-----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, CjyLnoGabU4pIQYUKgUZsPWHH4rVrGKJpUdPURPeLvx6rNMTUS9CjcdyO5qItmd+ y26Njp6Rp+5pkiXrthkM1Q== 0000020041-97-000004.txt : 19970618 0000020041-97-000004.hdr.sgml : 19970618 ACCESSION NUMBER: 0000020041-97-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970430 FILED AS OF DATE: 19970616 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: 97625024 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, 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 June 13, 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 - April 30, 1997 and July 31, 1996 1 & 2 of 12 Unaudited Condensed Consolidated Statements of Operations- Three Months Ended April 30, 1997 and 1996 3 of 12 Unaudited Condensed Consolidated Statements of Operations- Nine Months Ended April 30, 1997 and 1996 4 of 12 Unaudited Condensed Consolidated Statements of Cash Flows - Nine Months Ended April 30, 1997 and 1996 5 of 12 Unaudited Condensed Consolidated Statement of Stockholders' Equity - April 30, 1997 6 & 7 of 12 Notes to Unaudited Condensed Consolidated Financial Statements - April 30, 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 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 April 30, July 31, 1997 1996 (Unaudited) (Note) ASSETS Current assets: Cash and cash equivalents $ 16,227,370 $ 16,293,783 Receivables, principally trade, less allowances for doubtful accounts and discounts of $1,236,000 and $1,133,000 35,974,725 30,989,008 Inventories 71,374,113 59,637,802 Investments in marketable securities, at market (approximates cost) 171,588 128,099 Prepaid expenses and other 2,264,295 3,539,776 Total current assets 126,012,091 110,588,468 Property, plant and equipment - at cost $99,134,615 $ 93,683,328 Less allowances for depreciation and amortization 49,624,616 (45,172,084) (49,509,999) 48,511,244 Real estate held for development or sale, at cost 7,649,387 7,691,267 Other assets and deferred charges 24,720,118 26,976,132 Excess of cost over net assets acquired 9,642,576 5,668,008 $217,648,788 $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 April 30, July 31, 1997 1996 (Unaudited) (Note) LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Current portion of long-term debt $ 766,000 Accounts payable 19,831,100 $ 10,469,300 Accrued expenses 9,102,019 11,346,483 Income taxes 3,700,494 1,719,575 Total current liabilities 33,399,613 23,535,358 Long-term debt, excluding current portion 106,131,614 105,235,468 Other non-current liabilities 3,221,066 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 22,869,835 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 (1,150,396) (1,533,749) Total stockholders' equity 69,305,495 63,487,062 $217,648,788 $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 April 30, 1997 1996 Revenues: Net sales $ 95,305,553 $ 85,616,717 Rentals from real estate 523,218 513,299 95,828,771 86,130,016 Cost and expenses: Cost of sales 66,195,704 60,558,257 Selling, general and administrative expenses 23,588,807 20,976,446 Expenses of real estate 410,940 394,565 90,195,451 81,929,268 Operating profit 5,633,320 4,200,748 Interest income 258,191 226,898 Interest expense (2,131,045) (2,148,818) Other income - net 4,565 25,955 Income before income taxes 3,765,031 2,304,783 Income taxes 1,529,000 844,000 Income from continuing operations 2,236,031 1,460,783 Discontinued operations, net of income tax credits of $253,000 (492,433) Net income $2,236,031 $ 968,350 Income/(loss) per share: Primary: Continuing operations $.21 $.14 Discontinued operations (.05) Net income $.21 $.09 Fully diluted: Continuing operations $.15 $.10 Discontinued operations (.02) Net income $.15 $.08 See notes to unaudited condensed consolidated financial statements. CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS Nine Months Ended April 30, 1997 1996 Revenues: Net sales $262,124,553 $245,232,097 Rentals from real estate 1,571,071 1,641,756 263,695,624 246,873,853 Cost and expenses: Cost of sales 183,806,140 175,608,382 Selling, general an administrative expenses 63,944,363 57,940,337 Expenses of real estate 1,279,417 1,145,992 249,029,920 234,694,711 Operating profit 14,665,704 12,179,142 Interest income 936,781 642,042 Interest expense (6,397,452) (6,649,676) Other income - net 23,047 515,038 Income before income taxes 9,228,080 6,686,546 Income taxes 3,793,000 2,483,000 Income from continuing operations 5,435,080 4,203,546 Discontinued operations, net of income tax credits of $752,000 (1,462,577) Net income $5,435,080 $2,740,969 Income/(loss) per share: Primary: Continuing operations $.51 $.39 Discontinued operations (.13) Net income $.51 $.26 Fully diluted: Continuing operations $.39 $.33 Discontinued operations (.07) Net income $.39 $.26 See notes to unaudited condensed consolidated financial statements. CHOCK FULL O'NUTS CORPORATION AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Nine Months Ended April 30, 1997 1996 Operating Activities: Net income $ 5,435,080 $ 2,740,969 Adjustments to reconcile net income to net cash provided by/(used in) operating activities: Depreciation and amortization of property, plant and equipment 4,337,915 4,692,051 Amortization of deferred compensation and deferred charges 3,284,982 3,497,992 Other, net (779,405) (1,319,045) Changes in operating assets and liabilities:(Increase)/decrease in accounts receivable (3,123,588) 1,491,586 (Increase)/decrease in inventory (10,382,605) 4,829,753 Decrease in prepaid expenses 1,376,278 934,877 Increase/(decrease) in accounts payable, accrued expenses and income taxes 6,127,539 (6,609,368) NET CASH PROVIDED BY OPERATING ACTIVITIES 6,276,196 10,258,815 Investing Activities: Acquisition of business (5,746,230) Proceeds from sale and collection of principal of marketable securities 55,588,251 Purchases of marketable securities (43,489) (49,557,703) Purchases of property, plant and equipment (3,575,210) (6,969,394) NET CASH (USED IN) INVESTING ACTIVITIES (9,364,929) (938,846) Financing Activities: Proceeds/(payments)of long-term debt, net 1,662,146 (227,862) Proceeds from co-packer 1,360,174 Loan to employees' stock ownership plan (500,000) Other (13,147) NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 3,022,320 (741,009) (Decrease)/increase in Cash and Cash Equivalents (66,413) 8,578,960 Cash and Cash Equivalents at Beginning of Period 16,293,783 8,386,620 Cash and Cash Equivalents at End of Period $16,227,370 $16,965,580 See notes to unaudited condensed financial statements. 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 April 30, 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 5,435 Deferred compensation under stock bonus plan and employees'stock ownership plan: Amortization 384 Balance at April 30, 1997 $1,150 $51,357 $22,870 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 April 30, 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 nine months ended April 30, 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 nine months ended April 30, 1997 and 1996. Fully diluted per share data, assuming conversion of debentures, is based on 22,556,000 shares outstanding for the three and nine months ended April 30, 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: April 30, July 31, 1997 1996 Finished goods $42,968,077 $35,715,505 Raw materials 22,697,385 18,931,470 Supplies 5,708,651 4,990,827 $71,374,113 $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 April 30, 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 April 30, 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 $4,100,000) is being amortized over a period of 40 years using the straight-line method. The pro forma effects on the Company's operations as if this business had been acquired on August 1, 1995 are not material. (G) In February of 1997, the Financial Accounting Standards Board issued Statement No. 128, "Earnings Per Share", which is required to be adopted on December 31, 1997. At that time, the Company will be required to change the method currently used to compute earnings per share and to restate all prior periods. The Company believes adopt- tion of Statement No. 128 will not have a material impact on earnings per share information currently presented. 9 of 12 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 constitute "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. In January 1997, the Company acquired substantially all of the assets and assumed substantially all of the liabilities of Ireland Coffee and Tea Company ("Ireland") for $8,000,000. The business of Ireland consists of roasting and distributing coffees to hotels, restaurants and institutions on the East Coast. Net sales increased $9,689,000 or 11.3% and $16,892,000 or 6.9% for the three and nine months ended April 30, 1997, compared to the comparable periods of the prior year. The increase for the three months ended April 30, 1997 in net sales was due to an 8% increase in coffee pounds sold and an increase in the average selling price of coffee. The increase in net sales for the nine months ended April 30, 1997 was due to 13% increase in coffee pounds sold, partially offset by a decrease in the average selling price of coffee. Operating profits from food products were $5,521,000 and $14,374,000, increases of 35% and 23% for the three and nine months ended April 30, 1997, respectively, compared to $4,082,000 and $11,683,000 for the comparable periods of the prior year. The increases resulted primarily from increased gross margins and the operations of Ireland from date of acquisition, partially offset by increased selling, general and administrative expenses. Increased gross margins in the three months ended April 30, 1997 were primarily due to increased coffee pounds sold and increased profits per pound related to the change in the relationship between the selling price of coffee and the cost of green coffee purchased. During the three months ended April 30, 1997 prices for green coffee ranged from a high of $2.20 to a low of $1.37 per pound. Increased gross margins in the nine months ended April 30, 1997 were primarily due to increased coffee pounds sold as the per pound profit of coffee sold remained fairly constant. During the nine months ended April 30, 1997 prices for green coffee ranged from a high of $2.20 to a low of $1.03 per pound. Selling, general and adminstrative expenses increased primarily due to increased advertising, brokerage, delivery and data processing costs and salaries. Certain of the Company's selling expenses vary with the number of pounds sold, therefore selling expense has increased in 1997 compared to 1996. Income from continuing operations was $2,236,000 or $.21 per share and $5,435,000 or $.51 per share for the three and nine months ended April 30, 1997, compared to $1,461,000 or $.14 per share and $4,204,000 or $.39 per share for the comparable periods of the prior year. The differences were primarily due to increased operating profits, increased interest income (resulting from increased invested funds)and reduced interest expense (resulting from lower amounts of debt outstanding), partially offset by increased income taxes. Increased income taxes are primarily attributable to increased income before 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 $492,000 or $.05 per share (three months) and $1,463,000 or $.13 per share (nine months). 10 of 12 Liquidity and Capital Resources As of April 30, 1997, working capital was approximately $92,600,000 and the ratio of current assets to current liabilities was approximately 3.8 to 1. As of April 30, 1997, the Company had unused borrowing capacity of approximately $28 million under its credit facilities of $40 million with Fleet Bank, N.A. and The Chase Manhattan Bank. Cash flow from operations for the 1997 period decreased to $6,276,000 compared to $10,259,000 for the comparable period of 1996, while net income for the 1997 period increased to $5,435,000 compared to $2,741,000 for the comparable period for 1996. The decrease in cash flow from operations related to higher levels of inventory and accounts receivable offset to some extent by higher accounts payable and income tax payable. The higher inventory, accounts receivable and payables related to higher green coffee prices. Cash used in investing activities principally related to the acquisition of Ireland and property, plant and equipment purchases. Cash provided by financing activities related to proceeds of long-term debt to finance working capital as well as the aformentioned acquisition and the collection of advances from a co-packer. The Company plans on expanding its Quikava, company operated and franchised operations, which in total are currently operating in 16 locations. The sales ($2,554,000 - nine months)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 $1,400,000 on an annual basis are not being absorbed. 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 April 30, 1997 through June 10, 1997, the green coffee market has become extremely volatile reaching a high of $3.14 per pound and a low of $2.18 per pound. Historically, the Company has been able 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 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 Appendix A to item 601 (c) of Regulation S-K (Article 5 of Regulation S-X Chock full o'Nuts Corporation and Subsidiaries) 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 11, 1997 Marvin I. Haas President and Chief Executive Officer June 13, 1997 Howard M. Leitner Senior Vice President and Chief Financial and Accounting Officer 12 of 12 EX-27 2
5 9-MOS JUL-31-1997 APR-30-1997 16227370 171588 37210725 1236000 71374113 126012091 99134615 49509999 217648788 33399613 106131614 0 0 2802767 66502728 217648788 262124533 263695604 183806140 249029920 0 1683000 6397452 9228080 3793000 5435080 0 0 0 5435080 0.51 0.39
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