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 February 28, 1998 Commission File number 0-80.
( ) Transition Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the transition period from
to
SEAWAY FOOD TOWN, INC.
(Exact name of registrant as specified in its charter)
Ohio 34-4471466
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) (Identification No.)
1020 Ford Street, Maumee, Ohio 43537
(Address of principal executive offices) (Zip Code)
419/893-9401
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at April 9, 1998
Common stock, without par 4,432,627 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 1997 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 Twenty-Six Weeks Ended
February 28, March 1, February 28, March 1,
1998 1997 1998 1997
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Net Sales $159,935 $155,871 $313,887 $303,822
Cost of merchandise sold 117,850 115,930 231,284 226,289
----------- ----------- ----------- -----------
Gross profit 42,085 39,941 82,603 77,533
Selling, general and
administrative expenses 38,035 36,322 75,649 71,618
----------- ----------- ----------- -----------
Operating profit 4,050 3,619 6,954 5,915
Interest expense (965) (965) (1,971) (1,941)
Other income - net 242 502 520 883
----------- ----------- ----------- -----------
Income before income taxes 3,327 3,156 5,503 4,857
Provision for income taxes (1,232) (1,308) (2,037) (2,018)
----------- ----------- ----------- -----------
Net income $ 2,095 $ 1,848 $ 3,466 $ 2,839
=========== =========== =========== ===========
Per common share:
Net income - basic and $ .47 $ .42 $ .78 $ .65
diluted =========== =========== =========== ===========
Dividends paid $ .06 $ .055 $ .06 $ .11
=========== =========== =========== ===========
Average number of shares
outstanding - basic and 4,427,894 4,409,632 4,423,531 4,401,394
diluted =========== =========== =========== ===========
See notes to consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION (Continued)
Condensed Consolidated Balance Sheets
(Thousands of Dollars)
<CAPTION>
February 28, August 30,
1998 1997
(NOTE)
ASSETS ------------ -------------
<S>
Current assets: <C> <C>
Cash and cash equivalents $ 9,315 $ 9,491
Notes and accounts receivable 7,540 6,945
Less allowance for doubtful accounts (450) (450)
Merchandise inventories (Note B) 69,133 67,065
Less LIFO reserve (18,334) (18,473)
Prepaid expenses, including deferred
income taxes 5,170 4,512
------------ ------------
72,374 69,090
Other assets 4,380 4,831
Property and equipment:
Cost 216,121 210,487
Less accumulated depreciation and
amortization (126,354) (119,842)
------------ ------------
Net property and equipment 89,767 90,645
------------ ------------
$166,521 $164,566
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $45,311 $ 44,174
Income taxes 658 935
Accrued liabilities 13,128 12,811
Long-term debt due within one year 1,830 1,959
------------ ------------
Total current liabilities 60,927 59,879
Long-term debt 43,970 45,565
Deferred income taxes 3,258 3,258
Deferred other 3,999 4,688
Shareholders' equity:
Common stock 8,865 8,838
Capital in excess of stated value 228 0
Retained earnings 45,274 42,338
------------ ------------
Total shareholders' equity 54,367 51,176
------------ ------------
$166,521 $164,566
============ ============
NOTE: The balance sheet at August 30, 1997 has been derived from the audited
consolidated financial statements at that date but does not include all
of the information and footnotes required by generally accepted
accounting principles for complete financial statements.
See notes to consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION (Continued)
Condensed Consolidated Statements of Cash Flows
(Thousands of Dollars)
<CAPTION>
Twenty-Six Weeks Ended
February 28, March 1,
1998 1997
------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES-net cash provided $8,992 $7,105
INVESTING ACTIVITIES
Expenditures for property and equipment (6,699) (9,946)
Proceeds from sale of property and other assets 32 74
Other 442 858
------------- -------------
Net cash used in investing activities (6,225) (9,014)
FINANCING ACTIVITIES
Proceeds from issuance of long-term debt 2,400 13,900
Payments of long-term debt (4,124) (10,841)
Payments for acquisition of common shares --- (71)
Dividends paid (530) (483)
Decrease in deferred other (689) (505)
------------- -------------
Net cash provided by (used in) financing activities (2,943) 2,000
------------- -------------
Increase (decrease) in cash and cash equivalents (176) 91
Cash and cash equivalents at beginning of period 9,491 9,766
------------- -------------
Cash and cash equivalents at end of period $9,315 $9,857
============= =============
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest $1,033 $1,913
============= =============
Income Taxes $2,314 $2,720
============= =============
See notes to consolidated financial statements
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION (Continued)
Notes to Consolidated Financial Statements
Note A. Net income per common share is based on the weighted average
number of shares outstanding during the periods. At February 28,
1998, the Company adopted Financial Accounting Standards Board
Statement No. 128, Earnings per Share which replaced the calculation
of primary and fully diluted earnings per share with basic and
diluted earnings per share. The Company has no potentially
dilutive securities in any of the periods presented, therefore, the
adoption of Statement No. 128 had no effect on earnings per share.
On April 10, 1997, the Board of Directors authorized a two for one
stock split, payable on May 2, 1997 to shareholders of record on April
22, 1997. Accordingly, all per share and share data have been
restated to reflect the stock price.
Financial Accounting Standards Board Statement No. 131 -- Segments,
will be applicable for fiscal 1999. This statement dictates the use
of a management approach to report financial and descriptive
information about the Company's operating segments. The impact
on the Company has not been determined.
Note B. Meat, produce 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.
<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 Percentage
Percentage of change Percentage of change in
Net Sales in dollars Net Sales dollars
--------------- ------------- ------------- ----------
2nd Qtr.'98 26 26 26 Weeks `98
2nd Qtr. 2nd Qtr. Compared to Weeks Weeks Compared to
1998 1997 2nd Qtr.'97 1998 1997 26 Weeks `97
-------- -------- ------------- ------ ------ -------------
<C> <C> <C> <S> <C> <C> <C>
100.0% 100.0% 2.6% Net sales 100.0% 100.0% 3.3%
======= ======= ======= ====== ====== =====
26.3 25.6 5.4 Gross profit 26.3 25.5 6.5
Selling,general and
administrative
23.8 23.3 4.7 expense 24.1 23.6 5.6
2.5 2.3 11.9 Operating profit 2.2 1.9 17.6
( .6) ( .6) -- Interest expense ( .6) ( .6) 1.5
.2 .3 (51.8) Other income - net .2 .3 (41.1)
Income before income
2.1 2.0 5.4 taxes 1.8 1.6 13.3
Provision for income
.8 .8 (5.8) taxes .7 .7 .9
------ ------ ------- ----- ----- ------
1.3 1.2 13.4 Net income 1.1 .9 22.1
====== ====== ======== ===== ===== ======
</TABLE>
Net sales for the second quarter of 1998 were $159,935,000 or 2.6% higher
than the same quarter in 1997. On a year-to-date basis, net sales were
$313,887,000 or 3.3% higher than 1997. These net increases were largely
attributable to increases in drugstore sales and increases in supermarket
sales resulting from two additional supermarkets, one new drugstore and
various remodeled locations. Sales from stores in operation both this past
quarter as well as the same quarter a year ago decreased 1.11%.
Gross margins, as a percent of sales, increased .7% in the second quarter of
1998 compared to the same quarter in 1997. On a year-to-date basis, margins
increased .8% over 1997. Most of these increases were attributable to
increased selling margins in the retail stores.
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
As a percent of sales, selling, general and administrative expenses
increased .5% during the current quarter compared to the same quarter
of the prior year. Increased selling costs relating to new and remodeled
locations were the principal reasons for the increases. On a year-to-date
basis, costs increased .5%. These increases related to new and remodeled
locations, as well as increases in various administrative expenses,
especially in the Information Systems area.
The Company continues to experience a very stable labor situation.
During the first quarter of fiscal 1998, the Company reached a five year
agreement in addition to the remaining one year on the expiring agreement,
with its warehouse and transportation associates. This has permitted the
Company to embark on a warehouse remodeling project whereby one warehouse
will be closed along with increased space utilization in another, thus
improving operational efficiency. The Company also has contracts in place
with major unions relating to stores until the middle of 1999.
Interest expense was comparable with the same quarter of 1997. On a year-
to-date basis interest costs have increased $30,000. Slightly higher
interest rates on reduced borrowings accounted for this increase.
Other income - net decreased $260,000 resulting primarily from a decrease
in miscellaneous income categories and a decrease in gains on asset
disposals. On a year-to-date basis other income - net decreased $363,000
due to a gain in asset disposals in 1997, versus a loss in 1998, along with
decreases in miscellaneous other income categories.
Income taxes as a percent of pre-tax income approximates the statutory tax
rates in effect. The percentage decrease in second quarter 1998 compared to
1997 is due mainly to the implementation of various tax planning strategies.
An effective tax rate of 37% was used in this past quarter versus a rate of
41.4% for the second quarter of fiscal 1997.
Net income for the quarter was $2,095,000 ($.47 per common share) which
compares to $1,848,000 ($.42 per common share) for the same quarter last year.
On a current trailing four quarters' basis, net income was $7,039,000 ($1.58
per common share) compared to $6,412,000 ($1.46 per common share) for the
prior four quarters, a 9.8% increase. . The Company expects its fiscal 1998
third quarter net income to be comparable with its fiscal 1997 third quarter.
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
IMPACT OF INFLATION
Inflation increases the Company's major costs, inventory and labor. The
Company's provisions for LIFO inventories for the past quarter has resulted
in a decrease in cost of sales of $53,000 in the second quarter of 1998
compared to a increase of $113,000 in the second quarter of 1997. The Company
has generally been able to maintain margins by adjusting its retail prices,
but competitive conditions may from time to time render it unable to do so in
seeking to so while maintaining its market share.
LIQUIDITY AND CAPITAL RESOURCES
OVERVIEW
Measures of liquidity for the second quarter of the last two years were as
follows:
<TABLE>
<CAPTION>
(Dollars in millions) 2nd Qtr. 1998 2nd Qtr. 1997
---------------------- -------- --------
<S> <C> <C>
Working capital (1) $29.8 $23.3
Unused lines of revolving credit 42.1 16.1
Current ratio (1) 1.49 1.37
(1) Includes add-back of gross LIFO reserve.
</TABLE>
During the first twenty-six weeks of fiscal 1998, the Company's working
capital (includes the add-back of the gross LIFO reserve) increased
$2,097,000 from the Company's fiscal year end on August 30, 1997.
The working capital ratio was 1.49 to 1 at the end of this quarter
compared to 1.46 to 1 at August 30, 1997 and 1.37 to 1 at March 1, 1997.
Borrowings under the Company's Revolving Credit Agreements decreased,
mainly due to the Senior Note placement in August, 1997 and decreased
capital expenditures.
The funds required by the Company on a continuing basis for both working
capital, capital expenditures, and other needs are generated principally
through operations, long-term borrowings and capital leases, supplemented by
borrowings under revolving credit note agreements which have been arranged
primarily through institutional lenders. The Company is not aware of any
trends, demands, commitments or uncertainties which will result or which are
reasonably likely to result in a material change in the Company's liquidity.
During the second quarter of 1998 the Company borrowed against revolving
credit agreements with the maximum amount outstanding under such agreements
amounting to $8,000,000, with $2,900,000 being outstanding as of the end
of the quarter.
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
CASH FLOWS FROM OPERATING ACTIVITIES
Cash provided by operating activities increased approximately $1,887,000
from $7,105,000 to $8,992,000 for the comparative twenty-six week period.
This increase is primarily attributable to the increases in net income this
quarter compared to the same period a year earlier.
CASH FLOWS FROM INVESTING ACTIVITIES
During the first twenty-six weeks of 1998, the Company used $6,225,000 of
cash in investing activities. This compares to $9,014,000 used in the twenty-
six weeks of 1997, a result of decreased expenditures for property and
equipment in 1998 versus 1997. Expenditures for 1998 are slightly below
the Company's $20,000,000 forecast for the year.
CASH FLOWS FROM FINANCING ACTIVITIES
Cash flows from financing activities during the twenty-six weeks of 1998
were $2,943,000 used which compares to $2,000,000 provided during the
twenty-six weeks of 1997. The decrease was due to a decrease in net
borrowings during the period compared to a year earlier.
YEAR 2000 MODIFICATIONS
The Company is in the process of making all modifications to its computer
systems deemed to be necessary by management to account for and report
business transactions beginning on January 1, 2000. Furthermore, the Company
expects that all such modifications, including the pre-testing of systems,
to be completed by the end of the current calendar year (1998). The Company
does not anticipate any material issues related to the Year 2000 modifications.
CAUTIONARY STATEMENT FOR PURPOSES OF "SAFE HARBOR PROVISIONS" OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
Except for historical facts, all matters discussed in this report which are
forward looking involve risks and uncertainties. A number of factors could
adversely affect future results, liquidity and capital resources. These
factors include, but are not limited to, competitive pressures from other
major supermarket operators, including entry of new competitive stores in the
Company's market, the level of discounting by competitors, the stability of
distribution incentives from suppliers, economic conditions in the Company's
primary markets and other uncertainties detailed from time to time in the
Company's Securities and Exchange Commission filings. Although management
believes it has the business strategy and resources needed for improved
operations, future revenue and margin trends cannot be reliably predicted.
<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 Executive 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 April 9, 1998 By /s/ Richard B. Iott
Richard B. Iott, President
and Chief Executive Officer
Date April 9, 1998 By /s/ Waldo E. Yeager
Waldo E. Yeager,
Chief Financial Officer,
Treasurer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-29-1998
<PERIOD-END> FEB-28-1998
<CASH> 9,315
<SECURITIES> 0
<RECEIVABLES> 7,540
<ALLOWANCES> (450)
<INVENTORY> 50,799
<CURRENT-ASSETS> 72,374
<PP&E> 216,121
<DEPRECIATION> (126,354)
<TOTAL-ASSETS> 166,521
<CURRENT-LIABILITIES> 60,927
<BONDS> 43,970
<COMMON> 8,865
0
0
<OTHER-SE> 45,502
<TOTAL-LIABILITY-AND-EQUITY> 166,521
<SALES> 159,935
<TOTAL-REVENUES> 159,935
<CGS> 117,850
<TOTAL-COSTS> 117,850
<OTHER-EXPENSES> 38,035
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (965)
<INCOME-PRETAX> 3,327
<INCOME-TAX> (1,232)
<INCOME-CONTINUING> 2,095
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,095
<EPS-PRIMARY> .47
<EPS-DILUTED> .47
