The Company
Village Super Market, Inc. operates a chain of 23 ShopRite supermarkets, 17
of which are located in northern New Jersey, 1 in northeastern Pennsylvania
and 5 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................................ 6
Consolidated Statements of Operations...................... 7
Consolidated Statements of Shareholders' Equity............ 8
Consolidated Statements of Cash Flows...................... 9
Notes to Consolidated Financial Statements................ 10
Independent Auditors' Report.............................. 16
Stock Price and Dividend Information...................... 16
Corporate Directory Inside back cover
Dear Fellow Shareholders
As fiscal 1996 began, our goal was to build on the improvements made in 1995.
We are pleased to report a 247% increase in net income to $2,006,000, or $.69
per share. Sales increased 1.7% to $688,632,000.
Results for 1996 include a $571,000 gain on the sale of real estate.
Excluding this gain, net income increased 148% from the prior year. Net income
increased primarily due to improved gross margins and 1.7% higher same store
sales. This improvement was achieved despite the opening of six stores by
competitors in our markets over the last two years.
We will continue to improve our stores to better serve our customers.
During 1996 we completed a major expansion and remodel of our Absecon store.
In fiscal 1997, we plan to expand and remodel the Livingston, Chester and
Stroudsburg stores.
During the summer of 1996, ShopRite took another step in responding to
customer needs by introducing a ShopRite MasterCard. Customers receive
reward certificates redeemable for "free food" at ShopRite each month based
on total purchases using their ShopRite MasterCard. For added customer
convenience, this credit card also functions as a Price Plus discount card
and a check cashing card.
In October 1996, ShopRite began a new merchandising program - "What's for
Dinner?". Each weeks advertising includes meal plans and recipes for easy
meals, budget meals and healthy meals. This program, along with ShopRite's
Chef's Express meals to go program improves our position in the increasing
home meal replacement segment of the food marketplace.
During 1996, ShopRite celebrated the 50th anniversary of the creation of
the Wakefern cooperative. Although much has changed in our business over the
years, the fundamentals remain the same - we must continue to provide value
to our customers while responding to their changing needs. We thank our
employees for their dedication in satisfying our customers needs and our
shareholders for their continued support.
James Sumas, Perry Sumas,
Chairman of the Board President
Selected Financial Data
(Dollars in thousands except per share and per sq. ft. data)
July 27, July 29, July 30, July 31, July 25,
1996 1995 1994 1993 1992
For year
Sales $688,632 $677,322 $695,070 $713,856 $715,059
Net income (loss) 2,006 578 (807) 1,437 487
Net income (loss)
per share .69 .20 (.28) .49 .17
Cash dividends per share
Class A - - - - .075
Class B - - - - .05
At year end
Total assets 131,062 135,575 134,793 141,387 145,668
Long-term obligations
including capital
leases 26,815 34,853 36,933 39,470 45,699
Working capital
(deficit) (10,885) (3,755) (4,100) (2,303) (3,617)
Shareholders' equity 55,007 53,001 52,423 53,230 51,793
Book value per share 18.90 18.21 18.01 18.29 17.80
Other data
Selling square feet 860,000 842,000 845,000 874,000 930,000
Number of stores 23 23 24 25 27
Sales per average
number of stores 29,941 29,449 28,370 27,456 26,484
Sales per average
square foot of
selling space 809 803 809 791 790
Capital expenditures 9,754 6,588 5,974 1,977 14,494
Unaudited Quarterly Financial Data
(Dollars in thousands except per share amounts)
First Second Third Fourth Fiscal
Quarter Quarter Quarter Quarter Year
1996
Sales $166,522 $178,002 $169,279 $174,829 $688,632
Gross margin 41,035 43,691 42,047 43,608 170,381
Net income 139 1,194 56 617 2,006
Net income per share $.05 $.41 $.02 $.21 $.69
1995
Sales $167,366 $171,804 $164,453 $173,699 $677,322
Gross margin 40,626 41,840 40,494 42,911 165,871
Net income (loss) 83 436 (293) 352 578
Net income (loss)
per share $.03 $.15 $(.10) $.12 $.20
Management's Discussion and Analysis of Financial
Condition and Results of Operations
RESULTS OF OPERATIONS
The following table sets forth the major components of the Consolidated
Statements of Operations of the Company as a percentage of sales:
July 27, July 29, July 30,
1996 1995 1994
Sales 100.00% 100.00% 100.00%
Cost of sales 75.26 75.51 75.67
Gross margin 24.74 24.49 24.33
Operating and admin expenses 22.63 22.44 22.73
Depreciation and amortization 1.24 1.28 1.26
Operating income .87 .77 .34
Interest expense (net) .53 .60 .57
Gain (loss) on disposal of assets .14 (.04) (.05)
Income (loss) before taxes and
cumulative effect of
accounting change .48% .13% (.28)%
Sales increased $11,310,000 in fiscal 1996. As 23 stores were open in both
years, this results in a same store sales increase of 1.7%. Same store sales
improved in the two stores remodeled in fiscal 1995 and in most stores not
affected by a competitive opening. These improvements were offset by reduced
sales in stores that were impacted by the six competitors that opened in our
trading area over the last two years. Sales decreased $17,748,000 in fiscal
1995. The closing of the Easton store in August 1994 decreased sales by
$11,600,000. In addition, same store sales decreased by .7% due to the
effects of new competitive entries, continued sluggishness in the economy and
comparison to a prior year period that included higher promotional spending.
Gross margin as a percentage of sales increased in fiscal 1996 and 1995 due
to aggressive buying practices and an improved mix of sales in high margin
departments.
Operating and administrative expenses in fiscal 1996 increased by .2 as a
percentage of sales. This increase was due to higher rent, snow removal and
credit card processing costs. These increases were partially offset by a
decline in payroll costs. Operating and administrative expenses in fiscal
1995 declined by .3 as a percentage of sales. This improvement was due to
lower payroll and coupon costs, partially offset by increased supply costs.
Payroll costs declined, despite an increase in pay rate per hour, due to a
reduction in same store hours worked.
Interest expense decreased in 1996 due to lower variable interest rates and
lower average debt levels outstanding. Interest expense increased in 1995 due
to higher variable interest rates.
During fiscal 1996, the Company sold the property of a store previously
closed in Maplewood for $1,238,000, net of certain costs. A gain before taxes
in the amount of $952,000 was realized on this sale. Fiscal 1995 results include
a charge to operations in the amount of $200,000 in connection with the closing
of the Easton store and a loss of $300,000 for disposal costs in connection
with the closing of the Morristown store.
Net income was $2,006,000 in fiscal 1996 compared to $578,000 in fiscal 1995.
This improvement is primarily attributable to the increase in gross margins in
fiscal 1996 and the gain on the sale of the Maplewood store.
Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
LIQUIDITY AND CAPITAL RESOURCES
Current liabilities exceeded current assets by $10,885,000, $3,755,000 and
$4,100,000 at the end of fiscal 1996, 1995 and 1994, respectively. Working
capital ratios at the same dates were .76, .91 and .90 to one, respectively.
The decline in working capital at July 27, 1996 is primarily the result of
the Company discontinuing its previous policy of borrowing funds at the end
of each quarter to maintain the current ratio required in one of its debt
agreements. That agreement has been amended to delete the current ratio
maintenance requirement. The Company's working capital needs are reduced by
its high rate of inventory turnover (twenty-one times in fiscal 1996) 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 1996 were $9,754,000. The major expenditure was the
expansion and remodeling of the Absecon store. The remainder of capital
expenditures included the acquisition of land and soft costs expended for a
future store. The Company has budgeted approximately $17,000,000 for capital
expenditures in fiscal 1997. Planned expenditures include the expansion and
remodeling of the Livingston, Chester and Stroudsburg stores and the purchase
of land for a future store.
The Company has historically financed capital expenditures through cash
provided by operations supplemented by borrowings. Aggregate capital
expenditures for the three years ended July 27, 1996 were $22,316,000. During
the same period of time, net long-term borrowings decreased by $12,796,000.
The ability to finance expansion through operational cash flow is reflected
in the ratio of long-term debt to total capitalization which is currently
32.8% compared with 42.6% three years ago.
The Company's primary source of liquidity during fiscal 1997 is expected to
be operating cash flow, a mortgage from the seller of a property for a future
store, equipment financing and borrowings under a credit facility. The
Company is currently in the process of replacing its $12,000,000 revolving
loan credit facility, which expires on March 31, 1997, with a larger facility.
At July 27, 1996, the Company had borrowed $4,000,000 under the present
facility. The Company was in full compliance with all terms and restrictive
covenants of all debt agreements at July 27, 1996 and expects to be in
compliance for the remaining term of these agreements.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1995, the FASB issued SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." This
Statement establishes accounting standards for the impairment of long-lived
assets, certain identifiable intangibles and goodwill related to those assets.
This Statement requires that an asset to be held and used by an entity be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Based on a
preliminary review, the Company does not expect a material impact from
adopting the provisions of SFAS No. 121 in the fiscal year ending July 26, 1997.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." This Statement establishes a method of accounting for stock
compensation plans based on fair value of employee stock options and similar
equity instruments. Companies are permitted to continue using the current
method of accounting for stock compensation but are required to disclose pro
forma net income and earnings per share as if the fair value method of SFAS
No. 123 has been used to measure compensation cost. The Company is currently
reviewing which method of adoption it will utilize in fiscal 1997.
Consolidated Balance Sheets
July 27, July 29
1996 1995
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 3,244,139 $ 9,655,284
Merchandise inventories 25,118,238 24,179,034
Patronage dividend receivable 2,483,382 2,682,880
Miscellaneous receivables 2,946,577 2,677,519
Income taxes receivable -- 459,873
Prepaid expenses 615,943 629,639
Total current assets 34,408,279 40,284,229
PROPERTY, EQUIPMENT AND FIXTURES, at cost
less accumulated depreciation and
amortization 71,355,893 69,916,128
OTHER ASSETS
Investment in related party, at cost 10,174,339 9,819,818
Goodwill, net 10,605,171 10,871,452
Other intangibles, net 2,537,501 2,791,250
Receivables and other assets 1,981,307 1,891,680
Total other assets 25,298,318 25,374,200
TOTAL ASSETS $131,062,490 $135,574,557
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt:
Mortgages and notes payable $ 4,670,067 $ 4,711,734
Capitalized lease obligations 367,563 368,675
Accounts payable to related party 24,616,188 25,583,821
Accounts payable and accrued expenses 14,603,081 12,602,904
Deferred income taxes 442,529 771,948
Income taxes payable 593,836 --
Total current liabilities 45,293,264 44,039,082
LONG TERM DEBT, less current portion:
Mortgages and notes payable 16,938,894 24,608,961
Capitalized lease obligations 9,875,994 10,243,557
Total long-term debt 26,814,888 34,852,518
DEFERRED INCOME TAXES 3,947,559 3,681,883
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 42,027,631 40,021,926
Less treasury stock, Class A, at cost
(447,000 shares) (6,185,003) (6,185,003)
Total shareholders' equity 55,006,779 53,001,074
TOTAL LIABILITY AND SHAREHOLDERS' EQUITY $131,062,490 $135,574,557
Consolidated Statements of Operations
Years Ended
July 27, July 29, July 30,
1996 1995 1994
SALES $688,632,405 $677,321,821 $695,070,272
COST OF SALES 518,251,470 511,451,057 525,983,044
GROSS MARGIN 170,380,935 165,870,764 169,087,228
OPERATING AND ADMINISTRATIVE
EXPENSE 155,846,171 152,008,710 157,983,230
DEPRECIATION AND AMORTIZATION
EXPENSE 8,554,703 8,618,374 8,785,917
OPERATING INCOME 5,980,061 5,243,680 2,318,081
INTEREST EXPENSE, net of
interest income of $88,574,
$58,488 and $103,126 3,615,667 4,030,535 3,900,248
GAIN (LOSS) ON DISPOSAL OF ASSETS 942,125 (300,438) (354,523)
INCOME (LOSS) BEFORE INCOME TAXES
AND CUMULATIVE EFFECT OF
ACCOUNTING CHANGE 3,306,519 912,707 (1,936,690)
PROVISION (BENEFIT) FOR INCOME
TAXES 1,300,814 335,000 (730,000)
INCOME (LOSS) BEFORE CUMULATIVE
EFFECT OF ACCOUNTING CHANGE 2,005,705 577,707 (1,206,690)
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING FOR INCOME TAXES -- -- 400,000
NET INCOME (LOSS) $2,005,705 $ 577,707 $ (806,690)
NET INCOME (LOSS) PER SHARE:
INCOME (LOSS) BEFORE CUMULATIVE
EFFECT OF ACCOUNTING CHANGE $.69 $.20 $(.42)
CUMULATIVE EFFECT OF ACCOUNTING
CHANGE -- -- .14
NET INCOME (LOSS) $.69 $.20 $(.28)
Consolidated Statements of Shareholders' Equity
Years Ended July 27,1996,
July 29,1995 and July 30,1994
Class A Class B
Common Stock Common Stock
Retained Treasury
Shares Amount Shares Amount Earnings Stock
Balance
July 31,1993 1,758,800 $18,126,876 1,598,076 $1,037,275 $40,250,909 $(6,185,003)
Net Loss -- -- -- -- (806,690) --
Conversion
of shares 4,000 2,596 (4,000) (2,596) -- --
Balance
July 30,1994 1,762,800 $18,129,472 1,594,076 $1,034,679 $39,444,219 $(6,185,003)
Net Income -- -- -- -- 577,707 --
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 $42,027,631 $(6,185,003)
Consolidated Statements of Cash Flows
Years Ended
July 27,1996 July 29,1995 July 30,1994
CASH FLOWS FROM OPERATING
ACTIVITIES
Net Income (loss) $ 2,005,705 $ 577,707 $ (806,690)
Adjustments to reconcile net
income (loss) to net cash provided
by operating activities:
Cumulative effect of
accounting change -- -- (400,000)
Depreciation and amortization 8,554,703 8,618,374 8,785,917
Deferred taxes (135,744) (71,000) (911,000)
Provision to value inventories
at LIFO 473,537 344,878 656,346
Gain (loss) on disposal of assets (942,125) 300,438 354,523
Changes in assets and liabilities:
(Increase) decrease in
merchandise inventories (1,412,741) 749,238 316,394
Decrease in patronage
dividend receivable 199,498 99,590 167,793
(Increase) decrease in miscel-
laneous receivables (269,058) (775,149) 2,339,377
(Increase) decrease in prepaid
expenses 13,696 (49,515) (11,109)
Decrease in income taxes
receivable 459,873 411,440 253,458
(Increase) decrease in other
assets (105,577) (269,478) 606,376
Increase (decrease) in accounts
payable to related party (967,633) 1,636,438 546,851
Increase (decrease) in accounts
payable and accrued expenses 2,000,177 272,723 (2,191,982)
Increase (decrease) in income
taxes payable 665,837 -- (264,394)
Net cash provided by operating
activities 10,540,148 11,845,684 9,441,860
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (9,754,268) (6,588,356) (5,973,814)
Investment in related party (354,521) (403,944) (361,328)
Proceeds (expenditures) from
disposal of assets 1,237,905 (295,687) 87,303
Net cash used in investing
activities (8,870,884) (7,287,987) (6,247,839)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of long-term
debt -- 3,000,000 14,000,000
Principal payments of long-term debt (8,080,409) (5,148,577) (16,567,312)
Net cash used in financing
activities (8,080,409) (2,148,577) (2,567,312)
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (6,411,145) 2,409,120 626,709
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 9,655,284 7,246,164 6,619,455
CASH AND CASH EQUIVALENTS,
END OF YEAR $ 3,244,139 $ 9,655,284 $ 7,246,164
Notes to Consolidated Financial Statements
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of operations
Village Super Market, Inc. (the "Company") operates a chain of 23 ShopRite
supermarkets in New Jersey and eastern Pennsylvania. The Company is a member
of Wakefern Food Corporation ("Wakefern"), the largest retailer - owned food
cooperative in the United States.
Principles of consolidation
The consolidated financial statements include the accounts of Village Super
Market, Inc. and its 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 1996, 1995 and 1994 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 1995 and 1994 consolidated
financial statements to conform to the 1996 presentation.
Cash and cash equivalents
Cash and cash equivalents includes interest-bearing, overnight deposits with
Wakefern in the amount of $6,900,000 at July 29, 1995.
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, frozen foods and liquor -- 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 cost.
Renewals and betterments are capitalized. Maintenance and repairs are
expensed as incurred.
Depreciation is provided on a straight-line basis over estimated useful
lives of thirty years for buildings, ten years for store fixtures and
equipment, and three years for vehicles. Leasehold improvements are
amortized over the shorter of the related lease terms or the economic lives
of the related assets.
When assets are sold or retired, their cost and accumulated depreciation are
removed from the accounts, and any gain or loss is reflected in the 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.
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 $2,806,810 and $2,540,530 at July 27, 1996 and July 29, 1995,
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
$2,537,499 and $2,283,749 at July 27, 1996 and July 29, 1995, respectively.
Income taxes
Effective August 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," which requires
an asset and liability approach for accounting for income taxes. Under this
method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and
liabilities and are measured using the tax rates in effect.
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Net income (loss) per share
Net income (loss) per share is computed by dividing net income (loss)
by the weighted average number of all common shares outstanding during the
periods presented which was 2,909,876 in 1996, 1995 and 1994. Stock options
are not included in the calculation as their inclusion would be
anti-dilutive or would not result in a material dilution of net income (loss)
per share.
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 to prepare these consolidated financial statements. Actual
results could differ from those estimates.
Fair value of financial instruments
Statement of Financial Accounting Standards No. 107, "Disclosures About Fair
Value Of Financial Instruments," requires disclosure of the fair value of
certain 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- 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.
NOTE 2 - INVENTORIES
Merchandise inventories are comprised as follows:
July 27, July 29,
1996 1995
Last-in, first-out (LIFO) $16,688,387 $15,947,436
First-in, first-out (FIFO) 8,429,851 8,231,598
$25,118,238 $24,179,034
If the FIFO method of inventory accounting had been used rather than LIFO,
inventories would have been $7,286,067 and $6,812,530 higher than reported in
1996 and 1995, respectively.
NOTE 3 - PROPERTY, EQUIPMENT AND FIXTURES
Property, equipment and fixtures are comprised as follows:
July 27, July 29,
1996 1995
Land and buildings $ 48,254,838 $ 42,905,665
Store fixtures and equipment 58,909,615 57,170,376
Leasehold improvements 16,018,075 15,628,759
Leased property under capital leases 13,024,838 13,700,599
Vehicles 845,942 780,925
Construction in progress 1,795,141 1,685,065
$138,848,449 $131,871,389
Less accumulated depreciation
and amortization 67,492,556 61,955,261
Property, equipment and fixtures-net $ 71,355,893 $ 69,916,128
Notes to Consolidated Financial Statements
(Continued)
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 the Wakefern
Stockholder Agreement be terminated.
The Company's merchandise payments to Wakefern approximated $498,982,000,
$484,491,000 and $490,447,000 during fiscal years 1996, 1995 and 1994,
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
$7,500,000, $8,223,000 and $7,702,000 in 1996, 1995 and 1994, 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. As a result, the Company is required to
invest approximately $467,000 over approximately the next two 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 27, July 29,
1996 1995
Term loans, interest at 8.49% payable
monthly, principal payable in monthly
installments of $55,555 with a final
principal payment of $5,555,556 due
April 1, 2001 $ 8,666,667 $ 9,333,333
Revolving credit note 4,000,000 7,000,000
Senior unsecured notes, interest at
9.91% payable quarterly, due in
annual installments through
August 15, 1997 3,100,000 5,600,000
Mortgage note, interest at 10.19%
payable semi-annually, due in three
equal annual installments beginning
December 1, 1997, collateralized by
certain land and buildings 4,000,000 4,000,000
Notes payable, interest at prime minus
1.5%, payable in monthly installments
through January 1998, collateralized
by certain equipment 1,842,294 3,387,362
21,608,961 29,320,695
Less current portion 4,670,067 4,711,734
Noncurrent maturities $16,938,894 $24,608,961
Aggregate principal maturities of mortgages and notes as of July 27, 1996 are
as follows:
Year ending July:
1997 $4,670,067
1998 2,938,891
1999 2,000,000
2000 6,000,000
2001 5,999,999
On March 29, 1994 the Company entered into a new loan agreement with two banks.
The agreement consists of a $10,000,000 term loan and a $12,000,000 revolving
loan. The $12,000,000 revolving loan, which can be used for any purpose
except new store construction, matures March 31, 1997 and carries interest at
prime plus .5 %. The $4,000,000 outstanding, at July 27, 1996 has been
classified as long-term debt in accordance with the Company's intention to
refinance this obligation on a long-term basis.
At July 27, 1996 the Company was in compliance with all terms and
restrictive covenants of all debt agreements. These agreements contain
restrictive covenants which, among other matters, specify total debt levels,
maintenance of net worth, interest coverage ratios, fixed charge coverage
ratios, limitation on payment of dividends and limitation of capital
expenditures.
Interest paid amounted to $3,750,151, $4,073,646 and $4,095,616 in 1996,
1995 and 1994, respectively.
Notes to Consolidated Financial Statements
(Continued)
NOTE 6 - INCOME TAXES
The components of the provision (benefit) for income taxes are:
1996 1995 1994
Federal:
Current $ 883,713 $ 175,000 $ 181,000
Deferred 119,653 69,000 (787,000)
State:
Current 552,845 231,000 -
Deferred (255,397) (140,000) (124,000)
$1,300,814 $ 335,000 $(730,000)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Significant
components of the Company's deferred tax liabilities and assets are as follows:
July 27, July 29, July 30,
1996 1995 1994
Deferred tax liabilities
Tax over book depreciation $5,502,748 $5,794,712 $5,978,030
Patronage dividend receivable 991,863 1,071,542 1,118,205
Other 553,842 573,616 365,064
Total deferred tax liabilities 7,048,453 7,439,870 7,461,299
Deferred tax assets:
Amortization of capital leases 1,747,238 1,684,158 1,637,252
Tax credits and loss carry
forwards 202,035 858,503 1,381,647
Other 709,092 443,378 432,068
Total deferred tax assets 2,658,365 2,986,039 3,450,967
Net deferred tax liability $4,390,088 $4,453,831 $4,010,332
A valuation allowance is provided when it is more likely than not that some
portion of the deferred tax assets will not be realized. In management's
opinion, in view of the Company's previous, current and projected taxable
income, such tax assets will more likely than not be fully realized.
Accordingly, no valuation allowance was deemed to be required at July 27,
1996 and July 29, 1995.
The effective income tax rate differs from the statutory federal income tax
rate as follows:
1996 1995 1994
Statutory federal income tax rate 34.0% 34.0% (34.0%)
Targeted jobs tax credit (3.3) (14.5) (4.2)
Amortization of intangibles 2.7 10.6 4.7
State income taxes, net of federal
tax benefit 5.9 6.6 (4.2)
Effective income tax rate 39.3% 36.7% (37.7%)
The Company has approximately $242,000 of alternative minimum tax credits
that may be carried forward indefinitely.
Income taxes paid amounted to approximately $769,580 and $192,000 in 1996
and 1994, respectively. No income taxes were paid in 1995.
Notes to Consolidated Financial Statements
(Continued)
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 27, 1996:
Capital Operating
Leases Leases
1997 $ 1,918,476 $ 3,498,503
1998 1,924,186 3,421,054
1999 1,932,180 3,428,342
2000 1,943,595 3,430,448
2001 1,858,744 3,310,660
Thereafter 16,458,304 28,829,248
Minimum lease payments 26,035,485 $45,918,255
Less amount representing interest 15,791,928
Present value of minimum lease payments $10,243,557
The following schedule shows the composition of total rental expense under
operating leases for the following periods:
1996 1995 1994
Minimum rentals $3,429,223 $3,138,751 $3,353,487
Contingent rentals 537,593 533,774 750,728
$3,966,816 $3,672,525 $4,104,215
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 $1,136,000, $1,128,000 and $1,215,000 for
fiscal years 1996, 1995 and 1994, respectively. In addition, three
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 has an Incentive and Nonstatutory Stock Option Plan under which
both incentive and nonstatutory options to purchase up to 150,000 shares of
the Company's Class A common stock may be granted to officers and employees
of the Company as designated by the Board of Directors. The plan requires
incentive stock options to be granted at an exercise price equalling 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.
All options granted to date are at an exercise price equal to the fair value
at the date of grant. All options outstanding at July 27, 1996 expire on
December 6, 1997. There were no transactions in fiscal 1996, 1995 and 1994.
There are 130,000 options outstanding and exercisable at an average price
of $8.00 at July 27, 1996.
Notes to Consolidated Financial Statements
(Continued)
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:
1996 1995 1994
Service cost $484,461 $486,332 $365,414
Interest cost on projected benefit
obligation 466,819 402,909 380,587
Return on plan assets (637,724) (444,026) (152,604)
Net amortization and deferral 157,823 7,836 (232,055)
Net periodic pension cost $471,379 $453,051 $361,342
The funded status of the three pension plans is reconciled to accrue pension
cost as follows:
July 27, July 29,
1996 1995
Plan assets at fair value $6,275,380 $5,303,778
Actuarial present value of benefit obligations:
Vested benefits 5,570,363 4,301,071
Non-vested benefits 92,875 421,911
Accumulated benefit obligations 5,663,238 4,722,982
Effect of future increases in compensation
levels 1,035,459 827,812
Projected benefit obligation 6,698,697 5,550,794
Projected benefit obligation in excess
of plan assets (423,317) (247,016)
Unrecognized prior service cost 348,021 390,987
Unrecognized net loss 523,478 307,465
Remaining unrecognized net asset at
July 25, 1987 (amortized over 15 to 18 years) (373,424) (435,869)
Additional liability (292,038) (296,318)
Accrued pension cost $ (217,280) $ (280,751)
Plan assets are invested principally in government securities, common stocks
and mutual funds.
Assumptions used in determining the net fiscal 1996, 1995 and 1994 periodic
pension cost were:
Assumed discount rate 8 to 8.5%
Assumed rate of increase in compensation levels 4%
Expected rate of return on plan assets 8 to 8.5%
The Company also participates in several multiemployer pension plans for
which the 1996, 1995 and 1994 contributions were $1,748,000, $1,785,000 and
$1,814,000, 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 construction in progress as the Company believes such costs will
be recoverable from the development of the property.
The Company's general liability insurer, InsureRite, Ltd., a Wakefern
affiliated company, can make premium calls for premiums paid for the years
ended December 1, 1993 and December 1, 1994. Based on advice from the
insurer, the Company has recorded liabilities for the estimated premium calls.
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 27, 1996 and July 29, 1995, and
the related consolidated statements of operations, shareholders' equity and
cash flows for each of the years in the three-year period ended July 27,
1996. 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 at July 27, 1996 and July 29, 1995, and the
results of their operations and their cash flows for each of the years in the
three-year period ended July 27, 1996 in conformity with generally accepted
accounting principles.
As discussed in Note 1 to the consolidated financial statements, the Company
adopted the provisions of Financial Accounting Standards Board Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes," as of
August 1, 1993.
KPMG PEAT MARWICK LLP
Short Hills, New Jersey
September 30, 1996
Stock Price and Dividend Information
The Class A common stock of Village Super Market, Inc. is traded on 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
1996
4th Quarter 10 7-1/2
3rd Quarter 8-1/2 7
2nd Quarter 7-3/4 6-3/4
1st Quarter 8 6-7/8
1995
4th Quarter 8 6-3/4
3rd Quarter 7-3/4 6-3/4
2nd Quarter 8 6-3/4
1st Quarter 8-1/2 7
As of September 27, 1996, there were 525 holders of record of the Company's
Class A common stock.
No dividends were paid during fiscal 1996 and 1995.
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
Midlantic National Bank
Edison, New Jersey
AUDITORS
KPMG Peat Marwick LLP
150 John F. Kennedy Parkway
Short Hills, New Jersey
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