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 March 1, 1997 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 April 10, 1997
Common stock, without par 2,209,584 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 consoli-
dated 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 Twenty-Six Weeks Ended
March 1, February March 1, February
1997 24, 1996 1997 24, 1996
---------- ---------- ---------- ----------
Net Sales $155,871 $152,826 $303,822 $297,038
Cost of merchandise sold 115,930 113,910 226,289 222,143
---------- ---------- ---------- ----------
Gross profit 39,941 38,916 77,533 74,895
Selling, general and
administrative
expenses 36,322 35,530 71,618 69,952
---------- ---------- ---------- ----------
Operating profit 3,619 3,386 5,915 4,943
Interest expense (965) (1,136) (1,941) (2,274)
Other income - net 502 168 883 470
---------- ---------- ---------- ----------
Income before income
taxes 3,156 2,418 4,857 3,139
Provision for income taxes (1,308) (954) (2,018) (1,224)
---------- ---------- ---------- ----------
Net income $ 1,848 $ 1,464 $ 2,839 $ 1,915
========== ========== ========== ==========
Per common share:
Net income $.84 $.66 $1.29 $.87
========== ========== ========== ==========
Dividends paid $.11 $.10 $ .22 $.20
========== ========== ========== ==========
Average number of
shares outstanding 2,204,816 2,197,942 2,200,697 2,195,647
========== ========== ========== ==========
See notes to consolidated financial statements
PART I. FINANCIAL INFORMATION (Continued)
Condensed Consolidated Balance Sheets
(Thousands of Dollars)
March 1, August 31,
1997 1996
(NOTE)
ASSETS ---------- -----------
Current assets:
Cash and cash equivalents $ 9,857 $ 9,766
Notes and accounts receivable 7,355 6,363
Less allowance for doubtful accounts (450) (450)
Merchandise inventories (Note B) 64,593 62,499
Less LIFO reserve (18,173) (18,109)
Prepaid expenses, including deferred
income taxes 5,445 5,014
---------- ------------
68,627 65,083
Other assets 4,532 5,378
Property and equipment:
Cost 205,813 198,256
Less accumulated depreciation and
amortization (118,046) (113,252)
---------- ------------
Net property and equipment 87,767 85,004
---------- ------------
$160,926 $155,465
========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $45,474 $ 44,437
Income taxes 821 1,524
Accrued liabilities 12,614 12,727
Long-term debt due within one year 4,584 3,114
---------- ------------
Total current liabilities 63,493 61,802
Long-term debt 44,304 42,715
Deferred income taxes 4,408 4,408
Deferred other 582 1,087
Shareholders' equity:
Common stock 4,419 4,397
Capital in excess of stated value 1,384 1,017
Retained earnings 42,336 40,039
---------- ------------
Total shareholders' equity 48,139 45,453
---------- ------------
$160,926 $155,465
========== ============
NOTE: The balance sheet at August 31, 1996 has been derived from the audited
consolidated 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)
Twenty-Six Weeks Ended
March 1, February 24
1997 1996
----------- -----------
OPERATING ACTIVITIES-net cash provided $7,105 $6,845
INVESTING ACTIVITIES
Expenditures for property and equipment (9,946) (7,484)
Proceeds from sale of property and other
assets 74 88
Other 858 180
----------- -----------
Net cash used in investing activities (9,014) (7,216)
FINANCING ACTIVITIES
Proceeds from issuance of long-term debt 13,900 7,200
Payments of long-term debt (10,841) (5,414)
Payments for acquisition of common shares (71) (166)
Dividends paid (483) (438)
Decrease in deferred other (505) (560)
----------- -----------
Net cash provided by financing activities 2,000 622
----------- -----------
Increase in cash and cash equivalents 91 251
Cash and cash equivalents at beginning of
period 9,766 7,402
----------- -----------
Cash and cash equivalents at end of period $9,857 $7,653
=========== ===========
Supplemental Disclosures of Cash Flow
Information:
Cash paid during the period for:
Interest $1,913 $2,370
=========== ===========
Income Taxes $2,720 $1,336
=========== ===========
See notes to consolidated financial statements
PART I. FINANCIAL INFORMATION (Continued)
Notes to Financial Statements
Note A. Net income per common share is based on the weighted average number
of shares outstanding during the periods.
In February, 1997 the Financial Accounting Standards Board issued
Statement No. 128, "Earnings per Share", which is required to be
adopted on February 28, 1998. At that time, the Company will be
required to change the method currently used to compute earnings
per share. There is no expected impact of Statement 128 on the
calculation of earnings per share.
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
Percentage of Percentage Percentage of change in
Net Sales change Net Sales dollars
------------- in --------- ----------
dollars
-----------
2nd Qtr.'97 26 26 26 Weeks
2nd 2nd Compared to Weeks Weeks `97
Qtr. Qtr. 2nd Qtr.'96 1997 1996 Compared to
1997 1996 ----------- ----- ----- 26 Weeks
- ------ ------- `96
---------
100.0% 100.0% 2.0 Net sales 100.0% 100.0% 2.3
====== ======= ======= ===== ===== =====
25.6 25.5 2.6 Gross profit 25.5 25.2 3.5
Selling,general
and administrative
23.3 23.3 2.2 expenses 23.6 23.5 2.4
2.3 2.2 6.9 Operating profit 1.9 1.7 19.7
.6 .7 ( 15.1) Interest expense ( .6) ( .8) (14.6)
.3 .1 198.8 Other income - net .3 .2 87.9
Income before
2.0 1.6 30.5 income taxes 1.6 1.1 54.7
Provision for
.8 .6 37.1 income taxes .7 .4 64.9
------ ------ ------- ----- ----- ------
1.2 1.0 26.2 Net income .9 .7 48.3
====== ====== ======== ===== ===== ======
Net sales for the second quarter of 1997 were $155,871,000 or 2.0%
higher than the same quarter in 1996. This net increase was largely
attributable to increases in drugstore sales resulting from one
additional store. Sales from stores in operation both this past
quarter as well as the same quarter a year ago decreased .64%.
On a year-to-date basis, net sales were $303,822,000 or 2.3% higher
than 1996. This net increase is attributable to increases in both
the drugstores and supermarket areas.
Gross margins, as a percent of sales, increased .1% in the second
quarter of 1997 compared to the same quarter in 1996. Margins
continued to remain stable due to the implementation of certain new
merchandising strategies both in the supermarkets and in the drug-
stores. On a year-to-date basis, margins increased .3% over 1996.
As a percent of sales, selling, general and administrative expenses
remained relatively constant on a quarter to quarter basis, as well
as year-to-date.
Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Interest expense decreased $171,000 compared with the same quarter
of 1996. 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. On a year-to-date basis
interest costs have decreased $333,000.
Other income - net increased $334,000 resulting from various minor
changes in miscellaneous income categories, plus a gain on sale of
assets in the second quarter of fiscal 1997 compared to the second
quarter of fiscal 1996 loss. On a year-to-date basis other income -
net increased $413,000 due to a gain in asset disposals in 1997,
versus a loss in 1996, along with increased service fees and
miscellaneous other income categories.
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 an increase in cost of sales of $113,000 in the second
quarter of 1997 compared to an increase of $79,000 in the second
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 second quarter of the last two years
were as follows:
(Dollars in millions) 2nd Qtr. 2nd Qtr.
---------------------- 1997 1996
-------- --------
Working capital (1) $23.3 $26.2
Unused lines of revolving credit (2) 16.1 14.5
Current ratio (1) 1.37 1.44
(1) Includes add-back of gross LIFO reserve.
(2) 1997 represents unused amount under the new five year $45.0
million revolving credit agreement. 1996 represents the unused
amount under the two-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 twenty-six weeks of fiscal 1997, the Company's working
capital (includes the add-back of the gross LIFO reserve) increased
$1,917,000 from the Company's fiscal year end on August 31, 1996. The
working capital ratio was 1.37 to 1 at the end of this quarter compared
to 1.35 to 1 at August 31, 1996 and 1.44 to 1 at February 24, 1996.
Borrowings under the Company's Revolving Credit Agreements increased,
mainly to finance capital expenditures, and repay certain higher cost
borrowings.
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 second quarter of 1997 the Company
borrowed against revolving credit agreements with the maximum amount
outstanding under such agreements amounting to $30,700,000, with
$28,900,000 being outstanding as of the end of the quarter.
CASH FLOWS FROM OPERATING ACTIVITIES
Cash provided by operating activities increased approximately $260,000
from $6,845,000 to $7,105,000 for the comparative twenty-six week period.
This increase is primarily attributable to the increases in net income
this quarter compared to the same period a year earlier, offset by a
decrease in accounts payable and accrued liabilities.
CASH FLOWS FROM INVESTING ACTIVITIES
During the first twenty-six weeks of 1997, the Company used $9,014,000
of cash in investing activities. This compares to $7,216,000 used in the
twenty-six weeks of 1996, a result of increased expenditures for
property and equipment in 1997 versus 1996. Expenditures for 1997
were consistent with the Company's $20,000,000 forecast for the year.
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 twenty-six weeks of
1997 was $2,000,000 which compares to $622,000 provided during the
twenty-six weeks of 1996. The increase was due to an increase in net
borrowings during the period compared to a year earlier.
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 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.
/s/ Richard B. Iott
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 hereunto duly authorized.
SEAWAY FOOD TOWN, INC.
Registrant
Date April 10, 1997 By /s/ Richard B. Iott
Richard B. Iott, President
and Chief Executive Officer
Date April 10, 1997 By /s/ Waldo E. Yeager
Waldo E. Yeager,
Chief Financial Officer,
Treasurer