NPC Restaurant Holdings, LLC - FORM 10-Q - May 13, 2016

Attached files

file filename
EX-31.2 - EXHIBIT 31.2 - NPC Restaurant Holdings, LLCexhibit312-2016329.htm
EX-31.1 - EXHIBIT 31.1 - NPC Restaurant Holdings, LLCexhibit311-2016329.htm
EX-32.1 - EXHIBIT 32.1 - NPC Restaurant Holdings, LLCexhibit321-2016329.htm
EX-32.2 - EXHIBIT 32.2 - NPC Restaurant Holdings, LLCexhibit322-2016329.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 ____________________________________________________________
Form 10-Q
 ____________________________________________________________
(Mark one)
ý 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 29, 2016
or
¨
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 333-180524-04
 ____________________________________________________________
NPC RESTAURANT HOLDINGS, LLC
(Exact name of registrant as specified in its charter)
 ____________________________________________________________
 
DELAWARE
 
20-4509045
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. employer
identification number)
 
 
 
7300 W. 129th Street
Overland Park, KS
 
66213
(Address of principal executive offices)
 
(Zip Code)
Telephone: (913) 327-5555
(Registrant’s telephone number, including area code)
 ____________________________________________________________
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  ¨   No  ý
(Note: As a voluntary filer, not subject to the filing requirements, the registrant filed all reports required under Section 13 or 15(d) of the Exchange Act during the preceding 12 months.)
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large Accelerated filer
 
¨
 
Accelerated filer
 
¨
Non-accelerated filer
 
ý
 
Smaller reporting company
 
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  ý
There is no market for the Registrant’s equity. As of May 13, 2016, there were 1,000 units of membership interests outstanding.




INDEX
 

2

PART I
PART 1. FINANCIAL INFORMATION

Item 1.
Consolidated Financial Statements (unaudited)

NPC RESTAURANT HOLDINGS, LLC
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except share data)
 
 
March 29,
2016
 
December 29,
2015
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
45,851

 
$
32,717

Accounts and other receivables
5,702

 
7,278

Inventories
9,563

 
10,067

Prepaid expenses and other current assets
6,672

 
7,133

Assets held for sale
2,905

 
2,904

Income taxes receivable
1,181

 
3,016

Total current assets
71,874

 
63,115

Facilities and equipment, less accumulated depreciation of $172,476 and $163,993, respectively
204,495

 
203,468

Franchise rights, less accumulated amortization of $73,001 and $68,307, respectively
617,064

 
620,518

Goodwill
294,626

 
294,626

Other assets, net
29,295

 
28,969

Total assets
$
1,217,354

 
$
1,210,696

Liabilities and member’s equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
34,436

 
$
34,926

Accrued liabilities
50,142

 
44,847

Accrued interest
6,078

 
11,436

Current portion of insurance reserves
13,252

 
12,829

       Current portion of debt
4,326

 
4,158

Total current liabilities
108,234

 
108,196

Long-term debt
576,589

 
577,011

Other deferred items
42,829

 
40,834

Insurance reserves
21,663

 
21,203

Deferred income taxes
186,691

 
189,763

Total long-term liabilities
827,772

 
828,811

Commitments and contingencies


 


Member’s equity:
 
 
 
Membership interests (1,000 units authorized, issued and outstanding as of March 29, 2016 and December 29, 2015)
—

 
—

Member’s capital
281,348

 
273,689

Total member’s equity
281,348

 
273,689

Total liabilities and member’s equity
$
1,217,354

 
$
1,210,696

See accompanying notes to the unaudited consolidated financial statements.

3

NPC RESTAURANT HOLDINGS, LLC
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands) 
 
13 Weeks Ended
 
March 29,
2016
 
March 31,
2015
Sales:
 
 
 
Net product sales
$
305,142

 
$
295,571

Fees and other income
14,392

 
13,637

Total sales
319,534

 
309,208

Costs and expenses:
 
 
 
Cost of sales
87,481

 
85,725

Direct labor
90,977

 
88,645

Other restaurant operating expenses
99,355

 
95,717

General and administrative expenses
18,449

 
16,702

Corporate depreciation and amortization of intangibles
5,277

 
5,247

Net facility impairment and closure costs
321

 
947

Other
(93
)
 
38

Total costs and expenses
301,767

 
293,021

Operating income
17,767

 
16,187

Interest expense
11,337

 
10,465

Income before income taxes
6,430

 
5,722

Income tax (benefit) expense
(1,229
)
 
747

Net income
$
7,659

 
$
4,975

 

See accompanying notes to the unaudited consolidated financial statements.

4

NPC RESTAURANT HOLDINGS, LLC
CONSOLIDATED STATEMENT OF MEMBER’S EQUITY
(Unaudited)
(in thousands)
 
 
Member’s
equity
Balance at December 29, 2015
$
273,689

Net income
7,659

Balance at March 29, 2016
$
281,348

See accompanying notes to the unaudited consolidated financial statements.

5

NPC RESTAURANT HOLDINGS, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands) 

 
13 Weeks Ended
 
March 29,
2016
 
March 31,
2015
Operating activities
 
 
 
Net income
$
7,659

 
$
4,975

Adjustments to reconcile net income to cash provided by operating activities:
 
 
 
Depreciation and amortization
16,824

 
14,933

Amortization of debt issuance costs
1,138

 
953

Deferred income taxes
(3,072
)
 
(2,614
)
Net facility impairment and closure costs
321

 
947

Other
(144
)
 
76

Changes in assets and liabilities, excluding the effect of acquisitions:
 
 
 
Accounts receivable
1,576

 
1,449

Inventories
543

 
824

Prepaid expenses and other current assets
461

 
772

Accounts payable
(490
)
 
(2,470
)
Income taxes
1,835

 
5,047

Accrued interest
(5,358
)
 
(7,878
)
Accrued liabilities
6,714

 
6,225

Insurance reserves
883

 
1,096

Other deferred items
(182
)
 
162

Other assets
(100
)
 
(47
)
Net cash provided by operating activities
28,608

 
24,450

Investing activities
 
 
 
Capital expenditures
(10,973
)
 
(11,018
)
Acquisition of Wendy’s business, net of cash acquired
(7,963
)
 
—

Proceeds from sale-leaseback transactions
4,338

 
—

Proceeds from sale or disposition of assets
164

 
296

Net cash used in investing activities
(14,434
)
 
(10,722
)
Financing activities
 
 
 
Borrowings under revolving credit facility
—

 
59,000

Payments under revolving credit facility
—

 
(59,000
)
Payments on term bank facilities
(1,040
)
 
(2,079
)
Net cash used in financing activities
(1,040
)
 
(2,079
)
Net change in cash and cash equivalents
13,134

 
11,649

Beginning cash and cash equivalents
32,717

 
12,063

Ending cash and cash equivalents
$
45,851

 
$
23,712

 
 
 
 
Supplemental disclosures of cash flow information:
 
 
 
Net cash paid for interest
$
15,544

 
$
17,350

Net cash received for income taxes
$
—

 
$
(1,685
)
Non-cash investing activities:
 
 
 
Accrued capital expenditures
$
1,950

 
$
3,677



See accompanying notes to the unaudited consolidated financial statements.

6

NPC RESTAURANT HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 – Basis of Presentation, Interim Financial Statements and Accounting Policies

NPC Restaurant Holdings, LLC is referred to herein as “Holdings.” Holdings and its subsidiaries are referred to herein as the “Company.” Holdings’ wholly-owned subsidiary, NPC International, Inc., is referred to herein as “NPC.” NPC’s wholly-owned subsidiary, NPC Quality Burgers, Inc., is referred to herein as “NPCQB.” On December 28, 2011, all of the outstanding membership interests of Holdings were acquired by NPC International Holdings, Inc. (“NPC Holdings” or “Parent”), an entity controlled by Olympus Growth Fund V, L.P. and certain of its affiliated entities (“Olympus” or “Sponsor”), herein referred to as the “Transactions”.
The accompanying unaudited interim consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for reporting on Form 10-Q. Accordingly, certain information and disclosures required by accounting principles generally accepted in the United States (“GAAP”) for complete consolidated financial statements are not included herein.
The unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s latest Annual Report on Form 10-K.
The results of operations of any interim period are not necessarily indicative of the results of operations for the full year. The Company believes the accompanying unaudited interim consolidated financial statements include all adjustments (consisting of normal recurring adjustments and accruals) necessary to fairly present the Company’s consolidated results of operations, financial position and cash flows as of the dates and for the periods presented.
The preparation of the unaudited interim consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions about future events relating to the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited interim consolidated financial statements and the reported amount of revenue and expenses during the reporting periods. Estimates are revised when facts and circumstances change. As such, actual results could differ materially from those estimates.
As further reflected in Note 4 to the unaudited consolidated financial statements, the Company adopted Accounting Standards Update ("ASU") No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30) (“ASU 2015-03”) during the first quarter of 2016, which simplifies the presentation of debt issuance costs. As shown in the table below, pursuant to the guidance in ASU 2015-03 the Company reclassified unamortized debt issuance costs associated with its term loan and senior note obligations in its previously reported consolidated balance sheet as of December 29, 2015 as follows (in thousands):
 
As presented December 29, 2015
 
Reclassifications
 
As adjusted December 29, 2015
Other assets
$
39,063

 
$
(10,094
)
 
$
28,969

 
 
 
 
 
 
Long-term debt
$
587,105

 
$
(10,094
)
 
$
577,011

In March 2016, Financial Accounting Standards Board ("FASB") issued ASU 2016-09, Compensation - Stock Compensation (Topic 718), amending the accounting for stock-based compensation and requiring excess tax benefits and deficiencies to be recognized as a component of income tax expense rather than equity. This guidance also requires excess tax benefits to be presented as an operating activity on the statement of cash flows and allows an entity to make an accounting policy election to either estimate expected forfeitures or to account for them as they occur. The ASU is effective for reporting periods beginning after December 15, 2016, with early adoption permitted. The Company is currently evaluating the effect of this update on its consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases, which requires lessees to recognize a lease liability and a right of use asset for all leases, including operating leases, with a term greater than 12 months on its balance sheet. The ASU also expands the required quantitative and qualitative disclosures surrounding leases. This ASU is effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years, with earlier application permitted. This ASU will be applied using a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The Company is currently evaluating the effect of this standard on its consolidated financial statements.

7

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in GAAP when it becomes effective. In July 2015, the FASB approved a one-year deferral of the effective date of the new revenue recognition standard which will become effective for the Company beginning with the first quarter of fiscal 2018. The standard can be adopted either retrospectively to each prior reporting period presented or as a cumulative effect adjustment as of the date of adoption. Under the proposal, early application would be permitted, but not before the original effective date. The Company is evaluating the effect that ASU 2014-09 will have on its consolidated financial statements and related disclosures. The Company has not yet selected a transition method nor has it determined the effect of the standard on its ongoing financial reporting.

Note 2 – Business Combination

In January 2016, NPCQB acquired three Wendy’s restaurants, including fee-owned properties, from a Wendy’s franchisee for approximately $8.0 million, consisting principally of facilities and equipment of $6.7 million and franchise rights of $1.2 million. This asset acquisition was funded with cash on hand. The Company plans to sell the fee-owned properties and lease them back.
Note 3 – Goodwill and Other Intangible Assets
There were no changes in goodwill for the 13 weeks ended March 29, 2016.
Amortizable other intangible assets consist of franchise rights and leasehold interests. These intangible assets are amortized on a straight-line basis over the lesser of their economic lives or the remaining life of the applicable agreement. Intangible assets subject to amortization are summarized below (in thousands):
 
 
March 29, 2016
 
Gross Carrying
Amount
 
Accumulated
Amortization
 
Net Book
Value
Amortizable intangible assets:
 
 
 
 
 
Franchise rights
$
690,065

 
$
(73,001
)
 
$
617,064

Favorable leasehold interests
13,172

 
(4,010
)
 
9,162

Unfavorable leasehold interests
(16,873
)
 
8,403

 
(8,470
)
 
$
686,364

 
$
(68,608
)
 
$
617,756


 
December 29, 2015
 
Gross Carrying
Amount
 
Accumulated
Amortization
 
Net Book
Value
Amortizable intangible assets:
 
 
 
 
 
Franchise rights
$
688,825

 
$
(68,307
)
 
$
620,518

Favorable leasehold interests
13,850

 
(4,354
)
 
9,496

Unfavorable leasehold interests
(17,105
)
 
8,139

 
(8,966
)
 
$
685,570

 
$
(64,522
)
 
$
621,048

Amortization expense on intangible assets was $4.5 million and $4.4 million for the 13-week periods ended March 29, 2016 and March 31, 2015, respectively.
Note 4 – Debt
The Company’s debt consisted of the following (in thousands):
 

8

 
March 29,
2016
 
December 29,
2015
Term Loan
$
400,223

 
$
401,263

Unamortized debt issuance costs
(6,949
)
 
(7,581
)
Term Loan notes less unamortized debt issuance costs
393,274

 
393,682

 
 
 
 
Senior Notes
190,000

 
190,000

Unamortized debt issuance costs
(2,359
)
 
(2,513
)
Senior Notes less unamortized debt issuance costs
187,641

 
187,487

Revolving Facility ($110 million) (1)
—

 
—

 
580,915

 
581,169

Less current portion
4,326

 
4,158

 
$
576,589

 
$
577,011

 
(1) 
At March 29, 2016, the Company had $80.4 million of borrowing capacity available under its revolving credit facility (“Revolving Facility”), net of $29.6 million of outstanding letters of credit. At December 29, 2015, the Company had $80.9 million of borrowing capacity available under its Revolving Facility, net of $29.1 million of outstanding letters of credit.

The Company’s debt facilities contain restrictions on additional borrowings, certain asset sales, dividend payments, certain investments and related-party transactions, as well as requirements to maintain various financial ratios. At March 29, 2016, the Company was in compliance with all of its financial covenants.

Based upon the amount of excess cash flow generated during the fiscal year and the Company’s leverage at fiscal year end, each of which is defined in the credit agreement governing the term loan, the Company may be required to make an excess cash flow mandatory prepayment. The excess cash flow mandatory prepayment is an annual requirement under the credit agreement and is due 95 days after the end of each fiscal year. The Company made a mandatory pre-payment of $3.3 million on March 31, 2016 based on its fiscal 2015 results. The Company currently anticipates that it may be required to make a mandatory prepayment in fiscal 2017, but such amount cannot be reasonably estimated at this time.
Note 5 – Fair Value Measurements
Fair value disclosures enable the reader of the financial statements to assess the inputs used to develop those fair value measurements using a hierarchy for ranking the quality and reliability of the information used to determine fair values. The Company classifies and discloses assets and liabilities carried at fair value in one of the following three categories:
Level 1: Unadjusted quoted prices available in active markets for identical assets or liabilities.
Level 2: Pricing inputs, other than Level 1 quoted prices, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.
Level 3: Unobservable inputs that are not corroborated by market data, which requires the Company to develop its own assumptions. These inputs are frequently utilized in pricing models, discounted cash flow techniques and other widely accepted valuation methodologies.
The following tables summarize the carrying amounts and fair values of certain assets at March 29, 2016 and December 29, 2015, (in thousands):

9

 
March 29, 2016
 
 
 
 
 
Carrying Amount
 
Level 1 Inputs
 
Level 2 Inputs
 
Level 3 Inputs
Equities(1)
$
10,281

 
$
10,281

 
$
—

 
$
—

Fixed income(1)
4,463

 
—

 
4,463

 
—

Money market fund(2)
43,564

 
—

 
43,564

 
—

 
 
 
 
 
 
 
 
 
December 29, 2015
 
 
 
 
 
Carrying Amount
 
Level 1 Inputs
 
Level 2 Inputs
 
Level 3 Inputs
Equities(1)
$
10,385

 
$
10,385

 
$
—

 
$
—

Fixed income(1)
3,748

 
—

 
3,748

 
—

Money market fund(2)
29,584

 
—

 
29,584

 
—


(1) 
These investments relate to the Deferred Compensation Plan and the POWR Plan and are located in the other assets line item on the Consolidated Balance Sheets. The investments categorized as Level 2 in the fair value hierarchy are valued by using available market information which includes quoted market prices for identical or similar assets in non-active markets.
(2) 
At March 29, 2016 and December 29, 2015, $1.8 million and $1.5 million, respectively, of the balances in the money market fund related to the Deferred Compensation and POWR Plans and were located in the other assets line item on the Consolidated Balance Sheets. The remaining balances in the money market fund were short-term in nature and were classified in cash and cash equivalents on the Consolidated Balance Sheets. Money market funds are valued at amortized cost which reflects the market-based fair value.
The estimated fair value of the Company’s outstanding borrowings was as follows (in thousands):
 
 
March 29, 2016
 
December 29, 2015
Term Loan
$
391,274

 
$
389,670

Senior Notes
193,341

 
195,087

Revolving Facility
—

 
—

 
$
584,615

 
$
584,757

Carrying value
$
580,915

 
$
581,169

The Company measures the fair value of its debt facilities under a Level 2 observable input which consists of quotes from non-active markets. However, the fair value estimates presented herein are not necessarily indicative of the amount that the Company’s debtholders could realize in a current market exchange. Cash and cash equivalents (excluding the money market fund), accounts and other receivables and accounts payable are carried at cost which approximates fair value because of the short-term nature of these instruments.  
Note 6 – Income Taxes
For the 13 weeks ended March 29, 2016, the Company recorded an income tax benefit of $1.2 million compared to income tax expense of $0.7 million for the same period of the prior year. The tax benefit for the first quarter of fiscal 2016 was primarily due to higher general business tax credits in relation to lower projected taxable income as compared to the first quarter of fiscal 2015.
The Company files a consolidated US federal tax return with its parent company, NPC Holdings. The Company allocates taxes between it and the Parent utilizing the separate return method.
The liability for uncertain tax positions was $2.6 million at March 29, 2016 and December 29, 2015.
Note 7 – Accrued Liabilities
Accrued liabilities consist of the following (in thousands): 

10

 
March 29, 2016
 
December 29, 2015
Payroll and vacation
$
19,957

 
$
19,279

Sales tax payable
5,606

 
5,648

Deferred vendor rebates
5,436

 
890

Other
19,143

 
19,030

 
$
50,142

 
$
44,847

Note 8 – Commitments and Contingencies

On April 12, 2016, the Company entered into an Amendment to Franchise Agreement with Pizza Hut, Inc. which sets forth the terms of the Asset Partner Plan which governs the future asset upgrade requirements of the Company including remodel scope and timing of such actions, and supersedes the previous agreements relating to such upgrade requirements. The terms of the Asset Partner Plan included in the Amendment to Franchise Agreement are similar in scope to the description of the proposed plan included in Note 10, Commitments and Contingencies of the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2015.

From time to time, the Company is involved in litigation, most of which is incidental to its business. In the Company’s opinion, no litigation to which the Company currently is a party is likely to have a material adverse effect on the Company’s consolidated financial condition, results of operations or cash flows.
Note 9 – Transactions with Sponsor
Olympus Advisory Agreement. On December 28, 2011, the Company entered into a management advisory agreement with the Sponsor pursuant to which the Sponsor or its affiliates provide financial, investment banking, management advisory and other services on the Company’s behalf for an annual fee of $1.0 million, paid in quarterly installments in arrears on the last day of each calendar quarter. The Company accrues the fee ratably to general and administrative expenses. The Sponsor also receives reimbursement for out-of-pocket expenses incurred in connection with services provided pursuant to the agreement.

Note 10 – Condensed Consolidating Financial Statements
NPC’s obligations under the 10 1/2% Senior Notes due 2020 and its senior secured credit facilities are fully guaranteed by Holdings. As of the date hereof, Holdings’ only material asset is 100% of the stock of NPC. The remaining co-issuers with NPC, NPCQB and NPC Operating Company B, Inc. (“NPC Op Co B”) are 100% owned by NPC. NPC Op Co B does not have any assets or operations as of March 29, 2016 and has not had any revenues, expenses or cash flows during its existence. The Holdings and subsidiary guarantees are joint and several, full and unconditional. The following summarizes the Company’s condensed consolidating information as of March 29, 2016 and December 29, 2015, and for each of the 13-week periods ended March 29, 2016 and March 31, 2015, respectively (in thousands):
Condensed Consolidating Statements of Operations
 
 
 
 
 
 
 
 
 
 
 
 
 
13 Weeks Ended March 29, 2016
 
Parent
 
Subsidiary
 
Subsidiary
 
Subsidiary
 
 
 
 
 
Guarantor:
Holdings
 
Issuer:
NPC
 
Co-Issuer:
NPCQB
 
Co-Issuer:
NPC Op
Co B
 
Eliminations
 
Consolidated
Total sales
$
—

 
$
268,594

 
$
50,940

 
$
—

 
$
—

 
$
319,534

Total costs and expenses
—

 
253,357

 
48,410

 
—

 
—

 
301,767

Operating income
—

 
15,237

 
2,530

 
—

 
—

 
17,767

Interest expense
—

 
11,337

 
—

 
—

 
—

 
11,337

Equity in net income of subsidiary
7,659

 
2,965

 
—

 
—

 
(10,624
)
 
—

Income before income taxes
7,659

 
6,865

 
2,530

 
—

 
(10,624
)
 
6,430

Income tax benefit
—

 
(794
)
 
(435
)
 
—

 
—

 
(1,229
)
Net income
$
7,659

 
$
7,659

 
$
2,965

 
$
—

 
$
(10,624
)
 
$
7,659




11

 
 
 
 
 
 
 
 
 
 
 
 
 
13 Weeks Ended March 31, 2015
 
Parent
 
Subsidiary
 
Subsidiary
 
Subsidiary
 
 
 
 
 
Guarantor:
Holdings
 
Issuer:
NPC
 
Co-Issuer:
NPCQB
 
Co-Issuer:
NPC Op
Co B
 
Eliminations
 
Consolidated
Total sales
$
—

 
$
260,567

 
$
48,641

 
$
—

 
$
—

 
$
309,208

Total costs and expenses
—

 
245,852

 
47,169

 
—

 
—

 
293,021

Operating income
—

 
14,715

 
1,472

 
—

 
—

 
16,187

Interest expense
—

 
10,465

 
—

 
—

 
—

 
10,465

Equity in net income of subsidiary
4,975

 
1,280

 
—

 
—

 
(6,255
)
 
—

Income before income taxes
4,975

 
5,530

 
1,472

 
—

 
(6,255
)
 
5,722

Income tax expense
—

 
555

 
192

 
—

 
—

 
747

Net income
$
4,975

 
$
4,975

 
$
1,280

 
$
—

 
$
(6,255
)
 
$
4,975



 


12


Condensed Consolidating Balance Sheet
 
 
March 29, 2016
 
Parent
 
Subsidiary
 
Subsidiary
 
Subsidiary
 
 
 
 
 
Guarantor:
Holdings
 
Issuer:
NPC
 
Co-Issuer:
NPCQB
 
Co-Issuer:
NPC Op
Co B
 
Eliminations
 
Consolidated
Assets:
 
 
 
 
 
 
 
 
 
 
 
Current assets
$
—

 
$
68,587

 
$
3,287

 
$
—

 
$
—

 
$
71,874

Facilities and equipment, net
—

 
152,946

 
51,549

 
—

 
—

 
204,495

Franchise rights, net
—

 
573,213

 
43,851

 
—

 
—

 
617,064

Goodwill
—

 
290,502

 
4,124

 
—

 
—

 
294,626

Investment in subsidiary
281,348

 
80,593

 
—

 
—

 
(361,941
)
 
—

Other assets, net
—

 
27,691

 
1,604

 
—

 
—

 
29,295

Total assets
$
281,348

 
$
1,193,532

 
$
104,415

 
$
—

 
$
(361,941
)
 
$
1,217,354

Liabilities and member’s equity:
 
 
 
 
 
 
 
 
 
 
 
Current liabilities
$
—

 
$
93,228

 
$
15,006

 
$
—

 
$
—

 
$
108,234

Long-term debt
—

 
576,589

 
—

 
—

 
—

 
576,589

Other liabilities and deferred items
—

 
56,306

 
8,186

 
—

 
—

 
64,492

Deferred income taxes
—

 
186,061

 
630

 
—

 
—

 
186,691

Member’s equity
281,348

 
281,348

 
80,593

 
—

 
(361,941
)
 
281,348

Total liabilities and member’s equity
$
281,348

 
$
1,193,532

 
$
104,415

 
$
—

 
$
(361,941
)
 
$
1,217,354

 
 
December 29, 2015
 
Parent
 
Subsidiary
 
Subsidiary
 
Subsidiary
 
 
 
 
 
Guarantor:
Holdings
 
Issuer: NPC
 
Co-Issuer:
NPCQB
 
Co-Issuer:
NPC Op
Co B
 
Eliminations
 
Consolidated
Assets:
 
 
 
 
 
 
 
 
 
 
 
Current assets
$
—

 
$
58,620

 
$
4,495

 
$
—

 
$
—

 
$
63,115

Facilities and equipment, net
—

 
155,501

 
47,967

 
—

 
—

 
203,468

Franchise rights, net
—

 
577,097

 
43,421

 
—

 
—

 
620,518

Goodwill
—

 
290,502

 
4,124

 
—

 
—

 
294,626

Investment in subsidiary
273,689

 
76,784

 
—

 
—

 
(350,473
)
 
—

Other assets, net
—

 
27,233

 
1,736

 
—

 
—

 
28,969

Total assets
$
273,689

 
$
1,185,737

 
$
101,743

 
$
—

 
$
(350,473
)
 
$
1,210,696

Liabilities and member’s equity:
 
 
 
 
 
 
 
 
 
 
 
Current liabilities
$
—

 
$
91,472

 
$
16,724

 
$
—

 
$
—

 
$
108,196

Long-term debt
—

 
577,011

 
—

 
—

 
—

 
577,011

Other liabilities and deferred items
—

 
55,589

 
6,448

 
—

 
—

 
62,037

Deferred income taxes
—

 
187,976

 
1,787

 
—

 
—

 
189,763

Member’s equity
273,689

 
273,689

 
76,784

 
—

 
(350,473
)
 
273,689

Total liabilities and member’s equity
$
273,689

 
$
1,185,737

 
$
101,743

 
$
—

 
$
(350,473
)
 
$
1,210,696



13


Condensed Consolidating Statements of Cash Flows
 
 
13 Weeks Ended March 29, 2016
 
Parent
 
Subsidiary
 
Subsidiary
 
Subsidiary
 
 
 
 
 
Guarantor:
Holdings
 
Issuer:
NPC
 
Co-Issuer:
NPCQB
 
Co-Issuer:
NPC Op
Co B
 
Eliminations
 
Consolidated
Operating activities:
 
 
 
 
 
 
 
 
 
 
 
Net cash flows provided by operating activities
$
—

 
$
22,512

 
$
6,096

 
$
—

 
$
—

 
$
28,608

Investing activities:
 
 
 
 
 
 
 
 
 
 
 
Capital expenditures
—

 
(8,513
)
 
(2,460
)
 
—

 
—

 
(10,973
)
Investment in NPCQB
—

 
(844
)
 
—

 
—

 
844

 
—

Acquisition of Wendy’s business, net of cash acquired
—

 
—

 
(7,963
)
 
—

 
—

 
(7,963
)
Proceeds from sale-leaseback transactions
—

 
828

 
3,510

 
—

 
—

 
4,338

Proceeds from sale or disposition of assets
—

 
162

 
2

 
—

 
—

 
164

Net cash flows used in investing activities
—

 
(8,367
)
 
(6,911
)
 
—

 
844

 
(14,434
)
Financing activities:
 
 
 
 
 
 
 
 
 
 
 
Net payments on debt
—

 
(1,040
)
 
—

 
—

 
—

 
(1,040
)
Distribution from parent
—

 
—

 
844

 
—

 
(844
)
 
—

Net cash flows (used in) provided by financing activities
—

 
(1,040
)
 
844

 
—

 
(844
)
 
(1,040
)
Net change in cash and cash equivalents
—

 
13,105

 
29

 
—

 
—

 
13,134

Beginning cash and cash equivalents
—

 
31,918

 
799

 
—

 
—

 
32,717

Ending cash and cash equivalents
$
—

 
$
45,023

 
$
828

 
$
—

 
$
—

 
$
45,851



14

 
13 Weeks Ended March 31, 2015
 
Parent
 
Subsidiary
 
Subsidiary
 
Subsidiary
 
 
 
 
 
Guarantor:
Holdings
 
Issuer:
NPC
 
Co-Issuer:
NPCQB
 
Co-Issuer:
NPC Op
Co B
 
Eliminations
 
Consolidated
Operating activities:
 
 
 
 
 
 
 
 
 
 
 
Net cash flows provided by operating activities
$
—

 
$
20,689

 
$
3,761

 
$
—

 
$
—

 
$
24,450

Investing activities:
 
 
 
 
 
 
 
 
 
 
 
Capital expenditures
—

 
(7,127
)
 
(3,891
)
 
—

 
—

 
(11,018
)
Investment in NPCQB
—

 
(110
)
 
—

 
—

 
110

 
—

Proceeds from sale or disposition of assets
—

 
258

 
38

 
—

 
—

 
296

Net cash flows used in investing activities
—

 
(6,979
)
 
(3,853
)
 
—

 
110

 
(10,722
)
Financing activities:
 
 
 
 
 
 
 
 
 
 
 
Net payments on debt
—

 
(2,079
)
 
—

 
—

 
—

 
(2,079
)
Distribution from parent
—

 
—

 
110

 
—

 
(110
)
 
—

Net cash flows (used in) provided by financing activities
—

 
(2,079
)
 
110

 
—

 
(110
)
 
(2,079
)
Net change in cash and cash equivalents
—

 
11,631

 
18

 
—

 
—

 
11,649

Beginning cash and cash equivalents
—

 
11,278

 
785

 
—

 
—

 
12,063

Ending cash and cash equivalents
$
—

 
$
22,909

 
$
803

 
$
—

 
$
—

 
$
23,712



15


Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
As used in this report, NPC Restaurant Holdings, LLC is referred to herein as “Holdings.” Holdings and its subsidiaries are referred to as the “Company,” “we” “us,” and “our.” Holdings’ wholly-owned subsidiary, NPC International, Inc., is referred to as “NPC.” NPC’s wholly-owned subsidiary, NPC Quality Burgers, Inc., is referred to herein as “NPCQB.”
Trademarks and Trade Names
The trade name “Pizza Hut” and all other trade names, trademarks, service marks, symbols, slogans, emblems, logos and designs used in the Pizza Hut system and appearing in this Form 10-Q are owned by Pizza Hut, Inc. (“PHI”) and are licensed to us for use with respect to the operation and promotion of our Pizza Hut restaurants. The “WingStreet” name is a trademark of WingStreet, LLC, an entity controlled by Yum! Brands, Inc. (“Yum!”). The trade name “Wendy’s” and all other trade names, trademarks, service marks, symbols, slogans, emblems, logos and designs used in the Wendy’s system and appearing in this Form 10-Q are owned by The Wendy’s Company and its subsidiaries (“Wendy’s”) and are licensed to us for use with respect to the operation and promotion of our Wendy’s restaurants. All other trademarks or trade names appearing in this Form 10-Q are the property of their respective owners. Solely for convenience, trademarks and trade names referred to in this Form 10-Q may appear without the ® or ™ symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the right of the applicable licensor to these trademarks and trade names.
Market and Industry Data
In this Form 10-Q, we refer to information regarding the U.S. restaurant industry and the quick service restaurant sector from publicly available market research reports and other publicly available information. Unless otherwise indicated, corporate information regarding PHI in this Form 10-Q has been made publicly available by Yum! and corporate information regarding Wendy's has been made publicly available by Wendy’s International, LLC. We have not independently verified such data and we make no representations as to the accuracy of such information. None of the reports referred to in this Form 10-Q were prepared for use in, or in connection with, this Form 10-Q.
Cautionary Statement Regarding Forward Looking Information
This report includes forward-looking statements regarding, among other things, our plans, strategies, and prospects, both business and financial. All statements contained in this document other than historical information are forward-looking statements. Forward-looking statements include, but are not limited to, statements that represent our beliefs concerning future operations, strategies, financial results or other developments, and may contain words and phrases such as “may,” “expect,” “should,” “anticipate,” “intend,” or similar expressions. Because these forward-looking statements are based on estimates and assumptions that are subject to significant business, economic and competitive uncertainties, many of which are beyond our control or are subject to change, actual results could be materially different. Although we believe that our plans, intentions and expectations reflected in or suggested by these forward-looking statements are reasonable, there can be no assurance we will achieve or realize these plans, intentions or expectations. Forward-looking statements are inherently subject to risks, uncertainties and assumptions. Important factors that could cause actual results to differ materially from our forward-looking statements, expectations and historical trends include, but are not limited to, the following:
•
competitive conditions;
•
general economic and market conditions;
•
effectiveness of franchisor advertising programs and the overall success of our franchisors;
•
increases in commodity, labor, fuel and other costs;
•
effectiveness of the hedging program for cheese prices directed by Restaurant Supply Chain Solutions, LLC (“RSCS”) for the Pizza Hut system;
•
significant disruptions in service or supply by any of our suppliers or distributors;
•
changes in consumer tastes, geographic concentration and demographic patterns;
•
consumer concerns about health and nutrition;
•
our ability to manage our growth and successfully implement our business strategy;
•
the risks associated with the expansion of our business, including risks relating to the integration of the Wendy’s restaurants acquired by us;
•
the effect of disruptions to our computer and information systems or cyber attacks;
•
the effect of local conditions, events and natural disasters;
•
general risks associated with the restaurant industry;
•
the outcome of pending or yet-to-be instituted legal proceedings;
•
regulatory factors, including changing laws and regulations related to healthcare coverage, employee matters and menu labeling, which may adversely affect our business and results of operations;

16

•
the loss of our executive officers and certain key personnel;
•
our ability to service our substantial indebtedness and to comply with the related financial covenants;
•
restrictions contained in our debt agreements;
•
availability, terms and deployment of capital;
•
our ability to obtain debt or equity financing on reasonable terms or at costs similar to that of our current credit facilities; and
•
various other factors beyond our control.
Any forward-looking statements made in this report speak only as of the date of this report. Consequently, such forward-looking statements should be regarded solely as our current plans, estimates and beliefs. We do not intend, and do not undertake, any obligation to update any forward-looking statements to reflect future events or circumstances after the date of such statements. For a more detailed discussion of the principal factors that could cause actual results to be materially different, you should read our risk factors in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 29, 2015 (“2015 Form 10-K”) as well as our unaudited interim consolidated financial statements, related notes, and other financial information appearing elsewhere in this report and our other filings with the Securities and Exchange Commission (“SEC”), which are available on the SEC’s website at www.sec.gov.
Overview
NPC was founded in 1962, is the largest franchisee of any restaurant concept in the United States (U.S.), based on unit count, according to the 2015 “Top 200 Restaurant Franchisees” by the Restaurant Finance Monitor, and is the eighth largest restaurant unit operator, based on unit count, in the U.S.
Our Pizza Hut operations. We are the largest Pizza Hut franchisee and as of March 29, 2016 we operated 1,241 Pizza Hut units in 27 states with significant presence in the Midwest, South and Southeast. As of March 29, 2016, our Pizza Hut operations represented approximately 20% of the domestic Pizza Hut restaurant system and 21% of the domestic Pizza Hut franchised restaurant system as measured by number of units, excluding licensed units which operate with a limited menu and no delivery in certain of our markets.
Our Wendy’s operations. As of March 29, 2016, we operated 146 Wendy’s units in 5 states. We desire to expand our Wendy’s operations through the opportunistic acquisitions of restaurants in additional markets and organic growth by developing new restaurants that meet our investment objectives. All of the Wendy’s restaurants are owned and operated by NPCQB and are primarily located in and around the Salt Lake City, Greensboro-Winston Salem and Kansas City metropolitan areas.
Our Fiscal Year. We operate on a 52- or 53-week fiscal year ending on the last Tuesday in December. Fiscal years 2016 and 2015 each contain 52 weeks. Each quarterly period in fiscal years 2016 and 2015 has 13 weeks.

Our Sales
Net Product Sales. Net product sales are comprised of sales of food and beverages from our restaurants, net of discounts. For the 13 weeks ended March 29, 2016, pizza sales accounted for approximately 73% of our Pizza Hut net product sales. Hamburger and chicken sandwiches accounted for approximately 50% of our Wendy’s net product sales. Various factors influence sales at a given unit, including customer recognition of the Pizza Hut and Wendy’s brands, our level of service and operational effectiveness, pricing, marketing and promotional efforts and local competition. Several factors affect our sales in any period, including the number of units in operation, comparable store sales and seasonality. “Comparable store sales” refer to period-over-period net product sales comparisons for units under our operation for at least 12 months.
Fees and Other Income. Fees and other income for our Pizza Hut operations are comprised primarily of delivery fees charged to customers, vending receipts and other fee income and are not included in our comparable store sales metric.
Seasonality. Our Pizza Hut business is moderately seasonal in nature with net product sales typically being higher in the first half of the fiscal year. Our Wendy’s business is also moderately seasonal in nature with net product sales typically being higher in the spring and summer months. As a result of these seasonal fluctuations, our operating results may vary between fiscal quarters. Further, results for any quarter are not necessarily indicative of the results that may be achieved for the full fiscal year.

Restaurants and Formats. We operate our Pizza Hut restaurants through three different formats to cater to the needs of our customers in each respective market. Delivery units, or “Delcos,” are typically located in strip centers and provide delivery and carryout, with a greater proportion being located in more densely populated areas. Red Roof units, or “RRs,” are traditional free-standing, dine-in restaurants which offer on-location dining room service as well as carryout service. Restaurant-Based Delivery units, or “RBDs,” conduct delivery, dine-in, and carryout operations from the same free-standing location.
    
Our Wendy’s restaurants are generally free-standing and include a pick-up window in addition to a dining room with counter service.

17

The following table sets forth certain information at the end of each year-to-date fiscal period:
 
 
13 Weeks Ended
 
March 29, 2016
 
March 31, 2015
Number of restaurants open at the end of the period:
 
 
 
  Pizza Hut
 
 
 
Delco
607

 
602

RR
135

 
158

RBD
499

 
510

   Total Pizza Hut units
1,241

 
1,270

  Wendy’s units
146

 
143

   Total units
1,387

 
1,413

 
Our Costs
Our operating costs and expenses are comprised of cost of sales, direct labor, other restaurant operating expenses, general and administrative expenses and facility impairment and closure costs. Our cost structure is highly variable with approximately 70% of operating costs variable to sales and volume of transactions.
Cost of Sales. Cost of sales includes the cost of food and beverage products sold, less rebates from suppliers, as well as paper and packaging, and is primarily influenced by fluctuation in commodity prices. Historically, our Pizza Hut cost of sales has primarily been comprised of the following: cheese: 30-35%; dough: 16-20%; meat: 16-20%; and packaging: 8-10%. These costs can fluctuate from year-to-year given the commodity nature of the cost category, but are constant across regions. We are a member of the RSCS, a cooperative designed to operate as a central procurement service for the operators of Yum! restaurants, and participate in various cheese hedging and procurement programs that are directed by the RSCS for cheese, meat and certain other commodities to help reduce the price volatility of those commodities from period-to-period. Based on information provided by the RSCS, the RSCS typically hedges approximately 30% to 50% of the Pizza Hut system’s anticipated cheese purchases through a combination of derivatives taken under the direction of the RSCS. Additionally, the RSCS has entered into contractual pricing arrangements with the supplier to restaurants in the Pizza Hut system on cheese purchases that may cause the prices paid by us to exceed or be less than the current block cheese price.

Our Wendy’s cost of sales is primarily comprised of the following: beef and chicken: 40-42%; packaging: 11-13%; potatoes: 8-10%; and dairy: 8-10%. These costs can fluctuate from year-to-year given the commodity nature of the cost category, but are constant across regions.Wendy’s and its franchisees have established Quality Supply Chain Co-op, Inc. to manage contracts for the purchase and distribution of food, proprietary paper, operating supplies and equipment under national contracts with pricing based upon total system volume for the Wendy’s system in the United States and Canada.
Direct Labor. Direct labor includes the salary, payroll taxes, fringe benefit costs and workers’ compensation expense associated with restaurant based personnel. Direct labor is highly dependent on federal and state minimum wage rate legislation and local minimum wage rate initiatives given that the vast majority of our workers are hourly employees. To control labor costs, we are focused on proper scheduling and adequate training of our store employees, as well as retention of existing employees.

Other Restaurant Operating Expenses. Other restaurant operating expenses (“OROE”) include all other costs directly associated with operating a restaurant facility, which primarily represents royalties, advertising, occupancy costs (rent, utilities, repairs and other facility-related expenses), depreciation (facilities and equipment), delivery expenses (for our Pizza Hut operations), supplies, insurance (excluding workers’ compensation) and other restaurant-related costs.    
Our blended average Pizza Hut royalty rate as a percentage of total Pizza Hut sales was 4.9% for both of the 13 week periods ended March 29, 2016 and March 31, 2015. Our blended average Wendy’s royalty rate as a percentage of total Wendy’s sales was 3.8% and 3.9% for the 13 week periods ended March 29, 2016 and March 31, 2015, respectively.
General and Administrative Expenses. General and administrative expenses include field supervision and personnel costs and the corporate and administrative functions that support our restaurants, including employee wages and benefits, travel, information systems, recruiting and training costs, credit card transaction fees, professional fees, supplies and insurance.    
Facility Impairment and Closure Costs. Facility impairment and closure costs include any impairment of long-lived assets, including franchise rights associated with units or designated marketing areas, a unit’s leasehold improvements and equipment

18

where the carrying amount of the asset is not recoverable and may exceed its fair value. When a unit is closed, the associated lease and other costs related to the unit are included in closure costs.
Trends and Uncertainties Affecting Our Business
We believe that as a franchisee of such a large number of Pizza Hut and Wendy’s restaurants, our financial success is driven less by variable factors that affect regional restaurants and their markets, and more by trends affecting the food purchase industry – specifically the Quick Service Restaurants or “QSR” industry. The following discussion describes certain key factors that may affect our future performance.
General Economic Conditions and Consumer Spending
Changes in general economic conditions can have a significant impact on consumer spending. Wage stagnation, higher healthcare costs and economic uncertainty, as partially mitigated by lower fuel prices and lower unemployment, appear to have negatively impacted consumer spending in some segments of the restaurant industry, including the segment in which we compete. Specifically, we believe pressures on low and lower-middle income customers continue to be significant, and we believe that these customers are particularly interested in receiving value at a reasonable price in the current environment.
Competition
The restaurant business is highly competitive. The QSR industry is a fragmented market, and includes well-established competitors.
Our Pizza Hut restaurants face competition from national and regional chains, as well as independent operators, which affects pricing strategies and margins. Additionally, frozen pizzas and take-and-bake pizzas are competitive alternatives in the pizza segment. In addition to more established competitors, we also face competition from new competitors and concepts such as fast casual pizza concepts. Limited product variability within our segment can make differentiation among competitors difficult. Thus, companies in the pizza segment continuously promote and market new product introductions, price discounts and bundled deals, and rely heavily on effective marketing and advertising to drive sales. The price charged for each menu item may vary from market to market (and within markets) depending on competitive pricing and the local cost structure.

Our Wendy’s restaurants face competition from other food service operations within the same geographical area. Wendy’s restaurants compete with other restaurant companies and food outlets, primarily through the quality, variety, convenience, price, and value perception of food products offered. The location of units, quality and speed of service, attractiveness of facilities, effectiveness of marketing and new product development by Wendy’s and its competitors are also important factors. The price charged for each menu item may vary from market to market (and within markets) depending on competitive pricing and the local cost structure.
Commodity Prices
For our Pizza Hut operations, commodity prices of packaging products (liner board) and ingredients such as cheese, dough (wheat), and meat, can vary. The prices of these commodities can fluctuate throughout the year due to changes in supply and demand. Our costs can also fluctuate as a result of changes in ingredients or packaging instituted by PHI. For the first quarter of fiscal 2016, the block cheese price averaged $1.48 per pound, a decrease of $0.06 or 4% versus the average price for the first quarter of fiscal 2015. Additionally, meat prices decreased $0.46 per pound or approximately 25% versus the average price for the first quarter of fiscal 2015.

Based upon current market conditions, we currently expect overall commodity deflation for our Pizza Hut operations of approximately 2% to 3% and commodity deflation for our Wendy’s operations of approximately 3% to 4% for fiscal 2016 as compared to fiscal 2015.

Labor Cost
The restaurant industry is labor intensive and known for having a high level of employee turnover given low hourly wages and the part-time composition of the workforce. To the extent that our Pizza Hut delivery sales mix increases due to changes in occasion mix or the acquisition or relocation of units, our labor costs would be expected to increase due to the more labor intensive nature of the delivery transaction. Direct labor is highly dependent on federal and state minimum wage rate legislation and local minimum wage rate initiatives given the vast majority of workers are hourly employees whose compensation is either determined or influenced by the minimum wage rate. Certain states’ minimum wage rates are adjusted annually for inflation. These increases in state minimum wage rates are currently expected to increase direct labor expense by approximately $0.5 million in fiscal 2016. However, there are currently a number of federal, state and local initiatives and proposals to further increase minimum wage rates, which could be material to our operations.

19

Additionally, changes in federal labor laws and regulations and governmental agency determinations relating to union organizing rights and activities could result in portions of our workforce being subjected to greater organized labor influence, thereby potentially increasing our labor costs, and could have a material adverse effect on our business, results of operations and financial condition.
Inflation and Deflation
Inflationary factors, such as increases in food and labor costs, directly affect our operations. Because most of our employees are paid on an hourly basis, changes in rates related to federal and state minimum wage rate and tip credit laws and local minimum wage rate initiatives will affect our labor costs.
Significant increases in average gasoline prices in the regions in which we operate could increase our delivery driver reimbursement costs. We estimate that every $0.25 per gallon change in average gas prices in our markets impacts our annual operating results by approximately $0.7 million. However, as gas prices increase, the impact upon our operations is somewhat mitigated for price increases by a transfer of sales from the delivery occasion to the carryout access mode, which is perceived as a higher value by consumers and benefits us with lower labor costs for the carryout transaction.
If the economy experiences deflation, which is a persistent decline in the general price level of goods and services, we may suffer a decline in revenues as a result of the falling prices. In that event, given our fixed costs and minimum wage rate requirements, it is unlikely that we would be able to reduce our costs at the same pace as any declines in revenues. Consequently, a period of prolonged or significant deflation would likely have a material adverse effect on our business, results of operations and financial condition. Similarly, if we reduce the prices we charge for our products as a result of declines in comparable store sales or competitive pressures, we may suffer decreased revenues, margins, income and cash flow from operations.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are based upon our unaudited interim consolidated financial statements. The preparation of these financial statements requires estimation and judgment that affect the reported amounts of revenues, expenses, assets, and liabilities. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. If these estimates differ materially from actual results, the impact on the unaudited interim consolidated financial statements may be material. Our critical accounting policies are available under Item 7 of our 2015 Form 10-K filed on March 9, 2016. There have been no significant changes with respect to these policies during the 13 weeks ended March 29, 2016.

20

Results of Operations
The table below presents (i) comparable store sales indices, (ii) selected restaurant operating results as a percentage of net product sales and (iii) sales by occasion for the 13-week periods ended March 29, 2016 and March 31, 2015:
 
13 Weeks Ended
Consolidated
March 29, 2016
 
March 31, 2015
Net product sales, (in thousands)
$
305,142

 
$
295,571

Fees and other income, (in thousands)
$
14,392

 
$
13,637

Net product sales
100
%
 
100
 %
Direct restaurant costs and expenses(2):
 
 
 
Cost of sales
28.7
%
 
29.0
 %
Direct labor
29.8
%
 
30.0
 %
Other restaurant operating expenses
32.6
%
 
32.4
 %
 
 
 
 
Pizza Hut
 
 
 
Comparable store sales(1)
4.1
%
 
(3.0
)%
Net product sales, (in thousands)
$
254,202

 
$
246,930

Fees and other income, (in thousands)
$
14,392

 
$
13,637

Net product sales
100
%
 
100
 %
Direct restaurant costs and expenses(2):
 
 
 
Cost of sales
28.1
%
 
28.4
 %
Direct labor
30.3
%
 
30.2
 %
Other restaurant operating expenses
33.0
%
 
32.8
 %
 
 
 
 
Wendy’s
 
 
 
Comparable store sales(1)
2.4
%
 
0.8
 %
Net product sales, (in thousands)
$
50,940

 
$
48,641

Net product sales
100
%
 
100
 %
Direct restaurant costs and expenses(2):
 
 
 
Cost of sales
31.5
%
 
32.0
 %
Direct labor
27.5
%
 
29.0
 %
Other restaurant operating expenses
30.2
%
 
30.2
 %
 
(1)
Comparable store sales are only reported for locations that have been operated by the Company for at least 12 months.
(2) 
Stated as a percentage of net product sales.

 
13 Weeks Ended
 
March 29, 2016
 
March 31, 2015
Pizza Hut Sales by occasion:
 
 
 
Delivery
43
%
 
43
%
Carryout
46
%
 
45
%
Dine-in
11
%
 
12
%
 
 
 
 
Wendy’s sales by occasion:
 
 
 
Pick-up window
69
%
 
70
%
Counter service
31
%
 
30
%

21

Activity with respect to unit count is set forth in the table below:
 
 
13 Weeks Ended
 
March 29, 2016
 
March 31, 2015
 
Consolidated
Wendy’s
Pizza Hut
 
Consolidated
Wendy’s
Pizza Hut
Beginning of period
1,395

144

1,251

 
1,420

143

1,277

Acquired
3

3

—

 
—

—

—

Developed(1)
4

—

4

 
4

—

4

Closed(1)
(15
)
(1
)
(14
)
 
(11
)
—

(11
)
End of period
1,387

146

1,241

 
1,413

143

1,270

Equivalent units(2)
1,389

146

1,243

 
1,412

143

1,269

 
(1) 
For Pizza Hut, three units were relocated or rebuilt and are included in both the developed and closed totals above for both of the 13 week periods ended March 29, 2016 and March 31, 2015.
(2) 
Equivalent units represent the number of units open at the beginning of a given period, adjusted for units opened, closed, temporarily closed, acquired or sold during the period on a weighted average basis.

13 Weeks Ended March 29, 2016 Compared to the 13 Weeks Ended March 31, 2015

Our Pizza Hut Operations
Net Product Sales. Our Pizza Hut net product sales for the first quarter of fiscal 2016 compared to the same period of fiscal 2015 were $254.2 million and $246.9 million, respectively, an increase of $7.3 million or 2.9%, resulting largely from positive comparable store sales of 4.1% for the first quarter of fiscal 2016, rolling over last year’s comparable store sales decline of 3.0%, partially offset by a 2.0% decrease in equivalent units.
Fees and Other Income. Fees and other income for the first quarter of fiscal 2016, as compared to the same period of fiscal 2015, were $14.4 million and $13.6 million, respectively, an increase of $0.8 million or 5.5%, largely due to increased delivery transactions.
Cost of Sales. Pizza Hut cost of sales for the first quarter of fiscal 2016, as compared to the same period of fiscal 2015, was $71.5 million and $70.1 million, respectively, an increase of $1.4 million or 1.9%. Cost of sales decreased 0.3% as a percentage of net product sales, to 28.1%, compared to 28.4% in the first quarter of fiscal 2015 largely due to lower ingredient costs, primarily meat and dough.
Direct Labor. Pizza Hut direct labor costs for the first quarter of fiscal 2016, as compared to the same period of fiscal 2015, were $77.0 million and $74.5 million, respectively, an increase of $2.5 million, or 3.3%. Direct labor costs were 30.3% of net product sales for the first quarter of fiscal 2016, a 0.1% increase compared to the same quarter in the prior year. This increase was primarily due to a shift in transaction mix towards the more labor intensive delivery occasion, partially offset by sales leveraging on fixed labor costs.
Other Restaurant Operating Expenses. OROE for our Pizza Hut units for the first quarter of fiscal 2016 were $84.0 million compared to $81.0 million for the same quarter in the prior year, an increase of $3.0 million, or 3.6%. OROE were 33.0% of net product sales for the first quarter of fiscal 2016 compared to 32.8% of net product sales for the prior year quarter, an increase of 0.2%.
Significant changes in OROE as a percentage of net product sales were as follows:
OROE as a percentage of net product sales for the 13 weeks ended March 31, 2015
32.8
 %
Depreciation and amortization
0.4

Restaurant manager bonuses
0.2

Utilities expense
(0.3
)
Rent expense
(0.2
)
Other
0.1

OROE as a percentage of net product sales for the 13 weeks ended March 29, 2016
33.0
 %
Depreciation and amortization included in OROE for our Pizza Hut operations was $9.3 million or 3.7% of net product sales for the first quarter of fiscal 2016 compared to $8.1 million or 3.3% of net product sales for the prior year quarter.

22

Our Wendy’s Operations
Net Product Sales. Wendy’s net product sales for the first quarter of fiscal 2016 compared to the same period of fiscal 2015 were $50.9 million and $48.6 million, respectively, an increase of $2.3 million or 4.7% primarily due to an increase in comparable store sales of 2.4%, rolling over last year’s comparable store sales increase of 0.8%, and a 2.2% increase in equivalent units.
Cost of Sales. Wendy’s cost of sales for the first quarter of fiscal 2016 as compared to the same period of fiscal 2015, was $16.0 million and $15.6 million, respectively, an increase of $0.4 million or 2.8%. Cost of sales decreased 0.5% as a percentage of net product sales, to 31.5%, compared to 32.0% in the prior year quarter largely due to favorable commodity costs and product mix, which was partially offset by higher discounting and promotional strategies.
Direct Labor. Wendy’s direct labor costs for the first quarter of fiscal 2016, as compared to the same period of fiscal 2015, were $14.0 million and $14.1 million, respectively, a decrease of $0.1 million or 0.7%. Direct labor costs were 27.5% of net product sales for the first quarter of fiscal 2016, a 1.5% decrease compared to the prior year quarter largely due to sales leveraging on fixed labor costs, improved labor efficiencies and lower workers’ compensation and payroll tax expenses.
Other Restaurant Operating Expenses. Wendy’s OROE for the first quarter of fiscal 2016 were $15.4 million compared to $14.7 million for the prior year quarter, an increase of $0.7 million or 4.8%. OROE was 30.2% of net product sales for both the first quarter of fiscal 2016 and fiscal 2015.
Significant changes in OROE as a percentage of net product sales were as follows:
OROE as a percentage of net product sales for the 13 weeks ended March 31, 2015
30.2
 %
Depreciation and amortization
0.8

Leveraging on occupancy costs
(0.4
)
Operating supplies expense
(0.2
)
Other
(0.2
)
OROE as a percentage of net product sales for the 13 weeks ended March 29, 2016
30.2
 %
Depreciation and amortization included in OROE for our Wendy’s operations was $2.5 million or 4.9% of net product sales for the first quarter of fiscal 2016 compared to $2.0 million or 4.1% of net product sales for the prior year quarter.
Consolidated
General and Administrative Expenses. General and administrative expenses for the first quarter of fiscal 2016 were $18.4 million compared to $16.7 million for the first quarter of fiscal 2015, an increase of $1.7 million or 10.5%. This increase was largely due to higher incentive compensation as a result of improved financial performance, higher field personnel and support costs and higher credit card processing fees.
Corporate Depreciation and Amortization. Corporate depreciation and amortization expense was $5.3 million for the first quarter of fiscal 2016 compared to $5.2 million for the first quarter of fiscal 2015, an increase of $0.1 million.
Net Facility Impairment and Closure Costs. During the first quarter of fiscal 2016 we recorded $0.3 million of expense for closure charges, compared to $0.9 million for impairment and closure costs during the first quarter of the prior year.
Other. During the first quarter of fiscal 2016 we recorded $0.1 million of other income.
Interest Expense. Interest expense was $11.3 million for the first quarter of fiscal 2016 compared to $10.5 million for the prior year quarter. Our cash borrowing rate increased 0.6% to 6.8% for the first quarter of fiscal 2016 as compared to the prior year quarter, as a result of the amendment completed to the credit agreement for the term loan in the fourth quarter of 2015. Our average outstanding debt balance (excluding unamortized debt issuance costs) decreased $11.3 million to $590.2 million for the first quarter of fiscal 2016 as compared to the same period of the prior year. Interest expense included $1.1 million and $1.0 million for amortization of deferred debt issuance costs in the first quarter of fiscal 2016 and fiscal 2015, respectively.
Income Taxes. For the first quarter of fiscal 2016, we recorded an income tax benefit of $1.2 million compared to income tax expense of $0.7 million for the same period of the prior year. The tax benefit for the first quarter of fiscal 2016 was primarily due to higher general business tax credits in relation to lower projected taxable income as compared to the first quarter of fiscal 2015.
Net Income. Net income for the first quarter of fiscal 2016 was $7.7 million compared to net income of $5.0 million for the prior year quarter, a $2.7 million increase. The increase in net income is attributable to improved profitability from our Wendy’s

23

and Pizza Hut operations largely due to positive comparable store sales, decreases in ingredient costs and lower income tax expense which more than offset the impact of increased incentive compensation expenses as compared to the same period of the prior year.

24

Liquidity and Sources of Capital

Our short-term and long-term liquidity needs will arise primarily from: (1) interest and principal payments related to our senior secured credit facilities (“Senior Secured Credit Facilities”) and 10 1/2% Senior Notes due 2020; (2) capital expenditures, including new unit development, asset refurbishment and maintenance capital expenditures; (3) opportunistic acquisitions of Pizza Hut and Wendy’s restaurants or other acquisition opportunities; and (4) working capital requirements as may be needed to support our business. We intend to fund our operations, interest expense, capital expenditures, acquisitions and working capital requirements principally from cash from operations, cash reserves and borrowings on our revolving credit facility (“Revolving Facility”). Future acquisitions, depending on the size, or new capital expenditure requirements may require borrowings beyond those available on our existing Revolving Facility and therefore may require further utilization of the additional remaining term loan borrowing capacity under our credit facility described below as well as other sources of debt or additional equity capital. Under our franchise agreements with PHI and Wendy’s, our franchisors have the right to institute asset standards which may be material to our business and could require significant capital outlay.

Our working capital position was a deficit of $36.4 million at March 29, 2016. Like many other restaurant companies, we are able to operate and generally do operate with a working capital deficit because (i) restaurant revenues are received primarily in cash or by credit card with a low level of accounts receivable; (ii) rapid turnover results in a limited investment in inventories; and (iii) cash from sales is usually received before related liabilities for food, supplies and payroll become due. Because we are able to operate with minimal working capital or a deficit, we have historically utilized excess cash flow from operations and our Revolving Facility for debt reduction, capital expenditures and acquisitions, and to provide liquidity for our working capital needs. At March 29, 2016, we had $80.4 million of borrowing capacity available under our Revolving Facility net of $29.6 million of outstanding letters of credit.

Cash flows from operating activities

Cash from operations is our primary source of funds. Changes in earnings and working capital levels are the two key factors that generally have the greatest impact on cash from operations. Cash provided by operating activities for the 13 weeks ended March 29, 2016 was $28.6 million compared to $24.5 million for the same period of the prior year or a $4.1 million increase. This increase was primarily due to (i) a $2.7 million increase in our net income, (ii) a $0.7 million positive change in our non-cash items, primarily depreciation and amortization expense and (iii) a $0.7 million positive change in our assets and liabilities.

Cash flows from investing activities

Cash flows used in investing activities were $14.4 million for the 13 weeks ended March 29, 2016 comprised of $11.0 million for capital expenditures and $8.0 million for the acquisition of three Wendy’s units which was partially offset by $4.3 million of proceeds from sale-leaseback transactions and $0.2 million of proceeds from the disposition of assets. The Wendy’s acquisition included three fee-owned properties which we plan to sell and lease back. Cash flows used in investing activities were $10.7 million for the 13 weeks ended March 31, 2015 due to $11.0 million of investments in capital expenditures partially offset by $0.3 million of proceeds from the disposition of assets.

We currently expect our capital expenditure investment to be approximately $59.0 million to $65.0 million in fiscal 2016, consisting of approximately $47.0 million in our Pizza Hut operations and approximately $15.0 million in our Wendy’s operations.

Cash flows from financing activities
Net financing outflows were $1.0 million for the 13 weeks ended March 29, 2016 due to a $1.0 million principal payment on the term loan. Net cash flows used in financing activities were $2.1 million for the 13 weeks ended March 31, 2015 due to a $2.1 million principal payment on the term loan.
Based upon the amount of excess cash flow generated during the fiscal year and our leverage at fiscal year end, each of which is defined in the credit agreement governing the term loan, we may be required to make an excess cash flow mandatory prepayment. The excess cash flow mandatory prepayment is an annual requirement under the credit agreement and is due 95 days after the end of each fiscal year. We made a mandatory pre-payment of $3.3 million on March 31, 2016 based on our fiscal 2015 results. We currently anticipate that we may be required to make a mandatory prepayment in fiscal 2017, but such amount cannot be reasonably estimated at this time.
As of March 29, 2016, we were in compliance with all of the financial covenants under our Senior Secured Credit Facilities. Our ratios under the foregoing financial covenants in our credit agreement for our Senior Secured Credit Facilities as of March 29, 2016 were as follows: 

25

 
 
 
 
 
Covenant requirement
 
Actual
 
 
 
2016
2017
2018
Maximum leverage ratio
4.48x
 
Not more than 
 
6.00x
5.75x
5.25x
Minimum interest coverage ratio
1.80x
 
Not less than
 
1.40x
1.40x
1.40x

The credit agreement defines “Leverage Ratio” as the ratio of Consolidated Debt for Borrowed Money to Consolidated EBITDA (for the most recent four fiscal quarters); “Consolidated Interest Coverage Ratio” is defined as the ratio of (x) Consolidated EBITDA plus Rent Expense to (y) Consolidated Interest Expense plus Rent Expense. All of the foregoing capitalized terms are defined in Amendment No. 5 to the Credit Agreement, which was filed by the Company with the SEC on March 9, 2016 as Exhibit 10.31 to the Company’s Form 10-K for the fiscal year ended December 29, 2015. The calculation of Consolidated Debt for Borrowed Money includes a reduction for cash on hand in excess of $3.0 million, with such reduction not to exceed $50.0 million. The credit agreement provides that each of the above defined terms includes the pro forma effect of acquisitions and divestitures on a full year basis among other pro forma adjustments. This pro forma effect used in connection with the financial debt covenant ratio calculations is not the same calculation we use to determine Adjusted EBITDA, which we disclose to investors in our earnings releases and which is discussed below.

Based upon current operations and our internal financial forecasts, we believe that our cash flows from operations, together with borrowings that are available under our Revolving Facility, will be adequate to meet our anticipated requirements for working capital, capital expenditures, and scheduled principal and interest payments through the next 12 months. At March 29, 2016, we had $80.4 million of borrowing capacity available under our Revolving Facility net of $29.6 million of outstanding letters of credit. We will consider additional sources of financing to fund our long-term growth if necessary, including the $85.0 million of incremental term loan capacity that is potentially available under our Senior Secured Credit Facilities, subject to the terms of our credit agreement. Any additional debt incurred, beyond the parameters established in our credit agreement, or refinancing of any of our existing indebtedness may result in increased borrowing costs that are in excess of our current borrowing costs based on current credit market conditions.
Non-GAAP measures
Adjusted EBITDA is a supplemental measure of our performance that is not required by or presented in accordance with generally accepted accounting principles (“GAAP”). We have included Adjusted EBITDA as a supplemental disclosure because we believe that Adjusted EBITDA provides investors a helpful measure for comparing our operating performance with the performance of other companies that have different financing and capital structures or tax rates. We believe the elimination of interest expense, depreciation and amortization, as well as income taxes and certain other items of a non-operational nature as noted in the table below, give investors and management useful information to compare the performance of our core operations over different periods. 
The following is a reconciliation of net income to Adjusted EBITDA(1) (in thousands).
 
 
13 Weeks Ended
 
March 29, 2016
 
March 31, 2015
Net income
$
7,659

 
$
4,975

Adjustments:
 
 
 
Interest expense
11,337

 
10,465

Income tax (benefit) expense
(1,229
)
 
747

Depreciation and amortization
16,824

 
14,933

Net facility impairment and closure costs
321

 
947

Pre-opening expenses and other
112

 
209

Adjusted EBITDA
$
35,024

 
$
32,276

  
(1) 
The Company defines Adjusted EBITDA as consolidated net income plus interest, income taxes, depreciation and amortization, pre-opening expenses and certain other items of a non-operational nature. Adjusted EBITDA is not a measure of financial performance under GAAP. Adjusted EBITDA has limitations as an analytical tool, and should not be considered in isolation from, or as a substitute for analysis of, the Company’s financial information reported under GAAP. Adjusted EBITDA as defined above may not be similar to EBITDA measures of other companies.
Letters of Credit

26

As of March 29, 2016, we had letters of credit of $29.6 million issued under our existing credit facility largely in support of self-insured risks.
Contractual Obligations and Off Balance Sheet Arrangements
As of March 29, 2016, there have been no material changes outside the ordinary course of business from the disclosures relating to contractual obligations contained under “Contractual Obligations and Off-Balance Sheet Arrangements” in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included in our 2015 Form 10-K.

27

Item 3.
Quantitative and Qualitative Disclosures About Market Risk
We are exposed to various market risks. Market risk is the potential loss arising from adverse changes in market prices and rates. We do not enter into derivative or other financial instruments for trading or speculative purposes.
Interest Rate Risk. Our primary market risk exposure is interest rate risk. All of our borrowings under our Senior Secured Credit Facilities bear interest at a floating rate. As of March 29, 2016, we had $400.2 million in funded floating rate debt outstanding under our Senior Secured Credit Facilities. A 100 basis point increase in the floating rate would increase annual interest expense by approximately $4.0 million. Under our Senior Secured Credit Facilities, we have a LIBOR floor of 1.0% as of March 29, 2016 on our LIBOR Term Loan borrowings. Therefore, current market rates would have to exceed 1.0% before we would realize variability on our interest expense.
Commodity Prices. Commodity prices can vary significantly. The price of commodities can change throughout the year due to changes in supply and demand. Cheese has historically represented approximately 30-35% of our cost of sales. We are a member of RSCS, and participate in cheese hedging programs for our Pizza Hut operations that are directed by RSCS to help reduce the volatility of this commodity from period-to-period. Based on information provided by RSCS, RSCS expects to hedge approximately 30% to 50% of the Pizza Hut system’s anticipated cheese purchases through a combination of derivatives taken under the direction of RSCS. Additionally, the RSCS has entered into contractual pricing arrangements with the supplier to restaurants in the Pizza Hut system on certain volumes of cheese purchases that may cause the prices paid by us to exceed or be less than the current block cheese price.
The estimated increase in our consolidated food costs from a hypothetical 10% adverse change in the average cheese block price per pound would have been approximately $1.6 million for the 13 weeks ended March 29, 2016 without giving effect to the RSCS directed hedging programs. 
Proteins, which primarily include beef, chicken and pork, represent approximately 18-22% of our consolidated cost of sales. The estimated increase in our food costs from a hypothetical 10% adverse change in the average price per pound for proteins would have been approximately $1.4 million for the 13 weeks ended March 29, 2016. 

28

Item 4.
Controls and Procedures.
Evaluation of Disclosure Controls and Procedures.
As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures, as such term is defined in Rule 15d-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”). Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of such date to provide reasonable assurance that the information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in internal control over financial reporting.
There has been no change in our internal control over financial reporting that occurred during our first quarter of fiscal 2016 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.


29

PART II. OTHER INFORMATION

Item 1.
Legal Proceedings.

From time to time, the Company is involved in litigation which is incidental to its business. In the Company’s opinion, no litigation to which the Company is currently a party is likely to have a material adverse effect on the Company’s consolidated financial condition, results of operations, or cash flows.

Item 1A.
Risk Factors.

There have been no material changes in our risk factors from those disclosed in our 2015 Form 10-K.




30


Item 6.
Exhibits
Pursuant to the rules and regulations of the SEC, we have filed, furnished or incorporated by reference the documents referenced below as exhibits to this Form 10-Q. The documents include certain agreements to which the Company is a party or has a beneficial interest. The agreements have been filed to provide investors with information regarding their respective terms. The agreements are not intended to provide any other factual information about the Company or its business or operations. In particular, the assertions embodied in any representations, warranties and covenants contained in the agreements may be subject to qualifications with respect to knowledge and materiality different from those applicable to investors and may be qualified by information in confidential disclosure schedules not included with the exhibits. These disclosure schedules may contain information that modifies, qualifies and creates exceptions to the representations, warranties and covenants set forth in the agreements. Moreover, certain representations, warranties and covenants in the agreements may have been used for the purpose of allocating risk between the parties, rather than establishing matters as facts. In addition, information concerning the subject matter of the representations, warranties and covenants may have changed after the date of the respective agreement, which subsequent information may or may not be fully reflected in the Company’s public disclosures. Accordingly, investors should not rely on the representations, warranties and covenants in the agreements as characterizations of the actual state of facts about the Company or its business or operations on the date hereof.
The exhibits that are required to be filed, furnished or incorporated by reference herein are listed in the Exhibit Index below (following the signatures page of this report).
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 its behalf by the undersigned thereunto duly authorized, on May 13, 2016.
 
NPC RESTAURANT HOLDINGS, LLC
 
 
 
By:
 
/s/ Troy D. Cook
Name:
 
Troy D. Cook
Title:
 
Executive Vice President—Finance,
Chief Financial Officer and Secretary (Principal Financial Officer)
 
 
 
By:
 
/s/ Jason P. Poenitske
Name:
 
Jason P. Poenitske
Title:
 
Chief Accounting Officer (Principal Accounting Officer)


31

 
 
Exhibit Index
Exhibit No.
 
Description
2.01*
 
Purchase and Sale Agreement, dated as of November 6, 2011, by and between NPC Acquisition Holdings, LLC (n/k/a NPC Restaurant Holdings, LLC), NPC International Holdings, Inc., and Merrill Lynch Global Private Equity, Inc. and the other sellers listed therein.
2.02*
 
Amendment to Purchase and Sale Agreement, dated as of December 28, 2011, by and between Merrill Lynch Global Private Equity, Inc. and NPC International Holdings, Inc.
2.03
 
Asset Purchase Agreement dated as of November 19, 2013 among NPC International, Inc., NPC Quality Burgers, Inc. and Wendy’s Old Fashioned Hamburgers of New York, Inc. (incorporated herein by reference to Exhibit 2.1 to Holdings' Current Report on Form 8-K (File No. 333-180524-04) filed with the SEC on December 9, 2013).
2.04
 
First Amendment to Asset Purchase Agreement dated as of November 20, 2013 among NPC International, Inc., NPC Quality Burgers, Inc. and Wendy’s Old Fashioned Hamburgers of New York, Inc. (incorporated herein by reference to Exhibit 2.2 to Holdings' Current Report on Form 8-K (File No. 333-180524-04) filed with the SEC on December 9, 2013).
2.05
 
Asset Purchase Agreement dated as of June 11, 2014, by and among Wendelta, Inc., Wendelta Property Holdings, LLC, Carlisle VANC, LLC, Realty VANC, LLC, Carlisle Corporation and NPC Quality Burgers, Inc. (incorporated herein by reference to Exhibit 2.05 to Holdings' Quarterly Report on Form 10-Q (File No. 333-180524-04) filed with the SEC on August 15, 2014). 
3.01
 
Certificate of Formation, as amended, of NPC Restaurant Holdings, LLC (incorporated herein by reference to Exhibit 3.1 to Holdings’ Current Report on Form 8-K (File No. 333-180524-04) filed with the SEC on September 12, 2012).

3.02
 
Restated Limited Liability Company Agreement of NPC Restaurant Holdings, LLC (incorporated herein by reference to Exhibit 3.2 to Holdings’ Current Report on Form 8-K (File No. 333-180524-04) filed on September 12, 2012).
4.01*
 
Indenture, dated as of December 28, 2011, by and between NPC International, Inc., NPC Operating Company A, Inc. and NPC Operating Company B, Inc., as issuers, NPC Acquisition Holdings, LLC (n/k/a NPC Restaurant Holdings, LLC), as guarantor, and Wells Fargo Bank, National Association, as trustee.
4.02*
 
Form of 10 1/2% Senior Note due 2020 (included in Exhibit 4.01).
4.03*
 
Registration Rights Agreement, dated as of December 28, 2011, by and between NPC International, Inc., NPC Operating Company A, Inc. and NPC Operating Company B, Inc., as issuers, NPC Acquisition Holdings, LLC (n/k/a NPC Restaurant Holdings, LLC), as guarantor, and Goldman, Sachs & Co. and Barclays Capital Inc., as initial purchasers.
10.01
 
NPC International, Inc. Deferred Compensation and Retirement Plan as amended and restated effective July 1, 2013 (incorporated herein by reference to Exhibit 10.01 to Holdings' Quarterly Report on Form 10-Q (File No. 333-180524-04) filed with the SEC on August 2, 2013).
10.02
 
NPC International, Inc. POWR Plan for Key Employees as amended and restated effective July 1, 2013 (incorporated herein by reference to Exhibit 10.02 to Holdings' Quarterly Report on Form 10-Q (File No. 333-180524-04) filed with the SEC on August 2, 2013).
10.03
 
Form of Location Franchise Agreement, dated as of January 1, 2003, by and between Pizza Hut, Inc. and NPC Management, Inc. (incorporated herein by reference to Exhibit 10.9 to NPC’s Registration Statement on Form S-4 (File No. 333-138338) filed on October 31, 2006).
10.04
 
Form of Territory Franchise Agreement, dated as of January 1, 2003, by and between Pizza Hut, Inc. and NPC Management, Inc. (incorporated herein by reference to Exhibit 10.10 to NPC’s Registration Statement on Form S-4 (File No. 333-138338) filed on October 31, 2006).
10.05
 
Pizza Hut National Purchasing Coop, Inc. Membership Subscription and Commitment Agreement, dated as of February 9, 1999, by and between NPC Management, Inc. and Pizza Hut National Purchasing Coop (incorporated herein by reference to Exhibit 10.32 to NPC’s Annual Report on Form 10-K (File No. 0-13007) filed with the SEC on May 28, 1999).
10.06
 
Amendment to Franchise Agreement dated as of December 25, 2007, by and between Pizza Hut, Inc. and NPC International, Inc. (incorporated by reference to Exhibit 10.16 to NPC’s Annual Report on Form 10-K (File No. 333-138338) filed March 14, 2008).
10.07
 
Master Distribution Agreement between Unified Foodservice Purchasing Co-op, LLC, for and on behalf of itself as well as the Participants, as defined therein (including certain subsidiaries of Yum! Brands, Inc.) and McLane Foodservice, Inc., effective as of January 1, 2011 and Participant Distribution Joinder Agreement with McLane Foodservice, Inc. dated August 11, 2010** (incorporated herein by reference to Exhibit 10.23 to NPC’s Quarterly Report on Form 10-Q (File No. 333-138338) filed with the SEC on November 8, 2010).
10.08*
 
Amended and Restated Employment Agreement, dated as of November 4, 2011, by and between NPC International, Inc., NPC Acquisition Holdings, LLC (n/k/a NPC Restaurant Holdings, LLC), NPC International Holdings, Inc. and James K. Schwartz.

32

10.09*
 
Amended and Restated Employment Agreement, dated as of November 4, 2011, by and between NPC International, Inc., NPC Acquisition Holdings, LLC (n/k/a NPC Restaurant Holdings, LLC), NPC International Holdings, Inc. and Troy D. Cook
10.10*
 
Stockholders Agreement, dated as of November 6, 2011, by and between NPC International Holdings, Inc., Olympus Growth Fund V, L.P., Olympus Executive Fund II, L.P., Olympus-1133 West Co-Investment Fund, L.P., and the other persons party thereto.
10.11*
 
Amended and Restated Credit Agreement, dated as of March 28, 2012, by and between NPC International, Inc., NPC Operating Company A, Inc., NPC Operating Company B, Inc., NPC Acquisition Holdings, LLC (n/k/a NPC Restaurant Holdings, LLC), Barclays Bank plc and the other lenders party thereto.
10.12*
 
Amendment No. 1 to Credit Agreement, dated as of March 28, 2012, by and between NPC International, Inc., NPC Operating Company A, Inc., NPC Operating Company B, Inc., NPC Acquisition Holdings, LLC (n/k/a NPC Restaurant Holdings, LLC) and Barclays Bank plc.
10.13*
 
Security Agreement, dated as of December 28, 2011, by and between NPC International, Inc., the other pledgors party thereto and Barclays Bank plc.
10.14*
 
Investment Agreement, dated as of December 28, 2011, by and between NPC International Holdings, Inc., Olympus Growth Fund V, L.P., Olympus Executive Fund II, L.P., Olympus-1133 West Co-Investment Fund, L.P., and the other persons party thereto.
10.15*
 
Advisory Services Agreement, dated as of December 28, 2011, by and between NPC International Holdings, Inc., NPC International, Inc. and Olympus Advisors V, LLC.
10.16*
 
Escrow Agreement, dated as of December 28, 2011, by and between NPC International Holdings, Inc., Merrill Lynch Global Private Equity, Inc. and Wells Fargo Bank, N.A.
10.17*
 
NPC International Holdings, Inc. 2011 Stock Option Plan.
10.18*
 
Form of NPC International Holdings, Inc. Stock Option Agreement.
10.19*
 
ISDA Master Agreement, dated as of February 23, 2012, between Coöperative Centrale Raiffeisen-Boerenleenbank B.A. and NPC International, Inc.
10.20
 
Amendment No. 2 to Credit Agreement, dated as of May 16, 2012, by and between NPC International, Inc., NPC Operating Company A, Inc., NPC Operating Company B, Inc., NPC Acquisition Holdings, LLC (n/k/a NPC Restaurant Holdings, LLC) and Barclays Bank plc. (incorporated by reference to Exhibit 10.20 to Holdings’ Annual Report on Form 10-K (File No. 333-180524-04) filed March 8, 2013).
10.21
 
Amendment No. 3 to Credit Agreement, dated as of November 21, 2012, by and between NPC International, Inc., NPC Operating Company A, Inc., NPC Operating Company B, Inc., NPC Restaurant Holdings, LLC and Barclays Bank plc. (incorporated by reference to Exhibit 10.21 to Holdings’ Annual Report on Form 10-K (File No. 333-180524-04) filed March 8, 2013).
10.22
 
Quality Is Our Recipe, LLC (f/k/a Wendy’s International, Inc.) unit franchise agreement dated as of July 22, 2013. (incorporated herein by reference to Exhibit 10.22 to Holdings' Quarterly Report on Form 10-Q (File No. 333-180524-04) filed with the SEC on November 7, 2013).
10.23
 
Amendment to Employment Agreement, dated as of July 22, 2013 by and among NPC International, Inc., NPC Restaurant Holdings, LLC, NPC International Holdings, Inc. and James K. Schwartz (incorporated herein by reference to Exhibit 10.8 to Holdings’ Quarterly Report on Form 10-Q (File No. 333-180524-04) filed with the SEC on August 2, 2013).
10.24
 
Amendment to Employment Agreement, dated as of July 22, 2013, by and among NPC International, Inc., NPC Restaurant Holdings, LLC, NPC International Holdings, Inc. and Troy D. Cook (incorporated herein by reference to Exhibit 10.9 to Holdings' Quarterly Report on Form 10-Q (File No. 333-180524-04) filed with the SEC on August 2, 2013). 
10.25
 
Amendment No. 4 to Credit Agreement, dated as of December 16, 2013, by and between NPC International, Inc., NPC Quality Burgers, Inc., NPC Operating Company B, Inc., NPC Restaurant Holdings, LLC and Barclays Bank plc. (incorporated by reference to Exhibit 10.26 to Holdings’ Annual Report on Form 10-K (File No. 333-180524-04) filed with the SEC on March 7, 2014).
10.26
 
Employment Agreement, dated as of June 16, 2014, by and between NPC International, Inc., NPC International Holdings, Inc. and John Hedrick. (incorporated herein by reference to Exhibit 10.26 to Holdings' Quarterly Report on Form 10-Q (File No. 333-180524-04) filed with the SEC on August 15, 2014). 
10.27
 
Incremental Term Loan Amendment, dated as of June 19, 2014, by and between NPC International, Inc., NPC Quality Burgers, Inc., NPC Operating Company B, Inc., NPC Restaurant Holdings, LLC and Barclays Bank plc. (incorporated herein by reference to Exhibit 10.27 to Holdings' Quarterly Report on Form 10-Q (File No. 333-180524-04) filed with the SEC on August 15, 2014). 
10.28
 
Amendment to Employment Agreement, dated as of October 20, 2015, by and among NPC International, Inc., NPC International Holdings, Inc. and John Hedrick. (incorporated herein by reference to Exhibit 10.28
to NPC’s Quarterly Report on Form 10-Q (File No. 333-180524-04) filed with the SEC on November 13,
2015).

33

10.29
 
Letter Agreement re: Bonus and Options, dated as of October 20, 2015, by and among NPC International, Inc., NPC International Holdings, Inc. and John Hedrick. (incorporated herein by reference to Exhibit 10.29
to NPC’s Quarterly Report on Form 10-Q (File No. 333-180524-04) filed with the SEC on November 13,
2015).
10.30
 
Amendment No. 5 to Credit Agreement, dated as of December 10, 2015, by and between NPC International,
Inc., NPC Quality Burgers, Inc., NPC Operating Company B, Inc., NPC Restaurant Holdings, LLC and
Barclays Bank plc. (incorporated herein by reference to Exhibit 10.31 to NPC’s Annual Report on Form 10-K (File No. 333-180524-04) filed with the SEC on March 9, 2016).
10.31
 
Letter Agreement re: Bonus Eligibility; Position and Duties, dated as of February 17, 2016, by and among
NPC International, Inc., NPC International Holdings, Inc. and James K. Schwartz. (incorporated herein by reference to Exhibit 10.32 to Holdings’ Annual Report on Form 10-K (File No. 333-180524-04) filed with the SEC on March 9, 2016).
10.32
 
Letter Agreement re: Bonus Eligibility; Position and Duties, dated as of February 17, 2016, by and among
NPC International, Inc., NPC International Holdings, Inc. and Troy D. Cook. (incorporated herein by reference to Exhibit 10.33 to Holdings’ Annual Report on Form 10-K (File No. 333-180524-04) filed with the SEC on March 9, 2016).
10.33
 
Letter Agreement re: Bonus Eligibility; Position and Duties, dated as of February 17, 2016, by and among
NPC International, Inc., NPC International Holdings, Inc. and John Hedrick. (incorporated herein by reference to Exhibit 10.34 to Holdings’ Annual Report on Form 10-K (File No. 333-180524-04) filed with the SEC on March 9, 2016).
10.34
 
Separation Agreement and Release dated as of November 18, 2015, by and among NPC International, Inc.
and Blayne Vaughn. (incorporated herein by reference to Exhibit 10.35 to Holdings’ Annual Report on Form 10-K (File No. 333-180524-04) filed with the SEC on March 9, 2016).
14.1
 
NPC Restaurant Holdings, LLC Code of Business Conduct and Ethics, dated August 22, 2014 (incorporated herein by reference to Exhibit 14.1 to Holdings’ Current Report on Form 8-K (File No. 333-180524-04) filed with the SEC on August 25, 2014)
21.01
 
Subsidiaries of NPC Restaurant Holdings, LLC (incorporated by reference to Exhibit 21.01 to Holdings’ Annual Report on Form 10-K (File No. 333-180524-04) filed with the SEC on March 27, 2015).
31.1***
 
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2***
 
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1***
 
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2***
 
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101
 
Financial statements from the quarterly report on Form 10-Q of NPC Restaurant Holdings, LLC for the 13 week period ended March 29, 2016, filed on May 13, 2016, formatted in XBRL: (i) the Consolidated Statements of Operations (unaudited) for the 13 week period ended March 29, 2016 and March 31, 2015, (ii) the Consolidated Balance Sheets (unaudited) at March 29, 2016 and December 29, 2015, (iii) the Consolidated Statement of Member’s Equity (unaudited) for the 13 weeks ended March 29, 2016, (iv) the Consolidated Statements of Cash Flows (unaudited) for the 13 weeks ended March 29, 2016 and March 31, 2015, and (v) the Notes to the Unaudited Consolidated Financial Statements.
 
*
Filed as an exhibit with corresponding number to the registration statement on Form S-4 (File No 333-180524) of Holdings and NPC and incorporated herein by reference.
**
Portions of these documents have been omitted and are subject to an order granting confidential treatment under the Securities Exchange Act of 1934, as amended (File No. 0-13007 - CF#25955). Omitted portions of these documents are indicated with an asterisk.

***
Filed or furnished herewith


34

NPC Restaurant Holdings, LLC Reports