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, 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
March 15, 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 -
January 31, 1996 and July 31, 1995 1 & 2 of 11
Unaudited Condensed Consolidated Statements of Operations-
Three Months Ended January 31, 1996 and 1995 3 of 11
Unaudited Condensed Consolidated Statements of Operations -
Six Months Ended January 31, 1996 and 1995 4 of 11
Unaudited Condensed Consolidated Statements of Cash Flows -
Three Months Ended January 31, 1996 and 1995 5 of 11
Unaudited Condensed Consolidated Statement of Stockholders' Equity -
January 31, 1996 6 & 7 of 11
Notes to Unaudited Condensed Consolidated Financial
Statements - January 31, 1996 8 of 11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9 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
January 31, July 31,
1996 1995
(Unaudited) (Note)
ASSETS
Current assets:
Cash and cash equivalents $ 15,968,950 $ 8,386,620
Receivables, principally
trade, less allowances
for doubtful accounts and
discounts of $1,269,000
and $1,251,000 38,685,925 37,703,214
Inventories 54,098,395 60,576,420
Investments in marketable securities,
at cost (market value of $6,977,000
and $6,975,000) 6,971,604 6,972,928
Prepaid expenses and other 2,262,633 2,916,690
Total current assets 117,987,507 116,555,872
Property, plant and
equipment - at cost $ 94,997,345 $ 91,038,726
Less allowances for
depreciation and
amortization (42,378,939) 52,618,406 (39,273,602) 51,765,124
Real estate held for
sale or development, at cost 7,719,187 7,747,107
Other assets and deferred charges 25,083,922 25,099,333
Excess of cost over net
assets acquired 5,768,573 5,869,138
$209,177,595 $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
January 31, July 31,
1996 1995
(Unaudited) (Note)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 17,640,150 $ 12,937,578
Accrued expenses 8,971,417 12,438,512
Income taxes 1,292,941 1,530,543
Total current liabilities 27,904,508 26,906,633
Long-term debt 106,069,790 106,568,896
Other non-current liabilities 1,525,585 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 20,743,053 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 (1,807,397) (1,619,804)
Total stockholders' equity 66,521,712 64,936,687
$209,177,595 $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 January 31,
1996 1995
Revenues:
Net sales $83,123,088 $91,704,240
Rentals from real estate 581,615 635,324
83,704,703 92,339,564
Cost and expenses:
Cost of sales 60,643,914 66,479,636
Selling, general and
administrative expenses 19,560,167 21,176,650
Expenses of real estate 382,871 511,929
80,586,952 88,168,215
Operating profit 3,117,751 4,171,349
Interest income 276,688 223,657
Interest expense (2,234,837) (2,256,682)
Other income - net 410,105 55,311
Income before income taxes 1,569,707 2,193,635
Income taxes 624,000 899,000
Net income $ 945,707 $1,294,635
Net income per share
Primary $ .09 $ .12
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
Six Months Ended January 31,
1996 1995
Revenues:
Net sales $161,359,797 $165,275,827
Rentals from real estate 1,128,457 1,075,563
162,488,254 166,351,390
Cost and expenses:
Cost of sales 117,871,291 117,338,032
Selling, general and
administrative expenses 37,356,286 40,401,094
Expenses of real estate 751,427 789,782
155,979,004 158,528,908
Operating profit 6,509,250 7,822,482
Interest income 415,144 479,893
Interest expense (4,500,858) (4,569,605)
Other income - net 489,083 58,086
Income before income taxes 2,912,619 3,790,856
Income taxes 1,140,000 1,554,000
Net income $1,772,619 $ 2,236,856
Net income per share
Primary $ .17 $ .21
Fully Diluted $ .17 $ .20
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
Six Months Ended January 31,
1996 1995
Operating Activities:
Net income $ 1,772,619 $ 2,236,856
Adjustments to reconcile net income
to net cash provided
by operating activities:
Depreciation and amortization of
property, plant and equipment 3,105,337 2,853,399
Amortization of deferred compensation
and deferred charges 2,384,927 2,331,102
Other, net (1,110,265) (57,816)
Changes in operating assets and liabilities:
(Increase)in accounts receivable (1,000,711) (8,809,125)
Decrease/(increase)in inventory 6,478,025 (15,857,612)
Decrease/(increase) in prepaid expenses 654,057 (737,485)
Increase/(decrease) in accounts payable,
accrued expenses and income taxes 997,875 (902,476)
NET CASH PROVIDED BY/(USED IN)OPERATING ACTIVITIES 13,281,864 (18,943,057)
Investing Activities:
Proceeds from sale and collection of principal
of marketable securities 23,769,058 21,313,249
Purchases of marketable securities (23,767,734) (7,476,689)
Purchases of property, plant and equipment (4,700,033) (3,072,059)
Proceeds from sale of property, plant
and equipment 1,218,047
NET CASH (USED IN)/ PROVIDED BY INVESTING
ACTIVITIES (4,698,709) 11,982,548
Financing Activities:
Proceeds from long-term debt, net 5,339,192
Payments of long-term debt (499,106)
Other (1,719)
Loan to employees' stock ownership plan (500,000)
NET CASH (USED IN)/ PROVIDED BY FINANCING
ACTIVITIES (1,000,825) 5,339,192
Increase/(decrease)in Cash and
Cash Equivalents 7,582,330 (1,621,317)
Cash and cash equivalents at beginning
of period 8,386,620 5,939,456
Cash and Cash Equivalents at End of Period $ 15,968,950 $ 4,318,139
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 January 31, 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 1,773
Deferred compensation under stock
bonus plan and employees' stock
ownership plan:
Amortization (313)
Loan to employees' stock
ownership plan 500
Balance at January 31, 1996 $1,807 $51,357 $20,743
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
January 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 and six months ended
January 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, 1995.
(B) Primary per share data are based on the weighted average number of
common shares outstanding of 10,736,000 for the three and six months
ended January 31, 1996 and 1995. The three and six month periods
ended January 31, 1995 have been retroactively adjusted for a 3%
stock dividend distributed in July 1995. Assumed conversion of
debentures would have had an anti-dilutive effect on the net income
per share for the three and six months ended January 31, 1996.
(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,
1996 1995
Finished goods $33,718,466 $37,194,809
Raw materials 16,680,488 19,928,214
Supplies 3,699,441 3,453,397
$54,098,395 $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 January 31, 1996) on all such loans is equal to
prime rate, subject to adjustment based on the level of loans outstand
ing. 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, 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 the three and six months ended January 31,
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 consoli-
dated statements of operations.
Net sales decreased $8,581,000 or 9% and $3,916,000 or 2% for the
three and six months ended January 31, 1996, respectively, compared
to the comparable period of the prior year. The decrease in net sales
was due to a decrease in the average selling price of coffee partially
offset by an increase in coffee pounds sold.
Operating profits from food products were $2,919,000 and $6,132,000,
decreases of 28% and 19% for the three and six months ended January
31, 1996, respectively, compared to $4,048,000 and $7,537,000 for the
comparable periods of the prior year. The decreases 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 off
set by increased coffee pounds sold. During the six months ended
January 31, 1996 prices for green coffee ranged from a high of $1.54
per pound to a low of $ .91 per pound. Selling, general and adminis-
trative expenses decreased primarily due to reduced advertising and
payroll costs.
Net income was $946,000 or $.09 and $1,773,000 or $.17 per share for
the three and six months ended January 31, 1996, respectively, com-
pared to $1,295,000 or $.12 per share and $2,237,000 or $.21 per
share for the comparable periods of the prior year. The difference
was primarily due to decreased operating profits, partially offset
by a gain on sale of real estate of $460,000 and decreased income
taxes.
Liquidity and Capital Resources
As of January 31, 1996, working capital was approximately $90,000,000
and the ratio of current assets to current liabilities was approxi-
mately 4.2 to 1.
As of January 31, 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
The Company has been establishing its Cafe and Quikava retail operations.
To date, the sales of these operations are not material to the Company's
consolidated sales. The Company plans on expanding the Cafe and Quikava
company operated and franchised operations, which in total are opera-
ting in 20 locations and are currently not profitable at store level.
In addition, the Company incurs headquarters expenses for these
operations which approximate $2,000,000 on an annual basis.
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)
March 8, 1996
Marvin I. Haas
President and Chief Executive Officer
March 8, 1996
Howard M. Leitner
Senior Vice President and
Chief Financial and Accounting Officer
11 of 11
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