-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, NpE8Xms6zSXkHH3NoyyZAyzXcaYpUbn1HwOFtnUWGGqsevIrrY8ud0uPeKuHmkDV PDdL9/EztuiFsyioI4PWPw== 0000020041-94-000005.txt : 19940615 0000020041-94-000005.hdr.sgml : 19940615 ACCESSION NUMBER: 0000020041-94-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19940430 FILED AS OF DATE: 19940614 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHOCK FULL O NUTS CORP CENTRAL INDEX KEY: 0000020041 STANDARD INDUSTRIAL CLASSIFICATION: 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: 94534111 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 April 30, 1994 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 June 10, 1994 - 10,119,032 CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES INDEX Page No. PART I. FINANCIAL INFORMATION Item 1. Financial Statements Unaudited Condensed Consolidated Balance Sheets - April 30, 1994 and July 31, 1993 1 & 2 of 16 Unaudited Condensed Consolidated Statements of Operations- Three Months Ended April 30, 1994 and 1993 3 of 16 Unaudited Condensed Consolidated Statements of Operations - Nine Months Ended April 30, 1994 and 1993 4 of 16 Unaudited Condensed Consolidated Statements of Cash Flows - Nine Months Ended April 30, 1994 and 1993 5 of 16 Unaudited Condensed Consolidated Statement of Stockholders' Equity - April 30, 1994 6 & 7 of 16 Notes to Unaudited Condensed Consolidated Financial Statements - April 30, 1994 8, 9, 10 & 11 of 16 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12, 13 & 14 of 16 PART II. OTHER INFORMATION Item 1. Legal Proceedings 15 of 16 Item 6. Exhibits and Reports on Form 8-K 15 of 16 Signatures 16 of 16 PART I. FINANCIAL INFORMATION CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS April 30, July 31, 1994 1993 (Unaudited) (Note) ASSETS Current assets: Cash and cash equivalents $7,058,702 $ 5,469,159 Receivables, principally trade, less allowances for doubtful accounts and discounts of $1,119,000 and $1,081,000 26,843,745 25,319,816 Inventories 41,133,581 38,385,397 Net assets of product line held for sale 24,970,356 Marketable securities 25,153,984 Prepaid expenses and other 3,430,596 3,222,586 Total current assets 103,620,608 97,367,314 Property, plant and equipment - at cost $94,765,048 $91,098,376 Less allowances for depreciation and amortization (40,219,273) 54,545,775 (35,502,700) 55,595,676 Real estate held for sale or development, at cost 5,404,243 5,404,243 Other assets and deferred charges 29,966,887 31,040,452 Excess of cost over net assets acquired 6,115,423 5,896,404 $199,652,936 $195,304,089 Note: The balance sheet at July 31, 1993 has been derived from the audited financial statements at that date, restated for the adoption of FASB 109. See notes to unaudited condensed consolidated financial statements. 1 of 16 CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS April 30, July 31, 1994 1993 (Unaudited) (Note) LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable $12,510,189 $ 10,804,095 Accrued expenses 13,001,740 13,605,564 Income taxes 1,938,244 935,359 Total current liabilities 27,450,173 25,345,018 Long-term debt, excluding current installments 107,166,268 108,092,174 Other noncurrent liabilities 2,095,412 5,003,738 Deferred income taxes 3,878,000 3,878,000 Stockholders' equity: Common stock, par value $.25 per share; Authorized 50,000,000 shares: Issued 10,594,554 and 10,592,264 shares 2,648,639 2,648,066 Additional paid-in-capital 47,274,704 47,255,836 Retained earnings 17,937,907 10,457,264 Cost of 475,522 and 275,522 shares in treasury (6,573,719) (4,723,719) Deferred compensation under stock bonus plan and employees' stock ownership plan (1,799,448) (2,227,288) Unfunded pension losses (425,000) (425,000) Total stockholders' equity 59,063,083 52,985,159 $199,652,936 $195,304,089 Note: The balance sheet at July 31, 1993 has been derived from the audited financial statements at that date, restated for the adoption of FASB 109. See notes to unaudited condensed consolidated financial statements. 2 of 16 CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS Three Months Ended April 30, 1994 1993 Revenues: Net sales $61,467,118 $67,667,967 Rentals from real estate 507,263 477,957 61,974,381 68,145,924 Cost and expenses: Cost of sales 41,307,351 41,901,973 Selling, general and administrative expenses 18,838,018 22,230,682 Expenses of real estate 450,083 399,197 60,595,452 64,531,852 Operating profit 1,378,929 3,614,072 Interest and dividend income 464,077 81,332 Interest expense (2,206,533) (2,782,925) Other income - net 27,731 23,585 (Loss)/income from continuing operations before income taxes (335,796) 936,064 Income taxes (66,000) 448,500 (Loss)/income from continuing operations (269,796) 487,564 Discontinued operations - loss on disposition (535,116) Net (loss) $(269,796) $(47,552) Income/(loss) per share Primary Continuing operations $(.03) $ .05 Net (loss) $(.03) $(.01) Fully diluted Continuing operations $(.03) $ .05 Net (loss) $(.03) $(.01) See notes to unaudited condensed consolidated financial statements. 3 of 16 CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS Nine Months Ended April 30, 1994 1993 Revenues: Net sales $194,511,125 $183,766,846 Rentals from real estate 1,564,199 1,393,210 196,075,324 185,160,056 Cost and expenses: Cost of sales 128,184,432 116,128,167 Selling, general and administrative expenses 59,956,235 56,672,703 Expenses of real estate 1,279,219 1,156,318 189,419,886 173,957,188 Operating profit 6,655,438 11,202,868 Interest and dividend income 820,207 741,843 Gain on sales of marketable securities 335,577 Gain on sale of product line 13,208,393 Interest expense (6,551,336) (7,441,756) Other (deductions) - net (10,059) (6,253) Income from continuing operations before income taxes 14,122,643 4,832,279 Income taxes 6,642,000 2,017,500 Income from continuing operations 7,480,643 2,814,779 Discontinued operations: Income from operations, net of income taxes of $1,339,000 1,103,029 Loss on disposition (3,171,239) (2,068,210) Net income $7,480,643 $746,569 Income per share Primary Continuing operations $.73 $.28 Net income $.73 $.08 Fully diluted Continuing operations $.51 $.28 Net income $.51 $.08 See notes to unaudited condensed consolidated financial statements. 4 of 16 CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Nine Months Ended April 30, 1994 1993 Operating Activities - Continuing Operations: Income from continuing operations $7,480,643 $ 2,814,779 Adjustments to reconcile income from continuing operations to net cash provided by operating activities: Depreciation and amortization of property, plant and equipment 4,716,573 4,972,678 Amortization of deferred compensation and deferred charges 3,308,321 3,323,122 Gain on sale of marketable securities (335,577) Gain on sale of product line (13,208,393) Other, net (696,433) (1,734,925) Changes in operating assets and liabilities: (Increase)/decrease in accounts receivable (1,204,455) 284,853 (Increase) in inventory (2,742,184) (5,277,705) (Increase)/decrease in prepaid expenses (202,898) 1,062,438 (Decrease)/Increase in accounts payable, accrued expenses and income taxes (923,025) 438,800 NET CASH (USED IN)/PROVIDED BY CONTINUING OPERATIONS (3,471,851) 5,548,463 Investing Activities - Continuing Operations: Proceeds from sale and collection of principal of marketable securities 1,846,828 20,648,985 Purchases of marketable securities (27,000,812) Purchases of property, plant and equipment (3,520,816) (6,185,633) Proceeds from sale of product line 38,109,205 Increase in assets held for sale (1,093,071) Acquisition of businesses (467,288) (55,390,488) NET CASH PROVIDED BY/(USED IN) CONTINUING OPERATIONS 7,874,046 (40,927,136) Financing Activities - Continuing Operations: Proceeds from long-term debt 40,287,192 Principal payments on long-term debt (905,906) (1,287,925) Purchase of treasury stock (1,850,000) Other (56,746) (2,382,589) NET CASH (USED IN)/PROVIDED BY CONTINUING OPERATIONS (2,812,652) 36,616,678 Increase in Cash and Cash Equivalents - Continuing Operations 1,589,543 1,238,005 Cash and cash equivalents at beginning of period - continuing operations 5,469,159 2,529,123 Cash and Cash Equivalents at End of Period - Continuing Operations $7,058,702 $ 3,767,128 See notes to unaudited condensed consolidated financial statements. 5 of 16 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, 1993 - as reported 10,592 $2,648 276 $4,724 Restatement due to adoption of FASB 109 Balance at July 31, 1993 - as restated 10,592 2,648 276 4,724 Net income Conversion of subordinated debentures 3 1 Purchase of treasury stock 200 1,850 Deferred compensation under stock bonus plan and employees' stock ownership plan: Amortization Balance at April 30, 1994 10,595 $2,649 476 $6,574 See notes to unaudited condensed consolidated financial statements. 6 of 16 CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY Deferred Compensation Under Stock Bonus Plan and Unfunded Additional Employees' Stock Pension Paid-In Retained Ownership Plan Losses Capital Earnings In Thousands Balance at July 31, 1993 - as reported $2,227 $ 425 $47,256 $11,809 Restatement due to adoption of FASB 109 (1,352) Balance at July 31, 1993 as restated 2,227 425 47,256 10,457 Net income 7,481 Purchase of treasury stock Conversion of subordinated debentures 19 Deferred compensation under stock bonus plan and employees' stock ownership plan: Amortization (428) Balance at April 30, 1994 $1,799 $ 425 $47,275 $ 17,938 See notes to unaudited condensed consolidated financial statements. 7 of 16 CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS April 30, 1994 (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 nine months ended April 30, 1994 and 1993 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, 1993. (B) In April 1993, the Company and Jimbo's Jumbos, Incorporated ("JJI") entered into an agreement to merge JJI with and into a company controlled by John W. Kluge and his affiliates. Pursuant to the merger, which was consummated on July 8, 1993, the Company, as well as all other stockholders of JJI received $6.93 per share for each share owned. The proceeds ($32,917,500) were used to reduce outstanding bank debt incurred for the acquisition of Cain's Coffee Co. (see Note E). A loss of $3,171,000 was incurred in connection with the sale and was charged to discontinued operations, of which $2,636,000 had been provided for in the three months ended January 31, 1993. The Company has restated its financial statements to present the operating results of JJI for the three and nine months ended April 30, 1993 as a discontinued operation. (C) Primary per share data are based on the weighted average number of common shares outstanding of 10,119,000 and 10,288,000, respectively, for the three months ended April 30, 1994 and 1993 and 10,198,000 and 10,240,000, respectively, for the nine months ended April 30, 1994 and 1993. The three and nine month periods ended April 30, 1993 have been retroactively adjusted for a 3% stock dividend distributed in July 1993. Fully diluted earnings per share assumes conversion of outstanding debentures. (D) Inventories are stated at the lower of cost (first-in,first-out) or market. The components of inventory consist of the following: April 30, July 31, 1994 1993 Finished goods $25,031,289 $24,657,182 Raw materials 11,743,403 9,139,425 Supplies 4,358,889 4,588,790 $41,133,581 $38,385,397 8 of 16 (E) In December 1992, the Company acquired the stock of Cain's Coffee Co. ("Cains") and certain trademarks related to that business from Nestle' Beverage Company and an affiliate for approximately $52,000,000 in cash. Cain's business consists primarily of sales of coffee and related products to food service customers in parts of the Midwest and Southwest. In connection with the acquisition, which has been accounted for as a purchase transaction, the Company acquired assets with a fair value of approximately $55,750,000 (including trademarks, covenant not to compete and customer list of $20,900,000, included in other assets and deferred charges on the consolidated balance sheets) and assumed liabilities of approximately $3,750,000. The Company used the proceeds (approximately $20,500,000) from the sale of a substantial portion of its marketable securities to finance a portion of the purchase price and financed the remainder through additional borrowings from its Banks. The following pro forma unaudited results of operations assume the acquisition of Cains occurred at August 1, 1992, and give effect to certain adjustments, including depreciation of property, plant and equipment, amortization of a covenant not to compete, trademarks and customer lists and interest expense resulting from the acquisition and related financing. Nine Months Ended April 30, 1993 Net sales $207,126,000 Income from continuing operations $ 3,022,000 Income from continuing operations per share $ .30 Net income $ 954,000 Net income per share $ .09 (F) Under the Company's amended and restated revolving credit and term loan agreements (collectively the "Loan Agreements") with National Westminster Bank USA and Chemical 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 at any time may not exceed $40,000,000. Interest (7.5% at April 30, 1994) on all such loans is equal to prime rate plus three quarters of a percent, 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 April 30, 1994) are to be repaid in December 1997. 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. 9 of 16 (G) In November 1992, the Company acquired a controlling interest in a partnership which owns Dana Brown Private Brands, Inc., a company which markets and sells coffee and tea products, servicing food retailers and distributors located primarily in the Midwest. The purchase price was $2,000,000, plus approximately $2,500,000 for the cost of inventory. The pro forma effects on the Company's operations as if this business had been acquired on August 1, 1992 are not material. (H) Prepaid expenses and other on the unaudited condensed consolidated balance sheets includes deferred income taxes of $1,442,000. (I) On October 8, 1993, the Company and Gourmet Coffees of America, Inc.("GCA") entered into an agreement to sell Hillside Coffee of California, Inc. ("Hillside") to GCA. Pursuant to the agreement, which was consummated on November 19, 1993, the Company received (a) $38,500,000 in cash and (b) 75,000 shares of stock representing approximately one-half of one percent of the equity of GCA. The operating profits of Hillside, before intercompany charges, for the period August 1, 1993 to November 19, 1993 and the nine months ended April 30, 1993, included in the results of operations are as follows: Period from August 1, 1993 to Nine months ended November 19, 1993 April 30, 1993 Net sales $9,557,000 $21,011,000 Cost and expenses: Cost of sales 4,169,000 8,594,000 Selling, general and administrative expenses 3,566,000 8,533,000 7,735,000 17,127,000 Operating profit $1,822,000 $3,884,000 (J) In February 1992, the Financial Accounting Standards Board issued Statement No. 109, "Accounting for Income Taxes." The Company adopted the provisions of the standard in its financial statements as of and for the three months ended October 31, 1993 and restated its fiscal 1993, 1992, 1991 and 1990 financial statements. The effect of adopting Statement 109 was to increase income from continuing operations by $147,000 in 1993 and 1992 and $12,000 in 1991 and 1990. The cumulative effect of adopting Statement 109 as of July 31, 1990, decreased the beginning balance of retained earnings by $1,670,000. Under Statement 109, the liability method is used in accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Prior to the adoption of Statement 109, income tax expense was determined using the deferred method. Deferred tax expense was based on items of income and expense that were reported in different years in the financial statements and tax returns and were measured at the tax rate in effect in the year the differences originated. 10 of 16 (K) On March 11, 1994, the Company acquired for approximately $467,000 all the operating assets and liabilities of a company engaged in the commercial franchising and operation of drive through food service establishments primarily engaged in the sale of gourmet coffee complimented by fresh bakery goods, sandwiches and ancillary products. The acquisition is being accounted for as purchase. Based on a preliminary allocation of the purchase price, the excess of cost over not assets acquired (approximately $360,000) is being amortized over a period of 15 years using the straight-line method. The pro forma effects on the Companys operations as if this business had been acquired on August 1, 1992 are not material. 11 of 16 CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Operations The following is Management's discussion and analysis of certain significant factors that have affected the Company's operations during the periods included in the accompanying unaudited condensed consolidated statements of operations. In December 1992, the Company acquired the stock of Cain's Coffee Co. ("Cains") and certain trademarks related to that business from Nestle' Beverage Co. and an affiliate for $52,000,000 in cash. The business of Cains consists primarily of sales of coffee and related products to food service customers in parts of the Midwest and Southwest. See Note E to the Company's unaudited condensed consolidated financial statements as of and for the three and nine months ended April 30, 1994. In November 1992, the Company acquired a controlling interest in a partnership which owns Dana Brown Private Brands, Inc. ("Dana Brown"), a company which markets and sells coffee and tea products, servicing food retailers and distributors located primarily in the Midwest. The purchase price was $2,000,000, plus approximately $2,500,000 for the cost of inventory. See Note G to the Company's unaudited condensed consolidated financial statements as of and for the three and nine months ended April 30, 1994. In April 1993, the Company and Jimbo's Jumbos, Incorporated ("JJI") entered into an agreement to merge JJI with and into a company controlled by John W. Kluge and his affiliates. Pursuant to the merger, which was consummated on July 8, 1993, the Company, as well as all other stockholders of JJI, received $6.93 per share for each share owned (see Note B to the Company's unaudited condensed consolidated financial statements as of and for the three and nine months ended April 30, 1994). A loss of $3,171,000 was incurred in connection with the sale and was charged to discontinued operations. The proceeds ($32,917,500) were used to reduce outstanding bank debt incurred for the acquisition of Cain's. The business of JJI consisted primarily of (1) shelling farmers' stock peanuts into commercial and seed grades of raw peanuts for sale to commercial processors of peanuts, seed dealers and farmers and (2) processing and packaging of in-shell peanuts and nuts, shelled peanuts and nuts, for sale to supermarkets. On October 8, 1993, the Company and Gourmet Coffees of America, Inc. ("GCA") entered into an agreement to sell Hillside Coffee of California, Inc. ("Hillside") to GCA. Pursuant to the agreement, which was consummated on November 19, 1993, the Company received (a) $38,500,000 in cash and (b) 75,000 shares of stock representing approximately one-half of one percent of the equity of GCA. See Note I to the Companys unaudited condensed consolidated financial statements as of and for the three months ended April 30, 1994. A pre-tax gain of approximately $13,200,000 was recorded on the sale and approximately $25,000,000 of the proceeds have been invested in short term marketable securities. Hillside's business consisted of roasting, packing, distributing and marketing specialty coffee to supermarkets. The discussion and analysis that follows relates solely to the continuing operations of the Company. 12 of 16 CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Operations - Continued Net sales decreased $6,201,000 or 9.2% and increased $10,744,000 or 5.8% for the three and nine months ended April 30, 1994, respectively, compared to the comparable periods of the prior year. The decrease in net sales for the quarter was primarily due to the loss of sales from Hillside due to its disposition on November 19, 1993. The increase in net sales for the nine months was primarily due to sales of Cains and Dana Brown (both acquired in the second quarter of the prior fiscal year) partially offset by the loss of sales from Hillside. Cain's and Dana Brown were accounted for as purchases, and, therefore, were not included prior to their respective dates of acquisition. Operating profits from food products were $1,322,000 and $6,370,000 decreases of 63% and 42% for the three and nine months ended April 30, 1994, respectively, compared to $3,535,000 and $10,966,000 for the comparable periods of the prior year. The decrease in operating profits for the quarter resulted primarily from decreased gross margins and reduced operating profits from Hillside (due to its disposition), partially offset by reduced selling, general and administrative expenses. The reduced gross margins were attributable to the inability to increase selling prices (due to competition) commensurate with the increased costs of coffee. Selling, general and administrative expenses decreased in the quarter primarily due to reduced payroll, brokerage, promotion and bad debt expenses. The decrease in operating profits for the nine months resulted primarily from decreased gross margins and reduced operating profits from Hillside (due to its disposition), partially offset by the operations of Cains (included for the entire period for the current nine months) and reduced selling, general and administrative expenses for operations included in both the current and prior year. The reduced gross margins were attributable to the inability to increase selling prices (due to competition) commensurate with the increased costs of coffee. Selling, general and administrative expenses decreased in the nine months period due to reduced advertising and payroll costs, partially offset by increased coupon costs. (Loss)/income from continuing operations was $(270,000) and $7,481,000 or $(.03) and $.73 per share for the three and nine months ended April 30, 1994, respectively, compared to $488,000 and $2,815,000 or $.05 and $.28 per share for the comparable periods of the prior year. The difference for the quarter was primarily due to decreased operating profits from food products, partially offset by decreased interest expense, increased investment income and decreased income taxes. The difference for the nine months was primarily due to the gain on sale of Hillside Coffee of California, Inc. (the Company's specialty coffee product line) of $7,068,000 or $.69 per share, partially offset by decreased operating profits from food products, decreased interest expense and decreased income taxes. Liquidity and Capital Resources As of April 30, 1994, working capital was approximately $76,000,000 and the ratio of current assets to current liabilities was approximately 3.8 to 1. 13 of 16 CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity and Capital Resources - Continued On November 19, 1993, the Company consummated the sale of Hillside Coffee of California, Inc. and received, among other consideration, $38,500,000 in cash which has substantially been invested in short-term marketable securities. See Note I to the Company's unaudited consolidated financial statements as of and for the three and nine months ended April 30, 1994. The Company believes that its cash flow from operations, its amended agreements with its Banks and its short-term investments provide sufficient liquidity to meet its working capital and capital requirements. The recent significant price rise in the cost of coffee in May and June has caused the Company to increase its selling prices for coffee. The Company is unable to estimate the impact of the recent selling price increases and possible further increases in the cost of coffee on future operating results. 14 of 16 Part 2. Other Information Item 1. Legal Proceedings None Item 6. Exhibits and Reports on Form 8-K a) Exhibits - none b) Reports on Form 8-K - none 15 of 16 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) June 14, 1994 Marvin I. Haas Vice Chairman of the Board and Chief Executive Officer June 14, 1994 Howard M. Leitner President and Chief Financial and Accounting Officer 16 of 16 -----END PRIVACY-ENHANCED MESSAGE-----