<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 April 30, 1997 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 May 31, 1997
---------------------
Membership Common Stock 631
----
Store Common Stock 5972
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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)
--------
<S> <C>
Item 1 Financial Statements
Condensed Consolidated Statements of Income
and Expenses
Three months ended April 30, 1997 and 1996 3
Condensed Consolidated Statements of Income
and Expenses
Six months ended April 30, 1997 and 1996 4
Condensed Consolidated Balance Sheets
April 30, 1997 and October 31, 1996 5
Consolidated Statements of Cash Flows
Six months ended April 30, 1997 and 1996 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 April 30, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Net sales $137,125,725 135,233,350
Cost of goods sold 133,389,338 131,527,552
------------ -----------
Gross profit 3,736,387 3,705,798
Selling, general and administrative expenses 3,025,150 2,727,441
Provision for losses on receivables 38,822 96,475
Other income (expenses):
Service charges 14,096 11,757
Interest income 105,121 145,558
Interest expense (65,724) (64,229)
Miscellaneous 25,890 16,558
------------ ------------
79,383 109,644
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Income before patronage
dividend and income taxes 751,798 991,526
Patronage dividend 492,590 572,096
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Income before income taxes 259,208 419,430
Provision for income taxes 125,212 162,985
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Net income $ 133,996 256,445
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE> 4
Part I - Financial Information
Item 1. Financial Statements
KFC NATIONAL PURCHASING COOPERATIVE, INC. AND SUBSIDIARIES
Consolidated Statements of Income and Expenses
For the six months ended April 30, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Net sales $273,983,392 272,191,385
Cost of goods sold 266,614,335 264,990,551
------------ ------------
Gross profit 7,369,057 7,200,834
Selling, general and administrative Expenses 5,878,636 5,393,287
Provision for losses on receivables 77,750 162,959
Other income (expenses):
Service charges 28,263 38,512
Interest income 213,906 251,330
Interest expense (140,342) (131,398)
Miscellaneous 50,962 34,249
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152,789 192,693
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Income before patronage
dividend and income taxes 1,565,460 1,837,281
Patronage dividend 1,015,339 1,035,164
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Income before income taxes 550,121 802,117
Provision for income taxes 244,263 314,944
------------ ------------
Net income $ 305,858 487,173
============ ============
</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
April 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
Assets April 30, October 31,
1997 1996
---- ----
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 514,891 6,875,629
Accounts receivable, less allowance for
losses of $1,396,285 at April 30, 1997 40,094,176 37,322,523
Inventories:
Food and packaging inventories 1,510,368 1,497,589
Equipment 2,207,684 980,383
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3,718,052 2,477,972
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Refundable income taxes 0 32,115
Current portion of note receivable from related party 60,000 60,000
Prepaid expenses and other current assets 185,363 133,421
Current portion of deferred income taxes 581,825 582,899
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Total Current Assets 45,154,307 47,484,559
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Office equipment, net 653,421 669,247
Note receivable from related party, excluding current portion 149,838 174,502
Note receivable, excluding current portion 831,789 831,789
Deferred income taxes, excluding current portion 141,515 115,895
Other assets 548,071 169,586
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$ 47,478,941 49,445,578
============ ===========
Equity
Current Liabilities:
Short-term borrowings $ 2,219,650 1,438,519
Accounts payable 20,570,093 22,077,137
Accrued expenses 3,236,358 3,027,064
Premium deposits 338,040 339,574
Patronage dividend 1,015,339 2,761,717
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Total Current Liabilities 27,379,480 29,644,011
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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 6,300 6,240
Store common stock 1,653,330 1,645,930
Retained earnings 15,487,349 15,181,470
Currency translation adjustment (47,518) (32,073)
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17,099,461 16,801,567
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$ 47,478,941 49,445,578
============ ===========
</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 six months ended April 30, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 305,858 487,173
Adjustments to reconcile net income to
net cash provided by (used in) operating activities:
Depreciation and amortization 187,516 217,865
Disposal of assets 3,204 531
Provision for losses on receivables 77,750 162,959
Deferred income tax benefit (24,546) (49,417)
Changes in operating assets and liabilities:
(Increase) Decrease in accounts receivable (2,849,403) 3,180,253
(Increase) in inventories (1,240,080) (1,869,566)
Decrease in refundable income taxes 32,115 0
(Increase) in prepaid expenses and other current assets (51,942) (20,390)
(Decrease) Increase in accounts payable (1,507,023) 1,544,181
Increase in accrued expenses 209,294 797,008
(Decrease) in premium deposits (1,534) (9,414)
(Decrease) in patronage dividend (1,746,378) (210,438)
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Net cash provided by (used in) operating activities (6,605,169) 4,230,745
Cash Flows from Investing Activities:
Decrease in note receivable from related party 24,664 34,443
Decrease in notes receivable, net 0 0
(Increase) Decrease in other assets, net (402,694) 343
Additions to office equipment (146,346) (115,046)
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Net cash provided by investing activities (524,376) (80,260)
Cash Flows from Financing Activities:
Increase (decrease) in short-term borrowings 781,131 (36,493)
Proceeds from sale of stock, net of costs 48,370 22,070
Retirement of stock (40,910) (12,800)
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Net cash provided by (used in) financing activities 788,591 (27,223)
Effect of exchange rate changes on cash and cash equivalents (19,784) (3,541)
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Net decrease in cash and cash equivalents (6,360,738) 4,119,721
Cash and cash equivalents - beginning of period 6,875,629 2,443,168
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Cash and cash equivalents - end of period $ 514,891 6,562,889
=========== ==========
Supplemental information:
Income taxes paid $ 59,375 249,074
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Interest paid $ 140,342 139,956
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</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
6
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NOTE TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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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 six months ended April 30, 1997, are not necessarily
indicative of the operating results for the entire year.
Results of Operations
First Six Months of Fiscal 1997 Compared to the First Six Months of Fiscal 1996.
A comparison of material changes between the six months ended April 30, 1997 and
the comparable period for the previous year shows:
Net sales increased by $1,792,000 or .7% from the first six months of 1997
compared to 1996. The increase in sales volume was primarily attributable to
increased equipment sales while consolidated food and packaging sales fell
slightly below fiscal 1996 levels. KFC and Taco Bell combined year to date
equipment sales were 23% higher for fiscal 1997 compared to fiscal 1996.
Equipment sales for non-stockholder concepts primarily Long John Silvers,
Fazoli's and Dairy Queen reflected 20% lower equipment sales for the period. All
concepts with the exception of KFC - U.S. reflected increases in food and
packaging sales for the period. KFC - U. S. sales were below last year levels
primarily attributable to promotional items associated with frozen chicken and
pot pies as well as lower prices.
Gross profit as a percentage of sales for the first six months of 1997 increased
slightly to 2.7% from 2.6% 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 profit level of service required to fulfill the
Cooperative's mission.
Selling, general and administrative expenses increased by $485,000 from 1996 to
1997. The increase is primarily attributable to two factors, the start up costs
of the international division and an increase in travel expenses associated with
the Cooperative's increased focus on working closer with the stockholder
customers. The introduction of the "field representative" is new to the
Cooperative's structure, but is already paying dividends in working closer to
resolve the customer's problems and defining their need. Management is
constantly monitoring cost to provide the required services to the stockholder
members and other customers.
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<PAGE> 8
The provision for losses on uncollectible accounts decreased by $85,000.
Management believes the current provision 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 calculated based on membership 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 would
examine the sale of PFS, which currently distributes more than $3.4 billion
worth of food, equipment and supplies each year, primarily to Pizza Hut, Taco
Bell and KFC restaurants.
On May 24, 1997, PepsiCo announced that it had reached a definitive agreement to
sell PFS to Ameriserve Food Distribution, Inc., a subsidiary of Holberg
Industries, Inc. Ameriserve, a $2.0 billion foodservice distributor, is one of
the largest distributor customers of the Cooperative, with distribution to
approximately 716 KFC Operators and purchases from the Cooperative during fiscal
1996 of approximately $84,000,000. The terms of the PFS/AmeriServe agreement,
including any commitments by PepsiCo that the restaurant businesses to be
spun-off will continue to purchase through PFS, were not disclosed.
It is uncertain how the announced "spin off" of the Pepsico restaurant
operations and the sale of PFS to AmeriServe will affect the operations of the
Cooperative.
Second Quarter Fiscal 1997 Compared to Second Quarter Fiscal 1996
Sales for the second quarter of 1997 reflect an increase of $1,892,000 over the
second quarter of 1996, primarily driven by increased food and packaging volumes
within Taco Bell. Gross margin for the second quarter 1997 remained constant at
2.7% compared with 1996.
Financial Condition at April 30, 1997 Compared to Financial Condition at October
31, 1996.
Net working capital (current assets less current liabilities) at April 30, 1997,
was $17,774,827, which is a decrease of $65,721 since October 31, 1996. Accounts
receivable, inventory, and other assets increased by $2,771,653, $1,240,080 and
$378,485, respectively, and accounts payable and patronage dividends decreased
by $1,507,065 and $1,746,378. These changes in working capital were offset by a
decrease in cash and cash equivalents of $6,360,738 in addition to an increase
in short term borrowings of $781,131 and accrued expenses of $209,294.
8
<PAGE> 9
Part II - Other Information
Item 4. Submission of Matters to a Vote of Security - Holders
The annual meeting of the stockholder members (the "Annual Meeting") of the KFC
National Purchasing Cooperative, Inc. ("The Cooperative") was held on Friday,
March 21, 1997 at the Cooperative's offices.
At the Annual Meeting, the following Class I and III Directors, whose terms of
office will expire in 1998 or 2000, were elected by stockholder members:
<TABLE>
<CAPTION>
Series Class Director Term
------ ----- -------- ----
<S> <C> <C> <C>
L I Ben E. Edwards 1998
A III Jack M. Richards 2000
E III David G. Neal 2000
I III Paul A. Houston 2000
F III William E. Allen 2000
H III Leon W. Harman 2000
M III Ronald J. Young 2000
</TABLE>
The following persons are Class I and II Directors whose terms of office will
expire in 1998 or 1999 at the Annual Meeting of Stockholders:
<TABLE>
<CAPTION>
Series Class Director Term
------ ----- -------- ----
<S> <C> <C> <C>
B II Robert P. Peck 1999
J II Edward Henriquez 1999
L I James B. Royster 1998
N I Darrell M. Dunafon 1998
C II James G. Cocolin 1999
D II Calvin G. White 1999
G II Dean M. Sorgdrager 1999
O I Grover G. Moss 1998
Independent II Edward W. Rhawn 1999
K Vacant (A)
K Vacant (A)
</TABLE>
(A) No nominations were received from KFC National Management Company
to fill the Class II vacancies created with the Series K Directors
resignation during 1989.
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
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: June 13, 1997 KFC National Purchasing Cooperative, Inc.
-------------------
By: /s/ Thomas D. Henrion
-----------------------------------------------
Thomas D. Henrion, President
Date: June 13, 1997 By: /s/ William V. Holden
--------------------- --------------------------------------------
William V. Holden,
Vice President/Chief Financial Officer
10
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-30-1996
<PERIOD-END> APR-30-1997
<CASH> 514,891
<SECURITIES> 0
<RECEIVABLES> 41,490,461
<ALLOWANCES> 1,396,285
<INVENTORY> 3,718,052
<CURRENT-ASSETS> 45,154,307
<PP&E> 3,529,664
<DEPRECIATION> 2,876,243
<TOTAL-ASSETS> 47,478,941
<CURRENT-LIABILITIES> 27,379,480
<BONDS> 0
0
0
<COMMON> 1,659,630
<OTHER-SE> 15,439,831
<TOTAL-LIABILITY-AND-EQUITY> 17,099,461
<SALES> 273,983,392
<TOTAL-REVENUES> 273,983,392
<CGS> 266,614,335
<TOTAL-COSTS> 266,614,335
<OTHER-EXPENSES> 5,878,636
<LOSS-PROVISION> 77,750
<INTEREST-EXPENSE> 140,342
<INCOME-PRETAX> 1,565,460
<INCOME-TAX> 244,263
<INCOME-CONTINUING> 305,858
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 305,858
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
