<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 November 27, 1999
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
Common stock, without par value Outstanding at December 31, 1999
(stated value $2.00 per share) 6,673,643 shares
1
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Index
Seaway Food Town, Inc.
Part I. Financial information
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Income -- Thirteen weeks ended
November 27, 1999 and November 28, 1998.
Consolidated Balance Sheets -- November 27, 1999 and August 28,
1999.
Condensed Consolidated Statements of Cash Flows -- Thirteen weeks
ended November 27, 1999 and November 28, 1998.
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 5. Other information.
Item 6. Exhibits and Reports on Form 8-K.
Signatures
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PART I. FINANCIAL INFORMATION (CONTINUED)
Consolidated Statements of Income
(Thousands of Dollars, Except
Average Share and Per-Share Data)
Thirteen Weeks Ended
November 27, November 28,
1999 1998
------------ ------------
Net sales $169,260 $156,630
Cost of merchandise sold 126,437 116,887
--------- ---------
Gross profit 42,823 39,743
Selling, general and
administrative expenses 39,262 36,603
--------- ---------
Operating profit 3,561 3,140
Interest expense - net (994) (1,010)
Other income - net 83 73
--------- ---------
Income before income taxes 2,650 2,203
Provision for income taxes 941 782
--------- ---------
Net income $1,709 $1,421
========= =========
Per common share:
Net income - basic and diluted $ .26 $ .21
========= =========
Dividends paid $ .045 $ .045
========= =========
Weighted average number of shares
outstanding - basic and diluted 6,673,643 6,648,928
========= =========
See notes to financial statements
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PART I. FINANCIAL INFORMATION (Continued)
Consolidated Balance Sheets
(Thousands of Dollars)
November 27, August 28,
1999 1999
ASSETS ------------ ----------
Current assets:
Cash and cash equivalents $ 12,411 $ 9,757
Notes and accounts receivable, less
allowance of $500 12,651 9,717
Merchandise inventories 61,173 56,343
Prepaid expenses 1,323 1,353
Deferred income taxes 2,205 2,205
-------- --------
Total current assets 89,763 79,375
Other assets, less accumulated amortization
of $5,124 ($4,845 at August 28, 1999) 6,583 6,167
Property and equipment at cost:
Land 7,900 7,900
Buildings and improvements 79,035 79,115
Leasehold improvements 32,293 32,771
Equipment 115,539 113,406
-------- --------
234,767 233,192
Less accumulated depreciation and
amortization 141,649 137,920
-------- --------
Net property and equipment 93,118 95,272
-------- --------
$189,464 $180,814
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable 50,580 $ 46,658
Income taxes 1,470 684
Accrued liabilities 13,675 14,304
Long-term debt due within one year 4,132 1,043
-------- --------
Total current liabilities 69,857 62,689
Long-term debt 48,324 49,249
Deferred income taxes 1,343 1,343
Deferred other 4,497 3,499
Shareholders' equity:
Common stock 13,347 13,347
Capital in excess of stated value 358 358
Retained earnings 51,738 50,329
-------- --------
Total shareholders' equity 65,443 64,034
-------- --------
$189,464 $180,814
======== ========
See notes to financial statements
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PART I. FINANCIAL INFORMATION (Continued)
Condensed Consolidated Statements of Cash Flows
(Thousands of Dollars)
Thirteen Weeks Ended
November 27, November 28,
1999 1998
------------ ------------
OPERATING ACTIVITIES-net cash provided $ 2,765 $ 1,434
INVESTING ACTIVITIES
Expenditures for property and equipment (1,638) (2,521)
Proceeds from sale of property and other assets 60 18
Other (397) (6)
------- -------
Net cash used in investing activities (1,975) (2,509)
FINANCING ACTIVITIES
Proceeds from issuance of long-term debt 2,400 3,700
Payments of long-term debt (236) (346)
Dividends paid (300) (299)
------- -------
Net cash provided by financing activities 1,864 3,055
------- -------
Increase in cash and cash equivalents 2,654 1,980
Cash and cash equivalents at beginning of period 9,757 8,968
------- -------
Cash and cash equivalents at end of period $12,411 $10,948
======= =======
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest $ 1,251 $ 1,249
========= =======
Income Taxes $ 155 $ (33)
========= =======
See notes to financial statements
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PART I. FINANCIAL INFORMATION (Continued)
Notes to Financial Statements
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 week period ended November 27, 1999
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 $18,001,000 and $18,122,000 at November 27,1999 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)
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.
- --------------------------------------------------------------------------------
Percentage change
from prior year
-----------------
Percentage of net sales
- -----------------------
First First First Qtr. 2000
Qtr. Qtr. Compared to
2000 1999 First Qtr. 1999
- ----- ----- ---------------
100.0% 100.0% Net sales 8.1%
===== ===== ====
25.3% 25.4% Gross profit 7.7%
Selling, general and
23.2 23.4 administrative expenses 7.3
2.1 2.0 Operating profit
.6 .6 Interest expense - net (1.6)
.1 .0 Other income - net 13.7
1.6 1.4 Income before income taxes 20.3
.6 .5 Provision for income taxes 20.3
- ----- ----- ----
1.0% .9% Net income 20.3%
===== ===== ====
- -------------------------------------------------------------------------------
Net sales for the first quarter of 2000 were $169,260,000 or 8.1% higher than
the same quarter in 1999. The increase in sales from 1999 to 2000 was due to
three additional stores, along with increases in existing stores due to
remodels. Sales from stores in operation both the first quarter of 2000 as well
as the same quarter a year ago increased 3.64%.
Gross margins, as a percent of sales, decreased .1% in the first quarter of 2000
compared to the same quarter in 1999.
As a percent of sales, selling, general and administrative expenses decreased
.2% during the first quarter of 2000 compared to the same
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Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
quarter of the prior year. This decrease was attributable principally to
increased sales offset by increases in retail store wage and benefit expenses,
utility expenses, supply costs, repairs and maintenance and occupancy costs.
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 $16,000 compared with the same quarter of 1999.
Slightly higher borrowings offset by slightly lower borrowing rates accounted
for this decrease.
Income taxes as a percent of pre-tax income approximates the statutory tax rates
in effect. The effective tax rate is stable compared to the prior year. An
effective tax rate of 35.5% was used in the first quarter of 2000 and for the
first quarter of fiscal 1999.
Net income for the quarter was $1,709,000 ($.26 per common share) which compares
to $1,421,000 ($.21 per common share) for the same quarter last year. On a
current trailing four quarters' basis, net income was $7,762,000 ($1.17 per
common share) compared to $7,034,000 ($1.05 per common share) for the prior four
quarters, a 10.3% increase. The Company expects its fiscal 2000 second quarter
net income to be comparable with its fiscal 1999 second quarter.
Impact of Inflation
Inflation increases the Company's major costs, inventory and labor. The
Company's provisions for LIFO inventories has resulted in a decrease in cost of
sales of $120,000 in the first quarter of 2000 as well as the first quarter 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.
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Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
LIQUIDITY AND CAPITAL RESOURCES
Overview
Measures of liquidity for the first quarter of the last two years were as
follows:
- --------------------------------------------------------------------------------
(Dollars in millions) 1st Quarter
- --------------------- --------------
2000 1999
----- ----
Working capital (1) $37.9 $33.8
Unused lines of revolving credit (2) 32.0 33.0
Current ratio (1) 1.54 1.50
- --------------------------------------------------------------------------------
(1) Includes add-back of gross LIFO reserve.
(2) Represents unused amount under the five year $45.0 million revolving credit
agreement.
During the first thirteen weeks of fiscal 2000, the Company's working capital
(includes the add-back of the gross LIFO reserve) increased $3,099,000 from the
Company's fiscal year end on August 28, 1999. The current ratio was 1.54 to 1 at
the end of this quarter compared to 1.56 to 1 at August 28, 1999 and 1.50 to 1
at November 28, 1998. Borrowings under the Company's Revolving Credit Agreements
increased slightly, primarily to finance inventory increases for the holiday
season.
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 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 first quarter
of 2000 the Company borrowed against revolving credit agreements with the
maximum amount outstanding under such agreements amounting to $16,800,000, with
$13,000,000 being outstanding as of the end of the quarter.
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Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
The Company previously exercised its option to prepay the $8,000,000 of senior
notes with an interest rate of 9.10% and 9.22%. The notes were paid on
December 29, 1999 with amounts available under the revolving credit loan
agreement. This will result in a long-term classification in the future.
Cash Flows from Operating Activities
Cash provided by operating activities increased approximately $1,331,000 from
$1,434,000 to $2,765,000 for the comparative thirteen week period. This increase
is attributable to the changes in accounts receivable, inventories and accounts
payable, and an increase in deferred other due to a supply agreement entered
into during the period.
Cash Flows from Investing Activities
During the first quarter of 2000, the Company used $1,975,000 of cash in
investing activities. This compares to $2,509,000 used in the first quarter of
1999. The decreased expenditures for property and equipment accounted for the
majority of this decrease.
Cash Flows from Financing Activities
Cash provided by financing activities during the first quarter of 2000 was
$1,864,000 which compares to cash provided of $3,055,000 during the first
quarter of 1999. The decrease was due to reduced borrowings.
Year 2000 Modifications
The Year 2000 issue was the result of computer programs being written using two
digits rather than four to define the applicable year. As the date changed from
December 31, 1999 to January 1, 2000, many existing computer programs, if not
corrected, would have read the date as January 1, 1900, or otherwise incorrectly
interpreted the date. This might have caused the computer to malfunction or to
cease to function altogether. The results of our Year 2000 Readiness Project is
presented below:
- - State of Readiness -- The Company has successfully completed the Year 2000
Readiness Project and did not experience any significant problems. All
computer hardware and software functioned as planned. In addition all service
providers and utilities continued their services.
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Management's Discussion and Analysis of Financial Condition
And Results of Operations (continued)
- - Cost of the Year 2000 Readiness Project -- The Company's total expense for the
Year 2000 Readiness Project was $965,961, excluding costs of internal Company
employees. These costs have been charged to expense and have been funded
through operating cash flows.
- - Risk -- The Company is not anticipating any future risk due to the Year 2000,
yet will continue to monitor all computer software and hardware throughout the
next year.
- - Contingency Plans -- Due to the minimal risk exposure there is no need for a
formal contingency plan for the year 2000 project. If at anytime the Company
feels it is necessary, the Current Business Recovery Plan will be implemented.
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.
================================================================================
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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 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: January 10, 2000 By /s/ Richard B. Iott
Richard B. Iott,
President and
Chief Executive Officer
Date: January 10, 2000 By /s/ Waldo E. Yeager
Waldo E. Yeager,
Chief Financial Officer,
Treasurer
12
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-26-2000
<PERIOD-END> NOV-27-1999
<CASH> 12,411
<SECURITIES> 0
<RECEIVABLES> 13,151
<ALLOWANCES> (500)
<INVENTORY> 61,173
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0
0
<COMMON> 13,347
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<SALES> 169,260
<TOTAL-REVENUES> 169,260
<CGS> 126,437
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<INCOME-TAX> 941
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