<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 January 31, 1997 Commission file number 0-23496
---------------- -------
KFC National Purchasing Cooperative, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 61-0946155
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
950 Breckenridge Lane, Louisville, KY 40207
- --------------------------------------------------------------------------------
(address of principal executive offices) (zip code)
Registrant's telephone number, including area code (502) 896-5900
-------------------------
- --------------------------------------------------------------------------------
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 February 28, 1997
-----------------
Membership Common Stock 618
Store Common Stock 5972
1
<PAGE> 2
KFC NATIONAL PURCHASING COOPERATIVE, INC. AND SUBSIDIARIES
INDEX TO QUARTERLY REPORT FORM 10-Q
Part 1 - Financial Information
<TABLE>
<CAPTION>
Page (s)
--------
<S> <C> <C>
Item 1 Financial Statements
Condensed Consolidated Statements of Income
and Expenses
Three months ended January 31, 1997 and 1996 3
Condensed Consolidated Balance Sheets
January 31, 1997 and October 31, 1996 4
Consolidated Statements of Cash Flows
Three months ended January 31, 1997 and 1996 5
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 6-7
Part II - Other Information
Item 4 Submission of Matters to a Vote of Security - Holders 8
Item 6 Exhibits and Reports on Form 8-K 8
Signatures 9
</TABLE>
2
<PAGE> 3
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 January 31, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Net sales $136,857,667 136,958,035
Cost of goods sold 133,224,997 133,462,999
------------ -----------
Gross profit 3,632,670 3,495,036
2.65% 2.55%
Selling, general and administrative expenses 2,853,486 2,665,846
2.09% 1.95%
Provision for losses on receivables 38,928 66,484
Other income (expenses):
Service charges 14,167 26,755
Interest income 108,785 105,772
Interest expense (74,618) (67,169)
Miscellaneous 25,072 17,691
------------ -----------
73,406 83,049
------------ -----------
Income before patronage
dividend and income taxes 813,662 845,755
Patronage dividend 522,749 463,068
------------ -----------
Income before income taxes 290,913 382,687
Provision for income taxes 119,051 151,959
------------ -----------
Net income $ 171,862 230,728
============ ===========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
3 of 9
<PAGE> 4
KFC NATIONAL PURCHASING COOPERATIVE, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
January 31, 1997
(Unaudited)
<TABLE>
<CAPTION>
Assets January 31, October 31,
------ 1997 1996
---- ----
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 3,099,174 6,875,629
Accounts receivable, less allowance for
losses of $1,363,795 at January 31, 1997 34,223,112 37,322,523
Inventories:
Food 2,389,107 1,497,589
Equipment 941,541 980,383
----------- ----------
3,330,648 2,477,972
----------- ----------
Refundable income taxes 32,115 32,115
Current portion of note receivable from related party 60,000 60,000
Prepaid expenses and other current assets 142,346 133,421
Current portion of deferred income taxes 575,325 582,899
----------- ----------
Total Current Assets 41,462,720 47,484,559
----------- ----------
Office equipment, net 641,067 669,247
Note receivable from related party, excluding current portion 161,025 174,502
Note receivable, excluding current portion 831,789 831,789
Deferred income taxes, excluding current portion 140,920 115,895
Goodwill 343,720 0
Other assets 244,976 169,586
----------- ----------
$43,826,217 49,445,578
=========== ==========
Equity
Current Liabilities:
Short-term borrowings $ 857,610 1,438,519
Accounts payable 19,556,959 22,077,137
Accrued expenses 2,570,660 3,027,064
Premium deposits 339,574 339,574
Patronage dividend 522,750 2,761,717
----------- ----------
Total Current Liabilities 23,847,553 29,644,011
----------- ----------
Long-term note payable 3,000,000 3,000,000
----------- ----------
Commitments and Contingencies
Members' Equity:
Membership common stock 6,190 6,240
Store common stock 1,653,411 1,645,930
Retained earnings 15,353,353 15,181,470
Currency translation adjustment (34,290) (32,073)
----------- ----------
16,978,664 16,801,567
----------- ----------
$43,826,217 49,445,578
=========== ==========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
4 of 9
<PAGE> 5
KFC NATIONAL PURCHASING COOPERATIVE, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the three months ended January 31, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 171,862 230,729
Adjustments to reconcile net income to
net cash provided by (used in) operating activities:
Depreciation and amortization 98,875 120,303
Provision for losses on receivables 38,928 66,484
Deferred income tax benefit (17,451) (17,674)
Changes in operating assets and liabilities:
Decrease in accounts receivable 3,060,483 6,077,904
(Increase) in inventories (852,676) (496,206)
(Increase ) decrease in prepaid expenses
and other current assets (8,925) 36,814
(Decrease) in accounts payable (5,281,874) (3,433,644)
Increase (decrease) in accrued expenses (456,404) 87,388
(Decrease) in premium deposits 0 (8,438)
Increase in patronage dividend 522,750 463,068
---------- ---------
Net cash provided by operating activities (2,724,432) 3,126,728
---------- ---------
Cash Flows from Investing Activities:
(Increase) in other assets (430,925) 0
Decrease in note receivable from related party 13,477 19,544
Additions to office equipment (58,880) (93,558)
---------- ---------
Net cash used in investing activities (476,328) (74,014)
---------- ---------
Cash Flows from Financing Activities:
(Decrease) in short-term borrowings (580,909) (157,942)
Proceeds from sale of stock, net of costs 30,541 12,650
Retirement of stock (23,110) (5,960)
---------- ---------
Net cash provided by (used in) financing
activities (573,478) (151,252)
Effect of exchange rate changes on cash and cash equivalents (2,217) (6,116)
---------- ---------
Net increase in cash and cash equivalents (3,776,455) 2,895,346
Cash and cash equivalents - beginning of period 6,875,629 2,443,168
---------- ---------
Cash and cash equivalents - end of period 3,099,174 5,338,514
---------- ---------
Supplemental information:
Income taxes paid 0 38,000
========== =========
Interest paid 74,618 67,169
========== =========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
5 of 9
<PAGE> 6
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, 1996, 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, 1996, 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, 1996, Form 10-K. The results of
operations for the three months ended January 31, 1997, are not necessarily
indicative of the operating results for the entire year.
Results of Operations
First Three Months of Fiscal 1997 Compared to the First Three Months of Fiscal
1996.
A comparison of material changes between the three months ended January 31,
1997, and the comparable period for the previous year shows:
Sales for the first quarter of 1997 were $136,858,000, a small decrease from the
same quarter of 1996 when sales were $136,958,000. There were several
contributing factors that both positively and negatively affected the sales
dollars. Total equipment sales were up by $3,482,000, with KFC primarily
responsible for the increase. Taco Bell equipment also posted an increase along
with Canada. Food and packaging sales for the first quarter 1997 were down by a
net $3,659,000. All concepts except KFC in the United States had sales
increases. The decrease in KFC sales were primarily a result of (1) a shift in
some market from a frozen chicken product to a fresh product for Chicken Tenders
(TM) (2) an overall decrease of 14% in the prices of frozen chicken products,
and (3) a decrease of 21% in the price of shortening. Savings generated by these
price decreases directly impact the store costs, but are reflected in our
financial statements as lower sales. The strength of the Cooperative continues
to grow and we continue to focus our efforts on the mission to lower store door
delivered costs to the membership.
Gross profit as a percentage of sales for the first three months of 1997
increased to 2.65% from 2.55% in 1996. The small increase between the two
periods demonstrates the continuity of pricing strategies from 1996 to 1997.
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 slightly to $2,853.486, a
.14% increase from 1996 to 1997. The increase is primarily associated with the
additional staff attributable to the expansion of the international division. On
January 1, 1997 five new positions were created to provide services to
international customers. Management is constantly monitoring costs to provide
the required service to the stockholder members and other customers.
6
<PAGE> 7
Management believes the current provision for losses on uncollectible accounts
to be adequate.
The provision for patronage dividend for 1997 has been calculated and accrued on
a formula approved by the Board of Directors. Patronage dividends for fiscal
1997 will be apportioned based on stockholder concepts and their relative
contribution to income before patronage dividend and taxes.
On January 23, 1997, PepsiCo announced that it would pursue a plan to spin off
its restaurant businesses, including KFC, Pizza Hut and Taco Bell, to PepsiCo
shareholders as an independent company. PepsiCo also announced that it is
examining the sale of PFS, who currently distributes more than $3 billion worth
of restaurant equipment and supplies each year, primarily to Pizza Hut, Taco
Bell and KFC restaurants.
The Cooperative believes that it was PepsiCo's intend that PFS, for profit,
dominate and control purchasing and distribution throughout PepsiCo's system of
approximately 29,000 worldwide company-owned, franchised and licensed restaurant
systems, including KFC, Pizza Hut and Taco Bell restaurants and outlets. The
Cooperative believes that PFS was, and still maybe attempting to eliminate the
Cooperative and force independent distributors out of the KFC and Taco Bell
business through initial low prices and other means such as a failure to
properly administer the process by which independent distributors are approved
and by which additional suppliers of Equipment and Supplies are approved. It is
uncertain, as of the present date, how the announced possible sale and/or spin
off of PFS will affect the operations of the Cooperative.
Financial Condition at January 31, 1997 Compared to Financial Condition at
October 31, 1996.
Net working capital at January 31, 1997, was $17,615,167, which is a modest
decrease of $225,381 since October 31, 1996. Cash and cash equivalents, and
accounts receivable decreased by $3,776,455, and $3,099,441, respectively. These
working capital items were offset by an increase in inventories of $852,676 as
well as decreases in short term borrowings, accounts payable, accrued expenses
and patronage dividends of $580,909, $2,520,178, $456,404 and $2,238,967,
respectively.
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.
7
<PAGE> 8
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 - Exhibit 27 Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K - None
8
<PAGE> 9
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: March 14, 1997 KFC National Purchasing Cooperative, Inc.
---------------
By: /s/ Thomas D. Henrion
------------------------------------------
Thomas D. Henrion, President
Date: March 14, 1997 By: /s/ William V. Holden
--------------- ------------------------------------------
William V. Holden,
Vice President/Chief Financial Officer
9
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> JAN-31-1997
<CASH> 3,099,174
<SECURITIES> 0
<RECEIVABLES> 35,586,907
<ALLOWANCES> 1,363,795
<INVENTORY> 3,330,648
<CURRENT-ASSETS> 41,462,720
<PP&E> 3,608,257
<DEPRECIATION> 2,967,190
<TOTAL-ASSETS> 43,826,217
<CURRENT-LIABILITIES> 23,847,553
<BONDS> 3,000,000
0
0
<COMMON> 1,659,601
<OTHER-SE> 15,319,063
<TOTAL-LIABILITY-AND-EQUITY> 43,826,217
<SALES> 136,857,667
<TOTAL-REVENUES> 136,857,667
<CGS> 133,224,997
<TOTAL-COSTS> 133,224,997
<OTHER-EXPENSES> 2,853,486
<LOSS-PROVISION> 38,928
<INTEREST-EXPENSE> 74,618
<INCOME-PRETAX> 290,913
<INCOME-TAX> 119,051
<INCOME-CONTINUING> 171,862
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 171,862
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
