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 29, 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 January 8, 1998
Common stock, without par 4,419,168 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 1997 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 29, 1997 November 30,1996
---------------- ----------------
Net Sales $153,952 $147,951
Cost of Merchandise sold 113,434 110,359
----------- ------------
Gross Profit 40,518 37,592
Selling, general and
administrative expenses 37,614 35,296
----------- -----------
Operating profit 2,904 2,296
Interest expense (1,006) (976)
Other income - net 278 381
----------- -----------
Income before income taxes 2,176 1,701
Provision for income taxes 805 710
----------- -----------
Net Income $ 1,371 $ 991
=========== ===========
Per common share:
Net income $ .31 $ .23
=========== ===========
Dividends paid $ .06 $ .055
=========== ===========
Average number of shares
outstanding 4,419,168 4,393,156
=========== ===========
See notes to financial statements
PART I. FINANCIAL INFORMATION (Continued)
Condensed Consolidated Balance Sheets
(Thousands of Dollars)
November 29, August 30,
1997 1997
(NOTE)
ASSETS ------------- -------------
Current assets:
Cash and cash equivalents $ 9,957 $ 9,491
Notes and accounts receivable 8,510 6,945
Less allowance for doubtful accounts (450) (450)
Merchandise inventories (Note B) 72,553 67,065
Less LIFO reserve (18,387) (18,473)
Prepaid expenses, including deferred
income taxes 4,309 4,512
----------- -----------
76,492 69,090
Other assets 4,557 4,831
Property and equipment:
Cost 213,058 210,487
Less accumulated depreciation and
amortization (123,607) (119,842)
------------- ------------
Net property and equipment 89,451 90,645
------------- ------------
$170,500 $164,566
============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 46,942 $ 44,174
Income taxes 1,640 935
Accrued liabilities 12,692 12,811
Long-term debt due within one year 3,900 1,959
------------- ------------
Total current liabilities 65,174 59,879
Long-term debt 45,573 45,565
Deferred income taxes 3,258 3,258
Deferred other 4,213 4,688
Shareholder's equity:
Common stock 8,838 8,838
Capital In excess of stated value 0 0
Retained earnings 43,444 42,338
------------- ------------
Total shareholders' equity 52,282 51,176
------------- ------------
$170,500 $164,566
============= ============
NOTE: The balance sheet at August 30, 1997 has been derived from the audited
financial statements at that date but does not include all of the inform-
ation and footnotes required by generally accepted accounting principles
for complete financial statements.
See notes to financial statements
PART I. FINANCIAL INFORMATION (Continued)
Condensed Consolidated Statements of Cash Flows
(Thousands of Dollars)
Thirteen Weeks Ended
November 29, November 30,
1997 1996
------------ ------------
OPERATING ACTIVITIES-net cash provided $ 1,572 $ 1,729
INVESTING ACTIVITIES
Expenditures for property and equipment (2,596) (5,222)
Proceeds from sale of property and other assets 22 18
Other 259 313
------------ ------------
Net cash used in investing activities (2,315) (4,891)
FINANCING ACTIVITIES
Proceeds from issuance of long-term debt 2,400 11,600
Payments of long-term debt (451) (6,252)
Payments for acquisition of common shares --- ( 67)
Dividends paid (265) (242)
Decrease in deferred other (475) (288)
------------ -----------
Net cash provided by financing activities 1,209 4,751
------------ -----------
Increase in cash and cash equivalents 466 1,589
Cash and cash equivalents at beginning of period 9,491 9,766
------------ -----------
Cash and cash equivalents at end of period $ 9,957 $ 11,355
============ ============
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest $ 337 $ 710
============ ============
Income Taxes $ 100 $ 814
============ ============
See notes to 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.
On April 10, 1997, the Board of Directors authorized a two for one
stock split, payable on May 2, 1997 to shareholders of record on
April 22, 1997. Accordingly, all per share and share data have
been restated to reflect the stock price.
Financial Accounting Standards Board Statement No. 131 -- Segments,
will be applicable for fiscal 1999. This statement dictates the use
of a management approach to report financial and descriptive
information about the Company's operating segments. The impact on
the Company has not been determined.
Note B. Meat, produce, bakery, deli and drug 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. 1998
Compared to
First Qtr. First Qtr. First Qtr. 1997
1998 1997 -----------------
--------- ----------
100.0% 100.0% Net sales 4.1%
======= ======= =======
26.3 25.4% Gross profit 7.8
Selling,general and admin-
24.4 23.9 istrative expenses
6.6
1.9 1.6 Operating profit 26.5
.7 .7 Interest expense 3.1
.2 .3 Other income - net (27.0)
1.4 1.2 Income before income taxes 27.9
.5 .5 Provision for income taxes 13.4
------ ------ ------
.9% .7% Net income 38.3
====== ====== ========
Net sales for the first quarter of 1998 were $153,952,000 or 4.1% higher
than the same quarter in 1997. This net increase was attributable to
increases in drugstore sales and increases in supermarket sales resulting
from two additional supermarkets, one new drugstore and various remodeled
locations. Sales from stores in operation both this past quarter as well
as the same quarter a year ago increased .7%.
Gross margins, as a percent of sales, increased .9% in the first quarter
of 1998 compared to the same quarter in 1997. Most of the increase was
attributable to increased selling margins in the retail stores.
As a percent of sales, selling, general and administrative expenses
increased .5% during the current quarter compared to the same quarter of the
prior year. Increased selling costs relating to new and remodeled locations
were the principal reasons for the increases.
Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
The Company continues to experience a very stable labor situation. During
this past quarter, the Company reached a five year agreement in addition to
the remaining one year on the expiring agreement, with its warehouse and
transportation associates. This has permitted the Company to embark on a
warehouse remodeling project whereby one warehouse will be closed along with
increased space utilization in another, thus improving operational efficiency.
The Company also has contracts in place with major unions relating to stores
until the middle of 1999.
Interest expense increased $30,000 compared with the same quarter of 1997.
Slightly higher interest rates accounted for much of this increase.
Other income - net decreased $103,000 resulting primarily from a decrease in
miscellaneous income categories.
Income taxes as a percent of pre-tax income approximates the statutory tax
rates in effect. The percentage decrease in first quarter 1998 compared to
1997 is due mainly to the implementation of various tax planning strategies.
An effective tax rate of 37% was used in this past quarter versus a rate of
41.5% for the first quarter of fiscal 1997. The lower rate used in this most
recent quarter is expected toshould continue in the second quarter as well.
Net income for the quarter was $1,371,000 ($.31 per common share) which
compares to $991,000 ($.23 per common share) for the same quarter last year.
n a current trailing four quarters' basis, net income was $6,792,000 ($1.53
per common share) compared to $6,045,000 ($1.37 per common share) for the
prior four quarters, a 12.4% increase. . The Company expects its fiscal 1998
second quarter net income to be comparable with its fiscal 1997 second quarter.
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 $86,000 in the first quarter of 1998
compared to a decrease of $50,000 in the first quarter of 1997. 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 in
seeking to so while maintaining its market share.
Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
LIQUIDITY AND CAPITAL RESOURCES
OVERVIEW
Measures of liquidity for the first quarter of the last two years were as
follows:
(Dollars in millions) 1st Quarter
- ---------------------- ------------------
1998 1997
------ ------
Working capital (1) 29.7 $22.2
Unused lines of revolving credit (2) 39.0 18.4
Current ratio (1) 1.46 1.32
(1) Includes add-back of gross LIFO reserve.
(2) Represents unused amount under the five year $45.0
million revolving credit agreement.
During the first thirteen weeks of fiscal 1998, the Company's working capital
(includes the add-back of the gross LIFO reserve) increased $2,021,000 from
the Company's fiscal year end on August 30, 1997. The working capital
ratio was 1.46 to 1 at the end of this quarter compared to 1.46 to 1 at
August 30, 1997 and 1.32 to 1 at November 30, 1997. Borrowings under the
Company's Revolving Credit Agreements increased slightly, primarily to
finance inventory increases for the holiday season as well as capital
expenditures.
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 1998 the Company borrowed against revolving credit
agreements with the maximum amount outstanding under such agreements
amounting to $8,000,000, with $6,000,000 being outstanding as of the end
of the quarter.
The Company, in a previous filing, disclosed its intention to allow employee
purchases of Company stock in its 401(k) salary deferral plan. The Company
has subsequently decided against allowing such purchases in the plan.
Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
CASH FLOWS FROM OPERATING ACTIVITIES
Cash provided by operating activities decreased approximately $157,000 from
$1,729,000 to $1,572,000 for the comparative thirteen week period. This
decrease is primarily attributable to the smaller increase in accounts
payables and accrued liabilities as compared to the same period in fiscal
1997 which was partially offset by the increase in depreciation and income.
CASH FLOWS FROM INVESTING ACTIVITIES
During the first thirteen weeks of 1998, the Company used $2,315,000 of
cash in investing activities. This compares to $4,891,000 used in the
thirteen weeks of 1997, a result of decreased expenditures for property and
equipment in 1998 versus 1997.
CASH FLOWS FROM FINANCING ACTIVITIES
Cash provided by financing activities during the thirteen weeks of 1998 was
$1,209,000 which compares to cash provided of $4,751,000 during the thirteen
weeks of 1997. The decrease was due to a decrease in net borrowings during
the period compared to a year earlier.
YEAR 2000 MODIFICATIONS
The Company is in the process of making all modifications to its computer
systems deemed to be necessary by management to account for and report
business transactions beginning on January 1, 2000. Furthermore, the
Company expects that all such modifications, including the pre-testing of
systems, to be completed by the end of the current calendar year (1998).
The Company does not anticipate any material issues related to the Year
2000 modifications.
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. A number of factors could
adversely affect future results, liquidity and capital resources. These
factors include, but are not limited to, competitive pressures from other
major supermarket operators, including entry of new competitive stores in the
Company's market, the level of discounting by competitors, the stability of
distribution incentives from suppliers, economic conditions in the Company's
primary markets and other uncertainties detailed from time to time in the
Company's Securities and Exchange Commission filings. Although management
believes it has the business strategy and resources needed for improved
operations, future revenue and margin trends cannot be reliably predicted.
Item 4 - Results of votes of security holders
(a) The Annual Meeting of Shareholders of Seaway Food Town, Inc. as held
on January 8, 1998.
(b) The election of the Directors previously nominated and as set forth
in the Proxy Statement of December 12, 1997, which is incorporated
herein by reference, was by the following vote:
Shares Shares voted
Voted FOR AUTHORITY TO VOTE
WITHHELD
Thomas M. O'Donnell 3,608,673 3,876
Richard K. Ransom 3,606,273 6,276
Joel A. Levine 3,607,641 4,908
(c) Pursuant to the proposal set forth in the Proxy Statement of
December 12, 1997, which is incorporated herein by reference, approval
of Ernst & Young, LLP as independent auditors for the fiscal year
ending August 29, 1998 was by the following vote:
Shares voted FOR 3,606,046
Shares voted AUTHORITY TO
VOTE WITHHELD 3,040
Shares voted AGAINST 3,463
(d) Pursuant to the proposal set forth in the Proxy Statement of
December 12, 1997, which is incorporated herein by reference,
approval of the proposal to amend the Articles of Incorporation
to increase the number of authorized shares of common stock from
6,000,000 (six million) to 12,000,000 (twelve million):
Shares voted FOR 3,273,544
Shares voted AUTHORITY TO
VOTE WITHHELD 8,068
Shares voted AGAINST 330,937
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
Richard B. Iott, President and
Chief Operating Officer
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 January 12, 1998 By /s/ Richard B. Iott
Richard B. Iott,
President and Chief
Executive Officer
Date January 12, 1998 By /s/ Waldo E. Yeager
Waldo E. Yeager,
Chief Financial Officer,
Treasurer