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 ___October 31, 1995 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
December 12, 1995 - 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 -
October 31, 1995 and July 31, 1995 1 & 2 of 10
Unaudited Condensed Consolidated Statements of Operations-
Three Months Ended October 31, 1995 and 1994 3 of 10
Unaudited Condensed Consolidated Statements of Cash Flows -
Three Months Ended October 31, 1995 and 1994 4 of 10
Unaudited Condensed Consolidated Statement of
Stockholders' Equity -
October 31, 1995 5 & 6 of 10
Notes to Unaudited Condensed Consolidated Financial
Statements - October 31, 1995 7 of 10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8 of 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 9 of 10
Item 6. Exhibits and Reports on Form 8-K 10 of 10
Signatures 10 of 10
PART I. FINANCIAL INFORMATION
CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
October 31, July 31,
1995 1995
(Unaudited) (Note)
ASSETS
Current assets:
Cash and cash equivalents 4,743,017 $ 8,386,620
Receivables, principally
trade, less allowances
for doubtful accounts and
discounts of $1,181,000
and $1,251,000 35,622,898 37,703,214
Inventories 57,443,502 60,576,420
Investments in marketable securities,
at cost (market value of $8,878,000
and $6,975,000) 8,932,240 6,972,928
Prepaid expenses and other 1,847,272 2,916,690
Total current assets 108,588,929 116,555,872
Property, plant and
equipment - at cost $ 92,120,243 $ 91,038,726
Less allowances for
depreciation and
amortization (40,746,017) 51,374,226 (39,273,602) 51,765,124
Real estate held for
sale or development, at cost 7,733,148 7,747,107
Other assets and deferred charges 25,914,000 25,099,333
Excess of cost over net
assets acquired 5,818,855 5,869,138
$199,429,158 $207,036,574
Note: The balance sheet at July 31, 1995 has been derived from the audited
financial statements at that date.
See notes to unaudited condensed consolidated financial statements.
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CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
October 31, July 31,
1995 1995
(Unaudited) (Note)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 8,152,299 $ 12,937,578
Accrued expenses 7,916,832 12,438,512
Income taxes 811,487 1,530,543
Total current liabilities 16,880,618 26,906,633
Long-term debt 108,486,993 106,568,896
Other non-current liabilities 1,490,723 1,468,358
Deferred income taxes 7,156,000 7,156,000
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 19,797,347 18,970,435
Cost of 475,522 shares in treasury (6,573,719) (6,573,719)
Deferred compensation under stock bonus
plan and employees' stock ownership plan (1,968,579) (1,619,804)
Total stockholders' equity 65,414,824 64,936,687
$199,429,158 $207,036,574
Note: The balance sheet at July 31, 1995 has been derived from the audited
financial statements at that date.
See notes to unaudited condensed consolidated financial statements.
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CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended October 31,
1995 1994
Revenues:
Net sales $ 78,236,709 $73,571,587
Rentals from real estate 546,842 440,238
78,783,551 74,011,825
Cost and expenses:
Cost of sales 57,227,377 50,858,396
Selling, general and
administrative expenses 17,796,119 19,224,444
Expenses of real estate 368,556 277,853
75,392,052 70,360,693
Operating profit 3,391,499 3,651,132
Interest income 138,456 256,236
Interest expense (2,266,021) (2,312,923)
Other income - net 78,978 2,776
Income before income taxes 1,342,912 1,597,221
Income taxes 516,000 655,000
Net income $ 826,912 $ 942,221
Net income per share $ .08 $ .09
See notes to unaudited condensed consolidated financial statements.
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CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended October 31,
1995 1994
Operating Activities:
Net income $ 826,912 $ 942,221
Adjustments to reconcile net income
to net cash provided
by operating activities:
Depreciation and amortization of
property, plant and equipment 1,472,415 1,430,450
Amortization of deferred compensation
and deferred charges 1,187,403 1,109,755
Other, net (1,092,824) (216,681)
Changes in operating assets and liabilities:
Decrease/(increase)in accounts receivable 2,150,316 (4,124,040)
Decrease/(increase)in inventory 3,132,918 (7,821,142)
Decrease in prepaid expenses 1,069,418 270,288
(Decrease) in accounts payable,
accrued expenses and income taxes (10,026,015) (3,249,370)
NET CASH (USED IN) OPERATING ACTIVITIES (1,279,457) (11,658,519)
Investing Activities:
Proceeds from sale and collection of principal
of marketable securities 9,980,349 7,830,089
Purchases of marketable securities (11,939,661) (2,715,571)
Purchases of property, plant and equipment (1,822,931) (1,480,693)
Proceeds from sale of property, plant
and equipment 691,000
NET CASH (USED IN)/ PROVIDED BY INVESTING
ACTIVITIES (3,782,243) 4,324,825
Financing Activities:
Proceeds from long-term debt, net 1,918,097 4,874,433
Loan to employees' stock ownership plan (500,000)
NET CASH PROVIDED BY FINANCING
ACTIVITIES 1,418,097 4,874,433
(Decrease)in Cash and
Cash Equivalents (3,643,603) (2,459,261)
Cash and cash equivalents at beginning
of period 8,386,620 5,939,456
Cash and Cash Equivalents at End of Period $4,743,017 $ 3,480,195
See notes to unaudited condensed consolidated financial statements.
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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, 1995 11,211 $2,803 476 $6,574
Net income
Deferred compensation under stock
bonus plan and employees' stock
ownership plan:
Amortization
Loan to employees' stock ownership plan
Balance at October 31, 1995 11,211 $2,803 476 $6,574
See notes to unaudited condensed consolidated financial statements.
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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, 1995 $1,620 $51,357 $18,970
Net income 827
Deferred compensation under stock
bonus plan and employees' stock
ownership plan:
Amortization (151)
Loan to employees' stock
ownership plan 500
Balance at October 31, 1995 $1,969 $51,357 $19,797
See notes to unaudited condensed consoliated financial statements.
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CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
October 31, 1995
(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 re-
curring accruals) considered necessary for a fair presentation have
been included. Operating results for the three months ended October
31, 1995 and 1994 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, 1995.
(B) Primary per share data are based on the weighted average number of
common shares outstanding of 10,736,000 for the three months ended
October 31, 1995 and 1994. The three month period ended October 31,
1994 has been retroactively adjusted for a 3% stock dividend distri-
buted in July 1995. Assumed conversion of debentures would have had
an anti-dilutive effect on the net income per share for the three
months ended October 31, 1995 and 1994.
(C) Inventories are stated at the lower of cost (first-in, first-out) or
market. The components of inventory consist of the following:
October 31, July 31,
1995 1995
Finished goods $32,456,815 $37,194,809
Raw materials 21,571,017 19,928,214
Supplies 3,415,670 3,453,397
$57,443,502 $60,576,420
(D) 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 (8.75% at October 31, 1995) 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 collateral-
ized 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 October 31, 1995) 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 liabil-
ities 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 $591,000.
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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.
Net sales increased $4,665,000 or 6% for the three months ended
October 31, 1995, compared to the comparable period of the prior
year. The increase in net sales was due to an increase in coffee
pounds sold, partially offset by a decrease in the average selling
price of coffee.
Operating profits from food products were $3,213,000 a decrease of
8% for the three months ended October 31, 1995, compared to
$3,489,000 for the comparable period of the prior year. The decrease
resulted primarily from decreased gross profit margins partially
offset by decreased selling, general and administrative expenses.
Decreased gross margins were due to a decrease in the average selling
price of coffee greater than the decrease in the average cost of
green coffee, partially offset by increased coffee pounds sold.
During the three months ended October 31, 1995 prices for green
coffee ranged from a high of $1.54 per pound to a low of $1.14 per
pound. Selling, general and administrative expenses decreased
primarily due to reduced advertising, coupon and payroll costs.
Net income was $827,000 or $.08 per share for the three months ended
October 31, 1995 compared to $942,000 or $.09 per share for the
comparable period of the prior year. The difference was primarily
due to decreased operating profits and reduced interest income (due
to reduced amounts of marketable securities), partially offset by
decreased income taxes.
Liquidity and Capital Resources
As of October 31, 1995, working capital was approximately $92,000,000
and the ratio of current assets to current liabilities was approxi-
mately 6.4 to 1.
As of October 31, 1995, the Company had unused borrowing capacity of
approximately $26 million under its credit facilities of $40 million
with National Westminster Bank USA and Chemical Bank.
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The Company plans on expanding its cafe and Quikava, company operated
and franchised operations, which in total are operating in 12 locations
and are currently not profitable. The sales of these operations, which
are in the development stage, are not material to the Company's
consolidated sales.
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.
Part II. Other Information
Item 1. Legal Proceedings - None
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
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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)
December 15, 1995
Marvin I. Haas
President and Chief Executive Officer
December 15, 1995
Howard M. Leitner
Senior Vice President and
Chief Financial and Accounting Officer
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