SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OR THE SECURITIES AND
EXCHANGE ACT OF 1934
For the fiscal year ended ____________March 28, 1995___________
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
AND EXCHANGE ACT OF 1934
For the transition period from ________________ to _____________
Commission File Number 0-13007
NPC INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Kansas 48-0817298
(State of Incorporation) (IRS Employer Identification Number)
720 W. 20th Street, Pittsburg, KS 66762
(Address of principal executive offices)
Registrant's telephone number, including area code (316) 231-3390
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock, $0.01 par value
Class B Common Stock, $0.01 par value
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 ____
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 the 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. [ ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant as of June 21, 1995:
Class A Common Stock, $0.01 par value - $28,572,356
The number of shares outstanding of each of the registrant's classes of
common stock as of June 21, 1995:
Class A Common Stock, $0.01 par value - 12,355,755
Class B Common Stock, $0.01 par value - 12,149,569
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Stockholders for the fiscal year ended
March 28, 1995 are incorporated by reference in Part II, Items 5 - 8.
Portions of the Proxy Statement for the Annual Stockholders' Meeting to be
held August 8, 1995, are incorporated by reference in Part III, Items 10
- 12.
NPC INTERNATIONAL, INC.
TABLE OF CONTENTS
PART I
ITEM
1. Business
2. Properties
3. Legal Proceedings
4. Submission of Matters to a Vote of Security Holders
Executive Officers of the Company
PART II
5. Market for Registrant's Common Stock and Related Stockholder Matters
6. Selected Financial Data
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
8. Financial Statements and Supplementary Data
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
PART III
10. Directors and Executive Officers of the Registrant
11. Executive Compensation
12. Security Ownership of Certain Beneficial Owners and Management
13. Certain Relationships and Related Transactions
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
PART I
ITEM 1. BUSINESS
_________________________________________________________________
General
THE COMPANY
NPC International, Inc. (the "Company" or "Registrant"), formerly
National Pizza Company, is the successor to certain Pizza Hut operations
commenced in 1962 by O. Gene Bicknell, the Chairman of the Board of the
Company.
At March 28, 1995, the Company operated 261 Pizza Hut restaurants and
87 delivery units in nine states pursuant to franchise agreements with
Pizza Hut, Inc. ("PHI"), a wholly-owned subsidiary of PepsiCo, Inc. In
addition, 23 Pizza Hut units were acquired on April 19, 1995, expanding
operations in two additional states. The Pizza Hut restaurant system is
the largest pizza chain in the world and the Company is the largest Pizza
Hut franchisee.
On November 26, 1989, the Company acquired a majority interest in
Skipper's, Inc., a corporation based in Bellevue, Washington ("Skipper's"),
which at March 28, 1995 operated 106 quick service seafood restaurants in
seven states and franchised 14 units in five states and two units in
British Columbia. Pursuant to a merger effective January 12, 1990,
Skipper's became a wholly-owned subsidiary of the Company.
On June 8, 1993, the Company completed the acquisition of Romacorp,
Inc. (formerly NRH Corporation). Romacorp, Inc. is the operator and
franchisor of Tony Roma's A Place For Ribs restaurants. At March 28, 1995,
the Company operated 25 Company-owned and two joint-venture restaurants in
five states and franchised 104 units in 19 states and 39 units in
international locations.
The Company is a Kansas corporation incorporated in 1974 under the
name Southeast Pizza Huts, Inc. In 1984, the name of the Company was
changed to National Pizza Company and was subsequently renamed NPC
International, Inc. on July 12, 1994. Its principal executive offices are
located at 720 W. 20th Street, Pittsburg, Kansas and its telephone number
is (316) 231-3390.
Financial Information About Industry Segments
The restaurant industry is the only business segment in which the
Registrant operates.
PIZZA HUT OPERATIONS
Pizza Hut Restaurant System
The first Pizza Hut restaurant was opened in 1958 in Wichita, Kansas
by the original founders of the Pizza Hut system. Pizza Hut, Inc., the
franchisor of the Company, was formed in 1959.
In 1977, PHI was acquired by PepsiCo, Inc., which continued expanding
the Pizza Hut system. The Pizza Hut system is the largest pizza chain in
the world, both in sales and number of units. As of December 31, 1994 the
Pizza Hut system had over 11,500 restaurants, delivery kitchens and kiosks
with locations in all 50 states and many foreign countries. Approximately
61% of the domestic Pizza Hut units are operated by PHI.
Pizza Hut restaurants generally offer full table service and a similar
menu, featuring pizza, pasta, sandwiches, a salad bar, soft drinks and, in
most restaurants, beer. Most dough products are made fresh several times
each day, and only 100% natural cheese products are used. Product
ingredients are of a high quality and are prepared in accordance with
proprietary formulas established by PHI. The restaurants offer pizza in
five sizes with a variety of toppings. Customers may also choose among
thin crust, traditional hand-tossed and thick crust pan pizza, as well as
Pizza Hut's value-priced BIGFOOT pizza and new Stuffed Crust pizza. With
the exception of the Personal Pan Pizza and food served at the luncheon
buffet, food products are prepared at the time of order.
Pizza sales account for approximately 87% of the Company's Pizza Hut
operations revenues. Sales of alcoholic beverages are less than 1% of net
sales.
New product introduction is vital to the continued success of any
restaurant system, and PHI maintains a research and development department
which develops new products and recipes, tests new procedures and
equipment, and approves suppliers for Pizza Hut products. All new products
are developed by PHI, and franchisees are prohibited from offering any
other products in their restaurants unless approved by PHI.
Pizza Hut also delivers pizza products to their customers. Prior to
1985, most delivery was done out of existing restaurants. In 1985, the
system began to aggressively pursue home delivery through delivery /
carryout kitchens. Customer orders are made to a computerized customer
service center (CSC), a "single unit solution" (SUS, a facility similar to
a CSC, but smaller in scale), or directly to the kitchen.
A successful delivery operation yields lower profit margins as a
percentage of sales than the Company's Pizza Hut restaurants due to higher
labor costs, but the return on invested capital is greater.
The Company's Pizza Hut Operations
The Company is the largest Pizza Hut franchisee in the world and, at
March 28, 1995, operated 348 Pizza Hut restaurants and delivery kitchens.
The Company's franchise agreements grant to the Company the exclusive right
to operate Pizza Hut restaurants in certain designated areas. The Company
currently operates restaurants in the states shown in the table below.
On April 19, 1995, the Company completed its acquisition of 22 Pizza
Hut restaurants and one delivery kitchen in eight states previously owned
by PHI. The Company's locations are shown in the table below.
Company- 23 unit
owned Acquisition
Pizza Huts at from PHI on
State/Country March 28, 1995 April 19, 1995
Alabama 77 1
Arkansas 47 6
Georgia ---- 1
Kansas 9 ----
Kentucky ---- 4
Louisiana 29 ----
Mississippi 110 ----
Missouri 27 2
Oklahoma 2 5
Tennessee 43 2
Texas 4 2
Company Total 348 23
Unit Development
The following table sets forth information concerning the growth in
the number of Pizza Hut restaurants and delivery kitchens operated by the
Company:
Fiscal Year Ended
March 26, March 31, March 30, March 29, March 28,
1991 1992 1993 1994 1995
Units operated at
beginning of period 354 366 368 358 363
Opened during period 19 15 2 10 12
Acquired during period 1 --- --- 2 68
Exchanged, closed or relocated 8 13 12 7 95
Units operated at end
of period 366 368 358 363 348
At March 28, 1995, the Company provided delivery services at 65 full-
service Pizza Hut restaurants and at 90 delivery-only outlets. Delivery
service is provided utilizing a CSC telephone system in eight metropolitan
markets: Springfield, Missouri; Montgomery and Birmingham, Alabama;
Shreveport, Louisiana; Jackson and Long Beach, Mississippi; Little Rock,
Arkansas; and Memphis, Tennessee. Under the CSC system, all customers
within the trade area place telephone orders through a single clearing
number, and the pizza is dispatched from the Company's delivery kitchen
nearest the customer. Customers call the restaurant delivery kitchens
directly in other locations.
Relationships with Pizza Hut, Inc.
The Company's franchise agreements with PHI (the "Franchise
Agreements") provide, among other things, for standards of operation and
physical condition of the Company's restaurants, the provision of services,
the geographical territories in which the Company has exclusive rights to
open and operate Pizza Hut restaurants and delivery kitchens, the term of
the franchise and renewal options, the Company's development rights and
obligations and various provisions relating to the transfer of interests in
the Company's franchise rights.
PHI determines standards of operation for all Pizza Hut restaurants,
including standards of quality, cleanliness and service. Further, the
Franchise Agreements allow the franchisor to set specifications for all
furnishings, interior and exterior decor, supplies, fixtures and equipment.
See "Business - Supplies and Equipment." PHI also has the right to
determine and change the menu items offered by, and to inspect all
restaurants of, its franchisees, including the Company. All such standards
may be revised from time to time. Upon the failure to comply with such
standards, PHI has various rights, including the right to terminate the
applicable Franchise Agreements, redefine the franchise territory or
terminate the Company's rights to establish additional restaurants in that
franchise territory. The Franchise Agreements may also be terminated upon
the occurrence of certain events, such as the insolvency or bankruptcy of
the Company or the commission by the Company or any of its officers,
directors or principal stockholders (other than its public stockholders) of
a felony or other crime that, in the sole judgment of PHI is reasonably
likely to adversely affect the Pizza Hut system, its trademark, the
goodwill associated therewith or PHI's interest therein. At no time during
the Company's history has PHI sought to terminate any of the Company's
Franchise Agreements, redefine its franchise territories or otherwise limit
the Company's franchise rights. The Company believes it is in compliance
with all material provisions of the Franchise Agreements.
Under the Franchise Agreements, extensive structural changes, major
remodeling and renovation and substantial modifications to the Company's
restaurants necessary to conform to the then current Pizza Hut system image
may be required by PHI, but not more often than once every seven years.
The Company has not been required to make any such changes, renovations or
modifications. PHI may also request the Company introduce new food
products that could require remodeling or equipment changes. PHI can
require changes of decor or products only after it has tested such changes
in at least 5% of Pizza Hut system restaurants.
PHI is required to provide certain continuing services to the Company,
including training programs, the furnishing of operations manuals and
assistance in evaluating and selecting locations for restaurants.
In early 1990, PHI offered franchisees the opportunity to sign a new
twenty year franchise agreement (the "1990 Franchise Agreement"). The 1990
Franchise Agreement required franchise fees of 4% of sales, as defined, for
all restaurants and delivery kitchens and increases in certain advertising
contributions. The 1990 Franchise Agreement also sought to redefine
certain rights and obligations of the franchisee and franchisor. The 1990
Franchise Agreement did not alter the franchisee's territorial rights and
maintained, subject to some minor limitations, the exclusivity of the Pizza
Hut brand within the geographical limits of the territory defined by each
franchise agreement.
On June 7, 1994, the Company entered into the Asset Exchange Agreement
with PHI which included an exchange of certain NPC Pizza Hut units for PHI
units and also conformed the Company's existing Franchise Agreements to the
1990 Franchise Agreement. In a related transaction, an additional eleven
units acquired from another franchisee were also exchanged for twelve PHI-
owned units also in the Southeast. This transaction was completed on
August 3, 1994.
The 1990 Franchise Agreement grants to the Company the exclusive right
to develop and operate restaurants within designated geographic areas
through February 28, 2010. The Company has the option to renew each
Franchise Agreement prior to its expiration for a single renewal term of 15
years by entering into the then-current form of the PHI franchise
agreement, including the then-current fee schedules, provided the Company
is not then in default of its obligations under that Franchise Agreement,
including the development schedule, and has complied with the requirements
thereof throughout the term of the agreement.
The Franchise Agreements under which the Company operates require the
payment of monthly fees to PHI. Under the 1990 Franchise Agreement (as it
applies to the Company), the Company's royalty payments for all units owned
will increase to 4% of gross sales beginning in July, 1996, from the
Company's current effective rate of 2.06%. This rate reflects the royalty
rate which was proposed by PHI to Pizza Hut franchisees as part of the 1990
Franchise Agreement and is lower than the rate under PHI's current
franchise agreement.
On April 19, 1995, the Company acquired 23 Pizza Hut units from PHI
under a new Franchise Agreement ("1995 Agreement") which, as amended, is
similar to the 1990 Franchise Agreement. Franchise agreements covering
future units acquired from PHI, if any, are likely to be similar to the
1995 Agreement, and Pizza Huts acquired from other franchisees will
continue to be subject to the terms and conditions of the respective
Franchise Agreement covering the acquired unit.
For the fiscal years ended March 28, 1995, March 29, 1994, and March
30, 1993 the Company incurred total franchise fees of approximately
$4,224,000, $4,461,000, and $4,236,000, respectively. The Franchise
Agreements require the Company to pay initial franchise fees to PHI in
amounts of up to $15,000 for each new restaurant opened ($25,000 in
territories granted under the 1995 Agreement). The Company is required to
contribute or expend a certain percentage of its sales for local and
national advertising and promotion. See "Business - Advertising and
Promotion."
Failure to develop a franchise territory as required would give PHI
the right to operate or franchise Pizza Hut restaurants in that territory.
Such failure would not affect the Company's rights with respect to the
Pizza Hut restaurants then in operation or under development by the Company
in any such territory. As of March 28, 1995, the Company has no
commitments for future development with the franchise. The Company is
required to obtain the prior written approval of PHI for the location of
each new restaurant.
The Franchise Agreements prohibit the transfer or assignment of any
interest in the franchise rights granted thereunder or in the Company
without the prior written consent of PHI, which consent may not be
unreasonably withheld if certain conditions are met. All franchise
agreements also give PHI a right of first refusal to purchase any interest
in the franchise rights or in the Company if a proposed transfer by the
Company or a controlling person would result in a change of control of the
Company. PHI also has a right of first refusal with respect to any Pizza
Hut franchise right proposed to be acquired by the Company from any other
Pizza Hut franchisee. The right of first refusal, if exercised, would
allow PHI to purchase the interest proposed to be transferred upon the same
terms and conditions and for the same price as offered by the proposed
transferee.
The Company has the right to develop additional Pizza Hut restaurants
and delivery kitchens in its exclusive franchise territories. However,
since becoming a public company, expansion by acquisition has been one of
the Company's primary methods of growth. Between 1990 and 1993, PHI
exercised its right of first refusal as described above on all proposed
transactions between the Company and other Pizza Hut franchisees; as a
result the Company acquired no units during this period. Between March,
1994 (when the Company announced its intention to sign a new Franchise
Agreement) and June, 1995, the Company has acquired a total of 42 Pizza Hut
units, including 23 from PHI. Pizza Hut, Inc. nevertheless retains the
right of first refusal on any proposed acquisition in the future, and the
Company cannot be assured it will continue to receive such permission on
proposed future acquisitions, if any.
Pizza Hut, Inc., through the Franchise Agreements, requires principals
of the Company to maintain "control" over the Company, which PHI defines as
51% of each class of stock of the Company. Accordingly, a portion of the
controlling stockholder's shares is restricted to insure compliance with
this requirement. Holders of common stock who are not principals of the
Company are not subject to any of the restrictions of the Franchise
Agreement.
Advertising and Promotion
The Company is required under its Franchise Agreements to be a member
of the International Pizza Hut Franchise Holders Association, Inc.
("IPHFHA"), an independent association of substantially all PHI
franchisees. IPHFHA requires its members to pay dues, which are spent
primarily for national advertising and promotion. Current dues are 2% of
restaurant net sales and net delivery sales. Dues may be increased up to a
maximum of 3% by the affirmative vote of 51% of the members. A joint
advertising committee, consisting of two representatives each from PHI and
IPHFHA, directs the national advertising campaign. PHI is not a member of
IPHFHA but has agreed to make contributions with respect to those
restaurants it owns on a per-restaurant basis to the joint advertising
committee at the same rate as its franchisees (less IPHFHA overhead).
The Franchise Agreements also require the Company to participate in
cooperative advertising associations designated by PHI on the basis of
certain marketing areas defined by PHI. Each Pizza Hut restaurant,
including restaurants operated by PHI, contributes to such cooperative
advertising associations an amount currently equal to 2% of gross sales.
Certain of the Company's Franchise Agreements provide that the amount of
the required contribution may be increased at the sole discretion of PHI.
The cooperative advertising associations are required to use their funds to
purchase only broadcast media advertising within their designated marketing
areas. All advertisements must be approved in writing by PHI, except with
respect to product or menu item prices.
Supplies and Equipment
The Franchise Agreements require the Company to purchase all equipment,
supplies and other products and materials required in the operation of its
restaurants and delivery kitchens from suppliers who have been approved by
PHI. PepsiCo Food Systems, Inc. ("PFS"), a wholly-owned subsidiary of
PepsiCo, offers purchasing and distribution services to the Company and
substantially all other Pizza Hut franchisees. Although the Franchise
Agreements only require the Company to purchase certain spice blends from
PFS or another supplier designated by PHI, the Company currently purchases
substantially all of its food products and supplies from PFS and may
continue to do so. The Company believes, however, it would not experience
difficulties in obtaining its required food products and supplies from
other sources. The Franchise Agreements limit the amount of profit that
PHI and PFS may realize on sales to Pizza Hut franchisees. PHI is a wholly-
owned subsidiary of PepsiCo, Inc., and the Company's Pizza Hut units sell
Pepsi Cola and other PepsiCo, Inc. beverages.
Supervision and Control
Pizza Hut restaurants are open seven days a week and serve both lunch
and dinner. Each of the restaurants has a manager and an assistant manager
who are responsible for daily operations of the restaurant, including food
preparation, quality control, service, maintenance, personnel, and record
keeping. All of the restaurant managers have completed a comprehensive
management training program. Each area general manager is responsible for
approximately six to nine restaurants. Detailed operations manuals
reflecting current operations and control procedures are provided to each
restaurant and district manager as well as others in the organization.
A point-of-sale cash register system is installed in all company-
operated restaurants. It provides cost savings through the use of detailed
product and consumer information. The system promptly provides market
information to assist management in decision making.
Accounting is centralized in Pittsburg, Kansas. Additional financial
and management controls are maintained at the individual restaurants, where
inventory, labor and food data are recorded to monitor food usage, food
waste, labor costs, and other controllable costs.
Competition
The restaurant business is highly competitive with respect to price,
service, location, food quality and presentation, and is affected by
changes in taste and eating habits of the public, local and national
economic conditions and population and traffic patterns. The Company
competes with a variety of restaurants offering moderately priced food to
the public, including other pizza restaurants. The Company also competes
with locally-owned restaurants which offer similar pizza, pasta and
sandwich products. The Company believes other companies can easily enter
its market segment, which could result in the market becoming saturated,
thereby adversely affecting the Company's revenues and profits. There is
also active competition for competent employees and for the type of
commercial real estate sites suitable for the Company's restaurants.
In the delivery portion of the segment, Pizza Hut is not currently the
dominant concept.
Employees
At March 28, 1995, the Company's Pizza Hut operations had
approximately 7,200 employees, including 132 headquarters and staff
personnel, two vice presidents, five regional managers, 41 area general
managers, 786 restaurant management employees and approximately 6,234
restaurant employees (of whom approximately 83% are part-time). The
Company experiences a high rate of turnover of its part-time employees,
which it believes to be normal in the restaurant industry. The Company is
not a party to any collective bargaining agreements and believes its
employee relations to be satisfactory. The maintenance and expansion of
the Company's restaurant business is dependent on attracting and training
competent employees. The Company believes that the restaurant manager
plays a significant role in the success of its business. Accordingly, the
Company has established bonus plans pursuant to which certain of its
supervisory employees may earn cash bonuses based upon both the sales and
profits of their restaurants.
Trade Names, Trademarks and Service Marks
The trade name "Pizza Hut" and all other trademarks, service marks,
symbols, slogans, emblems, logos and designs used in the Pizza Hut system
are owned by Pizza Hut, Inc. All of the foregoing are of material
importance to the Company's business and are licensed to the Company under
its Franchise Agreements for use with respect to the operation and
promotion of the Company's restaurants.
Seasonality
The Company's Pizza Hut operations have not experienced significant
seasonality in its sales.
SKIPPER'S OPERATIONS
Restaurant Format
Skipper's operates and franchises restaurants primarily under the name
Skipper's Seafood 'n Chowder House. Skipper's restaurants feature a
limited quick-service menu, featuring fish, shrimp, clams and other seafood
items. The nautical decor of the restaurants is casual, suitable for
family dining. With its limited-service format, all meal orders are taken
at the cash register. About 80% of Skipper's sales are cooked-to-order and
delivered to the customer when prepared. During peak periods, some menu
items are cooked in advance and held in a special holding area to maintain
food at the proper temperature. Customers pick up these ready-made
entrees, as well as their drinks, chowder and salads from the front counter
and carry them to their table.
As of March 28, 1995, the Company operates or franchises restaurants
in seven states and internationally as follows:
State/Country Company-owned Franchised
Alaska 4 ---
Idaho 10 2
Montana 1 3
North Dakota --- 5
Oregon 27 1
Utah 10 ---
Washington 54 1
United States Total 106 12
Canada --- 2
Total 106 14
Unit Development
The following table sets forth information concerning the number of
Skipper's Company-owned and franchised restaurants.
Fiscal Year Ended
March 26, March 31, March 30, March 29, March 28,
1991 1992 1993 1994 1995
Company
Units operated at
beginning of period 172 192 192 188 188
Opened during period 3 8 2 --- ---
Acquired during period 19 2 --- --- ---
Closed during period 2 10 6 --- 82
Units operated at end
of period 192 192 188 188 106
Franchised
Units operated at
beginning of period 30 21 19 18 18
Opened during period --- --- --- --- ---
Sold to Company 7 2 --- --- ---
Closed during period 2 --- 1 --- 4
Units operated at end
of period 21 19 18 18 14
On January 28, 1995, the Company announced that it would close and
dispose of 77 unprofitable Skipper's units. Management believes downsizing
the organization will allow it to concentrate on those units and regions it
believes can be profitable while it repositions the concept and further
refines operations.
Menu and Food Preparation
Skipper's emphasizes high quality seafood and poultry products. Food
is cooked either at the time or in advance of each order. Much of the
necessary food preparation, such as filleting and breading seafood products
and preparing clam chowder, is performed on the restaurant premises several
times a day. A typical guest's check averages $4.99.
Seafood entrees on Skipper's menu include fish fillets, scallops,
shrimp and clams. All of Skipper's fried entree items are deep fried in
pure vegetable shortening. The restaurants also serve baked or broiled
fish. Skipper's menu also includes clam chowder, french fried potatoes,
baked potatoes, coleslaw, entree salads and fish and chicken sandwiches.
Beer is served at most restaurants. Skipper's believes that beer,
which accounts for only a small portion of revenues, is important in
attracting and maintaining its adult customer base and increasing food
purchases.
Supplies and Equipment
Skipper's ability to maintain consistent quality throughout its chain
of restaurants depends upon acquiring food products, other consumables, and
other products from reliable sources. To most effectively achieve this
consistency and to reduce the costs of products, Skipper's contracts
centrally for all major raw food, paper products and other restaurant
supplies through its purchasing department. Skipper's negotiates directly
with a processor or manufacturer (and will do so on behalf of franchisees
if franchisees so desire) and then contracts with a distributor for company-
wide distribution. Skipper's also centralizes purchases of restaurant
equipment for its company-operated restaurants and for such franchisees as
may wish to use this service.
Skipper's is generally not dependent upon any one supplier for
availability of its products because its food and other products are
available from a number of acceptable sources. Skipper's has a policy of
maintaining alternate suppliers for most of its baseline products.
Franchising
Skipper's commenced franchising in 1978 and now has 14 franchised
units located in five states and British Columbia, Canada.
Skipper's franchise program was designed both for single unit
owner/operators and for multi-unit franchise owners who would operate
several Skipper's restaurants. There were no outstanding agreements with
any franchise owner for the development of additional franchise restaurants
at March 28, 1995. Skipper's has indefinitely suspended new franchising.
The franchise owners paid an initial franchise fee of $10,000. In
addition, Skipper's receives a royalty of 4.3% on the first $500,000 in
annual gross revenues and 5.3% of revenues over $500,000 of each franchise
restaurant. In addition to these payments, franchise restaurant owners are
also required to pay Skipper's an amount equal to 0.5% of gross revenues
for administration of the advertising program.
Supervision and Control
Skipper's restaurants are open seven days a week and serve both lunch
and dinner. Each of the restaurants has a manager and an assistant manager
who are responsible for daily operations of the restaurant, including food
preparation, quality control, service, maintenance, personnel, and record
keeping. All of the Skipper's restaurant managers have completed a
comprehensive management training program. Each area general manager is
responsible for approximately six restaurants. Detailed operations manuals
reflecting current operations and control procedures are provided to each
restaurant and district manager as well as others in the organization.
A point-of-sale cash register system was placed into operation in all
company-operated restaurants in 1986. It provides cost savings through the
use of detailed product and consumer information. The system promptly
provides market information to assist management in decision making.
Accounting is centralized in Pittsburg, Kansas. Additional financial
and management controls are maintained at the individual restaurants, where
inventory, labor and food data are recorded to monitor food usage, food
waste, labor costs, and other controllable costs.
Advertising
With customer research as an information base, the marketing
department directs sales program development, advertising, public
relations, field marketing activities, menu pricing and content, restaurant
decor and product packaging.
Skipper's advertising programs are developed by the Company's central
marketing department and an outside agency. Television, radio and direct
mail are the primary advertising media, with a creative focus on product
quality and value-pricing.
Competition
In general, the restaurant business is highly competitive and is often
affected by changes in taste and eating habits of the public, local and
national economic conditions affecting spending habits, population and
traffic patterns. The principal basis of competition in the industry is
the quality and price of the food products offered. Site selection,
quality and speed of service, advertising and attractiveness of facilities
are also important.
Skipper's restaurants compete with moderately priced and fast food
restaurants located in their respective vicinities as well as seafood chain
restaurants in Skipper's market areas.
Employees
At March 28, 1995, Skipper's operations had approximately 1,700
employees including 21 headquarters and staff personnel, 3 regional
managers, 16 area general managers, 1 franchise manager, 226 restaurant
management employees and approximately 1,433 restaurant employees (of whom
approximately 82% are part-time). Skipper's experiences a high rate of
turnover of its part-time employees, which it believes to be normal in the
restaurant industry. Skipper's is not a party to any collective bargaining
agreements and believes its employee relations to be satisfactory.
Trade Names, Trademarks and Service Marks
The trade name "Skipper's" and all other trademarks, service marks,
symbols, slogans, emblems, logos, and designs used in the Skipper's
restaurant system are of material importance to Skipper's business.
Skipper's licenses these marks to its franchisees under its franchise
agreements for use with respect to the operation and promotion of their
Skipper's restaurants.
Seasonality
Skipper's sales and earnings are usually slightly higher immediately
before Christmas and during Lent (March / April).
TONY ROMA'S OPERATIONS
Restaurant Format
Romacorp, Inc. operates and franchises casual-themed restaurants under
the name Tony Roma's A Place For Ribs. The restaurants offer a full and
varied menu, including ribs, salads, steaks, seafood, chicken and other
menu items. The decor of the restaurants is casual, suitable for family
dining. Recent renovations and new restaurants feature brighter lighting
and decor packages to attract a broader segment of customers. All entrees
are prepared to order. The location of the Company-owned and franchised
restaurants is as follows:
State/Country Company-owned Joint Venture Franchised
Alaska --- --- 1
Arizona --- --- 7
California 7 1 39
Colorado --- --- 4
Florida 11 --- 3
Hawaii --- --- 3
Kansas --- --- 1
Maine --- --- 1
Minnesota --- --- 2
Mississippi 1 --- ---
Nebraska --- --- 1
Nevada 1 --- 4
New York --- --- 7
Ohio --- --- 3
Oregon --- --- 3
South Carolina --- --- 1
Texas 5 1 7
Utah --- --- 6
Washington --- --- 9
Wisconsin --- --- 2
United States Total 25 2 104
Aruba --- --- 1
Canada --- --- 10
Caribbean --- --- 4
Great Britain --- --- 1
Guam --- --- 2
Hong Kong --- --- 1
Indonesia --- --- 2
Japan --- --- 10
Mexico --- --- 3
Peru --- --- 1
Spain --- --- 1
Singapore --- --- 1
Taiwan --- --- 1
Thailand --- --- 1
International Total --- --- 39
World Total 25 2 143
Number of franchise holders 57
Romacorp operates two of its restaurants as joint ventures under the
equity method of accounting. In general, the Company receives a fee for
managing the restaurants and remits to the partners an agreed-upon
percentage of gross sales. In the event the restaurants do not generate
sufficient cash flow, the Company funds the deficit necessary to provide
sufficient working capital and partner distributions.
Unit Development
The following table sets forth information concerning the growth in
the number of Tony Roma's Company-owned and franchised restaurants.
Information provided for periods prior to the acquisition of Tony Roma's by
the Company is reported based on the concept's prior fiscal years.
14 42 Fiscal
Weeks Weeks Year
Fiscal year ended Ended Ended Ended
2/28/91 2/28/92 2/28/93 6/8/93 3/29/94 3/28/95
Company/Joint Ventures
Units operated at
beginning of period 17 16 17 28 26 26
Opened during period --- 1 --- --- 1 2
Acquired --- --- 12 --- --- 1
Closed during period 1 --- 1 2 1 2
Units operated at end
of period 16 17 28 26 26 27
Franchised
Units operated at
beginning of period 116 125 130 123 129 137
Opened during period 18 6 13 9 9 14
Closed during period 9 1 8 3 1 7
Sold to Company --- --- 12 --- --- 1
Units operated at end
of period 125 130 123 129 137 143
Menu and Food Preparation
All entrees served at Tony Roma's restaurants are prepared to order.
The menu includes ribs, steak, chicken, seafood, sandwiches and salads.
Tony Roma's signature product is baby back ribs. Guest checks average
approximately $11.44. Alcoholic beverages are served in all restaurants,
and account for approximately 12% of sales.
Supplies and Equipment
To assure consistent product quality and to obtain quantity discounts,
the Company purchases its food and restaurant equipment from its corporate
office in Dallas, Texas. The Company negotiates directly with meat
processors for its rib inventory, which is principally maintained in
various independent warehouses in Iowa. Inventory is then shipped to
restaurants via commercial distributors. Produce and dairy products are
obtained locally. Food and equipment pricing is also generally available
to the franchisee community.
The Company is generally not dependent upon any one supplier for
availability of its products; its food and other products are generally
available from a number of acceptable sources. The Company has a policy of
maintaining alternate suppliers for most of its baseline products. The
Company does not manufacture any products nor act as a middleman.
Franchising
Although the first Tony Roma's opened in 1972, franchising wasn't a
key element of Tony Roma's growth strategy until 1984. At March 28, 1995,
the Company had 57 franchisees operating 143 units world wide. The largest
franchise holder operates a chain of 19 Tony Roma's restaurants. Although
there are some individual unit franchisees, the Company seeks to attract
franchisees who can develop several restaurants.
New domestic franchisees pay an initial franchise fee of $50,000 and a
continuing royalty of 4% of gross sales. In addition, franchisees are
required to contribute 0.5% of gross sales to a joint marketing account and
may be required to participate in local market advertising cooperatives.
All potential franchisees must meet certain operational and financial
criteria.
In return for the domestic franchisee's initial fee and royalties, the
Company provides a variety of services, including: real estate services,
including site selection criteria and review/advice on construction cost
and administration; architectural services in the form of prototype
designs and an in-house design team to help with decor considerations; pre-
opening and opening assistance, which include an on-site training team to
assist in recruitment, training, organization, inventory planning and
quality control; centralized and system-wide purchasing opportunities; in-
store managers training programs, coordinated and assisted advertising and
marketing programs; and various administrative and training programs
developed by the Company.
International franchisees receive a modified version of the above
services. Currently, international franchises require an initial fee of
$30,000 per unit and royalty rate of 3% of gross sales. However, costs
associated with visits to international locations by Romacorp personnel are
borne by the international franchisee. International franchise holders
also contribute 0.25% to a joint marketing account.
Supervision and Control
Company operated restaurants are typically run by one general manager,
two to three assistant managers and a kitchen manager.
All of the Tony Roma's restaurant
managers have completed a comprehensive management training program.
Detailed operations manuals reflecting current operations and control
procedures are provided to each restaurant and district manager as well as
others in the organization.
A point-of-sale cash register system is in place in all Company-
operated restaurants. It provides cost savings through the use of detailed
product and consumer information. The system is polled daily and provides
detailed information to assist management in decision making. The Company
anticipates installing a new state-of-the-art point of sale system in all
Company-owned restaurants in fiscal 1996.
Accounting is centralized in Pittsburg, Kansas. Additional financial
and management controls are maintained at the individual restaurants, where
inventory, labor and food data are recorded to monitor food usage, food
waste, labor costs, and other controllable costs.
Advertising
With customer research as an information base, the marketing
department directs sales program development, advertising, public
relations, field marketing activities, and product packaging.
Competition
The restaurant industry is intensely competitive with respect to
price, value, service, location and food quality. Tony Roma's has
developed high brand identity within the casual theme segment and is the
only national chain to focus on ribs. On a local and regional basis, the
Company competes with smaller chains, which also specialize in ribs, and
with larger concepts which include ribs as a menu item.
Employees
At March 28, 1995, Tony Roma's operations had approximately 1,400
employees including 31 headquarters and staff personnel, 1 regional
manager, 10 district managers, 125 restaurant management employees and
approximately 1,232 restaurant employees (of whom approximately 75% are
part-time). Tony Roma's is not a party to any collective bargaining
agreements and believes its employee relations to be satisfactory.
Trade Names, Trademarks and Service Marks
The trade name "Tony Roma's" and all other trademarks, service marks,
symbols, slogans, emblems, logos, and designs used in the Tony Roma's
restaurant system are of material importance to its business. The domestic
trademark and franchise rights are owned by Romacorp, Inc. and
international trademarks/franchise rights are owned by Roma Systems, Inc.,
a wholly owned subsidiary of Romacorp, Inc. The Company licenses the use
of these marks to its franchisees under its franchise agreements for use
with respect to the operation and promotion of their Tony Roma's
restaurants.
Seasonality
Tony Roma's sales are normally higher from January to March and
traditionally lower during the Summer months.
* * * * * * * *
Government Regulation
All of the Company's operations are subject to various federal, state
and local laws that affect its business, including laws and regulations
relating to health, sanitation, alcoholic beverage control and safety
standards. To date, federal and state environmental regulations have not
had a material effect on the Company's operations, but more stringent and
varied requirements of local governmental bodies with respect to zoning,
building codes, land use and environmental factors have in the past
increased, and can be expected in the future to increase, the cost of, and
the time required for opening new restaurants. Difficulties or failures in
obtaining required licenses or approvals could delay or prohibit the
opening of new restaurants. In some instances, the Company may have to
obtain zoning variances and land use permits for its new restaurants. The
Company believes it is operating in compliance with all material laws and
regulations governing its operations.
The Company is also subject to the Fair Labor Standards Act, which
governs such matters as minimum wages, overtime and other working
conditions. A substantial majority of the Company's food service personnel
are paid at rates related to the minimum wage and, accordingly, increases
in the minimum wage result in higher labor costs.
Legislation mandating health coverage for all employees, if passed,
will increase benefit costs since most hourly restaurant employees are not
currently covered under Company plans. The Company cannot always effect
immediate price increases to offset higher costs, and no assurance can be
given that the Company will be able to do so in the future.
ITEM 2. PROPERTIES
________________________________________________________________________
PIZZA HUT OPERATIONS
Pizza Hut restaurants historically have been built according to
minimum identification specifications established by PHI relating to
exterior style and interior decor. Variation from such specifications is
permitted only upon request and if required by local regulations or to take
advantage of specific opportunities in a market area.
The distinctive Pizza Hut red roof is the identifying feature of Pizza
Hut restaurants throughout the world. Pizza Hut restaurants are generally
free-standing, one-story buildings, usually with wood and brick exteriors,
and are substantially uniform in design and appearance. Property sites
range from 15,000 to 40,000 square feet and accommodate parking for 30 to
70 cars. Typically, Pizza Hut restaurants contain from 1,800 to 3,200
square feet, including a kitchen area, and have seating capacity for 70 to
125 persons.
The cost of land, building and equipment for a typical Pizza Hut
restaurant varies with location, size, construction costs and other
factors. The Company currently estimates that the average cost to
construct and equip a new restaurant in its existing franchise territories
is approximately $450,000 to $500,000, or $550,000 to $675,000 including
the cost of land acquisition.
The Company continually renovates and upgrades its existing
restaurants. Such improvements generally include new interior decor,
expansion of seating areas, and installation of more modern equipment.
The Company anticipates that the capital investment necessary for each
delivery-only kitchen is approximately $85,000 in equipment and $35,000 in
leasehold improvements. The cost of a customer service center is
approximately $100,000 in equipment and improvements.
The Pizza Hut restaurants and delivery units operated by the Company
at March 28, 1995, are owned or leased as follows:
Leased from unrelated third parties 190
Leased from officers 2
Land and building owned by the Company 122
Building owned by the Company and land leased 34
348
The amount of rent paid to unrelated persons is determined on a flat
rate basis or as a percentage of sales or as a combination of both. Some
leases contain provisions requiring cost of living adjustments.
The Company's Pizza Hut operations also have 11 non-operating
locations. Of these, six are leased from unrelated parties, two are land
and buildings owned by the Company, and three are undeveloped parcels of
land. The Company intends to sell or sublease these locations.
Rent paid to affiliates is determined as a combination of a flat rate
or as a percentage of sales in excess of specified amounts. Generally, the
percentage rate is 6% where both land and buildings are leased.
Approximately 185 leases have initial terms which will expire within the
next five years. Nearly all of these leases contain provisions allowing
for the extension of the lease term.
The Company owns its principal executive and administrative offices in
Pittsburg, Kansas, containing approximately 46,000 square feet of
commercial office space, and a regional office in Memphis, TN. In
addition, the Company leases from third parties office space for its
regional offices in Little Rock, AR, Ridgeland, MS, Springfield, MO and
Birmingham, AL.
SKIPPER'S OPERATIONS
Skipper's selects all company-operated restaurant sites and must
approve all franchised restaurant locations. Sites are selected using a
screening model to analyze locations with an emphasis on demographics (such
as population density, age and income distribution), analysis of restaurant
competition in the area, and an analysis of the site characteristics,
including accessibility, traffic counts, and visibility.
Skipper's generally locates its restaurants in commercial/retail areas
near residential concentrations rather than downtown business districts.
Skipper's favors locations which are in or near regional or district
shopping centers and follows a general policy of clustering its restaurants
geographically to achieve economies in restaurant supervisory and
advertising costs.
The current cost of constructing and equipping a Skipper's restaurant
typically ranges from $300,000 to $350,000 for building and land
improvements and $135,000 to $185,000 for equipment. The cost of land
varies considerably depending on geographic and site location. Land costs
vary from $150,000 to $400,000. Skipper's has developed a standardized
restaurant design using a free-standing wood frame building to be situated
on a one-half acre site. Development of new Skipper's restaurants have
been suspended indefinitely.
The 106 Company-operated Skipper's restaurants at March 28, 1995, are
owned or leased as follows:
Leased from unrelated parties 45
Land and buildings owned by Skipper's 36
Buildings owned by Skipper's and land leased 25
106
Skipper's also has 100 locations which are not currently used for
Skipper's restaurants. Of these, 45 are properties leased from unrelated
parties, 33 are land and buildings owned by Skipper's and 22 are buildings
owned on leased land. Skipper's intends to sublease or sell these excess
properties.
Most of Skipper's leases contain percentage rent clauses (typically 5%
to 6% of gross sales) against which the minimum rent is applied, and most
are net leases under which Skipper's pays taxes, maintenance, insurance,
repairs and utility costs.
All company-owned restaurant locations are free of major encumbrances.
TONY ROMA'S OPERATIONS
The Company selects all company-operated restaurant sites, and must
approve all franchised restaurant locations. Sites are selected using a
screening model to analyze locations with an emphasis on demographics (such
as population density, age and income distribution), analysis of restaurant
competition in the area, and an analysis of the site characteristics,
including accessibility, traffic counts, and visibility.
The current cost of constructing and equipping a free-standing Tony
Roma's restaurant typically ranges from $550,000 to $650,000 for building,
$150,000 to $250,000 for land improvements and signage, and $200,000 to
$250,000 for equipment. The cost of land varies considerably depending on
geographic and site location. Land costs vary from $600,000 to $850,000.
Units which are constructed within existing structures or mall areas are
typically less. The Company has developed standardized restaurant designs
using a free-standing building to be situated on a 1-1/2 acre site. The
design is continually revised and refined.
The 27 Company-operated Tony Roma's restaurants at March 28, 1995, are
owned and leased as follows:
Leased from unrelated parties 25
Land and buildings owned 2
27
The Company has no excess real estate at March 28, 1995.
Some of Tony Roma's leases contain percentage rent clauses (typically
5% to 6% of gross sales) against which the minimum rent is applied, and
most are net leases under which Tony Roma's pays taxes, maintenance,
insurance, repairs and utility costs.
All company-owned restaurant locations are free of major encumbrances.
* * * * * *
See Note 7 of Notes to Consolidated Financial Statements for
information with respect to the Company's lease obligations included in the
1995 Annual Report to Stockholders for the year ended March 28, 1995 (the
"Annual Report"), which is incorporated herein by reference.
ITEM 3. LEGAL PROCEEDINGS
________________________________________________________________________
The Company and its subsidiaries are engaged in ordinary and routine
litigation incidental to its business, but management does not anticipate
that any amounts which it may be required to pay by reason thereof, net of
insurance reimbursements, will have a materially adverse effect on the
Company's financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
________________________________________________________________________
There were no matters submitted to a vote of security holders during
the fourth quarter of the fiscal year ended March 28, 1995.
EXECUTIVE OFFICERS OF THE COMPANY
See item 10, Part III, "Directors and Executive Officers and Directors
of the Registrant" of this Form 10-K
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
________________________________________________________________________
"Stockholder Data" included in the Annual Report to Stockholders is
incorporated herein by reference. Restrictions on the payment of dividends
are incorporated herein by reference to Note 4 of the Notes to Consolidated
Financial Statements in the Annual Report. On August 8, 1995, the Company
anticipates declaration of a special dividend of $0.421875 per Class A
Share in conjunction with a concurrent stock recapitalization plan. Please
see the Proxy Statement for the Annual Stockholder's Meeting to be held on
August 8, 1995.
ITEM 6. SELECTED FINANCIAL DATA
________________________________________________________________________
The "Ten Year Financial Summary" on page 11 of the Annual Report is
incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
________________________________________________________________________
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" on pages 12 to 16 of the Annual Report is
incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
________________________________________________________________________
The following financial statements of the Registrant and independent
auditor's report set forth on pages 17 to 26 of the Annual Report are
incorporated herein by reference:
Consolidated Balance Sheets - As of March 28, 1995, and March 29,
1994.
Consolidated Statements of Income - Years ended March 28, 1995, March
29, 1994, and March 30, 1993.
Consolidated Statements of Stockholders' Equity - Years ended March
28, 1995, March 29, 1994, and March 30, 1993.
Consolidated Statements of Cash Flows - Years ended March 28, 1995,
March 29, 1994, and March 30, 1993.
Notes to Consolidated Financial Statements.
Report of Independent Auditors.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
________________________________________________________________________
No disagreements on accounting and financial disclosure have occurred.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
________________________________________________________________________
The name, age and background of each of the Company's Directors are
contained under the caption "Election of Two Directors" on pages 2 to 3 of
the Proxy Statement for the Annual Meeting of Stockholders to be held on
August 8, 1995 (the "Proxy Statement") is incorporated herein by reference
in response to this item.
The executive officers of the Company and their current positions and
ages are as follows:
Name Position Age
O. Gene Bicknell Chairman of the Board, Chief Executive
Officer and Director 62
James K. Schwartz President and Chief Operating Officer 33
Marty D. Couk Senior Vice President Pizza Hut Operations 40
Paul R. Baird President, Skipper's, Inc. (Skipper's Operations) 46
Robert B. Page President, Romacorp, Inc. (Tony Roma's Operations) 36
Troy D. Cook Vice President Finance, Chief Financial
Officer, Treasurer and Assistant Secretary 32
David G. Short Vice President Legal, Secretary 56
O. Gene Bicknell founded the Company and has served as Chairman of the
Board since 1962. He also served as Chief Executive Officer of the Company
before July, 1993 and after January 30, 1995.
James K. Schwartz was promoted to President and Chief Operating
Officer from Executive Vice President and Chief Operating Officer in
January, 1995. He also held the positions of Vice President Finance,
Treasurer and Chief Financial Officer after earlier promotions within the
organization.
Marty D. Couk joined the Company as a restaurant manager trainee in
April, 1979. He served in various capacities at the Company, including
Field Specialist (1982), Area General Manager (1983) and Regional Manager
(1987). He was promoted to Vice President of Pizza Hut Operations in
December, 1992 and Senior Vice President of Pizza Hut Operations in
September, 1993.
Paul R. Baird joined Skipper's, Inc. on March 28, 1995 and became its
President on April 30, 1995. From January 1994 to March 1995, Mr. Baird
was the senior vice president of Brothers Gourmet Coffee and, prior to
that, President and Chief Operating Officer of Cheers, Inc.
Robert B. Page became President of Romacorp, Inc. in 1994. He joined
NPC in 1988 in the Pizza Hut division, serving as a Regional Manager and
Senior Vice President of Pizza Hut Operations until he moved to Tony Roma's
in 1993 as its Chief Operating Officer.
Troy D. Cook joined the Company in February 1995 as Vice President
Finance, Chief Financial Officer, Treasurer and Assistant Secretary. Prior
to that, he was Vice President and Chief Operating Officer of Oread
Laboratories from 1991 to 1995 and Director of Accounting of American and
Italian Pasta Company from 1990 to 1991. Mr. Cook is a certified public
accountant.
David G. Short joined the Company in June 1993 as part of the NRH
Corporation acquisition and was appointed to Vice President Legal and
General Counsel in July, 1993. He was vice president, legal and general
counsel for NRH Corporation since September, 1990 and, previous to that,
vice president-legal, general counsel and secretary of TGI Fridays, Inc.
ITEM 11. EXECUTIVE COMPENSATION
________________________________________________________________________
"Executive Compensation" on pages 6 to 11 of the Proxy Statement is
incorporated herein by reference in response to this item.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
________________________________________________________________________
"Beneficial Ownership of Principal Stockholder and of Directors and
Management" on page 5 of the Proxy Statement are incorporated herein by
reference in response to this item.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
________________________________________________________________________
The Board of Directors on January 24, 1995, authorized the purchase of
real estate owned by an affiliate of Mr. Bicknell, the Chairman of the
Company. The Company engaged an MAI-certified appraisal company to perform
an appraisal of the property. The Board of Directors upon review of the
proposal and the appraisal, and with the Chairman abstaining from any
participation in the vote, approved the purchase of this site for the
appraised value of $750,000. An additional $50,000 in excess equipment
remaining in the facility was also purchased.
The Board of Directors has authorized a loan to Mr. Bicknell in the
amount of $575,000, which is scheduled to be repaid on September 27, 1995.
The loan bears interest at 100 basis points over the Company's weighted
average cost of capital, adjusted monthly. As of June 20, 1995, the
balance of this loan is $450,000.
Certain Company employees perform accounting and other services for
Mr. Bicknell and his affiliates. At March 28, 1995, Mr. Bicknell and his
affiliates owed the Company approximately $200,000 as reimbursement for
such services. The Company continually monitors all officer-related
receivables and considers all such amounts to be collectible.
During the fiscal year ended March 28, 1995, the Company leased a
total of five properties from Mr. Bicknell and one property from Mr. Gordon
Elliott, a Director of the Company. The Company paid a total of $73,643 to
Mr. Bicknell and $31,769 to Mr. Elliott as rent for these properties in the
fiscal year just ended. The Company continues to rent two properties from
Mr. Bicknell, subject to normal lease terms set to expire no later than May
1998, at a combined monthly rent of $2,084 per month. In addition, one
restaurant is leased from Mr. Elliott at a monthly rate of $1,891 with a
lease term expiring January 1999. Rental paid to affiliates is determined
as a combination of a flat rate or as a percentage of sales in excess of
specified amounts. The percentage rate is 6% where both land and buildings
are leased. Management believes these leases are at least as favorable as
could be obtained from unrelated parties.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
________________________________________________________________________
(a) List of Documents filed as part of this Report
1) Financial Statements
All financial statements of the registrant as set forth under Item 8
of this Report on Form 10-K.
2) No schedules are filed as part of this Report
because they are not required or are not applicable, or
the required information is shown in the financial statements or
notes thereto.
3)Exhibits (numbered in accordance with Item 601 of Regulation S-K)
Page Number or
Exhibit Incorporation
Number Description by Reference to
3.1 Restated Articles of Incorporation Exhibit 3(a) to Form S-1
Registration Statement
effective August 14, 1984
File #2-91885
3.2 Certificate of Amendment to Amended by Form 8 filed
Restated Articles of Incorporation May 30, 1991
dated August 7, 1986, Certificate
of Amendment to Restated of
Articles of Incorporation dated
July 31, 1987 and Certificate of
Change of Location of Registered
Office dated October 20, 1987
3.3 Bylaws Exhibit 3(b) to Form S-1
Registration Statement
effective August 14,1984
File #2-91885
3.4 Certificate of Amendment to Exhibit B to Proxy
Restated Articles of Incorporation Statement for Annual
of National Pizza Company Meeting filed June 13, 1994
Effective July 12, 1994 EDGAR 748714-94-000007
4.1 Specimen Stock Certificate Exhibit 4.1
For Class A Common Stock to Form 10-Q
filed August 1, 1994
EDGAR 748714-94-000016
4.2 Specimen Stock Certificate Exhibit 4.2 to
For Class B Common Stock to Form 10-Q
filed August 1, 1994
EDGAR 748714-94-000016
10.1 Franchise Agreement between Exhibit 10.01 to
Pizza Hut, Inc. and NPC to Form 10-Q
International, Inc. (sample document) filed August 1, 1994
effective March 30, 1994 EDGAR 748714-94-000016
10.7 Leases between the Company and Exhibit 10(e) to Form S-1
Messrs. Bicknell and Elliott Registration Statement
effective August 14, 1984
File #2-91885
10.10 Note Agreement between National Exhibit 10.10 to Form 10-K
Pizza Company and Prudential Life for the year ended
Insurance Company of America March 26, 1991
dated March 13, 1991
10.11 NPC International, Inc. 1984 Exhibit 10(t) to Form 10-K
Amended and Restated Stock filed June 25, 1990
Option Plan
10.12 Form of Franchise Agreement Exhibit 10(x) to Form 10-K
between Skipper's, Inc. and filed June 25, 1990
its franchisees
10.19 Senior Note Purchase Agreement Exhibit 10.19 to Form 10-K
made by and between PM Group filed June 16, 1992
Life Insurance Company, Pacific
Mutual Life Insurance Company, and
Massachusetts Mutual Life Insurance
Company and NPC International, Inc.
dated May 15, 1992 (sample document)
10.25 Profit Sharing Plan of NPC Exhibit 10.25
International dated July 1, 1992 and to Form 10-K for the
First Amendment dated January 1, 1993 year ended March 30, 1993
10.26 Senior Note Purchase Agreement made Exhibit 10.26
by and between Pacific Mutual Life to Form 10-K for the
Insurance Company, Pacific Corinthian year ended March 30, 1993
Life Insurance Company, Lutheran
Brotherhood and NPC International,
Inc. dated March 30, 1993
10.27 Stock Purchase Agreement dated Exhibit B to Form 8-K
May 18, 1993 by and among NPC filed May 28, 1993
International, NRH Corporation and
selling stockholders
10.28 Amendment #1 to the Stock Purchase Exhibit A to Form 8-K
Agreement relating to the sale of filed June 23, 1993
NRH Corporation dated June 9, 1993
10.29 Second Amendment to the Profit Exhibit 10.29
Sharing Plan of NPC International, to Form 10-K for the
Inc. dated October 19, 1993 year ended March 29, 1994
EDGAR 748714-94-000009
10.31 Asset Exchange Agreement by and Exhibit 10.31
among NPC International, Inc., to Form 10-K for the
Pizza Hut, Inc. and Pizza Hut of year ended March 29, 1994
San Diego, Inc., dated June 7, 1994 EDGAR 748714-94-000009
10.32 NPC International, Inc. 1994 Exhibit A to Proxy
Stock Option Plan Statement to Annual
dated May 3, 1994 Meeting of Stockholders
filed June 13, 1994
EDGAR 748714-94-000007
10.33 Third Amendment to the NPC Exhibit 10.33 to
International, Inc. Profit Sharing Form 10-Q filed
Plan Effective August 1, 1993. August 1, 1994
EDGAR 748714-94-000016
10.34 Credit Agreement among NPC Exhibit 10(a) to
International, Inc., the banks Form 10-Q filed
named therein, and Bank of February 10, 1995
America Illinois, as Agent EDGAR 748714-95-000010
dated as of December 13, 1994
10.35 Master Shelf Agreement between Exhibit 10(b) to
NPC International, Inc. and Form 10-Q filed
Prudential Capital Group for up to February 10, 1995
$20,000,000 Senior Notes EDGAR 748714-95-000010
dated as of June 9, 1994
10.36 Third Amendment to the 1990 Exhibit 10(c) to
Agreement between NPC International, Form 10-Q filed
Inc. and Prudential Insurance Company; February 10, 1995
Second Amendment to the 1991 EDGAR 748714-95-000010
Agreement between NPC International,
Inc. and Prudential Insurance Company,
dated June 9, 1994
10.37 Fourth Amendment to the 1990 Exhibit 10(d) to
Agreement between NPC International, Form 10-Q filed
Inc. and the Prudential Insurance February 10, 1995
Company; Third Amendment to the 1991 EDGAR 748714-95-000010
Agreement between NPC International,
Inc. and the Prudential Life Insurance
Company; First Amendment to Master
Shelf Agreement between NPC
International, Inc. and Prudential
Capital Group, dated December 23, 1994
10.38 Amendment to the May 15, 1992 Exhibit 10.38
Agreement between NPC International, to Form 10-K for the
Inc. and Massachusetts Mutual year ended March 28, 1995
dated March 28, 1995
10.39 Amendment to the March 30, 1993 Exhibit 10.39
Agreement between NPC International, to Form 10-K for the
Inc. and Lutheran Brotherhood year ended March 28, 1995
dated March 28, 1995
10.40 Amendment to the May 15, 1992 Exhibit 10.40
Agreement between NPC International, to Form 10-K for the
Inc., Pacific Mutual and PM Group year ended March 28, 1995
and Amendment to the March 30, 1993
Agreement between NPC International,
Inc., Pacific Mutual and Pacific
Corinthian, dated March 28, 1995
10.41 Fifth Amendment to the March 13, Exhibit 10.41
1991 Agreement and the Third to Form 10-K for the
Amendment to the June 9, 1994 year March 28, 1995
Master Shelf Agreement between
NPC International, Inc., and
Prudential Insurance Co.
dated May 24, 1995
10.42 Amendment to the May 15, 1992 Exhibit 10.42
Agreement between NPC International, to Form 10-K for the
Inc. and Lutheran Brotherhood year ended March 28, 1995
dated May 24, 1995
10.43 Amendment to the May 15, 1992 Exhibit 10.43
Agreement between NPC International, to Form 10-K for the
Inc., Pacific Mutual and PM Group year ended March 28, 1995
and Amendment to the March 30, 1993
Agreement between NPC International,
Inc., Pacific Mutual and Pacific
Corinthian, dated May 24, 1995
10.44 Amendment to the March 30, 1993 Exhibit 10.44
Agreement between NPC International, to Form 10-K for the
Inc. and Massachusetts Mutual year ended March 28, 1995
dated May 24, 1995
10.45 Employment Agreement between Exhibit 10.44
NPC International, Inc. and to Form 10-K for the
James K. Schwartz year ended March 28, 1995
dated January 27, 1995
11 Statement regarding computation of per Exhibit 11
share earnings for the year ended to From 10-K for the
March 28, 1995, March 29, 1994, and year ended March 28, 1995
March 30, 1993.
13 1995 Annual Report to Stockholders Exhibit 13
to Form 10-K for the
year ended March 28, 1995
21 List of Subsidiaries Exhibit 21 to
Form 10-K for the year
ended March 28, 1995
23.1 Consent of Ernst & Young LLP Exhibit 23.1 to
Form 10-K for the year
ended March 28, 1995
99 Proxy Statement for Annual Meeting
of Stockholders to be held
August 8, 1995
(b) Reports on Form 8-K
A Form 8-K was filed on February 16, 1995 (EDGAR 748714-95-000012)
relating to the announcement that the Company would take a charge of up to
$35,000,000 pretax to reserve for costs associated with the Skipper's
closure. Recent management changes were also announced in the same Form 8-K.
SIGNATURES
___________________________________________________________________________
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on the 23rd day of June, 1995 on its behalf by the undersigned,
thereunto duly authorized.
NPC INTERNATIONAL, INC.
By Troy D. Cook
Vice President, Chief Financial Officer,
Treasurer, Assistant Secretary
(Principal Financial Officer)
By Douglas K. Stuckey
Corporate Controller
(Chief Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on the 23rd day of June, 1995.
O. Gene Bicknell Chairman of the Board,
Chief Executive Officer
and Director
(Principal Executive Officer)
James K. Schwartz President and
Chief Operating Officer
Troy D. Cook Vice President Finance,
Chief Financial Officer,
Treasurer and
Assistant Secretary
(Principal Financial Officer)
David G. Short Secretary
Gordon W. Elliott Vice Chairman and Director
Fran D. Jabara Director
Robert E. Cressler Director
John W. Carlin Director
Exhibit 10.38
Amendment
March 28, 1995
Massachusetts Mutual Life Insurance Company
1295 State Street
Springfield, Massachusetts 01111
Attention: Securities Investment Division
Ladies and Gentlemen:
We refer to the Note Agreement between NPC International, Inc.,
formerly National Pizza Company (the "Company"), and Massachusetts Mutual
Life Insurance Company ("Massachusetts Mutual") dated as of May 15, 1992 as
the same may have been amended through the date hereof (the "Existing
Agreement"). Each capitalized term used herein but not defined herein
shall have the meaning assigned to such term in the Existing Agreement.
Skipper's, Inc., a wholly owned subsidiary of the Company, has
closed certain of its restaurant locations. In connection with the
Skipper's closings, the Company has taken a charge against consolidated
income for the fiscal quarter ending March 28, 1995. As a result of this
charge, certain provisions and covenants in the Existing Agreement must be
amended. The Company has informed you of the Skipper's closings and the
resulting charge against consolidated income, and, accordingly, you and the
Company hereby agree as follows:
Amendment of Subsection 6A of the Existing Agreement. The
Company requests Massachusetts Mutual to amend and Massachusetts Mutual
hereby amends the provisions of Subsection 6A of the Existing Agreement as
follows:
"Consolidated Net Worth Requirement. The Company covenants
that it will not permit Consolidated Net Worth at any time to be
less than the sum of (i) $79,000,000 plus (ii) an amount equal to
50% of Consolidated Net Income (without reduction for any deficit
in Consolidated Net Income for any quarterly fiscal period) for
the period from and after March 28, 1995 to and including the
date of determination thereof, computed on a cumulative basis for
said entire period."
Except as expressly amended as set forth above, the Existing
Agreement remains in full force and effect and is hereby ratified and
confirmed. The execution, delivery and effectiveness of this Amendment
shall not, except as expressly provided herein, operate as an amendment or
waiver of any provision of the Existing Agreement.
This Amendment may be executed in any number of counterparts and
by any combination of the parties hereto in separate counterparts, each of
which counterparts shall be an original and all of which taken together
shall constitute one and the same Amendment.
If you agree to the terms and provisions hereof, please evidence
your agreement by executing and returning one counterpart of this letter
amendment to NPC International, Inc., 720 West 20th Street, P.O. Box 643,
Pittsburg, Kansas 66762, Attention: Troy D. Cook. This Amendment shall
become effective as of the date first above written when and if
counterparts of this Amendment shall have been executed by you and the
Company.
Very truly yours,
NPC INTERNATIONAL, INC.
By: Troy D. Cook
Title: Vice President and Chief Financial Officer
Agreed as of the date first above written:
MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY
By: __________________________________
Name: ________________________________
Title: _________________________________
11024405
Exhibit 10.39
Amendment
March 28, 1995
Lutheran Brotherhood
625 Fourth Avenue South
Minneapolis, Minnesota 55415
Attention: Investment Division
Ladies and Gentlemen:
We refer to the Note Agreement between NPC International, Inc.,
formerly National Pizza Company (the "Company"), and Lutheran Brotherhood
dated as of March 30, 1993 as the same may have been amended through the
date hereof (the "Existing Agreement"). Each capitalized term used herein
but not defined herein shall have the meaning assigned to such term in the
Existing Agreement.
Skipper's, Inc., a wholly owned subsidiary of the Company, has
closed certain of its restaurant locations. In connection with the
Skipper's closings, the Company has taken a charge against consolidated
income for the fiscal quarter ending March 28, 1995. As a result of this
charge, certain provisions and covenants in the Existing Agreement must be
amended. The Company has informed you of the Skipper's closings and the
resulting charge against consolidated income, and, accordingly, you and the
Company hereby agree as follows:
Amendment of Subsection 6A of the Existing Agreement. The
Company requests Lutheran Brotherhood to amend and Lutheran Brotherhood
hereby amends the provisions of Subsection 6A of the Existing Agreement as
follows:
"Consolidated Net Worth Requirement. The Company covenants
that it will not permit Consolidated Net Worth at any time to be
less than the sum of (i) $79,000,000 plus (ii) an amount equal to
50% of Consolidated Net Income (without reduction for any deficit
in Consolidated Net Income for any quarterly fiscal period) for
the period from and after March 28, 1995 to and including the
date of determination thereof, computed on a cumulative basis for
said entire period."
Except as expressly amended as set forth above, the Existing
Agreement remains in full force and effect and is hereby ratified and
confirmed. The execution, delivery and effectiveness of this Amendment
shall not, except as expressly provided herein, operate as an amendment or
waiver of any provision of the Existing Agreement.
This Amendment may be executed in any number of counterparts and
by any combination of the parties hereto in separate counterparts, each of
which counterparts shall be an original and all of which taken together
shall constitute one and the same Amendment.
If you agree to the terms and provisions hereof, please evidence
your agreement by executing and returning one counterpart of this letter
amendment to NPC International, Inc., 720 West 20th Street, P.O. Box 643,
Pittsburg, Kansas 66762, Attention: Troy D. Cook. This Amendment shall
become effective as of the date first above written when and if
counterparts of this Amendment shall have been executed by you.
Very truly yours,
NPC INTERNATIONAL, INC.
By: Troy D. Cook
Title: Vice President and Chief Financial Officer
Agreed as of the date first above written:
LUTHERAN BROTHERHOOD
By:__________________________________
Name:________________________________
Title:_________________________________
11024417
Exhibit 10.40
Amendment
March 28, 1995
Pacific Mutual Life Insurance Company
700 Newport Center Drive
P.O. Box 9000
Newport Beach, California 92658-9000
Attention: Fixed Income Securities Department
PM Group Life Insurance Company
c/o Pacific Mutual Life Insurance Company
700 Newport Center Drive
P.O. Box 9000
Newport Beach, California 92658-9000
Attention: Fixed Income Securities Department
Pacific Corinthian Life Insurance Company
700 Newport Center Drive
P.O. Box 9000
Newport Beach, California 92658-9000
Attention: Fixed Income Securities Department
Ladies and Gentlemen:
We refer to the Note Agreement between NPC International, Inc.,
formerly National Pizza Company (the "Company"), and Pacific Mutual Life
Insurance Company ("Pacific Mutual") dated as of May 15, 1992, the Note
Agreement between the Company and PM Group Life Insurance Company ("PM
Group") dated as of May 15, 1992, the Note Agreement between the Company
and Pacific Mutual dated as of March 30, 1993, and the Note Agreement
between the Company and Pacific Corinthian Life Insurance Company ("Pacific
Corinthian") dated as of March 30, 1993 as each may have been amended
through the date hereof (collectively, the "Existing Agreements"). Each
capitalized term used herein but not defined herein shall have the meaning
assigned to such term in the Existing Agreements.
Skipper's, Inc., a wholly owned subsidiary of the Company, has
closed certain of its restaurant locations. In connection with the
Skipper's closings, the Company has taken a charge against consolidated
income for the fiscal quarter ending March 28, 1995. As a result of this
charge, certain provisions and covenants in the Existing Agreements must be
amended. The Company has informed you of the Skipper's closings and the
resulting charge against consolidated income, and, accordingly, you and the
Company hereby agree as follows:
Amendment of Subsection 6A of the Existing Agreements. The
Company requests Pacific Mutual, PM Group and Pacific Corinthian, as
applicable, to amend and Pacific Mutual, PM Group and Pacific Corinthian,
as applicable, hereby amend the provisions of Subsection 6A of each of the
Existing Agreements as follows:
"Consolidated Net Worth Requirement. The Company covenants
that it will not permit Consolidated Net Worth at any time to be
less than the sum of (i) $79,000,000 plus (ii) an amount equal to
50% of Consolidated Net Income (without reduction for any deficit
in Consolidated Net Income for any quarterly fiscal period) for
the period from and after March 28, 1995 to and including the
date of determination thereof, computed on a cumulative basis for
said entire period."
Except as expressly amended as set forth above, the Existing
Agreements remain in full force and effect and are hereby ratified and
confirmed. The execution, delivery and effectiveness of this Amendment
shall not, except as expressly provided herein, operate as an amendment or
waiver of any provision of the Existing Agreements.
This Amendment may be executed in any number of counterparts and
by any combination of the parties hereto in separate counterparts, each of
which counterparts shall be an original and all of which taken together
shall constitute one and the same Amendment.
If you agree to the terms and provisions hereof, please evidence
your agreement by executing and returning one counterpart of this letter
amendment to NPC International, Inc., 720 West 20th Street, P.O. Box 643,
Pittsburg, Kansas 66762, Attention: Troy D. Cook. This Amendment shall
become effective as of the date first above written when and if
counterparts of this Amendment shall have been executed by you.
Very truly yours,
NPC INTERNATIONAL, INC.
By: Troy D. Cook
Title: Vice President and Chief Financial Officer
Agreed as of the date first above written:
PACIFIC MUTUAL LIFE INSURANCE COMPANY
By:__________________________________
Name:________________________________
Title:_________________________________
Agreed as of the date first above written:
PM GROUP LIFE INSURANCE COMPANY
By:__________________________________
Name:________________________________
Title:_________________________________
Agreed as of the date first above written:
PACIFIC CORINTHIAN LIFE INSURANCE COMPANY
By:__________________________________
Name:________________________________
Title:_________________________________
11024326
Exhibit 10.41
May 24, 1995
The Prudential Insurance Company of America
c/o Prudential Capital Group
1201 Elm St., Suite 4900
Dallas, Texas 75270
Fifth Amendment to 1991 Agreement
Third Amendment to Master Shelf Agreement
Ladies and Gentlemen:
We refer to the Note Agreement between NPC International, Inc.,
formerly National Pizza Company (the "Company"), and The Prudential
Insurance Company of America ("Prudential") dated as of March 13, 1991 (as
previously amended, the "1991 Agreement"), and the Master Shelf Agreement
between the Company and Prudential dated as of June 9, 1994 (as previously
amended, the "Master Shelf Agreement" and together with the 1991 Agreement,
the "Existing Agreements"). Each capitalized term used herein but not
defined herein shall have the meaning assigned to such term in the Existing
Agreements.
Skipper's, Inc., a wholly owned subsidiary of the Company, has
closed certain of its restaurant locations. In connection with the
Skipper's closings, the Company has taken a charge against consolidated
income for the fiscal quarter ending March 28, 1995. As a result of the
Skipper's closings and certain other transactions contemplated by the
Company, certain provisions and covenants in the Existing Agreements
require amendment. Accordingly, you and the Company hereby agree as
follows:
Amendment of Subsection 6A of the Existing Agreements. The
Company requests Prudential to amend and Prudential hereby amends the
provisions of Subsection 6A of each of the Existing Agreements as follows:
"Consolidated Net Worth Requirement. The Company will not
permit Consolidated Net Worth at any time to be less than the sum
of (i) $72,258,000 plus (ii) an amount equal to 50% of
Consolidated Net Earnings (without reduction for any deficit in
Consolidated Net Earnings for any quarterly fiscal period) for
the period from and after March 28, 1995 to and including the
date of determination thereof, computed on a cumulative basis for
such period."
Amendment of Subsection 6C(2)(A)(iv) of the Existing
Agreements. The Company requests Prudential to amend and Prudential hereby
amends the provisions of Subsection 6C(2)(A)(iv) of each of the Existing
Agreements as follows:
(iv) additional Debt of the Company and its Subsidiaries;
provided that (x) the aggregate amount of all Debt of the Company and
its Subsidiaries (determined on a consolidated basis) shall not exceed
at any time an amount equal to (1) prior to and including the last day
of the first fiscal quarter of fiscal year 1997, three (3) times
EBITDA, and (2) thereafter, two and three-fourths (2.75) times EBITDA,
in each case for the four fiscal quarters immediately preceding the
date of determination, and (y) in the case of Priority Debt, such Debt
is within the applicable limitations of paragraphs 6C(1) and 6C(4).
Amendment of Subsection 6C(6) of the Existing Agreements.
The Company requests Prudential to amend and Prudential hereby amends the
provisions of Subsection 6C(6) of each of the Existing Agreements by
inserting the following additional subparagraph (v) at the end thereof:
"(v) the Company or Skipper's, Inc. may sell or dispose of
assets related to discontinued operations or idle properties of
Skipper's, Inc."
Amendment of Section 10 of the Existing Agreements. The
Company requests Prudential to amend and Prudential hereby amends the
provisions of Section 10 of each of the Existing Agreements by inserting
the following defined term therein in the appropriate alphabetical order:
"'EBITDA' for any period shall mean the sum of Consolidated
Operating Income (as defined according to GAAP) during such period,
plus (to the extent deducted in determining Consolidated Operating
Income during such period) consolidated depreciation and
amortization."
Except as expressly amended as set forth above, the Existing
Agreements remain in full force and effect and are hereby ratified and
confirmed. The execution, delivery and effectiveness of this Amendment
shall not, except as expressly provided herein, operate as an amendment or
waiver of any provision of the Existing Agreements.
This Amendment may be executed in any number of counterparts and
by any combination of the parties hereto in separate counterparts, each of
which counterparts shall be an original and all of which taken together
shall constitute one and the same Amendment.
If you agree to the terms and provisions hereof, please evidence
your agreement by executing and returning one counterpart of this letter
amendment to "NPC International, Inc., 720 West 20th Street, P.O. Box 643,
Pittsburg, Kansas 66762, Attention: Troy D. Cook. This Amendment shall
become effective as of the date first above written when and if
counterparts of this Amendment shall have been executed by you and the
Company.
Very truly yours,
NPC INTERNATIONAL, INC.
By: Troy D. Cook
Title: Vice President and Chief Financial Officer
Agreed as of the date first above written:
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
By: __________________________________
Name: ________________________________
Title: _________________________________
11050745
Exhibit 10.42
Amendment
May 24, 1995
Massachusetts Mutual Life Insurance Company
1295 State Street
Springfield, Massachusetts 01111
Attention: Securities Investment Division
Ladies and Gentlemen:
We refer to the Note Agreement between NPC International, Inc.,
formerly National Pizza Company (the "Company"), and Massachusetts Mutual
Life Insurance Company ("Massachusetts Mutual") dated as of May 15, 1992 as
the same may have been amended through the date hereof (the "Existing
Agreement"). Each capitalized term used herein but not defined herein
shall have the meaning assigned to such term in the Existing Agreement.
Skipper's, Inc., a wholly owned subsidiary of the Company, has
closed certain of its restaurant locations. In connection with the
Skipper's closings, the Company has taken a charge against consolidated
income for the fiscal quarter ending March 28, 1995. As a result of the
Skipper's closings and certain other transactions contemplated by the
Company, certain provisions and covenants in the Existing Agreement require
amendment. Accordingly, you and the Company hereby agree as follows:
Amendment of Subsection 6A of the Existing Agreement. The
Company requests Massachusetts Mutual to amend and Massachusetts Mutual
hereby amends the provisions of Subsection 6A of the Existing Agreement as
follows:
"Consolidated Net Worth Requirement. The Company covenants
that it will not permit Consolidated Net Worth at any time to be
less than the sum of (i) $72,258,000 plus (ii) an amount equal to
50% of Consolidated Net Income (without reduction for any deficit
in Consolidated Net Income for any quarterly fiscal period) for
the period from and after March 28, 1995 to and including the
date of determination thereof, computed on a cumulative basis for
said entire period."
Amendment of Subsection 6C(2)(A)(iii) of the Existing
Agreement. The Company requests Massachusetts Mutual to amend and
Massachusetts Mutual hereby amends the provisions of Subsection
6C(2)(A)(iii) of the Existing Agreement as follows:
(iii) additional unsecured Funded Debt of the Company and its
Restricted Subsidiaries and Funded Debt of the Company and its
Restricted Subsidiaries secured by Liens permitted by 6C(1)(v) and
(vi), provided that at the time of issuance thereof and after giving
effect thereto and to the application of the proceeds thereof (x)
Consolidated Funded Debt shall not exceed an amount equal (1) prior to
and including the last day of the fiscal quarter ended June 25, 1996,
three (3) times EBITDA, and (2) thereafter, two and three-fourths
(2.75) times EBITDA, in each case for the four fiscal quarters
immediately preceding the date of determination, and (y) in the case
of Consolidated Funded Debt to be incurred by a Restricted Subsidiary
such Debt could be incurred within the applicable limitations provided
in 6C(4); and
Amendment of Subsection 6C(6) of the Existing Agreement.
The Company requests Massachusetts Mutual to amend and Massachusetts Mutual
hereby amends the provisions of Subsection 6C(6) of the Existing Agreement
by inserting the following additional subparagraph (vi) at the end thereof:
"(vi) the Company or Skipper's, Inc. may sell or dispose of
assets related to discontinued operations or idle properties of
Skipper's, Inc."
Amendment of Section 10 of the Existing Agreement. The
Company requests Massachusetts Mutual to amend and Massachusetts Mutual
hereby amends the provisions of Section 10 of the Existing Agreement by
inserting the following defined term therein in the appropriate
alphabetical order:
"EBITDA for any period shall mean the sum of Consolidated Net
Income during such period, plus to the extent deducted in determining
Consolidated Net Income during such period consolidated interest
expense, provision for income taxes, depreciation and amortization."
Except as expressly amended as set forth above, the Existing
Agreement remains in full force and effect and is hereby ratified and
confirmed. The execution, delivery and effectiveness of this Amendment
shall not, except as expressly provided herein, operate as an amendment or
waiver of any provision of the Existing Agreement.
This Amendment may be executed in any number of counterparts and
by any combination of the parties hereto in separate counterparts, each of
which counterparts shall be an original and all of which taken together
shall constitute one and the same Amendment.
If you agree to the terms and provisions hereof, please evidence
your agreement by executing and returning one counterpart of this letter
amendment to NPC International, Inc., 720 West 20th Street, P.O. Box 643,
Pittsburg, Kansas 66762, Attention: Troy D. Cook. This Amendment shall
become effective as of the date first above written when and if
counterparts of this Amendment shall have been executed by you and the
Company.
Very truly yours,
NPC INTERNATIONAL, INC.
By: Troy D. Cook
Title: Vice President and Chief Financial Officer
Agreed as of the date first above written:
MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY
By: __________________________________
Name: ________________________________
Title: _________________________________
Exhibit 10.43
Amendment
May 24, 1995
Pacific Mutual Life Insurance Company
700 Newport Center Drive
P.O. Box 9000
Newport Beach, California 92658-9000
Attention: Fixed Income Securities Department
PM Group Life Insurance Company
c/o Pacific Mutual Life Insurance Company
700 Newport Center Drive
P.O. Box 9000
Newport Beach, California 92658-9000
Attention: Fixed Income Securities Department
Pacific Corinthian Life Insurance Company
700 Newport Center Drive
P.O. Box 9000
Newport Beach, California 92658-9000
Attention: Fixed Income Securities Department
Ladies and Gentlemen:
We refer to the Note Agreement between NPC International, Inc.,
formerly National Pizza Company (the "Company"), and Pacific Mutual Life
Insurance Company ("Pacific Mutual") dated as of May 15, 1992, the Note
Agreement between the Company and PM Group Life Insurance Company ("PM
Group") dated as of May 15, 1992, the Note Agreement between the Company
and Pacific Mutual dated as of March 30, 1993, and the Note Agreement
between the Company and Pacific Corinthian Life Insurance Company ("Pacific
Corinthian") dated as of March 30, 1993 as each may have been amended
through the date hereof (collectively, the "Existing Agreements"). Each
capitalized term used herein but not defined herein shall have the meaning
assigned to such term in the Existing Agreements.
Skipper's, Inc., a wholly owned subsidiary of the Company, has
closed certain of its restaurant locations. In connection with the
Skipper's closings, the Company has taken a charge against consolidated
income for the fiscal quarter ending March 28, 1995. As a result of the
Skipper's closings and certain other transactions contemplated by the
Company, certain provisions and covenants in the Existing Agreements
require amendment. Accordingly, you and the Company hereby agree as
follows:
Amendment of Subsection 6A of the Existing Agreements. The
Company requests Pacific Mutual, PM Group and Pacific Corinthian, as
applicable, to amend and Pacific Mutual, PM Group and Pacific Corinthian,
as applicable, hereby amend the provisions of Subsection 6A of each of the
Existing Agreements as follows:
"Consolidated Net Worth Requirement. The Company covenants
that it will not permit Consolidated Net Worth at any time to be
less than the sum of (i) $72,258,000 plus (ii) an amount equal to
50% of Consolidated Net Income (without reduction for any deficit
in Consolidated Net Income for any quarterly fiscal period) for
the period from and after March 28, 1995 to and including the
date of determination thereof, computed on a cumulative basis for
said entire period."
Amendment of Subsection 6C(2)(A (iii) of the Existing
Agreements. The Company requests Pacific Mutual, PM Group and Pacific
Corinthian, as applicable, to amend and Pacific Mutual, PM Group and
Pacific Corinthian, as applicable, hereby amend the provisions of
Subsection 6C(2)(A)(iii) as follows:
(iii) additional unsecured Funded Debt of the Company and its
Restricted Subsidiaries and Funded Debt of the Company and its
Restricted Subsidiaries secured by Liens permitted by 6C(1)(v) and
(vi), provided that at the time of issuance thereof and after giving
effect thereto and to the application of the proceeds thereof (x)
Consolidated Funded Debt shall not exceed an amount equal (1) prior to
and including the last day of the first fiscal quarter of fiscal year
1997, three (3) times EBITDA, and (2) thereafter, two and three-
fourths (2.75) times EBITDA, in each case for the four fiscal quarters
immediately preceding the date of determination, and (y) in the case
of Consolidated Funded Debt to be incurred by a Restricted Subsidiary
such Debt could be incurred within the applicable limitations provided
in 6C(4); and
Amendment of Subsection 6C(6) of the Existing Agreements.
The Company requests to amend and Pacific Mutual, PM Group and Pacific
Corinthian, as applicable, hereby amend the provisions of Subsection 6C(6)
of each of the Existing Agreements by inserting the following additional
subparagraph (vi) at the end thereof:
"(vi) the Company or Skipper's, Inc. may sell or dispose of
assets related to discontinued operations or idle properties of
Skipper's, Inc."
Amendment of Section 10 of the Existing Agreements. The
Company requests Pacific Mutual, PM Group and Pacific Corinthian, as
applicable, to amend and Pacific Mutual, PM Group and Pacific Corinthian,
as applicable, hereby amend the provisions of Section 10 of each of the
Existing Agreements by inserting the following defined term therein in the
appropriate alphabetical order:
"'EBITDA' for any period shall mean the sum of Consolidated
Operating Income (as defined according to GAAP) during such period,
plus (to the extent deducted in determining Consolidated Operating
Income during such period) consolidated depreciation and
amortization."
Except as expressly amended as set forth above, the Existing
Agreements remain in full force and effect and are hereby ratified and
confirmed. The execution, delivery and effectiveness of this Amendment
shall not, except as expressly provided herein, operate as an amendment or
waiver of any provision of the Existing Agreements.
This Amendment may be executed in any number of counterparts and
by any combination of the parties hereto in separate counterparts, each of
which counterparts shall be an original and all of which taken together
shall constitute one and the same Amendment.
If you agree to the terms and provisions hereof, please evidence
your agreement by executing and returning one counterpart of this letter
amendment to NPC International, Inc., 720 West 20th Street, P.O. Box 643,
Pittsburg, Kansas 66762, Attention: Troy D. Cook. This Amendment shall
become effective as of the date first above written when and if
counterparts of this Amendment shall have been executed by you.
Very truly yours,
NPC INTERNATIONAL, INC.
By: Troy D. Cook
Title: Vice President and Chief Financial Officer
Agreed as of the date first above written:
PACIFIC MUTUAL LIFE INSURANCE COMPANY
By:__________________________________
Name:________________________________
Title:_________________________________
Agreed as of the date first above written:
PM GROUP LIFE INSURANCE COMPANY
By:__________________________________
Name:________________________________
Title:_________________________________
Agreed as of the date first above written:
PACIFIC CORINTHIAN LIFE INSURANCE COMPANY
By:__________________________________
Name:________________________________
Title:_________________________________
11050754
Exhibit 10.44
Amendment
May 24, 1995
Lutheran Brotherhood
625 Fourth Avenue South
Minneapolis, Minnesota 55415
Attention: Investment Division
Ladies and Gentlemen:
We refer to the Note Agreement between NPC International, Inc.,
formerly National Pizza Company (the "Company"), and Lutheran Brotherhood
dated as of March 30, 1993 as the same may have been amended through the
date hereof (the "Existing Agreement"). Each capitalized term used herein
but not defined herein shall have the meaning assigned to such term in the
Existing Agreement.
Skipper's, Inc., a wholly owned subsidiary of the Company, has
closed certain of its restaurant locations. In connection with the
Skipper's closings, the Company has taken a charge against consolidated
income for the fiscal quarter ending March 28, 1995. As a result of the
Skipper's closings and certain other transactions contemplated by the
Company, certain provisions and covenants in the Existing Agreement
required amendment. Accordingly, you and the Company hereby agree as
follows:
Amendment of Subsection 6A of the Existing Agreement. The
Company requests Lutheran Brotherhood to amend and Lutheran Brotherhood
hereby amends the provisions of Subsection 6A of the Existing Agreement as
follows:
"Consolidated Net Worth Requirement. The Company covenants
that it will not permit Consolidated Net Worth at any time to be
less than the sum of (i) $72,258,000 plus (ii) an amount equal to
50% of Consolidated Net Income (without reduction for any deficit
in Consolidated Net Income for any quarterly fiscal period) for
the period from and after March 28, 1995 to and including the
date of determination thereof, computed on a cumulative basis for
said entire period."
Amendment of Subsection 6C(2)(A)(iii) of the Existing
Agreement. The Company requests to Lutheran Brotherhood amend and Lutheran
Brotherhood hereby amends the provisions of Subsection 6C(2)(A)(iii) as
follow:
(iii) additional unsecured Funded Debt of the Company and its
Restricted Subsidiaries and Funded Debt of the Company and its
Restricted Subsidiaries secured by Liens permitted by 6C(1)(v) and
(vi), provided that at the time of issuance thereof and after giving
effect thereto and to the application of the proceeds thereof (x)
Consolidated Funded Debt shall not exceed an amount equal (1) prior to
and including the last day of the first fiscal quarter of fiscal year
1997, three (3) times EBITDA, and (2) thereafter, two and three-
fourths (2.75) times EBITDA, in each case for the four fiscal quarters
immediately preceding the date of determination, and (y) in the case
of Consolidated Funded Debt to be incurred by a Restricted Subsidiary
such Debt could be incurred within the applicable limitations provided
in 6C(4); and
Amendment of Subsection 6C(6) of the Existing Agreement.
The Company requests Lutheran Brotherhood to amend and Lutheran Brotherhood
hereby amends the provisions of Subsection 6C(6) of the Existing Agreement
by inserting the following additional subparagraph (vi) at the end thereof:
"(vi) the Company or Skipper's, Inc. may sell or dispose of
assets related to discontinued operations or idle properties of
Skipper's, Inc."
Amendment of Section 10 of the Existing Agreement. The
Company requests Lutheran Brotherhood to amend and Lutheran Brotherhood
hereby amends the provisions of Section 10 of the Existing Agreement by
inserting the following defined term therein in the appropriate
alphabetical order:
"'EBITDA' for any period shall mean the sum of Consolidated
Operating Income (as defined by GAAP) during such period, plus (to the
extent deducted in determining Consolidated Operating Income during
such period) consolidated depreciation and amortization, and (iv) any
increase (or less any decrease) in deferred taxes."
Except as expressly amended as set forth above, the Existing
Agreement remains in full force and effect and is hereby ratified and
confirmed. The execution, delivery and effectiveness of this Amendment
shall not, except as expressly provided herein, operate as an amendment or
waiver of any provision of the Existing Agreement.
This Amendment may be executed in any number of counterparts and
by any combination of the parties hereto in separate counterparts, each of
which counterparts shall be an original and all of which taken together
shall constitute one and the same Amendment.
If you agree to the terms and provisions hereof, please evidence
your agreement by executing and returning one counterpart of this letter
amendment to NPC International, Inc., 720 West 20th Street, P.O. Box 643,
Pittsburg, Kansas 66762, Attention: Troy D. Cook. This Amendment shall
become effective as of the date first above written when and if
counterparts of this Amendment shall have been executed by you.
Very truly yours,
NPC INTERNATIONAL, INC.
By: Troy D. Cook
Title: Vice President and Chief Financial Officer
Agreed as of the date first above written:
LUTHERAN BROTHERHOOD
By:__________________________________
Name:________________________________
Title:_________________________________
11050753
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and
entered into as of January 27, 1995, by and between NPC
International, Inc., a Kansas corporation (the "Company") and
James K. Schwartz (the "Executive"). The Executive is employed
currently by the Company as Vice President Finance, Chief
Financial Officer and Treasurer.
W I T N E S S E T H:
WHEREAS, the Company desires to employ the Executive as
Executive Vice President and Chief Operating Officer and the
Executive is willing to render his services to the Company on the
terms, covenants and conditions with respect to such employment
hereinafter set forth;
NOW, THEREFORE, in consideration of the promises, terms
and conditions hereof, the Company and the Executive agree as
follows:
1. Employment. The Company employs the Executive and the
Executive accepts such employment with the Company upon the terms
and conditions hereinafter set forth. The Executive represents
and warrants that neither the execution by him of this Agreement
nor the performance by him of his duties and obligations
hereunder will violate any agreement to which he is a party or by
which he is bound.
2. Term. The term of employment hereunder shall be five
(5) years and shall commence on the date and year first above
written and end on January 26, 2000, unless renewed or sooner
terminated pursuant to Paragraph 12 of this Agreement. This
Agreement may be renewed for one year periods by the mutual
written agreement of the parties.
3. Duties. The Executive is employed as Executive Vice
President and Chief Operating Officer of the Company and shall
render his services at the principal business offices of the
Company, as such may be located from time to time. As Chief
Operating Officer of the Company, the Executive has full
responsibility and authority for the day-to-day operation of the
business of the Company. If, hereafter, the office of President
of the Company becomes vacant, then the Executive's title shall
immediately become President and Chief Operating Officer of the
Company and this Paragraph 3 of this Agreement shall
automatically be so amended. The Executive shall report directly
to the Chairman of the Board of Directors of the Company (the
"Board") and shall have such authority and shall perform such
duties as are customarily performed by one holding the position
as described in this Paragraph 3; subject, however, to such
limitations, instructions, directions, and control as the Board
may specify from time to time in its sole discretion.
4. Exclusive Services. The Employee shall devote all
necessary working time, ability and attention to the business of
the Company during the term of this Agreement and shall not,
directly or indirectly, render any material services of a
business, commercial, or professional nature to any other person,
corporation, or organization whether for compensation or
otherwise, without the prior consent of the Board of Directors of
the Company.
5. Compensation. As compensation for his services in any
capacity rendered under this Agreement, the Executive shall be
entitled to receive the following:
a. Base Salary. The Company shall pay the Executive a
base salary ("Base Salary") at the rate of $185,000 per annum.
The Base Salary shall be payable in accordance with the ordinary
payroll practices of the Company.
b. Bonus. The Executive shall be entitled to a minimum
annual bonus of $25,000, accrued and paid quarterly. In
addition, at annual or approximate annual intervals after the end
of each fiscal year during the Executive's employment under this
Agreement, the Board shall conduct, or cause to be conducted, a
review of the Executive's performance, giving attention to all
pertinent factors, including without limitation the performance
of the Company, the growth of the Company (excluding major
divestitures) and the value of the stock. Following such review,
the Board may award and pay an additional bonus in excess of the
minimum annual bonus to the Executive, provided the maximum
aggregate annual bonus to the Executive shall not exceed forty
percent (40%) of the Executive's Base Salary less the minimum
annual bonus of $25,000.
c. Stock Options. The Company awards, by separate
agreement, to the Executive, as of the date first above written
and pursuant to the Company's 1994 Stock Option Plan,
nonqualified stock options to purchase 100,000 shares of Class B
common stock of the Company, at an exercise price equal to the
Class B common stock closing price on the date first above
written. These options vest as follows: (i) fifty percent (50%)
of the total grant (50,000 shares) shall vest immediately; and
(ii) fifty percent (50%) of the total grant (50,000 shares) shall
vest at the rate of 25% per year of continued employment with the
Company commencing from January 17, 1995. A copy of the stock
option agreement between the Company and the Executive is
attached and made a part of this Agreement.
6. Residence Expenses. The parties acknowledge that the
Executive's current residence in the Pittsburg, Kansas area is
under contract for sale and therefore not available to the
Executive. Consequently, the Company shall pay to the Executive
$10,000 for the expenses in connection with moving household
goods and other costs associated with the move from the
Executive's current residence to a new residence. In addition,
if the Executive sells his residence after this Agreement is
terminated for any reason other than termination for cause
pursuant to Paragraph 12(c), the Company shall reimburse the
Executive for any losses incurred, up to a maximum of $25,000.
Any such loss is calculated as the difference between the
purchase price of the residence plus improvements (supported by
evidence of payment and up to a maximum of $5,000) and the
selling price.
7. Benefits. In addition to the compensation to be paid
to the Executive pursuant to Paragraph 5 of this Agreement, the
Executive shall further be entitled to participate in any health,
disability group term life insurance, pension, retirement or
profit sharing plan, or any other fringe benefit which may be
extended generally from time to time to employees or executive
officers of the Company, including, but not limited to, paid
vacation as provided in the Company's senior executive vacation
policy.
8. Business Expenses. Subject to such rules and
procedures as from time to time are specified by the Company, the
Company shall reimburse the Executive on a monthly basis for
reasonable business expenses incurred in the performance of his
duties under this Agreement. The Executive shall account to the
Company for such expenses in accordance with Company policy.
Reimbursement of meals in other than Company restaurants shall
have a business purpose, including, but not limited to, team
building and planning. A reasonable business expense also
includes attendance by the Executive, and other persons
recommended by the Executive, at industry conferences that might
improve knowledge of the industry, provide networking
opportunities or identify potential acquisition targets,
provided, however, that attendance by persons other than the
Executive must be for other than merely social purposes unless
otherwise agreed by the Chairman of the Board.
9. Non-Competition. The Executive covenants and agrees
that, during the period of his employment, he shall not, without
the prior written consent of the Board, directly or indirectly,
as an employee, employer, consultant, agent, principal, partner,
shareholder, corporate officer, director, or through any other
kind of ownership (other than ownership of securities of publicly
held corporations of which the Executive owns less than five
percent (5%) of any class of outstanding securities) or in any
other representative or individual capacity, engage in or render
any services to any business in competition with the business
then being conducted by the Company, or any subsidiary thereof,
at any place in which the Company then conducts any business. In
the event that the Executive terminates his employment with the
Company pursuant to Paragraph 12(a) or is terminated by the
Company pursuant to Paragraph 12(c) (and except as provided in
Paragraph 13, below) the Executive agrees that such covenant
against competition shall continue for a period of two (2) years
from the end of the month in which such termination becomes
effective. If at any time the foregoing provisions shall be
deemed to be invalid or unenforceable by reason of being vague or
unreasonable as to duration or place of performance, this
Paragraph 9 shall be considered divisible and shall become and be
immediately amended to include only such time and such areas as
shall be determined to be reasonable and enforceable by a court
of competent jurisdiction; and the Company and the Executive
expressly agree that this Paragraph 9, as so amended, shall be
valid and binding as though any invalid or unenforceable
provision had not been included herein.
10. Solicitation of Employees. The Executive covenants
and agrees that, during the period of his employment and for a
two (2) year period following termination of his employment, he
shall not, without the prior written consent of the Board,
directly or indirectly, solicit, engage or hire for employment or
employ an employee of the Company, or its affiliates, for himself
or any other person or entity.
11. Remedies for Breach of Covenants of the Executive. The
covenants set forth in Paragraphs 9 and 10 of this Agreement
shall continue to be binding upon the Executive, notwithstanding
the termination of his employment with the Company for any reason
whatsoever. Such covenants shall be deemed and construed as
separate agreements independent of any other provisions of this
Agreement and any other agreement between the Company and the
Executive. The existence of any claim or cause of action by the
Executive against the Company, whether predicated on this
Agreement or otherwise, shall not constitute a defense to the
enforcement by the Company of any or all of such covenants. It
is expressly agreed that the remedy at law for the breach of any
such covenant is inadequate and injunctive relief shall be
available to prevent the breach or any threatened breach thereof.
12. Termination. This Agreement (other than Paragraphs 9
and 10 hereof which shall survive any termination hereof) may be
terminated as follows:
a. By the Executive. The Executive may terminate this
Agreement at any time by giving sixty (60) days prior written
notice of termination to the Board. The Executive shall receive
any compensation accrued on the date of termination and shall not
be entitled to any compensation beyond the actual date of
termination, including any annual bonus not yet accrued or
awarded.
b. By the Company Without Cause. The Board, without
cause, may terminate this Agreement at any time by written notice
to the Executive. In the case of such termination or
Constructive Termination (hereinafter defined), the Executive
shall be entitled to any bonus accrued on or before the effective
date of such termination and the Company shall continue to pay to
the Executive an amount equal to his then current Base Salary for
one year after the effective date of termination. The term
constructive termination ("Constructive Termination") in this
Subparagraph b of Paragraph 12 shall mean a permanent involuntary
relocation of the Executive from the Pittsburg, Kansas area or a
permanent substantial diminution in the prestige or function of
employment within the Company, and the Executive terminates this
Agreement upon sixty (60) days prior written notice to the
Company. The Executive shall be entitled to continuation of
coverage for six months after the effective date of termination
or Constructive Termination under all Company paid or partially
paid health, disability, or group life insurance plans or any
retirement, pension, or profit sharing plans, in each case at
such level as had been available to the Executive immediately
prior to the termination or Constructive Termination, subject to
the coverage, terms and conditions of such plans.
c. By the Company with Cause. The Board may, in its sole
discretion and judgment and upon written notice effective
immediately, terminate this Agreement at any time for cause,
which includes but is not limited to the following:
(1) If the Executive is convicted of a crime punishable by
imprisonment;
(2) If the Executive willfully fails to comply with the
terms and conditions of this Agreement specifically including,
but not limited to, the covenants set forth in Paragraphs 9 and
10 hereof, and fails to cure any such breach or failure within
ten (10) days after written notice thereof given by the Company
to the Executive; or
(3) If the Executive willfully and continually neglects to
substantially perform his duties hereunder, after demand for
substantial performance is delivered by the Board that
specifically identifies the manner in which the Board believes
the Executive has not substantially performed his duties.
The Executive shall receive any Base Salary and
bonus accrued on the date of such termination and shall not
be entitled to any compensation, including rights to any
bonus or other benefits set forth herein, beyond the
effective date of termination under this Subparagraph c of
Paragraph 12.
d. Change of Control. If within one year following a
change of control event as defined in the Company's 1994 Stock
Option Plan, either: (i) the Executive's employment with the
Company or a successor entity is terminated by the Company or a
successor entity other than for cause (as defined above) or
failure to renew this Agreement; (ii) the Executive terminates
employment because of (1) a permanent substantial diminution in
the prestige or function of employment with the Company or
successor entity as compared to the position and attributes of
employment on the date of this Agreement; or (2) as a result of
any reduction in the Base Salary of the Executive; then the
Executive will continue to receive from the Company or such
successor entity, as the case may be, the Base Salary which the
Executive was receiving as of the date of this Agreement for a
period of one (1) year following the event as described in (i) or
(ii) above. Such compensation to be paid in accordance with the
Company's (or successor entity's) customary payroll practice.
e. Physical or Mental Illness Incapacity. This Agreement
shall terminate as a result of the Executive's incapacity due to
physical or mental illness, the earlier of either: (i) the date
when the Executive is eligible for coverage under the Company's
long-term disability insurance plan; or (ii) the date when the
Executive shall have been absent from his duties hereunder on a
full-time basis for a period of six consecutive months, and
within ten (10) days after written notice of termination is given
(which may occur before or after the end of such six month
period) shall not have returned to the performance of his duties
hereunder on a full-time basis. During any period that the
Executive fails to perform his duties due to incapacity, the
Executive shall continue to receive from the Company his Base
Salary and any accrued or awarded bonus until the effective date
for termination of this Agreement. The rights and benefits of
the Executive under employee benefit and fringe benefit plans,
the 1994 Stock Option Plan and other programs of the Company
shall be determined in accordance with the terms and provisions
of such plans and programs, provided, however, that in no case
shall these rights and benefits be extended beyond ninety (90)
days from the termination of this Agreement.
f. Death. This Agreement shall terminate as a result of
the death of the Executive. The designated beneficiary or
beneficiaries shall be entitled to receive any Base Salary
installments and any accrued reimbursable expenses or bonus due
in the month of death. The rights and benefit plans and programs
of the Company shall be determined in accordance with the terms
and provisions of such plans and programs.
13. Arbitration of Disputes. Except for Paragraphs 9 and
10, any dispute or claim arising out of or relating to this
Agreement or any termination of the Executive's employment shall
be settled by arbitration in Kansas City, Missouri in accordance
with the then current rules of the American Arbitration
Association pertaining to employment disputes, and judgment upon
any award rendered therein may be entered in any court having
proper jurisdiction.
14. Notices. Any notices to be given hereunder by either
party to the other may be effected either by personal delivery in
writing or by mail, registered or certified, postage prepaid,
with return receipt requested. Mailed notices shall be addressed
as follows:
a. If to the Company:
NPC International, Inc.
Chairman of the Board of Directors
720 W. 20th Street
Pittsburg, KS 66762
b. If to the Executive:
James K. Schwartz
720 W. 20th Street
Pittsburg, KS 66762
Either party may change its address for notice by
giving notice in accordance with the terms of this Paragraph 14.
15. General Provisions.
a. Law Governing. This Agreement shall be governed by and
construed in accordance with the laws of the State of Kansas.
b. Invalid Provisions. If any provision of this Agreement
is held to be illegal, invalid, or unenforceable, such provision
shall be fully severable and this Agreement shall be construed
and enforced as if such illegal, invalid, or unenforceable
provision had never comprised a part hereof; and the remaining
provisions hereof shall remain in full force and effect and shall
not be affected by the illegal, invalid, or unenforceable
provision or by its severance herefrom. Furthermore, in lieu of
such illegal, invalid, or unenforceable provision there shall be
added automatically as a part of this Agreement a provision as
similar in terms to such illegal, invalid, or unenforceable
provision as may be possible and still be legal, valid or
enforceable.
c. Attorney Fees. If any action at law or in equity,
including an action for declaratory relief or under the
arbitration provisions of Paragraph 13, is brought to enforce or
interpret the provisions of this Agreement, the prevailing party
shall be entitled to recover reasonable attorneys' fees from the
other party. These fees shall be in addition to any other relief
that may be awarded.
d. Entire Agreement. This Agreement sets forth the entire
understanding of the parties and supersedes all prior agreements
or understandings, whether written or oral, with respect to the
subject matter hereof. No terms, conditions, warranties, other
than those contained herein, and no amendments or modifications
hereto shall be binding unless made in writing and signed by the
parties hereto.
e. Binding Effect. This Agreement shall extend to and be
binding upon and inure to the benefit of the parties hereto,
their respective heirs, representatives, successors and assigns.
This Agreement may not be assigned by the Executive.
f. Waiver. The waiver by either party hereto of a breach
of any term or provision of this Agreement shall not operate or
be construed as a waiver of a subsequent breach of the same
provision by any party or of the breach of any other term or
provision of this Agreement.
g. Titles. Titles of the paragraphs herein are used
solely for convenience and shall not be used for interpretation
or construing any word, clause, paragraph, or provision of this
Agreement.
h. Counterparts. This Agreement may be executed in two
counterparts, each of which shall be deemed an original, but
which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the Company and the Executive have
executed this Agreement as of the date and year first above
written.
Executive: NPC International, Inc.:
By:
James K. Schwartz Chairman of the Board
Exhibit 11
STATEMENT REGARDING COMPUTATION OF
PER SHARE EARNINGS
Fiscal Year Ended
March 28, March 29, March 30,
1995 1994 1993
PRIMARY
Shares outstanding at
beginning of period 25,013,373 25,284,622 26,362,005
Weighted average number
of shares issued and
reacquired during period (267,323) (191,438) (550,294)
Assuming exercise of options
and warrants reduced by the
number of shares which could
have been purchased with the
proceeds from exercise 17,665 74,165 91,652
Shares outstanding
for computation of
per share earnings 24,763,715 25,167,349 25,903,363
Net income $(15,614,000) $11,295,000 $9,124,000
Earnings per share $(0.63) $0.45 $0.35
FULLY DILUTED
Shares outstanding at
beginning of period 25,013,373 25,284,622 26,362,005
Weighted average number
of shares issued and
reacquired during period (267,323) (191,438) (550,294)
Assuming exercise of options
and warrants reduced by the
number of shares which could
have been purchased with the
proceeds from exercise 18,730 86,384 110,786
Shares outstanding
for computation of
per share earnings 24,764,780 25,179,568 25,922,497
Net income $(15,614,000) $11,295,000 $9,124,000
Earnings per share $ (0.63) $0.45 $0.35
Exhibit 13
NPC INTERNATIONAL, INC.
NPC International, Inc. is the largest Pizza Hut franchisee in the world
operating 348 Pizza Hut restaurants and delivery kitchens in nine states,
not including 23 Pizza Hut restaurants which were acquired on April 19,
1995. The Company operates and franchises 120 Skipper's quick service
seafood restaurants in seven western states and British Columbia.
Romacorp, Inc., acquired by the Company on June 8, 1993, operates and
franchises 170 Tony Roma's A Place for Ribs restaurants worldwide. Prior to
July 1994, the Company was known as National Pizza Company.
The Company's common shares are traded on the NASDAQ Stock Market under the
symbols ''NPCIA'' and ''NPCIB.'' On August 8, 1995, the Company
anticipates its Class A Stock and Class B Stock will be combined into a
new, single class of common stock and adopt the new ticker symbol ''NPCI.''
ANNUAL MEETING
The annual meeting of stockholders of NPC International, Inc. will be held
at 10:00 a.m. on August 8, 1995, at the Memorial Auditorium, 503 North Pine
Street, Pittsburg, Kansas. Stockholders, vendors and members of the
business community are invited to attend the meeting; Class A Common
stockholders of record as of June 30, 1995, will be entitled to vote on any
issues brought before the group. Class B Common stockholders of record as
of June 30, 1995, will also be entitled to vote on the proposed stock
recapitalization plan.
FINANCIAL SUMMARY
Fiscal Year Ended
March 28, March 29, March 30,
1995 1994 1993
For the Year:
Revenue $315,527,000 $336,823,000 $285,433,000
Operating income 23,790,000 25,193,000 21,273,000
Loss on disposition of
underperforming assets (35,000,000) ---- ----
Income (loss)
before income taxes (17,452,000) 18,506,000 14,668,000
Net income (loss) (15,614,000) 11,295,000 9,124,000
Earnings (loss) per share $(0.63) $0.45 $0.35
Performance Measures:
Operating income as a
percent of revenue 7.5% 7.5% 7.5%
Income (loss) before
income taxes as a
percent of revenue (5.5)% 5.5% 5.1%
Net income (loss) as
a percent of revenue (4.9)% 3.4% 3.2%
Return (loss) on average
stockholders' equity (17.4)% 12.0% 10.3%
Return (loss)
on average assets (7.0)% 5.2% 4.4%
March 28, March 29, March 30,
1995 1994 1993
At Year-End:
Total assets $220,041,000 $229,112,000 $205,310,000
Long-term debt 82,850,000 86,734,000 79,078,000
Stockholders' equity 80,287,000 98,987,000 89,436,000
Number of Company units 481 577 546
Number of franchised units 157 155 18
LETTER TO STOCKHOLDERS
[BIO:] O. Gene Bicknell founded NPC International and its predecessors in
1962 and has served as Chairman of the Board since its beginning. In
February 1995 he returned to the position of Chief Executive Officer, a
position he had previously held from 1962 to 1993. NPC's executive and
administrative offices are located in Pittsburg, Kansas.
To my fellow stockholders,
We made some big changes this year. Last year we informed you that we
renewed our franchise agreement with Pizza Hut, Inc. (PHI). This action
not only secured NPC International's position as the world's largest Pizza
Hut franchisee, but also positioned the Company for growth through
acquisition in our flagship pizza division. In completing the agreement,
we exchanged a number of properties with PHI, which allowed us to
consolidate our operating area to a contiguous block in the southeast
United States; however, the transaction netted us 16 fewer units, resulting
in a reduction in the number of Pizza Huts operated.
NPC has purchased 42 Pizza Hut units since the renewal, including 23 from
PHI in April 1995. This recent acquisition will add over $12,500,000 in
annual sales to our revenue base, with no noticeable increases in field and
corporate overhead expense. We believe there will be further opportunity
to grow our pizza division through acquisition of other franchisees or PHI
units.
The Tony Roma acquisition is approaching its second anniversary, and the
casual theme restaurant ''Famous for Ribs'' has surpassed every
expectation. We plan to further develop this quality brand name, with
eight Company units and 14 franchise units expected to be added in the
coming year and a total of 500 system-wide units by the end of the year
2000.
We made the decision in January to downsize Skipper's to its original core
markets in the Pacific Northwest where the restaurant concept has been
successful. We shuttered 77 negative cash flowing or cannibalizing stores
to reduce the immediate drain on earnings and cash flow. We recorded a
charge of $35 million in the fourth fiscal quarter to write off the
goodwill associated with the 1989 acquisition and to reserve for the
anticipated losses from the disposition of the underlying real estate. We
remain committed to correcting Skipper's and increasing stockholder value
in the process.
Total Company revenue for the fiscal year ended March 28, 1995, was
$315,527,000, a decline of $21,296,000 from the $336,823,000 in revenue
recorded the prior year. This decline is due to the operation of fewer
Pizza Huts than last year, lower BIGFOOT pizza sales (down $18,000,000
from last year), and an $11,887,000 decline in sales at Skipper's, which
now operates 44% fewer units than last year. Comparable sales for our
Pizza Hut operations were down 5.4%, due again to the comparison against
last year's successful BIGFOOT introduction; Skipper's same store sales
were down 9.1% and Tony Roma's comparable sales were essentially flat.
Because of the Skipper's charge, NPC's consolidated net losses were
$(15,614,000), or $(0.63) per share for the fiscal year ended March 28,
1995. Last year we reported net income of $11,925,000 or $0.45 per share.
The effect of this charge was to reduce earnings by $1.07 per share after
taxes.
We've made some changes in our key operating management. Jim Schwartz,
formerly serving as Executive Vice President and Chief Operating Officer,
became President and Chief Operating Officer in February. I retained my
position as Chairman of the Board and assumed the duties of Chief Executive
Officer, and Troy Cook joined NPC as Vice President Finance and Chief
Financial Officer.
The outlook for NPC has perhaps never been brighter. We aim to grow our
Pizza Hut franchise through acquisitions and to expand the Tony Roma
presence through Company-owned and franchise-unit development. As for
Skipper's, we have downsized the chain which should provide an immediate
benefit to our bottom line. We will monitor Skipper's closely to ensure
that adequate progress is being made and that stockholder value is being
best served by our underlying strategy. I am more confident than ever in
our ability to grow the Company and create stockholder wealth. I
appreciate all of you who stood by the Company during this period as we
positioned the Company for growth.
Gene Bicknell
Chairman of the Board
Chief Executive Officer
DISCUSSION WITH KEY OPERATING MANAGEMENT
[BIO:] Jim Schwartz was promoted to President and COO from Executive Vice
President and COO in January 1995. He also held the positions of Vice
President Finance, Treasurer and Chief Financial Officer after earlier
promotions within the organization.
Q: How do you interpret the Company's results for fiscal 1995?
Jim: Fiscal 1995 was a year of change - change that will lay the foundation
for future growth. At Pizza Hut, we did not have a blockbuster product
like BIGFOOT to drive sales, so we placed greater emphasis on improving
operating controls such as labor utilization and product consistency. As a
result, we improved pizza operations' performance, as a percent of revenue,
by nearly one half of one percent. Tony Roma's Company restaurants also
improved operating performance by over three points. Our real challenge
rested with Skipper's; after a moderately successful first quarter, sales
and operating results declined significantly, culminating in the decision
to close 77 units.
Q: What strategy was employed in the Skipper's restaurants closure?
Jim: We had to reduce the earnings and cash drain the quick service seafood
concept was imposing on NPC. We closed the frontier markets, such as
Colorado and California, because many of those units did not have
sufficient volume to generate positive cash flow. We also closed selected
units in areas such as Seattle where some cannibalization was taking place.
We feel these measures will significantly improve the concept's cash flow,
reduce its losses, and allow us to focus on those markets where Skipper's
has been successful in the past. The 106 units which remain open generated
just over $1,000,000 in operating profit in fiscal 1995, before overhead
allocations. We will closely monitor the concept over the next fiscal year
and be prepared to implement alternative strategies to maximize stockholder
value if the current course of action does not deliver the expected
results.
Q: Where will future growth for NPC come from?
Jim: Our target is 15% to 20% compounded growth in earnings per share over
a three-year period. We believe this growth can be, and will be realized
from principally two sources. First, we strongly believe that there is
significant opportunity to acquire additional Pizza Hut restaurants from
PHI and other franchisees. PHI is in the process of re-franchising certain
company-owned restaurants. In addition to the stores that will be made
available for purchase from PHI, we believe the PHI strategy could also
mean more franchisee stores will be available for purchase by other
franchisees. Our second avenue for growth will be achieved with aggressive
development of the Tony Roma's system worldwide. This growth will be
achieved through Company and franchisee development. The Skipper's concept
will contribute to earnings ''growth'' through improved operations and,
correspondingly, improved bottom line results.
Q: Does NPC have the management expertise to achieve these growth
objectives in the highly competitive restaurant industry?
Jim: The Company's key operating personnel collectively have many years of
experience in the restaurant industry. The divisional and field management
personnel know the restaurant business inside and out, since many of these
individuals are promoted from within the organization. Furthermore,
through our Company's stock option program, every member of management,
from store manager to the chairman, is given incentive to grow the Company
and increase stockholder value. We have assembled a capable and talented
team and have provided motivation to succeed. In short, we are very
confident in their ability to meet our future challenges.
Q: Has NPC's corporate philosophy changed over the years?
Jim: NPC still possesses today many of the same qualities it had when Gene
Bicknell founded the Company in 1962. We remain a conservative company; we
believe in minimal corporate structure so we can react quickly to a
changing environment. As NPC's new President, I will continue to honor our
heritage. I will also continue to emphasize the quality of our service
while challenging our Company to grow aggressively and profitably to ensure
the ever-increasing value of our Company.
[BIO:] Marty Couk has worked his way through the ranks at NPC's Pizza Hut
division, starting as a manager trainee in 1979. He became Senior Vice
President of Pizza Hut Operations in 1993, having served as a Field
Specialist, Area General Manager, and Regional Manager. NPC's Pizza Hut
Operations are based in Birmingham, Alabama.
Financial highlights: Revenue for Pizza Hut operations for the fiscal year
ended March 28, 1995 were $198,583,000, 8.3% lower than the $216,594,000
reported in the prior fiscal year. Despite lower sales, operating profit,
as a percent of revenue, improved to 21.7% of fiscal 1995 revenue compared
with 21.3% of fiscal 1994 revenue.
Q: Same store sales declined 5.4% in fiscal 1995. How do you view this
comparison with the prior year?
Marty: We were coming off some difficult comparisons due to significant
growth experienced in fiscal 1994, largely due to the introduction of
BIGFOOT pizza and the luncheon buffet. Specifically, fiscal 1994
comparable sales were up 7.3% from fiscal 1993. The lack of any new
product news in fiscal 1995 adversely impacted our sales. In fact, the
majority of the $18 million decline in pizza operations' sales is
attributable to a decline in BIGFOOT sales. In addition, we also had 16
fewer units. This means our ''core'' pizza products actually grew on a
comparable basis. Early results from Stuffed Crust pizza look very
promising as comparable sales figures, relative to fiscal 1995, are up
considerably.
Q: How much can you control your own destiny as a franchisee of Pizza Hut?
Marty: We gladly honor our franchise commitments and enjoy participating in
system-wide sponsorships like the NCAA tournament. There are many benefits
in being associated with an organization like Pizza Hut and PepsiCo. These
organizations are pioneers and market leaders with extensive marketing and
product development capabilities. However, there is quite a bit of control
NPC can exercise. For example, we control the local advertising in 15 of
27 markets in which we operate through majority store ownership. In
addition, we work to be active members of the communities in which we are
located. We encourage our managers to get involved in the local community,
to make sure their local Pizza Hut restaurant is a good corporate citizen.
This has a very positive effect on sales and keeps our name before the
public far better than simply inserting coupons in the local newspaper. As
a franchisee, we have also historically impacted product development. For
example, one of our Birmingham units, along with PHI, developed Smokehouse
pizza. Another significant area of ''control'' lies in our constant focus
on every restaurant's prime costs--food and labor--which is the driving
force in determining profitability.
Q: During fiscal 1995, you traded 84 of your Pizza Hut units for 62 units
from your franchisor, not including the acquisition from another
franchisee. How did this benefit NPC?
Marty: First and foremost, we extended our franchise agreement through the
year 2010 as a result of the swap. Furthermore, we consolidated our
operating area by trading our outlying California and Maryland markets for
units close to our primary operating base. As a result, we were able to
trim two regional offices and other associated field costs. Also, since
all of our restaurants are closer together, we have improved our training
and operational control. Needless to say, we are pleased with the results
of the trade.
Q: Are newly acquired stores assimilated into your Company easily?
Marty: We are well-versed in the process of integrating new units. Last
fiscal year alone, we incorporated 68 new units as a result of the PHI
swap. Since NPC has the corporate infrastructure already in place, there
is rarely a conversion problem we haven't already addressed. We are
experienced at integrating Pizza Hut restaurants so that it is completely
seamless to the customer. In addition, we are well aware of the
opportunity to improve operational efficiencies in newly acquired stores.
[BIO:] Paul Baird joined NPC's family of restaurants and became President
of Skipper's, Inc. in March, 1995. Paul has over 20 years experience in
the restaurant business, participating in the successful turnarounds of two
concepts. Skipper's Company operations are based in Bellevue, Washington.
Financial highlights: Skipper's, Inc. revenue for fiscal 1995 was
$69,456,000, a 14.7% decline from the $81,400,000 reported in the prior
fiscal year. As a percent of total revenue, the concept fell to a (4.0%)
operating loss in fiscal 1995, compared with a 1.6% operating profit based
upon 1994 revenue. Same store sales were down 9.1%. The Company closed 77
units in February 1995, recognizing a $35 million charge for the closure
and disposition of these underperforming assets.
Q: Now that the Skipper's chain has been downsized to its original core
markets, how will the restaurant concept be positioned?
Paul: Skipper's restaurants were a successful venture when they marketed
superior quality products--seafood filleted and breaded by hand which costs
a bit more because of the extra handling required. I believe a re-emphasis
on quality and a ''back-to-the-basics'' mentality is the key to the
concept's recovery. People in the Pacific Northwest, where our units are
primarily located, simply will not tolerate lower quality products, no
matter how low the price. We will deliver ''quality products at a
reasonable price.'' The name Skipper's will always stand for high quality
and quick service, not inferior products served fast.
Q: How will the focus on higher product quality impact your business?
Paul: Believe me, we have heard from some of those individuals
participating in our mystery shopper program and other long-time customers.
I firmly believe our guests are willing to pay a price commensurate with
quality; they remember and desire the premium products we used to sell at
Skipper's restaurants. To meet the pre-selected, industry-mandated price
points we tinkered with existing products, and our regular customers could
tell immediately.
Q: What operational factors will you focus on to turn the concept around?
Paul: I'm confident we can improve the operational aspects of the business
without diminishing the quality of our products or service. Our experience
has shown that it is the strong commitment to quality food and service that
maintains your customer traffic. A customer is much easier to retain and
cultivate by providing a pleasurable dining experience. There is a real
opportunity for efficiencies in labor scheduling and food costs if we are
able to improve our average unit volume. We also recently re-aligned our
field supervision network to improve the control exercised by our area
managers.
[BIO:] Bob Page became President of Romacorp in 1994. He joined NPC in
1988 in the Pizza Hut division, serving as a Regional Manager and Senior
Vice President of Pizza Hut Operations until he moved to Tony Roma's in
1993 as its Chief Operating Officer. Tony Roma's restaurant operations are
based in Dallas, Texas.
Financial highlights: The Tony Roma's concept reported revenue of
$47,488,000 for the 52 weeks ended March 28, 1995, a 25.2% increase from
the $37,919,000 reported for the 42 weeks ended March 29, 1994. Operating
profit as a percent of total revenue improved to 16.4% compared with 13.1%
of total revenue in the prior fiscal year. Comparable sales were flat.
Q: There are a number of casual theme restaurants competing for your
customer's food dollar. What differentiates Tony Roma's restaurants?
Bob: Even though our restaurants offer a complete menu, 97% of our guests
rightfully think of us as the place to go for ribs. I think this specialty
gives us a distinct competitive advantage in the restaurant industry,
especially among those dinner houses that try to be all things to all
people; they have no signature menu item to draw customers consistently.
Since we are ''Famous for Ribs,'' our customers typically know their
destination will be a Tony Roma's restaurant. Dining out should be an
event, and we will continue to cater and market to this reputation.
Q: Has the franchising philosophy changed at Roma's since acquisition?
Bob: Because we are a franchisee with our Pizza Hut restaurants and a
franchisor at the Skipper's and Tony Roma's concepts, we understand both
sides of the franchising relationship. We strongly believe in supporting
our franchisees because no one benefits from poor performance in the
franchise community. We also feel it is better for one entity to own all
restaurants within a given market, to permit flexibility with critical
local advertising. Therefore, we favor those franchisees who can support
multiple units. We believe there are opportunities in the international
arena for rapid growth of the system and will place continued emphasis on
recruiting qualified international franchisees.
Q: What are the future plans for the Tony Roma's chain?
Bob: We have definitive plans, of course, for the current year's
development. Specifically, we are targeting development of eight Company-
owned restaurants and 14 franchised units during fiscal 1996. Beyond that,
our plan is to have 500 system-wide Tony Roma restaurants by the end
of the year 2000. We will also continue menu development and fine-tuning of
our new prototype facility. The prototype design not only provides comfort
and service for our guests but promotes maximum efficiency for our staff.
The first of this new building design, built in Grapevine, Texas on the
outskirts of Dallas, and has been very well received.
[BIO:] Troy Cook joined NPC as Vice President Finance and Chief Financial
Officer in February 1995. Prior to that, Troy held financial and
operational positions in the food and pharmaceutical fields. He also spent
five years with an international accounting firm and is a certified public
accountant.
Q: What are NPC's financial goals regarding growth?
Troy: Our primary goal is to generate 15% to 20% compounded earnings per
share growth. We believe this goal can be obtained by re-investment of all
available cash flow in our business. With losses in the Skipper's concept
substantially reduced, and with the opportunities that exist with our Pizza
Hut and Tony Roma's restaurants, I believe we are well-positioned to
achieve this goal in the future.
Q: Does the Company have access to adequate capital to fund future growth?
Troy: Yes. The Company continues to generate a significant amount of cash
flow which is largely available for reinvestment. Specifically, the
Company generated $44,780,000 in operating cash flow (operating income plus
depreciation and amortization) in fiscal 1995 despite the financial
performance at Skipper's. Furthermore, the Company has excellent
relationships with its funding sources. We believe this alliance will
benefit the Company greatly as we implement our planned growth strategy.
Q: The Company has made a significant investment in technology over the
last several years. How does this benefit the organization?
Troy: We know the standard food and labor costs for all three of our
restaurant concepts, two of which have software that computes ideal
standards to compare with actual results. Restaurant managers get
inquiries from the field staff or corporate office whenever costs vary
significantly from these standards. Every night, information from the
previous day's activities are transmitted to the home office, providing us
with a timely analysis of each restaurant's profitability. This allows us
to focus on problem areas as soon as they occur rather than several weeks
later. This investment has allowed our managers and field personnel to
focus on ''our business'' and less on paperwork while actually improving
our reporting systems and operational control.
TEN YEAR FINANCIAL SUMMARY
(Dollars in thousands except per share amounts)
Fiscal Year Ended
March 28, March 29, March 30, March 31, March 26,
1995 1994 1993 1992 (1) 1991
Income Statement Data:
Revenue $315,527 $336,823 $285,433 $298,718 $286,079
Cost of sales 92,392 98,692 82,552 84,722 84,010
Direct labor costs 89,964 97,103 79,829 81,386 71,637
Operating expenses 85,012 88,790 80,475 82,659 78,849
General and
administrative
expenses 24,369 27,045 21,304 22,438 21,902
Operating income 23,790 25,193 21,273 27,513 29,681
Interest expense (6,162) (6,631) (6,390) (6,688) (6,258)
Loss on disposition
of underperforming
assets (35,000) ---- ---- (4,000) ----
Other income (expense) (80) (56) (215) 420 (152)
Premium on
conversion of debt ---- ---- ---- ---- ----
Income (loss)
before income taxes (17,452) 18,506 14,668 17,245 23,271
Provision (benefit)
for income taxes (1,838) 7,211 5,544 6,200 8,233
Net income (loss) (15,614) 11,295 9,124 11,045 15,038
Earnings (loss)
per share:
Primary (0.63) 0.45 0.35 0.40 0.54
Fully diluted (0.63) 0.45 0.35 0.40 0.54
March 28, March 29, March 30, March 31, March 26,
1995 1994 1993 1992 1991
Year-End Data:
Working capital
(deficit) $(11,363) $(19,620) $(16,361) $(13,033) $(4,890)
Total assets 220,041 229,112 205,310 206,350 200,917
Long-term debt 82,850 86,734 79,078 85,847 86,258
Stockholders' equity 80,287 98,987 89,436 87,091 85,060
Number of
Company-owned units 481 577 546 560 558
Number of
franchised units 157 155 18 19 21
Number of employees 10,300 12,500 11,200 11,000 10,900
Fiscal Year Ended
March 27, March 28, March 29, March 31, March 25,
1990 1989 1988 1987 (1) 1986
Income Statement Data:
Revenue $198,382 $141,776 $119,788 $96,479 $68,064
Cost of sales 55,709 39,006 32,987 26,285 19,269
Direct labor costs 48,258 34,689 28,370 22,038 14,900
Operating expenses 52,713 38,591 30,464 24,141 17,032
General and
administrative
expenses 15,948 11,850 9,763 8,487 6,263
Operating income 25,754 17,640 18,204 15,528 10,600
Interest expense (3,515) (2,630) (2,940) (2,518) (1,215)
Loss on disposition of
underperforming assets ---- ---- ---- ---- ----
Other income (expense) 407 (548) (460) 777 802
Premium on
conversion of debt ---- ---- (852) ---- ----
Income (loss)
before income taxes 22,646 14,462 13,952 13,787 10,187
Provision (benefit)
for income taxes 7,900 4,630 5,186 6,400 4,403
Net income (loss) 14,746 9,832 8,766 7,387 5,784
Earnings (loss)
per share:
Primary 0.53 0.36 0.33 0.30 0.23
Fully diluted 0.53 0.36 0.31 0.28 0.23
March 27, March 28, March 29, March 31, March 25,
1990 1989 1988 1987 1986
Year-End Data:
Working capital
(deficit) $(11,342) $(3,687) $(4,219) $(5,025) $12,822
Total assets 171,901 102,971 84,838 75,296 57,937
Long-term debt 66,544 27,720 26,867 37,269 23,037
Stockholders' equity 71,989 56,845 45,707 26,369 26,095
Number of
Company-owned units 526 321 280 240 165
Number of
franchised units 30 ---- ---- ---- ----
Number of employees 10,200 6,300 5,600 4,400 2,700
(1) Fiscal year included 53 weeks.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
At March 28, 1995, NPC International, Inc. owned and operated 258 Pizza Hut
restaurants and 90 delivery kitchens in nine states. In addition, 22 Pizza
Hut restaurants and one delivery kitchen were acquired on April 19, 1995,
expanding operations in two additional states. The Company's pizza
restaurants are generally free standing, full table service restaurants
which offer high quality and moderately priced pizza, pasta, sandwiches and
a salad bar. Beverage service includes soft drinks and, in most
restaurants, beer. Delivery kitchens provide home delivery and carry out
of pizza products, but do not have dining facilities, salad bars or beer.
At March 28, 1995, the Company owned and operated 106 and franchised 14
Skipper's quick-service seafood restaurants in seven western states and
British Columbia. Skipper's offers a limited menu including fish, shrimp
and clams. Each restaurant features a casual atmosphere with a nautical
theme, and beer is served in most locations.
The Company also owned and operated 27 and franchised 143 Tony Roma's
restaurants, a casual theme restaurant chain with 131 domestic units in 20
states and 39 international locations as of March 28, 1995. Tony Roma's
restaurants offer fully staffed, table service and a varied menu, but are
especially ''Famous for Ribs.'' All Tony Roma's restaurants serve
alcoholic beverages.
RESULTS OF OPERATIONS
Pizza Hut Operations
Fiscal Year Ended
March 28, 1995 March 29, 1994
Restaurants Delivery Restaurants Delivery
Net restaurant sales $149,677,000 $48,829,000 $161,667,000 $54,804,000
Net franchise revenue 77,000 ---- 123,000 ----
Total revenue $149,754,000 $48,829,000 $161,790,000 $54,804,000
Percentage of revenue:
Cost of sales 26.5% 24.8% 26.5% 25.4%
Direct labor costs 25.7% 32.0% 26.3% 32.9%
Operating expenses 25.0% 24.8% 24.7% 24.1%
77.2% 81.6% 77.5% 82.4%
Operating profit 22.8% 18.4% 22.5% 17.6%
Number of Company units 258 90 266 97
Revenue
Total revenue declined $18 million or 8.3% on a nominal basis and 5.4% on a
comparable basis when comparing the fiscal year ended March 28, 1995, with
the fiscal year ended March 29, 1994. Much of this decline is attributable
to a significant decrease in BIGFOOT sales from the prior year. Sales of
the one-foot-by-two-foot pizza declined $18 million on a nominal basis when
comparing fiscal 1995 with fiscal 1994. In addition, the Company operated
16 fewer units for most of the current fiscal year as a result of the asset
exchange with the Company's franchisor completed August 1994. Total
revenue from Pizza Hut operations for the fiscal year ended March 29, 1994,
was $216 million, up 6.7% over the prior fiscal year. In comparable
restaurants and delivery kitchens open in excess of twelve months, revenue
increased approximately 7.3% in fiscal 1994 over the prior fiscal year
reflecting continued positive impact from the value-priced BIGFOOT pizza
and the luncheon buffet. Fiscal 1994's results also include approximately
$910,000 in sales from the Catering operation, which was sold November 18,
1993.
Management anticipates, based on the economic environment and competitive
conditions, that comparable unit sales in real dollars will remain about
the same or increase slightly in fiscal 1996 due to new product
introductions such as Stuffed Crust pizza.
The Company renewed its franchise agreement with its franchisor, Pizza Hut,
Inc. (PHI) on June 8, 1994. As part of the renewal and to consolidate
operations, the Company exchanged 84 restaurants it owned in the eastern
and western United States for 62 PHI-owned units which were near the
Company's primary marketing area. As a franchisee in good standing, PHI
will allow the Company to submit prospective acquisitions of other Pizza
Hut franchisees for approval. Since the agreement was renewed, the Company
has purchased 42 Pizza Hut units, including 23 units acquired on April 19,
1995, from PHI. However, the franchisor still retains the right of first
refusal on any acquisition submitted in the future. Under the new
franchise agreement, the Company's royalty payments for all units owned
prior to the renewed franchise agreement will remain at an effective rate
of slightly over two percent and increase to four percent of sales
beginning in July 1996 through the year 2010. This rate reflects the
royalty rate which was proposed by PHI to Pizza Hut franchisees as part of
the 1990 Franchise Agreement and is lower than the royalty rate under PHI's
current franchise agreement rate. Restaurants acquired will generally be
subject to the seller's franchise agreement in effect at the time of
purchase.
Costs and Expenses
Cost of sales for the combined Pizza Hut operations, when expressed as a
percent of total revenue, remained about the same in the fiscal year ended
March 28, 1995 (26.1%) with the same period a year ago (26.2% for the
fiscal year ended March 29, 1994). The comparable cost of sales percentage
for the fiscal year ended March 29, 1994, increased 0.5% when compared with
the 25.7% cost of sales percentage in fiscal 1993. Cost of sales includes
food and beverage costs and the expense of paper supplies. Some of this
increase from fiscal 1993 to fiscal 1994 is due to the higher costs
associated with the luncheon buffet and BIGFOOT pizza, as well as the
fluctuation of the price of cheese, which is approximately 40% of food
cost.
Direct labor costs decreased to 27.3% of Pizza Hut fiscal 1995 revenue,
from 28.0% the prior year. This decrease was due primarily to lower sales
of the more-labor intensive BIGFOOT pizza in fiscal 1995. Direct labor for
the fiscal year ended March 30, 1993 was 27.6% of revenue. The 0.4%
increase in the labor percentage from fiscal 1993 to fiscal 1994 was
primarily due to higher training costs associated with the introduction of
BIGFOOT and employee-related costs such as workers compensation.
Overall, operating expenses rose slightly to 25.0% of Pizza Hut fiscal 1995
revenue from 24.6% of total revenue for the prior year. This increase is
due to slightly higher repairs and maintenance costs at the restaurants and
a lower revenue base. Overall operating expenses in fiscal 1994 were
significantly lower than fiscal 1993, or 24.6% of fiscal 1994 revenue
compared with 26.2% of fiscal 1993 revenue. This decrease was due to
reductions in concept marketing as compared with unit volume sales and the
spread of operating expenditures over a larger sales base. Many of the
major operating expenses in fiscal 1995 for the Pizza Hut operations are
also down on a nominal basis, including advertising ($10.9 million in
fiscal 1995, down 8.3% from fiscal 1994), restaurant depreciation and
amortization ($7.9 million in fiscal 1995, down 10.5% from last fiscal
year), and rent ($5.9 million, down 5.4%). This decrease is partially
attributable to the reduction in the number of restaurant units.
Skipper's Operations
Fiscal Year Ended
March 28, 1995 March 29, 1994
Net restaurant sales $69,186,000 $81,073,000
Net franchise revenue 270,000 327,000
Total revenue $69,456,000 $81,400,000
Percentage of revenue:
Cost of sales 38.1% 37.1%
Direct labor costs 32.4% 30.7%
Operating expenses 33.5% 30.6%
104.0% 98.4%
Operating profit (loss) (4.0)% 1.6%
Number of Company units 106 188
Number of franchised units 14 18
On January 28, 1995, the Company announced that it would take a charge of
$35 million before taxes to reserve for costs associated with the closure
and the anticipated loss on disposition of 77 unprofitable Skipper's units.
Stores which were closed accounted for the following revenue and operating
losses for each of the last three fiscal years: fiscal 1995, revenue of
$19.6 million and an operating loss of $3.9 million; fiscal 1994, revenue
of $25.6 million and an operating loss of $2.8 million; and fiscal 1993,
revenue of $25.6 million and an operating loss of $2.0 million.
Significant components of the $35 million charge include the impairment of
$13.3 million of remaining goodwill associated with the Company's purchase
of Skipper's, an expected loss on disposal of owned facilities of $9.9
million, the present value of obligations related to leased facilities of
$8.7 million, and $3.1 million in miscellaneous closure costs.
Management believes downsizing the organization will allow it to
concentrate on those units and regions it believes can be profitable while
it repositions the concept and further refines operations. The 106 Company-
owned units which will continue operations accounted for the following
revenue and operating profit, before allocation of administrative expenses
such as field and corporate office overhead: fiscal 1995, revenue of $49.6
million and an operating profit of $1.1 million; fiscal 1994, revenue of
$55.4 million and an operating profit of $4.1 million; and fiscal 1993,
revenue of $55.0 million and an operating profit of $3.2 million. While
management's current plan is to operate these facilities, the Company may
consider alternative strategies if improvement is not achieved over the
coming 12 months.
As part of this restructuring, Mr. Paul Baird joined Skipper's to assist in
the turnaround effort, becoming President on April 30, 1995.
Revenue
Skipper's continued its value pricing strategy from the prior year in an
attempt to improve customer traffic. However, guest counts fell
approximately 8.9% and comparable sales dropped 9.1% for the fiscal year
ended March 28, 1995 when compared with the same store results a year ago.
When comparing fiscal 1994 with fiscal 1993, sales were up 0.6% on a
nominal basis and 0.5% on a comparable store basis. The concept adopted an
''everyday low price'' strategy early in fiscal 1994 and then tried to
promote meals with a higher profit margin, which had an offsetting effect
on sales for the year.
Management anticipates, based on the economic environment and competitive
conditions, that comparable unit sales in real dollars will compare
unfavorably to strong sales in early fiscal 1995 with recovery in the last
half of fiscal 1996 as the remaining units are stabilized and new
operational controls are put into place.
Costs and Expenses
Cost of sales increased to 38.1% of fiscal 1995 revenue compared with 37.1%
of fiscal 1994 revenue due to increased food waste associated with the new
food holding system and higher food costs on menu items with lower price
points. The food system retrofit of approximately 120 Skipper's units in
1994 reduced serving time in an attempt to improve customer satisfaction.
Fiscal 1994's cost of sales percentage increased by 0.3% of revenue when
compared with the fiscal year ended March 30, 1993. This increase
primarily represents the effect of similar raw product costs on lower menu
prices.
Direct labor costs, consisting of wages, taxes and related fringe benefits,
increased to 32.4% in the current fiscal year compared with 30.7% in fiscal
1994 because of minimum staffing requirements despite the lower sales base.
Labor increased to 30.7% of total revenue for the fiscal year ended March
29, 1994, compared with 28.8% for the prior fiscal year, due to an emphasis
placed on improving service and correcting labor inefficiencies associated
with implementing Skipper's new service system.
Operating expenses also rose in fiscal 1995, to 33.5% of revenue compared
with 30.6% of revenue for the 52 weeks ended March 29, 1994. Part of this
increase is attributable to the decline in sales without a corresponding
decline in fixed costs such as rent and depreciation. Significant
components of operating expenses include advertising ($5.7 million in
fiscal 1995, compared with $5.6 million in the prior fiscal year),
restaurant depreciation and amortization ($5.5 million in fiscal 1995, down
9.5% when compared with the same period a year ago) and restaurant-related
rent expense ($2.6 million, down 13.6% from last year). Operating expenses
declined to 30.6% of fiscal 1994 revenue, compared with 32.9% of revenue
for the prior fiscal year. When comparing fiscal 1994 with fiscal 1993,
there was a 20.3% decline in advertising (to $5.6 million from $7.0
million), a 2.4% decline in restaurant-related depreciation and a 1%
decline in rent for the restaurants.
Tony Roma's Operations
For the 52 Weeks Ended For the 42 Weeks Ended
March 28, 1995 March 29, 1994
Net restaurant sales $42,137,000 $33,752,000
Net franchise revenue 5,351,000 4,167,000
Total revenue $47,488,000 $37,919,000
Percentage of revenue:
Cost of sales 29.9% 30.3%
Direct labor costs 28.0% 29.8%
Operating expenses 25.7% 26.8%
83.6% 86.9%
Operating profit 16.4% 13.1%
Number of Company units* 25 24
Number of franchised units 143 137
* Excludes two units operated as joint ventures which are accounted for
under the equity method of accounting.
Revenue
On June 8, 1993, NPC International, Inc. completed its acquisition of NRH
Corporation (now Romacorp, Inc.), owner and franchisor of Tony Roma's A
Place for Ribs restaurants. Since the acquisition, the Company has focused
on promoting the Tony Roma's brand, on gaining efficiencies through the
consolidation of backoffice operations, and on working with the
franchise community to provide growth for the concept.
Comparable sales for the 52 weeks ended March 28, 1995, were down 0.3% when
compared with the similar period in the prior year. Sales in the Company's
primary markets of Texas, Florida and California, were up 0.5%, 1.6% and
down 2.9%, respectively. Gross franchise revenue, before allocation of
certain general and administrative costs related to managing and servicing
the franchise business, contributed $8.5 million or 17.9% of total revenue
for the 52 weeks ended March 28, 1995, compared with $5.9 million or 15.6%
of total revenue for the 42 weeks ended March 29, 1994. Nominal revenue
has increased primarily due to the additional ten weeks of activity in the
most recent fiscal year. During the fiscal year just ended, the Company
opened or purchased three restaurants and closed two underperforming units,
while 14 franchise units were added and eight were closed in the same 52
week period ended March 28, 1995. The Company anticipates that eight
Company units and 14 franchise units will open during the fiscal year ended
March 26, 1996.
Costs and Expenses
Costs of food, labor and operating expenses, when expressed as a percent of
total revenue, have all decreased in the fiscal year ended March 28, 1995,
when compared with the 42 week period ended March 29, 1994. These expense
reductions have been achieved due to improved operating efficiencies
established subsequent to the acquisition. In addition, franchise revenue,
which does not have significant food or labor components, constitutes a
slightly higher portion of total revenue in fiscal 1995.
On a comparable basis, labor has decreased through improved scheduling and
a reduction of workers compensation expenses. Operating expenses have been
lowered through a decrease in television advertising in the current fiscal
year, primarily in the Dallas market, although somewhat mitigated by an
increase in print advertising. The Company also closed in January 1994 a
money-losing alternative concept that Tony Roma's was testing when it was
acquired in June 1993. Major Company expenses incurred include field and
administrative salaries ($2.6 million for the 52 weeks ended March 28,
1995, or 5.5% of total revenue compared with 5.5% of total revenue for the
42 weeks ended March 28, 1994), restaurant-related rent ($2.4 million or
5.0% of fiscal 1995 revenue compared with 5.2% in fiscal 1994), and
restaurant-related depreciation and amortization ($2.4 million or 5.0%
compared with 4.8% in the prior year).
Consolidated Results
Overall revenue declined $21.3 million on a nominal basis, or 6.3% for the
fiscal year ended March 28, 1995, when compared with the fiscal year ended
March 29, 1994. Much of this decline is attributable to an $18 million
decline in BIGFOOT sales from the prior year and an $11.9 million nominal
decline in revenue at Skipper's, offset by a $9.6 million revenue increase
at Tony Roma's.
Accompanying the nominal decline in consolidated revenue, restaurant-
related operating profit declined $4.1 million, or 7.8%, offset by a
decrease in overall general and administrative costs of $2.7 million, or
9.9%. Individual restaurant-related operating profit was down 6.6% for
Pizza Hut and up 57.4% for Tony Roma's, which included ten additional weeks
of operations in fiscal 1995. Skipper's went from a $1.3 million
restaurant-related operating profit in fiscal 1994 to a $2.8 million loss
in the current fiscal year before the restructuring charge.
General and administrative expenses declined to 7.7% of consolidated
revenue for the fiscal year ended March 28, 1995, when compared with 8.0%
of revenue for the fiscal year ended March 29, 1994. This decline is
partly attributable to amortization of BIGFOOT start-up costs becoming
fully amortized in the prior year and the reduction in costs associated
with consolidating Tony Roma's administrative functions. General and
administrative expenses were 7.5% of consolidated revenue for the fiscal
year ended March 30, 1993. This increase between fiscal 1993 and fiscal
1994 is primarily due to absorption of administrative costs and
amortization of certain intangibles associated with the Tony Roma's
acquisition. Major expenses include corporate salaries, amortization of
intangible assets, and bank service charges.
In late fiscal 1995, the Company recognized a $35 million pre-tax charge
for the planned closure and disposition of 77 underperforming Skipper's
restaurants located in six states plus the write-off of $13.3 million in
remaining goodwill associated with Skipper's. At March 28, 1995, the
balance of this newly-established reserve plus the prior closure reserve
established in fiscal 1992 was $20.8 million. Management believes the
remaining reserve is adequate to cover the carrying and disposal costs to
be incurred on these restaurants.
Interest expense is lower in this fiscal year, dropping to $6.2 million
from $6.6 million for the prior year. Fiscal 1994 interest expense was
higher when compared with both fiscal 1995 and 1993 due to increased
debt associated with the June 8, 1993, acquisition of Tony Roma's.
NPC's income tax provisions for the fiscal years ended 1995, 1994 and 1993
resulted in effective tax rates of 10.5%, 39.0%, and 37.8%, respectively.
The March 28, 1995, rate incorporates the write-off of goodwill associated
with Skipper's, which is not deductible for tax purposes. Without this
adjustment, the Company's fiscal 1995 rate would have been approximately
39.6%. See Note 3 of ''Notes to Consolidated Financial Statements'' for
information regarding the differences which cause the effective tax rates
to vary from the statutory federal income tax rates. As of March 28, 1995,
NPC had a net deferred income tax asset of $2.1 million, compared with a
deferred tax liability of $4.9 million at March 29, 1994. The difference
in deferred taxes is primarily attributable to the Skipper's closure
reserve which was recorded in fiscal 1995. Management has determined that
it is more likely than not that this deferred income tax asset, net of the
valuation allowances, will be realized based on current income tax laws and
expectations of future taxable income stemming from the ordinary operations
or the reversal of existing deferred income tax liabilities. Uncertainties
surrounding income tax law changes and future operating income levels may,
however, affect the ultimate realization of some or all of these deferred
income tax assets.
LIQUIDITY AND CAPITAL RESOURCES
On March 28, 1995, the Company had a working capital deficit of $11.4
million compared with $19.6 million deficit at March 29, 1994, and $16.4
million at March 30, 1993. Like most restaurant companies, the Company is
able to operate with a working capital deficit because substantially all of
its sales are for cash, while it generally receives credit from trade
suppliers. Further, receivables are not a significant asset in the
restaurant business and inventory turnover is rapid. Therefore, the
Company uses all available liquid assets to reduce borrowings under its
line of credit.
The Company has a $50 million unsecured line of credit, of which $27.6
million was borrowed at year-end. On June 9, 1994, the Company signed a
$20 million ''shelf'' facility with a major insurance company, $10 million
of which was borrowed on December 20, 1994, at 9.09% and the remaining $10
million available was drawn on April 25, 1995, bearing interest at the rate
of 8.02%. The Company anticipates that, subsequent to year-end, the $20
million borrowing limit in the shelf agreement will be increased by an
additional $40 million with the opportunity to borrow under the agreement,
at the lender's discretion, extended for a period of two years.
The Company anticipates cash flow from operations and additional borrowings
will be sufficient to fund continuing expansion and improvements, to
service debt obligations and to acquire restaurants in new territories.
CASH FLOWS
Net cash provided by operating activities for fiscal 1995 decreased
approximately $7.5 million or 21.7% from operating cash flows for fiscal
1994. This decrease is primarily due to payment of taxes based upon
current operating results with the deferral of Skipper's closure reserve to
future periods when the disposition losses are anticipated to be realized
for tax purposes. Operating cash flow for the fiscal year ended March 29,
1994, was up $2.6 million, or 7.9%, from fiscal 1993, because of an
increase in earnings and higher non-cash expenses in fiscal 1994.
Investing activities reflect the stock purchase of NRH Corporation on June
8, 1993, for approximately $21.4 million. In addition, the Company
renovated six Tony Roma restaurants in fiscal 1994.
On December 20, 1994, the Company issued a senior note for $10 million, the
proceeds of which was used to pay down the unsecured line of credit. No
senior notes were issued in the prior fiscal year, and two senior notes
totaling $45 million were issued in fiscal 1993.
Management suspended repurchases of the Company's common stock in January
1995, with 454,500 shares still authorized under the stock repurchase
program approved by the Board of Directors.
SEASONALITY
As a result of continued concept diversification, the Company has not
experienced significant seasonality in its sales. Sales are typically
higher at Skipper's in the fourth quarter of the fiscal year, during the
Lenten period. Tony Roma's sales are traditionally higher than normal in
January to March and lower in July to September.
EFFECTS OF INFLATION
Inflationary factors such as increases in food and labor costs directly
affect the Company's operations. Because most of the Company's employees
are paid hourly rates related to federal and state minimum wage and tip
credit laws, changes in these laws will result in increases in the
Company's labor costs. Legislation mandating health coverage for all
employees, if passed, will increase benefit costs since most hourly
restaurant employees are not currently covered under Company plans. The
Company cannot always effect immediate price increases to offset higher
costs and no assurance can be given that the Company will be able to do so
in the future.
Increases in interest rates would directly affect the Company's financial
results. The Company had $27.6 million in borrowings under its line of
credit agreement at a variable market rate at March 28, 1995, as compared
with $24.1 million at March 29, 1994. Under the agreement, the Company may
select among alternative interest rate options with terms up to six months
in length to reduce its interest exposure.
CONSOLIDATED BALANCE SHEETS
NPC International, Inc. and Subsidiaries
March 28, March 29,
1995 1994
ASSETS
Current assets:
Cash and cash equivalents $9,971,000 $8,119,000
Accounts receivable, net of
$923,000 and $825,000
reserves, respectively 2,357,000 3,105,000
Notes receivable, net of
$275,000 reserves at
March 28, 1995, and March 29, 1994 867,000 641,000
Inventories of food and supplies 3,261,000 3,297,000
Deferred income tax asset 5,104,000 ----
Prepaid expenses and
other current assets 2,253,000 2,048,000
Total current assets 23,813,000 17,210,000
Facilities and equipment, net 116,190,000 148,498,000
Assets held for sale, net 18,576,000 262,000
Franchise rights, net 33,939,000 21,047,000
Goodwill, less accumulated
amortization of $3,220,000
and $4,089,000, respectively 18,710,000 33,327,000
Other assets 8,813,000 8,768,000
$220,041,000 $229,112,000
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $16,350,000 $16,200,000
Payroll taxes 1,332,000 1,283,000
Accrued interest 1,992,000 1,788,000
Accrued payroll 2,284,000 3,303,000
Current portion of
closure provision 2,400,000 888,000
Health and workers compensation
insurance reserves 8,268,000 7,008,000
Other accrued liabilities 1,242,000 4,970,000
Current portion of
long-term debt 1,308,000 1,390,000
Total current liabilities 35,176,000 36,830,000
Long-term debt and
obligations under capital leases 82,850,000 86,734,000
Deferred income tax liability 2,996,000 4,899,000
Closure provision and
other deferred items 18,732,000 1,662,000
Stockholders' equity
Common stock, $.01 par value
Class A - 50,000,000 shares
authorized, 13,849,070 issued 139,000 139,000
Class B - 50,000,000 shares
authorized, 13,743,440 issued 137,000 137,000
Paid-in capital 22,020,000 22,322,000
Retained earnings 80,086,000 95,700,000
102,382,000 118,298,000
Less treasury stock
at cost, representing
1,493,315 and 1,267,124
shares of Class A Common,
1,593,871 and 1,312,013
shares of Class B Common,
respectively (22,095,000) (19,311,000)
Total stockholders' equity 80,287,000 98,987,000
$220,041,000 $229,112,000
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF OPERATIONS
NPC International, Inc. and Subsidiaries
Fiscal Year Ended
March 28, March 29, March 30,
1995 1994 1993
Net sales $309,829,000 $332,206,000 $284,972,000
Net franchise revenue 5,698,000 4,617,000 461,000
Total revenue 315,527,000 336,823,000 285,433,000
Cost of sales 92,392,000 98,692,000 82,552,000
223,135,000 238,131,000 202,881,000
Direct labor costs 89,964,000 97,103,000 79,829,000
Operating expenses 85,012,000 88,790,000 80,475,000
General and
administrative expenses 24,369,000 27,045,000 21,304,000
199,345,000 212,938,000 181,608,000
Operating income 23,790,000 25,193,000 21,273,000
Interest expense (6,162,000) (6,631,000) (6,390,000)
Loss on disposition of
underperforming assets (35,000,000) ---- ----
Other expense (80,000) (56,000) (215,000)
Income (loss)
before income taxes (17,452,000) 18,506,000 14,668,000
Provision (benefit)
for income taxes:
Current 5,169,000 8,028,000 4,760,000
Deferred (7,007,000) (817,000) 784,000
(1,838,000) 7,211,000 5,544,000
Net income (loss) $(15,614,000) $11,295,000 $9,124,000
Earnings (loss) per share $(0.63) $0.45 $0.35
Weighted average
shares outstanding 24,763,715 25,167,349 25,903,363
See notes to consolidated financial statements.
<TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
NPC International, Inc. and Subsidiaries
<CAPTION> Total
Common Stock Paid-In Retained Treasury Stockholders'
Class A Class B Capital Earnings Stock Equity
<S> <C> <C> <C> <C> <C> <C>
Balance,
March 31, 1992 $139,000 $137,000 $22,398,000 $75,281,000 $(10,864,000) $87,091,000
Net income ---- ---- ---- 9,124,000 ---- 9,124,000
Acquisition of
treasury stock ---- ---- ---- ---- (6,791,000) (6,791,000)
Exercise of
stock options ---- ---- (30,000) ---- 42,000 12,000
Balance,
March 30, 1993 139,000 137,000 22,368,000 84,405,000 (17,613,000) 89,436,000
Net income ---- ---- ---- 11,295,000 ---- 11,295,000
Acquisition of
treasury stock ---- ---- ---- ---- (1,766,000) (1,766,000)
Exercise of
stock options ---- ---- (46,000) ---- 68,000 22,000
Balance,
March 29, 1994 139,000 137,000 22,322,000 95,700,000 (19,311,000) 98,987,000
Net loss ---- ---- ---- (15,614,000) ---- (15,614,000)
Acquisition of
treasury stock ---- ---- ---- ---- (3,256,000) (3,256,000)
Exercise of
stock options ---- ---- (302,000) ---- 472,000 170,000
Balance,
March 28, 1995 $139,000 $137,000 $22,020,000 $80,086,000 $(22,095,000) $80,287,000
</TABLE>
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
NPC International, Inc. and Subsidiaries
Fiscal Year Ended
March 28, March 29, March 30,
1995 1994 1993
CASH FLOWS PROVIDED
BY OPERATING ACTIVITIES:
Net income $(15,614,000) $11,295,000 $9,124,000
Non-cash items
included in net income:
Depreciation and amortization 20,990,000 24,008,000 19,329,000
Deferred income taxes and other (8,334,000) (1,791,000) (789,000)
Non-cash portion of loss
on disposition of
underperforming assets 34,414,000 ---- ----
Change in assets and liabilities,
net of acquisitions:
Accounts receivable, net 748,000 452,000 (79,000)
Notes receivable, net (226,000) (302,000) (70,000)
Inventories of food and supplies (162,000) 427,000 136,000
Prepaid expenses and
other current assets (748,000) (56,000) 367,000
Accounts payable 150,000 4,000 1,346,000
Payroll taxes 49,000 (32,000) (596,000)
Accrued interest 204,000 722,000 605,000
Accrued payroll (1,019,000) (354,000) 362,000
Health and workers compensation
insurance reserves 1,260,000 2,145,000 1,856,000
Other accrued liabilities (4,407,000) (1,666,000) 696,000
Net cash flows provided
by operating activities 27,305,000 34,852,000 32,287,000
CASH FLOWS USED
BY INVESTING ACTIVITIES:
Purchase of NRH Corporation,
net of cash ---- (19,370,000) ----
Capital expenditures, net (11,067,000) (13,202,000) (19,197,000)
Acquisition of business assets, net (7,803,000) (61,000) ----
Changes in other assets, net (1,474,000) 788,000 617,000
Proceeds from sale
of capital assets 1,943,000 565,000 1,136,000
Net cash flows used by
investing activities (18,401,000) (31,280,000) (17,444,000)
CASH FLOWS USED
BY FINANCING ACTIVITIES:
Purchase of treasury stock (3,256,000) (1,766,000) (6,791,000)
Net change in
revolving credit agreements 3,480,000 23,710,000 (36,120,000)
Proceeds from issuance
of long-term debt 10,000,000 ---- 45,000,000
Payment of long-term debt (17,446,000) (24,616,000) (15,745,000)
Exercise of stock options 170,000 22,000 12,000
Net cash flows used by
financing activities (7,052,000) (2,650,000) (13,644,000)
NET CHANGE IN
CASH AND CASH EQUIVALENTS 1,852,000 922,000 1,199,000
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 8,119,000 7,197,000 5,998,000
CASH AND CASH EQUIVALENTS
AT END OF YEAR $9,971,000 $8,119,000 $7,197,000
See notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NPC International, Inc. and Subsidiaries
(1) Summary of Significant Accounting Policies
Consolidation - The financial statements include the accounts of NPC
International, Inc. and Subsidiaries (the ''Company'') and its wholly owned
subsidiaries. All significant intercompany transactions are eliminated.
Fiscal Year - The Company operates on a 52 or 53 week fiscal year ending on
the last Tuesday in March. The fiscal years ended March 28, 1995, March
29, 1994, and March 30, 1993, each contained 52 weeks.
Cash Equivalents - For purposes of the Consolidated Statements of Cash
Flows, the Company considers all highly liquid debt instruments with a
maturity of three months or less to be cash equivalents. At March 28,
1995, and March 29, 1994, substantially all cash was in the form of
depository accounts.
Inventories - Inventories of food and supplies are valued at the lower of
cost (first-in, first-out method) or market.
Pre-opening Costs - The Company amortizes pre-opening costs, which
principally represents the cost of hiring and training new personnel, over
a period of one year commencing with the restaurant's opening.
Facilities and Equipment - Facilities and equipment are recorded at cost.
Depreciation is charged on the straight-line basis for buildings, furniture
and equipment. Leasehold improvements are amortized on the straight-line
method over the life of the lease or the life of the improvements,
whichever is shorter.
Assets held for sale - As of March 28, 1995, the Company is holding
approximately 80 Skipper's units which it plans to sell or lease. Nearly
all of these units were closed in February, 1995.
Franchise Rights - The Company's Pizza Hut franchise agreements generally
provide franchise rights for a period of 15 years and are renewable at the
option of the Company for an additional 15 years. Franchise fees were
capitalized for accounting purposes and are amortized over their estimated
economic life (original term plus option renewal period) on a straight-line
basis. Purchased franchise rights are recorded at estimated value and
amortized ratably over the remaining life of the franchise agreement,
including the renewal period. Periodic franchise fees, generally provided
for in the agreements as a percent of gross sales, are recorded as
operating expenses as incurred.
Skipper's, Inc. granted franchise rights for a term of 20 years to private
operators in exchange for an initial franchise fee which was not recognized
as income until the pre-opening obligations were satisfied. Royalties
based on a percentage of gross sales are recognized on the accrual basis.
Skipper's has had no franchising activity for the last several years.
The franchise agreements for Tony Roma's restaurants similarly provide for
an initial fee and continuing royalty payments based upon gross sales, in
return for operational support, product development, marketing programs and
various administrative services. Royalty revenue is recognized on the
accrual basis, although initial fees are not recognized until the
franchisee's restaurant is opened. Franchisees also participate in
national and local marketing programs which are managed by the Company but
are not included in the accompanying financial statements.
Goodwill - Goodwill represents the excess of cost over the identifiable net
assets of companies acquired and is amortized on the straight-line method
over periods ranging from 25 to 40 years. During 1995, the Company wrote
off $13,366,000 in remaining goodwill associated with Skipper's acquisition
based on an assessment of undiscounted cash flows and other factors.
The Company periodically evaluates the existence of potential impairment of
goodwill by assessing whether the carrying value of goodwill is fully
recoverable from projected, undiscounted net cash flows from the underlying
operations.
Income Taxes - The provision for income taxes includes federal and state
taxes currently payable and those deferred because of temporary differences
between the financial statements and tax bases of assets and liabilities.
Deferred taxes arise principally from accelerated amortization of franchise
rights for tax purposes, the use of accelerated depreciation for tax
purposes, and the deferral of tax deductions for the insurance and closure
reserves accrued for financial statement purposes.
Earnings Per Share - Earnings per share is computed using the weighted
average number of common and common equivalent shares outstanding during
the period. Common equivalent shares represent the number of shares which
would be issued assuming the exercise of dilutive common stock options,
reduced by the number of shares which could be purchased with proceeds from
the exercise of such options. Earnings per share attributable to prior
years have been restated to reflect the effect of the fiscal 1992 Class B
Common stock dividend. Per share amounts are not materially different on a
fully diluted basis.
Reclassifications - Certain reclasses were made to prior balances to
conform with the current year presentation.
(2) Facilities and Equipment
Facilities and equipment consists of the following:
Estimated
Useful Life March 28, 1995 March 29, 1994
Land $27,271,000 $35,126,000
Buildings 15-30 years 45,928,000 56,714,000
Leasehold improvements 5-20 years 35,264,000 45,488,000
Furniture and equipment 3-10 years 68,672,000 87,392,000
Capitalized leases 4,575,000 5,103,000
Construction in progress 1,548,000 188,000
183,258,000 230,011,000
Less accumulated
depreciation and amortization (67,068,000) 81,513,000)
Net facilities and equipment $116,190,000 $148,498,000
(3) Income Taxes
The provision (benefit) for income taxes consisted of the following:
March 28, 1995 March 29, 1994 March 30, 1993
Currently payable:
Federal $3,923,000 $6,225,000 $3,435,000
State 1,246,000 1,803,000 1,325,000
5,169,000 8,028,000 4,760,000
Deferred:
Federal (5,767,000) (727,000) 715,000
State (1,240,000) (90,000) 69,000
(7,007,000) (817,000) 784,000
Provision (benefit)
for income taxes $(1,838,000) $7,211,000 $5,544,000
The differences between the provision for income taxes and the amount
computed by applying the statutory federal income tax rate to earnings
before income taxes are as follows:
Fiscal Year Ended
March 28, 1995 March 29, 1994 March 30, 1993
Tax computed at
statutory rate $(6,108,000) $6,477,000 $4,987,000
Write-off of
Skipper's goodwill 4,665,000 --- ---
Tax credits (857,000) (695,000) (660,000)
State taxes, net
of federal effect,
and other 462,000 1,429,000 1,217,000
Provision (benefit)
for income taxes $(1,838,000) $7,211,000 $5,544,000
The significant components of the deferred tax asset and liability at March
28, 1995, and March 29, 1994, consisted of the following:
March 28, 1995 March 29, 1994
Deferred Deferred Deferred Deferred
Tax Tax Tax Tax
Assets Liabilities Assets Liabilities
Depreciation
and amortization $ --- $11,320,000 $ --- $9,997,000
Closure reserve (8,187,000) ---- (842,000) ----
Capitalized leases (625,000) ---- (649,000) ----
Tax credit carryforwards (1,348,000) ---- (1,348,000) ----
Insurance reserves (3,036,000) ---- (2,730,000) ----
Other (2,016,000) 281,000 (2,842,000) 1,946,000
Subtotal (15,212,000) 11,601,000 (8,411,000) 11,943,000
Valuation allowances 1,503,000 ---- 1,367,000 ----
Total deferred tax
assets and liabilities $(13,709,000) $11,601,000 $(7,044,000) $11,943,000
For income tax purposes, the Company has available at March 28, 1995, jobs
tax credit carryforwards of approximately $1,149,000 which, if not
previously utilized, will expire in varying amounts during years 2001
through 2004. The utilization of the carryforwards is subject to the
ability of the subsidiaries of the Company, from which they originated, to
generate taxable income on a separate company basis. In the fiscal year
ended March 28, 1995, the Company added a $136,000 valuation allowance
relating to an unused capital loss carryover which expires on March 26,
1996.
Cash paid for income taxes in fiscal years 1995, 1994, and 1993 was
$8,542,000, $7,001,000, and $5,107,000, respectively.
(4) Bank Debt and Senior Notes
Long-term debt consisted of the following:
March 28, 1995 March 29, 1994
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
Revolving credit agreement $27,620,000 $27,620,000 $24,140,000 $24,140,000
9.09% senior notes 10,000,000 8,778,000 ---- ----
9.03% senior notes ---- ---- 7,000,000 7,103,000
8.49% senior notes 4,000,000 4,014,000 8,000,000 8,115,000
7.58% senior notes 15,000,000 14,857,000 20,000,000 20,058,000
6.35% senior notes 20,000,000 16,327,000 20,000,000 21,677,000
Other 3,182,000 3,268,000 3,813,000 3,648,000
79,802,000 $74,864,000 82,953,000 $84,741,000
Less current installments (547,000) (630,000)
Total long-term debt $79,255,000 $82,323,000
The Company has a $50,000,000 unsecured revolving credit agreement. Under
this agreement, as amended, the Company has the right to borrow, repay and
reborrow up to $50,000,000 until August 10, 1997. The Company may elect to
pay interest at the prime rate, the Interbank rate or a money market rate
(7.0% at March 28, 1995). Commitment fees of .25% per annum are paid on
the unused balance of the facility and are included in interest expense.
One debt covenant under the revolving credit agreement was waived at March
28, 1995, due to the Skipper's charge in the fourth fiscal quarter.
The Company has privately placed the following long-term uncollateralized
senior notes:
Date Principal Carrying Interest Principal Payments
Issued Value Value Rate Begin End
3/13/91 $20,000,000 $4,000,000 8.49% 3/92 3/96
5/15/92 25,000,000 15,000,000 7.58 5/93 5/97
3/30/93 20,000,000 20,000,000 6.35 4/96 4/00
12/20/94 10,000,000 10,000,000 9.09 10/97 10/01
Each senior note requires annual principal payments equal to 20% of the
original principal amount. Proceeds from these notes were used to repay
amounts borrowed under the Company's revolving credit agreement. The
Company has the ability and intent to refinance the principal payments due
under its senior notes through its revolving credit agreement.
Accordingly, such amounts are classified as long-term debt. On June 9,
1994, the Company signed a $20,000,000 shelf placement facility with a
major insurance company, $10,000,000 of which was borrowed on December 21,
1994, and the remaining $10,000,000 borrowed on April 25, 1995. This
latter note bears interest at a rate of 8.02%, with principal payments
beginning in 1998 and ending in the year 2002. The Company anticipates
that, subsequent to year-end, the $20 million borrowing limit in the shelf
agreement will be increased by an additional $40 million with the
opportunity to borrow under the agreement, at the lender's discretion,
extended for a period of two years.
The Company is subject to a number of covenants under its various credit
agreements including limits on additional borrowing, restrictions on
dividend payments and requirements to maintain various financial ratios and
a minimum net worth. The aggregate maturities of long-term debt, excluding
capital leases and the revolving credit agreement, are as follows: fiscal
year 1996 - $9,547,000; fiscal year 1997 - $9,549,000; fiscal year 1998 -
$11,520,000; fiscal year 1999 - $6,522,000; fiscal 2000 - $6,524,000 and
$8,520,000 in years beyond.
The average amount outstanding on all bank borrowings and senior notes for
the year ended March 28, 1995, was $77,880,000 and the maximum borrowings
were $86,060,000. Interest expense from bank borrowings and senior notes
for fiscal years 1995, 1994, and 1993 was $5,331,000, $5,812,000 and
$5,785,000, respectively. Weighted average interest rates during the same
periods were 7.36%, 6.44% and 7.71%, respectively.
Cash paid for interest in fiscal years 1995, 1994, and 1993 was $5,957,000,
$6,198,000 and $5,882,000, respectively.
Statement of Financial Accounting Standards No. 107--Disclosures about the
Fair Market Value of Financial Instruments--requires companies to disclose
the estimated fair value of financial instruments. The Company's debt
consists of non-trading long-term notes with fixed rates maturing over the
next seven years and a long-term revolving loan with variable rates.
Management has computed the fair market values of the fixed-rate notes
based upon an estimated incremental borrowing rate of 8.11%. This rate is
not substantially different from the rate spread from similar government
bonds with similar maturities to that of the Company's debt portfolio.
Management believes the fair market value of the revolving credit agreement
to equal its carrying value, due to its daily rate fluctuation.
(5) Stock Options
At March 28, 1995, the Company has a 1994 Non-Qualified Stock Option Plan
pursuant to which an aggregate of 2,791,450 shares of common stock are
reserved for issuance to employees (including officers) of the Company.
The options have an exercise price equal to the fair market value of the
common stock on the date of grant, and generally become exercisable over a
four-year period in equal annual amounts. At March 28, 1995, 469,874
options on Class A Common and 557,549 options on Class B Common were
exercisable.
Shares Under Option Option Price Range
Class A Class B Class A Class B
March 31, 1992 526,450 608,350
Granted 235,000 362,700 $6.50 $5.75-$7.50
Canceled (39,319) (67,719)
Exercised (5,718) (5,718) $5.17-$6.25 $5.17-$6.25
March 30, 1993 716,413 897,613
Granted ---- 167,050 $6.00
Canceled (61,032) (148,382)
Exercised (3,518) (3,518) $2.19-$5.42 $2.19-$5.42
March 29, 1994 651,863 912,763
Granted ---- 364,500 $5.00-$6.00
Canceled (39,010) (255,048)
Exercised (20,885) (20,977) $1.94-$6.25 $1.94-$6.25
March 28, 1995 591,968 1,001,238
(6) Profit Sharing Plan
The Company instituted the NPC International, Inc. Profit Sharing Plan on
July 1, 1992. To qualify, employees must generally have two years of
service, attain the age of 21 and be employed on the last day of the plan
year. The Company's contribution to the plan is discretionary, based upon
the earnings of each operating division. The Company contributed $517,000,
$477,000 and $719,000 for calendar years 1994, 1993, and 1992 and prior,
respectively.
(7) Commitments
The Company leases certain restaurant equipment and buildings under
capitalized and operating leases. Rent expense for fiscal years 1995,
1994, and 1993 was $11,410,000, $11,925,000, and $9,998,000, respectively,
including additional rentals of approximately $1,030,000 in 1995,
$1,344,000 in 1994, and $978,000 in 1993. The additional rentals are based
upon a percentage of sales in excess of a base amount as specified in the
lease. The majority of the Company's leases contain renewal options for 5
to 10 years. The remaining leases may be renewed upon negotiations.
Facilities and equipment accounts include the following amounts for capital
leases:
March 28, 1995 March 29, 1994
Buildings $3,469,000 $3,997,000
Equipment 1,106,000 1,106,000
Less accumulated
amortization (1,767,000) (1,612,000)
Net leased facilities
and equipment $2,808,000 $3,491,000
Minimum lease payments for the next five years at March 28, 1995, consisted
of:
Fiscal Year Capital Leases Operating Leases Total
1996 $1,302,000 $8,360,000 $9,662,000
1997 816,000 7,470,000 8,286,000
1998 702,000 6,207,000 6,909,000
1999 603,000 5,175,000 5,778,000
2000 533,000 4,355,000 4,888,000
Thereafter 3,808,000 22,564,000 26,372,000
Total minimum
lease commitments 7,764,000 $54,131,000 $61,895,000
Less amounts
representing
implicit interest (3,408,000)
Present value of net
minimum lease commitments 4,356,000
Less current portion (761,000)
Long-term capital
lease obligation $3,595,000
During the fiscal year ended March 28, 1995, the Company leased six
properties from Company officers at rental rates comparable to terms the
Company could obtain from unrelated lessors. Rental expense under these
leases for fiscal years 1995, 1994, and 1993 was $106,000, $222,000, and
$477,000, respectively. The Company purchased real estate from an officer
of the Company or his affiliate in the amount of $800,000, $1,456,000, and
$3,461,000 in the fiscal years ended March 28, 1995, March 29, 1994, and
March 30, 1993, respectively. The value of the purchased real estate was
determined by an independent certified appraiser. Additionally, the
Company leased a corporate aircraft from an officer for part of the fiscal
year. Management believes the lease is at least as favorable as could be
obtained from unrelated parties. Rental expense incurred under this lease
amounted to $194,000 in fiscal 1995 and $258,000 for each of the fiscal
years ended March 29, 1994 and March 30, 1993.
For purposes of administering its self-insurance program, the Company has
issued three standby letters of credit. One letter of credit for
$9,025,000, expiring July 1, 1995, benefits the insurance company which
administers the Company's primary workers compensation program. Two
additional letters of credit for $250,000 and $100,000 benefit another
insurance company and state workers compensation program and expire October
2, 1995 and June 23, 1995, respectively. All claims are routinely paid in
the normal course of business and the Company does not anticipate that such
instruments will be funded.
(8) Loss on Disposition of Underperforming Assets
On January 28, 1995, the Company announced that it would take a charge of
$35,000,000 before taxes to reserve for costs associated with the closure
and the anticipated loss on disposition of 77 unprofitable Skipper's units.
Significant components of the $35,000,000 charge include the impairment of
$13,336,000 of remaining goodwill associated with the Company's purchase of
Skipper's in 1989, an expected loss on disposal of owned facilities of
$9,910,000, the present value of obligations related to leased facilities
of $8,659,000, and $3,095,000 in miscellaneous closure costs.
Stores which were closed accounted for the following revenue and operating
losses, before allocation of general and administrative expenses such as
field and corporate office overhead, for each of the last three fiscal
years: fiscal 1995, revenue of $19,647,000 and an operating loss of
$3,845,000; fiscal 1994, revenue of $25,621,000 and an operating loss of
$2,772,000; and fiscal 1993, revenue of $25,621,000 and an operating loss
of $2,000,000.
As of March 28, 1995, approximately $586,000 in cash had been spent for
rent, tax, and other closure expenses, including severance pay for those
affected by the closures. In addition, three units remain to be sold or
leased from the March, 1992 closure. Total long-term liabilities
established for restaurant closures, including reserves established in
prior years, were $18,397,000 and $1,102,000 at March 28, 1995 and March
29, 1994, respectively.
Included in other accrued liabilities is $2,400,000 and $888,000 at March
28, 1995 and March 29, 1994, respectively, related to other current costs
of disposing of these restaurants. The Company anticipates substantially
all units will be subleased or disposed by March, 1997.
(9) Acquisition
On June 8, 1993, the Company executed a definitive stock purchase agreement
to acquire all of the outstanding stock of NRH Corporation, owner and
franchisor of Tony Roma's restaurants, for an aggregate purchase price of
approximately $21,400,000 in cash. The business combination was accounted
for as a purchase and, accordingly, the Company tentatively allocated the
purchase price as follows: $16,100,000 to goodwill (amortized primarily
over a 25 year period), $11,800,000 to property, plant and equipment
(amortized over six to 15 years, depending on the asset's remaining life),
$1,190,000 to a non-compete agreement (two year amortization), $551,000 to
deferred tax assets, $1,400,000 to other assets, $5,344,000 to net current
liabilities and $4,300,000 to long-term debt. The results of operations of
NRH Corporation were included in the results of the Company from the
effective date of the acquisition. The proforma effect of this acquisition
would not be materially different than the results presented herein. On
March 29, 1994, NRH Corporation was merged into its operating subsidiary
Romacorp, Inc. as part of a restructuring of the NRH Corporate group.
(10) Asset Exchange Agreement
On August 3, 1994, the Company completed an asset exchange agreement with
Pizza Hut, Inc. (PHI) which extended the Company's Pizza Hut franchise
rights through the year 2010. As a part of the agreement, the Company
exchanged 84 of its Pizza Hut restaurants and delivery kitchens for 62
Pizza Hut units operated by PHI plus cash of $3,490,000. No gain or loss
was recognized as a result of the transaction. Book basis in certain of
the exchanged assets, composed of $6,878,000 in fixed assets, $2,395,000 in
unamortized franchise rights, and $675,000 in other intangible assets, was
recapitalized as $9,948,000 in new franchise rights to be amortized
beginning in 1996 over the life of the franchise agreement and renewal
period. Under the Agreement, the Company's royalty payments for all units
owned at that time would increase to four percent of gross sales beginning
in July, 1996, from the Company's current effective rate of slightly over
two percent. The Agreement also involved the concurrent acquisition of
seventeen Pizza Hut restaurants from another Pizza Hut franchisee, six of
which were retained by the Company with the remainder included in the
exchange transaction above.
(11) Subsequent Acquisition
The Company announced subsequent to year-end that it acquired 22 Pizza Hut
restaurants and one delivery kitchen in eight states from Pizza Hut, Inc.
The transaction was completed on April 19, 1995, and did not have a
material impact on the financial statements taken as a whole.
(12) Quarterly Results (unaudited)
Summarized results of operations for each quarter of the last two fiscal
years are as follows:
(Dollars in thousands except per share amounts)
First Second Third Fourth Annual
Fiscal Fiscal Fiscal Fiscal Fiscal
Quarter Quarter Quarter Quarter Total
Year Ended March 28, 1995
Revenue $84,457 $78,472 $77,159 $75,439 $315,527
Gross margin 60,090 55,918 54,265 52,862 223,135
Operating income 7,611 6,344 4,998 4,837 23,790
Net income (loss) 3,755 2,955 2,158 (24,482) (15,614)
Earnings (loss)
per share $0.15 $0.12 $0.09 $(0.99) $(0.63)
Year Ended March 29, 1994
Revenue $78,779 $87,422(1) $83,287 $87,335 $336,823
Gross margin 55,230 61,679 59,113 62,109 238,131
Operating income 6,008 6,001 6,084 7,100 25,193
Net income 2,674 2,522 2,740 3,359 11,295
Earnings per share $0.11 $0.10 $0.11 $0.13 $0.45
(1) Romacorp, Inc., operator and franchisor of Tony Roma's, was acquired
on June 8, 1993. The second fiscal quarter ended September 28, 1993, is
the first full 13 weeks to reflect its operations.
Report of Management
The management of NPC International, Inc. has prepared the consolidated
financial statements and related financial information included in this
Annual Report. Management has the primary responsibility for the integrity
of the consolidated financial statements and other financial information.
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles consistently applied in all
material respects and reflect estimates and judgments by management where
necessary. Financial information included throughout this Annual Report is
consistent with the consolidated financial statements.
Management of the Company has established a system of internal accounting
controls that provides reasonable assurance that assets are properly
safeguarded and accounted for and that transactions are executed in
accordance with management's authorization.
The consolidated financial statements have been audited by our independent
auditors, Ernst & Young LLP, whose unqualified report is presented herein.
Their opinion is based upon procedures performed in accordance with
generally accepted auditing standards, including tests of the accounting
records, obtaining an understanding of the system of internal accounting
controls and such other tests as deemed necessary in the circumstances to
provide them reasonable assurance that the consolidated financial
statements are fairly presented. The Audit Committee of the Board of
Directors, consisting solely of outside directors, meets with the
independent auditors at least twice per year to discuss the scope and major
findings of the audit. The independent auditors have access to the Audit
Committee at any time.
O. Gene Bicknell James K. Schwartz Troy D. Cook
Chairman of the President Vice President
Board and and Finance and
Chief Executive Chief Operating Chief Financial
Officer Officer Officer
Report of Ernst & Young LLP
Independent Auditors
The Board of Directors and Stockholders
NPC International, Inc. and Subsidiaries.
We have audited the accompanying consolidated balance sheets of NPC
International, Inc. (formerly National Pizza Company) and Subsidiaries as
of March 28, 1995, and March 29, 1994, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of
the three fiscal years in the period ended March 28, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of NPC
International, Inc. and Subsidiaries at March 28, 1995, and March 29, 1994,
and the consolidated results of their operations and their cash flows for
each of the three fiscal years in the period ended March 28, 1995, in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Kansas City, Missouri
May 4, 1995
STOCKHOLDER DATA
Directors, Corporate Officers and Key Personnel
O. Gene Bicknell
Chairman of the Board,
Chief Executive Officer, and Director
James K. Schwartz
President and Chief Operating Officer
Marty D. Couk
Senior Vice President, Pizza Hut Operations
Robert B. Page
President, Romacorp, Inc.
Paul R. Baird
President, Skipper's, Inc.
Troy D. Cook
Vice President Finance, Chief Financial Officer,
Treasurer and Assistant Secretary
David G. Short
Vice President, Legal and Secretary
Frank S. Covvey
Vice President, Information and Communication Systems
James K. Villamaria
Risk and Regulatory Counsel
Douglas K. Stuckey
Corporate Controller and Chief Accounting Officer
Gordon W. Elliott
Vice Chairman and Director
Fran D. Jabara
Director, President of Jabara Ventures Group
Robert E. Cressler
Director, Partner in FRAC Enterprises
John W. Carlin
Director, Archivist of the United States of America
Auditors
Ernst & Young LLP
One Kansas City Place
1200 Main Street
Kansas City, Missouri 64105
Legal Counsel
Shook, Hardy & Bacon, P.C.
One Kansas City Place
1200 Main Street
Kansas City, Missouri 64105
Registrar and Transfer Agent
American Stock Transfer and Trust Company
40 Wall Street
New York, NY 10005
Inquiries regarding stock transfers, lost certificates or address changes
should be directed to the Stock Transfer Department of American Stock
Transfer at the above address.
Stock Information
NPC International, Inc.'s common shares are traded on the NASDAQ
Stock Market under the symbols ''NPCIA'' and ''NPCIB.'' On August 8, 1995,
the Company anticipates its Class A common stock and Class B common stock
will be combined into a new, single class of common stock and adopt the new
ticker symbol, ''NPCI.''
For the calendar periods indicated, the following table sets forth the
range of high and low closing sale prices.
Calendar Period Class A Common Stock Class B Common Stock
High Low High Low
1993
First Quarter $7-1/2 $6 $7 $5-3/4
Second Quarter 8 6-1/4 7-1/4 6
Third Quarter 7-1/4 5-7/8 7 5-1/2
Fourth Quarter 7-1/8 6 6-3/4 5-3/4
1994
First Quarter 7-1/2 6 6-3/4 5-1/4
Second Quarter 7 5 6-1/4 4-5/8
Third Quarter 6-15/16 5-1/2 6-3/4 5-1/4
Fourth Quarter 6-7/8 5-3/8 6-1/2 5-3/8
1995
First Quarter 6-1/2 5 5-5/8 4-3/4
NPC International, Inc.'s policy is to retain earnings to fund development
and growth of the business. The Company has not paid cash dividends during the
periods presented and does not contemplate payment of a recurring cash
dividend in future periods. On August 8, 1995, however, the Company
anticipates stockholder approval of a special cash dividend of $0.421875 per
Class A share (to stockholders of record on August 8, 1995) in connection
with the concurrent approval of a stock recapitalization plan.
As of April 25, 1995, the approximate number of stockholders was 6,100,
including an estimated number of individual participants in security
position listings.
Form 10-K
NPC International, Inc.'s 1995 Form 10-K Annual Report to the Securities
and Exchange Commission is available without charge to stockholders upon
written request to the Chief Financial Officer, NPC International, Inc.,
720 West 20th Street, Pittsburg, Kansas 66762.
Exhibit 21
NPC International, Inc.
List of Subsidiaries
National Catering Company
Skipper's Inc.
Seattle Restaurant Equipment Company
Romacorp, Inc.
Roma Systems, Inc.
Roma Franchising Corporation
Roma Huntington Beach, Inc.
Roma Fort Worth, Inc.
NPC International, Inc.
Exhibit 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in this Annual
Report (Form 10-K) of NPC International, Inc. (formerly National
Pizza Company) of our report dated May 4, 1995, included in the
1995 Annual Report to Stockholders of NPC International, Inc.
We also consent to the incorporation by reference in the
Registration Statements (Form S-8 No. 33-2233 and Form S-8 No. 33-
37354) pertaining to the NPC International, Inc. 1984 Non-
Qualified Stock Option Plan, As Amended, and the Registration
Statement (Form S-8 No. 33-56399) pertaining to the NPC
International, Inc. 1994 Non-Qualified Stock Option Plan of our
report dated May 4, 1995, with respect to the consolidated
financial statements incorporated herein by reference in this
Annual Report (Form 10-K) of NPC International, Inc.
ERNST & YOUNG LLP
Kansas City, Missouri
June 20, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-28-1995
<PERIOD-END> MAR-28-1995
<CASH> 9971000
<SECURITIES> 0
<RECEIVABLES> 3280000
<ALLOWANCES> 923000
<INVENTORY> 3261000
<CURRENT-ASSETS> 23813000
<PP&E> 201834000
<DEPRECIATION> 67068000
<TOTAL-ASSETS> 220041000
<CURRENT-LIABILITIES> 35176000
<BONDS> 82850000
<COMMON> 276000
0
0
<OTHER-SE> 80011000
<TOTAL-LIABILITY-AND-EQUITY> 220041000
<SALES> 309829000
<TOTAL-REVENUES> 315527000
<CGS> 92392000
<TOTAL-COSTS> 92392000
<OTHER-EXPENSES> 199345000
<LOSS-PROVISION> 454000
<INTEREST-EXPENSE> 6162000
<INCOME-PRETAX> (17452000)
<INCOME-TAX> (1838000)
<INCOME-CONTINUING> (15614000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (15614000)
<EPS-PRIMARY> (0.63)
<EPS-DILUTED> 0
</TABLE>
