SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended April 30, 1997 Commission File Number 1-4183
CHOCK FULL O' NUTS CORPORATION
(Exact Name of Registrant As Specified In Its Charter)
New York 13-0697025
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
370 Lexington Avenue, New York, N.Y. 10017
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number,including Area Code (212) 532-0300
Indicate by check mark whether the registrant (1)
has filed all reports required to be filed by Section
13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter
period that the registrant was required to file such
reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
No. of Shares of Common Stock ($.25 par value) outstanding as of
June 13, 1997 - 10,735,546
CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES
INDEX
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Unaudited Condensed Consolidated Balance Sheets -
April 30, 1997 and July 31, 1996 1 & 2 of 12
Unaudited Condensed Consolidated Statements of Operations-
Three Months Ended April 30, 1997 and 1996 3 of 12
Unaudited Condensed Consolidated Statements of Operations-
Nine Months Ended April 30, 1997 and 1996 4 of 12
Unaudited Condensed Consolidated Statements of Cash Flows -
Nine Months Ended April 30, 1997 and 1996 5 of 12
Unaudited Condensed Consolidated Statement of Stockholders'
Equity - April 30, 1997 6 & 7 of 12
Notes to Unaudited Condensed Consolidated Financial
Statements - April 30, 1997 8 & 9 of 12
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10 & 11 of 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 11 of 12
Item 5. Other Information 11 of 12
Item 6. Exhibits and Reports on Form 8-K 11 of 12
Signatures 12 of 12
PART I. FINANCIAL INFORMATION
CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
April 30, July 31,
1997 1996
(Unaudited) (Note)
ASSETS
Current assets:
Cash and cash equivalents $ 16,227,370 $ 16,293,783
Receivables, principally
trade, less allowances
for doubtful accounts and
discounts of $1,236,000
and $1,133,000 35,974,725 30,989,008
Inventories 71,374,113 59,637,802
Investments in marketable securities,
at market (approximates cost) 171,588 128,099
Prepaid expenses and other 2,264,295 3,539,776
Total current assets 126,012,091 110,588,468
Property, plant and
equipment - at cost $99,134,615 $ 93,683,328
Less allowances for
depreciation and
amortization 49,624,616 (45,172,084)
(49,509,999) 48,511,244
Real estate held for
development or sale, at cost 7,649,387 7,691,267
Other assets and deferred charges 24,720,118 26,976,132
Excess of cost over net
assets acquired 9,642,576 5,668,008
$217,648,788 $199,435,119
Note: The balance sheet at July 31, 1996 has been derived from the audited
financial statements at that date.
See notes to unaudited condensed consolidated financial statements.
CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
April 30, July 31,
1997 1996
(Unaudited) (Note)
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current Liabilities:
Current portion of long-term debt $ 766,000
Accounts payable 19,831,100 $ 10,469,300
Accrued expenses 9,102,019 11,346,483
Income taxes 3,700,494 1,719,575
Total current liabilities 33,399,613 23,535,358
Long-term debt, excluding current
portion 106,131,614 105,235,468
Other non-current liabilities 3,221,066 1,586,231
Deferred income taxes 5,591,000 5,591,000
Stockholders' equity:
Common stock, par value $.25
per share;
Authorized 50,000,000 shares:
Issued 11,211,068 shares 2,802,767 2,802,767
Additional paid-in-capital 51,357,008 51,357,008
Retained earnings 22,869,835 17,434,755
Cost of 475,522 shares in
treasury (6,573,719) (6,573,719)
Deferred compensation under
stock bonus plan and
employees' stock ownership
plan (1,150,396) (1,533,749)
Total stockholders' equity 69,305,495 63,487,062
$217,648,788 $199,435,119
Note: The balance sheet at July 31, 1996 has been derived from the audited
financial statements at that date.
See notes to unaudited condensed consolidated financial statements.
CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended April 30,
1997 1996
Revenues:
Net sales $ 95,305,553 $ 85,616,717
Rentals from real estate 523,218 513,299
95,828,771 86,130,016
Cost and expenses:
Cost of sales 66,195,704 60,558,257
Selling, general and
administrative expenses 23,588,807 20,976,446
Expenses of real estate 410,940 394,565
90,195,451 81,929,268
Operating profit 5,633,320 4,200,748
Interest income 258,191 226,898
Interest expense (2,131,045) (2,148,818)
Other income - net 4,565 25,955
Income before income taxes 3,765,031 2,304,783
Income taxes 1,529,000 844,000
Income from continuing
operations 2,236,031 1,460,783
Discontinued operations,
net of income tax
credits of $253,000 (492,433)
Net income $2,236,031 $ 968,350
Income/(loss) per share:
Primary:
Continuing operations $.21 $.14
Discontinued operations (.05)
Net income $.21 $.09
Fully diluted:
Continuing operations $.15 $.10
Discontinued operations (.02)
Net income $.15 $.08
See notes to unaudited condensed consolidated financial statements.
CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Nine Months Ended April 30,
1997 1996
Revenues:
Net sales $262,124,553 $245,232,097
Rentals from real estate 1,571,071 1,641,756
263,695,624 246,873,853
Cost and expenses:
Cost of sales 183,806,140 175,608,382
Selling, general an
administrative expenses 63,944,363 57,940,337
Expenses of real estate 1,279,417 1,145,992
249,029,920 234,694,711
Operating profit 14,665,704 12,179,142
Interest income 936,781 642,042
Interest expense (6,397,452) (6,649,676)
Other income - net 23,047 515,038
Income before income taxes 9,228,080 6,686,546
Income taxes 3,793,000 2,483,000
Income from continuing operations 5,435,080 4,203,546
Discontinued operations, net of
income tax credits of $752,000 (1,462,577)
Net income $5,435,080 $2,740,969
Income/(loss) per share:
Primary:
Continuing operations $.51 $.39
Discontinued operations (.13)
Net income $.51 $.26
Fully diluted:
Continuing operations $.39 $.33
Discontinued operations (.07)
Net income $.39 $.26
See notes to unaudited condensed consolidated financial statements.
CHOCK FULL O'NUTS CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended April 30,
1997 1996
Operating Activities:
Net income $ 5,435,080 $ 2,740,969
Adjustments to reconcile net income
to net cash provided by/(used in)
operating activities:
Depreciation and amortization of property,
plant and equipment 4,337,915 4,692,051
Amortization of deferred compensation and
deferred charges 3,284,982 3,497,992
Other, net (779,405) (1,319,045)
Changes in operating assets and
liabilities:(Increase)/decrease
in accounts receivable (3,123,588) 1,491,586
(Increase)/decrease in inventory (10,382,605) 4,829,753
Decrease in prepaid expenses 1,376,278 934,877
Increase/(decrease) in accounts
payable, accrued
expenses and income taxes 6,127,539 (6,609,368)
NET CASH PROVIDED BY OPERATING
ACTIVITIES 6,276,196 10,258,815
Investing Activities:
Acquisition of business (5,746,230)
Proceeds from sale and collection
of principal of marketable
securities 55,588,251
Purchases of marketable securities (43,489) (49,557,703)
Purchases of property, plant and
equipment (3,575,210) (6,969,394)
NET CASH (USED IN) INVESTING
ACTIVITIES (9,364,929) (938,846)
Financing Activities:
Proceeds/(payments)of long-term
debt, net 1,662,146 (227,862)
Proceeds from co-packer 1,360,174
Loan to employees' stock ownership plan (500,000)
Other (13,147)
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 3,022,320 (741,009)
(Decrease)/increase in Cash and
Cash Equivalents (66,413) 8,578,960
Cash and Cash Equivalents at
Beginning of Period 16,293,783 8,386,620
Cash and Cash Equivalents
at End of Period $16,227,370 $16,965,580
See notes to unaudited condensed financial statements.
CHOCK FULL O'NUTS CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Common Stock
Issued In Treasury
Shares Amount Shares Amount
In Thousands
Balance at July 31, 1996 11,211 $2,803 476 $6,574
Net income
Deferred compensation under stock
bonus plan and employees' stock
ownership plan:
Amortization
Balance at April 30, 1997 11,211 $2,803 476 $6,574
See notes to unaudited condensed consolidated financial statements.
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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, 1996 $1,534 $51,357 $17,435
Net income 5,435
Deferred compensation under stock
bonus plan and employees'stock
ownership plan:
Amortization 384
Balance at April 30, 1997 $1,150 $51,357 $22,870
See notes to unaudited condensed consoliated financial statements.
7 of 12
CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1997
(A) The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions
to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and nine months ended
April 30, 1997 and 1996 are not necessarily indicative of the results
that may be expected for a full fiscal year. For further information,
refer to the consolidated financial statements and footnotes thereto
included in the Company's annual report on Form 10-K for the year
ended July 31, 1996.
(B) Primary per share data is based on the weighted average number of
common shares outstanding of 10,736,000 for the three and nine
months ended April 30, 1997 and 1996. Fully diluted per share data,
assuming conversion of debentures, is based on 22,556,000 shares
outstanding for the three and nine months ended April 30, 1997 and
1996.
(C) Inventories are stated at the lower of cost (first-in, first-out) or
market. The components of inventory consist of the following:
April 30, July 31,
1997 1996
Finished goods $42,968,077 $35,715,505
Raw materials 22,697,385 18,931,470
Supplies 5,708,651 4,990,827
$71,374,113 $59,637,802
(D) Under the Company's amended and restated revolving credit and term loan
agreements (collectively the "Loan Agreements") with Fleet Bank, N.A.
and The Chase Manhattan Bank (the "Banks"), the Company may, from time
to time, borrow funds from the Banks, provided that the total principal
amount of all such loans outstanding through December 31, 1997 may not
exceed $40,000,000 and after such date may not exceed $20,000,000.
Interest (8.25% at April 30, 1997) on all such loans is equal to prime
rate, subject to adjustment based on the level of loans outstanding.
Outstanding borrowings under the Loan Agreements may not exceed certain
percentages of and are collateralized by, among other things, the trade
accounts receivable and inventories, and substantially all of the
machinery and equipment and real estate of the Company and its
subsidiaries. All loans made under the term loan agreement
($10,000,000 at April 30, 1997) are to be repaid in December 1999.
Outstanding loans under the revolving credit agreements are to be
repaid in December 1999. Pursuant to the terms of the Loan Agreements,
the Company and its subsidiaries, among other things, must maintain a
minimum net worth and meet ratio tests for liabilities to net worth and
coverage of fixed charges and interest, all as defined. The Loan
Agreements also provide, among other things, for restrictions on
dividends (except for stock dividends) and require repayment of
outstanding loans with excess cash flow, as defined.
(E) Prepaid expenses and other on the unaudited condensed consolidated
balance sheets includes deferred income taxes of $933,000.
(F) On January 17, 1997, the Company acquired substantially all of the
assets and assumed substantially all of the liabilities of Ireland
Coffee & Tea Company, a leading roaster and distributor of coffees
to hotels, restaurants and institutions on the East Coast for
approximately $8,000,000. The acquisition is being accounted for as
purchase. The excess of cost over net assets acquired (approximately
$4,100,000) is being amortized over a period of 40 years using the
straight-line method. The pro forma effects on the Company's
operations as if this business had been acquired on August 1, 1995
are not material.
(G) In February of 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings Per Share", which is required to be
adopted on December 31, 1997. At that time, the Company will be
required to change the method currently used to compute earnings per
share and to restate all prior periods. The Company believes adopt-
tion of Statement No. 128 will not have a material impact on
earnings per share information currently presented.
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CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Certain statements in the "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and elsewhere in this Form 10-Q
constitute "forward-looking statements" within the meaning of the Reform Act.
See Other Information Item 5.
Operations
The following is Management's discussion and analysis of certain
significant factors that have affected the Company's continuing
operations during the periods included in the accompanying unaudited
condensed consolidated statements of operations.
In January 1997, the Company acquired substantially all of the assets
and assumed substantially all of the liabilities of Ireland Coffee and
Tea Company ("Ireland") for $8,000,000. The business of Ireland
consists of roasting and distributing coffees to hotels, restaurants
and institutions on the East Coast.
Net sales increased $9,689,000 or 11.3% and $16,892,000 or 6.9% for the
three and nine months ended April 30, 1997, compared to the comparable
periods of the prior year. The increase for the three months ended
April 30, 1997 in net sales was due to an 8% increase in coffee pounds
sold and an increase in the average selling price of coffee. The
increase in net sales for the nine months ended April 30, 1997 was due
to 13% increase in coffee pounds sold, partially offset by a decrease
in the average selling price of coffee.
Operating profits from food products were $5,521,000 and $14,374,000,
increases of 35% and 23% for the three and nine months ended April 30,
1997, respectively, compared to $4,082,000 and $11,683,000 for the
comparable periods of the prior year. The increases resulted primarily
from increased gross margins and the operations of Ireland from date of
acquisition, partially offset by increased selling, general and
administrative expenses. Increased gross margins in the three months
ended April 30, 1997 were primarily due to increased coffee pounds sold
and increased profits per pound related to the change in the
relationship between the selling price of coffee and the cost of green
coffee purchased. During the three months ended April 30, 1997 prices
for green coffee ranged from a high of $2.20 to a low of $1.37 per
pound. Increased gross margins in the nine months ended April 30, 1997
were primarily due to increased coffee pounds sold as the per pound
profit of coffee sold remained fairly constant. During the nine months
ended April 30, 1997 prices for green coffee ranged from a high of
$2.20 to a low of $1.03 per pound. Selling, general and adminstrative
expenses increased primarily due to increased advertising, brokerage,
delivery and data processing costs and salaries. Certain of the
Company's selling expenses vary with the number of pounds sold,
therefore selling expense has increased in 1997 compared to 1996.
Income from continuing operations was $2,236,000 or $.21 per share and
$5,435,000 or $.51 per share for the three and nine months ended April
30, 1997, compared to $1,461,000 or $.14 per share and $4,204,000 or
$.39 per share for the comparable periods of the prior year. The
differences were primarily due to increased operating profits,
increased interest income (resulting from increased invested funds)and
reduced interest expense (resulting from lower amounts of debt
outstanding), partially offset by increased income taxes. Increased
income taxes are primarily attributable to increased income before
income taxes. Net income for the 1997 periods are the same as the
results from continuing operations. Net income for the 1996 periods
are net of a loss from discountinued operations of $492,000 or $.05
per share (three months) and $1,463,000 or $.13 per share (nine
months).
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Liquidity and Capital Resources
As of April 30, 1997, working capital was approximately $92,600,000 and
the ratio of current assets to current liabilities was approximately 3.8
to 1.
As of April 30, 1997, the Company had unused borrowing capacity of
approximately $28 million under its credit facilities of $40 million with
Fleet Bank, N.A. and The Chase Manhattan Bank.
Cash flow from operations for the 1997 period decreased to $6,276,000
compared to $10,259,000 for the comparable period of 1996, while net
income for the 1997 period increased to $5,435,000 compared to
$2,741,000 for the comparable period for 1996. The decrease in cash
flow from operations related to higher levels of inventory and accounts
receivable offset to some extent by higher accounts payable and income
tax payable. The higher inventory, accounts receivable and payables
related to higher green coffee prices.
Cash used in investing activities principally related to the acquisition of
Ireland and property, plant and equipment purchases. Cash provided by
financing activities related to proceeds of long-term debt to finance
working capital as well as the aformentioned acquisition and the collection
of advances from a co-packer.
The Company plans on expanding its Quikava, company operated and
franchised operations, which in total are currently operating in 16
locations. The sales ($2,554,000 - nine months)of these operations are
not material to the Company's consolidated sales. Total Quikava store
level operations are not currently profitable. In addition, Quikava
headquarters' expenses of approximately $1,400,000 on an annual basis are
not being absorbed.
The Company believes that its cash flow from operations and its amended
and restated revolving credit and term loan agreements with its Banks
provide sufficient liquidity to meet its working capital, expansion and
capital requirements.
Green Coffee Market
Subsequent to April 30, 1997 through June 10, 1997, the green coffee
market has become extremely volatile reaching a high of $3.14 per pound
and a low of $2.18 per pound. Historically, the Company has been able to
pass along price increases to its customers, although at very high retail
price levels there is a fall-off in consumer demand.
Part II. Other Information
Item 1. Legal Proceedings - None
Item 5. Other Information
Certain statements under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and elsewhere in this Form
10-Q constitute "forward looking statements" within the meaning of the Reform
Act. Such forward looking statements involve known risks, uncertainties, and
other factors which may cause the actual results, performance or achievements
of the Company to be materially different from any future results,
performance or achievements expressed or implied by such forward looking
statements. Such factors include, among others, the following: general
economic and business conditions; competition; success of operating
initiatives; development and operating costs, including green cofee prices;
advertising and promotional efforts; brand awareness; the existence of or
adherence to development schedules; the existence or absence of adverse
publicity; availability, locations and terms of sites for Quikava outlets;
changes in business strategy or development plans; quality of management;
availability, terms and deployment of capital; business abilities and
judgment of personnel; availability of qualified personnel; labor and
employee benefit costs; changes in or the failure to comply with government
regulations; construction costs and other factors.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits - Financial Data Schedule - Exhibit 27 - see below
b) Reports on Form 8-K - none
11 of 12
Appendix A to item 601 (c) of Regulation S-K
(Article 5 of Regulation S-X
Chock full o'Nuts Corporation and Subsidiaries)
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant duly caused this Report of Form 10-Q to be signed on its
behalf by the undersigned, thereunto duly authorized.
CHOCK FULL O' NUTS CORPORATION
(Registrant)
June 11, 1997
Marvin I. Haas
President and Chief Executive Officer
June 13, 1997
Howard M. Leitner
Senior Vice President and
Chief Financial and Accounting Officer
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