SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JULY 31, 1997
OR
[] TRANSITION REPORT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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 Identification No.)
Incorporation or Organization)
370 Lexington Avenue, New York, New York 10017
(Address of Principal Executive Offices) (Zip Code)
(212) 532-0300
(Registrant's Telephone Number, Including Area Code)
Securities Registered Pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title Of Each Class On Which Registered
Common Stock, par value $.25 per share New York Stock Exchange
8% Convertible Subordinated Debentures, American Stock Exchange
due September 15, 2006
7% Convertible Senior Subordinated Debentures, New York Stock Exchange
due April 1, 2012
Securities Registered Pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
filing requirements for the past 90 days.
Yes x No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [].
Aggregate market value of the Common Stock ($.25 par value) held by non
affiliates of the registrant as of October 8, 1997: $72,897,000
Number of Shares of Common Stock ($.25 par value) outstanding as of
October 8, 1997: 10,742,000
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the annual proxy statement for the year ended July 31, 1997
are incorporated by reference into Part III.
Certain statements in the Letter of the President and Chief Executive
Officer and Chairman of the Board included in the Annual Report to Share-
holders and in the "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and elsewhere in this Form 10-K
constitute "forward-looking statements" within the meaning of the Reform
Act. See "Forward-Looking Statements".
PART I
Item 1. BUSINESS
Item 101 (a) and (c) of Regulation S-K
The Company is the fourth largest roaster, packer, and marketer of coffee in
the United States based on coffee pounds sold by the Company. Its broad range
of regular and decaffeinated, ground roast, instant and specialty coffees for
the Foodservice and Retail Grocery Industries are sold regionally throughout
the United States and Canada under various well known trademarks, including
Chock full o' Nuts, LaTouraine and Cain's. Best known among its products is
Chock full o' Nuts brand premium, vacuum packed, all-method grind coffee.
The Company is also one of the largest marketers of foodservice and private
label coffees. The balance of the Company's business is derived from its
developing Quikava outlets and from real estate operations.
Incorporated in 1932, for many years, the Company's primary business was the
operation of counter service restaurants, under the Chock full o' Nuts name.
In 1953, the Company expanded its business by marketing the coffee made
famous in its restaurants to consumers via supermarkets and other Retail
Grocery outlets. Impactful advertising, featuring the "Heavenly Coffee"
jingle, made Chock full o' Nuts brand premium coffee a market leader. In
1983, Management discontinued the Company's restaurant operations and
concentrated its efforts on the sale of coffee and related food products. In
1994, the Company commenced opening a limited number of Chock Cafes in the
New York metropolitain area. In October 1996, the Company adopted a plan to
discontinue operations of these company-owned cafes. See Note 4 of Notes to
Consolidated Financial Statements.
In January 1997, the Company acquired substantially all of the assets and
assumed substantially all of the liabilities of Ireland Coffee & Tea Company
a leading roaster and distributor of coffees to hotels, restaurants and
institutions on the East Coast. See Note 9(a) of Notes to Consolidated
Financial Statements.
In March 1994, the Company acquired all the assets and liabilities of a
company ("Quikava") whose menu features a full assortment of the most popular
specialty coffee beverages, plus a variety of freshly prepared foods
and snacks specifically suited for in-car consumption. Quikava's unique
"double drive-thru" format targets the suburban commuter and is uniquely
suited to take advantage of the growth of Specialty Coffees "away from home",
where annual growth rates are significant.
In December 1992, the Company acquired the stock of Cain's Coffee Co.
("Cain's") and certain trademarks related to that business. Cain's primary
business is the direct sale and distribution of coffee and related products
under the Cain's label to Foodservice Customers in twelve states primarily
West of the Mississippi. Cain's also sells coffee and tea to Retail
Customers, using a direct store distribution system.
In November 1992, the Company acquired a controlling interest in a partnership,
which owned Dana Brown Private Brands, Inc., a company which markets and sells
private label coffee and tea products to food retailers and distributors,
located primarily in the Midwest.
In December 1986, the Company acquired Greenwich Mills Company ("Greenwich").
Established in 1912, Greenwich is a leading manufacturer and supplier of
coffee, tea and allied products to Foodservice and private label customers.
The majority of their customers are located in markets East of the Mississippi.
Greenwich's best known trademark is LaTouraine.
In November 1993, the Company sold Hillside Coffee of California, Inc., whose
business consisted of roasting, packing, distributing and marketing specialty
coffee under the Hillside name, primarily to supermarkets.
Corporate Management is currently focused on the following growth initiatives:
(1) Maximizing the Company's Foodservice franchise by significantly broadening
its customer base for Cain's, Chock full o' Nuts and LaTouraine brand coffee,
tea and allied products; (2) Increasing Retail Grocery Market shares for such
higher margin products as Chock full o' Nuts brand Cafe Blend, decaffeinated,
instant and Rich French Roast coffees; (3) Selectively pursuing new business
development opportunities that will deliver significant volume and profit
growth; and (4) Expansion of its developing Quikava drive-thru outlets.
The following table sets forth revenues and operating results from continuing
operations, before interest and corporate expenses, attributable to the
Company's beverage products sales, Quikava sales and real estate operations,
for the fiscal years ended July 31, 1997, 1996 and 1995:
Fiscal Years Ended July 31,
1997 1996 1995
(In Thousands)
Revenues
Net Sales - Beverage Products $360,467 $319,213 $325,259
Net Sales - Quikava 3,737 1,922 882
Rentals from Real Estate 2,091 2,156 2,061
Operating Profit/(Loss):
Beverage Products 23,498 16,708 19,075
Quikava (1,998) (1,649) (870)
Real Estate Operations 140 671 490
COFFEE AND RELATED PRODUCTS
Description of Coffee Market
According to certain available industry surveys and Company estimates, total
United States coffee sales by manufacturers in 1996 were approximately $6
billion. Approximately 31% of total United States coffee sales in 1996 were
to Foodservice customers.
Foodservice Sales and Marketing
In January 1985, the Company began using Company sales personnel and
independent food brokers to market its coffee and allied products to
foodservice customers. These include chain and independent restaurants,
hospitals, airlines, schools, governmental institutions, vending and office
coffee service operators and other institutional distributors. In December
1986, the Company acquired Greenwich, which is a major direct sales and
distribution supplier in the Eastern United States of coffee, tea and allied
products to Foodservice Customers and private label customers. Greenwich's
best-known label is LaTouraine, which enjoys a reputation for high quality.
LaTouraine also distributes spices, international coffee mixes, speciality
coffees, whole bean and pod Espresso, hot chocolate, iced and hot tea,
powdered soft drinks, soup bases, and portion controlled jams, jellies and
condiments.
In December 1992, the Company acquired Cain's, which is a major supplier in
the Midwest and Southwest of products similar to those sold by Greenwich and
LaTouraine to Foodservice Customers.
In fiscal 1997, approximately 49% of sales were derived from processing and
marketing coffee and allied products for sale to Foodservice Customers.
Sales of coffee products to Foodservice Customers have traditionally been
less price-sensitive and depend more on the level of customer service provided.
These sales also tend to generate higher operating margins, due to lower
marketing and advertising expenses, than do sales of coffee products to Retail
Customers. In addition, the absence of competitors with a dominant market
position, makes the Company's pricing to Foodservice Customers less
susceptible, as compared to pricing to Retail Customers, to changes in price
in response to pricing actions of any single competitor.
Retail Sales and Marketing
The Company currently sells most of its Retail Grocery coffee products to
supermarket chains, wholesalers and independent food outlets ("Retail
Customers") through independent food brokers. The Company's retail products
include coffees sold under the Chock full o' Nuts, Cain's, Ireland and Safari
labels. The Company believes that its best known product, Chock full o' Nuts
premium, vacuum packed, all-method grind coffee, is superior to most
competitors in being able to produce a more consistent, better tasting,
finished brew from a single, "all-method grind", regardless of the coffee
maker used. The Company also sells an "extended yield" coffee, which produces
more cups than equivalent quantities of standard yield coffee. Additionally,
the Company sells decaffeinated roast and ground coffee, instant coffees,
a premium quality Cafe blend and a Rich French Roast coffee.
The Company and Greenwich roast, pack and market regular, decaffeinated and
instant coffees for sale by others under a variety of private labels.
In fiscal 1997, the Company's coffee sales to Retail Customers accounted for
approximately 44% of sales and coffee sales under the Chock full o'Nuts label
represented approximately 4% of total Branded Retail Grocery coffee sales in
the United States.
Chock full o' Nuts all-method grind coffee is sold in most major metropolitan
areas of the United States and in the provinces of Ontario and Quebec, Canada.
Sales are concentrated in the New York metropolitan area, upstate New York,
New England, Philadelphia, Washington, D.C. and Florida. The Company believes
that its distinctive packaging design and one grind concept are important
factors in the marketing of its coffee products. Marketing a single grind
coffee has enabled the Company's all-method grind coffee to be consistently
one of the fastest moving items off supermarket shelves in its core markets.
The sales of Cain's, Ireland and Safari brand products are concentrated in the
Midwest, East and Southwest, respectively.
Suppliers and Manufacturing
The Company's coffee is primarily a blend of readily available Central and
South American coffees. The Company purchases approximately 100 million pounds
of green coffee beans annually. All such coffee is purchased from
approximately 25 importers located in New York City, New Orleans and Miami,
who assume the risk of delivering beans that meet the Company's quality
requirements at a guaranteed price. The Company generally buys its coffee
pursuant to contracts providing for delivery in 4 to 12 weeks and supplements
such contracts with purchases on the spot market. All purchases are subject to
inspection and approval by the United States Food and Drug Administration.
Manufacturing activities for coffee and related products are presently
conducted at the following facilities:
Location Principal Use
Brooklyn, New York............Coffee Roasting Plant, Warehouse
St. Louis, Missouri...........Coffee Roasting Plant, Warehouse
Hialeah, Florida..............Coffee Roasting Plant, Warehouse
Rochester, New York...........Coffee Roasting Plant, Warehouse
Oklahoma City, Oklahoma.......Coffee Roasting Plant and Processing
Plant for Tea and Related Food
Products, Warehouse
Springfield, Missouri.........Processing Plant for Spices, Warehouse
Pleasantville, New Jersey.....Coffee Roasting Plant, Warehouse
All of the above facilities are owned, except the Rochester, New York,
Springfield, Missouri and Pleasantville, New Jersey facilities, which are
leased. The Company believes that it has sufficient production capacity
to meet its current and future needs.
The Company also rents executive office space in New York City and
maintains warehousing facilities in over forty-five locations throughout the
United States. None of these facilities are material to the Company's
operations.
Competition
The coffee business is highly competitive. The Company competes for Retail
Customers with a number of nationally and regionally established brands. Its
largest competitors are Kraft Foods (Maxwell House, Yuban and Sanka coffees),
Procter & Gamble (Folger's coffees) and The Nestle Company (Hills, MJB and
Chase & Sanborn coffees), with combined annual sales accounting for
approximately 80% of the United States coffee market. The profitability of
the Company's coffee sales to Retail Customers is largely dependent on
competitive pricing conditions. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations".
There are many competitors in the business of selling coffee to Foodservice
Customers. However, the Company believes that no single competitor's sales
constitute more than 20% of this market. Sales of coffee, tea and allied
products to Foodservice Customers have traditionally been less price-sensitive
and more dependent on the level of service provided to such customers than
sales of such products to Retail Customers. In addition, the absence of direct
competitors with a dominant market position has traditionally made the
Company's pricing to Foodservice Customers less susceptible, as compared to
pricing to Retail Customers, to changes in price in response to pricing actions
of any single competitor.
Quikava
Quikava is the operator and franchisor of double-drive thru outlets, which
offer a variety of specialty coffees, espresso-based drinks, fresh baked goods,
sandwiches, other "finger foods" and snacks. Quikava units are situated on
major commuter thoroughfares in suburban markets and offer quick-service of
quality beverages and snacks. The Company intends to develop additional
Quikava units, most of which will be franchised. At the fiscal year
end, the Company was operating nine company owned units and there were eight
operating franchished units.
Cafes
In June 1994, with the opening of a flagship store in Midtown Manhattan, the
Company began to develop the business of operating retail cafes which offered
moderately priced specialty coffees, sandwiches, salads, bakery products,
snacks, and other assorted food and beverage products. The cafes had an upscale
motif, which featured a rich wood and granite interior and utilized a
quick-service format.
The Company developed a number of formats for expansion of its retail cafe
concept, including the full cafe (2500 to 3500 square feet with seating for
45-75), the mini-cafe (400-1000 square feet with limited seating), and Chock
Full O'Nuts EXPRESS-Osm (a modular kiosk of 150 square feet).
In October 1996, the Company discontinued the operations of its Cafes due
to store operating losses due to high food and labor costs and insufficient
volume to cover high fixed and operating costs related to Midtown Manhattan
operations as well as a Cafe Corporate structure organized to support a much
higher number of locations. See Note 4 of Notes to the Consolidated Financial
Statements.
RESEARCH AND DEVELOPMENT
The Company invested a nominal amount in research and development for the
three years ended July 31, 1997.
TRADEMARKS
Certain trademarks (i.e. Chock full o'Nuts, LaTouraine, Eppen Smith, Cain's,
Safari and Ireland) are important to the business of the Company.
EMPLOYEES
The Company employs approximately 1,400 employees, 10% of whom are represented
by labor unions. The Company believes that its relations with both union and
non-union employees are good.
REAL ESTATE OPERATIONS
The Company is both lessor and lessee on certain properties and an owner of one
property in New York City. Such properties had been part of the Company's
original restaurant operations. Additionally, the Company owns a coffee
roasting facility in Castroville, California which it leases to the owner of
Hillside Coffee of California, Inc.
OTHER MATTERS
Reference is made to Notes 9(a) and 4 of Notes to Consolidated Financial
Statements with respect to the acquisition and disposition of certain assets.
Item 101 (b) of Regulation S-K
Segment Information is incorporated herein by reference to Note 10 of Notes
to Consolidated Financial Statements.
Item 101 (d) of Regulation S-K
All of the Company's operations are located in the United States. Export sales
are not significant.
Item 2. PROPERTIES
The Company leases certain premises which are under long-term leases expiring
on various dates through 2009 and certain of which contain renewal options.
Reference should be made to Note 5 of the Notes to Consolidated Financial
Statements for additional information about these leases. The following table
sets forth the location and certain information with respect to the Company's
plants and certain other properties as of October 8, 1997, all of which
premises the Company considers adequate for its present and anticipated needs.
PLANTS AND OTHER PROPERTIES
Approximate Whether
Square Feet Owned
of Or
Location Principal Use Floor Space Leased (1)
Brooklyn, New York Coffee Roasting
Plant,Warehouse 55,000 Owned
St. Louis, Missouri Coffee Roasting
Plant,Warehouse 77,000 Owned
Secaucus, New Jersey Warehouse and
Offices 104,000 Owned
Hialeah, Florida Coffee Roasting
Plant,Warehouse 50,000 Owned
Rochester, New York Coffee Roasting
Plant,Warehouse 50,000 Leased
Oklahoma City, Oklahoma Coffee Roasting Plant
and Processing
Plant for
Tea and Related
Food Products,
Warehouse 150,000 Owned
Springfield, Missouri Processing Plant
for Spices,
Warehouse 30,000 Leased
Pleasantville, New Coffee Roasting 47,000 Leased
Jersey Plant, Warehouse
574 Fifth Avenue Real Estate
New York, New York Operation 13,000 Leased
422 Madison Avenue Real Estate
New York, New York Operation 8,750 Leased
532 Madison Avenue Real Estate
New York, New York Operation 12,250 Leased
49 Broadway Real Estate
New York, New York Operation 12,000 Leased
1420 Broadway Real Estate
New York, New York Operation 6,750 Leased
370 Lexington Avenue Corporate
New York, New York Headquarters 11,000 Leased
Waverly Place corner
Green Street Real Estate
New York, New York Operation 2,500 Leased
336 Broadway Real Estate
New York, New York Operation 10,500 Owned
Castroville, Real Estate
California Operation 66,000 Owned
1114 Avenue of the Real Estate 2,800 Leased
Americas Operation
New York, New York
43 West 42 Street Real Estate 340 Leased
New York, New York Operation
Queen Ann Plaza Quikava Operation 250 Leased
Norwell, Mass
2297 Brown Avenue Quikava Operation 500 Leased
Manchester,
New Hampshire
Natick Crossing Mall Quikava Operation 1,500 Leased
Natick, Mass.
917 Lynnfield Street Quikava Operation 600 Leased
Lynn, Mass
1184 Main Street Quikava Operation 600 Leased
Haverhill, Mass
84 Milfod Road Quikava Operation 600 Leased
Amherst, New Hampshire
374 Bridge Street Quikava Operation 600 Leased
N. Weymouth, Mass
895 Bald Hill Road Quikava Operation 600 Leased
Warwick, Rhode Island
190 Old Derby Street Headquarters, Quikava 1,196 Leased
Hingham, Mass.
2344 G.A.R Hwy Quikava Operations 600 Leased
Swansea, Mass.
(1) -- No Company-leased premises are owned by any officer or director of
the Company. See Note 5 of Notes to Consolidated Financial Statements.
Item 3. LEGAL PROCEEDINGS
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS
Not applicable.
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND
RELATED SECURITY HOLDER MATTERS
"Common Share Prices" and related security holder matters may be found
immediately after "Segment Information" and are incorporated herein by
reference.
Item 6. SELECTED FINANCIAL DATA
"Selected Financial Data" may be found immediately after Note 10 of Notes
to Consolidated Financial Statements and is incorporated herein by reference.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" may be found immediately after "Forward-Looking Statements" and
is incorporated herein by reference.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this Item is submitted in a separate section of this report.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
Item 10. DIRECTORS AND OFFICERS OF THE REGISTRANT
and
Item 11. EXECUTIVE COMPENSATION
and
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
and
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Omitted, per General Instruction G. The information required by Part III shall
be incorporated by reference from the Registrant's definitive proxy statement
pursuant to Regulation 14A for the fiscal year ended July 31, 1997 which is
to be filed with the Commission.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) and (2) The response to this portion of Item 14 is submitted as a
separate section of this report.
(3) The response to this portion of Item 14 is submitted as a separate
section of this report (see below).
(b) Reports on Form 8-K:
None
(c) The response to this portion of Item 14 is submitted as a separate
section of this report (see below).
(d) The response to this portion of Item 14 is submitted as a separate
section of this report.
Pursuant to Regulation S-K Item 601, following is a list of Exhibits.
Exhibit 3 Articles of incorporation and by laws.
(a) Articles of incorporation filed as an Exhibit to Form 10-K
for the fiscal year ended July 31, 1994 is incorporated herein by
reference.
(b) By-laws filed as an Exhibit to Form 10-K for the fiscal
year ended July 31, 1994 is incorporated herein by reference.
Exhibit 4 Instruments defining the rights of security holders, including
indentures.
(a) Indenture dated as of September 15, 1986 between the Company
and Manufacturers Hanover Trust Company ("Manufacturers") filed as an
Exhibit to Form 10-K for the fiscal year ended July 31, 1994 is
incorporated herein by reference.
(b) Form of the Company's 8% Convertible Subordinated Debenture
included in Exhibit 4(a)filed as an Exhibit to Form 10-K for the fiscal
year ended July 31, 1994 is incorporated herein by reference.
(c) Instrument of resignation, appointment and acceptance dated
August 9, 1993 among the Company, Manufacturers and Liberty Bank and
Trust Company of Oklahoma City filed as an Exhibit to Form 10-K for
the fiscal year ended July 31, 1994 is incorporated herein by
reference.
(d) Indenture dated as of April 1, 1987 between the Company and
IBJ Schroder Bank and Trust Company filed as an Exhibit to Form
10-K for the fiscal year ended July 31, 1994 is incorporated
herein by reference.
(e) Form of the Company's 7% Convertible Senior Subordinated Debenture
included in Exhibit 4(d) filed as an Exhibit to Form 10-K for the
fiscal year ended July 31, 1994 is incorporated herein by
reference.
Exhibit 9 Voting Trust Agreement, not applicable.
Exhibit 10 Material contracts
(a) Rights Agreement, dated as of December 30, 1987, with IBJ Schroder
Bank and Trust Company, as Rights Agent, the form of Rights
Certificate and Summary of Rights to Purchase Common Stock filed as
an Exhibit to Form 10-K for the fiscal year ended July 31, 1994 is
incorporated herein by reference.
(b) Benefits protection trust with National Westminster Bank USA filed as
an Exhibit to Form 10-K for the fiscal year ended July 31, 1994 is
incorporated herein by reference.
(c) Resolution of the Board of Directors adopting severance policy filed as
an Exhibit to Form 10-K for the fiscal year ended July 31, 1994 is
incorporated herein by reference.
(d) Chock full o' Nuts Corporation Employees' Stock Ownership Plan dated
December 16, 1988 filed as an Exhibit to From 10-K for the fiscal year
ended July 31, 1995, is incorporated herein by reference.
(e) Amended and Restated Credit Agreement dated December 4, 1992, amended
and restated as of January 1, 1996, among Chock full o' Nuts
Corporation and its Subsidiaries and National Westminster Bank N.A.,
now known as Fleet Bank, N.A., and Chemical Bank, now known as the
Chase Manhattan Bank, filed as an Exhibit to Form 10-K for the fiscal
year ended July 31, 1996, is incorporated herein by references.
(f) Form of restricted stock agreement dated January 2, 1988 with key
employees (including certain officers and directors) filed as an
Exhibit to Form 10-K for the fiscal year ended July 31, 1994 is
incorportated herein by reference.
(g) Asset Purchase Agreement dated as of January 16, 1997 by and between
Chock full o'Nuts Corporation and Ireland Coffee-Tea, Inc. filed as
on Exhibit to Form 8-K dated February 3, 1997 is incorporated herein
by reference.
Exhibit 11 Statement re: Computation of Per Share Earnings
Exhibit 12 Statement re: Computation of ratios, not applicable.
Exhibit 13 Not applicable.
Exhibit 18 Letter re: change in accounting principles, not applicable.
Exhibit 21 Subsidiaries of the registrant.
Exhibit 22 Published report regarding matter submitted to vote of security
holders, not applicable.
Exhibit 23 Consent of experts and counsel, not applicable.
Exhibit 24 Power of attorney, not applicable.
Exhibit 27 Financial Data Schedule.
Exhibit 99 Additional exhibits, not applicable.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
CHOCK FULL O' NUTS CORPORATION
(Registrant)
October 8, 1997 /s/ Howard M. Leitner
Howard M. Leitner, Vice President,
Chief Financial and Accounting Officer
and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
October 8, 1997 /s/ Norman E. Alexander October 8, 1997 /s/ Mark A. Alexander
Norman E. Alexander Mark A. Alexander
Chairman of the Board Director
October 8, 1997 /s/ Stuart Z. Krinsly October 8, 1997 /s/ Martin J. Cullen
Stuart Z. Krinsly Martin J. Cullen
Director Vice President
and Director
October 8, 1997 /s/ Howard M. Leitner October 8, 1997 /s/ Marvin I. Haas
Howard M. Leitner Marvin I. Haas
Vice President and President and
Chief Financial Officer Chief Executive
and Director Officer
and Director
October 8, 1997 /s/ R. Scott Schafler October 8, 1997 /s/ Henry Salzhauer
R. Scott Schafler Henry Salzhauer
Director Director
October 8, 1997 /s/ Jerry Columbus October 8, 1997
Jerry Columbus David S. Weil
Director Director
ANNUAL REPORT ON FORM 10-K
ITEM 8, ITEM 14(a)(1) AND (2), (c) and (d)
LIST OF FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
CERTAIN EXHIBITS
YEAR ENDED JULY 31, 1997
CHOCK FULL O' NUTS CORPORATION
NEW YORK, NEW YORK
FORM 10-K--ITEM 14(a)(1) and (2)
CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES
LIST OF FINANCIAL STATEMENTS AND SCHEDULES
The following consolidated financial statements of the Registrant and its
subsidiaries are included in Item 8:
Page
Report of Independent Auditors...................................... 15
Consolidated Balance Sheets--July 31, 1997 and 1996................. 16 and 17
Consolidated Statements of Operations--Years Ended
July 31, 1997, 1996 and 1995...................................... 18
Consolidated Statements of Cash Flows--
Years Ended July 31, 1997, 1996 and 1995.......................... 19 and 20
Consolidated Statements of Stockholders' Equity--
Years Ended July 31, 1997, 1996 and 1995.......................... 21 and 22
Notes to Consolidated Financial Statements.......................... 23 to 31
The following consolidated financial statement schedule of the registrant and
its subsidiaries is included in Item 14(d):
Page
Schedule II -- Valuation and Qualifying Accounts.................... 37
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable and therefore have been omitted.
Ernst & Young LLP
Report of Independent Auditors
The Board of Directors and Stockholders
Chock Full o'Nuts Corporation
New York, New York
We have audited the accompanying consolidated balance sheets of Chock Full
o'Nuts Corporation and subsidiaries as of July 31, 1997 and 1996, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended July 31, 1997. Our
audits also included the financial statement schedule listed in the index at
Item 14(a). These financial statements and schedule are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and signifi-
cant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Chock Full o'Nuts Corporation and subsidiaries at July 31, 1997 and 1996,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended July 31, 1997 in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
ERNST & YOUNG LLP
New York, New York
September 30, 1997
CONSOLIDATED BALANCE SHEETS
CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES
July 31, 1997 and 1996
ASSETS 1997 1996
CURRENT ASSETS:
Cash and cash equivalents $ 4,585,633 $16,293,783
Receivables, principally trade, less
allowances for doubtful accounts and
discounts of $1,422,000 and $1,133,000--
Notes 2 and 9(b) 37,554,412 30,989,008
Inventories--Notes 1 and 2 82,951,688 59,637,802
Prepaid expenses and other -- Note 3 2,457,221 3,667,875
TOTAL CURRENT ASSETS 127,548,954 110,588,468
PROPERTY, PLANT AND EQUIPMENT, at cost-
Note 2:
Land 3,114,889 3,114,889
Buildings and improvements 14,805,429 14,675,708
Leaseholds and leasehold improvements 2,526,691 1,825,464
Machinery and equipment 78,162,457 74,067,267
98,609,466 93,683,328
Less allowances for depreciation and
amortization 49,933,489 45,172,084
48,675,977 48,511,244
REAL ESTATE HELD FOR DEVELOPMENT OR SALE
at cost -- Note 2 7,635,427 7,691,267
OTHER ASSETS AND DEFERRED CHARGES, net--
Note 9 (c) 23,799,057 26,976,132
EXCESS OF COST OVER NET ASSETS
ACQUIRED, net 9,670,551 5,668,008
$217,329,966 $199,435,119
See notes to consolidated financial statements
CONSOLIDATED BALANCE SHEETS - Continued
CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES
July 31, 1997 and 1996
1997 1996
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 13,590,697 $ 10,469,300
Accrued expenses 12,148,313 11,346,483
Income taxes--Note 3 1,957,788 1,719,575
Current installments of long-term debt --
Note 2 766,000
TOTAL CURRENT LIABILITIES 28,462,798 23,535,358
LONG-TERM DEBT, Excluding Current Installments--
Note 2 106,065,753 105,235,468
OTHER NON-CURRENT LIABILITIES 3,265,078 1,586,231
DEFERRED INCOME TAXES -- Note 3 7,655,000 5,591,000
STOCKHOLDERS' EQUITY--Notes 2 and 6:
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 25,349,146 17,434,755
79,508,921 71,594,530
Deduct:
Cost of 475,522 shares in treasury (6,573,719) (6,573,719)
Deferred compensation under stock
bonus plan and employees' stock
ownership plan (1,053,865) (1,533,749)
TOTAL STOCKHOLDERS' EQUITY 71,881,337 63,487,062
LEASES--Note 5
$217,329,966 $199,435,119
See notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF OPERATIONS
CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES
Years ended July 31, 1997, 1996 and 1995
1997 1996 1995
Revenues:
Net sales $364,203,601 $321,134,537 $326,140,872
Rentals from real estate 2,091,307 2,156,070 2,061,015
366,294,908 323,290,607 328,201,887
Costs and expenses:
Cost of sales 257,078,504 229,477,193 230,962,257
Selling, general and
administrative expenses 86,018,181 77,223,407 77,396,552
Expenses of real estate 1,951,137 1,484,681 1,571,090
345,047,822 308,185,281 309,929,899
OPERATING PROFIT 21,247,086 15,105,326 18,271,988
Interest and dividend income 1,061,160 865,145 903,887
Interest expense (8,599,963) (8,783,798) (9,191,495)
Other(deductions)/income --
Notes 9 (d) and (e) (1,495,891) 520,692 763,597
INCOME BEFORE INCOME TAXES 12,212,392 7,707,365 10,747,977
Income taxes--Note 3:
Current:
Federal 1,885,000 1,905,000 3,276,000
State and local 753,000 488,000 161,000
Deferred 1,660,000 683,000 573,000
4,298,000 3,076,000 4,010,000
INCOME FROM CONTINUING OPERATIONS 7,914,392 4,631,365 6,737,977
Discontinued operations -- Note 4:
(Loss) from operations, net of
income tax credits of $1,073,000
and $1,009,000 (1,757,044) (1,874,689)
(Loss) on disposition, net of
deferred income tax credit of
$2,590,000 (4,410,000)
(6,167,044) (1,874,689)
NET INCOME/(LOSS) $ 7,914,392 $(1,535,679) $4,863,288
Income/(loss)per share--Note 1:
Primary:
Continuing operations $ .74 $ .43 $.63
Discontinued operations (.57) (.18)
Net income/(loss) $ .74 $ (.14) $.45
Fully diluted:
Continuing operations $ .55 $ .40 $.51
Discontinued operations (.27) (.09)
Net income $ .55 $.13 $.42
See notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF CASH FLOWS
CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES
Years Ended July 31, 1997, 1996 and 1995
1997 1996 1995
Operating Activities - Continuing
Operations:
Income from continuing operations
before income taxes $12,212,392 $ 7,707,365 $10,747,977
Adjustments to reconcile pretax income
from continuing operations to net cash
provided by continuing operations:
Depreciation and amortization of property,
plant and equipment 7,386,215 6,380,262 5,799,063
Amortization of deferred compensation and
deferred charges 4,437,262 4,561,305 4,606,372
Other, net (312,060) (1,000,099) (330,359)
Changes in operating assets and
liabilities:
(Increase)/decrease in receivables (4,889,186) 6,818,278 (6,076,849)
(Increase)/decrease in inventories (21,960,180) 913,733 (15,008,487)
Decrease/(increase) in prepaid
expenses 1,600,484 (281,086) (1,511,194)
Increase/(decrease) in accounts
payable, accrued expenses and
income taxes 1,259,724 (5,098,044) (801,909)
Net cash (used in)/provided by
operating activities - continuing
operations (265,349) 20,001,714 (2,575,386)
Operating Activities - Discontinued
Operations:
Discontinued operations exclusive of
income taxes (9,830,044) (2,883,689)
Adjustments to reconcile pretax loss
from discontinued operations to
net cash used in discontinued
operations
Provision for close down and write-off
of equipment 7,000,000
Depreciation and amortization 431,623 247,841
Other (192,929) (146,047)
Net cash (used in) discontinued
operations (2,591,350) (2,781,895)
Income taxes - current (2,638,000) (1,320,000) (2,428,000)
NET CASH (USED IN)/PROVIDED BY
OPERATING ACTIVITIES (2,903,349) 16,090,364 (7,785,281)
Investing Activities - Continuing Operations:
Purchases of marketable securities (34,026)(152,018,726) (11,473,787)
Proceeds from sale and collection of
principal of marketable securities 79,993 158,863,555 31,086,939
Purchases of property, plant and
equipment (6,123,523) (7,411,199) (6,547,330)
Acquisition of business (5,872,858)
Proceeds from/(advances to) co-packer 1,549,328 (3,132,245)
Proceeds from sale of property,
plant and equipment 4,078,764
Other (13,147)
Net Cash (used in)/provided by
investing activities - continuing
operations (10,401,086) (3,711,762) 17,144,586
Net cash (used in)investing activities -
discontinued operations -
purchases of property and
equipment (2,608,543) (2,457,240)
NET CASH (USED IN)/PROVIDED BY
INVESTING ACTIVITIES (10,401,086) (6,320,305) 14,687,346
Financing activities - Continuing
Operations:
Loan to employees' stock ownership
plan (500,000) (500,000)
Net proceeds from (payments of)long-term
debt 1,596,285 (1,333,428) (3,856,369)
NET CASH PROVIDED BY/(USED IN)
FINANCING ACTIVITIES 1,596,285 (1,833,428) (4,356,369)
(DECREASE)/INCREASE IN CASH AND CASH
EQUIVALENTS - CONTINUING OPERATIONS (11,708,150) 7,936,631 2,545,696
Cash and cash equivalents at
beginning of year - continuing
operations 16,293,783 8,357,152 5,811,456
CASH AND CASH EQUIVALENTS AT END
OF YEAR-CONTINUING OPERATIONS $4,585,633 $16,293,783 $8,357,152
Supplemental Information
Cash paid during the year: 1997 1996 1995
Interest $8,143,201 $8,259,325 $8,532,841
Income taxes 2,168,425 848,539 1,080,706
See notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES
Years Ended July 31, 1997, 1996 and 1995
Common Stock
Issued In Treasury
Shares Amount Shares Amount
In Thousands
Balance at July 31, 1994 10,898 $2,724 476 $6,574
Net Income
3% stock dividend 313 79
Conversion of debentures
Deferred compensation under stock
bonus plan and employees' stock
ownership plan:
Amortization
Loan to employees' stock ownership
plan
Decrease in unfunded pension losses
Balance at July 31, 1995 11,211 2,803 476 6,574
Net(loss)
Deferred compensation under stock
bonus plan and employees' stock
ownership plan:
Amortization
Loan to employees' stock
ownership plan
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 July 31, 1997 11,211 $2,803 476 $6,574
See notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - Continued
CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES
Years Ended July 31, 1997, 1996, and 1995
Deferred
Compensation
Under Stock
Bonus Plan
and Employees' Unfunded Additional
Stock Ownership Pension Paid-In Retained
Plan Losses Capital Earnings
In Thousands
Balance at July 31, 1994 $1,664 $1,766 $49,323 $16,218
Net income 4,863
3% stock dividend 2,032 (2,111)
Conversion of debentures 2
Deferred compensation under stock
bonus plan and employees' stock
ownership plan:
Amortization (544)
Loan to employees' stock
ownershipn plan 500
Decrease in unfunded pension losses (1,766)
Balance at July 31, 1995 1,620 - 51,357 18,970
Net (loss) (1,535)
Deferred compensation under stock
bonus plan and employees' stock
ownership plan:
Amortization (586)
Loan to employees' stock
ownership plan 500
Balance at July 31, 1996 1,534 - 51,357 17,435
Net income 7,914
Deferred compensation under stock
bonus plan and employees' stock
ownership plan:
Amortization (480)
Balance at July 31, 1997 $1,054 - $51,357 $25,349
See notes to consolidated financial statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES
July 31, 1997, 1996 and 1995
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
Fiscal year: The Company's year ends on the last Friday in July. Fiscal
years are designated as ending July 31 for convenience of reference.
Principles of Consolidation: The consolidated financial statements include
the accounts of the Company and its subsidiaries. Significant intercompany
accounts and transactions have been eliminated in consolidation.
Use of Estimates: The preparation of the financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Receivables - Concentration of Credit Risk: The Company's primary business
is the roasting, packing and marketing of a broad range of regular and
decaffeinated, ground roast, instant and specialty coffees for the
Foodservice and Retail Grocery Industries. These products are sold
regionally throughout the United States and Canada. The Company performs
periodic credit evaluations of its customers' financial condition and
generally does not require collateral. Credit losses relating to customers
have consistently been within Management's expectations.
Cash Equivalents: The Company considers all highly liquid investments with
a maturity of three months or less when purchased to be cash equivalents.
Inventories: Inventories are stated at the lower of cost (first-in, first-out)
or market and consist of:
July 31, 1997 1996
Finished goods $41,747,129 $35,715,505
Raw materials 36,412,728 18,931,470
Supplies 4,791,831 4,990,827
$82,951,688 $59,637,802
Property, Plant and Equipment: Depreciation and amortization of property,
plant and equipment are computed by the straight-line method for financial
reporting purposes and by accelerated methods for income tax purposes.
Long-Lived Assets: In accordance with Financial Accounting Standards Board
("FASB") Statement No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of", the Company records impairment
losses on long-lived assets used in operations,including intangible assets,
when events and circumstances indicate that the assets might be impaired and
the undiscounted cash flows estimated to be generated by those assets are
less than the carrying amounts of those assets.
Pre-opening Costs: Quikava pre-opening costs are charged to operations as
incurred.
Excess of Cost over Net Assets Acquired: The Company evaluates goodwill
impairment at the end of each quarter based on recoverability measured by
undiscounted estimated operating profits (i.e., pretax earnings before
interest expense and goodwill amortization). Under this approach, the carrying
value would be reduced to estimated realizable value if it is probable that
Management's best estimate of future operating profits during the goodwill
amortization period will be less than the carrying amount of the related
goodwill. Excess of cost over net assets acquired is being amortized on a
straight-line basis over periods of 40 and 15 years. Accumulated amortization
amounted to $2,010,000 and $1,755,000 at July 31, 1997 and 1996, respectively.
Other Intangibles: Other intangibles consist principally of trademarks,
covenants not to compete and customer lists. Such items are being amortized
on a straight-line basis over periods of 40, 5 and 7.5 years, respectively.
See Note 9 (c). The Company evaluates any impairment of these assets on a
basis similar to goodwill.
Advertising Expenses: The cost of advertising is expensed as incurred. The
Company incurred $4,253,000, $3,130,000 and $4,615,000 in advertising costs
during 1997, 1996 and 1995, respectively.
Stock Based Compensation: In October 1995, the FASB issued Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation, which provides an alternative to APB Opinion No. 25, Accounting
for Stock Issued to Employees, in accounting for stock-based compensation
issued to employees. The Statement allows for a fair value based method of
accounting for employee stock options and similar equity instruments. The
Company has determined it will continue to report stock-based compensation
for all options that are issued under APB Opinion No. 25.
Per Share Data: Primary per share data is based on the following weighted
average number of common shares outstanding during each year retroactively
adjusted for stock dividends:10,736,000 in 1997, 1996 and 1995. Fully diluted
per share data, assuming conversion of debentures, is based on 22,557,000
common shares outstanding for the years ended July 31, 1997, 1996 and 1995.
In February of 1997, the FASB issued Statement No. 128, "Earnings Per Share",
which is required to be adopted on December 31, 1997. At that time, the
Company will be required to change the method currently used to compute
earnings per share and to restate all prior periods. The Company believes
adoption of Statement No. 128 will not have a material impact on earnings per
share information currently presented.
NOTE 2--LONG TERM DEBT
Long-term debt consists of the following:
July 31
1997 1996
7% Convertible senior subordinated
debentures due 2012 $ 51,693,000 $ 51,693,000
8% Convertible subordinated debentures
due 2006 43,266,000 43,266,000
Revolving credit and term loan 11,872,753 10,276,468
106,831,753 105,235,468
Less current installments 766,000
$106,065,753 $105,235,468
The 7% and 8% debentures require annual sinking fund payments of $3,000,000
and $3,750,000, respectively, which after giving effect to previous
conversions and redemptions, commence April 1, 2000 and September 15, 1998,
respectively, and provide for balloon payments of $18,000,000 and $12,500,000
on April 1, 2012 and September 15, 2006, respectively. The debentures are
convertible at the option of the debenture holders into shares of the
Company's common stock at a price of $8.23 per share and $7.81 per share,
respectively (subject to adjustment). As of July 31, 1997, approximately
11,821,000 common shares are reserved for issuance upon conversion of
debentures.
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, 1997 may not exceed $40,000,000
and after such date may not exceed $20,000,000. Interest (8.5% at July 31,
1997) on all such loans is equal to the 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 July 31, 1997) 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.
As of July 31, 1997, long-term debt matures as follows: $766,000 (year ending
July 31, 1998), $3,750,000 (year ending July 31, 1999), $16,315,753 (year
ending July 31, 2000),$6,750,000 (years ending July 31, 2001 and 2002) and
$72,500,000 thereafter.
The Company believes that the fair value of its 7% and 8% convertible
subordinated debentures approximates $51,176,000 and $44,780,000, respectively,
as indicated by the public trading prices of such debt.
NOTE 3--INCOME TAXES
The provision for income taxes for continuing operations differs from the
expected Federal income tax for the reasons shown in the following table:
1997 1996 1995
Federal income tax provision
expected at the statutory rate $4,152,213 $2,620,504 $ 3,761,792
Effect on Federal income tax of:
State and local income taxes,
net of Federal income tax
benefit 496,980 322,080 106,260
Amortization of excess of cost
over net assets acquired 68,000 68,000 68,000
Other 347,807 65,416 73,948
Realization of prior year capital
loss not previously recorded (767,000)
$4,298,000 $3,076,000 $4,010,000
Deferred tax liabilities and assets are comprised of the following at July 31,
1997 1996
Net deferred non-current tax liabilities:
Net difference between tax and book basis
of property, plant and equipment $7,755,000 $5,897,000
Prepaid pension expense 779,000 431,000
Compensation under stock bonus plan and
employees' stock ownership plan (178,000) (273,000)
Other (701,000) (464,000)
$7,655,000 $5,591,000
Net deferred current tax assets:
Net difference between tax and book
basis of inventory $356,000 $344,000
Allowance for doubtful accounts and discounts 463,000 419,000
Accrued expenses - close-down 169,000 650,000
Accrued cash bonus 208,000
Payment of underfunded pension plan (525,000)
Other 72,000 45,000
$1,268,000 $ 933,000
NOTE 4--DISCONTINUED OPERATIONS
In October 1996, the Company's Board of Directors adopted a plan to discontinue
operations of the Chock Cafes. Accordingly, the operating results of the Chock
Cafe operations,including provisions for estimated lease termination costs,
employee benefits and losses during the phase-out period of approximately
$1,800,000 and a write-off of leasehold improvements and equipment and deferred
charges of approximately $5,200,000 have been segregated from continuing
operations and reported as a separate line item on the statement of operations.
During the year end July 31, 1997, approximately $1,250,000 was changed against
the previously established reserves.
Operating results (exclusive of any corporate charges or interest expense and
the aforementioned provisions)from discontinued operations are as follows:
1996 1995
Net Sales $3,783,397 $2,236,855
Costs and expenses
Costs of sales 5,903,142 4,184,197
Selling, general and
administrative expenses 710,299 705,197
6,613,441 4,889,394
Operating (loss) (2,830,044) (2,652,539)
Other deductions (231,150)
(Loss) before income taxes (2,830,044) (2,883,689)
Income tax credits (1,073,000) (1,009,000)
(Loss) from operations $(1,757,044) $(1,874,689)
NOTE 5 -- LEASES
The Company and subsidiaries lease manufacturing plants, warehouses, office
space and Quikava locations and related premises. Leases which provide for
payment of property taxes, utilities and certain other expenses, expire on
various dates through 2009 and contain renewal options. As of July 31, 1997,
the Company's obligation for future minimum rental payments, assuming the
exercise of renewal options, aggregated $12,440,000. Payments required in the
following five fiscal years amount to $4,024,000 (1998), $3,249,000 (1999),
$2,523,000 (2000),$1,476,000(2001) and $760,000 (2002). Rental expense charged
to continuing operations under operating leases for the years ended July 31,
1997, 1996 and 1995 was $4,751,000, $4,150,000 and $4,893,000, respectively.
As of July 31, 1997, future minimum rental payments due from tenants under
sub-leases of retail facilities and related premises aggregated $12,922,000.
Amounts receivable in the following five fiscal years amount to $2,087,000
(1998), $1,809,000 (1999), $1,508,000 (2000), $1,244,000 (2001) and $926,000
(2002).
NOTE 6--STOCKHOLDERS' EQUITY
A non-contributory employee stock ownership plan ("ESOP") has been established
to acquire shares of the Company's common stock for the benefit of all eligible
employees. The Company has made loans to the ESOP to be repaid in equal annual
installments over 8 years with interest primarily at 9% and 10%. Deferred
compensation equal to the loans has been recorded as a reduction of stock
holders' equity representing the Company's prepayment of future compensation
expense. As the Company makes annual contributions to the ESOP, these
contributions will be used to repay the loans to the Company, together with
accrued interest. As the loans are repaid, common stock is allocated to ESOP
participants and deferred compensation is reduced by the amount of the
principal payment on the loans.
The Company has a Warrant Dividend Plan which provides for distribution to
shareholders of a right to purchase one share of the Company's common stock
currently for $24.13 (subject to anti-dilution adjustments) as a dividend on
each of the Company's outstanding common shares. These rights are not currently
exercisable and will only become exercisable upon the happening of certain
events. Under certain circumstances, the rights entitle the holders to receive,
upon payment of the then current exercise price of the right, that number of
shares of Company common stock having a market value of two times the then
current exercise price of the right. The rights will expire on December 30,
1997 and are redeemable at $.05 per right at any time prior to the occurrence
of certain events.
The Company's incentive compensation plan provides, among other things, for
incentive or non-qualified stock options, stock appreciation rights, perfor-
mance units, restricted stock and incentive bonus awards. During the years
ended July 31, 1996 and 1995, respectively, non-qualified stock options
for the purchase of 16,000 and 250,000 shares, at prices of $5.25
and $5.75 per share, were granted to key executives under the plan.
During each of the years ended July 31, 1997 and 1995
options to purchase 8,500 shares were forefeited. At July 31, 1997,
there were outstanding options for 358,000 shares. The 1995 options were
granted to the Chief Executive Officer. Options granted are exercisable at
the fair market value at date of grant and, subject to termination of
employment, expire ten years from the date of grant, are non-transferable other
than on death, and are exercisable in three equal annual installments
commencing three years from date of grant.
Had compensation cost for the Company's stock option plan been determined
based on the fair market value at the grant for awards in 1996 consistent
with the provisions of SFAS 123, the Company's net income would have
been reduced by approximately $1,000 in 1997 and net loss would have been
increased by approximately $2,000 in 1996 with no affect on per share amounts.
These pro forma amounts may not be representative of future disclosures since
the estimated fair value of stock options is amortized to expense over the
vesting period, and additional options may be granted in future years. The
fair value for the options awarded was estimated at the date of grant using
the Black-Scholes model with the following assumptions: expected divided yield
- - 0, expected stock price volatility - 22%,risk-free interest rate: 1996 -
5.34% and expected life of options - 4 years.
Under the incentive compensation plan, as of July 31, 1997, 31,000 common
shares are outstanding which were issued to key executives in 1987 and 1988.
These shares are subject to restricted stock agreements which provide that
the shares will vest ratably over periods through 2001. Such shares are
subject, upon the occurrence of certain events, to either forfeiture or
accelerated vesting. The fair value of the shares on the dates of issuance is
being charged to operations as compensation during the period the restrictions
remain in effect. At July 31, 1997, 121,000 shares were available under the
plan.
NOTE 7--PENSION PLANS
The Company has non-contributory defined benefit pension plans covering all
employees who have completed six months of service, have attained age twenty
and one-half and are not covered by union-sponsored plans. The benefits are
based on years of service and the employee's compensation during the last 60
months of employment. The pension plans are funded to accumulate sufficient
assets to provide for accrued benefits. In addition, contributions are made
to multi-employer plans which provide defined benefits to union employees.
A summary of the components of net periodic pension cost for the defined
benefit plans for the three years ended July 31, 1997 and total contributions
charged to pension expense for the union-sponsored plans follows (in
thousands):
1997 1996 1995
Service cost-benefits earned
during the year $1,681 $1,729 $1,813
Interest cost on projected benefit
obligation 2,246 1,985 1,961
Actual return on plan assets (2,021) (1,866) (1,723)
Net amortization and deferral 211 144 253
NET PENSION COST OF DEFINED BENEFIT
PLANS 2,117 1,992 2,304
UNION-SPONSORED PLANS 335 319 287
TOTAL PENSION EXPENSE $2,452 $2,311 $2,591
The following table sets forth the funded status and amounts recognized in the
consolidated balance sheet at July 31, for the defined benefit pension plans
(in thousands):
1997 1996
Plans Whose Plan Whose Plan Whose
Assets Exceed Assets Exceed Accumulated
Accumlated Accumulated Benefits
Benefits Benefits Exceed Assets
Actuarial present value of
benefit obligations:
Vested benefit obligation $ (27,641) $ (22,241) $(2,160)
Accumulated benefit
obligation $ (27,967) $ (22,993) $(2,163)
Projected benefit
obligation $ (31,141) $ (25,520) $(2,163)
Plan assets, consisting
primarily of U.S.
treasury notes, other
U.S. agency issues,
guaranteed insurance
contracts and corporate
investments, at fair
value 27,404 23,010 1,864
Projected benefit obligation
(in excess of)plan assets (1,737) (2,510) (299)
Unrecognized prior service cost 280 223 114
Unrecognized net loss 5,586 5,338 392
Unrecognized net asset at
August 1, 1987; net of
amortization (484) (514) (57)
Net pension asset
recognized in the consolidated
balance sheet $3,645 $2,537 $150
The weighted-average discount rate and rate of increase in future compensation
levels used in determining the actuarial present value of the projected benefit
obligation were 8.0% and 4% and 8.3% and 4%, respectively, at July 31, 1997 and
1996. The expected long-term rate of return on plan assets was 8.0% in
1997, 1996 and 1995, respectively.
NOTE 8--QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of the unaudited quarterly results of continuing
operations for the years ended July 31, 1997 and 1996:
Fiscal 1997
Three Months Ended
October 31 January 31 April 30 July 31
(Thousands of Dollars Except Per Share Data)
Net sales $82,577 $84,242 $95,306 $102,079
Gross profit $23,421 $25,787 $29,110 $ 28,807
Income from
continuing operations $ 1,451 $ 1,748 $ 2,236 $ 2,479(1)
Per share:
Primary $ .14 $ .16 $ .21 $ .23(1)
Fully diluted $ .11 $ .13 $ .15 $ .16
Fiscal 1996
Three Months Ended
October 31 January 31 April 30 July 31
(Thousands of Dollars Except Per Share Data)
Net sales $77,373 $82,243 $85,617 $75,902
Gross profit $21,588 $22,977 $25,058 $22,034
Income from
continuing operations $ 1,354 $ 1,389 $ 1,460 $ 428
Per share:
Primary $ .13 $ .13 $ .14 $ .04
Fully diluted $ .11 $ .12 $ .10 $ .04
(1) Includes write-off of $1,500,000 relating to litigation, $.09 per share and
$767,000 income tax credit relating to realization of prior year capital
loss not previously recorded , $.07 per share (see Notes 9(a) and 3).
NOTE 9--OTHER ITEMS
a. On January 17,1997, the Company acquired substantially all of the assets
and assumed substantially all of the liabilities of Ireland Coffee & Tea
Company, a leading roaster and distributor of coffees to hotels, restaur-
ants and institutions on the East Coast for approximately $8,000,000 which
includes $1,500,000 for contingent payments. The acquisition is being
accounted for as purchase. The excess of cost over net assets acquired
(approximately $4,100,000) is being amortized over a period of 40 years
using the straight-line method. The pro forma effects on the Company's
operations as if this business had been acquired on August 1, 1995 are
not material.
b. Receivables other than trade at July 31, 1997 and 1996 amount to $576,000
and $2,418,000, respectively. See Note 9(d).
c. Other assets and deferred charges consist of (in thousands):
July 31, 1997 1996
Deferred financing costs (1) $2,460 $2,896
Non-compete agreements, net 1,424 2,766
Trademarks, net 5,207 4,542
Customer lists, net 3,512 4,666
Due from co-packer 1,711 3,375
Prepaid pension expense 3,705 2,924
Other 5,780 5,807
$23,799 $26,976
(1) Being amortized over the terms of the related indebtedness (see Note 2).
d. In connection with closing a business and termination of a pension plan the
Company paid a liability for an underfunded pension plan of approximately
$1,500,000 and recorded a similar amount receivable at July 31, 1994 from the
previous owner of such business pursuant to certain provisions of the
acquisition agreement. The previous owner of the business is contesting the
liability to the Company and the Company has commenced litigation seeking
collection of such amount. On August 8, 1997 the United States District Court
Southern District of New York granted the previous owner's motion for summary
judgment. The Company has appealed the decision to the Second Circuit.
However, due to the uncertainty surrounding the outcome of such appeal and in
light of the aforementioned decision, the Company has written-off the
$1,500,000 due from theprevious owner. Such amount is included in other
deductions in fiscal 1997.
e. In fiscal 1996, other income includes $460,000 from the sale of real
estate. In fiscal 1995, other income includes $589,000 from the sale of a
former manufacturing plant.
NOTE 10 -- INDUSTRY SEGMENT INFORMATION
The Company's financial information by industry segment for 1997, 1996 and 1995
may be found immediately after "Managements Discussion and Analysis of
Financial Condition and Results of Operations" and is incorporated herein by
reference.
SELECTED FINANCIAL DATA
CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES
YEAR ENDED JULY 31
1997 1996 1995 1994 1993
(Dollar Amounts in Thousands, Except Per Share Amounts)
Net sales $364,204 $321,135 $326,141 $263,511 $251,641
Income from
continuing operations 7,914 4,631 6,738 8,243 1,062
Working capital 99,086 87,053 89,612 81,590 72,022
Working capital ratio 4.5 to 1 4.7 to 1 4.3 to 1 3.6 to 1 3.8 to 1
Total assets 217,330 199,435 207,005 208,807 195,304
Long-term debt 106,066 105,235 106,569 110,427 108,092
Stockholders' equity 71,881 63,487 64,937 58,262 52,985
Per common share (1):
Income from
continuing operations .74 .43 .63 .76 .10
Stock dividends declared 3% 3% 3%
Stockholders' equity 6.70 5.91 6.05 5.43 4.84
(1) Per share data has been retroactively adjusted for a 3% stock dividend in
July 1995, 1994 and 1993.
FORWARD-LOOKING STATEMENTS
Certain statements under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and elsewhere in this Form 10-K
and in the letter of the President and Chief Executive Officer and Chairman of
the Board and elsewhere in the Company's Annual Report to Shareholders,
constitute "forward looking statements" within the meaning of the Reform Act.
Such forward looking statements involve known and unknown 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; the availability of green coffee;
green coffee prices; 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 judgement 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.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES
RESULTS OF OPERATIONS
The discussion and analysis that follows relates solely to continuing
operations of the Company.
In January 1997, the Company acquired substantially all of the assets and
assumed substantially all of the liabilities of Ireland Coffee and Tea Company
("Ireland"). The business of Ireland consists of roasting and distributing
coffees to hotels, restaurants and institutions on the East Coast.
Net sales from beverage products increased $41,254,000 or 13% for the year
ended July 31, 1997, compared to the prior year. The increase was primarily
due to a 15% increase in coffee pounds sold. Operating profits from beverage
products were $23,498,000, an increase of 41% for the year ended July 31,
1997 compared to the prior year. The increase resulted primarily from
increased gross margins and the operations of Ireland from date of acquisition,
partially offset by increased selling, general and administrative expenses.
Increased gross margins were primarily due to increased coffee pounds sold and
a decrease in the average cost of green coffee. During the year ended July 31,
1997 prices for green coffee ranged from a high of $3.15 to a low of $1.03
per pound. Selling, general and administrative expenses increased primarily
due to increased advertising, brokerage and data processing costs
and salaries. Certain of the Company's selling expenses vary with the number
of pounds sold, therefore selling expense has increased in 1997 compared to
1996.
Net sales of Quikava company operated shops increased to $3,737,000 for the
year ended July 31, 1997 from $1,922,000 in the prior year. Quikava's future
lies in its ability to franchise the concept, thereby generating royalty income
on franchise sales ($2,437,000 in 1997 versus $1,747,000 in 1996) plus initial
franchise fees to cover expenses for headquarters. Company operated shops have
opened in new markets to generate potential franchisee interest and gain
exposure to the concept. Operating losses increased to $1,998,000 for the year
ended July 31, 1997 compared to $1,649,000 in the prior year. The increase in
operating losses consists primarily of increased headquarters' expenses
(primarily payroll and related expenses for franchising infrastructure and
pre-opening costs) and increased shop level losses (primarily due to the number
of shops open less than 12 months), partially offset by increased royalty
income on increased franchisee sales. The first year shops opening in new
markets with lack of brand recognition resulted in slower sales growth and
greater shop level losses than established comparable shops.
Income from continuing operations was $7,914,000 or $.74 per share for the year
ended July 31, 1997, compared to $4,631,000 or $.43 per share for the prior
year. The difference was primarily due to increased operating profits from
beverage products and to a lesser extent increased interest income (resulting
from increased invested funds in the early part of fiscal 1997) and reduced
interest expense (resulting from lower amounts of debt outstanding), partially
offset by increased income taxes and increased operating losses from Quikava.
Increased income taxes are primarily attributable to increased income before
income taxes, partially offset by realization of prior year capital loss not
previously recorded. Net income for 1997 is the same as the results from
continuing operations. Net income for 1996 is net of a loss from discontinued
operations of $6,167,000 or $.57 per share (see Note 4 of Notes to Consoli-
dated Financial Statements).
Net sales from beverage products decreased $6,046,000 or 1.9% for the year
ended July 31, 1996, compared to the prior year. The decrease in net sales
was due to a decrease in the average selling price of coffee, partially offset
by a 16% increase in coffee pounds sold. Operating profits from beverage
products were $16,708,000, a decrease of 12% for the year ended July 31, 1996,
compared to $19,075,000 for the prior year. The decrease resulted primarily
from decreased gross margins. 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 inceased coffee pounds sold.
During the year ended July 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
administrative expenses were slightly lower than the prior year, with decreases
in advertising, coupon, payroll and payroll related expenses partially offset
by increased brokerage and delivery costs.
Net sales of Quikava increased to $1,922,000 for the year ended July 31, 1996
from $882,000 in the prior year. Operating losses increased to $1,649,000 for
the year ended July 31, 1996 compared to $870,000 in the prior year. The
increase in operating losses was substantially attributable to increased
headquarters' expense (primarily payroll and related expenses) and store level
losses (primarily attributable to first year stores), partially offset by
increased royalty income on increased franchisee sales ($1,747,000 in 1996
versus $1,232,000 in 1995).
Income from continuing operations was $4,631,000 or $.43 per share for the year
ended July 31, 1996, compared to $6,738,000 or $.63 per share for the prior
year. The difference was primarily due to decreased operating profits from
beverage products and increased operating losses from Quikava, partially offset
by decreased income taxes (primarily due to decreased income before income
taxes).
General inflation has been relatively low for the last several years; however,
green coffee prices have changed significantly during fiscal 1997, 1996 and
1995. While the Company manages its inventory to have rapid turnover, the
changes in green coffee prices have required the Company to carry higher
inventories (dollars) than it might otherwise have done in a more stable
green coffee market and impacted the Company's gross profit percentage.
LIQUIDITY AND CAPITAL RESOURCES
As of July 31, 1997, working capital was approximately $99,000,000 and the
ratio of current assets to current liabilities was 4.5 to 1.
As of July 31, 1997, the Company had unused borrowing capacity of
approximately $28 million under its credit facilities of $40 million with
Fleet Bank N.A. and The Chase Manhattan Bank (see Note 2 of Notes to Consoli-
dated Financial Statements).
The Company plans on expanding its Quikava franchised operations, which
are currently operating in 9 locations. The sales of Company operated and
franchised units are not material to the Company's consolidated sales.
Total Quikava store level operations are not currently profitable but are being
offset by franchise income and, in addition, Quikava headquarters' expenses of
approximately $1,400,000 on an annual basis are not being absorbed.
The Company believes that its cash flow from operations, its cash equivalents
and its revolving credit and term loan agreements with its
Banks provide sufficient liquidity to meet its working capital, expansion and
capital requirements.
GREEN COFFEE MARKET
Coffee is one of the leading commodities traded on futures exchanges.
Supplies fluctuate with the weather and prices have been volatile.
The supply and price is affected by multiple factors, such as weather,
politics and economics in the coffee producing countries, many of which are
lesser developed nations. While coffee trades primarily on the futures market,
coffee of the quality level sought by the Company can trade on a negotiated
basis at a substantial premium above commodity coffee pricing, depending upon
the supply and demand at the time of purchase.
The International Coffee Organization, through the imposition of export quotas
agreed upon by consumer and producer member nations, has in the past attempted
to maintain the commodity prices of green coffees. In July 1989 the refusal of
certain countries to participate in the quota system resulted in the
dissolution of the agreement and a drop in the prices of coffees. In August
1993, 21 coffee-producing countries formed a new cartel, the Association of
Coffee Producing Countries ("ACPC") and announced plans to cut the supply
of coffee by 20% beginning October 1, 1993 in an attempt to raise world coffee
prices. The effect of the ACPC on coffee prices is difficult to determine
in light of the dramatic price increases resulting from the 1994 frosts in
Brazil discussed below. Nonetheless, the ACPC met in November 1994 and
resolved to sustain green coffee bean prices. In Janaury 1996, the ACPC
agreed to extend its current limitations on the supply of green coffee upon
their expiration in June 1996 through the 1996/1997 green coffee year.
The Company is unable to predict whether the ACPC will be successful in
achieving its goals. Based on published statistics the supplies of green
coffees held by consumers (roasters and buyers) are currently, near
historically low levels.
Brazil, the world's largest coffee producer, experienced frosts in June
and July of 1994 which reportedly damaged approximately 40% of the green
coffee bean crop. The announcement of the Brazilian frost damage caused a
substantial increase in green coffee bean prices and other coffee-product
prices worldwide. The Company purchases a modest amount of its green coffee
beans from Brazil. In the third and fourth quarter of 1994 the
Company experienced a significant increase in the price of green coffee beans
which carried over into the first three quarters of 1995. The Company was not
able to immediately pass through to customers all of the price increases in the
third and fourth quarters of 1994 and the first quarter of 1995 following the
significant increase in green coffee bean prices that resulted from the
Brazilian frosts. Subsequent to such period through January 1997, the
Company's green coffee purchases and commitments returned to pricing levels
closer to those that existed prior to the June and July 1994 Brazilian frosts.
In February 1997, green coffee bean prices began to rise significantly reaching
a high of $3.18 per pound in May 1997. This bull market was somewhat unique
in that the fundamental cause was very tight stocks of arabica coffee in
consuming countries. Historically, bull markets have been the direct result of
weather developments in Brazil, specifically cold weather and drought that
damages the following crop. Subsequent to May 1997, the green coffee market
has been in the $1.60 to $2.10 range.
The Company is unable to predict weather events in particular countries that
may adversely affect coffee supplies and price. Except for late 1994 and early
1995, the Company generally has been able to pass green coffee price increases
through to its customers, thereby maintaining its gross margins. The
Company cannot predict whether it will be able to pass inventory price
increases through to its customers in full in the future.
A significant portion of the Company's green coffee supply is contracted for
future delivery, generally between three and twelve months forward (with
declining precentages of the supply being subject to future contracts in the
latter portions of each year), to ensure both an adequate supply and reduced
risk of short-term price fluctuations. Green coffee is a large market with
well-established brokers, importers and warehousemen though which the Company
manages its requirements. In addition to forward purchases, the Company keeps
physical inventory in each of its production facilities and third-party
warehouses representing anywhere from four to ten weeks of supply requirements.
All coffee purchase transactions are in U.S. dollars, the industry's standard
currency. The Company believes that it is not dependent upon any one
importer or broker for its supply of green coffee beans from any particular
country.
Retail Customers are very price-sensitive about the purchase of coffee in
supermakets. When retail prices increase dramatically, takeaway declines and
consumers switch to less expensive brands and high yield roasts. Likewise, Food
Service Customers in times of price increase tend to stretch the use of
inventory.
SEGMENT INFORMATION
CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES
Year Ended July 31
1997 1996 1995
(Amounts in Thousands)
Net sales - beverage products $360,467 $ 319,213 $325,259
Net sales - Quikava 3,737 1,922 882
$364,204 $ 321,135 $326,141
Rental revenues $ 2,091 $ 2,156 $ 2,061
Operating profit\(loss):
Beverage products $ 23,498 $ 16,708 $19,075
Quikava (1,998) (1,649) (870)
Real estate 140 671 490
Eliminations (393) (625) (423)
$ 21,247 $ 15,105 $18,272
Identifiable assets:
Beverage products $186,304 $152,168 $163,595
Quikava 4,835 4,720 1,971
Real estate 9,356 9,493 9,564
Corporate 16,835 33,054 31,875
$217,330 $199,435 $207,005
Depreciation and amortization:
Beverage products $ 6,843 $ 6,006 $ 5,515
Quikava 366 197 81
Corporate 177 177 203
$ 7,386 $ 6,380 $ 5,799
Capital expenditures:
Beverage products $ 5,154 $ 4,831 $ 6,224
Quikava 953 2,566 309
Corporate 17 14 14
$ 6,124 $ 7,411 $ 6,547
The beverage products segment is engaged in the (a) roasting, packing and
marketing of regular, instant, decaffeinated and specialty coffees and (b)
packing and marketing of regular and decaffeinated tea for sale to Retail,
Foodservice and Private Label customers. Additionally, other related food
products are marketed and sold to Foodservice customers. Quikava operations
feature a full assortment of specialty coffee beverages and a varitey of
freshly prepared foods and baked goods specifically suited for in-car
consumption. See Note 4 of Notes to Consolidated Financial Statements for
discontinued cafe operations. Operations of real estate represent rental
and other income principally from the Company's original restaurant facilities.
All of the Company's operations are located in the United States. Export sales
are not significant.
Identifiable assets under the caption "Corporate" include (1) cash and cash
equivalents, investments in marketable securities and short-term investments
of $3,781,000 (1997), $15,180,000 (1996) and $14,425,000 (1995) and (2) net
assets of discontinued operations of $895,000 (1997), $941,000 (1996) and
$3,814,000 (1995).
CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES
COMMON SHARE PRICES
The Company's Common Stock is traded on the New York Stock Exchange under the
symbol CHF. The Company has approximately 14,000 shareholders of record as of
October 8, 1997.
1997 1996
High Low High Low
1st Quarter 5 3/8 4 5/8 6 3/4 5 7/8
2nd Quarter 5 3/8 4 5/8 6 1/8 5 1/8
3rd Quarter 6 1/8 5 1/8 5 1/2 4 3/4
4th Quarter 7 7/16 5 5/8 5 1/4 4 5/8
Pursuant to certain provisions of a revolving credit and term loan agreement,
the Company may not declare or pay any dividend (except for stock dividends).
Item 14(d)
CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES
SCHEDULE II- VALUATION AND QUALIFYING ACCOUNTS
Column A Column B Column C Column D Column E
Additions
Balance at Charged to Balance
Beginning Costs and Deductions at End
Description of Period Expenses Other (1) of Period
Year ended July 31, 1997:
Allowance for doubtful
accounts and discounts $1,133,000 $2,440,846 $2,151,846 $1,422,000
Year ended July 31, 1996:
Allowance for doubtful
accounts and discounts $1,251,000 $2,315,902 $2,433,902 $1,133,000
Year ended July 31, 1995:
Allowance for doubtful
accounts and discounts $ 928,000 $2,597,705 $2,274,705 $1,251,000
(1) Discounts taken by customers and uncollectible accounts written-off,
net of recoveries.
EXHIBIT 11 - STATMENT RE: COMPUTATION OF PER SHARE EARNINGS
YEAR ENDED JULY 31,
1997 1996 1995
(AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE DATA)
PRIMARY
AVERAGE SHARES OUTSTANDING 10,736 10,736 10,736
INCOME FROM CONTINUING
OPERATIONS $7,914 $4,631 $6,738
NET INCOME/(LOSS) $7,914 $(1,536) $4,863
PER SHARE AMOUNTS:
INCOME FROM CONTINUING
OPERATIONS $.74 $.43 $.63
NET INCOME/(LOSS) $.74 $(.14) $.45
FULLY DILUTED
AVERAGE SHARES OUTSTANDING 10,736 10,736 10,736
ASSUMED CONVERSION OF
CONVERTIBLE DEBENTURES 11,821 11,821 11,821
TOTAL 22,557 22,557 22,557
INCOME FROM CONTINUING
OPERATIONS $7,914 $4,631 $6,738
ADD CONVERTIBLE DEBENTURES
INTEREST AND AMORTIZATION
OF DEFERRED CHARGES, NET
OF INCOME TAXES 4,392 4,386 4,670
TOTAL $12,306 $9,017 $11,408
NET INCOME/(LOSS) $7,914 $(1,536) $4,863
ADD CONVERTIBLE DEBENTURES
INTEREST AND AMORTIZATION
OF DEFERRED CHARGES, NET
OF INCOME TAXES 4,392 4,452 4,670
TOTAL $12,306 $2,916 $9,533
PER SHARE AMOUNTS:
INCOME FROM CONTINUING
OPERATIONS $.55 $.40 $.51
NET INCOME $.55 $.13 $.42
EXHIBIT 21 - SUBSIDIARIES OF THE REGISTRANT
As of October 13, 1997, the Company had directly and indirectly the following
active subsidiaries, all of which are included in the Company's consolidated
financial statements furnished herewith:
Subsidiaries of
Chock full o'Nuts Corporation
Chock Realty Corporation California 100%
Cain's Coffee Co. Delaware 100%
Cain's Holding Company Delaware 100%
Quikava, Inc. Massachusetts 100%
Exhibit 27 - FINANCIAL DATA SCHEDULE
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 $ 4,585,633
5-02 (2) Marketable securities -0-
5-02 (3)(a)(1) Notes and accounts receivable - trade 38,976,412
5-02 (4) Allowances for doubtful accounts 1,422,000
5-02 (6) Inventory 82,951,688
5-02 (9) Total current assets 127,728,954
5-02 (13) Property, plant and equipment 98,609,466
5-02 (14) Accumulated depreciation 49,933,489
5-02 (18) Total assets 217,509,966
5-02 (21) Total current liabilities 28,642,798
5-02 (22) Bonds, mortgages and similar debt 106,065,753
5-02 (28) Preferred stock - mandatory redemption -0-
5-02 (29) Preferred stock - no mandatory redemption -0-
5-02 (30) Common stock 2,802,767
5-02 (31) Other stockholders' equity 69,078,570
5-02 (32) Total liabilities and stockholders' equity 217,509,966
5-03 (b) 1 (a) Net sales of tangible products 364,203,601
5-03 (b) 1 Total revenues 366,294,908
5-03 (b) 2 (a) Cost of tangible goods sold 257,078,504
5-03 (b) 2 Total costs and expenses applicable to
sales and revenues 259,029,641
5-03 (b) 3 Other costs and expenses -0-
5-03 (b) 5 Provision for doubtful accounts and notes 2,440,846
5-03 (b) (8) Interest and amortization of debt 8,599,963
5-03 (b) (10) Income before taxes and other items 12,212,392
5-03 (b) (11) Income tax expense 4,298,000
5-03 (b) (14) Income/loss continuing operations 7,914,392
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 7,914,392
5-03 (b) (20) Earnings per share - primary .74
5-03 (b) (20) Earnings per share - fully diluted .55
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-END> JUL-31-1997
<CASH> 4585633
<SECURITIES> 0
<RECEIVABLES> 38976412
<ALLOWANCES> 1422000
<INVENTORY> 82951688
<CURRENT-ASSETS> 127728954
<PP&E> 98609466
<DEPRECIATION> 49933489
<TOTAL-ASSETS> 217509966
<CURRENT-LIABILITIES> 28642798
<BONDS> 106065753
0
0
<COMMON> 2802767
<OTHER-SE> 69078570
<TOTAL-LIABILITY-AND-EQUITY> 217509966
<SALES> 364203601
<TOTAL-REVENUES> 366294908
<CGS> 257078504
<TOTAL-COSTS> 259029641
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2440846
<INTEREST-EXPENSE> 8599963
<INCOME-PRETAX> 12212392
<INCOME-TAX> 4298000
<INCOME-CONTINUING> 7914392
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7914392
<EPS-PRIMARY> 0.74
<EPS-DILUTED> 0.55
</TABLE>
