SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended
January 2, 1999.
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 March 24, 1999: $97,181,105*.
Number of shares outstanding of the registrant's Common Stock as of March 24,
1999: 6,560,179.
PORTIONS OF THE FOLLOWING DOCUMENTS ARE INCORPORATED HEREIN BY REFERENCE:
1998 Annual Report to Shareholders (incorporated by reference into Parts
II and IV to the extent indicated therein).
Definitive Proxy Statement for 1999 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).
- - ---------------
* Only excludes shares benefically owned by directors and officers of the
registrant
PART I
Special Note Regarding Forward-Looking Statements
We make certain "forward-looking statements" in this Form 10-K, such as
statements about our future plans, goals and other events that have not yet
occurred. We intend that these statements will qualify for the safe harbors from
liability provided by the Private Securities Litigation Reform Act of 1995. You
can generally identify these forward-looking statements because we use words
such as we "believe," "anticipate," "expect" or similar words when we make them.
Whether or not these forward-looking statements will be accurate in the future
will depend on certain risks, including risks associated with:
o the presence of intense competition in our marketplace;
o our ability to identify and develop new market locations for
expansion purposes;
o our ability to obtain reasonable vendor marketing funds for
promotional purposes;
o our information technology requirements;
o the continued absence of food price inflation;
o our ability to continue to recruit, train and retain quality
franchise and corporate retail store operators; and
o the potential recognition of repositioning charges resulting from
potential closures, conversions or consolidations of our
franchised and corporate stores, whether due to the competitive
nature of our industry, to the quality of our franchised and
corporate retail store operators or to other factors.
You should consider these risks and factors and the impact they may have when
you evaluate our forward-looking statements. We make these statements based only
on our knowledge and expectations on the date of this Form 10-K. We will not
necessarily update these statements or other information in this Form 10-K based
on future events or circumstances. Please read this entire Form 10-K to better
understand our business and the risks associated with our operations.
Item 1. Business.
General
Schultz Sav-O Stores, Inc. is engaged in distributing food and related
products at wholesale and retail. As of January 2, 1999, we franchised 68 and
owned 18 retail supermarkets under the Piggly Wiggly (R) name. While we have a
presence in some larger metropolitan areas, we have attempted to develop a niche
for serving the food shopping needs of customers in smaller and suburban
communities within our market areas.
We are the primary supplier to our 86 franchised and corporate-owned
Piggly Wiggly supermarkets. We also serve as a wholesaler to a number of
smaller, independently operated retail supermarkets and convenience stores in
our market areas.
We believe that we have established ourselves as a niche food marketer in
small to mid-size markets by delivering the product variety, quality of
perishable products, pricing and promotional programs traditionally found only
in large metropolitan markets. As a hybrid of retailer and wholesaler, we have
created a "virtual chain" of retail stores served by a vertically-integrated
wholesaler. In 1998, our virtual chain had approximately $730 million
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in retail sales. Virtually all Piggly Wiggly supermarkets, both franchised and
owned, participate in a single, coordinated merchandising and advertising
program which typically includes:
o a weekly newspaper ad insert;
o outdoor boards;
o television and radio spots;
o sponsorship of entertainment and charitable events; and
o our Piggly Wiggly Preferred Club (R) Card program.
We believe that this coordinated program allows us to leverage the
combined buying power of all our franchised and corporate stores and deliver a
powerful and effective promotional vehicle for our participating vendor
partners. Additionally, we believe that we provide our franchised stores with
cost-effective administrative support services and financial resources that
enable the operation of efficient, contemporary supermarkets, while the
independent retail ownership of our franchisees provides the entrepreneurial
spirit and community involvement that we believe is an integral part of
marketing in smaller markets. The successful combination of these elements
creates the partnership between us and our franchisee retailers that results in
a virtual chain of coordinated and integrated retail food distribution. By
operating as a virtual chain, we are able to achieve superior performance
compared to traditional wholesalers, yet avoid having to make large direct
capital investments at the retail level to grow our business. The franchisee
retailer, as part of the virtual chain, benefits from lower cost of products and
the coordinated promotional activity normally associated only with larger retail
grocery chains. We believe that this structure enables us to leverage the
favorable elements of both a wholesaler and a retailer, giving us and our
franchisees a unique advantage in our marketplace. We believe that this
advantage has been a key component in our success over the past few years as the
virtual chain concept has evolved.
We supply a variety of products to our franchised and corporate
supermarkets and other wholesale customers, primarily from our warehouse and
distribution center in Sheboygan, Wisconsin. We also provide our franchised and
corporate supermarkets and other customers with fresh, frozen and processed
meat, eggs and deli products from a third-party distribution facility in
Milwaukee, Wisconsin. Through arrangements with several vendors, we also offer a
line of carbonated soft drinks, fruit drinks and drinking and distilled water
under our Springtime (TM) label.
We are a Wisconsin corporation organized in 1912 and maintain our
corporate headquarters at 2215 Union Avenue, Sheboygan, Wisconsin 53081. You can
visit our internet website at http://www.shopthepig.com.
Wholesale Operations
For several years, we have emphasized our more profitable wholesale
distribution business and the associated refinement of our franchise store base
which, combined with our unique marketing and merchandising program, has created
an effective and efficient virtual chain.
We believe that one of the competitive advantages we provide to our
franchised supermarkets through our "virtual chain" strategy is our
value-oriented customer merchandising and community-specific marketing support
program, pursuant to which franchisees participate with corporate stores in
systemwide promotions and other merchandising events. Through a variety of
partnering, merchandising and marketing programs, we benefit our franchisees
through additional sales resulting from heightened consumer name recognition and
in-store merchandising programs, combined with special promotional pricing.
Additional services that we provide to our franchisees include:
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o retail accounting;
o preparation of store payrolls;
o preparation of print, electronic and outdoor media
advertising (including various point- of-sale materials);
o assistance in the selection and analysis of store
locations;
o financing and lease negotiations;
o store design and floor layout;
o merchandising planning;
o equipment selection and sourcing;
o engineering and architectural services;
o retail technology implementation and support;
o labor planning and scheduling; and
o product category supervision.
We provide some of these services as part of the franchise relationship, while
other services are provided under a separate fee arrangement intended to cover
our costs.
As part of implementing our corporate strategy to improve the
profitability of our corporate retail operations, we continue to seek
opportunities to expand and acquire corporate and franchise stores, to convert
or close underperforming stores and to enter new markets. In 1998, we opened one
new market franchise store, replaced one older franchise store, completed
expansions of two existing franchise stores and consolidated two franchise
stores serving the same market. In aggregate, the total number of franchise and
corporate stores remained at 86 at the end of 1998, but total store square
footage increased by approximately 65,000 square feet. In early 1999, we
completed the consolidation of two additional franchise stores and replaced
another franchise store. Renovations and expansions continue at six franchise
operations. These renovations involve four expansions of existing franchise
stores, one replacement franchise unit and development of one new market store.
These projects are expected to increase the square footage of selling space at
such stores by an average of approximately 40%.
The following table shows our development of, and changes in, our
franchised and corporate retail supermarkets for the periods presented:
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Franchise Supermarkets Corporate Supermarkets
==================================== ======================================
Number of 1994 1995 1996 1997 1998 1994 1995 1996 1997 1998
Supermarkets ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
- - ------------
Beginning of Year 64 65 66 68 68 21 20 19 16 18
New Market Supermarkets(a) -- 1 1 1 1 -- -- -- 1 --
Replacement Supermarkets(b) 1 3 2 1 1 -- -- -- -- 1
Converted to/from Franchise(c) 1 -- 1 (1) -- (1) -- (1) 1 --
Terminated Operations(d) (1) (3) (2) (2) (2) -- (1) (2) -- (1)
New Franchises(e) -- -- -- 1 -- -- -- -- -- --
End of Year 65 66 68 68 68 20 19 16 18 18
== == == == == == == == == ==
Remodeled Supermarkets(f) 5 6 1 3 2 -- -- -- -- --
- - ---------------
(a) New market supermarkets are newly constructed supermarkets in market
areas not recently served by us.
(b) Replacement supermarkets are newly constructed supermarkets whose
opening corresponds with the closure of a nearby franchised or
corporate supermarket.
(c) Supermarkets that are converted from corporate to franchise units, or
vice versa, are included as reductions to supermarket totals in one
category and corresponding additions to totals in the other category.
(d) Terminated operations represent supermarkets that are no longer going
concerns, including replaced supermarkets.
(e) New franchises are additions to our franchise group, other than through
conversion from corporate supermarkets.
(f) Remodeled supermarkets represent supermarkets that have undergone
substantial expansion and/or remodeling totaling at least $300,000.
For 1998, we reported record net earnings, net earnings per share and net
earnings as a percentage of sales. The fourth quarter of 1998 was our 24th
consecutive quarter of earnings increases over the prior year. The increase in
earnings and profitability has been principally the result of expanded and
improved operations.
We are the primary supplier to all of our franchised and corporate
supermarkets. We also serve as a wholesaler to other smaller independent retail
stores in our market area, accounting for approximately 2% of our 1998 net
sales.
Franchisees pay us fees, determined by the retail sales of their
supermarkets. We do not charge an initial fee to franchisees for granting a
franchise. Consistent with industry practice, in certain situations, we provide
credit enhancements to certain qualified franchisees by (i) leasing the
franchisee's supermarket premises and, in turn, subleasing the premises to the
franchisee and/or (ii) guaranteeing a portion of the franchisee's bank
borrowings.
As a result of an amendment to our Piggly Wiggly Master Franchise
Agreement entered into in June 1998, we have expanded our franchise territory to
include additional counties in Wisconsin, Illinois and Michigan, as well as
portions of Iowa and Minnesota. We now have exclusive rights to grant Piggly
Wiggly franchises in:
o the entire state of Wisconsin;
o the upper peninsula of Michigan;
o designated counties in northern Illinois;
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o designated counties in southeastern Minnesota; and
o designated counties in eastern Iowa.
We believe that the increase in our franchise territory will provide additional
opportunities for us to pursue our plans to expand the areas that we serve as a
food wholesaler and retailer. Our franchise rights are of unlimited duration and
are not subject to any specific termination provision. We are not required to
pay franchise fees to the current franchisor in the market areas we were able to
serve prior to June 1998. In the new territories in Wisconsin, Minnesota,
Michigan, Iowa and Illinois, we are required to pay franchise fees. The only
other material obligation imposed on us in our expanded franchise territory is
that the supermarkets operated under the Piggly Wiggly and certain other names
must comply with the standards imposed on supermarkets in the Piggly Wiggly
system. We believe that our own franchised and corporate store standards exceed
the Piggly Wiggly system standards.
Retail Operations
Our franchised and corporate supermarkets stock a comprehensive selection
of groceries, frozen foods, prepared foods, fresh produce, meat, poultry, eggs
and dairy products. Our franchised and corporate supermarkets also allocate
display space to non-food items, such as health and beauty aids, housewares,
magazines and periodicals, video cassette rentals, flowers and plants, greeting
cards and general merchandise. Our franchised and corporate supermarkets carry a
broad range of branded merchandise and private-label product alternatives to
branded merchandise. In general, the private-label products carried by our
franchised and corporate supermarkets have lower selling prices, but higher
gross profit margins, than branded merchandise. Consistent with trends generally
within the industry, we continue to experience increases in retail customer
demand for private-label store brands and believe that our Topco-procured line
of branded private-label products is satisfying this consumer trend. See
"Purchasing and Distribution." Based on our internal wholesale price index,
inflation did not have a significant effect on sales between 1998 and 1997,
except with regard to tobacco products.
1998 was our first full year with the Piggly Wiggly Preferred Club (R)
Card, a customer-friendly, card-based marketing program. We designed the Piggly
Wiggly Preferred Club Card to reward current customers and attract new customers
by offering "clipless coupons" on weekly advertised specials and "automatic"
savings on monthly store specials. The card allows us to maintain a valuable,
integrated database that we use to identify our best customers and their
preferences so that the virtual chain of stores can better serve its customers.
We will never sell customer-specific information in our data base for use by
third parties. The card also doubles as a check-cashing and video rental
identification card. Additionally, the Piggly Wiggly Preferred Club Card program
affords the ability to issue point-of-sale coupons redeemable on future
purchases. We believe that the Piggly Wiggly Preferred Club Card and the
coordinated marketing and merchandising program it supports will be key
components to our future growth.
Our franchised supermarkets range in size from 8,340 square feet to
47,000 square feet, with an average of 24,720 square feet. Our corporate
supermarkets range in size from 19,980 square feet to 54,850 square feet, with
an average of 33,945 square feet. All of our franchised and corporate
supermarkets contain several perishable or specialty service departments,
including:
o fresh and processed meat;
o take-home entrees and snacks;
o fresh fruits and vegetables;
o fresh seafood;
-6-
o delicatessen;
o flowers and plants; and
o baked goods.
Several supermarkets also contain or provide one or more of the following:
o wine and spirit sales;
o video rentals;
o lottery sales;
o photo processing services;
o TicketMaster (R) ticket centers;
o in-house banking services;
o automated teller machines; and
o on-line debit and credit card check-out services.
During 1998, certain of our stores continued to fail to meet certain
financial performance goals. We closed one such store during 1998 as part of a
consolidation with another franchise supermarket. In order to further improve
our results of operations, we continue to evaluate various business alternatives
relating to our underperforming operations, including the sale or conversion of
these stores, closing stores and implementing other operational changes.
Purchasing and Distribution
We purchase groceries in sufficient volume to qualify for favorable price
brackets for most items. We purchase brand name grocery merchandise directly
from the manufacturers or processors and purchase produce, meat and seafood from
a variety of sources. We purchase substantially all of our private label items
and fresh meats through Topco Associates, Inc. Topco is a national purchasing
cooperative whose member-owners consist of 30 regional supermarket chains and
food services organizations who collectively operate approximately 2,200 stores.
According to Topco data, its member-owners accounted for approximately 14% of
United States grocery store sales volume in 1998. In 1998, purchases through
Topco accounted for approximately 15% of our total inventory purchases. We also
purchase store and warehouse equipment and supplies, primarily bags and
packaging material, through Topco. Topco's size and purchasing power enable it
to employ large-volume, low-cost purchasing techniques on behalf of its
member-owners.
We and our direct-contract, third-party distribution center supplied
approximately 79% of the products supplied to our stores in 1998. The remainder
were supplied by direct store delivery vendors. We own our 364,000 square-foot
distribution center in Sheboygan, Wisconsin. With the exception of fresh, frozen
and processed meat, eggs and deli products, we distribute all products that we
supply from our Sheboygan facility. While we perform the buying function, a
third-party contractor in Milwaukee, Wisconsin performs the distribution
services for our meat operations. We believe that this arrangement provides us
with operating cost efficiencies and the ability to expand our wholesale product
offerings and better satisfy wholesale customer delivery schedules through
improved capacity.
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As described above under "Wholesale Operations," we believe that one of
our competitive advantages is the community-oriented marketing programs that we
provide to franchisees as part of our "virtual chain" strategy. Coordinated
weekly newspaper ad inserts, high-visibility outdoor billboard advertising and
television and radio advertising stress the value and customer service provided
by our local Piggly Wiggly supermarkets. We also sponsor local events and
festivals throughout the marketing area to improve our Piggly Wiggly name
recognition, such as the Midwest's largest fireworks display at Milwaukee's
Summerfest lakefront music festival.
We operate a leased, full-service trucking fleet, which consists of 22
tractors and 41 refrigerated trailers. We augment our transportation
requirements with temporary leasing arrangements as conditions warrant. PW
Trucking, Inc., our wholly-owned subsidiary, provides contract and common
carrier services throughout our operating territory. Revenues from unrelated
parties generated by this business were nominal in 1998 and are expected to be
nominal in 1999.
Competition
The wholesale and retail food industry is highly competitive. At the
wholesale level, we compete with regional and national wholesalers, such as
Fleming Companies, Inc., SuperValu Inc., Roundy's, Inc. and Nash Finch Co. Key
competitive factors include the provision of the following services to franchise
customers:
o credit support;
o advertising;
o accounting and financial services;
o merchandising;
o facilities engineering;
o design and project management; and
o retail technology support.
We believe that our distribution facilities and the wide range of support
and marketing services provided to our franchised and corporate retail
supermarkets allow us to provide prompt and efficient, low-priced, high-quality
products and important supplemental services to our franchised and corporate
supermarkets and other customers.
The degree of competition at the retail level varies with store location.
In most of our franchised and corporate supermarket locations, we compete
primarily with local retail operators, virtually all of whom are affiliated with
competing wholesalers through arrangements similar to those we have with our
franchisees. In some of our supermarket locations, however, we also compete with
national and regional retail chain stores, such as Sentry Food Stores, Pick `N
Save, SuperSaver, Cub Foods, Jewel Food Stores, Dominicks Finer Foods, Copp's
Supermarkets and Kohl's Food Stores. Other competitors include the general
merchandise, wholesale club and supercenter format stores of Wal-Mart Stores,
Inc., K-Mart Corp. and ShopKo Stores, Inc. and others. We believe that the
principal retail competitive factors include:
o price;
o product quality and variety;
o store location and appearance; and
o the quality of a store's perishable product and service
departments.
-8-
We believe our supermarkets' emphasis on low-cost, high-quality products,
community-based multi-media marketing and merchandising programs and a high
degree of in-store customer service and friendliness provide our franchised and
corporate supermarkets with a competitive advantage in many retail market areas.
Certain of our competitors at both the wholesale and retail level may
have a competitive advantage resulting from utilizing lower-cost, non-union
workforces. Certain of our competitors have greater financial resources and
marketing budgets than we do. Also, certain competitors using the general
merchandise, wholesale club format or supercenter format may choose to carry and
market a less extensive variety of products, which may allow them to sell such
items at a lower per unit cost than we do.
Employees
As of January 2, 1999, we employed approximately 1,700 persons, including
approximately 1,250 in the operation of our corporate retail supermarkets. A
majority of our corporate retail employees are employed on a part-time basis. Of
our remaining employees, approximately 210 are engaged in warehousing and
trucking activities and approximately 240 are corporate and administrative
personnel. Two collective bargaining agreements, covering a total of
approximately 115 employees expire in 1999. We do not currently anticipate any
strikes, work stoppages or slowdowns in connection with renewing such
agreements.
Item 1A. Executive Officers.
Name and Age Positions and Offices with the Company
------------ --------------------------------------
James H. Dickelman, 51................ Chairman of the Board, President and Chief Executive
Officer
Michael R. Houser, 47................. Executive Vice President - Marketing and Merchandising
John H. Dahly, 58..................... Executive Vice President, Chief Financial Officer and Secretary
William K. Jacobson, 48............... Senior Vice President - Retail Operations and Development and
Assistant Secretary
Kenneth S. Folberg, 38................ Vice President - Logistics and Labor Relations
Armand C. Go, 37...................... Treasurer and Chief Accounting Officer
Larry D. Hayes, 56.................... Vice President - Meat, Bakery and Deli Operations
John S. Kwas, 59...................... Vice President - Grocery Procurement
Thomas J. Timler, 41.................. Vice President - Business Systems Support Group
Messrs. Dickelman, Houser, Dahly and Jacobson are also members of our
Board of Directors.
Executive officers are generally elected annually at the annual meeting
of our Board of Directors held on the date of our annual meeting of
shareholders. Each executive officer holds office until his successor has been
elected or until his prior death, resignation or removal.
All of our executive officers have served in the positions indicated or
in other management positions with Schultz Sav-O Stores for more than five
years.
-9-
Item 2. Properties.
As is typical in our industry, a substantial portion of our capital
assets are leased. As of January 2, 1999, we leased 17 corporate supermarkets
and owned one supermarket. The leased supermarkets range in size from 19,980 to
54,850 square feet, with an average of 33,220 square feet.
We generally lease our supermarkets from nonaffiliated real estate
developers under long-term leases. Such leases generally contain initial terms
of 15 to 20 years, with several five-year renewal options. None of such existing
lease arrangements contain repurchase options; nor do we own the land underlying
any of such supermarkets. As of January 2, 1999, we subleased 51 of our leased
supermarkets and leased one owned supermarket to independent operators who are
our wholesale customers and franchisees.
Renovations and expansions continue at six franchise operations. These
renovations involve four expansions of existing franchise stores, one
replacement franchise unit and development of one new market store. These
projects are expected to increase the square footage of selling space at such
stores by an average of approximately 40%.
We own our distribution center and headquarters complex in Sheboygan,
Wisconsin which occupies approximately nine acres of a 16-acre site that we own.
The facility provides approximately 30,500 square feet of space for offices and
related activities and approximately 364,000 square feet of warehouse space. We
also lease approximately 14,500 square feet of office space in Sheboygan under a
four-year lease expiring in August 2000, which is used for customer support
services.
We own approximately 5 acres of commercially zoned property in Wisconsin.
We have entered into brokerage arrangements for the sale of this property.
Item 3. Legal Proceedings.
There are no material legal proceedings to which we are a party or to
which any of our property is subject, other than routine litigation incidental
to our business. No material legal proceedings were terminated during the fourth
quarter of 1998.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of our shareholders during the fourth
quarter of 1998.
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PART II
Item 5. Market for Our Common Stock and Related Shareholder Matters.
Pursuant to our program for compensation of independent directors, we
issued 300 shares of our common stock to each of our three nonemployee directors
(other than those who receive fees for professional services provided to Schultz
Sav-O Stores) on January 28, 1999. Such issuances were exempt from registration
under the Securities Act of 1933 in accordance with Section 4(2) of that act.
Pursuant to General Instruction G to Form 10-K ("Instruction G"), the
other information required by this Item is incorporated herein by reference from
information included under the caption entitled "Common Stock Information" set
forth in our 1998 Annual Report to Shareholders (the "Annual Report").
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 7A. Quantitative and Qualitative Disclosures About Market Risk.
We believe that our exposure to market risk related to changes in foreign
currency exchange rates, interest rate fluctuations and trade accounts
receivable is immaterial.
Item 8. Financial Statements and Supplementary Data.
Pursuant to Instruction G, the Consolidated Balance Sheets of the Company
as of January 2, 1999 and January 3, 1998, the Consolidated Statements of
Earnings, Cash Flows and Shareholders' Investment for each of the three fiscal
years in the period ended January 2, 1999, 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.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not applicable.
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PART III
Item 10. Directors and Executive Officers of the Company.
Pursuant to Instruction G, the information required by this Item (other
than such information regarding executive officers which appears in Item 1A
hereof and information required by Item 405 of Regulation S-K, which is
inapplicable) is incorporated by reference from information included under the
caption entitled "Election of Directors" set forth in our definitive Proxy
Statement for our 1999 annual meeting of shareholders (the "Proxy Statement").*
* The Proxy Statement will be filed with the Securities and Exchange
Commission pursuant to Regulation 14A within 120 days after the
end of our fiscal year.
Item 11. Executive Compensation.
Pursuant to Instruction G, the information required by this Item is
incorporated by reference from information included under the caption entitled
"Executive Compensation" set forth in the Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Pursuant to Instruction G, the information required by this Item is
incorporated by reference from information included under the captions entitled
"Stock Ownership of Management and Others" and "Election of Directors" set forth
in the Proxy Statement.
Item 13. Certain Relationships and Related Transactions.
Pursuant to Instruction G, the information required by this Item is
incorporated by reference from information under the caption entitled
"Compensation Committee and Stock Option Committee Interlocks and Insider
Participation" set forth in the Proxy Statement.
-12-
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 January 2, 1999 and January 3, 1998
Consolidated Statements of Earnings, Cash Flows and Shareholders'
Investment for the fiscal years 1998, 1997 and 1996
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 January 2, 1999.
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.
Page Reference:
Form 10-K
2. Financial Statement Schedules.
Report of Independent Public F-1
Accountants
Schedule VIII - Valuation and F-2
Qualifying Accounts and Reserves
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) We filed no reports on Form 8-K during the fourth quarter of fiscal
year 1998.
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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: March 25, 1999 By /s/ John H. Dahly
---------------------------
John H. Dahly
Executive Vice President
and Chief Financial Officer
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/ James H. Dickelman /s/ William K. Jacobson
James H. Dickelman, Chairman of William K. Jacobson, Director
Board, President, Chief Executive Officer
and Director (Principal Executive Officer)
/s/ John H. Dahly /s/ Michael R. Houser
John H. Dahly, Executive Vice President, Michael R. Houser, Director
Chief Financial Officer, Secretary and
Director (Principal Financial Officer)
/s/ Armand C. Go /s/ Martin Crneckiy, Jr.
Armand C. Go, Treasurer and Chief Martin Crneckiy, Jr., Director
Accounting Officer (Principal Accounting
Officer)
/s/ Howard C. Dickelman /s/ R. Bruce Grover
Howard C. Dickelman, Director R. Bruce Grover, Director
/s/ Steven R. Barth
Steven R. Barth, Director
-14-
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
We have audited, in accordance with generally accepted auditing standards, 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 5, 1999. 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 5, 1999.
SCHULTZ SAV-O STORES, INC.
SCHEDULE VIII--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE FISCAL YEARS 1998, 1997 AND 1996
Allowance for Doubtful Accounts--
Changes in the allowance for doubtful accounts are summarized as follows:
1998 1997 1996
-------------- ------------- ------------
Balance, beginning of year $3,950,000 $3,650,000 $2,565,000
Provision charged to earnings 350,000 656,000 987,000
(Writeoffs)/recoveries, net -- (356,000) 98,000
---------- ---------- ----------
Balance, end of year $4,300,000 $3,950,000 $3,650,000
========== ========== ==========
F-2
EXHIBIT INDEX
SCHULTZ SAV-O STORES, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED JANUARY 2, 1999
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 March 16, 1999.
4.1 Restated Articles of Incorporation, as amended (included as
Exhibit 3.1). As summarized in Notes (4) and (8) of the
Notes to Financial Statements incorporated by reference from
our 1998 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 each of James H. Dickelman, John H. Dahly, 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 James H.
Dickelman, John H. Dahly, 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 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.
10.9 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.
10.10 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.
10.11 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.
10.12 1995 Equity Incentive Plan, as amended and restated as of
January 28, 1999. 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 Form of Nonqualified Stock Option Agreement under 1995
Equity Incentive 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.
10.14 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.
E-2
Exhibit No. Description
----------- -----------
10.15 Schultz Sav-O Stores, Inc. Officer Annual Incentive Plan, as
amended and restated as of January 28, 1999. 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 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.
13 Portions of the 1998 Annual Report to Shareholders expressly
incorporated by reference into this Form 10-K.
21 Subsidiary of Registrant.
23 Consent of Independent Public Accountants.
27 Financial Data Schedule.
99 Definitive Proxy Statement for 1999 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).