands)
Cash Flows from Operating Activities
Net cash provided by operating activities $ 6,140 $ 6,761
Cash Flows from Investing Activities
Purchases of property, equipment, franchise and
and development fees (8,212) (8,469)
Maturity of investments 6,829 2,841
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Net cash used in investing activities (1,383) (5,628)
Cash Flows from Financing Activities
Repurchase of stock (10,685) (3,642)
Proceeds from exercise of stock options 72 1,606
Net proceeds from line of credit facility 5,000 -
Payments on acquisition financing - (1,345)
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Net cash used in financing activities (5,613) (3,381)
Net (decrease) increase in cash (856) (2,248)
Cash and cash equivalents at beginning of year 2,648 5,026
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Cash and cash equivalents at end of period $ 1,792 $ 2,778
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See accompanying notes.
4
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PJ AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
September 24, 2000
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 24, 2000 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2000. 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 26,
1999.
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.
The preparation of unaudited condensed consolidated financial statements
requires management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual results
could differ from these estimates.
Note 2 - Development Changes
In September, 2000, the Company announced it was postponing development and
that it expected to open 10 restaurants in the second half of 2000. The Company
is in compliance with each of its geographic development agreements; however,
the Company is evaluating its performance in each market, and decisions about
2001 development will be made in the fourth quarter of 2000.
Note 3 - Stock Offerings and Repurchases
In September, 2000, the Board of Directors authorized the Company to
purchase an additional $10 million of its common stock in both open market
purchases as well as private transactions. This brought the total stock
repurchase program authorization to $30 million. During the third quarter of
2000, the Company repurchased 265,000 shares for $1.9 million. As of September
24, 2000, the Company had repurchased and immediately retired 1.62 million
shares at various prices totaling approximately $19.0 million.
Note 4 - Line of Credit Facility
In May, 2000, the Company entered into a $10 million Revolving Line of
Credit Facility with Bank One, Kentucky, NA. The Company obtained the line of
credit for liquidity, general corporate needs, and to fund the Company's stock
repurchase program. As of September 24, 2000, the Company had an outstanding
balance of $5 million on the line of credit.
Note 5 - Change in Accounting for Deferred Commissary Start-Up Costs - 1999
In the first quarter of 1999, the Company adopted the American Institute of
CPAs Statement of Position (SOP) 98-5, "Reporting on the Costs of Start-up
Activities," which requires entities to expense all start-up and pre-opening
costs as they are incurred. The Company previously deferred commissary start-up
costs and amortized them over a period of one year from the facility's opening
date. The cumulative effect of this change in accounting principle, net of tax,
was $181 thousand or $.03 per share and was recorded in the first quarter of
1999 as required by the SOP.
5
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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:
increased advertising, promotions and discounting by competitors which may
adversely affect sales; the ability of the Company to open new restaurants and
operate new and existing restaurants profitably; increases in food, labor,
employee benefits and similar costs; economic conditions in the territories in
which the Company operates; and new product and concept development by food
industry competitors. Further information regarding factors that could affect
the Company's financial and other results is included in the Company's forms 10-
Q and 10-K, filed with the Securities and Exchange Commission.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Restaurant Sales. Restaurant sales increased 13% to $27.5 million for the
three months ended September 24, 2000, from $24.4 million for the comparable
period in 1999, and 15% to $80.9 million for the nine months ended September 24,
2000 from $70.3 million for the comparable period in 1999. These increases were
primarily due to a 19% and 22% increase in the number of equivalent restaurants
open during the three and nine months ended September 24, 2000, respectively, as
compared to 1999. "Equivalent restaurants" represents the number of restaurants
open at the beginning of a given period, adjusted for restaurants opened,
acquired or sold during the period on a weighted average basis. Also,
comparable sales increased 0.2% and 0.1% in the three and nine months ended
September 24, 2000 respectively, from the comparable periods in 1999. The total
average unit sales decreased 4.9% in the three and nine months ended September
24, 2000 from the comparable periods in 1999 due to the significant increase in
restaurants in the Company's "New Markets", which primarily are restaurants
located in Utah, California, Oregon, and Puerto Rico. The Company has also
increased the level of marketing expenditures; however, aggregate sales have
been less than management's expectations. The Company's New Markets are
experiencing a longer time to mature, and based on the higher operating costs,
specifically labor and occupancy, losses in these markets have increased as the
number of stores have increased.
Costs and Expenses. Cost of sales, which consists of food, beverage and
paper costs, decreased as a percentage of restaurant sales to 30.3% and 30.1%
for the three and nine months ended September 24, 2000 respectively, from 31.8%
and 30.9% for the comparable periods in 1999. These decreases are primarily
attributable to significantly lower cheese prices, offset by significant
additional discounting, higher box costs and higher meat topping costs. All of
the Company's restaurants in the domestic United States receive product from
Papa John's International, Inc. ("PJI"), and each restaurant is charged the same
price for product, regardless of the location of the restaurant.
6
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Salaries and benefits, which consist of all store level employee wages,
taxes, and benefits increased as a percentage of restaurant sales to 29.4% and
29.0% for the three and nine months ended September 24, 2000 respectively, from
27.9% and 28.0% for the comparable periods in 1999. The increase in salaries and
benefits as a percentage of restaurant sales was primarily due to the increase
in the proportion of restaurants in New Markets, a higher minimum wage in
California and Oregon, an average wage rate increase of approximately 3%, and
less leverage on projected sales.
Other operating expenses include other restaurant level operating costs,
the material components of which are advertising expenses, automobile mileage
reimbursement for delivery drivers, rent, royalties, utility expenses, and pre-
opening expenses. Other operating expenses increased as a percentage of
restaurant sales to 26.8% and 26.0% for the three and nine months ended
September 24, 2000 respectively, from 23.8% for the comparable periods in 1999.
These increases are primarily attributable to less leverage on projected sales
volumes, higher advertising expenses, and a higher proportion of restaurants in
New Markets, which have higher occupancy costs. Also, utility expenses in the
third quarter of 2000 were significantly higher than the comparable period in
1999.
Depreciation and amortization increased as a percentage of restaurant sales
to 4.0% and 3.8% for the three and nine months ended September 24, 2000
respectively, from 3.5% and 3.3%, respectively for the comparable periods in
1999. This increase is primarily attributable to a higher proportion of
restaurants in New Markets (thus lower sales and less leverage).
General and administrative expenses, which includes restaurant support
personnel and related costs of operations, increased as a percentage of
restaurant sales to 6.6% and 5.9% for the three and nine months ended September
24, 2000 respectively, from 5.0% for the comparable periods in 1999. This
increase was primarily due to additional corporate operations support personnel
to support current and future growth, and less leverage on sales. Also, in the
third quarter of 2000, the Company also incurred approximately $200,000 of costs
associated with operations management restructuring, including recruitment and
relocation expenses. The Company also anticipates incurring additional costs in
the fourth quarter of 2000 to strengthen its operations team.
Other Income (Expense). Other income (expense)which consists primarily of
investment income and interest expense decreased $.3 million and $.5 million for
the three and nine months ended September 24, 2000 respectively. The decrease
in investment income is a result of a lower investment balance due primarily to
stock repurchases. At September 24, 2000, the Company did not have any
investment balances, as the Company had used all available cash to reduce the
outstanding balance under the credit line.
Liquidity and Capital Resources
The Company requires capital primarily for the development and acquisition
of new restaurants. Capital expenditures of approximately $8.2 million for the
nine months ended September 24, 2000, were funded by maturity of investments,
cash flow from operations, and increases in the line of credit facility.
Cash flow from operations decreased to $6.1 million for the nine months
ended September 24, 2000 from $6.8 million for the comparable period in 1999,
primarily due to lower net income.
Capital expenditures are expected to be approximately $10 million for 2000,
all of which is expected to be 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 September 24, 2000 include
$1.8 million of cash and investments and $5.0 million remaining on the Company's
$10 million line of credit facility. The Company plans to fund its capital
expenditures through 2000 from available cash, credit line availability, and
cash generated from operations.
7
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The Company also may repurchase its common stock. In September 2000, the
Company's Board authorized an additional $10 million, bringing the total
authorization to date to $30 million. The Company plans to fund the additional
stock repurchase from cash generated from operations and credit line
availability. Depending on how much common stock is repurchased, and the
timing, the Company may need to seek an increase in its credit line facility.
Impact of Year 2000
The Company is now Year 2000 compliant and there were no adverse events
that occurred and no contingency plans were required to be implemented relating
to the Year 2000 problem at year-end 1999. The Company spent approximately
$10,000 in the year 1999 for its Year 2000 readiness efforts. These expenses
included replacing some outdated, non-compliant hardware and non-compliant
software as well as identifying and remediating known Year 2000 problems. The
Company does not anticipate any future exposure related to the Year 2000 issue.
8
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Exhibit
Number Description
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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 6, 2000 was filed
announcing third quarter operating earnings estimate of $.08 to $.12 per
share, as a result of negative comparable restaurant sales, increased
advertising expenditures and discounts, which had significantly pressured
operating margins.
A current report on Form 8-K dated September 12, 2000 was filed
announcing development changes, and an increase in Common Stock repurchase
program authorization by an additional $10 million, bringing the total
authorization to date to $30 million.
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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.
/s/ D. Ross Davison
Date: October 17, 2000 ----------------------------------------------
D. Ross Davison
Vice President of Administration,
Chief Financial Officer and Treasurer
(Principal Financial Officer)
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