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 13, 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 August 23, 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 8
PART II - OTHER INFORMATION
Item 4. - Submission of Matters to a Vote of Security Holders 11
Item 6. - Exhibits and Reports on Form 8-K 12
SIGNATURES 12
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SCHULTZ SAV-O STORES, INC. & SUBSIDIARY
UNAUDITED CONSOLIDATED BALANCE SHEETS
July 13 December 30
ASSETS 1996 1995
CURRENT ASSETS:
Cash and equivalents $17,296,000 $14,424,000
Accounts receivable 7,844,000 5,562,000
Inventories 18,854,000 20,458,000
Other current assets 4,436,000 5,025,000
Amounts currently receivable under
capital sublease agreements 581,000 581,000
Deferred income taxes 3,504,000 3,504,000
----------- -----------
Total currents assets 52,515,000 49,554,000
AMOUNTS RECEIVABLE UNDER CAPITAL
SUBLEASE AGREEMENTS 9,050,000 9,361,000
LEASED PROPERTY UNDER CAPITAL LEASES, net 2,942,000 3,089,000
OTHER NONCURRENT ASSETS 2,149,000 2,203,000
PROPERTY AND EQUIPMENT, net 22,103,000 22,827,000
----------- -----------
Total assets $88,759,000 $87,034,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Accounts payable $13,102,000 $12,340,000
Accrued liabilities-
Employee benefits 2,531,000 2,440,000
Retail repositioning reserve 1,076,000 1,145,000
Insurance related 3,196,000 2,805,000
Other 5,296,000 4,855,000
Current maturities of long-term debt 341,000 337,000
Current obligations under capital leases 777,000 777,000
----------- -----------
Total current liabilities 26,319,000 24,699,000
----------- -----------
DEFERRED INCOME TAXES 2,060,000 2,060,000
LONG-TERM DEBT 3,524,000 3,719,000
CAPITAL LEASE OBLIGATIONS 12,850,000 13,268,000
SHAREHOLDERS' INVESTMENT:
Preferred stock 16,000 16,000
Common stock 292,000 292,000
Additional paid-in capital 12,990,000 12,990,000
Retained earnings 42,950,000 40,855,000
----------- -----------
Total 56,248,000 54,153,000
Less treasury stock (12,242,000) (10,865,000)
----------- -----------
Total shareholders' investment 44,006,000 43,288,000
----------- -----------
Total liabilities and
shareholders' investment $88,759,000 $87,034,000
=========== ===========
<PAGE>
SCHULTZ SAV-O STORES, INC. & SUBSIDIARY
UNAUDITED STATEMENTS OF EARNINGS
For the 12-weeks ended For the 28-weeks ended
July 13 July 15 July 13 July 15
1996 1995 1996 1995
NET SALES $105,544,000 $101,996,000 $239,623,000 $234,274,000
COSTS AND EXPENSES:
Cost of products
sold 88,539,000 85,262,000 201,087,000 196,251,000
Operating and
administrative
expenses 14,414,000 14,213,000 33,831,000 33,468,000
----------- ----------- ----------- -----------
Operating income 2,591,000 2,521,000 4,705,000 4,555,000
Interest expense (200,000) (215,000) (468,000) (502,000)
Interest income 172,000 225,000 376,000 490,000
----------- ----------- ----------- -----------
Earnings before
income taxes 2,563,000 2,531,000 4,613,000 4,543,000
PROVISION FOR
INCOME TAXES 987,000 975,000 1,776,000 1,750,000
----------- ----------- ----------- -----------
NET EARNINGS $1,576,000 $1,556,000 $2,837,000 $2,793,000
========== ========== ========== ==========
NET EARNINGS PER
SHARE - PRIMARY
AND FULLY DILUTED $0.33 $0.31 $0.59 $0.55
========== ========== ========== ==========
CASH DIVIDENDS PAID
PER SHARE OF
COMMON STOCK $0.08 $0.03 $0.16 $0.06
========== ========== ========== ==========
AVERAGE OUTSTANDING
COMMON AND
EQUIVALENT SHARES 4,752,000 4,965,000 4,770,000 4,982,000
========== ========== ========== ==========
<PAGE>
SCHULTZ SAV-O STORES, INC. & SUBSIDIARY
UNAUDITED STATEMENTS OF CASH FLOWS
For the 28-weeks ended
July 13 July 15
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $2,837,000 $2,793,000
Adjustments to reconcile net earnings to net
cash flows from operating activities-
Depreciation and amortization 2,393,000 2,426,000
Other non-cash items - 151,000
Changes in assets and liabilities-
(Increase) in receivables (2,282,000) (2,417,000)
Decrease in inventories 1,604,000 3,648,000
Decrease (increase) in prepaids and
other assets 594,000 (242,000)
Increase in accounts payable 762,000 999,000
Increase (decrease) in accrued other
current liabilities 858,000 (586,000)
---------- ----------
Net cash flows from operating activities 6,766,000 6,772,000
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property and equipment (1,473,000) (1,365,000)
Receipt of principal amounts under capital
sublease agreements and notes receivable 311,000 279,000
Proceeds from asset sales - 562,000
Net cash flows from investing activities (1,162,000) (524,000)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment for acquisition of treasury stock (1,377,000) (736,000)
Payment of cash dividends (742,000) (299,000)
Principal payments under capital
lease obligations (418,000) (385,000)
Principal payments on long-term debt (195,000) (191,000)
---------- ----------
Net cash flows from financing activities (2,732,000) (1,611,000)
---------- ----------
CASH AND EQUIVALENTS:
Net increase 2,872,000 4,637,000
Balance, beginning of period 14,424,000 14,310,000
---------- ----------
Balance, end of period $17,296,000 $18,947,000
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for-
Interest $505,000 $511,000
Taxes 1,357,000 2,869,000
<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 28-weeks ended
July 13 July 15 July 13 July 15
1996 1995 1996 1995
Long-term debt $88,000 $98,000 $208,000 $229,000
Imputed - capital leases 112,000 117,000 260,000 273,000
------- ------- ------- -------
Interest expense $200,000 $215,000 $468,000 $502,000
======== ======== ======== ========
(3) Other Current Assets
Other current assets consists
of following:
July 13 December 30
1996 1995
Retail systems and other
assets for resale $2,275,000 $1,979,000
Land and building for resale 1,302,000 2,389,000
Prepaid expenses 859,000 657,000
---------- ----------
Other current assets $4,436,000 $5,025,000
========== ==========
<PAGE>
(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. All references in the financial
statements to per share amounts and average number of shares have been
restated.
(5) 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.
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 13 July 15 July 13 July 15
1996 1995 1996 1995
Cost of products sold 83.9% 83.6% 83.9% 83.8%
Operating and administrative
expenses 13.7 13.9 14.1 14.3
Earnings before income taxes 2.4 2.5 1.9 1.9
Net earnings 1.5 1.5 1.2 1.2
Net sales for the 12- and 28-week periods ended July 13, 1996 were
$105,544,000 and $239,623,000, respectively, compared to the same periods
ended July 15, 1995 of $101,996,000 and $234,274,000. The increase of
$3,548,000 and $5,349,000, or 3.5% and 2.3%, was due primarily to an
increase in the Company's wholesale business volume, which more than
offset the retail sales decline primarily attributable to the sale and
conversion of the Plymouth, Wisconsin store in early 1996. Since July 15,
1995, the Company opened one new market franchise store in November 1995
and sold one of its corporate stores and converted it to a franchise
supermarket in February 1996. As of July 13, 1996, the Company had 67
franchised and 18 corporate supermarkets compared to 65 franchised and 19
corporate supermarkets at July 15, 1995. Subsequent to July 13, 1996, the
Company announced the closing of one of its corporate stores in Racine,
Wisconsin, to be effective at the end of September 1996. Reserves for
estimated charges associated with the closing were previously recorded.
The Company does not expect to incur additional material charges relating
to this closure.
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 11
franchise retail stores in various phases of planning or construction.
These projects involve four franchise expansions, three new market
franchise and four replacement franchise stores. Additionally, the
Company continues to implement its new electronic card marketing program
designed to increase sales without negatively impacting retail store gross
margin, by rewarding current customers and attracting new customers
through the offering of "clipless coupons" on weekly advertised specials
and "automatic" savings on monthly store specials. As of August 23, 1996,
there were 37 franchise and corporate supermarkets on the program with
another 14 stores planned for addition before fiscal year-end.
Cost of products sold, as a percent of sales, increased by 0.3% and 0.1%,
respectively, to 83.9% for both the 12- and 28-week periods ended July 13,
1996, compared to the same periods in 1995. The respective increases of
$3,277,000 and $4,836,000 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
0.2% for both the 12- and 28-week periods ended July 13, 1996, compared to
the same periods in 1995. Total operating and administrative expenses
increased $201,000 and $363,000, respectively, for these periods. The
nominal percentage decrease was not as significant as otherwise would have
resulted from the Company's changing sales mix due primarily to 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 that 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 half 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 28-week periods ended
July 13, 1996 was 38.5%, unchanged from the rate for the same periods in
1995. The provision for income taxes during the 12- and 28-week periods
ended July 13, 1996 was $987,000 and $1,776,000, compared to $975,000 and
$1,750,000 for the same periods in 1995.
As a result of the foregoing, net earnings for the 12- and 28-weeks ended
July 13, 1996 totaled $1,576,000 and $2,837,000 compared to $1,556,000 and
$2,793,000 for the same periods in 1995, or increases of 1.3% and 1.6%,
respectively. The Company's earnings per share for the 12- and 28-week
periods ended July 13, 1996 increased by $0.02 and $0.04, or 6.5% and
7.3%, 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 shares
outstanding for the first half 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 inflow from operating activities for the 28-week period ended
July 13, 1996 was $6,766,000, a nominal decrease of $6,000 over the prior
year 28-week period ended July 15, 1995 cash inflow of $6,772,000. The
slight decrease was caused by smaller reductions in inventory purchases
offset, almost entirely, by substantial decreases in prepaid and other
current assets as well as large increases in accrued liabilities. These
differences resulted primarily from the timing of cash payments and
receipts.
Net cash outflow from investing activities for the 28-week period ended
July 13, 1996 totaled $1,162,000, compared to $524,000 during the same
period in 1995. The change was due primarily to proceeds of $562,000 from
asset sales during the first half of 1995. Capital expenditures for
property and equipment during the first half of 1996 totaled $1,473,000
compared to $1,365,000 for the same period in 1995. The Company has a
1996 capital budget of $3,300,000, of which approximately $1,800,000
remain for future expenditures. The Company anticipates financing these
needs from internally generated capital.
Net cash outflow from financing activities for the 28-week period ended
July 13, 1996 was $2,732,000, compared to $1,611,000 during the same
period in 1995. The increase in cash outflows was due principally to the
increase in common stock repurchased by the Company during the first half
of 1996, compared to the first half of 1995. Additionally, cash dividends
paid during the first half of 1996 totaled $742,000, an increase of
$443,000 from the same period a year ago. As part of the Company's
ongoing efforts to enhance shareholder value, quarterly cash dividends
paid to shareholders will increase 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 $2,872,000 during the 28-
weeks ended July 13, 1996, compared to an increase of $4,637,000 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 Management's Discussion and Analysis 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.
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Company's 1996 annual meeting of shareholders was held on Wednesday,
May 8, 1996. At the meeting, the shareholders re-elected John H. Dahly,
Martin Crneckiy, Jr. and R. Bruce Grover to the Company's Board of
Directors for three-year terms expiring at the Company's 1999 annual
meeting of shareholders and until their successors are duly qualified and
elected. As of the March 20, 1996 recorded date for the annual meeting,
4,653,598 shares of Common Stock were outstanding and eligible to vote.
Of these 4,052,706 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
John H. Dahly 4,035,784 99.6% 16,922 0.4%
Martin Crneckiy, Jr. 4,035,684 99.6% 17,022 0.4%
R. Bruce Grover 4,034,464 99.5% 18,242 0.5%
The tabulation of votes for the election of directors resulted in no
broker non-votes or abstentions.
Of the 4,052,706 shares of Common Stock voted at the meeting in person or
by proxy, the following votes were recorded for approval of the
ratification of Arthur Andersen LLP as the Company's 1996 independent
auditors:
For Against Abstained
Votes Percentage Votes Percentage Votes Percentage
4,036,694 99.6% 9,695 0.2% 6,317 0.2%
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
second 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)
August 23, 1996 /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 SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS OF SCHULTZ SAV-O STORES,
INC. AS OF AND FOR THE PERIOD ENDED JULY 13, 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> JUL-13-1996
<CASH> 17,296,000
<SECURITIES> 0
<RECEIVABLES> 7,844,000<F2>
<ALLOWANCES> 0<F2>
<INVENTORY> 18,854,000
<CURRENT-ASSETS> 52,515,000
<PP&E> 56,530,000
<DEPRECIATION> 34,427,000
<TOTAL-ASSETS> 88,759,000
<CURRENT-LIABILITIES> 26,319,000
<BONDS> 3,524,000
16,000
0
<COMMON> 292,000
<OTHER-SE> 43,698,000
<TOTAL-LIABILITY-AND-EQUITY> 88,759,000
<SALES> 239,623,000
<TOTAL-REVENUES> 239,623,000
<CGS> 201,087,000
<TOTAL-COSTS> 0<F1>
<OTHER-EXPENSES> 33,831,000<F1>
<LOSS-PROVISION> 0<F1>
<INTEREST-EXPENSE> 468,000
<INCOME-PRETAX> 4,613,000
<INCOME-TAX> 1,776,000
<INCOME-CONTINUING> 2,837,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,837,000
<EPS-PRIMARY> 0.59
<EPS-DILUTED> 0.59
<FN>
<F1>Amounts included in "Other costs and expenses".
<F2>Net of "Allowances for doubtful accounts".
<F3>Period is 28 weeks.
</FN>
</TABLE>
