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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 January 31, 1998 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 February 28, 1998
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Membership Common Stock 665
Store Common Stock 6134
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KFC NATIONAL PURCHASING COOPERATIVE, INC. AND SUBSIDIARIES
INDEX TO QUARTERLY REPORT FORM 10-Q
<TABLE>
<CAPTION>
Part 1 - Financial Information
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Page (s)
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<S> <C> <C>
Item 1 Financial Statements
Condensed Consolidated Statements of Income
and Expenses
Three months ended January 31, 1998 and 1997 3
Condensed Consolidated Balance Sheets
January 31, 1998 and October 31, 1997 4
Consolidated Statements of Cash Flows
Three months ended January 31, 1998 and 1997 5
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 6-7
Part II - Other Information
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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>
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Part I - Financial Information
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Item 1. Financial Statements
KFC NATIONAL PURCHASING COOPERATIVE, INC. AND SUBSIDIARIES
Consolidated Statements of Income and Expenses
For the three months ended January 31, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
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<S> <C> <C>
Net sales $ 149,579,650 136,857,667
Cost of goods sold 145,424,241 133,224,997
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Gross profit 4,155,409 3,632,670
2.78% 2.65%
Selling, general and administrative expenses 3,213,314 2,853,486
2.15% 2.09%
Provision for losses on receivables 42,506 38,928
Other income (expenses):
Service charges 44,740 14,167
Interest income 72,264 108,785
Interest expense (64,734) (74,618)
Miscellaneous 28,717 25,072
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80,987 73,406
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Income before patronage
dividend and income taxes 980,576 813,662
Patronage dividend 878,410 522,749
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Income before income taxes 102,166 290,913
Provision for income taxes 36,340 119,051
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Net income $ 65,826 171,862
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</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
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KFC NATIONAL PURCHASING COOPERATIVE, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
January 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Assets January 31, October 31,
------ 1998 1997
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<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 1,800,796 160,065
Accounts receivable, less allowance for
losses of $1,447,036 at January 31, 1998 44,901,189 41,039,523
and $1,408,727 at October 31, 1997
Inventories:
Food 2,443,112 1,661,623
Equipment and promotional items 3,618,947 3,852,811
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6,062,059 5,514,434
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Current portion of note receivable from related party 60,000 60,000
Prepaid expenses and other current assets 106,656 129,885
Current portion of deferred income taxes 558,884 614,294
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Total Current Assets 53,489,584 47,518,201
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Office equipment, net 689,855 659,945
Investment in marketable equity security available for sale 54,620 0
Note receivable from related party, excluding current portion 117,948 117,948
Note receivable, excluding current portion 840,264 831,789
Deferred income taxes, excluding current portion 170,336 108,028
Other assets 523,783 564,429
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Total Assets $ 55,886,390 49,800,340
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Liabilities and Member's Equity
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Current Liabilities:
Short-term borrowings $ 1,060,696 572,394
Accounts payable 25,824,958 21,124,259
Accrued expenses 4,240,952 4,298,449
Premium deposits 328,807 328,807
Patronage dividend 3,768,734 2,890,324
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Total Current Liabilities 35,224,147 29,214,233
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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 6,670 6,650
Store common stock 1,722,890 1,700,490
Unrealized gain on marketable equity security 245 0
Retained earnings 15,995,674 15,929,848
Currency translation adjustment (63,236) (50,881)
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17,662,243 17,586,107
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Total Liabilities & Members' Equity $ 55,886,390 49,800,340
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</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
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KFC NATIONAL PURCHASING COOPERATIVE, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the three months ended January 31, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
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<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 65,826 171,862
Adjustments to reconcile net income to
net cash provided by (used in) operating activities:
Depreciation and amortization 104,570 98,875
Provision for losses on receivables 42,506 38,928
Deferred income tax benefit (6,898) (17,451)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (3,904,172) 3,060,483
(Increase) in inventories (547,625) (852,676)
(Increase) decrease in prepaid expenses
and other current assets 23,229 (8,925)
Increase (decrease) in accounts payable 4,700,699 (5,281,874)
(Decrease) in accrued expenses (57,497) (456,404)
Increase (decrease) in premium deposits 0 0
Increase in patronage dividend 878,410 522,750
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Net cash provided by (used in) operating activities 1,299,048 (2,724,432)
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Cash Flows from Investing Activities:
(Increase) decrease in other assets 28,748 (430,925)
Decrease in note receivable from related party 0 13,477
(Increase) decrease in notes receivable (8,475) 0
Purchase of marketable equity security (54,375) 0
Additions to office equipment (123,465) (58,880)
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Net cash used in investing activities (157,567) (476,328)
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Cash Flows from Financing Activities:
Increase (decrease) in short-term borrowings 488,302 (580,909)
Proceeds from sale of stock, net of costs 37,220 30,541
Retirement of stock (14,800) (23,110)
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Net cash provided by (used in) financing activities 510,722 (573,478)
Effect of exchange rate changes on cash and cash equivalents (11,472) (2,217)
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Net increase (decrease) in cash and cash equivalents 1,640,731 (3,776,455)
Cash and cash equivalents - beginning of period 160,065 6,875,629
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Cash and cash equivalents - end of period $ 1,800,796 3,099,174
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Supplemental information:
Income taxes paid $ 0 0
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Interest paid $ 64,734 74,618
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</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
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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, 1997, 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, 1997, 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, 1997, Form 10-K. The results of
operations for the three months ended January 31, 1998, are not necessarily
indicative of the operating results for the entire year.
Results of Operations
First Three Months of Fiscal 1998 Compared to the First Three Months of Fiscal
1997.
A comparison of material changes between the three months ended January 31,
1998, and the comparable period for the previous year shows:
The Cooperative set record first quarter sales. Sales for the first quarter of
1998 were $149,580,000. The old record was $136,958,000 set back in 1996. When
compared to the same quarter of 1997 with sales at $136,858,000, the first
quarter of 1998 increased by 9.3%. There were several contributing factors that
both positively and negatively affected the sales dollars. Although total
equipment sales for the first quarter 1998 were down slightly from 1997, Taco
Bell equipment posted an increase of approximately 60%. Food and packaging sales
for the first quarter 1998 increased by $12,923,000. The increased sales were
primarily attributable to KFC-U.S. up 12%, Taco Bell up 14% and the Horizon
group up 6%. The KFC-U.S. increase was primarily driven by the "Giga Pets"
promotion and dipping wings. The Taco Bell increase was a result of adding
additional restaurants compared to last year.
Gross profit as a percentage of sales for the first three months of 1998
increased to 2.78% from 2.65% in 1997. The small increase between the two
periods demonstrates the continuity of pricing strategies from 1998 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 to $3,213,314, a 13%
increase from 1997 to 1998. The increase is primarily associated with the
additional staff attributable to the expansion of the international division in
1997, a significant number of employees received increases in compensation in
order for their positions to be competitive in the Louisville market, and
additional staff has been added to focus more directly on the franchisee
customers. Management is constantly monitoring costs to provide the required
service to the stockholder members and other customers.
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Management believes the current provision for losses on uncollectible accounts
to be adequate.
The provision for patronage dividend for 1998 has been calculated and accrued on
a formula approved by the Board of Directors. Patronage dividends for fiscal
1998 will be apportioned based on stockholder concepts and their relative
contribution to income before patronage dividend and taxes.
In October 1997, PepsiCo, Inc. spun off its three primary restaurant divisions
- -- KFC, Taco Bell, and Pizza Hut -- into a new public company, Tricon Global
Restaurants, Inc. ("Tricon"). Also during fiscal 1997, PepsiCo sold its
restaurant distribution subsidiary, Pepsi Food Service ("PFS") to AmeriServe
Food Distribution, Inc. ("AmeriServe"). AmeriServe has been and continues to be
the second largest Cooperative customer, purchasing goods for distribution to
primarily KFC franchisees. When AmeriServe purchased PFS, it acquired rights
under a five-year distribution agreement. This agreement binds Tricon to use
AmeriServe distribution services for Tricon owned KFC, Taco Bell, and Pizza Hut
outlets. The agreement also extends to Taco Bell and Pizza Hut restaurants sold
as part of Tricon's announced program of refranchising certain Tricon-owned
restaurants to existing and new franchisees. AmeriServe does not purchase goods
through the Cooperative for distribution under its five-year Tricon agreement.
On January 29, 1998 AmeriServe announced that it had signed a definitive merger
agreement under which AmeriServe will acquire all outstanding shares of
ProSource, Inc. ("ProSource"). The merger is subject to customary regulatory
approvals. The merger is expected to close in the second quarter of 1998. For
the year ended October 31, 1997 ProSource was the Cooperative's 6th largest
distributor with total sales of approximately $19,000,000. The Cooperative and
its members continue to monitor their relationship with AmeriServe. The impact
of Tricon's formation, AmeriServe's acquisition of PFS and the merger with
ProSource on the business of the Cooperative remains uncertain.
Financial Condition at January 31, 1998 Compared to Financial Condition at
October 31, 1997.
Net working capital at January 31, 1998, was $18,265,437, which is a modest
decrease of $38,531 since October 31, 1997. Cash and cash equivalents, accounts
receivable and inventories increased by $1,640,731, $3,861,666 and $547,625,
respectively. These working capital items were offset by an increase in short
term borrowings, accounts payable and patronage dividends of $488,302,
$4,700,699 and $878,410. Prepaid expenses and other current assets decreased by
$23,229.
Trademarks
"Fazoli's," "Long John Silver's," "Dairy Queen," "Taco Bell," and "KFC," are
registered trademarks of Seed Restaurant Group 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., 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.
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Part II - Other Information
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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
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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: March 13, 1998 KFC National Purchasing Cooperative, Inc.
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By: /s/ Thomas D. Henrion
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Thomas D. Henrion, President
Date: March 13, 1998 By: /s/ William V. Holden
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William V. Holden,
Vice President/Chief Financial Officer
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<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> JAN-31-1998
<CASH> 1,800,796
<SECURITIES> 0
<RECEIVABLES> 46,348,225
<ALLOWANCES> 1,447,036
<INVENTORY> 6,062,059
<CURRENT-ASSETS> 53,489,584
<PP&E> 3,698,725
<DEPRECIATION> 3,038,780
<TOTAL-ASSETS> 55,886,390
<CURRENT-LIABILITIES> 35,224,147
<BONDS> 3,000,000
0
0
<COMMON> 0
<OTHER-SE> 17,662,243
<TOTAL-LIABILITY-AND-EQUITY> 55,886,390
<SALES> 149,579,650
<TOTAL-REVENUES> 149,579,650
<CGS> 145,424,241
<TOTAL-COSTS> 145,424,241
<OTHER-EXPENSES> 3,213,314
<LOSS-PROVISION> 42,506
<INTEREST-EXPENSE> 64,734
<INCOME-PRETAX> 102,166
<INCOME-TAX> 36,340
<INCOME-CONTINUING> 65,826
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 65,826
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
