SEURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the fiscal year ended Commission file number
November 3, 2001 1-5745
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FOODARAMA SUPERMARKETS, INC.
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(Exact name of Registrant as specified in its charter)
New Jersey 21-0717108
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Building 6, Suite 1, 922 Hwy. 33, Freehold, New Jersey 07728
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(Address of principal executive offices)
Registrant's telephone number, including area code: (732) 462-4700
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
Common Stock American Stock Exchange
Par Value $1.00 per share
Securities registered pursuant to Section 12(g) of the Act:
NONE
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days.
Yes x No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of voting stock held by non-affiliates of the
Registrant was approximately $16,953,000. Computation is based on the closing
sales price of $40.75 per share of such stock on the American Stock Exchange on
January 18, 2002.
As of January 18, 2002, the number of shares outstanding of Registrant's
Common Stock was 1,077,910.
DOCUMENTS INCORPORATED BY REFERENCE
Information contained in the 2002 definitive Proxy Statement to be filed
with the Commission and to be delivered to security holders in connection with
the Annual Meeting is incorporated by reference into this Form 10-K at Part III.
PART I
Disclosure Concerning Forward-Looking Statements
All statements, other than statements of historical fact, included in this Form
10-K, including without limitation the statements under "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Business",
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-K. 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-K 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.
Item 1. Business
General
Foodarama Supermarkets, Inc., a New Jersey corporation formed in 1958, operates
a chain of twenty-two supermarkets located in Central New Jersey, as well as two
liquor stores and two garden centers, all licensed as ShopRite. We also operate
a central food processing facility to supply our stores with meat, various
prepared salads, prepared foods and other items, and a central baking facility
which supplies our stores with bakery products. The Company is a member of
Wakefern , the largest retailer owned food cooperative warehouse in the United
States and owner of the ShopRite name. The Company operates in one industry
segment, the retail sale of food and non-food products, primarily in the Central
New Jersey region.
The Company has incorporated the concept of "World Class" supermarkets into its
operations. "World Class" supermarkets are significantly larger than
conventional supermarkets and feature fresh fish-on-ice, prime meat service
butcher departments, in-store bakeries, international foods including Chinese,
sushi and kosher sections, meals to go, salad bars, snack bars, bulk foods and
pharmacies. We have also introduced many of these features into our
conventionally sized supermarkets through extensive renovations; these stores
are considered "Mini-World Class" supermarkets. Currently, eighteen of our
stores are "World Class", two are "Mini-World Class" and two are conventional
supermarkets.
2
The following table sets forth certain data relating to the Company's business
for the periods indicated:
Fiscal Year
Ended
November 3, October 28, October 30, October 31, November 1,
2001** 2000 1999 1998 1997
Average annual sales per store
(in millions)* .................... $43.0 $40.5 $37.1 $35.3 $31.5
Same store sales increase
from prior year ................... 3.77% 4.24% 6.28% 4.45% 1.33%
Total store area in square feet
(in thousands) .................... 1,301 1,294 1,195 1,195 1,080
Total store selling area in square
feet (in thousands) ............... 973 966 895 895 808
Average total square feet per store
(in thousands) .................... 59 59 57 57 54
Average square feet of selling area
per store (in thousands) .......... 44 44 43 43 40
Annual sales per square foot of
selling area* ..................... $973 $923 $870 $832 $780
Number of stores:
Stores remodeled (over $500,000) 2 2 1 1 0
New stores opened ............... 0 1 0 1 0
Stores replaced/expanded ........ 1 1 0 2 0
Stores closed/divested .......... 0 1 0 1 0
Number of stores by size
(total store area):
30,000 to 39,999 sq.ft .......... 3 3 4 4 4
40,000 to 49,999 sq.ft .......... 3 3 3 3 4
Greater than 50,000 sq.ft ....... 16 16 14 14 12
Total stores open at period end ... 22 22 21 21 2
* Sales for stores open less than 52 weeks have been annualized.
** Calculated on a 53 week basis. A like 52 week comparison would be $42.1
million in average annual sales per store and $953 in annual sales per
square foot of selling area.
3
Store Expansion and Remodeling
We believe that significant capital investment is critical to our operating
strategy and we are continuing our program to upgrade our existing stores,
replace outdated locations and open new "World Class" supermarkets within our
core market area of Central New Jersey.
In fiscal year 2001, three major remodelings were completed in Freehold,
Marlboro and Lakewood, New Jersey. The location in Lakewood, New Jersey was also
expanded. Additionally, after fiscal year end, a replacement store in
Middletown, New Jersey was opened on November 14, 2001. Over the next three
years the Company plans to open three replacement and three new stores and
expand two existing locations. Construction has started on two replacement
stores. All of these stores are in Central New Jersey and will be World Class
operations.
Technology
Automation and computerization are important to the Company's operations and
competitive position. All stores utilize IBM 4690 software for the scanning
checkout systems. The hardware for the point of sale ("POS") systems was
replaced in our stores in fiscal 1999 and 2000. This POS upgrade brought all of
our stores to a state of the art level with increased processing speed and
enhanced marketing capabilities. These systems improve pricing accuracy, enhance
productivity and reduce checkout time for customers. Automated checkout systems
were installed for the first time in any of our stores in the Middletown New
Jersey location which opened November 14, 2001. This system will provide
improved customer service, especially during peak volume periods, and labor
scheduling benefits to the Company. Additionally, all stores have IBM RS/6000
processors, which were replaced with the current version of this equipment in
1999, and satellite communications. The use of these systems allows the Company
to offer its customers debit and credit card payment options as well as
participation in Price Plus, ShopRite's preferred customer program, and the
ShopRite co-branded credit card. By presenting the scannable Price Plus card or
the ShopRite co-branded card, customers can be given electronic discounts,
receive credit for the value of ShopRite in-ad Clip Less coupons and cash
personal checks. Also, customers receive a 1% future rebate when paying with the
ShopRite credit card. Additionally, Wakefern is presently testing an on-line
shopping and pick up service.
We are also using other in store computer systems. Computer generated ordering
is installed in all stores. This system is designed to reduce inventory levels
and out of stock positions, enhance shelf space utilization and reduce labor
costs. In all stores, meat, seafood and delicatessen prices are maintained on
department computers for automatic weighing and pricing. Additionally, all
stores have computerized time and attendance systems which are used for, among
other things, automated labor scheduling, and most stores have computerized
energy management systems. We also utilize a direct store delivery receiving and
pricing system for most items not purchased through Wakefern in order to provide
cost and retail price control over these products, and computerized pharmacy
systems which provide customer profiles, retail price control and third-party
billing. A frame relay communications network is being used for high speed
4
transmission and collection of data. This system replaced slower telephone
lines. The increased speed improves our ability to access, review for accuracy
and analyze data. The Company has also installed computer based training systems
in all stores. The system is presently being used to train all new checkout
personnel. A module for the produce department is currently being tested and
will be used in the future to train new employees in that department.
In addition, all field merchandisers and operations supervisors are
equipped with laptop personal computers. This provides field personnel with
current labor and product information to facilitate making accurate and timely
decisions. Communication among the Company's stores, our executive offices and
Wakefern has been improved with the installation of Lotus Notes (R).
Industry Segment and Principal Products
The Company is engaged in one industry segment. For the last three fiscal years,
our sales were divided among the categories listed below:
Fiscal Year Ended
Product Categories 11/03/01 10/28/00 10/30/99
Groceries 39.1% 39.3% 39.9%
Dairy & Frozen 16.5 16.5 16.7
Meats, Seafood & Poultry 10.2 10.5 10.4
Non-Foods 10.3 10.4 10.6
Produce 8.8 8.6 8.3
Appetizers & Prepared Foods 6.4 6.4 6.2
Pharmacy 4.9 4.5 4.2
Bakery 2.0 2.0 1.9
Liquor, Floral & Garden Centers 1.8 1.8 1.8
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100.0% 100.0% 100.0%
Gross profit derived by the Company from each product category is not
necessarily consistent with the percentage of total sales represented by such
product category.
Wakefern Food Corporation
The Company owns a 12.3% interest in Wakefern, a New Jersey corporation
organized in 1946, which provides purchasing, warehousing and distribution
services on a cooperative basis to its shareholder members, including the
Company, who are operators of ShopRite or alternate format supermarkets. As
required by the Wakefern By-Laws, repayment of the Company's obligations to
Wakefern is personally guaranteed by Joseph J. Saker and Richard J. Saker. These
personal guarantees are required of any 5% shareholder of the Company who is
active in the operation of the Company. Wakefern and its 41 shareholder members
operate approximately 204 supermarkets of which Wakefern owns and operates 22
locations. Products bearing the ShopRite label accounted for approximately 18%
of total sales for the fiscal year ended November 3, 2001. Wakefern maintains
warehouses in Elizabeth, South Brunswick and Woodbridge, New Jersey which handle
5
a full line of groceries, meats, frozen foods, produce, bakery, dairy and
delicatessen products and health and beauty aids, as well as a number of
non-food items. Wakefern also operates a grocery and perishable products
warehouse in Wallkill, New York.
Wakefern's professional advertising staff and its advertising agency develop and
place most of the Company's advertising on television, radio and in major
newspapers. We are charged for these services based on various formulas which
account for the estimated proportional benefits we receive. In addition,
Wakefern charges us for, and provides the Company with, product and support
services in numerous administrative functions. These include insurance,
supplies, technical support for communications and electronic payment systems,
equipment purchasing and the coordination of coupon processing. Additionally, we
sublease two supermarkets from Wakefern. See Item 2. Properties.
Wakefern distributes, as a patronage dividend to each of its members, a share of
its net earnings in proportion to the dollar volume of business transacted by
each member with Wakefern during each fiscal year. See Note 4 of Notes to
Consolidated Financial Statements.
Although Wakefern has a significant in house professional staff, it operates as
a member cooperative and senior executives of the Company spend a substantial
amount of their time working on Wakefern committees overseeing and directing
Wakefern purchasing, merchandising and various other programs.
Wakefern licenses the ShopRite name to its shareholder members and provides a
substantial and extensive merchandising program for the ShopRite label. Except
for the license to use the name "ShopRite", we do not believe that the ownership
of or rights in patents, trademarks, licenses, franchises and concessions is
material to our business. The locations at which we may open new supermarkets
under the name ShopRite are subject to the approval of Wakefern's Site
Development Committee. Under circumstances specified in its By-Laws, Wakefern
may refuse to sell merchandise to, and may repurchase the Wakefern stock of, any
shareholder member. Such circumstances include certain unapproved transfers by a
shareholder member of its supermarket business or its capital stock in Wakefern,
unapproved acquisition by a shareholder member of certain supermarket or grocery
wholesale supply businesses, the conduct of a business in a manner contrary to
the policies of Wakefern, the material breach of any provision of Wakefern
By-Laws or any agreement with Wakefern or a determination by Wakefern that the
continued supplying of merchandise or services to such shareholder member would
adversely affect Wakefern.
Wakefern requires each shareholder to invest in Wakefern's capital stock to a
maximum of $550,000 for each store operated by such shareholder member. The
precise amount of the investment is computed according to a formula based on the
volume of each store's purchases from Wakefern.
Under its By-Laws, all bills for merchandise and other indebtedness are due and
payable to Wakefern weekly and, if these bills are not paid in full, an
additional 1% service charge is due on the unpaid portion. Wakefern requires its
shareholder members to pledge their Wakefern stock as collateral for payment of
their obligations to Wakefern. The Company's investment in Wakefern was
6
$11,805,000 as of November 3, 2001 and October 28, 2000. We also have an
investment in another company affiliated with Wakefern which was $953,000 as of
November 3, 2001 and October 28, 2000. See Note 4 of Notes to Consolidated
Financial Statements.
Since September 18, 1987, the Company has had an agreement, amended in 1992,
with Wakefern and all other shareholders of Wakefern, which provides for certain
commitments by, and restrictions on, all shareholders of Wakefern. Under the
agreement, each shareholder, including the Company, agreed to purchase at least
85% of its merchandise in certain defined product categories from Wakefern. The
Company fulfilled this obligation during the 53 week period ended November 3,
2001. If any shareholder fails to meet these purchase requirements, it must make
payments to Wakefern (the "Compensatory Payments") based on a formula designed
to compensate Wakefern for the profit lost by it by virtue of its lost warehouse
volume. Similar payments are due if Wakefern loses volume by reason of the sale
of one or more of a shareholder's stores, any shareholder's merger with another
entity or the transfer of a controlling interest in the shareholder. Subject to
a right of first refusal granted to Wakefern, sales of certain under facilitated
stores are permitted free of the restrictions of the agreement. Also, the
restrictions of the agreement do not apply if volume lost by a shareholder by
the sale of a store is made up by such shareholder by increased volume of new or
existing stores and, in any event, the Compensatory Payments otherwise required
to be made by the shareholder to Wakefern are not required if the sale is made
to Wakefern, another shareholder of Wakefern or to a purchaser which is neither
an owner or operator of a chain of 25 or more supermarkets in the United States,
excluding any ShopRite supermarkets in any area in which Wakefern operates. The
agreement extends for an indefinite term and is subject to termination ten years
after the approval by a vote of 75% of the outstanding voting stock of Wakefern.
The loss of, or material change in, our relationship with Wakefern (neither of
which is considered likely) could have a significant adverse impact on the
Company's business. The failure of Wakefern to fulfill its obligations or
another member's insolvency or withdrawal from Wakefern could result in
additional costs to the remaining members. On November 22, 2000 Big V
Supermarkets, Inc. ("Big V"), a member of Wakefern, similar in sales volume to
the Company, filed for reorganization under Chapter 11 of the U.S. Bankruptcy
Code and indicated its intent to depart from Wakefern. Big V was unsuccessful in
its challenge to provisions in its agreements with Wakefern which require, among
other things, withdrawing members to make a payment to Wakefern to make up for
the resulting loss of volume to the cooperative. On November 16, 2001 Big V
reported that it had entered into a term sheet to sell substantially all of its
assets to Wakefern. The transaction is subject to completion of definitive
agreements by the parties, and bankruptcy court approval. It is not possible to
predict at this time what effect the reported term sheet will have on Foodarama
or the effect on Foodarama if the proposed sale of assets to Wakefern does not
occur.
We also purchase products and items sold in our supermarkets from a variety of
sources other than Wakefern. Neither the Company nor, to the best of our
7
knowledge, Wakefern has experienced or anticipates experiencing any unique
material difficulties in procuring products and items in adequate quantities.
Competition
The supermarket business is highly competitive. The Company competes directly
with a number of national and regional chains, including A&P, Pathmark, Wegmans,
Acme, Stop & Shop and Foodtown, as well as various local chains and numerous
single-unit stores. We also compete with warehouse club stores which charge a
membership fee, are non-unionized and operate larger units. Additional
competition comes from drug stores, discount general merchandise stores, fast
food chains and convenience stores.
Many of the Company's competitors have greater financial resources and sales. As
most of our competitors offer substantially the same type of products,
competition is based primarily upon price, and particularly in the case of meat,
produce, bakery, delicatessen, and prepared foods, on quality. Competition is
also based on service, location, appearance of stores and on promotion and
advertising. The Company believes that its membership in Wakefern and the
ShopRite brand name allow it to maintain a low-price image while providing
quality products and the availability of a wide variety of merchandise including
numerous private label products under the ShopRite brand name. We also provide
clean, well maintained stores, courteous and quick service to the customer and
flexibility in tailoring the products offered in each store to the demographics
of the communities we service. The supermarket business is characterized by
narrow profit margins, and accordingly, our viability depends primarily on our
ability to maintain a relatively greater sales volume and more efficient
operations than our competitors.
Many changes are presently taking place in our marketplace. Pathmark, one of our
principal competitors, completed a reorganization, exiting Chapter 11 in
September 2000. This restructuring of Pathmark is reported to have eliminated
almost one billion dollars of debt which was converted to common stock. Edwards,
another formidable competitor, has changed its name and format to Stop & Shop,
an affiliated company. Grand Union filed for bankruptcy under Chapter 11 and
sold almost all of its stores. Many of the Grand Union locations in our trading
area are now operating as Stop & Shop and Pathmark. The impact of these changes
has strengthened competition in our already highly competitive marketplace.
Regulatory and Environmental Matters
Our stores and facilities, in common with those of the industry in general, are
subject to numerous existing and proposed Federal, State and Local regulations
which regulate the discharge of materials into the environment or otherwise
protect the environment, establish occupational safety and health standards and
cover other matters, including the licensing of the Company's pharmacies and two
liquor stores. We believe our operations are in compliance with such existing
regulations and are of the opinion that compliance with the regulations has not
had and will not have any material adverse effect on our capital expenditures,
earnings or competitive position.
8
Employees
As of December 31, 2001, the Company employed approximately 5,700 persons, of
whom approximately 5,200 are covered by collective bargaining agreements. 74% of
the employees are part time and almost all of these employees are covered by the
collective bargaining agreements. Although the Company has historically
maintained favorable relations with its unionized employees, it could be
affected by labor disputes. Most of our competitors are similarly unionized. The
Company is a party to six collective bargaining agreements expiring on various
dates from February 2002 to April 2005. The bargaining agreement with the United
Food and Commercial Workers Local 1262 expired in April 2001 and has been
renegotiated. The new contract expires April 2005.
By virtue of the nature of the Company's supermarket operations, information
concerning backlog, seasonality, major customers, government contracts, research
and development activities and foreign operations and export sales is not
relevant.
Item 2. Properties
The Company's twenty-two supermarkets, all of which are leased, range in size
from 31,000 to 101,000 square feet with sales area averaging 75 percent of the
total area. All stores are air-conditioned, have modern fixtures and equipment,
have their own ample parking facilities and are located in suburban areas.
Leases for 19 of the Company's 22 existing supermarkets expire on various dates
from 2002 through 2025. We are leasing one location, which will be replaced, on
a month to month basis. Two of our supermarkets are subleased from Wakefern and
these subleases expire in 2006 and 2008, respectively. Upon expiration of these
subleases, the underlying leases for these supermarkets will be assigned to and
assumed by us if certain conditions, which include the absence of defaults by
the Company in its obligations to Wakefern and our lenders, and the maintenance
of a specified level of net worth, are satisfied. The terms of these leases
expire in 2021 and 2018, respectively. Except for the two subleases with
Wakefern, one lease which expires in 2003 and the one month to month lease, all
leases contain renewal options ranging from 5 to 25 years. Seven leases require,
in addition to a fixed rental, a further rental payment based on a percentage of
the annual sales in excess of a stipulated minimum. The minimum has been
exceeded in two of the seven locations in the last fiscal year. Most leases also
require us to pay for insurance, common area maintenance and real estate taxes.
Six additional leases have been signed for supermarket locations, four of which
will be replacements for existing stores and two for new locations. The terms of
these leases are substantially similar to the terms of the leases for our
existing supermarkets. The Company has experienced delays in the opening of
certain new stores because of extensive governmental approvals required to
develop new retail properties in New Jersey.
Also, we are subject to a lease covering our executive and principal
administrative offices containing approximately 18,000 square feet in Howell,
New Jersey. The Company also leases 57,000 square feet of space used for its
bakery operations and storage in Howell, New Jersey, and 50,000 square feet of
9
space used for storage in Lakewood, New Jersey. The Company owns meat and
prepared foods processing facilities in Linden, New Jersey, which is the only
real property owned by us. In addition, we are a party to an additional eight
leases for locations where we no longer conduct supermarket operations; seven of
these locations have been sublet to non-affiliated persons. In most instances
these stores have been sublet at terms at least substantially equivalent to the
Company's obligations under its prime lease. See Notes 10 and 14 of Notes to
Consolidated Financial Statements.
Item 3. Legal Proceedings
In the ordinary course of our business, we are party to various legal actions
not covered by insurance. Although a possible range of loss cannot be estimated,
it is the opinion of management, that settlement or resolution of these
proceedings will not, in the aggregate, have a material adverse impact on the
financial condition or results of operations of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Part II
Item 5. Market for Registrant's Common Stock and Security Holder Matters
(a) The Company's Common Stock is traded on the American Stock
Exchange. The following table sets forth the high and low sales
prices for the Common Stock as reported on the American Stock
Exchange for the fiscal years ended October 28, 2000 and November
3, 2001.
Fiscal Quarter Ended High Low
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January 29, 2000 28 3/8 19 3/4
April 29, 2000 27 1/4 20
July 29, 2000 28 24
October 28, 2000 24 1/4 17 3/4
January 27, 2001 21 1/4 15 1/8
April 28, 2001 20 17
July 28, 2001 35 1/4 18 1/2
November 3, 2001 42 34.35
(b) The approximate number of record holders of the Company's Common Stock
was 324 as of January 18, 2002.
(c) No dividends have been declared or paid with respect to the
Company's Common Stock since October 1979. We are prohibited from paying
dividends on our Common Stock by the Second Amended and Restated Revolving
Credit and Term Loan Agreement between the Company and three financial
institutions. See Management's Discussion and Analysis-Financial Condition
and Liquidity. The Company has no intention of paying dividends on its
Common Stock in the foreseeable future.
10
(d) On June 8, 2001 the Company announced the commencement of a stock
repurchase program whereby we will seek to repurchase shares of our common
stock having a value of up to $3 million. As of November 3, 2001 29,070
shares of Common Stock had been repurchased. Of these shares, 25,070 were
purchased in privately negotiated transactions, including 7,000 shares
owned by the Estate of Mary Saker, of which the Company's Chairman, Joseph
J. Saker, is a co-executor, and 18,000 shares owned by certain members of
Mr. Saker's family. As of January 18, 2002 an additional 10,310 shares had
been repurchased. See Managements Discussion and Analysis-Financial
Condition and Liquidity.
Item 6. Selected Financial Data
The selected financial data set forth below is derived from the Company's
consolidated financial statements and should be read in conjunction with the
consolidated financial statements and related notes included elsewhere in this
Annual Report. See Management's Discussion and Analysis-Financial Condition and
Liquidity and Results of Operations.
11
Year Ended
1212
November 3, October 28, October 30, October 31, November 1,
2001 (1) 2000 (2) 1999 1998 (3) 1997
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(Dollars in thousands, except per share amounts)
Income statement
data:
Sales $945,301 $866,363 $778,726 $687,974 $629,733
Net income $ 3,938 $ 2,382 $ 1,945 $ 1,780 $ 1,064
Net income per
common share:
Basic $ 3.54 $ 2.13 $ 1.74 $ 1.59 $ .90
Diluted $ 3.50 $ 2.13 $ 1.74 $ 1.59 $ .90
Cash dividends
per common share - - - - -
Balance sheet data
(at year end):
Working capital
(deficit) $ (6,907) $ (1,215) $ 2,507 $ (2,725) $ 3,532
Total assets $194,526 $191,185 $156,186 $149,567 $121,500
Long-term debt
(excluding current
portion) $ 75,553 $ 82,241 $ 59,604 $ 50,656 $ 35,918
Common share-
holders' equity $ 38,493 $ 37,422 $ 35,040 $ 33,014 $ 31,315
Book value per
common share $ 35.37 $ 33.49 $ 31.36 $ 29.55 $ 28.03
Tangible book value
per common share $ 32.49 $ 30.37 $ 27.93 $ 25.47 $ 23.47
(1) 53 week period.
(2) The Company opened one new and one replacement location in February and
April 2000, respectively. See Management's Discussion and Analysis -
Results of Operations - Sales.
(3) The Company opened one replacement and one new location in February and
August 1998, respectively.
12
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
FINANCIAL CONDITION AND LIQUIDITY
As of May 11 and August 7, 2001, the Company and its lenders amended the Second
Amended and Restated Revolving Credit and Term Loan Agreement (as amended, the
"Credit Agreement"). The Credit Agreement is secured by substantially all of the
Company's assets and provided for a total commitment of $58,000,000, including a
revolving credit facility (the "Revolving Note") of up to $28,000,000, a term
loan (the "Term Loan") in the amount of $10,000,000 and a capital expenditures
facility (the "Capex Facility") of up to $20,000,000.
The amended Credit Agreement (a) increases the total amount available to the
Company under the Revolving Note to $28,000,000 from $25,000,000, subject to the
borrowing base limitation of 65% of eligible inventory; (b) reallocates the
amount of permitted new indebtedness for fiscal year 2001 to fiscal year 2002 to
more closely meet the Company's projected borrowing needs; (c) reallocates the
limitations on indebtedness attributable to capitalized lease obligations over
the term of the Credit Agreement to more closely track new real estate lease
obligations; (d) permits capital expenditures relating to New/Replacement Store
Projects over the term of the Credit Agreement to more closely track the
projected timing of such expenditures; (e) permits capital expenditures relating
to Adjusted Capex over the term of the Credit Agreement to more closely track
the projected timing of such expenditures; (f) extends the expiration date of
the period during which the Company may borrow against the Capex Facility to
June 30, 2002; (g) allows the Company to repurchase its common stock for an
aggregate purchase price not to exceed $5,000,000 subject to certain conditions
and limitations; (h) allows for loans to employees not to exceed $50,000 in the
aggregate; and (i) amends certain definitions. Other terms and conditions of the
Credit Agreement previously reported upon by the Company have not been modified.
As of November 3, 2001 the Company owed $6,500,000 on the Term Loan and
$7,306,772 under the Capex Facility.
The Company's compliance with the major financial covenants under the Credit
Agreement was as follows as of November 3, 2001:
Actual
Financial Credit (As defined in the
Covenant Agreement Credit Agreement)
Adjusted EBITDA (1) Greater than $16,000,000 $ 21,955,000
Leverage Ratio (1) Less than 3.50 to 1.00 1.23 to 1.00
Debt Service Coverage
Ratio Greater than 1.20 to 1.00 1.77 to 1.00
Adjusted Capex (2) Less than $12,750,000 (3) $ 12,040,000 (4)
Store Project Capex Less than $13,000,000 (3) $ 5,007,000 (4)
(1) Excludes obligations under capitalized leases, interest expense and
depreciation expense attributable to capitalized leases and changes in the
LIFO reserve.
(2) Adjusted Capex is all capital expenditures other than New/Replacement
Store Project Capex.
(3) Represents limitations on capital expenditures for fiscal 2001.
13
(4) Represents capital expenditures for fiscal 2001.
On December 31, 1999 the Company financed the purchase of $1,527,000 of POS
hardware in 17 operating locations. The financing bears interest at 7.60% and is
payable in monthly installments over its three year term.
On March 30, 1999 the Company financed the purchase of $520,000 of computer
equipment for all operating locations. The financing bears interest at 5.79% and
is payable in monthly installments over its three year term.
No cash dividends have been paid on the Common Stock since 1979, and we have no
present intentions or ability to pay any dividends in the near future on our
Common Stock. The Credit Agreement does not permit the payment of any cash
dividends on the Company's Common Stock.
Working Capital:
At November 3, 2001 and October 28, 2000, the Company had working capital
deficiencies of $6,907,000 and $1,215,000, respectively, compared to working
capital of $2,507,000 at October 30, 1999. Working capital decreased in fiscal
2001 primarily as the result of the net increase in accounts payable and accrued
expenses of $5,050,000 over the increase in inventory. This increase relates
primarily to cost of merchandise and capital expenditures for the new
Middletown, New Jersey store, opened November 14, 2001, as well as accrued
occupancy costs related to the 53rd week of fiscal 2001. Accounts receivable
consist primarily of returned checks due the Company, coupon receivables, third
party pharmacy insurance claims and organization charge accounts. The terms of
most receivables are 30 days or less. The allowance for uncollectible accounts
is large in comparison to the amount of accounts receivable because the
allowance consists primarily of a reserve for returned checks which are not
written off until all collection efforts are exhausted. 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 decreased in fiscal 2000 primarily as the result of the net
increase in accounts payable and accrued expenses of $3,035,000 over the
increase in inventory, which related primarily to cost of merchandise and
operating expenses for the new Branchburg and Wall Township, New Jersey stores.
Additionally, the current portion of long-term debt, primarily related to
equipment financing, increased.
Working capital in fiscal 1999 increased primarily due to increases in inventory
and receivables and decreases in the current portion of long term debt partially
offset by increases in accounts payable. These increases were primarily due to
increased sales and the impact of double coupons.
Working capital ratios were as follows:
November 3, 2001 .90 to 1.00
October 28, 2000 .98 to 1.00
October 30, 1999 1.05 to 1.00
14
Cash flows (in millions) were as follows:
2001 2000 1999
---- ---- ----
From operations..................... $24.2 $15.5 $12.2
Investing activities................ (16.9) (15.2) ( 8.2)
Financing activities................ ( 7.1) ( .4) ( 3.8)
------ ------ ------
Totals $ .2 $( .1) $ .2
====== ====== ======
Fiscal 2001 capital expenditures totaled $17,047,000 with depreciation of
$12,840,000 compared to $16,750,000 and $11,524,000, respectively for fiscal
2000 and $8,781,000 and $10,838,000, respectively for fiscal 1999. The increase
in depreciation in fiscal 2001 was the result of the purchase of equipment and
leasehold improvements for the three locations remodeled during fiscal 2001 and
a full year of depreciation for the locations opened in fiscal 2000. The
increase in depreciation in fiscal 2000 was the result of the purchase of
equipment and leasehold improvements for the two new locations as well as two
additional real estate capitalized leases. The increase in depreciation in
fiscal 1999 resulted from the opening of two locations in fiscal 1998, a
capitalized lease for one of the two locations and the modification of a
capitalized real estate lease in fiscal 1999 for the expansion of a location.
Capital expenditures increased in fiscal 2001 and fiscal 2000 as the result of
the purchase of equipment and leasehold improvements for the locations remodeled
in fiscal 2001 and the two locations opened in fiscal 2000 and the new
Middletown store opened November 14, 2001. Capital expenditures declined in
fiscal 1999 when no new stores were opened.
In fiscal 2001 net long-term Debt decreased $5,959,000 as the result of payments
made to reduce the balances outstanding under existing debt. The source of these
payments was cash generated by operations and an increase in the revolving
credit facility of $929,000.
In fiscal 2000 long-term debt increased $25,499,000 due to the capitalization of
real estate leases for the two locations opened in the year, the financing of
POS hardware and equipment for two new locations and the restructuring of
borrowings under the Credit Agreement. These increases were partially offset by
cash generated by operations used to pay down a portion of the balances
outstanding under the revolving credit facility and other existing debt.
In fiscal 1999 long-term debt increased $3,858,000 due to the modification of a
capitalized real estate lease for the expansion of the West Long Branch, New
Jersey store, the financing of computer equipment purchased and financing
obtained under the revolving credit facility. These increases were partially
offset by cash generated by operations used to pay down existing debt.
During the year ended November 3, 2001, the Company repurchased a total of
29,070 shares of Common Stock under the stock repurchase program announced on
June 8, 2001. 25,070 of these shares were purchased in privately negotiated
transactions. 7,000 of these shares were owned by the Estate of Mary Saker, of
which the Company's Chairman, Joseph J. Saker, is a co-executor, and 18,000
shares were owned by certain members of Mr. Saker's family. $1,067,927, or an
average of $36.74 per share, was expended for the purchase of the 29,070 shares.
15
The Company had $18,691,000 of available credit, at November 3, 2001, under its
revolving credit facility. If Net Income and earnings before interest, taxes,
depreciation and amortization ("EBITDA") decrease, as discussed in the Net
Income section of Management's Discussion and Analysis-Results of Operations,
the Company will borrow additional funds under its revolving credit facility.
The Credit Agreement will adequately meet our operating needs, scheduled capital
expenditures and debt service for fiscal 2002.
RESULTS OF OPERATIONS
Sales:
The Company's sales were $945.3 million, $866.4 million and $778.7 million,
respectively in fiscal 2001, 2000 and 1999. This represents an increase of 9.1
percent in 2001 and an increase of 11.3 percent in 2000. These changes in sales
levels were the result of the full year of operations in fiscal 2001 of two
locations opened in February and April 2000 and the 53rd week in fiscal 2001.
The location opened in April 2000 replaced a smaller, older store. Comparable
store sales increased 3.8% in fiscal 2001 and 4.2% in fiscal 2000.
Gross Profit:
Gross profit totaled $234.2 million in fiscal 2001 compared to $208.9 million in
fiscal 2000 and $186.1 million in fiscal 1999. Gross profit as a percent of
sales was 24.8% in fiscal 2001, 24.1% in fiscal 2000 and 23.9% in fiscal 1999.
In fiscal 2001 gross profit as a percentage of sales increased primarily as a
result of improved product mix, the contribution of the new locations, the
completion of promotional programs initiated by the Company for the locations
opened in fiscal 2000, a reduction in product loss through improved shrink
control and more efficient commissary operations, partially offset by the
completion of Wakefern incentive programs for the new locations opened in the
prior fiscal year.
The increase in fiscal 2000 of gross profit as a percentage of sales was
primarily due to improved product mix, reduced Wakefern assessment as a
percentage of sales and Wakefern incentive programs for the new locations opened
in fiscal 2000, partially offset by promotional programs for the new locations
opened in the current year period, the completion of Wakefern incentive programs
for the new locations opened in fiscal 1998 and the adoption of the
Last-In-First-Out ("LIFO") method of inventory valuation for grocery and nonfood
categories. See Note 1 of Notes to Consolidated Financial Statements -
Merchandise Inventories.
In fiscal 1999 gross profit declined as a percentage of sales as a result of
increased promotional programs partially offset by improved product mix, reduced
Wakefern assessment as a percentage of sales and the continuation of Wakefern
incentive programs for the two new locations opened in fiscal 1998.
Patronage dividends applied as a reduction of the cost of merchandise sold were
$6,515,000, $5,903,000 and $5,294,000 for the last three fiscal years. This
translates to .69%, .68% and .68% of sales for the respective periods.
16
Gross profit dollars and percentage may be impacted by increased costs resulting
from the potential change in the relationship between Big V and Wakefern. These
increased costs to Wakefern could result in higher assessment charges to the
Company. See Item 1.- Business - Wakefern Food Corporation.
Fiscal Years Ended
---------------------------------
11/03/01 10/28/00 10/30/99
(in millions)
Sales........................ $945.3 $866.4 $778.7
Gross profit................. 234.2 208.9 186.1
Gross profit percentage...... 24.8% 24.1% 23.9%
Operating, General and Administrative Expenses:
Fiscal 2001 operating, general and administrative expenses totaled $220.3
million compared to $198.2 million in fiscal 2000 and $177.8 million in fiscal
1999.
Fiscal Years Ended
---------------------------------
11/03/01 10/28/00 10/30/99
(in millions)
Sales........................ $945.3 $866.4 $778.7
Operating, General and
Administrative Expenses...... 220.3 198.2 177.8
Percent of Sales............. 23.3% 22.9% 22.8%
Operating, general and administrative expenses increased as a percent of sales
when comparing fiscal 2001 to fiscal 2000. Increases in labor and related fringe
benefits, administrative expense, occupancy, depreciation, other store expenses,
which include Wakefern support services and debit/credit card fees, and a
decrease in miscellaneous income were partially offset by decreases in
advertising, pre-opening costs and reserve for closed store expense. The
increase in labor and related fringe benefits was the result of additional
personnel for all of fiscal 2001 for the two new stores opened during fiscal
2000 and increased sales in service intensive departments. Administrative
expense increased as the result of increases in employee incentive programs and
the charges related to the stock incentive plan. Occupancy increased due to
increased costs for CAM, real estate taxes and sanitation. Depreciation expense
increased due to a full year of depreciation for the equipment, leasehold
improvements and the capitalized leases for the two stores opened in fiscal 2000
and additional depreciation related to the three stores remodeled in fiscal
2001. Other store expenses increased due to increases in charges for certain
Wakefern programs. Miscellaneous income decreased due to a lack of income from
the sale of recycled cardboard. Selling expense increased in dollars but
declined as a percentage of sales. Pre-opening costs in fiscal 2001 related to
the new Middletown store which did not open until November 14, 2001 while two
stores were opened in fiscal 2000. The decrease in the reserve for closed store
expense relates primarily to the expensing in fiscal 2000 of anticipated
expenses for a location closed in April 2000 when the new Wall Township store
opened. As a percentage of sales, labor and related fringe benefits increased
.30%, administrative expense increased .21%, occupancy increased .06%,
depreciation increased .05%, other store expenses increased .05% and
miscellaneous income decreased .08%. These increases were partially offset by
decreases in selling expense of .05%, pre-opening costs of .09% and reserve for
17
closed store expense of .16%. Pre-opening costs were $114,000 in fiscal 2001.
Operating, general and administrative expenses increased as a percent of sales
when comparing fiscal 2000 to fiscal 1999. Increases in labor and related fringe
benefits, supplies, pre-opening costs and reserve for closed store expense were
partially offset by decreases in selling expense, occupancy, administration and
depreciation. Labor and related fringe benefits increased as the result of
additional personnel dedicated to the two new stores, increased sales in service
intensive departments and premium rates paid to existing employees to work
additional hours due to labor shortages in certain of our marketing areas.
Supplies increased due to increased sales in supply intensive departments and an
increase in plastic prices which is related to increases in the cost of
petroleum. Pre-opening costs were for the new stores opened in February and
April 2000. The reserve for closed store expense relates primarily to the
anticipated expenses to be incurred over the balance of the lease for the
location closed in April 2000 when the new Wall Township store opened. The
decrease in selling expense was the result of decreased promotional activity,
including the modification of a variety of incentive programs, in our marketing
area. Occupancy decreased as the result of an increase in rental income from
sub-tenants within our stores and the decrease in fixed occupancy costs as a
percentage of sales. Depreciation and administration increased in dollars but
declined as a percentage of sales. As a percentage of sales, labor and related
fringe benefits increased .29%, supplies increased .07%, pre-opening costs
increased .10% and reserve for closed store expense increased .13%. Pre-opening
costs were $895,000 in fiscal 2000. These increases were partially offset by
decreases in selling expense of .40%, occupancy of .28%, administration of .09%
and depreciation of .06%.
Amortization expense decreased in fiscal 2001 to $576,000 compared to $679,000
in fiscal 2000 and $973,000 in fiscal 1999. The decrease in fiscal 2001, as
compared to fiscal 2000, was the result of decreased amortization of deferred
escalation rents partially offset by increased amortization of deferred
financing costs. The decrease in fiscal 2000, as compared to fiscal 1999, was
the result of decreased amortization of deferred financing costs and bargain
leases, partially offset by increased amortization of deferred escalation rents,
which resulted from the modification of the amortization of one operating lease
in fiscal 1999. See Note 1 of Notes to Consolidated Financial Statements -
Intangibles and Deferred Financing Costs.
Interest Expense:
Interest expense totaled $7.6 million in fiscal 2001 compared to $7.1 million in
fiscal 2000 and $5.6 million in fiscal 1999. The increase in fiscal 2001, as
compared to fiscal 2000, was due to an increase in average outstanding debt,
including capitalized lease obligations partially offset by a decrease in the
average interest rate paid on debt. The increase in fiscal 2000, as compared to
fiscal 1999, was due to an increase in the average outstanding debt in fiscal
2000, including capitalized lease obligations and an increase in the average
interest rate paid on the debt.
If net income and EBITDA decrease, as discussed in the Net Income section of
Management's Discussion and Analysis - Results of Operations, the Company will
borrow additional funds under its revolving credit facility thereby increasing
interest expense.
18
Income Taxes:
The Company recorded a tax provision of $2.6 million in fiscal 2001, $1.6
million in fiscal 2000 and $1.1 million in fiscal 1999. See Note 13 of Notes to
Consolidated Financial Statements.
Net Income:
The Company had net income of $3,938,000 or $3.50 per diluted share in fiscal
2001 compared to net income of $2,382,000 or $2.13 per diluted share in fiscal
2000. EBITDA for fiscal 2001 were $27,342,000 as compared to $22,914,000 in
fiscal 2000.
Fiscal 1999 resulted in net income of $1,945,000 or $1.74 per diluted share.
EBITDA for fiscal 1999 were $20,151,000.
If gross profit decreases and interest expense increases as discussed in the
Gross Profit and Interest Expense sections of Management's Discussion and
Analysis - Results of Operations, net income and EBITDA will also decrease.
Weighted average diluted shares outstanding were 1,124,192 for fiscal 2001 and
1,117,290 for both fiscal 2000 and fiscal 1999.
RECENT ACCOUNTING PRONOUNCEMENTS
Effective October 29, 2000 the Company adopted Statement of Financial Accounting
Standards No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and
Hedging Activities". This statement establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. SFAS 133 requires the
recognition of all derivatives as either assets or liabilities on the balance
sheet and measures those instruments at fair value. The Company does not
currently engage in any hedging activity or hold any derivative instruments and
has no immediate plans to do so in the future. There has been no impact from
adopting the provisions of SFAS 133.
Effective October 29, 2000 the Company adopted, the Securities and Exchange
Commission Staff Accounting Bulletin No. 101, ("SAB 101") "Revenue Recognition
in Financial Statements". SAB 101 provides additional guidance on revenue
recognition as well as criteria for when revenue is generally realized and
earned and also requires the deferral of incremental costs. There was no
significant impact from adopting the provisions of SAB 101 in fiscal 2001.
Effective October 29, 2000 the Company adopted the Emerging Issues Task Force
Issue No. 00-14 ("EITF 00-14") "Accounting for Certain Sales Incentives", which
provides guidance on the accounting for certain sales incentives offered by
companies to their customers, such as discounts, coupons, rebates and free
products or services. In accordance with the provisions of EITF 00-14 the
Company recorded those sales incentives covered by EITF 00-14 as a reduction of
sales, resulting in a corresponding reduction in operating, general and
administrative expenses, with no impact on the Company's net income. Prior year
amounts have been reclassified to conform with the current year presentation.
Sales incentives relating to this change in presentation amounted to
$19,331,000, $19,877,000 and $20,967,000 for the years ended November 3, 2001,
October 28, 2000 and October 30, 1999, respectively.
19
In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 142 ("SFAS 142"), "Accounting for Goodwill
and Other Intangible Assets" which is effective for fiscal years beginning after
December 15, 2001. SFAS 142 discontinues the practice of amortizing goodwill and
indefinite lived intangible assets and initiates an annual review for
impairment. Impairment would be examined more frequently if certain indicators
are encountered. Intangible assets with a determinable useful life will continue
to be amortized over that period. The Company is currently assessing, but has
not yet determined, the impact of SFAS 142 on its financial position and results
of operations. The Company plans to adopt SFAS 142 in the first quarter of
fiscal year 2003.
In October 2001, the Financial Accounting Standards Board issued Statement Of
Financial Accounting Standards No. 144 ("SFAS 144"), "Accounting for the
Impairment or Disposal of Long-Lived Assets", which is required to be applied in
fiscal years beginning after December 15, 2001. SFAS 144 requires, among other
things, the application of one accounting model for long-lived assets that are
impaired or to be disposed of by sale. The Company believes that the adoption of
SFAS 144 will not have a significant impact on its financial position or results
of operation.
Item 7A. 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 8. Financial Statements and Supplementary Data
See Consolidated Financial Statements and Schedules included in Part IV, Item
14.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
20
Part III
Item 10. Directors and Executive Officers of the Registrant
The information required in response to this item is contained in the Company's
definitive proxy statement to be filed pursuant to Regulation 14A under the
captions "Nominees as Director of the Company" and "Executive Officers of the
Company" and such information is incorporated herein by reference.
Item 11. Executive Compensation
The information required in response to this item is contained in the Company's
definitive proxy statement to be filed pursuant to Regulation 14A under the
caption "Executive Compensation" and such information is incorporated herein by
reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required in response to this item is contained in the Company's
definitive proxy statement to be filed pursuant to Regulation 14A under
introductory paragraphs and under the captions "Principal Shareholders" and
"Securities Owned by Management" and such information is incorporated herein by
reference.
Item 13. Certain Relationships and Related Transactions
The information required in response to this item is contained in the Company's
definitive proxy statement to be filed pursuant to Regulation 14A under the
captions "Executive Compensation" and "Certain Transactions" and such
information is incorporated herein by reference.
21
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
a.1. Audited financial statements and Page No.
supplementary data
Independent Auditors' Report F-1
Foodarama Supermarkets, Inc. and
Subsidiaries Consolidated Financial
Statements:
Balance Sheets as of November 3, 2001 F-2 to F-3
and October 28, 2000.
Statements of Operations for each of the F-4
fiscal years ended November 3, 2001,
October 28, 2000 and October 30, 1999.
Statements of Shareholders' Equity F-5
for each of the fiscal years ended
November 3, 2001, October 28, 2000
and October 30, 1999.
Statements of Cash Flows for each of the F-6
fiscal years ended November 3, 2001,
October 28, 2000 and October 30, 1999.
Notes to Consolidated Financial Statements F-7 to F-28
a.2. Financial Statement Schedules
Schedule II S-1
Schedules other than Schedule II have been
omitted because they are not applicable.
a.3. Exhibits E-1 to E-5
b. Reports on Form 8-K
No reports on Form 8-K were required to be filed during the fourth
quarter of fiscal 2001.
* * * * * *
22
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities 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)
/S/ Michael Shapiro
Michael Shapiro
Senior Vice President,
Chief Financial Officer
/S/ Thomas H. Flynn
Thomas H. Flynn
Principal Accounting Officer
Date: January 30, 2002
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.
Name Title Date
/S/ Joseph J. Saker
--------------------------------------------------------
Joseph J. Saker Chairman of the Board January 30, 2002
of Directors, Chief
Executive Officer
/S/ Richard Saker
--------------------------------------------------------
Richard Saker President, Secretary January 30, 2002
and Director, Chief
Operating Officer
/S/ Charles T. Parton
--------------------------------------------------------
Charles T. Parton Director January 23, 2002
/S/ Albert A. Zager
--------------------------------------------------------
Albert A. Zager Director January 23, 2002
/S/ Robert H. Hutchins
--------------------------------------------------------
Robert H. Hutchins Director January 23, 2002
23
Independent Auditors' Report
Board of Directors and Shareholders
Foodarama Supermarkets, Inc.
Howell, New Jersey
We have audited the accompanying consolidated balance sheets of Foodarama
Supermarkets, Inc. and Subsidiaries as of November 3, 2001 and October 28, 2000,
and the related consolidated statements of operations, shareholders' equity and
cash flows for the fiscal years ended November 3, 2001, October 28, 2000 and
October 30, 1999. 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 in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Foodarama Supermarkets, Inc. and
Subsidiaries as of November 3, 2001 and October 28, 2000, and the results of
their operations and their cash flows for the fiscal years ended November 3,
2001, October 28, 2000 and October 30, 1999 in conformity with accounting
principles generally accepted in the United States of America.
In connection with our audits of the financial statements referred to above, we
audited the financial schedule listed under Item 14. In our opinion, the
financial schedule, when considered in relation to the financial statements
taken as a whole, presents fairly, in all material respects, the information
stated therein.
AMPER, POLITZINER & MATTIA P.A.
January 18, 2002
Edison, New Jersey
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
November 3, 2001 and October 28, 2000
(In thousands)
Assets
2001 2000
Current assets
Cash and cash equivalents $ 4,219 $ 3,977
Merchandise inventories 42,827 42,765
Receivables and other current assets 5,466 4,959
Prepaid income taxes - 398
Related party receivables - Wakefern 8,970 8,557
Related party receivables - other 7 15
------- ------
61,489 60,671
------- ------
Property and equipment
Land 308 308
Buildings and improvements 1,220 1,220
Leasehold improvements 39,589 36,931
Equipment 103,394 96,452
Property under capital leases 59,909 59,909
Construction in progress 6,787 1,513
------- ------
211,207 196,333
Less accumulated depreciation and amortization 98,218 87,487
------- -------
112,989 108,846
------- -------
Other assets
Investments in related parties 12,758 12,758
Intangibles 3,136 3,487
Other 2,550 3,469
Related party receivables - Wakefern 1,593 1,782
Related party receivables - other 11 172
------ -------
20,048 21,668
------ -------
$ 194,526 $ 191,185
========== =========
See notes to consolidated financial statements.
F-2
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets - (continued)
November 3, 2001 and October 28, 2000
(In thousands)
Liabilities and Shareholders' Equity
2001 2000
Current liabilities
Current portion of long-term debt $ 5,390 $ 4,918
Current portion of long-term debt, related party 902 880
Current portion of obligations under capital leases 899 664
Current income taxes payable 704 --
Deferred income taxes 1,079 1,114
Accounts Payable
Related party - Wakefern 35,988 34,051
Others 8,780 7,781
Accrued expenses 14,654 12,478
------- ------
68,396 61,886
------- ------
Long-term debt 19,294 24,181
Long-term debt, related party 1,310 2,212
Obligations under capital leases 54,949 55,848
Deferred income taxes 1,201 2,585
Other long-term liabilities 10,883 7,051
------ ------
87,637 91,877
------ ------
Shareholders' equity
Common stock, $1.00 par; authorized 2,500,000 shares;
issued 1,621,767 shares; outstanding 1,088,220 shares
November 3, 2001; 1,117,290 shares October 28, 2000 1,622 1,622
Capital in excess of par 4,168 2,351
Deferred compensation (1,696) --
Retained earnings 44,016 40,078
Accumulated other comprehensive income
Minimum pension liability (1,920) --
------- ------
46,190 44,051
Less 533,547 shares November 3, 2001; 504,477 shares
October 28, 2000, held in treasury, at cost 7,697 6,629
------ ------
38,493 37,422
------ ------
$ 194,526 $ 191,185
========= =========
See notes to consolidated financial statements.
F-3
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Fiscal Years Ended November 3, 2001, October 28, 2000 and October 30, 1999
(In thousands, except per share data)
2001 2000 1999
Sales $ 945,301 $ 866,363 $ 778,726
Cost of goods sold 711,092 657,436 592,606
------- ------- -----------
Gross profit 234,209 208,927 186,120
Selling, general and administrative expenses 220,283 198,216 177,780
------- ------- -----------
Earnings from operations 13,926 10,711 8,340
------- ------- -----------
Other income (expense)
Interest expense (7,627) (7,059) (5,569)
Interest income 265 318 315
-------- ------- -----------
(7,362) (6,741) (5,254)
-------- ------ -----------
Earnings before income tax provision 6,564 3,970 3,086
Income tax provision (2,626) (1,588) (1,141)
-------- ------- -----------
Net income $ 3,938 $ 2,382 $ 1,945
======= ========= ===========
Per share information:
Net income per common share
Basic $ 3.54 $ 2.13 $ 1.74
======= ======== ===========
Diluted $ 3.50 $ 2.13 $ 1.74
======= ======== ===========
Weighted average shares outstanding
Basic 1,111,727 1,117,290 1,117,290
========= ========= ===========
Diluted 1,124,192 1,117,290 1,117,290
========= ========= ===========
See notes to consolidated financial statements.
F-4
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
Fiscal Years Ended November 3, 2001, October 28, 2000 and October 30, 1999
(In thousands, except per share data)
Accumulated
Common Stock Capital Other Comprehensive
Shares in Excess Deferred Comprehensive Retained Treasury Stock Total
Issued Amount of Par Compensation Income Income Earnings Shares Amount Equity
-----------------------------------------------------------------------------------------------------------------------------
Balance - October 31, 1998 1,621,767 $ 1,622 $ 2,351 $ - $ (81) $ 35,751 (504,477) $(6,629)$ 33,014
Comprehensive income
Net income 1999 - - - - - $ 1,945 1,945 - - 1,945
Other comprehensive income
Minimum pension liability - - - - 81 81 - - - 81
--------- ------ ------- ------- --------- -------- ----- -------- ------- -----
Comprehensive income - $2,026
Balance - October 30, 1999 1,621,767 1,622 2,351 - - 37,696 (504,477) (6,629) 35,040
Comprehensive income
Net income 2000 - - - - - $ 2,382 2,382 - - 2,382
---------- ------ ------- ------- --------- -------- ------ -------- ------- ------
Comprehensive income $ 2,382
Balance - October 28, 2000 1,621,767 1,622 2,351 - - 40,078 (504,477) (6,629) 37,422
Grant of stock options - - 1,817 (1,817) - - - - -
Amortization of deferred
compensation - - - 121 - - - - - 121
Repurchase of common stock - - - - - - (29,070) (1,068) (1,068)
Comprehensive income
Net income 2001 - - - - - 3,938 3,938 - - 3,938
Other comprehensive income
Minimum pension liability - - - - (1,920) (1,920) - - - (1,920)
--------- ----- ------ ------ ---------- --------- ------ -------- ------- -------
Comprehensive income $ 2,018
Balance - November 3, 2001 1,621,767 $1,622 $4,168 $(1,696) $ (1,920) $44,016 (533,547) $(7,697) $38,493
See notes to consolidated financial statements.
F-5
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Fiscal Years Ended November 3, 2001, October 28, 2000 and October 30, 1999
(In thousands)
2001 2000 1999
---- ---- ----
Cash flows from operating activities
Net income $ 3,938 $ 2,382 $ 1,945
Adjustments to reconcile net income to net
cash from operating activities
Depreciation 12,840 11,524 10,838
Amortization, intangibles 351 352 723
Amortization, deferred financing costs 285 243 297
Amortization, deferred rent escalation (60) 84 (47)
Provision to value inventory at LIFO 900 723 -
Deferred income taxes (139) (574) (753)
Amortization of deferred compensation 256 - -
(Increase) decrease in
Merchandise inventories (962) (5,375) (309)
Receivables and other current assets (507) (463) (1,114)
Prepaid income taxes 398 (398) 1,005
Other assets 963 207 (721)
Related party receivables - Wakefern (224) (784) (1,325)
Increase (decrease) in
Accounts payable 2,936 5,018 (157)
Income taxes payable 704 (457) 457
Other liabilities 2,534 3,047 1,316
----------- -------- --------
24,213 15,529 12,155
----------- -------- --------
Cash flows from investing activities
Cash paid for the purchase of property
and equipment (11,718) (14,280) (5,780)
Cash paid for construction in progress (5,329) (943) (2,481)
Decrease in related party receivables - other 169 15 108
----------- ------- -------
(16,878) (15,208) (8,153)
----------- -------- --------
Cash flows from financing activities
Proceeds from issuance of debt 929 20,595 5,014
Principal payments under long-term debt (5,344) (18,754) (7,904)
Principal payments under capital lease obligations (664) (699) (463)
Principal payments under long-term debt,
related party (880) (627) (460)
Deferred financing costs (66) (953) -
Repurchase of common stock (1,068) - -
---------- -------- -------
(7,093) (438) (3,813)
---------- -------- --------
Net change in cash and cash equivalents 242 (117) 189
Cash and cash equivalents, beginning of year 3,977 4,094 3,905
---------- -------- -------
Cash and cash equivalents, end of year $ 4,219 $ 3,977 $ 4,094
========== ======== ========
Supplemental disclosures of cash paid
Interest $ 8,046 $ 6,683 $ 5,590
Income taxes 1,674 2,869 27
See notes to consolidated financial statements
F-6
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Tabular dollars in thousands, except per share amounts)
Note 1 - Summary of Significant Accounting Policies
Nature of Operations
Foodarama Supermarkets, Inc. and Subsidiaries (the "Company"),
operate 22 ShopRite supermarkets, primarily in Central New Jersey.
The Company is a member of Wakefern Food Corporation ("Wakefern"),
the largest retailer-owned food cooperative in the United States.
Fiscal Year
The Company's fiscal year ends on the Saturday closest to October 31.
Fiscal 2001 consists of the 53 weeks ended November 3, 2001, fiscal
2000 consists of the 52 weeks ended October 28, 2000, and fiscal 1999
consists of the 52 weeks ended October 30, 1999.
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated.
Revenue Recognition
Revenues from the sale of products are recognized at the point of sale
to the Company's customers. Vendor rebates and credits that relate to
the Company's buying and merchandising activities are recognized as
earned.
Industry Segment
The Company operates in one industry segment, the retail sale of food
and nonfood products, primarily in the Central New Jersey region.
Reclassifications
Certain reclassifications have been made to prior year financial
statements in order to conform to the current year presentation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
Fair Value of Financial Instruments
Cash and cash equivalents, receivables and accounts payable are
reflected in the consolidated financial statements at carrying value
which approximates fair value because of the short-term maturity of
these instruments. The fair value of long-term debt was approximately
equivalent to its carrying value, due to the fact that the interest
rates currently available to the Company for debt with similar terms
are approximately equal to the interest rates for its existing debt.
As the Company's investments in Wakefern can only be sold to Wakefern
for approximately the amount invested, it is not practicable to
estimate the fair value of such stock. Determination of the fair value
of related party receivables and long-term debt - related party is not
practicable due to their related party nature.
F-7
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Tabular dollars in thousands, except per share amounts)
Note 1 - Summary of Significant Accounting Policies - (continued)
Cash Equivalents
The Company considers all highly liquid debt instruments purchased with
an original maturity of three months or less to be cash equivalents.
Merchandise Inventories
Merchandise inventories are stated at the lower of cost (first-in,
first-out) or market with cost being determined under the retail
method. Effective October 31, 1999, the Company adopted the last-in,
first-out (LIFO) method of inventory valuation for its grocery and
nonfood inventory items. The Company believes that the LIFO method, as
applied to these inventory items, results in a better matching of
revenues and expenses. Because the October 30, 1999 inventory, which is
valued at the first-in, first-out (FIFO) method, is the opening LIFO
inventory, there is neither a cumulative effect to October 31, 1999,
nor pro forma amounts of retroactive application of changing to the
LIFO method. The decision to change to LIFO was made in the third
quarter of fiscal year 2000.
If the FIFO method had been used, inventory at November 3, 2001 and
October 28, 2000 would have been $1,623,000 and $723,000 higher,
respectively.
Property and Equipment
Property and equipment is stated at cost and is depreciated on a
straight-line basis over the estimated useful lives ranging between
three and ten years for equipment, the shorter of the useful life or
lease term for leasehold improvements, and twenty years for buildings.
Repairs and maintenance are expensed as incurred.
Property and equipment under capital leases are recorded at the lower
of fair market value or the net present value of the minimum lease
payments. They are depreciated on a straight-line basis over the
shorter of the related lease terms or its useful life.
Investments
The Company's investment in its principal supplier, Wakefern, is stated
at cost (see Note 4).
Intangibles
Intangibles consist of goodwill and favorable operating lease costs.
Goodwill is being amortized on a straight-line basis over periods from
15 to 36 years. The favorable operating lease costs are being amortized
on a straight-line basis over the terms of the related leases which
range from 12 to 24 years.
Long-Lived Assets
The Company reviews the carrying values of its long-lived assets for
possible impairment whenever circumstances indicate the carrying amount
of an asset may not be recoverable. An impairment is recognized to the
extent the sum of the undiscounted estimated future cash flow expected
to result from the use of the asset is less than the carrying value.
Deferred Financing Costs
Deferred financing costs are being amortized over the life of the
related debt using the effective interest method.
F-8
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Tabular dollars in thousands, except per share amounts)
Note 1 - Summary of Significant Accounting Policies - (continued)
Postretirement Benefits other than Pensions
The Company accrues for the cost of providing postretirement benefits,
principally supplemental income payments and limited medical benefits,
over the working careers of the officers in the plan.
Postemployment Benefits
The Company accrues for the expected cost of providing postemployment
benefits, primarily short-term disability payments, over the working
careers of its employees.
Advertising
Advertising costs are expensed as incurred. Advertising expense was
$8.8, $8.5 and $7.5 million for the fiscal years 2001, 2000 and 1999,
respectively.
Store Closing Costs
The costs, net of amounts expected to be recovered, are expensed upon
the closing of a store. It is reasonably possible that these estimates
may change in the near term. Operating results continue to be reported
until a store is closed.
Stock Option Plan
The Company has elected to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and
related interpretations in accounting for its employee stock options.
Under this method, compensation cost is measured as the amount by which
the market price of the underlying stock exceeds the exercise price of
the stock option at the date at which both the number of options
granted and the exercise price are known.
Earnings Per Share
Earnings per common share are based on the weighted average number of
common shares outstanding. Diluted earnings per share amounts are based
on the weighted average number of common shares outstanding, plus the
incremental shares that would have been outstanding upon the assumed
exercise of all diluted stock options, subject to antidilution
limitations.
Recent Accounting Pronouncements
Effective October 29, 2000, the Company adopted Statement of Financial
Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes
accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts,
and for hedging activities. SFAS 133 requires the recognition of all
derivatives as either assets or liabilities on the balance sheet and
measures those instruments at fair value. The Company does not
currently engage in any hedging activity or hold any derivative
instruments. Therefore, there has been no impact from adopting the
provisions of SFAS 133.
F-9
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Tabular dollars in thousands, except per share amounts)
Note 1 - Summary of Significant Accounting Policies - (continued)
Recent Accounting Pronouncements - (continued)
Effective October 29, 2000, the Company adopted the Securities and
Exchange Commission Staff Accounting Bulletin No. 101, ("SAB 101"),
"Revenue Recognition in Financial Statements." This Bulletin provides
additional guidance on revenue recognition as well as criteria for when
revenue is generally realized and earned and also requires the deferral
of incremental costs. There was no significant impact from adopting the
provisions of SAB 101 in fiscal 2001.
Effective October 29, 2000, the Company adopted the Emerging Issues
Task Force Issue No. 00-14 ("EITF 00-14"), "Accounting for Certain
Sales Incentives." EITF 00-14 provides guidance on the accounting for
certain sales incentives offered by companies to their customers, such
as discounts, coupons, rebates and free products or services. In
accordance with the provisions of EITF 00-14, the Company recorded
those sales incentives covered by EITF 00-14 as a reduction of sales,
resulting in a corresponding reduction in selling, general and
administrative expenses, with no impact on the Company's net income.
Prior year amounts have been reclassified to conform to the current
year presentation. Sales incentives relating to this change in
presentation amounted to $19,331,000, $19,877,000 and $20,967,000 for
the years ended November 3, 2001, October 28, 2000 and October 30,
1999, respectively.
In July 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 142, "Accounting for Goodwill and
Other Intangible Assets" ("SFAS 142") which is effective for fiscal
years beginning after December 15, 2001. SFAS 142 discontinues the
practice of amortizing goodwill and indefinite lived intangible assets
and initiates an annual review for impairment. Impairment would be
examined more frequently if certain indicators were encountered.
Intangible assets with a determinable useful life will continue to be
amortized over that period. The Company is currently assessing but has
not yet determined the impact of SFAS 142 on its financial position and
results of operations. The Company plans to adopt SFAS 142 in the first
quarter of fiscal year 2003.
In October 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"), which is
required to be applied in fiscal years beginning after December 15,
2001. SFAS 144 requires, among other things, the application of one
accounting model for long-lived assets that are impaired or to be
disposed of by sale. The Company believes that the adoption of SFAS 144
will not have a significant impact on its financial position or results
of operations.
Note 2 - Concentration of Cash Balance
As of November 3, 2001 and October 28, 2000, cash balances of
approximately $1,179,000 and $1,173,000, respectively, were maintained
in bank accounts insured by the Federal Deposit Insurance Corporation
(FDIC). These balances exceed the insured amount of $100,000.
F-10
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Tabular dollars in thousands, except per share amounts)
Note 3 -Receivables and Other Current Assets
November 3, October 28,
2001 2000
Accounts receivable $3,980 $3,350
Prepaids 2,260 2,121
Rents receivable 99 31
Less allowance for uncollectible accounts (873) (543)
------------ -----------
$ 5,466 $ 4,959
============ ===========
Note 4 - Related Party Transactions
Wakefern Food Corporation
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 ("Store Investment Program"), with the exact
amount per store computed in accordance with a formula based on the
volume of each store's purchases from Wakefern. The maximum required
investment per store was $550,000 at November 3, 2001 and October 28,
2000, and $500,000 at October 30, 1999. During fiscal 2000 and 1999,
the required investment in Wakefern increased. This resulted in a total
increase in the investment in Wakefern by $1,039,000 in 2000 and
$1,286,000 in 1999, and a related increase in the obligations due
Wakefern for the same amount, respectively. This increase in the
obligation is non-interest bearing and is payable over four years, with
three years currently remaining. The Company has a 12.3% investment in
Wakefern of $11,805,000 at November 3, 2001 and October 28, 2000.
Wakefern is operated on a cooperative basis for its members. The shares
of stock in Wakefern are assigned to and held by Wakefern as collateral
for any obligations due Wakefern. In addition, the obligations to
Wakefern are personally guaranteed by principal officers/shareholders
of the Company. As of November 3, 2001 and October 28, 2000, the
Company was obligated to Wakefern for $2,212,000 and $3,092,000,
respectively, for the increase in its required investment (see Note 8
Long-term Debt, Related Party).
The Company also has an investment of approximately 10.0% in
Insure-Rite, Ltd., a company affiliated with Wakefern, which was
$953,000 at November 3, 2001 and October 28, 2000. During the year
ended October 28, 2000, the Company was required to invest an
additional $124,000 relating to the opening of two new stores.
Insure-Rite, Ltd. provides the Company with a portion of its liability
insurance coverage. Insurance premiums paid to Insure-Rite, Ltd. for
fiscal years 2001, 2000 and 1999 were $3,819,000, $3,528,000 and
$3,275,000, respectively.
As a stockholder member of Wakefern, the Company earns a share of an
annual Wakefern patronage dividend. The dividend is based on the
distribution of operating profits on a pro rata basis in proportion to
the dollar volume of business transacted by each member with Wakefern
during each fiscal year. It is the Company's policy to accrue quarterly
an estimate of the annual patronage dividend. The Company reflects the
patronage dividend as a reduction of the cost of merchandise in the
consolidated statements of operations. In addition, the Company also
receives from Wakefern other product incentives and rebates. For fiscal
2001, 2000 and 1999, total patronage dividends and other product
incentives and rebates were $9,909,000, $9,273,000 and $8,202,000,
respectively.
F-11
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Tabular dollars in thousands, except per share amounts)
Note 4 - Related Party Transactions - (continued)
Wakefern Food Corporation - (continued)
At November 3, 2001 and October 28, 2000, the Company has current
receivables due from Wakefern of approximately $8,970,000 and
$8,557,000, respectively, representing patronage dividends, vendor
rebates, coupons and other receivables due in the ordinary course of
business and a noncurrent receivable representing a deposit of
approximately $1,593,000 and $1,782,000, respectively.
In September 1987, the Company and all other stockholder members of
Wakefern entered into an agreement with Wakefern, as amended in 1992,
which provides for certain commitments and restrictions on all
stockholder members of Wakefern. The agreement contains an evergreen
provision providing for an indefinite term and is subject to
termination ten years after the approval of 75% of the outstanding
voting stock of Wakefern. Under the agreement, each stockholder,
including the Company, agreed to purchase at least 85% of its
merchandise in certain defined product categories from Wakefern and, if
it fails to meet such requirements, to make payments to Wakefern based
on a formula designed to compensate Wakefern for its lost profit.
Similar payments are due if Wakefern loses volume by reason of the sale
of one or more of a stockholder's stores, merger with another entity or
on the transfer of a controlling interest in the stockholder.
The Company fulfilled its obligation to purchase a minimum of 85% in
certain defined product categories from Wakefern for all periods
presented. The Company's merchandise purchases from Wakefern, including
direct store delivery vendors processed by Wakefern, approximated $647,
$588 and $536 million for the fiscal years 2001, 2000 and 1999,
respectively.
Wakefern charges the Company for, and provides the Company with support
services in numerous administrative functions. These services include
advertising, insurance, supplies, technical support for communications
and in-store computer systems, equipment purchasing, and the
coordination of coupon processing.
In addition to its investment in Wakefern, which carries only voting
rights, the Company's President serves as a member of Wakefern's Board
of Directors and its finance committee. Several of the Company's
officers and employees also hold positions on various Wakefern
committees.
The Company has receivables from related parties that include
shareholders, directors, officers, and real estate partnerships. At
October 28, 2000, approximately $180,000 of these receivables consisted
of notes bearing interest at 9%. These receivables had been classified
based upon the scheduled payment terms. The remaining amounts were
non-interest bearing, had no repayment terms and were classified based
on expected payment dates. As of November 3, 2001, these receivables
had been fully repaid.
During the fiscal year ended November 3, 2001, the Company utilized an
entity, which is wholly-owned by the daughter of the Company's Chairman
of the Board, to provide construction management services on several
store renovations. The Company incurred $214,000 of construction
management fees relating to this entity and these amounts have been
included in property and equipment.
F-12
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Tabular dollars in thousands, except per share amounts)
Note 5 - Intangibles
November 3, October 28,
2001 2000
---- ----
Goodwill $ 3,493 $ 3,493
Favorable operating lease costs 4,685 4,685
----------- -----------
8,178 8,178
Less accumulated amortization 5,042 4,691
----------- -----------
$ 3,136 $ 3,487
=========== ===========
Note 6 - Accrued Expenses
----------------
November 3, October 28,
2001 2000
Payroll and payroll related expenses $ 7,211 $ 5,871
Insurance 1,405 909
Sales, use and other taxes 1,294 1,214
Interest 63 483
Employee benefits 1,346 801
Occupancy costs 2,179 2,033
Real estate taxes 537 434
Other 619 733
-------- --------
$ 14,654 $ 12,478
======== ========
Note 7 - Long-term Debt
Long-term debt consists of the following:
November 3, October 28,
2001 2000
Revolving note $ 3,766 $ 2,837
Term loan 6,500 8,500
Capital expenditure facility 7,306 7,758
Other notes payable 7,112 10,004
--------- --------
24,684 29,099
Less current portion 5,390 4,918
--------- --------
$ 19,294 $ 24,181
========= ========
F-13
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Tabular dollars in thousands, except per share amounts)
Note 7 - Long-term Debt - (continued)
The Company has a Revolving Credit and Term Loan Agreement which was
amended and assigned to three financial institutions on January 7,
2000, and was further amended May 11 and August 7, 2001 (as amended,
the "Credit Agreement"). The Credit Agreement is collateralized by
substantially all of the Company's assets, provided for a total
commitment of $58,000,000 and matures December 31, 2004. The amended
Credit Agreement (a) increases the total amount available to the
Company under the Revolving Note to $28,000,000 from $25,000,000,
subject to the borrowing base limitation of 65% of eligible inventory;
(b) reallocates the amount of permitted new indebtedness for fiscal
year 2001 to fiscal year 2002 to more closely meet the Company's
projected borrowing needs; (c) reallocates the limitations on
indebtedness attributable to capitalized lease obligations over the
term of the Credit Agreement to more closely track new real estate
lease obligations; (d) permits capital expenditures ("Capex") relating
to New/Replacement Store Projects over the term of the Credit Agreement
to more closely track the projected timing of such expenditures; (e)
permits capital expenditures relating to Adjusted Capex over the term
of the Credit Agreement to more closely track the projected timing of
such expenditures; (f) extends the expiration date of the period during
which the Company may borrow against the Capex Facility to June 30,
2002; (g) allows the Company to repurchase its common stock for an
aggregate purchase price not to exceed $5,000,000 subject to certain
conditions and limitations (see Note 12); (h) allows for loans to
employees not to exceed $50,000 in the aggregate; and (i) amends
certain definitions. Other terms and conditions of the Credit Agreement
previously reported upon by the Company have not been modified.
The Agreement provides the Company with the option to convert portions
of the debt to Eurodollar loans, as defined in the Agreement, which
have interest rates indexed to LIBOR. The Agreement consists of a
Revolving Note, a Term Loan and a Capital Expenditure Facility. The
previous outstanding balances under the Stock Redemption Note and
Expansion Loan were fully satisfied and replaced by this Agreement.
These previous loans had fixed interest rates of 8.38% and 9.18%,
respectively.
The Revolving Note has an overall availability of $28,000,000, not to
exceed 65% of eligible inventory, and provides for availability of up
to $4,500,000 for letters of credit. The Revolving Note bears interest
at prime plus .50% or LIBOR plus 2.50%.
The Company had a letter of credit outstanding of $1,012,004 and
$2,000,000 at November 3, 2001 and October 28, 2000, respectively. A
commitment fee of .5% is charged on the unused portion of the Revolving
Note. Available credit under the Revolving Note was $18,691,000 and
$18,863,000 at November 3, 2001 and October 28, 2000. As of November 3,
2001 and October 28, 2000, $7,475,000 and $7,001,000 of cash receipts
on hand or in transit were restricted for application against the
Revolving Note balance.
The Term Loan is $10,000,000 and is payable in quarterly principal
installments of $500,000 commencing April 1, 2000 through December 31,
2004. Interest is payable monthly at prime plus .75% or LIBOR plus
2.75%. At November 3, 2001, $6,000,000 of the Term Loan balance was
under a one month Eurodollar rate of 5.39%, maturing November 2001,
which was renewed through February 2002 at a rate of 4.67%.
F-14
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Tabular dollars in thousands, except per share amounts)
Note 7 - Long-term Debt - (continued)
The $20,000,000 Capital Expenditure Facility provides for a two-year
non-restoring commitment to fund equipment purchases for five new
stores, with a maximum of $4,000,000 per store. Interest only is due
monthly at prime plus .75% or LIBOR plus 2.75% for any amount utilized
during the first two years of the commitment. Amounts borrowed through
December 31, 2001 will be converted to a term loan with interest
payable monthly at rates described above and fixed quarterly principal
payments, commencing April 1, 2002, calculated on a seven-year
amortization schedule. Additional amounts borrowed after December 31,
2001 through June 30, 2002 will be converted to a term loan with
interest payable monthly at rates described above and fixed quarterly
principal payments, commencing October 1, 2002, calculated on a six and
a half-year amortization schedule. A balloon payment is due at December
31, 2004 for amounts outstanding on the term loans. A commitment fee of
.5% is charged on the unused portion of the Capital Expenditure
Facility. The Company had $7,306,000 and $7,758,000 outstanding as of
November 3, 2001 and October 28, 2000, respectively and had $12,000,000
available under this facility. At November 3, 2001, $7,000,000 of the
Capital Expenditure facility was under a one month Eurodollar rate of
5.31%, maturing November 2001, which was renewed through February 2002
at a rate of 4.60%.
The Agreement places restrictions on dividend payments and requires the
maintenance of debt service coverage and leverage ratios and other
financial ratios, as well as limitations on capital expenditures and
new debt. For the year ended October 28, 2000, the Company exceeded its
capital expenditure and adjusted indebtedness limits, which were
waived.
The prime rate at November 3, 2001 and October 28, 2000 was 5.50% and
9.50%, respectively.
Other Notes Payable
Included in other notes payable are the following:
November 3, October 28,
2001 2000
---- ----
Note payable to a financing institution, maturing
October 2004, payable at $56,000 per month
plus interest at 7.26%, collateralized by related
equipment. $ 1,996 $ 2,663
Note payable to a financing institution, maturing
April 2005, payable at $46,000 per month
including interest at 7.44%, collateralized by
related equipment. 1,642 2,057
Various equipment loans maturing through
November 2004, payable at an aggregate monthly
payment of $152,000 including interest at rates
ranging from 5.79% to 9.02%, collateralized by
various equipment. 3,474 5,284
----------- ----------
Total other notes payable $ 7,112 $ 10,004
============ ==========
F-15
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Tabular dollars in thousands, except per share amounts)
Note 7 - Long-term Debt - (continued)
Other Notes Payable - (continued)
Aggregate maturities of long-term debt are as follows:
Fiscal Year
2002 $5,390
2003 5,183
2004 5,135
2005 8,976
Note 8 - Long-term Debt, Related Party
As of November 3, 2001 and October 28, 2000, the Company was indebted
for an investment in Wakefern in the amount of $2,212,000 and
$3,092,000, respectively. The debt is non-interest bearing and payable
in scheduled installments as follows:
Fiscal Year
2002 $ 902
2003 779
2004 186
2005 182
2006 107
Thereafter 56
Note 9 - Other Long-term Liabilities
November 3, October 28,
2001 2000
Deferred escalation rent $ 4,652 $ 4,712
Minimum pension liability (Note 15) 3,399 -
Postretirement benefit cost 1,965 1,580
Other 867 759
-------- -------
$ 10,883 $ 7,051
======== =======
Note 10 - Long-term Leases
Capital Leases
November 3, October 28,
2001 2000
Real estate $ 59,909 $59,909
Less accumulated amortization 12,922 10,313
---------- -------
$ 46,987 $49,596
========== =======
F-16
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Tabular dollars in thousands, except per share amounts)
Note 10 -Long-term Leases - (continued)
Capital Leases - (continued)
The following is a schedule by year of future minimum lease payments
under capital leases, together with the present value of the net
minimum lease payments, as of November 3, 2001:
Fiscal Year
2002 $ 6,102
2003 6,158
2004 6,230
2005 6,343
2006 6,412
Thereafter 93,793
--------
Total minimum lease payments 125,038
Less amount representing interest 69,190
--------
Present value of net minimum lease payments 55,848
Less current maturities 899
--------
Long-term maturities $ 54,949
========
Operating Leases
The Company is obligated under operating leases for rent payments
expiring at various dates through 2021. Certain leases provide for the
payment of additional rentals based on certain escalation clauses and
seven leases require a further rental payment based on a percentage of
the stores' annual sales in excess of a stipulated minimum. Percentage
rent expense was $268,000, $264,000 and $248,000 for the fiscal years
2001, 2000 and 1999, respectively. Under the majority of the leases,
the Company has the option to renew for additional terms at specified
rentals.
Total rental expense for all operating leases consists of:
Fiscal 2001 Fiscal 2000 Fiscal 1999
Land and buildings $ 11,020 $ 10,828 $ 10,611
Less subleases (3,089) (2,641) (2,152)
------------ ----------- ------------
$ 7,931 $ 8,187 $ 8,459
=====================================
F-17
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Tabular dollars in thousands, except per share amounts)
Note 10- Long-term Leases - (continued)
Operating Leases - (continued)
The minimum rental commitments under all noncancellable operating
leases reduced by income from noncancellable subleases at November 3,
2001, are as follows:
Income from
Land and Noncancellable Net Rental
Fiscal Year Buildings Subleases Commitment
2002 $ 10,169 $2,560 $7,609
2003 9,708 2,433 7,275
2004 8,194 1,906 6,288
2005 7,796 1,287 6,509
2006 6,403 852 5,551
Thereafter 31,783 1,612 30,171
----------- ----------- ---------
$ 74,053 $10,650 $ 63,403
=========== =========== =========
The Company is presently leasing one of its supermarkets, a garden
center, and liquor store from a partnership in which the Chairman of
the Board has a controlling interest, at an annual aggregate rental of
$736,000, $719,000 and $668,000 for the fiscal years 2001, 2000 and
1999, respectively.
Note 11- Stock Option Plan
On April 4, 2001, the Company's shareholders approved the Foodarama
Supermarkets, Inc. 2001 Stock Incentive Plan (the "2001 Plan"). The
2001 Plan replaces the Foodarama Supermarkets, Inc. 1995 Stock Option
Plan under which no options were granted.
The 2001 Plan provides for the issuance of up to 150,000 shares of
Foodarama Supermarkets, Inc. Common Stock (subject to anti-dilution
adjustment). The maximum number of shares of stock that may be covered
by the Awards granted to any one Participant for the life of the 2001
Plan shall be equal to one-third of the shares reserved for issuance
under the 2001 Plan.
The types of Awards that the Administrator may grant under the 2001
Plan are stock options, stock appreciation rights, restricted and
non-restricted stock awards, phantom stock, performance awards, other
stock grants or any combination of these Awards.
On August 8, 2001 (the "Grant Date"), the Company granted 107,500
shares as stock options and 11,000 shares in the form of Stock
Performance Units (the "Units"), which represent deferred compensation
based upon the increase in the market value of the Company's common
stock during the grantee's employment.
F-18
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Tabular dollars in thousands, except per share amounts)
Note 11- Stock Option Plan - (continued)
The stock options consist of 50,000 shares granted to each of the
Chairman of the Board and the President of the Company and vest
quarterly from the grant date over a five-year period. The remaining
7,500 shares were granted to certain officers and elected board members
of the Company and vest, per individual, 250 shares at the Grant Date
and 250 shares each year thereafter for the next three years.
The Units are payable in cash only, were granted to certain officers
and senior management of the Company and vest, per individual, 250
units at the Grant Date and 250 units thereafter, for the next one to
three years.
The term of the stock options and Units granted expire ten years after
the grant date. The exercise price of the options and the market price
of the Company's Common Stock at the date of grant were $19.60 and
$36.50, respectively. At the date of grant, the Company recorded
deferred compensation expense and a related adjustment to capital in
excess of par of $1,817,000 relating to the stock options granted. For
the year ended November 3, 2001, the Company realized compensation
expense relating to the stock option plan of $121,000. For the year
ended November 3, 2001, the Company realized compensation expense of
$135,000 related to the Units granted, based on the market price of the
Company's common stock of $40.75 at November 3, 2001.
As of November 3, 2001, none of the vested stock options or Units were
exercised. The following table summarizes stock option and Units
activity:
Date of Grant
Stock Market
Stock Performance Price
Options Units Exercise Common
Granted Granted Total Price Stock
Outstanding, October 28, 2000 - - -
Granted 107,500 11,000 118,500 $ 19.60 $36.50
Exercised - - - - ======
------- ------ ------- -------
Outstanding, November 3, 2001 107,500 11,000 118,500 $ 19.60
======= ====== ======= ======
Exercisable, November 3, 2001 2,000 4,750 6,750
======= ======= =======
Following is a summary of the status of stock options outstanding at
November 3, 2001:
Outstanding Options Exercisable Options
Weighted
Average Weighted Weighted
Exercise Remaining Average Average
Price Number Contractual Exercise Price Number Exercise Price
Life
$19.60 107,500 9.75 years $19.60 2,000 $19.60
F-19
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Tabular dollars in thousands, except per share amounts)
Note 11 -Stock Option Plan - (continued)
Pro forma information regarding net income and earnings per share is
required by Statement 123, and has been determined as if the Company
had accounted for its employee stock options under the fair value
method of that Statement. The fair value for these options was
estimated at $22.93 on the date of grant using the Black-Scholes option
pricing model.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options, which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the
expected stock price volatility. Because the Company's employee stock
options have characteristics significantly different from those of
traded options, and because changes in the subjective input assumptions
can materially affect the fair value estimate, in management's opinion,
the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
The following weighted-average assumptions were used for the year ended
November 3, 2001:
Risk-free interest rate 5.0%
Expected volatility 40.2%
Dividend yield 0%
Expected life 5 years
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The
Company's pro forma information follows:
Fiscal 2001 Fiscal 2000 Fiscal 1999
Pro forma net income $3,915 $2,382 $1,945
Pro forma earnings per share
Basic $3.52 $2.13 $1.74
Diluted $3.48 $2.13 $1.74
Note 12 -Shareholders' Equity
On May 11, 2001, the Board of Directors authorized the Company to
repurchase, in either open market or private transactions, up to
$3,000,000 of its common stock. The Company repurchased 29,070 shares
of its common stock at an aggregate cost of $1,067,927 for the year
ended November 3, 2001 (see Note 20).
F-20
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Tabular dollars in thousands, except per share amounts)
Note 13 -Income Taxes
The income tax provisions consist of the following:
Fiscal 2001 Fiscal 2000 Fiscal 1999
Federal
Current $ 2,247 $ 1,621 $1,857
Deferred (212) (411) (506)
State and local
Current 518 541 37
Deferred 73 (163) (247)
---------- ------------ -----------
$ 2,626 $1,588 $ 1,141
========== ============ ===========
The following tabulations reconcile the federal statutory tax rate to
the effective rate:
Fiscal 2001 Fiscal 2000 Fiscal 1999
Tax provision at the statutory rate 34.0 % 34.0 % 34.0%
State and local income tax provision,
net of federal income tax 5.9 % 5.9 % 5.9%
Goodwill amortization not deductible
for tax purposes 1.0 % 1.3 % 1.8%
Tax credits (.2)% (.7) % (1.0)%
Adjustment to prior years tax
provision .5 % (1.0) % (5.1)%
Other (1.2)% .5 % 1.4 %
------ ------- -------
Actual tax provision 40.0 % 40.0 % 37.0 %
====== ======= =======
Net deferred tax assets and liabilities consist of the following:
November 3, October 28,
2001 2000
Current deferred tax assets
Deferred revenue and gains on sale/leaseback $230 $ 138
Allowances for uncollectible receivables 461 301
Inventory capitalization 9 8
Closed store reserves 430 570
Vacation accrual 433 365
Accrued post-employment 159 162
Accrued post-retirement 796 640
Other 37 37
----- -------
2,555 2,221
----- -------
F-21
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Tabular dollars in thousands, except per share amounts)
Note 13 - Income Taxes - (continued)
November 3, October 28,
2001 2000
Current deferred tax liabilities
Prepaids (280) (335)
Patronage dividend receivable (2,278) (2,073)
Accelerated real estate taxes (212) (174)
Prepaid pension (864) (753)
-------- ---------
(3,634) (3,335)
-------- ---------
Current deferred tax liability $(1,079) $ (1,114)
======== =========
Noncurrent deferred tax assets
Lease obligations $ 3,558 $2,811
Minimum pension liability 1,280 -
Stock options and deferred compensation 104 -
State loss carryforward 72 53
-------- ---------
5,014 2,864
Valuation allowance (72) (53)
-------- ---------
4,942 2,811
-------- ---------
Noncurrent deferred tax liabilities
Depreciation (5,453) (4,524)
Pension obligations (341) (523)
Other (349) (349)
-------- ----------
(6,143) (5,396)
-------- ----------
Noncurrent deferred tax liability $(1,201) $ (2,585)
======== ==========
Minimum pension liability of $1,280,000 was charged against accumulated
other comprehensive income (see Note 15).
State loss carryforwards of approximately $731,000 expire through
October 2010.
Note 14 -Commitments and Contingencies
Legal Proceedings
The Company is involved in various legal actions and claims arising in
the ordinary course of business. Management believes that the outcome
of any such litigation and claims will not have a material effect on
the Company's financial position or results of operations.
Guarantees
The Company remains contingently liable under leases assumed by third
parties. As of November 3, 2001, the minimum annual rental under these
leases amounted to approximately $1,646,000 expiring at various dates
through 2011. The Company has not experienced and does not anticipate
any material nonperformance by such third parties.
F-22
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Tabular dollars in thousands, except per share amounts)
Note 15 -Retirement and Benefit Plans
Defined Benefit Plans
The Company sponsors two defined benefit pension plans covering
administrative personnel and members of a union. Employees covered
under the administrative pension plan earned benefits based upon a
percentage of annual compensation and could make voluntary
contributions to the plan. Employees covered under the union pension
benefit plan earn benefits based on a fixed amount for each year of
service. The Company's funding policy is to pay at least the minimum
contribution required by the Employee Retirement Income Security Act of
1974. The plans' assets consist primarily of publicly traded stocks and
fixed income securities. As of November 3, 2001 and October 28, 2000,
the plans' assets included common stock of the Company with a fair
value of $1,516,000 and $702,000, respectively.
A summary of the plans' funded status and the amounts recognized in the
consolidated balance sheets as of November 3, 2001 and October 28, 2000
follows:
November 3, October 28,
2001 2000
Change in benefit obligation
Benefit obligation - beginning of year $ (5,772) $ (5,936)
Service cost (63) (63)
Interest cost (454) (449)
Actuarial gain (loss) (1,517) 200
Benefits paid 628 476
------- ---------
Benefit obligation - end of year (7,178) (5,772)
-------- ---------
Change in plan assets
Fair value of plan assets -
beginning of year 6,174 6,433
Actual return (loss) on plan assets 145 (342)
Employer contributions 402 559
Benefits paid (628) (476)
Administrative expense (180) -
------ -------
Fair value of plan assets - end of year 5,913 6,174
------ -------
Funded status (1,265) 402
Unrecognized prior service cost 198 236
Unrecognized net loss from past
experience different from that assumed 3,206 1,233
Unrecognized transition asset (5) (11)
Adjustment required to recognize
minimum liability (3,399) -
-------- --------
Prepaid (accrued) pension cost $(1,265) $ 1,860
======== ========
F-23
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Tabular dollars in thousands, except per share amounts)
Note 15 -Retirement and Benefit Plans - (continued)
Defined Benefit Plans - (continued)
Pension expense consists of the following:
Fiscal 2001 Fiscal 2000 Fiscal 1999
Service cost - benefits earned
during the period $ 63 $ 63 $ 71
Interest expense on benefit
obligation 454 449 447
Expected return on plan assets (488) (506) (522)
Amortization of prior service costs 37 37 37
Amortization of unrecognized net
loss (gain) 67 8 35
Amortization of unrecognized
transition obligation (asset) (5) (5) (5)
----- ----- -----
Total pension expense $ 128 $ 46 $ 63
===== ===== =====
The discount rate used in determining the actuarial present value of
the projected benefit obligation ranged from 7.25% to 8.00% at November
3, 2001 and 7.75% to 8.00% at October 28, 2000. The expected long-term
rate of return on plan assets was 8% at November 3, 2001 and October
28, 2000.
On September 30, 1997, the Company adopted an amendment to freeze all
future benefit accruals relating to the plan covering administrative
personnel. A curtailment gain of $55,000 was recorded related to this
amendment.
At November 3, 2001, the accumulated benefit obligation exceeded the
fair value of the plans' assets in both defined benefit plans. The
provisions of Statement of Financial Accounting Standards No. 87 ("SFAS
87"), "Employers' Accounting for Pensions," require recognition in the
balance sheet of an additional minimum liability and related intangible
asset for pension plans with accumulated benefits in excess of plan
assets; any portion of such additional liability which is in excess of
the plan's prior service cost is reflected as a direct charge to
equity, net of related tax benefit. Accordingly, at November 3, 2001, a
liability of $3,399,000 was included in other long-term liabilities, an
intangible asset equal to the prior service cost of $199,000 is
included in other assets, and a charge of $1,920,000 net of deferred
taxes of $1,280,000 is reflected as a minimum pension liability in
shareholders' equity in the Consolidated Balance Sheet.
At October 31, 1998, the accumulated benefit obligation exceeded the
fair value of the plan's assets in the plan covering members of one
union. Accordingly, at October 31, 1998, a liability of $188,000 was
included in other long-term liabilities, an intangible asset equal to
the prior service cost of $53,000 was included in other assets, and a
charge of $81,000 net of deferred taxes of $54,000 was reflected as a
minimum pension liability in shareholders' equity in the Consolidated
Balance Sheet. These amounts were reversed during fiscal 1999.
F-24
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Tabular dollars in thousands, except per share amounts)
Note 15 -Retirement and Benefit Plans - (continued)
Multi-Employer Plans
Health, welfare, and retirement expense was approximately $10,440,000
in fiscal 2001, $9,155,000 in fiscal 2000 and $8,276,000 in fiscal 1999
under plans covering union employees. Such plans are administered
through the unions involved. Under federal legislation regarding such
pension plans, a company is required to continue funding its
proportionate share of a plan's unfunded vested benefits in the event
of withdrawal (as defined by the legislation) from a plan or plan
termination. The Company participates in a number of these pension
plans and may have a potential obligation as a participant. The
information required to determine the total amount of this contingent
obligation as well as the total amount of accumulated benefits and net
assets of such plans, is not readily available. However, the Company
has no present intention of withdrawing from any of these plans, nor
has the Company been informed that there is any intention to terminate
such plans.
401(k)/Profit Sharing Plan
The Company maintains an employee 401(k) Savings Plan for all qualified
non-union employees. Employees are eligible to participate in the Plan
after completing one year of service (1,000 hours) and attaining age
21. Employee contributions are discretionary to a maximum of 15% of
compensation. The Company matches 25% of the employees' contributions
up to 6% of employee compensation. The Company has the right to make
additional discretionary contributions, which are allocated to each
eligible employee in proportion to their eligible compensation, which
was 2% for fiscal years 2001, 2000 and 1999. 401(k) expense for the
fiscal years 2001, 2000 and 1999 was approximately $607,000, $507,000
and $480,000, respectively.
Note 16 -Other Postretirement and Postemployment Benefits
Postretirement Benefits
The Company will provide certain current officers and provides former
officers with supplemental income payments and limited medical benefits
during retirement. The Company recorded an estimate of deferred
compensation payments to be made to the officers based on their
anticipated period of active employment and the relevant actuarial
assumptions at November 3, 2001 and October 28, 2000, respectively. The
participants have agreed to certain non-compete arrangements and to
provide continued service availability for consulting services after
retirement.
A summary of the plan's funded status and the amounts recognized in the
balance sheets as of November 3, 2001 and October 28, 2000, follows:
November 3, October 28,
2001 2000
----------- ----------
Change in benefit obligation
Benefit obligation - beginning of year $ (2,630) $ (2,062)
Service cost (103) (89)
Interest cost (214) (174)
Actuarial gain (loss) (480) (352)
Benefits paid 47 47
------- -------
Benefit obligation - end of year (3,380) (2,630)
------- -------
F-25
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Tabular dollars in thousands, except per share amounts)
Note 16 -Other Postretirement and Postemployment Benefits - (continued)
Postretirement Benefits - (continued)
November 3, October 28,
2001 2000
----------- -----------
Change in plan assets
Fair value of plan assets - beginning of year - -
Actual return on plan assets - -
Employer contributions 47 47
Benefits paid (47) (47)
---- ----
Fair value of plan assets - end of year - -
---- ----
Funded status (3,380) (2,630)
Unrecognized prior service cost 137 11
Unrecognized net loss from past experience
different from that assumed 1,278 1,039
------- -------
Accrued postretirement benefit cost $(1,965) $(1,580)
======= =======
Net postretirement benefit expense consists of the following:
Fiscal 2001 Fiscal 2000 Fiscal 1999
Service cost - benefits earned
during the period $ 103 $ 89 $ 73
Interest expense on benefit obligation 214 174 123
Expected return on plan assets - - -
Amortization of prior service costs 23 2 2
Amortization of unrecognized net
loss (gain) 92 149 81
Amortization of unrecognized
transition obligation (asset) - - -
---- ---- ----
Postretirement benefit expense $ 432 $ 414 $ 279
==== ==== ====
The assumed discount rate used in determining the postretirement
benefit obligation was 8.0% and 7.75% as of November 3, 2001 and
October 28, 2000, respectively. The weighted average rate of
compensation increase as of November 3, 2001 and October 28, 2000 was
4%.
Postemployment Benefits
Under SFAS No.112, the Company is required to accrue the expected cost
of providing postemployment benefits, primarily short-term disability
payments, over the working careers of its employees.
The accrued liability under SFAS No. 112 as of November 3, 2001 and
October 28, 2000, was $393,000 and $401,000, respectively.
F-26
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Tabular dollars in thousands, except per share amounts)
Note 17 -Earnings Per Share
Fiscal 2001 Fiscal 2000 Fiscal 1999
Basic EPS
Net income available to common
shareholders $ 3,938 $ 2,382 $ 1,945
========== ======== ========
Weighted average shares
outstanding 1,111,727 1,117,290 1,117,290
---------- --------- ---------
Per share amount $ 3.54 $ 2.13 $ 1.74
========== ========= =========
Effect of Dilutive Securities
Stock Options - Weighted Shares 12,465 - -
========== ========= =========
Dilutive EPS
Weighted average shares outstanding
including incremental shares 1,124,192 1,117,290 1,117,290
---------- --------- ---------
Per share amount $ 3.50 $ 2.13 $ 1.74
========== ========= =========
Note 18- Noncash Investing and Financing Activities
During fiscal 2001, the Company retired property and equipment with an
original cost of $2,173,000 and accumulated depreciation of $2,109,000.
At November 3, 2001, the Company had an additional minimum pension
liability of $3,399,000, a related intangible of $199,000 and a direct
charge to equity of $1,920,000, net of deferred taxes of $1,280,000.
During fiscal 2001, the Company recorded an increase in capital in
excess of par and deferred compensation expense of $1,817,000 in
accordance with its stock option plan.
During fiscal 2000, capital lease obligations of $21,691,000 were
incurred when the Company entered into leases for two new stores.
During fiscal 1999, the Company modified one of its capitalized leases,
resulting in an increase of $5,865,000 in property under capitalized
leases and capitalized lease obligations.
During fiscal 2000, the required investment in Wakefern increased from
a maximum per store of $500,000 to $550,000. This resulted in an
increase of $1,039,000 in the investment and obligations due Wakefern.
During fiscal 1999, the required investment in Wakefern increased from
a maximum per store of $450,000 to $500,000. This resulted in an
increase of $1,286,000 in the investment and obligations due Wakefern.
The Company was required to make an additional investment in Wakefern
of $500,000 and $103,000 for a new store and a replacement store,
respectively, which opened during fiscal 2000. In conjunction with the
investment, liabilities were assumed for the same amount.
During fiscal 2000, the Company was required to invest an additional
$124,000 in Insure-Rite, Ltd. In conjunction with the investment,
liabilities were assumed for the same amount.
During fiscal 2000 and 1999, the Company financed equipment purchased
for $1,527,000, and $520,000, respectively.
F-27
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Tabular dollars in thousands, except per share amounts)
Note 19 -Unaudited Summarized Consolidated Quarterly Information
Summarized quarterly information for the years ended November 3, 2001
and October 28, 2000 was as follows:
Fourteen
Weeks
Thirteen Weeks Ended Ended
---------------------------------------- ----------
January 27, April 28, July 28, November 3,
2001 2001 2001 2001
---- ---- ---- ----
Sales $ 238,594 $ 223,926 $ 233,052 $ 249,729
Gross profit 57,829 55,625 58,356 62,399
Net income 1,168 963 1,044 763
Earnings available per share:
Basic 1.05 .86 .94 .69
Diluted 1.05 .86 .94 .66
Thirteen Weeks Ended
----------------------------------------------------
January 29, April 29, July 29, October 28,
2000 2000 2000 2000
---- ---- ---- ----
Sales $ 211,541 $ 211,638 $ 223,662 $ 219,522
Gross profit 50,211 51,092 54,389 53,235
Net income 784 335 636 627
Earnings available per share:
Basic .70 .30 .57 .56
Diluted .70 .30 .57 .56
Dilutive earnings per share amounts by quarter do not equal dilutive
earnings per share amounts for the year ended November 3, 2001 due to
the stock option plan being adopted in the fourth quarter.
Note 20 -Subsequent Events
On November 14, 2001, the Company opened a new store in Middletown, New
Jersey. This store replaced an existing store at the same location. A
capital lease obligation of $9,958,000 was incurred relating to this
new store, as well as an increase in property under capitalized leases
in the same amount.
The Company repurchased 10,310 shares of its Common stock at an
aggregate cost of $437,773 from November 4, 2001 through January 18,
2002.
F-28
Schedule II
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
Fiscal Years Ended November 3, 2001, October 28, 2000 and October 30, 1999
(In thousands)
Additions
Balance Charge to Charge to Balance
at beginning costs and other at end
Description of year expenses accounts Deductions of year
----------- -------- --------- -------- ---------- --------
Fiscal year ended
November 3, 2001:
Allowance for
doubtful accounts
(deducted from
receivables and
other current
assets) $ 543 $ 400 $ - 70 (1) $ 873
---------- -------- ------- ----- -------
Fiscal year ended
October 28, 2000:
Allowance for doubtful
accounts
(deducted from
receivables and other
current assets) $ 506 $ 143 $ - $ 106 (1) $ 543
---------- -------- ------- ----- ------
Fiscal year ended
October 30, 1999:
Allowance for doubtful
accounts (deducted from
receivables and other
current assets) $ 402 $ 199 $ - $ 95 (1) $ 506
---------- -------- ------- ----- ------
(1) Accounts deemed to be uncollectible.
S-1
Schedule X
c. Exhibits
3. Articles of Incorporation and By-Laws
*i. Restated Certificate of Incorporation of Registrant
filed with the Secretary of State of the State of
New Jersey on May 15, 1970.
*ii. Certificate of Merger filed with the Secretary of
State of the State of New Jersey on May 15, 1970.
*iii. Certificate of Merger filed with the Secretary of
State of the State of New Jersey on March 14, 1977.
*iv. Certificate of Merger filed with the Secretary of
State of the State of New Jersey on June 23, 1978.
*v. Certificate of Amendment to Restated Certificate of
Incorporation filed with the Secretary of State of
the state of New Jersey on May 12, 1987.
**vi. Certificate of Amendment to Restated Certificate of
Incorporation filed with the Secretary of State of
the State of New Jersey on February 16, 1993.
****vii. Amendment to the Certificate of Incorporation of the
Registrant dated April 4, 1996.
*viii. By-Laws of Registrant.
*ix. Amendments to By-Laws of Registrant adopted
September 14,1983.
x. Amendment to By-Laws of Registrant adopted March 15,
1991 is incorporated herein by reference to the
Registrant's Annual Report on Form 10-K for the year
ended November 2, 1991 filed with the Securities and
Exchange Commission on February 18, 1992.
* Each of these Exhibits is incorporated herein by reference to the
Registrant's Annual Report on Form 10-K for the year ended October 29, 1988
filed with the Securities and Exchange Commission on February 13, 1989.
** Each of these Exhibits is incorporated herein by reference to the
Registrant's Annual Report on Form 10-K for the year ended October 31, 1992
filed with the Securities and Exchange Commission on February 19, 1993.
E-1
10. Material Contracts.
i. The Agreement dated September 18, 1987 entered into by
Wakefern Food Corporation and the Registrant is
incorporated herein by reference to Exhibit A to the
Registrant's Form 8-K filed with the Securities and
Exchange Commission on November 19, 1987.
***ii. Certificate of Incorporation of Wakefern Food
Corporation together with amendments thereto and
certificates of merger.
***iii. By-Laws of Wakefern Food Corporation.
***iv. Form of Deferred Compensation Agreement, between the
Registrant and certain of its key employees.
v. Registrant's 1987 Incentive Stock Option Plan is
incorporated herein by reference to Exhibit 4 (a) to
the Registrant's Form S-8 filed with the Securities
and Exchange Commission on May 26, 1989.
vi. Agreement, dated September 20, 1993, between the
Registrant, ShopRite of Malverne, Inc. and The Grand
Union Company is incorporated herein by reference to
the Registrant's Annual Report on Form 10-K for the
year ended October 30, 1993, filed with the Securities
and Exchange Commission on February 24, 1994.
vii. Revolving Credit and Term Loan Agreement, dated as of
February 15, 1995 between the Registrant and NatWest
Bank as agent for a group of banks is incorporated
herein by reference to the Registrant's Form 8-K filed
with the Securities and Exchange Commission on July 10,
1995.
viii. Asset Purchase Agreement dated April 20, 1995 and
Amendment No. 1 to the Agreement dated May 24, 1995
between the Registrant and Wakefern Food Corporation
is incorporated herein by reference to the Registrant's
Form 8-K filed with the Securities and Exchange
Commission on July 27, 1995.
ix. Amendment of Revolving Credit and Term Loan
Agreement, dated as of January 25, 1996, between
the Registrant and each of the banks which are
signatory thereto is incorporated herein by
reference to the Registrant's Form 10-Q for the
quarterly period ended January 27, 1996, filed with
the Securities and Exchange Commission on March 12,
1996.
****x. Agreement, dated as of March 29, 1996, between the
Registrant and Wakefern Food Corporation.
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*** Each of these Exhibits is incorporated herein by reference to
the Registrant's Annual Report on Form 10-K for the year ended
October 28, 1989 filed with the Securities and Exchange Commission
on February 9, 1990.
E-2
****xi. Amendment of Revolving Credit and Term Loan Agreement,
dated as of May 10, 1996, between the Registrant and
each of the Banks which are signatory thereto.
xii. Waiver and Amendment of Revolving Credit and Term Loan
Agreement, dated as of July 26, 1996, between the
Registrant and each of the Banks which are signatory
thereto is incorporated herein by reference to the
Registrant's Form 10-Q for the quarterly period ended
July 27, 1996, filed with the Securities and Exchange
Commission on September 10, 1996.
xiii. Amended and Restated Revolving Credit and Term Loan
Agreement, dated as of May 2, 1997, between the
Registrant and the Financial Institution which are
signatory thereto is incorporated herein by reference to
the Registrant's Form 10-Q for the quarterly period
ended May 3, 1997, filed with the Securities and
Exchange Commission on June 16, 1997.
*****xiv. First Amendment to Amended and Restated Revolving Credit
and Term Loan Agreement, dated October 28, 1997, between
the Registrant and the Financial Institution which are
signatory thereto.
*****xv. Consent and Second Amendment to Amended and Restated
Revolving Credit and Term Loan Agreement and other loan
documents, dated November 14, 1997, between the
Registrant and the Financial Institution which are
signatory thereto.
*****xvi. Third Amendment to Amended and Restated Revolving Credit
and Term Loan Agreement, dated January 15, 1998, between
the Registrant and the Financial Institution which are
signatory thereto.
xvii. Amendment to the Amended and Restated Revolving Credit
and Term Loan Agreement, dated March 11, 1999, between
the Registrant and the Financial Institution which are
signatory thereto, is incorporated herein by reference
the Registrant's Form 10-Q for the quarterly period
ended May 1, 1999, filed with the Securities and
Exchange Commission on June 11, 1999.
**** Incorporated herein by reference to the Registrant's Form 10-Q for the
quarterly period ended April 27, 1996, filed with the Securities and Exchange
Commission on June 10, 1996.
***** Incorporated herein by reference to the Registrant's Form 10-K for the
year ended November 1, 1997 filed with the Securities and Exchange Commission on
January 29, 1998.
E-3
xviii. Second Amended and Restated Revolving Credit and Term
Loan Agreement, dated as of January 7, 2000 between the
Registrant and each of the Financial Institutions which
are signatory thereto, is incorporated herein by
reference to the Registrant's Form 10-K for the year
ended October 30, 1999 filed with the Securities and
Exchange Commission on January 27, 2000.
xix. Restatement of Supplemental Executive Retirement Plan,
dated as of January 1, 1998, is incorporated herein by
reference to the Registrant's Form 10-Q for the
quarterly period ended January 24, 2000, filed with the
Securities and Exchange Commission on March 9, 2000.
xx. Registrant's 2001 Stock Incentive Plan is incorporated
herein by reference to Appendix B to the Registrant's
Proxy Statement filed with the Securities and Exchange
Commission on February 26, 2001.
xxi. Amendment No. 1 to Second Amended and Restated Revolving
Credit and Term Loan Agreement, dated as of May 11,
2001, between the Registrant and each of the Financial
Institutions which are signatory thereto is incorporated
herein by reference to the Registrant's Form 10-Q for
the quarterly period ended April 28, 2001, filed with
the Securities and Exchange Commission on June 8, 2001.
xxii. Amendment No. 2 to Second Amended and Restated Revolving
Credit and Term Loan Agreement, dated as of August 7,
2001 between the Registrant and each of the Financial
Institutions which are signatory thereto is incorporated
herein by reference to the Registrant's Form 10-Q for
the quarterly period ended July 28, 2001, filed with the
Securities and Exchange Commission on September 10,
2001.
E-4
Exhibit 21
LIST OF SUBSIDIARIES
OF FOODARAMA SUPERMARKETS, INC.
Name of Subsidiary State of
Incorporation
ShopRite of Malverne, Inc. New York
New Linden Price Rite, Inc. New Jersey
ShopRite of Reading, Inc. Pennsylvania
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