-----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, BCQBB/S20jQZRBaefIBAy4abU+Hc3L5POQD0ze1nIaJemZNocIrldXdQ+KUk+mkH OagxIKTJiK78PQ65oRtoPg== 0000103595-02-000008.txt : 20021024 0000103595-02-000008.hdr.sgml : 20021024 20021024160010 ACCESSION NUMBER: 0000103595-02-000008 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020727 FILED AS OF DATE: 20021024 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: 1934 Act SEC FILE NUMBER: 000-02633 FILM NUMBER: 02797415 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 edgar02.txt VILLAGE SUPER MARKET, INC. 2002 10-K 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. For the fiscal year ended: July 27, 2002. [ ] 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 incorporation (I. R. S. Employer or organization) Identification No.) 733 MOUNTAIN AVENUE, SPRINGFIELD, NEW JERSEY 07081 (Address of principal executive offices) (Zip Code) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (973)467-2200 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: CLASS A COMMON STOCK, NO PAR VALUE 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 $31,664,000 and the aggregate market value of the Class B common stock held by non-affiliates was approximately $10,233,000 (based upon the closing price of the Class A shares on the Over the Counter Market on October 1, 2002). 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 22, 2002 Class A common stock, no par value 1,480,600 Shares Class B common stock, no par value 1,594,076 Shares
DOCUMENTS INCORPORATED BY REFERENCE Information contained in the 2002 Annual Report to Shareholders and the 2002 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 6, 2002 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 FORWARD-LOOKING STATEMENTS All statements, other than statements of historical fact, included in this Form 10-K are or may be considered 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, local business conditions, competitive pressures from the Company's operating environment, the ability of the Company to maintain and improve its sales and margins, the ability to attract and retain associates, the availability of new store locations, the availability of capital, the liquidity of the Company on a cash flow basis, the success of operating initiatives, results of ongoing litigation and other risk factors detailed herein and in other filings of the Company. GENERAL Village Super Market, Inc. operates a chain of 23 ShopRite supermarkets, 16 of which are located in northern New Jersey, one of which is in northeastern Pennsylvania and six of which are in the southern shore area of New Jersey. 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, advanced retail technology 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 the development of its superstores, which currently average 57,000 total square feet, compared with an average of 30,000 total square feet for conventional supermarkets. Several of the Company's recent remodels have expanded superstores to 65,000 square feet. These larger store sizes enable the Company to feature expanded higher margin specialty departments such as home meal replacement, an on-site bakery, an expanded delicatessen including prepared foods, a natural and organic food section, international foods and a fresh seafood section. Superstores also offer an expanded selection of non-food items such as cut flowers, health and beauty aids, greeting cards, videocassette rentals, small appliances and in most cases, a pharmacy. Two superstores also include a warehouse section featuring products in giant sizes. Recently remodeled and new superstores emphasize a Power Alley, which features high margin convenience offerings such as salad bars, bakery and home meal replacement in an area within the store that provides quick customer entry and exit for those customers shopping for today's lunch or dinner. 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 2000 2001 2002 Groceries 41.1% 40.7% 40.3% Dairy and Frozen 16.0 15.9 16.0 Meats 9.7 9.5 9.6 Non-Foods 10.4 10.3 10.0 Produce 10.0 10.3 10.5 Appetizers and prepared foods 4.5 4.6 4.8 Seafood 2.0 2.1 2.2 Pharmacy 4.5 4.8 4.9 Bakery 1.6 1.6 1.6 Other .2 .2 .1 ----- ----- ----- 100.0% 100.0% 100.0% ===== ===== ===== Number of superstores 20 20 21 Selling square feet represented by superstores 92% 94% 95%
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, Florham Park and South Orange stores have been closed since December 1991. The Company operates one liquor store. 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. In fiscal 2002, the Company opened a 64,000 sq. ft. store in Hammonton, NJ and a 59,000 sq. ft. store in Garwood, NJ. In fiscal 2001, the Company opened a 67,000 sq. ft. store in West Orange to replace its older, smaller store. The Company has budgeted $15,000,000 for capital expenditures in fiscal 2003. The major planned expenditures are the completion of one store remodel and the start of two major store expansions. In the last five years, the Company has completed two major remodels, three new stores and one store acquisition. 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 governmental regulations and the general difficulty in developing retail properties in the Company's primary trading area the Company has, at times, 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 17.4% 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 204 supermarkets, including 50 stores operated directly by Wakefern, which comprise the Wakefern cooperative. Only Wakefern and member companies are entitled to use the ShopRite name and trademark, and participate in ShopRite advertising and promotional programs. 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 economies of scale, ShopRite advertising and promotional programs, including the ShopRite Price Plus card and a co-branded credit card, and the development of shared, advanced retail technology. 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. ShopRite private label products accounted for approximately 18% of sales in fiscal 2002. 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 owned 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. In addition, Wakefern provides the Company with other services including insurance, equipment purchasing and retail technology support. Wakefern operates warehouses and distribution facilities in Elizabeth, New Jersey, Woodbridge, New Jersey, South Brunswick, New Jersey and Wallkill, New York. The Company and all other members of Wakefern are parties to the Wakefern Stockholder's Agreement which provides for certain commitments by, and restrictions on all shareholders of Wakefern. This agreement extends 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. Each member is obligated to purchase from Wakefern a minimum of 85% of its requirements for products offered by Wakefern. 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 requires that in the event of unapproved changes in control of the Company or a sale of the Company or of individual Company stores, except to a qualified successor, the Company in such cases must pay Wakefern an amount equal to the annual profit contribution shortfall attributable to the sale of store or change in control. No payments are required if the volume lost by a shareholder as a result of the sale of a store is replaced by such shareholder by increased volume in existing or in new stores. 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 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. On November 22, 2000, Big V Supermarkets, Inc., the largest member of the Wakefern Food Cooperative, filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code. In addition, Big V announced its intention to depart from the Wakefern Cooperative. A decision by the U.S. Bankruptcy Court upheld that Big V would be required to pay substantial withdrawal fees to Wakefern to make up for the loss of volume to the cooperative in the event Big V departed from the Wakefern Cooperative. This matter was resolved on July 12, 2002 when Wakefern purchased substantially all of Big V's assets, including 27 stores, for $185 million in cash and assumed liabilities. The future performance of this Wakefern acquisition could impact the patronage dividends paid by Wakefern to the Company. 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 name 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 members investment in Wakefern 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 the purchases generated by those stores. As additional stores are opened or acquired by a member, additional capital must be contributed by it to Wakefern. On occasion, as its business needs have required, Wakefern has increased the maximum per-store capital contributions (currently $550,000) 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. As a result, the Company is required to invest $1,388,000 over the next six years. TECHNOLOGY The Company considers automation and computerization important to its operations and competitive position. All stores utilize second generation IBM 4690 software for the scanning check-out systems. These systems improve pricing accuracy, enhance productivity and reduce checkout time for customers. The hardware for these point of sale systems was replaced in fiscal 2000. The Company utilizes IBM RS/6000 computers in each store to, among other things, offer customers debit and credit card payment options. In fiscal 2002, a frame relay communications network was installed to replace the satellite communications network. This new network provides improved reliability, speed and capacity in handling consumer-based transactions and interactive retail applications. 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. This technology has also enabled the Company to focus on target marketing initiatives. Self-checkout systems were installed in five stores in fiscal 2002 with additional stores planned in fiscal 2003. These systems provide improved customer service, especially during peak periods, and reduced operating costs. 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 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. The Company has installed computer-based training systems in all stores. The Company currently utilizes digital surveillance systems in eight stores to aid shrink reduction, increase productivity and assist in accident investigations. Wakefern and the Company have responded to our customers increased use of the internet by creating shoprite.com to provide weekly advertising and other shopping information. In addition, an on-line shopping and pick-up service is being tested by Wakefern at this time. 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 general merchandise stores, fast food chains and convenience stores. The Company competes by using low pricing, courteous, quick, service to the customer, and a broad range of consistently available quality products, including the ShopRite private label. The ShopRite Price Plus card and the co-branded ShopRite credit card also create significant customer loyalty. 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, Stop & Shop, Foodtown, Acme and King's. Many of the Company's competitors have financial resources substantially greater than those of the Company. LABOR As of October 1, 2002, the Company employed approximately 4,100 persons of whom approximately 67% worked part-time. Approximately 90% 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 the Company's six unions expire between November 2002 and October 2005. 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. ITEM 2. PROPERTIES The Company owns the sites of six of its supermarkets (containing 387,000 square feet of total space), all of which are freestanding stores, except the Egg Harbor store, which is part of a shopping center. The remaining 17 supermarkets (containing 865,000 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 shopping centers and the remaining seven are freestanding stores. The lease for the Morris Plains store expired in June 2002. The Company has a verbal agreement with the landlord to lease this store for an additional ten years, and to provide for a longer term lease for an expanded store. This agreement has not been formalized in writing as of October 24, 2002. None of the Company's other store leases expire before 2008. The annual rent, including capitalized leases, for all of the Company's leased facilities for the year ended July 27, 2002 was approximately $8,450,000. 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 partnership that is a lessor of one of the Company's freestanding supermarkets. ITEM 3. LEGAL PROCEEDINGS The Company, in the ordinary course of business, is involved in various legal proceedings. The Company does not believe the outcome of these proceedings will have a material adverse effect on the Company's consolidated financial condition, results of operations or liquidity. 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 59 Vice President and Assistant Secretary since 1983; responsible for administration of headquarters staff. Kevin Begley 44 Chief Financial Officer since 1987. Mr. Begley is a Certified Public Accountant. PART II 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 27, 2002. 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 27, 2002. 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 27, 2002. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK In the normal course of operations, the Company is exposed to market risks arising from adverse changes in interest rates. Market risk is defined for these purposes as the potential change in the fair value resulting from an adverse movement in interest rates. As of July 27, 2002, the Company's only variable rate borrowings relate to a swap agreement. On October 18, 2001, the Company entered into an interest rate swap agreement with a major financial institution pursuant to which the Company pays a variable rate of six-month LIBOR plus 3.36% (5.19% at July 27, 2002) on a notional amount of $10,000,000 expiring in September 2009 in exchange for a fixed rate of 8.12%. A 100 basis point increase in interest rates, applied to the Company's borrowings at July 27, 2002, would result in an annual increase in interest expense and a corresponding reduction in cash flow of approximately $100,000. At July 27, 2002, the Company had demand deposits of $22,737,000 earning interest at prime less 2.5%, which are exposed to the impact of interest rate changes. 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 27, 2002. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III 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 8, 2002, in connection with its Annual Meeting scheduled to be held on December 6, 2002. 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 8, 2002, in connection with its Annual Meeting scheduled to be held on December 6, 2002. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS 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 8, 2002, in connection with its annual meeting scheduled to be held on December 6, 2002. 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 8, 2002, in connection with its annual meeting scheduled to be held on December 6, 2002. ITEM 14. CONTROLS AND PROCEDURES As required by Rule 13a-15 under the Exchange Act, within the 90 days prior to the filing date of this report, the Company carried out an evaluation of the effectiveness of the design and operation of the Company's disclosure controls and procedures. This evaluation was carried out under the supervision and with the participation of the Company's management, including the Company's Principal Executive Officer along with the Company's Chief Financial Officer. Based upon that evaluation, the Company's Principal Executive Officer along with the Company's Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective. There have been no significant changes in the Company's internal controls or in other factors, which could significantly affect internal controls subsequent to the date the Company carried out its evaluation. Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in Company reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in Company reports filed under the Exchange Act is accumulated and communicated to management, including the Company's Principal Executive Officer and Chief Financial Officer as appropriate, to allow timely decisions regarding required disclosure. PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON FORM 8-K (a) 1. Financial Statements: Consolidated Balance Sheets - July 27, 2002 and July 28, 2001. Consolidated Statements of Operations - years ended July 27, 2002, July 28, 2001 and July 29, 2000. Consolidated Statements of Shareholders' Equity and Comprehensive Income - years ended July 27, 2002, July 28, 2001 and July 29, 2000. Consolidated Statements of Cash Flows - years ended July 27, 2002, July 28, 2001 and July 29, 2000. Notes to consolidated financial statements. The consolidated 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 27, 2002. 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* 4.5 Note Purchase Agreement dated September 16, 1999* 4.6 Loan Agreement dated September 16, 1999* 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* 10.5 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 LLP Exhibit No. 99 Press Release dated October 1, 2002 Exhibit No. 99.1 Certification Exhibit No. 99.2 Certification * The following exhibits are incorporated by reference from the following previous filings: Form 10-K for 1999: 4.5, 4.6 Form 10-K for 1997: 4.4, 10.5 Form 10-K for 1993: 3, 10.1, 10.2 and 10.3 (b) No reports on Form 8-K were filed during the fourth quarter of fiscal 2002. 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/ James Sumas Kevin Begley James Sumas Chief Financial & Principal Executive Principal Accounting Officer Officer Date: October 24, 2002 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 24, 2002 October 24, 2002 /s/ Robert Sumas /s/ William Sumas Robert Sumas, Director William Sumas, Director October 24, 2002 October 24, 2002 /s/ John P. Sumas /s/ John J. McDermott John P. Sumas, Director John J. McDermott, Director October 24, 2002 October 24, 2002 /s/ George Andresakes /s/ Steven Crystal George Andresakes, Director Steven Crystal, Director October 24, 2002 October 24, 2002 CERTIFICATIONS I, James Sumas, certify that: 1. I have reviewed this annual report on Form 10-K of Village Super Market, Inc. 2. Based on my knowledge, this annual report does not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4 The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6 The registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date or our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: October 24, 2002 /s/ James Sumas James Sumas Principal Executive Officer CERTIFICATIONS I, Kevin Begley, certify that: 1. I have reviewed this annual report on Form 10-K of Village Super Market, Inc. 2. Based on my knowledge, this annual report does not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4 The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date or our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: October 24, 2002 /s/ Kevin Begley Kevin Begley Chief Financial Officer & Principal Accounting Officer Exhibit 13 The Company Village Super Market, Inc. operates a chain of 23 ShopRite supermarkets, 16 of which are located in northern New Jersey, 1 in northeastern Pennsylvania and 6 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 Unaudited 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 and Comprehensive Income 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 increased sales and net income for the seventh consecutive year in fiscal 2002. Net income increased 33% to a record $12,558,000, or $4.00 per diluted share. This performance occurred in an environment that was described by some in the supermarket industry as the most challenging in 20 years. Sales increased 7.6% to a record $883,337,000. Same store sales increased 4.3% in fiscal 2002 at a time when many national and local supermarket chains experienced flat or declining same store sales trends. We invested $20,767,000 in our business in fiscal 2002. We opened new superstores in Garwood, NJ and Hammonton, NJ. With the addition of these two stores, a total of six stores now have a full Power Alley. This format provides customers with an improved one- stop shopping experience by featuring a wider assortment of perishable products, including Bistro Street - our chef prepared, home meal replacement area. We also began a major remodel of the English Creek store and continued our program to perform smaller renovations throughout our stores. This approach continually improves the customer shopping experience by freshening the store appearance and expanding the variety of product offerings in areas such as natural, organic and international foods. In fiscal 2003 we plan to begin major expansions and remodels in two locations. During the last year, we installed self-checkout systems in five stores to improve customer service, especially during peak periods, and reduce operating costs. Due to strong customer acceptance, we intend to install these systems in additional stores next year. Looking forward, we experienced five competitive openings in the latter part of fiscal 2002, impacting a total of eight stores. These competitive openings, and increased promotional spending in response to these openings, along with recent softening in the economy, is expected to reduce same store sales growth in fiscal 2003 well below that achieved in fiscal 2002. This more difficult environment will make matching the fiscal 2002 results a challenge. As we face this challenge, our financial condition remains strong. Long-term debt is 31% of total capitalization and our Debt/EBITDA ratio is 1.4 to 1. The attacks of last September 11th affected everyone in this area in a profound manner. ShopRite responded to this devastating event by establishing a relief fund to benefit the families impacted by this tragedy. ShopRite and our customers raised over one million dollars to benefit The Salvation Army and other organizations to aid families in need of assistance. In addition, ShopRite supermarkets provided local law enforcement, rescue squads and hospitals with food, water and other supplies to assist them in their efforts. In the last five years, our net income has increased six-fold. This success could not have been achieved without the commitment and hard work of all 4,100 associates. We would like to thank each associate, our customers and our shareholders for their support. James Sumas, Perry Sumas, Chairman of the Board President
Selected Financial Data (Dollars in thousands except per share and square feet data) July 27, July 28, July 29, July 31, July 25, 2002 2001 2000 1999 1998 For year Sales $883,337 $820,627 $784,995 $750,680 $693,667 Net income 12,558 9,443 8,426 4,722 4,007 Net income per share - basic 4.11 3.13 2.81 1.59 1.36 Net income per share - diluted 4.00 3.08 2.76 1.55 1.34 Cash dividends per share Class A - - - - - Class B - - - - - At year end Total assets 204,053 183,346 175,987 149,555 138,508 Long-term debt 43,634 43,363 43,998 27,204 25,700 Working capital (deficit) 20,212 17,087 10,690 (7,197) (9,682) Shareholders' equity 97,443 84,770 75,152 66,477 61,568 Book value per share 31.69 27.97 24.94 22.24 20.73 Other data Same store sales increase 4.3% 3.6% 2.9% 6.0% 2.4% Total square feet 1,252,000 1,184,000 1,182,000 1,182,000 1,093,000 Average total sq. ft. per store 54,000 54,000 51,000 51,000 50,000 Selling square feet 991,000 935,000 934,000 934,000 866,000 Sales per average square foot of selling space 916 874 840 846 801 Number of stores 23 22 23 23 22 Sales per average number of stores 38,355 37,156 34,080 33,722 31,530 Capital expenditures 20,767 15,070 13,312 7,084 9,956
Unaudited Quarterly Financial Data (Dollars in thousands except per share amounts) First Second Third Fourth Fiscal Quarter Quarter Quarter Quarter Year 2002 Sales $210,831 $230,636 $216,525 $225,345 $883,337 Gross profit 52,516 57,536 53,671 57,920 221,643 Net income 2,621 3,724 2,338 3,875 12,558 Net income per share - diluted $.84 $1.19 $.74 $1.23 $4.00 2001 Sales $198,033 $212,920 $199,008 $210,666 $820,627 Gross profit 47,919 50,934 48,952 53,168 200,973 Net income 2,220 2,582 1,085 3,556 9,443 Net income per share - diluted $.73 $.84 $.35 $1.15 $3.08
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 27 July 28, July 29, 2002 2001 2000 Sales 100.00% 100.00% 100.00% Cost of sales 74.91 75.51 75.65 ------ ------ ------ Gross profit 25.09 24.49 24.35 Operating and administrative expense 21.49 21.26 21.18 Depreciation and amortization .91 .96 1.05 Non-cash impairment charge .07 .14 - ----- ----- ----- Operating income 2.62 2.13 2.12 Interest expense, net .37 .33 .42 Gain (loss) on disposal of assets - (.01) .06 ----- ----- ----- Income before income taxes 2.26 1.79 1.76 Income taxes .83 .64 .69 ----- ----- ----- Net income 1.42% 1.15% 1.07% ===== ===== =====
Sales were $883,337,000 in fiscal 2002, an increase of $62,710,000, or 7.6% from the prior year. On September 26, 2001, the Company opened a 59,000 sq. ft. store in Garwood, NJ. On March 6, 2002, the Company opened a 64,000 sq. ft. store in Hammonton, NJ. On February 5, 2002, the Company closed the 55,000 sq. ft. store in Ventnor, NJ. Same store sales increased 4.3% in fiscal 2002. Approximately 60% of the same store sales increase was attributable to improved sales in a replacement store opened two years ago and improved sales in the second half of fiscal 2002 from three stores in the general area of the closed Ventnor store. The opening of a competitor in the Ventnor location and four other competitive openings, affecting a total of eight Company stores, occurred in the fourth quarter of fiscal 2002. These competitive openings, and increased promotional spending in response to these competitive openings, along with recent softening in the economy, is expected to reduce the same store sales increase in the first quarter of fiscal 2003 to approximately .5% to 1.5%. Sales were $820,627,000 in fiscal 2001, an increase of $35,632,000, or 4.5% from the prior year. On August 10, 2000, the Company opened a 67,000 sq. ft. superstore to replace its smaller, older store in West Orange. Also, the Company closed the under facilitated South Orange store on October 28, 2000. Same store sales increased 3.6% in fiscal 2001. Gross profit as a percentage of sales increased in fiscal 2002 due to improved product mix, incentives received in connection with the two new store openings, reduced LIFO charges and improved gross profit percentages in most departments. This improvement was partially offset by increased promotional spending. Gross profit as a percentage of sales increased in fiscal 2001 due to improved product mix and a reduction in promotional spending, partially offset by increased LIFO charges. Operating and administrative expense increased as a percentage of sales in fiscal 2002 primarily due to increased fringe benefit costs. Fringe benefit costs increased due to contractual contribution increases to employee health and pension plans. Operating and administrative expense increased as a percentage of sales in fiscal 2001 due to increased occupancy, fringe benefit and credit card processing costs, partially offset by reduced advertising costs. Depreciation and amortization expense was $8,002,000, $7,875,000 and $8,204,000 in fiscal 2002, 2001 and 2000, respectively. Depreciation expense increased in fiscal 2002 due to substantial fixed asset additions from the two new stores, partially offset by the discontinuance of depreciation on the closed Ventnor store and the discontinuance of goodwill amortization in fiscal 2002 (see Note 1). Depreciation expense declined in fiscal 2001 primarily due to fiscal 2000 including accelerated depreciation of the old West Orange store, which was replaced in August 2000. The Company recorded a non-cash impairment charge of $640,000 in fiscal 2002 to write off the book value of the equipment of the Ventnor store. Fiscal 2001 results include a non-cash impairment charge of $1,122,000 to write off the book value of a favorable sublease on the Ventnor store. The sublessor of this property rejected its lease in March 2001 pursuant to the U.S. Bankruptcy Code. Although the Company negotiated with the property owner to remain in this location under new lease terms, the Company's lease was terminated by the property owner. Therefore, the Ventnor store was closed on February 5, 2002. Interest expense, net was $3,234,000, $2,725,000 and $3,333,000 in fiscal 2002, 2001 and 2000, respectively. Interest expense, net increased in fiscal 2002 due to lower interest income earned on cash balances invested due to lower interest rates. In addition, fiscal 2002 included $171,000 of interest costs capitalized related to the construction of a new store compared to $389,000 in fiscal 2001. Interest expense decreased in fiscal 2001 primarily due to those capitalized interest costs. Fiscal 2000 results include a gain on the sale of real estate of a previously closed store in Easton, PA in the amount of $492,000. The Company's effective income tax rate was 37.0%, 35.9% and 39.0% in fiscal 2002, 2001 and 2000, respectively. The effective income tax rate increased in fiscal 2002 due to enacted changes in state tax laws, partially offset by tax planning initiatives begun in the second half of fiscal 2002. The effective income tax rate declined in fiscal 2001 due to a full year's impact from tax planning initiatives begun in the second half of fiscal 2000. CRITICAL ACCOUNTING POLICIES Critical accounting policies are those accounting policies that management believes are important to the portrayal of the Company's financial condition and results and require management's most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company reviews the carrying values of its long-lived assets, such as property, equipment and fixtures and intangibles subject to amortization, for possible impairment whenever events or changes in circumstances indicate that the carrying amount of assets may not be recoverable. Such review analyzes the undiscounted estimated future cash flows from such assets to determine if the carrying value of such assets are recoverable from their respective cash flows. If an impairment is indicated, it is measured by comparing the discounted cash flows for the long-lived asset held for use to its carrying value. Goodwill is tested for impairment at the end of each fiscal year, or as circumstances dictate, pursuant to the provisions of Financial Accounting Standards Board ("FASB") Statement 142. An impairment loss is recognized to the extent that the carrying amount exceeds the fair value. As a stockholder of Wakefern Food Corporation ("Wakefern"), the Company earns a share of Wakefern's earnings, which is distributed as a "patronage dividend" (see Note 3). This dividend is based on a distribution of Wakefern's operating profits for its fiscal year (which ends September 30) in proportion to the dollar volume of business done by each member of Wakefern during that fiscal year. Patronage dividends are recorded as a reduction of cost of sales. The Company accrues estimated patronage dividends due from Wakefern quarterly based on an estimate of the annual Wakefern patronage dividend and an estimate of the Company's share of this annual dividend based on the Company's estimated proportional share of the dollar volume of business transacted with Wakefern that year. LIQUIDITY AND CAPITAL RESOURCES Net cash provided by operating activities was $22,876,000 in fiscal 2002 compared to $19,653,000 in fiscal 2001. This increase is due to an improvement in net income and increased payables in fiscal 2002, offset by a larger increase in inventories in fiscal 2002. Both inventories and payables increased in fiscal 2002 due to two store openings, offset by one store closing. In addition, inventories increased to accommodate the rise in same store sales. During fiscal 2002, operating cash flow of $22,876,000 was used to fund capital expenditures of $20,767,000 and to increase cash on hand by $2,615,000. Major capital expenditures in fiscal 2002 included the construction and equipment for the new stores in Garwood and Hammonton. Long-term debt was $43,634,000 at July 27, 2002. The Company borrowed $3,000,000 secured by equipment in fiscal 2002 and made principal payments on debt of $2,945,000. Working capital was $20,212,000, $17,087,000 and $10,690,000 at July 27, 2002, July 28, 2001 and July 29, 2000, respectively. Working capital ratios at the same dates were 1.36, 1.33 and 1.20 to one, respectively. The Company's working capital needs are reduced since inventory is generally sold by the time payment to Wakefern and other suppliers are due. During fiscal 2001, operating cash flow of $19,653,000 was used to fund capital expenditures of $15,070,000 and to increase cash on hand by $5,435,000. The major capital expenditures were equipment and leasehold improvements for the replacement store in West Orange, remodel costs for the Vineland store and site work and construction costs for a new store in Garwood, New Jersey, which opened on September 26, 2001. The Company has budgeted approximately $15 million for capital expenditures in fiscal 2003. Planned expenditures include the completion of one store remodel and the start of two major store expansions. The Company's primary sources of liquidity in fiscal 2003 are expected to be cash on hand at July 27, 2002, operating cash flow and equipment financing. The Company has available a $15,000,000 (none outstanding at July 27, 2002) unsecured revolving credit line, which expires September 16, 2004. The table below presents significant contractual obligations of the Company at July 27, 2002:
Payments Due By Period 2003 2004 2005 2006 2007 Thereafter Total Long-term debt $2,094,816 $ 6,088,996 $ 5,969,209 $ 5,367,436 $ 5,260,174 $14,083,634 $ 38,864,265 Capital leases $1,603,380 $ 1,603,380 $ 1,614,800 $ 1,545,789 $ 1,107,740 $ 4,805,290 $ 12,280,379 Operating leases $5,469,750 $ 5,173,918 $ 4,994,104 $ 4,671,912 $ 4,530,494 $62,419,764 $ 87,259,942 Notes payable to related party $ 422,760 $ 353,345 $ 182,000 $ 182,000 $ 101,000 $ 146,988 $ 1,388,093 --------- ---------- ---------- ---------- ---------- ---------- ----------- $9,590,706 $13,219,639 $12,760,113 $11,767,137 $10,999,408 $81,455,676 $139,792,679 ========= ========== ========== ========== ========== ========== ===========
In addition, the Company is obligated to purchase 85% of its primary merchandise requirements from Wakefern (see Note 3) and to make contingent lease payments (see Note 6). Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) Adoption of New Accounting Standards Effective July 29, 2001, the Company adopted the provisions of FASB Statement 141, "Business Combinations", and Statement 142, "Goodwill and Other Intangible Assets". Statement 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. Statement 141 also specifies criteria that intangible assets acquired in a purchase method business combination must meet to be recognized and reported apart from goodwill. Statement 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairments at least annually. Statement 142 also requires that intangible assets with definite useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment. Amortization expense related to goodwill was $341,000 for the fiscal years ended July 28, 2001 and July 29, 2000. As a result of adopting Statement 142, the Company no longer amortizes goodwill. As required by Statement 142, the Company performed an assessment of whether there was an indication that goodwill was impaired at the date of adoption. In connection therewith, the Company determined that its reporting unit was the same as its reportable segment. As of the date of adoption and at July 27, 2002, the Company's reporting unit's fair value exceeded its carrying amount, and therefore there was no indication that goodwill was impaired. The Company will be performing an annual impairment test at the end of each fiscal year in the future. Impact of Recently Issued Accounting Standards In June 2001, the FASB issued Statement 143, "Accounting For Asset Retirement Obligations." This statement addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The Company is required to adopt the provisions of Statement 143 at the beginning of fiscal 2003. The Company has determined that the adoption of this statement will not have a material impact on its financial position or results of operations. In August 2001, the FASB issued Statement 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." This statement requires that one accounting model be used for long-lived assets to be disposed of by sale, whether previously held and used or newly acquired. This statement also broadens the presentation of discontinued operations to include more disposal transactions. The provisions of this statement are required to be adopted by the Company at the beginning of fiscal 2003. The Company has determined that the adoption of this statement will not have a material impact on its financial position or results of operations. In June 2002, the FASB issued Statement 146, "Accounting for Costs Associated with Exit or Disposal Activities." This statement changes the financial accounting and reporting for costs associated with exit or disposal activities, including store closures. The Company is required to adopt the provisions of Statement 146 for any exit or disposal activities initiated after December 31, 2002. Other Matters On November 22, 2000, Big V Supermarkets, Inc., the largest member of the Wakefern Food Cooperative, filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code. In addition, Big V announced its intention to depart from the Wakefern Cooperative. The Company's Form 10-K includes a comprehensive description of the Company's relationship with Wakefern and the rights and obligations of the Company and other members under the Wakefern Stockholder's Agreement. A decision by the U.S. Bankruptcy Court upheld that Big V would be required to pay substantial withdrawal fees to Wakefern to make up for the loss of volume to the cooperative in the event Big V departed from the Wakefern Cooperative. This matter was resolved on July 12, 2002, when Wakefern purchased substantially all of Big V's assets for $185 million in cash and assumed liabilities. The future performance of this Wakefern acquisition could impact the patronage dividends paid by Wakefern to the Company. Related Party Transactions The Company holds an investment in Wakefern, its principal supplier. The Company purchases substantially all of it's merchandise from Wakefern in accordance with the Wakefern Stockholder Agreement. As part of this agreement, the Company is required to purchase certain amounts of Wakefern common stock. At July 27, 2002, the Company's indebtedness to Wakefern for the outstanding amount of this stock subscription was $1,388,093. 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. Additional information is provided in Note 3. At July 27, 2002 the Company had demand deposits invested at Wakefern in the amount of $22,737,000. These deposits earn the prime rate of interest less 2.5%. The Company leases the Vineland store from Wakefern, the previous owner, at an annual rent of $650,000. The Company leases two supermarkets and its office facility from realty firms partly or wholly-owned by officers of the Company. Additional information is provided in Note 6. The Company entered into an agreement on September 19, 2002 that would, among other things, cancel two of these leases and replace them with leases from an unrelated party. Additional information is provided in Note 10. 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, local economic conditions, competitive pressures from the Company's operating environment, the ability of the Company to maintain and improve its sales and margins, the ability to attract and retain qualified associates, the availability of new store locations, the availability of capital, the liquidity of the Company on a cash flow basis, and other risk factors detailed herein and in other filings of the Company.
Consolidated Balance Sheets July 27, July 28, 2002 2001 ASSETS CURRENT ASSETS Cash and cash equivalents $ 33,770,136 $ 31,155,564 Merchandise inventories 33,780,335 30,468,377 Patronage dividend receivable 2,196,219 2,144,993 Other current assets 6,861,678 5,274,198 ------------- ------------- Total current assets 76,608,368 69,043,132 ------------- ------------- PROPERTY, EQUIPMENT AND FIXTURES, net 98,673,591 86,508,372 OTHER ASSETS Investment in related party, at cost 13,663,449 13,113,449 Goodwill, net 10,605,021 10,605,021 Other assets 4,502,559 4,075,842 ------------ ------------ Total other assets 28,771,029 27,794,312 ------------ ------------ $ 204,052,988 $ 183,345,816 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Notes payable $ 2,094,816 $ 1,661,359 Capitalized lease obligations 543,724 463,138 Notes payable to related party 422,760 602,414 Accounts payable to related party 30,630,704 28,364,268 Accounts payable and accrued expenses 22,704,503 20,864,959 ----------- ----------- Total current liabilities 56,396,507 51,956,138 ----------- ----------- LONG-TERM DEBT Notes payable 36,769,449 36,031,432 Capitalized lease obligations 5,899,360 6,443,071 Notes payable to related party 965,333 888,605 Total long-term debt 43,634,142 43,363,108 ----------- ----------- OTHER LIABILITIES 6,579,476 3,256,979 ----------- ----------- COMMITMENTS AND CONTINGENCIES (notes 3, 6, 9 and 10) 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 18,411,012 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 82,517,249 70,115,802 Accumulated other comprehensive loss (615,907) _ Less treasury stock, Class A, at cost (282,200 shares at July 27, 2002 and 326,000 shares at July 28, 2001) (3,904,170) (4,510,362) ---------- ---------- Total shareholders' equity 97,442,863 84,769,591 ----------- ----------- $204,052,988 $183,345,816 =========== ===========
Consolidated Statements of Operations Years Ended July 27, July 28, July 29, 2002 2001 2000 SALES $883,337,175 $820,627,178 $784,994,578 COST OF SALES 661,694,232 619,654,196 593,870,652 ----------- ----------- ----------- GROSS PROFIT 221,642,943 200,972,982 191,123,926 OPERATING AND ADMINISTRATIVE EXPENSE 189,835,338 174,489,515 166,254,778 DEPRECIATION AND AMORTIZATION 8,001,659 7,875,059 8,204,456 NON-CASH IMPAIRMENT CHARGE 640,000 1,122,000 - ----------- ----------- ----------- OPERATING INCOME 23,165,946 17,486,408 16,664,692 INTEREST EXPENSE, net of interest income of $573,879, $1,007,511 and $797,688 3,233,737 2,725,021 3,333,114 GAIN (LOSS) ON DISPOSAL OF ASSETS - (35,973) 492,155 ----------- ----------- ---------- INCOME BEFORE INCOME TAXES 19,932,209 14,725,414 13,823,733 INCOME TAXES 7,374,570 5,282,112 5,397,487 ----------- ---------- ---------- NET INCOME $ 12,557,639 $ 9,443,302 $ 8,426,246 =========== ========== ========== NET INCOME PER SHARE: Basic $4.11 $3.13 $2.81 Diluted $4.00 $3.08 $2.76 ==== ==== ====
Consolidated Statements of Shareholders' Equity and Comprehensive Income Years Ended July 27, 2002, July 28, 2001 and July 29, 2000 Accumulated Class A Class B other Total Common Stock Common Stock Retained comprehensive Treasury Shareholders' Shares Amount Shares Amount earnings loss stock Equity Balance, July 31,1999 1,762,800 $18,129,472 1,594,076 $1,034,679 $52,408,700 - $(5,095,795) $66,477,056 Net income - - - - 8,426,246 - - 8,426,246 Exercise of stock options - - - - (95,630) - 344,617 248,987 --------- ---------- -------- --------- --------- ------ ---------- ---------- Balance, July 29,2000 1,762,800 18,129,472 1,594,076 1,034,679 60,739,316 - (4,751,178) 75,152,289 Net income _ _ _ _ 9,443,302 - - 9,443,302 Exercise of stock options - - - - (66,816) - 240,816 174,000 --------- ---------- --------- --------- ---------- ------ --------- ---------- Balance, July 28, 2001 1,762,800 18,129,472 1,594,076 1,034,679 70,115,802 - (4,510,362) 84,769,591 Net income - - - - 12,557,639 - - 12,557,639 Other comprehensive loss - additional minimum pension liability, net of deferred tax benefit of $410,605 - - - - - (615,907) - (615,907) ---------- Comprehensive income 11,941,732 ---------- Exercise of stock options and related tax benefits - 281,540 - - (156,192) - 606,192 731,540 -------- ---------- --------- -------- ---------- -------- --------- ---------- Balance, July 27, 2002 1,762,800 $18,411,012 1,594,076 $1,034,679 $82,517,249 $(615,907) $(3,904,170) $97,442,863 ========= ========== ========= ========= ========== ======== ========== ==========
Consolidated Statements of Cash Flows Years Ended July 27, 2002 July 28, 2001 July 29, 2000 CASH FLOWS FROM OPERATING ACTIVITIES Net income $12,557,639 $9,443,302 $8,426,246 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 8,001,659 7,875,059 8,204,456 Non-cash impairment charge 640,000 1,122,000 - Tax benefit from exercise of stock options 281,540 - - Deferred taxes 2,028,270 308,664 359,654 Provision to value inventories at LIFO 53,345 806,993 193,758 (Gain) loss on disposal of assets - 35,973 (492,155) Changes in assets and liabilities: (Increase) in merchandise inventories (3,365,303) (242,633) (1,303,189) (Increase) decrease in patronage dividend receivable (51,226) 55,653 (472,570) (Increase) decrease in other current assets (1,587,480) 631,411 (1,580,630) (Increase) in other assets (286,774) (454,049) (699,157) Increase (decrease) in accounts payable to related party 2,266,436 (269,202) 1,547,445 Increase (decrease) in accounts payable and accrued expenses 1,918,912 (39,377) (587,547) Increase in other liabilities 419,009 379,390 37,599 ---------- ---------- ---------- Net cash provided by operating activities 22,876,027 19,653,184 13,633,910 ---------- ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (20,766,878) (15,069,721) (13,312,329) Proceeds from disposal of assets - - 872,855 ---------- ---------- ---------- Net cash used in investing activities (20,766,878) (15,069,721) (12,439,474) ---------- ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuance of long-term debt 3,000,000 3,000,000 30,000,000 Proceeds from exercise of stock options 450,000 174,000 248,987 Principal payments of long-term debt (2,944,577) (2,322,932) (15,493,812) --------- --------- ---------- Net cash provided by financing activities 505,423 851,068 14,755,175 --------- --------- ---------- NET INCREASE IN CASH AND CASH EQUIVALENTS 2,614,572 5,434,531 15,949,611 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 31,155,564 25,721,033 9,771,422 ---------- ---------- ---------- CASH AND CASH EQUIVALENTS, END OF YEAR $33,770,136 $31,155,564 $25,721,033 ========== ========== ========== Supplemental disclosures of cash payments made for: Interest (net of amounts capitalized) $3,903,585 $3,748,819 $3,315,784 Income taxes $7,101,000 $5,233,766 $5,248,456 Noncash Supplemental disclosures: Investment in related party $550,000 - $1,120,000
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 23 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 subsidiaries, which are wholly owned. Intercompany balances and transactions have been eliminated. Fiscal year The Company and its subsidiaries utilize a 52-53 week fiscal year ending on the last Saturday in the month of July. Fiscal 2002, 2001, and 2000 contain 52 weeks. Reclassifications Certain amounts have been reclassified in the fiscal 2001 and 2000 consolidated financial statements to conform to the fiscal 2002 presentation. Industry segment The Company consists of one operating segment, the retail sale of food and non-food products. Revenue recognition Merchandise sales are recognized at the point of sale to the customer. Discounts provided to customers at the point of sale are recognized as a reduction of sales as the products are sold. Cash and cash equivalents The Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. Included in cash and cash equivalents at July 27, 2002 and July 28, 2001 are $22,737,000 and $20,926,000, respectively, of demand deposits invested at Wakefern at the prime rate less 2.5%. Merchandise inventories Approximately 66% of merchandise inventories are stated at the lower of LIFO (last-in, first-out) cost or market. If the FIFO (first-in, first-out) method had been used, inventories would have been $9,362,000 and $9,309,000 higher than reported in fiscal 2002 and 2001, respectively. All other inventories are stated at the lower of FIFO cost or market. Property, equipment and fixtures Property, equipment and fixtures are recorded at cost. Interest cost incurred to finance construction is capitalized as part of such cost. 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. Investment in related party The Company's investment in it's principal supplier, Wakefern, is stated at cost (see note 3). 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 a decision to close a store is made. 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 effect 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. Notes to Consolidated Financial Statements (Continued) NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Advertising Advertising costs are expensed as incurred. Advertising expense was $6,952,000, $6,402,000, and $7,011,000 in fiscal 2002, 2001, and 2000, 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 operations in the period that includes the enactment date. Comprehensive income FASB Statement 130, "Reporting Comprehensive Income," establishes standards for reporting and presentation of comprehensive income (loss) and its components in a full set of financial statements. For fiscal 2002, comprehensive income consists of net income and the additional minimum pension liability adjustment, net of income tax benefit. Stock options The Company has elected to follow Accounting Principles Board Opinion 25 ("APB 25") to account for its employee 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 exercise price. Use of estimates In conformity with accounting principles generally accepted in the United States of America, 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 expenses during the reporting period. Some of the more significant estimates are patronage dividends and the impairment of long-lived assets. Actual results could differ from those estimates. Fair value of financial instruments Cash and cash equivalents, 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- and long-term notes payable approximates their 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 investment. Derivative instruments and hedging activities The Company accounts for its derivative and hedging transactions in accordance with FASB Statement 133, "Accounting for Derivative Instruments and Hedging Activities," and Statement 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities. "These statements establish accounting and reporting standards for derivative instruments and for hedging activities and require an entity to recognize all derivative instruments either as an asset or a liability in the balance sheet and to measure such instruments at fair value. These fair value adjustments are to be included either in the determination of net income or as a component of accumulated other comprehensive income depending on the nature of the transaction. The Company has limited involvement with derivative financial instruments and does not use them for trading purposes. The Company has one interest rate swap agreement, which it entered into in October 2001, to manage its exposure to interest rate fluctuations. The Company is exposed to credit risk in the event of the inability of the counter party to perform under its outstanding derivatives contract. Management believes it has minimized such risk by entering into a transaction with a counter party that is a major financial institution with a high credit rating. Impairment of long-lived assets and goodwill The Company reviews long-lived assets, such as property, equipment and fixtures and intangibles subject to amortization, for impairment when circumstances indicate the carrying amount of an asset may not be recoverable. Such review analyzes the undiscounted estimated future cash flows from such assets to determine if the carrying value of such assets are recoverable from their respective cash flows. If an impairment is indicated, it is measured by comparing the discounted cash flows for the long-lived asset to its carrying value. Goodwill is tested at the end of each fiscal year, or as circumstances dictate, for impairment pursuant to the provisions of FASB Statement 142. An impairment loss is recognized to the extent that the carrying amount exceeds fair value. The Company operates as a single reporting unit for purposes of evaluating goodwill for impairment and, as such, considers the quoted market price of the Company's common stock and other valuation techniques to measure fair value. The Company recorded a non-cash impairment charge of $640,000 in fiscal 2002 to write off the book value of the equipment of the Ventnor store, which was closed on February 5, 2002. Fiscal 2001 results included a non-cash impairment charge of $1,122,000 to write off the book value of a favorable sublease on the Ventnor store due to the bankruptcy of the sublessor, and its rejection of the sublease in bankruptcy court. Notes to Consolidated Financial Statements (Continued) NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Net income per share The number of common shares outstanding for calculation of net income per share is as follows:
2002 2001 2000 Weighted average shares outstanding - basic 3,057,513 3,017,862 3,001,493 Dilutive effect of employee stock options 81,136 50,056 49,905 --------- --------- --------- Weighted average shares outstanding - diluted 3,138,649 3,067,918 3,051,398 ========= ========= =========
Adoption of New Accounting Standards Effective July 29, 2001, the Company adopted the provisions of FASB Statement 141, "Business Combinations," and Statement 142, "Goodwill and Other Intangible Assets." Statement 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. Statement 141 also specifies criteria that intangible assets acquired in a purchase method business combination must meet to be recognized and reported apart from goodwill. Statement 142 requires that goodwill and assets with indefinite useful lives no longer be amortized, but instead tested for impairment at least annually. Statement 142 also requires that intangible assets with definite useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment. As required by Statement 142, the Company performed an assessment of whether there was an indication that goodwill was impaired at the date of adoption. In connection therewith, the Company determined that its reporting unit was the same as its reportable segment. As of the date of adoption and at July 27, 2002, the Company's reporting unit's fair value exceeded its carrying amount, and therefore there was no indication that goodwill was impaired. The Company will be performing an annual impairment test at the end of each fiscal year in the future. As of the date of adoption, the Company had unamortized goodwill in the amount of $10,605,000. Amortization expense related to goodwill was $341,000 for the fiscal years ended July 28, 2001 and July 29, 2000. As result of adopting Statement 142, the Company no longer amortizes goodwill. The Company's net income for the years ended July 28, 2001 and July 29, 2000 would have been $9,739,302 and $8,722,246 had this amortization expense not been reported in those periods. The Company's basic earnings per share for the years ended July 28, 2001 and July 29, 2000 would have been $3.23 and $2.91 had this amortization expense not been reported in those periods. The Company's diluted earning per share for the years ended July 28, 2001 and July 29, 2000 would have ben $3.17 and $2.86 had this amortization expense not been reported in those periods. Prior to the adoption of Statement 142, goodwill arising after October 1970 was amortized over twenty to forty years. The Company did not amortize goodwill amounting to approximately $2,900,000 acquired prior to October 1970 since, in management's opinion, the value of such intangibles had not diminished. Accumulated amortization of goodwill amounted to $4,306,960 at July 28, 2001. The Company assessed the recoverability of unamortized goodwill utilizing relevant cash flow and profitability information. NOTE 2 - PROPERTY, EQUIPMENT AND FIXTURES Property, equipment and fixtures are comprised as follows:
July 27,2002 July 28,2001 Land and buildings $ 60,106,320 $ 52,798,551 Store fixtures and equipment 70,149,558 62,162,318 Leasehold improvements 36,628,394 30,828,130 Leased property under capital leases 8,597,869 10,334,892 Construction in progress - 5,350,765 Vehicles 1,584,823 1,430,969 ----------- ----------- 177,066,964 162,905,625 Less accumulated depreciation and amortization 78,393,373 76,397,253 ----------- ----------- Property, equipment and fixtures - net $ 98,673,591 $ 86,508,372 =========== ===========
Interest cost capitalized amounted to $171,000 in fiscal 2002 and $389,000 in fiscal 2001 (none in fiscal 2000). Amortization of leased property under capital leases is included in depreciation and amortization expense. Notes to Consolidated Financial Statements (Continued) NOTE 3 - RELATED PARTY INFORMATION The Company's ownership interest in its principal supplier, Wakefern, which is operated on a cooperative basis for its stockholder members, is 17.4% 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. If this purchase obligation is not met, the Company is required to pay Wakefern's profit contribution shortfall attributable to this failure. Similar payments are due if Wakefern loses volume by reason of the sale of Company stores or a merger with another entity. The Company also has an investment of approximately 10% in Insure-Rite, Ltd., a Wakefern affiliated company, that provides the Company with liability and property insurance coverage. The Company purchases substantially all of it's merchandise from Wakefern. 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 $9,610,000, $8,551,000 and $8,658,000 in fiscal 2002, 2001 and 2000, 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 $550,000. At July 27, 2002, the Company's indebtedness to Wakefern for the outstanding amount of this stock subscription was $1,388,093. Installment payments are due as follows: 2003 - $422,760; 2004 - $353,345; 2005 - $182,000; 2006 - $182,000; 2007 - $101,000; and thereafter - $146,988. 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. Wakefern provides the Company with support services in numerous administrative functions. These services include advertising, insurance, supplies, technology support, equipment purchasing and coupon processing. Additionally, the Company has certain related party leases (see Note 6) and demand deposits invested at Wakefern (see Note 1). NOTE 4 - NOTES PAYABLE
July 27, July 28, 2002 2001 Senior notes payable (a) $30,000,000 $30,000,000 Notes payable, interest at 4.39% to 7.90%, payable in monthly installments through December 2008, collateralized by certain equipment 8,864,265 7,692,791 ---------- ---------- 38,864,265 37,692,791 Less current portion 2,094,816 1,661,359 ---------- ---------- $36,769,449 $36,031,432 ========== ==========
Aggregate principal maturities of notes payable as of July 27, 2002 are as follows:
Year ending July: 2003 $2,094,816 2004 6,088,996 2005 5,969,209 2006 5,367,436 2007 5,260,174 Thereafter 14,083,634
(a) On September 16, 1999, the Company issued $30,000,000 of 8.12% unsecured Senior Notes. Interest on these notes is due semi- annually. The principal is due in seven equal annual installments beginning September 16, 2003 and ending September 16, 2009. On September 16, 1999, the Company also entered into an unsecured revolving loan agreement in the amount of $15,000,000. This agreement expires September 16, 2004. The revolving credit line can be used for any purpose except new store construction. Indebtedness under this agreement bears interest at the prime rate or at the Eurodollar rate, at the Company's option, plus applicable margins based on the Company's fixed charge coverage ratio. There were no amounts outstanding at July 27, 2002 and July 28, 2001. At July 27, 2002, 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 agreement provides a maximum commitment for letters of credit of $3,000,000 ($1,100,000 outstanding at July 27, 2002) to secure obligations for the Company's self-insured workers' compensation claims and for construction performance guarantees to municipalities. Notes to Consolidated Financial Statements (Continued) On October 18, 2001, the Company entered into an interest rate swap agreement with a major financial institution pursuant to which the Company pays a variable rate of six-month LIBOR plus 3.36% (5.19% at July 27, 2002) on a notional amount of $10,000,000 expiring in September 2009 in exchange for a fixed rate of 8.12%. The interest rate swap agreement was designated as a fair value hedging instrument. The fair value of this derivative instrument at July 27, 2002 was not material to the consolidated balance sheet. For fiscal 2002, this interest rate swap agreement reduced interest expense by $201,000. NOTE 5 - INCOME TAXES The components of the provision for income taxes are:
2002 2001 2000 Federal: Current $4,886,824 $4,844,006 $4,653,754 Deferred 1,660,341 241,443 196,583 State: Current 459,476 129,442 384,079 Deferred 367,929 67,221 163,071 --------- --------- --------- $7,374,570 $5,282,112 $5,397,487 ========= ========= =========
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 27, July 28, 2002 2001 Deferred tax liabilities: Tax over book depreciation $6,917,875 $4,439,205 Patronage dividend receivable 867,239 759,106 Other 634,136 591,339 --------- --------- Total deferred tax liabilities 8,419,250 5,789.650 --------- --------- Deferred tax assets: Amortization of capital leases 1,559,438 1,380,873 Compensation related costs 789,509 615,476 Minimum pension liability 410,605 -- Accrual for special charges 783,505 599,680 Other 289,436 224,528 --------- --------- Total deferred tax assets 3,832,493 2,820,557 --------- --------- Net deferred tax liability $4,586,757 $2,969,093 ========= =========
Net long-term deferred taxes of $4,537,022 and $2,839,990 are included in other long-term liabilities at July 27, 2002 and July 28, 2001, respectively. Net current deferred taxes of $49,735 and $129,103 are included in accrued expenses at July 27, 2002 and July 28, 2001, respectively. 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 27, 2002 and July 28, 2001. The effective income tax rate differs from the statutory federal income tax rate as follows:
2002 2001 2000 Statutory federal income tax rate 35.0% 35.0% 35.0% Amortization of intangibles -- .6 .7 State income taxes, net of federal tax benefit 2.7 .9 2.6 Other (.7) (.6) .7 ---- ---- ---- Effective income tax rate 37.0% 35.9% 39.0% ==== ==== ====
Notes to Consolidated Financial Statements (Continued) NOTE 6 - 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, most leases will be renewed or replaced by other leases. The Company is obligated under all leases to pay for real estate taxes, utilities and liability insurance, and under certain leases to pay additional amounts based on 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 consist of the following at July 27, 2002:
Capital Operating Leases Leases 2003 $ 1,603,380 $ 5,469,750 2004 1,603,380 5,173,918 2005 1,614,800 4,994,104 2006 1,545,789 4,671,912 2007 1,107,740 4,530,494 Thereafter 4,805,290 62,419,764 ---------- ---------- Minimum lease payments 12,280,379 $87,259,942 =========== Less amount representing interest 5,837,295 ---------- Present value of minimum lease payments 6,443,084 Less current portion 543,724 --------- $5,899,360 ==========
The following schedule shows the composition of total rental expense under operating leases for the following periods:
2002 2001 2000 Minimum rentals $5,939,763 $5,602,486 $4,554,604 Contingent rentals 907,250 934,970 974,926 --------- --------- --------- $6,847,013 $6,537,456 $5,529,530 ========== ========== ==========
Related party leases The Company currently leases two supermarkets and its office facility from realty firms partly or wholly-owned by officers of the Company. The office facility lease expires January 31, 2003. Both supermarket leases initial terms expire in fiscal 2006 and contain renewal options. The Company paid aggregate rentals under these leases, including minimum rent and contingent rent, of approximately $1,096,000, $1,152,000 and $1,243,000 for fiscal years 2002, 2001 and 2000, respectively. The Company leases the Vineland store from Wakefern, the previous owner, under a sublease agreement which provides for annual rent of $650,000. This sublease expires May 10, 2014 and contains renewal options. Notes to Consolidated Financial Statements (Continued) NOTE 7 - 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 1997 Incentive and Non-Statutory Stock Option 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 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 fair value. All options granted to date were at fair value and are exercisable up to 10 years from the date of the grant. The following table summarizes option activity for the following periods:
2002 2001 2000 Shares Weighted avg. Shares Weighted avg. Shares Weighted avg. exercise price exercise price exercise price Outstanding at beginning of year 167,000 $10.13 184,400 $10.14 205,300 $10.05 Granted 8,000 23.50 - - 4,000 13.00 Exercised (43,800) (10.18) (17,400) 10.00 (24,900) 10.00 ------- ----- ------- ----- ------- ----- Outstanding at end of year 131,200 $10.93 167,000 $10.13 184,400 $10.14 ------- ----- ------- ----- ------- ----- Options exercisable at end of year 123,200 $10.12 167,000 $10.13 180,400 $10.08 ------- ----- ------- ----- ------- -----
At July 27, 2002 and July 28, 2001, the weighted-average remaining contractual life of outstanding options was 5.3 and 6.3 years, respectively, and the exercise prices ranged from $10.00 to $23.50. In accordance with the provisions of Statement 123, the Company applied APB 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 an exercise price equal to the fair value of the Company's stock 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 Statement 123, fiscal 2002, 2001 and 2000 results would be reduced to the following pro forma amounts: net income - $12,487,000, $9,443,000 and $8,412,000; net income per share, basic - $4.08, $3.13 and $2.80; and net income per share, diluted - $3.98, $3.08 and $2.76. The fair value of options granted was estimated at $8.81 in fiscal 2002 and $3.57 in fiscal 2000. The fair value of each option grant is estimated using the Black-Scholes Option Pricing Model with the following assumptions used for fiscal 2002 and 2000 grants: risk-free interest rate of 4.0% and 6.0%; expected life of 6 years; expected dividend rate of zero; and expected volatility of 30.0% and 20.9%. Notes to Consolidated Financial Statements (Continued) NOTE 8 - 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 include the following components:
2002 2001 2000 Service cost $685,123 $624,916 $523,532 Interest cost on projected benefit obligation 781,815 690,064 712,678 Expected return on plan assets (703,705) (855,794) (881,218) Net amortization and deferral 10,078 (8,662) ( 12,052) ------- ------- ------- Net periodic pension cost $773,311 $450,524 $342,940 ======== ======== ========
The changes in benefit obligations and the reconciliation of the funded status of the Company's plans to the consolidated balance sheets were as follows:
2002 2001 Change in Benefit Obligation: Benefit obligation at beginning of year $10,726,263 $10,960,792 Service cost 685,123 624,916 Interest cost 781,815 690,064 Benefits paid (474,904) (425,333) Actuarial loss (gain) 420,982 (1,124,176) ---------- ---------- Benefit obligation at end of year $12,139,279 $10,726,263 =========== =========== Change in Plan Assets: Fair value of plan at beginning of year $ 9,438,298 $10,217,541 Actual return on plan assets (1,051,284) (430,372) Employer contributions 129,843 76,462 Benefits paid (474,904) (425,333) --------- --------- Fair value of plan assets at end of year $8,041,953 $9,438,298 ========== ========== Fair value of plan assets (less) than benefit obligation $(4,097,326) $(1,287,965) Unrecognized prior service cost 179,943 133,191 Unrecognized net actuarial loss 3,122,193 761,695 Adjustment required to recognize minimum liability (1,206,455) - ---------- --------- Accrued pension cost $(2,001,645) $ (393,079) =========== ========== Amounts recognized in the consolidated balance sheets: Accrued pension cost $(2,001,645) $ (393,079) Intangible asset 179,943 - Accumulated other comprehensive loss 615,907 - =========== ==========
Plan assets are invested principally in government securities, common stocks and mutual funds. Assumptions used in determining the net fiscal 2002, 2001 and 2000 periodic pension cost were as follows:
2002 2001 2000 Assumed discount rate 7.25% 7.25% 7.25% Assumed rate of increase in compensation levels 4% 4% 4% Expected rate of return on plan assets 7.5% 8.0 to 8.5% 8.0 to 8.5%
The Company also participates in several multiemployer pension plans and a defined contribution plan for which the fiscal 2002, 2001 and 2000 contributions were $2,513,000, $1,989,000 and $1,922,000, respectively. Notes to Consolidated Financial Statements (Continued) NOTE 9 - COMMITMENTS AND CONTINGENCIES The Company is involved in litigation incidental to the normal course of business. Company management is of the opinion that the ultimate resolution of these legal proceedings should not have a material adverse effect on the consolidated financial position, results of operations or liquidity of the Company. NOTE 10 - Subsequent Event On September 19, 2002, the Company entered into an agreement with a real estate investment trust (the "REIT"). The Company's purpose in entering into this agreement is to provide for the development of an 80,000 sq. ft. replacement store in Somers Point, NJ with minimal cash outlay by the Company, and to ensure continued occupancy of the Springfield, NJ store and the Company's headquarters. This transaction, while subject to various contingencies, is expected to close in the second quarter of fiscal 2003. The Company will sell the land and building currently occupied by the Somers Point store for $3,500,000 to the REIT. The Company will execute a lease with the REIT to continue occupancy of the current Somers Point store until the replacement store is opened. The Company will execute a lease for the replacement store in Somers Point to be constructed by the REIT. In addition, the Company will execute long-term leases with the REIT for the Springfield store and the Company's headquarters. These properties are currently leased from a realty company owned by certain officers of the Company (the "Realty Company"). The Company will agree to cancel its current leases with the Realty Company. The combined annual rents of these two new leases are approximately the same as the annual rents of the leases to be cancelled. As part of this transaction, the shareholders of the Realty Company are selling their shares in the Realty Company to the REIT. The Realty Company's assets consist substantially of the Springfield store, the Company headquarters and undeveloped land in Somers Point upon which a 130,000 sq. ft. retail center is to be developed by the REIT. Based on the terms of the proposed transaction, management believes there will be no material gain or loss recognized from the sale of the Somers Point store and the cancellation of the two leases. 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 subsidiaries as of July 27, 2002 and July 28, 2001, and the related consolidated statements of operations, shareholders' equity and comprehensive income, and cash flows for each of the years in the three-year period ended July 27, 2002. 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 auditing standards generally accepted in the United States of America. 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 subsidiaries as of July 27, 2002 and July 28, 2001, and the results of their operations and their cash flows for each of the years in the three-year period ended July 27, 2002, in conformity with accounting principles generally accepted in the United States of America. As discussed in note 1 to the consolidated financial statements, the Company adopted the provisions of Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" in fiscal 2002, which changes its accounting for goodwill and intangible assets. Short Hills, New Jersey October 1, 2002 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 2002 4th Quarter 38.75 26.50 3rd Quarter 36.80 26.20 2nd Quarter 27.50 19.85 1st Quarter 20.98 17.75 2001 4th Quarter 20.20 14.50 3rd Quarter 14.70 13.50 2nd Quarter 14.37 13.00 1st Quarter 13.00 11.75
As of October 1, 2002, there were 489 holders of record of the Company's Class A common stock. No dividends were paid during fiscal 2002 and 2001. 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 KEVIN BEGLEY Chief Financial Officer GEORGE J. ANDRESAKES Director JOHN J. McDERMOTT Director Steven 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 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 Exhibit 21 SUBSIDIARIES OF REGISTRANT The Company has two wholly-owned subsidiaries at July 27, 2002. Village Super Market of PA, Inc., which is organized under the laws of Pennsylvania and Village Super Market of NJ, L.P., which is organized under the laws of New Jersey. The financial statements of all subsidiaries are included in the Company's consolidated financial statements. Exhibit 23 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, 2002, with respect to the consolidated balance sheets of Village Super Market, Inc. as of July 27, 2002 and July 28, 2001 and the related consolidated statements of operations, shareholders' equity and comprehensive income, and cash flows for each of the years in the three-year period ended July 27, 2002, which report is incorporated herein by reference in the July 27, 2002 annual report on Form 10-K of Village Super Market, Inc. Our report refers to a change in accounting for goodwill and intangible assets. /s/ KPMG LLP Short Hills, New Jersey October 24, 2002 Exhibit 99 VILLAGE SUPER MARKET, INC. REPORTS RESULTS FOR THE FOURTH QUARTER & YEAR ENDED JULY 27, 2002 Contact: Kevin Begley, C.F.O. (973) 467-2200, Ext. 220 Springfield, New Jersey - October 1, 2002 - Village Super Market, Inc. (NSD-VLGEA) reported sales and net income for the fourth quarter and year ended July 27, 2002, Perry Sumas, President announced today. Net income was $3,875,000 ($1.23 per diluted share) in the fourth quarter of fiscal 2002, an increase of 9% from the prior year. Net income increased due to a substantial sales increase and improved gross profit percentages, partially offset by increased operating expenses. Sales in the fourth quarter were $225,345,000, an increase of 7.0% from the prior year. Same store sales increased 3.0%, which was mostly attributable to substantially improved sales in three stores in the general area of the closed Ventnor store. Although the fourth quarter same store sales increase of 3.0% is well above that experienced by other supermarket chains recently, it is below the 4.8% same store sales increase we experienced for the first nine months of this fiscal year. A total of five competitive openings affecting eight Village stores occurred in the latter part of fiscal 2002. These competitive openings, and the increased promotional spending in response to these competitive openings, along with recent softening in the economy, are expected to reduce the same store sales increase in the first quarter of fiscal 2003 to approximately .5% to 1.5%. Based on the above factors, and a comparison to a very strong first quarter last year, we believe it will be difficult to match the earnings level achieved in the October 2001 quarter. Net income for the fiscal year increased to $12,558,000 ($4.00 per diluted share), an increase of 33% from the prior year. Excluding non-cash impairment charges in both fiscal years, net income increased 28%. The increase in net income for the fiscal year was primarily attributable to increased same store sales and increased gross profit percentages, partially offset by increased operating expenses. Sales for the year were $883,337,000, an increase of 7.6% from the prior year. Same store sales increased 4.3%. Village Super Market operates a chain of 23 supermarkets under the ShopRite name in New Jersey and eastern Pennsylvania. The following table summarizes the results for the quarter and year ended July 27, 2002:
July 27, 2002 July 28, 2001 Quarter Ended Sales $225,345,000 $210,666,000 Net Income $ 3,875,000 $ 3,556,000 Net Income Per Share - Basic $ 1.26 $ 1.17 Net Income Per Share - Diluted $ 1.23 $ 1.15 Year Ended Sales $883,337,000 $820,627,000 Net Income $ 12,558,000 $ 9,443,000 Net Income Per Share - Basic $ 4.11 $ 3.13 Net Income Per Share - Diluted $ 4.00 $ 3.08
FORWARD-LOOKING STATEMENTS: This Press Release 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, local economic conditions, competitive pressures from the Company's operating environment, the ability of the Company to maintain and improve its sales and margins, the ability to attract and retain qualified associates, the availability of new store locations, availability of capital, the liquidity of the Company on a cash flow basis, the success of operating initiatives, and other risk factors detailed in the Company's filings with the SEC. Exhibit 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of Village Super Market, Inc. (the "Company") on Form 10-K for the period ending July 27, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, James Sumas, Principal Executive Officer of the Company certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to 906 of the Sarbanes-Oxley Act of 2002, that: 1 The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ James Sumas James Sumas Principal Executive Officer October 24, 2002 Exhibit 99.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of Village Super Market, Inc. (the "Company") on Form 10-K for the period ending July 27, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Kevin Begley Chief Financial Officer of the Company certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to 906 of the Sarbanes-Oxley Act of 2002, that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Kevin Begley Kevin Begley Chief Financial Officer & Principal Accounting Officer October 24, 2002 -----END PRIVACY-ENHANCED MESSAGE-----