-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WlHpB7qTnPemiefPmNGOtUyuRJkXz+xftsubaPg7up8nZM2rqR8VoZe5TcCUsuGj 9kk1eCl19JnP3LfJVjvBxA== 0000020041-97-000003.txt : 19970318 0000020041-97-000003.hdr.sgml : 19970318 ACCESSION NUMBER: 0000020041-97-000003 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970131 FILED AS OF DATE: 19970317 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHOCK FULL O NUTS CORP CENTRAL INDEX KEY: 0000020041 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS FOOD PREPARATIONS & KINDRED PRODUCTS [2090] IRS NUMBER: 130697025 STATE OF INCORPORATION: NY FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-04183 FILM NUMBER: 97557589 BUSINESS ADDRESS: STREET 1: 370 LEXINGTON AVE CITY: NEW YORK STATE: NY ZIP: 10017 BUSINESS PHONE: 2125320300 MAIL ADDRESS: STREET 1: 370 LEXINGTON AVENUE CITY: NEW YORK STATE: NY ZIP: 10017 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended January 31, 1997 Commission File Number 1-4183 CHOCK FULL O' NUTS CORPORATION (Exact Name of Registrant As Specified In Its Charter) New York 13-0697025 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 370 Lexington Avenue, New York, N.Y. 10017 (Address of Principal Executive Offices) (Zip Code) Registrant's Telephone Number, including Area Code (212) 532-0300 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 for 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 No. of Shares of Common Stock ($.25 par value) outstanding as of March 14, 1997 - 10,735,546 CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES INDEX Page No. PART I. FINANCIAL INFORMATION Item 1. Financial Statements Unaudited Condensed Consolidated Balance Sheets - January 31, 1997 and July 31, 1996 1 & 2 of 12 Unaudited Condensed Consolidated Statements of Operations -Three Months Ended January 31, 1997 and 1996 3 of 12 Unaudited Condensed Consolidated Statements of Operations -Six Months Ended January 31, 1997 and 1996 4 of 12 Unaudited Condensed Consolidated Statements of Cash Flows -Six Months Ended January 31, 1997 and 1996 5 of 12 Unaudited Condensed Consolidated Statement of Stockholders' Equity - January 31, 1997 6 & 7 of 12 Notes to Unaudited Condensed Consolidated Financial Statements - January 31, 1997 8 & 9 of 12 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 & 11 of 12 PART II. OTHER INFORMATION Item 1. Legal Proceedings 11 of 12 Item 4. Submission of Matters to a Vote of Security Holders 11 of 12 Item 5. Other Information 11 of 12 Item 6. Exhibits and Reports on Form 8-K 11 of 12 Signatures 12 of 12 PART I. FINANCIAL INFORMATION CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS January 31, July 31, 1997 1996 (Unaudited) (Note) ASSETS Current assets: Cash and cash equivalents $ 16,805,029 $ 16,293,783 Receivables, principally trade, less allowances for doubtful accounts and discounts of $1,282,000 and $1,133,000 36,507,691 30,989,008 Inventories 58,646,112 59,637,802 Investments in marketable securities, at market (approximates cost) 162,125 128,099 Prepaid expenses and other 3,181,007 3,539,776 Total current assets 115,301,964 110,588,468 Property, plant and equipment - at cost $ 98,385,493 93,683,328 Less allowances for depreciation and amortization (48,708,790) 49,676,703 (45,172,084) 48,511,244 Real estate held for development or sale, at cost 7,663,348 7,691,267 Other assets and deferred charges 24,667,265 26,976,132 Excess of cost over net assets acquired 10,261,252 5,668,008 $207,570,532 $199,435,119 Note: The balance sheet at July 31, 1996 has been derived from the audited financial statements at that date. See notes to unaudited condensed consolidated financial statements. CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS January 31, July 31, 1997 1996 (Unaudited) (Note) LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable $ 13,179,943 $ 10,469,300 Accrued expenses 8,233,017 11,346,483 Income taxes 2,676,258 1,719,575 Total current liabilities 24,089,218 23,535,358 Long-term debt 107,727,069 105,235,468 Other non-current liabilities 3,221,566 1,586,231 Deferred income taxes 5,591,000 5,591,000 Stockholders' equity: Common stock, par value $.25 per share; Authorized 50,000,000 shares: Issued 11,211,068 shares 2,802,767 2,802,767 Additional paid-in-capital 51,357,008 51,357,008 Retained earnings 20,633,804 17,434,755 Cost of 475,522 shares in treasury (6,573,719) (6,573,719) Deferred compensation under stock bonus plan and employees' stock ownership plan (1,278,181) (1,533,749) Total stockholders' equity 66,941,679 63,487,062 $207,570,532 $199,435,119 Note: The balance sheet at July 31, 1996 has been derived from the audited financial statements at that date. See notes to unaudited condensed consolidated financial statements. CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS Three Months Ended January 31, 1997 1996 Revenues: Net sales $ 84,242,490 $ 82,243,101 Rentals from real estate 524,969 581,615 84,767,459 82,824,716 Cost and expenses: Cost of sales 58,455,236 59,266,194 Selling, general and administrative expenses 21,114,737 19,386,323 Expenses of real estate 444,179 382,871 80,014,152 79,035,388 Operating profit 4,753,307 3,789,328 Interest income 360,156 276,688 Interest expense (2,126,938) (2,234,837) Other income - net 1,964 410,105 Income before income taxes 2,988,489 2,241,284 Income taxes 1,240,000 852,000 Income from continuing operations 1,748,489 1,389,284 Discontinued operations, net of income tax credits of $228,000 (443,577) Net income $1,748,489 $ 945,707 Income/(loss) per share: Primary: Continuing operations $.16 $.13 Discontinued operations (.04) Net income $.16 $.09 Fully diluted: Continuing operations $.13 $.11 Discontinued operations (.02) Net income $.13 $.09 See notes to unaudited condensed consolidated financial statements. CHOCK FULL O'NUTS CORPORATION AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Six Months Ended January 31, 1997 1996 Operating Activities: Net income $ 3,199,049 $ 1,772,619 Adjustments to reconcile net income to net cash provided by/(used in) operating activities: Depreciation and amortization of property, plant and equipment 3,536,706 3,105,337 Amortization of deferred compensation and deferred charges 2,172,602 2,384,927 Other, net (237,266) (1,110,265) Changes in operating assets and liabilities: Decrease in accounts receivable (3,702,554) (1,000,711) Decrease in inventory 2,345,396 6,478,025 Decrease in prepaid expenses 459,566 654,057 (Decrease)/increase in accounts payable, accrued expenses and income taxes (2,416,856) 997,875 NET CASH PROVIDED BY OPERATING ACTIVITIES 5,356,643 13,281,864 Investing Activities: Acquisition of business (5,746,230) Proceeds from sale and collection of principal of marketable securities 23,769,058 Purchases of marketable securities (34,026) (23,767,734) Purchases of property, plant and equipment (2,826,088) (4,700,033) NET CASH (USED IN) INVESTING ACTIVITIES (8,606,344) (4,698,709) Financing Activities: Proceeds from long-term debt, net 2,491,601 (499,106) Proceeds from co-packer 1,269,346 (1,719) Loan to employees' stock ownership plan (500,000) NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 3,760,947 (1,000,825) Increase in Cash and Cash Equivalents 511,246 7,582,330 Cash and Cash Equivalents at Beginning of Period 16,293,783 8,386,620 Cash and Cash Equivalents at End of Period $16,805,029 $15,968,950 See notes to unaudited condensed financial statements. 5 of 12 CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS Six Months Ended January 31, 1997 1996 Revenues: Net sales $166,819,000 $159,615,380 Rentals from real estate 1,047,853 1,128,457 167,866,853 160,743,837 Cost and expenses: Cost of sales 117,610,436 115,050,125 Selling, general an administrative expenses 40,355,556 36,963,891 Expenses of real estate 868,477 751,427 158,834,469 152,765,443 Operating profit 9,032,384 7,978,394 Interest income 678,590 415,144 Interest expense (4,266,407) (4,500,858) Other income - net 18,482 489,083 Income before income taxes 5,463,049 4,381,763 Income taxes 2,264,000 1,639,000 Income from continuing operations 3,199,049 2,742,763 Discontinued operations, net of income tax credits of $499,000 (970,144) Net income $3,199,049 $1,772,619 Income/(loss) per share: Primary: Continuing operations $.30 $.26 Discontinued operations (.09) Net income $.30 $.17 Fully diluted: Continuing operations $.24 $.21 Discontinued operations (.04) Net income $.24 $.17 See notes to unaudited condensed consolidated financial statements. 4 of 12 CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY Common Stock Issued In Treasury Shares Amount Shares Amount In Thousands Balance at July 31, 1996 11,211 $2,803 476 $6,574 Net income Deferred compensation under stock bonus plan and employees' stock ownership plan: Amortization Balance at January 31, 1997 11,211 $2,803 476 $6,574 See notes to unaudited condensed consolidated financial statements. 6 of 12 CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY Deferred Compensation Under Stock Bonus Plan and Additional Employees' Stock Paid-In Retained Ownership Plan Capital Earnings In Thousands Balance at July 31, 1996 $1,534 $51,357 $17,435 Net income 3,199 Deferred compensation under stock bonus plan and employees' stock ownership plan: Amortization 256 Balance at January 31, 1997 $1,278 $51,357 $20,634 See notes to unaudited condensed consoliated financial statements. 7 of 12 CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS January 31, 1997 (A) The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly,they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six months ended January 31, 1997 and 1996 are not necessarily indicative of the results that may be expected for a full fiscal year. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended July 31, 1996. (B) Primary per share data is based on the weighted average number of common shares outstanding of 10,736,000 for the three and six months ended January 31, 1997 and 1996. Fully diluted per share data, assuming conversion of debentures, is based on 22,556,000 shares outstanding for the three and six months ended January 31, 1997 and 1996. (C) Inventories are stated at the lower of cost (first-in, first-out) or market. The components of inventory consist of the following: January 31, July 31, 1997 1996 Finished goods $36,631,800 $35,715,505 Raw materials 17,096,803 18,931,470 Supplies 4,917,509 4,990,827 $58,646,112 $59,637,802 (D) Under the Company's amended and restated revolving credit and term loan agreements (collectively the "Loan Agreements") with Fleet Bank, N.A. and The Chase Manhattan Bank (the "Banks"), the Company may, from time to time, borrow funds from the Banks, provided that the total principal amount of all such loans outstanding through December 31, 1997 may not exceed $40,000,000 and after such date may not exceed $20,000,000. Interest (8.25% at January 31, 1997) on all such loans is equal to prime rate, subject to adjustment based on the level of loans outstanding. Outstanding borrowings under the Loan Agreements may not exceed certain percentages of and are collateralized by, among other things, the trade accounts receivable and inventories, and substantially all of the machinery and equipment and real estate of the Company and its subsidiaries. All loans made under the term loan agreement ($10,000,000 at January 31, 1997) are to be repaid in December 1999. Outstanding loans under the revolving credit agreements are to be repaid in December 1999. Pursuant to the terms of the Loan Agreements, the Company and its subsidiaries, among other things, must maintain a minimum net worth and meet ratio tests for liabilities to net worth and coverage of fixed charges and interest, all as defined. The Loan Agreements also provide, among other things, for restrictions on dividends (except for stock dividends) and require repayment of outstanding loans with excess cash flow, as defined. (E) Prepaid expenses and other on the unaudited condensed consolidated balance sheets includes deferred income taxes of $933,000. (F) On January 17, 1997, the Company acquired substantially all of the assets and assumed substantially all of the liabilities of Ireland Coffee & Tea Company, a leading roaster and distributor of coffees to hotels, restaurants and institutions on the East Coast for approximately $8,000,000. The acquisition is being accounted for as purchase. The excess of cost over net assets acquired (approximately $4,700,000) is being amortized over a period of 40 years using the straight-line mehtod. The pro forma effects on the Company's operations as if this business had been acquired on August 1, 1995 are not material. CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Certain statements in the "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this Form 10-Q consti- tute "forward-looking statements" within the meaning of the Reform Act. See Other Information Item 5. Operations The following is Management's discussion and analysis of certain significant factors that have affected the Company's continuing operations during the periods included in the accompanying unaudited condensed consolidated statements of operations. Net sales increased $1,999,000 or 2.4% and $7,204,000 or 4.5% for the three and six months ended January 31, 1997, compared to the comparable periods of the prior year. The increases in net sales was due to a 18% and 6% increase in coffee pounds sold partially offset by a decrease in the average selling price of coffee. Operating profits from food products were $4,673,000 and $8,853,000, increases of 30% and 16% for the three and six months ended January 31, 1997, respectively, compared to $3,591,000 and $7,601,000 for the comparable periods of the prior year. The increases resulted primarily from increased gross margins partially offset by increased selling, general and administrative expenses. Increased gross margins were due to increased coffee pounds sold and a decrease in the average selling price of coffee less than the decrease in the average cost of green coffee. During the six months ended January 31, 1997 prices for green coffee ranged from a high of $1.40 to a low of $1.04 per pound. Selling, general and administrative expenses increased primarily due to increased advertising, brokerage, delivery and coupon costs and salaries. Certain of the Company's selling expenses are tied to the number of pounds sold, therefore selling expense has increased in 1997 compared to 1996. Income from continuing operations was $1,748,000 or $.16 per share and $3,199,000 or $.30 per share for the three and six months ended January 31, 1997, compared to $1,389,000 or $.13 per share and $2,743,000 or $.26 per share for the comparable periods of the prior year. The differences were primarily due to increased operating profits, increased interest income and reduced interest expense, partially offset by increased income taxes. Net income for the 1997 periods are the same as the results from continuing operations. Net income for the 1996 periods are net of a loss from discountinued operations of $444,000 or $.04 per share (three months) and $970,000 or $.09 per share (six months). Liquidity and Capital Resources As of January 31, 1997, working capital was approximately $91,200,000 and the ratio of current assets to current liabilities was approximately 4.8 to 1. As of January 31, 1997, the Company had unused borrowing capacity of approximately $27 million under its credit facilities of $40 million with Fleet Bank, N.A. and The Chase Manhattan Bank. The Company plans on expanding its Quikava, company operated and franchised operations, which in total are currently operating in 16 locations. The sales of these operations are not material to the Company's consolidated sales. Total Quikava store level operations are not currently profitable. In addition, Quikava headquarters' expenses of approximately $1,200,000 on an annual basis are not being absorbed. 10 of 12 The Company believes that its cash flow from operations and its amended and restated revolving credit and term loan agreements with its Banks provide sufficient liquidity to meet its working capital, expansion and capital requirements. Green Coffee Market Subsequent to Janaury 31, 1997, the green coffee market has become extremely volatile reaching a high of $2.20 per pound. Historically, the Company has been able, on a long-term basis, to pass along price increases to its customers, although at very high retail price levels there is a fall-off in consumer demand. Part II. Other Information Item 1. Legal Proceedings - None Item 4. Submission of Matters to a Vote of Security Holders At the Company's annual meeting of shareholders' held on December 19, 1996, the Company's shareholders' elected Martin J. Cullen (8,127,893 for 1,398,654 against), Marvin I. Haas (8,131,830 for 1,394,717 against) and R. Scott Schafler (8,129,473 for 1,397,074 against) as directors for a term of three years and ratified the appointment for independent auditors for 1997 with a vote of 9,264,381 for, 213,286 against and 48,873 abstained. In addition, the Company's shareholders' rejected (1) a proposal by John J. Gilbert, 29 East 64th Street, New York, NY 10021 for the elimi- nation of the staggered Board of Directors with a vote of 4,110,296 against, 2,563,024 for and 145,799 abstained and (2) a proposal by Mark Kreiger 2098 Lower Lake Drive, Santa Ana, CA 92705 for a 10,000 share ownership require- ment by Directors of10,000 shares of the Company's Common Stock by a vote of 4,610,205 against, 2,009,948 for and 198,962 abstained. Item 5. Other Information Certain statements under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this Form 10-Q constitute "forward looking statements" within the meaning of the Reform Act. Such forward looking statements involve known risks, uncertainties, and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward looking statements. Such factors include, among others, the following: general economic and business conditions; competition; success of operating initiatives; development and operating costs, including green cofee prices; advertising and promotional efforts; brand awareness; the existence of or adherence to development schedules; the existence or absence of adverse publicity; availability, locations and terms of sites for Quikava outlets; changes in business strategy or development plans; quality of management; availability, terms and deployment of capital; business abilities and judgment of personnel; availability of qualified personnel; labor and employee benefit costs; changes in or the failure to comply with government regulations; construction costs and other factors. Item 6. Exhibits and Reports on Form 8-K a) Exhibits - Financial Data Schedule - Exhibit 27 - see below b) Reports on Form 8-K - none 11 of 12 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant duly caused this Report of Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized. CHOCK FULL O' NUTS CORPORATION (Registrant) March 14, 1997 Marvin I. Haas President and Chief Executive Officer March 14, 1997 Howard M. Leitner Senior Vice President and Chief Financial and Accounting Officer 12 of 12 EX-27 2
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