UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 28, 2000
[ ] 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)
(316) 231-3390
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 par value
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ___
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will
not be contained, to the best of the registrant's knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of stock held by non-affiliates of
the registrant as of May 17,2000 was, Common Stock, $0.01 par
value - $73,802,979
The number of shares outstanding of each of the registrant's
classes of common stock as of May 17, 2000 was Common Stock,
$0.01 par value - 22,408,905
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Annual Stockholders'
Meeting to be held July 11, 2000 are incorporated by reference in
Part III, Items 10 - 13.
NPC INTERNATIONAL, INC.
TABLE OF CONTENTS
PART I
ITEM PAGE
1. Business 5
2. Properties 10
3. Legal Proceedings 11
4. Submission of Matters to a Vote of Security Holders 11
4A. Executive Officers of the Registrant 11
PART II
5. Market for Registrant's Common Stock and
Related Stockholder Matters 12
6. Selected Financial Data 13
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
7A. Quantitative and Qualitative Disclosures
About Market Risk 20
8. Financial Statements and Supplementary Data 20
9. Changes in and Disagreements with
Accountants on Accounting and Financial Disclosure 35
PART III
10. Directors and Executive Officers of the Registrant 36
11. Executive Compensation 36
12. Security Ownership of Certain Beneficial
Owners and Management 36
13. Certain Relationships and Related Transactions 36
PART IV
14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 36
NPC INTERNATIONAL, INC.
Pittsburg, Kansas
Annual Report to Securities and Exchange Commission
March 28, 2000
PART I
ITEM 1.BUSINESS
GENERAL
The Company. NPC International, Inc. and Subsidiaries (the
"Company" or "Registrant"), formerly National Pizza Company, is
the successor to certain Pizza Hut operations commenced in 1962 by
O. Gene Bicknell, the Chairman of the Board of the Company.
At March 28, 2000 the Company operated 615 Pizza Hut
restaurants and 167 delivery units in 26 states pursuant to
franchise agreements with Pizza Hut, Inc. ("PHI"), a wholly-owned
subsidiary of Tricon Global Restaurants, Inc. ("TRICON").
On February 4, 1999 the Company acquired 99 units from PHI
and on July 22, 1999 the Company acquired an additional 70 units
from PHI. Acquisition of Pizza Hut restaurants has been the
primary factor in the Company's growth over the last four years
with the Company acquiring 482 Pizza Hut restaurants over the last
four fiscal years. On May 3, 2000 the Company signed a letter of
intent with PHI to acquire 64 Pizza Hut restaurants located
primarily in Iowa. This transaction is expected to be completed in
June 2000.
On June 8, 1993 the Company completed the acquisition of
Romacorp, Inc. ("Romacorp") (formerly NRH Corporation). Romacorp
is the operator and franchisor of Tony Roma's Famous For Ribsr
restaurants. Effective June 30, 1998 the Company completed the
recapitalization of Romacorp. Romacorp redeemed stock held by the
Company so that the Company held a minority interest in Romacorp.
Following the transaction, Romacorp changed its name to Roma
Restaurant Holdings, Inc. ("RRH").
The Company is a Kansas corporation incorporated in 1974
under the name Southeast Pizza Huts, Inc. In 1984 the name of the
Company was changed to National Pizza Company and was subsequently
renamed NPC International, Inc. on July 12, 1994. Its principal
office is located at 720 W. 20th Street, Pittsburg, Kansas and its
telephone number is (316) 231-3390.
PIZZA HUT OPERATIONS
Pizza Hut Restaurant System. The first Pizza Hut restaurant
was opened in 1958 in Wichita, Kansas by the original founders of
the Pizza Hut system. PHI, the franchisor of the Company, was
formed in 1959.
In 1977 PHI was acquired by PepsiCo, Inc., which continued
expanding the Pizza Hut system. In 1997 PepsiCo, Inc. completed
its spin-off of its restaurant group. PHI is now a wholly-owned
subsidiary of TRICON. The Pizza Hut system is the largest pizza
chain in the world, both in sales and number of units. As of
December 1999 the Pizza Hut system had approximately 6,800
domestic units (excluding licensed units) and approximately 35% of
the Pizza Hut units were operated by PHI.
Pizza Hut restaurants generally offer full table service
and a menu featuring pizza, pasta, sandwiches, a salad bar, soft
drinks and, in most restaurants, beer. Most dough products are
made fresh at least twice per day and only 100% natural cheese
products are used. All product ingredients are of a high quality
and are prepared in accordance with proprietary formulas
established by PHI. The restaurants offer pizza in three sizes
with a variety of toppings. Customers may also choose among thin
crust, traditional hand-tossed, stuffed-crust and thick crust pan
pizza. Additionally Pizza Hut serves the Big New Yorker Pizza, a
16" traditional crust pizza. With the exception of the Personal
Pan Pizza and food served at the luncheon buffet, food products
are prepared at the time of order.
Pizza sales account for approximately 85% of the Company's
Pizza Hut operations revenues. Sales of alcoholic beverages are
less than 1% of net sales.
New product introduction is vital to the continued success
of any restaurant system and PHI maintains a research and
development department which develops new products and recipes,
tests new procedures and equipment and approves suppliers for
Pizza Hut products. All new products are developed by PHI and
franchisees are prohibited from offering any other products in
their restaurants unless approved by PHI.
Pizza Hut also delivers pizza products to their customers.
Prior to 1985, most delivery was done out of existing restaurants.
In 1985, the system began to aggressively pursue home delivery
through delivery/carryout kitchens. Customer orders are processed
through a computerized customer service center ("CSC"), a "single
unit solution" ("SUS") (a computer system similar to that operated
in a CSC, but smaller in scale), or directly to the kitchen.
A successful delivery operation typically has a higher
return on invested capital than the Company's restaurants as the
required capital investment is considerably lower.
The Company's Pizza Hut Operations. The Company is the
largest Pizza Hut franchisee in the world. The franchise
agreements, under which the Company operates, grant exclusive
right to operate Pizza Hut restaurants in certain designated
areas. States of operation are indicated in the following table
based on unit count by state.
Company-owned
Pizza Huts at
State March 28, 2000
Alabama 106
Arizona 1
Arkansas 63
Colorado 7
Delaware 9
Florida 40
Georgia 51
Illinois 32
Indiana 13
Kansas 18
Kentucky 28
Louisiana 35
Minnesota 8
Mississippi 110
Missouri 28
North Carolina 46
North Dakota 18
Nevada 4
Oklahoma 25
Oregon 23
South Carolina 10
South Dakota 26
Tennessee 50
Texas 22
Utah 5
Washington 4
Company Total 782
The Company provides delivery service utilizing a CSC
operation in ten metropolitan markets: Springfield, Missouri;
Montgomery and Birmingham, Alabama; Shreveport, Louisiana; Jackson
and Long Beach, Mississippi; Little Rock, Arkansas; Tulsa,
Oklahoma; Portland, Oregon and Memphis, Tennessee. Under the CSC
system, all customers within the trade area place telephone orders
through a single clearing number and the pizza is dispatched from
the Company's delivery kitchen nearest the customer. Customers in
other markets call the restaurant delivery kitchens directly.
Relationships with Pizza Hut, Inc. The Company's franchise
agreements with PHI (the "Franchise Agreements") provide for,
among other things, standards of operation and physical condition
of the Company's restaurants, the provision of services, the
geographical territories in which the Company has exclusive rights
to open and operate Pizza Hut restaurants and delivery kitchens,
the terms of the franchise and renewal options, the Company's
development rights and obligations and various provisions relating
to the transfer of interests in the Company's franchise rights.
PHI determines standards of operation for all Pizza Hut
restaurants,including standards of quality, cleanliness and ser-
vice. Further, the Franchise Agreements allow the franchisor to
to set specifications for all furnishings, interior and exterior
decor, supplies, fixtures and equipment (see "Business - Supplies
and Equipment."). PHI also has the right to determine and change
the menu items offered by and to inspect all restaurants of its
franchisees, including the Company. All such standards may be
revised from time to time. Upon the failure to comply with such
standards, PHI has various rights, including the right to
terminate the applicable Franchise Agreements, redefine the
franchise territory or terminate the Company's rights to establish
additional restaurants in that franchise territory. The Franchise
Agreements may also be terminated upon the occurrence of certain
events, such as the insolvency or bankruptcy of the Company or the
commission by the Company or any of its officers, directors or
principal stockholders (other than its public stockholders) of a
felony or other crime that, in the sole judgment of PHI is
reasonably likely to adversely affect the Pizza Hut system, its
trademark, the goodwill associated therewith or PHI's interest
therein. At no time during the Company's history has PHI sought to
terminate any of the Company's Franchise Agreements, redefine its
franchise territories or otherwise limit the Company's franchise
rights. The Company believes it is in compliance with all material
provisions of the Franchise Agreements.
Under the Franchise Agreements, extensive structural
changes, major remodeling and renovation and substantial
modifications to the Company's restaurants necessary to conform to
the then current Pizza Hut system image may be required by PHI,
but not more often than once every seven years. The Company has
not been required to make any such changes, renovations or
modifications. PHI may also request the Company to introduce new
food products that could require remodeling or equipment changes.
PHI can require changes of decor or products only after it has
tested such changes in at least 5% of Pizza Hut system
restaurants.
PHI is required to provide certain continuing services to
the Company, including training programs, the furnishing of
operations manuals and assistance in evaluating and selecting
locations for restaurants.
In early 1990 PHI offered franchisees the opportunity to
sign a new 20-year franchise agreement (the "1990 Franchise
Agreement"). The 1990 Franchise Agreement required franchise fees
of 4% of sales, as defined, for all restaurants and delivery
kitchens and increases in certain advertising contributions. The
1990 Franchise Agreement also sought to redefine certain rights
and obligations of the franchisee and franchisor. The 1990
Franchise Agreement did not alter the franchisee's territorial
rights and maintained, subject to some minor limitations, the
exclusivity of the Pizza Hut brand within the geographical limits
of the territory defined by each franchise agreement. On June 7,
1994 the Company conformed its existing Franchise Agreements to
the 1990 Franchise Agreement.
The 1990 Franchise Agreement grants to the Company the
exclusive right to develop and operate restaurants within
designated geographic areas through February 28, 2010. The Company
has the option to renew each Franchise Agreement prior to its
expiration for a single renewal term of 15 years by entering into
the then-current form of the PHI franchise agreement, including
the then-current fee schedules, provided the Company is not then
in default of its obligations under that Franchise Agreement,
including the development schedule and has complied with the
requirements thereof throughout the term of the agreement.
The Franchise Agreements under which the Company operates
require the payment of monthly fees to PHI. Under the 1990
Franchise Agreement (as it applies to the Company), the Company's
royalty payments for all units owned increased to 4% of gross
sales in July 1996 from the Company's prior effective rate of
approximately 2.25%. This rate reflects the royalty rate which was
proposed by PHI to Pizza Hut franchisees as part of the 1990
Franchise Agreement and is lower than the rate under PHI's current
franchise agreement.
Franchise agreements covering units acquired from PHI
operate under the new franchise agreement ("Location Franchise
Agreement") which has a 20-year term from the date of the
acquisition. The Company has the option to renew each Franchise
Agreement prior to its expiration for a single renewal term of 15
years by entering into the then-current agreement and fee
schedules, provided the Company is not then in default of its
obligations under that franchise agreement, including the
development schedule, if any, and has complied with the
requirements thereof throughout the term of the agreement. The
franchise agreement, as amended, is similar to the 1990 agreement
for all acquisitions completed prior to fiscal 1999.
The Location Franchise Agreement, as amended, for the 99
units acquired in fiscal 1999 and the 70 units acquired in fiscal
2000, requires fees of 6.5% of gross sales, as defined. The
Agreement has a 500 yard radius protection for each restaurant
operated under the agreement and does not contain exclusive
territorial rights as are available in the Company's other
Franchise Agreements.
The Company has the option to renew each of the above
Franchise Agreements prior to their expiration for single renewal
terms of not less than 15 years by entering into the then-current
agreements and fee schedules, provided the Company is not then in
default of its obligations under those franchise agreements,
including the development schedules, if any, and has complied with
the requirements thereof throughout the terms of the agreements.
The Company can obtain a new 20-year franchise agreement
("1998 Location Franchise Agreement") with a fee requirement of
4.0% of gross sales, as defined, upon completing a qualified
rebuild or remodel of a dine-in restaurant. This agreement
provides a one mile radius protection for personal pan pizzas and
a larger variable radius protection for dinner size pizzas based
upon the surrounding population. This agreement can be renewed for
a term of not less than 15 years without any renewal fee and
continuing fees of 4.0% of gross sales, as defined, if the Company
is not in default under the agreement and the Company has made an
approved investment, as defined, in the location. Excluding the
reduced fee requirement, a different radius protection and renewal
provisions, the 1998 Location Franchise Agreement, as amended, is
similar to the Location Franchise agreement governing the
aforementioned 99-unit and 70-unit acquisitions.
Pizza Huts acquired from other franchisees will continue to
be subject to the terms and conditions of the respective Franchise
Agreement covering the acquired unit(s).
For the fiscal years ended March 28, 2000, March 30, 1999
and March 31, 1998 the Company incurred total franchise fees of
approximately $20,420,000, $15,476,000 and $14,586,000,
respectively. The Franchise Agreements require the Company to pay
initial franchise fees to PHI in amounts of up to $25,000 for each
new restaurant opened. The Company is required to contribute or
expend a certain percentage of its sales for local and national
advertising and promotion (see "Business - Advertising and
Promotion").
Failure to develop a franchise territory as required would
give PHI the right to operate or franchise Pizza Hut restaurants
in that territory. Such failure would not affect the Company's
rights with respect to the Pizza Hut restaurants then in operation
or under development by the Company in any such territory. As of
March 28, 2000 the Company had no commitments for future
development under any franchise agreement.
The Franchise Agreements prohibit the transfer or
assignment of any interest in the franchise rights granted
thereunder or in the Company without the prior written consent of
PHI, which consent may not be unreasonably withheld if certain
conditions are met. All franchise agreements also give PHI a right
of first refusal to purchase any interest in the franchise rights
or in the Company if a proposed transfer by the Company or a
controlling person would result in a change of control of the
Company. PHI also has a right of first refusal with respect to any
Pizza Hut franchise right proposed to be acquired by the Company
from any other Pizza Hut franchisee. The right of first refusal,
if exercised, would allow PHI to purchase the interest proposed to
be transferred upon the same terms and conditions and for the same
price as offered by the proposed transferee.
The Company has the right to develop additional Pizza Hut
restaurants and delivery kitchens in its exclusive franchise
territories. However, since becoming a public company, expansion
by acquisition has been one of the Company's primary methods of
growth. Between 1990 and 1993, PHI exercised its right of first
refusal as described above on all proposed transactions between
the Company and other Pizza Hut franchisees; as a result the
Company acquired no units during this period. Between March, 1994
(when the Company announced its intention to sign a new Franchise
Agreement) and March, 2000 the Company acquired a total of 524
Pizza Hut units including 370 from PHI. Effective in 1995, PHI
changed its strategy to embrace refranchising and TRICON has
stated its goal of selling down to approximately 20% to 25% of the
Pizza Hut system. PHI nevertheless retains the right of first
refusal on any proposed acquisition in the future and the Company
cannot be assured it will continue to receive such permission on
proposed future acquisitions, if any.
Pursuant to an amendment to the Franchise Agreements Mr.
Bicknell is required to maintain ownership of at least 20% of the
Company's common stock.
Advertising and Promotion. The Company is required under
its Franchise Agreements to be a member of the International Pizza
Hut Franchise Holders Association, Inc. ("IPHFHA"), an independent
association of substantially all PHI franchisees. IPHFHA requires
its members to pay dues, which are spent primarily for national
advertising and promotion. Dues are 2% of restaurant net sales and
net delivery sales. Dues may be increased up to a maximum of 3% by
the affirmative vote of 51% of the members. A joint advertising
committee, consisting of two representatives each from PHI and
IPHFHA, directs the national advertising campaign. PHI is not a
member of IPHFHA but has agreed to make contributions with respect
to those restaurants it owns on a per-restaurant basis to the
joint advertising committee at the same rate as its franchisees
(less IPHFHA overhead).
The Franchise Agreements also require the Company to
participate in cooperative advertising associations designated by
PHI on the basis of certain marketing areas defined by PHI. Each
Pizza Hut restaurant, including restaurants operated by PHI,
contributes to such cooperative advertising associations 2% of
gross sales. Certain of the Company's Franchise Agreements provide
that the amount of the required contribution may be increased at
the sole discretion of PHI. The cooperative advertising
associations are required to use their funds to purchase only
broadcast media advertising within their designated marketing
areas. All advertisements must be approved in writing by PHI,
except with respect to product or menu item prices.
Supplies and Equipment. The Franchise Agreements require
the Company to purchase all equipment, supplies and other products
and materials required in the operation of its restaurants and
delivery kitchens from suppliers who have been approved by PHI.
Purchasing is substantially provided by the Unified Foodservice
Purchasing Cooperative to all members who consist of Taco Bell,
KFC and Pizza Hut franchisees and the restaurants operated by
TRICON. Prior to the PepsiCo, Inc. spin-off of its restaurant
division, substantially all distribution services were provided by
PepsiCo Food Systems, Inc., which was a wholly-owned subsidiary of
PepsiCo, Inc.
Distribution. The Company entered into a two-year exclusive
food and supplies distribution agreement with AmeriServe Food
Distribution, Inc. ("AmeriServe") effective November 1, 1998. The
initial term of the agreement will expire December 31, 2000 and
provides two automatic renewal options for two years, each at
market rates, not to exceed current rates. The terms of the
contract provide incentives for using more efficient distribution
practices and results in a reduction in the distribution costs
incurred by the Company. AmeriServe acquired PepsiCo Food Systems
("PFS") in July 1997 and has been providing substantially all of
the distribution services to the Company through its PFS
relationship since the acquisition.
On January 31, 2000 AmeriServe filed for protection under
Chapter 11 of the U.S. Bankruptcy Code. AmeriServe has advised its
customers that it intends to prepare and file with the Bankruptcy
Court a plan of reorganization in the future. TRICON and another
major AmeriServe customer agreed to provide a $150 million interim
"debtor in possession" revolving credit facility to AmeriServe.
There can be no assurance that this $150 million debt facility
will be sufficient to meet AmeriServe's cash requirements. TRICON,
the purchasing cooperative for TRICON as well as key
representatives of the TRICON Franchise Community are working
together to proactively address the bankruptcy situation and
develop appropriate contingency plans.
The Company believes that an alternate distributor or
distributors can be obtained to meet the needs of the Company if
AmeriServe is no longer able to adequately service its restaurants
or if otherwise permitted by the Bankruptcy Court. There can be no
assurance, however, that the cost of an alternate distributor or
distributors would be at the same rates in which the Company
currently pays AmeriServe and there can be no assurance that the
process of obtaining an alternate distributor or distributors will
not cause disruption of business. As mentioned previously, the
Company has a multi-year contract with AmeriServe which is subject
to the Bankruptcy Court procedures during the reorganization
process.
As in most bankruptcies involving a primary supplier or
distributor, the AmeriServe bankruptcy poses certain risks and
uncertainties to the Company. Significant adverse developments in
any of these risks or uncertainties could have a material adverse
impact on the Company's results of operations, cash flows or
financial position.
Supervision and Control. Pizza Hut restaurants are open
seven days a week and serve both lunch and dinner. Each of the
restaurants has a manager, and in most units, an assistant manager
who are responsible for daily operations of the restaurant,
including food preparation, quality control, service, maintenance,
personnel and record keeping. All of the restaurant managers have
completed a comprehensive management training program. Each area
general manager is responsible for approximately four to twelve
restaurants. Detailed operations manuals reflecting current
operations and control procedures are provided to each restaurant
and district manager as well as others in the organization.
Currently, the Company's Pizza Huts operate in 11 regions ranging
from 40 to 90 stores per region. Each region is supervised by a
regional manager. Oversight of the 11 regions is provided by three
divisional vice presidents who are supported by administrative,
marketing, construction and human resource staff..
A point-of-sale ("POS") cash register system is installed
in all Company-operated restaurants. This POS system provides
effective communication between the kitchen and the server,
allowing employees to serve customers in a quick and consistent
manner while still maintaining a high level of control. It feeds
data to the back office system that provides support for
inventory, payroll, accounts payable and cash management. The back
office system also provides management reporting and a
communications interface to the corporate systems.
Accounting is centralized in Pittsburg, Kansas. Additional
financial and management controls are maintained at the individual
restaurants where inventory, labor and food data are recorded to
monitor food usage, food waste, labor costs and other controllable
costs.
Competition. The restaurant business is highly competitive
with respect to price, service, location, food quality and
presentation, and is affected by changes in taste and eating
habits of the public, local and national economic conditions and
population and traffic patterns. The Company competes with a
variety of restaurants offering moderately priced food to the
public, including other pizza restaurants. The Company also
competes with locally-owned restaurants which offer similar pizza,
pasta and sandwich products. The Company believes other companies
can easily enter its market segment, which could result in the
market becoming saturated, thereby adversely affecting the
Company's revenues and profits. There is also active competition
for competent employees and for the type of commercial real estate
sites suitable for the Company's restaurants.
Employees. At March 28, 2000 the Company's Pizza Hut
operations had approximately 15,200 employees, including 218
headquarters and staff personnel, three divisional operational
vice presidents, 11 regional managers, 101 area general managers,
1,410 restaurant management employees and approximately 13,500
restaurant employees (of whom approximately 72% are part-time).
The Company experiences a high rate of turnover of its part-time
employees, which it believes to be normal in the restaurant
industry. The Company is not a party to any collective bargaining
agreements and believes its employee relations to be satisfactory.
The maintenance and expansion of the Company's restaurant business
is dependent on attracting and training competent employees. The
Company believes that the restaurant manager plays a significant
role in the success of its business. Accordingly, the Company has
established bonus plans pursuant to which certain of its
supervisory employees may earn cash bonuses based upon both the
sales and profits of their restaurants.
Trade Names, Trademarks and Service Marks. The trade name
"Pizza Hut"and all other trademarks, service marks, symbols,
slogans, emblems, logos and designs used in the Pizza Hut system
are owned by PHI. All of the foregoing are of material importance
to the Company's business and are licensed to the Company under
its Franchise Agreements for use with respect to the operation and
promotion of the Company's restaurants.
Seasonality. The Company's Pizza Hut operations have not
experienced significant seasonality in its sales; however, 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.
GOVERNMENT REGULATION
All of the Company's operations are subject to various
federal, state and local laws that affect its business, including
laws and regulations relating to health, sanitation, alcoholic
beverage control and safety standards. To date, federal and state
environmental regulations have not had a material effect on the
Company's operations, but more stringent and varied requirements
of local governmental bodies with respect to zoning, building
codes, land use and environmental factors have in the past
increased and can be expected in the future to increase the cost
of and the time required for opening new restaurants. Difficulties
or failures in obtaining required licenses or approvals could
delay or prohibit the opening of new restaurants. In some
instances the Company may have to obtain zoning variances and land
use permits for its new restaurants. The Company believes it is
operating in material compliance with all laws and regulations
governing its operations.
The Company is also subject to the Fair Labor Standards Act
which governs such matters as minimum wages, overtime and other
working conditions. A majority of the Company's food service
personnel are paid at rates related to the minimum wage and other
employment laws and regulations; accordingly, increases in the
minimum wage result in higher labor costs.
Legislation mandating health coverage for all employees, if
passed, will increase benefit costs since most hourly restaurant
employees are not currently covered under Company plans. The
Company cannot always effect immediate price increases to offset
higher costs and no assurance can be given that the Company will
be able to do so in the future.
CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS, FINANCIAL
CONDITION OR BUSINESS
In order to take advantage of the safe harbor provisions
for forward-looking statements adopted by the Private Securities
Litigation Reform Act of 1995, the Company is hereby identifying
important risks, uncertainties and other factors that could affect
the Company's actual results of operations, financial condition or
business and could cause the Company's actual results of
operations, financial condition or business to differ materially
from its historical results of operations, financial condition or
business or the results of operation, financial condition or
business contemplated by forward-looking statements made herein or
elsewhere orally or in writing, by, or on behalf of, the Company.
Except for the historical information contained herein, the
statements made in this Report on Form 10-K are forward-looking
statements that involve such risks, uncertainties and other
factors that could cause or contribute to such differences
including, but not limited to, those described below.
Consumer Demand and Market Acceptance. Food service
businesses are often affected by changes in consumer tastes,
national, regional and local economic conditions and demographic
trends. The performance of individual restaurants may be adversely
affected by factors such as traffic patterns, demographic
considerations and the type, number and location of competing
restaurants. Multi-unit food service chains such as the Company's
can also be materially and adversely affected by negative
publicity resulting from food quality, illness, injury and other
health concerns or operating issues stemming from one restaurant
or a limited number of restaurants, including restaurants operated
by the franchisor or another franchisee.
Effectiveness of Franchisor Advertising Programs and the
Overall Success of the Franchisor. The success of the Company is
substantially dependent upon the effectiveness of PHI's
advertising programs and development of new and successful
products and the overall success of Pizza Hut.
Training and Retention of Skilled Management and Other
Restaurant Personnel. The Company's success depends substantially
upon its ability to recruit, train and retain skilled management
and other restaurant personnel. There can be no assurance that
labor shortages, economic conditions or other factors will not
adversely affect the ability of the Company to satisfy its
requirements in this area.
Ability to Locate and Secure Acceptable Restaurant Sites.
The success of restaurants is significantly influenced by
location. There can be no assurance that current locations will
continue to be attractive, or additional locations can be located
and secured, as demographic patterns change. It is possible that
the current locations or economic conditions where restaurants are
located could decline in the future, resulting in potentially
reduced sales in those locations. There is also no assurance that
further sites will produce the same results as past sites.
Competition. The Company's future performance will be
subject to a number of factors that affect the restaurant industry
generally, including competition. The restaurant business is
highly competitive and the competition can be expected to
increase. Price, restaurant location, food quality, quality and
speed of service and attractiveness of facilities are important
aspects of competition as are the effectiveness of marketing and
advertising programs. The competitive environment is also often
affected by factors beyond the Company's or a particular
restaurant's control. The Company's restaurants compete with a
wide variety of restaurants ranging from national and regional
restaurant chains (some of which have substantially greater
financial resources than the Company) to locally-owned
restaurants. There is also active competition for advantageous
commercial real estate sites suitable for restaurants.
Distribution. The Company's restaurants are dependent on
frequent replenishment of the food ingredients and paper supplies.
Significant interruptions in distribution services or the lack of
distribution services could have a material adverse impact on the
Company's results of operations, cash flows or financial position.
(See "Pizza Hut Operations - Distribution" in this Item 1 relating
to status of AmeriServe bankruptcy filing.)
Unforeseeable Events and Conditions. Unforeseeable events
and conditions, many of which are outside the control of the
Company, can impact consumer patterns in the restaurant industry.
These events include weather patterns, severe storms and power
outages, natural disasters and other acts of God. There can be no
assurance that the Company's operations will not be adversely
affected by such events in the future.
Commodities Costs, Labor Shortages and Costs and other
Risks. Dependence on frequent deliveries of fresh produce and
groceries subjects food service businesses to the risk that
shortages or interruptions in supply, caused by adverse weather or
other conditions, could adversely affect the availability, quality
and cost of ingredients. Specifically, certain ingredients such as
cheese constitute a large percentage of the total cost of the
Company's food products. Unforeseeable increases in the cost of
these specific ingredients could significantly increase the
Company's cost of sales and correspondingly decrease the Company's
operating income. In addition, unfavorable trends or developments
concerning factors such as inflation, increased food, labor and
employee benefit costs (including increases in hourly wage and
minimum unemployment tax rates), regional weather conditions,
interest rates and the availability of experienced management and
hourly employees may also adversely affect the food service
industry in general and the Company's results of operations and
financial condition in particular.
ITEM 2.PROPERTIES
PIZZA HUT OPERATIONS
Pizza Hut restaurants historically have been built
according to identification specifications established by PHI
relating to exterior style and interior decor. Variation from such
specifications is permitted only upon request and if required by
local regulations or to take advantage of specific opportunities
in a market area.
The distinctive Pizza Hut red roof is the identifying
feature of Pizza Hut restaurants throughout the world. Pizza Hut
restaurants are generally freestanding, one-story buildings, with
wood, brick or stucco exteriors and are substantially uniform in
design and appearance. A new unit type, main path, which has no
red roof and has a stucco exterior is targeted for metro markets
and has a quick service platform. Property sites range from 25,000
to 45,000 square feet and accommodate parking for 30 to 70 cars.
Typically, Pizza Hut restaurants contain from 1,800 to 3,600
square feet including a kitchen area and have seating capacity for
70 to 125 persons.
The cost of land, building and equipment for a typical
Pizza Hut restaurant vary with location, size, construction costs
and other factors. The Company currently estimates that the
average cost to construct and equip a new restaurant in its
existing franchise territories is approximately $650,000 to
$800,000, or $800,000 to $1,300,000 including the cost of land
acquisition.
The Company continually renovates and upgrades its existing
restaurants. Such improvements generally include new interior and
exterior decor and installation of more modern equipment.
The Company anticipates that the capital investment
necessary for each delivery-only kitchen is approximately $100,000
in equipment and $150,000 in leasehold improvements. The cost of a
CSC is approximately $150,000 in equipment and improvements.
The Pizza Hut restaurants and delivery units operated by
the Company at March 28, 2000 are owned or leased as follows:
Leased from unrelated third parties 584
Land and building owned by the Company 145
Building owned by the Company and
land leased 53
782
The amount of rent paid to unrelated persons is determined
on a flat rate basis or as a percentage of sales or as a
combination of both. Generally the percentage rate is
approximately 5% to 6% where both land and buildings are leased.
Approximately 447 leases have initial terms which will expire
within the next five years. Nearly all of these leases contain
provisions allowing for the extension of the lease term. Some
leases contain provisions requiring cost of living adjustments.
The Company leases parking lot space for one Pizza Hut unit
from an officer of the Company. The rent is paid monthly at a flat
rate.
The Company owns its principal office in Pittsburg, Kansas,
containing approximately 46,000 square feet of commercial office
space. Currently the Company leases from third parties office
space for its regional offices in Birmingham, AL, Vestavia, AL,
Little Rock, AR, Evansville, IN, Lenexa, KS, Shreveport, LA,
Brandon, MS, Springfield, MO, Winston-Salem, NC, Portland, OR,
Sioux Falls, SD and Memphis, TN.
PROPERTIES HELD FOR SALE OR LIQUIDATION
Effective March 25, 1996 the Company sold the stock of the
wholly-owned subsidiary Skipper's, Inc. ("Skipper's"), a quick
service seafood chain, to a Seattle investment group. In
conjunction with the sale of Skipper's, the Company retained 19
fee simple properties that had previously been operated by
Skipper's and had been closed prior to the sale. Through March 28,
2000 the Company sold 17 fee simple properties leaving two
properties for sale or lease. At March 28, 2000 both fee simple
properties were unoccupied.
In addition to the properties held for sale the Company
retained obligations related to 39 properties under operating
leases that had previously been operated as Skipper's restaurants.
Through March 28, 2000 the Company had bought out of 12 leases and
seven leases had expired. At March 28, 2000 the Company remained
obligated for 20 properties under operating leases, all of which
have been subleased. These 20 leases have an average life of eight
years with the longest lease extending approximately 25 years. The
Company continues to pursue alternative methods of extinguishing
these commitments under favorable economic terms.
In conjunction with the Company's asset re-imaging strategy
(Pizza Huts) the Company has closed six fee simple properties.
Through March 28, 2000 the Company had sold three fee simple
properties leaving three properties for sale or lease at March 28,
2000. At March 28, 2000 these fee simple properties were
unoccupied.
In addition to the properties held for sale the Company had
obligations under operating leases for 22 properties at the
beginning of fiscal 2000 and during the year the Company closed 41
additional leased properties. During fiscal 2000 the Company
bought out of 17 leases and 29 leases expired. At March 28, 2000
the Company was still obligated for 17 properties under operating
leases, five of which had been subleased. The Company continues to
market the properties to other potential subtenants while also
pursuing alternative methods of extinguishing these commitments
under favorable economic terms.
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries are engaged in ordinary
and routine litigation incidental to its business, but management
does not anticipate that any amounts which it may be required to
pay by reason thereof, net of insurance reimbursements, will have
a materially adverse effect on the Company's financial position.
ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security
holders during the fourth quarter of the fiscal year ended March
28, 2000.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company are elected by the
Board of Directors and serve until their successors are duly
elected and qualified or until their earlier resignation or
removal. The executive officers of the Company and their current
positions and ages are as follows:
Name Position Age
O. Gene Bicknell Chairman of the Board,
Chief Executive
Officer and Director 67
James K. Schwartz President, Chief Operating
Officer and Director 38
Troy D. Cook Senior Vice President,
Chief Financial Officer,
Treasurer and Secretary 37
D. Blayne Vaughn Vice President Pizza Hut
Operations, Western Division 43
L. Bruce Sharp Vice President Pizza Hut
Operations, Southern Division 42
Robert R. Greene Vice President Pizza Hut
Operations, Eastern Division 40
Frank S. Covvey Vice President Information
Systems 49
Linda K. Lierz Vice President Marketing 31
Lavonne K. Walbert Vice President Human Resources 36
O. Gene Bicknell founded the Company and has served as
Chairman of the Board since 1962. He also served as Chief
Executive Officer of the Company before July 1993 and after
January 30, 1995.
James K. Schwartz joined the Company in December 1991 as
Vice President of Accounting and Administration. He was promoted
to Vice President Finance, Treasurer and Chief Financial Officer
in 1993. In January 1995 he was promoted to President and Chief
Operating Officer. Mr. Schwartz is a board member of the IPHFHA
and the Unified Foodservice Purchasing Cooperative.
Troy D. Cook joined the Company in February 1995 as Vice
President Finance, Chief Financial Officer, Treasurer and
Assistant Secretary. During fiscal 1999 he was named Secretary and
in March 1999 he was promoted to Senior Vice President. Prior to
that he was Vice President, Finance and Chief Operating Officer of
Oread Laboratories from 1991 to 1995. Mr. Cook is a certified
public accountant.
D. Blayne Vaughn joined the Company in November 1985 as an
Area General Manager. He was promoted to Regional Manager in 1990
and then Regional Vice President in 1993. In May 1997 he was
promoted to Vice President of Pizza Hut operations for the Western
Division.
L. Bruce Sharp joined the Company in May 1987 as an Area
General Manager. He was promoted to Regional Manager in 1989 and
Vice President of Pizza Hut operations for the Southern Division
in May 1997.
Robert R. Greene joined the Company in December 1987 as a
restaurant manager and in 1989 was promoted to Area General
Manager. He was promoted to Regional Manager in 1993 and Vice
President of Pizza Hut operations for the Eastern Division in
December 1999.
Frank S. Covvey joined the Company in July 1993 as Vice
President Information Systems. Prior to that he was Director of
Technology for The Ultimate Corp. from 1989 to 1993.
Linda K. Lierz joined the Company in January 1998 as Vice
President Marketing. Prior to joining the Company she was National
Marketing Manager for Captain D's Seafood restaurants.
Lavonne K. Walbert joined the Company in February 1999 as
Vice President Human Resources. Prior to joining the Company she
was Director of Human Resources for Western Auto Supply Company.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
Stock Information - NPC International, Inc.'s common shares
are traded on the Nasdaq Stock Market under the symbol "NPCI."
For the calendar periods indicated, the table below sets
forth the range of high and low closing sale prices:
CALENDAR PERIOD
High Low
1998
First Quarter 14 3/8 9 5/8
Second Quarter 14 3/16 12
Third Quarter 12 8 7/8
Fourth Quarter 12 5/8 10
1999
First Quarter 17 3/8 10 1/2
Second Quarter 18 3/16 14 11/16
Third Quarter 16 7/8 10 5/8
Fourth Quarter 12 5/8 7 21/32
2000
First Quarter 9 9/32 7 3/8
NPC International, Inc.'s policy is to retain earnings to
fund development and grow the business. The Company does not
contemplate payment of cash dividends in future periods.
As of May 18, 2000 there were approximately 523
stockholders of record.
ITEM 6. SELECTED FINANCIAL DATA
FIVE-YEAR FINANCIAL SUMMARY
Fiscal Year Ended
(Dollars in March March March March March
thousands, 28, 30, 31, 25, 26,
except per 2000 1999 1998 1 1997 1996
share data)
INCOME STATEMENT DATA:
Revenue $ 455,624 $ 401,159 $ 455,297 $ 295,285 $ 324,986
Cost of sales 117,637 107,821 125,365 80,618 93,977
Direct labor 129,124 111,468 129,133 81,086 87,293
Other operating
expenses 129,451 110,339 120,272 75,523 83,280
Income from
restaurant
operations 79,412 71,531 80,527 58,058 60,436
General and
administrative
expenses 22,487 20,983 23,930 17,710 21,084
Depreciation,
amortization
and pre-opening
expenses 10,749 8,922 11,475 6,121 5,648
Operating income
before impairment
and loss
provision,
recapitalization
and net facility
action charges 46,176 41,626 45,122 34,227 33,704
Net facility action
charges and
impairment
and loss
provision 2 530 -- 14,100 -- 23,500
Operating income 45,646 41,626 31,022 34,227 10,204
Interest expense (11,282) (10,177) (15,655) (5,455) (6,317)
Miscellaneous
income
(expense) 895 1,089 526 311 (341)
Income before
recapitalization
gain 35,259 32,538 15,893 29,083 3,546
Recapitalization
Gain 3 -- 39,400 -- -- --
Income before
income taxes 35,259 71,938 15,893 29,083 3,546
Provision for
income taxes 12,340 23,992 5,563 11,272 1,403
Income before
cumulative
effect of change
in accounting
principle 22,919 47,946 10,330 17,811 2,143
Cumulative effect
of change
in accounting
principle,
net of tax (114) -- -- -- --
Net income $ 22,805 $ 47,946 $ 10,330 $ 17,811 $ 2,143
Earnings per
share before
cumulative
effect of change
in accounting
principle:
Basic $.96 $1.95 $.42 $.72 $.09
Diluted $.95 $1.92 $.41 $.72 $.09
Cash dividend
per share 4 $-- $-- $-- $-- $.421875
Fiscal Year Ended
(Dollars in March March March March March
thousands, 28, 30, 31, 25, 26,
except per 2000 1999 1998 1 1997 1996
share data)
YEAR END DATA:
Working capital
deficit $(30,722) $(27,929) $(30,837) $(15,405) $ (1,782)
Total assets 395,555 344,083 382,492 259,907 197,829
Long-term debt 166,900 123,500 204,033 116,777 73,328
Stockholders'
equity 158,519 152,988 107,036 95,793 77,320
Number of
Company-owned
units 5 782 735 725 513 405
Number of
franchised
units 5 -- -- 147 140 142
Number of
employees 15,200 14,400 16,000 12,000 9,800
1 Fiscal 1998 contained 53 weeks of operation.
2 The 2000 charge relates to facility action charges. The 1998
charge relates to the Pizza Hut re-imaging strategy. The 1996
charge relates to the sale of Skipper's Inc., effective March
1996, and the closure of certain Tony Roma's restaurants.
3 Effective June 30, 1998 the Company completed the Recapitalization
of its previously wholly-owned subsidiary, Romacorp. (See Note 6
to Consolidated Financial Statements.)
4 Declared August 8, 1995 related to Class A shares concurrent with
the approval of a stock recapitalization plan.
5 Does not include two Tony Roma units operated as joint ventures
by the Company through June 30, 1998.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
The Company is the largest Pizza Hut franchisee in the
world. Based on unit count at year-end, the Company's Pizza Hut
operations account for approximately 18% of the domestic Pizza Hut
franchised units and 12% of the entire Pizza Hut system. The
Company operated its Pizza Hut units in 26 states during fiscal
2000.
The Company, through its wholly-owned subsidiary, Romacorp
was also the owner/franchisor of the Tony Roma's concept, from its
acquisition in June 1993 through June 30, 1998 when Romacorp was
recapitalized. (See Note 6 to Consolidated Financial Statements.)
Products & Service - 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.
Pizza Hut provides a buffet with table service for beverages
during lunch and full table service for dinner, with delivery and
carryout available throughout the day.
Period of Operation - The Company operates on a 52 or 53
week fiscal year ending the last Tuesday in March. The fiscal
years ended March 28, 2000 and March 30, 1999 each contained 52
weeks. The fiscal year ended March 31, 1998 contained 53 weeks.
DEVELOPMENT AND RE-IMAGING
Activity with respect to unit count during the year is set
forth in the table below:
FISCAL 2000 ACTIVITY
Beginning Developed Acquired Closed 1 Ending
Company-Owned
Pizza Hut
Restaurant 573 30 52 (40) 615
Delivery 162 11 18 (24) 167
Total Pizza
Hut 735 41 70 (64) 782
1 Includes units which were relocated, consolidated,
converted or scraped and rebuilt and five units
closed without replacement.
See Note 5 to Consolidated Financial Statements for
information related to facility actions and re-imaging
activity and Note 11 to Consolidated Financial
Statements for information related to acquisition activity.
RESULTS OF OPERATIONS
The "operations summaries" set forth an overview of revenue
and operating expenses as a percent of revenue for the last three
fiscal years for each concept operated by the Company. Cost of
sales includes the cost of food and beverage products sold. Direct
labor represents the salary and related fringe benefit costs
associated with restaurant based personnel. Other operating
expenses include rent, depreciation, advertising, utilities,
supplies, franchise fees (Pizza Hut only) and insurance among
other costs directly associated with operating a restaurant
facility.
PIZZA HUT OPERATIONS SUMMARY
(Dollars in thousands)
Fiscal Year Ended March
2000 1999 1998
Revenue:
Restaurant Sales $354,318 $297,639 $286,631
Delivery Sales 101,306 78,893 73,776
Total Revenue $455,624 $376,532 $360,407
Restaurant Operating Expenses
as a Percentage of Revenue:
Total Expenses: 1
Cost of Sales 25.8% 26.6% 26.7%
Direct Labor 28.3% 27.8% 28.4%
Other 28.4% 27.9% 27.5%
Total Operating Expenses 82.5% 82.3% 82.6%
Restaurant Based Income 17.5% 17.7% 17.4%
Restaurant Expenses: 2
Cost of Sales 25.9% 26.7% 26.8%
Direct Labor 27.3% 26.7% 27.2%
Other 29.6% 28.8% 28.1%
Total Operating Expenses 82.8% 82.2% 82.1%
Restaurant Based Income 17.2% 17.8% 17.9%
Delivery Expenses: 3
Cost of Sales 25.4% 26.0% 26.4%
Direct Labor 32.1% 32.1% 33.1%
Other 24.2% 24.5% 25.4%
Total Operating Expenses 81.7% 82.6% 84.9%
Restaurant Based Income 18.3% 17.4% 15.1%
1 As a percent of total revenue
2 As a percent of restaurant sales
3 As a percent of delivery sales
PIZZA HUT RESULTS OF OPERATIONS
Revenue - Revenue for fiscal 2000 totaled $455.6 million
and was $79.1 million or 21% higher than fiscal 1999 revenue of
$376.5 million. This growth was largely due to revenue contributed
by the 99 units acquired in February 1999 and the 70 units
acquired in July 1999. Comparable store sales increased 2.9%,
which was largely driven by the continued success of the Big New
Yorker Pizza and the favorable effects of the Company's asset re-
imaging plan. Acquired unit sales combined with the comparable
store sales improvement more than offset the impact of store
closure activity for the fiscal year. Sales growth in re-imaged
stores contributed 1.5% to comparable store sales growth for the
fiscal year.
During fiscal 2000 the Company's delivery units generated
comparable store sales growth of 2.7% while the Company's
restaurant units also generated comparable sales growth of 2.9%.
The Company's restaurant units are the primary beneficiaries of
the Company's asset re-imaging plan; accordingly, the sales growth
in these units includes the previously mentioned positive impact
of this program.
Revenue was $376.5 million for the 52 weeks ended March 30,
1999 for an increase of $16.1 million or 4.5% over the $360.4
million reported during the 53 weeks ended March 31, 1998. The
growth was primarily due to an increase in comparable sales of
4.4% and a late fiscal year acquisition of 99 units from PHI,
which offset the impact of store closure activity throughout the
year. Comparable store sales posted steady improvement in all
asset types throughout fiscal 1999 culminating with 10.5%
comparable store sales growth in the Company's fourth fiscal
quarter. The comparable store sales growth achieved during the
fourth fiscal quarter was primarily due to the introduction of the
Big New Yorker Pizza which fueled growth across all asset types
after its launch on January 28, 1999.
The fiscal 1999 comparable store sales trend was a
continuation of improved comparable sales that began with the
implementation of the Company's Delivery Dominance Program in the
third quarter of fiscal 1998. Focus on this program continued in
fiscal 1999 and increased marketing efforts as well as improved
couponing strategies resulted in continued comparable store sales
growth. For fiscal 1999 delivery units generated comparable store
sales growth of 9.2% and peaked at 15.6% during the Company's
fourth fiscal quarter. The Company's restaurant units also
contributed to the improved comparable store sales trend with 3.2%
comparable sales growth.
Costs and Expenses - Cost of sales as a percent of revenue
decreased from 26.6% during fiscal 1999 to 25.8% during fiscal
2000. The decline in cheese costs of approximately 12% and reduced
distribution costs (related to the new distribution contract) more
than offset higher food cost associated with the Big New Yorker
Pizza, increased paper costs associated with the Star Wars
promotion and increases in other certain ingredients.
Cost of sales as a percent of revenue was 26.6% in fiscal
1999 compared to 26.7% in fiscal 1998 despite an increase in the
average cost of cheese for the year of approximately 15%. This was
achieved due to more normalized ingredient costs (except cheese),
the benefit of supply contract negotiations, improved operational
control in the stores acquired during fiscal 1998 and reduced
distribution costs related to a new distribution contract entered
into late in the fiscal year. (See "Pizza Hut Operations -
Distribution" in Item 1 for additional information related to the
Company's distribution contract.)
Direct labor as a percent of revenue increased to 28.3%
during fiscal 2000 from 27.8% during fiscal 1999. Factors
impacting this increase include the negative impact of continued
wage inflation, higher labor cost in re-imaged new store openings
and inefficiencies and training costs associated with the calendar
1999 acquisitions.
Direct labor as a percent of revenue improved from 28.4%
during fiscal 1998 to 27.8% during fiscal 1999. This decline
results from leverage associated with positive comparable sales
volumes, labor efficiencies primarily achieved in stores acquired
during fiscal 1998 and a reduction in workers' compensation
expense. This improvement was achieved despite fourth fiscal
quarter training costs incurred due to launch of the Big New
Yorker Pizza and higher labor costs in the 99 units acquired
February 4, 1999 due to training, transitional issues and
historically higher labor costs.
Other operating costs as a percent of revenue increased
from 27.9% in fiscal 1999 to 28.4% in fiscal 2000. This increase
is largely due to an increase in the effective royalty rate of
approximately 40 basis points (due to the 6.5% royalty rate on the
99-unit and 70-unit acquisitions) and increased depreciation
associated with the re-imaging activity. The effect of this higher
royalty rate structure was entirely reflected in the Company's
restaurant units; the Company's delivery units were not impacted.
Other operating costs increased to 27.9% of revenue in
fiscal 1999 from 27.5% in fiscal 1998. This increase is largely
attributable to increased store manager bonuses due to
improvements in controllable profit and increased couponing costs
which were partially offset by the aforementioned leverage on
fixed costs and a reduction in net delivery expenses.
TONY ROMA'S OPERATIONS SUMMARY
(Dollars in thousands)
Thirteen Weeks Fiscal Year
Ended Ended
June 30, 1998 2 March 29, 1998
Revenue:
Restaurant Sales $22,513 $86,408
Net Franchise Revenue 2,114 8,482
Total Revenue $24,627 $94,890
Restaurant Operating
Expenses as a
Percentage of Sales:
Cost of Sales 34.8% 33.6%
Direct Labor 30.2% 30.9%
Other 23.5% 24.3%
Total Operating Expenses 88.5% 88.8%
Restaurant Based Income 11.5% 11.2%
Income from System
Operations 1 19.1% 19.1%
1 Net franchise revenue and restaurant based income as a
percent of total revenue
2 Due to the recapitalization of Romacorp, effective June
30, 1998 information reflects activity through that date.
(See Note 6 to Consolidated Financial Statements.)
TONY ROMA'S RESULTS OF OPERATIONS
As a result of the recapitalization of Romacorp effective
June 30, 1998 Romacorp's results of operations are only included
in fiscal 1999 results through the date of recapitalization.
During the thirteen weeks ended June 30, 1998 restaurant sales
were $22.5 million and income from restaurant operations, which
included net franchise revenue, was $4.7 million.
CONSOLIDATED RESULTS OF OPERATIONS
Consolidated revenue in fiscal 2000 was $455.6 million for
an increase of $54.5 million or 13.6% over the $401.2 million
reported in fiscal 1999. This increase was largely due to calendar
1999 (169 units) acquisitions and was partially offset by the loss
of revenue from Romacorp, which was recapitalized at the end of
the Company's first quarter of fiscal 1999. Specifically, during
fiscal 1999 revenue from Romacorp of $24.6 million was recorded
during the 13 weeks prior to its recapitalization.
During the 52 weeks ended March 30, 1999 consolidated
revenue was $401.2 million, which was 11.9% or $54.1 million below
the $455.3 million reported during the 53 weeks ended March 31,
1998. The decline in revenue resulted primarily due to the
recapitalization of Romacorp. During fiscal 1999 revenue from
Romacorp of $24.6 million was recorded compared to revenue of
$94.9 million recorded in fiscal 1998. Also contributing to the
decrease in revenue was the closure of Pizza Hut units related to
the Company's re-imaging strategy and the impact of an extra week
of operations during fiscal 1998. The decline in consolidated
revenue was partially offset by an increase in annual comparable
store sales at Pizza Hut of approximately 4.4% and the acquisition
of 99 units.
Consolidated income from restaurant operations was $79.4
million or 17.4% of revenue in fiscal 2000 compared to $71.5
million or 17.8% of revenue in fiscal 1999. The increase in
nominal dollars was due to growth in unit count and was partially
offset by the loss of earnings from Romacorp. The decline in
consolidated income from restaurant operations as a percent of
revenue was due to lower margin structure and higher royalty fees
in the calendar 1999 acquisition units as well as the negative
impact of wage inflation and higher labor costs of re-imaged new
store openings.
Consolidated income from restaurant operations was $71.5
million or 17.8% of revenue for fiscal 1999 compared to $80.5
million or 17.7% in fiscal 1998. Income from restaurant operations
as a percent of revenue increased over the prior year due to
improved margin performance in the Company's Pizza Hut operations.
The decrease in consolidated income from restaurant operations in
nominal dollars was largely attributable to the loss of earnings
from Romacorp and the extra week of operations in fiscal 1998
results.
Leverage from the Pizza Hut expansion resulted in a
decrease in general and administrative expenses as a percent of
revenue from 5.2% in fiscal 1999 to 4.9% in fiscal 2000. In terms
of nominal dollars, general and administrative costs increased to
$22.5 million in fiscal 2000 from $21 million in fiscal 1999,
largely due to increased staffing levels associated with the
calendar 1999 acquisitions.
General and administrative expenses were $21 million during
fiscal 1999 compared to $23.9 million in fiscal 1998 for a
decrease of $2.9 million or 12.3%. As a percent of revenue these
costs were 5.2% during fiscal 1999 compared to 5.3% in fiscal
1998. The nominal dollar decrease and the decrease in these costs
as a percent of revenue were due to the recapitalization of
Romacorp, which historically had a higher percentage of such costs
as a percentage of revenue.
Depreciation, amortization and pre-opening costs include
depreciation of field and corporate equipment and facilities as
well as the amortization of goodwill, franchise rights and pre-
opening costs which effective fiscal 2000 are expensed as incurred
as required by Statement of Position 98-5. These costs increased
during fiscal 2000 due to increased franchise rights amortization
associated with the calendar 1999 acquisitions, smallwares
amortization and increased pre-opening costs (due to re-imaging
activity). Pre-opening costs increased to $723 thousand from $183
thousand last year due to increased re-imaging activity and the
change in accounting principle.
Depreciation, amortization and pre-opening costs declined
in nominal dollars and as a percent of revenue during fiscal 1999
due to the reduction in amortization expense as a result of the
recapitalization of Romacorp. Romacorp historically had a higher
percentage of depreciation and amortization than the Company's
Pizza Hut division resulting from amortization of goodwill and
more significant amortization of pre-opening expenses.
As the calendar 1999 acquisitions were financed with debt,
interest costs grew to $11.3 million in fiscal 2000 compared to
$10.2 million in fiscal 1999.
Interest expense decreased to $10.2 million in fiscal 1999
from $15.7 million in fiscal 1998 due to debt reduction early in
the year from the proceeds of the Romacorp recapitalization.
Miscellaneous income was $895 thousand during fiscal 2000
compared to $1.1 million reported in fiscal 1999 and $526 thousand
reported in fiscal 1998. The increase for fiscal 1999 was due to
an increase in the gain on sale or disposition of assets and
business interruption proceeds.
In fiscal 2000 net income before cumulative effect of
change in accounting principle was $22.9 million compared to $47.9
million reported during fiscal 1999. Net income in fiscal 1999
included a gain from the recapitalization of Romacorp of $39.4
million (pre-tax) or $26.8 million, net of tax. (See Note 6 to
Consolidated Financial Statements.) Normalized for Romacorp's pro
forma income contribution, net income was approximately $3.1
million or 15.5% higher in fiscal 2000 compared to fiscal 1999 due
largely to income generated by acquired units. However, due
largely to share repurchases, earnings per diluted share increased
19% on this basis.
Net income for fiscal 1999 was $47.9 million compared to
$10.3 million reported during fiscal 1998. Fiscal 1999 net income
included the aforementioned gain from the recapitalization of
Romacorp. Additionally, the increase in net income over fiscal
1998 results was due to a $14.1 million pre-tax, or $9.2 million
net of tax, asset impairment and loss charge recorded in the
fourth quarter of fiscal 1998. Normalized for these items, net
income was approximately 8.5% higher in fiscal 1999 compared to
fiscal 1998 results which was primarily due to improved margins in
the Company's Pizza Hut units.
Components of diluted earnings per share were as follows:
Fifty-Two Fifty-Two Fifty-Three
Weeks Weeks Weeks
Ended Ended Ended
March March March
28, 30, 31,
2000 1999 1998
Net income before
cumulative effect of
change in accounting
principle, facility
action charges, and
gain on
recapitalization of
Romacorp, net of tax $ .96 $ .85 $ .78
Gain on recapitalization
of Romacorp, net of tax -- 1.07 --
Cumulative effect of
change in accounting
principle, net of tax (.01) -- --
Facility action charges,
net of tax (.01) -- (.37)
Earnings per share -
diluted $ .94 $1.92 $ .41
The Company's income tax provision for the fiscal years
2000, 1999 and 1998 resulted in effective tax rates of 35%, 33.4%
and 35%, respectively. The reduction of the rate in fiscal 1999
resulted from a lower tax rate associated with the Romacorp
recapitalization gain. (See Note 6 to Consolidated Financial
Statements.)
LIQUIDITY AND CAPITAL RESOURCES
On March 28, 2000 the Company had a working capital deficit
of $30.7 million compared to a $27.9 million deficit at March 30,
1999. The increase in the deficit was primarily due to the fiscal
2000 70-unit Pizza Hut acquisition. Like most restaurant
companies, the Company is able to operate with a working capital
deficit because substantially all of its sales are for cash, while
it generally receives credit from trade suppliers. Further,
receivables are not a significant asset in the restaurant business
and inventory turnover is rapid. Therefore, the Company uses all
available liquid assets to reduce borrowings under its revolving
line of credit.
At March 28, 2000 the Company had a $15 million and a $185
million unsecured revolving credit facility of which $96.9 million
was outstanding on the combined facilities. Availability under
these facilities is reduced by outstanding letters of credit of
which $6.5 million was issued at year-end.
The Company anticipates cash flow from operations and
capacity under its existing line of credit will be sufficient to
fund continuing expansion, acquisitions and improvements and to
service debt obligations. The Company anticipates the utilization
of sale-leaseback facilities in fiscal 2001 and beyond to
partially fund the capital requirements associated with the
Company's asset re-imaging program. The Company's ability to make
additional acquisitions is subject to certain financial covenants
or, if necessary and warranted, the Company's ability to obtain
additional equity capital. (See Note 3 to Consolidated Financial
Statements.)
CASH FLOWS
Net cash provided by operating activities was $57 million
in fiscal 2000 compared to $32.3 million in fiscal 1999, an
increase of $24.7 million. Cash flow from operations was
positively impacted by acquired stores, which like the Company,
operate with a working capital deficit.
Net cash provided by operating activities was $32.3 million
in fiscal 1999 compared to $65 million in fiscal 1998. Cash from
operations in fiscal 1999 was positively impacted by acquired
stores. Offsetting this positive impact to cash flows was the
exclusion of cash provided by operations from Romacorp for the
second through fourth quarters of fiscal 1999.
Investing activities include normal maintenance capital
expenditures and include the development of restaurant units
including relocations and conversions. Acquisitions consist of 70
Pizza Hut units in fiscal 2000, 99 Pizza Hut units in fiscal 1999
and 222 Pizza Hut units in fiscal 1998. Proceeds from the sale of
fee simple properties associated primarily with the Skipper's and
Pizza Hut's closure and disposition strategies have resulted in
cash received of $1 million in fiscal 2000, $3.7 million in fiscal
1999 and $2.3 million in fiscal 1998.
The fiscal 2000 acquisition and fiscal 1999 acquisition
were funded through the Company's unsecured revolving credit
facility. Acquisitions completed during fiscal 1998 were funded
through the revolving credit facility and the issuance of $50
million in senior unsecured notes.
During fiscal 2000 the Company increased the number of
shares authorized by the Board of Directors for repurchase by two
million shares. During the year the Company expended $18.3 million
for the purchase of 2,215,300 shares of treasury stock. There were
752,400 shares that remained authorized for repurchase at March
28, 2000.
EFFECTS OF INFLATION AND FUTURE OUTLOOK
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. Currently, Congress is considering legislation
which could increase the minimum wage by as much as $1 per hour
over a two to three year period. Such legislation, if passed,
would increase the Company's labor costs as a majority of the
Company's food service personnel are paid at rates related to
minimum wage. However, due to the uncertainty regarding this
legislation, management cannot reliably estimate the potential
impact upon labor costs at this time.
As discussed in "Pizza Hut Operations - Distribution" in
Item 1, the Company's major distributor, AmeriServe, has filed for
protection under Chapter 11 of the U.S. Bankruptcy Code. Although
the Company believes that an alternate distributor or distributors
could be obtained to meet the needs of its restaurants (should it
be necessary), it cannot be certain that the costs would be at the
same rates in which the Company currently pays AmeriServe nor can
it be certain that a disruption of services will not occur during
the process of obtaining an alternate distributor or distributors.
At this time, management cannot reliably estimate the impact upon
cost of sales, if any, related to this situation.
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. Significant change in the price of
cheese would have an impact on the Company's food cost as a
percent of revenue.
Based upon available forecasts, management expects cheese
costs for fiscal 2001 to be below last year's levels by
approximately 10% with the primary benefit realized in the second
and third quarters of fiscal 2001. Meat ingredient costs are
expected to exceed fiscal 2000 levels by approximately 5% to 10%.
The Company is required to pay a franchise fee of 6.5% on
the sales of certain of the 99 units acquired on February 4, 1999
and certain of the 70 units acquired on July 22, 1999 in
accordance with the terms of the amended franchise agreement. This
rate is 2.5% higher than the Company's current rate of 4%. The
effect of this fee arrangement increased other operating costs by
approximately 40 basis points during fiscal 2000. Future
acquisitions will pay franchise fees at the higher rate and, as a
result, such acquisitions will cause further increases in this
category. These increases will be mitigated by future reductions
in franchise fees achieved through re-imaging.
Increases in interest rates would directly affect the
Company's financial results. Approximately 42% of the Company's
debt are senior notes with fixed interest rates. 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.
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.
Forward looking statements can often be identified by the use of
forward looking terminology, such as "believes," "expects," "may,"
"will," "should," "could," "intends," "plans," "estimates," or
"anticipates," variations of these words or similar expressions.
Among the factors that could cause actual results to be materially
different from those described in the forward looking statements
are the following: 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; federal or
state minimum wage increases; 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, the availability of raw product and
ingredients and distribution of products, labor shortages and
costs and other risks detailed in the Company's Securities and
Exchange Commission filings. Forward-looking statements are not
guarantees of future performance or results.
OTHER
Recently Issued Accounting Pronouncements - The Financial
Accounting Standards Board ("FASB") has issued SFAS No. 133,
"Accounting for Derivative Financial Instruments and Hedging
Activities." This statement, as amended by SFAS No. 137,
establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in
other contracts and for hedging activities. The statement is
required to be adopted by the Company in 2001. The Company does
not anticipate that adoption of this statement will have a
significant impact on its consolidated financial position or its
future results of operations.
Impact of Year 2000 - In previous filings the Company
disclosed the nature and progress of its plans to become Year 2000
ready. The Company completed its readiness program in December
1998 and performed testing throughout 1999. As a result of these
efforts the Company experienced no significant disruptions in its
operating or financial activities associated with computer systems
or non-information technology equipment and believes those systems
successfully responded to the Year 2000 date change. The Company
is not aware of any material problems resulting from Year 2000
issues with its internal systems or the products and services of
third parties such as suppliers and banks. The Company will
continue to monitor its mission critical computer applications and
those of its suppliers and vendors throughout the year 2000 to
ensure that any latent Year 2000 matters that may arise are
addressed promptly.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
The Company does not believe it has any material exposure
associated with market risk sensitive instruments.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page
Report of Management 21
Independent Auditors' Reports 22
Consolidated Balance Sheets - Assets,
Liabilities and Stockholders' Equity
as of March 28, 2000 and March 30, 1999 23
Consolidated Statements of Income
for the fiscal years ended March 28, 2000,
March 30, 1999 and March 31, 1998 24
Consolidated Statement of Stockholders' Equity
for the fiscal years ended March 28, 2000,
March 30, 1999 and March 31, 1998 25
Consolidated Statements of Cash Flows
for the fiscal years ended March 28, 2000,
March 30,1999 and March 31, 1998 26
Notes to Consolidated Financial Statements 27 - 35
Report of Management
The management of NPC International, Inc. has prepared the
consolidated financial statements and related financial
information included in this Annual Report. Management has the
primary responsibility for the integrity of the consolidated
financial statements and other financial information. The
consolidated financial statements have been prepared in accordance
with generally accepted accounting principles consistently applied
in all material respects and reflect estimates and judgments by
management where necessary. Financial information included
throughout this Annual Report is consistent with the consolidated
financial statements. Management of the Company has established a
system of internal accounting controls that provides reasonable
assurance that assets are properly safeguarded and accounted for
and that transactions are executed in accordance with management's
authorization.
The consolidated financial statements have been audited by
our independent accountants, KPMG LLP, whose unqualified report is
presented herein. Their opinion is based upon procedures performed
in accordance with generally accepted auditing standards,
including tests of the accounting records, obtaining an
understanding of the system of internal accounting controls and
such other tests as deemed necessary in the circumstances to
provide them reasonable assurance that the consolidated financial
statements are fairly presented. The Audit Committee of the Board
of Directors, consisting solely of outside directors, meets with
the independent accountants at least twice per year to discuss the
scope and major findings of the audit. The independent accountants
have access to the Audit Committee at any time.
O. Gene Bicknell
Chairman of the Board and
Chief Executive Officer
James K. Schwartz
President and
Chief Operating Officer
Troy D. Cook
Senior Vice President and
Chief Financial Officer
Report of Independent Auditors
The Board of Directors and Stockholders
NPC International, Inc. and Subsidiaries
We have audited the accompanying consolidated balance
sheets of NPC International, Inc. and Subsidiaries (the "Company")
as of March 28, 2000 and March 30, 1999 and the related
consolidated statements of income, stockholders' equity and cash
flows for the years then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing
standards generally accepted in the United States of America.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the 2000 and 1999 consolidated financial
statements referred to above present fairly, in all material
respects, the financial position of NPC International, Inc. and
Subsidiaries as of March 28, 2000 and March 30, 1999 and the
results of its operations and its cash flows for the years then
ended, in conformity with generally accepted accounting
principles.
KPMG LLP
Kansas City, Missouri
April 28, 2000
Report of Independent Auditors
The Board of Directors and Stockholders
NPC International, Inc. and Subsidiaries
We have audited the consolidated balance sheet of NPC
International, Inc. and Subsidiaries (the "Company") as of March
31, 1998 (not presented herein) and the related consolidated
statement of income, stockholders' equity and cash flows for the
fiscal year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements based on our
audit.
We conducted our audit in accordance with auditing
standards generally accepted in the United States. Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of NPC International, Inc. and Subsidiaries at
March 31, 1998 and the consolidated results of their operations
and their cash flows for the fiscal year then ended in conformity
with accounting principles generally accepted in the United
States.
Ernst & Young LLP
Kansas City, Missouri
May 5, 1998
NPC International, Inc. and Subsidiaries
Consolidated Balance Sheets
(Dollars in thousands)
ASSETS
March 28, March 30,
2000 1999
Current assets:
Cash and cash equivalents $ 3,842 $ 4,021
Accounts receivable, net 946 1,817
Inventories of food and supplies 3,154 2,972
Deferred income tax asset 3,218 3,064
Prepaid insurance premiums 948 963
Prepaid rent payments 1,581 1,486
Prepaid expenses and other
current assets 682 1,429
Total current assets 14,371 15,752
Facilities and equipment, net 126,556 95,228
Franchise rights, less accumulated
amortization of $33,605 and $25,122,
respectively 239,607 217,995
Goodwill, less accumulated amortization
of $1,562 and $1,432, respectively 2,578 2,708
Investments, at cost 6,738 6,750
Other assets 5,705 5,650
Total assets $ 395,555 $ 344,083
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 12,011 $ 12,506
Payroll taxes 2,150 2,046
Sales taxes 2,457 2,174
Accrued interest 3,509 3,088
Accrued payroll 9,775 9,042
Income tax payable 3,730 1,889
Current portion of closure reserve 1,000 2,260
Insurance reserves 5,277 4,934
Other accrued liabilities 5,184 5,742
Total current liabilities 45,093 43,681
Long-term debt 166,900 123,500
Deferred income tax liability 7,102 4,386
Closure reserve 4,205 5,691
Other deferred items 4,736 5,837
Insurance reserves 9,000 8,000
Stockholders' equity, net
27,592,510 shares outstanding,
$.01 par value 158,519 152,988
Total liabilities and
stockholders' equity $ 395,555 $ 344,083
The accompanying notes are an integral part of these consolidated
financial statements.
NPC International, Inc. and Subsidiaries
Consolidated Statements of Income
(Dollars in thousands, except share data)
For the Fiscal Year Ended
March March March
28, 30, 31,
2000 1999 1998
Net sales $ 455,624 $ 399,045 $ 446,815
Net franchise revenue -- 2,114 8,482
Total revenue 455,624 401,159 455,297
Cost of sales 117,637 107,821 125,365
Direct labor 129,124 111,468 129,133
Other 129,451 110,339 120,272
Total operating expenses 376,212 329,628 374,770
Income from restaurant
operations 79,412 71,531 80,527
General and administrative
expenses 22,487 20,983 23,930
Depreciation, amortization
and pre-opening costs 10,749 8,922 11,475
Operating income before
facility action charges 46,176 41,626 45,122
Net facility action charges
and impairment and loss provision 530 -- 14,100
Operating income 45,646 41,626 31,022
Other income (expense):
Interest expense (11,282) (10,177) (15,655)
Miscellaneous 895 1,089 526
Gain on recapitalization of
Romacorp -- 39,400 --
Income before income taxes 35,259 71,938 15,893
Provision for income taxes 12,340 23,992 5,563
Income before cumulative
effect of change
in accounting principle 22,919 47,946 10,330
Cumulative effect of change
in accounting
principle, net of tax (114) -- --
Net income $ 22,805 $ 47,946 $ 10,330
Earnings per share - basic
before cumulative effect of
change in accounting principle $ .96 $1.95 $ .42
Cumulative effect of change in a
accounting principle (.01) -- --
Earnings per share - basic $ .95 $1.95 $ .42
Earnings per share - diluted
before cumulative
effect of change in accounting
principle $ .95 $1.92 $ .41
Cumulative effect of change in
accounting principle (.01) -- --
Earnings per share - diluted $ .94 $1.92 $ .41
Weighted average shares
outstanding - basic 23,919,642
24,621,914
24,693,764
Weighted average shares
outstanding - diluted 24,243,629
24,992,304
25,108,988
The accompanying notes are an integral part of these consolidated
financial statements.
NPC International, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
(Dollars in thousands)
Total
Paid- Stock-
Common in Retained Treasury holders'
Stock Capital Earnings Stock Equity
Balance,
March 25, 1997 $ 276 $20,978 $ 94,827 $(20,288) $95,793
Net income -- -- 10,330 -- 10,330
Exercise of
stock options -
106,756 shares -- 55 -- 858 913
Balance,
March 31, 1998 276 21,033 105,157 (19,430) 107,036
Net income -- -- 47,946 -- 47,946
Purchase of treasury
stock - 378,800
shares -- -- -- (3,837) (3,837)
Exercise of stock
options - 166,277
shares -- 894 -- 949 1,843
Balance,
March 30, 1999 276 21,927 153,103 (22,318) 152,988
Net income -- -- 22,805 -- 22,805
Purchase of treasury
stock - 2,215,300
shares -- -- -- (18,284) (18,284)
Exercise of stock
options - 119,644
shares -- 48 -- 962 1,010
Balance,
March 28, 2000 $ 276 $21,975 $ 175,908 $(39,640) $158,519
Common stock, $.01 par value, of 100 million shares is authorized,
with 27,592,510 shares issued and outstanding.
Treasury stock is stated at cost and represents 5,158,730 and
3,063,074 shares at March 28, 2000 and March 30, 1999,
respectively.
The accompanying notes are an integral part of these consolidated
financial statements.
NPC International, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Dollars in thousands)
For the Fiscal Year Ended
March March March
28, 30, 31,
2000 1999 1998
Operating Activities
Net income $ 22,805 $ 47,946 $ 10,330
Non-cash items included in
net income:
Depreciation and amortization 26,870 23,503 28,849
Deferred income taxes 2,562 2,905 (5,662)
Net facility action charges 530 -- 14,100
Non-cash gain on recapitalization
of Romacorp -- (38,758) --
Change in assets and liabilities,
net of acquisitions and
recapitalization:
Accounts receivable, net 871 (653) (840)
Inventories of food and supplies 137 (548) (771)
Prepaid expenses and other
current assets (180) (1,335) (2,418)
Accounts payable (495) (4,522) 5,264
Payroll taxes 104 637 (73)
Accrued interest 421 (1,014) 2,133
Accrued payroll 733 1,170 4,257
Income tax payable 1,841 1,239 2,387
Insurance reserves 1,343 771 3,242
Other accrued liabilities (583) 945 4,158
Net cash flows provided by
operating activities 56,959 32,286 64,956
Investing Activities
Net proceeds from
recapitalization of Romacorp -- 101,237 --
Capital expenditures (42,716) (22,644) (28,795)
Changes in other assets, net (4,920) (2,875) (614)
Proceeds from sale of assets 1,647 3,663 2,308
Acquisitions, net of cash
acquired (37,275) (31,000) (121,232)
Net cash flows (used in)
provided by investing
activities (83,264) 48,381 (148,333)
Financing Activities
Purchase of treasury stock (18,284) (3,837) --
Net change in revolving
credit agreements 53,400 (69,200) 48,700
Net proceeds from issuance
of long-term debt -- -- 49,756
Payment of long-term debt (10,000) (10,000) (11,444)
Exercise of stock options 1,010 1,843 913
Net cash flows provided by
(used in) financing activities 26,126 (81,194) 87,925
Net change in cash and cash
equivalents (179) (527) 4,548
Cash and cash equivalents at
beginning of year 4,021 4,548 --
Cash and cash equivalents at
end of year $ 3,842 $ 4,021 $ 4,548
The accompanying notes are an integral part of these consolidated
financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE: 1 Summary of Significant Accounting Policies
Basis of Presentation and Consolidation - The financial
statements include the accounts of NPC International, Inc. and its
wholly-owned subsidiaries (the "Company"). Romacorp, a wholly-
owned subsidiary of the Company until June 30, 1998 was
recapitalized. (See Note 6 to Consolidated Financial Statements.)
These financial statements include Romacorp's results of
operations for the fiscal year ended March 1998 and the quarter
ended June 30, 1998.
Fiscal Year - The Company operates on a 52 or 53 week
fiscal year ending the last Tuesday in March. The fiscal years
ended March 28, 2000 and March 30, 1999 each contained 52 weeks.
The fiscal year ended March 31, 1998 contained 53 weeks.
Cash Equivalents - For purposes of the Consolidated
Statements of Cash Flows, the Company considers all highly liquid
debt instruments with an original maturity of three months or less
to be cash equivalents. At March 28, 2000 substantially all cash
was in the form of depository accounts.
Inventories - Inventories of food and supplies are carried
at the lower of cost (first-in, first-out method) or market.
Franchise Rights - The Company's Pizza Hut franchise
agreements generally provide franchise rights for a period of 15
to 20 years and are renewable at the option of the Company for an
additional 15 years. Franchise rights are capitalized for
accounting purposes and are amortized over their estimated
economic life (original term plus option renewal period) on a
straight-line basis. Periodic franchise fees generally provided
for in the agreements as a percent of gross sales, as defined, are
recorded as operating expenses as incurred.
Net Franchise Revenue - The franchise agreements for Tony
Roma's restaurants provide for an initial fee and continuing
royalty payments based upon gross sales in return for certain
services. Net franchise revenue is presented net of direct
expenses.
Goodwill - Goodwill is amortized over periods ranging from
30 to 40 years.
Impairment of Long-Lived Assets - The Company reviews long-
lived assets related to each restaurant annually for impairment or
whenever events or changes in circumstances indicate that the
carrying amount of a restaurant may not be recoverable. The
Company evaluates restaurants using a "two-year history of cash
flow losses" as the primary indicator of potential impairment.
Based on the best information available the Company writes down an
impaired restaurant to its estimated fair market value, which
becomes its new cost basis. Estimated fair market value is
determined by discounting estimated future cash flows including
the estimated net realizable value of the property, if any.
Additionally, when a decision is made to close a store beyond the
quarter in which the closure decision is made, it is reviewed for
impairment and depreciable lives are adjusted. The impairment
evaluation is based on the estimated cash flows from continuing
use until the expected disposal date plus the expected terminal
value. Management judgement is necessary to estimate future cash
flows. Accordingly, actual results could vary from management
estimates.
Use of Estimates - The preparation of financial statements
in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from
those estimates.
Advertising Costs - Advertising costs are expensed as
incurred. The Company incurred $26.6 million of such costs in
fiscal 2000 and $23.7 million and $23.8 million in fiscal 1999 and
fiscal 1998, respectively.
Change in Accounting Principle - In May 1998 Statement of
Position ("SOP") 98-5 "Accounting for Start-up Activities" was
issued. The SOP requires the Company to expense pre-opening costs
as incurred and to report the initial adoption as a cumulative
effect of a change in accounting principle. Previously, the
Company capitalized costs associated with the opening of its
restaurants and amortized those costs over 12 months from the
unit's opening date. The Company adopted this statement during the
quarter ended June 29, 1999 which resulted in a charge of $175
thousand or $114 thousand net of taxes to expense costs that had
previously been capitalized prior to March 30, 1999. This change
also resulted in the discontinuance of amortization of pre-opening
cost expense in subsequent periods.
Related Party Transactions - During fiscal 1999 an officer
of the Company purchased real estate from the Company in the
amount of $511 thousand. Additionally, the Company utilized a
corporate aircraft from a related party and incurred expense of
approximately $100 thousand during fiscal 2000 and fiscal 1999.
Management believes amounts paid were at least as favorable as
could be obtained from unrelated parties.
Effective July 1, 1998 the Company entered into a services
agreement with an unconsolidated entity, RRH. (See Note 6 to
Consolidated Financial Statements.) In accordance with this
agreement, as amended, the Company will provide accounting,
management reporting and information services to RRH through July
29, 2001. Fees earned under this agreement were $777 thousand
during fiscal 2000 and $564 thousand during fiscal 1999. These
fees are recorded as an offset to general and administrative
expenses.
Reclassifications - Certain amounts have been reclassified
to conform the prior year financial statements to the current year
presentation.
NOTE 2: Facilities and Equipment
Facilities and equipment are recorded at cost. Depreciation
is charged on the straight-line basis for buildings, furniture and
equipment. Leasehold improvements are amortized on the straight-
line basis over the economic life of the lease or the life of the
improvements, whichever is shorter. Facilities and equipment
consist of the following:
Estimated March 28, March 30,
(Dollars in thousands) Useful Life 2000 1999
Land $ 27,143 $ 17,973
Buildings 15-20 years 47,207 37,849
Leasehold improvements 5-20 years 47,863 37,344
Furniture and equipment 3-10 years 72,050 63,128
Construction in progress 9,324 3,437
203,587 159,731
Less accumulated depreciation (77,031) (64,503)
Net facilities and equipment $ 126,556 $ 95,228
NOTE 3: Bank Debt and Senior Notes
The Company's debt consists of revolving credit facilities
and senior notes. At March 28, 2000 debt totaled $166.9 million
which consisted of $96.9 million of revolving credit and $70
million of senior notes. At March 30, 1999 total debt was $123.5
million, including $43.5 million of revolving credit and $80
million of senior notes.
The Company's unsecured revolving credit facilities total
$200 million until May 2001 and provide the option to pay interest
at "LIBOR" or the "fed funds" rate plus a margin (6.961% and
7.063%, respectively, at March 28, 2000). Availability under these
facilities is reduced by letters of credit, of which $6.5 million
were issued at March 28, 2000. Commitment fees of .25% per annum
are paid on the unused balance of the facilities and are included
in interest expense.
The Company's senior notes are unsecured and bear interest
at various rates from 6.35% to 9.09%. The senior notes have
scheduled maturities through May 2006 with aggregate maturities as
follows: fiscal 2001 - $10 million, fiscal 2002 - $6 million,
fiscal 2003 - $14 million, fiscal 2004 - $10 million, fiscal 2005
- $10 million and $20 million in years beyond. The Company has the
ability and intent to refinance the principal payments due under
its senior notes through its revolving credit agreement.
Accordingly, such amounts are classified as long-term debt.
The debt facilities contain restrictions on additional
borrowing and dividend payments as well as requirements to
maintain various financial ratios and a minimum net worth.
Retained earnings of $38.5 million was available for the payment
of dividends at March 28, 2000 under existing debt covenants. The
average amount outstanding on the revolving credit and senior note
facilities for the year ended March 28, 2000 was $151.4 million
and the maximum borrowings were $177.7 million. Weighted average
interest rates during fiscal years 2000, 1999 and 1998 were 7.41%,
7.40% and 7.52%, respectively. Based on current market interest
rates, management believes that the carrying amounts of its debt
facilities approximate fair value.
Cash paid for interest in fiscal years 2000, 1999 and 1998
was $10.9 million, $11 million and $13.7 million, respectively.
NOTE 4: Employee Benefit Plans
The Company's defined contribution plans include a Profit
Sharing Plan, a 401(k) Plan and a Deferred Compensation Plan. In
accordance with the provisions of the plans, the Company provides
a matching contribution to the 401(k) and the Deferred
Compensation Plan. Contributions made by the Company for these
plans were $486 thousand, $1 million and $831 thousand for fiscal
years 2000, 1999 and 1998, respectively.
In addition, the Company entered into deferred compensation
contracts with certain key executives during fiscal 1999. Funding
of this plan is not required. The Company recorded expense related
to these contracts of $361 thousand for fiscal 2000 and $90
thousand for fiscal 1999.
NOTE 5: Facility Actions and Closure Reserves
In the fourth quarter of fiscal 1998 the Company initiated
an asset re-imaging strategy. This plan called for the closure
of 31 units, the consolidation of 11 units into existing
locations and the consolidation and relocation of 53 Pizza Hut
units to 45 new locations to redefine trade areas, improve market
presence and to upgrade certain assets to more competitive
formats. Relocated units are moved to improved trade areas
and fall into the following categories: relocation of delivery
units to more visible locations and formats; relocation of older
dine-in assets in rural markets to new prototype units; and
conversion of certain metro markets to main-path restaurants.
Of the 95 units to be closed as part of this strategy, 78
units have been closed including 23 units during fiscal 2000.
Thirteen remaining units are expected to close in fiscal 2001 and
four units will remain in operation. During fiscal 2000 the
Company has been able to extinguish certain lease liabilities for
several closed units at terms more favorable than anticipated when
the estimated liability was initially established. Additionally,
five leases have been restructured making it feasible to scrape
(demolish) the existing building and rebuild a new facility at the
current location, thereby making it unnecessary to abandon the
site and incur the related closing costs. Furthermore, the Company
has concluded that four units originally identified for closure
will remain in operation at their current locations due to
improvement in store performance and outlook resulting primarily
from surrounding positive economic changes. As a result of these
specific events, during fiscal 2000 the Company updated its
estimate of the liability needed to complete the re-imaging
strategy and determined that it was appropriate to reverse $1.18
million of the $11.4 million impairment and loss provision
recorded in March 1998.
Below is a summary of the charges/disbursements that were
planned as part of the 1998 impairment and loss provision related
to the Company's re-imaging plan:
Fiscal Year
Ended From
(Dollars in thousands) March Plan
28, 2000 Inception
Beginning Balance $ 4,500 $ 11,400
Planned charges / disbursements (1,559) (8,459)
(Income) expense impacts:
Favorable changes to
lease terms and other
estimates (1,010) (1,010)
Modifications due to
economic changes (170) (170)
Sub-total (1,180) (1,180)
Balance at March 28, 2000 $ 1,761 $ 1,761
The balance at March 28, 2000 is included in "closure
reserves" on the Company's balance sheet and consists of estimates
of obligations to be paid subsequent to the closure of the unit
and cost to de-identify the assets upon closure as required by the
Company's franchise agreement. The amount utilized from plan
inception includes $6.6 million related to impairment and loss on
disposition of assets. Management believes the remaining balance
is adequate to complete the 1998 re-imaging plan. However, the
estimate includes assumptions regarding the Company's ability to
sub-lease properties and/or buy out of lease obligations;
accordingly, actual results could differ from amounts estimated.
Amounts utilized apply only to actions provided for in the plan.
In addition to units closed as part of the 1998 re-imaging
plan the Company has recorded additional closure provisions during
fiscal 2000. During fiscal 2000 the Company recorded a $1.7
million provision for facility actions at 39 locations consisting
of $1.2 million for assets that were impaired as a result of the
closure decision and $500 thousand of de-identification costs and
contractual lease carry costs. Of the 39 properties included in
these charges, four units will close without replacement. These
four units generated approximately $994 thousand in sales and $93
thousand in net loss from restaurant operations during fiscal
2000.
Below is a summary of the charges/disbursements that were
planned as part of the fiscal 2000 re-imaging provisions:
Number
(Dollars in thousands) of Units Fiscal 2000
Beginning Balance $ --
Provision 39 1,710
Planned charges /
disbursements (1,370)
Balance at March 28, 2000 $ 340
During fiscal 2000 the Company recorded $1.7 million as a
provision for fiscal 2000 facility actions. Offsetting these
charges was the $1.18 million reversal of the fiscal 1998 charge
resulting in net charge from facility actions of $530 thousand for
fiscal 2000.
The Company expects to continue to accrue contractual
closure costs, and, if appropriate, impair asset values at the
time the decision is made to close or relocate. These closure
decisions under future phases of the Company's asset re-imaging
initiative are expected to be made as often as quarterly.
Skipper's Reserves - Effective March 25, 1996 the Company
sold Skipper's Inc. but retained certain assets and liabilities
primarily related to the closure of 77 properties in February
1995. The retained assets were recorded at fair value in
accordance with SFAS No. 121 and the remaining assets are
reflected in assets held for sale. At March 28, 2000 the remaining
closure reserve consists largely of future net lease carry costs
associated with 20 leased properties with remaining lease
obligations and estimated future carry costs associated with two
remaining fee simple properties. The average term of these leased
properties is 8 years with the longest obligation being 25 years.
Below is a summary of disbursements related to the Company's
Skipper's reserve:
(Dollars in thousands) Fiscal 2000
Beginning Balance $ 3,428
Planned charges / disbursements (324)
Balance at March 28, 2000 $ 3,104
NOTE 6: Recapitalization
On June 30, 1998 the Company received $101 million for a
majority portion of its investment in Romacorp resulting in a net
gain of $39.4 million. The Company's remaining minority interest
of 19.9% is carried at cost of $6.7 million. Romacorp was a wholly-
owned subsidiary of the Company throughout the Company's first
fiscal quarter ended June 30, 1998; its results of operations
through that date have been consolidated and reflected in the
Consolidated Statements of Income for the fiscal year ended March
30, 1999.
NOTE 7: Income Taxes
The provision (benefit) for income taxes consisted of the
following:
For the fiscal year ended
March March March
28, 30, 31,
(Dollars in thousands) 2000 1999 1998
Current:
Federal $ 9,368 $ 20,405 $ 9,856
State/Foreign 349 576 1,369
9,717 20,981 11,225
Deferred:
Federal 2,530 2,934 (4,972)
State/Foreign 93 77 (690)
2,623 3,011 (5,662)
Provision for income
taxes $12,340 $ 23,992 $ 5,563
The cumulative effect of the change in accounting principle
of $175 thousand before income taxes resulted in a $61 thousand
deferred tax benefit in fiscal 2000.
The differences between the provision for income taxes and
the amount computed by applying the statutory federal income tax
rate to earnings before income taxes are as follows:
For the fiscal year ended
March March March
28, 30, 31,
(Dollars in thousands) 2000 1999 1998
Tax computed at
statutory rate $12,340 $25,178 $ 5,563
State taxes, net of
federal effect ,and
other, including
goodwill amortization,
the impact of the
Romacorp recapitaliza-
tion and tax credits -- (1,186) --
Provision for income
taxes $12,340 $23,992 $ 5,563
Significant components of the Company's deferred tax assets
and liabilities are as follows:
March 28, March 30,
(Dollars in thousands) 2000 1999
Deferred tax assets:
Insurance reserves $ 5,095 $4,478
Closure reserves 2,111 2,970
Other, net 1,336 1,159
Total deferred tax assets 8,542 8,607
Deferred tax liabilities:
Depreciation and amortization (11,409) (8,817)
Other, net (1,017) (1,112)
Total deferred tax liabilities (12,426) (9,929)
Net deferred tax liability (3,884) (1,322)
Current 3,218 3,064
Non-current (7,102) (4,386)
Cash paid for income taxes in fiscal 2000, 1999 and 1998
was $8.1 million, $19 million and $8.5 million, respectively.
NOTE 8: Commitments
The Company leases certain restaurant equipment and
buildings under operating leases. Rent expense for fiscal 2000,
1999 and 1998 was $19 million, $16.8 million and $19.3 million,
respectively, including contingent rents of approximately $1.1
million, $1.1 million and $1.4 million, respectively. The majority
of the Company's leases contain renewal options for 1 to 5 years.
The remaining leases may be renewed upon negotiations. Minimum
lease payments for the next five years, including non-operating
assets, at March 28, 2000 consisted of:
Fiscal Year (Dollars in thousands)
2001 $ 17,013
2002 14,465
2003 12,233
2004 10,280
2005 8,675
Thereafter 28,991
Total minimum
lease commitments $ 91,657
Total minimum lease payments have not been reduced by
minimum sublease rentals of $4.7 million under operating leases
due in the future under non-cancelable subleases.
NOTE 9: Earnings per Share
The following table sets forth the computation of basic and
diluted earnings per share:
Fiscal Year Ended
(Amounts in thousands, March 28, March 30, March 31,
except per share data) 2000 1999 1998
Numerator:
Income before
cumulative change in
accounting principle $ 22,919 $ 47,946 $ 10,330
Denominator:
Weighted average
shares 23,920 24,622 24,694
Employee stock options 324 370 415
Denominator for diluted
earnings per share 24,244 24,992 25,109
Earnings per share -
basic $ .96 $1.95 $.42
Earnings per share -
diluted $ .95 $1.92 $.41
NOTE 10: Stock Options
A summary of the Company's stock option activity and related
information is presented below:
March 28, March 30, March 31,
2000 1999 1998
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
(Options Options Price Options Price Options Price
in thousands)
Outstanding-
beginning of
year 1,566 $8.21 1,857 $ 7.77 1,763 $7.36
Granted 403 $9.59 203 $11.17 258 $9.76
Canceled (150) $9.99 (176) $ 8.81 (51) $6.56
Exercised (120) $6.62 (318) $ 7.20 (113) $6.49
Outstanding-
end of year 1,699 $8.49 1,566 $ 8.21 1,857 $7.77
Exercisable-end of
year 1,151 $7.91 1,157 $ 7.65 1,263 $7.51
Weighted average
fair value per
share of options
granted during
the year $3.69 $ 3.93 $3.77
Exercise prices for options outstanding as of March 28,
2000 ranged from $5.00 to $14.75 and the weighted average
remaining contractual life is 5 years.
The Company has a 1994 Non-Qualified Stock Option Plan
under which 3,291,450 shares of common stock are reserved for
issuance to employees and officers at an exercise price equal to
the fair market value of the common stock on the date of grant and
vest over a four-year period in equal annual amounts and expire 10
years from the date of grant.
Under APB No. 25, because the exercise price of the
Company's employee stock options equals the market price of the
underlying stock on the date of the grant, no compensation expense
is recognized.
The following table summarizes information about stock options as
of March 28, 2000:
(Shares) Outstanding Stock Exercisable Stock
in thousands) Options Options
Weighted
Average Weighted Weighted
Number Remaining Average Number Average
of Contractual Exercise of Exercise
Shares Life Price Shares Price
Range of
Exercise Prices
$ 5.00 to $ 7.375 659 4.8 years $ 6.33 567 $ 6.16
$ 7.656 to $11.25 959 4.9 years $ 9.60 566 $ 9.53
$11.50 to $14.75 81 8.4 years $ 12.92 17 $12.37
The Company measures pro forma compensation expense of its
employee stock options using the intrinsic value based method of
accounting. Pro forma information regarding net income and
earnings per share is required by SFAS No. 123 "Accounting for
Stock-Based Compensation". The fair value for these options was
estimated at the date of grant using a Black-Scholes option
pricing model with the following weighted-average assumptions for
2000, 1999 and 1998; risk-free interest rate of 6.28%, 4.87% and
5.96%, respectively; volatility factor of the expected market
price of the Company's common stock of 30.6%, 29.8% and 28.9%,
respectively, and an average expected life of the option of 5
years.
For purposes of pro forma disclosures, the estimated fair value of
the options is amortized to expense over the options' vesting
period. The Company's pro forma information follows:
(Dollars in thousands, except per share data)
2000 1999 1998
As Pro As Pro As Pro
Reported Forma Reported Forma Reported Forma
Income before
cumulative
effect of
change
in accounting
principle $22,919 $22,639 $47,946 $47,656 $10,330 $10,070
Earnings
per share
- basic $.96 $.95 $1.95 $1.94 $.42 $.41
Earnings
per share
- diluted $.95 $.93 $1.92 $1.91 $.41 $.40
NOTE 11: Acquisitions
Between March 27, 1997 and July 22, 1999 the Company
acquired 391 Pizza Hut units, including 287 from PHI and 104 from
other franchisees. These acquisitions were funded through the
Company's revolving credit facility or the issuance of senior
notes. The purchase prices of these acquisitions were allocated
between facilities and equipment and franchise rights. The
following table summarizes these acquisitions:
(Dollars in millions)
Purchase # Units Purchased
Acquired From Date Price Fiscal Fiscal Fiscal
2000 1999 1998
PHI 3/27/97 $28.1 -- -- 66
6/5/97 $31.0 -- -- 52
2/4/99 $31.0 1 -- 99 --
7/22/99 $33.6 70 -- --
Other
Franchisees: 4/16/97 $ 2.5 -- -- 4
5/15/97 $57.0 -- -- 100
Total
Units
Acquired 70 99 222
1 Does not include land purchased from seller in August
1999 for $2.6 million.
In May 2000 the Company signed a letter of intent with PHI
to acquire 64 units in a transaction scheduled to close in June
2000. This transaction will be funded through additional
borrowings through the Company's revolving credit facility.
The following table indicates the pro forma results of the
99-unit acquisition which was completed on February 4, 1999. Pro
forma results are not presented for the 70-unit acquisition in
July 1999, due to the size of the acquisition.
Pro Forma Results (unaudited)
(Dollars in thousands, March 30, March 31,
except per share data) 1999 1998
As reported:
Total revenues $401,159 $455,297
Net income 47,946 10,330
Net income per share-basic 1.95 .42
Net income per share-diluted 1.92 .41
Pro forma:
Total revenues $449,098 $510,854
Pro forma net income 48,502 11,098
Pro forma net income
per share-basic 1.97 .45
Pro forma net income
per share-diluted 1.94 .44
The table presents unaudited pro forma results for fiscal
1999 and 1998 assuming all units had been acquired as of the
beginning of the periods presented and reflects certain
adjustments.
The unaudited pro forma results shown are not necessarily
indicative of the consolidated results that would have occurred
had the acquisitions taken place at the beginning of the
respective periods or results that may occur in the future.
NOTE 12: Quarterly Results (unaudited)
(Dollars in
thousands, First Second Third Fourth Annual
except per Fiscal Fiscal Fiscal Fiscal Fiscal
share data) Quarter Quarter Quarter Quarter Total
Year Ended
March 28, 2000
Revenue $107,676 $113,494 $114,544 $119,910 $455,624
Income from
restaurant
operations 20,141 18,063 19,113 22,095 79,412
Net facility
action
charges 270 (580) 500 340 530
Cumulative
effect of
change in
accounting
principle 114 -- -- -- 114
Net income 6,563 5,260 4,734 6,248 22,805
Earnings per
share - basic .26 .21 .20 .28 .95
Earnings per
share -
diluted .26 .21 .19 .28 .94
Year Ended
March 30, 1999
Revenue $115,502 $ 90,407 $ 89,429 $105,821 $401,159
Income from
restaurant
operations 22,187 15,473 14,324 19,547 71,531
Gain on
recapitalization 39,400 -- -- -- 39,400
Net income 33,150 4,686 3,889 6,221 47,946
Earnings per
share - basic 1.34 .19 .16 .25 1.95
Earnings per
share - diluted 1.31 .19 .16 .25 1.92
ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Effective August 16, 1999 as discussed in the Company's
filing on From 8-K/A dated August 16, 1999 the Audit Committee
recommended and the Board of Directors approved the selection of
KPMG LLP as independent public accountants of the Company for the
fiscal year ended March 28, 2000. KPMG LLP audited the financial
statements of the Company for fiscal years ended March 30, 1999
and March 28, 2000. A representative of KPMG LLP will be present
at the Annual Meeting with the opportunity to make a statement if
he desires to do so and will be available to respond to
appropriate questions.
KPMG LLP's reports on the Company's financial statements
for the fiscal years ended March 28, 2000 and March 30, 1999
contained no adverse opinion or disclaimer of opinion and were not
qualified or modified as to uncertainty, audit scope or accounting
principles.
During the fiscal years ended March 28, 2000 and March 30,
1999 there were no disagreements with KPMG LLP on any matter of
accounting principle or practice, financial statement disclosure,
or auditing scope or procedure, which disagreement, if not
resolved to the satisfaction of KPMG LLP, would have caused it to
make a reference to the subject matter of the disagreement in
connection with their audit report.
During the fiscal years ended March 28, 2000 and March 30,
1999 there were no reportable events (as defined in Securities and
Exchange Commission Regulations S-K Item 304(a)(1)(v)).
Effective July 27, 1998 as discussed in the Company's
filing on Form 8-K dated July 30, 1998, the Company's Audit
Committee recommended and the Board of Directors approved a change
in independent accountants from Ernst & Young LLP to
PricewaterhouseCoopers LLP.
PricewaterhouseCoopers LLP's report on the Company's
financial statements for the fiscal year ended March 30, 1999
contained no adverse opinion or disclaimer of opinion and was not
qualified or modified as to uncertainty, audit scope or accounting
principles.
During the fiscal year ended March 30, 1999 there were no
disagreements with PricewaterhouseCoopers LLP on any matter of
accounting principles or practices, financial statement
disclosures, or auditing scope or procedures, which disagreements,
if not resolved to the satisfaction of PricewaterhouseCoopers LLP,
would have caused it to make a reference to the subject matter of
the disagreements in connection with its audit report.
During the fiscal year ended March 30, 1999 there were no
reportable events (as defined in Securities and Exchange
Commission Regulations S-K Item 304(a)(1)(v)).
Ernst & Young LLP's report on the Company's financial
statements for the fiscal year ended March 31, 1998 contained no
adverse opinion or disclaimer of opinion and was not qualified or
modified as to uncertainty, audit scope or accounting principles.
During the fiscal year ended March 31, 1998 and during
subsequent interim periods though June 30, 1998 there were no
disagreements with Ernst & Young LLP on any matter of accounting
principles or practices, financial statement disclosures, or
auditing scope or procedures, which disagreements, if not resolved
to the satisfaction of Ernst & Young LLP, would have caused it to
make a reference to the subject matter of the disagreements in
connection with its audit reports.
During the fiscal year ended March 31, 1998 and during
subsequent interim periods through June 30, 1998 there were no
reportable events (as defined in Securities and Exchange
Commission Regulations S-K Item 304(a)(1)(v)).
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item (except for the
information set forth in Item 4A of Part I hereof with respect to
the Registrant's executive officers) is incorporated herein by
reference from the Company's definitive Proxy Statement for its
Annual Meeting of Stockholders to be held July 11, 2000 to be
filed with the Commission pursuant to Regulation 14A within 120
days after the end of the Company's last fiscal year.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item concerning
remuneration of the Company's officers and Directors and
information concerning material transactions involving such
officers and Directors is incorporated herein by reference from
the Company's definitive Proxy Statement for its Annual Meeting of
Stockholders, to be filed with the Commission pursuant to
Regulation 14A within 120 days after the end of the Company's last
fiscal year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by this Item concerning the stock
ownership of management and five percent beneficial owners is
incorporated herein by reference from the Company's definitive
Proxy Statement for its Annual Meeting of Stockholders, to be
filed with the Commission pursuant to Regulation 14A within 120
days after the end of the Company's last fiscal year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item concerning certain
relationships and related transactions is incorporated herein by
reference from the Company's definitive Proxy Statement for its
Annual Meeting of Stockholders, to be filed with the Commission
pursuant to Regulation 14A within 120 days after the end of the
Company's last fiscal year.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) List of Documents filed as part of this Report:
1) Financial Statements
Report of Independent Accountants
Consolidated Balance Sheets as of March 28, 2000 and March
30, 1999
Consolidated Statements of Income for the years ended March
28, 2000, March 30, 1999 and March 31, 1998
Consolidated Statements of Stockholders' Equity for the
years ended March 28, 2000, March 30, 1999 and March 31,
1998
Consolidated Statements of Cash Flows for the years ended
March 28, 2000, March 30, 1999 and March 31, 1998
Notes to Consolidated Financial Statements
2) No schedules are filed as part of this Report because they
are not required or are not applicable, or the required
information is shown in the financial statements or notes
thereto.
3) Exhibits (numbered in accordance with Item 601 of
Regulation S-K)
Page Number or
Exhibit Incorporation
Number Description by Reference from
2.1 Recapitalization Agreement Exhibit 2-A to
among Romacorp, Inc., Form 8-K
NPC International, Inc., filed May 8, 1998
NPC Restaurant Holdings, EDGAR 927025-98-000081
Inc. and Sentinel Capital
Partners, L.P.
3.1 Restated Articles of Exhibit 3(a) to Form S-1
Incorporation Registration Statement
effective August 14, 1984
File #2-91885
3.2 Certificate of Amendment to Amended by Form 8-K
Restated Articles of filed May 30, 1991
Incorporation dated August 7,
1986, Certificate of
Amendment to Restated
Articles of Incorporation dated
July 31, 1987 and Certificate of
Change of Location of Registered
Office dated October 20, 1987
3.3 Bylaws Exhibit 3(b) to Form S-1
Registration Statement
effective August 14, 1984
File #2-91885
3.4 Certificate of Amendment to Exhibit B to Proxy
Restated Articles Statement for Annual
of Incorporation of National Meeting filed June 13,
Pizza Company 1994
Effective July 12, 1994 EDGAR 748714-94-000007
4.1 Specimen Stock Certificate Exhibit 1 to Form 8-A
for Common Stock filed July 31, 1995
EDGAR 748714-94-000016
10.01 Franchise Agreement between Exhibit 10.01 to Form
Pizza Hut, Inc. and 10-Q filed
NPC International, Inc. August 1, 1994
(sample document) effective EDGAR 748714-94-000
March 30, 1994 016
10.02 Assignment of and Blanket Exhibit 10.02 to Form
Amendment to Franchise 10-K filed
Agreements June 6, 1997
EDGAR 748714-97-000017
10.03 1995 Franchise Agreement Exhibit 10.03 to Form
between Pizza Hut, Inc. 10-K filed
and NPC Management, Inc. June 6, 1997
EDGAR 748714-97-000017
10.04 Profit Sharing Plan of NPC Exhibit 10.25 to Form
International, Inc. dated 10-K for the year
July 1, 1992, as amended ended March 30, 1993
Exhibit 10.29 to Form
10-K for the year
ended March 29, 1994
EDGAR 748714-94-000009
Exhibit 10.33 to Form
10-Q filed
August 1, 1994
EDGAR 748714-94-000016
10.05 Fourth Amendment to the Exhibit 10.05 to Form
NPC International, 10-K
Inc. Profit Sharing Plan filed June 6, 1997
dated July 1, 1992 EDGAR 748714-97-000017
10.06 Fifth Amendment to the Exhibit 10.06 to Form
NPC International, Inc. 10-K
Profit Sharing Plan filed June 6, 1997
effective July 12, 1994 EDGAR 748714-97-000017
10.07 Sixth Amendment to the Exhibit 10.07 to Form
NPC International, Inc. 10-K filed
Profit Sharing Plan dated June 6, 1997
January 1, 1997 EDGAR 748714-97-000017
10.08 Seventh Amendment to the Exhibit 10.08 to Form
NPC International, Inc. 10-K
Profit Sharing Plan filed June 6, 1997
effective January 1, 1997 EDGAR 748714-97-000017
10.09 NPC International, Inc. 1984 Exhibit 10(t) to Form
Amended and Restated Stock 10-K filed
Option Plan June 25, 1990
10.10 NPC International, Inc. 1994 Exhibit A to Proxy
Stock Option Statement to Annual
Plan dated May 3, 1994 Meeting of Stockholders
filed June 13, 1994
EDGAR 748714-94-000007
10.11 Senior Note Purchase Agreement Exhibit 10.26 to Form
made by and between Pacific 10-K for the year
Mutual Life Insurance Company, ended March 30, 1993
Pacific Corinthian Life Insurance
Company, Lutheran Brotherhood Exhibit 10.39 to Form
and NPC International, Inc., 10-K for the year
as amended ended March 28, 1995
Exhibit 10.43 to Form
10-K for the year
ended March 28, 1995
Exhibit 10.44 to Form
10-K for the year
ended March 28, 1995
10.12 Amendment to the Senior Note Exhibit 10.12 to Form
Purchase Agreement 10-K filed June 6,
made by and between Pacific 1997
Mutual Life Insurance EDGAR 748714-97-000017
Company, Pacific Corinthian
Life Insurance Company,
Lutheran Brotherhood and NPC
International, Inc.
dated May 29, 1996
10.13 Amendment to the Senior Note Exhibit 10.13 to Form
Purchase Agreement 10-K filed June 6,
made by and between Pacific 1997
Mutual Life Insurance EDGAR 748714-97-000017
Company, Pacific Corinthian
Life Insurance Company,
Lutheran Brotherhood and
NPC International, Inc.
dated March 3, 1997
10.14 Amendment to the Senior Note Exhibit 10.14 to Form
Purchase Agreement 10-K
made by and between Pacific filed June 6, 1997
Mutual Life Insurance EDGAR 748714-97-000017
Company, Pacific Corinthian
Life Insurance Company,
Lutheran Brotherhood and NPC
International, Inc. dated
May 8, 1997
10.15 NPC Management, Inc. Exhibit 10.15 to Form
$50 million 7.94% Senior 10-K
Guaranteed Notes due May 1, filed June 6, 1997
2006, dated May 1, 1997 EDGAR 748714-97-000017
10.16 $160 million Revolving Credit Exhibit 10.16 to Form
Agreement dated 10-K
as of March 5, 1997 among filed June 6, 1997
NPC International, EDGAR 748714-97-000017
Inc., various banks and
Texas Commerce Bank
National Association as Agent
and NationsBank of Texas, N.A.
as Documentation Agent
10.17 Amended and Restated Revolving Exhibit 10.17 to Form
Credit Agreement 10-K
dated May 8, 1997, effective filed June 6, 1997
March 26, 1997, among EDGAR 748714-97-000017
NPC Management, Inc., various
banks and Texas Commerce Bank
National Association as Agent
and NationsBank of Texas, N.A.
as Documentation Agent
10.18 $15 Million Revolving Credit Exhibit 10.18 to Form
Agreement dated as of March 5, 10-K filed
1997 among NPC International, June 6,1997
Inc., various banks and Texas EDGAR 748714-97-000017
Commerce Bank National
Association as Agent
10.19 $15 Million Amended and Exhibit 10.19 to Form
Restated Revolving 10-K
Credit Agreement dated as filed June 6, 1997
of May 8, 1997 among EDGAR 748714-97-000017
NPC International, Inc.,
various banks and Texas
Commerce Bank National
Association as Agent
10.20 Amended and Restated Exhibit 10.20 to Form
Master Shelf and 10-K
Assumption Agreement dated filed June 6, 1997
May 8, 1997, effective EDGAR 748714-97-000017
March 26, 1997, between NPC
Management, Inc. and The
Prudential Insurance Company
of America
10.21 Leases between the Company and Exhibit 10(e) to
Messrs. Bicknell and Elliott Form S-1
Registration Statement
effective August 14, 1984
File #2-91885
10.23 Acquisition agreement by and Exhibit 2.0 to Form 8-K
among Seattle Crab Co., filed March 28, 1996
NPC International, Inc. and
Skipper's, Inc. dated as of
March 25, 1996
10.24 Lease Indemnification Exhibit 2.1 to Form 8-K
Agreement filed March 28, 1996
10.25 Liability Assumption Agreement Exhibit 2.2 to Form 8-K
filed March 28, 1996
10.26 Environmental Compliance Exhibit 2.3 to Form 8-K
Agreement filed March 28, 1996
10.27 Non-Competition Agreement Exhibit 2.5 to Form 8-K
filed March 28, 1996
10.28 Amendment to Assignment of Exhibit 10.29 to Form
and Blanket 10-K for the year
Amendment to Franchise Agreements ended March 31, 1998
10.29 Amendment to the Adoption Exhibit 10.29 to Form
Agreement of the 10-K for the year ended
Existing Retirement March 30, 1999
Plan to Activate
the 401(k) Plan effective
January 1, 1999
10.30 NPC International, Inc. Exhibit 10.30 to Form
Non-Qualified 10-K for the year
Executive Deferred ended March 30, 1999
Compensation Plan
Effective December 1, 1998
10.31 NPC International, Inc. Exhibit 10.31 to Form
Deferred Compensation and 10-K for the year
Retirement Plan ended March 30, 1999
Established January 1, 1999
10.32 Pizza Hut National Purchasing Exhibit 10.32 to Form
Coop, Inc. Membership 10-K for the year
Subscription and ended March 30, 1999
Commitment Agreement
11 Statement Regarding Computation Exhibit 11 to Form 10-K
of Per Share Earnings for the year ended
March 28, 2000
16 Letter Regarding Change Exhibit 16 to Form 8-K/A
in Certifying Accountants filed August 18, 1999
16 Letter Regarding Change Exhibit 16 to Form 8-K
in Certifying Accountants filed July 30, 1998
21 List of Subsidiaries Exhibit 21 to Form 10-K
for the year ended
March 28, 2000
23 Consent of Independent Auditors Exhibit 23 to Form 10-K
for the year ended
March 28, 2000
27 Financial Data Schedule Exhibit 27 to Form 10-K
for the year ended
March 28, 2000
(b) Reports on Form 8-K:
The following forms were filed on Form 8-K during the
quarter ended March 28, 2000:
Announcement addressing AmeriServe Bankruptcy filed January
31, 2000.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on the 26th day of May, 2000 on its
behalf by the undersigned, thereunto duly authorized.
NPC INTERNATIONAL, INC.
By
Troy D. Cook
Senior Vice President, Chief Financial Officer,
Treasurer, Secretary
(Principal Financial Officer)
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities
indicated on the 26th day of May, 2000.
Chairman of the Board,
O. Gene Bicknell Chief Executive Officer and
Director
(Principal Executive Officer)
President, Chief Operating
James K. Schwartz Officer and Director
Senior Vice President, Chief
Troy D. Cook Financial Officer, Treasurer
and Secretary
(Principal Financial Officer)
Director
Fran D. Jabara
Director
Robert E. Cressler
Director
Michael Braude
Director
William A. Freeman
Director
Michael W. Gullion
Exhibit 11
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
Fiscal Year Ended
(Dollars in thousands, March 28, March 30, March 31,
except share data) 2000 1999 1998
Numerator:
Income before cumulative
Change in accounting
principle $ 22,919 $ 47,946 $ 10,330
Denominator:
Denominator for basic
earnings per share -
weighted average shares 23,920 24,622 24,694
Effect of dilutive
securities:
employee stock options 324 370 415
Denominator for diluted
earnings per
share - adjusted weighted
average shares and assumed
conversions 24,244 24,992 25,109
Earnings per share - basic $.96 $1.95 $.42
Earnings per share - dilutive $.95 $1.92 $.41
Exhibit 21
NPC International, Inc.
List of Subsidiaries
NPC Management, Inc.
NPC Restaurant Holdings, Inc.
NPC Restaurants LP
National Catering Company
Seattle Restaurant Equipment Company, Inc.
Exhibit 23
NPC International, Inc.
Consent of Independent Accountants
We consent to the incorporation by reference in the
Registration Statements (Form S-8 No. 33-2233 and Form S-8
No. 33-37354) pertaining to the NPC International, Inc. 1984
Non-Qualified Stock Option Plan, As Amended, and the
Registration Statement (Form S-8 No. 33-56399) pertaining to
the NPC International, Inc. 1994 Non-Qualified Stock Option
Plan of our report dated April 28, 2000, with respect to the
consolidated financial statements included in the Annual
Report (Form 10-K) of NPC International, Inc.
KPMG LLP
Kansas City, Missouri
May 26, 2000
NPC International, Inc.
Consent of Independent Auditors
We consent to the incorporation by reference in the
Registration Statements (Form S-8 No. 33-2233 and Form S-8
No. 33-37354) pertaining to the NPC International, Inc. 1984
Non-Qualified Stock Option Plan, As Amended, and the
Registration Statement (Form S-8 No. 33-56399) pertaining to
the NPC International, Inc. 1994 Non-Qualified Stock Option
Plan of our report dated May 5, 1998 with respect to the
consolidated financial statement included in the Annual
Report (Form 10-K) of NPC International, Inc. for the year
ended March 28, 2000.
ERNST & YOUNG LLP
Kansas City, Missouri
May 26, 2000
STOCKHOLDER DATA
Registrar and Transfer Agent
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
Inquiries regarding stock transfers, lost certificates or address
changes should be directed to the Stock Transfer Department of
American Stock Transfer at the above address.
Corporate Officers, Directors and Key Personnel
O. Gene Bicknell
Chairman of the Board,
Chief Executive Officer and Director
James K. Schwartz
President, Chief Operating Officer and Director
Troy D. Cook
Senior Vice President, Chief Financial Officer,
Treasurer and Secretary
D. Blayne Vaughn
Vice President, Pizza Hut Operations
Western Division
L. Bruce Sharp
Vice President, Pizza Hut Operations
Southern Division
Robert R. Greene
Vice President, Pizza Hut Operations
Eastern Division
LaVonne K. Walbert
Vice President Human Resources
Linda K. Lierz
Vice President Marketing
Frank S. Covvey
Vice President Information Systems
James K. Villamaria
Risk and Regulatory Counsel
Fran D. Jabara, Director
President of Jabara Ventures Group
Robert E. Cressler, Director
Partner in Diverse Direction, Inc.
William A. Freeman, Director
Senior Vice President and Chief Financial Officer of Semitool,
Inc.
Michael Braude, Director
President and Chief Executive Officer of the Kansas City Board of
Trade
Michael W. Gullion, Director
Chairman of the Board of Directors and Chief Executive Officer of
Gold Banc Corporation, Inc.
Independent Accountants
KPMG LLP
1000 Walnut, Ste. 1600
Kansas City, MO 64106
