<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 June 25, 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 July 21, 2000, there were 4,589,648 shares of the registrant's common
stock, par value $.01 per share.
<PAGE>
PJ AMERICA, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page No.
--------
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets (Unaudited) -
June 25, 2000 and December 26, 1999 2
Condensed Consolidated Statements of Income (Unaudited) -
Three Months and Six Months Ended June 25, 2000 and June 27, 1999 3
Condensed Consolidated Statements of Cash Flows (Unaudited) -
Three Months and Six Months Ended June 25, 2000 and June 27, 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 4. Submission of Matters to a Vote of Security Holders 8
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 25, December 26,
2000 1999
(Unaudited) (Note)
------------------ ------------------
<S> <C> <C>
(In thousands)
Assets
Current assets:
Cash and cash equivalents $ - $ 2,648
Inventories 676 910
Prepaid expenses and other 697 420
Investments 1,471 2,879
Deferred income taxes 294 294
----------------- -----------------
Total current assets 3,138 7,151
Investments 2,800 4,050
Net property and equipment 32,072 28,187
Deferred franchise and development costs,
net of accumulated amortization 3,948 3,854
Goodwill, net of accumulated amortization 4,329 4,413
Other assets 297 282
----------------- -----------------
Total assets $ 46,584 $ 47,937
================= =================
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses $ 4,679 $ 4,908
Current debt 5,000 -
----------------- -----------------
Total current liabilities 9,679 4,908
Deferred income taxes 1,790 1,491
Stockholders' equity:
Common stock 46 54
Additional paid-in-capital 26,636 31,675
Retained earnings 8,433 9,809
----------------- -----------------
Total stockholders' equity 35,115 41,538
----------------- -----------------
Total liabilities and stockholders' equity $ 46,584 $ 47,937
================= =================
</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
<PAGE>
PJ AMERICA, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------------- -----------------------------
June 25, June 27, June 25, June 27,
2000 1999 2000 1999
------------ ------------ ----------- ---------
<S> <C> <C> <C> <C>
(In thousands, except per share amounts)
Restaurant sales $ 27,642 $ 24,001 $ 53,466 $ 45,857
Restaurant operating expenses:
Cost of sales 8,385 7,318 16,033 13,937
Salaries and benefits 7,871 6,760 15,398 12,841
Other operating expenses 7,162 5,668 13,687 10,910
Depreciation and amortization 991 787 1,937 1,497
------------ ------------ ----------- --------
24,409 20,533 47,055 39,185
------------ ------------ ----------- --------
Restaurant operating income 3,233 3,468 6,411 6,672
General and administrative expenses 1,573 1,169 3,003 2,306
------------ ------------ ----------- --------
Operating income 1,660 2,299 3,408 4,366
Other income 20 156 127 324
------------ ------------ ----------- --------
Income before income taxes and cumulative
effect of change in accounting principle 1,680 2,455 3,535 4,690
Income tax expense 588 835 1,237 1,595
------------ ------------ ----------- --------
Income before cumulative effect of change
in accounting principle 1,092 1,620 2,298 3,095
Cumulative effect of change in accounting
principle, net of taxes - - - (181)
------------ ------------- ----------- --------
Net income $ 1,092 $ 1,620 $ 2,298 $ 2,914
============ ============ =========== ========
Basic earnings per share:
Income before cumulative effect of change
in accounting principle $ 0.23 $ 0.28 $ 0.45 $ 0.53
Cumulative effect of accounting change,
net of taxes - - - (0.03)
------------ ------------ ----------- --------
Net income per share - Basic $ 0.23 $ 0.28 $ 0.45 $ 0.50
============ ============ =========== ========
Diluted earnings per share:
Income before cumulative effect of
change in accounting principle $ 0.23 $ 0.27 $ 0.45 $ 0.51
Cumulative effect of accounting change,
net of taxes - - - (0.03)
----------- ------------ ----------- --------
Net income per share - Diluted $ 0.23 $ 0.27 $ 0.45 $ 0.48
=========== ============ =========== ========
Weighted average shares outstanding - Basic 4,812 5,814 5,051 5,797
=========== ============ =========== ========
Weighted average shares outstanding - Diluted 4,812 6,042 5,062 6,019
=========== ============ =========== ========
</TABLE>
3
<PAGE>
PJ AMERICA, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
-----------------------------------------
June 25, June 27,
2000 1999
---------------- ----------------
<S> <C> <C>
(In thousands)
Cash Flows from Operating Activities
Net cash provided by operating activities $ 4,247 $ 4,360
Cash Flows from Investing Activities
Purchases of property, equipment, franchise and
and development fees (5,832) (5,213)
Maturity of investments 2,658 1,849
---------------- ----------------
Net cash used in investing activities (3,174) (3,364)
Cash Flows from Financing Activities
Repurchase of stock (8,793) -
Proceeds from exercise of stock options 72 1,074
Proceeds from line of credit facility 5,000 -
Payments on acquisition financing - (1,345)
---------------- ----------------
Net cash used in financing activities (3,721) (271)
Net (decrease) increase in cash (2,648) 725
Cash and cash equivalents at beginning of year 2,648 5,026
---------------- ----------------
Cash and cash equivalents at end of period $ - $ 5,751
================ ================
</TABLE>
See accompanying notes.
4
<PAGE>
PJ AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 25, 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 six months ended June
25, 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 - Stock Offerings and Repurchases
In May, 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 stock repurchase program
authorization to $20 million. As of June 25, 2000, the Company had repurchased
and immediately retired 1.36 million shares at various prices totaling
approximately $17.1 million.
Note 3 - 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.
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
<PAGE>
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 15% to $27.6 million for the
three months ended June 25, 2000, from $24.0 million for the comparable period
in 1999, and 17% to $53.5 million for the six months ended June 25, 2000 from
$45.9 million for the comparable period in 1999. These increases were primarily
due to a 21% and 23% increase in the number of equivalent restaurants open
during the three and six months ended June 25, 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
decreased 0.1% and 0.0% in the three and six months ended June 25, 2000
respectively, from the comparable periods in 1999. The total average unit sales
decreased 4.3% and 4.9% in the three and six months ended June 25, 2000
respectively 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.
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 30.0%
for the three and six months ended June 25, 2000 respectively, from 30.5% and
30.4% for the comparable periods in 1999. These decreases are primarily
attributable to lower cheese prices, offset by additional discounting and higher
box 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.
Salaries and benefits, which consist of all store level employee wages,
taxes, and benefits increased as a percentage of restaurant sales to 28.5% and
28.8% for the three and six months ended June 25, 2000 respectively, from 28.2%
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 25.9% and 25.6% for the three and six months ended June 25,
2000 respectively, from 23.6% and 23.8% for the comparable periods in 1999.
These increases are primarily attributable to less leverage on projected sales
6
<PAGE>
volumes, higher advertising expenses, and a higher proportion of restaurants in
New Markets, which have higher occupancy costs.
Depreciation and amortization increased as a percentage of restaurant sales
to 3.6% for the three and six months ended June 25, 2000 respectively, from 3.3%
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 increased as a percentage of restaurant
sales to 5.7% and 5.6% for the three and six months ended June 25, 2000
respectively, from 4.9% and 5.0% for the comparable periods in 1999. This
increase was primarily due to additional corporate infrastructure necessary to
support current and future growth and less leverage on sales.
Other Income. Other income which consists primarily of investment income
and interest expense decreased $.1 million and $.2 million for the three and six
months ended June 25, 2000 respectively. The decrease in investment income is a
result of a lower investment balance due primarily 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 $5.8 million for the
six months ended June 25, 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 $4.2 million for the six months
ended June 25, 2000 from $4.4 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 June 25, 2000 include $4.2
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, investments, and cash generated
from operations.
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
<PAGE>
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 June 20, 2000 at
the Hyatt Regency, 320 West Jefferson Street, Louisville, Kentucky at 11:00 am
(EDT).
At the meeting, the Company's stockholders elected Stephen P. Langford and
Charles W. Schnatter to serve as directors until the 2003 Annual Meeting of
Stockholders. Mr. Langford and Mr. Schnatter received affirmative votes of 4.7
million and 4.6 million, respectively and abstained votes of .2 million. The
Company's other directors continue to serve in accordance with their previous
elections: through 2001 - Richard F. Sherman, Frank O. Keener and Douglas S.
Stephens and through 2002 - Michael M. Fleishman and Martin T. Hart.
The Company's stockholders also ratified an amendment to the Company's 1996
Non-Employee Directors Stock Option Plan by a vote of 3.5 million affirmative
votes to 1 million negative and 10 thousand abstention votes.
The Company's stockholders also ratified an amendment to the Company's 1996
Stock Ownership Incentive Plan by a vote of 3.3 million affirmative votes to 1.2
million negative and 9 thousand 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 31, 2000, by
a vote of 4.9 million affirmative votes to 3 thousand negative and 14 thousand
abstention votes.
8
<PAGE>
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 May 22, 2000 was filed announcing
the Company's Board of Directors had authorized an additional $5 million to
purchase stock, bringing the total stock repurchase program authorization
to date to $20 million. The Company also was authorized to enter into a $10
million credit facility to fund the share repurchase program and general
corporate purposes.
A current report on Form 8-K dated April 14, 2000 was filed announcing
first quarter 2000 sales results and earnings estimates.
9
<PAGE>
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: August 7, 2000 /s/ D. Ross Davison
---------------------------------------------
D. Ross Davison
Vice President of Administration,
Chief Financial Officer and Treasurer
(Principal Financial Officer)
10
