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 17, 1999
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 53081
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 August 20, 1999, 6,374,529 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
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
Item 3. Quantitative and Qualitative Disclosures
about Market Risk 11
PART II OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 12
Item 4. Submission of Matters to Vote of Security Holders 12
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 13
2
<PAGE>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
SCHULTZ SAV-O STORES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- - ----------------------------------------------------------- -------------------- --------------------
(Unaudited) (Audited)
July 17, January 2,
Assets 1999 1999
- - ----------------------------------------------------------- -------------------- --------------------
<S> <C> <C>
Current assets:
Cash and equivalents $ 33,515,000 $ 34,334,000
Receivables 8,840,000 6,233,000
Inventories 20,467,000 23,951,000
Other current assets 2,270,000 2,385,000
Deferred income taxes 4,645,000 4,376,000
- - ----------------------------------------------------------- -------------------- --------------------
Total current assets 69,737,000 71,279,000
- - ----------------------------------------------------------- -------------------- --------------------
Noncurrent receivable under capital subleases 5,895,000 6,107,000
Property under capital leases, net 2,345,000 2,499,000
Other noncurrent assets 3,467,000 3,524,000
Property and equipment, net 20,789,000 21,687,000
- - ----------------------------------------------------------- -------------------- --------------------
$ 102,233,000 $ 105,096,000
=========================================================== ==================== ====================
Liabilities and Shareholders' Investment
- - ----------------------------------------------------------- -------------------- --------------------
Current liabilities:
Accounts payable $ 22,403,000 $ 24,798,000
Accrued salaries and benefits 5,348,000 5,040,000
Accrued insurance 3,443,000 3,020,000
Retail repositioning reserve 537,000 685,000
Other accrued liabilities 4,180,000 4,060,000
Current obligations under capital leases 678,000 656,000
Current maturities of long-term debt 120,000 136,000
- - ----------------------------------------------------------- -------------------- --------------------
Total current liabilities 36,709,000 38,395,000
- - ----------------------------------------------------------- -------------------- --------------------
Long-term obligations under capital leases 9,390,000 9,764,000
Long-term debt 2,948,000 3,021,000
Deferred income taxes 695,000 831,000
Shareholders' investment:
Common stock 438,000 438,000
Additional paid-in capital 14,359,000 14,359,000
Retained earnings 60,619,000 57,792,000
Treasury stock (22,925,000) (19,504,000)
- - ----------------------------------------------------------- -------------------- --------------------
Total shareholders' investment 52,491,000 53,085,000
- - ----------------------------------------------------------- -------------------- --------------------
$ 102,233,000 $ 105,096,000
=========================================================== ==================== ====================
</TABLE>
3
<PAGE>
<TABLE>
SCHULTZ SAV-O STORES, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF EARNINGS
<CAPTION>
-------------------------------------------- ------------------------------------------ -----------------------------------------
For the 12-weeks ended For the 28-weeks ended
July 17, 1999 July 18, 1998 July 17, 1999 July 18, 1998
-------------------------------------------- --------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
Net sales $ 115,124,000 $ 114,068,000 $ 262,075,000 $ 256,210,000
Costs and expenses:
Cost of products sold 96,376,000 95,618,000 219,531,000 214,697,000
Operating and
administrative expenses 15,486,000 15,244,000 36,451,000 35,545,000
Operating income 3,262,000 3,206,000 6,093,000 5,968,000
Interest income 250,000 285,000 642,000 590,000
Interest expense (182,000) (182,000) (413,000) (453,000)
Earnings before income taxes 3,330,000 3,309,000 6,322,000 6,105,000
Provision for income taxes 1,292,000 1,284,000 2,453,000 2,369,000
-------------------------------------------- --------------------- -------------------- -------------------- --------------------
Net earnings $ 2,038,000 $ 2,025,000 $ 3,869,000 $ 3,736,000
============================================ ===================== ==================== ==================== ====================
Earnings per share - basic $ 0.32 $ 0.30 $ 0.59 $ 0.53
Earnings per share - diluted $ 0.31 $ 0.29 $ 0.58 $ 0.53
Cash dividends paid per share
of common stock $ 0.08 $ 0.07 $ 0.16 $ 0.14
Weighted average common shares
and equivalents 6,601,000 7,014,000 6,688,000 7,013,000
</TABLE>
4
<PAGE>
<TABLE>
SCHULTZ SAV-O STORES, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
- - ------------------------------------------------------------------------ ---------------------------------------------
For the 28-weeks ended
July 17, 1999 July 18, 1998
- - ------------------------------------------------------------------------ -------------------- --------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 3,869,000 $ 3,736,000
Adjustments to reconcile net earnings to net cash flows
from operating activities
Depreciation and amortization 2,669,000 2,713,000
Changes in assets and liabilities
Receivables (2,607,000) 1,171,000
Inventories 3,484,000 824,000
Other current assets 192,000 (663,000)
Accounts payable (2,395,000) 1,984,000
Accrued liabilities 298,000 1,149,000
- - ------------------------------------------------------------------------ -------------------- --------------------
Net cash flows from operating activities 5,510,000 10,914,000
- - ------------------------------------------------------------------------ -------------------- --------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property and equipment (1,651,000) (1,282,000)
Receipt of principal amounts under capital
sublease agreements 219,000 239,000
Proceeds from asset sales 7,000 61,000
- - ------------------------------------------------------------------------ -------------------- --------------------
Net cash flows from investing activities (1,425,000) (982,000)
- - ------------------------------------------------------------------------ -------------------- --------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment for acquisition of treasury stock (3,434,000) (673,000)
Payment of cash dividends (1,042,000) (954,000)
Principal payments under capital lease obligations (352,000) (358,000)
Principal payments on long-term debt (89,000) (157,000)
Proceeds from exercise of stock options - 232,000
Other 13,000 14,000
- - ------------------------------------------------------------------------ -------------------- --------------------
Net cash flows from financing activities (4,904,000) (1,896,000)
- - ------------------------------------------------------------------------ -------------------- --------------------
CASH AND EQUIVALENTS:
Net change (819,000) 8,036,000
Balance, beginning of period 34,334,000 23,124,000
- - ------------------------------------------------------------------------ -------------------- --------------------
Balance, end of period $ 33,515,000 $ 31,160,000
======================================================================== ==================== ====================
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid $ 409,000 $ 458,000
Income taxes paid 2,384,000 1,985,000
</TABLE>
5
<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 1998 annual report to shareholders, as incorporated by
reference in the Company's Form 10-K for the fiscal year ended January 2, 1999.
(2) Interest Expense
<TABLE>
<CAPTION>
- - ----------------------------------- ----------------------------------------- -----------------------------------------
For the 12-weeks ended For the 28-weeks ended
July 17, 1999 July 18, 1998 July 17, 1999 July 18, 1998
- - ----------------------------------- -------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
Imputed - capital leases $ 102,000 $ 109,000 $ 239,000 $ 254,000
Long-term debt 71,000 73,000 165,000 173,000
Other 9,000 - 9,000 26,000
- - ----------------------------------- -------------------- -------------------- -------------------- --------------------
Interest expense $ 182,000 $ 182,000 $ 413,000 $ 453,000
=================================== ==================== ==================== ==================== ====================
</TABLE>
(3) Other Current Assets
<TABLE>
<CAPTION>
- - ------------------------------------------- --------------------- ---------------------
July 17, 1999 January 2, 1999
- - ------------------------------------------- --------------------- ---------------------
<S> <C> <C>
Prepaid expenses $ 947,000 $ 1,086,000
Property held for resale 606,000 578,000
Receivable under capital subleases 399,000 407,000
Retail systems and supplies for resale 318,000 314,000
- - ------------------------------------------- --------------------- ---------------------
Other current assets $ 2,270,000 $ 2,385,000
=========================================== ===================== =====================
</TABLE>
(4) Segment Reporting
The Company adopted FAS Statement No. 131, "Disclosures about Segments of an
Enterprise and Related Information" for its fiscal 1998. Based on management
responsibility, the Company identified two business segments, wholesale and
retail, in which it operates.
The Company's management utilizes several measurement tools in evaluating each
segment's performance and each segment's resource requirements. However, the
principal measurement tools are consistent with the Company's consolidated
financial statements and accordingly are reported on a similar basis. Wholesale
operating profits on sales through the Company's corporate stores are allocated
to the retail segment. The "corporate" heading includes corporate-related items,
principally cash and
6
<PAGE>
equivalents. As it relates to operating income, the "corporate" heading includes
corporate-related items allocated to the appropriate segments.
Summarized financial information for the second quarter and year-to-date of 1999
and 1998 concerning the Company's reportable segments is shown in the following
tables (in thousands):
<TABLE>
<CAPTION>
- - ------------------------------------- ------------------------------------- --------------------------------------
For the 12-weeks ended For the 28-weeks ended
Sales July 17, 1999 July 18, 1998 July 17, 1999 July 18, 1998
- - ------------------------------------- ------------------ ------------------ ------------------- ------------------
<S> <C> <C> <C> <C>
Wholesale sales $ 95,222 $ 94,553 $ 217,715 $ 213,910
Intracompany sales (28,012) (28,057) (66,316) (65,431)
Net wholesale sales 67,210 66,496 151,399 148,479
Retail sales 47,914 47,572 110,676 107,731
- - ------------------------------------- ------------------ ------------------ ------------------- ------------------
Total sales $ 115,124 $ 114,068 $ 262,075 $ 256,210
===================================== ================== ================== =================== ==================
- - ------------------------------------- ------------------------------------- --------------------------------------
For the 12-weeks ended For the 28-weeks ended
Earnings Before Income Tax July 17, 1999 July 18, 1998 July 17, 1999 July 18, 1998
- - ------------------------------------- ------------------ ------------------ ------------------- ------------------
Wholesale $ 2,357 $ 2,070 $ 4,683 $ 4,358
Retail 905 1,136 1,410 1,610
Total operating income 3,262 3,206 6,093 5,968
Interest income 250 285 642 590
Interest expense (182) (182) (413) (453)
- - ------------------------------------- ------------------ ------------------ ------------------- ------------------
Earnings before income taxes $ 3,330 $ 3,309 $ 6,322 $ 6,105
===================================== ================== ================== =================== ==================
</TABLE>
(5) Reclassification
Certain second quarter 1998 information previously reported has been
reclassified to conform to the second quarter 1999 presentation.
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
<TABLE>
<CAPTION>
Selected costs and results as a percent of net sales:
- - ----------------------------------------------- ---------------------------------- ----------------------------------
For the 12-weeks ended For the 28-weeks ended
July 17, 1999 July 18, 1998 July 17, 1999 July 18, 1998
- - ----------------------------------------------- ---------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Cost of products sold 83.7% 83.8% 83.8% 83.8%
Operating and administrative expenses 13.5 13.4 13.9 13.9
Earnings before income taxes 2.9 2.9 2.4 2.4
Net earnings 1.8 1.8 1.5 1.5
- - ----------------------------------------------- ---------------- ----------------- ---------------- -----------------
</TABLE>
Net Sales
Net sales for the 12- and 28- week periods ended July 17, 1999 were $115.1
million and $262.1 million, respectively, compared to $114.1 million and $256.2
million, respectively, for the same periods in 1998. The increases of $1.0
million and $5.9 million, or 0.9% and 2.3%, respectively, benefited from an
increase in wholesale and retail sales volume. Retail sales for the 12- and 28-
week periods ended July 17, 1999 were $47.9 million and $110.7 million,
respectively, compared to $47.6 million and $107.7 million for the same periods
in 1998. The retail sales increases of $300,000 and $3.0 million, or 0.6% and
2.8%, were due primarily to the Appleton market replacement corporate store that
was opened on August 19, 1998. Second quarter retail sales were negatively
impacted by decreased sales in certain market areas due to competitive
pressures. Net wholesale sales for the 12- and 28- week periods ended July 17,
1999 were $67.2 million and $151.4 million, respectively, compared to $66.5
million and $148.5 million for the same periods in 1998. The increases of
$700,000 and $2.9 million, or 1.1% and 2.0%, respectively, benefited from the
completion of franchise facility projects and the continued success of the
Piggly Wiggly Preferred Club(R) Card program. Since the end of 1998, a new
market franchise store opened in Cottage Grove and franchise expansion projects
have been completed in Fort Atkinson, Kiel, Crivitz, Randolph, and Beaver Dam,
Wisconsin. Wholesale sales, however, were adversely impacted by the Company's
two store consolidations that were completed in November 1998 and January 1999,
resulting in two franchise store closures. As of July 17, 1999, the Company had
68 independent franchise-owned supermarkets and 18 corporate stores, all
operating under the Piggly Wiggly banner.
Consistent with the Company's efforts to expand the wholesale segment of the
business, in late August 1999, the Company converted an independent operator in
Niagara, Wisconsin from another wholesaler into a Piggly Wiggly franchise unit.
The Company anticipates that this conversion, along with the completion of its
franchise expansion projects, will have a positive impact on wholesale sales for
the remainder of the year. The projected wholesale sales increase should offset
the anticipated slowdown in retail sales trend due to competitive activity in
certain market areas; the closure of two franchise stores as part of two recent
consolidations; and the continued lack of any food price inflation.
Cost of Products Sold
Cost of products sold, as a percent of sales, decreased by 0.1% to 83.7%
compared to 83.8% for the second quarter of 1998, and remained constant at 83.8%
for the first half of 1999 and 1998. The Company's sales mix of 42.2% retail and
57.8% wholesale for the first half of 1999 was comparable to 42.0% retail and
58.0% wholesale sales mix for the first half of 1998. Although retail sales mix
increased slightly from prior year, due to competitive pressures, the Company's
gross margin for the first half of 1999 and 1998 stayed constant. The Company
expects the wholesale sales mix to increase
8
<PAGE>
nominally for the rest of 1999 based solely on anticipated sales from completed
franchise facility projects and certain retail store conversions.
Operating and Administrative Expenses
Operating and administrative expenses, as a percent of sales, increased to 13.5%
for the second quarter of 1999, compared to 13.4% for the same period in 1998.
For the first halves of 1999 and 1998 operating and administrative expenses as a
percent of sales remained constant at 13.9%. More than 60% of the additional
expenses were attributable to higher operating expenses incurred by the Company
in connection with its newer Appleton replacement corporate store, compared to
the older noncompetitive store that was closed in August 1998. Additionally, the
Company incurred certain realization charges relating to customer receivables
during the second quarter of 1999.
Due to the ongoing highly competitive nature of the industry in the Company's
markets, certain Company franchise operators and corporate retail supermarkets
continue to experience a variety of operational issues in their respective
marketplaces. The Company continues to evaluate various business alternatives
relating to these underperforming operations. The Company's business
alternatives include, but are not limited to, the sale and subsequent conversion
of corporate stores to franchise units, closing stores, or implementing other
operational changes. Similar to certain prior years, implementation of these
alternatives is likely to result in the Company incurring certain repositioning
or restructuring charges for these replaced, closed or sold stores and
negatively impact net earnings in the short term. However, the Company believes
that such actions will help improve the Company's long-term profitability.
The Company has made a commitment to initiate a comprehensive plan to review,
analyze and replace its existing core systems with an integrated business system
more responsive to the Company's strategic plan while incorporating best
business practices and best technology practices currently available. This
decision is a direct by-product of ongoing advancement in information technology
and the ever-increasing competitive nature of the industry. The Board of
Directors has created a steering committee and a project team composed of
internal professionals and outside retail industry consultants. The estimated
consulting fee for the comprehensive planning stage of this project is in the
range of $500,000, most of which is projected to be incurred and expensed during
1999. The Company expects to begin the planning process before the end of the
year and to complete the process during the first half of 2000. Cost estimates
for the actual core systems implementation, which may be a significant amount,
will be determined as part of the comprehensive plan which will then be
presented to the Board of Directors for their review and approval.
Net Earnings
Net earnings for the 12- and 28- week periods ended July 17, 1999, compared to
the same periods in 1998, increased 0.6% and 3.6% to $2.0 million and $3.9
million, respectively. Although operating results only improved slightly, the
second quarter's earnings performance still represented the Company's 26th
consecutive quarter of increased earnings over the prior year's similar quarter.
Diluted earnings per share for the 12- and 28- week periods ended July 17, 1999
increased 6.9% to $0.31, compared to $0.29 in 1998, and increased 9.4% to $0.58
compared to $0.53 in 1998, respectively. The percentage increase in diluted
earnings per share increased more than net earnings as a result of the Company's
ongoing stock repurchase program. The weighted average common shares and
equivalents were 6,601,000 and 7,014,000 for the second quarters of 1999 and
1998, and 6,688,000 and 7,013,000 for the first halves of 1999 and 1998.
9
<PAGE>
Liquidity and Capital Resources
At July 17, 1999, the Company had cash and equivalents totaling $33.5 million.
At year-end 1998, cash and equivalents aggregated $34.2 million. The net cash
utilization of $819,000 was attributable to certain significant operational,
investing and financing activities as described below.
The Company had net cash inflows from operating activities of $5.5 million
during the first half of 1999, compared to a net cash inflow of $10.9 million
for the same period in 1998. The change in cash flows from operating activities
between quarters of $5.4 million was due primarily to the timing of cash
receipts, cash payments, and a change in short-term financing to its wholesale
customers. Although inventories at July 17, 1999 have increased by nearly $3.5
million compared to July 18, 1998 levels, the overall increment did not
negatively impact the cash flow due to the corresponding decrease in accounts
payable of $2.4 million.
Net cash outflows from investing activities for the 28-week period ended July
17, 1999 totaled $1.4 million, compared to nearly $1.0 million for the same
period in 1998. The Company incurred $1.7 million in capital expenditures during
the first half of 1999. A significant portion of the expenditures related to
retail store equipment and technological upgrades. At July 17, 1999, of the
fiscal 1999 capital budget of $3.3 million, the Company has approximately $1.6
million available for the rest of the year.
Net cash outflows from financing activities for the 28-week period ended July
17, 1999, totaled $4.9 million compared to nearly $1.9 million for the same
period in 1998. Although total cash dividends paid of about $1.0 million were
comparable between years, cash dividends per share for the first half of 1999
increased 14.3% compared to 1998. During the first half of 1999, the Company
repurchased nearly 212,000 shares of its common stock at an aggregate price of
$3.4 million as part of the Company's existing stock repurchase program compared
to $673,000 during the first half of 1998. Additionally, the Company's Board of
Directors announced an authorized increase in the Company's stock repurchase
program from $5.0 million to $10.0 million.
The Company's working capital position at July 17, 1999 was $33.0 million,
compared to $32.9 million at January 2, 1999. The Company's current ratio at
July 17, 1999 was 1.90 to 1.00 with cash and equivalents constituting all of the
working capital. The Company also has unsecured revolving bank credit facilities
aggregating $16.0 million which remains available for use in its entirety. At
July 17, 1999, the Company's liquidity position continues to be very favorable
and strong.
Year 2000 Issues
A team, staffed primarily with internal professionals within the Company's
business systems group and some outside consultants on an as-needed basis,
developed a plan in 1997 to assess its information technology ("IT") and
non-information technology systems. The plan consisted of three main project
phases: (1) to make an inventory listing of all IT and non-IT systems that may
be subject to the year 2000 issue along with an assessment as to the scope of
the issue as it related to these systems; (2) to remediate any and all year 2000
compliance problems; and (3) to test, validate and implement systems subsequent
to remediation.
As of July 17, 1999, the Company believes it is essentially on schedule to
complete all testing, validation and implementation of all IT and non-IT systems
before the end of the year. Based on tests, validation and implementation that
have been completed to date, the Company expects its IT and non-IT systems to be
completely tested, validated and implemented on or before December 1, 1999.
Total year 2000 expenses are not expected to exceed $500,000, of which
approximately $360,000 will be charged to operations during fiscal 1999. During
the first half of 1999, the Company incurred nearly $225,000.
10
<PAGE>
As part of the year 2000 project, the Company has identified business
relationships with third parties, including suppliers, vendors, financial
institutions and other service providers, which the Company believes are
critical to its business operations. The Company has been communicating with
these third parties through correspondence and/or interviews to ascertain the
extent to which they are addressing their year 2000 compliance issues. The
Company will continue to assess and monitor the progress of these third parties
in resolving year 2000 issues. The Company undertakes a certain amount of risk
by relying on the third parties' own year 2000 assessments. Because of this, the
Company believes that a key vendor's failure to resolve its year 2000 issues is
the most likely worst case scenario for the Company. Such failure could result
in the Company not being able to procure products from a key vendor on a timely
basis. The Company does not expect this most likely worst case scenario to have
a material adverse impact on its core retail and wholesale businesses due
principally to the Company's network of alternative suppliers and vendors. The
Company will, however, develop contingency plans to work with these key third
parties.
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," "projects" 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 including, but not limited, to the following:
(i) presence of intense competitive market activity in the Company's market
areas; (ii) ability to identify and develop new market locations for expansion
purposes; (iii) continuing ability to obtain reasonable vendor marketing funds
for promotional purposes; (iv) ongoing advancing information technology
requirements; (v) ongoing absence of food price inflation; and (vi) the
Company's ability to continue to recruit, train and retain quality franchise and
corporate retail store operators. Due principally to the competitive nature of
the industry and to the quality of its retail store operators, the Company
continues to evaluate various courses of action relating to its underperforming
retail operations. These courses of action include closures, conversions and
consolidations of retail stores. Implementation of these actions can result in
certain repositioning charges to the Company. 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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company believes that its exposure to market risks related to changes in
foreign currency exchange rates, interest rate fluctuations and trade accounts
receivable is immaterial.
11
<PAGE>
PART II Other Information
Item 2. Changes in Securities and use of Proceeds
On July 1, 1999, the Company issued an aggregate of 416 shares of its common
stock to its two newly appointed non-employee directors pursuant to its
Independent Director Compensation Plan. The issuance of such shares was exempt
from registration under the Securities Act pursuant to Section 4(2) thereof.
Item 4. Submission of Matters to a Vote of Security Holders
The Company's 1999 annual meeting of shareholders was held on Wednesday, May 12,
1999. At the meeting, the shareholders re-elected John H. Dahly, Martin
Crneckiy, Jr. and R. Bruce Grover to the Company's Board of Directors for
three-year terms expiring at the Company's 2002 annual meeting of shareholders
and until their successors are duly qualified and elected. As of the March 24,
1999 record date for the annual meeting, 6,570,179 shares of Common Stock were
outstanding and eligible to vote. Of these, 5,413,546 shares of Common Stock
voted at the meeting in person or by proxy. The following votes were recorded
for each nominee:
For Withheld
-------------------------- --------------------------
Votes Percentage Votes Percentage
----- ---------- ----- ----------
John H. Dahly 5,062,225 93.5% 351,321 6.5%
Martin Crneckiy Jr. 5,061,924 93.5% 351,622 6.5%
R. Bruce Grover 5,061,921 93.5% 351,625 6.5%
The tabulation of votes for the election of directors resulted in no broker
non-votes or abstentions.
Of the 5,413,546 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 1999 independent public accountants:
For Against Abstained
- - ------------------------ ------------------- --------------------
Votes Percentage Votes Percentage Votes Percentage
----- ---------- ----- ---------- ----- ----------
5,399,124 99.7% 900 0.1% 13,522 0.2%
Of the 5,413,546 shares of Common Stock voted at the meeting in person or by
proxy, the following votes were recorded for approval of the increase in the
number of shares issuable under the 1995 Equity Incentive Plan from 750,000
shares to 1,250,000 shares:
For Against Abstained
- - ------------------------ ------------------- --------------------
Votes Percentage Votes Percentage Votes Percentage
----- ---------- ----- ---------- ----- ----------
3,487,246 64.4% 1,856,880 34.3% 55,416 1.0%
The tabulation of votes for the increase in the number of shares issuable under
the 1995 Equity Incentive Plan resulted in broker non-votes of 14,004 shares.
12
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 Financial Data Schedule.
(b No reports of Form 8-K were filed by the Company during the
second quarter of fiscal 1999.
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 25, 1999 /s/Armand C. Go
- - ------------------ -----------------------------------------------------
(Date) Armand C. Go, Vice President, Treasurer and
Chief Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS OF SCHULTZ SAV-O STORES, INC. AS OF AND FOR THE SIX MONTHS ENDED JULY
17, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-START> JAN-03-1999
<PERIOD-END> JUL-17-1999
<CASH> 33,515
<SECURITIES> 0
<RECEIVABLES> 8,840,000 <F1>
<ALLOWANCES> 0 <F1>
<INVENTORY> 20,467,000
<CURRENT-ASSETS> 67,737,000
<PP&E> 58,706,000
<DEPRECIATION> 37,917,000
<TOTAL-ASSETS> 102,233,000
<CURRENT-LIABILITIES> 36,709,000
<BONDS> 2,948,000
438,000
0
<COMMON> 0
<OTHER-SE> 52,053,000
<TOTAL-LIABILITY-AND-EQUITY> 102,233,000
<SALES> 262,075,000
<TOTAL-REVENUES> 262,075,000
<CGS> 219,531,000
<TOTAL-COSTS> 0 <F2>
<OTHER-EXPENSES> 36,451,000 <F2>
<LOSS-PROVISION> 0 <F2>
<INTEREST-EXPENSE> 642,000
<INCOME-PRETAX> 6,322,000
<INCOME-TAX> 2,453,000
<INCOME-CONTINUING> 3,869,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,869,000
<EPS-BASIC> 0.59
<EPS-DILUTED> .58
<FN>
<F1> Net of "Allowances for doubtful accounts".
<F2> Amounts included on "Other costs and expenses".
</FN>
</TABLE>
