UNITED STATES
SECURITIES 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
October 29, 2005 1-5745
FOODARAMA SUPERMARKETS, INC.
(Exact name of Registrant as specified in its charter)
New Jersey 21-0717108
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Building 6, Suite 1, 922 Hwy. 33, Freehold, New Jersey 07728
(Address of principal executive offices)
Registrant's telephone number, including area code: (732) 462-4700
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
------------------- ----------------
Common Stock, par value $1.00 per share American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
NONE
(Title of Class)
Indicate by check mark if the Registrant is a well-known seasoned issuer,
as defined in Rule 405 of the Securities Act. Yes |_| No |X|
Indicate by check mark if the Registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. Yes |_| No |X|
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|
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes |_| No |X|
Indicate by check mark whether the Registrant is a shell company (as
defined in Rule 12b-2 of the Act). Yes |_| No |X|
The aggregate market value of voting stock held by non-affiliates of the
Registrant was approximately $12,191,142. Computation is based on the closing
sales price of $34.00 per share of such stock on the American Stock Exchange on
April 29, 2005, the last business day of the Registrant's most recently
completed second quarter.
As of January 13, 2006, the number of shares outstanding of Registrant's
Common Stock was 988,117.
DOCUMENTS INCORPORATED BY REFERENCE
None.
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, warehouse club stores and discount general
merchandise 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-six supermarkets located in Central New Jersey, as well as two
liquor stores and one garden center, all licensed as ShopRite. We also operate a
central food processing facility to supply our stores with certain meat
products, 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.
We have incorporated the concept of "World Class" supermarkets into our
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. Currently, twenty-two of our stores are "World Class" and four are
conventional supermarkets.
On December 2, 2005, the Company announced that it received a non-binding
proposal for a going private transaction from a purchaser group consisting of
Richard J. Saker, the Company's Chief Executive Officer and President, Joseph J.
Saker, the Company's Chairman of the Board, and six other members of the family
of Joseph J. Saker who are shareholders of the Company (the "Purchasers"). The
transaction (the "Going Private Transaction") will result in the acquisition by
a corporation formed by the purchaser group of all the outstanding shares of
common stock of the Company not already owned by the members of the purchaser
group. The purchaser group currently owns or controls approximately 51% of the
Company's issued and outstanding common stock.
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The proposed transaction will be effected by means of a tender offer for the
remaining 49% of the Company's outstanding shares which will be conditioned
upon, among other things, that (i) the majority of the minority 49% shareholders
tender their shares in the tender offer, (ii) the acquiring entity hold at least
90% of the Company's outstanding common stock after the closing of the tender
offer (inclusive of the shares held by the purchasers), and (iii) the Foodarama
shareholders approve an agreement and plan of share exchange pursuant to which
each outstanding share of Foodarama common stock would be exchanged for one
share of common stock of a newly formed Delaware corporation. The share exchange
would be followed by a merger of the Delaware corporation into the acquiring
entity pursuant to which shareholders who do not tender shares in the tender
offer would receive $52 in exchange for their shares of the Delaware corporation
they receive in the share exchange. As a result of the tender offer, the share
exchange and the merger, Foodarama would become a wholly-owned subsidiary of the
acquiring entity. The Company will proceed with the proposed tender offer and
other transactions only if the requisite consent of Wakefern is obtained. The
Purchasers have arranged for financing of this transaction with GMAC Commercial
Finance, LLC. The loan will be secured by the assets of the Company. All
unvested stock options fully vest as a result of the Going Private Transaction,
and all outstanding options not held by the Purchasers will be cashed out.
(Remainder of This Page Intentionally Left Blank)
3
The following table sets forth certain data relating to the Company's
supermarket business for the periods indicated:
---------------------------------------------------------------------------
Fiscal Year Ended
---------------------------------------------------------------------------
October 29, October 30, November 1, November 2, November 3,
2005 2004 2003 2002 2001**
----------- ----------- ----------- ----------- -----------
Average annual sales per store
(in millions)* ................................... $ 46.3 $ 48.0 $ 45.3 $ 43.0 $ 42.5
Same store sales increase(decrease)
from prior year*** ............................... (1.22%) 2.04% 1.47% 1.56% 3.77%
Total store area in square feet
(in thousands) ................................... 1,808 1,764 1,558 1,340 1,301
Total store selling area in square feet
(in thousands) ................................... 1,352 1,316 1,181 1,001 973
Average total square feet per store (in
thousands) ....................................... 67 68 65 61 59
Average square feet of selling area per
store (in thousands) ............................. 50 51 49 46 44
Annual sales per square foot of selling
area* ............................................ $ 915 $ 940 $ 963 $ 956 $ 962
Number of stores:
Stores remodeled (over $500,000) ............ 1 2 1 0 2
New stores opened/acquired .................. 1 2 2 0 0
Stores replaced/expanded .................... 0 2 3 1 1
Stores closed/divested ...................... 0 1 2 1 0
Number of stores by size
(total store area):
30,000 to 39,999 sq.ft ...................... 1 1 2 2 3
40,000 to 49,999 sq.ft ...................... 2 1 1 3 3
Greater than 50,000 sq.ft.(1) ............... 24 24 21 17 16
Total stores open at period end(1) ............... 27 26 24 22 22
(1) One location was closed in November 2005 at the end of its lease term.
* Sales for stores open less than 52 weeks have been excluded from this
calculation.
** Calculated on a 53 week basis. A like 52 week comparison would be $41.7
million in average annual sales per store and $943 in annual sales per
square foot of selling area.
*** Sales from relocated and closed stores, as well as new stores opened or
acquired, in the respective periods are not included in this calculation
while sales from remodeled and expanded stores are included in this
calculation.
4
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 2005, a location in Pennington, New Jersey was purchased from
Wakefern and in November 2005, subsequent to our 2005 fiscal year end, a
location in Edison, New Jersey was closed. Additionally, an existing location
was remodeled. Over the next three years the Company plans to open two
replacement and three new stores and expand one existing location. All of these
stores are in Central New Jersey and will be "World Class" operations.
Technology
Automation and computerization are important to our 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. Software enhancements are made on an ongoing
basis. In fiscal 2005 all POS systems had either memory upgrades or hardware
replacements. These POS upgrades bring 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. During fiscal 2005 automated checkout systems were installed in
one additional location and another installation is in progress. These systems,
which allow the customer to checkout without interaction with Company personnel,
are now operating in eleven stores. Automated checkout systems 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
subsequently enhanced as needed. All applications on the RS/6000 will be moved
to web based servers and we expect to eliminate the RS/6000 within two years.
A frame relay communications network is being used for high speed 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. During fiscal 2002, the infrastructure for improved wireless
communications was installed in all of our stores and ISDN circuits were
installed which serve as a back up system for the frame relay. The use of these
systems allows the Company to offer its customers debit and credit card payment
options, participation in Price Plus(R), ShopRite's preferred customer program,
the use of the ShopRite co-branded credit card, and the opportunity to use
ShopRite gift cards. By presenting the scannable Price Plus(R) card or the
ShopRite co-branded card, customers can be given electronic discounts,
participate in customer loyalty programs, 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. In fiscal
2005, we replaced in all locations our Voice Over Internet Protocol ("VOIP")
system with a current technology VOIP system to improve the quality of
communications within the Company and with the Wakefern communications system.
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, bakery, food service and
5
appetizing prices are maintained on department computers for automatic weighing
and pricing. In fiscal 2005 a browser based scale management system was
installed which allows us to control all scales from a central location. This
system maintains a master item pricing file for all department scales which has
improved control and accuracy, as well as our ability to monitor scale
performance. Additionally, all stores have computerized time and attendance
systems which are used for, among other things, automated labor scheduling. A
new web based time and attendance system was installed in 11 stores in fiscal
2005. The Company's remaining stores will receive the new system in the first
six months of fiscal 2006. The new system allows us to remotely recall and
maintain information. A browser based labor scheduling system was installed in
all stores in fiscal 2004. Most stores also have computerized energy management
systems. Web based hiring kiosks were installed in all stores in fiscal 2005
which allows the applicant to complete an online employment application,
facilitates sharing information between our stores and reduces the amount of
paper being handled. 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. The Company has also installed computer based training systems in all
stores. The system is presently being used to train all new checkout, produce,
grocery and bakery department personnel. Modules for training seafood, meat,
dairy, frozen, sanitation and appetizing personnel will be installed in all of
our stores in fiscal 2006.
During fiscal 2005 we evaluated our information technology platform and
applications at our administrative office. We are now implementing a
modernization program involving the migration away from our existing mainframe
computer system and applications. As part of this process we began using the
PeopleSoft(R) payroll application on January 1, 2006. This payroll system is
being provided by Wakefern.
In addition, all field merchandisers and operations supervisors are equipped
with personal laptop computers. This provides field personnel with current labor
and product information to facilitate the making of accurate and timely
decisions. Lotus Notes(R) is used to enhance communication among the Company's
stores, our executive offices and Wakefern.
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 10/29/05 10/30/04 11/01/03
------------------ -------- -------- --------
Groceries & Tobacco 37.2% 37.2% 37.6%
Dairy & Frozen 16.6 16.8 16.3
Meats, Seafood & Poultry 10.6 10.5 10.3
Non-Foods 9.4 9.4 10.1
Produce 9.6 9.4 9.4
Appetizers & Prepared Foods 7.0 7.4 7.0
Pharmacy 5.6 5.3 5.4
Bakery 2.2 2.2 2.2
Liquor, Floral & Garden Centers 1.8 1.8 1.7
----- ----- -----
100.0% 100.0% 100.0%
----- ----- -----
Gross profit derived by the Company from each product category is not
necessarily consistent with
6
the percentage of total sales represented by such product category.
Wakefern Food Corporation
The Company owns a 15.7% 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, Richard J. Saker, Joseph
J. Saker, Jr. and Thomas A. 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 42 shareholder members operate approximately 220 supermarkets
of which Wakefern owns and operates 51 locations. Products bearing the ShopRite
label accounted for approximately 14% of the Company's total sales for the
fiscal year ended October 29, 2005. Wakefern maintains warehouses in Elizabeth,
South Brunswick and Woodbridge, New Jersey which handle 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 warehouse in Breinigsville, Pennsylvania.
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,
certain financial accounting applications, 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. The Company's participation
percentage was 13.6% for fiscal 2005. 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 the Wakefern
By-Laws or any agreement with Wakefern or a determination by Wakefern that the
continued supplying of merchandise or services
7
to such shareholder member would adversely affect Wakefern.
Wakefern requires each shareholder to invest in Wakefern's capital stock to a
maximum of $650,000 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. On June 19, 2003 the amount of
the per store investment was increased to its current level from the previous
amount of $550,000.
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
$17,079,000 as of October 29, 2005 and $16,444,000 as of October 30, 2004. We
also have an investment in another company affiliated with Wakefern which was
$1,244,000 as of October 29, 2005 and $1,211,000 as of October 30, 2004. 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 52 week periods ended October 29,
2005, October 30, 2004 and November 1, 2003. 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. 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.
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
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
8
national and regional chains, including A&P, Pathmark, Wegmans, Acme, Stop &
Shop and Foodtown, as well as various local chains, other ShopRite members 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. See Management's Discussion and Analysis -
Overview.
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.
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.
These regulations govern various matters including, but not limited to, the
discharge of materials into the environment and other aspects of environmental
protection, and occupational safety and health standards. Additionally, these
regulations govern the licensing of the Company's pharmacies and our two liquor
stores. In addition, as a company with publicly traded securities, we are
subject to the requirements of the Sarbanes-Oxley Act of 2002 signed into law on
July 30, 2002. The cost of compliance with this Act had a material affect on our
earnings in fiscal 2005. We believe our operations are in compliance with such
existing laws and regulations and are of the opinion that compliance with these
laws and regulations, except for the Sarbanes-Oxley Act of 2002, has not had and
will not have any material adverse effect on our capital expenditures, earnings
or competitive position.
Employees
As of December 31, 2005, we employed approximately 6,850 persons, of whom
approximately 6,300 are covered by collective bargaining agreements. 75% 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. See
Management's Discussion and Analysis - Overview. The Company is a party to seven
collective bargaining agreements expiring on various dates from February 2006 to
June 2009. The bargaining agreements with the United Food and Commercial Workers
Local 464 for the meat commissary and Local 1262 expired in February and April
2005, respectively, and have been renegotiated. The new contracts expire in June
and April 2009, respectively.
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.
9
Item 2. Properties
The Company's twenty-six 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 23 of the Company's 26 existing supermarkets expire on various dates
from 2007 through 2029. One location is being leased on a month to month basis
with a six month notice required before termination. With regard to the month to
month lease, the Company is continuing to evaluate its marketing plans for the
trade area involved. 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 and the month to month lease, all leases contain renewal options
ranging from 5 to 25 years. Eight 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 one of the eight
locations in the last fiscal year. Most leases also require us to pay for
insurance, common area maintenance and real estate taxes. One additional lease
has been signed for a new supermarket location. The terms of this new
supermarket lease is 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. The Company also leases space for
our two liquor stores and our garden center. One of the liquor stores is part of
one of our supermarkets and the other occupies 9,000 square feet in the same
shopping center as another of our supermarkets. The lease for this liquor store
expires in 2008. The 30,000 square foot garden center is free standing and is
subject to a lease which expires in 2018.
Also, we are subject to leases covering our executive and principal
administrative offices containing approximately 18,000 square feet in Howell,
New Jersey and a 37,500 square foot facility for our bakery commissary in
Freehold, New Jersey. The Company also leases 57,000 square feet of space used
for food preparation, equipment repair facilities and storage in Howell, New
Jersey. The Company owns a meat and prepared foods processing facility in
Linden, New Jersey, which is the only real property owned by us. 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.
10
Part II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities
(a) High and Low Common Stock Market Prices
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 30, 2004 and October 29, 2005.
Fiscal Quarter Ended High Low
-------------------- ---- ---
January 31, 2004 $ 32.00 $ 24.05
May 1, 2004 37.23 29.25
July 31, 2004 48.25 36.75
October 30, 2004 48.00 36.00
January 29, 2005 $ 40.75 $ 36.50
April 30, 2005 40.00 34.00
July 30, 2005 35.75 31.00
October 29, 2005 38.00 32.00
(b) Holders of Record
The approximate number of record holders of the Company's Common Stock was
293 as of January 13, 2006. In addition, the Company believes that as of
that date there were approximately 311 beneficial owners.
(c) Dividends
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 Third Amended and Restated Revolving Credit and
Term Loan Agreement between the Company and four 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.
(d) Stock Repurchase Program
On June 8, 2001 the Company announced the commencement of a stock
repurchase program whereby we would seek to repurchase shares of our
Common Stock having a value of up to $3 million. This program was
increased to $5.6 million in April 2002. For the year ended November 2,
2002, the Company repurchased a total of 102,853 shares of Common Stock.
101,553 of these shares were purchased in privately negotiated
transactions and the remaining 1,300 shares were acquired in open market
transactions. 6,377 of these shares were owned by a member of the family
of Joseph J. Saker, the Company's Chairman, and were purchased for an
average of $39.52 per share. $4,523,670, or an average of $43.98 per
share, was expended for the purchase of the 102,853 shares. Since the
announcement of the stock repurchase program in June 2001, the Company has
repurchased 131,923 shares for $5,591,597 or an average of $42.39 per
share.
11
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.
Fiscal Year Ended
-----------------
October 29, October 30, November 1, November 2, November 3,
2005(1) 2004(2) 2003(3) 2002(4)(6) 2001(5)(6)
----------- ----------- ----------- ----------- -----------
Income statement data:
Sales $1,215,490 $1,173,977 $1,048,532 $ 962,380 $ 943,380
Net income $ 976 $ 1,800 $ 2,283 $ 3,240 $ 3,938
Net income per common share:
Basic $ .99 $ 1.82 $ 2.31 $ 3.16 $ 3.54
Diluted $ .95 $ 1.75 $ 2.26 $ 3.01 $ 3.50
Cash dividends per common share -- -- -- -- --
Balance sheet data (at year end):
Working capital (deficit) $ 6,637 $ 4,294 $ 3,959 $ (590) $ (6,907)
Total assets $ 329,005 $ 348,636 $ 315,246 $ 219,389 $ 194,526
Long-term debt (excluding current portion) $ 194,637 $ 209,145 $ 180,549 $ 100,037 $ 75,553
Common shareholders' equity (6) $ 42,895 $ 41,233 $ 39,022 $ 36,625 $ 38,493
Book value per common share $ 43.41 $ 41.75 $ 39.54 $ 37.13 $ 35.37
Tangible book value per common share $ 40.36 $ 38.50 $ 36.69 $ 34.09 $ 32.29
(1) The Company purchased a store from Wakefern in September 2005. See
Management's Discussion and Analysis - Results of Operations - Sales.
(2) The Company opened one new location in April 2004 and a replacement
location in May 2004. Additionally, the expansion of an existing store was
completed in January 2004 and a store was purchased from Wakefern in June
2004. A new garden center was opened in May 2004 and the two existing
garden centers were closed in May and August 2004. See Management's
Discussion and Analysis - Results of Operations - Sales.
12
(3) The Company opened two replacement stores in December 2002 and May 2003
and two new locations in January and October 2003. See Management's
Discussion and Analysis - Results of Operations - Sales.
(4) The Company opened one replacement location in November 2001.
(5) 53 week period.
(6) The Company repurchased shares of its Common Stock in fiscal 2001 and
2002. See Item 5. - Market for Registrant's Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity Securities
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operation
OVERVIEW
We operate a chain of 26 ShopRite supermarkets in Central New Jersey. We believe
it is important to maintain a modern, one stop competitive shopping environment
for our customers and therefore have invested heavily in new, expanded and
remodeled facilities. We have incorporated upscale service departments in our
World Class supermarket concept. We are the largest member of Wakefern, the
largest retailer owned food cooperative warehouse in the United States. Since we
purchase from Wakefern most of the product we sell, participate in advertising,
supply, insurance and technology programs with Wakefern, and receive 13.6% of
Wakefern's patronage dividend, our success is integrally tied to the success of
Wakefern.
We operate in a highly competitive geographic area. Certain of our competitors
are non-union and therefore may have lower labor and related fringe benefit
costs. In the past six years a non-union competitor, Wegmans, has opened five
stores in our trading area. We expect Wegmans to continue to open additional
locations in our marketing area in the future. Additionally, another non-union
operator, Wal-Mart, is expected to open Super Centers, which include extensive
food operations, in our trading area.
Certain categories of selling, general and administrative expenses have
increased disproportionately in comparison to our sales growth and to inflation
in the last three years. We have experienced substantial increases in employee
health and pension costs under union contracts and for non-union associates.
Additionally, the cost of utilities to operate our stores has increased
dramatically in fiscal 2004 and 2005. We expect these trends to continue for
fiscal 2006.
We look at a variety of indicators to evaluate our performance, such as same
store sales; sales per store; sales per selling square foot; percentage of total
sales by department; shrink by department and store; departmental gross profit
margins; sales per man hour; hourly labor rates and percent of overtime.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Critical accounting policies are those accounting policies that management
believes are important to the portrayal of the Company's financial condition and
results. The application of those critical
13
accounting policies requires management's most difficult, subjective or complex
judgments, often as a result of the need to make estimates about the effect of
matters that are inherently uncertain.
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
The decline in fiscal 2005 in average total square feet per store and average
square feet of selling area per store was affected by the purchase of a smaller
than average store from Wakefern in June 2004. The decrease in fiscal 2005 in
annual sales per square foot of selling area was affected by the decrease in
comparable store sales, the lower than average sales from the two new locations
opened in fiscal 2004 and the purchase of a lower than average volume store from
Wakefern in June 2004.
Impairment of Goodwill
Effective November 3, 2002, the Company implemented Statement of Financial
Accounting Standards No. 142 ("SFAS 142"), "Accounting for Goodwill and Other
Intangible Assets." Goodwill and other intangibles that have indefinite useful
lives will not be amortized, but instead will be tested at least annually for
impairment at the reporting unit level. The Company has determined that it is
contained within one reporting unit and as such, impairment is tested at the
company level. During the first quarter of fiscal 2005, the Company completed
the goodwill annual impairment test prescribed by SFAS 142. The Company engaged
an independent third party appraiser with expertise in valuations of the type
contemplated to undertake the first step of Foodarama's Goodwill Impairment
Test. The carrying value of the Company's equity was compared to the fair value
of the Company's equity as of October 31, 2004 (the "Valuation Date"), the first
day of the Company's fiscal year ended October 29, 2005. The fair value was
calculated using a weighted average from the results obtained from four
widely-accepted valuation approaches:
1. discounted cash flow analysis;
2. comparable public company analysis;
3. comparable public transaction analysis;
4. current stock trading price.
The Goodwill Impairment Test is comprised of several steps. Based on the results
obtained from the first step of the Goodwill Impairment Test, which resulted in
the fair value exceeding the carrying value of equity, further analysis was not
required, and Foodarama's goodwill was determined not to be impaired. No events
or circumstances occurring subsequent to the Valuation Date have affected the
valuation as of that date.
Inventory Valuation
We value our inventories at the lower of cost or market. Cost was determined
using the last-in, first-out ("LIFO") method for approximately 82% of
inventories in both fiscal years 2005 and 2004. Under the LIFO method, the cost
assigned to items sold is based on the cost of the most recent items purchased.
As a result, the costs of the first items purchased remain in inventory and are
used to value ending inventory. The excess of estimated current costs over LIFO
carrying value, or LIFO reserve, was approximately $4,720,000 and $3,740,000 at
October 29, 2005 and October 30, 2004,
14
respectively. Costs for the balance of inventories are determined by the
first-in, first-out ("FIFO") method.
Cost was determined using the retail method for approximately 76% of inventories
in each of fiscal years 2005 and 2004. Under the retail method, the valuation of
inventories at cost and the resulting gross margins are determined by applying a
cost-to-retail ratio for various groupings of similar items to the retail value
of inventories. Inherent in the retail inventory method calculations are certain
management judgments and estimates, which could impact the ending inventory
valuation at cost as well as the resulting gross margins. Cost was determined
using the item cost method for approximately 24% of inventories in each of
fiscal years 2005 and 2004. This method involves counting each item in
inventory, assigning costs to each of these items based on the actual purchase
costs (net of vendor allowances) of each item and recording the actual cost of
items sold. The item-cost method of accounting allows for more accurate
reporting of periodic inventory balances and enables management to more
precisely manage inventory and purchasing levels when compared to the retail
method of accounting. We believe we have the appropriate inventory valuation
controls in place to minimize the risk that inventory values would be materially
misstated.
Patronage Dividends
As a stockholder of Wakefern, the Company earns a share of Wakefern's earnings,
which is distributed as a "patronage dividend". This dividend is based on a
distribution of Wakefern's operating profits for its fiscal year, which ends the
Saturday closest to September 30, in proportion to the dollar volume of business
transacted by each member of Wakefern during that fiscal year. Patronage
dividends are recorded as a reduction of cost of goods sold. The Company accrues
estimated patronage dividends due from Wakefern quarterly, based on an estimate
of the annual Wakefern patronage dividend and an estimate of the Company's share
of this annual dividend based on the Company's estimated proportional share of
the dollar volume of business transacted with Wakefern that year. These
estimates are based on both historical patronage dividend percentages and
current volume merchandise purchased from Wakefern. A change in this estimate by
.01% would represent a change in annual gross profit dollars of approximately
$120,000.
Pension Plans and Other Postretirement Benefits
We sponsor two defined benefit pension plans covering administrative personnel
and members of a union. The plans' assets consist primarily of publicly traded
stocks, index funds and fixed income securities. Additionally, the Company will
provide certain current officers and provided former officers with supplemental
income payments and limited medical benefits during retirement. The
determination of the Company's obligation and expense for pension and other
postretirement benefits is dependent, in part, on the Company's selection of
assumptions used by actuaries in calculating those amounts. These assumptions
are described in Notes 15 and 16 of Notes to Consolidated Financial Statements
and include, among others, the discount rate, the expected long-term rate of
return on plan assets and the rate of increase in compensation costs. In
accordance with generally accepted accounting principles, actual results that
differ from the Company's assumptions are accumulated and amortized over future
periods and, therefore, generally affect recognized expense and recorded
obligations in future periods. While management believes that its assumptions
are appropriate, significant differences in actual experience or significant
changes in the Company's assumptions may materially affect pension obligations
and future expense.
15
To develop the expected long-term rate of return on plan assets, the Company
considered the historical returns and the future expectations for returns for
each asset class, as well as the target asset allocation of the pension
portfolio. Based on these factors and the asset allocation discussed below, the
Company elected to use an 8.0% expected return on plan assets in determining
pension expense for fiscal 2005. This is the same expected return on plan assets
used in determining pension expense for fiscal 2004. The assumptions were net of
expected plan expenses payable from the plans' assets. A .50% reduction in our
expected long-term rate of return on pension plan assets, holding all other
factors constant, would have increased our pension expense during fiscal 2005 by
approximately $33,000.
The Company's objective in selecting a discount rate is to select the best
estimate of the rate at which the benefit obligations could be effectively
settled on the measurement date. In making this best estimate, the Company looks
at rates of return on high-quality fixed-income investments currently available
and expected to be available during the period to maturity of the benefits. This
process includes looking at the universe of bonds available on the measurement
date with a quality rating of Aa or better. Based on the Company's review of
market interest rates, the Company used 5.75% as the discount rate in
determining future pension obligations for fiscal 2005. A range from 5.75% to
6.25% was used for determining future pension obligations for fiscal 2004.
Pension and postretirement benefit expense is sensitive to the discount rate and
other assumptions used. A .50% decrease in the discount rate assumption used
would have increased pension and postretirement benefit expense during fiscal
2005 by $77,000 and $40,000, respectively.
As of October 29, 2005, the pension and postretirement benefit plans had
cumulative net actuarial losses due to the difference between expected and
actual plan experience, and to changes in actuarial assumptions including the
discount rate, of approximately $4.7 million and $1.3 million, respectively.
These unrecognized net actuarial losses, to the extent not offset by future
actuarial gains, result in increases in our future pension and postretirement
benefit expense depending on several factors, including whether such gains and
losses, as recognized at each measurement date, exceed the corridor in which
gains and losses are not amortized, in accordance with SFAS No. 87, "Employers'
Accounting for Pensions".
The value of our pension plan assets has increased from $6.4 million at October
30, 2004 to $7.1 million at October 29, 2005. The investment performance returns
and the contributions made by the Company have increased the funded status of
our pension plans. We believe that, based on our actuarial assumptions and due
to the funded status of our pension plans, we will be required to make cash
contributions of $1.5 million to our pension plans for the fiscal year ending
October 28, 2006.
Workers' Compensation Insurance
From June 1, 1991 to May 31, 1997 we maintained workers' compensation insurance
with various carriers on a retrospective basis. We have established reserve
amounts based upon our evaluation of the status of claims still open as of
October 29, 2005 and loss development factors used by the insurance industry. As
of October 29, 2005, the workers' compensation reserve totaled approximately
$529,000. Such reserve amount is only an estimate and there can be no assurance
that our eventual workers' compensation obligations will not exceed the amount
of the reserve. However, we believe that any difference between the amount
recorded for our estimated liability and the costs of settling the actual claims
would not be material to the results of operations.
16
Long-lived Assets
The Company reviews the carrying values of its long-lived assets, such as
property, equipment and fixtures and intangibles subject to amortization, for
possible impairment whenever events or changes in circumstances indicate that
the carrying amount of assets may not be recoverable. Such review analyzes the
undiscounted estimated future cash flows from such assets to determine if the
carrying value of such assets is recoverable from their respective cash flows.
If an impairment is indicated, it is measured by comparing the discounted cash
flows for the long-lived asset held for use to its carrying value.
FINANCIAL CONDITION AND LIQUIDITY
The Company is a party to a Third Amended and Restated Revolving Credit and Term
Loan Agreement (the "Credit Agreement") with four financial institutions. The
Credit Agreement serves as our primary funding source for working capital and
capital expenditures. The Credit Agreement is secured by substantially all of
the Company's assets and provided for a total commitment of up to $80,000,000,
including a revolving credit facility (the "Revolving Note") of up to
$35,000,000, a term loan ("the Term Loan") in the amount of $25,000,000 and a
capital expenditures facility (the "Capex Facility") of up to $20,000,000. The
Credit Agreement expires December 31, 2007. As of October 29, 2005 the Company
owed $10,000,000 on the Term Loan and $17,857,142 under the Capex Facility.
As of August 22, 2005, in order to better accommodate the Company's cash
requirements, the Credit Agreement was amended to allow the Company to borrow
under the revolving credit facility up to $7,000,000 in excess of the
availability under the borrowing base limitation of 65% of eligible inventory as
long as a like amount of cash and cash equivalents are on hand at store level or
in transit to the Company's lenders. The overall borrowing limit under the
revolving credit facility remains at $35,000,000.
The Credit Agreement contains a number of covenants with which the Company must
comply. Non-compliance with any of such covenants could affect the availability
of funds under the Credit Agreement and have a material adverse effect on the
Company's financial condition and liquidity. The Company is in compliance with
the major financial covenants under the Credit Agreement as of October 29, 2005,
as follows:
Actual
(As defined in the
Financial Covenant Credit Agreement Credit Agreement)
------------------ ---------------- ------------------
Adjusted EBITDA(1) Greater than $26,000,000 $27,484,000
Leverage Ratio(1)(2) Less than 2.50 to 1.00 2.33 to 1.00
Debt Service Coverage
Ratio(3) Greater than 1.10 to 1.00 1.57 to 1.00
Adjusted Capex(4) Less than $4,117,000(5)(7) $ 3,719,000(6)
Store Project Capex Less than $27,269,000(5)(7) $ 186,000(6)
17
(1) EBITDA adjusted for non-cash write downs and changes in the LIFO reserve,
less minimum lease payments due under capitalized leases.
(2) The Leverage Ratio is calculated by dividing the current and non-current
portions of Long-Term Debt, excluding obligations under capitalized
leases, and Long-Term Debt Related Party by Adjusted EBITDA.
(3) The Debt Service Coverage Ratio is calculated by dividing Operating Cash
Flow by the sum of adjusted net interest expense, which excludes interest
on capitalized leases, the current provision for income taxes and
regularly scheduled principal payments, which excludes principal payments
on capitalized leases. Operating Cash Flow is calculated by subtracting
amounts expended for property and equipment which are not used for
projects in excess of $500,000 ($2,641,000 in fiscal 2005) from Adjusted
EBITDA.
(4) Adjusted Capex is all capital expenditures other than New/Replacement
Store Project Capex.
(5) Represents limitations on capital expenditures for fiscal 2005. For fiscal
2005 the Company budgeted $8,117,000 for capital expenditures. Any unused
amounts available under the Credit Agreement will be carried forward to
future periods.
(6) Represents capital expenditures for fiscal 2005.
(7) Includes amounts available but not used in the prior fiscal year and
available to be carried forward to fiscal 2005: $117,000 for Adjusted
Capex and $1,251,000 for Store Project Capex.
On January 29, 2004 we financed the purchase of $1,100,000 of equipment for the
expanded store location in East Brunswick, New Jersey. The note bears interest
at 6.20% and is payable in monthly installments over its five year term.
During the fifty two weeks ended October 29, 2005, the Company was required to
make an additional investment in Wakefern for the Pennington location purchased
from Wakefern. Additionally, in each of fiscal years 2003 and 2004, the Company
was required to make additional investments for two new locations. On June 19,
2003 Wakefern increased the amount that each shareholder is required to invest
in Wakefern's capital stock to a maximum of $650,000 for each store operated by
such shareholder member. Previously, the maximum was $550,000 per store. The
above changes in the amounts of required investment increased our investment in
Wakefern by $5,274,000, which is being paid weekly in varying amounts, without
interest, through 2012.
Over the next three years the Company plans to open two replacement and three
new stores and expand one existing location. For fiscal years 2006, 2007 and
2008 we have budgeted $20,200,000, $30,500,000 and $18,850,000, respectively,
for these projects, store remodelings and maintenance capital expenditures.
Financing for these projects will be provided by cash flow from operations, the
Revolving Note and additional financing outside of, and which is permitted
under, the Credit Agreement. Any additional investment required by Wakefern for
new locations will be financed by Wakefern.
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.
18
Working Capital:
At October 29, 2005, the Company had working capital of $6,637,000 as compared
to working capital of $4,294,000 on October 30, 2004 and working capital of
$3,959,000 on November 1, 2003. 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 improved in fiscal 2005 primarily as
the result of a decrease in accounts payable others and accrued expenses. The
balances in these categories at October 30, 2004 included amounts due for
construction and equipment for stores opened and remodeled in 2004 and the
management incentive program for fiscal 2004. When these amounts were paid in
fiscal 2005 the Revolving Note, which is classified as long-term borrowings,
increased. This resulted in a corresponding increase in working capital. The
balance of accounts receivables consist primarily of returned checks due the
Company, 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.
Working capital improved in fiscal 2004 and fiscal 2003 primarily as the result
of increases in receivables from Wakefern. These increases relate primarily to
receivables for patronage dividends and other current amounts due us. When
collected, the proceeds from these receivables were used to reduce the Revolving
Note which is classified as long-term borrowings. This resulted in a
corresponding decrease in working capital.
Working capital ratios were as follows:
October 29, 2005 1.09 to 1.00
October 30, 2004 1.05 to 1.00
November 1, 2003 1.05 to 1.00
Cash flows (in millions) were as follows:
2005 2004 2003
---- ---- ----
From operations ............................. $16.9 $19.6 $17.9
Investing activities ........................ (3.1) (24.3) (34.8)
Financing activities ........................ (14.3) 5.4 17.9
----- ----- -----
Totals $ (.5) $ .7 $ 1.0
===== ===== =====
Fiscal 2005 capital expenditures, excluding capitalized leases, totaled
$3,905,000 with depreciation of $21,884,000 compared to $28,232,000 and
$20,634,000, respectively, for fiscal 2004 and $34,432,000 and $17,096,000,
respectively, for fiscal 2003. The increase in depreciation in fiscal 2005 was
the result of a full year of depreciation related to the purchase of equipment
and leasehold improvements for the two new locations opened in Lawrenceville and
Aberdeen, New Jersey in April and May 2004, respectively, the completion of the
expansion and remodeling of the East Brunswick store in January 2004, the
remodeling of the Neptune location completed in November 2004 and the purchase
of the Bordentown, New Jersey location in June 2004, as well as the addition of
one new capitalized real estate lease and the increase in obligations under a
capitalized real estate lease for a replacement store in fiscal 2004.
Additionally, a non-cash impairment charge of $163,000 was recorded in fiscal
2005. This charge resulted from the write off of the difference between the net
book value of equipment sold upon the closing of a store in November 2005 and
the value received
19
for the equipment. There were no new capital projects undertaken in fiscal 2005
and therefore capital expenditures declined in fiscal 2005.
The increase in depreciation in fiscal 2004 was the result of the purchase of
equipment and leasehold improvements for the two new locations opened in
Lawrenceville and Aberdeen, New Jersey in April and May 2004, respectively, the
completion of the expansion and remodeling of the East Brunswick store in
January 2004, the remodeling of the Neptune location completed in November 2004
and the purchase of the Bordentown, New Jersey location in June 2004, as well as
the addition of one new capitalized real estate lease and the increase in
obligations under a capitalized real estate lease for a replacement store and a
full year of depreciation for the four locations opened in fiscal 2003.
Additionally, a non-cash impairment charge of $1,198,000 was recorded in fiscal
2004. This charge resulted from operating losses incurred at a location having a
lease which is expiring in fiscal 2006. The number of capital projects
undertaken in fiscal 2004 decreased and therefore capital expenditures declined
in fiscal 2004.
The increase in depreciation in fiscal 2003 was the result of the purchase of
equipment and leasehold improvements for the four new locations opened in
Woodbridge, Ewing, North Brunswick and Hamilton, New Jersey in December 2002,
January 2003, May 2003 and October 2003, respectively, and the new bakery
facility, as well as six additional capitalized real estate leases. Capital
expenditures increased in fiscal 2003 as the result of the purchase of equipment
and leasehold improvements for the four new locations opened in fiscal 2003, the
construction of and equipment for our new bakery commissary, projects in process
in fiscal 2003 for two new stores which were completed in fiscal 2004 and the
expansion and remodeling of an existing location. There was no impairment charge
recorded in fiscal 2003.
In fiscal 2005, long-term debt decreased $13,516,000 as cash generated by
operations was used to pay down a portion of existing debt. There were no
additional borrowings in fiscal 2005.
In fiscal 2004, long-term debt increased $29,147,000 due to the capitalization
of one new real estate lease, the increase in obligations under a capitalized
real estate lease for a replacement store, an increase in borrowings under the
Credit Agreement, financing outside of the Credit Agreement for the purchase of
equipment for one location and the issuance of notes for the additional
investments required by Wakefern for three of the new locations. Cash generated
by operations was used to pay down a portion of existing debt.
In fiscal 2003, long-term debt increased $82,043,000 due to the capitalization
of six real estate leases, an increase in borrowings under the Credit Agreement,
financing outside of the Credit Agreement for the purchase of equipment for two
locations and notes for the additional investments required by Wakefern for two
of the new locations and the increase in the required Wakefern investment for
each location. Cash generated by operations was used to pay down a portion of
existing debt.
At October 29, 2005, the Company had $4,606,000 of available credit under its
revolving credit facility. The availability does not include the additional
$1,900,000 provided by the August 22, 2005 amendment to the Credit Agreement
which allows the inclusion of cash in transit as additional collateral. Since no
capital projects were in process, the Company has no capital commitments for
equipment and leasehold improvements as of October 29, 2005. The Credit
Agreement and permitted borrowings outside of the Credit Agreement will
adequately meet our expected operating needs, scheduled capital expenditures and
debt service for fiscal 2006.
During fiscal year 2002, the Business Tax Reform Act was passed in the State of
New Jersey. This
20
legislation is effective for tax years beginning on or after January 1, 2002
(fiscal 2003). Corporate taxpayers are subject to an "Alternative Minimum
Assessment ("AMA"), which is based upon either New Jersey Gross Receipts or New
Jersey Gross Profits, if the AMA exceeds the tax based on net income. We have
included in our current tax provision the effect of the AMA. The AMA increased
our State current tax liability, net of Federal tax benefit, by $1,484,000 for
fiscal 2005.
The table below summarizes our contractual obligations at October 29, 2005, and
the effect such obligations are expected to have on liquidity and cash flow in
future periods.
-----------------------------------------------------------------------------
Payments Due By Period
-----------------------------------------------------------------------------
Less
Than 2-3 4-5 After 5
Contractual Obligations Total 1 Year Years Years Years
----------------------- ----- ------ ----- ----- -----
(Dollars In Thousands)
Long-term debt $ 59,921 $ 9,009 $ 49,996 $ 916 $ --
Interest on Long Term Debt(1) 9,346 4,579 4,729 38 --
Related party debt,
non interest bearing 4,211 1,026 1,603 1,061 521
Capital lease obligations(2) 338,463 16,002 31,189 32,255 259,017
Operating leases(2) 55,025 8,918 14,610 9,605 21,892
Other Liabilities (3) 5,351 1,772 761 764 2,054
Purchase obligations -
leaseholds and equipment -- -- -- -- --
Lease commitments - stores
under construction -- -- -- -- --
-------- ------- -------- ------- --------
Total $472,317 $41,306 $102,888 $44,639 $283,484
======== ======= ======== ======= ========
21
(1) Includes interest expense at estimated interest rates of 8.25% to 9.25% on
variable rate debt of $55,319 and interest expense at interest rates of
6.20% to 6.44% on fixed rate debt of $4,602.
(2) Lease obligation figures do not include insurance, common area maintenance
charges and real estate taxes for which the Company is obligated.
(3) Other liabilities include estimated unfunded pension liabilities, and
estimated post-retirement and post-employment obligations based on
available actuarial data.
RESULTS OF OPERATIONS
Sales:
The Company's sales were $1,215.5 million, $1,174.0 million and $1,048.5
million, respectively, in fiscal 2005, 2004 and 2003. This represents an
increase of 3.5% in 2005 and an increase of 12.0% in 2004. These changes in
sales levels were the result of a full year of operations from the stores opened
and purchased in fiscal 2004 and the operation of the location purchased from
Wakefern in September 2005, the opening of one new and one replacement store,
the purchase of a supermarket and the expansion of an existing supermarket in
fiscal 2004 and the opening of two new and two replacement stores in fiscal
2003. The locations opened in May 2004, May 2003 and December 2002 replaced
smaller, older stores.
Comparable store sales decreased 1.2% in fiscal 2005 and increased 2.0% in
fiscal 2004. Sales from relocated and closed stores, as well as new stores
opened, in the respective periods are not included in this calculation while
sales from remodeled and expanded stores are included in this calculation. In
fiscal 2005 decreased sales in certain of Company's stores affected by
competitive store openings and the impact from the opening of our new locations
were partially offset by comparable sales increases in stores not affected by
competitive openings. Comparable store sales increases in fiscal 2004 were
partially offset by decreased sales in certain of the Company's stores affected
by competitive store openings and the impact of several of our new and
replacement locations.
Gross Profit:
Gross profit totaled $316.5 million in fiscal 2005 compared to $308.7 million in
fiscal 2004 and $271.9 million in fiscal 2003. Gross profit as a percent of
sales was 26.0% in fiscal 2005, 26.3% in fiscal 2004 and 25.9% in fiscal 2003.
Cost of goods sold includes the costs of inventory sold and the related
purchase, inbound freight and distribution costs including those costs charged
by Wakefern for operation of warehouses, distribution and delivery of product to
our stores. Vendor allowances and rebates and Wakefern patronage dividends are
reflected as a reduction of cost of goods sold. Any costs to us related to other
services which Wakefern provides are not included in cost of goods sold.
Gross profit as a percentage of sales decreased in fiscal 2005 primarily as a
result of a .25% increase, as measured as a percentage of sales, in costs for
programs implemented in certain of the Company's stores to address competitive
store openings.
Gross profit as a percentage of sales increased in fiscal 2004 primarily as a
result of improved product mix (.13%), the contribution of the one new and one
replacement store opened in fiscal
22
2004, including Wakefern incentive programs for new locations (.25%), reduced
Wakefern assessment as a percentage of sales (.20%) and a reduction in product
loss through improved shrink control (.03%). These increases were offset in part
by programs implemented in certain of the Company's stores to address
competitive store openings (.22%) and a decrease in the Wakefern patronage
dividend (.03%).
Gross profit as a percentage of sales increased in fiscal 2003 primarily as a
result of improved product mix (.53%), the contribution of the two new and two
replacement stores opened in fiscal 2003, including Wakefern incentive programs
for new locations (.32%), reduced Wakefern assessment as a percentage of sales
(.05%), an increase in the Wakefern patronage dividend (.13%) and a reduction in
product loss through improved shrink control (.03%). These increases were offset
in part by programs implemented in certain of the Company's stores to address
competitive store openings and by promotional programs for the new locations
opened in the current year period (.49%).
Patronage dividends applied as a reduction of the cost of merchandise sold were
$10,210,000, $9,848,000 and $9,119,000 for the last three fiscal years. This
translates to .84%, .84% and .87% of sales for the respective periods.
Fiscal Years Ended
------------------
10/29/05 10/30/04 11/01/03
-------- -------- --------
(in millions)
Sales ............................................... $1,215.5 $1,174.0 $1,048.5
Gross profit ........................................ 316.5 308.7 271.9
Gross profit percentage ............................. 26.0% 26.3% 25.9%
Selling, General and Administrative Expenses:
Fiscal 2005 selling, general and administrative expenses totaled $296.6 million
compared to $289.5 million in fiscal 2004 and $255.8 million in fiscal 2003.
Fiscal Years Ended
------------------
10/29/05 10/30/04 11/01/03
-------- -------- --------
(in millions)
Sales ............................................... $1,215.5 $1,174.0 $1,048.5
Selling, General and Administrative Expenses ........ 296.6 289.5 255.8
Percent of Sales .................................... 24.4% 24.7% 24.4%
23
Selling, general and administrative expenses decreased as a percent of sales
when comparing fiscal 2005 to fiscal 2004. Decreases in labor, pre-opening
costs, impairment charges and administration were partially offset by increases
in fringe benefits, depreciation, miscellaneous expense and occupancy costs.
Although labor decreased as a percent of sales, labor expense increased from
$121,169,000 to $121,260,000. The decrease in labor as a percent of sales was
due to improved efficiency in the locations opened in fiscal 2003 and 2004 and
the increase in labor expense was due to two additional locations, the
replacement of a smaller store and the enlargement of an additional location in
fiscal 2004, as well as the acquisition of a store in September 2005.
Pre-opening cost decreased as no new stores were opened in fiscal 2005. Two new
locations were opened in the second and third quarters of fiscal 2004.
Pre-opening costs decreased from $1,154,000 to zero. Impairment charges
resulting from the non-cash write off of the difference between the net book
value of equipment sold upon the closing of a store in November 2005 and the
value received for the equipment was minor compared to the prior year impairment
charge which related to the recording of a non-cash write down of the leasehold
improvements resulting from operating losses incurred at the same location.
Impairment charges decreased from $1,198,000 to $163,000. Administration
decreased as several components increased at a slower rate than the increase in
sales and the incentive compensation accrual for administrative personnel
decreased based upon operating results for the current fiscal year.
Administration costs declined from $19,478,000 to $19,440,000. The increase in
fringe benefits was the result of contractual increases. Fringe benefits
increased from $49,317,000 to $52,492,000. Depreciation increased as the result
of the purchase of equipment and leasehold improvements for two new locations
opened during 2004 in Lawrenceville and Aberdeen, New Jersey, the completion in
January 2004 of the expansion and remodeling of the East Brunswick store, the
remodeling of the Neptune location in October 2004, the purchase of the
Bordentown, New Jersey location in June 2004, as well as the addition of one new
capitalized real estate lease and the increase in obligations under a
capitalized real estate lease for a replacement store. Depreciation increased
from $20,634,000 to $21,884,000. The increase in occupancy costs was primarily
the result of increases in utility costs, repairs and maintenance, real estate
tax expense and common area maintenance expense. Occupancy costs increased from
$38,493,000 to $41,859,000. The increase in miscellaneous expense was primarily
the result of increases in Wakefern support services, debit/credit card and bank
service fees and services provided by outside vendors, including floor care and
sanitation. Miscellaneous expense increased from $18,624,000 to $19,856,000. As
a percentage of sales, labor decreased .35%, pre-opening costs decreased .10%,
impairment charges decreased .09% and administration decreased .06%. These
decreases were partially offset by increases in fringe benefits of .12%,
depreciation of .04%, occupancy of .17% and miscellaneous expense of .04%.
Selling, general and administrative expenses increased as a percent of sales
when comparing fiscal
24
2004 to fiscal 2003. Increases in labor and related fringe benefits,
depreciation, impairment charges and occupancy costs were partially offset by
decreases in pre-opening costs and administration. The increase in labor and
related fringe benefits was the result of contractual increases in fringe
benefits. Labor and related fringe benefits increased from $146,006,000 to
$164,280,000. Depreciation increased as the result of the purchase of equipment
and leasehold improvements for two new locations opened in Lawrenceville and
Aberdeen, New Jersey, the completion of the expansion and remodeling of the East
Brunswick store, the remodeling of the Neptune location and the purchase of the
Bordentown, New Jersey location, as well as the addition of one new capitalized
real estate lease and the increase in obligations under a capitalized real
estate lease for a replacement store and a full year of depreciation for the
four locations opened in fiscal 2003. Depreciation increased from $17,096,000 to
$20,634,000. The impairment charge relates to the recording of a non-cash write
down of the leasehold improvements resulting from operating losses incurred at a
location having a lease which is expiring in fiscal 2006. The impairment charge
was $1,198,000 as compared to no impairment charge in fiscal 2003. The increase
in occupancy was primarily the result of increases in electric and gas rates
from utility companies. Utility costs increased from $10,024,000 to $12,929,000.
Administration decreased as several components increased at a slower rate than
the increase in sales and idle facility costs decreased as leases for several
previously occupied locations were terminated. Administration costs declined
from $19,750,000 to $19,479,000. Pre-opening costs decreased since only two new
locations were opened in fiscal 2004 compared to four new stores in fiscal 2003.
Pre-opening costs were $1,154,000 in fiscal 2004 compared to $1,796,000 in
fiscal 2003. As a percentage of sales, labor and related fringe benefits
increased .06%, depreciation increased .12%, impairment charges increased .10%
and occupancy increased .19%. These increases were partially offset by decreases
in pre-opening costs of .07% and administrative expense of .22%.
Amortization expense decreased in fiscal 2005 to $510,000 compared to $548,000
in fiscal 2004 and $475,000 in fiscal 2003. The decrease in fiscal 2005, as
compared to fiscal 2004, was the result of a decrease in the amortization of
deferred financing costs and deferred escalation rents partially offset by an
increase in the amortization of bargain leases. The increase in fiscal 2004, as
compared to fiscal 2003, was the result of increased amortization of deferred
financing costs partially offset by decreased amortization of deferred
escalation rents and the discontinuance of the amortization of goodwill as
required by SFAS No. 142. See Note 1 of Notes to Consolidated Financial
Statements.
Interest Expense:
Interest expense totaled $18.5 million in fiscal 2005 compared to $16.4 million
in fiscal 2004 and $12.4 million in fiscal 2003. The increase in interest
expense for fiscal 2005 and fiscal 2004 was due to an increase in average
outstanding debt, including increased capitalized lease obligations, and an
increase in the average interest rate paid on debt.
Income Taxes:
The Company recorded a tax provision of $.6 million in fiscal 2005, $1.1 million
in fiscal 2004 and $1.5 million in fiscal 2003. See Note 13 of Notes to
Consolidated Financial Statements.
Net Income:
The Company had net income of $976,000 or $.95 per diluted share in fiscal 2005
compared to net income of $1,800,000 or $1.75 per diluted share in fiscal 2004.
EBITDA for fiscal 2005 were $42,486,000 as compared to $41,534,000 in fiscal
2004. Fiscal 2003 resulted in net income of $2,283,000 or $2.26 per diluted
share. EBITDA for fiscal 2003 were $33,636,000.
25
Weighted average diluted shares outstanding were 1,031,715 for fiscal 2005,
1,030,167 for fiscal 2004 and 1,011,350 for fiscal 2003.
EBITDA is presented because management believes that EBITDA is a useful
supplement to net income and other measurements under accounting principles
generally accepted in the United States since it is a meaningful measure of a
company's performance and ability to meet its future debt service requirements,
fund capital expenditures and meet working capital requirements. EBITDA is not a
measure of financial performance under accounting principles generally accepted
in the United States and should not be considered as an alternative to (i) net
income (or any other measure of performance under generally accepted accounting
principles) as a measure of performance or (ii) cash flows from operating,
investing or financing activities as an indicator of cash flows or as a measure
of liquidity. The following table reconciles reported net income to EBITDA:
Fiscal Years Ended
------------------
10/29/05 10/30/04 11/01/03
-------- -------- --------
Net income $ 976,000 $ 1,800,000 $ 2,283,000
Add:
Interest expense, net 18,355,000 16,251,000 12,260,000
Income tax provision 598,000 1,103,000 1,522,000
Depreciation 21,884,000 20,634,000 17,096,000
Impairment charge 163,000 1,198,000 --
Amortization 510,000 548,000 475,000
----------- ----------- -----------
EBITDA $42,486,000 $41,534,000 $33,636,000
=========== =========== ===========
RECENT ACCOUNTING PRONOUNCEMENTS
In November 2004, the Financial Accounting Standards Board (the "FASB") issued
SFAS No. 151, "Inventory Costs", an amendment of ARB No. 43, Chapter 4. SFAS No.
151 amends the guidance in ARB No. 43, Chapter 4, "Inventory Pricing," to
clarify the accounting for abnormal amounts of idle facility expense, freight,
handling costs, and spoilage. This statement requires that those items be
recognized as current period charges regardless of whether they meet the
criterion of "so abnormal" which was the criterion specified in ARB No. 43. This
pronouncement is effective for fiscal years beginning after June 15, 2005. The
Company does not expect any material impact from the adoption of SFAS No. 151 on
the Company's consolidated financial statements.
In December 2004, the FASB issued SFAS No. 123 (revised 2004), "Share-Based
Payment", which is a revision of SFAS No. 123, "Accounting for Stock-Based
Compensation." SFAS No. 123(R) supersedes APB Opinion No. 25, "Accounting for
Stock Issued to Employees" and amends SFAS No. 95, "Statement of Cash Flows."
Generally, the approach in SFAS No. 123(R) is similar to the approach described
in SFAS No. 123. However, SFAS No. 123(R) requires all share-based payments to
employees, including grants of employee stock options, to be recognized in the
income statement based on their fair values. Pro forma disclosure is no longer
an alternative. In April 2005, the Securities and Exchange Commission adopted a
final rule amending Rule 4-01(a) of Regulation S-X amending the compliance date
for FASB Statement No. 123(R) to be effective starting with the first interim or
annual reporting period of the first fiscal year beginning on or after June 15,
2005. The provisions of FASB Statement No. 123(R) will be effective for the
Company's first quarter of fiscal
26
year 2006 beginning October 30, 2005. It is estimated that the adoption of this
standard will reduce the Company's net income in fiscal 2006 by approximately
$63,000.
In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary
Assets, an amendment of APB Opinion No. 29." SFAS No. 153 specifies the criteria
required to record a nonmonetary asset exchange using carryover basis. SFAS No.
153 is effective for nonmonetary asset exchanges occurring after July 1, 2005.
The Company adopted this statement in the third quarter of fiscal 2005 and the
adoption of this standard did not have any impact on our financial statements.
In December 2004, the FASB issued FSP FAS 109-1, Application of FASB Statement
No. 109, "Accounting for Income Taxes," to the "Tax Deduction on Qualified
Production Activities Provided by the American Jobs Creation Act of 2004" to
provide accounting guidance on the appropriate treatment of tax benefits
generated by the enactment of the Act. The FSP requires that the manufacturer's
deduction be treated as a special deduction in accordance with SFAS 109 and not
as a tax rate reduction. The Company is awaiting final tax regulations from the
Internal Revenue Service before completing its assessment of the impact of
adopting FSP FAS 109-1 on its financial statements.
In March 2005, the FASB issued FASB Interpretation (FIN) No. 47, "Accounting for
Conditional Asset Retirement Obligations - an Interpretation of Financial
Accounting Standard (FAS) No. 143, Accounting for Asset Retirement Obligations."
FIN No. 47 clarifies the requirements to record liabilities stemming from a
legal obligation to clean up and retire fixed assets, when retirement depends on
a future event. The FASB believes this interpretation will result in more
consistent recognition of liabilities relating to asset retirement obligations,
more information about expected future cash outflows associated with the
obligations and investments in long-lived assets because additional asset
retirement costs will be recognized as part of the carrying amounts of the
assets. FIN No. 47 will be effective no later than the end of fiscal years
ending after December 15, 2005. The adoption of this standard will not have any
impact on the Company's financial statements.
In March 2005, the FASB issued FSP No. 46(R)-5, "Implicit Variable Interests
under FASB Interpretation No.46, or FIN 46 (Revised December 2003),
Consolidation of Variable Interest Entities," or FSP FIN 46(R)-5. FSP FIN
46(R)-5 provides guidance for a reporting enterprise on whether it holds an
implicit variable interest in Variable Interest Entities, or VIEs, or potential
VIEs when specific conditions exist. This FSP was effective for the first
interim period beginning after March 3, 2005 in accordance with the transition
provisions of FIN 46 (Revised 2003), "Consolidation of Variable Interest
Entities -- an Interpretation of Accounting Research Bulletin No. 51," or FIN
46(R). The adoption of FSP FIN 46(R)-5 did not have any impact on the Company's
results of operations and financial condition.
In May 2005, the FASB issued FASB Statement No.154 "Accounting Changes and Error
Corrections a replacement of APB Opinion No. 20 and FASB Statement No. 3." This
Statement applies to all voluntary changes in accounting principle. It also
applies to changes required by an accounting pronouncement in the unusual
instance that the pronouncement does not include specific transition provisions.
APB Opinion No. 20 previously required that most voluntary changes in accounting
principle be recognized by including in net income of the period of the change
the cumulative effect of changing to the new accounting principle. This
Statement requires retrospective application to prior periods' financial
statements of changes in accounting principle, unless it is impracticable to
determine either the period-specific effects or the cumulative effect of the
change. FASB Statement No.154 will be effective for accounting changes and
corrections of errors made in fiscal years beginning after December 15, 2005.
27
In June 2005, the FASB issued Emerging Issues Task Force (EITF) Issue No. 05-06,
"Determining the Amortization Period for Leasehold Improvements." EITF Issue No.
05-06 indicates that for operating leases, leasehold improvements that are
placed in service significantly after and not contemplated at or near the
beginning of the lease term should be amortized over the shorter of the useful
life of the assets or a term that includes required lease periods and renewals
that are deemed to be reasonably assured at the date the leasehold improvements
are purchased. Leasehold improvements acquired in a business combination should
be amortized over the shorter of the useful life of the assets or a term that
includes required lease periods and renewals that are deemed to be reasonably
assured at the date of acquisition. EITF Issue No. 05-06 is effective for
leasehold improvements that are purchased or acquired in reporting periods
beginning after June 28, 2005. Earlier application is permitted in periods for
which financial statements have not been issued. The adoption of this EITF did
not have any impact on the Company's financial statements.
In October 2005, the FASB issued FASB Staff Position ("FSP") No. FAS 13-1,
"Accounting for Rental Costs Incurred during a Construction Period." FSP No. FAS
13-1 requires rental costs associated with operating leases that are incurred
during a construction period to be recognized as rental expense. FSP FAS 13-1 is
effective for reporting periods beginning after December 15, 2005. The
transition provisions of FSP No. FAS 13-1 permit early adoption and
retrospective application of the guidance. The adoption of this standard will
not have any material impact on the Company's financial statements.
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
15.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
Item 9A. Controls and Procedures
As required by Rule 13a-15 under the Exchange Act within ninety (90) days prior
to the filing date of this report, the Company carried out an evaluation of the
effectiveness of the design and operation of the Company's disclosure controls
and procedures. This evaluation was carried out under the supervision and with
the participation of the Company's management, including the Company's
28
President and Chief Executive Officer along with the Company's Chief Financial
Officer, who concluded that the Company's disclosure controls and procedures are
effective. The Company's Director of Internal Audit and Principal Accounting
Officer also participated in this evaluation. There have been no significant
changes in the Company's internal controls or in other factors which could
significantly affect internal controls subsequent to the date the Company
carried out its evaluation.
Disclosure controls and procedures are controls and other procedures that are
designed to ensure that information required to be disclosed in the Company
reports filed or submitted under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the Securities and
Exchange Commission's rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that
information required to be disclosed in Company reports filed under the Exchange
Act is accumulated and communicated to management, including the Company's Chief
Executive Officer and Chief Financial Officer as appropriate, to allow timely
decisions regarding required disclosure.
Item 9B. Other Information
None.
29
Part III
Item 10. Directors and Executive Officers of the Registrant
Directors of the Company
Year First
Elected a
Name and Age Principal Occupation Director
----------------------------------------- ---------------------------------------------------- ----------
Joseph J. Saker (77)..................... Chairman of the Board of the Company 1958
Richard J. Saker (54).................... President and Chief Executive Officer of the Company 1987
Charles T. Parton (64)................... Chairman of the Board - Two River Community Bank, a 1995
commercial bank
Albert A. Zager (57)..................... Member -Zager, Fuchs, Ambrose & Krantz, P.C., 1995
Attorneys at Law
Robert H. Hutchins (54).................. President and Managing Director - Hutchins, Farrell, 2001
Meyer & Allison, P.A., Certified Public
Accountants
Mr. Joseph J. Saker served as President of the Company from its incorporation in
1958 until October 3, 2000 and as Chief Executive Officer of the Company from
its incorporation until November 1, 2003. Mr. Saker has served as Chairman since
1971. Joseph J. Saker is the father of Richard J. Saker, President and Chief
Executive Officer of the Company, Joseph J. Saker, Jr., Senior Vice President -
Marketing and Advertising and Secretary of the Company and Thomas A. Saker, Vice
President - Store Operations of the Company.
Mr. Richard J. Saker, a graduate of St. Joseph's University, has been employed
by the Company since 1969 and served as Senior Vice President-Operations from
1984 until 1995, at which time he assumed the position of Executive Vice
President-Operations. On October 3, 2000, he was elected President of the
Company. On November 2, 2003, Mr. Saker was elected by the Board to assume the
position of Chief Executive Officer of the Company, a position formerly held by
Joseph J. Saker. He is a member of the Board of Directors of Wakefern and a
member of its Finance Committee.
Mr. Charles T. Parton is Chairman of the Board of Two River Community Bank (the
"Bank") and has served in that position since May 1, 2000. Prior to assuming
that position, he served as President and Chief Executive Officer of the Bank
from February 1, 2000 to April 30, 2000. In addition, on March 1, 1999, Mr.
Parton began serving and continues to serve as a managing member of TRB, LLC, a
financial holding company formed in connection with the incorporation of the
Bank. He has been a financial executive, consultant and Certified Financial
Planner for the last eleven years and is Executive Vice President and Treasurer
of The Parton Corporation. He is also a Director of Kuehne Chemical Co., Inc.
(chlorine and caustic soda products).
Mr. Albert A. Zager is a member of Zager, Fuchs, Ambrose & Krantz, P.C.,
Attorneys at Law. He was a member of Carton, Arvanitis, McGreevy, Argeris, Zager
& Aikins, L.L.C., Attorneys at Law, and its predecessors from 1977 until 2004,
having served as the Chairman of its Executive and Management Committees. He is
President of the Board of Directors of the Center for Holocaust Studies of
Brookdale Community College, a founding member of the Board of Directors of the
Eastern Monmouth Area Chamber of Commerce Educational Foundation, Inc., and
outside General Counsel for Meridian Health System, Inc.
Mr. Robert H. Hutchins, CPA, has been the President and Managing Director of
Hutchins, Farrell, Meyer & Allison, P.A., a certified public accounting firm,
since he founded the firm in 1984. In addition, Mr. Hutchins has been active in
community affairs. He is a founder and Chairman of the Board of Trustees of
Ocean Housing Alliance, Inc., and has served as an elected Board Member of the
Toms River Regional School District and as an appointed member of the Ocean
County Mental Health Advisory Board. He is past Chairman of the American Cancer
Society-Ocean Unit, Co-chairperson of the American Cancer Society Eastern Region
Excalibur and a member of the National American Cancer Society Excalibur
Advisory Committee.
30
Executive Officers of the Company
The executive officers of the Company are as set forth below:
Name Age Capacities in Which Served
---------------------- --- --------------------------------------------------
Joseph J. Saker (1)(2) 77 Chairman of the Board
Richard J. Saker (1) 54 Chief Executive Officer and President
Michael Shapiro (3) 64 Senior Vice President, Chief Financial Officer and
Treasurer
Emory A. Altobelli (4) 65 Senior Vice President - Corporate Subsidiaries and
Services
Carl L. Montanaro (5) 64 Senior Vice President - Sales and Merchandising
Joseph J. Saker, Jr. (6) 45 Senior Vice President - Marketing and Advertising
and Secretary
Robert V. Spires (7) 52 Senior Vice President - Human Resources and Labor
Relations
Joseph C. Troilo (8) 72 Senior Vice President - Financial Administration,
Assistant Secretary and Assistant Treasurer
(1) See "Directors of the Company."
(2) Mr. Saker retired as an executive officer of the Company effective October
30, 2005.
(3) Mr. Shapiro joined the Company on August 15, 1994 as Senior Vice
President, Chief Financial Officer and Treasurer.
(4) Mr. Altobelli has served as Senior Vice President, Corporate Subsidiaries
and Services, since June 21, 1995. Prior to that date he served as Senior
Vice President, Administration, commencing in June 1990. Mr. Altobelli
retired as an executive officer of the Company effective January 15, 2006.
(5) Mr. Montanaro has served as Senior Vice President, Sales and
Merchandising, since June 21, 1995. From March 1988 to June 1995 he served
as Vice President of Sales and Merchandising.
(6) Mr. Joseph J. Saker, Jr. has served as Senior Vice President, Marketing
and Advertising, since March 1, 2002 and as Secretary since April 14,
2004. From October 2001 to February 28, 2002 he served as a Vice President
of Operations. From May 1990 to September 2001, he served as a Director of
Operations.
(7) Mr. Spires has served as Senior Vice President, Human Resources and Labor
Relations, since June 21, 1995. From August 1991 to June 1995, he served
as Vice President of Human Resources and Labor Relations.
(8) Mr. Troilo has served as Senior Vice President, Financial Administration,
since August 1994. From 1974 to August 1994, he served as Senior Vice
President, Finance.
31
Audit Committee
The Audit Committee of the Board (the "Audit Committee" or the "Committee") is
comprised of the following directors: Charles T. Parton, Albert A. Zager and
Robert H. Hutchins. Each member of the Committee qualifies as an independent
director in accordance with the rules of the American Stock Exchange ("AMEX")
and the rules and regulations of the SEC. In addition, the Board has determined
that Robert H. Hutchins is both independent and qualifies as a financial expert,
as defined by SEC rules. The Audit Committee operates under a written charter
previously adopted by the Board.
Compliance with Reporting Requirements
Section 16(a) of the Exchange Act requires the Company's executive officers and
directors, and persons who own more than ten percent (10%) of a registered class
of the Company's equity securities, to file reports of ownership and changes of
ownership on Forms 3, 4 and 5 with the SEC. Executive officers, directors and
greater than ten percent (10%) shareholders are required by SEC regulation to
furnish the Company with copies of all Forms 3, 4 and 5 they file.
Based solely on the Company's review of the copies of such forms it has
received, the Company believes that, during the fiscal year ended October 29,
2005, all of its executive officers, directors and greater than ten percent
(10%) beneficial owners complied with all filing requirements applicable to them
with respect to reports required to be filed by Section 16(a) of the Exchange
Act.
Code of Conduct
The Company currently has a Code of Conduct (the "Code") which is applicable to
all directors, officers and employees of the Company, including, the Company's
principal executive and senior financial officers. The Code requires, among
other things, that all directors, officers and employees of the Company avoid
conflicts of interest, comply with all laws and legal requirements and otherwise
conduct business in an honest and ethical manner. A copy of the Code is filed as
an exhibit to this Annual Report on Form 10-K.
Item 11. Executive Compensation
The aggregate compensation paid or accrued by the Company during the last three
fiscal years ended, November 1, 2003, October 30, 2004 and October 29, 2005 to
the Chief Executive Officer of the Company and to the four most highly
compensated executive officers (other than the Chief Executive Officer) whose
compensation in salary and bonus exceeded $100,000 in the last fiscal year (the
"Named Officers") is set forth in the following table:
Summary Compensation Table
Annual Compensation All Other Compensation
-------------------------------------- ----------------------
Name and Principal Position Year Salary Bonus (1) SERP(2) 401(k)(3)
-------------------------------------- ---- ------ --------- ------- ---------
Joseph J. Saker (4)................... 2005 $275,000 $ 0 $166,800 $4,200
Chairman 2004 325,000 64,189 161,500 4,000
2003 413,200 57,656 161,500 4,000
Richard J. Saker...................... 2005 576,548 0 407,500 4,200
President and Chief Executive 2004 553,000 108,755 401,000 4,000
Officer (5) 2003 522,650 72,476 392,000 4,000
Michael Shapiro....................... 2005 217,596 0 89,900 7,394
Senior Vice President, Chief 2004 209,498 32,805 87,200 7,104
Financial Officer and Treasurer 2003 202,970 22,381 91,300 6,753
Carl L. Montanaro..................... 2005 192,751 0 48,600 6,621
Senior Vice President, Sales 2004 198,912 26,431 47,900 6,717
and Merchandising 2003 180,993 18,033 53,200 6,115
Joseph J. Saker, Jr. ................. 2005 170,939 0 53,600 6,055
Senior Vice President, Marketing 2004 167,530 26,431 45,000 5,985
and Advertising and Secretary 2003 163,763 18,033 0 5,566
32
(1) Incentive compensation paid or accrued pursuant to the Company's Incentive
Compensation Plans (the "Incentive Plans"). The Incentive Plans were
adopted by the Board for each of the fiscal years presented in the table
to attract, retain and motivate salaried employees by providing incentive
compensation awards in cash. The Board administers the Incentive Plans,
which includes designating salaried employees eligible to participate in
the Incentive Plans and awarding incentive compensation to the eligible
employees, subject to the Company achieving certain specified levels of
pre-tax profit. In administering the Incentive Plans, the Board took into
account the recommendations of the Company's executive officers, except
that determinations made with respect to the Company's Chairman of the
Board and President were made solely by the Company's independent
directors. The Company did not achieve the level of pre-tax profit
specified in the Incentive Plan for fiscal 2005, and no incentive
compensation awards were made for that year.
(2) The Company adopted its first Supplemental Executive Retirement Plan in
1989 (the "1989 SERP") and a second Supplemental Executive Retirement Plan
effective December 31, 2004 (the "2004 SERP"). The 1989 SERP and the 2004
SERP are referred to collectively as the "SERP Plans." The SERP Plans are
intended to supplement the Company's retirement benefits and the
participants in each of the SERP Plans are currently identical. The SERP
Plans currently cover three former executive officers and key employees of
the Company, including Mr. Joseph Saker, and nine executive officers and
key employees of the Company. Pursuant to a resolution adopted by the
Board on June 8, 2005, vesting in the 1989 Plan was frozen and only the
participants vested as of December 31, 2004 (Mr. Joseph Saker and one
other executive officer of the Company) are entitled to receive benefits
under the 1989 Plan. Benefits payable under the 1989 Plan are deducted
from the benefits payable under the 2004 Plan to the two participants who
have vested benefits in the 1989 Plan.
The amounts reflected in the Summary Compensation Table represent the
projected annual benefit at retirement under the 1989 SERP Plan as of the
end of fiscal years 2003 and 2004 and the 2004 SERP Plan as of the end of
fiscal 2005 for the Named Officers. Amounts payable at retirement under
the SERP Plans range from 40% to 50% of the employee's highest average
compensation over a five year period less primary Social Security, pension
plan benefits and 401(k) benefits and are payable until death, but for a
minimum of 120 months, except for Mr. Joseph J. Saker (see Note (4)
below). In addition to the benefits
33
described above, each participant in the SERP Plans is entitled to
receive, on a monthly basis, an amount equal to 50% of the average monthly
premium required to purchase Medicare insurance coverage. The retirement
and medical insurance payments are not payable until the earlier of death,
disability or retirement of the covered employee. The Company anticipates
paying for benefits under the SERP Plans as they become due out of current
operating income.
The SERP Plans provide for a pre-retirement death benefit of one-half the
amount payable upon retirement, actuarially computed, payable to the
employee's beneficiary over 120 months. If the employee dies after
retirement, such employee's beneficiary will receive the same benefit the
employee would have received if the employee had lived for 120 months. The
Company has amended the SERP Plans for Mr. Joseph J. Saker as described in
Note (4) below. During fiscal 2005, the Company recorded $783,000 of
deferred compensation expense with respect to the SERP Plans.
(3) Represents amounts contributed by the Company under its 401(k) Plan (the
"401(k) Plan"). The Company maintains a 401(k) Plan for all qualified
non-union employees. Employees are eligible to participate in the 401(k)
Plan after completing one (1) year of service (1,000 hours) and attaining
age 21. Employee contributions are discretionary to a maximum of 30% of
compensation but may not exceed $14,000 per year. The Company has elected
to match 25% of the employee's contributions up to 6% of employee eligible
compensation not exceeding $210,000. The Company may make additional
discretionary contributions. These discretionary contributions amounted to
2% of eligible compensation for the three calendar years ending December
31, 2005.
(4) Effective November 2, 2003, Joseph J. Saker relinquished his position as
Chief Executive Officer of the Company, but continued to serve as an
executive officer of the Company, occupying the position of Chairman of
the Board pursuant to a two (2) year employment agreement (the "Employment
Agreement") commencing November 2, 2003 and ended October 29, 2005.
Richard J. Saker was elected by the Board to assume the position of Chief
Executive Officer. On October 29, 2005, Joseph J. Saker retired as an
executive officer of the Company. He continues to serve as Chairman of the
Board.
Mr. Saker's base salary under the Employment Agreement was $325,000 and
$275,000 during the first and second years, respectively, of the term of
the agreement. Mr. Saker was eligible to participate in the Company's
Incentive Plans and 401(k) Plan and was entitled to receive insurance
benefits made available to other employees of the Company during the term
of the Employment Agreement.
The Employment Agreement provides certain post retirement benefits for Mr.
Saker and his wife. Specifically, the Company has agreed to provide fully
paid medical and dental insurance coverage for Joseph Saker and his wife
during their respective lives. The Company will provide certain
supplemental life insurance for Mr. Saker post retirement and the premiums
to be paid by the Company for such insurance shall not exceed $22,104.
Also, the Company amended its SERP, as to Mr. Saker only, to provide for
payments under that plan for the joint and several lives of Joseph Saker
and his wife. Each other executive participating in the SERP is entitled
to a benefit payable for his life and, in the event of death, his
beneficiary is entitled to receive a benefit for a period of up to 120
months. See Note (2) above.
34
(5) The members of the Board elected Richard J. Saker to assume the position
of Chief Executive Officer of the Company effective November 2, 2003.
Option Grants and Exercises During Fiscal Year Ended October 29, 2005
Shown below is information with respect to options exercised by the Named
Officers during the Fiscal Year Ended October 29, 2005. The Company did not
grant any stock options in the Fiscal Year Ended October 29, 2005.
Aggregated Option Exercises in the Fiscal Year Ended October 29, 2005
and Fiscal Year-End Option Values for the Named Officers
-------------------------------------------------------------------------------------------------------------------------
Total Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at October 29, 2005 at October 29, 2005 (1)
-------------------------------------------------------------------------------------------------------------------------
Shares
Acquired on Value
Name (2) Exercise Realized Exercisable Unexercisable(3) Exercisable Unexercisable
-------------------------------------------------------------------------------------------------------------------------
Joseph J. Saker -- -- 40,000 -- $736,000 --
-------------------------------------------------------------------------------------------------------------------------
Richard J. Saker -- -- 40,000 10,000 $736,000 $184,000
-------------------------------------------------------------------------------------------------------------------------
Michael Shapiro -- -- 500 -- $ 9,200 --
-------------------------------------------------------------------------------------------------------------------------
Carl L. Montanaro -- -- 500 -- $ 9,200 --
-------------------------------------------------------------------------------------------------------------------------
Joseph J. Saker, Jr -- -- -- -- -- --
-------------------------------------------------------------------------------------------------------------------------
(1) This represents the difference between the closing price of the Company's
Common Stock on October 28, 2005, the last trading day in fiscal 2005
($38.00), and the exercise price of the options ($19.60).
(2) All stock options were granted on August 8, 2001 (the "Grant Date") in
accordance with the Stock Incentive Plan. The stock options granted to
Joseph J. Saker and Richard J. Saker are assignable to any of their
respective children or grandchildren who are employed by the Company at
the store manager or higher level. The options granted to Richard J.
Saker, which include 40,000 shares subject to options exercisable as of
October 29, 2005, vest quarterly from the Grant Date over a five (5) year
period. The options granted to Joseph J. Saker are fully vested. All other
stock options granted, vested per individual, 250 shares on the Grant Date
and 250 shares on each anniversary of the Grant Date thereafter for the
(3) three years following the Grant Date.
(3) Does not give effect to the Going Private Transaction. All unvested stock
options will fully vest and all outstanding options not held by the
Purchasers will be cashed out as a result of the Going Private
Transaction.
Pension Plan
The Company maintains a defined benefit pension plan for eligible employees.
Full vesting occurs
35
after five (5) years of service. Benefits upon retirement prior to age 65 are
reduced actuarially. Benefits under the plan are determined by a formula equal
to .6% times the highest five (5) consecutive year average of a participant's
compensation from the commencement of employment through September 30, 1997,
times the total years of service at September 30, 1997. The plan also provides
for lump sum payments, which are payable under certain circumstances. The table
set forth below specifies the estimated annual benefits payable upon normal
retirement at age 65. Pursuant to a resolution adopted by the Board on September
24, 1997, years of service and benefit accruals for participants in the plan
were frozen effective September 30, 1997. In lieu of contributions to the
defined benefit pension plan for the eight (8) calendar years ended December 31,
2005, the Board has approved contributions to the 401(k) Plan in an amount equal
to the sum of (a) two percent (2%) of the eligible compensation of 401(k) Plan
participants; and (b) $.25 for every $1.00 contributed to the 401(k) Plan by the
participants for up to 6% of the participant's eligible compensation. The
Company did not make any contributions to the 401(k) Plan prior to freezing
benefit accruals under the defined benefit pension plan.
Years of Service at September 30, 1997
----------------------------------------------------------------------
Remuneration 15 20 25 30 35
--------------------------------- ------- ------- ------- ------- -------
$100,000......................... $ 9,000 $12,000 $15,000 $18,000 $21,000
125,000......................... 11,250 15,000 18,750 22,500 26,250
150,000......................... 13,500 18,000 22,500 27,000 31,500
175,000......................... 15,750 21,000 26,250 31,500 36,750
200,000......................... 18,000 24,000 30,000 36,000 42,000
225,000......................... 20,250 27,000 33,750 40,500 47,250
250,000......................... 22,500 30,000 37,500 45,000 52,500
275,000......................... 24,750 33,000 41,250 49,500 57,750
300,000......................... 27,000 36,000 45,000 54,000 63,000
For purposes of vesting benefits under the pension plan, the Company has
credited Richard J. Saker with 23 years of service; Michael Shapiro with 3 years
of service; Joseph J. Saker, Jr. with 21 years of service; and Carl L. Montanaro
with 35 years of service. The highest five (5) consecutive year average, or
pro-rated portion thereof, of compensation through September 30, 1997 for each
of the Company's Named Officers, after giving effect to applicable limitations
under the Internal Revenue Code of 1986, as amended, is as follows: Richard J.
Saker - $150,000; Michael Shapiro - $150,000, Carl L. Montanaro - $119,000, and
Joseph J. Saker, Jr. - $99,000.
Joseph J. Saker received a lump sum distribution of $403,878 in January 1995,
representing the amount of his vested interest in the pension plan.
Directors' Compensation
All non-employee directors receive, in addition to reimbursement for their
reasonable expenses associated with attendance at meetings of the Board, an
annual retainer fee of $15,000 payable quarterly in advance, and a participation
fee of $1,000 for each meeting of the Board attended. All non-employee members
of the Audit Committee receive, in addition to reimbursement for their
reasonable expenses associated with attendance at Audit Committee meetings, a
fee of $1,000 for each Audit Committee meeting attended if held on a day other
than a day on which a Board meeting is held, and a fee of $500 for each Audit
Committee meeting attended if held on the same day as a meeting of the Board.
All non-employee members of the Stock Option Committee receive, in addition to
reimbursement for their reasonable expenses associated with attendance at Stock
Option
36
Committee meetings, a fee of $500 for each Stock Option Committee meeting
attended if held on a day other than a day on which a Board meeting is held.
The Company paid a total of $77,500 during the fiscal year ended October 29,
2005 to directors who are not employees of the Company.
In December 2005, the Board of Directors formed a Special Committee consisting
of three independent directors to review and evaluate the proposal for the Going
Private Transaction and other proposals regarding strategic alternatives
available to the Company that may be submitted to the Board or the Special
Committee. All members of the Special Committee will receive $500 for each
telephonic Special Committee meeting attended, $1,000 for each in-person Special
Committee meeting attended which does not exceed three hours in duration and
$1,500 for each in-person Special Committee meeting attended which exceeds three
hours in duration.
Compensation Committee Interlocks and Insider Participation in Compensation
Decisions
For the fiscal year ended October 29, 2005, the full Board performed the
functions of a board compensation committee. Executive officers who served on
the Board during fiscal 2005 were Joseph J. Saker, Chairman of the Board, and
Richard J. Saker, President and Chief Executive Officer. The Board acted on
matters of compensation for the Chairman and the Chief Executive Officer, with
each of such officers abstaining from any compensation decisions relating
specifically to them.
Compensation Report of the Board of Directors
The Company's independent directors are responsible for determining the
compensation of the Company's Chairman and its Chief Executive Officer. During
fiscal 2005, Joseph J. Saker served as the Company's Executive Chairman and
Richard J. Saker served as the Company's Chief Executive Officer. In order to
arrive at an appropriate level of compensation for the Company's Chief Executive
Officer for the fiscal year ended October 29, 2005, the independent directors
considered a variety of factors presented in this report.
Corporate data for chief executive officers of similar sized grocery retailing
organizations throughout the country as well as the Company's financial
performance and other achievements during the fiscal year ended October 30, 2004
were reviewed and considered by the Company's independent directors in
determining compensation levels for the Company's Chief Executive Officer for
fiscal 2005. In addition, the independent directors took into account the fact
that the Chief Executive Officer of the Company has personally guaranteed
significant amounts of indebtedness owed by the Company to Wakefern.
After careful consideration of the various factors, including, among others, the
facts referenced above, the independent directors determined the base salary of
the Chief Executive Officer should be increased by four percent (4%) for the
fiscal year ended October 29, 2005. See "Executive Compensation - Summary
Compensation Table."
As of the end of the 2003 fiscal year, Joseph J. Saker relinquished his role as
Chief Executive Officer of the Company. Recognizing the substantial contribution
that Mr. Saker has made and is expected to continue to make to the growth,
development and successful operation of the Company, including his personal
guaranty of the Company's indebtedness to Wakefern, the Board determined that it
was in the best interests of the Company and its shareholders that Joseph
Saker's judgment and experience remain available to the Company and that he
continue to serve as an executive
37
officer of the Company occupying the position of Chairman of the Board. The
Board approved a two (2) year employment agreement between the Company and
Joseph J. Saker beginning November 2, 2003 and terminating on October 29, 2005.
On October 29, 2005, Joseph J. Saker retired as an executive officer of the
Company. Mr. Saker will continue to serve as Chairman of the Company's Board of
Directors. See Note (4) to the Summary Compensation Table.
The members of the Board elected Richard J. Saker to assume the position of
Chief Executive Officer of the Company based upon his substantial experience in
supermarket operations, his long tenure as an executive officer of the Company
and his substantial contribution to the growth and development of the Company.
Historically, the Company's Chief Executive Officer makes determinations with
respect to cash compensation paid to other executive officers of the Company. In
addition to considering market comparisons, salaries paid to executive officers
are based on the executive's level of responsibility, experience in his role,
and the overall performance and condition of the Company and the economy at
large.
The Company's Board is responsible for administration of the Company's 2005
Incentive Compensation Plan (the "Incentive Compensation Plan"). Pursuant to the
Incentive Compensation Plan, the Company undertakes to pay incentive
compensation to designated employees if it achieves certain adjusted pre-tax
profit levels. The terms of the Incentive Compensation Plan are generally
consistent with the terms of incentive compensation plans adopted and approved
by the Company for prior fiscal years.
The Stock Option Committee of the Board, which consists of its outside
directors, administers the Company's Stock Incentive Plan. The Stock Incentive
Plan enables the Company to grant stock-based and other forms of incentives,
including stock options, stock appreciation rights, phantom stock, and
restricted stock, among others. The Stock Option Committee may select from among
these types of awards, and may combine different types of awards within
individual grants, to establish individual grants affording long-term
incentives, for the purpose of better aligning the interests of the Company's
management with those of its shareholders. The Stock Option Committee did not
grant any awards to the Company's key executives and directors during the fiscal
year ended October 29, 2005.
Section 162(m) of the Internal Revenue Code places a limit of $1,000,000 (per
person) on the amount of compensation that may be deducted by a public company
in any year for compensation paid to each of a corporation's Named Officers.
Qualifying performance based compensation is not subject to the deduction limit
if certain requirements are satisfied. The grant of options to the Named
Officers in 2001 under the Stock Incentive Plan does not qualify as performance
based compensation. The exercise of these options could result in deductible
compensation in excess of the limit imposed by Section 162(m). The Board may
award compensation that may be non-deductible under Section 162(m) when, in the
exercise of its business judgment, such award would be in the best interests of
the Company. The Section 162(m) limitation has not yet had any effect upon the
Company and its ability to deduct, for tax purposes, compensation paid to its
Named Officers.
The Company's independent directors believe that the best interests of the
Company and its shareholders are served by the Company's current compensation
programs. The Board members will continue to review the Company's compensation
plans periodically to determine what changes, if any, should be implemented to
their structure, taking into account the Company's financial condition and
performance.
38
Submitted by: Charles T. Parton
Albert A. Zager
Robert H. Hutchins
39
Performance Analysis
Set forth below is a line graph comparing the cumulative total return of the
Company, the AMEX Wholesale & Retail Trade Index, the Standard & Poor's 500
Composite Stock Price Index and the AMEX Composite Index for the five years
commencing October 28, 2000 and ended October 29, 2005.
FOODARAMA SUPERMARKETS, INC.
PRICE PERFORMANCE GRAPH
(THE FOLLOWING TABLES ARE REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL)
AMEX COMPOSITE
2000 2001 2002 2003 2004 2005
---- ---- ---- ---- ---- ----
909.30 824.20 828.99 1063.33 1311.39 1642.58
1.00 0.91 0.91 1.17 1.44 1.81
100.00 90.64 91.17 116.94 144.22 180.64
INDUSTRY (AMEX)
2000 2001 2002 2003 2004 2005
---- ---- ---- ---- ---- ----
165.20 127.19 132.11 186.51 188.59 279.39
1.00 0.77 0.80 1.13 1.14 1.69
100.00 76.99 79.97 112.90 114.16 169.12
FSM
2000 2001 2002 2003 2004 2005
---- ---- ---- ---- ---- ----
18.38 40.75 27.00 25.25 37.50 38.00
1.00 2.22 1.47 1.37 2.04 2.07
100.00 221.77 146.94 137.41 204.08 206.80
S&P 500
2000 2001 2002 2003 2004 2005
---- ---- ---- ---- ---- ----
1429.40 1059.78 900.96 1050.71 1130.20 1198.41
1.00 0.74 0.63 0.74 0.79 0.84
100.00 74.14 63.03 73.51 79.07 83.84
40
Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
The following table shows, as of January 13, 2005, the persons known to the
Company who owned directly or beneficially more than five percent (5%) of the
outstanding Common Stock of the Company:
Name of Beneficial Owner Amount Beneficially Owned Percent of Class
------------------------------------------------------------ ------------------------- ----------------
Joseph J. Saker (1) (2) ................................... 233,975 22.8
Saker Family Corporation (1)(4)............................. 85,000 8.6
Richard J. Saker (1) (3) (4) (5)............................ 246,803 23.9
Joseph J. Saker, Jr. (1) (4) (6)........................... 118,095 12.0
Thomas A. Saker (1) (4)..................................... 125,041 12.7
Dimensional Fund Advisors, Inc. (7)......................... 64,750 6.6
Arthur N. Abbey (8)......................................... 118,400 12.0
Trellus Management Company, LLC (9) ........................ 51,300 5.2
(1) The address of the foregoing person is c/o Foodarama Supermarkets, Inc.,
922 Highway 33, Building 6, Suite 1, Freehold, New Jersey 07728.
(2) Includes 13,378 shares held by the wife of Joseph J. Saker. Mr. Saker
disclaims beneficial ownership of the shares held by his wife. Also
includes 40,000 shares subject to currently exercisable options. The term
of these options have been extended and they expire on December 27, 2006.
(3) Includes 45,000 shares subject to currently exercisable options or options
exercisable within sixty (60) days of January 13, 2006 granted pursuant to
the Company's 2001 Stock Incentive Plan (the "Stock Incentive Plan").
(4) Includes 85,000 shares held by the Joseph Saker Family Partnership, L.P.,
a Delaware limited partnership (the "Partnership"). The Saker Family
Corporation is the sole general partner (the "General Partner") of the
Partnership. Richard J. Saker owns 40% of the outstanding capital stock of
the General Partner, and each of Joseph J. Saker, Jr. and Thomas A. Saker
owns 30% of the outstanding capital stock of the General Partner. The
General Partner owns a 1% interest in the Partnership and has the sole
power to sell, transfer or otherwise dispose of the shares of the
Company's Common Stock only upon the unanimous consent of all shareholders
of the General Partner. On other matters not involving the sale, transfer
or other disposition of such shares, the shares of the Company's Common
Stock held by the Partnership are voted as directed by the individual
shareholders of the General Partner in accordance with their respective
ownership interests in the General Partner. Accordingly, the General
Partner votes 34,000 shares as directed by Richard J. Saker, 25,500 shares
as directed by Joseph J. Saker, Jr., and 25,500 shares as directed by
Thomas A. Saker on such other matters.
In addition to their ownership interests in the General Partner, Richard
J. Saker, Joseph J. Saker, Jr. and Thomas A. Saker are the beneficiaries
of the trust which owns a 99% interest
41
in the Partnership (the "Limited Partner"). Thus, each of Richard J.
Saker, Joseph J. Saker, Jr. and Thomas A. Saker also has an indirect
interest in the Company's Common Stock held by the Partnership by reason
of their respective beneficial interests in the Limited Partner. Their
beneficial interests in the Limited Partner are in identical proportion to
their ownership interests in the General Partner. Richard J. Saker, Joseph
J. Saker, Jr. and Thomas A. Saker each disclaim beneficial ownership of
shares held by the Partnership in excess of their respective pecuniary
interests.
(5) Includes 1,760 shares held by Richard J. Saker's wife and shares which are
held in a trust for Mr. Saker's son, of which Mr. Saker is the trustee.
Mr. Saker disclaims beneficial ownership of the shares described in the
preceding sentence.
(6) Includes 2,754 shares which are held in two trusts for the benefit of Mr.
Saker's sons, of which Mr. Saker is the trustee. Mr. Saker disclaims
beneficial ownership of the shares described in the preceding sentence.
(7) The address of Dimensional Fund Advisors, Inc. ("Dimensional") is 1299
Ocean Avenue, 11th Floor, Santa Monica, California 90401. Dimensional, an
investment advisor registered under Section 203 of the Investment Advisors
Act of 1940, furnishes investment advice to four investment companies
registered under the Investment Company Act of 1940, and serves as
investment manager for certain other investment vehicles, including
commingled group trusts. These investment companies and investment
vehicles are referred to collectively herein as the "Portfolios." In its
role as investment advisor and investment manager, Dimensional possesses
both voting and investment power over 64,750 shares of the Company's
Common Stock based upon a copy of Schedule 13G/A filed with the Securities
and Exchange Commission ("SEC") on February 9, 2005. The Portfolios own
all securities reported in the table, and Dimensional disclaims beneficial
ownership of such securities.
(8) The address of Arthur N. Abbey is 212 East 39th Street, New York, New York
10016. Based upon a copy of Schedule 13D filed with the SEC on December 6,
2005, Mr. Abbey has sole voting power with respect to these shares.
(9) The address of Trellus Management Company, LLC ("Trellus") is 350 Madison
Avenue, Ninth Floor, New York, New York 10017. Trellus is a Delaware
limited liability company and is a Delaware registered investment advisor
to domestic and offshore hedge funds. Adam Usdan is President of Trellus.
Based upon a copy of Schedule 13G/A filed with the SEC on February 7,
2005, Adam Usdan and Trellus have shared voting power with respect to
these shares.
Securities Owned By Management
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of January 13, 2006 by (i) each
director of the Company, (ii) the executive officers of the Company on such
date, and (iii) the executive officers and directors as a group. Except as set
forth in the footnotes to this table, the shareholders have sole voting and
investment power over such shares.
42
Name of Beneficial Owner Amount Beneficially Owned Percent of Class
-------------------------------------------------------------- ------------------------- ----------------
Joseph J. Saker (1)(2)........................................ 233,975 22.8
Richard J. Saker (1)(3)(4)(5)................................. 246,803 23.9
Joseph J. Saker, Jr. (1)(4)(6)................................ 118,095 12.0
Charles T. Parton (1)(7)...................................... 3,000 *
Albert A. Zager (1)(7)........................................ 2,500 *
Robert H. Hutchins (1)(8)..................................... 1,000 *
Michael Shapiro (1)(8)(9)..................................... 1,000 *
Emory A. Altobelli (1)(10).................................... 775 *
Carl L. Montanaro (1)(8)...................................... 515 *
Robert V. Spires (1)(7)....................................... 1,000 *
Joseph C. Troilo (1).......................................... --- *
Directors and Executive Officers as a Group (11 persons)
(2)(3)(5)(6)(7)(8)(9)(10)(11)(12)(13).................... 606,163 56.6
(*) Less than one percent.
(1) The address of the foregoing person is c/o Foodarama Supermarkets, Inc.,
922 Highway 33, Building 6, Suite 1, Freehold, New Jersey 07728.
(2) Includes 13,378 shares held by the wife of Joseph J. Saker. Mr. Saker
disclaims beneficial ownership of the shares held by his wife. Also,
includes 40,000 shares subject to currently exercisable options granted
pursuant to the Stock Incentive Plan. The term of these options have been
extended and they expire on December 27, 2006.
(3) Includes 45,000 shares subject to currently exercisable options granted
pursuant to the Stock Incentive Plan.
(4) Includes 85,000 shares held by the Partnership. The Saker Family
Corporation is the General Partner) of the Partnership. Richard J. Saker
owns 40% of the outstanding capital stock of the General Partner, and each
of Joseph J. Saker, Jr. and Thomas A. Saker, Vice President - Store
Operations of the Company, owns 30% of the outstanding capital stock of
the General Partner. The General Partner owns a 1% interest in the
Partnership and has the sole power to sell, transfer or otherwise dispose
of the shares of the Company's Common Stock only upon the unanimous
consent of all shareholders of the General Partner. On other matters not
involving the sale, transfer or other disposition of such shares, the
shares of the Company's Common Stock held by the Partnership are voted as
directed by the individual shareholders of the General Partner in
accordance with their respective ownership interests in the General
Partner. Accordingly, the General Partner votes 34,000 shares as directed
by Richard J. Saker, 25,500 shares as directed by Joseph J. Saker, Jr. and
25,500 shares as directed by Thomas A. Saker on such other matters.
In addition to their respective ownership interests in the General
Partner, Richard J. Saker, Joseph J. Saker, Jr. and Thomas A. Saker are
beneficiaries of the trust which owns a 99% interest in the Partnership.
Thus, each of Richard J. Saker, Joseph J. Saker, Jr. and Thomas A. Saker
also has an indirect interest in the Company's Common Stock held by the
Partnership by reason of their respective beneficial interests in the
Limited Partner. Their
43
beneficial interests in the Limited Partner are in identical proportion to
their ownership interests in the General Partner. Richard J. Saker, Joseph
J. Saker, Jr. and Thomas A. Saker each disclaim beneficial ownership of
shares held by the Partnership in excess of their respective pecuniary
interests. See Note (4) to the table captioned "Principal Shareholders."
(5) Includes 1,760 shares held by Richard J. Saker's wife and 1,377 shares
which are held in a trust for the benefit of Mr. Saker's son, of which Mr.
Saker is the trustee. Mr. Saker disclaims beneficial ownership of the
shares described in the preceding sentence.
(6) Includes 2,754 shares which are held in two trusts for the benefit of Mr.
Saker's sons, of which trusts Mr. Saker is the trustee. Mr. Saker
disclaims beneficial ownership of the shares described in the preceding
sentence.
(7) Includes 1,000 shares subject to currently exercisable options granted
pursuant to the Stock Incentive Plan.
(8) Includes 500 shares subject to currently exercisable options granted
pursuant to the Stock Incentive Plan.
(9) Includes 500 shares owned jointly with Mr. Shapiro's wife.
(10) Includes 750 shares subject to currently exercisable options granted
pursuant to the Stock Incentive Plan.
(11) Of the 606,163 shares, directors of the Company own or have rights to
acquire 484,778 shares.
(12) Includes 85,000 shares held by the Joseph Saker Family Partnership, L.P.,
the total number of which shares is also included both in the total number
of shares attributed to ownership by Richard J. Saker, and the total
number of shares attributed to ownership by Joseph J. Saker, Jr.
(13) Includes shares subject to currently exercisable options or options
exercisable within sixty (60) days of January 13, 2005 granted pursuant to
the Stock Incentive Plan and held by the directors and executive officers
as described above.
The Company's Third Amended and Restated Revolving Credit and Term Loan
Agreement provides that an event of default shall occur if Joseph J. Saker and
Richard J. Saker together, do not own, beneficially, all voting rights with
respect to at least 25% of all of the issued and outstanding Common Stock of the
Company.
Securities Authorized for Issuance under Equity Compensation Plans
The number of stock options outstanding under our equity compensation plans, the
weighted average exercise price of outstanding options, and the number of
securities remaining available for issuance, as of October 29, 2005, were as
follows:
44
-----------------------------------------------------------------------------------------------------------------------
Number of
securities
remaining available
for future issuance
under equity
Number of securities compensation plans
to be issued upon Weighted-average (excluding
exercise of exercise price of securities
outstanding options, outstanding options, reflected in column
warrants and rights warrants and rights (a))
Plan Category (a) (b) (c)
------------- ----------------------- ----------------------- --------------------
Equity compensation plans
approved by security holders 94,750 $19.60 102,950
Equity compensation plans not
approved by security holders None None None
-----------------------------------------------------------------------------------------------------------------------
Total 94,750 $19.60 102,950
-----------------------------------------------------------------------------------------------------------------------
The Company has one equity incentive plan, the 2001 Stock Incentive Plan (the
"2001Plan"). The 2001 Plan provides for the issuance of incentive awards to
officers, directors, employees and consultants in the form of stock options,
stock appreciation rights and restricted stock.
Item 13. Certain Relationships and Related Transactions
(a) Transactions with Management and Certain Business Relationships
As required by the By-Laws of Wakefern, the obligations owed by the Company to
Wakefern are personally guaranteed by Joseph J. Saker, Richard J. Saker, Joseph
J. Saker, Jr. and Thomas A. Saker. As of October 29, 2005, the Company was
indebted to Wakefern in the amount of approximately $40,419,000 for current
charges in the ordinary course of business. Wakefern presently requires each of
its shareholders to invest up to $650,000 in Wakefern's non-voting capital stock
for each store operated by it, computed in accordance with a formula based on
the volume of such store's purchases from Wakefern. As of October 29, 2005, the
Company had a 15.7% investment in Wakefern of $17,079,000. As a shareholder
member of Wakefern, the Company earns a share of any 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. As of October 29, 2005, the
Company was indebted in connection with investments in Wakefern. The debt of
$4,211,000 was non-interest bearing and payable in scheduled installments over a
period of up to seven (7) years. Additional information with respect to the
Company's relationship with Wakefern is contained in this Annual Report on Form
10-K and in the notes to the Company's 2005 financial statements. See Part I,
Item 1. Wakefern and Note 4 of Notes to the Consolidated Financial Statements
The Company also has an investment in Insure-Rite, Ltd., another company
affiliated with Wakefern, of $1,244,000 as of October 29, 2005. Insure-Rite,
Ltd. provides the Company with a
45
portion of its liability insurance coverage with the balance paid through
Wakefern to private carriers. The Company paid $5,560,000 for such insurance
coverage in fiscal 2005 and believes that such amount is comparable to the
amount that would be charged by a similarly situated unaffiliated general
liability and property insurer.
The Company leases from Joseph J. Saker, the Chairman of the Company, and his
wife, doing business as Saker Enterprises, a 57,000 square foot supermarket in
Freehold, New Jersey, under a lease expiring December 31, 2018. This lease
provides for four five year extension options. In addition, the Company leases
from Saker Enterprises 9,000 square feet of space for a liquor store under a
lease expiring December 31, 2008. The liquor store property is located in the
same shopping center as the supermarket. During the fiscal year ended October
29, 2005, an aggregate amount for rent (including taxes and insurance) of
$866,000 was paid by the Company to Saker Enterprises for the supermarket and
liquor store.
The Company subleases from Wakefern a supermarket in East Windsor, New Jersey
under a sublease expiring in 2008. The Company also subleases from Wakefern a
supermarket in Marlboro, New Jersey under a sublease expiring in 2006. During
the fiscal year ended October 29, 2005, aggregate amounts for rent of $1,166,000
and $837,000 were paid by the Company to Wakefern for the East Windsor
supermarket and the Marlboro supermarket, respectively. Upon expiration of these
subleases, the underlying leases will be assigned to and assumed by the Company
provided that certain conditions, which include the absence of defaults by the
Company in its obligations to Wakefern and the Company's lenders, and the
maintenance of a specified level of net worth, are satisfied. The term of the
leases for the East Windsor and Marlboro supermarkets expire in 2018 and 2021,
respectively.
The Company believes that the terms of the foregoing transactions are comparable
to those available from non-affiliated persons under similar circumstances.
(b) Indebtedness of Management
None.
Item 14. Principal Accountant and Services
Audit Fees
The Company paid a total of $225,000 in fiscal year 2005 and $199,000 in fiscal
year 2004 to Amper, Politziner & Mattia, P.C. for audit services, which included
work related to the annual audit and quarterly reviews rendered in fiscal years
2005 and 2004, respectively.
Audit Related Fees
The Company did not pay any audit related fees to Amper, Politziner & Mattia,
P.C. during fiscal 2005 and fiscal 2004.
Tax Fees
The Company paid a total of $24,000 in fiscal year 2005 and $39,000 in fiscal
year 2004 to Amper, Politziner & Mattia, P.C. for income tax compliance, tax
advice and tax planning.
All Other Fees
Amper, Politziner & Mattia, P.C. did not bill the Company for any other services
during fiscal years 2005 or 2004.
Pre-Approval Policies and Procedures
46
The Audit Committee has considered whether the non-audit services provided by
Amper, Politziner & Mattia, P.C., including the services rendered in connection
with income taxes, were compatible with maintaining its independence and has
determined that the nature and substance of the limited non-audit services did
not impair the status of Amper, Politziner & Mattia, P.C. as the Company's
independent auditors. None of the engagements of Amper, Politziner & Mattia,
P.C., which were pre-approved by the Audit Committee, made use of the de minimis
exception to pre-approval contained in the rules of the SEC which permit limited
engagements for non-audit services involving amounts under a specified
threshold.
47
Part IV
Item 15. Exhibits and Financial Statement Schedules
--------------------------------------------------------------------------------------------------------------------
a.1. Audited financial statements and Page No.
supplementary data
--------------------------------------------------------------------------------------------------------------------
Report of Independent Registered Public Accounting Firm F-1
--------------------------------------------------------------------------------------------------------------------
Foodarama Supermarkets, Inc. and
Subsidiaries Consolidated Financial
Statements:
--------------------------------------------------------------------------------------------------------------------
Balance Sheets as of October 29, 2005 F-2 to F-3
and October 30, 2004
--------------------------------------------------------------------------------------------------------------------
Statements of Operations for each of the
fiscal years ended, October 29, 2005,
October 30, 2004 and November 1, 2003. F-4
--------------------------------------------------------------------------------------------------------------------
Statements of Shareholders' Equity
for each of the fiscal years ended
October 29, 2005, October 30, 2004
and November 1, 2003. F-5
--------------------------------------------------------------------------------------------------------------------
Statements of Cash Flows for each of the
fiscal years ended October 29, 2005, October 30, 2004
and November 1, 2003. F-6
--------------------------------------------------------------------------------------------------------------------
Notes to Consolidated Financial Statements F-7 to F-42
--------------------------------------------------------------------------------------------------------------------
a.2. Financial Statement Schedules
--------------------------------------------------------------------------------------------------------------------
Schedule II S-1
--------------------------------------------------------------------------------------------------------------------
Schedules other than Schedule II have been
omitted because they are not applicable.
a.3. Management Contracts and/or Compensatory Plans
Management contracts and/or compensatory plans or
arrangements have been identified in the Index to Exhibits beginning
on page E-1 herein.
--------------------------------------------------------------------------------------------------------------------
b. Exhibits E-1 to E-82
--------------------------------------------------------------------------------------------------------------------
Reference is made to the Index of Exhibits beginning on page E-1
herein.
--------------------------------------------------------------------------------------------------------------------
48
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
FOODARAMA SUPERMARKETS, INC.
(Registrant)
/s/ Michael Shapiro
-------------------------------
Michael Shapiro
Senior Vice President,
Chief Financial Officer
/s/ Thomas H. Flynn
-------------------------------
Thomas H. Flynn
Vice President,
Principal Accounting Officer
Date: January 26, 2006
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 of Directors January 26, 2006
/s/ Richard J. Saker Chief Executive Officer, President and
-------------------------- Director
Richard J. Saker January 26, 2006
/s/ Charles T. Parton
--------------------------
Charles T. Parton Director January 26, 2006
/s/ Albert A. Zager
--------------------------
Albert A. Zager Director January 26, 2006
/s/ Robert H. Hutchins
--------------------------
Robert H. Hutchins Director January 26, 2006
49
Report of Independent Registered Public Accounting Firm
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 October 29, 2005 and October 30, 2004
and the related consolidated statements of operations, shareholders' equity and
cash flows for the fiscal years ended October 29, 2005, October 30, 2004 and
November 1, 2003. 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 the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Foodarama Supermarkets, Inc. and
Subsidiaries as of October 29, 2005 and October 30, 2004, and the results of
their operations and their cash flows for the fiscal years ended October 29,
2005, October 30, 2004 and November 1, 2003, in conformity with U.S. generally
accepted accounting principles.
In connection with our audits of the financial statements referred to above, we
audited the financial schedule listed under Item 15. 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.
/S/ AMPER, POLITZINER & MATTIA, P.C.
------------------------------------
January 25, 2006
Edison, New Jersey
F-1
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
October 29, 2005 and October 30, 2004
(In thousands)
2005 2004
---- ----
Assets
Current assets
Cash and cash equivalents $ 5,488 $ 6,001
Merchandise inventories 55,889 57,123
Receivables and other current assets 7,597 8,456
Prepaid and refundable income taxes 797 170
Related party receivables - Wakefern 14,587 14,799
---------- ----------
84,358 86,549
---------- ----------
Property and equipment
Land 308 308
Buildings and improvements 1,220 1,220
Leasehold improvements 61,360 60,488
Equipment 164,238 161,554
Property under capital leases 152,354 152,354
Construction in progress 199 60
---------- ----------
379,679 375,984
Less accumulated depreciation and amortization 161,975 140,138
---------- ----------
217,704 235,846
---------- ----------
Other assets
Investments in related parties 18,323 17,655
Goodwill 1,715 1,715
Intangible assets, net 1,304 1,493
Other 3,364 3,339
Related party receivables - Wakefern 2,237 2,039
---------- ----------
26,943 26,241
---------- ----------
$ 329,005 $ 348,636
========== ==========
See notes to consolidated financial statements.
F-2
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets - (continued)
October 29, 2005 and October 30, 2004
(In thousands)
2005 2004
---- ----
Liabilities and Shareholders' Equity
Current liabilities
Current portion of long-term debt $ 9,009 $ 8,415
Current portion of long-term debt, related party 1,026 867
Current portion of obligations under capital leases 1,966 1,727
Current income taxes payable -- 408
Deferred income taxes 2,151 1,579
Accounts payable
Related party - Wakefern 40,419 39,639
Others 9,671 14,384
Accrued expenses 13,479 15,236
----------- -----------
77,721 82,255
----------- -----------
Long-term debt 50,912 63,051
Long-term debt, related party 3,185 3,590
Obligations under capital leases 140,540 142,504
Deferred income taxes 175 2,292
Other long-term liabilities 13,577 13,711
----------- -----------
208,389 225,148
----------- -----------
Commitments and Contingencies (Note 14)
Shareholders' equity
Common stock, $1.00 par; authorized 2,500,000 shares;
issued 1,621,767 shares; outstanding 988,117 shares
October 29, 2005; 987,617 shares October 30, 2004 1,622 1,622
Capital in excess of par 4,168 4,168
Deferred compensation (242) (580)
Retained earnings 52,315 51,339
Accumulated other comprehensive income
Minimum pension liability (2,802) (3,140)
----------- -----------
55,061 53,409
Less 633,650 shares October 29, 2005; 634,150 shares
October 30, 2004, held in treasury, at cost 12,166 12,176
----------- -----------
42,895 41,233
----------- -----------
$ 329,005 $ 348,636
=========== ===========
See notes to consolidated financial statements.
F-3
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Fiscal Years Ended October 29, 2005, October 30, 2004 and November 1, 2003
(In thousands, except per share data)
2005 2004 2003
---- ---- ----
Sales $ 1,215,490 $ 1,173,977 $ 1,048,532
Cost of goods sold 898,962 865,280 776,656
----------- ----------- -----------
Gross profit 316,528 308,697 271,876
Selling, general and administrative expenses 296,599 289,543 255,811
----------- ----------- -----------
Earnings from operations 19,929 19,154 16,065
----------- ----------- -----------
Other income (expense) (18,518) (16,392) (12,399)
Interest expense 163 141 139
----------- ----------- -----------
Interest income (18,355) (16,251) (12,260)
----------- ----------- -----------
Earnings before income tax provision 1,574 2,903 3,805
Income tax provision (598) (1,103) (1,522)
----------- ----------- -----------
Net income $ 976 $ 1,800 $ 2,283
=========== =========== ===========
Per share information
Net income per common share
Basic $ .99 $ 1.82 $ 2.31
=========== =========== ===========
Diluted $ .95 $ 1.75 $ 2.26
=========== =========== ===========
Weighted average shares outstanding
Basic 987,878 987,132 986,789
=========== =========== ===========
Diluted 1,031,715 1,030,167 1,011,350
=========== =========== ===========
See notes to consolidated financial statements.
F-4
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
Fiscal Years Ended October 29, 2005, October 30, 2004 and November 1, 2003
(In thousands, except per share data)
Common Stock Accumulated
-------------------- Capital Other
Shares in Excess Deferred Comprehensive
Issued Amount of Par Compensation Income
------ ------ ------ ------------ ------
Balance - November 2, 2002 1,621,767 $1,622 $4,168 $(1,324) $(2,896)
Amortization of deferred compensation -- -- -- 372 --
Issuance of common stock -- -- -- -- --
Comprehensive income
Net income 2003 -- -- -- -- --
Other comprehensive income
Minimum pension liability, net
of deferred tax -- -- -- -- (268)
--------- ------ ------ ------- -------
Comprehensive income
Balance - November 1, 2003 1,621,767 1,622 4,168 (952) (3,164)
Amortization of deferred compensation -- -- -- 372 --
Issuance of common stock -- -- -- -- --
Comprehensive income
Net income 2004 -- -- -- -- --
Other comprehensive income
Minimum pension liability, net
of deferred tax -- -- -- -- 24
--------- ------ ------ ------- -------
Comprehensive income
Balance - October 30, 2004 1,621,767 1,622 4,168 (580) (3,140)
Amortization of deferred compensation -- -- -- 338 --
Issuance of common stock -- -- -- -- --
Comprehensive income
Net income 2005 -- -- -- -- --
Other comprehensive income
Minimum pension liability, net
of deferred tax -- -- -- -- 338
--------- ------ ------ ------- -------
Comprehensive income
Balance October 29, 2005 1,621,767 $1,622 $4,168 $ (242) $(2,802)
========= ====== ====== ======= =======
Treasury Stock
Comprehensive Retained ----------------------- Total
Income Earnings Shares Amount Equity
------ -------- ------ ------ ------
Balance - November 2, 2002 $ 47,256 (635,400) $ (12,201) $ 36,625
Amortization of deferred compensation -- -- -- -- 372
Issuance of common stock -- -- 500 10 10
Comprehensive income
Net income 2003 $ 2,283 2,283 -- -- 2,283
Other comprehensive income
Minimum pension liability, net
of deferred tax (268) -- -- -- (268)
-------- --------- --------- --------- --------
Comprehensive income $ 2,015
========
Balance - November 1, 2003 49,539 (634,900) (12,191) 39,022
Amortization of deferred compensation -- -- -- 372
Issuance of common stock -- -- 750 15 15
Comprehensive income
Net income 2004 $ 1,800 1,800 -- -- 1,800
Other comprehensive income
Minimum pension liability, net
of deferred tax 24 -- -- -- 24
-------- --------- --------- --------- --------
Comprehensive income $ 1,824
========
Balance - October 30, 2004 51,339 (634,150) (12,176) 41,233
Amortization of deferred compensation -- -- -- 338
Issuance of common stock -- -- 500 10 10
Comprehensive income
Net income 2005 $ 976 976 -- -- 976
Other comprehensive income
Minimum pension liability, net
of deferred tax 338 -- -- -- 338
-------- --------- --------- --------- --------
Comprehensive income $ 1,314
========
Balance October 29, 2005 $ 52,315 (633,650) $ (12,166) $ 42,895
========= ========= ========= ========
See notes to consolidated financial statements.
F-5
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Fiscal Years Ended October 29, 2005, October 30, 2004 and November 1, 2003
(In thousands)
2005 2004 2003
---- ---- ----
Cash flows from operating activities
Net income $ 976 $ 1,800 $ 2,283
Adjustments to reconcile net income to net
cash from operating activities
Depreciation 21,884 20,634 17,096
Non cash impairment charge 163 1,198 --
Amortization, intangibles 189 141 192
Amortization, deferred financing costs 643 695 577
Amortization, deferred rent escalation (322) (288) (294)
Provision to value inventory at LIFO 980 1,005 715
Deferred income taxes (1,769) (1,057) 2,515
Amortization of deferred compensation 334 358 357
(Increase) decrease in
Merchandise inventories 254 (8,904) (6,232)
Receivables and other current assets 62 (907) (505)
Prepaid and refundable income taxes (627) 3,234 (3,147)
Other assets (557) (457) 227
Related party receivables - Wakefern 14 (1,280) (4,920)
Increase (decrease) in
Accounts payable (3,933) 1,895 6,115
Income taxes payable (408) (1,007) 1,415
Other liabilities (959) 2,560 1,463
------------ ------------ ------------
16,924 19,620 17,857
------------ ------------ ------------
Cash flows from investing activities
Cash paid for the purchase of property and equipment (3,766) (27,744) (29,267)
Cash paid for construction in progress (139) (24) (4,336)
Decrease in construction advance due from landlords 797 17,127 4,975
Increase in construction advance due from landlords -- (12,633) (6,128)
Payment for purchase of acquired store assets -- (1,000) --
------------ ------------ ------------
(3,108) (24,274) (34,756)
------------ ------------ ------------
Cash flows from financing activities
Proceeds from issuance of debt -- 16,359 27,853
Principal payments under long-term debt (11,545) (8,144) (7,505)
Principal payments under capital lease obligations (1,725) (1,484) (1,518)
Principal payments under long-term debt, related party (914) (1,000) (755)
Deferred financing and other costs (155) (343) (214)
Proceeds from exercise of stock options 10 15 10
------------ ------------ ------------
(14,329) 5,403 17,871
------------ ------------ ------------
Net change in cash and cash equivalents (513) 749 972
Cash and cash equivalents, beginning of year 6,001 5,252 4,280
------------ ------------ ------------
Cash and cash equivalents, end of year $ 5,488 $ 6,001 $ 5,252
============ ============ ============
Supplemental disclosures of cash paid
Interest $ 18,496 $ 16,286 $ 12,374
Income taxes, net of refunds $ 3,416 $ (61) $ 751
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 27 ShopRite supermarkets, primarily in Central New Jersey.
One of these stores was closed in November 2005, subsequent to
fiscal year-end. 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 2005 consists of the 52 weeks ended October 29, 2005,
fiscal 2004 consists of the 52 weeks ended October 30, 2004 and
fiscal 2003 consists of the 52 weeks ended November 1, 2003.
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
Revenue from the sale of products is recognized at the point of sale
to the customer. Discounts provided to customers through ShopRite
coupons at the point of sale are recognized as a reduction of sales
as the products are sold.
From time to time the Company initiates customer loyalty programs
which allow customers to earn points for each purchase completed
during a specified time period. Points earned enable customers to
receive a certificate that may be redeemed on future purchases. The
Company accounts for its customer loyalty programs in accordance
with Emerging Issues Task Force (EITF) Issue No. 00-22, "Accounting
for "Points" and Certain Other Time-Based or Volume-Based Sales
Incentive Offers, and Offers for Free Products or Services to Be
Delivered in the Future". The value of points earned by our loyalty
program customers is included as a liability and a reduction of
revenue at the time the points are earned based on the percentage of
points that are projected to be redeemed.
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.
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)
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.
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 or market.
At October 29, 2005 and October 30, 2004 approximately 82% each year
of merchandise inventories, consisting primarily of grocery and
nonfood items, are valued by the LIFO (last-in, first-out) method of
inventory valuation while the remaining inventory items are valued
by the FIFO (first-in, first-out) method with cost being determined
under the retail method.
If the FIFO method had been used for the entire inventory, inventory
at October 29, 2005 and October 30, 2004 would have been $4,720,000
and $3,740,000 higher, respectively.
Vendor Allowances and Rebates and Cost of Goods Sold
The Company receives vendor allowances and rebates, including
amounts received as a pass through from Wakefern, related to the
Company's buying and merchandising activities. Vendor allowances and
rebates are recognized as a reduction in cost of goods sold when the
related merchandise is sold or when the contractual requirements
have been satisfied.
Cost of goods sold includes the costs of inventory sold and the
related purchase, inbound freight and distribution costs. Cost of
goods sold excludes depreciation and amortization which is included
in selling general and administrative expenses in the consolidated
statements of operations.
Selling, General and Administrative Expense
Selling, general and administrative expense consists primarily of
depreciation, amortization, impairment charges, advertising expense,
payroll including related fringe and employee benefit expenses,
utilities expense, rent, common area maintenance and other occupancy
charges and other expenses.
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)
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 their useful life.
Investments
The Company's investments in its principal supplier, Wakefern, and
in Insure-Rite, Ltd., are stated at cost (see Note 4).
Goodwill
Goodwill is tested at the end of each fiscal year for impairment, or
as circumstances dictate, pursuant to the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 142, "Accounting for
Goodwill and Other Intangible Assets". The Company has determined
that it operates as a single reporting unit for purposes of
evaluating goodwill, and as such, impairment is tested at the
company level. During fiscal 2005, 2004 and 2003 the Company
completed goodwill impairment tests prescribed by SFAS 142 and
concluded that no impairment of goodwill existed.
Intangible Assets
Other intangible assets consist of favorable operating lease costs
and liquor licenses. The favorable operating lease costs are being
amortized on a straight-line basis over the terms of the related
leases, which range from 6 to 24 years. The liquor licenses are not
amortized since they have been determined to have an indefinite
useful life. The Company reviews the value of its intangible assets
for impairment whenever events or changes in business circumstances
indicate that the carrying amount of the assets may not be fully
recoverable or that the useful lives of these assets are no longer
appropriate.
Long-Lived Assets
The Company reviews long-lived assets, on an individual store basis,
for impairment when circumstances indicate the carrying amount of an
asset may not be recoverable. Such review analyzes the undiscounted
estimated future cash flows from such assets to determine if the
carrying value of such assets are recoverable from their respective
cash flows. If an impairment is indicated, it is measured by
comparing the discounted cash flows for the long-lived asset to its
carrying value. In fiscal 2005 and 2004, the Company recorded
non-cash impairment charges of $163,000 and $1,198,000,
respectively, to reduce the carrying value of equipment and
leasehold improvements relating to one store.
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)
Long-Lived Assets - (continued)
These charges for fiscal 2005 and 2004 are included in Selling,
General and Administrative Expense in the accompanying consolidated
statements of operations. Factors leading to impairment were a
combination of historical losses, anticipated future losses and
projected future negative cash flows for the remaining term of the
related store's lease. The non-cash impairment charge represents the
amount necessary to write down the carrying value of the equipment
and leasehold improvements for the store to its' estimated fair
value based on the Company's best estimate of the store's future
discounted operating cash flows and the anticipated proceeds to be
received on the sale of the equipment. The Company did not record
any impairment charges in fiscal 2003.
Deferred Financing Costs
Deferred financing costs are being amortized over the life of the
related debt using the effective interest method.
Software Development Costs
Software development costs consist of internal-use software
development which is amortized using the straight-line method over
its estimated useful life of approximately 3 years, commencing upon
the completion of the project. Software assets are reviewed for
impairment when events or circumstances indicate that the carrying
value may not be recoverable over the remaining lives of the assets.
During the software application development stage, capitalized costs
include external consulting costs, cost of software licenses, and
internal payroll and payroll-related costs for employees who are
directly associated with a software project. Upgrades and
enhancements are capitalized if they result in added functionality
which enable the software to perform tasks it was previously
incapable of performing. Software maintenance, training, data
conversion and business process reengineering costs are expensed in
the period in which they are incurred. Software development costs
are included in "Other" in "Other Assets" in the consolidated
balance sheet and were $95,000 as of October 29, 2005. There were no
costs in fiscal 2004 or 2003.
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
$9.2, $8.3 and $7.9 million for the fiscal years 2005, 2004 and
2003, respectively.
Store Opening and Closing Costs
The costs of opening new stores are expensed as incurred. The
Company estimates
F-10
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)
Store Opening and Closing Costs - (continued)
closed store liabilities, which are accrued and expensed upon the
closing of a store. Closed store liabilities include lease payments,
real estate taxes, common area maintenance, and utility costs to be
incurred over the remaining lease term, net of estimated sublease
income, at the present value using a discount rate based on a credit
adjusted risk-free rate. Adjustments to closed store liabilities
primarily relate to changes in subtenants and actual exit costs
differing from original estimates and are expensed in the period in
which the change becomes known.
Minimum Pension Liability
The Company maintains two underfunded defined benefit pension plans
covering administrative personnel and members of a union. The
minimum pension liability for these plans is recorded in "Other
long-term liabilities" and the related unrealized loss, net of
deferred income tax benefit, is included in accumulated other
comprehensive income.
Comprehensive Income
FASB Statement 130, "Reporting Comprehensive Income," establishes
standards for reporting and presentation of comprehensive income
(loss) and its components in a full set of financial statements. For
fiscal 2005, 2004 and 2003, comprehensive income consists of net
income and the additional minimum pension liability adjustment, net
of deferred income tax benefit.
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. Deferred
compensation expense recorded at the date of grant is amortized over
the vesting period of the related grant which approximates five
years. Compensation expense related to stock performance units (as
described in Note 11 as "Units") is measured based on the change in
market price of the Company's common stock, the number of Units
outstanding and the number of Units vested from one period to the
next.
F-11
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)
Stock Option Plan - (continued)
In accordance with SFAS 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure," the effect on net income
and earnings per share if the Company had applied the fair value
recognition provisions of SFAS 123, "Accounting for Stock-Based
Compensation," to stock-based employee compensation is as follows:
Fiscal Year Ending
------------------
October 29, October 30, November 1,
2005 2004 2003
----------- ----------- -----------
Net income - as reported $ 976 $ 1,800 $2,283
Add:
Stock-based employee compensation
expense included in reported net
income, net of related tax effects 210 221 223
Deduct:
Adjustment to total stock-based employee
compensation expense determined under the
intrinsic value method for expense determined
under the fair value based method, net of related
tax effects (285) (305) (303)
-----------------------------------------
Pro forma net income $ 901 $ 1,716 $2,203
=========================================
Earnings per share:
Basic, as reported $ .99 $ 1.82 $ 2.31
=========================================
Basic, pro forma $ .91 $ 1.74 $ 2.23
=========================================
Diluted, as reported $ .95 $ 1.75 $ 2.26
=========================================
Diluted, pro forma $ .87 $ 1.67 $ 2.18
=========================================
F-12
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)
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 based on date of grant:
Risk-free interest rate 5.0%
Expected volatility 40.2%
Dividend yield 0%
Expected life 5 years
There were no options granted in fiscal 2005, 2004 or 2003.
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 dilutive stock options, subject to
antidilution limitations.
Recent Accounting Pronouncements
In November 2004, the Financial Accounting Standards Board (the
"FASB") issued SFAS No. 151, "Inventory Costs", an amendment of ARB
No. 43, Chapter 4. SFAS No. 151 amends the guidance in ARB No. 43,
Chapter 4, "Inventory Pricing," to clarify the accounting for
abnormal amounts of idle facility expense, freight, handling costs,
and spoilage. This statement requires that those items be recognized
as current period charges regardless of whether they meet the
criterion of "so abnormal" which was the criterion specified in ARB
No. 43. This pronouncement is effective for fiscal years beginning
after June 15, 2005. The Company does not expect an impact from
adopting this new standard.
In December 2004, the FASB issued SFAS No. 123 (revised 2004),
"Share-Based Payment", which is a revision of SFAS No. 123,
"Accounting for Stock-Based
F-13
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)
Compensation." SFAS No. 123(R) supersedes APB Opinion No. 25,
"Accounting for Stock Issued to Employees" and amends SFAS No. 95,
"Statement of Cash Flows." Generally, the approach in SFAS No.
123(R) is similar to the approach described in SFAS No. 123.
However, SFAS No. 123(R) requires all share-based payments to
employees, including grants of employee stock options, to be
recognized in the income statement based on their fair values. Pro
forma disclosure is no longer an alternative. In April 2005, the
Securities and Exchange Commission adopted a final rule amending
Rule 4-01(a) of Regulation S-X amending the compliance date for FASB
Statement No. 123(R) to be effective starting with the first interim
or annual reporting period of the first fiscal year beginning on or
after June 15, 2005. The provisions of FASB Statement No. 123(R)
will be effective for the Company's first quarter of fiscal year
2006 beginning October 30, 2005. It is estimated that the adoption
of this standard will reduce the Company's net income in fiscal 2006
by $63,000.
In December 2004, the FASB issued SFAS No. 153, "Exchanges of
Nonmonetary Assets, an amendment of APB Opinion No. 29". SFAS No.
153 specifies the criteria required to record a nonmonetary asset
exchange using carryover basis. SFAS No. 153 is effective for
nonmonetary asset exchanges occurring after July 1, 2005. The
Company adopted this statement in the third quarter of fiscal 2005
and the adoption of this standard did not have any impact on its
financial statements.
In December 2004, the FASB issued FSP FAS 109-1, Application of FASB
Statement No. 109, "Accounting for Income Taxes," to the "Tax
Deduction on Qualified Production Activities Provided by the
American Jobs Creation Act of 2004" to provide accounting guidance
on the appropriate treatment of tax benefits generated by the
enactment of the Act. The FSP requires that the manufacturer's
deduction be treated as a special deduction in accordance with SFAS
109 and not as a tax rate reduction. The Company is awaiting final
tax regulations from the Internal Revenue Service before completing
its assessment of the impact of adopting FSP FAS 109-1 on its
financial statements.
In March 2005, the FASB issued FASB Interpretation (FIN) No. 47,
"Accounting for Conditional Asset Retirement Obligations - an
Interpretation of Financial Accounting Standard (FAS) No. 143,
Accounting for Asset Retirement Obligations." FIN No. 47 clarifies
the requirements to record liabilities stemming from a legal
obligation to clean up and retire fixed assets, when retirement
depends on a future event. The FASB believes this interpretation
will result in more consistent recognition of liabilities relating
to asset retirement obligations, more information about expected
future cash outflows associated with the obligations and investments
in long-lived assets because additional asset retirement costs will
be recognized as part of the carrying amounts of the assets. FIN No.
47 will be effective no later than the end of fiscal years ending
after December 15, 2005. The adoption of this standard will not have
any impact on the Company's financial statements.
In March 2005, the FASB issued FSP No. 46(R)-5, "Implicit Variable
Interests under FASB Interpretation No.46, or FIN 46 (Revised
December 2003), Consolidation of
F-14
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)
Variable Interest Entities," or FSP FIN 46(R)-5. FSP FIN 46(R)-5
provides guidance for a reporting enterprise on whether it holds an
implicit variable interest in Variable Interest Entities, or VIEs,
or potential VIEs when specific conditions exist. This FSP was
effective for the first interim period beginning after March 3, 2005
in accordance with the transition provisions of FIN 46 (Revised
2003), "Consolidation of Variable Interest Entities -- an
Interpretation of Accounting Research Bulletin No. 51," or FIN
46(R). The adoption of FSP FIN 46(R)-5 did not have any impact on
the Company's results of operations and financial condition.
In May 2005, the FASB issued FASB Statement No. 154 "Accounting
Changes and Error Corrections a replacement of APB Opinion No. 20
and FASB Statement No. 3." This Statement applies to all voluntary
changes in accounting principle. It also applies to changes required
by an accounting pronouncement in the unusual instance that the
pronouncement does not include specific transition provisions. APB
Opinion No. 20 previously required that most voluntary changes in
accounting principle be recognized by including in net income of the
period of the change the cumulative effect of changing to the new
accounting principle. This Statement requires retrospective
application to prior periods' financial statements of changes in
accounting principle, unless it is impracticable to determine either
the period-specific effects or the cumulative effect of the change.
FASB Statement No. 154 will be effective for accounting changes and
corrections of errors made in fiscal years beginning after December
15, 2005.
In June 2005, the FASB issued Emerging Issues Task Force (EITF)
Issue No. 05-06, "Determining the Amortization Period for Leasehold
Improvements." EITF Issue No. 05-06 indicates that for operating
leases, leasehold improvements that are placed in service
significantly after and not contemplated at or near the beginning of
the lease term should be amortized over the shorter of the useful
life of the assets or a term that includes required lease periods
and renewals that are deemed to be reasonably assured at the date
the leasehold improvements are purchased. Leasehold improvements
acquired in a business combination should be amortized over the
shorter of the useful life of the assets or a term that includes
required lease periods and renewals that are deemed to be reasonably
assured at the date of acquisition. EITF Issue No. 05-06 is
effective for leasehold improvements that are purchased or acquired
in reporting periods beginning after June 28, 2005. The adoption of
this EITF did not have any impact on the Company's financial
statements.
In October 2005, the FASB issued FASB Staff Position ("FSP") No. FAS
13-1, "Accounting for Rental Costs Incurred during a Construction
Period." FSP No. FAS 13-1 requires rental costs associated with
operating leases that are incurred during a construction period to
be recognized as rental expense. FSP FAS 13-1 is effective for
reporting periods beginning after December 15, 2005. The transition
provisions of FSP No. FAS 13-1 permit early adoption and
retrospective application of the guidance. The adoption of this
standard will not have an impact on the Company's financial
statements.
F-15
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Tabular dollars in thousands, except per share amounts)
Note 2 - Concentration of Cash Balance
As of October 29, 2005 and October 30, 2004, cash balances of
approximately $853,000 and $1,103,000, respectively, were maintained
in bank accounts insured by the Federal Deposit Insurance
Corporation (FDIC). These balances exceed the insured amount of
$100,000.
Note 3 - Receivables and Other Current Assets
October 29, October 30,
2005 2004
---- ----
Accounts receivable $ 4,781 $ 5,035
Construction advance due from Landlords -- 797
Prepaids 2,760 2,786
Rents receivable 290 1,204
Less allowance for uncollectible accounts (234) (1,366)
----------- -----------
$ 7,597 $ 8,456
=========== ===========
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 $650,000 at October 29, 2005,
October 30, 2004 and November 1, 2003. During fiscal 2003, the
required investment in Wakefern increased from a maximum of $550,000
to a maximum of $650,000, resulting in a total increase in the
investment by $2,088,000 and a related increase in the obligations
due Wakefern for the same amount. This increase in the obligation is
non-interest bearing and is payable over three years. The remaining
increase in the investment in fiscal 2003 of $1,200,000, and related
obligation due Wakefern for the same amount was due to the opening
of two new stores. The obligations related to the two new stores are
non-interest bearing and are payable over seven years. The increase
in the investment in fiscal 2004 of $1,351,000, and related
obligation due Wakefern for the same amount, was due to the opening
of a new store, the replacement of an existing store and the
acquisition of a store from Wakefern. The obligations related to the
increase in the investment in fiscal 2004 are non-interest bearing
and are payable over seven years. The increase in the investment in
fiscal 2005 of $635,000, and related obligation due Wakefern for the
same amount, was due to the acquisition of a store from Wakefern.
The obligation related to the increase in the investment in fiscal
2005 is non-interest bearing and is payable over seven years. The
Company has an investment in Wakefern of $17,079,000 at October 29,
2005 and $16,444,000 at October 30, 2004, representing a 15.7% and
15.5% interest in Wakefern, respectively. 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, any obligations to Wakefern
are personally guaranteed by certain of the Company's shareholders
who also serve as officers.
F-16
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)
The Company also has an investment of approximately 9.8% at October
29, 2005 and 8.5% at October 30, 2004, in Insure-Rite, Ltd., a
company affiliated with Wakefern, which was $1,244,000 at October
29, 2005 and $1,211,000 at October 30, 2004. During fiscal 2003, the
Company's obligation to invest in Insure-Rite, Ltd. increased
$127,000, as a result of the opening of two new stores. This
obligation is payable over three years and is non-interest bearing.
During fiscal 2004, the Company's obligation to invest in
Insure-Rite, Ltd. increased $131,000, as a result of the opening of
a new store and the acquisition of a store. During fiscal 2005, the
Company's obligation to invest in Insure-Rite, Ltd. increased
$33,000, as a result of the acquisition of a store. This obligation
is payable over three years and is non-interest bearing.
Insure-Rite, Ltd. provides the Company with a portion of its
liability insurance coverage with the balance paid through Wakefern
to private insurers. Insurance premiums paid to Wakefern, including
amounts due to Insure-Rite, Ltd., were $5,560,000, $5,014,000 and
$4,599,000 for fiscal years 2005, 2004 and 2003, respectively. As of
October 29, 2005 and October 30, 2004, the Company was obligated to
Wakefern for $4,211,000 and $4,457,000, respectively, for increases
in its required investments (see Note 8).
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 goods sold in the consolidated statements of operations. In
addition, the Company also receives from Wakefern other product
incentives and rebates. For fiscal 2005, 2004 and 2003, total
patronage dividends and other product incentives and rebates were
$15,366,000, $14,736,000 and $12,404,000, respectively.
At October 29, 2005 and October 30, 2004, the Company has current
receivables due from Wakefern of approximately $14,587,000 and
$14,799,000, 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 $2,237,000 and $2,039,000, 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
F-17
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)
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 $801, $796 and $715 million for the fiscal years 2005,
2004 and 2003, respectively. Wakefern charges the Company for, and
provides the Company with support services in numerous
administrative functions. These services include advertising,
supplies, technical support for communications and in-store computer
systems, equipment purchasing, the coordination of coupon processing
and other miscellaneous services. These charges were $2.7, $2.3 and
$2.2 million for fiscal years 2005, 2004 and 2003, respectively.
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.
Note 5 - Goodwill and Other Intangible Assets
Goodwill is not amortized but is tested for impairment on an annual
basis and between annual tests in certain circumstances. In
accordance with SFAS 142, the Company determined it has one
reporting unit. The Company completed goodwill annual impairment
tests prescribed by SFAS 142 during each fiscal year and concluded
that no impairment of goodwill existed.
The gross carrying amount and accumulated amortization of the
Company's other intangible assets as of October 29, 2005 and October
30, 2004 are as follows:
October 29, 2005 October 30, 2004
---------------- ----------------
Gross Gross
Carrying Accumulated Carrying Accumulated
Amount Amortization Amount Amortization
------ ------------ ------ ------------
Amortized Intangible Assets
Bargain Leases $ 4,454 $ 3,370 $ 4,454 $ 3,181
Unamortized Intangible Assets
Liquor Licenses 220 -- 220 --
-----------------------------------------------------------
Total $ 4,674 $ 3,370 $ 4,674 $ 3,181
===========================================================
F-18
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Tabular dollars in thousands, except per share amounts)
Note 5 - Goodwill and Other Intangible Assets - (continued)
Amortization expense recorded on intangible assets for the years
ended October 29, 2005, October 30, 2004 and November 1, 2003 was
$189,000, $141,000 and $192,000, respectively. The estimated
amortization expense for the Company's other intangible assets for
the five succeeding fiscal years is as follows:
Fiscal Year (In thousands)
----------- --------------
2006 $ 189
2007 189
2008 189
2009 189
2010 189
Thereafter 139
Note 6 - Accrued Expenses
October 29, October 30,
2005 2004
---- ----
Payroll and payroll related expenses $ 7,370 $ 8,129
Insurance 529 611
Sales, use and other taxes 1,525 1,455
Interest 275 253
Employee benefits 1,640 1,504
Occupancy cost 630 672
Professional fees and shareholder lawsuit (Note 14) 250 879
Real estate taxes 920 1,448
Other 340 285
---------- ----------
$ 13,479 $ 15,236
========== ==========
Note 7 - Long-term Debt
Long-term debt consists of the following:
October 29, October 30,
2005 2004
---- ----
Revolving note $ 27,462 $ 30,592
Term loan 10,000 15,000
Capital expenditure facility 17,857 20,000
Other notes payable 4,602 5,874
----------- -----------
59,921 71,466
Less current portion 9,009 8,415
----------- -----------
$ 50,912 $ 63,051
=========== ===========
F-19
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 is
comprised of four financial institutions. On September 26, 2002 the
Credit Agreement was amended and restated (as amended, the "Credit
Agreement") and was last amended August 22, 2005. The Credit
Agreement is collateralized by substantially all of the Company's
assets, provides for a total commitment of $80,000,000 and matures
December 31, 2007. The Credit Agreement provides the Company with
the option to convert portions of the debt to Eurodollar loans, as
defined in the Credit Agreement, which have interest rates indexed
to LIBOR. The Credit Agreement consists of a Revolving Note, a Term
Loan and a Capital Expenditure Facility.
The Revolving Note has an overall availability of $35,000,000, not
to exceed 65% of eligible inventory, and provides for availability
of up to $4,500,000 for letters of credit. During fiscal 2005 and
2004, this provision of the Credit Agreement was amended several
times to allow the Company the ability to borrow from $3,000,000 to
$7,000,000 in excess of the borrowing base limitation, subject to
available in transit cash, as defined. As of October 30, 2004, the
Credit Agreement provided the Company the ability to borrow up to a
maximum of $41,000,000 under the Revolving Note subject to eligible
inventory and in transit cash of up to $6,000,000. This provision
expired January 15, 2005 at which time overall availability returned
to $35,000,000. As of October 29, 2005, the Credit Agreement, as
last amended on August 22, 2005, allows the Company to borrow under
the Revolving Note up to $7,000,000 in excess of the availability
under the borrowing base limitation of 65% of eligible inventory as
long as a like amount of cash and cash equivalents are on hand at
store level or in transit to the Company's lenders. The overall
borrowing limit under the Revolving Note remains at $35,000,000.
The Revolving Note bears interest at prime plus 1.50% or LIBOR plus
3.25%. At October 29, 2005, $25,000,000 of the Revolving Note was
under a one-month Eurodollar rate of 7.14% maturing November 7,
2005, which was renewed through February 2006 at 7.65%. At October
30, 2004, $22,000,000 of the Revolving Note was under a one month
Eurodollar rate of 5.09%.
The Company had letters of credit outstanding of $540,000 and
$1,176,064 at October 29, 2005 and October 30, 2004, respectively. A
commitment fee of .5% is charged on the unused portion of the
Revolving Note. Available credit under the Revolving Note was
$4,606,000 and $1,971,000 at October 29, 2005 and October 30, 2004.
The Term Loan, originally $25,000,000, is payable in quarterly
principal installments of $1,250,000 commencing January 1, 2003
through October 1, 2007. Interest is payable monthly at prime plus
2.00% or LIBOR plus 3.75%. At October 29, 2005 and October 30, 2004
the Company had $10,000,000 and $15,000,000 outstanding,
respectively, on the Term Loan. At October 29, 2005, $10,000,000 was
under a one month Eurodollar rate of 7.64% maturing November 7, 2005
which was renewed through February 2006 at 8.15%. At October 30,
2004, $13,750,000 of the Term Loan balance was under a six month
Eurodollar rate of 5.79 % and $1,250,000 was under a one month
Eurodollar rate of 5.59%.
F-20
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 provided for a
non-restoring commitment to fund equipment purchases for five new
stores through December 31, 2004, with a maximum of $4,000,000 per
store. Interest only was due monthly at prime plus 2.00% or LIBOR
plus 3.75% for any amount utilized through December 31, 2004.
Amounts borrowed through December 31, 2004 were converted to a term
loan with interest payable monthly at rates described above and
fixed quarterly principal payments, commencing April 1, 2005,
calculated on a seven-year amortization schedule. A balloon payment
is due at December 31, 2007 for amounts outstanding on the term
loan. A commitment fee of .75% was charged on the unused portion of
the Capital Expenditure Facility. At October 29, 2005 there were no
amounts available under this facility. At October 29, 2005 and
October 30, 2004 the Company had $17,857,000 and $20,000,000
outstanding, respectively, on the Capital Expenditure Facility. At
October 29, 2005, $107,000 was at prime plus 2.00%, and $17,750,000
was under a one month Eurodollar rate of 7.64% maturing November 7,
2005 of which $16,500,000 was renewed through February 2006 at
8.15%. At October 30, 2004, $20,000,000 was under a three month
Eurodollar rate of 5.79%.
The Agreement places restrictions on dividend payments and requires
the maintenance of debt service coverage and leverage ratios, as
well as limitations on capital expenditures and new debt. For the
year ended October 30, 2004, the Company exceeded the limit by which
pension plan liabilities may exceed plan assets of its defined
benefit plans (see Note 15), which was waived by the financial
institutions.
The prime rate at October 29, 2005 and October 30, 2004 was 6.75%
and 4.75%, respectively.
F-21
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
Included in other notes payable are the following:
October 29, October 30,
2005 2004
---- ----
Note payable to a financing institution, matured
February 2005, payable at $46,000 per month
including interest at 7.44%, collateralized by
related equipment $ -- $ 170
Note payable to a financing institution, maturing
January 2010, payable at $59,000 per month
including interest at 6.45%, collateralized by
related equipment 2,639 3,162
Note payable to a financing institution, maturing
October 2008, payable at $37,000 per month
including interest at 6.20%, collateralized by
related equipment 1,210 1,566
Note payable to a financing institution, maturing
January 2009, payable at $21,000 per month
including interest at 6.20%, collateralized by
related equipment 753 956
Various equipment loans, matured 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 -- 20
----------- -----------
Total other notes payable $ 4,602 $ 5,874
=========== ===========
F-22
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Tabular dollars in thousands, except per share amounts)
Note 7 - Long-term Debt - (continued)
Aggregate maturities of long-term debt are as follows:
Fiscal Year
2006 $ 9,009
2007 9,084
2008 40,912
2009 740
2010 176
Note 8 - Long-term Debt, Related Party
As of October 29, 2005 and October 30, 2004, the Company was
indebted for investments in Wakefern in the amount of $4,211,000 and
$4,457,000, respectively. The debt is non-interest bearing and
payable in scheduled installments as follows:
Fiscal Year
2006 $ 1,026
2007 1,016
2008 587
2009 557
2010 504
Thereafter 521
Note 9 - Other Long-term Liabilities
October 29, October 30,
2005 2004
---- ----
Deferred escalation rent $ 3,518 $ 3,840
Minimum pension liability (Note 15) 4,837 5,442
Postretirement benefit cost (Note 16) 4,475 3,692
Other 747 737
----------- -----------
$ 13,577 $ 13,711
=========== ===========
Note 10 - Long-term Leases
Capital Leases
October 29, October 30,
2005 2004
---- ----
Real estate $ 152,354 $ 152,354
Less accumulated amortization 33,188 26,655
----------- -----------
$ 119,166 $ 125,699
=========== ===========
F-23
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 October 29, 2005:
Fiscal Year
2006 $ 16,002
2007 15,573
2008 15,616
2009 16,003
2010 16,252
Thereafter 259,017
--------
Total minimum lease payments 338,463
Less amount representing interest 195,957
--------
Present value of net minimum lease payments 142,506
Less current maturities 1,966
--------
Long-term maturities $140,540
========
Operating Leases
The Company is obligated under operating leases for rent payments
expiring at various dates through 2023. Certain leases provide for
the payment of additional rentals based on certain escalation
clauses and eight 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 $26,000 and $95,000,
respectively for fiscal years 2004 and 2003. There was no percentage
rent expense in fiscal 2005. 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 2005 Fiscal 2004 Fiscal 2003
----------- ----------- -----------
Land and buildings $ 10,058 $ 9,942 $ 10,183
Less subleases (4,892) (4,602) (3,586)
---------- ---------- ----------
$ 5,166 $ 5,340 $ 6,597
========== ========== ==========
The minimum rental commitments under all noncancellable operating
leases reduced by income from noncancellable subleases at October
29, 2005, are as follows:
Income from
Land and Noncancellable Net Rental
Fiscal Year Buildings Subleases Commitment
----------- --------- --------- ----------
2006 $ 8,918 $ 2,650 $ 6,268
2007 7,813 2,213 5,600
2008 6,797 1,731 5,066
2009 5,641 1,052 4,589
2010 3,964 613 3,351
Thereafter 21,892 253 21,639
---------- ---------- ----------
$ 55,025 $ 8,512 $ 46,513
========== ========== ==========
F-24
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Tabular dollars in thousands, except per share amounts)
Note 10 - Long-term Leases
Operating Leases - (continued)
The Company leases one of its supermarkets, a liquor store and a
garden center (which lease was terminated during fiscal 2004) from a
partnership in which the Chairman of the Board has a controlling
interest, at an annual aggregate rental of $700,000, $752,000 and
$753,000 for the fiscal years 2005, 2004 and 2003, 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 replaced the Foodarama Supermarkets, Inc. 1995 Stock
Option Plan under which no options were granted.
The 2001 Plan originally provided for the issuance of up to 150,000
shares of Foodarama Supermarkets, Inc. Common Stock (subject to
anti-dilution adjustment). On May 8, 2002 the Company's shareholders
approved an amendment increasing the number of shares reserved for
issuance under the 2001 Plan to 215,000 shares. No more than 50,000
shares of stock may be awarded to any one participant under the 2001
plan (see Note 14).
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 "2001 Grant Date"), the Company granted
107,500 shares as stock options and 11,000 shares in the form of
Stock Performance Units (the "Units"). On September 12, 2002 (the
"2002 Grant Date"), the Company granted an additional 3,800 shares
in the form of Stock Performance Units. The Units represent deferred
compensation based upon the increase or decrease in the market value
of the Company's common stock during the grantee's employment.
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 two to
three years. During fiscal 2003, the Company's Chairman of the Board
returned 10,000 stock options to the Company as part of a settlement
of a derivative shareholder lawsuit (see Note 14).
The Units are payable in cash only. The Units granted on the 2001
Grant Date 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. Units
granted at the 2002 Grant Date were granted to certain management
personnel and vest, per individual, between 200 and 250 units at the
2002 Grant Date with the remaining units vesting in the next year.
F-25
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 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, for the options and Units granted
on August 8, 2001. The exercise price and market price for the Units
granted September 12, 2002 was $25.00. At the 2001 Grant Date, 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 each of the years ended October 29, 2005,
October 30, 2004 and November 1, 2003, the Company realized
compensation expense relating to the stock option plan of $338,000,
$372,000 and $372,000, respectively. For the years ended October 29,
2005, October 30, 2004 and November 1, 2003, the Company realized
compensation income of $4,000, compensation expense of $84,000 and
compensation income of $15,000, respectively, related to the Units
granted, based on the market price of the Company's common stock of
$38.00 at October 29, 2005, $37.50 at October 30, 2004 and $25.25 at
November 1, 2003.
The following table summarizes Stock Option and Units activity:
Options Outstanding
----------------------------------------------------------------------------
Stock Options Stock Performance Units
------------- -----------------------
Stock
Exercise Weighted Weighted Options
Price Average Average and Units
Per Exercise Exercise Price Exercise Available
Shares Share Price Units Per Share Price for Grant
-------------------------------- --------------------------------------------------------
Outstanding November 2, 2002 106,500 $ 19.60 $ 19.60 6,800 $19.60 to $25.00 $ 22.62 92,700
-------------------------------- --------------------------------------------------------
Granted -- -- -- -- -- -- --
Returned (10,000) -- -- -- -- -- 10,000
Exercised (500) 19.60 19.60 -- -- -- --
-------------------------------- --------------------------------------------------------
Outstanding November 1, 2003 96,000 $ 19.60 $ 19.60 6,800 $19.60 to $25.00 $ 22.62 102,700
-------------------------------- --------------------------------------------------------
Granted -- -- -- -- -- -- --
Forfeited -- -- -- (250) 19.60 -- 250
Exercised (750) 19.60 19.60 (6,300) 19.60 to 25.00 $ 22.86 --
------ ------- ------- ------- ---------------- ------- ---------
Outstanding October 30, 2004 95,250 $ 19.60 $ 19.60 250 $ 19.60 $ 19.60 102,950
------ ------- ------- ------- ---------------- ------- ---------
Granted -- -- -- -- -- -- --
Exercised (500) 19.60 19.60 (250) 19.60 19.60 --
------ ------- ------- ------- ---------------- ------- ---------
Outstanding October 29, 2005 94,750 $ 19.60 $ 19.60 -- -- -- 102,950
=============================== ========================================================
Options exercisable at:
November 1, 2003 44,500 $ 19.60 $ 19.60 6,550 $19.60 to $25.00 $ 22.62
October 30, 2004 65,250 $ 19.60 $ 19.60 250 $19.60 $ 19.60
October 29, 2005 84,750 $ 19.60 $ 19.60 -- $ -- $ --
F-26
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Tabular dollars in thousands, except per share amounts)
Note 11 - Stock Option Plan - (continued)
Following is a summary of the status of stock options outstanding at
October 29, 2005:
Outstanding Options Exercisable Options
------------------- -------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Exercise Contractual Exercise Exercise
Price Number Life Price Number Price
----- ------ ---- ----- ------ -----
$ 19.60 94,750 3.45 years $ 19.60 84,750 $ 19.60
Of the exercisable options above, 40,000 of these options are set to
expire on January 27, 2006 due to the retirement of the option
holder (see Note 21).
Note 12 - Shareholders' Equity
During the fiscal years ended October 29, 2005, October 30, 2004 and
November 1, 2003 the Company issued, 500, 750 and 500 shares,
respectively, of common stock due to the exercise of stock options,
in accordance with the provisions of its 2001 Stock Incentive Plan
(see Notes 11 and 21).
Note 13 - Income Taxes
The income tax provisions consist of the following:
Fiscal 2005 Fiscal 2004 Fiscal 2003
----------- ----------- -----------
Federal
Current $ 37 $ (172) $ (3,000)
Deferred (310) 378 3,562
State and local
Current 2,330 2,332 2,007
Deferred (1,459) (1,435) (1,047)
----------- ----------- -----------
$ 598 $ 1,103 $ 1,522
=========== =========== ===========
F-27
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Tabular dollars in thousands, except per share amounts)
Note 13 - Income Taxes - (continued)
The following tabulations reconcile the federal statutory tax rate
to the effective rate:
Fiscal 2005 Fiscal 2004 Fiscal 2003
----------- ----------- -----------
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
Expenses not deductible for tax
purposes 1.9 -- --
Tax credits (4.9) (2.1) (1.7)
Other 1.1 .2 1.8
---------- ---------- ----------
Actual tax provision 38.0% 38.0% 40.0%
========== ========== ==========
F-28
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Tabular dollars in thousands, except per share amounts)
Note 13 - Income Taxes - (continued)
Net deferred tax assets and liabilities consist of the following:
October 29, October 30,
2005 2004
---- ----
Current deferred tax assets
Deferred revenue and gains on sale/
leaseback $ 65 $ 79
Allowances for uncollectible receivables 106 564
Unearned promotional allowance -- 304
Inventory capitalization 390 315
Closed store reserves 68 79
Vacation accrual 646 603
Federal tax credits 36 369
238 217
Accrued post-employment 1,813 1,495
Accrued post-retirement 37 37
------------ ------------
Other 3,399 4,062
------------ ------------
Current deferred tax liabilities
Prepaids (469) (508)
Patronage dividend receivable (3,888) (3,977)
Accelerated real estate taxes (234) (214)
Prepaid pension (959) (942)
------------ ------------
(5,550) (5,641)
------------ ------------
Current deferred tax liability, net $ (2,151) $ (1,579)
============ ============
Noncurrent deferred tax assets
Lease obligations $ 9,382 $ 7,435
State tax credits 4,430 2,969
Minimum pension liability 1,869 2,093
Stock options and deferred compensation 622 490
Federal and State loss carry forwards 94 1,177
------------ ------------
16,397 14,164
Valuation allowance (85) (85)
------------ ------------
16,312 14,079
------------ ------------
Noncurrent deferred tax liabilities
Depreciation (14,668) (14,846)
Pension obligations (1,470) (1,176)
Other (349) (349)
------------ ------------
(16,487) (16,371)
------------ ------------
Noncurrent deferred tax liability, net $ (175) $ (2,292)
============ ============
At October 29, 2005 and October 30, 2004, minimum pension liability
of $1,869,000 and $2,093,000, respectively, was charged against
accumulated other comprehensive income (see Note 15).
F-29
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Tabular dollars in thousands, except per share amounts)
Note 13 - Income Taxes - (continued)
During fiscal 2005 the Company utilized Federal net operating losses
of $5,136,000 and State net operating losses of $1,073,000. At
October 29, 2005, the Company has State net operating loss carry
forwards of approximately $858,000 expiring through October 2023.
The utilization of certain State net operating losses may be limited
in any given year. A valuation allowance has been provided for net
operating losses that are not expected to be utilized. The Company
believes the results of historical taxable income and the results of
future operations will generate sufficient taxable income to realize
the deferred tax assets.
Effective in fiscal year 2003, the Company is subject to the New
Jersey Alternative Minimum Assessment ("AMA") that was part of the
Business Tax Reform Act passed in the State of New Jersey. Taxpayers
are required to pay the AMA, which is based upon either New Jersey
Gross Receipts or New Jersey Gross Profits, if the AMA exceeds the
tax based on taxable net income. An election must be made in the
first year to use either the Gross Profits or Gross Receipts method
and must be kept in place for five years, at which time the election
may be changed.
At October 29, 2005, the Company has New Jersey AMA tax credit carry
forwards of $6,707,000. The utilization of this credit may commence
in fiscal 2007 and at that time the amount of credit may be limited
based on taxable net income. In addition, the Company has other
state tax credit carry forwards of $43,000.
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.
Shareholder Lawsuit
On March 27, 2002, certain shareholders (the "Plaintiffs") filed a
derivative action against the Company, as nominal defendant, and
against all five members of the Board of Directors (together, the
"Defendants"), in their capacities as directors and/or officers of
the Company. The lawsuit alleged that the Defendants breached their
fiduciary duties to the Company and its shareholders and sought to
"enrich and entrench themselves at the shareholders' expense"
through their previous recommendation, implementation and
administration of the 2001 Stock Incentive Plan (the "2001 Plan"),
which was approved by the Company's shareholders on April 4, 2001,
and by proposing an amendment to the 2001 Plan to increase the
number of shares of Common Stock available for issuance by 65,000
shares and an amendment to the Company's amended and restated
certificate of incorporation (the "Certificate of Incorporation") to
create a classified Board of Directors consisting of five classes of
directors, with only one class standing for election in any year for
a five-year term. The shareholders of the Company approved the
amendments to the 2001 Plan and the Certificate of Incorporation on
May 8, 2002 (see Note 11).
F-30
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Tabular dollars in thousands, except per share amounts)
Note 14 - Commitments and Contingencies
Shareholder Lawsuit - (continued)
On July 23, 2003, the Superior Court of New Jersey, Middlesex County
(the "Court"), approved the settlement of the shareholder derivative
action filed by the Plaintiffs. Pursuant to the terms of the
settlement, 1) the Company's five-year classified board has been
eliminated and the Defendants have agreed not to submit any proposal
to the shareholders of the Company in connection with the
implementation of a classified board for a five year period ending
on July 22, 2008; 2) the 2001 Plan was amended so that the maximum
number of shares of the Company's common stock that can be awarded
to any individual thereunder shall be 50,000; and 3) the 2001 Plan
was amended to require that the exercise price of any options or
other stock based compensation granted thereunder shall be equal to
the closing market price of the Company's common stock on the date
of grant. In addition, the company's Chairman of the Board returned
to the Company 10,000 stock options previously awarded to him under
the 2001 Plan.
The Plaintiffs had applied to the Court for an award of attorneys'
fees in the amount of $975,000. The Company's directors and officers
liability insurance carrier reserved its rights under the Company's
directors and officers liability insurance policy with respect to
the claims made in the derivative action, including claims for the
Plaintiffs' attorneys' fees and costs of defense, and had
preliminarily advised the Company that certain of the claims made in
the derivative action and related legal expenses were not, in the
insurance carrier's view, covered by the policy. During fiscal 2004,
the Company reached a court approved settlement with the Plaintiffs
as well as a settlement with its director and officers insurance
carrier. As a result of the settlement, the effect to the Company
was a decrease in net income, after tax effect, of $214,000.
Commitments
Employment Agreement
On November 2, 2003 the Company entered into a two-year employment
agreement (the "Agreement") with its Chairman of the Board. The
Agreement, which expired October 29, 2005, provided for an annual
salary of $325,000 in fiscal 2004 and $275,000 in fiscal 2005. The
Agreement also provided for participation in the Company's incentive
compensation plan and 401(k) plan through the term of the Agreement.
In addition, health and life insurance and postretirement benefits
will be provided during the lifetime of the Chairman of the Board
and his spouse.
Guarantees
The Company remains contingently liable under leases assumed by
third parties. As of October 29, 2005, the minimum annual rental
under these leases amounted to approximately $1,805,000 expiring at
various dates through 2011. The Company has not experienced and does
not anticipate any material nonperformance by such third parties.
F-31
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, index funds and fixed income securities.
A summary of the plans' funded status and the amounts recognized in
the consolidated balance sheets as of October 29, 2005 and October
30, 2004 follows:
October 29, October 30,
2005 2004
---- ----
Change in benefit obligation
Benefit obligation - beginning of year $ (9,526) $ (8,886)
Service cost (558) (247)
Interest cost (514) (534)
Actuarial(loss) gain 134 (525)
Plan amendments -- (16)
Benefits paid 797 682
Administrative expenses 80 --
----------- -----------
Benefit obligation - end of year (9,587) (9,526)
----------- -----------
Change in plan assets
Fair value of plan assets - beginning of year 6,409 5,761
Actual return on plan assets 341 430
Employer contributions 1,246 900
Benefits paid (797) (682)
Administrative expense (80) --
----------- -----------
Fair value of plan assets - end of year 7,119 6,409
----------- -----------
Funded status (2,468) (3,117)
Unrecognized prior service cost 166 209
Unrecognized net loss from past
experience different from that assumed 4,671 5,233
Unrecognized transition asset -- --
----------- -----------
Net amount recognized-end of year $ 2,369 $ 2,325
=========== ===========
Projected benefit obligation- end of year $ (9,587) $ (9,526)
=========== ===========
Accumulated benefit obligation- end of year $ (9,587) $ (9,526)
=========== ===========
Fair value of plan assets $ 7,119 $ 6,409
=========== ===========
F-32
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)
Amounts recognized in the consolidated balance sheets consist of:
October 29, October 30,
2005 2004
---- ----
Prepaid benefit cost $ -- $ --
Accrued benefit liability (2,468) (3,117)
Intangible asset 166 209
Accumulated other comprehensive income 4,671 5,233
------------ ------------
Net amount recognized-end of year $ 2,369 $ 2,325
============ ============
Components of Net Periodic Benefit Cost:
Fiscal 2005 Fiscal 2004 Fiscal 2003
----------- ----------- -----------
Service cost - benefits earned
during the period $ 558 $ 247 $ 117
Interest expense on benefit
obligation 514 534 529
Expected return on plan assets (513) (472) (388)
Settlement (gain) loss recognized 237 244 318
Amortization of prior service costs 44 49 49
Amortization of unrecognized
net loss (gain) 364 364 391
Amortization of unrecognized
transition obligation (asset) -- -- --
------------ ------------ ------------
Net periodic benefit cost $ 1,204 $ 966 $ 1,016
============ ============ ============
Additional information:
Increase (decrease) in minimum
pension liability included in other
comprehensive income $ (562) $ (41) $ 447
============ ============ ============
F-33
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)
Assumptions
The weighted-average economic assumptions used to determine benefit
obligations at fiscal year-end are as follows:
October 29, October 30, November 1,
2005 2004 2003
---- ---- ----
Discount rate
(pre-retirement) 5.75% 5.75% 6.25%
Discount rate (post-
retirement) 5.75% 5.00% 5.00%
Lump-sum conversion 5.00% 5.00% N/A
Rate of
compensation
increase N/A N/A N/A
Measurement date October 29, 2005 October 30, 2004 November 1, 2003
The weighted-average economic assumptions used to determine benefit
cost for the fiscal years ended on the dates indicated are as
follows:
October 29, October 30, November 1,
2005 2004 2003
---- ---- ----
Discount rate
(pre-retirement) 5.75% 6.25% 7.00%
Discount rate (post-
retirement) 5.00% 5.00% 5.75%
Lump-sum conversion 5.00% 5.00% N/A
Expected return on plan assets 8.00% 8.00% 8.00%
Rate of compensation increase N/A N/A N/A
Plan Assets and Expected Returns.
The investments of the defined benefit plans are managed with the
following objectives:
o To ensure that the principal of the Plan is preserved and
enhanced over the long-term, both in real and nominal terms
o To manage (control) risk exposure
o To exceed the funding requirement over a market cycle (3-5
years)
Risk is managed by investing in a broad range of asset classes, and
within those asset classes, a broad range of individual securities.
With the exception of Foodarama common stock already held by the
plans, no more than two percent (2%) of plan assets may be invested
in any one security.
F-34
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)
The defined benefit plans' asset allocation as of October 29, 2005
and October 30, 2004 and the target allocation of the administrative
pension plan (which accounts for approximately 70% of total pension
assets) for fiscal 2006 are as follows:
Target Allocation October 29, October 30,
Asset Class Range 2005 2004
----------- ----- ---- ----
Equity securities 33% - 70% 79.3% 83.3%
Debt securities 14% - 23% 9.0% 9.1%
Real estate 0% 0.0% 0.0%
Other 7% - 13% 11.7% 7.6%
------------ ------------
Total 100.00% 100.0%
============ ============
As of October 29, 2005 and October 30, 2004, equity securities
included 37,200 shares of common stock of the Company with a fair
value of $1,414,000 and $1,395,000, respectively.
The Trustees of the plans monitor the plan's performance on a
quarterly basis and review the target allocation at least annually.
The Trustees will also report at least annually to the Board of
Directors and the Pension Committee on the status of the plans'
assets, the performance of the investment managers, and the
absolute, relative and comparative performance of the plans'
investments.
To develop the expected long-term rate of return on asset
assumption, the Company considered the historical returns and the
future expectations for returns for each asset class, as well as the
target asset allocation of the pension portfolio. Based on these
factors and the asset allocation discussed below, the Company
elected to use an 8.0% expected return on plan assets in determining
pension expense for fiscal 2005. This is the same expected return on
plan assets used in determining pension expense for fiscal 2004 and
fiscal 2003. The assumptions were net of expected plan expenses
payable from the plans' assets.
The Company estimates that a 0.50% reduction in our expected
long-term return of return on pension plan assets, holding all other
factors constant, would have increased pension expense during fiscal
2005 by approximately $33,000. In addition pension expense is
sensitive to the discount rate and other assumptions used. A 0.50%
decrease in the discount rate assumption would have increased
pension expense during fiscal 2005 by $77,000.
F-35
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)
Estimated Future Benefit Payments
The following benefit payments, which reflect expected future
service, as appropriate, are expected to be paid as follows:
Defined Benefit
Fiscal Year Plans
----------- -----
2006 $ 866
2007 878
2008 498
2009 465
2010 745
2011 to 2016 3,692
--------
Total $ 7,144
========
Company Contributions
Based on the Company's actuarial assumptions the Company believes it
will be required to make contributions to its defined benefit
pension plans of $1,530,000 in fiscal 2006.
Additional information
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 October 29, 2005 and October 30, 2004, 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 October 29, 2005 and October
30, 2004, a liability of $4,837,000 and $5,442,000, respectively,
was included in other long-term liabilities, an intangible asset
equal to the prior service cost of $166,000 and $209,000,
respectively, is included in other assets, and a charge of
$4,671,000 and $5,233,000, before a deferred tax benefit of
$1,869,000 and $2,093,000, respectively, is reflected as a minimum
pension liability in shareholders' equity in the consolidated
balance sheet.
Multi-Employer Plans
Health, welfare, and retirement expense was approximately
$18,783,000 in fiscal 2005, $18,159,000 in fiscal 2004 and
$17,230,000 in fiscal 2003, 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.
F-36
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)
401(k)/Profit Sharing Plan
The Company maintains an employee 401(k) Savings Plan (the "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 30% of eligible compensation, to a
maximum of $14,000. 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 2.00% for fiscal years 2005, 2004 and 2003.
401(k) expense for the fiscal years 2005, 2004 and 2003 was
approximately $709,000, $761,000 and $715,000, respectively.
Note 16 - Other Postretirement and Postemployment Benefits
Postretirement Benefits
The Company will provide certain current officers and provided
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 October 29, 2005 and October 30, 2004,
respectively.
A summary of the plan's funded status and the amounts recognized in
the consolidated balance sheets as of October 29, 2005 and October
30, 2004, follows:
October 29, October 30
2005 2004
---- ----
Change in benefit obligation
Benefit obligation - beginning of year $ (5,805) $ (5,019)
Service cost (185) (168)
Interest cost (333) (313)
Actuarial gain (loss) 438 (230)
Plan amendments -- (75)
Benefits paid -- --
---------- ----------
Benefit obligation - end of year (5,885) (5,805)
---------- ----------
Change in plan assets
Fair value of plan assets - beginning of year -- --
Actual return on plan assets -- --
Employer contributions -- --
Benefits paid -- --
---------- ----------
Fair value of plan assets - end of year -- --
---------- ----------
Funded status (5,885) (5,805)
Unrecognized prior service cost 113 197
Unrecognized net loss from past
experience different from that assumed 1,297 1,916
---------- ----------
Accrued postretirement benefit cost $ (4,475) $ (3,692)
========== ==========
Projected benefit obligation- end of year $ (5,885) $ (5,805)
========== ==========
Accumulated benefit obligation- end of year $ (5,885) $ (5,805)
========== ==========
Fair value of plan assets $ -- $ --
========== ==========
F-37
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)
Net postretirement benefit expense consists of the following:
Fiscal 2005 Fiscal 2004 Fiscal 2003
----------- ----------- -----------
Service cost - benefits earned
during the period $ 185 $ 168 $ 125
Interest expense on benefit
obligation 333 313 271
Expected return on plan assets -- -- --
Amortization of prior service
costs 83 78 23
Amortization of unrecognized
net loss (gain) 182 204 137
Amortization of unrecognized
transition obligation (asset) -- -- --
------------ ------------ ------------
Postretirement benefit expense $ 783 $ 763 $ 556
============ ============ ============
Assumptions
The weighted-average economic assumptions used to determine benefit
obligations at fiscal year-end are as follows:
October 29, 2005 October 30, 2004 November 1, 2003
---------------- ---------------- ----------------
Discount rate 5.75% 5.75% 6.25%
Rate of compensation
increase 4.00% 4.00% 4.00%
Measurement date October 29, 2005 October 30, 2004 November 1, 2003
The weighted-average economic assumptions used to determine benefit
cost for the fiscal years ended on the dates indicated are as
follows:
October 29, October 30, November 1,
2005 2004 2003
---- ---- ----
Discount rate 5.75% 6.25% 7.00%
Expected long-term rate of
return on plan assets
during fiscal year N/A N/A N/A
Rate of compensation
increase 4.00% 4.00% 4.00%
Postretirement benefit expense is sensitive to the discount rate and
other assumptions used. The Company estimates that a 0.50% decrease
in the discount rate assumption would have increased postretirement
benefit expense during fiscal 2005 by $40,000.
F-38
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)
The assumed health care cost trend rates to determine benefit
obligations at fiscal year-end are as follows:
October 29, October 30, November 1,
2005 2004 2003
---- ---- ----
Health care cost trend
rate assumed for
subsequent year 7.25% 11.00% 12.00%
Ultimate health care cost
trend rate 5.50% 5.50% 5.50%
Fiscal year that the
ultimate rate is reached 2013 2011 2010
Assumed health care cost trend rates have a significant effect on
the amounts reported for the postretirement plan. A 1% change in
assumed health care cost trend rates would have the following
effects as of October 29, 2005:
1% Increase 1% (Decrease)
----------- -------------
Total of service and interest
cost components $ 8,000 $ (7,000)
Post retirement benefit obligation $53,000 $ (45,000)
Plan Assets and Expected Returns
The Postretirement Plan is unfunded and the Company plans to fund
benefits as they are due and payable. Therefore no asset allocation
or target allocation is presented.
Estimated future Benefit Payments
The following benefit payments, which reflect expected future
service, as appropriate, are expected to be paid as follows:
Other Post
Fiscal Year Retirement Plan
---------------- ---------------
2006 $ 242
2007 380
2008 381
2009 382
2010 382
2011 to 2015 2,054
-----------
Total $ 3,821
===========
F-39
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)
Company Contributions
Based on the Company's actuarial assumptions, the Company believes
it will be required to make future contributions to its
postretirement benefit plan equal to the estimated future benefit
payments summarized above.
Estimated Postretirement costs for Future Years
Actual postretirement costs in the future will depend on changes in
discount rates, the rate of increase in compensation, health care
cost trends and various other factors related to the employees
eligible in the Company's postretirement plan.
Medicare Changes
The financial information included herein does not reflect the
anticipated financial effect of the new Medicare Prescription Drug
Improvement and Modernization Act of 2003 as the legislation did not
have a significant impact on the Company's financial statements.
Changes in the postretirement benefits related to Medicare changes
will be reflected as actuarial (gains)/losses as they occur.
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 October 29, 2005 and
October 30, 2004 was $587,000 and $536,000, respectively.
Note 17 - Earnings Per Share
Fiscal 2005 Fiscal 2004 Fiscal 2003
----------- ----------- -----------
Basic EPS
Net income available to common
shareholders $ 976 $ 1,800 $ 2,283
=========== =========== ===========
Weighted average shares
outstanding 987,878 987,132 986,789
----------- ----------- -----------
Per share amount $ .99 $ 1.82 $ 2.31
=========== =========== ===========
Effect of Dilutive Securities
Stock Options - Incremental
Shares 43,837 43,035 24,561
=========== =========== ===========
Dilutive EPS
Weighted average shares
outstanding including
incremental shares 1,031,715 1,030,167 1,011,350
----------- ----------- -----------
Per share amount $ .95 $ 1.75 $ 2.26
=========== =========== ===========
F-40
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Tabular dollars in thousands, except per share amounts)
Note 18 - Noncash Investing and Financing Activities
During fiscal 2005, 2004 and 2003, the Company retired property and
equipment with an original cost of $47,000, $2,838,000 and
$7,280,000 and accumulated depreciation of $47,000, $2,835,000 and
$7,117,000, respectively.
During fiscal, 2004 and 2003, the Company reclassed $6,810,000 and
$12,854,000, respectively, of construction in progress to leasehold
improvements and equipment. In addition, during fiscal 2003, the
Company reclassed $829,000 from deposits on equipment to equipment.
At October 29, 2005, the Company had an additional minimum pension
liability of $4,837,000, a related intangible asset of $166,000 and
a direct charge to equity of $2,802,000, net of deferred taxes of
$1,869,000. At October 30, 2004, the Company had an additional
minimum pension liability of $5,442,000, a related intangible asset
of $209,000 and a direct charge to equity of $3,140,000, net of
deferred taxes of $2,093,000. At November 1, 2003, the Company had
an additional minimum pension liability of $5,516,000, a related
intangible asset of $242,000 and a direct charge to equity of
$3,164,000, net of deferred taxes of $2,110,000.
During fiscal 2004, additional capital lease obligations of
$21,934,000 were incurred when the Company entered into a lease for
a new store and a lease modification for a replacement store. During
fiscal 2003, capital lease obligations of $60,553,000 were incurred
when the Company entered into leases for four new stores and two
existing stores.
During fiscal 2005, the Company was required to make additional
investments in Wakefern of $635,000 and Insure-Rite, Ltd. of $33,000
for the acquisition of a store. During fiscal 2004, the Company was
required to make additional investments in Wakefern of $1,351,000
and Insure-Rite, Ltd. of $131,000, for one new store, a replacement
store and the acquisition of a store. During fiscal 2003, the
Company was required to make additional investments in Wakefern of
$1,200,000 and Insure-Rite, Ltd. of $127,000, for two new stores,
which opened during fiscal 2003. In conjunction with these
investments, liabilities were assumed for the same amounts.
During fiscal 2003, the required investment in Wakefern increased
from a maximum per store of $550,000 to $650,000. This resulted in
an increase of $2,088,000 in the investment and obligations due
Wakefern.
Note 19 - Acquisitions
During fiscal 2005, the Company acquired the assets of a store,
excluding inventory, for $1 (one dollar). During fiscal 2004, the
Company acquired the assets of a store, excluding inventory, for
$1,000,000 (the "Purchase Price"). The Purchase Price was allocated
$75,000 to Leasehold Improvements, $389,000 to Equipment and
$536,000 to Intangible Assets as a bargain lease.
F-41
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Tabular dollars in thousands, except per share amounts)
Note 20 - Unaudited Summarized Consolidated Quarterly Information
Summarized quarterly information for the years ended October 29,
2005 and October 30, 2004 was as follows:
Thirteen Weeks Ended
---------------------------------------------------
January 29, April 30, July 30, October 29,
2005 2005 2005 2005
---- ---- ---- ----
Sales $317,589 $292,035 $304,462 $ 301,404
Gross profit 80,107 77,088 80,595 78,738
Net income 253 54 553 116
Earnings available
per share:
Basic .26 .05 .56 .12
Diluted .24 .05 .54 .11
Thirteen Weeks Ended
--------------------------------------------------
January 31, May 1, July 31, October 30,
2004 2004 2004 2004
---- ---- ---- ----
Sales $293,843 $278,693 $302,799 $ 298,642
Gross profit 76,228 74,061 80,268 78,140
Net income (loss) 1,240 956 496 (892)
Earnings (loss) available
per share:
Basic 1.26 .97 .50 (.91)
Diluted 1.22 .93 .48 (.91)
The fourth quarter ended October 30, 2004 includes a pre-tax
impairment charge of $1,198,000 (see Note 1).
Note 21 - Subsequent events
On December 2, 2005, the Company announced that it received a
non-binding proposal for a going private transaction from a
purchaser group. The purchaser group consists of shareholders of the
Company and is comprised of the Chairman of the Board, the President
and certain of their family members. The proposed transaction (the
"Going Private Transaction") will result in the acquisition by a
corporation formed by the purchaser group of all the outstanding
shares of common stock of the Company not already owned by the
members of the purchaser group. The purchaser group currently owns
or controls 51% of the Company's issued and outstanding common
stock. The proposed transaction will be effected by means of a
tender offer for the remaining 49% of the Company's outstanding
shares subject to shareholder approval, the consent of Wakefern and
the satisfaction of certain conditions as defined in the non-binding
proposal.
On January 23, 2006, the Company extended the term (the "Extension")
of 40,000 options, which were set to expire on January 27, 2006 (see
Note 11), to December 27, 2006. The Extension will result in a
charge to net income of $19,000 in the first quarter of fiscal 2006.
F-42
Schedule II
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
Fiscal Years Ended October 29, 2005, October 30, 2004 and November 1, 2003
(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 October 29, 2005
Allowance for doubtful
accounts (deducted from
receivables and other current
assets) $ 1,366 $ 495 -- $ 1,627 (1) $ 234
=========== ============= =========== =========== =============
Fiscal year ended October 30, 2004
Allowance for doubtful
accounts (deducted from
receivables and other current
assets) $ 983 $ 478 -- $ 95 (1) $ 1,366
=========== ============= =========== =========== =============
Fiscal year ended November 1, 2003
Allowance for doubtful
accounts (deducted from
receivables and other current
assets). $ 684 $ 359 $ -- $ 60 (1) $ 983
=========== ============= =========== =========== =============
(1) Accounts deemed to be uncollectible.
S-1
INDEX TO EXHIBITS
3. Articles of Incorporation and By-Laws
--------------------------------------------------------------------------------
*3.1. Restated Certificate of Incorporation of Registrant filed with
the Secretary of State of the State of New Jersey on May 15,
1970.
--------------------------------------------------------------------------------
*3.2. Certificate of Merger filed with the Secretary of State of the
State of New Jersey on May 15, 1970.
--------------------------------------------------------------------------------
*3.3. Certificate of Merger filed with the Secretary of State of the
State of New Jersey on March 14, 1977.
--------------------------------------------------------------------------------
*3.4. Certificate of Merger filed with the Secretary of State of the
State of New Jersey on June 23, 1978.
--------------------------------------------------------------------------------
*3.5. Certificate of Amendment to Restated Certificate of
Incorporation filed with the Secretary of State of the State
of New Jersey on May 12, 1987.
--------------------------------------------------------------------------------
**3.6. Certificate of Amendment to Restated Certificate of
Incorporation filed with the Secretary of State of the State
of New Jersey on February 16, 1993.
--------------------------------------------------------------------------------
****3.7. Amendment to the Certificate of Incorporation of the
Registrant dated April 4, 1996.
--------------------------------------------------------------------------------
*3.8. By-Laws of Registrant.
--------------------------------------------------------------------------------
*3.9. Amendments to By-Laws of Registrant adopted September 14,
1983.
--------------------------------------------------------------------------------
3.10. 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.
--------------------------------------------------------------------------------
3.11. Certificate of Amendment to the Amended and Restated
Certificate of Incorporation filed with the Department of the
Treasury of the State of New Jersey on May 14, 2002 is
incorporated herein by reference to the Registrant's Annual
Report on Form 10-K for the year ended November 2, 2002 filed
with the Securities and Exchange Commission on January 30,
2003.
--------------------------------------------------------------------------------
3.12 Amended and Restated By-Laws of Registrant adopted April 14,
2004 are incorporated herein by reference to the Registrant's
Current Report on Form 8-K filed with the Securities and
Exchange Commission on April 21, 2004.
--------------------------------------------------------------------------------
3.13 Certificate of Amendment to the Restated Certificate of
Incorporation which was filed with the Department of the
Treasury of the State of New Jersey on September 19, 2003.
--------------------------------------------------------------------------------
10. Material Contracts
E-1
--------------------------------------------------------------------------------
10.1. 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.
--------------------------------------------------------------------------------
***10.2. Certificate of Incorporation of Wakefern Food Corporation
together with amendments thereto and certificates of merger.
--------------------------------------------------------------------------------
***10.3. By-Laws of Wakefern Food Corporation.
--------------------------------------------------------------------------------
#***10.4. Form of Deferred Compensation Agreement, between the
Registrant and certain of its key employees.
--------------------------------------------------------------------------------
#10.5. 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.
--------------------------------------------------------------------------------
10.6. 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.
--------------------------------------------------------------------------------
10.7. 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.
--------------------------------------------------------------------------------
10.8. 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.
--------------------------------------------------------------------------------
10.9. 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.
--------------------------------------------------------------------------------
****10.10. Agreement, dated as of March 29, 1996, between the Registrant
and Wakefern Food Corporation.
--------------------------------------------------------------------------------
****10.11. 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.
--------------------------------------------------------------------------------
E-2
--------------------------------------------------------------------------------
10.12. 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.
--------------------------------------------------------------------------------
10.13. Amended and Restated Revolving Credit and Term Loan Agreement,
dated as of May 2, 1997, between the Registrant and the
Financial Institution which is 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.
--------------------------------------------------------------------------------
*****10.14. First Amendment to Amended and Restated Revolving Credit and
Term Loan Agreement, dated October 28, 1997, between the
Registrant and the Financial Institution which is signatory
thereto.
--------------------------------------------------------------------------------
*****10.15. 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 is signatory thereto.
--------------------------------------------------------------------------------
*****10.16. Third Amendment to Amended and Restated Revolving Credit and
Term Loan Agreement, dated January 15, 1998, between the
Registrant and the Financial Institution which is signatory
thereto.
--------------------------------------------------------------------------------
10.17. Amendment to the Amended and Restated Revolving Credit and
Term Loan Agreement, dated March 11, 1999, between the
Registrant and the Financial Institution which is signatory
thereto, is incorporated herein by reference to 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.
--------------------------------------------------------------------------------
10.18. 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.
--------------------------------------------------------------------------------
#10.19. 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 29, 2000, filed with the Securities and Exchange
Commission on March 9, 2000.
--------------------------------------------------------------------------------
#10.20. 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.
--------------------------------------------------------------------------------
E-3
--------------------------------------------------------------------------------
10.21. 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.
--------------------------------------------------------------------------------
10.22. 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.
--------------------------------------------------------------------------------
******10.23. Letter Amendment to Second Amended and Restated Revolving
Credit and Term Loan Agreement, dated as of January 30, 2002
between the Registrant and each of the Financial Institutions
which are signatory thereto.
--------------------------------------------------------------------------------
******10.24. Letter Amendment to Second Amended and Restated Revolving
Credit and Term Loan Agreement, dated as of January 30, 2002
between the Registrant and each of the Financial Institutions
which are signatory thereto.
--------------------------------------------------------------------------------
10.25. Letter Amendment to Second Amended and Restated Revolving
Credit and Term Loan Agreement, dated as of March 29, 2002
between the Registrant and each of the Financial Institutions
which are signatory thereto is incorporated herein by
reference to the Registrant's Form 8-K filed with the
Securities and Exchange Commission on April 5, 2002.
--------------------------------------------------------------------------------
10.26. Third Amended and Restated Revolving Credit and Term Loan
Agreement, dated as of September 26, 2002 between the
Registrant and each of the Financial Institutions which are
signatory thereto, is incorporated herein by reference to the
Registrant's Form 8-K filed with the Securities and Exchange
Commission on September 30, 2002.
--------------------------------------------------------------------------------
10.27. Amendment No. 1 to Third Amended and Restated Revolving Credit
and Term Loan Agreement, dated as of December 17, 2002 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 November 2,
2002, filed with the Securities and Exchange Commission on
January 30, 2003.
--------------------------------------------------------------------------------
10.28. Consent, Waiver and Amendment No. 2 to Third Amended and
Restated Revolving Credit and Term Loan Agreement, dated as of
January 21, 2003 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 November 2, 2002, filed with the Securities
and Exchange Commission on January 30, 2003.
--------------------------------------------------------------------------------
E-4
--------------------------------------------------------------------------------
10.29. Amendment No. 3 to Third Amended and Restated Revolving Credit
and Term Loan Agreement, dated as of July 16, 2003 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 August
2, 2003, filed with the Securities and Exchange Commission on
September 16, 2003.
--------------------------------------------------------------------------------
10.30. Amendments No. 2 and 1 to the Foodarama Supermarkets, Inc.
2001 Stock Incentive Plan are incorporated herein by reference
to the Registrant's Form 10-Q for the quarterly period ended
August 2, 2003, filed with the Securities and Exchange
Commission on September 16, 2003.
--------------------------------------------------------------------------------
#10.31. Executive Employment Agreement, dated November 2, 2003, by and
between the Company and Joseph J. Saker is incorporated herein
by reference to the Registrant's Form 10-K for the year ended
November 1, 2003, filed with the Securities and Exchange
Commission on January 29, 2004.
--------------------------------------------------------------------------------
#10.32. First Amendment to the Registrant's Supplemental Executive
Retirement Plan, effective November 2, 2003 is incorporated
herein by reference to the Registrant's Form 10-K for the year
ended October 30, 2004, filed with the Securities and Exchange
Commission on January 28, 2005.
--------------------------------------------------------------------------------
10.33. Amendment No. 4 to the Amended and Restated Revolving Credit
and Term Loan Agreement is incorporated herein by reference to
the Registrant's Form 10-Q for the quarterly period ended May
1, 2004, filed with the Securities and Exchange Commission on
June 14, 2004.
--------------------------------------------------------------------------------
10.34. Amendment No. 5 to the Third Amended and Restated Revolving
Credit and Term Loan Agreement, dated as of July 19, 2004,
between the Registrant and each of the Financial Institutions
which is a signatory thereto, is incorporated herein by
reference to the Registrant's Form 8-K, dated August 24, 2004,
filed with the Securities and Exchange Commission on August
30, 2004.
--------------------------------------------------------------------------------
10.35. Amendment No. 6 to the Third Amended and Restated Revolving
Credit and Term Loan Agreement, dated as of August 24, 2004,
between the Registrant and each of the Financial Institutions
which is a signatory thereto, is incorporated herein by
reference to the Registrant's Form 8-K, dated August 24, 2004,
filed with the Securities and Exchange Commission on August
30, 2004.
--------------------------------------------------------------------------------
10.36. Amendment No. 7 to the Third Amended and Restated Revolving
Credit and Term Loan Agreement, dated as of October 19, 2004,
between the Registrant and each of the Financial Institutions
which is a signatory thereto, is incorporated herein by
reference to the Registrant's Form 8-K, dated October 19,
2004, filed with the Securities and Exchange Commission on
October 21, 2004.
--------------------------------------------------------------------------------
E-5
--------------------------------------------------------------------------------
10.37. Amendment No. 8 to the Third Amended and Restated Revolving
Credit and Term Loan Agreement, dated as of October 21, 2004,
between the Registrant and each of the Financial Institutions
which is a signatory thereto, is incorporated herein by
reference to the Registrant's Form 8-K, dated October 21,
2004, filed with the Securities and Exchange Commission on
October 25, 2004.
--------------------------------------------------------------------------------
10.38. Amendment No. 10 to the Third Amended and Restated Revolving
Credit and Term Loan Agreement, dated as of August 22, 2005,
between the Registrant and each of the Financial Institutions
which is a signatory thereto, is incorporated herein by
reference to the Registrant's Form 8-K, dated August 22, 2005,
filed with the Securities and Exchange Commission on August
24, 2005.
--------------------------------------------------------------------------------
10.39. The Agreement, dated as of August 20, 1987 as amended February
20, 1992, entered into by Wakefern Food Corporation and the
Registrant.
--------------------------------------------------------------------------------
#10.40 Registrant's Supplemental Executive Retirement Plan, restated
as of December 31, 2004.
--------------------------------------------------------------------------------
#10.41 Registrant's Post-2004 Supplemental Executive Retirement Plan.
--------------------------------------------------------------------------------
E-6
--------------------------------------------------------------------------------
14. Code of Conduct is incorporated herein by reference to the
Registrant's Form 10-K for the year ended November 1, 2003,
filed with the Securities and Exchange Commission on January
29, 2004.
--------------------------------------------------------------------------------
14.1 Code of Conduct.
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21. List of Subsidiaries of Foodarama Supermarkets, Inc.
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23.1 Consent of Independent Registered Public Accounting Firm.
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31.1 Section 302 Certification of Chief Executive Officer.
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31.2 Section 302 Certification of Chief Financial Officer.
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32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350.
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32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350.
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# Indicates a management contract or compensatory plan or
arrangement.
* 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.
*** 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.
**** 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-7