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 April 22, 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 (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 May 30, 2000, 5,938,569 shares of Common Stock, $0.05 par value,
were issued and outstanding.
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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 11
PART II OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 11
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 11
2
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements
SCHULTZ SAV-O STORES, INC.
CONSOLIDATED BALANCE SHEETS
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(Unaudited) (Audited)
April 22, January 1,
Assets 2000 2000
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Current assets:
Cash and equivalents $ 24,675,000 $ 22,433,000
Receivables 11,314,000 6,629,000
Inventories 22,248,000 26,313,000
Other current assets 4,831,000 3,410,000
Deferred Income taxes 3,900,000 3,900,000
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Total current assets 66,968,000 62,685,000
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Noncurrent receivable under capital subleases 4,418,000 4,531,000
Property under capital leases, net 3,335,000 3,462,000
Other noncurrent assets 2,467,000 2,664,000
Property and equipment, net 20,446,000 20,285,000
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Total assets $ 97,634,000 $ 93,627,000
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Liabilities and Shareholders' Investment
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Current liabilities:
Accounts payable $ 23,584,000 $ 19,545,000
Accrued salaries and benefits 5,007,000 5,284,000
Accrued insurance 3,217,000 3,002,000
Retail repositioning reserve 373,000 450,000
Other accrued liabilities 2,792,000 3,765,000
Current obligations under capital leases 723,000 696,000
Current maturities of long-term debt 160,000 146,000
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Total current liabilities 35,856,000 32,888,000
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Long-term obligations under capital leases 8,827,000 9,069,000
Long-term debt 2,789,000 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 65,328,000 63,995,000
Treasury stock (31,401,000) (31,425,000)
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Total shareholders' investment 49,326,000 47,969,000
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Total liabilities and shareholder's investment $ 97,634,000 $ 93,627,000
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3
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SCHULTZ SAV-O STORES, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF EARNINGS
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For the 16-weeks ended
April 22, 2000 April 24, 1999
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Net sales $147,688,000 $146,951,000
Costs and expenses:
Cost of products sold 123,230,000 123,155,000
Operating and
administrative expenses 21,459,000 20,965,000
Operating income 2,999,000 2,831,000
Interest income 276,000 392,000
Interest expense (262,000) (231,000)
Earnings before income taxes 3,013,000 2,992,000
Provision for income taxes 1,145,000 1,161,000
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Net earnings $ 1,868,000 $ 1,831,000
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Earnings per share - basic $ 0.31 $ 0.28
Earnings per share - diluted $ 0.31 $ 0.27
Cash dividends paid per share
of common stock $ 0.09 $ 0.08
Weighted average common shares
and equivalents 5,999,000 6,756,000
4
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SCHULTZ SAV-O STORES, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
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For the 16-weeks ended
April 22, 2000 April 24, 1999
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 1,868,000 $ 1,831,000
Adjustments to reconcile net earnings to
net cash flows from operating activities
Depreciation and amortization 1,601,000 1,527,000
Changes in assets and liabilities
Receivables (4,685,000) (3,421,000)
Inventories 4,065,000 1,992,000
Other current assets (1,409,000) (1,032,000)
Accounts payable 4,039,000 (1,541,000)
Accrued liabilities (1,112,000) (1,194,000)
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Net cash flows from operating activities 4,367,000 (1,838,000)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property and equipment (1,438,000) (787,000)
Receipt of principal amounts under capital
sublease agreements 100,000 125,000
Other investing activities 1,000 2,000
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Net cash flows from investing activities (1,337,000) (660,000)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of cash dividends (535,000) (528,000)
Principal payments under capital
lease obligations (215,000) (201,000)
Principal payments on long-term debt (62,000) (61,000)
Other financing activities 24,000 13,000
Payment for acquisition of treasury stock - (1,627,000)
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Net cash flows from financing activities (788,000) (2,404,000)
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CASH AND EQUIVALENTS:
Net change 2,242,000 (4,902,000)
Balance, beginning of period 22,433,000 34,334,000
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Balance, end of period $ 24,675,000 $ 29,432,000
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SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid $ 257,000 $ 226,000
Income taxes paid 1,013,000 1,349,000
5
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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
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For the 16-weeks ended
April 22, 2000 April 24, 1999
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Imputed - capital leases $ 174,000 $ 137,000
Long-term debt 88,000 94,000
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Interest expense $ 262,000 $ 231,000
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(3) Other Current Assets
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April 22, 2000 January 1, 2000
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Property held for resale $ 2,725,000 $ 1,088,000
Prepaid expenses 1,102,000 1,500,000
Retail systems and supplies for resale 665,000 496,000
Receivable under capital subleases 339,000 326,000
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Other current assets $ 4,831,000 $ 3,410,000
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(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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Summarized financial information for the first quarters of 2000 and 1999
concerning the Company's reportable segments is shown in the following tables
(in thousands):
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Sales 2000 1999
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Wholesale sales $ 120,394 $ 122,493
Intracompany sales (34,950) (38,304)
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Net wholesale sales 85,444 84,189
Retail sales 62,244 62,762
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Total sales $ 147,688 $ 146,951
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Earnings Before Income Tax 2000 1999
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Wholesale $ 2,475 $ 2,326
Retail 524 505
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Total operating income 2,999 2,831
Interest income 276 392
Interest expense (262) (231)
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Earnings before income taxes $ 3,013 $ 2,992
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7
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Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations
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Selected costs and results as a percent of net sales:
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For the 16-weeks ended
April 22, 2000 April 24, 1999
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Gross margin 16.6% 16.2%
Operating and administrative expenses 14.5 14.3
Earnings before income taxes 2.0 2.0
Net earnings 1.3 1.2
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Net Sales
Net sales for the 16-week first quarter ended April 22, 2000 were $147.7
million, compared to nearly $147.0 million for the same period in 1999. The
increase of $700,000, or 0.5%, was due to increased wholesale sales volume,
substantially offset by a decrease in retail sales. Retail sales for the first
quarter of 2000 decreased nearly 1.0% to $62.2 million compared to $62.8 million
for the same period last year. This decrease was due primarily to intense
competitive pressures in certain market areas, including the opening of new
competitive stores in four of the Company's markets. Net wholesale sales volume
for the first quarter of 2000 increased 1.5%, or $1,255,000, to $85.5 million,
compared to $84.2 million for the same quarter in 1999. The net wholesale sales
improvement was attributable to the following: (1) the completion since April
24, 1999 of four Wisconsin franchise store facility projects; (2) the successful
conversion since April 24, 1999 to the Piggly Wiggly program of three new market
Wisconsin franchise stores in Niagara, Winneconne and Markesan from other
wholesalers; and (3) the opening in May 1999 of one new market franchise store
in Cottage Grove, Wisconsin. The conversion of one franchise supermarket into a
corporate store in November 1999 and additional competitive activity in certain
franchise market areas offset some of the net wholesale sales volume increase.
As of April 22, 2000, the Company had 70 franchise supermarkets and 19 corporate
stores, all operating under the Piggly Wiggly banner.
Since April 22, 2000, the Company has completed the following facility projects:
> The opening of one replacement franchise supermarket in Pardeeville,
Wisconsin, resulting in double the square footage of the old store; and
> The opening of one replacement corporate supermarket in Racine, Wisconsin,
increasing square footage by 86%.
In addition to these recently completed projects, the Company expects to
complete the construction of one new market franchise store in Kewaskum,
Wisconsin during the second quarter of 2000, the replacement of franchise
supermarkets in New Holstein and Slinger, Wisconsin during the second half of
2000 and the replacement of one corporate store in Zion, Illinois during the
first half of 2001. The Company anticipates that these projects will have a
positive impact on wholesale sales. Additionally, the Company plans to build a
flagship Piggly Wiggly store of 60,000 square feet in Sheboygan, Wisconsin. This
corporate replacement store is targeted to open in the middle of 2001.
8
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Gross Margin
Gross margin, as a percent of sales, improved 0.4% to 16.6% for the first
quarter of 2000, compared to 16.2% for the same quarter in 1999. This increase
was primarily attributable to improved retail gross margin. The retail gross
margin was enhanced by the Company's continuing ability to utilize vendor
marketing funds more effectively, thereby resulting in more competitive product
costing. Also, retail gross margin benefited from a positive change in
merchandising mix for certain products, primarily within the meat and produce
departments.
Operating and Administrative Expenses
Operating and administrative expenses, as a percent of sales, increased 0.2% to
14.5% for the first quarter ended April 22, 2000 compared to 14.3% for the same
quarter in 1999. Total operating and administrative expenses increased by nearly
$500,000 for the 2000 period due to the following factors:
1. Increased health and accident insurance costs relating to retail stores;
and
2. Increased operating expenses due to the conversion of a franchise unit to a
corporate store in November 1999.
The Company expects both factors to continue to increase operating and
administrative expenses throughout the remainder of 2000.
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 operational difficulties in their respective
marketplaces. The Company continues to evaluate various business alternatives
relating to its 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. As in certain prior years, implementation of these alternatives may
result in the Company incurring certain repositioning or restructuring charges
for replaced, closed or sold stores. These actions can negatively impact net
earnings in the short-term, but the Company believes that such actions will help
improve the Company's long-term profitability.
Net Earnings
Net earnings for the first quarter of 2000 increased $37,000, or 2.0%, to
$1,868,000, compared to $1,831,000 for the same period in 1999. Net earnings for
the first quarter of 2000 benefited from higher retail gross margins, which were
offset by increased operating and administrative expenses and lower interest
income from short-term investments. Interest income from short-term investments
decreased period-to-period due to a reduction in the Company's cash position as
a result of share repurchases totaling 723,500 shares, or $11.2 million, since
April 24, 1999. The Company's net earnings-to-sales ratio improved nominally to
1.3% for the first quarter of 2000, compared to 1.2% for the same period in
1999. Diluted earnings per share for the first quarter of 2000 increased 14.8%
to $0.31 from $0.27 for the same period last year. Due to share repurchases in
1999, the weighted average common shares and equivalents for the first quarter
of 2000 were 5,999,000, compared to 6,756,000 for the same quarter in 1999, a
decrease of 11.2%.
Liquidity and Capital Resources
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At April 22, 2000, the Company had cash and equivalents totaling $24.7 million.
At year-end 1999, cash and equivalents aggregated $22.4 million. The net cash
inflow of $2.2 million was attributable to certain operational, investing and
financing activities as described below.
The Company had net cash inflows from operating activities totaling nearly $4.4
million during the first quarter of 2000, compared to net cash outflows of $1.8
million from operations for the same quarter in
9
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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.
The Company incurred $1.4 million in capital expenditures during the first
quarter of 2000, compared to nearly $800,000 for the same period last year. The
increase of $600,000 was due primarily to equipment purchases for the
replacement supermarket in Racine, Wisconsin as well as other equipment and
technological upgrades at other corporate retail supermarkets. At April 22,
2000, of the fiscal 2000 capital budget of $5.4 million, the Company has
approximately $4.0 million available for the rest of the year.
During the first quarter of 2000, the Company continued its comprehensive
evaluation of upgrading and replacing its core business systems. As part of this
process, the Company continues to explore several alternatives and courses of
action which, if implemented, would likely involve substantial additional
capital expenditures and amortization costs. The Company anticipates a decision
will be made on its business systems later this year.
The Company had net cash outflows from financing activities aggregating $800,000
during the first quarter of 2000, compared to net cash outflows of $2.4 million
for the same quarter in 1999. The significant decrease was due exclusively to
stock repurchases of $1.6 million during the first quarter of 1999. The
quarter-to-quarter cash dividend per share increased to $0.09, or 12.5%, from
$0.08 last year. Additionally, on May 10, 2000, the Company's Board of Directors
authorized an increase in the stock repurchase program from $15 million to $20
million. Only $2 million of the $15 million previously authorized was available
as of May 10, 2000.
The Company's working capital position at April 22, 2000 was $31.1 million,
compared to $29.8 million at year-end 1999. The Company's current ratio at April
22, 2000 was 1.87 to 1.00 with cash and equivalents constituting substantially
all of the working capital. The Company also has unsecured revolving bank credit
facilities aggregating $16.0 million, which remain available for use in their
entirety. At April 22, 2000, the Company's liquidity position continued to be
very favorable and strong.
Special Note Regarding Forward-Looking Statements
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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 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; 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.
10
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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.
PART II Other Information
Item 2. Changes in Securities and Use of Proceeds
In accordance with its program for annual compensation of independent directors,
on January 26, 2000, the Company issued 556 shares of its Common Stock to each
of its four non-employee directors that are not otherwise compensated by the
Company for professional services. The Company issued such shares without
registration under the Securities Act of 1933 in reliance on Section 4(2) of
such Act.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 10 Form of Key Executive Employment and Severance
Agreement between the Company and each of James H.
Dickelman, Elwood F. Winn, John H. Dahly, Michael R.
Houser and William K. Jacobson. Incorporated by
reference to Exhibit 10.13 to the Company's Quarterly
Report on Form 10-Q for the period ended July 18, 1998.
Exhibit 27 Financial Data Schedule.
(b) No reports of Form 8-K were filed by the Company during the first
quarter of fiscal 2000.
SIGNATURES
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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.
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(Registrant)
May 31, 2000 /s/ Armand C. Go
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(Date) Armand C. Go, Vice President, Treasurer
and Chief Accounting Officer
11
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EXHIBIT INDEX
Exhibit Description
27 Financial Data Schedule
12
