UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONN
Washington D.C. 20549
FORM 10-Q
Quarterly report pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarterly period ended August 2, 2003
Commission file number 1-5745-1
FOODARAMA SUPERMARKETS, INC.
(Exact name of Registrant as specified in its charter)
New Jersey 21-0717108
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
922 Highway 33, Freehold, N.J. 07728
-----------------------------------------
(Address of principal executive offices)
Telephone #732-462-4700
---------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
------ ------
Indicate by check mark whether the Registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act). Yes ____ No X
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the close of the latest practicable date.
OUTSTANDING AT
CLASS September 5, 2003
Common Stock 986,867 shares
$1 par value
FOODARAMA SUPERMARKETS, INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Unaudited Consolidated Condensed Balance Sheets
August 2, 2003 and November 2, 2002
Unaudited Consolidated Condensed Statements
of Operations for the thirteen weeks ended
August 2, 2003 and August 3, 2002
Unaudited Consolidated Condensed Statements
of Operations for the thirty nine weeks
ended August 2, 2003 and August 3, 2002
Unaudited Consolidated Condensed Statements
of Cash Flows for the thirty nine weeks
ended August 2, 2003 and August 3, 2002
Notes to the Unaudited Consolidated Condensed
Financial Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About
Market Risk
Item 4. Controls and Procedures
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K
Disclosure Concerning Forward-Looking Statements
All statements, other than statements of historical fact, included in this Form
10-Q, including without limitation the statements under "Management's Discussion
and Analysis of Financial Condition and Results of Operations", are, or may be
deemed to be, "forward-looking statements" within the meaning of Section 27A of
the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Such
forward-looking statements involve assumptions, known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of Foodarama Supermarkets, Inc. (the "Company", which may be
referred to as we, us or our) to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements contained in this Form 10-Q. Such potential risks and
uncertainties, include without limitation, competitive pressures from other
supermarket operators and warehouse club stores, economic conditions in the
Company's primary markets, consumer spending patterns, availability of capital,
cost of labor, cost of goods sold including increased costs from the Company's
cooperative supplier, Wakefern Food Corporation ("Wakefern"), and other risk
factors detailed herein and in other of the Company's Securities and Exchange
Commission filings. The forward-looking statements are made as of the date of
this Form 10-Q and the Company assumes no obligation to update the
forward-looking statements or to update the reasons actual results could differ
from those projected in such forward-looking statements.
2
PART I FINANCIAL INFORMATION
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
(in thousands)
August 2, November 2,
2003 2002
(Unaudited) (1)
----------- -------------
ASSETS
Current assets:
Cash and cash equivalents $ 6,019 $ 4,280
Merchandise inventories 47,371 43,707
Receivables and other current assets 10,014 11,214
Prepaid and refundable income taxes 1,485 257
Related party receivables - Wakefern 7,800 8,903
-------- --------
72,689 68,361
-------- --------
Property and equipment:
Land 308 308
Buildings and improvements 1,220 1,220
Leasehold improvements 51,319 41,311
Equipment 131,992 114,077
Property under capital leases 118,793 69,867
Construction in progress 8,392 15,364
-------- --------
312,024 242,147
Less accumulated depreciation and
amortization 122,702 112,360
-------- -------
189,322 129,787
-------- -------
Other assets:
Investments in related parties 15,461 12,758
Goodwill 1,715 1,715
Intangibles, net 1,133 1,290
Other 3,358 3,743
Related party receivables - Wakefern 1,855 1,735
-------- --------
23,522 21,241
-------- -------
$ 285,533 $ 219,389
========= ==========
(continued)
(1) Derived from the Audited Consolidated Financial Statements for the year
ended November 2, 2002.
See accompanying notes to consolidated condensed financial statements.
3
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
(in thousands except share data)
August 2, November 2,
2003 2002
(Unaudited) (1)
---------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 7,616 $ 7,158
Current portion of long-term debt,
related party 980 629
Current portion of obligations under
capital leases 1,317 1,140
Current income taxes payable 1,478 -
Deferred income taxes 1,433 1,433
Accounts payable:
Related party-Wakefern 38,268 31,935
Others 9,184 14,078
Accrued expenses 13,165 12,578
--------- ---------
73,441 68,951
--------- ---------
Long-term debt 46,282 35,745
Long-term debt, related party 2,507 686
Obligations under capital leases 111,121 63,606
Deferred income taxes 1,402 1,142
Other long-term liabilities 12,813 12,634
--------- ----------
174,125 113,813
--------- ----------
Shareholders' equity:
Common stock, $1.00 par; authorized
2,500,000 shares; issued 1,621,767 shares;
outstanding 986,867 shares August 2, 2003;
986,367 shares November 2, 2002 1,622 1,622
Capital in excess of par 4,168 4,168
Deferred compensation (1,045) (1,324)
Retained earnings 48,309 47,256
Accumulated other comprehensive income:
Minimum pension liability (2,896) (2,896)
---------- -----------
50,158 48,826
Less 634,900 shares August 2, 2003;
635,400 shares November 2, 2002,
held in treasury, at cost 12,191 12,201
---------- ----------
37,967 36,625
---------- ----------
$ 285,533 $ 219,389
========== ==========
(1) Derived from the Audited Consolidated Financial Statements for the year
ended November 2, 2002.
See accompanying notes to consolidated condensed financial statements.
4
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Operations - Unaudited
(in thousands - except share data)
13 Weeks Ended
August 2, August 3,
2003 2002
----------- ---------
Sales $ 271,333 $ 241,544
Cost of goods sold 201,311 179,255
---------- -----------
Gross profit 70,022 62,289
Selling, general and
administrative expenses 65,686 58,256
---------- ----------
Earnings from operations 4,336 4,033
---------- ----------
Other income (expense) :
Interest expense (3,415) (2,051)
Interest income 39 23
----------- ----------
(3,376) (2,028)
----------- ----------
Earnings before income tax provision 960 2,005
Income tax provision (384) (802)
----------- ----------
Net income $ 576 $ 1,203
========== =========
Per share information:
Net income per common share:
Basic $ .58 $ 1.22
=========== ===========
Diluted $ .57 $ 1.15
=========== ===========
Weighted average shares outstanding:
Basic 986,867 985,728
========== ==========
Diluted 1,010,586 1,042,571
========== ==========
Dividends per common share -0- -0-
========== ===========
See accompanying notes to consolidated condensed financial statements.
5
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Operations - Unaudited
(in thousands - except share data)
39 Weeks Ended
August 2, August 3,
2003 2002
----------- ------------
Sales $ 783,002 $ 728,807
Cost of goods sold 581,640 544,243
--------- --------
Gross profit 201,362 184,564
Selling, general and
administrative expenses 190,977 174,197
--------- --------
Earnings from operations 10,385 10,367
--------- --------
Other income (expense):
Interest expense (8,746) (6,038)
Interest income 116 94
---------- ---------
(8,630) (5,944)
---------- -----------
Earnings before income tax provision 1,755 4,423
Income tax provision (702) (1,770)
---------- -----------
Net income $ 1,053 $ 2,653
========== ===========
Per share information:
Net income per common share:
Basic $ 1.07 $ 2.56
============ ==========
Diluted $ 1.04 $ 2.43
============ ==========
Weighted average shares outstanding:
Basic 986,762 1,036,917
============ =========
Diluted 1,013,751 1,092,395
============ =========
Dividends per common share -0- -0-
============ ==========
See accompanying notes to consolidated condensed financial statements.
6
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows - Unaudited
(in thousands)
39 Weeks Ended
August 2, August 3,
2003 2002
---------- --------
Cash flows from operating activities:
Net income $ 1,053 $ 2,653
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation 12,613 10,496
Amortization, goodwill - 105
Amortization, intangibles 157 158
Amortization, deferred financing and other costs 371 243
Amortization, deferred rent escalation (223) (173)
Provision to value inventory at LIFO 556 340
Deferred income taxes 260 362
Amortization of deferred compensation 269 235
(Increase) decrease in
Merchandise inventories (4,220) (442)
Receivables and other current assets (662) (2,596)
Prepaid and refundable income taxes (1,228) -
Other assets 204 (551)
Related party receivables-Wakefern 983 2,292
Increase (decrease) in
Accounts payable 1,439 (1,125)
Income taxes payable 1,478 (312)
Other liabilities 999 (1,687)
--------- ---------
14,049 9,998
--------- ---------
Cash flows from investing activities:
Construction advance due from landlords - net 1,033 -
Cash paid for the purchase of property
and equipment (16,514) (6,252)
Cash paid for construction in progress (5,881) (2,359)
Decrease in related party receivables-other - 6
--------- --------
(21,362) (8,605)
--------- --------
Cash flows from financing activities:
Proceeds from issuance of debt 16,610 9,597
Principal payments under long-term debt (5,615) (4,108)
Principal payments under capital
lease obligations (1,234) (796)
Principal payments under long-term
debt, related party (531) (677)
Deferred financing and other costs (188) (25)
Proceeds from exercise of stock options 10 10
Repurchase of common stock - (4,524)
-------- ----------
9,052 (523)
-------- ----------
NET CHANGE IN CASH AND CASH EQUIVALENTS 1,739 870
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 4,280 4,219
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 6,019 $ 5,089
========= =========
See accompanying notes to consolidated condensed financial statements.
7
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited)
Note 1 Basis of Presentation
The unaudited Consolidated Condensed Financial Statements as of, or for the
period ended, August 2, 2003, have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-Q and rule 10-01. The balance sheet at November 2, 2002
has been derived from the audited financial statements at that date. In the
opinion of the management of the Company, all adjustments (consisting only of
normal recurring accruals) which are considered necessary for a fair
presentation of the results of operations for the period have been made. Certain
financial information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. The reader is referred to the consolidated
financial statements and notes thereto included in the Company's annual report
on Form 10-K for the year ended November 2, 2002.
At August 2, 2003 and November 2, 2002, approximately 83% and 82%, respectively,
of merchandise inventories are valued by the Last-In-First-Out ("LIFO") method
of inventory valuation while the balance of inventories are valued by the
First-In-First-Out ("FIFO") method. Effective November 3, 2002, the Company
changed from the 80% LIFO method to the 100% LIFO method. The effect of this
change on the thirty nine weeks ended August 2, 2003 was to decrease net income
$54,000 ($.05 per diluted share). If the FIFO method had been used for the
entire inventory, inventories would have been $2,576,000 and $2,020,000 higher
than reported at August 2, 2003 and November 2, 2002, respectively.
Certain reclassifications have been made to prior year financial statements in
order to conform to the current year presentation.
These results are not necessarily indicative of the results for the entire
fiscal year.
Note 2 Adoption of New Accounting Standards
Accounting for Asset Retirement Obligations
Effective November 3, 2002 the Company adopted Statement of Financial Accounting
Standards No. 143 ("SFAS 143"), "Accounting for Asset Retirement Obligations".
SFAS 143 addresses financial accounting and reporting for obligations associated
with the retirement of tangible long-lived assets and the associated asset
retirement costs. There was no significant impact from the adoption of SFAS 143
in the thirteen and thirty nine weeks ended August 2, 2003.
Recission of FASB Statements Nos. 4, 44 and 64, Amendment of FASB Statement No.
13, and Technical Corrections
Effective November 3, 2002 the Company adopted Statement of Financial Accounting
Standards No. 145 ("SFAS 145"), "Recission of FASB Statements Nos. 4, 44 and 64,
Amendment of FASB Statement No. 13, and Technical Corrections". Under SFAS 145,
gains and losses from extinguishment of debt will no longer be aggregated and
classified as an extraordinary item, net of related income tax effect, on the
statement of earnings. There was no significant impact from the adoption of SFAS
145 in the thirteen and thirty nine weeks ended August 2, 2003.
8
Accounting for Costs Associated with Exit or Disposal Activities
Effective November 3, 2002 the Company adopted Statement of Financial Accounting
Standards No. 146 ("SFAS 146"), "Accounting for Costs Associated with Exit or
Disposal Activities". SFAS No. 146 requires recognition of a liability for the
costs associated with an exit or disposal activity when the liability is
incurred, as opposed to when the entity commits to an exit plan as required
under EITF Issue No. 94-3. SFAS 146 will primarily impact the timing of the
recognition of costs associated with any future exit or disposal activities.
There was no significant impact from the adoption of SFAS 146 in the thirteen
and thirty nine weeks ended August 2, 2003.
Accounting for Stock Based Compensation - Transition and Disclosure
In December 2002, the FASB issued Statement of Financial Accounting Standards
No. 148 ("SFAS 148"), "Accounting for Stock Based Compensation - Transition and
Disclosure - an amendment of SFAS No. 123," which amends SFAS No. 123 ("SFAS
123") to provide alternative methods of transition for an entity that
voluntarily changes to the fair value method of accounting for stock based
compensation. It also amends the disclosure provisions of SFAS 123 to require
prominent disclosure about the effects on reported net income of an entity's
accounting policy decisions with respect to stock based employee compensation.
Finally, SFAS 148 amends APB Opinion No. 28, "Interim Financial Reporting", to
require disclosure of those effects in interim financial statements. SFAS 148 is
effective for fiscal years ended after December 15, 2002. Accordingly, the
Company has adopted the applicable disclosure requirements of this Statement
within this report (See Note 4). The Company continues to account for
stock-based compensation to its employees and directors using the intrinsic
value method prescribed by APB Opinion No. 25, and related interpretations.
Note 3 Goodwill and Other Intangible Assets
Effective November 3, 2002, the Company implemented Statement of Financial
Accounting Standards No. 142 ("SFAS 142"), "Accounting for Goodwill and Other
Intangible Assets." Goodwill and other intangibles that have indefinite useful
lives will not be amortized, but instead will be tested at least annually for
impairment at the reporting unit level. The Company has determined that it is
contained within one reporting unit and as such, impairment is tested at the
company level. During the first quarter of fiscal 2003, the Company completed
goodwill transition and annual impairment tests prescribed by SFAS 142 and
concluded that no impairment of goodwill existed.
The gross carrying amount and accumulated amortization of the Company's other
intangible assets as of August 2, 2003 and November 2, 2002 are as follows:
August 2, 2003 November 2, 2002
-------------- ----------------
(in thousands)
Gross Gross
Carrying Accumulated Carrying Accumulated
Amount Amortization Amount Amortization
-------- ------------ -------- ------------
Amortized Intangible
Assets
Bargain Leases $3,918 $ 3,005 $3,918 $ 2,848
Unamortized Intangible
Assets
Liquor Licenses 220 - 220 -
----------------------------------------------------
Total $4,138 $ 3,005 $4,138 $ 2,848
====================================================
9
Amortization expense recorded on the intangible assets for the thirteen weeks
ended August 2, 2003 and August 3, 2002 was $52,000 and $53,000, respectively,
and was $157,000 and $158,000, respectively, for the thirty nine weeks ended
August 2, 2003 and August 3, 2002. As a result of the adoption of SFAS 142,
there were no changes to amortizable lives or amortization methods. The
estimated amortization expense for the Company's other intangible assets for the
current fiscal year and each of the four succeeding fiscal years is as follows:
Fiscal Year (In thousands)
----------- --------------
2003 $192
2004 106
2005 106
2006 106
2007 106
The following tables illustrate net income available to common shareholders and
earnings per share, exclusive of goodwill amortization expense in the prior
periods:
Thirteen Weeks Ended
-------------------------------------------------------
August 2, 2003 August 3, 2002
-------------- --------------
(in thousands, except per share data)
Diluted Diluted
Basic earnings Basic earnings
Net earnings per Net earnings per
Income per share share Income per share share
------ --------- -------- ------ --------- --------
Reported net income $ 576 $.58 $.57 $ 1,203 $ 1.22 $1.15
Goodwill amortization - - - 35 .04 .03
------------------------------------------------------------
Adjusted net income $576 $.58 $ .57 $ 1,238 $ 1.26 $ 1.18
============================================================
Thirty Nine Weeks Ended
------------------------------------------------------------
August 2, 2003 August 3, 2002
-------------- --------------
(in thousands, except per share data)
Diluted Diluted
Basic earnings Basic earnings
Net earnings per share Net earnings per
Income per share share Income per share share
------------------------------------------------------------
Reported net income $ 1,053 $1.07 $1.04 $ 2,653 $ 2.56 $2.43
Goodwill amortization - - - 105 .10 .09
------------------------------------------------------------
Adjusted net income
$ 1,053 $1.07 $ 1.04 $ 2,758 $2.66 $2.52
============================================================
Note 4 - Stock-Based Compensation
The Company accounts for stock option plans under the recognition and
measurement principles of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations. In
accordance with SFAS 148, "Accounting for Stock-Based Compensation - Transition
and Disclosure," the effect on net income and earnings per share if the Company
had applied the fair value recognition provisions of SFAS 123, "Accounting for
Stock-Based Compensation," to stock-based employee compensation is as follows:
10
Thirteen Weeks Thirty Nine Weeks
Ended Ended
---------------------------------------------------
August 2, August 3, August 2, August 3,
2003 2002 2003 2002
------------------------ ------------------------
Net income - as reported $ 576,000 $1,203,000 $1,053,000 $2,653,000
Deduct:
Adjustment to total stock-based
employee compensation expense
determined under the intrinsic
value method for expense
determined under the fair value
based method, net of related tax
effects 20,000 19,750 60,000 59,250
------------------------ -----------------------
Pro forma net income $556,000 $1,183,250 $993,000 $2,593,750
======================== ========================
Earnings per share:
Basic, as reported $ .58 $ 1.22 $ 1.07 $ 2.56
======================== ========================
Basic, pro forma $ .56 $ 1.20 $ 1.01 $ 2.50
======================== ========================
Diluted, as reported $ .57 $ 1.15 $ 1.04 $ 2.43
======================== ========================
Diluted, pro forma $ .55 $ 1.13 $ .98 $ 2.37
======================== ========================
Note 5 - Related Party Transactions
As required by Wakefern's By-laws, all members of the cooperative are required
to make an investment in the common stock of Wakefern for each supermarket
operated, with the exact amount per store computed in accordance with a formula
based on the volume of each store's purchases from Wakefern. During the thirty
nine weeks ended August 2, 2003, the Company was required to make an additional
investment in Wakefern for a new store. In addition, on June 19, 2003 Wakefern
increased the amount that each shareholder is required to invest in Wakefern's
capital stock to a maximum of $650,000 for each store operated by such
shareholder member. Previously, the maximum was $550,000 per store. The above
changes in the amounts of required investment increased our investment in
Wakefern by $2,703,000, which will be paid weekly, without interest, over a four
year period starting September 16, 2003.
11
Note 6 - Commitments and Contingencies
The Company has engaged in settlement discussions with one of its landlords,
Levin Properties, L.P., with respect to certain previously reported litigation
wherein the correct commencement date for the payment of occupancy expense under
the lease for the Company's new Woodbridge, New Jersey location is disputed. The
proposed settlement contemplates an amendment to the lease which increases the
minimum rent payments approximately $550,000 over the term of the lease. The
effective date for the commencement of the amended lease payments is expected to
be October 1, 2003. The Company believes that the proposed settlement will be
consummated; however, there can be no assurance in this regard inasmuch as
definitive settlement agreements have not yet been executed and delivered.
In addition, the Company previously reported that the Superior Court of New
Jersey approved the settlement of a pending shareholder derivative action. The
plaintiffs' application for an award of legal fees of $975,000 in connection
with settlement of the derivative action was not acted upon by the Court. The
Company believes that the amount of the award of attorneys fees sought by the
plaintiffs' is unreasonable based upon the outcome of the litigation, and the
Company will vigorously contest the plaintiffs' fee application. The Company's
directors and officers liability insurance carrier has reserved its rights under
the Company's directors and officers liability insurance policy with respect to
the claims made in the derivative action, including claims for the plaintiffs'
attorneys' fees and costs of the defense, and has preliminarily advised the
Company that certain of the claims made in the derivative action and related
legal expenses are not, in the insurance carrier's view, covered by the policy.
It is not possible, at this juncture, to predict the amount of fees that may be
awarded to plaintiffs or whether or to what extent any such fees and the
Company's legal expenses for defending the derivative action will be covered by
its directors and officers liability insurance policy. Accordingly, the Company
has not accrued for legal fees and expenses which may be incurred in connection
with this matter in the statements of operations for the thirteen and
thirty-nine weeks ended August 2, 2003, nor is it possible to predict, at this
juncture, when such fees and expenses, if any, will be payable by the Company.
Part I - Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations
Critical Accounting Policies and Estimates
Critical accounting policies are those accounting policies that management
believes are important to the portrayal of the Company's financial condition and
results of operations and require management's most difficult, subjective or
complex judgments, often as a result of the need to make estimates about the
effect of matters that are inherently uncertain. The preparation of financial
statements in conformity with accounting principles generally accepted in the
United States of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. The Company's critical
accounting policies relating to the impairment of goodwill, patronage dividends
earned as a shareholder of Wakefern and workers' compensation insurance are
described in the Company's Annual
12
Report on Form 10-K for the year ended November 2, 2002. As of August 2, 2003
there have been no material changes to any of the critical accounting policies
contained therein.
Financial Condition and Liquidity
---------------------------------
The Company is a party to a Third Amended and Restated Revolving Credit and Term
Loan Agreement (the "Credit Agreement") with four financial institutions. The
Credit Agreement is secured by substantially all of the Company's assets and
provided for a total commitment of up to $80,000,000, including a revolving
credit facility (the "Revolving Note") of up to $35,000,000, a term loan ("the
Term Loan") in the amount of $25,000,000 and a capital expenditures facility
(the "Capex Facility") of up to $20,000,000. The Credit Agreement expires
December 31, 2007. As of August 2, 2003 the Company owed $21,250,000 on the Term
Loan and $8,000,000 under the Capex Facility.
On July 16, 2003 the Credit Agreement was amended to allow the Company to borrow
under the revolving credit facility, on any Tuesday or Wednesday, up to
$3,000,000 in excess of the availability under the borrowing base limitation of
65% of eligible inventory as long as a like amount of cash and cash equivalents
are on hand at store level or in transit to the Company's banks. This provision
expires December 31, 2003. Additionally, the number of LIBOR contracts allowed
to be outstanding at any one time was increased from three to five.
During the thirty nine weeks ended August 2, 2003, the Company was required to
make an additional investment in Wakefern for a new store. In addition, on June
19, 2003 Wakefern increased the amount that each shareholder is required to
invest in Wakefern's capital stock to a maximum of $650,000 for each store
operated by such shareholder member. Previously, the maximum was $550,000 per
store. The above changes in the amounts of required investment increased our
investment in Wakefern by $2,703,000, which will be paid weekly, without
interest, over a four year period starting September 16, 2003.
On January 31, 2003, the Company financed the purchase of $4,000,000 of
equipment for the new store location in Woodbridge, New Jersey. The note bears
interest at 6.45% and is payable in monthly installments over its seven year
term.
The Company's compliance with the major financial covenants under the Credit
Agreement was as follows as of August 2, 2003:
Actual
Financial Credit (As defined in the
Covenant Agreement Credit Agreement)
-------- --------- ------------------
Adjusted EBITDA (1) Greater than $18,500,000 $ 21,111,000
Leverage Ratio (1) Less than 3.2 to 1.00 2.72 to 1.00
Debt Service Coverage
Ratio Greater than 1.10 to 1.00 1.89 to 1.00
Adjusted Capex (2) Less than $8,329,000 (3)(5) $ 6,753,000 (4)
Store Project Capex Less than $31,366,000 (3)(5) $ 16,471,000 (4)
(1) Excludes obligations under capitalized leases, interest expense and
depreciation expense attributable to capitalized leases and changes in the LIFO
reserve.
13
(2) Adjusted Capex is all capital expenditures other than New/Replacement Store
Project Capex.
(3) Represents limitations on capital expenditures for fiscal 2003.
(4) Represents capital expenditures for the 39 weeks ended August 2, 2003.
(5) Includes amounts available but not used in the prior fiscal year and
available to be carried forward to fiscal 2003: $2,589,000 for Adjusted
Capex and $8,191,000 for Store Project Capex.
No cash dividends have been paid on the Common Stock since 1979, and the Company
has no present intentions or ability to pay any dividends in the near future on
its Common Stock. The Credit Agreement does not permit the payment of any cash
dividends on our Common Stock.
Working Capital
At August 2, 2003, the Company had a working capital deficiency of $752,000
compared to deficiencies of $590,000 at November 2, 2002 and $3,060,000 at
August 3, 2002. Receivables and other current assets include receivables due
from the landlord for construction allowances for the Woodbridge, New Jersey
location. These receivables are currently in dispute resulting in litigation
with the landlord over the correct commencement date of the lease for the new
Woodbridge location. The Company denies the landlord's allegations, and the
amount and timing of collection of the construction allowances will depend upon
the outcome of the litigation. When collected, the proceeds from these
receivables will be used to reduce the Revolving Note which is classified as
long-term borrowings. This will result in a corresponding decrease in working
capital. See Part II - Other Information - Item 1. Legal Proceedings.
During fiscal year 2002, the Business Tax Reform Act was passed in the State of
New Jersey. This legislation is effective for tax years beginning on or after
January 1, 2002 (fiscal 2003). Corporate taxpayers are subject to an Alternative
Minimum Assessment ("AMA"), which is based upon either New Jersey gross receipts
or New Jersey gross profits, if the AMA exceeds the tax based on net income. The
Company has reflected in its current tax provision the effect of the AMA. The
AMA increased the Company's Federal and State current tax liability by $955,000.
Additionally, in March 2002 and May 2003 The Job Creation and Worker Assistance
Act of 2002 and The Jobs and Growth Tax Relief Reconciliation Act of 2003 ("Tax
Acts") were passed by the United States Congress. The current Federal tax
benefit for accelerated depreciation resulting from the Tax Acts will be
approximately $2,175,000 for fiscal 2003 and is reflected in the Company's
prepaid and refundable income taxes.
The Company normally requires small amounts of working capital since inventory
is generally sold at approximately the same time that payments to Wakefern and
other suppliers are due and most sales are for cash or cash equivalents.
Working capital ratios were as follows:
August 2, 2003 .99 to 1.0
November 2, 2002 .99 to 1.0
August 3, 2002 .95 to 1.0
14
Cash flows (in millions) were as follows:
Thirty Nine Weeks Ended
-----------------------------------
August 2, 2003 August 3, 2002
-------------- --------------
Operating activities... $ 14.0 $ 10.0
Investing activities... (21.4) ( 8.6)
Financing activities... 9.1 (.5)
----- ------
Totals $ 1.7 $ .9
======= =======
The Company had $8,300,000 of available credit, at August 2, 2003, under its
revolving credit facility. The Company has capital commitments (net of landlord
contributions) of $14,225,000 for equipment and $5,050,000 for leasehold
improvements related to four stores which are under construction. One of these
is a replacement store, two are new stores and one is an expansion and
remodeling of an existing store. All of these projects are in central New
Jersey, will be World Class stores and are expected to open in fiscal 2004. The
amounts available under the Credit Agreement will adequately meet our operating
needs, scheduled capital expenditures and debt service for fiscal 2003.
For the 39 weeks ended August 2, 2003, depreciation was $12,613,000 while
capital expenditures, excluding capitalized leases, totaled $23,224,000,
compared to $10,496,000 and $8,611,000, respectively, in the prior year period.
The increase in depreciation was the result of the purchase of equipment and
leasehold improvements for the three new locations opened in Woodbridge, Ewing
and North Brunswick, New Jersey in December 2002, January 2003 and May 2003,
respectively, as well as five additional capitalized real estate leases. The
increase in capital expenditures was due to the acquisition of equipment and
leasehold improvements for the locations opened in the first and third quarters
of fiscal 2003, the construction of and equipment for our new bakery commissary
and three of the stores under construction, as compared with only one new
location opened in the first quarter of fiscal 2002.
Results of Operations (13 weeks ended August 2, 2003 compared to 13
--------------------- weeks ended August 3, 2002)
Sales:
Same store sales from the twenty stores in operation in both periods increased
3.1%. This increase in comparable store sales was partially offset by the effect
of the soft economy, and decreased sales in certain of the Company's stores
affected by competitive store openings. Sales for the current period totaled
$271.3 million as compared to $241.5 million in the prior year period.
Sales for the current quarter included the operations of the new locations
opened in December 2002, January 2003 and May 2003 in Woodbridge, Ewing and
North Brunswick, New Jersey, respectfully. The location in Woodbridge replaced
an older, smaller store in the same shopping center and the location in North
Brunswick replaced an older, smaller store in Franklin Township.
15
Gross Profit:
Gross profit as a percent of sales was 25.8% of sales for both the current and
prior year periods. Patronage dividends, applied as a reduction of the cost of
merchandise sold, were $2.0 million in the current period compared to $1.7
million in the prior year period. Gross profit as a percentage of sales remained
unchanged. Gross profit improvement resulting from improved product mix and the
contribution of the new Woodbridge, Ewing and North Brunswick locations was
offset by the costs associated with programs implemented in certain of the
Company's stores to address competitive store openings.
Operating Expenses:
Selling, general and administrative expenses as a percent of sales were 24.2%
versus 24.1% in the prior year period. The increase in selling, general and
administrative expenses as a percent of sales was primarily due to increases in
certain expense categories as a percentage of sales. As a percentage of sales,
labor and related fringe benefits increased .43%, depreciation, including
depreciation on capitalized leases, increased .21%, pre-opening costs increased
..06% and miscellaneous expense increased .05%. These increases were partially
offset by decreases in occupancy expense of .34% and administration of .28%. The
increase in labor and related fringe benefits was the result of additional
personnel for the new Woodbridge, Ewing and North Brunswick stores, increased
sales in service intensive departments and contractual increases in fringe
benefits. Pre-opening costs were for the new North Brunswick, New Jersey store
opened on May 7, 2003. The decrease in occupancy was primarily the result of
several leases which were accounted for as operating leases being replaced by
capitalized leases and the decrease in certain fixed costs as a percentage of
sales. Fixed and semi-variable administrative expenses also declined as a
percentage of sales.
Interest Expense:
Interest expense increased to $3,415,000 from $2,051,000, while interest income
was $39,000 compared to $23,000 for the prior period. The increase in interest
expense for the current year period was due to an increase in average
outstanding debt, including increased capitalized lease obligations, and an
increase in the average interest rate paid on debt.
Income Taxes:
An income tax rate of 40% has been used in both the current and prior year
periods based on the expected effective tax rates.
Net Income:
-----------
Net income was $576,000 in the current year period compared to $1,203,000 in the
prior year period. Earnings before interest, taxes, depreciation and
amortization ("EBITDA") for the current period were $8,947,000 as compared to
$7,790,000 in the prior year period. Net income per common share on a diluted
basis was $.57 in the current period compared to $1.15 in the prior year period.
Per share calculations are based on 1,010,586 shares outstanding in the current
year period and 1,042,571 shares outstanding in the prior year period.
16
EBITDA is presented because management believes that EBITDA is a useful
supplement to net income and other measurements under accounting principles
generally accepted in the United States since it is a meaningful measure of a
company's performance and ability to meet its future debt service requirements,
fund capital expenditures and meet working capital requirements. EBITDA is not a
measure of financial performance under accounting principles generally accepted
in the United States and should not be considered as an alternative to (i) net
income (or any other measure of performance under generally accepted accounting
principles) as a measure of performance or (ii) cash flows from operating,
investing or financing activities as an indicator of cash flows or as a measure
of liquidity. The following table reconciles reported net income to EBITDA:
Thirteen Weeks Ended
August 2, 2003 August 3, 2002
--------------- ---------------
Net income $ 576,000 $ 1,203,000
Add:
Interest expense, net 3,376,000 2,028,000
Income tax provision 384,000 802,000
Depreciation 4,492,000 3,644,000
Amortization 119,000 113,000
----------- ----------
EBITDA $ 8,947,000 $ 7,790,000
=========== ===========
Results of Operations (39 weeks ended August 2, 2003 compared to 39 weeks
ended August 3, 2002)
Sales:
Same store sales from the nineteen stores in operation in both periods increased
..9%. This increase in comparable store sales was partially offset by a softening
in the economy, the effect of competitive store openings and the impact of
deflation in certain product categories. Sales for the current thirty nine week
period totaled $783.0 million as compared to $728.8 million in the prior year
period.
Sales for the current thirty nine week period included the operations of four
new locations opened in Middletown, New Jersey in November 2001, Woodbridge, New
Jersey in December 2002, Ewing, New Jersey in January 2003 and North Brunswick,
New Jersey in May 2003. The locations in Middletown and Woodbridge replaced
older, smaller stores in the same shopping centers and the location in North
Brunswick replaced an older, smaller store in Franklin Township, New Jersey.
17
Gross Profit:
Gross profit as a percent of sales increased to 25.7% of sales compared to 25.3%
in the prior year period. Patronage dividends, applied as a reduction of the
cost of merchandise sold, were $5.6 million in the current period compared to
$5.0 million in the prior year period. Gross profit as a percentage of sales
increased primarily as a result of improved product mix and the contribution of
the new locations. This increase was offset in part by the costs associated with
programs implemented in certain of the Company's stores to address competitive
store openings.
Operating Expenses:
Selling, general and administrative expenses as a percent of sales were 24.4%
versus 23.9% in the prior year period. The increase in selling, general and
administrative expenses as a percent of sales was primarily due to increases in
certain expense categories as a percentage of sales. As a percentage of sales,
labor and related fringe benefits increased .31%, depreciation, including
depreciation on capitalized leases, increased .17%, and pre-opening costs
increased .14%. These increases were partially offset by decreases in occupancy
expense of .11%. The increase in labor and related fringe benefits was the
result of additional personnel for the new Woodbridge, Ewing and North Brunswick
stores, increased sales in service intensive departments and contractual
increases in fringe benefits. Pre-opening costs were for the new Woodbridge,
Ewing and North Brunswick stores opened in December 2002, January 2003 and May
2003, respectively. The decrease in occupancy was primarily the result of
several leases which were accounted for as operating leases being replaced by
capitalized leases and the decrease in certain fixed costs as a percentage of
sales.
Interest Expense:
Interest expense increased to $8,746,000 from $6,038,000, while interest income
was $116,000 compared to $94,000 for the prior year period. The increase in
interest expense for the current year period was due to an increase in average
outstanding debt, including increased capitalized lease obligations, and an
increase in the average interest rate paid on debt.
Income Taxes:
An income tax rate of 40% has been used in both the current and prior year
periods based on the expected effective tax rates.
Net Income:
Net income was $1,053,000 in the current year period compared to $2,653,000 in
the prior year period. Earnings before interest, taxes, depreciation and
amortization ("EBITDA") for the current period were $23,303,000 as compared to
$21,196,000 in the prior year period. Net income per common share on a diluted
basis was $1.04 in the current period compared to $2.43 in the prior year
period. Per share calculations are based on 1,013,751 shares outstanding in the
current period and 1,092,395 shares outstanding in the prior year period.
18
EBITDA is presented because management believes that EBITDA is a useful
supplement to net income and other measurements under accounting principles
generally accepted in the United States since it is a meaningful measure of a
company's performance and ability to meet its future debt service requirements,
fund capital expenditures and meet working capital requirements. EBITDA is not a
measure of financial performance under accounting principles generally accepted
in the United States and should not be considered as an alternative to (i) net
income (or any other measure of performance under generally accepted accounting
principles) as a measure of performance or (ii) cash flows from operating,
investing or financing activities as an indicator of cash flows or as a measure
of liquidity. The following table reconciles reported net income to EBITDA:
Thirty Nine Weeks Ended
-----------------------
August 2, 2003 August 3, 2002
-------------- --------------
Net income $ 1,053,000 $ 2,653,000
Add:
Interest expense, net 8,630,000 5,944,000
Income tax provision 702,000 1,770,000
Depreciation 12,613,000 10,496,000
Amortization 305,000 333,000
---------- ----------
EBITDA $23,303,000 $21,196,000
=========== ===========
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Except for indebtedness under the Credit Agreement which is variable rate
financing, the balance of our indebtedness is fixed rate financing. We believe
that our exposure to market risk relating to interest rate risk is not material.
The Company believes that its business operations are not exposed to market risk
relating to foreign currency exchange risk, commodity price risk or equity price
risk.
Item 4. Controls and Procedures
As required by Rule 13a-15 under the Exchange Act, as of the end of the period
covered by this quarterly report, the Company carried out an evaluation of the
effectiveness of the design and operation of the Company's disclosure controls
and procedures. This evaluation was carried out under the supervision and with
the participation of the Company's management, including the Company's Chairman
and Chief Executive Officer along with the Company's Chief Financial Officer,
who concluded that the Company's disclosure controls and procedures are
effective. The Company's Vice President-Internal Audit and Principal Accounting
Officer also participated in this evaluation. During the Company's last fiscal
quarter, there has been no change in the Company's internal control over
financial reporting that has materially affected, or is reasonably likely to
materially affect, the Company's internal control over financial reporting.
19
Disclosure controls and procedures are controls and other procedures that are
designed to ensure that information required to be disclosed in Company reports
filed or submitted under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the Securities and Exchange
Commission's rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information
required to be disclosed in Company reports filed under the Exchange Act is
accumulated and communicated to management, including the Company's Chief
Executive Officer and Chief Financial Officer as appropriate, to allow timely
decisions regarding required disclosure.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
The Company previously reported that Levin Properties, L.P. (the "Plaintiff")
initiated litigation against the Company in the Superior Court of New Jersey. In
its complaint, the Plaintiff alleges that it entered into a lease with the
Company providing for the construction of a supermarket on property owned by the
Plaintiff located in Hamilton, New Jersey, and that the Company failed to comply
with its contractual obligations under the lease by refusing to negotiate open
lease terms. In addition, the Plaintiff alleges that the Company breached its
implied covenant of good faith and fair dealing by refusing to provide
construction specifications, failing to proceed with the construction of the
building and by contemplating the operation of a supermarket in competition with
the Plaintiff. The Company has filed an answer denying the Plaintiff's
allegations and asserted counterclaims.
The Company has engaged in settlement discussions with the Plaintiff regarding
the litigation described above and a separate litigation with the Plaintiff
wherein the correct commencement date for the payment of occupancy expense under
the Company's lease with the Plaintiff for the Company's new Woodbridge, New
Jersey location is disputed. The proposed settlement contemplates, among other
things, (a) an amendment to the lease for the Company's Woodbridge store which
increases the future minimum rent payments by approximately $550,000 over the
term of the lease, with the effective date for the commencement of the amended
lease payments expected to be October 1, 2003;(b) the payment by the Plaintiff
to the Company of construction allowances for the Woodbridge, New Jersey
location of approximately $1,755,000; and (c) the execution and delivery of a
lease between the Plaintiff and the Company for a new store location on property
owned by the Plaintiff in Hamilton, New Jersey. The Company believes that the
proposed settlement will be consummated; however, there can be no assurance in
this regard inasmuch as definitive settlement agreements have not yet been
executed and delivered.
20
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 10.1 - Amendment No.3 to the Amended and Restated
Revolving Credit and Term Loan Agreement
Exhibit 10.2 - Amendment Nos.2 and 1 to the Foodarama
Supermarkets Inc. 2001 Stock Incentive Plan
Exhibit 31.1 - Section 302 Certification of Chief Executive
Officer
Exhibit 31.2 - Section 302 Certification of Chief Financial
Officer
Exhibit 32.1 - Certification of Chief Executive Officer pursuant
to 18 U.S.C. Section 1350
Exhibit 32.2 - Certification of Chief Financial Officer pursuant
to 18 U.S.C. Section 1350
(b) Reports on Form 8-K.
June 16, 2003 - A report dated June 16, 2003, which included,
under Items 7 and 9, the Company's press release dated June 16,
2003 announcing its consolidated financial results for its second
quarter ended May 3, 2003.
July 23, 2003 - Pursuant to Item 5 of Form 8-K the Company
reported that the Superior Court of New Jersey, Middlesex County
approved the settlement of a pending shareholder derivative
action. Additionally, the Company reported that the plaintiffs
application for an award of legal fees of $975,000 was being
vigorously contested and that the Company's directors and officers
liability insurance carrier had reserved its rights with respect
to claims made for the plaintiffs' attorneys' fees and costs of
defense.
21
SIGNATURES
Pursuant to the requirements 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.
FOODARAMA SUPERMARKETS, INC.
(Registrant)
Date: September 16, 2003 /S/ MICHAEL SHAPIRO
---------------------------
(Signature)
Michael Shapiro
Senior Vice President
Chief Financial Officer
Date: September 16, 2003 /S/ THOMAS H. FLYNN
---------------------------
(Signature)
Thomas H. Flynn
Director of Accounting
Principal Accounting Officer
22
EXHIBIT 10.1
AMENDMENT NO. 3
TO
THIRD AMENDED AND RESTATED CREDIT AND TERM LOAN AGREEMENT
THIS AMENDMENT NO. 3 (this "Amendment") is entered into as of July 16,
2003 by and among NEW LINDEN PRICE RITE, INC., a New Jersey corporation ("New
Linden"), FOODARAMA SUPERMARKETS, INC., a New Jersey corporation ("Parent" and,
together with New Linden, each a "Borrower" and collectively, the "Borrowers"),
the Guarantors signatory hereto, the lenders set forth on the signature pages
hereto (such lenders with their respective permitted successors and assigns,
each a "Lender" and collectively, the "Lenders") and GMAC COMMERCIAL FINANCE LLC
(successor by merger to GMAC Business Credit, LLC) as agent for Lenders (in such
capacity together with any successor thereto in such capacity, the "Agent").
BACKGROUND
Borrowers, Guarantors, Agent and Lenders are parties to a Third Amended
and Restated Revolving Credit and Term Loan Agreement dated as of September 26,
2002 (as amended, restated, supplemented or otherwise modified from time to
time, the "Loan Agreement") pursuant to which Agent and Lenders provide
Borrowers with certain financial accommodations.
Borrowers have requested that Agent and Lenders make certain amendments to
the Loan Agreement, and Agent and Lenders are willing to do so on the terms and
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of any loan or advance or grant of credit
heretofore or hereafter made to or for the account of Borrowers by Agent and
Lenders, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
1. Definitions. All capitalized terms not otherwise defined herein shall
have the meanings given to them in the Loan Agreement.
2. Amendment to Loan Agreement. Subject to satisfaction of the conditions
precedent set forth in Section 3 below, the Loan Agreement is hereby amended as
follows:
(a) Section I is amended by adding the following defined terms in
their appropriate alphabetical order to provide as follows:
"Amendment No. 3" shall mean Amendment No. 3 to this Agreement
dated as of July 16, 2003 by and among the Borrowers,
23
guarantors, Agent and Lenders. Amendment No. 3 Effective Date"
shall mean July 16, 2003.
"Amendment No. 3 Fee" shall mean a $100,000 fee payable in
immediately available funds by Borrowers to Agent, for the
ratable benefit of Lenders, as consideration for entering into
Amendment No. 3, which shall be deemed earned in full by Agent
and Lenders on the Amendment No. 3 Effective Date.
"In-Transit Cash Borrowing Base Inclusion" shall mean an
amount equal to (a) on each Tuesday and Wednesday during the
period beginning on July 1, 2003 and ending on December 31,
2003, the lesser of (i) $3,000,000 and (ii) Cash on Hand of
Borrowers and (b) at all other times, $0.
(b) Section 2.01(a) of the Loan Agreement is amended in its entirety
to provide as follows:
"(a)Revolving Commitment. Subject to the terms and conditions
and relying upon the representations and warranties herein set
forth, each Lender, severally and not jointly, agrees to make Loans
to the Borrowers, at any time and from time to time from the date
hereof to the Termination Date in an aggregate principal amount at
any time outstanding not to exceed the amount of such Lender's
Revolving Commitment set forth opposite its name in Schedule 2.01(a)
annexed hereto, as such Revolving Commitment may be reduced from
time to time in accordance with the provisions of this Agreement.
Notwithstanding the foregoing, the aggregate principal amount of
Revolving Loans outstanding at any time to the Borrowers shall not
exceed (1) the lesser of (A) the Total Revolving Commitment (as such
amount may be reduced pursuant to Section 2.07 hereof) and (B) an
amount equal to sixty-five percent (65%) of the Net Amount of
Eligible Inventory plus the In-Transit Cash Borrowing Base Inclusion
(this clause (1)(B) referred to herein as the "Borrowing Base"),
minus (2) the Letter of Credit Usage at such time (which Letter of
Credit Usage shall not exceed $4,500,000 at any time), and minus (3)
reserves established pursuant to Section 2.01(a)(iii) below at such
time. The Borrowing Base will be computed weekly and a compliance
certificate from a Responsible Officer of the Borrowers presenting
its computation will be delivered to the Agent in accordance with
Section 6.05 hereof. If the Borrowers fail to deliver such
certificate, the Borrowing Base shall be deemed to be $0 or shall be
fixed by the Agent in its sole discretion."
(c) Section 2.02(c) of the Loan Agreement is amended in its entirety
to provide as follows:
"(c)Each Loan shall be either a Base Rate Loan or a Eurodollar
Loan as the Borrowers may request pursuant to Section 2.03 hereof.
Each Lender may fulfill its obligations under this Agreement by
causing its Applicable Lending Office to make such Loan; provided,
however, that the exercise of such option shall not affect the
obligation of the Borrower to repay such Loan in accordance with the
term of the Notes. Not more than five (5) Eurodollar Loans may be
outstanding at any one time."
(d) Schedule 4.06(a) to the Loan Agreement is amended in its
entirety and replaced with Schedule 4.06(a) hereto.
24
3. Conditions of Effectiveness. This Amendment shall become effective upon
the receipt by Agent and Lenders of (a) five (5) originals of this Amendment,
duly executed by each Borrower and consented to by each Guarantor, (b) the
Amendment No. 3 Fee, which may be charged to Borrowers' account and (c) such
other certificates, instruments, documents, agreements and opinions of counsel
as may be required by Agent or its counsel, each of which shall be in form and
substance satisfactory to Agent and its counsel.
4. Representations and Warranties. Each Borrower and Guarantor hereby
represents and warrants as follows:
(a) This Amendment and the Loan Agreement, as amended hereby,
constitute the legal, valid and binding obligations of Borrowers and Guarantors
and are enforceable against Borrowers and Guarantors in accordance with their
respective terms.
(b) Upon the effectiveness of this Amendment, each Borrower and
Guarantor hereby reaffirms all covenants, representations and warranties made in
the Loan Agreement to the extent the same are not amended hereby and agrees that
all such covenants, representations and warranties shall be deemed to have been
remade as of the effective date of this Amendment.
(c) After giving effect to this Amendment, no Event of Default or
Default has occurred (other than the Designated Defaults, as defined in Consent,
Waiver and Amendment No. 2 to Loan Agreement dated January 21, 2003 among Agent,
Lenders, Borrowers and Guarantors) and is continuing or would exist.
(d) No Borrower or Guarantor has any defense, counterclaim or offset
with respect to the Loan Agreement.
5. Effect on the Loan Agreement.
(a) Upon the effectiveness of Section 2 hereof, each reference in
the Loan Agreement to "this Agreement," "hereunder," "hereof," "herein" or words
of like import shall mean and be a reference to the Loan Agreement as amended
hereby.
(b) Except as specifically amended herein, the Loan Agreement, and
all other documents, instruments and agreements executed and/or delivered in
connection therewith, shall remain in full force and effect, and are hereby
ratified and confirmed.
(c) The execution, delivery and effectiveness of this Amendment
shall not operate as a waiver of any right, power or remedy of Agent or Lenders,
nor constitute a waiver of any provision of the Loan Agreement, or any other
documents, instruments or agreements executed and/or delivered under or in
connection therewith.
6. Governing Law. This Amendment shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns and
shall be governed by and construed in accordance with the laws of the State of
New York.
7. Headings. Section headings in this Amendment are included herein for
convenience of reference only and shall not constitute a part of this Amendment
for any other purpose.
25
8. Counterparts; Facsimile. This Amendment may be executed by the parties
hereto in one or more counterparts, each of which shall be deemed an original
and all of which when taken together shall constitute one and the same
agreement. Any signature delivered by a party by facsimile transmission shall be
deemed to be an original signature hereto.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
26
IN WITNESS WHEREOF, this Amendment has been duly executed as of the day
and year first written above.
NEW LINDEN PRICE RITE, INC.,
as Borrower and as Guarantor
By:
Name:
Title:
FOODARAMA SUPERMARKETS, INC.,
as Borrower and as Guarantor
By:
Name:
Title:
GMAC COMMERCIAL FINANCE LLC
(successor by merger to GMAC Business Credit, LLC), as
Agent
By:
Name:
Title:
GMAC COMMERCIAL FINANCE LLC
(successor by merger to GMAC Business Credit, LLC), as
Lender
By:
Name:
Title:
[SIGNATURES CONTINUED ON THE FOLLOWING PAGE]
27
[CONTINUED SIGNATURES TO AMENDMENT NO. 3]
THE BANK OF NEW YORK,
as Lender
By:
Name:
Title:
CITIZENS BUSINESS CREDIT COMPANY,
as Lender
By:
Name:
Title:
NATIONAL CONSUMER COOPERATIVE BANK (d/b/a National
Cooperative Bank), as Lender
By:
Name:
Title:
CONSENTED AND AGREED TO:
SHOP RITE OF READING, INC.,
as Guarantor
By:
Name:
Title:
SHOP RITE OF MALVERNE, INC.,
as Guarantor
By:
Name:
Title:
28
Schedule 4.06(a)
Litigation
Schedule omitted and will be furnished to the Securities and Exchange Commission
upon request.
29
EXHIBIT 10.2
Second Amendment to
Foodarama Supermarkets, Inc.
2001 STOCK INCENTIVE PLAN
This Second Amendment ("Amendment") to the Foodarama Supermarkets,
Inc. 2001 Stock Incentive Plan (as amended, the "Plan"), is made as of the 29th
day of August, 2003, pursuant to Section 8(a) of the Plan. Capitalized terms
used and not defined herein shall have the meanings ascribed to such terms by
the Plan.
WHEREAS, Section 8(a) of the Plan provides that the Board may amend
the Plan, provided that no amendment shall be made without the approval of the
Company's shareholders to the extent such approval is required by law, Agreement
or the rules of any stock exchange or market on which the Stock is listed; and
WHEREAS, on April 30, 2003, the Board of Directors approved the terms of
a settlement of certain litigation involving the Company, its directors and
executive officers, which terms provided, among other things, that the Plan be
amended so that the maximum number of shares that can be awarded to any
individual thereunder shall be 50,000, and that the exercise price of any
options or other stock-based compensation granted thereunder shall be equal to
the closing market price of the Company's Stock on the date of grant; and
WHEREAS, no further approval of the Company's shareholders for the
proposed amendments is required by law, Agreement or the rules of any stock
exchange or market on which the Stock is listed;
NOW, THEREFORE, the Plan is hereby amended as follows:
1. Subparagraph (c) of the third paragraph of Section 2, "ADMINISTRATION;
ELIGIBILITY," is hereby deleted in its entirety, and replaced with the
following:
(c) to determine the number of shares of Stock to be covered by each
Award granted hereunder, not inconsistent with the terms of this
Plan;
2. Subparagraph (e) of the third paragraph of Section 2, "ADMINISTRATION;
ELIGIBILITY," is hereby deleted in its entirety, and replaced with the
following:
(e) to determine the terms and conditions, not inconsistent with the
terms of this Plan, of any Award granted hereunder (including, but
not limited to, the option price, any vesting restriction or
limitation, any vesting acceleration or forfeiture waiver and any
right of repurchase, right of first refusal or other transfer
restriction regarding any Award and the shares of Stock relating
thereto, based on such factors or criteria as the Administrator
shall
30
determine); provided, however, that
(i) for Awards subject to payment of an exercise price, the exercise
price for any Award granted shall not be less than the Fair Market
Value on the grant date, and (ii) for Awards granted in
consideration of cash, cash equivalents, or past or future services,
the value of the consideration, as determined by the Board, shall
not be less than the Fair Market Value on the grant date;
3. Subparagraph (h) of the third paragraph of Section 2, "ADMINISTRATION;
ELIGIBILITY," is hereby deleted in its entirety, and replaced with the
following:
(h) to determine the Fair Market Value, not inconsistent with the terms of
this Plan;
4. The third paragraph of Section 3, "STOCK SUBJECT TO PLAN," is hereby deleted
in its entirety, and replaced with the following:
Subject to adjustment as provided in this Section 3, the maximum number of
shares of Stock that may be covered by Stock Options, Stock Appreciation
Rights, Stock Awards, Phantom Stock and Performance Awards in the
aggregate, granted to any one Participant for the life of the Plan shall
be fifty thousand (50,000) shares.
5. Subsection (a) of the fifth paragraph of Section 4, "STOCK OPTIONS," is
hereby deleted in its entirety, and replaced with the following:
(a) Exercise Price. The exercise price per share of Stock purchasable
under a Stock Option shall be determined by the Administrator, not
inconsistent with the terms of this Plan. The Stock Option exercise
price per share shall not be less than the Fair Market Value per
share on the date the Stock Option is granted, or if the Stock
Option is intended to qualify as an Incentive Stock Option granted
to an individual who is a Ten Percent Holder, not less than 110% of
such Fair Market Value per share.
6. The third paragraph of Section 6, "STOCK AWARDS OTHER THAN OPTIONS," is
hereby deleted in its entirety, and replaced with the following:
A Stock Award may be issued in exchange for any consideration which the
Administrator may deem appropriate in each individual instance, including,
without limitation, any one or combination of the following:
(i) cash or cash equivalents;
(ii) past services rendered to the Company or any Subsidiary or
Affiliate; or
(iii) future services to be rendered to the Company or any
Subsidiary or Affiliate (provided that, in such case, the par
value of the stock subject to such Stock Award shall be paid
in cash or cash equivalents, unless the Administrator provides
otherwise);
31
provided further, that the value of such consideration, as determined by
the Administrator, shall not be less than the Fair Market Value of the
Award on the grant date.
7. Subsection (d) of Section 8, "MISCELLANEOUS," is hereby deleted in its
entirety, and replaced with the following:
(d) Declining Market Price. In the event the Fair Market Value of the
Stock declines below the exercise price set forth in any Option, the
Committee may at any time, subject to the approval of the Board and
not inconsistent with the terms of this Plan, adjust, reduce, cancel
and re-grant any unexercised Option or take any similar action it
deems to be for the benefit of the Participant in light of the
declining fair market value of the Stock,.
8. Subparagraph (o) of Section 10, "DEFINITIONS," is hereby deleted in its
entirety, and replaced with the following:
(o) "Fair Market Value" means, as of any given date, the closing sales
price per share of the Stock on the American Stock Exchange (or the
principal stock exchange or market on which the Stock is then
traded) on the date as of which such value is being determined or
the last previous day on which a sale was reported; provided,
however, that if the Stock is not traded on a stock exchange or
market, then the Fair Market Value shall mean, as of any given date,
the price per share of the Stock determined by the Administrator
pursuant to procedures established by the Administrator.
9. Except as amended hereby, all of the terms of the Plan shall remain in full
force and effect.
IN WITNESS WHEREOF, this Second Amendment to Foodarama Supermarkets,
Inc. 2001 Stock Incentive Plan is executed as of the date first written above.
FOODARAMA SUPERMARKETS, INC.
/s/ Joseph J. Saker
---------------------------------
By Joseph J. Saker, Chairman of the
Board of Directors
32
First Amendment to
Foodarama Supermarkets, Inc.
2001 STOCK INCENTIVE PLAN
This First Amendment ("Amendment") to the Foodarama Supermarkets,
Inc. 2001 Stock Incentive Plan (as amended, the "Plan"), is made as of the 8th
day of May, 2002, pursuant to Section 8(a) of the Plan. Capitalized terms used
and not defined herein shall have the meanings ascribed to such terms by the
Plan.
WHEREAS, Section 8(a) of the Plan provides that the Board may amend
the Plan, provided that no amendment shall be made without the approval of the
Company's shareholders to the extent such approval is required by law, Agreement
or the rules of any stock exchange or market on which the Stock is listed; and
WHEREAS, on January 29, 2002, the Board of Directors voted that the Plan
be amended to increase the number of shares of Common Stock reserved for
issuance thereunder from 150,000 shares to 215,000 shares, an increase of 65,000
shares, subject to the approval of such amendment by the Company's shareholders;
and
WHEREAS, on May 8, 2002, the amendment proposed by the Board of
Directors was approved by a majority of the shares voting in person or by proxy
at the Company's Annual Meeting of Shareholders;
NOW, THEREFORE, the Plan is hereby amended as follows:
1. The first paragraph of Section 3, "STOCK SUBJECT TO PLAN," is hereby deleted
in its entirety, and replaced with the following:
Subject to adjustment as provided in this Section 3, the aggregate number
of shares of Stock which may be delivered under this Plan shall not exceed
two hundred fifteen thousand (215,000) shares of Stock. Stock issuable
pursuant to the Plan may be authorized and unissued shares of Stock or
shares of Stock held in treasury by the Company.
2. The third paragraph of Section 3, "STOCK SUBJECT TO PLAN," is hereby deleted
in its entirety, and replaced with the following:
Subject to adjustment as provided in this Section 3, the maximum number of
shares of Stock that may be covered by Stock Options, Stock Appreciation
Rights, Stock Awards, Phantom Stock and Performance Awards in the
aggregate, granted to any one Participant for the life of the Plan shall
be equal to one-third (1/3) of the shares reserved for delivery under the
Plan (71,667 shares as of the date of the adoption of the First Amendment
to the plan), or as otherwise determined by the Board.
3. Except as amended hereby, all of the terms of the Plan shall remain in full
force and effect.
33
IN WITNESS WHEREOF, this First Amendment to Foodarama Supermarkets,
Inc. 2001 Stock Incentive Plan is executed as of the date first written above.
FOODARAMA SUPERMARKETS, INC.
/s/ Joseph J. Saker
---------------------------------
By Joseph J. Saker, Chairman of the
Board of Directors
34
CERTIFICATION EXHIBIT 31.1
I, Joseph J. Saker, certify that:
1. I have reviewed this report on Form 10-Q of Foodarama Supermarkets, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our supervision,
to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting;
and
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control over
financial reporting.
Date: September 16, 2003 /S/ JOSEPH J. SAKER
-----------------------------
(Signature)
Joseph J. Saker
Chief Executive Officer
35
CERTIFICATION EXHIBIT 31.2
I, Michael Shapiro, certify that:
1. I have reviewed this report on Form 10-Q of Foodarama Supermarkets, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our supervision,
to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting;
and
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control over
financial reporting.
Date: September 16, 2003 /S/ MICHAEL SHAPIRO
-----------------------------
(Signature)
Michael Shapiro
Chief Financial Officer
36
EXHIBIT 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Foodarama Supermarkets, Inc.
(the "Company") on Form 10-Q for the period ended August 2, 2003 (the "Report"),
I, Joseph J. Saker, Chief Executive Officer of the Company, do hereby certify,
pursuant to 18 U.S.C.ss. 1350, as adopted pursuant to ss. 906 of the
Sarbanes-Oxley Act of 2002, that to my knowledge:
(1) the Report fully complies with the requirements of section 13(a) or 15(d) of
the Securities Exchange Act of 1934, 15 U.S.C. ss. 78m(a) or 78o(d), and,
(2) the information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
Dated: September 16, 2003 /S/ JOSEPH J. SAKER
------------------------------
(Signature)
Joseph J. Saker
Chief Executive Officer
37
EXHIBIT 32.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Foodarama Supermarkets, Inc.
(the "Company") on Form 10-Q for the period ended August 2, 2003 (the "Report"),
I, Michael Shapiro, Chief Financial Officer of the Company, do hereby certify,
pursuant to 18 U.S.C.ss. 1350, as adopted pursuant to ss. 906 of the
Sarbanes-Oxley Act of 2002, that to my knowledge:
(1) the Report fully complies with the requirements of section 13(a) or 15(d)
of the Securities Exchange Act of 1934, 15 U.S.C. ss. 78m(a) or 78o(d),
and,
(2) the information contained in the periodic report fairly presents, in all
material respects, the financial condition and results of operations of
the Company.
Dated: September 16, 2003 /S/ MICHAEL SHAPIRO
-----------------------------
(Signature)
Michael Shapiro
Chief Financial Officer
38