Pizza Inn, Inc. Reports Results for the Fourth Quarter Fiscal Year 2006
PIZZA INN, INC.
Fourth Quarter FY 2006 versus Fourth Quarter FY 2005 Results
* Comparable buffet restaurant sales decreased 3.3% for the quarter.
Chain-wide comparable restaurant sales decreased 3.7% for the quarter.
* Total chain-wide restaurant sales decreased 8.3% for the quarter due
the decrease in comparable restaurant sales and a net reduction in
franchised restaurants.
* The Company's revenues decreased approximately 11%, or $1,526,000,
primarily due lower chain-wide restaurant sales, as discussed above,
and lower cheese prices. The resulting reductions in food and supply
sales and royalty revenue were partially offset by increased
restaurant sales at our company-owned restaurants as a result of three
additional company-owned buffet restaurants in fiscal year 2006.
* During the quarter the company incurred $180,000 of legal fees, as
compared to $439,000 in the prior year, which is reflected in general
and administrative expenses.
* General and administrative expenses in the quarter include non-cash
stock compensation expense of $54,000 as compared to no expense in the
prior year.
* During the fourth quarter of 2006 the Company incurred the following
pre-tax items:
- Bad debt provision of $201,000 related to accounts receivable from
franchisees.
- The Company accrued a $2,800,000 expense for the previously
announced litigation settlement agreement with its former
President and Chief Executive Officer. The settlement payments
will be made over the course of the next six months.
- A reduction in compensation expense of $126,000 due to a change in
the estimate for the bonus accrual, the vast majority of which is
reflected in general and administrative expenses.
- A reduction of state tax expense of $109,000 and its related
accrual due to a change in estimated state taxes, which is
reflected in general and administrative expenses.
- A charge of $125,000 for the write-off of capitalized software
development expenses for an online-ordering system that has been
abandoned by the Company due the recent decision to outsource
certain distribution services. The company also incurred an
expense of $20,000 to terminate a service agreement related to the
online-ordering system. Both items are reflected in general and
administrative expenses.
- An impairment of $1,319,000 to the goodwill, equipment, building
and improvements related to two company-owned buffet restaurants
in Houston, Texas and a closed company-owned delivery/carryout
restaurant in Little Elm, Texas.
FY 2006 versus FY 2005 Results
* Comparable buffet restaurant sales decreased 1.6% for the year.
Chain-wide comparable restaurant sales decreased 2.2% for the year.
* Total chain-wide restaurant sales decreased 5.5% for the year due the
decrease in comparable restaurant sales and a net reduction in
franchised restaurants.
* The Company's revenues decreased approximately 8%, or $4,661,000,
primarily due lower chain-wide restaurant sales, as discussed above,
and lower cheese prices. The resulting reductions in food and supply
sales and royalty revenue were partially offset by increased
restaurant sales at our company-owned restaurants as a result of three
additional company-owned buffet restaurants in fiscal year 2006.
* During FY 2006 the company incurred $1,417,000 of legal fees, as
compared to $1,257,000 in the prior year, which is reflected in
general and administrative expenses.
* General and administrative expenses in FY 2006 include non-cash stock
compensation expense of $341,000 as compared to no expense in the
prior year.
* In addition, the net effect of the items incurred in the fourth
quarter, as discussed above, also reduced the Company's earnings
in FY 2006.
The Company's President and CEO, Tim Taft, commented, "Although we were disappointed by the Company's recent operating performance, the performance was in line with our expectations. We are continuing to take the actions that we believe will improve the Company's performance in the future. A particularly important initiative is our recently announced agreements to outsource our distribution services, which will allow us to improve the store- level economics of our current and future franchisees through lower food and supply costs without negatively impacting the corporate bottom line. We also have a significant number of franchised restaurant remodels in the works and international expansion of franchised restaurants is gaining meaningful momentum. Furthermore, with the recent agreement to settle litigation with the Company's former CEO, we can direct more of our attention and resources to creating value for our shareholders and franchisees."
Certain statements in this press release, other than historical information, may be considered forward-looking statements, within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, and are subject to various risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may differ from those anticipated, estimated or expected. Among the key factors that may have a direct bearing on Pizza Inn's operating results, performance or financial condition are its ability to implement its growth strategies, national, regional and local economic conditions affecting the restaurant/ entertainment industry, competition within each of the restaurant and entertainment industries, store sales cannibalization, success of its franchise operations, negative publicity, fluctuations in quarterly results of operations, including seasonality, government regulations, weather, commodity, insurance and labor costs.
Pizza Inn, Inc. (http://www.pizzainn.com/ ) is headquartered in The Colony, Texas, along with its distribution division, Norco Restaurant Services Company. Pizza Inn franchises approximately 371 restaurants and owns four restaurants with annual chainwide sales of approximately $156 million. Pizza Inn, Inc.
For more information contact:
Clinton J. Coleman
Interim Chief Financial Officer
(469) 384-5201
PIZZA INN, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Year Ended
June 25, June 26, June 27,
2006 2005 2004
REVENUES:
Food and supply sales $44,202 $49,161 $53,072
Franchise revenue 4,799 5,162 5,400
Restaurant sales 1,458 946 1,516
Gain on sale of assets 149 --- ---
50,608 55,269 59,988
COSTS AND EXPENSES:
Cost of sales 43,762 46,617 49,023
Franchise expenses 3,126 2,791 3,175
General and administrative expenses 5,531 4,882 3,758
Impairment of long-lived assets and
goodwill 1,319 --- ---
Litigation settlement accrual 2,800 --- ---
Provision for (recovery of) bad
debt 301 30 (229)
Interest expense 787 590 613
57,626 54,910 56,340
(LOSS) INCOME BEFORE INCOME TAXES (7,018) 359 3,648
Provision (benefit) for income
taxes (1,029) 155 1,405
NET (LOSS) INCOME $(5,989) $204 $2,243
Basic (loss) earnings per common
share $(0.59) $0.02 $0.22
Diluted (loss) earnings per common
share $(0.59) $0.02 $0.22
Weighted average common shares
outstanding 10,123 10,105 10,076
Weighted average common and
potentially dilutive common shares
outstanding 10,123 10,142 10,117
PIZZA INN, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
4th Quarter
June 25, June 26,
2006 2005
REVENUES:
Food and supply sales $10,548 $12,180
Franchise revenue 1,220 1,278
Restaurant sales 389 225
Gain on sale of assets --- ---
12,157 13,683
COSTS AND EXPENSES:
Cost of sales 10,311 11,492
Franchise expenses 742 747
General and administrative expenses 1,170 1,415
Impairment of long-lived assets and goodwill 1,319 ---
Litigation settlement accrual 2,800 ---
Provision for (recovery of) bad debt 201 ---
Interest expense 208 159
16,751 13,813
(LOSS) INCOME BEFORE INCOME TAXES (4,594) (130)
Provision (benefit) for income taxes (173) (18)
NET (LOSS) INCOME $(4,421) $(112)
Basic (loss) earnings per common share $(0.43) $(0.01)
Diluted (loss) earnings per common share $(0.43) $(0.01)
Weighted average common shares outstanding 10,138 10,093
Weighted average common and potentially
dilutive common shares outstanding 10,138 10,093
PIZZA INN, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
June 25, June 26,
ASSETS 2006 2005
CURRENT ASSETS
Cash and cash equivalents $184 $173
Accounts receivable, less allowance
for doubtful accounts of $324 and $360,
respectively 2,627 3,419
Accounts receivable - related parties 452 622
Notes receivable, current portion,
less allowance for doubtful accounts of $0
and $11, respectively 52 ---
Inventories 1,772 1,918
Property held for sale --- 301
Current deferred income tax assets 1,145 193
Prepaid expenses and other 299 355
Total current assets 6,531 6,981
LONG-TERM ASSETS
Property, plant and equipment, net 11,921 12,148
Property under capital leases, net --- 12
Non-current notes receivable 20 ---
Long-term receivable - related party --- 314
Re-acquired development territory, net 431 623
Deposits and other 98 177
$19,001 $20,255
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable - trade $2,217 $1,962
Accrued expenses 4,791 1,374
Current portion of long-term debt 8,044 406
Current portion of capital lease
obligations --- 11
Total current liabilities 15,052 3,753
LONG-TERM LIABILITIES
Long-term debt --- 7,297
Long-term capital lease obligations --- 13
Deferred income tax liability --- 3
Other long-term liabilities 437 283
15,489 11,349
COMMITMENTS AND CONTINGENCIES
(See Notes D and I)
SHAREHOLDERS' EQUITY
Common stock, $.01 par value;
authorized 26,000,000 shares;
issued 15,090,319 and 15,046,319 shares,
respectively; outstanding 10,138,494 and
10,094,494 shares, respectively 151 150
Additional paid-in capital 8,426 8,005
Retained earnings 14,593 20,582
Accumulated other comprehensive loss (14) (187)
Treasury stock at cost
Shares in treasury: 4,951,825 and
4,951,825, respectively (19,644) (19,644)
Total shareholders' equity 3,512 8,906
$19,001 $20,255
PIZZA INN, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended
June 25, June 26, June 27,
2006 2005 2004
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $(5,989) $204 $2,243
Adjustments to reconcile net
(loss) income to cash provided
by operating activities:
Impairment of goodwill and
other assets 1,443 --- ---
Gain on property held for sale (149) --- ---
Depreciation and amortization 1,214 1,143 1,133
Stock compensation expense 341 --- ---
Non cash settlement of accounts
receivable --- --- (281)
Litigation settlement 2,800 --- ---
Deferred revenue 542 --- ---
Deferred rent 56 --- ---
Provision for (recovery of) bad
debt, net 301 30 (229)
Deferred income taxes (1,029) 39 500
Changes in operating assets and
liabilities:
Notes and accounts receivable 884 (256) (270)
Inventories 145 (205) (202)
Accounts payable - trade 255 716 29
Accrued expenses 7 (711) 163
Deferred franchise revenue --- (24) (4)
Prepaid expenses and other 414 152 430
Cash provided by operating
activities 1,235 1,088 3,512
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets 589 --- 38
Capital expenditures (2,227) (753) (655)
Re-acquisition of area development
territory --- --- (682)
Cash used in investing
activities (1,638) (753) (1,299)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term bank debt
and capital lease obligations (414) (415) (1,534)
Borrowings of long-term debt --- --- ---
Change in line of credit, net 747 (234) (1,300)
Proceeds from exercise of stock options 81 30 150
Officer loan payment --- --- 689
Purchases of treasury stock --- (160) ---
Cash provided (used) in
financing activities 414 (779) (1,995)
Net increase (decrease) in cash and
cash equivalents 11 (444) 218
Cash and cash equivalents, beginning
of year 173 617 399
Cash and cash equivalents, end of year $184 $173 $617
SOURCE: Pizza Inn, Inc.
CONTACT: Clinton J. Coleman, Interim Chief Financial Officer of Pizza
Inn, Inc., +1-469-384-5201
Web site: http://www.pizzainn.com/