-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IVFeArbA+G1BAGui6rqAfQ1ELRM+OdZgOe3vtk7vtOU6/1ZChavMH2dTGKs4BQEM 23QWsEglT3bYEREUYsuiYw== 0000103595-98-000007.txt : 19981026 0000103595-98-000007.hdr.sgml : 19981026 ACCESSION NUMBER: 0000103595-98-000007 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980725 FILED AS OF DATE: 19981023 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: VILLAGE SUPER MARKET INC CENTRAL INDEX KEY: 0000103595 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-GROCERY STORES [5411] IRS NUMBER: 221576170 STATE OF INCORPORATION: NJ FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-02633 FILM NUMBER: 98729565 BUSINESS ADDRESS: STREET 1: 733 MOUNTAIN AVE CITY: SPRINGFIELD STATE: NJ ZIP: 07081 BUSINESS PHONE: 2014672200 MAIL ADDRESS: STREET 1: 733 MOUNTAIN AVE CITY: SPRINGFIELD STATE: NJ ZIP: 07081 10-K 1 VILLAGE SUPER MARKET, INC. SECURITIES & EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) [x] Annual Report Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934 (Fee Required). For the fiscal year ended: July 25, 1998. [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934 (Fee Required) for the transition period from to . COMMISSION FILE NUMBER: 0-2633 VILLAGE SUPER MARKET, INC. (Exact name of registrant as specified in its charter) NEW JERSEY_____________________ 22-1576170________ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 733 MOUNTAIN AVENUE, SPRINGFIELD, NEW JERSEY 07081 (Address of principal executive offices) (Zip Code) REGISTRANT'S TELEHPHONE NUMBER, INCLUDING AREA CODE: (973)467-2200 Securities registered pursuant to Section 12(b) of the Act: TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED None None Securities registered pursuant to Section 12(g) of the Act: CLASS A COMMON STOCK, NO PAR VALUE (Title of Class) 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 by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [x] The aggregate market value of the Class A common stock of Village Super Market, Inc. held by non-affiliates was approximately $15,074,770 and the aggregate market value of the Class B common stock held by non-affiliates was approximately $2,600,895 (based upon the closing price of the Class A shares on the Over the Counter Market on October 1, 1998). There are no other classes of voting stock outstanding. Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of latest practicable date.
Outstanding at Class October 21, 1998 Class A common stock, no par value 1,375,800 Shares Class B common stock, no par value 1,594,076 Shares
DOCUMENTS INCORPORATED BY REFERENCE Information contained in the 1998 Annual Report to Shareholders and the 1998 definitive Proxy Statement to be filed with the Commission and delivered to security holders in connection with the Annual Meeting scheduled to be held on December 4, 1998 are incorporated by reference into this Form 10-K at Part II, Items 5, 6, 7 and 8 and Part III. PART I ITEM I. BUSINESS GENERAL The Company operates a chain of 21 ShopRite supermarkets, 15 of which are located in northern New Jersey, one of which is in northeastern Pennsylvania and five of which are in the southern shore area of New Jersey. In addition, the Company operates one former ShopRite store under a "Village Market" format as described below. The Company is a member of Wakefern Food Corporation ("Wakefern"), the nation's largest retailer owned food cooperative and owner of the ShopRite name. This relationship provides the Company many of the economies of scale in purchasing, distribution and advertising associated with chains of greater size and geographic reach. The Company believes that the regional nature of its business and the continuity of its management under the leadership of its founding family have permitted the Company to operate with greater flexibility and responsiveness to the demographic characteristics of the communities served by its stores. The Company seeks to generate high sales volume by offering a wide variety of high quality products at consistently low prices. The Company attempts to efficiently utilize its selling space, gives continuing attention to the decor and format of its stores and tailors each store's product mix to the preferences of the local community. The Company concentrates on development of superstores, which, in addition to their large size (an average of 50,000 total square feet, including office and storage space, compared with an average of 30,000 total square feet for conventional supermarkets), feature such higher margin specialty service departments as an on-site bakery, an expanded delicatessen including prepared foods, a fresh seafood section and, in most cases, a prescription pharmacy. Superstores also offer an expanded selection of higher margin non-food items such as cut flowers, health and beauty aids, greeting cards, videocassette rentals and small appliances. Two superstores also include a warehouse section featuring products in giant sizes. The following table shows the percentage of the Company's sales allocable to various product categories during each of the periods indicated as well as the number of the Company's superstores and percentage of selling square feet allocable to these stores during each of these periods:
Product Categories Fiscal Year Ended In July 1996 1997 1998 Groceries 43.8% 42.9% 41.6% Dairy and Frozen 15.6 15.8 15.9 Meats 10.3 10.1 9.9 Non-Foods 9.8 10.1 10.4 Produce 9.8 9.8 10.2 Delicatessen 4.3 4.4 4.6 Seafood 1.9 2.0 2.1 Pharmacy 2.9 3.2 3.6 Bakery 1.5 1.6 1.6 Other .1 .1 .1 100.0% 100.0% 100.0% Number of superstores 19 19 19 Selling square feet represented by superstores 88% 90% 90%
Because of increased size and broader product mix, a superstore can satisfy a greater percentage of a customer's weekly shopping needs and, as a result, the typical superstore generally has a higher volume of sales per square foot and sales per customer than a conventional supermarket. In addition, because of their greater total sales volume and increased percentage of their sales allocable to higher margin items, superstores generally operate more profitably than conventional supermarkets. A variety of factors affect the profitability of each of the Company's stores including local competitors, size, access and parking, lease terms, management supervision, and the strength of the ShopRite trademark in the local community. The Company continually evaluates individual stores to decide whether they should be closed. Accordingly, the Orange, Maplewood, Kingston, Morristown, Easton and Florham Park stores have been closed since December 1991. In addition, one store was converted to a "Village Market" format designed to reduce costs and increase margins in lower volume locations. The Company operates a separate liquor store adjacent to one Company supermarket. DEVELOPMENT AND EXPANSION The Company is engaged in a continuing program to upgrade and expand its supermarket chain. This program has included major store remodelings as well as the opening or acquisition of additional stores. When remodeling, the Company has sought, whenever possible, to increase the amount of selling space in its stores and, where feasible within existing site limitations, to convert conventional supermarkets to superstores. The Company is currently nearing completion of the expansion and remodel of the Livingston store. The Company has budgeted $13,000,000 for capital expenditures in fiscal 1999. The major planned expenditures are the completion of the Livingston expansion, the acquisition of property for a future store, the start of another major expansion and several small remodels. In the last five years, the Company has completed five remodels. The Company's goal has been to open an average of one new superstore and conduct a major remodel of one store each year. However, because of delays associated with increased governmental regulations and the general difficulty in developing retail properties in the Company's primary trading area the Company has been unable to open the desired number of new stores. Additional store remodelings and sites for new stores are in various stages of development. The Company will also consider additional acquisitions should appropriate opportunities arise. WAKEFERN The Company is the second largest member of Wakefern (owning 15.5% of Wakefern's outstanding stock) and one of the Company's principal shareholders was a founder of Wakefern. Wakefern, which was organized in 1946, is the nation's largest retailer-owned food cooperative. There are presently 39 individual member companies and 196 supermarkets which comprise the Wakefern cooperative. Only Wakefern and member companies are entitled to use the ShopRite name and trademark, purchase their product requirements and participate in ShopRite advertising and promotional programs and its computerized purchasing, warehousing and distribution services. The principal benefits to the Company from its relationship with Wakefern are the use of the ShopRite name and trademark, volume purchasing, ShopRite private label products, distribution and warehousing on a cooperative basis, and ShopRite advertising and promotional programs. The Company believes that the ShopRite name is widely recognized by its customers and is a factor in those customers' decisions about where to shop. In addition, Wakefern can purchase large quantities and varieties of products at favorable prices which it can then pass onto its members. These benefits are important to the Company's success. Wakefern distributes as a "patronage dividend" to each of its stockholders a share of earnings of Wakefern in proportion to the dollar volume of business done by the stockholder with Wakefern during each fiscal year. While Wakefern has a substantial professional staff, it operates as a member cooperative. Executives of most members make contributions of time to the business of Wakefern. Senior executives of the Company spend a significant amount of their time working on various Wakefern committees which oversee and direct Wakefern purchases and other programs. Most of the Company's advertising is developed and placed by Wakefern's professional advertising staff. Wakefern is responsible for all television, radio and major newspaper advertisements. Wakefern bills its members by various formulas which distribute advertising costs in accordance with the estimated proportional benefits to each member from such advertising. The Company also places Wakefern developed materials with local newspapers. Wakefern operates warehouses and distribution facilities in Elizabeth, New Jersey; Dayton, New Jersey; Wallkill, New York; and South Brunswick, New Jersey. Each member is obligated to purchase from Wakefern a minimum of 85% of its requirements for products offered by Wakefern until ten years from the date that stockholders representing 75% of Wakefern sales notify Wakefern that those stockholders request the Wakefern Stockholder Agreement be terminated. If this purchase obligation is not met, the member is required to pay Wakefern's profit contribution shortfall attributable to this failure. This agreement also makes unapproved changes in control of the Company and sale of the Company or of individual Company stores, except to a qualified successor, financially prohibitive by requiring the Company in such cases to pay Wakefern the profit contribution shortfall attributable to the sale of store or change in control. Such payments were waived by Wakefern in connection with the sale of the Orange, Maplewood, Kingston and Morristown stores. A "qualified successor" must be or agree to become a member of Wakefern and may not own or operate any supermarkets other than ShopRite supermarkets, in the states of New York, New Jersey, Pennsylvania, Delaware, Maryland, Virginia, Connecticut, Massachusetts, Rhode Island, Vermont, New Hampshire, Maine or the District of Columbia or own or operate more than 25 non-ShopRite supermarkets in any other locations in the United States. Wakefern, under circumstances specified in its bylaws, may refuse to sell merchandise to, and may repurchase the Wakefern stock of, any member. Such circumstances include certain unapproved transfers by a member of its supermarket business or its capital stock in Wakefern, unapproved acquisition by a member of certain supermarket or grocery wholesale supply businesses, the material breach by a member of any provision of the bylaws of Wakefern or any agreement with Wakefern or a determination by Wakefern that the continued supplying of merchandise or services to such member would adversely affect Wakefern. Any material change in Wakefern's method of operation or a termination or material modification of the Company's relationship with Wakefern following expiration of the above agreements or otherwise (none of which are contemplated or considered likely) might have an adverse impact on the conduct of the Company's business and could involve additional expense for the Company. The failure of any Wakefern member to fulfill its obligations under these agreements or a member's insolvency or withdrawal from Wakefern could result in increased costs to remaining members. Wakefern owns and operates 20 supermarkets. The Company believes that Wakefern may consider purchasing additional stores in the future from non-members and from existing members who may desire to sell their stores for financial, estate planning or other reasons. The Company also understands that Wakefern may consider opening and operating new ShopRite supermarkets as well. Wakefern does not prescribe geographical franchise areas to its members. The specific locations at which the Company, other members of Wakefern or Wakefern itself may open new units under the ShopRite names are, however, subject to the approval of Wakefern's Site Development Committee. This committee is composed of persons who are not employees or members of Wakefern and from whose decision to deny a site application may be appealed to the Wakefern Board of Directors. Wakefern assists its members in their site selection by providing appropriate demographic data, volume projections and projections of the impact of the proposed market on existing member supermarkets in the area. Each member's Wakefern stock (including the Company's) is pledged to Wakefern to secure all of that member's obligations to Wakefern. Moreover, every owner of 5% or more of the voting stock of a member (including five members of the Sumas family) must personally guarantee prompt payment of all amounts due Wakefern from that member. Wakefern does not own any securities of the Company or its subsidiaries. Each of Wakefern's members is required to make capital contributions to Wakefern based on the number of stores operated by that member (and to a limited extent the sales volume generated by those stores). As additional stores are opened or acquired by a member (including the Company), additional capital must be contributed by it to Wakefern. On occasion, as its business needs have required, Wakefern has increased the per-store capital contributions required of its members. Wakefern has in the past permitted these increases in required capital to be paid in installments over a period of time. The Company is required to invest $2,250 in fiscal 1999, although it is expected that this amount will be increased. TECHNOLOGY The Company's disclosures regarding Year 2000 issues are included on page 5 in the Company's 1998 Annual Report to Shareholders. The Company considers automation and computerization important to its operations and competitive position. All stores have scanning check out systems that improve pricing accuracy, enhance productivity and reduce checkout time for customers. The Company utilizes IBM RS/6000 computers and satellite communications in each store. Using the RS/6000 system, the Company offers customers debit and credit card payment options in all stores. In addition, the Company utilizes a computer generated ordering system, which is designed to reduce inventory levels and out of stock conditions, enhance shelf space utilization, and reduce labor costs. The Company's commitment to advanced scanning systems has enabled it to participate in Price Plus, ShopRite's preferred customer program. Customers receive electronic discounts by presenting a scannable Price Plus card. The Company installed computer based training in 1998. The Company utilizes a direct store delivery system, consisting of personal computers and hand held scanners, for most items not purchased through Wakefern in order to provide equivalent cost and retail price control over these products. In addition, certain in-store department records are computerized, including the records of all pharmacy departments. In all stores, meat, seafood and delicatessen prices are maintained on computer for automatic weighing and pricing. Furthermore, all stores have computerized time and attendance systems and most also have computerized energy management systems. The Company seeks to design its stores to use energy efficiently, including recycling waste heat generated by refrigeration equipment for heating and other purposes. COMPETITION The supermarket business is highly competitive. Industry profit margins are narrow, consequently earnings are dependent on high sales volume and operating efficiency. The Company is in direct competition with national, regional and local chains as well as independent supermarkets, warehouse clubs, supercenters, drug stores, discount department stores and convenience stores. The principal methods of competition utilized by the Company are low pricing, courteous, quick service to the customer, quality products and consistent availability of a wide variety of merchandise including the ShopRite private label. The Company believes its regional focus and the continuity of its management by the Sumas family permit it to operate with greater flexibility in tailoring the products offered in each store to the demographics of the communities they serve as compared to national and larger regional chains. The Company's principal competitors are Pathmark, A&P, Foodtown, Edwards, King's, Grand Union and Acme. Many of the Company's competitors have financial resources substantially greater than those of the Company. LABOR As of October 1, 1998, the Company employed approximately 3,630 persons of whom approximately 2,300 worked part-time. Approximately 85% of the Company's employees are covered by collective bargaining agreements. The Company was affected by a labor dispute with its largest union in fiscal 1993. Contracts with one union representing approximately 350 employees expires in fiscal 1999. Most of the Company's competitors in New Jersey are similarly unionized. REGULATORY ENVIRONMENT While the Company must secure a variety of health and food distribution permits for the conduct of its business, it does not believe that such regulation is material to its operations. The Company's pharmacy departments are subject to state regulation and licensed pharmacists must be on duty at all times. The Company's liquor operation is also subject to regulation by state and municipal administrative authorities. The Company does not presently anticipate expanding its liquor operations. Compliance with statutes regulating the discharge of materials into the environment is not expected to have a material effect on capital expenditures, earnings and competitive position in fiscal 1999 and 2000. ITEM 2. PROPERTIES The Company owns the sites of five of its supermarkets (containing 330,000 square feet of total space), all of which are free-standing stores, except the Egg Harbor store, which is part of a shopping center. The remaining seventeen supermarkets (containing 776,000 square feet of total space) are leased, with initial lease terms generally ranging from 20 to 30 years, usually with renewal options. Ten of these leased stores are located in strip shopping centers and the remaining seven are free-standing stores. Except with respect to one lease between the Company and certain related parties, none of the Company's leases expire before 2001. The annual rent, including capitalized leases, for all of the Company's leased facilities for the year ended July 25, 1998 was approximately $6,269,000. The Company is a limited partner in two partnerships, one of which owns a shopping center in which one of the Company's leased supermarkets is located. The Company also is a general partner in a general partnership that is a lessor of one of the Company's free-standing supermarkets. ITEM 3. LEGAL PROCEEDINGS No material legal proceedings. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters submitted to shareholders in the fourth quarter. ITEM X. EXECUTIVE OFFICERS OF THE REGISTRANT In addition to the information regarding directors incorporated by reference to the Company's definitive Proxy Statement in Part III, Item 10, the following is provided with respect to executive officers who are not directors: NAME AGE POSITION WITH THE COMPANY Carol Lawton 55 Vice President and Assistant Secretary since 1983; responsible for administration of headquarters staff. Frank Sauro 40 General Counsel since April 1988. Mr. Sauro is a member of the New Jersey Bar. Kevin Begley 40 Chief Financial Officer since November 1987. Mr. Begley is a Certified Public Accountant. ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS The information required by this Item is incorporated by reference from Information appearing on Page 20 in the Company's Annual Report to Shareholders for the fiscal year ended July 25, 1998. ITEM 6. SELECTED FINANCIAL DATA The information required by this Item is incorporated by reference from Information appearing on Page 3 in the Company's Annual Report to Shareholders for the fiscal year ended July 25, 1998. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information required by this Item is incorporated by reference from Information appearing on Page 4 through 6 in the Company's Annual Report to Shareholders for the fiscal year ended July 25, 1998. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required by this Item is incorporated by reference from Information appearing on Page 3 and Page 7 to 20 in the Company's Annual Report to Shareholders for the fiscal year ended July 25, 1998. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this Item 10 is incorporated by reference from the Company's definitive Proxy Statement to be filed on or before November 6, 1998, in connection with its Annual Meeting scheduled to be held on December 4, 1998. ITEM 11. EXECUTIVE COMPENSATION The information required by this Item 11 is incorporated by reference from the Company's definitive Proxy Statement to be filed on or before November 6, 1998, in connection with its Annual Meeting scheduled to be held on December 4, 1998. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this Item 12 is incorporated by reference from the Company's definitive Proxy Statement to be filed on or before November 6, 1998, in connection with its annual meeting scheduled to be held on December 4, 1998. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this Item 13 is incorporated by reference from the Company's definitive Proxy Statement to be filed on or before November 6, 1998, in connection with its annual meeting scheduled to be held on December 4, 1998. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON FORM 8-K (a) 1. Financial Statements: Consolidated Balance Sheets - July 25, 1998 and July 26, 1997; Consolidated Statements of Operations - years ended July 25, 1998; July 26, 1997 and July 27, 1996; Consolidated Statements of Shareholders' Equity - years ended July 25, 1998; July 26, 1997 and July 27, 1996; Consolidated Statements of Cash Flows - years ended July 25, 1998; July 26, 1997 and July 27, 1996; Notes to consolidated financial statements. The financial statements above and Independent Auditors' Report have been incorporated by reference from the Company's Annual Report to Shareholders for the fiscal year ended July 25, 1998. 2. Financial Statement Schedules: All schedules are omitted because they are not applicable, or not required, or because the required information is included in the consolidated financial statements or notes thereto. 3. Exhibits EXHIBIT INDEX Exhibit No. 3 - Certificate of Incorporation and By-Laws* Exhibit No. 4 - Instruments defining the rights of security holders; 4.4 Loan Agreement dated May 30, 1997* Exhibit No. 10 - Material Contracts: 10.1 Wakefern By-Laws* 10.2 Stockholders Agreement dated February 20, 1992 between the Company and Wakefern Food Corp.* 10.3 Voting Agreement dated March 4, 1987* 10.4 1987 Incentive and Non-Statutory Stock Option Plan* 10.5 1997 Incentive and Non-Statutory Stock Option Plan* Exhibit No. 13 - Annual Report to Security Holders Exhibit No. 21 - Subsidiaries of Registrant Exhibit No. 23 - Consent of KPMG Peat Marwick LLP Exhibit No. 99 - Press Release dated October 2, 1998 * The following exhibits are incorporated by reference from the following previous filings: Form 10-K for 1997; 4.4, 10.5 Form 10-K for 1993: 3, 10.1, 10.2, 10.3 and 10.4 (b) No reports on Form 8-K were filed during the fourth quarter of fiscal 1998. Independent Auditors' Consent The Board of Directors Village Super Market, Inc.: We consent to incorporation by reference in the Registration Statement (No. 2-86320) on Form S-8 of Village Super Market, Inc. of our report dated October 1, 1998, relating to the consolidated balance sheets of Village Super Market, Inc. and subsidiary as of July 25, 1998 and July 26, 1997, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the years in the three year period ended July 25, 1998, which report is incorporated by reference in the July 25, 1998 annual report on Form 10-K of Village Super Market, Inc. KPMG Peat Marwick LLP Short Hills, New Jersey October 21, 1998 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Village Super Market, Inc. By: /s/ Kevin Begley By: /s/ Perry Sumas Kevin Begley Perry Sumas Chief Financial & Chief Executive Officer Principal Accounting Officer Date: October 21, 1998 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on dates indicated: Village Super Market, Inc. /s/ Perry Sumas /s/ James Sumas Perry Sumas, Director James Sumas, Director October 21, 1998 October 21, 1998 /s/ Robert Sumas /s/ William Sumas Robert Sumas, Director William Sumas, Director October 21, 1998 October 21, 1998 /s/ John P. Sumas /s/ John J. McDermott John P. Sumas, Director John J. McDermott, Director October 21, 1998 October 21, 1998 /s/ George Andresakes /s/ Norman Crystal George Andresakes, Director Norman Crystal, Director October 21, 1998 October 21, 1998 SUBSIDIARIES OF REGISTRANT The Company currently has one wholly-owned subsidiary, Village Liquor, Inc. This corporation is organized under the laws of the State of New Jersey. The financial statements of this subsidiary are included in the Company's consolidated financial statements. VILLAGE SUPER MARKET INC. REPORTS RESULTS FOR THE FOURTH QUARTER & YEAR ENDED JULY 25, 1998 Contact: Kevin Begley, C.F.O. (973) 467-2200, Ext. 220 Springfield, New Jersey - October 2, 1998 - Village Super Market, Inc. reported sales and net income for the fourth quarter and year ended July 25, 1998, Perry Sumas, President announced today. Net income was $1,627,000 ($.54 per diluted share) in the fourth quarter of fiscal 1998, an increase of 68% from the prior year. Fourth quarter sales were $181,502,000, an increase of 2.8% from the prior year. The significant increase in fourth quarter net income was due to the 2.8% improvement in same store sales, increased gross margin percentages and lower operating costs as a percentage of sales. The gross margin percentage increased due to an improved mix of sales in higher margin departments and improved gross margins in several departments. Operating costs decreased as a percentage of sales due to lower workers' compensation costs, lower liability insurance accruals and the effect of spreading fixed costs over a higher sales base. Net income for the full fiscal year was $4,007,000 ($1.34 per diluted share), an increase of 93% from the prior year. Sales for the year were $703,684,000, an increase of 2.2% from the prior year. Same store sales increased 2.4%. The sharp increase in net income for the year was primarily attributable to the same store sales increase, improvement in gross margins and lower operating costs. On September 6, 1998, in response to the actions of a competitor, Village, as well as most other supermarket competitors, began offering to double the value of manufacturer coupons in the 16 stores where it previously had not offered double coupons. At this time, the impact of double coupons on future performance cannot be estimated as it is too soon to assess volume trends and possible changes in other promotional programs that could mitigate the cost of double coupons. Village Super Market operates a chain of 22 supermarkets under the ShopRite name in New Jersey and eastern Pennsylvania. The following table summarizes the results for the quarter and year ended July 25, 1998:
July 25, 1998 July 26, 1997 Quarter Ended Sales $181,502,000 $176,569,000 Net Income $ 1,627,000 $ 967,000 Net Income Per Share - Basic $ .55 $ .33 Net Income Per Share - Diluted $ .54 $ .33 Year Ended Sales $703,684,000 $688,861,000 Net Income $ 4,007,000 $ 2,074,000 Net Income Per Share - Basic $ 1.36 $ .71 Net Income Per Share - Diluted $ 1.34 $ .71
The Company Village Super Market, Inc. operates a chain of 22 ShopRite supermarkets, 16 of which are located in northern New Jersey, 1 in northeastern Pennsylvania and five in the southern shore area of New Jersey. Village is a member of Wakefern Food Corporation, the largest retailer-owned food cooperative in the United States. Village's business was founded in 1937 by Nicholas and Perry Sumas and has continued to be principally owned and operated under the active management of the Sumas family. Contents Letter to Shareholders 2 Selected Financial Data 3 Quarterly Financial Data 3 Management's Discussion and Analysis of Financial Condition and Results of Operations 4 Consolidated Balance Sheets 7 Consolidated Statements of Operations 8 Consolidated Statements of Shareholders' Equity 9 Consolidated Statements of Cash Flows 10 Notes to Consolidated Financial Statements 11 Independent Auditors' Report 20 Stock Price and Dividend Information 20 Corporate Directory Inside back cover Dear Fellow Shareholders Village Super Market enjoyed an excellent year in fiscal 1998. Net income increased 93% to $4,007,000, or $1.34 per diluted share. This follows an increase in net income of 46% in fiscal 1997 - exclusive of a gain on the sale of an asset in fiscal 1996. The large increase in net income was due to an increase of 2.4% in same store sales, improvement in gross margins, and lower operating costs as a percentage of sales. Sales reached $703,684,000. Village spent $10 million on capital improvements in fiscal 1998. The largest expenditure was the ongoing expansion of the Livingston store. When this remodel is completed in a few months, our Livingston customers will enjoy the same enhanced features, including an enlarged prepared foods-to-go area, that have made our Chester remodel such a success. We continue to expand our meal solutions in response to the needs of an increasing number of customers for fully or partially prepared, nutritious means that can be served within fifteen minutes. As in the past, we developed new ways in 1998 to utilize the ShopRite Price Plus card and our front end systems to reward loyal customers and generate sales volume. Last Thanksgiving, and again at Easter, we rewarded customers who spent a prescribed number of shopping dollars over a period of time with a free turkey or ham. Similarly, we offered ten percent off coupons at various times during the year based on shopping dollars accumulated. Recognizing the value of our investment in our associates, we undertook several programs this year to improve our ability to attract and retain qualified individuals in the current near full employment environment. This effort included the introduction of a computer-based orientation and training program. The initial feedback from these programs is encouraging. Our financial performance has improved dramatically in the last two years. On behalf of the Board of Directors and management, we would like to thank everyone who contributed to Village's recent success. James Sumas, Perry Sumas, Chairman of the Board President
Selected Financial Data (Dollars in thousands except per share and per sq. ft. data) Jul 25, Jul 26, Jul 27, Jul 29, Jul 30, 1998 1997 1996 1995 1994 For year: Sales $703,684 $688,861 $688,632 $677,322 $695,070 Net income (loss) 4,007 2,074 2,006 578 (807) Net income (loss) per share - basic 1.36 .71 .69 .20 (.28) Net income (loss) per share - diluted 1.34 .71 .69 .20 (.28) Cash dividends per share Class A -- -- -- -- -- Class B -- -- -- -- -- At year end: Total assets 138,508 132,764 131,062 135,575 134,793 Long-term obligations incl. capital leases 25,700 24,027 26,815 34,853 36,933 Working capital (deficit) (9,682) (12,607) (10,885) (3,755) (4,100) Shareholders' equity 61,568 57,081 55,007 53,001 52,423 Book value per share 20.73 19.62 18.90 18.21 18.01 Other data: Selling square feet 866,000 866,000 860,000 842,000 845,000 Number of stores 22 22 23 23 24 Sales per average number of stores 31,929 31,178 29,941 29,449 28,370 Sales per average square foot of selling space 811 803 809 803 809 Capital expenditures 9,956 8,593 9,754 6,588 5,974
Unaudited Quarterly Financial Data (Dollars in thousands except per share amounts) First Second Third Fourth Fiscal Quarter Quarter Quarter Quarter Year 1998: Sales $169,888 $182,700 $169,594 $181,502 $703,684 Gross margin 42,112 45,077 42,829 45,590 175,608 Net income 465 1,127 788 1,627 4,007 Net income per share - diluted $.16 $.38 $.26 $.54 $1.34 1997: Sales $169,200 $177,598 $165,494 $176,569 $688,861 Gross margin 41,859 43,920 41,108 43,968 170,855 Net income 284 660 163 967 2,074 Net income per share - diluted $.10 $.23 $.06 $.32 $.71
Management's Discussion and Analysis of Financial Condition and Results of Operations RESULTS OF OPERATIONS The following table sets forth the major components of the Consolidated Statements of Operations of the Company as a percentage of sales:
July 25, July 26, July 27, 1998 1997 1996 Sales 100.00% 100.00% 100.00% Cost of sales 75.04 75.20 75.26 Gross margin 24.96 24.80 24.74 Operating and administrative expense 22.45 22.70 22.63 Depreciation and amortization expense 1.07 1.12 1.24 Operating income 1.44 .98 .87 Interest expense (net) .44 .48 .53 Gain on disposal of assets -- -- .14 Income before income taxes 1.00% .50% .48%
Sales were $703,684,000 in fiscal 1998, an increase of 2.2% from the prior year. The same store sales increase of 2.4% reflects improved sales in most stores, particularly those that were recently remodeled, and the success of Thanksgiving and Easter promotional activities, partially offset by sales declines in stores affected by competitive openings. Sales were $688,861,000 in fiscal 1997, about the same as in fiscal 1996. Same store sales increased 1% in 1997 as improved sales in remodeled stores were offset by sales declines in three stores affected by competitive openings. Also, the closing of the Florham Park store in October 1996 resulted in a $5,910,000 sales decrease. Gross margin as a percentage of sales increased in fiscal 1998 due to an improved mix of sales in higher margin departments and improved gross margins in several departments. This was partially offset by lower gross margins in the produce department due to lower retail pricing. Gross margins as a percentage of sales increased slightly in fiscal 1997 due to an improvement in the mix of sales toward higher margin departments. This was partially offset by a decline in meat department gross margins due to lower retail prices. Operating and administrative expenses decreased as a percentage of sales in fiscal 1998. This improvement was due to lower workers' compensation claims, lower accruals for estimated liability insurance premium calls, and the effect of spreading fixed costs over an improved sales base. These improvements were partially offset by higher coupon costs associated with Thanksgiving and Easter promotions, and increased credit card processing costs. Operating and administrative expenses increased slightly as a percentage of sales in fiscal 1997. This was due to increased credit card processing costs, increased advertising and coupon costs, accruals for estimated liability insurance premium calls and lower coupon and cardboard income. Offsetting these items were lower labor, supply and snow removal costs. Interest expense decreased in fiscal 1998 due to lower average interest rates. Interest expense decreased in fiscal 1997 due to lower average debt levels outstanding. Depreciation expense declined in fiscal 1998 and 1997 due to substantial assets becoming fully depreciated. In October 1996 the Company closed an underfacilitated store in Florham Park, New Jersey. A loss of approximately $350,000 was incurred from operations and closing costs associated with this store. LIQUIDITY AND CAPITAL RESOURCES Current liabilities exceeded current assets by $9,682,000, $12,607,000 and $10,885,000 at the end of fiscal 1998, 1997 and 1996, respectively. Working capital ratios at the same dates were .80, .74 and .76 to one, respectively. The Company's working capital needs are reduced by its high rate of inventory turnover (twenty-one times in fiscal 1998) and because the warehousing and distribution arrangements accorded to the Company as a member of Wakefern permit it to minimize inventory levels and sell most merchandise before payment is required. Capital expenditures in fiscal 1998 were $9,956,000. The majority of capital expenditures related to the ongoing expansion and remodel of the Livingston store, minor remodels of the Watchung and Bernardsville stores and upgrades to retail technology systems. The Company has budgeted approximately $13 million for capital expenditures in fiscal 1999. Planned expenditures include the completion of the Livingston expansion, the start of another major expansion, the purchase of land for a future store, several smaller remodels and technology upgrades. The Company has historically financed capital expenditures through cash provided by operations supplemented by borrowings. Aggregate capital expenditures for the three years ended July 25, 1998 were $28,303,000. During the same period of time, net long-term borrowings decreased by $13,873,000. The ability to finance expansion through operational cash flow is reflected in the ratio of long-term debt to total capitalization, which is currently 29.4% The Company's primary sources of liquidity during fiscal 1999 are expected to be operating cash flow, borrowings under the Company's credit facility and a mortgage from the seller of a property for a future store. In fiscal 1997, the Company entered into a new loan agreement to replace its expired agreement. This loan agreement includes two revolving credit lines which total $24 million. At July 25, 1998, a total of $8,850,000 was outstanding on these lines. The Company was in full compliance with all terms and restrictive covenants of all debt agreements at July 25, 1998 and expects to be in compliance for the remaining term of these agreements. YEAR 2000 The Company is participating with Wakefern Food Corporation ("Wakefern"), the retailer owned food cooperative to which it belongs and its principal supplier, in a comprehensive assessment of its information technology systems ("IT Systems") and its process control and other systems that include micro- controllers ("Non-IT Systems") to identify the systems that could be affected by the Year 2000 (Y2K") issue. The Company and Wakefern have assessed all systems for Y2K readiness, giving the highest priority to those IT Systems that are considered critical to its business operations. At present, the Company has implemented its cash and sales and payroll applications, and will implement the general ledger and accounts payable applications in late 1998. Some in-store IT Systems are currently Y2K compliant. Others, including receiving, labor management, pharmacy and electronic payments, are at various states of implementation or testing. The Company anticipates that all critical IT Systems will be Y2K compliant before the end of 1999. The Company has substantially completed an inventory of its Non-IT Systems, which includes those systems containing embedded chip technology commonly found in buildings and equipment connected with a building's infrastructure. The systems have been prioritized and assessed for compliance. Ongoing testing and implementation of any remediation required for the Non-IT Systems will be performed throughout 1999. The Company and Wakefern are utilizing the necessary internal and external resources to replace, upgrade or modify all significant systems affected by Y2K. The total estimated costs to remediate the Y2K issue will not have a significant adverse affect on continuing operations. All Y2K costs are being expensed as incurred. The Company is in the process of developing contingency plans for those areas which may be affected by Y2K. Although the full consequences are unknown, the failure of either the Company's critical systems or those of its material third parties, including Wakefern, to be Y2K compliant could result in the interruption of its business, which could have a material adverse affect on the results of operations or financial conditions of the Company. KNOWN TRENDS AND UNCERTAINTIES On September 6, 1998, in response to the actions of a competitor, the Company as well as most other supermarket competitors, began offering to double the value of manufacturer coupons in the 16 stores where it previously had not offered double coupons. At this time, the impact of double coupons on future performance cannot be estimated as it is too soon to assess volume trends and possible changes in other promotional programs that could mitigate the effects of double coupons. RECENT ACCOUNTING PRONOUNCEMENTS In June 1997, the Financial Accounting Standards Board issued SFAS No. 130, "Reporting Comprehensive Income," which requires the separate reporting of all changes to stockholders equity, and SFAS No. 131, "Disclosures About Segments of An Enterprise and Related Information," which revises existing guidelines about the level of financial disclosure of a Company's operations. Both statements are effective for the Company's fiscal 1999 financial statements. The Company has determined that the new standards will not have any impact on those financial statements. IMPACT OF INFLATION AND CHANGING PRICES Although the Company cannot accurately determine the precise effect of inflation on its operations, it does not believe inflation has had a material effect on sales or results of operations. FORWARD-LOOKING STATEMENTS This annual report to shareholders contains "forward-looking statements" within the meaning of federal securities law. The Company cautions the reader that there is no assurance that actual results or business conditions will not differ materially from future results, whether expressed, suggested or implied by such forward-looking statements. Such potential risks and uncertainties include, without limitation, competitive pressure from the Company's operating environment, the ability of the Company to maintain and improve its sales and margins, the liquidity of the Company on a cash flow basis, the success of operating initiatives, Y2K issues relating to computer applications, other risk factors detailed herein and in other filings of the Company. Consolidated Balance Sheets
July 25, July 26, 1998 1997 ASSETS CURRENT ASSETS Cash and cash equivalents $ 5,678,851 $ 4,269,819 Merchandise inventories 26,548,587 24,835,950 Patronage dividend receivable 1,968,671 2,048,696 Miscellaneous receivables 3,416,459 3,268,673 Deferred income taxes 146,303 211,220 Prepaid expenses 632,346 638,825 Total current assets 38,391,217 35,273,183 PROPERTY, EQUIPMENT AND FIXTURES, at cost less accumulated depreciation and amortization 73,331,467 70,355,599 OTHER ASSETS Investment in related party, at cost 10,467,617 10,350,617 Goodwill, net 10,072,611 10,338,891 Other intangibles, net 2,030,001 2,283,751 Receivables and other assets 4,215,571 4,162,204 Total other assets 26,785,800 27,135,463 $138,508,484 $132,764,245 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Current portion of long-term debt: Mortgages and notes payable $ 2,421,108 $ 2,903,474 Capitalized lease obligations 409,197 356,851 Accounts payable to related party 27,370,342 27,140,707 Accounts payable and accrued expenses 17,582,608 17,017,474 Income taxes payable 290,394 461,821 Total current liabilities 48,073,649 47,880,327 LONG-TERM DEBT, less current portion: Mortgages and notes payable 17,028,502 14,949,612 Capitalized lease obligations 8,671,319 9,077,703 Total long-term debt 25,699,821 24,027,315 DEFERRED INCOME TAXES 3,166,935 3,775,890 COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY Preferred stock, no par value: Authorized 10,000,000 shares, none issued -- -- Class A common stock, no par value: Authorized 10,000,000 shares, issued 1,762,800 shares 18,129,472 18,129,472 Class B common stock, no par value: Authorized 10,000,000 shares, issued and outstanding 1,594,076 shares 1,034,679 1,034,679 Retained earnings 47,758,531 44,101,565 Less treasury stock, Class A, at cost (387,000 shares at July 25, 1998 and 447,000 shares at July 26, 1997) (5,354,603) (6,185,003) Total shareholders' equity 61,568,079 57,080,713 $138,508,484 $132,764,245
See notes to consolidated financial statements. Consolidated Statements of Operations
Years Ended July 25, July 26, July 27, 1998 1997 1996 SALES $703,684,315 $688,860,873 $688,632,405 COST OF SALES 528,076,028 518,006,209 518,251,470 GROSS MARGIN 175,608,287 170,854,664 170,380,935 OPERATING AND ADMINISTRATIVE EXPENSE 157,953,508 156,391,747 155,846,171 DEPRECIATION AND AMORTIZATION EXPENSE 7,516,182 7,695,087 8,554,703 OPERATING INCOME 10,138,597 6,767,830 5,980,061 INTEREST EXPENSE, net of interest income of $20,817, $7,321 and $88,574 3,122,199 3,322,510 3,615,667 GAIN ON DISPOSAL OF ASSETS -- -- 942,125 INCOME BEFORE INCOME TAXES 7,016,398 3,445,320 3,306,519 PROVISION FOR INCOME TAXES 3,009,032 1,371,386 1,300,814 NET INCOME $ 4,007,366 $ 2,073,934 $ 2,005,705 NET INCOME PER SHARE: BASIC $1.36 $.71 $.69 DILUTED $1.34 $.71 $.69
See notes to consolidated financial statements.
Consolidated Statements of Shareholders' Equity Years Ended July 25, 1998, July 26, 1997 and July 27, 1996 Class A Class B Common Stock Common Stock Retained Treasury Shares Amount Shares Amount Earnings Stock Balance, July 29, 1995 1,762,800 $18,129,472 1,594,076 $1,034,679 $40,021,926 $(6,185,003) Net Income -- -- -- -- 2,005,705 -- Balance, July 27, 1996 1,762,800 $18,129,472 1,594,076 $1,034,679 $42,027,63 $(6,185,003) Net Income -- -- -- -- 2,073,934 -- Balance, July 26, 1997 1,762,800 $18,129,472 1,594,076 $1,034,679 $44,101,565 $(6,185,003) Net Income -- -- -- -- 4,007,366 -- Exercise of 60,000 stock options -- -- -- -- (350,400) 830,400 Balance, July 25, 1998 1,762,800 $18,129,472 1,594,076 $1,034,679 $47,758,531 $(5,354,603)
Consolidated Statements of Cash Flows Years Ended July 25, 1998 July 26, 1997 July 27, 1996 CASH FLOWS FROM OPERATING ACTIVITIES Net income $4,007,366 $2,073,934 $2,005,705 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 7,516,182 7,695,087 8,554,703 Deferred taxes (388,201) (976,417) (135,744) Provision to value inventories at LIFO 136,410 292,563 473,537 (Gain) on disposal of assets -- -- (942,125) Changes in assets and liabilities: (Increase) in merchandise inventories (1,849,047) (10,275) (1,412,741) Decrease in patronage dividend receivable 80,025 434,686 199,498 (Increase) in miscellaneous receivables (147,786) (322,096) (269,058) (Increase) decrease in prepaid expenses 6,479 (22,882) 13,696 Decrease in income taxes receivable -- -- 459,873 (Increase) in receivables and other assets (69,117) (258,045) (105,577) Increase (decrease) in accounts payable to related party 229,635 2,524,519 (967,633) Increase in accounts payable and accrued expenses 565,134 2,414,393 2,000,177 Increase (decrease) in income taxes payable (327,264) 18,983 665,837 Net cash provided by operating activities 9,759,816 13,864,450 10,540,148 CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (9,956,270) (8,592,875) (9,754,268) Investment in related party (117,000) (176,278) (354,521) Proceeds from disposal of assets -- -- 1,237,905 Net cash used in investing activities (10,073,270) (8,769,153) (8,870,884) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuance of long-term debt 5,500,000 13,555,555 -- Proceeds from exercise of stock options 480,000 -- -- Principal payments of long-term debt (4,257,514) (17,625,172) (8,080,409) Net cash provided by (used in) financing activities 1,722,486 (4,069,617) (8,080,409) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,409,032 1,025,680 (6,411,145) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 4,269,819 3,244,139 9,655,284 CASH AND CASH EQUIVALENTS, END OF YEAR $5,678,851 $4,269,819 $3,244,139
See notes to consolidated financial statements. Notes to Consolidated Financial Statements NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF OPERATIONS: Village Super Market, Inc. (the "Company") operates a chain of 22 ShopRite supermarkets in New Jersey and eastern Pennsylvania. The Company is a member of Wakefern Food Corporation ("Wakefern"), the largest retailer- owned food cooperative in the United States. PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the accounts of Village Super Market, Inc. and its subsidiary, which is wholly owned. Intercompany balances and transactions have been eliminated. FISCAL YEAR: The Company and its subsidiary utilize a 52-53 week fiscal year ending on the last Saturday in the month of July. Fiscal 1998, 1997 and 1996 contain 52 weeks. INDUSTRY SEGMENT: The Company consists of one operating segment, the retail sale of food and non-food products. RECLASSIFICATIONS: Certain amounts have been reclassified in the 1997 and 1996 consolidated financial statements to conform to the 1998 presentation. CASH AND CASH EQUIVALENTS: Cash and cash equivalents includes interest-bearing, overnight deposits with Wakefern in the amount of $900,000 at July 26, 1997. MERCHANDISE INVENTORIES: Merchandise inventories are carried at cost, which is not in excess of market. Cost is determined as follows: Grocery and non-foods -- last-in, first-out (LIFO) (retail less departmental gross profit mark-up). Meat and all other perishables -- first-in, first-out (FIFO). Dairy and frozen foods -- FIFO (retail less departmental gross profit mark-up). PROPERTY, EQUIPMENT AND FIXTURES: Property, equipment and fixtures are recorded at cost. Interest cost incurred to finance construction is capitalized as part of such costs. Renewals and betterments are capitalized. Maintenance and repairs are expensed as incurred. Depreciation is provided on a straight-line basis over estimated useful lives of thirty years for buildings, ten years for store fixtures and equipment, and three years for vehicles. Leasehold improvements are amortized over the shorter of the related lease terms or the economic lives of the related assets. When assets are sold or retired, their cost and accumulated depreciation are removed from the accounts, and any gain or loss is reflected in the consolidated financial statements. STORE OPENING AND CLOSING COSTS: All store opening costs are expensed as incurred. Provisions are made for losses resulting from store closings at the time of closing. This includes items such as future lease payments, net of expected sublease recovery, and charges to reduce assets to net realizable value. LEASES: Leases which meet certain criteria are classified as capital leases, and assets and liabilities are recorded at amounts equal to the lesser of the present value of the minimum lease payments or the fair value of the leased properties at the inception of the respective leases. Such assets are amortized on a straight-line basis over the shorter of the related lease terms or the economic lives of the related assets. Amounts representing interest expense relating to the lease obligations are recorded to affect constant rates of interest over the terms of the leases. Leases which do not qualify as capital leases are classified as operating leases, and related rentals are charged to expense as incurred. GOODWILL: Goodwill arising after October 31, 1970 is being amortized over forty years. The Company does not amortize goodwill amounting to approximately $2,900,000 acquired prior to October 31, 1970 since, in management's opinion, the value of such intangibles has not diminished. Accumulated amortization of goodwill amounted to $3,339,370 and $3,073,090 at July 25, 1998 and July 26, 1997, respectively. The Company regularly assesses the recoverability of unamortized amounts of goodwill utilizing relevant cash flow and profitability information. The assessment of the recoverability of unamortized amounts will be impacted if estimated future operating cash flows are not achieved. OTHER INTANGIBLES: Other intangibles include the fair value of a favorable lease and trademarks acquired in a business acquisition. Other intangibles are being amortized over 20 years. Accumulated amortization of other intangibles amounted to $3,044,999 and $2,791,249 at July 25, 1998 and July 26, 1997, respectively. INCOME TAXES: Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. USE OF ESTIMATES: In conformity with generally accepted accounting principles, management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of expense during the reporting period. Actual results could differ from those estimates. FAIR VALUE OF FINANCIAL INSTRUMENTS: Cash and cash equivalents, miscellaneous receivables, accounts payable and accrued expenses are reflected in the consolidated financial statements at carrying value which approximates fair value because of the short-term maturity of these instruments. The carrying value of the Company's short-term and long-term mortgages and notes payable approximates the fair value based on the current rates available to the Company for similar instruments. As the Company's investments in Wakefern can only be sold to Wakefern at amounts that approximate the Company's cost, it is not practicable to estimate the fair value of such stock. IMPAIRMENT OF LONG-LIVED ASSETS: In 1997, the Company adopted SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." This statement requires that certain assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The effect of the adoption was not material. NET INCOME PER SHARE: During 1998, the Company adopted SFAS No. 128, "Earnings Per Share." This statement requires the presentation of both basic and diluted net income per share. Accordingly, all historical earnings per share data have been restated to conform to this new standard. The number of common shares outstanding for calculation of net income per share is as follows:
1998 1997 1996 Weighted average shares outstanding - basic 2,949,860 2,909,876 2,909,876 Dilutive effect of employee stock options 35,657 14,701 -- Weighted average shares outstanding - diluted 2,985,517 2,924,577 2,909,876
NOTE 2 -- INVENTORIES Merchandise inventories are comprised as follows:
July 25, July 26, 1998 1997 Last-in, first-out (LIFO) $17,620,176 $16,350,616 First-in, first-out (FIFO) 8,928,411 8,485,334 $26,548,587 $24,835,950
If the FIFO method of inventory accounting had been used rather than LIFO, inventories would have been $7,715,040 and $7,578,630 higher than reported in 1998 and 1997, respectively. NOTE 3 -- PROPERTY, EQUIPMENT AND FIXTURES Property, equipment and fixtures are comprised as follows:
July 25, July 26, 1998 1997 Land and buildings $49,095,308 $48,818,539 Store fixtures and equipment 55,882,372 57,444,535 Leasehold improvements 23,910,164 19,528,793 Leased property under capital leases 11,268,667 12,374,544 Vehicles 1,009,092 945,250 141,165,603 139,111,661 Less accumulated depreciation and amortization 67,834,136 68,756,062 Property, equipment and fixtures -- net $73,331,467 $70,355,599
NOTE 4 -- RELATED PARTY INFORMATION The Company's investment in its principal supplier, Wakefern, which is operated on a cooperative basis for its stockholder members, is less than 20% of the outstanding shares of Wakefern. The investment is pledged as collateral for any obligations to Wakefern. In addition, this obligation is personally guaranteed by the principal shareholders of the Company. The Company is obligated to purchase 85% of its primary merchandise requirements from Wakefern until ten years from the date that stockholders representing 75% of Wakefern sales notify Wakefern that those stockholders request that the Wakefern Stockholder Agreement be terminated. The Company's merchandise payments to Wakefern approximated $523,415,000, $502,510,000 and $498,982,000 during fiscal years 1998, 1997 and 1996, respectively. Wakefern distributes as a "patronage dividend" to each member a share of earnings of Wakefern in proportion to the dollar volume of business done by the member with Wakefern during the year. Patronage dividends, which are recorded as a reduction of cost of sales, amounted to $7,489,000, $7,791,000 and $7,500,000 in fiscal 1998, 1997 and 1996, respectively. Wakefern has increased from time to time the required investment in its common stock for each supermarket owned by a member, with the exact amount per store computed in accordance with a formula based on the volume of each store's purchases from Wakefern up to a maximum of $450,000. At July 25, 1998 outstanding subscriptions totaled only $2,250. The Company anticipates an increase in fiscal 1999 of approximately $1,000,000 in this investment requirement, which the Company expects to be paid over three years. The Company will receive additional shares of common stock to the extent paid for at the end of each fiscal year (September 30) of Wakefern calculated at the then book value of such shares. The payments, together with any stock issued thereunder, at the option of Wakefern, may be null and void and all payments on this subscription shall become the property of Wakefern in the event the Company does not complete the payment of this subscription in a timely manner. NOTE 5 -- MORTGAGES AND NOTES PAYABLE
July 25, July 26 1998 1997 Term loan, principal payable in monthly installments of $55,556 with a final principal payment of $5,555,555 due April 1, 2001 (a) $7,333,333 $8,000,000 Revolving credit notes (a) 8,500,000 3,000,000 Senior unsecured notes -- 600,000 Mortgage note, interest at 10.19% payable semi-annually, due in three equal annual installments of $1,333,333 beginning December 1, 1997, collateralized by certain land and building 1,666,666 4,000,000 Note payable, interest at 7.16%, payable in monthly installments through December 2003, collateralized by certain equipment 1,949,611 2,253,086 19,449,610 17,853,086 Less current portion 2,421,108 2,903,474 Noncurrent maturities $17,028,502 $14,949,612
Aggregate principal maturities of mortgages and notes as of July 25, 1998 are as follows:
Year ending July: 1999 $ 2,421,108 2000 6,421,364 2001 6,947,220 2002 975,011 2003 1,003,429
(a) On May 30, 1997, the Company entered into a new loan agreement to replace its expired agreement. The new loan agreement consists of three facilities: (1) A term loan (outstanding balance of $7,333,333 at July 25, 1998). (2) A three-year $13,000,000 revolving loan (outstanding balance of $4,500,000 at July 25, 1998) which can be used for any purpose except new store construction. (3) A three-year $11,000,000 convertible revolving loan (outstanding balance of $4,000,000 at July 25, 1998) to fund equipment purchases and store remodels. Amounts outstanding at the end of each of the three years convert to seven-year term loans with equal monthly principal payments. These loans are secured by substantially all of the Company's assets. Indebtedness under this agreement bears interest at the prime rate or the Eurodollar rate, at the Company's option, plus applicable margins based on the Company's fixed charge coverage ratio. At July 25, 1998, $6,000,000 of the revolving credit loan bears interest at 7.16% and $2,500,000 bears interest at 8.5%. The Company is required to maintain certain levels of interest rate protection. Accordingly, an interest rate swap agreement has been executed with respect to the term loan, in which the Company agrees to exchange monthly the difference between fixed and variable interest amounts based on the loan amount outstanding. The interest differential paid or received monthly under this agreement is recognized as interest expense in the consolidated financial statements. This agreement has the effect of fixing the rate on the term loan at 8.35%. At July 25, 1998, the Company was in compliance with all terms and covenants of all debt agreements. These agreements contain restrictive covenants which, among other matters, specify total debt levels, maintenance of net worth, fixed charge coverage ratios, limitation on payment of dividends and limitation of capital expenditures. The revolving loan provides a maximum commitment for letters of credit of $3,000,000 ($1,700,000 outstanding at July 25, 1998) to secure obligations for the Company's self-insured workers' compensation claims. Interest paid amounted to $3,172,692, $3,398,828 and $3,750,151 in 1998, 1997 and 1996, respectively. NOTE 6 -- INCOME TAXES The components of the provision for income taxes are:
1998 1997 1996 Federal: Current $2,623,462 $1,778,800 $883,713 Deferred (282,065) (728,630) 119,653 State: Current 773,771 569,003 552,845 Deferred (106,136) (247,787) (255,397) $3,009,032 $1,371,386 $1,300,814
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax liabilities and assets are as follows:
July 25, July 26, 1998 1997 Deferred tax liabilities: Tax over book depreciation $4,762,837 $5,094,475 Patronage dividend receivable 833,963 818,249 Other 557,119 564,588 Total deferred tax liabilities 6,153,919 6,477,312 Deferred tax assets: Amortization of capital leases 1,741,614 1,707,437 Other 1,391,673 1,205,205 Total deferred tax assets 3,133,287 2,912,642 Net deferred tax liability $3,020,632 $3,564,670
A valuation allowance is provided when it is more likely than not that some portion of the deferred tax assets will not be realized. In management's opinion, in view of the Company's previous, current and projected taxable income, such tax assets will more likely than not be fully realized. Accordingly, no valuation allowance was deemed to be required at July 25, 1998 and July 26, 1997. The effective income tax rate differs from the statutory federal income tax rate as follows:
1998 1997 1996 Statutory federal income tax rate 34.0% 34.0% 34.0% Targeted jobs tax credit -- -- (3.3) Amortization of intangibles 1.3 2.9 2.7 State income taxes, net of federal tax benefit 6.3 6.2 5.9 Other 1.3 (3.3) -- Effective income tax rate 42.9% 39.8% 39.3%
Income taxes paid amounted to $3,754,586, $2,328,820 and $769,580 in fiscal 1998, 1997 and 1996, respectively. NOTE 7 -- LONG-TERM LEASES DESCRIPTION OF LEASING ARRANGEMENTS: The Company conducts a major part of its operations from leased facilities, with the majority of initial lease terms ranging from 20 to 30 years. All of the Company's leases expire through fiscal 2059. Most of the Company's leases contain renewal options of five years each. These options enable the Company to retain the use of facilities in desirable operating areas. Management expects that in the normal course of business, leases will be renewed or replaced by other leases. The Company is obligated under all leases to pay for utilities and liability insurance, and under certain leases to pay additional amounts based on real estate taxes, maintenance, insurance and a percentage of sales in excess of stipulated amounts. Future minimum lease payments by year and in the aggregate for all non-cancelable leases with initial terms of one year or more consisted of the following at July 25, 1998:
Capital Operating Leases Leases 1999 $ 1,810,980 $ 3,766,678 2000 1,822,395 3,677,784 2001 1,737,544 3,547,581 2002 1,688,376 2,959,639 2003 1,688,376 2,696,900 Thereafter 12,738,152 23,475,198 Minimum lease payments 21,485,823 $40,123,780 Less amount representing interest 12,405,307 Present value of minimum lease payments $ 9,080,516
The following schedule shows the composition of total rental expense under operating leases for the following periods:
1998 1997 1996 Minimum rentals $3,795,635 $3,648,642 $3,429,223 Contingent rentals 670,337 587,141 537,593 $4,465,972 $4,235,783 $3,966,816
RELATED PARTY LEASES: The Company currently leases three supermarkets and its office facility from realty firms partly or wholly-owned by officers of the Company. The Company paid aggregate rentals under these leases, including minimum rent and contingent rent, of approximately $1,191,000, $1,163,000 and $1,136,000 for fiscal years 1998, 1997 and 1996, respectively. In addition, two supermarkets are leased from partnerships in which the Company is a partner. NOTE 8 -- COMMON STOCK Class A common stock has one vote per share and is entitled to cash dividends as declared 54% greater than those paid on the Class B common stock. Class B common stock has ten votes per share. Class B common stock is not transferrable except to another holder of Class B common stock or by will or under the laws of intestacy or pursuant to a resolution of the Board of Directors of the Company approving the transfer. Shares of Class B common stock are convertible on a share-for-share basis for Class A common stock. The Company had two stock option plans during fiscal 1998. The 1987 Incentive and Non-Statutory Stock Option Plan authorized 150,000 shares of the Company's Class A common stock to be granted to officers and employees of the Company. All options granted under this plan were at an exercise price equal to the fair value at the date of grant. There were no transactions in fiscal 1997 and 1996 in this plan. During fiscal 1998, 60,000 options were exercised at a price of $8.00 per share. The remaining 70,000 options, also priced at $8.00, expired on December 6, 1997. On December 5, 1997, the shareholders of the Company approved the 1997 Incentive and Non-Statutory Stock Option Plan. This Plan provides for the granting of options or stock appreciation rights to purchase up to 250,000 shares of the Company's Class A common stock by officers, employees and directors of the Company as designated by the Board of Directors. The Plan requires incentive stock options to be granted at exercise prices equal to the fair market value of the Company's stock at the date of grant (110% if the optionee holds more than 10% of the voting stock of the Company), while non-statutory options may be granted at an exercise price less than market value. During fiscal 1998, 219,000 options were granted at an exercise price of $10.00 per share, which was the fair value at the date of the grants. All 219,000 options remain outstanding at July 25, 1998. At July 25, 1998, 103,000 non-statutory stock options are exercisable. During fiscal 1999, 116,000 incentive stock options will become exercisable. All options are exercisable up to 10 years from the date of this grant. The Company has adopted the disclosure only provisions of SFAS No. 123, "Accounting for Stock-Based Compensation." In accordance with the provisions of SFAS No. 123, the Company applied APB Opinion 25's intrinsic value method of accounting for stock options. Accordingly, compensation cost for stock options is measured as the excess, if any, of the quoted market price of the Company's stock at the date of grant over the amount an employee may pay to acquire the stock. As all stock options have been granted at fair market value at the date of grant, no compensation expense has been recorded in the Company's consolidated financial statements. If the Company had elected to recognize compensation costs based on the fair value of the options granted as prescribed by SFAS No. 123, fiscal 1998 pro forma results would be reduced to the following amounts: net income - $3,475,000; net income per share, basic - $1.18; and net income per share diluted - $1.16. There would be no effect on pro forma 1997 and 1996 results. The fair value of options granted was estimated at $3.57 using the Black-Scholes Option Pricing Model with the following assumptions used for fiscal 1998 grants: risk-free interest rate of 6.0%; expected life of 6 years; expected dividend rate of zero; and expected volatility of 20.9%. NOTE 9 -- PENSION PLANS The Company sponsors three defined benefit pension plans covering administrative personnel and members of two unions. Employees covered under the administrative pension benefit plan earn benefits based upon percentages of annual compensation. Employees covered under the union pension benefit plans earn benefits based on a fixed amount for each year of service. The Company's funding policy is to pay at least the minimum contribution required by the Employee Retirement Income Security Act of 1974. Net periodic pension cost for the three plans included the following components:
1998 1997 1996 Service cost $592,441 $488,167 $484,461 Interest cost on projected benefit obligation 562,615 499,282 466,819 Return on plan assets (1,441,535) (1,676,672) (637,724) Net amortization and deferral 755,835 1,131,839 157,823 Net periodic pension cost $469,356 $442,616 $471,379
The funded status of the three pension plans is reconciled to accrued pension cost as follows:
July 25, July 26, 1998 1997 Plan assets at fair value $9,074,481 $7,610,382 Actuarial present value of benefit obligations: Vested benefits 7,266,850 5,919,122 Non-vested benefits 59,558 68,742 Accumulated benefit obligations 7,326,408 5,987,864 Effect of future increases in compensation levels 1,558,347 1,148,282 Projected benefit obligation 8,884,755 7,136,146 Projected benefit obligation less than plan assets 189,726 474,236 Unrecognized prior service cost 262,089 305,055 Unrecognized net gain (394,755) (646,745) Remaining unrecognized net asset at July 25, 1987 (amortized over 15 to 18 years) (248,534) (310,979) Additional liability (159,706) (144,491) Accrued pension cost $ (351,180) $ (322,924)
Plan assets are invested principally in government securities, common stocks and mutual funds. Assumptions used in determining the net fiscal 1998, 1997 and 1996 periodic pension cost were:
Assumed discount rate 7.25 to 8.0% Assumed rate of increase in compensation levels 4% Expected rate of return on plan assets 8.0 to 8.5%
The Company also participates in several multiemployer pension plans for which the fiscal 1998, 1997 and 1996 contributions were $1,722,000, $1,731,000, and $1,748,000, respectively. NOTE 10 -- COMMITMENTS AND CONTINGENCIES The Company is under contract to purchase a tract of land on which it plans to construct a superstore. Costs incurred related to this project are included in other assets as the Company believes such costs will be recoverable from the development of the property. The Company is involved in litigation incidental to the normal course of business. Company management is of the opinion that insurance coverage is adequate and final disposition should not materially affect the consolidated financial position of the Company. Independent Auditors' Report The Board of Directors and Shareholders Village Super Market, Inc.: We have audited the accompanying consolidated balance sheets of Village Super Market, Inc. and subsidiary as of July 25, 1998 and July 26, 1997, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the years in the three-year period ended July 25, 1998. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Village Super Market, Inc. and subsidiary as of July 25, 1998 and July 26, 1997, and the results of their operations and their cash flows for each of the years in the three-year period ended July 25, 1998 in conformity with generally accepted accounting principles. KPMG PEAT MARWICK LLP Short Hills, New Jersey October 1, 1998 Stock Price and Dividend Information The Class A common stock of Village Super Market, Inc. is traded on the NASDAQ National Market tier of the NASDAQ Stock Market under the symbol "VLGEA." The table below sets forth the high and low last reported sales price for the fiscal year indicated.
Class A Stock High Low 1998 4th Quarter 16-1/2 13-1/4 3rd Quarter 14-1/4 11 2nd Quarter 10-3/4 9-1/4 1st Quarter 9-3/4 8-3/4 1997 4th Quarter 9-1/4 8-1/2 3rd Quarter 10-1/4 8-1/2 2nd Quarter 10-1/2 9 1st Quarter 10-1/4 8-1/2
As of September 30, 1998, there were 468 holders of record of the Company's Class A common stock. No dividends were paid during fiscal 1998 and 1997. Village Super Market Inc. CORPORATE DIRECTORY OFFICERS AND DIRECTORS PERRY SUMAS Chief Executive Officer and President; Director JAMES SUMAS Chairman of the Board; Chief Operating Officer and Treasurer; Director ROBERT SUMAS Executive Vice President and Secretary; Director WILLIAM SUMAS Executive Vice President; Director JOHN SUMAS Executive Vice President; Director CAROL LAWTON Vice President and Assistant Secretary FRANK SAURO General Counsel KEVIN BEGLEY Chief Financial Officer GEORGE J. ANDRESAKES Director JOHN J. McDERMOTT Director NORMAN CRYSTAL Director EXECUTIVE OFFICES 733 Mountain Avenue Springfield, New Jersey 07081 REGISTRAR AND TRANSFER AGENT First City Transfer Company P.O. Box 170 Iselin, New Jersey 08330 AUDITORS KPMG Peat Marwick LLP 150 John F. Kennedy Parkway Short Hills, New Jersey 07078 FORM 10-K Copies of the Company's Form 10-K as filed with the Securities and Exchange Commission are available without charge upon written request to: Mr. Robert Sumas, Secretary Village Super Market, Inc. 733 Mountain Avenue Springfield, New Jersey 07081 EX-27 2
5 1,000 12-MOS JUL-25-1998 JUL-25-1998 5679 0 3416 0 26549 38391 141165 67834 138508 48074 25700 19164 0 0 42404 138508 703684 703684 528076 528076 165470 0 3122 7016 3009 4007 0 0 0 4007 1.36 1.34
-----END PRIVACY-ENHANCED MESSAGE-----