-----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, JDPt0UipzYX40UqGaUZhQ6gHQhYfyyhTnEicvZi/51dMSWXMpwUqJY0rVBWJAbTd 4/X1B1Ogp4ZPFJGTgc9p/g== 0000897069-97-000359.txt : 19970819 0000897069-97-000359.hdr.sgml : 19970819 ACCESSION NUMBER: 0000897069-97-000359 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970712 FILED AS OF DATE: 19970818 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: 1228 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-00549 FILM NUMBER: 97665920 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 SAV-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 July 12, 1997 OR __ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________ to _____________ Commission File Number 0-549 SCHULTZ SAV-O STORES, INC. (Exact Name of Registrant as Specified in its Charter) WISCONSIN 39-0600405 (State or other jurisdiction (I.R.S. Employer of incorporation of organization) Identification No.) 2215 UNION AVENUE 53082-0419 SHEBOYGAN, WISCONSIN (Zip Code) (Address of principal executive offices) Registrant's telephone number including area code 920-457-4433 Former name, former address and former fiscal year, if changed since last report Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (of for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days. Yes X No APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes No APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. As of August 14, 1997, 4,549,261 shares of Common Stock, $0.05 par value, were issued and outstanding. SCHULTZ SAV-O STORES, INC. FORM 10-Q INDEX PAGE NUMBER PART I FINANCIAL INFORMATION Item 1. Financial Statements Unaudited Consolidated Balance Sheets 3 Unaudited Consolidated Statements of Earnings 4 Unaudited Consolidated Statements of Cash Flows 5 Notes to Unaudited Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 PART II OTHER INFORMATION 10 Item 6. Exhibits and Reports on Form 8-K 11 SIGNATURES 11 PART I FINANCIAL INFORMATION Item 1. Financial Statements SCHULTZ SAV-O STORES, INC. UNAUDITED CONSOLIDATED BALANCE SHEETS July 12, December 28, Assets 1997 1996 Current assets: Cash and equivalents $ 29,059,000 $ 27,531,000 Receivables 10,354,000 5,676,000 Inventories 19,837,000 22,316,000 Other current assets 4,174,000 3,367,000 Deferred income taxes 3,824,000 3,824,000 ------------ ------------ Total current assets 67,248,000 62,714,000 Noncurrent receivable under capital subleases 7,949,000 8,239,000 Property under capital leases, net 2,918,000 3,073,000 Other noncurrent assets 2,079,000 2,402,000 Property and equipment, net 20,166,000 21,544,000 ------------ ------------ Total Assets $100,360,000 $ 97,972,000 ============ =========== Liabilities and Shareholders' Investment Current liabilities: Accounts payable $ 21,987,000 $ 20,332,000 Accrued salaries and benefits 4,361,000 4,189,000 Accrued insurance 3,417,000 3,328,000 Retail repositioning reserve 1,490,000 852,000 Other accrued liabilities 3,051,000 3,692,000 Current obligations under capital leases 734,000 702,000 Current maturities of long-term debt 315,000 345,000 ------------ ------------ Total current liabilities 35,355,000 33,440,000 Long-term obligations under capital leases 11,959,000 12,368,000 Long-term debt 3,208,000 3,375,000 Deferred income taxes 1,754,000 1,754,000 Shareholders' investment: Common stock 292,000 292,000 Additional paid-in capital 13,428,000 13,331,000 Retained earnings 48,108,000 45,654,000 Treasury stock (13,744,000) (12,242,000) ------------ ------------ Total shareholders' investment 48,084,000 47,035,000 ------------ ------------ Total Liabilities and Shareholders' Investment $100,360,000 $97,972,000 ============ =========== SCHULTZ SAV-O STORES, INC. UNAUDITED CONSOLIDATED STATEMENTS OF EARNINGS For the 12-weeks ended For the 28-weeks ended+ July 12, July 13, July 12, July 13, 1997 1996 1997 1996 Net sales $109,844,000 $105,544,000 $248,670,000 $239,623,000 Costs and expenses: Cost of products sold 92,647,000 88,539,000 209,396,000 201,087,000 Operating and administrative expenses 14,364,000 14,414,000 33,864,000 33,831,000 ----------- ----------- ----------- ----------- Operating income 2,833,000 2,591,000 5,410,000 4,705,000 Interest expense (195,000) (200,000) (458,000) (468,000) Interest income 274,000 172,000 540,000 376,000 ----------- ----------- ----------- ----------- Earnings before income taxes 2,912,000 2,563,000 5,492,000 4,613,000 Provision for income taxes 1,121,000 987,000 2,114,000 1,776,000 ----------- ----------- ----------- ----------- Net earnings $ 1,791,000 $ 1,576,000 $ 3,378,000 $ 2,837,000 =========== =========== =========== =========== Net earnings per share - primary and fully diluted $ 0.37 $ 0.33 $ 0.70 $ 0.59 =========== =========== =========== =========== Cash dividends paid per share of common stock $ 0.10 $ 0.08 $ 0.20 $ 0.16 =========== =========== =========== =========== Weighted average common shares outstanding 4,799,000 4.752,000 4,830,000 4.770,000 =========== =========== =========== =========== SCHULTZ SAV-O STORES, INC. UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS For the 28-weeks ended July 12, July 13, 1997 1996 CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings $ 3,378,000 $ 2,837,000 Adjustments to reconcile net earnings to net cash flows from operating activities Depreciation and amortization 2,193,000 2,393,000 Changes in assets and liabilities Receivables (4,678,000) (2,282,000) Inventories 2,479,000 1,604,000 Other current assets (518,000) 594,000 Accounts payable 1,818,000 (67,000) Accrued liabilities 325,000 858,000 ---------- ---------- Net cash flows from operating activities 4,997,000 5,937,000 ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Expenditures for property and equipment (887,000) (1,473,000) Receipt of principal amounts under capital sublease agreements 271,000 311,000 Proceeds from asset sales 117,000 - ---------- ---------- Net cash flows from investing activities (499,000) (1,162,000) ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Payment for acquisition of treasury stock (1,666,000) (1,377,000) Payment of cash dividends (924,000) (742,000) Principal payments under capital lease obligations (377,000) (418,000) Principal payments on long-term debt (167,000) (195,000) Proceeds from exercise of stock options 164,000 - ---------- ---------- Net cash flows from financing activities (2,970,000) (2,732,000) ---------- ---------- CASH AND EQUIVALENTS: Net increase 1,528,000 2,043,000 Balance, beginning of period 27,531,000 21,593,000 ---------- ---------- Balance, end of period $29,059,000 $23,636,000 =========== =========== SUPPLEMENTAL CASH FLOW DISCLOSURES: Interest paid $ 491,000 $ 505,000 Income taxes paid 2,997,000 1,357,000 SCHULTZ SAV-O STORES, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (1) Basis of Presentation The financial statements included herein have been prepared by the Company, without audit. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted, although the Company believes that the disclosures are adequate to make the information presented not misleading. The interim financial statements furnished with this report reflect all adjustments of a normal recurring nature, which are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented. It is suggested that these financial statements be read in conjunction with the audited financial statements and the notes thereto included in the Company's 1996 annual report to shareholders, as incorporated by reference in the Company's Form 10-K for the fiscal year ended December 28, 1996. (2) Interest Expense Interest expense consists of the following: For the 12-weeks ended For the 28-weeks ended July 12, July 13, July 12, July 13, 1997 1996 1997 1996 Interest expense: Long-term debt $80,000 $88,000 $190,000 $208,000 Imputed - capital leases 115,000 112,000 268,000 260,000 -------- -------- -------- -------- Interest expense $195,000 $200,000 $458,000 $468,000 ======== ======== ======== ======== (3) Other Current Assets Other current assets consist of following: July 12, December 28, 1997 1996 Property held for resale $2,250,000 $ 940,000 Retail systems for resale and other assets 530,000 1,308,000 Prepaid expenses 871,000 615,000 Receivable under capital subleases 523,000 504,000 ---------- ---------- Other current assets $4,174,000 $3,367,000 ========== ========== (4) Earnings per Share In the first quarter of 1997, the Financial Accounting Standards Board (FASB) issued the Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per Share," which is effective for fiscal years ending after December 15, 1997. The Company does not anticipate that the adoption of this statement will have any material impact on its consolidated financial statements. (5) Reclassification Certain 1996 amounts previously reported have been reclassified to conform to the 1997 presentation. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Special Note Regarding Forward-Looking Statements Certain matters discussed in this Form 10-Q are "forward-looking statements" intended to qualify for the safe harbors from liability established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements can generally be identified as such because the context of the statement will include words such as the Company "believes," "anticipates," "expects" or words of similar import. Similarly, statements that describe the Company's future plans, objectives, strategies or goals are also forward-looking statements. Such forward-looking statements are subject to certain risks and uncertainties which are described in close proximity to such statements and which could cause actual results to differ materially from those currently anticipated. Shareholders, potential investors and other readers are urged to consider these factors carefully in evaluating the forward- looking statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements made herein are only made as of the date of this report and the Company undertakes no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances. Results of Operations Selected costs and results as a percent of net sales: ------------------------------------------------------------------------ For the 12-weeks ended For the 28-weeks ended July 12, July 13, July 12, July 13, 1997 1996 1997 1996 Cost of products sold 84.34% 83.89% 84.21% 83.92% Operating and administrative expenses 13.08 13.66 13.62 14.12 Earnings before income taxes 2.65 2.43 2.21 1.93 Net earnings 1.63 1.49 1.36 1.18 ------------------------------------------------------------------------ Net Sales Net sales for the 12- and 28-week periods ended July 12, 1997 were $109,844,000 and $248,670,000, respectively, compared to $105,544,000 and $239,623,000 in the same periods ended July 13, 1996, respectively. The increases of $4,300,000 and $9,047,000, or 4.07% and 3.78%, were due primarily to the Company's continuing emphasis on wholesale business volume, coupled with increases in same store franchise and corporate retail sales. The increased wholesale business volume resulted mainly from the continuing roll-out and success of the Piggly Wiggly Preferred Club electronic card marketing program. The Company also added a new franchise retail supermarket in Milton, Wisconsin which was previously served by a wholesale competitor. Additionally, the Company completed five major Wisconsin franchise facility projects in Hubertus, Edgerton, Lodi, Plymouth and DePere since July 1996. These completed projects resulted in an aggregate of nearly 90,000 additional retail store square footage or an increase of 150% at the five stores. In addition to the increased wholesale volume, corporate retail operations have shown notable performance improvements in sales and gross margin at nearly all stores. As of July 12, 1997, the Company had 70 franchise and 16 corporate supermarkets compared to 67 franchise and 18 corporate supermarkets at July 13, 1996. Consistent with the Company's business strategy to expand its wholesale business volume, the Company expects that the level of its wholesale sales will continue to modestly increase relative to its total sales for the remainder of 1997. Since the end of the 1997 second quarter, the Company has completed a franchise retail expansion project in Manitowoc, Wisconsin. This facility project increased the aggregate square footage by nearly 50%. Currently, there are expansion or renovation projects at eight retail operations in various phases of planning or construction. These projects involve one franchise remodeling, three franchise expansions, one new market franchise, one new market corporate and two replacement franchise stores. Additionally, the Company continues to implement the Piggly Wiggly Preferred Club electronic card marketing program designed to increase sales without negatively impacting retail store gross margin, by rewarding current customers and attracting new customers through the offering of "clipless coupons" on weekly advertised specials and "automatic" savings on monthly store specials. As of July 12, 1997, there were 81 franchise and corporate supermarkets on the card marketing program with the remainder scheduled to be fully operational by September 1997. Cost of Products Sold Cost of products sold, as a percent of sales, increased by 0.45% and 0.29%, respectively, to 84.34% and 84.21% for both the 12- and 28-week periods ended July 12, 1997, compared to the same periods in 1996. The respective increases of $4,108,000 and $8,309,000 were the result of a reduction in the amount of higher margin retail sales compared to lower margin wholesale sales. The Company expects that its sales mix trend resulting from its greater emphasis on lower margin wholesale sales compared to higher margin retail sales will continue throughout 1997. This continuing emphasis is expected to result in a nominal decrease in gross margin for the remainder of 1997. Operating and Administrative Expenses Operating and administrative expenses, as a percent of sales, amounted to 13.08% and 13.62% for the 12- and 28-week periods ended July 12, 1997, compared to 13.66% and 14.12% for the same period in 1996. While the ratio of operating and administrative expenses relative to sales for both periods decreased nominally, total operating and administrative expenses for both the 12- and 28-week periods ended July 12, 1997 were consistent with last year's prior periods. Due to increased sales, certain variable expenses such as wages and salaries and benefits also increased. These increased variable expenses, however, were principally offset by the elimination of certain operating expenses resulting from the closure of two smaller, outdated and underperforming corporate stores in September and October 1996, respectively. Net Earnings The effective income tax rate for both the 12- and 28-week periods ended July 12, 1997 was 38.5%, unchanged from the rate for the same periods in 1996. The provision for income taxes during the 12- and 28-week periods ended July 12, 1997 was $1,121,000 and $2,114,000, compared to $987,000 and $1,776,000 for the same periods in 1996. With improvements in sales and productivity, the Company's net earnings-to-sales ratio for the 12- and 28-week periods ended July 12, 1997 improved to 1.63% and 1.36%, respectively, compared to 1.49% and 1.18% for the same periods in 1996. As a result of the foregoing, net earnings for the 12- and 28-weeks ended July 12, 1997 totaled $1,791,000 and $3,378,000 compared to $1,576,000 and $2,837,000 for the same periods in 1996, or increases of 13.6% and 19.1%, respectively. Net earnings per share for the 12- and 28-week periods ended July 12, 1997 increased 12.1% to $0.37 compared with $0.33 in 1996 , and 18.6% to $0.70 compared with $0.59 in 1996. During the second quarter of 1997, the Company recorded a pretax charge to operations of $700,000 for projected expenses to terminate a noncompetitive franchise operation in Plover, Wisconsin. The Company expects the closure of this franchise store to occur during the third quarter of 1997. Additionally, on June 27, 1997, the Company discontinued its Springtime bottling operations and entered into arrangements with independent private label vendors for future productions. A charge to operations of $275,000 was recorded in the first quarter of 1997 when management made the decision to terminate the bottling operations. The effect of these charges during the first half of 1997 was equivalent to $0.12 per share. Certain Company corporate and franchise retail supermarkets continue to be underperforming or noncompetitive in their respective marketplaces and, as a result, continue to incur operating losses. In order to further improve the Company's results of operations, the Company continues to evaluate various business alternatives relating to these operations, including, but not limited to, selling these corporate stores and converting them into franchise supermarkets, closing the stores or implementing other operational changes. Similar to prior fiscal years, implementation of these actions will likely result in the Company incurring certain repositioning charges involving the termination costs of replaced, closed or sold stores. While these repositioning charges may decrease the Company's reported net earnings for the period or periods in which the actions are taken, the Company believes that such actions will improve the Company's long-term profitability. Liquidity and Capital Resources The primary source of liquidity for the 28-week period ended July 12, 1997 was cash generated from operating activities. Cash provided by operating activities was $4,997,000, a decrease of $940,000 over the prior year 28- week period ended July 13, 1996 cash inflow of $5,937,000. The decrease in cash flows from operating activities was due primarily to three factors: (a) the Company's receivable balance increased over the same period in 1996 due to an increase in short-term financing to franchise operators for the purchase of various equipment; (b) because of higher earnings, the Company has been required to pay substantial estimated tax payments during the first half of 1997; and (c) the Company incurred land acquisition and building constructions costs for the new market corporate store slated to be open in October 1997. The cash flow from operations has enabled the Company to internally fund its capital expenditures and cash dividends. Net cash outflow from investing activities for the 28-week period ended July 12, 1997 totaled $499,000, compared to $1,162,000 during the same period in 1996. The change was due primarily to a substantial decrease in capital expenditures for business system hardware and software during the first half of 1997, compared to the same period in 1996. The Company has a 1997 capital budget of $5,200,000, of which approximately $4,313,000 remain for future expenditures. The Company anticipates financing these needs from internally generated capital. Net cash outflow from financing activities for the 28-week period ended July 12, 1997 was $2,970,000, compared to $2,732,000 during the same period in 1996. The increase in cash outflows was due principally to the increase in common stock repurchased by the Company during the first half of 1997, compared to the first half of 1996. At July 12, 1997, the Company had repurchased nearly 100,000 shares at an aggregate cost of approximately $1,670,000. Additionally, cash dividends paid during the first half of 1997 totaled $924,000 or $0.20 per share, an increase of $182,000 or 25% from the same period a year ago. The Company's Board of Directors declared a three-for-two stock split in the form of a 50% stock dividend and simultaneously increased the amount of regular quarterly cash dividends by 5% to $0.07 per share on a post- stock split basis. The Company's regular quarterly cash dividend prior to the announced stock split was $0.10 per share on a pre-stock split basis. Both the stock dividend and cash dividend will be paid on September 5, 1997 to shareholders of record on August 20, 1997. Fractional shares otherwise issuable pursuant to the stock split will be paid in cash. The cash dividend will be paid on a post-stock split basis. Prior to the announced stock split, the Company had 4,549,261 shares outstanding. After the three-for-two split, the Company will have approximately 6,824,000 shares outstanding. In summary, cash and equivalents increased $1,528,000 during the first half of 1997, compared to an increase of $2,043,000 during the same period in 1996. Due to the Company's significant cash and other liquid assets, its consistent ability to generate cash flows from operations and availability of external financing, the Company foresees no difficulty in providing financing necessary to fund its capital commitments and working capital needs for the foreseeable future. PART II OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders The Company's 1997 annual meeting of shareholders was held on Wednesday, May 14, 1997. At the meeting, the shareholders re-elected Howard C. Dickelman and Michael R. Houser to the Company's Board of Directors for three-year terms expiring at the Company's 2000 annual meeting of shareholders and until their successors are duly qualified and elected. As of the March 26, 1997 recorded date for the annual meeting, 4,623,098 shares of Common Stock were outstanding and eligible to vote. Of these 4,014,640 shares of Common Stock voted at the meeting in person or by proxy, the following votes were recorded for each nominee: For Withheld Name Votes Percentage Votes Percentage Howard C. Dickelman 4,000,391 99.6% 14,249 0.4% Michael R. Houser 4,003,715 99.7% 10,925 0.3% The tabulation of votes for the election of directors resulted in no broker non-votes or abstentions. Of the 4,014,640 shares of Common Stock voted at the meeting in person or by proxy, the following votes were recorded for approval of the ratification of Arthur Andersen LLP as the Company's 1997 independent public accountants: For Against Abstained Votes Percentage Votes Percentage Votes Percentage 3,992,861 99.5% 8,245 0.2% 13,534 0.3% No other matters were brought before the meeting for a shareholder vote. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits. Exhibit 27 Financial Data Schedule. (b) No reports of Form 8-K were filed by the Company during the first half of fiscal 1997. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SCHULTZ SAV-O STORES, INC. (Registrant) August 14, 1997 /s/ John H. Dahly (Date) John H. Dahly, Executive Vice President, Chief Financial Officer and Treasurer EXHIBIT INDEX Exhibit No. Description 27 Financial Data Schedule EX-27 2 SCHULTZ SAV-O STORES, INC. FINANCIAL DATA SCHEDULE
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS OF SCHULTZ SAV-O STORES, INC. AS OF AND FOR THE PERIOD ENDED JULY 12, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1 OTHER JAN-03-1998 DEC-29-1996 JUL-12-1997 29,059,000 0 10,354,000 0 19,837,000 67,248,000 53,975,000 33,809,000 100,360,000 35,355,000 3,208,000 0 0 292,000 47,792,000 100,360,000 248,670,000 248,670,000 209,396,000 0 33,864,000 0 458,000 5,492,000 2,114,000 3,378,000 0 0 0 3,378,000 0.70 0.70 Net of "Allowances for doubtful accounts". Amounts included in "Other costs and expenses". Period is 28 weeks.
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