Tops Appliance City, Inc.
Amended and Restated Section 401(k) Salary Savings Plan and Trust
Financial Statements and Supplemental Schedules
As of December 31, 1998 And 1997
Together With
Report 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, 1998 AND 1997
INDEX
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
FINANCIAL STATEMENTS:
Statements of Net Assets Applicable to Participants' Equity as of December
31, 1998 and 1997
Statement of Changes in Net Assets Applicable to Participants' Equity for
the Year Ended December 31, 1998
NOTES TO FINANCIAL STATEMENTS
SUPPLEMENTAL SCHEDULES:
Schedule I -- Item 27a - Schedule of Assets Held for Investment
Purposes as of December 31, 1998
Schedule II -- Item 27d - Schedule of Reportable Transactions for the
Year Ended December 31, 1998
<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 statements 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, 1998
and 1997, and the related statement of changes in net assets applicable to
participants' equity for the year ended December 31, 1998. 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 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 respects, the net assets applicable to participants' equity of the
Plan as of December 31, 1998 and 1997, and the changes in its net assets
applicable to participants' equity for the year ended December 31, 1998 in
conformity with generally accepted accounting principles.
Our audits were performed for the purpose of forming an opinion on the basic
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's Rules and Regulations for Reporting and Disclosure under the Employee
Retirement Income Security Act of 1974. The fund information in the statements
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 basic financial
statements and, in our opinion, are fairly stated in all material respects in
relation to the basic financial statements taken as a whole.
As explained in the notes thereto, information certified by the trustee and
presented in the schedules of investments and reportable transactions does not
disclose the historical cost of certain investments. Disclosure of this
information is required by the Department of Labor's Rules and Regulations for
Reporting and Disclosure under the Employee Retirement Income Security Act of
1974.
Roseland, New Jersey
June 15, 1999
<PAGE>
TOPS APPLIANCE CITY, INC.
AMENDED AND RESTATED SECTION 401(k)
SALARY SAVINGS PLAN AND TRUST
STATEMENTS OF NET ASSETS APPLICABLE TO PARTICIPANTS' EQUITY
AS OF DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---------- ---------
<S> <C> <C>
INVESTMENTS, at market value:
AIM Value Fund - Class A ...................................... $ 5,188,824 $ 4,395,362
Scudder Pathway Series - Balanced Fund ........................ 3,669,351 3,670,832
Scudder U. S. Treasury Money Fund ............................. 1,744,450 1,653,398
Scudder Income Fund ........................................... 2,317,613 2,481,691
Scudder Growth and Income Fund ................................ 594,071 0
Tops Stock Fund ............................................... 152,300 53,704
Participant loans receivable .................................. 797,887 721,236
----------- -----------
Total investments ........................... 14,464,496 12,976,223
CONTRIBUTIONS RECEIVABLE:
Employer ...................................................... 9,763 9,139
Participants .................................................. 44,354 41,213
----------- -----------
Net assets applicable to participants' equity $14,518,613 $13,026,575
=========== ===========
</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, 1998
<TABLE>
<CAPTION>
Scudder Scudder
Pathway U.S.
AIM Value Series- Treasury Scudder Scudder Tops Participant Contri-
Fund - Balanced Money Income Growth and Stock Loans butions
Class A Fund Fund Fund Income Fund Fund Receivable Receivable Total
------------ -------- --------- --------- ----------- ----- ----------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSETS APPLICABLE TO
PARTICIPANTS' EQUITY,
beginning of year .. $4,395,362 $3,670,832 $1,653,398 $2,481,691 $ 0 $ 53,704 $721,236 $50,352 $13,026,575
PARTICIPANTS' CONTRIBUTIONS 285,231 412,986 131,713 106,833 67,997 20,424 0 3,141 1,028,325
EMPLOYER'S CONTRIBUTIONS .... 6,042 76,232 0 73,991 67,952 0 0 624 224,841
INVESTMENT INCOME:
Interest and
dividend income .... 344,362 244,069 89,046 185,008 57,375 887 0 0 920,747
Net appreciation
(depreciation)
of investments ..... 994,546 46,487 0 (38,284) (39,743) 103,715 0 0 1,066,721
DISTRIBUTIONS TO PARTICIPANTS (544,537) (667,100) (187,781) (318,082) (8,819) (4,376) 0 0 (1,730,695)
ADMINISTRATIVE EXPENSES ..... (18) (5,006) (6,119) (6,755) (3) 0 0 0 (17,901)
LOAN ACTIVITY:
Payments ........... (129,406) (117,523) (75,818) (57,720) (13,448) 0 393,915 0 0
Repayments ......... 105,058 101,486 57,470 38,136 11,032 4,082 (317,264) 0 0
NET TRANSFER BETWEEN FUNDS .. (267,816) (93,112) 82,541 (147,205) 451,728 (26,136) 0 0 0
-------- -------- -------- --------- ------- -------- -------- ------ --------
NET ASSETS APPLICABLE TO
PARTICIPANTS' EQUITY,
end of year ........$5,188,824 $3,669,351 $1,744,450 $2,317,613 $594,071 $ 152,300 $797,887 $54,117 $14,518,613
========== ========== ========== ========= ======== ========= ======== ======= ===========
</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
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
Scudder Trust Company is the designated trustee.
Administrative expenses of the Plan may be paid from plan assets and
charged to participants' accounts. For the year ended December 31, 1998
administrative expenses of $13,258 were charged to participants' accounts and
$4,643 were 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 $10,000
for the year ended December 31, 1998.
<PAGE>
Prior to January 29, 1997 the Company contributed an amount equal to 2 1/2%
of the compensation of each eligible participant. Effective January 29, 1997,
the Plan was amended such that the Company contributes 25% of each participant's
contribution up to 10% of the participant's total compensation. Such employer
contributions are subject to the provisions and limitations prescribed by the
Plan document. In addition, the Company may contribute a discretionary amount as
determined by the Company.
Forfeitures-
Effective January 1, 1996, the Plan was amended so that forfeitures of
terminated participants' nonvested account balances 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,
1998, unallocated forfeitures included in net assets available for plan benefits
were approximately $446,000. For the year ended December 31, 1998, $224,051 and
$4,643 of forfeited nonvested accounts were used to fund employer contributions
and administrative expenses paid by the Company, respectively.
Investments-
Participants may elect to invest contributions in one or any combination of
the following six funds: AIM Value Fund - Class A, Scudder Pathway Series -
Balanced Fund, Scudder U. S. Treasury Money Fund, Scudder Income Fund, Scudder
Growth and 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 descriptions of these funds are as follows-
AIM Value Fund - Class A - Invests contributions in equity securities
determined by the Fund's investment advisor to be under valued.
Scudder 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.
Scudder Growth and Income Fund - Invests contributions in common stock
seeking long-term growth of capital, current income, and growth of income.
Tops Stock Fund - Invests contributions in Tops Appliance City, Inc. common
stock at its market price.
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.
<PAGE>
Net appreciation (depreciation) in fair value of investments includes net
realized and unrealized gains and losses.
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-
Rate of
Years of Credited Service 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 whether or not the participant retires.
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 March 22, 2009. The
interest rate is determined as 1% above the prime rate at the time the loan
commences. A participant of the Plan who needs temporary financial assistance
may request a loan from the Plan in an amount not to exceed 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 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 on the financial statements differ
from the Plan's Form 5500 which includes distributions payable of approximately
$102,000 and $439,000 at December 31, 1998 and 1997, respectively.
Investment Valuation-
Investments are valued at fair value based upon current market quotations.
The Company stock is valued at its quoted market price. Participant loans
receivable are valued at cost which approximates fair value.
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.
Payment of Benefits-
Benefits are recorded when paid.
(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 has been amended since receiving the
determination letter. However, the Plan Administrator and the Plan's tax counsel
believe the Plan is designed and is currently being operated in compliance with
the applicable requirements of the IRC.
(4) PARTY-IN-INTEREST TRANSACTIONS:
During the years ended December 31, 1998 and 1997, the Plan purchased 5,065
and 26,264 shares, respectively, of Tops Appliance City, Inc. common stock in
the public market at an average price of $1.11 and $1.16 per share,
respectively. During the years ended December 31, 1998 and 1997, the Plan sold
10,637 and 6,583 shares, respectively, of Tops Appliance City, Inc. common stock
at an average price of $3.84 and $.97, per share, 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
$17,901 for the year ended December 31, 1998.
<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, 1998
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 (A) Value
- ------- ------------------------- ------------------------------------------- ---------------- -----------------
<S> <C> <C> <C> <C>
* AIM Funds Group AIM Value Fund - Class A, 129,107 units
$4,078,782 $5,188,824
* Scudder Trust Company Scudder Pathway Series - Balanced Fund,
280,961 units 3,508,685 3,669,351
* Scudder Trust Company Scudder U.S. Treasury Money Fund,
1,744,450 units 1,744,450 1,744,450
* Scudder Trust Company Scudder Income Fund, 175,046 units
2,358,727 2,317,613
* Scudder Trust Company Scudder Growth and Income Fund, 22,580
units 637,938 594,071
* Tops Tops Stock Fund, 54,151 units 93,572 152,300
Participant loans Loans to participants at interest rates
receivable ranging from 7% to 12% with maturities
ranging from 1 to 10 years
797,887 797,887
---------------- -----------------
Total $13,220,041 $14,464,496
================ =================
</TABLE>
*Represents a party-in-interest to the Plan.
(A) The plan was unable to obtain the historical cost information from the
trustee. Amounts represent moving average cost basis.
The accompanying notes to financial statements are an integral part of this
schedule.
<PAGE>
SCHEDULE II
TOPS APPLIANCE CITY, INC.
AMENDED AND RESTATED SECTION 401(k) SALARY SAVINGS PLAN AND TRUST
ITEM 27d - SCHEDULE OF REPORTABLE TRANSACTIONS (A)
FOR THE YEAR ENDED DECEMBER 31, 1998
EMPLOYER I. D. NUMBER 22-3174554 PLAN NUMBER 002
<TABLE>
<CAPTION>
(h) Current
Value of
Asset on
(a) Identity of Number of (c) Purchase (d) Selling (g) Cost of Transaction i) Net Gain
Party Involved (b) Description of Asset Transactions Price Price Asset Date or Loss
<S> <C> <C> <C> <C> <C> <C> <C>
AIM Funds Group AIM Value Fund - Class A
Purchases 87 $838,983 $0 $838,983 $838,983 $0
Sales 173 0 1,040,066 896,296 896,296 143,770
Scudder Trust Company Scudder Pathway Series -
Balanced Fund
Purchases 79 931,890 0 931,890 931,890 0
Sales 224 0 1,082,597 1,010,874 1,010,874 71,723
Scudder Trust Company Scudder U. S. Treasury
Money Fund
Purchases 125 509,706 0 509,706 509,706 0
Sales 93 0 418,654 418,654 418,654 0
Scudder Trust Company Scudder Income Fund
Purchases 72 563,622 0 563,622 563,622 0
Sales 172 0 689,415 686,939 686,939 2,476
Scudder Trust Company Scudder Growth and
Income Fund
Purchases 92 853,829 0 853,829 853,829 0
Sales 68 0 220,015 215,840 215,840 4,175
</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, 1998.
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 15, 1999, 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.
Roseland, New Jersey
June 28, 1999
<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
June 28, 1999
