Tops Appliance City, Inc.
Amended and Restated Section 401(k) Salary Savings Plan and Trust
Financial Statements and Supplemental Schedules
As of December 31, 1997, 1996 And 1995
Together With
Reports of Independent Public Accountants
<PAGE>
TOPS APPLIANCE CITY, INC.
AMENDED AND RESTATED SECTION 401(k)
SALARY SAVINGS PLAN AND TRUST
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
INDEX
REPORTS OF INDEPENDENT PUBLIC ACCOUNTANTS
FINANCIAL STATEMENTS:
Statements of Net Assets Applicable to Participants' Equity as of
December 31, 1997, 1996 and 1995
Statements of Changes in Net Assets Applicable to Participants' Equity
for the Years Ended December 31, 1997 and 1996
NOTES TO FINANCIAL STATEMENTS
SUPPLEMENTAL SCHEDULES:
Schedule I -- Item 27a - Schedule of Assets Held for Investment
Purposes as of December 31, 1997
Schedule II -- Item 27d - Schedule of Reportable Transactions for the
Year Ended December 31, 1997
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Plan Administrator of the
Tops Appliance City, Inc. Amended and Restated
Section 401(k) Salary Savings Plan and Trust:
We have audited the accompanying statement of net assets applicable to
participants' equity of the Amended and Restated Section 401(k) Salary Savings
Plan and Trust of Tops Appliance City, Inc. (the "Plan") as of December 31,
1997, and the related statement of changes in net assets applicable to
participants' equity for the year ended December 31, 1997. These financial
statements and the schedules referred to below are the responsibility of the
Administrative Committee. Our responsibility is to express an opinion on these
financial statements and schedules based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets applicable to participants' equity of the
Plan at December 31, 1997, and the changes in its net assets applicable to
participants' equity for the period ended December 31, 1997 in conformity with
generally accepted accounting principles.
Our audit was performed for the purpose of forming an opinion on the financial
statements taken as a whole. The supplemental schedules of assets held for
investment purposes and reportable transactions are presented for purpose of
additional analysis and are not a required part of the basic financial
statements but are supplementary information required by the Department of Labor
Rules and Regulations for Reporting and Disclosure under the Employee Retirement
Income Security Act of 1974. The Fund information in the statement of net assets
applicable to participants' equity and the statement of changes in net assets
applicable to participants' equity is presented for the purpose of additional
analysis rather than to present the net assets applicable to participants'
equity and changes in net assets applicable to participants' equity of each
fund. The supplemental schedules and fund information have been subjected to the
auditing procedures applied in our audit of the 1997 financial statements and,
in our opinion, are fairly stated in all material respects in relation to the
financial statements taken as a whole.
Roseland, New Jersey
June 5, 1998
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Plan Administrator
Amended and Restated Section 401(k) Salary Savings Plan And
Trust of Tops Appliance City, Inc.:
We have audited the accompanying statements of net assets available for plan
benefits of the Amended and Restated Section 401(k) Salary Savings Plan and
Trust of Tops Appliance City, Inc. (the "Plan") as of December 31, 1996 and
1995, and the related statements of changes in net assets available for plan
benefits for each of the three years in the period ended December 31, 1996.
These financial statements are the responsibility of the Administrative
Committee. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respect, the net assets available for plan benefits of the Plan at
December 31, 1996 and 1995, and the changes in net assets available for plan
benefits for each of the three years in the period ended December 31, 996 in
conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the financial
statements taken as a whole. The accompanying supplemental schedules of assets
held for investment purposes as of December 31, 1996, and reportable
transactions for the year then ended, are presented for purposes of complying
with the Department of Labor's Rules and Regulations for Reporting and
Disclosure under the Employee Retirement Income Security Act of 1974, and are
not a required part of the financial statements. The supplemental schedules have
been subjected to the auditing procedures applied in our audit of the 1996
financial statements and, in our opinion, are fairly stated in all material
respects in relation to the financial statements taken as a whole.
June 18, 1997
<PAGE>
TOPS APPLIANCE CITY, INC.
AMENDED AND RESTATED SECTION 401(k)
SALARY SAVINGS PLAN AND TRUST
STATEMENT OF NET ASSETS APPLICABLE TO PARTICIPANTS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- ---------- -----------
<S> <C> <C> <C>
ASSETS
INVESTMENTS, at market value (Note 2):
AIM Value Fund - Class A ............................... $ 4,395,362 $ 4,057,060 $ 3,625,772
Automated Government Money Trust Fund .................. 0 0 2,351,392
Fidelity Advisors - Income and Growth Fund ............. 0 0 2,739,012
PIMCO Advisors Total Return Income Fund ................ 0 0 2,852,206
Pathway Series - Balanced Fund ......................... 3,670,832 0 0
Scudder U. S. Treasury Money Fund ...................... 1,653,398 1,986,587 0
Scudder Managed Retirement Trust -
Balanced Fund ................................. 0 2,959,854 0
Scudder Income Fund .................................... 2,481,691 2,728,096 0
Tops Stock Fund ........................................ 53,704 40,790 76,409
----------- ----------- -----------
Total investments .................... 12,254,987 11,772,387 11,644,791
PARTICIPANT LOANS RECEIVABLE (Note 1) ........................... 721,236 544,752 658,888
CONTRIBUTIONS RECEIVABLE:
Employer ............................................... 9,139 28,617 15,528
Participants ........................................... 41,213 53,669 35,401
----------- ----------- -----------
Net assets available for participants'
equity ...................... $13,026,575 $12,399,425 $12,354,608
=========== =========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
<PAGE>
TOPS APPLIANCE CITY, INC.
AMENDED AND RESTATED SECTION 401(k)
SALARY SAVINGS PLAN AND TRUST
STATEMENT OF CHANGES IN NET ASSETS APPLICABLE TO PARTICIPANTS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Scudder Scudder
Pathway U.S. Managed
AIM Value Series- Treasury Retirement Scudder Tops Loans Contri-
Fund - Balanced Money Trust - Balance Income Stock Receiv- butions
Class A Fund Fund Fund Fund Fund able Receivable Total
---------- -------- ------------ --------------- ----------- -------- ------- ---------- ---------
NET ASSETS
APPLICABLE TO
PARTICIPANTS'
EQUITY,
beginning of year . $4,057,060 0 $ 1,986,587 $ 2,959,854 $ 2,728,096 40,790 544,752 82,286 $12,399,425
PARTICIPANTS'
CONTRIBUTIONS ....... 344,169 326,162 156,034 109,899 121,015 12,318 0 (12,456) 1,057,141
EMPLOYER'S
CONTRIBUTIONS ....... 92,420 58,923 0 36,299 92,421 0 0 (19,478) 260,585
INVESTMENT
INCOME .............. 886,002 412,304 81,648 36,963 214,359 (11,601) 0 0 1,619,675
DISTRIBUTIONS ....... (837,660) (646,141) (291,177) (12,153) (489,743) (5,574) 0 0 (2,282,448)
ADMINISTRATIVE
EXPENSES ............ 0 (17,069) (5,112) 0 (5,622) 0 0 0 (27,803)
LOAN ACTIVITY,
net ............... (59,304) (3,750) (114,945) 38,779 (38,199) 935 176,484 0 0
NET TRANSFER
BETWEEN FUNDS ....... (87,325) 3,540,403 (159,637) (3,169,641) (140,636) 16,836 0 0 0
--------- --------- --------- ---------- -------- ------ ------ ------- ----------
NET ASSETS
APPLICABLE TO
PARTICIPANTS'
EQUITY,
end of year ........ $ 4,395,362 $3,670,832 $1,653,398 0 2,481,691 $ 53,704 $721,236 $50,352 $13,026,575
========= ========= ========== ========== ========= ======== ======== ======= ===========
</TABLE>
The accompanying notes to financial statements are an integral part of this
statement.
<PAGE>
TOPS APPLIANCE CITY, INC.
AMENDED AND RESTATED SECTION 401(k)
SALARY SAVINGS PLAN AND TRUST
STATEMENT OF CHANGES IN NET ASSETS APPLICABLE TO PARTICIPANTS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
PIMCO Scudder
Fidelity Advisors Managed
Automated Advisors- Total Return Retirement
AIM Value Government Income & Income Scudder Trust- Scudder Contribu-
Fund- Money Trust Growth Fund U.S. Treasury Balanced Income Tops Stock Loans tions
Class A Fund Fund Money Fund Fund Fund Fund Receivable Receivable Total
--------- ----------- -------- ----------- ----------- -------- ------- ------- -------- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSETS
APPLICABLE TO
PARTICIPANTS'
EQUITY,
beginning of
year $3,625,772 $2,351,392 $2,739,012 $2,852,206 $ 0 $ 0 $ 0 $76,409 $658,888 $50,929 $12,354,608
PARTICIPANTS'
CONTRIBUTIONS 447,698 301,305 204,245 186,601 18,608 48,550 14,466 32,128 0 18,268 1,271,869
EMPLOYER'S
CONTRIBUTIONS 229,019 0 212,566 206,314 0 23,393 22,705 0 0 13,089 707,086
INVESTMENT
INCOME 513,659 83,277 244,534 105,078 13,905 10,556 (13,166) (46,160) 41,537 0 953,220
DISTRIBUTIONS (803,451) (770,424) (549,002) (580,441) 0 (224) (217) (26,067) (157,532) 0 (2,887,358)
LOAN
ACTIVITY,
net 5,539 (7,652) 5,172 (6,954) 0 0 0 2,036 1,859 0 0
NET TRANSFER
BETWEEN FUNDS 38,824 (1,957,898) (2,856,527) (2,762,804) 1,954,074 2,877,579 2,704,308 2,444 0 0 0
--------- --------- ---------- --------- --------- --------- -------- ------ ----- ----- ---------
NET ASSETS
APPLICABLE TO
PARTICIPANTS'
EQUITY,
end of year $4,057,060 $0 $0 $0 $1,986,587 $2,959,854 $2,728,096 $40,790 $544,752 $82,286 $12,399,425
========== ========= ========= ========= ========= ========= ========= ====== ======== ======= ==========
</TABLE>
The accompanying notes to financial statements are an integral part of
these statements.
<PAGE>
TOPS APPLIANCE CITY, INC.
AMENDED AND RESTATED SECTION 401(K)
SALARY SAVINGS PLAN AND TRUST
NOTES TO FINANCIAL STATEMENTS
(1) PLAN DESCRIPTION:
The following brief description of the Amended and Restated Section
401(k) Salary Savings Plan and Trust of Tops Appliance City, Inc. (the
"Plan") is provided for general information purposes only. More complete
information concerning the Plan and its provisions can be found in the Plan
document.
General-
The Plan is a defined contribution plan covering all eligible
employees of Tops Appliance City, Inc. (the "Company") who are not subject
to a collective bargaining agreement. Employees are eligible to participate
when they have completed 1,000 hours of service and have reached age
twenty-one. The Plan is subject to the provisions of the Employee
Retirement Income Security Act of 1974 (ERISA).
Administration of Plan Assets-
The assets of the Plan are administered under a trust agreement
between the Plan and a trustee designated by the Company. Effective
December 1, 1996, the Plan administrator was changed from ADP Benefit
Services to the Scudder Trust Company.
Administrative expenses of the Plan may be paid from plan assets and
charged to participants' accounts. However, during the year ended December
31, 1996, all administrative expenses of the Plan were paid by the Company.
For the year ended December 31, 1997 administrative expenses of $10,734 and
$17,069, respectively, were charged to participants' accounts and paid by
the Company.
Contributions-
Employee contributions are made in the form of a salary reduction by
withholding an elected percentage from the employee's salary each pay
period. Participants may elect to contribute up to 15% of their gross
annual compensation subject to the dollar deferral and nondiscrimination
limitations as prescribed by the Internal Revenue Code. Such deferrals were
limited to $9,500 for the years ended December 31, 1997 and 1996,
respectively.
The Company contributed an amount equal to 2 1/2% of the total
compensation of the eligible participants and may contribute a
discretionary amount as determined by the Company. Effective January 29,
1997, the Plan was amended such that the Company contributes 25% of the
participant's contribution up to 10% of that participant's total
compensation. Such employer contributions are subject to the provisions and
limitations prescribed by the Plan document.
Participants' Accounts-
Participants may elect to invest contributions in one or any
combination of the following five funds: Scudder U. S. Treasury Money Fund,
AIM Value Fund - Class A, Pathway Series - Balanced Fund, Scudder Income
Fund and the Tops Stock Fund. Each participant's account is credited with
the participant's and the Company's contributions (as defined). The
description on these funds is as follows-
AIM Value Fund - Invests contributions in equity securities determined
by the Fund's investment advisor to be under valued.
Pathway Series - Balanced Fund - Invests contributions in a broadly
diversified portfolio of high-yielding securities including common stocks,
preferred stocks, convertible securities and bonds in order to achieve a
high level of current income and capital appreciation.
Scudder U. S. Treasury Money Fund - Invests contributions in
short-term U. S. Treasury obligations to provide a high level of current
income as is consistent with the preservation of capital and liquidity.
Scudder Income Fund - Invests contributions in a broad range of
long-term, high-grade income producing securities such as corporate bonds
and government securities in order to achieve a high level of income with
prudent management of capital.
Tops Stock Fund - Invests contributions in Tops Appliance City, Inc.
common stock at its market price.
Prior to 1996, the Company allocated the forfeitures of terminated
participants' nonvested amounts to the remaining eligible participants
based on the proportion of each eligible participant's compensation and
length of service to the aggregate compensation and length of service of
all participants during the fiscal year. Effective January 1, 1996, the
Plan was amended so that forfeitures of terminated participants' nonvested
amounts will first be utilized to reinstate accounts of formerly terminated
participants' who have been reinstated, with any remainder used to offset
future employer contributions. At December 31, 1997 and 1996 unallocated
forfeitures included in net assets available for plan benefits were
approximately $528,000 and $367,000, respectively.
Income, profits and administrative expenses, if any, attributable to
the assets of the Plan are allocated among the participants' accounts in
relation to total account balances.
Vesting-
Participants are immediately vested in their salary reduction
contributions plus actual earnings thereon. Vesting in the employer
contributions plus earnings thereon is based on years of service as
follows-
Years of Credited Service Rate of Vesting
Less than 3 years -
3 years 20%
4 years 40%
5 years 60%
6 years 80%
7 years or more 100%
Payment of Benefits-
The distribution of plan benefits, as defined, is permitted upon the
earlier of retirement, death, disability, separation of service with the
Company or attainment of age 65. Withdrawal will also be available in
certain hardship situations, as defined in the Plan document. Distribution
of account balances may be made in either a lump-sum amount, life annuity
contracts or in installments over the life expectancy of the participant.
Distributions must commence at age 70 1/2 even if the participant does not
retire.
Loans Receivable from Plan Participants-
Loans receivable from plan participants consist of promissory notes
bearing interest at rates ranging from 7% to 12% maturing through August
24, 2007. The interest rate is determined as 1% above the prime rate. A
participant of the Plan who needs temporary financial assistance may
request a loan from the Plan up to one-half of the present value of the
nonforfeitable accrued benefit of the participant to a maximum of $50,000,
with the vested portion of a participant's account serving as collateral
for the loan. The loans are repaid over a period of a maximum of 5 years.
Participants' who receive a loan for the purchase of a principal residence
may repay the loan over 10 years.
Plan Termination-
Although it has not expressed any intent to do so, the Company has the
right to terminate the Plan subject to the provisions of the Employee
Retirement Income Security Act of 1974 ("ERISA"). In the event of plan
termination, the time and manner of distribution of vested benefits shall
be subject to the discretion of the Plan Administrator. If the Plan is
terminated by the Company, all employer contributions plus earnings become
vested.
<PAGE>
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Accounting-
The accompanying financial statements have been prepared on the
accrual basis of accounting. Purchases and sales of securities are recorded
on trade dates on a first-in, first-out basis. Amounts reported on Form
5500 differ from the financial statements since the Plan's Form 5500
includes distributions payable of approximately $439,000 and $210,000 at
December 31, 1997 and 1996, respectively.
<PAGE>
Investment Valuation-
Investments are valued at market value based upon current market
quotations.
Use of Estimates-
The preparation of the Plan's financial statements in conformity with
generally accepted accounting principles requires the plan administrator to
make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclose contingent assets and liabilities at the date
of the financial statements and the reported amounts of contributions,
revenues, benefit payments and expenses during the reporting period. Actual
results may differ from these estimates.
(3) TAX STATUS:
The Plan has received a favorable determination letter from the IRS
dated July 27, 1995 that the Plan as amended is qualified under Section
401(a) of the Internal Revenue Code (IRC) and its related trust is tax
exempt under Section 501(a) of the IRC. The Plan is required to operate in
accordance with the provisions of the IRC. The Plan Administrator is not
aware of any series of events that would adversely affect the qualification
of the Plan.
(4) PARTY-IN-INTEREST TRANSACTIONS:
The Plan purchased 26,264, 25,105 and 17,684 shares of Tops Appliance
City, Inc. common stock in the public market at an average price of $1.16,
$2.20 and $4.88 per share during the years ended December 31, 1997, 1996
and 1995, respectively. The Plan sold 6,583, 24,797 and 33,794 shares of
Tops Appliance City, Inc. common stock at an average price of $.97, $1.42
and $4.43 per share during the years ended December 31, 1997, 1996 and
1995, respectively.
Certain Plan investments are shares of mutual funds managed by Scudder
Trust Company. Scudder Trust Company is the trustee as defined by the Plan
and, therefore, these transactions qualify as party-in-interest. Total fees
paid by the Plan and the Company for the investment management services
amounted to $27,803 for the year ended December 31, 1997.
<PAGE>
SUPPLEMENTAL SCHEDULES
<PAGE>
SCHEDULE I
TOPS APPLIANCE CITY, INC.
AMENDED AND RESTATED SECTION 401(K)
SALARY SAVINGS PLAN AND TRUST
ITEM 27a - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
AS OF DECEMBER 31, 1997
EMPLOYER I. D. NUMBER 22-3174554 PLAN NUMBER 002
<TABLE>
<CAPTION>
(b) Identity of issue, (c) Description of Investment
borrower, lessor or including maturity date, rate of
similar party interest, collateral, par or (e) Current
(a) maturity value (d) Cost Value
- ------- ------------------------- --------------------------------------- ----------------- -----------------
<S> <C> <C> <C> <C>
* Scudder AIM Value Fund - Class A $4,129,536 $4,395,362
* Scudder Scudder U.S. Treasury Money Fund
1,653,398 1,653,398
* Scudder Pathway Series - Balanced Fund
3,484,930 3,670,832
* Scudder Scudder Income Fund 2,481,855 2,481,691
* Tops Tops Stock Fund 72,546 53,704
Participant Loans to participants at interest
Loans rates ranging from 7% to 12% with
maturities ranging from 1 to 7 years
721,236 721,236
----------------- -----------------
Total $12,543,501 $12,976,223
================= =================
</TABLE>
*Represents a party in interest to the Plan.
The accompanying notes to financial statements are an integral part of
this schedule.
<PAGE>
SCHEDULE II
TOPS APPLIANCE CITY
ITEM 27d - SCHEDULE OF REPORTABLE TRANSACTIONS (A)
FOR THE YEAR ENDED DECEMBER 31, 1997
EMPLOYER I. D. NUMBER 22-3174554 PLAN NUMBER 002
<TABLE>
<CAPTION>
(h) Current Value
(a) Identity of (b) Description Number of (c) Purchase (d) Selling (g) Cost of of Asset on (i) Net Gain
Party Involved of Asset Transactions Price Price Asset Transaction Date or(Loss)
<S> <C> <C> <C> <C> <C> <C> <C>
Scudder Trust Company .. AIM Value Fund -
Class A
Purchases .. 75 $1,067,644 $ 0 $1,067,644 $1,067,644 $ 0
Sales ...... 134 0 1,158,585 1,084,850 1,084,850 73,735
Scudder Trust Company .. Pathway Series -
Balanced Fund
Purchases .. 114 4,490,126 0 4,490,126 4,490,126 0
Sales ...... 175 0 1,057,644 1,005,332 1,005,332 52,312
Scudder Trust Company .. Scudder U. S.
Treasury Money Fund
Purchases .. 122 521,341 0 521,341 521,341 0
Sales ...... 118 0 854,529 854,529 854,529 0
Scudder Trust Company .. Scudder Managed
Retirement Trust -
Balanced Fund
Purchases .. 7 181,076 0 181,076 181,076 0
Sales ...... 3 0 3,177,315 3,130,243 3,130,243 47,072
Scudder Trust Company .. Scudder Income Fund
Purchases .. 62 457,001 0 457,001 457,001 0
Sales ...... 133 0 760,800 776,341 776,341 (15,541)
</TABLE>
(A) Reportable transactions are those purchases and sales of the same
security which, individually or in the aggregate, exceed 5% of Plan assets
as of January 1, 1997.
The accompanying notes to financial statements are an integral part of this
schedule.
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Tops Appliance City, Inc.:
As independent public accountants, we hereby consent to the incorporation
by reference of our report dated June 5, 1998, included in this Form 11-K, into
Tops Appliance City, Inc.'s previously filed Registration Statements on Form S-8
No. 33-54180 pertaining to the Amended and Restated Section 401(k) Salary
Savings Plan and Trust of Tops Appliance City, Inc. and on Form S-8 No. 33-68508
pertaining to the Tops Appliance City, Inc. Employee Stock Purchase Plan.
Arthur Andersen LLP
Roseland, New Jersey
July 9, 1998
<PAGE>
SIGNATURES
To Tops Appliance City, Inc.:
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Plan Administrators have duly caused this annual report to be signed on its
behalf by the undersigned hereunto duly authorized.
Amended and Restated Section 401(k)
Salary Savings Plan and Trust of
Tops Appliance City, Inc.
By: Tops Appliance City, Inc., Administrator
/s/Thomas L. Zambelli
----------------------------
Thomas L. Zambelli
Executive Vice President and
Chief Financial Officer
July 14, 1998
