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 April 20, 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 May 24, 1996, 4,619,098 shares of common stock, $0.05 par
value, were issued and outstanding.
<PAGE>
SCHULTZ SAV-O STORES, INC.
FORM 10-Q INDEX
PAGE
NUMBER
PART I - FINANCIAL INFORMATION
Item 1. - Financial Statements
Unaudited Consolidated Balance Sheets 3
Unaudited Consolidated Statements of Earnings 4
Unaudited Consolidated 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 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
April 20 December 30
ASSETS 1996 1995
CURRENT ASSETS:
Cash and equivalents $14,924,000 $14,424,000
Accounts receivable 6,762,000 5,562,000
Inventories 20,730,000 20,458,000
Other current assets 3,730,000 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 50,231,000 49,554,000
AMOUNTS RECEIVABLE UNDER CAPITAL
SUBLEASE AGREEMENTS 9,185,000 9,361,000
LEASED PROPERTY UNDER CAPITAL
LEASES, net 3,005,000 3,089,000
OTHER NONCURRENT ASSETS 2,170,000 2,203,000
PROPERTY AND EQUIPMENT, net 22,253,000 22,827,000
---------- ----------
Total assets $86,844,000 $87,034,000
========== ==========
LIABILITIES AND SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Accounts payable $13,463,000 $12,340,000
Accrued liabilities-
Employee benefits 2,500,000 2,440,000
Retail repositioning reserve 1,098,000 1,145,000
Insurance related 2,869,000 2,805,000
Other 3,995,000 4,855,000
Current maturities of long-term
debt 310,000 337,000
Current obligations under capital
leases 777,000 777,000
-------- --------
Total current liabilities 25,012,000 24,699,000
---------- ----------
DEFERRED INCOME TAXES 2,060,000 2,060,000
LONG-TERM DEBT 3,631,000 3,719,000
CAPITAL LEASE OBLIGATIONS 13,029,000 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 41,744,000 40,855,000
---------- ----------
Total 55,042,000 54,153,000
Less treasury stock (11,930,000) (10,865,000)
---------- -----------
Total shareholders' investment 43,112,000 43,288,000
---------- ----------
Total liabilities and
shareholders' investment $86,844,000 $87,034,000
========== ===========
<PAGE>
SCHULTZ SAV-O STORES, INC. & SUBSIDIARY
UNAUDITED CONSOLIDATED STATEMENTS OF EARNINGS
For the 16-weeks ended
April 20 April 22
1996 1995
NET SALES $134,079,000 $132,278,000
COSTS AND EXPENSES:
Cost of products sold 112,548,000 110,989,000
Operating and administrative
expenses 19,417,000 19,255,000
---------- ----------
Operating income 2,114,000 2,034,000
Interest expense (268,000) (287,000)
Interest income 204,000 265,000
--------- ---------
Earnings before income taxes 2,050,000 2,012,000
PROVISION FOR INCOME TAXES 789,000 775,000
---------- ----------
Net earnings $1,261,000 $1,237,000
========= =========
NET EARNINGS PER SHARE - PRIMARY
AND FULLY DILUTED $0.26 $0.24
===== =====
CASH DIVIDENDS PAID PER SHARE
OF COMMON STOCK $0.08 $0.03
===== =====
AVERAGE OUTSTANDING COMMON
AND EQUIVALENT SHARES 4,824,000 4,984,000
========= =========
<PAGE>
SCHULTZ SAV-O STORES, INC. & SUBSIDIARY
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the 16-weeks ended
April 20 April 22
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $1,261,000 $1,237,000
Adjustments to reconcile net
earnings to net cash flows
from operating activities-
Depreciation and amortization 1,352,000 1,408,000
Other non-cash items - 154,000
Changes in assets and liabilities-
(Increase) in receivables (1,200,000) (1,137,000)
(Increase) decrease in inventories (272,000) 1,063,000
Decrease in other current assets 1,295,000 48,000
Increase in accounts payable 1,123,000 2,859,000
(Decrease) in accrued liabilities (810,000) (1,614,000)
--------- ---------
Net cash flows from operating
activities 2,749,000 4,018,000
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property and equipment (660,000) (716,000)
Receipt of principal amounts under
capital sublease agreements and
notes receivable 176,000 159,000
Proceeds from asset sales - 559,000
--------- --------
Net cash flows from investing
activities (484,000) 2,000
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment for acquisition of treasury
stock (1,065,000) (620,000)
Payment of cash dividends (373,000) (155,000)
Principal payments under capital
lease obligations (239,000) (220,000)
Principal payments on long-term debt (88,000) (88,000)
--------- ---------
Net cash flows from financing
activities (1,765,000) (1,083,000)
--------- ---------
CASH AND EQUIVALENTS:
Net increase 500,000 2,937,000
Balance, beginning of period 14,424,000 14,310,000
Balance, end of period $14,924,000 $17,247,000
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid during the period for-
Interest $297,000 $291,000
Taxes 959,000 2,043,000
<PAGE>
SCHULTZ SAV-O STORES, INC. & SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation
The financial statements include the accounts of Schultz Sav-O Stores,
Inc. (referred to as "Company") and PW Trucking, Inc., a wholly-owned
subsidiary that began operations on January 1, 1996. The subsidiary was
created to provide contract and common carrier services for the Company
and other companies in Sheboygan County throughout a seven-state Midwest
territory. All significant inter-company accounts and transactions
between the Company and its subsidiary have been eliminated.
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 16-weeks ended
April 20 April 22
1996 1995
Interest expense:
Long-term debt $120,000 $131,000
Imputed - capital leases 148,000 156,000
------- -------
Interest expense $268,000 $287,000
======= =======
(3) Other Current Assets
Other current assets consists of following:
April 20 December 30
1996 1995
Retail systems for resale
and other assets $2,296,000 $1,979,000
Land and building for resale 771,000 2,389,000
Prepaid expenses 663,000 657,000
--------- ---------
Other current assets $3,730,000 $5,025,000
========= =========
(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. 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.
<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 16-weeks ended
April 20 April 22
1996 1995
Cost of products sold . . . . . . . . . . . 83.9% 83.9%
Operating and administrative expenses . . . 14.5 14.6
Earnings before income taxes . . . . . . . 1.5 1.5
Net earnings . . . . . . . . . . . . . . . 0.9 0.9
Net sales for the 16-week period ended April 20, 1996 were $134,079,000
compared to the 16-week period ended April 22, 1995 net sales of
$132,278,000. The increase of $1,801,000, or 1.4%, was due primarily to
an increase in the Company's wholesale business volume, which more than
offset the retail sales decline resulting from continued intense retail
competition and from the continuing increase in the relative percentage of
wholesale sales to retail sales. Since April 22, 1995, the Company has
opened one new market franchise store in November 1995 and has sold one of
its corporate stores and converted it to a franchise supermarket in
February 1996. As of April 20, 1996, the Company had 67 franchised and 18
corporate supermarkets compared to 65 franchised and 19 corporate
supermarkets at April 22, 1995.
Consistent with the Company's business 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
1996. Currently, there are expansion or renovation projects at six
franchise retail projects in various phases of planning or construction.
These projects involve two franchise expansions, one new market franchise
and three replacement franchise stores ranging in size from 21,000 to
35,000 square feet. Additionally, the Company continues to implement its
new 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.
As of April 20, 1996, there were 19 franchise and corporate supermarkets
on the program with another 11 stores planned to be added in June 1996.
Cost of products sold, as a percent of sales, was 83.9% for the 16-week
period ended April 20, 1996, unchanged from the same period in 1995.
While the percentage did not change, total cost of products sold increased
$1,559,000 for the first quarter of 1996 compared to the first quarter of
1995. 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 rest of
1996.
While operating and administrative expenses, as a percent of sales,
decreased by 0.1% to 14.5% for the 16-week period ended April 20, 1996,
compared to the same period in 1995, the nominal decrease was not as
significant as otherwise would have resulted from the Company's changing
sales mix. Total operating and administrative expenses increased $162,000
between the comparable periods. These results were due primarily to
additional expenses incurred for the nonrealization of receivables from
franchise customers 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 and electronic card marketing program. During
the first quarter 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 the first quarter ended April 20, 1996
was 38.5%, unchanged from the rate for the same quarter in 1995. The
provision for income taxes during the 16-week periods ended April 20, 1996
and April 22, 1995 was $789,000 and $775,000, respectively.
As a result of the foregoing, net earnings for the 16-weeks ended April
20, 1996 totaled $1,261,000, compared to $1,237,000 for the same period in
1995, or an increase of 2.0%. The Company's 1996 first quarter earnings
per share increased by $0.02, or 8.3%, compared to the same period in
1995. Earnings per share increased on a percentage basis more than net
earnings as a result of share repurchases effected during the first 16
weeks of 1996 which reduced the number of average shares outstanding for
the quarter. The decrease in the average outstanding shares for the 16-
week periods ended April 20, 1996 and April 22, 1995 was partially reduced
due to the dilutive effect of stock options which were treated as common
stock equivalents under the treasury stock method.
Some of the Company's 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 is continuing 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 charges may reduce 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 inflows from operating activities for the 16-week period ended
April 20, 1996 were $2,749,000, a decrease of $1,269,000 from the prior
year 16-week period ended April 22, 1995. The decrease was attributable
primarily to increased inventory purchases as well as smaller incremental
increases in accounts payable. This difference was attributable to the
timing of cash payments. The decrease was offset partially by the change
in accrued liabilities primarily resulting from significant tax payments
made by the Company during the first quarter of 1995.
Net cash outflows from investing activities for the first quarter of 1996
totaled $484,000, compared to net cash inflows of $2,000 during the same
period in 1995. The change was due primarily to proceeds from asset sales
of $559,000 during the first quarter of 1995. Capital expenditures for
property and equipment during the first quarter of 1996 totaled $660,000,
compared to the 1995 first quarter total of $716,000. The Company has a
1996 capital budget of $3,300,000, of which, $2,640,000 remain for future
expenditures. The Company anticipates financing these needs from
internally generated capital.
Net cash outflows from financing activities for the 16-week period ended
April 20, 1996 were $1,765,000, compared to $1,083,000 during the same
period in 1995. The increase in cash outflows was due principally to the
$445,000 incremental cost of repurchasing common stock during the first
quarter of 1996, compared to the first quarter of 1995. Additionally,
cash dividends paid during the first quarter of 1996 totaled $373,000, an
increase of $218,000 from the same period in 1995. As of April 20, 1996,
the Company had available the entire amount of unsecured revolving bank
credit facilities totaling $16,000,000.
As a result of the foregoing, net cash increased $500,000 during the 16-
weeks ended April 20, 1996, compared to an increase of $2,937,000 during
the same period in 1995. In view of the Company's significant cash and
other liquid assets, its consistent ability to generate cash flows from
operations and the availability of external financing, the Company
foresees no difficulty in providing financing necessary to fund its
capital commitments and working capital needs for the foreseeable future.
<PAGE>
PART II - OTHER INFORMATION
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 1996.
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)
May 29, 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
CONSOLIDATED FINANCIAL STATEMENTS OF SCHULTZ SAV-O STORES, INC. AS OF AND
FOR THE 16 WEEKS ENDED APRIL 20, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 4-MOS<F3>
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-START> DEC-31-1995
<PERIOD-END> APR-20-1996
<CASH> 14,924,000
<SECURITIES> 0
<RECEIVABLES> 6,762,000<F2>
<ALLOWANCES> 0<F2>
<INVENTORY> 20,730,000
<CURRENT-ASSETS> 50,231,000
<PP&E> 55,847,000
<DEPRECIATION> 33,594,000
<TOTAL-ASSETS> 86,844,000
<CURRENT-LIABILITIES> 25,012,000
<BONDS> 3,631,000
16,000
0
<COMMON> 292,000
<OTHER-SE> 42,804,000
<TOTAL-LIABILITY-AND-EQUITY> 86,844,000
<SALES> 134,079,000
<TOTAL-REVENUES> 134,079,000
<CGS> 112,548,000
<TOTAL-COSTS> 0<F1>
<OTHER-EXPENSES> 19,417,000<F1>
<LOSS-PROVISION> 0<F1>
<INTEREST-EXPENSE> 268,000
<INCOME-PRETAX> 2,050,000
<INCOME-TAX> 789,000
<INCOME-CONTINUING> 1,261,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,261,000
<EPS-PRIMARY> 0.26
<EPS-DILUTED> 0.26
<FN>
<F1>Amounts included in "Other costs and expenses".
<F2>Net of "Allowances for doubtful accounts".
<F3>1st Quarter is 16 weeks.
</FN>
</TABLE>
