<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED JANUARY 31, 1994 COMMISSION FILE NUMBER 1-4183
------------------------ ------
CHOCK FULL O' NUTS CORPORATION
- --------------------------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEW YORK 13-0697025
-----------------------------------------------------------------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
370 LEXINGTON AVENUE, NEW YORK, N.Y. 10017
- ------------------------------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (212) 532-0300
-----------------------------
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1)
HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION
13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934
DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER
PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH
REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS.
YES X NO______
-------
NO. OF SHARES OF COMMON STOCK ($.25 PAR VALUE) OUTSTANDING AS OF
MARCH 11, 1994 - 10,119,032
<PAGE>
PART I. FINANCIAL INFORMATION
-----------------------------
CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES
-----------------------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
<TABLE>
<CAPTION>
JANUARY 31, JULY 31,
1994 1993
--------------------------------- ------------
(UNAUDITED) (NOTE)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS $ 10,715,408 $ 5,469,159
RECEIVABLES, PRINCIPALLY
TRADE, LESS ALLOWANCES
FOR DOUBTFUL ACCOUNTS AND
DISCOUNTS OF $1,176,000
AND $1,081,000 25,791,540 25,319,816
INVENTORIES 39,809,992 38,385,397
NET ASSETS OF PRODUCT LINE
HELD FOR SALE 24,970,356
MARKETABLE SECURITIES 24,432,612
PREPAID EXPENSES AND OTHER 2,542,951 3,222,586
------------ ------------
TOTAL CURRENT ASSETS 103,292,503 97,367,314
PROPERTY, PLANT AND
EQUIPMENT - AT COST $ 93,243,208 $ 91,098,376
LESS ALLOWANCES FOR
DEPRECIATION AND
AMORTIZATION (38,651,690) 54,591,518 (35,502,700) 55,595,676
------------ ------------
REAL ESTATE HELD FOR
SALE OR DEVELOPMENT, AT COST 5,404,243 5,404,243
OTHER ASSETS AND DEFERRED CHARGES 30,447,085 31,040,452
EXCESS OF COST OVER NET
ASSETS ACQUIRED 5,807,604 5,896,404
----------- ------------
$199,542,953 $195,304,089
============ ============
NOTE: THE BALANCE SHEET AT JULY 31, 1993 HAS BEEN DERIVED FROM THE AUDITED
FINANCIAL STATEMENTS AT THAT DATE, RESTATED FOR THE ADOPTION OF FASB 109 .
</TABLE>
SEE NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
1 OF 14
<PAGE>
CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES
-----------------------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
<TABLE>
<CAPTION>
JANUARY 31, JULY 31,
1994 1993
------------- -------------
(UNAUDITED) (NOTE)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
ACCOUNTS PAYABLE $ 9,019,551 $ 10,804,095
ACCRUED EXPENSES 10,978,334 13,605,564
INCOME TAXES 4,910,101 935,359
------------ ------------
TOTAL CURRENT LIABILITIES 24,907,986 25,345,018
LONG-TERM DEBT, EXCLUDING CURRENT
INSTALLMENTS 106,525,641 108,092,174
OTHER NONCURRENT LIABILITIES 5,036,929 5,003,738
DEFERRED INCOME TAXES 3,878,000 3,878,000
STOCKHOLDERS' EQUITY:
COMMON STOCK, PAR VALUE $.25 PER SHARE;
AUTHORIZED 50,000,000 SHARES:
ISSUED 10,594,554 AND 10,592,264
SHARES 2,648,639 2,648,066
ADDITIONAL PAID-IN-CAPITAL 47,274,704 47,255,836
RETAINED EARNINGS 18,207,703 10,457,264
COST OF 475,522 AND 275,522 SHARES IN TREASURY (6,573,719) (4,723,719)
DEFERRED COMPENSATION UNDER STOCK BONUS
PLAN AND EMPLOYEES' STOCK OWNERSHIP PLAN (1,937,930) (2,227,288)
UNFUNDED PENSION LOSSES (425,000) (425,000)
TOTAL STOCKHOLDERS' EQUITY 59,194,397 52,985,159
------------ ------------
$199,542,953 $195,304,089
============ ============
</TABLE>
NOTE: THE BALANCE SHEET AT JULY 31, 1993 HAS BEEN DERIVED FROM THE AUDITED
FINANCIAL STATEMENTS AT THAT DATE, RESTATED FOR THE ADOPTION OF FASB 109.
SEE NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
2 OF 14
<PAGE>
CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES
-----------------------------------------------
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
---------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED JANUARY 31,
------------------------------
1994 1993
------------------------------- ------------
<S> <C> <C>
REVENUES:
NET SALES $62,108,202 $65,725,521
RENTALS FROM REAL ESTATE 574,012 477,262
----------- -----------
62,682,214 66,202,783
----------- -----------
COST AND EXPENSES:
COST OF SALES 41,446,261 41,331,338
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 18,531,010 19,939,347
EXPENSES OF REAL ESTATE 430,173 361,536
----------- -----------
60,407,444 61,632,221
----------- -----------
OPERATING PROFIT 2,274,770 4,570,562
INTEREST AND DIVIDEND INCOME 331,100 252,337
GAIN ON SALE OF MARKETABLE SECURITIES 335,577
GAIN ON SALE OF PRODUCT LINE 13,208,393
INTEREST EXPENSE (2,158,665) (2,565,267)
OTHER (DEDUCTIONS) - NET (46,124) (32,808)
----------- -----------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 13,609,474 2,560,401
INCOME TAXES 6,365,000 938,500
----------- -----------
INCOME FROM CONTINUING OPERATIONS 7,244,474 1,621,901
----------- -----------
DISCONTINUED OPERATIONS:
INCOME FROM OPERATIONS, NET OF INCOME
TAXES OF $672,000 552,680
LOSS IN DISPOSITION (2,636,123)
-----------
(2,083,443)
-----------
NET INCOME/(LOSS) $ 7,244,474 $ (461,542)
=========== ===========
INCOME/(LOSS) PER SHARE
PRIMARY
CONTINUING OPERATIONS $ .71 $ .16
=========== ===========
NET INCOME/(LOSS) $ .71 $ (.05)
=========== ===========
FULLY DILUTED
CONTINUING OPERATIONS $ .40 $ .12
=========== ===========
NET INCOME/(LOSS) $ .40 $ (.05)
=========== ===========
</TABLE>
SEE NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
3 OF 14
<PAGE>
CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES
-----------------------------------------------
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
---------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED JANUARY 31,
------------------------------------------
1994 1993
------------ ----------------------------
<S> <C> <C>
REVENUES:
NET SALES $133,044,007 $116,098,879
RENTALS FROM REAL ESTATE 1,056,936 915,253
------------ ------------
134,100,943 117,014,132
------------ ------------
COST AND EXPENSES:
COST OF SALES 86,877,081 74,226,194
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 41,118,217 34,442,021
EXPENSES OF REAL ESTATE 829,136 757,121
------------ ------------
128,824,434 109,425,336
------------ ------------
OPERATING PROFIT 5,276,509 7,588,796
INTEREST AND DIVIDEND INCOME 356,130 660,511
<CAPTION>
<S> <C> <C>
GAIN ON SALES OF MARKETABLE SECURITIES 335,577
GAIN ON SALE OF PRODUCT LINE 13,208,393
INTEREST EXPENSE (4,344,803) (4,658,831)
OTHER (DEDUCTIONS) - NET (37,790) (29,838)
----------- -----------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 14,458,439 3,896,215
INCOME TAXES 6,708,000 1,569,000
----------- -----------
INCOME FROM CONTINUING OPERATIONS 7,750,439 2,327,215
----------- -----------
DISCONTINUED OPERATIONS:
INCOME FROM OPERATIONS, NET OF INCOME 1,103,029
TAXES OF $1,339,000 (1,103,029)
-----------
LOSS IN DISPOSITION (2,636,123)
-----------
(1,533,094)
----------- -----------
NET INCOME $ 7,750,439 $ 794,121
=========== ===========
INCOME PER SHARE
PRIMARY
CONTINUING OPERATIONS $ .76 $ .23
=========== ===========
NET INCOME $ .76 $ .08
=========== ===========
FULLY DILUTED
CONTINUING OPERATIONS $ .47 $ .22
=========== ===========
NET INCOME $ .47 $ .08
=========== ===========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
4 of 14
<PAGE>
CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES
-----------------------------------------------
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
---------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended January 31,
------------------------------
1994 1993
-------------- --------------
<S> <C> <C>
Operating Activities - Continuing Operations:
Income from continuing operations $ 7,750,439 $ 2,327,215
Adjustments to reconcile income from
continuing operations to net cash provided
by operating activities:
Depreciation and amortization of
property, plant and equipment 3,148,990 3,129,165
Amortization of deferred compensation
and deferred charges 2,208,914 1,639,639
Gain on sale of marketable securities (335,577)
Gain on sale of product line (13,208,393)
Other, net (235,366) (909,928)
Changes in operating assets and liabilities:
(Increase) in accounts receivable (244,250) (2,546,476)
(Increase)/decrease in inventory (1,424,595) (1,029,595)
Decrease in prepaid expenses 679,635 776,966
(Decrease)/Increase in accounts payable,
accrued expenses and income taxes (437,032) 5,361,978
------------ ------------
NET CASH (USED IN)/PROVIDED BY CONTINUING OPERATIONS (1,761,658) 8,413,392
------------ ------------
Investing Activities - Continuing Operations:
Proceeds from sale and collection of principal
of marketable securities 1,238,096 20,646,393
Purchases of marketable securities (25,670,708)
Purchases of property, plant and equipment (2,163,976) (3,576,243)
Proceeds from sale of product line 38,144,205
Increase in assets held for sale (1,093,071)
Acquisition of businesses (55,390,488)
------------ ------------
NET CASH PROVIDED BY/(USED IN)
CONTINUING OPERATIONS 10,454,546 (38,320,338)
------------ ------------
Financing Activities - Continuing Operations:
Proceeds from long-term debt 34,534,042
Principal payments on long-term debt (1,546,533) (282,437)
Purchase of treasury stock (1,850,000)
Other (50,106) (2,019,208)
------------ ------------
NET CASH (Used In)/PROVIDED BY CONTINUING
OPERATIONS (3,446,639) 32,232,397
------------ ------------
Increase in Cash and
Cash Equivalents - Continuing Operations 5,246,249 2,325,451
Cash and cash equivalents at beginning
of period - continuing operations 5,469,159 2,529,123
------------ ------------
Cash and Cash Equivalents at End of Period -
Continuing Operations $ 10,715,408 $ 4,854,574
============ ============
</TABLE>
See notes to unaudited condensed consolidated financial statements.
5 of 14
<PAGE>
CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES
-----------------------------------------------
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
------------------------------------------------------------------
<TABLE>
<CAPTION>
Common Stock
------------------------------
Issued In Treasury
------ --------------
Shares Amount Shares Amount
------ ------ ------ ------
In Thousands
------------------------------
<S> <C> <C> <C> <C>
Balance at July 31, 1993 - as reported 10,592 $2,648 276 $4,724
Restatement due to adoption of FASB 109 ------ ------ --- ------
Balance at July 31, 1993 - as restated 10,592 2,648 276 4,724
Net income
Conversion of subordinated debentures 3 1
Purchase of treasury stock 200 1,850
Deferred compensation under stock
bonus plan and employees' stock
ownership plan:
Amortization
------ ------ ------ ------
Balance at January 31, 1994 10,595 $2,649 476 $6,574
====== ====== ====== ======
</TABLE>
See notes to unaudited condensed consolidated financial statements.
6 of 14
<PAGE>
CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES
-----------------------------------------------
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
------------------------------------------------------------------
<TABLE>
<CAPTION>
DEFERRED
COMPENSATION
UNDER STOCK
BONUS PLAN AND UNFUNDED ADDITIONAL
EMPLOYEES' STOCK PENSION PAID-IN RETAINED
OWNERSHIP PLAN LOSSES CAPITAL EARNINGS
----------------- ------ ---------- --------
IN THOUSANDS
--------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE AT JULY 31, 1993 -
AS REPORTED $2,227 $425 $47,256 $11,809
RESTATEMENT DUE TO ADOPTION
OF FASB 109 (1,352)
------ ---- ------- -------
BALANCE AT JULY 31, 1993
AS RESTATED 2,227 425 47,256 10,457
NET INCOME 7,751
PURCHASE OF TREASURY STOCK
CONVERSION OF SUBORDINATED DEBENTURES 19
DEFERRED COMPENSATION UNDER STOCK
BONUS PLAN AND EMPLOYEES' STOCK
OWNERSHIP PLAN:
AMORTIZATION 289
------ ---- ------- -------
BALANCE AT JANUARY 31, 1994 $1,938 $ 425 $47,275 $18,208
====== ==== ======= =======
</TABLE>
SEE NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
7 OF 14
<PAGE>
CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES
-----------------------------------------------
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------
JANUARY 31, 1994
- ----------------
(A) THE ACCOMPANYING UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS HAVE
BEEN PREPARED IN ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
FOR INTERIM FINANCIAL INFORMATION AND WITH THE INSTRUCTIONS TO FORM 10-Q
AND ARTICLE 10 OF REGULATION S-X. ACCORDINGLY, THEY DO NOT INCLUDE ALL OF
THE INFORMATION AND FOOTNOTES REQUIRED BY GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES FOR COMPLETE FINANCIAL STATEMENTS. IN THE OPINION OF
MANAGEMENT, ALL ADJUSTMENTS (CONSISTING OF NORMAL RECURRING ACCRUALS)
CONSIDERED NECESSARY FOR A FAIR PRESENTATION HAVE BEEN INCLUDED. OPERATING
RESULTS FOR THE THREE AND SIX MONTHS ENDED JANUARY 31, 1994 AND 1993 ARE
NOT NECESSARILY INDICATIVE OF THE RESULTS THAT MAY BE EXPECTED FOR A FULL
FISCAL YEAR. FOR FURTHER INFORMATION, REFER TO THE CONSOLIDATED FINANCIAL
STATEMENTS AND FOOTNOTES THERETO INCLUDED IN THE COMPANY'S ANNUAL REPORT ON
FORM 10-K FOR THE YEAR ENDED JULY 31, 1993.
(B) IN APRIL 1993, THE COMPANY AND JIMBO'S JUMBOS, INCORPORATED ("JJI") ENTERED
INTO AN AGREEMENT TO MERGE JJI WITH A COMPANY CONTROLLED BY JOHN W. KLUGE
AND HIS AFFILIATES. PURSUANT TO THE MERGER, WHICH WAS CONSUMMATED ON JULY
8, 1993, THE COMPANY, AS WELL AS ALL OTHER STOCKHOLDERS OF JJI RECEIVED
$6.93 PER SHARE FOR EACH SHARE OWNED. THE PROCEEDS ($32,917,500) WERE USED
TO REDUCE OUTSTANDING BANK DEBT INCURRED FOR THE ACQUISITION OF CAIN'S
COFFEE CO. (SEE NOTE E). A LOSS OF $3,171,000 WAS INCURRED IN CONNECTION
WITH THE SALE AND WAS CHARGED TO DISCONTINUED OPERATIONS IN THE THREE
MONTHS ENDED APRIL 30, 1993. THE COMPANY HAS RESTATED ITS FINANCIAL
STATEMENTS TO PRESENT THE OPERATING RESULTS OF JJI FOR THE THREE AND SIX
MONTHS ENDED JANUARY 31, 1993 AS A DISCONTINUED OPERATION.
(C) PRIMARY PER SHARE DATA ARE BASED ON THE WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING OF 10,158,000 AND 10,217,000, RESPECTIVELY, FOR THE
THREE MONTHS ENDED JANUARY 31, 1994 AND 1993 AND 10,238,000 AND 10,217,000,
RESPECTIVELY, FOR THE SIX MONTHS ENDED JANUARY 31, 1994 AND 1993. THE
THREE AND SIX MONTH PERIODS ENDED JANUARY 31, 1993 HAVE BEEN RETROACTIVELY
ADJUSTED FOR A 3% STOCK DIVIDEND DISTRIBUTED IN JULY 1993. FULLY DILUTED
EARNINGS PER SHARE ASSUMES CONVERSION OF OUTSTANDING DEBENTURES.
(D) INVENTORIES ARE STATED AT THE LOWER COST (FIRST-IN, FIRST-OUT) OR MARKET.
THE COMPONENTS OF INVENTORY CONSIST OF THE FOLLOWING:
<TABLE>
<CAPTION>
JANUARY 31, JULY 31,
1994 1993
----------- -----------
<S> <C> <C>
FINISHED GOODS $23,059,148 $24,657,182
RAW MATERIALS 12,083,460 9,139,425
SUPPLIES 4,667,384 4,588,790
----------- -----------
$39,809,992 $38,385,397
=========== ===========
</TABLE>
8 OF 14
<PAGE>
(E) IN DECEMBER 1992, THE COMPANY ACQUIRED THE STOCK OF CAIN'S COFFEE CO.
("CAINS") AND CERTAIN TRADEMARKS RELATED TO THAT BUSINESS FROM NESTLE'
BEVERAGE COMPANY AND AN AFFILIATE FOR APPROXIMATELY $52,000,000 IN CASH.
CAIN'S BUSINESS CONSISTS PRIMARILY OF SALES OF COFFEE AND RELATED PRODUCTS
TO FOOD SERVICE CUSTOMERS IN PARTS OF THE MIDWEST AND SOUTHWEST. IN
CONNECTION WITH THE ACQUISITION, WHICH HAS BEEN ACCOUNTED FOR AS A PURCHASE
TRANSACTION, THE COMPANY ACQUIRED ASSETS WITH A FAIR VALUE OF APPROXIMATELY
$55,750,000 (INCLUDING TRADEMARKS, COVENANT NOT TO COMPETE AND CUSTOMER
LIST OF $20,900,000, INCLUDED IN OTHER ASSETS AND DEFERRED CHARGES ON THE
CONSOLIDATED BALANCE SHEETS) AND ASSUMED LIABILITIES OF APPROXIMATELY
$3,750,000. THE COMPANY USED THE PROCEEDS (APPROXIMATELY $20,500,000) FROM
THE SALE OF A SUBSTANTIAL PORTION OF ITS MARKETABLE SECURITIES TO FINANCE A
PORTION OF THE PURCHASE PRICE AND FINANCED THE REMAINDER THROUGH ADDITIONAL
BORROWINGS FROM ITS BANKS.
THE FOLLOWING PRO FORMA UNAUDITED RESULTS OF OPERATIONS ASSUME THE ACQUISITION
OF CAINS OCCURRED AT AUGUST 1, 1992, AND GIVE EFFECT TO CERTAIN ADJUSTMENTS,
INCLUDING DEPRECIATION OF PROPERTY, PLANT AND EQUIPMENT, AMORTIZATION OF A
COVENANT NOT TO COMPETE, TRADEMARKS AND CUSTOMER LISTS AND INTEREST EXPENSE
RESULTING FROM THE ACQUISITION AND RELATED FINANCING.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JANUARY 31,
1993
------------
<S> <C>
NET SALES $139,458,000
INCOME FROM CONTINUING OPERATIONS $ 2,043,000
INCOME FROM CONTINUING OPERATIONS
PER SHARE $ .20
NET INCOME $ 510,000
NET INCOME PER SHARE $ .05
</TABLE>
(F) UNDER THE COMPANY'S AMENDED AND RESTATED REVOLVING CREDIT AND TERM LOAN
AGREEMENTS (COLLECTIVELY THE "LOAN AGREEMENTS") WITH NATIONAL WESTMINSTER
BANK USA AND CHEMICAL BANK (THE "BANKS"), THE COMPANY MAY, FROM TIME TO
TIME, BORROW FUNDS FROM THE BANKS, PROVIDED THAT THE TOTAL PRINCIPAL AMOUNT
OF ALL SUCH LOANS OUTSTANDING AT ANY TIME MAY NOT EXCEED $40,000,000.
INTEREST (6.75% AT JANUARY 31, 1994) ON ALL SUCH LOANS IS EQUAL TO PRIME
RATE PLUS THREE QUARTERS OF A PERCENT, SUBJECT TO ADJUSTMENT BASED ON THE
LEVEL OF LOANS OUTSTANDING. OUTSTANDING BORROWINGS UNDER THE LOAN
AGREEMENTS MAY NOT EXCEED CERTAIN PERCENTAGES OF AND ARE COLLATERALIZED BY,
AMONG OTHER THINGS, THE TRADE ACCOUNTS RECEIVABLE AND INVENTORIES, AND
SUBSTANTIALLY ALL OF THE MACHINERY AND EQUIPMENT AND REAL ESTATE OF THE
COMPANY AND ITS SUBSIDIARIES. ALL LOANS MADE UNDER THE TERM LOAN AGREEMENT
($10,000,000 AT JANUARY 31, 1994) ARE TO BE REPAID IN DECEMBER 1997.
PURSUANT TO THE TERMS OF THE LOAN AGREEMENTS, THE COMPANY AND ITS
SUBSIDIARIES, AMONG OTHER THINGS, MUST MAINTAIN A MINIMUM NET WORTH AND
MEET RATIO TESTS FOR LIABILITIES TO NET WORTH AND COVERAGE OF FIXED CHARGES
AND INTEREST, ALL AS DEFINED. THE LOAN AGREEMENTS ALSO PROVIDE, AMONG
OTHER THINGS, FOR RESTRICTIONS ON DIVIDENDS (EXCEPT FOR STOCK DIVIDENDS)
AND REQUIRE REPAYMENT OF OUTSTANDING LOANS WITH EXCESS CASH FLOW, AS
DEFINED.
9 OF 14
<PAGE>
(G) IN NOVEMBER 1992, THE COMPANY ACQUIRED A CONTROLLING INTEREST IN A
PARTNERSHIP WHICH OWNS DANA BROWN PRIVATE BRANDS, INC., A COMPANY WHICH
MARKETS AND SELLS COFFEE AND TEA PRODUCTS, SERVICING FOOD RETAILERS AND
DISTRIBUTORS LOCATED PRIMARILY IN THE MIDWEST. THE PURCHASE PRICE WAS
$2,000,000, PLUS APPROXIMATELY $2,500,000 FOR THE COST OF INVENTORY. THE
PRO FORMA EFFECTS ON THE COMPANY'S OPERATIONS AS IF THIS BUSINESS HAD BEEN
ACQUIRED ON AUGUST 1, 1992 ARE NOT MATERIAL.
(H) PREPAID EXPENSES AND OTHER ON THE UNAUDITED CONDENSED CONSOLIDATED BALANCE
SHEETS INCLUDES DEFERRED INCOME TAXES OF $1,442,000.
(I) ON OCTOBER 8, 1993, THE COMPANY AND GOURMET COFFEES OF AMERICA, INC.
("GCA") ENTERED INTO AN AGREEMENT TO SELL HILLSIDE COFFEE OF CALIFORNIA,
INC. ("HILLSIDE") TO GCA. PURSUANT TO THE AGREEMENT, WHICH WAS CONSUMMATED
ON NOVEMBER 19, 1993, THE COMPANY RECEIVED (A) $38,500,000 IN CASH AND (B)
75,000 SHARES OF STOCK REPRESENTING APPROXIMATELY ONE-HALF OF ONE PERCENT
OF THE EQUITY OF GCA. THE OPERATING PROFITS OF HILLSIDE, BEFORE
INTERCOMPANY CHARGES, FOR THE PERIOD AUGUST 1, 1993 TO NOVEMBER 19, 1993
AND THE SIX MONTHS ENDED JANUARY 31, 1993, INCLUDED IN THE RESULTS OF
OPERATIONS ARE AS FOLLOWS:
<TABLE>
<CAPTION>
PERIOD FROM
AUGUST 1, 1993 TO SIX MONTHS ENDED
NOVEMBER 19, 1993 JANUARY 31, 1993
----------------- ----------------
<S> <C> <C>
NET SALES $ 9,557,000 $14,202,000
COST AND EXPENSES:
COST OF SALES 4,169,000 5,691,000
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 3,566,000 5,478,000
----------- -----------
7,735,000 11,169,000
----------- -----------
OPERATING PROFIT $ 1,822,000 $ 2,851,000
=========== ===========
</TABLE>
(J) IN FEBRUARY 1992, THE FINANCIAL ACCOUNTING STANDARDS BOARD ISSUED STATEMENT
NO. 109, "ACCOUNTING FOR INCOME TAXES." THE COMPANY ADOPTED THE PROVISIONS
OF THE STANDARD IN ITS FINANCIAL STATEMENTS AS OF AND FOR THE THREE MONTHS
ENDED OCTOBER 31, 1993 AND RESTATED ITS FISCAL 1993, 1992, 1991 AND 1990
FINANCIAL STATEMENTS. THE EFFECT OF ADOPTING STATEMENT 109 WAS TO INCREASE
INCOME FROM CONTINUING OPERATIONS BY $147,000 IN 1993 AND 1992 AND $12,000
IN 1991 AND 1990. THE CUMULATIVE EFFECT OF ADOPTING STATEMENT 109 AS OF
JULY 31, 1990, DECREASED THE BEGINNING BALANCE OF RETAINED EARNINGS BY
$1,670,000.
UNDER STATEMENT 109, THE LIABILITY METHOD IS USED IN ACCOUNTING FOR INCOME
TAXES. UNDER THIS METHOD, DEFERRED TAX ASSETS AND LIABILITIES ARE DETERMINED
BASED ON DIFFERENCES BETWEEN FINANCIAL REPORTING AND TAX BASES OF ASSETS AND
LIABILITIES AND ARE MEASURED USING THE ENACTED TAX RATES AND LAWS THAT WILL BE
IN EFFECT WHEN THE DIFFERENCES ARE EXPECTED TO REVERSE. PRIOR TO THE ADOPTION
OF STATEMENT 109, INCOME TAX EXPENSE WAS DETERMINED USING THE DEFERRED METHOD.
DEFERRED TAX EXPENSE WAS BASED ON ITEMS OF INCOME AND EXPENSE THAT WERE REPORTED
IN DIFFERENT YEARS IN THE FINANCIAL STATEMENTS AND TAX RETURNS AND WERE MEASURED
AT THE TAX RATE IN EFFECT IN THE YEAR THE DIFFERENCES ORIGINATED.
10 OF 14
<PAGE>
CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES
-----------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
Operations
- ----------
The following is Management's discussion and analysis of certain significant
factors that have affected the Company's operations during the periods included
in the accompanying unaudited condensed consolidated statements of operations.
In December 1992, the Company acquired the stock of Cain's Coffee Co.
("Cains") and certain trademarks related to that business from Nestle' Beverage
Co. and an affiliate for $52,000,000 in cash. The business of Cains consists
primarily of sales of coffee and related products to food service customers in
parts of the Midwest and Southwest. See Note E to the Company's unaudited
condensed consolidated financial statements as of and for the three and six
months ended January 31, 1994.
In November 1992, the Company acquired a controlling interest in a partnership
which owns Dana Brown Private Brands, Inc. ("Dana Brown"), a company which
markets and sells coffee and tea products, servicing food retailers and
distributors located primarily in the Midwest. The purchase price was
$2,000,000, plus approximately $2,500,000 for the cost of inventory. See Note G
to the Company's unaudited condensed consolidated financial statements as of and
for the three and six months ended January 31, 1994.
On April 22, 1993, the Company and Jimbo's Jumbos, Incorporated ("JJI")
entered into an agreement to merge JJI with and into a company controlled by
John W. Kluge and his affiliates. Pursuant to the merger, which was consummated
on July 8, 1993, the Company, as well as all other stockholders of JJI, received
$6.93 per share for each share owned (see Note B to the Company's unaudited
condensed consolidated financial statements as of and for the three and six
months ended January 31, 1994). A loss of $3,171,000 was incurred in connection
with the sale and was charged to discontinued operations in the three months
ended April 30, 1993. The proceeds ($32,971,500) were used to reduce
outstanding bank debt incurred for the acquisition of Cain's. The business of
JJI consisted primarily of (1) shelling farmers' stock peanuts into commercial
and seed grades of raw peanuts for sale to commercial processors of peanuts,
seed dealers and farmers and (2) processing and packaging of in-shell peanuts
and nuts, shelled peanuts and nuts, for sale to supermarkets.
On October 8, 1993, the Company and Gourmet Coffees of America, Inc. ("GCA")
entered into an agreement to sell Hillside Coffee of California, Inc.
("Hillside") to GCA. Pursuant to the agreement, which was consummated on
November 19, 1993, the Company received (a) $38,500,000 in cash and (b) 75,000
shares of stock representing approximately one-half of one percent of the equity
of GCA. Hillside's business consisted of roasting, packing, distributing and
marketing specialty coffee to supermarkets.
The discussion and analysis that follows relates solely to the continuing
operations of the Company.
Net sales decreased $3,617,000 or 6% and increased $16,945,000 or 15% for the
three and six months ended January 31, 1994, respectively, compared to the
comparable periods of the prior year. The decrease in net sales for the quarter
was primarily due to decreased coffee pounds sold partially offset by an
increase in the average selling price of coffee. The loss of sales due to the
disposition of Hillside on November 19, 1993 were offset by sales of Cains
acquired on December 8, 1992. The increase in net sales for the six months was
primarily due to sales of Cains and Dana Brown (both acquired in the second
quarter of the prior fiscal year) partially offset by the loss of sales from
Hillside and a decrease in the average selling price of coffee. Cain's and Dana
Brown were accounted for as purchases, and, therefore, were not included prior
to their respective dates of acquisition.
11 of 14
<PAGE>
CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES
-----------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
Operations - Continued
- ----------
Operating profits from food products were $2,131,000 and $5,049,000 decreases
of 52% and 32% for the three and six months ended January 31, 1994,
respectively, compared to $4,455,000 and $7,431,000 for the comparable periods
of the prior year. The decreases resulted primarily from decreased gross margins
and reduced operating profits from Hillside (due to its disposition), partially
offset by the operations of Cains (included for the entire period for the
current quarter and six months) and reduced selling, general and administrative
expenses. Decreased gross margins for the quarter were due to decreased coffee
pounds sold and an increase in the average cost of green coffee greater than the
increase in the average selling price of coffee. Decreased gross margins for the
six months were due to an increase in the average cost of green coffee and a
decrease in the average selling price of coffee. Selling, general and
administrative expenses decreased primarily due to reduced payroll and
advertising costs, partially offset by increased coupon costs during the six
months period.
Income from continuing operations was $7,244,000 and $7,750,000 or $.71 and
$.76 per share for the three and six months ended January 31, 1994,
respectively, compared to $1,585,000 and $2,253,000 or $.16 and $.23 per share
for the comparable periods of the prior year. The differences were primarily
due to the gain on sale of Hillside Coffee of California, Inc. (the Company's
specialty coffee product line) of $7,068,000 or $.69 per share and decreased
operating profits.
Liquidity and Capital Resources
- -------------------------------
As of January 31, 1994, working capital was approximately $78,385,000 and the
ratio of current assets to current liabilities was approximately 4.1 to 1.
On November 19, 1993, the Company consummated the sale of Hillside Coffee of
California, Inc. and received, among other consideration, $38,500,000 in cash
which has substantially been invested in short-term marketable securities. See
Note I to the Company's unaudited consolidated financial statements as of and
for the three and six months ended January 31, 1994.
The Company believes that its cash flow from operations, its amended
agreements with its Banks and its short-term investments provide sufficient
liquidity to meet its working capital and capital requirements.
12 OF 14
<PAGE>
Part 2. Other Information
- ----------------------------
Item 1. Legal Proceedings
-----------------
None
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
a) Exhibits - none
--------
b) Reports on Form 8-K - none
-------------------
13 OF 14
<PAGE>
SIGNATURES
----------
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT DULY CAUSED THIS REPORT OF FORM 10-Q TO BE SIGNED ON ITS BEHALF BY
THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
CHOCK FULL O' NUTS CORPORATION
(REGISTRANT)
MARCH 15, 1994 /S/ MARVIN I. HAAS
_____________________________
MARVIN I. HAAS
VICE CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
MARCH 15, 1994 /S/ HOWARD M. LEITNER
_____________________________
HOWARD M. LEITNER
PRESIDENT AND CHIEF FINANCIAL AND
ACCOUNTING OFFICER
14 OF 14
<PAGE>
CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES
-----------------------------------------------
INDEX
-----
PAGE NO.
--------
PART I. FINANCIAL INFORMATION
- ------------------------------
<TABLE>
<CAPTION>
ITEM 1. FINANCIAL STATEMENTS
<S> <C>
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS -
JANUARY 31, 1994 AND JULY 31, 1993 1 & 2 OF 14
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS-
THREE MONTHS ENDED JANUARY 31, 1994 AND 1993 3 OF 14
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS -
SIX MONTHS ENDED JANUARY 31, 1994 AND 1993 4 OF 14
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS -
SIX MONTHS ENDED JANUARY 31, 1994 AND 1993 5 OF 14
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
-
JANUARY 31, 1994 6 & 7 OF 14
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS - JANUARY 31, 1994 8, 9 & 10 OF 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 11 & 12 OF 14
PART II. OTHER INFORMATION
- ---------------------------
ITEM 1. LEGAL PROCEEDINGS 13 OF 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 13 OF 14
SIGNATURES
- ----------
</TABLE>
