<PAGE> 1
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, 1996 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 .
--- ---
Number of shares of common stock outstanding as of August 31, 1996
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Membership Common Stock 594
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Store Common Stock 5826
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KFC NATIONAL PURCHASING COOPERATIVE, INC. AND SUBSIDIARIES
INDEX TO QUARTERLY REPORT FORM 10-Q
Part 1 - Financial Information
<TABLE>
<CAPTION>
Page (s)
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<S> <C>
Item 1 Financial Statements
Condensed Consolidated Statements of Income
and Expenses
Three months ended July 31, 1996 and 1995 3
Condensed Consolidated Statements of Income
and Expenses
Nine months ended July 31, 1996 and 1995 4
Condensed Consolidated Balance Sheets
July 31, 1996 and October 31, 1995 5
Consolidated Statements of Cash Flows
Nine months ended July 31, 1996 and 1995 6
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-8
Part II - Other Information
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
KFC NATIONAL PURCHASING COOPERATIVE, INC. AND SUBSIDIARIES
Consolidated Statements of Income and Expenses
For the three months ended July 31, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Net sales $ 155,288,234 132,053,373
Cost of goods sold 150,755,682 128,969,889
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Gross profit 4,532,552 3,083,484
Selling, general and administrative expenses 2,735,974 2,740,598
Provision for losses on receivables 146,472 36,295
Other income (expenses):
Service charges 18,818 29,427
Interest income 114,117 121,552
Interest expense (70,890) (77,363)
Miscellaneous 14,376 35,352
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76,421 108,968
Income before patronage ------------- -----------
dividend and income taxes 1,726,527 415,559
Patronage dividend 930,925 166,314
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Income before income taxes 795,602 249,245
Provision for income taxes 317,187 104,319
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Net income $ 478,415 144,926
============= ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE> 4
Part I - Financial Information
KFC NATIONAL PURCHASING COOPERATIVE, INC. AND SUBSIDIARIES
Consolidated Statements of Income and Expenses
For the nine months ended July 31, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Net sales $427,479,619 386,895,271
Cost of goods sold 415,746,233 377,722,529
------------ -----------
Gross profit 11,733,386 9,172,742
Selling, general and administrative expenses 8,129,261 8,051,227
Provision for losses on receivables 309,431 113,434
Other income (expenses):
Service charges 57,330 82,999
Interest income 365,447 269,309
Interest expense (202,288) (222,658)
Miscellaneous 48,625 91,983
------------ -----------
269,114 221,633
Income before patronage ------------ -----------
dividend and income taxes 3,563,808 1,229,714
Patronage dividend 1,966,089 477,051
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Income before income taxes 1,597,719 752,663
Provision for income taxes 632,131 311,924
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Net income $ 965,588 440,739
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</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE> 5
KFC NATIONAL PURCHASING COOPERATIVE, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
July 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
Assets July 31 October 31,
------ 1996 1995
---- ----
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 3,309,902 2,443,168
Accounts receivable less allowance for
losses of $1,468,791 at July 31, 1996 39,627,884 35,365,297
Inventories:
Food and packaging inventories 3,332,615 1,610,106
Equipment 1,426,343 1,329,790
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4,758,958 2,939,896
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Refundable income taxes 31,700 38,000
Current portion of note receivable from related party 60,000 60,000
Prepaid expenses and other current assets 94,146 80,683
Current portion of deferred income taxes 708,507 618,341
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Total Current Assets 48,591,097 41,545,385
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Office equipment, net 653,345 756,142
Note receivable from related party, excluding current portion 199,996 253,148
Deferred income taxes, excluding current portion 125,031 124,624
Other assets 104,768 151,547
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$ 49,674,237 42,830,846
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Liabilities and Member's Equity
- -------------------------------
Current Liabilities:
Short-term borrowings $ 2,290,865 876,804
Accounts payable 22,602,879 19,759,311
Accrued expenses 3,136,068 2,238,610
Premium deposits 350,280 361,741
Patronage dividend 1,966,089 1,245,602
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Total Current Liabilities 30,346,181 24,482,068
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Long-term note payable 3,000,000 3,000,000
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Commitments and Contingencies
Members' Equity:
Membership common stock 5,920 5,860
Store common stock 1,601,763 1,581,663
Retained earnings 14,761,472 13,795,883
Currency translation adjustment (41,099) (34,628)
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16,328,056 15,348,778
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$ 49,674,237 42,830,846
============ ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
<PAGE> 6
KFC NATIONAL PURCHASING COOPERATIVE, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the nine months ended July 31, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 965,588 440,739
Adjustments to reconcile net income to
net cash provided by (used in) operating activities:
Depreciation and amortization 305,047 315,323
Disposal of assets 531 0
Provision for losses on receivables 309,431 113,434
Deferred income tax benefit (90,573) (36,178)
Changes in operating assets and liabilities:
Decrease in accounts receivable (4,572,018) 3,313,953
(Increase) decrease in inventories (1,819,062) 1,099,037
Decrease in refundable income taxes 6,300 5,359
(Increase) decrease in prepaid expenses and other current assets (13,463) 47,713
Increase (decrease) in accounts payable 2,843,569 (2,285,696)
Increase (decrease) in accrued expenses 897,458 (2,207,669)
Decrease in premium deposits (11,461) (3,865)
Increase (decrease) in patronage dividend 720,487 (91,825)
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Net cash provided by (used in) operating activities (458,166) 710,325
Cash Flows from Investing Activities:
Decrease in note receivable from related party 53,152 57,661
Decrease in notes receivable, net 0 49,220
Decrease in other assets, net 412 80,226
Additions to office equipment (156,414) (211,129)
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Net cash provided by investing activities (102,850) (24,022)
Cash Flows from Financing Activities:
Increase (decrease) in short-term borrowings 1,414,061 1,157,314
Proceeds from sale of stock, net of costs 33,780 27,507
Retirement of stock (13,620) (16,750)
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Net cash provided by (used in) financing activities 1,434,221 1,168,071
Effect of exchange rate changes on cash and cash equivalents (6,471) (1,221)
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Net decrease in cash and cash equivalents 866,734 1,853,153
Cash and cash equivalents, net of checks drawn in excess of bank
balance - beginning of period 2,443,168 614,450
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Cash and cash equivalents - end of period $ 3,309,902 2,467,603
=========== ==========
Supplemental information:
Income taxes paid $ 653,621 191,900
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Interest paid $ 202,288 222,658
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</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
6
<PAGE> 7
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, 1995, 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, 1995, 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, 1995, Form 10-K. The results of
operations for the nine months ended July 31, 1996, are not necessarily
indicative of the operating results for the entire year.
Results of Operations
First Nine Months of Fiscal 1996 Compared to the First Nine Months of Fiscal
1995.
A comparison of material changes between the nine months ended July 31, 1996
and the comparable period for the previous year shows:
Net sales for the third quarter increased by $40,584,348 from the first nine
months of fiscal 1995. The increase in sales was primarily attributable to
increased sales in KFC - U.S., and Dairy Queen concepts. New business
developed through the Fazoli's concept has added nearly $8,755,000 to the total
sales for the first nine months of 1996. Fiscal 1996 sales associated with
Taco Bell and Long John Silver's concepts remain below the volumes for fiscal
1995.
Gross profit as a percentage of sales for the first nine months of 1996
increased to 2.74% from 2.37% in 1995. Pricing strategies remained consistent
with prior years and the increase in margin is primarily associated with market
fluctuations in some of the commodity driven items and a shift in product mix
to higher margined equipment sales.
Selling, general and administrative expenses increased by $78,034 from 1995 to
1996. The small increase in expenses is reflective of the Cooperative's focus
on expenses, while at the same time increasing services to our customers.
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 $195,997.
Management believes the current provision is adequate.
7
<PAGE> 8
The provision for Patronage Dividend for 1996 has been calculated and accrued
on a formula approved by the Board of Directors. Patronage dividends are
significantly higher for fiscal 1996 compared to fiscal 1995 as a result of the
increase in payout rate in the formula coupled with increased sales and
margins, while expenses are relatively the same for both years. Patronage
dividends for fiscal 1996 will be calculated based on membership concepts and
their relative contribution to income before patronage dividend and taxes.
Third Quarter Fiscal 1996 Compared to Third Quarter Fiscal 1995
Net sales for the third quarter of 1996 reflect an increase of $23,234,861 or
17.6% over the third quarter of 1995. All concepts showed increases in sales
for the quarter. Leading the increased sales were KFC and Dairy Queen. New
business related to the Fazoli's concept added almost $4,000,000 in sales for
the quarter. Selling, general and administrative expenses were 1.76% for the
third quarter of fiscal 1996 compared to 2.06% for the same period last year.
Financial Condition at July 31, 1996 Compared to Financial Condition at October
31, 1995.
Net working capital at July 31, 1996, was $18,244,916, which is an increase of
$1,181,599 since October 31, 1995. Accounts receivable and inventories
increased by $4,262,587 and $1,819,062, respectively. Offsetting the increases
in assets were the increases in accounts payable of $2,843,568 and short term
borrowings of $1,414,061. The equity in the Cooperative has increased by
$979,278 since October 31, 1995.
Trademarks
"Fazoli's," "Domino's Pizza," "Long John Silver's," "Dairy Queen," "Taco Bell,"
and "KFC" are registered trademarks of Seed Restaurant Group Inc., Domino's
Pizza Inc., Long John Silver's Inc., American Dairy Queen Corporation, Taco
Bell Corporation and KFC Corporation, respectively, and are used in these
materials for identification purposes only. KFC National Purchasing
Cooperative, Inc. is an independent provider of products and is not affiliated
with the Seed Restaurant Group Inc., Domino's Pizza Inc., Long John Silver's
Inc., American Dairy Queen Corporation, Taco Bell Corporation or KFC
Corporation, except that KFC Corporation is a stockholder member of the
Cooperative.
8
<PAGE> 9
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
27 Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K - None
9
<PAGE> 10
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 11, 1996 KFC National Purchasing Cooperative, Inc.
----------------------
By: /s/ Thomas D. Henrion
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Thomas D. Henrion, President
Date: September 11, 1996 By: /s/ William V. Holden
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William V. Holden,
Vice President/Chief Financial
Officer
10
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-01-1995
<PERIOD-END> JUL-31-1996
<CASH> 3,309,902
<SECURITIES> 0
<RECEIVABLES> 41,096,675
<ALLOWANCES> 1,468,791
<INVENTORY> 4,758,958
<CURRENT-ASSETS> 48,591,097
<PP&E> 3,432,541
<DEPRECIATION> 2,779,196
<TOTAL-ASSETS> 49,674,237
<CURRENT-LIABILITIES> 30,346,181
<BONDS> 3,000,000
0
0
<COMMON> 1,607,683
<OTHER-SE> 14,720,373
<TOTAL-LIABILITY-AND-EQUITY> 49,674,237
<SALES> 427,479,619
<TOTAL-REVENUES> 427,479,619
<CGS> 415,746,233
<TOTAL-COSTS> 415,746,233
<OTHER-EXPENSES> 8,129,261
<LOSS-PROVISION> 309,431
<INTEREST-EXPENSE> 202,288
<INCOME-PRETAX> 1,597,719
<INCOME-TAX> 632,131
<INCOME-CONTINUING> 965,588
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 965,588
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
