-----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, LCbBgs36n8g7DjmVa+YfwGE/4cWgG7QI7tej7MHSlt/Ejqd8dQ7PTc/LB7zaEsE3 43j5FEY3qcl5VHed6mdYmQ== 0000897069-01-500238.txt : 20010604 0000897069-01-500238.hdr.sgml : 20010604 ACCESSION NUMBER: 0000897069-01-500238 CONFORMED SUBMISSION TYPE: 10-K405/A PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20001230 FILED AS OF DATE: 20010601 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-K405/A SEC ACT: SEC FILE NUMBER: 033-27171 FILM NUMBER: 1652687 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-K405/A 1 pdm57a.txt FORM 10-K-405 AMENDMENT 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K/A (Amendment No. 1) (Mark One) X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 30, 2000. 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 or organization) Identification No.) 2215 Union Avenue Sheboygan, Wisconsin 53081 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (920) 457-4433 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Title of Class -------------- Common Stock, $0.05 par value 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 such filing requirements for the past 90 days: Yes X No ___ --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] Aggregate market value of voting stock held by non-affiliates of the registrant as of April 27, 2001: $57,658,794. Only excludes shares beneficially owned by directors and officers of the registrant. Number of shares outstanding of the registrant's Common Stock as of April 27, 2001: 5,478,216. PORTIONS OF THE FOLLOWING DOCUMENTS ARE INCORPORATED HEREIN BY REFERENCE: 2000 Annual Report to Shareholders (incorporated by reference into Parts II and IV to the extent indicated therein). Definitive Proxy Statement for 2001 annual meeting of shareholders (to be filed with the Commission under Regulation 14A within 120 days after the end of the registrant's fiscal year and, upon such filing, to be incorporated by reference into Part III to the extent indicated therein). The undersigned Registrant hereby amends that information in its 2000 Annual Report to Shareholders which is incorporated by reference into Items 6, 7, and 8 of Part II and Item 14 of Part IV of its Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 29, 2001. Those portions of the 2000 Annual Report to Shareholders, as amended, are filed as Exhibit 13 hereto. PART II. Item 6. Selected Financial Data. ----------------------- Pursuant to Instruction G, the information required by this Item is incorporated herein by reference from information included under the caption entitled "Five-Year Financial Highlights" set forth in the Annual Report. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. ----------------------------------------------------------- Pursuant to Instruction G, the information required by this Item is incorporated herein by reference from information included under the caption entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" set forth in the Annual Report. Item 8. Financial Statements and Supplementary Data. ------------------------------------------- Pursuant to Instruction G, the Consolidated Balance Sheets of the company as of December 30, 2000 and January 1, 2000, the Consolidated Statements of Earnings, Cash Flows and Shareholders' Investment for each of the three fiscal years in the period ended December 30, 2000, together with the related Notes to Consolidated Financial Statements (including supplementary financial data), are incorporated herein by reference from information included under the captions having substantially the same titles as set forth in the Annual Report. PART IV. Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. --------------------------------------------------------------- (a) The following documents are filed as a part of this Form 10-K: 1. Financial Statements. -------------------- Consolidated Balance Sheets as of December 30, 2000 and January 1, 2000 Consolidated Statements of Earnings, Cash Flows and Shareholders' Investment for the fiscal years 2000, 1999 and 1998 Notes to Consolidated Financial Statements Report of Independent Public Accountants The foregoing Financial Statements are incorporated by reference to the pocket part included in the Company's Annual Report to Shareholders for the fiscal year ended December 30, 2000. The additional information referred to under "Financial Statement Schedules" below is filed as part of this Form 10-K and should be read in conjunction with the financial statements referred to above. 2 Page Reference: Form 10-K 2. Financial Statement Schedules. ----------------------------- Report of Independent Public Accountants F-1 Schedule VIII - Valuation and Qualifying Accounts and Reserves F-2 All other schedules have been omitted as not required or not applicable, or the information required to be shown thereon is included in the financial statements and related notes. 3. Exhibits and Reports on Form 8-K. -------------------------------- (a) The exhibits filed or incorporated by reference herewith are as specified in the Exhibit Index included herein. (b) On October 30, 2000, we furnished (but did not "file") a report on Form 8-K regarding the results of our third quarter of fiscal year 2000. 3 SIGNATURES ---------- Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SCHULTZ SAV-O STORES, INC. Date: May 30, 2001 By /s/ Armand C. Go ----------------------------------- Armand C. Go Vice President, Chief Financial Officer, Treasurer and Secretary Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed as of the date above by the following persons on behalf of the company in the capacities indicated. /s/ Walter G. Winding /s/ Steven R. Barth - ----------------------------------- ----------------------------------- Walter G. Winding, Chairman of Steven R. Barth, Director Board /s/ Elwood F. Winn /s/ William K. Jacobson - ----------------------------------- ----------------------------------- Elwood F. Winn, President, Chief William K. Jacobson, Director Executive Officer and Director (Principal Executive Officer) /s/ Michael R. Houser /s/ Martin Crneckiy, Jr. - ----------------------------------- ----------------------------------- Michael R. Houser, Vice Chairman of Martin Crneckiy, Jr., Director the Board, Executive Vice President and Director /s/ Armand C. Go /s/ G. William Dietrich - ----------------------------------- ----------------------------------- Armand C. Go G. William Dietrich, Director Vice President, Chief Financial Officer, Treasurer and Secretary (Principal Financial Officer and Principal Accounting Officer) /s/ Bruce J. Olson /s/ R. Bruce Grover - ----------------------------------- ----------------------------------- Bruce J. Olson, Director R. Bruce Grover, Director 4 Report of Independent Public Accountants We have audited in accordance with auditing standards generally accepted in the United States the financial statements included in Schultz Sav-O Stores, Inc.'s annual report to shareholders incorporated by reference in this Form 10-K, and have issued our report thereon dated February 8, 2001. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed in the index to financial statements is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. /s/ Arthur Andersen LLP ARTHUR ANDERSEN LLP Milwaukee, Wisconsin February 8, 2001 F-1 SCHULTZ SAV-O STORES, INC. SCHEDULE VIII--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES FOR THE FISCAL YEARS 2000, 1999 AND 1998 Allowance for Doubtful Accounts-- Changes in the allowance for doubtful accounts are summarized as follows: 2000 1999 1998 ------------ ------------ ----------- Balance, beginning of year $4,300,000 $4,300,000 $3,950,000 Provision charged to earnings 1,663,000 2,264,000 1,475,000 Writeoffs, net (2,113,000) (2,264,000) (1,125,000) ----------- ---------- ---------- Balance, end of year $3,850,000 $4,300,000 $4,300,000 ========== ========== ========== F-2 EXHIBIT INDEX SCHULTZ SAV-O STORES, INC. ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 30, 2000 ------------------------------------------- Exhibit No. Description - ---------- ----------- 3.1 Restated Articles of Incorporated, as amended. Incorporated by reference to Exhibit 3.1 to our Annual Report on Form 10-K for the year ended December 31, 1988. 3.2 By-Laws, as amended and restated as of April 6, 2001. 4.1 Restated Articles of Incorporation, as amended (included as Exhibit 3.1). As summarized in Notes (3) and (7) of the Notes to Financial Statements incorporated by reference from our 2000 Annual Report to Shareholders, as part of Parts II and IV of this Form 10-K, we have various outstanding long-term debt and capital lease obligations. None of such obligations individually exceeds 10% of our total assets. We hereby agree to furnish to the Commission, upon its request, a copy of each instrument with respect to such obligations. 10.1 Master Franchise Agreement, dated April 23, 1982, between Commodores Point Terminal Corporation and Piggly Wiggly Corporation. Incorporated by reference to Exhibit 10.1 to our Annual Report on Form 10-K for the year ended January 1, 1982. 10.2 Agreement, dated August 1, 1982, between Schultz Sav-O Stores and Commodores Point Terminal Corporation. Incorporated by reference to Exhibit 10.2 to our Annual Report on Form 10-K for the year ended January 1, 1982. 10.3 Amendment to Master Franchise Agreement, dated October 15, 1982, between Schultz Sav-O Stores and Piggly Wiggly Corporation. Incorporated by reference to Exhibit 10.3 to our Annual Report on Form 10-K for the year ended January 1, 1982. 10.4 Amendment No. 2 to Piggly Wiggly Master Franchise Agreement, dated June 3, 1998, between Schultz Sav-O Stores and Piggly Wiggly Corporation. Incorporated by reference to Exhibit 10.2 to our Quarterly Report on Form 10-Q for the period ended April 25, 1998. 10.5 Form of Director/Officer Indemnity Agreement. Incorporated by reference to Exhibit 10.4 to our Annual Report on Form 10-K for the year ended January 2, 1988. This Agreement is required to be filed as an exhibit to this Form 10-K pursuant to Item 14(c) of Form 10-K. E-1 Exhibit No. Description - ---------- ----------- 10.6 Form of Key Executive Employment and Severance Agreement, dated as of October 19, 1990, between Schultz Sav-O Stores and Michael R. Houser and dated as of January 31, 1997, between Schultz Sav-O Stores and William K. Jacobson. Incorporated by reference to Exhibit 10.5 to our Annual Report on Form 10-K for the year ended December 29, 1990. This agreement is required to be filed as an exhibit to this Form 10-K pursuant to Item 14(c) of Form 10-K. 10.7 Form of amendment to Key Executive Employment and Severance Agreement between Schultz Sav-O Stores and each of Michael R. Houser and William K. Jacobson. Incorporated by reference to Exhibit 10.13 to our Quarterly Report on Form 10-Q for the period ended July 18, 1998. This agreement is required to be filed as an exhibit to this Form 10-K pursuant to Item 14(c) of Form 10-K. 10.8 Form of Key Executive Employment and Severance Agreement, dated as of May 10, 2000 between Schultz Sav-O Stores and Elwood F. Winn and dated as of February 23, 2001 between Schultz Sav-O Stores and each of Armand C. Go and Thomas J. Timler. The only substantive differences between the Key Executive Employment and Severance Agreements between Messrs. Winn, Go and Timler is that Mr. Winn's agreement provides that, following a "change of control" of the company (as defined in the severance agreements), Mr. Winn will be employed in the same position for three years (or, if his services are not retained, he will continue to receive the salary and certain other benefits he received immediately prior to the change of control for a period of three years) and the agreements signed by Messrs. Go and Timler contain similar provisions covering a two-year period after a change of control. This agreement is required to be filed as an exhibit to this Form 10-K pursuant to Item 14(c) of Form 10-K.* 10.9 Membership and Licensing Agreement dated August 1, 1973 by and between Topco Associates, Inc. (Cooperative) and Schultz Sav-O Stores. Incorporated by reference to Exhibit 10.6 to our Annual Report on Form 10-K for the year ended December 30, 1996. 10.10 Articles of Incorporation of Topco Associates, Inc. (Cooperative). Incorporated by reference to Exhibit 10.12 to our Annual Report on Form 10-K for the year ended December 31, 1988. 10.11 Bylaws of Topco Associates, Inc. (Cooperative), as amended through June 7, 1996. Incorporated by reference to Exhibit 10.8 to our Annual Report on Form 10-K for the year ended December 30, 1996. 10.12 1990 Stock Option Plan, as amended and restated as of October 15, 1998. Incorporated by reference to Exhibit 10.16 to our Quarterly Report on Form 10-Q for the period ended October 10, 1998. This plan is required to be filed as an exhibit to this Form 10-K pursuant to Item 14(c) of Form 10-K. 10.13 1995 Equity Incentive Plan, as amended and restated as of December 14, 2000 (subject to shareholder approval). This plan is required to be filed as an exhibit to this Form 10-K pursuant to Item 14(c) of Form 10-K.* E-2 Exhibit No. Description - ---------- ----------- 10.14 Form of Nonqualified Stock Option Agreement under 1995 Equity Incentive Plan. Incorporated by reference to Exhibit 10.13 to our Annual Report on Form 10-K for the year ended January 2, 1999. This form of agreement is required to be filed as an exhibit to this Form 10-K pursuant to Item 14(c) of Form 10-K. 10.15 Schultz Sav-O Stores, Inc. Executive Benefit Restoration Plan. Incorporated by reference to Exhibit 10.10 to our Annual Report on Form 10-K for the year ended December 31, 1994. This Plan is required to be filed as an exhibit to this Form 10-K pursuant to Item 14(c) of Form 10-K. 10.16 Schultz Sav-O Stores, Inc. Officer Annual Incentive Plan, as amended and restated as of February 12, 2001. This plan is required to be filed as an exhibit to this Form 10-K pursuant to Item 14(c) of Form 10-K.* 10.17 Loan Agreement, dated as of December 3, 1992, among Schultz Sav-O Stores, M&I Marshall & Ilsley Bank and Firstar Bank (Milwaukee), as amended as of December 31, 1998. Incorporated by reference to Exhibit 10.16 to our Annual Report on Form 10-K for the year ended January 2, 1999. 10.18 Fifth Amendment (dated as of May 31, 2000) to Loan Agreement, dated as of December 3, 1992, among Schultz Sav-O Stores, M&I Marshall & Ilsley Bank and Firstar Bank (Milwaukee).* 10.19 2001 Nonemployee Director Stock Option Plan, as adopted by the Board of Directors (subject to shareholder approval) as of December 14, 2000. This plan is required to be filed as an exhibit to this Form 10-K pursuant to Item 14(c) of Form 10-K.* 10.20 Form of Nonqualified Stock Option Agreement under 2001 Nonemployee Director Stock Option Plan. This form of agreement is required to be filed as an exhibit to this Form 10-K pursuant to Item 14(c) of Form 10-K.* 13 Portions of the 2000 Annual Report to Shareholders expressly incorporated by reference into this Form 10-K. 21 Subsidiaries of Registrant. 23 Consent of Independent Public Accountants. 99 Definitive Proxy Statement for the 2001 Annual Meeting of Shareholders (to be filed with the Commission under Regulation 14A within 120 days after the end of our fiscal year and, upon such filing, incorporated by reference herein to the extent indicated in this Form 10-K). * Previously filed. E-3 EX-3.2 2 pdm57x3-2.txt BYLAWS EXHIBIT 3.2 ----------------------- AMENDED AND RESTATED AS OF 4/6/01 ----------------------- BYLAWS OF SCHULTZ SAV-O STORES, INC. (a Wisconsin corporation) E-4 ARTICLE I. OFFICES 1.01 Principal and Business Offices. The corporation may have such principal and other business offices, either within or without the State of Wisconsin, as the Board of Directors may designate or as the business of the corporation may require from time to time. 1.02 Registered Office. The registered office of the corporation required by the Wisconsin Business Corporation Law to be maintained in the State of Wisconsin may be, but need not be, identical with the principal office in the State of Wisconsin, and the address of the registered office may be changed from time to time by the Board of Directors or by the registered agent. The business office of the registered agent of the corporation shall be identical to such registered office. ARTICLE II. SHAREHOLDERS 2.01 Place of Meetings. Meetings of the shareholders of the corporation shall be held at such place as may be designated from time to time by resolution of the Board of Directors of the corporation. If no such place is designated, then the meeting shall be held at the general office of the corporation in Sheboygan County, Wisconsin. 2.02 Annual Meeting. The annual meeting of the shareholders shall be held on the second Wednesday of May of each year or at such other date as may be fixed by resolution of the Board of Directors. In fixing a meeting date for any annual meeting, the Board of Directors may consider such factors as it deems relevant within the good faith exercise of its business judgment. 2.03 Special Meetings. Special meetings of the shareholders may be called by any officer of the corporation, the Board of Directors, or by the holders of not less than one tenth of all the shares entitled to vote at the meeting. 2.04 Notice of Shareholders' Meetings. Written notice stating the place, day and hour of the meeting, and in case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered not less than ten nor more than fifty days before the date of the meeting, either personally or by mail, by or at the direction of the president, the secretary, or the officer or person calling the meeting, to each shareholder of record entitled to vote at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail addressed to the shareholder at his address as it appears on the stock record books or similar records of the corporation, with postage thereon prepaid. 2.05 Meetings Without Notice. Any meeting of the shareholders of the corporation at which all of the shareholders entitled to vote are present, either in person or by proxy, shall be a legal meeting of the shareholders without notice. The shareholders may transact any business at such meeting which may lawfully be transacted at any meeting of the shareholders regularly called and notified. E-5 2.06 Voting of Shares. Each outstanding share, entitled to vote, shall be entitled to one vote on each matter submitted to a vote at a meeting of shareholders. A shareholder may vote either in person or by proxy appointed in writing by the shareholder, or by his duly authorized attorney-in-fact. No proxy shall be valid after eleven months from the date of its execution, unless otherwise provided in the proxy. 2.07 Quorum. A majority of the shares entitled to vote, represented in person or by proxy, shall constitute a quorum at the meeting of shareholders. If a quorum be not present at a meeting, the majority present in person or by proxy may adjourn from time to time, without notice other than by announcement at the meeting, until the holders of the amount of shares requisite to constitute a quorum shall attend. At any such adjourned meeting at which a quorum shall be present, any business may be transacted which might have been transacted at the meeting as originally notified. 2.08 Conduct of Meetings. The Chairman of the Board, and in his absence, the Vice Chairman of the Board, and in his absence, the President, and in his absence, a Vice President in the order provided under Section 4.09, and in their absence, any director chosen by the directors present, in their absence, any shareholder entitled to vote chosen by the shareholders present shall call the meeting of the shareholders to order and shall act as chairman of the meeting, and the Secretary of the corporation shall act as secretary of all meetings of the shareholders, but, in the absence of the Secretary, the presiding officer may appoint any shareholder entitled to vote to act as secretary of the meeting. 2.09 Fixing of Record Date. For the purpose of determining shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, or entitled to receive payment of any dividend, or in order to make a determination of shareholders for any other proper purpose, the Board of Directors may fix in advance a date as the record date for any such determination of shareholders, such date in any case to be not more than seventy days and, in case of a meeting of shareholders, not less than ten days prior to the date on which the particular action requiring such determination of shareholders is to be taken. If no record date is fixed for the determination of shareholders entitled to notice of or to vote at a meeting of shareholders or shareholders entitled to receive payment of a dividend, the close of business on the date on which notice of the meeting is mailed or on the date on which the resolution of the Board of Directors declaring such dividend is adopted, as the case may be, shall be the record date for such determination of shareholders. When a determination of shareholders entitled to vote at any meeting has been made as provided in this section, such determination shall be applied to any adjournment thereof. ARTICLE III. BOARD OF DIRECTORS 3.01 General Powers and Number. All corporate powers shall be exercised by or under the authority of, and the business and affairs of the corporation managed under the direction of, the Board of Directors. The number of directors of the corporation shall be determined from time to time by the Board of Directors and shall be divided into three classes designated as Class I, Class II and Class III, respectively. E-6 At the 1989 annual meeting of shareholders, the directors of Class I shall be elected for a term to expire at the first annual meeting of shareholders after their election, and until their successors are elected and qualify, the directors of Class II shall be elected for a term to expire at the second annual meeting of shareholders after their election, and until their successors are elected and qualify, and the directors of Class III shall be elected for a term to expire at the third annual meeting of shareholders after their election, and until their successors are elected and qualify. At each annual meeting of shareholders after the 1989 annual meeting of shareholders the successors to the class of directors whose terms shall expire at the time of such annual meeting shall be elected to hold office until the third succeeding annual meeting of shareholders, and until their successors are elected and qualify. A director may be removed by the shareholders only at a meeting called for the purpose of removing the director, and the meeting notice shall state that the purpose, or one of the purposes, of the meeting is removal of the director. A director may be removed from office with or without cause if the votes cast to remove the director exceeds the number of votes cast not to remove such director. A director may resign at any time by delivering written notice which complies with the Wisconsin Business Corporation Law to the Board of Directors, to the Chairman of the Board of Directors or to the corporation. A director's resignation is effective when the notice is delivered unless the notice specifies a later effective date. From time to time, the Board of Directors may elect one or more former or retiring directors as Directors Emeritus of the corporation. Directors Emeritus shall be invited to attend and participate in all meetings of the Board of Directors (and shall be provided with all information and documents provided to directors generally) but shall not have a vote on any matter before the Board of Directors and shall not be counted in determining the presence of a quorum at any meeting of the Board of Directors. Each Director Emeritus of the corporation shall be deemed a "Director" for purposes of Article VIII of these bylaws and shall be entitled to such compensation as may be determined by the Board of Directors. 3.02 Qualifications. Directors need not be residents of the State of Wisconsin or shareholders of the corporation. No other restrictions, limitations or qualifications may be imposed on individuals for service as a director. 3.03 Regular Meetings. A regular meeting of the Board of Directors shall be held without other notice than this bylaw immediately after the annual meeting of shareholders and each adjourned session thereof. The place of such regular meeting shall be the same as the place of the meeting of shareholders which precedes it, or such other suitable place as may be communicated to the directors at or prior to such meeting of shareholders. To the extent practicable, the date, time and place, either within or without the State of Wisconsin, for the holding of additional regular meetings of the Board of Directors shall be communicated amongst and generally agreed upon by the directors at any meeting of the Board of Directors. 3.04 Special Meetings. Special meetings of the Board of Directors may be called by or at the request of the President or any two directors. The President or Secretary may fix E-7 any place, either within or without the State of Wisconsin, as the place for holding any special meeting of the Board of Directors, and if no other place is fixed the place of the meeting shall be the principal business office of the corporation in the State of Wisconsin. 3.05 Notice; Waiver. Notice of each special meeting of the Board of Directors shall be given by written notice delivered or communicated in person, by telegraph, teletype, facsimile or other form of wire or wireless communication, or by mail or private carrier, to each director at his business address or at such other address as such director shall have designated in writing filed with the Secretary, in each case not less than twenty-four hours prior to the meeting. The notice need not prescribe the purpose of the special meeting of the Board of Directors or the business to be transacted at such meeting. If mailed, such notice shall be deemed to be effective when deposited in the United States mail so addressed, with postage thereon prepaid. If notice is given by telegram, such notice shall be deemed to be effective when the telegram is delivered to the telegraph company. If notice is given by private carrier, such notice shall be deemed to be effective when delivered to the private carrier. Whenever any notice whatever is required to be given to any director of the corporation under the articles of incorporation or these bylaws or any provision of the Wisconsin Business Corporation Law, a waiver thereof in writing, signed at any time, whether before or after the date and time of meeting, by the director entitled to such notice shall be deemed equivalent to the giving of such notice. The corporation shall retain any such waiver as part of the permanent corporate records. A director's attendance at or participation in a meeting waives any required notice to him or her of the meeting unless the director at the beginning of the meeting or promptly upon his or her arrival objects to holding the meeting or transacting business at the meeting and does not thereafter vote for or assent to action taken at the meeting. 3.06 Quorum. Except as otherwise provided by the Wisconsin Business Corporation Law or by the articles of incorporation or these bylaws, a majority of the number of directors specified in Section 3.01 of these bylaws shall constitute a quorum for the transaction of business at any meeting of the Board of Directors. Except as otherwise provided by the Wisconsin Business Corporation Law or by the articles of incorporation or by these bylaws, a quorum of any committee of the Board of Directors created pursuant to Section 3.12 hereof shall consist of a majority of the number of directors appointed to serve on the committee. A majority of the directors present (though less than such quorum) may adjourn any meeting of the Board of Directors or any committee thereof, as the case may be, from time to time without further notice. 3.07 Manner of Acting. The affirmative vote of a majority of the directors present at a meeting of the Board of Directors or a committee thereof at which a quorum is present shall be the act of the Board of Directors or such committee, as the case may be, unless the Wisconsin Business Corporation Law, the articles of incorporation or these bylaws require the vote of a greater number of directors. 3.08 Conduct of Meetings. The Chairman of the Board, and in his absence, the Vice Chairman of the Board, and in his absence, the President, and in his absence, a Vice E-8 President in the order provided under Section 4.09, and in their absence, any director chosen by the directors present, shall call meetings of the Board of Directors to order and shall act as chairman of the meeting. The Secretary of the corporation shall act as secretary of all meetings of the Board of Directors but in the absence of the Secretary, the presiding officer may appoint any other person present to act as secretary of the meeting. Minutes of any regular or special meeting of the Board of Directors shall be prepared and distributed to each director. 3.09 Vacancies. Except as provided below, any vacancy occurring in the Board of Directors, including a vacancy resulting from an increase in the number of directors, may be filled by any of the following: (a) the shareholders; (b) the Board of Directors; or (c) if the directors remaining in office constitute fewer than a quorum of the Board of Directors, the directors, by the affirmative vote of a majority of all directors remaining in office. If the vacant office was held by a director elected by a voting group of shareholders, only the holders of shares of that voting group may vote to fill the vacancy if it is filled by the shareholders, and only the remaining directors elected by that voting group may vote to fill the vacancy if it is filled by the directors. A vacancy that will occur at a specific later date, because of a resignation effective at a later date or otherwise, may be filled before the vacancy occurs, but the new director may not take office until the vacancy occurs. Any vacancy resulting from a director's death, resignation, removal, disqualification or otherwise shall be filled for the unexpired portion of such director's term. 3.10 Compensation. The Board of Directors, irrespective of any personal interest of any of its members, may establish reasonable compensation of all directors for services to the corporation as directors, officers or otherwise, or may delegate such authority to an appropriate committee. The Board of Directors also shall have authority to provide for or delegate authority to an appropriate committee to provide for reasonable pensions, disability or death benefits, and other benefits or payments, to directors, officers and employees and to their estates, families, dependents or beneficiaries on account of prior services rendered by such directors, officers and employees to the corporation. 3.11 Presumption of Assent. A director who is present and is announced as present at a meeting of the Board of Directors or any committee thereof created in accordance with Section 3.12 hereof, when corporate action is taken, assents to the action taken unless any of the following occurs: (a) the director objects at the beginning of the meeting or promptly upon his or her arrival to holding the meeting or transacting business at the meeting; (b) the director's dissent or abstention from the action taken is entered in the minutes of the meeting; or (c) the director delivers written notice that complies with the Wisconsin Business Corporation Law of his or her dissent or abstention to the presiding officer of the meeting before its adjournment or to the corporation immediately after adjournment of the meeting. Such right of dissent or abstention shall not apply to a director who votes in favor of the action taken. 3.12 Committees. The Board of Directors, by resolution adopted by the affirmative vote of a majority of all of the directors then in office, may create one or more E-9 committees, appoint members of the Board of Directors to serve on the committees and designate other members of the Board of Directors to serve as alternates. Each committee shall have two or more members who shall, unless otherwise provided by the Board of Directors, serve at the pleasure of the Board of Directors. A committee may be authorized to exercise the authority of the Board of Directors, except that a committee may not do any of the following: (a) authorize distributions; (b) approve or propose to shareholders action that the Wisconsin Business Corporation Law requires to be approved by shareholders; (c) fill vacancies on the Board of Directors or, unless the Board of Directors provides by resolution that vacancies on a committee shall be filled by the affirmative vote of the remaining committee members, on any Board committee; (d) amend the corporation's articles of incorporation; (e) adopt, amend or repeal bylaws; (f) approve a plan of merger not requiring shareholder approval; (g) authorize or approve reacquisition of shares, except according to a formula or method prescribed by the Board of Directors; and (h) authorize or approve the issuance or sale or contract for sale of shares, or determine the designation and relative rights, preferences and limitations of a class or series of shares, except that the Board of Directors may authorize a committee to do so within limits prescribed by the Board of Directors. Unless otherwise provided by the Board of Directors in creating the committee, a committee may employ counsel, accountants and other consultants to assist it in the exercise of its authority. 3.13 Telephonic Meetings. Except as herein provided and notwithstanding any place set forth in the notice of the meeting or these bylaws, members of the Board of Directors (and any committees thereof created pursuant to Section 3.12 hereof) may participate in regular or special meetings by, or through the use of, any means of communication by which all participants may simultaneously hear each other, such as by conference telephone. If a meeting is conducted by such means, then at the commencement of such meeting the presiding officer shall inform the participating directors that a meeting is taking place at which official business may be transacted. Any participant in a meeting by such means shall be deemed present in person at such meeting. If action is to be taken at any meeting held by such means on any of the following: (a) a plan of merger or share exchange; (b) a sale, lease, exchange or other disposition of substantial property or assets of the corporation; (c) a voluntary dissolution or the revocation of voluntary dissolution proceedings; or (d) a filing for bankruptcy, then the identity of each director participating in such meeting must be verified by the disclosure at such meeting by each such director of each such director's social security number to the secretary of the meeting before a vote may be taken on any of the foregoing matters. For purposes of the preceding clause (b), the phrase "sale, lease, exchange or other disposition of substantial property or assets" shall mean any sale, lease, exchange or other disposition of property or assets of the corporation having a net book value equal to 20% or more of the net book value of the total assets of the corporation on and as of the close of the fiscal year last ended prior to the date of such meeting and as to which financial statements of the corporation have been prepared. Notwithstanding the foregoing, no action may be taken at any meeting held by such means on any particular matter which the presiding officer determines, in his or her sole discretion, to be inappropriate under the circumstances for action at a meeting held by such means. Such determination shall be made and announced in advance of such meeting. E-10 3.14 Action without Meeting. Any action required or permitted by the Wisconsin Business Corporation Law to be taken at a meeting of the Board of Directors or a committee thereof created pursuant to Section 3.12 hereof may be taken without a meeting if the action is taken by all members of the Board or of the committee. The action shall be evidenced by one or more written consents describing the action taken, signed by each director or committee member and retained by the corporation. Such action shall be effective when the last director or committee member signs the consent, unless the consent specifies a different effective date. ARTICLE IV. OFFICERS 4.01 Number. The principal officers of the corporation shall be a Chairman of the Board, a Vice Chairman of the Board, a President, the number of Vice Presidents as authorized from time to time by the Board of Directors, a Secretary, and a Treasurer, each of whom shall be elected by the Board of Directors. Such other officers and assistant officers as may be deemed necessary may be elected or appointed by the Board of Directors. The Board of Directors may also authorize any duly authorized officer to appoint one or more officers or assistant officers. Any two or more offices may be held by the same person. 4.02 Election and Term of Office. The officers of the corporation to be elected by the Board of Directors shall be elected annually by the Board of Directors at the first meeting of the Board of Directors held after each annual meeting of the shareholders. If the election of officers shall not be held at such meeting, such election shall be held as soon thereafter as is practicable. Each officer shall hold office until his or her successor shall have been duly elected or until his or her prior death, resignation or removal. 4.03 Removal. The Board of Directors may remove any officer and, unless restricted by the Board of Directors or these bylaws, an officer may remove any officer or assistant officer appointed by that officer, at any time, with or without cause and notwithstanding the contract rights, if any, of the officer removed. The election or appointment of an officer does not of itself create contract rights. 4.04 Resignation. An officer may resign at any time by delivering notice to the corporation that complies with the Wisconsin Business Corporation Law. The resignation shall be effective when the notice is delivered, unless the notice specifies a later effective date and the corporation accepts the later effective date. 4.05 Vacancies. A vacancy in any principal office because of death, resignation, removal, disqualification or otherwise, shall be filled by the Board of Directors for the unexpired portion of the term. If a resignation of an officer is effective at a later date as contemplated by Section 4.04 hereof, the Board of Directors may fill the pending vacancy before the effective date if the Board provides that the successor may not take office until the effective date. 4.06 Chairman of the Board. The Chairman of the Board shall preside when present at all meetings of directors and shareholders. He shall also perform all such other E-11 functions and duties as may be assigned to him by the Board of Directors. He shall also have authority to sign documents and instruments in the absence of the President. 4.07 Vice Chairman of the Board. The Vice Chairman of the Board shall, when present and when the Chairman of the Board is not present, preside at all meetings of the directors and shareholders. The Vice Chairman shall also perform all other functions and duties as may be assigned to him by the Board of Directors or the Chairman of the Board. 4.08 President. The President shall be the principal executive officer of the corporation and, subject to the direction of the Board of Directors, shall in general supervise and control all of the business and affairs of the corporation. In the absence of the Chairman and the Vice Chairman, the President shall, when present, preside at all meetings of the directors and shareholders. He shall have authority, subject to such rules as may be prescribed by the Board of Directors, to appoint such agents and employees of the corporation as he shall deem necessary, to prescribe their powers, duties and compensation, and to delegate authority to them. Such agents and employees shall hold office at the discretion of the President. He shall have authority to sign, execute and acknowledge, on behalf of the corporation, all deeds, mortgages, bonds, stock certificates, contracts, leases, reports and all other documents or instruments necessary or proper to be executed in the course of the corporation's regular business, or which shall be authorized by resolution of the Board of Directors; and, except as otherwise provided by law or the Board of Directors, he may authorize any Vice President or other officer or agent of the corporation to sign, execute and acknowledge such documents or instruments in his place and stead. In general, he shall perform all duties incident to the office of President and such other duties as may be prescribed by the Board of Directors from time to time. 4.09 The Vice Presidents. In the absence of the President or in the event of the President's death, inability or refusal to act, or in the event for any reason it shall be impracticable for the President to act personally, the Vice President (or, in the event there be more than one Vice President, the Executive Vice President, or in his absence the Vice Presidents in the order designated by the Board of Directors, or in the absence of any designation, then in the order of their election) shall perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President. Any Vice President may sign, with the Secretary or Assistant Secretary, certificates for shares of the corporation; and shall perform such other duties and have such authority as from time to time may be delegated or assigned to him or her by the President or by the Board of Directors. The execution of any instrument of the corporation by any Vice President shall be conclusive evidence, as to third parties, of his or her authority to act in the stead of the President. 4.10 The Secretary. The Secretary shall: (a) keep minutes of the meetings of the shareholders and of the Board of Directors (and of committees thereof) in one or more books provided for that purpose (including records of actions taken by the shareholders or the Board of Directors (or committees thereof) without a meeting); (b) see that all notices are duly given in accordance with the provisions of these bylaws or as required by the Wisconsin Business E-12 Corporation Law; (c) be custodian of the corporate records and of the seal of the corporation and see that the seal of the corporation is affixed to all documents the execution of which on behalf of the corporation under its seal is duly authorized; (d) maintain a record of the shareholders of the corporation, in a form that permits preparation of a list of the names and addresses of all shareholders, by class or series of shares and showing the number and class or series of shares held by each shareholder; (e) sign with the President, or a Vice President, certificates for shares of the corporation, the issuance of which shall have been authorized by resolution of the Board of Directors; (f) have general charge of the stock transfer books of the corporation; and (g) in general perform all duties incident to the office of Secretary and have such other duties and exercise such authority as from time to time may be delegated or assigned by the President or by the Board of Directors. 4.11 The Treasurer. The Treasurer shall: (a) have charge and custody of and be responsible for all funds and securities of the corporation; (b) maintain appropriate accounting records; (c) receive and give receipts for moneys due and payable to the corporation from any source whatsoever, and deposit all such moneys in the name of the corporation in such banks, trust companies or other depositaries as shall be selected in accordance with the provisions of Section 5.04; and (d) in general perform all of the duties incident to the office of Treasurer and have such other duties and exercise such other authority as from time to time may be delegated or assigned by the President or by the Board of Directors. If required by the Board of Directors, the Treasurer shall give a bond for the faithful discharge of his or her duties in such sum and with such surety or sureties as the Board of Directors shall determine. 4.12 Assistant Secretaries and Assistant Treasurers. There shall be such number of Assistant Secretaries and Assistant Treasurers as the Board of Directors or the President may from time to time authorize. The Assistant Secretaries may sign with the President or a Vice President certificates for shares of the corporation the issuance of which shall have been authorized by a resolution of the Board of Directors. The Assistant Treasurers shall respectively, if required by the Board of Directors, give bonds for the faithful discharge of their duties in such sums and with such sureties as the Board of Directors shall determine. The Assistant Secretaries and Assistant Treasurers, in general, shall perform such duties and have such authority as shall from time to time be delegated or assigned to them by the Secretary or the Treasurer, respectively, or by the President or the Board of Directors. 4.13 Other Assistants and Acting Officers. The Board of Directors and the President shall have the power to appoint, or to authorize any duly appointed officer of the corporation to appoint, any person to act as assistant to any officer, or as agent for the corporation in his or her stead, or to perform the duties of such officer whenever for any reason it is impracticable for such officer to act personally, and such assistant or acting officer or other agent so appointed by the Board of Directors or an authorized officer shall have the power to perform all the duties of the office to which he or she is so appointed to be an assistant, or as to which he or she is so appointed to act, except as such power may be otherwise defined or restricted by the Board of Directors, the President or the appointing officer. E-13 ARTICLE V. CONTRACTS, LOANS, CHECKS AND DEPOSITS; SPECIAL CORPORATE ACTS 5.01 Contracts. The Board of Directors may authorize any officer or officers, agent or agents, to enter into any contract or execute or deliver any instrument in the name of and on behalf of the corporation, and such authorization may be general or confined to specific instances. In the absence of other designation, all deeds, mortgages and instruments of assignment or pledge made by the corporation shall be executed in the name of the corporation by the President or one of the Vice Presidents and by the Secretary, an Assistant Secretary, the Treasurer or an Assistant Treasurer; the Secretary or an Assistant Secretary, when necessary or required, shall affix the corporate seal, if any, thereto; and when so executed no other party to such instrument or any third party shall be required to make any inquiry into the authority of the signing officer or officers. 5.02 Loans. No indebtedness for borrowed money shall be contracted on behalf of the corporation and no evidences of such indebtedness shall be issued in its name unless authorized by or under the authority of a resolution of the Board of Directors. Such authorization may be general or confined to specific instances. 5.03 Checks, Drafts, etc. All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the corporation, shall be signed by such officer or officers, agent or agents of the corporation and in such manner as shall from time to time be determined by or under the authority of a resolution of the Board of Directors. 5.04 Deposits. All funds of the corporation not otherwise employed shall be deposited from time to time to the credit of the corporation in such banks, trust companies or other depositaries as may be selected by or under the authority of a resolution of the Board of Directors. 5.05 Voting of Securities Owned by this Corporation. Subject always to the specific directions of the Board of Directors, (a) any shares or other securities issued by any other corporation and owned or controlled by this corporation may be voted at any meeting of security holders of such other corporation by the President of this corporation if he be present, or in his absence by any Vice President of this corporation who may be present, and (b) whenever, in the judgment of the President, or in his absence, of any Vice President, it is desirable for this corporation to execute a proxy or written consent in respect to any shares or other securities issued by any other corporation and owned by this corporation, such proxy or consent shall be executed in the name of this corporation by the President or one of the Vice Presidents of this corporation, without necessity of any authorization by the Board of Directors, affixation of corporate seal, if any, or countersignature or attestation by another officer. Any person or persons designated in the manner above stated as the proxy or proxies of this corporation shall have full right, power and authority to vote the shares or other securities issued by such other corporation and owned by this corporation the same as such shares or other securities might be voted by this corporation. E-14 ARTICLE VI. CERTIFICATES FOR SHARES; TRANSFER OF SHARES 6.01 Certificates for Shares. Certificates representing shares of the corporation shall be in such form, consistent with the Wisconsin Business Corporation Law, as shall be determined by the Board of Directors. Such certificates shall be signed by the President or a Vice President and by the Secretary or an Assistant Secretary. All certificates for shares shall be consecutively numbered or otherwise identified. The name and address of the person to whom the shares represented thereby are issued, with the number of shares and date of issue, shall be entered on the stock transfer books of the corporation. All certificates surrendered to the corporation for transfer shall be cancelled and no new certificate shall be issued until the former certificate for a like number of shares shall have been surrendered and cancelled, except as provided in Section 6.06. 6.02 Facsimile Signatures and Seal. The seal of the corporation, if any, on any certificates for shares may be a facsimile. The signature of the President or Vice President and the Secretary or Assistant Secretary upon a certificate may be facsimiles if the certificate is manually signed on behalf of a transfer agent, or a registrar, other than the corporation itself or an employee of the corporation. 6.03 Signature by Former Officers. The validity of a share certificate is not affected if a person who signed the certificate (either manually or in facsimile) no longer holds office when the certificate is issued. 6.04 Transfer of Shares. Prior to due presentment of a certificate for shares for registration of transfer the corporation may treat the registered owner of such shares as the person exclusively entitled to vote, to receive notifications and otherwise to have and exercise all the rights and power of an owner. Where a certificate for shares is presented to the corporation with a request to register for transfer, the corporation shall not be liable to the owner or any other person suffering loss as a result of such registration of transfer if (a) there were on or with the certificate the necessary endorsements, and (b) the corporation had no duty to inquire into adverse claims or has discharged any such duty. The corporation may require reasonable assurance that such endorsements are genuine and effective and compliance with such other regulations as may be prescribed by or under the authority of the Board of Directors. 6.05 Restrictions on Transfer. The face or reverse side of each certificate representing shares shall bear a conspicuous notation of any restriction imposed by the corporation upon the transfer of such shares. 6.06 Lost, Destroyed or Stolen Certificates. Where the owner claims that certificates for shares have been lost, destroyed or wrongfully taken, a new certificate shall be issued in place thereof if the owner (a) so requests before the corporation has notice that such shares have been acquired by a bona fide purchaser, (b) files with the corporation a sufficient indemnity bond if required by the Board of Directors or any principal officer, and (c) satisfies E-15 such other reasonable requirements as may be prescribed by or under the authority of the Board of Directors. 6.07 Consideration for Shares. The Board of Directors may authorize shares to be issued for consideration consisting of any tangible or intangible property or benefit to the corporation, including cash, promissory notes, services performed, contracts for services to be performed or other securities of the corporation. Before the corporation issues shares, the Board of Directors shall determine that the consideration received or to be received for the shares to be issued is adequate. The determination of the Board of Directors is conclusive insofar as the adequacy of consideration for the issuance of shares relates to whether the shares are validly issued, fully paid and nonassessable. The corporation may place in escrow shares issued in whole or in part for a contract for future services or benefits, a promissory note, or otherwise for property to be issued in the future, or make other arrangements to restrict the transfer of the shares, and may credit distributions in respect of the shares against their purchase price, until the services are performed, the benefits or property are received or the promissory note is paid. If the services are not performed, the benefits or property are not received or the promissory note is not paid, the corporation may cancel, in whole or in part, the shares escrowed or restricted and the distributions credited. 6.08 Stock Regulations. The Board of Directors shall have the power and authority to make all such further rules and regulations not inconsistent with law as it may deem expedient concerning the issue, transfer and registration of shares of the corporation. ARTICLE VII. SEAL 7.01 The Board of Directors may provide for a corporate seal for the corporation. ARTICLE VIII. INDEMNIFICATION 8.01 Provision of Indemnification. The corporation shall, to the fullest extent permitted or required by Sections 180.0850 to 180.0859, inclusive, of the Wisconsin Business Corporation Law, including any amendments thereto (but in the case of any such amendment, only to the extent such amendment permits or requires the corporation to provide broader indemnification rights than prior to such amendment), indemnify its Directors and Officers against any and all Liabilities, and advance any and all reasonable Expenses, incurred thereby in any Proceeding to which any such Director or Officer is a Party because he or she is or was a Director or Officer of the corporation. The corporation shall also indemnify an employee who is not a Director or Officer, to the extent that the employee has been successful on the merits or otherwise in defense of a Proceeding, for all Expenses incurred in the Proceeding if the employee was a Party because he or she is or was an employee of the corporation. The rights to indemnification granted hereunder shall not be deemed exclusive of any other rights to indemnification against Liabilities or the advancement of Expenses which a Director, Officer or employee may be entitled under any written agreement, Board resolution, vote of shareholders, the Wisconsin Business Corporation Law or otherwise. The corporation may, but shall not be required to, supplement the foregoing rights to indemnification against E-16 Liabilities and advancement of Expenses under this Section 8.01 by the purchase of insurance on behalf of any one or more of such Directors, Officers or employees, whether or not the corporation would be obligated to indemnify or advance Expenses to such Director, Officer or employee under this Section 8.01. All capitalized terms used in this Article VIII and not otherwise defined herein shall have the meaning set forth in Section 180.0850 of the Wisconsin Business Corporation Law. ARTICLE IX. AMENDMENTS 9.01 By Shareholders. These bylaws may be amended or repealed and new bylaws may be adopted by the shareholders at any annual or special meeting of the shareholders at which a quorum is in attendance. 9.02 By Directors. Except as otherwise provided by the Wisconsin Business Corporation Law, the articles of incorporation or these bylaws, these bylaws may also be amended or repealed and new bylaws may be adopted by the Board of Directors provided, however, that the shareholders in adopting, amending or repealing a particular bylaw may provide therein that the Board of Directors may not amend, repeal or readopt that bylaw and provided, further, that the Board of Directors shall have no power to amend or repeal any provisions of Article II. 9.03 Implied Amendments. Any action taken or authorized by the shareholders or by the Board of Directors which would be inconsistent with the bylaws then in effect but which is taken or authorized by affirmative vote of not less than the number of shares or the number of directors required to amend the bylaws so that the bylaws would be consistent with such action shall be given the same effect as though the bylaws had been temporarily amended or suspended so far, but only so far, as is necessary to permit the specific action so taken or authorized. ARTICLE X. SHAREHOLDER PROPOSALS 10.01 Annual Meetings. (a) Nominations of persons for election to the Board of Directors of the corporation and the proposal of business to be considered by the shareholders may be made at an annual meeting of shareholders by any shareholder of the corporation who (i) is a shareholder of record at the time of giving of notice provided for in this Section 10.01, (ii) is entitled to vote at the meeting, and (iii) complies with the notice procedures set forth in this Section 10.01. (b) For nominations or other business to be properly brought before an annual meeting of shareholders by a shareholder, such shareholder must have given timely notice thereof in writing to the Secretary of the corporation. To be timely, a shareholder's notice shall be received by the Secretary of the corporation at the principal offices of the corporation not later than the earlier of (i) the date 45 days prior to the first anniversary (the "Anniversary Date") of the date set forth, in the corporation's proxy statement for the last E-17 annual meeting of shareholders held by the corporation, as the date on which the corporation first mailed definitive proxy materials for such annual meeting of shareholders and (ii) the later of (x) the date 70 days prior to the annual meeting of shareholders before which the shareholder providing notice desires to bring the business set forth in the notice and (y) the date 10 days following the day on which public announcement of the date of such meeting is first made. Such shareholder's notice shall be signed by the shareholder of record who intends to make the nomination or introduce the other business (or his duly authorized proxy or other representative), shall bear the date of signature of such shareholder (or proxy or other representative) and shall set forth: (A) the name and address, as they appear on the corporation's books, of such shareholder and the beneficial owner or owners, if any, on whose behalf the nomination or other proposal is made; (B) the class and number of shares of the corporation that are beneficially owned by such shareholder or beneficial owner or owners; (C) a representation that such shareholder is a holder of record of shares of the corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to make the nomination or introduce the other business specified in the notice; (D) in the case of any proposed nomination for election or re-election as a director, (i) the name and residential address of the person or persons to be nominated, (ii) a description of all arrangements or understandings between such shareholder or beneficial owner or owners and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination is to be made by such shareholder, (iii) such other information regarding each nominee proposed by such shareholder as would be required to be disclosed in solicitations of proxies for elections of directors, or would be otherwise required to be disclosed, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934 (the "Exchange Act"), including any information that would be required to be included in a proxy statement filed pursuant to Regulation 14A had the nominee been nominated by the Board of Directors and (iv) the written consent of each nominee to be named in a proxy statement and to serve as a director of the corporation if so elected; and (E) in the case of any other business that such shareholder proposes to bring before the meeting, (i) a brief description of the business desired to be brought before the meeting and, if such business includes a proposal to amend these bylaws, the language of the proposed amendment, (ii) such shareholder's and beneficial owner's or owners' reasons for conducting such business at the meeting and (iii) any material interest in such business of such shareholder and beneficial owner or owners. (c) Notwithstanding the foregoing provisions of this Section 10.01 to the contrary, in the event that the number of directors to be elected to the Board of Directors of the corporation is increased and there is no public announcement naming all of the nominees for director or specifying the size of the increased Board of Directors made by the corporation at least 45 days prior to the Anniversary Date, a shareholder's notice required by this Section 10.01 shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be received by the Secretary at the principal offices of the corporation not later than the close of business on the 10th day following the day on which such public announcement is first made by the corporation. 10.02 Special Meetings. E-18 (a) Only such business shall be conducted at a special meeting of the shareholders of the corporation as is described in the notice of such meeting sent to shareholders in accordance with Section 2.04 of these bylaws. (b) Nominations of persons for election to the Board of Directors at a special meeting of shareholders at which directors are to be elected may be made a shareholder only if such shareholder (i) is a shareholder of record at the time of giving of notice of such meeting, (ii) is entitled to vote at the meeting, and (iii) complies with the notice procedures set forth in this Section 10.02. (c) Any shareholder desiring to nominate persons for election to the Board of Directors at such a special meeting shall cause a written notice to be received by the Secretary of the corporation at the principal offices of the corporation not earlier than ninety days prior to such special meeting and not later than the close of business on the later of (x) the date 60 days prior to such special meeting and (y) the date 10 days following the day on which public announcement is first made of the date of such special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting. Such written notice shall be signed by the shareholder of record who intends to make the nomination (or his duly authorized proxy or other representative), shall bear the date of signature of such shareholder (or proxy or other representative) and shall set forth: (i) the name and address, as they appear on the corporation's books, of such shareholder and the beneficial owner or owners, if any, on whose behalf the nomination is made; (ii) the class and number of shares of the corporation which are beneficially owned by such shareholder or beneficial owner or owners; (iii) a representation that such shareholder is a holder of record of shares of the corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to make the nomination specified in the notice; (iv) the name and residence address of the person or persons to be nominated; (v) a description of all arrangements or understandings between such shareholder or beneficial owner or owners and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination is to be made by such shareholder; (vi) such other information regarding each nominee proposed by such shareholder as would be required to be disclosed in solicitations of proxies for elections of directors, or would be otherwise required to be disclosed, in each case pursuant to Regulation 14A under the Exchange Act, including any information that would be required to be included in a proxy statement filed pursuant to Regulation 14A had the nominee been nominated by the Board of Directors; and (vii) the written consent of each nominee to be named in a proxy statement and to serve as a director of the corporation if so elected. 10.03 General. (a) Only persons who are nominated by or at the direction of the Board of Directors or nominated by shareholders of the corporation in compliance with the procedures set forth in this Article X shall be eligible to serve as directors. Only such business shall be conducted at an annual meeting or special meeting of shareholders as shall have been brought before such meeting by or at the direction of the Board of Directors or by a shareholder in compliance with the procedures set forth in this Article X. The chairman of any E-19 meeting of shareholders shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made in accordance with the procedures set forth in this Article X and, if any proposed nomination or business is not in compliance with this Article X, to declare that such defective proposal shall be disregarded. (b) For purposes of this Article X, "public announcement" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act. (c) In addition to complying with the foregoing provisions of this Article X, a shareholder shall comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this Article X. Nothing in this Article X shall be deemed to limit the corporation's obligation to include shareholder proposals in its proxy statement if such inclusion is required by Rule 14a-8 under the Exchange Act. E-20 EX-13 3 pdm57x13.txt PORTIONS OF 2000 ANNUAL REPORT EXHIBIT 13 Five-Year Financial Highlights
====================================================================================================================== (dollars in thousands, except per share data) Fiscal Year (a) (b) - ---------------------------------------------------------------------------------------------------------------------- 2000 1999 1998 1997 1996 - ---------------------------------------------------------------------------------------------------------------------- Consolidated statements of earnings data: Net sales $ 502,056 $ 496,959 $ 484,885 $ 473,006 $ 453,921 Gross profit 82,753 80,350 78,070 73,907 72,429 Earnings before income taxes 12,762 13,656 13,916 12,418 10,512 Provision for income taxes 4,849 5,298 5,398 4,781 4,047 Net earnings 7,913 8,358 8,518 7,637 6,465 Earnings per share - basic 1.33 1.32 1.26 1.11 0.93 Earnings per share - diluted 1.33 1.30 1.23 1.06 0.90 Cash dividends per share 0.36 0.34 0.30 0.27 0.24 Weighted average shares and equivalents outstanding (c) 5,951 6,438 6,923 7,148 7,187 Consolidated balance sheet data (at fiscal year-end): Working capital $ 30,721 $ 29,797 $ 32,884 $ 29,217 $ 28,579 Total assets 104,899 93,627 104,316 98,866 98,204 Current obligations under capital leases and current maturities of long-term debt 954 842 792 866 1,047 Long-term debt 2,685 2,865 3,021 3,165 3,375 Long-term obligations under capital leases 8,284 9,069 9,764 11,177 12,368 Total shareholders' investment 49,513 47,969 53,085 50,384 47,035 Other data: Net earnings-to-sales ratio (d) 1.58% 1.68% 1.76% 1.61% 1.42% Capital additions $ 5,278 $ 3,209 $ 3,847 $ 4,868 $ 3,420 Depreciation and amortization 5,215 4,959 5,075 4,517 4,451 NOTES: (a) The Company's fiscal year ends on the Saturday closest to December 31. The 1997 fiscal year was a 53-week period. All other fiscal years presented were 52-week periods. (b) All data should be read in conjunction with the Company's audited consolidated financial statements and "Management's discussion and analysis of financial condition and results of operations" as set forth in this Annual Report. (c) The weighted average shares and equivalents outstanding for 1997 and 1996 have been retroactively restated to account for the three-for-two stock split on September 5, 1997. (d) The net earnings-to-sales ratio represents the net margin realized by the Company from each dollar of sale. This ratio is used by many companies in our industry to measure the profitability of their sales.
E-21 MANAGEMENT'S RESPONSIBILITIES FOR FINANCIAL REPORTING The management of Schultz Sav-O Stores, Inc. is responsible for the preparation, objectivity and integrity of the Company's consolidated financial statements contained in the Company's 2000 Annual Report to Shareholders. The consolidated financial statements have been prepared in accordance with generally accepted accounting principles and include amounts that are based on management's best estimates and informed judgments. To help assure that financial information is reliable and assets are safeguarded, management maintains a system of internal controls and procedures which it believes is effective in accomplishing these objectives. These controls and procedures are designed to provide reasonable assurance, at appropriate costs, that transactions are executed and recorded in accordance with management's authorization. The Company's consolidated financial statements have been audited by its independent public accountants, Arthur Andersen LLP, whose report was based on audits conducted in accordance with generally accepted auditing standards and is presented below. As part of its audit, it performs a review of the Company's system of internal controls for the purpose of determining the amount of reliance to place on those controls relative to the audit tests it performs. The Audit Committee of the Board of Directors, composed of directors who are not officers or employees of the Company, meets periodically with Arthur Andersen LLP and management to satisfy itself that each is properly discharging its responsibilities. The independent public accountants have direct access to the Audit Committee. Elwood F. Winn Armand C. Go President and Vice President, Chief Financial Officer, Chief Executive Officer Treasurer and Secretary E-22 Report of Independent Public Accountants To the Board of Directors and Shareholders of Schultz Sav-O Stores, Inc.: We have audited the accompanying consolidated balance sheets of Schultz Sav-O Stores, Inc. (a Wisconsin Corporation) and its subsidiary as of December 30, 2000 and January 1, 2000 and the related consolidated statements of earnings, cash flows and shareholders' investment for each of the three fiscal years in the period ended December 30, 2000. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Schultz Sav-O Stores, Inc. and its subsidiary as of December 30, 2000 and January 1, 2000, and the results of their operations and their cash flows for each of the three fiscal years in the period ended December 30, 2000, in conformity with accounting principles generally accepted in the United States. /s/ Arthur Andersen LLP ARTHUR ANDERSEN LLP Milwaukee, Wisconsin February 8, 2001 E-23 CONSOLIDATED BALANCE SHEETS As of December 30, 2000 and January 1, 2000
- ------------------------------------------------------------------------------------------------------------------------ Assets 2000 1999 - ------------------------------------------------------------------------------------------------------------------------ Current assets: Cash and equivalents $ 31,309,000 $ 22,433,000 Receivables 11,691,000 6,629,000 Inventories 24,259,000 26,313,000 Other current assets 2,916,000 3,410,000 Deferred income taxes 4,102,000 3,900,000 - ------------------------------------------------------------------------------------------------------------------------ Total current assets 74,277,000 62,685,000 - ------------------------------------------------------------------------------------------------------------------------ Noncurrent receivable under capital subleases 4,163,000 4,531,000 Property under capital leases, net 3,051,000 3,462,000 Other noncurrent assets 1,995,000 2,664,000 Property and equipment, net 21,413,000 20,285,000 - ------------------------------------------------------------------------------------------------------------------------ Total assets $ 104,899,000 $ 93,627,000 ======================================================================================================================== Liabilities and Shareholders' Investment - ------------------------------------------------------------------------------------------------------------------------ Current liabilities: Accounts payable $ 27,700,000 $ 19,545,000 Accrued salaries and benefits 5,673,000 5,284,000 Accrued insurance 3,032,000 3,002,000 Retail repositioning reserve 495,000 450,000 Other accrued liabilities 5,702,000 3,765,000 Current obligations under capital leases 785,000 696,000 Current maturities of long-term debt 169,000 146,000 - ------------------------------------------------------------------------------------------------------------------------ Total current liabilities 43,556,000 32,888,000 - ------------------------------------------------------------------------------------------------------------------------ Long-term obligations under capital leases 8,284,000 9,069,000 Long-term debt 2,685,000 2,865,000 Deferred income taxes 861,000 836,000 Shareholders' investment: Common stock, $0.05 par value, authorized 20,000,000 shares, issued 8,750,342 in 2000 and 1999 438,000 438,000 Additional paid-in capital 15,174,000 14,961,000 Retained earnings 69,767,000 63,995,000 Treasury stock at cost, 3,165,213 shares in 2000 and 2,808,997 shares in 1999 (35,866,000) (31,425,000) - ------------------------------------------------------------------------------------------------------------------------ Total shareholders' investment 49,513,000 47,969,000 - ------------------------------------------------------------------------------------------------------------------------ Total liabilities and shareholders' investment $ 104,899,000 $ 93,627,000 ======================================================================================================================== See notes to consolidated financial statements.
E-24 CONSOLIDATED STATEMENTS OF EARNINGS For fiscal years 2000, 1999 and 1998
- ------------------------------------------------------------------------------------------------------------------------ 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------------------ Net sales $ 502,056,000 $ 496,959,000 $ 484,885,000 Cost of products sold 419,303,000 416,609,000 406,815,000 - ------------------------------------------------------------------------------------------------------------------------ Gross profit 82,753,000 80,350,000 78,070,000 Operating and administrative expenses 70,488,000 67,108,000 64,580,000 - ------------------------------------------------------------------------------------------------------------------------ Operating income 12,265,000 13,242,000 13,490,000 Interest income 1,349,000 1,175,000 1,242,000 Interest expense (852,000) (761,000) (816,000) - ------------------------------------------------------------------------------------------------------------------------ Earnings before income taxes 12,762,000 13,656,000 13,916,000 Provision for income taxes 4,849,000 5,298,000 5,398,000 - ------------------------------------------------------------------------------------------------------------------------ Net earnings $ 7,913,000 $ 8,358,000 $ 8,518,000 - ------------------------------------------------------------------------------------------------------------------------ Earnings per share - basic $1.33 $1.32 $1.26 ======================================================================================================================== Earnings per share - diluted $1.33 $1.30 $1.23 ======================================================================================================================== See notes to consolidated financial statements.
E-25 CONSOLIDATED STATEMENTS OF CASH FLOWS For fiscal years 2000, 1999 and 1998
- ------------------------------------------------------------------------------------------------------------------------ 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------------------ Cash flows from operating activities: Net earnings $ 7,913,000 $ 8,358,000 $ 8,518,000 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 5,215,000 4,959,000 5,075,000 Deferred income taxes (177,000) 481,000 (422,000) Changes in current assets and liabilities: Receivables (5,062,000) (1,176,000) 4,265,000 Inventories 2,054,000 (2,362,000) (2,210,000) Other current assets 544,000 (630,000) 1,222,000 Accounts payable 8,155,000 (4,473,000) 2,713,000 Accrued liabilities 2,612,000 310,000 2,264,000 - ------------------------------------------------------------------------------------------------------------------------ Net cash flows from operating activities 21,254,000 5,467,000 21,425,000 - ------------------------------------------------------------------------------------------------------------------------ Cash flows from investing activities: Capital expenditures (5,278,000) (3,209,000) (3,847,000) Receipt of principal amounts under capital subleases 326,000 407,000 443,000 Other investing activities 8,000 311,000 300,000 - ------------------------------------------------------------------------------------------------------------------------ Net cash flows from investing activities (4,944,000) (2,491,000) (3,104,000) - ------------------------------------------------------------------------------------------------------------------------ Cash flows from financing activities: Payment for acquisition of treasury stock (6,067,000) (12,864,000) (5,031,000) Payment of cash dividends (2,141,000) (2,155,000) (2,025,000) Exercise of stock options 1,602,000 924,000 806,000 Principal payments on capital lease obligations (696,000) (655,000) (665,000) Principal payments on long-term debt (156,000) (146,000) (210,000) Other financing activities 24,000 19,000 14,000 - ------------------------------------------------------------------------------------------------------------------------ Net cash flows from financing activities (7,434,000) (14,877,000) (7,111,000) - ------------------------------------------------------------------------------------------------------------------------ Cash and equivalents: Net change 8,876,000 (11,901,000) 11,210,000 Balance, beginning of year 22,433,000 34,334,000 23,124,000 - ------------------------------------------------------------------------------------------------------------------------ Balance, end of year $ 31,309,000 $ 22,433,000 $ 34,334,000 ======================================================================================================================== See notes to consolidated financial statements.
E-26 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT For fiscal years 2000, 1999 and 1998
- ---------------------------------------------------------------------------------------------------------------------- 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------------------ Shares Amount Shares Amount Shares Amount - ---------------------------------------------------------------------------------------------------------------------- Common Stock, $0.05 par Beginning of year 8,750,342 $438,000 8,750,342 $438,000 8,750,342 $438,000 - ---------------------------------------------------------------------------------------------------------------------- End of year 8,750,342 438,000 8,750,342 438,000 8,750,342 438,000 - ---------------------------------------------------------------------------------------------------------------------- Additional Paid-in Capital Beginning of year 14,961,000 14,359,000 13,940,000 Tax benefits from exercise of stock options 213,000 602,000 419,000 - ---------------------------------------------------------------------------------------------------------------------- End of year 15,174,000 14,961,000 14,359,000 - ---------------------------------------------------------------------------------------------------------------------- Retained Earnings Beginning of year 63,995,000 57,792,000 51,299,000 Net earnings 7,913,000 8,358,000 8,518,000 Cash dividends Common stock ($0.36 per share in 2000, $0.34 per share in 1999 and $0.30 per share in 1998) (2,141,000) (2,155,000) (2,025,000) - ---------------------------------------------------------------------------------------------------------------------- End of year 69,767,000 63,995,000 57,792,000 - ---------------------------------------------------------------------------------------------------------------------- Treasury Stock Beginning of year (2,808,997) (31,425,000) (2,155,463) (19,504,000) (1,938,463) (15,293,000) Acquisition of treasury stock (558,540) (6,067,000) (821,600) (12,864,000) (335,950) (5,031,000) Exercise of stock options 200,100 1,602,000 166,750 924,000 118,050 806,000 Other 2,224 24,000 1,316 19,000 900 14,000 - ---------------------------------------------------------------------------------------------------------------------- End of year (3,165,213) (35,866,000) (2,808,997) (31,425,000) (2,155,463) (19,504,000) - ---------------------------------------------------------------------------------------------------------------------- Shareholders' investment, end of year $49,513,000 $47,969,000 $53,085,000 - ----------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements. E-27 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For fiscal years 2000, 1999 and 1998 (1) Description of Business The Company is engaged in the food distribution business through franchised and corporate retail supermarkets and as a supplier to independent food stores. The franchised and corporate retail Piggly Wiggly(R) supermarkets and independent food stores supplied by the Company are located in eastern Wisconsin and northeastern Illinois. In an agreement with the owner of the Piggly Wiggly franchise in 1998, the Company expanded its geographic marketing area to include all of Wisconsin, Michigan's Upper Peninsula, portions of Minnesota and Iowa, and additional counties in Illinois. (2) Summary of Significant Accounting Policies Fiscal year The Company's fiscal year ends on the Saturday closest to December 31. The 2000, 1999 and 1998 fiscal years were 52-week periods ended December 30, 2000, January 1, 2000, and January 2, 1999, respectively. Revenue recognition Wholesale revenue is recognized at the time products are shipped, as shipments are F.O.B. shipping point. Retail revenue is recognized at the point of sale. Principles of consolidation The consolidated financial statements include the accounts of Schultz Sav-O Stores, Inc. and its wholly-owned subsidiary, PW Trucking, Inc. Intercompany accounts and transactions have been eliminated. Cash and equivalents Cash and equivalents consist of demand deposits at commercial banks and highly liquid investments with a maturity of three months or less when purchased. Cash equivalents are stated at cost which approximate market value. Receivables The Company records receivables primarily from its wholesale customers, most of which are franchised customers. The Company continuously monitors the financial viability of its customers and provides an allowance for doubtful accounts related to both credit worthiness and retail subsidies that are provided to these customers. Receivables are shown net of allowance for doubtful accounts of $3,850,000 and $4,300,000 at December 30, 2000 and January 1, 2000, respectively. Inventories Inventories, substantially all of which consist of food, groceries and related products for resale, are stated at the lower of cost or market value. Cost is determined primarily on the last-in, first-out (LIFO) method. For meat and produce, cost is determined on the first-in, first-out (FIFO) method. At December 30, 2000 and January 1, 2000, 79% and 81%, respectively, of all inventories were accounted for under the LIFO method. E-28 The excess of current cost over the stated LIFO cost of inventory was $10,284,000 and $9,872,000 at December 30, 2000 and January 1, 2000, respectively. Other current assets Other current assets at December 30, 2000 and January 1, 2000 consisted of the following: --------------------------------------------------------------------- 2000 1999 --------------------------------------------------------------------- Prepaid expenses $1,417,000 $1,500,000 Property held for resale 647,000 1,088,000 Retail systems and supplies for resale 484,000 496,000 Receivable under capital subleases 368,000 326,000 --------------------------------------------------------------------- Other current assets $2,916,000 $3,410,000 ===================================================================== Property and equipment, net Property and equipment are stated at cost. Depreciation is amortized on the straight-line method over the estimated useful lives of the assets. Equipment generally has a useful life of 4 to 7 years; computer hardware and software have a useful life of 3 to 5 years; buildings and land improvements have a useful life of 10 to 35 years; and leasehold improvements generally have a useful life of 10 to 20 years. Facility remodeling and upgrade costs on leased stores are capitalized as leasehold improvements and are amortized over the shorter of the remaining lease term or the useful life of the asset. Upon disposal, the appropriate asset cost and accumulated depreciation are retired. Gains and losses on disposition are included in earnings. Property and equipment, net, at December 30, 2000 and January 1, 2000 consisted of the following: ------------------------------------------------------------------------ 2000 1999 ------------------------------------------------------------------------ Land and buildings $18,939,000 $18,842,000 Leasehold improvements 5,609,000 5,772,000 Equipment and fixtures 39,032,000 35,375,000 ------------------------------------------------------------------------ 63,580,000 59,989,000 Less accumulated depreciation and amortization (42,167,000) (39,704,000) ------------------------------------------------------------------------ Property and equipment, net $21,413,000 $20,285,000 ======================================================================== Other noncurrent assets Other noncurrent assets, net of accumulated amortization of $3,385,000 and $2,716,000, at December 30, 2000 and January 1, 2000 consisted of the following: ------------------------------------------------------------------ 2000 1999 ------------------------------------------------------------------ Capitalized software, net $963,000 $1,475,000 Goodwill, net 717,000 777,000 Other intangibles, net 136,000 227,000 Other 179,000 185,000 ------------------------------------------------------------------ Total $1,995,000 $2,664,000 ================================================================== The Company regularly reviews the carrying value of capitalized software cost. A loss may be recognized when the value of estimated undiscounted cash flow benefit related to the asset falls below the unamortized cost. E-29 Accounts payable Accounts payable includes $11,537,000 and $6,277,000 at December 30, 2000 and January 1, 2000, respectively, of issued checks that have not cleared the Company's disbursing bank accounts. Retail repositioning reserve Estimated repositioning and termination expenses associated with the closure, replacement or disposal of stores, consisting primarily of lease payments, related facility costs (taxes, utilities and maintenance), and severance payments, are charged to operating and administrative expenses upon the decision to close, replace or dispose of a store as soon as the amounts are reasonably estimated. At December 30, 2000, the remaining capital repositioning reserve was $495,000, which was comprised of $275,000 of remaining lease costs and $220,000 of related facility costs. It is expected that these costs will be completely expended by the end of 2002. Financial instruments The Company's financial instruments consist of various debt facilities and cash equivalents. At December 30, 2000, the fair market value of the financial instruments was not materially different from the carrying value. Supplementary disclosure of cash flow information Interest and taxes paid included in the Company's cash flow from operations were as follows: ----------------------------------------------------------------- 2000 1999 1998 ----------------------------------------------------------------- Interest paid $851,000 $760,000 $822,000 Taxes paid 4,873,000 4,649,000 4,956,000 ----------------------------------------------------------------- Use of estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Advertising costs Costs incurred for producing and communicating advertising are generally expensed when incurred. Reclassifications Certain 1999 and 1998 amounts previously reported have been reclassified to conform to the 2000 presentation. New accounting pronouncements In September 2000, the Financial Accounting Standards Board issued its final consensus on Emerging Issues Task Force ("EITF") Issue No. 00-10, "Accounting for Shipping and Handling Fees and Costs". The Company has historically presented shipping revenues as a component of net sales and the related costs of getting goods to the warehouse as part of cost of goods sold and the costs of shipping goods to customers as part of operating and administrative expenses. Shipping and handling costs included in operating and administrative expenses were $5,567,000, $5,355,000 and $5,201,000, in 2000, 1999, and 1998, respectively. E-30 In May 2000, the EITF also issued No. 00-14, "Accounting for Certain Sales Incentives". Issue 00-14 addresses the recognition, measurement, and income statement classification for sales incentives offered voluntarily by a vendor without charge to customers that can be used in, or that are exercisable by a customer as a result of, a single exchange transaction. This pronouncement will be adopted during fiscal 2001. Management is in the process of quantifying the potential impact of this change. (3) Long-Term Debt The Company has a loan agreement providing unsecured revolving credit facilities totaling $16,000,000 through April 30, 2003. This arrangement provides for borrowings at rates not to exceed the bank's prime rate. There are no compensating balance requirements. There were no borrowings under this agreement during 2000 or 1999. Long-term debt at December 30, 2000 and January 1, 2000 consisted of the following: --------------------------------------------------------------------------- 2000 1999 --------------------------------------------------------------------------- Mortgage note, 9.675%, due in monthly $2,754,000 $2,878,000 installments of $33,026 including interest due through June 2012 Land contract, 10.0%, due in annual installments of $33,333 through March 2003 100,000 133,000 --------------------------------------------------------------------------- 2,854,000 3,011,000 Less current maturities (169,000) (146,000) --------------------------------------------------------------------------- Long-term debt $2,685,000 $2,865,000 =========================================================================== At December 30, 2000, the fair value of the long-term debt was not materially different from the carrying value. The revolving credit and term note agreements contain various covenants including, among others, the maintenance of defined working capital, net worth requirements, certain debt-equity ratios, restrictions against pledging of or liens upon certain assets, mergers, significant changes in ownership and limitations on restricted payments. The total amount of long-term debt due in each of the fiscal years 2001 through 2005 will be $169,000, $182,000, $196,000, $180,000 and $198,000, respectively, and $1,929,000 from 2006 to 2012. Interest expense consisted of the following: -------------------------------------------------------------------- 2000 1999 1998 -------------------------------------------------------------------- Interest on long-term debt $287,000 $302,000 $315,000 Imputed interest-capital leases 565,000 445,000 473,000 Other - 14,000 28,000 -------------------------------------------------------------------- Interest expense $852,000 $761,000 $816,000 ==================================================================== (4) Income Taxes The difference between the statutory federal income tax rate and the effective rate is summarized as follows: --------------------------------------------------------------------- 2000 1999 1998 --------------------------------------------------------------------- Federal income tax 34.0% 34.0% 34.2% State income taxes, net of federal income tax benefit 4.8 4.5 4.7 Other, net (0.8) 0.3 (0.1) --------------------------------------------------------------------- Effective income tax rate 38.0% 38.8% 38.8% ===================================================================== E-31 Components of provision for income taxes consisted of the following: --------------------------------------------------------------------- 2000 1999 1998 --------------------------------------------------------------------- Currently payable Federal $4,076,000 $3,934,000 $4,779,000 State 950,000 883,000 1,041,000 Deferred (177,000) 481,000 (422,000) --------------------------------------------------------------------- Provision for income taxes $4,849,000 $5,298,000 $5,398,000 ===================================================================== The components of deferred income tax assets and liabilities at December 30, 2000 and January 1, 2000 were as follows: --------------------------------------------------------------------- 2000 1999 --------------------------------------------------------------------- Deferred income tax assets: Bad debt reserve $1,502,000 $1,677,000 Accrued insurance 1,195,000 1,182,000 Capital lease accounting 743,000 727,000 Vacation pay 718,000 652,000 Retail repositioning reserve 193,000 176,000 Other 585,000 747,000 --------------------------------------------------------------------- Total deferred income tax assets 4,936,000 5,161,000 --------------------------------------------------------------------- Deferred income tax liabilities: Property and equipment (1,618,000) (2,025,000) Pension (77,000) (72,000) --------------------------------------------------------------------- Total deferred income tax liabilities (1,695,000) (2,097,000) --------------------------------------------------------------------- Net deferred income tax assets $3,241,000 $3,064,000 ===================================================================== The Company currently has no requirements for a valuation allowance for its deferred income tax assets. The net deferred income tax assets as of December 30, 2000 and January 1, 2000 were classified in the balance sheet as follows: -------------------------------------------------------------------- 2000 1999 -------------------------------------------------------------------- Current deferred income tax asset $4,102,000 $3,900,000 Noncurrent deferred income tax liability (861,000) (836,000) -------------------------------------------------------------------- Net deferred income tax assets $3,241,000 $3,064,000 ==================================================================== (5) Commitments and Contingent Liabilities As of December 30, 2000, the Company was contingently liable under guarantees of bank note agreements of wholesale customers totaling $17,985,000. All of the loan guarantees are substantially collateralized, principally with equipment and inventory, and to a lesser extent, with building facilities. Capital expenditure commitments made by the Company as of December 30, 2000 were approximately $4,150,000. (6) Retirement Plans The Company has a trusteed retirement savings defined contribution plan, which includes provisions of Section 401(k) of the Internal Revenue Code, for the benefit of its non-union eligible employees. Annual provisions are based on a mandatory 5% of eligible participant compensation and additional amounts at the E-32 sole discretion of the Board of Directors. Provisions for the three fiscal years ended 2000, 1999 and 1998 were $975,000, $930,000 and $890,000, respectively. The plan allows participants to make pretax contributions. The Company then matches certain percentages of employee contributions. The Company's matching contributions for 2000, 1999 and 1998 were $95,000, $90,000 and $82,000, respectively. The Company has union-administered multi-employer pension plans covering all hourly paid employees represented by collective bargaining agreements. Total pension expense was $1,814,000, $1,696,000 and $1,616,000 in fiscal years 2000, 1999 and 1998, respectively. (7) Leases The Company leases most of its retail stores under lease agreements with original lease periods of 15 to 20 years and typically with five-year renewal options. Exercise of such options is dependent on, among others, the level of business conducted at the location. Executory costs, such as maintenance and real estate taxes, are generally the Company's responsibility. In a majority of situations, the Company will enter into a lease for a store and sublease the store to a wholesale customer. Additionally, the Company leases transportation equipment, principally tractors and trailers, corporate office space and certain office equipment. Some leases contain contingent rental provisions based on sales volume at retail stores or miles traveled for tractors and trailers. Contingent rental expense associated with the Company's capital leases and sublease income was not material to the Company's financial statements. Capitalized leases were calculated using interest rates appropriate at the inception of each lease. A summary of real property utilized by the Company under capital leases at December 30, 2000 and January 1, 2000 was as follows: -------------------------------------------------------------------- 2000 1999 -------------------------------------------------------------------- Investments in leased property under $6,514,000 $6,514,000 capital leases Less accumulated amortization (3,463,000) (3,052,000) -------------------------------------------------------------------- Property under capital leases, net $3,051,000 $3,462,000 ==================================================================== Amortization of leased property under capital leases, included in operating and administrative expenses, amounted to $411,000, $287,000 and $287,000 in fiscal years 2000, 1999, 1998, respectively. The following is a schedule of future minimum lease payments under capital leases and subleases and the present value of such payments as of December 30, 2000: ----------------------------------------------------------------------- Capital lease Capital sublease obligations receivables ----------------------------------------------------------------------- 2001 $1,841,000 $907,000 2002 1,841,000 907,000 2003 1,852,000 918,000 2004 1,656,000 923,000 2005 1,698,000 932,000 2006-2009 5,391,000 2,567,000 ----------------------------------------------------------------------- Total minimum lease payments 14,279,000 7,154,000 Less interest (5,210,000) (2,623,000) ----------------------------------------------------------------------- Present value of minimum lease payments 9,069,000 4,531,000 and amounts receivable Less current portion (785,000) (368,000) ----------------------------------------------------------------------- Long-term obligations and receivable $8,284,000 $4,163,000 ======================================================================= E-33 The following is a schedule of future minimum lease payments required under operating leases for retail stores, transportation equipment, corporate office space and office equipment that have noncancelable lease terms in excess of one year as of December 30, 2000: ---------------------------------------------------------------------- 2001 $11,641,000 2002 11,523,000 2003 11,309,000 2004 10,860,000 2005 10,437,000 2006-2020 87,468,000 ---------------------------------------------------------------------- Total minimum lease payments 143,238,000 Less minimum amounts receivable under noncancelable subleases (106,787,000) ---------------------------------------------------------------------- Net minimum lease payments $36,451,000 ---------------------------------------------------------------------- Rental expenses, net of rental income from subleases, for all operating leases amounted to $5,260,000, $5,010,000 and $4,589,000 in fiscal years 2000, 1999 and 1998, respectively. These amounts include $1,035,000, $1,054,000 and $957,000, respectively, for contingent rentals. (8) Stock Option Plans The Company has stock option plans which provide for the grant of either incentive or nonqualified stock options to key employees. The exercise price of each option is equal to the market price of the Company's stock on the date of grant. Prior to year 2000, options granted are exercisable for seven years from the date of grant. Beginning in January 2000, options granted are now exercisable for ten years from the date of grant. The options continue to vest ratably over the first three years. Such vesting may be accelerated by the Stock Option Committee of the Board of Directors or upon a change in control of the Company, as defined by the plans. In fiscal 1996, the Company adopted the disclosure requirements of FAS No. 123. Had the Company determined compensation cost based on the fair value at the grant date for its stock options under FAS No. 123, the Company's net earnings would have been reduced to the following pro forma amounts below: ------------------------------------------------------------------------ 2000 1999 1998 ------------------------------------------------------------------------ Net earnings As reported $7,913,000 $8,358,000 $8,518,000 Pro forma 7,577,000 8,012,000 8,181,000 ------------------------------------------------------------------------ Earnings per share-diluted As reported $1.33 $1.30 $1.23 Pro forma 1.27 1.24 1.18 ======================================================================== The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions used for grants in 2000, 1999 and 1998: ----------------------------------------------------------------------- 2000 1999 1998 ----------------------------------------------------------------------- Dividend yield 2.00% 2.00% 2.00% Expected volatility 25.01% 25.91% 26.81% Risk-free interest rate 6.57% 4.75% 5.49% Expected term of grant 5.5 years 5.5 years 5.5 years ======================================================================= The fair values of each option granted in 2000, 1999 and 1998 were $3.48, $4.27 and $4.28, respectively. E-34 As of December 30, 2000, no incentive stock options have been granted. Following is a summary of the status of nonqualified stock options for the fiscal years 2000, 1999 and 1998: ----------------------------------------------------------------------- Number of shares Weighted average exercise prices ----------------------------------------------------------------------- Shares under option at January 3, 1998 639,300 $7.40 Granted 151,500 15.00 Exercised (118,050) 6.83 ----------------------------------------------------------------------- Shares under option at January 2, 1999 672,750 9.21 Granted 165,700 16.13 Exercised (166,750) 5.54 Forfeited (27,500) 14.81 ----------------------------------------------------------------------- Shares under option at January 1, 2000 644,200 11.70 Granted 187,200 11.84 Exercised (200,100) 8.01 Forfeited (28,600) 14.38 ----------------------------------------------------------------------- Shares under option at December 30, 2000 602,700 12.85 ======================================================================= Shares reserved for grant at December 30, 2000 424,600 ======================================================================= Options granted in February 2001 252,000 $11.63 ======================================================================= When options were exercised, the Company realized certain income tax benefits. These benefits resulted in a decrease in current income taxes payable and a corresponding increase in additional paid-in capital. Exercise prices for options outstanding as of December 30, 2000 ranged from $6.50 to $16.13. The weighted average remaining contractual life of these options is approximately 4 years. Nonqualified stock options outstanding at December 30, 2000, January 1, 2000 and January 2, 1999 were exercisable for 289,500, 363,900 and 402,750 shares. These shares were exercisable at the weighted average prices of $12.09, $9.29 and $6.96 at December 30, 2000, January 2, 1999 and January 3, 1998, respectively. (9) Common Stock Prior to January 6, 1999, common shares issued and issuable included one associated common stock purchase right which entitled shareholders to purchase one share of common stock from the Company at an exercise price equivalent to $14 per share. The rights became exercisable after a person acquired beneficial ownership of 20% or more of the Company's common stock. The rights did not have any voting rights and would have been redeemed at a price of $0.0067 per right. On January 6, 1999, these rights expired pursuant to their terms. (10) Earnings Per Share Basic earnings per share is computed by dividing net earnings by the weighted average number of shares of common stock outstanding during the year. Diluted earnings per share is computed by dividing net earnings by the weighted average number of shares of common stock outstanding and common stock equivalents during the year. Common stock equivalents used in computing diluted earnings per share related to stock options which, if exercised, would have a dilutive effect on earnings per share. The Company had antidilutive shares for 2000, 1999 and 1998 of $441,000, $153,700 and none, respectively. E-35 The Company's calculations of earnings per share-basic and earnings per share-diluted were as follows: --------------------------------------------------------------------------- 2000 1999 1998 --------------------------------------------------------------------------- Net earnings available for common $7,913,000 $8,358,000 $8,518,000 shareholders Weighted average shares outstanding 5,935,000 6,336,000 6,749,000 Earnings per share-basic $1.33 $1.32 $1.26 --------------------------------------------------------------------------- Net earnings available for common $7,913,000 $8,358,000 $8,518,000 shareholders Weighted average shares outstanding 5,935,000 6,336,000 6,749,000 Stock options' dilutive effect 16,000 102,000 174,000 Weighted average shares and equivalents outstanding 5,951,000 6,438,000 6,923,000 Earnings per share-diluted $1.33 $1.30 $1.23 --------------------------------------------------------------------------- (11) Segment Reporting The Company's operations are classified into two reportable business segments, wholesale and retail. The operational performance of both wholesale and retail segments are managed and evaluated by management. The wholesale segment represents the Company's business activities relating to food wholesale distribution. At December 30, 2000, the Company provided products to 71 franchised units, 19 corporate stores and a number of independent retail stores. The wholesale segment includes warehousing, transportation and other logistical functions, and derives its revenues primarily from the sale of groceries, produce, dairy, meat and cigarette products to the Company's franchised, corporate and independent retail customers. The retail segment relates to the Company's retail supermarket activities. Revenues are realized through the sale of groceries, dairy, produce, meat, bakery, deli and other merchandise by the Company's corporate retail stores to retail consumers. The accounting policies of the two segments are the same as those described in the Summary of Significant Accounting Policies. The Company's management utilizes several measurement tools in evaluating each segment's performance and each segment's resource requirements. However, the principal measurement tools are consistent with the Company's consolidated financial statements and accordingly are reported on a similar basis. Wholesale operating profits on sales through the Company's corporate stores are allocated to the retail segment. The "corporate" heading includes corporate-related items, principally cash and equivalents. As it relates to operating income, "corporate" heading includes corporate-related items allocated to the appropriate segments. E-36 Summarized financial information concerning the Company's reportable segments is shown in the following table (in thousands).
-------------------------------------- ---------------- --------------- ---------------- Sales 2000 1999 1998 -------------------------------------- ---------------- --------------- ---------------- Wholesale sales $ 409,437 $ 411,913 $ 404,047 Intracompany sales (114,910) (123,376) (123,912) ---------------- --------------- ---------------- Net wholesale sales 294,527 288,537 280,135 Retail sales 207,529 208,422 204,750 -------------------------------------- ---------------- --------------- ---------------- Total $ 502,056 $ 496,959 $ 484,885 ====================================== ================ =============== ================ -------------------------------------- ---------------- --------------- ---------------- Earnings before income taxes 2000 1999 1998 -------------------------------------- ---------------- --------------- ---------------- Wholesale $ 9,351 $ 9,870 $ 9,749 Retail 2,914 3,372 3,741 ---------------- --------------- ---------------- Total operating income 12,265 13,242 13,490 Interest income 1,349 1,175 1,242 Interest expense (852) (761) (816) -------------------------------------- ---------------- --------------- ---------------- Earnings before income taxes $ 12,762 $ 13,656 $ 13,916 ====================================== ================ =============== ================ -------------------------------------- ---------------- --------------- ---------------- Capital Expenditures 2000 1999 1998 -------------------------------------- ---------------- --------------- ---------------- Wholesale $ 378 $ 199 $ 149 Retail 2,214 1,869 2,443 Corporate 2,686 1,141 1,255 -------------------------------------- ---------------- --------------- ---------------- Total $ 5,278 $ 3,209 $ 3,847 ====================================== ================ =============== ================ -------------------------------------- ---------------- --------------- ---------------- Depreciation and Amortization 2000 1999 1998 -------------------------------------- ---------------- --------------- ---------------- Wholesale $ 829 $ 820 $ 933 Retail 3,001 2,450 2,457 Corporate 1,385 1,689 1,685 -------------------------------------- ---------------- --------------- ---------------- Total $ 5,215 $ 4,959 $ 5,075 ====================================== ================ =============== ================ -------------------------------------- ---------------- --------------- ---------------- Identifiable Assets 2000 1999 1998 -------------------------------------- ---------------- --------------- ---------------- Wholesale $ 31,764 $ 33,941 $ 32,040 Retail 28,260 28,546 26,550 Corporate 44,875 31,140 45,726 -------------------------------------- ---------------- --------------- ---------------- Total $ 104,899 $ 93,627 $ 104,316 ====================================== ================ =============== ================
E-37 Unaudited Quarterly Financial Information The Company generally includes sixteen weeks in its first quarter and twelve weeks in each subsequent quarter. Summarized quarterly and annual financial information for fiscal years 2000 and 1999 follows:
- --------------------------------------------- --------------------------------------------------------------------- (dollars and shares in thousands, except per share data) Fiscal Year Ended December 30, 2000 - --------------------------------------------- --------------------------------------------------------------------- First Second Third Fourth Year - -------------------------------------- -------------- -------------- --------------- -------------- --------------- Net sales $147,688 $116,459 $116,341 $121,568 $502,056 Gross profit 24,459 19,471 18,843 19,980 82,753 Net earnings 1,869 1,903 1,555 2,586 7,913 Earnings per share - basic 0.31 0.32 0.26 0.44 1.33 Earnings per share - diluted 0.31 0.32 0.26 0.44 1.33 Weighted average shares and equivalents outstanding 5,999 5,989 5,951 5,916 5,951 - -------------------------------------- -------------- -------------- --------------- -------------- --------------- - --------------------------------------------- --------------------------------------------------------------------- (dollars and shares in thousands, except per share data) Fiscal Year Ended January 1, 2000 - --------------------------------------------- --------------------------------------------------------------------- First Second Third Fourth Year - -------------------------------------- -------------- -------------- --------------- -------------- --------------- Net sales $146,951 $115,124 $113,406 $121,478 $496,959 Gross profit 23,796 18,748 18,353 19,453 80,350 Net earnings 1,831 2,038 1,673 2,816 8,358 Earnings per share - basic 0.28 0.32 0.27 0.47 1.32 Earnings per share - diluted 0.27 0.31 0.26 0.46 1.30 Weighted average shares and equivalents outstanding 6,756 6,601 6,421 6,095 6,438 - -------------------------------------- -------------- -------------- --------------- -------------- --------------- Common Stock Information The Company's common stock is traded over-the-counter on the Nasdaq Stock Market under the symbol SAVO. There are approximately 1,200 shareholders of the Company's common stock. An analysis of the high and low last sale stock prices by quarter and for the last three years are as follows: ------------ ------------------ ------------------- ------------------- ------------------- ------------------ First Second Third Fourth Year ------------ ------------------ ------------------- ------------------- ------------------- ------------------ High Low High Low High Low High Low High Low 2000 $13.00 $ 9.88 $12.00 $10.25 $12.06 $10.50 $12.00 $10.63 $13.00 $ 9.88 1999 17.38 15.88 17.13 16.00 16.50 15.75 15.75 11.25 17.38 11.25 1998 17.75 15.00 17.50 15.50 16.00 15.13 16.50 15.50 17.75 15.00 ------------ -------- --------- --------- --------- --------- --------- --------- --------- -------- --------- Cash dividends paid per share were: --------------- ------------------ ------------------ ------------------ ------------------ ------------------ First Second Third Fourth Year --------------- ------------------ ------------------ ------------------ ------------------ ------------------ 2000 $0.09 $0.09 $0.09 $0.09 $0.36 1999 0.08 0.08 0.09 0.09 0.34 1998 0.07 0.07 0.08 0.08 0.30 --------------- ------------------ ------------------ ------------------ ------------------ ------------------ Under the Company's loan agreements, approximately $6,100,000 of retained earnings were available for the payment of cash dividends, stock repurchases and other restricted payments at December 30, 2000.
E-38 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Special Note Regarding Forward-Looking Statements Certain matters discussed in this report 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 expenditures 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. Results of Operations The following table sets forth certain items from the Company's Consolidated Statements of Earnings as a percent of net sales and the year-to-year percentage changes in the amounts of such line items.
- --------------------------------------- ------------------------------------------ ------------------------------ Percent of net sales Percentage change - --------------------------------------- ------------------------------------------ ------------------------------ 2000 1999 1998 2000 1999 vs. 1999 vs. 1998 - --------------------------------------- ------------- -------------- ------------- -------------- --------------- Net sales 100.0% 100.0% 100.0% 1.0% 2.5% Gross margin 16.5% 16.2% 16.1% 3.0% 2.9% Operating and administrative expenses 14.0% 13.5% 13.3% 5.0% 3.9% Earnings before income taxes 2.5% 2.7% 2.9% (6.5%) (1.9%) Net earnings 1.6% 1.7% 1.8% (5.3%) (1.9%) - --------------------------------------- ------------- -------------- ------------- -------------- ---------------
2000 vs. 1999 Net Sales Net sales for 2000 were $502.1 million, compared to $497.0 million for 1999. This was the first time in the Company's history that the half-billion dollar annual sales volume milestone was reached. The increase of $5.1 million, or 1.0%, was due to increased net wholesale sales. Net wholesale sales in 2000 increased 2.1% to $294.5 million, compared to $288.5 million in 1999. The net wholesale sales improvement was attributable to the following: E-39 o The successful conversion to the Piggly Wiggly program of two new market franchise stores in Niagara and Winneconne, Wisconsin from other wholesalers during the third quarter of 1999; o The successful conversion to the Piggly Wiggly program of one new market franchise unit in Markesan, Wisconsin from another wholesaler in January 2000; and o The completion of one new market franchise supermarket in Kewaskum, Wisconsin in June 2000. The conversion of one franchise supermarket into a corporate store in November 1999 and additional competitive activities in certain franchise market areas offset some of the net wholesales sales volume increase. Retail sales decreased nominally to $207.5 million in 2000, compared to $208.4 million in 1999. This decrease was principally attributable to several of the Company's retail stores experiencing intense competitive pressures. The changes in net sales broken down by both wholesale and retail sales is summarized in the following chart: --------------------------------------------------------------- Sales 2000 1999 --------------------------------------------------------------- Wholesale sales $ 409,437 $ 411,913 Intracompany sales (114,910) (123,376) ------------------------------------- Net wholesale sales 294,527 288,537 Retail sales 207,529 208,422 --------------------------------------------------------------- Total $ 502,056 $ 496,959 =============================================================== Compared to 1999, net wholesale sales for 2000 increased 2.1%. In 2000, the quantity of items sold by our wholesale business decreased nominally but this decrease was more than offset by an increase in the prices of goods sold. During 2000, our retail grocery prices increased by approximately 2%, but the quantity of retail sales decreased by a slightly larger margin, resulting in a net retail sale decrease of 0.4%. As part of the Company's continuing efforts to expand its "virtual chain" program, a new 55,000 square-foot franchise replacement supermarket was completed in January 2001 in Slinger, Wisconsin. There are currently four additional facility projects in various phases of planning or construction with completions scheduled throughout 2001. These projects include one replacement franchise unit in Campbellsport, Wisconsin; one expanded franchise store in Mequon, Wisconsin; and two replacement corporate stores in Sheboygan, Wisconsin and Zion, Illinois, respectively. Additionally, the Company announced on January 31, 2001, an agreement to convert a retail supermarket owned and operated by Kohler Company into a Piggly Wiggly franchise unit before the end of the second quarter of 2001. These five facility projects and one new market franchise store will increase aggregate selling space by nearly 75,000 square feet and should contribute to potentially increased wholesale sales in 2001. Based on the Company's internal wholesale price index, inflation did not have a significant effect on sales between years. Gross Margin Our gross margin increased from 16.2% in 1999 to 16.5% in 2000. The improvement in gross margin was primarily related to merchandising and promotional changes initiated early in 2000. In 1999, retail gross margin was adversely impacted by certain promotional events, including the 50th anniversary of Piggly Wiggly(R) stores in Wisconsin. Wholesale gross margins remained virtually unchanged between 2000 and 1999 and were not impacted by a change in the mix of goods sold. E-40 Operating and Administrative Expenses Operating and administrative expenses, as a percent of sales, increased to 14.0% in 2000, compared to 13.5% in 1999. This increase of 0.5%, or $3.4 million, was principally attributable to the following factors: o Due primarily to three retail union health and accident rate increases between September 1, 1999 and February 1, 2000, the Company incurred additional health and accident insurance expenses of approximately $1.1 million, or an increase of 33%, compared to 1999 levels. The Company believes that further rate increases are possible during 2001. o Due to the extremely tight labor market in Wisconsin, especially in Sheboygan, additional overtime hours were necessary to operate the Company's distribution facility. This resulted in the Company incurring incremental distribution payroll costs approximating $500,000. o As the Company continued its efforts to evaluate various strategic alternatives, one-time professional fees in excess of $400,000 were incurred. The Company continues to evaluate various acquisition and strategic alternatives. Due to the continuing competitive nature of the industry, certain franchise operators and corporate retail stores continue to experience operational challenges in their respective marketplaces. As can be expected from a franchisor-franchisee relationship, Schultz has direct receivable exposure from two major factors. First, if there is an underperforming franchise operator, Schultz's exposure can increase. Second, certain marketplace events, such as increased competition, can result in increased realization. Both factors can exist in any franchise operation. The company continuously monitors the financial viability of its retail customers and provides an allowance for both customer credit worthiness and retail subsidies that are provided to these customers. As a result, the company continues to incur significant receivable realization charges from a number of underperforming franchise operators. Total 2000, 1999 and 1998 realization charges relating to wholesale bad debts and retail subsidies were $1.7 million, $2.3 million and $1.5 million, respectively, which are included as a component of Operating and Administrative Expenses on the Consolidated Statement of Earnings. The retail subsidy component of these charges was $1.5 million in both 2000 and 1999 and $1.1 million in 1998. Although certain franchise retail operations have improved, the company continues to evaluate various business initiatives relating to the operations of its underperforming and noncompetitive stores. These initiatives include, but are not limited to, the sale and subsequent conversion of these stores, the closure of these supermarkets or the implementation of other operational changes. As with prior years, implementation of any of these options would likely result in the company incurring certain repositioning or restructuring charges involving the termination costs of replaced, sold or closed stores. These actions would likely negatively impact earnings results in the short-term, however, the company would likely only take such action if it believes that such actions will help the company's long-term profitability. While the company did not incur any significant repositioning expenses during fiscal 2000 and 1999, the company believes there is a greater likelihood that additional repositioning expenses may be incurred in 2001 as the company further evaluates its options with regard to certain stores. Net Earnings The Company's fiscal 2000 operating income decreased 7.4% to $12.3 million, compared to $13.2 million in 1999. After allocating wholesale operating profits on sales through the Company's corporate stores to retail, the wholesale segment yielded $9.4 million in operating income while the retail segment contributed $2.9 million, compared to $9.9 million wholesale and $3.3 million retail for fiscal 1999. Fiscal 2000 earnings before income taxes decreased 6.5% to $12.8 million, compared to $13.7 million in 1999. As a percent of sales, earnings before income taxes decreased to 2.5% in 2000 from 2.7% in 1999. E-41 Net earnings for 2000 decreased 5.3% to $7.9 million, compared to $8.4 million in 1999. Due principally to the intense competitiveness in certain market areas, the Company's net earnings-to-sales ratio decreased nominally to 1.58% in 2000, compared to 1.68% in 1999. The net earnings-to-sales ratio represents the net margin realized by the Company from each dollar of sale. This ratio is used by many companies in our industry to measure the profitability of their sales. As a result of significant Company stock repurchases in 2000 and 1999, diluted earnings per share for 2000 increased 2.3% to $1.33 from $1.30 in 1999. The Company's weighted average common shares and equivalents were 5,951,000 and 6,438,000 for 2000 and 1999, respectively. 1999 vs. 1998 Net Sales Net sales for 1999 were $497.0 million, compared to $484.9 million for 1998. The increase of $12.1 million, or 2.5%, was due to increased wholesale and retail sales volume. Net wholesale sales in 1999 increased 3.0% to $288.5 million, compared to $280.1 million in 1998. The wholesale sales improvement was attributable to the following: o The completion of two Wisconsin franchise store facility projects during the second quarter of 1998; o The completion of five Wisconsin franchise store facility projects during the first half of 1999; o The opening of one new market franchise store in May 1999; o The successful conversion to the Piggly Wiggly program of two new market franchise stores from other wholesalers during the third quarter of 1999; and o A series of successful marketing events, including the 50th anniversary of Piggly Wiggly in Wisconsin held in October and November of 1999. Net wholesale sales were, however, negatively impacted by the Company's two consolidations which were completed in November 1998 and January 1999 resulting in two franchise store closures. Retail sales increased 1.8% to $208.4 million in 1999, compared to $204.8 million in 1998. This improvement in retail sales volume was primarily attributable to the Company's opening of its replacement corporate store in Appleton, Wisconsin in August 1998 and the continued success of various marketing and promotional events. To a lesser extent, retail sales also increased due to the conversion of one franchise store into a corporate store in November 1999. Competitive pressures in certain market areas, however, had an adverse impact on the Company's retail sales in 1999. The changes in net sales broken down by both wholesale and retail sales is summarized in the following chart: ---------------------------------------------------------------- Sales 1999 1998 ---------------------------------------------------------------- Wholesale sales $ 411,913 $ 404,047 Intracompany sales (123,376) (123,912) ------------------------------------- Net wholesale sales 288,537 280,135 Retail sales 208,422 204,750 ---------------------------------------------------------------- Total $ 496,959 $ 484,885 ================================================================ Compared to 1998, net wholesale sales for 1999 increased 3.0% and net retail sales for 1999 increased 1.8%. The majority of both of these increases was due to an increase in the quantity of items sold. E-42 During 1999 the Company had seven facility projects, all but one of which were completed in 2000. These projects included expansions in Kaukauna and Jackson, Wisconsin; one corporate replacement store in Racine, Wisconsin; two replacement supermarkets in Pardeeville and New Holstein, Wisconsin; and one new market store in Kewaskum, Wisconsin. Gross Margin Our gross margin increased nominally from 16.1% in 1998 to 16.2% in 1999. Wholesale and retail gross margins both increased nominally between 1999 and 1998. Operating and Administrative Expenses Operating and administrative expenses, as a percent of sales, increased to 13.5% in 1999, compared to 13.3% in 1998. This increase of 0.2%, or $2.5 million, was principally attributable to a number of factors. From the retail business segment, the Company incurred additional expenses of approximately $850,000 relating to both the Appleton store that was opened in August 1998 and to the Oshkosh store that was converted from a franchise store to a corporate store in November 1999. From the wholesale business segment, the Company incurred additional realization charges of nearly $800,000 in 1999 compared to 1998. Additionally, the Company incurred and expensed more than $500,000 for its comprehensive analysis and evaluation of the Company's ongoing core business (non-Y2K related) requirements. Due to the continuing competitive nature of the industry, certain franchise operators and corporate retail stores experienced operational difficulties in their respective marketplaces. As a result, the Company continued to incur significant realization charges from a number of underperforming franchise operators. Total 1999 and 1998 realization charges relating to wholesale bad debts and retail subsidies were $2.3 million and $1.5 million, respectively. Although certain franchise retail operations improved, the Company continued to evaluate various business initiatives relating to the operations of its underperforming and noncompetitive stores. These initiatives included, but were not limited to, the sale and subsequent conversion of these stores, the closure of these supermarkets or the implementation of other operational changes. During 1999, the Company did not incur any repositioning charges, compared to $200,000 for 1998. Net Earnings The Company's fiscal 1999 operating income decreased 1.8% to $13.2 million, compared to $13.5 million in 1998. After allocating wholesale operating profits on sales through the Company's corporate stores to retail, the wholesale segment yielded $9.9 million in operating income while the retail segment contributed $3.3 million. Fiscal 1999 earnings before income taxes decreased 1.9% to $13.7 million, compared to $13.9 million in 1998. As a percent of sales, earnings before income taxes decreased to 2.7% in 1999 from 2.9% in 1998. Net earnings for 1999 decreased 1.9% to $8.4 million, compared to $8.5 million in 1998. Due principally to the intense competitiveness in certain market areas, the Company's net earnings-to-sales ratio decreased to 1.68% in 1999, compared to 1.76% in 1998. Diluted earnings per share for 1999 increased 5.7% to $1.30 from $1.23 in 1998. Although net earnings decreased nominally in 1999 compared to 1998, diluted earnings per share increased due to the Company's repurchases of 821,600 shares which reduced the weighted average shares and equivalents outstanding. Liquidity and Capital Resources During fiscal 2000 the primary source of liquidity was cash generated from operations. Total cash generated from operations for fiscal 2000 was $21.3 million, compared to $5.5 million in 1999. Cash flow from operations increased significantly between years due principally to timing of cash receipts, cash payments and changes in short-term financing to the Company's wholesale customers. E-43 Net cash outflows for investing activities totaled $4.9 million in 2000 compared to $2.5 million in 1999. This increase in outflows was primarily attributable to increased capital expenditures in 2000, compared to 1999. Of the total capital expenditures of $5.3 million in 2000, the Company invested more than $2.2 million for retail upgrades. Approximately 55% of the retail expenditures related to equipment purchases for the replacement supermarket in Racine, Wisconsin. The remainder of the retail expenditures was used for other corporate retail store equipment and technological upgrades. The wholesale and corporate capital expenditures of $3.1 million in 2000, compared to $1.3 million in 1999, were principally technology-related upgrades. For 2001 the Company's capital budget is estimated at $7.1 million, of which $4.15 million was committed as of December 30, 2000. Of this $7.1 million total, the Company has allocated $4.5 million for retail replacement units and upgrades, $1.1 for technology hardware and software and $1.1 for distribution upgrades. This capital budget of $7.1 million is exclusive of any capital expenditures the Company may incur in 2001 as a result of its comprehensive evaluation of the core business systems. The Company expects to finance these projects from internally generated capital. If the Company decides to channel its working capital to certain strategic growth needs, the Company can also avail itself of its current unused and unsecured bank revolving line of credit totaling $16 million. Net cash outflows for financing activities were $7.4 million in 2000 compared to $14.9 million in 1999. The Company repurchased 558,540 shares of its own stock in 2000 aggregating $6.1 million, compared to 821,600 shares for $12.9 million during 1999. The Company's Board of Directors amended the stock repurchase program twice during 2000, increasing the stock repurchase program from $15 million to eventually $25 million of repurchase authority as of the end of the year. As of December 30, 2000, only $7.4 million remained available for stock repurchases. Since the first stock repurchase program commenced in January 1992, the Company has repurchased nearly 3,500,000 shares, or approximately 40%, of its outstanding common stock. In summary, cash and equivalents for fiscal 2000 increased $8.9 million, resulting in a year-end balance of $31.3 million. Of this year-end cash balance, approximately $21.9 million was invested in short-term investments with maturities of less than three months, such as taxable money market funds and commercial paper with strong credit ratings. The Company does not use any form of derivative securities for hedging or for other reasons. The Company is generally the prime lessee of new retail store facilities, which it then subleases to independent franchise operators. At December 30, 2000, the Company served as the prime lessee of store facilities operated by more than 80% of its existing franchise operators. As part of this arrangement/credit enhancement, the Company subleases the property to the store operator at lease terms similar to those that the Company has with the prime landlord. All new facilities in 2000 were financed through operating lease agreements. The Company also leases transportation equipment, principally tractors and trailers, corporate office space and certain office equipment. Some leases contain contingent rental provisions based on sales volume at retail stores or miles traveled for transportation equipment. Contingent rentals for 2000 and 1999 were both approximately $1.0 million. At December 30, 2000, the Company had recorded $11.6 million of minimum lease payments required to be paid under operating leases in 2001. Additionally, at December 30, 2000, the Company had $8.3 million of long-term capital lease obligations, $4.2 million of which represented long-term receivables from wholesale customers under capital leases. The Company typically provides short-term financing support to its wholesale customers for the purchase of facilities and equipment for new or remodeled stores. After being provided, this financing support is subsequently refinanced, typically through banks, with the Company being reimbursed. As part of the financing program, the Company had contingent liabilities under bank note guarantees totaling nearly $18.0 million at December 30, 2000. All of the loan guarantees are substantially collateralized, principally with equipment and inventory and, to a lesser extent, with building facilities. At December 30, 2000, the Company's ratio of total liabilities to shareholders' investment was 1.12, compared to a ratio of 0.95 at January 1, 2000. E-44 The Company believes its cash, working capital and debt-to-equity positions continue to compare very favorably to most industry competitors. Additionally, the Company believes that its financial condition and cash flow from operations will continue to provide it with adequate long-term flexibility to finance anticipated capital requirements without adversely impacting its financial position or liquidity. Company Business The Company is engaged in distributing food and related products at wholesale and retail. At April 27, 2001, the Company franchised 72 and operated 19 corporate retail supermarkets under the Piggly Wiggly name in its eastern and northeastern Illinois market areas. The Company is the prime supplier to its franchised and corporate supermarkets. The Company also serves as a wholesaler to other smaller independent retail stores in its market areas. The Company supplies grocery, frozen food, dairy and produce to its customers through its 364,000 square-foot distribution center in Sheboygan, Wisconsin. Also, the Company provides its customers with fresh, frozen and processed meats, eggs and deli items through a third-party distribution facility in Milwaukee, Wisconsin on a contract basis. The Company employs approximately 1,750 persons, nearly 1,300 of whom are employed in the corporate retail segment operations. A majority of the Company's retail employees are employed on a part-time basis. Of the Company's remaining employees, approximately 200 are engaged in warehousing, distribution and trucking activities, and nearly 250 are corporate and administrative personnel. E-45 EX-21 4 pdm57x21.txt SUBSIDIARIES EXHIBIT 21 Subsidiaries of the Registrant Schultz Sav-O Stores, Inc. has three subsidiaries, all of which are Wisconsin corporations: PW Trucking, Inc., Fresh Brands, Inc. and Schultz Acquisition Corp. EX-23 5 pdm57x23.txt CONSENT EXHIBIT 23 Consent of Independent Public Accountants As independent public accountants, we hereby consent to the incorporation by reference in this Form 10-K/A of our report dated February 8, 2001 included in the Company's previously filed Form S-4 Registration Statement, File No. 333-56222. /s/ Arthur Andersen LLP ARTHUR ANDERSEN LLP Milwaukee, Wisconsin May 30, 2001 -----END PRIVACY-ENHANCED MESSAGE-----