SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JULY 31, 1996
OR
[] TRANSITION REPORT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-4183
CHOCK FULL O' NUTS CORPORATION
(Exact name of registrant as specified in its charter)
NEW YORK 13-0697025
(State of Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
370 Lexington Avenue, New York, New York 10017
(Address of Principal Executive Offices) (Zip Code)
(212) 532-0300
(Registrant's Telephone Number, Including Area Code)
Securities Registered Pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title Of Each Class On Which Registered
Common Stock, par value $.25 per share New York Stock Exchange
8% Convertible Subordinated Debentures, American Stock Exchange
due September 15, 2006
7% Convertible Senior Subordinated Debentures, New York Stock Exchange
due April 1, 2012
Securities Registered Pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to filing requirements for the past 90 days.
Yes x No
Aggregate market value of the Common Stock ($.25 par value) held by
nonaffiliates of the registrant as of October 10 , 1996: $43,995,000
Number of Shares of Common Stock ($.25 par value) outstanding as of
October 10, 1996: 10,736,000
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the annual proxy statement for the year ended July 31, 1996 are
incorporated by reference into Part III.
Certain statements in the Letter of the President and Chief Executive Officer
and Chairman of the Board included in the Annual Report to Shareholders and
in the Managements Discussion and Analysis of Financial Condition and
Results of Operations and elsewhere in this Form 10-K constitute forward-
looking statements within the meaning of the Reform Act. See Forward-
Looking Statements.
PART I
Item 1. BUSINESS
Item 101 (a) and (c) of Regulation S-K
The Company is the fourth largest roaster, packer, and marketer of coffee in
the United States. Its broad range of regular and decaffeinated, ground roast,
instant and specialty coffees for the Foodservice and Retail Grocery Industries
are sold regionally throughout the United States and Canada under various well
known trademarks, including Chock full o' Nuts, LaTouraine and Cain's. Best
known among its products is Chock full o' Nuts brand premium,
vacuum packed, all-method grind coffee. The Company is also one of the largest
marketers of foodservice and private label coffees. The balance of the
Company's business is derived from its developing Quikava outlets and from real
estate operations.Incorporated in 1932, for many years, the Company's primary
business was the operation of counter service restaurants, under the Chock full
o' Nuts name. In 1953, the Company expanded its business by marketing the
coffee made famous in its restaurants to consumers via supermarkets and other
Retail Grocery outlets. Impactful advertising, featuring the "Heavenly
Coffee" jingle, made Chock full o' Nuts brand premium coffee a market leader.
In 1983, Management discontinued the Company's restaurant operations and
concentrated its efforts on the sale of coffee and related food products. In
1994, the Company commenced opening a limited number of Chock Cafes in the New
York metropolitain area. In October 1996, the Company adopted a plan to
discontinue operations of these company-owned cafes. See Note 4 of notes to
consolidated financial statements.
In March 1994, the Company acquired all the assets and liabilities of a company
(Quikava) whose menu features a full assortment of the most popular specialty
coffee beverages, plus a broad variety of freshly prepared foods and snacks
specifically suited for in-car consumption. Quikavas unique double
drive-thru format targets the suburban commuter and is uniquely
suited to take advantage of the growth of Specialty Coffees away from home,
where annual growth rates are significant.
In December 1992, the Company acquired the stock of Cain's Coffee Co.
("Cains") and certain trademarks related to that business. Cain's primary
business is the direct sale and distribution of coffee and related products
under the Cains label to Foodservice customers in twelve states primarily West
of the Mississippi. Cain's also sells coffee and tea to Retail Grocery
Customers, using a direct store distribution system.
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
private label coffee and tea products to food retailers and distributors,
locate primarily in the Midwest.
In December 1986, the Company acquired Greenwich Mills Company ("Greenwich").
Established in 1912, Greenwich is a leading manufacturer and supplier of
coffee, tea and allied products to Foodservice and private label customers.
The majority of their customers are located in markets East of the Mississippi.
Greenwich's best known trademark is LaTouraine.
In November 1993, the Company sold Hillside Coffee of California, Inc., whose
business consisted of roasting, packing, distributing and marketing specialty
coffee under the Hillside name, primarily to supermarkets. See Note 5 of notes
to consolidated financial statements.
Corporate Management is currently focused on the following growth initiatives:
(1) Maximizing the Company's Foodservice franchise by significantly broadening
its customer base for Cain's, Chock full o' Nuts and LaTouraine brand coffee,
tea and allied products; (2) Increasing Retail Grocery Market shares for such
higher margin products as Chock full o' Nuts brand Cafe Blend, decaffeinated,
instant and Rich French Roast coffees; (3) Selectively pursuing new business
development opportunities that will deliver significant volume and profit
growth; and (4) Expansion of its developing Quikava drive-thru outlets.
The following table sets forth revenues and operating results from
continuing operations before interest and corporate expenses
attributable to the Company's food products sales and real estate
operations, for the fiscal years ended July 31, 1996, 1995 and 1994:
Fiscal Years Ended July 31,
1996 1995 1994
(In Thousands)
Revenues
Net Sales - Food Products $321,135 $326,141 $263,511
Rentals from Real Estate 2,156 2,061 2,060
Operating Profit:
Food Products (1) 15,059 18,205 10,940
Real Estate Operation 671 490 317
(1) See Note 5 of notes to consolidated financial statements
regarding product line sold.
COFFEE AND RELATED PRODUCTS
Description of Coffee Market
According to certain available industry surveys and Company estimates,
total United States coffee sales by manufacturers in 1995 were
approximately $6 billion. Approximately 30% of
total United States coffee sales in 1995 were to Foodservice customers.
Foodservice Sales and Marketing
In January 1985, the Company began using Company sales personnel and
independent food brokers to market its coffee and allied products to
foodservice customers. These include chain and independent restaurants,
hospitals, airlines, schools, governmental institutions, vending and
office coffee service operators and other institutional distributors.
In December 1986, the Company acquired Greenwich, which is a major direct
sales and distribution supplier in the Eastern United States of coffee,
tea and allied products to Foodservice Customers and private
label customers. Greenwich's best-known label is LaTouraine, which enjoys
a reputation for high quality. LaTouraine also distributes spices,
international coffee mixes, speciality coffees, whole bean and pod Espresso,
hot chocolate, iced and hot tea, powdered soft drinks, soup bases, and
portion controlled jams, jellies and condiments.
In December 1992, the Company acquired Cain's, which is a major supplier in
the Midwest and Southwest of products similar to those sold by Greenwich and
LaTouraine to Foodservice Customers.
In fiscal 1996, approximately 46% of sales were derived from processing and
marketing coffee and allied products for sale to Foodservice Customers.
Sales of coffee products to Foodservice Customers have traditionally been
less price-sensitive and depend more on the level of customer service
provided. They also tend to generate higher operating margins, due
to lower marketing and advertising expenses, than do sales of such products
to Retail Customers. In addition, the absence of competitors with a
dominant market position, makes the Company's pricing to Foodservice
Customers less susceptible, as compared to pricing to Retail Customers,
to changes in price in response to pricing actions of any single competitor.
Retail Sales and Marketing
The Company currently sells most of its Retail Grocery coffee products to
supermarket chains, wholesalers and independent food outlets ("Retail
Customers") through independent food brokers. The Company's retail products
include coffees sold under the Chock full o' Nuts, Cain's and Safari labels.
The Company's best known product, Chock full o' Nuts premium, vacuum packed,
all-method grind coffee, is superior to most competitors in being able to
produce a more consistent, better tasting, finished brew from a single,
all-method grind, regardless of the coffee maker used. The Company also
sells an "extended yield" coffee, which produces more cups than equivalent
quantities of standard yield coffee. Additionally, the Company sells
decaffeinated roast and ground coffee, instant coffees, a premium quality
Cafe blend and a Rich French Roast coffee.
The Company and Greenwich roast, pack and market regular, decaffeinated and
instant coffees for sale by others under a variety of private labels.
In fiscal 1996, the Company's coffee sales to Retail Customers accounted
for approximately 48% of sales and coffee sales under the Chock full oNuts
label represented approximately 4% of total Branded Retail Grocery coffee
sales in the United States.
Chock full o' Nuts all-method grind coffee is sold in most major metropolitan
areas of the United States and in the provinces of Ontario and Quebec, Canada.
Sales are concentrated in the New York metropolitan area, upstate New York,
New England, Philadelphia, Washington,D.C. and Florida. The Company
believes that its distinctive packaging design and one grind
concept are important factors in the marketing of its coffee products.
Marketing a single grind coffee has enabled the Company's all-method grind
coffee to be consistently one of the fastest moving items off supermarket
shelves in its core markets.
The sales of Cain's and Safari brand products are concentrated
in the Midwest and Southwest.
Suppliers and Manufacturing
The Company's coffee is primarily a blend of readily available Central and
South American coffees. The Company purchases approximately 100 million
pounds of green coffee beans annually. All such coffee is purchased
from approximately 25 importers located in New York City, New Orleans
and Miami, who assume the risk of delivering beans that meet the Company's
quality requirements at a guaranteed price. The Company generally buys its
coffee pursuant to contracts providing for delivery in 4 to 12 weeks and
supplements such contracts with purchases on the spot market. All purchases
are subject to inspection and approval by the United States Food and
Drug Administration.
Manufacturing activities for coffee and related products are presently
conducted at the following facilities:
Location Principal Use
Brooklyn, New York............Coffee Roasting Plant, Warehouse
St. Louis, Missouri...........Coffee Roasting Plant, Warehouse
Hialeah, Florida..............Coffee Roasting Plant, Warehouse
Rochester, New York...........Coffee Roasting Plant, Warehouse
Oklahoma City, Oklahoma.......Coffee Roasting Plant and Processing
Plant for Tea and Related Food
Products, Warehouse
Springfield, Missouri.........Processing Plant for Spices, Warehouse
All of the above facilities are owned, except the Rochester, New York
and Springfield, Missouri facilities, which are leased. The Company rents
executive office space in New York City and maintains warehousing facilities
in over forty-five locations throughout the United States. The Company
believes that it has sufficient production capacity to meet its current
and future needs.
Competition
The coffee business is highly competitive. The Company competes for
Retail Customers with a number of nationally and regionally established
brands. Its largest competitors are Kraft Foods (Maxwell House, Yuban and
Sanka coffees), Procter & Gamble (Folger's coffees) and The Nestle Company
(Hills, MJB and Chase & Sanborn coffees), with combined annual sales
accounting for approximately 80% of the United States coffee market. The
profitability of the Company's coffee sales to Retail Customers is largely
dependent on competitive pricing conditions. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations".
There are many competitors in the business of selling coffee to Foodservice
Customers. However, the Company believes that no single competitor's sales
constitute more than 20% of this market. Sales of coffee, tea and allied
products to Foodservice Customers have traditionally been less price-sensitive
and more dependent on the level of service provided to such customers than
sales of such products to Retail Customers. In addition, the absence of
direct competitors with a dominant market position has traditionally made the
Company's pricing to Foodservice Customers less susceptible, as compared to
pricing to Retail Customers, to changes in price in response to pricing
actions of any single competitor.
Quikava
Quikava is the operator and franchisor of double-drive thru outlets, which
offer a variety of specialty coffees, espresso-based drinks, fresh baked
goods, sandwiches, other finger foods and snacks. Quikava units are
situated on major commuter thoroughfares in suburban markets and offer
quick-service of quality beverages and snacks. The Company intends to develop
additional Quikava units, both company-operated and franchised. At the fiscal
year end, the Company was operating eight company owned units and there were
six operating franchished units.
Cafes
In June 1994, with the opening of a flagship store in Midtown Manhattan, the
Company began to develop the business of operating retail cafes which offered
moderately priced specialty coffees, sandwiches, salads, bakery products,
snacks, and other assorted food and beverage products. The cafes had an
upscale motif, which featured a rich wood and granite interior and utilized a
quick-service format.
The Company developed a number of formats for expansion of its retail cafe
concept, including the full cafe (2500 to 3500 square feet with seating for
45-75), the mini-cafe (400-1000 square feet with limited seating), and Chock
Full ONuts EXPRESS-Osm (a modular kiosk of 150 square feet).
In October 1996, the Company discontinued the operations of its Cafes. See
Note 4 of notes to the consolidated financial statements.
RESEARCH AND DEVELOPMENT
The Company invested a nominal amount in research and development for the
three years ended July 31, 1996.
EMPLOYEES
The Company employs approximately 1,275 employees, 13% of whom are represented
by labor unions. The Company believes that its relations with both union and
non-union employees are good.
REAL ESTATE OPERATIONS
The Company is both lessor and lessee on certain properties and an owner of
one property in New York City. Such properties had been part of the Company's
original restaurant operations. Additionally, the Company owns a coffee
oasting facility in Castroville, California which it leases to the owner of
Hillside Coffee of California, Inc.
OTHER MATTERS
Reference is made to Notes 4 and 5 of notes to consolidated financial
statements with respect to the acquisition and disposition of certain assets.
Item 101 (b) of Regulation S-K
Segment Information is incorporated herein by reference.
Item 101 (d) of Regulation S-K
All of the Company's operations are located in the United States. Export
sales are not significant.
Item 2. PROPERTIES
The Company leases certain premises which are under long-term leases expiring
on various dates through 2009 and certain of which contain renewal options.
Reference should be made to Note 6 of the notes to consolidated financial
statements for additional information about these leases. The following table
sets forth the location and certain information with respect to the Company's
plants and certain other properties as of October 10, 1996, all of which
premises the Company considers adequate for its present and anticipated needs.
PLANTS AND OTHER PROPERTIES
Approximate Whether
Square Feet Owned
of Or
Location Principal Use Floor Space Leased (1)
Brooklyn, New York Coffee Roasting Plant,
Warehouse 55,000 Owned
St. Louis, Missouri Coffee Roasting Plant,
Warehouse 77,000 Owned
Secaucus, New Jersey Warehouse and Offices 104,000 Owned
Hialeah, Florida Coffee Roasting Plant,
Warehouse 50,000 Owned
Rochester, New York Coffee Roasting Plant,
Warehouse 50,000 Leased
Oklahoma City, Oklahoma Coffee Roasting Plant
and Processing Plant for
Tea and Related Food
Products, Warehouse 150,000 Owned
Springfield, Missouri Processing Plant for
Spices, Warehouse 30,000 Leased
574 Fifth Avenue Real Estate
New York, New York Operation 13,000 Leased
422 Madison Avenue Real Estate
New York, New York Operation 8,750 Leased
532 Madison Avenue Real Estate
New York, New York Operation 12,250 Leased
49 Broadway Real Estate
New York, New York Operation 12,000 Leased
1420 Broadway Real Estate
New York, New York Operation 6,750 Leased
370 Lexington Avenue Corporate
New York, New York Headquarters 11,000 Leased
Waverly Place corner
Green Street Real Estate
New York, New York Operation 2,500 Leased
336 Broadway Real Estate
New York, New York Operation 10,500 Owned
Castroville, California Real Estate 66,000 Owned
Operation
512 Seventh Avenue Real Estate 2,500 Leased
New York, New York Operation
1114 Avenue of the Americas Real Estate 2,800 Leased
New York, New York Operation
43 West 42 Street Real Estate 340 Leased
New York, New York Operation
Queen Ann Plaza Quikava Operation 250 Leased
Norwell, Mass
Brown Avenue
Manchester, New Hampshire Quikava Operation 500 Leased
Natick Crossing Mall Quikava Operation 1,500 Leased
Natick, Mass.
917 Lynnfield Street Quikava Operation 600 Leased
Lynn, Mass
1148 Main Street Quikava Operation 600 Leased
Haverhill, Mass
84 Milfod Road Quikava Operation 600 Leased
Amherst, New Hampshire
374 Bridge Street Quikava Operation 600 Leased
N. Weymouth, Mass
895 Bald Hill Road Quikava Operation 600 Leased
Warwick, Rhode Island
190 Old Derby Street Headquarters, Quikava 1,196 Leased
Hingham, Mass.
(1) -- No Company-leased premises are owned by any officer or director of the
Company. See Note 6 of notes to the consolidated financial statements.
Item 3. LEGAL PROCEEDINGS
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS
Not applicable.
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND
RELATED SECURITY HOLDER MATTERS
"Common Share Prices" and related security holder matters are incorporated
herein by reference.
Item 6. SELECTED FINANCIAL DATA
"Selected Financial Data" is incorporated herein by reference.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
"Management's Discussion and Analysis of Financial Condition and Results
of Operations" is incorporated herein by reference.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this Item is submitted in a separate section of this report.
Item 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
Not applicable.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
and
Item 11. EXECUTIVE COMPENSATION
and
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
and
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Omitted, per General Instruction G. The information required by Part III
shall be incorporated by reference from the Registrant's definitive proxy
statement pursuant to Regulation 14A for the fiscal year ended July 31, 1996
which is to be filed with the Commission.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) and (2) The response to this portion of Item 14 is submitted as a
separate section of this report.
(3) The response to this portion of Item 14 is submitted as a separate
section of this report (see below).
(b) Reports on Form 8-K:
None
(c) The response to this portion of Item 14 is submitted as a separate
section of this report (see below).
(d) The response to this portion of Item 14 is submitted as a separate
section of this report.
Pursuant to Regulation S-K Item 601, following is a list of Exhibits.
Exhibit 3 Articles of incorporation and by laws.
(a) Articles of incorporation filed as an Exhibit to Form 10-K
for the fiscal year ended July 31, 1994 is incorporated herein
by reference.
(b) By-laws filed as an Exhibit to Form 10-K for the fiscal year
ended July 31 1994 is incorporated herein by reference.
Exhibit 4 Instruments defining the rights of security holders, including
indentures.
(a) Indenture dated as of September 15, 1986 between the Company
and Manufacturers Hanover Trust Company ("Manufacturers")
filed as an Exhibit to Form 10-K for the fiscal year ended
July 31, 1994 is incorporated herein by reference.
(b) Form of the Company's 8% Convertible Subordinated Debenture
included in Exhibit 4(a)filed as an Exhibit to Form 10-K for
the fiscal year ended July 31, 1994 is incorporated herein by
reference.
(c) Instrument of resignation, appointment and acceptance dated
August 9, 1993 among the Company, Manufacturers and Liberty
Bank and Trust Company of Oklahoma City filed as an Exhibit
to Form 10-K for the fiscal year ended July 31, 1994 is
incorporated herein by reference.
(d) Indenture dated as of April 1, 1987 between the Company and
IBJ Schroder Bank and Trust Company filed as an Exhibit to
Form 10-K for the fiscal year ended July 31, 1994 is
incorporated herein by reference.
(e) Form of the Company's 7% Convertible Senior Subordinated
Debenture included in Exhibit 4(d) filed as an Exhibit
to Form 10-K for the fiscal year ended July 31, 1994 is
incorporated herein by reference.
Exhibit 9 Voting Trust Agreement, not applicable.
Exhibit 10 Material contracts
(a) Rights Agreement, dated as of December 30, 1987, with IBJ Schroder
Bank and Trust Company, as Rights Agent, the form of Rights Certificate
and Summary of Rights to Purchase Common Stock filed as an Exhibit to
Form 10-K for the fiscal year ended July 31, 1994 is incorporated
herein by reference.
(b) Benefits protection trust with National Westminster Bank USA filed as
an Exhibit to Form 10-K for the fiscal year ended July 31, 1994 is
incorporated herein by reference.
(c) Resolution of the Board of Directors adopting severance policy filed
as an Exhibit to Form 10-K for the fiscal year ended July 31, 1994 is
incorporated herein by reference.
(d) Chock full o' Nuts Corporation Employees Stock Ownership Plan dated
December 16, 1988 filed as an Exhibit to From 10-K for the fiscal year
ended July 31, 1995, is incorporated herein by reference.
(e) Amended and Restated Credit Agreement dated December 4, 1992, amended
and restated as of January 1, 1996, among Chock full o' Nuts
Corporation and its Subsidiaries and National Westminster Bank N.A.,
now known as Fleet Bank, N.A., and Chemical Bank, now known as
the Chase Manhattan Bank, filed herewith.
(f) Form of restricted stock agreement dated January 2, 1988 with key
employees (including certain officers and directors) filed as an
Exhibit to Form 10-K for the fiscal year ended July 31, 1994 is
incorportated herein by reference.
Exhibit 11 Statement re: Computation of Per Share Earnings
Exhibit 12 Statement re: Computation of ratios, not applicable.
Exhibit 13 Not applicable.
Exhibit 18 Letter rechange in accounting principles, not applicable.
Exhibit 21 Subsidiaries of the registrant.
Exhibit 22 Published report regarding matter submitted to vote of security
holders, not applicable.
Exhibit 23 Consent of experts and counsel, not applicable.
Exhibit 24 Power of attorney, not applicable.
Exhibit 27 Financial Data Schedule.
Exhibit 99 Additional exhibits, not applicable.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
CHOCK FULL O' NUTS CORPORATION
(Registrant)
October 13, 1996 /s/ Howard M. Leitner
Howard M. Leitner, Vice President,
Chief Financial and Accounting Officer
and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
October 13, 1996 /s/ Norman E. Alexander October 13, 1996/s/ Mark A. Alexander
Norman E. Alexander Mark A. Alexander
Chairman of the Board Director
October 13, 1996 _______________ October 13, 1996 /s/ Martin J. Cullen
Virgil Gladieux Martin J. Cullen
Director Vice President and Director
October 13, 1996 /s/ Stuart Z. Krinsly October 13, 1996 /s/ Marvin I. Haas
Stuart Z. Krinsly Marvin I. Haas
Director President and
Chief Executive Officer
and Director
October 13, 199 /s/ Howard M. Leitner October 13, 1996___________________
Howard M. Leitner Henry Salzhauer
Vice President and Director
Chief Financial Officer
and Director
October 13, 1996 /s/ R. Scott Schafler October 13, 1996 ___________________
R. Scott Schafler David S. Weil
Director Director
ANNUAL REPORT ON FORM 10-K
ITEM 8, ITEM 14(a)(1) AND (2), (c) and (d)
LIST OF FINANCIAL STATEMENTS, SUPPLEMENTARY DATA
AND FINANCIAL STATEMENT SCHEDULES
CERTAIN EXHIBITS
YEAR ENDED JULY 31, 1996
CHOCK FULL O' NUTS CORPORATION
NEW YORK, NEW YORK
FORM 10-K--ITEM 14(a)(1) and (2)
CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES
LIST OF FINANCIAL STATEMENTS AND SCHEDULES
The following consolidated financial statements of the Registrant and its
subsidiaries are included in Item 8:
Page
Report of Independent Auditors......................................... 15
Consolidated Balance Sheets--July 31, 1996 and 1995.................... 16 and
17
Consolidated Statements of Operations--Years Ended
July 31, 1996, 1995 and 1994......................................... 18
Consolidated Statements of Cash Flows--
Years Ended July 31, 1996, 1995 and 1994............................. 19 and
20
Consolidated Statements of Stockholders' Equity--
Years Ended July 31, 1996, 1995 and 1994............................. 21 and
22
Notes to Consolidated Financial Statements............................. 23 to
31
The following consolidated financial statement schedule of the registrant and
its subsidiaries is included in Item 14(d):
Page
Schedule II -- Valuation and Qualifying Accounts....................... 37
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable, and therefore have been omitted.
Ernst & Young LLP
Report of Independent Auditors
The Board of Directors and Stockholders
Chock Full oNuts Corporation
New York, NY
We have audited the accompanying consolidated balance sheets of Chock Full
o'Nuts Corporation and subsidiaries as of July 31, 1996 and 1995, and the
related consolidated statements of operations, stockholders equity, and cash
flows for each of the three years in the period ended July 31, 1996. Our
audits also included the financial statement schedule listed in the index at
Item 14(a). These financial statements and schedule are the responsibility of
the Companys management. Our responsibility is to express an opinion on
these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Chock Full oNuts Corporation and subsidiaries at July 31, 1996 and 1995,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended July 31, 1996 in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
ERNST & YOUNG LLP
October 10, 1996
CONSOLIDATED BALANCE SHEETS
CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES
July 31, 1996 and 1995
ASSETS 1996 1995
CURRENT ASSETS:
Cash and cash equivalents $16,293,783 $8,357,152
Receivables, principally trade, less
allowances for doubtful accounts and
discounts of $1,133,000 and $1,251,000--
Notes 2 and 10(a) 30,989,008 37,689,286
Inventories--Notes 1 and 2 59,637,802 60,551,535
Investments in marketable securities,
at cost (approximates market) 128,099 6,972,928
Prepaid expenses and other -- Note 3
3,539,776 2,916,690
TOTAL CURRENT ASSETS 110,588,468 116,487,591
NET NON-CURRENT ASSETS OF DISCONTINUED
OPERATIONS -- Note 4 3,813,609
PROPERTY, PLANT AND EQUIPMENT, at cost-
Note 2:
Land 3,114,889 3,114,889
Buildings and improvements
14,675,708 14,457,466
Leaseholds and leasehold improvements
1,825,464 2,443,678
Machinery and equipment
74,067,267 67,499,258
93,683,328 87,515,291
Less allowances for depreciation and
amortization 45,172,084 39,056,022
48,511,244 48,459,269
REAL ESTATE HELD FOR DEVELOPMENT OR SALE
at cost -- Note 2 7,691,267 7,747,107
OTHER ASSETS AND DEFERRED CHARGES, net--Note 10(b)
26,976,132 24,628,629
EXCESS OF COST OVER NET ASSETS
ACQUIRED, net 5,668,008 5,869,138
$199,435,119 $207,005,343
See notes to consolidated financial statements
CONSOLIDATED BALANCE SHEETS - Continued
CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES
July 31, 1996 and 1995
1996 1995
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 10,469,300 $ 12,937,578
Accrued expenses 11,346,483 12,407,281
Income taxes--Note 3 1,719,575 1,530,543
TOTAL CURRENT LIABILITIES 23,535,358 26,875,402
LONG-TERM DEBT -- Note 2 105,235,468 106,568,896
OTHER NON-CURRENT LIABILITIES 1,586,231 1,468,358
DEFERRED INCOME TAXES -- Note 3 5,591,000 7,156,000
STOCKHOLDERS' EQUITY--Notes 2 and 7:
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 17,434,755 18,970,435
71,594,530 73,130,210
Deduct:
Cost of 475,522 shares in treasury (6,573,719) (6,573,719)
Deferred compensation under stock
bonus plan and employees' stock
ownership plan (1,533,749) (1,619,804)
TOTAL STOCKHOLDERS' EQUITY 63,487,062 64,936,687
LEASES--Note 6 ___________
$199,435,119 $207,005,343
See notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF OPERATIONS
CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES
Years ended July 31, 1996, 1995 and 1994
1996 1995 1994
Revenues:
Net sales $321,134,537 $326,140,872 $263,511,410
Rentals from real estate
2,156,070 2,061,015 2,059,647
323,290,607 328,201,887 265,571,057
Costs and expenses:
Cost of sales
229,477,193 230,962,257 175,237,889
Selling, general and
administrative expenses
77,223,407 77,396,552 77,599,496
Expenses of real estate
1,484,681 1,571,090 1,742,462
308,185,281 309,929,899 254,579,847
OPERATING PROFIT--Note 5
15,105,326 18,271,988 10,991,210
Interest and dividend income
865,145 903,887 867,517
Interest expense
(8,783,798) (9,191,495) (8,802,413)
Gain on sale of product line -- Note 5 12,475,246
Other income -- Note 10(d)
520,692 763,597 775,292
INCOME BEFORE INCOME TAXES
7,707,365 10,747,977 16,306,852
Income taxes--Note 3:
Current:
Federal 1,905,000 3,276,000 6,935,000
State and local
488,000 161,000 348,000
Deferred 683,000 573,000 781,000
3,076,000 4,010,000 8,064,000
INCOME FROM CONTINUING OPERATIONS
4,631,365 6,737,977 8,242,852
Discontinued operations -- Note 4:
(Loss) from operations, net of income
tax credits of $1,073,000, $1,009,000
and $193,000
(1,757,044) (1,874,689) (358,538)
(Loss) on disposition, net of deferred
income tax credit of $2,590,000
(4,410,000)
(6,167,044) (1,874,689) (358,538)
NET(LOSS) /INCOME
$(1,535,679) $4,863,288 $7,884,314
Income/(loss)per share--Note 1:
Primary:
Continuing operations
$.43 $ .63 $ .76
Discontinued operations
(.57) (.18 ) (.03)
Net(loss)/income
$(.14) $.45 $ .73
Fully diluted:
Continuing operations
$.40 $.51 $ .56
Discontinued operations
(.27) (.09) (.02)
Net income
$.13 $.42 $.54
See notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF CASH FLOWS
CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES
Years Ended July 31, 1996, 1995 and 1994
1996 1995 1994
Operating Activities - Continuing Operations:
Income from continuing operations before income taxes
$ 7,707,365 $10,747,977 $16,306,852
Adjustments to reconcile pretax income from
continuing operations to net cash provided by
continuing operations:
Depreciation and amortization of property, plant
and equipment
6,380,262 5,799,063 6,177,822
Amortization of deferred compensation and
deferred charges
4,561,305 4,606,372 4,426,062
Gain on sale of product line (12,475,246)
Other, net (1,000,099) (330,359) (1,275,714)
Changes in operating assets and liabilities:
Decrease/(increase) in receivables 6,818,278 (6,076,849) (4,226,971)
Decrease/(increase) in inventories 913,733 (15,008,487) (7,151,651)
(Increase)/decrease in prepaid expenses(281,086) (1,511,194) 647,202
(Decrease)/increase in accounts payable,
accrued expenses and income taxes (5,098,044) (801,909) 650,113
Net cash provided by/(used in) operating
activities - continuing operations
20,001,714 (2,575,386) 3,078,469
Operating Activities - Discontinued Operations:
Discontinued operations exclusive of income taxes
(9,830,044) (2,883,689) (551,538)
Adjustments to reconcile pretax loss from
discontinued operations to net cash
used in discontinued operations
Provision for close down and write-off
of equipment 7,000,000
Depreciation and amortization
431,623 247,841 13,602
Other (192,929) (146,047) (405,570)
Net cash (used in) discontinued operations
(2,591,350) (2,781,895) (943,506)
Income Taxes (1,320,000) (2,428,000) (7,090,000)
NET CASH PROVIDED BY/(USED IN) OPERATING
ACTIVITIES 16,090,364 (7,785,281) (4,955,037)
CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES
Years Ended July 31, 1996, 1995 and 1994
Investing Activities - Continuing Operations:
Purchases of marketable securities
(152,018,726) (11,473,787) (29,117,568)
Proceeds from sale and collection of
principal of marketable securities
158,863,555 31,086,939 3,331,488
Purchases of property, plant and equip-
ment ( 7,411,199) (6,547,330) (4,614,761)
Advance to co-packer (3,132,245)
Proceeds from sale of product line 38,055,704
Proceeds from sale of property, plant and
equipment 4,078,764
Other (13,147) (1,796,425)
Net Cash (used in)/provided by investing
activities - continuing operations
(3,711,762) 17,144,586 5,858,438
Net cash (used in)investing activities -
discontinued operations - purchases of
property and equipment
(2,608,543) (2,457,240) (1,066,195)
NET CASH (USED IN)/PROVIDED BY INVESTING
ACTIVITIES (6,320,305) 14,687,346 4,792,243
Financing activities - Continuing Operations:
Loan to employees stock ownership plan
(500,000) (500,000)
Purchase of treasury stock (1,850,000)
Principal payments of long-term debt (1,333,428) (3,856,369)
Proceeds from long-term debt 2,355,091
NET CASH (USED IN)/PROVIDED BY
FINANCING ACTIVITIES
(1,833,428) (4,356,369) 505,091
INCREASE IN CASH AND CASH EQUIVALENTS -
CONTINUING OPERATIONS
7,936,631 2,545,696 342,297
Cash and cash equivalents at beginning
of year - continuing operations
8,357,152 5,811,456 5,469,159
CASH AND CASH EQUIVALENTS AT END OF YEAR-
CONTINUING OPERATIONS $16,293,783 $8,357,152 $5,811,456
Supplemental Information
Cash paid during the year: 1996 1995 1994
Interest $8,259,325 $8,532,841 $8,103,742
Income taxes 678,905 1,080,706 5,129,630
See notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES
Years Ended July 31, 1996, 1995 and 1994
Common Stock
Issued In Treasury
Shares Amount Shares Amount
In Thousands
Balance at July 31, 1993 10,592 $2,648 276 $4,724
Net Income
3% stock dividend 303 75
Conversion of debentures 3 1
Purchase of treasury stock 200 1,850
Deferred compensation under stock
bonus plan and employees' stock
ownership plan:
Amortization
Increase in unfunded pension losses
Balance at July 31, 1994 10,898 2,724 476 6,574
Net income
3% stock dividend 313 79
Conversion of debentures
Deferred compensation under stock
bonus plan and employees' stock
ownership plan:
Amortization,
Loan to employees stock
ownership plan
Decrease in unfunded pension losses
Balance at July 31, 1995
11,211 2,803 476 6,574
Net (loss)
Deferred compensation under stock
bonus plan and employees' stock
ownership plan:
Amortization
Loan to employees stock
ownership plan
Balance at July 31, 1996 11,211 $2,803 476 $6,574
See notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - Continued
CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES
Years Ended July 31, 1996, 1995, and 1994
Deferred
Compensation
Under Stock
Bonus Plan
and Employees' Unfunded Additional
Stock Ownership Pension Paid-In Retained
Plan Losses Capital Earnings
In Thousands
Balance at July 31, 1993 $2,227 $ 425 $47,256 $10,457
Net income 7,884
3% stock dividend 2,048 (2,123)
Conversion of debentures 19
Purchase of treasary stock
Deferred compensation under stock
bonus plan and employees' stock
ownership plan:
Amortization (563)
Increase in unfunded pension losses 1,341
Balance at July 31, 1994 1,664 1,766 49,323 16,218
Net income 4,863
3% stock dividend 2,032 (2,111)
Conversion of debentures 2
Deferred compensation under stock
bonus plan and employees' stock
ownership plan:
Amortization (544)
Loan to employees stock
ownership plan 500
Decrease in unfunded pension losses (1766)
Balance at July 31, 1995 1,620 - 51,357 18,970
Net (loss) (1,535)
Deferred compensation under stock
bonus plan and employees' stock
ownership plan:
Amortization (586)
Loan to employees stock
ownership plan 500
Balance at July 31, 1996 $1,534 $ - $51,357 $17,435
See notes to consolidated financial statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES
July 31, 1996, 1995 and 1994
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
Fiscal year: The Companys year ends on the last Friday in July.
Fiscal years are designated as ending July 31 for convenience of reference.
Principles of Consolidation: The consolidated financial statements include
the accounts of the Company and its subsidiaries. Significant intercompany
accounts and transactions have been eliminated in consolidation.
Use of Estimates: The preparation of the financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Receivables - Concentration of Credit Risk: The Companys primary business
is the roasting, packing and marketing of a broad range of regular and
decaffeinated, ground roast, instant and specialty coffees for the
Foodservice and Retail Grocery Industries. These products are sold regionally
throughout the United States and Canada. The Company performs periodic
credit evaluations of its customers financial condition and generally does
not require collateral. Credit losses relating to customers have consistently
been within Managements expectations.
Cash Equivalents: The Company considers all highly liquid investments with
a maturity of three months or less when purchased to be cash equivalents.
Inventories: Inventories are stated at the lower of cost (first-in,
first-out) or market and consist of:
July 31, 1996 1995
Finished goods $35,715,505 $37,169,924
Raw materials 18,931,470 19,928,214
Supplies 4,990,827 3,453,397
$59,637,802 $60,551,535
Property, Plant and Equipment: Depreciation and amortization of property,
plant and equipment are computed by the straight-line method for financial
reporting purposes and by accelerated methods for income tax purposes.
Long-Lived Assets: In accordance with Financial Accounting Standards Board
(FASB) Statement No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of, the Company records
impairment losses on long-lived assets used in operations, including
intangible assets, when events and circumstances indicate that the assets
might be impaired and the undiscounted cash flows estimated to be generated
by those assets are less than the carrying amounts of those assets.
Pre-opening Costs: Quikava pre-opening costs are charged to operations as
incurred.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES
Excess of Cost over Net Assets Acquired: The Company evaluates goodwill
impairment at the end of each year based on recoverability measured by
undiscounted estimated operating profits (i.e., pretax earnings before
interest expense and goodwill amortization). Under this approach, the
carrying value would be reduced if it is probable that Managements best
estimate of future operating profits during the goodwill amortization period
will be less than the carrying amount of the related goodwill. Excess of
cost over net assets acquired is being amortized on a straight-line basis
over periods of 40 and 15 years. Accumulated amortization amounted to
$1,755,000 and $1,554,000 at July 31, 1996 and 1995, respectively.
Other Intangibles: Other intangibles consist principally of trademarks,
covenants not to compete and customer lists. Such items are being amortized
on a straight-line basis over periods of 40, 5 and 7.5 years, respectively.
See Note 10(b).
Advertising Expenses: The cost of advertising is expensed as incurred. The
Company incurred $3,130,000, $4,615,000 and $3,436,000 in advertising costs
during 1996, 1995 and 1994, respectively.
Stock Based Compensation: In October 1995, the FASB issued Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation, which provides an alternative to APB Opinion No. 25, Accounting
for Stock Issued to Employees, in accounting for stock-based compensation
issued to employees. The Statement allows for a fair value based method of
accounting for employee stock options and similar equity instruments.
The Company has determined it will continue to report stock-based
compensation for all options that are earned under APB Opinion No. 25.
Per Share Data: Primary per share data is based on the following weighted
average number of common shares outstanding during each year retroactively
adjusted for stock dividends:10,736,000 in 1996 and 1995 and 10,797,000 in
1994. Fully diluted per share data, assuming conversion of debentures, is
based on 22,557,000, 22,557,000 and 22,619,000 common shares outstanding for
the years ended July 31, 1996, 1995 and 1994.
NOTE 2--LONG TERM DEBT
Long-term debt consists of the following:
July 31
1996 1995
7% Convertible senior subordinated
debentures due 2012 $ 51,693,000 $ 51,693,000
8% Convertible subordinated debentures
due 2006 43,266,000 43,266,000
Revolving credit and term loan 10,276,468 11,609,896
$105,235,468 $106,568,896
The 7% and 8% debentures require annual sinking fund payments of $3,000,000
and $3,750,000, respectively, which after giving effect to previous
conversions and redemptions, commence April 1, 2000 and March 15, 1998,
respectively, and provide for balloon payments of $18,000,000 and $12,500,000
on April 1, 2012 and September 15, 2006, respectively. The debentures are
convertible at the option of the debenture holders into shares of the
Company's common stock at a price of $8.23 per share and $7.81 per share,
respectively (subject to adjustment). As of July 31, 1996, approximately
11,821,000 common shares are reserved for issuance upon conversion of
debentures.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES
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, 1996 may not exceed $40,000,000
and after such date may not exceed $20,000,000. Interest (8.25% at July 31,
1996) on all such loans is equal to the 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 July 31, 1996) 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
requires repayment of outstanding loans with excess cash flow, as defined.
As of July 31, 1996, long-term debt matures as follows: $766,000 (year ending
July 31, 1998), $3,750,000 (year ending July 31, 1999), $14,719,468 (year
ending July 31, 2000) and $86,000,000 thereafter.
The Company believes that the fair value of its 7% and 8% convertible
subordinated debentures approximates $43,939,000 and $39,859,000,
respectively, as indicated by the public trading prices of such debt.
NOTE 3--INCOME TAXES
The provision for income taxes for continuing operations differs from
the expected Federal income tax for the reasons shown in the following table:
1996 1995 1994
Federal income tax provision
expected at the statutory rate $2,620,504 $3,761,792 $ 5,707,398
Effect on Federal income tax of:
Difference between tax and book basis
of product line sold 1,721,214
State and local income taxes,
net of Federal income tax benefit
322,080 106,260 226,200
Amortization of excess of cost over
net assets acquired 68,000 68,000 88,200
Other 65,416 73,948 320,988
$3,076,000 $4,010,000 $8,064,000
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES
NOTE 3--INCOME TAXES - Continued
Deferred tax liabilities and assets are comprised of the following at July 31,
1996 1995
Net deferred non-current tax liabilities:
Net difference between tax and book basis
of property, plant and equipment $5,897,000 $7,668,000
Unfunded pension liabilities 431,000 250,000
Compensation under stock bonus plan and
employees' stock ownership plan (273,000) (332,000)
Other (464,000) (430,000)
$5,591,000 $7,156,000
Net deferred current tax assets:
Restructuring charges $ 130,000
Net difference between tax and book
basis of inventory $344,000 317,000
Officers termination benefits 91,000
Allowance for doubtful accounts and discounts 419,000 343,000
Accrued expenses - close-down 650,000
Accrued cash bonus 190,000
Payment of underfunded pension plan (525,000) (525,000)
Other 45,000 45,000
$ 933,000 $ 591,000
NOTE 4--DISCONTINUED OPERATIONS
In October 1996, the Companys Board of Directors adopted a plan to
discontinue operationsof the Chock Cafes. Accordingly, the operating results
of the Chock Cafe operations,including provisions for estimated lease
termination costs, employee benefits and losses during the phase-out period
of approximately $1,800,000and a write-off of leasehold improvements and
equipment and deferred charges of approximately $5,200,000 have been
segregated from continuing operations and reported as a separate line item
on the statement of operations.
The Company has restated its prior financial statements to present the
operating results of the Chock Cafes as a discontinued operation. The assets
and liabilities of such operations at July 31, 1995 have been reflected as a
net non-current asset based substantially on the original classification of
such assets and liabilities.
Operating results (exclusive of any corporate charges or interest expense and
the aforementioned provisions) from discontinued operations are as follows:
1996 1995 1994
Net Sales
$3,783,397 $2,236,855 $127,043
Costs and expenses
Costs of sales 5,903,142 4,184,197 426,454
Selling, general and
administrative expenses 710,299 705,197 252,127
6,613,441 4,889,394 678,581
Operating (loss) (2,830,044) (2,652,539) (551,538)
Other deductions 231,150
(Loss) before income taxes (2,830,044) (2,883,689) (551,538)
Income tax credits (1,073,000) (1,009,000) (193,000)
(Loss) from operations $(1,757,044) $(1,874,689) $(358,538)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES
NOTE 5--PRODUCT LINE SOLD
In October 1993, the Company and Gourmet Coffees of America ("GCA") entered
into an agreement to sell Hillside Coffee of California, Inc. (Hillside) to
GCA. Hillside's business consisted of roasting, packing, distributing and
marketing specialty coffee to supermarkets. Pursuant to the agreement which
was consummated on November 19, 1993, the Company received (a) $38,500,000 and
(b) shares of stock representing approximately one-half of one percent of the
equity of GCA. The Company recorded an approximate $6,200,000 after tax gain
upon consummation of the sale. The net sales and operating profits of
Hillside, before intercompany management charges, for the period August 1,
1993 to November 19, 1993 included in the results of operations were
$9,556,000 and $2,179,000, respectively.
NOTE 6--LEASES
The Company and subsidiaries lease manufacturing plants, warehouses, office
space and Quikava locations and related premises. Leases which provide for
payment of property taxes, utilities and certain other expenses, expire on
various dates through 2009 and contain renewal options. As of July 31, 1996,
the Company's obligation for future minimum rental payments, assuming the
exercise of renewal options, aggregated $15,331,000. Payments required in
the following five fiscal years amount to $4,079,000 (1997), $3,379,000
(1998), $2,692,000 (1999), $2,019,000 (2000) and $1,180,000 (2001). Rental
expense charged to continuing operations under operating leases for the years
ended July 31, 1996, 1995 and 1994 was $4,150,000, $4,893,000 and $4,496,000,
respectively.
As of July 31, 1996, future minimum rental payments due from tenants under
sub-leases of retail facilities and related premises aggregated $15,010,000.
Amounts receivable in the following five fiscal years amount to $2,093,000
(1997), $2,110,000 (1998), $1,832,000 (1999), $1,531,000 (2000) and $1,251,000
(2001).
NOTE 7--STOCKHOLDERS' EQUITY
A non-contributory employee stock ownership plan ("ESOP") has been established
to acquire shares of the Company's common stock for the benefit of all
eligible employees. The Company has made loans to the ESOP to be repaid in
equal annual installments over 8 years with interest primarily at 9% and 10%.
Deferred compensation equal to the loans has been recorded as a reduction of
stockholders' equity representing the Company's prepayment of future
compensation expense. As the Company makes annual contributions to the ESOP,
these contributions will be used to repay the loans to the Company, together
with accrued interest. As the loans are repaid, common stock is allocated to
ESOP participants and deferred compensation is reduced by the amount of the
principal payment on the loans.
The Company has a Warrant Dividend Plan which provides for distribution to
shareholders of a right to purchase one share of the Company's common stock
currently for $24.13 (subject to anti-dilution adjustments) as a dividend
on each of the Company's outstanding common shares. These rights are not
currently exercisable and will only become exercisable upon the happening of
certain events. Under certain circumstances, the rights entitle the holders
to receive, upon payment of the then current exercise price of the right,
that number of shares of Company common stock having a market value of two
times the then current exercise price of the right. The rights will expire
on December 30, 1997 and are redeemable at $.05 per right at any time prior
to the occurrence of certain events.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES
NOTE 7--STOCKHOLDERS EQUITY--continued
The Company's incentive compensation plan provides, among other things, for
incentive or non-qualified stock options, stock appreciation rights,
performance units, restricted stock and incentive bonus awards. During the
years ended July 31, 1996, 1995 and 1994, respectively, non-qualified stock
options for the purchase of 16,000, 250,000 and 109,000 shares, at prices of
$5.25, $5.75 and $8.50 per share, were granted to key executives under the
plan. During the year ended July 31, 1995 options to purchase 8,500 shares
were forefeited. At July 31, 1996, there were outstanding options for
366,500 shares. The 1995 options were granted to the Chief Executive Officer.
Options granted are exercisable at the fair market value at date of grant and,
subject to termination of employment, expire ten years from the date of
grant, are non-transferable other than on death, and are exercisable in three
equal annual installments commencing three years from date of grant.
Under the incentive compensation plan, as of July 31, 1996, 47,000 common
shares are outstanding which were issued to key executives in 1987 and 1988.
These shares are subject to restricted stock agreements which provide that the
shares will vest ratably over periods through 2001. Such shares are subject,
upon the occurrence of certain events, to either forfeiture or accelerated
vesting. The fair value of the shares on the dates of issuance is being
charged to operations as compensation during the period the restrictions
remain in effect. At July 31, 1996, 121,000 shares were available under the
plan.
NOTE 8--PENSION PLANS
The Company has non-contributory defined benefit pension plans covering all
employees who have completed one year of service, have attained age twenty
and one-half and are not covered by union-sponsored plans. The benefits are
based on years of service and the employee's compensation during the last 60
months of employment. The pension plans are funded to accumulate sufficient
assets to provide for accrued benefits. In addition, contributions are made
to multi-employer plans which provide defined benefits to union employees.
A summary of the components of net periodic pension cost for the defined
benefit plans for the three years ended July 31, 1996 and total
contributions charged to pension expense for the union-sponsored plans follows
(in thousands):
1996 1995 1994
Service cost-benefits earned
during the year $1,729 $1,813 $1,471
Interest cost on projected benefit
obligation 1,985 1,961 1,782
Actual return on plan assets (1,866) (1,723) (1,654)
Net amortization and deferral 144 253 156
NET PENSION COST OF DEFINED BENEFIT
PLANS 1,992 2,304 1,755
UNION-SPONSORED PLANS 319 287 422
TOTAL PENSION EXPENSE $2,311 $2,591 $2,177
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES
NOTE 8--PENSION PLANS--Continued
The following table sets forth the funded status and amounts recognized in the
consolidated balance sheet at July 31, for the defined benefit pension plans
(in thousands): __________1996_____________ _________1995______________
Plan Whose Plan Whose Plan Whose Plan Whose
Assets Exceed Accumulated Assets Exceed Accumulated
Accumulated Benefits Accumulated Benefits
Benefits Exceed Assets Benefits Exceed Assets
Actuarial present value of
benefit obligations:
Vested benefit obligation
$ (22,241) $(2,160) $(20,659) $(2,306)
Accumulated benefit
obligation $ (22,993) $(2,163) $(20,973) $(2,309)
Projected benefit
obligation $ (25,520) $ 2,163 $(23,075) $(2,309)
Plan assets, consisting
primarily of U.S. treasury
notes, other U.S. agency
issues, guaranteed insurance
contracts and corporate invest-
ments, at fair value
23,010 1,864 21,056 2,046
Projected benefit obligation
(in excess of)plan assets
(2,510) (299) (2,019) (263)
Unrecognized prior service cost
223 114 270 124
Unrecognized net loss
5,338 392 4,414 39
Unrecognized net asset at
August 1, 1987; net of amortization
(514) (57) (593) (65)
Net pension asset(liability)
recognized in the consolidated
balance sheet $2,537 $150 $(2,072) $(165)
The weighted-average discount rate and rate of increase in future compensation
levels used in determining the actuarial present value of the projected
benefit obligation were 8.3% and 4% and 8.0% and 4%, respectively, at July 31,
1996 and 1995. The expected long-term rate of return on plan assets was 8.0%,
8.0% and 8.5% in 1996, 1995 and 1994, respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES
NOTE 9--QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of the unaudited quarterly results of continuing
operations (see Note 4) for the years ended July 31, 1996 and 1995:
Fiscal 1996
Three Months Ended
October 31 January 31 April 30 July 31
(Thousands of Dollars Except Per Share Data)
Net sales $77,373 $82,243 $85,617 $75,902
Gross profit $21,589 $22,977 $25,059 $22,034
Income from
continuing operations: $ 1,354 $ 1,389 $ 1,460 $ 428
Per share:
Primary $ .13 $ .13 $ .14 $ .04
Fully diluted $ .11 $ .12 $ .10 $ .04
Fiscal 1995
Three Months Ended
October 31 January 31 April 30 July 31
(Thousands of Dollars Except Per Share Data)
Net sales $73,265 $91,163 $80,310 $81,404
Gross profit $22,990 $25,770 $23,907 $22,511
Income From
continuing operations: $ 1,226 $ 1,754 $ 1,925 $ 1,833
Per share:
Primary $ .11 $ .16 $ .18 $ .17
Fully diluted $ .10 $ .13 $ .13 $ .14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES
NOTE 10--OTHER ITEMS
a. Receivables other than trade at July 31, 1996 and 1995 amount to
$2,418,000and $2,656,000, respectively. See Note 10(c).
b. Other assets and deferred charges consist of (in thousands):
July 31, 1996 1995
Deferred financing costs (1) $2,896 $ 3,412
Non-compete agreements, net 2,766 4,468
Trademarks, net 4,542 4,667
Customer lists, net 4,666 5,819
Due from co-packer 3,375
Prepaid pension expense 2,924 1,966
Other 5,807 4,297
$26,976 $24,629
(1) Being amortized over the terms of the related indebtedness (see Note 2).
c. In connection with closing a business and termination of a pension
plan the Company has paid a liability for an underfunded pension
plan of approximately $1,500,000 and recorded a similar amount
receivable from the previous owner of such business pursuant to
the acquisition agreement. The previous owner of the business is
contesting the liability to the Company. The Company, based upon
its interpretation of the acquisition agreement and after
consultation with counsel, believes the previous owner of the
business is responsible for an amount approximating the underfunded
pension liability and has commenced litigation seeking such amount.
d. In fiscal 1996, other income includes $460,000 from the sale of real
estate. In fiscal1995, other income includes $589,000 from the sale
of a former manufacturing plant. In fiscal 1994, other income
includes $700,000 from the sale of the Companys private label tea
and drink mix business.
NOTE 11 -- INDUSTRY SEGMENT INFORMATION
The Company's financial information by industry segment for 1996, 1995 and
1994 may be found on page 35 and is incorporated herein by reference.
SELECTED FINANCIAL DATA
CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES
YEAR ENDED JULY 31
1996 1995 1994 1993 1992
(Dollar Amounts in Thousands, Except Per Share Amounts)
Net sales $321,135 $326,141 $263,511 $251,641 $203,640
Income/(loss) from
continuing operations
4,631 6,738 8,243 1,062 (5,822)
Working capital
87,053 89,612 81,590 72,022 45,027(1)
Working capital ratio
4.7 to 1 4.3 to 1 3.6 to 1 3.8 to 1 3.2 to 1
Total assets
199,435 207,005 208,807 195,304 184,648
Long-term debt
105,235 106,569 110,427 108,092 107,053
Stockholders' equity
63,487 64,937 58,262 52,985 52,406
Per common share (2):
Income/(loss) from
continuing operations .43 .63 .76 .10 (.56)
Stock dividends declared 3% 3% 3% 3%
Stockholders' equity 5.91 6.05 5.43 4.84 4.84
(1) Does not include $23,053 in 1992 of marketable securities classified as
non current.
(2) Per share data has been retroactively adjusted for a 3% stock dividend in
July 1995, 1994, 1993 and 1992.
FORWARD-LOOKING STATEMENTS
Certain statements under the caption Managements Discussion and Analysis of
Financial Condition and Results of Operations and elsewhere in this Form 10-K
and in the letter of the President and Chief Executive Officer and Chairman
of the Board and elsewhere in the Companys Annual Report to Shareholders,
constitute forward looking statements within the meaning of the Reform Act.
Such forward looking statements involve known and unknown 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; 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 judgement 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.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES
RESULTS OF OPERATIONS
The discussion and analysis that follows relates solely to continuing
operations of the Company.
Net sales decreased $5,006,000 or 1.5% for the year ended July 31, 1996,
compared to the prior year. The decrease in net sles was due to a decrease
in the average selling price of coffee, partially offset by a 17% increase
in coffee pounds sold.
Operating profits from food products were $15,059,000, a decrease of 17% for
the year ended July 31, 1996, compared to $18,205,000 for the prior year.
The decrease resulted primarily from decreased gross profit margins.
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 inceased coffee pounds sold. During the year ended July
31, 1996, prices for green coffee ranged from a high of $1.54 per pound to a
low of $.91 per pound. Selling, general and administrative expenses were
slightly lower than the prior year, with decreases in advertising, coupon,
payroll and payroll related expenses partially offset by increased brokerage
and delivery costs.
Income from continuing operations was $4,631,000 or $.43 per share for the
year ended July 31, 1996, compared to $6,738,000 or $.63 per share for the
prior year. The difference was primarily due to decreased operating profits,
partially offset by decreased income taxes.
Net sales increased $62,629,000 or 23.8% for the year ended July 31, 1995,
compared to the prior year. The increase in net sales was due to an
increase in the average selling price of coffee, partially offset by a
decrease in coffee pounds sold and the loss of $9,557,000 of sales from
Hillside (due to its disposition).
Operating profits from food products were $18,205,000, an increase of 66% for
the year ended July 31, 1995, compared to $10,940,000 for the prior year.
The increase resulted primarily from increased gross profit margins
partially offset by increased selling, general and administrative expenses
and the loss of operating profits of $2,179,000 from Hillside (due to its
disposition). Increased gross margins were due to an increase in the average
selling price of coffee greater than the increase in the average cost of green
coffee, partially offset by decreased coffee pounds sold. The price of green
coffee was volatile during the year ended July 31, 1995 and green coffee
prices ranged from a low of $1.21 per pound to a high of $2.31 per pound.
The Company consistently values its inventory and commitments at the lower of
cost or market. Selling, general and administrative expenses increased
primarily due to increased advertising and payroll costs, partially offset
by reduced coupon costs.
Income from continuing operations was $6,738,000 or $.63 per share for the
year ended July 31, 1995, compared to $8,243,000 or $.76 per share for the
prior year. The difference was primarily due to increased operating profits,
offset by increased income taxes on such operating profits and the gain on
sale of Hillside (the Companys specialty coffee product line) of $6,224,000
after income taxes or $.58 per share in the prior year.
General inflation has been relatively low for the last several years; however,
green coffee prices have changed significantly during fiscal 1994, 1995 and
1996. While the Company manages its inventory to have rapid turnover, the
changes in green coffee prices have impacted the Companys gross profit
percentage.
LIQUIDITY AND CAPITAL RESOURCES
As of July 31, 1996, working capital was approximately $87,000,000 and the
ratio of current assets to current liabilities was 4.7 to 1.
As of July 31, 1996, the Company had unused borrowing capacity of
approximately $30 million under its credit facilities of $40 million
with Fleet Bank N.A. and The Chase Manhattan Bank (see Note 2 of notes to
consolidated financial statements).
The Company plans on expanding its Quikava, company operated and franchised
operations, which in total are currently operating in 14 locations. The sales
of these operations are not material to the Companys consolidated sales.
Total Quikava store level operations are not currently profitable, primarily
due to pre-opening expenses. In addition, Quikava headquarters expenses in
excess of $1,000,000 on an annual basis are not being absorbed.
The Company believes that its cash flow from operations, its cash equivalents
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.
SEGMENT INFORMATION
CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES
Year Ended July 31
1996 1995 1994
(Amounts in Thousands)
Net sales - food products $ 321,135 $326,141 $263,511
Rental revenues $ 2,156 $ 2,061 $ 2,060
Operating profit:
Food products $ 15,059 $18,205 $ 10,940
Real estate 671 490 317
Eliminations (625) (423) (266)
$ 15,105 $18,272 $ 10,991
Identifiable assets:
Food products $ 156,888 $165,566 $152,293
Real estate 9,493 9,564 9,913
Corporate 33,054 31,875 46,591
$ 199,435 $207,005 $208,797
Depreciation and amortization:
Food products $ 6,203 $ 5,596 $ 6,123
Corporate 177 203 55
$ 6,380 $ 5,799 $ 6,178
Capital expenditures:
Food products $ 7,397 $ 6,533 $ 4,577
Corporate 14 14 38
$ 7,411 $ 6,547 $ 4,615
The food products segment is engaged in the (a) roasting, packing and
marketing of regular,instant, decaffeinated and specialty coffees and (b)
packing and marketing of regular and decaffeinated tea for sale to Retail,
Foodservice and Private Label customers. Additionally, other related food
products are marketed and sold to Foodservice customers. See Notes 4 and 5
of notes to consolidated financial statements. Operations of real estate
represent rental and other income principally from the Company's original
restaurant facilities.
All of the Company's operations are located in the United States. Export
sales are not significant.
Identifiable assets under the caption "Corporate" include (1) cash and cash
equivalents, investments in marketable securities and short-term investments
of $16,422,000 (1996), $15,330,000 (1995) and $31,726,000 (1994) and (2) net
assets of discontinued operations of $941,000 (1996), $3,814,000 (1995) and
$1,458,000 (1994).
CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES
COMMON SHARE PRICES
The Company's Common Stock is traded on the New York Stock Exchange under the
symbol CHF. The Company has approximately 14,000 shareholders of record as
of October 10, 1995.
1996 1995
High Low High Low
1st Quarter 6 3/4 5 7/8 6 1/4 5 1/8
2nd Quarter 6 1/8 5 1/8 6 1/4 5 1/4
3rd Quarter 5 1/2 4 3/4 6 5/8 5 3/8
4th Quarter 5 1/4 4 5/8 7 6 3/8
The Company distributed a 3% stock dividend on July 27, 1995.
Pursuant to certain provisions of a revolving credit and term loan agreement,
the Company may not declare or pay any dividend (except for stock dividends).
Item 14(d)
CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES
SCHEDULE II- VALUATION AND QUALIFYING ACCOUNTS
Column A Column B Column C Column D Column E
Additions
Balance at Charged to Balance
Beginning Costs and at End
Description of Period Expenses Other Deductions(1) of Period
Year ended July 31, 1996:
Allowance for doubtful
accounts and discounts
$1,251,000 $2,315,902 $2,433,902 $ 1,133,000
Year ended July 31, 1995:
Allowance for doubtful
accounts and discounts
$928,000 $2,597,705 $2,274,705 $ 1,251,000
Year ended July 31, 1994:
Allowance for doubtful
accounts and discounts
$1,081,000 $1,940,779 $24,6642 $2,118,443 $928,000
(1) Discounts taken by customers and uncollectible accounts written-off,
net of recoveries.
EXHIBIT 11 - STATMENT RE: COMPUTATION OF PER SHARE EARNINGS
YEAR ENDED JULY 31,
1996 1995 1994
(AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE DATA)
PRIMARY
AVERAGE SHARES OUTSTANDING 10,736 10,736 10,797
INCOME FROM CONTINUING
OPERATIONS $4,631 $6,738 $8,243
NET (LOSS)/INCOME $(1,536) $4,863 $7,884
PER SHARE AMOUNTS:
INCOME FROM CONTINUING
OPERATIONS $.43 $.63 $0.76
NET (LOSS)/INCOME $(.14) $.45 $0.73
FULLY DILUTED
AVERAGE SHARES OUTSTANDING 10,736 10,736 10,797
ASSUMED CONVERSION OF
CONVERTIBLE DEBENTURES 11,821 11,821 11,822
TOTAL 22,557 22,557 22,619
INCOME FROM CONTINUING
OPERATIONS $4,631 $6,738 $8,243
ADD CONVERTIBLE DEBENTURES
INTEREST AND AMORTIZATION
OF DEFERRED CHARGES, NET
OF INCOME TAXES 4,386 4,670 4,373
TOTAL $9,017 $11,408 $12,616
NET (LOSS)/INCOME $(1,536) $4,863 $7,884
ADD CONVERTIBLE DEBENTURES
INTEREST AND AMORTIZATION
OF DEFERRED CHARGES, NET
OF INCOME TAXES 4,452 4,670 4,373
TOTAL $2,916 $9,533 $12,257
PER SHARE AMOUNTS:
INCOME FROM CONTINUING
OPERATIONS $.40 $.51 $.56
NET INCOME $.13 $.42 $.54
EXHIBIT 21 - SUBSIDIARIES OF THE REGISTRANT
As of October 13, 1996, the Company had directly and indirectly the
following active subsidiaries, all of which are included in the Companys
consolidated financial statements furnished herewith:
Subsidiaries of
Chock full oNuts Corporation
Chock Realty Corporation
California
100%
CFN of New York, Inc.
New York
100%
Cains Coffee Co.
Delaware
100%
Cains Holding Company
Delaware
100%
Quikava, Inc.
Massachusetts
100%