SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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 15, 2000
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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
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SCHULTZ SAV-O STORES, INC.
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(Exact Name of Registrant as Specified in its Charter)
WISCONSIN 39-0600405
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(State or other jurisdiction (I.R.S. Employer
of incorporation of organization) Identification No.)
2215 UNION AVENUE
SHEBOYGAN, WISCONSIN 53081
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(Address of principal (Zip Code)
executive offices)
Registrant's telephone number
including area code 920-457-4433
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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 (or 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 31, 2000, 5,938,569 shares of Common Stock, $0.05 par value,
were issued and outstanding.
<PAGE>
SCHULTZ SAV-O STORES, INC.
FORM 10-Q INDEX
PAGE
NUMBER
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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 10
PART II OTHER INFORMATION
Item 4. Submission of Matters to Vote of Security Holders 11
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 12
2
<PAGE>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
SCHULTZ SAV-O STORES, INC.
CONSOLIDATED BALANCE SHEETS
<CAPTION>
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(Unaudited) (Audited)
July 15, January 1,
Assets 2000 2000
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Current assets:
<S> <C> <C>
Cash and equivalents $ 30,453,000 $ 22,433,000
Receivables 9,977,000 6,629,000
Inventories 22,633,000 26,313,000
Other current assets 3,583,000 3,410,000
Deferred Income taxes 3,900,000 3,900,000
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Total current assets 70,546,000 62,685,000
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Noncurrent receivable under capital subleases 4,333,000 4,531,000
Property under capital leases, net 3,241,000 3,462,000
Other noncurrent assets 2,317,000 2,664,000
Property and equipment, net 20,405,000 20,285,000
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Total assets $ 100,842,000 $ 93,627,000
==========================================================================================================================
Liabilities and Shareholders' Investment
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Current liabilities:
Accounts payable $ 24,769,000 $ 19,545,000
Accrued salaries and benefits 5,382,000 5,284,000
Accrued insurance 3,346,000 3,002,000
Retail repositioning reserve 349,000 450,000
Other accrued liabilities 3,213,000 3,765,000
Current obligations under capital leases 744,000 696,000
Current maturities of long-term debt 162,000 146,000
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Total current liabilities 37,965,000 32,888,000
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Long-term obligations under capital leases 8,646,000 9,069,000
Long-term debt 2,755,000 2,865,000
Deferred income taxes 836,000 836,000
Shareholders' investment:
Common stock 438,000 438,000
Additional paid-in capital 14,961,000 14,961,000
Retained earnings 66,697,000 63,995,000
Treasury stock (31,456,000) (31,425,000)
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Total shareholders' investment 50,640,000 47,969,000
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Total liabilities and shareholder's investment $ 100,842,000 $ 93,627,000
==========================================================================================================================
</TABLE>
3
<PAGE>
<TABLE>
SCHULTZ SAV-O STORES, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF EARNINGS
<CAPTION>
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For the 12-weeks ended For the 28-weeks ended
July 15, 2000 July 17, 1999 July 15, 2000 July 17, 1999
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<S> <C> <C> <C> <C>
Net sales $ 116,459,000 $ 115,124,000 $ 264,147,000 $ 262,075,000
Costs and expenses:
Cost of products sold 96,988,000 96,376,000 220,218,000 219,531,000
Operating and
administrative expenses 16,507,000 15,486,000 37,966,000 36,451,000
Operating income 2,964,000 3,262,000 5,963,000 6,093,000
Interest income 302,000 250,000 578,000 642,000
Interest expense (197,000) (182,000) (459,000) (413,000)
Earnings before income taxes 3,069,000 3,330,000 6,082,000 6,322,000
Provision for income taxes 1,166,000 1,292,000 2,311,000 2,453,000
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Net earnings $ 1,903,000 $ 2,038,000 $ 3,771,000 $ 3,869,000
==============================================================================================================================
Earnings per share - basic $ 0.32 $ 0.32 $ 0.63 $ 0.59
Earnings per share - diluted $ 0.32 $ 0.31 $ 0.63 $ 0.58
Cash dividends paid per share
of common stock $ 0.09 $ 0.08 $ 0.18 $ 0.16
Weighted average common shares
and equivalents 5,989,000 6,601,000 5,995,000 6,688,000
</TABLE>
4
<PAGE>
<TABLE>
SCHULTZ SAV-O STORES, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
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For the 28-weeks ended
July 15, 2000 July 17, 1999
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CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net earnings $ 3,771,000 $ 3,869,000
Adjustments to reconcile net earnings to net cash flows
from operating activities
Depreciation and amortization 2,820,000 2,669,000
Changes in assets and liabilities
Receivables (3,348,000) (2,607,000)
Inventories 3,680,000 3,484,000
Other current assets (156,000) 192,000
Accounts payable 5,224,000 (2,395,000)
Accrued liabilities (211,000) 298,000
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Net cash flows from operating activities 11,780,000 5,510,000
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CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property and equipment (2,368,000) (1,651,000)
Receipt of principal amounts under capital
sublease agreements 175,000 219,000
Other 2,000 7,000
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Net cash flows from investing activities (2,191,000) (1,425,000)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of cash dividends (1,069,000) (1,042,000)
Principal payments under capital lease obligations (375,000) (352,000)
Principal payments on long-term debt (94,000) (89,000)
Payment for acquisition of treasury stock (55,000) (3,434,000)
Other 24,000 13,000
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Net cash flows from financing activities (1,569,000) (4,904,000)
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CASH AND EQUIVALENTS:
Net change 8,020,000 (819,000)
Balance, beginning of period 22,433,000 34,334,000
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Balance, end of period $ 30,453,000 $ 33,515,000
==========================================================================================================================
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid $ 456,000 $ 409,000
Income taxes paid 1,950,000 2,384,000
</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 1999 annual report to shareholders, as incorporated by
reference in the Company's Form 10-K for the fiscal year ended January 1, 2000.
(2) Interest Expense
<TABLE>
<CAPTION>
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For the 12-weeks ended For the 28-weeks ended
July 15, 2000 July 17, 1999 July 15, 2000 July 17, 1999
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<S> <C> <C> <C> <C>
Imputed - capital leases $ 130,000 $ 102,000 $ 304,000 $ 239,000
Long-term debt 67,000 71,000 155,000 165,000
Other - 9,000 - 9,000
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Interest expense $ 197,000 $ 182,000 $ 459,000 $ 413,000
=======================================================================================================================
</TABLE>
(3) Other Current Assets
<TABLE>
<CAPTION>
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July 15, 2000 January 1, 2000
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<S> <C> <C>
Prepaid expenses $ 1,385,000 $ 1,500,000
Property held for resale 1,196,000 1,088,000
Retail systems and supplies for resale 654,000 496,000
Receivable under capital subleases 348,000 326,000
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Other current assets $ 3,583,000 $ 3,410,000
====================================================================================================
</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.
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<PAGE>
Summarized financial information for the second quarter and year-to-date of 2000
and 1999 concerning the Company's reportable segments is shown in the following
tables (in thousands):
<TABLE>
<CAPTION>
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For the 12-weeks ended For the 28-weeks ended
Sales July 15, 2000 July 17, 1999 July 15, 2000 July 17, 1999
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Wholesale sales $ 94,071 $ 95,222 $ 214,465 $ 217,715
Intracompany sales (26,011) (28,012) (60,961) (66,316)
------------- ------------- ------------- -------------
Net wholesale sales 68,060 67,210 153,504 151,399
Retail sales 48,399 47,914 110,643 110,676
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Total sales $ 116,459 $ 115,124 $ 264,147 $ 262,075
==================================================================================================================
<CAPTION>
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For the 12-weeks ended For the 28-weeks ended
Earnings Before Income Tax July 15, 2000 July 17, 1999 July 15, 2000 July 17, 1999
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Wholesale $ 2,150 $ 2,357 $ 4,625 $ 4,683
Retail 814 905 1,338 1,410
------------- ------------- ------------- -------------
Total operating income 2,964 3,262 5,963 6,093
Interest income 302 250 578 642
Interest expense (197) (182) (459) (413)
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Earnings before income taxes $ 3,069 $ 3,330 $ 6,082 $ 6,322
==================================================================================================================
</TABLE>
7
<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations
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<TABLE>
Selected costs and results as a percent of net sales:
<CAPTION>
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For the 12-weeks ended For the 28-weeks ended
July 15, 2000 July 17, 1999 July 15, 2000 July 17, 1999
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<S> <C> <C> <C> <C>
Gross margin 16.7% 16.3% 16.6% 16.2%
Operating and administrative expenses 14.2 13.5 14.4 13.9
Earnings before income taxes 2.6 2.9 2.3 2.4
Net earnings 1.6 1.8 1.4 1.5
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</TABLE>
Net Sales
Net sales for the 12- and 28- week periods ended July 15, 2000 were $116.5
million and $264.1 million, respectively, compared to $115.1 million and $262.1
million, respectively, for the same periods in 1999. The nominal increases of
$1.4 million and $2.0 million, or 1.2% and 0.8%, respectively, were due
primarily to increased wholesale sales volume. Retail sales for the 12- and 28-
week periods ended July 15, 2000 were $48.4 million and $110.6 million,
respectively, compared to $47.9 million and $110.7 million for the same periods
in 1999. Although the Company's retail sales volume was positively impacted by
the additional corporate store that was converted from a franchise unit in
November 1999 and the increased volume resulting from the replacement store in
Racine, Wisconsin in May 2000, several market areas continued to experience
intense competitive pressures. Net wholesale sales for the 12- and 28- week
periods ended July 15, 2000 were $68.1 million and $153.5 million, respectively,
compared to $67.2 million and $151.4 million for the same periods in 1999. The
increases of $900,000 and $2.1 million, or 1.3% and 1.4%, respectively, were
attributable to: (1) the successful conversion to the Piggly Wiggly program of
three new market Wisconsin franchise stores from other wholesalers since July
17, 1999; and (2) the opening of one new market franchise supermarket in
Kewaskum, Wisconsin in June 2000. Similar to corporate retail stores, certain
franchise supermarkets experienced intense competitive pressures. These
competitive pressures had an adverse impact on the Company's wholesale sales
volume. As of July 15, 2000, the Company had 71 independent franchise-owned
supermarkets and 19 corporate stores, all operating under the Piggly Wiggly(R)
banner.
Gross Margin
Gross margin, as a percent of sales, increased to 16.7% and 16.6% for the 12-
and 28-week periods ended July 15, 2000, compared to 16.3% and 16.2%,
respectively for the same periods in 1999. This improvement, primarily due to
retail operations, was attributable to merchandising and product promotional mix
improvements that were initiated at the beginning of 2000.
Operating and Administrative Expenses
Operating and administrative expenses, as a percent of sales, increased to 14.2%
and 14.4% for the 12- and 28- week periods ended July 15, 2000, compared to
13.5% and 13.9%, respectively for the same periods in 1999. These increases were
principally attributable to a year-to-date increase of 38% in health and
accident insurance costs in retail operations and one-time professional fees
approximating $350,000 related to Company strategic initiatives.
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
8
<PAGE>
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.
Net Earnings
Net earnings for the 12- and 28- week periods ended July 15, 2000 decreased 6.6%
and 2.5% to $1.9 million and $3.8 million respectively, compared to $2.0 million
and $3.9 million for the same periods in 1999. Although net earnings for the
2000 second quarter and year-to-date decreased, the Company's overall
operational results were trending consistent with the first quarter of 2000.
Diluted earnings per share for the 12- and 28- week periods ended July 15, 2000
increased 3.2% to $0.32, compared to $0.31 in 1999, and increased 8.6% to $0.63
compared to $0.58 in 1999. Due to significant share repurchases in 1999, the
weighted average common shares and equivalents for the second quarter and
year-to-date of 2000 were 5,989,000 and 5,995,000, compared to 6,601,000 and
6,688,000, respectively, for the same periods in 1999.
Liquidity and Capital Resources
-------------------------------
At July 15, 2000, the Company had cash and equivalents totaling $30.5 million.
At year-end 1999, cash and equivalents aggregated $22.4 million. The net cash
inflow of $8.1 million was attributable to certain operational, investing and
financing activities as described below.
The Company had net cash inflows from operating activities of $11.8 million
during the first half of 2000, compared to a net cash inflow of $5.5 million for
the same period in 1999. The increase in cash flows from operations was due
primarily to the timing of cash receipts, cash payments and changes in
short-term financing to the Company's wholesale customers.
During the second quarter of 2000, the Company continued to make progress in its
comprehensive evaluation of its core business systems. As part of this process,
the Company continues to explore several alternatives and courses of action that
may result in significant additional capital expenditures. The Company projects
a decision to be made before the end of the year.
Net cash outflows from investing activities for the 28-week period ended July
15, 2000 totaled $2.2 million, compared to $1.4 million for the same period in
1999. The Company incurred $2.4 million in capital expenditures during the first
half of 2000. Approximately 80% of the expenditures related to equipment
purchases for the replacement supermarket in Racine, Wisconsin as well as other
corporate retail store equipment and technological upgrades. At July 15, 2000,
of the fiscal 2000 capital budget of $5.4 million, the Company has approximately
$3.0 million available for the remainder of the year.
Net cash outflows from financing activities for the 28-week period ended July
15, 2000, totaled nearly $1.6 million compared to $4.9 million for the same
period in 1999. The significant decrease was due exclusively to stock
repurchases of $3.4 million during the first half of 1999 compared to $55,000
during the first half of 2000.
The Company's working capital position at July 15, 2000 was $32.6 million,
compared to $29.8 million at January 1, 2000. The Company's current ratio at
July 15, 2000 was 1.86 to 1.00 with cash and equivalents constituting
substantially all of the working capital. The Company also has unsecured
9
<PAGE>
revolving bank credit facilities aggregating $16.0 million, which remains
available for use in its entirety. At July 15, 2000, the Company's liquidity
position continues to be very favorable and strong.
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 and
opportunities for expansion purposes; (iii) continuing ability to obtain
reasonable vendor marketing funds for promotional purposes; (iv) ongoing
advancing information technology requirements which may require the Company to
spend substantial capital expenditure and can dilute the Company's earnings for
a significant period; and (v) 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.
10
<PAGE>
PART II Other Information
Item 4. Submission of Matters to a Vote of Security Holders
The Company's 2000 annual meeting of shareholders was held on Wednesday, May 10,
2000. At the meeting, the shareholders re-elected Michael R. Houser and elected
Bruce J. Olson and Walter G. Winding to the Company's Board of Directors for
three-year terms expiring at the Company's 2003 annual meeting of shareholders
and until their successors are duly qualified and elected. As of the March 22,
2000 record date for the annual meeting, 5,943,569 shares of Common Stock were
outstanding and eligible to vote. Of these, 5,038,100 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
Michael R. Houser 5,002,987 99.3% 35,113 0.7%
Bruce J. Olson 4,995,167 99.1% 42,933 0.9%
Walter G. Winding 4,995,167 99.1% 42,933 0.9%
The tabulation of votes for the election of directors resulted in no broker
non-votes or abstentions.
Of the 5,038,100 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 2000 independent public accountants:
For Against Abstained
---------------------- -------------------- --------------------
Votes Percentage Votes Percentage Votes Percentage
----- ---------- ----- ---------- ----- ----------
5,012,124 99.5% 20,684 0.4% 5,292 0.1%
11
<PAGE>
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 2000.
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 23, 2000 /s/ Armand C. Go
--------------------- --------------------------------------------
(Date) Armand C. Go, Vice President, Treasurer and
Chief Accounting Officer
12
<PAGE>
EXHIBIT INDEX
Exhibit Description
27 Financial Data Schedule
13
