11-K: Annual report of employee stock purchase, savings and similar plans
Published on June 30, 2003
PIZZA INN, INC.
401(K) SAVINGS PLAN
FINANCIAL STATEMENTS AND
SUPPLEMENTAL SCHEDULES
WITH REPORT OF INDEPENDENT AUDITORS
DECEMBER 31, 2002 AND 2001
REPORT OF INDEPENDENT AUDITORS
To the Participants and Administrator of the
Pizza Inn, Inc. 401(k) Savings Plan:
In our opinion, the accompanying statements of net assets available for benefits
and the related statement of changes in net assets available for benefits
present fairly, in all material respects, the net assets available for benefits
of Pizza Inn, Inc. 401(k) Savings Plan (the "Plan") at December 31, 2002 and
2001, and the changes in net assets available for benefits for the year ended
December 31, 2002 in conformity with accounting principles generally accepted in
the United States of America. These financial statements are the responsibility
of the Plan's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedules of assets
(held at end of year) and reportable transactions are presented for the purpose
of additional analysis and are not a required part of the basic financial
statements but are supplementary information required by the Department of
Labor's Rules and Regulations for Reporting and Disclosure under the Employee
Retirement Income Security Act of 1974. These supplemental schedules are the
responsibility of the Plan's management. The supplemental schedules have been
subjected to the auditing procedures applied in the audits of the basic
financial statements, and, in our opinion, are fairly stated in all material
respects in relation to the basic financial statements taken as a whole.
PRICEWATERHOUSECOOPERS LLP
Dallas, Texas
May 30, 2003
PIZZA INN, INC. 401(K) SAVINGS PLAN
TABLE OF CONTENTS
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Page
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Report of Independent Auditors 1
Financial Statements:
Statements of Net Assets Available for Benefits 2
Statement of Changes in Net Assets Available for Benefits 3
Notes to Financial Statements 4-10
Supplemental Schedules:
Schedule of Assets (Held at End of Year) (Schedule I) 11
Schedule of Reportable Transactions (Schedule II) 12
Note: Other schedules required by Section 2520.103 - 10 of the Department of
Labor's Rules and Regulations for Reporting and Disclosure under the Employee
Retirement Income Security Act ("ERISA") of 1974 have been omitted because they
are not applicable.
Exhibits (filed herewith)
23.1 Consent of Independent Auditors
99.1 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.2 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
PIZZA INN, INC. 401(K) SAVINGS PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
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DECEMBER 31, 2002 AND 2001
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The accompanying notes are an integral part of these financial statements.
PIZZA INN, INC. 401(K) SAVINGS PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
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DECEMBER 31, 2002 AND 2001
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The accompanying notes are an integral part of these financial statements.
PIZZA INN, INC. 401(K) SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
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1. DESCRIPTION OF THE PLAN
Pizza Inn, Inc. 401(k) Savings Plan ("Plan") was approved and adopted by
the board of directors of Pizza Inn, Inc. ("Company") on May 30, 1985 and was
implemented on July 1, 1985. The Plan is qualified under sections 401(a),
401(k) and 501(a) of the Internal Revenue Code ("Code") and, accordingly, is
exempt from federal income taxes. On January 1, 2002, the Plan was amended to
comply with the Economic Growth and Tax Relief Reconciliation Act signed into
law on June 8, 2001. The financial statements are prepared with the assumption
that the Plan has maintained its exemption under the Code (see Note 3).
The following description of the Plan's provisions provides only general
information. Participants should refer to the Plan agreement for more complete
information regarding the Plan's definitions, benefits, eligibility and other
matters. The Plan agreement is controlling at all times.
INVESTMENT ALTERNATIVES
A participant may direct contributions in any combination of the following
investment alternatives:
- - FIDELITY ADVISORS HIGH YIELD FUND
This fund seeks a high level of income and the potential for capital gains
by investing primarily in high-yield, fixed income and zero coupon securities,
such as bonds, debentures and notes, convertible securities, and preferred
stocks.
- - FRANKLIN SMALL-CAP GROWTH FUND
This fund seeks long-term capital appreciation by investing in equity
securities of companies with a market capitalization of less than $1 billion.
- - JANUS FUND
This fund seeks capital appreciation consistent with preservation of
capital by investing in common stocks of companies and industries experiencing
favorable demand for their products and services.
- - SCUDDER GROWTH & INCOME FUND
This fund seeks growth of capital, current income, and growth of income by
investing in dividend-paying common stocks, preferred stocks, and convertible
securities with growth potential.
- - WELLS FARGO STABLE RETURN FUND
This fund seeks safety of principal while providing low-volatility total
return by investing primarily in guaranteed investment contracts, guaranteed
investment contract alternatives, marketable securities, and money market
instruments.
- - WELLS FARGO DIVERSIFIED BOND FUND
This fund seeks to provide total return by diversifying its investments
among three different fixed-income investment styles. The fund follows a
multi-style approach seeking to reduce the price and return volatility of the
fund and to provide the potential for more consistent returns.
- - WELLS FARGO INDEX FUND
This fund seeks to replicate the return of the Standard & Poor's 500
Composite Stock Price Index by investing in substantially all the stocks of the
index in substantially the same weightings as the Index.
- - DREYFUS SMALL COMPANY VALUE FUND
This fund seeks capital appreciation by investing in stocks of companies
with relatively low price to book ratios, low price to earnings ratios, or
higher than average dividend payments.
- - MFS MID-CAP GROWTH FUND
This fund seeks long-term growth of capital by investing in common stocks
and related securities of medium-sized companies, which the fund's investment
advisor believes have above-average growth potential.
- - AMERICAN CENTURY INTERNATIONAL GROWTH FUND
This fund seeks capital growth by investing primarily in common stocks of
foreign companies with the potential for capital appreciation.
- - AMERICAN CENTURY EQUITY INCOME FUND
This fund seeks to provide current income with capital appreciation as a
secondary objective. The fund pursues this objective by looking for securities
with a favorable income-paying history that have prospects for income payments
to continue or increase as well as looking for undervalued securities that have
the potential for an increase in price.
- - PIZZA INN, INC. COMMON STOCK ACCOUNT
This fund invests solely in the common stock of Pizza Inn, Inc. The cost
of the common stock at December 31, 2002 and 2001 was $1,059,290 and $987,721
respectively.
PARTICIPATION
The Plan participation requirements allow employees who have six months of
service with the Company and who are 21 years of age or older to participate in
the Plan. At December 31, 2002 and 2001, employees participating in the Plan
approximated 102 and 90, respectively.
Participants can defer up to 15% of their salary toward Plan
contribu-tions. Matching contributions can be made at the discretion of the
Company. Company matching contributions for the plan year ended December 31,
2002 equaled 50% up to the first 4% of the participants' contributions. The
matching Company contribution is invested directly in Pizza Inn, Inc. common
stock. Participants are not able to move the employer matching contributions
out of the Pizza Inn, Inc. common stock and into other investment options. In
addition, at the election of the board of directors, the Company may make
discretionary contributions. There were no discretionary contributions made for
the year ended December 31, 2002. Rollover contributions from other qualified
plans can be added to the plan by eligible participants.
For the plan year ended December 31, 2002, the Plan failed the average
deferral percentage discrimination testing. In order to continue as a qualified
plan, the excess participant contributions must be refunded to participants
during the following Plan year. Such amounts refunded to participants are
reflected as excess contributions payable to participants on the statement of
net assets available for benefits.
PARTICIPANT ACCOUNTS
Each participant's account is credited with the participant's contribution
and an allocation of the Company's contribution and plan earnings. The benefit
to which a participant is entitled is the benefit that can be provided from the
participant's vested accounts.
VESTING
Participant contributions, and the earnings thereon, are fully and immediately
vested. Company contributions vest at the rate of 25% per year over four years
of service.
FORFEITURES
There were no unallocated forfeited, nonvested account balances as of
December 31, 2002 and 2001. Forfeitures of unvested Company matching
contributions by terminated employees are accumulated and periodically applied
to reduce the Company's matching contributions for the applicable plan year.
Employer contributions were reduced by $4,223 from forfeited, nonvested accounts
during the year ended December 31, 2002.
PARTICIPANT LOANS
Participants may obtain a loan from the Plan in an amount not to exceed 50%
of their vested balance up to a maximum of $50,000. The minimum loan available
is $1,000. Loans bear interest at a rate of 2% over prime, are collateralized
by the participant's vested account balance and are repaid over a maximum
repayment term of up to fifteen years. Principal and interest is paid ratably
through monthly payroll deductions.
PAYMENT OF BENEFITS
Terminating participants are entitled to receive 100% of their contributions to
the Plan and any income or loss thereon, as well as their vested portion of the
Company contributions and any income or loss thereon. Generally, benefits
attributable to employer contributions are not payable prior to termination.
However, hardship distributions of a portion of the employee's contribution and
employer's contribution, to the extent vested, may be made to the participant in
certain situations, as defined in the Plan.
Terminated employees may continue to participate in the Plan, and the
expenses related to their participation are paid by the Company.
PLAN TERMINATION
Although it has not expressed any intent to do so, the Company maintains
the right to terminate the Plan at any time. In the event that the Plan is
terminated, the participants become 100% vested in their accounts.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The Plan's financial statements are presented using the accrual method of
accounting in conformity with generally accepted accounting principles.
INVESTMENTS AND INVESTMENT INCOME
The Plan's investments are exposed to various risks, such as interest rate,
market and credit risks. Due to the level of risk associated with investments
in mutual funds and stocks, it is at least reasonably possible that changes in
the values of such investments will occur in the near term and that such changes
could materially affect participants' account balances and the amounts reported
in the statements of net assets available for benefits.
The investments are valued at fair value or the ending net asset value on
the last business day of the Plan year. Investments in the Company's common
stock are valued at the fair value as determined by the closing quoted market
price on December 31, 2002 and 2001. Purchases and sales of securities are
recorded on a trade-date basis.
Investment income and dividends are recognized when earned.
DETERMINATION OF UNREALIZED APPRECIATION/DEPRECIATION AND GAIN OR LOSS ON
INVESTMENTS
The Plan presents in the Statement of Changes in Net Assets Available for
Benefits the net appreciation (depreciation) in the fair value of its
investments, which consists of the realized gains or losses, and the unrealized
appreciation (depreciation) on those investments.
Unrealized appreciation or depreciation in the fair value of investments
held at year-end and gain or loss on sale of investments during the year are
determined using the fair value at the beginning of the year or purchase price
if acquired during the year.
PLAN EXPENSES
Audit fees, other miscellaneous expenses and all other costs of
administering the Plan are paid by the Company and therefore are not reflected
in the Plan's financial statements. Certain transaction costs, although borne
by the Plan, are specifically charged to the individual participant who
initiated the transaction by reducing their balance in Plan assets.
PARTICIPANT LOANS
Participant loans are valued at original loan value, plus accrued interest,
less principal repayments, which approximates fair value. Interest rates on the
loans range from 6.25% to 11.5% and 7% to 11.5% at December 31, 2002 and 2001,
respectively, with maturity dates of fifteen years or less.
PAYMENT OF BENEFITS
Benefits are recorded when paid.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires Plan management to make significant
estimates and assumptions that affect the reported amounts of assets,
liabilities, and changes therein, and disclosure of contingent assets and
liabilities. Actual results could differ significantly from those estimates.
3. TAX STATUS OF THE PLAN
Management believes that the Plan is qualified under section 401(a) of the
Internal Revenue Code and therefore, the Plan is exempt from taxation under
section 501(a). The Internal Revenue Service ("IRS") granted a favorable letter
of determination to the Plan in 1986. During 1997 and 2001, the Company
received favorable letters of determination from the IRS for amendments to the
Plan. Generally, contri-butions to a qual-ified plan are deductible by the
Company when made. Earnings of the Plan are tax deferred and participants are
not taxed on their benefits until withdrawn from the Plan.
Management is unaware of any variations in the operation of the Plan from
the terms of the Plan documents, as amended. Management believes the Plan is
qualified under the applicable sections of the Code and the Employee Retirement
Income Security Act of 1974 ("ERISA").
4. INVESTMENTS
The following presents investments that represent 5% or more of the Plan's
net assets:
*Nonparticipant-directed (Note 5)
During 2002, the Plan's investments (including gains and losses on
investments bought and sold, as well as held during the year) appreciated
(depreciated) in value by $69,977 as follows:
5. NONPARTICIPANT-DIRECTED INVESTMENTS
Employer contributions are automatically invested in Pizza Inn, Inc. common
stock. Employees also have the option of investing their contribution, or a
portion thereof, in Pizza Inn, Inc. common stock. Since the activity of the
nonparticipant-directed and participant-directed investments are combined, the
entire investment option is considered nonparticipant-directed for purposes of
this disclosure. Information about the net assets and the significant
components of the changes in net assets relating to nonparticipant-directed
investments is as follows:
1. PARTY-IN-INTEREST TRANSACTIONS
Certain plan investments are shares of Pizza Inn, Inc. Common Stock. Pizza Inn,
Inc. sponsors the plan; therefore, this investment is considered a
party-in-interest transaction. The Plan recorded purchases of $289,485 and
sales of $140,929 of the Company's stock during the year ended December 31,
2002.
Certain Plan investments are shares of mutual funds managed by Wells Fargo or
its affiliates. This institution serves as trustee to the Plan and, therefore,
these investments qualify as party-in-interest transactions. In addition, the
Plan has a program to provide loans to participants and therefore these also
qualify as party-in-interest transactions.
SUPPLEMENTAL SCHEDULES
PIZZA INN, INC. 401(K) SAVINGS PLAN SCHEDULE II
SCHEDULE H, LINE 4J - SCHEDULE OF REPORTABLE TRANSACTIONS
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FOR THE YEAR ENDED DECEMBER 31, 2002
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