26
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 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 January 30, 1997:
Common Stock, $0.01 par value - 24,607,119
NPC INTERNATIONAL, INC.
INDEX
PAGE
PART I. FINANCIAL INFORMATION
Consolidated Balance Sheets --
December 24, 1996 and March 26, 1995 3
Consolidated Statements of Income --
For the Thirteen and Thirty-Nine Weeks Ended
December 24, 1996 and December 26, 1995 4
Consolidated Statements of Cash Flows --
For the Thirteen and Thirty-Nine Weeks Ended
December 24, 1996 and December 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 14
PART I - FINANCIAL INFORMATION
NPC International, Inc.
Consolidated Balance Sheets
(Unaudited, dollars in thousands, except share data)
Thirty-Nine Weeks Ended
December 24, 1996 March 26, 1996
ASSETS
Current Assets:
Cash and cash equivalents $ 2,539 $ 1,584
Accounts receivable, net 2,372 10,104
Notes receivable, net 611 831
Inventories of food and supplies 3,322 3,730
Income tax receivable 257 285
Deferred income tax asset 5,165 12,186
Prepaid expenses and
other current assets 2,941 2,367
Total current assets $ 17,207 $ 31,087
Facilities and equipment, net 117,286 93,541
Assets held for sale 4,798 5,904
Franchise rights, net 68,766 43,512
Goodwill 18,445 19,092
Other assets 4,153 4,693
TOTAL ASSETS $230,655 $197,829
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable $ 12,752 $ 10,410
Payroll taxes 1,270 1,647
Accrued interest 1,076 2,159
Accrued payroll 5,332 4,385
Current portion of closure reserve 325 3,500
Insurance reserves 4,421 4,151
Other accrued liabilities 6,535 6,617
Current portion of long-term debt 441 535
Total current liabilities 32,152 33,404
Long-term debt 92,671 72,793
Deferred income tax liability 3,373 3,981
Closure reserve 5,023 4,000
Other deferred items 195 168
Health and workers
compensation reserves 6,354 6,163
Stockholders' Equity:
Common stock, $.01 par value
100,000,000 shares authorized,
27,592,510 issued 276 276
Paid-in capital 20,986 21,829
Retained earnings 90,162 77,016
111,424 99,121
Less treasury stock at cost,
representing 2,988,241 and
3,070,078 shares, respectively (20,537) (21,801)
Total stockholders' equity 90,887 77,320
TOTAL LIABILITIES AND EQUITY $230,655 $197,829
See Notes to Consolidated Financial Statements
NPC International, Inc.
Consolidated Statements Of Income
(Unaudited, dollars in thousands, except share data)
Thirteen Weeks Ended Thirty-Nine Weeks Ended
Dec. 24, 1996 Dec. 26, 1995 Dec. 24, 1996 Dec. 26, 1995
Net Sales $ 72,065 $ 75,954 $209,893 $ 235,829
Net franchise revenue 1,646 1,693 4,790 4,324
Total revenue 73,711 77,647 214,683 240,153
Cost of sales 20,906 22,684 59,302 70,293
Direct labor 20,681 20,527 58,968 65,066
Other 19,796 20,078 56,462 62,792
Total operating
expenses 61,383 63,289 174,732 198,151
Income from restaurant
operations 12,328 14,358 39,951 42,002
General & administrative
expenses 5,082 6,102 14,854 17,729
Operating income 7,246 8,256 25,097 24,273
Other income (expense)
Interest expense (1,334) (1,531) (3,731) (4,740)
Other 112 (254) 184 (221)
Income before income taxes 6,024 6,471 21,550 19,312
Provision for income taxes 2,346 2,559 8,404 7,638
Net income $ 3,678 $ 3,912 $13,146 $11,674
Earning per share $ .15 $ .16 $ .53 $ .47
Weighted average shares
outstanding 24,945,579 24,703,935 25,008,831 24,630,160
See Notes to Consolidated Financial Statements
NPC International, Inc.
Consolidated Statements Of Cash Flow
(Unaudited, dollars in thousands)
Thirty-Nine Weeks Ended
Dec . 24, 1996 Dec. 26, 1995
Cash Flows Provided By Operating Activities:
Net income $13,146 $11,674
Non-cash items included in net income:
Depreciation and amortization 12,245 14,442
Amortization of pre-opening costs 1,272 682
Deferred income taxes and other 6,413 3,301
Change in assets and liabilities, net of acquisitions:
Accounts receivable, net 132 1,034
Notes receivable, net 220 529
Inventories of food and supplies 554 (1,898)
Income tax receivable 28 4,550
Prepaid expenses and other current assets (1,846) 916
Accounts payable 2,342 1,701
Payroll taxes (377) 26
Accrued interest (1,083) (784)
Accrued payroll 947 868
Health and workers compensation
insurance reserves 461 1,229
Other accrued liabilities (2,208) (5,259)
Net cash flows provided by
operating activities 32,246 33,011
Cash Flows Used By Investing Activities:
Capital expenditures (32,287) (18,804)
Acquisition of business assets, net of cash (28,080) (13,400)
Changes in other assets, net 660 769
Proceeds from sale of capital assets 8,211 4,716
Net cash flows used in investing activities (51,496) (26,719)
Cash Flows Used By Financing Activities:
Payment of special dividend -- (5,213)
Purchase of treasury stock (904) --
Net change in revolving credit agreement 29,495 (16,510)
Proceeds from issuance of long-term debt -- 20,000
Payment of long-term debt (9,711) (6,211)
Exercise of stock options 1,325 81
Net cash flows (used in) provided by
financing activities 20,205 (7,853)
Net Change In Cash And Cash Equivalents 955 (1,561)
Cash And Cash Equivalents At Beginning Of Period 1,584 9,971
Cash And Cash Equivalents At End Of Period $2,539 $8,410
See Notes to Consolidated Financial Statements
NPC International, Inc.
Notes to 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 December 24, 1996 and March 26, 1996, and the
results of operations and cash flows for the thirteen and thirty-
nine weeks ended December 24, 1996 and December 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 $1,740,000 and
$2,840,000 in the thirty-nine weeks ended December 24, 1996 and
December 26, 1995 respectively. Cash paid for interest for the
thirty-nine weeks ended December 24, 1996 and December 26, 1995 was
$4,814,000 and $5,104,000 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.
Note 4 - Acquisitions
On January 24, 1997, the Company announced that they entered into a
letter of intent to acquire 122 units from Pizza Hut, Inc. This
transaction, if consummated, would increase the total number of
Pizza Hut units operated by the Company to over 530. These units
consist of 88 restaurants and 34 delivery carry-out facilities
which generate annual sales volume of approximately $71 million.
It is anticipated that the transaction will close in two phases
during March 1997 and is subject to negotiation of a definitive
asset acquisition agreement, board approval of both companies,
financing, and approval from regulatory agencies.
This acquisition follows the Company's purchase of 31 units from
R&W Pizza Huts of North Carolina, Inc. which closed October 31,
1996. The addition of the North Carolina stores contributed $3.6
million in sales during the quarter.
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 forward-
looking comments. Actual results of the Company's operations could
materially differ from those indicated in the forward-looking
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 forward-looking 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:
SYSTEM UNIT ACTIVITY
1997 THIRD QUARTER
Beginning Developed Acquired Closed Sold Ending
Company Owned
Pizza Hut
Restaurant 282 8 28 (2) ---- 316
Delivery 93 1 3 (1) ---- 96
Total Pizza Hut 375 9 31 (3) ---- 412
Tony Roma's * 34 5 -- (2) ---- 37
Total Company
Owned 409 14 31 (5) ---- 449
Franchised
Tony Roma's * 136 3 -- -- ---- 139
Total System 545 17 31 (5) ---- 588
1997 YEAR-TO-DATE
Beginning Developed Acquired Closed Sold Ending
Company Owned
Pizza Hut
Restaurant 279 13 28 (4) ---- 316
Delivery 93 3 3 (3) ---- 96
Total Pizza Hut 372 16 31 (7) ---- 412
Tony Roma's * 33 10 -- (6) ---- 37
Total Company
Owned 405 26 31 (13) ---- 449
Franchised
Tony Roma's 142 12 -- (15) ---- 139
Total System 547 38 31 (28) ---- 588
* Does not include two units operated as joint ventures by the Company
Pizza Hut achieved its target objective and opened five new units
and four relocation units during the quarter. On a year-to-date
basis, Pizza Hut has opened eleven 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. Pizza Hut closed three units during the quarter.
Operation of older units that are no longer economically
justifiable is discontinued or the unit is relocated.
Tony Roma's opened five new units during the quarter for a total of
ten 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. 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. 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 15
stores to date. Of the twelve franchised units that have opened,
eight are international and four are 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 thirty-
nine weeks ended December 24, 1996 and December 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.
PIZZA HUT OPERATIONS
(Unaudited)
Thirteen Weeks Ended Thirty-Nine Weeks Ended
Dec. 24, 1996 Dec. 26, 1995 Dec. 24, 1996 Dec. 26, 1995
Restaurant Sales $42,715 $39,901 $123,826 $126,708
Delivery Sales 12,189 12,774 37,097 39,400
Franchise Revenue -- -- -- 11
Total Revenue $54,904 $52,675 $160,923 $166,119
Restaurant Operating Expenses as a Percentage of Revenue
Total Expenses
Cost of Sales 27.4% 26.8% 26.5% 26.4%
Direct Labor 27.7% 26.0% 27.1% 26.6%
Other 27.2% 25.2% 26.9% 25.4%
Total Operating
Expenses 82.3% 78.0% 80.5% 78.4%
Restaurant Income 17.7% 22.0% 19.5% 21.6%
Restaurant Expenses
Cost of Sales 27.7% 27.2% 26.7% 26.7%
Direct Labor 26.5% 24.7% 25.8% 25.2%
Other 27.7% 25.4% 27.3% 25.6%
Total Operating
Expense 81.9% 77.3% 79.8% 77.5%
Restaurant Income 18.1% 22.7% 20.2% 22.5%
Delivery Expenses
Cost of Sales 26.3% 25.8% 25.7% 25.5%
Direct Labor 31.9% 30.4% 31.5% 30.9%
Other 25.4% 24.3% 25.6% 24.7%
Total Operating
Expenses 83.6% 80.5% 82.8% 81.1%
Restaurant Income 16.4% 19.5% 17.2% 18.9%
Comparison of Pizza Hut Operating Results for the Thirteen and Thirty-
Nine Weeks Ended
December 24, 1996 and December 26, 1995
Revenue from Pizza Hut Operations was $54.9 million for the quarter,
an increase of $2.2 million or 4% from the prior year. This increase
is due to a weighted average 2% price increase implemented in
September 1996, and the acquisition of 31 units on October 31, 1996.
During the quarter, management estimates that approximately one-
quarter to one-half of the price increase was realized due to a high
volume of promotional pricing. For the year-to-date, revenue was
$161 million, down $5.1 million or 3.1% from a year ago. Comparable
sales decreased 5.0% for the quarter and 7.2% for the year-to-date
largely due to the successful introduction of stuffed crust pizza
last year and a relatively sluggish third fiscal quarter, consistent
with industry trends. 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 9%
and 8% higher than last year.
Cost of sales as a percent of revenue increased from 26.8% during the
same quarter last year to 27.4% for this year. On a year-to-date
basis cost of sales increased slightly from 26.4% to 26.5%. The
increase for the quarter is due largely to increased cheese prices
that were 13.5% higher than last year for the first ten weeks of the
quarter before falling below last year's levels during the final
three weeks for an average increase of 8.5% from the prior year. For
the year-to-date, cheese prices have averaged 12% higher than a year
ago. However, cost of sales, as a percent of revenue, is consistent
with 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 for the quarter and year-to-date increased from 26.0% to
27.7% of sales and 26.6% to 27.1% respectively. The current year
results are heavily impacted by increased minimum wage, the decline
in comparable sales and increased promotional pricing.
Other operating expenses increased as a percentage of sales to 27.2%
for the quarter and 26.9% for the year-to-date from 25.2% and 25.4%
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 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 per unit sales volumes on these largely fixed
costs.
TONY ROMA'S OPERATION
(Unaudited)
Thirteen Weeks Ended Thirty-Nine Weeks
Ended
Dec. 22, 1996 Dec. 24, 1995 Dec. 22, 1996 Dec. 24, 1995
Restaurant Sales $17,161 $12,411 $48,970 $35,690
Franchise Revenue 1,646 1,679 4,790 4,231
Total Revenue $18,807 $14,090 $53,760 $39,921
Restaurant Operating
Expenses as a Percentage
of Revenue
Cost of Sales 31.3% 29.9% 31.0% 31.0%
Direct Labor 29.2% 26.9% 28.5% 27.5%
Other 25.8% 24.5% 24.5% 25.0%
Total Operating
Expenses 86.3% 81.3% 84.0% 83.5%
Restaurant Income 13.7% 18.7% 16.0% 16.5%
Comparison of Tony Roma's Operating Results for the Thirteen and
Thirty-Nine Weeks Ended
December 24, 1996 and December 26, 1995
Sales for the quarter increased $4.8 million or 38.3% over the same
period last year. On a year-to-date basis, sales were $13.3 million
or 37.2% greater than last year. The increase is due to the opening
of five new restaurants during the quarter, and ten units year-to-
date. During the quarter approximately 32% of units in operation
were opened in the last twelve months. Contributing to the increase
are comparable sales increases for the quarter of .36% and 1.5% 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 1.7% and 2.5% respectively. The Company implemented a 2.8%
price increase during the middle of October.
Net franchise for the quarter was consistent with the same period
last year. For the year-to-date, net franchise revenue increased
$559,000 or 13.2%. This increase is due to the sale of international
franchise rights, and franchisee openings, eight of which were
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.
For the quarter, cost of sales as a percent of revenue increased from
29.9% to 31.3%, while remaining flat at 31.0% for the year-to-date.
The current period increase is largely due to restaurant sales
becoming a more significant portion of the total revenue. As a
percent of restaurant sales, cost of sales increased 41 basis points
over the same quarter last year but on a year-to-date basis is 69
basis points lower than last year. Year-to-date results reflect the
previous year menu modification and price increase. The current
quarter increase is due to increased rib prices, which were 15%
greater than last year, and inefficiencies stemming from the opening
of five units during the period.
During the fifteen weeks preceding the end of the quarter seven new
units were opened. Strategically, staffing levels at restaurant
openings are higher than at units with a mature operation.
Additionally, during this time, focus is placed on maintaining the
number of tables in service at lower than normal levels. This is
done to ensure a quality experience and promote long-term high
frequency repeat business. This results in additional labor cost
during the first six months of operation although significant
improvement is expected within the first sixteen weeks. With a
significant portion (23%) of restaurants in the "start-up" phase, and
net franchise revenue decreasing as a percent of total revenue, labor
cost increased to 29.2% and 28.5% of revenue for the quarter and year-
to-date respectively, from 26.9% and 27.5% for the same periods last
year.
Other operating expenses, as a percent of revenues increased to 25.8%
for the quarter up from 24.5% for last year while year-to-date
results of 24.5% remain below last year's levels of 25.0%. The
increase for the quarter is primarily due to the amortization of pre-
opening cost associated with stores opened during the last twelve
months. After these costs are amortized over the first twelve months
of operation, the new, higher volume units are expected to better
leverage the relatively fixed other operating expenses.
Consolidated Results
Comparison of Consolidated Operating Results for the Thirteen and
Thirty-Nine Weeks Ended
December 24, 1996 and December 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 wholly-owned
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
thirty-nine weeks ended December 26, 1995 Skipper's, Inc. recorded
revenues of $10.9 million and $34.1 million, total operating expenses
of $10.8 million and $34.6 million, and an income (loss) from
restaurant operations of $122,000 and $(492,000) respectively. The
sale of Skipper's, Inc. closed on May 14, 1996.
Total consolidated revenue was $73.7 million, down 5.1% or $3.9
million from the $77.6 million recorded during the same quarter last
year. For the year-to-date, revenue declined 10.6% or $25.4 million
from $240.1 million to $214.6 million. These decreases are 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 $12.3 million or
16.7% of revenue for the quarter compared to $14.4 million or 18.5%
last year. For the year-to-date, income from restaurant operations
was $39.9 million or 18.6% of revenue compared to $42.0 million or
17.5% last year. For the quarter, income from restaurant operations,
as a percent of revenue, decreased compared to the prior year
primarily due to the decrease in operating margin attributable to the
factors previously outlined in the concept specific discussion of
operating results. For the year-to-date 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
is due to eliminating the 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 16.7% or $1,020,000 to 6.9% of
revenue, compared to 7.9% of revenue last year. On a year-to-date
basis, general and administrative expenses are down 16.2% or
$2,875,000 to 6.9% of revenue from 7.4% last year.
The sales proceeds from the divestiture of Skipper's, Inc. and debt
reductions from the previous three quarters resulted in a decrease of
$197,000 and $1,009,000 in net interest charges for the quarter and
year-to-date. Net income for the quarter as a percent of revenue
remained flat at 5.0% and was $3,678,000 compared to $3,912,000 for
the same period last year. Year-to-date net income was $13,146,000
or 6.1% of revenue for an increase of 12.6% from the $11,674,000 or
4.9% 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 $2.9 million or 9.9% over the
prior year to $33.0 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 $32.2 million
compared to $33.0 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
December 24, 1996, the Company had $9.6 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. 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 thirty-nine weeks ended December 24, 1996, the Company
made all scheduled principal and interest payments and reduced
borrowings under the line of credit.
Restaurant development through construction at Tony Roma's and
acquisition and construction at Pizza Hut, in addition to normal
recurring capital expenditures, resulted in $60.3 million of total
capital expenditures for the year-to-date compared to $32.2 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 $7.6 million 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. Additional financing
capacity will be necessary to complete the 122 unit acquisition.
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 September 1, 1997. The minimum wage
for tipped employees remained 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 increase to $5.15 in
September 1997, will increase labor cost, as a percent of sales by
approximately one-half of one percentage point over current levels
for both Pizza Hut and Tony Roma's. In California, minimum wage will
increase to $5.00 on March 1, 1997 based on state statute, then in
September 1997, the federal law, as previously mentioned, will
increase the minimum to $5.15. The California increase, once
implemented, is expected to increase labor as a percent of sales at
Tony Roma's by approximately 15 basis points. These estimates are
made without consideration of the impact of menu price increases and
other strategies.
Cheese costs at Pizza Hut are expected to remain equal to or slightly
lower than prior year levels through the remainder of the year. Tony
Roma's rib costs for the fourth quarter are projected to be
approximately 3% to 5% higher than the average cost incurred during
the third quarter, and 22% to 25% higher compared to last year.
Relief is expected late in the second, or early in the third quarter
of fiscal 1998.
In response to the above factors, management 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. Realization of the increase will vary with the success of
various promotional pricing strategies on selected items.
Approximately one quarter to one-half of the increase is expected to
be realized. Tony Roma's increased their menu price by 2.8% on
October 14, 1996.
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
None
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 December 24, 1996.
October 7, 1996 - Announcement of the Acquisition of R&W
Restaurants of North Carolina, Inc.
November 14, 1996 - Completion of the acquisition of R&W
Restaurants of North Carolina
Additionally, on February 3, 1997, a Form 8-K was filed announcing
the Acquisition of 122 units from Pizza Hut, 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: February 6, 1997 Troy D. Cook
Vice President Finance and
Chief Financial Officer
(Principal Financial Officer)
DATE: February 6, 1997 Alan L. Salts
Corporate Controller and
Chief Accounting Officer
(Principal Accounting Officer)
Exhibit 11
NPC INTERNATIONAL, INC.
Statement Regarding Computation of Per Share Earnings
(Unaudited)
Thirteen Weeks Ended Thirty-Nine Weeks Ended
Dec. 24, 1996 Dec. 26, 1995 Dec. 24, 1996 Dec. 26, 1995
Shares outstanding at
beginning of period 24,694,711 24,512,324 24,522,432 24,505,324
Weighted average
of shares issued
during period (38,145) 3,342 132,565 5,030
Assuming exercise of options
and warrants reduced by the
number of shares which could
have been purchased with the
proceeds from exercise 289,013 188,269 353,834 119,806
Shares outstanding for computation
of per share earnings 24,945,579 24,703,935 25,008,831 24,630,160
Net income $3,678,000 $3,912,000 $13,146,000 $11,674,000
Earnings per share $ .15 $ .16 $ .53 $ .47
FULLY DILUTED
Shares outstanding at
beginning of period 24,694,711 24,512,324 24,522,432 24,505,324
Weighted average of shares
issued during period (38,145) 3,342 132,565 5,030
Assuming exercise of options
and warrants reduced by the
number of shares which could
have been purchased with the
proceeds from exercise 289,013 192,817 353,834 133,291
Shares outstanding for computation
of per share earnings 24,945,579 24,708,483 25,008,831 24,643,645
Net income $3,678,000 $3,912,000 $13,146,000 $11,674,000
Earnings per share $ .15 $ .16 $ .53 $ .47
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<PERIOD-END> DEC-24-1996
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