-----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, nSbJCRJ2zpteOxQ1vBYiktDVOfPvcuWe9mrGebmz9bsTxnKItStURfPKcsz86wKP FiLQ1qAbtj/QS/oSDAR1bQ== 0000950130-94-000412.txt : 19940318 0000950130-94-000412.hdr.sgml : 19940318 ACCESSION NUMBER: 0000950130-94-000412 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19940131 FILED AS OF DATE: 19940317 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: 34 SEC FILE NUMBER: 001-04183 FILM NUMBER: 94516572 BUSINESS ADDRESS: STREET 1: 370 LEXINGTON AVE CITY: NEW YORK STATE: NY ZIP: 10017 BUSINESS PHONE: 2125320300 10-Q 1 10-Q 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, 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 MARCH 11, 1994 - 10,119,032 PART I. FINANCIAL INFORMATION ----------------------------- CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES ----------------------------------------------- CONDENSED CONSOLIDATED BALANCE SHEETS -------------------------------------
JANUARY 31, JULY 31, 1994 1993 --------------------------------- ------------ (UNAUDITED) (NOTE) ASSETS CURRENT ASSETS: CASH AND CASH EQUIVALENTS $ 10,715,408 $ 5,469,159 RECEIVABLES, PRINCIPALLY TRADE, LESS ALLOWANCES FOR DOUBTFUL ACCOUNTS AND DISCOUNTS OF $1,176,000 AND $1,081,000 25,791,540 25,319,816 INVENTORIES 39,809,992 38,385,397 NET ASSETS OF PRODUCT LINE HELD FOR SALE 24,970,356 MARKETABLE SECURITIES 24,432,612 PREPAID EXPENSES AND OTHER 2,542,951 3,222,586 ------------ ------------ TOTAL CURRENT ASSETS 103,292,503 97,367,314 PROPERTY, PLANT AND EQUIPMENT - AT COST $ 93,243,208 $ 91,098,376 LESS ALLOWANCES FOR DEPRECIATION AND AMORTIZATION (38,651,690) 54,591,518 (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 30,447,085 31,040,452 EXCESS OF COST OVER NET ASSETS ACQUIRED 5,807,604 5,896,404 ----------- ------------ $199,542,953 $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 14 CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES ----------------------------------------------- CONDENSED CONSOLIDATED BALANCE SHEETS -------------------------------------
JANUARY 31, JULY 31, 1994 1993 ------------- ------------- (UNAUDITED) (NOTE) LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: ACCOUNTS PAYABLE $ 9,019,551 $ 10,804,095 ACCRUED EXPENSES 10,978,334 13,605,564 INCOME TAXES 4,910,101 935,359 ------------ ------------ TOTAL CURRENT LIABILITIES 24,907,986 25,345,018 LONG-TERM DEBT, EXCLUDING CURRENT INSTALLMENTS 106,525,641 108,092,174 OTHER NONCURRENT LIABILITIES 5,036,929 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 18,207,703 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 (1,937,930) (2,227,288) UNFUNDED PENSION LOSSES (425,000) (425,000) TOTAL STOCKHOLDERS' EQUITY 59,194,397 52,985,159 ------------ ------------ $199,542,953 $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 14 CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES ----------------------------------------------- UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS ---------------------------------------------------------
THREE MONTHS ENDED JANUARY 31, ------------------------------ 1994 1993 ------------------------------- ------------ REVENUES: NET SALES $62,108,202 $65,725,521 RENTALS FROM REAL ESTATE 574,012 477,262 ----------- ----------- 62,682,214 66,202,783 ----------- ----------- COST AND EXPENSES: COST OF SALES 41,446,261 41,331,338 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 18,531,010 19,939,347 EXPENSES OF REAL ESTATE 430,173 361,536 ----------- ----------- 60,407,444 61,632,221 ----------- ----------- OPERATING PROFIT 2,274,770 4,570,562 INTEREST AND DIVIDEND INCOME 331,100 252,337 GAIN ON SALE OF MARKETABLE SECURITIES 335,577 GAIN ON SALE OF PRODUCT LINE 13,208,393 INTEREST EXPENSE (2,158,665) (2,565,267) OTHER (DEDUCTIONS) - NET (46,124) (32,808) ----------- ----------- INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 13,609,474 2,560,401 INCOME TAXES 6,365,000 938,500 ----------- ----------- INCOME FROM CONTINUING OPERATIONS 7,244,474 1,621,901 ----------- ----------- DISCONTINUED OPERATIONS: INCOME FROM OPERATIONS, NET OF INCOME TAXES OF $672,000 552,680 LOSS IN DISPOSITION (2,636,123) ----------- (2,083,443) ----------- NET INCOME/(LOSS) $ 7,244,474 $ (461,542) =========== =========== INCOME/(LOSS) PER SHARE PRIMARY CONTINUING OPERATIONS $ .71 $ .16 =========== =========== NET INCOME/(LOSS) $ .71 $ (.05) =========== =========== FULLY DILUTED CONTINUING OPERATIONS $ .40 $ .12 =========== =========== NET INCOME/(LOSS) $ .40 $ (.05) =========== ===========
SEE NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. 3 OF 14 CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES ----------------------------------------------- UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS ---------------------------------------------------------
SIX MONTHS ENDED JANUARY 31, ------------------------------------------ 1994 1993 ------------ ---------------------------- REVENUES: NET SALES $133,044,007 $116,098,879 RENTALS FROM REAL ESTATE 1,056,936 915,253 ------------ ------------ 134,100,943 117,014,132 ------------ ------------ COST AND EXPENSES: COST OF SALES 86,877,081 74,226,194 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 41,118,217 34,442,021 EXPENSES OF REAL ESTATE 829,136 757,121 ------------ ------------ 128,824,434 109,425,336 ------------ ------------ OPERATING PROFIT 5,276,509 7,588,796 INTEREST AND DIVIDEND INCOME 356,130 660,511 GAIN ON SALES OF MARKETABLE SECURITIES 335,577 GAIN ON SALE OF PRODUCT LINE 13,208,393 INTEREST EXPENSE (4,344,803) (4,658,831) OTHER (DEDUCTIONS) - NET (37,790) (29,838) ----------- ----------- INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 14,458,439 3,896,215 INCOME TAXES 6,708,000 1,569,000 ----------- ----------- INCOME FROM CONTINUING OPERATIONS 7,750,439 2,327,215 ----------- ----------- DISCONTINUED OPERATIONS: INCOME FROM OPERATIONS, NET OF INCOME 1,103,029 TAXES OF $1,339,000 (1,103,029) ----------- LOSS IN DISPOSITION (2,636,123) ----------- (1,533,094) ----------- ----------- NET INCOME $ 7,750,439 $ 794,121 =========== =========== INCOME PER SHARE PRIMARY CONTINUING OPERATIONS $ .76 $ .23 =========== =========== NET INCOME $ .76 $ .08 =========== =========== FULLY DILUTED CONTINUING OPERATIONS $ .47 $ .22 =========== =========== NET INCOME $ .47 $ .08 =========== ===========
See notes to unaudited condensed consolidated financial statements. 4 of 14 CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES ----------------------------------------------- UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS ---------------------------------------------------------
Six Months Ended January 31, ------------------------------ 1994 1993 -------------- -------------- Operating Activities - Continuing Operations: Income from continuing operations $ 7,750,439 $ 2,327,215 Adjustments to reconcile income from continuing operations to net cash provided by operating activities: Depreciation and amortization of property, plant and equipment 3,148,990 3,129,165 Amortization of deferred compensation and deferred charges 2,208,914 1,639,639 Gain on sale of marketable securities (335,577) Gain on sale of product line (13,208,393) Other, net (235,366) (909,928) Changes in operating assets and liabilities: (Increase) in accounts receivable (244,250) (2,546,476) (Increase)/decrease in inventory (1,424,595) (1,029,595) Decrease in prepaid expenses 679,635 776,966 (Decrease)/Increase in accounts payable, accrued expenses and income taxes (437,032) 5,361,978 ------------ ------------ NET CASH (USED IN)/PROVIDED BY CONTINUING OPERATIONS (1,761,658) 8,413,392 ------------ ------------ Investing Activities - Continuing Operations: Proceeds from sale and collection of principal of marketable securities 1,238,096 20,646,393 Purchases of marketable securities (25,670,708) Purchases of property, plant and equipment (2,163,976) (3,576,243) Proceeds from sale of product line 38,144,205 Increase in assets held for sale (1,093,071) Acquisition of businesses (55,390,488) ------------ ------------ NET CASH PROVIDED BY/(USED IN) CONTINUING OPERATIONS 10,454,546 (38,320,338) ------------ ------------ Financing Activities - Continuing Operations: Proceeds from long-term debt 34,534,042 Principal payments on long-term debt (1,546,533) (282,437) Purchase of treasury stock (1,850,000) Other (50,106) (2,019,208) ------------ ------------ NET CASH (Used In)/PROVIDED BY CONTINUING OPERATIONS (3,446,639) 32,232,397 ------------ ------------ Increase in Cash and Cash Equivalents - Continuing Operations 5,246,249 2,325,451 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 $ 10,715,408 $ 4,854,574 ============ ============
See notes to unaudited condensed consolidated financial statements. 5 of 14 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 January 31, 1994 10,595 $2,649 476 $6,574 ====== ====== ====== ======
See notes to unaudited condensed consolidated financial statements. 6 of 14 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 7,751 PURCHASE OF TREASURY STOCK CONVERSION OF SUBORDINATED DEBENTURES 19 DEFERRED COMPENSATION UNDER STOCK BONUS PLAN AND EMPLOYEES' STOCK OWNERSHIP PLAN: AMORTIZATION 289 ------ ---- ------- ------- BALANCE AT JANUARY 31, 1994 $1,938 $ 425 $47,275 $18,208 ====== ==== ======= =======
SEE NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. 7 OF 14 CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES ----------------------------------------------- NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -------------------------------------------------------------- JANUARY 31, 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 SIX MONTHS ENDED JANUARY 31, 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 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 IN THE THREE MONTHS ENDED APRIL 30, 1993. THE COMPANY HAS RESTATED ITS FINANCIAL STATEMENTS TO PRESENT THE OPERATING RESULTS OF JJI FOR THE THREE AND SIX MONTHS ENDED JANUARY 31, 1993 AS A DISCONTINUED OPERATION. (C) PRIMARY PER SHARE DATA ARE BASED ON THE WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING OF 10,158,000 AND 10,217,000, RESPECTIVELY, FOR THE THREE MONTHS ENDED JANUARY 31, 1994 AND 1993 AND 10,238,000 AND 10,217,000, RESPECTIVELY, FOR THE SIX MONTHS ENDED JANUARY 31, 1994 AND 1993. THE THREE AND SIX MONTH PERIODS ENDED JANUARY 31, 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 COST (FIRST-IN, FIRST-OUT) OR MARKET. THE COMPONENTS OF INVENTORY CONSIST OF THE FOLLOWING:
JANUARY 31, JULY 31, 1994 1993 ----------- ----------- FINISHED GOODS $23,059,148 $24,657,182 RAW MATERIALS 12,083,460 9,139,425 SUPPLIES 4,667,384 4,588,790 ----------- ----------- $39,809,992 $38,385,397 =========== ===========
8 OF 14 (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.
SIX MONTHS ENDED JANUARY 31, 1993 ------------ NET SALES $139,458,000 INCOME FROM CONTINUING OPERATIONS $ 2,043,000 INCOME FROM CONTINUING OPERATIONS PER SHARE $ .20 NET INCOME $ 510,000 NET INCOME PER SHARE $ .05
(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 (6.75% AT JANUARY 31, 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 JANUARY 31, 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 14 (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 SIX MONTHS ENDED JANUARY 31, 1993, INCLUDED IN THE RESULTS OF OPERATIONS ARE AS FOLLOWS:
PERIOD FROM AUGUST 1, 1993 TO SIX MONTHS ENDED NOVEMBER 19, 1993 JANUARY 31, 1993 ----------------- ---------------- NET SALES $ 9,557,000 $14,202,000 COST AND EXPENSES: COST OF SALES 4,169,000 5,691,000 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 3,566,000 5,478,000 ----------- ----------- 7,735,000 11,169,000 ----------- ----------- OPERATING PROFIT $ 1,822,000 $ 2,851,000 =========== ===========
(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 14 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 six months ended January 31, 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 six months ended January 31, 1994. On April 22, 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 six months ended January 31, 1994). A loss of $3,171,000 was incurred in connection with the sale and was charged to discontinued operations in the three months ended April 30, 1993. The proceeds ($32,971,500) 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. 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. Net sales decreased $3,617,000 or 6% and increased $16,945,000 or 15% for the three and six months ended January 31, 1994, respectively, compared to the comparable periods of the prior year. The decrease in net sales for the quarter was primarily due to decreased coffee pounds sold partially offset by an increase in the average selling price of coffee. The loss of sales due to the disposition of Hillside on November 19, 1993 were offset by sales of Cains acquired on December 8, 1992. The increase in net sales for the six 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 and a decrease in the average selling price of coffee. Cain's and Dana Brown were accounted for as purchases, and, therefore, were not included prior to their respective dates of acquisition. 11 of 14 CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES ----------------------------------------------- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ----------------------------------------------------------- AND RESULTS OF OPERATIONS ------------------------- Operations - Continued - ---------- Operating profits from food products were $2,131,000 and $5,049,000 decreases of 52% and 32% for the three and six months ended January 31, 1994, respectively, compared to $4,455,000 and $7,431,000 for the comparable periods of the prior year. The decreases 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 quarter and six months) and reduced selling, general and administrative expenses. Decreased gross margins for the quarter were due to decreased coffee pounds sold and an increase in the average cost of green coffee greater than the increase in the average selling price of coffee. Decreased gross margins for the six months were due to an increase in the average cost of green coffee and a decrease in the average selling price of coffee. Selling, general and administrative expenses decreased primarily due to reduced payroll and advertising costs, partially offset by increased coupon costs during the six months period. Income from continuing operations was $7,244,000 and $7,750,000 or $.71 and $.76 per share for the three and six months ended January 31, 1994, respectively, compared to $1,585,000 and $2,253,000 or $.16 and $.23 per share for the comparable periods of the prior year. The differences were 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 and decreased operating profits. Liquidity and Capital Resources - ------------------------------- As of January 31, 1994, working capital was approximately $78,385,000 and the ratio of current assets to current liabilities was approximately 4.1 to 1. 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 six months ended January 31, 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. 12 OF 14 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 ------------------- 13 OF 14 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 15, 1994 /S/ MARVIN I. HAAS _____________________________ MARVIN I. HAAS VICE CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER MARCH 15, 1994 /S/ HOWARD M. LEITNER _____________________________ HOWARD M. LEITNER PRESIDENT AND CHIEF FINANCIAL AND ACCOUNTING OFFICER 14 OF 14 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, 1994 AND JULY 31, 1993 1 & 2 OF 14 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS- THREE MONTHS ENDED JANUARY 31, 1994 AND 1993 3 OF 14 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - SIX MONTHS ENDED JANUARY 31, 1994 AND 1993 4 OF 14 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - SIX MONTHS ENDED JANUARY 31, 1994 AND 1993 5 OF 14 UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY - JANUARY 31, 1994 6 & 7 OF 14 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - JANUARY 31, 1994 8, 9 & 10 OF 14 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 11 & 12 OF 14 PART II. OTHER INFORMATION - --------------------------- ITEM 1. LEGAL PROCEEDINGS 13 OF 14 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 13 OF 14 SIGNATURES - ----------
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