SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(MARK ONE)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 23, 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 NOVEMBER 2, 2001, AN AGGREGATE OF 10,061,238 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
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements Page
-------- --------------------- ----
Consolidated Statements of Operations for the three months ended
September 23, 2001 and September 24, 2000 3
Consolidated Balance Sheets at September 23, 2001 and June 24, 2001 4
Consolidated Statements of Cash Flows for the three months ended
September 23, 2001 and September 24, 2000 5
Notes to Consolidated Financial Statements 7
Management's Discussion and Analysis of
-------------------------------------------
Item 2. Financial Condition and Results of Operations 10
------- ---------------------------------------------
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 13
-------- -----------------------------------------------------------
Item 6. Exhibits and Reports on Form 8-K 13
-------- -------------------------------------
Signatures 14
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
--------------------
SEPTEMBER 23, SEPTEMBER 24,
REVENUES: 2001 2000
-------------------- --------------
Food and supply sales. . . . . . . . . . . . . $ 14,731 $ 14,728
Franchise revenue. . . . . . . . . . . . . . . 1,380 1,401
Restaurant sales . . . . . . . . . . . . . . . 574 569
Other income . . . . . . . . . . . . . . . . . 155 118
-------------------- --------------
16,840 16,816
-------------------- --------------
COSTS AND EXPENSES:
Cost of sales. . . . . . . . . . . . . . . . . 14,283 13,925
Franchise expenses . . . . . . . . . . . . . . 542 584
General and administrative expenses. . . . . . 1,002 1,020
Interest expense . . . . . . . . . . . . . . . 119 255
-------------------- --------------
15,946 15,784
-------------------- --------------
INCOME BEFORE INCOME TAXES . . . . . . . . . . . 894 1,032
Provision for income taxes . . . . . . . . . . 304 386
-------------------- --------------
NET INCOME . . . . . . . . . . . . . . . . . . . $ 590 $ 646
==================== ==============
BASIC EARNINGS PER COMMON SHARE. . . . . . . . . $ 0.06 $ 0.06
==================== ==============
DILUTED EARNINGS PER COMMON SHARE. . . . . . . . $ 0.06 $ 0.06
==================== ==============
DIVIDENDS DECLARED PER COMMON SHARE. . . . . . . $ - $ 0.06
==================== ==============
WEIGHTED AVERAGE COMMON SHARES . . . . . . . . . 10,187 10,733
==================== ==============
WEIGHTED AVERAGE COMMON AND
POTENTIAL DILUTIVE COMMON SHARES . . . . . . . 10,199 10,743
==================== ==============
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(IN THOUSANDS)
THREE MONTHS ENDED
------------------------------------------------
SEPTEMBER 23,. . . . . . . . . . . SEPTEMBER 24,
2001 2000
-------------------- --------------
Net Income . . . . . . . . . . . . . . . . . . $ 590 $ 646
Interest rate swap loss (net of tax of $104) . (203) -
-------------------- --------------
Comprehensive Income . . . . . . . . . . . . . $ 387 $ 646
==================== ==============
See accompanying Notes to Consolidated Financial Statements.
PIZZA INN, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
SEPTEMBER 23, JUNE 24,
ASSETS 2001 2001
--------------- ----------
(UNAUDITED)
CURRENT ASSETS
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . $ 436 $ 540
Accounts receivable, less allowance for doubtful
accounts of $725 and $729, respectively. . . . . . . . . . . 5,051 4,839
Notes receivable, current portion, less allowance
for doubtful accounts of $169 and $263, respectively . . . . 918 958
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . 2,063 2,063
Deferred taxes, net. . . . . . . . . . . . . . . . . . . . . . 1,285 1,285
Prepaid expenses and other . . . . . . . . . . . . . . . . . . 482 578
--------------- ----------
Total current assets . . . . . . . . . . . . . . . . . . . 10,235 10,263
Property, plant and equipment, net . . . . . . . . . . . . . . . 10,227 6,594
Property under capital leases, net . . . . . . . . . . . . . . . 514 576
Deferred taxes, net. . . . . . . . . . . . . . . . . . . . . . . 1,715 1,897
Long-term notes receivable, less
allowance for doubtful accounts of $8 and $9,
respectively . . . . . . . . . . . . . . . . . . . . . . . . . 1 9
Deposits and other . . . . . . . . . . . . . . . . . . . . . . . 467 533
--------------- ----------
$ 23,159 $ 19,872
=============== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable - trade . . . . . . . . . . . . . . . . . . . $ 4,284 $ 3,245
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . 2,033 2,000
Current portion of long-term debt. . . . . . . . . . . . . . . 1,250 1,250
Current portion of capital lease obligations . . . . . . . . . 397 486
--------------- ----------
Total current liabilities. . . . . . . . . . . . . . . . . . 7,964 6,981
LONG-TERM LIABILITIES
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . 13,079 10,934
Long-term capital lease obligations. . . . . . . . . . . . . . 199 227
Other long-term liabilities. . . . . . . . . . . . . . . . . . 1,160 865
--------------- ----------
22,402 19,007
--------------- ----------
SHAREHOLDERS' EQUITY
Common Stock, $.01 par value; authorized 26,000,000 shares;
issued 14,955,319 and 14,955,119 shares, respectively;
outstanding 10,093,688 and 10,319,638 shares, respectively. 150 150
Additional paid-in capital . . . . . . . . . . . . . . . . . . 7,824 7,823
Loans to officers. . . . . . . . . . . . . . . . . . . . . . . (2,325) (2,325)
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . 14,791 14,201
Accumulated other comprehensive loss . . . . . . . . . . . . . (276) (73)
Treasury stock at cost
Shares in treasury: 4,861,631 and 4,635,481 respectively . . (19,407) (18,911)
--------------- ----------
Total shareholders' equity . . . . . . . . . . . . . . . . . 757 865
--------------- ----------
$ 23,159 $ 19,872
=============== ==========
See accompanying Notes to Consolidated Financial Statements.
PIZZA INN, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED
--------------------
SEPTEMBER 23, SEPTEMBER 24,
2001 2000
-------------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 590 $ 646
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . 336 348
Provision for bad debt. . . . . . . . . . . . . . . . . . . . 50 50
Utilization of pre-reorganization net operating
loss carryforwards. . . . . . . . . . . . . . . . . . . . . 182 288
Changes in assets and liabilities:
Notes and accounts receivable . . . . . . . . . . . . . . . . (214) (318)
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . - 754
Accounts payable - trade. . . . . . . . . . . . . . . . . . . (318) (661)
Accrued expenses. . . . . . . . . . . . . . . . . . . . . . . (170) (80)
Prepaid expenses and other. . . . . . . . . . . . . . . . . . 409 54
-------------------- ---------------
CASH PROVIDED BY OPERATING ACTIVITIES . . . . . . . . . . . . 865 1,081
-------------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures. . . . . . . . . . . . . . . . . . . . . . (2,501) (51)
-------------------- ---------------
CASH USED FOR INVESTING ACTIVITIES. . . . . . . . . . . . . . (2,501) (51)
-------------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of long-term bank debt . . . . . . . . . . . . . . . 2,784 500
Repayments of long-term bank debt and capital lease obligations (756) (842)
Dividends paid. . . . . . . . . . . . . . . . . . . . . . . . . - (603)
Proceeds from exercise of stock options . . . . . . . . . . . . - 298
Purchases of treasury stock . . . . . . . . . . . . . . . . . . (496) (439)
-------------------- ---------------
CASH USED FOR FINANCING ACTIVITIES. . . . . . . . . . . . . . 1,532 (1,086)
-------------------- ---------------
Net decrease in cash and cash equivalents . . . . . . . . . . . . (104) (56)
Cash and cash equivalents, beginning of period. . . . . . . . . . 540 484
-------------------- ---------------
Cash and cash equivalents, end of period. . . . . . . . . . . . . $ 436 $ 428
==================== ===============
See accompanying Notes to Consolidated Financial Statements.
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED
-------------------
SEPTEMBER 23, SEPTEMBER 24,
2001 2000
------------------- --------------
CASH PAYMENTS FOR:
Interest . . . . . . . . . . . . . . . . . . . $ 203 $ 274
Income taxes . . . . . . . . . . . . . . . . . 25 25
NONCASH FINANCING AND INVESTING
ACTIVITIES:
Stock issued to officers in exchange for loans $ - $ 303
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 24, 2001. 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, to modify certain financial covenants, and to enter
into a $5,000,000 term note. Interest on the revolving credit line is payable
monthly. Interest is provided for at a rate equal to prime plus an interest
rate margin from -1.0% to 0.0% or, at the Company's option, at the Eurodollar
rate plus 1.25% to 2.25%. The interest rate margin is based on the Company's
performance under certain financial ratio tests.
The $5,000,000 term note had an outstanding balance of $3.2 million at September
23, 2001 and requires monthly principal payments of $104,000 with the balance
maturing on March 31, 2004. Interest on the term loan is also payable monthly.
Interest is provided for at a rate equal to prime less an interest rate margin
of 0.75% or, at the Company's option, at the Eurodollar rate plus 1.5%.
The Company entered into an agreement effective December 28, 2000, as amended,
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. As of September 23, 2001, the Company had borrowed
$3.2 million for the construction in progress of its new headquarters. As of
November 2, 2001 the Company had borrowed $5.8 million for the construction in
progress of its new headquarters.
(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 September 23, 2001, the Company
recorded its interest rate swap with a fair value of $418,000 in other
liabilities, with the offset recorded in the other comprehensive income
component of stockholder's equity and in deferred income taxes. At September
23, 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) On April 30, 1998, Mid-South Pizza Development, Inc., an area developer
of the Company ("Mid-South") entered into a promissory note whereby, among other
things, Mid-South borrowed $1,330,000 from a third party lender (the "Loan").
The proceeds of the Loan, less transaction costs, were used by Mid-South to
purchase area developer rights from the Company for certain counties in Kentucky
and Tennessee. As part of the terms and conditions of the Loan, the Company was
required to guaranty the obligations of Mid-South under the Loan. In the event
such guaranty ever required payment, the Company has personal guarantees from
certain Mid-South principals and a security interest in certain personal
property.
(5) 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 ended September 23, 2001 interest of $73,000 was
capitalized in connection with the construction of the Company's new
headquarters, training center, and distribution facility.
(6) 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 SEPTEMBER 23, 2001
BASIC EPS
Income Available to Common Shareholders . . . $ 590 10,187 $ 0.06
Effect of Dilutive Securities - Stock Options 12
------------
DILUTED EPS
Income Available to Common Shareholders
& Assumed Conversions . . . . . . . . . . . . $ 590 10,199 $ 0.06
============ ============= ==========
THREE MONTHS ENDED SEPTEMBER 24, 2000
BASIC EPS
Income Available to Common Shareholders . . . $ 646 10,733 $ 0.06
Effect of Dilutive Securities - Stock Option 10
------------
DILUTED EPS
Income Available to Common Shareholders
& Assumed Conversions . . . . . . . . . . . . $ 646 10,743 $ 0.06
============ ============= ==========
(2) 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 month periods ended September 23, 2001, and
September 24, 2000.
SEPTEMBER 23, SEPTEMBER 24,
2001 2000
------------------------- -------------------------
(In thousands)
NET SALES AND OPERATING REVENUES:
Food and Equipment Distribution . . $ 14,731 $ 14,728
Franchise and Other . . . . . . . . 1,954 1,970
Intersegment revenues . . . . . . . 224 206
------------------------- -------------------------
Combined. . . . . . . . . . . . . 16,909 16,904
Other revenues. . . . . . . . . . . 155 118
Less intersegment revenues. . . . . (224) (206)
------------------------- -------------------------
Consolidated revenues . . . . . . 16,840 16,816
========================= =========================
OPERATING PROFIT:
Food and Equipment Distribution (1) $ 483 $ 807
Franchise and Other (1) . . . . . . 810 692
Intersegment profit . . . . . . . . 59 61
------------------------- -------------------------
Combined. . . . . . . . . . . . . 1,352 1,560
Other profit or loss. . . . . . . . 155 118
Less intersegment profit. . . . . . (59) (61)
Corporate administration and other. (554) (585)
------------------------- -------------------------
Income before taxes . . . . . . . 894 1,032
========================= =========================
GEOGRAPHIC INFORMATION (REVENUES):
United States . . . . . . . . . . . $ 16,727 $ 16,591
Foreign countries . . . . . . . . . 113 225
------------------------- -------------------------
Consolidated total. . . . . . . . 16,840 16,816
========================= =========================
(1) Does not include full allocation of corporate administration
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
--------------------------------------------------------------------------------
RESULTS OF OPERATIONS
-----------------------
Quarter ended September 23, 2001 compared to the quarter ended September 24,
2000.
Diluted earnings per share for the quarter were $0.06 versus $0.06 for the
same period last year. Net income for the quarter decreased 9% to $590,000 from
$646,000 for the same quarter last year.
Food and supply sales for the quarter of $14.7 million were flat compared
to the same period last year. Lower chainwide retail sales and lower equipment
sales due to fewer unit openings were offset by higher cheese prices as compared
to the same period last year.
Franchise revenue, which includes income from royalties, license fees and
area development and foreign master license (collectively, "Territory") sales,
decreased 1% or $21,000 for the quarter compared to the same period last year.
This decrease is primarily the result of lower domestic and international
royalties, which were offset by higher foreign master license fees.
Restaurant sales, which consists of revenue generated by Company-owned
training stores increased 1% or $5,000 for the quarter, compared to the same
period of the prior year. This is a result of higher comparable sales at the
two full service units offset by the temporary closing of the delco unit during
the first week of September.
Other income consists primarily of interest income and non-recurring
revenue items. Other income increased 31% or $37,000 due to higher vendor
incentives, which were offset by lower interest income.
Cost of sales increased 3% or $358,000 for the quarter. Cost of sales, as a
percentage of sales, increased to 93% from 91% for the same quarter last year.
The increase is due primarily to higher cheese prices as compared to the same
period last year.
Franchise expenses include selling, general and administrative expenses
directly related to the sale and continuing service of franchises and
Territories. These costs decreased 7% or $42,000 for the quarter compared to
the same period last year primarily due to lower marketing expenses.
General and administrative expenses decreased 2% or $18,000 for the quarter
compared to the same period last year. This is a result of lower IT programming
and consulting expenses as compared to the same quarter last year.
Interest expense decreased 53% or $136,000 for the quarter compared to the
same period of the prior year. Lower interest rates and capitalized interest on
funds used in construction of the new corporate headquarters were partially
offset by higher debt levels in the current quarter.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operations totaled $865,000 during the first three months
of fiscal 2002 and was utilized, in conjunction with additional borrowings,
primarily to fund capital expenditures and to reacquire 226,100 shares of its
own common stock for $496,000.
Capital expenditures of $2,501,000 during the first three months consist
primarily of development and construction costs for the new corporate
headquarters.
The Company continues to realize substantial benefit from the
utilization of its net operating loss carryforwards (which currently total $2.8
million and expire in 2005 and 2006) 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 ($3.0
million as of September 23, 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 entered into an agreement effective December 28, 2000, as
amended, 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. As of September 23, 2001, The Company had borrowed
$3.2 million for the construction in progress of its new headquarters.
As of November 2, 2001 the Company had borrowed $5.8 million for the
construction in progress of its new headquarters.
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.
MARKET RISK
The Company has market risk exposure arising from changes in interest
rates. The Company's earnings are affected by changes in short-term interest
rates as a result of borrowings under its credit facilities which bear interest
based on floating rates.
At September 23, 2001 the Company has approximately $14.3 million of
variable rate debt obligations outstanding with a weighted average interest rate
of 5.10%. A hypothetical 10% change in the effective interest rate for these
borrowings, assuming debt levels at September 23, 2001 would change interest
expense by approximately $17,000.
FORWARD-LOOKING STATEMENT
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
---------------------------------------------------------------------
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
-----------------------------------------------
Exhibits:
10.1 First Letter Modification Agreement between the Company and Wells Fargo
Bank (Texas), N.A. dated October 19, 2001.
No reports on form 8-k were filed in the quarter for which this report is
filed.
------
SIGNATURES
----------
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
---------------------
Ronald W. Parker
President and
Principal Financial Officer
By: /s/Shawn Preator
-----------------
Shawn Preator
Vice President of Finance, and
Principal Accounting Officer
Dated: November 6, 2001
H:\REGA\SR\GAB\2197598.EXT
October 19, 2001
Pizza Inn, Inc.,
5050 Quorum Drive, Suite 500
Dallas TX 75240
Attn: Ronald W. Parker
Ref: Pizza Inn, Inc. a Missouri corporation
Plano Parkway South of State Highway 121, The Colony, Denton County, TX
("Property")
Wells Fargo Bank Loan No. 2351OE
Dear Mr. Parker:
This First Letter Modification Agreement dated October 19, 2001 ("Agreement") is
entered into by and between Wells Fargo Bank Texas, National Association
("Lender"), and Pizza Inn, Inc., a Missouri corporation ("Borrower").
On December 28, 2000, Lender made a loan to Borrower in the principal amount of
EIGHT MILLION ONE HUNDRED TWENTY- FIVE THOUSAND AND NO/100THS DOLLARS
($8,125,000.00) ("Loan"). Said Loan is secured by, among other things, a
Construction Deed of Trust with Absolute Assignment of Leases and Rents,
Security Agreement and Fixutre Filing ("Deed of Trust") dated December 28, 2000,
executed by Borrower as "Grantor" for the benefit of Lender as "Beneficiary" and
recorded on December 29, 2000, as Instrument No. 122934, in the Real Property
Records of Denton County, Texas, encumbering real property described more
particularly therein; and evidenced by a Promissory Note dated December 28, 2000
("Note") and other documentation necessary to perfect the Loan and any
amendments or modifications thereto (individually and collectively, the "Loan
Documents").
Borrower has requested, and Lender has agreed to extend the Completion Date (as
set forth in the Loan Documents) from November 1, 2001 to January 1, 2002.
Lender's willingness to extend the Completion Date of the Loan Documents is
subject to the satisfaction of the following conditions precedent:
1. Borrower shall deliver to Lender an unmodified, executed original of
this Agreement; and
2. All payments due and owing to Lender under the Loan Documents have
been paid current as of the effective date of this Agreement.
October 19, 2001
Page 2
All other terms and conditions under each of the Loan Documents shall remain
unmodified and of full force and effect. Upon satisfaction of the conditions
precedent described above, the extension of the maturity date of the Note shall
be in effect.
"Lender"
WELLS FARGO BANK TEXAS, NATIONAL ASSOCIATION
By:/s/Paula Kinnison
Title:Vice President
Borrower hereby acknowledges and agrees to the terms and conditions stated in
the foregoing Agreement.
"Borrower"
PIZZA INN, INC.,
a Missouri corporation
By:/s/Ronald W. Parker
Ronald W. Parker, President