10-Q: Quarterly report pursuant to Section 13 or 15(d)
Published on February 6, 1996
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 December 24, 1995.
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)
(214) 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 than 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 December 24, 1995, an aggregate of 13,221,876 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
Condensed Consolidated Statements of Operations
for the three months and six months ended
December 24, 1995 and December 25, 1994. . . . . . . . . . . 3
Condensed Consolidated Balance Sheets at
December 24, 1995 and June 25, 1995 . . . . . . . . . . . . 4
Condensed Consolidated Statements of Cash Flows
for the six months ended December 24, 1995 and
December 25, 1994. . . . . . . . . . . . . . . . . . . . . . 5
Notes to Condensed Consolidated Financial
Statements . . . . . . . . . . . . . . . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. . . . . . . . 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . 10
Item 4. Submission of Matters to a Vote of Security
Holders. . . . . . . . . . . . . . . . . . . . . . . . . . 10
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . 10
Signatures . . . . . . . . . . . . . . . . . . . . . . . . 11
See accompanying Notes to Condensed Consolidated Financial Statements
See accompanying Notes to Condensed Consolidated Financial
Statements
See accompanying Notes to Condensed Consolidated Financial Statements
PIZZA INN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) The accompanying condensed 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 condensed or
omitted pursuant to such rules and regulations. The
condensed consolidated financial statements should be read
in conjunction with the notes to the Company's audited
consolidated financial statements in its Form 10-K/A for
the fiscal year ended June 25, 1995.
In the opinion of management, the accompanying unaudited
condensed 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. Certain prior year amounts have
been reclassified to conform to current year presentation.
(2) For the three and six months ended December 24, 1995,
common stock equivalents were 894,996 and 755,276,
respectively, and the total weighted average number of
shares considered to be outstanding were 14,199,864 and
14,129,490, respectively. For the three and six months
ended December 25, 1994, common stock equivalents were
395,335 and 420,510, respectively, and the total weighted
average number of shares considered to be outstanding were
14,333,122 and 14,345,946, respectively.
(3) On June 30, 1995, the Company purchased 262,094 shares of
its own common stock from a former lender for a cash price
of $596,285. In addition, during the six months ended
December 24, 1995, the Company purchased 216,000 of its own
shares in the open market. The total purchase price for
these shares was $922,312. These reacquired shares are
held as treasury stock and will be retired at the earliest
opportunity.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
Quarter and six months ended December 24, 1995 compared to the
quarter and six months ended December 25, 1994.
Net income for the second quarter of the current fiscal year was
$975,000 or $.07 per share compared to $1,037,000 or $.07 per share for
the same quarter last year. However, last year's second quarter
included a non-recurring gain of $350,000 or $.02 per share net of tax,
related to the resolution of certain property and sales tax liabilities.
Excluding this gain from last year, net income rose 42% for the current
quarter and earnings per share increased to $.07 from $.05. For the six
months ended December 24, 1995, net income increased 12%. Excluding the
non-recurring gain, net income increased 44% and earnings per share rose to
$.13 from $.09 for the six month period.
Food and supply sales from the Company's distribution division
increased 12% for the quarter and 8% for the six month period,
compared to the same periods last year. This resulted from growth in retail
sales, combined with increased market share on sales of non-proprietary
food ingredients and equipment.
Franchise revenue, which includes income from royalties, franchise
fees and area development sales, increased 10% for the quarter and
6% for the six month period. This was primarily due to increased
royalties as a result of systemwide sales growth and store expansion, as
well as additional revenue from area development sales in the current year.
Area development sales for the current year include revenue from the
sale of area development rights for sections of North Carolina and
South Carolina.
Other revenue consists primarily of interest income and
non-recurring revenue items. The current quarter includes a favorable
lawsuit settlement, which resulted in an increase in other revenue
for both current year periods.
Cost of sales increased 10% and 6% for the quarter and six month
periods, respectively, as a result of the growth in food and supply
sales to the Company's franchisees. As a percentage of food and
supply sales, the distribution component of cost of sales is lower during
both current year periods as a result of cost efficiencies achieved
through fleet modernization and increased labor productivity, as well as
improved buying power through volume purchasing.
Franchise expenses increased 15% and 4% for the quarter and six
month periods due to investments in additional franchisee training
and support personnel.
General and administrative expenses increased 12% and 4% for the
quarter and six months, respectively. This is primarily due to the
implementation of a new computer system, which resulted in additional
insurance, programming and support costs.
During the second quarter of the prior year, certain sales and
property tx liabilities were settled for amounts lower than previously
estimated. A non-recurring gain of $531,000 reflects the adjustment of
the excess tax accrual. The after-tax effect of this adjustment on
prior year net income was an increase of $350,000 or $.02 per share.
Interest expense decreased 38% and 32% for the quarter and six
months, respectively, due to lower debt levels and lower interest
rates.
Liquidity and Capital Resources
Cash provided by operations totalled $3.2 million for the first
six months of fiscal 1996. This consisted primarily of net income, plus
the benefit of the Company's net operating loss carryforwards which
significantly reduce the amount of federal income tax actually
paid. The Company used cash to reduce bank debt by making scheduled
principal payments of $1.1 million and voluntary prepayments of $1.4 million
during the first half of the year. Cash was also used to purchase shares
of the Company's own common stock. On June 30, 1995, the Company purchased
262,094 shares from a former lender for a cash price of $596,285. Also
during the first six months of fiscal 1996, the Company purchased
216,000 of its shares on the open market for a total price of $922,312.
Management believes that the recent market price of its common stock
makes it an attractive investment for the Company, and to the extent
that these prices prevail, the Company plans to continue purchasing
its own shares while repaying debt.
During the first quarter of fiscal 1996, the Company signed an
agreement for the sale of an area development territory covering
portions of North and South Carolina to an existing area developer
for a cash price of $1,350,000. This area development agreement, along
with other agreements signed during the last four years, contain
development commitments for significant unit growth over the next five years.
Related growth in royalties and distribution sales are expected to
provide adequate working capital. The occurrence of any additional
area development sales during the year, which cannot be predicted with
any certainty, may also provide significant infusions of cash.
External sources of cash are not expected to be required in the foreseeable
future.
The Company continues to realize substantial benefit from the
utilization of its net operating loss carryforwards to reduce its
federal tax liability from the 34% tax 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 to fully realize the net deferred tax
asset balance of $11.7 million as of December 24, 1995. Taxable
income in future years at the same level as fiscal 1995 would be sufficient
for full realization of the net tax asset. Management believes
that, based on recent growth trends and future projections,
maintaining current levels of taxable income is achievable and that
the Company will be able to realize its net deferred tax asset
without reliance on material, non-routine income.
Historically, the differences between pre-tax earnings for
financial reporting purposes and taxable income for tax purposes
have consisted of temporary differences arising from the timing of
depreciation, deductions for accrued expenses and deferred
revenues, as well as permanent differences as a result of goodwill
amortization deducted for financial reporting purposes but not for
income tax purposes.
The following summarizes, as of December 24, 1995, the
amounts of net operating loss carryforwards for income tax purposes
that expire by year:
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On December 18, 1995, the court issued an order dismissing all
claims as to the Company and the remaining defendants, and closing
the civil action (previously reported) which was filed by the Company
and its Norco Division against George Wragg and other named defendants.
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Shareholders on January 24, 1996, the
Company's shareholders elected all three nominees to the Board of
Directors. The results of the voting were as follows:
Nominee Votes For Votes Withheld
C. Jeffrey Rogers 10,308,320 96,502
F. Jay Taylor 10,308,425 96,397
Steve A. Ungerman 10,308,375 96,447
Item 6. Exhibits and Reports on Form 8-K
(a) 10.10 Second Amendment to Loan Agreement among the
Company, First Interstate Bank of Texas, N.A., and
First Interstate Bank of Texas, N.A. as agent, dated
November 30, 1995, and the forms of the Amended
and Restated Term Note and the Amended and Restated
Revolving Credit Note thereunder.
(b) 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
Executive Vice President and
Principal Financial Officer
By: /s/ Amy E. Manning
Amy E. Manning
Controller and
Principal Accounting Officer
Dated: February 6, 1996
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION PAGE NO.
10.10 Second Amendment to Loan Agreement among the
Company, First Interstate Bank of Texas, N.A.,
and First Interstate Bank of Texas, N.A. as
Agent, dated November 30, 1995, and the forms
of the Amended and Restated Term Note and the
Amended and Restated Revolving Credit Note
thereunder. 13