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