SECURITIES & EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
(Mark One)
[x] Annual Report Pursuant to Section 13 or 15(d) of the Securities and
Exchange Act of 1934.
For the fiscal year ended: July 31, 2004.
[ ] 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 incorporation (I. R. S. Employer 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:
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]
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act.) Yes No X
The aggregate market value of the Class A common stock of Village Super Market, Inc. held by non-affiliates was approximately $45,570,000 and the aggregate market value of the Class B common stock held by non-affiliates was approximately $14,106,000 (based upon the closing price of the Class A shares on the NASDAQ on January 24, 2004, the last business day of the second fiscal quarter). 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 21, 2004
Class A common stock, no par value 1,558,700 Shares
Class B common stock, no par value 1,594,076 Shares
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DOCUMENTS INCORPORATED BY REFERENCE
Information contained in the 2004 Annual Report to Shareholders and the 2004 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 10, 2004 are incorporated by reference into this Form 10-K at
Part II, Items 5, 6, 7 and 8 and Part III.
PART I
FORWARD-LOOKING STATEMENTS
All statements, other than statements of historical fact, included in this Form 10-K are or may be considered forward-looking statements within the meaning of federal securities law. The Company cautions the reader that there is no assurance that actual results or business conditions will not differ materially from the results expressed, suggested or implied by such forward-looking statements. The Company undertakes no obligation to update forward-looking statements and to reflect developments or information obtained after the date hereof. The following are among the principal factors that could cause actual results to differ from the forward-looking statements: local economic conditions; competitive pressures from the Company's operating environment; the ability of the Company to maintain and improve its sales and margins; the ability to attract and retain qualified associates; the availability of new store locations; the availability of capital; the liquidity of the Company on a cash flow basis; the success of operating initiatives; consumer spending patterns; increased cost of goods sold, including increased costs from the Company's principal supplier, Wakefern; results of ongoing litigation; the results of union contract negotiations; competitive store openings; the rate of return on pension assets; and other factors detailed herein and in other filings of the Company.
ITEM I. BUSINESS
GENERAL
Village Super Market, Inc. (the "Company"), which was founded in 1937, operates a chain of 23 ShopRite supermarkets, 16 of which are located in northern New Jersey, one of which is in northeastern Pennsylvania and six of which are in the southern shore area of New Jersey. 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, advanced retail technology and advertising associated with chains of greater size and geographic coverage.
The Company seeks to generate high sales volume by offering a wide variety of high quality products at consistently low prices. During fiscal 2004, sales per store was $41,637,000 and sales per selling square foot was $966. 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 the development of superstores. Below is a summary of the range of store sizes at July 31, 2004:
Total Square Feet Number of Stores
Greater than 60,000 8
50,001 to 60,000 6
40,000 to 50,000 7
Less than 40,000 2
---
Total 23
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These larger store sizes enable the Company's superstores to provide a "one-stop" shopping experience and to feature expanded higher margin specialty departments such as home meal replacement, an on-site bakery, an expanded delicatessen including prepared foods, a natural and organic food section, ethnic and international foods and a fresh seafood section. Superstores also offer an expanded selection of non-food items such as cut flowers, health and beauty aids, greeting cards, small appliances, film processing and in most cases, a pharmacy. Recently remodeled and new superstores emphasize a Power Alley, which features high margin, fresh convenience offerings such as salad bars, bakery and Bistro Street home meal replacement in an area within the store that provides quick customer entry and exit for those customers shopping for today's lunch or dinner. 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 superstores and percentage of selling square feet allocable to these stores during each of these periods:
Product Categories Fiscal Year Ended In July
2002 2003 2004
Groceries 40.3% 39.7% 39.1%
Dairy and Frozen 16.0 16.0 16.4
Meats 9.6 9.7 10.1
Non-Foods 10.0 9.8 9.4
Produce 10.5 10.8 10.7
Appetizers and prepared food 4.8 4.9 5.0
Seafood 2.2 2.2 2.2
Pharmacy 4.9 5.1 5.3
Bakery 1.6 1.7 1.7
Other .1 .1 .1
----- ----- -----
100.0% 100.0% 100.0%
===== ===== =====
Number of superstores 21 21 21
Selling square feet
represented by superstores 95% 95% 95%
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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 determine if they should be closed. A stand alone drug store near the Bernardsville store is expected to close in fiscal 2005 upon the completion of the expansion and remodel of the Bernardsville store. The Company operates one liquor store.
DEVELOPMENT AND EXPANSION
The Company has an ongoing 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.
In fiscal 2004, the Company began the expansion and remodel of the Bernardsville store and the construction of the replacement store in Somers Point. Both of these projects will be completed in fiscal 2005.
In fiscal 2003, the Company remodeled the English Creek, Hillsborough and Rio Grande stores. In fiscal 2002, the Company opened a 64,000 sq. ft. store in Hammonton, NJ and a 59,000 sq. ft. store in Garwood, NJ. In fiscal 2001, the Company opened a 67,000 sq. ft. store in West Orange to replace an older, smaller store.
The Company has budgeted $13 million for capital expenditures in fiscal 2005. Planned expenditures include the completion of the expansion and remodel of the Bernardsville store, the remainder of equipment for the Somers Point replacement store, and an expansion and remodel of the Springfield store.
Delays associated with governmental regulations, and the general difficulty in developing retail properties in the Company's primary trading area, have prevented the Company from opening 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 FOOD CORPORATION
The Company is the second largest member of Wakefern and owns 16.4% of Wakefern's outstanding stock. Wakefern, which was organized in 1946, is the nation's largest retailer-owned food cooperative. Wakefern and its 39 shareholder members operate 207 supermarkets and other retail formats, including 50 stores operated by Wakefern. Only Wakefern and its members are entitled to use the ShopRite name and trademark, and to participate in ShopRite advertising and promotional programs.
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 economies of scale, ShopRite advertising and promotional programs, including the ShopRite Price Plus card and a co-branded credit card, and the development of advanced retail technology. The Company believes that the ShopRite name is widely recognized by its customers and is a factor in their decisions about where to shop. ShopRite private label products accounted for approximately 15% of sales in fiscal 2004.
Wakefern distributes as a "patronage dividend" to each of its stockholders a share of its earnings in proportion to the dollar volume of purchases by the stockholder from Wakefern during each fiscal year.
While Wakefern has a substantial professional staff, it operates as a member owned 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. James Sumas is Vice Chairman of Wakefern and a member of the Wakefern Board of Directors.
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 using various formulas which allocate 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. In addition, Wakefern provides the Company with other services including insurance, supplies, equipment purchasing, coupon processing and technology support.
Wakefern operates warehouses and distribution facilities in Elizabeth, Woodbridge and South Brunswick, New Jersey and Wallkill, New York. The Company and all other members of Wakefern are parties to the Wakefern Stockholder's Agreement which provides for certain commitments by, and restrictions on, all shareholders of Wakefern. This agreement extends 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. Each member is obligated to purchase from Wakefern a minimum of 85% of its requirements for products offered by Wakefern. If this purchase obligation is not met, the member is required to pay Wakefern's profit contribution shortfall attributable to this failure. The Company fulfilled this obligation in fiscal 2004. This agreement also requires that in the event of unapproved changes in control of the Company or a sale of the Company or of individual Company stores, except to a qualified successor, the Company in such cases must pay Wakefern an amount equal to the annual profit contribution shortfall attributable to the sale of store or change in control. No payments are required if the volume lost by a shareholder as a result of the sale of a store is replaced by such shareholder by increased volume in existing or in new 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 termination of the above agreements, or otherwise, 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.
On November 22, 2000, Big V Supermarkets, Inc., then the largest member of Wakefern filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code. In addition, Big V announced its intention to depart from Wakefern. A decision by the U.S. Bankruptcy Court upheld that Big V would be required to pay substantial withdrawal fees to Wakefern to make up for the loss of volume to the cooperative in the event Big V departed from the Wakefern cooperative. This matter was resolved on July 12, 2002 when Wakefern purchased substantially all of Big V's assets, including 27 stores, for $185 million in cash and assumed liabilities. The future performance of this Wakefern acquisition could materially impact the patronage dividends paid by Wakefern to the Company.
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 name 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. Committee decisions 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 estimates of the impact of the proposed store on existing member supermarkets in the area.
As required by the Wakefern bylaws, the Company's investment in Wakefern is pledged to Wakefern to secure the Company's obligation to Wakefern. In addition, five members of the Sumas family have guaranteed the Company's obligations to Wakefern. These personal guarantees are required of any 5% shareholder of the Company who is active in the operation of the Company. 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 the purchases generated by those stores. As additional stores are opened or acquired by a member, additional capital must be contributed by it to Wakefern. The Company's investment in Wakefern and affiliates was $15,875,000 at July 31, 2004. During fiscal 2003, Wakefern increased the maximum per store capital contribution from $550,000 to $650,000. This resulted in the Company's recording an additional investment and obligation of $2,119,000. The total amount of debt outstanding from all capital pledges to Wakefern is $2,292,000 at July 31, 2004.
TECHNOLOGY
The Company considers automation and information technology important to its operations and competitive position. All stores utilize IBM 4690 software for scanning check-out systems. These systems improve pricing accuracy, enhance productivity and reduce checkout time for customers. The Company utilizes IBM RS/6000 computers in each store to, among other things, offer customers debit and credit card payment options. A frame relay communications network is used for reliable, high speed transmission of data.
The Company's commitment to advanced scanning and communication systems enables it to participate in Price Plus, ShopRite's preferred customer program. Customers receive electronic discounts by presenting a scannable Price Plus card. This technology also enables the Company to focus on target marketing initiatives.
The Company began installing self-checkout systems in fiscal 2002. Currently, six stores use these systems to provide improved customer service, especially during peak periods, and reduce operating costs. These systems will be installed in three additional stores in fiscal 2005.
The Company has installed computer-based training systems in all stores. The system is currently used to assist in the training of all new check-out, produce and bakery associates.
The Company utilizes digital surveillance systems, which are integrated with the cashier monitoring systems, in 16 stores to aid shrink reduction, increase productivity and assist in accident investigations. These systems will be installed in three additional stores in fiscal 2005.
The Company utilizes 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 utilizes a direct store delivery system, consisting of personal computers and hand held scanners, for most items not purchased through Wakefern 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 all stores, meat, seafood and delicatessen prices are maintained on computer for automatic weighing and pricing. Furthermore, all stores have computerized time and attendance and labor scheduling 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.
Wakefern and the Company have responded to customers increased use of the internet by creating shoprite.com to provide weekly advertising and other shopping information. In addition, an on-line shopping and pick-up service was introduced by the Company in two stores in October 2004.
COMPETITION
The Company is in direct competition with multiple retail formats, including national, regional and local supermarket chains as well as independent supermarkets, warehouse clubs, supercenters, drug stores, discount general merchandise stores, fast food chains and convenience stores. The Company competes by using low pricing, courteous and quick service to the customer, and a broad range of consistently available quality products, including ShopRite private labeled products. The ShopRite Price Plus card and the co-branded ShopRite credit card also strengthen customer loyalty.
The Company's principal competitors include Pathmark, A&P, Stop & Shop, Acme, Kings, Walmart and Foodtown. Many of the Company's competitors have financial resources substantially greater than those of the Company.
LABOR
As of October 1, 2004, the Company employed approximately 4,300 persons of whom approximately 68% worked part-time. Approximately 90% of the Company's employees are covered by collective bargaining agreements. A contract with the union representing certain pharmacists expired October 7, 2004. Negotiations with this union are ongoing. Contracts with the Company's five other unions expire between April 2005 and August 2007. Most of the Company's competitors in New Jersey are similarly unionized.
AVAILABLE INFORMATION
As a member of the Wakefern cooperative, the Company relies upon our customer driven website, www.shoprite.com, for interaction with customers and prospective employees. This website is maintained by Wakefern for the benefit of all ShopRite supermarkets, and therefore, does not contain any financial information related to the Company.
The Company will provide paper copies of the annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and press releases free of charge upon request to any shareholder. In addition, electronic copies of these filings can be obtained at www.sec.gov.
REGULATORY ENVIRONMENT
The Company's business requires various licenses and the registration of facilities with state and federal health, drug and alcoholic beverage regulatory agencies. These licenses and registration requirements obligate the Company to observe certain rules and regulations, and a violation of these rules and regulations could result in a suspension or revocation of licenses or registrations. In addition, most licenses require periodic renewals. The Company has not experienced material difficulties with respect to obtaining or retaining licenses and registrations. In addition, the Company is subject to the requirement of the Sarbanes-Oxley Act of 2002.
ITEM 2. PROPERTIES
The Company owns the sites of five of its supermarkets (containing 335,000 square feet of total space), all of which are freestanding stores, except the Egg Harbor store, which is part of a shopping center. The remaining 18 supermarkets (containing 917,000 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 shopping centers and the remaining eight are freestanding stores.
The lease for the Morris Plains store expired in June 2002. The Company has a verbal agreement with the landlord to lease this store for an additional ten years, and to provide for a longer term lease for an expanded store. This agreement has not been formalized. None of the Company's other store leases expire before 2008.
The annual rent, including capitalized leases, for all of the Company's leased facilities for the year ended July 31, 2004 was approximately $9,018,000.
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. During fiscal 2003, the Company received $1,639,000 in distributions from these two partnerships, which are included in income before income taxes. The Company also is a general partner in a partnership that is a lessor of one of the Company's freestanding supermarkets. In addition, the Company is a limited partner in a partnership that owns property to be developed in Chester, New Jersey.
ITEM 3. LEGAL PROCEEDINGS
The Company, in the ordinary course of business, is involved in various legal proceedings. The Company does not believe the outcome of these proceedings will have a material adverse effect on the Company's consolidated financial condition, results of operations or liquidity.
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 61 Vice President and Assistant
Secretary since 1983;
responsible for administration
of headquarters staff.
Kevin Begley 46 Chief Financial Officer since
1987. Treasurer since 2002.
Mr. Begley is a Certified
Public Accountant.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The information required by this Item is incorporated by reference from Information appearing on Page 23 in the Company's Annual Report to Shareholders for the fiscal year ended July 31, 2004.
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 31, 2004.
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 through 8 in the Company's Annual Report to Shareholders for the fiscal year ended July 31, 2004.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this Item is incorporated by reference from Information appearing on Page 8 in the Company's Annual Report to Shareholders for the fiscal year ended July 31, 2004.
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 9 to 22 in the Company's Annual Report to Shareholders for the fiscal year ended July 31, 2004.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
As required by Rule 13a-15 under the Exchange Act, the Company carried out an evaluation of the effectiveness of the design and operation of the Company's disclosure controls and procedures at the end of the period. This evaluation was carried out under the supervision, and with the participation, of the Company's management, including the Company's Chief Executive Officer along with the Company's Chief Financial Officer. Based upon that evaluation, the Company's Chief Executive Officer, along with the Company's Chief Financial Officer, concluded that the Company's disclosure controls and procedures are effective. There have been no significant changes in internal controls over financial reporting during the fourth quarter of fiscal 2004.
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in Company reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in Company reports filed under the Exchange Act is accumulated and communicated to management, including the Company's Chief Executive Officer and Chief Financial Officer as appropriate, to allow timely decisions regarding required disclosure.
PART III
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, 2004, in connection with its Annual Meeting scheduled to be held on December 10, 2004.
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, 2004, in connection with its Annual Meeting scheduled to be held on December 10, 2004.
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, 2004, in connection with its annual meeting scheduled to be held on December 10, 2004.
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, 2004, in connection with its annual meeting scheduled to be held on December 10, 2004.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this Item 14 is incorporated by reference from the Company's definitive Proxy Statement to be filed on or before November 5, 2004 in connection with its annual meeting scheduled to be held on December 10, 2004.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES
(a) 1. Financial Statements:
Consolidated Balance Sheets - July 31, 2004 and July 26, 2003.
Consolidated Statements of Operations - years ended July 31, 2004, July 26, 2003 and July 27, 2002.
Consolidated Statements of Shareholders' Equity and Comprehensive Income - years ended July 31, 2004, July 26, 2003 and July 27, 2002.
Consolidated Statements of Cash Flows - years ended July 31, 2004, July 26, 2003 and July 27, 2002.
Notes to consolidated financial statements.
The consolidated financial statements above and the Report of Independent Registered Public Accounting Firm have been incorporated by reference from the Company's Annual Report to Shareholders for the fiscal year ended July 31, 2004.
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. 3.1 Certificate of Incorporation*
3.2 By-laws
Exhibit No. 4 Instruments defining the rights of security holders:
4.5 Note Purchase Agreement dated September 16, 1999*
4.6 Loan Agreement dated September 16, 1999*
4.7 First Amendment to Loan Agreement
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*
10.5 1997 Incentive and Non-Statutory Stock Option Plan*
10.6 Employment Agreement dated May 28, 2004*
10.7 Supplemental Executive Retirement Plan
Exhibit No. 13 Annual Report to Security Holders
Exhibit No. 21 Subsidiaries of Registrant
Exhibit No. 23 Consent of KPMG LLP
Exhibit No. 31.1 Certification
Exhibit No. 31.2 Certification
Exhibit No. 32.1 Certification (furnished, not filed)
Exhibit No. 32.2 Certification (furnished, not filed)
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* The following exhibits are incorporated by reference from the following previous filings:
Form 10-Q for April 2004: 10.6
Form 10-K for 1999: 4.5, 4.6
Form 10-K for 1997: 10.5
Form 10-K for 1993: 3.1, 10.1, 10.2 and 10.3
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/ James Sumas
Kevin Begley James Sumas
Chief Financial & Chief Executive Officer
Principal Accounting Officer
Date: October 21, 2004
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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 21, 2004 October 21, 2004
/s/ Robert Sumas /s/ William Sumas
Robert Sumas, Director William Sumas, Director
October 21, 2004 October 21, 2004
/s/ John P. Sumas /s/ John J. McDermott
John P. Sumas, Director John J. McDermott, Director
October 21, 2004 October 21, 2004
/s/ David C . Judge /s/ Steven Crystal
David C. Judge, Director Steven Crystal, Director
October 21, 2004 October 21, 2004
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Exhibit 21
SUBSIDIARIES OF REGISTRANT
The Company has two wholly-owned subsidiaries at July 31, 2004. Village Super Market of PA, Inc. is organized under the laws of Pennsylvania. Village Super Market of NJ, LP is organized under the laws of New Jersey.
The financial statements of all subsidiaries are included in the Company's consolidated financial statements.
Exhibit 23
Consent of Independent Registered Public Accounting Firm
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 October 8, 2004, with respect to the consolidated balance sheets of Village Super Market, Inc. and subsidiaries as of July 31, 2004 and July 26, 2003 and the related consolidated statements of operations, shareholders' equity and comprehensive income, and cash flows for each of the years in the three-year period ended July 31, 2004, which report appears in the July 31, 2004 annual report on Form 10-K of Village Super Market, Inc.
/s/ KPMG LLP
Short Hills, New Jersey
October 21, 2004
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Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Village Super Market, Inc. (the "Company") on Form 10-K for the period ending July 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, James Sumas, Chief Executive Officer of the Company certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to 906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ James Sumas James Sumas Chief Executive Officer October 21, 2004 |
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Village Super Market, Inc. (the "Company") on Form 10-K for the period ending July 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Kevin Begley, Chief Financial Officer of the Company certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to 906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Kevin Begley
Kevin Begley
Chief Financial Officer &
Principal Accounting Officer
October 21, 2004
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Exhibit 31.1
CERTIFICATIONS
I, James Sumas, certify that:
1. I have reviewed this annual report on Form 10-K of Village Super Market, Inc.
2. Based on my knowledge, this report does not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's fourth quarter that has materially effected, or is reasonably likely to materially effect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: October 21, 2004 /s/ James Sumas
James Sumas
Chief Executive Officer
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Exhibit 31.2
CERTIFICATIONS
I, Kevin Begley, certify that:
1. I have reviewed this annual report on Form 10-K of Village Super Market, Inc.
2. Based on my knowledge, this report does not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's fourth quarter that has materially effected, or is reasonably likely to materially effect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: October 21, 2004 /s/ Kevin Begley
Kevin Begley
Chief Financial Officer &
Principal Accounting Officer
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VILLAGE SUPER MARKET, INC. AND SUBSIDIARIES
CONTENTS
Letter to Shareholders.....................................................2
Selected Financial Data....................................................3
Unaudited Quarterly Financial Data.........................................3
Management's Discussion and Analysis of
Financial Condition and Results of Operations.......................4
Consolidated Balance Sheets................................................9
Consolidated Statements of Operations.....................................10
Consolidated Statements of Shareholders' Equity
and Comprehensive Income...............................................11
Consolidated Statements of Cash Flows.....................................12
Notes to Consolidated Financial Statements................................13
Report of Independent Registered Public Accounting Firm...................23
Stock Price and Dividend Information......................................23
Corporate Directory........................................INSIDE BACK COVER
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VILLAGE SUPER MARKET, INC. AND SUBSIDIARIES
DEAR FELLOW SHAREHOLDERS
We are pleased to report that Village increased net income and sales to record levels in fiscal 2004, as much of the supermarket industry struggled. Net income increased 19% to $13,263,000, or $4.20 per share. Sales increased 6.1% to $957,647,000. Same store sales increased 4.2%.
After initiating a dividend in fiscal 2003, the Board of Directors increased the semi-annual dividend twice in fiscal 2004. The Class A dividend increased 31% to an annualized rate of $.34 per share. The Class B dividend increased 39% to an annualized rate of $.222 per share.
Although the supermarket industry faced significant challenges this year, our financial position strengthened. Long-term debt declined to 20% of total capitalization. Village had $36,972,000 of cash and $20,274,000 of short-term notes receivable available at July 31,2004 to provide flexibility to respond to expansion opportunities. We amended our expiring unsecured revolving loan agreement to increase the maximum amount to $20,000,000 and extend the term to September 2007.
In October 2004, we opened an 80,000 sq.ft. store in Somers Point to replace a smaller store. The 11,000 sq.ft. expansion and remodel of the Bernardsville store is nearly complete. We continually update our store designs to respond to changing demographics and customer tastes. Both of these stores include our Power Alley, which features a broad assortment of fresh, convenient product offerings, including an expanded fresh bakeshop, natural and organic produce, salad bar, sushi bar and Bistro Street, our chef-prepared, home meal replacement area.
As the lifestyles of our customers change, we tailor our merchandising to meet those evolving needs. In November, ShopRite(TM) will introduce "Live Right with ShopRite(TM)", an innovative health and wellness program featuring health kiosks and enhanced shelf labeling. Our goal is to position our stores as a destination for health and wellness solutions. Product categories included under the "Live Right with ShopRite(TM)" umbrella are: natural, organic, low-carb, fat free, sugar free, gluten free, low sodium, vitamins and herbal supplements.
In response to the growing popularity of digital photography, we installed Kodak Picture Makers in all stores this year. The Kodak Picture Maker enables customers to download pictures from digital cameras and zoom, crop, edit, add a border and choose print sizes, while providing significant savings compared to home printing.
For several years, ShopRite(TM) has provided weekly advertising, shopping and employment information on shoprite.com. In October 2004, we leveraged this website by adding online shopping and pick-up service in two of our stores.
Village operates in what continues to be a competitive area. We remain committed to executing our priorities to satisfy our customers evolving needs. These priorities remain offering high quality products at consistently low prices, providing outstanding service, creating unique marketing initiatives, and expanding and updating our store base. Our associates are the heart of our success. We thank all our associates for their dedication and hard work toward achieving these priorities. We would also like to thank our customers and fellow shareholders for their continued support.
/s/ James Sumas /s/ Perry Sumas James Sumas, Perry Sumas, Chairman of the Board President |
SELECTED FINANCIAL DATA
(Dollars in thousands except per share and square feet data)
JULY 31, JULY 26, JULY 27, JULY 28, JULY 29,
2004 2003 2002 2001 2000
-------- -------- -------- -------- --------
FOR YEAR
Sales $ 957,647 $902,420 $883,337 $820,627 $784,995
Net income 13,263 11,100 12,558 9,443 8,426
Net income per share - basic 4.26 3.60 4.11 3.13 2.81
Net income per share - diluted 4.20 3.54 4.00 3.08 2.76
Cash dividends per share
Class A .31 .13 -- -- --
Class B .201 .08 -- -- --
AT YEAR END
Total assets 231,425 216,578 204,053 183,346 175,987
Long-term debt 29,239 37,241 43,634 43,363 43,998
Working capital 31,886 28,245 20,212 17,087 10,690
Shareholders' equity 120,091 106,777 97,443 84,770 75,152
Book value per share 38.09 34.56 31.69 27.97 24.94
OTHER DATA
Same store sales increase 4.2% 1.6% 4.3% 3.6% 2.9%
Total square feet 1,252,000 1,252,000 1,252,000 1,184,000 1,182,000
Average total sq. ft. per store 54,000 54,000 54,000 54,000 51,000
Selling square feet 991,000 991,000 991,000 935,000 934,000
Sales per average square foot of selling space 966 911 917 878 840
Number of stores 23 23 23 22 23
Sales per average number of stores 41,637 39,236 38,406 37,301 34,130
Capital expenditures 14,278 10,851 20,767 15,070 13,312
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Fiscal 2004 contains 53 weeks. All other fiscal years contain 52 weeks.
UNAUDITED QUARTERLY FINANCIAL DATA
(Dollars in thousands except per share amounts)
FIRST SECOND THIRD FOURTH FISCAL
QUARTER QUARTER QUARTER QUARTER YEAR
2004
Sales $226,734 $242,209 $229,531 $259,173 $957,647
Gross profit 57,148 62,105 58,707 66,312 244,272
Net income 2,519 3,651 2,744 4,349 13,263
Net income per share - diluted $.80 $1.16 $.87 $1.37 $4.20
2003
Sales $216,538 $233,911 $221,450 $230,521 $902,420
Gross profit 54,033 57,891 55,169 58,271 225,364
Net income 2,450 4,040 1,897 2,713 11,100
Net income per share - diluted $.78 $1.28 $.60 $.87 $3.54
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The fourth quarter of fiscal 2004 contains 14 weeks. All other quarters contain 13 weeks.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Village Super Market, Inc. (the "Company") operates a chain of 23 ShopRite supermarkets in New Jersey and eastern Pennsylvania. The Company is the second largest member of Wakefern Food Corporation ("Wakefern"), the nation's largest retailer-owned food cooperative. As further described in the Company's Form 10-K, this ownership interest in Wakefern provides the Company many of the economies of scale in purchasing, distribution, advanced retail technology and advertising associated with larger chains.
The Company's stores, five of which are owned, average 54,000 total square feet. Larger store sizes enable the Company to offer the specialty departments that customers desire for one-stop shopping, including pharmacies, natural and organic departments, ethnic and international foods, and home meal replacement. During fiscal 2004, sales per store was $41,637,000 and sales per selling square foot was $966. These are among the highest in the supermarket industry.
We consider a variety of indicators to evaluate our performance, such as same store sales; sales per store; percentage of total sales by department; shrink; departmental gross profit percentage; sales per labor hour; and hourly labor rates. In recent years, the Company, as well as many of our competitors, has faced substantial increases in employee health and pension costs under union contracts and for non-union associates. In addition, rates charged by various utilities for electricity and gas increased during fiscal 2004. These trends are expected to continue in fiscal 2005. During fiscal 2004, inflation had a larger impact on retail pricing than in recent years.
The Company utilizes a 52 - 53 week fiscal year, ending on the last Saturday in the month of July. Fiscal 2004 contains 53 weeks. Fiscal 2003 and 2002 contain 52 weeks.
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 31, JULY 26, JULY 27,
2004 2003 2002
-------- -------- --------
Sales 100.00% 100.00% 100.00%
Cost of sales 74.49 75.03 74.91
------ ------ ------
Gross profit 25.51 24.97 25.09
Operating and administrative expense 21.92 21.75 21.49
Depreciation and amortization .99 .99 .91
Non-cash impairment charge -- -- .07
------ ------ ------
Operating income 2.60 2.23 2.62
Income from partnerships -- .18 --
Interest expense, net .23 .33 .37
------ ------ ------
Income before income taxes 2.37 2.08 2.26
Income taxes .99 .85 .83
------ ------ ------
Net income 1.38% 1.23% 1.42%
====== ====== ======
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SALES
Sales were $957,647,000 in fiscal 2004, an increase of $55,227,000, or 6.1% from the prior year. Same store sales increased 4.2% in fiscal 2004. In addition, sales increased $17,301,000, or 1.9%, due to fiscal 2004 containing 53 weeks. Same store sales increased due to continued improvement in the two stores opened in fiscal 2002, increased sales in stores remodeled in fiscal 2003 and increases in retail prices in certain categories resulting from inflation in fiscal 2004. In addition, sales in fiscal 2004 benefited from comparison to fiscal 2003, which included the impact from a substantial number of store openings by competitors, higher levels of promotional activity and a softer economy.
Sales were $902,420,000 in fiscal 2003, an increase of $19,083,000, or 2.2% from the prior year. Same store sales increased 1.6% in fiscal 2003. Same store sales include sales in the Garwood store (opened September 26, 2001) beginning with the second quarter of fiscal 2003 and the Hammonton store (opened March 6, 2002) beginning with the fourth quarter of fiscal 2003. Approximately half of the increase in same store sales in fiscal 2003 was attributable to improved sales in the Garwood and Hammonton stores after their inclusion in the same store sales calculation. Same store sales increased less in fiscal 2003 than in previous fiscal years due to substantial store openings by competitors near the Company's stores in fiscal 2003 and late fiscal 2002, a soft local economy and increased promotional activity in our marketplace.
GROSS PROFIT
Gross profit as a percentage of sales increased .54% in fiscal 2004 due to lower promotional spending, reduced warehousing and related charges from Wakefern, a higher estimate of patronage dividends and improved product mix. These improvements were partially offset by increased LIFO charges in fiscal 2004.
Gross profit as a percentage of sales decreased .12% in fiscal 2003 due to higher promotional spending in fiscal 2003 and incentives received in fiscal 2002 in connection with the two store openings. These decreases were partially offset by improved product mix in fiscal 2003.
OPERATING AND ADMINISTRATIVE EXPENSE
Operating and administrative expense increased .17% as a percentage of sales in fiscal 2004 primarily due to increased fringe benefit and utility costs. Fringe benefit costs increased primarily due to increased expense for employee health and pension plans. Utility costs increased due to rate increases. Both of these trends are expected to continue in fiscal 2005. These increases were partially offset by reduced payroll costs and by leverage provided by the additional sales week in fiscal 2004.
Operating and administrative expense increased .26% as a percentage of sales in fiscal 2003 primarily due to increased fringe benefit costs, increased debit/credit card processing fees and increased snow removal costs. Fringe benefit costs increased primarily due to increased expense for employee health and pension plans.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expense was $9,495,000, $8,929,000 and $8,002,000 in fiscal 2004, 2003 and 2002, respectively. Depreciation and amortization expense increased in fiscal 2004 due to depreciation on the fixed asset additions placed in service during the fiscal year and $274,000 of additional depreciation in fiscal 2004 resulting from a reduction in the useful lives of certain assets of two stores expected to close in fiscal 2005.
Depreciation and amortization expense increased in fiscal 2003 due to a full year of depreciation on the substantial fixed asset additions placed in service in the prior fiscal year, partially offset by the discontinuance of depreciation on the closed Ventnor store.
IMPAIRMENT CHARGE
The Company recorded a non-cash impairment charge of $640,000 in fiscal 2002 to write off the book value of the equipment of the Ventnor store.
INCOME FROM PARTNERSHIPS
Fiscal 2003 income before income taxes includes $1,639,000 of distributions received from two partnerships in which the Company is a limited partner. The Company's ownership interests in these partnerships resulted from its leasing of supermarkets in two shopping centers. The Company remains a tenant in one of the shopping centers. The Company's accounting for these partnerships under the equity method had previously resulted in a zero investment balance in the consolidated financial statements.
INTEREST EXPENSE
Interest expense, net of interest income, was $2,192,000, $2,982,000 and $3,234,000 in fiscal 2004, 2003 and 2002, respectively. Interest expense decreased in fiscal 2004 due to reduced borrowing levels and increased interest income from higher rates received on excess cash invested at Wakefern. In addition, the prior fiscal year included interest expense from a capital lease disposed of during fiscal 2003. Interest expense decreased in fiscal 2003 due to the benefit of lower interest rates and reduced borrowing levels.
INCOME TAXES
The Company's effective income tax rate was 41.7%, 41.0% and 37.0% in fiscal 2004, 2003 and 2002, respectively. The effective income tax rate increased slightly in fiscal 2004 due to additional taxes paid as a result of routine tax audits. The effective income tax rate increased in fiscal 2003 due to enacted changes in state tax laws. The state tax law changes have resulted in the Company recording an additional current tax provision of $1,052,000 and $1,054,000 in fiscal 2004 and 2003, respectively, as compared to fiscal 2002, because the benefit of a tax planning strategy has not been recognized for financial reporting purposes.
CRITICAL ACCOUNTING POLICIES
Critical accounting policies are those accounting policies that management believes are important to the portrayal of the Company's financial condition and results of operations. These policies require management's most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
IMPAIRMENT
The Company reviews the carrying values of its long-lived assets, such as property, equipment and fixtures and intangibles subject to amortization, for possible impairment whenever events or changes in circumstances indicate that the carrying amount of assets may not be recoverable. Such review analyzes the undiscounted estimated future cash flows from such assets to determine if the carrying value of such assets are recoverable from their respective cash flows. If an impairment is indicated, it is measured by comparing the discounted cash flows for the long-lived asset held for use to its carrying value. Goodwill is tested for impairment at the end of each fiscal year, or as circumstances dictate, pursuant to the provisions of Financial Accounting Standards Board ("FASB") Statement 142. Since the Company's stock is not widely traded, management utilizes valuation techniques such as earnings multiples to assess goodwill for impairment. Calculating the fair value of a reporting unit requires the use of estimates. Management believes the fair value of the Company's one reporting unit exceeds its carrying value at July 31, 2004. Should the Company's carrying value of its one reporting unit exceed its fair value, the amount of any resulting goodwill impairment may be material to the Company's financial position and results of operations.
PATRONAGE DIVIDENDS
As a stockholder of Wakefern, the Company earns a share of Wakefern's earnings, which is distributed as a "patronage dividend" (see Note 3). This dividend is based on a distribution of Wakefern's operating profits for its fiscal year (which ends September 30) in proportion to the dollar volume of purchases by each member from Wakefern during that fiscal year. Patronage dividends are recorded as a reduction of cost of sales. The Company accrues estimated patronage dividends due from Wakefern quarterly based on an estimate of the annual Wakefern patronage dividend and an estimate of the Company's share of this annual dividend based on the Company's estimated proportional share of the dollar volume of business transacted with Wakefern that year. The amount of patronage dividends receivable based on these estimates were $5,366,000 and $3,634,000 at July 31, 2004 and July 26, 2003, respectively.
PENSION PLANS
The determination of the Company's obligation and expense for pension benefits is dependent, in part, on the Company's selection of assumptions used by actuaries in calculating those amounts. These assumptions are described in Note 8 and include, among others, the discount rate, the expected long-term rate of return on plan assets and the rate of increase in compensation costs. In accordance with generally accepted accounting principles, actual results that differ from the Company's assumptions are accumulated and amortized over future periods and, therefore, generally affect recognized expense and recorded obligations in future periods. While management believes that its assumptions are appropriate, significant differences in actual experience or significant changes in the Company's assumptions may materially effect pension obligations and future expense.
Based on the Company's review of market interest rates, the Company lowered the discount rate to 6.25% for fiscal 2004 compared to 6.75% for fiscal 2003. The fifty basis point reduction in the discount rate increased the projected benefit obligation as of July 31, 2004 by $1,287,000. Fiscal 2004 pension expense increased by $87,000 as a result of this change. Fiscal 2005 expense is expected to be approximately $2,400,000. The Company evaluated the expected long-term rate of return on plan assets of 7.5% and the expected increase in compensation costs of 4% and concluded no changes in these assumptions were necessary in estimating pension plan obligations and expense.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS
Net cash provided by operating activities was $30,899,000 in fiscal 2004 compared to $24,830,000 in fiscal 2003. This increase is primarily due to increases in net income, LIFO charges and accounts payable and accrued expenses in fiscal 2004. These increased cash flows were partially offset by a reduced benefit from deferred taxes and a benefit in fiscal 2003 from the use of a tax receivable to reduce quarterly income tax payments. Accounts payable and accrued expenses increased in fiscal 2004 compared to a decrease in fiscal 2003 due to the timing of payments. Income tax payments made were $5,032,000 in fiscal 2004 compared with $3,005,000 in fiscal 2003.
During fiscal 2004, operating cash flow of $30,899,000 and cash on hand were used to fund capital expenditures of $14,278,000, make debt payments of $7,754,000 and to invest $20,274,000 of excess cash in a note receivable from Wakefern. The debt payments made included the first installment of $4,285,714 on the Company's unsecured Senior Notes. The investment in the note receivable from Wakefern is a one year note dated January 15, 2004, which matures January 15, 2005 and carries interest at the prime rate less 1.5%. These funds were previously invested in demand deposits at Wakefern. Major capital expenditures in fiscal 2004 include the partially completed expansion and remodel of the Bernardsville store and equipment for the Somers Point replacement store. Both of these projects are expected to be completed in the early part of fiscal 2005.
Net cash provided by operating activities was $24,830,000 in fiscal 2003 compared to $22,876,000 in fiscal 2002. This increase is due to a decrease in inventories in fiscal 2003 compared to an increase in inventories in fiscal 2002, the benefit of reduced quarterly income tax payments in fiscal 2003 from a tax receivable generated in fiscal 2002 and increased deferred taxes. These increased cash flows were partially offset by reduced net income in fiscal 2003, a decrease in accounts payable and accrued expenses in fiscal 2003 compared to an increase in fiscal 2002, and increased accrual for patronage dividends in fiscal 2003.
During fiscal 2003, operating cash flow of $24,830,000 and proceeds from asset disposals of $4,006,000 (see related party transactions) were used to fund capital expenditures of $10,851,000, make debt payments of $3,080,000 and to increase cash on hand by $14,730,000. Major capital expenditures in fiscal 2003 included remodels of the Egg Harbor, Hillsborough and Rio Grande stores.
LIQUIDITY AND DEBT
Working capital was $31,886,000, $28,245,000 and $20,212,000 at July 31, 2004, July 26, 2003 and July 27, 2002, respectively. Working capital ratios at the same dates were 1.47, 1.46 and 1.36 to one, respectively. The Company's working capital needs are reduced since inventory is generally sold by the time payments to Wakefern and other suppliers are due.
The Company has budgeted approximately $13 million for capital expenditures in fiscal 2005. Planned expenditures include the completion of the expansion and remodel of the Bernardsville store, the remainder of equipment for the Somers Point replacement store and an expansion and remodel of the Springfield store. Upon the completion of the Somers Point replacement store, the current Somers Point store will close and that lease obligation will cease. Upon the completion of the Bernardsville remodel, a nearby, stand-alone drug store will close. At July 31, 2004, the Company is obligated to pay aggregate rent on this drug store of $578,000 over the next three years. The Company anticipates incurring store closing costs of approximately $600,000 to $800,000 in fiscal 2005 for these two facilities, including the cost of terminating the above lease.
The Company's primary sources of liquidity in fiscal 2005 are expected to be the cash on hand at July 31, 2004, the maturity of the note receivable from related party and operating cash flow to be generated in fiscal 2005. The Company anticipates cash flow generation in fiscal 2005 to be in the range experienced in the previous three fiscal years.
On July 15, 2004, the Company amended its unsecured revolving loan agreement, which would have expired on September 16, 2004. The amended agreement increased the maximum amount available for borrowings to $20,000,000 from $15,000,000. The amended agreement expires September 16, 2007, with two one-year extensions available if exercised by both parties. The revolving credit line can be used for general corporate purposes. Indebtedness under this agreement bears interest at the prime rate, or at the Eurodollar rate, at the Company's option, plus applicable margins based on the Company's fixed charge coverage ratio. There were no amounts outstanding at July 31, 2004.
The revolving loan agreement contains covenants which, among other matters, require a maximum liabilities to tangible net worth ratio, a minimum fixed charge coverage ratio and a positive net income. At July 31, 2004, the Company was in compliance with all terms and covenants of the revolving loan agreement.
In addition, the Company's Senior Note agreement contain covenants which, among other matters, require certain levels of net worth, a minimum fixed charge covered ratio, lien limitations and limitations on additional indebtedness. At July 31, 2004, the Company was in compliance with all terms and covenants of this debt agreement.
During fiscal 2004, the Company declared cash dividends of $798,000, comprised of $.31 per Class A common share and $.201 per Class B common share. During fiscal 2003, the Company declared cash dividends of $322,000, comprised of $.13 per Class A common share and $.08 per Class B common share.
CONTRACTUAL OBLIGATIONS AND COMMITMENTS
The table below presents significant contractual obligations of the Company at July 31, 2004:
PAYMENTS DUE BY FISCAL PERIOD
2005 2006 2007 2008 2009 THEREAFTER TOTAL
----------- ----------- ----------- ----------- ---------- ----------- ------------
Long-term debt $6,229,065 $5,506,588 $5,388,074 $4,860,338 $4,285,714 $4,285,715 $30,555,494
Capital leases $1,274,804 $1,290,792 $1,107,740 $741,636 $655,992 $3,407,662 $8,478,626
Operating leases $6,670,636 $6,232,363 $5,568,410 $5,238,589 $4,669,104 $62,900,613 $91,279,715
Notes payable to
related party $711,901 $680,940 $680,750 $91,000 $101,125 $25,803 $2,291,519
----------- ----------- ----------- ----------- ---------- ----------- ------------
$14,886,406 $13,710,683 $12,744,974 $10,931,563 $9,711,935 $70,619,793 $132,605,354
=========== =========== =========== =========== ========== =========== ============
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In addition, the Company is obligated to purchase 85% of its primary merchandise requirements from Wakefern (see Note 3) and to make contingent lease payments (see Note 6). The Company is also committed to lease one new store currently under construction. The minimum annual rent for this lease is initially $1,191,000.
ADOPTION OF NEW ACCOUNTING STANDARDS
In December 2003, the Financial Accounting Standards Board (the "FASB") issued SFAS No. 132 (revised 2003), "Employers' Disclosures about Pensions and Other Postretirement Benefits", to revise employers' annual and quarterly disclosures about pension plans and other postretirement benefit plans. It does not change the measurement or recognition of those plans required by SFAS No. 87, "Employers' Accounting for Pensions", SFAS No. 88, "Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits", and SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions". This Statement retains the disclosure requirements contained in SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits", which it replaces. It requires additional disclosures to those in the original SFAS 132 about the assets, obligations, cash flows, and net periodic benefit cost of defined benefit pension plans and other defined benefit postretirement plans. The disclosure requirements under this Statement are included in the financial statements for the fiscal year ending July 31, 2004.
In December 2003, the FASB issued FASB Interpretation No. 46 (revised December 2003), "Consolidation of Variable Interest Entities", which addresses how a business enterprise should evaluate whether it has a controlling financial interest in an entity through means other than voting rights and accordingly should consolidate the entity. The Company adopted FASB Interpretation No. 46 effective April 24, 2004, which had no impact on the Company.
RELATED PARTY TRANSACTIONS
The Company holds an investment in Wakefern, its principal supplier. The Company purchases substantially all of its merchandise from Wakefern in accordance with the Wakefern Stockholder Agreement. As part of this agreement, the Company is required to purchase certain amounts of Wakefern common stock. At July 31, 2004, the Company's indebtedness to Wakefern for the outstanding amount of this stock subscription was $2,291,519. Wakefern distributes as a "patronage dividend" to each member a share of its earnings in proportion to the dollar volume of purchases by the member from Wakefern during the year. Additional information is provided in Note 3.
At July 31, 2004 the Company had demand deposits invested at Wakefern in the amount of $19,628,000. These deposits earn the prime rate of interest less 2.5% or overnight money market rates.
The Company has a $20,274,000 unsecured note receivable from Wakefern at July 31, 2004. The note carries interest at the prime rate less 1.5% and matures January 15, 2005.
The Company subleases the Vineland store from Wakefern at a current annual rent of $700,000.
On April 2, 2003, the Company sold the land and building currently occupied by the Somers Point, NJ store to an unrelated real estate investment trust (the "REIT") for $3,500,000 plus the reimbursement of certain costs. The Company's purpose in entering into this transaction was to provide for the development of an 80,000 sq. ft. replacement store in Somers Point with minimal cash outlay by the Company, and to ensure continued occupancy of the Springfield, NJ store and the Company's headquarters.
The Company executed leases with the REIT for the replacement store in Somers Point and to continue occupancy of the current Somers Point store until the replacement store is constructed by the REIT. In addition, the Company executed long-term leases with the REIT for the Springfield store and the Company's headquarters, which were previously leased from a realty Company owned by certain officers of the Company (the "Realty Company"). The Company canceled its current leases with the Realty Company. The combined annual rents of these two new leases are approximately the same as the annual rents of the leases cancelled.
As part of this transaction, the shareholders of the Realty Company sold their shares in the Realty Company to the REIT. The Realty Company's assets consist substantially of the Springfield store, the Company headquarters and undeveloped land in Somers Point upon which a 130,000 sq. ft. retail center is to be developed by the REIT. This transaction resulted in no net gain or loss to the Company. Although the transactions with the unrelated, publicly-traded REIT were negotiated at arms-length, the Company's independent directors evaluated and approved these transactions for fairness dueto the concurrent sale by the Realty Company, which was a related party.
In addition, the Company leases a supermarket from a different realty firm partly-owned by officers of the Company. The Company paid aggregate rents to related parties under all the above leases, including minimum and contingent rent, of approximately $549,000, $926,000 and $1,096,000 in fiscal years 2004, 2003 and 2002, respectively.
IMPACT OF INFLATION AND CHANGING PRICES
Although the Company cannot accurately determine the precise effect of inflation or deflation on its operations, it estimates that product prices overall experienced more inflation in fiscal 2004 than in fiscal 2003. The Company recorded a pre-tax LIFO charge of $1,402,000 in fiscal 2004 compared to $350,000 in fiscal 2003. The Company calculates LIFOcharges based on a regional CPIindex for food at home published by the Department of Labor, which indicated CPIincreases of 6.5% and 1.5% in fiscal 2004 and 2003, respectively.
MARKET RISK
The Company regularly evaluates the market risk associated with its financial instruments. The Company is exposed to market risks arising from adverse changes in interest rates. During fiscal 2004, the Company's only variable rate borrowings relate to an interest rate swap agreement. On October 18, 2001, the Company entered into an interest rate swap agreement with a major financial institution pursuant to which the Company pays a variable rate of six-month LIBOR plus 3.36% (5.30% at July 31, 2004) on an initial notional amount of $10,000,000, expiring in September 2009, in exchange for a fixed rate of 8.12%. The swap agreement notional amount decreases in amounts and on dates corresponding to the repayment of the fixed rate obligation it hedges. At July 31, 2004, the remaining notional amount of the swap agreement was $8,571,429. A 1% increase in interest rates, applied to the Company's borrowings at July 31, 2004, would result in an annual increase in interest expense and a corresponding reduction in cash flow of approximately $85,714.
At July 31, 2004, the Company had demand deposits of $19,628,000 at Wakefern earning interest at prime less 2.5%, or overnight money market rates, which are exposed to the impact of interest rate changes. In addition, at July 31, 2004, the Company had a $20,274,000 adjustable rate promissory note from Wakefern earning interest at prime less 1.5%, which is exposed to the impact of interest rate changes.
FORWARD-LOOKING STATEMENTS
This Annual Report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Actual events and results may vary significantly from those contemplated or implied by such forward-looking statements. The Company undertakes no obligation to update forward-looking statements to reflect developments or information obtained after the date hereof. The following are among the principal factors that could cause actual results to differ materially from the forward-looking statements: local economic conditions; competitive pressures from the Company's operating environment; the ability of the Company to maintain and improve its sales and margins; the ability to attract and retain qualified associates; the availability of new store locations; the availability of capital; the liquidity of the Company on a cash flow basis; the success of operating initiatives; consumer spending patterns; increased cost of goods sold, including increased costs from the Company's principal supplier, Wakefern; the results of union contract negotiations; competitive store openings; the rate of return on pension assets; and other factors detailed herein and in other filings of the Company.
VILLAGE SUPER MARKET, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JULY 31, JULY 26,
2004 2003
------------ ------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 36,971,758 $ 48,500,180
Merchandise inventories 30,976,336 32,304,243
Patronage dividend receivable 5,366,257 3,633,602
Note receivable from related party 20,273,739 --
Other current assets 6,194,628 5,206,849
------------ ------------
Total current assets 99,782,718 89,644,874
------------ ------------
PROPERTY, EQUIPMENT AND FIXTURES, net 101,142,668 96,320,477
OTHER ASSETS
Investment in related party, at cost 15,875,332 15,875,332
Goodwill 10,605,021 10,605,021
Other assets 4,019,221 4,132,238
------------ ------------
Total other assets 30,499,574 30,612,591
------------ ------------
$231,424,960 $216,577,942
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 6,229,065 $ 6,233,903
Capitalized lease obligations 799,943 663,458
Notes payable to related party 711,901 832,796
Accounts payable to related party 32,858,118 32,347,599
Accounts payable and accrued expenses 27,297,645 21,322,584
------------ ------------
Total current liabilities 67,896,672 61,400,340
------------ ------------
LONG-TERM DEBT
Notes payable 24,436,101 30,903,033
Capitalized lease obligations 3,222,820 4,022,802
Notes payable to related party 1,579,618 2,315,459
------------ ------------
Total long-term debt 29,238,539 37,241,294
------------ ------------
OTHER LIABILITIES 14,199,080 11,159,054
------------ ------------
|
COMMITMENTS AND CONTINGENCIES (notes 3, 4, 6, and 9)
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, outstanding 1,558,700
shares at July 31, 2004 and 1,495,200
shares at July 26, 2003 19,037,497 18,535,275
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 105,501,591 93,239,313
Accumulated other comprehensive loss (2,659,831) (2,329,906)
Less treasury stock, Class A, at cost
(204,100 shares at July 31, 2004 and
267,600 shares at July 26, 2003) (2,823,267) (3,702,107)
------------ ------------
Total shareholders' equity 120,090,669 106,777,254
------------ ------------
$231,424,960 $216,577,942
============ ============
|
See notes to consolidated financial statements.
VILLAGE SUPER MARKET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED
JULY 31, JULY 26, JULY 27,
2004 2003 2002
------------ ------------ ------------
SALES $957,647,050 $902,420,334 $883,337,175
COST OF SALES 713,374,633 677,056,650 661,694,232
------------ ------------ ------------
GROSS PROFIT 244,272,417 225,363,684 221,642,943
OPERATING AND ADMINISTRATIVE EXPENSE 209,841,631 196,273,348 189,835,338
DEPRECIATION AND AMORTIZATION 9,495,425 8,928,839 8,001,659
NON-CASH IMPAIRMENT CHARGE -- -- 640,000
------------ ------------ ------------
OPERATING INCOME 24,935,361 20,161,497 23,165,946
INCOME FROM PARTNERSHIPS -- 1,639,176 --
INTEREST EXPENSE, net of interest
income of $555,737, $423,360
and $573,879 2,191,932 2,982,002 3,233,737
------------ ------------ ------------
INCOME BEFORE INCOME TAXES 22,743,429 18,818,671 19,932,209
INCOME TAXES 9,480,504 7,718,963 7,374,570
------------ ------------ ------------
NET INCOME $ 13,262,925 $ 11,099,708 $ 12,557,639
============ ============ ============
NET INCOME PER SHARE:
BASIC $4.26 $3.60 $4.11
DILUTED $4.20 $3.54 $4.00
===== ===== =====
|
See notes to consolidated financial statements.
VILLAGE SUPER MARKET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
YEARS ENDED JULY 31, 2004, JULY 26, 2003 AND JULY 27, 2002
CLASS A CLASS B
COMMON STOCK COMMON STOCK ACCUMULATED
----------------------- --------------------- OTHER TOTAL
SHARES SHARES RETAINED COMPREHENSIVE TREASURY SHAREHOLDERS'
ISSUED AMOUNT ISSUED AMOUNT EARNINGS LOSS STOCK EQUITY
---------- ----------- --------- ---------- ------------- ----------- ----------- -------------
Balance, July 28, 2001 1,762,800 $18,129,472 1,594,076 $1,034,679 $70,115,802 -- $(4,510,362) $84,769,591
Net income -- -- -- -- 12,557,639 -- -- 12,557,639
Other comprehensive
loss - additional
minimum pension
liability, net of
deferred tax benefit
of $410,605 -- -- -- -- -- (615,907) -- (615,907)
-------------
Comprehensive income 11,941,732
-------------
Exercise of stock
options and related
tax benefits -- 281,540 -- -- (156,192) -- 606,192 731,540
---------- ----------- --------- ---------- ------------- ----------- ----------- -------------
Balance, July 27, 2002 1,762,800 18,411,012 1,594,076 1,034,679 82,517,249 (615,907) (3,904,170) 97,442,863
Net income -- -- -- -- 11,099,708 -- -- 11,099,708
Other comprehensive
loss - additional
minimum pension
liability, net of
deferred tax benefit
of $1,142,666 -- -- -- -- -- (1,713,999) -- (1,713,999)
-------------
Comprehensive income 9,385,709
-------------
Dividends -- -- -- -- (321,644) -- -- (321,644)
Exercise of stock options
and related tax benefits -- 82,416 -- -- (56,000) -- 202,063 228,479
Stock compensation expense -- 41,847 -- -- -- -- -- 41,847
---------- ----------- --------- ---------- ------------- ----------- ----------- -------------
Balance, July 26, 2003 1,762,800 18,535,275 1,594,076 1,034,679 93,239,313 (2,329,906) (3,702,107) 106,777,254
Net income -- -- -- -- 13,262,925 -- -- 13,262,925
Other comprehensive
loss - additional
minimum pension
liability, net of
deferred tax benefit
of $219,950 -- -- -- -- -- (329,925) -- (329,925)
-------------
Comprehensive income 12,933,000
-------------
Dividends -- -- -- -- (798,057) -- -- (798,057)
Exercise of stock options
and related tax benefits -- 422,334 -- -- (202,590) -- 878,840 1,098,584
Stock compensation expense -- 79,888 -- -- -- -- -- 79,888
---------- ----------- --------- ---------- ------------- ----------- ----------- -------------
Balance, July 31, 2004 1,762,800 $19,037,497 1,594,076 $1,034,679 $ 105,501,591 $(2,659,831) $(2,823,267) $ 120,090,669
========== =========== ========= ========== ============= =========== =========== =============
|
See notes to consolidated financial statements.
VILLAGE SUPER MARKET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED
JULY 31, 2004 JULY 26, 2003 JULY 27, 2002
------------- ------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 13,262,925 $ 11,099,708 $ 12,557,639
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 9,495,425 8,928,839 8,001,659
Non-cash impairment charge -- -- 640,000
Tax benefit related to stock-based compensation 422,334 82,416 281,540
Non-cash stock compensation 79,888 41,847 --
Deferred taxes 2,112,193 3,094,448 2,028,270
Provision to value inventories at LIFO 1,401,797 349,962 53,345
Changes in assets and liabilities:
(Increase) decrease in merchandise inventories (73,890) 1,126,130 (3,365,303)
(Increase) in patronage dividend receivable (1,732,655) (1,437,383) (51,226)
(Increase) decrease in other current assets (987,779) 1,654,829 (1,587,480)
(Increase) in other assets (185,846) (267,764) (286,774)
Increase in accounts payable to related party 510,519 1,716,895 2,266,436
Increase (decrease) in accounts payable and accrued expenses 5,271,698 (2,052,961) 1,918,912
Increase in other liabilities 1,322,268 493,295 419,009
------------ ------------ ------------
Net cash provided by operating activities 30,898,877 24,830,261 22,876,027
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in note receivable from related party (20,273,739) -- --
Capital expenditures (14,277,616) (10,850,560) (20,766,878)
Proceeds from disposal of assets -- 4,005,805 --
------------ ------------ ------------
Net cash used in investing activities (34,551,355) (6,844,755) (20,766,878)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of long-term debt -- -- 3,000,000
Proceeds from exercise of stock options 676,250 146,063 450,000
Principal payments of long-term debt (7,754,137) (3,079,881) (2,944,577)
Dividends (798,057) (321,644) --
------------ ------------ ------------
Net cash (used in) provided by financing activities (7,875,944) (3,255,462) 505,423
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (11,528,422) 14,730,044 2,614,572
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 48,500,180 33,770,136 31,155,564
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 36,971,758 $ 48,500,180 $ 33,770,136
============ ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH PAYMENTS MADE FOR:
Interest (net of amounts capitalized) $2,795,108 $3,462,064 $3,903,585
Income taxes $5,031,517 $3,005,000 $7,101,000
NONCASH SUPPLEMENTAL DISCLOSURES:
Investment in related party -- $2,211,883 $550,000
|
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. operates a chain of 23 ShopRite supermarkets in New Jersey and eastern Pennsylvania. The Company is a member of Wakefern Food Corporation, 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 subsidiaries, which are wholly owned. Intercompany balances and transactions have been eliminated.
FISCAL YEAR
The Company and its subsidiaries utilize a 52-53 week fiscal year ending on the last Saturday in the month of July. Fiscal 2004 contains 53 weeks. Fiscal 2003 and 2002 contain 52 weeks.
RECLASSIFICATIONS
Certain amounts have been reclassified in the fiscal 2003 and 2002 consolidated financial statements to conform to the fiscal 2004 presentation.
INDUSTRY SEGMENT
The Company consists of one operating segment, the retail sale of food and non-food products.
REVENUE RECOGNITION
Merchandise sales are recognized at the point of sale to the customer. Discounts provided to customers through ShopRite coupons at the point of sale are recognized as a reduction of sales as the products are sold.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. Included in cash and cash equivalents at July 31, 2004 and July 26, 2003 are $19,628,000 and $30,918,000, respectively, of demand deposits invested at Wakefern at the prime rate less 2.5% or at overnight money market rates.
MERCHANDISE INVENTORIES
Approximately 70% of merchandise inventories are stated at the lower of LIFO (last-in, first-out) cost or market. If the FIFO (first-in, first-out) method had been used, inventories would have been $11,114,000 and $9,712,000 higher than reported in fiscal 2004 and 2003, respectively. All other inventories are stated at the lower of FIFO cost or market.
VENDOR ALLOWANCES AND REBATES
The Company receives vendor allowances and rebates, including amounts received as a pass through from Wakefern, related to the Company's buying and merchandising activities. Vendor allowances and rebates are recognized as a reduction in cost of sales when the related merchandise is sold or when the required contractual terms are completed.
PROPERTY, EQUIPMENT AND FIXTURES
Property, equipment and fixtures are recorded at cost. Interest cost incurred to finance construction is capitalized as part of the cost of the asset. Maintenance and repairs are expensed as incurred.
Depreciation is provided on a straight-line basis over estimated useful lives of thirty years for buildings, ten years for store fixtures and equipment, and three years for vehicles. Leasehold improvements are amortized over the shorter of the related lease terms or the economic lives of the related assets.
When assets are sold or retired, their cost and accumulated depreciation are removed from the accounts, and any gain or loss is reflected in the consolidated financial statements.
INVESTMENTS
The Company's investment in its principal supplier, Wakefern, is stated at cost (see Note 3).
The Company's investments in certain real estate partnerships are accounted for under the equity method.
STORE OPENING AND CLOSING COSTS
All store opening costs are expensed as incurred. Prior to the adoption of FASB Statement 146 in fiscal 2003, provisions were made for losses resulting from store closings at the time a decision to close a store was made. This includes items such as future lease payments, net of expected sublease recovery, and charges to reduce assets to net realizable value. Effective July 28, 2002, FASB Statement 146 requires the recognition of costs associated with store closings as those costs are incurred.
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 effect 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 on a straight-line basis over the life of the lease.
ADVERTISING
Advertising costs are expensed as incurred. Advertising expense was $7,692,000, $7,161,000 and $6,952,000 in fiscal 2004, 2003 and 2002, respectively.
INCOME TAXES
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period that includes the enactment date.
COMPREHENSIVE INCOME
FASB Statement 130, "Reporting Comprehensive Income," establishes standards for reporting and presentation of comprehensive income (loss) and its components in a full set of financial statements. For fiscal 2004, 2003 and 2002, comprehensive income consists of net income and the additional minimum pension liability adjustment, net of income tax benefit.
USE OF ESTIMATES
In conformity with U.S. generally accepted accounting principles, management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of expenses during the reporting period. Some of the more significant estimates are patronage dividends, pension accounting assumptions and the impairment of long-lived assets and goodwill. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash and cash equivalents, patronage dividends receivable, notes receivable from related party, accounts payable and accrued expenses are reflected in the consolidated financial statements at carrying value which approximates fair value because of the short-term maturity of these instruments. The carrying value of the Company's short and long-term notes payable approximates their 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 investment.
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
The Company accounts for its derivative and hedging transactions in accordance with FASB Statement 133, "Accounting for Derivative Instruments and Hedging Activities," as amended. These statements establish accounting and reporting standards for derivative instruments and for hedging activities and require an entity to recognize all derivative instruments either as an asset or a liability in the balance sheet and to measure such instruments at fair value. These fair value adjustments are included either in the determination of net income or as a component of accumulated other comprehensive income depending on the nature of the transaction.
The Company has one derivative instrument, an interest rate swap agreement, which it entered into in October 2001, to manage its exposure to interest rate fluctuations (see Note 4). The Company has structured this swap agreement to be an effective, fair value hedge of the underlying fixed rate obligation. The fair value of this interest rate swap agreement is recorded in other assets with a corresponding increase in notes payable. The changes in the fair value of the interest rate swap agreement and the underlying fixed rate obligation are recorded as equal and offsetting unrealized gains and losses in interest expense in the consolidated statement of operations. As a result, there is no impact to earnings resulting from hedge ineffectiveness. The Company is exposed to credit risk in the event of the inability of the counter party to perform under its outstanding derivative contract. Management believes it has minimized such risk by entering into a transaction with a counter party that is a major financial institution with a high credit rating.
LONG-LIVED ASSETS
The Company reviews long-lived assets, such as property, equipment and fixtures and intangibles subject to amortization, on an individual store basis for impairment when circumstances indicate the carrying amount of an asset may not be recoverable. Such review analyzes the undiscounted estimated future cash flows from such assets to determine if the carrying value of such assets are recoverable from their respective cash flows. If an impairment is indicated, it is measured by comparing the discounted cash flows for the long-lived asset to its carrying value.
The Company recorded a non-cash impairment charge of $640,000 in fiscal 2002 to write off the book value of the equipment of the Ventnor store, which was closed on February 5, 2002.
GOODWILL
Goodwill is tested at the end of each fiscal year, or as circumstances dictate, for impairment pursuant to the provisions of FASB Statement 142, "Goodwill and Other Intangible Assets." An impairment loss is recognized to the extent that the carrying amount of goodwill exceeds its implied fair value. The Company operates as a single reporting unit for purposes of evaluating goodwill for impairment and primarily considers earnings multiples and other valuation techniques to measure fair value as its stock is not widely traded.
NET INCOME PER SHARE
The number of common shares outstanding for calculation of net income per share is as follows:
2004 2003 2002
--------- --------- ---------
Weighted average shares
outstanding - basic 3,111,287 3,083,041 3,057,513
Dilutive effect of employee
stock options 43,595 48,449 81,136
--------- --------- ---------
Weighted average
shares outstanding - diluted 3,154,882 3,131,490 3,138,649
========= ========= =========
|
In accordance with FASB Statement No. 128 and EITF Issue No. 03-6, the Company utilizes the if-converted method of calculating net income per share, as the dilutive effect on basic net income per share using the if-converted method is greater than that which would result from the application of the two-class method.
STOCK-BASED COMPENSATION
The Company has one stock-based employee compensation plan, which is described in Note 7. During fiscal 2003, the Company adopted the fair value recognition provisions of FASB Statement 123, "Accounting for Stock-Based Compensation", prospectively in accordance with FASB Statement 148 for all employee awards granted, modified or settled after July 28, 2002. Prior to fiscal 2003, the Company accounted for its employee stock option plan under the recognition and measurement provisions of APB Opinion 25, "Accounting for Stock Issued to Employees". In accordance with the intrinsic value method of accounting for stock options under APB 25, no stock-based employee compensation cost is reflected in fiscal 2002 net income, as all options granted had an exercise price equal to the fair value of the Company's stock at the date of grant. The following table illustrates the effect on net income and net income per share if the fair value based method had been applied to all awards in each period.
JULY 31, JULY 26, JULY 27,
2004 2003 2002
----------- ----------- -----------
Net income, as reported $13,262,925 $11,099,708 $12,557,639
Add: Stock-based employee
compensation expense
included in reported net
income, net of related
tax effects
79,888 41,847 --
Deduct: Total stock-based
employee compensation
expense determined under
fair value method for all
awards, net of related
tax effects (79,888) (41,847) (70,840)
----------- ----------- -----------
Pro forma net income $13,262,925 $11,099,708 $12,486,799
=========== =========== ===========
Net income per share:
Basic - as reported $ 4.26 $ 3.60 $ 4.11
Basic - pro forma $ 4.26 $ 3.60 $ 4.08
Diluted - as reported $ 4.20 $ 3.54 $ 4.00
Diluted - pro forma $ 4.20 $ 3.54 $ 3.98
|
ADOPTION OF NEW ACCOUNTING STANDARDS
In December 2003, the FASB issued SFAS No. 132 (revised 2003), "Employers' Disclosures about Pensions and Other Postretirement Benefits", to revise employers' annual and quarterly disclosures about pension plans and other postretirement benefit plans. It does not change the measurement or recognition of those plans required by SFAS No. 87, "Employers' Accounting for Pensions", SFAS No. 88, "Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits", and SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions". This Statement retains the disclosure requirements contained in SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits", which it replaces. It requires additional disclosures to those in the original SFAS 132 about the assets, obligations, cash flows, and net periodic benefit cost of defined benefit pension plans and other defined benefit postretirement plans. The disclosure requirements under this Statement are included in these financial statements.
In December 2003, the FASB issued FASB Interpretation No. 46 (revised December 2003), "Consolidation of Variable Interest Entities", which addresses how a business enterprise should evaluate whether it has a controlling financial interest in an entity through means other than voting rights and accordingly should consolidate the entity. The Company adopted FASB Interpretation No. 46 effective April 24, 2004, which had no impact on the Company.
NOTE 2 -- PROPERTY, EQUIPMENT AND FIXTURES
Property, equipment and fixtures are comprised as follows:
JULY 31, July 26,
2004 2003
------------ -----------
Land and buildings $ 54,162,140 $53,551,921
Store fixtures and equipment 83,808,880 77,941,833
Leasehold improvements 43,851,050 39,199,519
Leased property under capital leases 7,797,869 7,797,869
Construction in progress 3,078,430 --
Vehicles 1,547,280 1,511,095
------------ -----------
194,245,649 180,002,237
Accumulated depreciation (86,875,521) (77,766,686)
Accumulated amortization of buildings
under capital leases (6,227,460) (5,915,074)
------------ -----------
Property, equipment and fixtures -- net $101,142,668 $96,320,477
============ ===========
|
Interest cost capitalized amounted to $171,000 in fiscal 2002 (none in fiscal 2004 and 2003). Amortization of leased property under capital leases is included in depreciation and amortization expense.
NOTE 3 -- RELATED PARTY INFORMATION - WAKEFERN
The Company's ownership interest in its principal supplier, Wakefern, which is operated on a cooperative basis for its stockholder members, is 16.4% of the outstanding shares of Wakefern at July 31, 2004. The investment is pledged as collateral for any obligations to Wakefern. In addition, all obligations to Wakefern are 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. If this purchase obligation is not met, the Company is required to pay Wakefern's profit contribution shortfall attributable to this failure. Similar payments are due if Wakefern loses volume by reason of the sale of Company stores or a merger with another entity. The Company also has an investment of approximately 10% in Insure-Rite, Ltd., a Wakefern affiliated company, that provides the Company with liability and property insurance coverage.
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 based on the amount of each store's purchases from Wakefern up to
a maximum of $650,000. As a result of an increase in the required investment of
$100,000 per store during fiscal 2003, the Company increased both its investment
and obligation by $2,119,000. At July 31, 2004, the Company's indebtedness to
Wakefern for the outstanding amount of these stock subscriptions was $2,291,519.
Installment payments are due as follows: 2005 - $711,901; 2006 - $680,940; 2007
- $680,750; 2008 - $91,000; 2009 - $101,125; and thereafter - $25,803. 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.
The Company purchases substantially all of its merchandise from Wakefern. Wakefern distributes as a "patronage dividend" to each member a share of its earnings in proportion to the dollar volume of purchases by the member from Wakefern during the year. Patronage dividends and other product incentives and rebates, which are recorded as a reduction of cost of sales, amounted to $12,252,000, $10,651,000 and $9,610,000 in fiscal 2004, 2003 and 2002, respectively.
Wakefern provides the Company with support services in numerous administrative functions. These services include advertising, insurance, supplies, technology support, equipment purchasing and coupon processing. Additionally, the Company has certain related party leases (see Note 6) and demand deposits invested at Wakefern (see Note 1).
The Company has a $20,273,739 unsecured note receivable from Wakefern at July 31, 2004. The note carries interest at the prime rate less 1.5% and matures January 15, 2005.
NOTE 4 -- NOTES PAYABLE
JULY 31, JULY 27,
2004 2003
----------- -----------
Senior notes payable (a) $25,714,286 $30,000,000
Notes payable, interest at 4.39% to 6.68%, payable
in monthly installments through December 2008,
collateralized by certain equipment 4,841,208 6,789,398
Fair value of hedging adjustment (a) 109,672 347,538
----------- -----------
30,665,166 37,136,936
Less current portion 6,229,065 6,233,903
----------- -----------
$24,436,101 $30,903,033
=========== ===========
|
Aggregate principal maturities of notes payable as of July 31, 2004 are as follows:
Year ending July:
2005 $6,229,065
2006 5,506,588
2007 5,388,074
2008 4,860,338
2009 4,285,714
Thereafter 4,285,715
|
(a) On September 16, 1999, the Company issued $30,000,000 of 8.12% unsecured Senior Notes. Interest on these notes is due semi-annually. The principal is due in seven equal annual installments beginning September 16, 2003 and ending September 16, 2009.
The Senior Note agreement contains covenants which, among other matters, require certain levels of net worth, a minimum fixed charge coverage ratio, lien limitations and limitations on additional indebtedness. At July 31, 2004, the Company was in compliance with all terms and covenants of this debt agreement.
On October 18, 2001, the Company entered into an interest rate swap agreement with a major financial institution pursuant to which the Company pays a variable rate of six-month LIBOR plus 3.36% (5.30% at July 31, 2004) on a notional amount of $10,000,000 expiring in September 2009 in exchange for a fixed rate of 8.12%. The swap agreement notional amount ($8,571,429 at July 31, 2004) decreases in amounts and on dates corresponding to the repayment of the fixed rate obligation it hedges. This interest rate swap agreement reduced interest expense by $289,000, $370,000 and $201,000 in fiscal 2004, 2003 and 2002, respectively.
The Company has structured this interest rate swap agreement to be an effective, fair value hedge. The fair value of this swap agreement is recorded in other assets with a corresponding increase in notes payable.
(b) On July 15, 2004, the Company amended its unsecured revolving loan agreement, which would have expired on September 16, 2004. The amended agreement increased the maximum amount available for borrowings to $20,000,000 from $15,000,000. The amended agreement expires September 16, 2007, with two one-year extensions available if exercised by both parties. The revolving credit line can be used for general corporate purposes. Indebtedness under this agreement bears interest at the prime rate, or at the Eurodollar rate, at the Company's option, plus applicable margins based on the Company's fixed charge coverage ratio. There were no amounts outstanding at July 31, 2004 and July 26, 2003.
The revolving loan agreement provides a maximum commitment for letters of credit of $3,000,000 ($787,000 outstanding at July 31, 2004) to secure obligations for self-insured workers' compensation claims from 1995 to 1998 and construction performance guarantees to municipalities.
This loan agreement contains covenants which, among other matters, require a maximum liabilities to tangible net worth ratio, a minimum fixed charge coverage ratio and a positive net income. At July 31, 2004, the Company was in compliance with all terms and covenants of the revolving loan agreement.
NOTE 5 -- INCOME TAXES
The components of the provision for income taxes are:
2004 2003 2002
---------- ---------- ----------
Federal:
Current $5,558,143 $3,344,748 $4,886,824
Deferred 1,817,538 2,594,567 1,660,341
State:
Current 1,810,168 1,279,767 459,476
Deferred 294,655 499,881 367,929
---------- ---------- ----------
$9,480,504 $7,718,963 $7,374,570
========== ========== ==========
|
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 31, JULY 26,
2004 2003
---------- ----------
Deferred tax liabilities:
Tax over book depreciation $ 9,491,676 $ 8,209,933
Patronage dividend receivable 2,020,761 1,458,865
Other 1,251,179 1,253,702
----------- -----------
Total deferred tax liabilities 12,763,616 10,922,500
----------- -----------
Deferred tax assets:
Amortization of capital leases 1,001,787 1,145,215
Compensation related costs 568,628 712,615
Minimum pension liability 1,773,221 1,553,271
Accrual for special charges 667,083 667,083
Other 322,114 305,776
----------- -----------
Total deferred tax assets 4,332,833 4,383,960
----------- -----------
Net deferred tax liability $ 8,430,783 $ 6,538,540
=========== ===========
|
Net long-term deferred taxes of $7,006,645 and $5,817,764 are included in other long-term liabilities at July 31, 2004 and July 26, 2003, respectively. Net current deferred taxes of $1,424,138 and $720,776 are included in accrued expenses at July 31, 2004 and July 26, 2003, respectively.
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 31, 2004 and July 26, 2003.
The effective income tax rate differs from the statutory federal income tax rate as follows:
2004 2003 2002
---- ---- ----
Statutory federal income tax rate 35.0% 35.0% 35.0%
State income taxes, net of federal tax benefit 6.0 6.2 2.7
Other .7 (.2) (.7)
---- ---- ----
Effective income tax rate 41.7% 41.0% 37.0%
==== ==== ====
|
NOTE 6 -- LEASES
DESCRIPTION OF LEASING ARRANGEMENTS
The Company conducts a major part of its operations from leased facilities, with the majority of initial lease terms ranging from 20 to 30 years. All of the Company's leases expire through fiscal 2059.
Most of the Company's leases contain renewal options of five years each. These options enable the Company to retain the use of facilities in desirable operating areas. Management expects that in the normal course of business, most leases will be renewed or replaced by other leases. The Company is obligated under all leases to pay for real estate taxes, utilities and liability insurance, and under certain leases to pay additional amounts based on maintenance, insurance and a percentage of sales in excess of stipulated amounts.
Future minimum lease payments by year and in the aggregate for all non-cancelable leases with initial terms of one year or more consist of the following at July 31, 2004.
CAPITAL OPERATING
LEASES LEASES
---------- -----------
2005 $1,274,804 $ 6,670,636
2006 1,290,792 6,232,363
2007 1,107,740 5,568,410
2008 741,636 5,238,589
2009 655,992 4,669,104
Thereafter 3,407,662 62,900,613
---------- -----------
Minimum lease payments 8,478,626 $91,279,715
===========
Less amount representing interest 4,455,863
----------
Present value of minimum lease payments 4,022,763
Less current portion 799,943
----------
$3,222,820
==========
|
The Company is also committed to lease one new store currently under construction. The minimum annual rent for this lease is initially $1,191,000. This lease is expected to begin in fiscal 2005.
The following schedule shows the composition of total rental expense for the following periods:
2004 2003 2002
---------- ---------- ----------
Minimum rentals $6,801,197 $6,316,284 $5,939,763
Contingent rentals 953,536 878,242 907,250
---------- ---------- ----------
$7,754,733 $7,194,526 $6,847,013
========== ========== ==========
|
RELATED PARTY LEASES
On April 2, 2003, the Company sold the land and building currently occupied by the Somers Point, NJ store to an unrelated real estate investment trust (the "REIT") for $3,500,000 plus the reimbursement of certain costs. The Company's purpose in entering into this transaction was to provide for the development of an 80,000 sq. ft. replacement store in Somers Point with minimal cash outlay by the Company, and to ensure continued occupancy of the Springfield, NJ store and the Company's headquarters.
The Company executed leases with the REIT for the replacement store in Somers Point and to continue occupancy of the current Somers Point store until the replacement store is constructed by the REIT. In addition, the Company executed long-term leases with the REIT for the Springfield store and the Company's headquarters, which were previously leased from a realty Company owned by certain officers of the Company (the "Realty Company"). The Company canceled its current leases with the Realty Company. The combined annual rents of these two new leases are approximately the same as the annual rents of the leases cancelled.
As part of this transaction, the shareholders of the Realty Company sold their shares in the Realty Company to the REIT. The Realty Company's assets consist substantially of the Springfield store, the Company headquarters and undeveloped land in Somers Point upon which a 130,000 sq. ft. retail center is to be developed by the REIT. This transaction resulted in no net gain or loss to the Company. Although the transactions with the unrelated, publicly-traded REIT were negotiated at arms-length, the Company's independent directors evaluated and approved these transactions for fairness due to the concurrent sale by the Realty Company, which was a related party.
In addition, the Company leases a supermarket from a different realty firm partly-owned by officers of the Company. The Company paid aggregate rents to related parties under all the above leases, including minimum and contingent rent, of approximately $549,000, $926,000 and $1,096,000 in fiscal years 2004, 2003 and 2002, respectively.
The Company leases its Vineland store from Wakefern under a sublease agreement which provides for annual rent of $700,000. This sublease expires May 10, 2014 and contains renewal options.
NOTE 7 -- COMMON STOCK AND OPTIONS
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 transferable 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 1997 Incentive and Non-Statutory Stock Option Plan provides for the granting of options or stock appreciation rights to purchase up to 250,000 shares of the Company's Class A common stock by officers, employees and directors of the Company as designated by the Board of Directors. The Plan requires incentive stock options to be granted at exercise prices equal to the fair value of the Company's stock at the date of grant (110% if the optionee holds more than 10% of the voting stock of the Company), while non-statutory options may be granted at an exercise price less than fair value. All options granted to date were at fair value and are exercisable up to 10 years from the date of the grant.
The following table summarizes option activity for the following periods:
2004 2003 2002
------------------------ ------------------------ ------------------------
Shares Weighted average Shares Weighted average Shares Weighted average
exercise price exercise price exercise price
---------------------------------------------------------------------------------------------------------------------------
Outstanding at beginning of year 124,600 $11.96 131,200 $10.93 167,000 $10.13
Granted 6,000 29.50 8,000 25.24 8,000 23.50
Exercised (63,500) 10.65 (14,600) 10.00 (43,800) 10.18
------------------------ ------------------------ ------------------------
Outstanding at end of year 67,100 $14.77 124,600 $11.96 131,200 $10.93
------------------------ ------------------------ ------------------------
Options exercisable at end of year 61,100 $13.32 116,600 $11.05 123,200 $10.12
------------------------ ------------------------ ------------------------
|
The following table summarizes options outstanding at July 31, 2004:
RANGE OF OPTIONS REMAINING LIFE WEIGHTED AVERAGE OPTIONS EXERCISE PRICES OUTSTANDING IN YEARS EXERCISE PRICE EXERCISABLE ----------------- ----------- -------------- ---------------- ----------- $10.00 47,100 3.4 $10.00 47,100 $23.50 to $29.50 20,000 8.5 $26.00 14,000 ----------------- ----------- -------------- ---------------- ----------- $10.00 to $29.50 67,100 4.9 $14.77 61,100 ================= =========== ============== ================ =========== |
The weighted average fair value of an option granted was estimated at $11.39 in 2004, $9.43 in fiscal 2003 and $8.81 in fiscal 2002. The fair value of each option grant is estimated using the Black-Scholes Option Pricing Model with the following assumptions used for fiscal 2004, 2003 and 2002 grants:
2004 2003 2002
-------- -------- ------
Expected life (years) 6.0 6.0 6.0
Expected volatility 36.0% 36.0% 30.0%
Expected dividend yield 1.0% 1.0% --
Risk-free interest rate 4.3% 4.0% 4.0%
|
The Company declared cash dividends on common stock as follows:
2004 2003 2002
-------- -------- ------
Per share:
Class A common stock $ .31 $ .13 $ --
Class B common stock $ .201 $ .08 $ --
Aggregate:
Class A common stock $477,648 $194,118 $ --
Class B common stock 320,409 127,526 $ --
-------- -------- ------
$798,057 $321,644 $ --
======== ======== ======
|
NOTE 8 -- PENSION PLANS
The Company sponsors four defined benefit pension plans. Two are tax-qualified plans covering members of unions. Benefits under these two plans are based on a fixed amount for each year of service. One is a tax-qualified plan covering nonunion associates. Benefits under this plan are based upon percentages of annual compensation. The fourth plan is an unfunded, nonqualified plan providing supplemental pension benefits to certain executives. Funding for these plans is based on a review of the specific requirements and on evaluation of the assets and liabilities of each plan. The Company uses its fiscal year-end date as the measurement date for these plans.
Net periodic pension cost for the four plans include the following components:
2004 2003 2002
---------- -------- --------
Service cost $1,189,775 $785,415 $685,123
Interest cost on projected benefit obligation 1,001,105 932,772 781,815
Expected return on plan assets (721,732) (724,042) (703,705)
Net amortization and deferral 245,078 (190,021) 10,078
---------- -------- --------
Net periodic pension cost $1,714,226 $804,124 $773,311
========== ======== ========
|
The changes in benefit obligations and the reconciliation of the funded status of the Company's plans to the consolidated balance sheets were as follows:
2004 2003
----------- -----------
Changes in Benefit Obligation:
Benefit obligation at beginning of year $15,370,565 $12,139,279
Service cost 1,189,775 785,415
Interest cost 1,001,105 932,772
Benefits paid (671,291) (1,388,039)
Actuarial loss 1,131,212 2,901,138
----------- -----------
Benefit obligation at end of year $18,021,366 $15,370,565
=========== ===========
Changes in Plan Assets:
Fair value of plan assets at beginning of year $ 7,980,966 $ 8,041,953
Actual return on plan assets 570,398 267,241
Employer contributions 1,439,122 1,059,811
Benefits paid (671,291) (1,388,039)
----------- -----------
Fair value of plan assets at end of year $ 9,319,195 $ 7,980,966
=========== ===========
Fair value of plan assets (less) than benefit
obligation $(8,702,171) $(7,389,599)
Unrecognized prior service cost 107,823 128,821
Unrecognized net actuarial loss 7,779,743 6,721,275
Adjustment required to recognize minimum liability (4,540,875) (4,011,998)
----------- -----------
Accrued pension cost $(5,355,480) $(4,551,501)
=========== ===========
Amounts recognized in the consolidated balance sheets:
Accrued pension cost $(5,355,480) $(4,551,501)
Intangible asset 107,823 128,821
Accumulated other comprehensive loss 2,659,831 2,329,906
=========== ===========
|
Each of the Company's four defined benefit pension plans have accumulated benefit obligations in excess of the fair value of plan assets. The accumulated benefit obligations of the four plans were $14,674,677 and $12,532,467 at July 31, 2004 and July 26, 2003 respectively. The provisions of FASB Statement 87, "Employer's Accounting for Pensions," require recognition in the consolidated balance sheet of additional minimum liability and a related intangible asset for pension plans with accumulated benefit obligations in excess of plan assets. Any portion of such additional liability which is in excess of the plan's prior service costs is a component of accumulated other comprehensive loss and is reflected in shareholder's equity, net of related tax benefit.
Assumptions used to determine benefit obligations and net periodic pension cost for the Company's defined benefit plans were as follows:
2004 2003 2002
---- ---- ----
Assumed discount rate 6.25% 6.75% 7.25%
Assumed rate of increase in compensation levels 4% 4% 4%
Expected rate of return on plan assets 7.5% 7.5% 7.5%
|
The expected rate of return on plan assets represents the weighted average of expected returns for each asset category. The expected returns for each asset category are developed using historical data on returns. The defined benefit pension plans weighted average asset allocations by asset category were as follows:
Target Actual Allocations
Allocation 2004 2003
---------- ------ ------
Equities 50 - 70% 66% 59%
Fixed income securities 25 - 35% 30 30
Cash equivalents and other assets 0 - 10% 4 11
------ ------
Total 100% 100%
====== ======
|
Investments in the pension trusts are overseen by the trustees of the plans, who are officers of the Company. Overall investment strategy and policy has been developed based on the need to satisfy the long-term liabilities of the Company's pension plans. Risk management is accomplished through diversification across asset classes, multiple investment portfolios and investment guidelines. Equity investments consist of publicly traded securities and investments in broad market index funds. In addition, one plan held Class A common stock of the Company in the amount of $823,814 and $642,257 at July 31, 2004 and July 26, 2003, respectively. Fixed income securities consist of a broad range of investments including U.S. government securities, corporate debt securities, mortgage backed obligations, and short-term bond mutual funds. The plans do not allow for investments in derivative instruments.
The Company estimates future defined benefit payments from plan assets as follows:
Fiscal Year ----------- 2005 $373,000 2006 411,000 2007 556,000 2008 645,000 2009 729,000 2010 - 2014 5,921,000 |
The Company expects to contribute $2,386,000 in cash to all defined benefit pension plans in fiscal 2005.
The Company also participates in several multi-employer pension plans for which the fiscal 2004, 2003, and 2002 contributions were $3,987,000, $3,706,000 and $3,006,000, respectively.
The Company sponsors a 401(k) savings plan for certain eligible associates. Company contributions under that plan, which are based on specified percentages of associate contributions, were $214,000, $202,000 and $198,000 in fiscal 2004, 2003 and 2002, respectively.
NOTE 9 -- COMMITMENTS AND CONTINGENCIES
The Company is involved in litigation incidental to the normal course of business. Company management is of the opinion that the ultimate resolution of these legal proceedings should not have a material adverse effect on the consolidated financial position, results of operations or liquidity of the Company.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders
Village Super Market, Inc.:
We have audited the accompanying consolidated balance sheets of Village Super Market, Inc. and subsidiaries as of July 31, 2004 and July 26, 2003 and the related consolidated statements of operations, shareholders' equity and comprehensive income, and cash flows for each of the years in the three-year period ended July 31, 2004. 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 the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Village Super Market, Inc. and subsidiaries as of July 31, 2004 and July 26, 2003, and the results of their operations and their cash flows for each of the years in the three-year period ended July 31, 2004, in conformity with U.S. generally accepted accounting principles.
/s/ KPMG LLP Short Hills, New Jersey October 8, 2004 |
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
2004
4TH QUARTER $34.48 $31.65
3RD QUARTER 33.25 31.15
2ND QUARTER 33.01 26.75
1ST QUARTER 28.00 25.00
2003
4th Quarter 26.40 22.30
3rd Quarter 27.14 21.40
2nd Quarter 27.50 23.00
1st Quarter 27.89 23.40
|
As of October 1, 2004, there were 474 holders of record of the Company's Class A common stock; however 1,153,000 shares of the Company's Class A common stock are held in "Street Name" by depositories or nominees on behalf of beneficial owners.
During fiscal 2004, the Company declared cash dividends of $.31 per Class A common share and $.201 per Class B common share. During fiscal 2003, the Company declared cash dividends of $.13 per Class A common share and $.08 per Class B common share.
BY LAWS
OF
VILLAGE SUPER MARKET, INC
ARTICLE I
OFFICES
The principal office of the corporation shall be in such place in the State of New Jersey as the Board of Directors (the "Board") may from time to time direct. The corporation may also establish and have such other offices needed for the conduct of its business at such other place or places as may from time to time be designated by the Board.
ARTICLE II
STOCKHOLDERS' MEETINGS
Section 1. Annual Meeting. The annual meeting of the stockholders for the election of directors and for the transaction of such other business as may properly come before it, shall be held at such place as may from time to time be designated by the Board and stated in the Notice of Meeting.
Section 2. Quorum. As provided by law, a quorum at all meetings of
stockholders shall consist of the holders of the shares entitled to cast a
majority of the votes thereat, present in person or by proxy.
If the holders of the amount of stock necessary to constitute a quorum
shall fail to attend, in person or by proxy, at the time and place fixed by
these By-Laws for the annual meeting, or fixed by notice for a special meeting,
a majority in interest of the stockholders present in person or by proxy may
adjourn, from time to time, without notice other than by announcement at such
meeting, until holders of the amount of stock requisite to constitute a quorum
shall attend. At any such adjourned meeting at which a quorum shall be
present, any business may be transacted which might have been transacted at
the meeting as originally scheduled.
Section 3. Special Meetings. Special meetings of the stockholders shall be held at the principal executive offices of the corporation, or at such other place as the Board may designate. Such meetings may be called at any time by the Board, or a majority thereof, or by the Chief Executive Officer (the "CEO"). It shall be the duty of the CEO or the Board to call such meetings whenever so requested in writing by the stockholders of record who hold shares possessing at least 50% of the voting power of all classes of stock of the corporation entitled to vote at such meetings. Notice of such meetings shall specify the object or objects thereof, and no other business than that specified in such notice shall be considered at any such meeting.
Section 4. Notice of Meetings. A notice of each annual or special meeting of the stockholders of the corporation which shall state the time, place, and objects of such meeting, shall be delivered personally or by mail, not less than ten (10) days before (unless a longer period shall be required by law) nor more than sixty (60) days before the annual or special meeting, to each stockholder of record entitled to vote at any such meeting. If a shareholder consents, the notice may be delivered electronically as the shareholder shall specify. If mailed, the notice shall be directed to the stockholder at his address as it appears on the records of the corporation. The corporation will provide appropriate notice to brokerages and other nominees for shares held in "street name". Any stockholder may at any time by a duly signed statement in writing to that effect waive any statutory or other notice of any meeting, whether such statement be signed before or after such meeting.
Section 5. Voting. At all meetings of the stockholders, each stockholder
entitled to vote, and present at the meeting in person or by proxy, shall be
entitled to one vote for each full share of Class A common stock of the
corporation entitled to vote and standing registered in his name at the time of
such voting and ten votes for each full share of Class B common stock of the
corporation entitled to vote and standing registered in his name at the time
of such voting. Except for the election of directors, the affirmative vote of
the majority of votes cast at any such meeting of the stockholders shall
authorize any action; provided that no greater voting requirement is required
by statute or the certificate of incorporation.
The Board, or, if the Board shall not have made the appointment, the
Chairman presiding at any meeting of stockholders, shall have power to appoint
one or more persons to act as inspectors, to receive, tabulate, and report the
votes cast by the stockholders at such meeting; but no candidate for the office
of director shall be appointed as inspector at any meeting for the election of
directors.
Section 6. Proxies. Any stockholder of record entitled to vote may be represented at any regular or special meeting of the stockholders by a duly appointed proxy, granted not more than eleven (11) months before the meeting unless a longer time is expressly provided therein. All proxies shall be filed with the Secretary of the meeting before being voted.
Section 7. Officers of Meetings. The Chairman of the Board of the corporation, if present, shall preside at all meetings of stockholders; in his absence the President of the corporation, if present, shall preside. The Secretary of the corporation shall, if present, act as secretary of all meetings of the stockholders. In his absence a temporary secretary for that particular meeting shall be elected. The Secretary of the stockholders' meetings shall keep a record of the proceedings of such meeting.
ARTICLE III
DIRECTORS
Section 1. Number, Term of Office, etc. The number of directors of the corporation shall be as set forth in any resolution of the Board heretofore adopted or as hereinafter adopted and the size of the Board may be expanded and reduced by Board resolution. The directors shall be elected by a plurality of the votes cast at an election at the annual meeting of the stockholders of the corporation, and each director shall be elected to serve until the next annual meeting of stockholders, or until his successor shall have been elected and qualified; provided, that any one or more of the directors may be removed, either with or without cause, at any time by a vote of the stockholders at a special meeting called for this purpose. A director may be removed for cause by a vote of a majority of the entire Board and may be suspended until a final determination that cause exists. At its first meeting after the annual stockholders meeting, the Board shall designate one director as Chairman of the Board. Any vacancy occurring in the Board of Directors by reason of death, resignation or increase in the number of directors, or otherwise, shall be filled for the unnexpired term by a majority vote of the remaining directors. The directors shall receive such compensation for their services as directors and as members of any committee appointed by the Board as may be prescribed by the Board.
Section 2. Duties and Powers. The Board shall have the control and management of the affairs of the corporation and shall exercise all such powers of the corporation, and do all such lawful acts and things necessary or expedient in the control and management thereof, as are not by statute or by these By-Laws directed or required to be exercised or done by the stockholders. The directors may adopt such rules and regulations for the conduct of their meetings and the management of the corporation as they may deem proper, not inconsistent with the law.
Section 3. Nomination of Directors. The full Board of Directors shall
act on all matters concerning the identification, evaluation and nomination of
director candidates. The Board will consider nominations of director
candidates submitted by any shareholder upon the submission of the names and
biographical data of the candidates (including any relationship to the
proposing shareholder).
The Board's process for identifying and evaluating candidates recommended
by any shareholder shall be the same as for candidates recommended by the
Board,management or others. In searching for appropriate candidates, the Board
shall adhere to criteria established for the consideration and selection of
candidates. The Board shall view the candidate's qualifications in light of
the needs of the Board and the Company at that time given the then current mix
of director attributes. Among other criteria, the Board may consider the
following skills, attributes and competencies of a new member: (i) possessing
the highest ethical standards and integrity; (ii) a willingness to act on and
be accountable for Board decisions; (iii) an ability to provide prudent,
informed and thoughtful counsel to top management on a broad range of issues;
(iv) relevant industry or business knowledge; (v) senior management experience
and demonstrated leadership; (vi) financial literacy; (vii) individual
backgrounds that provide a portfolio of experience and knowledge commensurate
with the Company's needs. Each director will be considered without regard to
gender, race, religion, national origin or sexual orientation.
Section 4. Meetings. Meetings of the Board shall be held at the office
of the corporation, or at any other place, which the CEO or a majority of the
Board may from time to time designate. There shall be an annual meeting of
the Board held upon the day of the annual stockholders' meeting, or as soon
thereafter as convenient. Other regular meetings of the Board shall be held
at such times and places as the Board shall from time to time by resolution
prescribe. Special meetings of the Board shall be held whenever called by the
CEO or by one-third (1/3) of the directors then in office. One (1) day notice
shall be given to each director by the Secretary of each meeting of the Board.
Such notice shall be given by mail (if more than five (5) days in advance of
the meeting), or by e-mail, facsimile, telephone, or in person. The Board may
meet to transact business at any time and place without notice, provided that
every member of the Board shall be present, or that any member or members not
present shall waive notice of such meeting. The CEO or the President shall
preside at each meeting of the Board. A majority of the directors shall
constitute a quorum for the transaction of business, but the director or
directors present, if less than a quorum, may adjourn any meeting from time to
time until such quorum shall be present. All questions coming before the Board
shall be decided or recommended to shareholders by a majority vote. Each
director shall be entitled to one vote at all meetings of directors. A
director who is present at a meeting of the Board at which action on any
corporate matter is taken shall be presumed to have assented to the action
taken unless his dissent is entered in the minutes of the meeting or unless he
has filed his written dissent to such action with the person acting as
Secretary of the meeting before the adjournment thereof or immediately
thereafter. Such right to dissent shall not apply to a director who voted in
favor of such action.
Any action required or permitted to be taken at any meeting of the Board
may be taken without a meeting if all members of the Board consent thereto in
writing, and the writing or writings are filed with the minutes of the
proceedings of the Board.
Section 5. Executive Committee. An Executive Committee of no less than
two and no more than six directors may be designated by resolution passed by a
majority of the whole Board. At its first meeting after the annual
stockholders' meeting, the Board shall designate one director as Chairman of
the Committee. During the intervals between meetings of the Board, the
Committee shall advise with and aid the officers of the corporation in all
matters concerning its interests and management of its business, and generally
perform such duties as may be directed by the Board from time to time. The
Committee shall possess all the powers of the Board while the Board is not in
session, except power: (1) to change the size of the Board of Directors, (2) to
create any Committee or change the size of any Committee, (3) to fill in any
vacancies on the Board or any Committee, (4) to remove any member of any
Committee, (5) to elect or remove principal officers, (6) to declare any
dividend or authorize any distribution with respect to any shares of capital
stock of the corporation, (7) to amend these By-Laws, or (8) to submit any
matter to stockholders for their consideration. In particular, the Executive
committee shall have the following powers while the Board is not in session:
(1) to appoint agents of the corporation and determine their salaries,
(2) to borrow money, and issue notes, or other obligations and evidences of
indebtedness therefore and to give security in the assets of the corporation
for such loan, (3) to guarantee obligations of subsidiaries, (4) to authorize
the corporate seal to be affixed to documents of the corporation, (5) to make
recommendations to the Board of general policy with regard to the business of
the corporation, (6) to make recommendations to the Board as to declarations
of dividends, and (7) such other powers as may lawfully be delegated to it by
the Board, not in conflict with specific powers conferred by the Board upon any
other Committee appointed by it.
Meetings of the Executive Committee shall be called by the Secretary of
the Corporation, from time to time, at the direction and upon the request of
the Chairman or any two members of the Executive committee; that notice of such
meetings shall in each instance be given to each member of the Committee at his
last-known business address, not less than 24 hours before the meeting, either
orally or in writing, delivered by mail, e-mail, telephone, or facsimile. The
Executive Committee may at any meeting establish regular meetings and a fixed
date, time and place for such regular meetings, and for such regular meetings
no notice need be sent out. The Executive Committee shall keep minutes of its
meetings and shall submit these minutes to the Board at its next regular
meeting and report all its actions.
Section 6. Audit Committee. An Audit Committee shall be appointed by
resolution passed by a majority vote of the Board. The Audit Committee shall
be comprised of three or more directors, as determined by the Board, each of
whom shall be independent. The Audit Committee shall perform its duties in
accordance with the charter of the Audit Committee. The Audit Committee shall
be responsible for (1) monitoring the integrity of the Company's financial
reporting process and systems of internal controls regarding financial,
accounting and legal compliance, (2) monitoring the independence and
performance of the company's independent auditors, and (3) providing an avenue
of communications among the independent auditors, management, and the Board.
The Audit Committee will have the authority to conduct any investigation
appropriate to fulfilling its responsibilities. The Audit Committee has the
ability to retain, at the company's expense, any legal, accounting or other
consultants or experts it deems necessary in the performance of its duties.
The independent auditors shall report directly to the Audit Committee.
The Audit Committee shall also be responsible for establishing procedures
for the receipt, retention and treatment of complaints regarding accounting,
internal accounting controls or auditing matters, including procedures for the
confidential, anonymous submissions by employees of concerns regarding
questionable accounting, financial or auditing matters.
Section 7. Compensation Committee. The Compensation Committee shall be designated by a majority vote of the Board. The Compensation Committee shall consist of at least three directors. The Compensation Committee will meet as necessary and is responsible for establishing salary, bonus, stock based compensation and any other compensation for all executive officers of the Company. In addition, the Compensation Committee is responsible for preparing a report on executive compensation for inclusion in the Company's annual proxy statement.
ARTICLE IV
OFFICERS
Section 1. Election and Removal. The Board immediately after the annual meeting of the stockholders shall meet and elect or appoint a CEO, a President, a Chief Financial Officer, such Vice Presidents as they determine may be appropriate, a Secretary, a Treasurer and such Assistant Secretaries and Assistant Treasurers as they determine may be appropriate, who shall hold office during the pleasure of the Board. They may elect such other officers as the needs of the corporation may from time to time require. All officers shall serve for one year, or until the election and qualification of their successors, subject to the power of the directors to remove any officer at pleasure by a majority vote of the Board. Any two offices, except those of President and Secretary, may be held by the same person. The compensation of the officers shall be fixed by the Compensation Committee of the Board.
Section 2. Chief Executive Officer. The CEO, shall, when present, preside at all meetings of the Board, and shall act as temporary chairman at and call to order all meetings of the stockholders. The CEO shall perform all duties commonly incident to his office, and shall have general supervision of the affairs of the corporation, subject to the approval of the Board. The CEO, President, or another officer shall sign and execute bonds, mortgages, and other contracts and evidences of indebtedness for and on behalf of the corporation. The CEO, President, or another officer shall sign all certificates of stock, which shall be countersigned by the Secretary or Treasurer. At the first regular meeting of the Board of the corporation each fiscal year, the CEO shall submit a complete report of the operations and the business of the corporation's affairs at the close of such year, and shall submit a similar report at each annual meeting of the stockholders. The CEO shall also report to the Board from time to time all matters coming to his notice relating to the interests of the corporation that should be brought to the attention of the Board.
Section 3. President. The President shall perform all duties commonly incident to his office, and such other duties as may be prescribed by the Board. The President shall assist the CEO in reporting to the Board from time to time all matters coming to his notice, relating to the interest of the corporation.
Section 4. Vice-President. The Vice- President shall have and exercise all the powers and duties of the President in case of his absence or inability to act, and shall perform such other duties as may be prescribed by the Board.
Section 5. Chief Financial Officer. The Chief Financial Officer shall perform all duties commonly incident to his office, and shall have general supervision of the financial affairs of the corporation, subject to the approval to the Board. At each annual meeting of stockholders of the corporation and at each regular meeting of the Board, the Chief Financial Officer shall make a full report of the financial condition of the corporation.
Section 6. Secretary. The Secretary shall attend all meetings of the Board and of the stockholders, and shall record all votes and the minutes of all proceedings in a book to be kept for that purpose. The Secretary shall give or cause to be given notice of all meetings of the stockholders and the Board, and shall affix the seal of the corporation to such documents as may require it, and shall have charge of the corporation's seal and such other books and papers as the Board may prescribe. The Secretary shall also make such reports to the Board of Directors as they may request, and shall prepare and cause to be filed such reports and statements may be required by the laws of the State of New Jersey, and by the laws of any other State in which the corporation shall do business.
Section 7. Treasurer. The Treasurer shall have the care and custody of all the funds and securities of the corporation, and shall deposit the same in the name of the corporation in such bank or banks as the Board may designate, and shall disburse the same under such rules and regulations as may be made by the Board, and shall perform such other duties as the Board of Directors may from time to time prescribe. The Treasurer shall keep full and accurate accounts of receipts and disbursements in books belonging to the corporation, and shall see that all expenditures are duly authorized and are evidenced by proper receipts and vouchers. The Treasurer shall render to the President and the directors at the regular meetings of the Board, or whenever they may require it, an account of all his transactions as Treasurer.
Section 8. Other. Every officer shall perform such duties as the Board may from time to time require, and the Board may likewise appoint such officers as may in its discretion be necessary for the transaction of the business of the corporation, with such powers and duties as it may confer and impose. Should any vacancy occur among the officers by death, resignation, or otherwise, the same may be filled by the Board at any regular or special meeting called for that purpose. In its discretion, the Board may leave unfilled any office. In case of the absence or disability of any officer, the Board may delegate the powers or duties of any officer to another officer.
Section 9. Bank Accounts. In addition to such bank accounts as may be authorized in the usual manner by resolution of the Board, the Treasurer with the approval of the President or any Vice President, may authorize such bank accounts to be opened or maintained in the name and on behalf of the corporation as he may deem necessary or appropriate, payments from such back account to be made upon and according to the check of the corporation which may be signed jointly or singly by either the manual or facsimile signature or signatures of such officer of the corporations the Board may from time to time designate.
Section 10. All officers will adhere to a Code of Ethics as adopted and revised from time to time by the Board or any authorized committee thereof.
ARTICLE V
CAPITAL STOCK
Section 1. Certificates. Certificates of stock shall be signed by the President or Vice President, and countersigned by the Secretary or Treasurer and sealed with the seal of the corporation. If certificates are signed by a Transfer Agent, acting in behalf of the corporation, or a Registrar, the signatures of the officers of the corporation may be a facsimile and the signature by such Transfer Agent or Registrar may be a facsimile. Each certificate of stock shall plainly state upon the face thereof the number of shares of the class which it represents. All certificates exchanged or returned to the corporation shall be marked "cancelled" by the Secretary, with the date of cancellation.
Section 2. Transfer Agent. The Board shall have the power to appoint one or more Transfer Agents and Registrars for the transfer and registration of certificates of stock of any class, and may require that stock certificates shall be countersigned and registered by one or more of such Transfer Agents and Registrars.
Section 3. Transfer of Stock. Shares of capital stock of the corporation shall be transferable on the books of the corporation only by the holder of record thereof in person or by a duly authorized attorney, upon surrender and cancellation of certificates for a like number of shares
Section 4. Holder of Record. The corporation shall be entitled to treat the holder of record of any share or shares of stock as the holder thereof in fact and shall not be bound to recognize any equitable or other claim to or interest in such shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise expressly provided by law.
ARTICLE VI
DIVIDENDS
Dividends shall be declared and paid at such times and in such amounts as the Board may in their absolute discretion determine and designate.
ARTICLE VII
FISCAL YEAR
The Board shall have power to fix and from time to time change, the fiscal year of the corporation. Unless otherwise fixed by the Board, the fiscal year will be a 52 or 53 week period ending on the last Saturday in July.
ARTICLE VIII
AMENDMENTS
These By-Laws may be amended, altered, repealed, rescinded or added to in any manner not inconsistent with the statutes of the State of New Jersey or the provisions of the Certificate of Incorporation by the Board without action or consents on the part of the stockholders.
ARTICLE IX
INDEMNIFICATION AGAINST ACTIONS
The corporation shall indemnify all of its directors and officers, present and future, against their expenses (including attorneys' fees) and liabilities in connection with any proceeding involving the director or officer by reason of their being or having been a director or officer, including a proceeding by or in the right of the corporation, unless a judgment or other final adjudication adverse to the director or officer establishes that his or her acts or omissions (a) were in breach of the director's or officer's duty of loyalty to the corporation or its shareholders, (b) were not in good faith or involved a knowing violation of law or, (c) resulted in the receipt by the director or officer of an improper personal benefit. The expenses (including attorneys' fees) of any director or officer in connection with any such action will be advanced by the corporation upon receipt of an undertaking on behalf of such director or officer to repay such amount if it shall ultimately be determined that he or she is not entitled to be indemnified.
FIRST AMENDMENT TO LOAN AGREEMENT
THIS FIRST AMENDMENT (this "Amendment"), dated as of July 15, 2004, is made between VILLAGE SUPER MARKET, INC., a New Jersey corporation, as borrower (the "Borrower"), and WACHOVIA BANK, NATIONAL ASSOCIATION, a National Banking Association, as lender (formerly known as First Union National Bank, the "Lender").
RECITALS
A. Reference is made to the Loan Agreement, dated as of September 16, 1999 (the "Loan Agreement"), between the Borrower and the Lender, pursuant to which Lender made available to Borrower the Revolving Loan (as defined in the Loan Agreement).
B. The Borrower has requested (i) an increase of the maximum amount
available under the Revolving Loan from $15,000,000 to $20,000,000, (ii) an
extension of the Maturity Date of the Revolving Loan to September 16, 2007,
(iii) modifications of certain financial covenants set forth in the Loan
Agreement and (iv) certain other modifications to the terms and conditions of
the Loan Agreement, as specified herein.
C. The Lender is amenable to said modifications in accordance with, and subject to, the terms and conditions of this Amendment.
NOW, THEREFORE, for good and valuable consideration (the receipt and sufficiency of which are hereby acknowledged), the parties hereto agree as follows:
Section 1. Definitions
All capitalized terms used but not otherwise defined in this Amendment shall have the meanings given to such terms in the Loan Agreement.
Section 2. Acknowledgment of Revolving Loan and Waiver.
The Borrower acknowledges and agrees that the Revolving Loan is a valid and binding obligation of the Borrower enforceable against the Borrower in accordance with the terms of the Loan Documents, and that there are no claims, set-offs or defenses to the payment thereof.
Section 3. Amendment to the Loan Agreement.
(a) References in the following Sections of the Loan Agreement to
"$15,000,000" shall be deleted and replaced by references to "$20,000,000":
the defined term "Commitment" in Section 1.1 of the Loan Agreement;
Section 2.1 of the Loan Agreement; and Section 2.2 of the Loan Agreement.
(b) The defined term "Maturity Date" set forth in Section 1.1 of the Loan Agreement shall be amended and restated to read as follows:
""Maturity Date" means September 16, 2007; subject, however to extension as provided in Section 3.6 hereof."
(c) The defined term "Net Income" set forth in Section 1.1 of the Loan Agreement shall be amended and restated to read as follows:
""Net Income" means net income (excluding (i) any extraordinary items, (ii) non-cash gains, and (iii) non-cash losses, including impairment charges) for the Companies calculated on a consolidated basis in accordance with GAAP."
(d) Clause (e) of the defined term "Permitted Encumbrance(s)" set forth in Section 1.1 of the Loan Agreement shall be amended and restated to read as follows:
"(e) [INTENTIONALLY OMITTED];"
(e) The defined term "Ratio of EBITDAR to Interest Plus Rent" set forth in Section 1.1 of the Loan Agreement shall be amended and restated to read as follows:
"Ratio of EBITDAR to Interest Plus Rent" means, for the four (4) most recently completed Fiscal Quarters preceding the date of determination, the sum of earnings before interest, taxes, depreciation, amortization and Rent, excluding (i) any extraordinary items, (ii) non-cash gains, (iii) non-cash losses, including impairment charges, (iv) LIFO provisions and (v) non- cash compensation in the form of stock or stock options, divided by the sum of the aggregate amount of its interest expense accruing with respect to any and all of its indebtedness plus the aggregate amount of its Rent.
(f) The defined term "Ratio of Funded Debt Plus 8* Rent to EBITDAR" set forth in Section 1.1 of the Loan Agreement shall be deleted in its entirety and replaced by the following language:
""Ratio of EBITDAR to Interest Plus Rent/CPLTD/CPCL" means, for the four (4) most recently completed Fiscal Quarters preceding the date of determination, the sum of earnings before interest, taxes, depreciation, amortization and Rent, excluding (i) any extraordinary items, (ii) non-cash gains, (iii) non-cash losses, including impairment charges, (iv) LIFO provisions and (v) non- cash compensation in the form of stock or stock options, divided by the sum of the aggregate amount of its interest expense accruing with respect to any and all of its indebtedness plus the aggregate amount of its Rent plus the current portion of its long-term debt plus the current portion of its Capital Leases."
(g) The defined term "Rent" set forth in Section 1.1 of the Loan Agreement shall be amended and restated to read as follows:
""Rent" means the minimum amount of rental and other obligations actually due and payable during the relevant period by any of the Companies as lessee under all leases of real property, excluding any amounts required to be paid by the lessee (whether or not therein designated as rent or additional rent) (a) that are on account of maintenance and repairs, insurance, taxes, assessments and similar charges or (b) that are based on profits, revenues or sales realized by the lessee from the leased property or otherwise based on the performance of the lessee."
(h) There shall be added to Section 1.1 of the Loan Agreement the following new defined term in its appropriate alphabetical location:
"Total Liabilities" means all liabilities of Borrower, determined in accordance with GAAP.
(i) Section 2.6 of the Loan Agreement shall be amended and restated to read as follows:
"2.6 [INTENTIONALLY OMITTED]."
(j) Section 2.9 of the Loan Agreement shall be amended and restated to read as follows:
"2.9. Use of Proceeds. The proceeds of any advances under the Revolving Loan will be used by the Borrower to fund general working capital and corporate purposes of the Companies or for any other purpose."
(k) Section 6.10 of the Loan Agreement shall be amended and restated to read as follows:
"6.10 [INTENTIONALLY OMITTED]."
(l) Section 6.11 of the Loan Agreement shall amended and restated to read as follows:
"6.11 [INTENTIONALLY OMITTED]."
(m) Section 6.12 of the Loan Agreement shall be amended and restated to read as follows:
"6.12 Ratio of EBITDAR to Interest Plus Rent/CPLTD/CPCL. As to the Companies, on a consolidated basis, maintain a Ratio of EBITDAR to Interest Plus Rent/CPLTD/CPCL of not less than 1.20 to 1.00, measured as of the end of each Fiscal Year and Fiscal Quarter on a rolling four quarters basis."
(n) Section 6.13 of the Loan Agreement shall be amended and restated to read as follows:
"6.13 [INTENTIONALLY OMITTED]."
(o) A new Section 6.22 shall be added to the Loan Agreement to read as follows:
"6.22 Ratio of Total Liabilities to Tangible Net Worth. Borrower shall at all times maintain a ratio of Total Liabilities to Tangible Net Worth of not more than 2.00 to 1.00, which shall be calculated at the end of each Fiscal Year and on the last day of each Fiscal Quarter."
(p) A new Section 6.23 shall be added to the Loan Agreement to read as follows:
"6.23 Prohibition Against Losses. Borrower shall at all times maintain a positive Net Income, which shall be calculated at the end of each Fiscal Year.
(q) Section 7.5 of the Loan Agreement shall be amended and restated to read as follows:
"7.5 [INTENTIONALLY OMITTED]."
(r) Section 7.8(F) of the Loan Agreement shall be amended and restated to read as follows:
"(F) investments in Wakefern stock and/or InsuRite stock;"
(s) Section 7.8(H) of the Loan Agreement shall be amended and restated to read as follows:
"(H) repurchases of common stock of the Borrower;"
(t) Section 7.8(I) of the Loan Agreement shall be amended and restated to read as follows:
"(I) deposits of cash with or acceptance of notes due from Wakefern made or done pursuant to the terms and provisions of any co-operative agreement between Borrower and Wakefern; or"
(u) A new Section 7.8(J) shall be added to the Loan Agreement to read as follows:
"(J) investments maintained with and arranged by Lender in connection with cash management services provided to Borrower by Lender."
Section 4. Conditions Precedent. The agreement of the Lender to amend the Loan Agreement as set forth herein is subject to the conditions precedent that, on or before the date hereof, the Lender shall have received the following, each in form and substance satisfactory to the Lender:
(a) this Amendment, duly executed and delivered by the Borrower;
(b) an Amended and Restated Revolving Note made by Borrower in favor of Lender in the aggregate principal amount of $20,000,000, substantially in the form attached hereto as EXHIBIT "A", duly executed and delivered by the Borrower;
(c) payment in full to Lender of a loan processing fee in connection with this Amendment in the amount of $25,000;
(d) payment in full of all fees and expenses incurred by the Lender's outside counsel for legal services rendered in connection with this Amendment; and
(e) such other documents and information as the Lender may reasonably request.
Section 5. Representations and Warranties. To induce the Lender to enter into this Amendment, the Borrower makes the following representations and warranties to the Lender, which shall survive the execution and delivery hereof:
(a) The execution and delivery of this Amendment has been authorized by all necessary corporate action on its part, this Amendment has been duly executed and delivered by it, and this Amendment and the Loan Agreement, as amended hereby, constitutes the legal, valid and binding obligations of it enforceable against it in accordance with its terms subject to applicable bankruptcy, insolvency, reorganization and other laws affecting creditors' rights generally, moratorium laws from time to time in effect and general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law);
(b) No Event of Default has occurred and is continuing under the Loan Agreement, and no event has occurred that, with notice, lapse of time or both, would constitute such an Event of Default; and
(c) The representations and warranties set forth in the Loan Agreement and the other Loan Documents are true and correct as of the date hereof in all material respects.
Section 6. Effect of Amendment; No Novation. Except as expressly set forth herein, this Amendment shall not, by implication or otherwise, limit, impair, constitute a waiver of, or otherwise affect the rights and remedies of the Lender under the Loan Agreement, nor alter, modify, amend or in any way affect any of the terms, conditions, obligations, covenants or agreements contained in the Loan Agreement, all of which are ratified and affirmed in all respects and shall continue in full force and effect. All references to the Loan Agreement in any Loan Document or other instrument, agreement or document shall hereafter be deemed to refer to the Loan Agreement as amended by this Amendment. This Amendment is given as a modification of the Borrower's obligations under the Loan Agreement and is not given in substitution therefor or extinguishment thereof and is not intended to be a novation.
Section 7. Waiver of Claims and Defenses; Release. The Borrower agrees that, as of the date hereof, it has no claim, counterclaim, cause of action or defense of any kind by way of setoff or otherwise (i) to the payment and satisfaction in full of the Revolving Loan, (ii) in connection with any provisions of the Loan Agreement and the other Loan Documents and (iii) in connection with any and all acts or omissions of the Bank in administering the amounts outstanding under the Loan Documents or otherwise. The foregoing notwithstanding, to the extent that any such claim or defense may or does exist as of the date hereof, the Borrower waives and releases any and all such claims, counterclaims, causes of action and defenses.
Section 8. Entire Agreement. This Amendment constitutes the entire agreement of the parties hereto with respect to an amendment of the Loan Agreement pertaining to the subject matter hereof, and it supersedes and replaces all prior and contemporaneous agreements, discussions and understandings (whether written or oral) with respect to such amendment.
Section 9. Counterparts. This Amendment may be executed in two or more counterparts, each of which shall be deemed to be an original, but all of which taken together shall constitute one and the same agreement.
Section 10. Governing Law. This Amendment, including the validity thereof and the rights and obligations of the parties hereunder, shall be construed in accordance with and governed by the laws of the State of New Jersey.
Section 11. Execution Certification. This Amendment has been executed by the Borrower and delivered to the Lender in the State of New Jersey.
Section 12. Patriot Act Notice. To help the funding of terrorism and money laundering activities, Federal law requires all financial institutions to obtain, verify, and record information that identifies each person who opens an account. For purposes of this Section, account shall be understood to include loan accounts.
[SIGNATURE PAGE TO FOLLOW]
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the day and year first above written.
BORROWER
VILLAGE SUPER MARKET, INC.,
ATTEST: a New Jersey Corporation
By:__________________ By: ____________________
Name: _______________ Name: __________________
Title: _____________ Title: _________________
LENDER
WACHOVIA BANK, NATIONAL
ASSOCIATION, f/k/a as First Union
National Bank
By: ____________________
Name: __________________
Title: _________________
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EXHIBIT A
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
OF
VILLAGE SUPER MARKET, INC.
This Supplemental Executive Retirement Plan of Village Super Market, Inc. (herein referred to as the "Plan") is adopted effective January 1, 2004. The Plan is established and maintained by Village Super Market, Inc. (herein referred to as "Employer") for the purpose of providing supplemental retirement benefits to certain designated salaried employees of the Employer.
Accordingly, the Employer hereby adopts the Plan pursuant to the terms and provisions set forth below:
ARTICLE I
DEFINITIONS
1.0 "Actuarial Equivalent" shall have the same meaning as defined in the Qualified Plan.
1.1 "Beneficiary" shall mean any person designated by the Participant in writing on a form provided by the Employer and, in the absence of such designation, the person designated to receive benefits under the terms of the Qualified Plan.
1.2 "Board" shall mean the Board of Directors of the Company or a duly authorized committee thereof.
1.3 "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time, and the regulations promulgated hereunder.
1.4 "Compensation" shall mean a Participant's salary, wages and bonuses paid or payable by the Employer, and deferred compensation for each calendar year, but excluding any Participant's earnings paid in the form of Employer restricted stock or Employer stock options.
1.5 "Early Retirement Date" shall mean the first day of any month prior to the Participant's Normal Retirement Date provided the Participant has completed at least 5 Years of Plan Participation and has attained age 55.
1.6 "Early Retirement Benefit" A participant's Supplemental Retirement Benefit payable at his Early Retirement Date is equal to his accrued benefit, calculated in accordance with Section 3.1, payable at his Normal Retirement Date reduced by 1/15 for each of the first five years, and by 1/30 for each of the next five years that commencement of such Supplemental Retirement Benefit precedes his Normal Retirement Date.
1.7 "Employer" shall mean Village Super Market, Inc. and its subsidiaries or to the extent provided in Section 7.9 hereof, any successor corporation or other entity resulting from a merger or consolidation into or with Employer or a transfer or sale of substantially all of the assets of the Employer.
1.8 "Normal Retirement Date" shall mean the first day of the month coinciding with or next following the later of a Participant's 65th birthday and five years of plan participation.
1.9 "Participant" shall mean certain salaried employees designated by the Employer.
1.10 "Plan" means the Supplemental Executive Retirement Plan.
1.11 "Plan Year" shall mean the calendar year.
1.12 "Qualified Plan" means the Village Super Market, Inc. Employees' Pension Plan, established effective December 31, 1971, and each successor or replacement salaried employees' retirement plan.
1.13 "Qualified Plan Retirement Benefit" means the aggregate benefit payable to a Participant pursuant to the Qualified Plan and all annuities purchased for the Participant under the Quali-fied Plan (whether or not terminated) by reason of his termination of employment with Employer and all affiliates for any reason other than death.
1.14 "Supplemental Retirement Benefit" means the benefit payable to a Participant pursuant to the Plan by reason of his termination of employment with the Employer and all affiliates for any reason other than death.
1.15 "Surviving Spouse" means a person who is married to a Participant at the date of his death and for at least one year prior thereto.
1.16 "Supplemental Death Benefit" means the benefit payable to a Beneficiary pursuant to the Plan.
ARTICLE II
ELIGIBILITY
A Participant, designated by the Employer.
ARTICLE III
SUPPLEMENTAL RETIREMENT BENEFIT
3.1 Amount. The Supplemental Retirement Benefit payable to an eligible Participant in the form of a straight life annuity over the lifetime of the Participant, commencing on his Retirement Date, shall be a monthly amount equal to (a) offset by (b) and (c) below:
(a) 50% of the Participant's Compensation averaged over the highest 60 consecutive months within the last 10 years prior to his Retirement Date.
(b) the monthly amount of the Qualified Plan Retirement Benefit payable as a straight life annuity to the Participant under the Qualified Plan.
(c) the Participant's estimated Social Security Benefit Payable at his Retirement Date
The amounts described in (a), (b) and (c) shall be computed as of the Participant's date of termination of employment with the Employer and all affiliates in the form of a straight life annuity payable over the lifetime of the Participant commencing on his Retirement Date.
In the event the Participant chooses to receive an Early Retirement
Benefit, the benefit calculated above shall be adjusted in accordance with
Section 1.6.
3.2 Form of Benefit. The Supplemental Retirement Benefit payable to a Participant shall be paid in a single lump sum payment. However, the Participant may elect, by filing a written application with the Employer prior to his termination of employment, to receive his benefit in equal annual installments up to 10 years or in the same form as the Qualified Plan Retirement Benefit is payable.
3.3 Commencement of Benefit. Payment of the Participant's vested Supplemental Retirement Benefit shall commence the later of the Participant's Normal Retirement Date (or Early Retirement Date, if applicable) and his termination of service with the Employer.
3.4 Actuarial Equivalent Benefit. A Supplemental Retirement Benefit which is payable in an optional benefit form, shall be the Actuarial Equivalent of the Supplemental Retirement Benefit set forth in Section 3.1 above.
3.5 Vesting. A Participant shall vest in the benefit provided in Section 3.1 in accordance with the following schedule:
Years of Plan Participation Percent Vested
Less than 1 Year 0%
1 Year 20%
2 Years 40%
3 Years 60%
4 Years 80%
5 or more Years 100%
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ARTICLE IV
SUPPLEMENTAL DEATH BENEFIT
4.1 Amount. If a Participant dies prior to commencement of his Supplemental Plan Retirement Benefit, then a Supplemental Death Benefit is payable to his Beneficiary equal to the monthly amount of the Supplemental Retirement Benefit payable to the Participant.
4.2 Form and Commencement of Benefit. A Supplemental Death Benefit shall be payable in the same Form as described in Section 3.2 above.
ARTICLE V
ADMINISTRATION OF THE PLAN
5.1 Administration by Employer. The Employer shall be responsible for the general operation and administration of the Plan and for carrying out the provisions thereof.
5.2 General Powers of Administration. All provisions set forth in the Qualified Plan with respect to the administrative powers and duties of Employer, expenses of administration, and procedures for filing claims shall also be applicable with respect to the Plan. The Employer shall be entitled to rely conclusively upon all tables, valuations, certificates, opinions and reports furnished by any actuary, accountant, controller, counsel or other person employed or engaged by the Company with respect to the Plan.
ARTICLE VI
AMENDMENT OR TERMINATION
6.1 Amendment or Termination. The Employer intends the Plan to be permanent but reserves the right to amend or terminate the Plan when, in the sole opinion of Employer, such amendment or termination is advisable. Any such amendment or termination shall be made pursuant to a resolution of the Board and shall be effective as of the date of such resolution.
6.2 Effect of Amendment or Termination. No amendment or termination of the Plan shall directly or indirectly deprive any current or former Participant or Surviving Spouse of all or any portion of any Supplemental Retirement Benefit or Supplemental Surviving Spouse Benefit payment of which has commenced prior to the effective date of such amendment or termination or which would be payable if the Participant terminated employment for any reason, including death, on such effective date.
ARTICLE VII
GENERAL PROVISIONS
7.1 Funding. The Plan at all times shall be entirely unfunded and no provision shall at any time be made with respect to segregating any assets of the Employer for payment of any benefit hereunder. No Participant, Surviving Spouse or any other person shall have any interest in any particular assets of Employer by reason of the right to receive a benefit under the Plan. Any such Participant, Surviving Spouse or other person shall have only the rights of a general unsecured creditor of Employer with respect to any rights under the Plan.
7.2 General Conditions. Except as otherwise expressly provided herein, all terms and conditions of the Qualified Plan applicable to a Qualified Plan Retirement Benefit shall also be applicable hereunder. Any Qualified Plan Retirement Benefit, or any other benefit payable under the Qualified Plan, shall be paid solely in accordance with the terms and conditions of the Qualified Plan and nothing in this Plan shall operate or be construed in any way to modify, amend or affect the terms and provisions of the Qualified Plan.
7.3 No Guaranty of Benefits. Nothing contained in the Plan shall constitute a guaranty by Employer or any other entity or person that the assets of Employer will be sufficient to pay any benefit hereunder.
7.4 No Enlargement of Employee Rights. No Participant or Surviving Spouse shall have any right to a benefit under the Plan except in accordance with the terms of the Plan. Establishment of the Plan shall not be construed to give any Participant the right to be retained in the service of Employer.
7.5 Spendthrift Provision. No interest of any person or entity in, or right to receive a benefit under, the Plan shall be subject in any manner to sale, transfer, assignment, pledge, attachment, garnishment, or other alienation or encumbrance of any kind; nor may such interest or right to receive a benefit be taken, either voluntarily or involuntarily, for the satisfaction of the debts of, or other obligations or claims against, such person or entity, including claims for alimony, support, separate maintenance and claims in bankruptcy proceedings.
7.6 Applicable Law. The Plan shall be construed and administered under the laws of the State of New Jersey.
7.7 Small Benefits. If the actuarial value of any Supplemental Retirement Benefit or Supplemental Surviving spouse Benefit is less than $5,000, the Employer may pay the actuarial value of such Benefit to the Participant or Surviving Spouse in a single lump sum in lieu of any further benefit payments hereunder.
7.8 Incapacity of Recipient. If any person entitled to a benefit payment under the Plan is deemed by Employer to be incapable of personally receiving and giving a valid receipt for such payment, then, unless and until claim therefore shall have been made by a duly appointed guardian or other legal representative of such person, Employer may provide for such payment or any partthereof to be made to any other person or institution then contributing toward or providing for the care and maintenance of such person. Any such payment shall be a payment for the account of such person and a complete discharge of any liability of Employer and the Plan therefore.
7.9 Corporate Successors. The Plan shall not be automatically terminated by a transfer of sale of assets of the Employer or by the merger or consolidation of the Employer into or with any other corporation or other entity, but the Plan shall be continued after such sale, merger or consolidation only if and to the extent that the transferee, purchaser or successor entity agrees to continue the Plan. In the event that the Plan is not continued by the transferee, purchaser or successor entity, then the Plan shall terminate subject to the provisions of Section 6.2 hereof.
7.10 Unclaimed Benefit. Each Participant shall keep the Employer informed of his current address and the current address of his spouse. The Employer shall not be obligated to search for the whereabouts of any person. If the location of a Participant is not made known to Employer within three (3) years after the date on which payment of the Participant's Supplemental Retirement Benefit may first be made; payment may be made as though the Participant had died at the end of the three-year period. If, within one additional year after such three-year period has elapsed, or, within three years after the actual death of a Participant, Employer is unable to locate any Surviving Spouse of the Participant, then Employer shall have no further obligation to pay any benefit hereunder to such Participant or Surviving Spouse or any other person and such benefit shall be irrevocably forfeited.
7.11 Limitations on Liability. Notwithstanding any of the preceding provisions of the Plan, neither Employer nor any individual acting as an employee or agent of Employer shall be liable to any Participant, former Participant, Surviving Spouse or any other person for any claim, loss, liability or expense incurred in connection with the Plan.
7.12 Gender. Words in the masculine gender shall include the feminine and the singular shall include the plural, and vice versa, unless qualified by the context. Any headings used herein are included for ease of reference only, and are not to be construed so as to alter the terms hereof.
IN WITNESS WHEREOF, this Plan has been executed this ______day of ____________, 2004.
ATTEST: VILLAGE SUPER MARKET, INC.
_______________________________ By: ___________________________
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