SECURITIES & EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
(Mark One)
[x] Annual Report Pursuant to Section 13 or 15(d) of the Securities
and Exchange Act of 1934.
For the fiscal year ended: July 27, 2002.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities and Exchange Act of 1934 (Fee Required) for the
transition period from to
COMMISSION FILE NUMBER: 0-2633
VILLAGE SUPER MARKET, INC.
(Exact name of registrant as specified in its charter)
NEW JERSEY 22-1576170
(State or other jurisdiction of incorporation (I. R. S. Employer
or organization) Identification No.)
733 MOUNTAIN AVENUE, SPRINGFIELD, NEW JERSEY 07081
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (973)467-2200
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
CLASS A COMMON STOCK, NO PAR VALUE
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past
90 days. Yes X No .
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. [x]
The aggregate market value of the Class A common stock of Village
Super Market, Inc. held by non-affiliates was approximately
$31,664,000 and the aggregate market value of the Class B common
stock held by non-affiliates was approximately $10,233,000 (based
upon the closing price of the Class A shares on the Over the Counter
Market on October 1, 2002). There are no other classes of voting
stock outstanding.
Indicate the number of shares outstanding of each of the
registrant's classes of common stock, as of latest practicable date.
Outstanding at
Class October 22, 2002
Class A common stock, no par value 1,480,600 Shares
Class B common stock, no par value 1,594,076 Shares
DOCUMENTS INCORPORATED BY REFERENCE
Information contained in the 2002 Annual Report to Shareholders and
the 2002 definitive Proxy Statement to be filed with the Commission
and delivered to security holders in connection with the Annual
Meeting scheduled to be held on December 6, 2002 are incorporated
by reference into this Form 10-K at Part II, Items 5, 6, 7 and 8 and
Part III.
PART I
ITEM I. BUSINESS
FORWARD-LOOKING STATEMENTS
All statements, other than statements of historical fact, included in
this Form 10-K are or may be considered forward-looking statements
within the meaning of federal securities law. The Company cautions
the reader that there is no assurance that actual results or business
conditions will not differ materially from future results, whether
expressed, suggested or implied by such forward-looking statements.
Such potential risks and uncertainties include, without limitation,
local business conditions, competitive pressures from the Company's
operating environment, the ability of the Company to maintain and
improve its sales and margins, the ability to attract and retain
associates, the availability of new store locations, the availability
of capital, the liquidity of the Company on a cash flow basis, the
success of operating initiatives, results of ongoing litigation and
other risk factors detailed herein and in other filings of the Company.
GENERAL
Village Super Market, Inc. operates a chain of 23 ShopRite
supermarkets, 16 of which are located in northern New Jersey, one
of which is in northeastern Pennsylvania and six of which are in
the southern shore area of New Jersey. The Company is a member
of Wakefern Food Corporation ("Wakefern"), the nation's largest
retailer owned food cooperative and owner of the ShopRite name.
This relationship provides the Company many of the economies of
scale in purchasing, distribution, advanced retail technology and
advertising associated with chains of greater size and geographic
reach.
The Company believes that the regional nature of its business and
the continuity of its management under the leadership of its
founding family have permitted the Company to operate with greater
flexibility and responsiveness to the demographic characteristics
of the communities served by its stores.
The Company seeks to generate high sales volume by offering a wide
variety of high quality products at consistently low prices.
The Company attempts to efficiently utilize its selling space, gives
continuing attention to the decor and format of its stores and
tailors each store's product mix to the preferences of the local
community. The Company concentrates on the development of its
superstores, which currently average 57,000 total square feet,
compared with an average of 30,000 total square feet for conventional
supermarkets. Several of the Company's recent remodels have expanded
superstores to 65,000 square feet. These larger store sizes enable
the Company to feature expanded higher margin specialty departments
such as home meal replacement, an on-site bakery, an expanded
delicatessen including prepared foods, a natural and organic food
section, international foods and a fresh seafood section. Superstores
also offer an expanded selection of non-food items such as cut flowers,
health and beauty aids, greeting cards, videocassette rentals, small
appliances and in most cases, a pharmacy. Two superstores also include
a warehouse section featuring products in giant sizes. Recently
remodeled and new superstores emphasize a Power Alley, which features
high margin convenience offerings such as salad bars, bakery and home
meal replacement in an area within the store that provides quick
customer entry and exit for those customers shopping for today's lunch
or dinner. The following table shows the percentage of the Company's
sales allocable to various product categories during each of the
periods indicated as well as the number of the Company's superstores
and percentage of selling square feet allocable to these stores during
each of these periods:
Product Categories Fiscal Year Ended In July
2000 2001 2002
Groceries 41.1% 40.7% 40.3%
Dairy and Frozen 16.0 15.9 16.0
Meats 9.7 9.5 9.6
Non-Foods 10.4 10.3 10.0
Produce 10.0 10.3 10.5
Appetizers and prepared foods 4.5 4.6 4.8
Seafood 2.0 2.1 2.2
Pharmacy 4.5 4.8 4.9
Bakery 1.6 1.6 1.6
Other .2 .2 .1
----- ----- -----
100.0% 100.0% 100.0%
===== ===== =====
Number of superstores 20 20 21
Selling square feet
represented by
superstores 92% 94% 95%
A variety of factors affect the profitability of each of the
Company's stores including local competitors, size, access and
parking, lease terms, management supervision, and the strength of the
ShopRite trademark in the local community. The Company continually
evaluates individual stores to decide whether they should be closed.
Accordingly, the Orange, Maplewood, Kingston, Morristown, Easton,
Florham Park and South Orange stores have been closed since December
1991. The Company operates one liquor store.
DEVELOPMENT AND EXPANSION
The Company is engaged in a continuing program to upgrade and expand
its supermarket chain. This program has included major store
remodelings as well as the opening or acquisition of additional
stores. When remodeling, the Company has sought, whenever possible,
to increase the amount of selling space in its stores. In fiscal
2002, the Company opened a 64,000 sq. ft. store in Hammonton, NJ and
a 59,000 sq. ft. store in Garwood, NJ. In fiscal 2001, the Company
opened a 67,000 sq. ft. store in West Orange to replace its older,
smaller store.
The Company has budgeted $15,000,000 for capital expenditures in
fiscal 2003. The major planned expenditures are the completion of
one store remodel and the start of two major store expansions.
In the last five years, the Company has completed two major remodels,
three new stores and one store acquisition. The Company's goal has
been to open an average of one new superstore and conduct a major
remodel of one store each year. However, because of delays associated
with governmental regulations and the general difficulty in developing
retail properties in the Company's primary trading area the Company
has, at times, been unable to open the desired number of new stores.
Additional store remodelings and sites for new stores are in various
stages of development. The Company will also consider additional
acquisitions should appropriate opportunities arise.
WAKEFERN
The Company is the second largest member of Wakefern (owning 17.4%
of Wakefern's outstanding stock) and one of the Company's principal
shareholders was a founder of Wakefern. Wakefern, which was
organized in 1946, is the nation's largest retailer-owned food
cooperative. There are presently 39 individual member companies
and 204 supermarkets, including 50 stores operated directly by
Wakefern, which comprise the Wakefern cooperative. Only Wakefern
and member companies are entitled to use the ShopRite name and
trademark, and participate in ShopRite advertising and promotional
programs.
The principal benefits to the Company from its relationship with
Wakefern are the use of the ShopRite name and trademark, volume
purchasing, ShopRite private label products, distribution and
warehousing economies of scale, ShopRite advertising and
promotional programs, including the ShopRite Price Plus card and
a co-branded credit card, and the development of shared, advanced
retail technology. The Company believes that the ShopRite name is
widely recognized by its customers and is a factor in those
customers' decisions about where to shop. In addition, Wakefern
can purchase large quantities and varieties of products at
favorable prices which it can then pass onto its members. These
benefits are important to the Company's success. ShopRite private
label products accounted for approximately 18% of sales in fiscal
2002.
Wakefern distributes as a "patronage dividend" to each of its
stockholders a share of earnings of Wakefern in proportion to the
dollar volume of business done by the stockholder with Wakefern
during each fiscal year.
While Wakefern has a substantial professional staff, it operates as
a member owned cooperative. Executives of most members make
contributions of time to the business of Wakefern. Senior
executives of the Company spend a significant amount of their time
working on various Wakefern committees which oversee and direct
Wakefern purchases and other programs.
Most of the Company's advertising is developed and placed by
Wakefern's professional advertising staff. Wakefern is responsible
for all television, radio and major newspaper advertisements.
Wakefern bills its members by various formulas which distribute
advertising costs in accordance with the estimated proportional
benefits to each member from such advertising. The Company also
places Wakefern developed materials with local newspapers.
In addition, Wakefern provides the Company with other services
including insurance, equipment purchasing and retail technology
support.
Wakefern operates warehouses and distribution facilities in
Elizabeth, New Jersey, Woodbridge, New Jersey, South Brunswick,
New Jersey and Wallkill, New York. The Company and all other
members of Wakefern are parties to the Wakefern Stockholder's
Agreement which provides for certain commitments by, and restrictions
on all shareholders of Wakefern. This agreement extends until ten
years from the date that stockholders representing 75% of Wakefern
sales notify Wakefern that those stockholders request the Wakefern
Stockholder Agreement be terminated. Each member is obligated to
purchase from Wakefern a minimum of 85% of its requirements for
products offered by Wakefern. If this purchase obligation is not
met, the member is required to pay Wakefern's profit contribution
shortfall attributable to this failure. This agreement also requires
that in the event of unapproved changes in control of the Company or
a sale of the Company or of individual Company stores, except to a
qualified successor, the Company in such cases must pay Wakefern an
amount equal to the annual profit contribution shortfall attributable
to the sale of store or change in control. No payments are required
if the volume lost by a shareholder as a result of the sale of a
store is replaced by such shareholder by increased volume in existing
or in new stores. Such payments were waived by Wakefern in connection
with the sale of the Orange, Maplewood, Kingston and Morristown
stores. A "qualified successor" must be or agree to become a member
of Wakefern and may not own or operate any supermarkets other than
ShopRite supermarkets, in the states of New York, New Jersey,
Pennsylvania, Delaware, Maryland, Virginia, Connecticut,
Massachusetts, Rhode Island, Vermont, New Hampshire, Maine or the
District of Columbia or own or operate more than 25 non-ShopRite
supermarkets in any other locations in the United States.
Wakefern, under circumstances specified in its bylaws, may refuse
to sell merchandise to, and may repurchase the Wakefern stock of,
any member. Such circumstances include certain unapproved transfers
by a member of its supermarket business or its capital stock in
Wakefern, unapproved acquisition by a member of certain supermarket
or grocery wholesale supply businesses, the material breach by a
member of any provision of the bylaws of Wakefern or any agreement
with Wakefern or a determination by Wakefern that the continued
supplying of merchandise or services to such member would adversely
affect Wakefern.
Any material change in Wakefern's method of operation or a
termination or material modification of the Company's relationship
with Wakefern following expiration of the above agreements or otherwise
might have an adverse impact on the conduct of the Company's business
and could involve additional expense for the Company. The failure of
any Wakefern member to fulfill its obligations under these agreements
or a member's insolvency or withdrawal from Wakefern could result in
increased costs to remaining members.
On November 22, 2000, Big V Supermarkets, Inc., the largest member
of the Wakefern Food Cooperative, filed for reorganization under
Chapter 11 of the U.S. Bankruptcy Code. In addition, Big V announced
its intention to depart from the Wakefern Cooperative. A decision by
the U.S. Bankruptcy Court upheld that Big V would be required to pay
substantial withdrawal fees to Wakefern to make up for the loss of
volume to the cooperative in the event Big V departed from the
Wakefern Cooperative. This matter was resolved on July 12, 2002 when
Wakefern purchased substantially all of Big V's assets, including 27
stores, for $185 million in cash and assumed liabilities. The future
performance of this Wakefern acquisition could impact the patronage
dividends paid by Wakefern to the Company.
Wakefern does not prescribe geographical franchise areas to its
members. The specific locations at which the Company, other members
of Wakefern or Wakefern itself may open new units under the ShopRite
name are, however, subject to the approval of Wakefern's Site
Development Committee. This committee is composed of persons who
are not employees or members of Wakefern and from whose decision to
deny a site application may be appealed to the Wakefern Board of
Directors. Wakefern assists its members in their site selection by
providing appropriate demographic data, volume projections and
projections of the impact of the proposed market on existing
member supermarkets in the area.
Each members investment in Wakefern is pledged to Wakefern to secure
all of that member's obligations to Wakefern. Moreover, every owner
of 5% or more of the voting stock of a member (including five members
of the Sumas family) must personally guarantee prompt payment of all
amounts due Wakefern from that member. Wakefern does not own any
securities of the Company or its subsidiaries.
Each of Wakefern's members is required to make capital contributions
to Wakefern based on the number of stores operated by that member and
the purchases generated by those stores. As additional stores are
opened or acquired by a member, additional capital must be contributed
by it to Wakefern. On occasion, as its business needs have required,
Wakefern has increased the maximum per-store capital contributions
(currently $550,000) required of its members. Wakefern has in the
past permitted these increases in required capital to be paid in
installments over a period of time. As a result, the Company is
required to invest $1,388,000 over the next six years.
TECHNOLOGY
The Company considers automation and computerization important to its
operations and competitive position. All stores utilize second
generation IBM 4690 software for the scanning check-out systems.
These systems improve pricing accuracy, enhance productivity and
reduce checkout time for customers. The hardware for these point of
sale systems was replaced in fiscal 2000. The Company utilizes
IBM RS/6000 computers in each store to, among other things, offer
customers debit and credit card payment options.
In fiscal 2002, a frame relay communications network was installed
to replace the satellite communications network. This new network
provides improved reliability, speed and capacity in handling
consumer-based transactions and interactive retail applications.
The Company's commitment to advanced scanning systems has enabled
it to participate in Price Plus, ShopRite's preferred customer
program. Customers receive electronic discounts by presenting a
scannable Price Plus card. This technology has also enabled the
Company to focus on target marketing initiatives.
Self-checkout systems were installed in five stores in fiscal 2002
with additional stores planned in fiscal 2003. These systems
provide improved customer service, especially during peak periods,
and reduced operating costs.
The Company utilizes a computer generated ordering system, which is
designed to reduce inventory levels and out of stock conditions,
enhance shelf space utilization, and reduce labor costs. The
Company utilizes a direct store delivery system, consisting of
personal computers and hand held scanners, for most items not
purchased through Wakefern in order to provide equivalent cost
and retail price control over these products. In addition,
certain in-store department records are computerized, including
the records of all pharmacy departments. In all stores, meat,
seafood and delicatessen prices are maintained on computer for
automatic weighing and pricing. Furthermore, all stores
have computerized time and attendance systems and most also have
computerized energy management systems. The Company seeks to
design its stores to use energy efficiently, including recycling
waste heat generated by refrigeration equipment for heating and
other purposes. The Company has installed computer-based
training systems in all stores.
The Company currently utilizes digital surveillance systems in
eight stores to aid shrink reduction, increase productivity and
assist in accident investigations.
Wakefern and the Company have responded to our customers increased
use of the internet by creating shoprite.com to provide weekly
advertising and other shopping information. In addition, an on-line
shopping and pick-up service is being tested by Wakefern at this
time.
COMPETITION
The supermarket business is highly competitive. Industry profit
margins are narrow, consequently earnings are dependent on high sales
volume and operating efficiency. The Company is in direct competition
with national, regional and local chains as well as independent
supermarkets, warehouse clubs, supercenters, drug stores, discount
general merchandise stores, fast food chains and convenience stores.
The Company competes by using low pricing, courteous, quick, service
to the customer, and a broad range of consistently available quality
products, including the ShopRite private label. The ShopRite
Price Plus card and the co-branded ShopRite credit card also create
significant customer loyalty.
The Company believes its regional focus and the continuity of its
management by the Sumas family permit it to operate with greater
flexibility in tailoring the products offered in each store to the
demographics of the communities they serve as compared to national
and larger regional chains. The Company's principal competitors
are Pathmark, A&P, Stop & Shop, Foodtown, Acme and King's. Many
of the Company's competitors have financial resources substantially
greater than those of the Company.
LABOR
As of October 1, 2002, the Company employed approximately 4,100
persons of whom approximately 67% worked part-time. Approximately
90% of the Company's employees are covered by collective bargaining
agreements. The Company was affected by a labor dispute with its
largest union in fiscal 1993. Contracts with the Company's six
unions expire between November 2002 and October 2005. Most of
the Company's competitors in New Jersey are similarly unionized.
REGULATORY ENVIRONMENT
While the Company must secure a variety of health and food
distribution permits for the conduct of its business, it does
not believe that such regulation is material to its operations.
The Company's pharmacy departments are subject to state regulation
and licensed pharmacists must be on duty at all times. The
Company's liquor operation is also subject to regulation by state
and municipal administrative authorities. The Company does not
presently anticipate expanding its liquor operations.
ITEM 2. PROPERTIES
The Company owns the sites of six of its supermarkets (containing
387,000 square feet of total space), all of which are freestanding
stores, except the Egg Harbor store, which is part of a shopping
center. The remaining 17 supermarkets (containing 865,000 square
feet of total space) are leased, with initial lease terms generally
ranging from 20 to 30 years, usually with renewal options. Ten of
these leased stores are located in shopping centers and the
remaining seven are freestanding stores.
The lease for the Morris Plains store expired in June 2002. The
Company has a verbal agreement with the landlord to lease this store
for an additional ten years, and to provide for a longer term lease
for an expanded store. This agreement has not been formalized in
writing as of October 24, 2002. None of the Company's other store
leases expire before 2008.
The annual rent, including capitalized leases, for all of the
Company's leased facilities for the year ended July 27, 2002 was
approximately $8,450,000.
The Company is a limited partner in two partnerships, one of which
owns a shopping center in which one of the Company's leased
supermarkets is located. The Company also is a general partner
in a partnership that is a lessor of one of the Company's
freestanding supermarkets.
ITEM 3. LEGAL PROCEEDINGS
The Company, in the ordinary course of business, is involved
in various legal proceedings. The Company does not believe
the outcome of these proceedings will have a material adverse
effect on the Company's consolidated financial condition, results
of operations or liquidity.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters submitted to shareholders in the fourth quarter.
ITEM X. EXECUTIVE OFFICERS OF THE REGISTRANT
In addition to the information regarding directors incorporated
by reference to the Company's definitive Proxy Statement in
Part III, Item 10, the following is provided with respect to
executive officers who are not directors:
NAME AGE POSITION WITH THE COMPANY
Carol Lawton 59 Vice President and Assistant
Secretary since 1983;
responsible for administration
of headquarters staff.
Kevin Begley 44 Chief Financial Officer since 1987.
Mr. Begley is a Certified
Public Accountant.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
SECURITY HOLDER MATTERS
The information required by this Item is incorporated by reference
from Information appearing on Page 20 in the Company's Annual
Report to Shareholders for the fiscal year ended July 27, 2002.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this Item is incorporated by reference
from Information appearing on Page 3 in the Company's Annual
Report to Shareholders for the fiscal year ended July 27, 2002.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The information required by this Item is incorporated by reference
from Information appearing on Page 4 through 6 in the Company's
Annual Report to Shareholders for the fiscal year ended July 27, 2002.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
In the normal course of operations, the Company is exposed to market
risks arising from adverse changes in interest rates. Market risk is
defined for these purposes as the potential change in the fair value
resulting from an adverse movement in interest rates. As of July 27,
2002, the Company's only variable rate borrowings relate to a swap
agreement. On October 18, 2001, the Company entered into an interest
rate swap agreement with a major financial institution pursuant to
which the Company pays a variable rate of six-month LIBOR plus 3.36%
(5.19% at July 27, 2002) on a notional amount of $10,000,000 expiring
in September 2009 in exchange for a fixed rate of 8.12%. A 100 basis
point increase in interest rates, applied to the Company's borrowings
at July 27, 2002, would result in an annual increase in interest
expense and a corresponding reduction in cash flow of approximately
$100,000.
At July 27, 2002, the Company had demand deposits of $22,737,000
earning interest at prime less 2.5%, which are exposed to the impact
of interest rate changes.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item is incorporated by reference
from Information appearing on Page 3 and Page 7 to 20 in the
Company's Annual Report to Shareholders for the fiscal year ended
July 27, 2002.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item 10 is incorporated by reference
from the Company's definitive Proxy Statement to be filed on or before
November 8, 2002, in connection with its Annual Meeting scheduled to
be held on December 6, 2002.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 is incorporated by reference
from the Company's definitive Proxy Statement to be filed on or before
November 8, 2002, in connection with its Annual Meeting scheduled to
be held on December 6, 2002.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required by this Item 12 is incorporated by reference
from the Company's definitive Proxy Statement to be filed on or before
November 8, 2002, in connection with its annual meeting scheduled to
be held on December 6, 2002.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item 13 is incorporated by reference
from the Company's definitive Proxy Statement to be filed on or before
November 8, 2002, in connection with its annual meeting scheduled to
be held on December 6, 2002.
ITEM 14. CONTROLS AND PROCEDURES
As required by Rule 13a-15 under the Exchange Act, within the 90 days
prior to the filing date of this report, the Company carried out an
evaluation of the effectiveness of the design and operation of the
Company's disclosure controls and procedures. This evaluation was
carried out under the supervision and with the participation of the
Company's management, including the Company's Principal Executive
Officer along with the Company's Chief Financial Officer. Based
upon that evaluation, the Company's Principal Executive Officer
along with the Company's Chief Financial Officer concluded that
the Company's disclosure controls and procedures are effective.
There have been no significant changes in the Company's internal
controls or in other factors, which could significantly affect
internal controls subsequent to the date the Company carried out its
evaluation.
Disclosure controls and procedures are controls and other procedures
that are designed to ensure that information required to be
disclosed in Company reports filed or submitted under the Exchange
Act is recorded, processed, summarized and reported, within the time
periods specified in the Securities and Exchange Commission's rules
and forms. Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that
information required to be disclosed in Company reports filed under
the Exchange Act is accumulated and communicated to management,
including the Company's Principal Executive Officer and Chief
Financial Officer as appropriate, to allow timely decisions
regarding required disclosure.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS
ON FORM 8-K
(a) 1. Financial Statements:
Consolidated Balance Sheets - July 27, 2002 and July 28, 2001.
Consolidated Statements of Operations - years ended
July 27, 2002, July 28, 2001 and July 29, 2000.
Consolidated Statements of Shareholders' Equity and Comprehensive
Income - years ended July 27, 2002, July 28, 2001 and July 29, 2000.
Consolidated Statements of Cash Flows - years ended
July 27, 2002, July 28, 2001 and July 29, 2000.
Notes to consolidated financial statements.
The consolidated financial statements above and Independent
Auditors' Report have been incorporated by reference from the
Company's Annual Report to Shareholders for the fiscal year ended
July 27, 2002.
2. Financial Statement Schedules:
All schedules are omitted because they are not applicable, or not
required, or because the required information is included in the
consolidated financial statements or notes thereto.
3. Exhibits
EXHIBIT INDEX
Exhibit No. 3 Certificate of Incorporation and By-Laws*
Exhibit No. 4 Instruments defining the rights of security
holders;
4.4 Loan Agreement dated May 30, 1997*
4.5 Note Purchase Agreement dated September 16, 1999*
4.6 Loan Agreement dated September 16, 1999*
Exhibit No. 10 Material Contracts:
10.1 Wakefern By-Laws*
10.2 Stockholders Agreement dated February 20, 1992
between the Company and Wakefern Food Corp.*
10.3 Voting Agreement dated March 4, 1987*
10.5 1997 Incentive and Non-Statutory Stock Option Plan*
Exhibit No. 13 Annual Report to Security Holders
Exhibit No. 21 Subsidiaries of Registrant
Exhibit No. 23 Consent of KPMG LLP
Exhibit No. 99 Press Release dated October 1, 2002
Exhibit No. 99.1 Certification
Exhibit No. 99.2 Certification
* The following exhibits are incorporated by reference from the
following previous filings:
Form 10-K for 1999: 4.5, 4.6
Form 10-K for 1997: 4.4, 10.5
Form 10-K for 1993: 3, 10.1, 10.2 and 10.3
(b) No reports on Form 8-K were filed during the fourth quarter of
fiscal 2002.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly authorized.
Village Super Market, Inc.
By: /s/ Kevin Begley By: /s/ James Sumas
Kevin Begley James Sumas
Chief Financial & Principal Executive
Principal Accounting Officer Officer
Date: October 24, 2002
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf
of the Registrant and in the capacities and on dates indicated:
Village Super Market, Inc.
/s/ Perry Sumas /s/ James Sumas
Perry Sumas, Director James Sumas, Director
October 24, 2002 October 24, 2002
/s/ Robert Sumas /s/ William Sumas
Robert Sumas, Director William Sumas, Director
October 24, 2002 October 24, 2002
/s/ John P. Sumas /s/ John J. McDermott
John P. Sumas, Director John J. McDermott, Director
October 24, 2002 October 24, 2002
/s/ George Andresakes /s/ Steven Crystal
George Andresakes, Director Steven Crystal, Director
October 24, 2002 October 24, 2002
CERTIFICATIONS
I, James Sumas, certify that:
1. I have reviewed this annual report on Form 10-K of Village Super
Market, Inc.
2. Based on my knowledge, this annual report does not contain any
untrue statement of material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly present
in all material respects the financial condition, results of operations
and cash flows of the registrant as of, and for, the periods presented
in this annual report;
4 The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and
the audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability
to record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6 The registrant's other certifying officers and I have indicated
in this annual report whether there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date or our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: October 24, 2002 /s/ James Sumas
James Sumas
Principal Executive
Officer
CERTIFICATIONS
I, Kevin Begley, certify that:
1. I have reviewed this annual report on Form 10-K of Village
Super Market, Inc.
2. Based on my knowledge, this annual report does not contain
any untrue statement of material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly present
in all material respects the financial condition, results of operations
and cash flows of the registrant as of, and for, the periods presented
in this annual report;
4 The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and
the audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in
this annual report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date or our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: October 24, 2002 /s/ Kevin Begley
Kevin Begley
Chief Financial Officer &
Principal Accounting Officer
Exhibit 13
The Company
Village Super Market, Inc. operates a chain of 23 ShopRite
supermarkets, 16 of which are located in northern New Jersey, 1 in
northeastern Pennsylvania and 6 in the southern shore area of New
Jersey.
Village is a member of Wakefern Food Corporation, the largest
retailer-owned food cooperative in the United States.
Village's business was founded in 1937 by Nicholas and Perry Sumas
and has continued to be principally owned and operated under the
active management of the Sumas family.
Contents
Letter to Shareholders 2
Selected Financial Data 3
Unaudited Quarterly Financial Data 3
Management's Discussion and Analysis of
Financial Condition and Results of Operations 4
Consolidated Balance Sheets 7
Consolidated Statements of Operations 8
Consolidated Statements of Shareholders' Equity
and Comprehensive Income 9
Consolidated Statements of Cash Flows 10
Notes to Consolidated Financial Statements 11
Independent Auditors' Report 20
Stock Price and Dividend Information 20
Corporate Directory Inside back cover
Dear Fellow Shareholders
Village increased sales and net income for the seventh consecutive
year in fiscal 2002. Net income increased 33% to a record $12,558,000,
or $4.00 per diluted share. This performance occurred in an
environment that was described by some in the supermarket industry as
the most challenging in 20 years.
Sales increased 7.6% to a record $883,337,000. Same store sales
increased 4.3% in fiscal 2002 at a time when many national and local
supermarket chains experienced flat or declining same store sales
trends.
We invested $20,767,000 in our business in fiscal 2002.
We opened new superstores in Garwood, NJ and Hammonton, NJ. With the
addition of these two stores, a total of six stores now have a full
Power Alley. This format provides customers with an improved one-
stop shopping experience by featuring a wider assortment of perishable
products, including Bistro Street - our chef prepared, home meal
replacement area.
We also began a major remodel of the English Creek store and
continued our program to perform smaller renovations throughout our
stores. This approach continually improves the customer shopping
experience by freshening the store appearance and expanding the
variety of product offerings in areas such as natural, organic and
international foods. In fiscal 2003 we plan to begin major expansions
and remodels in two locations.
During the last year, we installed self-checkout systems in five
stores to improve customer service, especially during peak periods,
and reduce operating costs. Due to strong customer acceptance, we
intend to install these systems in additional stores next year.
Looking forward, we experienced five competitive openings in
the latter part of fiscal 2002, impacting a total of eight stores.
These competitive openings, and increased promotional spending in
response to these openings, along with recent softening in the
economy, is expected to reduce same store sales growth in fiscal
2003 well below that achieved in fiscal 2002. This more difficult
environment will make matching the fiscal 2002 results a challenge.
As we face this challenge, our financial condition remains strong.
Long-term debt is 31% of total capitalization and our Debt/EBITDA
ratio is 1.4 to 1.
The attacks of last September 11th affected everyone in this
area in a profound manner. ShopRite responded to this devastating
event by establishing a relief fund to benefit the families impacted
by this tragedy. ShopRite and our customers raised over one million
dollars to benefit The Salvation Army and other organizations to aid
families in need of assistance. In addition, ShopRite supermarkets
provided local law enforcement, rescue squads and hospitals with
food, water and other supplies to assist them in their efforts.
In the last five years, our net income has increased six-fold.
This success could not have been achieved without the commitment
and hard work of all 4,100 associates. We would like to thank each
associate, our customers and our shareholders for their support.
James Sumas, Perry Sumas,
Chairman of the Board President
Selected Financial Data
(Dollars in thousands except per share and square feet data)
July 27, July 28, July 29, July 31, July 25,
2002 2001 2000 1999 1998
For year
Sales $883,337 $820,627 $784,995 $750,680 $693,667
Net income 12,558 9,443 8,426 4,722 4,007
Net income per
share - basic 4.11 3.13 2.81 1.59 1.36
Net income per
share - diluted 4.00 3.08 2.76 1.55 1.34
Cash dividends
per share
Class A - - - - -
Class B - - - - -
At year end
Total assets 204,053 183,346 175,987 149,555 138,508
Long-term
debt 43,634 43,363 43,998 27,204 25,700
Working
capital
(deficit) 20,212 17,087 10,690 (7,197) (9,682)
Shareholders'
equity 97,443 84,770 75,152 66,477 61,568
Book value
per share 31.69 27.97 24.94 22.24 20.73
Other data
Same store
sales
increase 4.3% 3.6% 2.9% 6.0% 2.4%
Total
square
feet 1,252,000 1,184,000 1,182,000 1,182,000 1,093,000
Average total
sq. ft.
per store 54,000 54,000 51,000 51,000 50,000
Selling square
feet 991,000 935,000 934,000 934,000 866,000
Sales per
average square
foot of
selling space 916 874 840 846 801
Number of stores 23 22 23 23 22
Sales per
average
number of
stores 38,355 37,156 34,080 33,722 31,530
Capital
expenditures 20,767 15,070 13,312 7,084 9,956
Unaudited Quarterly Financial Data
(Dollars in thousands except per share amounts)
First Second Third Fourth Fiscal
Quarter Quarter Quarter Quarter Year
2002
Sales $210,831 $230,636 $216,525 $225,345 $883,337
Gross profit 52,516 57,536 53,671 57,920 221,643
Net income 2,621 3,724 2,338 3,875 12,558
Net income
per share -
diluted $.84 $1.19 $.74 $1.23 $4.00
2001
Sales $198,033 $212,920 $199,008 $210,666 $820,627
Gross profit 47,919 50,934 48,952 53,168 200,973
Net income 2,220 2,582 1,085 3,556 9,443
Net income
per share -
diluted $.73 $.84 $.35 $1.15 $3.08
Management's Discussion and Analysis of Financial
Condition and Results of Operations
RESULTS OF OPERATIONS
The following table sets forth the major components of the
Consolidated Statements of Operations of the Company as a
percentage of sales:
July 27 July 28, July 29,
2002 2001 2000
Sales 100.00% 100.00% 100.00%
Cost of sales 74.91 75.51 75.65
------ ------ ------
Gross profit 25.09 24.49 24.35
Operating and administrative
expense 21.49 21.26 21.18
Depreciation and amortization .91 .96 1.05
Non-cash impairment charge .07 .14 -
----- ----- -----
Operating income 2.62 2.13 2.12
Interest expense, net .37 .33 .42
Gain (loss) on disposal of assets - (.01) .06
----- ----- -----
Income before income taxes 2.26 1.79 1.76
Income taxes .83 .64 .69
----- ----- -----
Net income 1.42% 1.15% 1.07%
===== ===== =====
Sales were $883,337,000 in fiscal 2002, an increase of
$62,710,000, or 7.6% from the prior year. On September 26, 2001,
the Company opened a 59,000 sq. ft. store in Garwood, NJ. On March 6,
2002, the Company opened a 64,000 sq. ft. store in Hammonton, NJ.
On February 5, 2002, the Company closed the 55,000 sq. ft. store in
Ventnor, NJ. Same store sales increased 4.3% in fiscal 2002.
Approximately 60% of the same store sales increase was attributable
to improved sales in a replacement store opened two years ago and
improved sales in the second half of fiscal 2002 from three stores
in the general area of the closed Ventnor store. The opening of a
competitor in the Ventnor location and four other competitive
openings, affecting a total of eight Company stores, occurred in
the fourth quarter of fiscal 2002. These competitive openings, and
increased promotional spending in response to these competitive
openings, along with recent softening in the economy, is expected
to reduce the same store sales increase in the first quarter of
fiscal 2003 to approximately .5% to 1.5%. Sales were $820,627,000
in fiscal 2001, an increase of $35,632,000, or 4.5% from the prior
year. On August 10, 2000, the Company opened a 67,000 sq. ft.
superstore to replace its smaller, older store in West Orange.
Also, the Company closed the under facilitated South Orange store
on October 28, 2000. Same store sales increased 3.6% in fiscal 2001.
Gross profit as a percentage of sales increased in fiscal 2002
due to improved product mix, incentives received in connection with
the two new store openings, reduced LIFO charges and improved gross
profit percentages in most departments. This improvement was partially
offset by increased promotional spending. Gross profit as a percentage
of sales increased in fiscal 2001 due to improved product mix and a
reduction in promotional spending, partially offset by increased
LIFO charges.
Operating and administrative expense increased as a percentage
of sales in fiscal 2002 primarily due to increased fringe benefit
costs. Fringe benefit costs increased due to contractual
contribution increases to employee health and pension plans.
Operating and administrative expense increased as a percentage of
sales in fiscal 2001 due to increased occupancy, fringe benefit and
credit card processing costs, partially offset by reduced advertising
costs.
Depreciation and amortization expense was $8,002,000, $7,875,000
and $8,204,000 in fiscal 2002, 2001 and 2000, respectively.
Depreciation expense increased in fiscal 2002 due to substantial fixed
asset additions from the two new stores, partially offset by the
discontinuance of depreciation on the closed Ventnor store and the
discontinuance of goodwill amortization in fiscal 2002 (see Note 1).
Depreciation expense declined in fiscal 2001 primarily due to fiscal
2000 including accelerated depreciation of the old West Orange store,
which was replaced in August 2000.
The Company recorded a non-cash impairment charge of $640,000 in
fiscal 2002 to write off the book value of the equipment of the Ventnor
store. Fiscal 2001 results include a non-cash impairment charge of
$1,122,000 to write off the book value of a favorable sublease on the
Ventnor store. The sublessor of this property rejected its lease in
March 2001 pursuant to the U.S. Bankruptcy Code. Although the Company
negotiated with the property owner to remain in this location under
new lease terms, the Company's lease was terminated by the property
owner. Therefore, the Ventnor store was closed on February 5, 2002.
Interest expense, net was $3,234,000, $2,725,000 and $3,333,000
in fiscal 2002, 2001 and 2000, respectively. Interest expense, net
increased in fiscal 2002 due to lower interest income earned on cash
balances invested due to lower interest rates. In addition, fiscal 2002
included $171,000 of interest costs capitalized related to the
construction of a new store compared to $389,000 in fiscal 2001.
Interest expense decreased in fiscal 2001 primarily due to those
capitalized interest costs.
Fiscal 2000 results include a gain on the sale of real estate
of a previously closed store in Easton, PA in the amount of $492,000.
The Company's effective income tax rate was 37.0%, 35.9% and
39.0% in fiscal 2002, 2001 and 2000, respectively. The effective
income tax rate increased in fiscal 2002 due to enacted changes in
state tax laws, partially offset by tax planning initiatives begun in
the second half of fiscal 2002. The effective income tax rate declined
in fiscal 2001 due to a full year's impact from tax planning
initiatives begun in the second half of fiscal 2000.
CRITICAL ACCOUNTING POLICIES
Critical accounting policies are those accounting policies that
management believes are important to the portrayal of the Company's
financial condition and results and require management's most
difficult, subjective or complex judgments, often as a result of the
need to make estimates about the effect of matters that are
inherently uncertain.
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ
from those estimates.
The Company reviews the carrying values of its long-lived
assets, such as property, equipment and fixtures and intangibles
subject to amortization, for possible impairment whenever events or
changes in circumstances indicate that the carrying amount of assets
may not be recoverable. Such review analyzes the undiscounted
estimated future cash flows from such assets to determine if the
carrying value of such assets are recoverable from their respective
cash flows. If an impairment is indicated, it is measured by
comparing the discounted cash flows for the long-lived asset held for
use to its carrying value. Goodwill is tested for impairment at the
end of each fiscal year, or as circumstances dictate, pursuant to the
provisions of Financial Accounting Standards Board ("FASB") Statement
142. An impairment loss is recognized to the extent that the carrying
amount exceeds the fair value.
As a stockholder of Wakefern Food Corporation ("Wakefern"), the
Company earns a share of Wakefern's earnings, which is distributed as
a "patronage dividend" (see Note 3). This dividend is based on a
distribution of Wakefern's operating profits for its fiscal year
(which ends September 30) in proportion to the dollar volume of
business done by each member of Wakefern during that fiscal year.
Patronage dividends are recorded as a reduction of cost of sales.
The Company accrues estimated patronage dividends due from Wakefern
quarterly based on an estimate of the annual Wakefern patronage
dividend and an estimate of the Company's share of this annual
dividend based on the Company's estimated proportional share of
the dollar volume of business transacted with Wakefern that year.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $22,876,000 in
fiscal 2002 compared to $19,653,000 in fiscal 2001. This increase is
due to an improvement in net income and increased payables in fiscal
2002, offset by a larger increase in inventories in fiscal 2002.
Both inventories and payables increased in fiscal 2002 due to two
store openings, offset by one store closing. In addition, inventories
increased to accommodate the rise in same store sales.
During fiscal 2002, operating cash flow of $22,876,000 was used
to fund capital expenditures of $20,767,000 and to increase cash on
hand by $2,615,000. Major capital expenditures in fiscal 2002
included the construction and equipment for the new stores in
Garwood and Hammonton. Long-term debt was $43,634,000 at July 27,
2002. The Company borrowed $3,000,000 secured by equipment in
fiscal 2002 and made principal payments on debt of $2,945,000.
Working capital was $20,212,000, $17,087,000 and $10,690,000
at July 27, 2002, July 28, 2001 and July 29, 2000, respectively.
Working capital ratios at the same dates were 1.36, 1.33 and 1.20
to one, respectively. The Company's working capital needs are reduced
since inventory is generally sold by the time payment to Wakefern and
other suppliers are due.
During fiscal 2001, operating cash flow of $19,653,000 was used
to fund capital expenditures of $15,070,000 and to increase cash on
hand by $5,435,000. The major capital expenditures were equipment and
leasehold improvements for the replacement store in West Orange, remodel
costs for the Vineland store and site work and construction costs for
a new store in Garwood, New Jersey, which opened on September 26, 2001.
The Company has budgeted approximately $15 million for capital
expenditures in fiscal 2003. Planned expenditures include the completion
of one store remodel and the start of two major store expansions. The
Company's primary sources of liquidity in fiscal 2003 are expected to be
cash on hand at July 27, 2002, operating cash flow and equipment financing.
The Company has available a $15,000,000 (none outstanding at
July 27, 2002) unsecured revolving credit line, which expires
September 16, 2004.
The table below presents significant contractual obligations of
the Company at July 27, 2002:
Payments Due By Period
2003 2004 2005 2006 2007 Thereafter Total
Long-term
debt $2,094,816 $ 6,088,996 $ 5,969,209 $ 5,367,436 $ 5,260,174 $14,083,634 $ 38,864,265
Capital
leases $1,603,380 $ 1,603,380 $ 1,614,800 $ 1,545,789 $ 1,107,740 $ 4,805,290 $ 12,280,379
Operating
leases $5,469,750 $ 5,173,918 $ 4,994,104 $ 4,671,912 $ 4,530,494 $62,419,764 $ 87,259,942
Notes payable
to related
party $ 422,760 $ 353,345 $ 182,000 $ 182,000 $ 101,000 $ 146,988 $ 1,388,093
--------- ---------- ---------- ---------- ---------- ---------- -----------
$9,590,706 $13,219,639 $12,760,113 $11,767,137 $10,999,408 $81,455,676 $139,792,679
========= ========== ========== ========== ========== ========== ===========
In addition, the Company is obligated to purchase 85% of its primary
merchandise requirements from Wakefern (see Note 3) and to make contingent
lease payments (see Note 6).
Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Adoption of New Accounting Standards
Effective July 29, 2001, the Company adopted the provisions
of FASB Statement 141, "Business Combinations", and Statement 142,
"Goodwill and Other Intangible Assets". Statement 141 requires that
the purchase method of accounting be used for all business
combinations initiated after June 30, 2001. Statement 141 also
specifies criteria that intangible assets acquired in a purchase
method business combination must meet to be recognized and reported
apart from goodwill. Statement 142 requires that goodwill and
intangible assets with indefinite useful lives no longer be
amortized, but instead tested for impairments at least annually.
Statement 142 also requires that intangible assets with definite
useful lives be amortized over their respective estimated useful
lives to their estimated residual values, and reviewed for impairment.
Amortization expense related to goodwill was $341,000 for the fiscal
years ended July 28, 2001 and July 29, 2000. As a result of adopting
Statement 142, the Company no longer amortizes goodwill.
As required by Statement 142, the Company performed an assessment
of whether there was an indication that goodwill was impaired at the
date of adoption. In connection therewith, the Company determined that
its reporting unit was the same as its reportable segment. As of the
date of adoption and at July 27, 2002, the Company's reporting unit's
fair value exceeded its carrying amount, and therefore there was no
indication that goodwill was impaired. The Company will be performing
an annual impairment test at the end of each fiscal year in the future.
Impact of Recently Issued Accounting Standards
In June 2001, the FASB issued Statement 143, "Accounting For
Asset Retirement Obligations." This statement addresses financial
accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset
retirement costs. The Company is required to adopt the provisions of
Statement 143 at the beginning of fiscal 2003. The Company has
determined that the adoption of this statement will not have a
material impact on its financial position or results of operations.
In August 2001, the FASB issued Statement 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets." This statement
requires that one accounting model be used for long-lived assets to
be disposed of by sale, whether previously held and used or newly
acquired. This statement also broadens the presentation of
discontinued operations to include more disposal transactions.
The provisions of this statement are required to be adopted by the
Company at the beginning of fiscal 2003. The Company has determined
that the adoption of this statement will not have a material impact
on its financial position or results of operations.
In June 2002, the FASB issued Statement 146, "Accounting for
Costs Associated with Exit or Disposal Activities." This statement
changes the financial accounting and reporting for costs associated
with exit or disposal activities, including store closures. The
Company is required to adopt the provisions of Statement 146 for any
exit or disposal activities initiated after December 31, 2002.
Other Matters
On November 22, 2000, Big V Supermarkets, Inc., the largest
member of the Wakefern Food Cooperative, filed for reorganization
under Chapter 11 of the U.S. Bankruptcy Code. In addition, Big V
announced its intention to depart from the Wakefern Cooperative.
The Company's Form 10-K includes a comprehensive description of the
Company's relationship with Wakefern and the rights and obligations
of the Company and other members under the Wakefern Stockholder's
Agreement. A decision by the U.S. Bankruptcy Court upheld that Big
V would be required to pay substantial withdrawal fees to Wakefern
to make up for the loss of volume to the cooperative in the event Big
V departed from the Wakefern Cooperative. This matter was resolved on
July 12, 2002, when Wakefern purchased substantially all of Big V's
assets for $185 million in cash and assumed liabilities. The future
performance of this Wakefern acquisition could impact the patronage
dividends paid by Wakefern to the Company.
Related Party Transactions
The Company holds an investment in Wakefern, its principal
supplier. The Company purchases substantially all of it's merchandise
from Wakefern in accordance with the Wakefern Stockholder Agreement.
As part of this agreement, the Company is required to purchase certain
amounts of Wakefern common stock. At July 27, 2002, the Company's
indebtedness to Wakefern for the outstanding amount of this stock
subscription was $1,388,093. Wakefern distributes as a "patronage
dividend" to each member a share of earnings of Wakefern in proportion
to the dollar volume of business done by the member with Wakefern
during the year. Additional information is provided in Note 3.
At July 27, 2002 the Company had demand deposits invested at
Wakefern in the amount of $22,737,000. These deposits earn the prime
rate of interest less 2.5%.
The Company leases the Vineland store from Wakefern, the previous
owner, at an annual rent of $650,000.
The Company leases two supermarkets and its office facility from
realty firms partly or wholly-owned by officers of the Company.
Additional information is provided in Note 6. The Company entered
into an agreement on September 19, 2002 that would, among other
things, cancel two of these leases and replace them with leases from
an unrelated party. Additional information is provided in Note 10.
Impact of Inflation and changing prices
Although the Company cannot accurately determine the precise
effect of inflation on its operations, it does not believe inflation
has had a material effect on sales or results of operations.
Forward-Looking Statements
This annual report to shareholders contains "forward-looking
statements" within the meaning of federal securities law. The Company
cautions the reader that there is no assurance that actual results or
business conditions will not differ materially from future results,
whether expressed, suggested or implied by such forward-looking
statements. Such potential risks and uncertainties include, without
limitation, local economic conditions, competitive pressures from
the Company's operating environment, the ability of the Company to
maintain and improve its sales and margins, the ability to attract
and retain qualified associates, the availability of new store
locations, the availability of capital, the liquidity of the Company
on a cash flow basis, and other risk factors detailed herein and
in other filings of the Company.
Consolidated Balance Sheets
July 27, July 28,
2002 2001
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 33,770,136 $ 31,155,564
Merchandise inventories 33,780,335 30,468,377
Patronage dividend receivable 2,196,219 2,144,993
Other current assets 6,861,678 5,274,198
------------- -------------
Total current assets 76,608,368 69,043,132
------------- -------------
PROPERTY, EQUIPMENT AND FIXTURES, net 98,673,591 86,508,372
OTHER ASSETS
Investment in related party, at cost 13,663,449 13,113,449
Goodwill, net 10,605,021 10,605,021
Other assets 4,502,559 4,075,842
------------ ------------
Total other assets 28,771,029 27,794,312
------------ ------------
$ 204,052,988 $ 183,345,816
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 2,094,816 $ 1,661,359
Capitalized lease obligations 543,724 463,138
Notes payable to related party 422,760 602,414
Accounts payable to related party 30,630,704 28,364,268
Accounts payable and accrued expenses 22,704,503 20,864,959
----------- -----------
Total current liabilities 56,396,507 51,956,138
----------- -----------
LONG-TERM DEBT
Notes payable 36,769,449 36,031,432
Capitalized lease obligations 5,899,360 6,443,071
Notes payable to related party 965,333 888,605
Total long-term debt 43,634,142 43,363,108
----------- -----------
OTHER LIABILITIES 6,579,476 3,256,979
----------- -----------
COMMITMENTS AND CONTINGENCIES (notes 3, 6, 9 and 10)
SHAREHOLDERS' EQUITY
Preferred stock, no par value:
Authorized 10,000,000 shares,
none issued - -
Class A common stock, no par value:
Authorized 10,000,000 shares,
issued 1,762,800 shares 18,411,012 18,129,472
Class B common stock, no par value:
Authorized 10,000,000 shares,
issued and outstanding
1,594,076 shares 1,034,679 1,034,679
Retained earnings 82,517,249 70,115,802
Accumulated other comprehensive loss (615,907) _
Less treasury stock, Class A,
at cost (282,200 shares at
July 27, 2002 and
326,000 shares at July 28, 2001) (3,904,170) (4,510,362)
---------- ----------
Total shareholders' equity 97,442,863 84,769,591
----------- -----------
$204,052,988 $183,345,816
=========== ===========
Consolidated Statements of Operations
Years Ended
July 27, July 28, July 29,
2002 2001 2000
SALES $883,337,175 $820,627,178 $784,994,578
COST OF SALES 661,694,232 619,654,196 593,870,652
----------- ----------- -----------
GROSS PROFIT 221,642,943 200,972,982 191,123,926
OPERATING AND
ADMINISTRATIVE
EXPENSE 189,835,338 174,489,515 166,254,778
DEPRECIATION AND
AMORTIZATION 8,001,659 7,875,059 8,204,456
NON-CASH IMPAIRMENT
CHARGE 640,000 1,122,000 -
----------- ----------- -----------
OPERATING INCOME 23,165,946 17,486,408 16,664,692
INTEREST EXPENSE,
net of interest
income of
$573,879, $1,007,511
and $797,688 3,233,737 2,725,021 3,333,114
GAIN (LOSS) ON
DISPOSAL OF ASSETS - (35,973) 492,155
----------- ----------- ----------
INCOME BEFORE
INCOME TAXES 19,932,209 14,725,414 13,823,733
INCOME TAXES 7,374,570 5,282,112 5,397,487
----------- ---------- ----------
NET INCOME $ 12,557,639 $ 9,443,302 $ 8,426,246
=========== ========== ==========
NET INCOME PER SHARE:
Basic $4.11 $3.13 $2.81
Diluted $4.00 $3.08 $2.76
==== ==== ====
Consolidated Statements of Shareholders' Equity
and Comprehensive Income
Years Ended July 27, 2002, July 28, 2001 and July 29, 2000
Accumulated
Class A Class B other Total
Common Stock Common Stock Retained comprehensive Treasury Shareholders'
Shares Amount Shares Amount earnings loss stock Equity
Balance,
July 31,1999 1,762,800 $18,129,472 1,594,076 $1,034,679 $52,408,700 - $(5,095,795) $66,477,056
Net income - - - - 8,426,246 - - 8,426,246
Exercise of
stock options - - - - (95,630) - 344,617 248,987
--------- ---------- -------- --------- --------- ------ ---------- ----------
Balance,
July 29,2000 1,762,800 18,129,472 1,594,076 1,034,679 60,739,316 - (4,751,178) 75,152,289
Net income _ _ _ _ 9,443,302 - - 9,443,302
Exercise of
stock options - - - - (66,816) - 240,816 174,000
--------- ---------- --------- --------- ---------- ------ --------- ----------
Balance,
July 28, 2001 1,762,800 18,129,472 1,594,076 1,034,679 70,115,802 - (4,510,362) 84,769,591
Net income - - - - 12,557,639 - - 12,557,639
Other comprehensive
loss - additional
minimum pension
liability, net of
deferred tax benefit
of $410,605 - - - - - (615,907) - (615,907)
----------
Comprehensive income 11,941,732
----------
Exercise of stock
options and related
tax benefits - 281,540 - - (156,192) - 606,192 731,540
-------- ---------- --------- -------- ---------- -------- --------- ----------
Balance,
July 27, 2002 1,762,800 $18,411,012 1,594,076 $1,034,679 $82,517,249 $(615,907) $(3,904,170) $97,442,863
========= ========== ========= ========= ========== ======== ========== ==========
Consolidated Statements of Cash Flows
Years Ended
July 27, 2002 July 28, 2001 July 29, 2000
CASH FLOWS FROM
OPERATING ACTIVITIES
Net income $12,557,639 $9,443,302 $8,426,246
Adjustments to
reconcile net income
to net cash
provided by
operating
activities:
Depreciation and
amortization 8,001,659 7,875,059 8,204,456
Non-cash impairment
charge 640,000 1,122,000 -
Tax benefit from
exercise of
stock options 281,540 - -
Deferred taxes 2,028,270 308,664 359,654
Provision to value
inventories at
LIFO 53,345 806,993 193,758
(Gain) loss on
disposal of assets - 35,973 (492,155)
Changes in assets
and liabilities:
(Increase) in
merchandise
inventories (3,365,303) (242,633) (1,303,189)
(Increase)
decrease in
patronage dividend
receivable (51,226) 55,653 (472,570)
(Increase) decrease
in other current
assets (1,587,480) 631,411 (1,580,630)
(Increase) in
other assets (286,774) (454,049) (699,157)
Increase (decrease)
in accounts payable
to related party 2,266,436 (269,202) 1,547,445
Increase (decrease)
in accounts payable
and accrued
expenses 1,918,912 (39,377) (587,547)
Increase in
other liabilities 419,009 379,390 37,599
---------- ---------- ----------
Net cash provided
by operating
activities 22,876,027 19,653,184 13,633,910
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital
expenditures (20,766,878) (15,069,721) (13,312,329)
Proceeds from
disposal of
assets - - 872,855
---------- ---------- ----------
Net cash used
in investing
activities (20,766,878) (15,069,721) (12,439,474)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from
issuance of
long-term debt 3,000,000 3,000,000 30,000,000
Proceeds from
exercise of
stock options 450,000 174,000 248,987
Principal payments
of long-term debt (2,944,577) (2,322,932) (15,493,812)
--------- --------- ----------
Net cash provided
by financing
activities 505,423 851,068 14,755,175
--------- --------- ----------
NET INCREASE
IN CASH AND
CASH EQUIVALENTS 2,614,572 5,434,531 15,949,611
CASH AND CASH
EQUIVALENTS,
BEGINNING OF
YEAR 31,155,564 25,721,033 9,771,422
---------- ---------- ----------
CASH AND CASH
EQUIVALENTS,
END OF YEAR $33,770,136 $31,155,564 $25,721,033
========== ========== ==========
Supplemental
disclosures of
cash payments
made for:
Interest
(net of amounts
capitalized) $3,903,585 $3,748,819 $3,315,784
Income taxes $7,101,000 $5,233,766 $5,248,456
Noncash
Supplemental
disclosures:
Investment
in related
party $550,000 - $1,120,000
Notes to Consolidated Financial Statements
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of operations
Village Super Market, Inc. (the "Company") operates a chain of
23 ShopRite supermarkets in New Jersey and eastern Pennsylvania.
The Company is a member of Wakefern Food Corporation ("Wakefern"),
the largest retailer-owned food cooperative in the United States.
Principles of consolidation
The consolidated financial statements include the accounts
of Village Super Market, Inc. and its subsidiaries, which are
wholly owned. Intercompany balances and transactions have been
eliminated.
Fiscal year
The Company and its subsidiaries utilize a 52-53 week fiscal
year ending on the last Saturday in the month of July. Fiscal 2002,
2001, and 2000 contain 52 weeks.
Reclassifications
Certain amounts have been reclassified in the fiscal 2001
and 2000 consolidated financial statements to conform to the
fiscal 2002 presentation.
Industry segment
The Company consists of one operating segment, the retail
sale of food and non-food products.
Revenue recognition
Merchandise sales are recognized at the point of sale to
the customer. Discounts provided to customers at the point of
sale are recognized as a reduction of sales as the products are
sold.
Cash and cash equivalents
The Company considers all highly liquid investments purchased
with a maturity of three months or less to be cash equivalents.
Included in cash and cash equivalents at July 27, 2002 and July 28,
2001 are $22,737,000 and $20,926,000, respectively, of demand deposits
invested at Wakefern at the prime rate less 2.5%.
Merchandise inventories
Approximately 66% of merchandise inventories are stated at the
lower of LIFO (last-in, first-out) cost or market. If the FIFO
(first-in, first-out) method had been used, inventories would have
been $9,362,000 and $9,309,000 higher than reported in fiscal 2002
and 2001, respectively. All other inventories are stated at the lower
of FIFO cost or market.
Property, equipment and fixtures
Property, equipment and fixtures are recorded at cost. Interest
cost incurred to finance construction is capitalized as part of such
cost. Maintenance and repairs are expensed as incurred.
Depreciation is provided on a straight-line basis over estimated
useful lives of thirty years for buildings, ten years for store fixtures
and equipment, and three years for vehicles. Leasehold improvements
are amortized over the shorter of the related lease terms or the economic
lives of the related assets.
When assets are sold or retired, their cost and accumulated
depreciation are removed from the accounts, and any gain or loss is
reflected in the consolidated financial statements.
Investment in related party
The Company's investment in it's principal supplier, Wakefern,
is stated at cost (see note 3).
Store opening and closing costs
All store opening costs are expensed as incurred. Provisions are
made for losses resulting from store closings at the time a decision to
close a store is made. This includes items such as future lease payments,
net of expected sublease recovery, and charges to reduce assets to net
realizable value.
Leases
Leases which meet certain criteria are classified as capital leases,
and assets and liabilities are recorded at amounts equal to the lesser of
the present value of the minimum lease payments or the fair value of the
leased properties at the inception of the respective leases. Such assets
are amortized on a straight-line basis over the shorter of the related
lease terms or the economic lives of the related assets. Amounts
representing interest expense relating to the lease obligations are
recorded to effect constant rates of interest over the terms of the
leases. Leases which do not qualify as capital leases are classified
as operating leases, and related rentals are charged to expense as
incurred.
Notes to Consolidated Financial Statements
(Continued)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Advertising
Advertising costs are expensed as incurred. Advertising
expense was $6,952,000, $6,402,000, and $7,011,000 in fiscal 2002,
2001, and 2000, respectively.
Income taxes
Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income
in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities
of a change in tax rates is recognized in operations in the period that
includes the enactment date.
Comprehensive income
FASB Statement 130, "Reporting Comprehensive Income," establishes
standards for reporting and presentation of comprehensive income (loss)
and its components in a full set of financial statements. For fiscal 2002,
comprehensive income consists of net income and the additional minimum
pension liability adjustment, net of income tax benefit.
Stock options
The Company has elected to follow Accounting Principles Board
Opinion 25 ("APB 25") to account for its employee stock options.
Accordingly, compensation cost for stock options is measured as the excess,
if any, of the quoted market price of the Company's stock at the date of
grant over the exercise price.
Use of estimates
In conformity with accounting principles generally accepted in the
United States of America, management of the Company has made a number
of estimates and assumptions relating to the reporting of assets and
liabilities and the disclosure of contingent assets and liabilities at
the date of the consolidated financial statements and the reported
amounts of expenses during the reporting period. Some of the more
significant estimates are patronage dividends and the impairment of
long-lived assets. Actual results could differ from those estimates.
Fair value of financial instruments
Cash and cash equivalents, accounts payable and accrued expenses
are reflected in the consolidated financial statements at carrying value
which approximates fair value because of the short-term maturity of these
instruments. The carrying value of the Company's short- and long-term
notes payable approximates their fair value based on the current rates
available to the Company for similar instruments. As the Company's
investments in Wakefern can only be sold to Wakefern at amounts that
approximate the Company's cost, it is not practicable to estimate the
fair value of such investment.
Derivative instruments and hedging activities
The Company accounts for its derivative and hedging transactions
in accordance with FASB Statement 133, "Accounting for Derivative
Instruments and Hedging Activities," and Statement 138, "Accounting
for Certain Derivative Instruments and Certain Hedging Activities.
"These statements establish accounting and reporting standards for
derivative instruments and for hedging activities and require an entity
to recognize all derivative instruments either as an asset or a liability
in the balance sheet and to measure such instruments at fair value. These
fair value adjustments are to be included either in the determination of
net income or as a component of accumulated other comprehensive income
depending on the nature of the transaction.
The Company has limited involvement with derivative financial
instruments and does not use them for trading purposes. The Company has
one interest rate swap agreement, which it entered into in October 2001,
to manage its exposure to interest rate fluctuations. The Company is exposed
to credit risk in the event of the inability of the counter party to
perform under its outstanding derivatives contract. Management believes
it has minimized such risk by entering into a transaction with a counter
party that is a major financial institution with a high credit rating.
Impairment of long-lived assets and goodwill
The Company reviews long-lived assets, such as property,
equipment and fixtures and intangibles subject to amortization, for
impairment when circumstances indicate the carrying amount of an asset
may not be recoverable. Such review analyzes the undiscounted estimated
future cash flows from such assets to determine if the carrying value of
such assets are recoverable from their respective cash flows. If an
impairment is indicated, it is measured by comparing the discounted cash
flows for the long-lived asset to its carrying value.
Goodwill is tested at the end of each fiscal year, or as
circumstances dictate, for impairment pursuant to the provisions of FASB
Statement 142. An impairment loss is recognized to the extent that the
carrying amount exceeds fair value. The Company operates as a single
reporting unit for purposes of evaluating goodwill for impairment and,
as such, considers the quoted market price of the Company's common stock
and other valuation techniques to measure fair value.
The Company recorded a non-cash impairment charge of $640,000
in fiscal 2002 to write off the book value of the equipment of the
Ventnor store, which was closed on February 5, 2002. Fiscal 2001
results included a non-cash impairment charge of $1,122,000 to write
off the book value of a favorable sublease on the Ventnor store due
to the bankruptcy of the sublessor, and its rejection of the sublease
in bankruptcy court.
Notes to Consolidated Financial Statements
(Continued)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Net income per share
The number of common shares outstanding for calculation of net income
per share is as follows:
2002 2001 2000
Weighted average shares
outstanding - basic 3,057,513 3,017,862 3,001,493
Dilutive effect of employee
stock options 81,136 50,056 49,905
--------- --------- ---------
Weighted average
shares outstanding -
diluted 3,138,649 3,067,918 3,051,398
========= ========= =========
Adoption of New Accounting Standards
Effective July 29, 2001, the Company adopted the provisions of
FASB Statement 141, "Business Combinations," and Statement 142,
"Goodwill and Other Intangible Assets." Statement 141 requires that
the purchase method of accounting be used for all business combinations
initiated after June 30, 2001. Statement 141 also specifies criteria
that intangible assets acquired in a purchase method business combination
must meet to be recognized and reported apart from goodwill. Statement
142 requires that goodwill and assets with indefinite useful lives no
longer be amortized, but instead tested for impairment at least
annually. Statement 142 also requires that intangible assets with
definite useful lives be amortized over their respective estimated
useful lives to their estimated residual values, and reviewed for
impairment.
As required by Statement 142, the Company performed an assessment
of whether there was an indication that goodwill was impaired at the date
of adoption. In connection therewith, the Company determined that its
reporting unit was the same as its reportable segment. As of the date
of adoption and at July 27, 2002, the Company's reporting unit's fair
value exceeded its carrying amount, and therefore there was no
indication that goodwill was impaired. The Company will be performing
an annual impairment test at the end of each fiscal year in the future.
As of the date of adoption, the Company had unamortized goodwill
in the amount of $10,605,000. Amortization expense related to goodwill
was $341,000 for the fiscal years ended July 28, 2001 and July 29, 2000.
As result of adopting Statement 142, the Company no longer amortizes
goodwill. The Company's net income for the years ended July 28, 2001 and
July 29, 2000 would have been $9,739,302 and $8,722,246 had this
amortization expense not been reported in those periods. The Company's
basic earnings per share for the years ended July 28, 2001 and July 29,
2000 would have been $3.23 and $2.91 had this amortization expense not
been reported in those periods. The Company's diluted earning per share
for the years ended July 28, 2001 and July 29, 2000 would have ben $3.17
and $2.86 had this amortization expense not been reported in those
periods.
Prior to the adoption of Statement 142, goodwill arising after
October 1970 was amortized over twenty to forty years. The Company
did not amortize goodwill amounting to approximately $2,900,000 acquired
prior to October 1970 since, in management's opinion, the value of
such intangibles had not diminished. Accumulated amortization of
goodwill amounted to $4,306,960 at July 28, 2001. The Company assessed
the recoverability of unamortized goodwill utilizing relevant cash flow
and profitability information.
NOTE 2 - PROPERTY, EQUIPMENT AND FIXTURES
Property, equipment and fixtures are comprised as follows:
July 27,2002 July 28,2001
Land and buildings $ 60,106,320 $ 52,798,551
Store fixtures and equipment 70,149,558 62,162,318
Leasehold improvements 36,628,394 30,828,130
Leased property under capital
leases 8,597,869 10,334,892
Construction in progress - 5,350,765
Vehicles 1,584,823 1,430,969
----------- -----------
177,066,964 162,905,625
Less accumulated depreciation
and amortization 78,393,373 76,397,253
----------- -----------
Property, equipment and
fixtures - net $ 98,673,591 $ 86,508,372
=========== ===========
Interest cost capitalized amounted to $171,000 in fiscal 2002 and
$389,000 in fiscal 2001 (none in fiscal 2000). Amortization of
leased property under capital leases is included in depreciation and
amortization expense.
Notes to Consolidated Financial Statements
(Continued)
NOTE 3 - RELATED PARTY INFORMATION
The Company's ownership interest in its principal supplier,
Wakefern, which is operated on a cooperative basis for its stockholder
members, is 17.4% of the outstanding shares of Wakefern. The investment
is pledged as collateral for any obligations to Wakefern. In addition,
this obligation is personally guaranteed by the principal shareholders
of the Company. The Company is obligated to purchase 85% of its
primary merchandise requirements from Wakefern until ten years from
the date that stockholders representing 75% of Wakefern sales notify
Wakefern that those stockholders request that the Wakefern Stockholder
Agreement be terminated. If this purchase obligation is not met, the
Company is required to pay Wakefern's profit contribution shortfall
attributable to this failure. Similar payments are due if Wakefern loses
volume by reason of the sale of Company stores or a merger with another
entity. The Company also has an investment of approximately 10% in
Insure-Rite, Ltd., a Wakefern affiliated company, that provides the
Company with liability and property insurance coverage.
The Company purchases substantially all of it's merchandise from
Wakefern. Wakefern distributes as a "patronage dividend" to each member
a share of earnings of Wakefern in proportion to the dollar volume of
business done by the member with Wakefern during the year. Patronage
dividends, which are recorded as a reduction of cost of sales, amounted
to $9,610,000, $8,551,000 and $8,658,000 in fiscal 2002, 2001 and 2000,
respectively.
Wakefern has increased from time to time the required investment
in its common stock for each supermarket owned by a member, with the
exact amount per store computed in accordance with a formula based on
the volume of each store's purchases from Wakefern up to a maximum of
$550,000. At July 27, 2002, the Company's indebtedness to Wakefern for
the outstanding amount of this stock subscription was $1,388,093.
Installment payments are due as follows: 2003 - $422,760; 2004 -
$353,345; 2005 - $182,000; 2006 - $182,000; 2007 - $101,000; and
thereafter - $146,988. The Company will receive additional shares of
common stock to the extent paid for at the end of each fiscal year
(September 30) of Wakefern calculated at the then book value of such
shares. The payments, together with any stock issued thereunder, at the
option of Wakefern, may be null and void and all payments on this
subscription shall become the property of Wakefern in the event the
Company does not complete the payment of this subscription in a timely
manner.
Wakefern provides the Company with support services in
numerous administrative functions. These services include
advertising, insurance, supplies, technology support, equipment
purchasing and coupon processing. Additionally, the Company has certain
related party leases (see Note 6) and demand deposits invested at
Wakefern (see Note 1).
NOTE 4 - NOTES PAYABLE
July 27, July 28,
2002 2001
Senior notes payable (a) $30,000,000 $30,000,000
Notes payable, interest
at 4.39% to 7.90%, payable in
monthly installments
through December 2008,
collateralized by certain
equipment 8,864,265 7,692,791
---------- ----------
38,864,265 37,692,791
Less current portion 2,094,816 1,661,359
---------- ----------
$36,769,449 $36,031,432
========== ==========
Aggregate principal maturities of notes payable as of July 27, 2002
are as follows:
Year ending July:
2003 $2,094,816
2004 6,088,996
2005 5,969,209
2006 5,367,436
2007 5,260,174
Thereafter 14,083,634
(a) On September 16, 1999, the Company issued $30,000,000 of
8.12% unsecured Senior Notes. Interest on these notes is due semi-
annually. The principal is due in seven equal annual installments
beginning September 16, 2003 and ending September 16, 2009.
On September 16, 1999, the Company also entered into an unsecured
revolving loan agreement in the amount of $15,000,000. This agreement
expires September 16, 2004. The revolving credit line can be used for
any purpose except new store construction. Indebtedness under this
agreement bears interest at the prime rate or at the Eurodollar rate,
at the Company's option, plus applicable margins based on the Company's
fixed charge coverage ratio. There were no amounts outstanding at
July 27, 2002 and July 28, 2001.
At July 27, 2002, the Company was in compliance with all terms
and covenants of all debt agreements. These agreements contain
restrictive covenants which, among other matters, specify total debt
levels, maintenance of net worth, fixed charge coverage ratios,
limitation on payment of dividends and limitation of capital
expenditures.
The revolving loan agreement provides a maximum commitment for
letters of credit of $3,000,000 ($1,100,000 outstanding at July 27, 2002)
to secure obligations for the Company's self-insured workers'
compensation claims and for construction performance guarantees to
municipalities.
Notes to Consolidated Financial Statements
(Continued)
On October 18, 2001, the Company entered into an interest rate
swap agreement with a major financial institution pursuant to which
the Company pays a variable rate of six-month LIBOR plus 3.36% (5.19%
at July 27, 2002) on a notional amount of $10,000,000 expiring in
September 2009 in exchange for a fixed rate of 8.12%. The interest rate
swap agreement was designated as a fair value hedging instrument. The
fair value of this derivative instrument at July 27, 2002 was not
material to the consolidated balance sheet. For fiscal 2002, this
interest rate swap agreement reduced interest expense by $201,000.
NOTE 5 - INCOME TAXES
The components of the provision for income taxes are:
2002 2001 2000
Federal:
Current $4,886,824 $4,844,006 $4,653,754
Deferred 1,660,341 241,443 196,583
State:
Current 459,476 129,442 384,079
Deferred 367,929 67,221 163,071
--------- --------- ---------
$7,374,570 $5,282,112 $5,397,487
========= ========= =========
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes. Significant components of the Company's deferred tax liabilities
and assets are as follows:
July 27, July 28,
2002 2001
Deferred tax liabilities:
Tax over book depreciation $6,917,875 $4,439,205
Patronage dividend receivable 867,239 759,106
Other 634,136 591,339
--------- ---------
Total deferred tax liabilities 8,419,250 5,789.650
--------- ---------
Deferred tax assets:
Amortization of capital leases 1,559,438 1,380,873
Compensation related costs 789,509 615,476
Minimum pension liability 410,605 --
Accrual for special charges 783,505 599,680
Other 289,436 224,528
--------- ---------
Total deferred tax assets 3,832,493 2,820,557
--------- ---------
Net deferred tax liability $4,586,757 $2,969,093
========= =========
Net long-term deferred taxes of $4,537,022 and $2,839,990 are
included in other long-term liabilities at July 27, 2002 and July 28,
2001, respectively. Net current deferred taxes of $49,735 and $129,103
are included in accrued expenses at July 27, 2002 and July 28, 2001,
respectively.
A valuation allowance is provided when it is more likely than
not that some portion of the deferred tax assets will not be realized.
In management's opinion, in view of the Company's previous, current
and projected taxable income, such tax assets will more likely than not
be fully realized. Accordingly, no valuation allowance was deemed to be
required at July 27, 2002 and July 28, 2001.
The effective income tax rate differs from the statutory federal
income tax rate as follows:
2002 2001 2000
Statutory federal
income tax rate 35.0% 35.0% 35.0%
Amortization of intangibles -- .6 .7
State income taxes, net
of federal tax benefit 2.7 .9 2.6
Other (.7) (.6) .7
---- ---- ----
Effective income tax rate 37.0% 35.9% 39.0%
==== ==== ====
Notes to Consolidated Financial Statements
(Continued)
NOTE 6 - LONG-TERM LEASES
Description of leasing arrangements
The Company conducts a major part of its operations from
leased facilities, with the majority of initial lease terms ranging
from 20 to 30 years. All of the Company's leases expire through fiscal
2059.
Most of the Company's leases contain renewal options of five
years each. These options enable the Company to retain the use of
facilities in desirable operating areas. Management expects that in the
normal course of business, most leases will be renewed or replaced by
other leases. The Company is obligated under all leases to pay for real
estate taxes, utilities and liability insurance, and under certain leases
to pay additional amounts based on maintenance, insurance and a percentage
of sales in excess of stipulated amounts.
Future minimum lease payments by year and in the aggregate for
all non-cancelable leases with initial terms of one year or more consist
of the following at July 27, 2002:
Capital Operating
Leases Leases
2003 $ 1,603,380 $ 5,469,750
2004 1,603,380 5,173,918
2005 1,614,800 4,994,104
2006 1,545,789 4,671,912
2007 1,107,740 4,530,494
Thereafter 4,805,290 62,419,764
---------- ----------
Minimum lease payments 12,280,379 $87,259,942
===========
Less amount representing
interest 5,837,295
----------
Present value of minimum
lease payments 6,443,084
Less current portion 543,724
---------
$5,899,360
==========
The following schedule shows the composition of total rental expense
under operating leases for the following periods:
2002 2001 2000
Minimum rentals $5,939,763 $5,602,486 $4,554,604
Contingent rentals 907,250 934,970 974,926
--------- --------- ---------
$6,847,013 $6,537,456 $5,529,530
========== ========== ==========
Related party leases
The Company currently leases two supermarkets and its office facility
from realty firms partly or wholly-owned by officers of the Company. The
office facility lease expires January 31, 2003. Both supermarket leases
initial terms expire in fiscal 2006 and contain renewal options. The
Company paid aggregate rentals under these leases, including minimum rent
and contingent rent, of approximately $1,096,000, $1,152,000 and $1,243,000
for fiscal years 2002, 2001 and 2000, respectively.
The Company leases the Vineland store from Wakefern, the previous
owner, under a sublease agreement which provides for annual rent of
$650,000. This sublease expires May 10, 2014 and contains renewal options.
Notes to Consolidated Financial Statements
(Continued)
NOTE 7 - COMMON STOCK
Class A common stock has one vote per share and is entitled to
cash dividends as declared 54% greater than those paid on the Class B
common stock. Class B common stock has ten votes per share. Class B common
stock is not transferrable except to another holder of Class B common stock
or by will or under the laws of intestacy or pursuant to a resolution
of the Board of Directors of the Company approving the transfer. Shares of
Class B common stock are convertible on a share-for-share basis for Class
A common stock.
The 1997 Incentive and Non-Statutory Stock Option Plan provides for
the granting of options or stock appreciation rights to purchase up to
250,000 shares of the Company's Class A common stock by officers, employees
and directors of the Company as designated by the Board of Directors. The
Plan requires incentive stock options to be granted at exercise prices equal
to the fair value of the Company's stock at the date of grant (110% if
the optionee holds more than 10% of the voting stock of the Company), while
non-statutory options may be granted at an exercise price less than fair
value. All options granted to date were at fair value and are exercisable
up to 10 years from the date of the grant.
The following table summarizes option activity for the following
periods:
2002 2001 2000
Shares Weighted avg. Shares Weighted avg. Shares Weighted avg.
exercise price exercise price exercise price
Outstanding at
beginning of
year 167,000 $10.13 184,400 $10.14 205,300 $10.05
Granted 8,000 23.50 - - 4,000 13.00
Exercised (43,800) (10.18) (17,400) 10.00 (24,900) 10.00
------- ----- ------- ----- ------- -----
Outstanding at
end of year 131,200 $10.93 167,000 $10.13 184,400 $10.14
------- ----- ------- ----- ------- -----
Options
exercisable
at end of
year 123,200 $10.12 167,000 $10.13 180,400 $10.08
------- ----- ------- ----- ------- -----
At July 27, 2002 and July 28, 2001, the weighted-average
remaining contractual life of outstanding options was 5.3 and 6.3
years, respectively, and the exercise prices ranged from $10.00 to $23.50.
In accordance with the provisions of Statement 123, the Company applied
APB 25's intrinsic value method of accounting for stock options. Accordingly,
compensation cost for stock options is measured as the excess, if any, of
the quoted market price of the Company's stock at the date of grant over
the amount an employee may pay to acquire the stock. As all stock options
have been granted at an exercise price equal to the fair value of the
Company's stock at the date of grant, no compensation expense has been
recorded in the Company's consolidated financial statements.
If the Company had elected to recognize compensation costs based on
the fair value of the options granted as prescribed by Statement 123,
fiscal 2002, 2001 and 2000 results would be reduced to the following pro
forma amounts: net income - $12,487,000, $9,443,000 and $8,412,000; net
income per share, basic - $4.08, $3.13 and $2.80; and net income per
share, diluted - $3.98, $3.08 and $2.76. The fair value of options granted
was estimated at $8.81 in fiscal 2002 and $3.57 in fiscal 2000. The fair
value of each option grant is estimated using the Black-Scholes Option
Pricing Model with the following assumptions used for fiscal 2002 and
2000 grants: risk-free interest rate of 4.0% and 6.0%; expected life of
6 years; expected dividend rate of zero; and expected volatility of 30.0%
and 20.9%.
Notes to Consolidated Financial Statements
(Continued)
NOTE 8 - PENSION PLANS
The Company sponsors three defined benefit pension plans covering
administrative personnel and members of two unions. Employees covered
under the administrative pension benefit plan earn benefits based
upon percentages of annual compensation. Employees covered under the
union pension benefit plans earn benefits based on a fixed amount for
each year of service. The Company's funding policy is to pay at least
the minimum contribution required by the Employee Retirement Income
Security Act of 1974.
Net periodic pension cost for the three plans include the following
components:
2002 2001 2000
Service cost $685,123 $624,916 $523,532
Interest cost on
projected benefit
obligation 781,815 690,064 712,678
Expected return on
plan assets (703,705) (855,794) (881,218)
Net amortization and deferral 10,078 (8,662) ( 12,052)
------- ------- -------
Net periodic pension cost $773,311 $450,524 $342,940
======== ======== ========
The changes in benefit obligations and the reconciliation of the
funded status of the Company's plans to the consolidated balance sheets
were as follows:
2002 2001
Change in Benefit Obligation:
Benefit obligation at beginning of year $10,726,263 $10,960,792
Service cost 685,123 624,916
Interest cost 781,815 690,064
Benefits paid (474,904) (425,333)
Actuarial loss (gain) 420,982 (1,124,176)
---------- ----------
Benefit obligation at end of year $12,139,279 $10,726,263
=========== ===========
Change in Plan Assets:
Fair value of plan at beginning of year $ 9,438,298 $10,217,541
Actual return on plan assets (1,051,284) (430,372)
Employer contributions 129,843 76,462
Benefits paid (474,904) (425,333)
--------- ---------
Fair value of plan assets at end of year $8,041,953 $9,438,298
========== ==========
Fair value of plan assets (less) than
benefit obligation $(4,097,326) $(1,287,965)
Unrecognized prior service cost 179,943 133,191
Unrecognized net actuarial loss 3,122,193 761,695
Adjustment required to recognize
minimum liability (1,206,455) -
---------- ---------
Accrued pension cost $(2,001,645) $ (393,079)
=========== ==========
Amounts recognized in the
consolidated balance sheets:
Accrued pension cost $(2,001,645) $ (393,079)
Intangible asset 179,943 -
Accumulated other comprehensive loss 615,907 -
=========== ==========
Plan assets are invested principally in government securities,
common stocks and mutual funds.
Assumptions used in determining the net fiscal 2002, 2001 and 2000
periodic pension cost were as follows:
2002 2001 2000
Assumed discount rate 7.25% 7.25% 7.25%
Assumed rate of increase
in compensation levels 4% 4% 4%
Expected rate of return on
plan assets 7.5% 8.0 to 8.5% 8.0 to 8.5%
The Company also participates in several multiemployer pension
plans and a defined contribution plan for which the fiscal 2002, 2001
and 2000 contributions were $2,513,000, $1,989,000 and $1,922,000, respectively.
Notes to Consolidated Financial Statements
(Continued)
NOTE 9 - COMMITMENTS AND CONTINGENCIES
The Company is involved in litigation incidental to the normal
course of business. Company management is of the opinion that the
ultimate resolution of these legal proceedings should not have a
material adverse effect on the consolidated financial position, results
of operations or liquidity of the Company.
NOTE 10 - Subsequent Event
On September 19, 2002, the Company entered into an agreement with a
real estate investment trust (the "REIT"). The Company's purpose in
entering into this agreement is to provide for the development of an
80,000 sq. ft. replacement store in Somers Point, NJ with minimal cash
outlay by the Company, and to ensure continued occupancy of the
Springfield, NJ store and the Company's headquarters. This transaction,
while subject to various contingencies, is expected to close in the
second quarter of fiscal 2003.
The Company will sell the land and building currently occupied by
the Somers Point store for $3,500,000 to the REIT. The Company will
execute a lease with the REIT to continue occupancy of the current Somers
Point store until the replacement store is opened. The Company will
execute a lease for the replacement store in Somers Point to be constructed
by the REIT.
In addition, the Company will execute long-term leases with the REIT
for the Springfield store and the Company's headquarters. These properties
are currently leased from a realty company owned by certain officers of the
Company (the "Realty Company"). The Company will agree to cancel its
current leases with the Realty Company. The combined annual rents of these
two new leases are approximately the same as the annual rents of the leases
to be cancelled.
As part of this transaction, the shareholders of the Realty Company
are selling their shares in the Realty Company to the REIT. The Realty
Company's assets consist substantially of the Springfield store, the
Company headquarters and undeveloped land in Somers Point upon which a
130,000 sq. ft. retail center is to be developed by the REIT.
Based on the terms of the proposed transaction, management believes
there will be no material gain or loss recognized from the sale of the
Somers Point store and the cancellation of the two leases.
Independent Auditors' Report
The Board of Directors and Shareholders
Village Super Market, Inc.:
We have audited the accompanying consolidated balance sheets of
Village Super Market, Inc. and subsidiaries as of July 27, 2002 and
July 28, 2001, and the related consolidated statements of operations,
shareholders' equity and comprehensive income, and cash flows for each
of the years in the three-year period ended July 27, 2002. These
consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion
on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. Those standards
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position
of Village Super Market, Inc. and subsidiaries as of July 27, 2002 and
July 28, 2001, and the results of their operations and their cash flows
for each of the years in the three-year period ended July 27, 2002,
in conformity with accounting principles generally accepted in the United
States of America.
As discussed in note 1 to the consolidated financial statements,
the Company adopted the provisions of Statement of Financial Accounting
Standards No. 142, "Goodwill and Other Intangible Assets" in fiscal
2002, which changes its accounting for goodwill and intangible assets.
Short Hills, New Jersey
October 1, 2002
Stock Price and Dividend Information
The Class A common stock of Village Super Market, Inc. is traded on the
NASDAQ National Market tier of the NASDAQ Stock Market under the symbol
"VLGEA." The table below sets forth the high and low last reported sales
price for the fiscal year indicated.
Class A Stock
High Low
2002
4th Quarter 38.75 26.50
3rd Quarter 36.80 26.20
2nd Quarter 27.50 19.85
1st Quarter 20.98 17.75
2001
4th Quarter 20.20 14.50
3rd Quarter 14.70 13.50
2nd Quarter 14.37 13.00
1st Quarter 13.00 11.75
As of October 1, 2002, there were 489 holders of record
of the Company's Class A common stock.
No dividends were paid during fiscal 2002 and 2001.
Village Super Market, Inc.
CORPORATE DIRECTORY
OFFICERS AND DIRECTORS
PERRY SUMAS
Chief Executive Officer and President; Director
JAMES SUMAS
Chairman of the Board; Chief Operating Officer
and Treasurer; Director
ROBERT SUMAS
Executive Vice President and Secretary; Director
WILLIAM SUMAS
Executive Vice President; Director
JOHN SUMAS
Executive Vice President; Director
CAROL LAWTON
Vice President and Assistant Secretary
KEVIN BEGLEY
Chief Financial Officer
GEORGE J. ANDRESAKES
Director
JOHN J. McDERMOTT
Director
Steven CRYSTAL
Director
EXECUTIVE OFFICES
733 Mountain Avenue
Springfield, New Jersey 07081
REGISTRAR AND TRANSFER AGENT
First City Transfer Company
P.O. Box 170
Iselin, New Jersey 08330
AUDITORS
KPMG LLP
150 John F. Kennedy Parkway
Short Hills, New Jersey 07078
FORM 10-K
Copies of the Company's Form 10-K as filed with the Securities
and Exchange Commission are available without charge upon written
request to:
Mr. Robert Sumas, Secretary
Village Super Market, Inc.
733 Mountain Avenue
Springfield, New Jersey 07081
Exhibit 21
SUBSIDIARIES OF REGISTRANT
The Company has two wholly-owned subsidiaries at July 27, 2002.
Village Super Market of PA, Inc., which is organized under the laws
of Pennsylvania and Village Super Market of NJ, L.P., which is
organized under the laws of New Jersey.
The financial statements of all subsidiaries are included in
the Company's consolidated financial statements.
Exhibit 23
Independent Auditors' Consent
The Board of Directors
Village Super Market, Inc.:
We consent to incorporation by reference in the Registration
Statement (No. 2-86320) on Form S-8 of Village Super Market, Inc. of
our report dated October 1, 2002, with respect to the consolidated
balance sheets of Village Super Market, Inc. as of July 27, 2002 and
July 28, 2001 and the related consolidated statements of operations,
shareholders' equity and comprehensive income, and cash flows for each
of the years in the three-year period ended July 27, 2002, which
report is incorporated herein by reference in the July 27, 2002 annual
report on Form 10-K of Village Super Market, Inc.
Our report refers to a change in accounting for goodwill and intangible
assets.
/s/ KPMG LLP
Short Hills, New Jersey
October 24, 2002
Exhibit 99
VILLAGE SUPER MARKET, INC.
REPORTS RESULTS FOR THE FOURTH QUARTER & YEAR ENDED
JULY 27, 2002
Contact: Kevin Begley, C.F.O.
(973) 467-2200, Ext. 220
Springfield, New Jersey - October 1, 2002 - Village Super Market, Inc.
(NSD-VLGEA) reported sales and net income for the fourth quarter and
year ended July 27, 2002, Perry Sumas, President announced today.
Net income was $3,875,000 ($1.23 per diluted share) in the fourth
quarter of fiscal 2002, an increase of 9% from the prior year. Net
income increased due to a substantial sales increase and improved
gross profit percentages, partially offset by increased operating
expenses. Sales in the fourth quarter were $225,345,000, an increase
of 7.0% from the prior year. Same store sales increased 3.0%, which
was mostly attributable to substantially improved sales in three
stores in the general area of the closed Ventnor store.
Although the fourth quarter same store sales increase of 3.0% is
well above that experienced by other supermarket chains recently, it
is below the 4.8% same store sales increase we experienced for the
first nine months of this fiscal year. A total of five competitive
openings affecting eight Village stores occurred in the latter part
of fiscal 2002. These competitive openings, and the increased
promotional spending in response to these competitive openings,
along with recent softening in the economy, are expected to reduce
the same store sales increase in the first quarter of fiscal 2003
to approximately .5% to 1.5%. Based on the above factors, and a
comparison to a very strong first quarter last year, we believe it
will be difficult to match the earnings level achieved in the
October 2001 quarter.
Net income for the fiscal year increased to $12,558,000 ($4.00 per
diluted share), an increase of 33% from the prior year. Excluding
non-cash impairment charges in both fiscal years, net income increased
28%. The increase in net income for the fiscal year was primarily
attributable to increased same store sales and increased gross profit
percentages, partially offset by increased operating expenses. Sales
for the year were $883,337,000, an increase of 7.6% from the prior
year. Same store sales increased 4.3%.
Village Super Market operates a chain of 23 supermarkets under the
ShopRite name in New Jersey and eastern Pennsylvania. The following
table summarizes the results for the quarter and year ended
July 27, 2002:
July 27, 2002 July 28, 2001
Quarter Ended
Sales $225,345,000 $210,666,000
Net Income $ 3,875,000 $ 3,556,000
Net Income Per Share - Basic $ 1.26 $ 1.17
Net Income Per Share - Diluted $ 1.23 $ 1.15
Year Ended
Sales $883,337,000 $820,627,000
Net Income $ 12,558,000 $ 9,443,000
Net Income Per Share - Basic $ 4.11 $ 3.13
Net Income Per Share - Diluted $ 4.00 $ 3.08
FORWARD-LOOKING STATEMENTS:
This Press Release contains "forward-looking statements" within
the meaning of federal securities law. The Company cautions the
reader that there is no assurance that actual results or business
conditions will not differ materially from future results, whether
expressed, suggested or implied by such forward-looking statements.
Such potential risks and uncertainties include, without limitation,
local economic conditions, competitive pressures from the Company's
operating environment, the ability of the Company to maintain and
improve its sales and margins, the ability to attract and retain
qualified associates, the availability of new store locations,
availability of capital, the liquidity of the Company on a cash
flow basis, the success of operating initiatives, and other risk
factors detailed in the Company's filings with the SEC.
Exhibit 99.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Village Super Market, Inc.
(the "Company") on Form 10-K for the period ending July 27, 2002 as
filed with the Securities and Exchange Commission on the date hereof
(the "Report"), I, James Sumas, Principal Executive Officer of the
Company certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to
906 of the Sarbanes-Oxley Act of 2002, that:
1 The Report fully complies with the requirements of Section
13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in
all material respects, the financial condition and results of
operations of the Company.
/s/ James Sumas
James Sumas
Principal Executive Officer
October 24, 2002
Exhibit 99.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Village Super Market, Inc.
(the "Company") on Form 10-K for the period ending July 27, 2002 as
filed with the Securities and Exchange Commission on the date hereof
(the "Report"), I, Kevin Begley Chief Financial Officer of the Company
certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to 906 of
the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of Section
13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents,
in all material respects, the financial condition and results of
operations of the Company.
/s/ Kevin Begley
Kevin Begley
Chief Financial Officer &
Principal Accounting Officer
October 24, 2002