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 23, 1997
[ ] 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 30, 1997:
Common Stock, $0.01 par value - 24,714,835
NPC INTERNATIONAL, INC.
INDEX
PAGE
PART I. FINANCIAL INFORMATION
Condensed Consolidated Balance Sheets --
September 23, 1997 and March 25, 1997 3
Consolidated Statements of Income --
For the Thirteen and Twenty-Six Weeks Ended
September 23, 1997 and September 24, 1996 4
Condensed Consolidated Statements of Cash Flows --
For the Twenty-Six Weeks Ended
September 23, 1997 and September 24, 1996 5
Notes to Condensed 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.
Condensed Consolidated Balance Sheets
(Unaudited, dollars in thousands, except share date)
Sept. 23, 1997 March 25, 1997
ASSETS
Current assets:
Cash and cash equivalents $ 3,385 $ -
Accounts Receivable 3,271 2,726
Inventories of food and supplies 3,590 2,577
Income tax receivable 631 1,737
Other current assets 7,225 6,711
Total current assets 18,102 13,751
Facilities and equipment, net 143,493 126,461
Franchise rights, net 201,722 92,318
Goodwill 17,796 18,228
Other assets 8,102 9,149
TOTAL ASSETS $ 389,215 $ 259,907
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable $ 19,732 $ 11,624
Payroll taxes 2,339 1,815
Accrued interest 4,088 1,997
Accrued payroll 6,183 4,412
Insurance reserves 4,880 3,724
Other current liabilities 8,763 5,584
Total current liabilities 45,985 29,156
Long-term debt 215,633 116,777
Other deferred items 20,785 18,181
Stockholders' Equity:
Common stock, $.01 par value
100,000,000 shares authorized,
27,592,510 issued 276 276
Paid-in capital 20,992 20,978
Retained earnings 105,294 94,827
126,562 116,081
Less treasury stock at cost, representing
2,890,388 and 2,957,307 shares,
respectively (19,750) (20,288)
Total stockholders' equity 106,812 95,793
TOTAL LIABILITIES AND EQUITY $ 389,215 $ 259,907
See notes to Condensed Consolidated Financial Statements
NPC International, Inc.
Consolidated Statements Of Income
(Unaudited, dollars in thousands, except share data)
Thirteen Weeks Ended Twenty-Six Weeks Ended
Sept.23,1997 Sept.24,1996 Sept.23,1997 Sept.24,1996
Net Sales $ 112,598 $ 66,996 $ 213,665 $ 137,828
Net franchise
revenue 2,095 2,074 4,145 4,168
Total revenue 114,693 69,070 217,810 141,996
Cost of sales 30,854 18,926 58,978 38,356
Direct labor 32,420 18,794 61,844 38,287
Other 31,318 18,306 57,596 36,043
Total operating
expenses 94,592 56,026 178,418 112,686
Income from restaurant
operations 20,101 13,044 39,392 29,310
General and administrative
expenses 5,743 4,112 11,027 8,673
Depreciation and
amortization 3,058 1,398 5,424 2,702
Operating income 11,300 7,534 22,941 17,935
Other expense:
Interest expense (4,036) (1,157) (7,066) (2,441)
Other 32 100 229 32
Income before
income taxes 7,296 6,477 16,104 15,526
Provision for
income taxes 2,554 2,531 5,637 6,058
Net income $ 4,742 $ 3,946 $ 10,467 $ 9,468
Earning per share $ .19 $ .16 $ .41 $ .38
Weighted average
shares outstanding 25,298,293 25,060,614 25,248,510 25,040,457
See notes to Condensed Consolidated Financial Statements
NPC International, Inc.
Condensed Consolidated Statements Of Cash Flows
(Unaudited, dollars in thousands)
Twenty-Six Weeks Ended
Sept. 23, 1997 Sept. 24, 1996
Cash Flows Provided By Operating Activities:
Net income $ 10,467 $ 9,468
Depreciation and amortization 12,226 7,878
Amortization of start-up costs 1,411 682
Change in assets and liabilities,
net of acquisitions 14,686 916
Net cash flows provided by
operating activities 38,790 18,944
Cash Flows Used In Investing Activities:
Capital expenditures (15,872) (19,463)
Acquisition of business assets, net of cash (119,947) --
Proceeds from sale of capital assets 1,358 7,600
Changes in other assets, net 65 440
Net cash flows used in investing activities (134,396) (11,423)
Cash Flows Provided By (Used In) Financing Activities:
Net change in revolving credit agreements 58,127 2,225
Proceeds from issuance of long-term debt 49,756 --
Payment of long-term debt (9,444) (9,711)
Exercise of stock options 552 1,295
Purchase of treasury stock -- (100)
Net cash flows provided by (used in)
financing activities 98,991 (6,291)
Net Change In Cash And Cash Equivalents 3,385 1,230
Cash And Cash Equivalents At Beginning Of Period -- 1,584
Cash And Cash Equivalents At End Of Period $ 3,385 $ 2,814
See notes to Condensed Consolidated Financial Statements
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 were 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 25, 1997.
In the opinion of management, the accompanying unaudited condensed consolidated
financial statements contain all normal recurring adjustments necessary to
present fairly the financial position of the Company as of September 23, 1997
and March 25, 1997, the results of operations for the thirteen and twenty-six
weeks ended September 23, 1997 and September 24, 1996 and cash flows for the
twenty-six weeks ended September 23, 1997 and September 24, 1996. 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 net cash payments for income taxes of $4,707,000 and $1,619,000 in
the twenty-six weeks ended September 23, 1997 and September 24, 1996,
respectively. Cash paid for interest for the twenty-six weeks ended September
23, 1997 and September 24, 1996 was $5,163,000 and $1,405,000, respectively.
Note 3 - Acquisitions
On October 31, 1996, the Company acquired 31 units in North Carolina from R&W
Pizza Huts of North Carolina, Inc. for $27.5 million. Annual sales volume for
the year prior to acquisition was approximately $24 million.
On March 6, 1997, the Company closed on Phase I of a 126 unit acquisition from
Pizza Hut, Inc. (PHI). Phase I consisted of 60 units with a purchase price of
$27.3 million. On March 27, 1997, the Company closed on Phase II of the PHI
acquisition consisting of 62 units with a purchase price of $28.1 million.
Simultaneous with the Phase II closing, the Company assumed operational
responsibility for four units which have been reflected in the Company's
financial statements as if owned. These four units were acquired on September
2, 1997, for $1.1 million. For the year ended December 31, 1996, annual sales
volume for the 126 PHI units was approximately $73 million.
On April 15, 1997, the Company entered into a letter of intent with PHI to
acquire 52 units in North Dakota, South Dakota and Minnesota for $31 million.
This transaction closed June 5, 1997, except for one unit in Minnesota. The
acquisition of the remaining unit occurred July 10, 1997. For the year ended
December 31, 1996, annual sales volume for the 52 PHI units was approximately
$34 million.
On April 23, 1997, the Company entered into a letter of intent with Jamie B.
Coulter (Coulter) to purchase 100 units in 11 states which generated
approximately $60 million in sales during the year ended December 31, 1996 for
$57 million. This transaction closed May 15, 1997, except for 18 units in North
Carolina, which were being managed until acquired subject to resolution of
certain contingencies. The results of these managed units are reflected in the
financial statements as if owned. The Company acquired 10 of the North Carolina
units on July 16, 1997, four more on August 19, 1997 and on October 2, 1997 the
Company closed on the remaining four units.
The following unaudited pro forma results for the thirteen and twenty-six weeks
ended September 23, 1997, and September 24, 1996, were developed assuming that
all of the acquired units previously described had been acquired at the
beginning of the respective periods. The unaudited pro forma data shown below
is not necessarily indicative of the consolidated results that would have
occurred had the acquisitions taken place at the beginning of the respective
periods nor are they necessarily indicative of results that may occur in the
future.
Pro Forma Results (unaudited)
(Dollars in thousands except per share data)
Thirteen Weeks Ended Twenty-Six Weeks Ended
Sept.23,1997 Sept.24,1996 Sept.23,1997 Sept.24,1996
Total revenue $ 114,693 $ 115,919 $ 232,431 $ 238,399
Net income 4,742 3,631 11,058 9,794
Net income per share .19 .14 .43 .39
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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 25, 1997.
Overview - The Company is the largest Pizza Hut franchisee in the world. The
Company, through it's wholly owned subsidiary Romacorp, Inc., is also the
owner/franchisor of Tony Roma's, the casual theme restaurant "Famous for Ribs",
which 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.
All of the Company's concepts serve beer and/or other alcoholic beverages.
These products are not a significant portion of the sales mix at Pizza Hut, but
they comprise approximately 12% of sales for Tony Roma's.
Service - Pizza Hut provides a buffet with table service for beverages during
lunch and full table service for dinner, with delivery and carry-out available
throughout the day. Tony Roma's offers a fully staffed dining experience
throughout the day and evening.
Period of Operation - The Company operates on a 52 or 53 week fiscal year
ending the last Tuesday in March. The fiscal year ended March 31, 1998, will
contain 53 weeks and the fourth quarter will contain 14 weeks.
Development
Activity with respect to unit count during the quarter is set forth in the
table below:
SYSTEM UNIT ACTIVITY
1998 SECOND QUARTER
Beginning Developed(4) Acquired Closed(4) Sold Ending
Company Owned
Pizza Hut (1)
Restaurant 540 2 1 (4) -- 539
Delivery 155 -- -- (6) -- 149
Total Pizza Hut 695 2 1 (10) -- 688
Tony Roma's (2) 41 3 -- -- -- 44
Total Company Owned 736 5 1 (10) -- 732
Franchised
Tony Roma's 142 4 -- (2) -- 144
Total System 878 9 1 (12) -- 876
1998 YEAR-TO-DATE
Beginning Developed(3) Acquired Closed(3) Sold Ending
Company Owned
Pizza Hut (1)
Restaurant 358 6 181 (6) -- 539
Delivery 115 -- 41 (7) -- 149
Total Pizza Hut 473 6 222 (13) -- 688
Tony Roma's (2) 40 4 -- -- -- 44
Total Company Owned 513 10 222 (13) -- 732
Franchised
Tony Roma's 140 7 -- (3) -- 144
Total System 653 17 222 (16) -- 876
(1) Includes 2 restaurants being operated by NPC under management
agreements.
(2) Excludes 2 units operated as joint ventures by the Company.
(3) Excludes 1 Tony Roma's replacement unit, and 2 Pizza Hut replacement
units.
(4) Excludes 2 Pizza Hut replacement units.
During the quarter, the Company acquired one unit from PHI completing the 52
unit PHI acquisition. The acquisition of units formerly operated under
management agreements (See Note 3 of the Notes to Condensed Consolidated
Financial Statements) are not reflected in the tables of system unit activity.
These units have been reflected in the Company's financial statements and in
the tables above as if owned since March 27, 1997, and May 15, 1997, for the
units acquired from PHI and Coulter, respectively.
During the twenty-six weeks ended September 23, 1997, a total of 222 Pizza Hut
units or operations were acquired. The year-to-date total includes 118 units
purchased from PHI, 100 units purchased from franchisee Jamie B. Coulter, and
four units purchased from another franchisee. (See Note 3 of the Notes to
Condensed Consolidated Financial Statements for additional information on the
acquisitions.)
For the current year-to-date, six Pizza Hut units were developed and two
replacement stores opened.
The Company closed 13 Pizza Hut units during the twenty-six weeks ended
September 23, 1997, excluding two relocated units. Operation of units that are
no longer economically justifiable is discontinued or the unit is relocated.
The Company has opened four new Tony Roma units, excluding one replacement
unit, during the twenty-six weeks ended September 23, 1997. The Company
anticipates opening two additional company operated units by fiscal year-end
for a total of six new company units, excluding the one replacement unit.
One Tony Roma international franchise unit opened and three domestic franchise
units opened during the quarter ended September 23, 1997. For the current year-
to-date three international units and four domestic units have opened. Also
during the current year-to-date, two domestic and one international units have
been closed. One domestic unit, damaged by fire, plans to re-open during the
fourth quarter of fiscal 1998.
Results of Operations - Set forth at the beginning of the section discussing
the results of operations for each concept operated by the Company is a table
of revenue and operating expenses expressed as a percent of revenue, or sales
as indicated, for the thirteen and twenty-six weeks ended September 23, 1997
and September 24, 1996. 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 royalties (Pizza Hut only), rent, depreciation, advertising, utilities,
supplies and insurance among other costs directly associated with operating a
restaurant facility.
PIZZA HUT OPERATIONS
(Unaudited)
(dollars in thousands)
Thirteen Weeks Ended Twenty-Six Weeks Ended
Sept.23,1997 Sept.24,1996 Sept.23,1997 Sept.24,1996
Revenue:
Restaurant Sales $ 73,928 $ 39,660 $ 138,128 $ 81,323
Delivery Sales 18,149 11,784 34,791 24,696
Total Revenue $ 92,077 $ 51,444 $ 172,919 $ 106,019
Restaurant Operating Expenses
as a Percentage of Revenue:
Total Expenses: (1)
Cost of Sales 26.3% 26.6% 26.4% 26.1%
Direct Labor 28.1% 26.9% 28.3% 26.8%
Other 28.4% 28.2% 27.5% 26.8%
Total Operating
Expenses 82.8% 81.7% 82.2% 79.7%
Restaurant Based
Income 17.2% 18.3% 17.8% 20.3%
Restaurant Expenses: (2)
Cost of Sales 26.3% 26.8% 26.5% 26.3%
Direct Labor 26.9% 25.4% 27.1% 25.5%
Other 28.9% 28.5% 28.0% 27.1%
Total Operating
Expense 82.1% 80.7% 81.6% 78.9%
Restaurant Based
Income 17.9% 19.3% 18.4% 21.1%
Delivery Expenses: (3)
Cost of Sales 26.3% 25.9% 26.3% 25.4%
Direct Labor 32.7% 32.0% 32.9% 31.3%
Other 26.4% 26.8% 25.5% 25.6%
Total Operating
Expenses 85.4% 84.7% 84.7% 82.3%
Restaurant Based
Income 14.6% 15.3% 15.3% 17.7%
(1) As a percent of total revenue
(2) As a percent of restaurant sales
(3) As a percent of delivery sales
Comparison of Pizza Hut Operating Results for the Thirteen and Twenty-Six Weeks
Ended September 23, 1997 and September 24, 1996
Net revenue from Pizza Hut operations was $92.1 million for the quarter, which
was $40.6 million or 79% greater than the same period of the prior year. For
the year-to-date, net revenue was $172.9 million, which was $66.9 million or
63.1% above the comparable period of the prior year. These increases were due
to revenue contributed from stores acquired since the same periods of the prior
year. (See Note 3 of the Notes to Condensed Consolidated Financial Statements
for additional information on the acquisitions.) The increase in revenue from
acquired stores was partially offset by a comparable sales decline of 7.2% for
the quarter and 8.5% for the year-to-date. This decline was due to the decline
in the sales of TripleDecker (4.8% of the prior year-to-date sales compared to
0.2% in the current year-to-date), more aggressive Company pricing strategies,
competitor intrusion, and planned self-cannibalization associated with certain
new store openings since the same periods of the prior year. Comparable sales
are calculated for stores operated by the Company for greater than twelve
months.
Cost of sales as a percent of revenue decreased from 26.6% during the same
quarter of the prior year to 26.3% this year. The decrease in cost of sales as
a percent of revenue was due to a 19.9% decline in cheese costs from the same
period of the prior year which more than offset the increased costs associated
with the more abundant topping specifications which were introduced May 1,
1997, when Pizza Hut launched it's "Totally New Pizza" campaign. Effective
with the introduction, all pizzas made by Pizza Hut feature larger, more
abundant toppings including meatier meats and fresh vegetables. On a year-to-
date basis, cost of sales increased from 26.1% in the prior year to 26.4% this
year. This increase was attributable to certain acquired restaurants which had
historically experienced higher food costs than Company units and increased
food costs associated with the new pizza. However, these increases were
largely offset by the decline in cheese costs from a year ago which were 14.4%
lower than the comparable period of the prior year. (See Effects of Inflation
and Other Matters for additional information on cheese costs.)
Direct labor for the quarter and year-to-date was 120 and 150 basis points
higher than the same periods of the prior year. The increase in direct labor
as a percentage of revenue was due to the minimum wage increases effective
October, 1996, and September, 1997, higher labor costs in the acquired stores
than typically experienced by the Company and de-leveraging of labor costs due
to lower unit volumes. On a year-to-date basis, labor has also been negatively
impacted by training associated with the assimilation of the acquired units in
addition to the aforementioned factors. (See Effects of Inflation and Other
Matters for additional information on minimum wage increases.)
Other operating expense for the quarter and year-to-date was 20 and 70 basis
points higher than the same periods of the prior year. This was largely due to
the July 22, 1996, increase in the franchise fee paid to the Company's
franchisor from an effective rate of 2.25% to 4%. This increase was partially
offset by a decrease in net customer delivery expense.
TONY ROMA'S OPERATIONS
(Unaudited)
(dollars in thousands)
Thirteen Weeks Ended Twenty-Six Weeks Ended
Sept.23,1997 Sept.24,1996 Sept.23,1997 Sept.24,1996
Revenue
Restaurant Sales $ 20,521 $ 15,552 $ 40,746 $ 31,809
Franchise Revenue 2,095 2,074 4,145 4,168
Total Revenue $ 22,616 $ 17,626 $ 44,891 $ 35,977
Restaurant Operating Expenses
as a Percentage of Sales
Cost of Sales 32.4% 33.7% 32.5% 33.7%
Direct Labor 32.1% 31.8% 31.8% 30.9%
Other 25.1% 24.6% 24.6% 24.2%
Total Operating
Expenses 89.6% 90.1% 88.9% 88.8%
Restaurant Based
Income 10.4% 9.9% 11.1% 11.2%
Income from System
Operations (1) 18.7% 20.5% 19.3% 21.5%
(1) Net franchise revenue and restaurant based income as a percent of
total revenue
Comparison of Tony Roma's Operating Results for the Thirteen and Twenty-Six
Weeks Ended September 23, 1997 and September 24, 1996
Restaurant sales for the quarter increased 32% or $5 million over the same
period of the prior fiscal year. On a year-to-date basis, restaurant sales
increased 28.1% or $8.9 million. The increase was attributable to restaurant
development and an increase in comparable sales for stores operated by the
Company for more than 18 months. The increase in comparable sales was
partially due to a 2% price increase implemented in October, 1996, of which
the Company estimates it realized approximately 50% due to changes in sales
mix. Comparable sales increased 0.6% for the quarter and 1.5% for the
year-to-date.
Net franchise revenue increased over the prior year by $21,000 or 1% during the
quarter but decreased on a year-to-date basis $23,000 or 0.6% from the
comparable period of the prior year. Increased revenue for the quarter was due
to increased royalty fees associated with the addition of 13 new units since the
comparable period of the prior year and a year-to-date comparable sales growth
realized in franchised units. The decrease in the year-to-date revenue was
largely due to the sale of certain international territory rights during the
first quarter of fiscal 1997.
Cost of sales, as a percent of revenue, for the quarter and the year-to-date
declined 130 and 120 basis points, respectively, from the comparable periods of
the prior year. This improvement was achieved despite an increase of
approximately 11% and 14% in rib costs over the prior year for the quarter and
year-to-date, respectively. (See Effects of Inflation and Other Matters for
additional information on rib costs.) This improvement in cost of sales as a
percent of revenue was due to the menu price increase in October, 1996, a
planned migration to higher margin products and reduced waste.
Direct labor, as a percentage of revenue, increased over the prior year by 30
and 90 basis points for the quarter and year-to-date, respectively. The
increase was due to the opening of five new stores in the last six months and
increases in minimum wage effective October, 1996 and September, 1997. (See
Effects of Inflation and Other Matters for additional information on minimum
wage increases.)
Other operating expense, as a percent of revenue, increased 50 and 40 basis
points for the quarter and year-to-date, respectively, over the prior year.
During the fourth quarter of fiscal 1996 the Company recorded an impairment
charge related to eight restaurants to be closed. In the first quarter of
fiscal 1997 seven of these restaurants remained in operation, and in the second
quarter four of these restaurants remained in operation, however, in accordance
with the provisions of SFAS No. 121 no depreciation was recorded for these
units benefiting other operating expense. Only one of these restaurants
remained in operation during fiscal 1998 and closed May 18, 1997, when the
store was relocated. Consequently, other operating expense as a percent of
sales was higher in the current quarter and year-to-date than it was in the
same periods of the prior year.
Consolidated Results
Comparison of Consolidated Operating Results for the Thirteen and Twenty-Six
Weeks Ended
September 23, 1997 and September 24, 1996
Total consolidated revenue for the quarter was $114.7 million, for an increase
of 66.1%, or $45.6 million over the same period of the prior year. On a year-
to-date basis consolidated revenue was $217.8 million, for an increase of
53.4%, or $75.8 million over the comparable period of the prior year. This
growth was due largely to the revenue contributed from the acquired Pizza Hut
units and the increase in Tony Roma's company operated store count due to new
store openings. (See Note 3 of the Notes to Condensed Consolidated Financial
Statements for additional information on the acquisitions.)
Consolidated income from restaurant operations was $20.1 million or 17.5% of
revenue for the quarter compared to $13 million or 18.9% in the prior year for
an increase of $7.1 million or 54.1%. For the year-to-date, consolidated
income from restaurant operations was $39.4 million or 18.1% of revenue
compared to $29.3 million or 20.6% in the prior year for an increase of $10.1
million or 34.3%. Income from restaurant operations increased from the prior
year due to the income contributed from Pizza Hut units acquired and Tony
Roma's units opened since the comparable periods of the prior year. As a
percent of revenue, income from restaurant operations decreased from the prior
year due to the decrease in operating margin attributable to the factors
previously outlined in the concept specific discussion of operating results.
While consolidated revenue increased 66.1% for the quarter and 53.4% for the
year-to-date over the prior year, increased leverage on general and
administrative costs was apparent as these costs increased only $1.6 million or
39.7% for the quarter and $2.4 million or 27.1% for the year-to-date compared
to the prior year. As a percent of sales, these costs declined for the quarter
and year-to-date by 100 basis points from the comparable periods of the prior
year. This decrease occurred due to increased leverage on general and
administrative expense from the acquired stores. Depreciation and amortization
increased 70 and 60 basis points as a percent of sales for the quarter and year-
to-date, respectively, due to increased franchise rights amortization
associated with acquisitions completed since the same periods of the prior
year.
Increased borrowings associated with the acquisitions resulted in a $2.9
million increase for the quarter and a $4.6 million increase for the year-to-
date in interest charges compared to same periods of the prior fiscal year.
Net income for the quarter was $4,742,000 compared to $3,946,000 for the same
period of the prior year for an increase of 20.2%. On a year-to-date basis net
income increased 10.6% to $10,467,000 from $9,468,000 for the comparable period
of the prior year.
The effective income tax rate for the quarter was 35% compared to 39% for the
same period of the prior year. The decrease in the income tax rate is due to
the realization of tax benefits associated with the implementation of a
corporate reorganization and the realization of various tax credits.
Liquidity, Capital Resources and Cash Flows
The Company's primary source of cash is its operations. Adjusted for various
changes in balance sheet accounts, cash flow provided by operating activities
was $38.8 million for the twenty-six weeks ended September 23, 1997, for an
increase of 105% over the $18.9 million reported during the comparable period
of the prior year. This improvement was due to increased earnings and the
working capital leverage obtained from acquired stores, which like the Company
operate with a working capital deficit.
In addition to cash provided by operations, the Company has a $200 million
unsecured line of credit through March 3, 2000. At September 23, 1997, the
Company had $71 million in unused borrowing capacity under this agreement,
access to which is limited by the Company's debt covenants. The acquisitions
completed during the year-to-date were funded through the line of credit and
the issuance of $50 million of senior unsecured notes to institutional lenders.
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.
During the twenty-six weeks ended September 23, 1997, the Company made all
scheduled principal and interest payments.
Restaurant development at Tony Roma's and Pizza Hut, in addition to normal
recurring capital expenditures and technology investments in the acquired
stores, resulted in $15.9 million of total capital expenditures for the year-to-
date compared to $19.5 million for the prior year-to-date. Investing
activities also include $120 million paid for acquisitions previously
discussed.
The Company anticipates cash flow from operations and additional borrowings will
be sufficient to fund continuing expansion and improvements and to service debt
obligations. The Company's ability to make additional acquisitions is subject
to certain financial covenants, the Company's ability to obtain additional debt
financing or, if necessary and warranted, the Company's ability to obtain
additional equity capital.
Seasonality
As a result of the diversification in restaurant concepts, the Company has
historically not experienced significant seasonal sales fluctuations on a
consolidated basis. However, each concept is impacted by individual sales
trends. Tony Roma's sales are traditionally higher from January to March due
to an increase in vacation and part time residence activity in the desert and
beach areas where a significant number of the Company's facilities are located.
Pizza Hut sales are largely driven through advertising and promotion and are
adversely impacted in economic times that generally negatively impact consumer
discretionary income such as back-to-school and holiday seasons.
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 on
an hourly basis, changes in rates related to federal and state minimum wage and
tip credit laws will effect 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.
Federal wage laws increased the minimum wage to $5.15 per hour on September 1,
1997. Based on the effect of the October, 1996, increase in the minimum wage,
the Company estimates, notwithstanding potential menu price increases and
operational strategies, this increase will raise labor costs 0.3% at Pizza Hut
and 0.1% at Tony Roma's.
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.
The Company expects cheese costs to remain below last year's unusually high
levels through the third quarter and, provided favorable weather and supply and
demand conditions continue, costs should remain at or below last year's levels
into the fourth quarter.
Baby-back rib prices were 11% and 14% higher than the prior year for the
quarter and the year-to-date, respectively. Based upon current purchase
contracts, the Company expects baby-back rib prices in the third quarter of
fiscal 1998 to exceed the comparable period of the prior year and the second
quarter of fiscal 1998 by approximately 40% due to increased domestic demand
for baby-back ribs. As a result, Tony Roma's cost of sales as a percent of
sales for the third quarter of fiscal 1998 could increase by as much as 300
basis points over the second quarter of fiscal 1998. In the fourth quarter of
fiscal 1998, the Company expects baby-back rib prices to decline from the third
quarter of fiscal 1998 by approximately 20%, due to more favorable supply and
demand conditions; however, prices are expected to exceed the prior year's
levels by around 10%.
Increases in interest rates would directly affect the Company's financial
results. At the end of the quarter, $87 million or 43% of the Company's
borrowings were under long-term fixed rate agreements. Under the Company's
revolving credit agreements alternative interest rate options are available
which can be used to limit the Company's exposure to fluctuating rates. The
Company actively utilizes these options as well as other hedging strategies
including interest rate swap products to reduce interest rate exposure.
Forward Looking Comments
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 effectiveness of franchisor advertising programs,
and the overall success of the Company's franchisor; the integration and
assimilation of acquired restaurants; training and retention of skilled
management and other restaurant personnel; the Company's ability to locate and
secure acceptable restaurant sites; the effect of economic conditions,
including interest rate fluctuations, the impact of competing restaurants and
concepts, the cost of commodities and other food products, labor shortages and
costs and other risks detailed in the Company's Securities and Exchange
Commission filings.
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 25, 1997.
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 July 15, 1997.
(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 stockholders.
Item 5. Other Information
None
Item 6. Exhibits 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.
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 23, 1997:
July 25, 1997 Amendment to Form 8K dated May 29, 1997 pertaining to the
closing on 100 units from Jamie B. Coulter.
September 5, 1997 Amendment to Form 8K dated June 20, 1997 pertaining to
closing on 52 unit acquisition from Pizza Hut, Inc. and
Subsidiaries.
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: October 31, 1997
Vice President Finance Troy D. Cook
Chief Financial Officer
Principal Financial Officer
DATE: October 31, 1997
Vice President, Restaurant Services Alan L. Salts
Chief Accounting Officer
Principal Accounting Officer
Exhibit 11
NPC INTERNATIONAL, INC.
Statement Regarding Computation of Per Share Earnings
(Unaudited)
Thirteen Weeks Ended Twenty-Six Weeks Ended
Sept.23,1997 Sept.24,1996 Sept.23,1997 Sept.24,1996
PRIMARY
Shares outstanding
at beginning of
period 24,650,357 24,669,723 24,635,203 24,522,432
Weighted average of shares
issued during period 20,924 18,039 14,503 131,780
Assuming exercise of options and warrants
reduced by the number of shares which could
have been purchased with the proceeds
from exercise 627,012 372,852 598,804 386,245
Shares outstanding for
computation of per
share earnings 25,298,293 25,060,614 25,248,510 25,040,457
Net income $ 4,742,000 $ 3,946,000 $10,467,000 $ 9,468,000
Earnings per share $ .19 $ .16 $ .41 $ .38
FULLY DILUTED
Shares outstanding at
beginning of period 24,650,357 24,669,723 24,635,203 24,522,432
Weighted average of shares issued
during period 20,924 18,039 14,503 131,780
Assuming exercise of options and warrants
reduced by the number of shares which could
have been purchased with the proceeds
from exercise 627,106 372,852 622,556 386,245
Shares outstanding for
computation of
per share earnings 25,298,387 25,060,614 25,272,262 25,040,457
Net income $ 4,742,000 $ 3,946,000 $10,467,000 $ 9,468,000
Earnings per share $ .19 $ .16 $ .41 $ .38
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> SEP-23-1997
<CASH> 3385000
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 3590000
<CURRENT-ASSETS> 18102000
<PP&E> 143493000
<DEPRECIATION> 0
<TOTAL-ASSETS> 389215000
<CURRENT-LIABILITIES> 45985000
<BONDS> 0
0
0
<COMMON> 276000
<OTHER-SE> 106536000
<TOTAL-LIABILITY-AND-EQUITY> 389215000
<SALES> 112598000
<TOTAL-REVENUES> 114693000
<CGS> 30854000
<TOTAL-COSTS> 30854000
<OTHER-EXPENSES> 72539000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4036000
<INCOME-PRETAX> 7296000
<INCOME-TAX> 2554000
<INCOME-CONTINUING> 4742000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4742000
<EPS-PRIMARY> .19
<EPS-DILUTED> .19
</TABLE>
