SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________________
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 4, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________to_____________
Commission File Number 0-549
SCHULTZ SAV-O STORES, INC.
(Exact Name of Registrant as Specified in its Charter)
WISCONSIN 39-0600405
(State or other jurisdiction (I.R.S. Employer
of incorporation of organization) Identification No.)
2215 UNION AVENUE 53082-0419
SHEBOYGAN, WISCONSIN (Zip Code)
(Address of principal
executive offices)
Registrant's telephone number
including area code 920-457-4433
Former name, former address and former fiscal year,
if changed since last report
Indicate by check mark v whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (of for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to the filing requirements for the past 90 days.
Yes X No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark v whether the registrant has filed all reports
required to be filed by Section 12, 13 or 15(d) of the Securities Exchange
Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes _______ No ________
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares
outstanding of each of the issuer's classes of common stock, as of the
latest practicable date.
As of November 11, 1997, 6,818,879 shares of Common Stock, $0.05 par
value, were issued and outstanding.
<PAGE>
SCHULTZ SAV-O STORES, INC.
FORM 10-Q INDEX
PAGE
NUMBER
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Unaudited Consolidated Balance Sheets 3
Unaudited Consolidated Statements of Earnings 4
Unaudited Consolidated Statements of Cash Flows 5
Notes to Unaudited Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 7
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 10
<PAGE>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
SCHULTZ SAV-O STORES, INC.
UNAUDITED CONSOLIDATED BALANCE SHEETS
October 4, December 28,
Assets 1997 1996
Current assets:
Cash and equivalents $28,437,000 $27,763,000
Receivables 12,128,000 5,676,000
Inventories 19,415,000 22,316,000
Other current assets 5,970,000 3,367,000
Deferred income taxes 3,824,000 3,824,000
------------ ------------
Total current assets 69,774,000 62,946,000
Noncurrent receivable under
capital subleases 7,866,000 8,239,000
Property under capital leases,
net 2,810,000 3,073,000
Other noncurrent assets 2,058,000 2,402,000
Property and equipment, net 19,716,000 21,544,000
----------- ------------
Total Assets $102,224,000 $98,204,000
=========== ============
Liabilities and Shareholders' Investment
Current liabilities:
Accounts payable $24,970,000 $20,564,000
Accrued salaries and benefits 4,703,000 4,189,000
Accrued insurance 3,487,000 3,328,000
Retail repositioning reserve 1,741,000 852,000
Other accrued liabilities 1,148,000 3,692,000
Current obligations under
capital leases 747,000 702,000
Current maturities of long-term
debt 263,000 345,000
----------- ------------
Total current liabilities 37,059,000 33,672,000
Long-term obligations under
capital leases 11,783,000 12,368,000
Long-term debt 3,183,000 3,375,000
Deferred income taxes 1,754,000 1,754,000
Shareholders' investment:
Common stock, $0.05 par value
Authorized: 20,000,000 shares
Issued: 8,750,342 as of
October 4, 1997 and 5,833,570
as of December 28, 1996 438,000 292,000
Additional paid-in capital 13,940,000 13,331,000
Retained earnings 49,251,000 45,654,000
Treasury stock at cost Held:
1,931,463 as of October 4, 1997
and 1,214,472 as of
December 28, 1996 (15,184,000) (12,242,000)
------------ -------------
Total shareholders' investment 48,445,000 47,035,000
------------ -------------
Total Liabilities and Shareholders'
Investment $102,224,000 $98,204,000
============ =============
<PAGE>
<TABLE>
SCHULTZ SAV-O STORES, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF EARNINGS
<CAPTION>
For the 12-weeks ended For the 40-weeks ended
October 4, October 5, October 4, October 5,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net sales
$105,826,000 $105,383,000 $354,496,000 $345,006,000
Costs and expenses:
Cost of products sold 89,409,000 88,737,000 298,805,000 289,824,000
Operating and administrative expenses 13,763,000 14,254,000 47,627,000 48,085,000
------------ ------------ ------------ ------------
Operating income 2,654,000 2,392,000 8,064,000 7,097,000
Interest expense (195,000) (200,000) (653,000) (668,000)
Interest income 362,000 201,000 902,000 577,000
------------ ------------ ------------ ------------
Earnings before income taxes 2,821,000 2,393,000 8,313,000 7,006,000
Provision for income taxes 1,087,000 921,000 3,201,000 2,697,000
------------ ------------ ------------ ------------
Net earnings $1,734,000 $1,472,000 $5,112,000 $4,309,000
============ ============ ============ ============
Net earnings per share - primary and
fully diluted $0.24 $0.21 $0.71 $0.60
============ ============ ============ ============
Cash dividends paid per share
of common stock $0.070 $0.067 $0.203 $0.173
============ ============ ============ ============
Weighted average common shares
outstanding 7,175,000 7,155,000 7,241,000 7,174,000
============ ============ ============ ============
<PAGE>
</TABLE>
SCHULTZ SAV-O STORES, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the 40-weeks ended
October 4, October 5,
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $5,112,000 $4,309,000
Adjustments to reconcile net
earnings to net cash flows
from operating activities
Depreciation and other noncash
items 3,326,000 3,408,000
Changes in assets and liabilities
Receivables (6,452,000) (2,913,000)
Inventories 2,901,000 (483,000)
Other current assets (2,304,000) (207,000)
Accounts payable 4,406,000 1,966,000
Accrued liabilities (373,000) 527,000
----------- -----------
Net cash flows from
operating activities 6,616,000 6,607,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property
and equipment (1,325,000) (2,885,000)
Receipt of principal amounts
under capital sublease
agreements 388,000 445,000
Proceeds from asset sales 120,000 38,000
---------- ----------
Net cash flows from investing
activities (817,000) (2,402,000)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment for acquisition of treasury
stock (3,727,000) (1,377,000)
Payment of cash dividends (1,401,000) (1,204,000)
Proceeds from exercise of stock
options 817,000 -
Principal payments under capital
lease obligations (540,000) (598,000)
Principal payments on long-term
debt (274,000) (267,000)
Redemption of preferred stock - (16,000)
----------- -----------
Net cash flows from financing
activities (5,125,000) (3,462,000)
----------- -----------
CASH AND EQUIVALENTS:
Net increase 674,000 743,000
Balance, beginning of period 27,763,000 21,593,000
----------- -----------
Balance, end of period $28,437,000 $22,336,000
=========== ===========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid $686,000 $704,000
Income taxes paid 4,582,000 2,924,000
<PAGE>
SCHULTZ SAV-O STORES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation
The financial statements included herein have been prepared by the
Company, without audit. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted,
although the Company believes that the disclosures are adequate to make
the information presented not misleading. The interim financial statements
furnished with this report reflect all adjustments of a normal recurring
nature, which are, in the opinion of management, necessary for a fair
statement of the results for the interim periods presented. It is
suggested that these financial statements be read in conjunction with the
audited financial statements and the notes thereto included in the
Company's 1996 annual report to shareholders, as incorporated by reference
in the Company's Form 10-K for the fiscal year ended December 28, 1996.
<TABLE>
(2) Interest Expense
For the 12-weeks ended For the 40-weeks ended
October 4, October 5, October 4, October 5,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Long-term debt $80,000 $88,000 $270,000 $296,000
Imputed - capital leases 115,000 112,000 383,000 372,000
-------- -------- -------- --------
Interest expense $195,000 $200,000 $653,000 $668,000
======== ======== ======== ========
</TABLE>
(3) Other Current Assets
October 4, December 28,
1997 1996
Property held for resale $4,117,000 $940,000
Prepaid expenses 1,030,000 615,000
Receivable under capital subleases 531,000 504,000
Retail systems for resale and other
assets 292,000 1,308,000
---------- ----------
Other current assets $5,970,000 $3,367,000
========== ==========
(4) Earnings per Share
In the first quarter of 1997, the Financial Accounting Standards Board
(FASB) issued the Statement of Financial Accounting Standards (SFAS) No.
128, "Earnings per Share," which is effective for fiscal years ending
after December 15, 1997. The Company does not anticipate that the
adoption of this statement will have any material impact on its
consolidated financial statements.
(5) Shareholders' Investment
On July 25, 1997, the Company's Board of Directors declared a three-for-
two stock split on the Company's Common Stock, effected in the form of a
50% stock dividend distributed on September 5, 1997 to shareholders of
record on August 20, 1997. All references in the financial statements to
per share amounts and average number of shares have been restated.
(6) Reclassification
Certain 1996 amounts previously reported have been reclassified to conform
to the 1997 presentation.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Special Note Regarding Forward-Looking Statements
Certain matters discussed in this Form 10-Q are "forward-looking
statements" intended to qualify for the safe harbors from liability
established by the Private Securities Litigation Reform Act of 1995.
These forward-looking statements can generally be identified as such
because the context of the statement will include words such as the
Company "believes," "anticipates," "expects" or words of similar import.
Similarly, statements that describe the Company's future plans,
objectives, strategies or goals are also forward-looking statements. Such
forward-looking statements are subject to certain risks and uncertainties
which are described in close proximity to such statements and which could
cause actual results to differ materially from those currently
anticipated. Shareholders, potential investors and other readers are
urged to consider these factors carefully in evaluating the forward-
looking statements and are cautioned not to place undue reliance on such
forward-looking statements. The forward-looking statements made herein
are only made as of the date of this report and the Company undertakes no
obligation to publicly update such forward-looking statements to reflect
subsequent events or circumstances.
Results of Operations
<TABLE>
Selected costs and results as a percent of net sales:
<CAPTION>
For the 12-weeks ended For the 40-weeks ended
October 4, October 5, October 4, October 5,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Cost of products sold 84.49% 84.20% 84.29% 84.01%
Operating and administrative
expenses 13.01 13.53 13.44 13.94
Earnings before income taxes 2.67 2.27 2.35 2.03
Net earnings 1.64 1.40 1.44 1.25
</TABLE>
Net Sales
Net sales for the 12- and 40-week periods ended October 4, 1997 were
$105,826,000 and $354,496,000, respectively, compared to $105,383,000 and
$345,006,000 for the same periods ended October 5, 1996. These nominal
increases of $443,000 and $9,490,000, or 0.42% and 2.75%, respectively,
were due principally to the Company's continuing emphasis on wholesale
business volume, coupled with increases in same store retail sales. The
increased wholesale business volume resulted mainly from the recently
completed roll-out and success of the Piggly Wiggly Preferred Club
electronic card marketing program. Additionally, the Company has
completed six major Wisconsin franchise facility projects in Hubertus,
Edgerton, Plymouth, DePere, Manitowoc and Evansville since October 5,
1996. These expansion and replacement projects yielded an increase of
nearly 94,000 square feet of aggregate selling space, or an increase in
excess of 109% at the six stores. During the third quarter of 1997, sales
were essentially flat compared to the same period in 1996 due to increased
competitive pressures in certain market areas, the closing of an
underperforming franchise unit in Plover, Wisconsin and aggregate product
cost deflation. As of October 4, 1997, the Company had 69 franchise and
16 corporate supermarkets compared to 68 franchise and 17 corporate
supermarkets at October 5, 1996.
On October 15, 1997, the Company completed the expansion of a franchise
unit in Waterloo, Wisconsin. This facility project more than doubled the
previous aggregate square footage of the store. On October 19, 1997, the
Company acquired one franchise unit in Oshkosh, Wisconsin and converted it
into a corporate supermarket. On October 29, 1997, the Company opened a
new 43,000 square foot corporate store in Appleton, Wisconsin. The
Company expects these events to result in increased total sales by at
least $3,500,000 for the fourth quarter of 1997.
Additionally, the Company acquired two operating supermarkets in the
Menasha and Appleton, Wisconsin market areas from Nash Finch Company on
October 26 and November 5, 1997, respectively. The Company is presently
renovating the Menasha store and the Company expects to open this
corporate store on November 11, 1997. As part of an expansion plan, the
Company has temporarily closed the acquired Appleton store. The Company
projects the expanded and completely renovated Appleton corporate store to
open during the second quarter of 1998. Upon completion of both the
renovation and expansion projects, the Company will close its two smaller,
noncompetitive and older corporate Appleton stores and combine these
operations into the two renovated units. The two replacement corporate
supermarkets will aggregate 99,300 square feet, an increase of 125% over
the combined 44,160 square feet of the present units.
Consistent with the Company's continuing business strategy to expand its
wholesale volume, the Company expects that the level of its wholesale
sales will continue to be strong for the remainder of 1997. However, due
to additional corporate retail stores in Oshkosh, Appleton and Menasha,
the Company expects the level of retail sales during the fourth quarter of
1997 to increase relative to total sales. In addition to the Menasha and
Appleton projects already mentioned, there are expansion or renovation
projects at four franchise retail operations in various phases of planning
or construction. These projects involve two expansions, one replacement
store and one new market store. These projects are scheduled to be
completed between the fourth quarter of 1997 through the second quarter of
1998. Additionally, the Company continues to support and enhance the
Piggly Wiggly Preferred Club electronic card marketing program designed to
increase sales without negatively impacting retail store gross margin, by
rewarding current customers and attracting new customers through the
offering of "clipless coupons" on weekly advertised specials and
"automatic" savings on monthly store specials. As of the end of October,
all of the Company's franchise and corporate supermarkets are fully
operational with the card marketing program.
Cost of Products Sold
Cost of products sold, as a percent of sales, increased by 0.29% and
0.28%, respectively, to 84.49% and 84.29% for the 12- and 40-week periods
ended October 4, 1997, compared to the same periods in 1996. The
respective increases of $672,000 and $8,981,000 were the result of a
reduction in the amount of higher margin retail sales compared to lower
margin wholesale sales. However, with additional corporate stores in
Oshkosh, Appleton and Menasha, the Company expects that the ratio of
higher margin retail sales relative to total sales to increase nominally
during the remainder of the year.
Operating and Administrative Expenses
Operating and administrative expenses, as a percent of sales, decreased by
0.52% and 0.50%, respectively, to 13.01% and 13.44% for the 12- and 40-
week periods ended October 4, 1997, compared to the same periods in 1996.
The Company acquired two supermarkets in the greater Appleton area from
Nash Finch subsequent to the end of the third quarter. The Company is
currently renovating or expanding both supermarkets. As a result of the
acquisition and upon completion of the renovation or expansion projects,
the Company plans to close its two smaller, noncompetitive and older
corporate stores in the Appleton area. Due to the imminent closures of
these two older corporate stores, the Company has taken a pretax charge of
$300,000 for projected repositioning expenses. Despite the one-time
pretax charge, total operating and administrative expenses decreased, in
large part, due to the closure of two smaller, outdated and
underperforming corporate stores located in Racine and Stevens Point,
Wisconsin in September and October 1996.
Net Earnings
The effective income tax rate for both the 12- and 40-week periods ended
October 4, 1997 was 38.5%, unchanged from the rate for the same periods in
1996. The provision for income taxes during the 12- and 40-week periods
ended October 4, 1997 was $1,087,000 and $3,201,000, compared to $921,000
and $2,697,000 for the same periods in 1996. With continuing improvements
in sales and productivity, the Company's net earnings-to-sales ratio for
the 12- and 40-week periods ended October 4, 1997 improved to 1.64% and
1.44%, respectively, compared to 1.40% and 1.25% for the same periods in
1996.
As a result of the foregoing, net earnings for the 12- and 40-weeks ended
October 4, 1997 totaled $1,734,000 and $5,112,000 compared to $1,472,000
and $4,309,000 for the same periods in 1996, or increases of 17.8% and
18.6%, respectively. Net earnings per share, after reflecting the three-
for-two stock split effective September 5, 1997, for the 12- and 40-week
periods ended October 4, 1997 increased 14.3% to $0.24 compared with $0.21
in 1996 , and 18.3% to $0.71 compared with $0.60 in 1996.
Certain Company corporate and franchise retail supermarkets continue to be
underperforming or noncompetitive in their respective marketplaces and, as
a result, continue to incur operating losses. In order to further improve
the Company's results of operations, the Company continues to evaluate
various business alternatives relating to these operations, including, but
not limited to, selling these corporate stores and converting them into
franchise supermarkets, closing the stores or implementing other
operational changes. Similar to prior fiscal years, implementation of
these actions will likely result in the Company incurring certain
repositioning charges involving the termination costs of replaced, closed
or sold stores. While these repositioning charges may decrease the
Company's reported net earnings for the period or periods in which the
actions are taken, the Company believes that such actions will improve the
Company's long-term profitability.
Liquidity and Capital Resources
The Company's operating results continue to enhance its strong financial
position. The primary source of liquidity for the 40-week period ended
October 4, 1997 was cash generated from operating activities. Cash
provided by operating activities for the 40-weeks ended October 4, 1997
and October 5, 1996 were very comparable at $6,616,000 and $6,607,000,
respectively. The nominal increase was principally attributable to higher
net earnings for the 40-week period ended October 4, 1997, compared to the
same period in 1996.
Net cash outflow from investing activities for the 40-week period ended
October 4, 1997 totaled $817,000, compared to $2,402,000 during the same
period in 1996. The change was due primarily to a substantial decrease in
capital expenditures for business system hardware and software during
1997, compared to 1996. The Company has a 1997 capital budget of
$5,200,000, of which approximately $3,875,000 remain for future
expenditures. With the opening of the 43,000 square foot Appleton store
on October 29, 1997 and the acquisition of various equipment and fixtures
from Nash Finch relating to the two operating supermarkets in the greater
Appleton area, the Company has incurred additional expenditures in the
range of $3,000,000 since October 4, 1997. The Company has financed and
anticipates financing these needs from internally generated capital.
Net cash outflow from financing activities for the 40-week period ended
October 4, 1997 was $5,125,000, compared to $3,462,000 during the same
period in 1996. The additional cash outflows was due principally to the
increase in common stock repurchased by the Company during 1997, compared
to 1996. Of the $3,727,000 common stock repurchased to date, 154,000
shares, or $1,743,000, was acquired from the open market while 129,000
shares, or $1,984,000, was reacquired subsequent to stock option exercises
from officers. The 283,000 shares repurchased is reported after taking
into account the three-for two stock split effective September 5, 1997.
The Company's Board of Directors declared a three-for-two stock split in
the form of a 50% stock dividend and simultaneously increased the amount
of regular quarterly cash dividends by 5% to $0.07 per share on a post-
stock split basis. The Company's regular quarterly cash dividend prior to
the announced stock split was $0.10 per share on a pre-stock split basis.
Both the stock dividend and cash dividend was paid on September 5, 1997 to
shareholders of record on August 20, 1997. Fractional shares otherwise
issuable pursuant to the stock split were paid in cash. The cash dividend
was paid on a post-stock split basis. Cash dividends paid during the
first three quarters of 1997 totaled $1,401,000 or $0.203 per share, an
increase of $197,000 or 16% from the same period a year ago. After the
three-for-two stock split, the Company had 6,824,000 shares outstanding.
In summary, cash and equivalents increased $674,000 during the first three
quarters of 1997, compared to an increase of $743,000 during the same
period in 1996. Due to the Company's significant cash and other liquid
assets, its consistent ability to generate cash flows from operations and
availability of external financing, the Company foresees no difficulty in
providing financing necessary to fund its capital commitments and working
capital needs for the foreseeable future.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Exhibit 27 Financial Data Schedule.
(b) No reports of Form 8-K were filed by the Company during the
first three quarters of fiscal 1997.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SCHULTZ SAV-O STORES, INC.
(Registrant)
November 11, 1997 /s/ John H. Dahly
(Date) John H. Dahly, Executive Vice President,
Chief Financial Officer and Treasurer
<PAGE>
EXHIBIT INDEX
Exhibit Description
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> OTHER <F1>
<FISCAL-YEAR-END> JAN-03-1998
<PERIOD-START> DEC-29-1996
<PERIOD-END> JUL-12-1997
<CASH> 28,437,000
<SECURITIES> 0
<RECEIVABLES> 12,128,000 <F2>
<ALLOWANCES> 0 <F2>
<INVENTORY> 19,415,000
<CURRENT-ASSETS> 69,774,000
<PP&E> 54,406,000
<DEPRECIATION> 34,690,000
<TOTAL-ASSETS> 102,224,000
<CURRENT-LIABILITIES> 37,059,000
<BONDS> 3,183,000
0
0
<COMMON> 438,000
<OTHER-SE> 48,007,000
<TOTAL-LIABILITY-AND-EQUITY> 102,224,000
<SALES> 354,496,000
<TOTAL-REVENUES> 354,496,000
<CGS> 298,805,000
<TOTAL-COSTS> 0 <F3>
<OTHER-EXPENSES> 47,627,000 <F3>
<LOSS-PROVISION> 0 <F3>
<INTEREST-EXPENSE> 653,000
<INCOME-PRETAX> 8,313,000
<INCOME-TAX> 3,201,000
<INCOME-CONTINUING> 5,112,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,112,000
<EPS-PRIMARY> 0.71
<EPS-DILUTED> 0.71
<FN>
<F1> 40 weeks
<F2> Net of "Allowances for doubtful
accounts".
<F3> Amounts included in "Other costs
and expenses".
</TABLE>
