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, 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
March 13, 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 -
January 31, 1995 and July 31, 1994 1 & 2 of 12
Unaudited Condensed Consolidated Statements of Operations-
Three Months Ended January 31, 1995 and 1994 3 of 12
Unaudited Condensed Consolidated Statements of Operations -
Six Months Ended January 31, 1995 and 199 4 of 12
Unaudited Condensed Consolidated Statements of Cash Flows -
Six Months Ended January 31, 1995 and 1994 5 of 12
Unaudited Condensed Consolidated Statement of Stockholders' Equity -
January 31, 1995 6 & 7 of 12
Notes to Unaudited Condensed Consolidated Financial
Statements - January 31, 1995 8 & 9 of 12
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10 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
January 31, July 31,
1995 1994
(Unaudited) (Note)
ASSETS
Current assets:
Cash and cash equivalents $ 4,318,139 $ 5,939,456
Receivables, principally
trade, less allowances
for doubtful accounts and
discounts of $1,548,000
and $928,000 40,124,462 31,935,437
Inventories 61,400,660 45,543,048
Investments in marketable securities,
at cost (market value of $12,612,000
and $25,649,000) 12,749,520 25,786,080
Prepaid expenses and other 4,203,731 3,466,246
Total current assets 122,796,512 112,670,267
Property, plant and
equipment - at cost $98,659,518 $ 96,805,506
Less allowances for
depreciation and
amortization (44,364,171) 54,295,347 (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 27,300,948 29,367,430
Excess of cost over net
assets acquired 5,969,703 6,070,268
$215,766,753 $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
January 31, July 31,
1995 1994
(Unaudited) (Note)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 13,662,410 $ 11,851,998
Accrued expenses 14,006,066 17,381,839
Income taxes 2,361,178 1,698,293
Total current liabilities 30,029,654 30,932,130
Long-term debt 115,764,457 110,427,265
Other non-current liabilities 4,761,930 4,743,855
Deferred income taxes 4,442,000 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 18,454,659 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 (1,395,347) (1,663,510)
Unfunded pension losses (1,766,000) (1,766,000)
Total stockholders' equity 60,768,712 58,261,692
$215,766,753 $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 January 31,
1995 1994
Revenues:
Net sales $91,704,240 $62,108,202
Rentals from real estate 635,324 574,012
92,339,564 62,682,214
Cost and expenses:
Cost of sales 66,479,636 41,446,261
Selling, general and
administrative expenses 21,176,650 18,531,010
Expenses of real estate 511,929 430,173
88,168,215 60,407,444
Operating profit 4,171,349 2,274,770
Interest income 223,657 331,100
Gain on sale of product line 13,208,393
Interest expense (2,256,682) (2,158,665)
Other income(deductions) - net 55,311 (46,124)
Income before income taxes 2,193,635 13,609,474
Income taxes 899,000 6,365,000
Net income $1,294,635 $7,244,474
Net income per share:
Primary $.12 $.69
Fully diluted $.12 $.39
See notes to unaudited condensed consolidated financial statements.
3 of 12
CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended January 31,
1995 1994
Revenues:
Net sales $165,275,827 $133,044,007
Rentals from real estate 1,075,563 1,056,936
166,351,390 134,100,943
Cost and expense:
Cost of sales 117,338,032 86,877,081
Selling, general and
administrative expenses 40,401,094 41,118,217
Expenses of real estate 789,782 829,136
158,528,908 128,824,434
Operating profit 7,822,482 5,276,509
Interest and dividend income 479,893 356,130
Gain on sale of product line 13,208,393
Interest expense (4,569,605) (4,344,803)
Other income(deductions) - net 58,086 (37,790)
Income before income taxes 3,790,856 14,458,439
Income taxes 1,554,000 6,708,000
Net income $ 2,236,856 $ 7,750,439
Net income per share:
Primary $.21 $.74
Fully diluted $.21 $.44
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
Six Months Ended January 31,
1995 1994
Operating Activities:
Net income $ 2,236,856 $ 7,750,439
Adjustments to reconcile net income
to net cash provided
by operating activities:
Depreciation and amortization of
property, plant and equipment 2,853,399 3,148,990
Amortization of deferred compensation
and deferred charges 2,331,102 2,208,914
Gain on sale of product line (13,208,393)
Other, net (57,816) (235,366)
Changes in operating assets and liabilities:
(Increase) in accounts receivable (8,809,025) (244,250)
(Increase) in inventory (15,857,612) (1,424,595)
(Increase) decrease in prepaid expenses (737,485) 679,635
(Decrease) in accounts payable,
accrued expenses and income taxes (902,476) (437,032)
NET CASH (USED IN) OPERATING ACTIVITIES (18,943,057) (1,761,658)
Investing Activities:
Proceeds from sale and collection of principal
of marketable securities 21,313,249 1,238,076
Purchases of marketable securities (7,476,689) (25,670,708)
Purchases of property, plant and equipment (3,072,059) (2,163,976)
Proceeds from sale of product line 38,144,205
Increase in assets held for sale (1,093,071)
Proceeds from sale of property, plant
and equipment 1,218,047
NET CASH PROVIDED BY INVESTING
ACTIVITIES 11,982,548 10,454,546
Financing Activities:
Proceeds from long-term debt 5,339,192
Principal payments on long-term debt (1,546,533)
Purchase of treasury stock (1,850,000)
Other _________ ( 50,106)
NET CASH PROVIDED BY/(USED IN) FINANCING
ACTIVITIES 5,339,192 (3,446,639)
Increase in Cash and
Cash Equivalents (1,621,317) 5,246,249
Cash and cash equivalents at beginning
of period 5,939,456 5,469,159
Cash and Cash Equivalents at End of Period $ 4,318,139 $10,715,408
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
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 January 31, 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 2,237
Conversion of subordinated debentures 2
Deferred compensation under stock
bonus plan and employees' stock
ownership plan:
Amortization 269
Balance at January 31, 1995 $1,395 $1,766 $49,325 $18,455
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
January 31, 1995
(A) The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions
to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and six months ended
January 31, 1995 and 1994 are not necessarily indicative of the results
that may be expected for a full fiscal year. For further information,
refer to the consolidated financial statements and footnotes thereto
included in the Company's annual report on Form 10-K for the year ended
July 31, 1994.
(B) Primary per share data are based on the weighted average number of
common shares outstanding of 10,423,000 and 10,462,000, respectively,
for the three months ended January 31, 1995 and 1994 and 10,423,000
and 10,545,000, respectively for the six months ended January 31,
1995 and 1994. The three and six month periods ended January 31, 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 net income per share for the three and six months
ended January 31, 1995.
(C) Inventories are stated at the lower of cost (first-in, first-out) or
market. The components of inventory consist of the following:
January 31, July 31,
1995 1994
Finished goods $30,980,644 $24,684,609
Raw materials 26,912,976 16,889,428
Supplies 3,507,040 3,969,011
$61,400,660 $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 January 31, 1995) on all such
loans is equal to prime rate, subject to adjustment based on the level
of loans outstanding. Outstanding borrowings under the Loan Agreements
may not exceed certain percentages of and are 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, 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 $1,766,000.
(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
consolidated 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 $29,596,000 or 48% and $32,232,000 or 24% for the
three and six months ended January 31, 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
(primarily for the six month period) of $9,557,000 of sales from
Hillside (due to its disposition).
Operating profits from food products were $4,048,000 and $7,537,000
increases of 90% and 49% for the three and six months ended January 31,
1995, respectively compared to $2,131,000 and $5,049,000, for the
comparable periods of the prior year. The increases resulted primarily
from increased gross profit margins partially offset by increased
selling, general and administrative expenses and the loss of operating
profits of $636,000(second quarter) and $1,822,000 (six months) 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 ten months. During the six months ended
January 31, 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 $1.80
per pound, more than double the price since the beginning of May 1994.
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, promotion and payroll
costs, partially offset by reduced coupon and brokerage costs in the
six month period.
Net income was $1,295,000 or $.12 per share and $2,237,000 or $.21
per share for the three and six months ended January 31, 1995,
respectively, compared to $7,244,000 or $.69 per share and $7,750,000
or $.74 per share for the comparable periods of the prior year. The
difference was primarily due to 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 periods and increased income taxes (due to increased
income before taxes other than on the aforemented gain in the three
and six months ended January 31, 1994), partially offset by increased
operating profits in the current fiscal year.
Liquidity and Capital Resources
As of January 31, 1995, working capital was approximately $92,750,000
and the ratio of current assets to current liabilities was
approximately 4 to 1.
As of January 31, 1995, the Company had unused borrowing capacity of
approximately $18 million under its credit facilities of $40 million
with National Westminster Bank USA and Chemical Bank.
The Company plans on expanding its cafe and Quikava owned and
franchised operations, which in total are currently operating in
10 locations. The sales of these operations, which are in the
development stage, are not material to the Company's consolidated
sales.
10 of 12
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
Appendix A to item 601 (c) of Regulation S-K
(Article 5 of Regulation S-X
Chock full o'Nuts Corporation and Subsidiaries)
Item Number Item Description Amount
5-02 (1) Cash and cash items $4,318,139
5-02 (2) Marketable securities $12,749,520
5-02 (3) (a) (1)Notes and accounts receivable - trade $41,672,462
5-02 (4) Allowances for doubtful accounts $1,548,000
5-02 (6) Inventory $61,400,660
5-02 (9) Total current assets $122,796,512
5-02 (13) Property, plant and equipment $98,659,518
5-02 (14) Accumulated depreciation $44,364,171
5-02 (18) Total assets $215,766,753
5-02 (21) Total current liabilities $30,029,654
5-02 (22) Bonds, mortgages and similar debt $115,764,457
5-02 (28) Preferred stock - mandatory redemption - 0 -
5-02 (29) Preferred stock - no mandatory redemption - 0 -
5-02 (30) Common stock $2,724,595
5-02 (31) Other stockholders' equity $58,044,117
5-02 (32) Total liabilities and stockholders'
equity $215,766,753
5-03 (b) 1 (a) Net sales of tangible products $165,275,827
5-03 (b) 1 Total revenues $166,351,390
5-03 (b) 2 (a) Cost of tangible goods sold $117,338,032
5-03 (b) 2 Total costs and expenses applicable to
sales and revenues $118,127,814
5-03 (b) 3 Other costs and expenses - 0 -
5-03 (b) 5 Provision for doubtful accounts and
notes $1,391,478
5-03 (b) (8) Interest and amortization of debt $4,569,605
5-03 (b) (10) Income before taxes and other items $3,790,856
5-03 (b) (11) Income tax expense $1,554,000
5-03 (b) (14) Income/loss continuing operations $2,236,856
5-03 (b) (15) Discontinued operations - 0 -
5-03 (b) (17) Extraordinary items - 0 -
5-03 (b) (18) Cumulative effect - changes in
accounting principles - 0 -
5-03 (b) (19) Net income or loss $2,236,856
5-03 (b) (20) Earnings per share - primary $.21
5-03 (b) (20) Earnings per share -
fully diluted $.21
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 13, 1995
Marvin I. Haas
President and Chief Executive Officer
March 13, 1995
Howard M. Leitner
Senior Vice President and
Chief Financial and Accounting Officer
12 of 12
??
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