<PAGE> 1
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 26, 2000 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 6, 2000
Common stock, without par 6,712,755 shares
value (stated value $2.00 per share)
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Index
Seaway Food Town, Inc.
Part I. Financial information
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Income -- Thirteen and
Twenty-six weeks ended February 26, 2000 and
February 27, 1999.
Consolidated Balance Sheets -- February 26, 2000 and
August 28, 1999.
Condensed Consolidated Statements of Cash Flows --
Twenty-six weeks ended February 26, 2000 and
February 27, 1999.
Notes to Consolidated Financial Statements.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operation.
Item 3. Quantitative and Qualitative Disclosure of Market Risk.
Part II. Other Information
Item 4. Results of votes of security holders
Item 5. Other information.
Item 6. Exhibits and Reports on Form 8-K.
Signatures
2
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<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
Consolidated Statements of Income
(Thousands of Dollars - Except
Average Share and Per-Share Data)
Thirteen Weeks Ended Twenty-Six Weeks Ended
February 26, 2000 February 27, 1999 February 26, 2000 February 27, 1999
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Net Sales $ 179,107 $ 170,382 $ 348,367 $ 327,012
Cost of merchandise sold 133,303 127,561 259,740 244,448
----------- ----------- ----------- -----------
Gross profit 45,804 42,821 88,627 82,564
Selling, general and
administrative expenses 39,788 38,282 79,050 74,885
----------- ----------- ----------- -----------
Operating profit 6,016 4,539 9,577 7,679
Interest expense - net (893) (989) (1,887) (1,999)
Other income - net 109 82 192 155
----------- ----------- ----------- -----------
Income before income taxes 5,232 3,632 7,882 5,835
Provision for income taxes (1,897) (2,838) (2,090)
-- (1,308) -- --
-----------
Net income $ 3,335 $ 2,324 $ 5,044 $ 3,745
=========== =========== =========== ===========
Per common share:
Net income - basic and
Diluted $ .49 $ .35 $ .75 $ .56
=========== =========== =========== ===========
Dividends paid $ .045 $ .045 $ .09 $ .09
=========== =========== =========== ===========
Average number of shares
outstanding - basic and
diluted 6,698,142 6,664,680 6,685,892 6,656,804
=========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements
3
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<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION (Continued)
Consolidated Balance Sheets
(Thousands of Dollars)
February 26, August 28,
2000 1999
ASSETS ------------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 9,898 $ 9,757
Notes and accounts receivable, less
allowance of $600 ($500 at August 28,
1999 10,424 9,717
Merchandise inventories 58,138 56,343
Prepaid expenses 1,390 1,353
Deferred income taxes 2,205 2,205
-------- --------
Total current assets 82,055 79,375
Other assets, less accumulated amortiza-
tion of $2,783 ($4,845 at August 28, 1999) 6,306 6,167
Property and equipment at cost:
Land 7,900 7,900
Buildings and improvements 79,035 79,115
Leasehold improvements 32,294 32,771
Equipment 117,574 113,406
-------- --------
236,803 233,192
Less accumulated depreciation and
Amortization 145,515 137,920
-------- --------
Net property and equipment 91,288 95,272
-------- --------
$179,649 $180,814
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 48,440 $ 46,658
Income taxes 1,155 684
Accrued liabilities 14,341 14,304
Long-term debt due within one year 931 1,043
-------- --------
Total current liabilities 64,867 62,689
Long-term debt 40,354 49,249
Deferred income taxes 1,343 1,343
Deferred other 3,973 3,499
Shareholders' equity:
Common stock 13,425 13,347
Capital in excess of stated value 916 358
Retained earnings 54,771 50,329
-------- --------
Total shareholders' equity 69,112 64,034
-------- --------
$179,649 $180,814
======== ========
</TABLE>
See notes to consolidated financial statements
4
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<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION (Continued)
Condensed Consolidated Statements of Cash Flows
(Thousands of Dollars)
Twenty-six Weeks Ended
February 26, February 27,
2000 1999
------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES-net cash provided $ 13,491 $ 13,749
INVESTING ACTIVITIES:
Expenditures for property and equipment (3,744) (7,445)
Proceeds from sale of property and other assets 123 55
Acquisition of business -- (2,600)
Other (120) (44)
-------- --------
Net cash used in investing activities (3,741) (10,034)
FINANCING ACTIVITIES
Proceeds from issuance of long-term debt 2,400 3,700
Payments of long-term debt (11,407) (5,892)
Dividends paid (602) (599)
-------- --------
Net cash used in financing activities (9,609) (2,791)
-------- --------
Increase in cash and cash equivalents 141 924
Cash and cash equivalents at beginning of period 9,757 8,968
-------- --------
Cash and cash equivalents at end of period $ 9,898 $ 9,892
======== ========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest $ 2,007 $ 1,915
======== ========
Income Taxes $ 2,368 $ 712
======== ========
</TABLE>
See notes to consolidated financial statements
5
<PAGE> 6
PART I. FINANCIAL INFORMATION (Continued)
Notes to Consolidated Financial Statements (Unaudited)
Note A. Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been
included. Operating results for the thirteen and twenty-six week
periods ended February 26, 2000 are not necessarily indicative of the
results that may be expected for the year ended August 26, 2000.
The balance sheet at August 28, 1999 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.
For further information, refer to the consolidated financial statements
and footnotes thereto included in the Company's annual report on Form
10-K for the year ended August 28, 1999.
Note B. Inventories
Meat, produce, bakery, and deli 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.
Inventories have been reduced by $18,029,000 and $18,122,000 at
February 26, 2000 and August 28, 1999 respectively from amounts which
would have been reported under the FIFO method (which approximates
current cost).
Note C. Earnings Per Share
Net income per common share is based on the weighted average number of
shares outstanding during the periods. The Company has no potentially
dilutive securities.
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PART I. FINANCIAL INFORMATION (Continued)
Notes to Consolidated Financial Statements (Unaudited)
Note D: Agreement and Plan of Merger
On April 6, 2000, the Company's Board of Directors approved an
Agreement and plan of Merger (Merger Agreement) among the Company and
Spartan Stores, Inc. Based on the Merger Agreement, each of the
Company's shareholders will receive a cash payment of $5.00 and one
share of Spartan new common stock for each share of Company stock held.
Immediately prior to consummation of the merger, Spartan shareholders
will exchange their existing shares of Spartan Stores Class A common
stock for approximately 13.2 million shares of Spartan new common
stock. The merger is subject to shareholder approval of both companies.
The Company and Spartan have agreed to reimburse the other up to $1.5
million for their respective costs and expenses related to the
transaction if the Merger Agreement is terminated under certain
conditions. Also, the Company has agreed to pay to Spartan (a) an
initial termination fee in the amount of $2.167 million if the Merger
Agreement is terminated in connection with the withdrawal of, or
certain modifications to, the Board's recommendation, the Company's
decision to accept an acquisition proposal from another party, or in
connection with the failure of the Company's shareholders to approve
the merger subsequent to the making of a competing acquisition
proposal, and (b) an additional termination fee of $4.333 million if
the Merger Agreement is terminated under circumstances in which the
initial termination fee is payable and the Company engages in an
acquisition transaction within eighteen (18) months of such
termination.
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PART I. FINANCIAL INFORMATION (Continued)
Item 2. 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
Net Sales change Percentage of change in
------------- in dollars Net Sales dollars
------------- --------------- ----------
2nd Qtr.'00 26 26 26 Weeks '00
2nd Qtr. 2nd Qtr. Compared to Weeks Weeks Compared to
2000 1999 2nd Qtr.'99 2000 1999 26 Weeks '99
-------- -------- ------------- ------ ------ ------------
<S> <C> <C> <C> <C> <C> <C>
100.0% 100.0% 5.1 Net sales 100.0% 100.0% 6.5
======= ======= ======= ====== ====== =====
25.6 25.1 7.0 Gross profit 25.4 25.2 7.3
Selling, general and
administrative
22.2 22.4 3.9 expense 22.7 22.9 5.6
3.4 2.7 32.5 Operating profit 2.7 2.3 24.7
( .5) ( .6) (9.7) Interest expense ( .5) ( .6) (5.6)
.0 .0 32.9 Other income - net .1 .1 23.9
Income before income
2.9 2.1 44.1 Taxes 2.3 1.8 35.1
Provision for income
1.0 .8 45.0 Taxes .8 .6 35.8
------ ------ ------- ----- ----- ------
1.9 1.3 43.5 Net income 1.5 1.2 34.7
====== ====== ======= ===== ===== ======
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Net sales for the second quarter of 2000 were $179,107,000 or 5.1% higher than
the same quarter in 1999. On a year-to-date basis, net sales were $348,367,000
or 6.5% higher than 1999. This increase in sales from 1999 to 2000 was due to
three additional stores along with increases from various remodeled locations.
Sales have remained very strong since early 2000. Sales from stores in operation
both this past quarter as well as the same quarter a year ago increased 1.83%.
Gross margins, as a percent of sales, increased .5% in the second quarter of
2000 compared to the same quarter in 1999. On a year-to-date basis, margins
increased .2% over 1999. Most of these increases were attributable to increased
selling margins in the retail stores.
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Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
As a percent of sales, selling, general and administrative expenses decreased
.3% during the current quarter compared to the same quarter of the prior year.
Increased sales during the quarter offset by selling costs relating to new and
remodeled locations (such as wages and benefits, supply costs and repairs,
maintenance and occupancy costs) was the principal reason for the decrease. On a
year-to-date basis, costs decreased .2%. This decrease related to increased
sales volume offset by higher costs in new and remodeled locations, as well as
increases in various administrative expenses. This decrease, as a percent of
sales, in selling, general and administrative expenses, along with the increase
in gross margin percentage, both this past quarter as well as the year to date,
increased the operating profit.
The Company continues to experience a very stable labor situation. The company
has contracts in place with major unions relating to its labor force in the
stores until the middle of 2003.
Interest expense decreased $96,000 for the second quarter of 2000 compared to
1999 and $112,000 for the year to date period of 2000 compared to the same
period of 1999. Lower borrowings along with lower rates accounted for these
decreases.
Other income - net, increased slightly in the second quarter and in the year to
date period resulting primarily from an increase in miscellaneous income.
Income taxes as a percent of pre-tax income approximates the statutory tax rates
in effect. The percentage increase in the second quarter 2000 compared to 1999
is due mainly to the increase in state and local taxes on increased earnings. An
effective tax rate of 36.3% was used in the second quarter of fiscal 2000 versus
a rate of 36.0% for the second quarter of fiscal 1999. On a year-to-date basis,
the rate is 36.0% in 2000 compared to 35.8% in 1999.
Net income for the quarter was $3,335,000 ($.49 per common share) which compares
to $2,324,000($.35 per common share) for the same quarter last year. On a
current trailing four quarters' basis, net income was $8,773,000 ($1.31 per
common share) compared to $7,263,000 ($1.09 per common share) for the prior four
quarters, a 20.8% increase.
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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
increase in cost of sales of $27,000 in the second quarter of 2000 compared to a
decrease of $103,000 in the second quarter of 1999. On a year-to-date basis,
LIFO provisions reduced the cost of sales by $93,000 in the first half of 2000
compared to a reduction of $223,000 in the same period of 1999. 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 maintain 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. 2000 2nd Qtr. 1999
---------------------- -------- --------
<S> <C> <C>
Working capital (1) $35.2 $28.8
Unused lines of revolving credit 34.8 40.7
Current ratio (1) 1.54 1.42
---------------------------------------- ----------------- ------------------
(1) Includes add-back of gross LIFO reserve.
</TABLE>
During the first twenty-six weeks of fiscal 2000, the Company's working capital,
including the add-back of the gross LIFO reserve, increased $409,000 from the
Company's fiscal year end on August 28, 1999. The working capital ratio was 1.54
to 1 at the end of this quarter compared to 1.56 to 1 at August 28, 1999 and
1.42 to 1 at February 27, 1999. Borrowings under the Company's Revolving Credit
Agreements from year end decreased slightly mainly due to decreased capital
expenditures and increased earnings.
The funds required by the Company on a continuing basis for 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
10
<PAGE> 11
Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
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 2000 the Company borrowed against
revolving credit agreements with the maximum amount outstanding under such
agreements amounting to $17,900,000 with $10,200,000 outstanding as of the end
of the quarter.
CASH FLOWS FROM OPERATING ACTIVITIES
Cash provided by operating activities decreased approximately $258,000 to
$13,491,000 from $13,749,000 for the comparative twenty-six week period. This
decrease is primarily attributable to the increases in inventories and accounts
receivable offset by a decrease in accounts payable and accrued liabilities this
twenty-six week period compared to the same period a year earlier.
CASH FLOWS FROM INVESTING ACTIVITIES
During the first twenty-six weeks of 2000, the Company used $3,741,000 of cash
in investing activities. This compares to $10,034,000 used in the twenty-six
weeks of 1999 resulting from decreased expenditures for property and equipment
in 2000 versus 1999 as well as the acquisition of a store in 1999.
CASH FLOWS USED IN FINANCING ACTIVITIES
Cash flows used in financing activities during the twenty-six weeks of 2000 were
$9,609,000 which compares to $2,791,000 during the twenty-six weeks of 1999. The
increase was due to higher debt repayments during the period compared to a year
earlier.
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<PAGE> 12
Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's market risks inherent in financial instruments result primarily
from changes in U. S. interest rates. The Company is not a party to any material
derivative financial instruments. The Company's interest expense is most
sensitive to changes in the general level of U. S. interest rates applicable to
its U. S. dollar indebtedness. To mitigate the impact of fluctuations in
variable interest rates, the Company could, at its option, convert to fixed
interest rates by either refinancing variable rate debt with fixed rate debt or
entering into interest rate swaps.
================================================================================
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.
================================================================================
12
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Item 4 - Results of votes of security holders;
(a) The Annual Meeting of Shareholders of Seaway Food Town, Inc. was held
on January 13, 2000.
(b) The election of the Directors previously nominated and as set forth in
the Proxy statement of December 6, 1999, which is incorporated herein
by reference, was by the following vote:
Shares Shares voted
Voted For Authority to Vote
Withheld
Wallace D. Iott 5,761,113 28,416
W. Geoffrey Lyden 5,761,113 28,416
(c) Pursuant to the proposal set forth in the Proxy Statement of December
6, 1999, which is incorporated herein by reference, approval of Ernst
& Young, LLP as independent auditors for the fiscal year ending August
26, 2000 was by the following vote:
Shares voted FOR 5,772,466
Shares voted AUTORITY TO VOTE
WITHHELD 10,693
Shares voted AGAINST 6,370
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Item 6. - Exhibits and Reports on Form 8 K.
6(b) Reports on Form 8 K.
NONE
/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
/s/ Richard B. Iott
Date April 7, 2000 By Richard B. Iott, President
and Chief Executive Officer
/s/ Waldo E. Yeager
Date April 7, 2000 By Waldo E. Yeager, Chief Financial Officer,
Treasurer
14
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-26-2000
<PERIOD-END> FEB-26-2000
<CASH> 9,898
<SECURITIES> 0
<RECEIVABLES> 11,024
<ALLOWANCES> 600
<INVENTORY> 58,138
<CURRENT-ASSETS> 82,055
<PP&E> 236,803
<DEPRECIATION> 145,515
<TOTAL-ASSETS> 179,649
<CURRENT-LIABILITIES> 64,867
<BONDS> 40,354
<COMMON> 13,425
0
0
<OTHER-SE> 55,687
<TOTAL-LIABILITY-AND-EQUITY> 179,649
<SALES> 179,107
<TOTAL-REVENUES> 179,107
<CGS> 133,303
<TOTAL-COSTS> 133,303
<OTHER-EXPENSES> 39,788
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 893
<INCOME-PRETAX> 5,232
<INCOME-TAX> 1,897
<INCOME-CONTINUING> 3,335
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,335
<EPS-BASIC> .49
<EPS-DILUTED> .49
</TABLE>
