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 August 27, 1994
( ) 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 0-80.
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 Identification No.)
incorporation or organization)
1020 Ford Street, Maumee, Ohio 43537
(Address of principal executive offices) (Zip Code)
419/893-9401
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12 (b) of the Act:
None
Title of each class
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, without par value (stated value $2.00 per share).
Title of Class
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
Page 1 of 2 of Cover Page
<PAGE>
2
Disclosure of Delinquent Form Filing
Indicate by check mark if disclosure of delinquent filings 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 statement
incorporated by reference in part 3 of this Form 10 K or any amendments to
this Form 10 K.
[ X ]
The aggregate market value of voting stock held by nonaffiliates of the
registrant is approximately $13,968,804 as of November 11, 1994.
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 November 11, 1994
Common stock, without par 2,174,773 shares
value (stated value $2.00
per share)
Documents Incorporated in Part by Reference
Parts II and IV Portions of the 1994 Annual Report to Shareholders of
Seaway Food Town, Inc. ("Annual Report") are filed as
Exhibit 13 filed hereto.
Part III The Seaway Food Town, Inc. Proxy Statement, dated
December 9, 1994 ("Proxy Statement")
Page 2 of 2 of Cover Page
<PAGE>
3
PART I
Item 1. Business.
Seaway Food Town, Inc., was founded in 1957 and is a leading regional
supermarket chain located predominantly in northwest and central Ohio and
southeast Michigan. Beginning in 1986,the Company began adding deep
discount drug stores to its chain. The merchandise sold in these stores is
similar to that sold in a conventional supermarket but with a greater
emphasis on non-food items and package size of such items. At year end,
the Company operated 24 Food Town Supermarkets, 20 Food Town Plus
Supermarkets, and 22 deep discount drug stores under the name of the
Pharm.
No material portion of the Company's business is seasonal, as that
term is commonly used, although holiday periods may result in greater sales
volume. There is substantial competition, principally price-oriented, from
national, regional and local companies. The Company is in one line of
business selling substantially the same types of retail food and
convenience-related non-food merchandise.
The Company employs approximately 2,265 employees on a full-time basis
and 2,235 on a part-time basis.
Item 2. Properties.
The Company leases 43 of its stores (3 of which are accounted for as
capital leases) and certain other facilities and equipment under leases
generally for fifteen years, although some are for shorter as well as
longer periods. The Company owns 23 stores and a relatively large
distribution center (approximately 477,174 square feet) which includes
offices, warehousing and shipping facilities, located in Maumee, Ohio. It
also owns a 133,000 square foot warehouse in Toledo, Ohio which is used as
a satellite facility and a 105,000 square foot warehouse facility which
houses health and beauty aids and general merchandise operations. The
Company believes that its physical facilities, both leased and owned, are
suitable and adequate for the intended uses and purposes.
In addition, the Company leases 2 locations that are closed and not
subleased.
At August 27, 1994, the approximate undepreciated cost of real
property subject to mortgages was $9,954,000 and the approximate
undepreciated cost of real property subject to capital lease obligations
was $6,997,000.
<PAGE>
4
Item 3. Legal Proceedings.
There are no significant legal proceedings pending.
Item 4. Submission of matters to a vote of Security Holders.
No matters have been submitted to a vote of security holders since
the Annual Meeting held January 6, 1994.
PART II
Item 5. Market for registrant's common equity and related security
holder matters.
Information with respect to the market for the registrant's common
stock and related security holder matters on page 32 of Exhibit (13) filed
hereunder is incorporated herein by reference.
Item 6. Selected financial data.
The five year summary of selected financial data on page 13 of Exhibit
(13) filed hereunder is incorporated herein by reference.
Item 7. Management's discussion and analysis of financial condition and
results of operations.
Management's discussion and analysis of financial condition and results
of operations included on pages 15 through 18 of Exhibit (13) filed
hereunder is incorporated herein by reference.
Item 8. Financial statements and supplementary data.
The consolidated financial statements and report of independent auditors
on pages shown below of Exhibit (13) filed hereunder are incorporated herein
by reference.
<TABLE>
<CAPTION>
Page(s)
<S> <C>
Comparative Highlights 14
Report of Independent Auditors 19
Consolidated Statements of Income 20
Consolidated Balance Sheets 21 & 22
Consolidated Statements of Cash Flows 23
Consolidated Statements of Shareholders' Equity 24
Notes to Consolidated Financial Statements 25 - 32
</TABLE>
Item 9. Changes in and disagreements with accountants on accounting and
financial disclosure.
There have been no disagreements on accounting and financial disclosure
matters reported on Form 8-K during the fiscal years ended August 27, 1994
and August 28, 1993.
<PAGE>
5
PART III
Item 10. Directors and executive officers of the Registrant.
Information with respect to non-officer directors is included in the
Proxy Statement in the Section entitled "Information concerning Nominees
and Directors" and is incorporated herein by reference.
Information with respect to executive officers, family relationships
and business experience is included in the Proxy Statement in the Sections
entitled "Executive Compensation," "Compensation of Directors," and
"Executive Officers". That information (except the Compensation Committee
Report, and the graph indicating Comparison of 4 Year Cumulative Total
Return), is incorporated herein by reference.
Item 11. Executive Compensation.
Information regarding Executive Compensation is included in the
Proxy Statement in the sections entitled "Interest of Management in
Certain Transactions," "Executive Compensation," and "Compensation of
Directors". That information (except the Compensation Committee Report,
and the graph indicating Comparison of 4 Year Cumulative Total Return),
is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Information as to Security Ownership of Certain Beneficial Owners and
Management included in the Proxy Statement in the Sections entitled
"Information Concerning Nominees and Directors," and "Principal Holders of
Voting Securities" is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions.
Information regarding Certain Relationships and Related Transactions is
included in the Proxy Statement in the Sections entitled "Interest of
Management in Certain Transactions," "Executive Compensation," and
"Compensation of Directors". That information (except the Compensation
Committee Report, and the graph indicating Comparison of 4 Year Cumulative
Total Return), is incorporated herein by reference.
<PAGE>
6
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) The following documents or portions thereof indicated are filed as a
part of this report on Form 10-K.
(1) The following consolidated financial statements of Seaway Food
Town, Inc. and its subsidiaries, included on pages 19 - 31 of Exhibit
(13) filed hereunder are incorporated by reference in Item 8.
Report of Independent Auditors
Consolidated statements of Income - Years ended August 27, 1994,
August 28, 1993 and August 29, 1992
Consolidated balance sheets at August 27, 1994 and August 28, 1993
Consolidated statements of cash flows - Years ended August 27, 1994,
August 28, 1993 and August 29, 1992
Consolidated statement of shareholders' equity - Years ended
August 27, 1994, August 28, 1993 and August 29, 1992
Notes to consolidated financial statements - August 27, 1994
(2) The following consolidated financial statement schedules of
Seaway Food Town, Inc. and its subsidiairies are filed under
Item 14(d):
SCHEDULE PAGE(S)
Schedule V - Property, plant and equipment 9
Schedule VI - Accumulated depreciation and amortization
of property, plant and equipment 10
Schedule VIII - Valuation and qualifying accounts 11
All other schedules have been omitted since the required information is
not present or is not present in amounts sufficient to require submission
of the schedule, or because the information required is included in the
consolidated financial statements or the notes thereto.
<PAGE>
7
b.) Reports on Form 8-K.
No reports on Form 8-K were required to be filed for the
three months ended August 27, 1994.
c.) Exhibits Required by Item 601 of Regulation S-K Index.
Exhibit 3 - Data required by this item has previously been
filed and is incorporated by reference from the
Company's Annual Report on Form 10-K for the Year
Ended September 25, 1982, File 0-80.
A copy of the Amendment to the Articles of
Incorporation filed with the Secretary of State of Ohio,
January 17, 1989, is incorporated by reference from the
Company's Annual Report on Form 10-K for the Year Ended
August 26, 1989, File 0-80.
4 - Data required by this item has previously been filed and
is incorporated herein by reference from the Company's
Annual Report on Form 10-K for the Year Ended September
26, 1981, File 0-80.
10 - Contracts required by this item have previously been filed
and are Incorporated herein by reference from the Company's
Annual Report on Form 10-K for the Years Ended September
26, 1981, September 24, 1983, the eleven months ended
August 27, 1988, File 0-80, on the Company's Issuer Tender
Offer Statement on Schedule 13 E-4 filed November 4,
1987, and on form 10-K for the years ended August 25, 1990,
August 31, 1991, August 29, 1992, and August 28, 1993.
11 - Computation of income per share.
13 - Portions of the 1994 Annual Report to Shareholders (to
the extent incorporated by reference hereunder.)
22 - Subsidiaries of the Registrant.
23 - Consent of Independent Auditors.
99 - Financial Data Schedule
d. Financial Statements Required by Regulation S-X.
Included in Item 14 (a), above.
<PAGE>
8
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) 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.
SEAWAY FOOD TOWN, INC.
(Registrant)
11/18/94 By /s/ Richard B. Iott
Date Richard B. Iott, President & Director
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
11/18/94 By /s/ Wallace D. Iott
Date Wallace D. Iott, Chairman of the Board
(Principal Executive Officer)
& Director
11/18/94 By /s/ Waldo E. Yeager
Date Waldo E. Yeager, Director
(Chief Financial Officer and
Treasurer)
11/18/94 By /s/ Robert J. Kirk
Date Robert J. Kirk, Director
11/18/94 By /s/ Thomas M. O'Donnell
Thomas M. O'Donnell, Director
11/18/94 By /s/ David J. Walrod
Date David J. Walrod, Director
11/18/94 By /s/ Richard K. Ransom
Date Richard K. Ransom, Director
<PAGE>
9
<TABLE>
<CAPTION>
SEAWAY FOOD TOWN, INC.
SCHEDULE V - PROPERTY AND EQUIPMENT
Years Ended August 27, 1994, August 28, 1993, and August 29, 1992
Balance Balance
at beginning Additions Other changes - at end
of period at cost Retirements add (deduct) of period
<S> <C> <C> <C> <C> <C>
1994:
Land $ 4,160,014 $ 42,256 $ 4,202,270
Building and
improvements 60,300,634 3,281,957 $ 1,129,588 62,453,003
Leasehold
improvements 25,321,214 1,216,956 533,921 26,004,249
Equipment 86,508,911 8,140,678 2,484,365 92,165,224
---------- --------- ---------- -----------
Total $ 176,290,773 $ 12,681,847 $ 4,147,874 $ 184,824,746
========== ========== ========== ============
1993:
Land $ 3,866,433 $ 374,409 $ 80,828 $ 4,160,014
Building and
improvements 56,373,928 5,925,206 1,998,500 60,300,634
Leasehold
improvements 23,858,218 1,649,895 186,899 25,321,214
Equipment 82,623,532 9,403,256 5,517,877 86,508,911
---------- ---------- ---------- -----------
Total $ 166,722,111 $ 17,352,766 $ 7,784,104 $ 176,290,773
========== ========== ========== ===========
1992:
Land $ 3,856,433 $ 10,000 $ 3,866,433
Building and
improvements 57,329,244 1,248,034 $ 2,203,350 56,373,928
Leasehold
improvements 25,310,354 1,678,809 3,130,945 23,858,218
Equipment 84,290,279 6,904,833 8,571,580 82,623,532
---------- ---------- ---------- -----------
Total $ 170,786,310 $ 9,841,676 $ 13,905,875 $ 166,722,111
========== ========== ========== ==========
</TABLE>
<PAGE>
10
<TABLE>
<CAPTION>
SEAWAY FOOD TOWN, INC.
SCHEDULE VI - ACCUMULATED DEPRECIATION AND AMORTIZATION OF PROPERTY AND EQUIPMENT
Years Ended August 27 1994, August 28, 1993, and August 29, 1992
Additions Other
Balance at charged to changes- Balance
Beginning costs and add at end
of period expenses Retirements (deduct) of period
<S> <C> <C> <C> <C> <C>
1994:
Buildings and
improvements $29,641,340 $2,866,267 $909,579 $31,598,028
Leasehold
improvements 12,125,599 2,310,504 413,670 14,022,433
Equipment 48,871,036 7,134,153 2,146,486 53,858,703
---------- ---------- ---------- ----------
Total $90,637,975 $12,310,924 $3,469,735 $99,479,164
========== ========== ========== ==========
1993:
Buildings and
improvements $28,344,410 $2,730,231 $1,433,301 $29,641,340
Leasehold
improvements 10,060,440 2,235,937 170,778 12,125,599
Equipment 47,402,769 6,596,003 5,127,736 48,871,036
---------- ---------- ---------- ----------
Total $85,807,619 $11,562,171 $6,731,815 $90,637,975
========== ========== ========= ==========
1992:
Buildings and
improvements $27,838,247 $2,617,069 $2,110,906 $28,344,410
Leasehold
improvements 10,495,153 2,332,078 2,766,791 10,060,440
Equipment 48,964,215 6,696,005 8,257,451 47,402,769
---------- ---------- ---------- ----------
Total $87,297,615 $11,645,152 $13,135,148 $85,807,619
========== ========== ========== ==========
</TABLE>
<PAGE>
11
<TABLE>
<CAPTION> SEAWAY FOOD TOWN, INC.
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
Years Ended August 27, 1994, August 28, 1993 and August 29, 1992
Balance Charge (credit) Charged Deductions Balance
at beginning to costs and to other from at end
of period expenses accounts reserves of period
--------- ------------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Allowance for
doubtful accounts:
1994 $ 400,000 $ 54,699 $ 4,699 (A) $ 450,000
======== ======= ======== ======== ========
1993 $ 250,000 $ 150,000 $ -- (A) $ 400,000
======== ======= ======== ======== ========
1992 $ 150,000 $ 100,000 $ -- (A) $ 250,000
======== ======= ======== ======== ========
(A) - Accounts charged off during the year, net of recoveries of
accounts previously charged off.
</TABLE>
<PAGE>
12
<TABLE>
<CAPTION> EXHIBIT 11
SEAWAY FOOD TOWN, INC.
COMPUTATION OF INCOME PER SHARE
1994 1993 1992 1991 1990
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Income before extraordinary item and
cumulative effect of change in $2,438 $1,123 $2,375 $1,256 $2,931
accounting (thousands of dollars) ===== ===== ===== ===== =====
Net income (thousands of dollars) $2,059 $1,123 $2,155 $1,256 $2,931
===== ===== ===== ===== =====
Weighted average number of common shares
outstanding during the period for purposes of
computing primary earnings per share 2,306,881 2,332,016 2,326,972 2,307,224 2,291,513
Net shares to be issued upon exercise of
dilutive options after applying treasury
stock method -- -- -- -- 1,556
-------- -------- -------- -------- --------
Adjusted outstanding shares for purpose of
computing income per share assuming full
dilution 2,306,881 2,332,016 2,326,972 2,307,224 2,293,069
========= ========= ========= ========= =========
Income per common share:
Assuming no dilution:
Income before extraordinary item
and cumulative effect of change
in accounting $1.06 $ .48 $1.02 $ .54 $1.28
Extraordinary item (.06) -- (.09) -- --
Cumulative effect of change in
accounting for income taxes (.11) -- -- -- --
-------- -------- -------- -------- --------
Net income $ .89 $ .48 $ .93 $ .54 $1.28
===== ===== ===== ===== =====
Fully diluted (A)
Income before extraordinary item or cumulative
effect of change in accounting for income taxes $1.06 $ .48 $1.02 $ .54 $1.28
Extraordinary item (.06) -- (.09) -- --
Cumulative effect of change in accounting
for income taxes (.11) -- -- -- --
-------- -------- -------- -------- --------
Net income $ .89 $ .48 $ .93 $ .54 $1.28
===== ===== ===== ===== =====
(A) - Not appearing on face of income statement
</TABLE>
<PAGE>
13 EXHIBIT (13)
<TABLE>
<CAPTION>
PORTIONS OF THE 1994 ANNUAL REPORT TO SHAREHOLDERS
SEAWAY FOOD TOWN, INC.
FIVE YEAR SUMMARY OF
SELECTED FINANCIAL DATA
(Dollars in thousands except share and per share data)
CONSOLIDATED SUMMARY OF OPERATIONS
For the Fiscal Year Ended 1994 1993 1992 1991 (1) 1990
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net sales $546,193 $566,883 $554,565 $571,221 $545,942
Cost of merchandise sold 409,305 428,478 418,515 434,187 416,273
Gross profit 136,888 138,405 136,050 137,034 129,669
Selling, general and
administrative expenses 129,921 133,175 128,378 130,602 120,673
-------- -------- -------- -------- --------
Operating profit 6,967 5,230 7,672 6,432 8,996
Interest expense (4,410) (4,660) (5,174) (5,831) (5,268)
Other income 1,169 1,133 1,102 1,347 888
-------- -------- -------- -------- --------
Income before income taxes, extraordinary
item and cumulative effect 3,726 1,703 3,600 1,948 4,616
Provision for income taxes 1,288 580 1,225 692 1,685
-------- -------- -------- -------- --------
Income before extraordinary item and
cumulative effect 2,438 1,123 2,375 1,256 2,931
Extraordinary item (2) (123) -- (220) -- --
Cumulative effect of change in
accounting (3) (256)
-------- -------- -------- -------- --------
Net income $ 2,059 $ 1,123 $ 2,155 $ 1,256 $ 2,931
======== ======== ======== ======== ========
PER COMMON SHARE DATA
Income before extraordinary
item and cumulative effect $ 1.06 $ .48 $ 1.02 $ .54 $ 1.28
Net income .89 .48 .93 .54 1.28
Cash dividends .36 .36 .36 .36 .36
Book value 16.76 16.00 16.00 15.32 15.13
YEAR END POSITION
Total assets $155,203 $152,771 $150,523 $150,193 $139,137
Property and equipment - net 85,346 85,653 80,914 83,488 75,508
Net working capital 8,937 6,555 10,519 8,897 9,410
Long-term debt 55,060 55,705 53,206 53,695 49,494
Shareholders' equity 37,585 37,173 36,704 35,370 34,628
FINANCIAL RATIOS
Income before extraordinary item and
cumulative effect as a
percent of sales .45% .20% .43% .22% .54%
Current ratio 1.16:1 1.12:1 1.19:1 1.16:1 1.18:1
Long-term debt to equity ratio 1.46:1 1.50:1 1.45:1 1.52:1 1.43:1
OTHER DATA
Weighted average shares of common
stock outstanding 2,306,881 2,332,016 2,326,972 2,307,224 2,291,513
Net cash provided by operations $16,183 $16,534 $13,651 $11,642 $9,100
Property and equipment additions 12,681 17,353 9,842 18,940 14,376
Depreciation and amortization 12,311 11,562 11,645 10,711 9,936
LIFO charge (credit) included
in cost of merchandise sold (18) (492) 49 303 423
Employees at year end 4,500 4,860 4,713 4,762 4,701
Stores in operation 66 64 65 67 70
Notes: (1) 53 week year
(2) Loss from early extinguishment of debt, less applicable
income taxes
(3) Reflects adoption of Statement of Financial Accounting
Standards No. 109 "Accounting for Income Taxes".
</TABLE>
<PAGE>
14
<TABLE>
<CAPTION>
SEAWAY FOOD TOWN, INC.
Comparative Highlights
(Dollars in thousands, except per share data)
1994 1993 1992
-------- -------- --------
RESULTS OF OPERATIONS
<S> <C> <C> <C>
Net sales $546,193 $566,883 $554,565
Operating profit 6,967 5,230 7,672
Income before income taxes,
extraordinary item and
cumulative effect 3,726 1,703 3,600
Income before extraordinary item
and cumulative effect 2,438 1,123 2,375
Per common share 1.06 0.48 1.02
Percent of sales .45% .20% .43%
Percent of shareholders'equity 6.49% 3.02% 6.47%
Cash dividends per common share .36 .36 .36
OTHER FINANCIAL INFORMATION
Working capital $8,937 $6,555 $10,519
Capital expenditures 12,681 17,353 9,842
Depreciation and amortization 12,311 11,562 11,645
Long-term debt 55,060 55,705 53,206
Shareholders' equity 37,585 37,173 36,704
Book value per common share 16.76 16.00 15.87
Weighted average shares
outstanding 2,306,881 2,332,016 2,326,972
Number of stores in operation,
at year end 66 64 65
NASDAQ National Market Price
Range 13 1/4-9 1/2 13 - 9 1/2 1 8 1/2-11 1/2
</TABLE>
<PAGE>
15
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the financial
statements and notes thereto contained herein.
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. As of the end of fiscal 1994, Seaway Food Town, Inc.
operated 66 retail stores, 44 supermarkets, 20 of which were large combination
stores operating as Food Town Plus stores, and 22 deep discount drugstores
operating as the Pharm. This compares to 44 supermarkets, 20 of which were Food
Town Plus stores, and 20 Pharm deep discount drugstores as of the end of fiscal
1993. During 1994 the Company opened one new, prototype Food Town Plus store
while closing one and opening two Pharm drugstores. All stores operate
predominately in northwest and central Ohio and southeast Michigan.
<TABLE>
<CAPTION>
Percentage change
from prior year
Percentage of net sales 1994 1993
1994 1993 1992 Compared Compared
to 1993 to 1992
<C> <C> <C> <S> <C> <C>
100.0% 100.0% 100.0% Net sales -3.6% 2.2%
25.1 24.4 24.5 Gross profit -1.1 1.7
Selling, general and admin-
23.8 23.5 23.1 istrative expenses -2.4 3.7
1.3 .9 1.4 Operating profit 33.2 -31.8
.8 .8 .9 Interest expense -5.4 -9.9
.2 .2 .2 Other income - net 3.2 2.8
Income before income taxes,
extraordinary item and
.7 .3 .7 cumulative effect 118.8 -52.7
</TABLE>
Net Sales
Consolidated net sales decreased 3.6% in fiscal 1994 and increased 2.2% in
fiscal 1993. Nearly all of the 1994 net sales decrease is attributable to the
supermarkets which experienced severe competitive pressures, especially in the
first three quarters of the year. Nearly all of the 1993 net sales increase was
attributable to the Pharms deep discount drugstores. Retail sales in stores
that were open throughout all three years decreased approximately 2.4% in 1994
compared to 1993 and increased approximately 5.7% in 1993 over 1992. Sales,
though down for fiscal 1994, steadily improved as the 1994 year unfolded.
Management believes that the inflation component in sales was less than
1% in 1994, 1993, and 1992.
<PAGE>
16
Gross Profit
In 1994, the gross profit percentage increased from 24.4% to 25.1% despite
a dollar decrease due to lower sales. Margins improved in both the supermarkets
and the deep discount drugstores in 1994 compared to 1993 and warehousing and
transportation expenses in 1994 decreased nearly $800,000. In 1993, gross
margin decreased slightly from 24.5% to 24.4% with the supermarkets showing
virtually no change in gross margins during 1993 and the deep discount
drugstores showing a slight decrease.
Selling, General and Administrative Expenses
In 1994, selling, general and administrative expenses decreased by $3.3
million in dollars; however, increased as a percentage of sales due to lower
sales. This dollar decrease was attributable principally to lower retail wages
as well as lower workers compensation expense. In 1993, selling, general and
administrative expenses as a percent to sales increased .4% or $4.8 million.
This increase was attributable to increased selling expenses, principally
wages, benefits, and advertising expenses as well as expenses associated with
the opening of new and remodeled stores and the closing of small, outmoded
stores. General and administrative expenses increased as a result of costs
associated with enhancing management information systems. Costs associated
with closed stores were approximately $285,000 in 1994, $961,000 in 1993,
and $661,000 in 1992.
Interest Expense
Interest expense decreased both in 1994 and 1993 due to declining
interest rates and the early retirement of certain higher cost borrowings.
The weighted average interest rate on long-term debt has declined by .59%
from 1993 to 1994 and 1.08% from 1992 to 1993.
Income Taxes
The effective tax rates for 1994, 1993, and 1992 were 34.6%, 34.1%, and
34.0%, respectively, which approximated the statutory rates in effect.
Net Income
Net income in 1994 was $2,059,000 which included an extraordinary charge of
$123,000, net of applicable income taxes, from early extinguishment of
debt as well as a charge of $256,000 resulting from the cumulative effect of
a change in accounting for income taxes due to the adoption of FASB 109.
Income before the extraordinary item and the cumulative effect of a change
in accounting for income taxes was $2,438,000 in 1994 compared to $1,123,000
in 1993. This increase was principally due to lower selling, general, and
administrative expenses previously mentioned combined with the effect of
increasing margins on lower sales volume. Net income in 1993 was $1,032,000
lower than in 1992 principally due to higher selling, general, and
administrative expenses. Excluding the extraordinary items and cumulative
effect of the change in accounting in 1994 and 1992, income as a percent of
net sales was .45% in 1994, .20% in 1993, and .43% in 1992.
<PAGE>
17
LIQUIDITY AND CAPITAL RESOURCES
Capital Expenditures And Financing
During 1994 capital expenditures were $12,681,000 compared to $17,353,000
in 1993 and $9,842,000 in 1992. These were financed by operations and
additional long-term debt. As of the end of 1994, over 74% of the Company's
retail space is either new or has been remodeled within the last five years.
In addition, the Company continues to upgrade its corporate information
systems to provide more timely and sophisticated information to improve the
Company's competitive advantage. The Company continues to expand the benefits
of the Company's Plus Card program, which, launched in 1993, initially provided
instant discounts (paperless coupons) to customers. In early 1995 the program
will provide customers with the opportunity to pay for their purchases with a
bank ATM card, credit card, or their Plus Card which will enable them to make
their purchase via the Federal Reserve's Automated Clearing House (ACH). This
feature has been made a part of the Plus Card so that the customer can make a
fast paperless check transaction when paying for their purchases. The
Company is expecting expenditures of approximately $12,000,000 in fiscal 1995.
As of the end of 1994, the Company had a total of $22.7 million borrowed
against its revolving credit loan agreements with banks which provide maximum
borrowings of $35.0 million. This compares to $22.0 million borrowed against
revolving credit agreements which provided maximum borrowings of $30.0 million
at the end of 1993. The Company believes that cash provided by operations
along with the remaining $12.3 million available under the credit agreements
will be sufficient to finance fiscal 1995 capital additions and other business
needs. The Company's plan for store construction, acquisition, remodeling and
expansion is frequently reviewed and revised in light of changing conditions.
The Company's ability to proceed with projects, or to complete projects during
a particular period, is subject to normal construction and other delays.
Therefore, it is likely that not all the projects included in the above
mentioned figure will commence or be completed in the 1995 fiscal year.
The long-term debt-to-shareholders' equity ratio was 1.46 to 1 at the
end of 1994 compared to 1.50 to 1 at the end of 1993 and 1.45 to 1 at the end
of 1992.
Liquidity
Measures of liquidity for each of the last three fiscal years were as
follows:
<TABLE>
<CAPTION>
1994 1993 1992
------------ ------------- -------------
<S> <C> <C> <C>
Working capital (1) $26.5 million $24.1 million $28.6 million
Current ratio (1) 1.49 to 1 1.44 to 1 1.53 to 1
Unused lines of credit $12.3 million $8.0 million $11.0 million
(1) Includes add-back of gross LIFO reserve
</TABLE>
<PAGE>
18
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Seaway Food Town, Inc.
We have audited the accompanying consolidated balance sheets of Seaway Food
Town, Inc. as of August 27, 1994 and August 28, 1993, and the related
consolidated statements of income, shareholders' equity, and cash flows for
each of the three years in the period ended August 27, 1994. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Seaway Food Town,
Inc. at August 27, 1994 and August 28, 1993, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended August 27, 1994 in conformity with generally accepted accounting
principles.
As discussed in Note 3 to the financial statements, in fiscal 1994, the
Company changed its method of accounting for income taxes.
/s/ Ernst & Young LLP
October 14, 1994
Toledo, Ohio
<PAGE>
20
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED AUGUST 27, 1994, AUGUST 28, 1993 AND AUGUST 29, 1992
(Dollars in thousands, except per share data)
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Net sales $546,193 $566,883 $554,565
Cost of merchandise sold 409,305 428,478 418,515
-------- -------- --------
Gross profit 136,888 138,405 136,050
Selling, general and administrative
expenses 129,921 133,175 128,378
-------- -------- --------
Operating profit 6,967 5,230 7,672
Interest expense (4,410) (4,660) (5,174)
Other income - net 1,169 1,133 1,102
-------- -------- --------
Income before income taxes, extraordinary
item and cumulative effect 3,726 1,703 3,600
Provision for income taxes 1,288 580 1,225
-------- -------- --------
Income before extraordinary item
and cumulative effect 2,438 1,123 2,375
Extraordinary item - losses from early
extinguishment of debt, less applicable
income taxes of $63($113 in 1992) (Note 2) (123) -- (220)
Cumulative effect of change in accounting
for income taxes (Note 3) (256) -- --
-------- -------- --------
Net income $2,059 $1,123 $2,155
======== ======== ========
Per common share:
Income before extraordinary item and
cumulative effect $1.06 $ .48 $1.02
Extraordinary item ( .06) -- ( .09)
Cumulative effect of change in accounting for
income taxes ( .11) -- --
-------- -------- --------
Net income $ .89 $ .48 $ .93
======== ======== ========
See accompanying notes
</TABLE>
<PAGE>
21
<TABLE>
<CAPTION>
BALANCE SHEETS
AUGUST 27, 1994 AND AUGUST 28, 1993
(Dollars in thousands, except per share data)
ASSETS
1994 1993
Current assets: ------- -------
<S> <C> <C>
Cash and cash equivalents $7,137 $7,530
Income tax recoverable 600 427
Notes and accounts receivable, less allowance of
$450 ($400 in 1993) for doubtful accounts 5,627 6,595
Merchandise inventories 44,749 44,319
Prepaid expenses 1,272 1,508
Deferred income taxes 4,036 958
------- -------
Total current assets 63,421 61,337
Other assets 6,436 5,781
Property and equipment, at cost:
Land 4,202 4,160
Buildings and improvements 62,453 60,301
Leasehold improvements 26,005 25,321
Equipment 92,165 86,509
------- -------
184,825 176,291
Less accumulated depreciation and amortization 99,479 90,638
------- -------
Net property and equipment 85,346 85,653
------- -------
$155,203 $152,771
======== ========
</TABLE>
<PAGE>
22
<TABLE>
<CAPTION>
BALANCE SHEETS
AUGUST 27, 1994 AND AUGUST 28, 1993
(Dollars in thousands, except per share data)
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
1994 1993
Current liabilities: ------- -------
Accounts payable - trade $36,318 $35,904
Income taxes 407 377
Accrued liabilities:
Insurance 5,027 5,464
Payroll 2,766 2,728
Taxes, other than income 2,434 2,334
Other 4,191 4,420
------- -------
14,418 14,946
Long-term debt due within one year 3,341 3,555
------- -------
Total current liabilities 54,484 54,782
Long-term debt 55,060 55,705
Deferred income taxes 5,495 1,772
Deferred other 2,579 3,339
Shareholders' equity:
Serial preferred stock, without par value:
300,000 shares authorized, none issued -- --
Common stock, without par value (stated value
$2 per share): 6,000,000 shares authorized,
2,242,373 shares outstanding (2,363,793 in 1993) 4,485 4,728
Capital in excess of stated value 434 470
Retained earnings 32,666 32,500
------- -------
37,585 37,698
Common stock held by ESOP
(41,183 shares in 1993) -- (525)
------- -------
Total shareholders' equity 37,585 37,173
------- -------
$155,203 $152,771
======== ========
</TABLE>
<PAGE>
23
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED AUGUST 27, 1994, AUGUST 28, 1993 AND AUGUST 29, 1992
(Dollars in thousands)
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 2,059 $ 1,123 $ 2,155
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 12,311 11,562 11,645
Provision for ESOP 529 492 382
Provision for income taxes 645 (549) (482)
Equity in income of affiliates (31) (46) (62)
Loss on disposal of property, equipment
and other assets 153 206 390
Changes in assets and liabilities
affecting operations:
Notes and accounts receivable 968 70 498
Merchandise inventories (430) 2,476 (2,108)
Accounts payable
and accrued liabilities (114) 560 2,274
Income taxes (143) 139 (1,416)
Prepaid expenses 236 501 375
--------- --------- ---------
Net cash provided by operating activities 16,183 16,534 13,651
Cash flows from investing activities:
Expenditures for property
and equipment (12,066) (14,376) (8,145)
Proceeds from sale of property, equipment and
other assets 182 270 381
Other (624) (714) (2,078)
--------- --------- ---------
Net cash used in investing activities (12,508) (14,820) (9,842)
Cash flows from financing activities:
Decrease in notes payable -- -- (3,000)
Proceeds from issuance of long-term debt 19,721 3,554 7,500
Payments of long-term debt (20,853) (3,540) (8,841)
Contributions to ESOP -- (15) (27)
Payments for acquisitions of common shares (1,342) (291) (337)
Dividends paid (834) (840) (839)
Increase (decrease) in deferred other (760) (455) 1,017
--------- --------- ---------
Net cash used in
financing activities (4,068) (1,587) (4,527)
--------- --------- ---------
Increase (decrease) in cash and cash
equivalents (393) 127 (718)
Cash and cash equivalents at
beginning of year 7,530 7,403 8,121
--------- --------- ---------
Cash and cash equivalents at
end of year $ 7,137 $ 7,530 $ 7,403
======= ======= ========
Supplemental disclosures of cash flow
information:
Cash paid during the year for:
Interest $ 4,508 $ 4,632 $ 5,025
Income taxes 939 991 3,013
See accompanying notes
</TABLE>
<PAGE>
24
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED AUGUST 27, 1994, AUGUST 28, 1993 AND AUGUST 29, 1992
(Dollars in thousands, except per share data)
Capital in Total
Common Stock ESOP-Unallocated Excess of Share-
----------------- ------------------------ Stated Retained holders'
Shares Amount Shares Amount Value Earnings Equity
--------- ------- --------- --------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at August 31, 1991 2,413,122 $4,826 (104,720) $(1,351) $482 $31,413 $35,370
Net income 2,155 2,155
Purchase of common shares
for treasury (23,529) (47) (10) (280) (337)
Dividends received by ESOP (27) (27)
Allocation by ESOP 28,568 350 32 382
Dividends paid - $.36 per share (839) (839)
--------- ------- --------- --------- ----- -------- -------
Balance at August 29, 1992 2,389,593 4,779 (76,152) (1,028) 504 32,449 36,704
Net income 1,123 1,123
Purchase of common shares
for treasury (25,800) (51) (8) (232) (291)
Dividends received by ESOP (15) (15)
Allocation by ESOP 34,969 518 (26) 492
Dividends paid - $.36 per share (840) (840)
--------- ------- --------- --------- ------ -------- -------
Balance at August 28, 1993 2,363,793 4,728 (41,183) (525) 470 32,500 37,173
Net income 2,059 2,059
Purchase of common shares
for treasury (124,220) (248) (35) (1,059) (1,342)
Allocation by ESOP 41,183 525 (29) 496
Issuance of common shares to
ESOP 2,800 5 28 33
Dividends paid - $.36 per share (834) (834)
-------- ------- --------- ------- ------ ------- -------
Balance at August 27, 1994 2,242,373 $4,485 0 $0 $434 $32,666 $37,585
========= ======= ========= ======== ====== ======= =======
See accompanying notes
</TABLE>
<PAGE>
25
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Business -- The business of Seaway Food Town, Inc. and its consolidated
subsidiaries (the Company) consists of the sale and distribution of food,
drugs, and related products, principally through supermarkets and drugstores
predominately in northwest and central Ohio and southeast Michigan.
Basis of presentation -- The consolidated financial statements include the
accounts of Seaway Food Town, Inc. and all wholly-owned subsidiaries.
Cash and cash equivalents -- The Company considers all highly liquid
investments with a maturity of three months or less when purchased to be cash
equivalents. The carrying amount reported in the balance sheets for cash
equivalents approximates its fair value.
Inventories -- Meat, produce and drug inventories are valued at the lower of
cost, using the first-in, first-out (FIFO) method, or market. All other
merchandise inventories are valued at the lower of cost, using the last-in,
first-out (LIFO) method, or market. Inventories have been reduced by
$17,576,000 and $17,594,000 at August 27, 1994 and August 28, 1993,
respectively, from amounts which would have been reported under the FIFO
method (which approximates current cost).
During 1994 and 1993, merchandise inventory quantities were reduced. These
reductions resulted in liquidations of the LIFO inventory quantities carried
at lower costs prevailing in prior years as compared with costs of 1994 and
1993 purchases, the effect of which increased consolidated net income by
approximately $75,000 ($.03 per share) in 1994 and $156,000 ($.07 per share)
in 1993.
Depreciation and amortization -- Depreciation and amortization are provided
principally under the straight-line method at rates based upon the estimated
useful lives of the various classes of assets. Capital leases not involving
a purchase of the assets are amortized over the lease term.
Pension -- The Company contributes to pension plans covering substantially
all employees. Pension costs include defined contributions based upon wages,
and specified amounts per hour as required under collective bargaining
agreements. The Company's policy is to fund pension costs annually in the
amount accrued.
Deferred income taxes -- Deferred income taxes are provided on the asset and
liability method for all significant temporary differences between income
reported for financial statement purposes and taxable income.
Net income per common share -- Net income per common share is based upon the
weighted average number of common shares outstanding of 2,306,881 in 1994,
2,332,016 in 1993 and 2,326,972 in 1992. Unallocated shares held by the ESOP
were not considered outstanding.
<PAGE>
26
2. NOTES PAYABLE AND LONG-TERM DEBT
Long-term debt at August 27, 1994 and August 28, 1993 consisted of the
following (in thousands):
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
9.10% to 9.22% senior
notes payable to insurance
company, due 2005 $12,000 $12,000
8.15% to 8.75% mortgage
notes payable to insurance
companies, payments due
quarterly to 2002 2,357 6,169
6% to 7.29% mortgage
notes payable, payments
due annually to 2008 6,716 3,763
6.375% to 10.3% term
notes payable, payments
due quarterly and annually
to 1999 6,535 6,245
Revolving credit loan agree-
ments with banks, with
interest of 5.63% to 7.75% 22,700 22,000
Long-Term lease obligations (see Note 5):
7.138% to 7.25% industrial
development revenue
bonds, payments due
annually to 2000. 1,465 1,740
Other, 5.72% to 13%,
payments due in varying
monthly amounts through
2004. 6,628 7,343
-------- -------
58,401 59,260
Less amount due within one
year. 3,341 3,555
-------- -------
$55,060 $55,705
====== ======
</TABLE>
During fiscal 1994, the Company renewed its three revolving credit loan
agreements and obtained one additional revolving credit agreement permitting
borrowings up to $35,000,000 in the aggregate. The loan agreements are due
in fiscal 1997, at which time the borrowings are convertible into term notes
payable over four years. Interest is charged at the Company's option, at the
current prime rates charged by the banks or 1.25 percentage points in excess
of the current LIBOR rate. The Company is required to pay a fee of 1/4% per
annum on any unused portion of the loan commitment. Under these agreements,
the Company had borrowed $22,700,000 and $22,000,000 at August 27, 1994 and
August 28, 1993, respectively.
<PAGE>
27
During fiscal 1994, the Company entered into interest rate cap agreements in
the management of interest rate exposure. These transactions reduce the
Company's exposure to significant variations in interest rates. At August
27, 1994, a notional amount of $20,000,000 was covered by these agreements at
an average borrowing rate of 9.375% through 1999. If the counterparties to
these agreements fail to perform, the Company would no longer be protected
from interest rate fluctuations by these agreements and could incur
additional interest expense as a result. However, the Company does not
anticipate nonperformance by the counterparties, since all of these
agreements are with banks with which the Company has revolving credit
agreements, having the right of offset.
The senior note agreements provide for repurchases of the notes, at either
the Company's or holder's option, in amounts not in excess of $4,000,000 in
1997 and $8,000,000 in 2000. In addition, the agreement allows for
prepayments, at the Company's option, subject to certain prepayment
provisions.
The senior notes and revolving credit loan agreements referred to above
include certain working capital, net worth and debt service covenants along
with restrictions on the payment of cash dividends. The restriction of
dividends is based on a percentage of income available for debt service above
debt service.
At August 27, 1994, the approximate undepreciated cost of property and
equipment subject to mortgages was $16,951,000.
In 1994 and 1992, respectively, the Company recorded extraordinary losses
from early extinguishment of debt which consisted mainly of prepayment
penalties and unamortized financing fees amounting to $123,000 (net of
$63,000 income tax benefit) and $220,000 (net of $113,000 income tax
benefit).
Annual maturities of long-term debt for each of the five fiscal years
subsequent to August 27, 1994 are as follows: 1995 - $3,341,000; 1996 -
$3,055,000; 1997 - $6,543,000; 1998 - $2,325,000; 1999 - $4,361,000.
At August 27, 1994, the carrying value of the long-term debt in aggregate,
excluding capitalized lease obligations, approximates its fair value. The
fair value is estimated using discounted cash flow analyses, based on the
Company's current incremental borrowing rates.
3. INCOME TAXES
Effective August 29, 1993, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes." As
permitted by Statement 109, prior year financial statements have not been
restated to reflect the change in accounting method. The cumulative effect
as of August 29, 1993 of adopting Statement 109 decreased net income by
$256,000 or $.11 per share.
Under Statement 109, the asset and liability method is used in accounting for
income taxes. Under this method, deferred tax assets and liabilities are
determined based on differences between financial reporting and tax bases of
assets and liabilities and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse. Prior
to the adoption of Statement 109, income tax expense was determined using the
liability method prescribed by Statement 96, which is superseded by Statement
109. The classification criteria changed and resulted in a reclassification
between current and long-term deferred income taxes of approximately
$2,376,000 at August 29, 1993.
<PAGE>
28
The provision (credit) for income taxes consists of the following (in
thousands):
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Current:
Federal $ 674 $1,091 $1,590
State and local 225 38 117
------- ------- -------
899 1,129 1,707
Deferred:
Federal 415 (618) (626)
State and local (26) 69 144
--------- --------- ---------
389 (549) (482)
--------- --------- ---------
$1,288 $ 580 $ 1,225
==== ==== ====
</TABLE>
The consolidated effective tax rate differs from the statutory U.S. Federal
tax rate for the following reasons and by the following percentages:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Statutory U.S. Federal
tax rate 34.0% 34.0% 34.0%
Increase (reduction) in taxes resulting from:
State and local Income
taxes net of the
related reduction in
federal income taxes 4.2 1.5 2.4
Tax credit (2.3) --- ---
Contribution of
merchandise (1.1) (3.7) (1.3)
Other ( .2) 2.3 (1.1)
------- ------- -------
Effective tax rate 34.6% 34.1% 34.0%
====== ====== ======
</TABLE>
<PAGE>
29
Significant components of the Company's deferred income tax assets and
liabilities as of August 27, 1994 are as follows (in thousands):
<TABLE>
<S> <C>
Deferred income tax assets:
Accrued expenses $ 3,221
Tax credit carryforwards 1,626
Expenses inventoried for tax purposes 913
Other 704
-----
$ 6,464
=======
Deferred income tax liabilities:
Excess tax depreciation $ 6,464
Deferred project costs 1,259
Other 200
------
$ 7,923
=======
</TABLE>
The above are reflected in the balance sheet as of August 27, 1994 as follows
(in thousands):
<TABLE>
<S> <C>
Current deferred income tax asset $ 4,036
=======
Noncurrent deferred income tax liability $ 5,495
=======
</TABLE>
Under the provisions of Statement 96, the deferred tax provision by major
element was attributable to the following (in thousands):
<TABLE>
<CAPTION>
1993 1992
<S> <C> <C>
Tax credit carryforwards $ (631) $ (371)
Deferred project costs 552 406
Self insurance accruals (378) (252)
Other accrued expenses (181) ---
Closed store accruals (115) 46
Compensation 106 (176)
ESOP contribution (94) (148)
Expenses inventoried
for tax purposes 87 9
Prepaid insurance 84 ---
Other 21 4
-------- --------
$ (549) $ (482)
===== =====
</TABLE>
<PAGE>
30
The Company has alternative minimum tax credit carryforwards of $1,127,000
and targeted jobs tax credit carryforwards of $298,000 which can be applied
against regular tax liabilities in future years. Additionally, the Company
has contribution carryforwards of approximately $201,000 which can be applied
against taxable income in future years. The targeted jobs tax credits expire
in 2008 and 2009 while the contribution carryforwards expire in 1997 through
1999.
4. EMPLOYEE BENEFIT PLANS
For eligible nonunion employees, the Company has a 401(k) salary deferral
plan which permits employee salary deferrals of up to 15%, but not to exceed
the maximum annual allowable amount for income tax purposes, and an Employee
Stock Ownership Plan (ESOP). The Company used $2,000,000 of excess pension
plan assets returned to the Company upon termination of the Defined Benefit
Pension Plan in fiscal 1988 to advance fund the ESOP. The amount of shares
held by the ESOP which had not been allocated to plan participants are
considered to be treasury shares and have been shown as a reduction of
Shareholders' Equity. All such shares were allocated in fiscal 1994.
Allocations to the participants in the ESOP are not less than 2 1/2% of total
annual compensation. Company matching contributions to the 401(k) plan are
50% of employee salary deferral contributions. The Company matching
contributions are not made on salary deferrals in excess of 6% of an
employee's compensation. The Company's expense for these plans was $832,000
in 1994, $991,000 in 1993, and $812,000 in 1992.
In addition, the Company contributes to several area-wide defined
benefit union pension plans established under collective bargaining
agreements. The aggregate costs for these plans amounted to $2,428,000 in
1994, $2,963,000 in 1993, and $2,392,000 in 1992. Under the Multi-employer
Pension Plan Amendments Act of 1980, the Company could become liable for its
proportionate share of unfunded vested benefits, if any, in the event of the
termination of, or its withdrawal or partial withdrawal from, the union-
sponsored plans to which the Company makes contributions. The increase in
1993 expense is principally attributable to the withdrawal liability related
to one of the union sponsored pension plans.
5. LEASE COMMITMENTS
Capital leases
The cost and accumulated amortization of property leased under long-term
noncancellable leases are as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Land $ 256 $ 200
Buildings 7,988 10,103
Equipment 5,295 4,709
-------- --------
13,539 15,012
Less accumulated
amortization 6,542 7,166
-------- --------
$ 6,997 $ 7,846
====== ======
</TABLE>
<PAGE>
31
Future minimum lease payments under capital leases together with the present
value of the net minimum lease payments as of August 27, 1994 are as follows
(in thousands):
<TABLE>
<S> <C>
1995 $ 1,944
1996 1,932
1997 1,701
1998 1,319
1999 1,047
Later years 2,520
-------------
Total minimum lease payments 10,463
Less amount representing interest 2,370
-------------
Present value of net minimum lease
payments (included in long-term debt
August 27, 1994 -- see Note 2) $ 8,093
=======
</TABLE
Operating leases
Minimum annual rentals for facilities and equipment leased under
operating leases aggregate approximately $43,681,000 payable as follows (in
thousands):
</TABLE>
<TABLE>
<CAPTION>
Facilities Equipment
<S> <C> <C>
1995 $ 5,185 $ 190
1996 4,869 ---
1997 4,754 ---
1998 4,370 ---
1999 4,268 ---
Later years 20,045 ---
------------ -----------
$ 43,491 $ 190
======= =======
</TABLE>
The leases expire at various dates from 1995 to 2010 and substantially all
are renewable for one or more successive five year periods, in some cases at
slightly higher rentals.
Total rent expense attributable to operating leases amounted to approximately
$6,816,000 in 1994, $7,375,000 in 1993, and $7,494,000 in 1992 and included
provision for additional rentals of $222,000 in 1994, $256,000 in 1993, and
$234,000 in 1992 based upon gross sales in excess of specified amounts.
The Company entered into capital leases amounting to approximately $615,000
in 1994 and $1,844,000 in 1993.
<PAGE>
32
6. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Quarterly financial data for the years ended August 27, 1994, and August
28, 1993 are presented below (in thousands of dollars except per share
amounts):
<TABLE>
<CAPTION>
First Second Third Fourth
<S> <C> <C> <C> <C>
Net sales:
1994 $132,500 $139,404 $136,191 $138,098
1993 140,400 148,446 141,745 136,292
Gross profit:
1994 32,567 34,444 34,663 35,214
1993 33,243 36,512 35,001 33,649
Income (loss)
before extra-
ordinary item
and cumula-
tive effect:
1994 (249) 974 963 750
1993 348 1,265 30 ( 520)
Net income
(loss):
1994 (505) 974 893 697
1993 348 1,265 30 (520)
Income (loss)
before extra-
ordinary item
and cumula-
tive effect per
common share:
1994 (.11) .42 .42 .33
1993 .15 .54 .01 (.22)
Net income (loss)
per common
share:
1994 (.22) .42 .39 .30
1993 .15 .54 .01 (.22)
</TABLE>
<PAGE>
33
<TABLE>
<CAPTION>
INVESTOR INFORMATION
MARKET PRICE OF COMMON STOCK AND
RELATED SECURITY HOLDER MATTERS
Common Stock Price Range
Common Divi--
Fiscal dends paid
Quarter High Low (Per share)
<S> <C> <C> <C>
1993 1st 12 1/2 10 1/4 .09
2nd 12 1/2 10 .09
3rd 13 9 1/2 .09
4th 13 10 3/4 .09
1994 1st 13 1/4 11 .09
2nd 12 3/4 10 1/2 .09
3rd 11 1/2 9 1/2 .09
4th 10 1/2 9 1/2 .09
</TABLE>
The price is the high and low price on the NASDAQ National Market. The
Company's NASDAQ ticker symbol is "SEWY". As of August 27, 1994, the
approximate number of record holders of common stock was 568.
<PAGE>
34 EXHIBIT 22
SEAWAY FOOD TOWN, INC.
SUBSIDIARIES OF REGISTRANT
At the fiscal year ended August 27, 1994 the Company had the
following subsidiaries, all of which are included in the consolidated financial
statements:
<TABLE>
<CAPTION>
State in
Percentage of voting which
Name Securities owned incorporated
<S> <C> <C>
Northern Distributing Co. 100 Ohio
Gruber's Food Town, Inc. 100 Michigan
Tracy & Avery Food Town, Inc. 100 Ohio
Fjord Properties, Inc. 100 Michigan
Second Fjord Properties, Inc. 100 Ohio
Third Fjord Properties, Inc. 100 Ohio
Third Fjord Properties Community
Urban Redevelopment Corp. 100 Ohio
Fifth Fjord Properties, Inc. 100 Michigan
Fifth Fjord Properties of
Ohio, Inc. 100 Ohio
Seaway Properties, Inc. 100 Ohio
Custer Pharmacy, Inc. 75 Michigan
Buckeye Discount, Inc. 100 Ohio
Toledo Milk Processing, Inc. 100 Ohio
Monroe Acquisition Corporation 100 Michigan
JRHW6 Corporation 100 Michigan
The following affiliate is accounted for on the equity basis:
Port Clinton Realty Co.
(Partnership) 39 N/A
</TABLE>
<PAGE>
35
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report [Form 10-K]
of Seaway Food Town, Inc. of our report dated October 14, 1994 included in
Exhibit 13 to Form 10-K.
Our audits also included the financial statement schedules listed in Item
14(a)(2). These schedules are the responsibility of the Company's management.
Our responsibility is to express an opinion based on our audits. In our
opinion, the financial statement schedules to above, when considered in
relation to the basic financial statements taken as a whole, present fairly
in all material respects the information set forth therein.
/s/ ERNST & YOUNG LLP
Toledo, Ohio
October 14, 1994
<PAGE>
36
EXHIBIT 99
FINANCIAL DATA SCHEDULE
ARTICLE 5 OF REGULATION S-X
DOCUMENT
TYPE EX-27
DESCRIPTION ART.5 FDS FOR ANNUAL 10-K
TEXT
ARTICLE 5
MULTIPLIER 1,000
TABLE
PERIOD-TYPE 12 MONTHS
FISCAL YEAR-END AUG 27-1994
PERIOD-END AUG-27-1994
CASH 7,137
SECURITIES 0
RECEIVABLES 5,627
ALLOWANCES 450
INVENTORY 44,749
CURRENT-ASSETS 63,421
PP&E 184,825
DEPRECIATION 99,479
TOTAL-ASSETS 155,203
CURRENT-LIABILITIES 54,484
BONDS 55,060
COMMON 4,485
PREFERRED-MANDATORY 0
PREFERRED 0
OTHER-SE 33,100
TOTAL-LIABILITY-AND-EQUITY 155,203
SALES 546,193
TOTAL-REVENUES 546,193
CGS 409,305
TOTAL-COSTS 409,305
OTHER-EXPENSES 129,921
LOSS-PROVISION 0
INTEREST-EXPENSE 4,410
INCOME-PRETAX 3,726
INCOME-TAX 1,288
INCOME-CONTINUING 2,438
DISCONTINUED 0
EXTRAORDINARY 123
CHANGES 256
NET-INCOME 2,059
EPS-PRIMARY .89
EPS-DILUTED .89
TABLE
TEXT
DOCUMENT
