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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 March 26, 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 ___
---
At April 19, 2000, there were 5,009,148 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) -
March 26, 2000 and December 26, 1999 2
Condensed Consolidated Statements of Income (Unaudited) -
Three Months Ended March 26, 2000 and March 28, 1999 3
Condensed Consolidated Statements of Cash Flows (Unaudited) -
Three Months Ended March 26, 2000 and March 28, 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 8
</TABLE>
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
PJ AMERICA, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
March 26, December 26,
2000 1999
(Unaudited) (Note)
----------- ------------
<S> <C> <C>
(In thousands)
Assets
Current assets:
Cash and cash equivalents $ 603 $ 2,648
Inventories 759 910
Prepaid expenses and other 978 420
Investments 1,026 2,879
Deferred income taxes 294 294
----------- ----------
Total current assets 3,660 7,151
Investments 4,150 4,050
Net property and equipment 29,897 28,187
Deferred franchise and development costs,
net of accumulated amortization 3,854 3,854
Goodwill, net of accumulated amortization 4,371 4,413
Other assets 289 282
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Total assets $ 46,221 $ 47,937
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Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses $ 4,402 $ 4,908
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Total current liabilities 4,402 4,908
Deferred income taxes 1,690 1,491
Stockholders' equity:
Common stock 52 54
Additional paid-in-capital 30,238 31,675
Retained earnings 9,839 9,809
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Total stockholders' equity 40,129 41,538
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Total liabilities and stockholders' equity $ 46,221 $ 47,937
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</TABLE>
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)
Three Months Ended
March 26, March 28,
2000 1999
--------- ---------
(In thousands, except per share amounts)
Restaurant sales $ 25,825 $ 21,855
Restaurant operating expenses:
Cost of sales 7,649 6,620
Salaries and benefits 7,526 6,081
Other operating expenses 6,525 5,241
Depreciation and amortization 946 710
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22,646 18,652
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Restaurant operating income 3,179 3,203
General and administrative expenses 1,430 1,137
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Operating income 1,749 2,066
Other income 106 169
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Income before income taxes and cumulative effect of
change in accounting principle 1,855 2,235
Income tax expense 649 760
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Income before cumulative effect of change in
accounting principle 1,206 1,475
Cumulative effect of change in accounting principle,
net of taxes - (181)
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Net income $ 1,206 $ 1,294
========= =========
Basic earnings per share:
Income before cumulative effect of change in
accounting principle $ 0.23 $ 0.25
Cumulative effect of accounting change, net of
taxes - (0.03)
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Net income per share - Basic $ 0.23 $ 0.22
========= =========
Diluted earnings per share:
Income before cumulative effect of change in
accounting principle $ 0.23 $ 0.25
Cumulative effect of accounting change,
net of taxes - (0.03)
--------- ---------
Net income per share - Diluted $ 0.23 $ 0.22
========= =========
Weighted average shares outstanding - Basic 5,290 5,779
========= =========
Weighted average shares outstanding - Diluted 5,312 5,996
========= =========
3
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PJ AMERICA, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 26, March 28,
2000 1999
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<S> <C> <C>
(In thousands)
Cash Flows from Operating Activities
Net cash provided by operating activities $ 1,431 $ 760
Cash Flows from Investing Activities
Purchases of property, equipment, franchise and
and development fees (2,614) (2,414)
Maturity of investments 1,753 1,818
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Net cash used in investing activities (861) (596)
Cash Flows from Financing Activities
Repurchase of stock (2,687) -
Proceeds from exercise of stock options 72 410
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Net cash (used in) provided by financing activities (2,615) 410
Net increase (decrease) in cash (2,045) 574
Cash and cash equivalents at beginning of year 2,648 5,026
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Cash and cash equivalents at end of period $ 603 $ 5,600
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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)
March 26, 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 ended March 26, 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 - Investment in BIBP Commodities, Inc.
In January 2000, the Company purchased 2 ownership interests for $100,000
in BIBP Commodities, Inc. (BIBP) which represents an 18% ownership interest.
BIBP is owned by various Papa John's International, Inc. ("PJI") franchisees,
and its sole purpose is to purchase cheese at current market prices, and sell
the cheese back to PJI at a fixed quarterly price. PJI then sells the cheese to
the franchisees (which includes the Company) at fixed quarterly prices. The
company's investment in BIBP is carried at cost in the financial statements.
Note 3 - Stock Offerings and Repurchases
In January 2000, the Board of Directors authorized the Company to purchase
an additional $5 million of its common stock in both open market purchases as
well as private transactions. This brought the total authorization to $15
million. As of March 26, 2000, the Company had repurchased and immediately
retired 784,700 shares at various prices totaling approximately $11.0 million.
Subsequent to March 26, 2000, the Company repurchased 255,000 shares at
various prices totaling approximately $2.8 million.
Note 4 - 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:
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 18% to $25.8 million for the
three months ended March 26, 2000, from $21.9 million for the comparable period
in 1999. This increase was primarily due to a 25% increase in the number of
equivalent restaurants open during the three months ended March 26, 2000 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 .2% for the three months ended March 26, 2000 over
the comparable period in 1999. The total average unit sales decreased 5.5% 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.
Costs and Expenses. Cost of sales, which consists of food, beverage and
paper costs, decreased as a percentage of restaurant sales to 29.6% for the
three months ended March 26, 2000, from 30.3% for the comparable period in 1999.
This decrease is primarily attributable to lower cheese prices, partially offset
by more discounting and higher meat and box costs. All of the Company's
restaurants in the domestic United States receive product from PJI, and each
restaurant is charged the same price for product, regardless of the location of
the restaurant.
Salaries and benefits, which consist of all store level employee wages,
taxes, and benefits increased as a percentage of restaurant sales to 29.1% for
the three months ended March 26, 2000, from 27.8% for the comparable period 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, 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 25.3% for the three months ended March 26, 2000, from 24.0%
for the comparable period in 1999. This increase is primarily attributable to
higher advertising expenses in the quarter, less leverage on lower sales
volumes, and a higher proportion of restaurants with higher occupancy costs in
New Markets.
6
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Depreciation and amortization increased as a percentage of restaurant sales
to 3.7% for the three months ended March 26, 2000, from 3.2% for the comparable
period 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 increased slightly as a percentage of
restaurant sales to 5.5% for the three months ended March 26, 2000, from 5.2%
for the comparable period in 1999. This increase was primarily due to
additional corporate infrastructure necessary to support current and future
growth, and less leverage on sales, primarily in New Markets.
Other Income. Other income which consists primarily of investment income
decreased $.1 million for the three months ended March 26, 2000. The decrease
in investment income is a result of a lower investment balance due to stock
repurchases. 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 of approximately $2.6 million for the
three months ended March 26, 2000, were funded by maturity of investments and
cash flow from operations.
Cash flow from operations increased to $1.4 million for the three months
ended March 26, 2000 from $.8 million for the comparable period in 1999.
Capital expenditures are expected to be approximately $9 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 March 26, 2000 include $5.8
million of cash and investments. The Company plans to fund its capital
expenditures through 2000 from available cash, investments, and cash generated
from operations. The Company does not have any commitments for any credit
facilities.
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.
7
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PART II. OTHER INFORMATION
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 February 2, 2000 was filed announcing
the Company's sales results for 1999, and an authorization for an additional $5
million to purchase stock, bringing the total authorization to date to $15
million.
A current report on Form 8-K dated February 23, 2000 was filed announcing
fourth quarter 1999 earnings, and a plan to increase discounting and
advertising, primarily in newer markets. The company projected first quarter
2000 earnings of 23 to 27 cents.
8
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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 28, 2000 /s/ D. Ross Davison
-----------------------------------------
D. Ross Davison
Vice President of Administration,
Chief Financial Officer and Treasurer
(Principal Financial Officer)
9
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EXHIBIT 11
Statement Re: Computation of Earnings Per Share
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 26, March 28,
2000 1999
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<S> <C> <C>
(In thousands, except per share amounts)
Average shares outstanding - Basic 5,290 5,779
Shares issuable upon the exercise of
Outstanding stock options and warrants 22 217
-------------- -------------
Weighted average shares outstanding - Diluted 5,312 5,996
============== =============
Income before cumulative effect of change in accounting principle $1,206 $1,475
Cumulative effect of change in accounting principle,
net of taxes -- (181)
-------------- -------------
Net income $1,206 $1,294
============== =============
Basic earnings per share:
Income before cumulative effect of change in
Accounting principle $ 0.23 $ 0.25
Cumulative effect of accounting change, net of
Taxes -- (0.03)
-------------- -------------
Net income per share - Basic $ 0.23 $ 0.22
============== =============
Diluted earnings per share:
Income before cumulative effect of change in
accounting principle $ 0.23 $ 0.25
Cumulative effect of accounting change, net
of taxes -- (0.03)
-------------- -------------
Net income per share - Diluted $ 0.23 $ 0.22
============== =============
</TABLE>
11
<TABLE> <S> <C>
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<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from PJ America's
consolidated financial statements for the three months ended March 26, 2000 and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> DEC-27-1999
<PERIOD-END> MAR-26-2000
<CASH> 603
<SECURITIES> 5176
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 759
<CURRENT-ASSETS> 3,660
<PP&E> 39,256
<DEPRECIATION> (9,359)
<TOTAL-ASSETS> 46,221
<CURRENT-LIABILITIES> 4,402
<BONDS> 0
0
0
<COMMON> 52
<OTHER-SE> 40,077
<TOTAL-LIABILITY-AND-EQUITY> 46,221
<SALES> 25,825
<TOTAL-REVENUES> 25,825
<CGS> 7,649
<TOTAL-COSTS> 22,646
<OTHER-EXPENSES> 1,430
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (106)
<INCOME-PRETAX> 1,855
<INCOME-TAX> 649
<INCOME-CONTINUING> 1,206
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,206
<EPS-BASIC> .23
<EPS-DILUTED> .23
</TABLE>
