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.; Landover Wholesale Tobacco Corp.; 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. and Shaw Community Supermarket, Inc. [85% owned]), operates a chain of 157* supermarkets selling, at retail, food, pharmacy and general merchandise in Washington, D.C., Maryland, Virginia and Delaware. Of the Company's 157* supermarkets, 107 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 and Salisbury, Frederick, Prince Frederick, and Westminster, Maryland. 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 $22,893,000. 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 five supermarkets. Additionally, six supermarkets will be extensively remodeled during the upcoming fiscal year.
*A store in Bear, Delaware was opened in April, 1994, increasing the number to 158. 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 1994, 1993 and 1992, respectively, the Company's sales were divided, as follows: meat, delicatessen, dairy and seafood, 23%, 23% and 24%; grocery and non-food, 68%, 68% and 67%; fresh produce, 9%, 9% and 9%.
Giant operates a full line service delicatessen in 150 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 fifteen shopping centers and three 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 $423 million. Pre-tax profits on these transfer sales were approximately $49 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) Giant does not have any unusual working capital requirements.
(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 1994, Giant had approximately 24,700 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 157* supermarkets (including 112 combination food/pharmacy stores), 107 in the Washington, D.C. Metropolitan Area, 42 in or near Baltimore, Maryland, and others in Fredericksburg, Charlottesville and Warrenton, Virginia, and Frederick, Westminster, Prince Frederick, and Salisbury, Maryland.
Eleven of the Company's stores are fifteen to twenty thousand square feet; twenty-nine are between twenty and thirty thousand square feet; seventeen are thirty to forty thousand square feet; fifty- six stores are between forty to fifty thousand square feet; thirty-nine stores are between fifty and sixty thousand square feet, and five 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.
*Does not include the 64,900 square foot Bear, Delaware store opened in April, 1994 The Company, through its wholly-owned subsidiary, GFS Realty, Inc., also owns or is the controlling general partner of fifteen shopping centers and three 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
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
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 24, 1990 145 4 0 149 February 23, 1991 149 4 1 152 February 29, 1992 152 3 1 154 February 27, 1993 154 3 2 155 February 26, 1994 155 4 2 157
With the exception of the bakery, the fifteen shopping centers and three 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 26, 1994, 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
1995 $19,639 $19,390 1996 19,554 18,115 1997 19,479 17,730 1998 19,479 17,058 1999 19,467 16,223 Later Years 291,539 221,445
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 FOR THE COMPANY'S COMMON STOCK AND RELATED SECURITY 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 1994 Fiscal 1993
Quarter Ended High Low Quarter Ended High Low
May 22 $27.50 $21.00 May 23 $25.13 $19.75 Aug.14 27.38 24.25 Aug. 15 21.38 19.38 Nov. 6 25.63 22.00 Nov. 7 20.63 16.88 Feb. 26 26.13 22.38 Feb. 27 23.38 18.75
The last sale price of Giant's Class A Common (Non-Voting) shares on the American Stock Exchange on May 2, 1994 (the latest most practicable date) was $22.00.
(b) Holders
The approximate number of holders of record for Giant's Class A Non-Voting Stock as of May 2, 1994: 38,000 (includes street name shareholders).
The number of holders of record for Giant's Class AL Voting Stock as of May 2, 1994: 1.
The number of holders of record for Giant's Class AC Voting Stock as of May 2, 1994: 1.
(c) Dividends
The table below presents dividend information for Giant's Common shares.
Dividends Declared Per Share of Common Stock Fiscal 1994 Fiscal 1993 April $.175 April $.17 July .175 July .17 October .175 October .17 January .175 January .17 $.70 $.68
The Promissory Note Purchase Agreement with The Prudential Insurance Company of America (see Note 3, page 23) 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 26, 1994, the specified levels were $83,500,000 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)
1994 1993 1992 (3) 1991 1990
Sales $3,567,468 $3,472,581 $3,489,762 $3,349,546 $3,248,942
Net Income 95,231(*) 81,506 87,180 118,891 108,399
Earnings per share 1.60(*) 1.37 1.47 2.01 1.80
Total assets 1,357,813 1,296,600 1,251,339 1,174,978 1,080,838
Long-term debt, net of current portion: Notes and mortgages 86,068 105,525 113,410 98,417 100,366
Obligations under capital leases 141,062 142,831 142,892 147,012 141,168
Total long-term debt 227,130 248,356 256,302 245,429 241,534
Cash dividends declared per Common share 0 .70 0.68 0.66 0.60 0.50
(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 1994 fiscal year, a 52 week year, were $3.57 billion compared to sales of $3.47 billion in the prior year, also a 52 week year. Sales for the 53 weeks of the 1992 fiscal year were $3.49 billion. Sales increased by 2.7%, of which same store sales increased by 1.4%. For 1993 and 1992 fiscal years, same store sales increased .05% and .2%, respectively. The positive change in same store sales during the past year is partially attributable to a slight improvement in the general economic conditions. The gains are tempered by increased competition and the recession continues to have an effect on the buying habits of our customers. Competition remains intense.
Four food-drug combination stores were opened during the 1994 fiscal year, one of which replaced a smaller older unit. Additionally, the lease expired on a small food store, located in an area in which we have larger food-drug units. At the end of the fiscal year, the Company operated 160 stores, of which 112 are food-drug combination units, one is a gourmet specialty store and three are free-standing drug stores. At year end the Company operated approximately 6.5 million square feet of food and food-drug total retail space, an increase of 3.3% over the prior year.
EARNINGS
Pre-tax earnings before the cumulative effect of the change in accounting for deferred taxes were $151.8 million, 4.25% of sales, compared to $132.3 million, 3.81% of sales, in the prior year, an increase of 14.7%. Pre-tax earnings for the 1992 fiscal year were $142.1 million, 4.07% of sales. Cost of goods sold decreased to 70.16% of sales, from 70.57% in the prior year and 70.35% for fiscal 1992. Gross profit dollars increased $43 million over the prior year, a 4.2% gain; this compares with a 2.7% increase in sales. The improvement in gross profit is principally the result of a change in product mix, together with minimal retail price increases, and a lesser LIFO charge of $600 thousand.
This year's LIFO charge of $3.3 million compares with charges of $3.9 million and $5.5 million for the two prior fiscal years. As a percentage of sales, the ratios were .09%, .11%, and .16%. The Company maintains its non-perishable inventory on LIFO which showed moderate inflation.
Transfer sales to support its retail operations by the Company's manufacturing, processing, wholesaling and support activities were about $423 million. Of the $152 million corporate pre-tax earnings, approximately 32% or $49 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, shopping center leasing operations, and automatic money teller machines. The wholesale tobacco operation was discontinued in March, 1993. Selling, general and administrative expenses increased at the same rate as sales, and as a percent of sales were 25.05% compared to 25.03% and 25.08% in the prior two fiscal years. The maintaining of a level ratio of expenses is the result, net, of ongoing cost savings programs offset by increases in union contract payroll and benefits. On September 16, 1992 a four-year contract was ratified by the union store associates. Most store associates received a lump sum payment for the first and second years of the new contract, totaling $1 million in year one and $1.8 million in year two. Both payments are being amortized over the respective contract year. The third and fourth years of the contract require hourly wage increases in lieu of the lump sum payment, as well as requiring the Company to maintain the present level of benefits. The current year's operation included higher payments, increasing by approximately $1 million per month, beginning January 1994.
The current year included costs associated with electronic payments via a debit or credit card. All stores offered on-line service by September 1993. The Company believes that any new cost will be offset by additional sales or the retention of current sales.
This was Giant's fifth 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 over 72,000 computers, plus peripheral equipment, related computer software and non-computer equipment during the five years of this program. The program has been favorably accepted by more than 2,700 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 a long-term customer retention effect.
A contributing factor to the improved earnings in the current year was the increase in interest income earned on investment of cash and cash equivalents. The increase was the result of somewhat flat yields with higher average investments. This year's interest income was $7.4 million vs. $5.8 million and $7.3 million in the 1993 and 1992 fiscal years.
Effective February 28, 1993, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes". The adoption resulted in a recognition $3.9 million of income, equal to 7 cents per share, recorded in the first fiscal quarter of the fiscal year. Note 4 of the Notes to the Consolidated Financial Statements provides further information.
The provision for taxes includes a 1% increase in the federal tax rate enacted in August 1993, retroactive to January 1, 1993, thus affecting two months of the prior fiscal year. The cost for the two months of the prior year was $195 thousand. The tax rate increase also required a recalculation of the deferred tax liability, resulting in an additional tax expense of $741 thousand in the current year. The effective tax rate was 39.8%; without these non-recurring adjustments the effective rate would have been 39.2%, and 39.3% is the anticipated effective tax rate for the fiscal year ending February, 1995.
Earnings were $95.2 million or $1.60 per share, compared with earnings of $81.5 million or $1.37 per share, and $87.2 million or $1.47 per share for the two prior fiscal years. As a percentage of sales, earnings were 2.67% for the current year, 2.35% for the prior year and 2.50% for fiscal 1992.
ACCOUNTING STANDARDS
The FASB issued SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities". This Standard is effective for the Company's 1995 fiscal year. The implementation of SFAS No. 115 is expected to have deminimis effect on the Company's financial position and results of operations. Also, the FASB issued SFAS No. 112, "Employers' Accounting for Postemployment Benefits". This Standard is effective for the next fiscal year. The implementation of SFAS No. 112 is expected to have an immaterial effect on the Company's financial position.
FINANCIAL CONDITION
CASH, CASH EQUIVALENTS, INVESTMENTS AND WORKING CAPITAL
At February 26, 1994 the Company's cash, cash equivalents and short-term investments totalled $228 million, compared with $185 million and $151 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 of United States government and agency securities purchased with an original maturity of more than three months which are actively traded.
Net cash provided by operations amounted to $218 million for the current fiscal year, $167 million for the preceding fiscal year and $175 million for the 1992 fiscal year. (See Consolidated Statements of Cash Flows for further details.)
Cash outlays for property, plant and equipment were $112 million for the current year, and $79 million and $148 million for the prior two years. In addition to its cash outlay for property, the Company, in the 1992 fiscal year, booked $40 million of non-cash outlays in connection with the acquisition of three shopping centers. Note 8 of the Notes to the Consolidated Financial Statements provides further information.
Working capital at the fiscal year end was $164 million compared to $155 million and $108 million at the close of the two prior years. The working capital ratio is 1.48 to 1, compared with 1.50 to 1 and 1.37 to 1 at the end of the two prior years, respectively. Including the LIFO reserve, working capital would be $241 million currently, a 1.70 to 1 ratio, compared with $228 million, a 1.74 to 1 ratio and $177 million, a 1.60 to 1 ratio at the end of the two prior years, respectively.
The Company has had no short-term bank borrowings for more than seventeen years. On July 9, 1993, the Company renewed a $50 million revolving credit facility which terminates May 1, 1996. This facility should enable the Company to handle contingencies that may arise. Note 3 of the Consolidated Financial Statements provides additional details.
CAPITAL EXPENDITURES
The Company is authorized to spend approximately $160 million for property, plant and equipment during fiscal 1995, including expenditures for five new units either under construction or whose construction will commence later this year. Also, six existing stores will be enlarged and extensively remodeled. The Company believes that cash on hand plus its cash flow will be sufficient to support ongoing business levels, including the fixed asset program, debt service, and dividends.
CAPITALIZATION
During the year, the Company continued to improve its capital structure, which contributes to financial flexibility. Notes and mortgages decreased $12.7 million due to scheduled principal payments and the prepayment of three obligations. The Company is not planning any new financing during the upcoming fiscal year.
At the close of the 1994 fiscal year, shareholders' equity as a percentage of capitalization (long-term debt plus shareholders' equity) was 76% compared with 73% and 71% for the prior two fiscal years. Shareholders' equity at the year end was $713 million, compared with $663 million, a year earlier. Long-term debt consists of $86 million of notes and mortgages at an average interest cost of 9.9%, and $141 million of obligations under capital leases. At the close of the prior year, the comparable balances were $106 million and $143 million, respectively.
Return on shareholders' equity (ROE), (average of beginning and ending) for the current year was 14% compared with 13% and 15% for the two prior years.
DIVIDENDS
For the current year, cash dividends of $42 million, or 70 cents per share, were declared. This compares with $41 million, or 68 cents per share in the prior fiscal year, and $39 million, or 66 cents per share, for fiscal 1992. Fiscal year 1994 marks the 35th 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 changes in shareholders' equity and of cash flows present fairly, in all material respects, the financial position of Giant Food Inc. and its subsidiaries at February 26, 1994, February 27, 1993 and February 29, 1992, 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 Note 4 to the financial statements, the Company adopted the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" effective February 28, 1993.
PRICE WATERHOUSE /s/ Washington, D.C. March 28, 1994 CONSOLIDATED STATEMENTS OF INCOME
Fifty-two weeks ended February 26, 1994, fifty-two weeks ended February 27, 1993 and fifty-three weeks ended February 29, 1992 Dollar amounts in thousands except per share
1994 1993 1992
SALES $3,567,468 $3,472,581 $3,489,762
COSTS AND EXPENSES Cost of sales 2,503,072 2,450,757 2,455,058 Selling, general and administrative 893,720 869,032 875,352 Interest Notes and mortgages, net of interest capitalized (1994, $809; 1993, $1,393; 1992, $2,478) 9,973 10,255 8,418 Lease obligations 16,372 16,037 16,189 Income (7,424) (5,760) (7,331)
3,415,713 3,340,321 3,347,686
INCOME BEFORE INCOME TAXES 151,755 132,260 142,076
PROVISION FOR INCOME TAXES 60,458 50,754 54,896
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING 91,297 81,506 87,180
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING (NOTE 4) 3,934 - -
NET INCOME $ 95,231 $ 81,506 $ 87,180
EARNINGS PER SHARE BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING $1.53 $1.37 $1.47
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING $ .07 - -
EARNINGS PER SHARE $1.60 $1.37 $1.47
The accompanying notes are an integral part of the consolidated financial statements. CONSOLIDATED BALANCE SHEETS
February 26, 1994, February 27, 1993 and February 29, 1992 Dollar amounts in thousands
ASSETS 1994 1993 1992
CURRENT ASSETS Cash and cash equivalents $111,845 $184,969 $151,181 Short-term investments 116,499 228 204 Receivables 37,504 32,720 28,141 Inventories (Note 2) 217,576 223,912 207,313 Prepaid income taxes (Note 4) 19,001 17,567 15,975 Other current assets 3,113 2,232 1,747
Total current assets 505,538 461,628 404,561
PROPERTY, PLANT AND EQUIPMENT (Note 3) Land 58,820 46,958 46,958 Buildings and improvements 268,640 231,947 200,125 Leasehold improvements 153,399 158,393 152,471 Fixtures and equipment 745,288 699,701 681,127
1,226,147 1,136,999 1,080,681 Less accumulated depreciation 544,862 479,128 414,028
681,285 657,871 666,653 Equipment deposits and construction in progress 32,506 30,400 39,647
713,791 688,271 706,300
PROPERTY UNDER CAPITAL LEASES, net of accumulated amortization (1994, $54,679; 1993, $52,044; 1992, $48,341) (Note 5) 107,580 110,439 112,755
REAL ESTATE HELD FOR FUTURE DEVELOPMENT 21,367 26,130 18,232
OTHER ASSETS 9,537 10,132 9,491
$1,357,813 $1,296,600 $1,251,339
The accompanying notes are an integral part of the consolidated financial statements.
LIABILITIES AND SHAREHOLDERS' EQUITY 1994 1993 1992
CURRENT LIABILITIES Current portion of long-term debt Notes and mortgages (Note 3) $14,618 $7,894 $9,010 Obligations under capital leases (Note 5) 4,527 4,412 4,227 Accounts payable 226,284 206,388 197,099 Accrued expenses Compensation related 75,886 62,983 67,273 Other 2,590 2,570 2,786 Dividends payable 10,394 10,147 9,835 Income taxes payable 7,033 12,690 5,977
Total current liabilities 341,332 307,084 296,207
LONG-TERM DEBT Notes and mortgages (Note 3) 86,068 105,525 113,410 Obligations under capital leases (Note 5) 141,062 142,831 142,892 227,130 248,356 256,302
OTHER LIABILITIES Deferred income taxes (Note 4) 41,192 46,731 51,743 Accrued insurance claims 25,417 20,986 19,126 Other 9,313 10,490 6,999 75,922 78,207 77,868
COMMITMENTS (Notes 5 and 7)
SHAREHOLDERS' EQUITY (Notes 3 and 6) Common stock, $1 par, all classes 60,257 60,257 60,257 Capital in excess of par value 392 1,151 Retained earnings 670,034 616,938 575,997
730,291 677,587 637,405 Less Class "A" stock held in treasury, at cost (1994, 669,781 shares; 1993, 566,180 shares; 1992, 636,145 shares) 16,862 14,634 16,443 713,429 662,953 620,962
$1,357,813 $1,296,600 $1,251,339
The accompanying notes are an integral part of the consolidated financial statements.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Fifty-two weeks ended February 26, 1994, fifty-two weeks ended February 27, 1993 and fifty-three weeks ended February 29, 1992 Dollar amounts in thousands except per share
Capital in Treasury stock excess of (Class "A") Retained Total Par value Shares Cost earnings Share- holders' equity
Balance, February 23, 1991 $ - 1,277,659 $32,638 $528,110 $555,729
Net income 87,180 87,180 Issuance of shares for acquisition (Note 8) 2,197 (533,675) (13,413) 15,610 Stock options exercised (990) (71,676) (1,849) 859 Awards under union contract 21 (4,204) (107) 128 Awards under stock bonus plan (77) (31,959) (826) 749 Dividends ($.66 per share) (39,293) (39,293)
Balance, February 29, 1992 1,151 636,145 16,443 575,997 620,962
Net income 81,506 81,506 Stock options exercised (621) (35,047) (906) 285 Awards under union contract (24) (5,373) (139) 115 Awards under stock bonus plan (114) (29,545) (764) 650 Dividends ($.68 per share) (40,565) (40,565)
Balance, February 27, 1993 392 566,180 14,634 616,938 662,953
Net income 95,231 95,231 Purchase of treasury shares 173,000 3,993 (3,993) Stock options exercised (392) (42,456) (1,089) (345) 352 Awards under stock bonus plan (26,943) (676) (29) 647 Dividends ($.70 per share) (41,761) (41,761)
Balance, February 26, 1994 $ - 669,781 $16,862 $670,034 $713,429
Common stock, all classes Shares Par value Balance, February 23, 1991 60,256,620 $60,257 Balance, February 29, 1992 60,256,620 $60,257 Balance, February 27, 1993 60,256,620 $60,257 Balance, February 26, 1994 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 26, 1994, fifty-two weeks ended February 27, 1993 and fifty-three weeks ended February 29, 1992 Dollar amounts in thousands 1994 1993 1992 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 95,231 $ 81,506 $ 87,180 Adjustments to reconcile net income to net cash provided by operating activities Depreciation 90,002 89,202 86,439 Amortization of property under capital leases 5,731 5,656 5,595 Compensation expense arising from stock awards 647 765 877 Other adjustments, net 1,889 1,707 2,574 Net increase (decrease) in cash from changes in operating assets and liabilities, detailed below 24,114 (11,420) (7,351)
Net cash provided by operating activities 217,614 167,416 175,314
CASH FLOWS FROM INVESTING ACTIVITIES (Inc) dec in short-term investments, net (116,271) (24) 253 Capital expenditures (111,924) (79,071) (148,245) Additions to other assets (1,294) (2,346) (1,605)
Net cash used in investing activities (229,489) (81,441) (149,597)
CASH FLOWS FROM FINANCING ACTIVITIES Principal payments on notes and mortgages (12,733) (9,001) (1,958) Reduction of obligations under capital leases (3,361) (3,216) (2,976) Issuance of common stock 352 283 813 Purchase of treasury stock (3,993) Dividends paid (41,514) (40,253) (38,303)
Net cash used in financing activities (61,249) (52,187) (42,424)
Net (dec) inc in cash and cash equivalents (73,124) 33,788 (16,707) Cash and cash equivalents at beginning of year 184,969 151,181 167,888
Cash and cash equivalents at end of year $111,845 $184,969 $151,181
CASH FLOWS FROM CHANGES IN OPERATING ASSETS AND LIABILITIES (Increase) decrease in assets Receivables $(4,784) $(4,579) $(1,421) Inventories 6,336 (16,599) 4,059 Prepaid income taxes (1,434) (1,592) (2,323) Other current assets (881) (485) (132) Increase (decrease) in liabilities Accounts payable 19,896 9,289 10 Accrued expenses 12,923 (4,506) (1,031) Income taxes payable (5,657) 6,713 (6,565) Deferred income taxes (5,539) (5,012) (2,979) Accrued insurance claims 4,431 1,860 1,522 Other liabilities (1,177) 3,491 1,509 Net cash provided by (used in) changes in operating assets and liabilities $24,114 $(11,420) $(7,351)
The accompanying notes are an integral part of the consolidated financial statements. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fifty-two weeks ended February 26, 1994, fifty-two weeks ended February 27, 1993 and fifty-three weeks ended February 29, 1992 Dollar amounts in thousands except per share
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation: The consolidated financial statements include the accounts of Giant Food Inc. (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 26, 1994, such cash equivalents consist principally of bank repurchase agreements which are secured fully by United States government securities.
Short-term investments: Short-term investments are stated at cost which approximates fair value. At February 26, 1994, such investments consist principally of United States government and agency securities which are actively traded.
During 1993, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity Securities," which is required to be adopted by the Company in 1995. Upon implementation of SFAS No. 115, the effect on the Company's financial position and results of operations is expected to be immaterial.
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 5%, 6% and 10% for buildings and improvements, leasehold improvements and furniture and equipment, respectively. Accelerated methods and lives are used for income tax reporting purposes.
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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Accrued insurance claims: The Company maintains insurance coverage with respect to general liability 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 SFAS No. 109, "Accounting for Income Taxes" effective February 28, 1993 (see Note 4), 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.
Buying and promotional allowances: Allowances and credits received from vendors in connection with the Company's buying and merchandising activities are credited to income as earned.
Earnings per share: Earnings per share is computed based on the weighted average number of common shares outstanding during each year (59,659,352 shares in 1994, 59,648,084 shares in 1993 and 59,447,297 shares in 1992). 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 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.
2. INVENTORIES
If the FIFO method had been used, inventories would have been $76,420, $73,090 and $69,172 higher at the end of 1994, 1993 and 1992, respectively. Net income would have been higher by $2,003 ($.03 per share) in 1994, $2,413 ($.04 per share) in 1993 and $3,375 ($.06 per share) in 1992. The replacement cost of inventories valued at LIFO approximates FIFO cost.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
3. NOTES AND MORTGAGES
Notes and mortgages outstanding at year end were as follows:
1994 1993 1992 Notes payable to insurance company $62,040 $68,200 $74,360 Mortgage notes payable 38,646 45,219 48,060
100,686 113,419 122,420 Less current portion 14,618 7,894 9,010
$ 86,068 $ 105,525 $113,410
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 26, 1994, approximately $83,500 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 $56,745. The average interest rate on such notes is 10.2%.
Annual maturities of notes and mortgages for the next five years are as follows: 1995, $14,618; 1996, $23,263; 1997, $6,845; 1998, $6,921; and 1999, $6,904.
The estimated fair value of notes and mortgages is approximately $108,000 and $123,000 at February 26, 1994 and February 27, 1993, respectively.
The Company has available credit facilities of approximately $50,000, including a revolving credit line and a term loan facility. Such credit facilities were not used in fiscal year 1994.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
4. 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 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 is not material. Financial statements for years prior to 1994 were not restated.
The provision for income taxes consists of: 1994 1993 1992
Current Federal $56,800 $47,085 $49,826 State 11,644 10,273 10,372
68,444 57,358 60,198
Deferred Federal (6,906) (5,458) (4,561) State (1,080) (1,146) (741)
(7,986) (6,604) (5,302)
$60,458 $50,754 $54,896
Deferred income tax assets (liabilities) at February 26, 1994 are comprised of the following:
Current deferred income tax asset: Assets Liabilities Total Employee benefits $ 12,384 $ 12,384 Promotional allowances 2,136 2,136 Capitalization of inventory 3,113 3,113 Other 1,368 1,368 $ 19,001 19,001
Noncurrent deferred income tax asset (liability): Depreciation $(74,148) $(74,148) Acquisition of shopping center for stock (5,191) (5,191) Capital leases $ 14,949 14,949 Provision for insurance claims 13,523 13,523 Pension payments 2,762 2,762 Capitalization of overhead 2,916 2,916 Promotional allowances 862 862 Other 3,135 3,135 38,147 (79,339) (41,192) $ 57,148 $(79,339) $(22,191) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
4. INCOME TAXES (continued)
Deferred income taxes in 1993 and 1992 resulted from the following timing differences:
1993 1992
Depreciation $( 107) $( 232) Employee benefits (1,717) (3,491) Capital leases (937) ( 810) Promotional allowances (1,515) 110 Provision for insurance claims (2,037) ( 586) Other items, net (291) ( 293) $(6,604) $(5,302)
The following table reconciles the statutory federal income tax rate to the Company's effective income tax rate.
1994 1993 1992
Statutory federal income tax rate 35.0% 34.0% 34.0% State income taxes, net of federal tax benefit 4.5 4.5 4.5 Retroactive tax increase to January 1, 1993 0.1 Other 0.2 (0.1) 0.1
Effective income tax rate 39.8% 38.4% 38.6%
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
5. 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 26, 1994 are as follows:
Capital Operating leases leases
1995 $19,639 $19,390 1996 19,554 18,115 1997 19,479 17,730 1998 19,479 17,058 1999 19,467 16,223 Later years 291,539 221,445
Total minimum lease payments 389,157 $309,961 Less executory costs 328
Net minimum lease payments 388,829 Less imputed interest 243,240
Present value of net minimum lease payments 145,589 Less current portion 4,527
Long-term obligations under capital leases $141,062
Minimum lease payments for capital leases have not been reduced by minimum sublease rentals of $10,900 receivable in the future under noncancelable subleases.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
5. COMMITMENTS (continued)
Net rental expense associated with leases consists of the following:
1994 1993 1992
Operating leases Minimum $18,011 $16,809 $17,341 Contingent 8,610 7,564 8,735 Contingent rentals under capital leases 3,414 4,079 4,162 Gross rental expenses 30,035 28,452 30,238 Sublease income (2,348) (2,417) (2,397)
Net rental expense $27,687 $26,035 $27,841
The Company also leases certain retail space to others under noncancelable operating lease agreements. Rental income from owned properties was $8,287 in 1994, $8,270 in 1993 and $6,912 in 1992. Total future minimum rentals as of February 26, 1994 are approximately $25,100.
Property, Plant and Equipment: During the next year the Company plans to expend approximately $160,000 for property, plant and equipment.
6. 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 1994 1993 1992
"A" non-voting 75,000,000 59,336,839 59,440,440 59,370,475 "AC" voting 125,000 125,000 125,000 125,000 "AL" voting 125,000 125,000 125,000 125,000
75,250,000 59,586,839 59,690,440 59,620,475
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 26, 1994, the Company had reserved 2,995,681 shares of its Class "A" common stock for issuance under its stock option and executive stock bonus plans. In December 1993, the Company's Board of Directors approved a plan to purchase up to 200,000 shares of its Class "A" common stock in the open market. As of February 26, 1994, the Company has not purchased any 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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
6. COMMON STOCK AND EMPLOYEE INCENTIVE PLANS (continued)
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.
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: Average Number of Shares Option Options SAR's Price February 23, 1991 Outstanding 1,774,960 922,420 $18.90
1992 Activity Granted 370,600 - 28.73 Options exercised (70,701) (59,211) 10.29 SAR's exercised (85,597) (85,597) 9.95 Canceled (30,280) (8,280) 23.39
February 29, 1992 Outstanding 1,958,982 769,332 21.39
1993 Activity Granted 432,700 - 23.43 Options exercised (35,047) (35,047) 7.55 SAR's exercised (81,677) (81,677) 7.84 Canceled (26,400) (5,800) 24.88
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 Exercisable 1,257,002 458,841 21.80 Available for future grants 2,837,760 NONE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
6. 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 1994 and 1993 and $1,184 in 1992.
7. EMPLOYEE RETIREMENT 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 participant's 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.
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 (credit) for these plans includes the following components:
1994 1993 1992
Service cost Qualified plan $4,329 $3,877 $3,374 Supplemental plans 71 67 47 Interest cost Qualified plan 6,760 6,252 5,562 Supplemental plans 179 187 169 Actual return on assets (9,552) (9,887) (6,409) Net amortization and deferral Qualified plan 1,941 2,360 (817) Supplemental plans 71 69 46 Net pension cost $3,799 $2,925 $1,972
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
7. EMPLOYEE RETIREMENT PLANS (continued)
The funded status and amounts recognized in the consolidated balance sheets as of February 26, 1994, February 27, 1993 and February 29, 1992 are as follows:
Qualified plan 1994 1993 1992 Actuarial present value of benefit obligations Vested benefit obligation $58,008 $52,130 $45,726
Accumulated benefit obligation $65,229 $58,837 $46,141
Projected benefit obligation $90,230 $80,780 $68,708
Plan assets at fair value (85,508) (75,271) (67,574) Projected benefit obligation in excess of plan assets 4,722 5,509 1,134 Unrecognized net loss (6,375) (9,180) (8,418) Unrecognized prior service cost (3,282) (2,906) (3,146) Unrecognized transition asset 9,855 11,107 12,358 Pension liability recognized in the consolidated balance sheets $4,920 $4,530 $1,928
Supplemental plans 1994 1993 1992 Actuarial present value of benefit obligations Vested benefit obligation $ 1,752 $ 1,931 $ 1,559
Accumulated benefit obligation $ 1,752 $ 1,931 $ 1,559
Projected benefit obligation $ 2,354 $ 2,528 $ 2,111
Plan assets at fair value - - - Projected benefit obligation in excess of plan assets 2,354 2,528 2,111 Unrecognized net gain 840 616 988 Unrecognized prior service cost (265) (287) (310) Unrecognized transition obligation (819) (921) (1,023) Pension liability recognized in the consolidated balance sheets $ 2,110 $1,936 $1,766
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
7. EMPLOYEE RETIREMENT PLANS (continued)
Actuarial assumptions used were as follows:
1994 1993 1992
Discount rate 8.00% 8.00% 8.75% Rate of increase in compensation levels 5% 5% 6% Expected rate of return on plan assets 9% 10% 10%
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 $18,732, $19,418 and $20,185 in 1994, 1993 and 1992, 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. The Company matches a portion of employee contributions. Charges to income representing the Company's contributions to the plan were $3,740, $3,403 and $3,348 in 1994, 1993 and 1992, respectively.
Other Benefits:
The Company does not provide any significant postretirement benefits to administrative employees, and postretirement benefits for union employees are covered by union-sponsored multi-employer pension plans. Therefore, SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" did not affect the Company.
The FASB has issued SFAS No. 112, "Employers' Accounting for Postemployment Benefits" which is required to be implemented by the Company in 1995. Upon implementation of SFAS No. 112, the effect on the Company's financial position and results of operations is expected to be immaterial.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
8. CASH FLOWS
Net cash flows from operating activities include cash payments for interest and income taxes as follows:
1994 1993 1992
Interest $27,662 $27,850 $27,113 Income taxes 72,893 51,624 69,407
Non-cash investing and financing activities include the following:
1994 1993 1992
Property under capital leases Additions $10,379 $ 3,340 - Terminations (7,570) - $ (515) Obligations under capital leases Additions 10,379 3,340 - Terminations (8,735) - (1,038) Acquisition of shopping center for stock (533,675 shares) - - 15,610 Assumption of mortgages in connection with acquisition of shopping centers - - 23,993
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
Title of All Positions Year First Name Age Held with the Company Elected Director
Israel Cohen 81 Chairman of the Board, 1949 Chief Executive Officer and Director
Samuel Lehrman 44 Director 1986
David B Sykes 75 Director, Secretary, 1981 Treasurer, and Senior Vice President-Finance
Max N. Berry 58 Director 1990
Scott B. Laurans 46 Director 1992
Constance M. Unseld 46 Director 1993
Peter F. O'Malley 55 Director 1993
The present term of each of the above Directors will expire at the Annual Meeting of Shareholders currently scheduled for September 8, 1994.
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.
General Roscoe Robinson, Jr., who served as a Director of the Company since 1990, died on July 22, 1993. Richard Waxenberg, who served as a Director of the Company since 1967, retired as a Director on December 20, 1993.
(b) Identification of Executive Officers
Year First Elected to Name and Position Age Officer Present Office
Israel Cohen 81 1936 1978 (Chairman of Board) Chairman of the Board 1977 (Chief Executive Officer) and Chief Executive Officer
Pete L. Manos 57 1977 1992 President
David B Sykes 75 1955 1977 (Senior Vice President Senior Vice President- -Finance) Finance, Secretary 1978 (Secretary) and Treasurer 1984 (Treasurer)
Alvin Dobbin 62 1970 1977 Senior Vice President- Operations
David W. Rutstein 49 1978 1981 Senior Vice President- General Counsel
David N. Freedman 64 1982 1985 Senior Vice President- Corporate Facilities
Roger D. Olson 49 1978 1988 Senior Vice President- Labor Relations and Personnel
Robert W. Schoening 47 1985 1988 Senior Vice President- Data Processing
Samuel E. Thurston 50 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 8, 1994. (c) Identification of Certain Significant Employees Not applicable.
(d) Family Relationships Directors Samuel Lehrman and Max N. Berry are brothers-in-law.
(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:
Israel Cohen - see subsection (b) above.
David B Sykes - see subsection (b) above.
Samuel Lehrman is President of Lehrco Corporation, a real estate development firm in the District of Columbia. He is Vice-President of Vista Management Co., Inc., a residential real estate management company. Mr. Lehrman is the son of Mr. Jacob Lehrman and Mrs. Charlotte F. Lehrman, former officer and directors of the Company.
Max N. Berry is an attorney in Washington, D.C. specializing in international trade.
Scott B. Laurans was formerly President, Roger Williams Foods, Providence, Rhode Island; formerly President, Rhode Island Division, Wetterau, Inc., St. Louis, Missouri; and is currently a partner in The Providence Group Investment Advisory Company, Providence, Rhode Island.
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 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 is one of a number of firms which provides legal services to the Company.
Millard F. West, Jr., a Director Emeritus of the Company, is a 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. 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 26, 1994 (with the exception noted below), the Company complied with all Section 16(a) filing requirements applicable to officers, directors and greater than ten-percent beneficial owners.
On April 13, 1993, Odonna Mathews exercised stock appreciation rights under an employee stock option for 1,500 shares. Ms. Mathews inadvertently did not timely file the required report for this transaction, but did so promptly after the oversight was discovered. ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The following tables and narrative text discuss the compensation paid in Fiscal Year 1994 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(2)
Israel Cohen 1994 $831,428 $434,346 -- Chairman of the 1993 $556,600 $690,500 -- Board & CEO 1992(1) $567,304 $690,500 --
David B Sykes 1994 $375,232 $196,015 -- Secretary, Treas. 1993 $256,520 $306,300 -- Sr. V.P. Finance 1992(1) $261,453 $306,300 --
Pete Manos 1994 $255,736 $133,608 -- President and 1993 $134,608 $233,600 -- Sr. V.P. Food 1992(1) $123,327 $233,600 -- Operations
Alvin Dobbin 1994 $238,004 $124,363 -- Sr. V.P. 1993 $123,420 $233,600 -- Operations 1992(1) $125,793 $233,600 --
David N. Freedman 1994 $236,444 $123,464 -- Sr. V.P. 1993 $121,000 $233,600 -- Corp. Facilities 1992(1) $123,327 $233,600 --
(1) Includes 53 weeks of salary payments.
(2) Aggregate value does not exceed the lesser of $50,000 or 10 percent of the total amount of annual salary and bonus.
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 1994 $15,284 32,500 0 $34,352 Chairman of the 1993 $15,625 2,500 0 $32,098 Board & CEO 1992(1) $17,460 2,500 0 $32,649
David B Sykes 1994 $15,284 17,500 0 $29,688 Secretary, Treas. 1993 $15,625 2,500 0 $28,553 Sr. V.P. Finance 1992(1) $17,460 2,500 0 $28,684
Pete Manos 1994 $15,284 22,500 0 $16,635 President and 1993 $15,625 2,500 0 $15,685 Sr. V.P. Food 1992(1) $17,460 2,500 0 $12,512 Operations
Alvin Dobbin 1994 $15,284 9,500 0 $17,806 Sr. V.P. 1993 $15,625 2,500 0 $17,519 Operations 1992(1) $17,460 2,500 0 $14,441
David N. Freedman 1994 $15,284 2,500 0 $18,227 Sr. V.P. 1993 $15,625 2,500 0 $18,001 Corp. Facilities 1992(1) $17,460 2,500 0 $14,828
(1) Includes 53 weeks of salary payments.
(2) Aggregate value does not exceed the lesser of $50,000 or 10 percent of the total amount of annual salary and bonus.
(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 8,950 shares and the share value was $25.75 as of February 26, 1994. 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 saving 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 1994 the Company made matching contributions under the plan as follows: Mr. Cohen $10,580, Mr. Sykes $9,678, Mr. Manos $9,590, Mr. Dobbin $8,925 and Mr. Freedman $8,867.
(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 1994 the Company made insurance premium payments as follows: Mr. Cohen $23,772, Mr. Sykes $20,010, Mr. Manos $7,045, Mr. Dobbin $8,881 and Mr. Freedman $9,360. OPTION GRANTS IN LAST FISCAL YEAR (1)
Individual Grants
Number of Securities Underlying % of Total Options/ Options Exercise SAR's Granted to of Base Granted Employees Price Expiration Name (#)(2) in FY ($/Sh) Date
Israel Cohen 2,500 $21.13 03/01/03 30,000 $26.25 06/03/03 32,500 5.59
David B Sykes 2,500 $21.13 03/01/03 15,000 $26.25 06/02/03 17,500 3.01
Pete Manos 2,500 $21.13 03/01/03 20,000 $26.25 06/02/03 22,500 3.87
Alvin Dobbin 2,500 $21.13 03/01/03 7,000 $26.25 06/02/03 9,500 1.63
David Freedman 2,500 $21.13 03/01/03 7,000 $26.25 06/02/03 9,500 1.63
(1) No SAR's were awarded in the 1994 Fiscal Year.
(2) These options may be exercised on a graduated basis beginning one year following the date of grant.
Potential Realizable Value at Assumed Rates of Stock Price Appreciation for Option Term (10 Years)
5% 10%
Stock Stock Price Price Per Share Per Share Name (3) Gain(4) (3) Gain(4)
Israel Cohen $34.42 $ 33,221 $54.81 $ 84,189 $42.76 $495,255 $68.09 $1,255,072 $528,476 $1,339,262
David B Sykes $34.42 $ 33,221 $54.81 $ 84,189 $42.76 $247,627 $68.09 $ 657,536 $280,849 $ 711,726
Pete Manos $34.42 $ 33,221 $54.81 $ 84,189 $42.76 $330,170 $68.09 $ 836,715 $363,391 $ 920,904
Alvin Dobbin $34.42 $ 33,221 $54.81 $ 84,189 $42.76 $115,559 $68.09 $ 292,850 $148,781 $ 377,040
David Freedman $34.42 $ 33,221 $54.81 $ 84,189 $42.76 $115,559 $68.09 $ 292,850 $148,781 $ 377,040
(3) 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 $34.42 and $42.76, and at a 10% annual appreciation would be $54.81 and $68.09.
(4) The gain is calculated from the exercise price of the options listed above, $21.13 and $26.25 based on the grant date of the options. Option grants are at 100% of market value on the date of grant. Aggregated Options/SAR Exercises in Last Fiscal Year and Fiscal Year End Option SAR/Values
Shares SARs Value Acquired on Exerc'd Realized Name Exercise(#) (#) ($)
Israel Cohen -0- -0- -0- David B Sykes -0- -0- -0- Pete Manos -0- -0- -0- Alvin Dobbin -0- -0- -0- David Freedman 10,000 -0- 184,225(2)
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(1) Unexercisable
Israel Cohen 5,440 37,500 $ 15,051 $14,980 David B Sykes 5,000 22,500 6,870 14,980 Pete Manos 5,000 27,500 6,870 14,980 Alvin Dobbin 5,000 14,500 6,870 14,980 David Freedman 10,000 14,500 84,220 14,980
(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.
(2) Mr. Freedman exercised an option to purchase shares, the value of which was determined by the difference between the market price and the option price on the date of exercise.
PENSION TABLE
Pension Plan:
The Company maintains a tax-qualified defined benefit pension plan for approximately 2,400 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 $ 4,184 $ 8,769 $ 13,753 70,000 8,234 17,169 26,803 100,000 12,284 25,569 39,853 150,000 19,034 39,569 61,603 200,000 25,784 53,569 83,353 250,000 32,534 67,569 105,103 300,000 39,284 81,569 126,853 350,000 46,034 95,569 148,603 400,000 52,784 109,569 170,353
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 number of years of credited service of the Executive Officers listed in the remuneration table under the Retirement Plan, determined as of February 26, 1994 are: Mr. Cohen, 23 years; Mr. Sykes, 23 years; Mr. Dobbin, 23 years; Mr. Manos, 23 years; and Mr. Freedman, 16 years. Two of the officers (Messrs. Cohen and Sykes) are currently receiving retirement payments from the plan, as required by law for participants over age 70 1/2.
Supplemental Retirement Arrangements:
Two unfunded nonqualified pension plans are currently in effect. For three of the officers listed in the remuneration table (Messrs. Cohen, Sykes and Dobbin), the Supplemental 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 Supplemental 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 Plan was adopted in 1988 to restore benefits not payable from the Retirement Plan solely due to the maximum benefit limitations of IRC 415.
Compensation of Directors
During Fiscal Year 1994, Directors and Directors Emeritus who were not employees received an annual fee of $35,000 and a fee of $250 for committee meetings attended. Richard Waxenberg, who retired as a Director on December 20, 1993, received $20,000 as a consulting fee. Samuel Lehrman (as Chairman of the Audit Committee) and Max N. Berry, Esquire (as Chairman of the Officers' Executive Compensation Committee) each receive an additional fee of $1,000 annually.
Termination of Employment
Not applicable.
Employment Contracts and Termination of Employment and Change-in Control Arrangements
On April 13, 1989, the Company entered into an Employment Agreement with Israel Cohen for a five year term. The agreement provides for a salary of $556,600 per year and additional compensation as awarded by the Company's Board of Directors. The agreement also provides for a two- year covenant not to compete upon termination of employment.
Additional Information with Respect to Compensation Committee Interlocks and Insider Participation in Compensation Decisions
Mrs. Unseld and Messrs. Berry 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 2, 1994)
The following table sets forth information with respect to the ownership of the voting securities of the Company as of May 2, 1994.
Number Nature Title of of Shares of Percent Name and Address Class of Stock Owned Ownership of Class
Israel Cohen Common AC 125,000 Record and 100.0% 6300 Sheriff Road Beneficial Landover, Maryland 20785
Heidi J. Berry, Bernhardt R. Ferson Lehrman and Samuel Lehrman, Trustees under Article Fourth of the Will of Charlotte Ferson Lehrman, deceased Common AL 125,000 Record and 100.0% 5301 Wisconsin Avenue, N.W. Beneficial Suite 650 Washington, D.C. 20015
(b) Security Ownership of Management (as of May 2, 1994)
Number Nature Title of of Shares of Percent Name and Title Class of Stock Owned Ownership of Class
Israel Cohen Common Stock A 2,738,962 Record and 4.618% Chairman of the (Non-Voting) Beneficial Board and CEO, Common Stock AC 125,000 Record and 100.00% Director (Voting) Beneficial
Samuel Lehrman Common Stock A 1,654,096 Record and 2.789% Director (Non-Voting) Beneficial Common Stock AL 125,000 Record and 100.00% (Voting)(1) Beneficial
Max N. Berry Common Stock A 3,478,938 Record and 5.866% Director (Non-Voting) Beneficial Common Stock AL 125,000 Record and 100.00% (Voting)(2) Beneficial Scott B. Laurans Common Stock A 2,500 Record and .004% Director (Non-Voting) Beneficial
David B Sykes Common Stock A 212,633 Record and .359% Sr. Vice President- (Non-Voting) Beneficial Finance, Sec'y, Treasurer, Director
Constance M. Unseld Common Stock A 1,000 Record and .002% Director (Non-Voting) Beneficial
Peter F. O'Malley Common Stock A 2,000 Record and Director (Non-Voting) Beneficial .003%
Millard F. West, Jr. Common Stock A 23,800 Record and .040% Director Emeritus (Non-Voting) Beneficial
Morton H. Wilner Common Stock A 10,576 Record and .018% Director Emeritus (Non-Voting) Beneficial
All Directors and Common Stock A 8,890,195 Beneficial 14.991% Officers as a (Non-Voting)(3) Group (30 persons)
Common Stock AC 125,000 100.00% (Voting)(1)
Common Stock AL 125,000 100.00% (Voting)(1)
(c) Changes in Control
Not applicable.
NOTES:
(1) As noted in Item 12(a) above.
(2) Mr. Berry's wife, Heidi J. Berry, is a co-trustee of the Trust reported in Item 12(a) above.
(3) Includes indirect ownership as well as direct ownership by Directors and Officers. Excludes 42,900 shares of Common Stock A held in the Lehrman Testamentary Trust under the Will of Jacob Lehrman, deceased, for the benefit of Samuel Lehrman. 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 certain affiliates of the Company have a 25% interest. The affiliates are members of the Cohen and Lehrman families and, during certain years, certain affiliates were executive officers of the Company. The affiliates' shares of gross rentals (minimum and percentage where applicable) for the last three fiscal years were as follows: $119,094 (FY 1994), $130,219 (FY 1993) and $122,964 (FY 1992).
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.
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 15 Consolidated Statements of Income for the years ended February 26, 1994, February 27, 1993 and February 29, 1992 16 Consolidated Balance Sheets at February 26, 1994, February 27, 1993 and February 29, 1992 17-18 Consolidated Statements of Changes in Shareholders' Equity for the years ended February 26, 1994, February 27, 1993 and February 29, 1992 19 Consolidated Statements of Cash Flows for the years ended February 26, 1994, February 27, 1993 and February 29, 1992 20 Notes to Consolidated Financial Statements 21-32
(2) Financial Statement Schedules:
Report of Independent Accountants on Financial Statement Schedules 52
Schedule V. Property, plant and equipment 53-54 VI. Accumulated depreciation and amortization of property, plant and equipment 55 VIII. Valuation and qualifying accounts 56
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 57.
(b) Reports on Form 8-K
On January 5, 1994, 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/ Israel Cohen Israel Cohen, Chairman of the Board 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 13, 1994 By: /s/ Israel Cohen Israel Cohen Chairman of the Board and Principal Executive Officer
May 13, 1994 By: /s/ David B Sykes David B Sykes, Senior Vice President-Finance, Chief Financial Officer and Principal Accounting Officer
May 13, 1994 By: /s/ Israel Cohen Israel Cohen, Director
May 13, 1994 By: /s/ Samuel Lehrman Samuel Lehrman, Director
May 13, 1994 By: /s/ Max N. Berry Max N. Berry, Director
May 13, 1994 By: /s/ Scott B. Laurans Scott B. Laurans, Director
May 13, 1994 By: /s/ Constance M. Unseld Constance M. Unseld, Director
May 13, 1994 By: /s/ Peter F. O'Malley Peter F. O'Malley, Director Report of Independent Accountants on Financial Statement Schedules
To the Board of Directors Giant Food Inc.
Our audits of the consolidated financial statements referred to in our report dated March 28, 1994 appearing on page 15 of the 1994 Form 10-K of Giant Food Inc. also included an audit of the Financial Statement Schedules listed in Item 14(a)(2) of this Form 10-K. In our opinion, these Financial Statement Schedules present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.
PRICE WATERHOUSE /s/ Washington, D.C. March 28, 1994 GIANT FOOD INC. AND SUBSIDIARIES SCHEDULE V (THOUSANDS OF DOLLARS) SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
Balance Addit- Balance beginning ions Retire- end of Classification of period at cost ments period
Year ended February 26, 1994 Land $ 46,958 $ 11,862 $ 0 $ 58,820 Buildings & Improvements 231,947 36,724 31 268,640 Leasehold Improvements 158,393 8,358 13,352 153,399 Fixtures & Equipment 634,882 66,261 23,443 677,700 Transportation Equipment 64,819 3,629 860 67,588 1,136,999 126,834 37,686 1,226,147
Equipment & construction in progress 30,400 2,106 32,506 Property under capital leases 162,483 10,379 10,603 162,259
Totals $1,329,882 $139,319 $ 48,289 $1,420,912
Year ended February 27, 1993 Land $ 46,958 $ 0 $ 0 $ 46,958 Buildings & Improvements 200,125 31,996 174 231,947 Leasehold Improvements 152,471 6,985 1,063 158,393 Fixtures & Equipment 621,435 36,823 23,376 634,882 Transportation Equipment 59,692 5,456 329 64,819 1,080,681 81,260 24,942 1,136,999 Equipment & construction in progress 39,647 (9,247)(a) 30,400 Property under capital leases 161,096 3,340 1,953 162,483
Totals $1,281,424 $ 75,353 $ 26,895 $1,329,882
Year ended February 29, 1992 Land $ 16,581 $ 30,496 $ 119 $ 46,958 Buildings & Improvements 143,811 57,246 932 200,125 Leasehold Improvements 133,512 20,737 1,778 152,471 Fixtures & Equipment 568,976 71,147 18,688 621,435 Transportation Equipment 56,450 5,050 1,808 59,692 919,330 184,676 23,325 1,080,681
Equipment & construction in progress 42,886 (3,239)(a) 39,647 Property under capital leases 163,966 0 2,870 161,096
Totals $1,126,182 $181,437 $ 26,195 $1,281,424
(a) Net transfers to buildings and improvements, leasehold improvements and fixtures and equipment.
Depreciation is provided for by the straight-line method over the estimated useful lives of the related assets. The useful life of buildings and improvements is considered to be 25 to 40 years; leasehold improvements, 5 to 25 years; fixtures and equipment, 5 to 12 years; and transportation equipment, 4 to 10 years. GIANT FOOD INC. AND SUBSIDIARIES SCHEDULE VI (THOUSANDS OF DOLLARS)
SCHEDULE VI - ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT
Balance Addit- Balance beginning ions Retire- end of Classification of period at cost ments period
Year ended February 26, 1994 Buildings & Improvements $ 60,112 $ 15,686 $ 31 $ 75,767 Leasehold Improvements 50,423 8,688 4,169 54,942 Fixtures & Equipment 324,348 64,873 23,335 365,886 Transportation Equipment 44,245 4,874 852 48,267 479,128 94,121 28,387 544,862
Property under capital leases 52,044 5,731 3,096 54,679
Totals $ 531,172 $ 99,852 $ 31,483 $ 599,541
Year ended February 27, 1993 Buildings & Improvements $ 49,962 $ 10,171 $ 21 $ 60,112 Leasehold Improvements 41,292 9,715 584 50,423 Fixtures & Equipment 283,720 63,801 23,173 324,348 Transportation Equipment 39,054 5,515 324 44,245 414,028 89,202 24,102 479,128 Property under capital leases 48,341 5,656 1,953 52,044
Totals $ 462,369 $ 94,858 $ 26,055 $ 531,172
Year ended February 29, 1992 Buildings & Improvements $ 40,074 $ 10,809 $ 921 $ 49,962 Leasehold Improvements 35,932 6,964 1,604 41,292 Fixtures & Equipment 239,208 62,846 18,334 283,720 Transportation Equipment 35,143 5,697 1,786 39,054 350,357 86,316 22,645 414,028
Property under capital leases 45,101 5,595 2,355 48,341
Totals $ 395,458 $ 91,911 $ 25,000 $ 462,369
GIANT FOOD INC. AND SUBSIDIARIES SCHEDULE VIII (THOUSANDS OF DOLLARS)
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES Additions Balance Charged Balance beginning to costs end of Description of period & expenses Deductions period
Year ended February 26, 1994 Provision for insurance claims $20,986 $32,419 $27,988 (a) $25,417
Year ended February 27, 1993 Provision for insurance claims $19,126 $30,780 $28,920 (a) $20,986
Year ended February 29, 1992 Provision for insurance claims $17,604 $30,416 $28,894 (a) $19,126
(a) Deductions consist of: 1994 1993 1992 Payments $29,553 $30,439 $27,967 Change in current portion (1,565) (1,519) 927 $27,988 $28,920 $28,894
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 58 Per Common Share
Subsidiaries Exhibit 21 59
Consent of Independent Exhibit 23 60 Accountants
GIANT FOOD INC. AND SUBSIDIARIES EXHIBIT 11
COMPUTATION OF EARNINGS PER COMMON SHARE
FIFTY-TWO WEEKS ENDED FEBRUARY 26, 1994, FIFTY-TWO WEEKS ENDED FEBRUARY 27, 1993 AND FIFTY-THREE WEEKS ENDED FEBRUARY 29, 1992
1994 1993 1992 Primary: Earnings: Net income $ 95,231,000 $ 81,506,000 $ 87,180,000
Shares: Weighted average number of common shares outstanding 59,659,352 59,648,084 59,447,297 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 245,425 213,351 420,952
Weighted average number of common shares outstanding, as adjusted 59,904,777 59,861,435 59,868,249
Primary earnings per common share $1.59 $1.36 $1.46
Assuming full dilution: Earnings: Net income $ 95,231,000 $ 81,506,000 $ 87,180,000
Shares: Weighted average number of common shares outstanding 59,659,352 59,648,084 59,447,297 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 303,323 216,096 434,254
Weighted average number of common shares outstanding, as adjusted 59,962,675 59,864,180 59,881,551
Fully diluted earnings per common share $1.59 $1.36 $1.46
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 Landover Wholesale Tobacco Corp. Maryland 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
(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 28, 1994 appearing on page 15 of this Form 10-K. We also consent to the incorporation by reference of our report on the Financial Statement Schedules, which appears on page 52 of this Form 10-K. /s/ PRICE WATERHOUSE Washington, D.C. May 19, 1994