-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Jt9h87l+CAv1ZVRNrOgl2ZF0TRhnQrC0Zkqy3RXbtp1kIWjtobQ+sOdIbhKFk2y3 kBg/XGo3GSqKLxedWdO/RA== 0000897069-96-000394.txt : 19961120 0000897069-96-000394.hdr.sgml : 19961120 ACCESSION NUMBER: 0000897069-96-000394 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19961005 FILED AS OF DATE: 19961115 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SCHULTZ SAV O STORES INC CENTRAL INDEX KEY: 0000087588 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-GROCERY STORES [5411] IRS NUMBER: 390600405 STATE OF INCORPORATION: WI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-00549 FILM NUMBER: 96667964 BUSINESS ADDRESS: STREET 1: 2215 UNION AVE CITY: SHEBOYGAN STATE: WI ZIP: 53081 BUSINESS PHONE: 4144574433 MAIL ADDRESS: STREET 1: 2215 UNION AVE CITY: SHEBOYGAN STATE: WI ZIP: 53081 10-Q 1 SCHULTZ SAVE-O STORES, INC. FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 _____________________ FORM 10-Q (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended October 5, 1996 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 414-457-4433 ________________________________________________ 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 November 13, 1996, 4,619,098 shares of common stock, $0.05 par value, were issued and outstanding. SCHULTZ SAV-O STORES, INC. INDEX PAGE NUMBER PART I - FINANCIAL INFORMATION: Item 1. - Financial Statements Unaudited Consolidated Balance Sheets 3 Unaudited Statements of Earnings 4 Unaudited Statements of Cash Flows 5 Notes to Unaudited Consolidated Financial Statements 6 Item 2. - Management's Discussion and Analysis of Financial Condition and Results of Operations 7 PART II - OTHER INFORMATION Item 6. - Exhibits and Reports on Form 8-K 10 SIGNATURES 10 PART I - FINANCIAL INFORMATION Item 1. Financial Statements SCHULTZ SAV-O STORES, INC. & SUBSIDIARY UNAUDITED CONSOLIDATED BALANCE SHEETS October 5 December 30 ASSETS 1996 1995 CURRENT ASSETS: Cash and equivalents $15,850,000 $14,424,000 Accounts receivable 8,475,000 5,562,000 Inventories 20,941,000 20,458,000 Other current assets 5,236,000 5,025,000 Receivable under capital sublease 581,000 581,000 Deferred income taxes 3,504,000 3,504,000 ----------- ----------- Total currents assets 54,587,000 49,554,000 LONG-TERM RECEIVABLE UNDER CAPITAL SUBLEASE 8,916,000 9,361,000 LEASED PROPERTY UNDER CAPITAL LEASES, net 2,879,000 3,089,000 OTHER NONCURRENT ASSETS 2,128,000 2,203,000 PROPERTY AND EQUIPMENT, net 22,547,000 22,827,000 ----------- ----------- TOTAL ASSETS $91,057,000 $87,034,000 =========== =========== LIABILITIES AND SHAREHOLDERS' INVESTMENT CURRENT LIABILITIES: Accounts payable $14,989,000 $12,340,000 Accrued liabilities: Employee benefits 2,402,000 2,440,000 Retail repositioning reserve 1,053,000 1,145,000 Insurance related 3,309,000 2,805,000 Other 5,008,000 4,855,000 Current maturities of long-term debt 320,000 337,000 Current obligations under capital leases 777,000 777,000 ----------- ----------- Total current liabilities 27,858,000 24,699,000 ----------- ----------- DEFERRED INCOME TAXES 2,060,000 2,060,000 LONG-TERM DEBT 3,469,000 3,719,000 CAPITAL LEASE OBLIGATIONS 12,670,000 13,268,000 SHAREHOLDERS' INVESTMENT: Preferred stock - 16,000 Common stock 292,000 292,000 Additional paid-in capital 12,990,000 12,990,000 Retained earnings 43,960,000 40,855,000 ----------- ----------- 57,242,000 54,153,000 Treasury stock (12,242,000) (10,865,000) ----------- ----------- Total shareholders' investment 45,000,000 43,288,000 ----------- ----------- TOTAL LIABILITIES AND SHAREHOLDERS' INVESTMENT $91,057,000 $87,034,000 =========== =========== SCHULTZ SAV-O STORES, INC. & SUBSIDIARY UNAUDITED STATEMENTS OF EARNINGS For the 12-weeks ended For the 40-weeks ended October 5 October 7 October 5 October 7 1996 1995 1996 1995 NET SALES $105,383,000 $99,373,000 $345,006,000 $333,647,000 COSTS AND EXPENSES: Cost of products sold 88,737,000 83,109,000 289,824,000 279,360,000 Operating and administrative expenses 14,254,000 14,027,000 48,085,000 47,495,000 ----------- ----------- ----------- ----------- Operating income 2,392,000 2,237,000 7,097,000 6,792,000 Interest expense (200,000) (213,000) (668,000) (715,000) Interest income 201,000 230,000 577,000 720,000 ----------- ----------- ----------- ----------- Earnings before income taxes 2,393,000 2,254,000 7,006,000 6,797,000 PROVISION FOR INCOME TAXES 921,000 869,000 2,697,000 2,619,000 ----------- ----------- ----------- ----------- NET EARNINGS $ 1,472,000 $ 1,385,000 $ 4,309,000 $ 4,178,000 =========== ========== =========== =========== NET EARNINGS PER SHARE - PRIMARY AND FULLY DILUTED $ 0.31 $ 0.28 $ 0.90 $ 0.83 =========== ========== =========== =========== CASH DIVIDENDS PAID PER SHARE $ 0.10 $ 0.08 $ 0.26 $ 0.14 =========== ========== =========== =========== AVERAGE OUTSTANDING COMMON AND EQUIVALENT SHARES 4,770,000 4,952,000 4,783,000 5,019,000 =========== ========== =========== =========== SCHULTZ SAV-O STORES, INC. & SUBSIDIARY UNAUDITED STATEMENTS OF CASH FLOWS For the 40-weeks ended October 5 October 7 1996 1995 Cash Flows from Operating Activities: Net earnings $4,309,000 $4,178,000 Adjustments to reconcile net earnings to net cash flows from operating activities: Depreciation and amortization 3,408,000 3,450,000 Other non-cash items - 119,000 Changes in assets and liabilities: (Increase) in receivables (2,913,000) (1,497,000) (Increase) decrease in inventories (483,000) 758,000 (Increase) in prepaids and other assets (207,000) (2,826,000) Increase in accounts payable 2,649,000 1,815,000 Increase in other accrued liabilities 527,000 479,000 ---------- ---------- Net cash provided by operating activities 7,290,000 6,476,000 ---------- ---------- Cash Flows from Investing Activities: Expenditures for property and equipment (2,885,000) (2,065,000) Collection of capital sublease and notes receivables 445,000 398,000 Proceeds from asset sales 38,000 599,000 ---------- ---------- Net cash used in investing activities (2,402,000) (1,068,000) ---------- ---------- Cash Flows from Financing Activities: Acquisition of treasury stock (1,377,000) (2,642,000) Dividends paid (1,204,000) (675,000) Principal payments under capital lease obligations (598,000) (549,000) Principal payments on long-term debt (267,000) (267,000) Redemption of preferred stock (16,000) - ---------- ---------- Net cash used in financing activities (3,462,000) (4,133,000) ---------- ---------- Net increase 1,426,000 1,275,000 Cash and equivalents at beginning of year 14,424,000 14,310,000 ---------- ---------- Cash and equivalents at end of period $15,850,000 $15,585,000 ========== ========== Supplemental Cash Flow Disclosures: Interest paid $704,000 $723,000 Income taxes paid 2,924,000 3,369,000 SCHULTZ SAV-O STORES, INC. & SUBSIDIARY 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 1995 annual report to shareholders, as incorporated by reference in the Company's Form 10-K for the fiscal year ended December 30, 1995. (2) Interest Expense Interest expense consists of the following: For the 12-weeks ended For the 40-weeks ended October 5 October 7 October 5 October 7 1996 1995 1996 1995 Long-term debt $ 88,000 $ 96,000 $ 296,000 $ 325,000 Imputed - capital leases 112,000 117,000 372,000 390,000 --------- --------- --------- --------- $ 200,000 $ 213,000 $ 668,000 $ 715,000 ========= ========= ========= ========= (3) Other Current Assets Other current assets consists of the following: October 5 December 30 1996 1995 Retail systems and other assets for resale $ 1,950,000 $ 1,979,000 Land and building for resale 2,307,000 2,389,000 Prepaid expenses 979,000 657,000 ----------- ----------- $ 5,236,000 $ 5,025,000 =========== =========== (4) Accounting Pronouncement In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," which the Company adopted during the first quarter of fiscal 1996. As allowable under this pronouncement, the Company will continue to present financial statement information under APB Opinion 25. However, the Company will be required to provide additional disclosures of proforma net income and proforma earnings per share as if the fair value based method of accounting for stock options had been used to account for stock-based compensation cost. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Selected costs and results as a percent of net sales: ------------------------------------------------------------------------- For the 12-weeks ended For the 40-weeks ended October 5 October 7 October 5 October 7 1996 1995 1996 1995 Cost of products sold 84.2% 83.6% 84.0% 83.7% Operating and administrative expenses 13.5 14.1 13.9 14.2 Earnings before income taxes 2.3 2.3 2.0 2.0 Net earnings 1.4 1.4 1.2 1.3 ------------------------------------------------------------------------- Net sales for the 12- and 40-week periods ended October 5, 1996 were $105,383,000 and $345,006,000, respectively, compared to net sales in the respective periods ended October 7, 1995 of $99,373,000 and $333,647,000. The increase of $6,010,000 and $11,359,000, or 6.0% and 3.4% respectively, was due to an increase in the Company's wholesale business volume, which more than offset the retail sales decline primarily attributable to the sale of the Plymouth, Wisconsin store and its conversion to a franchise unit in February 1996 and the closing of a Racine, Wisconsin store in September 1996. Since October 7, 1995, the Company has opened two new market franchise stores in November 1995 and August 1996, respectively. As of October 5, 1996, the Company had 68 franchised and 17 corporate supermarkets compared to 65 franchised and 19 corporate supermarkets at October 7, 1995. Subsequent to October 5, 1996, the Company closed its underperforming corporate store in Stevens Point, Wisconsin. This closing will have an immaterial impact on the sales and profitability of the Company during the remainder of 1996. Reserves for estimated charges associated with store closing have previously been recorded within the financial statements in accordance with generally accepted accounting principles. The Company does not expect to incur additional material charges relating to these closures. Consistent with the Company's business strategy to expand its wholesale volume, the Company expects that the level of its wholesale sales will continue to increase relative to its total sales for the remainder of 1996. Currently, there are expansion or renovation projects at 14 retail stores in various phases of planning or construction. These projects involve five franchise expansions, four replacement franchise stores, three new market franchise stores, one franchise store remodeling project and one new corporate store in an existing market. Additionally, the Company continues to implement its new electronic card marketing program, designed to increase sales without negatively impacting retail store gross margin. This program is designed to reward current customers and attracting new customers through the offering of "clipless coupons" on weekly advertised specials and "automatic" savings on monthly store specials. The current success of the card marketing program has translated in additional sales for participating retail stores and, as a result, increased wholesale volume. As of October 5, 1996, there were 44 franchise and corporate supermarkets on the program with another six stores planned for addition before fiscal year-end. Cost of products sold, as a percent of sales, increased by 0.6% and 0.3%, respectively, to 84.2% and 84.0% for the 12- and 40-week periods ended October 5, 1996, compared to the same periods in 1995. The respective increases of $5,628,000 and $10,464,000 were the direct 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 1996. This continuing emphasis is expected to result in a nominal decrease in gross margin for the remainder of 1996. Operating and administrative expenses, as a percent of sales, decreased by 0.6% and 0.3% for both the 12- and 40-week periods ended October 5, 1996, compared to the same periods in 1995. Total operating and administrative expenses increased $227,000 and $590,000, respectively, for these periods. The percentage decrease, which resulted from the Company's changing sales mix was offset, in part, by additional expenses incurred from the nonrealization of receivables from franchise customers. This circumstance was caused by continuing highly competitive retail market conditions. It is likely the Company will continue to incur these expenses until competitive market conditions stabilize Additionally, the Company incurred expenses relating to the continuing implementation of its business system upgrades at both the wholesale and retail levels including, among others, the continuing successful roll-out of the electronic card marketing program. During the first three quarters of 1996, the Company, however, continued to realize a reduction in expenses associated with the corporate retail supermarkets that have either been closed or sold and converted into franchise stores. The effective income tax rate for both the 12- and 40-week periods ended October 5, 1996 was 38.5%, unchanged from the rate for the same periods in 1995. The provision for income taxes during the 12- and 40-week periods ended October 5, 1996 was $921,000 and $2,697,000, compared to $869,000 and $2,619,000 for the same periods in 1995. As a result of the foregoing, net earnings for the 12- and 40-weeks ended October 5, 1996 totaled $1,472,000 and $4,309,000 compared to $1,385,000 and $4,178,000 for the same periods in 1995, or increases of 6.3% and 3.1%, respectively. The Company's earnings per share for the 12- and 40- week periods ended October 5, 1996 increased by $0.03 and $0.07, or 10.7% and 8.4%, respectively, compared to the same periods in 1995. Earnings per share increased on a percentage basis more than net earnings as a result of treasury share purchases which reduced the number of average outstanding common and equivalent shares for the first three quarters of 1996. Certain Company corporate 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 Net cash provided by operating activities for the 40-week period ended October 5, 1996 was $7,290,000, an increase of $814,000 over the prior year 40-week period ended October 5, 1995 cash inflow of $6,476,000. The increase was caused by smaller increases in prepaids and other current assets as well as larger accounts payable increases offset, in part, by larger accounts receivable increases and increased inventory purchases. These differences resulted primarily from the timing of cash payments and receipts. Net cash used in investing activities for the 40-week period ended October 5, 1996 totaled $2,402,000, compared to $1,068,000 during the same period in 1995. The change was due primarily to the absence in the 1996 period of proceeds of $599,000 from asset sales during the first three quarters of 1995, as well as increased capital expenditures during 1996. Capital expenditures for property and equipment during the first three quarters of 1996 totaled $2,885,000 compared to $2,065,000 for the same period in 1995. The Company has a 1996 capital budget of $3,300,000, of which approximately $400,000 remains budgeted for future expenditures during the remainder of 1996. The Company anticipates financing these needs from internally generated capital. Net cash used in financing activities for the 40-week period ended October 5, 1996 was $3,462,000, compared to $4,133,000 during the same period in 1995. The decrease in cash outflows was due principally to the reduction in common stock repurchased by the Company during the first three quarters of 1996, compared to the same period of 1995. This decrease was offset, in part, by increased cash dividends paid through the third quarter of 1996 compared to 1995. Cash dividends paid through October 5, 1996 were $1,204,000, compared to $675,000 for the same period in 1995. As part of the Company's ongoing efforts to enhance shareholder value, quarterly cash dividends paid to shareholders were increased from $.08 per share to $.10 per share, effective for the third quarter of fiscal 1996. As a result of the foregoing, net cash increased $1,426,000 during the 40- weeks ended October 5, 1996, compared to an increase of $1,275,000 during the same period in 1995. The Company believes that its financial condition provides it with adequate flexibility to fund anticipated capital requirements and working capital needs without adversely affecting its financial position or liquidity. Special Note Regarding Forward-Looking Statements Certain matters discussed in this Form 10-K 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 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. 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 third quarter of fiscal 1996. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SCHULTZ SAV-O STORES, INC. (Registrant) November 14, 1996 /s/ John H. Dahly (Date) John H. Dahly, Executive Vice President, Chief Financial Officer and Treasurer EXHIBIT INDEX Exhibit No. 27 Description Financial Data Schedule EX-27 2 SCHULTZ SAV-O STORES, INC. FINANCIAL DATA SCHEDULE
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS OF SCHULTZ SAV-O STORES, INC. AS OF AND FOR THE PERIOD ENDED OCTOBER 5, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1 OTHER DEC-28-1996 DEC-31-1995 OCT-05-1996 15,850,000 0 8,475,000 0 20,941,000 54,587,000 57,622,000 35,075,000 91,057,000 27,858,000 3,469,000 292,000 0 0 44,708,000 91,057,000 345,006,000 345,006,000 289,824,000 0 48,085,000 0 668,000 7,006,000 2,697,000 4,309,000 0 0 0 4,309,000 0.90 0.90 40 weeks Net of "Allowances for doubtful accounts." Amounts included in "Other costs and expenses."
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