<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, 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 August 31, 1997
----------------------------
Membership Common Stock 647
-----
Store Common Stock 5995
-----
<PAGE> 2
KFC NATIONAL PURCHASING COOPERATIVE, INC. AND SUBSIDIARIES
INDEX TO QUARTERLY REPORT FORM 10-Q
<TABLE>
<CAPTION>
Part 1 - Financial Information
Page (s)
--------
<S> <C> <C>
Item 1 Financial Statements
Condensed Consolidated Statements of Income
and Expenses
Three months ended July 31, 1997 and 1996 3
Condensed Consolidated Statements of Income
and Expenses
Nine months ended July 31, 1997 and 1996 4
Condensed Consolidated Balance Sheets
July 31, 1997 and October 31, 1996 5
Consolidated Statements of Cash Flows
Nine months ended July 31, 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
<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 July 31, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Net sales $ 169,353,350 155,288,234
Cost of goods sold 164,542,434 150,755,682
------------- ------------
Gross profit 4,810,916 4,532,552
Selling, general and administrative expenses 3,101,045 2,735,974
Provision for losses on receivables 38,794 146,472
Other income (expenses):
Service charges 66,562 18,818
Interest income 50,757 114,117
Interest expense (78,754) (70,890)
Miscellaneous 18,423 14,376
------------- ------------
56,988 76,421
------------- ------------
Income before patronage
dividend and income taxes 1,728,065 1,726,527
Patronage dividend 1,211,150 930,925
------------- ------------
Income before income taxes 516,915 795,602
Provision for income taxes 197,386 317,187
------------- ------------
Net income $ 319,529 478,415
============= ============
</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 nine months ended July 31, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Net sales $ 443,336,742 427,479,619
Cost of goods sold 431,156,769 415,746,233
------------- ------------
Gross profit 12,179,973 11,733,386
As a percentage of sales 2.7473% 2.7448%
Selling, general and administrative expenses 8,979,681 8,129,261
As a percentage of sales 2.0255% 1.9017%
Provision for losses on receivables 116,544 309,431
Other income (expenses):
Service charges 94,825 57,330
Interest income 264,663 365,447
Interest expense (219,096) (202,288)
Miscellaneous 69,385 48,625
------------- ------------
209,777 269,114
------------- ------------
Income before patronage
dividend and income taxes 3,293,525 3,563,808
Patronage dividend 2,226,489 1,966,089
------------- ------------
Income before income taxes 1,067,036 1,597,719
Provision for income taxes 441,649 632,131
------------- ------------
Net income $ 625,387 965,588
============= ============
</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, 1997
(Unaudited)
<TABLE>
<CAPTION>
July 31, October 31,
Assets 1997 1996
------ ---- ----
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 171,694 6,875,629
Accounts receivable, less allowance for
losses of $1,403,182 at July 31, 1997 49,330,630 37,322,523
Inventories:
Food and packaging 706,486 1,497,589
Equipment 1,261,536 980,383
------------ ----------
1,968,022 2,477,972
------------ ----------
Refundable income taxes 0 32,115
Current portion of note receivable from related party 60,000 60,000
Prepaid expenses and other current assets 168,912 133,421
Current portion of deferred income taxes 576,964 582,899
------------ ----------
Total Current Assets 52,276,222 47,484,559
------------ ----------
Office equipment, net 695,132 669,247
Note receivable from related party, excluding current portion 139,959 174,502
Note receivable, excluding current portion 831,789 831,789
Deferred income taxes, excluding current portion 142,083 115,895
Goodwill 332,198 0
Other assets 263,258 169,586
------------ ----------
Total Assets $ 54,680,641 49,445,578
============ ==========
Liabilities and Member's Equity
Current Liabilities:
Short-term borrowings $ 1,622,530 1,438,519
Accounts payable 26,539,396 22,077,137
Accrued expenses 3,518,226 3,027,064
Premium deposits 336,340 339,574
Patronage dividend 2,226,488 2,761,717
------------ ----------
Total Current Liabilities 34,242,980 29,644,011
------------ ----------
Long-term note payable 3,000,000 3,000,000
------------ ----------
Commitments and Contingencies
Members' Equity:
Membership common stock 6,450 6,240
Store common stock 1,666,775 1,645,930
Retained earnings 15,806,878 15,181,470
Currency translation adjustment (42,442) (32,073)
------------ ----------
17,437,661 16,801,567
------------ ----------
Total Liabilities & Members' Equity $ 54,680,641 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 nine months ended July 31, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 625,387 965,588
Adjustments to reconcile net income to
net cash provided by (used in) operating activities:
Depreciation and amortization 267,888 305,047
Disposal of assets 7,099 531
Provision for losses on receivables 116,544 309,431
Deferred income tax benefit (20,253) (90,573)
Changes in operating assets and liabilities:
(Increase) in accounts receivable (12,124,651) (4,572,018)
(Increase) decrease in inventories 509,950 (1,819,062)
Decrease in refundable income taxes 32,115 6,300
(Increase) in prepaid expenses and other current assets (35,491) (13,463)
Increase in accounts payable 4,462,280 2,843,569
Increase in accrued expenses 491,162 897,458
(Decrease) in premium deposits (3,234) (11,461)
Increase (decrease) in patronage dividend (535,229) 720,487
------------ ----------
Net cash provided by (used in) operating activities (6,206,433) (458,166)
Cash Flows from Investing Activities:
Decrease in note receivable from related party 34,543 53,152
Decrease in notes receivable, net 0 0
(Increase) Decrease in other assets, net (463,652) 412
Additions to office equipment (260,160) (156,414)
------------ ----------
Net cash provided by investing activities (689,269) (102,850)
Cash Flows from Financing Activities:
Increase in short-term borrowings 184,011 1,414,061
Proceeds from sale of stock, net of costs 70,645 33,780
Retirement of stock (49,590) (13,620)
------------ ----------
Net cash provided by (used in) financing activities 205,066 1,434,221
Effect of exchange rate changes on cash and cash equivalents (13,299) (6,471)
------------ ----------
Net decrease in cash and cash equivalents (6,703,935) 866,734
Cash and cash equivalents, net of checks drawn in excess of bank
balance - beginning of period 6,875,629 2,443,168
------------ ----------
Cash and cash equivalents - end of period $ 171,694 3,309,902
============ ==========
Supplemental information:
Income taxes paid $ 197,375 653,621
============ ==========
Interest paid $ 219,096 202,288
============ ==========
</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, 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 nine months ended July 31, 1997, are not necessarily
indicative of the operating results for the entire year.
Results of Operations
First Nine Months of Fiscal 1997 Compared to the First Nine Months of Fiscal
1996.
A comparison of material changes between the nine months ended July 31, 1997 and
the comparable period for the previous year shows:
Net sales increased by $15,857,123 from the first nine months of fiscal 1996.
The increase in year-to-date sales was primarily attributable to Taco Bell with
a 7.5% increase, and the Horizon Group, with a 3.4% increase. For the first nine
months KFC-U.S. showed a modest increase of .7% compared with 1996, while
KFC-Canada volumes were slightly below 1996 levels. Year-to-date 1997 sales in
our Canadian subsidiary were approximately $37,254,000 resulting in a decrease
of $413,000 from the same period in 1996.
Gross profit as a percentage of sales for the first nine months of 1997 remained
constant at 2.74%. 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 $850,420 from 1996 to
1997. The increase in expenses is primarily attributable to start-up cost of the
international division along with increased travel associated with of the
Cooperative's efforts to focus on working more closely with 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 decreased by $192,887.
Management believes the current provision is adequate.
7
<PAGE> 8
The provision for Patronage Dividend for 1997 has been calculated and accrued on
a formula approved by the Board of Directors. Patronage dividends are
significantly higher for fiscal 1997 compared to fiscal 1996 as a result of the
increase in payout rate in the formula coupled with increased sales and margins.
Patronage dividends for fiscal 1997 will be calculated based on membership
concepts and their relative contribution to income before patronage dividend and
taxes.
PepsiCo expects that in October 1997 it will spin off its global restaurant
businesses, including the KFC, Pizza Hut and Taco Bell concepts, to PepsiCo
shareholders as an independent company. The new company will be known as Tricon
Global Restaurants, Inc. ("Tricon"). In anticipation of the spin off, PepsiCo
sold its wholly owned subsidiary, PepsiCo Food Systems ("PFS") to Ameriserve
Food Distribution, Inc. ("Ameriserve"), effective July 1997. PFS has been a
distributor of more than $3.4 billion worth of food, equipment and supplies each
year, primarily to Pizza Hut, Taco Bell and KFC restaurants.
With the acquisition of PFS, Ameriserve will become a distribution company with
an estimated 5.4 billion in sales. Ameriserve has been one of the Cooperative's
largest customers with distribution to approximately 700 KFC operators and
purchases from the Cooperative during fiscal 1996 of approximately $84,000,000.
Tricon, through its KFC, Pizza Hut, and Taco Bell subsidiaries, has entered into
a five-year sales and distribution agreement with PFS maintaining certain
quality and performance levels. The Cooperative is currently analyzing its
strategic alternatives to respond to these developments regarding PepsiCo and
Tricon. The Cooperative will continue is efforts with participating operators to
coordinate a distribution system that meets their economic needs and maintains a
high level of service.
Third Quarter Fiscal 1997 Compared to Third Quarter Fiscal 1996
Net sales for the third quarter of 1997 reflect an increase of $14,065,116 or
9.1% over the third quarter of 1996. Leading the increases in consolidated sales
were KFC-U.S. up 9.6% and Taco Bell up 8.4% over the third quarter of last year.
Equipment sales for the third quarter of 1997 were up approximately 29%, with
KFC-U.S. and Taco Bell accounting for approximately 79% of the increase. Food
and packaging sales were up 6.4% for the third quarter of 1997, with increased
volumes from both KFC and Taco Bell. Net sales of approximately $13,458,000 for
the third quarter of 1997 in our Canadian subsidiary reflect a decrease of
$760,000 or 5.3% compared with the same period in 1996. Selling, general and
administrative expenses increased slightly from 1.83% for the third quarter of
fiscal 1997 compared to 1.76% for the same period last year.
Financial Condition at July 31, 1997 Compared to Financial Condition at October
31, 1996.
Net working capital at July 31, 1997, was $18,033,242, which is an increase of
$192,694 since October 31, 1996. Accounts receivable increased $12,008,107.
Offsetting the increase in receivables were the decreases in cash and cash
equivalents of $6,703,935 and inventories of $509,905. In addition, accounts
payable, short term borrowings and accrued expenses increased by $4,462,259,
$184,011 and $491,162, respectively. The equity in the Cooperative has increased
by $636,094 since October 31, 1996.
Trademarks
"Fazoli's," "Long John Silver's," "Dairy Queen," "Taco Bell," "Pizza Hut," and
"KFC" are registered trademarks of Seed Restaurant Group Inc., Long John
Silver's Inc., American Dairy Queen Corporation, Taco Bell Corporation, Pizza
Hut 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., Long John Silver's Inc., American Dairy
Queen Corporation, Taco Bell Corporation, Pizza Hut 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 - 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.
KFC National Purchasing Cooperative, Inc.
Date: September 12, 1997 By: /s/ Thomas D. Henrion
------------------ --------------------------------------
Thomas D. Henrion, President
Date: September 12, 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> 9-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> JUL-31-1997
<CASH> 171,694
<SECURITIES> 0
<RECEIVABLES> 50,733,812
<ALLOWANCES> 1,403,182
<INVENTORY> 1,968,022
<CURRENT-ASSETS> 52,276,222
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 54,680,641
<CURRENT-LIABILITIES> 34,242,980
<BONDS> 0
0
0
<COMMON> 1,673,225
<OTHER-SE> 15,764,436
<TOTAL-LIABILITY-AND-EQUITY> 54,680,641
<SALES> 443,336,742
<TOTAL-REVENUES> 443,336,742
<CGS> 431,156,769
<TOTAL-COSTS> 431,156,769
<OTHER-EXPENSES> 8,979,681
<LOSS-PROVISION> 116,544
<INTEREST-EXPENSE> 219,096
<INCOME-PRETAX> 1,067,036
<INCOME-TAX> 441,649
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 625,387
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
