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 31, 1996
( ) 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 III 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 $37,160,028 as of November 15, 1996.
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 15, 1996
Common stock, without par 2,195,209 shares
value (stated value $2.00
per share)
Documents Incorporated in Part by Reference
Parts II and IV Portions of the 1996 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 13, 1996 ("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 super-
market but with a greater emphasis on non-food items and package size
of such items. At year end, the Company operated 18 Food Town Super-
markets, 25 Food Town Plus Supermarkets, and 23 deep discount drugstores
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 2,220 employees on a full-time
basis and 2,252 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 1 location that is closed and
not subleased.
At August 31, 1996, the approximate undepreciated cost of real
property subject to mortgages was $18,722,000 and the approximate
undepreciated cost of real property subject to capital lease obligations
was $5,838,000.
<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 4, 1996.
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 31 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 11 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 13 through 17 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.
Page(s)
Financial Highlights 12
Report of Independent Auditors 18
Consolidated Statements of Income 19
Consolidated Balance Sheets 20 - 21
Consolidated Statements of Cash Flows 22
Consolidated Statements of Shareholders' Equity 23
Notes to Consolidated Financial Statements 24 - 30
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 31, 1996 and August 26, 1995.
<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 "Compensa-
tion 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 18 - 30 of
Exhibit (13) filed hereunder are incorporated by reference in
Item 8.
Report of Independent Auditors
Consolidated statements of Income - Years ended
August 31, 1996, August 26, 1995 and August 27, 1994
Consolidated balance sheets at August 31, 1996 and
August 26, 1995
Consolidated statements of cash flows - Years ended August 31, 1996,
August 26, 1995 and August 27, 1994
Consolidated statement of shareholders' equity - Years ended
August 31, 1996, August 26, 1995 and August 27, 1994
Notes to consolidated financial statements
(2) The following consolidated financial statement schedules of
Seaway Food Town, Inc. and its subsidiaries are filed under
Item 14(d):
SCHEDULE PAGE(S)
-------- -------
Schedule II - Valuation and qualifying accounts 9
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 31, 1996.
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, August 28, 1993,
and August 27, 1994.
11 - Computation of income per share.
13 - Portions of the 1996 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)
November 22, 1996 By /s/ Richard B. Iott
Date Richard B. Iott, President, CEO & 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.
November 22, 1996 By /s/ Wallace D. Iott
Date Wallace D. Iott, Chairman of the Board
& Director
November 22, 1996 By /s/ Waldo E. Yeager
Date Waldo E. Yeager, Director
(Chief Financial Officer and
Treasurer)
November 22, 1996 By /s/ Thomas M. O'Donnell
Date Thomas M. O'Donnell, Director
November 22, 1996 By /s/ David J. Walrod
Date David J. Walrod, Director
November 22, 1996 By /s/ Richard K. Ramson
Date Richard K. Ransom, Director
November 22, 1996 By /s/ Joel A. Levine
Date Joel A. Levine, Director
November 22, 1996 By /s/ Eugene R. Wos
Date Eugene R. Wos, Director
<PAGE>
9
<TABLE>
<CAPTION>
SEAWAY FOOD TOWN, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Years Ended August 31, 1996, August 26, 1995, and August 27, 1994
Charge
Balance at (credit) to Charged Balance at
beginning of costs and to other Deductions from end of
period expenses accounts reserves period
Allowance
for doubtful
accounts:
<S> <C> <C> <C> <C> <C>
1996 $ 450,000 $ 18,398 --- $ 18,398 (A) $ 450,000
============ =========== ======== ============= =========
1995 $ 450,000 $ 7,249 --- $ 7,249 (A) $ 450,000
============ =========== ======== ============= =========
1994 $ 400,000 $ 54,699 --- $ 4,699 (A) $ 450,000
============ =========== ======== ============= =========
(A) - Accounts charged off during the year, net of
recoveries of accounts previously charged off.
</TABLE>
F-3
<PAGE>
10
<TABLE>
EXHIBIT 11
SEAWAY FOOD TOWN, INC.
<CAPTION>
COMPUTATION OF INCOME PER SHARE
1996 1995 1994 1993 1992
----- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Income before extraordinary item
and cumulative effect of change
in accounting (thousands of $5,505 $4,480 $2,438 $1,123 $2,375
dollars) ====== ====== ====== ====== ======
Net income (thousands of dollars) $5,505 $4,480 $2,059 $1,123 $2,155
====== ====== ====== ====== ======
Weighted average number of common
shares outstanding during the
period for purposes of computing
primary earnings per share 2,197,661 2,196,643 2,306,881 2,332,016 2,326,972
Net shares to be issued upon
exercise of dilutive options
after applying treasury stock --- --- --- --- ---
method ----- ------ ------ ------ ------
Adjusted outstanding shares for
purpose of computing income per
share assuming full dilution 2,197,661 2,196,643 2,306,881 2,332,016 2,326,972
========= ========= ========= ========= =========
Income per common share:
Assuming no dilution:
Income before extraordinary item
and cumulative effect of change
in accounting $2.50 $2.04 $1.06 $.48 $1.02
Extraordinary item --- --- (.06) --- (.09)
Cumulative effect of change in
accounting for income taxes --- --- (.11) --- ---
----- ------ ------ ------ ------
Net income $2.50 $2.04 $.89 $.48 $.93
===== ====== ====== ====== ======
Fully diluted (A)
Income before extraordinary item
and cumulative effect of change
in accounting for income taxes $2.50 $2.04 $1.06 $.48 $1.02
Extraordinary item --- --- (.06) --- (.09)
Cumulative effect of change in
accounting for income taxes --- --- (.11) --- ---
----- ------ ------ ------ ------
Net income $2.50 $2.04 $.89 $.48 $.93
====== ====== ====== ====== ======
(A) - Not appearing on face of
income statement
</TABLE>
<PAGE>
<TABLE>
11 EXHIBIT (13)
<CAPTION>
PORTIONS OF THE 1996 ANNUAL REPORT TO SHAREHOLDERS
SEAWAY FOOD TOWN, INC.
FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA
(Dollars in thousands except share and per share data)
For the Fiscal Year Ended: 1996 (1) 1995 1994 1993 1992
CONSOLIDATED SUMMARY OF OPERATIONS -------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net sales $597,462 $559,244 $546,193 $566,883 $554,565
Cost of merchandise sold 445,309 418,128 409,305 428,478 418,515
-------- -------- -------- -------- --------
Gross profit 152,153 141,116 136,888 138,405 136,050
Selling,general and administrative 139,344 131,267 129,921 133,175 128,378
expenses -------- -------- -------- -------- --------
Operating profit 12,809 9,849 6,967 5,230 7,672
Interest expense (4,316) (4,469) (4,410) (4,660) (5,174)
Other income 943 1,815 1,169 1,133 1,102
------- -------- -------- -------- --------
Income before income taxes, extra-
ordinary item and cumulative
effect 9,436 7,195 3,726 1,703 3,600
Provision for income taxes 3,931 2,715 1,288 580 1,225
------- -------- -------- -------- --------
Income before extraordinary item
and cumulative effect 5,505 4,480 2,438 1,123 2,375
Extraordinary item (2) --- --- (123) --- (220)
Cumulative effect of change in --- --- (256) --- ---
accounting (3) ------- -------- -------- -------- --------
Net income $ 5,505 $ 4,480 $ 2,059 $ 1,123 $ 2,155
======== ======== ======== ======== ========
PER COMMON SHARE DATA
Income before extraordinary item
and cumulative effect $ 2.50 $ 2.04 $ 1.06 $ .48 $ 1.02
Net income 2.50 2.04 .89 .48 .93
Cash dividends .40 .39 .36 .36 .36
Book value 20.67 18.57 16.76 16.00 16.00
YEAR END POSITION
Total assets $155,465 $154,001 $155,203 $152,771 $150,523
Property and equipment - net 85,004 84,000 85,346 85,653 80,914
Net working capital 3,281 6,086 8,937 6,555 10,519
Long term debt 42,715 48,399 55,060 55,705 53,206
Shareholders' equity 45,453 40,731 37,585 37,173 36,704
FINANCIAL RATIOS
Income before extraordinary item
and cumulative effect as a
percent of sales .92% .80% .45% .20% .43%
Current ratio 1.05:1 1.11:1 1.16:1 1.12:1 1.19:1
Long-term debt to equity ratio .94:1 1.19:1 1.46:1 1.50:1 1.45:1
OTHER DATA
Weighted average shares of common
stock outstanding 2,197,661 2,196,643 2,306,881 2,332,016 2,326,972
Net cash provided by operations $24,524 $19,829 $16,183 $16,534 $13,651
Property and equipment additions 15,071 13,698 12,681 17,353 9,842
Depreciation and amortization 13,502 12,551 12,311 11,562 11,645
LIFO charge (credit) included in
cost of merchandise sold (47) 581 (18) (492) 49
Associates at year end 4,472 4,551 4,500 4,860 4,713
Stores in operation 66 66 66 64 65
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>
<TABLE>
12
<CAPTION>
SEAWAY FOOD TOWN, INC.
FINANCIAL HIGHLIGHTS
(Dollars in thousands, except per share data)
1996 (1) 1995 1994
-------- ------- ------
RESULTS OF OPERATIONS
<S> <C> <C> <C>
Net sales $597,462 $559,244 $546,193
Operating profit 12,809 9,849 6,967
Income before income taxes, extra-
ordinary item and cumulative effect 9,436 7,195 3,726
Income before extraordinary item and
cumulative effect 5,505 4,480 2,438
Per common share 2.50 2.04 1.06
Percent of sales .92% .80% .45%
Percent of shareholders' equity 12.11% 11.00% 6.49%
Cash dividends per common share .40 .39 .36
OTHER FINANCIAL INFORMATION
Total assets $155,465 $154,001 $155,203
Capital expenditures 15,071 13,698 12,681
Depreciation and amortization 13,502 12,551 12,311
Long-term debt 42,715 48,399 55,060
Shareholders' equity 45,453 40,731 37,585
Book value per common share 20.67 18.57 16.76
Effective tax rate 41.7% 37.7% 34.6%
Weighted average shares outstanding 2,197,661 2,196,643 2,306,881
Number of stores in operation,
at year end 66 66 66
NASDAQ National Market Price Range 18 3/4 - 16 1/4 - 13 1/4 -
15 1/2 9 1/2 9 1/2
(1) 53 week year
</TABLE>
<PAGE>
13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
This analysis of the Company's results of operations and financial
condition should be read in conjunction with the accompanying consolidated
financial statements, including the notes thereto, and the information
presented in the summary of selected financial data.
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.
<TABLE>
<CAPTION>
Percentage change
Percentage of net sales from prior year
- - ------------------------- -----------------
1996 1995
1996 1995 1994 Compared Compared
53 wks. 52 wks. 52 wks. to 1995 to 1994
- - ------- ------- ------- -------- --------
<C> <C> <C> <S> <C> <C>
100.0% 100.0% 100.0% Net sales 6.8% 2.4%
25.4 25.2 25.1 Gross profit 7.8 3.1
Selling,general and admin-
23.3 23.4 23.8 istrative expenses 6.2 1.0
2.1 1.8 1.3 Operating profit 30.1 41.4
.7 .8 .8 Interest expense -3.4 1.3
.2 .3 .2 Other income - net -48.0 55.3
Income before income taxes,
extraordinary item and cumu-
1.6 1.3 .7 lative effect 31.1 93.1
.7 .5 .2 Provision for income taxes 44.8 110.8
.9 .8 .4 Net income 22.9 117.6
</TABLE>
The following table details the number and format of the Company-operated stores
as of the end of each respective fiscal year:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Food Town Supermarkets:
Conventional Food Town Stores 18 20 24
Food Town Plus Stores 25 24 20
---- ---- ----
Total Supermarkets 43 44 44
The Pharm Drugstores 23 22 22
---- ---- ----
Total Retail Stores 66 66 66
</TABLE>
During 1996 the Company converted one conventional supermarket to a Food Town
Plus store, closed one conventional supermarket, and opened one new Pharm.
All stores operate predominately in northwest and central Ohio and southeast
Michigan.
Net Sales
Consolidated net sales increased 6.8% in 1996 in comparison to 1995 and
increased 2.4% in 1995 in comparison to 1994. Fiscal 1996 includes 53 weeks.
After adjusting for the effect of the extra week in 1996, sales were 4.8%
higher in 1996 than in fiscal 1995. The dollar increase in sales from 1995
to 1996 was about evenly split between the supermarkets and the drugstores.
<PAGE>
14
The Company had 59 identical stores in operation throughout 1996, 1995, and
1994. Identical store sales increased 3.7% in 1996 compared to 1995 and
1.2% in 1995 over 1994.
Gross Profit
In 1996, the gross profit percentage increased from 25.2% in 1995 to
25.4%. During 1996 margins improved with the implementation of certain new
merchandising strategies both in the supermarkets and in the drugstores. In
1995, gross profits increased slightly in both the supermarkets and the
drugstores compared to 1994, from 25.1% to 25.2%.
Selling, General and Administrative Expenses
In 1996, selling, general and administrative expenses increased by $8.1
million, but decreased by .15% as a percentage of sales due to higher sales.
This dollar increase was attributable principally to retail store wage expense,
utility costs, repairs and maintenance, and supply costs, offset some by a
decline in bad check expense. In 1995, selling, general and administrative
expenses increased by $1.3 million, but decreased by .32% as a percentage of
sales because of higher sales. This dollar increase was attributable
principally to a dollar increase in wage and supply expenses.
Interest Expense
Interest expense decreased by $153,000 in 1996 which resulted in an .08%
reduction as a percent of sales. This reduction resulted from lower borrowing
levels. Interest expense increased slightly by $59,000 in 1995 compared to
1994 due to slightly higher interest rates offset by a decrease in borrowing
levels resulting from the early retirement of certain higher cost borrowings.
The approximate weighted average interest rate on long-term debt as of the end
of the fiscal year was 7.79% in 1996 versus 7.93% in 1995 and 7.33% in 1994.
Approximately $6.0 million of additional long-term debt will be refinanced
under the revolving credit agreement by the end of calendar 1996 which will
further reduce the Company's borrowing costs in fiscal 1997.
Other Income
Other income decreased $872,000 in 1996 over fiscal 1995. Other income in
1995 included a gain of $637,000 from the sale of the Company's dairy operation
and 1996 included a net loss of $277,000 from the disposition of assets
throughout the year.
Income Taxes
The effective tax rates for 1996, 1995, and 1994, were 41.7%, 37.7%, and
34.6%, respectively. The state tax rate in 1996 was .3% higher in 1996 than in
1995 which, in turn, was 1.7% higher than in 1994. Tax credits, principally
from job credits, were only .1% in 1996 compared to 2.2% in 1995 and 2.3% in
1994. Job credits expired at the end of calendar 1994 and were not reinstated
until October 1, 1996, at which time the Company will again take advantage of
this tax credit.
<PAGE>
15
Net Income and Income per Common Share
Net income increased by 22.9% in 1996 to $5,505,000 or .92% on sales, a
dollar increase of $1,025,000 from the 1995 net income of $4,480,000. This
increase is the result of increased sales, increased gross margins, and
decreased selling, general, and administrative expenses on a percent of sales
basis, as well as lower interest costs. It is estimated that the extra week in
the fiscal 1996 reporting period added approximately $642,000 to the Company's
reported net income. Net income increased 117.6% in 1995 to $4,480,000, an
increase of $2,421,000 over the 1994 net income of $2,059,000. The 1994 net
income includes two extraordinary items, a net loss of $123,000 resulting from
early extinguishment of debt, and a $256,000 reduction in net income due to the
adoption of Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes."
Net income per common share in 1996 was $2.50 as compared to $2.04 in
1995, an increase of 22.5%. As mentioned above, the extra week in the fiscal
1996 reporting period added approximately $642,000 (or $.29 per outstanding
share) to the Company's reported net income. Net income per common share in
1995 was $2.04 as compared to $.89 per share in 1994, an increase of 129.2%.
Excluding the two extraordinary items in 1994, net income per share was $1.06.
Impact of Inflation
Inflation increases the Company's major costs, inventory and labor.
Because of the high inventory turnover in the food and drug retailing industry
and the Company's use of the last-in, first-out (LIFO) valuation method for a
majority of its inventory, the impact of inflation is normally reflected very
quickly in the results of operations. The food and drug retailing industry has
experienced little or no food inflation over the last three years. The
Company's provisions for LIFO inventories for the past three years increased or
(decreased) cost of sales by ($47,000) in 1996, $581,000 in 1995, and ($18,000)
in 1994. 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.
CAPITAL RESOURCES AND LIQUIDITY
Overview
Measures of liquidity for each of the last three fiscal years were as
follows:
<TABLE>
<CAPTION>
(Dollars in millions) 1996 1995 1994
<S> <C> <C> <C>
Working capital (1) $21.4 $24.2 $26.5
Unused lines of revolving credit $20.0 (2) $17.4 $12.3
Current ratio (1) 1.35 to 1 1.42 to 1 1.49 to 1
(1) Includes add-back of gross LIFO reserve.
(2) $30.0 million under the new 5-year revolving credit agreement
closed subsequent to the end of fiscal 1996.
</TABLE>
<PAGE>
16
Management believes that the Company is maintaining a strong capital
structure despite the slight decrease in overall liquidity measurements. The
small reduction from 1995 to 1996 was primarily attributable to the 1996 fiscal
year ending on the last day of the month of August compared to the prior fiscal
year that ended five days prior to month end.
The Company's revolving credit agreement represents a continuing source of
capital which is available to provide working capital, finance capital
additions as well as the early extinguishment of certain long-term debt.
The Company was using $15.0 million of its $35.0 million revolving credit as
of the end of fiscal 1996. In late September, 1996, the Company closed on
a new, five year, $45.0 million revolving credit agreement with three banks
which will permit the Company to borrow at lower interest rates than under
the former two year agreement. Covenants under the new agreement are the
same or slightly less restrictive. The Company is in a solid financial
position for its future expansion and growth plans.
In October, 1994, the Company authorized the repurchase of 200,000 shares
of the Company's stock on the open market or from private sources, at market
prices. From the date of that authorization through the month of October,
1996, the Company has repurchased approximately 104,000 shares. Authorized,
but unissued shares have been and will continue to be used by the Company in
funding its annual contribution to its ESOP and for other corporate purposes.
Cash Flows from Operating Activities
Cash provided by operating activities in 1996 was $24.5 million, an
increase of $4.7 million from the $19.8 million provided in 1995. This
increase is primarily attributable to the increases in net income,
depreciation and amortization, and accounts payable and accrued liabilities.
Cash provided by operating activities in 1995 was $19.8 million, an
increase of $3.6 million from the $16.2 million provided in 1994. This
increase was primarily attributable to the increases in net income and
accounts payable and accrued liabilities.
Cash Flows from Investing Activities
Cash used in investing activities was $13.8 million in 1996, an
increase of $4.9 million from the $8.9 million provided in 1995. This
increase is attributable to an increase in the expenditures for property
and equipment, most of which was spent on one new supermarket, one new Plus
store under construction, and several store remodel projects.
Cash used in investing activities was $8.9 million in 1995, a decrease of
$3.6 million from the $12.5 million expended in 1994. This decrease was
primarily attributable to the increase in proceeds on the sales of property and
equipment during 1995. Most of these proceeds involved the Company's sale of
its dairy operation during 1995.
Although the total retail store square footage did not change appreciably
during 1996, the Company nevertheless continues to maintain a high level of
store remodel activity to keep its retailing facilities up to date and to
continue attracting new customers and hold existing customers.
<PAGE>
17
Cash Flows from Financing Activities
Cash used in financing activities was $8.4 million in 1996, a net decrease
of $2.3 million from the $10.7 million used in 1995. This decrease is the
result of an increase in net proceeds from long-term debt. During 1996 the
Company received $7.2 million in proceeds from borrowings against the Company's
revolving credit agreement. In 1995, the Company received $2.3 million
primarily from its revolving credit agreement. This compares to $19.7 million
received in 1994, most of which related to the revolving credit agreement. In
1996, the Company made payments of $13.4 million on its long-term debt as
compared to $10.3 million in 1995. During both years the Company made debt
payments on its revolving credit agreement in addition to other regular debt
payments. During 1996 the Company spent $302,000 for the repurchasing of
Company common shares, a decrease of approximately $515,000 from the prior
year. In 1995 the Company spent $817,000 for the repurchasing of Company
common shares, a decrease of $525,000 from its expenditures in 1994.
Cash used in financing activities in 1995 was $10.7 million, a net
increase of $6.6 million from the $4.1 million used in 1994. This increase
was primarily the result of $2.3 million in proceeds from the issuance of
long-term debt in 1995 compared to $19.7 million in proceeds in 1994, offset
by payments of $10.3 million on long-term debt in 1995 compared to payments
of $20.9 million in 1994.
1997 Capital Program
Total capital expenditures will approximate $20.0 million in 1997,
primarily for new and expanded store construction within the Company's existing
marketing area. The Company continues to maintain a high priority in keeping
its stores in a modern, attractive condition. This is implemented by
periodically reviewing all stores with the thought of providing the Company's
customers within each trading area with the best possible shopping facility.
Therefore, 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.
Cash provided by operations along with the remaining $30.0 million
available under the existing credit agreements will be sufficient for financing
fiscal 1997 capital additions and other business needs as well as presently
scheduled maturities of long-term debt.
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.
<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 31, 1996 and August 26, 1995, and the related
consolidated statements of income, shareholders' equity, and cash flows for
each of the three years in the period ended August 31, 1996. 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 31, 1996 and August 26, 1995, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended August 31, 1996 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 18, 1996
Toledo, Ohio
<PAGE>
<TABLE>
19
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED AUGUST 31, 1996, AUGUST 26, 1995, AND AUGUST 27, 1994
(Dollars in thousands, except per share data)
1996 1995 1994
----- ----- -----
(53 (52 (52
Weeks) Weeks) Weeks)
<S> <C> <C> <C>
Net sales $597,462 $559,244 $546,193
Cost of merchandise sold 445,309 418,128 409,305
-------- -------- --------
Gross profit 152,153 141,116 136,888
Selling, general and administrative
expenses 139,344 131,267 129,921
-------- -------- --------
Operating profit 12,809 9,849 6,967
Interest expense (4,316) (4,469) (4,410)
Other income - net 943 1,815 1,169
-------- -------- --------
Income before income taxes,extra-
ordinary item and cumulative
effect 9,436 7,195 3,726
Provision for income taxes 3,931 2,715 1,288
-------- -------- --------
Income before extraordinary item
and cumulative effect 5,505 4,480 2,438
Extraordinary item - losses from
early extinguishment of debt, less
applicable income taxes of $63
(Note 2) --- --- (123)
Cumulative effect of change in
accounting for income taxes (Note 3) --- --- (256)
-------- -------- --------
Net income $ 5,505 $ 4,480 $ 2,059
======== ======== ========
Per common share:
Income before extraordinary item
and cumulative effect $ 2.50 $ 2.04 $ 1.06
Extraordinary item --- --- ( .06)
Cumulative effect of change in
accounting for income taxes --- --- ( .11)
-------- -------- --------
Net income $ 2.50 $ 2.04 $ .89
========= ======== ========
See accompanying notes
</TABLE>
<PAGE>
<TABLE>
20
<CAPTION>
CONSOLIDATED BALANCE SHEETS
AUGUST 31, 1996 AND AUGUST 26, 1995
(Dollars in thousands, except per share data)
1996 1995
----- -----
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $9,766 $7,402
Notes and accounts receivable, less
allowance of $450 for doubtful
accounts 5,913 6,587
Merchandise inventories 44,390 44,064
Prepaid expenses 1,342 1,371
Deferred income taxes 3,672 4,211
------- --------
Total current assets 65,083 63,635
Other assets 5,378 6,366
Property and equipment, at cost
Land 4,177 4,160
Buildings and improvements 68,424 65,983
Leasehold improvements 28,996 28,921
Equipment 96,659 89,356
-------- --------
198,256 188,420
Less accumulated depreciation and
amortization 113,252 104,420
-------- --------
Net Property and equipment 85,004 84,000
-------- --------
$155,465 $154,001
======== ========
See accompanying notes
</TABLE>
<PAGE>
<TABLE>
21
<CAPTION>
CONSOLIDATED BALANCE SHEETS
AUGUST 31, 1996 AND AUGUST 26, 1995
(Dollars in thousands, except per share data)
1996 1995
----- -----
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable - trade $44,437 $38,889
Income taxes 1,524 1,027
Accrued liabilities
Insurance 4,727 5,521
Payroll 2,908 2,994
Taxes, other than income 2,385 2,352
Other 2,707 3,213
-------- --------
12,727 14,080
Long-term debt due within one year 3,114 3,553
-------- --------
Total current liabilities 61,802 57,549
Long-term debt 42,715 48,399
Deferred income taxes 4,408 5,276
Deferred other 1,087 2,046
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,
2,198,609 shares outstanding
(2,193,352 in 1995) 4,397 4,387
Capital in excess of stated value 1,017 680
Retained earnings 40,039 35,664
-------- --------
Total shareholders' equity 45,453 40,731
-------- --------
$155,465 $154,001
======== ========
See accompanying notes
</TABLE>
<PAGE>
<TABLE>
22
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED AUGUST 31, 1996, AUGUST 26, 1995, AND AUGUST 27, 1994
(Dollars in thousands)
1996 1995 1994
----- ----- -----
Cash flows from operating activities (53 (52 (52
Weeks) Weeks) Weeks)
<S> <C> <C> <C>
Net income $ 5,505 $ 4,480 $ 2,059
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 13,502 12,551 12,311
Provision for ESOP 397 334 529
Deferred income taxes (329) (394) 645
Equity in income of affiliates 28 (93) (31)
Loss (gain) on disposal of property
and equipment 277 (553) 153
Changes in assets and liabilities
affecting operations:
Notes and accounts receivable 674 (460) 968
Merchandise inventories (326) 685 (430)
Prepaid expenses 29 (99) 236
Accounts payable
and accrued liabilities 4,270 2,158 (114)
Income taxes 497 1,220 (143)
-------- -------- --------
Net cash provided by operating activities 24,524 19,829 16,183
Cash flows from investing activities:
Expenditures for property
and equipment (15,017) (12,079) (12,066)
Proceeds from sale of property and
equipment 288 3,046 182
Other 960 163 (624)
-------- -------- --------
Net cash used in investing activities (13,769) (8,870) (12,508)
Cash flows from financing activities
Proceeds from issuance of long-term debt 7,200 2,275 19,721
Payments of long-term debt (13,377) (10,343) (20,853)
Payments for acquisitions of common shares (302) (817) (1,342)
Dividends paid (878) (851) (834)
Decrease in deferred other (1,034) (958) (760)
-------- -------- --------
Net cash used in financing activities (8,391) (10,694) (4,068)
Increase (decrease) in cash and cash -------- -------- --------
equivalents 2,364 265 (393)
Cash and cash equivalents at
beginning of year 7,402 7,137 7,530
Cash and cash equivalents at -------- -------- --------
end of year $ 9,766 $ 7,402 $ 7,137
======== ======== ========
Supplemental disclosures of cash flow
information
Cash paid during the year for:
Interest $ 4,271 $ 4,480 $ 4,508
Income taxes 3,762 1,756 939
See accompanying notes
</TABLE>
<PAGE>
<TABLE>
23
<CAPTION>
SEAWAY FOOD TOWN, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED AUGUST 31, 1996, AUGUST 26, 1995 AND AUGUST 27, 1994
(Dollars in thousands, except per share data)
Capital
ESOP- in Excess Total
COMMON STOCK UNALLOCATED of Share-
----------------- -------------- Stated Retained holders'
Shares Amount Shares Amount Value Earnings Equity
------- ------ ------- ------- ----- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
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
Net income 4,480 4,480
Purchase of common
shares for
treasury (82,421) (165) (21) (631) (817)
Issuance of common
shares to ESOP 33,400 67 267 334
Dividends paid - $.39
per share (851) (851)
--------- ----- ------- ------ ---- ------ ------
Balance at August
26, 1995 2,193,352 4,387 0 0 680 35,664 40,731
Net income (53 weeks) 5,505 5,505
Purchase of common
shares for
treasury (18,279) (37) (13) (252) (302)
Issuance of common
shares to ESOP 23,536 47 350 397
Dividends paid - $.40
per share (878) (878)
--------- ------ ------- ------ ---- ------ ------
Balance at August
31, 1996 2,198,609 $4,397 0 $0 $1,017 $40,039 $45,453
========= ====== ======= ====== ====== ======= =======
See accompanying notes
</TABLE>
<PAGE>
24
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.
Use of estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amount reported in the financial
statements and accompanying notes. Actual results could differ from these
estimates.
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
$18,109,000 and $18,157,000 at August 31, 1996 and August 26, 1995,
respectively, from amounts which would have been reported under the FIFO
method (which approximates current cost).
During 1996 and 1995, merchandise inventory quantities were reduced. These
reductions resulted in liquidation of the LIFO inventory quantities carried
at lower costs prevailing in prior years as compared with costs of 1996 and
1995 purchases, the effect of which increased consolidated net income by
approximately $86,000 ($.04 per share) in 1996 and $89,000 ($.04 per share)
in 1995.
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.
Advertising -- The Company expenses the costs of advertising as incurred.
Advertising expense was $4,311,000 in 1996, $4,029,000 in 1995 and
$3,704,000 in 1994.
Pensions -- The Company contributes to pension plans covering substantially
all employees. Pension costs include defined contributions based upon wages,
and specified amount 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 2,197,661 in 1996,
2,196,643 in 1995 and 2,306,881 in 1994. Unallocated shares held by the ESOP
were not considered outstanding.
<PAGE>
25
2. NOTES PAYABLE AND LONG-TERM DEBT
Long-term debt at August 31, 1996 and August 26, 1995 consisted of the
following (in thousands):
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
9.1% 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 1,663 2,024
6% to 9% mortgage
notes payable, payments
due annually to 2008 6,529 6,971
7.07% to 8.19% term
notes payable, payments
due quarterly and annually
to 1999 4,133 5,122
Revolving credit loan agree-
ments with banks, with
interest of 6.36% to 8.25% 15,000 17,600
Long-term lease obligations (see
Note 5):
7.138% to 7.25% industrial
development revenue
bonds, payments due
annually to 2000. 1,055 1,265
Other, 5.72% to 13%,
payments due in varying
monthly amounts through 2004. 5,449 6,970
-------- --------
45,829 51,952
Less amount due within one year. 3,114 3,553
-------- --------
$42,715 $48,399
======== ========
</TABLE>
At year end the Company had four revolving credit loan agreements permitting
borrowings up to $35,000,000 in the aggregate, under which the Company had
borrowed $15,000,000 and $17,600,000 at August 31, 1996 and August 26, 1995,
respectively. These agreements were replaced in September, 1996 with a
revolving credit agreement permitting borrowings up to $45,000,000 in the
aggregate ($15,000,000 per bank) due October 1, 2001. Interest is charged at
the Company's option, at the current prime rate, swing line rate, or a
certain percentage point in excess of the current LIBOR rate based on a ratio
of total liabilities to tangible net worth. The Company is required to pay a
fee of .20% to .25% on any unused portion of the loan commitment.
<PAGE>
26
The Company has interest rate cap agreements to manage interest rate
exposure. These transactions reduce the Company's exposure to
significant variations in interest rates. At August 31, 1996, a
notional amount of $20,000,000 was covered by these agreements at
an average 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. The Company
does not anticipate nonperformance by the counter-parties.
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 31, 1996, the approximate undepreciated cost of property
and equipment subject to mortgages was $18,722,000.
In 1994 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).
Annual maturities of long-term debt for each of the five fiscal years
subsequent to August 31, 1996 are as follows: 1997 - $3,114,000; 1998 -
$2,434,000; 1999 - $4,543,000; 2000 - $12,384,000; 2001 - $777,000.
At August 31, 1996, the carrying value of the long-term debt in
aggregate, excluding capitalized lease obligations, approximates
its fair value due to the significant amount of variable rate long-
term debt. 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 1994 net income
by $256,000 or $.11 per share.
<PAGE>
27
The provision (credit) for income taxes consists of the following (in
thousands):
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Current:
Federal $3,315 $2,263 $ 674
State and local 945 846 225
-------- -------- --------
4,260 3,109 899
Deferred:
Federal (265) (132) 415
State and local (64) (262) (26)
-------- -------- --------
(329) (394) 389
-------- -------- --------
$3,931 $2,715 $1,288
======== ======== ========
</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>
1996 1995 1994
---- ---- ----
<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 6.2 5.9 4.2
Tax credits ( .1) (2.2) (2.3)
Other 1.6 -- (1.3)
------ ------ -------
Effective tax rate 41.7% 37.7% 34.6%
====== ====== ======
</TABLE>
Significant components of the Company's deferred income tax assets
and liabilities as of August 31, 1996 and August 26, 1995 are as
follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Deferred income tax assets:
Accrued expenses $3,125 $3,715
Tax credit carryforwards --- 308
Expenses inventoried for tax purposes 864 873
Other 565 762
------ -------
$4,554 $5,658
======= =======
Deferred income tax liabilities:
Excess tax depreciation $4,472 $5,565
Deferred project costs 747 1,002
Other 71 156
------- -------
$5,290 $6,723
======= =======
</TABLE>
<PAGE>
28
The above are reflected in the balance sheets as of August 31, 1996 and
August 26, 1995 as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
----- -----
<S> <C> <C>
Current deferred income tax asset $3,672 $4,211
======= ======
Noncurrent deferred income tax liability $4,408 $5,276
======== ======
</TABLE>
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 were considered to be treasury shares and were 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 $893,000 in 1996, $946,000 in 1995, and $832,000 in 1994.
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 $2,378,000 in 1996,
$2,293,000 in 1995, and $2,428,000 in 1994. 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.
<PAGE>
29
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>
1996 1995
---- ----
<S> <C> <C>
Land $ 256 $ 256
Buildings 8,019 7,995
Equipment 7,031 6,895
-------- --------
15,306 15,146
Less
accumulated
amortization 9,411 7,874
-------- --------
$5,895 $7,272
======== ========
</TABLE>
Future minimum lease payments under capital leases together with
the present value of net minimum lease payments as of August 31,
1996 are as follows (in thousands):
<TABLE>
<S> <C>
1997 $ 2,192
1998 1,833
1999 1,379
2000 1,059
2001 599
Later years 858
--------
Total minimum lease payments 7,920
Less amount representing interest 1,416
--------
Present value of net minimum lease
payments (included in long-term
debt at August 31, 1996 -- see
Note 2) $ 6,504
=======
</TABLE>
Operating leases
Minimum annual rentals for facilities leased under operating leases
aggregate approximately $39,919,000 payable as follows (in thousands):
<TABLE>
<S> <C>
1997 $ 5,458
1998 5,079
1999 5,051
2000 4,640
2001 4,057
Later years 15,634
-------
$39,919
=======
</TABLE>
The leases expire at various dates from 1997 to 2012 and substantially
all are renewable for one or more successive five year periods, in some
cases at slightly higher rentals.
<PAGE>
30
Total rent expense attributable to operating leases amounted to
approximately $5,843,000 in 1996, $5,915,000 in 1995, and $6,130,000
in 1994 and included provisions for additional rentals of $250,000
in 1996, $234,000 in 1995, and $222,000 in 1994 based upon gross
sales in excess of specified amounts.
The Company entered into capital leases amounting to approximately
$54,000 in 1996, $1,619,000 in 1995 and $615,000 in 1994.
6. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Quarterly financial data for the years ended August 31, 1996,
(53 weeks) and August 26, 1995 are presented below (in thousands
of dollars, except per share amounts):
<TABLE>
<CAPTION>
First Second Third Fourth (1)
----- ------ ----- ----------
<S> <C> <C> <C> <C> <C>
Net sales:
1996 $144,212 $152,826 $145,911 $154,513
1995 136,988 143,953 139,160 139,143
Gross profit:
1996 35,979 38,916 37,335 39,923
1995 34,344 36,501 34,990 35,281
Net income:
1996 451 1,464 1,164 2,426
1995 1,109 1,534 589 1,248
Net income per common
share:
1996 .21 .66 .53 1.10
1995 .50 .70 .27 .57
(1) 14 week period in 1996
</TABLE>
<PAGE>
<TABLE>
31
<CAPTION>
INVESTOR INFORMATION
MARKET PRICE OF COMMON STOCK AND
RELATED SECURITY HOLDER MATTERS
Common Divi-
Fiscal dends paid
Quarter High Low (Per share)
------- ------- ------- ------------
<S> <C> <C> <C>
1995 1st 10 3/4 9 1/2 .09
2nd 13 9 1/2 .10
3rd 15 1/2 13 .10
4th 16 1/4 14 1/2 .10
Full Year 16 1/4 9 1/2 $.39
1996 1st 16 1/2 15 1/2 .10
2nd 17 1/4 16 .10
3rd 17 1/4 16 1/4 .10
4th 18 3/4 16 1/4 .10
Full Year 18 3/4 15 1/2 $.40
The price is the high and low price on the NASDAQ
National Market. The Company's NASDAQ ticker symbol
is "SEWY". As of August 31, 1996, the approximate
number of record holders of common stock was 470.
</TABLE>
<PAGE>
32
EXHIBIT 22
SEAWAY FOOD TOWN, INC.
SUBSIDIARIES OF REGISTRANT
At the fiscal year ended August 31, 1996 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
Seaway 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>
33
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
18, 1996, included in Exhibit 13 to Form 10-K.
Our audits also included the financial statement schedule of Seaway
Food Town, Inc. listed in Item 14(a). This schedule is the
responsibility of the Company's management. Our responsibility is
to express an opinion based on our audits. In our opinion, the
financial statement schedule referred to above, when considered
in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth
therein.
/s/ ERNST & YOUNG LLP
Toledo, Ohio
October 18, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-END> AUG-31-1996
<CASH> 9,766
<SECURITIES> 0
<RECEIVABLES> 5,913
<ALLOWANCES> 450
<INVENTORY> 44,390
<CURRENT-ASSETS> 65,083
<PP&E> 198,256
<DEPRECIATION> 113,252
<TOTAL-ASSETS> 155,465
<CURRENT-LIABILITIES> 61,802
<BONDS> 42,715
<COMMON> 4,397
0
0
<OTHER-SE> 41,056
<TOTAL-LIABILITY-AND-EQUITY> 155,465
<SALES> 597,462
<TOTAL-REVENUES> 597,462
<CGS> 445,309
<TOTAL-COSTS> 445,309
<OTHER-EXPENSES> 139,344
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,316
<INCOME-PRETAX> 9,436
<INCOME-TAX> 3,931
<INCOME-CONTINUING> 5,505
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,505
<EPS-PRIMARY> 2.50
<EPS-DILUTED> 2.50
