SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________________
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 12, 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 whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (of for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to the filing requirements for the past 90 days. Yes X No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all reports
required to be filed by Section 12, 13 or 15(d) of the Securities Exchange
Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares
outstanding of each of the issuer's classes of common stock, as of the
latest practicable date.
As of August 14, 1997, 4,549,261 shares of Common Stock, $0.05 par
value, were issued and outstanding.
<PAGE>
SCHULTZ SAV-O STORES, INC.
FORM 10-Q INDEX
PAGE
NUMBER
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Unaudited Consolidated Balance Sheets 3
Unaudited Consolidated Statements of Earnings 4
Unaudited Consolidated Statements of Cash Flows 5
Notes to Unaudited Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 8
PART II OTHER INFORMATION 10
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 11
<PAGE>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
SCHULTZ SAV-O STORES, INC.
UNAUDITED CONSOLIDATED BALANCE SHEETS
July 12, December 28,
Assets 1997 1996
Current assets:
Cash and equivalents $ 29,059,000 $ 27,531,000
Receivables 10,354,000 5,676,000
Inventories 19,837,000 22,316,000
Other current assets 4,174,000 3,367,000
Deferred income taxes 3,824,000 3,824,000
------------ ------------
Total current assets 67,248,000 62,714,000
Noncurrent receivable under
capital subleases 7,949,000 8,239,000
Property under capital leases, net 2,918,000 3,073,000
Other noncurrent assets 2,079,000 2,402,000
Property and equipment, net 20,166,000 21,544,000
------------ ------------
Total Assets $100,360,000 $ 97,972,000
============ ===========
Liabilities and Shareholders' Investment
Current liabilities:
Accounts payable $ 21,987,000 $ 20,332,000
Accrued salaries and benefits 4,361,000 4,189,000
Accrued insurance 3,417,000 3,328,000
Retail repositioning reserve 1,490,000 852,000
Other accrued liabilities 3,051,000 3,692,000
Current obligations under
capital leases 734,000 702,000
Current maturities of long-term debt 315,000 345,000
------------ ------------
Total current liabilities 35,355,000 33,440,000
Long-term obligations under capital leases 11,959,000 12,368,000
Long-term debt 3,208,000 3,375,000
Deferred income taxes 1,754,000 1,754,000
Shareholders' investment:
Common stock 292,000 292,000
Additional paid-in capital 13,428,000 13,331,000
Retained earnings 48,108,000 45,654,000
Treasury stock (13,744,000) (12,242,000)
------------ ------------
Total shareholders' investment 48,084,000 47,035,000
------------ ------------
Total Liabilities and
Shareholders' Investment $100,360,000 $97,972,000
============ ===========
<PAGE>
SCHULTZ SAV-O STORES, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF EARNINGS
For the 12-weeks ended For the 28-weeks ended+
July 12, July 13, July 12, July 13,
1997 1996 1997 1996
Net sales $109,844,000 $105,544,000 $248,670,000 $239,623,000
Costs and expenses:
Cost of products
sold 92,647,000 88,539,000 209,396,000 201,087,000
Operating and
administrative
expenses 14,364,000 14,414,000 33,864,000 33,831,000
----------- ----------- ----------- -----------
Operating income 2,833,000 2,591,000 5,410,000 4,705,000
Interest expense (195,000) (200,000) (458,000) (468,000)
Interest income 274,000 172,000 540,000 376,000
----------- ----------- ----------- -----------
Earnings before
income taxes 2,912,000 2,563,000 5,492,000 4,613,000
Provision for
income taxes 1,121,000 987,000 2,114,000 1,776,000
----------- ----------- ----------- -----------
Net earnings $ 1,791,000 $ 1,576,000 $ 3,378,000 $ 2,837,000
=========== =========== =========== ===========
Net earnings
per share -
primary and
fully diluted $ 0.37 $ 0.33 $ 0.70 $ 0.59
=========== =========== =========== ===========
Cash dividends
paid per share
of common stock $ 0.10 $ 0.08 $ 0.20 $ 0.16
=========== =========== =========== ===========
Weighted average
common shares
outstanding 4,799,000 4.752,000 4,830,000 4.770,000
=========== =========== =========== ===========
<PAGE>
SCHULTZ SAV-O STORES, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the 28-weeks ended
July 12, July 13,
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 3,378,000 $ 2,837,000
Adjustments to reconcile net earnings
to net cash flows from operating
activities
Depreciation and amortization 2,193,000 2,393,000
Changes in assets and liabilities
Receivables (4,678,000) (2,282,000)
Inventories 2,479,000 1,604,000
Other current assets (518,000) 594,000
Accounts payable 1,818,000 (67,000)
Accrued liabilities 325,000 858,000
---------- ----------
Net cash flows from
operating activities 4,997,000 5,937,000
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property and equipment (887,000) (1,473,000)
Receipt of principal amounts under
capital sublease agreements 271,000 311,000
Proceeds from asset sales 117,000 -
---------- ----------
Net cash flows from
investing activities (499,000) (1,162,000)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment for acquisition of treasury stock (1,666,000) (1,377,000)
Payment of cash dividends (924,000) (742,000)
Principal payments under capital
lease obligations (377,000) (418,000)
Principal payments on long-term debt (167,000) (195,000)
Proceeds from exercise of stock options 164,000 -
---------- ----------
Net cash flows from financing
activities (2,970,000) (2,732,000)
---------- ----------
CASH AND EQUIVALENTS:
Net increase 1,528,000 2,043,000
Balance, beginning of period 27,531,000 21,593,000
---------- ----------
Balance, end of period $29,059,000 $23,636,000
=========== ===========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid $ 491,000 $ 505,000
Income taxes paid 2,997,000 1,357,000
<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.
(2) Interest Expense
Interest expense consists of the following:
For the 12-weeks ended For the 28-weeks ended
July 12, July 13, July 12, July 13,
1997 1996 1997 1996
Interest expense:
Long-term debt $80,000 $88,000 $190,000 $208,000
Imputed - capital leases 115,000 112,000 268,000 260,000
-------- -------- -------- --------
Interest expense $195,000 $200,000 $458,000 $468,000
======== ======== ======== ========
(3) Other Current Assets
Other current assets consist of following: July 12, December 28,
1997 1996
Property held for resale $2,250,000 $ 940,000
Retail systems for resale and other assets 530,000 1,308,000
Prepaid expenses 871,000 615,000
Receivable under capital subleases 523,000 504,000
---------- ----------
Other current assets $4,174,000 $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) 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
Selected costs and results as a percent of net sales:
------------------------------------------------------------------------
For the 12-weeks ended For the 28-weeks ended
July 12, July 13, July 12, July 13,
1997 1996 1997 1996
Cost of products sold 84.34% 83.89% 84.21% 83.92%
Operating and
administrative expenses 13.08 13.66 13.62 14.12
Earnings before income taxes 2.65 2.43 2.21 1.93
Net earnings 1.63 1.49 1.36 1.18
------------------------------------------------------------------------
Net Sales
Net sales for the 12- and 28-week periods ended July 12, 1997 were
$109,844,000 and $248,670,000, respectively, compared to $105,544,000 and
$239,623,000 in the same periods ended July 13, 1996, respectively. The
increases of $4,300,000 and $9,047,000, or 4.07% and 3.78%, were due
primarily to the Company's continuing emphasis on wholesale business
volume, coupled with increases in same store franchise and corporate
retail sales. The increased wholesale business volume resulted mainly
from the continuing roll-out and success of the Piggly Wiggly Preferred
Club electronic card marketing program. The Company also added a new
franchise retail supermarket in Milton, Wisconsin which was previously
served by a wholesale competitor. Additionally, the Company completed
five major Wisconsin franchise facility projects in Hubertus, Edgerton,
Lodi, Plymouth and DePere since July 1996. These completed projects
resulted in an aggregate of nearly 90,000 additional retail store square
footage or an increase of 150% at the five stores. In addition to the
increased wholesale volume, corporate retail operations have shown notable
performance improvements in sales and gross margin at nearly all stores.
As of July 12, 1997, the Company had 70 franchise and 16 corporate
supermarkets compared to 67 franchise and 18 corporate supermarkets at
July 13, 1996.
Consistent with the Company's business strategy to expand its wholesale
business volume, the Company expects that the level of its wholesale sales
will continue to modestly increase relative to its total sales for the
remainder of 1997. Since the end of the 1997 second quarter, the Company
has completed a franchise retail expansion project in Manitowoc,
Wisconsin. This facility project increased the aggregate square footage
by nearly 50%. Currently, there are expansion or renovation projects at
eight retail operations in various phases of planning or construction.
These projects involve one franchise remodeling, three franchise
expansions, one new market franchise, one new market corporate and two
replacement franchise stores. Additionally, the Company continues to
implement 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 July
12, 1997, there were 81 franchise and corporate supermarkets on the card
marketing program with the remainder scheduled to be fully operational by
September 1997.
Cost of Products Sold
Cost of products sold, as a percent of sales, increased by 0.45% and
0.29%, respectively, to 84.34% and 84.21% for both the 12- and 28-week
periods ended July 12, 1997, compared to the same periods in 1996. The
respective increases of $4,108,000 and $8,309,000 were the result of a
reduction in the amount of higher margin retail sales compared to lower
margin wholesale sales. The Company expects that its sales mix trend
resulting from its greater emphasis on lower margin wholesale sales
compared to higher margin retail sales will continue throughout 1997.
This continuing emphasis is expected to result in a nominal decrease in
gross margin for the remainder of 1997.
Operating and Administrative Expenses
Operating and administrative expenses, as a percent of sales, amounted to
13.08% and 13.62% for the 12- and 28-week periods ended July 12, 1997,
compared to 13.66% and 14.12% for the same period in 1996. While the
ratio of operating and administrative expenses relative to sales for both
periods decreased nominally, total operating and administrative expenses
for both the 12- and 28-week periods ended July 12, 1997 were consistent
with last year's prior periods. Due to increased sales, certain variable
expenses such as wages and salaries and benefits also increased. These
increased variable expenses, however, were principally offset by the
elimination of certain operating expenses resulting from the closure of
two smaller, outdated and underperforming corporate stores in September
and October 1996, respectively.
Net Earnings
The effective income tax rate for both the 12- and 28-week periods ended
July 12, 1997 was 38.5%, unchanged from the rate for the same periods in
1996. The provision for income taxes during the 12- and 28-week periods
ended July 12, 1997 was $1,121,000 and $2,114,000, compared to $987,000
and $1,776,000 for the same periods in 1996. With improvements in sales
and productivity, the Company's net earnings-to-sales ratio for the 12-
and 28-week periods ended July 12, 1997 improved to 1.63% and 1.36%,
respectively, compared to 1.49% and 1.18% for the same periods in 1996.
As a result of the foregoing, net earnings for the 12- and 28-weeks ended
July 12, 1997 totaled $1,791,000 and $3,378,000 compared to $1,576,000 and
$2,837,000 for the same periods in 1996, or increases of 13.6% and 19.1%,
respectively. Net earnings per share for the 12- and 28-week periods
ended July 12, 1997 increased 12.1% to $0.37 compared with $0.33 in 1996 ,
and 18.6% to $0.70 compared with $0.59 in 1996.
During the second quarter of 1997, the Company recorded a pretax charge to
operations of $700,000 for projected expenses to terminate a
noncompetitive franchise operation in Plover, Wisconsin. The Company
expects the closure of this franchise store to occur during the third
quarter of 1997. Additionally, on June 27, 1997, the Company discontinued
its Springtime bottling operations and entered into arrangements with
independent private label vendors for future productions. A charge to
operations of $275,000 was recorded in the first quarter of 1997 when
management made the decision to terminate the bottling operations. The
effect of these charges during the first half of 1997 was equivalent to
$0.12 per share.
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 primary source of liquidity for the 28-week period ended July 12, 1997
was cash generated from operating activities. Cash provided by operating
activities was $4,997,000, a decrease of $940,000 over the prior year 28-
week period ended July 13, 1996 cash inflow of $5,937,000. The decrease
in cash flows from operating activities was due primarily to three
factors: (a) the Company's receivable balance increased over the same
period in 1996 due to an increase in short-term financing to franchise
operators for the purchase of various equipment; (b) because of higher
earnings, the Company has been required to pay substantial estimated tax
payments during the first half of 1997; and (c) the Company incurred land
acquisition and building constructions costs for the new market corporate
store slated to be open in October 1997. The cash flow from operations
has enabled the Company to internally fund its capital expenditures and
cash dividends.
Net cash outflow from investing activities for the 28-week period ended
July 12, 1997 totaled $499,000, compared to $1,162,000 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 the
first half of 1997, compared to the same period in 1996. The Company has
a 1997 capital budget of $5,200,000, of which approximately $4,313,000
remain for future expenditures. The Company anticipates financing these
needs from internally generated capital.
Net cash outflow from financing activities for the 28-week period ended
July 12, 1997 was $2,970,000, compared to $2,732,000 during the same
period in 1996. The increase in cash outflows was due principally to the
increase in common stock repurchased by the Company during the first half
of 1997, compared to the first half of 1996. At July 12, 1997, the
Company had repurchased nearly 100,000 shares at an aggregate cost of
approximately $1,670,000. Additionally, cash dividends paid during the
first half of 1997 totaled $924,000 or $0.20 per share, an increase of
$182,000 or 25% from the same period a year ago.
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 will be paid on September 5,
1997 to shareholders of record on August 20, 1997. Fractional shares
otherwise issuable pursuant to the stock split will be paid in cash. The
cash dividend will be paid on a post-stock split basis. Prior to the
announced stock split, the Company had 4,549,261 shares outstanding.
After the three-for-two split, the Company will have approximately
6,824,000 shares outstanding.
In summary, cash and equivalents increased $1,528,000 during the first
half of 1997, compared to an increase of $2,043,000 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.
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Company's 1997 annual meeting of shareholders was held on Wednesday,
May 14, 1997. At the meeting, the shareholders re-elected Howard C.
Dickelman and Michael R. Houser to the Company's Board of Directors for
three-year terms expiring at the Company's 2000 annual meeting of
shareholders and until their successors are duly qualified and elected.
As of the March 26, 1997 recorded date for the annual meeting, 4,623,098
shares of Common Stock were outstanding and eligible to vote. Of these
4,014,640 shares of Common Stock voted at the meeting in person or by
proxy, the following votes were recorded for each nominee:
For Withheld
Name Votes Percentage Votes Percentage
Howard C. Dickelman 4,000,391 99.6% 14,249 0.4%
Michael R. Houser 4,003,715 99.7% 10,925 0.3%
The tabulation of votes for the election of directors resulted in no
broker non-votes or abstentions.
Of the 4,014,640 shares of Common Stock voted at the meeting in person or
by proxy, the following votes were recorded for approval of the
ratification of Arthur Andersen LLP as the Company's 1997 independent
public accountants:
For Against Abstained
Votes Percentage Votes Percentage Votes Percentage
3,992,861 99.5% 8,245 0.2% 13,534 0.3%
No other matters were brought before the meeting for a shareholder vote.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Exhibit 27 Financial Data Schedule.
(b) No reports of Form 8-K were filed by the Company during the first
half 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)
August 14, 1997 /s/ John H. Dahly
(Date) John H. Dahly, Executive Vice President,
Chief Financial Officer and Treasurer
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS OF SCHULTZ SAV-O STORES,
INC. AS OF AND FOR THE PERIOD ENDED JULY 12, 1997 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> OTHER<F3>
<FISCAL-YEAR-END> JAN-03-1998
<PERIOD-START> DEC-29-1996
<PERIOD-END> JUL-12-1997
<CASH> 29,059,000
<SECURITIES> 0
<RECEIVABLES> 10,354,000<F1>
<ALLOWANCES> 0<F1>
<INVENTORY> 19,837,000
<CURRENT-ASSETS> 67,248,000
<PP&E> 53,975,000
<DEPRECIATION> 33,809,000
<TOTAL-ASSETS> 100,360,000
<CURRENT-LIABILITIES> 35,355,000
<BONDS> 3,208,000
0
0
<COMMON> 292,000
<OTHER-SE> 47,792,000
<TOTAL-LIABILITY-AND-EQUITY> 100,360,000
<SALES> 248,670,000
<TOTAL-REVENUES> 248,670,000
<CGS> 209,396,000
<TOTAL-COSTS> 0<F2>
<OTHER-EXPENSES> 33,864,000<F2>
<LOSS-PROVISION> 0<F2>
<INTEREST-EXPENSE> 458,000
<INCOME-PRETAX> 5,492,000
<INCOME-TAX> 2,114,000
<INCOME-CONTINUING> 3,378,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,378,000
<EPS-PRIMARY> 0.70
<EPS-DILUTED> 0.70
<FN>
<F1>Net of "Allowances for doubtful accounts".
<F2>Amounts included in "Other costs and expenses".
<F3>Period is 28 weeks.
</FN>
</TABLE>
