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 ___October 31, 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
December 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 -
October 31, 1996 and July 31, 1996 1 & 2 of 10
Unaudited Condensed Consolidated Statements of Operations-
Three Months Ended October 31, 1996 and 1995 3 of 10
Unaudited Condensed Consolidated Statements of Cash Flows -
Three Months Ended October 31, 1996 and 1995 4 of 10
Unaudited Condensed Consolidated Statement of Stockholders' Equity -
October 31, 1996 5 & 6 of 10
Notes to Unaudited Condensed Consolidated Financial
Statements - October 31, 1996 7 of 10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8 & 9 of 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 9 of 10
Item 5. Other Information 9 of 10
Item 6. Exhibits and Reports on Form 8-K 9 of 10
Signatures 10 of 10
PART I. FINANCIAL INFORMATION
CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
October 31, July 31,
1996 1996
(Unaudited) (Note)
ASSETS
Current assets:
Cash and cash equivalents $ 24,002,989 $ 16,293,783
Receivables, principally
trade, less allowances
for doubtful accounts and
discounts of $1,201,000
and $1,133,000 32,580,748 30,989,008
Inventories 53,138,734 59,637,802
Investments in marketable securities,
at market (approximates cost) 159,593 128,099
Prepaid expenses and other 3,703,137 3,539,776
Total current assets 113,585,201 110,588,468
Property, plant and
equipment - at cost $ 95,191,010 $ 93,683,328
Less allowances for
depreciation and
amortization (46,922,192) 48,268,818 (45,172,084) 48,511,244
Real estate held for
development or sale, at cost 7,677,308 7,691,267
Other assets and deferred charges 25,202,085 26,976,132
Excess of cost over net
assets acquired 5,617,725 5,668,008
$200,351,137 $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.
1 of 10
CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
October 31, July 31,
1996 1996
(Unaudited) (Note)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 12,937,623 $ 10,469,300
Accrued expenses 7,035,284 11,346,483
Income taxes 2,705,853 1,719,575
Total current liabilities 22,678,760 23,535,358
Long-term debt 105,424,891 105,235,468
Other non-current liabilities 1,591,081 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 18,885,314 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 (1,405,965) (1,533,749)
Total stockholders' equity 65,065,405 63,487,062
$200,351,137 $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.
2 of 10
CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended October 31,
1996 1995
Revenues:
Net sales $ 82,576,510 $ 77,372,279
Rentals from real estate 522,884 546,842
83,099,394 77,919,121
Cost and expenses:
Cost of sales 59,155,200 55,783,931
Selling, general and
administrative expenses 19,240,819 17,577,568
Expenses of real estate 424,298 368,556
78,820,317 73,730,055
Operating profit 4,279,077 4,189,066
Interest income 318,434 138,456
Interest expense (2,139,469) (2,266,021)
Other income - net 16,518 78,978
Income before income taxes 2,474,560 2,140,479
Income taxes 1,024,000 787,000
Income from continuing operations 1,450,560 1,353,479
Discontinued operations, net of income tax
credits of $271,000 526,567
Net income $1,450,560 $ 826,912
Income/(loss)per share:
Primary:
Continuing operations $ .14 $ .13
Discontinued operations (.05)
Net income $ .14 $ .08
Fully diluted:
Continuing operations $ .11 $ .11
Discontinued operations (.03)
Net income $ .11 $ .08
See notes to unaudited condensed consolidated financial statements.
3 of 10
CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended October 31,
1996 1995
Operating Activities:
Net income $ 1,450,560 $ 826,912
Adjustments to reconcile net income
to net cash provided by/(used
in) operating activities:
Depreciation and amortization of
property, plant and equipment 1,750,108 1,472,415
Amortization of deferred compensation
and deferred charges 1,091,923 1,187,403
Other, net (201,948) (1,092,824)
Changes in operating assets and liabilities:
(Increase)/decrease in accounts receivable (1,659,740) 2,150,316
Decrease in inventory 6,499,068 3,132,918
(Increase)/(decrease) in prepaid expenses (163,361) 1,069,418
(Decrease) in accounts payable,
accrued expenses and income taxes (856,598) (10,026,015)
NET CASH PROVIDED BY/(USED IN)OPERATING
ACTIVITIES 7,910,012 (1,279,457)
Investing Activities:
Proceeds from sale and collection of principal
of marketable securities 9,980,349
Purchases of marketable securities (31,494) (11,939,661)
Purchases of property, plant and equipment (1,507,682) (1,822,931)
NET CASH(USED IN)INVESTING ACTIVITIES (1,539,176) (3,782,243)
Financing Activities:
Proceeds from long-term debt, net 189,423 1,918,097
Proceeds from co-packer 1,148,947
Loan to employees' stock ownership plan (500,000)
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,338,370 1,418,097
Increase/(decrease)in Cash and
Cash Equivalents 7,709,206 (3,643,603)
Cash and cash equivalents at beginning
of period 16,293,783 8,386,620
Cash and Cash Equivalents at End of
Period $24,002,989 $ 4,743,017
See notes to unaudited condensed consolidated financial statements.
4 of 10
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 October 31, 1996 11,211 $2,803 476 $6,574
See notes to unaudited condensed consolidated financial statements.
5 of 10
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 1,450
Deferred compensation under stock
bonus plan and employees' stock
ownership plan:
Amortization (128)
Balance at October 31, 1996 $1,406 $51,357 $18,885
See notes to unaudited condensed consoliated financial statements.
6 of 10
CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
October 31, 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 months ended October 31, 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, 1996.
(B) Primary per share data is based on the weighted average number of
common shares outstanding of 10,736,000 for the three months ended October 31,
1996 and 1995. Fully diluted per share data, assuming conversion of
debentures, is based on 22,556,000 shares outstanding for the three months
ended October 31, 1996 and 1995.
(C) Inventories are stated at the lower of cost (first-in, first-out) or
market. The components of inventory consist of the following:
October 31, July 31,
1996 1996
Finished goods $32,868,186 $35,715,505
Raw materials 15,310,369 18,931,470
Supplies 4,960,179 4,990,827
$53,138,734 $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, 1996 may not exceed
$40,000,000 and after such date may not exceed $20,000,000. Interest
(8.25% at October 31, 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 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 October 31, 1996) 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.
7 of 10
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.
Net sales increased $5,204,000 or 7% for the three months ended
October 31, 1996, compared to the comparable period of the prior year.
The increase in net sales was due to a 34% increase in coffee pounds
sold partially offset by a decrease in the average selling price of
coffee.
Operating profits from food products were $4,279,000, an increase of
2% for the three months ended October 31, 1996, compared to $4,189,000
for the comparable period of the prior year. The increase resulted
primarily from increased gross margins partially offset by increased
selling, general and administrative expenses. 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 October 31, 1996 prices
for green coffee ranged from a high of $1.36 to a low of $1.04 per
pound. Selling, general and adminstrative expenses increased primarily
due to increased advertising, brokerage and coupon costs and salaries.
Income from continuing operations was $1,451,000 or $.14 per share for
the three months ended October 31, 1996, compared to $1,353,000 or $.13
per share for the comparable period of the prior year. The difference
was primarily due to increased operating profits, increased interest
income and reduced interest expense, partially offset by increased income taxes
The prior year also included a loss from discountinued operations of
$527,000 or $.05 per share.
Liquidity and Capital Resources
As of October 31, 1996, working capital was approximately $91,000,000
and the ratio of current assets to current liabilities was
approximately 5.0 to 1.
As of October 31, 1996, the Company had unused borrowing capacity of
approximately $29 million under its credit facilities of $40 million
with Fleet Bank, N.A. and The Chase Manhattan Bank.
The Company plans on expanding its Quikava, company operated and
franchised operations, which in total are currently operating in 15
locations. The sales of these operations are not material to the
Company's consolidated sales. 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.
8 of 10
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 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; 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
9 of 10
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)
December 12, 1996 Marvin I. Haas
President and Chief Executive Officer
December 12, 1996 Howard M. Leitner
Senior Vice President
Chief Financial and Accounting Officer
10 of 10
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