SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 30, 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 or organization) Identification No.)
2215 Union Avenue
Sheboygan, Wisconsin 53081
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code: (414) 457-4433
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of Class
Common Stock, $0.05 par value
Common Stock Purchase Rights
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 (or for such shorter period that
the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days:
Yes X No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Aggregate market value of voting stock held by non-affiliates of the
registrant as of March 20, 1996: $63,838,987*
Number of shares outstanding of the registrant's Common Stock as of March
20, 1996: 4,653,598
PORTIONS OF THE FOLLOWING DOCUMENTS ARE INCORPORATED HEREIN BY REFERENCE:
1995 Annual Report to Shareholders (incorporated by reference into
Parts II and IV to the extent indicated therein).
Definitive Proxy Statement for 1996 annual meeting of shareholders
(incorporated by reference into Part III to the extent indicated
therein).
_______________
* Only excludes shares beneficially owned by directors and officers of
the registrant.
<PAGE>
PART I
Item 1. Business.
General
Schultz Sav-O Stores, Inc. ("Company") is engaged in distributing
food and related products at wholesale and retail. As of December 30,
1995, the Company franchised 66 and owned 19 retail supermarkets under the
Piggly Wiggly/R/ name in its Eastern Wisconsin and Northeastern Illinois
market area. While the Company has a presence in some larger metropolitan
areas, it has attempted to develop a niche for serving the food shopping
needs of customers in smaller and suburban communities within its market
areas.
The Company is the primary supplier to its 85 franchised and
corporate owned Piggly Wiggly supermarkets. The Company also serves as a
wholesaler to a number of small, independently operated retail
supermarkets in its market area.
The Company supplies a variety of products to its franchised and
corporate supermarkets and other wholesale customers primarily from its
warehouse and distribution center in Sheboygan, Wisconsin. The Company
also provides its franchised and corporate supermarkets and other
customers with fresh, frozen and processed meat, eggs and deli products
from a third-party distribution facility in Milwaukee, Wisconsin on a
contract basis. Additionally, the Company bottles carbonated soft drinks,
fruit drinks and drinking and distilled water under its Springtime label
and supplies these products to its franchised and corporate supermarkets
and other wholesale customers.
The Company is a Wisconsin corporation organized in 1912.
Wholesale Operations
For several years the Company has been emphasizing its more
profitable wholesale distribution business and the associated expansion of
its franchise store base, while also effecting changes to its corporate
retail operations to improve profitability. As part of implementing this
corporate strategy, the Company has sold and converted 11 underperforming
corporate retail supermarkets into franchise units and added 12 new
replacement or new market franchise supermarkets since 1991. In 1995,
there were 7 franchise expansion projects in process, resulting in 6
completed expansions and 1 expansion that will be completed in early 1996.
Additionally, in 1995, 3 replacement stores were completed and 3
replacement stores are expected to be completed in 1996. Finally, in
1995, 1 new market franchise unit was completed and 2 new market franchise
units are projected to be completed in 1996. These expansion, replacement
and new market franchise projects added approximately 98,000 square feet
of store space in 1995, and are projected to add approximately 87,000
square feet in 1996 if all scheduled projects are completed.
The following table shows the Company's development of, and changes
in, its franchised and corporate retail supermarkets for the periods
presented:
<TABLE>
<CAPTION>
Franchised Supermarkets Corporate Supermarkets
Number of
Supermarkets 1991 1992 1993 1994 1995 1991 1992 1993 1994 1995
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Beginning of Year 53 51 59 64 65 33 32 26 21 20
New Market
Supermarkets(a) 1 2 1 -- 1 1 -- -- -- --
Replacement
Supermarkets(b) 1 3 1 1 3 1 -- -- -- --
Converted to
Franchise(c) 1 6 4 1 -- (1) (6) (4) (1) --
Terminated Operations(d) (3) (4) (3) (1) (3) (2) -- (1) -- (1)
Terminated Franchises(e) (4) -- -- -- -- -- -- -- -- --
New Franchises(f) 2 1 2 -- -- -- -- -- -- --
End of Year 51 59 64 65 66 32 26 21 20 19
=== === === === === === === === === ===
Remodeled
Supermarkets(g) 2 3 1 5 6 2 1 3 -- --
<FN>
_______________
(a) New market supermarkets are newly constructed supermarkets in market areas not
recently served by the Company.
(b) Replacement supermarkets are newly constructed supermarkets whose opening
corresponds with the closure of a nearby franchised or corporate supermarket of
the Company.
(c) Corporate supermarkets which become franchise units are included as reductions
to corporate supermarket totals and additions to franchised supermarket totals
in this category.
(d) Terminated operations represent supermarkets which are no longer going
concerns, including replaced supermarkets.
(e) Terminated franchises are existing supermarkets which are no longer parties to
franchise relationships with the Company.
(f) New franchises are additions to the Company's franchise group, other than
through conversion from corporate supermarkets.
(g) Remodeled supermarkets represent supermarkets which have undergone substantial
expansion and/or remodeling totaling at least $250,000.
</TABLE>
During 1995, the Company established new earnings records, but sales
decreased from the previous year. The increase in earnings was
principally the result of continued improvements in the Company's
wholesale operations, where the lower gross margins associated with
wholesale sales were offset by the decreased operating and administrative
expenses associated with previously sold retail operations.
The Company believes one of the competitive advantages it provides to
its franchised supermarkets is its value-oriented customer merchandising
and community-specific marketing support program, pursuant to which
franchisees participate with corporate stores in systemwide promotions and
other merchandising events. Through a variety of partnering,
merchandising and marketing programs, the Company benefits its franchisees
through additional sales resulting from heightened consumer name
recognition and in-store merchandising programs, combined with special
promotional pricing. Additional services include retail accounting,
preparation of store payrolls, preparation of print, electronic and
outdoor media advertising (including various point-of-sale materials),
assistance in the selection and analysis of store locations, lease
negotiations, store design, floor layout, merchandising planning,
equipment selection, engineering and architectural services, retail
technology implementation and support, labor planning and scheduling and
product category supervision. Certain of such services are provided as
part of the franchise relationship, and other services are provided for a
separate fee intended to cover the Company's costs.
To maintain and improve its ability to be a low-cost supplier, in
1995 the Company installed a new computer-assisted buying system,
implemented a truck routing system and installed on-board truck computers.
The Company is the primary supplier to all of its franchised and
corporate supermarkets. The Company is also a wholesaler to a number of
small, independently operated retail supermarkets in its market area,
although less than 3% of the Company's 1995 net sales was derived from
such operations. The volume provided by the Company's wholesale
operations benefits its retail operations by enhancing the Company's
purchasing power and enabling it to improve the efficiency of its
distribution system.
Franchisees pay fees to the Company determined by the retail sales of
their supermarkets. The Company does not charge an initial fee to the
franchisee for granting a franchise. Consistent with industry practice,
in certain situations, the Company provides credit enhancements to certain
qualified franchisees by (i) leasing the franchisee's supermarket premises
and/or equipment and, in turn, subleasing the premises and/or equipment to
the franchisee and/or (ii) guaranteeing a portion of the franchisee's bank
borrowings.
The Company owns the right to grant Piggly Wiggly franchises in its
market areas, which includes designated counties in Eastern Wisconsin,
Northeastern Illinois and the Upper Peninsula of Michigan. The Company's
right to grant franchises is exclusive in these areas, except that if
there are less than 40 supermarkets in the franchise territory operated
under the Piggly Wiggly and certain other names, the current franchisor
has the right to operate for its own account, or to franchise,
supermarkets in the territory under those names. As of December 30, 1995,
there were 85 supermarkets operated in the Company's territory that
satisfied this requirement. The Company's franchise rights are of
unlimited duration and are not subject to any specific termination
provision. The Company is not required to pay any additional franchise or
other fees to the current franchisor. The only material obligation
imposed on the Company is that the supermarkets operated under the Piggly
Wiggly and other names must comply with the standards imposed on
supermarkets in the Piggly Wiggly system. The Company believes its own
franchised and corporate store standards exceed the Piggly Wiggly system
standards.
Retail Operations
During 1995, a number of the Company's corporate retail stores
continued not to meet financial performance goals. The Company closed its
underperforming Palatine, Illinois corporate supermarket in February 1995.
In order to improve the Company's results of operations, the Company
continues to evaluate various business alternatives relating to these
underperforming operations, including the sale and subsequent conversion
of these stores into franchise units, closing the stores or implementing
other operational changes.
The Company's franchised and corporate supermarkets stock a
comprehensive selection of groceries, frozen foods, prepared foods, fresh
produce, meat, poultry, eggs and dairy products. The Company's franchised
and corporate supermarkets also allocate display space to non-food items,
such as health and beauty aids, housewares, periodicals, video cassette
rentals, flowers and plants, greeting cards and general merchandise. The
Company's franchised and corporate supermarkets carry a broad range of
branded merchandise and private label product alternatives to branded
merchandise. In general, the private label products carried by the
Company's franchised and corporate supermarkets have lower selling prices,
but higher gross profit margins, than branded merchandise. Consistent
with trends generally within the industry, the Company continues to
experience increases in retail customer demand for private label store
brands and believes its Topco line of private label products is satisfying
this consumer trend. See "Purchasing and Distribution." Pricing
differentials between 1995 and 1994 did not materially effect net sales.
In 1995, the Company introduced the Piggly Wiggly Preferred Club
Card/R/, a new customer-friendly card-based marketing program. The Piggly
Wiggly Preferred Club Card is intended to reward current customers and
attract new customers by offering "clipless coupons" on weekly advertised
specials and "automatic" savings on monthly store specials. The card also
doubles as a check-cashing and video rental identification card. Initial
test results have been very favorable for the Company's retail stores, and
11 of the Company's corporate and franchise stores are already operating
with the program, with 54 additional stores currently planned for
installation in 1996. The program was developed by the Company's
Marketing and Retail Technology Groups and the Company currently plans to
install the program in all of its corporate and franchise stores.
The Company's franchised supermarkets range in size from 8,340 square
feet to 47,000 square feet, with an average of 23,720 square feet. The
Company's corporate supermarkets range in size from 14,900 square feet to
46,250 square feet, with an average of 29,600 square feet. All of the
Company's franchised and corporate supermarkets contain several perishable
or specialty service departments, such as fresh and processed meat; take-
home entrees and snacks; produce; fresh seafood; delicatessen; flowers and
plants; and baked goods. A number of supermarkets also contain or provide
for one or more of the following: wine and spirit sales; video rentals;
TicketMaster/R/ ticket centers; in-house banking services; automated
teller machines; and on-line debit and credit card check-out services.
Purchasing and Distribution
The Company purchases groceries in sufficient volume to qualify for
favorable price brackets for most items. The Company purchases brand name
grocery merchandise directly from the manufacturers or processors and
purchases substantially all of its private label items through Topco
Associates, Inc. ("Topco"). The Company purchases produce, meat and
seafood from a variety of sources. Topco is a national purchasing
cooperative whose member-owners consist of 42 regional supermarket chains
who collectively operate approximately 3,500 stores. According to Topco
data, its member-owners accounted for approximately 14% of United States
grocery store sales volume in 1995. In 1995, purchases through Topco
accounted for approximately 14% of the Company's total inventory
purchases. The Company also purchases store and warehouse equipment and
supplies, primarily bags and packaging material, through Topco. Topco's
size and purchasing power enable it to employ large-volume, low-cost
purchasing techniques on behalf of its member-owners, including the
Company.
Approximately 77% of the products supplied to the Company's stores in
1995 were supplied from the Company and its direct contract third-party
distribution centers. The remainder were supplied by direct store
delivery vendors. The Company owns its 364,000 square foot warehouse and
distribution center in Sheboygan, Wisconsin. With the exception of fresh,
frozen and processed meat, eggs and deli products, all products supplied
by the Company are distributed from its Sheboygan facility. While the
Company performs the buying function, a third-party contractor in
Milwaukee, Wisconsin performs the warehousing and transportation for the
Company's meat operations. The Company believes this arrangement has
provided it with operating cost efficiencies and has enabled it to expand
its wholesale product offerings and better satisfy wholesale customer
delivery schedules through improved capacity.
As described above under "Wholesale Operations," the Company believes
one of its competitive advantages is its community-oriented marketing
programs. High visibility outdoor billboard advertising stress the value
and customer service provided by the Company's local Piggly Wiggly
supermarkets. The Company also sponsors local events and festivals
throughout the marketing area to improve its Piggly Wiggly name
recognition, such as the Midwest's largest fireworks display at
Milwaukee's Summerfest lakefront music festival.
The Company operates a leased, full service trucking fleet, which
consists of 25 tractors, 40 refrigerated trailers and 6 dry trailers. The
Company augments its transportation requirements with temporary leasing
arrangements as conditions warrant. On January 1, 1996, the Company
formed PW Trucking, Inc., a wholly-owned subsidiary, to provide contract
and common carrier services throughout a seven-state Midwest territory for
the Company and other companies. Revenues from unrelated parties
generated by this business are expected to be nominal in 1996.
Bottling Operations
The Company bottles carbonated soft drinks, fruit drinks and drinking
and distilled water under its Springtime label. The Company also bottles
soft drinks for several regional beverage distributors on a contract
basis. The Company supplies these products to its franchised and
corporate supermarkets and independent supermarket customers. The
Company's bottling facility occupies approximately 5,000 square feet
within its Sheboygan warehouse and distribution center. The sale of these
products accounted for less than 1% of the Company's 1995 net sales.
Competition
The wholesale and retail food industry is highly competitive. At the
wholesale level, the Company competes with regional and national
wholesalers, such as Fleming Companies, Inc., SuperValu Inc., Roundy's,
Inc. and Nash Finch Co. In addition to price, product quality and
variety, competitive factors include credit support to customers and the
provision of various support services, such as advertising; accounting and
financial services; merchandising; facilities engineering, design and
project management; and retail technology support. The Company believes
that the location of its Sheboygan warehouse and distribution facility and
the wide range of support and marketing services provided to its
franchised and corporate retail supermarkets allow it to provide prompt
and efficient low-priced, high-quality products and important supplemental
services to its franchised and corporate supermarkets and other customers.
The degree of competition at the retail level varies with store
location. In most of its franchised and corporate supermarket locations,
the Company competes primarily with local retail operators, virtually all
of whom are affiliated with competing wholesalers through arrangements
similar to the Company's franchisees. In its remaining supermarket
locations, the Company competes with national and regional retail chain
stores, such as Sentry Food Stores, Pick 'N Save, Cub Foods, Jewel Food
Stores, Dominicks Finer Foods, Copp's Supermarkets and Kohl's Food Stores.
Other competitors include the general merchandise, wholesale club and
supercenter format stores of Wal-Mart Stores, Inc., K Mart Corp. and
ShopKo. Principal retail competitive factors include price, product
quality and variety, store location and appearance and the extent of a
store's perishable product and service departments. The Company believes
its supermarkets' emphasis on low-cost, high-quality products, community-
based multi-media marketing and merchandising programs and a high degree
of in-store customer service and friendliness provide its franchised and
corporate supermarkets with a competitive advantage in many of their
retail market areas.
Certain of the Company's competitors at both the wholesale and retail
level may have a competitive advantage resulting from utilizing
lower-cost, non-union workforces. Certain of the Company's competitors
have greater financial resources and marketing budgets than the Company.
Also, certain competitors using the general merchandise, wholesale club
format or supercenter format may choose to carry and market a less
extensive variety of products for which they may choose to sell such items
at a lower per unit cost than the Company.
Employees
As of December 30, 1995, the Company employed approximately 1,600
persons, of whom approximately 1,150 were employed in the operation of the
Company's corporate retail supermarkets. A majority of the Company's
corporate retail employees are employed on a part-time basis. Of the
Company's remaining employees, approximately 225 are engaged in
warehousing and trucking activities and the remainder are corporate and
administrative personnel. The Company is currently negotiating new
collective bargaining agreements covering approximately 75 retail clerks
and meat cutters to replace agreements that expired in November 1995. The
Company and employees are continuing to operate under the terms of the
expired contract while the new contract is negotiated. Four separate
collective bargaining agreements covering approximately 120 total retail
clerks and meat cutters expire at different times throughout 1996. The
Company's collective bargaining agreement covering the approximately 225
warehouse and trucking employees at its Sheboygan distribution facility
expires in February 1997. The Company does not currently anticipate any
strikes, work stoppages or slowdowns in connection with renewing such
agreements.
Item 1A. Executive Officers of the Company.
Positions and Offices with the
Name and Age Company
James H. Dickelman, 48 . . . . Chairman of the Board, President
and Chief Executive Officer
John H. Dahly, 55 . . . . . . . Executive Vice President, Chief
Financial Officer, Treasurer and
Secretary
Michael R. Houser, 44 . . . . . Senior Vice President--Marketing
and Merchandising
William K. Jacobson, 45 . . . . Senior Vice President--Retail
Operations
Kenneth S. Folberg, 35 . . . . Vice President--Logistics
Larry D. Hayes, 53 . . . . . . Vice President--Meat, Bakery and
Deli Operations
John S. Kwas, 56 . . . . . . . Vice President--Grocery Procurement
Thomas J. Timler, 38 . . . . . Vice President--Business Systems
Support Group
Frank D. Welch, 55 . . . . . . Vice President--Engineering and
Assistant Secretary
Messrs. Dickelman, Dahly, Houser and Jacobson are also members of the
Company's Board of Directors.
Executive officers are generally elected annually at the annual
meeting of the Board of Directors held on the date of the Company's annual
meeting of shareholders. Each executive officer holds office until his
successor has been elected or until his prior death, resignation or
removal.
All of the Company's executive officers have served in the positions
indicated or in other management positions with the Company for more than
the last five years.
Thomas H. Fox, formerly Senior Vice President--Director of Retail
Operations and Robert A. Hobart, formerly Vice President--Director of
Management Information Services, retired from the Company in March and
January 1996, respectively.
Item 2. Properties.
As is customary in the Company's industry, a substantial portion of
the Company's capital assets are leased. As of December 30, 1995, the
Company leased 17 of its corporate supermarkets and owned 2 supermarkets.
The leased supermarkets range in size from 14,900 to 41,200 square feet,
with an average of 29,060 square feet.
The Company generally leases its supermarkets from nonaffiliated real
estate developers under long-term leases. Such leases generally contain
initial terms of 15 to 20 years with several five-year renewal options.
None of such existing lease arrangements contain Company repurchase
options nor is the land underlying any of such supermarkets owned by the
Company. No leases are scheduled to expire in 1996. As of December 30,
1995, the Company subleased 47 of its leased supermarkets, and leased 2
owned supermarkets, to independent operators who are wholesale customers
of the Company and, except for one, are also franchisees.
Renovations and expansions continue at 3 franchise retail operations.
These renovations involve 1 addition to an existing franchise store, and 2
replacement franchise units. Additionally, two new market franchise
retail operations are expected to be completed in 1996. These projects
are expected to add approximately 49,000 square feet of store space.
The Company owns its warehouse/distribution center and headquarters
complex in Sheboygan, Wisconsin which occupies approximately nine acres of
a 16-acre site owned by the Company. The facility provides approximately
30,500 square feet of space for offices and related activities,
approximately 364,000 square feet of warehouse space and approximately
5,000 square feet for the Company's bottling facility. The Company also
leases approximately 4,500 square feet of office space in Sheboygan under
a five-year lease expiring at the end of 1997, which is used for customer
support services.
The Company owns approximately 22 acres of commercially zoned
property in two Wisconsin communities. The Company has entered into
brokerage arrangements for the development and sale of these properties.
Item 3. Legal Proceedings.
There are no material legal proceedings to which the Company is a
party or to which any of its property is subject, other than ordinary
routine litigation incidental to the Company's business. No material
legal proceedings were terminated during the fourth quarter of 1995.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of the Company's shareholders
during the fourth quarter of 1995.
PART II
Item 5. Market for the Company's Common Stock and Related Shareholder
Matters.
Pursuant to General Instruction G to Form 10-K ("Instruction G"), the
information required by this Item is incorporated herein by reference from
information included under the caption entitled "Company Business" set
forth in the Company's 1995 Annual Report to Shareholders ("Annual
Report").
Item 6. Selected Financial Data.
Pursuant to Instruction G, the information required by this Item is
incorporated herein by reference from information included under the
caption entitled "Selected Five-Year Financial Highlights" set forth in
the Annual Report.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Pursuant to Instruction G, the information required by this Item is
incorporated herein by reference from information included under the
caption entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations" set forth in the Annual Report.
Item 8. Financial Statements and Supplementary Data.
Pursuant to Instruction G, the Balance Sheets of the Company as of
December 30, 1995 and December 31, 1994, the Statements of Shareholders'
Investment, Earnings and Cash Flows for each of the three fiscal years in
the period ended December 30, 1995, together with the related Notes to
Financial Statements (including supplementary financial data), are
incorporated herein by reference from information included under the
captions having substantially the same titles as set forth in the Annual
Report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Company.
Pursuant to Instruction G, the information required by this Item
(other than such information regarding executive officers which appears in
Item 1A hereof and information required by Item 405 of Regulation S-K,
which is inapplicable) is incorporated by reference from information
included under the caption entitled "Election of Directors" set forth in
the Company's definitive Proxy Statement for its 1995 annual meeting of
shareholders ("Proxy Statement").
Item 11. Executive Compensation.
Pursuant to Instruction G, the information required by this Item is
incorporated by reference from information included under the caption
entitled "Executive Compensation" set forth in the Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Pursuant to Instruction G, the information required by this Item is
incorporated by reference from information included under the captions
entitled "Principal Shareholders" and "Election of Directors" set forth in
the Proxy Statement.
Item 13. Certain Relationships and Related Transactions.
Pursuant to Instruction G, the information required by this Item is
incorporated by reference from information under the caption entitled
"Compensation and Stock Option Committee Interlocks and Insider
Participation" set forth in the Proxy Statement.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) The following documents are filed as a part of this Form 10-K:
Page Reference
Page 1995 Annual
Reference Report
1. Financial Statements. Form 10-K to Shareholders
Balance Sheets as of December
30, 1995 and December 31, 1994 -- 10-11
Statements of Shareholders'
Investment, Earnings and Cash
Flows for the fiscal years
1995, 1994 and 1993 -- 10-12
Notes to Financial Statements -- 13-19
Report of Independent Public
Accountants -- 23
The additional information referred to under "Financial Statement
Schedules" below is filed as part of this Form 10-K and should be read in
conjunction with the financial statements referred to above.
2. Financial Statement Schedules.
Report of Independent Public F-1 --
Accountants
Schedule VIII - Valuation and F-2 --
Qualifying Accounts and Reserves
All other schedules have been omitted as not required or not
applicable or the information required to be shown thereon is included in
the financial statements and related notes.
3. Exhibits.
(a) The Exhibits filed or incorporated by reference herewith
are as specified in the Exhibit Index included herein.
(b) No reports on Form 8-K were filed by the Company during the
fourth quarter of 1995.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
SCHULTZ SAV-O STORES, INC.
Date: March 22, 1996 By /s/ John H. Dahly
John H. Dahly
Executive Vice President
and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the
Company in the capacities indicated as of the date indicated above.
/s/ James H. Dickelman /s/ Bernard S. Kubale
James H. Dickelman, Chairman of Bernard S. Kubale, Director
Board, President, Chief
Executive Officer and Director
(Principal Executive Officer)
/s/ John H. Dahly /s/ Martin Crneckiy, Jr.
John H. Dahly, Executive Vice Martin Crneckiy, Jr., Director
President, Chief Financial Officer
and Director (Principal Financial
and Accounting Officer)
/s/ Howard C. Dickelman /s/ R. Bruce Grover
Howard C. Dickelman, Director R. Bruce Grover, Director
/s/ William K. Jacobson /s/ Michael R. Houser
William K. Jacobson, Director Michael R. Houser, Director
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULES
TO SCHULTZ SAV-O STORES, INC.:
We have audited in accordance with generally accepted auditing standards,
the financial statements included in Schultz Sav-O Stores, Inc.'s annual
report to shareholders incorporated by reference in this Form 10-K, and
have issued our report thereon dated February 7, 1996. Our audit was made
for the purpose of forming an opinion on those statements taken as a
whole. The schedule listed in the index to financial statements is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in the
audit of the basic financial statements and, in our opinion, fairly states
in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin
February 7, 1996.
<PAGE>
SCHULTZ SAV-O STORES, INC.
SCHEDULE VIII--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE FISCAL YEARS 1995, 1994 AND 1993
Allowance for Doubtful Accounts--
Changes in the allowance for doubtful accounts are summarized as
follows:
1995 1994 1993
Balance, beginning of
year $1,750,000 $1,750,000 $3,050,000
Provision charged to
earnings 2,079,000 526,000 4,143,000
(Writeoffs), net of
recoveries (1,264,000) (526,000) (5,443,000)
---------- ---------- ---------
Balance, end of year $2,565,000 $1,750,000 $1,750,000
========= ========= ==========
<PAGE>
EXHIBIT INDEX
SCHULTZ SAV-O STORES, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 30, 1995
Exhibit
No. Description
3.1 Restated Articles of Incorporated, as amended.
[Incorporated by reference to Exhibit 3.2 to the
Company's Annual Report on Form 10-K for the
year ended December 31, 1988.]
3.2 By-Laws, as amended and restated as of January
24, 1991. [Incorporated by reference to Exhibit
3.2 to the Company's Annual Report on Form 10-K
for the year ended December 29, 1990.]
4.1 Restated Articles of Incorporation, as amended
(included as Exhibit 3.1). [Incorporated by
reference to Exhibit 4.2 to the Company's Annual
Report on Form 10-K for the year ended December
31, 1988.]
4.2 Rights Agreement dated December 20, 1988 between
the Company and First Bank (N.A.), Milwaukee,
Wisconsin. [Incorporated by reference to
Exhibit 4 to the Company's Current Report on
Form 8-K dated December 21, 1988.]
4.3 Amendment to Rights Agreement dated February 2,
1989 between the Company and First Bank (N.A.),
Milwaukee, Wisconsin. [Incorporated by
reference to Exhibit 2 to the Company's Form 8
dated February 20, 1989.]
4.4 Letter dated June 30, 1992 constituting
appointment of Firstar Trust Company (f/k/a
First Wisconsin Trust Company) as the successor
rights agent under the Rights Agreement dated
December 20, 1988, as amended. [Incorporated by
reference to Exhibit 4.4 to the Company's Annual
Report on Form 10-K dated March 31, 1994.]
As summarized in Notes (3) and (8) of the Notes
to Financial Statements incorporated by
reference from the Company's 1995 Annual Report
to Shareholders, as part of Parts II and IV of
this Form 10-K, the Company has various
outstanding long-term debt and capital lease
obligations. None of such obligations
individually exceeds 10% of the Company's total
assets. The Company hereby agrees to furnish to
the Commission, upon its request, a copy of each
instrument with respect to such obligations.
10.1 Master Franchise Agreement, dated April 23,
1982, between Commodores Point Terminal
Corporation and Piggly Wiggly Corporation.
[Incorporated by reference to Exhibit 10.1 to
the Company's Annual Report on Form 10-K for the
year ended January 1, 1982.]
10.2 Agreement, dated August 1, 1982, between the
Company and Commodores Point Terminal
Corporation. [Incorporated by reference to
Exhibit 10.2 to the Company's Annual Report on
Form 10-K for the year ended January 1, 1982.]
10.3 Amendment to Master Franchise Agreement, dated
October 15, 1982, between the Company and Piggly
Wiggly Corporation. [Incorporated by reference
to Exhibit 10.3 to the Company's Annual Report
on Form 10-K for the year ended January 1,
1982.]
10.4 Form of Director/Officer Indemnity Agreement.
[Incorporated by reference to Exhibit 10.4 to
the Company's Annual Report on Form 10-K for the
year ended January 2, 1988.] This Agreement is
required to be filed as an exhibit to this
Form 10-K pursuant to Item 14(c) of Form 10-K.
10.5 Form of Key Executive Employment and Severance
Agreement, dated as of October 19, 1990, between
the Company and each of James H. Dickelman, John
H. Dahly, and Michael R. Houser, and dated as of
January 31, 1996, between the Company and
William K. Jacobson. [Incorporated by reference
to Exhibit 10.5 to the Company's Annual Report
on Form 10-K for the year ended December 29,
1990.] This Agreement is required to be filed
as an exhibit to this Form 10-K pursuant to
Item 14(c) of Form 10-K.
10.6 Membership and Licensing Agreement dated August
1, 1973 by and between Topco Associates, Inc.
(Cooperative) and the Company
10.7 Articles of Incorporation of Topco Associates,
Inc. (Cooperative). [Incorporated by reference
to Exhibit 10.12 to the Company's Annual Report
on Form 10-K for the year ended December 31,
1988.]
10.8 Bylaws of Topco Associates, Inc. (Cooperative),
as amended through June 7, 1995.
10.9 1990 Stock Option Plan, as amended as of March
17, 1993. [Incorporated by reference to exhibit
10.10 to the Company's Annual Report on Form 10-
K for the year ended January 2, 1993.] This
Plan is required to be filed as an exhibit to
this Form 10-K pursuant to Item 14(c) of
Form 10-K.
10.10 1995 Equity Incentive Plan. [Incorporated by
reference to Exhibit 10.9 to the Company's
Annual Report on Form 10-K for the year December
31, 1994.] This Plan is required to be filed as
an exhibit to this Form 10-K pursuant to
Item 14(c) of Form 10-K.
10.11 Schultz Sav-O Stores, Inc. Executive Benefit
Restoration Plan. [Incorporated by reference to
Exhibit 10.10 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1994.]
This Plan is required to be filed as an exhibit
to this Form 10-K pursuant to Item 14(c) of
Form 10-K.
10.12 Schultz Sav-O Stores, Inc. Officer Annual
Incentive Plan. [Incorporated by reference to
Exhibit 10.11 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1994.]
This Plan is required to be filed as an exhibit
to this Form 10-K pursuant to Item 14(c) of
Form 10-K.
13 Portions of the 1995 Annual Report to
Shareholders expressly incorporated by reference
into this Form 10-K.
23 Consent of Independent Public Accountants.
27 Financial Data Schedule (EDGAR version only).
99 Definitive Proxy Statement for 1995 Annual
Meeting of Shareholders (filed with the
Commission under Regulation 14A and incorporated
by reference herein to the extent indicated in
this Form 10-K).
EXHIBIT 10.6
MEMBERSHIP AND LICENSING AGREEMENT
This agreement is entered into this 1st day of August, 1973, by
and between TOPCO ASSOCIATES, INC., (COOPERATIVE), a cooperative
association organized under the laws of the State of Wisconsin
(hereinafter called Association), and Schultz Sav-O Stores, Inc., a
corporation organized under the laws of the State of Wisconsin
(hereinafter called Member), and supersedes any prior membership or
licensing agreements.
It is mutually agreed as follows:
1. The terms and provisions of the Articles of Incorporation
and Bylaws of the Association are hereby incorporated in this agreement as
is fully set forth herein. Each amendment to said Articles of
Incorporation and Bylaws shall be treated as an amendment to this
agreement.
2. The Association grants to the member a license to sell and
distribute from its warehouse or warehouses in the following location or
locations products bearing the trademarks or trade names owned by the
Association set forth in Exhibit A (as the same may from time to time be
amended by agreement of the parties):
Sheboygan, Wisconsin
Racine, Wisconsin
3. Member shall provide to the Association a list of stores
serviced by the warehouses described in paragraph 2 as of June 30 and
December 31 of each year.
IN WITNESS WHEREOF, the parties hereto have signed this
agreement.
TOPCO ASSOCIATES, INC.
By /s/ Robert D. Fernd
SCHULTZ SAV-O STORES, INC.
By /s/ Howard C. Dickelman
<PAGE>
EXHIBIT A
Membership and Original: Dated August 1, 1973
Licensing Agreement
Between Topco Associates, Revision: Dated May 14, 1985
Inc. and
Schultz Sav-O Stores, Inc. Revision No. 2;
supersedes Exhibit dated: July 18, 1974
Programs of the Association in which the Member is entitled to
participate:
Frozen Dairy Grocery
Proc Meat, Fish &
Poultry Equipment/Supplies Produce
HBA/General Merchandise SBM Fresh Meat
Trademarks and trade names in the following Brand Groups as established by
the Membership and owned by the Association:
AM Brands Group
Beacon Top Crest Valu Time
Elna Top Fresh Valu Pro
Mega
TA Brands Group
Dog Club Gaylord Top Frost
Food Club Topco
Member Own Brand: [_] Yes [X] No
EXHIBIT 10.8
BYLAWS
OF
TOPCO ASSOCIATES, INC.
(COOPERATIVE)
As Amended June 7, 1995
<PAGE>
PREFACE
Topco Associates, Inc. (hereinafter referred to as "Topco")
was incorporated in 1944 as a cooperative association under the
Wisconsin Cooperative Association Act. Topco is completely
owned by several supermarket companies, grocery wholesalers, and
foodservice entities located throughout the world. Topco's
corporate headquarters are in Skokie, Illinois.
Topco's mission is to be the most effective and least cost
provider of private label goods, perishables and value-added
programs and services. Topco's further mission is to ensure
that the quality of its products and services will meet consumer
and owner expectations. Topco strives to accomplish these
missions by leveraging the combined strengths of its owner
companies so as to enhance their competitive positions and
profitability.
<PAGE>
INDEX TO
BYLAWS OF TOPCO ASSOCIATES, INC.
Page
I. General Stipulations 2
II. Ownership Definitions 2
III. Member-Owner and Topco Responsibilities 3
IV. Board, Officers and Executive Committee 4
V. Service Charges and Dividends 6
VI. Financial Information and Capital 7
Requirements; Credit Provisions
VII. Meetings of Member-Owners 9
VIII. Commencement of Member-Ownership; Licensing 10
IX. Withdrawal 11
X. Indemnification; Damages 13
<PAGE>
BYLAWS OF TOPCO ASSOCIATES, INC.
ARTICLE I
GENERAL STIPULATIONS
1.1 State of Incorporation: Topco Associates, Inc. (referred to herein
as "Topco") is incorporated in the State of Wisconsin as a co-
operative under Chapter 185, Wisconsin Statutes.
1.2 Services: The services of Topco are divided into the following nine
programs, plus such additional programs as may from time to time be
approved by the Board of Directors: (a) frozen foods, excluding
meat, fish and poultry, (b) dairy and bakery products, (c) grocery
products, (d) processed meat, fish and poultry; delicatessen, (e)
equipment and supplies, (f) health and beauty care and general
merchandise, (g) produce, (h) fresh meat, and (i) financial and
administrative services. Segments of programs may be established as
appropriate.
1.3 Fiscal Year: The fiscal year of Topco shall begin on the first day
of April in each year and shall end on the last day of March in each
year.
1.4 Amendments: These bylaws may be amended, repealed, or altered, in
whole or in part, by a vote of two-thirds (2/3) of the full member-
owners who are present at a regular or special meeting.
ARTICLE II
OWNERSHIP DEFINITIONS
2.1 Member-ownership in Topco shall be open to corporations, divisions
of corporations, firms, partnerships, cooperative associations or
other economic units who shall have been elected to member-ownership
in Topco in accordance with these bylaws. The economic units that
are considered to be part of a "member-owner" shall be determined in
the context of the applicant's election to membership and the
relationship between it and Topco. Member-ownership in Topco by a
division or subsidiary does not necessarily grant member-ownership
to the parent corporation or to other divisions or subsidiaries of
the parent.
2.2 A member-owner shall be either a full member-owner or an associate
member-owner. A full member-owner is one that is entitled to
participate in at least four full programs. An associate member-
owner is one that is entitled to participate in at least one full
program. Each member-owner shall consist of one or more operating
units which shall be specified in the letter of application.
2.3 The term "operating division" shall refer to a licensed operating
unit of a member-owner.
ARTICLE III
MEMBER-OWNER AND TOPCO RESPONSIBILITIES
3.1 Each member-owner shall fully promote the products bearing
trademarks owned by Topco for which such member-owner is licensed,
in order to meet, enhance, develop and expand the demand for such
products.
3.2 The Board of Directors, or the President pursuant to the authority
of the Board, may establish policies and procedures whereby Topco
provides to a member-owner various items under a trademark of the
member-owner. Unless established otherwise, Topco shall be deemed
the principal procuring agent for member-owner labeled products for
categories in which the member-owner participates. The member-owner
agrees to reimburse Topco for all incremental out-of-pocket costs
incurred by Topco in the development and execution of procurement
programs using brands of the member-owner, and to be responsible for
all inventories of product and packaging bearing such member's
trademarks, and any related packaging plates, provided they were
authorized by the member-owner. Each member-owner shall be
responsible for trademark protection for products provided by Topco
pursuant to this section and shall handle all trade dress grievances
which may relate to such matters.
3.3 The trademarks owned by Topco and its subsidiaries shall be used
only on products purchased from or through Topco or with the
specific approval of Topco. No member-owner shall sell or permit
the sale of faulty merchandise bearing a trademark of Topco or
subsidiary thereof without express permission from Topco.
3.4 Topco shall prevent the infringement of a trademark owned by Topco
or a subsidiary if Topco believes that a trademark is being
infringed, that it is necessary to take legal action and that the
expense of such action is reasonably justified under the
circumstances. No claim shall arise against Topco for damages which
may result from a finding or decision that any trademark of Topco is
invalid, unenforceable and/or not infringed.
3.5 All information, materials and/or documents distributed or provided
to a member-owner shall be held and maintained in confidence by such
member-owner and shall not be disclosed to any third party or
operating unit of the member-owner that is not a participant in the
program or segment to which the information relates, without the
express, written consent of Topco. All information, materials,
and/or documents distributed or provided to Topco by a member-owner
shall be held in confidence by Topco and shall not be disclosed to
any other member-owner or to any third party without the express,
written consent of the member-owner. All such confidential
information, materials, and/or documents received by any member-
owner, or by Topco, shall be returned to Topco or the member owner,
as the case may be, upon termination of such member-owner's
membership.
3.6 Each member-owner shall report its store locations (or the store
locations of its customers, in the case of a wholesaler) with such
frequency as Topco may specify. A member-owner that is a
foodservice distributor shall report its member or branch locations
with such frequency as Topco may specify.
ARTICLE IV
BOARD OF DIRECTORS, OFFICERS
AND EXECUTIVE COMMITTEE
4.1 Board of Directors; Executive Committee
4.1.1 Topco's business shall be managed by its Board of
Directors. The Board shall exercise all powers of Topco
and perform whatever actions that are not required to be
performed by the member-owners pursuant to statute, the
Articles of Incorporation or these bylaws.
4.1.2 The Board shall consist of a director representing each
full member-owner, plus two. Each director and each
alternate director shall be elected by a majority vote of
the full member-owners and shall serve until the next
annual meeting of member-owners or until his or her
successor is elected, or removed by a majority vote of all
full member-owners.
4.1.3 Each full member-owner may submit for election the name of
the person designated by it as its representative on the
Board, as well as that of an alternate director who may
attend and vote at Board meetings in the event the primary
director is unable to do so. Any vacancy existing in the
Board may be filled by a majority of the directors then in
office, though less than a quorum, and the directors so
chosen shall hold office until the next annual election or
until their successors are elected, whichever is sooner.
4.1.4 The Board shall meet annually without notice immediately
after the annual membership meeting. The Board may also
meet upon five days' notice from the President or Chairman.
The President or Chairman shall schedule a meeting if
requested by a majority of the directors in writing.
4.1.5 A quorum for all meetings of the Board is a majority of the
directors in office. Action taken by a majority of the
directors present at Board meetings shall constitute an act
of the Board except as is otherwise specifically provided
by statute, the Articles of Incorporation or the bylaws.
Alternate directors attending Board meetings in place of
directors shall be counted for quorum and voting
requirements.
4.1.6 The Chairman of the Board may invite other representatives
of one or more member-owners to attend any meeting of the
Board as guests.
4.1.7 At the annual meeting, the Board shall elect the principal
officers of Topco who, along with the immediate past
Chairman during the year following his final year as
Chairman, shall constitute the Executive Committee. Any
officer or member of the Executive Committee may be removed
at any time by the Board of Directors. The Executive
Committee has full powers of the Board when the Board is
not in session, except it may not elect officers, apportion
proceeds or fill vacancies on the Board. A majority of the
members of the Executive Committee constitute a quorum for
the transaction of business, and the act of the majority of
the members present at a meeting at which there is a quorum
shall constitute an act of the Executive Committee. Any
action which may be taken by the Board of Directors or by
the Executive Committee at a meeting may be taken without a
meeting if the action is approved in writing by all
directors or all Executive Committee members.
4.1.8 The Executive Committee shall make such recommendations to
the Board of Directors as it considers necessary or
desirable to assure that Topco is responsive to the needs
of the member-owners. Without limiting the generality of
the foregoing, the Committee may periodically review the
program operating budgets and financial statements of
Topco, consult with Topco's outside auditors and review the
scope and results of their audits, consider proposed new
programs of Topco, and review the performance of Topco in
present programs. The Committee may hold meetings from
time to time when called by the Chairman of the Board or
when requested by a majority of the Committee. Any meeting
of the Executive Committee may be postponed at the request
of a member of the Committee if five days' notice of such
meeting has not been given.
4.1.9 At, or shortly after, each annual meeting of the Board, the
Chairman of the Board shall appoint the members of
committees of the Board other than the Executive Committee,
each such committee to consist of three or more directors
or alternate directors, and to have such name and such
function as the Board or the Chairman shall specify.
4.1.10 The Board of Directors shall cause the books of Topco to be
audited by a Certified Public Accountant immediately
following the close of each fiscal year. The audit report,
together with the report of the business operations during
the previous year, shall be submitted to the members at or
prior to the annual meeting.
4.2 Officers
4.2.1 The principal officers of Topco shall be a Chairman of the
Board, a President, two or more Vice Presidents, a
Secretary-Treasurer, and may include a Vice Chairman of the
Board. All principal officers shall be directors. The
principal officers shall be elected by the Board of
Directors at each annual meeting and shall hold office
until a successor is elected. No person who is not an
employee of Topco shall be eligible to serve more than four
consecutive one-year terms as a principal officer, except
that the person elected as Chairman of the Board may serve
as such even though his or her term constitutes a fifth or
sixth one-year term. The principal officers elected by the
Board shall perform such duties as may from time to time be
prescribed by the Board of Directors and the Chairman of
the Board.
4.2.2 The President may from time to time, with the approval of
the Board of Directors, appoint from the ranks of the
employees of Topco, such officers as he or she may deem
necessary. Such appointed officers shall hold office for
such period, have such authority, and perform such duties
as the President prescribes, and may be removed at any time
by the Board of Directors or the President.
4.2.3 The Chairman of the Board shall be the principal
representative of the member-owners of Topco and shall
preside at all meetings of the member-owners, of the Board
of Directors and of the Executive Committee. He or she
shall provide general operating direction to the President
and shall perform such other duties as are assigned to him
or her by the Board of Directors.
4.2.4 The President shall be the chief executive officer of
Topco. He or she shall, with the guidance of the Chairman
of the Board, direct Topco's operations in conformity with
the policies established by the Board of Directors. The
President shall establish policies and procedures relating
to the operations of Topco including, without limitation,
such matters as member forecasts and commitments, methods
of procurement, price averaging and member credit. The
President shall insure that adequate notice is given for
all meetings of member-owners, the Board and the Executive
Committee.
ARTICLE V
SERVICE CHARGES AND DIVIDENDS
5.1 Prior to the beginning of each fiscal year, the Board of Directors
shall consider, modify if necessary, and approve the annual budget
which has been recommended by the Executive Committee. The budget
shall be recovered through any combination of base service charges,
markups of product cost, and other income received by Topco as may
be approved by the Board of Directors. The Board of Directors may,
at any time before the end of fiscal year, modify the budgets.
5.2 Each member-owner's base service charge for a program or program
segment to which a base service charge is applicable shall be
determined by applying a regressive scale of percentages, to be
approved annually by or pursuant to the authority of the Board of
Directors, to its purchases of products in the program or segment.
The President with the approval of the Executive Committee may
establish minimum base service charges for each program or program
segment. Reductions may be made in a member-owner's base service
charge as a result of automated order placement and such other
procedures as the Board of Directors may recognize from time to time
as contributing to reductions in the cost of Topco. A member-
owner's base service charges may be increased to cover any
additional costs incurred as a result of Topco's procurement of
products under the member-owner's own trademark.
5.3 At least once annually, the Board of Directors shall return
patronage dividends to member-owners based on their purchases of the
product to which such patronage dividends are attributable.
Adjustments may be made as appropriate to reflect participation.
Patronage dividends shall also be returned to third parties in the
case of a dividend attributable to a product which, at the request
of a member-owner, and with the approval of Topco management, is
sold to such third party or parties and resold to such, member-
owner.
5.4 Patronage dividends shall be distributed by means of cash or
qualified written notices of allocation, as the Board of Directors
deems appropriate, provided that the amount distributed in the form
of qualified written notices of allocation shall not exceed 80% of
the total amount distributable. Each member-owner consents and
agrees that the amount of any patronage dividend distributed to it
by a qualified written notice of allocation (as defined in section
1388 of the Internal Revenue Code of 1986, as amended from time to
time, or in any comparable or substitute provision) shall be
included in the gross income of such member-owner at its stated
dollar amount in the taxable year of such member-owner in which such
qualified written notice of allocation is received by such member-
owner. Qualified written notices of allocation shall (a) be
redeemable only upon termination of owner-membership or as the Board
of Directors may determine; (b) provide that upon termination of
owner-membership, or if the holder becomes insolvent, or any default
shall occur in the payment of any debt due to Topco, the amount
represented thereby may be retained by Topco until 91 days following
the payment of all debts due from the member-owner to Topco, or may
be used to offset or pay down any debt from the holder to Topco,
whether or not such debts shall then be due; (c) bear no interest;
and (d) be subordinated in right of payment to all indebtedness to
Topco.
5.5 Topco shall have the right to set off the amount due from it to a
member-owner evidenced by a qualified notice of allocation against
any claim Topco may have against such member-owner. No member-owner
may assign, sell, transfer or subject to any lien or encumbrance any
patronage dividend distributed to it in the form of a qualified
written notice of allocation.
ARTICLE VI
FINANCIAL INFORMATION
AND CAPITAL REQUIREMENTS; CREDIT PROVISIONS
6.1 Financial Information or Credit Enhancement: Within 90 days of the
end of its fiscal year, each member-owner shall submit to Topco its
annual financial statements, including statements of income,
stockholders' equity, changes in financial position and notes, and a
balance sheet. All annual financial statements shall be certified
by a certified public accountant. In addition, each member-owner
shall report to Topco its sales volume with such frequency and in
such detail as the Board of Directors, or the President pursuant to
the authority of the Board, may direct. Each member-owner shall
also provide to Topco, on a quarterly basis, unaudited financial
statements including balance sheets and statements of income and
expenses. Topco may waive the foregoing requirements if the member-
owner provides credit enhancement arrangements satisfactory to
Topco.
6.2 Capital Requirements.
6.2.1 Each member-owner shall own common stock of Topco, which
shall be purchased for $100 per share. The number of
shares of common stock required to be owned by a member-
owner shall be fixed and may from time to time be changed
by the Board of Directors.
6.2.2 Topco's capital requirements shall consist of base capital
and program capital.
6.2.3 Topco's base capital requirements shall be provided by the
purchase of common stock Each member-owner shall have an
equal share of the base capital requirements and own an
equal number of shares of common stock of Topco, except
that an associate member-owner shall be required to own
one-fourth of the number of shares that would be required
of it were it a full member-owner, multiplied by the number
of programs in which it participates, but the number of
shares shall not exceed the number that would be required
of a full member-owner. Shares required to be purchased by
a new member-owner shall be purchased in two or more
installments, the amount and timing of which shall be
prescribed by or pursuant to the authority of the Board of
Directors.
6.2.4 The Board of Directors shall determine separate capital
requirements for each of the programs of Topco to finance
Topco's inventory of products and receivables and other
capital costs related to such programs. These program
capital requirements may be provided by amounts represented
by qualified written notices of allocation issued on
account of patronage dividends as described in Article V.
If the aggregate program capital requirements provided by
qualified written notices of allocation that are applicable
to a member-owner exceed 80% of the patronage dividends due
to such member-owner, the excess shall be provided by an
interest-free deposit by such member-owner which shall be
refunded at such time as the patronage dividends due to
such member-owner are adequate to meet such requirements.
6.2.5 After the beginning of a fiscal year, the Board of
Directors may determine that Topco's program capital
requirements shall be changed. The amount of such change
and its allocation among programs shall be determined by
the Board.
6.2.6 The Board of Directors may, directly or through one or more
committees, take such steps as it deems appropriate to
protect Topco against potential loss arising out of the
default or financial failure of a member-owner. Such steps
may include, but are not limited to, a refusal to extend
credit, the requirement of credit enhancements (such as
letters of credit, cash deposits, and third-party
guarantees), the establishment of credit limits, and the
non-redemption of qualified written notices of allocation
issued to a member-owner pursuant to these bylaws, without
regard to the redemption of similar notices issued to other
member-owners at the same time.
6.2.7 Each member-owner shall be responsible for paying its debts
to Topco, including without limitation the purchase price
for products purchased from Topco, as well as service and
other charges due to Topco, in accordance with credit terms
established from time to time by Topco. The failure of a
member-owner to make such payment shall constitute a
default under these bylaws.
6.2.8 Each member-owner shall be responsible for, and shall be
deemed to have guaranteed the prompt payment of, all
obligations to Topco or its suppliers payable by a
subsidiary, affiliate, or other third party to whom product
or packaging purchased from or through Topco is supplied at
the request of such member-owner, licensed operating
division, or any affiliate thereof. Subrogation claims of
a member-owner against an account debtor arising out of
payments pursuant to such guarantee shall be subordinate to
direct claims by Topco or its supplier(s).
6.2.9 Capital requirements and base service charges for member-
owners that include more than one subsidiary, division or
other licensed unit may be set on the basis that all such
units together are a single member-owner, or on the basis
that some or all of such units are separate member-owners,
as determined by Topco.
ARTICLE VII
MEETINGS OF MEMBER-OWNERS
7.1 The annual meeting of the member-owners of Topco shall be held
within eight-and-one-half (8 1/2) months after the close of the
fiscal year, at such place and on such date as the Board of
Directors or the President shall, upon proper notice, designate.
7.2 Notice of the annual meeting of member-owners and of any special
meeting of members-owners shall be sent to each member-owner (except
a member-owner who participates only in the financial and
administrative services program) by mail, addressed to the last
known post office address, at least ten (10) days before such
meeting. Notice of special meetings shall state the purpose of such
meetings.
7.3 Each member-owner, except a member-owner who participates only in
the financial and administrative services program, shall have the
right to attend each member-owners' meeting. The representative or
delegate of each full member-owner at member-owners' meetings shall
be that member-owner's representative on the Topco Board of
Directors, or in his or her absence, the alternate director from
that member-owner. An associate member-owner entitled to attend a
member-owners' meeting may be represented by any representative
thereof designated by it.
7.4 Any matters not requiring approval by the member-owners shall be
considered or determined by the Board, Executive Committee, or by
Topco as specified in these bylaws.
7.5 A quorum at a member-owners' meeting shall be a majority of the full
member-owners at that time. A majority of the quorum shall decide
any question posed at such meeting, unless otherwise specified by
these bylaws, the Articles of Incorporation or statute.
7.6 Each full member-owner shall be entitled to cast one vote at each
meeting regardless of the number of shares held.
7.7 Any action which may be taken at a meeting may be taken without a
meeting if all member-owners entitled to vote approve the action in
writing.
7.8 Any meeting of the member-owners may be held jointly with a meeting
of the Board of Directors. At any such joint meeting, each member-
owner shall be entitled to have one representative present. In
addition, persons invited to attend the meeting as guests pursuant
to Section 4.1.6 shall be entitled to attend any such joint meeting.
ARTICLE VIII
COMMENCEMENT OF MEMBER-OWNERSHIP; LICENSING
8.1 Applications for member-ownership shall be in writing, shall specify
the programs and program segments in which the proposed member-owner
wishes to participate, and shall contain an agreement to be bound by
these bylaws and to purchase the number of shares of common stock
required by these bylaws. The application for member-ownership
shall set forth: (a) the trademarks of Topco and its subsidiaries,
if any, for which the member-owner wishes to be licensed, and any
limitations on such license; (b) the location of the place or places
of business for which the trademarks for Topco will be licensed; (c)
if applicable, that the member-owner wishes to purchase from or
through Topco products under the member-owner's own trademark; (d)
the programs and segments of programs of Topco in which the member-
owner desires to participate; (e) the warehouse locations to which
the member-owner wishes Topco to ship product; (f) the territory of
prime responsibility of the member-owner, if any; and (g) any other
conditions attaching to the member-ownership.
8.2 The application for member-ownership shall be submitted to the Board
of Directors or full member-owners for approval. Such approval
shall become final upon the affirmative vote of three-fourths of the
directors or full member-owners, entitled to vote, either at a
meeting or by mail ballot.
8.3 The Board of Directors or full member-owners, may set conditions of
member-ownership at the time that an application is approved. The
Board of Directors or full member-owners, may cancel any or all of
such conditions at any time.
8.4 The (i) trademarks of Topco and its subsidiaries for which a member-
owner is licensed, (ii) warehouse locations to which Topco will ship
or cause to be shipped products, (iii) Topco programs and segments
of programs in which a member-owner is entitled to participate, (iv)
right of the member-owner, if any, to purchase through Topco,
products under the member-owner's own trademark, and (v) conditions
attaching to the ownership, are those that are (a) set forth In an
agreement between the member-owner and Topco, or (b) set forth in
the application for membership of the member-owner as approved by
the Board or full member-owners, or (c) designated in writing by
Topco to the member-owner. A member-owner's right with respect to a
warehouse location shall automatically terminate if and when such
member-owner no longer operates a warehouse at such location.
Except as provided in these bylaws, a member-owner's rights with
respect to the foregoing may not be withdrawn or modified without
its agreement.
8.5 An operating unit that is acquired by a member-owner (as distinct
from a store or group of stores that are in the same geographic area
of one or more licensed units of the member-owner and that are to be
served by a warehouse owned by the member-owner prior to
acquisition) is not part of that member-owner for purposes of these
bylaws unless the member-owner makes application with respect to
such operating unit and the application is approved by the Board of
Directors or full member-owners.
ARTICLE IX
WITHDRAWAL
9.1 A member-owner may withdraw from member-ownership voluntarily or may
be required by Topco to withdraw. Withdrawal from member-ownership
cancels any license from Topco to the member-owner.
9.2 Required Withdrawals
9.2.1 In the event that a member-owner shall become subject to
the jurisdiction of a bankruptcy court and the bankruptcy
trustee rejects the agreement between the member-owner and
Topco, the member-owner shall be deemed to have withdrawn
on the date of such rejection.
9.2.2 A member-owner may be required to withdraw for any of the
following reasons: (a) If the member-owner should violate
the terms and conditions of, or default under, any contract
between it and Topco, Topco's bylaws or Topco's Articles of
Incorporation; (b) If the member-owner should commit any
act or pursue any course of conduct injurious to the
welfare of Topco, including but not limited to failure to
pay its debts to Topco or to suppliers for products
purchased through Topco; and (c) If a member-owner should
misrepresent or misuse any product bearing a trademark
owned or controlled by Topco, or handle, utilize, sell,
and/or offer to sell such a product in a manner injurious
to the goodwill which attaches to said trademark or to the
reputation of Topco.
9.2.3 If a member-owner undergoes a change of control as defined
in section 9.4.3, Topco may require that the member-owner
withdraw. A member-owner contemplating a transaction which
will result in a change of control may request Topco to
waive its right to require withdrawal in the event a
specified transaction is consummated. The Board of
Directors shall act upon such a request within thirty (30)
days of its receipt. The vote on such request may be taken
either at a meeting or by mail ballot. If the Board waives
Topco's right to terminate, such waiver shall be binding
upon Topco.
9.2.4 Services After Withdrawal: A member-owner who has been
required to withdraw for a reason specified in section
9.2.2 shall not be entitled to purchase any products from
or through Topco after the date of withdrawal. A member-
owner who withdraws voluntarily or is required to withdraw
because of a change of control shall be entitled to service
after the date of withdrawal in accordance with section
9.7.
9.3 Withdrawal From Programs. A member-owner (or any of its licensed
units) may also withdraw from participation in specific programs by
giving Topco written notice of such withdrawal on or prior to its
effective date, which shall be at the end of any calendar month.
The member-owner shall be entitled to service in a program from
which it has withdrawn in accordance with section 9.7.
9.4 Required Withdrawal: Topco shall follow the procedures herein
described in requiring a withdrawal from member-ownership.
9.4.1 Within ninety (90) days of the date Topco obtains knowledge
of a basis for withdrawal, Topco may institute withdrawal
procedures by giving written notice to the member-owner
describing such reason for requiring withdrawal and
notifying such member-owner of the time and place of the
meeting of the Board of Directors at which such required
withdrawal will be considered.
9.4.2 At the meeting at which the Board of Directors considers
the withdrawal, the member-owner shall have the tight to be
heard both in person and by counsel. If a three-fourths
majority of the directors present at such a meeting votes
to require withdrawal: (a) the member-owner shall be deemed
to have withdrawn on the date set by the Board; and (b) the
member-owner shall cease to be a stockholder as of the date
of withdrawal and Topco shall purchase the stock of such
member-owner in the manner set forth in this article. The
date of withdrawal shall be set by the Board and shall be
within three (3) months of the date on which the vote to
withdraw is taken.
9.4.3 Definition of Change of Control: A change in control shall
take place if the ownership of either the net assets, a
majority of the voting stock or a majority of the voting
partnership interests in a member-owner are acquired,
whether by operation of law or otherwise, by persons
outside the controlling group. The controlling group shall
be all owners of either a sole interest, a voting
partnership interest, or voting stock in a member-owner on
June 9, 1992 or the date of admission to membership,
whichever is later. The controlling group shall also
include the heirs and legatees of such members-owners,
subject to the following: (a) in case Topco shall obtain
knowledge of a change in control and shall not within 90
days thereafter institute termination procedures, or shall
institute termination procedures but shall not vote to
terminate the membership, the controlling group shall
thereafter be the owners of the sole interest, the voting
partnership interests or the voting stock of the member-
owner immediately after the event that constituted such
change in control; and (b) for the purpose of determining
whether the ownership of the majority of the voting stock
of a member-owner has been acquired by persons outside the
controlling group, where the member-owner is a corporation
and voting stock is held by more than 300 persons, the
shares held by persons who own less than 2% of such shares
and who are not directors, officers or employees of the
member-owner, or affiliated with or related to persons who
own 2% or more of such shares or who are directors,
officers or employees of the member-owner, shall be
excluded in determining the number of shares of the member-
owner that are outstanding and the number that are owned by
persons inside and outside of the controlling group.
9.5 Procedure for Redeeming Stock: Promptly after the date of
withdrawal, the former member-owner shall deliver to Topco its
certificates evidencing common stock in Topco in return for an
appropriate receipt. Unless the common stock owned by the member-
owner in Topco is held by Topco pursuant to a valid security
agreement, Topco shall pay the member-owner $100.00 for each share
of common stock owned by the member-owner at the time of termination
less the amount of debts of the member-owner to Topco which have not
been paid including, but not limited to, debts as to which the
member-owner has received a discharge under federal or state
bankruptcy or insolvency laws. The amount, if any, payable to the
member-owner shall be paid 91 days following the payment of all
debts due from the member-owner to Topco and may offset and be
applied to the payment of any debt of the member-owner to Topco.
Nothing contained in this paragraph shall be construed to give a
terminated member-owner a preference upon the assets of Topco over
the other member-owners or to give such terminated member-owner any
of the rights of a shareholder in Topco. Amounts due to a
terminated member-owner under this section shall not bear interest.
9.6 A member-owner who withdraws from any program or program segment of
Topco may continue member-ownership provided that after such
withdrawal the member-owner continues to meet the eligibility
requirements set forth in these bylaws. Withdrawal may commence at
the end of any calendar month which is twelve months or more after
such member-owner began its participation in such program or
segment, by giving to Topco written notice of its election to
withdraw on or prior to its effective day.
9.7 A member-owner who withdraws voluntarily from Topco or from a
program or program segment or is required to withdraw from Topco
because of a change of control, shall pay Topco its base service
charges until the effective date of withdrawal and, unless the
withdrawal relates only to a program segment in which the member-
owner has participated for less than two years, an additional amount
equal to (a) three times 175% of the monthly average of the member-
owner's base service charges for the program or segment, in the case
of the produce, fresh meat or equipment and supplies programs
(payable on the date of withdrawal) and (b) twelve times 175% of the
monthly average of the member-owner's base service charges for the
program or segment in the case of any other program (payable in four
equal quarterly installments, the first of which shall be due on the
date of withdrawal), and shall have the right to continue to
participate in such program or segment during such three or twelve
month period. The monthly averages shall be calculated for the most
recent twelve month period preceding the effective date of
withdrawal, including the month in which such withdrawal occurs. A
member-owner whose commitments to Topco (with respect to product in
a program or segment from which such member-owner has withdrawn)
beyond the three or twelve month period, shall be responsible to
Topco with respect to such commitments and shall also pay additional
service charges beyond such three or twelve month period in an
equitable amount as determined by Topco. The Board of Directors may
impose such conditions it deems advisable to limit the exercise by
member-owners of their rights to withdrawal from programs or
segments of programs of Topco in order to ensure that any
withdrawals from a particular program or segment will take place
gradually.
9.8 A member-owner or operating division thereof which has not made
purchases through Topco of any Topco program, segment or brand for a
period of twelve consecutive months shall be considered to have
withdrawn from that program, segment or brand effective with the
last recorded purchase. Such member-owner shall pay Topco any
additional amount due pursuant to section 9.7 promptly after the
expiration of the twelve month period.
ARTICLE X
INDEMNIFICATION; DAMAGES
10.1 Indemnification: Each present or former director or officer of Topco
shall be indemnified by Topco in accordance with and to the full
extent authorized by the provisions of the Wisconsin Co-operative
Association Act as it may from time to time be amended.
10.2 Damages: If a member-owner violates a bylaw or breaches a provision
of his or her membership and licensing agreement, Topco shall have a
claim against said member-owner for any damages resulting therefrom
and for such other relief as the court deems appropriate. These
rights shall be in addition to the other remedies granted herein to
Topco.
EXHIBIT 13
[Page 3 of Annual Report]
Selected Five-Year Financial Highlights
Fiscal Year (a)(b)
1995 1994 1993 1992 1991
(Dollars and shares in thousands, except per
share data)
Statements of
earnings data:
Net sales . . . . . $439,646 $446,362 $469,577 $490,403 $480,410
Earnings before
income taxes . . . 9,500 8,653 7,519 4,139 4,137
Provision for
income taxes . . . 3,660 3,252 2,767 1,622 1,626
Net earnings . . . 5,840 5,401 4,752 2,517 2,511
Per share of common
and equivalent
shares
Earnings . . . . 1.20 1.02 0.86 0.44 0.43
Cash dividends . 0.22 0.10 0.08 0.07 0.06
Weighted average
common and
equivalent
shares(c) 4,981 5,257 5,489 5,690 5,858
Balance sheet data
(at fiscal year-end):
Working capital . . $24,855 $21,197 $20,805 $22,091 $12,415
Total assets . . . 87,034 89,099 83,391 84,796 82,118
Current maturities
of long-term debt
and current
obligations under
capital leases . . 1,114 1,037 1,050 1,243 1,457
Long-term debt . . 3,719 4,056 1,035 1,288 1,742
Capital lease
obligations . . . 13,268 14,046 14,979 15,980 16,770
Total shareholders'
investment . . . . 43,288 41,457 41,501 38,864 37,948
Other data:
Capital additions . $3,545 $3,640 $8,528 $1,718 $3,940
Depreciation and
amortization . . . 4,467 4,654 4,861 5,625 6,071
NOTES:
(a) The Company's fiscal year ends on the Saturday closest to December
31. The 1992 fiscal year was a 53-week period. All other fiscal
years presented were 52-week periods.
(b) All data should be read in conjunction with the Company's audited
financial statements and "Management's discussion and analysis of
financial condition and results of operations" as set forth in
this Annual Report.
(c) The weighted average common and equivalent shares have been
retroactively adjusted for the two-for-one stock split, effected
in the form of a 100% stock dividend, on September 15, 1995.
<PAGE>
[Pages 10 to 12 of Annual Report]
Balance sheets
As of December 30, 1995 and December 31, 1994
Assets 1995 1994
Current assets:
Cash and equivalents . . . . . . $14,424,000 $14,310,000
Receivables, less allowance for
doubtful accounts of
$2,565,000 and $1,750,000,
respectively . . . . . . . . . . 5,562,000 6,838,000
Inventories . . . . . . . . . . . 20,458,000 21,327,000
Other current assets . . . . . . 5,025,000 2,441,000
Amounts currently receivable
under capital sublease
agreements . . . . . . . . . . . 581,000 518,000
Deferred income taxes . . . . . . 3,504,000 3,875,000
---------- ----------
Total current assets . . . . . . 49,554,000 49,309,000
---------- ----------
Amounts receivable under capital
sublease agreements, less current
portion . . . . . . . . . . . . . 9,361,000 9,943,000
Leased property under capital
leases, less accumulated
amortization . . . . . . . . . . . 3,089,000 3,372,000
Other noncurrent assets . . . . . . 2,203,000 1,331,000
Property and equipment, net . . . . 22,827,000 25,144,000
---------- ----------
Total assets . . . . . . . . . . . $87,034,000 $89,099,000
========== ==========
Liabilities & shareholders'
investment 1995 1994
Current liabilities:
Accounts payable . . . . . . . . $12,340,000 $11,356,000
Accrued liabilities-
Employee benefits . . . . . . . 2,440,000 2,242,000
Retail repositioning reserve . . 1,145,000 5,046,000
Insurance related . . . . . . . 2,805,000 2,416,000
Other . . . . . . . . . . . . . 4,855,000 6,015,000
Current maturities of long-term
debt . . . . . . . . . . . . . . 337,000 323,000
Current obligations under capital
leases . . . . . . . . . . . . . 777,000 714,000
---------- ----------
Total current liabilities . . . . 24,699,000 28,112,000
---------- ----------
Deferred income taxes . . . . . . . 2,060,000 1,428,000
Long-term debt . . . . . . . . . . 3,719,000 4,056,000
Long-term obligations under capital
leases . . . . . . . . . . . . . . 13,268,000 14,046,000
Shareholders' investment . . . . . 43,288,000 41,457,000
---------- ----------
Total liabilities and shareholders'
investment . . . . . . . . . . . . $87,034,000 $89,099,000
========== ==========
The accompanying notes to financial statements are an integral part
of these balance sheets.
<PAGE>
<TABLE>
Statements of shareholder's investment
For the fiscal years 1995, 1994 and 1993
<CAPTION>
Preferred Stock Common Stock Additional
$3.00 Par $0.05 Par Paid-in Treasury Stock Share-
Retained holders'
Shares Amount Shares Amount Capital Earnings Shares Amount Investment
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 2,
1993 . . . . . . . . 3,000 $300,000 2,916,785 $146,000 $12,680,000 $26,989,000 (99,066) ($1,251,000) $38,864,000
Net earnings . . . . 4,752,000 4,752,000
Cash dividends
declared:
Preferred stock-
$3.00 per share .
Common stock- (9,000) (9,000)
$0.08 per share . (436,000) (436,000)
Exercise of stock
options . . . . . . 6,787 91,000 91,000
Acquisition of
treasury stock . . . (130,654) (1,761,000) (1,761,000)
----- -------- --------- -------- ---------- ---------- -------- --------- -----------
Balance, January 1,
1994 . . . . . . . . 3,000 300,000 2,916,785 146,000 12,680,000 31,296,000 (222,933) (2,921,000) 41,501,000
Net earnings . . . . 5,401,000 5,401,000
Cash dividends
declared:
Preferred stock-
$3.00 per share . (9,000) (9,000)
Common stock-
$0.10 per share . (509,000) (509,000)
Exercise of stock
options . . . . . . 29,549 433,000 433,000
Acquisition of
treasury stock . . . (302,167) (5,360,000) (5,360,000)
------ --------- --------- ------- ----------- ---------- --------- ----------- ----------
Balance, December 31,
1994 . . . . . . . . 3,000 300,000 2,916,785 146,000 12,680,000 36,179,000 (495,551) (7,848,000) 41,457,000
Net earnings . . . . 5,840,000 5,840,000
Cash dividends
declared:
Preferred stock-
$3.00 per share . (9,000) (9,000)
Common stock-$0.22
per share . . . . (1,038,000) (1,038,000)
Exercise of stock
options . . . . . . 168,000 53,359 487,000 655,000
Acquisition of
treasury stock . . . (152,294) (3,475,000) (3,475,000)
Repurchase of
preferred stock . . (2,841) (284,000) 142,000 142,000
Two-for-one stock
split effected in
the form of a 100%
stock dividend . . . 2,916,785 146,000 (117,000) (585,486) (29,000) --
------ ------- --------- -------- --------- ---------- ---------- ----------- ----------
Balance, December 30,
1995 . . . . . . . . 159 $16,000 5,883,570 $292,000 $12,990,000 $40,855,000 (1,179,972) ($10,865,000) $43,288,000
====== ======= ========= ======== =========== ========== ========== =========== ==========
</TABLE>
The accompanying notes to financial statements are an integral part of
these statements of shareholders' investment.
<PAGE>
<TABLE>
Statements of earnings
For the fiscal years 1995, 1994 and 1993
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Net sales . . . . . . . . . . . $439,646,000 $446,362,000 $469,577,000
Costs and expenses:
Cost of products sold . . .
Operating and administrative 369,130,000 372,867,000 388,289,000
expenses . . . . . . . . . . . 61,034,000 64,401,000 73,062,000
---------- ---------- ----------
Operating income . . . . . . . 9,482,000 9,094,000 8,226,000
Interest income . . . . . . . . 944,000 453,000 131,000
Interest expense . . . . . . . (926,000) (894,000) (838,000)
---------- ---------- -----------
Earnings before income taxes . 9,500,000 8,653,000 7,519,000
Provision for income taxes . . 3,660,000 3,252,000 2,767,000
---------- ---------- ----------
Net earnings . . . . . . . . . $5,840,000 $5,401,000 $4,752,000
========== ========== ==========
Earnings per common and
equivalent share . . . . . . . $1.20 $1.02 $0.86
======= ====== =======
</TABLE>
The accompanying notes to financial statements are an integral part of
these statements of earnings.
<TABLE>
Statements of cash flows
For the fiscal years 1995, 1994 and 1993
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Cash flows from operating
activities:
Net earnings . . . . . . . . $5,840,000 $5,401,000 $4,752,000
Adjustments to reconcile net
earnings to net cash provided
by operating activities-
Depreciation and
amortization. . . . . . . 4,467,000 4,654,000 4,861,000
Deferred income taxes . . . 1,003,000 (1,333,000) (1,261,000)
Changes in assets and
liabilities-
Decrease in receivables . . 1,276,000 1,504,000 1,028,000
Decrease (increase) in
inventories . . . . . . 869,000 (7,000) (213,000)
(Increase) decrease in other
current assets. . . . . . (2,584,000) 295,000 75,000
Increase (decrease) in
accounts payable. . . . . 984,000 (830,000) (604,000)
(Decrease) increase in
accrued liabilities . . . (4,099,000) 4,739,000 (1,223,000)
---------- ----------- ---------
Net cash flows from operating
activities . . . . . . . . . . 7,756,000 14,423,000 7,415,000
---------- ----------- ---------
Cash flows from investing
activities:
Expenditures for property and
equipment . . . . . . . . . (3,545,000) (3,640,000) (8,528,000)
Proceeds from asset sales . . 599,000 538,000 2,866,000
Receipt of principal amounts
under capital sublease
agreements . . . . . . . . . 518,000 564,000 578,000
Proceeds from maturity of
short-term investments . . . -- 2,953,000 --
Investment in short-term
securities . . . . . . . . . -- -- (2,953,000)
----------- ---------- ----------
Net cash flows from investing
activities . . . . . . . . . . (2,428,000) 415,000 (8,037,000)
---------- --------- -----------
Cash flows from financing
activities:
Payment for acquisition of
treasury stock . . . . . . . (3,475,000) (5,360,000) (1,761,000)
Payment of cash dividends . . (1,047,000) (518,000) (445,000)
Principal payments on capital
lease obligations . . . . . (714,000) (797,000) (790,000)
Proceeds from exercise of
stock options . . . . . . . 487,000 433,000 91,000
Principal payments on
long-term debt . . . . . . . (323,000) (300,000) (453,000)
Repurchase of preferred stock (142,000) -- --
Net cash flows from financing
activities . . . . . . . . . . (5,214,000) (6,542,000) (3,358,000)
----------- ----------- ----------
Cash and equivalents:
Net increase (decrease) . . . 114,000 8,296,000 (3,980,000)
Balance, beginning of year . 14,310,000 6,014,000 9,994,000
----------- ----------- ---------
Balance, end of year . . . . $14,424,000 $14,310,000 $6,014,000
=========== =========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of
these statements of cash flows.
<PAGE>
[Pages 13 to 19 of Annual Report]
Notes to financial statements for the fiscal years 1995, 1994 and 1993
(1) Description of Business-
The Company is engaged in the food distribution business through
franchised and corporate retail supermarkets and as a supplier to
independent food stores.
The supermarkets and food stores supplied by the Company are located
in eastern Wisconsin and northeastern Illinois. All franchise and
corporate stores operate under the name of Piggly Wiggly/R/.
(2) Accounting Policies-
(a) Accounting periods-
The Company's fiscal year ends on the Saturday closest to December
31. The 1995, 1994 and 1993 fiscal years were 52-week periods ended
December 30, 1995, December 31, 1994 and January 1, 1994, respectively.
(b) Cash and equivalents-
Cash and equivalents consist of demand deposits at commercial banks
and highly liquid investments with a maturity of three months or less when
purchased. Cash equivalents are stated at cost which approximate market
value.
(c) Inventories-
Inventories, substantially all of which consist of food, groceries
and related products for resale, are stated at the lower of cost or market
value. Cost is determined primarily on the last-in, first-out (LIFO)
method. For meat and produce, cost is determined on the first-in, first-
out (FIFO) method. At December 30, 1995 and December 31, 1994, 83% and
82%, respectively, of all inventories were accounted for under the LIFO
method.
The excess of replacement or current cost over the stated LIFO cost
of inventory was $9,631,000 and $9,451,000 at December 30, 1995 and
December 31, 1994, respectively.
(d) Other current assets-
Other current assets consist of the following:
1995 1994
Land and building for resale . $2,389,000 $ 734,000
Prepaid expenses . . . . . . . 657,000 1,092,000
Retail systems for resale and
other assets . . . . . . . . . 1,979,000 615,000
--------- ---------
Other current assets . . . . . $5,025,000 $2,441,000
========= =========
(e) Property and equipment, net-
Property and equipment are stated at cost. Depreciation is provided
on the straight-line method over the estimated useful lives of the assets.
Facility remodeling and upgrade costs on leased stores are capitalized as
leasehold improvements and are amortized over the shorter of the remaining
lease term or the useful life of the asset. Upon disposal, the
appropriate asset cost and accumulated depreciation are retired. Gains
and losses on disposition are included in earnings.
Property and equipment, net, consisted of the following:
1995 1994
Land and buildings . . . . . . $18,508,000 $18,441,000
Leasehold improvements . . . . 5,566,000 6,027,000
Equipment and fixtures . . . . 31,186,000 32,264,000
---------- ----------
55,260,000 56,732,000
Less accumulated depreciation
and amortization . . . . . . . (32,433,000) (31,588,000)
---------- ----------
Property and equipment, net . . $22,827,000 $25,144,000
========== ==========
(f) Retail repositioning reserve-
Estimated repositioning and termination expenses associated with the
closure, replacement or disposal of stores, consisting primarily of lease
payments, charges to reduce assets to net realizable value and severance
payments, are charged to operating and administrative expenses upon the
decision to close, replace or dispose of a store as soon as the amounts
are reasonably estimable. Due to inherent uncertainties in estimating
these repositioning and termination costs, it is at least reasonably
possible that the Company's estimates may change in the near term. The
reserves recorded at December 31, 1994 relating to the Palatine, Illinois
and other corporate supermarkets approximated actual cash payments in
1995.
(g) Earnings per common and equivalent share-
Earnings per common and equivalent share is computed by dividing net
earnings by the weighted average number of common shares outstanding
during each year plus common stock equivalents. Net earnings, for
purposes of the earnings per share computation, is determined after taking
into account all of the preferred dividend requirements. For fiscal 1995,
earnings per share increased by the excess of the aggregate par value of
the 2,841 shares of preferred stock over the repurchase price tendered
pursuant to the Company's redemption offer. Common stock equivalents
result from the assumed exercise of outstanding stock options and affect
earnings per share when they have a dilutive effect. Primary and fully
diluted earnings per share are the same for all years. All historical
share, per share amounts, stock option data and market prices of the
Company's common stock appearing in the financial statements and notes
thereto have been retroactively adjusted for the stock split. The number
of common and equivalent shares utilized in the per share calculations
were 4,981,000, 5,257,000 and 5,489,000 in fiscal 1995, 1994 and 1993,
respectively.
(h) Supplementary disclosure of cash flow information-
Interest and taxes paid included in the Company's cash flow from
operations were as follows:
1995 1994 1993
Interest paid . . . . . $ 902,000 $ 918,000 $ 843,000
Taxes paid . . . . . . 3,368,000 2,835,000 4,177,000
(i) Use of estimates-
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those
estimates.
(j) Store pre-opening costs-
Costs associated with the opening of new stores, consisting primarily
of advertising, supplies, occupancy and payroll, are charged to operating
and administrative expenses as incurred. Depreciation and amortization of
property and equipment, and leasehold improvements begin in the period a
store begins operations.
(k) Standards on impairment of long-lived assets-
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of", which the Company is required to adopt no later than the first
quarter of fiscal 1996. Under this pronouncement, the Company is required
to assess the recoverability of the carrying amount of long-lived assets
currently held or assets committed to a plan of disposal resulting from
various events or changes in circumstances. The Company does not
anticipate that the adoption of this standard will have a material impact
on the financial statements.
(l) Advertising costs-
Costs incurred for producing and communicating advertising are
expensed when incurred.
(m) Reclassifications-
Certain 1994 and 1993 amounts previously reported have been
reclassified to conform to the 1995 presentation.
(3) Long-Term Debt-
The Company has a loan agreement providing unsecured revolving credit
facilities totaling $16,000,000 through April 30, 1997. This arrangement
provides for borrowings at rates not to exceed the prime rate. There are
no compensating balance requirements. There were no borrowings
outstanding under this agreement during 1995 and 1994.
At December 30, 1995, the fair value of the financial instruments
approximated carrying value. Long-term debt consists of the following:
1995 1994
Mortgage note, 9.675%, due in
monthly installments of $33,026
including interest due through
June 2012 . . . . . . . . . . . . $3,274,000 $3,344,000
Term note, 9.91%, due in quarterly
installments of $55,000 through
June 1998 . . . . . . . . . . . . 515,000 735,000
Land contract, 10.0%, due in annual
installments of $33,333 through
March 2003 . . . . . . . . . . . . 267,000 300,000
--------- ---------
4,056,000 4,379,000
Less current maturities . . . . . . (337,000) (323,000)
--------- ---------
Long-term debt . . . . . . . . . . $3,719,000 $4,056,000
========== =========
The revolving credit and term note agreements contain various
covenants including, among others, the maintenance of defined working
capital, net worth of $36,000,000, certain debt-equity ratios,
restrictions against pledging of or liens upon certain assets, mergers,
significant changes in ownership and limitations on restricted payments.
As of December 30, 1995, $3,240,000 of retained earnings were available
for restricted payments, including cash dividends and stock repurchases.
The total amount of long-term debt due in each of the fiscal years
1996 through 2000 will be $337,000, $345,000, $209,000, $144,000 and
$156,000, respectively, and $2,865,000 from 2001 to 2012.
Interest expense consists of the following:
1995 1994 1993
Interest on long-term
debt . . . . . . . . . $419,000 $312,000 $209,000
Imputed interest -
capital leases . . . . 507,000 582,000 629,000
-------- -------- ---------
Interest expense . . . $926,000 $894,000 $838,000
======== ======= =======
(4) Income Taxes-
The difference between the statutory federal income tax rate and the
effective rate is summarized as follows:
1995 1994 1993
Federal income tax
statutory rate . . . . 34.0% 34.0% 34.0%
Increase (decrease) in
taxes resulting from-
State income taxes,
net of federal
income tax benefit 5.1 5.1 5.0
Other, net . . . . . . (0.6) (1.5) (2.2)
----- ------- ------
Effective income tax
rate . . . . . . . . . 38.5% 37.6% 36.8%
===== ====== ======
The Company adopted Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes", in the first quarter of 1993. As
prescribed by this pronouncement, the computation of deferred taxes was
revised so that the amount of deferred income taxes on the balance sheet
reflects current income tax rates. The implementation of this
pronouncement did not have a material effect on net earnings.
Components of provision for income tax consist of the following:
1995 1994 1993
Currently payable
Federal . . . . . . .$2,082,000 $3,606,000 $3,315,000
States . . . . . . . 575,000 979,000 713,000
Deferred . . . . . . . 1,003,000 (1,333,000) (1,261,000)
--------- --------- ---------
Provision for income
tax . . . . . . . . .$3,660,000 $3,252,000 $2,767,000
========= ========= =========
The components of deferred income tax assets and liabilities at
December 30, 1995 and December 31, 1994 were as follows:
1995 1994
Deferred income tax assets:
Insurance related . . . . . . $1,094,000 $ 967,000
Bad debt reserve . . . . . . 1,000,000 685,000
Capital lease accounting . . 622,000 590,000
Vacation pay . . . . . . . . 597,000 637,000
Retail repositioning reserve 447,000 1,975,000
Other . . . . . . . . . . . . 857,000 997,000
--------- ---------
Total deferred income tax
assets . . . . . . . . . . . . 4,617,000 5,851,000
--------- ---------
Deferred income tax
liabilities:
Property and equipment . . . (2,705,000) (3,042,000)
Pension . . . . . . . . . . . (468,000) (362,000)
--------- ----------
Total deferred income tax
liabilities . . . . . . . . . (3,173,000) (3,404,000)
---------- ----------
Net deferred income tax asset . $1,444,000 $2,447,000
========= =========
The net deferred income tax asset as of December 30, 1995 and
December 31, 1994 were classified in the balance sheet as follows:
1995 1994
Current deferred income tax
asset . . . . . . . . . . . . $3,504,000 $3,875,000
Noncurrent deferred income tax
liability . . . . . . . . . . (2,060,000) (1,428,000)
--------- ---------
Net deferred income tax asset . $1,444,000 $2,447,000
========= =========
(5) Preferred Stock-
The Articles of Incorporation provide for the cumulative payment of
dividends on the preferred stock and, if not paid at the rate of 3% per
annum, there are certain restrictions on the payment of common stock
dividends. The preferred stock is callable at par value.
On September 11, 1995, the Company announced a self-tender offer for
all 3,000 outstanding shares of the Company's preferred stock at a cash
price of $50 per share. The offer commenced on such date and expired at
midnight on October 30, 1995. Of the 3,000 outstanding shares of
preferred stock, 2,841 shares, representing approximately 94.7%, were
tendered and accepted by the Company pursuant to the offer. The Company
paid the $142,000 aggregate purchase price for the 2,841 shares from its
available cash on hand. At December 30, 1995, 3,000 shares of preferred
stock are authorized and 159 shares remain outstanding.
The Company has 1,000,000 shares of $.05 par value class B preferred
stock authorized, none of which have been issued. These shares are
issuable in such series and with such relative rights and preferences as
may be determined from time to time by the Board of Directors. The class
B preferred shares would be subordinated in all respects to the existing
rights and preferences of the Company's outstanding preferred stock.
(6) Commitments and Contingent Liabilities-
The Company has projected capital expenditures for fiscal 1996 at
$3,300,000. Commitments of less than $2,000,000 were made as of December
30, 1995.
As of December 30, 1995, the Company was contingently liable under
guarantees of bank note agreements of wholesale customers totaling
$15,770,000. All of the loan guarantees are fully collateralized,
principally with equipment and inventory, and, to a lesser extent, with
building facilities.
(7) Retirement Plans-
The Company has a trusteed retirement savings defined contribution
plan, which includes provisions of Section 401(k) of the Internal Revenue
Code, for the benefit of its non-union eligible employees. Annual
provisions are based on a mandatory 5% of eligible participant
compensation and additional amounts at the sole discretion of the Board of
Directors. Provisions for the three fiscal years ended 1995, 1994 and
1993 were $720,000, $700,000 and $660,000, respectively. Beginning in
October 1994, the plan allows participants to make pretax contributions
and the Company matches certain percentages of employee contributions.
The Company's matching contributions for 1995 and 1994 was $68,000 and
$17,000, respectively.
The Company has union-administered multi-employer pension plans
covering all hourly paid employees represented by collective bargaining
agreements. Total pension expense, which the Company funds as accrued,
was $1,599,000, $1,668,000 and $1,852,000 in fiscal years 1995, 1994 and
1993, respectively. Complete information with respect to the Company's
portion of plan net assets and the actuarial present value of accumulated
plan benefits is not available.
(8) Leases-
The Company leases most of its retail stores under lease agreements
with original lease periods of 15 to 20 years and typically with five-year
renewal options. Exercise of such options is dependent on, among others,
the level of business conducted at the location. Executory costs, such as
maintenance and real estate taxes, are generally the Company's
responsibility. In several situations, the Company will enter into a
lease for a store and sublease the store to a wholesale customer.
Additionally, the Company leases transportation equipment, principally
tractors and trailers, and certain office equipment. Some leases contain
contingent rental provisions based on sales volume at retail stores or
miles traveled for tractors and trailers. Contingent rental expense
associated with the Company's capital leases and sublease income were not
material to the Company's financial statements.
Capitalized leases are calculated using interest rates appropriate at
the inception of each lease. A summary of real property utilized by the
Company under capital leases is as follows:
1995 1994
Investments in leased property $5,466,000 $5,466,000
under capital leases . . . . . . .
Less accumulated amortization . . . (2,377,000) (2,094,000)
--------- ---------
Leased property under capital
leases . . . . . . . . . . . . . . $3,089,000 $3,372,000
========= =========
Amortization of leased property under capital leases, included in
operating and administrative expense amounted to $283,000, $331,000 and
$360,000 in fiscal years 1995, 1994 and 1993, respectively.
The following is a schedule of future minimum lease payments under
capital leases and subleases and the present value of such payments as of
December 30, 1995:
Amounts
Amounts receivable
payable under under capital
capital leases subleases
1996 . . . . . . . . . . . . . $ 2,486,000 $ 1,806,000
1997 . . . . . . . . . . . . . 2,478,000 1,797,000
1998 . . . . . . . . . . . . . 2,432,000 1,751,000
1999 . . . . . . . . . . . . . 2,296,000 1,616,000
2000 . . . . . . . . . . . . . 2,209,000 1,529,000
2001-2009 . . . . . . . . . . . 15,401,000 10,978,000
---------- ----------
Total minimum lease payments . 27,302,000 19,477,000
Less amount representing
interest . . . . . . . . . . . (13,257,000) (9,535,000)
---------- ----------
Present value of minimum lease
payments and amounts
receivable . . . . . . . . . . 14,045,000 9,942,000
Less current portion . . . . . (777,000) (581,000)
--------- ---------
Long-term obligations and
receivables $13,268,000 $ 9,361,000
========== =========
The following is a schedule of future minimum lease payments required
under operating leases for retail stores, transportation equipment and
office equipment that have noncancelable lease terms in excess of one year
as of December 30, 1995:
1996 . . . . . . . . . . . . . . . . . . . . $ 7,018,000
1997 . . . . . . . . . . . . . . . . . . . . 6,396,000
1998 . . . . . . . . . . . . . . . . . . . . 6,140,000
1999 . . . . . . . . . . . . . . . . . . . . 5,947,000
2000 . . . . . . . . . . . . . . . . . . . . 5,412,000
2001-2014 . . . . . . . . . . . . . . . . . . 49,571,000
----------
Total minimum lease payments . . . . . . . . 80,484,000
Less minimum amounts receivable under
noncancelable subleases . . . . . . . . . . (57,631,000)
----------
Net minimum lease payments . . . . . . . . . $22,853,000
==========
Rental expenses for all operating leases amounted to $5,614,000,
$6,190,000 and $6,651,000 in fiscal years 1995, 1994 and 1993,
respectively. These amounts include $1,113,000, $1,444,000 and
$1,407,000, respectively, for contingent rentals.
(9) Stock Option Plans-
The Company has stock option plans which provide for the grant of
either incentive or nonqualified stock options to key employees at not
less than 100% of fair market value at the date of grant. Options granted
are exercisable for seven years from the date of grant and vest ratably
over the first three years. Such vesting may be accelerated by the
compensation and stock option committee of the Board of Directors or upon
a change in control of the Company, as defined by the plans. As of
December 30, 1995, no incentive stock options were granted.
Nonqualified stock option data is as follows:
Range of per
Number of share option
shares prices
Shares under option at
January 2, 1993 . . . . . . . 356,928 $3.75-$8.75
Options granted . . . . . . 86,000 6.63
Options exercised . . . . . (13,574) 3.75-5.34
------- -----------
Shares under option at
January 1, 1994 . . . . . . . 429,354 $3.75-$8.75
Options granted . . . . . . 99,300 7.63
Options exercised . . . . . (59,098) 3.75-7.67
Options canceled . . . . . . (17,206) 6.25-8.75
------- -----------
Shares under option at
December 31, 1994 . . . . . . 452,350 $5.34-$8.75
Options granted . . . . . . 96,200 9.75
Options exercised . . . . . (78,184) 14.75-21.75
------- -----------
Shares under option at
December 30, 1995 . . . . . . 470,366 $6.25-$9.75
======= ===========
Shares reserved for grant at
December 30, 1995 433,000
=======
Options granted in
January 1996 88,600 $15.75
======= =======
When options were exercised, the Company realized certain income tax
benefits. These benefits resulted in a decrease in current income taxes
payable and a corresponding increase in additional paid-in capital.
Nonqualified stock options exercisable at December 30, 1995 and December
31, 1994 were for 285,000 and 283,384 shares, respectively.
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation", which the Company is required to adopt no later
than fiscal 1996. Under this pronouncement, the Company, at a minimum,
will be required in fiscal 1996 to provide additional disclosures of pro
forma net income and pro forma 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.
(10) Common Stock-
On July 28, 1995, the Board of Directors authorized a two-for-one
common stock split, effected in the form of a 100% stock dividend
distributed on September 15, 1995, to shareholders of record on September
1, 1995. All historical share, per share amounts, stock option data and
market prices of the Company's Common Stock have been restated to
retroactively reflect the stock split. At December 30, 1995, of the
40,000,000 shares of Common Stock authorized, 5,833,570 shares are issued
and 4,653,598 shares are outstanding.
All common shares issued and issuable include one associated common
stock purchase right which entitle shareholders to purchase one share of
common stock from the Company at an exercise price equivalent to $21 per
share. The rights become exercisable after a person acquires beneficial
ownership of 20% or more of the Company's Common Stock. The rights do not
have any voting rights and may be redeemed at a price of $0.01 per right.
At December 30, 1995, approximately 6,355,000 shares of common stock were
reserved for issuance upon exercise of the rights. Under certain
circumstances, the rights may be exchanged at a ratio of one share per
right. The rights expire on January 6, 1999. Upon the occurrence of
certain defined events, the rights will be modified to entitle the holder
(other than an "acquiring person") to purchase the shares of Common Stock
of the Company or of such acquiring person having a market value of two
times the exercise price of the rights.
(11) Quarterly Results of Operations (Unaudited)-
The Company includes sixteen weeks in its first quarter and twelve
weeks in each subsequent quarter. Summarized quarterly financial
information for fiscal years 1995 and 1994 follows:
Quarter ended
1995 April 22 July 15 October 7 December 30
Net sales . . . $132,278,000 $101,996,000 $99,373,000 $105,999,000
Cost of products
sold . . . . . 110,989,000 85,262,000 83,109,000 89,770,000
Net earnings . 1,237,000 1,556,000 1,385,000 1,662,000
Earnings per
common and
equivalent
share . . . . $0.24 $0.31 $0.28 $0.37
----- ----- ------ ------
Quarter ended
1994 April 23 July 16 October 8 December 31
Net sales . . . $135,180,000 $104,167,000 $101,894,000 $105,121,000
Cost of products
sold . . . . . 113,078,000 86,958,000 85,280,000 87,551,000
Net earnings . 1,110,000 1,415,000 1,255,000 1,622,000
Earnings per
common and
equivalent
share . . . . $0.20 $0.26 $0.24 $0.32
--------- -------- --------- ---------
<PAGE>
[Pages 19 to 22 of Annual Report]
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 fiscal
years presented:
1995 1994 1993
Cost of products sold . . . . 84.0% 83.5% 82.7%
Operating and administrative 13.9 14.4 15.6
expenses . . . . . . . . . .
Earnings before income taxes
2.2 1.9 1.6
Net earnings . . . . . . . . 1.3 1.2 1.0
1995 Compared with 1994
Net sales for 1995 were $439,646,000 compared to 1994 net sales of
$446,362,000. The decrease of $6,716,000, or 1.5%, was due primarily to
the Company's continuing efforts to dispose of underperforming or
noncompetitive corporate retail stores through conversion to franchise
units and closures. Since the beginning of 1994, the Company has
terminated its relationship with one multi-store wholesale customer,
converted one corporate retail supermarket into a franchised unit, closed
one underperforming corporate retail supermarket and added one new
franchised supermarket. These combined actions resulted in a net sales
decrease approximating $9,000,000. As of December 30, 1995, the Company
had 66 franchised and 19 corporate supermarkets compared to 65 franchised
and 20 corporate supermarkets at the end of fiscal year 1994.
Consistent with the Company's business strategy to expand its
wholesale volume, there are eight franchise supermarket facility projects
currently in various phases of planning or construction, with completions
scheduled throughout 1996. These projects involve three additions to
existing franchise stores, three replacement franchise supermarkets and
two new market franchise units involving an aggregate exceeding 106,000 of
additional store selling space. Upon completion, these projects should
help the Company position itself to reverse prior years' decreasing sales
trends. Additionally, in 1995, the Company began implementing a new
electronic card marketing and electronic coupon program designed to
increase customer savings, make grocery shopping easier and faster and,
ultimately, reward loyal customers. Continuing roll-out of this program
in 1996 throughout its franchised and corporate supermarket base should
also enhance the Company's sales growth potential. Pricing differentials
between 1995 and 1994 did not materially affect 1995 net sales.
Cost of products sold, as a percent of sales, increased by 0.5% to
84.0% in 1995 compared to 1994. While the percentage increased, total
cost of products sold decreased by $3,737,000, or 1.0%, in 1995 compared
to 1994. The increased percentage of sales was a direct result of the
continued reduction in 1995 of the amount of higher margin retail sales
compared to the continued increased amount of lower margin wholesale
sales. The Company expects this sales mix trend to continue in fiscal
1996. The lower margins associated with wholesale sales continued in 1995
to be more than offset by significantly reduced operating and
administrative expenses from the disposal of one corporate supermarket and
its conversion to franchised unit in December 1994 and the closure of the
underperforming Palatine, Illinois corporate retail supermarket in
February 1995.
Operating and administrative expenses, as a percent of sales,
decreased by 0.5% to 13.9% in 1995 compared to 1994. The decrease of
$3,367,000 was primarily a result of the elimination of operating expenses
(consisting of payroll, supplies, rent, utilities, depreciation and other
administrative expenses) associated with the corporate retail supermarket
that was sold and converted into a franchise unit and the closure of the
Palatine, Illinois corporate supermarket. Additionally, charges relating
to retail repositioning expenses, consisting of termination costs of
replaced, closed or sold stores, amounted to $1,003,000 in 1995 (compared
to $3,668,000 in 1994). Such charges in 1995 pertained to five retail
facilities. The decreases in operating and administrative expenses during
1995 could have been greater if not for the bad debt charges of $2,079,000
in 1995 (compared to $526,000 in 1994) due to additional exposure from
underperforming or noncompetitive franchised retail supermarkets. In
1996, certain franchise operators may continue to experience operational
difficulties resulting from intense retail competition due to the opening
of several new competitive stores in our markets.
As a result of the foregoing, earnings before income taxes, as a
percent of sales, increased to 2.2%, or $9,500,000, in 1995 from 1.9%, or
$8,653,000, in 1994.
The effective income tax rate increased to 38.5%, compared to 37.6%
in 1994. The provision for income taxes in 1995 and 1994 was $3,660,000
and $3,252,000, respectively.
The Company attained 1.3% of net earnings to sales ratio for 1995.
Net earnings and earnings per share in 1995 increased 8.1% and 17.6% to
$5,840,000 and $1.20 per share, respectively, compared to $5,401,000 and
$1.02 per share in 1994. This increase was principally the result of
continued improvements in the Company's wholesale operations. The
Company's earnings continued in 1995 to be favorably impacted by the
Company's strategic decision in 1992 to expand its wholesale volume,
largely through the conversion of underperforming or noncompetitive
corporate supermarkets to franchise stores or closing their operations.
On a percentage basis, earnings per common and equivalent share increased
more than net earnings as a result of share repurchases during 1995 which
reduced the number of average common and equivalent shares outstanding.
Additionally, 1995 earnings per common and equivalent share increased
$0.03 as a result of the Company's repurchase at a substantial discount of
nearly all of its outstanding preferred stock in October 1995.
Certain Company retail stores 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 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.
1994 Compared with 1993
Net sales for 1994 were $446,362,000 compared to net sales of
$469,577,000 for 1993. The decrease of $23,215,000, or 4.9%, was due
primarily to the continuing increase in the relative percentage of
wholesale sales to retail sales, as the Company continued to dispose of
underperforming or noncompetitive corporate retail stores through
conversion to franchise units or closures. The following changes in 1993
and throughout 1994 within the Company's customer base reduced year-to-
year comparative sales levels and increased the relative percentage of
wholesale sales to retail sales during the year: (i) the sale of four
corporate retail supermarkets in 1993 and one corporate retail supermarket
in 1994, and their conversion to franchise supermarkets; (ii) the addition
of two new franchises in 1993; (iii) the closing of one underperforming
corporate supermarket in 1993 upon the expiration of its lease; and (iv)
the termination of one multi-store wholesale customer in 1994.
Additionally, intense retail competition continued to impact sales
negatively.
The trends first noted in 1992 toward consumer purchases of lower
priced, private label products continued through 1994. These trends had a
nominal adverse impact on sales. The Company experienced nominal
inflation in certain branded label foods in 1994 due principally to
significant price increase in coffee and paper products.
Cost of products sold, as a percent of sales, increased by 0.8% to
83.5% in 1994 compared to 1993. While the percentage increased, total
cost of products sold decreased by $15,422,000 in 1994 compared to 1993.
The increased percentage was a direct result of a reduction in the amount
of higher margin retail sales compared to the increased amount of lower
margin wholesale sales. The lower margins associated with wholesale sales
continued in 1994 to be more than offset by significantly reduced
operating and administrative expenses from the disposal of underperforming
or noncompetitive corporate retail stores.
Operating and administrative expenses, as a percent of sales,
decreased by 1.2% to 14.4% in 1994 compared to 1993. The decrease of
$8,661,000 was primarily a result of the elimination of operating expenses
associated with the corporate retail supermarkets that have been sold and
converted into franchise units in 1993. The decrease in operating and
administrative expenses during 1994 could have been greater if not for the
charges relating to repositioning expenses amounting to $3,668,000 and
$1,953,000 in 1994 and 1993, respectively. Such charges in 1994 pertained
to three retail facilities, including, particularly, the Palatine,
Illinois corporate supermarket.
As a result of the foregoing, earnings before income taxes, as a
percent of sales, increased to 1.9%, or $8,653,000, in 1994 from 1.6%, or
$7,519,000, in 1993.
The effective income tax rate increased to 37.6%, compared to 36.8%
in 1993. The provision for income taxes in 1994 and 1993 was $3,252,000
and $2,767,000, respectively.
Net earnings in 1994 increased 13.7% to $5,401,000, or $1.02 per
share, compared to $4,752,000, or $0.86 per share in 1993. This increase
was principally the result of continued improvements in the Company's
wholesale operations. On a percentage basis, earnings per common and
equivalent share increased more than net earnings as a result of share
repurchases during 1994 which reduced the number of weighted average
common and equivalent shares outstanding.
Liquidity and Capital Resources
Net cash inflows from operating activities in fiscal 1995 were
$7,756,000, a decrease of $6,667,000 from the prior year. The decrease
was attributable primarily to cash outlays relating to previously expensed
retail repositioning reserve. Cash inflows also decreased due to
additional investments in retail systems for resale and other current
assets in fiscal 1995.
Net cash outflows from investing activities were $2,428,000 in fiscal
1995 compared to net cash inflows from investing activities of $415,000 in
the prior year. The change was due primarily to proceeds of $2,953,000
from the maturity of short-term investments during 1994. Expenditures for
property and equipment totaled $3,545,000 in 1995 compared to $3,640,000
in 1994. The Company has projected capital expenditures of $3,300,000 for
1996 which it expects to fund from internally generated capital.
Net cash outflows from financing activities were $5,214,000 in 1995
compared to $6,542,000 in 1994. As a result of the Company's shareholder
enhancement plan adopted in July 1995, the Company reacquired 152,294
shares of its common stock aggregating $3,475,000 financed in full through
available working capital (compared to 302,167 shares or $5,360,000 in
1994). Since only approximately $500,000 remained available under the
Board of Directors' stock repurchase authorization at year end, the Board
of Directors authorized an additional increase of its common stock
repurchase program from $8,000,000 to $10,000,000. Also as a result of
the Board of Directors' action to increase dividend payments by 167% under
shareholder enhancement plan, total common stock dividends paid for 1995
increased to $1,047,000 from $518,000 in 1994. The Company also paid
$142,000 in 1995 to repurchase substantially all of its preferred stock.
Under the Company's loan agreements, $3,240,000 of retained earnings were
available for the payment of cash dividends, stock repurchases and other
restricted payments as of December 30, 1995.
As a result of the foregoing, cash and equivalents for fiscal 1995
increased by $114,000, resulting in a 1995 year-end balance of
$14,424,000.
The Company is the prime lessee of new facilities and subleases such
facilities to independent franchise operators. All new facilities in 1995
were financed by operating lease agreements. The Company also leases
transportation equipment, principally tractors and trailers, and certain
office equipment. Some leases contain contingent rental provisions based
on sales volume at retail stores or miles traveled for transportation
equipment. At December 30, 1995, the Company had $7,018,000 of future
minimum lease payments required under operating leases in 1996 and
$4,336,000 of amounts receivable under noncancelable subleases in 1996.
Contingent rentals for 1995 and 1994 were $1,113,000 and $1,444,000,
respectively. Additionally, at December 30, 1995, the Company had
$13,268,000 of long-term capital lease obligations, $9,361,000 of which
represented noncurrent receivables from wholesale customers under capital
leases.
Under a new financial accounting standard that is effective for
fiscal year 1996, the Company is required to assess the recoverability of
the carrying amount of long-lived assets currently held or assets
committed to a plan of disposal resulting from various events or changes
in circumstances. The Company does not anticipate that the adoption of
this standard will have a material impact on its financial statements.
The Company typically provides short-term financing support to its
wholesale customers for the purchase of facilities and equipment for new
stores. This financing support is subsequently refinanced, typically
through banks, with the Company receiving reimbursement. At December 30,
1995, $375,000, which arose from franchisees' facilities and equipment
purchases, was included in receivables to be refinanced. Additionally,
the Company was contingently liable under guarantees of wholesale
customers' bank note agreements totaling $15,770,000 and $14,343,000 at
December 30, 1995 and December 31, 1994, respectively. All of the loan
guarantees are fully collateralized, principally with equipment and
inventory, and to a lesser extent, with building facilities.
At December 30, 1995, the Company's ratio of total liabilities to
shareholders' investment was 1.01, compared to 1.15 at December 31, 1994.
The decrease in this ratio was principally attributable to the significant
decrease in retail repositioning reserve in 1995 resulting from the
Company's termination settlement associated with the closing of the
Palatine, Illinois supermarket. Additionally, at December 30, 1995, the
Company had available the entire amount of unsecured revolving bank credit
facilities totaling $16,000,000.
The Company believes its cash and debt-to-equity positions continue
to compare favorably to most industry competitors. Additionally, the
Company believes that its financial condition provides it with adequate
long-term flexibility to finance anticipated capital requirements without
adversely impacting its financial position or liquidity.
[Page 22 of Annual Report]
Company Business
The Company is engaged in distributing food and related products at
wholesale and retail. At December 30, 1995, the Company franchised 66 and
operated 19 retail supermarkets under the Piggly Wiggly/R/ name in its
eastern Wisconsin and northeastern Illinois market area. The Company owns
the right to grant Piggly Wiggly franchises in its market area.
The Company is the primary supplier to its franchised and corporate
stores. The Company also serves as a wholesaler to other smaller
independent retail stores in its market area.
The Company supplies products to its franchised and corporate
supermarkets and other wholesale customers primarily from its distribution
center in Sheboygan, Wisconsin. The Company also provides its stores and
other customers with fresh, frozen and processed meat products from a
third-party distribution facility on a contract basis. Additionally, the
Company bottles soft drinks and drinking and distilled water under its
Springtime/R/ label and supplies these products exclusively to its
customers.
The Company employs approximately 1,600 persons, 1,150 of whom are
employed in the operation of corporate retail supermarkets. A majority of
the Company's retail employees are employed on a part-time basis. Of the
Company's remaining employees, 225 are engaged in warehousing,
distribution and trucking activities and the remainder are corporate and
administrative personnel.
The Company's common stock is traded over-the-counter on the Nasdaq
National Market. There are approximately 1,075 beneficial holders of the
Company's common stock.
For the fiscal quarters indicated, the following table sets forth the
high and low last sale prices for the Company's common stock as reported
on the Nasdaq National Market and the per share cash dividends declared.
High Low Cash
Dividends
1995
First Quarter . . . . . $11 1/2 $9 3/4 $0.03
Second Quarter . . . . 11 5/8 10 3/4 0.03
Third Quarter . . . . . 15 11 1/4 0.08
Fourth Quarter . . . . 15 1/2 14 1/4 0.08
1994
First Quarter . . . . . $8 1/2 $7 5/8 $0.02
Second Quarter . . . . 9 1/8 8 0.02
Third Quarter . . . . . 10 8 7/8 0.03
Fourth Quarter . . . . 10 1/8 9 5/8 0.03
See "Management's discussion and analysis of financial condition and
results of operations" for retained earnings available for payments.
<PAGE>
[Page 23 of Annual Report]
Report of independent public accountants
To Schultz Sav-O Stores, Inc.:
We have audited the accompanying balance sheets of Schultz Sav-O
Stores, Inc. (a Wisconsin corporation) as of December 30, 1995 and
December 31, 1994 and the related statements of shareholders' investment,
earnings and cash flows for each of the three fiscal years in the period
ended December 30, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Schultz Sav-O
Stores, Inc. as of December 30, 1995 and December 31, 1994, and the
results of its operations and its cash flows for each of the three fiscal
years in the period ended December 30, 1995, in conformity with generally
accepted accounting principles.
Milwaukee, Wisconsin
February 7, 1996 Arthur Andersen LLP
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Schultz Sav-O Stores, Inc.:
As independent public accountants, we hereby consent to the incorporation
of our reports, included and incorporated by reference in this Form 10-K,
into the Company's previously filed Form S-8 Registration Statement, File
No. 33-34991.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin,
March 20, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS INCLUDED OR INCORPORATED BY REFERENCE INTO SCHULTZ SAV-O
STROES INC.'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 30,
1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-30-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-30-1995
<CASH> 14,242,000
<SECURITIES> 0
<RECEIVABLES> 8,127,000
<ALLOWANCES> 2,565,000
<INVENTORY> 20,458,000
<CURRENT-ASSETS> 49,554,000
<PP&E> 55,260,000
<DEPRECIATION> 32,433,000
<TOTAL-ASSETS> 87,034,000
<CURRENT-LIABILITIES> 24,699,000
<BONDS> 3,719,000
16,000
0
<COMMON> 292,000
<OTHER-SE> 42,980,000
<TOTAL-LIABILITY-AND-EQUITY> 87,034,000
<SALES> 439,646,000
<TOTAL-REVENUES> 439,646,000
<CGS> 369,130,000
<TOTAL-COSTS> 0<F1>
<OTHER-EXPENSES> 61,034,000<F1>
<LOSS-PROVISION> 0<F1>
<INTEREST-EXPENSE> 926,000
<INCOME-PRETAX> 9,500,000
<INCOME-TAX> 3,660,000
<INCOME-CONTINUING> 5,840,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,840,000
<EPS-PRIMARY> 1.20
<EPS-DILUTED> 1.20
<FN>
<F1>Amounts included in "Other costs and expenses."
</FN>
</TABLE>
