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 5, 1996
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 13, 1996, 4,619,098 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 Consolidated Balance Sheets 3
Unaudited Statements of Earnings 4
Unaudited Statements of Cash Flows 5
Notes to Unaudited Consolidated Financial
Statements 6
Item 2. - Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II - OTHER INFORMATION
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. & SUBSIDIARY
UNAUDITED CONSOLIDATED BALANCE SHEETS
October 5 December 30
ASSETS 1996 1995
CURRENT ASSETS:
Cash and equivalents $15,850,000 $14,424,000
Accounts receivable 8,475,000 5,562,000
Inventories 20,941,000 20,458,000
Other current assets 5,236,000 5,025,000
Receivable under capital sublease 581,000 581,000
Deferred income taxes 3,504,000 3,504,000
----------- -----------
Total currents assets 54,587,000 49,554,000
LONG-TERM RECEIVABLE UNDER CAPITAL SUBLEASE 8,916,000 9,361,000
LEASED PROPERTY UNDER CAPITAL LEASES, net 2,879,000 3,089,000
OTHER NONCURRENT ASSETS 2,128,000 2,203,000
PROPERTY AND EQUIPMENT, net 22,547,000 22,827,000
----------- -----------
TOTAL ASSETS $91,057,000 $87,034,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Accounts payable $14,989,000 $12,340,000
Accrued liabilities:
Employee benefits 2,402,000 2,440,000
Retail repositioning reserve 1,053,000 1,145,000
Insurance related 3,309,000 2,805,000
Other 5,008,000 4,855,000
Current maturities of long-term debt 320,000 337,000
Current obligations under capital leases 777,000 777,000
----------- -----------
Total current liabilities 27,858,000 24,699,000
----------- -----------
DEFERRED INCOME TAXES 2,060,000 2,060,000
LONG-TERM DEBT 3,469,000 3,719,000
CAPITAL LEASE OBLIGATIONS 12,670,000 13,268,000
SHAREHOLDERS' INVESTMENT:
Preferred stock - 16,000
Common stock 292,000 292,000
Additional paid-in capital 12,990,000 12,990,000
Retained earnings 43,960,000 40,855,000
----------- -----------
57,242,000 54,153,000
Treasury stock (12,242,000) (10,865,000)
----------- -----------
Total shareholders' investment 45,000,000 43,288,000
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS'
INVESTMENT $91,057,000 $87,034,000
=========== ===========
<PAGE>
SCHULTZ SAV-O STORES, INC. & SUBSIDIARY
UNAUDITED STATEMENTS OF EARNINGS
For the 12-weeks ended For the 40-weeks ended
October 5 October 7 October 5 October 7
1996 1995 1996 1995
NET SALES $105,383,000 $99,373,000 $345,006,000 $333,647,000
COSTS AND EXPENSES:
Cost of products
sold 88,737,000 83,109,000 289,824,000 279,360,000
Operating and
administrative
expenses 14,254,000 14,027,000 48,085,000 47,495,000
----------- ----------- ----------- -----------
Operating income 2,392,000 2,237,000 7,097,000 6,792,000
Interest expense (200,000) (213,000) (668,000) (715,000)
Interest income 201,000 230,000 577,000 720,000
----------- ----------- ----------- -----------
Earnings before
income taxes 2,393,000 2,254,000 7,006,000 6,797,000
PROVISION FOR
INCOME TAXES 921,000 869,000 2,697,000 2,619,000
----------- ----------- ----------- -----------
NET EARNINGS $ 1,472,000 $ 1,385,000 $ 4,309,000 $ 4,178,000
=========== ========== =========== ===========
NET EARNINGS PER
SHARE - PRIMARY
AND FULLY DILUTED $ 0.31 $ 0.28 $ 0.90 $ 0.83
=========== ========== =========== ===========
CASH DIVIDENDS
PAID PER SHARE $ 0.10 $ 0.08 $ 0.26 $ 0.14
=========== ========== =========== ===========
AVERAGE OUTSTANDING
COMMON AND
EQUIVALENT SHARES 4,770,000 4,952,000 4,783,000 5,019,000
=========== ========== =========== ===========
<PAGE>
SCHULTZ SAV-O STORES, INC. & SUBSIDIARY
UNAUDITED STATEMENTS OF CASH FLOWS
For the 40-weeks ended
October 5 October 7
1996 1995
Cash Flows from Operating Activities:
Net earnings $4,309,000 $4,178,000
Adjustments to reconcile net earnings to
net cash flows from operating activities:
Depreciation and amortization 3,408,000 3,450,000
Other non-cash items - 119,000
Changes in assets and liabilities:
(Increase) in receivables (2,913,000) (1,497,000)
(Increase) decrease in inventories (483,000) 758,000
(Increase) in prepaids and other assets (207,000) (2,826,000)
Increase in accounts payable 2,649,000 1,815,000
Increase in other accrued liabilities 527,000 479,000
---------- ----------
Net cash provided by operating activities 7,290,000 6,476,000
---------- ----------
Cash Flows from Investing Activities:
Expenditures for property and equipment (2,885,000) (2,065,000)
Collection of capital sublease and
notes receivables 445,000 398,000
Proceeds from asset sales 38,000 599,000
---------- ----------
Net cash used in investing activities (2,402,000) (1,068,000)
---------- ----------
Cash Flows from Financing Activities:
Acquisition of treasury stock (1,377,000) (2,642,000)
Dividends paid (1,204,000) (675,000)
Principal payments under capital
lease obligations (598,000) (549,000)
Principal payments on long-term debt (267,000) (267,000)
Redemption of preferred stock (16,000) -
---------- ----------
Net cash used in financing activities (3,462,000) (4,133,000)
---------- ----------
Net increase 1,426,000 1,275,000
Cash and equivalents at beginning of year 14,424,000 14,310,000
---------- ----------
Cash and equivalents at end of period $15,850,000 $15,585,000
========== ==========
Supplemental Cash Flow Disclosures:
Interest paid $704,000 $723,000
Income taxes paid 2,924,000 3,369,000
<PAGE>
SCHULTZ SAV-O STORES, INC. & SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED 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 1995 annual report to shareholders, as incorporated by reference
in the Company's Form 10-K for the fiscal year ended December 30, 1995.
(2) Interest Expense
Interest expense consists of the following:
For the 12-weeks ended For the 40-weeks ended
October 5 October 7 October 5 October 7
1996 1995 1996 1995
Long-term debt $ 88,000 $ 96,000 $ 296,000 $ 325,000
Imputed - capital leases 112,000 117,000 372,000 390,000
--------- --------- --------- ---------
$ 200,000 $ 213,000 $ 668,000 $ 715,000
========= ========= ========= =========
(3) Other Current Assets
Other current assets consists of the following:
October 5 December 30
1996 1995
Retail systems and other assets for resale $ 1,950,000 $ 1,979,000
Land and building for resale 2,307,000 2,389,000
Prepaid expenses 979,000 657,000
----------- -----------
$ 5,236,000 $ 5,025,000
=========== ===========
(4) Accounting Pronouncement
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," which the Company adopted during the first quarter of
fiscal 1996. As allowable under this pronouncement, the Company will
continue to present financial statement information under APB Opinion 25.
However, the Company will be required to provide additional disclosures of
proforma net income and proforma earnings per share as if the fair value
based method of accounting for stock options had been used to account for
stock-based compensation cost.
<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 40-weeks ended
October 5 October 7 October 5 October 7
1996 1995 1996 1995
Cost of products sold 84.2% 83.6% 84.0% 83.7%
Operating and administrative
expenses 13.5 14.1 13.9 14.2
Earnings before income taxes 2.3 2.3 2.0 2.0
Net earnings 1.4 1.4 1.2 1.3
-------------------------------------------------------------------------
Net sales for the 12- and 40-week periods ended October 5, 1996 were
$105,383,000 and $345,006,000, respectively, compared to net sales in the
respective periods ended October 7, 1995 of $99,373,000 and $333,647,000.
The increase of $6,010,000 and $11,359,000, or 6.0% and 3.4% respectively,
was due to an increase in the Company's wholesale business volume, which
more than offset the retail sales decline primarily attributable to the
sale of the Plymouth, Wisconsin store and its conversion to a franchise
unit in February 1996 and the closing of a Racine, Wisconsin store in
September 1996. Since October 7, 1995, the Company has opened two new
market franchise stores in November 1995 and August 1996, respectively.
As of October 5, 1996, the Company had 68 franchised and 17 corporate
supermarkets compared to 65 franchised and 19 corporate supermarkets at
October 7, 1995. Subsequent to October 5, 1996, the Company closed its
underperforming corporate store in Stevens Point, Wisconsin. This closing
will have an immaterial impact on the sales and profitability of the
Company during the remainder of 1996. Reserves for estimated charges
associated with store closing have previously been recorded within the
financial statements in accordance with generally accepted accounting
principles. The Company does not expect to incur additional material
charges relating to these closures.
Consistent with the Company's business strategy to expand its wholesale
volume, the Company expects that the level of its wholesale sales will
continue to increase relative to its total sales for the remainder of
1996. Currently, there are expansion or renovation projects at 14 retail
stores in various phases of planning or construction. These projects
involve five franchise expansions, four replacement franchise stores,
three new market franchise stores, one franchise store remodeling project
and one new corporate store in an existing market. Additionally, the
Company continues to implement its new electronic card marketing program,
designed to increase sales without negatively impacting retail store gross
margin. This program is designed to reward current customers and
attracting new customers through the offering of "clipless coupons" on
weekly advertised specials and "automatic" savings on monthly store
specials. The current success of the card marketing program has
translated in additional sales for participating retail stores and, as a
result, increased wholesale volume. As of October 5, 1996, there were 44
franchise and corporate supermarkets on the program with another six
stores planned for addition before fiscal year-end.
Cost of products sold, as a percent of sales, increased by 0.6% and 0.3%,
respectively, to 84.2% and 84.0% for the 12- and 40-week periods ended
October 5, 1996, compared to the same periods in 1995. The respective
increases of $5,628,000 and $10,464,000 were the direct result of a
reduction in the amount of higher margin retail sales compared to lower
margin wholesale sales. The Company expects that its sales mix trend
resulting from its greater emphasis on lower margin wholesale sales
compared to higher margin retail sales will continue throughout 1996.
This continuing emphasis is expected to result in a nominal decrease in
gross margin for the remainder of 1996.
Operating and administrative expenses, as a percent of sales, decreased by
0.6% and 0.3% for both the 12- and 40-week periods ended October 5, 1996,
compared to the same periods in 1995. Total operating and administrative
expenses increased $227,000 and $590,000, respectively, for these periods.
The percentage decrease, which resulted from the Company's changing sales
mix was offset, in part, by additional expenses incurred from the
nonrealization of receivables from franchise customers. This circumstance
was caused by continuing highly competitive retail market conditions. It
is likely the Company will continue to incur these expenses until
competitive market conditions stabilize Additionally, the Company
incurred expenses relating to the continuing implementation of its
business system upgrades at both the wholesale and retail levels
including, among others, the continuing successful roll-out of the
electronic card marketing program. During the first three quarters of
1996, the Company, however, continued to realize a reduction in expenses
associated with the corporate retail supermarkets that have either been
closed or sold and converted into franchise stores.
The effective income tax rate for both the 12- and 40-week periods ended
October 5, 1996 was 38.5%, unchanged from the rate for the same periods in
1995. The provision for income taxes during the 12- and 40-week periods
ended October 5, 1996 was $921,000 and $2,697,000, compared to $869,000
and $2,619,000 for the same periods in 1995.
As a result of the foregoing, net earnings for the 12- and 40-weeks ended
October 5, 1996 totaled $1,472,000 and $4,309,000 compared to $1,385,000
and $4,178,000 for the same periods in 1995, or increases of 6.3% and
3.1%, respectively. The Company's earnings per share for the 12- and 40-
week periods ended October 5, 1996 increased by $0.03 and $0.07, or 10.7%
and 8.4%, respectively, compared to the same periods in 1995. 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
outstanding common and equivalent shares for the first three quarters of
1996.
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 provided by operating activities for the 40-week period ended
October 5, 1996 was $7,290,000, an increase of $814,000 over the prior
year 40-week period ended October 5, 1995 cash inflow of $6,476,000. The
increase was caused by smaller increases in prepaids and other current
assets as well as larger accounts payable increases offset, in part, by
larger accounts receivable increases and increased inventory purchases.
These differences resulted primarily from the timing of cash payments and
receipts.
Net cash used in investing activities for the 40-week period ended October
5, 1996 totaled $2,402,000, compared to $1,068,000 during the same period
in 1995. The change was due primarily to the absence in the 1996 period
of proceeds of $599,000 from asset sales during the first three quarters
of 1995, as well as increased capital expenditures during 1996. Capital
expenditures for property and equipment during the first three quarters of
1996 totaled $2,885,000 compared to $2,065,000 for the same period in
1995. The Company has a 1996 capital budget of $3,300,000, of which
approximately $400,000 remains budgeted for future expenditures during the
remainder of 1996. The Company anticipates financing these needs from
internally generated capital.
Net cash used in financing activities for the 40-week period ended October
5, 1996 was $3,462,000, compared to $4,133,000 during the same period in
1995. The decrease in cash outflows was due principally to the reduction
in common stock repurchased by the Company during the first three quarters
of 1996, compared to the same period of 1995. This decrease was offset,
in part, by increased cash dividends paid through the third quarter of
1996 compared to 1995. Cash dividends paid through October 5, 1996 were
$1,204,000, compared to $675,000 for the same period in 1995. As part of
the Company's ongoing efforts to enhance shareholder value, quarterly cash
dividends paid to shareholders were increased from $.08 per share to $.10
per share, effective for the third quarter of fiscal 1996.
As a result of the foregoing, net cash increased $1,426,000 during the 40-
weeks ended October 5, 1996, compared to an increase of $1,275,000 during
the same period in 1995. The Company believes that its financial
condition provides it with adequate flexibility to fund anticipated
capital requirements and working capital needs without adversely affecting
its financial position or liquidity.
Special Note Regarding Forward-Looking Statements
Certain matters discussed in this Form 10-K are "forward-looking
statements" intended to qualify for the safe harbors from liability
established by the Private Securities Litigation Reform Act of 1995.
These forward-looking statements can generally be identified as such
because the context of the statement will include words such as the
Company "believes," "anticipates," "expects" or words of similar import.
Similarly, statements that describe the Company's future plans, objectives
or goals are also forward-looking statements. Such forward-looking
statements are subject to certain risks and uncertainties which are
described in close proximity to such statements and which could cause
actual results to differ materially from those currently anticipated.
Shareholders, potential investors and other readers are urged to consider
these factors carefully in evaluating the forward-looking statements and
are cautioned not to place undue reliance on such forward-looking
statements. The forward-looking statements made herein are only made as
of the date of this report and the Company undertakes no obligation to
publicly update such forward-looking statements to reflect subsequent
events or circumstances.
<PAGE>
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 1996.
<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 14, 1996 /s/ John H. Dahly
(Date) John H. Dahly, Executive Vice President,
Chief Financial Officer and Treasurer
<PAGE>
EXHIBIT INDEX
Exhibit No. 27 Description
Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF SCHULTZ SAV-O STORES, INC. AS OF
AND FOR THE PERIOD ENDED OCTOBER 5, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> OTHER<F3>
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-START> DEC-31-1995
<PERIOD-END> OCT-05-1996
<CASH> 15,850,000
<SECURITIES> 0
<RECEIVABLES> 8,475,000<F2>
<ALLOWANCES> 0<F2>
<INVENTORY> 20,941,000
<CURRENT-ASSETS> 54,587,000
<PP&E> 57,622,000
<DEPRECIATION> 35,075,000
<TOTAL-ASSETS> 91,057,000
<CURRENT-LIABILITIES> 27,858,000
<BONDS> 3,469,000
292,000
0
<COMMON> 0
<OTHER-SE> 44,708,000
<TOTAL-LIABILITY-AND-EQUITY> 91,057,000
<SALES> 345,006,000
<TOTAL-REVENUES> 345,006,000
<CGS> 289,824,000
<TOTAL-COSTS> 0<F1>
<OTHER-EXPENSES> 48,085,000<F1>
<LOSS-PROVISION> 0<F1>
<INTEREST-EXPENSE> 668,000
<INCOME-PRETAX> 7,006,000
<INCOME-TAX> 2,697,000
<INCOME-CONTINUING> 4,309,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,309,000
<EPS-PRIMARY> 0.90
<EPS-DILUTED> 0.90
<FN>
<F3>40 weeks
<F2>Net of "Allowances for doubtful accounts."
<F1>Amounts included in "Other costs and expenses."
</FN>
</TABLE>
