SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended October 31, 1998 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 of Organization) Identification No.)
370 Lexington Avenue, New York, N.Y. 10017
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code (212) 532-0300
Indicate by check mark whether the registrant (1)
has filed all reports required to be filed by Section
13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter
period that the registrant was required to file such
reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
No. of Shares of Common Stock ($.25 par value) outstanding as of
December 11, 1998 - 10,830,922
CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES
INDEX
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Unaudited Condensed Consolidated Balance Sheets -
October 31, 1998 and July 31, 1998 1 & 2 of 14
Unaudited Condensed Consolidated Statements of Income-
Three Months Ended October 31, 1998 and 1997 3 of 14
Unaudited Condensed Consolidated Statements of Cash Flows -
Three Months Ended October 31, 1998 and 1997 4 of 14
Unaudited Condensed Consolidated Statement of Stockholders' Equity -
October 31, 1998 5 & 6 of 14
Notes to Unaudited Condensed Consolidated Financial
Statements - October 31, 1998 7 & 8 of 14
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9, 10, 11, and 12 of 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13 of 14
Item 5. Other Information 13 of 14
Item 6. Exhibits and Reports on Form 8-K 13 of 14
Signatures 14 of 14
PART I. FINANCIAL INFORMATION
CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
October 31, 1998 July 31, 1998
ASSETS
Current assets:
Cash and cash equivalents $16,226,023 $ 6,148,068
Receivables, principally
trade, less allowances
for doubtful accounts and
discounts of $1,222,000 40,051,911 40,559,581
and $1,329,000
Inventories 57,290,758 60,641,309
Prepaid expense and other 3,128,680 3,636,446
Total current assets 116,697,372 110,985,404
Property, plant and
equipment - at cost $106,900,854 $105,327,427
Less allowances for
depreciation and
amortization (57,910,550 48,990,304 (56,346,824) 49,025,603
Real estate held for
development or sale, at cost 2,161,383 2,175,344
Other assets and deferred
charges 22,769,752 23,223,366
Excess of cost over net
assets acquired 15,096,234 15,773,875
$205,715,045 $201,183,592
Note: The balance sheet at July 31, 1998 has beenderived from the audited
financial statements at that date.
See notes to unaudited condensed consolidated financial statements.
1 of 14
CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
October 31, July 31,
1998 1998
(Unaudited) (Note)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current installments of long-term debt $ 2,240,000
Accounts payable 13,587,007 $8,502,778
Accrued expenses 6,796,611 9,159,994
Income taxes 698,074 1,093,979
Total current liabilities 23,321,692 18,756,751
Long-term debt, excluding current installments 91,171,158 92,246,967
Other non-current liablities 3,046,919 3,854,833
Deferred income taxes 8,770,000 8,770,000
Stockholders' equity:
Common stock, par value $.25 per share;
Authorized 50,000,000 shares:
Issued 11,306,444 shares 2,826,611 2,826,611
Additional paid-in-capital 52,064,121 52,064,121
Retained earnings 32,617,070 30,848,452
Cost of 475,522 shares in treasury (6,573,719) (6,573,719)
Deferred compensation under stock bonus
plan and employees' stock ownership plan (1,528,807) (1,610,424)
Total stockholders' equity 79,405,276 77,555,041
$205,715,045 $201,183,592
Note: The balance sheet at July 31, 1998 has been derived from the audited
financial statements at that date.
See notes to unaudited condensed consolidated financial statements.
2 of 14
CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended October 31,
Revenues: 1998 1997
Net Sales $ 94,762,818 $108,275,295
Rentals from real estate 571,618 514,579
95,334,436 108,789,874
Cost and expenses:
Cost of sales 68,772,087 81,535,083
Selling, general and
administrative expenses 21,576,628 21,977,843
Expenses of real estate 404,153 393,552
90,752,868 103,906,478
Operating profit 4,581,568 4,883,396
Interest income 209,248 62,076
Interest expense (1,831,737) (2,189,594)
Other income /(deductions) - net 23,539 (33,987)
Income before income taxes 2,982,618 2,721,891
Income taxes 1,214,000 1,154,000
Net income $ 1,768,618 $1,567,891
Income per share:
Basic $.17 $.15
Diluted $.13 $.12
See notes to unaudited condensed consolidated financial statements.
3 of 14
CHOCK FULL O'NUTS CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended October 31,
1998 1997
Operating Activities:
Net income $ 1,768,618 $1,567,892
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization of
property, plant and equipment 1,563,726 1,668,360
Amortization of deferred
compensation and deferred charges 754,358 1,190,890
Other, net (580,326) (320,528)
Changes in operating assets and
liabilities:
Decrease/(increase) in accounts
receivable 614,843 (6,057,965)
Decrease in inventory 3,350,551 12,998,714
Decrease/(increase) in prepaid
expenses 491,698 (215,992)
Increase/(decrease)in accounts
payable, accrued expenses and
income taxes 2,324,941 (3,645,602)
NET CASH PROVIDED BY OPERATING
ACTIVITIES 10,288,409 7,185,769
Investing Activities:
Sales of marketable securities 16,068
Purchases of marketable securities (5,535)
Purchases of property, plant and
equipment (1,528,427) (1,231,039)
NET CASH (USED IN)
INVESTING ACTIVITIES (1,512,359) (1,236,574)
Financing Activities:
Proceeds from/(payments of) long-
term debt, net 1,164,191 (1,814,154)
Proceeds from/(advances to)
co-packer, net 137,714 (1,231,817)
Loan to employees' stock ownership
plan _________ (1,000,000)
NET CASH PROVIDED BY/(USED IN)
FINANCING ACTIVITIES 1,301,905 (4,045,971)
Increase in Cash and
Cash Equivalents 10,077,955 1,903,224
Cash and Cash Equivalents at
Beginning of Period 6,148,068 4,585,633
Cash and Cash Equivalents at End of
Period $16,226,023 $6,488,857
See notes to unaudited condensed financial statements.
4 of 14
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, 1998 11,306 $2,827 476 $6,574
Net Income
Deferred compensation under stock
bonus plan and employees' stock
ownership plan:
Amortization
Balance at October 31, 1998 11,306 $2,827 476 $6,574
See notes to unaudited condensed consolidated financial statements.
5 of 14
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, 1998 $1,610 $52,064 $30,848
Net income 1,769
Deferred compensation under stock
bonus plan and employees' stock
ownership plan:
Amortization 81
Balance at October 31, 1998 $1,529 $52,064 $32,617
See notes to unaudited condensed consolidated financial statements.
6 of 14
CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
October 31, 1998
(A) The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions
to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been
included. Operating results for the three months ended October 31, 1998
and 1997 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, 1998.
(B) Basic per share data is based on the weighted average number of common
shares outstanding of 10,495,000 and 10,395,000 for the three months
ended October 31, 1998 and 1997, respectively. Diluted per share data,
assuming conversion of debentures, is based on 21,545,000 and
22,230,000 shares outstanding for the three months ended October 31,
1998 and 1997, respectively. In addition, net income is increased due
to a reduction of interest and amortization charges, net of income
taxes, on the assumed conversion of debentures of $1,016,000 and
$1,057,000 for three months ended October 31, 1998 and 1997,
respectively.
(C) Inventories are stated at the lower of cost (first-in, first-out) or
market. The components of inventory consist of the following:
October 31, July 31,
1998 1998
Finished goods $37,040,246 $35,775,998
Raw materials 13,364,639 17,539,666
Supplies 6,885,873 7,325,645
$57,290,758 $60,641,309
(D) Under the Company's amended and restated revolving credit and term loan
agreements (collectively the "Loan Agreements") with Fleet Bank, N.A.
and The Chase Manhattan Bank (the "Banks"), the Company may, from time
to time, borrow funds from the Banks, provided that the total principal
amount of all such loans outstanding through November 30, 1999 may not
exceed $40,000,000 and after such date may not exceed $20,000,000.
Interest on all such loans is equal to the prime rate or at the
Company's option the London Interbank Offering Rate ("LIBOR") plus
1.25%, subject to adjustment based on the level of loans outstanding
(8% at prime and 7.13% at LIBOR, at Ocotber 31, 1998). 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 ($3,000,000 at October 31,
1998) are to be repaid in January 2003. Outstanding loans under the
revolving credit agreements are to be repaid in January 2003. 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.
7 of 14
(E) Prepaid expenses and other on the unaudited condensed consolidated
balance sheets includes deferred income taxes of $951,000.
(F) As of August 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income"
(SFAS 130). The adoption of this Statement had no impact on the
Company's net income or stockholders' equity. This pronouncement sets
forth requirements for disclosure of the Company's comprehensive income
and accumulated other comprehensive items. Comprehensive income is
defined as the change in equity during a period from transactions in
other events and circumstances unrelated to net income (e.g., foreign
currency translation gains and losses). For the three month periods
ended October 31, 1998 and 1997, other comprehensive income was not
material.
In June 1997, the FASB also issued SFAS No. 131, "Disclosures About
Segments of an Enterprise and Related Information," which is effective
for the Company's fiscal year ending July 31, 1999. The statement
changes the way public companies report information about segments of
their business in their annual financial statements and requires them
to report selected segment information in their quarterly reports.
However, information is not to be presented for interim financial
statements in the first year of implementation. Adoption of SFAS
No. 131 is not expected to have a material effect on the Company's
financial statement disclosures.
In June 1998, the FASB issued Statement No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which is effective for
the Company's fiscal year ending July 31, 2000. The Statement permits
early adoption as of the beginning of any fiscal quarter after its
issuance. The Company expects to adopt the new Statement effective
August 1, 1999. The Statement will require the Company to recognize
all derivatives on the balance sheet at fair value. Derivatives that
are not hedges must be adjusted to fair value through income. If the
derivative is a hedge, depending on the nature of the hedge, changes in
the fair value of derivatives will either be offset against the change
in fair value of the hedged assets, liabilities, or firm commitments
through earnings or recognized in other comprehensive income until the
hedged item is recognized in earnings. The ineffective portion of a
derivative's change in fair value will be immediately recognized in
earnings. The Company has not yet determined what the effect of
Statement No. 133 will be on the earnings and financial position of
the Company.
(G) On December 4, 1998, the Company called for redemption $5,000,000
of its 8% Convertible Subordinated Debentures using existing invested
funds.
(H) The Company uses coffee futures and options for hedging purposes to
reduce the effect of changing green coffee prices. The contracts
that effectively meet the risk reduction and correlation criteria are
recorded using hedge accounting. Effectiveness is measured based upon
high correlation between commodity gains and losses on the futures and
options and those on the firm commitment. Under hedge accounting, the
gain or loss on the hedge is deferred and recorded as a component of
the underlying inventory purchase. Gains and losses on hedges that
are terminated prior to inventory purchases are recorded in inventory
until the inventory is sold.
8 of 14
CHOCK FULL O' NUTS CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Certain statements in the "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and elsewhere in this
Form 10-Q constitute "forward-looking statements" within the meaning
of the Reform Act. See Other Information Item 5.
Operations
The following is Management's discussion and analysis of certain
significant factors that have affected the Company's operations during
the periods included in the accompanying unaudited condensed
consolidated statements of operations.
Net sales from beverage products decreased to $93,867,000 or 12.4% for
the three months ended October 31, 1998 compared to $107,184,000 for
the comparable period of the prior year. The decrease was primarily due to a
decrease in the average selling price of coffee partially offset by an
11.4% increase in coffee pounds sold (primarily attributable to the Park
Coffee Company ("Park")acquisition in July 1998). Operating profit from
beverage products was $4,707,000 a decrease of 9.4% for the three months
ended October 31, 1998 compared to the prior year's comparable period.
The decrease for the three months resulted primarily from decreases in
gross margins, partially offset by decreases in selling, general and
administrative expenses and the operating profit of Park. Decreased
gross margins were primarily due to a decrease in the average selling
price of coffee greater than the decrease in the average cost of green
coffee partially offset by increased coffee pounds sold. During the
three months ended October 31, 1998 prices of green coffee ranged from
a high of $1.35 to a low of $1.02 per pound. Selling, general and
administrative expenses decreased, other than those applicable to Park,
primarily due to decreased advertising, compensation costs and
amortization of purchased intangibles, partially offset by increased
delivery costs.
Quikava's growth plans involve franchising the concept, thereby
generating initial franchise fees and continuing royalty income to
cover headquarters' expenses. Franchise operated shop sales were
$1,077,000 for three months ended October 31, 1998 versus $644,000, an
increase of 67%, in the comparable 1997 period. Quikava company-
operated shop sales were $896,000 for the three months ended
October 31, 1998 compared to $1,091,000 in the comparable period of
the prior year. Company operated shops generate potential franchise
interest and gain exposure to the concept. Operating losses amounted to
$292,000 for the three months ended October 31, 1998 compared to
$435,000 in the comparable period of the prior year. The operating
losses consist primarily of headquarters' expenses (primarily payroll
and related expenses for franchising infrastructure) and shop level
losses, partially offset by initial franchise fee income and royalty
income on franchisee sales.
Net income was $1,769,000 ($.17 per basic share and $.13 per diluted
share) for the three months ended October 31, 1998, compared to
$1,568,000 ($.15 per basic share and $.12 per diluted share) for the
comparable period of the prior year. The increase was primarily due to
decreased interest expense (resulting from reduced amounts of debt
outstanding, increased interest income (resulting from increased
invested funds) and decreased operating losses from Quikava, partially
offset by decreased operating profits from beverage products and
increased income taxes(primarily attributable to increased income
before income taxes).
9 of 14
Liquidity and Capital Resources
As of October 31, 1998, working capital was approximately $93,375,000
and the ratio of current assets to current liabilities was 5 to 1.
As of October 31, 1998, the Company had unused borrowing capacity of
approximately $35 million under its credit facilities of $40 million
with Fleet Bank, N.A.and The Chase Manhattan Bank (see Note D of Notes
to Unaudited Condensed Consolidated Financial Statements).
See Note G of Notes to Unaudited Condensed Consolidated Financial
Statements relative to a partial redemption of the Company's 8%
Convertible Subordinated Debentures.
The Company plans on expanding its Quikava franchised operations, which
are currently operating in 36 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 partially offset by franchise fee and royalty income and,
in addition , Quikava headquarters' expenses of approximately $1,000,000
on an annual basis are not being absorbed.
The Company believes that its cash flow from operations, its cash
equivalents and funds available under 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.
Green Coffee Market
Coffee is one of the leading commodities traded on futures exchanges.
Supplies fluctuate with the weather and prices can be and have been
volatile. The supply and price is affected by multiple factors, such as
weather, weather forecasts, consumption trends, changes in stock levels,
export restrictions observed by members of the Association of Coffee
Producing Countries ("ACPC") members, activities of hedge funds,
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.
In the sixties some coffee exporting countries plus a group of coffee
importing countries together formed the International Coffee
Organization ("ICO"). The principal aim of the organization was to
stabilize coffee prices in the world market. One of the instruments
which the ICO used to achieve this was a system allocating an export
quota to each of the coffee producing countries. In July 1989, this
system was abandoned due to disagreements involving several exporting
as well as importing countries. In 1994, a new International Coffee
Agreement came into force which no longer included the price stability
mechanism. As a consequence, the function of the ICO changed. This
organization now provides a forum where exporting and importing
countries can discuss matters pertaining to coffee. In addition, the
ICO publishes statistics about the coffee market. It has thus become an
administrative organization.
When the export quota system was abandoned in 1989, coffee prices
declined in the global market. Certain exporting countries were
dissatisfied with the new situation and tried to regain their grip on
the international coffee market. In 1993, they established the ACPC to
boost coffee prices in the global market by keeping part of annual
production out of the world market. The ACPC members account for around
70% of world coffee exports. The ACPC attempts to achieve better prices
by agreeing export quotas for each member country and an export volume
ceiling for the organization as a whole.
10 of 14
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 prices. In January 1996, the ACPC
agreed to extend its current limitations on the supply of green coffee
which were scheduled to expire in June 1996 through the 1996/1997 green
coffee year. No further actions have been taken by the ACPC subsequent
to that date. 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 crop. The announcement of the Brazilian frost damage
caused a substantial increase in green coffee prices and other coffee-
product prices worldwide.The Company purchases a modest amount of its
green coffee from Brazil. In the third and fourth quarter of 1994 the
Company experienced a significant increase in the price of green coffee
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 prices that
resulted from the Brazilian aforementioned 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 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 he following crop.
During the fiscal 1998, the green coffee market was in the $1.09 to
$2.11 per pound range, and towards the end of such year at the lower
end of this range. From August 1997 until February 1998, coffee
remained relatively high, most of the time at above $1.70 per pound,
when a fast, substantial and sustained drop occurred caused by a
significantly large Brazilian crop. This left the Company with large
quantities of high-priced inventory while sales slowed as retailers
waited for the green coffee market to effect the price they pay for
roasted coffee and pressure intensified as major competitors cut prices
in response. The result was lower net income in the third quarter of
fiscal 1998 compared to the first and second quarters and an approximate
break-even in the fourth quarter.
During the first quarter of fiscal 1999, the coffee market was in the
$1.02 to $1.35 per pound range. The large Brazilian crop continues to
overhang the coffee market, notwithstanding the effects in Central
America of Hurricane Mitch, and the price of coffee currently is at the
lower end of that 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.
11 of 14
A significant portion of the Company's green coffee supply is
contracted for future delivery, generally between three and twelve
months forward (with declining percentages 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 price fluctuations. In
addition, the Company uses options and futures for hedging purposes
to reduce the risks of changing green coffee prices. Green coffee is a
large market with well-established brokers, importers and warehousemen
through 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 nywhere
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 from any
particular country.
Retail Customers are very price-sensitive about the purchase of coffee
in supermarkets. When retail prices increase dramatically, takeaway
declines and consumers switch to less expensive brands and high yield
roasts. Likewise, FoodService Customers in times of price increase
tend to stretch the use of inventory.
Year 2000 Issue
In 1998, the Company established an oversight committee, to review all
of the Company's computer systems and programs, as well as the computer
systems of the third parties upon whose data or functionality the
Company relies in any material respect, and to assess their ability to
process transactions in the Year 2000. The Company has a formal Year
2000 Program focusing on three key readiness areas: 1) Internal
hardware/software and non-information technology systems; 2) Supplier
readiness; and 3) Customer readiness. For each readiness area, the
Company has identified steps to perform and developed timetables for
Year 2000 compliance. The Company has conducted an assessment of
internal applications and hardware. Some software applications have
been made Year 2000 compliant and resources have been assigned to
address other applications based on their criticality and the time
required to make them Year 2000 compliant. All software remediation is
scheduled to be completed no later than the beginning or 1999. The Year
2000 compliance evaluation of hardware, including roasters, grinders,
bagging machines, telecommunication equipment, workstations and other
items, is nearing completion. The Company has identified and contacted
key suppliers. To date, the Company has received responses from the
majority of its key suppliers, most of which indicate that the suppliers
are in the process of developing remediation plans. Based on the
supplier's progress to adequately address the Year 2000 issue, the
Company will develop a supplier action list and contingency plan. The
Company has identified and been in contact with Key customers. The
customers have responded that they are or will be Year 2000 compliant.
The Company has expensed approximately $350,000 for Year 2000 costs in
fiscal 1998 and estimates future expenditures for Year 2000 compliance
to be approximately $275,000. There can be no assurance, however, that
there will not be a delay in, or increased costs associated with, the
programs described in this section. Since the programs described in
this section are ongoing, all potential Year 2000 complications have
not yet been identified. Therefore, the potential impact of these
complications on the Company's financial condition and results of
operations cannot be determined at this time. If computer systems
used by the Company, its suppliers or customers fail or experience
significant difficulties related to the Year 2000,the Company's results
of operations and financial conditions could be materially affected.
12 of 14
Part II. Other Informatio n
Item 1. Legal Proceedings - None
Item 5. Other Information
Certain statements under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and elsewhere
in this Form 10-Q constitute "forward looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. Such
forward looking statements are based on current expectations and
information available to management at this time. They may involve
known risks, uncertainties, and other factors which may cause the
actual results, performance or achievements of the Company to be
materially different from any future results, performance or
achievements expressed or implied by such forward looking statements.
Factors which could cause actual results to differ from the forward
looking statements include, among others, the following: general
economic and business conditions; the availability of green coffee;
green coffee prices; competition; the success of operating initiatives;
development and operating costs, including green coffee prices;
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 franchised outlets; changes in business strategy or development
plans; quality of management; availability, terms and deployment of
capital; business abilities and judgment of personnel; availability of
qualified personnel; labor and employee benefit costs; changes in or
the failure to comply with government regulations; construction costs
and the Year 2000 issue.
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
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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 $ 16,226,023
5-02 (2) Marketable securities$ -0-
5-02 (3) (a) (1) Notes and accounts receivable - trade $ 41,273,911
5-02 (4) Allowances for doubtful accounts $ 1,222,000
5-02 (6) Inventory $ 57,290,758
5-02 (9) Total current assets $ 116,697,372
5-02 (13) Property, plant and equipment $ 106,900,854
5-02 (14) Accumulated depreciation $ 57,910,550
5-02 (18) Total assets $ 205,715,045
5-02 (21) Total current liabilities $ 23,321,692
5-02 (22) Bonds, mortgages and similar debt $ 91,171,158
5-02 (28) Preferred stock - mandatory redemption -0-
5-02 (29) Preferred stock - no mandatory redemption -0-
5-02 (30) Common stock $ 2,826,611
5-02 (31) Other stockholders' equity $ 76,578,665
5-02 (32) Total liabilities and stockholders' equity $205,715,045
5-03 (b) 1 (a) Net sales of tangible products $ 94,762,818
5-03 (b) 1 Total revenues $ 95,334,436
5-03 (b) 2 (a) Cost of tangible goods sold $ 68,772,087
5-03 (b) 2 Total costs and expenses applicable to
sales and revenues $ 69,176,240
5-03 (b) 3 Other costs and expenses $ -0-
5-03 (b) 5 Provision for doubtful accounts and notes $ 454,000
5-03 (b) (8) Interest and amortization of debt $ 1,831,737
5-03 (b) (10) Income before taxes and other items $ 2,982,618
5-03 (b) (11) Income tax expense $ 1,214,000
5-03 (b) (14) Income/loss continuing operations $ 1,768,618
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 $ 1,768,618
5-03 (b) (20) Earnings per share - basic $.17
5-03 (b) (20) Earnings per share - diluted $.13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant duly caused this Report of Form 10-Q to be signed on its behalf
by the undersigned, thereunto duly authorized.
CHOCK FULL O' NUTS CORPORATION
(Registrant)
December 11, 1998
Marvin I. Haas
President and Chief
Executive Officer
December 11, 1998
Howard M. Leitner
Senior Vice President and
Chief Financial and
Accounting Officer
14 of 14
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