UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR
15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission File Number 0-24860
PIERCING PAGODA, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 23-1894725
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
3910 Adler Place
Bethlehem, PA 18017
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (610) 691-0437
N/A
(Former Name, Former Address and Former Fiscal Year, if Changed Since
Last Report.)
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 [ ]
The number of shares outstanding of the registrant's common stock is
9,176,838 (as of February 10, 2000)
<PAGE>
PIERCING PAGODA, INC.
INDEX
PAGE
PART I - FINANCIAL INFORMATION NUMBER
Item 1. Financial Statements
Consolidated balance sheets as of
December 31, 1999 (unaudited) and March 31, 1999 3
Consolidated statements of operations for
the three months ended December 31, 1999 and 1998
(unaudited) and the nine months ended
December 31, 1999 and 1998 (unaudited) 4
Consolidated statements of cash flows for the nine
months ended December 31, 1999 and 1998 (unaudited) 5
Notes to consolidated financial statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures About 16
Market Risk
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities and Use of Proceeds 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 19
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PIERCING PAGODA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
December March 31,
31, 1999
1999
------------ -------------
Assets (Unaudited)
Current assets
<S> <C> <C>
Cash $ 1,107 $ 4,068
Accounts receivable 2,550 4,674
Inventory 75,357 53,685
Deposits for inventory purchases 357 707
Prepaid expenses and other current assets 479 1,337
Prepaid income taxes - 131
Deferred tax assets 1,649 2,213
------------ -------------
Total current assets 81,499 66,815
Property, fixtures and equipment, net 36,190 34,293
Goodwill, net 19,330 20,199
Other assets 1,982 1,993
============ =============
$ 139,001 $ 123,300
============ =============
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $ 15,721 $ 3,934
Current installments of long-term debt and 3,930 432
revolving line of credit
Income taxes payable 6,363 125
Accrued expenses and other current liabilities 18,839 14,753
------------ -------------
Total current liabilities 44,853 19,244
Long-term debt, less current installments 5,184 25,169
Deferred tax liabilities 4,001 3,476
Other liabilities 752 920
------------ -------------
Total liabilities 54,790 48,809
Commitments and contingencies
Stockholders' equity
Preferred stock, par value $.01 per share,
authorized 3,000,000 shares. None issued. - -
Common stock, par value $.01 per share, authorized
15,000,000 shares. Issued 9,168,892 shares and
9,133,901 92 92
at December 31, 1999 and March 31, 1999,
respectively.
Additional paid-in capital 41,228 40,906
Treasury stock at cost (2,580) -
Retained earnings 45,471 33,493
------------ -------------
Total stockholders' equity 84,211 74,491
------------ -------------
$ 139,001 $ 123,300
============ =============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
PIERCING PAGODA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
December 31, December 31,
--------------------- -------------------
1999 1998 1999 1998
---------- --------- -------- ---------
<S> <C> <C> <C> <C>
Net sales $ 105,279 $ 101,985 $ 218,260 $199,673
Cost of goods sold and occupancy
expenses, (excluding depreciation
on kiosks and store fixtures) 50,186 51,919 112,059 106,172
---------- --------- -------- ---------
Gross profit 55,093 50,066 106,201 93,501
Selling, general and administrative
expenses, (including depreciation
on kiosks and store fixtures) 32,388 32,356 83,584 77,283
---------- --------- -------- ---------
Income from operations 22,705 17,710 22,617 16,218
Interest and other income 51 47 146 232
Interest expense 1,360 1,130 3,006 2,530
---------- --------- -------- ---------
Income before income taxes 21,396 16,627 19,757 13,920
Income tax expense 8,424 6,458 7,779 5,413
========== ========= ======== =========
Net income $ 12,972 $ 10,169 $11,978 $ 8,507
========== ========= ======== =========
Basic earnings per share $ 1.43 $ 1.12 $ 1.32 $ 0.93
========== ========= ======== =========
Diluted earnings per share $ 1.41 $1.10 $1.30 $ 0.91
========== ========= ======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
PIERCING PAGODA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended
December 31,
-------------------------
1999 1998
------------ -----------
Cash flows from operating activities:
<S> <C> <C>
Net income $ 11,978 $ 8,507
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 6,240 5,101
Earnings on disposal of furniture, fixtures
and equipment 633 242
Other changes in other assets 108 107
Deferred income taxes 1,089 384
Change in operating assets and liabilities
net of effects of acquisitions:
Accounts receivable 2,124 574
Inventory (21,672) (1,698)
Deposits for inventory purchases 350 15
Prepaid expenses and other current assets 858 724
Prepaid income taxes 131 215
Accounts payable 11,787 6,895
Accrued expenses and other current liabilities 4,086 7,047
Income taxes payable 6,247 3,551
Other liabilities (168) (210)
------------ -----------
Net cash provided by operating activities 23,791 31,454
Cash flows from investing activities:
Additions to property, fixtures and equipment (7,378) (10,141)
Payments for purchase of businesses (298) (14,867)
Noncurrent deposits, net (309) (400)
------------ -----------
Net cash used in investing activities (7,985) (25,408)
Cash flows from financing activities:
Repayments of long-term debt (187) (26)
Revolving line of credit, net (16,300) (8,742)
Proceeds from issuance of long-term debt - 2,565
Loan fees paid (13) (150)
Net proceeds from issuance of common stock under
employee share plans 313 341
Purchase of treasury stock (2,580) -
------------ -----------
Net cash used in financing activities (18,767) (6,012)
------------ -----------
Net increase (decrease) in cash (2,961) 34
Cash at beginning of period 4,068 2,699
============ ===========
Cash at end of period $ 1,107 $ 2,733
============ ===========
</TABLE>
<PAGE>
PIERCING PAGODA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended
December 31,
-------------------------
1999 1998
------------ -----------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
<S> <C> <C>
Interest $ 2,868 $ 2,448
============ ===========
Income taxes, net $ 519 $ 1,356
============ ===========
</TABLE>
Supplemental disclosure of non-cash operating and investing activities:
During the period ended December 31, 1998, the Company entered into a
non-competition agreement for $500,000.
See accompanying notes to consolidated financial statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 Summary of significant accounting policies
The accompanying consolidated financial statements of Piercing Pagoda, Inc.
and subsidiaries (the "Company") have been prepared in accordance with the
instructions to Form 10-Q and do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. These consolidated financial statements include the
results of operations for Piercing Pagoda, Inc. and its wholly owned
subsidiaries. All intercompany transactions have been eliminated in
consolidation. These consolidated financial statements should be read in
conjunction with the Company's consolidated financial statements and notes
thereto for the year ended March 31, 1999. The financial information
included herein is unaudited; however, the information reflects all
adjustments (consisting solely of normal recurring adjustments) that are,
in the opinion of management, necessary for a fair presentation of the
financial position, results of operations and cash flows for the interim
periods.
Operating results for the three-month and nine-month periods ended December
31, 1999 are not necessarily indicative of the results that may be expected
for the entire fiscal year.
Note 2 Earnings Per Share
The following weighted average number of shares of common stock were used
in the calculations for earnings per share. The diluted weighted average
number of shares includes the net shares that would be issued upon the
exercise of outstanding stock options, using the treasury stock method.
<TABLE>
<CAPTION>
2000 1999
-------------------- --------------------
Quarter YTD Quarter YTD
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Basic 9,054,383 9,072,341 9,103,868 9,099,043
Dilutive effect of
outstanding stock
options, using the
treasury stock
method 157,197 168,185 138,280 277,388
========= ========= ========= =========
Diluted 9,211,580 9,240,526 9,242,148 9,376,431
========= ========= ========= =========
</TABLE>
<PAGE>
Basic earnings per share is computed by dividing net earnings by the
weighted average number of common shares outstanding during the period.
Diluted earnings per share is computed by dividing net earnings by the
weighted average number of common shares outstanding during the period
increased to include the number of additional common shares that would have
been outstanding if the dilutive potential common shares had been issued.
Note 3 Property, Fixtures and Equipment
A summary of major classes of property, fixtures and equipment follows (in
thousands):
<TABLE>
<CAPTION>
December 31, March 31,
1999 1999
-------------- -----------
<S> <C> <C>
Land $ 688 $ 688
Furniture and fixtures 6,155 5,043
Kiosks 33,874 30,681
Buildings and improvements 7,320 7,283
Computer equipment,software and
other equipment 12,794 11,622
-------------- -----------
60,831 55,317
Less accumulated depreciation and
amortization 24,641 21,024
============== ===========
$ 36,190 $ 34,293
============== ===========
</TABLE>
Note 4 Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities are summarized as follows
(in thousands):
<TABLE>
<CAPTION>
December March 31,
31, 1999
1999
-------------- -----------
<S> <C> <C>
Accrued payroll, vacation and
related taxes $ 7,437 $ 6,254
Sales tax payable 3,530 719
Accrued rents payable 2,041 1,089
Liability under jewelry club program 1,039 989
Liability under merchandise
guarantee program 1,321 1,321
Accrued store closure costs 663 1,250
Other accrued expenses 2,808 3,131
============== ===========
$18,839 $14,753
============== ===========
</TABLE>
During the nine months ended December 31, 1999, the Company closed 30
stores, including 12 stores for which anticipated closure costs had been
accrued at March 31, 1999. In addition, the Company made payments to settle
28 outstanding lease obligations, which had also been accrued at March 31,
1999. Accordingly, the Company's accrual for store closure costs was
reduced to reflect the payments towards these obligations.
<PAGE>
Note 5 Stock Repurchase
On August 11, 1999 and November 22, 1999 the Company's Board of Directors
authorized the repurchase of up to a total of 400,000 shares of the
Company's common stock. At December 31, 1999, the Company had repurchased
206,500 shares of its common stock at an average price of $12.49 per share.
Note 6 Litigation
On October 19, 1999, the previously announced securities class action
litigation that had been filed against the Company and certain of its
officers by Israel H. Buck et al. was dismissed with prejudice by the
United States District Court for the Eastern District of Pennsylvania. No
appeal of the dismissal was filed by the plaintiffs within the required
time period.
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Background
The Company's consolidated net sales are comprised primarily of sales
generated by the Company's stores and, to a much lesser extent, wholesale
sales primarily to an independent store operator in Florida to which the
Company licensed the use of its store name and concept (the "Florida
Licensee"). On August 31, 1998, the Company acquired all of the outstanding
common stock of the Florida Licensee and now operates all the stores
previously owned by the Florida Licensee. Beginning on September 1, 1998,
net sales consist entirely of sales generated by the Company's retail
stores. Cost of goods sold and occupancy expenses include the cost of
merchandise, rent and occupancy, and the cost of preparing merchandise for
sale. Selling, general and administrative expenses include store and
supervisory payroll, corporate overhead and non-occupancy store expenses
including depreciation of kiosks and amortization of goodwill.
Results of operations
Three months ended December 31, 1999 and 1998
Consolidated net sales increased $3.3 million, or 3%, from $102.0 million
for the three months ended December 31, 1998 to $105.3 million for the
three months ended December 31, 1999. This increase was due primarily to a
$4.1 million, or 4%, increase in comparable store net sales and net sales
generated by new stores opened or acquired by the Company. There were a
total of 947 stores open at December 31, 1999 compared to 957 at December
31, 1998, a decrease of 1%. The average jewelry units sold per comparable
store during the quarter decreased 5% to 4,000 for the three months ended
December 31, 1999 compared to 4,200 at December 31, 1998. The average price
per jewelry unit sold per comparable store increased to $28.07 for the
three months ended December 31, 1999 compared to $25.74 for the three
months ended December 31, 1998.
Gross profit increased $5.0 million, or 10%, from $50.1 million for the
three months ended December 31, 1998 to $55.1 million for the three months
ended December 31, 1999. The Company's gross profit margin increased from
49.1% for the three months ended December 31, 1998 to 52.3% for the three
months ended December 31, 1999. The increase in gross profit dollars is
primarily attributable to the increase in the gross profit margin. The
improvement in gross profit margin reflects improved merchandise margins
due to lower merchandise costs, less promotional activity during the
quarter and changes in merchandise mix compared to the previous year.
During the current fiscal year, the Company has implemented certain changes
to its merchandise selection which have had a favorable impact on sales and
gross profit margin. These changes include the introduction of new 10k and
14k gold merchandise styles and increasing the selection of non-gold
merchandise. Additionally, better leverage of fixed rent and occupancy
costs have resulted in lower store rent expense as a percentage of net
sales. Since the beginning of the previous fiscal year, the Company has
closed 109 underperforming stores and worked to improve the operations at
its remaining stores.
Selling, general and administrative expenses were unchanged for the three
months ended December 31, 1999, totaling $32.4 million; comparable with the
three months ended December 31, 1998. As a percentage of net sales,
selling, general and administrative expenses decreased from 31.7% for the
three months ended December 31, 1998 to 30.8% for the three months ended
December 31, 1999. Changes in selling, general and administrative expenses
as a percentage of net sales primarily reflect lower direct store expenses,
including payroll, as a percentage of sales partially offset by higher
deprecation and amortization expense as a percentage of net sales.
Depreciation and amortization expense increased 16% to $2.2 million in the
three months ended December 31, 1999 from $1.9 million in the three months
ended December 31, 1998. The increase was due primarily to capital
expenditures made for new stores, the upgrading of kiosks in existing
locations and higher amortization of goodwill recorded in connection with
recent Company acquisitions.
Interest expense increased $230,000, or 20%, from $1.1 million for the
three months ended December 31, 1998 to $1.4 million for the three months
ended December 31, 1999, and as a percentage of net sales increased from
1.1% for the three months ended December 31, 1998 to 1.3% for the three
months ended December 31, 1999. The increase in interest expense primarily
reflects higher average interest rates charged on borrowings under the
Company's revolving line of credit agreement and an increase in the average
number of ounces consigned under the Company's gold consignment
arrangements.
Income tax expense increased $1.9 million to $8.4 million for the three
months ended December 31, 1999 from $6.5 million for the three months ended
December 31, 1998. As a percentage of income before income taxes, income
tax expense increased to 39.4% for the three months ended December 31, 1999
from 38.8% for the three months ended December 31, 1998. The increase in
income tax expense is due to the increase in the Company's earnings before
income taxes.
As a result of the foregoing, the Company's net income increased from $10.2
million for the three months ended December 31, 1998 to $13.0 million for
the three months ended December 31, 1999.
<PAGE>
Nine months ended December 31, 1999 and 1998
Consolidated net sales increased $18.6 million, or 9% from $199.7 million
for the nine months ended December 31, 1998 to $218.3 million for the nine
months ended December 31, 1999. This was due primarily to net sales
generated by new stores opened or acquired by the Company. Comparable store
sales increased $8.7 million or 5% in the nine-month period. There were a
total of 947 stores open at December 31, 1999 compared to 957 at December
31, 1998, a decrease of 1%. The average jewelry units sold per comparable
store were flat at 9,200 units sold in the nine months ended December 31,
1999. The average price per jewelry unit sold increased approximately 5%
from $25.03 for the nine months ended December 31, 1998 to $26.29 for the
nine months ended December 31, 1999.
Gross profit increased $12.7 million, or 14%, from $93.5 million for the
nine months ended December 31, 1998 to $106.2 million for the nine months
ended December 31, 1999. The Company's gross profit margin improved from
46.8% for the nine months ended December 31, 1998 to 48.7% for the nine
months ended December 31, 1999. The increase in gross profit dollars is
primarily attributable to the increase in net sales caused by the higher
average number of stores operated by the Company during the period and the
increase in comparable store sales. Gross profit margin improved due to
lower merchandise costs, less promotional activity during the third fiscal
quarter and changes in merchandise mix compared to the previous year.
Additionally, better leverage of fixed rent and occupancy costs have
resulted in lower store rent expense as a percentage of net sales. Since
the beginning of the previous fiscal year, the Company has closed 109
underperforming stores and worked to improve the operations at its
remaining stores.
Selling, general and administrative expenses increased $6.3 million, or 8%,
from $77.3 million for the nine months ended December 31, 1998 to $83.6
million for the nine months ended December 31, 1999. As a percentage of net
sales, selling, general and administrative expenses decreased from 38.7%
for the nine months ended December 31, 1998 to 38.3% for the nine months
ended December 31, 1999. The decrease in selling, general and
administrative expenses as a percentage of net sales reflects lower store
expenses, primarily payroll, as a percentage of sales partially offset by
higher administrative expenses and amortization expense as a percentage of
net sales. Store costs as a percentage of net sales decreased due to the
lower amount of new stores opened in the period and the corresponding
reduction in labor expense for training and new store set-up. The Company
opened only 46 new stores in the nine-month period ended December 31, 1999
versus 209 new stores in the same period of the prior year. Administrative
costs increased primarily to support expansion of the merchandise
purchasing and human resource functions.
Depreciation and amortization expense increased 22% to $6.2 million in the
nine months ended December 31, 1999 from $5.1 million in the nine months
ended December 31, 1998. The increase was due primarily to capital
expenditures made for new stores, the upgrading of kiosks in existing
locations and higher amortization of goodwill recorded in connection with
the Company's acquisitions of its Florida Licensee in August of 1998 and
104 locations from Sedgwick Sales, Inc. in July of 1998.
Interest expense increased $476,000, or 19%, from $2.5 million for the nine
months ended December 31, 1998 to $3.0 million for the nine months ended
December 31, 1999, and as a percentage of net sales increased to 1.4% for
the nine months ended December 31, 1999 versus 1.3% in the previous year.
The increase in interest expense primarily reflects higher average balances
on the Company's revolving line of credit agreement, higher average
interest rates charged under that agreement and an increase in the number
of ounces consigned under the Company's gold consignment arrangements.
Income tax expense increased $2.4 million to $7.8 million for the nine
months ended December 31, 1999 from $5.4 million for the nine months ended
December 31, 1998. As a percentage of income before income taxes, income
tax expense increased to 39.4% for the nine months ended December 31, 1999
from 38.9% for the nine months ended December 31, 1998. The increase in
income tax expense is due to the increase in the Company's earnings before
income taxes.
As a result of the foregoing, the Company's net income increased from $8.5
million for the nine months ended December 31, 1998 to $12.0 million for
the nine months ended December 31, 1999.
Liquidity and capital resources
The Company's primary ongoing short-term capital requirements have been to
fund an increase in inventory and to fund capital expenditures and working
capital (mostly inventory) for new and acquired stores. The Company's
long-term liquidity requirements relate principally to the maturity of its
long-term debt in July of 2000, operating lease commitments and store
expansion. The Company's primary sources of liquidity have been funds
provided from operations, a gold consignment program and a revolving credit
facility. The Company's working capital decreased to $36.6 million at
December 31, 1999 from $47.6 million at March 31, 1999. This decrease
primarily reflects increases in accounts payable and accrued expenses as
well as the current classification of the Company's revolving line of
credit that is due in July of 2000. These were partially offset by a net
increase in current assets due to increases in inventory partially offset
by decreases in cash and accounts receivable. At December 31, 1999, the
Company had outstanding borrowings of $3.5 million under its revolving line
of credit and $5.6 million of long-term debt outstanding, including
$430,000 classified as a current liability. In addition, the Company had
consigned 156,546 ounces of gold under its gold consignment program valued
at approximately $45.4 million.
Net cash provided by operating activities was $23.8 million for the nine
months ended December 31, 1999 compared to $31.5 million for the same
period in the prior year. Net cash provided by operating activities
primarily reflects the results of the year-end holiday shopping season,
non-cash charges for depreciation and amortization as well as increases in
current liabilities partially offset by an increase in inventory.
<PAGE>
Net cash used in investing activities was $8.0 million during the nine
months ended December 31, 1999 compared to $25.4 million during the nine
months ended December 31, 1998. Net cash used in investing activities
primarily reflects the addition of property, fixtures and equipment in
connection with the opening of new stores, and the renovation of existing
stores. Investing activities in the nine months ended December 31, 1998
primarily reflect the purchase of approximately 104 locations from Sedgwick
Sales, Inc. in July of 1998, the acquisition of the Company's Florida
Licensee in August of 1998 and the addition of property, fixtures and
equipment in connection with the opening of new stores and the renovation
of existing stores.
Net cash used in financing activities was $18.8 million for the nine months
ended December 31, 1999 versus $6.0 million during the nine months ended
December 31, 1998. Net cash used in financing activities during the nine
months ended December 31, 1999 primarily reflects a reduction in borrowings
under the Company's revolving line of credit and repurchases of the
Company's common stock authorized by the Company's Board of Directors.
The Company's revolving credit facility provides for maximum borrowings of
$105.0 million through a combination of cash advances (which may not exceed
$65 million) and letters of credit (which may not exceed $70 million) to
support the Company's gold consignment financing program. At December 31,
1999, the Company had $52.8 million available to be borrowed under its
revolving credit facility and was either in compliance with covenants
contained in the agreement or had obtained appropriate waivers. The Company
believes that the expected cash flows from operations, its gold consignment
program and bank borrowings will be sufficient to fund the Company's
currently anticipated capital and liquidity needs. The Company is currently
renegotiating its revolving line of credit agreement and anticipates
signing a new agreement prior to the expiration of the existing revolving
credit facility.
<PAGE>
Year 2000 compliance
The information set forth in this section is a Year 2000 Readiness
Disclosure as defined in the Year 2000 Information Readiness and Disclosure
Act.
The Company has completed its Year 2000 Project as scheduled, including
addressing leap year calendar date calculation concerns. With the passing
of January 1, 2000, the possibility of significant interruptions of normal
operations has been reduced. As of February 11, 2000, the Company's
products, computing, and communications infrastructure systems have
operated without Year 2000 related problems and appear to be Year 2000
ready. The Company is not aware that any of its major customers or
third-party suppliers has experienced significant Year 2000 related
problems.
The Company has met all costs of its Year 2000 remediation efforts with
existing internal staff resources and has spent less than $500,000 on
hardware and software purchased to specifically address Year 2000 issues.
The cost of these efforts, other than hardware and software purchases, has
not been separately tracked or allocated and, accordingly, the Company
cannot precisely determine the expense incurred. The Company does not
anticipate future Year 2000 costs will be material and will continue to use
internal staff supplemented by external resources if necessary.
While the Company continues to believe that the Year 2000 matters discussed
above will not have a material impact on its business, financial condition
or results of operations, it remains uncertain whether or to what extent
the Company may be affected.
Seasonality
The Company's business is highly seasonal. Due to the impact of the
year-end holiday shopping season, the Company experiences a substantial
portion of its annual net sales and profitability in its third fiscal
quarter (ending December 31st). The Company has generally experienced lower
net sales in each of the first, second and fourth quarters and lower net
income or net losses in each of those quarters.
The Company's results of operations may fluctuate significantly from
quarter to quarter as a result of a variety of factors, including
fluctuations in the price of gold, the amount and timing of acquisitions
and new store openings, the integration of recently acquired and newly
opened stores into the operations of the Company, the timing of promotions,
and changes in national and regional economic conditions.
<PAGE>
Forward-looking statements
The Private Securities Litigation Reform Act of 1995 provides a safe harbor
for forward-looking statements. A number of the matters and subject areas
discussed in "Management's Discussion and Analysis of Financial Condition
and Results of Operations," are not limited to historical or current facts
and deal with potential future circumstances and developments. Prospective
investors are cautioned that such forward-looking statements are only
predictions and that actual events or results may differ materially. A
variety of factors could cause the Company's actual results to differ
materially from the expected results expressed in the Company's
forward-looking statements, including, without limitation: the Company's
ability to secure suitable store sites on a timely basis and on
satisfactory terms; the Company's ability to hire, train and retain
qualified personnel; the availability of adequate capital resources and the
successful integration of new stores into the Company's existing
operations; the Company's ability to successfully implement and improve
management information systems, procedures and controls on a timely basis
and in such a manner as is necessary to accommodate the increased number of
transactions and customers and the increased size of the Company's
operations; fluctuations in quarterly net sales, and, in particular, third
quarter net sales; fluctuations in gold prices; competitive conditions;
economic conditions affecting disposable consumer income, such as
employment, business conditions, interest rates and taxation, as well as
trends with respect to mall shopping generally and the ability of mall
anchor tenants and other attractions to generate customer traffic in the
vicinity of the Company's stores; and the possibility of the enactment of
legislation, or the modification of existing or pending legislation, in
jurisdictions in which the Company operates, that would adversely affect
the Company's ear piercing or other activities.
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There were no material changes in market risk exposures that affect the
quantitative and qualitative disclosures presented as of March 31, 1999.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On October 19, 1999, the previously announced securities class action
litigation that had been filed against the Company and certain of its
officers by Israel H. Buck et al. was dismissed with prejudice by the
United States District Court for the Eastern District of Pennsylvania. No
appeal of the dismissal was filed by the plaintiffs within the required
time period.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
<PAGE>
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
27 Financial Data Schedule.
b) Reports on Form 8-K
During the quarter ended December 31, 1999, no reports on Form 8-K
were filed.
<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.
PIERCING PAGODA, INC.
(Registrant)
Date: February 11, 2000 /s/ John F. Eureyecko
------------------------------
John F. Eureyecko
President,
Chief Operating Officer
(Principal Financial Officer)
Date: February 11, 2000 /s/ Brandon R. Lehman
------------------------
Brandon R. Lehman
Treasurer
(Principal Accounting Officer)
<PAGE>
INDEX TO EXHIBITS
Sequentially
Exhibit Numbered
Number Page
27 Financial Data Schedule 21
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-END> DEC-31-1999
<CASH> 1107
<SECURITIES> 0
<RECEIVABLES> 2550
<ALLOWANCES> 0
<INVENTORY> 75357
<CURRENT-ASSETS> 81499
<PP&E> 60831
<DEPRECIATION> 24641
<TOTAL-ASSETS> 139001
<CURRENT-LIABILITIES> 44853
<BONDS> 5184
0
0
<COMMON> 92
<OTHER-SE> 84119
<TOTAL-LIABILITY-AND-EQUITY> 139001
<SALES> 218260
<TOTAL-REVENUES> 218260
<CGS> 112059
<TOTAL-COSTS> 112059
<OTHER-EXPENSES> 83584
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3006
<INCOME-PRETAX> 19757
<INCOME-TAX> 7779
<INCOME-CONTINUING> 11978
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11978
<EPS-BASIC> 1.32
<EPS-DILUTED> 1.30
</TABLE>
