-----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, TUoh8VFRUEigmGpSmfmpXqFqo/6nk8y6vum5hnK+JNi0BoiKDOY3Gcs/DjkYJiW1 eq3NKzsrnPX6OFrbPCwhzA== 0000103595-03-000012.txt : 20031022 0000103595-03-000012.hdr.sgml : 20031022 20031022162525 ACCESSION NUMBER: 0000103595-03-000012 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20030726 FILED AS OF DATE: 20031022 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: 03952134 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 village10k.txt VILLAGE SUPER MARKET, INC. 10-K FOR JULY 26, 2003 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 26, 2003. [ ] 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 (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [x] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act.) Yes No X The aggregate market value of the Class A common stock of Village Super Market, Inc. held by non-affiliates was approximately $36,332,000 and the aggregate market value of the Class B common stock held by non-affiliates was approximately $11,647,000 (based upon the closing price of the Class A shares on the Over the Counter Market on January 24, 2003, the last business day of the second fiscal quarter). 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, 2003 Class A common stock, no par value 1,495,200 Shares Class B common stock, no par value 1,594,076 Shares
DOCUMENTS INCORPORATED BY REFERENCE Information contained in the 2003 Annual Report to Shareholders and the 2003 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 12, 2003 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. The Company undertakes no obligation to update forward-looking statements and to reflect developments or information obtained after the date hereof. The following are among the principal factors that could cause actual results to differ from the forward-looking statements: 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; the success of operating initiatives; consumer spending patterns; increased cost of goods sold, including increased costs from the Company's principal supplier, Wakefern; results of ongoing litigation; the results of union contract negotiations; competitive store openings; the rate of return on pension assets; and other factors detailed herein and in other filings of the Company. GENERAL Village Super Market, Inc., which was founded in 1937, 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 seeks to generate high sales volume by offering a wide variety of high quality products at consistently low prices. During fiscal 2003, sales per store was $39,236,000 and sales per selling square foot was $911. 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 superstores. Below is a summary of the range of store sizes at July 26, 2003:
Total Square Feet Number of Stores Greater than 60,000 8 50,001 to 60,000 6 40,000 to 50,000 7 Less than 40,000 2 --- Total 23 ===
These larger store sizes enable the Company's superstores to provide a "one-stop" shopping experience and 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, ethnic and 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. 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 2001 2002 2003 Groceries 40.7% 40.3% 39.7% Dairy and Frozen 15.9 16.0 16.0 Meats 9.5 9.6 9.7 Non-Foods 10.3 10.0 9.8 Produce 10.3 10.5 10.8 Appetizers and prepared foods 4.6 4.8 4.9 Seafood 2.1 2.2 2.2 Pharmacy 4.8 4.9 5.1 Bakery 1.6 1.6 1.7 Other .2 .1 .1 ----- ----- ----- 100.0% 100.0% 100.0% ===== ===== ===== Number of superstores 20 21 21 Selling square feet represented by superstores 94% 95% 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. The Company operates one liquor store and a stand-alone drug store near its Bernardsville 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 2003, the Company remodeled the English Creek, Hillsborough and Rio Grande 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 an older, smaller store. The Company has budgeted $11,000,000 for capital expenditures in fiscal 2004. The major planned expenditures are an 11,000 sq. ft. expansion and remodel of the Bernardsville store and equipment for a replacement store in Somers Point. Delays associated with governmental regulations, and the general difficulty in developing retail properties in the Company's primary trading area, have prevented the Company from opening 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 FOOD CORPORATION The Company is the second largest member of Wakefern (owning 16.9% 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 38 individual member companies and 206 supermarkets, including 51 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. ShopRite private label products accounted for approximately 17% of sales in fiscal 2003. 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. James Sumas is Vice Chairman of Wakefern and a member of the Wakefern Board of Directors. 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. 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 termination 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., then 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 materially 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 members' obligations to Wakefern. Moreover, every owner of 5% or more of the voting stock of a member must personally guarantee prompt payment of all amounts due Wakefern from that member. Five members of the Sumas family have guaranteed the Company's obligations to Wakefern. 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. During fiscal 2003, Wakefern increased the maximum per store capital contribution from $550,000 to $650,000. This resulted in the Company's recording an additional investment and obligation of $2,119,000. The total amount outstanding from all capital pledges to Wakefern is $3,148,000 at July 26, 2003. 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. The Company began installing self-checkout systems in fiscal 2002. Currently, six stores use these systems to provide improved customer service, especially during peak periods, and reduce operating costs. The Company has installed computer-based training systems in all stores. The system is currently used to assist in the training of all new check-out, produce and delicatessen associates. The Company currently utilizes digital surveillance systems in 12 stores to aid shrink reduction, increase productivity and assist in accident investigations. During fiscal 2003, the camera systems were integrated with our cashier monitoring system. 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. 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 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'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, 2003, the Company employed approximately 4,200 persons of whom approximately 67% worked part-time. Approximately 90% of the Company's employees are covered by collective bargaining agreements. A contract with the union in the Stroudsburg, Pa. store expired June 21, 2003. Negotiations with this union are ongoing. Contracts with the Company's other five unions expire between May 2004 and August 2007. Most of the Company's competitors in New Jersey are similarly unionized. AVAILABLE INFORMATION As a member of the Wakefern cooperative, the Company relies upon our customer driven website, www.shoprite.com, for interaction with customers and prospective employees. This website is maintained by Wakefern for the benefit of all 206 ShopRite supermarkets, and therefore, does not contain any financial information related to the Company. The Company will provide paper copies of the annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and press releases free of charge upon request to any shareholder. In addition, electronic copies of these filings can be obtained at www.sec.gov. REGULATORY ENVIRONMENT The Company's business requires various licenses and the registration of facilities with state and federal health, drug and alcoholic beverage regulatory agencies. By virtue of these licenses and registration requirements, the Company is obligated to observe certain rules and regulations, and a violation such of and rules and regulations could result in a suspension or revocation of licenses or registrations. In addition, most licenses require periodic renewals. The Company has not experienced material difficulties with respect to obtaining or retaining licenses and registrations. ITEM 2. PROPERTIES The Company owns the sites of five of its supermarkets (containing 335,000 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 18 supermarkets (containing 917,000 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 eight 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. 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 26, 2003 was approximately $8,713,000. 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. During fiscal 2003, the Company received $1,639,000 in distributions from these two partnerships, which are included in income before income taxes. 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 60 Vice President and Assistant Secretary since 1983; responsible for administration of headquarters staff. Kevin Begley 45 Chief Financial Officer since 1987. Treasurer since 2002. 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 23 in the Company's Annual Report to Shareholders for the fiscal year ended July 26, 2003. 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 26, 2003. 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 8 in the Company's Annual Report to Shareholders for the fiscal year ended July 26, 2003. 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 26, 2003, 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% (4.54% at July 26, 2003) on an initial 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 26, 2003, would result in an annual increase in interest expense and a corresponding reduction in cash flow of approximately $100,000. At July 26, 2003, the Company had demand deposits of $30,918,000 earning interest at prime less 2.5%, or overnight money market rates, 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 9 to 22 in the Company's Annual Report to Shareholders for the fiscal year ended July 26, 2003. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. ITEM 9A. CONTROLS AND PROCEDURES As required by Rule 13a-15 under the Exchange Act, the Company carried out an evaluation of the effectiveness of the design and operation of the Company's disclosure controls and procedures at the end of the period. This evaluation was carried out under the supervision, and with the participation, of the Company's management, including the Company's Chief Executive Officer along with the Company's Chief Financial Officer. Based upon that evaluation, the Company's Chief 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 internal controls over financial reporting during the fourth quarter of fiscal 2003. 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 Chief Executive Officer and Chief Financial Officer as appropriate, to allow timely decisions regarding required disclosure. 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 7, 2003, in connection with its Annual Meeting scheduled to be held on December 12, 2003. 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 7, 2003, in connection with its Annual Meeting scheduled to be held on December 12, 2003. 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 7, 2003, in connection with its annual meeting scheduled to be held on December 12, 2003. 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 7, 2003, in connection with its annual meeting scheduled to be held on December 12, 2003. ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES The information required by this item 14 is incorporated by reference from the Company's definitive Proxy Statement to be filed on or before November 7, 2003 in connection with its annual meeting scheduled to be held on December 12, 2003. PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON FORM 8-K (a) 1. Financial Statements: Consolidated Balance Sheets - July 26, 2003 and July 27, 2002. Consolidated Statements of Operations - years ended July 26, 2003, July 27, 2002 and July 28, 2001. Consolidated Statements of Shareholders' Equity and Comprehensive Income - years ended July 26, 2003,July 27, 2002 and July 28, 2001. Consolidated Statements of Cash Flows - years ended July 26, 2003, July 27, 2002 and July 28, 2001. 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 26, 2003. 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; 4.5 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. 99.1 Certification (furnished, not filed) Exhibit No. 99.2 Certification (furnished, not filed) Exhibit No. 99.3 Certification Exhibit No. 99.4 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: 10.5 Form 10-K for 1993: 3, 10.1, 10.2 and 10.3 (b) Reports on Form 8-K. On May 30, 2003, the Company filed a report on form 8-K with the SEC under item 9 regarding its release announcing consolidated financial results for the third quarter of fiscal 2003. 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 & Chief Executive Principal Accounting Officer Officer Date: October 22, 2003 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 22, 2003 October 22, 2003 /s/ Robert Sumas /s/ William Sumas Robert Sumas, Director William Sumas, Director October 22, 2003 October 22, 2003 /s/ John P. Sumas /s/ John J. McDermott John P. Sumas, Director John J. McDermott, Director October 22, 2003 October 22, 2003 /s/ David C Judge /s/ Steven Crystal David C. Judge, Director Steven Crystal, Director October 22, 2003 October 22, 2003 Exhibit 21 SUBSIDIARIES OF REGISTRANT The Company has two wholly-owned subsidiaries at July 26, 2003. 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, 2003, with respect to the consolidated balance sheets of Village Super Market, Inc. as of July 26, 2003 and July 27, 2002 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 26, 2003, which report is incorporated herein by reference in the July 26, 2003 annual report on Form 10-K of Village Super Market, Inc. /s/ KPMG LLP Short Hills, New Jersey October 24, 2003 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 26, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, James Sumas, Chief 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 Chief Executive Officer October 22, 2003 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 26, 2003 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 22, 2003 Exhibit 99.3 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 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 report; 3. Based on my knowledge, the financial statements, and other financial information included in this 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 report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's fourth quarter that has materially effected, or is reasonably likely to materially effect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, 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 and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: October 22, 2003 /s/ James Sumas James Sumas Chief Executive Officer Exhibit 99.4 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 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 report; 3. Based on my knowledge, the financial statements, and other financial information included in this 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 report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's fourth quarter that has materially effected, or is reasonably likely to materially effect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, 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 and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: October 24, 2003 /s/ Kevin Begley Kevin Begley Chief Financial Officer & Principal Accounting Officer EX-13 3 annualreport.txt VILLAGE SUPER MARKET, INC. ANNUAL REPORT FOR JULY 26, 2003 VILLAGE SUPER MARKET, INC. ANNUAL REPORT 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...................................................9 Consolidated Statements of Operations........................................10 Consolidated Statements of Shareholders' Equity and Comprehensive Income............................................11 Consolidated Statements of Cash Flows........................................12 Notes to Consolidated Financial Statements...................................13 Independent Auditors' Report.................................................23 Stock Price and Dividend Information.........................................23 Corporate Directory...........................................Inside back cover Dear Fellow Shareholders The supermarket industry has faced significant challenges the last two years. Consumer spending has remained constrained amid worries about a sluggish economy, rising unemployment and war. Locally, a total of seven store openings by competitors impacted our stores since the spring of 2002 and our market areas continued to be highly promotional. Despite these challenging conditions, we achieved solid results in fiscal 2003. Net income in fiscal 2003 was $11,100,000, or $3.54 per diluted share, a decline of 12% from the prior year. Sales increased 2.2% to $902,420,000. Same store sales increased 1.6%. Approximately half of the increase in same store sales resulted from substantial sales increases in the Garwood and Hammonton stores, which opened in fiscal 2002. The strong customer response to these stores has confirmed our store design emphasis on the Power Alley and to the increased display space committed to more diverse produce, international foods, and organic and natural foods. During fiscal 2003 we completed substantial interior remodels of the Egg Harbor, Hillsborough and Rio Grande stores. While each of these stores was already in excess of 60,000 total sq. ft., we invested in these renovations to freshen the appearance of the stores and to expand certain categories, such as natural foods, to reflect our customers changing needs. In September 2003, we began an 11,000 sq.ft. expansion and remodel of the Bernardsville store. In October, construction began on an 80,000 sq.ft. replacement store in Somers Point, which is scheduled to open in June 2004. We continue to leverage our investment in technology to improve the shopping experience of our customers through target marketing. We added a Continental OnePass miles program for Price Plus loyalty card members this year. We also initiated a Pet Bucks reward program and enhanced our Baby Bucks and Kid's Club loyalty programs. ShopRite was named the official supermarket of the New York Giants in October. Customers who purchase the products of sponsoring vendors will be eligible to win various prizes, including serving as honorary captain at a Giants home game. On June 20, 2003, the Board of Directors declared the first cash dividend since 1992. The Board of Directors decided to pay a dividend based on the recent tax law, our cash flow generation, and our strong financial condition. Class A shareholders received a semi-annual dividend of $.13 and Class B shareholders received $.08. In closing, we would like to thank all our associates for their diligent effort and imagination in identifying and satisfying the needs of our customers. We also would like to thank our fellow shareholders for their continued support and our customers for their patronage. James Sumas, Perry Sumas, Chairman of the Board President Selected Financial Data (Dollars in thousands except per share and square feet data)
July 26, July 27, July 28, July 29, July 31, For year 2003 2002 2001 2000 1999 Sales $ 902,420 $ 883,337 $ 820,627 $ 784,995 $ 750,680 Net income 11,100 12,558 9,443 8,426 4,722 Net income per share - basic 3.60 4.11 3.13 2.81 1.59 Net income per share - diluted 3.54 4.00 3.08 2.76 1.55 Cash dividends per share Class A .13 -- -- -- -- Class B .08 -- -- -- -- At year end Total assets 216,578 204,053 183,346 175,987 149,555 Long-term debt 37,241 43,634 43,363 43,998 27,204 Working capital (deficit) 28,245 20,212 17,087 10,690 (7,197) Shareholders' equity 106,777 97,443 84,770 75,152 66,477 Book value per share 34.56 31.69 27.97 24.94 22.24 Other data Same store sales increase 1.6% 4.3% 3.6% 2.9% 6.0% Total square feet 1,252,000 1,252,000 1,184,000 1,182,000 1,182,000 Average total sq. ft. per store 54,000 54,000 54,000 51,000 51,000 Selling square feet 991,000 991,000 935,000 934,000 934,000 Sales per average square foot of selling space 911 917 878 840 846 Number of stores 23 23 22 23 23 Sales per average number of stores 39,236 38,406 37,301 34,130 33,364 Capital expenditures 10,851 20,767 15,070 13,312 7,084
Unaudited Quarterly Financial Data (Dollars in thousands except per share amounts) First Second Third Fourth Fiscal Quarter Quarter Quarter Quarter Year 2003 Sales $216,538 $233,911 $221,450 $230,521 $902,420 Gross profit 54,033 57,891 55,169 58,271 225,364 Net income 2,450 4,040 1,897 2,713 11,100 Net income per share - diluted $ .78 $ 1.28 $ .60 $ .87 $ 3.54 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
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 26, July 27, July 28, 2003 2002 2001 Sales 100.00% 100.00% 100.00% Cost of sales 75.03 74.91 75.51 ------ ------ ------ Gross profit 24.97 25.09 24.49 Operating and administrative expense 21.75 21.49 21.27 Depreciation and amortization .99 .91 .96 Non-cash impairment charge -- .07 .14 ----- ----- ----- Operating income 2.23 2.62 2.12 Income from partnerships .18 -- -- Interest expense, net .33 .37 .33 ----- ----- ----- Income before income taxes 2.08 2.26 1.79 Income taxes .85 .83 .64 ----- ----- ----- Net income 1.23% 1.42% 1.15% ===== ===== =====
Sales were $902,420,000 in fiscal 2003, an increase of $19,083,000, or 2.2% from the prior year. Same store sales increased 1.6% in fiscal 2003. Same store sales include sales in the Garwood store beginning with the second quarter of fiscal 2003 and the Hammonton store beginning with the fourth quarter of fiscal 2003. Approximately half of the increase in same store sales in fiscal 2003 was attributable to improved sales in the Garwood and Hammonton stores after their inclusion in the same store sales calculation. Same store sales increased less in fiscal 2003 than in recent fiscal years due to substantial store openings by competitors near the Company's stores in fiscal 2003 and late fiscal 2002, a soft local economy and increased promotional activity in our marketplace. 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. Gross profit as a percentage of sales decreased .12% in fiscal 2003 due to higher promotional spending in the current year and incentives received in fiscal 2002 in connection with the two store openings. These decreases were partially offset by improved product mix in fiscal 2003. Gross profit as a percentage of sales increased .60% in fiscal 2002 due to improved product mix, incentives received in connection with the two store openings, reduced LIFO charges and improved gross profit percentages in most departments. This improvement was partially offset by increased promotional spending. Operating and administrative expense increased .26% as a percentage of sales in fiscal 2003 primarily due to increased fringe benefit costs, increased debit/credit card processing fees and increased snow removal costs. Fringe benefit costs increased primarily due to higher required contributions to employee health and pension plans under union contracts. This trend of increased contributions to employee benefit plans under union contracts is expected to continue in fiscal 2004. In addition, rates charged by various utilities for electricity and gas will increase by an estimated 6% to 15% in fiscal 2004. Operating and administrative expense increased .22% 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. Depreciation and amortization expense was $8,929,000, $8,002,000 and $7,875,000 in fiscal 2003, 2002 and 2001, respectively. Depreciation and amortization expense increased in fiscal 2003 due to a full year of depreciation on the substantial fixed asset additions placed in service in the prior fiscal year, partially offset by the discontinuance of depreciation on the closed Ventnor store. 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). 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. Fiscal 2003 income before income taxes includes $1,639,000 of distributions received from two partnerships in which the Company is a limited partner. The Company's ownership interests in these partnerships resulted from its leasing of supermarkets in two shopping centers. The Company remains a tenant in one of the shopping centers. The Company's accounting for these partnerships under the equity method had previously resulted in a zero investment balance in the consolidated financial statements. Interest expense, net was $2,982,000, $3,234,000 and $2,725,000 in fiscal 2003, 2002 and 2001, respectively. Interest expense, net decreased in fiscal 2003 due to the benefit of lower interest rates and reduced borrowing levels. Interest expense, net increased in fiscal 2002 due to lower interest income earned on cash balances invested due to lower interest rates. Fiscal 2002 included $171,000 of interest cost capitalized related to new store construction compared to $389,000 in fiscal 2001. The Company's effective income tax rate was 41.0%, 37.0% and 35.9% in fiscal 2003, 2002 and 2001, respectively. The effective income tax rate increased in fiscal 2003 due to enacted changes in state tax laws. The state tax law changes have resulted in the Company recording an additional current liability of $1,054,000 because the benefit of a tax planning strategy has not been recognized for financial reporting purposes. 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. 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 of operations 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. Impairment 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. Since the Company's stock is not widely traded, management utilizes valuation techniques such as earnings multiples to assess goodwill for impairment. Calculating the fair value of a reporting unit requires the use of estimates. Management believes the fair value of the Company's one reporting unit exceeds its carrying value. Should the Company's carrying value of goodwill exceed its fair value, the amount of any resulting goodwill impairment may be material to the Company's financial position and results of operations. Patronage Dividends 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. The amount of patronage dividends receivable based on these estimates were $3,633,602 and $2,196,219 at July 26, 2003 and July 27, 2002, respectively. Pension Plans The determination of the Company's obligation and expense for pension benefits is dependent, in part, on the Company's selection of assumptions used by actuaries in calculating those amounts. These assumptions are described in Note 8 and include, among others, the discount rate, the expected long-term rate of return on plan assets and the rate of increase in compensation costs. In accordance with generally accepted accounting principles, actual results that differ from the Company's assumptions are accumulated and amortized over future periods and, therefore, generally affect recognized expense and recorded obligations in future periods. While management believes that its assumptions are appropriate, significant differences in actual experience or significant changes in the Company's assumptions may materially effect pension obligations and future expense. Based on the Company's review of market interest rates, the Company lowered the discount rate to 6.75% for fiscal 2003 compared to 7.25% for fiscal 2002. The fifty basis point reduction in the discount rate increased the projected benefit obligation as of July 26, 2003 by $1,139,000. Fiscal 2003 pension expense increased by $77,000 as a result of this change. Fiscal 2004 expense is expected to be approximately $1,300,000. The Company evaluated the expected long-term rate of return on plan assets of 7.5% and the expected increase in compensation costs of 4% and concluded no changes in these assumptions were necessary in estimating pension plan obligations and expense. LIQUIDITY AND CAPITAL RESOURCES Net cash provided by operating activities was $24,830,000 in fiscal 2003 compared to $22,876,000 in fiscal 2002. This increase is due to a decrease in inventories in fiscal 2003 compared to an increase in inventories in fiscal 2002, the benefit of reduced quarterly income tax payments in fiscal 2003 from a tax receivable generated in fiscal 2002 and increased deferred taxes. These increased cash flows were partially offset by reduced net income in fiscal 2003, a decrease in accounts payable and accrued expenses in fiscal 2003 compared to an increase in fiscal 2002, and increased accrual for patronage dividends in fiscal 2003. During fiscal 2003, operating cash flow of $24,830,000 and proceeds from asset disposals of $4,006,000 (see related party transactions) were used to fund capital expenditures of $10,851,000, make debt payments of $3,080,000 and to increase cash on hand by $14,730,000. Major capital expenditures in fiscal 2003 included remodels of the Egg Harbor, Hillsborough and Rio Grande stores. Working capital was $28,245,000, $20,212,000 and $17,087,000 at July 26, 2003, July 27, 2002 and July 28, 2001, respectively. Working capital ratios at the same dates were 1.46, 1.36 and 1.33 to one, respectively. The Company's working capital needs are reduced since inventory is generally sold by the time payments to Wakefern and other suppliers are due. The working capital ratio increased in fiscal 2003 primarily due to the substantial increase in cash and cash equivalents, partially offset by the increase in current payments due on notes payable. 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. The Company borrowed $3,000,000 secured by equipment in fiscal 2002 and made principal payments on debt of $2,945,000. The Company has budgeted approximately $11,000,000 for capital expenditures in fiscal 2004. Planned expenditures include the expansion and remodel of the Bernardsville store and equipment for the Somers Point replacement store. The Company's primary sources of liquidity in fiscal 2004 are expected to be the cash on hand at July 26, 2003 and operating cash flow to be generated in fiscal 2004. In addition, the Company has available a $15,000,000 (none outstanding at July 26, 2003) unsecured revolving credit line, which expires September 16, 2004. The Company is currently negotiating a replacement revolving credit facility and expects to do so during fiscal 2004. At July 26, 2003, the Company was in compliance with all terms and covenants of both its unsecured revolving loan agreement and its unsecured senior note agreement. These agreements contain covenants which, among other matters, specify limitations on total debt levels, total liens, payments of dividends, stock repurchases, and capital expenditures. In addition, these agreements specify required levels of net worth and fixed charge coverage. The table below presents significant contractual obligations of the Company at July 26, 2003: Payments Due By Period
2004 2005 2006 2007 2008 Thereafter Total Long-term debt $ 6,233,903 $ 6,229,065 $ 5,506,588 $ 5,388,074 $ 4,860,338 $ 8,571,430 $ 36,789,398 Capital leases $ 1,263,384 $ 1,274,804 $ 1,290,792 $ 1,107,740 $ 741,636 $ 4,063,654 $ 9,742,010 Operating leases $ 6,666,696 $ 6,670,636 $ 6,232,363 $ 5,568,410 $ 5,238,589 $ 67,569,717 $ 97,946,411 Notes payable to related party $ 832,796 $ 711,901 $ 680,940 $ 680,750 $ 91,000 $ 150,868 $ 3,148,255 ----------- ----------- ----------- ----------- ----------- ----------- ----------- $ 14,996,779 $ 14,886,406 $ 13,710,683 $ 12,744,974 $ 10,931,563 $ 80,355,669 $147,626,074 =========== =========== =========== =========== =========== =========== ===========
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). ADOPTION OF NEW ACCOUNTING STANDARDS The Company has one stock-based employee compensation plan, which is described in Notes 1 and 7. During fiscal 2003, the Company adopted the fair value recognition provisions of FASB Statement 123, "Accounting for Stock-Based Compensation", prospectively in accordance with FASB Statement 148 to all employee awards granted, modified or settled after July 28, 2002. Prior to fiscal 2003, the Company accounted for its employee stock option plan under the recognition and measurement provisions of APB Opinion 25, "Accounting for Stock Issued to Employees". In accordance with the intrinsic value method of accounting for stock options under APB 25, no stock-based employee compensation cost is reflected in fiscal 2002 and 2001 net income, as all options granted had an exercise price equal to the fair value of the Company's stock at the date of grant. The following table illustrates the effect on net income and net income per share if the fair value based method had been applied to all awards in each period.
July 26, July 27, July 28, 2003 2002 2001 Net income, as reported $11,099,708 $12,557,639 $9,443,302 Add: Stock-based employee compensation expense included in reported net income, net of related tax effects 41,847 -- -- Deduct: Total stock-based employee compensation expense determined under fair value method for all awards, net of related tax effects (41,847) (70,840) -- ---------- ---------- --------- Pro forma net income $11,099,708 $12,486,799 $9,443,302 ========== ========== ========= Net income per share: Basic - as reported $ 3.60 $ 4.11 $ 3.13 Basic - pro forma $ 3.60 $ 4.08 $ 3.13 Diluted - as reported $ 3.54 $ 4.00 $ 3.08 Diluted - pro forma $ 3.54 $ 3.98 $ 3.08
Effective July 28, 2002, the Company adopted the provisions of FASB 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 implementation of this statement had an immaterial effect on the consolidated financial statements of the Company. Effective July 28, 2002, the Company adopted the provisions of FASB 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, whether previously held and used or newly acquired. This statement also broadens the presentation of discontinued operations to include more disposal transactions. The implementation of this statement did not have any impact on the consolidated financial statements of the Company. In June 2002, the FASB issued Statement 146, "Accounting for Costs Associated with Exit or Disposal Activities." This statement requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan and applies to any exit or disposal activities initiated after December 31, 2002. The implementation of this statement did not have any impact on the consolidated financial statements of the Company. In November 2002, the FASB Emerging Issues Task Force (EITF) reached a consensus with respect to EITF Issue 02-16, "Accounting for Consideration Given by a Vendor to a Customer." This consensus includes a presumption that cash consideration received by a customer from a vendor is to be treated as a reduction of cost of sales in the customer's income statement. As the Company already accounted for such consideration as a reduction of cost of sales, this EITF had no impact on the Company's consolidated financial statements. In May 2003, the FASB issued Statement 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." This statement requires issuers to classify certain financial instruments within its scope as a liability because that financial instrument embodies an obligation of the issuer. The statement is effective for financial instruments entered into or modified after May 31, 2003, and for interim periods beginning after June 15, 2003. As the Company had no financial instruments within the scope of Statement 150 at July 26, 2003, the implementation of this statement did not have any impact on the consolidated financial statements of the Company. FASB Interpretation 45 ("FIN 45"), "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others," was issued by the FASB in November of 2002. FIN 45 addresses a guarantor's accounting for, and disclosure of, the issuance of some guarantees. The provisions of FIN 45 relating to initial recognition and measurement are effective on a prospective basis for guarantees issued or modified after December 31, 2002. These provisions did not have any impact on the consolidated financial statements in fiscal 2003. OTHER MATTERS On November 22, 2000, Big V Supermarkets, Inc., then 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 materially 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 its 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 26, 2003, the Company's indebtedness to Wakefern for the outstanding amount of this stock subscription was $3,148,225. 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 26, 2003 the Company had demand deposits invested at Wakefern in the amount of $30,918,000. These deposits earn the prime rate of interest less 2.5% or overnight money market rates. The Company leases the Vineland store from Wakefern at an annual rent of $700,000. On April 2, 2003, the Company sold the land and building currently occupied by the Somers Point, NJ store to an unrelated real estate investment trust (the "REIT") for $3,500,000 plus the reimbursement of certain costs. The Company's purpose in entering into this transaction was to provide for the development of an 80,000 sq. ft. replacement store in Somers Point with minimal cash outlay by the Company, and to ensure continued occupancy of the Springfield, NJ store and the Company's headquarters. The Company executed leases with the REIT for the replacement store in Somers Point and to continue occupancy of the current Somers Point store until the replacement store is constructed by the REIT. In addition, the Company executed long-term leases with the REIT for the Springfield store and the Company's headquarters, which were previously leased from a realty Company owned by certain officers of the Company (the "Realty Company"). The Company canceled 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 cancelled. As part of this transaction, the shareholders of the Realty Company sold 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. This transaction resulted in no net gain or loss to the Company. Although the transactions with the unrelated, publicly traded REIT were negotiated at arms-length, the Company's independent directors evaluated and approved these transactions for fairness due to the concurrent sale by the Realty Company, which was a related party. In addition, the Company leases a supermarket from a different realty firm partly-owned by officers of the Company. The Company paid aggregate rents to related parties under all the above leases, including minimum and contingent rent, of approximately $926,000, $1,096,000 and $1,152,000 in fiscal years 2003, 2002 and 2001, respectively. IMPACT OF INFLATION AND CHANGING PRICES Although the Company cannot accurately determine the precise effect of inflation or deflation on its operations, it estimates that product prices overall experienced very little inflation or deflation in fiscal 2003. FORWARD-LOOKING STATEMENTS This Annual Report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Actual events and results may vary significantly from those contemplated or implied by such forward-looking statements. The Company undertakes no obligation to update forward-looking statements to reflect developments or information obtained after the date hereof. The following are among the principal factors that could cause actual results to differ materially from the forward-looking statements: 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; the success of operating initiatives; consumer spending patterns; increased cost of goods sold, including increased costs from the Company's principal supplier, Wakefern; the results of union contract negotiations; competitive store openings; the rate of return on pension assets; and other factors detailed herein and in other filings of the Company.
Consolidated Balance Sheets July 26, July 27, 2003 2002 ASSETS CURRENT ASSETS Cash and cash equivalents $ 48,500,180 $ 33,770,136 Merchandise inventories 32,304,243 33,780,335 Patronage dividend receivable 3,633,602 2,196,219 Other current assets 5,206,849 6,861,678 ------------- ------------ Total current assets 89,644,874 76,608,368 ------------- ------------ PROPERTY, EQUIPMENT AND FIXTURES, net 96,320,477 98,673,591 OTHER ASSETS Investment in related party, at cost 15,875,332 13,663,449 Goodwill 10,605,021 10,605,021 Other assets 4,132,238 4,502,559 ------------- ------------- Total other assets 30,612,591 28,771,029 ------------- ------------- $ 216,577,942 $ 204,052,988 ============= ============= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Notes payable $ 6,233,903 $ 2,094,816 Capitalized lease obligations 663,458 543,724 Notes payable to related party 832,796 422,760 Accounts payable to related party 32,347,599 30,630,704 Accounts payable and accrued expenses 21,322,584 22,704,503 ------------- ------------- Total current liabilities 61,400,340 56,396,507 ------------- ------------- LONG-TERM DEBT Notes payable 30,903,033 36,769,449 Capitalized lease obligations 4,022,802 5,899,360 Notes payable to related party 2,315,459 965,333 ------------- ------------- Total long-term debt 37,241,294 43,634,142 ------------- ------------- Other Liabilities 11,159,054 6,579,476 ------------- ------------- COMMITMENTS AND CONTINGENCIES (notes 3, 4, 6, and 9) 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 18,535,275 18,411,012 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 93,239,313 82,517,249 Accumulated other comprehensive loss (2,329,906) (615,907) Less treasury stock, Class A, at cost (267,600 shares at July 26, 2003 and 282,200 shares at July 27, 2002) (3,702,107) (3,904,170) ------------- ------------- Total shareholders' equity 106,777,254 97,442,863 ------------- ------------- $ 216,577,942 $ 204,052,988 ============= =============
Consolidated Statements of Operations Years Ended July 26, July 27, July 28, 2003 2002 2001 SALES $902,420,334 $883,337,175 $820,627,178 COST OF SALES 677,056,650 661,694,232 619,654,196 ------------ ------------ ------------ GROSS PROFIT 225,363,684 221,642,943 200,972,982 OPERATING AND ADMINISTRATIVE EXPENSE 196,273,348 189,835,338 174,525,488 DEPRECIATION AND AMORTIZATION 8,928,839 8,001,659 7,875,059 NON-CASH IMPAIRMENT CHARGE -- 640,000 1,122,000 ----------- ----------- ----------- OPERATING INCOME 20,161,497 23,165,946 17,450,435 INCOME FROM PARTNERSHIPS 1,639,176 -- -- INTEREST EXPENSE, net of interest income of $423,360, $573,879 and $1,007,511 2,982,002 3,233,737 2,725,021 ----------- ----------- ----------- INCOME BEFORE INCOME TAXES 18,818,671 19,932,209 14,725,414 INCOME TAXES 7,718,963 7,374,570 5,282,112 ------------ ------------ ------------ NET INCOME $ 11,099,708 $ 12,557,639 $ 9,443,302 ============ ============ ============ NET INCOME PER SHARE: BASIC $ 3.60 $ 4.11 $ 3.13 DILUTED $ 3.54 $ 4.00 $ 3.08 =========== =========== ===========
Consolidated Statements of Shareholders' Equity and Comprehensive Income Years Ended July 26, 2003, July 27, 2002 and July 28, 2001 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 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 Net income -- -- -- -- 11,099,708 -- -- 11,099,708 Other comprehensive loss - additional minimum pension liability, net of deferred tax benefit of $1,142,666 -- -- -- -- -- (1,713,999) -- (1,713,999) ---------- Comprehensive income 9,385,709 ---------- Dividends -- -- -- -- (321,644) -- -- (321,644) Exercise of stock options and related tax benefits -- 82,416 -- -- (56,000) -- 202,063 228,479 Stock compensation expense -- 41,847 -- -- -- -- -- 41,847 --------- ---------- --------- ---------- ---------- ---------- ---------- ----------- Balance, July 26, 2003 1,762,800 $18,535,275 1,594,076 $ 1,034,679 $93,239,313 $(2,329,906) $(3,702,107) $106,777,254 ========= ========== ========= ========== ========== ========== ========== ===========
Consolidated Statements of Cash Flows Years Ended July 26, 2003 July 27, 2002 July 28, 2001 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 11,099,708 $ 12,557,639 $ 9,443,302 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 8,928,839 8,001,659 7,875,059 Non-cash impairment charge -- 640,000 1,122,000 Tax benefit from exercise of stock options 82,416 281,540 -- Non-cash stock compensation 41,847 -- -- Deferred taxes 3,094,448 2,028,270 308,664 Provision to value inventories at LIFO 349,962 53,345 806,993 Changes in assets and liabilities: (Increase) decrease in merchandise inventories 1,126,130 (3,365,303) (242,633) (Increase) decrease in patronage dividend receivable (1,437,383) (51,226) 55,653 (Increase) decrease in other current assets 1,654,829 (1,587,480) 631,411 (Increase) in other assets (267,764) (286,774) (454,049) Increase (decrease) in accounts payable to related party 1,716,895 2,266,436 (269,202) Increase (decrease) in accounts payable and accrued expenses (2,052,961) 1,918,912 (39,377) Increase in other liabilities 493,295 419,009 415,363 ---------- ---------- ---------- Net cash provided by operating activities 24,830,261 22,876,027 19,653,184 ---------- ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (10,850,560) (20,766,878) (15,069,721) Proceeds from disposal of assets 4,005,805 -- -- ---------- ---------- ---------- Net cash used in investing activities (6,844,755) (20,766,878) (15,069,721) ---------- ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuance of long-term debt -- 3,000,000 3,000,000 Proceeds from exercise of stock options 146,063 450,000 174,000 Principal payments of long-term debt (3,079,881) (2,944,577) (2,322,932) Dividends (321,644) -- -- --------- --------- --------- Net cash provided by (used in) financing activities (3,255,462) 505,423 851,068 --------- --------- --------- NET INCREASE IN CASH AND CASH EQUIVALENTS 14,730,044 2,614,572 5,434,531 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 33,770,136 31,155,564 25,721,033 ---------- ---------- ---------- CASH AND CASH EQUIVALENTS, END OF YEAR $ 48,500,180 $ 33,770,136 $ 31,155,564 =========== =========== =========== Supplemental disclosures of cash payments made for: Interest (net of amounts capitalized) $ 3,462,064 $ 3,903,585 $ 3,748,819 Income taxes $ 3,005,000 $ 7,101,000 $ 5,233,766 Noncash Supplemental disclosures: Investment in related party $ 2,211,883 $ 550,000 --
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 2003, 2002 and 2001 contain 52 weeks. Reclassifications Certain amounts have been reclassified in the fiscal 2002 and 2001 consolidated financial statements to conform to the fiscal 2003 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 through ShopRite coupons 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 26, 2003 and July 27, 2002 are $30,918,000 and $22,737,000, respectively, of demand deposits invested at Wakefern at the prime rate less 2.5% or at overnight money market rates. Merchandise inventories Approximately 70% 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 $9,712,000 and $9,362,000 higher than reported in fiscal 2003 and 2002, respectively. All other inventories are stated at the lower of FIFO cost or market. Vendor allowances and rebates The Company receives vendor allowances and rebates, including amounts received as a pass through from Wakefern, related to the Company's buying and merchandising activities. Vendor allowances and rebates are recognized as a reduction in cost of sales when the related merchandise is sold or when the required contractual terms are completed. Property, equipment and fixtures Property, equipment and fixtures are recorded at cost. Interest cost incurred to finance construction is capitalized as part of the cost of the asset. 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 its principal supplier, Wakefern, is stated at cost (see Note 3). Store opening and closing costs All store opening costs are expensed as incurred. Prior to the adoption of FASB Statement 146, provisions were made for losses resulting from store closings at the time a decision to close a store was made. This includes items such as future lease payments, net of expected sublease recovery, and charges to reduce assets to net realizable value. Effective July 28, 2002, FASB Statement 146 requires the recognition of costs associated with store closings as those costs are incurred. 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. Advertising Advertising costs are expensed as incurred. Advertising expense was $7,161,000, $6,952,000 and $6,402,000 in fiscal 2003, 2002 and 2001, 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 2003 and 2002, comprehensive income consists of net income and the additional minimum pension liability adjustment, net of income tax benefit. 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, pension accounting assumptions and the impairment of long-lived assets. Actual results could differ from those estimates. Fair value of financial instruments Cash and cash equivalents, patronage dividends receivable, 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 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 one derivative instrument, an interest rate swap agreement, which it entered into in October 2001, to manage its exposure to interest rate fluctuations (see Note 4). The Company has structured this swap agreement to be an effective, fair value hedge of the underlying fixed rate obligation. The fair value of this interest rate swap agreement is recorded in other assets with a corresponding increase in notes payable. The changes in the fair value of the interest rate swap agreement and the underlying fixed rate obligation are recorded as equal and offsetting unrealized gains and losses in interest expense in the consolidated statement of operations. As a result, there is no impact to earnings resulting from hedge ineffectiveness.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. Long-lived assets The Company reviews long-lived assets, such as property, equipment and fixtures and intangibles subject to amortization, on an individual store basis 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. 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. Goodwill 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 primarily considers earnings multiples and other valuation techniques to measure fair value. Prior to the adoption of FASB Statement 142 on July 29,2001, goodwill was amortized over twenty to forty years. Amortization expense related to goodwill was $341,000 for the fiscal year ended July 28, 2001. The Company's net income for the year ended July 28, 2001 would have been $9,739,302 had this amortization expense not been reported in that period. The Company's basic and diluted earnings per share for the year ended July 28, 2001 would have been $3.23 and $3.17, respectively, had the amortization expense not been reported in that year. The Company assessed the recoverability of unamortized goodwill utilizing relevant cash flow and profitability information. Net income per share The number of common shares outstanding for calculation of net income per share is as follows:
2003 2002 2001 Weighted average shares outstanding - basic 3,083,041 3,057,513 3,017,862 Dilutive effect of employee stock options 48,449 81,136 50,056 --------- --------- --------- Weighted average shares outstanding - diluted 3,131,490 3,138,649 3,067,918 ========= ========= =========
Adoption of New Accounting Standards The Company has one stock-based employee compensation plan, which is described in Note 7. During fiscal 2003, the Company adopted the fair value recognition provisions of FASB Statement 123, "Accounting for Stock-Based Compensation", prospectively in accordance with FASB Statement 148 to all employee awards granted, modified or settled after July 28, 2002. Prior to fiscal 2003, the Company accounted for its employee stock option plan under the recognition and measurement provisions of APB Opinion 25, "Accounting for Stock Issued to Employees". In accordance with the intrinsic value method of accounting for stock options under APB 25, no stock-based employee compensation cost is reflected in fiscal 2002 and 2001 net income, as all options granted had an exercise price equal to the fair value of the Company's stock at the date of grant. The following table illustrates the effect on net income and net income per share if the fair value based method had been applied to all awards in each period.
July 26, July 27, July 28, 2003 2002 2001 Net income, as reported $11,099,708 $12,557,639 $ 9,443,302 Add: Stock-based employee compensation expense included in reported net income, net of related tax effects 41,847 -- -- Deduct: Total stock-based employee compensation expense determined under fair value method for all awards, net of related tax effects (41,847) (70,840) -- ---------- ---------- ---------- Pro forma net income $11,099,708 $12,486,799 $ 9,443,302 ========== ========== ========== Net income per share: Basic - as reported $ 3.60 $ 4.11 $ 3.13 Basic - pro forma $ 3.60 $ 4.08 $ 3.13 Diluted - as reported $ 3.54 $ 4.00 $ 3.08 Diluted - pro forma $ 3.54 $ 3.98 $ 3.08
Effective July 28, 2002, the Company adopted the provisions of FASB 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 implementation of this statement had an immaterial effect on the consolidated financial statements of the Company. Effective July 28, 2002, the Company adopted the provisions of FASB 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, whether previously held and used or newly acquired. This statement also broadens the presentation of discontinued operations to include more disposal transactions. The implementation of this statement did not have any impact on the consolidated financial statements of the Company. In June 2002, the FASB issued Statement 146, "Accounting for Costs Associated with Exit or Disposal Activities." This statement requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan and applies to any exit or disposal activities initiated after December 31, 2002. The implementation of this statement did not have any impact on the consolidated financial statements of the Company. In November 2002, the FASB Emerging Issues Task Force (EITF) reached a consensus with respect to EITF Issue 02-16, "Accounting for Consideration Given by a Vendor to a Customer." This consensus includes a presumption that cash consideration received by a customer from a vendor is to be treated as a reduction of cost of sales in the customer's income statement. As the Company already accounted for such consideration as a reduction of cost of sales, this EITF had no impact on the Company's consolidated financial statements. In May 2003, the FASB issued Statement 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." This statement requires issuers to classify certain financial instruments within its scope as a liability because that financial instrument embodies an obligation of the issuer. The statement is effective for financial instruments entered into or modified after May 31, 2003, and for interim periods beginning after June 15, 2003. As the Company had no financial instruments within the scope of Statement 150 at July 26, 2003, the implementation of this statement did not have any impact on the consolidated financial statements of the Company. FASB Interpretation 45 ("FIN 45"), "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others," was issued by the FASB in November of 2002. FIN 45 addresses a guarantor's accounting for, and disclosure of, the issuance of some guarantees. The provisions of FIN 45 relating to initial recognition and measurement are effective on a prospective basis for guarantees issued or modified after December 31, 2002. These provisions did not have any impact on the consolidated financial statements in fiscal 2003. NOTE 2--PROPERTY, EQUIPMENT AND FIXTURES Property, equipment and fixtures are comprised as follows:
July 26, July 27, 2003 2002 Land and buildings $ 53,551,921 $ 60,106,320 Store fixtures and equipment 77,941,833 70,149,558 Leasehold improvements 39,199,519 36,628,394 Leased property under capital leases 7,797,869 8,597,869 Vehicles 1,511,095 1,584,823 ----------- ----------- 180,002,237 177,066,964 Less accumulated depreciation and amortization 83,681,760 78,393,373 ----------- ----------- Property, equipment and fixtures--net $ 96,320,477 $ 98,673,591 =========== ===========
Interest cost capitalized amounted to $171,000 in fiscal 2002 and $389,000 in fiscal 2001 (none in fiscal 2003). Amortization of leased property under capital leases is included in depreciation and amortization expense. NOTE 3--RELATED PARTY INFORMATION - WAKEFERN The Company's ownership interest in its principal supplier, Wakefern, which is operated on a cooperative basis for its stockholder members, is 16.9% of the outstanding shares of Wakefern. The investment is pledged as collateral for any obligations to Wakefern. In addition, all obligations to Wakefern are 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. 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 $650,000. As a result of an increase in the required investment of $100,000 per store during fiscal 2003, the Company increased both its investment and obligation by $2,119,000. At July 26, 2003, the Company's indebtedness to Wakefern for the outstanding amount of this stock subscription was $3,148,255. Installment payments are due as follows: 2004 - $832,796; 2005 - $711,901; 2006 - $680,940; 2007 - $680,750; 2008 - $91,000; and thereafter - $150,868. 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. The Company purchases substantially all of its 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 and other product incentives and rebates, which are recorded as a reduction of cost of sales, amounted to $10,651,000, $9,610,000 and $8,551,000 in fiscal 2003, 2002 and 2001, respectively. 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 26, July 27, 2003 2002 Senior notes payable (a) (b) $ 30,000,000 $ 30,000,000 Notes payable, interest at 4.39% to 6.68%, payable in monthly installments through December 2008, collateralized by certain equipment 6,789,398 8,864,265 Fair value of hedging adjustment (b) 347,538 -- ---------- ---------- 37,136,936 38,864,265 Less current portion 6,233.903 2,094,816 ---------- ---------- $ 30,903,033 $ 36,769,449 ========== ==========
Aggregate principal maturities of notes payable as of July 26, 2003 are as follows:
Year ending July: 2004 $6,233,903 2005 6,229,065 2006 5,506,588 2007 5,388,074 2008 4,860,338 Thereafter 8,571,430
(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 26, 2003 and July 27, 2002. At July 26, 2003, 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, lien limitations, limitation on payment of dividends or stock repurchases and limitation of capital expenditures. The revolving loan agreement provides a maximum commitment for letters of credit of $3,000,000 ($1,000,000 outstanding at July 26, 2003) to secure obligations for the Company's self-insured workers' compensation claims and construction performance guarantees to municipalities. (b) 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% (4.54% at July 26, 2003) on a notional amount of $10,000,000 expiring in September 2009 in exchange for a fixed rate of 8.12%. This interest rate swap agreement reduced interest expense by $370,000 and $201,000 in fiscal 2003 and 2002,respectively. The Company has structured this interest rate swap agreement to be an effective, fair value hedge. The fair value of this swap agreement is recorded in other assets with a corresponding increase in notes payable. NOTE 5--INCOME TAXES The components of the provision for income taxes are:
2003 2002 2001 Federal: Current $ 3,344,748 $ 4,886,824 $ 4,844,006 Deferred 2,594,567 1,660,341 241,443 State: Current 1,279,767 459,476 129,442 Deferred 499,881 367,929 67,221 ---------- ---------- ---------- $ 7,718,963 $ 7,374,570 $ 5,282,112 ========== ========== ==========
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 26, July 27, 2003 2002 Deferred tax liabilities: Tax over book depreciation $ 8,209,933 $ 6,917,875 Patronage dividend receivable 1,458,865 867,239 Other 1,253,702 634,136 ---------- ---------- Total deferred tax liabilities 10,922,500 8,419,250 ---------- ---------- Deferred tax assets: Amortization of capital leases 1,145,215 1,559,438 Compensation related costs 712,615 789,509 Minimum pension liability 1,553,271 410,605 Accrual for special charges 667,083 783,505 Other 305,776 289,436 ---------- ---------- Total deferred tax assets 4,383,960 3,832,493 ---------- ---------- Net deferred tax liability $ 6,538,540 $ 4,586,757 ========== ==========
Net long-term deferred taxes of $5,817,764 and $4,537,022 are included in other long-term liabilities at July 26, 2003 and July 27, 2002, respectively. Net current deferred taxes of $720,776 and $49,735 are included in accrued expenses at July 26, 2003 and July 27, 2002, 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 26, 2003 and July 27, 2002. The effective income tax rate differs from the statutory federal income tax rate as follows:
2003 2002 2001 Statutory federal income tax rate 35.0% 35.0% 35.0% Amortization of intangibles -- -- .6 State income taxes, net of federal tax benefit 6.2 2.7 .9 Other (.2) (.7) (.6) ----- ----- ----- Effective income tax rate 41.0% 37.0% 35.9% ===== ===== =====
NOTE 6--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 26, 2003:
Capital Operating Leases Leases 2004 $ 1,263,384 $ 6,666,696 2005 1,274,804 6,670,636 2006 1,290,792 6,232,363 2007 1,107,740 5,568,410 2008 741,636 5,238,589 Thereafter 4,063,654 67,569,717 ---------- ---------- Minimum lease payments 9,742,010 $97,946,411 Less amount representing interest 5,055,750 ========== --------- Present value of minimum lease payments 4,686,260 Less current portion 663,458 ---------- $ 4,022,802 ==========
The following schedule shows the composition of total rental expense under operating leases for the following periods:
2003 2002 2001 Minimum rentals $6,316,284 $5,939,763 $5,602,486 Contingent rentals 878,242 907,250 934,970 --------- --------- --------- $7,194,526 $6,847,013 $6,537,456 ========= ========= =========
Related party leases On April 2, 2003, the Company sold the land and building currently occupied by the Somers Point, NJ store to an unrelated real estate investment trust (the "REIT") for $3,500,000 plus the reimbursement of certain costs. The Company's purpose in entering into this transaction was to provide for the development of an 80,000 sq. ft. replacement store in Somers Point with minimal cash outlay by the Company, and to ensure continued occupancy of the Springfield, NJ store and the Company's headquarters. The Company executed leases with the REIT for the replacement store in Somers Point and to continue occupancy of the current Somers Point store until the replacement store is constructed by the REIT. In addition, the Company executed long-term leases with the REIT for the Springfield store and the Company's headquarters, which were previously leased from a realty Company owned by certain officers of the Company (the "Realty Company"). The Company canceled 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 cancelled. As part of this transaction, the shareholders of the Realty Company sold 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. This transaction resulted in no net gain or loss to the Company. Although the transactions with the unrelated, publicly traded REIT were negotiated at arms-length, the Company's independent directors evaluated and approved these transactions for fairness due to the concurrent sale by the Realty Company, which was a related party. In addition, the Company leases a supermarket from a different realty firm partly-owned by officers of the Company. The Company paid aggregate rents to related parties under all the above leases, including minimum and contingent rent, of approximately $926,000, $1,096,000 and $1,152,000 in fiscal years 2003, 2002 and 2001, respectively. The Company leases the Vineland store from Wakefern under a sublease agreement which provides for annual rent of $700,000. This sublease expires May 10, 2014 and contains renewal options. NOTE 7-- COMMON STOCK AND OPTIONS 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 transferable 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:
2003 2002 2001 Weighted average Weighted average Weighted average Shares exercise price Shares exercise price Shares exercise price Outstanding at beginning of year 131,200 $ 10.93 167,000 $ 10.13 184,400 $ 10.14 Granted 8,000 25.24 8,000 23.50 -- -- Exercised (14,600) 10.00 (43,800) (10.18) (17,400) 10.00 ------- ------- ------- -------- ------- -------- Outstanding at end of year 124,600 $ 11.96 131,200 $ 10.93 167,000 $ 10.13 ------- ------- ------- -------- ------- -------- Options exercisable at end of year 116,600 $ 11.05 123,200 $ 10.12 167,000 $ 10.13 ------- ------- ------- -------- ------- --------
The following table summarizes options outstanding at July 26, 2003:
Remaining Weighted Options Life Average Exercise Options Range of exercise prices Outstanding in Years Price Exercisable $10.00 to $12.85 108,600 4.4 $10.13 108,600 $23.50 to $25.64 16,000 9.0 $24.37 8,000 ---------------- ------- --- ----- ------- $10.00 to $25.64 124,600 5.0 $11.96 116,600 ================ ======= === ===== =======
The fair value of options granted was estimated at $9.43 in fiscal 2003 and $8.81 in fiscal 2002. The fair value of each option grant is estimated using the Black-Scholes Option Pricing Model with the following assumptions used for fiscal 2003 and 2002 grants:
2003 2002 Expected life (years) 6.0 6.0 Expected volatility 36.0% 30.0% Expected dividend yield 1.0% -- Risk-free interest rate 4.0% 4.0%
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. Plan assets are invested principally in government securities, common stocks and mutual funds. Net periodic pension cost for the three plans include the following components:
2003 2002 2001 Service cost $ 785,415 $ 685,123 $ 624,916 Interest cost on projected benefit obligation 932,772 781,815 690,064 Expected return on plan assets (724,042) (703,705) (855,794) Net amortization and deferral (190,021) 10,078 (8,662) -------- -------- -------- Net periodic pension cost $ 804,124 $ 773,311 $ 450,524 ======== ======== ========
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:
2003 2002 Change in Benefit Obligation: Benefit obligation at beginning of year $ 12,139,279 $ 10,726,263 Service cost 785,415 685,123 Interest cost 932,772 781,815 Benefits paid (1,388,039) (474,904) Actuarial loss 2,901,138 420,982 ----------- ----------- Benefit obligation at end of year $ 15,370,565 $ 12,139,279 =========== =========== Change in Plan Assets: Fair value of plan assets at beginning of year $ 8,041,953 $ 9,438,298 Actual return on plan assets 267,241 (1,051,284) Employer contributions 1,059,811 129,843 Benefits paid (1,388,039) (474,904) ----------- ----------- Fair value of plan assets at end of year $ 7,980,966 $ 8,041,953 =========== =========== Fair value of plan assets (less) than benefit obligation $ (7,389,599) $ (4,097,326) Unrecognized prior service cost 128,821 179,943 Unrecognized net actuarial loss 6,721,275 3,122,193 Adjustment required to recognize minimum liability (4,011,998) (1,206,455) ----------- ----------- Accrued pension cost $ (4,551,501) $ (2,001,645) =========== =========== Amounts recognized in the consolidated balance sheets: Accrued pension cost $ (4,551,501) $ (2,001,645) Intangible asset 128,821 179,943 Accumulated other comprehensive loss 2,329,906 615,907 =========== ===========
At July 26, 2003, the accumulated benefit obligation exceeded the fair value of the plan's assets in each of the above three plans. The provisions of FASB Statement 87, "Employer's Accounting for Pensions," require recognition in the consolidated balance sheet of additional minimum liability and a related intangible asset for pension plans with accumulated benefit obligations in excess of plan assets. Any portion of such additional liability which is in excess of the plan's prior service costs is a component of other comprehensive income and is reflected in shareholder's equity, net of related tax benefit. Assumptions used for the Company's defined benefit plans were as follows:
2003 2002 2001 Assumed discount rate 6.75% 7.25% 7.25% Assumed rate of increase in compensation levels 4% 4% 4% Expected rate of return on plan assets 7.5% 7.5% 8.0 to 8.5%
The Company also participates in several multi-employer pension plans for which the fiscal 2003, 2002 and 2001 contributions were $3,706,000, $3,006,000 and $2,520,000, respectively. The Company sponsors a 401(k) savings plan for certain eligible associates. Company contributions under that plan, which are based on specified percentages of associate contributions, were $202,000, $198,000 and $189,000 in fiscal 2003, 2002 and 2001, respectively. 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. 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 26, 2003 and July 27, 2002, 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 26, 2003. 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 26, 2003 and July 27, 2002, and the results of their operations and their cash flows for each of the years in the three-year period ended July 26, 2003, in conformity with accounting principles generally accepted in the United States of America. Short Hills, New Jersey October 1, 2003 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 2003 4th Quarter 26.40 22.30 3rd Quarter 27.14 21.40 2nd Quarter 27.50 23.00 1st Quarter 27.89 23.40 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
As of October 1, 2003, there were 414 holders of record of the Company's Class A common stock; however 1,165,455 shares of the Company's Class A common stock are held in "Street Name" by depositories or nominees on behalf of beneficial owners. On June 20, 2003 the Board of Directors declared a semi-annual cash dividend of $.13 per Class A common share and $.08 per Class B common share. These dividends were paid August 22, 2003. No other dividends were declared or paid in fiscal 2003 and 2002. -----END PRIVACY-ENHANCED MESSAGE-----