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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 July 31, 1995 Commission file number 0-23496
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KFC National Purchasing Cooperative, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 61-0946155
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
950 Breckenridge Lane, Louisville, KY 40207
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(address of principal executive offices) (zip code)
Registrant's telephone number, including area code (502) 896-5900
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Former name, former address and former fiscal year, if changed since last
report.
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 .
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Number of shares of common stock outstanding as of August 31, 1995
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Membership Common Stock 584
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Store Common Stock 5721
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KFC NATIONAL PURCHASING COOPERATIVE, INC. AND SUBSIDIARIES
INDEX TO QUARTERLY REPORT FORM 10-Q
<TABLE>
<S> <C>
Part 1 - Financial Information
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Page (s)
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Item 1 Financial Statements
Condensed Consolidated Statements of Income
and Expenses
Three months ended July 31, 1995 and 1994 3
Condensed Consolidated Statements of Income
and Expenses
Nine months ended July 31, 1995 and 1994 4
Condensed Consolidated Balance Sheets
July 31, 1995 and October 31, 1994 5
Consolidated Statements of Cash Flows
Nine months ended July 31, 1995 and 1994 6
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-8
Part II - Other Information
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Item 4 Submission of Matters to a Vote of Security - Holders 9
Item 6 Exhibits and Reports on Form 8-K 9
Signatures 10
</TABLE>
2
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Part I - Financial Information
Item 1. Financial Statements
KFC NATIONAL PURCHASING COOPERATIVE, INC. AND SUBSIDIARIES
Consolidated Statements of Income and Expenses
For the three months ended July 31, 1995 and 1994
(Unaudited)
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Net sales $132,053,373 141,792,907
Cost of goods sold 128,969,889 138,559,561
Gross profit 3,083,484 3,233,346
Selling, general and administrative Expenses 2,740,598 2,645,372
Provision for losses on receivables 36,295 43,856
Other income (expenses):
Service charges 29,427 63,948
Interest income 121,552 27,309
Interest expense (77,363) (82,386)
Miscellaneous 35,352 23,581
108,968 32,452
Income before patronage
dividend and income taxes 415,559 576,570
Patronage dividend 166,314 243,923
Income before income taxes 249,245 332,647
Provision for income taxes 104,319 107,607
Net income $ 144,926 225,040
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
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Part I - Financial Information
Item 1. Financial Statements
KFC NATIONAL PURCHASING COOPERATIVE, INC. AND SUBSIDIARIES
Consolidated Statements of Income and Expenses
For the nine months ended July 31, 1995 and 1994
(Unaudited)
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Net sales $386,895,271 387,249,472
Cost of goods sold 377,722,529 378,262,424
Gross profit 9,172,742 8,987,048
Selling, general and administrative Expenses 8,051,227 7,667,562
Provision for losses on receivables 113,434 257,991
Other income (expenses):
Service charges 82,999 216,021
Interest income 269,309 71,570
Interest expense (222,658) (218,895)
Miscellaneous 91,983 36,200
221,633 104,896
Income before patronage
dividend and income taxes 1,229,714 1,166,391
Patronage dividend 477,051 511,420
Income before income taxes 752,663 654,971
Provision for income taxes 311,924 257,846
Net income $ 440,739 397,125
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
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KFC NATIONAL PURCHASING COOPERATIVE, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
July 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
Assets July 31 October 31,
1995 1994
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 2,467,603 614,450
Accounts receivable, less allowance for
losses of $1,107,444 at July 31, 1995 32,076,030 35,503,417
Inventories:
Food and packaging inventories 672,591 1,379,814
Equipment 2,429,032 2,820,846
3,101,623 4,200,660
Refundable income taxes 38,000 43,359
Current portion of note receivable from related party 60,000 60,000
Current portion of notes receivable 0 49,220
Prepaid expenses and other current assets 69,483 117,196
Current portion of deferred income taxes 603,139 593,000
Total Current Assets 38,415,878 41,181,302
Office equipment, net 792,307 896,501
Note receivable from related party, excluding current portion 261,440 319,101
Deferred income taxes, excluding current portion 139,127 113,088
Other assets 178,028 258,254
$39,786,780 42,768,246
Liabilities and Member's Equity
Current Liabilities:
Short-term borrowings $ 1,691,280 533,966
Accounts payable 17,339,731 19,625,427
Accrued expenses 2,058,601 4,266,270
Premium deposits 371,163 375,028
Patronage dividend 477,051 568,876
Total Current Liabilities 21,937,826 25,369,567
Long-term note payable 3,000,000 3,000,000
Commitments and Contingencies
Members' Equity:
Membership common stock 5,830 5,850
Store common stock 1,553,663 1,542,886
Retained earnings 13,328,175 12,887,436
Currency translation adjustment (38,714) (37,493)
14,848,954 14,398,679
$39,786,780 42,768,246
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
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KFC NATIONAL PURCHASING COOPERATIVE, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the nine months ended July 31, 1995 and 1994
(Unaudited)
<TABLE>
<CAPTION>
1995 1994
<S> <C>
Cash Flows from Operating Activities:
Net Income $ 440,739 397,125
Adjustments to reconcile net income to
net cash provided by (used in) operating activities:
Depreciation and amortization 315,323 362,853
Provision for losses on receivables 113,434 257,991
Deferred income tax benefit (36,178) (1,952)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable 3,313,953 (6,409,967)
Decrease in inventories 1,099,037 3,480,857
Decrease in refundable income taxes 5,359 85,726
Decrease in prepaid expenses and other current assets 47,713 8,128
Increase (decrease) in accounts payable (2,285,696) 5,114,276
Increase (decrease) in accrued expenses (2,207,669) 332,215
Decrease in premium deposits (3,865) (21,291)
Decrease in patronage dividend (91,825) (376,661)
Net cash provided by operating activities 710,325 3,229,300
Cash Flows from Investing Activities:
Decrease in note receivable from related party 57,661 43,992
Decrease in notes receivable, net 49,220 747,542
(Increase) decrease in other assets, net 80,226 (15,708)
Additions to office equipment (211,129) (132,039)
Net cash provided by (used in) investing activities (24,022) 643,787
Cash Flows from Financing Activities:
Increase (decrease) in short-term borrowings 1,157,314 (6,644,622)
Proceeds from long-term borrowings 0 3,000,000
Proceeds from sale of stock, net of costs 27,507 229,774
Retirement of stock (16,750) (39,940)
Net cash provided by (used in) financing activities 1,168,071 (3,454,788)
Effect of exchange rate changes on cash and cash equivalents (1,221) (10,050)
Net increase in cash and cash equivalents 1,853,153 408,249
Cash and cash equivalents, net of checks drawn in excess of bank
balance - beginning of period 614,450 (61,361)
Cash and cash equivalents - end of period $ 2,467,603 346,888
Supplemental information:
Income taxes paid $ 191,900 70,950
Interest paid $ 222,658 218,895
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
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NOTE TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The accompanying financial statements are presented in accordance with the
requirements of Form 10-Q and consequently do not include all of the
disclosures normally required by generally accepted accounting principles or
those normally made in the registrant's annual Form 10-K filing. Accordingly,
the reader of this Form 10-Q may wish to refer to the registrant's Form 10-K
for the year ended October 31, 1994, for further information in this regard.
The accompanying financial statements for comparative purposes have been made
to conform to the format of the registrant's Form 10-K for the year ended
October 31, 1994, and have been prepared in accordance with the registrant's
customary accounting practices and have not been audited. In the opinion of
management, all adjustments (consisting of only normal recurring accruals)
necessary for fair presentation of this information have been made.
Item 2. Management's Discussion and Analysis of Financial Position and Results
of Operation.
The following discussion and analysis of financial condition and the condensed
consolidated results of operations should be read in conjunction with
management's discussion and analysis of financial condition and results of
operations in the company's October 31, 1994, Form 10-K. The results of
operations for the nine months ended July 31, 1995, are not necessarily
indicative of the operating results for the entire year.
Results of Operations
First Nine Months of Fiscal 1995 Compared to the First Nine Months of Fiscal
1994.
A comparison of material changes between the nine months ended July 31, 1995
and the comparable period for the previous year shows:
Net sales decreased by $354,201 for the first nine months of 1995 compared to
1994. The decrease in sales was primarily attributable to lower equipment
sales of approximately 30%, particularly KFC-U.S. and Long John Silver's. The
decrease in equipment sales was largely offset by an increase in food and paper
sales of 4.6%. Food and paper sales for our primary concept, KFC (U.S. and
Canada combined), were approximately 10% higher in the first nine months of
1995, compared to the same period for 1994.
Gross profit as a percentage of sales for the first nine months of 1995
increased to 2.4% from 2.3% in 1994. The small increase between the two
periods demonstrates the continuity of pricing strategies from 1994 to 1995.
Gross margins are constantly being evaluated to provide competitive prices to
our customers while maintaining the level of service required to fulfill the
Cooperative's mission.
Selling, general and administrative expenses increased by $383,665 from 1994 to
1995. The increase in expenses is attributable to expanded services,
development costs and reorganization. Management is constantly monitoring
costs to provide the required service at the lowest cost to the stockholder
members.
The provision for losses on uncollectible accounts was increased by $113,434.
Management believes the current provision is adequate.
Miscellaneous income of $91,983 is primarily associated with commission on
sales and use taxes, telephone rebates and other miscellaneous refunds.
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First Nine Months of Fiscal 1995 Compared to the First Nine Months of Fiscal
1994 (continued).
Year to date income taxes have been increased by $74,020 to correct an error in
the calculation of income tax expense for the period ending July 31, 1995.
The provision for Patronage Dividend for 1995 has been calculated and accrued
on a formula approved by the Board of Directors. Patronage dividends for
fiscal 1995 will be calculated based on membership concepts and their relative
contribution to income before patronage dividend and taxes.
Third Quarter Fiscal 1995 Compared to Third Quarter Fiscal 1994
Sales for the third quarter of 1995 reflect a decrease of $9,739,534 over the
third quarter of 1994. Increases in sales volumes for the quarter of food and
paper items for KFC-U.S. and Dairy Queen were mitigated by lower equipment
sales in KFC-U.S. and Long John Silver's. Gross margin for 1995 was 2.33%, an
increase from 2.28% in 1994.
Financial Condition at July 31, 1995 Compared to Financial Condition at October
31, 1994.
Net working capital (current assets less current liabilities) at July 31, 1995,
was $16,478,052, which is an increase of $666,317 since October 31, 1994. Cash
and cash equivalents increased by $1,853,153, reflecting the impact on cash
requirements from lower equipment sales. Accounts payable decreased by
$2,285,696, and accrued expenses decreased by $2,207,669 as did patronage
dividend by $91,825. These positive working capital factors are offset by the
decrease in accounts receivable of $3,427,387 and inventories of $1,099,037,
coupled with an increase in short-term borrowings of $1,157,314.
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Part II - Other Information
Item 4. Submission of Matters to a Vote of Security - Holders
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K - None
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Signatures
Pursuant to the requirements 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.
Date: September 13, 1995 KFC National Purchasing Cooperative, Inc.
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By: /s/ Thomas D. Henrion
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Thomas D. Henrion, President
Date: September 13, 1995 By: /s/ William V. Holden
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William V. Holden,
Vice President/Chief Financial Officer
10
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> JUL-31-1995
<CASH> 2,467,603
<SECURITIES> 0
<RECEIVABLES> 33,183,474
<ALLOWANCES> 1,107,444
<INVENTORY> 3,101,623
<CURRENT-ASSETS> 38,415,878
<PP&E> 3,273,161
<DEPRECIATION> 2,480,854
<TOTAL-ASSETS> 39,786,780
<CURRENT-LIABILITIES> 21,937,826
<BONDS> 0
<COMMON> 1,559,493
0
0
<OTHER-SE> 13,289,461
<TOTAL-LIABILITY-AND-EQUITY> 39,786,780
<SALES> 386,895,271
<TOTAL-REVENUES> 386,895,271
<CGS> 377,722,529
<TOTAL-COSTS> 377,722,259
<OTHER-EXPENSES> 8,051,227
<LOSS-PROVISION> 113,434
<INTEREST-EXPENSE> 222,658
<INCOME-PRETAX> 752,663
<INCOME-TAX> 311,924
<INCOME-CONTINUING> 440,739
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 440,739
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
