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 October 7, 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 November 10, 1995, 4,653,598 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
Unaudited 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 2. - Changes in Securities 9
Item 6. - Exhibits and Reports on Form 8-K 9
SIGNATURES 10
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SCHULTZ SAV-O STORES, INC.
UNAUDITED CONDENSED BALANCE SHEETS
October 7 December 31
ASSETS 1995 1994
CURRENT ASSETS:
Cash and equivalents $15,585,000 $14,310,000
Accounts receivable 8,950,000 7,453,000
Inventories 20,569,000 21,327,000
Prepaid expenses and other 5,170,000 2,344,000
Deferred income taxes 4,868,000 3,875,000
---------- ---------
Total currents assets 55,142,000 49,309,000
OTHER ASSETS, net 1,260,000 1,331,000
AMOUNTS RECEIVABLE UNDER CAPITAL
SUBLEASE AGREEMENTS 9,545,000 9,943,000
LEASED PROPERTY UNDER CAPITAL LEASES, net 3,155,000 3,372,000
PROPERTY AND EQUIPMENT, net 23,335,000 25,144,000
---------- ----------
Total assets $92,437,000 $89,099,000
========== ==========
LIABILITIES AND SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Accounts payable $13,171,000 $11,356,000
Accrued liabilities-
Salaries and wages 487,000 532,000
Vacation pay 1,990,000 1,710,000
Retail facilities and operations 4,413,000 5,046,000
Insurance related 2,398,000 2,316,000
Other 6,898,000 6,115,000
Current maturities of long-term debt 335,000 323,000
Current obligations under capital leases 714,000 714,000
---------- ----------
Total current liabilities 30,406,000 28,112,000
---------- ----------
DEFERRED INCOME TAXES 2,427,000 1,428,000
LONG-TERM DEBT 3,789,000 4,056,000
CAPITAL LEASE OBLIGATIONS 13,497,000 14,046,000
SHAREHOLDERS' INVESTMENT:
Preferred stock 300,000 300,000
Common stock 262,000 146,000
Additional paid-in capital 12,680,000 12,680,000
Retained earnings 39,537,000 36,179,000
---------- ----------
Total 52,779,000 49,305,000
Less treasury stock (10,461,000) (7,848,000)
----------- ----------
Total shareholders' investment 42,318,000 41,457,000
---------- ----------
Total liabilities and
shareholders' investment $92,437,000 $89,099,000
========== ==========
<PAGE>
SCHULTZ SAV-O STORES, INC.
UNAUDITED CONDENSED STATEMENTS OF EARNINGS
For the 12-weeks ended For the 40-weeks ended
October 7 October 8 October 7 October 8
1995 1994 1995 1994
NET SALES $99,373,000 $101,894,000 $333,647,000 $341,241,000
COSTS AND EXPENSES:
Cost of products
sold 83,109,000 85,280,000 279,360,000 285,316,000
Operating and
administrative
expenses 14,027,000 14,466,000 47,495,000 49,557,000
---------- ---------- ---------- ----------
Operating
income 2,237,000 2,148,000 6,792,000 6,368,000
Interest expense (213,000) (287,000) (715,000) (668,000)
Interest income 230,000 159,000 720,000 343,000
---------- ---------- ---------- ----------
Earnings before
income taxes 2,254,000 2,020,000 6,797,000 6,043,000
PROVISION FOR
INCOME TAXES 869,000 765,000 2,619,000 2,263,000
--------- --------- --------- ---------
Net earnings $ 1,385,000 $ 1,255,000 $ 4,178,000 $ 3,780,000
========= ========= ========= =========
NET EARNINGS PER
SHARE - PRIMARY
AND FULLY
DILUTED $ 0.28 $ 0.24 $ 0.83 $ 0.70
===== ====== ====== ======
CASH DIVIDENDS
PAID PER SHARE
OF COMMON STOCK $ 0.08 $ 0.03 $ 0.14 $ 0.07
===== ====== ====== ======
AVERAGE OUTSTANDING
COMMON AND
EQUIVALENT SHARES 4,952,000 5,152,000 5,019,000 5,353,000
======== ========= ========= =========
<PAGE>
SCHULTZ SAV-O STORES, INC.
UNAUDITED STATEMENTS OF CASH FLOWS
For the 40-weeks ended
October 7 October 8
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 4,178,000 $3,780,000
Adjustments to reconcile net earnings
to net cash flows
from operating activities-
Depreciation and amortization 3,450,000 3,562,000
Other non-cash items 119,000 75,000
Changes in assets and liabilities-
(Increase) in receivables (1,497,000) (922,000)
Decrease (increase) in inventories 758,000 (1,072,000)
(Increase) decrease in prepaids
and other assets (2,826,000) 168,000
Increase in accounts payable 1,815,000 3,402,000
Increase in accrued liabilities 479,000 1,938,000
--------- ---------
Net cash flows from
operating activities 6,476,000 10,931,000
--------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property and equipment (2,065,000) (3,135,000)
Proceeds from asset sales 599,000 437,000
Receipt of principal amounts under
capital sublease agreements and notes
receivable 398,000 434,000
Proceeds from maturity of short-term
investments - 2,953,000
--------- ---------
Net cash flows from
investing activities (1,068,000) 689,000
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment for acquisition of treasury stock (2,642,000) (4,907,000)
Payment of cash dividends (675,000) (373,000)
Principal payments under capital
lease obligations (549,000) (613,000)
Principal payments on long-term debt (267,000) (238,000)
--------- ----------
Net cash flows from
financing activities (4,133,000) (6,131,000)
--------- ----------
CASH AND EQUIVALENTS:
Net increase 1,275,000 5,489,000
Balance, beginning of period 14,310,000 6,014,000
---------- ----------
Balance, end of period $15,585,000 $11,503,000
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid during the period for-
Interest $ 723,000 $ 689,000
Income taxes, net of refunds 3,369,000 1,757,000
========= =========
<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 of a normal recurring
nature, 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 Expense
Interest expense consists of the following:
For the 12-weeks ended For the 40-weeks ended
October 7 October 8 October 7 October 8
1995 1994 1995 1994
Interest expense:
Long-term debt $ 96,000 $153,000 $ 325,000 $ 220,000
Imputed - capital
leases 117,000 134,000 390,000 448,000
-------- -------- -------- --------
Interest expense $ 213,000 $287,000 $ 715,000 $ 668,000
======== ======== ======== ========
(3) Prepaid Expenses and Other
Prepaid expenses and other consists of following:
October 7 December 31
1995 1994
Land and building held for resale $2,584,000 $733,000
Prepaid expenses and other assets 2,586,000 1,611,000
--------- ---------
Prepaid expenses and other $5,170,000 $2,344,000
========= =========
(4) Shareholders' Investment
On July 28, 1995, the Company's Board of Directors declared a two-for-one
stock split on the Company's Common Stock, effected in the form of a 100
percent stock dividend distributed on September 15, 1995 to shareholders
of record on September 1, 1995. Shareholders' investment has been
restated to give retroactive recognition to the stock split for all
periods presented. In addition, all references in the financial
statements to per share amounts and average number of shares have been
restated.
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 40-weeks ended
October 7 October 8 October 7 October 8
1995 1994 1995 1994
Cost of products sold 83.6% 83.7% 83.7% 83.6%
Operating and
administrative expenses 14.1 14.2 14.2 14.5
Earnings before income
taxes 2.3 2.0 2.0 1.8
Net earnings 1.4 1.2 1.3 1.1
Net sales for the 12- and 40-week periods ended October 7, 1995, were
$99,373,000 and $333,647,000, respectively, compared to $101,894,000 and
$341,241,000 for the same periods ended October 8, 1994. The decrease of
$2,521,000 and $7,594,000, or 2.5% and 2.2%, respectively, 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 October 8, 1994, the
Company has sold one corporate retail store and converted it to a
franchised unit. In February 1995, the Company also closed its
underperforming corporate retail store in Palatine, Illinois, after
management determined that the store was likely to continue incurring
significant operating losses. These actions, in addition to a general
softness in regional retail sales, competitive store openings, and
increased sales of lower priced advertised items, were the principal
reasons for the Company's reduced sales levels. As of October 7, 1995,
the Company had 65 franchised and 19 corporate retail stores compared to
64 franchised and 21 corporate supermarkets at October 8, 1994, and 62
franchised and 23 corporate supermarkets at October 9, 1993.
Consistent with management's business plan to expand the Company's
wholesale volume, it is expected that the level of wholesale sales will
continue to increase relative to total sales for the remainder of 1995.
Currently, the Company plans to increase wholesale sales volume through
the completion of three franchise addition or remodeling projects, the
opening of a new market franchise store and the replacement of one
existing franchise store during the fourth quarter of 1995. Additionally,
during the fourth quarter, the Company will begin implementing a new and
exciting electronic card marketing program designed to increase customer
savings without negatively impacting retail store gross margin, make
grocery shopping easier and faster, and ultimately reward loyal customers.
Cost of products sold, as a percentage of sales, decreased by 0.1% for the
12-week period and increased by 0.1% for the 40-week period ended October
7, 1995, compared to the same periods in 1994. While the year-to-date
percentage increased, total cost of products sold decreased by $5,956,000.
The increased percentage was a direct result of a reduction in the amount
of higher margin retail sales compared to increased levels of lower margin
wholesale sales. The lower gross margins associated with wholesale sales
continued to be fully offset by the elimination of operating expenses in
connection with the closure or conversion of corporate retail stores to
franchise units.
Operating and administrative expenses, as a percentage of sales, decreased
by 0.1% and 0.3%, or $439,000 and $2,062,000, respectively, for the 12-
and 40-week periods ended October 7, 1995, compared to the same periods in
1994. The decreases were primarily a result of the elimination of certain
operating expenses (consisting of payroll, supplies, rent, utilities,
depreciation and other administrative expenses) associated with the
corporate retail stores that have either been closed or sold and converted
into franchise stores.
The effective income tax rate for the 12- and 40-week periods ended
October 7, 1995, increased to 38.6% and 38.5%, respectively, compared to
37.9% and 37.4% for the same periods in 1994. The provision for income
taxes for the 12- and 40-week periods ended October 7, 1995, was $869,000
and $2,619,000 compared to $765,000 and $2,263,000 for the same periods in
1994.
As a result of the foregoing, net earnings for the 12- and 40-weeks ended
October 7, 1995, totaled $1,385,000 and $4,178,000, respectively, compared
to $1,255,000 and $3,780,000 for the same periods in 1994. The Company's
earnings per share for the 12- and 40-week periods ended October 7, 1995,
increased by $0.04 and $0.13, or 16.7% and 18.6%, 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 repurchases
during the first three quarters. These repurchases reduced the weighted
average shares outstanding during the current period compared to the prior
year period. 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. Average
outstanding common and equivalent shares for all periods have been
restated to reflect a two-for-one stock split effected in the form of a
100% stock dividend as of the close of business on September 15, 1995.
Certain Company retail stores continue to be under performing or
noncompetitive in their respective marketplaces and, as a result, continue
to incur operating losses. In order to further improve the Company's
results from operations, management continues to evaluate various business
alternatives relating to these operations, including the sale and
subsequent conversion of these stores into franchise units, closing the
stores or implementing other operational changes. Similar to prior fiscal
years, implementation of these changes 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, management believes that such actions may
help improve the Company's long-term profitability.
Liquidity and Capital Resources
Net cash inflow from operating activities for the 40-week period ended
October 7, 1995 was $6,476,000, a decrease of $4,455,000 over the prior
year 40-week period ended October 8, 1995 cash inflow of $10,931,000. The
decrease was attributable to a significant increase in prepaids and other
assets during the first three quarters of 1995, along with a smaller
increase in accounts payable and accrued liabilities. Prepaids and other
assets increased due principally to significant additional net
expenditures for land and building being held for resale associated with
the development of one new replacement franchise supermarket and one new
market store. Additionally, prepaids and other assets also increased due
to advance payments made by the Company for the acquisition of a new
financial software and a database management system software. The changes
in accounts payable and accrued liabilities were due primarily to timing
of various payments and accruals.
Net cash outflow from investing activities for the 40-week period ended
October 7, 1995, totaled $1,068,000, compared to net cash inflows of
$689,000 during the same period in 1994. The change was due primarily to
proceeds of $2,953,000 from the maturity of short-term investments during
the first three quarters of 1994. This was partially offset by decreased
capital expenditures for property and equipment. Expenditures for
property and equipment during the first three quarters of 1995 totaled
$2,065,000, compared to total capital expenditures of $3,135,000 for the
same period in 1994.
Net cash outflow from financing activities for the 40-week period ended
October 7, 1995, totaled $4,133,000, compared to $6,131,000 during the
same period in 1994. The substantial decrease in cash outflows was due
primarily to the reduction of Common Stock repurchased by the Company
during the first three quarters of 1995 totaling $2,642,000, compared to
$4,907,000 for the same period in 1994. This was partially offset by an
increase in cash dividends paid to the Company's common stockholders
during this period. In accordance with a shareholder value enhancement
plan announced at the July 1995 Board of Directors' meeting, cash
dividends paid through the 40-weeks ended October 7, 1995, totaled
$675,000, compared to $373,000 during the same period in 1994.
As a result of the foregoing, net cash increased $1,275,000 during the 40-
week period ended October 7, 1995, compared to $5,489,000 during the same
period in 1994. Management believes that the Company's financial
condition provides it with adequate flexibility to finance anticipated
capital requirements without adversely affecting its financial position or
liquidity.
PART II - OTHER INFORMATION
Item 2. Changes in Securities
On September 11, 1995, the Company commenced a tender offer for all 3,000
outstanding shares of its Preferred Stock, $100 par value (the "Preferred
Stock"), at a cash price of $50 per share. The tender offer was not for
and did not affect the Company's Common Stock, $.05 par value (the "Common
Stock"). The offer, which was originally scheduled to expire at midnight
on October 11, 1995, was subsequently extended to, and expired at,
midnight on October 30, 1995. A total of 2,841 shares, representing
approximately 94.7% of the outstanding Preferred Stock, were tendered in
the offer. The Company accepted the tendered shares of Preferred Stock
and paid the $142,050 aggregate purchase price for the tendered shares
from its available cash on hand on November 7, 1995. The Company's
Restated Articles of Incorporation limit dividends on the Company's common
Stock if annual dividends are not declared and paid on the Preferred
Stock. The 159 shares of Preferred Stock remaining outstanding after the
tender offer are therefore entitled to aggregate annual dividends of $477,
or 3% of the aggregate par value of such shares, before the Company may
pay the current $0.24 per share annual dividend on the Common Stock.
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
third 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)
November 15, 1995
(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 SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED
FINANCIAL STATEMENTS OF SCHULTZ SAV-O STORES, INC. AS OF AND FOR THE QUARTER
ENDED OCTOBER 7, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS<F3>
<FISCAL-YEAR-END> DEC-30-1995
<PERIOD-START> JAN-02-1995
<PERIOD-END> OCT-07-1995
<CASH> 15,585,000
<SECURITIES> 0
<RECEIVABLES> 8,950,000<F2>
<ALLOWANCES> 0<F2>
<INVENTORY> 20,569,000
<CURRENT-ASSETS> 55,142,000
<PP&E> 55,536,000
<DEPRECIATION> 32,201,000
<TOTAL-ASSETS> 92,437,000
<CURRENT-LIABILITIES> 30,406,000
<BONDS> 3,789,000
<COMMON> 262,000
300,000
0
<OTHER-SE> 41,756,000
<TOTAL-LIABILITY-AND-EQUITY> 92,437,000
<SALES> 333,647,000
<TOTAL-REVENUES> 333,647,000
<CGS> 279,360,000
<TOTAL-COSTS> 0<F1>
<OTHER-EXPENSES> 47,495,000<F1>
<LOSS-PROVISION> 0<F1>
<INTEREST-EXPENSE> 715,000
<INCOME-PRETAX> 6,797,000
<INCOME-TAX> 2,619,000
<INCOME-CONTINUING> 4,178,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,178,000
<EPS-PRIMARY> 0.83
<EPS-DILUTED> 0.83
<FN>
<F1>Amounts included in "Other costs and expenses".
<F2>Net of "Allowances for doubtful accounts".
<F3>3rd Quarter is 40 weeks.
</FN>
</TABLE>
