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
November 1, 2003 1-5745
------------------------- ----------------------
FOODARAMA SUPERMARKETS, INC.
(Exact name of Registrant as specified in its charter)
New Jersey 21-0717108
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Building 6, Suite 1, 922 Hwy. 33, Freehold, New Jersey 07728
(Address of principal executive offices)
Registrant's telephone number, including area code: (732) 462-4700
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
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Common Stock, par value $1.00 per share American Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act:
NONE
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(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. _X_
Indicate by check mark whether the Registrant is an accelerated filer (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 $9,235,488. Computation is based on the closing
sales price of $24.00 per share of such stock on the American Stock Exchange on
May 2, 2003, the last business day of the Registrant's most recently completed
second quarter.
As of January 16, 2004, the number of shares outstanding of Registrant's
Common Stock was 986,867.
DOCUMENTS INCORPORATED BY REFERENCE
Information contained in the 2004 definitive Proxy Statement to be filed
with the Commission and to be delivered to security holders in connection with
the Annual Meeting is incorporated by reference into this Form 10-K at Part III.
PART I
Disclosure Concerning Forward-Looking Statements
------------------------------------------------
All statements, other than statements of historical fact, included in this Form
10-K, including without limitation the statements under "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Business",
are, or may be deemed to be, "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended (the "Securities Act"),
and Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). Such forward-looking statements involve assumptions, known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of Foodarama Supermarkets, Inc. (the
"Company", which may be referred to as we, us or our) to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements contained in this Form 10-K. Such potential
risks and uncertainties, include without limitation, competitive pressures from
other supermarket operators, 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
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General
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Foodarama Supermarkets, Inc., a New Jersey corporation formed in 1958, operates
a chain of twenty-four supermarkets located in Central New Jersey, as well as
two liquor stores and two garden centers, all licensed as ShopRite. We also
operate a central food processing facility to supply our stores with meat,
various prepared salads, prepared foods and other items, and a central baking
facility which supplies our stores with bakery products. The Company is a member
of Wakefern, the largest retailer owned food cooperative warehouse in the United
States and owner of the ShopRite name. The Company operates in one industry
segment, the retail sale of food and non-food products, primarily in the Central
New Jersey region.
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. We have also introduced many of these features into our
conventionally sized supermarkets through extensive renovations; these stores
are considered "Mini-World Class" supermarkets. Currently, twenty-one of our
stores are "World Class", one is "Mini-World Class" and two are conventional
supermarkets.
2
The following table sets forth certain data relating to the Company's business
for the periods indicated:
Fiscal Year Ended
Nov. 1, Nov. 2, Nov. 3, Oct. 28, Oct. 30,
2003 2002 2001** 2000 1999
------ ------- ------- ------- --------
Average annual sales per store
(in millions)* $45.5 $43.8 $43.0 $40.5 $37.1
Same store sales increase
from prior year 1.47% 1.56% 3.77% 4.24% 6.28%
Total store area in square
feet
(in thousands) 1,558 1,340 1,301 1,294 1,195
Total store selling area in
square feet
(in thousands) 1,181 1,001 973 966 895
Average total square feet per
store (in thousands) 65 61 59 59 57
Average square feet of
selling area per store (in
thousands) 49 46 44 44 43
Annual sales per square foot
of selling area* $967 $962 $973 $923 $870
Number of stores:
Stores remodeled (over
$500,000)..................... 1 0 2 2 1
New stores opened............. 2 0 0 1 0
Stores replaced/expanded...... 3 1 1 1 0
Stores closed/divested........ 2 1 0 1 0
Number of stores by size
(total store area):
30,000 to 39,999 sq.ft........ 2 2 3 3 4
40,000 to 49,999 sq.ft........ 1 3 3 3 3
Greater than 50,000 sq.ft..... 21 17 16 16 14
Total stores open at period
end 24 22 22 22 21
* Sales for stores open less than 52 weeks have been annualized except for the
Hamilton, New Jersey store which opened October 29, 2003 and was excluded from
the calculation.
**Calculated on a 53 week basis. A like 52 week comparison would be $42.1
million in average annual sales per store and $953 in annual sales per square
foot of selling area.
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,
3
replace outdated locations and open new "World Class" supermarkets within our
core market area of Central New Jersey.
In fiscal year 2003, new locations were opened in Ewing and Hamilton, New Jersey
and replacement stores were opened in Woodbridge and North Brunswick, New
Jersey. Additionally, one existing location was expanded and a new state of the
art bakery commissary was built. The expansion of a second location was
completed in December 2003. The two locations which were expanded are presently
being remodeled. Over the next three years the Company plans to open two
replacement and four new stores and expand one existing location. Construction
has started on one replacement store and a new store. 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. This POS upgrade brought all of our stores to a
state of the art level with increased processing speed and enhanced marketing
capabilities. These systems improve pricing accuracy, enhance productivity and
reduce checkout time for customers. During fiscal 2003 automated checkout
systems were installed in four locations. These systems, which allow the
customer to checkout without interaction with Company personnel, are now
operating in six stores with one additional system installed in the expanded and
remodeled East Brunswick, New Jersey store in the first quarter of fiscal 2004.
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.
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 as well as participation in Price Plus (R), ShopRite's preferred
customer program, and the ShopRite co-branded credit card. By presenting the
scannable Price Plus(R) card or the ShopRite co-branded card, customers can be
given electronic discounts, receive credit for the value of ShopRite in-ad Clip
Less coupons and cash personal checks. Also, customers receive a 1% future
rebate when paying with the ShopRite credit card.
We are also using other in-store computer systems. Computer generated ordering
is installed in all stores. This system is designed to reduce inventory levels
and out of stock positions, enhance shelf space utilization and reduce labor
costs. In all stores, meat, seafood and delicatessen prices are maintained on
department computers for automatic weighing and pricing. Additionally, all
stores have computerized time and attendance systems which are used for, among
other things, automated labor scheduling, and most stores have computerized
energy management systems. A browser based labor scheduling system will be
installed in all stores in fiscal 2004. We also utilize a direct store delivery
4
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 and produce department personnel. A module for training bakery
personnel will be installed in all of our stores in fiscal 2004 and training
modules for other departments are currently being developed.
In addition, all field merchandisers and operations supervisors are equipped
with laptop personal computers. This provides field personnel with current labor
and product information to facilitate making accurate and timely decisions.
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 11/01/03 11/02/02 11/03/01
------------------ -------- -------- --------
Groceries 37.6% 38.1% 39.1%
Dairy & Frozen 16.3 16.4 16.5
Meats, Seafood & Poultry 10.3 10.1 10.2
Non-Foods 10.1 10.1 10.3
Produce 9.4 9.3 8.8
Appetizers & Prepared Foods 7.0 6.7 6.4
Pharmacy 5.4 5.4 4.9
Bakery 2.2 2.1 2.0
Liquor, Floral & Garden Centers 1.7 1.8 1.8
--- --- ---
100.0% 100.0% 100.0%
Gross profit derived by the Company from each product category is not
necessarily consistent with the percentage of total sales represented by such
product category.
Wakefern Food Corporation
-------------------------
The Company owns a 15.6% 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 38 shareholder members operate approximately 207 supermarkets
of which Wakefern owns and operates 54 locations. Products bearing the ShopRite
label accounted for approximately 16% of the Company's total sales for the
fiscal year ended November 1, 2003. Wakefern maintains warehouses in Elizabeth,
5
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 and perishable products warehouse in Wallkill, New York.
Wakefern's professional advertising staff and its advertising agency develop and
place most of the Company's advertising on television, radio and in major
newspapers. We are charged for these services based on various formulas which
account for the estimated proportional benefits we receive. In addition,
Wakefern charges us for, and provides the Company with, product and support
services in numerous administrative functions. These include insurance,
supplies, technical support for communications and electronic payment systems,
equipment purchasing and the coordination of coupon processing. Additionally, we
sublease two supermarkets from Wakefern. See Item 2. Properties.
Wakefern distributes, as a patronage dividend to each of its members, a share of
its net earnings in proportion to the dollar volume of business transacted by
each member with Wakefern during each fiscal year. The Company's participation
percentage was 12.3% for fiscal 2003. 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 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 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
6
shareholder members to pledge their Wakefern stock as collateral for payment of
their obligations to Wakefern. The Company's investment in Wakefern was
$15,093,000 as of November 1, 2003 and $11,805,000 as of November 2, 2002. We
also have an investment in another company affiliated with Wakefern which was
$1,080,000 as of November 1, 2003 and $953,000 as of November 2, 2002. 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 period ended 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 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.
Many of the Company's competitors have greater financial resources and sales. As
7
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. 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 has not had and will not have any material
adverse effect on our capital expenditures, earnings or competitive position.
Employees
---------
As of December 31, 2003, we employed approximately 7,000 persons, of whom
approximately 6,500 are covered by collective bargaining agreements. 77% of the
employees are part time and almost all of these employees are covered by the
collective bargaining agreements. Although the Company has historically
maintained favorable relations with its unionized employees, it could be
affected by labor disputes. Most of our competitors are similarly unionized. The
Company is a party to seven collective bargaining agreements expiring on various
dates from May 2004 to August 2007. The bargaining agreement with the United
Food and Commercial Workers Local 464 expired in April 2003 and has been
renegotiated. The new contract expires in August 2007.
By virtue of the nature of the Company's supermarket operations, information
concerning backlog, seasonality, major customers, government contracts, research
and development activities and foreign operations and export sales is not
relevant.
Item 2. Properties
-------------------
The Company's twenty-four 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.
8
Leases for 22 of the Company's 24 existing supermarkets expire on various dates
from 2005 through 2028. 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 one lease expiring in 2005, all leases contain renewal options
ranging from 5 to 25 years. Seven leases require, in addition to a fixed rental,
a further rental payment based on a percentage of the annual sales in excess of
a stipulated minimum. The minimum has been exceeded in three of the seven
locations in the last fiscal year. Most leases also require us to pay for
insurance, common area maintenance and real estate taxes. Four additional leases
have been signed for supermarket locations, one of which will be a replacement
for an existing store and three for new locations. Additionally, two new leases
have been signed for existing locations which will be expanded and remodeled.
One of these expansions was completed in December 2003. The terms of these new
supermarket leases are substantially similar to the terms of the leases for our
existing supermarkets. The Company has experienced delays in the opening of
certain new stores because of extensive governmental approvals required to
develop new retail properties in New Jersey.
Also, we are subject to 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 new bakery commissary in
Freehold, New Jersey. The Company also leases 57,000 square feet of space used
for equipment repair facilities and storage in Howell, New Jersey. The Company
owns meat and prepared foods processing facilities in Linden, New Jersey, which
is the only real property owned by us. In addition, we are a party to an
additional two leases for locations where we no longer conduct supermarket
operations; one of these locations has been sublet to a non-affiliated person
at terms substantially equivalent to the Company's obligations under its prime
lease. See Notes 10 and 14 of Notes to Consolidated Financial Statements.
Item 3. Legal Proceedings
--------------------------
On March 27, 2002, Melvin Jules Bukiet, on behalf of himself and acting as
trustee for the benefit of minors Madeline Bukiet, Miles Bukiet and Louisa
Bukiet (together, the "Plaintiffs"), commenced a shareholders derivative action
against the Company, as nominal defendant, and against all five members of the
Board of Directors, Joseph J. Saker, Richard J. Saker, Charles T. Parton, Albert
A. Zager and Robert H. Hutchins (together, the "Defendants"), in their
capacities as directors and/or officers of the Company. This lawsuit, which was
filed in the Superior Court of New Jersey, Middlesex County, Chancery Division
(the "Court"), 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
9
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.
The parties to the litigation agreed on a settlement proposal, which was
approved by the Superior Court of New Jersey in July 2003. Pursuant to the terms
of the settlement, 1) the Company's five-year classified board was eliminated
and we agreed not to submit any proposal to the shareholders of the Company in
connection with the implementation of a classified board for five years from the
date of final approval of the settlement; 2) the 2001 Plan was amended so that
the maximum number of shares 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 stock on the date of
grant. In addition, Joseph J. Saker, Chairman of the Company, returned to the
Company 10,000 stock options previously awarded to him under the 2001 Plan.
The plaintiffs' have applied for an award of legal fees of $975,000 in
connection with settlement of the derivative action. We believe that the amount
of the award of attorneys fees sought by the plaintiff is unreasonable based
upon the outcome of the litigation, and will vigorously contest the plaintiffs'
fee application. The Company's directors and officers liability insurance
carrier has reserved its rights under the Company's directors and officers
liability insurance policy with respect to the claims made in the derivative
action, including claims for the plaintiffs' attorneys' fees and costs of the
defense, and has preliminarily advised us that certain of the claims made in the
derivative action and related legal expenses are not, in the insurance carrier's
view, covered by the policy. It is not possible, at this juncture, to predict
the amount of fees that may be awarded to plaintiffs or whether or to what
extent any such fees and the Company's legal expenses for defending the
derivative action will be covered by its directors and officers liability
insurance policy. Accordingly, we have not accrued for legal fees and expenses
which may be incurred in connection with this matter in the statements of
operations for the fifty two weeks ended November 1, 2003.
Additionally, 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 Stock and Related Stockholder Matters
-----------------------------------------------------------------------------
(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 November 2, 2002 and November 1, 2003.
Fiscal Quarter Ended High Low
-------------------- ---- ----
February 2, 2002 $43.00 $ 35.75
May 4, 2002 47.50 34.50
August 3, 2002 47.25 36.90
November 2, 2002 35.75 22.55
February 1, 2003 $29.20 $ 26.00
May 3, 2003 28.55 23.98
August 2, 2003 27.50 24.33
November 1, 2003 28.70 22.50
(b) Holders of Record
The approximate number of record holders of the Company's Common Stock was
312 as of January 16, 2004. In addition, the Company believes that as of
that date there were approximately 295 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
11
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. See Management's
Discussion and Analysis-Financial Condition and Liquidity.
Item 6. Selected Financial Data
--------------------------------
The selected financial data set forth below is derived from the Company's
consolidated financial statements and should be read in conjunction with the
consolidated financial statements and related notes included elsewhere in this
Annual Report. See Management's Discussion and Analysis-Financial Condition and
Liquidity and Results of Operations.
Year Ended
----------
Nov. 1, Nov. 2, Nov. 3, Oct. 28, Oct. 30,
2003(1) 2002(2) 2001(3) 2000(4) 1999
-----------------------------------------------------
(Dollars in thousands, except per share amounts)
Income statement data:
Sales $1,049,653 $963,611 $945,301 $866,363 $778,726
Net income $ 2,283 $ 3,240 $ 3,938 $ 2,382 $ 1,945
Net income per common share:
Basic $ 2.31 $ 3.16 $ 3.54 $ 2.13 $ 1.74
Diluted $ 2.26 $ 3.01 $ 3.50 $ 2.13 $ 1.74
Cash dividends per
common share - - - - -
Balance sheet data (at
year end):
Working capital
(deficit) $ 3,959 $ (590) $ (6,907) $ (1,215) $ 2,507
Total assets $ 315,246 $219,389 $194,526 $191,185 $156,186
Long-term debt
(excluding current
portion) $ 180,549 $100,037 $ 75,553 $ 82,241 $ 59,604
Common shareholders'
equity (5) $ 39,022 $ 36,625 $ 38,493 $ 37,422 $ 35,040
Book value per common
share $ 39.54 $ 37.13 $ 35.37 $ 33.49 $ 31.36
Tangible book value
per common share $ 36.69 $ 34.09 $ 32.29 $ 30.18 $ 27.73
(1) The Company opened replacement stores in December 2002 and May 2003 and
new locations in January and October 2003. See Management's Discussion
and Analysis - Results of Operations - Sales.
12
(2) The Company opened one replacement location in November 2001. See
Management's Discussion and Analysis - Results of Operations - Sales.
(3) 53 week period.
(4) The Company opened one new and one replacement location in February and
April 2000, respectively.
(5) The Company repurchased shares of its Common Stock in fiscal 2001 and
2002. See Item 5. - Market for Registrant's Common Stock and Related
Security Holder Matters.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operation
------ -----------------------------------------------------------------------
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 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.
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 2003, the Company completed
goodwill transition and annual impairment tests prescribed by SFAS 142 and
concluded that no impairment of goodwill existed.
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
13
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.
Pension Plans
We sponsor two defined benefit pension plans covering administrative personnel
and members of a union. The plans' assets consist primarily of publicly traded
stocks and fixed income securities. The determination of the Company's
obligation and expense for pension benefits is dependent, in part, on the
Company's selection of assumptions used by actuaries in calculating those
amounts. These assumptions are described in Note 15 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.
Based on the Company's review of market interest rates, the Company lowered the
discount rate to a range from 6.25% to 7.00% for fiscal 2003 compared to a range
of 7.00% to 7.25% for fiscal 2002. The Company evaluated the expected long-term
rate of return on plan assets of 8.00% and concluded no change in this
assumption was necessary in estimating pension plan obligations and expense.
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
November 1, 2003 and loss development factors used by the insurance industry. As
of November 1, 2003, the worker's compensation reserve totaled approximately
$713,000. 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.
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
14
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 November 1, 2003 the Company
owed $20,000,000 on the Term Loan and $10,741,000 under the Capex Facility.
On July 16, 2003 the Credit Agreement was amended to allow the Company to borrow
under the revolving credit facility, on any Tuesday or Wednesday, up to
$3,000,000 in excess of the availability under the borrowing base limitation of
65% of eligible inventory as long as a like amount of cash and cash equivalents
are on hand at store level or in transit to the Company's banks. This provision
expired December 31, 2003. We will evaluate whether we will need to request an
excess availability provision in fiscal 2004. Additionally, the number of LIBOR
contracts allowed to be outstanding at any one time was increased from three to
five. For the year ended November 1, 2003, the value of the accrued benefits
under the Company's pension plans exceeded the aggregate fair value of the
assets of the plans by $3,126,000, $126,000 more than the amount permitted under
the Credit Agreement. This event of default was waived by our lenders.
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 November 1, 2003,
as follows:
Actual
(As defined in the
Financial Covenant Credit Agreement Credit Agreement)
------------------ ---------------------------- -----------------
Adjusted EBITDA (1) Greater than $19,500,000 $ 23,460,000
Leverage Ratio (1)(2) Less than 3.20 to 1.00 2.87 to 1.00
Debt Service Coverage
Ratio (3) Greater than 1.10 to 1.00 2.19 to 1.00
Adjusted Capex (4) Less than $8,329,000 (5) (7) $ 7,834,000 (6)
Store Project Capex Less than $31,366,000 (5)(7) $ 26,598,000 (6)
(1) Excludes obligations under capitalized leases, interest expense and
depreciation expense attributable to capitalized leases and changes in the
LIFO reserve.
(2) The Leverage Ratio is calculated by dividing the current and non-current
portions of Long-Term Debt 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 exclude principal payments
on capitalized leases. Operating Cash Flow is calculated by subtracting
15
amounts expended for property and equipment which are not used for
projects in excess of $500,000 ($1,077,000 in fiscal 2003) 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 2003.
(6) Represents capital expenditures for fiscal 2003.
(7) Includes amounts available but not used in the prior fiscal year and
available to be carried forward to fiscal 2003: $2,589,000 for Adjusted
Capex and $8,191,000 for Store Project Capex.
On January 31, 2003 we financed the purchase of $4,000,000 of equipment for the
new store location in Woodbridge, New Jersey. The note bears interest at 6.45%
and is payable in monthly installments over its seven year term.
On October 15, 2003 we financed the purchase of $1,900,000 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 November 1, 2003, the Company was required to
make an additional investment in Wakefern for two new stores. In addition, on
June 19, 2003 Wakefern increased the amount that each shareholder is required to
invest in Wakefern's capital stock to a maximum of $650,000 for each store
operated by such shareholder member. Previously, the maximum was $550,000 per
store. The above changes in the amounts of required investment increased our
investment in Wakefern by $3,288,000, which will be paid weekly, without
interest, over a four year period starting September 16, 2003.
No cash dividends have been paid on the Common Stock since 1979, and we have no
present intentions or ability to pay any dividends in the near future on our
Common Stock. The Credit Agreement does not permit the payment of any cash
dividends on the Company's Common Stock.
Working Capital:
At November 1, 2003 the Company had working capital of $ 3,959,000 as compared
to working capital deficiencies of $590,000 and $6,907,000, on November 2, 2002
and November 3, 2001, respectively. 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 2003 primarily
as the result of the increase in receivables from Wakefern. This increase
relates primarily to receivables for patronage dividends and other current
amounts due us. When collected, the proceeds from these receivables will be used
to reduce the Revolving Note which is classified as long-term borrowings. This
will result in a corresponding decrease in working capital. 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
16
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 2002 primarily as the result of the increase
in receivables due from landlords for construction allowances for the Woodbridge
and Ewing, New Jersey locations. When these receivables were collected, the
proceeds 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 decreased in fiscal 2001 primarily as the result of the net
increase in accounts payable and accrued expenses of $5,050,000 over the
increase in inventory. This increase relates primarily to cost of merchandise
and capital expenditures for the new Middletown, New Jersey store, opened
November 14, 2001, as well as accrued occupancy costs related to the 53rd week
of fiscal 2001.
Working capital ratios were as follows:
November 1, 2003 1.05 to 1.00
November 2, 2002 .99 to 1.00
November 3, 2001 .90 to 1.00
Cash flows (in millions) were as follows:
2003 2002 2001
----- ----- -----
From operations $17.9 $ 15.5 $ 24.2
Investing activities (34.8) (26.0) (16.9)
Financing activities 17.9 10.6 ( 7.1)
----- ----- -------
Totals $ 1.0 $ .1 $ .2
====== ====== ======
Fiscal 2003 capital expenditures totaled $34,432,000 with depreciation of
$17,096,000 compared to $21,019,000 and $14,175,000, respectively for fiscal
2002 and $17,047,000 and $12,840,000, respectively for fiscal 2001. 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. The increase in depreciation in
fiscal 2002 was the result of the purchase of equipment and leasehold
improvements, as well as the capitalized real estate lease for the Middletown
store opened in November 2001 and a full year of depreciation for the three
locations remodeled in fiscal 2001. The increase in depreciation in fiscal 2001
was the result of the purchase of equipment and leasehold improvements for the
three locations remodeled during fiscal 2001 and a full year of depreciation for
the locations opened in fiscal 2000.
Capital expenditures increased in fiscal 2003, fiscal 2002 and fiscal 2001 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 currently in process for two new stores, the
expansion and remodeling of an existing location, the new store opened in fiscal
2001 and the locations remodeled in fiscal 2001.
17
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.
In fiscal 2002 long-term debt increased $26,220,000 due to the capitalization of
a real estate lease for the location opened in the year and an increase in
borrowings under the Credit Agreement. These increases were partially offset by
cash generated by operations used to pay down existing debt.
In fiscal 2001 net long-term debt decreased $5,959,000 as the result of payments
made to reduce the balances outstanding under existing debt. The source of these
payments was cash generated by operations and an increase in the revolving
credit facility of $929,000.
No shares of Common Stock were purchased in fiscal 2003.
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.
During the year ended November 3, 2001, the Company repurchased a total of
29,070 shares of Common Stock. 25,070 of these shares were purchased in
privately negotiated transactions. 7,000 of these shares were owned by the
Estate of Mary Saker, of which the Company's Chairman, Joseph J. Saker, is a
co-executor, and 18,000 shares were owned by certain members of Mr. Saker's
family. $1,067,927, or an average of $36.74 per share, was expended for the
purchase of the 29,070 shares.
At November 1, 2003, the Company had $3,382,000 of available credit, under its
revolving credit facility. The Company has capital commitments (net of landlord
contributions $11,018,000) of $13,171,000 for equipment and $5,981,000 for
leasehold improvements related to the three stores under construction as of
November 1, 2003. The Credit Agreement and permitted borrowings outside of the
Credit Agreement will adequately meet our operating needs, scheduled capital
expenditures and debt service for fiscal 2004.
During the fiscal year 2002, the Business Tax Reform Act was passed in the State
of New Jersey. This legislation is effective for tax years beginning on or after
January 1, 2002 (Fiscal 2003). Corporate taxpayers are subject to an
"Alternative Minimum Assessment ("AMA"), which is based upon either New Jersey
Gross Receipts or New Jersey Gross Profits, if the AMA exceeds the tax based on
net income. 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,
18
by $1,303,000. Additionally, in March 2002 and May 2003 The Job Creation and
Worker Assistance Act of 2002 and The Jobs and Growth Tax Relief Reconciliation
Act of 2003 ("Tax Acts") were passed by the United States Congress. The current
Federal tax benefit for accelerated depreciation resulting from the Tax Acts is
approximately $3,266,000 for fiscal 2003 and is reflected in our prepaid and
refundable income taxes.
The table below summarizes our contractual obligations at November 1, 2003, 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 $ 63,251 $ 7,916 $14,775 $ 39,708 $ 852
Related party debt 3,975 920 1,628 969 458
Capital lease obligations 301,049 13,698 27,660 26,962 232,729
Operating leases 68,742 9,968 17,804 13,066 27,904
Purchase obligations -
leaseholds and equipment 19,152 19,152 - - -
Lease commitments -stores
under construction (1) 62,150 1,243 4,972 4,972 50,963
------ ----- ----- ----- ------
Total $ 518,319 $52,897 $66,839 $ 85,677 $312,906
========= ======= ======= ======== ========
(1) Represents contractual obligations which we expect to perform in the
periods presented based upon the anticipated openings of stores in fiscal
2004. It is not possible to determine precise dates for anticipated store
openings, and actual opening dates may vary from the anticipated dates.
RESULTS OF OPERATIONS
---------------------
Sales:
The Company's sales were $1,049.7 million, $963.6 million and $945.3 million,
respectively in fiscal 2003, 2002 and 2001. This represents an increase of 8.9%
in 2003 and an increase of 1.9% in 2002. These changes in sales levels were
the result of the opening of two new and two replacement stores in fiscal 2003
and the opening of a replacement store in November 2001. The locations opened in
May 2003, December 2002 and November 2001 replaced smaller, older stores.
Comparable store sales increased 1.5% in fiscal 2003 and 1.6% in fiscal 2002.
Comparable store sales increases in fiscal 2003 and fiscal 2002 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 replacement
locations. Additionally, the increases in comparable store sales for 2003 and
2002 were partially offset by a softening in the economy and the impact
of deflation in certain product categories.
19
Gross Profit:
Gross profit totaled $273.0 million in fiscal 2003 compared to $245.1 million in
fiscal 2002 and $234.2 million in fiscal 2001. Gross profit as a percent of
sales was 26.0% in fiscal 2003, 25.4% in fiscal 2002 and 24.8% in fiscal 2001.
Gross profit as a percentage of sales increased in fiscal 2003 primarily as a
result of improved product mix, the contribution of the two new and two
replacement stores opened in fiscal 2003, including Wakefern incentive programs
for new locations, reduced Wakefern assessment as a percentage of sales, an
increase in the Wakefern patronage dividend and a reduction in product loss
through improved shrink control. 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.
The increase in fiscal 2002 of gross profit as a percentage of sales was
primarily due to improved product mix, the contribution of the new location in
Middletown, New Jersey, more efficient commissary operations, an increase in
patronage dividends from Wakefern and a reduction in product loss through
improved shrink control. These increases were offset in part by programs
implemented in certain of the Company's stores to address competitive store
openings.
In fiscal 2001 gross profit as a percentage of sales increased primarily as a
result of improved product mix, the contribution of the new locations, the
completion of promotional programs initiated by the Company for the locations
opened in fiscal 2000, a reduction in product loss through improved shrink
control and more efficient commissary operations, partially offset by the
completion of Wakefern incentive programs for the new locations opened in the
prior fiscal year.
Patronage dividends applied as a reduction of the cost of merchandise sold were
$9,119,000, $7,124,000 and $6,515,000 for the last three fiscal years. This
translates to .87%, .74% and .69% of sales for the respective periods.
Fiscal Years Ended
------------------------------------------
11/01/03 11/02/02 11/03/01
-------- -------- --------
(in millions)
Sales $ 1,049.7 $ 963.6 $ 945.3
Gross profit 273.0 245.1 234.2
Gross profit percentage 26.0% 25.4% 24.8%
Selling, General and Administrative Expenses:
Fiscal 2003 selling, general and administrative expenses totaled $256.9 million
compared to $231.7 million in fiscal 2002 and $220.3 million in fiscal 2001.
20
Fiscal Years Ended
-----------------------------------------
11/01/03 11/02/02 11/03/01
-------- -------- --------
(in millions)
Sales $ 1,049.7 $ 963.6 $ 945.3
Selling, General and 256.9 231.7 220.3
Administrative Expenses
Percent of Sales 24.5% 24.0% 23.3%
Selling, general and administrative expenses increased as a percent of sales
when comparing fiscal 2003 to fiscal 2002. Increases in labor and related fringe
benefits, depreciation and pre-opening costs were partially offset by decreases
in occupancy and administration. The increase in labor and related fringe
benefits was the result of additional personnel for the new Woodbridge, Ewing,
North Brunswick and Hamilton stores, increased sales in service intensive
departments and contractual increases in fringe benefits. Depreciation increased
as the result of the purchase of equipment and leasehold improvements for the
four new locations and the new bakery facility, as well as six additional
capitalized real estate leases. Pre-opening costs were for the new Woodbridge,
Ewing, North Brunswick and Hamilton stores opened in December 2002, January
2003, May 2003 and October 2003, respectively. The decrease in occupancy was
primarily the result of several leases which were accounted for as operating
leases being replaced by capitalized leases and the decrease in certain fixed
costs as a percentage of sales. Administration decreased as several components
increased at a slower rate than the increase in sales. As a percentage of sales,
labor and related fringe benefits increased .32%, depreciation increased .16%
and pre-opening costs increased .14%. These increases were partially offset by
decreases in occupancy of .13% and administrative expense of .09%. Pre-opening
costs were $1,796,000 in fiscal 2003.
Selling, general and administrative expenses increased as a percent of sales
when comparing fiscal 2002 to fiscal 2001. Increases in labor and related fringe
benefits, depreciation, other store expenses, which include Wakefern support
services and debit/credit card and bank service fees, administration expense and
pre-opening costs were partially offset by decreases in occupancy and selling
expense. The increase in labor and related fringe benefits was the result of
additional personnel for the new Middletown store, increased sales in service
intensive departments and contractual increases in fringe benefit costs.
Depreciation expense increased as the result of the purchase of equipment and
leasehold improvements, as well as the capitalized real estate lease, for the
Middletown store opened in November 2001 and a full year of depreciation for the
three locations remodeled in fiscal 2001. Other store expenses increased as the
result of increases in debit/credit card fees and the increased utilization of
the cards by our customers. Administration expense increased primarily due to
increases in fringe benefit costs. Pre-opening costs are related to the new
Middletown store opened in November 2001. Occupancy decreased due to the
accounting for the new Middletown store's lease as a capitalized lease. Under
this method the costs of the lease are expensed as depreciation and interest.
Formerly, the old Middletown store's lease was an operating lease and the costs
of the lease were expensed as rent. Selling expense declined as the result of
changes in certain promotional programs. As a percentage of sales, labor and
related fringe benefits increased .67%, depreciation increased .09%, other store
21
expenses increased .05%, administration increased .09% and pre-opening costs
increased .02%. These increases were partially offset by decreases in occupancy
of .09% and selling expense of .04%. Pre-opening costs were $246,000 in fiscal
2002.
Amortization expense increased in fiscal 2003 to $475,000 compared to $463,000
in fiscal 2002 and $576,000 in fiscal 2001. The increase in fiscal 2003, as
compared to fiscal 2002, 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. The decrease in fiscal 2002, as compared to fiscal
2001, was the result of decreased amortization of deferred escalation rents
partially offset by increased amortization of deferred financing costs. See Note
1 of Notes to Consolidated Financial Statements.
Interest Expense:
Interest expense totaled $12.4 million in fiscal 2003 compared to $8.2 million
in fiscal 2002 and $7.6 million in fiscal 2001. The increase in interest expense
for fiscal 2003 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. The increase in fiscal 2002, as compared to fiscal 2001, was
due to an increase in average outstanding debt, including capitalized lease
obligations partially offset by a decrease in the average interest rate paid on
debt.
Income Taxes:
The Company recorded a tax provision of $1.5 million in fiscal 2003, $2.2
million in fiscal 2002 and $2.6 million in fiscal 2001. See Note 13 of Notes to
Consolidated Financial Statements.
Net Income:
The Company had net income of $2,283,000 or $2.26 per diluted share in fiscal
2003 compared to net income of $3,240,000 or $3.01 per diluted share in fiscal
2002. EBITDA for fiscal 2003 were $33,636,000 as compared to $28,076,000 in
fiscal 2002. The Company has not accrued for legal fees and expenses which may
be incurred in connection with the legal proceeding described in Note 14 of
Notes to Consolidated Financial Statements. Net income and EBITDA in fiscal 2004
may be adversely affected to the extent that the Company's defense costs and any
legal fees that may be awarded are not covered by directors and officers
liability insurance. See Item 3 and Note 14 of Notes to Consolidated Financial
Statements.
Fiscal 2001 resulted in net income of $3,938,000 or $3.50 per diluted share.
EBITDA for fiscal 2001 were $27,342,000.
Weighted average diluted shares outstanding were 1,011,350 for fiscal 2003,
1,076,030 for fiscal 2002 and 1,124,192 for fiscal 2001.
EBITDA is presented because management believes that EBITDA is a useful
supplement to net income and other measurements under accounting principles
22
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
--------------------------------------------------
11/01/03 11/02/02 11/03/01
--------- ---------- ---------
Net income $2,283,000 $ 3,240,000 $ 3,938,000
Add:
Interest expense, net 12,260,000 8,036,000 7,362,000
Income tax provision 1,522,000 2,162,000 2,626,000
Depreciation 17,096,000 14,175,000 12,840,000
Amortization 475,000 463,000 576,000
---------- ----------- -----------
EBITDA $33,636,000 $28,076,000 $27,342,000
=========== =========== ===========
RECENT ACCOUNTING PRONOUNCEMENTS
--------------------------------
In November 2002, the Emerging Issues Task Force (EITF) reached a consensus with
respect to EITF Issue No. 02-16, "Accounting by a Customer (Including a
Reseller) for Consideration Received from a Vendor." EITF No. 02-16 provides
guidance for accounting for cash consideration given to a reseller from a
vendor. The Company already accounted for such consideration in accordance with
this EITF, and therefore adoption had no impact on the Company's consolidated
financial statements.
In June 2002, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." SFAS 146 requires recognition of a
liability for the costs associated with an exit or disposal activity when the
liability is incurred, as opposed to when the entity commits to an exit plan.
There was no impact from the adoption of this statement.
In December 2002, the FASB issued SFAS 148, "Accounting for Stock Based
Compensation - Transition and Disclosure - an amendment of SFAS No. 123," which
amends SFAS 123 to provide alternative methods of transition for an entity that
voluntarily changes to the fair value method of accounting for stock based
compensation. It also amends the disclosure provisions of SFAS 123 to require
prominent disclosure about the effects on reported net income of an entity's
accounting policy decisions with respect to stock based employee compensation.
Finally, SFAS 148 amends APB Opinion No. 28, "Interim Financial Reporting", to
require disclosure of those effects in interim financial statements.
Accordingly, the Company has adopted the applicable disclosure requirements of
this Statement within this report. The Company continues to account for
23
stock-based compensation to its employees and directors using the intrinsic
value method prescribed by APB Opinion No. 25, and related interpretations. The
adoption of SFAS 148 had no impact on our financial position or results of
operations.
In November 2002, the FASB issued financial interpretation No. ("FIN") 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others." FIN 45 requires initial
recognition and measurement of guarantees and is effective on a prospective
basis for guarantees issued or modified after December 31, 2002. Disclosures
required by FIN 45 are included within this report. This statement did not have
a material effect on the Company's financial statement in fiscal 2003.
In January 2003, the FASB issued FIN 46, "Consolidation of Variable Interest
Entities." FIN 46 provides guidance relating to the identification of, and
financial reporting for, variable-interest entities, as defined in the
Interpretation. There was no impact from the adoption of this statement.
On April 30, 2003, the FASB issued SFAS 149, "Amendment of SFAS 133 on
Derivative Instruments and Hedging Activities." SFAS 149 is intended to result
in more consistent reporting of contracts as either freestanding derivative
instruments subject to SFAS 133 in its entirety, or as hybrid instruments with
debt host contracts and embedded derivative features. In addition, SFAS 149
clarifies the definition of a derivative by providing guidance on the meaning of
initial net investments related to derivatives. SFAS 149 is effective for
contracts entered into or modified after June 30, 2003. Management does not
expect that the adoption of SFAS 149 will have an impact on its financial
position, results of operations or cash flows.
On May 15, 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity." SFAS 150
provides guidance on classification and measurement of certain financial
instruments with characteristics of both liabilities and equity. There was no
impact from the adoption of this statement.
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.
24
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 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 Vice President-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.
25
Part III
Item 10. Directors and Executive Officers of the Registrant
-----------------------------------------------------------
The information required in response to this item is contained in the Company's
definitive proxy statement to be filed pursuant to Regulation 14A under the
captions "Nominees as Director of the Company" and "Executive Officers of the
Company" and such information is incorporated herein by reference.
Item 11. Executive Compensation
-------------------------------
The information required in response to this item is contained in the Company's
definitive proxy statement to be filed pursuant to Regulation 14A under the
caption "Executive Compensation" and such information is incorporated herein by
reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and
---------------------------------------------------------------------------
Related Stockholder Matters
---------------------------
The information required in response to this item is contained in the Company's
definitive proxy statement to be filed pursuant to Regulation 14A under
introductory paragraphs and under the captions "Principal Shareholders" and
"Securities Owned by Management" and such information is incorporated herein by
reference.
Item 13. Certain Relationships and Related Transactions
-------------------------------------------------------
The information required in response to this item is contained in the Company's
definitive proxy statement to be filed pursuant to Regulation 14A under the
captions "Executive Compensation" and "Certain Transactions" and such
information is incorporated herein by reference.
Item 14. Principal Accountant Fees and Services
-----------------------------------------------
The information required in response to this item is contained in the Company's
definitive proxy statement to be filed pursuant to Regulation 14A under the
captions "Audit Fees," "Audit Related Fees," "Tax Fees" and "All Other Fees."
26
Part IV
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
a. The following documents are filed as part of this Annual Report:
a.1. Audited financial statements and Page No.
supplementary data
Independent Auditors' Report F-1
Foodarama Supermarkets, Inc. and
Subsidiaries Consolidated Financial
Statements:
Balance Sheets as of November 1, 2003
and November 2, 2002 F-2 to F-3
Statements of Operations for each of the
fiscal years ended November 1, 2003,
November 2, 2002 and November 3, 2001. F-4
Statements of Shareholders' Equity
for each of the fiscal years ended
November 1, 2003, November 2, 2002
and November 3, 2001. F-5
Statements of Cash Flows for each of the
fiscal years ended November 1, 2003,
November 2, 2002 and November 3, 2001. F-6
Notes to Consolidated Financial Statements F-7 to F-33
a.2. Financial Statement Schedules
Schedule II S-1
Schedules other than Schedule II have been omitted
because they are not applicable.
a.3. Exhibits E-1 to E-25
Reference is made to the Index of Exhibits
beginning on page E-1 herein.
b. Reports on Form 8-K
September 16, 2003 - A report dated September 16, 2003, which
included, under Items 7 and 9, the Company's press release dated
September 16, 2003 announcing its consolidated financial results
for its third quarter ended August 2, 2003.
27
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
Principal Accounting Officer
Date: January 27, 2004
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 January 26, 2004
Directors
/s/ Richard J. Saker
---------------------
Richard J. Saker Chief Executive Officer, January 26, 2004
President, Secretary and
Director
/s/ Charles T. Parton
----------------------
Charles T. Parton Director January 26, 2004
/s/ Albert A. Zager
--------------------
Albert A. Zager Director January 26, 2004
/s/ Robert H. Hutchins
-----------------------
Robert H. Hutchins Director January 26, 2004
28
Independent Auditors' Report
Board of Directors and Shareholders
Foodarama Supermarkets, Inc.
Howell, New Jersey
We have audited the accompanying consolidated balance sheets of Foodarama
Supermarkets, Inc. and Subsidiaries as of November 1, 2003 and November 2, 2002
and the related consolidated statements of operations, shareholders' equity and
cash flows for the fiscal years ended November 1, 2003, November 2, 2002 and
November 3, 2001. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Foodarama Supermarkets, Inc. and
Subsidiaries as of November 1, 2003 and November 2, 2002, and the results of
their operations and their cash flows for the fiscal years ended November 1,
2003, November 2, 2002 and November 3, 2001 in conformity with accounting
principles generally accepted in the United States of America.
As discussed in Note 1 to the consolidated financial statements, during the year
ended November 1, 2003 the Company changed its method of accounting for goodwill
in accordance with the adoption of SFAS 142 "Goodwill and Other Intangible
Assets."
In connection with our audits of the financial statements referred to above, we
audited the financial schedule listed under Item 14. In our opinion, the
financial schedule, when considered in relation to the financial statements
taken as a whole, presents fairly, in all material respects, the information
stated therein.
/s/AMPER, POLITZINER & MATTIA, P.C.
January 13, 2004
Edison, New Jersey
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
November 1, 2003 and November 2, 2002
(In thousands)
2003 2002
---- ----
Assets
Current assets
Cash and cash equivalents $ 5,252 $ 4,280
Merchandise inventories 49,224 43,707
Receivables and other current assets 12,043 11,214
Prepaid and refundable income taxes 3,404 257
Related party receivables - Wakefern 13,684 8,903
------ ------
83,607 68,361
------ ------
Property and equipment
Land 308 308
Buildings and improvements 1,220 1,220
Leasehold improvements 49,039 41,311
Equipment 142,021 114,077
Property under capital leases 130,420 69,867
Construction in progress 6,846 15,364
------- -------
329,854 242,147
Less accumulated depreciation and amortization 122,339 112,360
------- -------
207,515 129,787
Other assets ------- -------
Investments in related parties 16,173 12,758
Goodwill 1,715 1,715
Intangibles assets, net 1,098 1,290
Other 3,264 3,743
Related party receivables - Wakefern 1,874 1,735
------- -------
24,124 21,241
--------- ---------
$ 315,246 $ 219,389
========= =========
See notes to consolidated financial statements.
F-2
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets - (continued)
November 1, 2003 and November 2, 2002
(In thousands)
2003 2002
------- -------
Liabilities and Shareholders' Equity
Current liabilities
Current portion of long-term debt $ 7,916 $ 7,158
Current portion of long-term debt, related party 920 629
Current portion of obligations under capital leases 1,622 1,140
Current income taxes payable 1,415 -
Deferred income taxes 2,162 1,433
Accounts payable
Related party - Wakefern 37,506 31,935
Others 14,622 14,078
Accrued expenses 13,485 12,578
------- -------
79,648 68,951
------- -------
Long-term debt 55,335 35,745
Long-term debt, related party 3,055 686
Obligations under capital leases 122,159 63,606
Deferred income taxes 2,749 1,142
Other long-term liabilities 13,278 12,634
------- -------
196,576 113,813
------- -------
Commitments and Contingencies (Note 14)
Shareholders' equity
Common stock, $1.00 par; authorized 2,500,000 shares;
issued 1,621,767 shares; outstanding 986,867 shares
November 1, 2003; 986,367 shares November 2, 2002 1,622 1,622
Capital in excess of par 4,168 4,168
Deferred compensation (952) (1,324)
Retained earnings 49,539 47,256
Accumulated other comprehensive income
Minimum pension liability (3,164) (2,896)
-------- --------
51,213 48,826
Less 634,900 shares November 1, 2003; 635,400 shares
November 2, 2002, held in treasury, at cost 12,191 12,201
------- -------
39,022 36,625
------- --------
$ 315,246 $ 219,389
========= =========
See notes to consolidated financial statements.
F-3
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Fiscal Years Ended November 1, 2003, November 2, 2002 and November 3, 2001
(In thousands, except per share data)
2003 2002 2001
--------- --------- -----------
Sales $ 1,049,653 $ 963,611 $ 945,301
Cost of goods sold 776,656 718,520 711,092
------- --------- -----------
Gross profit 272,997 245,091 234,209
Selling, general and administrative
expenses 256,932 231,653 220,283
------- --------- ---------
Earnings from operations 16,065 13,438 13,926
------- --------- ---------
Other income (expense)
Interest expense (12,399) (8,184) (7,627)
Interest income 139 148 265
-------- ---------- ---------
(12,260) (8,036) (7,362)
--------- ---------- ---------
Earnings before income tax provision 3,805 5,402 6,564
Income tax provision (1,522) (2,162) (2,626)
--------- --------- ---------
Net income $ 2,283 $ 3,240 $ 3,938
=========== ========== ==========
Per share information:
Net income per common share
Basic $ 2.31 $ 3.16 $ 3.54
========== ========= ==========
Diluted $ 2.26 $ 3.01 $ 3.50
========== ========= ==========
Weighted average shares outstanding
Basic 986,789 1,024,235 1,111,727
========== ========= ==========
Diluted 1,011,350 1,076,030 1,124,192
========== ========= ==========
See notes to consolidated financial statements.
F-4
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
Fiscal Years Ended November 1, 2003, November 2, 2002 and November 3, 2001
(In thousands, except per share data)
Common Stock
-----------------------------------------
Accumulated
Capital Other Treasury Stock
Shares in Excess Deferred Comprehensive Comprehensive Retained --------------- Total
Issued Amount of Par Compensation Income Income Earnings Shares Amount Equity
------ ------ ------- ------------ ----------- ------ -------- ------ ------ ------
Balance-
October 28,2000 1,621,767 $ 1,622 $ 2,351 $ - $ - $ 40,078 (504,477) $(6,629) $ 37,422
Grant of stock options - - 1,817 (1,817) - - - - -
Amortization of
deferred compensation - - - 121 - - - 121
Repurchase of common stock - - - - - - (29,070) (1,068) (1,068)
Comprehensive income
Net income 2001 - - - - - 3,938 3,938 - - 3,938
Other comprehensive income
Minimum pension liability, net
of deferred tax - - - - (1,920) (1,920) - - - (1,920)
--------- ------ -------- -------- --------- -------- --------- -------- ------- -------
Comprehensive income $ 2,018
========
Balance-
November 3, 2001 1,621,767 1,622 4,168 (1,696) (1,920) 44,016 (533,547) (7,697) 38,493
Amortization of
deferred compensation - - - 372 - - - - 372
Issuance of common stock - - - - - - - 1,000 20 20
Repurchase of common stock - - - - - - (102,853) (4,524) (4,524)
Comprehensive income
Net income 2002 - - - - - 3,240 3,240 - - 3,240
Other comprehensive income
Minimum pension liability, net
of deferred tax - - - - (976) (976) - - - (976)
--------- ----- ----- ------ ------- -------- ------ -------- ------ ------
Comprehensive income $2,264
========
Balance-
November 2, 2002 1,621,767 1,622 4,168 (1,324) (2,896) 47,256 (635,400) (12,201) 36,625
Amortization of
deferred compensation - - - 372 - - - - - 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) - - - (268)
--------- ----- ----- ------ ------ -------- ----- -------- ------- ------
Comprehensive income $2,015
========
Balance-
November 1, 2003 1,621,767 $ 1,622 $4,168 $(952) $(3,164) $ 49,539 (634,900) $(12,191) $ 39,022
========= ======= ====== ====== ======== ======== ======== ========= ========
See notes to consolidated financial statements.
F-5
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Fiscal Years Ended November 1, 2003, November 2, 2002 and November 3, 2001
(In thousands)
2003 2002 2001
------ --------- --------
Cash flows from operating activities
Net income $ 2,283 $ 3,240 $ 3,938
Adjustments to reconcile net income to net
cash from operating activities
Depreciation 17,096 14,175 12,840
Amortization, goodwill - 140 140
Amortization, intangibles 192 211 211
Amortization, deferred financing costs 577 342 285
Amortization, deferred rent escalation (294) (230) (60)
Provision to value inventory at LIFO 715 397 900
Deferred income taxes 2,515 946 (139)
Amortization of deferred compensation 357 270 256
(Increase) decrease in
Merchandise inventories (6,232) (1,277) (962)
Receivables and other current assets (505) (781) (507)
Prepaid and refundable income taxes (3,147) (257) 398
Other assets 227 (453) 963
Related party receivables - Wakefern (4,920) (75) (224)
Increase (decrease) in
Accounts payable 6,115 1,245 2,936
Income taxes payable 1,415 (704) 704
Other liabilities 1,463 (1,713) 2,534
------ ------- ------
17,857 15,476 24,213
------- -------- -------
Cash flows from investing activities
Cash paid for the purchase of property and
equipment (29,267) (7,858)(11,718)
Cash paid for construction in progress (4,336) (13,161) (5,329)
Decrease in Construction advance due from
landlords 4,975 1,932 -
Increase in Construction advance due from
landlords (6,128) (6,070) -
Deposits on equipment - (829) -
Decrease in related party receivables - other - 18 169
------- ------- ------
(34,756) (25,968)(16,878)
------- ------- -------
Cash flows from financing activities
Proceeds from issuance of debt 27,853 22,961 929
Principal payments under long-term debt (7,505) (4,742) (5,344)
Principal payments under capital lease
obligations (1,518) (1,060) (664)
Principal payments under long-term debt,
related party (755) (897) (880)
Deferred financing and other costs (214) (1,205) (66)
Proceeds from exercise of stock options 10 20 -
Repurchase of common stock - (4,524) (1,068)
------- -------- -------
17,871 10,553 (7,093)
------- -------- -------
Net change in cash and cash equivalents 972 61 242
Cash and cash equivalents, beginning of year 4,280 4,219 3,977
---------- -------- -------
Cash and cash equivalents, end of year $ 5,252 $ 4,280 $4,219
========= ======= =======
Supplemental disclosures of cash paid
Interest $ 12,374 $ 8,125 $8,046
Income taxes 751 2,188 1,674
See notes to consolidated financial statements.
F-6
FOOARAMA 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
24 ShopRite supermarkets, primarily in Central New Jersey. The Company
is a member of Wakefern Food Corporation ("Wakefern"), the largest
retailer-owned food cooperative in the United States.
Fiscal Year
-----------
The Company's fiscal year ends on the Saturday closest to October 31.
Fiscal 2003 consists of the 52 weeks ended November 1, 2003, fiscal
2002 consists of the 52 weeks ended November 2, 2002 and fiscal 2001
consists of the 53 weeks ended November 3, 2001.
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 sales of products are 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.
Industry Segment
----------------
The Company operates in one industry segment, the retail sale of food
and nonfood products, primarily in the Central New Jersey region.
Use of Estimates
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
Fair Value of Financial Instruments
-----------------------------------
Cash and cash equivalents, receivables and accounts payable are
reflected in the consolidated financial statements at carrying value
which approximates fair value because of the short-term maturity of
these instruments. The fair value of long-term debt was approximately
equivalent to its carrying value, due to the fact that the interest
rates currently available to the Company for debt with similar terms
are approximately equal to the interest rates for its existing debt. As
the Company's investments in Wakefern can only be sold to Wakefern for
approximately the amount invested, it is not practicable to estimate
the fair value of such stock. Determination of the fair value of
related party receivables and long-term debt - related party is not
practicable due to their related party nature.
Cash Equivalents
----------------
The Company considers all highly liquid debt instruments purchased with
an original maturity of three months or less to be cash equivalents.
F-7
FOOARAMA 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)
------------------------------------------
Merchandise Inventories
-----------------------
Merchandise inventories are stated at the lower of cost or market. At
November 1, 2003 and November 2, 2002 approximately 81% and 82%,
respectively, 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.
Effective November 3, 2002, the Company changed from the 80% LIFO
method to the 100% LIFO method. The effect of this change for the
fiscal year ended November 1, 2003 was to decrease net income $54,000
($.05 per diluted share). If the FIFO method had been used for the
entire inventory, inventory at November 1, 2003 and November 2, 2002
would have been $2,735,000 and $2,020,000 higher, respectively.
Vendor Allowances and Rebates
-----------------------------
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 sales when the related merchandise
is sold or when the contractual requirements have been satisfied.
Property and Equipment
----------------------
Property and equipment is stated at cost and is depreciated on a
straight-line basis over the estimated useful lives ranging between
three and ten years for equipment, the shorter of the useful life or
lease term for leasehold improvements, and twenty years for buildings.
Repairs and maintenance are expensed as incurred.
Property and equipment under capital leases are recorded at the lower
of fair market value or the net present value of the minimum lease
payments. They are depreciated on a straight-line basis over the
shorter of the related lease terms or its useful life.
Investments
-----------
The Company's investments in its principal supplier, Wakefern, and in
Insure-Rite, are stated at cost (see Note 4).
Goodwill
--------
Effective November 3, 2002, the Company implemented Statement of
Financial Accounting Standards ("SFAS") No. 142, "Accounting for
Goodwill and Other Intangible Assets." Under SFAS 142, the Company
ceased amortization of goodwill and tests 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 fiscal 2003, the Company completed
goodwill transition and impairment tests prescribed by SFAS 142 and
concluded that no impairment of Goodwill existed.
F-8
FOOARAMA 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)
------------------------------------------
Goodwill - (continued)
----------------------
Prior to the adoption of SFAS 142, the Company amortized goodwill over
its estimated useful life and evaluated goodwill for impairment in
conjunction with its other long-lived assets.
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 12 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 the carrying values of its long-lived assets for
possible impairment whenever circumstances indicate the carrying amount
of an asset may not be recoverable. An impairment is recognized to the
extent the sum of the undiscounted estimated future cash flow expected
to result from the use of the asset is less than the carrying value.
Deferred Financing Costs
------------------------
Deferred financing costs are being amortized over the life of the
related debt using the effective interest method.
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
$9.0, $8.6 and $8.8 million for the fiscal years 2003, 2002 and 2001,
respectively.
Store Closing Costs
-------------------
The costs, net of amounts expected to be recovered, are expensed upon
the closing of a store. It is reasonably possible that these estimates
may change from time to time. Operating results continue to be reported
until a store is closed.
F-9
FOOARAMA 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
-----------------
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.
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
November 1, November 2, November 3,
2003 2002 2001
---------- ---------- ----------
Net income - as reported $ 2,283 $ 3,240 $ 3,938
Add:
Stock-based employee compensation
expense included in reported net
income, net of related tax effects 223 223 73
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 (303) (302) (96)
---------- ------- -------
Pro forma net income $ 2,203 $3,161 $3,915
========== ======= =======
Earnings per share:
Basic, as reported $ 2.31 $ 3.16 $ 3.54
========== ======= =======
Basic, pro forma $ 2.23 $ 3.09 $ 3.52
========== ======= =======
Diluted, as reported $ 2.26 $ 3.01 $ 3.50
========== ======= =======
Diluted, pro forma $ 2.18 $ 2.94 $ 3.48
========== ======= =======
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.
F-10
FOOARAMA 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)
-------------------
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options, which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the
expected stock price volatility. Because the Company's employee stock
options have characteristics significantly different from those of
traded options, and because changes in the subjective input assumptions
can materially affect the fair value estimate, in management's opinion,
the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
The following weighted-average assumptions were used for the year ended
November 3, 2001:
Risk-free interest rate 5.0%
Expected volatility 40.2%
Dividend yield 0%
Expected life 5 years
Earnings Per Share
------------------
Earnings per common share are based on the weighted average number of
common shares outstanding. Diluted earnings per share amounts are based
on the weighted average number of common shares outstanding, plus the
incremental shares that would have been outstanding upon the assumed
exercise of all diluted stock options, subject to antidilution
limitations.
Recent Accounting Pronouncements
--------------------------------
In November 2002, the Emerging Issues Task Force (EITF) reached a
consensus with respect to EITF Issue No. 02-16, "Accounting by a
Customer (Including a Reseller) for Consideration Received from a
Vendor." EITF No. 02-16 provides guidance for accounting for cash
consideration given to a reseller from a vendor. The Company already
accounted for such consideration in accordance with this EITF, and
therefore adoption had no impact on the Company's consolidated
financial statements.
In June 2002, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 146,
"Accounting for Costs Associated with Exit or Disposal Activities."
SFAS 146 requires recognition of a liability for the costs associated
with an exit or disposal activity when the liability is incurred, as
opposed to when the entity commits to an exit plan. There was no impact
from the adoption of this statement.
F-11
FOOARAMA 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)
----------------------------------
In December 2002, the FASB issued SFAS 148, "Accounting for Stock
Based Compensation - Transition and Disclosure - an amendment of SFAS
No. 123," which amends SFAS 123 to provide alternative methods of
transition for an entity that voluntarily changes to the fair
value method of accounting for stock based compensation. It also
amends the disclosure provisions of SFAS 123 to require
prominent disclosure about the effects on reported net income
of an entity's accounting policy decisions with respect to stock
based employee compensation. Finally, SFAS 148 amends APB Opinion No.
28, "Interim Financial Reporting", to require disclosure of those
effects in interim financial statements. Accordingly, the Company has
adopted the applicable disclosure requirements of this Statement within
this report. The Company continues to account for stock-based
compensation to its employees and directors using the intrinsic value
method prescribed by APB Opinion No. 25, and related interpretations.
The adoption of SFAS 148 had no impact on our financial position or
results of operations.
In November 2002, the FASB issued financial interpretation No. ("FIN")
45, "Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others." FIN 45
requires initial recognition and measurement of guarantees and is
effective on a prospective basis for guarantees issued or modified
after December 31, 2002. Disclosures required by FIN 45 are included
within this report. This statement did not have a material effect on
the Company's financial statement in fiscal 2003.
In January 2003, the FASB issued FIN 46, "Consolidation of Variable
Interest Entities." FIN 46 provides guidance relating to the
identification of, and financial reporting for, variable-interest
entities, as defined in the Interpretation. There was no impact from
the adoption of this statement.
On April 30, 2003, the FASB issued SFAS 149, "Amendment of SFAS 133 on
Derivative Instruments and Hedging Activities." SFAS 149 is intended to
result in more consistent reporting of contracts as either freestanding
derivative instruments subject to SFAS 133 in its entirety, or as
hybrid instruments with debt host contracts and embedded derivative
features. In addition, SFAS 149 clarifies the definition of a
derivative by providing guidance on the meaning of initial net
investments related to derivatives. SFAS 149 is effective for contracts
entered into or modified after June 30, 2003. Management does not
expect that the adoption of SFAS 149 will have an impact on its
financial position, results of operations or cash flows.
On May 15, 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and
Equity." SFAS 150 provides guidance on classification and measurement
of certain financial instruments with characteristics of both
liabilities and equity. There was no impact from the adoption of this
statement.
F-12
FOOARAMA 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)
------------------------------------------
Reclassifications
-----------------
Certain reclassifications have been made to prior year financial
statements in order to conform to the current year presentation.
Note 2 - Concentration of Cash Balance
-----------------------------
As of November 1, 2003 and November 2, 2002, cash balances of
approximately $2,547,000 and $1,241,000, 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
------------------------------------
November 1, November 2,
2003 2002
--------- ----------
Accounts receivable $ 4,198 $ 4,247
Construction advance due from Landlords 5,291 4,138
Prepaids 2,720 2,304
Deposits on equipment - 829
Rents receivable 817 380
Less allowance for uncollectible accounts (983) (684)
---------- ----------
$ 12,043 $ 11,214
========== ==========
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 November 1, 2003 and $550,000 at
November 2, 2002 and November 3, 2001. During fiscal 2003, the required
investment in Wakefern increased, 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, and 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 current obligations due to Wakefern
also include the last payment year relating to the last increase in the
required investment in Wakefern from fiscal 2000. The Company has an
investment in Wakefern of $15,093,000 at November 1, 2003 and
$11,805,000 at November 2, 2002, representing a 15.6% interest in
Wakefern. 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-13
FOOARAMA 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 8.4% in
Insure-Rite, Ltd., a company affiliated with Wakefern, which was
$1,080,000 at November 1, 2003 and $953,000 at November 2, 2002. 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.
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 $4,599,000, $4,364,000 and $3,819,000 for
fiscal years 2003, 2002 and 2001, respectively.
As of November 1, 2003 and November 2, 2002, the Company was obligated
to Wakefern for $3,975,000 and $1,315,000, 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
2003, 2002 and 2001, total patronage dividends and other product
incentives and rebates were $12,404,000, $10,706,000 and $9,909,000,
respectively.
At November 1, 2003 and November 2, 2002, the Company has current
receivables due from Wakefern of approximately $13,684,000 and
$8,903,000, respectively, representing patronage dividends, vendor
rebates, coupons and other receivables due in the ordinary course of
business and a noncurrent receivable representing a deposit of
approximately $1,874,000 and $1,735,000, respectively.
In September 1987, the Company and all other stockholder members of
Wakefern entered into an agreement with Wakefern, as amended in 1992,
which provides for certain commitments and restrictions on all
stockholder members of Wakefern. The agreement contains an evergreen
provision providing for an indefinite term and is subject to
termination ten years after the approval of 75% of the outstanding
voting stock of Wakefern. Under the agreement, each stockholder,
including the Company, agreed to purchase at least 85% of its
merchandise in certain defined product categories from Wakefern and, if
it fails to meet such requirements, to make payments to Wakefern based
on a formula designed to compensate Wakefern for its lost profit.
Similar payments are due if Wakefern loses volume by reason of the sale
of one or more of a stockholder's stores, merger with another entity or
on the transfer of a controlling interest in the stockholder.
F-14
FOOARAMA 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 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 $715,
$641 and $647 million for the fiscal years 2003, 2002 and 2001,
respectively.
Wakefern charges the Company for, and provides the Company with support
services in numerous administrative functions. These services include
advertising, insurance, supplies, technical support for communications
and in-store computer systems, equipment purchasing, and the
coordination of coupon processing.
In addition to its investment in Wakefern, which carries only voting
rights, the Company's President serves as a member of Wakefern's Board
of Directors and its finance committee. Several of the Company's
officers and employees also hold positions on various Wakefern
committees.
Note 5 - Goodwill and Other Intangible Assets
------------------------------------
As a result of the adoption of SFAS No. 142, the Company discontinued
the amortization of goodwill effective November 3, 2002. During fiscal
2003, the Company completed goodwill transition and annual impairment
tests prescribed by SFAS 142 and concluded that no impairment of
goodwill existed.
The gross carrying amount and accumulated amortization of the Company's
other intangible assets as of November 1, 2003 and November 2, 2002 are
as follows:
November 1, 2003 November 2, 2002
---------------- ----------------
Gross Gross
Carrying Accumulated Carrying Accumulated
Amount Amortization Amount Amortization
------ ------------ ------ ------------
Amortized Intangible Assets
Bargain Leases $3,918 $ 3,040 $3,918 $ 2,848
Unamortized Intangible Assets
Liquor Licenses 220 - 220 -
--------- --------- ------ --------
Total $4,138 $ 3,040 $4,138 $ 2,848
========= ========= ====== ========
F-15
FOOARAMA 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 the intangible assets for the years
ended November 1, 2003, November 2, 2002 and November 3, 2001 was
$192,000, $211,000 and $211,000, respectively. As a result of the
adoption of SFAS 142, there were no changes to amortizable lives or
amortization methods. The estimated amortization expense for the
Company's other intangible assets for the five succeeding fiscal years
is as follows:
Fiscal Year (In thousands)
----------- --------------
2004 $106
2005 106
2006 106
2007 106
2008 106
Thereafter 348
The following tables illustrate net income available to common
shareholders and earnings per share, exclusive of goodwill amortization
expense in the prior periods:
For the years ended
November 1, November 2, November 3,
2003 2002 2001
--------- --------- --------
Reported net income $ 2,283 $ 3,240 $ 3,938
Add: Goodwill amortization - 211 211
--------- --------- --------
Adjusted net income $ 2,283 $ 3,451 $ 4,149
========= ========= ========
Basic earnings per share:
Reported net income $ 2.31 $ 3.16 $ 3.54
Add: Goodwill amortization - .21 .19
--------- --------- --------
Adjusted net income $ 2.31 $ 3.37 $ 3.73
========= ========= ========
Diluted earnings per share:
Reported net income $ 2.26 $ 3.01 $ 3.50
Add: Goodwill amortization - .20 .19
--------- --------- --------
Adjusted net income $ 2.26 $ 3.21 $ 3.69
========= ========= ========
Note 6 - Accrued Expenses
----------------
November 1, November 2,
2003 2002
----------- ----------
Payroll and payroll related expenses $ 7,462 $ 6,848
Insurance 713 663
Sales, use and other taxes 1,371 1,243
Interest 147 122
Employee benefits 1,445 1,168
Occupancy costs 1,205 1,445
Real estate taxes 618 544
Other 524 545
---------- ----------
$ 13,485 $ 12,578
========== ==========
F-16
FOOARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Tabular dollars in thousands, except per share amounts)
Note 7 - Long-term Debt
--------------
Long-term debt consists of the following:
November 1, November 2,
2003 2002
-------- ----------
Revolving note $ 24,592 $ 13,380
Term loan 20,000 25,000
Capital expenditure facility 10,741 -
Other notes payable 7,918 4,523
---------- ----------
63,251 42,903
Less current portion 7,916 7,158
---------- ----------
$ 55,335 $ 35,745
========== ==========
The Company has a revolving credit and term loan agreement, which was
amended and assigned to three financial institutions on January 7,
2000. On September 26, 2002 the Credit Agreement was further amended
and restated (as amended, the "Credit Agreement") and was last amended
July 16, 2003. 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. On July 21, 2003 this provision of
the Credit Agreement was amended to allow the Company the ability to
borrow $3,000,000 in excess of the borrowing base limitation, subject
to available in transit cash, as defined. This provision expires
December 31, 2003. The Revolving Note bears interest at prime plus
1.50% or LIBOR plus 3.25%. At November 1, 2003, $14,000,000 of the
Revolving Note was under a one-month Eurodollar rate of 4.37% maturing
November 2003, which was renewed through January 2004.
The Company had letters of credit outstanding of $726,004 and $497,004
at November 1, 2003 and November 2, 2002, respectively. Subsequently,
on November 24, 2003 the Company entered into another letter of credit
for $667,000. A commitment fee of .5% is charged on the unused portion
of the Revolving Note. Available credit under the Revolving Note was
$3,382,000 and $10,000,000 at November 1, 2003 and November 2, 2002. As
of November 1, 2003 and November 2, 2002, $9,435,000 and $7,264,000 of
cash receipts on hand or in transit were restricted for application
against the Revolving Note balance.
F-17
FOOARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Tabular dollars in thousands, except per share amounts)
Note 7 - Long-term Debt - (continued)
--------------
The Term Loan is $25,000,000 and 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 November 1, 2003, $17,500,000 was under a six month
Eurodollar rate of 4.91% maturing April 2004 and $2,500,000 was under a
one month Eurodollar rate of 4.87% maturing November 2003, which was
renewed through December 2003 at 4.87%. At November 2, 2002,
$22,500,000 of the Term Loan balance was under a six month Eurodollar
rate of 5.41% and $2,500,000 was under a one month Eurodollar rate of
5.55%.
The $20,000,000 Capital Expenditure Facility provides 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 is 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 will be 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 loans. A commitment fee of
.75% is charged on the unused portion of the Capital Expenditure
Facility. At November 1, 2003, the Company had $10,741,000 outstanding
and no amount was outstanding at November 2, 2002. At November 1, 2003,
$9,000,000 was under a three month Eurodollar rate of 4.90% maturing
January 2004 and $1,741,000 was at prime plus 2%. Subsequent to
November 1, 2003, the entire Capital Expenditure Facility was converted
to a six-month Eurodollar rate of 4.98% maturing July 2004. At November
1, 2003 and November 2, 2002 the Company had $9,259,000 and $20,000,000
available, respectively, under this facility.
Subsequently, on December 23, 2003 the Company drew down an additional
$1,259,000 on the Capital Expenditure Facility.
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 years ended
November 1, 2003 and November 2, 2002, 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 November 1, 2003 and November 2, 2002 was 4.00% and
4.75%, respectively.
F-18
FOOARAMA 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:
November 1, November 2,
2003 2002
---------- -----------
Note payable to a financing institution,
maturing October 2004, payable at $56,000
per month plus interest at 7.26%,
collateralized by related equipment. $ 663 $ 1,330
Note payable to a financing institution,
maturing April 2005, payable at $46,000
per month including interest at 7.44%,
collateralized by related equipment. 742 1,204
Note payable to a financing institution,
maturing January 2010 payable at $59,000
per month including interest at 6.45%,
collateralized by related equipment. 3,652 -
Note payable to a financing institution,
maturing October 2008 payable at $37,000
per month including interest at 6.20%,
collateralized by related equipment. 1,900 -
Various equipment loans maturing through
November 2004, payable at an aggregate
monthly payment of $152,000 including
interest at rates ranging from 5.79% to
9.02%, collateralized by various equipment. 961 1,989
------- --------
Total other notes payable $ 7,918 $ 4,523
======== ========
Aggregate maturities of long-term debt are as follows:
Fiscal Year
2004 $ 7,916
2005 7,304
2006 7,471
2007 7,532
2008 32,176
Thereafter 852
F-19
FOOARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Tabular dollars in thousands, except per share amounts)
Note 8 - Long-term Debt, Related Party
-----------------------------
As of November 1, 2003 and November 2, 2002, the Company was indebted
for investments in Wakefern in the amount of $3,975,000 and $1,315,000,
respectively. The debt is non-interest bearing and payable in scheduled
installments as follows:
Fiscal Year
2004 $ 920
2005 783
2006 845
2007 686
2008 283
Thereafter 458
Note 9 - Other Long-term Liabilities
---------------------------
November 1, November 2,
2003 2002
---------- -----------
Deferred escalation rent $ 4,128 $ 4,422
Minimum pension liability (Note 15) 5,516 5,119
Postretirement benefit cost 2,929 2,393
Other 705 700
--------- ---------
$ 13,278 $ 12,634
========= =========
Note 10 - Long-term Leases
----------------
Capital Leases
--------------
November 1, November 2,
2003 2002
------------ -----------
Real estate $ 130,420 $69,867
Less accumulated amortization 20,594 16,029
---------- --------
$ 109,826 $ 53,838
========== ========
The following is a schedule by year of future minimum lease payments
under capital leases, together with the present value of the net
minimum lease payments, as of November 1, 2003:
Fiscal Year
2004 $ 13,698
2005 13,803
2006 13,857
2007 13,453
2008 13,509
Thereafter 232,729
-------
Total minimum lease payments 301,049
Less amount representing interest 177,268
-------
Present value of net minimum lease payments 123,781
Less current maturities 1,622
--------
Long-term maturities $122,159
========
F-20
FOOARAMA 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 Company is also committed to leases for two new stores currently
under construction. The minimum annual rental commitment for these two
leases is approximately $2,486,000 for twenty-five years. These leases
are anticipated to commence in fiscal 2004 and be recorded as capital
leases.
Operating Leases
----------------
The Company is obligated under operating leases for rent payments
expiring at various dates through 2028. Certain leases provide for the
payment of additional rentals based on certain escalation clauses and
seven leases require a further rental payment based on a percentage of
the stores' annual sales in excess of a stipulated minimum. Percentage
rent expense was $95,000, $156,000 and $268,000 for the fiscal years
2003, 2002 and 2001, respectively. Under the majority of the leases,
the Company has the option to renew for additional terms at specified
rentals.
Total rental expense for all operating leases consists of:
Fiscal 2003 Fiscal 2002 Fiscal 2001
----------- ----------- -----------
Land and buildings $ 10,183 $ 10,690 $ 11,020
Less subleases (3,586) (3,147) (3,089)
---------- ---------- ----------
$ 6,597 $ 7,543 $ 7,931
========== =========== ==========
The minimum rental commitments under all noncancellable operating
leases reduced by income from noncancellable subleases at November 1,
2003, are as follows:
Income from
Land and Noncancellable Net Rental
Fiscal Year Buildings Subleases Commitment
----------- --------- --------- ----------
2004 $ 9,968 $ 2,405 $ 7,563
2005 9,839 2,056 7,783
2006 7,965 1,719 6,246
2007 6,897 1,317 5,580
2008 6,169 916 5,253
Thereafter 27,904 826 27,078
------ --------- --------
$ 68,742 $ 9,239 $ 59,503
======== ========= ========
The Company is presently leasing one of its supermarkets, a garden
center and liquor store from a partnership in which the Chairman of the
Board has a controlling interest, at an annual aggregate rental of
$753,000, $744,000 and $736,000 for the fiscal years 2003, 2002 and
2001, respectively.
Note 11- Stock Option Plan
-----------------
On April 4, 2001, the Company's shareholders approved the Foodarama
Supermarkets, Inc. 2001 Stock Incentive Plan (the "2001 Plan"). The
2001 Plan replaces the Foodarama Supermarkets, Inc. 1995 Stock Option
Plan under which no options were granted.
F-21
FOOARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Tabular dollars in thousands, except per share amounts)
Note 11- Stock Option Plan - (continued)
------------------------------
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 and vest, per
individual, between 200 and 250 units at the 2002 Grant Date with the
remaining units vesting over the next year.
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 the years ended November 1, 2003, November 2, 2002 and
November 3, 2001, the Company realized compensation expense relating to
the stock option plan of $372,000, $372,000 and $121,000, respectively.
For the years ended November 1, 2003, November 2, 2002 and November 3,
2001, the Company realized compensation income of $15,000 and
compensation expense of $72,000 and $135,000, respectively, related to
the Units granted, based on the market price of the Company's common
stock of $25.25 at November 1, 2003, $27.00 at November 2, 2002 and
$40.75 at November 3, 2001, respectively.
F-22
FOOARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Tabular dollars in thousands, except per share amounts)
Note 11- Stock Option Plan - (continued)
------------------
The following table summarizes Stock Option and Units activity:
Options Outstanding
---------------------------------------------------------
Stock Options Stock Performance Units
------------- -----------------------
Stock
Exercise Weighted Exercise Weighted Options
Price Average Price Average and Units
Per Exercise Per Exercise Available
Shares Share Price Units Share Price for Grant
------ ----- ----- ----- ----- -------- ---------
Balance October 28, 2000 - - - - - - -
Reserved 150,000
Granted 107,500 $ 19.60 $19.60 11,000 $ 19.60 $ 19.60(118,500)
Exercised - - - - - -
----------------------- --------------------------------
Outstanding
November 3, 2001 107,500 19.60 19.60 11,000 19.60 19.60 31,500
----------------------- --------------------------------
Additional
shares reserved 65,000
Granted - - - 3,800 25.00 25.00 (3,800)
Exercised (1,000) 19.60 19.60 (8,000) 19.60 19.60
----------------------- --------------------------------
Outstanding $19.60 to
November 2, 2002 106,500 $19.60 $19.60 6,800 $25.00 $22.62 92,700
----------------------- --------------------------------
Reserved -
Granted - - - - - - -
Returned (10,000) - - - - - 10,000
Exercised (500) 19.60 19.60 - - - -
----------------------- --------------------------------
Outstanding $19.60 to
November 1, 2003 96,000 $19.60 $19.60 6,800 $25.00 $22.62 102,700
======================= ================================
Options exercisable at:
November 3, 2001 2,000 $ 19.60 $19.60 4,750 $19.60 19.60
November 2, 2002 23,000 $ 19.60 $19.60 2,900 $19.60 to $25.00 22.62
November 1, 2003 44,500 $ 19.60 $19.60 6,550 $19.60 to $25.00 22.62
Following is a summary of the status of stock options outstanding at
November 1, 2003:
Outstanding Options Exercisable Options
------------------- -------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Exercise Contractual Exercise Exercise
Price Number Life Price Number Price
----- ------ ---- ----- ------ -----
$ 19.60 96,000 7.75 years $ 19.60 44,500 $ 19.60
F-23
FOOARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Tabular dollars in thousands, except per share amounts)
Note 12- Shareholders' Equity
--------------------
On May 11, 2001, the Board of Directors authorized the Company to
repurchase, in either open market or private transactions, up to
$3,000,000 of its common stock. During the fiscal year ended November
2, 2002 the Board of Directors increased the authorized amount of
common stock the Company could repurchase to $5,600,000. There were no
shares repurchased during the fiscal year ended November 1, 2003.
During the fiscal year ended November 2, 2002 the Company repurchased
102,853 shares of its common stock at an aggregate cost of $4,523,670.
During the fiscal years ended November 1, 2003 and November 2, 2002 the
Company issued 500 and 1,000 shares, respectively, of common stock due
to the exercise of stock options, in accordance with the provisions of
its 2001 Stock Incentive Plan (see Note 11).
Note 13- Income Taxes
------------
The income tax provisions consist of the following:
Fiscal 2003 Fiscal 2002 Fiscal 2001
----------- ----------- -----------
Federal
Current $ (3,000) $ 1,035 $ 2,247
Deferred 3,562 688 (212)
State and local
Current 2,007 181 518
Deferred (1,047) 258 73
--------- --------- -----------
$ 1,522 $ 2,162 $ 2,626
========= ========= ===========
The following tabulations reconcile the federal statutory tax rate to
the effective rate:
Fiscal 2003 Fiscal 2002 Fiscal 2001
------------ ----------- -----------
Tax provision at the statutory rate 34.0% 34.0% 34.0%
State and local income tax provision,
net of federal income tax 5.9% 5.9% 5.9%
Goodwill amortization not deductible
for tax purposes - .9% 1.0%
Tax credits (1.7)% (.3)% (.2)%
Other 1.8 % (.5)% (.7)%
------ ----- -----
Actual tax provision 40.0 % 40.0% 40.0%
====== ===== =====
F-24
FOOARAMA 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:
November 1, November 2,
2003 2002
---------- ----------
Current deferred tax assets
Deferred revenue and gains on
sale/leaseback $94 $ 144
Allowances for uncollectible receivables 409 293
Inventory capitalization 134 11
Closed store reserves 255 279
Vacation accrual 606 669
Accrued post-employment 184 162
Accrued post-retirement 1,186 969
Other 37 37
----- -----
2,905 2,564
----- -----
Current deferred tax liabilities
Prepaids (417) (326)
Patronage dividend receivable (3,476) (2,603)
Accelerated real estate taxes (206) (217)
Prepaid pension (968) (851)
------ -------
(5,067) (3,997)
------- -------
Current deferred tax liability $ (2,162) $ (1,433)
========= =========
Noncurrent deferred tax assets
Lease obligations $ 5,581 $ 4,348
State tax credits 1,368 -
Minimum pension liability 2,110 1,931
Stock options and deferred compensation 350 207
State loss carryforwards 115 85
----- ------
9,524 6,571
Valuation allowance (85) (85)
------ -------
9,439 6,486
------ -------
Noncurrent deferred tax liabilities
Depreciation (10,845) (6,529)
Pension obligations (994) (750)
Other (349) (349)
-------- -------
(12,188) (7,628)
-------- -------
Noncurrent deferred tax liability $ (2,749) $ (1,142)
========= ==========
At November 1, 2003 and November 2, 2002, minimum pension liability of
$2,110,000 and $1,931,000, respectively, was charged against
accumulated other comprehensive income (see Note 15).
F-25
FOOARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Tabular dollars in thousands, except per share amounts)
Note 13- Income Taxes - (continued)
------------
At November 1, 2003, the Company had State net operating loss
carryforwards of approximately $1,326,000 expiring through October
2012, of which $466,000 may not be utilized until fiscal 2005. A
valuation allowance has been provided for net operating losses that are
not expected to be utilized.
Effective beginning 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 November 1, 2003, the Company had a New Jersey AMA tax credit
carryforward of $1,976,000. 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 carryforwards of $98,000.
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 alleges 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-26
FOOARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Tabular dollars in thousands, except per share amounts)
Note 14- Commitments and Contingencies - (continued)
-----------------------------
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 have applied to the Court for an award of attorneys'
fees in the amount of $975,000. The Company believes that the amount of
the award of attorneys' fees sought by the Plaintiffs is unreasonable
based upon the outcome of the litigation, and the Company will
vigorously contest the Plaintiffs' fee application. The Company's
directors and officers liability insurance carrier has reserved its
rights under the Company's directors and officers liability insurance
policy with respect to the claims made in the derivative action,
including claims for the Plaintiffs' attorneys' fees and costs of
defense, and has preliminarily advised the Company that certain of the
claims made in the derivative action and related legal expenses are
not, in the insurance carrier's view, covered by the policy. It is not
possible, at this juncture, to predict the amount of fees that may be
awarded to Plaintiffs or whether or to what extent any such fees and
the Company's legal expenses for defending the derivative action will
be covered by its directors and officers liability insurance policy.
Accordingly, the Company has not accrued for legal fees and expenses
which may be incurred in connection with this matter in the statements
of operations for the fiscal year ended November 1, 2003.
Commitments
-----------
Purchase Commitments
--------------------
At November 1, 2003 the Company had capital commitments (net of
landlord contributions of $11,018,000) of $5,981,000 for leasehold
improvements and $13,171,000 for equipment.
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 provides for an annual salary of $325,000 in fiscal 2004 and
$275,000 in fiscal 2005. The Agreement also provides 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 both
the Chairman of the Board or his spouse.
Guarantees
----------
The Company remains contingently liable under leases assumed by third
parties. As of November 1, 2003, the minimum annual rental under these
leases amounted to approximately $1,633,000 expiring at various dates
through 2011. The Company has not experienced and does not anticipate
any material nonperformance by such third parties.
F-27
FOOARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Tabular dollars in thousands, except per share amounts)
Note 15- Retirement and Benefit Plans
----------------------------
Defined Benefit Plans
---------------------
The Company sponsors two defined benefit pension plans covering
administrative personnel and members of a union. Employees covered
under the administrative pension plan earned benefits based upon a
percentage of annual compensation and could make voluntary
contributions to the plan. Employees covered under the union pension
benefit plan earn benefits based on a fixed amount for each year of
service. The Company's funding policy is to pay at least the minimum
contribution required by the Employee Retirement Income Security Act of
1974. The plans' assets consist primarily of publicly traded stocks and
fixed income securities. As of November 1, 2003, and November 2, 2002,
the plans' assets included common stock of the Company with a fair
value of $939,000 and $1,004,000, respectively.
A summary of the plans' funded status and the amounts recognized in the
consolidated balance sheets as of November 1, 2003 and November 2, 2002
follows:
November 1, November 2,
2003 2002
----------- -----------
Change in benefit obligation
Benefit obligation - beginning of year $ (7,807) $ (7,178)
Service cost (117) (94)
Interest cost (529) (511)
Actuarial gain (loss) (1,070) (625)
Benefits paid 637 601
------- -----------
Benefit obligation - end of year (8,886) (7,807)
-------- -----------
Change in plan assets
Fair value of plan assets - beginning
of year 4,788 5,913
Actual return (loss) on plan assets 303 (995)
Employer contributions 1,307 675
Benefits paid (637) (601)
Administrative expense - (204)
------ ------------
Fair value of plan assets - end of year 5,761 4,788
------ ------------
Funded status (3,125) (3,019)
Unrecognized prior service cost 242 292
Unrecognized net loss from past
experience different from that assumed 5,274 4,827
Unrecognized transition asset - -
Adjustment required to recognize
minimum liability (5,516) (5,119)
------------ -----------
Accrued pension cost $ (3,125) $ (3,019)
============ ===========
F-28
FOOARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Tabular dollars in thousands, except per share amounts)
Note 15 -Retirement and Benefit Plans - (continued)
----------------------------
Defined Benefit Plans - (continued)
-----------------------
Pension expense consists of the following:
Fiscal 2003 Fiscal 2002 Fiscal 2001
----------- ----------- -----------
Service cost - benefits earned
during the period $ 117 $ 94 $ 63
Interest expense on benefit obligation 529 511 454
Expected return on plan assets (388) (475) (488)
Settlement (gain) loss recognized 318 350 -
Amortization of prior service costs 49 37 37
Amortization of unrecognized net loss (gain)391 197 67
Amortization of unrecognized transition
obligation (asset) - (5) (5)
-------- -------- ------
Total pension expense $ 1,016 $ 709 $ 128
======== ======== ======
The discount rate used in determining the actuarial present value of
the projected benefit obligation ranged from 6.25% to 7.00% at November
1, 2003, and 7.00% to 7.25% at November 2, 2002. The expected long-term
rate of return on plan assets was 8.00% at November 1, 2003 and
November 2, 2002.
On September 30, 1997, the Company adopted an amendment to freeze all
future benefit accruals relating to the plan covering administrative
personnel. A curtailment gain of $55,000 was recorded related to this
amendment.
At November 1, 2003 and November 3, 2002, the accumulated benefit
obligation exceeded the fair value of the plans' assets in both defined
benefit plans. The provisions of Statement of Financial Accounting
Standards No. 87 ("SFAS 87"), "Employers' Accounting for Pensions,"
require recognition in the balance sheet of an additional minimum
liability and related intangible asset for pension plans with
accumulated benefits in excess of plan assets; any portion of such
additional liability which is in excess of the plan's prior service
cost is reflected as a direct charge to equity, net of related tax
benefit. Accordingly, at November 1, 2003 and November 2, 2002, a
liability of $5,516,000 and $5,119,000, respectively, was included in
other long-term liabilities, an intangible asset equal to the prior
service cost of $242,000 and $292,000, respectively, is included in
other assets, and a charge of $3,164,000 and $2,896,000, net of
deferred taxes of $2,110,000 and $1,931,000, 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 $17,230,000
in fiscal 2003, $13,240,000 in fiscal 2002 and $10,440,000 in fiscal
2001, 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-29
FOOARAMA 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 $12,000.
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 2003, 2002 and 2001. 401(k) expense for the fiscal
years 2003, 2002 and 2001 was approximately $715,000, $630,000 and
$607,000, respectively.
Note 16- Other Postretirement and Postemployment Benefits
------------------------------------------------
Postretirement Benefits
-----------------------
The Company will provide certain current officers and provides former
officers with supplemental income payments and limited medical benefits
during retirement. The Company recorded an estimate of deferred
compensation payments to be made to the officers based on their
anticipated period of active employment and the relevant actuarial
assumptions at November 1, 2003 and November 2, 2002, respectively.
A summary of the plan's funded status and the amounts recognized in the
balance sheets as of November 1, 2003 and November 2, 2002, follows:
November 1, November 2,
2003 2002
----------- -----------
Change in benefit obligation
Benefit obligation - beginning of year $(4,656) $ (3,380)
Service cost (125) (106)
Interest cost (271) (238)
Actuarial gain (loss) 13 (979)
Benefits paid 20 47
-------- ---------
Benefit obligation - end of year (5,019) 4,656)
-------- ---------
Change in plan assets
Fair value of plan assets - beginning of year - -
Actual return on plan assets - -
Employer contributions 20 47
Benefits paid (20) (47)
------- ---------
Fair value of plan assets - end of year - -
------- ---------
Funded status (5,019) (4,656)
Unrecognized prior service cost 200 113
Unrecognized net loss from past experience
different from that assumed 1,890 2,150
-------- ----------
Accrued postretirement benefit cost $ (2,929) $ (2,393)
========= ==========
F-30
FOOARAMA 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 2003 Fiscal 2002 Fiscal 2001
----------- ----------- -----------
Service cost - benefits earned
during the period $ 125 $ 106 $ 103
Interest expense on benefit obligation 271 238 214
Expected return on plan assets - - -
Amortization of prior service costs 23 23 23
Amortization of unrecognized net
loss (gain) 137 108 92
Amortization of unrecognized
transition obligation (asset) - - -
---------- ---------- ---------
Postretirement benefit expense $ 556 $ 475 $ 432
========== ========== =========
The assumed discount rate used in determining the postretirement
benefit obligation was 7.00% and 7.25% as of November 1, 2003 and
November 2, 2002, respectively. The weighted average rate of
compensation increase was 4.00% at November 1, 2003 and 5.50% at
November 2, 2002.
Postemployment Benefits
-----------------------
Under SFAS No. 112, the Company is required to accrue the expected cost
of providing postemployment benefits, primarily short-term disability
payments, over the working careers of its employees.
The accrued liability under SFAS No. 112 as of November 1, 2003 and
November 2, 2002 was $454,000 and $399,000, respectively.
Note 17- Earnings Per Share
------------------
Fiscal 2003 Fiscal 2002 Fiscal 2001
----------- ----------- -----------
Basic EPS
---------
Net income available to common
shareholders $ 2,283 $ 3,240 $ 3,938
======= ========= ===========
Weighted average shares
outstanding 986,789 1,024,235 1,111,727
------- --------- ---------
Per share amount $ 2.31 $ 3.16 $ 3.54
======= ========= =========
Effect of Dilutive Securities
-----------------------------
Stock Options - Incremental
Shares 24,561 51,795 12,465
======= ========= =========
Dilutive EPS
------------
Weighted average shares
outstanding including
incremental shares 1,011,350 1,076,030 1,124,192
--------- --------- ---------
Per share amount $ 2.26 $ 3.01 $ 3.50
========= ========= =========
F-31
FOOARAMA 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 2003, 2002 and 2001, the Company retired property and
equipment with an original cost of $7,280,000, $37,000 and $2,173,000
and accumulated depreciation of $7,117,000, $33,000 and $2,109,000,
respectively.
During fiscal 2003 and 2002, the Company reclassed $12,854,000 and
$4,584,000, respectively, of construction in progress to leasehold
improvements and equipment. In addition, during Fiscal 2003, the
Company reclassed $829,000 of deposits on equipment to equipment.
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. At November 2, 2002, the Company had an additional minimum
pension liability of $5,119,000, a related intangible asset of $292,000
and a direct charge to equity of $2,896,000, net of deferred taxes of
$1,931,000. At November 3, 2001, the Company had an additional minimum
pension liability of $3,399,000, a related intangible asset of $199,000
and a direct charge to equity of $1,920,000, net of deferred taxes of
$1,280,000.
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 2002, capital lease obligations of
$9,958,000 were incurred when the Company entered into a lease for one
new store.
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.
During fiscal 2003, the Company was required to make additional
investments in Wakefern of $1,200,000 and Insure-Rite, Ltd. of
$127,000, respectively, for two new stores, which opened during fiscal
2003. In conjunction with these investments, liabilities were assumed
for the same amount.
During fiscal 2002, $10,653,000 of outstanding Capital Expenditure
loans were combined into the Company's Term loan.
During fiscal 2001, the Company recorded an increase in capital in
excess of par and deferred compensation expense of $1,817,000 in
accordance with its stock option plan.
F-32
FOOARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Tabular dollars in thousands, except per share amounts)
Note 19- Unaudited Summarized Consolidated Quarterly Information
-------------------------------------------------------
Summarized quarterly information for the years ended November 1, 2003
and November 2, 2002 was as follows:
Thirteen Weeks Ended
-------------------------------------------
February 1, May 3, August 2, November 1,
2003 2003 2003 2003
---- ---- ---- ----
Sales $257,091 $ 254,578 $ 271,333 $ 266,651
Gross profit 64,757 66,583 70,022 71,635
Net income 349 128 576 1,230
Earnings available per share:
Basic .35 .13 .58 1.25
Diluted .34 .13 .57 1.22
Thirteen Weeks Ended
------------------------------------------
February 2, May 4, August 3, November 2,
2002 2002 2002 2002
---- ---- ---- ----
Sales $252,027 $235,236 $ 241,544 $ 234,804
Gross profit 63,392 58,883 62,289 60,527
Net income 1,267 183 1,203 587
Earnings available
per share:
Basic 1.17 .18 1.22 .59
Diluted 1.12 .17 1.15 .57
F-33
Schedule II
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
Fiscal Years Ended November 1, 2003, November 2, 2002 and November 3, 2001
(In thousands)
Additions
---------
Balance Charge to Charge to Balance
at beginning costs and other at end
Description of year expenses accounts Deductions of year
----------- ------- -------- -------- ---------- -------
Fiscal year ended November 1, 2003
Allowance for doubtful
accounts (deducted
from receivables and other
current assets) $ 684 $ 359 $ - $ 60 (1) $ 983
====== ===== ===== ====== =======
Fiscal year ended November 2, 2002
Allowance for doubtful
accounts (deducted
from receivables and other
current assets) $ 873 $ 266 $ - $ 455 (1) $ 684
====== ===== ===== ====== ========
Fiscal year ended November 3, 2001
Allowance for doubtful
accounts (deducted
from receivables and other
current assets) $ 543 $ 400 $ - $ 70 (1) $ 873
====== ===== ===== ====== ========
(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.
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.
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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.
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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.
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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.
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.
14. Code of Conduct. 21. List of Subsidiaries.
23.1 Consent of Independent Accountant.
31.1 Section 302 Certification of Chief Executive Officer.
31.2 Section 302 Certification of Chief Financial Officer.
32.1 Certification of Chief Executive Officer pursuant to 18
U.S.C. Section 1350.
32.2 Certification of Chief Financial Officer pursuant to 18
U.S.C. Section 1350.
* 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.
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*** Each of these Exhibits is incorporated herein by reference to
the Registrant's Annual Report on Form 10-K for the year
ended October 28, 1989 filed with the Securities and Exchange
Commission on February 9, 1990.
**** 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.
****** Incorporated herein by reference to the Registrant's Form
10-Q for the quarterly period ended February 2, 2002, filed
with the Securities and Exchange Commission on March 15,
2002.
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Exhibit 10.31
EXECUTIVE EMPLOYMENT AGREEMENT
------------------------------
This EXECUTIVE EMPLOYMENT AGREEMENT (the "Agreement"), is entered into as
of this 2nd day of November, 2003 by and between Foodarama Supermarkets, Inc., a
New Jersey Corporation ("Foodarama" or the "Company"), and Joseph J. Saker, an
individual ("Executive"). The Company and Executive are collectively referred to
herein as the "Parties" and individually as a "Party."
WHEREAS, the Executive is a founder of the Company and has served as its
Chairman of the Board since 1971 and as its President from 1958 through 2000;
and
WHEREAS, the Executive is an experienced supermarket executive who has
made substantial contributions to the growth and development of the Company
since its formation; and
WHEREAS, the Company desires to employ the Executive and to enter into an
agreement embodying the terms of such employment (this "Agreement") and the
Executive desires to enter into this Agreement and to accept such employment,
subject to the terms and conditions herein;
NOW THEREFORE, in consideration of the promises and mutual covenants
contained herein and for other good and valuable consideration, the receipt of
which is mutually acknowledged, the Parties agree as follows:
1. Term of Employment.
(a) The Company hereby employs the Executive, and Executive hereby
accepts such employment, for a period of two (2) years commencing on November 2,
2003 and ending October 29, 2005, subject to earlier termination, as provided in
section 7, below ("Term of Employment").
(b) Anything herein to the contrary notwithstanding, the Company
shall have the right to terminate Executive's employment hereunder with or
without cause at any time.
2. Position, Duties and Responsibilities. During the Term of Employment,
and subject to his election by the shareholders of the Company as a member of
its Board of Directors (the "Board"), the Executive shall be employed as
executive Chairman of the Board of Directors of the Company, with such powers,
duties and responsibilities consistent with the position of executive Chairman
of the Board of Directors as provided for in the Company's By-laws and as
otherwise determined by the Board. In the event that the Executive is not
elected to the Board, he will be employed as a senior executive officer of the
Company during the Term of Employment, with such powers, duties and
responsibilities as shall be designated to him by the Board. The Executive shall
diligently perform all duties and fulfill all responsibilities incident to his
employment in a businesslike and efficient manner.
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3. Base Salary. The Executive shall be paid an annual base salary in
accordance with the following schedule:
(a) For the time period commencing on November 2, 2003 and ending on
October 30, 2004, the base salary shall be three hundred and twenty-five
thousand dollars ($325,000); and
(b) For the time period commencing on October 31, 2004 and ending on
October 29, 2005, the base salary shall be two hundred and seventy-five thousand
dollars ($275,000).
The base salary shall be payable in accordance with the regular payroll
practices of the Company.
4. Annual Incentive Compensation. The Executive shall be eligible to
receive bonus compensation pursuant to the Executive's participation in the
Company incentive compensation plan and shall be eligible to participate in any
incentive compensation plan or arrangement otherwise provided by the Company to
other executives pursuant to the Company adopted incentive compensation plan for
the fiscal years ending during the Term of Employment. Notwithstanding any
provision contained in any incentive compensation plan to the contrary,
incentive compensation awarded to the Executive during the second year of the
Term of Employment shall be payable to the Executive regardless of whether or
not he is an employee of the Company on the date that the incentive compensation
is actually paid to employees awarded such compensation under the terms of the
plan.
5. Stock Options. Pursuant to the Agreement between the Company and Joseph
Saker dated August 8, 2001, as amended on September 4, 2003 (the "Option
Agreement"), the Executive has been granted stock options with respect to 40,000
shares of the Company's common stock. Such options remain outstanding and
exercisable pursuant to the terms set forth in the Option Agreement.
6. Employee Benefits Programs and Perquisites. The Executive shall be
eligible to participate in the employee benefits programs of the Company
specified below.
(a) 401-K Plan. Executive shall be eligible to participate in the
Company's 401-K Plan, as the plan may be amended from time to time during the
Term of Employment and thereafter for so long as he shall remain employed by the
Company.
(b) Health Insurance. The Executive is entitled to fully paid
medical and dental insurance coverage for himself and his dependent, Gloria
Saker, for the remainder of their respective lives, as set forth herein. During
the Term of Employment, and thereafter for so long as he shall remain employed
by the Company, the Executive and his dependent, Gloria Saker, shall be covered
by the Company's group health insurance plan. Upon the Executive's retirement,
the Company shall pay the premiums for: (i) supplemental medical insurance
coverage for Executive and his dependent, Gloria Saker, for the purpose of
supplementing Medicare primary coverage and (ii) a family dental insurance
policy.
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(c) Life Insurance. The Executive shall be entitled to life
insurance coverage in accordance with the following: (i) during the Term of
Employment and thereafter for so long as he shall remain employed by the
Company, the Executive shall remain eligible to participate, at the Company's
sole expense, in the Company's group life insurance plan currently providing for
a death benefit of $375,000, which is reduced to $281,250 effective March 15,
2004; provided, that if the Company substitutes a different group life insurance
plan for its existing plan, the Executive shall be entitled to receive the
amount of coverage available to a person of his age under such substituted plan;
and provided, further, that the insurance proceeds payable to beneficiaries of
the Executive on all life insurance policies provided by the Company shall not
exceed an amount equal to two (2) times his base salary; (ii) the Company shall
continue to provide supplemental life insurance coverage, at the Company's sole
expense, on the life of the Executive until such time as he reaches age 98,
irrespective of whether or not the Executive is employed by the Company, through
a policy issued by Manulife having a death benefit of $200,000 and an annual
premium of $13,864, and (iii) during the life of the Executive and irrespective
of whether or not he is employed by the Company, the Company will expend up to
$9,000 annually in premiums for additional supplemental life insurance coverage
on the life of Executive, to be chosen by the Executive and including, without
limitation, life insurance coverage that may be available under the Company's
group life insurance plan to former employees of the Company, to the extent that
such coverage is available; provided, that the Company shall not be obliged to
pay annual premiums in excess of a total of $22,864 for such supplemental life
insurance coverage or any substitute or replacement supplemental life insurance
policies.
The Executive agrees that life insurance coverage for Executive may be in
an amount less than two (2) times his base salary. In the event that the amount
of life insurance coverage exceeds two (2) times base salary, the Company may,
at its option, (i) assign any insurance policy or portion thereof representing
coverage in excess of two (2) times base salary to Executive or his designee,
whereupon Executive or such designee will be responsible for the payment of any
premiums on such assigned policy; or (ii) not assign such policy whereupon
insurance proceeds in excess of two (2) times base salary shall be payable to
the Company. Subject to the two (2) times coverage limit set forth above, all
insurance policies hereinabove referenced that are purchased by the Company or
for which premiums are paid by the Company shall be owned by the Executive or
his designee for the sole benefit of Executive's designated beneficiaries.
(d) Supplemental Executive Retirement Plan. The Company shall amend
its Supplemental Executive Retirement Plan ("SERP") to provide, as to Executive
only, that (i) the full SERP benefit to which the Executive may be entitled
under the SERP shall be payable for the joint and several lives of Joseph Saker
and Gloria Saker so that the full SERP benefit payable to Executive upon his
retirement from the Company will be payable upon his death to Gloria Saker,
during her lifetime, should she survive Executive; and (ii) in the event of
Executive's death prior to his retirement from the Company, the full SERP
benefit to which Executive would have been entitled under the SERP shall be
payable to Gloria Saker, during her lifetime, should she survive Executive.
(e) Transportation. The Company shall pay for the transportation of
the Executive to and from the Company's offices and store locations.
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(f) Vacation. The Executive shall be entitled to such annual
vacation time with full pay as the Company may provide in its standard policies
and practices for similarly situated executives.
7. Termination of Employment.
(a) Termination due to death. In the event that Executive's
employment is terminated due to his death, his estate or his beneficiaries, as
the case may be, shall be entitled to:
(i) base salary through the date of death;
(ii) any amounts earned, accrued or owing to the Executive
but not yet paid; and
(iii) other benefits in accordance with the terms of this
Agreement, including but not limited to the retirement,
health, dental and life insurance benefits hereinabove
provided, as well as benefits under applicable plans and
programs of the Company.
(b) Termination by the Company With or Without Cause. In the event
the Company terminates the Executive's employment for any reason, with or
without cause, he or his beneficiaries, designees or assigns shall be entitled
to:
(i) base salary through the date of such termination;
(ii) any amounts earned, accrued or owing to the Executive
but not yet paid; and
(iii) other benefits in accordance with the terms of this
Agreement, including but not limited to the retirement,
health, dental and life insurance benefits hereinabove
provided, as well as benefits under applicable plans and
programs of the Company.
(c) Termination by the Executive. In the event that the Executive
terminates his employment voluntarily, it shall have the same consequences as a
termination by the Company with or without cause, as set forth in section 7(b),
above.
8. Representations and Warranties. The Company represents and warrants
that the execution of this Agreement by the Company has been duly authorized by
all required resolutions of its Board.
9. Entire Agreement. This Agreement sets forth the entire understanding
between the Company and Executive with respect to the employment of the
Executive by the Company, and it supersedes all prior and contemporaneous,
written, oral, express and implied communications, agreements and understandings
relating to the employment of Executive between the Executive and the Company.
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10. Amendment. No provision of this Agreement may be amended, modified,
waived or discharged unless such waiver, amendment, modification or discharge is
approved by the Board, or a committee of the Board having appropriate authority,
and agreed to in writing signed by both the Executive and the Company.
11. Severability. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provisions of this Agreement, which shall remain in full force and
effect.
12. Counterparts. This Agreement may be executed in counterparts, each of
which will constitute an original, but all of which together constitute one and
the same Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first set forth above.
FOODARAMA SUPERMARKETS, INC.
By: /s/ Michael Shapiro
-------------------
Name: Michael Shapiro
Title: Senior Vice President
EXECUTIVE
/s/ Joseph J. Saker
---------------------------------
Joseph J. Saker
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EXHIBIT 14
FOODARAMA SUPERMARKETS, INC.
CODE OF CONDUCT
(Amended on September 25, 2003; further amended on January 14, 2004)
--------------------------------------------------------------------------------
I. PURPOSE:
The primary purpose of this Code of Conduct (this "Code") is to reaffirm the
long-standing policy of Foodarama Supermarkets, Inc. and its subsidiaries
(collectively, "Foodarama" or the "Company") concerning standards to be adhered
to in the conduct of its business. These standards have been established in
order to promote (a) honest and ethical conduct, including the ethical handling
of actual or apparent conflicts of interest between personal and professional
relationships; (b) full, fair, accurate, timely and understandable disclosure in
the periodic reports required to be filed by Foodarama with governmental or
regulatory bodies; and (c) compliance with applicable governmental rules and
regulations.
II. APPLICABILITY:
This Code is applicable to all directors, officers and employees of Foodarama,
including, but not limited to, Foodarama's principal executive and senior
financial officers. This Code supercedes all previous codes and policy
statements. This Code is not an employment contract, and Foodarama does not
create any contractual rights by issuing this Code.
III. POLICY:
It is the policy of Foodarama to conduct its business in accordance with
applicable Federal, state and local laws and regulations as well as in
accordance with ethical business practices. All directors, officers and
employees of Foodarama shall adhere to this Code. Conduct which violates this
Code constitutes an activity beyond the scope of an individual's legitimate
employment with or service to the Company, and such a violation of this Code may
lead to serious sanctions, including termination, and in some cases, civil and
criminal liability.
All illegal, improper, unlawful and unethical practices are strictly prohibited
under this Code. Where laws and regulations may be ambiguous and difficult to
interpret, you should seek such advice as is necessary, including legal advice,
in order to assure compliance with this Code and observance of all applicable
laws and regulations. In addition to reading and understanding this Code, you
should promptly raise any concern that you or others may have about compliance
with or possible violations of this Code as provided for herein.
Special care should be exercised by all directors, officers and employees to
assure compliance with the following:
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1. BRIBES, KICK-BACKS AND OTHER IMPROPER PAYMENTS
No funds, assets or services of Foodarama shall be used, loaned, paid or
furnished, directly or indirectly, for any unlawful or improper purpose, or
where a conflict of interest may be caused or implied. No director, officer or
employee of Foodarama shall have any understanding, written or oral, that any
payments are to be made or received, directly or indirectly, by or on behalf of
Foodarama which involve any unlawful or improper purpose.
No director, officer or employee shall engage in the practice of purchasing or
selling favors, concessions, privileges or special benefits through payment or
receipt of bribes, kick-backs, tips, gifts, illegal political contributions or
other forms of pay-off. No director, officer or employee shall offer anything of
value to obtain any improper advantage in selling goods and services, conducting
financial transactions or representing Foodarama's interests to governmental
authorities. All directors, officers and employees who come into contact with
government officials, both domestic and foreign, shall maintain the highest
professional standards.
2. RELATED-PARTY TRANSACTIONS
No director, officer or employee of Foodarama shall enter into a
related-party transaction unless such transaction is first reviewed and approved
by the Audit Committee (the "Audit Committee") of the Foodarama Board of
Directors (the "Board"). Any director, officer or employee of the Company
intending to enter into or having information regarding such a related-party
transaction shall promptly report such intention or information, as the case may
be, to the Audit Committee for its review. For purposes of this Code, a
related-party transaction includes any transaction to which the Company is to be
a party and in which a director, officer or employee, or any member of the
immediate family of any of the foregoing persons, has a direct or indirect
material interest. A person's immediate family includes such person's spouse,
parents, children, siblings, mothers and fathers-in-law, sons and
daughters-in-law and brothers and sisters-in-law. When reviewing a related-party
transaction, the Audit Committee shall examine certain factors, including, among
other things, (i) whether the transaction has a business purpose, (ii) whether
the transaction is to be entered into on an arms length basis, (iii) the prior
course of dealing between the parties, if any, and (iv) whether such a
transaction would violate any other provisions of this Code or otherwise create
the appearance of impropriety. Material related-party transactions approved by
the Audit Committee and involving any officer or director of the Company shall
be publicly disclosed as required by applicable law.
3. CONFLICTS OF INTEREST
No director, officer or employee of Foodarama shall undertake any course
of conduct which involves a conflict, or creates the appearance of a conflict,
between personal interests and those of Foodarama. Each director, officer and
employee of the Company has a continuing obligation to promote Foodarama's best
interests at all times and to avoid the use of a position or association with
Foodarama for personal gain. In furtherance of this obligation, no employee
shall be permitted to concurrently work for Foodarama and work or maintain
ownership with Foodarama's competition. No director, officer or employee of
Foodarama shall divert for personal gain any business opportunity from which the
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Company may profit unless the Company, acting through or under authority from
the Board, validly decides to forgo the opportunity. Notwithstanding any
provision herein to the contrary, any director, officer or employee of Foodarama
may own securities of any entity that competes with Foodarama and is publicly
owned and traded, but in an amount not to exceed at any time 1% of any class of
stock or securities of such company. In addition, except as otherwise provided
under the rules and regulations of the SEC, as may be amended from time to time,
or any other applicable law, Foodarama shall not, directly or indirectly, extend
or maintain credit, arrange for the extension of credit, or renew an extension
of credit, in the form of a personal loan to or for any director or officer
(or equivalent thereof) of the Company.
4. GIFTS
No director, officer or employee shall accept entertainment, gifts, acts
of hospitality or any other gratuity or benefit (including, without limitation,
commissions, fees, shares in profits, loans and favors) from customers,
suppliers, buyers, public officials, labor union officials or others that may
(i) cause or imply conflicts between the interests of such person and Foodarama;
(ii) compromise your judgment or the judgment of others; or (iii) reflect
negatively on the Company.
This Code does not preclude the acceptance of gifts of nominal value ($125
USD or less); however, the acceptance of such gifts are not allowed under
circumstances creating the appearance of impropriety. Approval from the
President of Foodarama and Vice President of Loss Prevention must be obtained
prior to accepting any gift that is in excess of $125. Any such gifts shall be
turned over to Foodarama until the proper approval is obtained. Foodarama shall
use its discretion in the return or redistribution of any such items. Regardless
of the amount, gifts of cash or its equivalent (e.g. stocks, bonds or other
negotiable instruments) must never be accepted. This Code does not preclude the
acceptance of meals and entertainment provided that such meals and entertainment
are reasonable, in good taste and consistent with acceptable business practices
and this Code.
No director, officer or employee shall distribute any gift to any
customer, supplier, buyer, public official, labor union official or other person
without first obtaining the prior approval of the President of Foodarama and
Vice President of Loss Prevention. This Code does not preclude the distribution
of meals and entertainment provided that such meals and entertainment are
reasonable, in good taste and consistent with acceptable business practices and
this Code. This Code does not prohibit lawful reimbursement for reasonable and
bona fide expenditures.
5. SUPPLIERS
No director, officer or employee shall conduct Foodarama business with any
supplier or vendor who does not comply with local and other applicable legal
requirements and any additional Foodarama standards relating to labor,
environment, health and safety, intellectual property rights and improper
payments. Directors, officers and employees of the Company who purchase goods
and services on behalf of the Company shall exercise great care to preserve
their independence when making purchasing decisions. As a general rule, no
director, officer or employee of the Company shall receive a payment or anything
of value from a supplier in exchange for a purchasing decision. The Company
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recognizes an exception for token gifts of nominal value.
6. DISCLOSURE TO INDEPENDENT AUDITORS AND INTERNAL AUDIT DEPARTMENT
No director, officer or employee of Foodarama shall knowingly make a false
or misleading statement to Foodarama's independent auditors or employees of
Foodarama's Internal Audit Department, nor shall any of such persons knowingly
conceal or fail to reveal any information necessary to make the statements made
to such auditors or employees not misleading. No director, officer or employee
shall knowingly engage in any conduct the effect of which unduly influences,
coerces, manipulates or misleads the independent auditors or employees of
Foodarama's Internal Audit Department. No director, officer or employee of
Foodarama shall enter information into the Company's books or records that
intentionally hides, misleads or disguises the true nature of any financial or
non-financial transaction or result.
7. CONFIDENTIALITY
No director, officer or employee of Foodarama shall use information or
data concerning any aspect of Foodarama's business or information acquired as a
result of his or her relationship with Foodarama for his or her personal gain or
profit. Moreover, all information, which is provided or disclosed, directly or
indirectly (whether by writings, at meetings, or otherwise), to any director,
officer or employee is provided on a strictly confidential basis, for the
exclusive use of such enumerated persons in the performance of Foodarama duties.
No director, officer or employee shall take any action in derogation of such
confidentiality and each enumerated person shall take all reasonable steps to
prevent such information from being disclosed to persons or entities who are not
authorized to receive same. Any requests for information from reporters,
securities analysts, shareholders, government officials or the general public
should be referred to the Company's Chief Financial Officer. Moreover,
individual consumer, medical, financial and other sensitive personal information
shall at all times be treated confidentially and adequately protected and
handled in compliance with all applicable privacy laws.
IV. REPORTING VIOLATIONS:
Any director, officer or employee of Foodarama having any complaint
regarding accounting, internal accounting controls or auditing matters, any
information or knowledge of any unrecorded fund or asset or any prohibited act
hereunder, shall promptly report such matter to the Foodarama Vice President -
Internal Audit or a member of the Audit Committee. The Vice President - Internal
Audit shall promptly report to the Audit Committee any such complaint or
information brought to his or her attention. The Foodarama Vice President -
Internal Audit and the Audit Committee maintain offices at Foodarama's corporate
headquarters. Any complaint or report made thereto shall be handled in a timely
and professional manner and may be made anonymously.
The Audit Committee, in its discretion, shall determine the appropriate
response and/or course of action to be taken with respect to any complaint or
information reported hereunder. The Audit Committee or, if requested by the
Audit Committee, the Vice President - Internal Audit, shall conduct a thorough
E-15
investigation of any such matter brought to his, her or its attention. The
identity of the individual reporting any such violation shall be kept anonymous
except as may be otherwise necessary to remedy the violation or as may be
required by law. The Audit Committee or, if requested by the Audit Committee,
the Vice President - Internal Audit, shall make a recommendation to the Board as
to any corrective action to be taken. Neither Foodarama nor any of its
directors, officers or employees shall take any retaliatory or other adverse
action against anyone for raising or helping to resolve any concern or reporting
any violation.
V. "INSIDER INFORMATION":
As a company with shares that are publicly traded and listed on the American
Stock Exchange (the "Exchange"), Foodarama and its officers, directors and
employees are governed by Federal and Exchange regulations relative to dealing
in the Company's securities. Therefore, the following rules are outlined below
in this Code for your information and compliance.
All persons who come into possession of material inside information, before its
public release, are considered insiders for the purposes of disclosure
regulations. Such persons include control shareholders, directors, officers and
employees of Foodarama. The husbands, wives, immediate families and those under
the control of insiders may also be regarded as insiders. Directors, officers
and employees of Foodarama are prohibited from trading or influencing the
trading of Foodarama securities while in possession of material inside
information regarding the Company. The Company itself is an insider and, while
in possession of material inside information, is prohibited from buying its
securities from, or selling such securities to, the public in the same manner as
other insiders.
"Inside information" is that which has not been publicly released which the
Company withholds and which is intended for use solely for a corporate purpose
and not for any personal use.
"Insider trading" refers not only to the purchase or sale of the Company's
securities, but also to options with respect to such securities. Such trading is
deemed to be done by an insider whenever he or she has any beneficial interest,
direct or indirect, in such securities or options, regardless of whether they
are actually held in his or her name. Included in the concept of "insider
trading" is "tipping," or revealing inside information to outside individuals to
enable such individuals to trade in the Company's securities on the basis of
undisclosed information.
You must not disclose inside information to anyone outside Foodarama (including
family members), except when such disclosure is needed to enable Foodarama to
carry on its business properly and effectively and appropriate steps have been
taken by Foodarama to prevent the misuse of the information. Employees are urged
to consult with the Company's legal counsel to determine if such disclosure is
needed and is being undertaken in an appropriate manner.
How soon after the release of material information may insiders begin to trade?
While the waiting period is dependent on the circumstances, Foodarama has
adopted as a basic policy that insiders possessing material, non-public
information should wait for at least forty-eight (48) hours after the widespread
public release of the information before trading in the Company's securities.
In the exceptional cases in which Exchange policy permits companies to withhold
E-16
material information temporarily, extreme caution must be exercised to maintain
the confidentiality of the information withheld, since the danger of insider
trading generally increases proportionally to the number of persons privy to the
information.
NOTE: The Company, and its officers and directors, must file reports with the
U.S. Securities and Exchange Commission and the Exchange within two (2)
business days following any transaction in which securities were bought
or sold.
THE SALE OF ANY STOCK WITHIN SIX MONTHS BEFORE OR SIX MONTHS AFTER ANY
PURCHASE BY AN OFFICER OR DIRECTOR WILL LEAD TO CIVIL LIABILITY FOR ANY
PROFIT DEEMED REALIZED.
Directors, officers and certain employees of Foodarama who routinely
have access to material, non-public information about the Company are
also subject to the Foodarama Supermarkets, Inc. Policy, Procedure and
Guidelines Governing Insider Trading and Disclosure of Non-Public
Information (the "Insider Trading Policy"). These individuals should
also refer to the Insider Trading Policy for the answers to additional
questions.
VI. COMPLIANCE:
1. All corporate officers of Foodarama, and where appropriate the Audit
Committee, shall be responsible for the enforcement of this Code. Such
responsibility shall include periodic distribution of this Code to
management personnel to ensure employee knowledge and compliance.
Periodically, each officer or manager must review compliance with this
Code with those employees who report to such officer or manager and report
the results of those reviews to the Vice President - Internal Audit. The
Vice President - Internal Audit shall promptly inform the Audit Committee
of the results of those reviews, including his or her analysis of such
results.
2. Violators of this Code are subject to appropriate disciplinary action by
Foodarama, including, when appropriate, termination or dismissal, and
legal proceedings to recover the amount of any improper expenditures and
any other losses which may have resulted from such violation of this Code.
Such persons are reminded that violation of this Code also may result in
prosecution for violation of Federal and/or state or other laws and may
result in civil or criminal penalties. Examples of conduct that may
result in discipline include, but are not limited to, (i) actions that
directly violate this Code; (ii) requesting others to violate this Code;
(iii) failure to promptly report a known or suspected violation of this
Code; (iv) failure to cooperate in investigations of possible violations
of this Code; and (v) retaliation against an employee for reporting a
violation of this Code.
3. All directors, officers and employees of the Company are personally
responsible for abiding by the express terms and spirit of this Code. Any
questions or requests for interpretation of this Code should be referred
to the Foodarama Vice President - Internal Audit. Such questions or
requests for interpretation of this Code are encouraged by the Company.
An employee may elect to refer a question about or request an
E-17
interpretation of this Code to his or her immediate supervisor instead of
the Vice President - Internal Audit. The supervisor shall promptly
notify the Vice President - Internal Audit of the question or request and
shall not respond to such question or request for interpretation unless
authorized by the Vice President - Internal Audit. The Vice President -
Internal Audit shall notify the Audit Committee of all questions and/or
requests for interpretation. The Vice President - Internal Audit shall
take no action with respect to any question or request for interpretation
without the prior approval of the Audit Committee. A record shall be kept
of all questions and requests for interpretation and the responses thereto
in order to better administer this Code.
4. Any approval by the Company of a material departure from a provision of
this Code on behalf of the Company's directors, principal executive or
senior financial officers shall be made only by the Board, or the Audit
Committee acting on behalf of the Board, and shall be promptly disclosed
to the Company's shareholders.
5. Additional auditing procedures will be implemented by both the internal
audit staff and by Foodarama's independent auditors to monitor and to test
compliance with this Code.
V. ADMINISTRATION:
The Audit Committee shall have plenary authority to administer and interpret
this Code. Among other things, the Audit Committee shall have the authority to
(i) periodically review and update this Code and determine that there is an
established system for its enforcement; and (ii) investigate any matter brought
to the Audit Committee's attention, with full access to all books, records,
facilities and personnel of the Company, and make recommendations to the Board
as to any corrective or remedial action unless such action shall be within the
purview of the authority of the Audit Committee.
Except to the extent prohibited by applicable law, the Audit Committee may
delegate all or any portion of its responsibilities and powers to any one or
more of its members. All decisions made by the Audit Committee or any
appropriately delegated member of the Audit Committee shall be final and binding
on all persons, including the Company, subject to review by the Board.
[The next page is the Acknowledgement.]
E-18
ACKNOWLEDGMENT
FOODARAMA SUPERMARKETS, INC.
CODE OF CONDUCT
By signing below, you are acknowledging that you have received the Foodarama
Supermarkets Inc. ("Foodarama") Code of Conduct (the "Code") and have read the
Code. Further, upon signing this Acknowledgment, you confirm that you understand
that you are required to comply with all of the policies therein, and, should
you have a concern about a possible violation of the Code, you will raise such
concern to either your immediate supervisor, the Foodarama Vice President -
Internal Audit or a member of the Audit Committee of Foodarama's Board of
Directors.
Please sign, print your name and employee number (if applicable), date and
return one copy of this Acknowledgment to the Foodarama Vice President -
Internal Audit.
----------------------------- -----------------------------
Name (Signature) Date
----------------------------- -----------------------------
E-19
EXHIBIT 21
LIST OF SUBSIDIARIES
OF FOODARAMA SUPERMARKETS, INC.
Name of Subsidiary State of Incorporation
------------------ ----------------------
ShopRite of Malverne, Inc. New York
New Linden Price Rite, Inc. New Jersey
ShopRite of Reading, Inc. Pennsylvania
E-20
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Forms S-8 (No. 333-65328, No. 333-108508) of Foodarama
Supermarkets, Inc. and Subsidiaries, of our report dated January 13, 2004
relating to the consolidated financial statements for the fiscal year ended
November 1, 2003, which is included in this Form 10-K filing. We also consent to
the reference to our firm under the heading "Experts" in the prospectus included
in the above-referenced Registration Statement and amendment thereto.
/s/AMPER, POLITZINER & MATTIA, P.C.
Edison, New Jersey
January 27, 2004
E-21
EXHIBIT 31.1
CERTIFICATION
I, Richard J. Saker, certify that:
1. I have reviewed this report on Form 10-K of Foodarama Supermarkets, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting;
and
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record,
process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal control
over financial reporting.
Date: January 26, 2004 /s/ RICHARD J. SAKER
--------------------
(Signature)
Richard J. Saker
Chief Executive Officer
E-22
EXHIBIT 31.2
CERTIFICATION
I, Michael Shapiro, certify that:
1. I have reviewed this report on Form 10-K of Foodarama Supermarkets, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting;
and
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record,
process, summarize and report financial information; and
(b) _Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal control
over financial reporting.
Date: January 26, 2004 /s/ MICHAEL SHAPIRO
-------------------
(Signature)
Michael Shapiro
Chief Financial Officer
E-23
EXHIBIT 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Foodarama Supermarkets, Inc. (the
"Company") on Form 10-K for the year ended November 1, 2003 (the "Report"), I,
Richard J. Saker, Chief Executive Officer of the Company, do hereby certify,
pursuant to 18 U.S.C.ss. 1350, as adopted pursuant to ss. 906 of the
Sarbanes-Oxley Act of 2002, that to my knowledge:
(1) the Report fully complies with the requirements of section 13(a) or 15(d)
of the Securities Exchange Act of 1934, 15 U.S.C.ss.78m(a) or 78o(d), and,
(2) the information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the
Company.
Date: January 26, 2004 /s/ RICHARD J. SAKER
--------------------
(Signature)
Richard J. Saker
Chief Executive Officer
E-24
EXHIBIT 32.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Foodarama Supermarkets, Inc. (the
"Company") on Form 10-K for the year ended November 1, 2003 (the "Report"), I,
Michael Shapiro, Chief Financial Officer of the Company, do hereby certify,
pursuant to 18 U.S.C.ss. 1350, as adopted pursuant to ss. 906 of the
Sarbanes-Oxley Act of 2002, that to my knowledge:
(1) the Report fully complies with the requirements of section 13(a) or 15(d)
of the Securities Exchange Act of 1934, 15 U.S.C.ss.78m(a) or 78o(d), and,
(2) the information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the
Company.
Date: January 26, 2004 /s/ MICHAEL SHAPIRO
-------------------
(Signature)
Michael Shapiro
Chief Financial Officer
E-25