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, 1996 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 12, 1996 - 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, 1996 and July 31, 1995 1 & 2 of 11
Unaudited Condensed Consolidated Statements of Operations-
Three Months Ended April 30, 1996 and 1995 3 of 11
Unaudited Condensed Consolidated Statements of Operations -
Nine Months Ended April 30, 1996 and 1995 4 of 11
Unaudited Condensed Consolidated Statements of Cash Flows -
Nine Months Ended April 30, 1996 and 1995 5 of 11
Unaudited Condensed Consolidated Statement of Stockholders' Equity -
April 30, 1996 6 & 7 of 11
Notes to Unaudited Condensed Consolidated Financial
Statements - April 30, 1996 8 of 11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9 & 10 of 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 10 of 11
Item 6. Exhibits and Reports on Form 8-K 10 of 11
Signatures 11 of 11
PART I. FINANCIAL INFORMATION
CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
April 30, July 31,
1996 1995
(Unaudited) (Note)
ASSETS
Current assets:
Cash and cash equivalents $ 16,965,580 $ 8,386,620
Receivables, principally
trade, less allowances
for doubtful accounts and
discounts of $1,294,000
and $1,251,000 36,168,628 37,703,214
Inventories 55,746,667 60,576,420
Investments in marketable securities,
at cost (market value of $945,000
and $6,975,000) 942,380 6,972,928
Prepaid expenses and other 1,981,813 2,916,690
Total current assets 111,805,068 116,555,872
Property, plant and
equipment - at cost $ 97,266,706 $ 91,038,726
Less allowances for
depreciation and
amortization (43,965,653) 53,301,053 (39,273,602) 51,765,124
Real estate held for
sale or development, at cost 7,705,227 7,747,107
Other assets and deferred charges 24,454,430 25,099,333
Excess of cost over net
assets acquired 5,718,290 5,869,138
$202,984,068 $207,036,574
Note: The balance sheet at July 31, 1995 has been derived from the audited
financial statements at that date.
See notes to unaudited condensed consolidated financial statements.
1 of 11
CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
April 30, July 31,
1996 1995
(Unaudited) (Note)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 10,496,219 $ 12,937,578
Accrued expenses 8,554,746 12,438,512
Income taxes 1,246,300 1,530,543
Total current liabilities 20,297,265 26,906,633
Long-term debt 106,341,034 106,568,896
Other non-current liabilities 1,555,071 1,468,358
Deferred income taxes 7,156,000 7,156,000
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 21,711,403 18,970,435
Cost of 475,522 shares in treasury (6,573,719) (6,573,719)
Deferred compensation under stock bonus
plan and employees' stock ownership plan (1,662,761) (1,619,804)
Total stockholders' equity 67,634,698 64,936,687
$202,984,068 $207,036,574
Note: The balance sheet at July 31, 1995 has been derived from the audited
financial statements at that date.
See notes to unaudited condensed consolidated financial statements.
2 of 11
CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended April 30,
1996 1995
Revenues:
Net sales $ 86,630,744 $ 81,004,923
Rentals from real estate 513,299 492,725
87,144,043 81,497,648
Cost and expenses:
Cost of sales 62,127,397 57,681,664
Selling, general and
administrative expenses 21,166,766 19,319,393
Expenses of real estate 394,565 395,488
83,688,728 77,396,545
Operating profit 3,455,315 4,101,103
Interest income 226,898 318,768
Interest expense (2,148,818) (2,319,098)
Other income - net 25,955 111,148
Income before income taxes 1,559,350 2,211,921
Income taxes 591,000 798,000
Net income $968,350 $1,413,921
Net income per share
Primary $ .09 $ .13
Fully diluted $ .09 $ .11
See notes to unaudited condensed consolidated financial statements.
3 of 11
CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Nine Months Ended April 30,
1996 1995
Revenues:
Net sales $247,990,541 $246,280,750
Rentals from real estate 1,641,756 1,568,288
249,632,297 247,849,038
Cost and expenses:
Cost of sales 179,998,688 175,019,696
Selling, general and
administrative expenses 58,523,052 59,720,487
Expenses of real estate 1,145,992 1,185,270
239,667,732 235,925,453
Operating profit 9,964,565 11,923,585
Interest income 642,042 798,661
Interest expense (6,649,676) (6,888,703)
Other income - net 515,038 169,234
Income before income taxes 4,471,969 6,002,777
Income taxes 1,731,000 2,352,000
Net income $2,740,969 $3,650,777
Net income per share
Primary $ .26 $ .34
Fully Diluted $ .26 $ .31
See notes to unaudited condensed consolidated financial statements.
4 of 11
CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended April 30,
1996 1995
Operating Activities:
Net income $ 2,740,969 $ 3,650,777
Adjustments to reconcile net income
to net cash provided
by operating activities:
Depreciation and amortization of
property, plant and equipment 4,692,051 4,152,454
Amortization of deferred compensation
and deferred charges 3,497,992 3,488,895
Other, net (1,319,045) (473,705)
Changes in operating assets and liabilities:
Decrease/(increase)in accounts receivable 1,491,586 (6,238,548
Decrease/(increase)in inventory 4,829,753 (15,457,663)
Decrease/(increase) in prepaid expenses 934,877 (2,552,093)
(Decrease) in accounts payable,
accrued expenses and income taxes (6,609,368) (1,822,569)
NET CASH PROVIDED BY/(USED IN)OPERATING ACTIVITIES 10,258,815 (15,252,452)
Investing Activities:
Proceeds from sale and collection of principal
of marketable securities 55,288,251 24,878,467
Purchases of marketable securities (49,557,703) (7,476,689)
Purchases of property, plant and equipment (6,969,394) (4,922,745)
Proceeds from sale of property, plant
and equipment 1,218,047
NET CASH (USED IN)/ PROVIDED BY INVESTING
ACTIVITIES (938,846) 13,697,080
Financing Activities:
Proceeds from long-term debt, net 104,217
Payments of long-term debt (227,862)
Other (13,147)
Loan to employees' stock ownership plan (500,000)
NET CASH (USED IN)/ PROVIDED BY FINANCING
ACTIVITIES (741,009) 104,217
Increase/(decrease)in Cash and
Cash Equivalents 8,578,960 (1,451,155)
Cash and cash equivalents at beginning
of period 8,386,620 5,939,456
Cash and Cash Equivalents at End of Period $16,965,580 $ 4,488,301
See notes to unaudited condensed consolidated financial statements.
5 of 11
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, 1995 11,211 $2,803 476 $6,574
Net income
Deferred compensation under stock
bonus plan and employees' stock
ownership plan:
Amortization
Loan to employees' stock ownership plan
Balance at April 30, 1996 11,211 $2,803 476 $6,574
See notes to unaudited condensed consolidated financial statements.
6 of 11
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, 1995 $1,620 $51,357 $18,970
Net income 2,741
Deferred compensation under stock
bonus plan and employees' stock
ownership plan:
Amortization (457)
Loan to employees' stock
ownership plan 500
Balance at April 30, 1996 $1,663 $51,357 $21,711
See notes to unaudited condensed consoliated financial statements.
7 of 11
CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1996
(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, 1996 and 1995 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, 1995.
(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, 1996 and 1995. The three and nine month periods
ended April 30, 1995 have been retroactively adjusted for a 3% stock
dividend distributed in July 1995. 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, 1995.
Assumed conversion of debentures would have had an anti-dilutive
effective on net income per share for the three and nine months
ended April 30, 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,
1996 1995
Finished goods $36,617,860 $37,194,809
Raw materials 14,936,084 19,928,214
Supplies 4,192,723 3,453,397
$55,746,667 $60,576,420
(D) Under the Company's amended and restated revolving credit and term
loan agreements (collectively the "Loan Agreements") with Natwest Bank
N.A. 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 through December 31, 1996 may
not exceed $40,000,000 and after such date may not exceed $20,000,000.
Interest (8.75% at April 30, 1996) 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 substant-
ially 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, 1996) 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 $591,000.
(F) Other income - net for nine months ended April 30, 1996 includes a
gain on sale of real estate of $460,000.
8 of 11
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.
Net sales increased $5,626,000 or 7% and $1,710,000 or 1% for the three
and nine months ended April 30, 1996, respectively, compared to the
comparable periods of the prior year. The increase in net sales was
due to an increase in coffee pounds sold partially offset by a decrease
in the average selling price of coffee.
Operating profits from food products were $3,337,000 and $9,469,000,
decreases of 17% and 18% for the three and nine months ended April 30,
1996, respectively, compared to $4,004,000 and $11,541,000 for the
comparable periods of the prior year. The decrease in the three months
resulted primarily from increased selling, general and administrative
expenses partially offset by increase gross profit margins. Increased
gross margins were due to increased coffee pounds sold and a decrease
in the average selling price of coffee less than the decrease in the
average cost of green coffee. During the three months ended April 30,
1996 prices for green coffee ranged from a high of $1.30 to a low of
$1.14 per pound. Selling, general and adminstrative expenses increased
primarily due to increased delivery costs and salaries partially offset
by decreased advertising. The decrease in the nine months resulted
primarily from decreased gross profit margins partially offset by
decreased selling, general and administrative expenses. 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 increased coffee pounds sold. During the nine
months ended April 30, 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 decreased primarily due to reduced advertising
partially offset by increased delivery costs.
Net income was $968,000 or $.09 and $2,741,000 or $.26 per share for
the three and nine months ended April 30, 1996, respectively, compared
to $ 1,414,000 or $.13 per share and $3,651,000 or $.34 per share for
the comparable periods of the prior year. The difference was primarily
due to decreased operating profits, partially offset by decreased
income taxes and a gain on sale of real estate of $460,000 in the
second quarter of fiscal 1996.
Liquidity and Capital Resources
As of April 30, 1996, working capital was approximately $92,000,000 and
the ratio of current assets to current liabilities was approximately
5.5 to 1.
As of April 30, 1996, the Company had unused borrowing capacity of
approximately $29 million under its credit facilities of $40 million
with Natwest Bank N.A. and Chemical Bank.
9 of 11
Sales of the Company's Quikava and Cafe retail operations are not
material to the Company's consolidated sales. The Company is expanding
the Quikava company operated and franchised operations, which in total
are operating in 12 locations. 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 is rethinking its
strategy as it relates to the Cafe division, as revenues along with
negative store level contributions have not lived up to expectations
(due to high level rents and other costs associated with the New York
City area). In addition, Cafe headqaurters' expenses in excess or
$1,000,000 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.
Part II. 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
10 of 11
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 12, 1996
Marvin I. Haas
President and Chief Executive Officer
June 12, 1996
Howard M. Leitner
Senior Vice President and
Chief Financial and Accounting Officer
11 of 11
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