SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
ANNUAL REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Fiscal Year Ended Commission File Number
February 24, 1996 1-4434
GIANT FOOD INC.
(Exact Name of Registrant as specified in its Charter)
Delaware 53-0073545
(State of Incorporation) (IRS Employer Identification No.)
6300 Sheriff Road
Landover, Maryland 20785
(Address of Principal Executive Office)
(301) 341-4100
(Registrant's Telephone Number)
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on
Title of Each Class Which Registered
Class A Common Stock American Stock Exchange
(Non-Voting) Philadelphia Stock Exchange, Inc.
Par Value $1.00 Pacific Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the Registrant (1) has
filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the Registrant was required to file such
reports), and (2) has been subject to such filing requirements for the
past 90 days.
Yes No
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and will
not be contained, to the best of Registrant's knowledge, on definitive
proxy or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K.
As of May 1, 1996, 250,000 Voting Common Shares were
outstanding, all of which are held by affiliates. Non-Voting Common
Shares outstanding were 59,348,933 and the aggregate market value of the
Non-Voting Common Shares (based upon the closing price of these shares
on the American Stock Exchange) of Giant Food Inc. held by
non-affiliates was approximately $1.9 billion.
The number of shares outstanding of each of the
Registrant's classes of Common Stock, as of May 1, 1996 is as follows:
Class A Non-Voting Common Stock ($1.00 par value) 59,348,933
Class AL Voting Common Stock ($1.00 par value) 125,000
Class AC Voting Common Stock ($1.00 par value) 125,000
DOCUMENTS INCORPORATED BY REFERENCE
* * * * * * *
Index to Exhibits Page 62
<PAGE>
PART I
ITEM 1. BUSINESS
(a) General Development of Business
Giant Food Inc. (sometimes herein called "Giant" or the
"Company") was incorporated in Delaware in 1935. The Company, together
with its subsidiaries (Giant of Maryland, Inc.; Giant of Salisbury,
Inc.; Cole Engineering, Inc.; Warex-Jessup, Inc.; Giant Construction
Company, Inc.; LECO, Inc.; Bursil, Inc.; GFS Realty, Inc.; GF McLean
Shopping Center, Inc.; Giant Automatic Money Systems, Inc.; Super G,
Inc.; Montrose Crossing, Inc.; Friendship Macomb SC, Inc.; Bayside
Traffic Services of Maryland, Inc; Giant of Talbot Co., Inc.; Giant of
Cherry Hill, Inc.; Giant of Washington Township, Inc. and Shaw Community
Supermarket, Inc. [85% owned]), operates a chain of 166 supermarkets
selling, at retail, food, pharmacy and general merchandise in
Washington, D.C., Maryland, Virginia, Delaware and New Jersey. Of the
Company's 166 supermarkets, 112 are in the Washington, D.C. Metropolitan
Area, including surrounding counties of Maryland and Virginia, 42 are in
or near Baltimore, Maryland, and others are in Fredericksburg,
Charlottesville and Warrenton, Virginia; Easton, Salisbury, Frederick,
Prince Frederick, Westminster, Maryland; Delaware and New Jersey. The
Company also operates three freestanding drug stores.
(b) Financial Information About Industry Segments
There is no financial information reported on industry
segments and lines of business apart from Giant's principal business of
operating supermarkets to sell, at retail, food, pharmacy and general
merchandise. Inasmuch as Giant did not engage in any line of business
which during either of its last three fiscal years accounted for 10% or
more of total sales and revenues, or 10% or more of income before taxes
and extraordinary items computed without deduction of loss resulting
from operations of any line of business, or a loss which equaled or
exceeded 10% of such income, no segment reporting is required. During
each of the last three fiscal years, Giant's retail sales provided in
excess of 90% of its total sales and earnings.
(c) Narrative Description of Business
The majority of the Company's stores are located in
shopping centers, with the average food and food/pharmacy combination
unit generating an annual sales volume of approximately $23,700,000. In
certain of its retail stores the Company has pharmacy units and flower
departments. The Company also operates freestanding drug stores in
Bethesda, Maryland, Salisbury, Maryland and Arlington, Virginia. During
the next fiscal year, the Company has planned or will have begun
construction of eight supermarkets. Additionally, nine supermarkets
will be extensively remodeled during the upcoming fiscal year.<PAGE>
Giant supermarkets are all self-service and offer a full
line of nationally advertised groceries, meat, produce, dairy products,
seafood, tobacco, flowers, prepared foods and household and non-food
items. In addition, Giant sells groceries, frozen foods, bakery
products and dairy products under its own private labels. Unbranded
items such as meats and produce are also sold in Giant's supermarkets.
For the fiscal years ended in February 1996, 1995 and 1994,
respectively, the Company's sales were divided, as follows: meat,
delicatessen, dairy and seafood, 22%, 22% and 23%; grocery and non-food,
68%, 69% and 68%; fresh produce, 10%, 9% and 9%.
Giant operates a full line service delicatessen in 159
stores. Most of the bakery items such as bread, rolls, cakes, pies and
pastries, marketed under the names of "Heidi," "Super G" and "Giant,"
are made in a 250,000 square-foot Company bakery located in Silver
Spring, Maryland. The Company operates three distribution centers of
approximately 1.2 million combined square feet in Landover, Maryland,
one mile from the District of Columbia line. The main center also
houses the Company's executive offices, dairy processing plant, flower
warehouse and ice cube production plant. The Company owns an executive
office building of about 180,000 square feet together with a 750 car
parking garage. Giant also owns a 760,000 square-foot dry grocery
warehouse located in Jessup, Maryland (including a 20,408 square-foot
soft drink bottling plant within that warehouse). Giant also leases a
138,000 square foot frozen food distribution center and a 60,000 square
foot ice cream manufacturing facility at the Jessup location.
(i) Giant produces for sale in its supermarkets bakery
goods and dairy products, ice cream, soft drinks and ice cubes. These
items are manufactured by its Bakery, Dairy, Ice Cream Plant, Soft Drink
Bottling Plant and Ice Plant. Giant also provides services such as
check-cashing, issuance of money orders, photographic film developing,
rental of home-care appliances, some catering, and cooperates in such
community-related projects as the sponsoring of "It's Academic," "Apples
for the Students" and other projects and activities related to community
improvement.
Additionally, the Company warehouses and distributes to
its own stores flowers and gifts, snacks and magazines and
pharmaceuticals. The Company also has an in-house advertising agency, a
trucking brokerage operation, vending-machine business, an import-export
division and also owns seventeen shopping centers and four freestanding
stores. Revenue from the Company's construction division from outside
construction is de minimis. Transfer sales from the above activities
and from its manufacturing and processing operations in support of its
retail operations were about $445 million. Pre-tax profits on these
transfer sales were approximately $54 million, representing about 32% of
total income before income taxes.
(ii) Giant has made no public announcement of any new
product or industry segment which is material or would require the
investment of a material amount of its assets.
<PAGE>
(iii) Raw materials for Giant's manufacturing and
processing operations are readily available.
(iv) Giant owns approximately 32 trademarks and service
marks registered by it in the U.S. Patent and Trademark Office. Those
which were issued before November 16, 1989 have a term of twenty years
and those registered after November 16, 1989 have a term of ten years.
Each of Giant's registrations may be renewed for successive terms of ten
years so long as each mark is in use. Giant does not own any patents
which are of material importance to its operations.
(v) Giant's sales volume is not materially affected by
seasonality.
(vi) The Company generates sufficient cash from
operations to meet its working capital requirements. The Company does
not anticipate any changes in its working capital requirements during
the next fiscal year.
(vii) Giant's business is not dependent upon a single or
a few customers. Giant does not sell to any single customer or
affiliated group of customers goods or services in an amount which
equals 10% or more of its consolidated sales.
(viii) Giant's business is such that backlog ordering is
not done.
(ix) None of Giant's business is subject to
renegotiation of profits or termination of contracts or subcontracts at
the election of the Government.
(x) The retail food business is highly competitive,
and in the area in which Giant operates, some of the country's leading
chains are represented and compete vigorously with the Company, both in
price and in service. On the basis of figures published in trade
journals, the Company considers itself at least among the first thirteen
in gross sales among retail grocery chains in the United States.
Competition from the other chains, as well as from independent store
operators, may adversely affect the Company's profit margins in ensuing
years.
(xi) Giant did not spend any material amount on
Company-sponsored research and development activities. In addition,
Giant did not spend during any of the last five fiscal years any
material amount on customer-sponsored research activities relating to
the development of new products, services or techniques or the
improvement of existing products, services or techniques.
(xii) Giant's compliance with federal, state and local
laws which have been enacted or adopted regulating the discharge of
materials into the environment or otherwise relating to the protection
of the environment has not had and is not expected to have any material
effect upon its capital expenditures, its earnings or its competitive
position.<PAGE>
(xiii) At the end of fiscal 1996, Giant had approximately
25,600 full-time and part-time employees.
(d) Financial Information About Foreign and
Domestic Operations and Export Sales
The amount of foreign sales and export sales done by Giant
is de minimis and is therefore not reported.
ITEM 2. PROPERTIES
The Company operates 166 supermarkets (including 123
combination food/pharmacy stores), 112 in the Washington, D.C.
Metropolitan Area, 42 in or near Baltimore, Maryland, and others in
Fredericksburg, Charlottesville and Warrenton, Virginia; Frederick,
Westminster, Prince Frederick, Easton and Salisbury, Maryland; Delaware
and New Jersey.
Eleven of the Company's stores are fifteen to twenty
thousand square feet; twenty-eight are between twenty and thirty
thousand square feet; sixteen are thirty to forty thousand square feet;
fifty-five stores are between forty to fifty thousand square feet;
thirty-nine stores are between fifty and sixty thousand square feet, and
seventeen are over sixty thousand square feet.
The Company also operates three freestanding drug stores.
The Company owns and operates three distribution centers
of approximately 1.2 million combined square feet in Landover, Maryland.
The main center also houses the Company's executive offices (including
an executive office building of approximately 180,000 square feet), its
dairy processing plant, a flower warehouse and an ice cube production
plant. A dry grocery warehouse, containing approximately 760,000 square
feet, is located in Jessup, Maryland. Also located at the Jessup
complex is a 138,000 square foot frozen food distribution center and a
60,000 square foot ice cream manufacturing facility. The Landover
complex and the Jessup complex each contain approximately 85 acres. The
Company's bakery is located in Silver Spring, Maryland, in a
Company-owned building containing 250,000 square feet.
<PAGE>
The Company, through its wholly-owned subsidiary, GFS
Realty, Inc., also owns or is the controlling general partner of 17
shopping centers and four freestanding stores. The shopping centers are
located at:
8320 Old Keene Mill Road, Springfield, Virginia
6223 Baltimore National Pike, Baltimore, Maryland
7137 Columbia Pike, Annandale, Virginia
1228 Elden Street, Herndon, Virginia
46 Bureau Drive, Gaithersburg, Maryland
7546 Annapolis Road, Lanham, Maryland
12445 Hedges Run Road, Lakeridge, Virginia
3501 Plank Road, Fredericksburg, Virginia
15791 Columbia Pike, Burtonsville, Maryland
20044 Goshen Road, Gaithersburg, Maryland
7501 Huntsman Blvd., Springfield, Virginia
1454 Chain Bridge Road, McLean, Virginia
12051 Rockville Pike, Rockville, Maryland
Newark and Macomb Streets, N.W., Washington, D.C.
5700 South-East Crain Highway, Upper Marlboro, Maryland
20961 Southbank Street, Sterling, Virginia
10100 Dumfries Road, Manassas, Virginia
The freestanding combination food/drug stores are located
at:
3757 Old Court Road, Pikesville, Maryland
1925 East Joppa Road, Joppa Heights, Maryland
1734 York Road, Lutherville, Maryland
400 East Evesham Road, Cherry Hill, New Jersey
In each shopping center, the Company is the major tenant
occupying approximately 25% to 90% of the space.
The table below sets forth certain information with
respect to changes in the number of the Company's supermarkets
(including combination food/pharmacy stores) during the past five years:
Number at Number at
Fiscal Year Beginning of Year Opened Closed End of Year
February 29, 1992 152 3 1 154
February 27, 1993 154 3 2 155
February 26, 1994 155 4 2 157
February 25, 1995 157 4 0 161
February 24, 1996 161 7 2 166
With the exception of the bakery, the seventeen shopping
centers and four freestanding stores noted above, the distribution
centers at Landover and the dry grocery warehouse at Jessup, all the
properties occupied by the Company are held under leases which provide
for various minimum rentals and, in some cases, additional rentals based
on percentages of sales.
<PAGE>
At February 24, 1996, the Company had entered into leases
covering stores, warehouses and equipment on which the minimum annual
rentals for the succeeding years are as follows:
Minimum Annual Rentals (In Thousands)
Year Capital Leases Operating Leases
1997 20,471 24,372
1998 20,471 23,540
1999 20,460 22,717
2000 20,285 22,769
2001 20,179 22,303
Later Years 273,737 328,908
ITEM 3. LEGAL PROCEEDINGS
To the best knowledge of the Company and counsel, there is
no litigation pending or threatened which would materially affect the
Company's business or operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET PRICE OF AND DIVIDENDS ON THE COMPANY'S COMMON
STOCK AND RELATED STOCK HOLDER MATTERS
(a) Market Information
Principal markets on which Giant's Class A Common Stock is
traded: American, Philadelphia and Pacific Stock Exchanges.
The table below presents the high and low market prices
for Giant's Class A Common shares.
Common Stock Price Range
Fiscal 1996 Fiscal 1995
Quarter Ended High Low Quarter Ended High Low
May 20 $28.25 $22.88 May 21 $26.00 $20.63
Aug. 12 32.50 27.88 Aug. 13 21.50 19.88
Nov. 4 32.50 30.88 Nov. 5 22.75 20.63
Feb. 24 34.50 30.75 Feb. 25 24.50 21.88
The last sale price of Giant's Class A Common (Non-Voting)
shares on the American Stock Exchange on May 1, 1996 (the latest most
practicable date) was $32.625.<PAGE>
(b) Holders
The approximate number of holders of record for Giant's
Class A Non-Voting Stock as of May 1, 1996: 40,000 (includes street name
shareholders).
The number of holders of record for Giant's Class AL
Voting Stock as of May 1, 1996: 1.
The number of holders of record for Giant's Class AC
Voting Stock as of May 1, 1996: 1.
(c) Dividends
The table below presents dividend information for Giant's
Common shares.
Dividends Declared Per Share of Common Stock
Fiscal 1996 Fiscal 1995
April $.185 April $.18
July .185 July .18
October .185 October .18
January .185 January .18
$.74 $.72
The Promissory Note Purchase Agreement with The Prudential
Insurance Company of America (see Note 4 to the Consolidated Financial
Statements, page 28) includes certain restrictive covenants which, among
other things, prohibit the Company from paying dividends after February
22, 1986, aggregating more than 50 percent of its cumulative
"consolidated net earnings" (as defined in the Agreement), less the
aggregate of dividends paid and less the net amount expended to
repurchase or redeem any of its capital stock after February 22, 1986.
At February 24, 1996, the specified levels were $94,800,000 in excess of
such aggregate amounts of dividends and distributions. The Company
anticipates the continuation of its current policies of paying
dividends.<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
Year Ended (1), (2)
1996 1995 1994 1993 1992 (3)
Sales $3,860,579 $3,695,627 $3,567,468 $3,472,581 $3,489,762
Net Income 102,153 94,161 95,231(*) 81,506 87,180
Earnings per
share 1.72 1.59 1.60(*) 1.37 1.47
Total assets $1,447,139 $1,416,710 $1,357,813 $1,296,600 $1,251,339
Long-term debt,
net of current
portion:
Notes and
mortgages 45,959 57,805 86,068 105,525 113,410
Obligations
under capital
leases 142,863 140,946 141,062 142,831 142,892
Total
long-term debt 188,822 198,751 227,130 248,356 256,302
Cash dividends
declared per
Common share 0.74 0.72 0.70 0.68 0.66
(1) Year ends last Saturday in February.
(2) Thousands of dollars except per share figures.
(3) 53 Week Year.
(*) Reflects impact of change in accounting for income taxes. Change
equaled $3.9 million of income, equal to 7 cents per share.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SALES AND EARNINGS
OVERVIEW
Sales for the 1996 fiscal year were $3.86 billion compared to sales of
$3.70 billion in the prior year. Sales for the 1994 fiscal year were
$3.57 billion. Sales for the current year increased 4.5%, of which same
store sales increased 2.3%. For 1995 and 1994 fiscal years, same store
sales increased .9% and 1.4%, respectively. The opening of a new unit
may adversely impact our existing stores. Excluding this effect, same
store sales for the 1996 fiscal year would have increased another .3% to
2.6%.
The Company opened seven food-drug combination stores during the 1996
fiscal year, including a second store in Delaware and its first store in
New Jersey. One of the new stores replaced an older food only unit. The
Company also closed a 17,500 square foot food store in Baltimore at the
expiration of its lease. These changes added 414,000 square feet, net,
bringing the total retail footage to 7.2 million, an increase of 6% over
last year. At the end of the fiscal year, the Company operated 169
stores, of which 123 are food-drug combination units, one is a gourmet
specialty store and three are freestanding drug stores.
EARNINGS
Pre-tax earnings were $167.8 million, 4.35% of sales, compared to $155.3
million, 4.20% of sales in the prior year, an increase of 8.1%. Pre-tax
earnings for the 1994 fiscal year were $151.8 million, 4.25% of sales.
Cost of goods sold decreased slightly to 70.14% of sales, from 70.21% for
the prior year and 70.16% for fiscal 1994. Gross profit dollars
increased $51.9 million over the prior year, a 4.7% gain, in line with
the 4.5% sales gain. Competition in the Company's expanding market area
continues to be intense.
This year's LIFO charge of $4.7 million compares with charges of $4.6
million and $3.3 million for the two prior fiscal years. As a percentage
of sales, the ratios were .12%, .12%, and .09%, a minimal change. The
Company maintains its non-perishable inventory on LIFO which continued to
show moderate inflation.
Transfer sales to support its retail operations by the Company's
manufacturing, processing, wholesaling and support activities were about
$445 million. Of the $167.8 million corporate pre-tax earnings,
approximately 32% or $54 million were generated from operations which
include a bakery, dairy, ice cream and soft drink plants, and such
wholesaling activities as produce, pharmaceutical, snacks and magazines,
as well as machine vending and shopping center leasing operations. The
prior year includes income of nearly $2 million from the sale of its
interest in a system of automatic teller machines.<PAGE>
Selling, general and administrative expenses increased to 25.33% of sales
compared to 25.27% and 25.05% in the prior two fiscal years. This year's
increase was principally caused by increases in occupancy costs related
to new units, and the cost of electronic payments (via a debit or credit
card) which continued to grow in fiscal 1996.
This was Giant's seventh consecutive year of its "Apples for the
Students" program. This program, in addition to awards of computers,
peripheral equipment and computer software, continued to make available
to schools such items as athletic equipment, science and laboratory
equipment, and library books. The Company has distributed more than
107,000 computers, plus peripheral equipment, related computer software
and non-computer equipment during the seven years of this program. The
program has been favorably accepted by more than 3,200 schools along with
teachers, parents and students. While it is impossible to calculate
sales increases caused by this program, the Company believes that the
program has had and continues to have a long-term customer retention
effect.
A contributing factor to the improved earnings was the $6.7 million
reduction of the net interest expense. This was the result of higher
average investments, and the decrease in interest expense resulting from
lower outstanding debt, due to scheduled and to permissible advance
repayments.
The provision for taxes yielded an effective tax rate of 39.1% for the
current year compared to 39.4% in the prior year. The lower current
year's rate was caused by lower effective rates for states.
Fiscal year 1994 results included the effect of the adoption of Statement
of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income
Taxes". This resulted in the recognition of $3.9 million of income,
equal to 7 cents per share.
Earnings were $102.2 million or $1.72 per share, compared with earnings
of $94.2 million or $1.59 per share. The earnings for fiscal 1994
(before the cumulative effect of accounting change for income taxes as
discussed above) were $91.3 million or $1.53 per share. As a percentage
of sales earnings were 2.65% for the current year, 2.55% for the prior
year and 2.67% for fiscal 1994.
<PAGE>
FINANCIAL CONDITION
CASH, CASH EQUIVALENTS, INVESTMENTS AND WORKING CAPITAL
At February 24, 1996 the Company's cash, cash equivalents and short-term
investments totalled $246 million, compared with $250 million and $228
million at the close of each of the two prior years. Cash and cash
equivalents include highly liquid investments with an original maturity
of three months or less. Short-term investments consist primarily of
United States government and agency securities purchased with an original
maturity of more than three months.
Net cash provided by operations amounted to $199 million for the current
fiscal year, $203 million for the preceding fiscal year and $218 million
for the 1994 fiscal year. (See Consolidated Statements of Cash Flows for
further details.)
Cash outlays for property, plant and equipment were $128 million for the
current year, and $102 million and $112 million for the prior two years.
Note 9 of the Notes to the Consolidated Financial Statements provides
further information.
Working capital at the fiscal year end was $209 million compared with
$190 million and $164 million at the close of the two prior years. The
working capital ratio is 1.62 to 1, compared with 1.52 to 1 and 1.48 to 1
at the end of the two prior years, respectively. Including the LIFO
reserve, working capital would be $295 million currently, a 1.87 to 1
ratio, compared with $271 million, a 1.74 to 1 ratio and $241 million, a
1.70 to 1 ratio at the end of the two prior years, respectively.
The Company has had no short-term bank borrowings for more than nineteen
years. The Company has a $50 million revolving credit facility which
expires June 26, 1996 and a $10 million bank line available. Management
of the Company is currently pursuing contingency financing facilities to
replace or extend the revolving credit facility upon its expiration.
Such financing arrangements should enable the Company to handle
contingencies that may arise. Note 4 of the Consolidated Financial
Statements provides additional details. <PAGE>
CAPITAL EXPENDITURES
The Company is authorized to spend approximately $251 million for
property, plant and equipment during fiscal 1997. These expenditures are
in part related to the eight new units that will open during the coming
year, six of which will be in the New Jersey and Pennsylvania area, and
the starting of eight additional units that are planned to open after
February 1997. Three of these units will be in shopping centers
developed by GFS Realty, the Company's real estate subsidiary. Also,
planned for fiscal 1997 is the enlargement or extensive remodel of nine
existing stores. The Company plans to close three smaller stores over
the coming year. These units will add a net of 585,000 square feet of
space, an increase of 8%. The Company believes that cash on hand plus
its cash flow from operations will be sufficient to support ongoing
business levels, including the planned fixed asset program, debt service,
and dividends.
The adoption of the Statement of Financial Accounting Standards (SFAS)
No. 121 "Accounting for the Impairment of Long-lived Assets" is required
by fiscal 1997. This pronouncement requires long-lived assets to be
reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of the assets may not be recoverable.
When adopted, it is not expected to significantly impact the Company's
consolidated financial position or results of operations.
CAPITALIZATION
During the year, the Company continued to improve its capital structure,
which contributes to financial flexibility. Notes and mortgages
decreased $28.3 million due to scheduled principal payments and the
partial prepayment of an obligation. The Company is not planning any new
financing during the upcoming fiscal year.
At the close of the 1996 fiscal year, shareholders' equity as a
percentage of capitalization (long-term debt plus shareholders' equity)
was 81% compared with 79% and 76% for the prior two fiscal years.
Shareholders' equity at the year end was $823 million, compared with $755
million, a year earlier. Long-term debt consists of $46 million of notes
and mortgages at an average interest cost of 10.1%, and $143 million of
obligations under capital leases. At the close of the prior year, the
comparable balances were $58 million and $141 million, respectively.
Return on shareholders' equity (ROE), (average of beginning and ending)
for the current year was 13% compared with 13% and 14% for the two prior
years.
DIVIDENDS
For the current year, cash dividends of $43.6 million were paid at the
rate of 74 cents per share. For the prior two years dividend payments
were $42.4 million and $41.5 million, at the rate of 72 cents and 70
cents per share. Fiscal year 1996 marks the 37th consecutive year of
dividend payments, beginning in 1959 when the Company went public.
<PAGE>
INFLATION AND CHANGING PRICES
Inflation continues to moderately increase costs to the Company including
the cost of merchandise, labor, utilities and the cost of acquiring
property, plant and equipment. The Company uses the LIFO method of
accounting for 84% of its inventories. Under this method, the cost of
merchandise sold approximates current costs and thus reduces the
distortion, if any, in reported income due to increasing costs. The
historical costs of property, plant and equipment recorded by the Company
were incurred over a period of many years. The cost of replacement of
property, plant and equipment is generally greater than the cost on the
books of the Company as a result of the inflation that has occurred over
the years since the property, plant and equipment were placed in service.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Giant Food Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of income, of cash flows and of changes
in shareholders' equity present fairly, in all material respects, the
financial position of Giant Food Inc. and its subsidiaries at February
24, 1996, February 25, 1995 and February 26, 1994, and the results of
their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements
based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which 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, assessing the
accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for the opinion expressed
above.
As discussed in Notes 1 and 5 to the consolidated financial statements,
the Company changed its method of accounting for income taxes effective
February 28, 1993.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Washington, D.C.
March 25, 1996
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
Fifty-two weeks ended February 24, 1996, February 25, 1995 and
February 26, 1994
Dollar amounts in thousands except per share
1996 1995 1994
SALES $3,860,579 $3,695,627 $3,567,468
COSTS AND EXPENSES
Cost of sales 2,707,682 2,594,647 2,503,072
Selling, general
and administrative 977,835 933,786 893,720
Interest
Notes and mortgages, net of
interest capitalized (1996, $1,138;
1995, $900; 1994, $809) 5,099 8,311 9,973
Lease obligations 16,140 16,349 16,372
Income (14,004) (10,745) (7,424)
Other income (1,978)
3,692,752 3,540,370 3,415,713
INCOME BEFORE INCOME TAXES 167,827 155,257 151,755
PROVISION FOR INCOME TAXES 65,674 61,096 60,458
INCOME BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING 102,153 94,161 91,297
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING (Note 5) - - 3,934
NET INCOME $102,153 $ 94,161 $95,231
EARNINGS PER SHARE BEFORE CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING $1.72 $1.59 $1.53
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING - - $ .07
EARNINGS PER SHARE $1.72 $1.59 $1.60
The accompanying notes are an integral part of the consolidated financial
statements.<PAGE>
CONSOLIDATED BALANCE SHEETS
February 24, 1996, February 25, 1995 and February 26, 1994
Dollar amounts in thousands
ASSETS
1996 1995 1994
CURRENT ASSETS
Cash and cash equivalents $111,133 $157,045 $111,845
Short-term investments (Note 2) 134,677 92,757 116,499
Receivables 47,771 43,867 37,504
Inventories (Note 3) 225,801 237,978 217,576
Prepaid income taxes (Note 5) 24,003 22,548 19,001
Other current assets 2,886 2,144 3,113
Total current assets 546,271 556,339 505,538
PROPERTY, PLANT AND EQUIPMENT (Note 4)
Land 79,639 66,842 58,820
Buildings and improvements 319,982 295,245 268,640
Leasehold improvements 170,794 157,663 153,399
Fixtures and equipment 802,173 782,394 745,288
1,372,588 1,302,144 1,226,147
Less accumulated depreciation 643,693 609,214 544,862
728,895 692,930 681,285
Equipment deposits and construction
in progress 32,496 27,255 32,506
761,391 720,185 713,791
PROPERTY UNDER CAPITAL LEASES, net of
accumulated amortization
(1996, $65,018; 1995, $59,876;
1994, $54,679) (Note 6) 105,839 105,502 107,580
REAL ESTATE HELD FOR FUTURE DEVELOPMENT 16,902 23,933 21,367
OTHER ASSETS 16,736 10,751 9,537
$1,447,139 $1,416,710 $1,357,813
The accompanying notes are an integral part of the consolidated financial
statements.<PAGE>
LIABILITIES AND SHAREHOLDERS' EQUITY 1996 1995 1994
CURRENT LIABILITIES
Current portion of long-term debt
Notes and mortgages (Note 4) $6,846 $23,263 $14,618
Obligations under capital leases (Note 6) 5,310 4,873 4,527
Accounts payable 219,253 225,829 226,284
Accrued expenses
Compensation related 84,277 82,831 75,886
Other 1,486 2,478 2,590
Dividends payable 11,009 10,663 10,394
Income taxes payable 9,061 16,808 7,033
Total current liabilities 337,242 366,745 341,332
LONG-TERM DEBT
Notes and mortgages (Note 4) 45,959 57,805 86,068
Obligations under capital leases (Note 6) 142,863 140,946 141,062
188,822 198,751 227,130
OTHER LIABILITIES
Deferred income taxes (Note 5) 12,543 21,868 41,192
Accrued insurance claims 47,964 35,471 25,417
Other 37,811 38,419 9,313
98,318 95,758 75,922
COMMITMENTS (Notes 6 and 8)
SHAREHOLDERS' EQUITY (Notes 4 and 7)
Common stock, $1 par, all classes 60,257 60,257 60,257
Capital in excess of par value 388
Retained earnings 779,000 720,784 670,034
Net unrealized loss on
short-term investments (Note 2) (108) (1,648)
839,537 779,393 730,291
Less Class "A" stock held in treasury,
at cost (1996,702,782 shares; 1995,
1,002,464 shares; 1994, 669,781 shares) 16,780 23,937 16,862
822,757 755,456 713,429
$1,447,139 $1,416,710 $1,357,813
The accompanying notes are an integral part of the consolidated financial
statements.<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Fifty-two weeks ended February 24, 1996, February 25, 1995 and
February 26, 1994
Dollar amounts in thousands except per share
Capital in Treasury stock Net unrealized
excess of (Class "A") loss on Retained Total
par value Shares Cost short-term earnings Share-
investments holders'
equity
Balance,
2-27-93 $ 392 566,180 $14,634 $616,938 $662,953
Net income 95,231 95,231
Purchase of
treasury shares 173,000 3,993 (3,993)
Stock options
exercised (392) (42,456) (1,089) (345) 352
Awards under stock
bonus plan (26,943) (676) (29) 647
Dividends
($.70 per share) (41,761) (41,761)
Balance,
2-26-94 669,781 16,862 670,034 713,429
Net income 94,161 94,161
Change in accounting
for short-term
investments (Note 2) $ (408) (408)
Change in market value
of short-term
investments (Note 2) (1,240) (1,240)
Purchase of
treasury shares 402,700 8,764 (8,764)
Stock options
exercised (42,052) (1,021) (636) 385
Awards under stock
bonus plan (27,965) (668) (58) 610
Dividends
($.72 per share) (42,717) (42,717)
Balance,
2-25-95 $ 1,002,464 $23,937 $(1,648) $720,784 $755,456
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY - CONTINUED
Fifty-two weeks ended February 24, 1996, February 25, 1995 and
February 26, 1994
Dollar amounts in thousands except per share
Capital in Treasury stock Net unrealized
excess of (Class "A") gain (loss) on Retained Total
par value Shares Cost short-term earnings Share-
investments holders'
equity
Net income 102,153 102,153
Change in market value
of short-term
investments (Note 2) 1,540 1,540
Stock options
exercised (494) (280,768) (6,705) 6,211
Tax benefit under
stock incentive
plans 724 724
Awards under stock
bonus plans 158 (18,914) (452) 610
Dividends
($.74 per share) (43,937) (43,937)
Balance,
2-24-96 $ 388 702,782 $16,780 $(108) $779,000 $822,757
Common stock, all classes
Shares Par value
Balance, February 27, 1993 60,256,620 $60,257
Balance, February 26, 1994 60,256,620 $60,257
Balance, February 25, 1995 60,256,620 $60,257
Balance, February 24, 1996 60,256,620 $60,257
The accompanying notes are an integral part of the consolidated financial
statements.<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Fifty-two weeks ended February 24, 1996, February 25, 1995 and
February 26, 1994
Dollar amounts in thousands
1996 1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 102,153 $ 94,161 $ 95,231
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation 93,932 92,704 90,002
Amortization of property under capital leases 5,875 5,833 5,731
Compensation expense arising from stock awards 610 610 647
Other adjustments, net 1,613 1,724 1,889
Net increase (decrease) in cash from changes
in operating assets and liabilities,
detailed below (5,528) 7,734 24,114
Net cash provided by operating activities 198,655 202,766 217,614
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of short-term investments (73,782) (40,663)(237,165)
Proceeds from sales of short-term inv. 19,826 48,805 120,694
Proceeds from maturity of short-term inv. 14,595 12,864 200
Capital expenditures (128,107)(101,664)(111,924)
Additions to other assets (7,598) (2,938) (1,294)
Net cash used in investing activities (175,066) (83,596)(229,489)
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on notes and mortgages (28,263) (19,618) (12,733)
Reduction of obligations under capital leases (3,858) (3,525) (3,361)
Issuance of common stock 6,211 385 352
Purchases of treasury stock - (8,764) (3,993)
Dividends paid (43,591) (42,448) (41,514)
Net cash used in financing activities (69,501) (73,970) (61,249)
Net inc (dec) in cash and cash equivalents (45,912) 45,200 (73,124)
Cash and cash equivalents at beginning of year 157,045 111,845 184,969
Cash and cash equivalents at end of year $111,133 $157,045 $111,845
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
Fifty-two weeks ended February 24, 1996, February 25, 1995 and
February 26, 1994
Dollar amounts in thousands
CASH FLOWS FROM CHANGES IN OPERATING ASSETS AND LIABILITIES
1996 1995 1994
(Increase) decrease in assets
Receivables $ (3,904) $(6,363) $ (4,784)
Inventories 12,177 (20,402) 6,336
Prepaid income taxes (2,474) (2,459) (1,434)
Other current assets (742) 969 (881)
Increase (decrease) in liabilities
Accounts payable (6,576) (455) 19,896
Accrued expenses 454 6,833 12,923
Income taxes payable (7,023) 9,775 (5,657)
Deferred income taxes (9,325) (19,324) (5,539)
Accrued insurance claims 12,493 10,054 4,431
Other liabilities (608) 29,106 (1,177)
Net cash provided by (used in) changes in
operating assets and liabilities $ (5,528) $ 7,734 $ 24,114
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fifty-two weeks ended February 24, 1996, February 25, 1995 and
February 26, 1994
Dollar amounts in thousands except per share
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Giant Food Inc. (the Company) operates a chain of 166 supermarkets
selling, at retail, food, pharmacy and general merchandise. The Company
also operates three freestanding drug stores. The majority of the
Company's stores are located in the Washington, D.C. and Baltimore,
Maryland metropolitan areas.
Consolidation: The consolidated financial statements include the
accounts of the Company and its subsidiaries. All significant
intercompany accounts and transactions have been eliminated in
consolidation.
Cash equivalents: For financial reporting purposes, cash equivalents
consist of all highly liquid investments purchased with original
maturities of three months or less. At February 24, 1996, such cash
equivalents consist principally of bank repurchase agreements which are
secured fully by United States government securities.
Short-term investments: The Company classifies all of its short-term
investments as available-for-sale. Such short-term investments consist
primarily of United States government and Federal agency securities and
are stated at market value, with unrealized gains and losses on such
securities reflected, net of tax, in shareholders' equity. Realized
gains and losses on short-term investments are included in earnings and
are derived using the specific identification method for determining the
cost of securities. It is the Company's intent to maintain a liquid
portfolio to take advantage of investment opportunities; therefore, all
securities are considered to be available-for-sale and are classified as
current assets.
Inventories: Inventories are valued at the lower of cost or market. The
last-in, first-out (LIFO) method is used for determining the cost of
grocery, drug, cosmetic and non-food inventories, while the first-in,
first-out (FIFO) method is used for determining the cost of other
inventories, primarily perishable items. Approximately 84% of the
Company's inventories are valued using the LIFO method.
Property, plant and equipment: Property, plant and equipment are stated
at cost. Depreciation for financial reporting purposes is provided on
the straight-line method over the estimated useful lives of the assets
which results in average depreciation rates of 3%, 6% and 9% for
buildings and improvements, leasehold improvements and furniture and
equipment, respectively. Accelerated methods and lives are used for
income tax reporting purposes.<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Property under capital leases: Property under capital leases, which
consists principally of real property used in the Company's operations,
is recorded at the lower of the present value of the minimum lease
payments or the fair market value of the leased property at the inception
of the lease. Amortization of the leased property is computed using the
straight-line method over the term of the lease.
Real estate held for future development: Real estate held for future
development is stated at cost.
Long-lived assets: The recoverability of long-lived assets is assessed
annually or whenever adverse events and changes in circumstances indicate
that undiscounted cash flows previously anticipated warrants a
reassessment.
Accrued insurance claims: The Company maintains insurance coverage with
respect to general liability, automobile and workers' compensation risks
under contractual arrangements which retroactively adjust insurance
premiums for claims paid subject to specified limitations. Accordingly,
the expense arising from such risks is accrued as amounts required to
cover incurred incidents become subject to estimation.
Income taxes: The provision for income taxes includes deferred income
taxes resulting from differences between income for financial reporting
and income tax purposes. The Company adopted Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes"
effective February 28, 1993 (see Note 5), which requires the use of the
liability method for computing income taxes rather than the deferred
method which was previously used by the Company.
Pre-opening costs: Costs associated with the opening of new stores are
expensed as incurred.
Other income: Other income represents the realized gain from the sale of
the Company's interest in a partnership that operates automatic teller
machines in the Company's stores.
Buying and promotional allowances: Allowances and credits received from
vendors in connection with the Company's buying and merchandising
activities are recognized as earned.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Stock-based compensation: The Company applies the intrinsic value based
method of accounting prescribed by APB Opinion No. 25, "Accounting for
Stock Issued to Employees" in accounting for its stock-based
compensation. Accordingly, the Company has not recognized any
compensation expense associated with fair value accounting. Beginning
with fiscal year 1997, the Company will be required to make certain
additional disclosures as if the fair value based method of accounting
defined in SFAS No. 123, "Accounting for Stock-Based Compensation", had
been applied to the Company's stock option and award plans made
subsequent to fiscal year 1995.
Use of estimates and assumptions: The preparation of financial
statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates and assumptions.
Earnings per share: Earnings per share is computed based on the weighted
average number of common shares outstanding during each year (59,360,234
shares in 1996, 59,368,068 shares in 1995 and 59,659,352 shares in 1994).
The exercise of outstanding stock options would not result in a material
dilution of earnings per share.
Business segments: Substantially all of the Company's assets, sales and
operating income are employed in or derived from a combination of retail
food and drug business in the United States.
Fair value of financial instruments: The carrying amount of the
Company's cash and cash equivalents, receivables, accounts payable and
accrued expenses approximates fair value because of the short maturity
of those instruments. The Company derives the fair value of its short-
term investments based on quoted market prices which are generally
readily available. The Company estimates the fair value of its notes and
mortgages by discounting the required future cash flows under such notes
and mortgages using borrowing rates at which similar types of borrowing
arrangements could be currently obtained by the Company.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
2. SHORT-TERM INVESTMENTS
Short-term investments consist of the following:
As of February 24, 1996:
Gross
Unrealized Holding
Cost (Losses) Gains Fair Value
U.S. Treasury securities $111,021 $ (168) $110,853
Federal agency securities 22,920 (9) 22,911
Corporate bonds and other 913 913
$134,854 $ (177) $134,677
As of February 25, 1995:
U.S. Treasury securities $ 71,052 $(1,767) $ 69,285
Federal agency securities 18,788 (984) 17,804
Corporate bonds and other 5,653 15 5,668
$ 95,493 $(2,736) $ 92,757
Maturities of short-term investments at February 24, 1996 were as
follows:
Cost Fair Value
Due within one year $ 91,539 $ 91,542
Due after one year through five years 43,315 43,135
$134,854 $134,677
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
3. INVENTORIES
If the FIFO method had been used, inventories would have been $85,713,
$80,967, and $76,420 higher at the end of 1996, 1995 and 1994,
respectively. Net income would have been higher by $2,889 ($.05 per
share) in 1996, $2,755 ($.05 per share) in 1995, and $2,003 ($.03 per
share) in 1994. The replacement cost of inventories valued at LIFO
approximates FIFO cost.
4. NOTES AND MORTGAGES
Notes and mortgages outstanding at year-end were as follows:
1996 1995 1994
Notes payable to insurance
company $39,720 $ 50,880 $ 62,040
Mortgage notes payable 13,085 30,188 38,646
52,805 81,068 100,686
Less current portion 6,846 23,263 14,618
$45,959 $ 57,805 $ 86,068
The insurance company notes are subject to covenants, the more
significant of which restrict the payment of dividends, the creation of
long-term debt and the purchase of Company common stock. At February 24,
1996, approximately $94,823 of consolidated retained earnings were free
of dividend and stock purchase restrictions. The average interest rate
on the insurance company notes is 9.7%.
Mortgage notes are collateralized by real estate which cost $16,954. The
average interest rate on such notes is 11.3%.
Annual maturities of notes and mortgages for the next five years are as
follows: 1997, $6,846; 1998, $6,921; 1999, $6,905; 2000, $7,000; and
2001, $2,108.
The estimated fair value of notes and mortgages is approximately $66,000,
$84,000 and $108,000 at February 24, 1996, February 25, 1995, and
February 26, 1994, respectively.
The Company has available credit facilities of approximately $60,000,
including a revolving credit line and a term loan facility. Such credit
facilities were not used in fiscal year 1996.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
5. INCOME TAXES
The Company adopted, effective February 28, 1993, SFAS No. 109, which
requires the use of the liability method of accounting for income taxes
and the adjustment of deferred income taxes to reflect changes in tax
rates at the time they are enacted. In addition, SFAS No. 109 requires
that assets and liabilities acquired in purchase business combinations be
assigned their fair value assuming equal tax bases, and that deferred
income taxes be provided for lower or higher tax bases. Upon adoption of
SFAS No. 109, the Company adjusted its deferred income tax accounts to
reflect the then current income tax rates and also adjusted the carrying
amounts of certain assets acquired in a 1992 shopping center acquisition.
The cumulative effect of the adjustments was to increase fiscal year 1994
net income by $3,934, increase the net deferred income tax liability by
$1,013 and increase the bases of certain assets by $4,947. The effect of
adopting SFAS No. 109 on the Company's effective income tax rate in
fiscal 1994 was not material. Financial statements for years prior to
fiscal year 1994 were not restated.
The provision (benefit) for income taxes consists of:
1996 1995 1994
Current
Federal $64,536 $68,767 $56,800
State 12,937 14,112 11,644
77,473 82,879 68,444
Deferred
Federal (9,822) (18,622) (6,906)
State (1,977) (3,161) (1,080)
(11,799) (21,783) (7,986)
$65,674 $61,096 $60,458
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
5. INCOME TAXES (continued)
Deferred income tax assets (liabilities) are comprised of the following:
February 24, February 25, February 26,
1996 1995 1994
Current deferred income tax assets:
Employee benefits $ 13,930 $ 13,030 $ 12,384
Promotional allowances 4,734 4,217 2,136
Capitalization of inventory 3,235 3,521 3,113
Other 2,104 1,780 1,368
24,003 22,548 19,001
Noncurrent deferred income tax assets:
Capital leases 16,658 15,861 14,949
Provision for insurance claims 21,274 17,688 13,523
Pension payments 5,843 4,191 2,762
Capitalization of overhead 3,812 3,463 2,916
Promotional allowances 8,396 10,590 862
Other 485 159 3,135
56,468 51,952 38,147
Total deferred tax assets 80,471 74,500 57,148
Noncurrent deferred income tax liabilities:
Depreciation (63,820) (68,629) (74,148)
Acquisition of shopping
center for stock (5,191) (5,191) (5,191)
Total deferred tax liabilities (69,011) (73,820) (79,339)
Net deferred tax asset (liability) $ 11,460 $ 680 $(22,191)
The following table reconciles the statutory federal income tax rate to
the Company's effective income tax rate.
1996 1995 1994
Statutory federal income tax rate 35.0% 35.0% 35.0%
State income taxes, net of
federal tax benefit 4.2 4.5 4.5
Retroactive tax increase to
January 1, 1993 0.1
Other (0.1) (0.1) 0.2
Effective income tax rate 39.1% 39.4% 39.8%
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
6. COMMITMENTS
Leases: The Company leases certain of its warehouse facilities and a
substantial number of its retail store properties under noncancelable
lease agreements for periods ranging from 20 to 30 years. These leases
generally contain optional renewal provisions for one or more periods of
five years each. Substantially all leases covering retail store
properties provide for additional rentals based on sales. Most leases
also require the payment of taxes, insurance and maintenance costs. Data
processing and certain other equipment leases are for terms of two to
five years.
Future minimum lease payments under capital leases and noncancelable
operating leases as of February 24, 1996 are as follows:
Capital Operating
leases leases
1997 20,471 24,372
1998 20,471 23,540
1999 20,460 22,717
2000 20,285 22,769
2001 20,179 22,303
Later years 273,737 328,908
Total minimum lease payments 375,603 $444,609
Less executory costs 218
Net minimum lease payments 375,385
Less imputed interest 227,212
Present value of net
minimum lease payments 148,173
Less current portion 5,310
Long-term obligations under
capital leases $142,863
Minimum lease payments for capital leases have not been reduced by
minimum sublease rentals of $7,593 receivable in the future under
noncancelable subleases.
Net rental expense associated with leases consists of the
following:
1996 1995 1994
Operating leases
Minimum $22,369 $19,254 $18,011
Contingent 9,142 8,477 8,610
Contingent rentals under
capital leases 3,416 3,418 3,414
Gross rental expense 34,927 31,149 30,035
Sublease income (2,303) (2,361) (2,348)
Net rental expense $32,624 $28,788 $27,687<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
6. COMMITMENTS (continued)
The Company also leases certain retail space to others under
noncancelable operating lease agreements. Rental income from owned
properties was $10,395 in 1996, $8,351 in 1995, and $8,287 in 1994.
Total future minimum rentals as of February 24, 1996 are approximately
$39,820.
Property, Plant and Equipment: During the next year the Company plans to
expend approximately $251,000 for property, plant and equipment.
7. COMMON STOCK AND EMPLOYEE INCENTIVE PLANS
Shares authorized: Common stock, $1 par value, authorized and
outstanding at year end is as follows:
Outstanding
Class Authorized 1996 1995 1994
"A" non-voting 75,000,000 59,303,838 59,004,156 59,336,839
"AC" voting 125,000 125,000 125,000 125,000
"AL" voting 125,000 125,000 125,000 125,000
75,250,000 59,553,838 59,254,156 59,586,839
Class "A" common stock has all of the rights and privileges pertaining to
other classes of common stock except the right to vote. No dividends may
be declared on any class of common stock without declaring at least an
equal dividend on Class "A" stock. However, dividends may be declared on
Class "A" stock without declaring dividends on any other class of common
stock.
At February 24, 1996, the Company had reserved 4,935,373 shares of its
Class "A" common stock for issuance under its stock option and executive
stock bonus plans. In June 1994, the Company's Board of Directors
approved a plan to purchase up to 400,000 shares of its Class "A" common
stock in the open market. As of February 25, 1995 and February 24, 1996,
the Company had purchased 239,300 shares under this plan. The Company
has purchased and accumulated treasury stock in order to accommodate the
needs for registered common stock which may arise in connection with the
exercise of stock options and the award of shares under executive stock
bonus plans.
Stock options: The Company has established incentive compensation plans
under which it is authorized to grant both incentive stock options and
non-qualified stock options to approximately 1,300 employees. Options to
purchase the Company's Class "A" common stock are exercisable at a price
equal to the market value of the stock at the date of grant and become
exercisable over two to six years following the grant. All options
expire ten years after date of grant.
The Company had historically granted stock appreciation rights (SAR's) in
tandem with options. During the year ended February 24, 1990, the
Company began to grant non-qualified options without tandem SAR's. No
options have been granted with tandem SAR's since July 1989.<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
7. COMMON STOCK AND EMPLOYEE INCENTIVE PLANS (continued)
Upon exercise of a SAR the holder is entitled to receive cash (or
equivalent value in stock) equal to the amount by which the market value
of the Company's Class "A" common stock on the exercise date exceeds the
exercise price of the related stock options. As SAR's are exercised the
corresponding options are canceled and as options are exercised the
corresponding SAR's are canceled.
Option and SAR activity is as follows:
Number of Shares Average Option
Options SAR's Price
February 27, 1993
Outstanding 2,248,558 646,808 22.45
1994 Activity
Granted 581,500 - 23.39
Options exercised (42,456) (41,236) 7.36
SAR's exercised (87,686) (87,686) 12.63
Canceled (41,994) (7,244) 24.07
February 26, 1994
Outstanding 2,657,922 510,642 23.19
1995 Activity
Granted 646,000 - 23.51
Options exercised (41,984) (38,864) 8.91
SAR's exercised (44,013) (44,013) 12.60
Canceled (93,890) (8,740) 24.60
February 25, 1995
Outstanding 3,124,035 419,025 23.56
1996 Activity
Granted 732,350 - 27.75
Options exercised (281,299) (49,004) 22.14
SAR's exercised (179,057) (179,057) 16.69
Canceled (72,436) (5,216) 24.50
February 24, 1996
Outstanding 3,323,593 185,748 24.94
Exercisable 1,600,173 177,788 24.38
Available for future grants 1,611,780 NONE -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
7. COMMON STOCK AND EMPLOYEE INCENTIVE PLANS (continued)
Stock awards: The Company has also established executive stock bonus
plans under which certain officers and managerial employees may be
awarded shares of Class "A" common stock. Charges to income arising from
stock awards were $1,000 in 1996, 1995 and 1994.
8. EMPLOYEE BENEFIT PLANS
Pension and savings plans: The Company maintains a qualified defined
benefit pension plan which covers substantially all non-union employees.
Plan benefits are based on the participants' years of service and average
annual earnings. The Company's policy is to fund the amount expensed for
accounting purposes subject to it being deductible for income tax
purposes. The assets of the qualified defined benefit pension plan are
comprised of approximately 60% equities and approximately 40% fixed
income investments and cash equivalents.
Supplementary defined benefit pension plans covering certain officers are
also maintained. These plans are unfunded and non-qualified. The
pension liability associated with the plans is accrued using the same
actuarial methods and assumptions as those used for the Company's
qualified plan.
The net periodic pension cost for these plans includes the following
components:
1996 1995 1994
Service cost
Qualified plan $ 4,158 $ 4,512 $ 4,329
Supplemental plans 151 185 71
Interest cost
Qualified plan 8,339 7,254 6,760
Supplemental plans 337 300 179
Actual return on assets (21,228) (4,873) (9,552)
Net amortization and deferral
Qualified plan 12,412 (3,783) 1,941
Supplemental plans 189 190 71
Net pension cost $ 4,358 $3,785 $3,799
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
8. EMPLOYEE BENEFIT PLANS (continued)
The funded status and amounts recognized in the consolidated balance
sheets as of February 24, 1996, February 25, 1995 and February 26, 1994
are as follows:
Qualified plan
1996 1995 1994
Actuarial present value of benefit obligations
Vested benefit obligation $ 80,908 $58,801 $58,008
Accumulated benefit obligation $ 90,570 $66,202 $65,229
Projected benefit obligation $113,415 $89,806 $90,230
Plan assets at fair value (105,956) (87,826) (85,508)
Projected benefit obligation in excess of
plan assets 7,459 1,980 4,722
Unrecognized net loss (1,167) (746) (6,375)
Unrecognized prior service cost (1,927) (1,801) (3,282)
Unrecognized transition asset 7,351 8,603 9,855
Pension liability recognized in the consolidated
balance sheets $ 11,716 $ 8,036 $ 4,920
Supplemental plans
1996 1995 1994
Actuarial present value of benefit obligations
Vested benefit obligation $ 2,805 $ 2,297 $ 1,752
Accumulated benefit obligation $ 2,805 $ 2,297 $ 1,752
Projected benefit obligation $ 4,420 $ 3,811 $ 2,354
Plan assets at fair value - - -
Projected benefit obligation in excess of
plan assets 4,420 3,811 2,354
Unrecognized net gain 681 982 840
Unrecognized prior service cost (1,354) (1,459) (265)
Unrecognized transition obligation (614) (716) (819)
Pension liability recognized in the consolidated
balance sheets $ 3,133 $ 2,618 $ 2,110
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
8. EMPLOYEE BENEFIT PLANS (continued)
Actuarial assumptions used were as follows:
1996 1995 1994
Discount rate 7.5% 8.5% 8.0%
Rate of increase in
compensation levels 4.0% 5.0% 5.0%
Expected rate of return
on plan assets 9.5% 9.0% 9.0%
Payments are made to union-sponsored, multi-employer pension plans in
accordance with negotiated labor contracts. Charges to income arising
from contributions required under the labor contracts aggregated $19,051,
$18,577 and $18,732 in 1996, 1995 and 1994, respectively.
The Company sponsors a tax deferred savings plan whereby eligible
employees may elect annually to contribute up to 20% of their
compensation, subject to statutory limitations. A non-qualified
supplemental tax deferred savings plan is also maintained for certain
employees. The Company matches a portion of employee contributions.
Charges to income representing the Company's contributions to the plans
were $4,259, $4,033, and $3,740 in 1996, 1995 and 1994, respectively.
Other Benefits:
The Company does not provide any significant postretirement or
postemployment benefits to administrative employees, and postretirement
and postemployment benefits for union employees are covered by union-
sponsored multi-employer plans. Therefore, SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions" and SFAS No.
112, "Employers' Accounting for Postemployment Benefits" did not affect
the Company.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
9. CASH FLOWS
Net cash flows from operating activities include cash payments for
interest and income taxes as follows:
1996 1995 1994
Interest $22,758 $25,953 $27,662
Income taxes 84,495 73,104 72,893
Non-cash investing and financing activities include the following:
1996 1995 1994
Property under capital leases
Additions $6,212 $3,755 $10,379
Terminations - - (7,570)
Obligations under capital leases
Additions 6,212 3,755 10,379
Terminations - - (8,735)
<PAGE>
SUPPLEMENTARY FINANCIAL INFORMATION
(a) Selected Quarterly Financial Data (unaudited)
Thousands of Dollars, Except Per Share
Earnings
Fiscal Year Sales Gross Profit Net Income Per Share
1996
1st 12 weeks $ 869,235 $ 257,626 $ 22,106 $ .37
2nd 12 weeks 856,515 254,057 17,765 .30
3rd 12 weeks 870,666 258,836 17,420 .30
Last 16 weeks 1,264,163 382,378 44,862 .75
$ 3,860,579 $ 1,152,897 $ 102,153 $ 1.72
1995
1st 12 weeks $ 829,697 $ 245,847 $ 20,414 $ .34
2nd 12 weeks 826,400 242,501 14,671 .25
3rd 12 weeks 834,780 250,207 18,561 .31
Last 16 weeks 1,204,750 362,425 40,515 .69
Total $ 3,695,627 $ 1,100,980 $ 94,161 $ 1.59
1994
1st 12 weeks $ 813,466 $ 244,574 $ 26,608* $ .45*
2nd 12 weeks 795,841 237,272 14,604 .24
3rd 12 weeks 799,056 238,642 17,722 .30
Last 16 weeks 1,159,105 343,908 36,297 .61
Total $ 3,567,468 $ 1,064,396 $ 95,231 $ 1.60
* Includes impact of change in accounting for income taxes. Change
equaled $3.9 million of income, $.07 per share.
(b) Information about oil and gas producing activities - not applicable.
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) Identification of Directors(1)
Title of All Positions Year First
Name Age Held with the Company Elected Director
Pete L. Manos 59 President, Chief Executive 1995
Officer and Director
David B Sykes 77 Director, Secretary, 1981
Treasurer, and Senior
Vice President-Finance
Constance M. Unseld 48 Director 1993
Peter F. O'Malley 57 Director 1993
David J. Sainsbury 55 Director 1994
Dino B. Adriano 53 Director 1994
Harry Beckner 67 Director 1994
Rosemary Thorne 44 Director 1996
Raymond A. Mason 59 Director 1996
Michael W. Broomfield(2) 53 Director 1996
The present term of each of the above Directors will expire at the
Annual Meeting of Shareholders currently scheduled for September 5,
1996.
Millard F. West, Jr. and Morton H. Wilner retired as active directors on
September 6, 1990, on which date they were elected Directors Emeritus.
Messrs. West and Wilner served as Board members 26 and 24 years,
respectively.
(1) In accordance with Article 4 of the Certificate of Incorporation of
the Company, on January 19, 1996, the Board of Directors acted to
increase the size of the Board from seven to nine persons. Mr. Mason
and Miss Thorne were elected to the Board on such date.
(2) Mr. Broomfield replaced Mr. Adriano on the Board as of February 25,
1996.<PAGE>
(b) Identification of Executive Officers
Year First Elected to
Name and Position Age Officer Present Office
Pete L. Manos 59 1977 1992 (President)
President and 1995 (Chief Executive Officer)
Chief Executive Officer
David B Sykes 77 1955 1977 (Senior Vice President
Senior Vice President- -Finance)
Finance, Secretary 1978 (Secretary)
and Treasurer 1984 (Treasurer)
Alvin Dobbin 64 1970 1977
Senior Vice President-
Operations
David N. Freedman 66 1982 1985
Senior Vice President-
Corporate Facilities
David W. Rutstein 51 1978 1981
Senior Vice President-
General Counsel
Roger D. Olson 51 1978 1988
Senior Vice President-
Labor Relations and
Personnel
Robert W. Schoening 49 1985 1988
Senior Vice President-
Data Processing
Samuel E. Thurston 52 1977 1988
Senior Vice President-
Distribution
The present term of each of the above Executive Officers will expire at
the first meeting of the Board of Directors subsequent to the Annual
Meeting of Shareholders currently scheduled for September 5, 1996.<PAGE>
(c) Identification of Certain Significant Employees
Not applicable.
(d) Family Relationships
Not applicable.
(e) Business Experience
Each of the above named Executive Officers of the Company
has been employed by the Company for a period of time in excess of five
years. Their positions with the Company are set forth above in
subsection (b), and the duties of each have been encompassed within the
framework of his or her respective title since first becoming an officer
of the Company.
The principal occupation, employment, and business
experience during the past five years of each of the Directors and
Directors Emeritus of the Company is set forth below:
Pete L. Manos - see subsection (b) above.
David B Sykes - see subsection (b) above.
Constance M. Unseld is the founder and operator of the
Unselds' School, a state accredited, independent school in Baltimore,
Maryland. She also serves as a member of the Board of Regents of the
University of Maryland system.
Peter F. O'Malley is the founder and current counsel to
the law firm of O'Malley, Miles, Nylen & Gilmore of Prince George's
County, Maryland. He currently serves on the Boards of Directors of
Potomac Electric Power Company, Potomac Capital Investments and Legg
Mason, Inc. The firm of O'Malley, Miles Nylen & Gilmore is one of a
number of firms which provides legal services to the Company.
David J. Sainsbury is Chairman and Chief Executive of J
Sainsbury plc where he has worked since 1963. Mr. Sainsbury is a great-
grandson of the founder of J Sainsbury plc.
Harry G. Beckner was formerly President of Jewel Food
Stores of Chicago, Illinois and Chief Operating Officer of the H.E.Butt
(H.E.B.) grocery company of San Antonio, Texas. He serves on the Boards
of Directors of H.E.B. and Shaw's Supermarkets Inc.
Rosemary Thorne serves as Finance Director of J Sainsbury
plc. Miss Thorne is also a trustee and treasurer of the Prince's Youth
Business Trust and an active member of the prestigious Hundred Group.
<PAGE>
Raymond A. Mason is the Chairman, President and Chief
Executive Officer of Legg Mason Inc. He has served as chairman of the
Securities Industry Association, The National Association of Security
Dealers and chairman of the Regional Firms Committee of the New York
Stock Exchange.
Michael Warwick Broomfield is the Managing Director of
Savacentre, a division of J Sainsbury plc and has more than 35 years of
service with J Sainsbury plc.
Millard F. West, Jr., a Director Emeritus of the Company,
is a former Vice-President of the firm of Prudential Securities, Inc.
(Members New York Stock Exchange) and is a Director of Dewey Electronics
Corporation.
Morton H. Wilner, a Director Emeritus of the Company, is
General Counsel Emeritus of the Armed Forces Benefit Association and
Vice Chairman of A.F.B.A. Industrial Bank. He is also a Trustee
Emeritus, for life, of the University of Pennsylvania.
(f) Involvement in Certain Legal Proceedings
No Director, Director Emeritus or Executive Officer was
involved in any event during the past five years which would be
responsive to this question.
(g) Promoters and Control Persons
Not applicable.
(h) Compliance with Insider Reporting Requirements
Section 16(a) of the Securities Exchange Act of 1934
requires the Company's directors and executive officers, and persons who
own more than ten percent of a registered class of the Company's equity
securities, to file with the Securities and Exchange Commission ("SEC")
and the American Stock Exchange initial reports of ownership and reports
of changes in ownership of common stock and other equity securities of
the Company within prescribed time periods. Officers, directors and
greater than ten-percent shareholders are required by SEC regulation to
furnish the Company with copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on a review of
the copies of such reports furnished to the Company and written
representations that no other reports were required, during the fiscal
year ended February 24, 1996, except for the reports described below,
all Section 16(a) filing requirements applicable to officers, directors
and greater than ten-percent beneficial owners were met on a timely
basis.
<PAGE>
David B Sykes inadvertently failed to file a Form 4 with
respect to his indirect beneficial interest in 200 shares purchased by
his spouse. The error was corrected by the filing of an SEC Form 4 in
June 1995.
Albert J. Lechert, Jr. inadvertently failed to file a Form
4 with respect to 12,491 shares transferred to his spouse. The error
was corrected by the filing of a Form 4 on April 3, 1996.
Morton H. Wilner became aware of the fact that a gift of
376 shares had not been previously reported. The error was corrected on
a Form 5 which was filed on June 8, 1995.
On a Form 5 filed on April 3, 1996, Terry A. Gans
corrected a 200 share discrepancy in his total beneficial ownership.
Mr. Gans recently became aware of the fact that his previous filings had
incorrectly overstated his Direct holdings by 1,200 shares and
incorrectly understated by 1,000 shares his Indirect holdings by virtue
of his children's share ownership.
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The following tables and narrative text discuss the compensation
paid in Fiscal Year 1996 and the two prior fiscal years to the Company's
Chief Executive Officer and the Company's four other most highly
compensated executive officers.
Summary Compensation Table
Annual Compensation (1)
Other
Name and Annual
Principal Fiscal Compen-
Position Year Salary Bonus sation(1)
Israel Cohen (2) 1996 $888,662 $365,357 --
Chairman of the 1995 $858,948 $434,346 --
Board & CEO 1994 $831,428 $434,346 --
Pete Manos (2) 1996 $327,028 $260,000 --
President 1995 $264,207 $133,608 --
& CEO 1994 $255,736 $133,608 --
David B Sykes 1996 $401,071 $221,258 --
Secretary, Treas. 1995 $387,659 $196,015 --
Sr. V.P. Finance 1994 $375,232 $196,015 --
Alvin Dobbin 1996 $254,431 $150,378 --
Sr. V.P. 1995 $245,916 $124,363 --
Operations 1994 $238,004 $124,363 --
David W. Rutstein 1996 $252,720 $149,363 --
Sr. V.P. 1995 $244,270 $123,464 --
General Counsel 1994 $236,444 $123,464 --
David N. Freedman 1996 $252,720 $139,363 --
Sr. V.P. 1995 $244,270 $123,464 --
Corporate Facil. 1994 $236,444 $123,464 --
(1) Aggregate value of perquisites does not exceed the lesser of
$50,000 or 10% of the total amount of annual salary and bonus.
(2) Mr. Cohen died on November 23, 1995. Mr. Manos was elected
Chief Executive Officer on November 30, 1995 at which date his salary
increased to $500,000 per annum.<PAGE>
Long Term Compensation
Options/ All Other
Name and Restricted SAR Compensa-
Principal Fiscal Stock Awards(#) LTIP tion
Position Year Awards(3) (4) Payouts (5)(6)
Israel Cohen 1996 0 32,500 0 $ 5,625
Chairman of the 1995 $15,021 32,500 0 $29,730
Board & CEO 1994 $15,284 32,500 0 $34,352
Pete Manos 1996 $15,730 102,500 0 $12,670
President & 1995 $15,021 22,500 0 $14,145
CEO 1994 $15,284 22,500 0 $16,635
David B Sykes 1996 $15,730 17,500 0 $25,635
Secretary, Treas. 1995 $15,021 17,500 0 $27,800
Sr. V.P. Finance 1994 $15,284 17,500 0 $29,688
Alvin Dobbin 1996 $15,730 9,500 0 $14,506
Sr.V.P. 1995 $15,021 9,500 0 $15,879
Operations 1994 $15,284 9,500 0 $17,806
David N. Freedman 1996 $15,730 9,500 0 $14,985
Sr. V.P. 1995 $15,021 9,500 0 $16,349
Corporate Facil. 1994 $15,284 9,500 0 $18,227
David W. Rutstein 1996 $15,730 9,500 0 $10,373
Sr. V.P. 1995 $15,021 9,500 0 $11,737
General Counsel 1994 $15,284 9,500 0 $13,615
(3) Includes cash payments for income taxes to each named officer
on the value of the restricted shares and the tax payment itself
pursuant to the Non-Qualified Executive Stock Bonus Plan II. The
aggregate stock holdings of this group were 13,018 shares and the share
value was $33.00 as of February 24, 1996. Dividends are paid on the
stock held under this plan.
Under this plan, the Company makes an annual contribution not
exceeding the greater of (i) $1,000,000 or (ii) six-tenths of one
percent (0.60%) of the pre-tax earnings of the Company. The Company's
cash contributions are used to purchase shares of Class A non-voting
common stock.
Distributions of those shares will be made to those participants
who meet any of the following conditions: (1) ten years' participation
in the Plan; (2) retirement after attainment of age 62; (3) abolition of
the participant's job; (4) total and complete disability or (5)
death.<PAGE>
(4) All options granted to participants pursuant to these stock
option plans are issued at 100% of fair market value on the date issued
and may be exercised, on a graduated basis, after the later of one year
from the date of grant or two years' continued employment. All options
terminate 10 years from their date of issuance.
The Company receives no cash consideration for granting options.
In order to acquire shares, the optionee must pay the full purchase
price of the shares being exercised, plus appropriate withholding taxes.
Optionees are not permitted to receive cash for any excess of market
value over option price.
(5) Includes Company matching contributions under Company's tax-
deferred savings plan ("Plan").
Participants in the Plan are permitted to contribute portions of
their compensation, subject to legal limitations, for which the Company
contributes an amount in cash equal to the participant's initial 3% pre-
tax contribution. In addition, the Company provides supplemental
contributions (in the form of Giant Food Inc. Class A common stock) to
match participants' contributions (partially or totally) in excess of 3%
of salary up to 6% of salary. Such Company contributions are limited to
.4% of its pre-tax earnings.
In Fiscal Year 1996 the Company made matching contributions under
the plan as follows: Mr. Cohen $5,625, Mr. Sykes $5,625, Mr. Manos
$5,625, Mr. Dobbin $5,625 Mr. Freedman $5,625 and Mr. Rutstein $5,625.
(6) Includes premium payments under the Company's Split Dollar
Insurance Program in which participants are provided with permanent life
insurance owned by the Company. The Company pays for premiums and will
recover amounts equal to its investment in the insurance policies at the
deaths of the participants.
During Fiscal Year 1996 the Company made insurance premium payments
as follows: Mr. Cohen $-0-, Mr. Sykes $20,010, Mr. Manos $7,045, Mr.
Dobbin $8,881, Mr. Freedman $9,360 and Mr. Rutstein $4,748.<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR (1)
Individual Grants
Number of
Securities
Underlying % of Total
Options/ Options Exercise
SAR's Granted to of Base
Granted Employees Price Expiration
Name (#)(2) in FY ($/Sh) Date
Israel Cohen 2,500 $24.06 03/01/05
30,000 $28.50 06/05/05
32,500 4.44%
Pete Manos 2,500 $24.06 03/01/05
20,000 $28.50 06/05/05
80,000 $33.31 02/16/06
102,500 14.00%
David B Sykes 2,500 $24.06 03/01/05
15,000 $28.50 06/05/05
17,500 2.39%
Alvin Dobbin 2,500 $24.06 03/01/05
7,000 $28.50 06/05/05
9,500 1.30%
David Freedman 2,500 $24.06 03/01/05
7,000 $28.50 06/05/05
9,500 1.30%
David Rutstein 2,500 $24.06 03/01/05
7,000 $28.50 06/05/05
9,500 1.30%
(1) No SAR's were awarded in the 1996 Fiscal Year.
(2) Options granted under the 1989 Non-Qualified Stock Option Plan
have a term of up to ten years as determined by the Stock Option Plan
Committee (the "Committee"). Options become exercisable after the later
of one year from date of grant or the completion of two years of
continued employment. After such date, optioned shares are exercisable
only to the extent of one-fifth of the total number of optioned shares
per year. After the fourth year, option grants are exercisable in full.
The Committee may prescribe longer time periods and additional
requirements with respect to the exercise of an option and may terminate
unexercised options based on the performance of the employee. No option
may be exercised unless the employee is in the employ of the Company.
The Company is required to withhold income taxes from income realized by
an employee on the exercise of an option. The Company will (i) reduce
the amount of stock issued to reflect the necessary withholding, (ii)
withhold the appropriate tax from other compensation due to the
optionee, or (iii) condition transfer of any stock to the employee on
the payment to the Company of the required taxes.<PAGE>
Potential Realizable Value of Assumed
Rates of Stock Price Appreciation for
Option Term (10 Years)
0% 5% 10%
Gain (3) Gain (4) (5) Gain (4) (5)
Name
Israel Cohen $0 $37,828 $95,864
0 537,705 1,362,650
$0 $575,533 $1,458,514
Pete Manos $0 $37,828 $95,864
0 358,470 908,433
0 1,675,878 4,247,005
$0 $2,072,176 $5,251,302
David B Sykes $0 $37,828 $95,864
0 268,852 681,325
$0 $306,680 $777,189
Alvin Dobbin $0 $37,828 $95,864
0 125,464 317,952
$0 $163,292 $413,816
David Freedman $0 $37,828 $95,864
0 125,464 317,952
$0 $163,292 $413,816
David Rutstein $0 $37,828 $95,864
0 125,464 317,962
$0 $163,292 $413,816
(3) As shown in this column, no gain to the named officers or all
optionees is possible without appreciation in the price of the Company's
stock, which will benefit all shareholders.
(4) The price of GFSA Common Stock at the end of the ten year term
of the option grant at a 5% annual appreciation would be $39.19, $46.42,
and 54.26, and at a 10% annual appreciation would be $62.41, $73.92 and
$86.40. These appreciation rates are the result of calculations
required by the Securities and Exchange Commission's rules and therefore
are not intended to forecast future appreciation, if any, in the stock
price of the Company.
(5) The gain is calculated from the exercise price of the options
listed above, $24.06, $28.50 and $33.31 based on the grant date of the
options. Option grants are at 100% of market value on the date of
grant.<PAGE>
Aggregated Options/SAR Exercises in Last Fiscal Year
and Fiscal Year End Option SAR/Values (1)
Shares SARs Value
Acquired on Exerc'd Realized
Name Exercise(#) (#) ($)
Israel Cohen 0 0 0
David B Sykes 0 0 0
Pete Manos 0 0 0
Alvin Dobbin 0 0 0
David Freedman 0 0 0
David Rutstein 0 0 0
Value of Value of
Number of Number of Unexerc'd Unexerc'd
Unexerc'd Unexerc'd In-the-Money In-the-Money
Options/SARs Options/SARs Options/SARs Options/SARs
at FY-End at FY-End at FY-End($) at FY-End($)
Name Exercisable Unexercisable Exercisable Unexercisable
Israel Cohen 75,000 32,500 $688,950 $157,350
David B Sykes 19,000 43,500 $155,995 $338,705
Pete Manos 22,000 135,500 $181,685 $405,415
Alvin Dobbin 14,200 24,300 $114,891 $192,289
David Freedman 14,200 24,300 $114,891 $192,289
David Rutstein 14,200 24,300 $114,891 $192,289
(1) Value is before taxes. The dollar values are computed by
determining the difference between the fair market value of the
underlying Common Stock and the exercise price at fiscal year end.
<PAGE>
PENSION TABLE
Pension Plan:
The Company maintains a tax-qualified defined benefit pension plan for
approximately 2,500 salaried employees. The following table provides an
example of benefits at the normal retirement age of 65 payable as a life
annuity:
Estimated Annual Benefits
Pension from Retirement Plan
Highest Five for Following Number of Years
Year Average of Credited Service*
Earnings 10 20 30
$ 40,000 $ 4,021 $ 8,442 $ 13,264
70,000 8,071 16,842 26,314
100,000 12,121 25,242 39,364
150,000 18,871 39,242 61,114
200,000 25,621 53,242 82,864
250,000 32,371 67,242 104,614
300,000 39,121 81,242 126,364
350,000 45,871 95,242 148,114
400,000 52,621 109,242 169,864
500,000 66,121 137,242 213,364
600,000 79,621 165,242 256,864
700,000 93,121 193,242 300,364
800,000 106,621 221,242 343,864
A participant's annual pension payable to him as of his normal
retirement date will be equal to:
(i) .85% of "final average earnings" plus .50% of that portion of
final average earnings in excess of "covered compensation" times number
of years of credited service not to exceed 15, plus
(ii) 1.05% of final average earnings plus .50% of that portion of
final average earnings in excess of "covered compensation" times number
of years of credited service over 15, not to exceed 15, plus
(iii) .50% of final average earnings times years of credited service
over 30.
For purposes of determining plan benefits, earnings are the gross cash
compensation provided to a participant, including overtime, bonuses and
commissions.
Early retirement benefits are payable under the plan. Generally, the
payment will be in the form of a straight life annuity for participants
who are not married and a joint and survivor annuity for those who are
married.
*The amounts shown above include benefits payable from the Supplemental
Retirement Arrangements.<PAGE>
The number of years of credited service of the executive officers listed
in the remuneration table under the Retirement Plan, determined as of
February 24, 1996 are: Mr. Sykes, 25 years; Mr. Dobbin, 25 years; Mr.
Manos, 25 years; Mr. Freedman, 18 years and Mr. Rutstein, 18 years. One
of the officers (Mr. Sykes) is currently receiving retirement payments
from the plan, as required by law for participants over age 70 1/2. The
number of years of credited service for Mr. Sykes is as of the date
retirement benefits commenced.
Supplemental Retirement Arrangements:
An unfunded nonqualified pension plan is currently in effect. For two
of the officers listed in the remuneration table (Messrs. Sykes and
Dobbin), the Excess Benefit Savings Plan provides that in the event that
annual benefits from the Company's Retirement Plan, profit sharing and
thrift plans, and from Social Security do not equal sixty percent (60%)
of the earnings averaged over the five years prior to retirement, a
supplemental pension would be paid so that the total of all benefits,
including Social Security, equals sixty percent (60%). For less than
fifteen years of service, the total benefit is proportionately reduced.
The Excess Benefit Savings Plan also provides a make-up benefit for
those who will be impacted by the $150,000 compensation limit in the
Retirement Plan. The Excess Benefit Savings Plan also provides a make-
up benefit for those who will be impacted by the $150,000 compensation
limit in the Retirement Plan and by the maximum benefit limitations of
IRC Section 415.
Compensation of Directors
During Fiscal Year 1996, Directors and Directors Emeritus who were not
employees received an annual fee of $35,000 and a fee of $250 for
committee meetings attended.
Termination of Employment
Not applicable.
Employment Contracts and Termination of Employment and Change-in Control
Arrangements
Not applicable.
Compensation Committee Interlocks and Insider Participation
Mrs. Unseld and Messrs. Beckner and O'Malley comprise the Company's
Officers' Executive Compensation Committee. Mr. O'Malley is of counsel
to the law firm of O'Malley & Miles which represents the Company with
respect to certain legal matters.<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
(a) Security Ownership of Certain Beneficial Owners
(as of May 1, 1996)
The following table sets forth information with respect
to the ownership of the voting securities of the Company as of May 1,
1996.
Nature
Number of
Title of Shares Beneficial Percent
Name and Address Class of Stock Owned Ownership of Class
The 1224 Corporation(1) Common AC 125,000 Direct 100.0%
6300 Sheriff Road
Landover, Maryland 20785
J Sainsbury (USA)
Holdings Inc.* Common AL 125,000 Direct 100.0%
P.O. Box 3566
Portland, Maine 04104
(b) Security Ownership of Management (as of May 1, 1996)
The following table sets forth the number of each class
of equity securities of the Company beneficially owned by each Director,
named executive Officers and Directors and Executive Officers of the
Company as a group as of May 1, 1996.
Nature
Number of
Title of Shares Beneficial Percent
Name and Title Class of Stock Owned Ownership of Class
David J. Sainsbury Common Stock A 0(2) Direct and 0%
Director (Non-Voting) Indirect
Harry Beckner Common Stock A 1,000 Direct .002%
Director (Non-Voting)
David B Sykes Common Stock A 252,422(3) Direct and .425%
Sr. Vice President- (Non-Voting) Indirect
Finance, Sec'y,
Treasurer, Director
Pete L. Manos Common Stock A 205,122(4) Direct and .346%
President, Chief Indirect
Executive Officer,
Director
* These shares were acquired on November 14, 1994 from the Lehrman
family in a private transaction.<PAGE>
Constance M. Unseld Common Stock A 1,000 Direct .002%
Director (Non-Voting)
Peter F. O'Malley Common Stock A 2,000 Indirect .003%
Director (Non-Voting)
Rosemary Thorne Common Stock A 0 Direct 0%
Director (Non-Voting)
Raymond A. Mason Common Stock A 1,000 Direct .002%
Director (Non-Voting)
Michael W. Broomfield Common Stock A 0 Direct 0%
Director (Non-Voting)
Millard F. West, Jr. Common Stock A 23,800(5) Indirect .401%
Director Emeritus (Non-Voting)
Morton H. Wilner Common Stock A 10,000 Indirect .017%
Director Emeritus (Non-Voting)
Alvin Dobbin Common Stock A 143,011(6) Direct and .241%
Sr. Vice President- (Non-Voting) Indirect
Operations
David N. Freedman Common Stock A 123,256(6) Direct and .208%
Sr. Vice President- (Non-Voting) Indirect
Corp. Facilities
David W. Rutstein Common Stock A 127,389(6) Direct and .215%
Sr. Vice President- (Non-Voting) Indirect
General Counsel
All Directors and Common Stock A 1,440,042 Direct and 2.426%
Officers as a (Non-Voting) Indirect
Group (31 persons)
<PAGE>
Common Stock AC 125,000(7) 100.000%
(Voting)
Common Stock AL 125,000(7) 100.000%
(Voting)
(c) Changes in Control
Not applicable.
NOTES:
(1) Pursuant to Israel Cohen's will, the Class AC Voting Common Stock
was transferred to the 1224 Corporation, a Delaware corporation.
The 1224 Corporation issued all of its non-voting stock to the
Israel Cohen Estate and all of its 500 outstanding voting shares to
four officers of the Company, (Pete L. Manos, Alvin Dobbin, David
Rutstein and David B Sykes) and to Mr. Cohen's sister, Lillian
Cohen Solomon (100 shares each). The holders of the 1224 Voting
Stock have the exclusive right to exercise all the voting rights in
the Class AC Voting Common Stock.
(2) Mr. Sainsbury disclaims beneficial ownership of the Common Stock
of the Company beneficially owned by J Sainsbury (USA) Holdings
Inc. Mr. Sainsbury is a director of J Sainsbury plc, the
ultimate parent company of J Sainsbury (USA) Holdings Inc. In
addition to the 125,000 Class AL voting shares listed above, J
Sainsbury (USA) Holdings Inc. owns 9,779,931 Class A non-voting
shares.
(3) Includes 62,500 shares acquirable under stock option plans within
sixty days. Mr. Sykes disclaims beneficial ownership of the Class
AC shares held by the 1224 Corporation except for 100 shares.
(4) Includes 157,500 shares acquirable under stock option plans
within sixty days. Mr. Manos disclaims beneficial ownership of the
Class AC shares held by the 1224 Corporation except for 100 shares.
(5) Includes 14,000 shares owned by wife for which Mr. West disclaims
beneficial ownership.
(6) Includes 38,500 shares acquirable under stock option plans within
sixty days. Messrs. Dobbin and Rutstein disclaim beneficial
ownership of the Class AC shares held by the 1224
Corporation except for 100 shares each.
(7) As noted in Item 12(a) above.<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
(a) Transactions with Management and Others
The Company operates a store in Hyattsville, Maryland under
a lease (originally executed in 1954) from a partnership in which Israel
Cohen had a 25% interest. The partnership interest is now owned by the
Estate of Israel Cohen. The Cohen interest in the gross rental proceeds
(minimum and percentage where applicable) for the last three fiscal years
were as follows: $126,223 (FY 1996) $123,605 (FY 1995) $119,094 and (FY
1994).
The foregoing lease is not on less advantageous terms to the
Company than those involving similar type stores executed at the same
time by the Company with landlords where no affiliation existed. All
other Company leases have been entered into with non-affiliated entities
or with wholly-owned subsidiaries.
(b) Certain Business Relationships
During the Company's most recent fiscal year, the law firm
of O'Malley & Miles, to which Mr. O'Malley is of counsel, provided
certain legal services to the Company.
(c) Indebtedness of Management
Not applicable.
(d) Transactions with Promoters
Not applicable.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K
Page in
Form 10-K
(a) The following documents are filed as part
of this report:
(1) Financial Statements and
supplementary data:
Report of Independent Accountants 16
Consolidated Statements of Income
for the years ended February 24,
1996, February 25,1995, and
February 26, 1994 17
Consolidated Balance Sheets at
February 24, 1996, February 25,
1995 and February 26, 1994 18-19
Consolidated Statements of Changes
in Shareholders' Equity for the years
ended February 24, 1996, February 25,
1995 and February 26, 1994 20-21
Consolidated Statements of Cash Flows
for the years ended February 24, 1996,
February 25, 1995 and February 26,
1994 22-23
Notes to Consolidated Financial
Statements 24-37
Supplementary Financial Information
(unaudited) 38
(2) Financial Statement Schedule:
Report of Independent Accountants
on Financial Statement Schedule 60
Schedule
II. Valuation and qualifying accounts 61
and reserves
<PAGE>
All other schedules are omitted because they are
not applicable or the required information is shown in the consolidated
financial statements or notes thereto.
(3) Exhibits:
The Index to Exhibits is on page 62.
(b) Reports on Form 8-K
On November 28, 1995, a report on Form 8-K under Item 5
was filed by the Registrant.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
GIANT FOOD INC.
BY: /s/ Pete L. Manos
Pete L. Manos,
President and
Chief Executive Officer
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.
GIANT FOOD INC.
May 20, 1996 By: /s/ Pete L. Manos
Pete L. Manos
President and Principal Executive Officer
May 20, 1996 By: /s/ David B Sykes
David B Sykes, Senior Vice
President-Finance, Chief
Financial Officer and
Principal Accounting Officer
May 20, 1996 By: /s/ Pete L. Manos
Pete L. Manos, Director
May 20, 1996 By: /s/ David B Sykes
David B Sykes, Director
May 20, 1996 By: /s/ David J. Sainsbury
David J. Sainsbury, Director
May 20, 1996 By: /s/ Harry Beckner
Harry Beckner, Director
May 20, 1996 By: /s/ Constance M. Unseld
Constance M. Unseld, Director
May 20, 1996 By: /s/ Peter F. O'Malley
Peter F. O'Malley, Director
May 20, 1996 By: /s/ Raymond A. Mason
Raymond A. Mason, Director
May 20, 1996 By: /s/ Rosemary Thorne
Rosemary Thorne, Director
May 20, 1996 By: /s/ Michael Warwick Broomfield
Michael Warwick Broomfield, Director<PAGE>
Report of Independent Accountants
on Financial Statement Schedule
To the Board of Directors
Giant Food Inc.
Our audits of the consolidated financial statements referred to in our
report dated March 25, 1996 also included an audit of the Financial
Statement Schedule listed in Item 14(a)(2) of this Form 10-K. In our
opinion, this Financial Statement Schedule presents fairly, in all material
respects, the information set forth therein when read in conjunction with
the related consolidated financial statements.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Washington, D.C.
March 25, 1996<PAGE>
GIANT FOOD INC. AND SUBSIDIARIES SCHEDULE II
(THOUSANDS OF DOLLARS)
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Additions
Balance Charged Balance
beginning to costs end of
Description of period & expenses Deductions period
Year ended February 24, 1996
Provision for
insurance claims $35,471 $14,661 $ 2,168 (a) $47,964
Year ended February 25, 1995
Provision for
insurance claims $25,417 $32,781 $22,727 (a) $35,471
Year ended February 26, 1994
Provision for
insurance claims $20,986 $32,419 $27,988 (a) $25,417
(a) Deductions consist of:
1996 1995 1994
Payments $5,560 $22,203 $29,553
Change in current portion (3,392) 524 (1,565)
$2,168 $22,727 $27,988
<PAGE>
INDEX TO EXHIBITS
Exhibit Page
1989 Non-Qualified Incorporated by reference
Stock Option Plan to the Company's Form 10-K
filed with the SEC in
May, 1993 for the Fiscal
Year Ended February 27, 1993 --
Non-Qualified Executive Incorporated by reference
Stock Bonus Plan to the Company's Form 10-K
filed with the SEC in
May, 1993 for the Fiscal
Year Ended February 27, 1993 --
Split Dollar Insurance Incorporated by reference
Program to the Company's Form 10-K
filed with the SEC in
May, 1993 for the Fiscal
Year Ended February 27, 1993 --
Supplemental Retirement Incorporated by reference
Plan to the Company's Form 10-K
filed with the SEC in
May, 1993 for the Fiscal
Year Ended February 27, 1993 --
Excess Benefit Plan Incorporated by reference
to the Company's Form 10-K
filed with the SEC in
May, 1993 for the Fiscal
Year Ended February 27, 1993 --
Computation of Earnings Exhibit 11 63
Per Common Share
Subsidiaries Exhibit 21 64
Consent of Independent Exhibit 23 65
Accountants
Financial Data Schedule Exhibit 27 --<PAGE>
GIANT FOOD INC. AND SUBSIDIARIES EXHIBIT 11
COMPUTATION OF EARNINGS PER COMMON SHARE
FIFTY-TWO WEEKS ENDED FEBRUARY 24, 1996, FEBRUARY 25, 1995, AND
FEBRUARY 26, 1994
1996 1995 1994
Primary:
Earnings:
Net income $ 102,153,000 $ 94,161,000 $ 95,231,000
Shares:
Weighted average number of
common shares outstanding 59,360,234 59,368,068 59,659,352
Assuming exercise of options,
using average market price,
reduced by the number of shares
which could have been purchased
with the proceeds from
exercise of such options 575,351 143,665 245,425
Weighted average number of common
shares outstanding, as adjusted 59,935,585 59,511,733 59,904,777
Primary earnings per common share $1.70 $1.58 $1.59
Assuming full dilution:
Earnings:
Net income $102,153,000 $94,161,000 $95,231,000
Shares:
Weighted average number of
common shares outstanding 59,360,234 59,368,068 59,659,352
Assuming exercise of options,
using higher of ending or
average market price, reduced
by the number of shares which
could have been purchased with
the proceeds from exercise
of such options 673,656 168,075 303,323
Weighted average number of common
shares outstanding, as adjusted 60,033,890 59,536,143 59,962,675
Fully diluted earnings
per common share $1.70 $1.58 $1.59
Note: This calculation is submitted in accordance with Regulation S-K item
601(b)(11) although not required by footnote 2 to paragraph 14 of
APB Opinion No. 15 because it results in dilution of less than
3%.<PAGE>
EXHIBIT 21
GIANT FOOD INC. AND SUBSIDIARIES
Subsidiaries
State of
Subsidiary Incorporation
Giant of Maryland, Inc. Maryland
Giant of Salisbury, Inc. Maryland
Giant Construction Company, Inc. District of Columbia
GF McLean Shopping Center, Inc. Virginia
GFS Realty, Inc. Delaware
Warex-Jessup, Inc. Maryland
Bursil, Inc. Delaware
Cole Engineering, Inc. (formerly Cole Carpets, Inc.)Maryland
LECO, Inc. (formerly Viva Pharmaceuticals, Inc.) Delaware
Giant Automatic Money Systems, Inc. Maryland
Shaw Community Supermarket, Inc.(1) District of Columbia
Bayside Traffic Services of Maryland, Inc. Maryland
Super G, Inc. Maryland
Montrose Crossing, Inc. Maryland
Friendship Macomb SC, Inc. District of Columbia
Giant of Talbot Co., Inc. Maryland
Giant of Cherry Hill, Inc. New Jersey
Giant of Washington Township, Inc. New Jersey
(1) Giant Food Inc. owns 85% of the voting
securities of Shaw Community Supermarket, Inc.,
and 100% of the voting securities of all other
subsidiaries.
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 33-21992) and in the Prospectuses
constituting part of the Registration Statements on Forms S-3 (Nos. 33-
33049, 33-40851 and 33-45261) of Giant Food Inc. of our report dated
March 25, 1996, appearing on page 16 of this Form 10-K. We also consent
to the incorporation by reference of our report on the Financial
Statement Schedule, which appears on page 60 of this Form 10-K.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Washington, D.C.
May 20, 1996
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