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