UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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(Mark one) |
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 29, 2002
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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 0-21423
CHICAGO PIZZA & BREWERY, INC.
(Exact name of registrant as specified in its charter)
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California |
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33-0485615 |
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(State or other jurisdiction of |
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(I.R.S. Employer |
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16162 Beach Boulevard |
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(Address, including zip code, and telephone
number, including |
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Securities registered pursuant to Section 12(b) of the Act: None |
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Securities registered pursuant to Section 12(g) of the Act: |
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Title of Each Class |
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Name of each Exchange on Which Registered |
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Common Stock, No Par Value |
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NASDAQ |
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 ý NO o.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark if the filer is an accelerated filer (As defined in Rule 12B–2 of the Act). Yes o No ý
The aggregate market value of the common stock of the Registrant (“Common Stock”) held by non-affiliates as of December 29, 2002 based on the market price at March 7, 2003 was $64,695,955 As of March 7, 2003, there were 19,304,715 shares of Common Stock of the Registrant outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the following documents are incorporated by reference into Part III of this Form 10-K: The Registrant’s Proxy Statement for the Annual Meeting of Shareholders.
INDEX
CHICAGO PIZZA & BREWERY, INC.
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
Chicago Pizza & Brewery, Inc. (the “Company” or “BJ’s”) owns and operates 30 restaurants located in California, Oregon, Colorado, Arizona and Texas and receives fees from one licensed restaurant in Lahaina, Maui. Each of these restaurants is operated either as a BJ’s Restaurant & Brewery, a BJ’s Pizza & Grill, a BJ’s Restaurant & Brewhouse or a Pietro’s Pizza restaurant. The menu at the BJ’s restaurants feature BJ’s award-winning, signature deep-dish pizza, BJ’s own hand-crafted beers as well as a great selection of appetizers, entrees, pastas, sandwiches, specialty salads and desserts. The eight BJ’s Restaurant & Brewery restaurants feature in-house brewing facilities where BJ’s hand-crafted beers are produced. The three Pietro’s Pizza restaurants serve primarily Pietro’s thin-crust pizza in a very casual, counter-service environment.
The Company was incorporated in California on October 1, 1991 originally to assume the operation of the then existing five BJ’s restaurants. In January 1995, the Company purchased the BJ’s restaurants and concept from its founders. Since that time, the Company has completed the (i) expansion of the BJ’s menu to include high-quality sandwiches, pastas, entrees, specialty salads and desserts; (ii) enhancement of the BJ’s concept through a comprehensive logo and identity program, uniforms, an interior design concept and redesigned signage; (iii) addition of BJ’s microbreweries to the concept to produce BJ’s own hand-crafted beers; and (iv) purchase of the Pietro’s Pizza chain in the Northwest in March 1996, accounting for seven currently operating restaurants in Oregon.
The popularity of the BJ’s concept continues to grow contributing to same store sales increases at the BJ’s restaurants open the entire comparable periods of 3.3%, 4.0%, and 9.8% for the years 2002, 2001, and 2000, respectively. In calculating comparable restaurant sales, we include a restaurant in the comparable base once it has been opened for eighteen months.
The opening of the Company’s first microbrewery in Brea, California in August 1996 marked the beginning of the Company’s production of award-winning, hand-crafted, specialty beers which are distributed to all of the Company’s restaurants. The breweries have added an exciting dimension to the BJ’s concept which further distinguishes BJ’s from many other restaurant concepts. In 2002 the Company received the prestigious Large Brew Pub of the Year award at the Great American Beer Festival in Denver, Colorado.
The acquisition of the Pietro’s restaurants and the conversion of several of those restaurants to BJ’s have given the Company a significant presence in the Oregon market. Due to the relative success of the Company’s larger restaurants, management has determined that the Company’s resources would be best utilized in the development of additional larger restaurants in prime locations. Consequently, there are currently no plans to convert additional Pietro’s units to BJ’s.
The Company’s current focus is on the development of the larger footprint BJ’s restaurants in high profile locations with favorable demographics. During 2002, the Company opened a BJ’s Restaurant and Brewhouse in Westlake Village, California, a BJ’s Restaurant and Brewery in Oxnard California and BJ’s Restaurant and Brewhouses in Lewisville, Texas and Cupertino, California in August, September, November and December, respectively. During 2001, the Company opened a BJ’s Restaurant and Brewhouse in Irvine, California and a BJ’s Restaurant & Brewery in Chandler, Arizona in August and October, respectively. The Company anticipates opening a BJ’s Restaurant & Brewery in Clear Lake, Texas and BJ’s Restaurant and Brewhouses in Addison, Texas, Cerritos, California and San Jose, California in 2003 and is in negotiations for additional sites in California, Arizona, Colorado, Illinois and Texas.
The Company’s fundamental business strategy is to grow through the additional development and expansion of the BJ’s brand. The BJ’s brand represents exceptional food and specialty beers at a great value, in a fun, casual environment.
In addition to developing new BJ’s restaurant and brewery operations, the Company may pursue acquisition opportunities, which may involve conversions to the BJ’s concept.
There can be no assurance that future events, including problems, delays, additional expenses and difficulties encountered in expansion and conversion of restaurants, will not adversely impact the Company’s ability to meet its operational objectives or require additional financing, or that such financing will be available.
RESTAURANT CONCEPT AND MENU
The Company believes it is positioned for competitive advantage by offering customers excellent food at moderate prices from a broad menu of over 100 items featuring award-winning pizza, bountiful salads, soups, pastas, sandwiches, entrees and desserts.
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Management’s objective in developing BJ’s broad menu was to ensure that all items on the menu maintained and enhanced BJ’s reputation for quality. BJ’s offers large portions of high quality food, creating a real value proposition. Because of the relatively low food cost associated with pizza and hand crafted beers, which represents a significant portion of sales, the restaurants are able to maintain favorable gross profit margins while providing a superior value to the customer.
The BJ’s menu has been developed on a foundation of excellence. BJ’s core product, its deep-dish, Chicago-style pizza, has been highly acclaimed since it was originally developed in 1978. This unique version of Chicago-style pizza is unusually light, with a crispy, flavorful crust. Management believes BJ’s lighter crust helps give it a broader appeal than some other versions of deep-dish pizza. The pizza is topped with high-quality meats, fresh vegetables and whole-milk mozzarella cheese. BJ’s pizza consistently has been awarded “best pizza” honors by restaurant critics and public opinion polls in Orange County, California.
BJ’s restaurants provide a variety of beers for every taste, offering a constantly evolving selection of domestic, imported and micro-brewed beers. BJ’s own hand-crafted beers are the focus of the beer selection and feature six standard beers along with a rotating selection of seasonal specialties. While the BJ’s beers are produced predominantly at the Company’s central brewery locations, they are distributed to, and offered at all of the BJ’s and Pietro’s restaurants. Management believes that internally produced beer provides a variety of benefits, including:
1. The quality and freshness of the BJ’s brewed beers, which are produced under the constant supervision of the Company’s Vice President of Brewing Operations, are superior to beer purchased from external sources.
2. The production costs of internally brewed beer can be significantly less than purchased beer. The relatively low production costs and premium pricing often associated with micro-brewed beers has a positive impact on income from operations. The cost savings are maximized when the brewery is operating at or near capacity. This is the basis for the Company’s “central brewery” structure.
MARKETING
To date, the majority of marketing has been accomplished through community-based promotions and customer referrals. Management’s philosophy relating to the BJ’s restaurants has been to “spend its marketing dollars on the plate,” or use funds that would typically be allocated to marketing to provide a better product and value to its existing guests. Management believes this results in increased frequency of visits and greater customer referrals. BJ’s expenditures on advertising and marketing were less than 1% of sales in both 2002 and 2001.
BJ’s is very much involved in the local community and charitable causes, providing food and resources for many worthwhile events. Management feels very strongly about its commitment to helping others, and this philosophy has benefited the Company in its relations with its surrounding communities. BJ’s commitment to supporting worthwhile causes is exemplified by its “Cookies for Kids” program, which provides a donation to the Cystic Fibrosis Foundation for each Pizookie sold. The Pizookie, BJ’s extremely popular dessert, is a cookie, freshly baked in a mini pizza pan, and topped with vanilla bean ice cream. Contributions under the “Cookies for Kids” program were $123,000 and $105,000 in 2002 and 2001, respectively. In addition, the Company donated preopening sales proceeds of $65,000 related to the four new store openings in 2002 to the Cystic Fibrosis Foundation.
Pietro’s marketing strategy relies primarily on the distribution of discount coupons. Expenditures for marketing relating to the Pietro’s restaurants were 5.0% and 3.0% of sales (excluding discounts) in 2002 and 2001, respectively.
OPERATIONS
The Company’s policy is to staff its restaurants with enthusiastic people, who can be an integral part of BJ’s fun, casual atmosphere. Prior experience in the industry is only one of the qualities management looks for in its employees. Enthusiasm, motivation and the ability to interact well with the Company’s clientele are the most important qualities for BJ’s management and staff.
Both management and staff undergo thorough formal training prior to assuming their positions at the restaurants. Management has designated certain managers, servers and cooks as “trainers,” who are responsible for properly training and monitoring all new employees. In addition, the Company’s Director of Food and Beverage and regional managers supervise the training functions in their particular areas.
The Company purchases its food products from several wholesale distributors. The majority of food and operating supplies for the California restaurants are purchased from Jacmar Foodservice Distribution, a related party. The Company’s other wholesale distributors include U.S. Foodservice for Colorado, Arizona and Texas and Birite Foodservice for Northern California. Product specifications are very strict and the Company insists on using fresh, high-quality ingredients.
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COMPETITION
The restaurant industry is highly competitive. A great number of restaurants and other food and beverage service operations compete both directly and indirectly with the Company in many areas, including food quality and service, the price-value relationship, beer quality and selection, and atmosphere, among other factors. Many competitors who use concepts similar to that of the Company are well established, and often have substantially greater resources.
Because the restaurant industry can be significantly affected by changes in consumer tastes, national, regional or local economic conditions, demographic trends, traffic patterns, weather and the type and number of competing restaurants, any changes in these factors could adversely affect the Company. In addition, factors such as inflation and increased food, liquor, labor and other employee compensation costs could adversely affect the Company. The Company believes, however, that its ability to offer high-quality food at moderate prices with superior service in a distinctive dining environment will be the key to overcoming these obstacles.
RELATED PARTY TRANSACTIONS
As of December 29, 2002, Jacmar Companies and their affiliates (collectively referred to herein as “Jacmar”) owned approximately 42.0% of the Company’s outstanding common stock. Jacmar’s ownership was diluted to approximately 42.0% as of December 29, 2002 due to warrant and option exercises as described in the Notes to the Consolidated Financial Statements. During fiscal 2001, Jacmar acquired 6,868,000 shares of common stock increasing its ownership to 68.5% at December 31, 2001 from 15.5% at the beginning of 2001. Common stock activity for Jacmar for the year ended December 31, 2001 was as follows:
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Date Acquired |
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Shares |
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Ownership |
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Through December 31, 2000 |
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1,190,000 |
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15.5 |
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January 18, 2001 |
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2,207,000 |
(1) |
28.9 |
% |
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March 13, 2001 |
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661,000 |
(2) |
8.6 |
% |
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April 30, 2001 |
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800,000 |
(3) |
3.7 |
% |
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August 14, 2001 |
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3,200,000 |
(3) |
11.8 |
% |
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December 31, 2001 |
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8,058,000 |
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68.5 |
% |
(1) On January 18, 2001, BJ Chicago, LLC, an affiliate of the Jacmar Companies, completed a transaction to purchase approximately 2,207,000 shares from ASSI, Inc. (a shareholder of the Company). The Company granted registration rights to Jacmar on the shares purchased from ASSI Inc. Concurrently, the Company issued to ASSI, Inc. an option to purchase 200,000 shares of common stock at an exercise price of $4.00 per share through December 31, 2005 in exchange for a release of any claims of ASSI, Inc., against the Company and affiliates including any rights it might have had to purchase additional shares from the Company under an agreement that was pending immediately prior to the Jacmar transaction. The Company recorded $268,000, the estimated fair value of the option upon grant, as a direct cost of the stock offering.
(2) On March 13, 2001, Jacmar completed a transaction to purchase approximately 661,000 shares of the Company’s outstanding common stock from two of the Company’s officers.
(3) The Company entered into an agreement on February 22, 2001 to sell an aggregate of 800,000 shares of common stock to Jacmar at $2.50 per share, with an option, exercisable by Jacmar prior to August 15, 2001, for an additional 3,200,000 shares of common stock at $2.50 per share. The 800,000 share transaction closed on April 30, 2001. Jacmar then fully exercised its option to acquire 3,200,000 shares on August 14, 2001. The Company received a favorable fairness opinion regarding the private placement, and the sale was approved by a vote of the shareholders at the Company’s annual shareholders’ meeting held on July 18, 2001. The Company agreed to grant registration rights on the shares purchased by Jacmar under this agreement.
Jacmar, through its specialty wholesale food distributorship, is the Company’s largest supplier of food, beverage and paper products. Jacmar sells products to the Company at prices comparable to those offered by unrelated third parties. Jacmar supplied the Company with approximately $11,470,000, $8,945,000 and $6,647,000 of food, beverage and paper products for the 2002, 2001 and 2000 fiscal years, respectively, and the Company had trade payables related to these products of approximately $1,038,000 and $781,000 at December 29, 2002 and December 31, 2001, respectively.
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GOVERNMENT REGULATIONS
The Company is subject to various federal, state and local laws, along with rules and regulations that affect its business. Each of the Company’s restaurants is subject to licensing and regulation by a number of governmental authorities, which may include alcoholic beverage control, building, land use, health, safety and fire agencies in the state or municipality in which the restaurant is located. Difficulties obtaining or maintaining the required licenses or approvals could delay or prevent the development of a new restaurant in a particular area or could adversely affect the operation of an existing restaurant. Management believes, however, that the Company is in compliance in all material respects with all relevant laws, rules, and regulations. Furthermore, the Company has never experienced abnormal difficulties or delays in obtaining the licenses or approvals required to open a new restaurant or to continue the operation of its existing restaurants. Additionally, management is not aware of any environmental regulations that have had or that it believes will have a materially adverse effect upon the operations of the Company.
Alcoholic beverage control regulations require each of the Company’s restaurants to apply to a federal and state authority and, in certain locations, municipal authorities for a license and permit to sell alcoholic beverages on the premises. Typically, licenses must be renewed annually and may be revoked or suspended for cause by such authority at any time. Alcoholic beverage control regulations relate to numerous aspects of the daily operations of the Company’s restaurants, including minimum age of patrons and employees, hours of operation, advertising, wholesale purchasing, inventory control and handling, and storage and dispensing of alcoholic beverages. The Company has not encountered any material problems relating to alcoholic beverage licenses or permits to date and does not expect to encounter any material problems going forward. The failure to receive or retain, or a delay in obtaining, a liquor license in a particular location could adversely affect the Company’s ability to obtain such a license elsewhere.
The Company is subject to “dram-shop” statutes in California and other states in which it operates. Those statutes generally provide a person who has been injured by an intoxicated person the right to recover damages from an establishment that has wrongfully served alcoholic beverages to such person. The Company carries liquor liability coverage as part of its existing comprehensive general liability insurance which it believes is consistent with coverage carried by other entities in the restaurant industry and will help protect the Company from possible claims. Even though the Company carries liquor liability insurance, a judgment against the Company under a dram-shop statute in excess of the Company’s liability coverage could have a materially adverse effect on the Company. To date, the Company has never been the subject of a “dram-shop” claim.
Various federal and state labor laws, along with rules and regulations, govern the Company’s relationship with its employees, including such matters as minimum wage requirements, overtime and working conditions. Significant additional governmental mandates such as an increased minimum wage, an increase in paid leaves of absence, extensions in health benefits or increased tax reporting and payment requirements for employees who receive gratuities, could negatively impact the Company’s restaurants.
EMPLOYEES
At March 7, 2003, the Company employed 2,638 employees at its 30 restaurants. The Company also employed 48 administrative and field supervisory personnel at its corporate offices. The Company believes that it maintains favorable relations with its employees, and currently no unions or collective bargaining arrangements exist.
INSURANCE
The Company maintains workers’ compensation insurance and general liability insurance coverage which it believes will be adequate to protect the Company, its business, assets and operations. There is no assurance that any insurance coverage maintained by the Company will be adequate, that it can continue to obtain and maintain such insurance at all or that the premium costs will not rise to an extent that they adversely affect the Company or the Company’s ability to economically obtain or maintain such insurance.
See Management’s Discussion and Analysis of Financial Condition and Results of Operations for comments on insurance policy renewals in fiscal 2002.
TRADEMARKS AND COPYRIGHTS
The Company’s registered trademarks and service marks include, among others, the word mark “BJ’s Chicago Pizzeria”, and our stylized logo, which includes the words “BJ’s Pizza, Grill, Brewery”. In addition, the Company has registered the word marks “BJ’s,” “BJ’s Restaurant & Brewery,” “BJ’s Restaurant & Brewhouse” and “BJ’s Pizza & Grill,” and “Tatonka” and “Harvest Hefeweizen” for its proprietary beer and “Pizookie” for its proprietary dessert. The Company has registered all of its marks with the United States Patents and Trademark Office. Management believes that the trademarks, service marks and other proprietary rights have significant value and are important to the Company’s brand-building effort and the marketing of its restaurant concepts, however, there are other restaurants using the name BJ’s throughout the United States. The Company has in the past, and expects to continue to, vigorously protect its proprietary rights. Management cannot predict, however
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whether steps taken by the Company to protect its proprietary rights will be adequate to prevent misappropriation of these rights or the use by others of restaurant features based upon, or otherwise similar to, our concept. It may be difficult for the Company to prevent others from copying elements of its concept and any litigation to enforce its rights will likely be costly.
RESTAURANT LOCATIONS AND EXPANSION PLANS
The following table sets forth data regarding the Company’s existing and future restaurant locations:
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Year Opened/ |
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Square Feet |
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CALIFORNIA |
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Balboa |
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1995 |
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2,600 |
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La Jolla Village |
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1995 |
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3,000 |
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Laguna Beach |
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1995 |
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2,150 |
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Belmont Shore |
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1995 |
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2,910 |
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Seal Beach |
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1994 |
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2,369 |
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Huntington Beach |
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1994 |
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3,430 |
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Westwood Village, Los Angeles |
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1996 |
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2,450 |
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Brea (Microbrewery) |
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1996 |
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10,000 |
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Arcadia |
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1999 |
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7,371 |
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Woodland Hills (Microbrewery) |
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1999 |
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13,000 |
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La Mesa |
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1999 |
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7,200 |
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Valencia |
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1999 |
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7,000 |
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West Covina (Microbrewery) |
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2000 |
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12,000 |
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Huntington Beach II |
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2000 |
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8,031 |
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Burbank |
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2000 |
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11,000 |
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Irvine |
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2001 |
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7,826 |
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Oxnard (Microbrewery) |
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2002 |
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10,164 |
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Cupertino |
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2002 |
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8,300 |
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Westlake Village |
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2002 |
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8,626 |
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Cerritos* |
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2003 |
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10,848 |
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San Jose* |
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2003 |
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7,315 |
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ARIZONA |
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