1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended April 23, 1994 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File No. 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 Number) 733 Mountain Avenue, Springfield, New Jersey 07081 (Address of principal executive offices) (Zip Code) (201 467-2200 Registrant's telephone number, including area code 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 the number of shares outstanding of the issuer's classes of common stock as of the latest practicable date. June 1, 1994 Class A, Common Stock, No Par Value 1,315,800 Shares Class B, Common Stock, No Par Value 1,594,076 Shares 2 VILLAGE SUPER MARKET, INC. INDEX Part I Page No. Financial Information Item 1. Financial Statements Consolidated Condensed Balance Sheets - April 23, 1994 and July 31, 1993 . . . . . . . . . . . 3 Consolidated Condensed Statements of Income - Thirty-eight and Thirteen Weeks Ended April 23, 1994 and April 17, 1993. . . . . . . . . . . 4 Consolidated Condensed Statements of Cash Flows - Thirty-eight Weeks Ended April 23, 1994 and April 17, 1993 . . . . . . . 5 Notes to Consolidated Condensed Financial Statements . . . . . . . . . . . . . . . . . . . . . . 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . 7-9 Part II Other Information Item 2. Change in Securities . . . . . . . . . . . . . . 10 Item 3. Defaults upon Senior Securities. . . . . . . . . 10 Item 6. Exhibits and Reports on Form 8-K . . . . . . . . 10 Signatures . . . . . . . . . . . . . . . . . . . . . . . 11 Exhibit 99(a). . . . . . . . . . . . . . . . . . . . . . 12 Exhibit 99(b). . . . . . . . . . . . . . . . . . . . . . 13 Exhibit 4(a) . . . . . . . . . . . . . . . . . . . . . . 14 3 Part I. FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS VILLAGE SUPER MARKET,INC. CONSOLIDATED CONDENSED BALANCE SHEETS (Dollars in Thousands) April 23, 1994 July 31, 1993 ASSETS Current assets Cash and cash equivalents $ 1,540 $ 6,619 Merchandise inventories 26,715 26,246 Patronage dividend receivable 2,449 2,950 Miscellaneous receivables 3,715 4,852 Prepaid expenses 490 569 Total current assets 34,909 41,236 Property, equipment and fixtures,net 71,496 74,131 Investment in related party 9,396 9,055 Goodwill, net 11,226 11,404 Other intangibles, net 3,112 3,299 Other assets 1,622 2,262 Total assets $131,761 $ 141,387 ======== ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Current portion of long-term debt $ 5,300 $ 5,179 Long term debt reclassified current 22,100 -- Accounts payable to related party 23,566 23,400 Accounts payable and accrued exp 11,803 14,522 Deferred income taxes 535 438 Total current liabilities 63,304 43,539 Long-term debt, less current portion 11,399 39,470 Deferred income taxes 4,386 5,148 Shareholders' equity Class A common stock - no par value, issued 1,762,800 shares (including 447,000 in treasury at April 23, 1994 and July 31, 1993) 18,127 18,127 Class B common stock - no par value 1,594,076 shares issued and outstanding 1,037 1,037 Retained earnings 39,693 40,251 Less cost of treasury shares (6,185) (6,185) Total shareholders' equity 52,672 53,230 Total liabilities and shareholders' equity $ 131,761 $ 141,387 ========= ========= See accompanying notes to consolidated condensed financial statements. 4 VILLAGE SUPER MARKET, INC. CONSOLIDATED CONDENSED STATEMENTS OF INCOME (Dollars in Thousands Execpt Per Share Amounts) 13 Week End 13 Week End 38 Week End 38 Week End Apr 23,1994 Apr 17,1993 Apr 23 1994 Apr 17,1993 Sales $ 171,776 $ 169,431 $ 507,228 $ 510,056 Cost of sales 129,930 128,190 383,545 386,088 Gross margin 41,846 41,241 123,683 123,968 Operating and administrative expense 40,402 37,698 115,663 113,232 Depreciation and amortization expense 2,098 2,200 6,420 6,613 Operating income (loss) ( 654) 1,343 1,600 4,123 Interest expense 931 1,041 2,815 3,223 Gain (loss) on disposal of assets (300) --- (381) 1,703 Income (loss) before provision for income taxes and cumlative efffect of accounting change (1,885) 302 (1,596) 2,603 Provision for income tax expense (benefit) (754) 120 (638) 1,040 Income (loss) before cumulative effect of acccounting change (1,131) 182 (958) 1,563 Cumulative effect as of July 31, 1993 of change in method of accounting for income taxes --- --- 400 --- Net income (loss) $ (1,131) $ 182 $ (558) $ 1,563 ========== ========= ========== ========= Net income (loss) per share: Weighted average number of common shares outstanding 2,909,876 2,909,876 2,909,876 2,909,876 Income (loss) before cumulative effect of accounting change $ (.39) $ .06 $ (.33) $ .54 Cumulative effect of accounting change --- --- .14 --- Net income (loss) $ (.39) $ .06 $ (.19) $ .54 ========== ========== =========== ========= See accompanying notes to consolidated condensed financial statements. 5 VILLAGE SUPER MARKET, INC. CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS (Dollars in Thousands) 38 Weeks Ended 38 Weeks Ended April 23, 1994 April 17, 1993 CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ (558) $ 1,563 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Cumulative effect of accounting change (400) --- Depreciation and amortization 6,420 6,613 Provision to value inventories at LIFO 500 300 (Gain) loss on disposal of assets 381 (1,703) Changes in assets and liabilities: (Increase) decrease in inventory (969) 697 Decrease in patronage dividend receivable 501 707 Increase(decrease in misc. receivables 1,137 (1,300) Decrease in prepaid expenses 79 --- Decrease in other assets 640 266 Increase (decrease) in accounts payable to related party 166 (1,330) (Decrease) in accounts payable and accrued expenses (2,719) (766) (Decrease) in income taxes payable ( 265) (240) Net cash provided by operating activities 4,913 4,807 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (3,859) (1,302) Investment in related party (341) (450) Proceeds from sale of asssets, net 58 2,235 Net cash provided (used) in investing activities (4,142) 483 CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of long-term debt 10,000 --- Principal payments of long-term debt (15,850) (3,853) Net cash used by financing activities ( 5,850) (3,853) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ( 5,079) 1,437 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 6,619 5,324 CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,540 $ 6,761 ========= ========= See accompanying notes to consolidated condensed financial statements. 6 VILLAGE SUPER MARKET, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 1. In the opinion of the Company, the accompanying unaudited consolidated condensed financial statements contain all adjustments (consisting of normal and recurring accruals) necessary to present fairly the financial position as of April 23, 1994 and July 31, 1993 and the results of operations and cash flows for the thirty-eight and thirteen weeks ended April 23, 1994 and April 17, 1993. The significant accounting policies followed by the Company are set forth in Note 1 to the Company's financial statements in the July 31, 1993 Village Super Market, Inc. Annual Report. Effective August 1, 1993, the Company adoped FASB Statement No. 109, "Accounting for Income Taxes." Under Statement 109, the liability method is used in accounting for income taxes. Under this method, deferred tax assets and liabilities are determinded based on differences between financial reporting and tax bases of assets and liabilties and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. As permitted by Statement 109, the Company has elected not to restate the financial statements of any prior years. There was no effect from the change in accounting on pretax income for the thirty-eight and thirteen weeks ended April 23, 1994. The cumulative effect of the change increased net income by $400,000 ($.14 per share) in the quarter ended October 23, 1993. 2. The results of operations for the thirty-eight weeks ended April 23, 1994 are not necessarily indicative of the results to be expected for the full year. 3. At both April 23, 1994 and July 31, 1993 approximately 66% of the merchandise inventories are valued by the LIFO method while the balance is valued by FIFO. If the FIFO method had been used for the entire inventory, inventories would have been $6,311,000 and $5,811,000 higher than reported at April 23, 1994 and July 31, 1993, respectively. 7 Item 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - - ------------------------------------------------------------------------------ RESULTS OF OPERATIONS Sales for the third quarter of fiscal 1994 were $171,776,000, an increase of 1.4% from the third quarter of the prior year. Same store sales increased 2.8% this quarter, which was partially offset by lower sales from closed stores. Same store sales increased in the third quarter as a result of additional promotional spending and possibly some improvement in the local economy. Sales for the thirty-eight weeks ended April 23, 1994 were $507,228,000, a slight decrease from the prior year. Same store sales increased 1.7% in this period, which was offset by stores closed since a year ago. Gross margins as a percentage of sales for both the quarter and thirty- eight weeks ended April 23, 1994 were 24.4% compared with 24.3% in both corresponding prior year periods. High levels of sale item penetration and price competition in the marketplace have prevented further increases in gross margins. Store operating and administrative expenses as a percentage of sales for the quarter and thirty-eight weeks ended April 23, 1994 were 23.5% and 22.8%, respectively, compared with 22.2% in the corresponding prior year periods. The principal reason for these increases was the higher level of promotional spending, chiefly couponing, which began in the second quarter and increased further in the third quarter. Although the additional promotional spending was partially responsible for the increase in same store sales, a larger sales increase was expected in order to offset the cost of these coupons. Inclement weather contributed to the lower than expected sales and also increased snow removal costs. In addition, fringe benefit costs increased. Interest expense decreased in both the quarter and nine month period in fiscal 1994 due to lower debt levels and lower interest rates. A net loss of $81,000 on the sale of the Morristown store was recorded in the first quarter of fiscal 1994. An additional loss of $300,000 was recorded in the current quarter due to the failure of the Company's former sub-lessee to make required rent payments. The prior year nine month results include a pretax gain of $1,703,000 on the sale of the Kingston store. 8 LIQUIDITY AND FINANCIAL RESOURSES On March 29, 1994 the Company replaced its expired $20,000,000 revolving/term loan agreement with a new $30,000,000 loan agreement with two banks. The new agreement consists of a $10,000,000 term loan, a $12,000,000 revolving loan and a $8,000,000 convertible revolving loan. At April 23, 1994 the only balance outstanding on this facility was the $10,000,000 term loan bearing interest at 8.49%, with monthly principal payments of $55,555 being August 1, 1994 and a final principal payment of $5,555,556 due April 1, 2001. The $12,000,000 revolving loan, which can be used for any purpose except new store construction, matures March 31, 1997. Any balances outstanding carry interest at prime or libor based interest rates at the Company's option. The $8,000,000 convertible revolving loan is to be used only for capital expenditures. Any amounts outstanding on this loan carry interest at either fixed rates or prime or libor based interest rates at the Company's option. Amounts may be borrowed through December 31, 1995. Principal repayments are required based on the amounts borrowed with a loan maturity date of January 1, 2001. At April 23, 1994 the Company does not meet the required interest coverage ratio in this loan agreement. This constitutes an event of default under this loan agreement. The Company is engaged in discussions with the two banks regarding this situation. Without the further consent of the banks the Company will not be allowed to borrow under the $8,000,000 convertible revolving loan portion of the credit facility. The Company also fails the current ratio required in another loan agreement, which is an event of default. In addition the Company does not meet a required coverage ratio in this agreement. Without a waiver, this would prevent the Company from borrowing additional funds, executing new leases or declaring dividends. Discussions are also underway with this lender. As a result of the events of default described above, the Company has reclassified $22,100,000 of long term debt as a current liability in the April 23, 1994 balance sheet. There is no indication at this time that any of the three lenders intend to request immediate payment of these amounts. 9 Current liabilities exceed current assets by $28,395,000 at April 23, 1994 as compared to $2,303,000 at July 31, 1993. The current ratio decreased to .55 at April 23, 1994 compared to .95 at July 31, 1993. These two changes are primarily attributable to the reclassification of long term debt to current liabilities in the amount of $22,100,000 discussed above. The Company is currently in the process of remodeling two stores. A remodel and expansion of an additional store is planned to begin shortly. A planned expenditure for 1994 had been the purchase of land for a new superstore. As this store has not yet received planning board approval, this expenditure has been rescheduled for fiscal 1995. 10 PART II OTHER INFORMATION Item 2. Changes in Securities. On March 29, 1994 the Company entered into a $30,000,000 loan agreement with two banks. The new bank agreement requires that the Company maintain minimum levels of tangible net worth, interest and fixed charge coverage ratios and maximum debt to tangible net worth ratios and capital expenditure levels. Payment of dividends is also limited to 20% of the excess of net income above $1,000,000 if all other financial covenants are met. Item 3. Defaults Upon Senior Securities. At April 23, 1994 the Company is not in compliance with the required interest coverage ratio in the new loan agreement. This constitutes an event of default. The Company is engaged in discussions with the two banks regarding this situation. The Company also fails the current ratio required in another loan agreement, which is an event of default. In addition, the Company does not meet a fixed charge coverage ratio in this agreement. Without a waiver, this would prevent the Company from borrowing additional funds, executing new leases or declaring dividends. Discussions are also underway with this lender. Each of these two agreements are cross defaulted with the other agreement. There is no indication at this time that any of the three lenders intend to request immediate payment of the loan amounts outstanding. Item 6. Exhibits and Reports on Form 8-K 6(a)Exhibits: Exhibit 4(a) Loan Agreement dated March 29, 1994 Exhibit 99(a) Press Release dated May 24, 1994. Exhibit 99(b) Second Quarter Report to Shareholders 6(b) Reports on form 8-K. None. 11 SIGNATURES Pursuant to the requirements 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. Registrant Date: June 2, 1994 /s/ Perry Sumas Perry Sumas (President) Date: June 2, 1994 /s/ Kevin R. Begley Kevin R. Begley (Chief Financial Officer)