SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________________
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended July 15, 1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 0-549
SCHULTZ SAV-O STORES, INC.
(Exact Name of Registrant as Specified in its Charter)
WISCONSIN 39-0600405
(State or other jurisdiction (I.R.S. Employer
of incorporation of organization) Identification No.)
2215 UNION AVENUE 53082-0419
SHEBOYGAN, WISCONSIN (Zip Code)
(Address of principal
executive offices)
Registrant's telephone number
including area code 414-457-4433
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 (of for such shorter period that
the registrant was required to file such reports), and (2) has been
subject to the filing requirements for the past 90 days.
Yes X NO
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all reports
required to be filed by Section 12, 13 or 15(d) of the Securities Exchange
Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes NO
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares
outstanding of each of the issuer's classes of common stock, as of the
latest practicable date.
As of August 16, 1995, 2,345,799 shares of common stock, $0.05 par
value, were issued and outstanding.
<PAGE>
SCHULTZ SAV-O STORES, INC.
INDEX
PAGE
NUMBER
PART I - FINANCIAL INFORMATION:
Item 1. - Financial Statements
Condensed Balance Sheets 3
Unaudited Condensed Statements of Earnings 4
Unaudited Statements of Cash Flows 5
Notes to Unaudited Financial Statements 6
Item 2. - Management's Discussion and Analysis
of Financial Condition and Results of
Operations 7
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 10
SIGNATURES 10
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SCHULTZ SAV-O STORES, INC.
CONDENSED BALANCE SHEETS
(Unaudited)
July 15 December 31
ASSETS 1995 1994
CURRENT ASSETS:
Cash and equivalents $18,947,000 $14,310,000
Accounts receivable 9,870,000 7,453,000
Inventories 17,679,000 21,327,000
Prepaid expenses and other 2,586,000 2,344,000
Deferred income taxes 4,868,000 3,875,000
--------- ----------
Total currents assets 53,950,000 49,309,000
OTHER ASSETS, net 1,281,000 1,331,000
AMOUNTS RECEIVABLE UNDER
CAPITAL SUBLEASE AGREEMENTS 9,664,000 9,943,000
LEASED PROPERTY UNDER CAPITAL
LEASES, net 3,220,000 3,372,000
PROPERTY AND EQUIPMENT, net 23,578,000 25,144,000
---------- ----------
Total assets $91,693,000 $89,099,000
========== ==========
LIABILITIES AND SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Accounts payable $ 12,355,000 $ 11,356,000
Accrued liabilities-
Salaries and wages 499,000 532,000
Vacation pay 2,084,000 1,710,000
Retail facilities and operations 4,612,000 5,046,000
Insurance related 2,215,000 2,316,000
Other 5,713,000 6,115,000
Current maturities of long-term
debt 333,000 323,000
Current obligations under
capital leases 714,000 714,000
---------- ----------
Total current liabilities 28,525,000 28,112,000
---------- ----------
DEFERRED INCOME TAXES 2,427,000 1,428,000
LONG-TERM DEBT 3,865,000 4,056,000
CAPITAL LEASE OBLIGATIONS 13,661,000 14,046,000
SHAREHOLDERS' INVESTMENT:
Preferred stock 300,000 300,000
Common stock 146,000 146,000
Additional paid-in capital 12,680,000 12,680,000
Retained earnings 38,673,000 36,179,000
---------- ----------
Total 51,799,000 49,305,000
Less treasury stock (8,584,000) (7,848,000)
---------- ----------
Total shareholders' investment 43,215,000 41,457,000
---------- ----------
Total liabilities and
shareholders' investment $91,693,000 $89,099,000
========== ==========
<PAGE>
<TABLE>
SCHULTZ SAV-O STORES, INC.
UNAUDITED CONDENSED STATEMENTS OF EARNINGS
<CAPTION>
For the 12-weeks ended For the 28-weeks ended
July 15 July 16 July 15 July 16
1995 1994 1995 1994
<S> <C> <C> <C> <C>
NET SALES $101,996,000 $104,167,000 $234,274,000 $239,347,000
COSTS AND EXPENSES:
Cost of products sold 85,262,000 86,958,000 196,251,000 200,036,000
Operating and
administrative
expenses 14,213,000 14,898,000 33,468,000 35,091,000
Interest (income)
expense, net (10,000) 45,000 12,000 197,000
--------- ---------- ---------- ----------
Earnings before
income taxes 2,531,000 2,266,000 4,543,000 4,023,000
PROVISION FOR INCOME
TAXES 975,000 851,000 1,750,000 1,498,000
--------- ---------- ---------- ----------
Net earnings $1,556,000 $1,415,000 $2,793,000 $2,525,000
========== ========== ========== ==========
NET EARNINGS PER SHARE -
PRIMARY AND FULLY DILUTED $0.62 $0.53 $1.12 $0.93
===== ===== ===== =====
CASH DIVIDENDS PAID PER
SHARE OF COMMON STOCK $0.06 $0.04 $0.12 $0.08
===== ===== ===== =====
AVERAGE OUTSTANDING COMMON
AND EQUIVALENT SHARES 2,483,000 2,656,000 2,491,000 2,704,000
========= ========= ========= =========
</TABLE>
<PAGE>
SCHULTZ SAV-O STORES, INC.
UNAUDITED STATEMENTS OF CASH FLOWS
For the 28-weeks ended
July 15 July 16
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $2,793,000 $2,525,000
Adjustments to reconcile net
earnings to net cash flows
from operating activities-
Depreciation and amortization 2,426,000 2,509,000
Other non-cash items 151,000 42,000
Changes in assets and liabilities-
(Increase) in receivables (2,417,000) (2,303,000)
Decrease in inventories 3,648,000 2,356,000
(Increase) in prepaids and
other assets (242,000) (1,165,000)
Increase in accounts payable 999,000 1,299,000
(Decrease) increase in accrued
liabilities (586,000) 1,632,000
-------- ----------
Net cash flows from operating
activities 6,772,000 6,895,000
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property and
equipment (1,365,000) (1,725,000)
Proceeds from asset sales 562,000 9,000
Proceeds from maturity of short-term
investments - 2,953,000
Receipt of principal amounts under
capital sublease agreements and
notes receivable 279,000 321,000
-------- --------
Net cash flows from investing
activities (524,000) 1,558,000
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment for acquisition of treasury stock (736,000) (2,745,000)
Principal payments on long-term debt (191,000) (143,000)
Payment of cash dividends (299,000) (222,000)
Principal payments under capital
lease obligations (385,000) (446,000)
--------- ----------
Net cash flows from
financing activities (1,611,000) (3,556,000)
----------- ----------
CASH AND EQUIVALENTS:
Net increase 4,637,000 4,897,000
Balance, beginning of period 14,310,000 6,014,000
---------- ---------
Balance, end of period $18,947,000 $10,911,000
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid during the period for-
Interest, net $19,000 $210,000
Income taxes, net of refunds 2,869,000 990,000
========= =========
<PAGE>
SCHULTZ SAV-O STORES, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
(1) Basis of Presentation
The financial statements included herein have been prepared by the
Company, without audit. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted,
although the Company believes that the disclosures are adequate to make
the information presented not misleading. The interim financial statements
furnished with this report reflect all adjustments which are, in the
opinion of management, necessary for a fair statement of the results for
the interim periods presented. It is suggested that these financial
statements be read in conjunction with the audited financial statements
and the notes thereto included in the Company's 1994 annual report to
shareholders, as incorporated by reference in the Company's Form 10-K for
the fiscal year ended December 31, 1994.
(2) Interest (Income) Expense, net
Interest (income) expense, net consists of the following:
<TABLE>
<CAPTION>
For the 12-weeks ended For the 28-weeks ended
July 15 July 16 July 15 July 16
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Interest expense:
Long-term debt $98,000 $27,000 $229,000 $67,000
Imputed - capital leases 117,000 135,000 273,000 314,000
Interest income (225,000) (117,000) (490,000) (184,000)
-------- --------- --------- --------
Interest (income)
expense, net $(10,000) $45,000 $12,000 $197,000
======== ======= ======= ========
</TABLE>
(3) Prepaid Expenses and Other
Prepaid expenses and other consists of following:
July 15 December 31
1995 1994
Land and building held for resale $ 1,097,000 $ 733,000
Prepaid expenses and other assets 1,489,000 1,611,000
--------- ---------
Prepaid expenses and other $ 2,586,000 $ 2,344,000
========= =========
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Selected costs and results as a percent of net sales:
For the 12-weeks ended For the 28-weeks ended
July 15 July 16 July 15 July 16
1995 1994 1995 1994
Cost of products sold 83.6% 83.5% 83.8% 83.6%
Operating and
administrative
expenses 13.9 14.3 14.3 14.7
Earnings before income
taxes 2.5 2.2 1.9 1.7
Net earnings 1.5 1.4 1.2 1.1
Net sales for the 12- and 28-week periods ended July 15, 1995 were
$101,996,000 and $234,274,000, respectively, compared to the same periods
ended July 16, 1994 of $104,167,000 and $239,347,000. The decrease of
$2,171,000 and $5,073,000, or 2.1% for both periods, was due primarily to
the continuing increase in the relative percentage of wholesale sales to
retail sales, as the Company continues to dispose of underperforming or
noncompetitive corporate retail stores through conversion to franchise
units or closures. Since July 16, 1994, the Company has sold one
corporate retail supermarket and converted it into a franchised unit. The
Company also closed its underperforming corporate Palatine, Illinois
retail supermarket in February 1995 after the Company determined that the
supermarket was likely to continue incurring significant operating losses.
These actions were the principal reasons for the Company's reduced sales
levels, in addition to continued intense retail competition. As of July
15, 1995, the Company had 65 franchised and 19 corporate supermarkets
compared to 64 franchised and 21 corporate supermarkets at July 16, 1994
and 60 franchised and 25 corporate supermarkets at July 17, 1993.
Consistent with the Company's strategy to expand its wholesale business
volume, the Company expects that the level of its wholesale sales will
continue to increase relative to its total sales for the remainder of
1995. There are expansion or renovation projects at six franchise retail
projects currently in various phases of planning or construction, with
completions scheduled from the third quarter through the fourth quarter of
1995. These projects involve four additions to existing franchise stores,
one replacement franchise supermarket and one new market franchise unit.
Upon completion, the aggregate increase in size of these stores will
exceed 63,000 square feet.
Cost of products sold, as a percent of sales, increased by 0.1% and 0.2%,
respectively, to 83.6% and 83.8% for the 12- and 28-week periods ended
July 15, 1995, compared to the same periods in 1994. While the
percentages increased, total cost of products sold decreased $1,696,000
and $3,785,000 for the 12- and 28-week periods ended July 15, 1995
compared to the same periods in 1994. The increased percentages were a
direct result of a reduction in the amount of higher margin retail sales
compared to lower margin wholesale sales. The lower margins associated
with wholesale sales continued in the first half of 1995 to be more than
offset by significantly reduced operating and administrative expenses
realized from the prior disposal of underperforming or noncompetitive
supermarkets.
Operating and administrative expenses, as a percent of sales, decreased by
0.4% for both the 12- and 28-week periods ended July 15, 1995, compared to
the same periods in 1994. The decreases were principally a result of the
elimination of operating expenses (consisting of payroll, supplies, rent,
utilities, depreciation and other administrative expenses) associated with
the corporate retail supermarkets that have been disposed.
The effective income tax rate for both the 12- and 28-week periods ended
July 15, 1995 increased to 38.5%, compared to 37.6% and 37.2% for the same
periods in 1994. The provision for income taxes during the 12- and 28-
week periods ended July 15, 1995 was $975,000 and $1,750,000, compared to
$851,000 and $1,498,000 for the same periods in 1994.
As a result of the foregoing, net earnings for the 12- and 28-weeks ended
July 15, 1995 totaled $1,556,000 and $2,793,000 compared to $1,415,000 and
$2,525,000 for the same periods in 1994, or increases of 10.0% and 10.6%,
respectively. The Company's earnings per share for the 12- and 28-week
periods ended July 15, 1995 increased by $0.09 and $0.19, or 17.0% and
20.4%, respectively, compared to the same periods in 1994. Earnings per
share increased on a percentage basis more than net earnings as a result
of treasury share purchases which reduced the number of average shares
outstanding for the first half of 1995. The decrease in the average
outstanding shares was partially offset by the dilutive effect of the
stock options which were treated as common stock equivalents under the
treasury stock method.
Certain Company corporate retail supermarkets continue to be
underperforming or noncompetitive in their respective marketplaces and, as
a result, continue to incur operating losses. In order to further improve
the Company's results of operations, the Company continues to evaluate
various business alternatives relating to these operations, including, but
not limited to, selling these corporate stores and converting them into
franchise supermarkets, closing the stores or implementing other
operational changes. Similar to prior fiscal years, implementation of
these actions will likely result in the Company incurring certain
repositioning charges involving the termination costs of replaced, closed
or sold stores. While these repositioning charges may decrease the
Company's reported net earnings for the period or periods in which the
actions are taken, the Company believes that such actions will improve the
Company's long-term profitability.
Liquidity and Capital Resources
Net cash inflow from operating activities for the 28-week period ended
July 15, 1995 was $6,772,000, a decrease of $123,000 over the prior year
28-week period ended July 16, 1994 cash inflow of $6,895,00. The decrease
was attributable primarily to a significant change in accrued liabilities.
For the 28-week period ended July 15, 1995, accrued liabilities decreased
$586,000 compared to the $1,632,000 increase in accrued liabilities for
the same period ended July 16, 1994. The significant change in accrued
liabilities was due primarily to timing of payments and accruals relating
to income and sales tax liabilities. These accounts decreased $1,162,000
for the 28-week period ended July 15, 1995 and increased $647,000 for the
same period in 1994. This change in accrued liabilities was partially
offset by greater reductions in inventory levels for the 28-week period
ended July 15, 1995, compared to the same period ended July 16, 1994 and,
to a lesser extent, the effect of higher net earnings.
Net cash outflow from investing activities for the 28-week period ended
July 15, 1995 totaled $524,000, compared to net cash inflows of $1,558,000
during the same period in 1994. The change was due primarily to proceeds
of $2,953,000 from maturity of short-term investments during the first
half of 1994. This was partially offset by the proceeds of $562,000 from
the sale of assets during the first half of 1995. Capital expenditures
for property and equipment during the first half of 1995 aggregated
$1,365,000, which is $360,000 less than the total capital expenditures of
$1,725,000 for the same period in 1994. During the first half of 1994,
the Company completed the remodeling of one of its corporate supermarkets
commenced in 1993.
Net cash outflow from financing activities for the 28-week period ended
July 15, 1995 was $1,611,000, compared to $3,556,000 during the same
period in 1994. The substantial decrease in cash outflows was due
principally to the reduction of Common Stock repurchased by the Company
during the first half of 1995, compared to the first half of 1994.
As a result of the foregoing, net cash increased $4,637,000 during the 28-
weeks ended July 15, 1995, compared to a comparable increase of $4,897,000
during the same period in 1994. The Company believes that its financial
condition provides it with adequate flexibility to finance anticipated
capital requirements without adversely affecting its financial position of
liquidity.
Subsequent to the end of the first 28 weeks of 1995, the Company's Board
of Directors at its July 28, 1995 meeting, announced the adoption of a
three-part shareholder value enhancement plan designed to improve the
marketability and total shareholder return on the Company's Common Stock.
The shareholder plan includes increasing the quarterly cash dividend by
167% from $0.06 per share to $0.16 per share, declaring a two-for-one
stock split to be effected in the form of a 100% stock dividend, and
increasing the Company's share repurchase program authorization from $6
million to $8 million.
The cash dividend of $0.16 per (pre-split) share on the Company's issued
and outstanding common shares is payable on September 1, 1995 to
shareholders of record as of the close of business on August 18, 1995.
The two-for-one stock split to be effected in the form of a 100% stock
dividend will be distributed on September 15, 1995 to shareholders of
record as of the close of business on September 1, 1995. The stock split
will increase the Company's outstanding Common Stock to approximately
4,692,000 shares, and is consistent with the Board's objective of
improving the trading activity for the Company's Common Stock. The
increase in the Company's Common Stock repurchase authorization to $8
million was deemed necessary because total repurchases to date under the
Company's original 1994 repurchase authorization were beginning to
approach the previously authorized $6 million limit.
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Company's 1995 annual meeting of shareholders was held on Wednesday,
May 10, 1995. At the meeting, the shareholders re-elected James H.
Dickelman, Thomas H. Fox and Bernard S. Kubale to the Company's Board of
Directors for three-year terms expiring at the Company's 1998 annual
meeting of shareholders and until their successors are duly qualified and
elected. As of the March 22, 1995 recorded date for the annual meeting,
2,418,789 shares of Common Stock were outstanding and eligible to vote.
Of the 2,070,610 shares of Common Stock voted at the meeting in person or
by proxy, the following votes were recorded for each nominee:
For Withheld
Name Votes Percentage Votes Percentage
James H. Dickelman 1,930,979 93.3% 139,631 6.7%
Thomas H. Fox 1,928,149 93.1% 142,461 6.9%
Bernard S. Kubale 1,928,777 93.2% 141,833 6.8%
The tabulation of votes for the election of directors resulted in no
broker non-votes or abstentions.
Of the 1,974,339 shares of Common Stock voted at the meeting in person or
by proxy, the following votes were recorded for approval of the Schultz
Sav-O Stores, Inc. 1995 Equity Incentive Plan:
For Withheld
Votes Percentage Votes Percentage
1,409,655 71.4% 564,684 28.6%
The tabulation of votes for approval of the Schultz Sav-O Stores, Inc.
1995 Equity Incentive Plan resulted in no broker non-votes or abstentions.
No other matters were brought before the meeting for a shareholder vote.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Exhibit 27 - Financial Data Schedule.
(b) No reports of Form 8-K were filed by the Company during the
first quarter of fiscal 1995.
<PAGE>
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.
SCHULTZ SAV-O STORES, INC.
(Registrant)
August 16, 1995 /s/ John H. Dahly
(Date) John H. Dahly, Executive Vice
President, Chief Financial Officer
and Treasurer
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED
FINANCIAL STATEMENTS OF SCHULTZ SAV-O STORES, INC. AS OF AND FOR THE QUARTER
ENDED JULY 15, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS<F4>
<FISCAL-YEAR-END> DEC-30-1995
<PERIOD-START> JAN-02-1995
<PERIOD-END> JUL-15-1995
<CASH> 18,947,000
<SECURITIES> 0
<RECEIVABLES> 9,870,000<F3>
<ALLOWANCES> 0<F3>
<INVENTORY> 17,679,000
<CURRENT-ASSETS> 53,590,000
<PP&E> 56,543,000
<DEPRECIATION> 32,965,000
<TOTAL-ASSETS> 91,693,000
<CURRENT-LIABILITIES> 28,525,000
<BONDS> 3,865,000
<COMMON> 146,000
300,000
0
<OTHER-SE> 42,769,000
<TOTAL-LIABILITY-AND-EQUITY> 91,693,000
<SALES> 234,274,000
<TOTAL-REVENUES> 234,274,000
<CGS> 196,251,000
<TOTAL-COSTS> 0<F1>
<OTHER-EXPENSES> 33,468,000<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,000<F2>
<INCOME-PRETAX> 4,543,000
<INCOME-TAX> 1,750,000
<INCOME-CONTINUING> 2,793,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,793,000
<EPS-PRIMARY> 1.12
<EPS-DILUTED> 1.12
<FN>
<F1>Amounts included in "Other costs and expenses".
<F2>Net of interest income.
<F3>Net of "Allowances for doubtful accounts."
<F4>2nd Quarter is 28 weeks.
</FN>
</TABLE>
