<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 March 31, 2000 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
--------------------
- --------------------------------------------------------------------------------
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 April 30, 2000
--------------
Membership Common Stock 561
Store Common Stock 5140
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
Page (s)
--------
<S> <C> <C>
Part 1 - Financial Information
- ------------------------------
Item 1 Financial Statements
Condensed Consolidated Statements of Income
For the three months ended March 31, 2000 and 1999 3
Condensed Consolidated Balance Sheets
March 31, 2000 and December 31, 1999 4
Condensed Consolidated Statements of Cash Flows
For the three months ended March 31, 2000 and 1999 5
Notes to Condensed Consolidated Financial Statements 6-8
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-12
Part II - Other Information
- ---------------------------
Item 1 Legal Proceedings 13
Item 4 Submission of Matter to a Vote of Security - Holders 13
Item 6 Exhibits and Reports on Form 8-K 14
Signatures 15
</TABLE>
2
<PAGE> 3
Part I - Financial Information
- -----------------------------------------
Item 1. Financial Statements
KFC NATIONAL PURCHASING COOPERATIVE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income
For the three months ended March 31, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Net sales $ 777,514 $ 115,572,278
Cost of goods sold 744,774 112,729,513
--------- -------------
Gross profit 32,740 2,842,765
Share in earnings of UFPC 914,264 (160,524)
Selling, general and administrative expenses 100,614 2,284,386
Provision for losses on receivables 5,000 146,863
Other income (expenses):
Service charges -- 34,637
Interest income 119,268 17,388
Interest expense (6) (108,137)
Miscellaneous 7,549 62,168
--------- -------------
126,811 6,056
--------- -------------
Income before patronage
dividend and income taxes 968,201 257,048
Patronage dividend 827,334 445,177
--------- -------------
Income (loss) before income taxes 140,867 (188,129)
Provision (Benefit) for income taxes 56,628 (56,472)
--------- -------------
Net income (loss) $ 84,239 $ (131,657)
========= =============
</TABLE>
The accompanying notes are an integral part of the condensed
consolidated financial statements.
3
<PAGE> 4
KFC NATIONAL PURCHASING COOPERATIVE, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
ASSETS MARCH 31, DECEMBER 31,
------ 2000 1999
---- ----
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 11,531,548 $ 9,623,071
Accounts and note receivable, less allowance for
losses of $624,197 in 2000 and $676,141 2,997 633,161
Deferred income taxes 521,835 532,691
Note receivable from related party 50,000 50,000
------------ ------------
Total Current Assets 12,106,380 10,838,923
Note receivable from UFPC 8,300,000 8,263,865
Investment in UFPC 2,871,609 3,767,462
Notes receivable from related party, excluding current portion 400,000 577,948
Deferred income taxes 9,603 9,603
Other assets 35,016 139,575
------------ ------------
Total Assets $ 23,722,608 $ 23,597,376
============ ============
LIABILITIES AND MEMBERS' EQUITY
-------------------------------
Current Liabilities:
Short-term borrowings $ 1,000 $ 1,000
Accounts payable 4,089 188,264
Accounts payable to related party 109,443 23,946
Accrued expenses 297,924 825,683
Patronage dividend payable 5,669,235 4,841,901
------------ ------------
Total Current Liabilities 6,081,691 5,880,794
------------ ------------
Commitments and Contingencies
Members' Equity:
Membership common stock 5,600 5,780
Store common stock 1,315,116 1,479,924
Accumulated other comprehensive income (63,170) (68,255)
Retained earnings 16,383,371 16,299,133
------------ ------------
17,640,917 17,716,582
------------ ------------
Total Liabilities and Members' Equity $ 23,722,608 $ 23,597,376
============ ============
</TABLE>
The accompanying notes are an integral part of the condensed
consolidated financial statements.
4
<PAGE> 5
KFC NATIONAL PURCHASING COOPERATIVE, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
For the three months ended March 31, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 84,239 $ (131,657)
Adjustments to reconcile net income to
net cash provided by (used in) operating activities:
Depreciation and amortization 2,085 119,373
Provision for losses on receivables 5,000 146,863
Undistributed share of earnings in UFPC 895,853 (545,035)
Deferred income taxes 10,856 (63,367)
Changes in operating assets and liabilities:
Accounts receivable 625,164 31,019,447
Accounts receivable from related party -- (1,534,209)
Inventories -- 4,058,909
Prepaid expenses -- (119,143)
Other assets 102,474 (256,781)
Accounts payable (184,175) (24,060,798)
Accounts payable to related party 85,497 --
Accrued expenses (527,759) (2,254,527)
Premium deposits -- (258)
Patronage dividend payable 827,334 437,913
------------ ------------
Net cash provided by operating activities 1,926,568 6,816,730
------------ ------------
Cash Flows from Investing Activities:
Investment in UFPC -- (1,000,000)
Notes receivable from UFPC (36,135) (3,938,856)
Notes receivable from related party 177,948 6,373,526
Additions to office equipment -- 631,695
------------ ------------
Net cash provided by investing activities 141,813 2,066,365
------------ ------------
Cash Flows from Financing Activities:
Short-term borrowings -- (6,735,814)
Proceeds from sale of stock, net of costs (3,209) 33,165
Retirement of stock (161,780) --
Distribution to Taco Bell Co-op -- (334,140)
------------ ------------
Net cash used in financing activities (164,989) (7,036,789)
Effect of exchange rate changes on cash and cash equivalents 5,085 4,802
------------ ------------
Net increase in cash and cash equivalents 1,908,477 1,851,108
Cash and cash equivalents - beginning of period 9,623,071 919,856
------------ ------------
Cash and cash equivalents - end of period $ 11,531,548 $ 2,770,964
============ ============
Supplemental information:
Income taxes paid $ 403,500 $ --
============ ============
Interest paid $ -- $ 104,397
============ ============
</TABLE>
The accompanying notes are an integral part of the condensed
consolidated financial statements.
5
<PAGE> 6
NOTES 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, 1999 and the Transition Report on Form 10-Q for the two months
ended December 31, 1999, 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, 1999 and the Transition Report on Form 10-Q for the two months ended
December 31, 1999, 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 (which include only normal recurring adjustments)
necessary for fair presentation of this information have been made.
On December 8, 1999, the KFC Co-op's Board of Directors determined to change the
Registrant's fiscal year end from October 31 to December 31. In connection with
the change in fiscal year, the KFC Co-op filed a report on Form 10-Q covering
the transition period from October 31, 1999 to December 31, 1999.
2. Comprehensive Income (Loss)
Comprehensive income (loss) consist of the following:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------
2000 1999
-------------------------
<S> <C> <C>
Net income (loss) $84,239 $(131,657)
Other comprehensive income (loss):
Change in unrealized gain on marketable equity securities -- (57,511)
Foreign currency translation adjustment (net of related tax benefit
of $0 in 2000 and 1999) 5,085 4,802
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Comprehensive income (loss) $89,324 $(184,366)
======= ==========
</TABLE>
3. Contingencies
In April 1996, the KFC National Purchasing Cooperative, Inc. ("KFC Co-op")
entered into a finance program for stockholder members co-sponsored by the
National Cooperative Bank. The program initially provided up to $20,000,000 in
loans to KFC Co-op members which range from $110,000 to an individual maximum of
$2,000,000. The KFC Co-op has guaranteed from 10% to 25% of the declining
balance based on each loan's classification. The National Cooperative Bank has
agreed to maintain a reserve account which will be applied to losses prior to
the KFC Co-op incurring any loss. The reserve account is funded pursuant to the
program agreements. The National Cooperative Bank's commitment to provide such
loans terminated in June 1997. As of March 31, 2000, the National Cooperative
Bank has funded approximately $8.4 million of credit risk associated with their
guarantees through credit and monitoring procedures associated with their
approval and periodic payments and reporting from the primary lender, the
National Cooperative Bank. Currently, no losses are expected by the KFC Co-op
under this program.
6
<PAGE> 7
4. Ameriserve Food Distribution, Inc.
On January 31, 2000, AmeriServe Food Distribution, Inc. ("AmeriServe") filed in
Delaware for protection under Chapter 11 of the U.S. bankruptcy code. AmeriServe
is the primary U.S. food and dry goods distributor for Tricon Global
Restaurants, Inc. ("Tricon"). The bankruptcy court in Delaware has approved
financing commitments to AmeriServe from Tricon and Burger King Corp. In
addition, to provide its suppliers confidence to continue shipping to KFC, Taco
Bell and Pizza Hut restaurants, Tricon has told its suppliers that it would be
responsible for payment of goods approved by and purchased by Tricon through
AmeriServe for use at any Tricon owned, franchised or licensed restaurant from
January 31, 2000 until further notice by Tricon. Tricon anticipates that
AmeriServe will continue the administrative functions of ordering and invoicing,
in AmeriServe's name, of Tricon purchased goods. As in most bankruptcies
involving a primary supplier or distributor, the AmeriServe bankruptcy poses
certain risks and uncertainties to the KFC Co-op, as well as to our stockholder
members that rely on AmeriServe to distribute supplies to their restaurants.
Significant adverse developments in any of these risks or uncertainties could
have a material adverse impact on the KFC Co-op's results of operations,
financial condition or cash flow. The long-term impact of AmeriServe's
bankruptcy on the business of the KFC Co-op remains uncertain. The KFC Co-op's
share of earnings from UFPC was reduced by approximately $1,095,000, during the
three months ended March 31, 2000, arising from the KFC Co-op's portion of
Unified Foodservice Purchasing Co-op, LLC ("UFPC")'s write-off of receivables
related to the bankruptcies of AmeriServe and one of its subsidiaries.
5. Legal Proceedings
On July 31, 1998, the KFC Co-op filed a complaint against Fred Jeffrey, a
former consultant to the KFC Co-op, and his wife, Julianna Jeffrey
(collectively, the "Jeffreys"), alleging breach of contract, conversion and
unjust enrichment. The KFC Co-op alleged in its complaint that the Jeffreys
breached certain contracts with the KFC Co-op by not fully repaying a $600,000
loan from the KFC Co-op and for converting certain funds that were to be used to
repay that loan. At the time of filing the complaint, the Jeffreys were in
default for approximately $194,036.95 under the loan. The Jeffreys each filed
separate answers to the complaint, denying that they were in default and
asserting that the loan was non-recourse in nature. Fred Jeffrey filed a
counterclaim against the KFC Co-op, alleging that the KFC Co-op fraudulently
induced him into selling his business and becoming a consultant to the KFC
Co-op. He also alleged fraud and deceit, unjust enrichment and quantum meruit,
wrongful discharge/breach of contract, and breach of contract and tortious
interference with a known contractual relationship. He asked for more than $3.7
million in compensatory damages and an unspecified amount in punitive damages.
Julianna Jeffrey also filed a counterclaim, alleging fraud and deceit. She
requested more than $1.4 million in damages. Trial began on February 22, 2000,
and the jury returned its verdict on March 8, 2000. The jury awarded zero
damages on the Jeffreys' three fraud claims, zero damages on Mr. Jeffrey's claim
for tortious interference with a contract, and $50,000 on Mr. Jeffrey's breach
of contract claim related to the early termination of his consulting agreement
with the KFC Co-op. The court dismissed the Cooperative's claims for repayment
of the loan. The KFC Co-op has requested that the court reconsider its decision
to dismiss the KFC Co-op's claims and vacate the jury's award of $50,000. A
hearing is set for June 2, 2000.
7
<PAGE> 8
5 Investment in Unified Foodservice Purchasing Co-op, LLC
UFPC is owned by its members, consisting of the KFC Co-op, Taco Bell
National Purchasing Co-op, Inc. ("Taco Bell Co-op") and Pizza Hut National
Purchasing Co-op, Inc. ("Pizza Hut Co-op"). The KFC Co-op accounts for its
investment in UFPC based on the Cooperative's share of earnings net of
distributions of UFPC in accourdance with Purchasing Program Management
Agreement. Earnings of UFPC are divided between KFC Co-op, Taco Bell
Co-op, and Pizza Hut Co-op, the ("Concept Co-ops") primarily on the basis
of patronage. During the three months ended March 31, 2000 the KFC Co-op
received cash distributions from UFPC of $1,810,117. Summarized financial
information of UFPC as of and for the three months ended March 31, 2000 is
as follows:
<TABLE>
<CAPTION>
Three Months ended 3/31/00 KFC Co-op Taco Bell Co-op Pizza Hut Co-op Kenco Total UFPC
-------------------------- ------------ -------------- --------------- --------- ------------
<S> <C> <C> <C> <C> <C>
Sales $ 75,434,540 $ 8,147,026 $ 3,023,592 $ 211,605 $ 86,816,763
Gross profit 2,195,914 446,504 130,302 211,605 2,984,325
Sourcing Fee 2,058,872 3,835,115 1,971,773 - 7,865,760
Net income (loss) 914,264 (2,749,135) (697,714) 25,551 (2,507,034)
Current assets $ 36,554,354
Non-current assets 1,315,556
Current liabilities 25,851,690
Non-current liabilities 8,594,540
Members' Equity 3,423,680
--------------------------------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE> 9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operation.
The KFC National Purchasing Cooperative, Inc. ("KFC Co-op") is a purchasing
cooperative which focuses on the purchase of the food, packaging, supplies,
equipment and related services used by owners and operators of KFC restaurants,
including Tricon Global Restaurants, Inc. ("Tricon"). Along with cooperatives
representing owners and operators of Taco Bell and Pizza Hut restaurants, we are
a member of the Unified Foodservice Purchasing Co-op, LLC, ("UFPC") which
administers our purchasing program. Tricon, together with its subsidiaries, is
the franchisor and licensor of the KFC, Taco Bell and Pizza Hut concepts, the
developer of products used and sold by the Tricon concepts, and an operator of
many KFC, Taco Bell and Pizza Hut retail outlets.
The following discussion and analysis of financial condition and results of
operations should be read in conjunction with management's discussion and
analysis of financial condition and results of operations in the KFC Co-op's
October 31, 1999, Form 10-K and December 31, 1999 Transition Report on Form
10-Q. The results of operations for the three months ended March 31, 2000, are
not necessarily indicative of the operating results for the entire year.
Results of Operations
First Three Months of Fiscal 2000 Compared to the First Three Months
of Fiscal 1999
The KFC Co-op's Corporate Reorganization has materially affected the
presentation of its results of operations. As a result of the Corporate
Reorganization, the KFC Co-op's primary source of revenues effective March 1,
1999 has been earnings pursuant to the KFC Co-op's Purchasing Program Management
Agreement with UFPC. Because net sales previously recorded by the KFC Co-op
became net sales of UFPC effective March 1, 1999, the KFC Co-op's net sales for
the three months ended March 31, 2000, decreased significantly from the same
period ended March 31, 1999. Net sales for the KFC Co-op for the period ending
March 31, 2000 are attributable to sales from its international subsidiary. The
International subsidiary is currently winding down operations and has not
processed new orders since January, 2000. Set forth below is comparative
information concerning net sales of the KFC Co-op and UFPC for the relevant
periods.
<TABLE>
<CAPTION>
Sales ($000)
-----------------------------------------------------------
Three Months Ended 3/31/00 Three Months Ended 3/31/99
-------------------------- --------------------------
<S> <C> <C>
KFC Co-op $ 778 $115,572
UFPC 86,817 53,551
-------- --------
$ 87,595 $169,123
========= ========
</TABLE>
Aggregate sales of the KFC Co-op and UFPC decreased by $81,528,000 or 48.2% for
the three months ended March 31, 2000 compared to the same period in 1999. Food
and packaging sales decreased by approximately $80,529,000. Sales for
KFC-Canada, International, and all other non-Tricon brands decreased by
$20,041,000 resulting from the termination of those programs at the time of the
formation of UFPC and the focus solely on the three Tricon brand (KFC, Taco Bell
and Pizza Hut). KFC-U.S., Taco Bell and Pizza Hut food and packaging sales
decreased by $14,608,000, $26,362,000 and $19,518,000 respectively for the three
months ended March 31, 2000, compared to the same three month period in 1999.
These reductions are indicative of the movement to "non-title" for certain
distributors for all three brands. Aggregate equipment sales for the three
months of 2000 decreased $1,184,000 from 1999. KFC-U.S equipment sales increased
by $867,000. Taco Bell and Pizza Hut equipment sales decreased approximately
$1,234,000 and $290,000, respectively, when compared to the same three months in
1999. International equipment sales for the three months decreased by $453,000.
Sales were further mitigated by the decrease in volumes of approximately $74,000
as a result of the termination of purchasing programs related to the non-Tricon
brands, similar to food and packaging, as discussed previously. Insurance
revenues increased by $185,000 in the first three months of 2000.
9
<PAGE> 10
On January 31, 2000, AmeriServe Food Distribution, Inc. ("AmeriServe") filed in
Delaware for protection under Chapter 11 of the U.S. bankruptcy code. AmeriServe
is the primary U.S. food and dry goods distributor for Tricon. The bankruptcy
court in Delaware has approved financing commitments to AmeriServe from Tricon
and Burger King Corp. In addition, to provide its suppliers confidence to
continue shipping to KFC, Taco Bell and Pizza Hut restaurants, Tricon has told
its suppliers that it would be responsible for payment of goods approved by and
purchased by Tricon through AmeriServe for use at any Tricon owned, franchised
or licensed restaurant from January 31, 2000 until further notice by Tricon.
Tricon anticipates that AmeriServe will continue the administrative functions of
ordering and invoicing, in AmeriServe's name, of Tricon purchased goods. As in
most bankruptcies involving a primary supplier or distributor, the AmeriServe
bankruptcy poses certain risks and uncertainties to the KFC Co-op, as well as to
our stockholder members that rely on AmeriServe to distribute supplies to their
restaurants. Significant adverse developments in any of these risks or
uncertainties could have a material adverse impact on the KFC Co-op's results of
operations, financial condition or cash flow. The long-term impact of
AmeriServe's bankruptcy on the business of the KFC Co-op remains uncertain.
Starting on March 1, 1999, for the period ended December 31, 1999 and future
calendar quarters, the KFC Co-op will generally recognize its portion of the
income (loss) generated through UFPC in accordance with the Purchasing Program
Management Agreement. Included in the income statement for the three months
ending March 31, 2000, is $914,264 which represents the KFC Co-op's share of the
profit generated from the KFC purchasing program. The KFC Co-op's share of
earnings from UFPC was reduced by approximately $1,095,000 arising from the KFC
Co-op's portion of UFPC's write-off of receivables related to the bankruptcies
of AmeriServe and one of its subsidiaries. In accordance with the operating
agreement of UFPC, the operations of the three Concept Co-ops were assigned to
UFPC and the synergies in purchasing, in addition to the sharing of expenses,
are expected to result in an overall savings to the three brands. Future
quarters for the KFC Co-op will primarily reflect its share of earnings from
UFPC. For the three months ended March 31, 2000, Taco Bell National Purchasing
Co-op, Inc. ("Taco Bell Co-op's") and Pizza Hut National Purchasing Co-op, Inc.
("Pizza Hut Co-op's") share in the losses of the Taco Bell and Pizza Hut
purchasing programs were $2,749,135 and $697,714, respectively.
A comparison of selling, general and administrative expenses for the periods
ended March 31, 2000 and 1999 reflects a significant decrease. On March 1, 1999,
with the formation of UFPC, the employees of the KFC Co-op and Tricon's Supply
Chain Management became employees of UFPC. UFPC now provides purchasing services
for the KFC Co-op through the Purchasing Program Management Agreement.
As part of the formation of UFPC, Kenco Insurance Agency, (Kenco) a subsidiary
of the KFC Co-op, was transferred to UFPC. Before the transfer, Kenco paid a
dividend to the KFC Co-op in the amount of $902,669, representing earnings
before March 1, 1999, the effective transfer date.
Income before patronage dividend and income taxes for the three months increased
by $711,153 or 277% which is attributable to the higher sales volumes for
KFC-U.S., as a result of the participation of all KFC restaurants, franchisees
and corporate members in UFPC's program. Prior to March 1, 1999, the stores
owned by Tricon, the franchisor of KFC restaurants had not participated
significantly in the purchase of goods and equipment from the KFC Co-op since
approximately the early 1990's.
Management believes the current provision for losses on uncollectible accounts
to be adequate.
The provision for patronage dividend for 2000 has been calculated and accrued on
a formula approved by the Board of Directors. For the three months of 2000, the
provision was $827,334, an increase of $382,157 over the same period last year.
The increase is primarily associated with the income from UFPC based on the
allocation to the KFC Co-op and an increase in the distributed patronage
percentage. Income before patronage dividend at March 31, 1999 was $257,048 due
to net losses incurred by its non patronage source subsidiaries of $299,442.
10
<PAGE> 11
Financial Condition at March 31, 2000 Compared to Financial Condition
at December 31, 1999
Net working capital at March 31, 2000 was $6,024,689, an increase of $1,066,560
since December 31, 1999. Cash and cash equivalents increased by $1,908,477.
Accounts receivable, deferred income taxes, accounts payable, and accrued
expenses decreased by $630,164, $10,856, $184,175 and $527,759, respectively.
These working capital items were offset by increases in patronage dividend
payable and accounts payable to related party of $827,334 and $85,497,
respectively. The balance sheet is indicative of the transactions associated
with the formation of UFPC. The KFC Co-op, on March 1, 1999, contributed certain
assets, primarily office equipment, to UFPC as part of the capital contribution.
In addition, as of March 31, 2000 the KFC Co-op had invested $2,000,000 in UFPC.
The other two Concept Co-op's also contributed capital of equal amounts which
provided UFPC capital in the amount of $6,000,000 to fund its operations and
start up. Based on the formulas to determine working capital requirements by KFC
Co-op, Taco Bell Co-op, and Pizza Hut Co-op, the ("Concept Co-ops") each member
of UFPC is required to provide individually their funds. Each Concept Co-op has
its own line of credit and borrows or funds out of its own working capital the
needs required to support its own programs with UFPC. As of March 31, 2000, KFC
Co-op had provided UFPC with $8,300,000 in working capital loans in addition to
its capital contribution.
Since UFPC provides the operational support for the Concept Co-ops, the balance
sheet of the KFC Co-op has substantially changed. After March 1, 1999
receivables and inventory are assets of UFPC, so the KFC Co-op is winding down
the collection of its receivables and has transferred substantially all
inventories to UFPC. Once this is accomplished the balance sheet of the KFC
Co-op will primarily consist of cash, investments in and loans to UFPC, and
members' equity.
Beginning in August, 1999, various distribution centers, which currently place
their orders directly with UFPC and generate sales dollars, began transitioning
to a "non-title" status in which they purchase directly from suppliers under
terms arranged by UFPC. The KFC business for Tricon-owned restaurants is
currently non-title business. The collection of the sourcing fee will be the
revenue recognized from non-title distributors in the future. Sales volumes for
succeeding years will be affected by this transition. The sourcing fee collected
has replaced a portion of the current margin structure and principally provided
the funds to fund the operations of UFPC.
Year 2000
The KFC Co-op and UFPC have not incurred any interruption or unexpected business
problems in their normal business activities or operations associated with the
roll over to the year 2000, at this time. At the time of this filing the KFC
Co-op and UFPC had not experienced any disruption in operations with its
customers or third-party suppliers. However, UFPC is continuing to develop
contingency plans as part of its compliance management to further mitigate risk.
Safe-Harbor
This report contains forward-looking statements under the Private Securities
Litigation Reform Act of 1995 that involve risks and uncertainties. Although the
KFC Co-op believes that the forward-looking statements are based upon reasonable
assumptions, there can be no assurance that the forward-looking statements will
prove to be accurate. Factors that could cause actual results to differ from the
results anticipated in the forward-looking statements include, but are not
limited to: economic conditions (both generally and more specifically in the
markets in which the KFC Co-op and its customers operate); competition for the
KFC Co-op's customers from other distributors; material unforeseen changes in
the liquidity, results of operations, or financial condition of the KFC Co-op's
customers and UFPC's suppliers and distributors; material unforeseen
complications related to addressing the Year 2000 Problem experienced by the KFC
Co-op, its suppliers, customers and governmental agencies; and other risks
detailed in the KFC Co-op's filings with the Securities and Exchange Commission,
all of which are difficult to predict and any of which are beyond the control of
the KFC Co-op. The KFC Co-op undertakes no obligation to republish
forward-looking statements to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.
11
<PAGE> 12
Trademarks
"Pizza Hut," "Taco Bell," and "KFC," are registered trademarks of Pizza Hut
Corporation, Taco Bell Corporation and KFC Corporation, respectively, and are
used in these materials for identification purposes only. KFC National
Purchasing Cooperative, Inc. is not affiliated with Pizza Hut Corporation, Taco
Bell Corporation or KFC Corporation, except that KFC Corporation is a
stockholder member of the Registrant.
12
<PAGE> 13
Part II - Other Information
Item 1. Legal Proceedings
On July 31, 1998, the KFC Co-op filed a complaint against Fred Jeffrey, a
former consultant to the KFC Co-op, and his wife, Julianna Jeffrey
(collectively, the "Jeffreys"), alleging breach of contract, conversion and
unjust enrichment. The KFC Co-op alleged in its complaint that the Jeffreys
breached certain contracts with the KFC Co-op by not fully repaying a $600,000
loan from the KFC Co-op and for converting certain funds that were to be used to
repay that loan. At the time of filing the complaint, the Jeffreys were in
default for approximately $194,036.95 under the loan. The Jeffreys each filed
separate answers to the complaint, denying that they were in default and
asserting that the loan was non-recourse in nature. Fred Jeffrey filed a
counterclaim against the KFC Co-op, alleging that the KFC Co-op fraudulently
induced him into selling his business and becoming a consultant to the KFC
Co-op. He also alleged fraud and deceit, unjust enrichment and quantum meruit,
wrongful discharge/breach of contract, and breach of contract and tortious
interference with a known contractual relationship. He asked for more than $3.7
million in compensatory damages and an unspecified amount in punitive damages.
Julianna Jeffrey also filed a counterclaim, alleging fraud and deceit. She
requested more than $1.4 million in damages. Trial began on February 22, 2000,
and the jury returned its verdict on March 8, 2000. The jury awarded zero
damages on the Jeffreys' three fraud claims, zero damages on Mr. Jeffrey's claim
for tortious interference with a contract, and $50,000 on Mr. Jeffrey's breach
of contract claim related to the early termination of his consulting agreement
with the KFC Co-op. The court dismissed the Cooperative's claims for repayment
of the loan. The KFC Co-op has requested that the court reconsider its decision
to dismiss the KFC Co-op's claims and vacate the jury's award of $50,000. A
hearing is set for June 2, 2000.
Item 4. Submission of Matters to a Vote of Security - Holders
The Registrant held its annual meeting of the stockholder members (the
"Annual Meeting") on March 2, 2000. At the Annual Meeting, the following
directors were elected by stockholder members:
<TABLE>
<CAPTION>
Series Class Director Term
------ ----- -------- ----
<S> <C> <C> <C>
A III James B. Royster 2003
E III David G. Neal 2003
F III William E. Allen 2003
H III James D. Olson 2003
Independent III William R. Carden 2003
</TABLE>
The following persons are continuing directors whose terms of office will expire
in 2001 or 2002 at the Annual Meeting of Stockholders:
<TABLE>
<CAPTION>
Series Class Director Term
------ ----- -------- ----
<S> <C> <C> <C>
B II Benjamin Edwards 2002
C II James G. Cocolin 2002
D II Robert Carle 2002
G II Dean M. Sorgdrager 2002
J II Edward Henriquez 2002
K I Charles Rawley 2001
K I Chris Campbell 2001
L I Darlene L. Pfeiffer 2001
L I Lois G. Foust 2001
</TABLE>
13
<PAGE> 14
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - Exhibit 27.1 Financial Data Schedule (for SEC use only)
(b) Report on Form 8-K - None
14
<PAGE> 15
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: May 15, 2000 KFC National Purchasing Cooperative, Inc.
------------
By: /s/ Daniel E. Woodside
-----------------------------------------------
Daniel E. Woodside, President
Date: May 15, 2000 By: /s/ William L. Bickley
------------ -----------------------------------------------
William L. Bickley,
Sr. Vice President/Chief Financial Officer
15
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 11,531,548
<SECURITIES> 0
<RECEIVABLES> 627,194
<ALLOWANCES> 624,197
<INVENTORY> 0
<CURRENT-ASSETS> 12,106,380
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 23,722,608
<CURRENT-LIABILITIES> 6,081,691
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 17,640,917
<TOTAL-LIABILITY-AND-EQUITY> 23,722,608
<SALES> 777,514
<TOTAL-REVENUES> 777,514
<CGS> 744,774
<TOTAL-COSTS> 744,774
<OTHER-EXPENSES> 100,614
<LOSS-PROVISION> 5,000
<INTEREST-EXPENSE> 6
<INCOME-PRETAX> 140,867
<INCOME-TAX> 56,628
<INCOME-CONTINUING> 84,239
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 84,239
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
