UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Quarter Ended September 24,
1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from ____________ to
____________
Commission File Number 0-13007
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
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2)
has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
The number of shares outstanding of the registrant's class of common
stock as of October 31, 1996:
Common Stock, $0.01 par value - 24,696,222 xx,xxx,xxx
NPC INTERNATIONAL, INC.
INDEX
PAGE
PART I. FINANCIAL INFORMATION
Consolidated Balance Sheets --
September 24, 1996 and March 26, 1996 3
Consolidated Statements of Income --
For the Thirteen and Twenty-Six Weeks Ended
September 24, 1996 and September 26, 1995 4
Consolidated Statements of Cash Flows --
For the Thirteen and Twenty-Six Weeks Ended September 24, 1996 and
September 26, 1995 5
Notes to Consolidated Financial Statements 6
Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
PART II. OTHER INFORMATION 13
PART I - FINANCIAL INFORMATION
NPC International, Inc. Consolidated Balance Sheets
(Unaudited, dollars in thousands, except share data) <TABLE>
Twenty-Six Weeks Ended
September 24, 1996 March 26, 1996
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $2,814 $ 1,584
Accounts receivable, net 2,218 10,104
Notes receivable, net 602 831
Inventories of food and supplies 3,235 3,730
Income tax receivable 723 285
Deferred income tax asset 7,061 12,186
Prepaid expenses and other
current assets 3,097 2,367
Total current assets $19,750 $31,087
Facilities and equipment, net 106,685 93,541
Assets held for sale 5,518 5,904
Franchise rights, net 42,647 43,512
Goodwill 18,660 19,092
Other assets 4,378 4,693
TOTAL ASSETS $197,638 $197,829
LIABILITIES AND STOCKHOLDER'S
EQUITY
Current liabilities:
Accounts payable $ 10,080 $10,410
Payroll taxes 1,338 1,647
Accrued interest 1,891 2,159
Accrued payroll 3,459 4,385
Current portion of closure reserve 600 3,500
Insurance reserves 4,483 4,151
Other accrued liabilities 6,630 6,617
Current portion of long-term debt 503 535
Total current liabilities 28,984 33,404
Long-term debt 65,339 72,793
Deferred income tax liability 3,373 3,981
Closure reserve 5,443 4,000
Other deferred items 200 168
Health and workers compensation reserves 6,316 6,163
Stockholders' Equity:
Common stock, $.01 par value
100,000,000 shares authorized,
27,592,510 issued 276 276
Paid-in capital 20,995 21,829
Retained earnings 86,484 77,016
107,755 99,121
Less treasury stock at cost,
representing
2,896,862 and 3,070,078
shares, respectively (19,772) (21,801)
Total stockholders' equity 87,983 77,320
TOTAL LIABILITIES AND EQUITY $197,638 $197,829
See notes to Consolidated Financial Statements
</TABLE>
NPC International, Inc.
Consolidated Statements Of Income
(Unaudited, dollars in thousands, except share data)
<TABLE>
Thirteen Weeks Ended Twenty-Six Weeks Ended
Sept. 24, 1996 Sept. 26, 1995 Sept. 24, 1996 Sept. 26, 1995
<S> <C> <C> <C> <C>
Net Sales $66,996 $77,770 $137,828 159,875
Net franchise
revenue 1,574 1,269 3,144 2,631
Total revenue 68,570 79,039 140,972 162,506
Cost of sales 18,946 23,138 38,396 47,609
Direct labor 18,794 21,589 38,287 44,539
Other 18,624 21,325 36,666 42,714
Total operating
expenses 56,364 66,052 113,349 134,862
Income from
restaurant
operations 12,206 12,987 27,623 27,644
General &
administrative
expenses 4,712 5,579 9,772 11,627
Operating income 7,494 7,408 17,851 16,017
Other income (expense)
Interest expense (1,137) (1,505) (2,397) (3,209)
Other 120 116 72 33
Income before
income taxes 6,477 6,019 15,526 12,841
Provision for
income taxes 2,531 2,382 6,058 5,079
Net income 3,946 3,637 9,468 7,762
Earning per
share $ .16 $ .15 $ .38 $ .32
Weighted average
shares-
outstanding 25,060,614 24,644,968 25,040,457 24,593,272
</TABLE>
See notes to Consolidated Financial Statements
NPC International, Inc.
Consolidated Statements Of Cash Flow
(Unaudited, dollars in thousands)
<TABLE>
Twenty-Six Weeks Ended Sept. 24, 1996
Sept. 26,1995
<S> <C> <C>
Cash Flows Provided By Operating
Activities:
Net income $9,468 $7,762
Non-cash items included in net
income:
Depreciation and amortization 7,844 9,630
Deferred income taxes and other 4,517 2,511
Change in assets and liabilities,
net of acquisitions:
Accounts receivable, net 286 1,021
Notes receivable, net 229 481
Inventories of food and supplies 495 (344)
Income tax receivable (438) 818
Prepaid expenses and other
current assets (730) 899
Accounts payable (330) (342)
Payroll taxes (309) (149)
Accrued interest (268) 421
Accrued payroll (926) 31
Health and workers compensation
insurance reserves 485 1,081
Other accrued liabilities (1,413) (1,720)
Net cash flows provided by
operating activities 18,910 22,100
Cash Flows Used By Investing
Activities:
Capital expenditures (19,429) (7,385)
Acquisition of business assets,
net of cash -- (13,400)
Changes in other assets, net 439 (2,120)
Proceeds from sale of capital
assets 7,600 2,547
Net cash flows used by investing
activities (11,390) (20,358)
Cash Flows Used By Financing
Activities:
Payments of special dividend -- (5,213)
Purchase of treasury stock (100) --
Net change in revolving credit
agreements 2,225 (13,900)
Proceeds from issuance of long-
term debt -- 20,000
Payment of long-term debt (9,711) (6,012)
Exercise of stock options 1,296 41
Net cash flows used by financing
activities (6,290) (5,084)
Net Change In Cash And Cash
Equivalents 1,230 (3,342)
Cash And Cash Equivalents At
Beginning Of Period 1,584 9,971
Cash And Cash Equivalents At End
Of Period $2,814 $6,629
See notes to Consolidated Financial Statements
</TABLE>
NPC International, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1- Basis Of Presentation
The financial statements include the accounts of NPC
International, Inc. and its wholly owned subsidiaries (the Company).
All significant intercompany balances and
transactions are eliminated.
The accompanying unaudited financial statements have been
prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X promulgated by the
Securities and Exchange Commission.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for annual
financial statement reporting purposes. These
statements should be read in conjunction with the financial statements
and notes contained in the Company's annual report on Form 10-K for the
fiscal year ended March 26, 1996.
In the opinion of management, the accompanying unaudited
consolidated financial statements contain all normal recurring
adjustments necessary to present fairly the financial position of the
Company as of September 24, 1996 and March 26, 1996, and the results of
operations and cash flows for the thirteen and twenty-six weeks ended
September 24, 1996 and September 26,
1995. Results for the interim periods are not necessarily indicative
of the results that may be expected for the entire fiscal year.
Certain reclassifications have been made to the prior year statements
to conform with the current year presentation.
Note 2 - Cash Flows
There were cash payments for income taxes of $1,619,000 and $2,300,000
in the twenty-six weeks ended September 24, 1996 and September 26, 1995
respectively. Cash paid for interest for the twenty-six weeks ended
September 24, 1996 and September 26, 1995 was $1,405,000 and $2,800,000,
respectively.
Note 3 - Recapitalization
On August 8, 1995, the stockholders of NPC International, Inc. approved
and adopted two amendments to the Company's Amended and Restated Articles
of Incorporation to allow for the payment of a dividend to the holders
of the Class A common stock and to subsequently reclassify and convert
the outstanding shares of Class A common stock and Class B common stock
into a single class of new common stock. To compensate the
Class A stockholders for the relinquishment of their voting rights, a
special dividend of $0.421875 per Class A share was also approved
for stockholders of record as of August 8, 1995, and was paid August
30, 1995. For additional information, please refer to the Company's
proxy statement for the 1995 Annual Meeting.
NPC International, Inc.
Management's Discussion and Analysis
of Financial Condition and Results of Operations
The discussions set forth in this Form 10-Q may contain forwardlooking
comments. Actual results of the Company's operations could materially
differ from those indicated in the forwardlooking comments. The
difference could be caused by a number of factors, including, but not
limited to, changes in consumer demand, market acceptance of new
products, changes in the general economy (including changes in interest
rates), increased competition from existing restaurants and/or
from the
development of new concepts, fluctuations in the prices of the
commodities and other food products used by the Company, labor shortages,
fluctuations in labor costs and other factors detailed in the
Company's public filings. Readers are strongly encouraged to consider
these factors when evaluating any forwardlooking comments concerning the
Company.
The information contained in this Management's Discussion and Analysis
of Financial Condition and Results of Operations should be read in
conjunction with the Notes to Consolidated Financial Statement included in
this Form 10-Q and the audited financial statements and notes thereto
together with Management's Discussion and Analysis of Financial
Condition and Results of Operations incorporated by reference in the
Company's Annual Report on Form 10-K for the year ended March 26, 1996.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Overview - The Company is the largest Pizza Hut franchisee in the
world. Through Romacorp, Inc. a wholly owned subsidiary, the Company is
the owner/franchisor of Tony Roma's, the casual
theme restaurant famous for ribs. Romacorp, Inc. was acquired
in June 1993.
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.
Each 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, however, they comprise approximately 11% of sales at 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.
Development
Activity with respect to unit count is set forth in the table below:
<TABLE>
SYSTEM UNIT ACTIVITY
1997 SECOND QUARTER
Beginning Developed Acquired Closed Sold Ending
Company Owned
Pizza Hut
<S> <C> <C> <S> <C> <S> <C>
Restaurant 281 3 ---- (2) ---- 282
Delivery 93 2 ---- (2) ---- 93
Total 374 5 ---- (4) ---- 375
Pizza Hut
Tony Roma's * 31 4 ---- (1) ---- 34
Total 405 9 ---- (5) --- 409
Company Owned
Franchised
Tony Roma's 139 3 ---- (6) --- 136
*
Total System 544 12 ---- (11) ---- 545
1997 YEAR-TO-DATE
Beginning Developed Acquired Closed Sold Ending
Company Owned
Pizza Hut
Restaurant 279 5 ---- (2) ---- 282
Delivery 93 2 ---- (2) ---- 93
Total Pizza 372 7 ---- (4) ---- 375
Hut
Tony Roma's * 33 5 ---- (4) ---- 34
Total 405 12 ---- (8) ---- 409
Company Owned
Franchised
Tony Roma's 142 8 ---- (14) ---- 136
Total System 547 20 ---- (22) ---- 545
* Does not include two units operated as joint ventures by the
Company
</TABLE>
Pizza Hut opened four new units and one relocation unit during the
quarter. On a year-to-date basis, Pizza Hut has opened six new units, net
of relocations, and expects to fulfill its goal of fifteen new units by
the end of this fiscal year seven to eight of which will be "small town"
units. Specifically, Pizza Hut is targeting five new units and four
relocation units for its third fiscal quarter and four new units and three
relocation units in its fourth fiscal quarter. Pizza Hut closed five units
during the quarter, one of which was relocated. Operation of older
units that are no longer economically justifiable is discontinued or
the unit is relocated.
On October 2, 1996, the Company announced the acquisition of 31 Pizza Hut
units and related territories from R&W Pizza Huts of North Carolina,
Inc. The 28 restaurants and three delivery units are located in and
around Fayetteville, North Carolina and produce average sales volumes of
$780,000 per store. The transaction closed on October 31, 1996.
Tony Roma's opened four new units during the quarter for a total of five
new units on a year-to-date basis. The Company expects to meet its goal
of twelve new restaurants and two relocations for fiscal 1997.
Specifically, Tony Roma's is targeting four new units and one relocation
in the third quarter and three new units and one relocation in the
fourth fiscal quarter. In
conjunction with the restaurant closing strategy, implemented during
the fourth quarter of fiscal 1996, one unit was closed during the
quarter for a total of five on a year-to-date basis. One unit will be
closed in the third quarter and another store will be relocated. The
final store relocation will occur in the fourth fiscal quarter. The
Company recorded a $3.5 million charge in the fourth quarter of fiscal
1996 to reserve for these closures.
The Company continued to strengthen the quality of the franchise system by
eliminating poor performing franchisees, closing 14 stores to date. Of
the eight franchised units that have opened, seven are international and
one is domestic.
Results of Operations - Set forth below, at the beginning of the section
discussing the results of operations for each concept operated by the
Company, is a table of revenues and operating expenses, as a percent of
revenues for the thirteen and twentysix weeks ended September 24, 1996
and September 26, 1995 (dollars in thousands). Cost of sales includes
the cost of food and beverage products sold. Direct labor represents the
salary and related fringe benefit costs 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.
<TABLE>
PIZZA HUT OPERATIONS
(Unaudited)
Thirteen Weeks Ended Twenty-Six Weeks Ended
Sept. 24,1996 Sept. 26, 1995 Sept. 24,1995 Sept. 26, 1996 <S>
<C> <C> <C> <C>
Restaurant Sales $39,380 $41,338 $80,932 $86,562
Delivery Sales 12,064 12,822 25,087 26,871
Franchise Revenue -- 8 -- 11
Total Revenue $51,444 $54,168 $106,019 $113,444
Restaurant Operating
Expenses as a
Percentage
of Revenue:
Total Expenses
Cost of Sales 26.6% 25.9% 26.1% 26.2%
Direct Labor 26.9% 26.9% 26.8% 26.8%
Other 28.2% 26.0% 26.8% 25.5%
Total Operating
Expenses 81.7% 78.8% 79.7% 78.5%
Restaurant Income 18.3% 21.2% 20.3% 21.5%
Restaurant Expenses
Cost of Sales 26.8% 26.2% 26.3% 26.5%
Direct Labor 25.4% 25.5% 25.4% 25.5%
Other 28.5% 26.2% 27.1% 25.7%
Total Operating
Expense 80.7% 77.9% 78.8% 77.7%
Restaurant Income 19.3% 22.1% 21.2% 22.3%
Delivery Expenses
Cost of Sales 25.9% 25.1% 25.5% 25.4%
Direct Labor 32.0% 31.5% 31.3% 31.1%
Other 27.0% 25.4% 25.7% 24.9%
Total Operating
Expense 84.9% 82.0% 82.5% 81.4%
Restaurant Income 15.1% 18.0% 17.5% 18.6%
</TABLE>
Comparison of Pizza Hut Operating Results for the Thirteen and
Twenty-Six Weeks Ended
September 24, 1996 and September 26, 1995
Revenue from Pizza Hut Operations was $51.4 million for the
quarter, a decrease of $2.7 million or 5% from the prior year. For the
year-to-date, revenue was $106 million, down $7.4 million or 6.5%
from a year ago. Comparable sales decreased 6.6% for the quarter and
8.3% for the year-to-date largely due to the successful introduction of
stuffed crust pizza in the first quarter of last year. The decrease in
stuffed crust sales is typical of sales fluctuations associated with new
product introductions and is not considered indicative of declining
demand for the company's standard product line of quality pizza products.
Excluding stuffed crust sales, total revenue for the quarter and year-to-
date was 5% and 8% higher than last year.
Cost of sales as a percent of revenue increased from 25.9%
during the same quarter last year to 26.6% for this year. On a year-to-
date basis cost of sales decreased slightly from 26.2%
to 26.1%. The increase for the quarter is due largely to increased
cheese prices that averaged 19% higher than during the same quarter last
year. For the year-to-date, cheese prices averaged 14% higher than a
year ago. However, cost of sales as a percent of revenue, is slightly
lower than last year due to
the higher cheese content of stuffed crust pizza and its
promotional pricing that was in effect during its introduction. (See
Effects of Inflation and Other Matters for additional information on
cheese costs.)
Direct labor as a percent of revenue remained flat at 26.9% for the
quarter and 26.8% for the year-to-date despite decreased sales. This
result was achieved with lower sales volume because
of the of the higher labor cost incurred on the more labor intensive
stuffed crust product during the same periods last year.
Other operating expenses increased as a percentage of sales to 28.2% for
the quarter and 26.8% for the year-to-date from 26.0% and 25.5% for the
same periods of the prior year. This increase is primarily due to the
increase in the royalty rate paid to the Company's franchisor as
disclosed in previous filings. Effective July of 1996 the royalty
rate increased from an effective rate of 2.26% to 4.0%. Also
contributing to the
increase in these costs as a percent of sales was the effect of lower
sales volumes on these largely fixed costs.
<TABLE>
TONY ROMA'S OPERATION
(Unaudited)
Thirteen Weeks Twenty-Six Weeks Ended
Ended
Sept. Sept. Sept. 24, Sept. 26,
Sept. 24, 1996 Sept. 26, 1995 Sept. 24, 1996 Sept. 26, 1995
Revenue
<S> <C> <C> <C> <C>
Restaurant Sale $15,552 $11,885 $31,809 $23,279
Franchise Revenue 1,574 1,242 3,144 2,552
Total Revenue $17,126 $13,127 $34,953 $25,831
Restaurant Operating
Expenses as a Percentage
of Revenue
Cost of Sales 30.7% 31.7% 30.8% 31.7%
Direct Labor 28.9% 28.1% 28.1% 27.9%
Other 24.2% 25.6% 23.8% 25.2%
Total Operating
Expenses 83.8% 85.4% 82.7% 84.8%
Restaurant Income 16.2% 14.6% 17.3% 15.2%
</TABLE>
Comparison of Tony Roma's Operating Results for the Thirteen and
Twenty-Six Weeks Ended
September 24, 1996 and September 26, 1995
Sales for the quarter increased $3.7 million or 30.9% over the
same period last year. On a year-to-date basis, sales were $8.5 million or
36.6% greater than last year. The increase is due to comparable sales
increases for the quarter of 1.1% and 3.2% for stores open greater than
12 months and 18 months respectively. For the year-to-date comparable sales
on a 12 and 18 month basis increased 2.4% and 2.9% respectively. New
units opened within the last twelve months contributed sales of $4.9
million for the quarter and $10 million for the year-to-date while the
closure of five units accounted for sales reductions of $1.3 million for
the quarter and $2.0 million for the year-to-date.
Net franchise revenue increased over last year by $332,000 or 26.7% for
the quarter and $592,000 or 23.2% for the year-todate. This increase
is due to the sale of international franchise rights, and franchisee
openings, seven of which were in international locations. Additionally,
royalty revenue is higher than last year and the associated costs,
principally related to a lower provision for bad debts, have been
reduced due to a franchise system that continues to strengthen through
the close of lower volume and delinquent franchised operations and the
addition of new higher volume locations.
Cost of sales as a percent of revenue decreased to 30.7% for the quarter
and 30.8% year-to-date from 31.7% for the same periods last year. The
decrease is primarily the result of the November
1995 price increase which more than offset a 2.8% increase in the cost
of ribs from September 1995 to September 1996. (See Effects of
Inflation and Other Matters for additional
information on rib costs.)
Direct labor increased to 28.9% and 28.1% of revenue for the quarter
and year-to-date respectively, from 28.1% and 27.9% for the same periods
last year. The increase is attributable to higher labor cost
associated with the opening of four new restaurants during the
quarter. Additionally, a natural inefficiency occurs during the first
three to six months of a new store operation.
Other operating expenses as a percent of revenues decreased to 24.2% for
the quarter from 25.6% a year ago, and to 23.8% on a
year-to-date basis from 25.2% last year. The decrease from yearto-year is
due to the replacement of lower volume stores with higher volume units
that more fully leverage these primarily fixed costs. Historically,
the second quarter produces lower sales volume than the first, causing the
expense as a percent of revenue to be higher for the quarter than the year-
to-date for both years presented.
Consolidated Results
Comparison of Consolidated Operating Results for the Thirteen and Twenty-
Six Weeks Ended
September 24, 1996 and September 26, 1995
As reported in the Company's Annual Report on Form 10-K for the year
ended March 26, 1996, Skipper's, Inc., a formally whollyowned subsidiary,
was sold effective March 25, 1996 and
therefore, no results of Skipper's operations are reflected in the
Company's financial statements for the current year. During the thirteen
and twenty-six weeks ended September 26, 1995 Skipper's, Inc.
recorded revenues of $11.7 million and $23.2 million, total operating
expenses of $12.1 million and $23.8 million, and a loss from restaurant
operations of $396,000 and $614,000 respectively. The sale of Skipper's,
Inc. closed on May 14, 1996.
Total consolidated revenue was $68.5 million, down 13.2% or $10.5
million from the $79.0 million recorded during the same quarter last
year. For the year-to-date, revenue declined 13.3%
or $21.5 million from $162.5 million to $141 million. This decrease
is largely due to the loss of revenue from the sale of Skipper's Inc. in
the fourth quarter of fiscal 1996.
Consolidated income from restaurant operations was $12.2 million or 17.8%
of revenue for the quarter compared to $13.0 million or 16.4% last year.
For the year-to-date, income from restaurant operations was $27.6 million
or 19.6% of revenue compared to $27.6 million or 17.0% last year.
Income from restaurant operations, as a percent of revenue, improved
from the prior year despite increased cheese costs and franchise
fees and comparable sales declines in the Company's Pizza Hut division.
This improvement was achieved due to improved margin performance at Tony
Roma's and reduced operating losses from the divestiture of Skipper's.
General and administrative costs have been reduced due to the sale of
Skipper's. Additionally, these costs are being better leveraged by the
remaining operations. For the quarter, general and administrative
expenses decreased 15.5% or $867,000 to 6.9%
of revenue, compared to 7% of revenue last year. On a year-todate basis,
general and administrative expenses are down 16% or
$1,855,000 to 6.9% of revenue from 7.2% last year.
The sales proceeds from the divestiture of Skipper's and debt reductions
from the previous three quarters resulted in a decrease of $368,000
and $812,000 in net interest charges for the quarter and year-to-date.
Net income for the quarter was $3,946,000 or 5.8% of revenue for an
increase of 8.5% from the $3,637,000 or 4.6% of revenue for the same
period last year. Year-to-date net income was $9,468,000 or 6.7% of
revenue for an increase of 21.9% from the $7,762,000 or 4.8% of revenue for
the same period last year. The effective tax rate for the quarter and
year-to-date was 39% compared to 39.55% for the same periods last year.
Because of improved efficiencies and reduced losses at Skipper's,
net income after taxes improved 31.65% overall.
Liquidity, Capital Resources and Cash Flows
The Company's primary source of cash is its operations. Net
income, adjusted for non-cash charges increased $1.9 million or 9.6% over
the prior year to $20.8 million on a year-to-date basis due to
increased earnings and tax benefits derived from the realization of a
deferred tax asset established in fiscal 1996 related to the sale of
Skipper's Inc. Adjusted for various changes in balance sheet accounts,
cash flow from operating activities was $18.9 million compared to $22.1
million for the same period of the prior year.
In addition to cash provided by operations, the Company has a $50
million unsecured line of credit through December 13, 1998. At September
24, 1996, the Company had $37 million available borrowing capacity under
this agreement. The acquisition of R&W Pizza Huts of North Carolina,
Inc., which closed October 31, 1996, was funded through the line of
credit and availability under this facility declined accordingly on the
closing date. Predominately cash sales and rapid inventory turnover allow
the Company to use all available cash to reduce borrowings under its line
of credit. The low requirement for the maintenance of current assets,
combined with credit from trade suppliers produces a working capital
deficit, which is consistent with past experience.
The Company also has $30 million in available borrowing capacity under a
"shelf" facility with a major insurance company. The
Company may borrow under this agreement, at the lender's
discretion, through June 27, 1997.
During the twenty-six weeks ended September 24, 1996, the Company
made all scheduled principal and interest payments and reduced borrowings
under the line of credit.
Restaurant development at Tony Roma's and Pizza Hut, in addition to normal
recurring capital expenditures, resulted in $19.4 million of total
capital expenditures for the year-to-date compared to $20.8 million of
capital expenditures for the same period a year ago, which included $13.4
million related to the acquisition of 23 Pizza Hut units. Investing
activities for the current quarter also included the receipt of $7,600,000
from the sale of Skipper's, Inc.
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.
Seasonality
As a result of the diversification of its restaurant concepts, the
Company has not experienced significant seasonality in its sales. 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.
As Tony Roma's becomes a more significant portion of
consolidated sales, the seasonal nature of their operations will have more
significant influence on the seasonal cycles of the consolidated sales
volume.
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. Under the line of credit 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 Matters
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 fluctuation, 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.
Revisions in the current minimum wage laws increased the minimum wage from
$4.25 to $4.75 per hour on October 1, 1996, with an additional increase
to $5.15 per hour on October 1, 1997. The
minimum wage for tipped employees will remain unchanged, but employers
will be required to adjust the employees compensation to minimum wage if
tips received are not sufficient, which has been the Company's
practice historically. Management anticipates the impact of these
changes will initially increase labor cost as a percent of sales by
approximately one-half of a percentage point at Pizza Hut and Tony
Roma's. Upon full implementation in October 1997, labor cost, as a
percent of
sales, are expected to be approximately one percentage point higher
than current levels for both Pizza Hut and Tony Roma's. These estimates
are made without consideration of the impact of future menu price
increases and other strategies.
Cheese costs at Pizza Hut are expected to remain at or slightly higher
than current levels through the third quarter with relief anticipated in
the fourth quarter. However, fourth quarter costs, although lower than
current costs, are expected to be approximately 10% to 15% higher than
last year. Tony Roma rib costs are projected to be approximately 14% to
18% higher in the third quarter of the current year compared to last
year with
fourth quarter cost higher than last year by an estimated 22% to 25%.
In response to the above factors, management has implemented menu price
increases at both concepts. In late September, Pizza Hut initiated a
weighted average 2% price increase. Significant items effected
include the base price of a cheese pizza, and
increased lunch buffet price. Due to promotional pricing on selected
items, approximately one-half of the increase is expected to be
realized. Tony Roma's increased their menu price by 2.8% on October
14, 1996. Management anticipates this
increase will fully offset the wage and commodity increases as currently
estimated.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
There have been no material changes in the legal proceedings
reported in the Company's Annual Report on Form 10-K for the year ended
March 26, 1996.
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Stockholders was held on August 27, 1996.
(b) Proxies were solicited by the Company pursuant to Regulation 14
under the Securities Exchange Act of 1934, there was no
solicitation in opposition of the nominees as listed in the proxy
statement, and all such nominees were elected pursuant to the vote of the
stockholders.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. The following exhibits are included with this
report:
The following Exhibits are filed as part of this Report:
Exhibit 11 - Statement Regarding Computation of Per Share
Earnings - Page 16.
Exhibit 27 - Financial Data Schedule
(b) Reports on Forms 8-K (incorporated by reference)
The following reports on Form 8-K were filed during the thirteen
weeks ended September 24, 1996.
October 7, 1996 - Announcement of the Acquisition of R&W
Restaurants of North Carolina, Inc.
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NPC INTERNATIONAL, INC.
(Registrant)
DATE: November 7, 1996 Troy D. Cook
Vice President Finance and
Chief Financial Officer
(Principal Financial Officer)
DATE: November 7, 1996 Alan L. Salts
Corporate Controller and
Chief Accounting Officer
(Principal Accounting Officer)
<TABLE>
Exhibit 11
NPC INTERNATIONAL, INC.
Statement Regarding Computation of Per Share
Earnings (Unaudited)
Thirteen Weeks Ended Twenty-Six Weeks Ended
Sept. 24, 1996 Sept. 26, 1995 Sept. 24, 1996 Sept. 26, 1995
Shares outstanding
at the beginning of
<S> <C> <C> <C> <C>
period $24,669,723 $24,507,324 $24,522,432 $24,505,324
Weighted average of
shares issued
during period 18,039 2,637 131,780 2,374
Assuming exercise of
options and warrants
reduced by the number
of shares which
could have been
purchased with the
proceeds from
exercise 372,852 135,007 386,245 85,574
Shares outstanding for
computation of per
share earnings 25,060,614 24,644,968 25,040,457 24,593,272
Net income $3,946,000 $3,637,000 $9,468,000 $7,762,000
Earnings per
share $ .16 $ .15 $ .38 $ .32
FULLY DILUTED
Shares outstanding
at beginning of
period 24,669,723 24,507,324 24,522,432 24,505,324
Weighted average of
shares issued
during period 18,039 2,637 131,780 2,374
Assuming exercise of
options and warrants
reduced by the number
of shares which could
have been purchased
with the proceeds from
exercise 372,852 144,131 386,245 103,529
Shares outstanding for
computation of per
share earnings 25,060,614 24,654,092 25,040,457 24,611,227
Net income $3,964,000 $3,637,000 $9,468,000 $7,762,000
Earnings per share $ .16 $ .15 $ .38 $ .32
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-25-1997
<PERIOD-END> SEP-24-1996
<CASH> 2814000
<SECURITIES> 0
<RECEIVABLES> 2820000<F1>
<ALLOWANCES> 0<F1>
<INVENTORY> 3235000
<CURRENT-ASSETS> 19750000
<PP&E> 106685000<F1>
<DEPRECIATION> 0<F1>
<TOTAL-ASSETS> 197638000
<CURRENT-LIABILITIES> 28984000
<BONDS> 0
0
0
<COMMON> 276000
<OTHER-SE> 87707000
<TOTAL-LIABILITY-AND-EQUITY> 197638000
<SALES> 137828000
<TOTAL-REVENUES> 140972000
<CGS> 38396000
<TOTAL-COSTS> 38396000
<OTHER-EXPENSES> 84725000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2397000
<INCOME-PRETAX> 15526000
<INCOME-TAX> 6058000
<INCOME-CONTINUING> 9468000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9468000
<EPS-PRIMARY> .38
<EPS-DILUTED> .38
<FN>
<F1>Not required to be separately provided for interim financial statement
purposes. Receivables and PP&E are net balances.
</FN>
</TABLE>
