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SECURITIES & EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[x] Annual Report Pursuant to Section 13 or 15(d) of the
Securities and Exchange Act of 1934 (Fee Required).
For the fiscal year ended: July 26, 1997.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities and Exchange Act of 1934 (Fee Required) for
the transition period from to .
COMMISSION FILE NUMBER: 0-2633
VILLAGE SUPER MARKET, INC.
(Exact name of registrant as specified in its charter)
NEW JERSEY 22-1576170
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
733 MOUNTAIN AVENUE, SPRINGFIELD, NEW JERSEY 07081
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:(973)467-2200
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
None None
Securities registered pursuant to Section 12(g) of the Act:
CLASS A COMMON STOCK, NO PAR VALUE
(Title of Class)
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 _X_ 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, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [x]
The aggregate market value of the Class A common stock of Village Super
Market, Inc. held by non-affiliates was approximately $9,242,109 and the
aggregate market value of the Class B common stock held by non-affiliates
was approximately $1,394,163 (based upon the closing price of the Class A
shares on the Over the Counter Market on October 5, 1997). There are no
other classes of voting stock outstanding.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of latest practicable date.
Outstanding at
Class October 22, 1997
Class A common stock, no par value 1,315,800 Shares
Class B common stock, no par value 1,594,076 Shares
DOCUMENTS INCORPORATED BY REFERENCE
Information contained in the 1997 Annual Report to Shareholders and the
1997 definitive Proxy Statement to be filed with the Commission and
delivered to security holders in connection with the Annual Meeting
scheduled to be held on December 5, 1997 are incorporated by reference
into this Form 10-K at Part II, Items 5, 6, 7 and 8 and Part III.
PART I
ITEM I. BUSINESS
GENERAL
The Company operates a chain of 21 ShopRite supermarkets, 15 of which are
located in northern New Jersey, 1 of which is in northeastern Pennsylvania
and 5 of which are in the southern shore area of New Jersey. In addition,
the Company operates one former ShopRite store under a "Village Market"
format as described below. The Company is a member of Wakefern Food
Corporation ("Wakefern"), the nation's largest retailer owned food
cooperative and owner of the ShopRite name. This relationship provides
the Company many of the economies of scale in purchasing, distribution and
advertising associated with chains of greater size and geographic reach.
The Company believes that the regional nature of its business and the
continuity of its management under the leadership of its founding family have
permitted the Company to operate with greater flexibility and responsiveness
to the demographic characteristics of the communities served by its stores.
The Company seeks to generate high sales volume by offering a wide variety
of high quality products at consistently low prices. The Company attempts
to efficiently utilize its selling space, gives continuing attention to the
decor and format of its stores and tailors each store's product mix to the
preferences of the local community. The Company concentrates on development
of superstores, which, in addition to their large size (an average of 50,000
total square feet, including office and storage space, compared with an
average of 30,000 total square feet for conventional supermarkets), feature
such higher margin specialty service departments as an on-site bakery, an
expanded delicatessen including prepared foods, a fresh seafood section and,
in most cases, a prescription pharmacy. Superstores also offer an expanded
selection of higher margin non-food items such as cut flowers, health and
beauty aids, greeting cards, videocassette rentals and small appliances.
Two superstores also include a warehouse section featuring products in giant
sizes. The following table shows the percentage of the Company's sales
allocable to various product categories during each of the periods indicated
as well as the number of the Company's superstores and percentage of selling
square feet allocable to these stores during each of these periods:
Product Categories Fiscal Year Ended In July
1995 1996 1997
Groceries 44.1% 43.8% 42.9%
Dairy and Frozen 15.6 15.6 15.8
Meats 10.6 10.3 10.1
Non-Foods 9.5 9.8 10.1
Produce 9.6 9.8 9.8
Delicatessen 4.1 4.3 4.4
Seafood 1.9 1.9 2.0
Pharmacy 2.9 2.9 3.2
Bakery 1.6 1.5 1.6
Other .1 .1 .1
100.0% 100.0% 100.0%
Number of superstores 19 19 19
Selling square feet
represented by
superstores 88% 88% 90%
Because of increased size and broader product mix, a superstore can satisfy
a greater percentage of a customer's weekly shopping needs and, as a result,
the typical superstore generally has a higher volume of sales per square
foot and sales per customer than a conventional supermarket. In addition,
because of their greater total sales volume and increased percentage of
their sales allocable to higher margin items, superstores generally operate
more profitably than conventional supermarkets.
A variety of factors affect the profitability of each of the Company's
stores including local competitors, size, access and parking, lease terms,
management supervision, and the strength of the ShopRite trademark in the
local community. The Company continually evaluates individual stores to
decide whether they should be closed. Accordingly, the Orange, Maplewood,
Kingston, Morristown, Easton and Florham Park stores have been closed since
December 1991. In addition, one store was converted to a"Village Market"
format designed to reduce costs and increase margins in lower volume
locations.
The Company operates a separate liquor store adjacent to one Company
supermarket.
DEVELOPMENT AND EXPANSION
The Company is engaged in a continuing program to upgrade and expand its
supermarket chain. This program has included major store remodelings as
well as the opening or acquisition of additional stores. When remodeling,
the Company has sought, whenever possible, to increase the amount of
selling space in its stores and, where feasible within existing site
limitations, to convert conventional supermarkets to superstores. The
Company completed one major and one smaller expansion and remodel in fiscal
1997. The Company has budgeted $14,000,000 for capital expenditures in
fiscal 1998. The major planned expenditures are the expansion and remodel
of the Livingston store and the acquisition of property for a future store.
In the last five years, the Company has completed five remodels. The
Company's goal has been to open an average of one new superstore and
conduct a major remodel of one store each year. However, because of
delays associated with increased governmental regulations and the general
difficulty in developing retail properties in the Company's primary trading
area the Company has been unable to open the desired number of new stores.
Additional store remodelings and sites for new stores are in various stages
of development. The Company will also consider additional acquisitions
should appropriate opportunities arise.
WAKEFERN
The Company is the second largest member of Wakefern (owning 16.0% of
Wakefern's outstanding stock) and one of the Company's principal
shareholders was a founder of Wakefern. Wakefern, which was organized in
1946, is the nation's largest retailer-owned food cooperative. There are
presently 39 individual member companies and 192 supermarkets which
comprise the Wakefern cooperative. Only Wakefern and member companies are
entitled to use the ShopRite name and trademark, purchase their product
requirements and participate in ShopRite advertising and promotional
programs and its computerized purchasing, warehousing and distribution
services.
The principal benefits to the Company from its relationship with Wakefern
are the use of the ShopRite name and trademark, volume purchasing, ShopRite
private label products, distribution and warehousing on a cooperative basis,
and ShopRite advertising and promotional programs. The Company believes
that the ShopRite name is widely recognized by its customers and is a factor
in those customers' decisions about where to shop. In addition, Wakefern can
purchase large quantities and varieties of products at favorable prices which
it can then pass onto its members. These benefits are important to the
Company's success.
Wakefern distributes as a "patronage dividend" to each of its stockholders a
share of earnings of Wakefern in proportion to the dollar volume of business
done by the stockholder with Wakefern during each fiscal year.
While Wakefern has a substantial professional staff, it operates as a member
cooperative. Executives of most members make contributions of time to the
business of Wakefern. Senior executives of the Company spend a significant
amount of their time working on various Wakefern committees which oversee
and direct Wakefern purchases and other programs.
Most of the Company's advertising is developed and placed by Wakefern's
professional advertising staff. Wakefern is responsible for all television,
radio and major newspaper advertisements. Wakefern bills its members by
various formulas which distribute advertising costs in accordance with the
estimated proportional benefits to each member from such advertising. The
Company also places Wakefern developed materials with local newspapers.
Wakefern operates warehouses and distribution facilities in Elizabeth, New
Jersey; Dayton, New Jersey; Wallkill, New York; and South Brunswick, New
Jersey. Each member is obligated to purchase from Wakefern a minimum of 85%
of its requirements for products offered by Wakefern until ten years from
the date that stockholders representing 75% of Wakefern sales notify
Wakefern that those stockholders request the Wakefern Stockholder Agreement
be terminated. If this purchase obligation is not met, the member is
required to pay Wakefern's profit contribution shortfall attributable to
this failure. This agreement also makes unapproved changes in control of
the Company and sale of the Company or of individual Company stores, except
to a qualified successor, financially prohibitive by requiring the Company
in such cases to pay Wakefern the profit contribution shortfall attributable
to the sale of store or change in control. Such payments were waived by
Wakefern in connection with the sale of the Orange, Maplewood, Kingston and
Morristown stores. A "qualified successor" must be or agree to become a
member of Wakefern and may not own or operate any supermarkets other than
ShopRite supermarkets, in the states of New York, New Jersey, Pennsylvania,
Delaware, Maryland, Virginia, Connecticut, Massachusetts, Rhode Island,
Vermont, New Hampshire, Maine or the District of Columbia or own or operate
more than 25 non-ShopRite supermarkets in any other locations in the United
States.
Wakefern, under circumstances specified in its bylaws, may refuse to sell
merchandise to, and may repurchase the Wakefern stock of, any member. Such
circumstances include certain unapproved transfers by a member of its
supermarket business or its capital stock in Wakefern, unapproved acquisition
by a member of certain supermarket or grocery wholesale supply businesses,
the material breach by a member of any provision of the bylaws of Wakefern or
any agreement with Wakefern or a determination by Wakefern that the continued
supplying of merchandise or services to such member would adversely affect
Wakefern.
Any material change in Wakefern's method of operation or a termination or
material modification of the Company's relationship with Wakefern following
expiration of the above agreements or otherwise (none of which are
contemplated or considered likely) might have an adverse impact on the
conduct of the Company's business and could involve additional expense for
the Company. The failure of any Wakefern member to fulfill its obligations
under these agreements or a member's insolvency or withdrawal from Wakefern
could result in increased costs to remaining members.
Wakefern owns and operates 19 supermarkets. The Company believes that
Wakefern may consider purchasing additional stores in the future from non-
members and from existing members who may desire to sell their stores for
financial, estate planning or other reasons. The Company also understands
that Wakefern may consider opening and operating new ShopRite supermarkets
as well.
Wakefern does not prescribe geographical franchise areas to its members.
The specific locations at which the Company, other members of Wakefern or
Wakefern itself may open new units under the ShopRite names are, however,
subject to the approval of Wakefern's Site Development Committee. This
committee is composed of persons who are not employees or members of
Wakefern and from whose decision to deny a site application may be
appealed to the Wakefern Board of Directors. Wakefern assists its members
in their site selection by providing appropriate demographic data, volume
projections and projections of the impact of the proposed market on
existing member supermarkets in the area.
Each member's Wakefern stock (including the Company's) is pledged to
Wakefern to secure all of that member's obligations to Wakefern. Moreover,
every owner of 5% or more of the voting stock of a member (including five
members of the Sumas family) must personally guarantee prompt payment of
all amounts due Wakefern from that member. Wakefern does not own any
securities of the Company or its subsidiaries.
Each of Wakefern's members is required to make capital contributions to
Wakefern based on the number of stores operated by that member (and to a
limited extent the sales volume generated by those stores). As additional
stores are opened or acquired by a member (including the Company),
additional capital must be contributed by it to Wakefern. On occasion, as
its business needs have required, Wakefern has increased the per-store
capital contributions required of its members. Wakefern has in the past
permitted these increases in required capital to be paid in installments
over a period of time. The Company is required to invest approximately
$119,000 over approximately the next year.
TECHNOLOGY
The Company considers automation and computerization important to its
operations and competitive position. All stores have scanning check out
systems that improve pricing accuracy, enhance productivity and reduce
checkout time for customers. Over the last several years, the Company
installed IBM RS/6000 computers and satellite communications in each store.
Using the RS/6000 system, the Company offers customers debit and credit card
payment options in all stores. In addition, the Company is utilizing a
computer generated ordering system, which is designed to reduce inventory
levels and out of stock conditions, enhance shelf space utilization, and
reduce labor costs.
The Company's commitment to advanced scanning systems has enabled it to
participate in Price Plus, ShopRite's preferred customer program.
Customers receive electronic discounts by presenting a scannable Price
Plus card. In addition, the Company began using Clip Less coupons in 1994.
Customers need only present their Price Plus card to receive the value of
our in-ad coupons.
The Company utilizes a direct store delivery system, consisting of personal
computers and hand held scanners, for most items not purchased through
Wakefern in order to provide equivalent cost and retail price control over
these products. In addition, certain in-store department records are
computerized, including the records of all pharmacy departments. In
certain stores, meat, seafood and delicatessen prices are maintained on
computer for automatic weighing and pricing. Furthermore, all stores have
computerized time and attendance systems and most also have computerized
energy management systems. The Company seeks to design its stores to use
energy efficiently, including recycling waste heat generated by
refrigeration equipment for heating and other purposes.
COMPETITION
The supermarket business is highly competitive. Industry profit margins
are narrow, consequently earnings are dependent on high sales volume and
operating efficiency. The Company is in direct competition with national,
regional and local chains as well as independent supermarkets, warehouse
clubs, supercenters, drug stores, discount department stores and
convenience stores. The principal methods of competition utilized by the
Company are low pricing, courteous, quick service to the customer, quality
products and consistent availability of a wide variety of merchandise
including the ShopRite private label. The Company believes its regional
focus and the continuity of its management by the Sumas family permit it to
operate with greater flexibility in tailoring the products offered in each
store to the demographics of the communities they serve as compared to
national and larger regional chains. The Company's principal competitors
are Pathmark, A&P, Foodtown, Edwards, King's, Grand Union and Acme. Many
of the Company's competitors have financial resources substantially greater
than those of the Company.
LABOR
As of October 7, 1997, the Company employed approximately 3,580 persons of
whom approximately 2,260 worked part-time. Approximately 85% of the
Company's employees are covered by collective bargaining agreements. The
Company was affected by a labor dispute with its largest union in fiscal
1993. Contracts with three unions representing approximately 1,000
employees expire in 1998. Most of the Company's competitors in New Jersey
are similarly unionized.
REGULATORY ENVIRONMENT
While the Company must secure a variety of health and food distribution
permits for the conduct of its business, it does not believe that such
regulation is material to its operations. The Company's pharmacy
departments are subject to state regulation and licensed pharmacists must
be on duty at all times. The Company's liquor operation is also subject to
regulation by state and municipal administrative authorities. The Company
does not presently anticipate expanding its liquor operations. Compliance
with statutes regulating the discharge of materials into the environment
is not expected to have a material effect on capital expenditures, earnings
and competitive position in fiscal 1998 and 1999.
ITEM 2. PROPERTIES
The Company owns the sites of five of its supermarkets (containing 330,000
square feet of total space), all of which are free-standing stores, except
the Egg Harbor store, which is part of a shopping center. The Company also
owns the site of the former Easton store which is expected to be leased in the
near future. The remaining seventeen supermarkets (containing 776,000 square
feet of total space) are leased, with initial lease terms generally ranging
from 20 to 30 years, usually with renewal options. Ten of these leased stores
are located in strip shopping centers and the remaining seven are free-standing
stores. Except with respect to one lease between the Company and certain
related parties, none of the Company's leases expire before 2001. The
annual rent, including capitalized leases, for all of the Company's leased
facilities for the year ended July 26, 1997 was approximately $6,063,000.
The Company is a limited partner in two partnerships, one of which owns a
shopping center in which one of the Company's leased supermarkets is
located. The Company also is a general partner in a general partnership
that is a lessor of one of the Company's free-standing supermarkets.
ITEM 3. LEGAL PROCEEDINGS
No material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters submitted to shareholders in the fourth quarter.
ITEM X. EXECUTIVE OFFICERS OF THE REGISTRANT
In addition to the information regarding directors incorporated by
reference to the Company's definitive Proxy Statement in Part III,
Item 10, the following is provided with respect to executive officers who
are not directors:
NAME AGE POSITION WITH THE COMPANY
Carol Lawton 54 Vice President and Assistant
Secretary since 1983;
responsible for administration
of headquarters staff.
Frank Sauro 39 General Counsel since April 1988.
Mr. Sauro is a member of the New
Jersey Bar.
Kevin Begley 39 Chief Financial Officer since
December 1988. Mr. Begley is a
Certified Public Accountant.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
SECURITY HOLDER MATTERS
The information required by this Item is incorporated by reference from
Information appearing on Page 16 in the Company's Annual Report to
Shareholders for the fiscal year ended July 26, 1997.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this Item is incorporated by reference from
Information appearing on Page 3 in the Company's Annual Report to
Shareholders for the fiscal year ended July 26, 1997.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The information required by this Item is incorporated by reference from
Information appearing on Page 4 and 5 in the Company's Annual Report to
Shareholders for the fiscal year ended July 26, 1997.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item is incorporated by reference from
Information appearing on Page 3 and Page 6 to 16 in the Company's Annual
Report to Shareholders for the fiscal year ended July 26, 1997.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item 10 is incorporated by reference from
the Company's definitive Proxy Statement to be filed on or before
November 5, 1997, in connection with its Annual Meeting scheduled to be
held on December 5, 1997.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 is incorporated by
reference from the Company's definitive Proxy Statement to be filed on
or before November 5, 1997, in connection with its Annual Meeting scheduled
to be held on December 5, 1997.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The information required by this Item 12 is incorporated by reference from
the Company's definitive Proxy Statement to be filed on or before
November 5, 1997, in connection with its annual meeting scheduled to be
held on December 5, 1997.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item 13 is incorporated by reference from
the Company's definitive Proxy Statement to be filed on or before
November 5, 1997, in connection with its annual meeting scheduled to be
held on December 5, 1997.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND
REPORTS ON FORM 8-K
(a) 1. Financial Statements:
Consolidated Balance Sheets - July 26, 1997 and July 27, 1996;
Consolidated Statements of Operations - years ended
July 26, 1997; July 27, 1996 and July 29, 1995;
Consolidated Statements of Shareholders' Equity - years ended
July 26, 1997; July 27, 1996 and July 29, 1995;
Consolidated Statements of Cash Flows - years ended
July 26, 1997; July 27, 1996 and July 29, 1995;
Notes to consolidated financial statements.
The financial statements above and Independent Auditors' Report
have been incorporated by reference from the Company's Annual
Report to Shareholders for the fiscal year ended July 26,
1997.
2. Financial Statement Schedules:
All schedules are omitted because they are not applicable, or
not required, or because the required information is included
in the consolidated financial statements or notes thereto.
3. Exhibits
EXHIBIT INDEX
Exhibit No. 3 - Certificate of Incorporation and By-Laws*
Exhibit No. 4 - Instruments defining the rights of security holders;
4.1 Note Purchase Agreement dated August 20, 1987*
4.2 Loan Agreement dated March 29, 1994*
4.3 Amendment No. 1 to Loan Agreement*
4.4 Loan Agreement dated May 30, 1997
Exhibit No. 10 - Material Contracts:
10.1 Wakefern By-Laws*
10.2 Stockholders Agreement dated February 20, 1992
between the Company and Wakefern Food Corp.*
10.3 Voting Agreement dated March 4, 1987*
10.4 1987 Incentive and Non-Statutory Stock Option Plan*
Exhibit No. 13 - Annual Report to Security Holders
Exhibit No. 21 - Subsidiaries of Registrant
Exhibit No. 23 - Consent of KPMG Peat Marwick LLP
Exhibit No. 99 - Press Release dated October 2, 1997
* The following exhibits are incorporated by reference from the following
previous filings:
Form 10-K for 1994; 4.3
Form 10-K for 1993: 3, 4.1, 10.1, 10.2, 10.3 and 10.4
Form 10-Q for April 23, 1994; 4.2
(b) No reports on Form 8-K were filed during the fourth quarter
of fiscal 1997.
Independent Auditors' Consent
The Board of Directors
Village Super Market, Inc.:
We consent to incorporation by reference in the Registration Statement
(No. 2-86320) on Form S-8 of Village Super Market, Inc. of our report dated
September 30, 1997, relating to the consolidated balance sheets of Village
Super Market, Inc. and subsidiary as of July 26, 1997 and July 27, 1996, and
the related consolidated statements of operations, shareholders' equity, and
cash flows for each of the years in the three year period ended July 26,
1997, which report is incorporated by reference in the July 26, 1997 annual
report on Form 10-K of Village Super Market, Inc.
KPMG Peat Marwick LLP
Short Hills, New Jersey
October 23, 1997
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.
Village Super Market, Inc.
By: /s/ Kevin Begley By: /s/ Perry Sumas
Kevin Begley Perry Sumas
Chief Financial & Chief Executive Officer
Principal Accounting Officer
Date: October 23, 1997
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 dates indicated:
Village Super Market, Inc.
/s/ Perry Sumas /s/ James Sumas
Perry Sumas, Director James Sumas, Director
October 23, 1997 October 23, 1997
/s/ Robert Sumas /s/ William Sumas
Robert Sumas, Director William Sumas, Director
October 23, 1997 October 23, 1997
/s/ John P. Sumas /s/ John J. McDermott
John P. Sumas, Director John J. McDermott, Director
October 23, 1997 October 23, 1997
/s/ George Andresakes /s/ Norman Crystal
George Andresakes, Director Norman Crystal, Director
October 23, 1997 October 23, 1997
The Company
Village Super Market, Inc. operates a chain of 22 ShopRite supermarkets, 16 of
which are located in northern New Jersey, 1 in northeastern Pennsylvania and 5
in the southern shore area of New Jersey.
Village is a member of Wakefern Food Corporation, the largest retailer-owned
food cooperative in the United States.
Village's business was founded in 1937 by Nicholas and Perry Sumas and has
continued to be principally owned and operated under the active management of
the Sumas family.
Contents
Letter to Shareholder............................................2
Selected Financial Data..........................................3
Quarterly Financial Data.........................................3
Management's Discussion and Analysis of
Financial Condition and Results of Operations....................4
Consolidated Balance Sheets......................................6
Consolidated Statements of Operations............................7
Consolidated Statements of Shareholders' Equity..................8
Consolidated Statements of Cash Flows............................9
Notes to Consolidated Financial Statements......................10
Independent Auditors' Report....................................16
Stock Price and Dividend Information............................16
Corporate Directory..............................Inside back cover
On the Front and Back Cover:
Some samplings from remodeled departments in our recently enlarged Chester
store. "Bistro Street" is the new brand for our home meal replacement offerings
- - - freshly prepared under the supervision of our in-store chef.
Dear Fellow Shareholders
Our company continued to improve its financial performance in fiscal
1997. Net income was $2,074,000, or $.71 per share - a 46% increase from the
prior year - exclusive of a gain on the sale of an asset in the prior year.
The substantial increase in net income in 1997 was primarily due to a 1%
increase in same store sales, improved gross margins, lower depreciation and
stable operating expenses. These results were achieved despite additional store
openings by competitors and a highly promotional pricing environment.
During fiscal 1997, we spent $8.6 million to improve our stores. Our most
important effort was the expansion and remodel of the Chester store. Chester is
now our flagship store with greatly expanded, carpeted perishable departments,
some of which are featured on the cover of this annual report. This is our most
recent response to the changing needs of our customers. The Chester store
features our largest selection of items in the fast growing home meal
replacement category - prepared under the supervision of our in-store chef.
Other new offerings in Chester include a gourmet coffee bar, a sushi bar, brick
oven pizza and store-made bagels.
In 1998, we plan to bring the exciting enhancements we made in Chester to
our Livingston customers as we expand that store. A new loan agreement signed
in May 1997 provides the financing for this project and other capital
requirements over the next three years.
Technology continues to play a key role in operating our supermarkets.
Beginning this year, we will implement computer-based training in our stores.
This should ensure consistent, high quality cashier training and thereby
improve customer service. During the last year, we leveraged our investment in
front-end technology and the ShopRite Price Plus card to increase our use of
target marketing to specific customer segments.
Substantial improvements to our business were achieved in 1997. We thank
our employees for their contributions and efforts toward these improvements. We
also thank our fellow shareholders for their continued support.
James Sumas, Perry Sumas,
Chairman of the Board President
Selected Financial Data
(Dollars in thousands except per share and per sq. ft. data)
July 26, July 27, July 29, July 30, July 31,
1997 1996 1995 1994 1993
For year
Sales $688,861 $688,632 $677,322 $695,070 $713,856
Net income (loss) 2,074 2,006 578 (807) 1,437
Net income (loss)
per share .71 .69 .20 (.28) .49
Cash dividends per share
Class A - - - - -
Class B - - - - -
At year end
Total assets 132,764 131,062 135,575 134,793 141,387
Long-term obligations
including capital
leases 24,027 26,815 34,853 36,933 39,470
Working capital
(deficit) (12,607) (10,885) (3,755) (4,100) (2,303)
Shareholders' equity 57,081 55,007 53,001 52,423 53,230
Book value per share 19.62 18.90 18.21 18.01 18.29
Other data
Selling square feet 866,000 860,000 842,000 845,000 874,000
Number of stores 22 23 23 24 25
Sales per average
number of stores 31,178 29,941 29,449 28,370 27,456
Sales per average
square foot of
selling space 803 809 803 809 791
Capital expenditures 8,593 9,754 6,588 5,974 1,977
Unaudited Quarterly Financial Data
(Dollars in thousands except per share amounts)
First Second Third Fourth Fiscal
Quarter Quarter Quarter Quarter Year
1997
Sales $169,200 $177,598 $165,494 $176,569 $688,861
Gross margin 41,859 43,920 41,108 43,968 170,855
Net income 284 660 163 967 2,074
Net income per share $.10 $.23 $.06 $.32 $.71
1996
Sales $166,522 $178,002 $169,279 $174,829 $688,632
Gross margin 41,035 43,691 42,047 43,608 170,381
Net income 139 1,194 56 617 2,006
Net income per share $.05 $.41 $.02 $.21 $.69
Management's Discussion and Analysis of Financial
Condition and Results of Operations
RESULTS OF OPERATIONS
The following table sets forth the major components of the Consolidated
Statements of Operations of the Company as a percentage of sales:
July 26, July 27, July 29,
1997 1996 1995
Sales 100.00% 100.00% 100.00%
Cost of sales 75.20 75.26 75.51
Gross margin 24.80 24.74 24.49
Operating and administrative
expense 22.70 22.63 22.44
Depreciation and amortization 1.12 1.24 1.28
Operating income .98 .87 .77
Interest expense (net) .48 .53 .60
Gain (loss) on disposal of assets - .14 (.04)
Income before income taxes .50% .48% .13%
Sales were $688,861,000 in fiscal 1997, about the same as the prior year.
Same store sales increased 1% in 1997 as improved sales in remodeled stores
were offset by sales declines in three stores affected by competitive openings.
Also, the closing of the Florham Park store in October 1996 resulted in a
$5,910,000 sales decrease. Sales increased $11,310,000 in fiscal 1996. As 23
stores were open in both years, this resulted in a same store sales increase of
1.7%. Same store sales improved in the two stores remodeled in fiscal 1995 and
in most stores not affected by a competitive opening. These improvements were
offset by reduced sales in stores that were impacted by the six competitors
that opened in our trading area over the last two years.
Gross margin as a percentage of sales increased slightly in fiscal 1997
due to an improvement in the mix of sales toward higher margin departments.
This was partially offset by a decline in meat department gross margins due to
lower retail prices. Gross margin as a percentage of sales increased in fiscal
1996 due to aggressive buying practices and an improved mix of sales in higher
margin departments.
Operating and administrative expenses increased slightly as a percentage
of sales in fiscal 1997. This was due to increased credit card processing
costs, increased advertising and coupon costs, accruals for estimated liability
insurance premium calls and lower coupon and cardboard income. Offsetting these
items are lower labor, supply and snow removal costs. Operating and
administrative expenses in fiscal 1996 increased by .2 as a percentage of
sales. This increase was due to higher rent, snow removal and credit card
processing costs. These increases were partially offset by a decline in payroll
costs.
Interest expense decreased in 1997 due to lower average debt levels
outstanding. Interest expense decreased in 1996 due to lower variable interest
rates and lower average debt levels outstanding.
Depreciation expense declined in fiscal 1997 due to substantial assets
purchased 10 years ago becoming fully depreciated.
In October 1996 the Company closed an underfacilitated store in Florham
Park, New Jersey. A loss of approximately $350,000 was incurred from operations
and closing costs associated with this store. During fiscal 1996, the company
sold the property of a store previously closed in Maplewood, New Jersey for
$1,238,000, net of certain costs. A gain before taxes in the amount of $952,000
was realized on this sale.
LIQUIDITY AND CAPITAL RESOURCES
Current liabilities exceeded current assets by $12,607,000, $10,885,000
and $3,755,000 at the end of fiscal 1997, 1996 and 1995, respectively. Working
capital ratios at the same dates were .74, .76 and .91 to one, respectively.
The slight decline in working capital at July 26, 1997 is primarily due to the
Company's recent use of self-insurance for workers' compensation, which results
in accrued liabilities which previously were funded by borrowings under the
Company's credit line, which was classified as long-term. The decline in
working capital at July 27, 1996 was primarily the result of the Company
discontinuing its previous policy of borrowing funds at the end of each quarter
to maintain the current ratio required in a debt agreement. That agreement was
amended to delete the current ratio maintenance requirement. The Company's
working capital needs are reduced by its high rate of inventory turnover
(twenty-one times in fiscal 1997) and because the warehousing and distribution
arrangements accorded to the Company as a member of Wakefern permit it to
minimize inventory levels and sell most merchandise before payment is required.
Capital expenditures in fiscal 1997 were $8,593,000. The majority of
capital expenditures related to the expansion and remodel of the Chester,
Stroudsburg and Absecon stores. The Company has budgeted approximately
$14,000,000 for capital expenditures in fiscal 1998. Planned expenditures
include a major expansion and remodel of the Livingston store, the purchase of
land for a future store and several smaller remodels.
The Company has historically financed capital expenditures through cash
provided by operations supplemented by borrowings. Aggregate capital
expenditures for the three years ended July 26, 1997 were $24,935,000. During
the same period of time, net long-term borrowings decreased by $14,299,000. The
ability to finance expansion through operational cash flow is reflected in the
ratio of long-term debt to total capitalization, which is currently 29.6%
compared with 41.3% three years ago.
The Company's primary sources of liquidity during fiscal 1998 are
expected to be operating cash flow, borrowings under the Company's credit
facility and a mortgage from the seller of a property for a future store. On
May 30, 1997, the Company entered into a new loan agreement to replace its
expired agreement. The new loan agreement consists of three facilities: (1) a
term loan with an outstanding balance of $8,000,000 at July 26, 1997; (2) a
three-year, $13,000,000 revolving credit line ($3,000,000 outstanding at July
26, 1997) which can be used for any purpose except new store construction; and
(3) a three-year, $11,000,000 convertible revolving loan to fund equipment
purchases and store remodels. The Company was in full compliance with all terms
and restrictive covenants of all debt agreements at July 26, 1997 and expects
to be in compliance for the remaining term of these agreements.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings Per
Share." SFAS 128 requires companies with complex capital structures to present
both basic and diluted earnings per share ("EPS") on the face of the income
statement. The presentation of basic EPS replaces the presentation of primary
EPS currently required. Basic EPS is calculated as income available to common
stockholders divided by the weighted average number of common shares
outstanding during the period. Diluted EPS (previously referred to as fully
diluted EPS) is calculated using the treasury stock method for options and
warrants as previously prescribed. This statement is effective for financial
statements issued for interim and annual reports ended after December 15, 1997.
If SFAS 128 had been applied in fiscal 1997, there would have been no impact on
the Company's reported EPS.
IMPACT OF INFLATION AND CHANGING PRICES
Although the Company cannot accurately determine the precise effect of
inflation on its operations, it does not believe inflation has had a material
effect on sales or results of operations.
Consolidated Balance Sheets
July 26, July 27,
1997 1996
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 4,269,819 $ 3,244,139
Merchandise inventories 24,835,950 25,118,238
Patronage dividend receivable 2,048,696 2,483,382
Miscellaneous receivables 3,268,673 2,946,577
Deferred income taxes 211,220 -
Prepaid expenses 638,825 615,943
Total current assets 35,273,183 34,408,279
PROPERTY, EQUIPMENT AND FIXTURES, at cost
less accumulated depreciation and amortization 72,294,201 71,355,893
OTHER ASSETS
Investment in related party, at cost 10,350,617 10,174,339
Goodwill, net 10,338,891 10,605,171
Other intangibles, net 2,283,751 2,537,501
Receivables and other assets 2,223,602 1,981,307
Total other assets 25,196,861 25,298,318
$132,764,245 $131,062,490
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt:
Mortgages and notes payable $ 2,903,474 $ 4,670,067
Capitalized lease obligations 356,851 367,563
Accounts payable to related party 27,140,707 24,616,188
Accounts payable and accrued expenses 17,017,474 14,603,081
Deferred income taxes - 442,529
Income taxes payable 461,821 593,836
Total current liabilities 47,880,327 45,293,264
LONG-TERM DEBT, less current portion:
Mortgages and notes payable 14,949,612 16,938,894
Capitalized lease obligations 9,077,703 9,875,994
Total long-term debt 24,027,315 26,814,888
DEFERRED INCOME TAXES 3,775,890 3,947,559
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred stock, no par value:
Authorized 10,000,000 shares, none issued - -
Class A common stock, no par value:
Authorized 10,000,000 shares,
issued 1,762,800 shares 18,129,472 18,129,472
Class B common stock, no par value:
Authorized 10,000,000 shares,
issued and outstanding
1,594,076 shares 1,034,679 1,034,679
Retained earnings 44,101,565 42,027,631
Less treasury stock, Class A,
at cost (447,000 shares) (6,185,003) (6,185,003)
Total shareholders' equity 57,080,713 55,006,779
$132,764,245 $131,062,490
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended
July 26, July 27, July 29,
1997 1996 1995
SALES $688,860,873 $688,632,405 $677,321,821
COST OF SALES 518,006,209 518,251,470 511,451,057
GROSS MARGIN 170,854,664 170,380,935 165,870,764
Operating and administrative
expense 156,391,747 155,846,171 152,008,710
Depreciation and amortization
expense 7,695,087 8,554,703 8,618,374
Operating Income 6,767,830 5,980,061 5,243,680
Interest expense, net of
interest income of
$7,321, $88,574 and $58,488 3,322,510 3,615,667 4,030,535
Gain (loss) on disposal of assets - 942,125 (300,438)
INCOME BEFORE INCOME TAXES 3,445,320 3,306,519 912,707
PROVISION FOR INCOME TAXES 1,371,386 1,300,814 335,000
NET INCOME $ 2,073,934 $ 2,005,705 $ 577,707
NET INCOME PER SHARE $.71 $.69 $.20
See notes to consolidated financial statements.
Consolidated Statements of Shareholders' Equity
Years Ended July 26, 1997,
July 27, 1996 and July 29, 1995
Class A Class B
Common Stock Common Stock
Retained Treasury
Shares Amount Shares Amount Earnings Stock
Balance,
July 30,
1994 1,762,800 $18,129,472 1,594,076 $1,034,679 $39,444,219 $(6,185,003)
Net Income - - - - 577,707 -
Balance,
July 29,
1995 1,762,800 $18,129,472 1,594,076 $1,034,679 $40,021,926 $(6,185,003)
Net Income - - - - 2,005,705 -
Balance,
July 27,
1996 1,762,800 $18,129,472 1,594,076 $1,034,679 $42,027,631 $(6,185,003)
Net Income - - - - 2,073,934 -
Balance,
July 26,
1997 1,762,800 $18,129,472 1,594,076 $1,034,679 $44,101,565 $(6,185,003)
Consolidated Statements of Cash Flows
Years Ended
July 26, 1997 July 27, 1996 July 29, 1995
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $2,073,934 $2,005,705 $ 577,707
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation and
amortization 7,695,087 8,554,703 8,618,374
Deferred taxes (976,417) (135,744) (71,000)
Provision to value
inventories at LIFO 292,563 473,537 344,878
(Gain) loss on disposal
of assets - (942,125) 300,438
Changes in assets and liabilities:
(Increase) decrease
in merchandise inventories (10,275) (1,412,741) 749,238
Decrease in patronage dividend
receivable 434,686 199,498 99,590
(Increase) in miscellaneous
receivables (322,096) (269,058) (775,149)
(Increase) decrease in
prepaid expenses (22,882) 13,696 (49,515)
Decrease in income taxes
receivable - 459,873 411,440
(Increase) in receivables
and other assets (258,045) (105,577) (269,478)
Increase (decrease) in
accounts payable to
related party 2,524,519 (967,633) 1,636,438
Increase in accounts payable
and accrued expenses 2,414,393 2,000,177 272,723
Increase in income taxes
payable 18,983 665,837 -
Net cash provided by
operating activities 13,864,450 10,540,148 11,845,684
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (8,592,875) (9,754,268) (6,588,356)
Investment in related party (176,278) (354,521) (403,944)
Proceeds (expenditures) from
disposal of assets - 1,237,905 (295,687)
Net cash used in investing
activities (8,769,153) (8,870,884) (7,287,987)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of
long-term debt 13,555,555 - 3,000,000
Principal payments of
long-term debt (17,625,172) (8,080,409) (5,148,577)
Net cash used in
financing activities (4,069,617) (8,080,409) (2,148,577)
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS 1,025,680 (6,411,145) 2,409,120
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 3,244,139 9,655,284 7,246,164
CASH AND CASH EQUIVALENTS,
END OF YEAR $4,269,819 $3,244,139 $9,655,284
See notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of operations
Village Super Market, Inc. (the "Company") operates a chain of 22
ShopRite supermarkets in New Jersey and eastern Pennsylvania. The Company is a
member of Wakefern Food Corporation ("Wakefern"), the largest retailer-owned
food cooperative in the United States.
Principles of consolidation
The consolidated financial statements include the accounts of Village
Super Market, Inc. and its subsidiary, which is wholly owned. Intercompany
balances and transactions have been eliminated.
Fiscal year
The Company and its subsidiary utilize a 52-53 week fiscal year ending on
the last Saturday in the month of July. Fiscal 1997, 1996 and 1995 contain 52
weeks.
Industry segment
The Company consists of one operating segment, the retail sale of food
and non-food products.
Reclassifications
Certain amounts have been reclassified in the 1996 and 1995 consolidated
financial statements to conform to the 1997 presentation.
Cash and cash equivalents
Cash and cash equivalents includes interest-bearing, overnight deposits
with Wakefern in the amount of $900,000 at July 26, 1997.
Merchandise inventories
Merchandise inventories are carried at cost, which is not in excess of
market. Cost is determined as follows:
Grocery and non-foods - last-in, first-out (LIFO) (retail less
departmental gross profit mark-up).
Meat and all other perishables - first-in, first-out (FIFO).
Dairy and frozen foods - FIFO (retail less departmental gross profit
mark-up).
Property, equipment and fixtures
Property, equipment and fixtures are recorded at cost. Interest cost
incurred to finance construction is capitalized as part of such cost. Renewals
and betterments are capitalized. Maintenance and repairs are expensed as
incurred.
Depreciation is provided on a straight-line basis over estimated useful
lives of thirty years for buildings, ten years for store fixtures and
equipment, and three years for vehicles. Leasehold improvements are amortized
over the shorter of the related lease terms or the economic lives of the
related assets.
When assets are sold or retired, their cost and accumulated depreciation
are removed from the accounts, and any gain or loss is reflected in the
financial statements.
Store opening and closing costs
All store opening costs are expensed as incurred. Provisions are made for
losses resulting from store closings at the time of closing. This includes
items such as future lease payments, net of expected sublease recovery, and
charges to reduce assets to net realizable value.
Leases
Leases which meet certain criteria are classified as capital leases, and
assets and liabilities are recorded at amounts equal to the lesser of the
present value of the minimum lease payments or the fair value of the leased
properties at the inception of the respective leases. Such assets are amortized
on a straight-line basis over the shorter of the related lease terms or the
economic lives of the related assets. Amounts representing interest expense
relating to the lease obligations are recorded to affect constant rates of
interest over the terms of the leases. Leases which do not qualify as capital
leases are classified as operating leases, and related rentals are charged to
expense as incurred.
Goodwill
Goodwill arising after October 31, 1970 is being amortized over forty
years. The Company does not amortize goodwill amounting to approximately
$2,900,000 acquired prior to October 31, 1970 since, in management's opinion,
the value of such intangibles has not diminished. Accumulated amortization of
goodwill amounted to $3,073,090 and $2,806,810 at July 26, 1997 and July 27,
1996, respectively. The Company regularly assesses the recoverability of
unamortized amounts of goodwill utilizing relevant cash flow and profitability
information. The assessment of the recoverability of unamortized amounts will
be impacted if estimated future operating cash flows are not achieved.
Other intangibles
Other intangibles include the fair value of a favorable lease and
trademarks acquired in a business acquisition. Other intangibles are being
amortized over 20 years. Accumulated amortization of other intangibles amounted
to $2,791,249 and $2,537,499 at July 26, 1997 and July 27, 1996, respectively.
Income taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
basis. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Net income per share
Net income per share is computed by dividing net income by the weighted
average number of all common shares outstanding during the periods presented,
which was 2,909,876 in 1997, 1996 and 1995. Stock options are not included in
the calculation as their inclusion would be anti-dilutive or would not result
in a material dilution of net income per share.
Use of estimates
In conformity with generally accepted accounting principles, management
of the Company has made a number of estimates and assumptions relating to the
reporting of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
expenses during the reporting period. Actual results could differ from those
estimates.
Fair value of financial instruments
Cash and cash equivalents, miscellaneous receivables, accounts payable
and accrued expenses are reflected in the consolidated financial statements at
carrying value which approximates fair value because of the short-term maturity
of these instruments. The carrying value of the Company's short- and long-term
mortgages and notes payable approximates the fair value based on the current
rates available to the Company for similar instruments. As the Company's
investments in Wakefern can only be sold to Wakefern at amounts that
approximate the Company's cost, it is not practicable to estimate the fair
value of such stock.
Accounting changes
In 1997, the Company adopted SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." This
statement requires that certain assets be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. The effect of the adoption was not material.
In 1997, the Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation." This statement encourages the use of a fair-value based method
of accounting for stock options under which the fair value is determined on the
date of grant and expensed over the vesting period. Companies are permitted to
continue using the current method of accounting for stock compensation but are
required to disclose pro forma net income and earnings per share as if the fair
value method prescribed by SFAS No. 123 had been used to measure compensation
costs. The Company has elected to continue to account for such plans under the
intrinsic value method as in prior years. Under SFAS 123, stock options granted
prior to fiscal year 1997 are not required to be included as compensation in
determining pro forma net earnings. Accordingly, as the Company had no stock
option grants in fiscal 1997, no pro forma disclosures are required under SFAS
123.
NOTE 2 - INVENTORIES
Merchandise inventories are comprised as follows:
July 26, July 27,
1997 1996
Last-in, first-out (LIFO) $16,350,616 $16,688,387
First-in, first-out (FIFO) 8,485,334 8,429,851
$24,835,950 $25,118,238
If the FIFO method of inventory accounting had been used rather than
LIFO, inventories would have been $7,578,630 and $7,286,067 higher than
reported in 1997 and 1996, respectively.
NOTE 3 - PROPERTY, EQUIPMENT AND FIXTURES
Property, equipment and fixtures are comprised as follows:
July 26, July 27,
1997 1996
Land and buildings $48,818,539 $48,254,838
Store fixtures and equipment 57,444,535 58,909,615
Leasehold improvements 19,528,793 16,018,075
Leased property under capital leases 12,374,544 13,024,838
Vehicles 945,250 845,942
Construction in progress 1,938,602 1,795,141
141,050,263 138,848,449
Less accumulated depreciation
and amortization 68,756,062 67,492,556
Property, equipment and
fixtures - net $72,294,201 $71,355,893
Notes to Consolidated Financial Statements
(Continued)
NOTE 4 - RELATED PARTY INFORMATION
The Company's investment in its principal supplier, Wakefern, which is
operated on a cooperative basis for its stockholder members, is less than 20%
of the outstanding shares of Wakefern. The investment is pledged as collateral
for any obligations to Wakefern. In addition, this obligation is personally
guaranteed by the principal shareholders of the Company. The Company is
obligated to purchase 85% of its primary merchandise requirements from Wakefern
until ten years from the date that stockholders representing 75% of Wakefern
sales notify Wakefern that those stockholders request that the Wakefern
Stockholder Agreement be terminated.
The Company's merchandise payments to Wakefern approximated $502,510,000,
$498,982,000 and $484,491,000 during fiscal years 1997, 1996 and 1995,
respectively. Wakefern distributes as a "patronage dividend" to each member a
share of earnings of Wakefern in proportion to the dollar volume of business
done by the member with Wakefern during the year. Patronage dividends, which
are recorded as a reduction of cost of sales, amounted to $7,791,000,
$7,500,000 and $8,223,000 in 1997, 1996 and 1995, respectively.
Wakefern has increased from time to time the required investment in its
common stock for each supermarket owned by a member, with the exact amount per
store computed in accordance with a formula based on the volume of each store's
purchases from Wakefern. As a result, the Company is required to invest
approximately $119,000 over the next year. The Company will receive additional
shares of common stock to the extent paid for at the end of each fiscal year
(September 30) of Wakefern calculated at the then book value of such shares.
The payments, together with any stock issued thereunder, at the option of
Wakefern, may be null and void and all payments on this subscription shall
become the property of Wakefern in the event the Company does not complete the
payment of this subscription in a timely manner.
NOTE 5 - MORTGAGES AND NOTES PAYABLE
July 26, July 27,
1997 1996
Term loan, principal payable in monthly
installments of $55,556 with a final
principal payment of $5,555,555
due April 1, 2001 (a) $8,000,000 $8,666,667
Revolving credit note (a) 3,000,000 4,000,000
Senior unsecured notes, interest at
9.91% payable quarterly, due in
annual installments through August 15, 1997 600,000 3,100,000
Mortgage note, interest at 10.19% payable
semi-annually, due in three equal annual
installments beginning December 1, 1997,
collateralized by certain land and building 4,000,000 4,000,000
Note payable, interest at 7.16%, payable
in monthly installments through December 2003,
collateralized by certain equipment 2,253,086 1,842,294
17,853,086 21,608,961
Less current portion 2,903,474 4,670,067
Noncurrent maturities $14,949,612 $16,938,894
Aggregate principal maturities of mortgages and notes as of July 26, 1997 are
as follows:
Year ending July:
1998 $ 2,903,474
1999 2,325,870
2000 5,349,935
2001 6,375,791
2002 403,582
(a) On May 30, 1997, the Company entered into a new loan agreement to
replace its expired agreement. The new loan agreement consists of three
facilities:
(1) A term loan (outstanding balance of $8,000,000 at July 26,
1997) to replace the term loan outstanding under the expired facility.
(2) A three-year $13,000,000 revolving loan (outstanding balance of
$3,000,000 at July 26, 1997) which can be used for any purpose except new store
construction.
(3) A three-year $11,000,000 convertible revolving loan (no balance
outstanding) to fund equipment purchases and store remodels. Amounts
outstanding at the end of each of the three years convert to seven-year term
loans with equal monthly principal payments.
These loans are secured by substantially all of the Company's assets.
Indebtedness under this agreement bears interest at the prime rate or the
Eurodollar rate, at the Company's option, plus applicable margins based on the
Company's fixed charge coverage ratio. At July 26, 1997 the revolving loan
interest rate is 7.19%.
The Company is required to maintain certain levels of interest rate
protection. Accordingly, an interest rate swap agreement has been executed with
respect to the term loan, in which the Company agrees to exchange monthly the
difference between fixed and variable interest amounts based on the loan amount
outstanding. The interest differential paid or received monthly under this
agreement is recognized as interest expense in the consolidated financial
statements. This agreement has the effect of fixing the rate on the term loan
at 8.35%.
At July 26, 1997, the Company was in compliance with all terms and
covenants of all debt agreements. These agreements contain restrictive
covenants which, among other matters, specify total debt levels, maintenance of
net worth, fixed charge coverage ratios, limitation on payment of dividends and
limitation of capital expenditures.
The revolving loan provides a maximum commitment for letters of credit of
$3,000,000 ($1,700,000 outstanding at July 26, 1997) to secure obligations for
the Company's self-insured workers' compensation claims.
Interest paid amounted to $3,398,828, $3,750,151 and $4,073,646 in 1997,
1996 and 1995, respectively.
NOTE 6 - INCOME TAXES
The components of the provision for income taxes are:
1997 1996 1995
Federal:
Current $1,778,800 $ 883,713 $175,000
Deferred (728,630) 119,653 69,000
State:
Current 569,003 552,845 231,000
Deferred (247,787) (255,397) (140,000)
$1,371,386 $1,300,814 $335,000
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.
Significant components of the Company's deferred tax liabilities and assets are
as follows:
July 26, July 27,
1997 1996
Deferred tax liabilities:
Tax over book depreciation $5,094,475 $5,502,748
Patronage dividend receivable 818,249 991,863
Other 564,588 553,842
Total deferred tax liabilities 6,477,312 7,048,453
Deferred tax assets:
Amortization of capital leases 1,707,437 1,747,238
Tax credits and loss carryforwards - 202,035
Other 1,205,205 709,092
Total deferred tax assets 2,912,642 2,658,365
Net deferred tax liability $3,564,670 $4,390,088
A valuation allowance is provided when it is more likely than not that
some portion of the deferred tax assets will not be realized. In management's
opinion, in view of the Company's previous, current and projected taxable
income, such tax assets will more likely than not be fully realized.
Accordingly, no valuation allowance was deemed to be required at July 26, 1997
and July 27, 1996.
The effective income tax rate differs from the statutory federal income
tax rate as follows:
1997 1996 1995
Statutory federal income
tax rate 34.0% 34.0% 34.0%
Targeted jobs tax credit - (3.3) (14.5)
Amortization of intangibles 2.9 2.7 10.6
State income taxes, net of
federal tax benefit 6.2 5.9 6.6
Other (3.3) - -
Effective income tax rate 39.8% 39.3% 36.7%
Income taxes paid amounted to approximately $2,328,820 and $769,580 in
1997 and 1996, respectively. No income taxes were paid in 1995.
NOTE 7 - LONG-TERM LEASES
Description of leasing arrangements
The Company conducts a major part of its operations from leased
facilities, with the majority of initial lease terms ranging from 20 to 30
years. All of the Company's leases expire through fiscal 2059.
Most of the Company's leases contain renewal options of five years each.
These options enable the Company to retain the use of facilities in desirable
operating areas. Management expects that in the normal course of business,
leases will be renewed or replaced by other leases. The Company is obligated
under all leases to pay for utilities and liability insurance, and under
certain leases to pay additional amounts based on real estate taxes,
maintenance, insurance and a percentage of sales in excess of stipulated
amounts.
Future minimum lease payments by year and in the aggregate for all non-
cancelable leases with initial terms of one year or more consisted of the
following at July 26, 1997:
Capital Operating
Leases Leases
1998 $ 1,802,986 $ 3,759,390
1999 1,810,980 3,675,678
2000 1,822,395 3,677,784
2001 1,737,544 3,547,581
2002 1,688,376 2,959,639
Thereafter 14,426,528 26,172,098
Minimum lease payments 23,288,809 $43,792,170
Less amount representing
interest 13,854,255
Present value of minimum lease
payments $ 9,434,554
The following schedule shows the composition of total rental expense
under operating leases for the following periods:
1997 1996 1995
Minimum rentals $3,648,642 $3,429,223 $3,138,751
Contingent rentals 587,141 537,593 533,774
$4,235,783 $3,966,816 $3,672,525
Related party leases
The Company currently leases three supermarkets and its office facility
from realty firms partly or wholly-owned by officers of the Company. The
Company paid aggregate rentals under these leases, including minimum rent and
contingent rent, of approximately $1,163,000, $1,136,000 and $1,128,000 for
fiscal years 1997, 1996 and 1995, respectively. In addition, two supermarkets
are leased from partnerships in which the Company is a partner.
NOTE 8 - COMMON STOCK
Class A common stock has one vote per share and is entitled to cash
dividends as declared 54% greater than those paid on the Class B common stock.
Class B common stock has ten votes per share. Class B common stock is not
transferrable except to another holder of Class B common stock or by will or
under the laws of intestacy or pursuant to a resolution of the Board of
Directors of the Company approving the transfer. Shares of Class B common stock
are convertible on a share-for-share basis for Class A common stock.
The Company has an Incentive and Nonstatutory Stock Option Plan under
which both incentive and nonstatutory options to purchase up to 150,000 shares
of the Company's Class A common stock may be granted to officers and employees
of the Company as designated by the Board of Directors. The plan requires
incentive stock options to be granted at an exercise price equalling the fair
market value of the Company's stock at the date of grant (110% if the optionee
holds more than 10% of the voting stock of the Company), while nonstatutory
options may be granted at an exercise price less than market value. All options
granted to date are at an exercise price equal to the fair value at the date of
grant. All options outstanding at July 26, 1997 expire on December 6, 1997.
There were no transactions in fiscal 1997, 1996 and 1995. There are 130,000
options outstanding and exercisable at an average price of $8.00 at July 26,
1997.
Notes to Consolidated Financial Statements
(Continued)
NOTE 9 - PENSION PLANS
The Company sponsors three defined benefit pension plans covering
administrative personnel and members of two unions. Employees covered under the
administrative pension benefit plan earn benefits based upon percentages of
annual compensation. Employees covered under the union pension benefit plans
earn benefits based on a fixed amount for each year of service. The Company's
funding policy is to pay at least the minimum contribution required by the
Employee Retirement Income Security Act of 1974.
Net periodic pension cost for the three plans included the following
components:
1997 1996 1995
Service cost $488,167 $484,461 $486,332
Interest cost on projected
benefit obligation 499,282 466,819 402,909
Return on plan assets (1,676,672) (637,724) (444,026)
Net amortization and deferral 1,131,839 157,823 7,836
Net periodic pension cost $442,616 $471,379 $453,051
The funded status of the three pension plans is reconciled to accrued
pension cost as follows:
July 26, July 27,
1997 1996
Plan assets at fair value $7,610,382 $6,275,380
Actuarial present value of benefit obligations:
Vested benefits 5,919,122 5,570,363
Non-vested benefits 68,742 92,875
Accumulated benefit obligations 5,987,864 5,663,238
Effect of future increases in compensation levels 1,148,282 1,035,459
Projected benefit obligation 7,136,146 6,698,697
Projected benefit obligation less than
(in excess of) plan assets 474,236 (423,317)
Unrecognized prior service cost 305,055 348,021
Unrecognized net (gain) loss (646,745) 523,478
Remaining unrecognized net asset at
July 25, 1987
(amortized over 15 to 18 years) (310,979) (373,424)
Additional liability (144,491) (292,038)
Accrued pension cost $ (322,924) $ (217,280)
Plan assets are invested principally in government securities, common
stocks and mutual funds.
Assumptions used in determining the net fiscal 1997, 1996 and 1995
periodic pension cost were:
Assumed discount rate 8.0 to 8.5%
Assumed rate of increase in compensation levels 4%
Expected rate of return on plan assets 8.0 to 8.5%
The Company also participates in several multiemployer pension plans for
which the 1997, 1996 and 1995 contributions were $1,731,000, $1,748,000 and
$1,785,000, respectively.
NOTE 10 - COMMITMENTS AND CONTINGENCIES
The Company is under contract to purchase a tract of land on which it
plans to construct a superstore. Costs incurred related to this project are
included in construction in progress as the Company believes such costs will be
recoverable from the development of the property.
The Company's general liability insurer, InsureRite, Ltd., a Wakefern
affiliated company, can make premium calls for premiums paid for the years
ended December 1, 1993 and December 1, 1994. Based on advice from the insurer,
the Company has recorded liabilities for the estimated premium calls.
The Company is involved in litigation incidental to the normal course of
business. Company management is of the opinion that insurance coverage is
adequate and final disposition should not materially affect the consolidated
financial position of the Company.
Independent Auditors' Report
The Board of Directors and Shareholders
Village Super Market, Inc.:
We have audited the accompanying consolidated balance sheets of Village
Super Market, Inc. and subsidiary as of July 26, 1997 and July 27, 1996, and
the related consolidated statements of operations, shareholders' equity and
cash flows for each of the years in the three-year period ended July 26, 1997.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Village
Super Market, Inc. and subsidiary at July 26, 1997 and July 27, 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended July 26, 1997 in conformity with generally accepted
accounting principles.
KPMG PEAT MARWICK LLP
Short Hills, New Jersey
September 30, 1997
Stock Price and Dividend Information
The Class A common stock of Village Super Market, Inc. is traded on the
NASDAQ National Market tier of the NASDAQ Stock Market under the symbol
"VLGEA." The table below sets forth the high and low last reported sales price
for the fiscal year indicated.
Class A Stock
High Low
1997
4th Quarter 9-1/4 8-1/2
3rd Quarter 10-1/4 8-1/2
2nd Quarter 10-1/2 9
1st Quarter 10-1/4 8-1/2
1996
4th Quarter 10 7-1/2
3rd Quarter 8-1/2 7
2nd Quarter 7-3/4 6-3/4
1st Quarter 8 6-7/8
As of September 27, 1997, there were 463 holders of record of the
Company's Class A common stock.
No dividends were paid during fiscal 1997 and 1996.
Village Super Market Inc.
CORPORATE DIRECTORY
OFFICERS AND DIRECTORS
PERRY SUMAS
Chief Executive Officer and President; Director
JAMES SUMAS
Chairman of the Board; Chief Operating Officer
and Treasurer; Director
ROBERT SUMAS
Executive Vice President and Secretary; Director
WILLIAM SUMAS
Executive Vice President; Director
JOHN SUMAS
Executive Vice President; Director
CAROL LAWTON
Vice President and Assistant Secretary
FRANK SAURO
General Counsel
KEVIN BEGLEY
Chief Financial Officer
GEORGE J. ANDRESAKES
Director
JOHN J. McDERMOTT
Director
NORMAN CRYSTAL
Director
EXECUTIVE OFFICES
733 Mountain Avenue
Springfield, New Jersey 07081
REGISTRAR AND TRANSFER AGENT
First City Transfer Company
P.O. Box 170
Iselin, New Jersey 08330
AUDITORS
KPMG Peat Marwick LLP
150 John F. Kennedy Parkway
Short Hills, New Jersey 07078
FORM 10-K
Copies of the Company's Form 10-K as filed with the Securities
and Exchange Commission are available without charge upon written
request to:
Mr. Robert Sumas, Secretary
Village Super Market, Inc.
733 Mountain Avenue
Springfield, New Jersey 07081
CORESTATES BANK, N.A.
LOAN AGREEMENT
This Loan Agreement is made as of this 30th day of May,
1997,
AMONG CORESTATES BANK, N.A. ("CoreStates"), a national
banking association having an office at 51 John F.
Kennedy Parkway, Short Hills, New Jersey 07078;
SUMMIT BANK, a New Jersey banking association having an
office at 750 Walnut Avenue, Cranford, New Jersey,
07016 ("Summit"), individually a "Bank" and
collectively the "Banks");
CORESTATES BANK, N.A., as agent for the Banks (in such
capacity, together with its successors in such
capacity, the "Agent")
AND VILLAGE SUPER MARKET, INC. (the "Borrower"), a New
Jersey corporation having its principal place of
business at 733 Mountain Avenue, Springfield, New
Jersey 07081.
Purpose: This Loan Agreement is intended to set the
terms of certain loans involving the Banks and the Borrower.
In exchange of the mutual covenants in the Loan
Documents and other good and valuable consideration, receipt and
sufficiency of which is hereby acknowledged, the parties to this
Loan Agreement hereby agree to the following terms, conditions
and provisions:
SECTION I - DEFINITIONS
1.1 Capitalized Terms. The capitalized terms in this
Loan Agreement shall be defined as follows:
"Affiliate" of a Person means another Person who
directly or indirectly controls, is controlled by, or is under
common control with such Person.
"Applicable Margin" means a number of Basis Points
determined as follows:
Then the
Applicable
If the Fixed Charge Margin for a And the Applicable
Coverage Ratio computed Eurodollar Loan Margin for a Base
at the end of the immed- for the current Rate Loan for the
iately prior Fiscal Fiscal Quarter current Fiscal
Quarter was: shall be: Quarter shall be:
Equal to or > 1.25 but < 225 Basis Points 25 Basis Points
1.35
Equal to or >1.35 but < 200 Basis Points 0 Basis Points
1.40 175 Basis Points 0 Basis Points
Equal to or > 1.40 <1.50
Equal to or > 1.50 or 150 Basis Points 0 Basis Points
equal to 1.75
Greater than 1.75 135 Basis Points 0 Basis Points
Any increase or decrease in the Applicable Margin hereunder shall
be effective two (2) Banking Days after the Borrower has
delivered to the Agent all of the financial information for the
prior Fiscal Quarter required hereunder.
"Banking Day" means any day excluding Saturday, Sunday
and any day that in the State of New Jersey is a legal holiday or
a day on which banking institutions are authorized by law to
close.
"Base Rate" means the Agent's Prime Rate.
"Base Rate Loan" means any Loan or any portion of any
Loan bearing interest at a rate that is based on the Base Rate.
"Base Rate Period" means, as to each Base Rate Loan,
the period commencing on the Banking Day specified by the
Borrower in an applicable Notice of Borrowing or, as to any
subsequent borrowing, on the applicable Interest Payment Date and
ending on the Banking Day upon which Borrower chooses to repay
that Base Rate Loan, provided that no Base Rate Period shall
extend beyond the Maturity Date of the applicable credit
facility.
"Basis Point" means one one-hundredth (.01) of a
percentage point.
"Borrower" means the "Borrower" named in the caption of
this Loan Agreement and its successors and assigns.
"Capital Expenditure" means gross expenditures which
have been or should be capitalized in accordance with GAAP (as
properly indicated by the capital expenditures reported on the
Companies' Statement of Cash Flows as prepared in accordance with
FASB 95).
"Capital Lease" means any lease which has been or
should be capitalized on the books of the lessee in accordance
with GAAP.
"Chemical" means Chase Manhattan Bank, N.A., the
successor to Chemical Bank New Jersey, National Association.
"COF" means cost of funds of a Bank as determined by
such Bank.
"Collateral" means any Property in which the Banks have
been, or may be, granted an interest to provide security for any
Obligation, including but not limited to all assets of the
Borrower including accounts receivable, inventory, equipment and
general intangibles of the Borrower (but not the stock held by
Borrower in Wakefern or InsuRite), all of the Borrower's present
and future deposit accounts of all kinds, all of Borrower's real
property located in Palmer Township, Pennsylvania and Somers
Point, Middle Township, Absecon, Elizabeth, Egg Harbor, New
Jersey and certain real property owned by Sumas Realty Corp. in
Springfield, New Jersey, all as further described in the Security
Agreement and the Mortgages.
"Commitment" means in the aggregate initially
$22,038,194 with respect to CoreStates (68.75% of the aggregate
Commitments) and $10,017,361 with respect to Summit (31.25% of
the aggregate Commitments), as such amounts may be reduced from
time to time pursuant to Sections 2.3 or otherwise hereunder,
with the respective commitments as to the individual credit
facilities hereunder being in like proportions as follows: (a)
Revolving Loan: CoreStates - $8,937,500, Summit - $4,062,500;
(b) Term Loan: CoreStates - $5,538,194 Summit - $2,517,361.00;
and (c) Convertible Revolver: CoreStates - $7,562,500, Summit -
$3,437,500.
"Company" means any of Borrower and the Subsidiaries.
"Companies" means Borrower and all of the Subsidiaries.
"Conversion Dates" means the First Conversion Date, the
Second Conversion Date and the Third Conversion Date.
"Convertible Revolver" or "Convertible Revolver Loans"
means the revolving credit facility converting to a term loan
provided for in Article IV hereof.
"Convertible Revolver Notes" means collectively the
Convertible Revolver Notes of this date from Borrower to the
order of the Banks evidencing the Convertible Revolver, the
Convertible Revolver Notes to be dated as of each Conversion Date
from the Borrower to the order of the Banks and any amendments or
modifications thereof or substitutions therefor. A copy of each
of the initial Convertible Revolver Notes is annexed to this Loan
Agreement as "Exhibits D-1 and D-2". A copy of a form of
Convertible Revolver Note to be issued by the Borrower on each
Conversion Date for the term portions of such loans is annexed to
this Loan Agreement as "Exhibits D-3, D-4 and D-5."
"Date of Closing" means the date of the execution and
delivery of this Loan Agreement.
"Debt to Tangible Net Worth Ratio" means the Companies'
total Liabilities (as defined herein) divided by the Companies'
Tangible Net Worth (as defined herein).
"Default" means any condition or event that, with
notice or lapse of time, would give rise to an Event of Default.
"EBITDALGLE" means Net Income of the Companies before
interest expense, taxes, depreciation, amortization, LIFO
provision, gains or losses on the disposal of any assets or store
closings and any items of extraordinary income or expense, all as
computed in accordance with GAAP.
"ERISA" means the Employee Retirement Income Security
Act of 1974, as amended from time to time, and the regulations
promulgated thereunder.
"Event of Default" means any event of default listed in
Section IX.
"Eurodollar Banking Day" means any Banking Day on
which dealings in dollar deposits are conducted by and among
banks in the London Eurodollar market and which is not a day on
which banking institutions in New York that serve as domestic
correspondents for the London Eurodollar market are authorized to
close.
"Eurodollar Loan" means any portion of the Revolving
Loan, the Term Loan or the Convertible Revolver that is based on
the Eurodollar Rate.
"Eurodollar Period" means, as to each Eurodollar Loan,
the period commencing on the date specified by Borrower and
ending on a day that is one month, two months, three months or
six months thereafter, as specified by Borrower in the applicable
Notice of Borrowing provided that:
(a) The first day of any Eurodollar Period shall be a
Eurodollar Banking Day;
(b) Any Eurodollar Period that would otherwise end on a
day that is not a Eurodollar Banking Day shall be
extended to the next succeeding Eurodollar Banking Day
unless such Eurodollar Banking Day falls in another
calendar month, in which case such Eurodollar Period
shall end on the next preceding Eurodollar Banking Day;
and
(c) No Eurodollar Period shall extend beyond the
Maturity Date for the particular credit facility to
which it is being applied.
"Eurodollar Rate" means the rate per annum determined
pursuant to the following formula:
ED = [LIBOR]*
[ 1.00 - EDRP]
ED = Eurodollar Rate
LIBOR = London Interbank Offering Rate
EDRP = Eurodollar Reserve Percentage
(*ED being rounded upwards, if necessary, to the next higher 1/16
of 1%).
The Eurodollar Rate shall be adjusted automatically on and as of
the effective date of any change in the Eurodollar Reserve
Percentage as it applies to Eurocurrency liabilities, unless such
change does not effect the cost to the Banks of maintaining the
Eurodollar Loan during the Eurodollar Period.
"Eurodollar Reserve Percentage" means, with respect to
any Eurodollar Loan, the percentage applicable to new time
deposits representing the maximum aggregate incremental reserve,
asset or special deposit requirements of the Banks (disregarding
any offsetting amounts that may be available to the Banks to
decrease such requirements to the extent that such offsetting
amounts arose out of transactions other than those contemplated
by this Agreement) under Regulation D and any other applicable
loan laws with respect to new non-personal time deposits in an
aggregate amount equal to the amount of the Eurodollar Loan and
for a time period comparable to the number of days in the
applicable Eurodollar Period. The determination by the Banks of
any applicable Eurodollar Reserve Percentage shall be conclusive
in the absence of manifest error.
"Existing Credit Facility" means the credit facility
provided pursuant to a Loan Agreement dated March 29, 1994 among
CoreStates, Chemical, and the Borrower.
"First Conversion Date" means the date in 1998 that is
one year from the Date of Closing.
"First Principal Balance" and "Second Principal
Balance" have the meanings set forth in Section 4.3.
"Fiscal Year" means the fiscal year for each Company
which is the 52 or 53 week period ending on the last Saturday of
the month of July of each calendar year.
"Fiscal Quarter" means the four fiscal quarters in each
Fiscal Year of the Borrower as adopted by the Borrower for
reporting purposes with the Securities and Exchange Commission
("SEC") or (if the Borrower is no longer a reporting company with
the SEC) as otherwise reasonably adopted by the Borrower in good
faith.
"Fixed Charge Coverage Ratio" means EBITDALGLE plus
rent expense for the four (4) prior Fiscal Quarters (inclusive of
the most recently completed Fiscal Quarter) divided by the sum of
interest expensed and capitalized, rent expense, taxes (excluding
taxes or tax credits arising from gains and/or losses on the
disposal of any assets or closing of stores), Current Maturities
of Long Term Debt (including current portion of Capital Leases)
and dividends for such period, on a consolidated basis, all as
computed in accordance with GAAP, except that Interest Expense
and the Current Maturity Of Long Term Debt for Permitted Garwood
Financing are specifically excluded from this calculation.
"GAAP" means generally accepted accounting principles,
consistently applied.
"Garwood Facility" means the proposed supermarket to be
constructed in Garwood, New Jersey (bordering Westfield).
"Guarantor" means, collectively, Village Liquor Shop
("Liquor"), a wholly owned subsidiary of the Borrower, and Sumas
Realty Company ("Realty"), an Affiliate of the Borrower which is
also the owner of the Borrower's principal place of business.
"Guaranty" shall mean each guaranty of Borrower's
Obligations to the Banks executed by Guarantor (and non-recourse
as to Realty except for the assets mortgaged to the Banks)
pursuant to a Continuing Guaranty Agreement dated this date in
favor of the Banks in the form of "Exhibit F" to this Loan
Agreement, as it may be amended or supplemented from time to
time.
"Hazardous Substance(s)" means any pollutants and
dangerous substances including radon, and any "hazardous wastes"
or "hazardous substances" as defined in the Industrial Site
Recovery Act (N.J.S.A. 13:1K-6 et seq.), the Spill Compensation
and Control Act (N.J.S.A. 58:10-23.11 et seq.), the Resource
Conservation and Recovery Act (42 U.S.C. 6901 et seq.), the
Comprehensive Environmental Responsibility Compensation and
Liability Act (42 U.S.C. 9601 et seq.) or any other state or
federal environmental law or regulation.
"Interest Payment Date" means:
(a) as to any Base Rate Loan, the first day
of each month and the applicable Maturity Date; or
(b) as to any Eurodollar Loan, the last day
of each Eurodollar Period; provided, however, that when
the applicable Eurodollar Period is more than one
month, interest shall also be payable on the same day
in each calendar month that the Eurodollar Period
commenced (or the last day of the month if there is no
corresponding date in such month).
"Interest Period" means any Base Rate Period or
Eurodollar Period.
"InsuRite" means Insure-Rite Ltd., a captive insurance
company owned by Wakefern, the Borrower and various other
entities.
"Lease Assignments" means (a) the first priority
assignments of leases, rents and profits granted by Borrower this
date in favor of the Agent and the Banks on the Borrower's real
property in Palmer Township, Pennsylvania and Somers Point,
Middle Township, Absecon, Elizabeth, New Jersey, (b) the first
priority assignments of leases, rents and profits granted by
Sumas Realty Corp. this date in favor of the Agent and the Banks
on the real property owned by Sumas Realty Corp. in Springfield,
New Jersey and (c) the second priority assignments of leases,
rents and profits granted by Borrower this date in favor of the
Agent and the Banks on the Borrower's real property in and Egg
Harbor, New Jersey.
"Lending Office" means, for each Bank, the lending
office of such Bank designated on the signature pages hereof or
such other office of such Bank as such Bank may from time to time
specify to the Agent and the Borrower as the office by which its
Loans are to be maintained.
"Letter of Credit" is defined in Section 2.10(a).
"Liabilities" means, at any date, (i) the amount of all
liabilities and obligations that, in accordance with GAAP, should
be classified as liabilities as shown on the liability side of a
consolidated balance sheet of the Borrower or Guarantor, as the
case may be at such date inclusive of all amounts for deferred
taxes and (ii) all guarantees and endorsements (including all
indebtedness and liabilities guaranteed, directly or indirectly
in any manner by Borrower or Guarantor, as the case may be,
including letters of credit and standby letters of credit (except
for the workman's compensation letter of credit to the extent
accrued as a liability on the Borrower's balance sheet)).
"LIBOR" means with respect to any Eurodollar Loan the
rate at which the Agent is offered deposits in U.S. dollars at
11:00 a.m., London time, on the second Eurodollar Banking Day
preceding the date of such Borrowing in the London Interbank
Eurodollar Market for the relevant Eurodollar Period of the
Eurodollar Loan and in an amount approximately equal to the
amount of such Borrowing and in like funds. The Agent's
determination of LIBOR shall be conclusive in the absence of
manifest error.
"Lien" means any mortgage, pledge, security interest,
encumbrance, collateral assignment, lien or charge of any kind
(including any agreement to give any of the foregoing), any
conditional sale or other title retention agreement or any lease
in the nature thereof.
"LIFO" means the LIFO provision for any period,
computed in accordance with GAAP.
"Loan" means any loan maintained by a Bank pursuant to
Sections II, III or IV hereof.
"Loan Agreement" means this Loan Agreement.
"Loan Document(s)" means this Loan Agreement, the
Guaranties, the Mortgages, the Security Agreement, the Mortgage
Subordination Agreement and all documents, notes, assignments,
certificates and agreements of any kind listed, described or
referenced on the Closing Memorandum annexed to this Loan
Agreement as "Exhibit A" or otherwise executed in connection with
this Loan Agreement.
"Make Whole Fee" is defined in Section 5.5.
"Make Whole Rate" is defined in Section 5.5
"Maturity Date" means (a) as to any Revolving Loan, May
30, 2000 (the "Revolving Loan Maturity Date"), (b) as to the Term
Loan, April 1, 2001 (the "Term Loan Maturity Date"), and (c) as
to each of the three term loans issued after the three Conversion
Dates under the Convertible Revolver ("Convertible Term Loans"),
May 30, 2005, 2006 and 2007 (the "Convertible Revolver Maturity
Dates").
"Mortgage Subordination Agreement" means the Mortgage
Subordination and Intercreditor Agreement of this date between
the Bank and Travelers, as may be amended or supplemented from
time to time.
"Mortgages" means (a) the first priority mortgages
granted by Borrower this date in favor of the Agent and the Banks
on the Borrower's real property in Palmer Township, Pennsylvania
and Somers Point, Middle Township, Absecon, Elizabeth, New
Jersey, (b) the first priority mortgage granted by Sumas Realty
Corp. this date in favor of the Agent and the Banks on the real
property owned by Sumas Realty Corp. in Springfield, New Jersey
and (c) the second priority mortgages granted by Borrower this
date in favor of the Agent and the Banks on the Borrower's real
property in Egg Harbor, New Jersey.
"Net Income" means net income for the Companies
calculated on a consolidated basis in accordance with GAAP.
"Note Purchase Agreement" means collectively (a) the
note purchase agreement dated on or about August 18, 1987
involving Borrower and Travelers, and (b) the note purchase
agreement dated on or about December 1, 1988 involving Borrower
and Travelers, each as amended from time to time.
"Notes" means collectively the Revolving Loan Note, the
Term Note, and the Convertible Revolver Note.
"Notice of Borrowing" means the notice of borrowing as
described in Sections 2.6(A) and 4.6(A).
"Obligation(s)" means all debts, liabilities, duties
and obligations owing by any Company to any Bank, whether direct
or indirect, now existing or in the future created or acquired,
contingent or non-contingent, due or to become due, liquidated or
unliquidated, including those arising under the Term Loan,
Revolving Loan, Convertible Revolver, commitments of any kind by
either Bank to, or on behalf of any Company, all expenses of
either Bank to protect its interests under any Loan Documents,
and all other debts and obligations relating to, or arising
under, this Loan Agreement or any other Loan Document.
"Obligor" means the Borrower or the Guarantor.
"Opinion Letter" means the opinion letter from the
Companies' counsel to the Banks and their counsel in the form
annexed as "Exhibit E" to this Loan Agreement.
"Permitted Dispositions" means (a) the sale or
disposition of the Companies' store facilities in Palmer
Township, Pennsylvania, or South Orange, New Jersey, or its
Bernardsville annex provided that any such disposition is made in
an arms length transaction or (b) the sale or disposition of
undeveloped land of the Companies in Chester, Garwood or
Westfield, New Jersey, provided that any such disposition is made
in an arm's-length transaction, and provided further that the
Revolving Loan has not expired or otherwise matured or become
due.
"Permitted Encumbrance(s)" means any of the following:
(a) taxes, assessments and other governmental charges not yet due
and payable or that can be paid without penalty, or that are
currently being contested in good faith by appropriate
proceedings; provided, the Companies shall have set aside on
their books adequate reserves for any tax, assessment or other
governmental charge so being contested; (b) workmen's,
repairmen's, warehousemen's and carriers' liens and other similar
Liens arising in the ordinary course of business for charges not
delinquent or that are currently being contested in good faith by
appropriate proceedings provided, the Borrower shall have set
aside on its books adequate reserves for such Liens being
contested; (c) easements, rights of way, exceptions,
encroachments, reservations, restrictions, conditions or
limitations that do not in the aggregate materially interfere
with or impair the intended use of any property or render title
to any property unmarketable; (d) rights reserved to, or vested
in, any municipality or governmental or other public authority
that do not in the aggregate materially interfere with or impair
the intended operation or use of any property or render title to
any property unmarketable; (e) a purchase money mortgage in favor
of Norman Sevell on certain land in Westfield, New Jersey in the
original principal amount of $4,150,000, (f) liens on or in
shares of capital stock of Wakefern owned by Borrower to secure
Borrower's obligations to Wakefern to make capital contributions
to Wakefern and indebtedness owing to Wakefern with respect to
the purchase of inventory, (g) liens listed on Exhibit 6 to the
Principal's Certificate and consented to by the Banks, (h) a
mortgage in favor of Traveler's on certain land in Egg Harbor,
New Jersey in the original principal amount of $4,000,000, and
with a current balance outstanding of $4,000,000 or less, (i)
liens other than liens listed or described above securing in the
aggregate Liabilities of less than Five Hundred Thousand Dollars
($500,000), (j) mortgages and liens in favor of Travelers being
granted this date which secure no more than $4,600,000 (inclusive
of the amounts described in clause (i)) and which are equal in
priority to the mortgages and liens being granted to the Banks
this date and are subject to the Mortgage Subordination
Agreement, (k) purchase money Liens for equipment purchased under
any Wakefern-sponsored financing program so long as the Lien only
affects and attaches to the equipment so purchased, (l) Liens
securing the Permitted Garwood Financing so long as such Liens
only affect or attach to Borrower's Garwood or Westfield
Properties and the improvements constructed by Borrower thereon
provided that the debt does not violate any terms of this Loan
Agreement or otherwise result in an Event of Default, (m) Liens
in favor of Wakefern on deposits made with Wakefern and (n) Liens
in favor of the Banks.
"Permitted Garwood Financing" means debt incurred in
the construction or outfitting of Borrower's Garwood and/or
Westfield properties; provided that such debt (a) does not exceed
$7,200,000 in the aggregate, (b) otherwise is on terms and
conditions acceptable to the Banks in their sole reasonable
discretion, which consent shall be obtained by the Borrower from
the Banks in writing prior to incurring any such debt.
"Person(s)" means an individual, corporation,
partnership, limited partnership, limited liability company,
joint venture, trust, joint stock company, unincorporated
organization, association, governmental agency or political
subdivision.
"Plan(s)" means each employee benefit plan maintained
for employees of any Company, as defined in Section 3(2) of the
Employee Retirement Income Act of 1974, as amended.
"Prime" or "Prime Rate" means the rate of interest that
CoreStates adopts from time to time as its official Prime Rate.
The Prime Rate is not tied to any external rate of interest or
index and does not necessarily reflect the lowest rate of
interest actually charged at any given time by CoreStates to any
particular class or category of customers of such Bank. Any
change in the Prime Rate shall be effective immediately when
adopted by CoreStates, without notice to the Borrower.
"Principal's Certificate" means the principal's
certificate of this date given to the Banks by the president of
Borrower.
"Property" means all property, rights and interests
presently owned or in the future created or acquired by any
Company, whether tangible or intangible, including realty,
fixtures, goods, inventory, equipment, real property leases,
stock, instruments, chattel paper, bank accounts and equipment
leases, including the stock of the Subsidiaries, and the proceeds
and products of the foregoing.
"Required Retained Earnings" means the sum of the
Companies' Net Income for each Fiscal Year concluded after July
1996 less the amount of dividends and stock repurchases paid
after July 1996, but only to the extent that such dividends or
stock repurchases were permitted pursuant to Section 8.5 hereof.
"Revolving Loan" means the loans described in Section
II.
"Revolving Note" means collectively the Revolving Notes
of this date from Borrower to the order of the Banks and any
amendments or modifications thereof. A copy of each Revolving
Note is annexed to this Loan Agreement as "Exhibits B-1 and B-2".
"Second Conversion Date" means the date in 1999 which
is two year after the Date of Closing.
"Section" means a section of this Loan Agreement.
"Security Agreement" means the Security Agreement dated
this date in which the Borrower grants the Agent and the Banks a
first priority lien on all of its inventory, equipment, accounts,
general intangibles, deposit accounts and all of its other assets
(subject to Permitted Encumbrances).
"Subsidiaries" means Village Liquor Shop, Inc. or any
other corporation or similar entity, a majority of the stock of
which is owned directly or indirectly by the Borrower or the
Guarantor.
"Sumas Family" means the Estate of Nicholas Sumas,
Perry Sumas, Robert Sumas, James Sumas, William Sumas and John
Sumas.
"Tangible Net Worth" means (x) total "assets" less (y)
total "liabilities". For purposes of this definition "assets"
and "liabilities" shall be determined in accordance with GAAP,
except that there shall be (a) excluded from the definition of
"assets" all intangible assets including organizational expenses,
patents, trademarks, service marks, copyrights, goodwill,
covenants not to compete, research and development costs,
treasury stock, and monies due from principals and Affiliates and
all unamortized debt discounts and deferred charges, and (b)
deducted from "assets" reserves for LIFO, depreciation,
depletion, obsolescence and amortization and all other proper
reserves that are required to be maintained pursuant to the Loan
Agreement or that, in accordance with GAAP, should be established
in connection with the business conducted by the Companies.
"Term" means the duration of this Loan Agreement as set
forth in Section 5.6.
"Term Loan" means the loan described in Section III.
"Term Note" means collectively the CoreStates Term Note
and the Summit Term Note, each of this date from the Borrower to
the order of CoreStates and Summit, respectively, evidencing in
the aggregate the Term Loan and any amendments or modifications
thereof. The "CoreStates Term Note" shall be in the original
principal amount of $5,538,194.00. The "Summit Term Note" shall
be in the original principal amount of $2,517,361.00. A copy of
each Term Note is annexed to this Loan Agreement as "Exhibits C-1
and C-2".
"Termination Event" means a "reportable event" as
defined in section 4043(b) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), the filing of a
notice to terminate under section 4041 of ERISA or any other
event or condition that might constitute grounds under section
4042 of ERISA for the termination of, or for the appointment of a
trustee to administer, any Plan.
"Third Conversion Date" means the date in 2000 which is
three years after the Date of Closing.
"Travelers" means The Travelers Insurance Company and
The Travelers Indemnity Company.
"Wakefern" means Wakefern Food Corp., a New Jersey
corporation.
1.2 Interpretation. Unless otherwise specified, the
following rules of construction shall apply to this Loan
Agreement:
(A) The term "any" shall be construed as if
followed by the phrase "one or more"; the term "including" shall
be construed as if followed by the phrase "without limitation";
and the term "days" shall be construed as if preceded by the word
"calendar", unless it is capitalized and is preceded by the word
"Banking".
(B) Singular words include the plural and plural
words include the singular.
(C) Title headings and subheadings are for
organizational purposes only and neither add to, nor limit, the
meaning of any provision.
(D) All accounting terms not specifically defined
herein shall be construed in accordance with GAAP and all
financial data required to be delivered hereunder shall be
prepared in accordance with GAAP.
(E) Any actions, determinations or decisions to
be taken by the Banks hereunder shall require the unanimous
consent of the Banks.
SECTION II - REVOLVING LOAN
Subject to the terms and conditions set forth in this
Loan Agreement and the full satisfaction of all requirements of
the Banks and their counsel, including delivery of all documents
listed on Exhibit A, and the absence of any Default or Event of
Default, the Banks severally will, from time to time, make loans
to the Borrower in proportion to their Commitments, in such
amounts and under such terms as set forth below:
2.1 Amount of Loans. The aggregate amount of all
loans and extensions of credit at any time outstanding under the
Revolving Loan shall not exceed THIRTEEN MILLION and 00/100
DOLLARS ($13,000,000). The Borrower may request that Revolving
Loans be made in the form of a Base Rate Loan or Eurodollar Loan
in accordance with the procedures, and subject to the
limitations, set forth in this Loan Agreement. Until the
Revolving Loan Maturity Date, in the absence of any Default or
Event of Default; the Borrower may borrow, reborrow and repay the
Revolving Loan so long as the aggregate outstanding balance is
never in excess of $13,000,000.
2.2 Loans In Excess o