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
<TABLE>
<CAPTION>
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
<S> <C> <C> <C> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
Unaudited Quarterly Financial Data
(Dollars in thousands except per share amounts)
First Second Third Fourth Fiscal
Quarter Quarter Quarter Quarter Year
<S> <C> <C> <C> <C> <C>
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
</TABLE>
(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:
<TABLE>
<CAPTION>
July 29, July 31, July 25,
2000 1999 1998
<S> <C> <C> <C>
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%
</TABLE>
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.
<TABLE>
<CAPTION>
Consolidated Balance Sheets
July 29, July 31,
2000 1999
<S> <C> <C>
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
</TABLE>
See notes to consolidated financial statements.
<TABLE>
<CAPTION>
Consolidated Statements of Operations
Years Ended
July 29, July 31, July 25,
2000 1999 1998
<S> <C> <C> <C>
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
</TABLE>
See notes to consolidated financial statements.
<TABLE>
<CAPTION>
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
<S> <C> <C> <C> <C> <C> <C>
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)
</TABLE>
See notes to consolidated financial statements.
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
Years Ended
July 29, 2000 July 31, 1999 July 25, 1998
<S> <C> <C> <C>
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
</TABLE>
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:
<TABLE>
<CAPTION>
2000 1999 1998
<S> <C> <C> <C>
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
</TABLE>
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:
<TABLE>
<CAPTION>
July 29, July 31,
2000 1999
<S> <C> <C>
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
</TABLE>
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:
<TABLE>
<CAPTION>
July 29, July 31,
2000 1999
<S> <C> <C>
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
</TABLE>
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
<TABLE>
<CAPTION>
July 29, July 31,
2000 1999
<S> <C> <C>
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
</TABLE>
Aggregate principal maturities of notes payable as of July 29, 2000
are as follows:
<TABLE>
<CAPTION>
<S> <C>
Year ending July:
2001 $ 1,272,686
2002 1,322,894
2003 1,374,224
2004 5,314,843
2005 5,130,215
</TABLE>
(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:
<TABLE>
<CAPTION>
2000 1999 1998
<S> <C> <C> <C>
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
</TABLE>
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:
<TABLE>
<CAPTION>
July 29, July 31,
2000 1999
<S> <C> <C>
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
</TABLE>
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:
<TABLE>
<CAPTION>
2000 1999 1998
<S> <C> <C> <C>
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%
</TABLE>
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:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
<S> <C> <C>
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
</TABLE>
The following schedule shows the composition of total rental
expense under operating leases for the following periods:
<TABLE>
<CAPTION>
2000 1999 1998
<S> <C> <C> <C>
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
</TABLE>
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:
<TABLE>
<CAPTION>
2000 1999 1998
Shares Wtd Avg Shares Wtd Avg Shares Wtd Avg
Exercise Exercise Exercise
Price Price Price
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
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:
<TABLE>
<CAPTION>
2000 1999 1998
<S> <C> <C> <C>
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
</TABLE>
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:
<TABLE>
<CAPTION>
2000 1999
<S> <C> <C>
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)
</TABLE>
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:
<TABLE>
<CAPTION>
<S> <C>
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%
</TABLE>
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.
<TABLE>
<CAPTION>
Class A Stock
High Low
<S> <C> <C>
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
</TABLE>
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
