EX-13 2 0002.txt The Company Village Super Market, Inc. operates a chain of 23 ShopRite supermarkets, 16 of which are located in northern New Jersey, 1 in northeastern Pennsylvania and 6 in the southern shore area of New Jersey. Village is a member of Wakefern Food Corporation, the largest retailer-owned food cooperative in the United States. Village's business was founded in 1937 by Nicholas and Perry Sumas and has continued to be principally owned and operated under the active management of the Sumas family. Contents Letter to Shareholders 2 Selected Financial Data 3 Unaudited Quarterly Financial Data 3 Management's Discussion and Analysis of Financial Condition and Results of Operations 4 Consolidated Balance Sheets 7 Consolidated Statements of Operations 8 Consolidated Statements of Shareholders' Equity 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 Our goal when this year began was to build on the achievements of the previous few years. We are pleased to report Village Super Market once again achieved record sales and net income in fiscal 2000. Sales increased 4.6% to $803 million. Net income was $8.4 million, a 35% increase, excluding a special charge in fiscal 1999. Net income per diluted share was $2.76. The substantial increase in net income was due to a 2.9% increase in same store sales and improved gross margin percentages. Capital expenditures were $13.3 million in fiscal 2000. We remodeled the recently acquired Vineland store, purchased land for a store in Garwood and purchased equipment for a replacement store in West Orange. The 67,000 square feet West Orange superstore opened on August 10, 2000. Our West Orange customers now enjoy our Power Alley format, which features a wide assortment of perishable products, including our Bistro Street prepared food kiosks. In September 1999, Village issued $30 million of unsecured notes at 8.12% and also obtained a $15 million revolving credit facility. The strength of Village's balance sheet and the cash raised from these financings provide us with adequate resources for the planned investments of the next few years. We recently started construction of a superstore in Garwood, New Jersey. We plan to build a superstore in Hammonton, New Jersey in 2001. Village's and Wakefern's continued investment in advanced retail technologies has enabled us to design and offer various target marketing programs. Two recent examples of using the ShopRite Price Plus card to reach specific customers and engender loyalty are our Baby Bucks and ShopRite Kid's Club programs. Baby Bucks is a customer loyalty program that rewards customers who purchase certain baby products. Accumulate 50 Baby Bucks and a $5 discount is automatically deducted from your order. This program has substantially increased sales of baby products to an important demographic group. Recently we introduced the ShopRite Kids Club for children ages 6 to 12. This vendor supported program creates a sweepstakes entry each time certain products are purchased. Monthly prizes include computers, big screen televisions and family vacations. Our markets have always been highly competitive and we expect that to continue. We intend to continue satisfying our customer's needs by offering high quality products at consistently low prices, providing outstanding service, creating unique marketing initiatives, and expanding and remodeling our stores. We feel this is the best way to continue our success and to serve our shareholders, customers and associates well in the years ahead. James Sumas, Perry Sumas, Chairman of the Board President
Selected Financial Data (Dollars in thousands except per share and sq. ft. data) July 29, July 31, July 25, July 26, July 27, 2000 1999 1998 1997 1996 For year Sales $803,360 $768,139 $703,684 $688,861 $688,632 Net income (1) 8,426 4,722 4,007 2,074 2,006 Net income per share - basic (1) 2.81 1.59 1.36 .71 .69 Net income per share - diluted (1) 2.76 1.55 1.34 .71 .69 Cash dividends per share Class A -- -- -- -- -- Class B -- -- -- -- -- At year end Total assets 173,924 149,555 138,508 132,764 131,062 Long-term obligations including capital leases 42,507 27,204 25,700 24,027 26,815 Working capital (deficit) 11,256 (7,197) (9,682) (12,607) (10,885) Shareholders' equity 75,152 66,477 61,568 57,081 55,007 Book value per share 24.94 22.24 20.73 19.62 18.90 Other data Same store sales increase 2.9% 6.0% 2.4% 1.0% 1.7% Total square feet 1,182,000 1,182,000 1,093,000 1,093,000 1,084,000 Average total sq. ft. per store 51,000 51,000 50,000 50,000 47,000 Selling square feet 934,000 934,000 866,000 866,000 860,000 Sales per average square foot of selling space 859 866 811 803 809 Number of stores 23 23 22 22 23 Sales per average number of stores 34,878 34,506 31,929 31,178 29,941 Capital expenditures 13,312 7,084 9,956 8,593 9,754
Unaudited Quarterly Financial Data (Dollars in thousands except per share amounts) First Second Third Fourth Fiscal Quarter Quarter Quarter Quarter Year 2000 Sales $195,413 $210,681 $193,655 $203,611 $803,360 Gross margin 51,211 55,019 49,943 53,316 209,489 Net income 2,030 2,529 1,079 2,788 8,426 Net income per share - diluted $.67 $.83 $.35 $.91 $2.76 1999 Sales $178,058 $192,633 $182,096 $215,352 $768,139 Gross margin 45,117 49,048 46,814 55,475 196,454 Net income 1,180 1,225 885 1,432 4,722 Net income per share - diluted $.39 $.40 $.29 $.47 $1.55
(1) Net income in fiscal 1999 is presented after giving effect to a special charge of $2,600,000 related to litigation. See Note 11 to the consolidated financial statements. Management's Discussion and Analysis of Financial Condition and Results of Operations RESULTS OF OPERATIONS The following table sets forth the major components of the Consolidated Statements of Operations of the Company as a percentage of sales:
July 29, July 31, July 25, 2000 1999 1998 Sale 100.00% 100.00% 100.00% Cost of sales 73.92 74.42 75.04 Gross margin 26.08 25.58 24.96 Operating and administrative expense 22.98 22.79 22.45 Depreciation and amortization expense 1.02 1.00 1.07 Special charge -- .34 -- Operating income 2.07 1.45 1.44 Interest expense (net) .41 .41 .44 Gain on disposal of assets .06 -- -- Income before income taxes 1.72% 1.04% 1.00%
Sales were $803,360,000 in fiscal 2000, an increase of $35,221,000, or 4.6% from the prior year. Fiscal 2000 sales were $28,376,000 higher due to the acquisition of the Vineland store during the fourth quarter of fiscal 1999. Same store sales increased 2.9% in fiscal 2000. Offsetting these increases was a reduction in sales of approximately $14,000,000 as fiscal 2000 contained 52 weeks compared to 53 weeks in fiscal 1999. Sales were $768,139,000 in fiscal 1999, an increase of $64,454,000, or 9.2% from the prior year. Same store sales increased 6.0% in fiscal 1999. The primary reason for the substantial increase in same store sales was the introduction of double coupons in northern New Jersey on September 6, 1998. Sales increased by approximately $14,000,000 as fiscal 1999 contained 53 weeks. Also, the acquisition of a store in Vineland, New Jersey during the fourth quarter contributed $8,100,000 to fiscal 1999 sales. Gross margin as a percentage of sales increased in fiscal 2000 in most selling departments. In addition, gross margin improved due to rebates received for the acquired Vineland store. Gross margin as a percentage of sales increased in fiscal 1999 in most selling departments. This is in part due to a reduction in sale item penetration as a result of offering double coupons. Operating and administrative expenses increased as a percentage of sales in fiscal 2000. This increase is a result of increased credit card processing costs, professional fees and a charge to account for the anticipated disposal of a store. Operating and administrative expenses increased as a percentage of sales in fiscal 1999. This increase was a result of the increased costs associated with the doubling of manufacturer's coupons. These increases were partially offset by lower payroll and fringe benefit costs as a percentage of sales. Depreciation and amortization expense increased in fiscal 2000 primarily due to accelerated depreciation of the West Orange store assets as the store was replaced in August 2000. Interest expense (net) increased in fiscal 2000 due to higher debt levels outstanding partially offset by increased interest income earned on higher cash balances. Interest expense was similar in fiscal 1999 compared to fiscal 1998 as slightly higher debt levels were offset by slightly lower interest rates. Fiscal 2000 includes a gain on the sale of real estate of a previously closed store in Easton, PA in the amount of $492,000. Fiscal 1999 results include a special charge in the amount of $2,600,000 related to litigation in connection with a contract to purchase property for a new superstore. This is more fully described in footnote 11 to the consolidated financial statements. The Company reduced its effective income tax rate to 39.0% in fiscal 2000 as compared to 41.2% in fiscal 1999 through tax planning initiatives. LIQUIDITY AND CAPITAL RESOURCES Current assets exceeded current liabilities by $11,256,000 at July 29, 2000 compared to current liabilities exceeding current assets by $7,197,000 and $9,682,000 at the end of fiscal 1999 and 1998, respectively. Working capital ratios at the same dates were 1.21, .87 and .80 to one, respectively. The Company's working capital needs are reduced by its high rate of inventory turnover (twenty times in fiscal 2000) 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. On September 16, 1999, the Company completed the sale of $30,000,000 of 8.12% unsecured Senior Notes. At the same time, the Company entered into a $15,000,000 unsecured revolving credit agreement. These two debt agreements replaced the $6,667,000 term loan and a $24,000,000 revolving credit facility, both of which were secured by substantially all of the Company's assets. During fiscal 2000, operating cash flow of $13,634,000 and net borrowings of $14,859,000 were used to fund capital expenditures of $13,312,000 and to increase cash balances by $15,950,000. The principal capital expenditure projects were the purchase of land in Garwood, NJ for a new superstore, the remodel of the Vineland store and a portion of the cost of the replacement store in West Orange. During fiscal 1999, operating cash flow of $15,197,000 and additional borrowings of $5,931,000 were used to fund capital expenditures and an acquisition in the aggregate amount of $11,884,000, make debt principal payments of $5,108,000 and increase cash balances by $4,093,000. The Company acquired all the assets of an existing ShopRite in Vineland, NJ in May 1999 for $3,500,000 plus the cost of inventory. The acquisition of this 67,000 square foot leased store was financed in part by a $3,500,000 loan secured by the equipment and fixtures of the store. Capital expenditures in fiscal 1999 were $7,084,000. A substantial amount of capital expenditures related to the expansion and remodel of the Livingston store. The Company has budgeted approximately $16 million for capital expenditures in fiscal 2001. Planned expenditures include leasehold improvements and equipment for the replacement store in West Orange, NJ (opened in August 2000), the construction and equipment for a new superstore in Garwood, NJ and the start of a major remodel. The Company's primary sources of liquidity in fiscal 2001 are expected to be cash on hand at July 29, 2000 and operating cash flow. YEAR 2000 In prior years, the Company discussed its plans to become year 2000 ready. The Company experienced no material year 2000 system problems and anticipates no future problems. Recent Accounting Pronouncements At a recent FASB Emerging Issues Task Force ("EITF") meeting, a consensus was reached with respect to the issue "Accounting for Certain Sales Incentives" including point of sale coupons, rebates and free merchandise. The consensus included a conclusion that the value of such sales incentives that results in a reduction of the price paid by the customer should be netted against revenue and not classified as a marketing expense. The Company currently records coupons in operating and administrative expense, and upon implementation in fiscal 2001 will reclassify current and prior period coupon expense as a reduction of sales. Coupon expense was $18,365,000, $17,459,000 and $10,017,000 in fiscal 2000, 1999 and 1998, respectively. The implementation of this EITF consensus will affect classification in the consolidated statements of operations, but will not have any effect on the Company's net income. Impact of Inflation and changing prices Although the Company cannot accurately determine the precise effect of inflation on its operations, it does not believe inflation has had a material effect on sales or results of operations. Forward-Looking Statements This annual report to shareholders contains "forward-looking statements" within the meaning of federal securities law. The Company cautions the reader that there is no assurance that actual results or business conditions will not differ materially from future results, whether expressed, suggested or implied by such forward-looking statements. Such potential risks and uncertainties include, without limitation, local economic conditions, competitive pressures from the Company's operating environment, the ability of the Company to maintain and improve its sales and margins, the ability to attract and retain qualified associates, the availability of new store locations, the liquidity of the Company on a cash flow basis, and other risk factors detailed herein and in other filings of the Company.
Consolidated Balance Sheets July 29, July 31, 2000 1999 ASSETS CURRENT ASSETS Cash and cash equivalents $ 25,721,033 $ 9,771,422 Merchandise inventories 31,032,737 29,923,306 Patronage dividend receivable 2,200,646 1,728,076 Miscellaneous receivables 5,255,095 3,728,862 Deferred income taxes -- 522,243 Prepaid expenses 650,514 596,117 Total current assets 64,860,025 46,270,026 PROPERTY, EQUIPMENT AND FIXTURES, at cost less accumulated depreciation and amortization 80,628,090 75,306,887 OTHER ASSETS Investment in related party, at cost 11,050,816 10,698,402 Goodwill, net 10,946,301 11,286,581 Other intangibles, net 1,522,501 1,776,251 Receivables and other assets 4,916,228 4,217,071 Total other assets 28,435,846 27,978,305 $173,923,961 $149,555,218 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Current portion of long-term debt: Notes payable $ 1,272,686 $ 1,670,901 Capitalized lease obligations 432,412 478,744 Accounts payable to related party 28,633,470 27,086,025 Accounts payable and accrued expenses 23,156,465 23,495,791 Income taxes payable 109,200 735,822 Total current liabilities 53,604,233 53,467,283 LONG-TERM DEBT, less current portion: Notes payable 34,746,847 19,011,286 Capitalized lease obligations 7,760,163 8,192,575 Total long-term debt 42,507,010 27,203,861 DEFERRED INCOME TAXES 2,660,429 2,407,018 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 60,739,316 52,408,700 Less treasury stock, Class A, at cost (343,400 shares at July 29, 2000 and 368,300 shares at July 31, 1999) (4,751,178) (5,095,795) Total shareholders' equity 75,152,289 66,477,056 $173,923,961 $149,555,218
See notes to consolidated financial statements.
Consolidated Statements of Operations Years Ended July 29, July 31, July 25, 2000 1999 1998 SALES $803,359,626 $768,138,686 $703,684,315 COST OF SALES 593,870,652 571,684,669 528,076,028 GROSS MARGIN 209,488,974 196,454,017 175,608,287 Operating and administrative expense 184,619,826 175,059,944 157,953,508 Depreciation and amortization expense 8,204,456 7,648,644 7,516,182 SPECIAL CHARGE -- 2,600,000 -- Operating Income 16,664,692 11,145,429 10,138,597 Interest expense, net of interest income of $797,688, $55,812 and $20,817 3,333,114 3,116,442 3,122,199 Gain on Disposal of ASSETS 492,155 -- -- INCOME BEFORE INCOME TAXES 13,823,733 8,028,987 7,016,398 PROVISION FOR INCOME TAXES 5,397,487 3,307,010 3,009,032 NET INCOME $ 8,426,246 $ 4,721,977 $ 4,007,366 NET INCOME PER SHARE: Basic $2.81 $1.59 $1.36 Diluted $2.76 $1.55 $1.34
See notes to consolidated financial statements.
Consolidated Statements of Shareholders' Equity Years Ended July 29, 2000, July 31, 1999 and July 25, 1998 Class A Class B Common Stock Common Stock Retained Treasury Shares Amt Shares Amt Earnings Stock Balance, July 26, 1997 1,762,800 $18,129,472 1,594,076 $1,034,679 $44,101,565$(6,185,003) Net Income -- -- -- -- 4,007,366 -- Exercise of 60,000 stock options -- -- -- -- (350,400) 830,400 Balance, July 25, 1998 1,762,800 $18,129,472 1,594,076 $1,034,679 $47,758,531$(5,354,603) Net Income -- -- -- -- 4,721,977 -- Exercise of 18,700 stock options -- -- -- -- (71,808) 258,808 Balance, July 31, 1999 1,762,800 $18,129,472 1,594,076 $1,034,679 $52,408,700 $(5,095,795) Net Income -- -- -- -- 8,426,246 -- Exercise of 24,900 stock options -- -- -- -- (95,630) 344,617 Balance, July 29, 2000 1,762,800 $18,129,472 1,594,076 $1,034,679 $60,739,316 $(4,751,178)
See notes to consolidated financial statements.
Consolidated Statements of Cash Flows Years Ended July 29, 2000 July 31, 1999 July 25, 1998 CASH FLOWS FROM OPERATING ACTIVITIES Net income $8,426,246 $4,721,977 $4,007,366 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 8,204,456 7,648,644 7,516,182 Deferred taxes 359,654 (975,857) (388,201) Provision to value inventories at LIFO 193,758 593,182 136,410 Gain on disposal of assets (492,155) -- -- Changes in assets and liabilities: (Increase) in merchandise inventories (1,303,189) (2,667,901) (1,849,047) (Increase) decrease in patronage dividend receivable (472,570) 240,595 80,025 (Increase) in miscellaneous receivables (1,526,233) (312,403) (147,786) (Increase) decrease in prepaid expenses (54,397) 36,229 6,479 (Increase) in receivables and other assets (699,157) (1,500) (69,117) Increase (decrease) in accounts payable to related party 1,547,445 (284,317) 229,635 Increase (decrease) in accounts payable and accrued expenses (339,326) 5,913,183 565,134 Increase (decrease) in income taxes payable (210,622) 285,428 (327,264) Net cash provided by operating activities 13,633,910 15,197,260 9,759,816 CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (13,312,329) (7,084,284) (9,956,270) Acquisition of Vineland store -- (4,800,000) -- Investment in related party (352,414) (230,785) (117,000) Proceeds from disposal of assets 872,855 -- -- Net cash used in investing activities (12,791,888) (12,115,069) (10,073,270) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuance of long-term debt 30,000,000 5,931,000 5,500,000 Proceeds from exercise of stock options 248,987 187,000 480,000 Principal payments of long-term debt (15,141,398) (5,107,620) (4,257,514) Net cash provided by financing activities 15,107,589 1,010,380 1,722,486 NET INCREASE IN CASH AND CASH EQUIVALENTS 15,949,611 4,092,571 1,409,032 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 9,771,422 5,678,851 4,269,819 CASH AND CASH EQUIVALENTS, END OF YEAR $25,721,033 $9,771,422 $5,678,851 Supplemental disclosures of cash payments made for: Interest $3,315,784 $3,163,477 $3,172,692 Income taxes $5,248,456 $4,080,631 $3,754,586
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 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. On May 9, 1999, the Company acquired all the assets of an existing supermarket in Vineland, New Jersey from Wakefern for $3,500,000 plus the cost of inventory. The transaction was financed in part by a $3,500,000 loan. The acquisition has been accounted for using the purchase method and, accordingly, the assets acquired, liabilities assumed, and results of operations are included in the consolidated financial statements from the date of acquisition. The purchase price was allocated to the underlying assets and liabilities based on their fair values, with the excess recorded as goodwill. Principles of consolidation The consolidated financial statements include the accounts of Village Super Market, Inc. and its subsidiaries, which are wholly owned. Intercompany balances and transactions have been eliminated. Fiscal year The Company and its subsidiaries utilize a 52-53 week fiscal year ending on the last Saturday in the month of July. Fiscal 1999 contains 53 weeks. Fiscal 2000 and 1998 contain 52 weeks. Industry segment The Company consists of one operating segment, the retail sale of food and non-food products. Revenue recognition Merchandise sales are recognized at the point of sale. Cash and cash equivalents The Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. Included in cash at July 29, 2000 is $15,291,000 of demand deposits invested at Wakefern. 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 cost. Renewals and betterments are capitalized. Maintenance and repairs are expensed as incurred. Depreciation is provided on a straight-line basis over estimated useful lives of thirty years for buildings, ten years for store fixtures and equipment, and three years for vehicles. Leasehold improvements are amortized over the shorter of the related lease terms or the economic lives of the related assets. When assets are sold or retired, their cost and accumulated depreciation are removed from the accounts, and any gain or loss is reflected in the consolidated financial statements. Store opening and closing costs All store opening costs are expensed as incurred. Provisions are made for losses resulting from store closings at the time a decision to close a store is made. This includes items such as future lease payments, net of expected sublease recovery, and charges to reduce assets to net realizable value. Leases Leases which meet certain criteria are classified as capital leases, and assets and liabilities are recorded at amounts equal to the lesser of the present value of the minimum lease payments or the fair value of the leased properties at the inception of the respective leases. Such assets are amortized on a straight-line basis over the shorter of the related lease terms or the economic lives of the related assets. Amounts representing interest expense relating to the lease obligations are recorded to 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. NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Goodwill Goodwill resulting from the acquisition of the Vineland store in fiscal 1999 is being amortized over twenty years. Goodwill arising after October 31, 1970 and before fiscal 1999 is being amortized over forty years. The Company does not amortize goodwill amounting to approximately $2,900,000 acquired prior to October 31, 1970 since, in management's opinion, the value of such intangibles has not diminished. Accumulated amortization of goodwill amounted to $3,965,680 and $3,625,400 at July 29, 2000 and July 31, 1999, 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 $3,552,499 and $3,298,749 at July 29, 2000 and July 31, 1999, 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 expenses 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- and long-term 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 The Company reviews long-lived assets for impairment when circumstances indicate the carrying amount of an asset may not be recoverable. An impairment is recognized to the extent the sum of undiscounted estimated future cash flow expected to result from the use of the asset is less than the carrying value. Net income per share During 1998, the Company adopted SFAS No. 128, "Earnings Per Share." This statement requires the presentation of both basic and diluted net income per share. The number of common shares outstanding for calculation of net income per share is as follows:
2000 1999 1998 Weighted average shares outstanding - basic 3,001,493 2,975,233 2,949,860 Dilutive effect of employee stock options 49,905 63,789 35,657 Weighted average shares outstanding - diluted 3,051,398 3,039,022 2,985,517
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Recent Accounting Pronouncements At a recent FASB Emerging Issues Task Force ("EITF") meeting, a consensus was reached with respect to the issue "Accounting for Certain Sales Incentives" including point of sale coupons, rebates and free merchandise. The consensus included a conclusion that the value of such sales incentives that results in a reduction of the price paid by the customer should be netted against revenue and not classified as a marketing expense. The Company currently records coupons in operating and administrative expense, and upon implementation in fiscal 2001 will reclassify current and prior period coupon expense as a reduction of sales. Coupon expense was $18,365,000, $17,459,000 and $10,017,000 in fiscal 2000, 1999 and 1998, respectively. The implementation of this EITF consensus will affect classification in the consolidated statements of operations, but will not have any effect on the Company's net income. NOTE 2 -- INVENTORIES Merchandise inventories are comprised as follows:
July 29, July 31, 2000 1999 Last-in, first-out (LIFO) $20,466,364 $19,920,327 First-in, first-out (FIFO) 10,566,373 10,002,979 $31,032,737 $29,923,306
If the FIFO method of inventory accounting had been used rather than LIFO, inventories would have been $8,501,980 and $8,308,222 higher than reported in fiscal 2000 and 1999, respectively. NOTE 3 -- PROPERTY, EQUIPMENT AND FIXTURES Property, equipment and fixtures are comprised as follows:
July 29, July 31, 2000 1999 Land and buildings $53,191,318 $49,410,698 Store fixtures and equipment 66,087,959 61,495,302 Leasehold improvements 28,809,897 26,544,421 Leased property under capital leases 11,268,667 11,268,667 Construction in progress 1,667,345 -- Vehicles 1,202,773 1,139,066 162,227,959 149,858,154 Less accumulated depreciation and amortization 81,599,869 74,551,267 Property, equipment and fixtures -- net $80,628,090 $75,306,887
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 also has an investment of less than 20% in Insure-Rite, Ltd., a Wakefern affiliated company, that provides the Company with liability and property insurance coverage. The Company purchases substantially all of it's merchandise from Wakefern. Wakefern distributes as a "patronage dividend" to each member a share of earnings of Wakefern in proportion to the dollar volume of business done by the member with Wakefern during the year. Patronage dividends, which are recorded as a reduction of cost of sales, amounted to $8,658,000, $7,419,000 and $7,489,000 in fiscal 2000, 1999 and 1998, respectively. Wakefern has increased from time to time the required investment in its common stock for each supermarket owned by a member, with the exact amount per store computed in accordance with a formula based on the volume of each store's purchases from Wakefern up to a maximum of $550,000. As a result, the Company is required to invest $2,235,000 in installments over approximately the next seven 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 -- NOTES PAYABLE
July 29, July 31, 2000 1999 Senior notes payable (a) $30,000,000 $ -- Notes payable, interest at 4.39% to 7.90%, payable in monthly Installments through December 2005, collateralized by certain equipment 6,019,533 7,282,189 Term loan, principal payable in monthly installments, interest at 8.35% (a) -- 6,666,666 Revolving credit notes (a) -- 6,400,000 Mortgage note, interest at 10.19% -- 333,332 36,019,533 20,682,187 Less current portion 1,272,686 1,670,901 Noncurrent maturities $34,746,847 $19,011,286
Aggregate principal maturities of notes payable as of July 29, 2000 are as follows:
Year ending July: 2001 $ 1,272,686 2002 1,322,894 2003 1,374,224 2004 5,314,843 2005 5,130,215
(a) On September 16, 1999, the Company issued $30,000,000 of 8.12% unsecured Senior Notes. Interest on these notes is due semi-annually. The principal is due in equal annual installments beginning September 16, 2003. On September 16, 1999, the Company also entered into an unsecured revolving loan agreement in the amount of $15,000,000. This agreement expires in three years, with two one-year extensions available if exercised by both parties. The revolving credit line can be used for any purpose except new store construction. Indebtedness under this agreement bears interest at the prime rate or at the Eurodollar rate, at the Company's option, plus applicable margins based on the Company's fixed charge coverage ratio. At July 29, 2000, the Company was in compliance with all terms and covenants of all debt agreements. These agreements contain restrictive covenants which, among other matters, specify total debt levels, maintenance of net worth, fixed charge coverage ratios, limitation on payment of dividends and limitation of capital expenditures. The revolving loan agreement provides a maximum commitment for letters of credit of $3,000,000 ($1,636,000 outstanding at July 29, 2000) to secure obligations for the Company's self-insured workers' compensation claims and for construction performance guarantees to municipalities. Concurrent with the closing of the above two loan agreements, the Company paid off the balances outstanding on the term loan and the revolving credit notes listed above and those loan agreements were terminated. The terminated loan agreements were secured by substantially all the Company's assets. At July 31, 1999, the interest rate on the revolving credit notes was 8.25%. NOTE 6 -- INCOME TAXES The components of the provision for income taxes are:
2000 1999 1998 Federal: Current $4,653,754 $3,267,396 $2,623,462 Deferred 196,583 (721,444) (282,065) State: Current 384,079 1,015,471 773,771 Deferred 163,071 (254,413) (106,136) $5,397,487 $3,307,010 $3,009,032
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 29, July 31, 2000 1999 Deferred tax liabilities: Tax over book depreciation $4,455,098 $4,528,034 Patronage dividend receivable 780,024 690,194 Other 613,862 553,387 Total deferred tax liabilities 5,848,984 5,771,615 Deferred tax assets: Amortization of capital leases 1,523,150 1,753,762 Accrual for special charges 830,000 1,020,000 Other 835,405 1,113,078 Total deferred tax assets 3,188,555 3,886,840 Net deferred tax liability $2,660,429 $1,884,775
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 29, 2000 and July 31, 1999. The effective income tax rate differs from the statutory federal income tax rate as follows:
2000 1999 1998 Statutory federal income tax rate 35.0% 34.0% 34.0% Amortization of intangibles .7 1.1 1.3 State income taxes, net of federal tax benefit 2.6 6.3 6.3 Other .7 (.2) 1.3 Effective income tax rate 39.0% 41.2% 42.9%
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, most leases will be renewed or replaced by other leases. The Company is obligated under all leases to pay for real estate taxes, utilities and liability insurance, and under certain leases to pay additional amounts based on maintenance, insurance and a percentage of sales in excess of stipulated amounts. Future minimum lease payments by year and in the aggregate for all non- cancelable leases with initial terms of one year or more consisted of the following at July 29, 2000:
Capital Operating Leases Leases 2001 $ 1,737,544 $ 5,184,649 2002 1,688,376 4,674,823 2003 1,688,376 4,412,084 2004 1,688,376 4,196,302 2005 1,699,796 4,014,214 Thereafter 9,349,980 63,813,813 Minimum lease payments 17,852,448 $86,295,885 Less amount representing interest 9,659,873 Present value of minimum lease payments $ 8,192,575
The following schedule shows the composition of total rental expense under operating leases for the following periods:
2000 1999 1998 Minimum rentals $4,554,604 $3,882,620 $3,795,635 Contingent rentals 974,926 865,500 670,337 $5,529,530 $4,748,120 $4,465,972
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 $1,243,000, $1,242,000 and $1,191,000 for fiscal years 2000, 1999 and 1998 respectively. In addition, two supermarkets are leased from partnerships in which the Company is a partner. The Company leases the Vineland store from Wakefern, the previous owner, under a sublease agreement which provides for annual rent of $650,000. NOTE 8 -- COMMON STOCK Class A common stock has one vote per share and is entitled to cash dividends as declared 54% greater than those paid on the Class B common stock. Class B common stock has ten votes per share. Class B common stock is not transferrable except to another holder of Class B common stock or by will or under the laws of intestacy or pursuant to a resolution of the Board of Directors of the Company approving the transfer. Shares of Class B common stock are convertible on a share-for-share basis for Class A common stock. The 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 are no options currently outstanding under this plan. The 1997 Incentive and Non-Statutory Stock Option Plan provides for the granting of options or stock appreciation rights to purchase up to 250,000 shares of the Company's Class A common stock by officers, employees and directors of the Company as designated by the Board of Directors. The Plan requires incentive stock options to be granted at exercise prices equal to the fair 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 were at market value and are exercisable up to 10 years from the date of the grant. The following table summarizes option activity for the following periods:
2000 1999 1998 Shares Wtd Avg Shares Wtd Avg Shares Wtd Avg Exercise Exercise Exercise Price Price Price Outstanding at begin of year 205,300 $10.05 219,000 $10.00 130,000 $8.00 Granted 4,000 13.00 5,000 12.85 219,000 10.00 Exercised (24,900) 10.00 (18,700) 10.00 (60,000) 8.00 Cancelled -- -- -- -- (70,000) 8.00 Outstanding at end of yr 184,400 $10.14 205,300 $10.05 219,000 $10.00 Options exercisable at end of year 180,400 $10.08 200,300 $10.00 103,000 $10.00
At July 29, 2000, the weighted-average remaining contractual life of outstanding options was 7.3 years and the exercise prices ranged from $10.00 to $13.00. 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 2000, 1999 and 1998 results would be reduced to the following pro forma amounts: net income - $8,412,000, $4,604,000 and $3,475,000; net income per share, basic - $2.80, $1.55 and $1.18; and net income per share, diluted - $2.76, $1.51 and $1.16. 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 2000, 1999 and 1998 grants: risk-free interest rate of 6.0%; expected life of 6 years; expected dividend rate of zero; and expected volatility of 20.9%. NOTE 9 -- PENSION PLANS The Company sponsors three defined benefit pension plans covering administrative personnel and members of two unions. Employees covered under the administrative pension benefit plan earn benefits based upon percentages of annual compensation. Employees covered under the union pension benefit plans earn benefits based on a fixed amount for each year of service. The Company's funding policy is to pay at least the minimum contribution required by the Employee Retirement Income Security Act of 1974. Net periodic pension cost for the three plans included the following components:
2000 1999 1998 Service cost $523,532 $610,517 $ 592,441 Interest cost on projected benefit obligation 712,678 614,941 562,615 Expected return on plan assets (881,218) (804,656) (1,441,535) Net amortization and deferral (12,052) (14,150) 755,835 Net periodic pension cost $342,940 $406,652 $469,356
The changes in benefit obligations and the reconciliation of the funded status of the Company's plans to the consolidated balance sheets were as follows:
2000 1999 Change in Benefit Obligation: Benefit obligation at beginning of year $9,614,137 $8,884,755 Service cost 523,532 610,517 Interest cost 712,678 614,941 Benefits paid (832,777) (745,212) Actuarial loss 943,222 249,136 Benefit obligation at end of year $10,960,792 $9,614,137 Change in Plan Assets: Fair value of plan at beginning of year $10,087,841 $9,074,481 Actual return on plan assets 416,780 1,140,863 Employer contributions 545,697 617,709 Benefits paid (832,777) (745,212) Fair value of plan assets at end of year $10,217,541 $10,087,841 Fair value of plan assets greater (less) than benefit obligation $(743,251) $473,704 Unrecognized net (gain) loss 760,664 (599,154) Prepaid (Accrued) pension cost $17,413 $(125,450) Change in Prepaid (Accrued) Pension Cost: Accrued pension cost at beginning of year $(125,450) $(191,474) Net periodic pension cost (342,940) (406,652) Additional liability (59,894) (145,033) Contributions 545,697 617,709 Prepaid (Accrued) pension cost at end of year $17,413 $(125,450)
Plan assets are invested principally in government securities, common stocks and mutual funds. Assumptions used in determining the net fiscal 2000, 1999 and 1998 periodic pension cost were as follows:
Assumed discount rate 7.25% Assumed rate of increase in compensation levels 4% Expected rate of return on plan assets 8.0 to 8.5%
The Company also participates in several multiemployer pension plans for which the fiscal 2000, 1999 and 1998 contributions were $1,737,000, $1,586,000 and $1,722,000, respectively. NOTE 10 -- COMMITMENTS AND CONTINGENCIES The Company is involved in litigation incidental to the normal course of business. Company management is of the opinion that the ultimate resolution of these legal proceedings should not have a material adverse effect on the consolidated financial position, results of operations or liquidity of the Company. NOTE 11 -- SPECIAL CHARGE The Company recorded a charge to earnings of $2,600,000 in the fourth quarter of fiscal 1999 to reflect the impact of a court decision regarding the contract price of a property in Garwood and Westfield, New Jersey. This charge was taken as the Company did not believe the additions to the purchase price of the property as a result of the litigation were recoverable from the development of the superstore on this property. In March 2000, the Company acquired only the property in Garwood for $4,585,000 as a final settlement with the property owner. Construction of a new superstore commenced in October 2000. Independent Auditors' Report The Board of Directors and Shareholders Village Super Market, Inc.: We have audited the accompanying consolidated balance sheets of Village Super Market, Inc. and subsidiaries as of July 29, 2000 and July 31, 1999, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the years in the three-year period ended July 29, 2000. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Village Super Market, Inc. and subsidiaries as of July 29, 2000 and July 31, 1999, and the results of their operations and their cash flows for each of the years in the three-year period ended July 29, 2000 in conformity with accounting principles generally accepted in the United States of America. Short Hills, New Jersey October 3, 2000 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 2000 4th Quarter 14 12-1/2 3rd Quarter 14-3/4 12-3/4 2nd Quarter 14-1/4 12-7/8 1st Quarter 15-3/4 12-1/8 1999 4th Quarter 13 12-1/2 3rd Quarter 14-1/2 12-1/2 2nd Quarter 17-1/2 13 1st Quarter 24-3/4 12-1/2
As of September 29, 2000, there were 477 holders of record of the Company's Class A common stock. No dividends were paid during fiscal 2000 and 1999. CORPORATE DIRECTORY OFFICERS AND DIRECTORS PERRY SUMAS Chief Executive Officer and President; Director JAMES SUMAS Chairman of the Board; Chief Operating Officer and Treasurer; Director ROBERT SUMAS Executive Vice President and Secretary; Director WILLIAM SUMAS Executive Vice President; Director JOHN SUMAS Executive Vice President; Director CAROL LAWTON Vice President and Assistant Secretary KEVIN BEGLEY Chief Financial Officer GEORGE J. ANDRESAKES Director JOHN J. McDERMOTT Director 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 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