
Part I. Financial information
	Item 1. Financial Statements (Unaudited)
		Consolidated Statements of Income
		Consolidated Balance Sheets
		Condensed Consolidated Statements of Cash Flows
		Notes to Consolidated Financial Statements
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3. Qualitative and Quantitative Disclosures about Market Risk
Part II. Other Information
Signatures
Exhibit 27

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 27, 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 incorporation or organization)		(I.R.S. Employer 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 7, 2000




Common stock, without par value (stated value $2.00 per share)		6,712,810 shares

Index

Seaway Food Town, Inc.

Part I. Financial information


Item 1.		Financial Statements (Unaudited)




		Consolidated Statements of Income — Thirteen and Thirty-nine weeks ended May 27, 2000 and May 29, 1999.




		Consolidated Balance Sheets — May 27, 2000 and August 29, 1999.




		Condensed Consolidated Statements of Cash Flows — Thirty-nine weeks ended May 27, 2000 and May 29, 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 6.		Exhibits and Reports on Form 8-K.

Signatures

PART I. FINANCIAL INFORMATION (CONTINUED)

Consolidated Statements of Income

(Thousands of Dollars — Except
Average Share and Per-Share Data)


		Thirteen Weeks Ended						Thirty-Nine Weeks Ended

		May 27,			May 29,			May 27,			May 29,
		2000			1999			2000			1999

Net Sales		$	171,887		$	167,306		$	520,254		$	494,318




Cost of merchandise sold			125,772			124,558			385,512			369,006

Gross profit			46,115			42,748			134,742			125,312




Selling, general and administrative expenses			39,576			38,945			118,626			113,830

Operating profit			6,539			3,803			16,116			11,482




Interest expense			(772	)		(1,001	)		(2,659	)		(3,000	)




Other income (expense)–net			(70	)		91			122			246

Income before income taxes			5,697			2,893			13,579			8,728




Provision for income taxes			2,186			1,030			5,024			3,120

Net income		$	3,511		$	1,863		$	8,555		$	5,608

Per common share:




	Net income — basic and diluted	$	.53		$	.28		$	1.28		$	.84

	Dividends paid	$	.045		$	.045		$	.135		$	.135

Average number of shares outstanding — basic and diluted			6,712,810			6,673,643			6,694,865			6,662,417

See notes to consolidated financial statements

PART I. FINANCIAL INFORMATION (Continued)
Consolidated Balance Sheets
(Thousands of Dollars)


			May 27,			August 28,
			2000			1999

ASSETS




Current assets:




	Cash and cash equivalents		$	12,811		$	9,757




	Notes and accounts receivable, less allowance for doubtful accounts of $600 ($500 at August 28, 1999)			11,209			9,717




	Merchandise inventories			57,292			56,343




	Prepaid expenses			1,022			1,353




	Deferred income taxes			2,205			2,205

				84,539			79,375




Other assets less accumulated amortization of $2,901, ($4,845 at August 28, 1999)				6,044			6,167




Property and equipment:




	Land			7,900			7,900




	Buildings and improvements			79,025			79,115




	Leasehold improvements			32,839			32,771




	Equipment			115,961			113,406

				235,725			233,192




	Less accumulated depreciation and amortization			(146,687	)		(137,920	)

	Net property and equipment			89,038			95,272

			$	179,621		$	180,814

LIABILITIES AND SHAREHOLDERS’ EQUITY




Current liabilities:




	Accounts payable			48,036		$	46,658




	Income taxes			933			684




	Accrued liabilities			15,636			14,304




	Long-term debt due within one year			876			1,043

		Total current liabilities		65,481			62,689

Long-term debt				36,976			49,249




Deferred income taxes				1,343			1,343




Deferred other				3,499			3,499




Shareholders’ equity:




	Common stock			13,425			13,347




	Capital in excess of stated value			917			358




	Retained earnings			57,980			50,329

		Total shareholders’ equity		72,322			64,034

			$	179,621		$	180,814

See notes to consolidated financial statements

PART I. FINANCIAL INFORMATION (Continued)
Condensed Consolidated Statements of Cash Flows
(Thousands of Dollars)


			Thirty-Nine Weeks Ended

			May 27,			May 29,
			2000			1999

OPERATING ACTIVITIES-net cash provided			$	21,532		$	16,358

INVESTING ACTIVITIES




	Expenditures for property and equipment			(5,428	)		(11,281	)




	Proceeds from sale of property and other assets			151			177




	Cash paid to acquire businesses			—			(4,869	)




	Other			142			149

	Net cash used in investing activities			(5,135	)		(15,824	)

FINANCING ACTIVITIES




	Proceeds from issuance of long-term debt			2,400			10,900




	Payments of long-term debt			(14,840	)		(8,816	)




	Dividends paid			(904	)		(899	)




	Issuance of common stock			1			—

	Net cash provided by (used in) financing activities			(13,343	)		1,185


Increase in cash and cash equivalents				3,054			1,719

Cash and cash equivalents at beginning of period				9,757			8,968

Cash and cash equivalents at end of period			$	12,811		$	10,687

Supplemental Disclosures of Cash Flow Information:




	Cash paid during the period for:

		Interest	$	3,257		$	3,153

		Income Taxes	$	4,527		$	2,411

See notes to consolidated financial statements

PART I. FINANCIAL INFORMATION (Continued)
Notes to Consolidated 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 and thirty-nine week periods ended May 27, 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 $17,919,000 and $18,122,000 at May 27,2000 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.

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, Spartan Stores, Inc., and Spartan Acquisition Corp. 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 (i) with the withdrawal of, or certain modifications to, the Board’s recommendation (ii) the Company’s decision to accept an acquisition proposal from another party, or (iii)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.

		During this past quarter, selling, general and administrative expenses totaling $735,000 were recorded relating to the merger. On a year-to-date basis, these expenses amount to $1,094,000. If the merger is approved, additional costs of approximately $1 million will be incurred.

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										Percentage
Percentage of								change				Percentage of						change in
Net Sales								in dollars				Net Sales						dollars

								3rd Qtr. '00										39 Weeks '00
3rd Qtr.					3rd Qtr.			Compared to				39 Weeks			39 Weeks			Compared to
2000					1999			3rd Qtr. '99				2000			1999			39 Weeks '99

	100.0			%		100.0	%		2.7		Net sales		100.0	%		100.0	%		5.2

		26.8				25.6			7.9		Gross profit		25.9			25.3			7.5




		23.0				23.3			1.6		Selling, general and administrative expense		22.8			23.0			4.2

		3.8				2.3			71.9		Operating profit		3.1			2.3			40.4




			.5			.6			(22.9	)	Interest expense		.5			.6			(11.4	)




			.0			.0			(176.9	)	Other income - net		.0			.0			(50.4	)




											Income before income
		3.3				1.7			96.9		taxes		2.6			1.7			55.6




		1.3				.6			112.2		Provision for income taxes		1.0			.6			61.0

		2.0				1.1			88.5		Net income		1.6			1.1			52.5

Net sales for the third quarter of 2000 were $171,887,000 or 2.7% higher than the same quarter in 1999. On a year-to-date basis, net sales were $520,254,000 or 5.2% higher than 1999. These net increases were largely attributable to increases in supermarket and drugstore sales resulting from two additional supermarkets, one additional Pharm drugstore, and various remodeled locations for the full 39 weeks compared to 1999. Sales have remained strong since early 2000. Sales from stores in operation both this past quarter as well as the same quarter a year ago increased by 3.0%.

Gross margins, as a percent of sales, increased 1.2% in the third quarter of 2000 compared to the same quarter in 1999. On a year-to-date basis, margins increased .6% over 1999. Most of these increases were attributable to increased selling margins in the retail stores.

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 were offset by corresponding increased administrative costs in 2000 versus 1999. The higher costs were due to new and remodeled locations, as well as increases in various administrative expenses including $735,000 and $1,094,000 of merger related expenses for the quarter and year-to-date periods, respectively. The decrease as a percent of sales on a year-to-date basis, 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 period, 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 in the current quarter was $229,000 lower than for the same quarter of 1999. On a year-to-date basis interest costs have decreased $341,000. Lower borrowings in the current quarter and a reduction in higher interest rate debt on a year-to-date basis accounted for these decreases.

Other income — net decreased in the third quarter and the year-to-date period resulting primarily from a loss on asset disposals offset by increases in miscellaneous income.

Income taxes as a percent of pre-tax income approximates the statutory tax rates in effect. The percentage increase in the third quarter 2000 compared to 1999 is due mainly to the increase in state and local taxes on increased earnings. An effective tax rate of 38.4% was used in the third quarter of fiscal 2000 versus a rate of 35.6% for the third quarter of fiscal 1999. On a year-to-date basis, the rate is 37.0% in 2000 compared to 35.75% in 1999.

Net income for the quarter was $3,511,000 ($.53 per common share) which compares to $1,863,000 ($.28 per common share) for the same quarter last year. On a current trailing four quarters’ basis, net income was $10,421,000 ($1.56 per common share) compared to $7,428,000 ($1.11 per common share) for the prior four quarters, a 40.3% increase.

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 $109,000 in the third quarter of 2000 compared to a decrease of $123,000 in the third quarter of 1999. On a year-to-date basis, LIFO provisions reduced the cost of sales by $202,000 in 2000 compared to a reduction of $346,000 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.

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:


(Dollars in millions)	3rd Qtr. 2000		3rd Qtr. 1999

Working capital (1)		37.0		33.9




Unused lines of revolving credit		38.0		33.5




Current ratio (1)		1.56		1.51

(1)

Includes add-back of gross LIFO reserve.

During the thirty-nine weeks of fiscal 2000, the Company’s working capital (includes the add-back of the gross LIFO reserve) increased $2,170,000 from the Company’s fiscal year end on August 28, 1999. The working capital ratio was 1.56 to 1 at the end of this quarter compared to 1.56 to 1 at August 28, 1999 and 1.51 to 1 at May 29, 1999. Borrowings under the Company’s Revolving Credit Agreements decreased from year end 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 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 2000 the Company borrowed against revolving credit agreements with the maximum amount outstanding under such agreements amounting to $13,800,000, with $7,000,000 being outstanding as of the end of the quarter.

Cash Flows from Operating Activities

Cash provided by operating activities increased approximately $5,174,000 from $16,358,000 to $21,532,000 for the comparative thirty-nine week period. This increase is attributable to the increase in net income compared to the same period a year earlier, along with an increase in accounts payable and accrued liabilities, offset by increases in notes and accounts receivable and merchandise inventories.

Management’s Discussion and Analysis of Financial Condition
and Results of Operations (continued)

Cash Flows from Investing Activities

During the thirty-nine weeks of 2000, the Company used $5,135,000 of cash in investing activities, compared to $15,824,000 in the thirty-nine weeks of 1999. This resulted from decreased capital expenditures for property and equipment in 2000 versus 1999 as well as the acquisition of 2 stores in 1999.

Cash Flows from Financing Activities

Cash flows used in financing activities during the thirty-nine weeks of 2000 were $13,343,000 which compares to funds provided of $1,185,000 during the thirty-nine weeks of 1999. The increase was due to higher debt repayments and lower debt proceeds during the period compared to a year earlier.

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.

Item 6. — Exhibits and Reports on Form 8-K.

(a) Exhibits


	27 Financial Data Schedule

(b) Reports on Form 8-K.


	Form 8-K filed April 7, 2000 regarding pending Merger with Spartan Stores, Inc.


		/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 July 10, 2000		By /s/ Richard B. Iott
		Richard B. Iott, President and Chief Executive Officer

Date July 10, 2000		By /s/ Waldo E. Yeager
		Waldo E. Yeager, Chief Financial Officer, Treasurer

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SEAWAY FOOD TOWN INC 10-Q