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 26, 1996
[ ] 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:
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 stock held by non-affiliates of the
registrant as of May 29, 1996:
Common Stock, $0.01 par value - $85,657,116<PAGE>
The number of shares outstanding of each of the registrant's
classes of common stock as of May 29, 1996:
Common Stock, $0.01 par value - 24,658,567
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Stockholders for the fiscal year
ended March 26, 1996 are incorporated by reference in Part II,
Items 5 - 8.
Portions of the Proxy Statement for the Annual Stockholders'
Meeting to be held August 27, 1996, are incorporated by reference
in Part III, Items 10 - 13.<PAGE>
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....
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
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 19............................................
3<PAGE>
NPC INTERNATIONAL, INC.
Pittsburg, Kansas
Annual Report to Securities and Exchange Commission
March 26, 1996
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 26, 1996, the Company operated 280 Pizza Hut
restaurants and 92 delivery units in 11 states pursuant to
franchise agreements with Pizza Hut, Inc. ("PHI"), a wholly-owned
subsidiary of PepsiCo, Inc.
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 26, 1996 operated 105
quick service seafood restaurants in seven states and franchised
12 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 April 25, 1996 the Company announced that it had reached
agreement to sell the stock of Skipper's to a Seattle investment
group. A $20 million pre-tax charge related to the sale has been
recorded in the Company's financial statements for the fiscal
year ended March 26, 1996. The sale agreement, effective March
25, 1996 was signed April 24, 1996 and the transaction closed May
14, 1996.
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 Famous For Ribs
restaurants. At March 26, 1996, the Romacorp, Inc. operated 33
Company-owned and two joint-venture restaurants in five states
and through its subsidiaries, franchised 100 units in 20 states
and 42 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 both currently and historically.
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. PHI, 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, 1995 the Pizza Hut system had
approximately 8,800 units. Approximately 59% of the 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 innovative products, Stuffed Crust and
TripleDecker 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 85% 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 processed through 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. The franchise
agreements, under which the Company operates, grant exclusive
right to operate Pizza Hut restaurants in certain designated
areas. Areas of operation are indicated in the table below based
on unit count by state.
Company-
owned
Pizza Huts at
State March 26, 1996
Alabama 79
Arkansas 53
Georgia 1
Kansas 9
Kentucky 5
Louisiana 29
Mississippi 111
Missouri 30
Oklahoma 7
Tennessee 43
Texas 5
Company Total 372
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 to 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 17 units were acquired
from another franchisee of which 11 were exchanged for twelve
PHI-owned units. 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 approximately 2.25%. 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 26, 1996, March 28, 1995,
and March 29, 1994 the Company incurred total franchise fees of
approximately $4,983,000 $4,224,000, and $4,461,000 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 26, 1996, the Company has no commitments
for future development with the franchise.
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 May, 1996, the Company has acquired a
total of 42 Pizza Hut units, including 23 from PHI. PHI
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.
PHI, through the Franchise Agreements, requires principals
of the Company to maintain "control" over the Company, which PHI
defines as 51% of the stock of the Company. Accordingly, a
portion of the controlling stockholder's shares is restricted to
insure compliance with this requirement. Holders of common other
than the controlling stockholders 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. Dues range
from 2.5% - 3.0% 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 ranging between 1.0% - 1.5% 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 in most units, 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. Pizza Hut operates in five regions
ranging from 55 to 85 stores per region. Each region is
supervised by a regional manager and supported by administrative,
marketing and human resource staff.
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.
Employees. At March 26, 1996, the Company's Pizza Hut
operations had approximately 7,800 employees, including 146
headquarters and staff personnel, two vice presidents, five
regional managers, 49 area general managers, 858 restaurant
management employees and approximately 6,740 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 PHI. 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.
Tony Roma's Operations
Restaurant Format. Romacorp, Inc. operates, and through its
affiliates, and franchises casual-theme restaurants under the
name Tony Roma's Famous 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,
and suitable for family dining. Recent renovations and new
restaurants feature improved lighting and light color decor
packages to attract a broader segment of customers. All entrees
are prepared to order. Romacorp operates two of its restaurants
as joint ventures. The Company receives a fee for managing the
joint venture restaurants and remits to the partners an agreed-
upon percentage of gross sales.
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 $12.54 per person. Alcoholic beverages are served
in all restaurants, and account for approximately 11% of sales.
Supplies and Equipment. To assure consistent product quality
and to obtain optimum pricing, purchases of food and restaurant
equipment for the Tony Roma's restaurants are made through a
centralized purchasing function in 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. Inventory is then shipped to
restaurants via commercial distributors. Produce and dairy
products are obtained locally. Food and equipment pricing
information is also generally available to the Tony Roma's
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 26, 1996, the Company had 54 franchisees
operating 142 units world wide. The largest franchise holder
operates a chain of 20 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, 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 management training programs, 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 a
fee of $50,000 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.
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 26, 1996, the Company owned Tony Roma's
operations had approximately 2,200 employees including 46
headquarters and staff personnel, 1 president, 1 vice-president,
2 regional managers, 11 district managers, 164 restaurant
management employees and approximately 1,962 restaurant employees
(of whom approximately 75% are part-time). Romacorp, Inc. 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.; a subsidiary, Roma Franchise Corporation, through
a license from Romacorp, Inc., operates the franchises in the
United States. The use of these marks is licensed to franchisees
under franchise agreements for use with respect to the operation
and promotion of their Tony Roma's restaurants.
Seasonality. Tony Roma's restaurant sales are normally
higher from January to March and traditionally lower during the
summer months than during the other months of the year.
The location of the Company-owned and franchised restaurants
is as follows:
State/Country Company-owned Joint Venture Franchised
Alabama 1 --- ---
Alaska --- --- 1
Arizona --- --- 4
California 7 1 38
Colorado --- --- 4
Florida 13 --- 3
Hawaii --- --- 4
Kansas --- --- 1
Kentucky --- --- 1
Maine --- --- 1
Minnesota --- --- 2
Missouri 1 --- ---
Nebraska --- --- 1
Nevada 1 --- 4
New York --- --- 7
Ohio --- --- 3
Oklahoma 1 --- ---
Oregon --- --- 3
South Carolina --- --- 2
Texas 9 1 3
Utah --- --- 6
Washington --- --- 10
Wisconsin --- --- 2
United States Total 33 2 100
Aruba --- --- 1
Canada --- --- 10
Caribbean --- --- 4
China --- --- 1
Guam --- --- 2
Hong Kong --- --- 2
Indonesia --- --- 2
Japan --- --- 10
Korea --- --- 1
Mexico --- --- 3
Peru --- --- 1
Spain --- --- 1
Singapore --- --- 2
Taiwan --- --- 1
Thailand --- --- 1
International Total --- --- 42
World Total 33 2 142
Number of franchise holders 54
Skipper's Operations
General. The Company sold all of the outstanding capital
stock of Skipper's, Inc. to a Seattle, Washington - based
investment group effective March 25, 1996. The results of
Skipper's operations have been included in the Company's
statement of operations for the year ended March 26, 1996. The
nature of the operations through the date of sale are described
below.
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.
As of March 25, 1996, the Company operated or franchised
restaurants in seven states and internationally as follows:
State/Country Company-owned Franchised
Alaska 4 ---
Idaho 10 2
Montana 1 1
North Dakota --- ---
Oregon 27 1
Utah 10 ---
Washington 53 1
United States Total 105 5
Canada --- 2
Total 105 7
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. A typical guest's check averages
$5.00.
Seafood entrees on Skipper's menu include fish fillets,
scallops, shrimp and clams. All of Skipper's fried entree items
are deep fried in canola oil. 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.
Franchising. Skipper's commenced franchising in 1978 and as
of March 26, 1996, had seven franchised units located in four
states and British Columbia, Canada.
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.
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.
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 25, 1996, Skipper's operations had
approximately 1,500 employees including 19 headquarters and staff
personnel, 1 regional manager, 16 area general managers, 1
franchise manager, 173 restaurant management employees and
approximately 1,117 restaurant employees (of whom approximately
82% are part-time).
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).
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 $70,000
in equipment and $50,000 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 26, 1996, are owned or leased as follows:
Leased from unrelated third parties 212
Leased from officers 1
Land and building owned by the Company 125
Building owned by the Company and land leased 34
372
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.
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.
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 $650,000 to
$750,000 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 $450,000 to $800,000. 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 33 Company-operated Tony Roma's restaurants at March 26,
1996, are owned and leased as follows:
Leased from unrelated parties 25
Land and buildings owned 7
Building owned by the Company and land leased 1
33
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.
Properties Held For Sale or Liquidation
As part of the agreement to sell Skipper's, Inc., the
Company retained nineteen fee simple properties that had
previously been operated by Skipper's and had been closed prior
to the sale. Additionally, the Company holds one fee simple
property for sale that was operated as a Tony Roma's restaurant
prior to its closure on March 25, 1996. Of these properties, the
Company has leased thirteen of them to tenants who operate
various businesses in the facilities. All these properties are
for sale and the Company is actively seeking opportunities for
their disposition.
In addition to the properties held for sale, the Company has
obligations related to thirty-nine properties under operating
leases that had previously been operated as Skipper's
restaurants. The Company has sub-let twenty-eight of these
properties and continues to market the properties to other
potential sub-tenants, while also pursuing alternative methods of
extinguishing these commitments.
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
26, 1996.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND
RELATED STOCKHOLDER MATTERS
The information required by this Item is incorporated herein
by reference from page 30 of the Company's 1996 Annual Report to
Shareholders, included herein as Exhibit 13.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this Item is incorporated herein
by reference from page 10 of the Company's 1996 Annual Report to
Shareholders, included herein as Exhibit 13.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The information required by this Item is incorporated herein
by reference from pages 11 through 16 of the Company's 1996
Annual Report to Shareholders, included herein as Exhibit 13.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item is incorporated herein
by reference from pages 17 through 28 of the Company's 1996
Annual Report to Shareholders, included herein as Exhibit 13.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
There have been no changes in, or disagreements with, the
Company's independent accountants on accounting or financial
disclosure matters.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item concerning the
Directors and nominees for Director of the Company is
incorporated herein by reference from the Company's definitive
Proxy Statement for its 1997 Annual Meeting of Shareholders, to
be held August 27, 1996, to be filed with the Commission pursuant
to Regulation 14A within 120 days after the end of the Company's
last fiscal year.
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 63
James K. Schwartz President and Chief Operating Officer 34
Marty D. Couk Senior Vice President Pizza Hut
Operations 41
Paul R. Baird (1) President, Skipper's, Inc.
(Skipper's Operations) 47
Robert B. Page President, Romacorp, Inc.
(Tony Roma's Operations) 37
Troy D. Cook Vice President Finance, Chief
Financial Officer, Treasurer
and Assistant Secretary 33
David G. Short Vice President Legal, General
Counsel, Secretary 57
(1) Skipper's, Inc. was sold effective March 25, 1996 and as
of such date Paul R. Baird is no longer an officer of the
Company.
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. Effective with the sale of Skipper's on
March 25, 1996, Paul R. Baird is no longer an officer of the
Company.
Robert B. Page became President of Romacorp, Inc. in 1994.
He joined the Company 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 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 from
September, 1990 and, previous to that, Vice President-legal,
General Counsel and Secretary of TGI Fridays, Inc.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934, as
amended (the Exchange Act), requires the Company's directors,
executive officers, and persons owning more that ten percent of a
registered class of the Company's securities to file with the
United States Securities and Exchange Commission initial reports
of ownership and reports of changes in ownership of equity
securities of the Company. Officers, directors, and greater-
than-ten-percent stockholders are required by the Securities and
Exchange Commission's regulations to furnish the Company with
copies of all Section 16(a) forms that they file.
To the Company's knowledge, based solely on its review of
copies of reports furnished to the Company and written
representations that no other reports were required, the Company
is required to report that all officers, except for Mr. Bicknell,
and Mr. Baird were late in filing the appropriate forms related
to the issuance of stock options in the fourth quarter due to a
delay between the award of the option and notification of the
option issuance to the officers. Mr. Bicknell was late reporting
a February, 1996 sale of stock. All forms have been subsequently
filed and all requirements are believed to be satisfied.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item concerning
remuneration of the Company's officers and Directors and
information concerning material transactions involving such
officers and Directors is incorporated herein by reference from
the Company's definitive Proxy Statement for its 1997 Annual
Meeting of Shareholders, to be filed with the Commission pursuant
to Regulation 14A within 120 days after the end of the Company's
last fiscal year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by this Item concerning the stock
ownership of management and five percent beneficial owners is
incorporated herein by reference from the Company's definitive
Proxy Statement for its 1997 Annual Meeting of Shareholders, to
be filed with the Commission pursuant to Regulation 14A within
120 days after the end of the Company's last fiscal year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item concerning certain
relationships and related transactions is incorporated herein by
reference from the Company's definitive Proxy Statement for its
1997 Annual Meeting of Shareholders, to be filed with the
Commission pursuant to Regulation 14A within 120 days after the
end of the Company's last fiscal year.
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 from
2.0 Acquisition agreement by and among Exhibit 2.0 to Form 8-K
Seattle Crab Co., NPC International, filed March 28, 1996
Inc. and Skipper's, Inc. dated as
of March 25, 1996
2.1 Lease Indemnification Agreement Exhibit 2.1 to Form 8-K
filed March 28, 1996
2.2 Liability Assumption Agreement Exhibit 2.2 to Form 8-K
filed March 28, 1996
2.3 Environment Compliance Agreement Exhibit 2.3 to Form 8-K
filed March 28, 1996
2.4 Administrative Services Agreement Exhibit 2.4 to Form 8-K
filed March 28, 1996
2.5 Non-Competition Agreement Exhibit 2.5 to Form 8-K
filed March 28, 1996
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,
Effective July 12, 1994 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 filed August 1, 1994
document) 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
Pizza Company and Prudential Life 10-K 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
Amended and Restated Stock 10-K filed June 25, 1990
Option Plan
10.12 Form of Franchise Agreement Exhibit 10(x) to Form
between Skipper's, Inc. and 10-K filed June 25, 1990
its franchisees
10.19 Senior Note Purchase Agreement Exhibit 10.19 to Form
made by and between PM Group 10-K 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 to Form 10-K for the
and First Amendment dated year ended March 30, 1993
January 1, 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 year ended March 30, 1993
Corinthian 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,
San Diego, Inc., dated June 7, 1994 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 Form 10-Q filed
Sharing Plan August 1, 1994
Effective August 1, 1993. 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 February 10, 1995
to $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 February 10, 1995
Company; Second Amendment to the EDGAR 748714-95-000010
1991 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,
dated March 28, 1995 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,
dated March 28, 1995 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,
and Amendment to the March 30, 1993 1995
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,
dated May 24, 1995 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,
and Amendment to the March 30, 1993 1995
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,
dated May 24, 1995 1995
10.45 Employment Agreement between Exhibit 10.45
NPC International, Inc. and to Form 10-K for the
James K. Schwartz dated year ended March 28,
January 27, 1995 1995
11 Statement regarding computation of Exhibit 11
per share earnings for the year to Form 10-K for the
ended March 26, 1996, March 28, year ended March 26,
1995, and March 29, 1994, attached 1996
hereto.
13 1996 Annual Report to Stockholders Exhibit 13
to Form 10-K for the
year ended March 26,
1996
21 List of Subsidiaries Exhibit 21 to
Form 10-K for the year
ended March 28, 1995
23 Consent of Ernst & Young LLP Exhibit 23 to
Form 10-K for the year
ended March 26, 1996
(b) Reports on Form 8-K
There were no reports filed on Form 8-K during the quarter
ended March 26, 1996. However, a Form 8K was filed on May
28, 1996 related to the closing of the sale of Skipper's
Inc.
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 3rd day of June, 1996 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 Alan L. Salts
Corporate Controller and
Chief Accounting Officer
(Principal 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 3rd day of June, 1996.
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
Fran D. Jabara Director
Robert E. Cressler Director
Exhibit 11
STATEMENT REGARDING COMPUTATION OF
PER SHARE EARNINGS
Fiscal Year Ended
March 26, March 28, March 29,
1996 1995 1994
PRIMARY
Shares outstanding at
beginning of period 24,505,324 25,013,373 25,284,622
Weighted average number of
shares issued and reacquired
during period 7,636 (267,323) (191,438)
Assuming exercise of options
and warrants reduced by the
number of shares which could
have been purchased with the
proceeds from exercise 151,011 17,665 74,165
Shares outstanding for
computation of per share
earnings 24,663,971 24,763,715 25,167,349
Net income (loss) $ 2,143,000 $(15,614,000) $11,295,000
Earnings (loss) per share $ 0.09 $ (0.63) $ 0.45
FULLY DILUTED
Shares outstanding at
beginning of period 24,505,324 25,013,373 25,284,622
Weighted average number of
shares issued and reacquired
during period 7,636 (267,323) (191,438)
Assuming exercise of options
and warrants reduced by the
number of shares which could
have been purchased with the
proceeds from exercise 205,218 18,730 86,384
Shares outstanding for
computation of per share
earnings 24,718,178 24,764,780 25,179,568
Net income (loss) $ 2,143,000 $(15,614,000) $11,295,000
Earnings (loss) per share $ 0.09 $ (0.63) $ 0.45
Exhibit 13
Annual Report to Shareholders
TEN YEAR FINANCIAL SUMMARY
Fiscal Year Ended
(Dollars in thousands, except per share data)
March 26, March 28, March 29, March 30, March 31,
1996 (1) 1995 1994 1993 1992 (3)
Income Statement Data:
Revenue $323,261 $315,527 $336,823 $285,433 $298,718
Cost of sales 94,042 92,392 98,692 82,552 84,722
Direct labor 87,293 89,964 97,103 79,829 81,386
Other operating
expenses 83,941 85,012 88,790 80,475 82,659
Income from restaurant
operations 57,958 48,159 52,238 42,577 49,951
General and
administrative
expenses 24,452 24,369 27,045 21,304 22,438
Operating income
before impairment
and loss provision 33,533 23,790 25,193 21,273 27,513
Impairment and loss
provision for
underperforming
assets 23,500 35,000 --- --- 4,000
Operating income
(loss) 10,033 (11,210) 25,193 21,273 23,513
Interest expense (6,210) (6,162) (6,631) (6,390) (6,688)
Other income (expense) (277) (80) (56) (215) 420
Premium on conversion
of debt --- --- --- --- ---
Income (loss) before
income taxes 3,546 (17,452) 18,506 14,668 17,245
Provision (benefit)
for income taxes 1,403 (1,838) 7,211 5,544 6,200
Net income (loss) 2,143 (15,614) 11,295 9,124 11,045
Earnings (loss) per
share:
Primary 0.09 (0.63) 0.45 0.35 0.40
Fully diluted 0.09 (0.63) 0.45 0.35 0.40
Cash dividend per
share (2) .421875 -- -- -- --
Fiscal Year Ended
(Dollars in thousands)
March 26, March 28, March 29, March 30, March 31,
1996 (1) 1995 1994 1993 1992 (3)
Year-End Data:
Working capital
(deficit) $(3,160) $(7,061) $(19,620) $(16,361) $(13,033)
Total assets 197,888 211,712 229,112 205,310 206,350
Long-term debt 72,852 82,850 86,734 79,078 85,847
Stockholders' equity 77,320 80,287 98,987 89,436 87,091
Number of Company-
owned units 405 481 577 546 560
Number of franchised
units 142 157 155 18 19
Number of employees 9,800 10,300 12,500 11,200 11,000
(1) See note 10 to the Consolidated Financial Statements for a
discussion of the sale of Skipper's, Inc. effective March 25, 1996
(2) Declared August 8, 1995 related to Class A shares concurrent with
the approval of a stock recapitalization plan.
(3) Fiscal year included 53 weeks.
TEN YEAR FINANCIAL SUMMARY
Fiscal Year Ended
(Dollars in thousands, except per share data)
March 26, March 27, March 28, March 29, March 31,
1991 1990 1989 1988 1987 (3)
Income Statement Data:
Revenue $286,079 $198,382 $141,776 $119,788 $ 96,479
Cost of sales 84,010 55,709 39,006 32,987 26,285
Direct labor 71,637 48,258 34,689 28,370 22,038
Other operating
expenses 78,849 52,713 38,591 30,464 24,141
Income from restaurant
operations 51,583 41,702 29,490 27,967 24,015
General and
administrative
expenses 21,902 15,948 11,850 9,763 8,487
Operating income
before impairment
and loss provision 29,681 25,754 17,640 18,204 15,528
Impairment and loss
provision for
underperforming
assets --- --- --- --- ---
Operating income
(loss) 29,681 25,754 17,640 18,204 15,528
Interest expense (6,258) (3,515) (2,630) (2,940) (2,518)
Other income (expense) (152) 407 (548) (460) 777
Premium on conversion
of debt --- --- --- (852) ---
Income (loss) before
income taxes 23,271 22,646 14,462 13,952 13,787
Provision (benefit)
for income taxes 8,233 7,900 4,630 5,186 6,400
Net income (loss) 15,038 14,746 9,832 8,766 7,387
Earnings (loss) per
share:
Primary 0.54 0.53 0.36 0.33 0.30
Fully diluted 0.54 0.53 0.36 0.31 0.28
Cash dividend
per share (2) -- -- -- -- --
Fiscal Year Ended
(Dollars in thousands)
March 26, March 27, March 28, March 29, March 31,
1991 1990 1989 1988 1987 (3)
Year-End Data:
Working capital
(deficit) $(4,890) $(11,342) $(3,687) $(4,219) $(5,025)
Total assets 200,917 171,901 102,971 84,838 75,296
Long-term debt 86,258 66,544 27,720 26,867 37,269
Stockholders' equity 85,060 71,989 56,845 45,707 26,369
Number of Company-
owned units 558 526 321 280 240
Number of franchised
units 21 30 --- --- ---
Number of employees 10,900 10,200 6,300 5,600 4,400
(3) Fiscal year included 53 weeks.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW - The Company is the largest Pizza Hut franchisee in the
world. Based on unit count the Company's Pizza Hut operations
account for approximately 12.6% of all Pizza Hut franchised units
and 4.5% of the entire Pizza Hut system. The Company operates its
Pizza Hut units in 11 states.
In addition to Pizza Hut, the Company is the owner/franchisor of
the Tony Roma's concept. Romacorp, Inc. the owner of Tony Roma's
was acquired in June 1993. With recent focus on the development
of a new prototype restaurant, Company units have expanded from
25 to 33 with an additional 12 units scheduled for development
during fiscal 1997. This expansion has increased Tony Roma's
revenue as a percent of consolidated revenues from 11% in fiscal
1994 to 18% in fiscal 1996. The Tony Roma's system operates in 23
states and 15 foreign countries.
During all periods presented, the Company was the owner/
franchisor of Skipper's, Inc., a quick service seafood chain
located predominately in the Pacific Northwest. In February
1995, 77 Skipper's units were closed in an effort to return
the concept to its the core geographic operating areas. Despite
progress that was made by Skipper's management throughout
fiscal 1996, NPC management concluded that Skipper's was not in a
position to provide the return expected by the Company's
stockholders and accordingly, sold the Skipper's operation
effective March 25, 1996.
Activity with respect to unit count during the last fiscal year
is set forth in the table below:
SYSTEM UNIT ACTIVITY
Beginning Developed Acquired Closed Sold Ending
Company Owned
Pizza Hut
Restaurant 258 5 22 5 0 280
Delivery 90 3 1 2 0 92
Total Pizza Hut 348 8 23 7 0 372
Tony Roma's (1) 25 7 2 1 0 33
Skipper's 106 0 0 1 105 0
Total Company Owned 479 15 25 9 105 405
Franchised
Tony Roma's (1) 143 12 0 11 2 142
Skipper's 14 0 0 7 7 0
Total Franchised 157 12 0 18 9 142
Total System 636 27 25 27 114 547
(1) does not include two units operated as joint ventures by the Company.
Products - Pizza Hut's main product is high quality, innovative
and moderately priced pizza. Additionally, the menu contains
pasta, sandwiches, salad bar and a luncheon buffet.
Tony Roma's is a casual theme restaurant that is Famous For
Ribs. The restaurant's signature products are baby back ribs
with a mild tangy sauce and deep fried onion loafs. The menu
also includes spare ribs with three sauce varieties, chicken,
seafood, soups, salads, appetizers, a children's menu and
dessert.
All of the Company's concepts serve beer and/or other alcoholic
beverages. These products are not a significant portion of the
sales mix at Pizza Hut, and they comprise approximately 11% of
the sales for Tony Roma's.
Service - Pizza Hut provides a buffet with table service for
beverages during lunch and full table service for dinner, with
delivery and carry-out available throughout the day. Tony Roma's
offers a fully staffed dining experience throughout the day and
evening.
Period of Operation - The Company operates on a 52 or 53 week
fiscal year ending the last Tuesday in March. The three most
recent fiscal years ended March 26, 1996, March 28, 1995 and
March 29, 1994, each comprised 52 weeks.
RESULTS OF OPERATIONS
The following tables set forth a summary of revenues, and
operating expenses as a percent of revenues for the last three
fiscal years (dollars in thousands) for each concept operated by
the Company. Cost of sales includes the cost of food and
beverage products sold. Direct labor represents the salary and
related fringe benefit cost associated with restaurant based
personnel. Other operating expenses include rent, depreciation,
advertising, utilities, supplies, and insurance among other costs
directly associated with operating a restaurant facility.
PIZZA HUT OPERATIONS
Fiscal Year Ended March
1996 1995 1994
Revenue
Restaurant Sales $168,318 $149,677 $162,577
Delivery Sales 52,654 48,829 54,804
Franchise Revenue 35 77 123
Total Revenue $221,007 $198,583 $217,504
Restaurant Operating Expenses
as a Percentage of Revenue
Total Expenses (1)
Cost of Sales 26.3% 26.1% 26.2%
Direct Labor 26.5% 27.3% 28.0%
Other 25.4% 25.0% 24.7%
Total Operating
Expenses 78.2% 78.4% 78.9%
Restaurant Income 21.8% 21.3% 21.1%
Restaurant Expenses (2)
Cost of Sales 26.6% 26.5% 26.5%
Direct Labor 25.1% 25.7% 26.3%
Other 25.6% 25.0% 24.9%
Total Operating
Expenses 77.3% 77.2% 77.7%
Restaurant Income 22.7% 22.8% 22.3%
Delivery Expenses (3)
Cost of Sales 25.5% 24.8% 25.4%
Direct Labor 30.9% 32.0% 32.9%
Other 24.7% 24.8% 24.1%
Total Operating
Expenses 81.1% 81.6% 82.4%
Restaurant Income 18.9% 18.4% 17.6%
(1) As a percent of total revenue
(2) As a percent of restaurant sales
and franchise revenue
(3) As a percent of delivery sales
Revenue - New product introductions and unit acquisitions
highlighted the year for the Pizza Hut division which posted
record annual revenue of $221 million. Sales for the year
increased $22.4 million or 11.3% and comparable sales (sales for
units open all twelve periods of the year) grew 5.2%. This
compares to a sales volume decrease from fiscal 1994 to fiscal
1995 of $18.9 million or 8.7%. This decrease was primarily a
result of reduced sales of Bigfoot pizza, a two foot by one
foot rectangular pizza that had significant sales in fiscal 1994.
Additionally, 16 fewer units were in operation from August 1994
through the end of the year due to an asset exchange with the
franchisor.
Products introduced during the year include Stuffed-Crust
pizza which was rolled out in April 1995 and comprised
approximately 13% of the Division's sales for the year.
TripleDecker, the newest product, was introduced in late
January 1996. Additional product introductions are anticipated
in fiscal 1997; however, comparable sales are expected to remain
flat with a possibility for a moderate decrease due to the
uncertainty related to new product introductions.
During fiscal 1996, the Company acquired 23 Pizza Hut units from
Pizza Hut, Inc. (PHI). In fiscal 1995, the Company exchanged 84
of its restaurants for 62 units owned by PHI in conjunction with
a renegotiation of the Company's franchise agreement. Related to
the renewal of the agreement the Company acquired an additional
19 units from a franchisee during fiscal 1995.
Costs and Expenses - Despite two significant product rollouts,
the fiscal 1996 direct labor percentage of 26.5% is lower than
the 27.3% recorded in fiscal 1995, due to improved labor
scheduling and cost efficiencies that were realized as a result
of higher unit sales levels. Direct labor fell from fiscal 1994
to fiscal 1995 due to a reduction in sales of the more labor
intensive Bigfoot pizza.
Cost of sales as a percent of revenue remained relatively
consistent from fiscal 1995 to fiscal 1996. Other operating
expenses were up .4% points over fiscal 1995 and .7% points over
fiscal 1994 due to higher advertising cost, an increase in
franchise fees related to the acquired units, and increased
equipment rent expense related to improvements in restaurant
based technology. The change from fiscal 1994 to 1995 was due to
slightly higher repairs and maintenance cost and a lower sales
base.
In July 1996, the Division's franchise fee will increase from an
effective rate of approximately 2.25% to 4.0% of sales which will
cause other operating expenses to increase correspondingly. This
rate increase was part of the asset exchange and franchise
agreement negotiated in July 1994 and reflects the rate increase
as part of the 1990 Franchise Agreement. The 4.0% rate will be
in effect until the year 2010, and is lower than PHI's current
franchise agreement rate. Any additional restaurants acquired by
the Company will generally be subject to the seller's franchise
rate in effect at the time of purchase.
TONY ROMA'S OPERATIONS
Fiscal Year Ended March
1996 1995 1994
Revenue
Restaurant Sales $51,499 $42,137 $33,752
Franchise Revenue 5,845 5,351 4,167
Total Revenue $57,344 $47,488 $37,919
Restaurant Operating Expenses
as a Percentage of Revenue
Cost of Sales 30.7% 29.9% 30.3%
Direct Labor 27.4% 28.0% 29.8%
Other 24.4% 25.7% 26.8%
Total Operating
Expenses 82.5% 83.6% 86.9%
Restaurant Income 17.5% 16.4% 13.1%
Revenue - In fiscal 1996, Tony Roma's increased restaurant sales
to $51.5 million over fiscal 1995 sales of $42.1 million. The
$9.4 million or 22.2% increase is due to comparable sales growth
of 2.6% and the addition of nine restaurants throughout fiscal
1996. During the fourth quarter, the Company adopted a plan to
close six under-performing units and relocate two others. Each
of these stores were operating at the time the Company acquired
Romacorp. A $3.5 million provision was recorded for the
impairment and disposition of these units and one unit was closed
at year-end. The remaining units are scheduled to close
throughout the next year as new restaurants are opened. This
timing is expected to generate efficiencies as experienced
management teams will be available to operate the new
restaurants. The development of 12 new Company stores is
anticipated in fiscal 1997. This activity is expected to have a
favorable impact on sales as the new units are projected to
generate higher volumes than the units scheduled for closure.
The increase in sales from fiscal 1994 to fiscal 1995 is
primarily a result of the incremental 10 weeks of operation from
one year to the next.
In fiscal 1996, net franchise revenue increased $494,000 or 9.2%
despite a net decrease of one unit in the franchise system.
Twelve franchised units were developed during the year and
thirteen were closed or sold. The Company expects additional
closures in fiscal 1997 as underperforming franchisee locations
that existed prior to the Company's acquisition are terminated.
In fiscal 1996 net franchise revenue decreased to 10.2% of total
revenue due to the increased Company store sales volume
previously discussed. Fiscal 1994 net franchise revenue was
11.0% of total revenue compared to fiscal 1995 share of 11.3%.
Costs and Expenses - Operating expenses continued to decrease as
a percent of revenue in fiscal 1996. The decrease in the current
year was due to the opening of the prototype units which have
provided for higher sales volumes with lower operating costs due
to volume efficiencies. Additionally, a 5% weighted price
increase was implemented in November 1995.
Cost of sales as a percent of revenue increased from 29.9% to
30.7% during the year due to increased prices of Tony Roma's
signature product, baby back ribs among other items, including
produce. Baby back ribs account for approximately 28% of Tony
Roma's sales and the cost of this product increased 5.6% during
fiscal 1996. This increase was partially offset by a reduction
in labor as a percent of revenue from 28.0% to 27.4% due to the
factors previously mentioned.
Other operating expenses as a percent of revenue decreased due
to reductions in repairs and maintenance, advertising, rent and
depreciation all of which were favorably impacted by the addition
of seven new, higher revenue generating units.
Fiscal 1995 resulted in improved performance over 1994 due to
efficiencies realized subsequent to the acquisition and the
growth of franchise revenue, which does not have a food and labor
component. Lower workers' compensation expenses improved the
labor percentage as benefit was realized from a self - insurance
program implemented by NPC. Other operating expenses decreased
due to a reduction in advertising expenses following the
acquisition. The Company also terminated an earnings dilutive
alternative concept that was being tested when the Company
acquired Tony Roma's, contributing to the improved operating
performance.
SKIPPER'S OPERATIONS
Fiscal Year Ended March
1996 1995 1994
Revenue
Restaurant Sales $44,823 $69,186 $81,073
Franchise Revenue 87 270 327
Total Revenue $44,910 $69,456 $81,400
Restaurant Operating Expenses
as a Percentage of Revenue
Cost of Sales 40.7% 38.1% 37.1%
Direct Labor 28.9% 32.4% 30.7%
Other 30.8% 33.5% 30.6%
Total Operating
Expenses 100.4% 104.0% 98.4%
Restaurant Income
(Loss) (0.4%) (4.0%) 1.6%
On April 25, 1996 the Company announced that it had reached an
agreement to sell its wholly owned subsidiary, Skipper's, Inc. to
a Seattle based investment group. A $20 million pre - tax charge
related to the sale was recorded in fiscal 1996. The sale
agreement, effective March 25, 1996, was signed April 24, 1996
and the transaction closed May 14, 1996. In conjunction with the
sale, the Company retained certain assets and liabilities
primarily related to the 77 units that were closed in fiscal
1995. Footnote 10 of the Company's consolidated financial
statements contains additional information regarding this
transaction and its impact on the Company's financial position
and results of operations.
The sale followed the announcement last year on January 28, 1995,
that the Company 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. Significant components of the $35 million charge included
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.
The 77 stores which were closed in fiscal 1995 accounted for the
following revenue and losses from restaurant operations for each
of the last two fiscal years: fiscal 1995, revenue of $19.6
million and a loss from restaurnat operations of $3.9 million;
fiscal 1994, revenue of $25.6 million and a loss from restaurant
operations of $2.8 million.
Revenue - As expected, the closure of 77 units in fiscal 1995
contributed significantly to a decrease in sales of $24.4
million. The strategy for Skipper's was to attract and retain
customers by improving product quality through changing to a hand
filleted and breaded cod, among other product improvements.
Additionally, a plan was implemented for a more efficient
advertising program with a lower advertising cost to sales ratio.
The reduction in advertising spending contributed to a comparable
sales decrease of 6.7% for the year.
In fiscal 1995 Skipper's used a value pricing strategy developed
in 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.
Costs and Expenses - A key objective for Skipper's new management
team during fiscal 1996 was to improve labor controls and
mitigate other operating expenses. Their focus on this objective
led to a significant decrease in Skipper's operating expenses
from 104.0% of revenue in fiscal 1995 to 100.4% of revenue for
the current year.
In fiscal 1996, following the increase in product quality, cost
of sales increased from 38.1% of revenue to 40.7%. In fiscal
1995, cost of sales increased to 38.1% of revenue compared with
37.1% of fiscal 1994 revenue due to increased food waste
associated with a new food holding system and higher food costs
on menu items with lower price points.
Labor controls and right-size staffing levels dropped direct
labor as a percent of revenue to 28.9%, the lowest level in three
years, from 32.4% in the prior year. These costs, consisting of
wages, taxes and related fringe benefits, increased in fiscal
1995 to 32.4% compared with 30.7% in fiscal 1994 due to lower
sales volume.
Other operating expenses were also reduced to 30.8% of revenue in
fiscal 1996 from 33.5% in fiscal 1995. The reduction was due to
lower repairs, rent, advertising, and utilities as a result of
closing underperforming stores that had a high level of fixed
costs. Operating expenses rose in fiscal 1995, to 33.5% of
revenue compared with 30.6% of revenue for the prior fiscal year.
The majority of this increase is attributable to the decline in
sales without a corresponding decline in fixed costs.
Consolidated Results - Consolidated revenue for fiscal 1996 was
$323.2 million, an increase of $7.7 million or 2.5% over last
year. This increase is a result of a $22.4 million or 11.3%
increase at Pizza Hut, a $9.8 million or 20.8% increase
contributed by Tony Roma's, and a $24.5 million or 35.3% decrease
at Skipper's.
In fiscal 1995 consolidated revenue decreased $21.3 million or
6.3%. Much of this decline is attributable to an $18 million
reduction in Bigfoot sales from the prior year and an $11.9
million decrease in revenue at Skipper's, which was partially
offset by a $9.6 million revenue increase at Tony Roma's, due to
ten additional weeks of operations during the year.
During fiscal 1996, income from restaurant operations was 17.9%
of revenues or $58.0 million, which is a 20.4% or $9.9 million
increase over fiscal 1995 results. This increase is due to
improved performance in all three restaurant concepts. As a
percent of revenue this compares to fiscal 1995 income from
restaurant operations of 15.3% and fiscal 1994 results of 15.5%
or $48.2 million and $52.2 million, respectively. Consolidated
cost of sales, direct labor, and other operating expenses as a
percent of consolidated revenue are at the lowest levels in the
last three fiscal years.
Notwithstanding the increased sales volume, general and
administrative expenses of $24.5 million or 7.6% of revenue, were
essentially flat compared to last years amount of $24.4 million
or 7.7% of revenue. For fiscal 1995 general and administrative
expenses declined 9.9% or $2.7 million due to Bigfoot start-
up costs, which were fully amortized in fiscal 1994, and a
reduction in costs associated with the consolidation of Tony
Roma's administrative functions. Major components of general and
administrative expenses are corporate salaries, amortization of
intangible assets, and bank service charges.
Interest expense was flat between fiscal 1996 and fiscal 1995.
However, interest expense decreased to $6.2 million in fiscal
1995 from $6.6 million in fiscal 1994. Fiscal 1994 interest
expense was higher when compared with fiscal 1995 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 1996,
1995, and 1994 resulted in effective tax rates of 39.55%, 10.50%,
and 39.00% respectively. The fiscal 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.
LIQUIDITY AND CAPITAL RESOURCES
On March 26, 1996, the Company had a working capital deficit of
$3.2 million compared to a $7.1 million deficit at March 28,
1995. The reduction in this deficit is attributable to an
increase in receivables associated with the sale of Skipper's,
Inc. The transaction was recorded as of March 25, 1996; however,
the sales proceeds were not received until closing on May 14,
1996. 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
$10.8 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%.
Subsequently, the $20 million borrowing limit in the shelf
agreement was increased by an additional $40 million with the
opportunity to borrow under the agreement, at the lender's
discretion, extended until August 10, 1997. In July 1995, an
additional $10 million was borrowed under this revised agreement
bearing interest at the rate of 6.96%.
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 make additional
acquisitions of restaurants and concepts.
CASH FLOWS
Net cash provided by operating activities was $32.8 million in
fiscal 1996 which is an increase of $5.5 million or 20.5% over
fiscal 1995. This change is largely due to an increase in
operating results. 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.
In addition to maintenance capital expenditures, investing
activities include the acquisition of 23 Pizza Hut units, two
Tony Roma's units, and the development of seven new Tony Roma's
stores. Additionally the Company declared and paid a special
dividend in August 1995 as part of the recapitalization of the
Company's voting and non-voting stock into one class of common
stock. Finally, proceeds from the sale of assets in fiscal 1996
are higher than in previous years because a significant portion
of the closed Skipper's properties were liquidated during the
year.
As noted, the company borrowed $20 million under its senior
unsecured shelf agreement during the year and $10 million under
the same agreement the previous fiscal year. The proceeds from
these borrowings were used to pay down the unsecured line of
credit and other credit facilities that matured during the year.
No senior notes were issued in fiscal 1994.
The Company suspended repurchases of the Company's common stock
in January 1995, with 454,500 shares still authorized for
repurchase under the stock repurchase program approved by the
Board of Directors. This program was reinstated in fiscal 1996.
SEASONALITY
As a result of the diversification of its restaurant concepts,
the Company has not experienced significant seasonality in its
sales. Sales were typically higher at Skipper's in the fourth
quarter of the fiscal year, during the Lenten period. Tony
Roma's sales are traditionally higher from January to March due
to an increase in the vacation and part time residence activity
in the desert and beach areas where a significant number of the
Company's units are located. Correspondingly these areas see a
decrease in traffic during the warmer months of July through
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. 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.
Cheese represents approximately 40% of the cost of a pizza. The
price of this commodity changes throughout the year due to
changes in demand and supply resulting from school lunch
programs, weather and other factors. Baby back ribs represent
approximately 28% of the menu mix at Tony Roma's. Because ribs
are a by-product of pork processing, their price is influenced
largely by the demand for boneless pork. Significant changes in
the prices of these commodities would have an impact on the
Company's food cost as a percent of revenue.
Increases in interest rates would directly affect the Company's
financial results. The Company had $10.8 million in borrowings
outstanding under its line of credit agreement at a variable
market rate at March 26, 1996. Under the agreement, the Company
may select among alternative interest rate options with terms up
to six months in length to reduce its exposure to fluctuating
interest rates.
OTHER
Impact of Recently issued Accounting Pronouncements - In October
1995, Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation, was issued. This
statement is effective for fiscal years beginning after December
15, 1995. The statement permits companies to elect to record
compensation expense measured at the grant date based on the fair
value of the award recognized over a service period.
Alternatively, companies may continue to apply current accounting
requirements, which generally result in no recognition of
compensation expense for most fixed stock option plans. However
companies that choose to continue using the current method will
be required to disclose the impact the alternative fair value
accounting method would have on their statements if implemented.
The Company has elected to continue applying the current
accounting requirements.
Safe Harbor - The statements under Management's Discussion and
Analysis of Financial Condition and Results of Operations and
other statements which are not historical facts contained herein
are forward looking statements that involve risks and
uncertainties, including but not limited to, consumer demand and
market acceptance risk, the effect of economic conditions,
including interest rate fluctuations, the impact of competing
restaurants and concepts, the cost of commodities and other food
products, labor shortages and costs and other risks detailed in
the Company's Securities and Exchange Commission filings.
CONSOLIDATED BALANCE SHEETS
NPC International, Inc. and Subsidiaries
Fiscal Year Ended
(Dollars in thousands, March 26, March 28,
except share data) 1996 1995
Assets
Current assets:
Cash and cash equivalents $ 1,584 $ 9,971
Accounts receivable, net of $915
and $923 reserves, respectively 10,111 2,357
Notes receivable, net of $311
and $275 reserves, respectively 802 867
Inventories of food and supplies 3,744 3,261
Income tax receivable 285 2,530
Deferred income tax asset 12,186 5,104
Prepaid expenses and other
current assets 1,533 2,253
Total current assets 30,245 26,343
Facilities and equipment, net 92,677 116,190
Assets held for sale 5,904 7,717
Franchise rights, net 43,512 33,939
Goodwill, less accumulated amortization
of $4,046 and $3,220, respectively 19,071 18,710
Other assets 6,479 8,813
$197,888 $211,712
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 14,099 $ 16,350
Payroll taxes 1,626 1,332
Accrued interest 2,159 1,992
Accrued payroll 2,377 2,284
Current portion of closure reserve 3,500 2,400
Insurance reserves 4,151 3,966
Other accrued liabilities 4,958 3,772
Current portion of long-term debt 535 1,308
Total current liabilities 33,405 33,404
Long-term debt and obligations under
capital leases 72,852 82,850
Deferred income tax liability 3,981 2,996
Closure reserve 4,000 7,538
Other deferred items 167 335
Health and workers' compensation reserves 6,163 4,302
Stockholders' equity:
Common stock, $.01 par value
100,000,000 shares authorized,
27,592,510 issued 276 276
Paid-in capital 21,829 22,020
Retained earnings 77,016 80,086
99,121 102,382
Less treasury stock at cost,
representing 3,070,078 and
3,087,186 shares, respectively (21,801) (22,095)
Total stockholders' equity 77,320 80,287
$197,888 $211,712
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF OPERATIONS
NPC International, Inc. and Subsidiaries
Fiscal Year Ended
(Dollars in thousands, March 26, March 28, March 29,
except share data) 1996 1995 1994
Net sales $317,294 $309,829 $332,206
Net franchise revenue 5,967 5,698 4,617
Total revenue 323,261 315,527 336,823
Cost of sales 94,042 92,392 98,692
Direct labor 87,293 89,964 97,103
Other 83,941 85,012 88,790
Total operating expenses 265,276 267,368 284,585
Income from restaurant
operations 57,985 48,159 52,238
General and administrative
expenses 24,452 24,369 27,045
Operating income before
impairment and loss
provision for
underperforming assets 33,533 23,790 25,193
Impairment and loss
provision for
underperforming assets 23,500 35,000 ---
Operating income (loss) 10,033 (11,210) 25,193
Other income (expense):
Interest expense (6,210) (6,162) (6,631)
Other expense (277) (80) (56)
Income (loss) before
income taxes 3,546 (17,452) 18,506
Provision (benefit) for
income taxes:
Current 7,500 5,169 8,028
Deferred (6,097) (7,007) (817)
1,403 (1,838) 7,211
Net income (loss) $ 2,143 $(15,614) $ 11,295
Earnings (loss) per share $ 0.09 $ (0.63) $ 0.45
Weighted average shares
outstanding 24,663,971 24,763,715 25,167,349
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
NPC International, Inc. and Subsidiaries
Total
Common Paid-in Retained Treasury Stockholders'
(Dollars in Stock Capital Earnings Stock Equity
thousands)
Balance, March 30, 1993 $276 $22,368 $84,405 $(17,613) $89,436
Net income ---- ---- 11,295 ---- 11,295
Acquisition of
treasury stock ---- ---- ---- (1,766) (1,766)
Exercise of stock options ---- (46) ---- 68 22
Balance, March 29, 1994 276 22,322 95,700 (19,311) 98,987
Net loss ---- ---- (15,614) ---- (15,614)
Acquisition of
treasury stock ---- ---- ---- (3,256) (3,256)
Exercise of stock options ---- (302) ---- 472 170
Balance, March 28, 1995 276 22,020 80,086 (22,095) 80,287
Dividend ---- ---- (5,213) ---- (5,213)
Net income ---- ---- 2,143 ---- 2,143
Exercise of stock options ---- (191) ---- 294 103
Balance, March 26, 1996 $276 $21,829 $77,016 $(21,801) $77,320
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
NPC International, Inc. and Subsidiaries
Fiscal Year Ended
March 26, March 28, March 29,
(Dollars in thousands) 1996 1995 1994
Cash Flows Provided By Operating
Activities:
Net income (loss) $ 2,143 $(15,614) $ 11,295
Non-cash items included
in net income (loss):
Depreciation and amortization 18,372 20,990 24,008
Deferred income taxes and other (6,097) (8,334) (1,791)
Non-cash portion of impairment
and loss provision 23,379 34,414 ----
Change in assets and liabilities,
net of acquisitions:
Accounts receivable, net (488) 748 452
Notes receivable, net (312) (226) (302)
Inventories of food and supplies (1,100) (162) 427
Income tax receivable 2,245 ---- ----
Prepaid expenses and other
current assets 496 (748) (56)
Accounts payable (1,327) 150 4
Payroll taxes 294 49 (32)
Accrued interest 202 204 722
Accrued payroll 327 (1,019) (354)
Health and workers compensation
insurance reserves 2,046 1,260 2,145
Other accrued liabilities (7,392) (4,407) (1,666)
Net cash flows provided by
operating activities 32,788 27,305 34,852
Cash Flows Used By Investing
Activities:
Purchase of NRH Corporation,
net of cash ---- ---- (19,370)
Capital expenditures (17,825) (11,067) (13,202)
Acquisition of business assets,
net of cash (15,150) (7,803) (61)
Changes in other assets, net 243 (1,474) 788
Dividends (5,213) ---- ----
Proceeds from sale of
capital assets 4,708 1,943 565
Net cash flows used by
investing activities (33,237) (18,401) (31,280)
Cash Flows Used By Financing
Activities:
Purchase of treasury stock ---- (3,256) (1,766)
Net change in revolving credit
agreements (16,480) 3,480 23,710
Proceeds from issuance of
long-term debt 20,000 10,000 ----
Payment of long-term debt (11,561) (17,446) (24,616)
Exercise of stock options 103 170 22
Net cash flows used by
financing activities (7,938) (7,052) (2,650)
Net Change In Cash And Cash
Equivalents (8,387) 1,852 922
Cash And Cash Equivalents
At Beginning Of Year 9,971 8,119 7,197
Cash And Cash Equivalents
At End Of Year $ 1,584 $ 9,971 $ 8,119
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 its wholly owned subsidiaries (the
Company). 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 26, 1996, March 28, 1995, and March 29, 1994, each
contained 52 weeks.
Cash Equivalents - For purposes of the Consolidated Statements of
Cash Flows, the Company considers all highly liquid debt
instruments with an original maturity of three months or less to
be cash equivalents. At March 26, 1996, and March 28, 1995,
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.
Long-Lived Assets - Effective in fiscal 1996, the Company adopted
Statement of Financial Accounting Standards No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of. The majority of the Company's long-lived
assets held for continuing use are evaluated for potential
impairment on a store-by-store basis. Assets held for sale are
stated at estimated fair value. Implementation of this standard
did not have a material impact on the Company's financial
statements.
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. Initial franchise fees are 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, if any.
Periodic franchise fees, generally provided for in the agreements
as a percent of gross sales, are recorded as operating expenses
as incurred.
The franchise agreements for Tony Roma's restaurants 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.
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. Per share amounts are not materially
different on a fully diluted basis.
Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from
those estimates.
Advertising Costs - Advertising costs are expensed as incurred.
The Company incurred $17,229,000 of such costs in fiscal 1996 and
$17,940,000 and $19,287,000 in fiscal 1995 and fiscal 1994
respectively.
Reclassifications - Certain amounts have been reclassified to
conform the prior year financial statements with the current year
presentation.
(2) Facilities and Equipment
Facilities and equipment consists of the following:
Fiscal Year Ended
Estimated March 26, March 28,
(Dollars in thousands) Useful Life 1996 1995
Land $ 21,192 $ 27,271
Buildings 15-30 years 38,582 45,928
Leasehold improvements 5-20 years 36,086 35,264
Furniture and equipment 3-10 years 66,670 68,672
Capitalized leases --- 4,575
Construction in progress 3,381 1,548
165,911 183,258
Less accumulated depreciation
and amortization (73,234) (67,068)
Net facilities and equipment $92,677 $116,190
(3) Bank Debt and Senior Notes
Long-term debt consisted of the following:
Fiscal Year Ended
March 26, 1996 March 28, 1995
Principal
(Dollars in Payments Carrying Estimated Carrying Estimated
thousands) Begin End Value Fair Value Value Fair Value
Revolving credit $10,840 $10,840 $27,620 $27,620
9.09% senior notes 10/97 10/01 10,000 10,478 10,000 8,778
8.02% senior notes 4/98 4/02 10,000 10,105 ---- ----
8.49% senior notes -- -- ---- ---- 4,000 4,014
7.58% senior notes 5/93 5/97 10,000 9,994 15,000 14,857
6.96% senior notes 4/98 4/02 10,000 9,757 ---- ----
6.35% senior notes 4/96 4/00 20,000 19,533 20,000 16,327
Other 2,547 2,646 3,182 3,268
73,387 73,353 79,802 $74,864
Less current installments (535) (547)
Total long-term debt $72,852 $79,255
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 (6.25% at
March 26, 1996). Commitment fees of .25% per annum are paid on
the unused balance of the facility and are included in interest
expense.
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 20, 1994, bearing interest at 9.09%, and the remaining
$10,000,000 borrowed on April 25, 1995 bearing interest at 8.02%.
This facility was increased to $60,000,000 on June 29, 1995 and
an additional $10,000,000 was borrowed under the facility on July
18, 1995 at an interest rate of 6.96%. The Company can borrow an
additional $30,000,000 under this agreement, as of March 26,
1996, until August 10, 1997.
The aggregate maturities of long-term debt, excluding the
revolving credit agreement, are as follows: fiscal year 1997 -
$9,500,000; fiscal year 1998 - $11,500,000; fiscal year 1999 -
$10,500,000; fiscal 2000 - $10,500,000; fiscal 2001-$10,547,000
and $10,000,000 in years beyond.
The average amount outstanding on all bank borrowings and senior
notes for the year ended March 26, 1996, was $77,739,000 and the
maximum borrowings were approximately $97,890,000. Interest
expense from bank borrowings and senior notes for fiscal years
1996, 1995 and 1994, was $5,703,000, $5,331,000 and $5,812,000,
respectively. Weighted average interest rates during the same
periods were 7.34%, 7.36% and 6.44%, respectively.
Cash paid for interest in fiscal years 1996, 1995 and 1994 was
$6,043,000, $5,957,000 and $6,198,000, respectively.
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 Company was
in compliance with all such debt covenants, as amended, at March
26, 1996.
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 six 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 rates of 7.7% in fiscal
1996 and 8.11% in fiscal 1995. 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 is equal to its carrying value, due to its daily rate
fluctuation.
(4) Stock Options
At March 26, 1996, 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 26, 1996, 1,122,081 options
were exercisable.
Shares Under Option Option Price Range
March 30, 1993 1,614,026
Granted 167,050 $6.00
Canceled (209,414)
Exercised (7,036) $2.19-$5.42
March 29, 1994 1,564,626
Granted 364,500 $5.00-$6.00
Canceled (294,058)
Exercised (41,862) $1.91-$6.25
March 28, 1995 1,593,206
Granted 396,350 $5.50-$6.88
Canceled (130,759)
Exercised (19,028) $2.53-$6.25
March 26, 1996 1,839,769 $5.50-$6.88
(5) 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 $540,334, $517,000, and
$477,000 for calendar years 1995, 1994, and 1993, respectively.
(6) Income Taxes
The provision (benefit) for income taxes consisted of the
following:
Fiscal Year Ended
March 26, March 28, March 29,
(Dollars in thousands) 1996 1995 1994
Currently payable:
Federal $ 6,072 $ 3,923 $ 6,225
State 1,428 1,246 1,803
7,500 5,169 8,028
Deferred:
Federal (5,018) (5,767) (727)
State (1,079) (1,240) (90)
(6,097) (7,007) (817)
Provision (benefit)
for income taxes $ 1,403 $(1,838) $ 7,211
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 26, March 28, March 29,
(Dollars in thousands) 1996 1995 1994
Tax computed at
statutory rate $ 1,241 $(6,108) $ 6,477
Write-off of Skipper's goodwill ---- 4,665 ----
Tax credits (468) (857) (695)
State taxes, net of federal
effect, and other 630 462 1,429
Provision (benefit) for
income taxes $ 1,403 $(1,838) $ 7,211
The significant components of the deferred tax asset and
liability at March 26, 1996, and March 28, 1995, consisted of the
following:
Fiscal Year Ended
March 26, 1996 March 28, 1995
(Dollars in Deferred Deferred Deferred Deferred
thousands) Tax Assets Tax Liabilities Tax Assets Tax Liabilities
Disposition of
Skipper's $ 7,910 $ --- $ --- $ ---
Depreciation and
amortization --- 11,548 --- 11,320
Closure reserve 5,656 --- 8,187 ---
Capitalized leases 561 --- 625 ---
Tax credit
carryforwards 1,145 --- 1,348 ---
Insurance reserves 4,126 --- 3,036 ---
Other 2,223 723 2,016 281
Subtotal 21,621 12,271 15,212 11,601
Valuation
allowances (1,145) --- (1,503) ---
Total deferred
tax assets and
liabilities $20,476 $12,271 $13,709 $11,601
For income tax purposes, the Company has available at March 26,
1996, targeted jobs tax credit carryforwards of approximately
$1,145,000 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.
Cash paid for income taxes in fiscal years 1996, 1995, and 1994
was $4,868,000, $8,542,000, and $7,001,000, respectively.
(7) Commitments
The Company leases certain restaurant equipment and buildings
under operating leases. In fiscal 1995 the Company had recorded
certain equipment and facilities leases as capital lease assets
and obligations. These assets and obligations have been removed
in fiscal 1996 due to the sale of Skipper's (Note 10). Rent
expense for fiscal years 1996, 1995, and 1994 was $11,849,000,
$11,410,000, and $11,925,000, respectively, including additional
rentals of approximately $1,453,000 in 1996, $1,030,000 in 1995,
and $1,344,000 in 1994. 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. During the fiscal year
ended March 26, 1996, the Company continued to lease three
properties from Company officers at rental rates believed to be
comparable to terms the Company could obtain from unrelated
lessors. Rental expense under these leases for fiscal years
1996, 1995, and 1994 was $69,000, $106,000, and $222,000,
respectively. The Company purchased real estate from an officer
of the Company or his affiliate in the amount of $800,000,
$800,000, and $1,456,000, in the fiscal years ended March 26,
1996, March 28, 1995, and March 29, 1994, respectively. The
value of the purchased real estate was determined by an
independent certified appraiser or Company personnel using
recognized valuation techniques. All such related party
transactions were approved by the Company's Board of Directors.
Additionally, the Company leased a corporate aircraft from an
officer during previous years. Management believes the lease was
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 in fiscal 1994.
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, 1996, benefits the
insurance company which administers the Company's primary workers
compensation program. Two additional letters of credit for
$100,000 each, benefit another insurance company and state
workers compensation programs and expire October 2, 1996 and June
23, 1996. All claims are routinely paid in the normal course of
business and the Company does not anticipate that such
instruments will be funded.
Minimum lease payments for the next five years at March 26, 1996,
consisted of:
(Dollars in thousands)
Fiscal Year
1997 $ 6,488
1998 5,322
1999 4,361
2000 3,589
2001 2,988
Thereafter 12,100
Total minimum lease commitments $34,848
(8) Acquisition of Tony Roma's
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 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.
(9) 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. The
agreement involved the concurrent acquisition of 19 Pizza Hut
restaurants from another franchisee, and the exchange of 95 of
the Company's Pizza Hut restaurants and delivery kitchens,
including 11 obtained in the concurrent acquisition, for 62 Pizza
Huts operated by PHI. Book basis in the exchange properties and
additional net cash payments made by the Company of $6,630,000 to
consummate the transaction have been allocated to the new
franchise rights and stores acquired in the exchange. Part of
this agreement included the exchange of $6,878,000 in fixed
assets, $2,395,000 in unamortorized franchised rights and
$675,000 in other intangible assets, in return for franchise
rights valued at $9,948,000. No gain or loss was recorded on the
transaction. Under the terms of the new franchise rights, the
Company's royalty payments for all units owned at that time will
increase to four percent of gross sales, as defined, beginning in
July 1996, from the Company's current effective rate of
approximately 2.25%.
(10) Impairment and Loss Provision for Underperforming Assets
In fiscal 1996, the Company recorded a $20,000,000 pre-tax charge
related to the sale of Skipper's. The sale agreement, effective
March 25, 1996, was signed April 24, 1996 and closed May 14,
1996. In conjunction with the sale, the Company retained certain
assets and liabilities, primarily related to the 77 units that
were closed in fiscal 1995. The retained assets have been
recorded at fair value in accordance with SFAS No. 121 and are
reflected in assets held for sale. The retained liabilities
continue to be reflected as historically presented, primarily in
the closure reserve. Proceeds from the sale are included in
accounts receivable and were received at closing on May 14, 1996.
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 included 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. During fiscal 1996 the company
charged $8,732,000 against this liability, $7,544,000 related to
property dispositions and the remainder consisted of inventory
disposal and other miscellaneous charges.
In fiscal 1996, Skipper's generated $44,910,000 of revenue and a
loss from restaurant operations, exclusive of the $20,000,000
impairment and loss provision, of $196,000. Revenue for fiscal
1995 was $69,456,000, and losses from restaurant operations,
exclusive of the $35,000,000 impairment and loss provision, were
$2,771,000. Fiscal 1994 included Skipper's revenue and income
from restaurant operations of $81,409,000 and $1,313,000,
respectively. Both 1995 and 1994 results include the operations
74<PAGE>
of the 77 stores closed in February 1995, which were; fiscal
1995, revenue of $19,647,000 and a loss from restaurant
operations of $3,845,000; and fiscal 1994, revenue of $25,621,000
and a loss from restaurant operations of $2,772,000.
Additionally, the Company recorded a pre-tax provision of
$3,500,000 in fiscal 1996 related to the disposition of six
underperforming Tony Roma's units and the relocation of two
others to be completed in the next year. The assets to be
disposed of consist of buildings, leasehold improvements, and
furniture and equipment, which had a carrying value of
approximately $2,800,000. The six units to be disposed of
generated sales of approximately $7,600,000 and losses from
restaurant operations of approximately $340,000 in fiscal 1996.
(11) Quarterly Results (unaudited)
Summarized results of operations for each quarter of the last two
fiscal years are as follows:
(Dollars in First Second Third Fourth Annual
thousands except Fiscal Fiscal Fiscal Fiscal Fiscal
per share amounts) Quarter Quarter Quarter Quarter Total
Year Ended March 26, 1996
Revenue $83,467 $79,039 $77,647 $83,108 $323,261
Income from restaurant
operations 14,657 12,987 14,358 15,983 57,985
Net income (loss) 4,125 3,637 3,912 (9,531) 2,143
Earnings (loss) per share .17 .15 .16 (.38) .09
Year Ended March 28, 1995
Revenue $84,457 $78,472 $77,159 $75,439 $315,527
Income from restaurant
operations 14,026 12,185 11,116 10,832 48,159
Net income (loss) 3,755 2,955 2,158 (24,482) (15,614)
Earnings (loss) per share .15 .12 .09 (.99) (.63)
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
Chairman of the Board and
Chief Executive Officer
James K. Schwartz
President and
Chief Operating Officer
Troy D. Cook
Vice President Finance and
Chief Financial Officer
Report of 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. and Subsidiaries (the Company) as of
March 26, 1996, and March 28, 1995, and the related consolidated
statements of operations, stockholders' equity and cash flows for
each of the three fiscal years in the period ended March 26,
1996. 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 26, 1996, and March 28, 1995, and the consolidated results
of their operations and their cash flows for each of the three
fiscal years in the period ended March 26, 1996, in conformity
with generally accepted accounting principles.
As discussed in Note 1 to the financial statements, in the fiscal
year ended March 26, 1996, the Company adopted Statement of
Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of".
Ernst & Young LLP
Kansas City, Missouri
April 30, 1996
Stock Information
NPC International, Inc.'s common shares are traded on the NASDAQ Stock Market
under the symbol "NPCI". Effective August 8, 1995, the Company combined its
Class A common stock and Class B common stock into a new, single class of
common stock.
For the calendar periods indicated, the following table sets forth the range
of high and low closing sale prices.
Calendar Period Class A Class B
Common Stock Common Stock
1994 High Low High Low
First Quarter 7 1/2 6 6 3/8 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
Common Stock
Second Quarter 6 7/8 5
Third Quarter 7 3/8 6 1/8
Fourth Quarter 8 1/4 6 3/16
1996
First Quarter 9 6 7/8
NPC International, Inc.'s policy is to retain earnings to fund development and
grow the business. On August 8, 1995, the stockholders approved a special
dividend of $.421875 per Class A share (to stockholders of record on August 8,
1995) in connection with the concurrent approval of a stock recapitalization
plan. The Company does not contemplate payment of a recurring cash dividend
in future periods.
As of May 29, 1996 the approximate number of stockholders was 3,800 including
an estimated number of individual participants in security position listings.
Exhibit 21
NPC International, Inc.
List of Subsidiaries
Romacorp, Inc.
Roma Systems, Inc.
Roma Franchising Corporation
Roma Huntington Beach, Inc.
Roma Fort Worth, Inc.
Seattle Restaurant Equipment Company
NPC International, Inc.
Exhibit 23
Consent of Independent Auditors
We consent to the incorporation by reference in this
Annual Report (Form 10-K) of NPC International, Inc. of
our report dated April 30, 1996, included in the 1996
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 April 30, 1996, with respect to the consolidated
financial statements, incorporated herein by reference
in the Annual Report (Form 10-K) of NPC International,
Inc.
ERNST & YOUNG LLP
Kansas City, Missouri
June 3, 1996
