SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 25, 2001.
----------------
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____________ TO
_______________.
COMMISSION FILE NUMBER 0-12919
PIZZA INN, INC.
(EXACT NAME OF REGISTRANT IN ITS CHARTER)
MISSOURI 47-0654575
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
5050 QUORUM DRIVE
SUITE 500
DALLAS, TEXAS 75240
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES,
INCLUDING ZIP CODE)
(972) 701-9955
(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 SUCH SHORTER PERIOD THAT THE REGISTRANT
WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS. YES [X] NO
INDICATE BY CHECK MARK WHETHER THE REGISTRANT HAS FILED ALL DOCUMENTS AND
REPORTS REQUIRED TO BE FILED BY SECTIONS 12, 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 SUBSEQUENT TO THE DISTRIBUTION OF SECURITIES UNDER A PLAN
CONFIRMED BY A COURT. YES [X] NO
AT MAY 7, 2001, AN AGGREGATE OF 10,480,288 SHARES OF THE REGISTRANT'S
COMMON STOCK, PAR VALUE OF $.01 EACH (BEING THE REGISTRANT'S ONLY CLASS OF
COMMON STOCK), WERE OUTSTANDING.
PIZZA INN, INC.
Index
-----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements Page
- -------- --------------------- -----
Consolidated Statements of Operations for the three months
and nine months ended March 25, 2001 and March 26, 2000 3
Consolidated Balance Sheets at March 25, 2001 and June 25, 2000 4
Consolidated Statements of Cash Flows for the nine months ended
March 25, 2001 and March 26, 2000 5
Notes to Consolidated Financial Statements 7
Item 2.Management's Discussion and Analysis of
- --------------------------------------------------
Financial Condition and Results of Operations 11
---------------------------------------------
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 14
- -------- -----------------------------------------------------------
Item 6. Exhibits and Reports on Form 8-K 14
- -------- -------------------------------------
Signatures 15
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL INFORMATION
- --------------------------------
PIZZA INN, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
------------------- ------------------
MARCH 25, MARCH 26, MARCH 25, MARCH 26,
REVENUES: 2001 2000 2001 2000
------------------- ------------------ ---------- ----------
Food and supply sales . . . . . . . $ 13,369 $ 13,934 $ 41,599 $ 43,555
Franchise revenue . . . . . . . . . 1,311 1,365 4,050 4,233
Restaurant sales. . . . . . . . . . 609 595 1,760 1,753
Other income. . . . . . . . . . . . 77 73 293 151
------------------- ------------------ ---------- ----------
15,366 15,967 47,702 49,692
------------------- ------------------ ---------- ----------
COSTS AND EXPENSES:
Cost of sales . . . . . . . . . . . 12,764 13,260 39,399 41,658
Franchise expenses. . . . . . . . . 548 564 1,729 1,471
General and administrative expenses 942 936 3,125 2,773
Interest expense. . . . . . . . . . 197 187 700 505
------------------- ------------------ ---------- ----------
14,451 14,947 44,953 46,407
------------------- ------------------ ---------- ----------
INCOME BEFORE INCOME TAXES. . . . . . 915 1,020 2,749 3,285
Provision for income taxes. . . . . 311 347 970 1,121
------------------- ------------------ ---------- ----------
NET INCOME. . . . . . . . . . . . . . $ 604 $ 673 $ 1,779 $ 2,164
=================== ================== ========== ==========
BASIC EARNINGS PER COMMON SHARE . . . $ 0.06 $ 0.06 $ 0.17 $ 0.19
=================== ================== ========== ==========
DILUTED EARNINGS PER COMMON SHARE . . $ 0.06 $ 0.06 $ 0.17 $ 0.19
=================== ================== ========== ==========
DIVIDENDS DECLARED PER COMMON SHARE . $ - $ 0.06 $ 0.12 $ 0.18
=================== ================== ========== ==========
WEIGHTED AVERAGE COMMON SHARES. . . . 10,609 11,569 10,689 11,463
=================== ================== ========== ==========
WEIGHTED AVERAGE COMMON AND
POTENTIAL DILUTIVE COMMON SHARES. . 10,610 11,668 10,693 11,610
=================== ================== ========== ==========
<FN>
See accompanying Notes to Consolidated Financial Statements.
PIZZA INN, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
MARCH 25, JUNE 25,
ASSETS 2001 2000
----------- ----------
(UNAUDITED)
CURRENT ASSETS
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . $ 374 $ 484
Accounts receivable, less allowance for doubtful
accounts of $755 and $776, respectively. . . . . . . . . . . 5,063 4,681
Notes receivable, current portion, less allowance
for doubtful accounts of $248 and $260, respectively . . . . 979 810
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . 1,783 2,910
Deferred taxes, net. . . . . . . . . . . . . . . . . . . . . . 1,139 1,117
Prepaid expenses and other . . . . . . . . . . . . . . . . . . 612 566
----------- ----------
Total current assets . . . . . . . . . . . . . . . . . . . 9,950 10,568
Property, plant and equipment, net . . . . . . . . . . . . . . . 3,596 1,650
Property under capital leases, net . . . . . . . . . . . . . . . 769 1,165
Deferred taxes, net. . . . . . . . . . . . . . . . . . . . . . . 2,506 3,312
Long-term notes receivable, less
allowance for doubtful accounts of $14 and $66,
respectively . . . . . . . . . . . . . . . . . . . . . . . . . 6 262
Deposits and other . . . . . . . . . . . . . . . . . . . . . . . 619 734
----------- ----------
$ 17,446 $ 17,691
=========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable - trade . . . . . . . . . . . . . . . . . . . $ 1,696 $ 2,251
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . 2,364 1,797
Current portion of long-term debt. . . . . . . . . . . . . . . 1,250 1,250
Current portion of capital lease obligations . . . . . . . . . 529 534
----------- ----------
Total current liabilities. . . . . . . . . . . . . . . . . . 5,839 5,832
LONG-TERM LIABILITIES
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . 9,604 9,842
Long-term capital lease obligations. . . . . . . . . . . . . . 421 813
Other long-term liabilities. . . . . . . . . . . . . . . . . . 913 715
----------- ----------
16,777 17,202
----------- ----------
SHAREHOLDERS' EQUITY
Common Stock, $.01 par value; authorized 26,000,000 shares;
issued 14,955,019 and 14,954,789 shares, respectively
outstanding 10,579,688 and 10,645,380 shares, respectively. 150 150
Additional paid-in capital . . . . . . . . . . . . . . . . . . 7,823 7,708
Loans to officers. . . . . . . . . . . . . . . . . . . . . . . (2,325) (2,250)
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . 13,498 13,163
Accumulated other comprehensive income . . . . . . . . . . . . (104) -
Treasury stock at cost
Shares in treasury: 4,375,331 and 4,309,409 respectively . . (18,373) (18,282)
----------- ----------
Total shareholders' equity . . . . . . . . . . . . . . . . . 669 489
----------- ----------
$ 17,446 $ 17,691
=========== ==========
<FN>
See accompanying Notes to Consolidated Financial Statements.
PIZZA INN, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
NINE MONTHS ENDED
-------------------
MARCH 25, MARCH 26,
2001 2000
------------------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,779 $ 2,164
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . 1,002 884
Provision for bad debt. . . . . . . . . . . . . . . . . . . . 160 75
Utilization of pre-reorganization net operating
loss carryforwards. . . . . . . . . . . . . . . . . . . . . 784 752
Changes in assets and liabilities:
Notes and accounts receivable . . . . . . . . . . . . . . . . (455) (452)
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . 1,127 134
Accounts payable - trade. . . . . . . . . . . . . . . . . . . (555) (28)
Accrued expenses. . . . . . . . . . . . . . . . . . . . . . . 565 (41)
Prepaid expenses and other. . . . . . . . . . . . . . . . . . 171 (16)
------------------- -----------
CASH PROVIDED BY OPERATING ACTIVITIES . . . . . . . . . . . . 4,578 3,472
------------------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures. . . . . . . . . . . . . . . . . . . . . . (2,482) (617)
------------------- -----------
CASH USED FOR INVESTING ACTIVITIES. . . . . . . . . . . . . . (2,482) (617)
------------------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of long-term bank debt . . . . . . . . . . . . . . . 3,035 3,218
Repayments of long-term bank debt and capital lease obligations (3,670) (855)
Dividends paid. . . . . . . . . . . . . . . . . . . . . . . . . (1,243) (2,095)
Proceeds from exercise of stock options . . . . . . . . . . . . 298 143
Officer loan payment. . . . . . . . . . . . . . . . . . . . . . 165 -
Purchases of treasury stock . . . . . . . . . . . . . . . . . . (791) (3,424)
------------------- -----------
CASH USED FOR FINANCING ACTIVITIES. . . . . . . . . . . . . . (2,206) (3,013)
------------------- -----------
Net decrease in cash and cash equivalents . . . . . . . . . . . . (110) (158)
Cash and cash equivalents, beginning of period. . . . . . . . . . 484 509
------------------- -----------
Cash and cash equivalents, end of period. . . . . . . . . . . . . $ 374 $ 351
------------------- -----------
<FN>
See accompanying Notes to Consolidated Financial Statements.
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
(IN THOUSANDS)
(UNAUDITED)
NINE MONTHS ENDED
------------------
MARCH 25, MARCH 26,
2001 2000
------------------ ----------
CASH PAYMENTS FOR:
Interest . . . . . . . . . . . . . . . . . . . $ 736 $ 399
Income taxes . . . . . . . . . . . . . . . . . 25 75
NONCASH FINANCING AND INVESTING
ACTIVITIES:
Stock issued to officers in exchange for loans $ 303 $ 2,057
Capital lease obligations incurred . . . . . . - 158
<FN>
See accompanying Notes to Consolidated Financial Statements.
PIZZA INN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) The accompanying consolidated financial statements of Pizza Inn, Inc.
(the "Company") have been prepared without audit pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in the financial statements have been
omitted pursuant to such rules and regulations. The consolidated financial
statements should be read in conjunction with the notes to the Company's audited
consolidated financial statements in its Form 10-K for the fiscal year ended
June 25, 2000. Certain prior year amounts have been reclassified to conform with
current year presentation.
In the opinion of management, the accompanying unaudited consolidated financial
statements contain all adjustments necessary to fairly present the Company's
financial position and results of operations for the interim periods. All
adjustments contained herein are of a normal recurring nature.
(2) The Company entered into an agreement effective March 31, 2000 with its
current lender to extend the term of its existing $9.5 million revolving credit
line through March 2002 and to modify certain financial covenants. In addition,
the Company entered into a $5,000,000 term note with monthly principal payments
of $104,000 maturing on March 31, 2004. Interest on the term loan is payable
monthly. Interest is provided for at a rate equal to prime less an interest
rate margin of .75%, or, at the Company's option, to the Eurodollar rate plus
1.5%. The Company entered into an amendment to this agreement, effective
December 28, 2000, modifying certain financial covenants, as a result of a new
construction loan as noted below. The Company has used approximately $2.9
million of its credit line to fund costs of the new building project, including
the land acquisition and certain development costs incurred to date.
The Company entered into an agreement effective December 28, 2000 with its
current lender to provide up to $8.125 million of financing for the construction
of the Company's new headquarters, training center and distribution facility.
The construction loan will convert to a term loan upon completion of the
construction phase and the then unpaid principal balance will mature on December
28, 2007. The term loan will amortize over a term of twenty years, with
principal and interest payments due monthly. Interest is provided for at a rate
equal to prime less an interest rate margin of .50% prior to loan conversion and
.75% following loan conversion, or, at the Company's option, to the Eurodollar
rate plus 1.5%. The Company, to fulfill bank requirements, has caused the
outstanding principal amount to be subject to a fixed interest rate after the
conversion date.
(3) Effective February 27, 2001, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and
Hedging Activities". The Company entered into an interest rate swap on that
date, designated as a cash flow hedge, to manage interest rate risk relating to
the financing of the construction of the Company's new headquarters and to
fulfill bank requirements. The swap agreement has a notional principal amount
of $8.125 million with a fixed pay rate of 5.80% beginning November 1, 2001 and
ending November 1, 2007. SFAS No. 133 requires that for cash flow hedges, which
hedge the exposure to variable cash flows of a forecasted transaction, the
effective portion of the derivative's gain or loss be initially reported as a
component of other comprehensive income in the equity section of the balance
sheet and subsequently reclassified into earnings when the forecasted
transaction affects earnings. Any ineffective portion of the derivative's gain
or loss is reported in earnings immediately. At March 25, 2001, the Company
recorded its interest rate swap with a fair value of $157,000 in other
liabilities, with the offset recorded in the other comprehensive income
component of stockholder's equity and in deferred income taxes. At March 25,
2001, there was no hedge ineffectiveness. The Company's expectation is that the
hedging relationship will be highly effective at achieving offsetting changes in
cash flows.
(4) The following table summarizes comprehensive income for the three months
and nine months ended March 25, 2001 and March 26, 2000.
THREE MONTHS ENDED NINE MONTHS ENDED
-------------------- ------------------
MARCH 25, MARCH 26, MARCH 25, MARCH 26,
2001 2000 2001 2000
-------------------- ------------------ ----------- ----------
(IN THOUSANDS). . . . . . . . . (IN THOUSANDS)
Net Income. . . . . . . . . . . . . . . $ 604 $ 673 $ 1,779 $ 2,164
Derivative instrument loss, net of tax. (104) - (104) -
-------------------- ------------------ ----------- ----------
Comprehensive income. . . . . . . . . . $ 500 $ 673 $ 1,675 $ 2,164
==================== ================== =========== ==========
(5) In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
("SAB 101"). SAB 101, which provides the SEC's views in applying generally
accepted accounting principles to revenue recognition in financial statements,
must be adopted by the Company in its fiscal fourth quarter. Based on
preliminary analysis, the Company does not expect the adoption of SAB 101 to
have a material effect on its consolidated financial statements.
(6) The Company capitalizes interest on borrowings during the active
construction period of major capital projects. Capitalized interest is added to
the cost of the underlying asset and will be amortized over the useful life of
the asset. For the quarter and nine months ended March 25, 2001 interest of
$43,000 was capitalized in connection with the construction of the Company's new
headquarters, training center, and distribution facility.
(7) The following table shows the reconciliation of the numerator and
denominator of the basic EPS calculation to the numerator and denominator of the
diluted EPS calculation (in thousands, except per share amounts).
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
------------ ------------- ----------
THREE MONTHS ENDED MARCH 25, 2001
BASIC EPS
Income Available to Common Shareholders . . . $ 604 10,609 $ 0.06
Effect of Dilutive Securities - Stock Options 1
------------
DILUTED EPS
Income Available to Common Shareholders
& Assumed Conversions . . . . . . . . . . . . $ 604 10,610 $ 0.06
============ ============= ==========
THREE MONTHS ENDED MARCH 26, 2000
BASIC EPS
Income Available to Common Shareholders . . . $ 673 11,569 $ 0.06
Effect of Dilutive Securities - Stock Options 99
------------
DILUTED EPS
Income Available to Common Shareholders
& Assumed Conversions . . . . . . . . . . . . $ 673 11,668 $ 0.06
============ ============= ==========
NINE MONTHS ENDED MARCH 25, 2001
BASIC EPS
Income Available to Common Shareholders $ 1,779 10,689 $ 0.17
Effect of Dilutive Securities - Stock Options 4
DILUTED EPS --------
Income Available to Common Shareholders
& Assumed Conversions $ 1,779 10693 $ 0.17
============ ========= ====
NINE MONTHS ENDED MARCH 26, 2000
BASIC EPS
Income Available to Common Shareholders $ 2,164 11,463 $ 0.19
Effect of Dilutive Securities - Stock Options 147
---
DILUTED EPS
Income Available to Common Shareholders
& Assumed Conversions $ 2,164 11,610 $ 0.19
============ ========== ===
(8) Summarized in the following tables are net sales and operating revenues,
operating profit (loss), and geographic information (revenues) for the Company's
reportable segments for the three months and nine months ended March 25, 2001,
and March 26, 2000.
THREE MONTHS ENDED NINE MONTHS ENDED
------------------- ------------------
MARCH 25, MARCH 26, MARCH 25, MARCH 26,
2001 2000 2001 2000
--------------- ----------- ----------- -----------
(In thousands). . . . . . . . . (In thousands)
NET SALES AND OPERATING REVENUES:
Food and Equipment Distribution . . $ 13,369 $ 13,934 $ 41,599 $ 43,555
Franchise and Other . . . . . . . . 1,920 1,960 5,810 5,986
Intersegment revenues . . . . . . . 220 206 639 624
--------------- ----------- ----------- -----------
Combined. . . . . . . . . . . . . 15,509 16,100 48,048 50,165
Other revenues. . . . . . . . . . . 77 73 293 151
Less intersegment revenues. . . . . (220) (206) (639) (624)
--------------- ----------- ----------- -----------
Consolidated revenues . . . . . . $ 15,366 $ 15,967 $ 47,702 $ 49,692
=============== =========== =========== ===========
OPERATING PROFIT:
Food and Equipment Distribution (1) $ 757 $ 722 $ 2,320 $ 1,904
Franchise and Other (1) . . . . . . 631 769 1,952 2,822
Intersegment profit . . . . . . . . 69 12 196 167
--------------- ----------- ----------- -----------
Combined. . . . . . . . . . . . . 1,457 1,503 4,468 4,893
Other profit or loss. . . . . . . . 77 73 293 151
Less intersegment profit. . . . . . (69) (12) (196) (167)
Corporate administration and other. (550) (544) (1,816) (1,592)
--------------- ----------- ----------- -----------
Income before taxes . . . . . . . $ 915 $ 1,020 $ 2,749 $ 3,285
=============== =========== =========== ===========
GEOGRAPHIC INFORMATION (REVENUES):
United States . . . . . . . . . . . $ 15,181 $ 15,571 $ 47,154 $ 48,756
Foreign countries . . . . . . . . . 185 396 548 936
--------------- ----------- ----------- -----------
Consolidated total. . . . . . . . $ 15,366 $ 15,967 $ 47,702 $ 49,692
=============== =========== =========== ===========
<FN>
(1) Does not include full allocation of corporate administration.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS
- -----------------------
Quarter and nine months ended March 25, 2001 compared to the quarter and nine
months ended March 26, 2000.
Diluted earnings per share for the third quarter of the current fiscal year
were $0.06 versus $0.06 for the same period last year. For the nine months
ended March 25, 2001, diluted earnings per share decreased 11% to $0.17 from
$0.19 for the same period last year. Net income for the quarter decreased 10%
to $604,000 from $673,000 for the same quarter last year. For the nine months
ended March 25, 2001, net income decreased 18% to $1,779,000 from $2,164,000
compared to the same period last year.
Food and supply sales for the quarter decreased 4% to $13,369,000 from
$13,934,000 compared to the same period last year. For the nine month period,
food and supply sales decreased 4% to $41,599,000 from $43,555,000 for the same
period last year. This decrease is the result of lower chainwide sales in the
first nine months of this year and lower cheese prices in the first two quarters
of this year.
Franchise revenue, which includes income from royalties, license fees and
area development and foreign master license (collectively, "Territory") sales,
decreased 4% or $54,000 for the quarter and 4% or $183,000 for the nine month
period, compared to the same periods last year. These decreases are primarily
the result of lower royalties due to lower chainwide sales in the first nine
months of the current year.
Restaurant sales, which consists of revenue generated by Company-owned
training stores increased 2% or $14,000 for the quarter, compared to the same
period of the prior year. For the nine month period, restaurant sales increased
$7,000.
Cost of sales decreased 4% or $496,000 for the quarter and decreased 5% or
$2,259,000 for the nine month period. This decrease is due to increased
purchasing efficiencies, lower chainwide sales in the current year, and lower
cheese prices in the first two quarters of the current year. These lower costs
are partially offset by higher depreciation and amortization costs, rent costs,
and transportation costs in the current year. As a percentage of sales for the
quarter, cost of sales remained consistent at 91% versus 91% compared to the
same period of the prior year. For the nine months, cost of sales, as a
percentage of sales, decreased from 92% to 91%.
Franchise expenses include selling, general and administrative expenses
directly related to the sale and continuing service of franchises and
Territories. These costs decreased 3% or $16,000 for the quarter and increased
18% or $258,000 for the nine month period compared to the same periods last
year. The decrease for the quarter is due to lower marketing expense. The
increase year to date was primarily due to lower marketing expense in the prior
year and lower compensation expense relating to franchise sales in the prior
year.
General and administrative expenses increased 1% or $6,000 for the quarter
and increased 13% or $352,000 for the first nine months, compared to the same
periods last year. This is a result of programming costs that were capitalized
as software development costs in the prior year, and higher bad debt expense and
increased insurance costs in the first two quarters of the current year. In
addition, salaries and wages increased 7% and 5% for the quarter and
year-to-date, respectively. These costs were partially offset by lower travel
expense and franchise tax expense.
Interest expense increased 5% or $10,000 for the quarter and 39% or
$195,000 for the first nine months, compared to the same period of the prior
year. This is a result of higher average debt and higher average interest
rates. The current quarter interest expense was partially offset by a credit
for capitalized interest in the amount of $43,000 relating to the construction
of the Company's new headquarters.
LIQUIDITY AND CAPITAL RESOURCES
During the first nine months of fiscal 2001 the Company utilized cash
provided by operations in the amount of $4,578,000 and a portion of its cash
balance to purchase 280,922 shares of its own common stock for $791,000, to pay
dividends of $1,243,000 on the Company's common stock, and to make net
repayments on bank debt and capital lease obligations of $635,000.
Capital expenditures of $2,482,000 during the first nine months included
initial development costs for the new Corporate headquarters including the land
acquisition, prototype costs for the self-serve buffet concept, vehicle
upgrades, and computer equipment and system upgrades.
The Company continues to realize substantial benefit from the
utilization of its net operating loss carryforwards (which currently total $6.7
million and expire in 2005) to reduce its federal tax liability from the 34% tax
rate reflected on its statement of operations to an actual payment of
approximately 2% of taxable income. Management believes that future operations
will generate sufficient taxable income, along with the reversal of temporary
differences, to fully realize its net deferred tax asset balance ($3.6 million
as of March 25, 2001) without reliance on material, non-routine income. Taxable
income in future years at the current level would be sufficient for full
realization of the net tax asset.
The Company entered into an agreement effective March 31, 2000 with
its current lender to extend the term of its existing $9.5 million revolving
credit line through March 2002 and to modify certain financial covenants. In
addition, the Company entered into a $5,000,000 term note with monthly principal
payments of $104,000 maturing on March 31, 2004. Interest on the term loan is
payable monthly. Interest is provided for at a rate equal to prime less an
interest rate margin of .75%, or, at the Company's option, to the Eurodollar
rate plus 1.5%. The Company entered into an amendment to this agreement,
effective December 28, 2000, modifying certain financial covenants, as a result
of a new construction loan as noted below. The Company has used approximately
$2.9 million of its credit line to fund costs of the new building project,
including the land acquisition and certain development costs incurred through
April 30, 2001.
The Company entered into an agreement effective December 28, 2000 with
its current lender to provide up to $8.125 million of financing for the
construction of the Company's new headquarters, training center and distribution
facility. The construction loan will convert to a term loan upon completion of
the construction phase and the then unpaid principal balance will mature on
December 28, 2007. The term loan will amortize over a term of twenty years,
with principal and interest payments due monthly. Interest is provided for at a
rate equal to prime less an interest rate margin of .50% prior to loan
conversion and .75% following loan conversion, or, at the Company's option, to
the Eurodollar rate plus 1.5%. The Company, to fulfill bank requirements, has
caused the outstanding principal amount to be subject to a fixed interest rate
after the conversion date.
Effective February 27, 2001, the Company entered into an interest rate swap
designated as a cash flow hedge, to manage interest rate risk relating to the
financing of the construction of the Company's new headquarters and to fulfill
bank requirements. The swap agreement has a notional principal amount of $8.125
million with a fixed pay rate of 5.80% beginning November 1, 2001 and ending
November 1, 2007. The Company's expectation is that the hedging relationship
will be highly effective at achieving offsetting changes in cash flows.
This report contains certain forward-looking statements (as such term
is defined in the Private Securities Litigation Reform Act of 1995) relating to
the Company that are based on the beliefs of the management of the Company, as
well as assumptions and estimates made by and information currently available to
the Company's management. When used in this report, the words "anticipate,"
"believe," "estimate," "expect," "intend" and similar expressions, as they
relate to the Company or the Company's management, identify forward-looking
statements. Such statements reflect the current views of the Company with
respect to future events and are subject to certain risks, uncertainties and
assumptions relating to the operations and results of operations of the Company
as well as its customers and suppliers, including as a result of competitive
factors and pricing pressures, shifts in market demand, general economic
conditions and other factors including but not limited to, changes in demand for
Pizza Inn products or franchises, the impact of competitors' actions, changes in
prices or supplies of food ingredients, and restrictions on international trade
and business. Should one or more of these risks or uncertainties materialize,
or should underlying assumptions or estimates prove incorrect, actual results
may vary materially from those described herein as anticipated, believed,
estimated, expected or intended.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
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10.1 Amended Employment Agreement between the Company and C. Jeffrey Rogers
dated as of April 20, 2001.
On February 13, 2001 the Company filed a report on Form 8-K, amending the
Company's Schedule 14A filing, Notice of Annual Meeting of Shareholders, dated
October 19, 2000.
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SIGNATURES
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PIZZA INN, INC.
Registrant
By: /s/Ronald W. Parker
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Ronald W. Parker
President and
Principal Financial Officer
By: /s/Shawn Preator
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Shawn Preator
Vice President,
Controller and
Principal Accounting Officer
Dated: May 9, 2001
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