SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
- --- THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 21, 2001
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
- --- OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-549
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SCHULTZ SAV-O STORES, INC.
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(Exact Name of Registrant as Specified in its Charter)
WISCONSIN 39-0600405
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(State or other jurisdiction (I.R.S. Employer
of incorporation of organization) Identification No.)
2215 UNION AVENUE 53081
SHEBOYGAN, WISCONSIN ----------
-------------------- (Zip Code)
(Address of principal
executive offices)
Registrant's telephone number
including area code 920-457-4433
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Former name, former address and former fiscal year,
if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (of for such shorter period that the
registrant was required to file such reports), and (2) has been subject to the
filing requirements for the past 90 days. Yes _X_ No___
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all reports
required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act
of 1934 subsequent to the distribution of securities under a plan confirmed by a
court. Yes___ No___
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding
of each of the issuer's classes of common stock, as of the latest practicable
date.
As of May 21, 2001, 5,196,380 shares of Common Stock, $0.05 par value, were
issued and outstanding.
SCHULTZ SAV-O STORES, INC.
FORM 10-Q INDEX
PAGE
NUMBER
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets -
April 21, 2001 3
Unaudited Consolidated Statements of Earnings -
16-weeks Ended April 21, 2001 4
Unaudited Consolidated Statements of Cash Flows -
16-weeks Ended April 21, 2001 5
Notes to Unaudited Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 8
Item 3. Quantitative and Qualitative Disclosures
about Market Risk 11
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
2
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
SCHULTZ SAV-O STORES, INC.
CONSOLIDATED BALANCE SHEETS
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(Unaudited) (Audited)
April 21, December 30,
Assets 2001 2000
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Current assets:
Cash and equivalents $ 24,996,000 $ 31,309,000
Receivables 12,271,000 11,691,000
Inventories 24,739,000 24,259,000
Other current assets 5,004,000 2,916,000
Deferred Income taxes 4,102,000 4,102,000
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Total current assets 71,112,000 $ 74,277,000
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Noncurrent receivable under capital subleases 4,036,000 4,163,000
Property under capital leases, net 2,924,000 3,051,000
Other noncurrent assets 2,092,000 1,995,000
Property and equipment, net 20,493,000 21,413,000
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Total assets $ 100,657,000 $ 104,899,000
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Liabilities and Shareholders' Investment
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Current liabilities:
Accounts payable $ 24,446,000 $ 27,700,000
Accrued salaries and benefits 5,064,000 5,673,000
Accrued insurance 3,166,000 3,032,000
Other accrued liabilities 5,797,000 6,197,000
Current obligations under capital leases 816,000 785,000
Current maturities of long-term debt 172,000 169,000
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Total current liabilities 39,461,000 43,556,000
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Long-term obligations under capital leases 8,012,000 8,284,000
Long-term debt 2,616,000 2,685,000
Deferred income taxes 861,000 861,000
Shareholders' investment:
Common stock 438,000 438,000
Additional paid-in capital 15,183,000 15,174,000
Retained earnings 71,163,000 69,767,000
Treasury stock (37,077,000) (35,866,000)
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Total shareholders' investment 49,707,000 49,513,000
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Total liabilities and shareholders' investment $ 100,657,000 $ 104,899,000
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See notes to unaudited consolidated financial statements.
3
SCHULTZ SAV-O STORES, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF EARNINGS
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For the 16-weeks ended
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April 21, 2001 April 22, 2000
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Net sales $ 155,724,000 $ 147,688,000
Cost of products sold 129,662,000 123,230,000
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Gross profit 26,062,000 24,458,000
Operating and administrative expenses 23,118,000 21,459,000
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Operating income 2,944,000 2,999,000
Interest income 388,000 276,000
Interest expense (284,000) (262,000)
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Earnings before income taxes 3,048,000 3,013,000
Provision for income taxes 1,158,000 1,145,000
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Net earnings $ 1,890,000 $ 1,868,000
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Earnings per share
Basic: net earnings $ 0.34 $ 0.31
weighted average shares 5,503,000 5,943,000
Diluted: net earnings $ 0.34 $ 0.31
weighted average shares and equivalents 5,518,000 5,999,000
Dividends per share $ 0.09 $ 0.09
===================================================================================
See notes to unaudited consolidated financial statements.
4
SCHULTZ SAV-O STORES, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
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For the 16-weeks ended
April 21, 2001 April 22, 2000
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 1,890,000 $ 1,868,000
Adjustments to reconcile net earnings to net cash flows
from operating activities
Depreciation and amortization 1,580,000 1,601,000
Changes in assets and liabilities
Receivables (580,000) (4,685,000)
Inventories (480,000) 4,065,000
Other assets (2,377,000) (1,409,000)
Accounts payable (3,254,000) 4,039,000
Accrued liabilities (866,000) (1,112,000)
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Net cash flows from operating activities (4,087,000) 4,367,000
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CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property and equipment (327,000) (1,438,000)
Receipt of principal amounts under capital
sublease agreements 112,000 100,000
Other - 1,000
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Net cash flows from investing activities (215,000) (1,337,000)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Payment for acquisition of treasury stock (1,598,000) -
Payment of cash dividends (493,000) (535,000)
Exercise of stock options 363,000 -
Principal payments under capital lease obligations (241,000) (215,000)
Principal payments on long-term debt (66,000) (62,000)
Other 24,000 24,000
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Net cash flows from financing activities (2,011,000) (788,000)
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CASH AND EQUIVALENTS:
Net change (6,313,000) 2,242,000
Balance, beginning of period 31,309,000 22,433,000
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Balance, end of period $ 24,996,000 $ 24,675,000
======================================================================================================================
See notes to unaudited consolidated financial statements.
5
SCHULTZ SAV-O STORES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation
The financial statements included herein have been prepared by the Company,
without audit. Although certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted, the Company believes that
the disclosures are adequate to make the information presented not misleading.
The interim financial statements furnished with this report reflect all
adjustments of a normal recurring nature, which are, in the opinion of
management, necessary for a fair statement of the results for the interim
periods presented. It is suggested that these financial statements be read in
conjunction with the audited financial statements and the notes thereto included
in the Company's 2000 annual report to shareholders, as incorporated by
reference in the Company's Form 10-K for the fiscal year ended December 30,
2000.
(2) Interest Expense
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For the 16-weeks ended
April 21, 2001 April 22, 2000
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Imputed - capital leases $ 159,000 $ 174,000
Long-term debt 84,000 88,000
Other 41,000 -
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Interest expense $ 284,000 $ 262,000
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(3) Other Current Assets
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April 21, 2001 December 30, 2000
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Property held for resale $ 3,012,000 $ 647,000
Prepaid expenses 1,136,000 1,417,000
Retail systems and supplies for resale 474,000 484,000
Receivable under capital subleases 382,000 368,000
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Other current assets $ 5,004,000 $ 2,916,000
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(4) Segment Reporting
Summarized financial information for the first quarter and year-to-date of 2001
and 2000 concerning the Company's reportable segments is shown in the following
tables (in thousands):
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Sales 2001 2000
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Wholesale sales $ 127,011 $ 120,394
Intracompany sales (35,791) (34,950)
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Net wholesale sales 91,220 85,444
Retail sales 64,504 62,244
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Total sales $ 155,724 $ 147,688
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Earnings Before Income Tax 2001 2000
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Wholesale $ 2,492 $ 2,475
Retail 452 524
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Total operating income 2,944 2,999
Interest income 388 276
Interest expense (284) (262)
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Earnings before income taxes $ 3,048 $ 3,013
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(5) Supplementary Disclosure of Cash Flow Information
Interest and taxes paid included in the Company's cash flow from operations for
the 16-weeks ended were as follows:
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April 21, 2001 April 22, 2000
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Interest paid $ 277,000 $ 257,000
Taxes paid 1,095,000 1,013,000
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(6) Reclassification
Certain first quarter 2000 information previously reported has been reclassified
to conform to the first quarter 2001 presentation.
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Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations
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Selected costs and results as a percent of net sales:
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For the 16-weeks ended
April 21, 2001 April 22, 2000
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Gross margin 16.7% 16.6%
Operating and administrative expenses 14.8 14.5
Earnings before income taxes 2.0 2.0
Net earnings 1.2 1.3
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Net Sales
Net sales for the 16-week first quarter ended April 21, 2001 were $155.7 million
compared to $147.7 million for the same period in 2000. The increase of $8.0
million, or 5.4%, was due to increases from both the Company's retail and
wholesale operations. The key factor behind the retail and wholesale sales
improvements was the Piggly Wiggly(R) Preferred Power Pricing marketing and
promotional program, which was initiated in January 2001. Total retail sales
volume for the first quarter ended April 21, 2001 increased to $64.5 million
compared to $62.2 million for the same period in 2000. In addition to the
marketing and promotional program, the increase of $2.3 million, or 3.6%, was
positively impacted by the replacement of one corporate store in Racine,
Wisconsin in May 2000 and store closures over the past year by competitors. Net
wholesale sales for the 16-week first quarter ended April 21, 2001 were $91.2
million compared to $85.5 million for the same period in 2000. The increase of
$5.7 million, or 6.7%, was attributable to: (1) the successful marketing and
promotional program; (2) the opening of three replacement franchise stores, one
in New Holstein, Wisconsin in September, 2000, the second in Slinger, Wisconsin
in January 2001 and the third in Campbellsport, Wisconsin in April 2001; and (3)
the opening of one new market franchise supermarket in Kewaskum, Wisconsin in
June 2000. For the Piggly Wiggly franchise and corporate retail chain, same
store sales for the first quarter of 2001 increased 2.8% compared to the same
period in 2000. As of May 21, 2001, the Company had 70 independent franchise
owned supermarkets and 19 corporate stores, all operating under the Piggly
Wiggly(R) banner.
During the first quarter of 2001, compared to the same period last year, the
quantity of items sold through the wholesale and retail segments of the business
both increased. The quantity improvement in the wholesale segment was coupled
with nominal increases in prices of goods sold. For retail, however, due
principally to certain marketing and promotional programs, the prices of goods
sold were consistent.
In the first quarter of 2001, the Company successfully converted a franchise
store to the Piggly Wiggly program in Kohler, Wisconsin from another wholesaler.
In addition to the completed Slinger and Campbellsport projects, the Company is
in various phases of other planning and construction projects, which include an
expanded franchise store in Mequon, Wisconsin and replacement corporate stores
in Sheboygan, Wisconsin and Zion, Illinois. The Sheboygan and Zion projects are
scheduled to be completed in 2001.
Gross Margin
Gross margin, as a percent of sales, for the first quarter of 2001 increased
nominally to 16.7% from 16.6% for the same period in 2000. The improvement in
gross margin was primarily related to continuing merchandising and promotional
changes. During the first quarter of 2001, retail gross margin declined
nominally due to aggressive marketing strategies associated with the Piggly
Wiggly(R) Preferred
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Power Pricing marketing and promotional program. The slight decrease experienced
was offset by improved wholesale gross margin resulting from procurement program
adjustments.
Operating and Administrative Expenses
Operating and administrative expenses, as a percent of sales, increased to 14.8%
for the 16-week first quarter ended April 21, 2001 compared to 14.5% for the
same period in 2000. The increase in operating and administrative expenses was
due principally to incremental professional fees of $375,000 related to various
strategic initiatives the Company is currently undertaking, and additional
retail subsidies of $250,000 related to the closure on April 27, 2001 of two
under-performing and non-competitive franchise stores located in Milwaukee,
Wisconsin and Gurnee, Illinois. The Company anticipates these store closures
will have a positive impact on its long-term profitability.
Due to the ongoing highly competitive nature of the industry in the Company's
markets, certain Company franchise operators and corporate retail supermarkets
continue to experience a variety of operational issues in their respective
marketplaces. The Company continues to evaluate various business alternatives
relating to these underperforming operations. The Company's business
alternatives include, but are not limited to, the sale and subsequent conversion
of corporate stores to franchise units, closing stores, or implementing other
operational changes. Similar to certain prior years, implementation of these
alternatives is likely to result in the Company incurring certain repositioning
or restructuring charges for these replaced, closed or sold stores and
negatively impact net earnings in the short-term.
Net Earnings
Net earnings for the 16-week first quarter ended April 21, 2001 increased 1.2%
to $1.89 million compared to $1.87 million for the same period in 2000. Diluted
earnings per share for the first quarter of 2001 increased 9.7% to a record
$0.34 compared to $0.31 for the same period in 2000.
Diluted earnings per share increased at a greater percentage than net earnings
for the peiod due to continued share repurchases since the first quarter of
2000. Weighted average common shares and equivalents for the first quarter of
2001 were 5,518,000 compared to 5,999,000 for the same period in 2000.
Liquidity and Capital Resources
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At April 21, 2001, the Company had cash and equivalents totaling $25.0 million.
As of December 30, 2000, cash and equivalents aggregated $31.3 million. The net
cash outflow of $6.3 million was attributable to certain operational, investing
and financing activities described below.
The Company had net cash outflows from operating activities of $4.1 million
during the first quarter of 2001, compared to a net cash inflow of $4.4 million
for the same period in 2000. The decrease in cash flows from operations was due
primarily to the timing of cash receipts, cash payments and changes in
short-term financing to the Company's wholesale customers. The combined effect
of changes in accounts receivable, inventory and accounts payable was to
decrease operating cash flow by $4.3 million compared to operational cash
inflows of $3.4 million during the first quarter of 2000. Of the 2000 first
quarter inflow, approximately $2.1 million resulted from decreasing inventory
levels maintained in preparation for the possible effects of Y2K. An additional
factor affecting the net cash outflow was a $2.4 million increase in property
held for resale subsequent to year-end 2000. Major facilities projects currently
underway in Sheboygan, Wisconsin and Zion, Illinois primarily contributed to the
increase.
Net cash outflows from investing activities for the first quarter of 2001 ended
April 21, 2001 totaled $215,000, compared to $1.3 million for the same period in
2000. The Company expended $327,000 for capital items during the first quarter
of 2001 compared to $1.4 million for the same period in 2000.
9
Significant expenditures were experienced in the first quarter of 2000 due to
equipment purchases for the replacement supermarket in Racine, Wisconsin. Of the
approximate $7.0 million 2001 budget, the Company had committed $4,150,000 for
specific capital projects at the end of the first quarter of 2001.
Net cash outflows from financing activities for the 16-week first quarter ended
April 21, 2001 totaled $2.0 million compared to nearly $800,000 for the same
period in 2000. The increase was due exclusively to the Company repurchasing
nearly 145,000 shares of common stock during the first quarter of 2001,
aggregating $1.6 million, compared to no share repurchases during the first
quarter of 2000. Subject to market conditions and other factors, the Company
will continue to repurchase its outstanding common stock. As of May 21, 2001,
approximately $5.5 million remained of the board authorized repurchase limit of
$25 million.
The Company's working capital position at April 21, 2001 was $31.7 million,
compared to $30.7 million at December 30, 2000. The Company's current ratio at
April 21, 2001 was 1.80 to 1.00 with cash and equivalents constituting
substantially all of the working capital. As of April 21, 2001 the Company has
unsecured revolving bank credit facilities aggregating $16.0 million. The
Company is currently in negotiations with the Company's banks to increase the
revolving bank credit to facilitate strategic initiatives. At April 21, 2001,
the Company's liquidity position continues to be very favorable and strong.
The Company's board of directors has proposed restructuring the corporate
structure to create a holding company called Fresh Brands, Inc. The proposal,
which requires shareholder approval at the May 30, 2001 shareholder meeting,
would allow the Company (1) to retain corporate cultures associated with brand
names of acquired stores; (2) maintain distinct management teams under different
names and formats; (3) improve the ability to operate retail stores of different
brand names; (4) provide greater flexibility in meeting financing needs; and (5)
create one entity, Fresh Brands, Inc., to be recognized by shareholders, the
public and financial institutions. If the proposal is approved by shareholders,
each current Schultz Sav-O Stores, Inc. shareholder would automatically (and
without any action on his or her part) receive one share of Fresh Brands, Inc.
for every share of Schultz Sav-O Stores, Inc. that he or she owns. The Company
expects Fresh Brands, Inc. to trade on the Nasdaq National Market System under
the symbol "FRSH" beginning in early June. This structure will allow the Company
to expand through the addition of individual stores, which may operate under the
Piggly Wiggly name, as well as, multi-store acquisitions under other brand
names.
On April 18, 2001, Schultz Sav-O Stores, Inc. announced that its affiliate
Schultz Acquisition Corp., a subsidiary of Fresh Brands, Inc., had signed a
definitive purchase agreement to acquire Brodbeck Enterprises, Inc., the
Platteville, Wisconsin-based operator of Dick's Supermarkets. Dick's
Supermarkets operates eight stores in southwestern Wisconsin and northwestern
Illinois. The Company anticipates the closing date to be June 16, 2001. After
the acquistion is complete, the entity will be re-named Dick's Supermarkets,
Inc. and will be a wholly owned subsidiary of Fresh Brands, Inc..
Special Note Regarding Forward-Looking Statements
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Certain matters discussed in this 10-Q are forward-looking statements" intended
to qualify for the safe harbors from liability established by the Private
Securities Litigation Reform Act of 1995. These forward-looking statements can
generally be identified as such because the context of the statement will
include words such as the Company believes, anticipates, expects or words of
similar import. Similarly, statements that describe the Company's future plans,
objectives, strategies or goals are also forward-looking statements. Such
forward-looking statements are subject to certain risks and uncertainties
including, but not limited, to the following: (1) presence of intense
competitive market activity in the Company's market areas;(2) ability to
identify and develop new market locations for expansion purposes; (3) continuing
ability to obtain reasonable vendor marketing funds for promotional purposes;
(4) ongoing advancing information technology requirements; (5) ongoing absence
of food price inflation; (6) the Company's ability to continue to recruit, train
and retain quality franchise and corporate retail store
10
operators; (7) the potential recognition of repositioning charges resulting from
potential closures, conversions and consolidations of retail stores due
principally to the competitive nature of the industry and to the quality of the
Company's retail store operators; and (8) the Company's ability to integrate and
assimilate the acquisition of Brodbeck Enterprises, Inc., and to achieve, on a
timely basis, the Company's anticipated benefits and synergies thereof.
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
release and the Company undertakes no obligation to publicly update such
forward-looking statements to reflect subsequent events or circumstances.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company believes that its exposure to market risks related to changes in
foreign currency exchange rates, interest rate fluctuations and trade accounts
receivable is immaterial.
11
PART II Other Information
Item 2. Changes in Securities and Use of Proceeds
In accordance with its program for annual compensation of independent directors,
during the first quarter, 2001, the Company issued 573 shares of its Common
Stock to four non-employee directors who are expected to serve on the board of
directors for the entire year and 238 shares to its retiring non-employee
director. The Company issued such shares without registration under the
Securities Act of 1933 in reliance on Section 4(2) of such Act.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports of Form 8-K
The Company filed one current report on Form 8-K dated February 20,
2001 with respect to its press release for the fiscal year ended
December 30, 2000 and related disclosure requirements of Regulation
FD.
The Company filed one current report on Form 8-K dated April 2, 2001
with respect to its expansion strategies for increased growth and
profitability and related disclosure requirements of Regulation FD.
The Company filed one current report on Form 8-K dated April 18, 2001
with respect to its definitive purchase agreement to acquire Brodbeck
Enterprises, Inc and related disclosure requirements of Regulation FD.
The Company filed one current report on Form 8-K dated May 9, 2001
with respect to its press release for the first quarter and related
disclosure requirements of Regulation FD.
12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SCHULTZ SAV-O STORES, INC.
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(Registrant)
May 25, 2001 /s/ Armand C. Go
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(Date) Armand C. Go, Vice President,
Chief Financial Officer, Secretary and Treasurer
13