SECURITIES & EXCHANGE COMMISSION
WASHINGTON, D.C.D. C. 20549
FORM 10-K
(Mark One)
[x] Annual Report Pursuant to Section 13 or 15(d) of the
Securities and Exchange Act of 1934 (Fee Required).
For the fiscal year ended: July 25, 1998.31, 1999.
[ ] 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________JERSEY 22-1576170
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
733 MOUNTAIN AVENUE, SPRINGFIELD, NEW JERSEY 07081
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEHPHONETELEPHONE NUMBER, INCLUDING AREA CODE:
(973)467-2200
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
None None
Securities registered pursuant to Section 12(g) of the Act:
CLASS A COMMON STOCK, NO PAR VALUE
(Title of Class)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No __..
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of
registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [x]
The aggregate market value of the Class A common stock of
Village Super Market, Inc. held by non-affiliates was
approximately $15,074,770$14,368,000 and the aggregate market value of the
Class B common stock held by non-affiliates was approximately
$2,600,895$2,879,000 (based upon the closing price of the Class A shares
on the Over the Counter Market on October 1, 1998)1999). There are
no other classes of voting stock outstanding.
Indicate the number of shares outstanding of each of the
registrant's classes of common stock, as of latest practicable
date.
Outstanding at
Class October 21, 19981999
Class A common stock, no par value 1,375,8001,394,500 Shares
Class B common stock, no par value 1,594,076 Shares
DOCUMENTS INCORPORATED BY REFERENCE
Information contained in the 19981999 Annual Report to Shareholders
and the 19981999 definitive Proxy Statement to be filed with the
Commission and delivered to security holders in connection with
the Annual Meeting scheduled to be held on December 4, 19983, 1999 are
incorporated by reference into this Form 10-K at Part II,
Items 5, 6, 7 and 8 and Part III.
PART I
ITEM I. BUSINESS
FORWARD-LOOKING STATEMENTS
All statements, other than statements of historical fact,
included in this Form 10-K are or may be considered
forward-looking statements within the meaning of federal
securities law. The Company cautions the reader that there
is no assurance that actual results or business conditions
will not differ materially from future results, whether
expressed, suggested or implied by such forward-looking
statements. Such potential risks and uncertainties include,
without limitation, competitive pressures from the Company's
operating environment, the ability of the Company to maintain
and improve its sales and margins, the liquidity of the Company
on a cash flow basis, the success of operating initiatives,
Y2K issues relating to computer applications, results of
ongoing litigation and other risk factors detailed herein
and in other filings of the Company.
GENERAL
The Company operates a chain of 2122 ShopRite supermarkets,
15 of which are located in northern New Jersey, one of which
is in northeastern Pennsylvania and fivesix of which are in the
southern shore area of New Jersey. In addition, the Company
operates one former ShopRite store under a "Village Market"
format as described below. The Company is a member of
Wakefern Food Corporation ("Wakefern"), the nation's
largest retailer owned food cooperative and owner of the
ShopRite name. This relationship provides the Company
many of the economies of scale in purchasing, distribution,
advanced retail technology and advertising associated with
chains of greater size and geographic reach.
The Company believes that the regional nature of its business
and the continuity of its management under the leadership of
its founding family have permitted the Company to operate with
greater flexibility and responsiveness to the demographic
characteristics of the communities served by its stores.
The Company seeks to generate high sales volume by offering
a wide variety of high quality products at consistently low
prices. The Company attempts to efficiently utilize its
selling space, gives continuing attention to the decor and
format of its stores and tailors each store's product mix to
the preferences of the local community. The Company
concentrates on the development of superstores which in
addition to their large size (an average
of 50,00055,000 total square feet,
including office and storage space, compared with an average of
30,000 total square feet for conventional supermarkets),supermarkets.
Several of the Company's recent remodels have expanded
superstores to 65,000 to 70,000 square feet. These larger
store sizes enable the Company to feature suchexpanded higher
margin specialty service departments such as home meal
replacement, an on-site bakery, an expanded delicatessen
including prepared foods, and a fresh seafood section and, in most cases, a prescription pharmacy.section.
Superstores also offer an expanded selection of higher margin non-food
items such as cut flowers, health and beauty aids, greeting
cards, videocassette rentals, small appliances and small appliances.in most
cases, a pharmacy. Two superstores also include a warehouse
section featuring products in giant sizes. Recently remodeled
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
1996 1997 1998 1999
Groceries 43.8% 42.9% 41.6% 41.2%
Dairy and Frozen 15.6 15.8 15.9 16.1
Meats 10.3 10.1 9.9 9.6
Non-Foods 9.8 10.1 10.4 10.8
Produce 9.8 9.8 10.2 Delicatessen 4.310.0
Deli and prepared 4.4 4.6 4.6
Seafood 1.9 2.0 2.1 2.0
Pharmacy 2.9 3.2 3.6 4.0
Bakery 1.51.6 1.6 1.6
Other .1 .1 .1
100.0% 100.0% 100.0%
Number of superstores 19 19 1920
Selling square feet
represented by
superstores 88%90% 90% 90%92%
Because of increased size and broader product mix, a superstore can
satisfy a greater percentage of a customer's weekly shopping needs
and, as a result, the typical superstore generally has a higher
volume of sales per square foot and sales per customer than a
conventional supermarket. In addition, because of their greater total
sales volume and increased percentage of their sales allocable to
higher margin items, superstores generally operate more profitably
than conventional supermarkets.
A variety of factors affect the profitability of each of
the Company's stores including local competitors, size,
access and parking, lease terms, management supervision,
and the strength of the ShopRite trademark in the local
community. The Company continually evaluates individual
stores to decide whether they should be closed.
Accordingly, the Orange, Maplewood, Kingston, Morristown,
Easton and Florham Park stores have been closed since
December 1991. In addition, one store was converted to
a "Village Market" format designed to reduce costs and
increase margins in lower volume locations.
The Company operates a separate liquor store adjacent to
one Company supermarket.
DEVELOPMENT AND EXPANSION
The Company is engaged in a continuing program to upgrade
and expand its supermarket chain. This program has included
major store remodelings as well as the opening or acquisition
of additional stores. When remodeling, the Company has sought,
whenever possible, to increase the amount of selling space in
its stores and, where feasible within existing site limitations,
to convert conventional supermarkets to superstores. TheIn
fiscal 1999, the Company is currently nearing completion ofcompleted the 22,000 square foot
expansion and remodel of the Livingston store. In addition,
the Company acquired a leased 67,000 square foot store in
Vineland, New Jersey in May 1999 from Wakefern. The Company
has budgeted $13,000,000$19,000,000 for capital expenditures in fiscal
1999.2000. The major planned expenditures are the completionreplacement
of the Livingston
expansion,West Orange store, the acquisition of property for
a future store and the start of anothertwo major expansion and several small remodels.
In the last five years, the Company has completed five remodels.six remodels
and one store acquisition. The Company's goal has been to open
an average of one new superstore and conduct a major remodel of
one store each year. However, because of delays associated with
increased governmental regulations and the general difficulty in
developing retail properties in the Company's primary trading
area the Company has been unable to open the desired number of
new stores. Additional store remodelings and sites for new
stores are in various stages of development. The Company will
also consider additional acquisitions should appropriate
opportunities arise.
WAKEFERN
The Company is the second largest member of Wakefern (owning
15.5%15.1% 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-ownedretailer-
owned food cooperative. There are presently 39approximately 40
individual member companies and 196200 supermarkets which comprise
the Wakefern cooperative. Only Wakefern and member companies
are entitled to use the ShopRite name and trademark, purchase
their product requirements and participate in ShopRite
advertising and promotional programs and its computerized purchasing,
warehousing and distribution services.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 on a cooperative basis, andeconomies of scale, ShopRite advertising and
promotional programs.programs including the ShopRite Price Plus card and
the development of shared, advanced retail technology. The
Company believes that the ShopRite name is widely recognized by
its customers and is a factor in those customers' decisions about
where to shop. In addition, Wakefern can purchase large
quantities and varieties of products at favorable prices which
it can then pass onto its members. These benefits are important
to the Company's success.
Wakefern distributes as a "patronage dividend" to each of its
stockholders a share of earnings of Wakefern in proportion to
the dollar volume of business done by the stockholder with
Wakefern during each fiscal year.
While Wakefern has a substantial professional staff, it operates
as a member cooperative. Executives of most members make
contributions of time to the business of Wakefern. Senior
executives of the Company spend a significant amount of their
time working on various Wakefern committees which oversee and
direct Wakefern purchases and other programs.
Most of the Company's advertising is developed and placed by
Wakefern's professional advertising staff. Wakefern is
responsible for all television, radio and major newspaper
advertisements. Wakefern bills its members by various formulas
which distribute advertising costs in accordance with the
estimated proportional benefits to each member from such
advertising. The Company also places Wakefern developed
materials with local newspapers.
Wakefern operates warehouses and distribution facilities in
Elizabeth,
New Jersey; Dayton, New Jersey; Wallkill, New York; and South Brunswick,
New Jersey. Each member is obligated to purchase from Wakefern
a minimum of 85% of its requirements for products offered by
Wakefern until ten years from the date that stockholders
representing 75% of Wakefern sales notify Wakefern that those
stockholders request the Wakefern Stockholder Agreement be
terminated. If this purchase obligation is not met, the member
is required to pay Wakefern's profit contribution shortfall
attributable to this failure. This agreement also makes
unapproved changes in control of the Company and sale of the
Company or of individual Company stores, except to a qualified
successor, financially prohibitive by requiring the Company in
such cases to pay Wakefern the profit contribution shortfall
attributable to the sale of store or change in control. Such
payments were waived by Wakefern in connection with the sale
of the Orange, Maplewood, Kingston and Morristown stores.
A "qualified successor" must be or agree to become a member
of Wakefern and may not own or operate any supermarkets other
than ShopRite supermarkets, in the states of New York,
New Jersey, Pennsylvania, Delaware, Maryland, Virginia,
Connecticut, Massachusetts, Rhode Island, Vermont, New
Hampshire, Maine or the District of Columbia or own or
operate more than 25 non-ShopRite supermarkets in any
other locations in the United States.
Wakefern, under circumstances specified in its bylaws, may
refuse to sell merchandise to, and may repurchase the
Wakefern stock of, any member. Such circumstances include
certain unapproved transfers by a member of its supermarket
business or its capital stock in Wakefern, unapproved
acquisition by a member of certain supermarket or grocery
wholesale supply businesses, the material breach by a
member of any provision of the bylaws of Wakefern or any
agreement with Wakefern or a determination by Wakefern that
the continued supplying of merchandise or services to such
member would adversely affect Wakefern.
Any material change in Wakefern's method of operation or a
termination or material modification of the Company's
relationship with Wakefern following expiration of the above
agreements or otherwise (none of which are contemplated or
considered likely)might have an adverse impact on the conduct
of the Company's business and could involve additional
expense for the Company. The failure of any Wakefern member
to fulfill its obligations under these agreements or a member's
insolvency or withdrawal from Wakefern could result in
increased costs to remaining members.
Wakefern owns and operates 2016 supermarkets. The Company
believes that Wakefern may consider purchasing additional
stores in the future from non-members and from existing
members who may desire to sell their stores for financial,
estate planning or other reasons. The Company also understands
that Wakefern may consider opening and operating new ShopRite
supermarkets as well.
Wakefern does not prescribe geographical franchise areas to its
members. The specific locations at which the Company, other
members of Wakefern or Wakefern itself may open new units
under the ShopRite names are, however, subject to the approval
of Wakefern's Site Development Committee. This committee is
composed of persons who are not employees or members of Wakefern
and from whose decision to deny a site application may be
appealed to the Wakefern Board of Directors. Wakefern assists
its members in their site selection by providing appropriate
demographic data, volume projections and projections of the
impact of the proposed market on existing member supermarkets
in the area.
Each member's Wakefern stock (including the Company's) is
pledged to Wakefern to secure all of that member's obligations
to Wakefern. Moreover, every owner of 5% or more of the voting
stock of a member (including five members of the Sumas family)
must personally guarantee prompt payment of all amounts due
Wakefern from that member. Wakefern does not own any securities
of the Company or its subsidiaries.
Each of Wakefern's members is required to make capital
contributions to Wakefern based on the number of stores
operated by that member (and to a limited extent the sales
volume generated by those stores). As additional stores are
opened or acquired by a member (including the Company),
additional capital must be contributed by it to Wakefern.
On occasion, as its business needs have required, Wakefern
has increased the per-store capital contributions
(currently $500,000) required of its members. Wakefern has
in the past permitted these increases in required capital
to be paid in installments over a period of time. TheAs a result,
the Company is required to invest $2,250 in fiscal 1999, although it is expected that this amount will
be increased.$1,468,465 over the next six
years.
TECHNOLOGY
The Company's disclosures regarding Year 2000 issues are
included on page 5 in the Company's 19981999 Annual Report to
Shareholders.
The Company considers automation and computerization
important to its operations and competitive position. All
stores have IBM 4690 software for the scanning check outcheck-out systems.
These systems that improve pricing accuracy, enhance productivity and
reduce checkout time for customers. The Company utilizes
IBM RS/6000 computers and satellite communications in each store. Using the RS/6000 system,
the Company offersstore
to, among other things, offer customers debit and credit card
payment options in
all stores.options. In addition, the Company utilizes
a computer generated ordering system, which is designed to reduce
inventory levels and out of stock conditions, enhance shelf space
utilization, and reduce labor costs.
The Company's commitment to advanced scanning systems has
enabled it to participate in Price Plus, ShopRite's preferred
customer program. Customers receive electronic discounts by
presenting a scannable Price Plus card. TheThis technology has
also enabled the Company installed computer based training in 1998.to focus on target marketing initiatives.
The Company utilizes a direct store delivery system, consisting
of personal computers and hand held scanners, for most items not
purchased through Wakefern in order to provide equivalent cost
and retail price control over these products. In addition,
certain in-store department records are computerized, including
the records of all pharmacy departments. In all stores, meat,
seafood and delicatessen prices are maintained on computer for
automatic weighing and pricing. Furthermore, all stores have
computerized time and attendance systems and most also have
computerized energy management systems. The Company seeks to
design its stores to use energy efficiently, including recycling
waste heat generated by refrigeration equipment for heating and
other purposes. The Company installed computer based training
in 1998.
COMPETITION
The supermarket business is highly competitive. Industry profit
margins are narrow, consequently earnings are dependent on high
sales volume and operating efficiency. The Company is in direct
competition with national, regional and local chains as well as
independent supermarkets, warehouse clubs, supercenters, drug
stores, discount department stores and convenience stores. The
principal methods of competition utilizedCompany competes by the Company areusing low pricing, courteous, quick service
to the customer, and a broad range of consistently available
quality products and consistent availability of a wide variety of
merchandise including the ShopRite private label.
The ShopRite Price Plus card and the co-branded ShopRite
credit card also create significant customer loyalty.
The Company believes its regional focus and the continuity of
its management by the Sumas family permit it to operate with
greater flexibility in tailoring the products offered in each
store to the demographics of the communities they serve as
compared to national and larger regional chains. The Company's
principal competitors are Pathmark, A&P, Edwards, Foodtown,
Edwards,Acme, King's and Grand Union and Acme. Many of the Company's
competitors have financial resources substantially greater than
those of the Company.
LABOR
As of October 1, 1998,1999, the Company employed approximately 3,6303,400
persons of whom approximately 2,3002,100 worked part-time.
Approximately 85%92% of the Company's employees are covered by
collective bargaining agreements. The Company was affected by
a labor dispute with its largest union in fiscal 1993. ContractsNo
contracts with one union representing approximately 350
employees expires in fiscal 1999.any of the Company's six unions expire before
April 2001. Most of the Company's competitors in New Jersey are
similarly unionized.
REGULATORY ENVIRONMENT
While the Company must secure a variety of health and food
distribution permits for the conduct of its business, it does
not believe that such regulation is material to its operations.
The Company's pharmacy departments are subject to state regulation
and licensed pharmacists must be on duty at all times. The
Company's liquor operation is also subject to regulation by state
and municipal administrative authorities. The Company does not
presently anticipate expanding its liquor operations. Compliance
with statutes regulating the discharge of materials into the
environment is not expected to have a material effect on capital
expenditures, earnings and competitive position in fiscal 19992000
and 2000.2001.
ITEM 2. PROPERTIES
The Company owns the sites of five of its supermarkets
(containing 330,000 square feet of total space), all of which
are free-standing stores, except the Egg Harbor store, which
is part of a shopping center. The remaining seventeen18 supermarkets
(containing 776,000852,000 square feet of total space) are leased,
with initial lease terms generally ranging from 20 to 30 years,
usually with renewal options. Ten of these leased stores are
located in strip shopping centers and the remaining seveneight are
free-standing stores. Except with respect to one lease between
the Company and certain related parties, none of the Company's
leases expire before 2001.2002. One lease does expire in June 2002
and does not contain a renewal option. The annual rent,
including capitalized leases, for all of the Company's leased
facilities for the year ended July 25, 199831, 1999 was approximately
$6,269,000.$6,559,000. The Company is a limited partner in two
partnerships, one of which owns a shopping center in which one
of the Company's leased supermarkets is located. The Company
also is a general partner in a general partnership that is a
lessor of one of the Company's free-standing supermarkets.
ITEM 3. LEGAL PROCEEDINGS
No material legal proceedings.Footnote 11 to the consolidated financial statements for fiscal
1999 includes a description of litigation decided against the
Company on August 31, 1999.
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 5556 Vice President and Assistant
Secretary since 1983;
responsible for
administration of
headquarters staff.
Frank Sauro 4041 General Counsel since April 1988.
Mr. Sauro is a member of
the New Jersey Bar.
Kevin Begley 4041 Chief Financial Officer since
November 1987.
Mr. Begley is a Certified
Public Accountant.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
SECURITY HOLDER MATTERS
The information required by this Item is incorporated by
reference from Information appearing on Page 20 in the
Company's Annual Report to Shareholders for the fiscal year
ended July 25, 1998.31, 1999.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this Item is incorporated by
reference from Information appearing on Page 3 in the
Company's Annual Report to Shareholders for the fiscal
year ended July 25, 1998.31, 1999.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The information required by this Item is incorporated by
reference from Information appearing on Page 4 through 6
in the Company's Annual Report to Shareholders for the
fiscal year ended July 25, 1998.31, 1999.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item is incorporated by
reference from Information appearing on Page 3 and
Page 7 to 20 in the Company's Annual Report to
Shareholders for the fiscal year ended July 25, 1998.31, 1999.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item 10 is incorporated
by reference from the Company's definitive Proxy Statement
to be filed on or before November 6, 1998,5, 1999, in connection with
its Annual Meeting scheduled to be held on December 4, 1998.3, 1999.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 is incorporated by
reference from the Company's definitive Proxy Statement to be
filed on or before November 6, 1998,5, 1999, in connection with its
Annual Meeting scheduled to be held on December 4, 1998.3, 1999.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The information required by this Item 12 is incorporated by
reference from the Company's definitive Proxy Statement to be
filed on or before November 6, 1998,5, 1999, in connection with its
annual meeting scheduled to be held on December 4, 1998.3, 1999.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item 13 is incorporated by
reference from the Company's definitive Proxy Statement to
be filed on or before November 6, 1998,5, 1999, in connection with
its annual meeting scheduled to be held on December 4, 1998.3, 1999.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS
ON FORM 8-K
(a) 1. Financial Statements:
Consolidated Balance Sheets -
July 31, 1999 and July 25, 1998;
Consolidated Statements of Operations -
years ended July 31, 1999; July 25, 1998
and July 26, 1997;
Consolidated Statements of Operations - years ended
July 25, 1998; July 26, 1997 and July 27, 1996;
Consolidated Statements of Shareholders' Equity -
years ended July 31, 1999; July 25, 1998;1998
and July 26, 1997
and July 27, 1996;1997;
Consolidated Statements of Cash Flows -
years ended July 31, 1999; July 25, 1998;1998
and July 26, 1997 and July 27, 1996;1997;
Notes to consolidated financial statements.
The financial statements above and Independent Auditors'
Report have been incorporated by reference from the
Company's Annual Report to Shareholders for the fiscal
year ended July 25, 1998.31, 1999.
2. Financial Statement Schedules:
All schedules are omitted because they are not
applicable, or not required, or because the required
information is included in the consolidated financial
statements or notes thereto.
3. Exhibits
EXHIBIT INDEX
Exhibit No. 3 - Certificate of Incorporation and
By-Laws*
Exhibit No. 4 - Instruments defining the rights of
security holders;
4.4 Loan Agreement dated May 30, 1997*
4.5 Note Purchase Agreement dated
September 16, 1999
4.6 Loan Agreement dated September 16, 1999
Exhibit No. 10 - Material Contracts:
10.1 - Wakefern By-Laws*
10.2 - Stockholders Agreement dated
February 20, 1992 between the
Company and Wakefern Food Corp.*
10.3 - Voting Agreement dated March 4, 1987*
10.4 - 1987 Incentive and Non-Statutory
Stock Option Plan*
10.5 - 1997 Incentive and Non-Statutory
Stock Option Plan*
Exhibit No. 13 - Annual Report to Security Holders
Exhibit No. 21 - Subsidiaries of Registrant
Exhibit No. 23 - Consent of KPMG Peat Marwick LLP
Exhibit No. 99 - Press Release dated October 2, 19985, 1999
* The following exhibits are incorporated by reference
from the following previous filings:
Form 10-K for 1997; 4.4, 10.5
Form 10-K for 1993: 3, 10.1, 10.2, 10.3 and 10.4
(b) No reports on Form 8-K were filed during the
fourth quarter of fiscal 1998.1999.
Independent Auditors' Consent
The Board of Directors
Village Super Market, Inc.:
We consent to incorporation by reference in the Registration
Statement (No. 2-86320) on Form S-8 of Village Super Market, Inc.
of our report dated October 1, 1998,4, 1999, relating to the consolidated
balance sheets of Village Super Market, Inc. and subsidiary as of
July 25, 199831, 1999 and July 26, 1997,25, 1998, and the related consolidated
statements of operations, shareholders' equity, and cash flows
for each of the years in the three year period ended July 25, 1998,31,
1999, which report is incorporated by reference in the
July 25, 199831, 1999 annual report on Form 10-K of Village Super
Market, Inc.
KPMG Peat Marwick LLP
Short Hills, New Jersey
October 21, 199828, 1999
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/ /s/Perry Sumas
Kevin Begley Perry Sumas
Chief Financial & Chief Executive Officer
Principal Accounting Officer
Date: October 21, 199828, 1999
Pursuant to the requirements of the Securities Exchange
Act of 1934, this report has been signed below by the
following persons on behalf of the Registrant and in the
capacities and on dates indicated:
Village Super Market, Inc.
/s/ Perry Sumas /s/James Sumas
Perry Sumas, Director James Sumas, Director
October 21, 199828, 1999 October 21, 199828, 1999
/s/ Robert Sumas /s/William Sumas
Robert Sumas, Director William Sumas, Director
October 21, 199828, 1999 October 21, 199828, 1999
/s/ John P. Sumas /s/John J. McDermott
John P. Sumas, Director John J. McDermott, Director
October 21, 199828, 1999 October 21, 199828, 1999
/s/ George Andresakes /s/Norman Crystal
George Andresakes, Director Norman Crystal, Director
October 21, 199828, 1999 October 21, 199828, 1999
SUBSIDIARIES OF REGISTRANT
The Company currently hashad one wholly-owned subsidiary, Village Liquor, Inc.
until fiscal 1998 when it was merged into Village Super Market, Inc.
This corporation iswas organized under the laws of the State of
New Jersey. The financial statements of this subsidiary are
included in the Company's consolidated financial statements.
VILLAGE SUPER MARKET, INC.
REPORTS RESULTS FOR THE FOURTH QUARTER & YEAR ENDED
JULY 25, 199831, 1999
Contact: Kevin Begley, C.F.O.
(973) 467-2200, Ext. 220
Springfield, New Jersey - October 2, 19985, 1999 - Village Super
Market, Inc. reported sales and net income for the fourth quarter
and year ended July 25, 1998,31, 1999, Perry Sumas, President announced
today.
Net income was $1,627,000$1,432,000 ($.54.47 per diluted share) in the fourth
quarter of fiscal 1998,1999. Included in net income is a pre-tax
charge of $2,600,000 ($.52 per share) as a result of litigation
regarding an increase to the contractual purchase price for the
site of a potential future superstore. Excluding this special
charge, net income was $2,992,000 ($.99 per share), an increase
of 68%84% from the fourth quarter of the prior year.
Sales in the fourth quarter were $215,352,000, an increase
of 18.6% from the prior year. FourthSales increased due to fiscal
1999's fourth quarter containing an extra week, sales were $181,502,000, anfrom the
Vineland store purchased during the fourth quarter, and a same
store sales increase of 2.8% from6.5%. The increase in same store
sales was primarily due to the prior year.introduction of double coupons
into northern New Jersey, where 16 of the Company's stores
operate, in September 1998.
The significantlarge increase in fourth quarter net income, exclusive
of the special charge, was due to the 2.8%6.5% improvement in
same store sales, increasedthe effect of an additional week's sales
and a substantial improvement in gross margin percentages,
and lower operatingpartially offset by increased costs as a percentagefrom the doubling of
sales. The gross margin
percentage increased due to an improved mix of sales in higher margin
departments and improved gross margins in several departments.
Operating costs decreased as a percentage of sales due to lower
workers' compensation costs, lower liability insurance accruals and the
effect of spreading fixed costs over a higher sales base.manufacturer coupons.
Net income for the full fiscal year was $4,007,000$4,722,000 ($1.341.55 per
diluted share). Excluding the special charge, net income was
$6,282,000 ($2.07 per share), an increase of 93%57% from the prior
year. Sales for the year were $703,684,000,$768,139,000, an increase of 2.2%9.2%
from the prior year. Same store sales increased 2.4%.6.0% for the
full fiscal year. The sharpsubstantial increase in net income for
the year was primarily attributable to the same store sales
increase, an additional week in fiscal 1999, and a substantial
improvement in gross margins and lower operating costs.margin percentages, partially offset by
increased costs from the doubling of manufacturer coupons.
On September 6, 1998, in response16, 1999, the Company completed the sale of
$30,000,000 of 8.12% unsecured Senior Notes. At the same time,
the Company entered into a $15,000,000 unsecured revolving
credit facility. These two agreements replaced the $6,667,000
term loan and $24,000,000 credit facilities previously available
to the actionsCompany, both of a competitor,
Village, as well as most other supermarket competitors, began offering
to double the value of manufacturer coupons in the 16 stores where it
previously had not offered double coupons. At this time, the impact
of double coupons on future performance cannot be estimated as it is
too soon to assess volume trends and possible changes in other
promotional programs that could mitigate the cost of double coupons.which were secured.
Village Super Market operates a chain of 2223 supermarkets under
the ShopRite name in New Jersey and eastern Pennsylvania. The
following table summarizes the results for the quarter and year
ended July 25, 1998:31, 1999:
July 31, 1999 July 25, 1998 July 26, 1997
Quarter Ended
Sales $215,352,000 $181,502,000 $176,569,000
Net Income $ 1,627,0001,432,000 $ 967,0001,627,000
Net Income Per Share - Basic $ .55.48 $ .33.55
Net Income Per Share - Diluted $ .54.47 $ .33.54
Year Ended
Sales $768,139,000 $703,684,000 $688,861,000
Net Income $ 4,007,0004,722,000 $ 2,074,0004,007,000
Net Income Per Share - Basic $ 1.361.59 $ .711.36
Net Income Per Share - Diluted $ 1.341.55 $ .711.34
FORWARD-LOOKING STATEMENTS:
This Press Release contains "forward-looking statements" within
the meaning of federal securities law. The Company cautions the
reader that there is no assurance that actual results or business
conditions will not differ materially from future results, whether
expressed, suggested or implied by such forward-looking statements.
Such potential risks and uncertainties include, without limitation,
competitive pressures from the Company's operating environment, the
ability of the Company to maintain and improve its sales and margins,
the liquidity of the Company on a cash flow basis, the success of
operating initiatives, Y2K issues relating to computer applications,
results of litigation and other risk factors detailed in the
Company's filings with the SEC.
VILLAGE SUPER MARKET, INC. AND SUBSIDIARY
THE COMPANY
Village Super Market, Inc. operates a chain of 2223 ShopRite
supermarkets, 16 of which are located in northern New Jersey,
1 in northeastern Pennsylvania and five6 in the southern shore
area of New Jersey.
Village is a member of Wakefern Food Corporation, the largest
retailer-owned food cooperative in the United States.
Village's business was founded in 1937 by Nicholas and Perry
Sumas and has continued to be principally owned and operated
under the active management of the Sumas family.
ContentsCONTENTS
Letter to Shareholders 2
Selected Financial Data 3
Unaudited Quarterly Financial Data 3
Management's Discussion and Analysis of
Financial Condition and Results of Operations 4
Consolidated Balance Sheets 7
Consolidated Statements of Operations 8
Consolidated Statements of Shareholders' Equity 9
Consolidated Statements of Cash Flows 10
Notes to Consolidated Financial Statements 11
Independent Auditors' Report 20
Stock Price and Dividend Information 20
Corporate Directory Inside back cover
Dear Fellow Shareholders
Four years ago in this letter, we spoke about the need to
heighten our commitment to updating our store base,
reducing our cost structure and satisfying the needs of
our customers. Due to the hard work of all our associates
towards these goals, net income in fiscal 1999, excluding
a special charge, was 11 times net income in 1995. Our
focus moving into 2000 is very similar to the goals
outlined four years ago.
Village Super Market enjoyed an excellent yearachieved record sales and earnings
in fiscal 1998.1999. Sales increased 9.2% to $768,139,000.
Net income, excluding a special charge, increased 93%57%
to $4,007,000, or $1.34 per diluted share. This follows an$6,282,000. A 6.0% increase in net income of 46%same store sales and
a substantial improvement in fiscal 1997 - exclusive of a gain ongross margin percentages
were the sale of an asset in fiscal 1996.
Theprimary reasons for the large increase in net
income was due to an increase of 2.4% in same store
sales, improvement in gross margins,income.
During fiscal 1999, Village completed the expansion and
lower operating costs as a
percentage of sales. Sales reached $703,684,000.
Village spent $10 million on capital improvements in fiscal 1998. The largest
expenditure was the ongoing expansionremodel of the Livingston store. WhenThe Livingston store
includes a Power Alley, featuring a wide assortment of
perishable products and home meal replacement offerings.
Village has begun construction of a replacement for the
West Orange store, which will also feature a Power Alley.
In May, Village acquired an existing ShopRite in Vineland,
New Jersey. We will remodel the interior of this remodel is completed67,000
square foot store over the next year. This acquisition
was a natural fit with the established five store base
in southern New Jersey.
On September 16, 1999, Village issued $30 million of
8.12% unsecured Senior Notes. Village also obtained a
few months,$15 million unsecured revolving credit facility. These
agreements provide the capital necessary to fund our
Livingstonplanned expansions over the next several years.
Last year, ShopRite introduced shoprite.com to provide
our customers with weekly advertising and other shopping
information over the Internet. Although shoprite.com
does not offer online shopping, beginning in November 1999,
ShopRite will enjoyparticipate with priceline.com in providing
online shopping.
The record results achieved in fiscal 1999 could not
have occurred without the same enhanced features, including an enlarged prepared foods-to-go
area, that have made our Chester remodel such a success. We continue to
expand our meal solutions in response to the needs of an increasing number
of customers for fully or partially prepared, nutritious means that can
be served within fifteen minutes.
As in the past, we developed new ways in 1998 to utilize the ShopRite Price
Plus card and our front end systems to reward loyal customers and generate
sales volume. Last Thanksgiving, and again at Easter, we rewarded customers
who spent a prescribed number of shopping dollars over a period of time with
a free turkey or ham. Similarly, we offered ten percent off coupons at
various times during the year based on shopping dollars accumulated.
Recognizing the valueefforts of our investment in our associates, we undertook
several programs this year to improve our ability to attract and retain
qualified individuals in the current near full employment environment.
This effort included the introduction of a computer-based orientation and
training program. The initial feedback from these programs is encouraging.
Our financial performance has improved dramatically in the last two years.
On behalf of the Board of Directors and management, we3,400
associates. We would like to thank everyone who contributed to Village's recent success.our associates for
their contributions and our shareholders for their
support over the years.
James Sumas, Perry Sumas,
Chairman of the Board President
Selected Financial DataSELECTED FINANCIAL DATA
(Dollars in thousands except per share and per sq. ft. data)
JulJuly 31, July 25, JulJuly 26, JulJuly 27, JulJuly 29,
Jul 30,1999 1998 1997 1996 1995
1994
For year:FOR YEAR
Sales $768,139 $703,684 $688,861 $688,632 $677,322
$695,070
Net income (loss)(1) 4,722 4,007 2,074 2,006 578
(807)
Net income (loss)
per
share - basicshare- basic(1) 1.59 1.36 .71 .69 .20
(.28)
Net income (loss) per
share - diluteddiluted(1) 1.55 1.34 .71 .69 .20 (.28)
Cash dividends
per share
Class A -- -- -- -- --- - - - -
Class B -- -- -- -- --
At year end:- - - - -
AT YEAR END
Total assets 149,555 138,508 132,764 131,062 135,575
134,793
Long-term
obligations
incl.including
capital leases 27,204 25,700 24,027 26,815 34,853
36,933
Working capital
(deficit) (7,197) (9,682) (12,607) (10,885) (3,755)
(4,100)
Shareholders'
equity 66,477 61,568 57,081 55,007 53,001
52,423
Book value
per share 22.24 20.73 19.62 18.90 18.21
18.01
Other data:OTHER DATA
Same store sales
increase
(decrease) 6.0% 2.4% 1.0% 1.7% (.7%)
Total square feet 1,182,000 1,093,000 1,093,000 1,084,000 1,060,000
Average total sq.
ft. per store 51,000 50,000 50,000 47,000 46,000
Selling square feet 934,000 866,000 866,000 860,000 842,000
845,000
Number of stores 23 22 22 23 23 24
Sales per average
number of stores 34,506 31,929 31,178 29,941 29,449 28,370
Sales per average
square foot of
selling space 866 811 803 809 803
809
Capital expendituresexpenditure 7,084 9,956 8,593 9,754 6,588 5,974
Unaudited Quarterly Financial DataUNAUDITED QUARTERLY FINANCIAL DATA
(Dollars in thousands except per share amounts)
First Second Third Fourth Fiscal
Quarter Quarter Quarter Quarter Year
1998:1999
Sales $178,058 $192,633 $182,096 $215,352 $768,139
Gross margin 45,117 49,048 46,814 55,475 196,454
Net income 1,180 1,225 885 1,432 4,722
Net income
per share-
diluted $.39 $.40 $.29 $.47 $1.55
1998
Sales $169,888 $182,700 $169,594 $181,502 $703,684
Gross margin 42,112 45,077 42,829 45,590 175,608
Net income 465 1,127 788 1,627 4,007
Net income
per share - diluted $.16 $.38 $.26 $.54 $1.34
1997:
Sales $169,200 $177,598 $165,494 $176,569 $688,861
Gross margin 41,859 43,920 41,108 43,968 170,855
Net income 284 660 163 967 2,074
Net income per
share -share-
diluted $.10 $.23 $.06 $.32 $.71$.16 $.38 $.26 $.54 $1.34
Management's Discussion and Analysis(1) Net income in fiscal 1999 is presented after giving effect
to a special charge of Financial
Condition and Results of Operations$2,600,000 related to litigation.
See Note 11 to the consolidated financial statements.
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 31, July 25, July 26,
July 27,1999 1998 1997 1996
Sales 100.00% 100.00% 100.00%
Cost of sales 74.42 75.04 75.20
75.26
Gross margin 25.58 24.96 24.80 24.74
Operating and
administrative
expense 22.79 22.45 22.70 22.63
Depreciation and
amortization expense 1.00 1.07 1.12
1.24Special charge .34 - -
Operating income 1.45 1.44 .98 .87
Interest expense (net) .41 .44 .48 .53
Gain on disposal of assets -- -- .14
Income before
income taxes 1.04% 1.00% .50% .48%
Sales were $768,139,000 in fiscal 1999, an increase of
$64,454,000, or 9.2% from the prior year. Same store sales
increased 6.0% in fiscal 1999. The primary reason for the
substantial increase in same store sales was the introduction
of double coupons in northern New Jersey on September 6, 1998.
Sales increased by approximately $14,000,000 as fiscal 1999
contained fifty-three weeks. Also, the acquisition of a store
in Vineland, New Jersey during the fourth quarter contributed
$8,100,000 to fiscal 1999 sales. Sales were $703,684,000 in
fiscal 1998, an increase of 2.2% from the prior year. The
same store sales increase of 2.4% reflects improved sales
in most stores, particularly those that were recently
remodeled, and the success of Thanksgiving and Easter
promotional activities, partially offset by sales declines
in stores affected by competitive openings.
Sales were
$688,861,000Gross margin as a percentage of sales increased in fiscal
1997, about the same1999 in most selling departments. This is in part due to a
reduction in sale item penetration as in fiscal 1996. Same store
sales increased 1% in 1997 as improved sales in remodeled stores were offset
by sales declines in three stores affected by competitive openings. Also,
the closinga result of the Florham Park store in October 1996 resulted in a
$5,910,000 sales decrease.offering
double coupons. Gross margin as a percentage of sales
increased in fiscal 1998 due to an improved mix of sales in
higher margin departments and improved gross margins in several
departments. This was partially offset by lower gross margins
in the produce department due to lower retail pricing.
Gross marginsOperating and administrative expenses increased as a percentage of
sales increased slightly in fiscal 1997 due to an
improvement in1999. This increase was a result of the mixincreased
costs associated with the doubling of sales toward higher margin departments. This
wasmanufacturer's coupons. These
increases were partially offset by lower payroll and fringe benefit
costs as a decline in meat department gross margins due to
lower retail prices.percentage of sales. Operating and administrative
expenses decreased as a percentage of sales in fiscal 1998. This
improvement was due to lower workers' compensation claims, lower
accruals for estimated liability insurance premium calls, and the
effect of spreading fixed costs over an improved sales base. These
improvements were partially offset by higher coupon costs associated
with Thanksgiving and Easter promotions, and increased credit card
processing costs.
Operating and administrative expenses increased slightly as a
percentage of salesInterest expense was similar in fiscal 1997. This was due1999 compared to increased credit card
processing costs, increased advertising and coupon costs, accruals for
estimated liability insurance premium calls andfiscal
1998 as slightly higher debt levels were offset by slightly lower
coupon and cardboard
income. Offsetting these items were lower labor, supply and snow removal
costs.interest rates. Interest expense decreased in fiscal 1998 due to
lower average interest rates.
Interest expense decreasedFiscal 1999 results include a special charge in fiscal 1997 duethe amount of
$2,600,000 related to lower average debt levels
outstanding.
Depreciation expense declinedlitigation in fiscal 1998 and 1997 dueconnection with a contract to
substantial assets
becomingpurchase property for a new superstore. This is more fully
depreciated.
In October 1996described in footnote 11 to the Company closed an underfacilitated store in Florham Park,
New Jersey. A loss of approximately $350,000 was incurred from operations and
closing costs associated with this store.consolidated financial statements.
LIQUIDITY AND CAPITAL RESOURCES
Current liabilities exceeded current assets by $7,197,000,
$9,682,000 $12,607,000 and $10,885,000$12,607,000 at the end of fiscal 1999, 1998 1997 and
1996,1997, respectively. Working capital ratios at the same dates
were .87, .80 .74 and .76.74 to one, respectively. The Company's working
capital needs are reduced by its high rate of inventory turnover
(twenty-one(twenty times in fiscal 1998)1999) and because the warehousing and
distribution arrangements accorded to the Company as a member
of Wakefern permit it to minimize inventory levels and sell
most merchandise before payment is required.
During fiscal 1999,operating cash flow of $15,197,000 and
additional borrowings of $5,931,000 were used to fund capital
expenditures and an acquisition in the aggregate amount of
$11,884,000, make debt principal payments of $5,108,000 and
increase cash balances by $4,093,000.
The Company acquired all the assets of an existing ShopRite in
Vineland, New Jersey in May 1999 for $3,500,000 plus the cost of
inventory. The acquisition of this 67,000 square foot leased store
was financed in part by a $3,500,000 loan secured by the equipment
and fixtures of the store.
Capital expenditures in fiscal 19981999 were $9,956,000. The majority$7,084,000. A substantial
amount of capital expenditures related to the ongoing expansion and remodel
of the Livingston store, minor remodels of the Watchung and Bernardsville stores and upgrades
to retail technology systems.store. The Company has budgeted approximately $13$19
million for capital expenditures in fiscal 1999.2000. Planned
expenditures include the completionreplacement of the Livingston expansion,West Orange store,
the start of anothertwo major expansion,remodels, the purchase of land for a future
store several smaller
remodels and technology upgrades.
The Company has historically financed capital expenditures through
cash provided by operations supplemented by borrowings. Aggregate
capital expenditures for the three years ended July 25, 199831, 1999 were
$28,303,000.$25,633,000. During the same period of time, net long-term borrowings
decreased by $13,873,000.$2,004,000. The ability to finance expansion through
operational cash flow is reflected in the ratio of long-term debt to
total capitalization, which is currently 29.4%29.0%.
On September 16, 1999, the Company completed the sale of $30,000,000
of 8.12% unsecured Senior Notes. At the same time, the Company entered
into a $15,000,000 unsecured revolving credit agreement. These two debt
agreements replaced the $6,667,000 term loan and a $24,000,000 revolving
credit facility, both of which were secured by substantially all of the
Company's assets. The Company's primary sources of liquidity during
fiscal 19992000 are expected to be operating cash flow, borrowings underproceeds from the
Company's credit facilitynote sales in September 1999 and a mortgage from the seller of a
property for a future store.
In fiscal 1997,
the Company entered into a new loan agreement to replace its expired
agreement. This loan agreement includes two revolving credit lines which
total $24 million. At July 25, 1998, a total of $8,850,000 was outstanding
on these lines. The Company was in full compliance with all terms and
restrictive covenants of all debt agreements at July 25, 1998 and expects
to be in compliance for the remaining term of these agreements.
YEAR 2000
The Company is participatinghas participated with Wakefern Food Corporation
("Wakefern"), the retailer owned food cooperative to which it
belongs and its principal supplier, in a comprehensive assessment
of its information technology systems ("IT Systems") and its
process control and other systems that include micro-
controllersmicro-controllers
("Non-IT Systems") to identify the systems that could be affected
by the Year 2000 (Y2K"("Y2K") issue.
The Company and Wakefern have assessed all systems for Y2K readiness,
giving the highest priority to those IT Systems that are considered
critical to its business operations. At present, the Company has
implemented its cash and sales, and payroll, applications, and will implement the general ledger and accounts
payable applications in late 1998. Someapplications. Most in-store IT Systems are currently Y2K
compliant. Others, including receiving, labor management pharmacy and electronic payments,scales, are
at various states of implementation or
testing.expected to be completed by November 1999. The Company anticipates
that all critical IT Systems will be Y2K compliantcomplaint before the end
of 1999.
The Company has substantially completed an inventory of its Non-IT Systems,
which includes those systems containing embedded chip technology
commonly found in buildings and equipment connected with a
building's infrastructure. The systems have been prioritized and
assessed for compliance. Ongoing testing and implementation of
any remediation required for the Non-IT Systems will be performed
throughout the remainder of 1999.
The Company and Wakefern are utilizing the necessary internal
and external resources to replace, upgrade or modify all
significant systems affected by Y2K. The total estimated costs to
remediate the Y2K issue will not have a significant adverse affecteffect
on continuing operations. All Y2K costs are being expensed as
incurred.
The Company is in the process of developinghas developed contingency plans for those
areas which may be affected by Y2K. Although the full consequences
are unknown, the failure of either the Company's critical systems
or those of its material third parties, including Wakefern, to be
Y2K compliant could result in the interruption of its business,
which could have a material adverse affecteffect on the consolidated
results of operations or financial conditionscondition of the Company.
KNOWN TRENDS AND UNCERTAINTIES
On September 6, 1998, in response to the actions of a competitor, the Company
as well as most other supermarket competitors, began offering to double the
value of manufacturer coupons in the 16 stores where it previously had not
offered double coupons. At this time, the impact of double coupons on
future performance cannot be estimated as it is too soon to assess volume
trends and possible changes in other promotional programs that could
mitigate the effects of double coupons.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income," which requires the separate reporting of
all changes to stockholders equity, and SFAS No. 131, "Disclosures About
Segments of An Enterprise and Related Information," which revises existing
guidelines about the level of financial disclosure of a Company's operations.
Both statements are effective for the Company's fiscal 1999 financial
statements. The Company has determined that the new standards will not
have any impact on those financial statements.
IMPACT OF INFLATION AND CHANGING PRICES
Although the Company cannot accurately determine the precise
effect of inflation on its operations, it does not believe
inflation has had a material effect on sales or results of
operations.
FORWARD-LOOKING STATEMENTS
This annual report to shareholders contains "forward-looking
statements" within the meaning of federal securities law. The
Company cautions the reader that there is no assurance that
actual results or business conditions will not differ materially
from future results, whether expressed, suggested or implied by
such forward-looking statements. Such potential risks and
uncertainties include, without limitation, competitive pressurepressures
from the Company's operating environment, the ability of the
Company to maintain and improve its sales and margins, the
liquidity of the Company on a cash flow basis, the success of
operating initiatives, Y2K issues relating to computer
applications, and other risk factors detailed herein and in other
filings of the Company.
Consolidated Balance Sheets
July 31, July 25,
July 26,1999 1998
1997ASSETS
CURRENT ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 5,678,8519,771,422 $ 4,269,8195,678,851
Merchandise inventories 29,923,306 26,548,587 24,835,950
Patronage dividend receivable 1,728,076 1,968,671 2,048,696
Miscellaneous receivables 3,728,862 3,416,459 3,268,673
Deferred income taxes 522,243 146,303 211,220
Prepaid expenses 596,117 632,346 638,825
Total current assets 46,270,026 38,391,217 35,273,183
PROPERTY, EQUIPMENT AND FIXTURES,
at cost less accumulated
depreciation and amortization 75,306,887 73,331,467 70,355,599
OTHER ASSETS
Investment in related party,
at cost 10,698,402 10,467,617 10,350,617
Goodwill, net 11,286,581 10,072,611 10,338,891
Other intangibles, net 1,776,251 2,030,001 2,283,751
Receivables and other assets 4,217,071 4,215,571 4,162,204
Total other assets 27,978,305 26,785,800
27,135,463$149,555,218 $138,508,484 $132,764,245
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt:
Mortgages and notes payable $ 2,421,1081,670,901 $ 2,903,4742,421,108
Capitalized lease obligations 478,744 409,197 356,851
Accounts payable to related party 27,086,025 27,370,342 27,140,707
Accounts payable and accrued
expenses 23,495,791 17,582,608 17,017,474
Income taxes payable 735,822 290,394 461,821
Total current liabilities 53,467,283 48,073,649 47,880,327
LONG-TERM DEBT, less current portion:
Mortgages and notes payable 19,011,286 17,028,502 14,949,612
Capitalized lease obligations 8,192,575 8,671,319 9,077,703
Total long-term debt 27,203,861 25,699,821 24,027,315
DEFERRED INCOME TAXES 2,407,018 3,166,935 3,775,890
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred stock, no par value:
Authorized 10,000,000 shares,
none issued -- --- -
Class A common stock, no par value:
Authorized 10,000,000 shares,
issued 1,762,800 shares 18,129,472 18,129,472
Class B common stock, no par value:
Authorized 10,000,000 shares,
issued and outstanding
1,594,076 shares 1,034,679 1,034,679
Retained earnings 52,408,700 47,758,531 44,101,565
Less treasury stock, Class A,
at cost (387,000(368,300 shares at
July 31, 1999 and 387,000 shares
at July 25, 1998
and 447,000 shares at July 26, 1997)1998) (5,095,795) (5,354,603) (6,185,003)
Total shareholders' equity 66,477,056 61,568,079
57,080,713$149,555,218 $138,508,484 $132,764,245
See notes to consolidated financial statements.
Consolidated Statements of Operations
Years Ended
July 31, July 25, July 26,
July 27,1999 1998 1997 1996
SALES $768,138,686 $703,684,315 $688,860,873 $688,632,405
COST OF SALES 571,684,669 528,076,028 518,006,209
518,251,470
GROSS MARGIN 196,454,017 175,608,287 170,854,664
170,380,935
OPERATING AND ADMINISTRATIVE
EXPENSEOperating and
administrative
expense 175,059,944 157,953,508 156,391,747
155,846,171
DEPRECIATION AND AMORTIZATION
EXPENSEDepreciation and
amortization expense 7,648,644 7,516,182 7,695,087
8,554,703
OPERATING INCOMESpecial charge 2,600,000 - -
Operating Income 11,145,429 10,138,597 6,767,830
5,980,061
INTEREST EXPENSE,Interest expense,
net of interest
income of $55,812,
$20,817 and $7,321 and $88,5743,116,442 3,122,199 3,322,510 3,615,667
GAIN ON DISPOSAL OF ASSETS -- -- 942,125
INCOME BEFORE
INCOME TAXES 8,028,987 7,016,398 3,445,320 3,306,519
PROVISION FOR
INCOME TAXES 3,307,010 3,009,032 1,371,386
1,300,814
NET INCOME $ 4,721,977 $ 4,007,366 $ 2,073,934
$ 2,005,705
NET INCOME
PER SHARE:
BASIC $1.36 $.71 $.69
DILUTEDBasic $1.59 $1.34 $.71
$.69Diluted $1.55 $1.34 $.71
See notes to consolidated financial statements.
Consolidated Statements of Shareholders' Equity
Years Ended July 31, 1999,
July 25, 1998 and July 26, 1997 and July 27, 1996
Class A Class B
Common Stock Common Stock
Retained Treasury
Shares Amount Shares Amount Earnings Stock
Balance,
July
29,
1995 1,762,800 $18,129,472 1,594,076 $1,034,679 $40,021,926 $(6,185,003)
Net
Income -- -- -- -- 2,005,705 --
Balance,
July 27,
1996 1,762,800 $18,129,472 1,594,076 $1,034,679 $42,027,63$42,027,631 $(6,185,003)
Net
Income -- -- -- --- - - - 2,073,934 ---
Balance,
July
26,
1997 1,762,800 $18,129,472 1,594,076 $1,034,679 $44,101,565 $(6,185,003)
Net
Income -- -- -- --- - - - 4,007,366 ---
Exercise
of
60,000
stock
options -- -- -- --- - - - (350,400) 830,400
Balance,
July
25,
1998 1,762,800 $18,129,472 1,594,076 $1,034,679 $47,758,531 $(5,354,603)
Net
Income - - - - 4,721,977 -
Exercise
of
18,700
stock
options - - - - (71,808) 258,808
Balance,
July
31,
1999 1,762,800 $18,129,472 1,594,076 $1,034,679 $47,758,531 $(5,354,603)$52,408,700 $(5,095,795)
See notes to consolidated financial statements.
Consolidated Statements of Cash Flows
Years Ended
July 31, 1999 July 25, 1998 July 26, 1997
July 27, 1996
CASH FLOWS FROM
OPERATING ACTIVITIES
Net income $4,721,977 $4,007,366 $2,073,934 $2,005,705
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation and
amortization 7,648,644 7,516,182 7,695,087
8,554,703
Deferred taxes (975,857) (388,201) (976,417) (135,744)
Provision to value
inventories at LIFO 593,182 136,410 292,563 473,537
(Gain) on disposal of assets -- -- (942,125)
Changes in assets and
liabilities:
(Increase) in
merchandise
inventories (2,667,901) (1,849,047) (10,275) (1,412,741)
Decrease in
patronage
dividend
receivable 240,595 80,025 434,686 199,498
(Increase) in
miscellaneous
receivables (312,403) (147,786) (322,096) (269,058)
(Increase)
decrease in
prepaid expenses 36,229 6,479 (22,882) 13,696
Decrease in income taxes
receivable -- -- 459,873
(Increase) in
receivables
and other assets (1,500) (69,117) (258,045)
(105,577)
Increase (decrease)
in accountsinaccounts
payable to
related party (284,317) 229,635 2,524,519 (967,633)
Increase in accounts
payable
and accrued
expenses 5,913,183 565,134 2,414,393 2,000,177
Increase (decrease)
in income
taxes payable 285,428 (327,264) 18,983 665,837
Net cash provided by
operating
activities 15,197,260 9,759,816 13,864,450 10,540,148
CASH FLOWS FROM
INVESTING ACTIVITIES
Capital expenditures (7,084,284) (9,956,270) (8,592,875)
(9,754,268)Acquisition of
Vineland store (4,800,000) - -
Investment in related
party (230,785) (117,000) (176,278) (354,521)
Proceeds from disposal of assets -- -- 1,237,905
Net cash used in
investing
activities (12,115,069) (10,073,270) (8,769,153) (8,870,884)
CASH FLOWS FROM
FINANCING ACTIVITIES
Proceeds from issuance of
long-term debt 5,931,000 5,500,000 13,555,555 --
Proceeds from exercise of
stock options 187,000 480,000 -- ---
Principal payments of
long-term debt (5,107,620) (4,257,514) (17,625,172) (8,080,409)
Net cash provided by
(used in) financing
activities 1,010,380 1,722,486 (4,069,617)
(8,080,409)
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 4,092,571 1,409,032 1,025,680 (6,411,145)
CASH AND CASH
EQUIVALENTS,
BEGINNING OF YEAR 5,678,851 4,269,819 3,244,139 9,655,284
CASH AND CASH
EQUIVALENTS,
END OF YEAR $9,771,422 $5,678,851 $4,269,819 $3,244,139
See notes to consolidated financial statements.
Notes to Consolidated Financial Statements
NOTE 1 --- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS:Nature of operations
Village Super Market, Inc. (the "Company") operates a chain of
2223 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:On May 9, 1999, the Company acquired all the assets of an existing
supermarket in Vineland, New Jersey from Wakefern for $3,500,000 plus
the cost of inventory. The transaction was financed in part by a
$3,500,000 loan. The acquisition has been accounted for using the
purchase method and, accordingly, the assets acquired, liabilities
assumed, and results of operations are included in the consolidated
financial statements from the date of acquisition. The purchase price
was allocated to the underlying assets and liabilities based on their
fair values, with the excess recorded as goodwill.
Principles of consolidation
The consolidated financial statements include the accounts of
Village Super Market, Inc. and its subsidiary, which is wholly
owned. Intercompany balances and transactions have been eliminated.
FISCAL YEAR:Fiscal year
The Company and its subsidiary utilize a 52-53 week fiscal year
ending on the last Saturday in the month of July. Fiscal 1999
contains 53 weeks. Fiscal 1998 1997 and 19961997 contain 52 weeks.
INDUSTRY SEGMENT:Industry segment
The Company consists of one operating segment, the retail sale of
food and non-food products.
RECLASSIFICATIONS:
Certain amounts have been reclassified in the 1997 and 1996 consolidated
financial statements to conform to the 1998 presentation.
CASH AND CASH EQUIVALENTS:
Cash and cash equivalents
includes interest-bearing, overnight depositsThe Company considers all highly liquid investments purchased with
Wakefern in the amounta maturity of $900,000 at July 26, 1997.
MERCHANDISE INVENTORIES:three months or less to be cash equivalents.
Merchandise inventories
Merchandise inventories are carried at cost, which is not in excess
of market. Cost is determined as follows:
Grocery and non-foods --- last-in, first-out (LIFO) (retail less
departmental gross profit mark-up).
Meat and all other perishables --- first-in, first-out (FIFO).
Dairy and frozen foods --- FIFO (retail less departmental gross
profit mark-up).
PROPERTY, EQUIPMENT AND FIXTURES:Property, equipment and fixtures
Property, equipment and fixtures are recorded at cost. Interest
cost incurred to finance construction is capitalized as part of
such costs.cost. Renewals and betterments are capitalized. Maintenance
and repairs are expensed as incurred.
Depreciation is provided on a straight-line basis over estimated
useful lives of thirty years for buildings, ten years for store
fixtures and equipment, and three years for vehicles. Leasehold
improvements are amortized over the shorter of the related lease
terms or the economic lives of the related assets.
When assets are sold or retired, their cost and accumulated
depreciation are removed from the accounts, and any gain or loss is
reflected in the consolidated financial statements.
STORE OPENING AND CLOSING COSTS:Store opening and closing costs
All store opening costs are expensed as incurred. Provisions are
made for losses resulting from store closings at the time of closing.
This includes items such as future lease payments, net of expected
sublease recovery, and charges to reduce assets to net realizable value.
LEASES:Leases
Leases which meet certain criteria are classified as capital leases,
and assets and liabilities are recorded at amounts equal to the lesser
of the present value of the minimum lease payments or the fair value
of the leased properties at the inception of the respective leases.
Such assets are amortized on a straight-line basis over the shorter of
the related lease terms or the economic lives of the related assets.
Amounts representing interest expense relating to the lease obligations
are recorded to affect constant rates of interest over the terms of the
leases. Leases which do not qualify as capital leases are classified as
operating leases, and related rentals are charged to expense as incurred.
GOODWILL:Goodwill
Goodwill resulting from the acquisition of the Vineland store in fiscal
1999 is being amortized over twenty years. Goodwill arising after
October 31, 1970 and before fiscal 1999 is being amortized over forty
years. The Company does not amortize goodwill amounting to approximately
$2,900,000 acquired prior to October 31, 1970 since, in management's
opinion, the value of such intangibles has not diminished. Accumulated
amortization of goodwill amounted to $3,339,370$3,625,400 and $3,073,090$3,339,370 at
July 25, 199831, 1999 and July 26, 1997,25, 1998, respectively. The Company regularly
assesses the recoverability of unamortized amounts of goodwill utilizing
relevant cash flow and profitability information. The assessment of the
recoverability of unamortized amounts will be impacted if estimated
future operating cash flows are not achieved.
OTHER INTANGIBLES:Other intangibles
Other intangibles include the fair value of a favorable lease and
trademarks acquired in a business acquisition. Other intangibles are
being amortized over 20 years. Accumulated amortization of other
intangibles amounted to $3,298,749 and $3,044,999 at July 31, 1999
and $2,791,249 at July 25, 1998, and July 26, 1997, respectively.
INCOME TAXES:Income taxes
Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years
in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that includes the
enactment date.
USE OF ESTIMATES:Use of estimates
In conformity with generally accepted accounting principles, management
of the Company has made a number of estimates and assumptions relating
to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of expenseexpenses during the
reporting period. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS:Fair value of financial instruments
Cash and cash equivalents, miscellaneous receivables, accounts payable
and accrued expenses are reflected in the consolidated financial
statements at carrying value which approximates fair value because of
the short-term maturity of these instruments. The carrying value of the
Company's short-termshort- and long-term mortgages and notes payable approximates
the fair value based on the current rates available to the Company for
similar instruments. As the Company's investments in Wakefern can only
be sold to Wakefern at amounts that approximate the Company's cost, it
is not practicable to estimate the fair value of such stock.
IMPAIRMENT OF LONG-LIVED ASSETS:
In 1997, the Company adopted SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." This
statement requires that certainlong-lived assets
be reviewedThe Company reviews long-lived assets for impairment whenever
events or changes inwhen circumstances
indicate that the carrying amount of an asset may not be recoverable.
The effectAn impairment is recognized to the extent the sum of undiscounted
estimated future cash flow expected to result from the use of the adoption was not
material.
NET INCOME PER SHARE:asset
is less than the carrying value.
Net income per share
During 1998, the Company adopted SFAS No. 128, "Earnings Per Share."
This statement requires the presentation of both basic and diluted net
income per share. Accordingly, all historical earnings per share data
have been restated to conform to this new standard. The number of
common shares outstanding for calculation of net income per share is as follows:
1999 1998 1997 1996
Weighted average
shares outstanding - basic 2,975,233 2,949,860 2,909,876 2,909,876
Dilutive effect of employee
stock options 63,789 35,657 14,701 --
Weighted average shares
outstanding - diluted 3,039,022 2,985,517 2,924,577 2,909,876
Notes to Consolidated Financial Statements
NOTE 2 --- INVENTORIES
Merchandise inventories are comprised as follows:
July 31, July 25,
July 26,1999 1998 1997
Last-in, first-out (LIFO)(LIFO $19,920,327 $17,620,176 $16,350,616
First-in, first-out (FIFO) 10,002,979 8,928,411
8,485,334$29,923,306 $26,548,587 $24,835,950
If the FIFO method of inventory accounting had been used
rather than LIFO, inventories would have been
$7,715,040$8,308,222 and $7,578,630$7,715,040 higher than reported in 19981999
and 1997,1998, respectively.
NOTE 3 --- PROPERTY, EQUIPMENT AND FIXTURES
Property, equipment and fixtures are comprised as follows:
July 31, July 25,
July 26,1999 1998 1997
Land and buildings $49,410,698 $49,095,308 $48,818,539
Store fixtures and equipment 61,495,302 55,882,372 57,444,535
Leasehold improvements 26,544,421 23,910,164 19,528,793
Leased property under capital leases 11,268,667 12,374,54411,268,667
Vehicles 1,139,066 1,009,092
945,250149,858,154 141,165,603 139,111,661
Less accumulated depreciation
and amortization 74,551,267 67,834,136 68,756,062
Property, equipment
and fixtures --- net $75,306,887 $73,331,467 $70,355,599
NOTE 4 --- RELATED PARTY INFORMATION
The Company's investment in its principal supplier,
Wakefern, which is operated on a cooperative basis for
its stockholder members, is less than 20% of the outstanding
shares of Wakefern. The investment is pledged as collateral
for any obligations to Wakefern. In addition, this obligation
is personally guaranteed by the principal shareholders of the
Company. The Company is obligated to purchase 85% of its primary
merchandise requirements from Wakefern until ten years from the
date that stockholders representing 75% of Wakefern sales notify
Wakefern that those stockholders request that the Wakefern
Stockholder Agreement be terminated. The Company'sCompany also has an
investment of less than 20% in Insure-Rite, Ltd., a Wakefern
affiliated company, that provides the Company with liability
and property insurance coverage.
The Company purchases substantially all of it's merchandise
payments to Wakefern approximated $523,415,000,
$502,510,000 and $498,982,000 during fiscal years 1998, 1997 and 1996,
respectively.from Wakefern. Wakefern distributes as a "patronage dividend"
to each member a share of earnings of Wakefern in proportion to
the dollar volume of business done by the member with Wakefern
during the year. Patronage dividends, which are recorded as a
reduction of cost of sales, amounted to $7,419,000, $7,489,000
$7,791,000 and $7,500,000$7,791,000 in fiscal 1999, 1998 1997 and 1996,1997, respectively.
Wakefern has increased from time to time the required investment
in its common stock for each supermarket owned by a member, with
the exact amount per store computed in accordance with a formula
based on the volume of each store's purchases from Wakefern up to
a maximum of $450,000. At
July 25, 1998 outstanding subscriptions totaled only $2,250. The Company
anticipates an increase in fiscal 1999 of approximately $1,000,000 in this
investment requirement, which$500,000. As a result, the Company expectsis required to
be paidinvest $1,468,465 in installments over threeapproximately the next six
years. The Company will receive additional shares of common stock
to the extent paid for at the end of each fiscal year
(September 30) of Wakefern calculated at the then book value of
such shares. The payments, together with any stock issued
thereunder, at the option of Wakefern, may be null and void and
all payments on this subscription shall become the property of
Wakefern in the event the Company does not complete the payment
of this subscription in a timely manner.
NOTE 5 --- MORTGAGES AND NOTES PAYABLE
July 31, July 25,
July 261999 1998 1997
Term loan, principal payable
in monthly installments
of $55,556 with a final principal
payment of $5,555,555 due
April 1, 2001, interest at 8.35%(a) $6,666,666 $7,333,333 $8,000,000
Revolving credit notes (a) 6,400,000 8,500,000 3,000,000
Senior unsecured notes -- 600,000
Mortgage note, interest at
10.19% payable semi-annually,
due in three equal annual
installments of $1,333,333
beginning December 1, 1997,
collateralized by
certain land and building 333,332 1,666,666
4,000,000
NoteNotes payable, interest at 7.16%4.39%
to 7.90%, payable
in monthly installments through
December 2003,2005, collateralized
by certain equipment 7,282,189 1,949,611
2,253,08620,682,187 19,449,610 17,853,086
Less current portion 1,670,901 2,421,108 2,903,474
Noncurrent maturities $19,011,286 $17,028,502 $14,949,612
Aggregate principal maturities of mortgages and notes as
of July 25, 199831, 1999 (giving effect to the issuance of debt
described in (a) below) are as follows:
Year ending July:
19992000 $ 2,421,108
2000 6,421,3641,670,901
2001 6,947,2201,273,656
2002 975,0111,322,894
2003 1,003,4291,374,224
2004 5,314,843
(a) On May 30, 1997,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 equal annual installments
beginning September 16, 2003.
On September 16, 1999, the Company also entered into a newan
unsecured revolving loan agreement to replace
its expired agreement.in the amount of $15,000,000.
This agreement expires in three years, with two one year
extensions available if exercised by both parties. The
new loan agreement consists of three facilities:
(1) A term loan (outstanding balance of $7,333,333 at July 25, 1998).
(2) A three-year $13,000,000 revolving loan (outstanding balance of
$4,500,000 at July 25, 1998) whichcredit line can be used for any purpose except new
store construction. (3) A three-year $11,000,000 convertible revolving loan (outstanding
balance of $4,000,000 at July 25, 1998) to fund equipment purchases
and store remodels. Amounts outstanding at the end of each of the
three years convert to seven-year term loans with equal monthly
principal payments.
These loans are secured by substantially all of the Company's assets.
Indebtedness under this agreement bears
interest at the prime rate or at the Eurodollar rate, at the
Company's option, plus applicable margins based on the Company's
fixed charge coverage ratio.
Concurrent with the closing of the above two loan agreements, the
Company paid off the balances outstanding on the term loan and
the revolving credit notes listed above and those loan agreements
were terminated. The terminated loan agreements were secured by
substantially all the Company's assets. At July 31, 1999, the
interest rate on the revolving credit notes were 8.25%. At
July 25, 1998, $6,000,000 of the revolving credit loan bearsnotes bear
interest at 7.16% and $2,500,000 bears interest at 8.5%.
The Company is required to maintain certain levels of interest rate
protection. Accordingly, an interest rate swap agreement has been executed
with respect to the term loan, in which the Company agrees to exchange
monthly the difference between fixed and variable interest amounts based
on the loan amount outstanding. The interest differential paid or received
monthly under this agreement is recognized as interest expense in the
consolidated financial statements. This agreement has the effect of
fixing the rate on the term loan at 8.35%.
At July 25, 1998,31, 1999, the Company was in compliance with all terms
and covenants of all debt agreements. These agreements contain
restrictive covenants which, among other matters, specify total
debt levels, maintenance of net worth, fixed charge coverage
ratios, limitation on payment of dividends and limitation of
capital expenditures. TheBoth September 16, 1999 loan agreements
referred to above contain restrictive covenants similar to those
in the terminated loan agreements.
Both the September 16, 1999 revolving loan providesand the terminated
revolving loans provide a maximum commitment for letters of
credit of $3,000,000 ($1,700,0001,000,000 outstanding at July 25, 1998)31, 1999) to
secure obligations for the Company's self-insured workers'
compensation claims.
Interest paid amounted to $3,163,477, $3,172,692, and $3,398,828
in 1999, 1998 and $3,750,151 in 1998,
1997, and 1996, respectively.
NOTE 6 --- INCOME TAXES
The components of the provision for income taxes are:
1999 1998 1997 1996
Federal:
Current $3,267,396 $2,623,462 $1,778,800
$883,713
Deferred (721,444) (282,065) (728,630)
119,653
State:
Current 1,015,471 773,771 569,003
552,845
Deferred (254,413) (106,136) (247,787)
(255,397)$3,307,010 $3,009,032 $1,371,386 $1,300,814
Deferred income taxes reflect the net tax effects of
temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. Significant
components of the Company's deferred tax liabilities
and assets are as follows:
July 31, July 25,
July 26,1999 1998 1997
Deferred tax liabilities:
Tax over book depreciation $4,528,034 $4,762,837 $5,094,475
Patronage dividend receivable 690,194 833,963
818,249
Other 553,387 557,119 564,588
Total deferred tax liabilities 5,771,615 6,153,919 6,477,312
Deferred tax assets:
Amortization of capital leases 1,753,762 1,741,614
1,707,437Accrual for special charges 1,020,000 -
Other 1,113,078 1,391,673 1,205,205
Total deferred tax assets 3,886,840 3,133,287 2,912,642
Net deferred tax liability $1,884,775 $3,020,632 $3,564,670
A valuation allowance is provided when it is more likely than not
that some portion of the deferred tax assets will not be realized.
In management's opinion, in view of the Company's previous, current
and projected taxable income, such tax assets will more likely than
not be fully realized. Accordingly, no valuation allowance was
deemed to be required at July 25, 199831, 1999 and July 26, 1997.25, 1998.
The effective income tax rate differs from the statutory federal
income tax rate as follows:
1999 1998 1997 1996
Statutory federal
income tax rate 34.0% 34.0% 34.0%
Targeted jobs tax credit -- -- (3.3)
Amortization of
intangibles 1.1 1.3 2.9 2.7
State income taxes,
net of federal tax benefit 6.3 6.3 6.2
5.9
Other (.2) 1.3 (3.3) --
Effective income
tax rate 41.2% 42.9% 39.8% 39.3%
Income taxes paid amounted to $4,080,631, $3,754,586
$2,328,820 and $769,580$2,328,820 in fiscal 1999, 1998 1997 and 1996,1997, respectively.
NOTE 7 --- LONG-TERM LEASES
DESCRIPTION OF LEASING ARRANGEMENTS: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 utilities and liability insurance,
and under certain leases to pay additional amounts based on
real estate taxes, maintenance, insurance and a percentage of
sales in excess of stipulated amounts.
Future minimum lease payments by year and in the aggregate for
all non-cancelable leases with initial terms of one year or
more consisted of the following at July 25, 1998:31, 1999:
Capital Operating
Leases Leases
19992000 $ 1,810,9801,822,395 $ 3,766,678
2000 1,822,395 3,677,7844,423,788
2001 1,737,544 3,547,5814,197,585
2002 1,688,376 2,959,6393,609,643
2003 1,688,376 2,696,9003,346,904
2004 1,688,376 3,131,122
Thereafter 12,738,152 23,475,19811,049,776 28,135,726
Minimum lease payments 21,485,823 $40,123,78019,674,843 $46,844,768
Less amount representing
interest 12,405,30711,003,524
Present value of minimum
lease payments $ 9,080,5168,671,319
The following schedule shows the composition of total
rental expense under operating leases for the following periods:
1999 1998 1997 1996
Minimum rentals $3,882,620 $3,795,635 $3,648,642
$3,429,223
Contingent rentals 865,500 670,337 587,141
537,593$4,748,120 $4,465,972 $4,235,783 $3,966,816
RELATED PARTY LEASES:LEASES
The Company currently leases three supermarkets and its office
facility from realty firms partly or wholly-owned by officers of
the Company. The Company paid aggregate rentals under these leases,
including minimum rent and contingent rent, of approximately
$1,242,000, $1,191,000 $1,163,000 and $1,136,000$1,163,000 for fiscal years 1999,
1998 1997 and 1996,1997, respectively. In addition, two supermarkets are
leased from partnerships in which the Company is a partner.
The Company leases the recently acquired Vineland store from
Wakefern, the previous owner, under a sublease agreement which
provides for annual rent of $650,000.
NOTE 8 --- COMMON STOCK
Class A common stock has one vote per share and is entitled to
cash dividends as declared 54% greater than those paid on the
Class B common stock. Class B common stock has ten votes per share.
Class B common stock is not transferrable except to another holder
of Class B common stock or by will or under the laws of intestacy
or pursuant to a resolution of the Board of Directors of the
Company approving the transfer. Shares of Class B common stock are
convertible on a share-for-share basis for Class A common stock.
The Company had two stock option plans during fiscal 1998. The 1987 Incentive and Non-Statutory Stock Option Plan authorized
150,000 shares of the Company's Class A common stock to be granted
to officers and employees of the Company. All options granted under
this plan were at an exercise price equal to the fair value at the
date of grant. There wereare no transactions
in fiscal 1997 and 1996 inoptions currently outstanding under this
plan.
During fiscal 1998, 60,000 options
were exercised at a price of $8.00 per share. The remaining 70,000
options, also priced at $8.00, expired on December 6, 1997.
On December 5, 1997, the shareholders of the Company approved the 1997 Incentive and Non-Statutory Stock Option Plan. This Plan provides
for the granting of options or stock appreciation rights to purchase
up to 250,000 shares of the Company's Class A common stock by officers,
employees and directors of the Company as designated by the Board of
Directors. The Plan requires incentive stock options to be granted at
exercise prices equal to the fair market value of the Company's stock
at the date of grant (110% if the optionee holds more than 10% of the
voting stock of the Company), while non-statutory options may be
granted at an exercise price less than market value. During fiscal 1998, 219,000All options
granted to date were granted
at an exercise price of $10.00 per share, which was the fairmarket value at the date of the grants. All 219,000 options remain outstanding at
July 25, 1998. At July 25, 1998, 103,000 non-statutory stock options
are exercisable. During fiscal 1999, 116,000 incentive stock options
will become exercisable. All optionsand are exercisable up to 10
years from the date of thisthe grant.
The following table summarizes option activity for the following
periods:
Number of Average
Shares Option Price
Outstanding at July 27, 1996
and July 26, 1997 130,000 $ 8.00
Granted 219,000 10.00
Exercised (60,000) 8.00
Cancelled (70,000) 8.00
Outstanding at July 25, 1998 219,000 $ 10.00
Granted 5,000 12.85
Exercised (18,700) 10.00
Outstanding at
July 31, 1999 205,300 $ 10.05
At July 31, 1999, the weighted-average remaining contractual
life of outstanding options was 8.4 years. At July 31, 1999
and July 25, 1998, the number of options exercisable was
200,300 and 103,000, respectively, and the weighted-average
exercise price of those options was $10.00 at both dates.
The Company has adopted the disclosure only provisions of
SFAS No. 123, "Accounting for Stock-Based Compensation."
In accordance with the provisions of SFAS No. 123, the Company
applied APB Opinion 25's intrinsic value method of accounting
for stock options. Accordingly, compensation cost for stock
options is measured as the excess, if any, of the quoted market
price of the Company's stock at the date of grant over the
amount an employee may pay to acquire the stock. As all stock
options have been granted at fair market value at the date of
grant, no compensation expense has been recorded in the
Company's consolidated financial statements.
If the Company had elected to recognize compensation costs
based on the fair value of the options granted as prescribed
by SFAS No. 123, fiscal 1999 and 1998 pro
forma results would be reduced
to the following pro forma amounts: net income - $4,604,000 and
$3,475,000; net income per share, basic - $1.55 and $1.18; and
net income per share, diluted - $1.51 and $1.16. There would be
no effect on pro forma 1997 and 1996 results. The fair value of options granted was
estimated at $3.57 using the Black-Scholes Option Pricing Model
with the following assumptions used for fiscal 1999 and 1998
grants: risk-free interest rate of 6.0%; expected life of 6
years; expected dividend rate of zero; and expected volatility
of 20.9%.
NOTE 9 --- PENSION PLANS
The Company sponsors three defined benefit pension plans covering administrative
personnel and members of two unions. Employees
covered under the administrative pension benefit plan earn benefits
based upon percentages of annual compensation. Employees covered
under the union pension benefit plans earn benefits based on a
fixed amount for each year of service. The Company's funding policy
is to pay at least the minimum contribution required by the Employee
Retirement Income Security Act of 1974.
Net periodic pension cost for the three plans included the following components:
1999 1998 1997 1996
Service cost $610,517 $592,441 $488,167 $484,461
Interest cost on
projected benefit
obligation 614,941 562,615 499,282
466,819
ReturnExpected return on
plan assets (804,656) (1,441,535) (1,676,672) (637,724)
Net amortization
and deferral (14,150) 755,835 1,131,839 157,823
Net periodic pension
cost $406,652 $469,356 $442,616 $471,379
The changes in benefit obligations and the reconciliation of
the funded status of the three pensionCompany's plans is reconciled to accrued pension
costthe consolidated
balance sheet were as follows:
July 25, July 26,1999 1998
1997Change in Benefit Obligation:
Benefit obligation at
beginning of year $8,884,755 $7,136,146
Service cost 610,517 592,441
Interest cost 614,941 562,615
Benefits paid (745,212) (433,751)
Actuarial loss 249,136 1,027,304
Benefit obligation at
end of year $9,614,137 $8,884,755
Change in Plan Assets:
Fair value of plan at
beginning of year $9,074,481 $7,610,382
Actual return on plan assets 1,140,863 1,441,535
Employer contributions 617,709 456,315
Benefits paid (745,212) (433,751)
Fair value of plan assets
at fair valueend of year $10,087,841 $9,074,481
$7,610,382
Actuarial presentFair value of benefit
obligations:
Vested benefits 7,266,850 5,919,122
Non-vested benefits 59,558 68,742
Accumulated benefit obligations 7,326,408 5,987,864
Effect of future increases
in compensation levels 1,558,347 1,148,282
Projectedplan assets
greater than benefit
obligation 8,884,755 7,136,146
Projected benefit obligation less
than plan assets 189,726 474,236
Unrecognized prior service cost 262,089 305,055$473,704 $189,726
Unrecognized net gain (394,755) (646,745)
Remaining unrecognized net asset
at July 25, 1987 (amortized over
15 to 18 years) (248,534) (310,979)
Additional liability (159,706) (144,491)(599,154) (381,200)
Accrued pension cost $ (351,180) $ (322,924)$(125,450) $(191,474)
Change in Accrued Pension Cost:
Accrued pension cost at
beginning of year $(191,474) $(178,433)
Net periodic pension cost (406,652) (469,356)
Additional liability (145,033) -
Contributions 617,709 456,315
Accrued pension cost at
end of year $(125,450) $(191,474)
Plan assets are invested principally in government securities,
common stocks and mutual funds.
Assumptions used in determining the net fiscal 1999, 1998 1997 and
19961997 periodic pension cost were:was:
Assumed discount rate 7.25 to 8.0%7.25%
Assumed rate of increase in compensation levels 4%
Expected rate of return on plan assets 8.0 to 8.5%
The Company also participates in several multiemployer pension
plans for which the fiscal 1999, 1998 1997 and 19961997 contributions
were $1,586,000, $1,722,000 $1,731,000,
and $1,748,000,$1,731,000, respectively.
NOTE 10 --- COMMITMENTS AND CONTINGENCIES
The Company is under contract to purchase a tract of land on which it plans
to construct a superstore. Costs incurred related to this project are
included in other assets as the Company believes such costs will be
recoverable from the development of the property.
The Company is involved in litigation incidental to the normal
course of business. Company management is of the opinion that
insurance coverage is
adequate and final dispositionthe ultimate resolution of these legal proceedings should not
materially affecthave a material adverse effect on the consolidated financial
position of the Company.
Independent Auditors' ReportNOTE 11 - SPECIAL CHARGE
The Company is under contract to acquire a parcel of land
consisting of approximately 3.2 acres in Garwood, New Jersey
and 1.5 acres in Westfield, New Jersey on which it plans to
construct a superstore. The Company and the property owner
disagree on the terms of an amendment to the contract. The
trial of this matter concluded on June 16, 1999 and, in a
letter opinion dated August 31, 1999, the trial judge ruled
in favor of the property owner. Under this opinion, the
contract price of the property is increased by an additional
$2,168,334 at July 31, 1999. This amount is due whether the
Company takes title to the property or not. In addition, the
contract price is further increased by $34,166 per month
beginning August 1, 1999 through either the date the closing
on the property takes place or the date the contract is
terminated. At this time, the Company is considering an
appeal of this decision.
The Company recorded a charge to earnings of $2,600,000 in the
fourth quarter of fiscal 1999 to reflect the impact of this
decision, as the Company does not believe the additions to the
purchase price of the property as a result of this litigation
are recoverable from the development of the superstore on this
property.
Costs incurred in previous years related to this
project in the amount of $975,000 are included in other assets
and an adjacent property purchased in previous years in the
amount of $1,679,000 is included in land and building at
July 31, 1999 and July 25, 1998, as the Company believes such
costs will be recoverable from the development of the property.
The town of Garwood and the Company are defendants in a separate
lawsuit that seeks to overturn the approvals obtained by the
Company from the town of Garwood to build a superstore on portions
of these properties. In October 1999, the trial judge decided that
the approvals obtained by the Company were valid. Should such
approvals be overturned on appeal or other delays be encountered,
additional charges to operations may be required.
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Village Super Market, Inc.:
We have audited the accompanying consolidated balance sheets
of Village Super Market, Inc. and subsidiary as of
July 25, 199831, 1999 and July 26, 1997,25, 1998, and the related consolidated
statements of operations, shareholders' equity and cash flows
for each of the years in the three-year period ended
July 25, 1998.31, 1999. These consolidated financial statements are
the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management,
as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Village Super Market, Inc. and subsidiary as of
July 25, 199831, 1999 and July 26, 1997,25, 1998, and the results of their
operations and their cash flows for each of the years in the
three-year period ended July 25, 199831, 1999 in conformity with
generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Short Hills, New Jersey
October 1, 1998
Stock Price and Dividend Information4, 1999
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
1999
4th Quarter 13 12-1/2
3rd Quarter 14-1/2 12-1/2
2nd Quarter 17-1/2 13
1st Quarter 24-3/4 12-1/2
1998
4th Quarter 16-1/2 13-1/4
3rd Quarter 14-1/4 11
2nd Quarter 10-3/4 9-1/4
1st Quarter 9-3/4 8-3/4
1997
4th Quarter 9-1/4 8-1/2
3rd Quarter 10-1/4 8-1/2
2nd Quarter 10-1/2 9
1st Quarter 10-1/4 8-1/2
As of September 30, 1998,1999, there were 468483 holders of
record of the Company's Class A common stock.
No dividends were paid during fiscal 19981999 and 1997.
Village Super Market Inc.1998.
CORPORATE DIRECTORY
OFFICERS AND DIRECTORS
PERRY SUMAS
Chief Executive Officer and President; Director
JAMES SUMAS
Chairman of the Board; Chief Operating Officer
and Treasurer; Director
ROBERT SUMAS
Executive Vice President and Secretary; Director
WILLIAM SUMAS
Executive Vice President; Director
JOHN SUMAS
Executive Vice President; Director
CAROL LAWTON
Vice President and Assistant Secretary
FRANK SAURO
General Counsel
KEVIN BEGLEY
Chief Financial Officer
GEORGE J. ANDRESAKES
Director
JOHN J. McDERMOTT
Director
NORMAN CRYSTAL
Director
EXECUTIVE OFFICES
733 Mountain Avenue
Springfield, New Jersey 07081
REGISTRAR AND TRANSFER AGENT
First City Transfer Company
P.O. Box 170
Iselin, New Jersey 08330
AUDITORS
KPMG Peat Marwick LLP
150 John F. Kennedy Parkway
Short Hills, New Jersey 07078
FORM 10-K
Copies of the Company's Form 10-K as filed with the
Securities and Exchange Commission are available without
charge upon written request to:
Mr. Robert Sumas, Secretary
Village Super Market, Inc.
733 Mountain Avenue
Springfield, New Jersey 07081