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
December 26, 1995
[ ] 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 February 9, 1996:
Common Stock, $0.01 par value - 24,520,862
NPC INTERNATIONAL, INC.
INDEX
PAGE
PART I. FINANCIAL INFORMATION
Condensed Consolidated Balance Sheets --
December 26, 1995 and March 28, 1995 3
Condensed Consolidated Statements of Income --
For the Thirteen and Thirty-Nine Weeks Ended
December 26, 1995 and December 27, 1994 4
Condensed Consolidated Statements of Cash Flows --
For the Thirteen and Thirty-Nine Weeks Ended
December 26, 1995 and December 27, 1994 5
Notes to Condensed Consolidated Financial Statements6
Management`s Discussion and Analysis of
Financial Condition and Results of Operations 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 6. Exhibits and Reports on Form 8-K 14
PART I - FINANCIAL INFORMATION
NPC International, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
Dec. 26, 1995 March 28, 1995
ASSETS
Current assets:
Cash $ 8,410,000 $ 9,971,000
Accounts receivable, net 1,316,000 2,357,000
Notes receivable, net 367,000 867,000
Inventories of food
and supplies 5,145,000 3,261,000
Deferred income tax asset 1,803,000 5,104,000
Prepaid expenses and
other current assets 1,489,000 2,253,000
Total current assets 18,530,000 23,813,000
Facilities and equipment, net 122,048,000 116,190,000
Assets held for sale, net 3,357,000 7,717,000
Franchise rights, net 43,887,000 33,939,000
Goodwill, less
accumulated amortization 18,099,000 18,710,000
Other assets 9,414,000 8,813,000
$215,335,000 $209,182,000
LIABILITIES AND STOCKHOLDERS` EQUITY
Current liabilities:
Accounts payable $ 16,889,000 $ 16,350,000
Payroll taxes 1,379,000 1,332,000
Accrued interest 1,208,000 1,992,000
Accrued payroll 3,681,000 2,284,000
Current portion of closure provision 2,400,000 2,400,000
Health and worker`s compensation
insurance reserves 9,497,000 8,268,000
Other accrued liabilities 4,219,000 1,242,000
Current portion of long-term debt 1,313,000 1,308,000
Total current liabilities 40,586,000 35,176,000
Long-term debt and obligations
under capital leases 80,124,000 82,850,000
Deferred income tax liability 2,996,000 2,996,000
Closure provision and
other deferred items 4,800,000 7,873,000
Stockholders` equity:
Common Stock 276,000 ---
Class A Common Stock --- 139,000
Class B Common Stock --- 137,000
Paid-in capital 21,858,000 22,020,000
Retained earnings 86,547,000 80,086,000
108,681,000 102,382,000
Less treasury stock (21,852,000) (22,095,000)
Total stockholders` equity 86,829,000 80,287,000
$215,335,000 $209,182,000
See notes to condensed consolidated financial statements.
NPC International, Inc.
Condensed Consolidated Statements of Income
(Unaudited)
For the Thirteen For the Thirty-Nine
Weeks Ended Weeks Ended
Dec. 26, Dec. 27, Dec. 26, Dec. 27,
1995 1994 1995 1994
Net sales $75,954,000 $75,610,000 $235,829,000 $235,766,000
Net franchise revenue 1,693,000 1,549,000 4,324,000 4,322,000
Total revenue 77,647,000 77,159,000 240,153,000 240,088,000
Cost of sales 23,684,000 22,894,000 70,293,000 69,815,000
54,963,000 54,265,000 169,860,000 170,273,000
Direct labor costs 20,527,000 22,287,000 65,066,000 68,721,000
Operating expenses 20,078,000 20,862,000 62,792,000 64,224,000
General and
administrative
expenses 6,102,000 6,118,000 17,729,000 18,375,000
46,707,000 49,267,000 145,587,000 151,320,000
Operating income 8,256,000 4,998,000 24,273,000 18,953,000
Interest expense (1,531,000) (1,545,000) (4,470,000) (4,589,000)
Other income (expense) (254,000) 71,000 (221,000) 104,000
Income before
income taxes 6,471,000 3,524,000 19,312,000 14,468,000
Provision for
income taxes 2,559,000 1,366,000 7,638,000 5,600,000
Net income $ 3,912,000 $ 2,158,000 $11,674,000 $ 8,868,000
Earnings per share $ 0.16 $ 0.09 $ 0.47 $ 0.36
Weighted average
shares outstanding 24,703,935 24,545,988 24,630,160 24,847,608
See notes to condensed consolidated financial statements.
NPC International, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
For the Thirty-Nine Weeks Ended
Dec. 26, 1995 Dec. 27, 1994
CASH FLOWS PROVIDED
BY OPERATING ACTIVITIES:
Net income $ 11,674,000 $ 8,868,000
Adjustments to reconcile net income
to net cash provided
by operating activities
Depreciation and amortization 14,442,000 16,217,000
Closure reserve (3,162,000) ---
Deferred income taxes and other 3,390,000 (14,000)
Change in assets and liabilities,
net of acquisitions:
Accounts receivable, net 1,051,000 (529,000)
Notes receivable, net 500,000 (260,000)
Inventories of food and supplies (1,884,000) 56,000
Prepaid expenses and
other current assets 764,000 (1,027,000)
Accounts payable 539,000 (1,615,000)
Payroll taxes 47,000 (87,000)
Accrued interest (784,000) (773,000)
Accrued payroll 1,397,000 687,000
Health & worker`s compensation
insurance reserves 1,430,000 1,138,000
Other accrued liabilities 2,766,000 (1,756,000)
Net cash flows provided
by operating activities 32,170,000 20,905,000
CASH FLOWS USED
BY INVESTING ACTIVITIES:
Capital expenditures,
including the acquisition
of business assets, net of cash (27,710,000) (18,143,000)
Payment of special dividend (5,213,000) ---
Changes in other assets, net (2,884,000) 559,000
Proceeds from sale of capital assets 4,716,000 1,219,000
Net cash flows used
by investing activities (31,091,000) (16,365,000)
CASH FLOWS USED BY FINANCING ACTIVITIES:
Purchase of treasury stock --- (3,029,000)
Net change in revolving
credit agreements (16,510,000) (8,910,000)
Payment of long-term debt (6,211,000) (6,155,000)
Proceeds from issuance
of long-term debt 20,000,000 10,000,000
Exercise of stock options 81,000 170,000
Net cash flows (used by)
financing activities (2,640,000) (7,924,000)
NET CHANGE IN CASH (1,561,000) (3,384,000)
CASH AT BEGINNING OF PERIOD 9,971,000 8,119,000
CASH AT END OF PERIOD $ 8,410,000 $ 4,735,000
See notes to condensed consolidated financial statements.
NPC International, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1
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. As of August 9, 1995, the new class of
common stock began trading on the NASDAQ Stock Market under the new
ticker symbol `NPCI` and CUSIP 629360 30 6. Par value for the new common
stock is $0.01 per share, with 24,512,324 shares issued and outstanding of
the 100,000,000 shares authorized for issue.
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, payable August
30, 1995. Registered stockholders may retain their previously-issued Class
A and Class B stock certificates to represent their comparable holdings in
the new class of stock, or they may tender their existing stock
certificates to American Stock Transfer, 40 Wall Street, New York, NY 10005
to receive a new certificate.
Note 2
The Company announced on November 6, 1995 that it had received a proposal
by certain members of management of the Company to purchase all common
stock not currently owned by the management group for $9.00 per share. A
Special Committee consisting of all of the outside directors was formed to
evaluate the proposal, and it retained counsel and CS First Boston to
determine whether the proposal was fair to the public stockholders of the
Company from a financial point of view. Negotiations between the Committee
and Management failed to produce a satisfactory agreement. On December 11,
1995, management withdrew its offer.
Note 3
In the opinion of management of the Company, the accompanying unaudited
condensed consolidated financial statements contain all normal recurring
adjustments necessary to present fairly the financial position of the
Company as of December 26, 1995 and March 28, 1995, the results of
operations for the thirteen and thirty-nine weeks ended December 26, 1995
and December 27, 1994 and the statements of cash flows for the thirty-nine
weeks ended December 26, 1995 and December 27, 1994.
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 28, 1995. Certain reclasses were made to
prior year statements to conform with the current year presentation.
Note 4
There were cash payments for income taxes of $2,840,000 in the thirty-nine
weeks ended December 26, 1995 and $7,200,000 in the thirty-nine weeks ended
December 27, 1994. Cash paid for interest for the thirty-nine weeks ended
December 26, 1995 and December 27, 1994 was $5,104,000 and $5,400,000
respectively.
NPC International, Inc.
Management`s Discussion and Analysis
of Financial Condition and Results of Operations
At December 26, 1995, NPC International, Inc. owned and operated 279 Pizza
Hut restaurants and 95 delivery kitchens in eleven states. The Company`s
pizza restaurants are generally free standing, full table service
restaurants which offer high quality and moderately priced pizza, pasta,
sandwiches and a salad bar. Beverage service includes soft drinks and, in
most restaurants, beer. Delivery kitchens provide home delivery and carry
out of pizza products, but they do not have dining facilities, salad bars
or beer.
On the same date, the Company owned and operated 105 and franchised 10
quick service seafood Skipper`s restaurants in seven western states and
British Columbia. Skipper`s offers a limited menu including fish, shrimp
and clams. Each restaurant features a casual atmosphere and beer is served
in most locations.
The Company is also the owner and operator of 32 Tony Roma`s restaurants in
eight states, and franchisor of 100 restaurants in 20 states and 41 foreign
locations at December 26, 1995. Tony Roma`s is a casual theme restaurant
that is `Famous for Ribs,` and also offers a variety of menu choices
including chicken, steaks and salads. All Tony Roma`s restaurants serve
alcohol.
Pizza Hut Operations
For the Thirteen Weeks Ended
December 26, 1995 December 27, 1994
Restaurants Delivery Restaurants Delivery
Net restaurant sales $39,885,000 $12,790,000 $36,608,000 $11,866,000
Net franchise revenue --- --- 3,000 ---
Total revenue $39,885,000 $12,790,000 $36,611,000 $11,866,000
Percentage of
total revenue:
Cost of sales 27.1% 25.8% 26.9% 24.8%
Direct labor costs 24.6% 30.4% 25.5% 31.6%
Operating expenses 25.5% 24.2% 23.7% 24.6%
77.2% 80.4% 76.1% 81.0%
Restaurant profit 22.8% 19.6% 23.9% 19.0%
For the Thirty-Nine Weeks Ended
December 26, 1995 December 27, 1994
Restaurants Delivery Restaurants Delivery
Net restaurant sales $126,648,000 $39,460,000 $113,062,000 $37,062,000
Net franchise revenue 11,000 --- 74,000 ---
Total revenue $126,659,000 39,460,000 $113,136,000 $37,062,000
Percentage of
total revenue:
Cost of sales 26.7% 25.5% 26.1% 24.5%
Direct labor costs 25.2% 30.9% 25.6% 31.9%
Operating expenses 25.6% 24.7% 24.5% 24.8%
77.5% 81.1% 76.2% 81.2%
Restaurant profit 22.5% 18.9% 23.8% 18.8%
Number of units 279 95 257 87
Comparison of Operating Results for the Thirteen Weeks Ended
December 26, 1995 with the Thirteen Weeks Ended December 27, 1994
Net restaurant sales from Pizza Hut operations for the thirteen weeks ended
December 26, 1995, were $52.7 million, up $4.2 million or 8.7% from the
same period in the prior fiscal year. Sales in restaurants and delivery
kitchens open in excess of twelve months increased approximately 1.7% over
the same quarter a year earlier, reflecting the introduction of Stuff Crust
pizza in April.
Cost of sales as a percentage of revenue for the thirteen weeks ended
December 26, 1995 increased slightly to 26.8% of revenues when compared
with the 26.4% of revenues recorded for the thirteen weeks ended December
27, 1994. Part of this increase is due to the promotional pricing of
Stuffed Crust pizza. This new pizza product, because of its high cheese
content, also has a slightly higher-than-normal food cost. Cheese prices,
which traditionally accounts for approximately 40% of a pizza`s cost,
were about 12% higher in the recent fiscal quarter when compared with
the same fiscal quarter a year ago. Cost of sales includes food and
beverage costs and the expense of paper takeout supplies.
Direct labor in the Pizza Hut operations decreased to 26% of revenue for
the most recent quarter, compared to 27% incurred during the quarter a year
ago. The decrease is due to increased focus on operational controls by
management and higher volume. Direct labor includes taxes and benefits,
such as vacation and insurance, as well as restaurant worker`s compensation
expense.
Overall operating expenses increased as a percentage of sales to 25.1% of
revenues for the quarter ended December 26, 1995 from 23.9% of revenues for
the quarter ended December 27, 1994, due to increases in various expenses,
including repairs and equipment rental principally consisting of a new
point-of-sale computer system. Major operating expenses in the Pizza Hut
division include advertising, depreciation and amortization, franchise fees
and rent.
Comparison of Operating Results for the Thirty-Nine Weeks Ended
December 26, 1995 with the Thirty-Nine Weeks Ended December 27, 1994
Net restaurant sales from Pizza Hut operations for the thirty-nine weeks
ended December 26, 1995 were $166.1 million, an increase of $16
million or 10.6% from the same thirty-nine week period of the prior
fiscal year. Comparable store sales growth wasof 4.9% on a year-to-date basis.
Cost of sales in the Pizza Hut operations for the thirty-nine weeks ended
December 26, 1995 was 26.42% of total revenue, which was slightly higher
than the 25.8% recorded during the comparable period in the prior year, due
to the higher cheese content of Pizza Hut`s new Stuffed Crust pizza and the
promotional price of $9.99 for this product. Cheese prices are
approximately 2.7% higher than last year.
Direct labor in the Pizza Hut operations decreased to 26.6% of net sales
for the first three quarters of the fiscal year, compared with 27.2% for
the comparable period a year ago. This reduction is due to the
higher sales volume and increased focus by management to maintain
optimum labor efficiency. Direct labor includes taxes and benefits, such
as vacation and insurance, as well as restaurant worker`s compensation expense.
Overall operating expenses increased as a percentage of revenue to 25.4%
for the fiscal year-to-date through December 26, 1995 from 24.5% for the
thirty-nine weeks ended December 27, 1994. The Company experienced increases
in equipment rental and repairs when comparing the fiscal year-to-date
figures with the comparable period of the prior year as noted above.
Additionally, franchise fee expense has increased because the rate paid on
23 units acquired in April is higher than the Company`s other units. In
June 1996, the effective franchise fee will increase approximately 1.75
points to 4% for all stores.
Skipper`s Operations
For the Thirteen Weeks Ended
December 26, 1995 December 27, 1994
Net restaurant sales $10,868,000 $17,331,000
Net franchise revenue 14,000 55,000
Total revenue $10,882,000 $17,386,000
Percentage of revenue:
Cost of sales 40.0% 38.9%
Direct labor costs 27.8% 34.7%
Operating expenses 31.1% 36.0%
98.9% 109.6%
Restaurant profit 1.1% (9.6)%
For the Thirty-Nine Weeks Ended
December 26, 1995 December 27, 1994
Net restaurant sales $34,031,000 $55,732,000
Net franchise revenue 82,000 194,000
Total revenue $34,113,000 $55,926,000
Percentage of revenue:
Cost of sales 41.2% 37.6%
Direct labor costs 29.1% 32.7%
Operating expenses 31.2% 33.0%
101.5% 103.3%
Restaurant profit (1.5)% (3.3)%
Number of Company units 105 183
Number of franchised units 11 14
Comparison of Operating Results for the Thirteen Weeks Ended
December 26, 1995 with the Thirteen Weeks Ended December 27, 1994
Because the Company closed 44% of its units in February 1995, sales have
significantly declined when compared with the same period a year ago.
Specifically, total revenue has declined 37.3% from the same thirteen week
period a year ago. Comparable store sales were down 4.4% from the same
quarter of the prior year.
Franchising revenue has also fallen due to fewer franchised units operating
in the most recent quarter and lower sales in the remaining units.
Cost of sales, when expressed as a percentage of net revenue, rose to 40%
in the current quarter ended December 26, 1995 from 38.9% during the
quarter ended December 27, 1994. Part of this increase is due to the
higher quality fish products that are being used. Management is currently
reviewing other strategies available to it to reduce cost of sales as a
percent of revenue including procurement procedures, menu enhancement and
food waste reduction. Effective purchasing helped lower cost of sales as a
percent of sales from 42% in the preceding quarter of the current fiscal
year.
Through improved scheduling, direct labor continued to fall to 27.8% of
total revenue for the quarter just ended compared with 34.7% for the same
period a year ago. Operating expenses declined significantly, to 31.1% of
revenue for the thirteen weeks ended December 26, 1995 when compared with
36% of revenue for the December 1994 quarter, due to the closing of low
volume units in February 1995, as well as a reduction in advertising
expenses.
To improve cash flow and reduce losses at the chain, the Company closed 77
Skipper`s stores in February 1995. As part of this closure, the Company
wrote off $13.3 million in goodwill associated with the 1989 acquisition of
Skipper`s and recorded a reserve of $21.7 million for the estimated losses
and expenses related to the closure. As of December 26, 1995 this reserve
stands at $12.5 million, with 26 properties remaining to be sold or
subleased.
Comparison of Operating Results for the Thirty-Nine Weeks Ended
December 26, 1995 with the Thirty-Nine Weeks Ended December 27, 1994
Net sales declined 38.9% and franchising revenue dropped 57.7% when
comparing the thirty-nine weeks ended December 26, 1995 with the same
period in the prior year, due primarily to the February 1995 closure.
Stores open in excess of one year realized a 7.9% decline in sales on
average for the thirty-nine weeks ended December 26, 1995 when compared
with the same period a year ago. Guest counts have declined about 13.5% on
a fiscal year-to-date basis.
Cost of sales rose to 41.2% from 37.6% of revenue on a year-to-date basis
with the introduction of higher quality products which were not totally
offset by higher menu prices. Direct labor as a percent of sales declined
to 29.1% from 32.7% through improved scheduling. Operating expenses
declined slightly to 31.2% from 33% with reductions in rent and utilities.
Management continues to consider alternative strategies to maximize
shareholder value if sufficient improvement is not achieved by fiscal year
end.
Tony Roma`s Operations
For the Thirteen Weeks Ended
December 26, 1995 December 27, 1994
Net restaurant sales $12,411,000 $ 9,802,000
Net franchise revenue 1,679,000 1,494,000
Total revenue $14,090,000 $11,296,000
Percentage of revenue:
Cost of sales 29.9% 29.7%
Direct labor costs 26.9% 28.1%
Operating expenses 24.5% 26.5%
81.3% 84.3%
Restaurant profit 18.7% 15.7%
For the Thirty-Nine Weeks Ended
December 26, 1995 December 27, 1994
Net restaurant sales $35,690,000 $29,909,000
Net franchise revenue 4,231,000 4,055,000
Total revenue $39,921,000 $33,964,000
Percentage of revenue:
Cost of sales 31.0% 29.7%
Direct labor costs 27.5% 28.5%
Operating expenses 25.0% 26.3%
83.5% 84.5%
Restaurant profit 16.5% 15.5%
Number of Company units* 30 24
Number of franchised units 141 144
*Does not include two joint ventures accounted for under the equity method
of accounting.
Comparison of Operating Results for the Thirteen Weeks Ended
December 26, 1995 with the Thirteen Weeks Ended December 27, 1994
Revenue continued to increase with the addition of three Company-owned
restaurants in the current quarter. For the year-to-date five
Company units have been added. Comparable store sales were up 6.2% for the
thirteen weeks ended December 26, 1995 compared with the same
quarter of the prior year. An early November menu price increase accounted
for 3.5% of this growth.
Net franchise revenue was up 12.3% for the thirteen weeks, due to a
reduction in the allocation of applicable expenses.
Cost of sales remained relatively flat at 29.9% of total revenue from 29.7%
despite higher rib prices. Direct labor was 26.9% of total revenue during
the quarter ended December 26, 1995 which was significantly lower than the
28.1% recorded during the same quarter of the prior year. This decrease is
largely due to a company wide focus on operational controls as well as the
November menu price increase. Labor includes pay and benefits for all
restaurant employees and managers, as well as workers compensation costs.
Operating expenses as a percent of revenue improved to 24.5% of revenue for
the most recent quarter compared with 26.5% recorded during the same
quarter of the prior year. As a percent of sales, the Company continued to
realize lower advertising, maintenance and insurance costs.
Comparison of Operating Results for the Thirty-Nine Weeks Ended
December 26, 1995 with the Thirty-Nine Weeks Ended December 27, 1994
Comparable sales for the thirty-nine weeks ended December 26, 1995
increased 2.9% when compared with the same period of the prior year. Net
franchise revenue increased 4.3%, to $4.2 million for the thirty-nine
weeks ended December 26, 1995 primarily due to sales growth at existing
units. Eight franchised units have opened and ten have closed during the
fiscal year-to-date.
Due to higher rib prices, cost of sales have increased to 31% of revenue
compared to 29.7% of revenue for the prior fiscal year. Management
anticipates a further rise in rib prices, which will continue to be partially
offset by the menu price increase.
Direct labor and operating expenses decreased as a percent of revenue due
to continued improvement in operating efficiencies in addition to a higher
revenue base.
Consolidated Results
Comparison of Operating Results for the Thirteen Weeks Ended
December 26, 1995 with the Thirteen Weeks Ended December 27, 1994
Total revenues were $77.6 million compared to $77.2 million reported during
the same quarter last year. Total revenue for the Pizza Hut and Tony
Roma`s operations increased 8.7% and 26.6%, respectively, while Skipper`s
revenue declined 37.3% due to the 77-unit closure in February. Net
franchising revenue increased 9.3% for the quarter.
General and administrative expenses were 7.9% of revenue during the
thirteen weeks ended December 26, 1995 and December 27, 1994. Major
general and administrative expenses include corporate and field management
salaries, amortization of intangible assets, and bank service charges.
Interest expense remained about the same when comparing the two quarterly
periods.
Net income for the thirteen weeks ended December 26, 1995 was $3.9
million, an 81.2% increase from the $2.1 million reported for the thirteen
weeks ended December 27, 1994. The Company experienced improvement in its
Pizza Hut and Tony Roma`s operations and significantly reduced losses at
Skipper`s. The effective tax rate for the quarter ended December 26, 1995
was 39.55% compared with a 38.7% rate used for the comparable quarter a
year earlier (subsequently adjusted to 39.55% on a year-to-date basis
during the quarter ended March 28, 1995).
Comparison of Operating Results for the Thirty-Nine Weeks Ended
December 26, 1995 with the Thirty-Nine Weeks Ended December 27, 1994
Overall revenue was flat when comparing the current fiscal year to date
with the prior year`s figures. Net sales increased 10.6% at Pizza Hut and
19.3% at Tony Roma`s, offset by a 38.9% decrease in net sales due to the
Skipper`s closure. Net franchise revenue for the thirty-nine week period
ended December 26, 1995 was flat.
Consistent with the quarterly analysis, general and administrative costs
declined as a percent of revenue, to 7.2% of revenue for the thirty-nine
weeks ended December 26, 1995 from 7.7% for the same period in the prior
year. Interest costs remained approximately the same.
In March 1995, the Company increased its effective tax rate to 39.55% for
the fiscal year from the 38.7% rate used for the first three quarters ended
December 27, 1994. This 39.55% rate has remained in effect throughout the
year.
Liquidity, Capital Resources and Cash Flows
On December 26, 1995, the Company had a working capital deficit of $22.1
million, compared with a $18.9 million deficit at December 27, 1994. Like
most restaurant businesses, 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 $11.1
million was borrowed as of December 26, 1995. On April 25, 1995, the
Company borrowed $10 million under its shelf agreement at a rate of 8.02%,
the proceeds of which were used to partially finance the purchase of 23
stores acquired on April 19. The principal payments on this note will
begin in 1998 and end in the year 2002. On June 29, 1995, the Company
increased the borrowing limit on the $20 million shelf agreement originally
dated June 9, 1994 by an additional $40 million with the opportunity to
borrow under the agreement, at the lender`s discretion, extended for a
period of two years. The Company borrowed $10 million under this increased
shelf agreement on July 18, 1995 at a rate of 6.96%; principal payments for
this note will commence in 1998 and will end in the year 2002. The Company
was in compliance with all debt covenants, as amended, as of December 26,
1995.
Net cash flows from operating activities increased $11.2 million when
comparing the thirty-nine week period ended December 26, 1995 with the
comparable period a year earlier. This 53% increase is attributable to
higher earnings and normal fluctuations in working capital components.
Approximately $5.2 million for a special dividend to Class A stockholders
on August 30, 1995 was funded from the Company`s current line of credit
agreement. The Company has been authorized to purchase shares of
its common stock, of which 454,500 shares remain unpurchased.
The Company anticipates cash flow from operations will provide sufficient
capital to fund continuing expansion and improvements, to service debt
obligations and to develop new restaurants in existing territories.
Seasonality and Effects of Inflation
As a result of continued concept diversification, the Company has not
experienced significant seasonality in its sales. Skipper`s sales are
typically higher in the fourth quarter of the fiscal year, during the
Lenten period. Tony Roma`s sales are traditionally higher than average in
January to March and lower in July to September.
Inflationary factors such as increases in food and labor costs directly
affect the Company`s operations. Because most of the Company`s employees
are paid hourly rates related to federal and state minimum wage and tip
credit laws, changes in these laws will result in increases in the
Company`s labor costs. Legislation mandating health coverage for
employees, if passed, will increase benefit costs since most hourly
restaurant employees are not currently covered under Company plans. The
Company cannot always effect immediate price increases to offset higher
costs, and no assurance can be given that the Company will be able to do so
in the future.
Increases in interest rates could directly affect the Company`s operations.
To reduce its interest exposure under its line of credit agreement,
the Company may select among alternative interest rate options
with terms up to six months in length.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
A petition was filed on November 7, 1995, in the District Court of
Wyandotte County, Kansas by Charles Miller and Kenneth Steiner (the Miller
Steiner action), individually and on behalf of all others similarly situated,
against O. Gene Bicknell, Chairman of the Board and Chief Executive Officer,
James K. Schwartz, President and Chief Operating Officer, and Troy D. Cook,
Vice President-Finance and Chief Financial Officer (collectively, the
`Management Group`) and NPC International, Inc. The suit seeks class
action status, injunctive relief, unspecified monetary damages and attorney
fees arising from the Management Group`s initial proposal to purchase the
publicly held common stock of the Company for $9.00 per share.
The Company was served with a second action on November 28, 1995 which was
filed in the District Court of Crawford County, Kansas by Harbor Finance
Partners, a Colorado partnership, against NPC International, Inc., and
certain directors of the Company. The suit seeks class action status,
injunctive relief, unspecified monetary damages and attorney fees arising
from the Management Group`s initial proposal to purchase the publicly held
common stock of the Company for $9.00 per share.
On December 11, 1995 the Management Group withdrew its offer to buy the
stock.
Harbor Finance Partners dismissed their action against the Company and its
directors without prejudice on January 31, 1996.
The Miller Steiner action is still pending. The Company believes the
lawsuit is moot, without merit and will vigorously defend the litigation if it
is pursued by the plaintiffs.
Item 6. Exhibits filed as part of this Report and Reports on Form 8-K
(a) Exhibits
The following Exhibits are filed as part of this Report:
Exhibit 11 - Statement Regarding Computation of Per Share
Earnings - Page 15.
(b) Reports on Forms 8-K (incorporated by reference)
The following reports on Form 8-K were filed during the thirteen weeks
ended December 26, 1995:
November 6, 1995 - Announcement of a proposal by the Management Group
to acquire all of the stock not owned by the Management Group for
$9.00 per share.
November 17, 1995 - Announcement of the Miller Steiner action against
the Management Group related to the offer to purchase stock for $9.00
per share.
December 4, 1995 - Announcement of the Harbor Finance Partners action
against the Company and its directors related the offer of the
Management Group to purchase stock for $9.00 per share.
December 12, 1995 - Announcement of the Management Group`s withdrawal
of their offer to purchase stock for $9.00 per share.
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: February 9, 1996 Troy D. Cook
Vice President Finance
Chief Financial Officer
Principal Financial Officer
DATE: February 9, 1996 Alan L. Salts
Corporate Controller
Chief Accounting Officer
Principal Accounting Officer
Exhibit 11
NPC International, Inc.
Statement Regarding Computation of Per Share Earnings
For the Thirteen For the Thirty-Nine
Weeks Ended Weeks Ended
Dec. 26, Dec. 27, Dec. 26, Dec. 27,
1995 1994 1995 1994
PRIMARY
Shares outstanding
at beginning of period 24,512,324 24,863,892 24,505,324 25,013,373
Weighted average of shares
issued and (reacquired)
during period 3,342 (327,973) 5,030 (187,539)
Assuming exercise of
options and warrants
reduced by the number
of shares which could
have been purchased with
the proceeds from exercise 188,269 10,069 119,806 21,774
Shares outstanding
for computation of
per share earnings 24,703,935 24,545,988 24,630,160 24,847,608
Net income $3,912,000 $2,158,000 $11,674,000 $8,868,000
Earnings per share $ 0.16 $ 0.09 $ 0.47 $ 0.36
FULLY DILUTED
Shares outstanding at
beginning of period 24,512,324 24,863,892 24,505,324 25,013,373
Weighted average of
shares issued and
(reacquired) during period 3,342 (327,973) 5,030 (187,539)
Assuming exercise of
options and warrants
reduced by the number
of shares which could
have been purchased with
the proceeds from exercise 192,817 10,069 133,291 23,195
Shares outstanding for
computation of per share
earnings 24,708,483 24,545,988 24,643,645 24,849,029
Net income $3,912,000 $2,158,000 $11,674,000 $8,868,000
Earnings per share $ 0.16 $ 0.09 $ 0.47 0.36
