SECURITIES AND EXCHANGE COMMISSION
Washington, DC
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 November 30, 1996 Commission File
number 0-80.
( ) Transition Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934.
For the transition period from
to
SEAWAY FOOD TOWN, INC.
(Exact name of registrant as specified in its charter)
Ohio 34-4471466
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) (Identification No.)
1020 Ford Street, Maumee, Ohio 43537
(Address of principal executive offices) (Zip Code)
419/893-9401
(Registrant's telephone number, including area code)
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at January 9, 1997
Common stock, without par 2,195,059 shares
value (stated value $2.00 per share)
PART I. FINANCIAL INFORMATION
Summarized Financial Information:
The following consolidated statements of income, condensed consolidated
balance sheets, and condensed consolidated statements of cash flows are
unaudited, but include all adjustments, consisting only of normal recurring
accruals, which the Company considers necessary for a fair presentation of
its financial position, results of operations and cash flows for the periods
and the dates indicated. Since the unaudited financial statements have been
prepared in accordance with instructions to Form 10-Q, they do not contain
all disclosures normally provided in annual financial statements; they
should be read in conjunction with the consolidated financial statements
and notes thereto appearing in the Company's 1996 Annual Report to
Shareholders.
PART I. FINANCIAL INFORMATION (Continued)
Consolidated Statements of Income
(Thousands of Dollars - Except
Average Share and Per-share Data)
Thirteen Weeks Ended
November 30, November 25,
1996 1995
------------- -------------
Net Sales $147,951 $144,212
Cost of merchandise sold 110,359 108,233
------------- -------------
Gross profit 37,592 35,979
Selling, general and
administrative expenses 35,296 34,422
------------- -------------
Operating profit 2,296 1,557
Interest expense (976) (1,138)
Other income - net 381 302
------------- -------------
Income before income taxes 1,701 721
Provision for income taxes 710 270
------------- -------------
Net income $ 991 $ 451
============= =============
Per common share:
Net income $ 0.45 $ 0.21
======== ========
Dividends paid $ 0.11 $ 0.10
======== ========
Average number of shares outstanding 2,196,578 2,193,352
========= =========
See notes to consolidated financial statements
PART I. FINANCIAL INFORMATION (Continued)
Condensed Consolidated Balance Sheets
(Thousands of Dollars)
November 30, August 31,
1996 1996 (note)
ASSETS ------------ ------------
Current assets:
Cash and cash equivalents $ 11,355 $ 9,766
Notes and accounts receivable 7,535 6,363
Less allowance for doubtful accounts (450) (450)
Merchandise inventories (Note B) 68,589 62,499
Less LIFO reserve (18,059) (18,109)
Prepaid expenses, including deferred
income taxes 5,274 5,014
------------ ------------
74,244 65,083
Other assets 5,071 5,378
Property and equipment:
Cost 203,456 198,256
Less accumulated depreciation and
amortization (116,748) (113,252)
------------ ------------
Net property and equipment 86,708 85,004
------------ ------------
$166,023 $155,465
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 49,547 $ 44,437
Income taxes 1,420 1,524
Accrued liabilities 12,537 12,727
Long-term debt due within one year 6,635 3,114
------------ ------------
Total current liabilities 70,139 61,802
Long-term debt 44,542 42,715
Deferred income taxes 4,408 4,408
Deferred other 799 1,087
Shareholders' equity:
Common stock 4,390 4,397
Capital in excess of stated value 1,012 1,017
Retained earnings 40,733 40,039
------------ ------------
Total shareholders' equity 46,135 45,453
------------ ------------
$166,023 $155,465
============ ============
Note: The balance sheet at August 31, 1996 has been derived from the
audited financial statements at that date but does not include
all of the information and footnotes required by generally
accepted accounting principles for complete financial
statements.
See notes to consolidated financial statements
PART I. FINANCIAL INFORMATION (Continued)
Condensed Consolidated Statements of Cash Flows
(Thousands of Dollars)
Thirteen Weeks Ended
November 30, November 25,
1996 1995
------------ ------------
OPERATING ACTIVITIES-net cash provided by
(used in) $ 1,729 $( 331)
INVESTING ACTIVITIES
Expenditures for property and equipment (5,222) (4,248)
Proceeds from sale of property and other
assets 18 25
Other 313 9
------------ ------------
Net cash used in investing activities (4,891) (4,214)
FINANCING ACTIVITIES
Proceeds from issuance of long-term debt 11,600 7,200
Payments of long-term debt (6,252) (1,217)
Payments for acquisition of common shares (67) ---
Dividends paid (242) (219)
Decrease in deferred other (288) (263)
------------ ------------
Net cash provided by financing activities 4,751 5,501
------------ ------------
Increase in cash and cash equivalents 1,589 956
Cash and cash equivalents at beginning of
period 9,766 7,402
------------ ------------
Cash and cash equivalents at end of period $11,355 $ 8,358
============ ============
Supplemental Disclosures of Cash Flow
Information:
Cash paid during the period for:
Interest $ 710 $ 853
============ ============
Income Taxes $ 814 $ 444
============ ============
See notes to consolidated financial statements
PART I. FINANCIAL INFORMATION (Continued)
Notes to Consolidated Financial Statements
Note A. Net income per common share is based on the weighted `
average number of shares outstanding during the periods.
Note B. Meat, produce and pharmacy inventories are valued at the
lower of cost using the first-in, first-out (FIFO) method,
or market. All other merchandise inventories (including store
inventories which are determined by the retail inventory method)
are valued at the lower of cost using, the last-in, first-out
(LIFO) method, or market.
PART I. FINANCIAL INFORMATION (Continued)
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
The following table sets forth certain income statement
components expressed as a percentage of net sales and the
year-to-year percentage changes in such components.
Percentage
change
from prior year
---------------
Percentage of net sales
-------------------------
First Qtr.
First Qtr. First Qtr. 1997
1997 1996 Compared to
-------- --------- First Qtr.
1996
------------
100.0% 100.0% Net sales 2.59%
======= ======= =======
25.41% 24.95% Gross profit 4.48%
Selling,general and
23.86 23.87 administrative expenses 2.54
1.55 1.08 Operating profit 47.46
.66 .79 Interest expense -14.24
.26 .21 Other income - net 26.16
1.15 .50 Income before income taxes 135.92
.48 .19 Provision for income 162.96
------ ------ taxes -------
.67% .31% Net income 119.73
====== ====== ========
Net sales for the first quarter of 1997 were $147,951,000 or 2.6%
higher than the same quarter in 1996. This net increase was
attributable to increases in both drugstore and supermarket sales
resulting from one additional store in each category. Sales from
stores in operation both this past quarter as well as the same
quarter a year ago increased .81%.
Gross margins, as a percent of sales, increased .46% in the first
quarter of 1997 compared to the same quarter in 1996. Margins
continued to improve due to the implementation of certain new
merchandising strategies both in the supermarkets and in the
drugstores.
As a percent of sales, selling, general and administrative expenses
remained constant compared to the first quarter a year ago.
Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Interest expense decreased $162,000 compared with the prior year.
Slightly lower interest rates due to a new revolving credit loan
agreement accounted for much of this decrease along with the payoff
of some higher interest rate debt.
Other income - net increased $79,000 resulting from various minor
changes in the miscellaneous categories included in this item.
Income taxes as a percent of pre-tax income approximates the statutory
tax rates in effect. The percentage increase is due mainly to increased
state taxes due to increased income.
Impact of Inflation
Inflation increases the Company's major costs, inventory and labor.
The Company's provisions for LIFO inventories for the past quarter
has resulted in a decrease in cost of sales of $50,000 in the first
quarter of 1997 compared to a decrease of $31,000 in the first quarter
of 1996. The company has generally been able to maintain margins by
adjusting its retail prices, but competitive conditions may from time
to time render it unable to do so while maintaining its market share.
LIQUIDITY AND CAPITAL RESOURCES
Overview
Measures of liquidity for the last two year's first quarters were as
follows:
First First
(Dollars in millions) Qtr. 1997 Qtr. 1996
---------------------- -------- --------
Working capital (1) $22.2 $25.7
Unused lines of revolving credit (2) $18.4 $6.0
Current ratio (1) 1.32 to 1 1.40 to 1
(1) Includes add-back of gross LIFO reserve.
(2) 1997 represents unused amount under the new 5 year
$45.0 million revolving credit agreement. 1996 represents
the unused amount under the 2-year $35.0 million agreement
which was replaced by the new agreement in September, 1996.
Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
During the first thirteen weeks of fiscal 1997, the Company's working
capital (includes the add-back of the gross LIFO reserve) increased
$774,000 from the Company's fiscal year end on August 31, 1996. The
working capital ratio was 1.32 to 1 at the end of this quarter compared
to 1.35 to 1 at August 31, 1996 and 1.40 to 1 at November 25, 1995.
Borrowings under the Company's Revolving Credit Agreements increased
to support company operations, mainly increased inventory levels,
finance capital expenditures, repay certain higher cost borrowings,
and other corporate activities.
The funds required by the Company on a continuing basis for both
working capital, capital expenditures, and other needs are generated
principally through operations, long-term borrowings and capital leases,
supplemented by borrowings under revolving credit note agreements which
have been arranged primarily through institutional lenders. The Company
is not aware of any trends, demands, commitments or uncertainties which
will result or which are reasonably likely to result in a material change
in the Company's liquidity. During the first quarter of 1997 the company
borrowed against revolving credit agreements with the maximum amount
outstanding under such agreements amounting to $28,300,000, with $26,600,000
being outstanding as of the end of the quarter.
Cash Flows from Operating Activities
Cash provided by operating activities increased approximately $2.1
million from first quarter of 1996's negative ($331,000) to first
quarter of 1997's $1,729,000. This increase is primarily attributable
to the increases in net income this quarter compared to the same period
a year earlier, as well as an increase in accounts payable and accrued
liabilities.
Cash Flows from Investing Activities
During the first quarter of 1997 the Company used $4.9 million of cash
in investing activities. This compares to $4.2 million used in the
first quarter of 1996, a result of increased expenditures for property
and equipment in 1997 versus 1996.
Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Cash Flows from Financing Activities
Cash provided by financing activities during the first quarter of
1997 was $4.8 million which compares to $5.5 million provided during
the first quarter of 1996. The decrease was due to a decrease in net
borrowings during the quarter compared to a year earlier.
1997 Capital Program
Capital expenditures during the first quarter of 1997 were $5.2
million, which is consistent with the Company's $20.0 million budget
for the year. Capital expenditures for the first quarter of 1996 were
$4.2 million.
Cautionary Statement for Purposes of "Safe Harbor Provisions" of the
Private Securities Litigation Reform Act of 1995
Except for historical facts, all matters discussed in this report
which are forward looking involve risks and uncertainties. Potential
risks and uncertainties include, but are not limited to, competitive
pressures from other major supermarket operators, economic conditions
in the Company's primary markets and the other uncertainties detailed
from time to time in the Company's Securities and Exchange Commission
filings.
Item 4 - Results of votes of security holders
(a) The Annual Meeting of Shareholders of Seaway Food Town,
Inc. as held on January 9, 1997.
(b) The election of the Directors previously nominated and
as set forth in the Proxy Statement of December 13,
1996, which is incorporated herein by reference, was by
the following vote:
Shares Shares voted
Voted FOR AUTHORITY TO
VOTE WITHHELD
Wallace D. Iott 1,640,076 4,509
W. Geoffrey Lyden 1,639,996 4,589
David J. Walrod 1,638,886 5,699
(c) Pursuant to the proposal set forth in the Proxy
Statement of December 13, 1996, which is incorporated
herein by reference, approval of Ernst & Young, LLP as
independent auditors for the fiscal year ending August
30, 1997 was by the following vote:
shares voted FOR 1,643,548
shares voted AUTHORITY TO VOTE WITHHELD 298
shares voted AGAINST 739
Item 6. - Exhibits and Reports on Form 8 K.
6(b) Reports on Form 8 K.
There were no Form 8 K reports required to be filed by
the Company during any of the months included in the
most recently completed fiscal quarter.
Signature
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
SEAWAY FOOD TOWN, INC.
Registrant
Date January 13, 1997 By
Richard B. Iott,
Chief Executive
Officer & President
Date January 13, 1997 By
Waldo E. Yeager,
Chief Financial Officer,
Treasurer