UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Quarter Ended
June 27,2000
[ ] 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)
Registrant's telephone number, including area code (316) 231-3390
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
The number of shares outstanding of the registrant's class of
common stock as of July 21, 2000:
Common Stock, $0.01 par value - 22,260,285
NPC INTERNATIONAL, INC.
INDEX
PAGE
PART I. FINANCIAL INFORMATION
Consolidated Balance Sheets --
June 27, 2000 and March 28, 2000 3
Consolidated Statements of Income --
For the Thirteen Weeks Ended
June 27, 2000 and June 29, 1999 4
Consolidated Statements of Cash Flows --
For the Thirteen Weeks Ended
June 27, 2000 and June 29, 1999 5
Notes to Consolidated Financial Statements 6
Management's Discussion and Analysis of
Financial Condition and Results
of Operations 7
PART II. OTHER INFORMATION 14
PART I. FINANCIAL INFORMATION
ITEM I. Financial Statements
NPC International, Inc.
Consolidated Balance Sheets
(Unaudited, dollars in thousands)
ASSETS June 27, 2000 March 28, 2000
Current assets:
Cash and cash equivalents $ 3,730 $ 3,842
Accounts receivable, net 2,026 946
Inventories of food and supplies 3,497 3,154
Deferred income tax asset 3,218 3,218
Prepaid insurance premiums 487 948
Prepaid rent payments 1,714 1,581
Prepaid expenses and other
current assets 990 682
Total current assets 15,662 14,371
Facilities and equipment, net 138,147 126,556
Franchise rights, less accumulated
amortization of $35,800 and
$33,605, respectively 253,866 239,607
Goodwill, less accumulated
amortization of $1,595 and
$1,562, respectively 2,546 2,578
Investments, at cost 6,738 6,738
Other assets 6,420 5,705
TOTAL ASSETS $423,379 $395,555
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 12,728 $ 12,011
Payroll taxes 2,008 2,150
Sales taxes 2,575 2,457
Accrued interest 1,059 3,509
Accrued payroll 8,518 9,775
Income tax payable 5,822 3,730
Current portion of closure reserve 1,000 1,000
Insurance reserves 5,931 5,277
Other accrued liabilities 6,063 5,184
Total current liabilities 45,704 45,093
Long-term debt 189,900 166,900
Deferred income tax liability 7,102 7,102
Closure reserve 3,885 4,205
Other deferred items 4,805 4,736
Insurance reserves 9,000 9,000
Stockholders' equity:
Common stock, $.01 par value
100,000,000 shares authorized,
27,592,510 issued 276 276
Paid-in capital 22,108 21,975
Retained earnings 181,739 175,908
204,123 198,159
Less treasury stock at cost,
representing 5,332,225 and 5,158,730
shares, respectively (41,140) (39,640)
Total stockholders' equity 162,983 158,519
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $423,379 $395,555
The accompanying notes are an integral part of these Consolidated
Financial Statements.
NPC International, Inc.
Consolidated Statements of Income
(Unaudited, dollars in thousands, except share data)
Thirteen Weeks Ended
June 27, 2000 June 29, 1999
Net sales $120,886 $107,676
Cost of sales 29,399 26,728
Direct labor 34,853 30,653
Other 34,761 30,200
Total operating expenses 99,013 87,581
Income from restaurant operations 21,873 20,095
General and administrative expenses 6,132 5,319
Depreciation, amortization and
pre-opening costs 2,933 2,337
Operating income before facility actions 12,808 12,439
Net facility action charges 940 270
Operating income 11,868 12,169
Other income (expense):
Interest expense (3,235) (2,403)
Miscellaneous 338 504
Income before income taxes 8,971 10,270
Provision for income taxes 3,140 3,593
Income before cumulative effect
of change in accounting principle 5,831 6,677
Cumulative effect of change in
accounting principle, net of tax -- (114)
Net income $ 5,831 $ 6,563
Earnings per share - basic
before cumulative effect of change
in accounting principle $ .26 $ .27
Cumulative effect of change
in accounting principle -- (.01)
Earnings per share - basic $ .26 $ .26
Earnings per share - diluted before
cumulative effect of change
in accounting principle $ .26 $ .27
Cumulative effect of change
in accounting principle -- (.01)
Earnings per share - diluted $ .26 $ .26
Weighted average shares
outstanding - basic 22,357,606 24,540,731
Weighted average shares
outstanding - diluted 22,501,412 25,106,736
The accompanying notes are an integral part of these Consolidated
Financial Statements.
NPC International, Inc.
Consolidated Statements of Cash Flows
(Unaudited, dollars in thousands)
Thirteen Weeks Ended
June 27, 2000 June 29, 1999
Operating Activities:
Net income $ 5,831 $ 6,563
Depreciation and amortization 7,090 6,268
Net facility action charges 940 270
Change in assets and liabilities,
net of acquisitions:
Accounts receivable, net (1,080) 427
Inventories of food and supplies (105) (202)
Prepaid expenses and other
current assets (28) 292
Accounts payable 717 3,891
Payroll taxes (142) (426)
Accrued interest (2,450) (1,634)
Accrued payroll (1,257) (2,014)
Income tax payable 2,092 3,371
Insurance reserves 654 60
Other accrued liabilities 505 (282)
Net cash flows provided by
operating activities 12,767 16,584
Investing Activities:
Capital expenditures (14,155) (9,688)
Changes in other assets and
liabilities, net (1,786) (924)
Proceeds from sale of capital assets 622 896
Acquisitions, net of cash acquired (18,718) --
Net cash flows used in
investing activities (34,037) (9,716)
Financing Activities:
Purchase of treasury stock (1,400) --
Net change in revolving
credit agreements 30,525 2,000
Payment of long-term debt (8,000) (8,000)
Exercise of stock options 33 236
Net cash flows provided by
(used in) financing activities 21,158 (5,764)
Net Change in Cash and Cash Equivalents (112) 1,104
Cash and Cash Equivalents at
Beginning of Period 3,842 4,021
Cash and Cash Equivalents at
End of Period $ 3,730 $ 5,125
The accompanying notes are an integral part of these Consolidated
Financial Statements.
NPC International, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
Note 1 - Basis of Presentation
The financial statements include the accounts of NPC
International, Inc. and its wholly owned subsidiaries (the
"Company").
The accompanying unaudited financial statements have been prepared
in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-
Q and Article 10 of Regulation S-X promulgated by the Securities
and Exchange Commission. Accordingly, they do not include all of
the information and footnotes required by generally accepted
accounting principles for annual financial statement reporting
purposes. These statements should be read in conjunction with the
financial statements and notes contained in the Company's annual
report on Form 10-K for the fiscal year ended March 28, 2000.
In the opinion of management, the accompanying unaudited
consolidated financial statements contain all normal recurring
adjustments necessary to present fairly the financial position of
the Company as of June 27, 2000 and March 28, 2000, the results of
operations for the thirteen weeks ended June 27, 2000 and June 29,
1999, and cash flows for thirteen weeks ended June 27, 2000 and
June 29, 1999. Results for the interim periods are not necessarily
indicative of the results that may be expected for the entire
fiscal year.
Certain reclassifications have been made to the prior year
statements to conform with the current year presentation.
Note 2 - Acquisitions
On July 22, 1999 the Company acquired 70 Pizza Hut units from
Pizza Hut, Inc. ("PHI") located in Alabama (16), Florida (14),
Georgia (20) and Kentucky (20) for $33.6 million plus an amount
for cash on hand, inventories and certain prepaid items. These 52
restaurants and 18 delivery/carryout units generated approximately
$48 million in sales during the 52 weeks ended May 1999. The
purchase price of this acquisition was funded through the
Company's revolving credit facility and was allocated between
facilities and equipment and franchise rights.
On June 8, 2000 the Company acquired 64 Pizza Hut units from PHI
located in Iowa (58), Illinois (4) and Georgia (2) for $18,650,000
plus an amount for cash on hand, inventories and certain prepaid
items. These 38 restaurants and 26 delivery/carryout units
generated approximately $41 million in sales during the 52 weeks
ended March 2000. The purchase price of this acquisition was
funded through the Company's revolving credit facility and was
allocated between facilities and equipment and franchise rights.
Note 3 - Change in Accounting Principle
The Company has adopted Statement of Position 98-5 "Accounting for
Costs of Start-up Activities," which required 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
twelve months from the unit's opening date. The adoption resulted
in a charge in the first quarter of fiscal 2000 of $175,000 or
$114,000 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 costs in
subsequent periods.
Note 4 - Earnings per Share
The following table sets forth the computation of basic and
diluted earnings per share before the cumulative effect of a
change in accounting principle:
Thirteen Weeks Ended
June 27, 2000 June 29, 1999
Numerator:
Income before cumulative
effect of change in
accounting principle $ 5,831,000 $ 6,677,000
Denominator:
Weighted average shares 22,357,606 24,540,730
Employee stock options 143,806 566,006
Denominator for diluted
earnings per share 22,501,412 25,106,736
Earnings per share - Basic $ .26 $ .27
Earnings per share - Diluted $ .26 $ .27
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The information contained in this Management's Discussion and
Analysis of Financial Condition and Results of Operations should
be read in conjunction with the Notes to Consolidated Financial
Statements included in this Form 10-Q and the audited financial
statements and notes thereto together with Management's Discussion
and Analysis of Financial Condition and Results of Operations
incorporated by reference in the Company's Annual Report on Form
10-K for the year ended March 28, 2000.
Overview - The Company is the largest Pizza Hut franchisee in the
world and at June 27, 2000, operated 842 Pizza Hut units in 27
states. The Company and its franchisor, PHI, have agreed that the
Company may acquire additional Pizza Hut units and, as a result,
operate up to a total of 1,300 units, subject to availability and
certain conditions. The Company estimates that it operates
approximately 12% of the entire Pizza Hut system excluding
licensed units.
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.
Certain of the Company's Pizza Hut units serve beer. This product
is not a significant portion of the Pizza Hut sales mix. 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
ending March 27, 2001 and March 28, 2000 both contain 52 weeks.
Facility Actions and Closure Reserves- In the fourth quarter of
fiscal 1998 the Company recorded a charge of $11.4 million for
facility actions at 95 locations. 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, 81 units
have been closed including 3 units in the current quarter. Ten
remaining units are expected to be closed and four units will
remain in operation. During fiscal 2000 the Company was 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
were 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
concluded that four units originally identified for closure would
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 facility actions
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 net charges/disbursements that were
planned as part of the 1998 impairment and loss provision related
to the Company's planned activities:
Thirteen Weeks From
Ended Plan
June 27, 2000 Inception
(Dollars in thousands)
Beginning Balance $ 1,761 $11,400
Planned charges /
disbursements, net (623) (9,082)
(Income) expense impacts:
Favorable changes to
lease terms and other
estimates -- (1,010)
Modifications due to
economic changes -- (170)
Sub-total -- (1,180)
Balance at June 27, 2000 $ 1,138 $ 1,138
The balance at June 27, 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 $7.1 million related to impairment and loss on
disposition of assets and intangibles. Management believes the
remaining balance is adequate to complete the planned activities.
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. During the thirteen weeks ended June 27, 2000 the
Company made $623,000 in net planned disbursements which included
$517,000 in costs associated with the early extinguishment of
certain lease liabilities upon terms favorable to the Company.
Fiscal 2000 Facility Action Provisions - During fiscal 2000 the
Company recorded a $1.7 million provision for facility actions at
39 locations consisting of $1.2 million for assets and intangibles
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
closed 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 net charges/disbursements that were
planned as part of the fiscal 2000 facility actions:
Thirteen Weeks
Number Ended From Plan
of Units June 27, 2000 Inception
(Dollars in thousands)
Beginning Balance $ 340 $ --
Provision 39 -- 1,710
Planned charges /
disbursements, net -- (1,370)
Balance at June 27, 2000 $ 340 $ 340
During the current quarter disbursements made related to the above
charge were fully offset by amounts received.
Fiscal 2001 Facility Action Provision - During the first quarter
of fiscal 2001 the Company recorded a $940,000 provision for
facility actions at 17 locations consisting of $542,000 for assets
and intangibles that were impaired as a result of the closure
decision and $334,000 of de-identification costs and contractual
lease carry costs.
Below is a summary of the net charges/disbursements that were
planned as part of the fiscal 2001 facility actions:
Thirteen Weeks
Number Ended
of Units June 27, 2000
(Dollars in thousands)
Beginning Balance $ --
Provision 17 940
Planned charges /
disbursements, net (606)
Balance at June 27, 2000 $ 334
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 June 27, 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 net charges/disbursements related to the
Company's Skipper's reserve:
Thirteen Weeks
Ended
June 27, 2000
(Dollars in thousands)
Beginning Balance $ 3,104
Planned charges /
disbursements, net (30)
Balance at June 27, 2000 $ 3,074
Activity with respect to unit count during the quarter is set
forth in the table below:
2001 FIRST QUARTER UNIT ACTIVITY
Beginning Developed Closed Acquired Ending
Company Owned
Pizza Hut
Restaurant 615 16 (16) 38 653
Delivery 167 2 (6) 26 189
Total Company Owned 782 18 (22) 64 842
Results of Operations - The "operations summaries" set forth an
overview of revenue and operating expenses as a percent of revenue
for the thirteen weeks ended June 27, 2000 and June 29, 1999
(dollars in thousands) 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, and insurance among other
costs directly associated with operating a restaurant facility.
PIZZA HUT OPERATIONS
(Unaudited)
Thirteen Weeks Ended
June 27, 2000 June 29, 1999
Revenue:
Restaurant Sales $ 94,596 $ 82,669
Delivery Sales 26,290 25,007
Total Revenue $ 120,886 $107,676
Restaurant Operating Expenses
as a Percentage of Revenue:
Total Expenses: (1)
Cost of Sales 24.3% 24.8%
Direct Labor 28.8% 28.5%
Other 28.8% 28.0%
Total Operating Expenses 81.9% 81.3%
Restaurant Based Income 18.1% 18.7%
Restaurant Expenses: (2)
Cost of Sales 24.5% 24.9%
Direct Labor 27.8% 27.3%
Other 30.1% 29.1%
Total Operating Expenses 82.4% 81.3%
Restaurant Based Income 17.6% 18.7%
Delivery Expenses: (3)
Cost of Sales 23.5% 24.6%
Direct Labor 32.6% 32.4%
Other 23.9% 24.6%
Total Operating Expenses 80.0% 81.6%
Restaurant Based Income 20.0% 18.4%
(1) As a percent of total revenue
(2) As a percent of restaurant sales
(3) As a percent of delivery sales
Comparison of Operating Results for the Thirteen Weeks Ended
June 27, 2000 with the Thirteen Weeks Ended June 29, 1999
Revenue was $120.9 million during the quarter, which was $13.2
million or 12.3% above the $107.7 million reported in the same
period last year. This growth was primarily due to $14.2 million
of sales generated by the 70 units acquired in July 1999 and the
64 units acquired on June 8, 2000. Also contributing to sales
growth was a 1.8% increase in comparable store sales. Acquired
unit sales, combined with comparable store sales improvement, more
than offset the impact of store closure activity since the same
period of the prior year.
Company wide comparable store sales for the quarter increased 1.8%
while rolling over strong comparable sales growth of 5.4% last
year. The Company's growth was driven by the continued success of
the Company's asset re-imaging program. Forty-one stores that have
been re-imaged in the last 18 months accounted for 2.4% of the
Company's comparable store sales growth during the quarter. The
favorable impact of this program is primarily reflected in the
Company's dine-in restaurants which increased comparable store
sales 2.1% while rolling over comparable store sales growth of
4.7% last year. The Company's delivery units recorded 0.8%
comparable store sales growth while rolling over strong growth of
7.1% last year. Last year's strong growth in both dine-in and
delivery restaurants was largely attributable to the successful
Big New Yorker pizza which Pizza Hut launched in late January 1999
and promoted exclusively through mid-May 1999.
Cost of sales as a percent of revenue decreased 50 basis points
compared to same period last year. This improvement was primarily
attributable to a decline in cheese costs of approximately 18% and
the favorable impact of a new beverage contract. These favorable
events were partially offset by an increase of approximately 17%
in meat ingredient costs and product mix changes. (See Effects of
Inflation and Other Matters for additional information on cheese
and other ingredient costs.)
Direct labor increased 30 basis points compared to the same
quarter last year due to increasing wage rates that were not fully
offset by productivity gains and higher labor costs in the 64
stores acquired June 8, 2000. (See Effects of Inflation and Other
Matters for additional information on labor costs.)
Other operating expense increased 80 basis points compared to last
year. The increase was due to an increase in the effective royalty
rate of approximately 20 basis points (due to the 6.5% royalty
rate on the 70-unit and 64-unit acquisitions), increased occupancy
costs associated with re-imaged assets and increases in certain
other operating costs. The effect of the higher royalty rate
resulting from the acquisitions is entirely reflected in the
Company's restaurant units.
General, Administrative and Other Items
General and administrative expenses as a percent of revenue were
5.1% during the current quarter compared to 4.9% during the same
quarter of the prior year. These costs increased as a percent of
revenue due largely to the addition of field infrastructure to
support the calendar year 1999 acquisitions. On a nominal dollar
basis general and administrative expenses increased to $6.1
million during the current quarter from $5.3 million during the
same quarter last year. This increase was primarily due to growth
associated with acquisitions.
Depreciation, amortization and pre-opening costs increased
$596,000 or 25.5% for the quarter compared to the same period of
the prior year. The increase was due to an increase in pre-opening
cost (due to re-imaging plan activity) and an increase in
franchise rights amortization associated with the July 1999
acquisition. Pre-opening costs increased to $527,000 from $151,000
last year.
See Facility Actions and Closure Reserve section of this report
for discussions relating to the quarter facility action charges.
Interest charges for the quarter were $832,000 or 34.6% higher
than the same period of the prior year primarily due to increased
borrowings associated with the July 1999 and June 2000
acquisitions, stock re-purchase activity and re-imaging
investments.
Miscellaneous income was $338,000 for the quarter compared to
$504,000 reported last year. The decline in miscellaneous income
was due to a higher gain on sale or disposition of assets and
intangibles occurring during the prior year.
Income before the cumulative effect of a change in accounting
principle for the quarter was $5.8 million compared to $6.7
million recorded in the same period of the prior year. As in the
prior year, taxes are being provided at an effective rate of 35%.
For the quarter, income before net facility action charges and the
cumulative effect of a change in accounting principle was
$6,442,000 or $.29 per diluted share compared to $6,853,000 or
$.27 per diluted share last year.
Components of diluted earnings per share were as follows:
Thirteen Weeks Ended
June 27, 2000 June 29, 1999
Income before cumulative
effect of change
in accounting principle
and facility action
charges, net of tax $ .29 $ .27
Cumulative effect of change
in accounting principle,
net of tax -- (.01)
Facility action charges,
net of tax (.03) --
Earnings per share - diluted $ .26 $ .26
Liquidity, Capital Resources and Cash Flows
The Company's primary source of cash is its operations. After-tax
cash flow, excluding the impact of facility action charges,
increased 6% or $740,000 over the same quarter last year. Adjusted
for various changes in balance sheet accounts, cash flow provided
by operating activities was $12.8 million for the thirteen weeks
ended June 27, 2000 compared to the $16.6 million reported in the
prior year. This decline was largely due to the timing differences
in the Company's working capital accounts compared to the prior
year.
Restaurant development, start-up technology investments and normal
recurring capital expenditures resulted in $14.2 million of total
capital expenditures for the thirteen weeks ended June 27, 2000
compared to $9.7 million of total capital expenditures for the
same period of the prior year. The increase was largely due to new
store development associated with the Company's asset re-imaging
program.
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. In addition, management is evaluating the use
of a sale-leaseback facility to finance a significant portion of
the Company's investment in its asset re-imaging program.
In addition to cash provided by operations, the Company has a $180
million unsecured revolving line of credit through June 2003. This
line of credit agreement was amended, restated and extended during
the current quarter. This agreement, previously a $200 million
line of credit expiring May 2001, includes an accordion feature
which allows the Company to increase its borrowing capacity to
$200 million in the future if necessary. At June 27, 2000 the
Company had $45.6 million in unused borrowing capacity under this
agreement. The Company's 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 $33.6 million was available for the payment
of dividends at June 27, 2000 under existing debt covenants. The
$18.7 million acquisition of 64 Pizza Hut units that closed June
8, 2000 was funded through the Company's unsecured line of credit.
(See Note 2 for information regarding the 64-unit acquisition.)
Predominately cash sales and rapid inventory turnover allow the
Company to use all available cash to reduce borrowings under its
revolving line of credit. The low requirement for the maintenance
of current assets, combined with credit from trade suppliers
produces a working capital deficit, which is consistent with past
experience and is common in the restaurant industry.
During the thirteen weeks ended June 27, 2000 the Company re-
purchased 163,350 shares for $1.4 million and at June 27, 2000
589,050 shares remained authorized for re-purchase.
During the thirteen weeks ended June 27, 2000 the Company made all
scheduled principal and interest payments.
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.
Effects of Inflation
Inflationary factors such as increases in food and labor costs
directly affect the Company's operations. Because most of the
Company's employees are paid on an hourly basis, changes in rates
related to federal and state minimum wage and tip credit laws will
effect the Company's labor costs. The Company cannot always effect
immediate price increases to offset higher costs and no assurance
can be given that the Company will be able to do so in the future.
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.
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 changes in the price of cheese have
an impact on the Company's food cost as a percent of revenue.
During the quarter cheese prices were approximately 18% lower than
the costs incurred during the comparable period of the prior year.
Based upon available forecasts, management expects cheese costs to
be approximately 20% below last year's levels during the Company's
second fiscal quarter and to be approximately 10% below last
year's levels for fiscal 2001.
Increases in interest rates would directly affect the Company's
financial results. Approximately 41% of the Company's debt is
under fixed rate agreements including senior notes and fixed swap
agreements. Under the Company's revolving credit agreements
alternative interest rate options are available which can be used
to limit the Company's exposure to fluctuating rates.
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.
ITEM 3. Quantitative and Qualitative Disclosure About Market Risk
The Company does not believe it has any material exposure
associated with market risk sensitive instruments.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
There have been no material changes in the legal proceedings
reported in the Company's Annual Report on Form 10-K for the year
ended June 27, 2000.
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The following Exhibits are filed as part of this Report:
Exhibit 10.21 - Second Amended and Restated Revolving Credit
Agreement
Exhibit 10.22 - Amended and Restated Master Guaranty
Exhibit 10.23 - Second Amended and Restated Swingline Note
Exhibit 10.24 - Second Amended and Restated Note
Exhibit 27 - Financial Data Schedule
(b) Reports on Forms 8-K (incorporated by reference)
The following reports on Form 8-K were filed during the
quarter ended June 27, 2000:
June 6, 2000 Completion of the 64 Pizza Hut unit acquisition
from Pizza Hut, Inc.
Signature
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
NPC INTERNATIONAL, INC.
(Registrant)
DATE: July 24, 2000
Senior Vice President Finance Troy D. Cook
Chief Financial Officer
Principal Financial Officer
DATE: July 24, 2000
Chief Accounting Officer Susan G. Dechant
Corporate Controller
