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, 1995 Commission File Number 1-4183
CHOCK FULL O' NUTS CORPORATION
(Exact Name of Registrant As Specified In Its Charter)
New York 13-0697025
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
370 Lexington Avenue, New York, N.Y. 10017
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code (212) 532-0300
Indicate by check mark whether the registrant (1)
has filed all reports required to be filed by Section
13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter
period that the registrant was required to file such
reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
No. of Shares of Common Stock ($.25 par value) outstanding as of
June 9, 1995 - 10,422,856
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, 1995 and July 31, 1994 1 & 2 of 12
Unaudited Condensed Consolidated Statements of Operations-
Three Months Ended April 30, 1995 and 1994 3 of 12
Unaudited Condensed Consolidated Statements of Operations -
Nine Months Ended April 30, 1995 and 1994 4 of 12
Unaudited Condensed Consolidated Statements of Cash Flows -
Nine Months Ended April 30, 1995 and 1994 5 of 12
Unaudited Condensed Consolidated Statement of Stockholders' Equity -
April 30, 1995 6 & 7 of 12
Notes to Unaudited Condensed Consolidated Financial
Statements - April 30, 1995 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 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,
1995 1994
(Unaudited) (Note)
ASSETS
Current assets:
Cash and cash equivalents $ 4,488,301 $ 5,939,456
Receivables, principally
trade, less allowances
for doubtful accounts and
discounts of $1,402,000
and $928,000 37,699,985 31,935,437
Inventories 61,000,711 45,543,048
Investments in marketable securities,
at cost (market value of $9,124,000
and $25,649,000) 9,184,302 25,786,080
Prepaid expenses and other 4,361,339 3,466,246
Total current assets 116,734,638 112,670,267
Property, plant and
equipment - at cost $ 100,510,204 $ 96,805,506
Less allowances for
depreciation and
amortization (45,663,226) 54,846,978 (41,510,772) 55,294,734
Real estate held for
sale or development, at cost 5,404,243 5,404,243
Other assets and deferred charges 26,618,666 29,367,430
Excess of cost over net
assets acquired 5,919,420 6,070,268
$209,523,945 $208,806,942
Note: The balance sheet at July 31, 1994 has been derived from the audited
financial statements at that date.
See notes to unaudited condensed consolidated financial statements.
1 of 12
CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
April 30, July 31,
1995 1994
(Unaudited) (Note)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 11,949,255 $ 11,851,998
Accrued expenses 12,019,619 17,381,839
Income taxes 2,145,687 1,698,293
Total current liabilities 26,114,561 30,932,130
Long-term debt 110,529,482 110,427,265
Other non-current liabilities 4,784,706 4,743,855
Deferred income taxes 5,780,000 4,442,000
Stockholders' equity:
Common stock, par value $.25 per share;
Authorized 50,000,000 shares:
Issued 10,898,378 and 10,898,130 shares 2,724,595 2,724,533
Additional paid-in-capital 49,324,524 49,322,585
Retained earnings 19,868,580 16,217,803
Cost of 475,522 shares in treasury (6,573,719) (6,573,719)
Deferred compensation under stock bonus
plan and employees' stock ownership plan (1,262,784) (1,663,510)
Unfunded pension losses (1,766,000) (1,766,000)
Total stockholders' equity 62,315,196 58,261,692
$209,523,945 $208,806,942
Note: The balance sheet at July 31, 1994 has been derived from the audited
financial statements at that date.
See notes to unaudited condensed consolidated financial statements.
2 of 12
CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended April 30,
1995 1994
Revenues:
Net sales $ 81,004,923 $61,467,118
Rentals from real estate 492,725 507,263
81,497,648 61,974,381
Cost and expenses:
Cost of sales 57,681,664 41,307,351
Selling, general and
administrative expenses 19,319,393 18,838,018
Expenses of real estate 395,488 450,083
77,396,545 60,595,452
Operating profit 4,101,103 1,378,929
Interest income 318,768 464,077
Interest expense (2,319,098) (2,206,533)
Other income - net 111,148 27,731
Income/(loss) before income taxes 2,211,921 (335,796)
Income taxes/(credit) 798,000 (66,000)
Net income/(loss) $1,413,921 $ (269,796)
Net income/(loss) per share:
Primary $ .14 $ (.03)
Fully diluted $ .12 $ (.03)
See notes to unaudited condensed consolidated financial statements.
3 of 12
CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Nine Months Ended April 30,
1995 1994
Revenues:
Net sales $246,280,750 $194,511,125
Rentals from real estate 1,568,288 1,564,199
247,849,038 196,075,324
Cost and expense:
Cost of sales 175,019,696 128,184,432
Selling, general and
administrative expenses 59,720,487 59,956,235
Expenses of real estate 1,185,270 1,279,219
235,925,453 189,419,886
Operating profit 11,923,585 6,655,438
Interest income 798,661 820,207
Gain on sale of product line 13,208,393
Interest expense (6,888,703) (6,551,336)
Other income(deductions) - net 169,234 (10,059)
Income before income taxes 6,002,777 14,122,643
Income taxes 2,352,000 6,642,000
Net income $ 3,650,777 $7,480,643
Net income per share:
Primary $ .35 $ .71
Fully diluted $ .33 $ .50
See notes to unaudited condensed consolidated financial statements.
4 of 12
CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended April 30,
1995 1994
Operating Activities:
Net income $3,650,777 $7,480,643
Adjustments to reconcile net income
to net cash provided
by operating activities:
Depreciation and amortization of
property, plant and equipment 4,152,454 4,716,573
Amortization of deferred compensation
and deferred charges 3,488,895 3,308,321
Gain on sale of product line (13,208,393)
Other, net (473,705) (696,433)
Changes in operating assets and liabilities:
(Increase) in accounts receivable (6,238,548) (1,204,455)
(Increase) in inventory (15,457,663) (2,742,184)
(Increase) decrease in prepaid
expenses (2,552,093) (202,898)
(Decrease) in accounts payable,
accrued expenses and income
taxes (1,822,569) (923,025)
NET CASH (USED IN) OPERATING ACTIVITIES(15,252,452) (3,471,851)
Investing Activities:
Proceeds from sale and collection of principal
of marketable securities 24,878,467 1,846,828
Purchases of marketable securities (7,476,689) (27,000,812)
Purchases of property, plant
and equipment (4,922,745) (3,520,816)
Proceeds from sale of product line, net 38,109,205
Increase in assets held for sale (1,093,071)
Proceeds from sale of property, plant
and equipment 1,218,047
Acquisition of business (467,288)
NET CASH PROVIDED BY INVESTING
ACTIVITIES 13,697,080 7,874,046
Financing Activities:
Proceeds from long-term debt, net 104,217
Principal payments on long-term debt (905,906)
Purchase of treasury stock (1,850,000)
Other (56,746)
NET CASH PROVIDED BY/(USED IN) FINANCING
ACTIVITIES 104,217 (2,812,652)
(Decrease)/increase in Cash and
Cash Equivalents (1,451,155) 1,589,543
Cash and cash equivalents at beginning
of period 5,939,456 5,469,159
Cash and Cash Equivalents at
End of Period $4,488,301 $ 7,058,702
See notes to unaudited condensed consolidated financial statements.
5 of 12
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, 1994 10,898 $2,725 476 $6,574
Net income
Conversion of subordinated debentures - -
Deferred compensation under stock
bonus plan and employees' stock
ownership plan:
Amortization _____ ______ ____ ______
Balance at April 30, 1995 10,898 $2,725 476 $6,574
See notes to unaudited condensed consolidated financial statements.
6 of 12
CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Deferred
Compensation
Under Stock
Bonus Plan and Unfunded Additional
Employees' Stock Pension Paid-In Retained
Ownership Plan Losses Capital Earnings
In Thousands
Balance at July 31, 1994 $1,664 $1,766 $49,323 $16,218
Net income 3,651
Conversion of subordinated debentures 2
Deferred compensation under stock
bonus plan and employees' stock
ownership plan:
Amortization 401 _
Balance at April 30, 1995 $1,263 $1,766 $49,325 $19,869
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, 1995
(A) The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions
to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and nine months ended
April 30, 1995 and 1994 are not necessarily indicative of the results
that may be expected for a full fiscal year. For further information,
refer to the consolidated financial statements and footnotes thereto
included in the Company's annual report on Form 10-K for the year
ended July 31, 1994.
(B) Primary per share data are based on the weighted average number of
common shares outstanding of 10,423,000 for the three months ended
April 30, 1995 and 1994 and 10,423,000 and 10,503,000, respectively,
for the nine months ended April 30, 1995 and 1994. The three and
nine month periods ended April 30, 1994 have been retroactively
adjusted for a 3% stock dividend distributed in July 1994.
Assumed conversion of debentures would have had an anti-dilutive
effect on the net loss per share for the three months ended April
30, 1994.
(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,
1995 1994
Finished goods $36,507,361 $24,684,609
Raw materials 20,980,382 16,889,428
Supplies 3,512,968 3,969,011
$61,000,711 $45,543,048
(D) Under the Company's amended and restated revolving credit and term
loan agreements (collectively the "Loan Agreements") with National
Westminster Bank USA and Chemical Bank (the "Banks"), the Company
may, from time to time, borrow funds from the Banks, provided that
the total principal amount of all such loans outstanding at any time
may not exceed $40,000,000. Interest (9% at April 30, 1995) on all
such loans is equal to prime rate, subject to adjustment based on the
level of loans outstanding. Outstanding borrowings under the Loan
Agreements may not exceed certain percentages of and are collatera-
lized 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, 1995) are to
be repaid in December 1997. Pursuant to the terms of the Loan
Agreements, the Company and its subsidiaries, among other things,
must maintain a minimum net worth and meet ratio tests for
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.
8 of 12
(E) Prepaid expenses and other on the unaudited condensed consolidated
balance sheets includes deferred income taxes of $965,000.
(F) In October 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 second quarter of
fiscal 1994), the Company received (a) $38,500,000 in cash and (b)
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 from August 1, 1993 to November
19, 1993, included in the results of operations, in thousands, are
as follows:
Net sales $ 9,557
Costs and expenses:
Cost of sales 4,169
Selling, general and
administrative expenses 3,566
7,735
Operating profit $ 1,822
9 of 12
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 consoli-
dated statements of operations.
In October 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 second quarter of
fiscal 1994), the Company received (a) $38,500,000 in cash and (b)
shares of stock representing approximately one-half of one percent
of the equity of GCA.
Net sales increased $19,538,000 or 32% and $51,770,000 or 27% for
the three and nine months ended April 30, 1995, respectively,
compared to the comparable periods of 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 (for the nine month period)of $9,557,000 of sales from Hillside
(due to its disposition).
Operating profits from food products were $4,004,000 and $11,541,000,
increases of 203% and 81% for the three and nine months ended April
30, 1995, respectively, compared to $1,322,000 and $6,370,000 for the
comparable periods of the prior year. The increases resulted primarily
from increased gross profit margins partially offset in the nine month
period by increased selling, general and administrative expenses and
the loss of operating profits of $1,822,000 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 has been volatile over the
last year. During the nine months ended April 30, 1995 prices ranged
from a low of $1.44 per pound to a high of $2.31 per pound. Currently
coffee is trading at around $1.50 per pound, approximately double the
price since the beginning of May 1994, when coffee prices started to
rise significantly. The Company consistently values its inventory
and commitments at the lower of cost or market. Selling, general and
administrative expenses increased primarily due to the Company's
investment in its Cafe and Quikava operations, which are currently in
the development stage, and increased advertising and payroll costs,
partially offset by reduced coupon and brokerage costs in the nine
month period.
Net income was $1,414,000 or $.14 per share and $3,651,000 or $.35
per share for the three and nine months ended April 30, 1995,
respectively, compared to a net loss of ($270,000) or ($.03) per
share and $7,480,000 or $.71 per share for the comparable periods
of the prior year. The difference in the three month period was
primarily due to increased operating profits partially offset by
increased income taxes. The difference in the nine month period was
primarily due to increased operating profits, offset by increased
income taxes on such operating profits and the reported gain on sale
of Hillside Coffee of California, Inc. (the Company's specialty
coffee product line) of $7,068,000 after income taxes or $.67 per
share in the prior year comparable period.
Liquidity and Capital Resources
As of April 30, 1995, working capital was approximately $91,000,000
and the ratio of current assets to current liabilities was approxi-
mately 4.5 to 1.
As of April 30, 1995, the Company had unused borrowing capacity of
approximately $24 million under its credit facilities of $40 million
with National Westminster Bank USA and Chemical Bank.
10 of 12
The Company plans on expanding its cafe and Quikava, company operated and
franchised operations, which in total are currently operating in 12 locations.
The sales of these operations, which are in the development stage, are not
material to the Company's consolidated sales.
As a result of the rise in price of green coffee, the Company has financed
increased inventories and receivables through the sale of marketable
securities and increased borrowings under its credit facilities. The
Company believes that its cash flow from operations and its amended and
restated revolving credit and term loan agreements with its Banks provide
sufficient liquidity to meet its working capital, expansion and capital
requirements.
Part 2. Other Information
Item 1. Legal Proceedings - None
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits - Financial Data Schedule - Exhibit 27 - see below
b) Reports on Form 8-K - none
11 of 12
Signatures
Purusant 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 9, 1995 _____________________________
Marvin I. Haas
President and Chief Executive Officer
June 9, 1995 _____________________________
Howard M. Leitner
Senior Vice President and
Chief Financial and Accounting Officer
12 of 12
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