SECURITIES AND EXCHANGE COMMISSION
Washington, DC
20549
FORM 10 Q
(Mark One)
( X ) Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the quarterly period ended May 31, 1997 Commission File number 0-80.
( ) Transition Report Pursuant to Section 13 or 15 (d) of the Securities
and Exchange Act of 1934
For the transition period from
to
SEAWAY FOOD TOWN, INC.
(Exact name of registrant as specified in its charter)
Ohio 34-4471466
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) (Identification No.)
1020 Ford Street, Maumee, Ohio 43537
(Address of principal executive offices) (Zip Code)
419/893-9401
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at July 10, 1997
Common stock, without par 4,419,168 shares
value (stated value $2.00 per share)
<PAGE>
PART I. FINANCIAL INFORMATION
Summarized Financial Information:
The following consolidated statements of income, condensed consolidated
balance sheets, and condensed consolidated statements of cash flows are
unaudited, but include all adjustments, consisting only of normal recurring
accruals, which the Company considers necessary for a fair presentation of
its financial position, results of operations and cash flows for the periods
and the dates indicated. Since the unaudited financial statements have been
prepared in accordance with instructions to Form 10-Q, they do not contain all
disclosures normally provided in annual financial statements; they should be
read in conjunction with the consolidated financial statements and notes
thereto appearing in the Company's 1996 Annual Report to Shareholders.
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION (CONTINUED)
Consolidated Statements of Income
(Thousands of Dollars, Except
Average Share and Per-Share Data)
<CAPTION>
Thirteen Weeks Ended Thirty-Nine Weeks Ended
May May May May
31,1997 25,1996 31, 1997 25,1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net Sales $151,284 $145,911 $455,106 $442,949
Cost of Merchandise sold 112,003 108,576 338,292 330,719
---------- ---------- ---------- ----------
Gross Profit 39,281 37,335 116,814 112,230
Selling, general and ad-
ministrative expenses 36,215 34,322 107,833 104,274
---------- ---------- ---------- ----------
Operating profit 3,066 3,013 8,981 7,956
Interest expense (920) (1,110) (2,861) (3,384)
Other income - net 360 87 1,243 557
---------- ---------- ---------- ----------
Income before income taxes 2,506 1,990 7,363 5,129
Provision for income taxes 905 826 2,923 2,050
---------- ---------- ---------- ----------
Net Income $ 1,601 $ 1,164 $ 4,440 $ 3,079
========== ========== ========== ==========
Per common share:
Net income $ .36 $ .26 $1.01 $ .70
========== ========== ========== ==========
Dividends paid $ .06 $ .05 $ .17 $ .15
========== ========== ========== ==========
Average number of shares
outstanding 4,419,296 4,400,500 4,407,362 4,394,364
========== ========== ========== ==========
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION (Continued)
Condensed Consolidated Balance Sheets
(Thousands of Dollars)
<CAPTION>
May 31, August 31,
1997 1996
(NOTE)
ASSETS ------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 9,902 $ 9,766
Notes and accounts receivable 6,943 6,363
Less allowance for doubtful accounts (450) (450)
Merchandise inventories (Note B) 69,504 62,499
Less LIFO reserve (18,274) (18,109)
Prepaid expenses, including deferred
income taxes 5,164 5,014
------------ ------------
72,789 65,083
Other assets 4,861 5,378
Property and equipment:
Cost 211,791 198,256
Less accumulated depreciation and
amortization 121,005 113,252
------------ ------------
Net property and equipment 90,786 85,004
------------ ------------
$168,436 $155,465
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 45,124 $ 44,437
Income taxes 13 1,524
Accrued liabilities 14,156 12,727
Long-term debt due within one year 4,536 3,114
------------ ------------
Total current liabilities 63,829 61,802
Long-term debt 45,166 42,715
Deferred income taxes 4,408 4,408
Deferred other 5,564 1,087
Shareholder's equity:
Common stock 8,838 4,397
Capital In excess of stated value --- 1,017
Retained earnings 40,631 40,039
------------ ------------
Total shareholders' equity 49,469 45,453
------------ ------------
$168,436 $155,465
============ ============
NOTE: The balance sheet at August 31, 1996 has been derived from the audited
financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION (Continued)
Condensed Consolidated Statements of Cash Flows
(Thousands of Dollars)
<CAPTION>
Thirty-Nine Weeks Ended
May 31, May 25,
1997 1996
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES-net cash provided $ 9,068 $13,513
INVESTING ACTIVITIES
Expenditures for property and equipment (15,785) (9,067)
Proceeds from sale of property and other
assets 103 192
Cash paid to acquire business (2,110)
Other 1,035 527
----------- -----------
Net cash used in investing activities (16,757) (8,348)
FINANCING ACTIVITIES
Proceeds from issuance of long-term debt 15,300 7,200
Payments of long-term debt (11,427) (8,439)
Payments for acquisition of common
shares (77) (292)
Dividends paid (748) (658)
Increase (decrease) in deferred other 4,777 (831)
----------- -----------
Net cash provided by (used in) financing
activities 7,825 (3,020)
----------- -----------
Increase in cash and cash equivalents 136 2,145
Cash and cash equivalents at beginning of
period 9,766 7,402
----------- -----------
Cash and cash equivalents at end of period $ 9,902 $ 9,547
=========== ===========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest $ 2,654 $ 3,270
=========== ===========
Income Taxes $ 4,667 $ 2,103
=========== ===========
See notes to financial statements
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION (Continued)
Notes to Financial Statements
Note A. Net income per common share is based on the weighted average number
of shares outstanding during the periods.
On April 10, 1997, the Board of Directors authorized a two for one
stock split, payable on May 2, 1997 to shareholders of record on
April 22, 1997. Accordingly, all per share and share data have
been restated to reflect the stock price.
In February, 1997 the Financial Accounting Standards Board issued
Statement No. 128, "Earnings per Share", which is required to be
adopted on February 28, 1998. The Company has no common stock
equivalents and therefore, there is no expected impact of Statement
128 on the calculation of earnings per share.
Note B. Meat, produce and pharmacy inventories are valued at the lower of
cost using the first-in, first-out (FIFO) method, or market. All
other merchandise inventories (including store inventories which
are determined by the retail inventory method) are valued at the
lower of cost using, the last-in, first-out (LIFO) method, or market.
Note C. Effective May 20, 1997, the Company acquired two supermarkets in
Michigan for $2,110,000. The acquisition was accounted for under
the purchase method of accounting.
<PAGE>
PART I. FINANCIAL INFORMATION (Continued)
Management's Discussion and Analysis of Financial Condition
and Results of Operations
RESULTS OF OPERATIONS
The following table sets forth certain income statement components
expressed as a percentage of net sales and the year-to-year percentage
changes in such components.
<TABLE>
<CAPTION>
Percentage of Percentage Percentage Percentage
Net Sales for change Net Sales change in
3rd Quarter in dollars for 39 Weeks dollars
- --------------- ----------- ------------ ----------
3rd Quarter 39 Weeks 1997
1997 Compared Compared to
1997 1996 to 1996 1997 1996 39 Weeks 1996
- ------ ------- ------------- ----- ------ -------------
<C> <C> <C> <S> <C> <C> <C>
100.0% 100.0% 3.7% Net sales 100.0% 100.0% 2.7%
====== ======= ======= ====== ====== =====
26.0 25.6 5.2 Gross profit 25.7 25.3 4.1
Selling,general,
and administra-
23.9 23.5 5.5 tive expenses 23.7 23.5 3.4
2.1 2.1 1.8 Operating profit 2.0 1.8 12.9
.6 .8 (17.1) Interest expense .6 .7 (15.5)
.2 .1 313.8 Other income- net .2 .1 123.2
Income before
1.7 1.4 25.9 income taxes 1.6 1.2 43.6
Provision for
.6 .6 9.6 income taxes .6 .5 42.6
------ ------ ------- ----- ----- ------
1.1 .8 37.5 Net income 1.0 .7 44.2
====== ====== ======== ===== ===== ======
</TABLE>
Net sales for the third quarter of 1997 were $151,284,000 or 3.7% higher than
the same quarter in 1996. This net increase was attributable to increases in
drugstore sales resulting from two additional stores and increases in super-
market sales resulting from two additional stores and various remodeled
locations. Sales from stores in operation both this past quarter as well as
the same quarter a year ago increased 0.9%. On a year-to-date basis, net
sales were $455,106,000 or 2.7% higher than 1996. This net increase is
attributable to increases in both the drugstores and supermarket areas, with
the majority coming from drugstore areas.
Gross margins, as a percent of sales, increased 5.2% in the third quarter of
1997 compared to the same quarter in 1996 and 4.1% for the year-to-date
period, the current thirty-nine weeks, versus the same period last year.
Margins continued to remain stable due to the implementation of certain new
merchandising strategies both in the supermarkets and in the drugstores.
As a percent of sales, selling, general and administrative expenses increased
5.5% during the current quarter compared to the same quarter of the prior
year. Selling, general & administrative expenses increased 3.4% for the
current year compared to the same period a year earlier. Increased selling
costs relating to new and remodeled locations were the principal reasons for
the increases.
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Interest expense decreased $190,000 compared with the same quarter of 1996.
Slightly lower interest rates due to a new revolving credit loan agreement
accounted for much of this decrease along with the payoff of some higher
interest rate debt. On a year-to-date basis interest costs have decreased
$523,000.
Other income - net increased $273,000 resulting primarily from a loss on
sale of assets in the third quarter of fiscal 1996 as well as minor
changes in miscellaneous other income categories. On a year-to-date basis
other income - net increased $686,000 due to a gain in asset disposals in
1997, versus a loss in 1996, along with increased service fees and
miscellaneous other income categories.
Income taxes as a percent of pre-tax income approximates the statutory tax
rates in effect. The percentage decrease in third quarter and year-to-date
periods of 1997 compared to 1996 is due mainly to the implementation of
various tax planning strategies. An effective tax rate of 36.1% was used
in this past quarter versus a rate of 41.66% for the third quarter of fiscal
1996. The lower rate used in this most recent quarter should continue in the
fourth quarter as well.
Net income for the quarter was $1,601,000 ($.36 per common share) which
compares to $1,164,000 ($.26 per common share) for the same quarter last
year. On a year-to-date basis, net income for the current year's 39 weeks
was $4,440,000 ($1.01 per common share) versus $3,079,000 ($.70 per common
share) for the same period last year. On a current trailing four quarters'
basis, net income was $6,866,000 ($1.56 per common share). However, last
year's fourth quarter included an extra week which is estimated to have
added approximately $642,000 to net income ($.15 per common share). The
Company expects its fiscal 1997 fourth quarter net income to be comparable
with its fiscal 1996 fourth quarter, without the extra week.
IMPACT OF INFLATION
Inflation increases the Company's major costs, inventory and labor. The
Company's provisions for LIFO inventories for the past quarter has
resulted in an increase in cost of sales of $101,000 in the third quarter
of 1997 compared to an decrease of $84,000 in the third quarter of 1996.
On a year-to-date basis the LIFO charge has resulted in an increase in cost
of sales of $164,000 in 1997 compared to a decrease of $36,000 in 1996.
The Company has generally been able to maintain margins by adjusting its
retail prices, but competitive conditions may from time to time render
it unable to do so while maintaining its market share.
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
LIQUIDITY AND CAPITAL RESOURCES
OVERVIEW
Measures of liquidity for the third quarter of the last two years were as
follows:
<TABLE>
<CAPTION>
(Dollars in millions) 3rd Quarter
---------------------- ------------------
<S> <C> <C>
1997 1996
------ ------
Working capital (1) $27.2 $26.1
Unused lines of revolving credit (2) 14.7 15.8
Current ratio (1) 1.43 1.43
(1) Includes add-back of gross LIFO reserve.
(2) 1997 represents unused amount under the new five year $45.0
million revolving credit agreement. 1996 represents the unused
amount under a two-year $35.0 million agreement which was
replaced by the new agreement in September, 1996.
</TABLE>
During the first thirty-nine weeks of fiscal 1997, the Company's working
capital (includes the add-back of the gross LIFO reserve) increased
$5,844,000 from the Company's fiscal year end on August 31, 1996. The
working capital ratio was 1.43 to 1 at the end of this quarter compared to
1.35 to 1 at August 31, 1996 and 1.43 to 1 at May 25, 1996. Borrowings
under the Company's Revolving Credit Agreements increased, mainly to
finance capital expenditures and repay certain higher cost borrowings.
The funds required by the Company on a continuing basis for both working
capital, capital expenditures, and other needs are generated principally
through operations, long-term borrowings and capital leases, supplemented
by borrowings under revolving credit note agreements which have been
arranged primarily through institutional lenders. The Company is not
aware of any trends, demands, commitments or uncertainties which will
result or which are reasonably likely to result in a material change in
the Company's liquidity. During the third quarter of 1997 the Company
borrowed against revolving credit agreements with the maximum amount
outstanding under such agreements amounting to $32,000,000, with
$30,300,000 being outstanding as of the end of the quarter.
On July 1, 1997 the Company received a BBB- rating (investment grade)
from Fitch Investors Service, L.P. for a potential issuance of $25.0
million senior unsecured notes that the Company expects to place
privately with institutional investors in early fiscal 1998. This
long-term fixed rate borrowing would replace bank revolving credit
borrowings whose rate varies in relation to the LIBOR market.
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
CASH FLOWS FROM OPERATING ACTIVITIES
Cash provided by operating activities decreased approximately $4,445,000 from
$13,513,000 to $9,068,000 for the comparative thirty-nine week period. This
decrease is primarily attributable to the increases in inventory and income
tax payments, offset by increased net income.
CASH FLOWS FROM INVESTING ACTIVITIES
During the first thirty-nine weeks of 1997, the Company used $16,757,000 of
cash in investing activities. This compares to $8,348,000 used in the
thirty-nine weeks of 1996, a result of increased expenditures for property
and equipment and the acquisition of two store location in 1997 versus
1996. Expenditures for 1997 were consistent with the Company's $20,000,000
forecast for the year.
CASH FLOWS FROM FINANCING ACTIVITIES
Cash provided by financing activities during the thirty-nine weeks of
1997 was $7,825,000 which compares to cash used of $3,020,000 during the
thirty-nine weeks of 1996. The increase was due to an increase in net
borrowings during the period compared to a year earlier offset by payments
of higher cost long-term debt. Additionally, the Company received prepaid
purchase discounts in 1997 which will be amortized to income as purchases
are made.
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>
Item 6. - Exhibits and Reports on Form 8 K.
6(b) Reports on Form 8 K.
There were no Form 8 K reports required to be filed by the Company
during any of the months included in the most recently completed fiscal
quarter.
/s/ Richard B. Iott
Signature
Richard B. Iott, President and
Chief Operating Officer
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
SEAWAY FOOD TOWN, INC.
Registrant
Date: July 10, 1997 By /s/ Richard B. Iott
Richard B. Iott,
President and Chief
Executive Officer
Date: July 10, 1997 By /s/ Waldo E. Yeager
Waldo E. Yeager,
Chief Financial Officer,
Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-30-1997
<PERIOD-END> MAY-31-1997
<CASH> 9,902
<SECURITIES> 0
<RECEIVABLES> 6,943
<ALLOWANCES> 450
<INVENTORY> 51,230
<CURRENT-ASSETS> 72,789
<PP&E> 211,791
<DEPRECIATION> 121,005
<TOTAL-ASSETS> 168,436
<CURRENT-LIABILITIES> 63,829
<BONDS> 45,166
<COMMON> 8,838
0
0
<OTHER-SE> 40,631
<TOTAL-LIABILITY-AND-EQUITY> 168,436
<SALES> 151,284
<TOTAL-REVENUES> 151,284
<CGS> 112,003
<TOTAL-COSTS> 112,003
<OTHER-EXPENSES> 36,215
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 920
<INCOME-PRETAX> 2,506
<INCOME-TAX> 905
<INCOME-CONTINUING> 1,601
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,601
<EPS-PRIMARY> .36
<EPS-DILUTED> .36
