SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________________
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 25, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 0-549
SCHULTZ SAV-O STORES, INC.
(Exact Name of Registrant as Specified in its Charter)
WISCONSIN 39-0600405
(State or other jurisdiction (I.R.S. Employer
of incorporation of organization) Identification No.)
2215 UNION AVENUE 53082-0419
SHEBOYGAN, WISCONSIN (Zip Code)
(Address of principal
executive offices)
Registrant's telephone number
including area code 920-457-4433
Former name, former address and former fiscal year,
if changed since last report
Indicate by check mark v 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 v 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 June 1, 1998, 6,812,779 shares of Common Stock, $0.05 par value,
were issued and outstanding.
SCHULTZ SAV-O STORES, INC.
FORM 10-Q INDEX
PAGE
NUMBER
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets 3
Unaudited Consolidated Statements of
Earnings 4
Unaudited Consolidated Statements of
Cash Flows 5
Notes to Unaudited Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 7
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 10
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
SCHULTZ SAV-O STORES, INC.
CONSOLIDATED BALANCE SHEETS
Unaudited Audited
April 25, January 3,
Assets 1998 1998
Current assets:
Cash and equivalents $25,081,000 $23,124,000
Receivables 10,991,000 9,718,000
Inventories 21,631,000 21,741,000
Other current assets 3,700,000 3,635,000
Deferred income taxes 4,131,000 4,131,000
---------- ----------
Total current assets 65,534,000 62,349,000
Noncurrent receivable under capital
subleases 7,116,000 7,270,000
Property under capital leases, net 2,698,000 2,786,000
Other noncurrent assets 3,842,000 3,782,000
Property and equipment, net 22,064,000 22,679,000
----------- -----------
Total Assets $101,254,000 $98,866,000
Liabilities and Shareholders'
Investment
Current liabilities:
Accounts payable $23,978,000 $21,305,000
Accrued salaries and benefits 4,305,000 4,395,000
Accrued insurance 3,341,000 3,095,000
Retail repositioning reserve 560,000 610,000
Other accrued liabilities 1,818,000 2,861,000
Current obligations under capital
leases 691,000 665,000
Current maturities of long-term
debt 149,000 201,000
---------- ----------
Total current liabilities 34,842,000 33,132,000
---------- ----------
Long-term obligations under capital
leases 10,946,000 11,177,000
Long-term debt 3,096,000 3,165,000
Deferred income taxes 1,008,000 1,008,000
Shareholders' investment:
Common stock 438,000 438,000
Additional paid-in capital 14,111,000 13,940,000
Retained earnings 52,533,000 51,299,000
Treasury stock (15,720,000) (15,293,000)
---------- ----------
Total shareholders' investment 51,362,000 50,384,000
----------- -----------
Total Liabilities and Shareholders'
Investment $101,254,000 $98,866,000
=========== ===========
SCHULTZ SAV-O STORES, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF EARNINGS
For the 16-weeks ended
April 25, April 19,
1998 1997
Net sales $42,142,000 $138,826,000
Costs and expenses:
Cost of products sold 119,079,000 116,749,000
Operating and administrative
expenses 20,301,000 19,500,000
Operating income 2,762,000 2,577,000
Interest income 305,000 266,000
Interest expense (271,000) (263,000)
--------- ---------
Earnings before income taxes 2,796,000 2,580,000
Provision for income taxes 1,085,000 993,000
--------- ---------
Net earnings $1,711,000 $1,587,000
========= =========
Earnings per share - basic $0.25 $0.23
===== =====
Earnings per share - diluted $0.24 $0.22
===== =====
Cash dividends paid per share $0.070 $0.067
===== =====
Weighted average shares and
equivalents 7,140,000 7,200,000
========= =========
SCHULTZ SAV-O STORES, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the 16-weeks ended
April 25, April 19,
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $1,711,000 $1,587,000
Adjustments to reconcile net earnings
to net cash flows from
operating activities
Depreciation and amortization 1,574,000 1,307,000
Changes in assets and liabilities
Receivables (1,273,000) (3,082,000)
Inventories 110,000 1,895,000
Other current assets (265,000) (285,000)
Accounts payable 2,673,000 903,000
Accrued liabilities (766,000) (1,053,000)
---------- ----------
Net cash flows from operating
activities 3,764,000 1,272,000
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property and
equipment (749,000) (487,000)
Receipt of principal amounts under
capitalsublease agreements 136,000 168,000
Proceeds from asset sales 36,000 125,000
--------- ---------
Net cash flows from investing
activities (577,000) (194,000)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment for acquisition of treasury
stock (659,000) (602,000)
Payment of cash dividends (477,000) (465,000)
Proceeds from exercise of stock
options 232,000 164,000
Principal payments under capital lease
obligations (205,000) (229,000)
Principal payments on long-term debt (121,000) (113,000)
--------- ---------
Net cash flows from financing
activities (1,230,000) (1,245,000)
--------- ---------
CASH AND EQUIVALENTS:
Net change 1,957,000 (167,000)
Balance, beginning of period 23,124,000 27,531,000
---------- ----------
Balance, end of period $25,081,000 $27,364,000
========== ==========
SCHULTZ SAV-O STORES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation
The financial statements included herein have been prepared by the
Company, without audit. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted,
although the Company believes that the disclosures are adequate to make
the information presented not misleading. The interim financial statements
furnished with this report reflect all adjustments of a normal recurring
nature, which are, in the opinion of management, necessary for a fair
statement of the results for the interim periods presented. It is
suggested that these financial statements be read in conjunction with the
audited financial statements and the notes thereto included in the
Company's 1997 annual report to shareholders, as incorporated by reference
in the Company's Form 10-K for the fiscal year ended January 3, 1998.
(2) Interest Expense
For the 16-weeks ended
April 25, April 19,
1998 1997
Imputed - capital leases $145,000 $153,000
Long-term debt 100,000 110,000
Other 26,000 -
------- -------
Interest expense $271,000 $263,000
======= =======
(3) Other Current Assets
April 25, January 3,
1998 1998
Property held for resale $1,446,000 $1,663,000
Prepaid expenses 1,193,000 1,209,000
Retail systems for resale and other
assets 600,000 320,000
Receivable under capital subleases 461,000 443,000
--------- ---------
Other current assets $3,700,000 $3,635,000
========= =========
(4) Supplementary Disclosure of Cash Flow Information
Interest and taxes paid included in the Company's cash flow from
operations were as follows:
April 25, April 19,
1998 1997
Interest paid $293,000 $295,000
Taxes paid 1,068,000 1,990,000
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations
Selected costs and results as a percent of net sales:
For the 16-weeks ended
April 25, April 19,
1998 1997
Cost of products sold . . . . . . . . . . . 83.7% 84.1%
Operating and administrative expenses . . . 14.3 14.0
Earnings before income taxes . . . . . . . 2.0 1.9
Net earnings . . . . . . . . . . . . . . . 1.2 1.1
Net Sales
Net sales for the 16-week period ended April 25, 1998 were $142,142,000
compared to the 16-week period ended April 19, 1997 net sales of
$138,826,000. The increase of $3,316,000, or 2.4%, was due primarily to
increased wholesale business volume resulting from additions and
enhancements to the Company's "virtual chain" base of franchised and
corporate supermarkets. Since April 19, 1997, the Company has added two
corporate stores in the greater Appleton, Wisconsin area and has added or
expanded franchised stores in Milton, DePere, Manitowoc, Evansville,
Waterloo, Poynette and Howards Grove, Wisconsin. Additionally, the
Company completed in October 1997 the two-year implementation of the
Piggly Wiggly Preferred Club/R/ electronic card marketing program. The
increased volume was offset by the fact that: (i) since March 1998, two
large supermarkets opened in the same market area as the Company's new
store, thereby intensifying the competitive environment in Appleton; (ii)
the closure of one underperforming franchise supermarket in Plover,
Wisconsin in September 1997; and (iii) the closure of one noncompetitive
corporate retail store in Appleton in November 1997 as a result of the
acquisition of two operating units from Nash Finch Company. As of April
25, 1998, the Company had 69 franchised and 18 corporate supermarkets
compared to 68 franchised and 16 corporate supermarkets at April 19, 1997.
Consistent with the Company's business strategy to expand its wholesale
volume, since April 25, 1998, the Company has added a non-traditional
specialty retail unit customer in Shorewood, Wisconsin. Additionally, the
Company completed one replacement franchise supermarket in Lomira,
Wisconsin increasing the aggregate square footage of selling space by more
than 50%, to nearly 26,000. Currently, there are six retail store
expansion or renovation projects in various phases of planning or
construction, with completions scheduled throughout 1998 and 1999. These
projects involve four additions to existing franchise stores in Waupaca,
Beaver Dam, Kiel and Crivitz, Wisconsin; one replacement supermarket in
Fort Atkinson, Wisconsin; and one renovation to the acquired corporate
supermarket in Appleton, Wisconsin. On an aggregate basis, these six new
facilities, upon completion, are expected to add approximately 40,000
square feet of store selling space. Additionally, the Company expects
these projects to continue to help the Company position itself against
competitive pressures in these local marketplaces.
Cost of Products Sold
Cost of products sold, as a percent of sales, decreased 0.4% to 83.7% for
the 16-week period ended April 25, 1998, compared to the same period in
1997. This nominal decrease was principally a direct result of an
increase in higher margin retail sales from additional corporate stores.
With additional corporate stores in Appleton and Oshkosh, Wisconsin since
April 19, 1997, the Company's percentage of higher margin retail sales
volume increased relative to the lower margin wholesale sales.
Operating and Administrative Expenses
Operating and administrative expenses amounted to 14.3% of net sales for
the 16-weeks ended April 25,1998, compared to 14.0% for the same period in
1997. Total operating and administrative expenses increased to
$20,301,000 for the first quarter of 1998 due principally to additional
corporate supermarkets in Appleton and Oshkosh, Wisconsin. These
additional operating expenses were offset partially by lower provisions
for self-insured health programs due to continuing reduced frequency and
severity of claims.
Due to the highly competitive nature of the industry, certain of the
Company's franchise operators and corporate retail stores continue to
experience operational difficulties in their respective marketplaces. As
a result, the Company continues to incur receivable realization charges
from its underperforming franchise operators. Additionally, the Company
continues to evaluate various business alternatives relating to the
operations of its underperforming corporate retail stores. The Company's
business alternatives include the sale and subsequent conversion of these
stores into franchise units, the closing of noncompetitive stores or the
implementation of other operational changes. Similar to prior years,
implementation of these changes may result in the Company incurring
certain repositioning or restructuring charges involving the termination
costs of replaced, closed or sold stores. These actions can negatively
impact net earnings in the short-term, but management believes that such
actions will help improve the Company's long-term profitability.
Net Earnings
After applying the effective tax rate to earnings before income taxes, net
earnings for the 16-week ended April 25, 1998, increased 7.8% to
$1,711,000 compared with net earnings of $1,587,000 for the same period in
1997. With improvements in sales and productivity, the Company's net
earnings-to-sales ratio for the 16-weeks ended April 25, 1998 improved
nominally to 1.2%, compared to 1.1% for the same period in 1997.
Additionally, the 16-weeks ended April 25, 1998 diluted earnings per share
increased 9.1% to $0.24 from $0.22 for the same period in 1997. The
number of consecutive quarters showing increases in net earnings over the
prior year's quarter has been extended to 21.
Liquidity and Capital Resources
The Company's favorable first quarter 1998 operating results continued to
enhance its strong financial position. As was the case in the prior year,
the primary source of liquidity was cash generated from operations. Cash
provided by operating activities for the first 16 weeks of 1998 was
$3,764,000, compared to $1,272,000 for the same period in 1997. The
increase was due principally to timing of cash receipts, cash payments and
changes in short-term financing to its wholesale customers for the
purchases of new store equipment. The cash flow from operations has
enabled the Company to internally fund its capital expenditures and pay
for cash dividends.
Net cash outflows from investing activities for the first 16 weeks of 1998
totaled $577,000, compared to net cash outflows of $194,000 during the
same period in 1997. The increase in cash outflows was due primarily to
higher capital expenditures for the first 16 weeks of 1998 compared to the
same period in 1997. The Company has a 1998 capital budget of $4,300,000,
of which approximately $3,550,000 remain for future expenditures in 1998.
The Company anticipates financing these needs from internally generated
capital.
Net cash outflows from financing activities for the 16-week periods ended
April 25, 1998 and April 19, 1997 were very comparable at $1,230,000 and
$1,245,000, respectively. The Company expects the strong operating
profits to continue to provide much of the funding necessary for the
Company's capital expansion. The Company maintains a revolving credit
facility agreement through April 30, 1999 with two banks to provide up to
$16 million of borrowings at rates not to exceed the banks' prime rates.
At April 25, 1998 and April 19, 1997, there were no borrowings outstanding
under this agreement.
In summary, cash and equivalents increased $1,957,000 during the 16-weeks
ended April 25, 1998, compared to a decrease of $167,000 during the same
period in 1997. In view of the Company's significant cash and other
liquid assets, its consistent ability to generate cash flows from
operations and the availability of external financing, the Company
foresees no difficulty in providing financing necessary to fund its
capital commitments and working capital needs for the foreseeable future.
Special Note Regarding Forward-Looking Statements
Certain matters discussed in this Form 10-Q are "forward-looking
statements" intended to qualify for the safe harbors from liability
established by the Private Securities Litigation Reform Act of 1995.
These forward-looking statements can generally be identified as such
because the context of the statement will include words such as the
Company "believes," "anticipates," "expects" or words of similar import.
Similarly, statements that describe the Company's future plans, objectives
or goals are also forward-looking statements. Such forward-looking
statements are subject to certain risks and uncertainties which could
cause actual results to differ materially from those currently
anticipated. Shareholders, potential investors and other readers are
urged to consider these factors carefully in evaluating the forward-
looking statements and are cautioned not to place undue reliance on such
forward-looking statements. The forward-looking statements made herein
are only made as of the date of this report and the Company undertakes no
obligation to publicly update such forward-looking statements to reflect
subsequent events or circumstances.
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Exhibit 10.1 Letter Agreement, dated January 30, 1998, between
Schultz Sav-O Stores, Inc. and Frank D. Welch.
Exhibit 10.2 Amendment No. 2 to Piggly Wiggly Master Franchise
Agreement, dated as of June 3, 1998 between Schultz
Sav-O Stores, Inc. and Piggly Wiggly Corporation.
Exhibit 27 Financial Data Schedule.
(b) No reports of Form 8-K were filed by the Company during the
first 16 weeks of fiscal 1998.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SCHULTZ SAV-O STORES, INC.
(Registrant)
June 8, 1998 /s/ Armand C. Go
(Date) Armand C. Go, Treasurer and
Chief Accounting Officer
EXHIBIT INDEX
Exhibit 10.1 Letter Agreement, dated January 30, 1998, between Schultz
Sav-O Stores, Inc. and Frank D. Welch.
Exhibit 10.2 Amendment No. 2 to Piggly Wiggly Master Franchise
Agreement, dated as of June 3, 1998 between Schultz Sav-O
Stores, Inc. and Piggly Wiggly Corporation.
Exhibit 27 Financial Data Schedule.