Average Annual Sales per Store Annual Sales of Selling Area
(in millions) (per square foot)
[BAR GRAPH OMMITTED] [BAR GRAPH OMMITTED]
Dear Shareholder:
We are pleased to report that sales in fiscal 2002 continued to improve to
a record $963,611,000 from $945,301,000 in the prior year. This change was
achieved even though there were only 52 weeks in fiscal 2002 compared to 53
weeks in fiscal 2001. The year to year increase was the result of improved sales
in existing locations and the full year of operations of a replacement store
opened in Middletown, New Jersey in November 2001 which replaced an older,
smaller facility in the same shopping center. Comparable stores sales increased
1.6% in fiscal 2002. This increase in comparable store sales was partially
offset by decreased sales in certain of the Company's stores affected by
competitive store openings as well as a softening in the economy and the impact
of deflation in certain product categories.
Income from operations decreased 3.5% to $13,438,000 in fiscal 2002 from
$13,926,000 in fiscal 2001. Net income declined 17.7% to $3,240,000 or $3.01 per
diluted share in fiscal 2002 compared to $3,938,000 or $3.50 per diluted share
in the prior year period. Net income was impacted primarily by increases in
labor and related fringe benefits which resulted from increased sales in service
intensive departments and contractual increases in fringe benefits.
Earnings before interest, taxes, depreciation and amortization ("EBITDA")
for fiscal 2002 were $28,076,000, an increase of 2.7% over the fiscal 2001
EBITDA of $27,342,000.
The Company's working capital position improved by $6,317,000 in fiscal
2002 to a ratio of .99 to 1.00 from .90 to 1.00 in fiscal 2001. We spent
$21,019,000 on numerous capital projects during fiscal 2002, including
$15,809,000 for equipment and leasehold improvements for the Middletown store
and for new and replacement stores under construction. The Company made
principal payments under long-term debt, excluding capitalized leases, of
$5,639,000 and additional long-term debt of $17,322,000 was incurred. The
Company and its lenders entered into an amended Credit Agreement to provide for
additional borrowing capacity under the revolving credit, term loan and capital
expenditures facilities and to realign the timing of the additional borrowing
and spending for capital expenditures to more closely track the projected timing
of these events. Additional information regarding the amendments to the Credit
Agreement is presented in "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Sales for the first quarter of fiscal 2003, which ended on February 1,
2003, totaled $257,091,000, compared to $252,027,000 for the prior year period.
Sales included the replacement store in Woodbridge, New Jersey and the new
location in Ewing, New Jersey for part of the current year period. Comparable
store sales for the 20 stores open in both years decreased 1.4%. This decrease
was primarily due to a softening in the economy, the effect of competitive store
openings and the impact of deflation in certain product categories. Net
1
income in the current year period was $349,000 or $.34 per diluted share
compared to $1,267,000 or $1.12 per diluted share in the prior year period.
EBITDA decreased to $6,786,000 for the quarter ended February 1, 2003 from
$7,490,000 in the prior year period.
During the year ended November 2, 2002, the Company repurchased a total of
102,853 shares of common stock under the stock repurchase program announced June
8, 2001. 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 purchased from a related party 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. From June 2001 through April
2002, the Company repurchased 131,923 shares for $5,591,597 or an average of
$42.39 per share. Additional information regarding purchases of stock from
related parties is presented in the Company's proxy statement which accompanies
this annual report under the caption "Certain Relationships and Related
Transactions--Transactions with Management and Certain Business Relationships."
The Middletown, New Jersey World Class store has been very well received
by our customers, and has shown continued improvement in operating results since
opening. On December 4, 2002 and January 8, 2003 two new World Class stores
opened in Woodbridge and Ewing, New Jersey. These locations have exceeded
initial projections. The store in Woodbridge is a replacement for an older,
smaller store in the same shopping center. Construction has commenced on two
World Class stores, one of which is a replacement location for an older, smaller
store. Additionally, the expansion and remodeling of two other locations are
underway. Leases have also been signed for one replacement, two new locations
and the expansion of an existing store, and lease negotiations are ongoing for
two new locations. All of these projects will be World Class stores.
The Company owns a 15.6% interest in Wakefern Food Corporation, which
provides purchasing, warehousing and distribution services on a cooperative
basis to its shareholder members, all of which are operators of ShopRite
supermarkets. Wakefern requires all of its shareholder members to enter into
agreements with Wakefern providing for certain commitments by, and restrictions
on, its shareholder members. Among the restrictions in the agreement is a
general requirement that a shareholder member must compensate Wakefern for lost
warehouse volume if the member withdraws from the cooperative. Similar
withdrawal payments are due if Wakefern loses volume by reason of a member
selling its stores, merging with another entity or transferring a controlling
corporate interest.
As previously reported, another member of Wakefern, Big V Supermarkets,
Inc. ("Big V"), filed for reorganization under Chapter 11 and indicated its
intent to depart from Wakefern. Big V, which was similar in sales volume to the
Company, was unsuccessful in challenging provisions in its agreements with
Wakefern which require that withdrawing members make a payment to Wakefern to
make up for the resulting loss of volume to the cooperative. On July 12, 2002
Wakefern reported that it had closed on its purchase of substantially all of the
assets of Big V for approximately $185 million in cash and assumed liabilities.
It is not possible to predict at this time what effect the operation of the Big
V stores by Wakefern will have on our Company.
We previously reported that the directors and certain executive officers
of the Company were named as defendants in a shareholder derivative action
alleging, among other things, various breaches of fiduciary duties. The Company
has engaged in settlement discussions with the shareholders who initiated the
action and the parties have tentatively agreed on a settlement proposal, subject
to approval by the court in which the action was filed, and the Company's
directors and officers liability insurance carrier. The proposed terms of
settlement are outlined in the description of Proposal 2 in the Company's proxy
statement for the 2003 annual meeting of shareholders.
We want to thank our employees and vendors for their continued dedication
and hard work in satisfying our customers' needs, and our shareholders for their
continued loyalty and support. A special thank you is extended to our customers
for their continued patronage of the Foodarama ShopRite stores.
/s/ Joseph J. Saker /s/ Richard J. Saker
Joseph J. Saker Richard J. Saker
Chairman of the Board President, Secretary
and Chief Executive Officer and Chief Operating Officer
2
2002 ANNUAL REPORT
FORWARD-LOOKING STATEMENTS
All statements, other than statements of historical fact, included in this
Annual Report, 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 Annual Report. Such
potential risks and uncertainties, include without limitation, competitive
pressures from other supermarket operators and warehouse club stores, economic
conditions in the Company's primary markets, consumer spending patterns,
availability of capital, cost of labor, cost of goods sold including increased
costs from the Company's cooperative supplier, Wakefern Food Corporation
("Wakefern"), and other risk factors detailed herein and in other of the
Company's Securities and Exchange Commission filings. The forward-looking
statements are made as of the date of this Annual Report 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.
--------------------------------------------------------------------------------
Stock Price and Dividend Information
The Common Stock of Foodarama Supermarkets Inc., is traded on the American Stock
Exchange under the ticker symbol "FSM." High and low stock prices were as
follows:
Fiscal Quarter Ended High Low
---------------------------------------------------------------
January 27, 2001 ............... 21.25 15.13
April 28, 2001 ................. 20.00 17.00
July 28, 2001 .................. 35.25 18.50
November 3, 2001 ............... 42.00 34.35
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
No dividends have been declared or paid on the Company's Common Stock since
October 1979. The Company has approximately 320 shareholders of record and
approximately 338 beneficial owners.
--------------------------------------------------------------------------------
5 Year Summary of Operations
Fiscal Years Ended
------------------------------------------------------------------------------------------------------------------------------------
November 2, November 3, October 28, October 30, October 31,
2002 2001(a) 2000 1999 1998
------------------------------------------------------------------------------------------------------------------------------------
(000's omitted except per share data)
Sales .................................... $ 963,611 $ 945,301 $ 866,363 $ 778,726 $ 687,974
Cost of goods sold ....................... 718,520 711,092 657,436 592,606 521,501
-----------------------------------------------------------------------------------
Gross profit ............................. 245,091 234,209 208,927 186,120 166,473
-----------------------------------------------------------------------------------
Operating expenses ....................... 231,653 220,283 198,216 177,780 160,320
Interest, net ............................ 8,036 7,362 6,741 5,254 3,433
-----------------------------------------------------------------------------------
239,689 227,645 204,957 183,034 163,753
-----------------------------------------------------------------------------------
Income before income tax provision ....... 5,402 6,564 3,970 3,086 2,720
Income tax provision ..................... (2,162) (2,626) (1,588) (1,141) (940)
===================================================================================
Net income ............................... $ 3,240 $ 3,938 $ 2,382 $ 1,945 $ 1,780
===================================================================================
Income per common share:
Basic .................................. $ 3.16 $ 3.54 $ 2.13 $ 1.74 $ 1.59
===================================================================================
Diluted ................................ $ 3.01 $ 3.50 $ 2.13 $ 1.74 $ 1.59
===================================================================================
Weighted average number of common shares
outstanding:
Basic ................................ 1,024,235 1,111,727 1,117,290 1,117,290 1,117,290
===================================================================================
Diluted .............................. 1,076,030 1,124,192 1,117,290 1,117,290 1,117,290
===================================================================================
(a) 53 weeks
3
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Management's Discussion and Analysis
of Financial Condition and Results of Operations
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Critical accounting policies are those accounting policies that management
believes are important to the portrayal of the Company's financial condition and
results and require management's most difficult, subjective or complex
judgments, often as a result of the need to make estimates about the effect of
matters that are inherently uncertain.
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Impairment of Goodwill:
Goodwill is amortized on a straight-line basis over periods from 15 to 36 years.
The carrying amount of goodwill is reviewed whenever events or changes in
circumstances indicate that it may not be recoverable. We use an estimate of the
future undiscounted net cash flows of the acquired business over the remaining
life of the asset in measuring whether the assets are recoverable. Where such
estimate of the future undiscounted cash flows is less than the carrying amount
of goodwill, a potential impairment exists.
We are required to adopt the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets" beginning
November 3, 2002. This statement requires that goodwill no longer be amortized,
and it requires instead that goodwill be tested at least annually for
impairment. If the carrying value of goodwill were determined to be greater than
its estimated fair value under the impairment test, then it would be written
down to its estimated fair value.
The discontinuance of goodwill amortization is not expected to have a
significant effect on our future results of operations. We have not completed a
transitional impairment test, as required by SFAS No. 142.
Patronage Dividends:
As a stockholder of Wakefern, the Company earns a share of Wakefern's earnings,
which is distributed as a "patronage dividend." This dividend is based on a
distribution of Wakefern's operating profits for its fiscal year, which ends the
Saturday closest to September 30, in proportion to the dollar volume of business
done 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 the current
volume of merchandise purchased from Wakefern.
Workers' Compensation Insurance:
From June 1, 1991 to May 31, 1997 we maintained workers' compensation insurance
with various carriers on a retrospective basis where claims within certain
limits remain the responsibility of the Company. We have established reserve
amounts based upon our evaluation of the status of claims still open as of
November 2, 2002 and loss development factors used by the insurance industry. As
of November 2, 2002, the workers' compensation reserve totaled approximately
$663,000. 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
As of September 26, 2002 the Company and its lenders entered into The Third
Amended and Restated Revolving Credit and Term Loan Agreement (as amended, the
"Credit Agreement"). The Credit Agreement is secured by substantially all of the
Company's assets and increased the total lending commitment 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
outstanding balances on the prior term loan ($5,000,000) and capital
expenditures facility ($10,652,662) were incorporated into the Term Loan. The
Credit Agreement will mature December 31, 2007. The Term Loan is to be paid in
quarterly principal payments of $1,250,000 commencing January 1, 2003. The Capex
Facility provides for the payment of interest only on its outstanding balance,
an unused facility fee of .75% until December 31, 2004 and fixed quarterly
principal payments thereafter based on a seven year amortization schedule with a
balloon payment due December 31, 2007. Interest rates float on the revolving
credit facility, Term Loan and Capex Facility at the Base Rate (defined below)
plus 1.50%, 2.00% and 2.00%, respectfully. The Base Rate is the rate which is
the greater of (i) the bank prime loan rate as published by the Board of
Governors of the Federal Reserve System, or (ii) the Federal Funds rate, plus
..50%. Additionally, the Company has the ability to use the London Interbank
Offered Rate ("LIBOR") plus 3.25% to determine the interest rate on the
revolving credit facility and LIBOR plus 3.75% to determine the interest rate on
the Term Loan and Capex Facility. Other terms and conditions under the Credit
Agreement, including (a) the amount of permitted additional new indebtedness;
(b) the amount of permitted capitalized lease obligations; (c) the amount of
capital expenditures; (d) covenant requirements and (e) certain definitions,
have been modified to reflect the additional term of the Credit Agreement and
the Company's financial and operational plan. Additionally, the Company is
allowed to repurchase its Common Stock for an aggregate purchase price not to
exceed $1,000,000, subject to certain conditions and limitations, under the
Credit Agreement. For the year ended November 2, 2002, the value of the accrued
benefits under the Company's pension plans exceeded the aggregate fair market
value of the assets of such plans by $3,020,000, $20,000 more than the amount
permitted under the Credit Agreement. This event of default was waived by the
Company's lenders.
4
2002 ANNUAL REPORT
As of November 2, 2002 the Company owed $25,000,000 on the Term Loan and had not
borrowed under the Capex Facility.
The Company's compliance with the major financial covenants under the Credit
Agreement was as follows as of November 2, 2002:
Actual (As defined in
Financial Covenant Credit Agreement the Credit Agreement)
-------------------------------------------------------------------------------------
Adjusted EBITDA(1) .......... Greater than $16,500,000 $20,890,000
Leverage ratio(1) ........... Less than 3.20 to 1.00 2.12 to 1.00
Debt service coverage ratio . Greater than 1.10 to 1.00 1.94 to 1.00
Adjusted Capex(2) ........... Less than $7,800,000(3) $ 5,210,000(4)
Store Project Capex ......... Less than $24,000,000(3) $15,809,000(4)
(1) Excludes obligations under capitalized leases, interest expense and
depreciation expense attributable to capitalized leases and changes in the
LIFO reserve.
(2) Adjusted Capex is all capital expenditures other than New/Replacement
Store Project Capex.
(3) Represents limitations on capital expenditures for fiscal 2002.
(4) Represents capital expenditures for fiscal 2002.
On December 31, 1999 the Company financed the purchase of $1,527,000 of POS
hardware in 17 operating locations. The financing bears interest at 7.60% and is
payable in monthly installments over its three year term.
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 2, 2002, November 3, 2001 and October 28, 2000, the Company had
working capital deficiencies of $590,000, $6,907,000 and $1,215,000,
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 2002 primarily as the result of
the increase in receivables and other current assets. This increase relates
primarily to receivables due from landlords for construction allowances for the
Woodbridge and Ewing, New Jersey locations. A portion of these receivables is
currently in dispute as a result of litigation with the landlord over the
correct commencement date of the lease for the new Woodbridge location. The
Company denies the landlord's allegations, and the amount and timing of
collection of the construction allowances will depend upon the outcome of the
litigation. When collected, the proceeds from these receivables will be used to
reduce the Revolving Note which is classified as long-term borrowings. This will
result in a corresponding decrease in working capital. The balance of accounts
receivables consist primarily of returned checks due the Company, coupon
receivables, third party pharmacy insurance claims and organization charge
accounts. The terms of most receivables are 30 days or less. The allowance for
uncollectible accounts is large in comparison to the amount of accounts
receivable because the allowance consists primarily of a reserve for returned
checks which are not written off until all collection efforts are exhausted.
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 decreased in fiscal 2000 primarily as the result of the net
increase in accounts payable and accrued expenses of $3,035,000 over the
increase in inventory, which related primarily to cost of merchandise and
operating expenses for the new Branchburg and Wall Township, New Jersey stores.
Additionally, the current portion of long-term debt, primarily related to
equipment financing, increased.
Working capital ratios were as follows:
November 2, 2002 .................... .99 to 1.00
November 3, 2001 .................... .90 to 1.00
October 28, 2000 .................... .98 to 1.00
Cash flows (in millions) were as follows:
2002 2001 2000
-----------------------------
From operations ......... $ 15.5 $ 24.2 $ 15.5
-----------------------------
Investing activities .... (26.0) (16.9) (15.2)
Financing activities .... 10.6 (7.1) (.4)
-----------------------------
Totals ................ $ .1 $ .2 $ (.1)
=============================
5
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Fiscal 2002 capital expenditures totaled $21,019,000 with depreciation of
$14,175,000 compared to $17,047,000 and $12,840,000, respectively for fiscal
2001 and $16,750,000 and $11,524,000, respectively for fiscal 2000. 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. The increase in depreciation in fiscal
2000 was the result of the purchase of equipment and leasehold improvements for
the two new locations as well as two additional real estate capitalized leases.
Capital expenditures increased in fiscal 2002, fiscal 2001 and fiscal 2000 as
the result of the purchase of equipment and leasehold improvements for the
locations opened in December 2002 and January 2003, projects currently in
process for a new store, the expansion and remodeling of an existing location
and the new bakery commissary, the new store opened in fiscal 2001, locations
remodeled in fiscal 2001 and the two locations opened in fiscal 2000.
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.
In fiscal 2000 long-term debt increased $25,499,000 due to the capitalization of
real estate leases for the two locations opened in the year, the financing of
POS hardware and equipment for two new locations and the restructuring of
borrowings under the then Credit Agreement. These increases were partially
offset by cash generated by operations used to pay down a portion of the
balances outstanding under the revolving credit facility and other existing
debt.
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 2, 2002, the Company had $10,000,000 of available credit, under its
revolving credit facility. The Company has capital commitments (net of landlord
contributions) of $15,443,000 for equipment and $5,268,000 for leasehold
improvements related to the four stores (two of which have subsequently opened)
under construction as of November 2, 2002. The Credit Agreement will adequately
meet our operating needs, scheduled capital expenditures and debt service for
fiscal 2003.
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). Taxpayers would pay an Alternative Minimum
Assessment ("AMA"), which would be based upon either New Jersey gross receipts
or New Jersey gross profits, if the AMA exceeds the tax based on net income. The
Company is evaluating the impact that this legislation will have on its results
of operation, financial position and cash flow for fiscal 2003.
RESULTS OF OPERATIONS
Sales:
The Company's sales were $963.6 million, $945.3 million and $866.4 million,
respectively in fiscal 2002, 2001 and 2000. This represents an increase of 1.9
percent in 2002 and an increase of 9.1 percent in 2001. These changes in sales
levels were the result of the opening of a replacement store in November 2001,
the full year of operations in fiscal 2001 of two locations opened in February
and April 2000 and the 53rd week in fiscal 2001. The locations opened in
November 2001 and April 2000 replaced smaller, older stores. Comparable store
sales increased 1.6% in fiscal 2002 and 3.8% in fiscal 2001. Comparable store
sales in fiscal 2002 were partially offset by decreased sales in certain of the
Company's stores affected by competitive store openings.
Comparable store sales in the fourth quarter of fiscal 2002 decreased 1.3% when
compared to the fourth quarter of fiscal 2001 on a comparable 13 week basis.
This decrease was primarily due to a softening in the economy, the effect of
competitive store openings and the impact of deflation in certain product
categories.
6
2002 ANNUAL REPORT
Gross Profit:
Gross profit totaled $245.1 million in fiscal 2002 compared to $234.2 million in
fiscal 2001 and $208.9 million in fiscal 2000. Gross profit as a percent of
sales was 25.4% in fiscal 2002, 24.8% in fiscal 2001 and 24.1% in fiscal 2000.
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.
The increase in fiscal 2000 of gross profit as a percentage of sales was
primarily due to improved product mix, reduced Wakefern assessment as a
percentage of sales and Wakefern incentive programs for the new locations opened
in fiscal 2000, partially offset by promotional programs for the new locations
opened in the current year period, the completion of Wakefern incentive programs
for the new locations opened in fiscal 1998 and the adoption of the
Last-In-First-Out ("LIFO") method of inventory valuation for grocery and nonfood
categories. See Note 1 of Notes to Consolidated Financial
Statements--Merchandise Inventories.
Patronage dividends applied as a reduction of the cost of merchandise sold were
$7,124,000, $6,515,000 and $5,903,000 for the last three fiscal years. This
translates to .74%, .69% and .68% of sales for the respective periods.
Fiscal Years Ended
--------------------------------
11/02/02 11/03/01 10/28/00
--------------------------------
(in millions)
Sales ...................................... $ 963.6 $ 945.3 $ 866.4
Gross profit ............................... 245.1 234.2 208.9
Gross profit percentage .................... 25.4% 24.8% 24.1%
================================
Selling, General and Administrative Expenses:
Fiscal 2002 selling, general and administrative expenses totaled $231.7 million
compared to $220.3 million in fiscal 2001 and $198.2 million in fiscal 2000.
Fiscal Years Ended
--------------------------------
11/02/02 11/03/01 10/28/00
--------------------------------
(in millions)
Sales ...................................... $ 963.6 $ 945.3 $ 866.4
Selling, general and administrative expenses 231.7 220.3 198.2
Percent of sales ........................... 24.0% 23.3% 22.9%
================================
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.
Formally, 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
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.
7
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Selling, general and administrative expenses increased as a percent of sales
when comparing fiscal 2001 to fiscal 2000. Increases in labor and related fringe
benefits, administrative expense, occupancy, depreciation, other store expenses,
which include Wakefern support services and debit/credit card fees, and a
decrease in miscellaneous income were partially offset by decreases in
advertising, pre-opening costs and reserve for closed store expense. The
increase in labor and related fringe benefits was the result of additional
personnel for all of fiscal 2001 for the two new stores opened during fiscal
2000 and increased sales in service intensive departments. Administrative
expense increased as the result of increases in employee incentive programs and
the charges related to the stock incentive plan. Occupancy increased due to
increased costs for CAM, real estate taxes and sanitation. Depreciation expense
increased due to a full year of depreciation for the equipment, leasehold
improvements and the capitalized leases for the two stores opened in fiscal 2000
and additional depreciation related to the three stores remodeled in fiscal
2001. Other store expenses increased due to increases in charges for certain
Wakefern programs. Miscellaneous income decreased due to a lack of income from
the sale of recycled cardboard. Selling expense increased in dollars but
declined as a percentage of sales. Pre-opening costs in fiscal 2001 related to
the new Middletown store which did not open until November 14, 2001 while two
stores were opened in fiscal 2000. The decrease in the reserve for closed store
expense relates primarily to the expensing in fiscal 2000 of anticipated
expenses for a location closed in April 2000 when the new Wall Township store
opened. As a percentage of sales, labor and related fringe benefits increased
..30%, administrative expense increased .21%, occupancy increased .06%,
depreciation increased .05%, other store expenses increased .05% and
miscellaneous income decreased .08%. These increases were partially offset by
decreases in selling expense of .05%, pre-opening costs of .09% and reserve for
closed store expense of .16%. Pre-opening costs were $114,000 in fiscal 2001.
Amortization expense decreased in fiscal 2002 to $463,000 compared to $576,000
in fiscal 2001 and $679,000 in fiscal 2000. 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. The decrease in fiscal 2001, as compared to fiscal 2000, was
also 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--Intangibles and Deferred Financing
Costs.
Interest Expense:
Interest expense totaled $8.2 million in fiscal 2002 compared to $7.6 million in
fiscal 2001 and $7.1 million in fiscal 2000. 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. The increase in fiscal 2001, as compared to
fiscal 2000, was due to an increase in the average outstanding debt in fiscal
2001, including capitalized lease obligations, partially offset by a decrease in
the average interest rate paid on the debt.
Income Taxes:
The Company recorded a tax provision of $2.2 million in fiscal 2002, $2.6
million in fiscal 2001 and $1.6 million in fiscal 2000. See Note 13 of Notes to
Consolidated Financial Statements.
Net Income:
The Company had net income of $3,240,000 or $3.01 per diluted share in fiscal
2002 compared to net income of $3,938,000 or $3.50 per diluted share in fiscal
2001. EBITDA for fiscal 2002 were $28,076,000 as compared to $27,342,000 in
fiscal 2001.
Fiscal 2000 resulted in net income of $2,382,000 or $2.13 per diluted share.
EBITDA for fiscal 2000 were $22,914,000.
Weighted average diluted shares outstanding were 1,076,030 for fiscal 2002,
1,124,192 for fiscal 2001 and 1,117,290 for fiscal 2000.
8
2002 ANNUAL REPORT
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 142 ("SFAS 142"), "Accounting for Goodwill
and Other Intangible Assets," which is effective for fiscal years beginning
after December 15, 2001. SFAS 142 discontinues the practice of amortizing
goodwill and indefinite lived intangible assets and initiates an annual review
for impairment. Impairment would be examined more frequently if certain
indicators are encountered. Intangible assets with a determinable useful life
will continue to be amortized over that period. The Company is currently
assessing, but has not yet determined, the impact of SFAS 142 on its financial
position and results of operations. The Company plans to adopt SFAS 142 in the
first quarter of fiscal year 2003.
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 143 ("SFAS 143"), "Accounting for Asset
Retirement Obligations," which is effective for fiscal years beginning after
June 15, 2002, with early application encouraged. SFAS 143 addresses financial
accounting and reporting for obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement costs. The
Company plans to adopt SFAS 143 in the first quarter of fiscal year 2003 and
believes that it will have no impact on its financial position or results of
operations.
Effective November 4, 2001 the Company adopted Statement of Financial Accounting
Standards No. 144 ("SFAS 144"), "Accounting for the Impairment or Disposal of
Long-Lived Assets." SFAS 144 requires, among other things, the application of
one accounting model for long-lived assets that are impaired or to be disposed
of by sale. There was no significant impact from the adoption of SFAS 144 in
fiscal year 2002.
In April 2002, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 145 ("SFAS 145"), "Recission of FASB
Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
Corrections," which is effective for fiscal years beginning after May 15, 2002,
with earlier application encouraged. Under SFAS 145, gains and losses from
extinguishment of debt will no longer be aggregated and classified as an
extraordinary item, net of related income tax effect, on the statement of
earnings. The Company plans to adopt SFAS 145 in the first quarter of fiscal
year 2003 and believes that it will have no impact on its financial position or
results of operations.
In June 2002, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 146 ("SFAS 146"), "Accounting for Costs
Associated with Exit or Disposal Activities," which is effective for exit or
disposal activities that are initiated after December 31, 2002, with early
application encouraged. SFAS No. 146 requires recognition of a liability for the
costs associated with an exit or disposal activity when the liability is
incurred, as opposed to when the entity commits to an exit plan as required
under EITF Issue No. 94-3. SFAS 146 will primarily impact the timing of the
recognition of costs associated with any future exit or disposal activities. The
Company plans to adopt SFAS 146 in the first quarter of fiscal year 2003 and is
in the process of evaluating the impact of the adoption on our financial
statements.
Effective November 4, 2001, the Company adopted the Emerging Issues Task Force
Issue No. 01-09 ("EITF 01-09"), "Accounting for Consideration Given by a Vendor
to a Customer (Including a Reseller of the Vendor's Products)." EITF 01-09
codifies and reconciles the consensuses on all or specific issues of EITF 00-14,
"Accounting for Certain Sales Incentives," EITF 00-22, "Accounting for 'Points'
and Certain Other Time-Based or Volume-Based Sales Incentives Offers, and Offers
for Free Products or Services to be Delivered in the Future," and EITF 00-25,
"Vendor Income Statement Characterization of Consideration Paid to a Reseller of
the Vendor's Products," which address various aspects of the accounting for
consideration given by a vendor to a customer or a reseller of the vendor's
products. The adoption of EITF 01-09 did not have an impact on the Company's
financial position or results of operations.
9
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
November 2, 2002 and November 3, 2001
2002 2001
----------------------
(In thousands)
ASSETS
Current assets
Cash and cash equivalents .................................................... $ 4,280 $ 4,219
Merchandise inventories ...................................................... 43,707 42,827
Receivables and other current assets ......................................... 11,214 5,466
Prepaid income taxes ......................................................... 257 --
Related party receivables--Wakefern .......................................... 8,903 8,970
Related party receivables--other ............................................. -- 7
----------------------
68,361 61,489
----------------------
Property and equipment
Land ......................................................................... 308 308
Buildings and improvements ................................................... 1,220 1,220
Leasehold improvements ....................................................... 41,311 39,589
Equipment .................................................................... 114,077 103,394
Property under capital leases ................................................ 69,867 59,909
Construction in progress ..................................................... 15,364 6,787
----------------------
242,147 211,207
Less accumulated depreciation and amortization ............................... 112,360 98,218
----------------------
129,787 112,989
----------------------
Other assets
Investments in related parties ............................................... 12,758 12,758
Intangibles .................................................................. 2,785 3,136
Other ........................................................................ 3,963 2,550
Related party receivables--Wakefern .......................................... 1,735 1,593
Related party receivables--other ............................................. -- 11
----------------------
21,241 20,048
----------------------
$ 219,389 $ 194,526
======================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt ............................................ $ 7,158 $ 5,390
Current portion of long-term debt, related party ............................. 629 902
Current portion of obligations under capital leases .......................... 1,140 899
Current income taxes payable ................................................. -- 704
Deferred income taxes ........................................................ 1,433 1,079
Accounts payable
Related party--Wakefern .................................................... 31,935 35,988
Others ..................................................................... 14,078 8,780
Accrued expenses ............................................................. 12,578 14,654
----------------------
68,951 68,396
----------------------
Long-term debt ................................................................. 35,745 19,294
Long-term debt, related party .................................................. 686 1,310
Obligations under capital leases ............................................... 63,606 54,949
Deferred income taxes .......................................................... 1,142 1,201
Other long-term liabilities .................................................... 12,634 10,883
----------------------
113,813 87,637
----------------------
Shareholders' equity
Common stock, $1.00 par; authorized 2,500,000 shares; issued 1,621,767 shares;
outstanding 986,367 shares November 2, 2002; 1,088,220 shares November 3, 2001 1,622 1,622
Capital in excess of par ..................................................... 4,168 4,168
Deferred compensation ........................................................ (1,324) (1,696)
Retained earnings ............................................................ 47,256 44,016
Accumulated other comprehensive income
Minimum pension liability .................................................. (2,896) (1,920)
----------------------
48,826 46,190
Less 635,400 shares November 2, 2002; 533,547 shares November 3, 2001, held
in treasury, at cost ....................................................... 12,201 7,697
----------------------
36,625 38,493
----------------------
$ 219,389 $ 194,526
======================
See notes to consolidated financial statements.
10
2002 ANNUAL REPORT
Consolidated Statements of Operations
Fiscal Years Ended November 2, 2002, November 3, 2001 and October 28, 2000
2002 2001 2000
-----------------------------------------
(In thousands, except per share data)
Sales ...................................... $ 963,611 $ 945,301 $ 866,363
Cost of goods sold ......................... 718,520 711,092 657,436
-----------------------------------------
Gross profit ............................... 245,091 234,209 208,927
Selling, general and administrative expenses 231,653 220,283 198,216
-----------------------------------------
Earnings from operations ................... 13,438 13,926 10,711
-----------------------------------------
Other income (expense)
Interest expense ......................... (8,184) (7,627) (7,059)
Interest income .......................... 148 265 318
-----------------------------------------
(8,036) (7,362) (6,741)
-----------------------------------------
Earnings before income tax provision ....... 5,402 6,564 3,970
Income tax provision ....................... (2,162) (2,626) (1,588)
-----------------------------------------
Net income ................................. $ 3,240 $ 3,938 $ 2,382
=========================================
Per share information:
Net income per common share
Basic .................................. $ 3.16 $ 3.54 $ 2.13
=========================================
Diluted ................................ $ 3.01 $ 3.50 $ 2.13
=========================================
Weighted average shares outstanding
Basic .................................. 1,024,235 1,111,727 1,117,290
=========================================
Diluted ................................ 1,076,030 1,124,192 1,117,290
=========================================
See notes to consolidated financial statements.
11
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
Fiscal Years Ended November 2, 2002, November 3, 2001 and October 28, 2000
Accumulated
Common Stock Other
---------------------- Capital Compre- Compre-
Shares in Excess Deferred hensive hensive Retained
Issued Amount of Par Compensation Income Income Earnings
-----------------------------------------------------------------------------------------
(In thousands, except per share data)
Balance--October 30, 1999 ........... 1,621,767 $ 1,622 $ 2,351 $ -- $ -- $ 37,696
Comprehensive income
Net income 2000 ................... -- -- -- -- -- $ 2,382 2,382
-----------------------------------------------------------------------------------------
Comprehensive income ................ $ 2,382
==========
Balance--October 28, 2000 ........... 1,621,767 1,622 2,351 -- -- 40,078
Grant of stock options .............. -- -- 1,817 (1,817) -- --
Amortization of deferred
compensation ...................... -- -- -- 121 -- --
Repurchase of common stock .......... -- -- -- -- -- --
Comprehensive income
Net income 2001 ................... -- -- -- -- -- 3,938 3,938
Other comprehensive income
Minimum pension liability,
net of deferred tax ........... -- -- -- -- (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
Amortization of
deferred compensation ............. -- -- -- 372 -- --
Issuance of common stock ............ -- -- -- -- -- --
Repurchase of common stock .......... -- -- -- -- -- --
Comprehensive income
Net income 2002 ................... -- -- -- -- -- 3,240 3,240
Other comprehensive income
Minimum pension liability,
net of deferred tax ........... -- -- -- -- (976) (976) --
-----------------------------------------------------------------------------------------
Comprehensive income ................ $ 2,264
==========
Balance--November 2, 2002 ........... 1,621,767 $ 1,622 $ 4,168 $ (1,324) $ (2,896) $ 47,256
============================================================== ==========
Treasury Stock
------------------------ Total
Shares Amount Equity
-------------------------------------
(In thousands, except per share data)
Balance--October 30, 1999 ........... (504,477) $ (6,629) $ 35,040
Comprehensive income
Net income 2000 ................... -- -- 2,382
------------------------------------
Comprehensive income ................
Balance--October 28, 2000 ........... (504,477) (6,629) 37,422
Grant of stock options .............. -- -- --
Amortization of deferred
compensation ...................... -- -- 121
Repurchase of common stock .......... (29,070) (1,068) (1,068)
Comprehensive income
Net income 2001 ................... -- -- 3,938
Other comprehensive income
Minimum pension liability,
net of deferred tax ........... -- -- (1,920)
------------------------------------
Comprehensive income ................
Balance--November 3, 2001 ........... (533,547) (7,697) 38,493
Amortization of
deferred compensation ............. -- -- 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
Other comprehensive income
Minimum pension liability,
net of deferred tax ........... -- -- (976)
------------------------------------
Comprehensive income ................
Balance--November 2, 2002 ........... (635,400) $ (12,201) $ 36,625
====================================
See notes to consolidated financial statements.
12
2002 ANNUAL REPORT
Consolidated Statements of Cash Flows
Fiscal Years Ended November 2, 2002, November 3, 2001 and October 28, 2000
2002 2001 2000
--------------------------------
(In thousands)
Cash flows from operating activities
Net income .............................................................. $ 3,240 $ 3,938 $ 2,382
Adjustments to reconcile net income to net cash from operating activities
Depreciation .......................................................... 14,175 12,840 11,524
Amortization, intangibles ............................................. 351 351 352
Amortization, deferred financing costs ................................ 342 285 243
Amortization, deferred rent escalation ................................ (230) (60) 84
Provision to value inventory at LIFO .................................. 397 900 723
Deferred income taxes ................................................. 946 (139) (574)
Amortization of deferred compensation ................................. 270 256 --
(Increase) decrease in
Merchandise inventories ............................................. (1,277) (962) (5,375)
Receivables and other current assets ................................ (781) (507) (463)
Prepaid income taxes ................................................ (257) 398 (398)
Other assets ........................................................ (453) 963 207
Related party receivables--Wakefern ................................. (75) (224) (784)
Increase (decrease) in
Accounts payable .................................................... 1,245 2,936 5,018
Income taxes payable ................................................ (704) 704 (457)
Other liabilities ................................................... (1,713) 2,534 3,047
--------------------------------
15,476 24,213 15,529
--------------------------------
Cash flows from investing activities
Cash paid for the purchase of property and equipment .................... (7,858) (11,718) (14,280)
Cash paid for construction in progress .................................. (13,161) (5,329) (943)
Construction advance due from landlords ................................. (4,138) -- --
Deposits on equipment ................................................... (829) -- --
Decrease in related party receivables--other ............................ 18 169 15
--------------------------------
(25,968) (16,878) (15,208)
--------------------------------
Cash flows from financing activities
Proceeds from issuance of debt .......................................... 22,961 929 20,595
Principal payments under long-term debt ................................. (4,742) (5,344) (18,754)
Principal payments under capital lease obligations ...................... (1,060) (664) (699)
Principal payments under long-term debt, related party .................. (897) (880) (627)
Deferred financing costs ................................................ (1,205) (66) (953)
Proceeds from exercise of stock options ................................. 20 -- --
Repurchase of common stock .............................................. (4,524) (1,068) --
--------------------------------
10,553 (7,093) (438)
--------------------------------
Net change in cash and cash equivalents ................................... 61 242 (117)
Cash and cash equivalents, beginning of year .............................. 4,219 3,977 4,094
--------------------------------
Cash and cash equivalents, end of year .................................... $ 4,280 $ 4,219 $ 3,977
================================
Supplemental disclosures of cash paid
Interest ................................................................ $ 8,125 $ 8,046 $ 6,683
Income taxes ............................................................ 2,188 1,674 2,869
See notes to consolidated financial statements.
13
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Tabular dollars in thousands, except per share amounts)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Foodarama Supermarkets, Inc. and Subsidiaries (the "Company"), operate 22
ShopRite supermarkets, primarily in Central New Jersey. The Company is a member
of Wakefern Food Corporation ("Wakefern"), the largest retailer-owned food
cooperative in the United States.
Fiscal Year
The Company's fiscal year ends on the Saturday closest to October 31. Fiscal
2002 consists of the 52 weeks ended November 2, 2002, fiscal 2001 consists of
the 53 weeks ended November 3, 2001 and fiscal 2000 consists of the 52 weeks
ended October 28, 2000.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
Revenue Recognition
Revenues from the sale of products are recognized at the point of sale to the
Company's customers. Vendor rebates and credits that relate to the Company's
buying and merchandising activities are recognized as earned.
Industry Segment
The Company operates in one industry segment, the retail sale of food and
nonfood products, primarily in the Central New Jersey region.
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.
Merchandise Inventories
Merchandise inventories are stated at the lower of cost or market. Approximately
82% of merchandise inventories, consisting primarily of grocery and nonfood
items, are valued by the LIFO (last-in, first-out) method of inventory valuation
while the remaining inventory items are valued by the FIFO (first-in, first-out)
method with cost being determined under the retail method.
If the FIFO method had been used for the entire inventory, inventory at November
2, 2002 and November 3, 2001 would have been $2,020,000 and $1,623,000 higher,
respectively.
Property and Equipment
Property and equipment is stated at cost and is depreciated on a straight-line
basis over the estimated useful lives ranging between three and ten years for
equipment, the shorter of the useful life or lease term for leasehold
improvements, and twenty years for buildings. Repairs and maintenance are
expensed as incurred.
Property and equipment under capital leases are recorded at the lower of fair
market value or the net present value of the minimum lease payments. They are
depreciated on a straight-line basis over the shorter of the related lease terms
or its useful life.
Investments
The Company's investments in its principal supplier, Wakefern, and in
Insure-Rite, are stated at cost (see Note 4).
Intangibles
Intangibles consist of goodwill and favorable operating lease costs. Goodwill is
being amortized on a straight-line basis over periods from 15 to 36 years. The
favorable operating lease costs are being amortized on a straight-line basis
over the terms of the related leases, which range from 12 to 24 years.
14
2002 ANNUAL REPORT
Notes to Consolidated Financial Statements
(Tabular dollars in thousands, except per share amounts)
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 $8.6, $8.8
and $8.5 million for the fiscal years 2002, 2001 and 2000, respectively.
Store Closing Costs
The costs, net of amounts expected to be recovered, are expensed upon the
closing of a store. It is reasonably possible that these estimates may change in
the near term. Operating results continue to be reported until a store is
closed.
Stock Option Plan
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," ("APB 25") and related
interpretations in accounting for its employee stock options. Under this method,
compensation cost is measured as the amount by which the market price of the
underlying stock exceeds the exercise price of the stock option at the date at
which both the number of options granted and the exercise price are known.
Earnings Per Share
Earnings per common share are based on the weighted average number of common
shares outstanding. Diluted earnings per share amounts are based on the weighted
average number of common shares outstanding, plus the incremental shares that
would have been outstanding upon the assumed exercise of all diluted stock
options, subject to antidilution limitations.
Recent Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 142 ("SFAS 142"), "Accounting for Goodwill
and Other Intangible Assets," which is effective for fiscal years beginning
after December 15, 2001. SFAS 142 discontinues the practice of amortizing
goodwill and indefinite lived intangible assets and initiates an annual review
for impairment. Impairment would be examined more frequently if certain
indicators were encountered. Intangible assets with a determinable useful life
will continue to be amortized over that period. The Company is currently
assessing but has not yet determined the impact of SFAS 142 on its financial
position and results of operations. The Company plans to adopt SFAS 142 in the
first quarter of fiscal year 2003.
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 143 ("SFAS 143"), "Accounting for Asset
Retirement Obligations," which is effective for fiscal years beginning after
June 15, 2002, with early application encouraged. SFAS 143 addresses financial
accounting and reporting for obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement costs. The
Company plans to adopt SFAS 143 in the first quarter of fiscal year 2003 and
believes that it will have no impact on its financial position or results of
operations.
Effective November 4, 2001 the Company adopted Statement of Financial Accounting
Standards No. 144 ("SFAS 144"), "Accounting for the Impairment or Disposal of
Long-Lived Assets." SFAS 144 requires, among other things, the application of
one accounting model for long-lived assets that are impaired or to be disposed
of by sale. There was no significant impact from the adoption of SFAS 144 in
fiscal year 2002.
In April 2002, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 145 ("SFAS 145"), "Rescission of FASB
Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
Corrections," which is effective for fiscal years beginning after May 15, 2002,
with earlier application encouraged. Under SFAS 145, gains and losses from
extinguishment of debt will no longer be aggregated and classified as an
extraordinary item, net of related income tax effect, on the statement of
earnings. The Company plans to adopt SFAS 145 in the first quarter of fiscal
year 2003 and believes that it will have no impact on its financial position or
results of operations.
15
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Tabular dollars in thousands, except per share amounts)
In June 2002, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 146 ("SFAS 146"), "Accounting for Costs
Associated with Exit or Disposal Activities," which is effective for exit or
disposal activities that are initiated after December 31, 2002, with early
application encouraged. 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 as required
under EITF Issue No. 94-3. SFAS 146 will primarily impact the timing of the
recognition of costs associated with any future exit or disposal activities. The
Company plans to adopt SFAS 146 in the first quarter of fiscal year 2003 and is
in the process of evaluating the impact of the adoption on its financial
statements.
Effective November 4, 2001, the Company adopted the Emerging Issues Task Force
Issue No. 01-09 ("EITF 01-09"), "Accounting for Consideration Given by a Vendor
to a Customer (Including a Reseller of the Vendor's Products)." EITF 01-09
codifies and reconciles the consensuses on all or specific issues of EITF 00-14,
"Accounting for Certain Sales Incentives," EITF 00-22, "Accounting for `Points'
and Certain Other Time-Based or Volume-Based Sales Incentives Offers, and Offers
for Free Products or Services to be Delivered in the Future," and EITF 00-25,
"Vendor Income Statement Characterization of Consideration Paid to a Reseller of
the Vendor's Products," which address various aspects of the accounting for
consideration given by a vendor to a customer or a reseller of the vendor's
products. The adoption of EITF 01-09 did not have an impact on the Company's
financial position or results of operations.
NOTE 2--CONCENTRATION OF CASH BALANCE
As of November 2, 2002 and November 3, 2001, cash balances of approximately
$1,241,000 and $1,179,000, 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 2, 2002 November 3, 2001
-----------------------------------
Accounts receivable ..................... $ 4,247 $ 3,980
Construction advance due from Landlords . 4,138 --
Prepaids ................................ 2,304 2,260
Deposits on equipment ................... 829 --
Rents receivable ........................ 380 99
Less allowance for uncollectible accounts (684) (873)
--------------------------
$ 11,214 $ 5,466
==========================
NOTE 4--RELATED PARTY TRANSACTIONS
Wakefern Food Corporation
As required by Wakefern's By-Laws, all members of the cooperative are required
to make an investment in the common stock of Wakefern for each supermarket
operated ("Store Investment Program"), with the exact amount per store computed
in accordance with a formula based on the volume of each store's purchases from
Wakefern. The maximum required investment per store was $550,000 at November 2,
2002, November 3, 2001 and October 28, 2000. During fiscal 2000 and 1999, the
required investment in Wakefern increased, resulting in a total increase in the
investment by $1,039,000 in 2000 and $1,286,000 in 1999, and a related increase
in the obligations due Wakefern for the same amount, respectively. This increase
in the obligation is non-interest bearing and is payable over four years, with
two years currently remaining. The Company has an investment in Wakefern of
$11,805,000 at November 2, 2002 and November 3, 2001, representing a 15.6% and
12.3% interest in Wakefern, respectively. Wakefern is operated on a cooperative
basis for its members. The shares of stock in Wakefern are assigned to and held
by Wakefern as collateral for any obligations due Wakefern. In addition, the
obligations to Wakefern are personally guaranteed by the principal
officers/shareholders of the Company. As of November 2, 2002 and November 3,
2001, the Company was obligated to Wakefern for $1,315,000 and $2,212,000,
respectively, for the increase in its required investment (see Note 8).
The Company also has an investment of approximately 10.0% in Insure-Rite, Ltd.,
a company affiliated with Wakefern, which was $953,000 at November 2, 2002 and
November 3, 2001. Insure-Rite, Ltd. provides the Company with a portion of its
liability insurance coverage with the balance paid through Wakefern to a private
insurer. Insurance premiums paid to Insure-Rite, Ltd. and through Wakefern for
fiscal years 2002, 2001 and 2000 were $4,364,000, $3,819,000 and $3,528,000,
respectively.
As a stockholder member of Wakefern, the Company earns a share of an annual
Wakefern patronage dividend. The dividend is based on the distribution of
operating profits on a pro rata basis in proportion to the dollar volume of
business transacted by each member with Wakefern during each fiscal year. It is
the Company's policy to accrue quarterly an estimate of the annual patronage
dividend. The Company reflects the patronage dividend as a reduction of the cost
of merchandise in the consolidated statements of operations. In addition, the
Company also receives from Wakefern other product incentives and rebates. For
fiscal 2002, 2001 and 2000, total patronage dividends and other product
incentives and rebates were $10,706,000, $9,909,000 and $9,273,000,
respectively.
16
2002 ANNUAL REPORT
Notes to Consolidated Financial Statements
(Tabular dollars in thousands, except per share amounts)
At November 2, 2002 and November 3, 2001, the Company has current receivables
due from Wakefern of approximately $8,903,000 and $8,970,000, 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 $1,735,000 and $1,593,000, respectively.
In September 1987, the Company and all other stockholder members of Wakefern
entered into an agreement with Wakefern, as amended in 1992, which provides for
certain commitments and restrictions on all stockholder members of Wakefern. The
agreement contains an evergreen provision providing for an indefinite term and
is subject to termination ten years after the approval of 75% of the outstanding
voting stock of Wakefern. Under the agreement, each stockholder, including the
Company, agreed to purchase at least 85% of its merchandise in certain defined
product categories from Wakefern and, if it fails to meet such requirements, to
make payments to Wakefern based on a formula designed to compensate Wakefern for
its lost profit. Similar payments are due if Wakefern loses volume by reason of
the sale of one or more of a stockholder's stores, merger with another entity or
on the transfer of a controlling interest in the stockholder.
The Company fulfilled its obligation to purchase a minimum of 85% in certain
defined product categories from Wakefern for all periods presented. The
Company's merchandise purchases from Wakefern, including direct store delivery
vendors processed by Wakefern, approximated $641, $647 and $588 million for the
fiscal years 2002, 2001 and 2000, 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.
Other Related Party
During the fiscal year ended November 3, 2001, the Company utilized an entity,
which is wholly-owned by the daughter of the Company's Chairman of the Board, to
provide construction management services on several store renovations. During
the fiscal year ended November 3, 2001 the Company incurred $214,000 of
construction management fees relating to this entity and these amounts have been
included in property and equipment. The Company did not utilize this entity
during the fiscal year ended November 2, 2002.
NOTE 5--INTANGIBLES
November 2, 2002 November 3, 2001
-----------------------------------
Goodwill ........................... $3,493 $3,493
Favorable operating lease costs 4,685 4,685
------------------------
8,178 8,178
Less accumulated amortization ...... 5,393 5,042
------------------------
$2,785 $3,136
========================
NOTE 6--ACCRUED EXPENSES
November 2, 2002 November 3, 2001
-----------------------------------
Payroll and payroll related expenses $ 6,848 $ 7,211
Insurance .......................... 663 1,405
Sales, use and other taxes ......... 1,243 1,294
Interest ........................... 122 63
Employee benefits .................. 1,168 1,346
Occupancy costs .................... 1,445 2,179
Real estate taxes .................. 544 537
Other .............................. 545 619
--------------------------
$12,578 $14,654
==========================
17
FOODARAMA 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 2, 2002 November 3, 2001
-----------------------------------
Revolving note ............. $13,380 $ 3,766
Term loan .................. 25,000 6,500
Capital expenditure facility -- 7,306
Other notes payable ........ 4,523 7,112
--------------------------
42,903 24,684
Less current portion ....... 7,158 5,390
--------------------------
$35,745 $19,294
==========================
The Company has a revolving credit and term loan agreement which was amended and
assigned to three financial institutions on January 7, 2000 and further amended
on May 11, 2001 and August 7, 2001, January 25, 2002 and March 29, 2002. On
September 26, 2002 the Credit Agreement was further amended and restated (as
amended, the "Credit Agreement"). The Credit Agreement is collateralized by
substantially all of the Company's assets, provides for a total commitment of
$80,000,000 (previously $58,000,000) and matures December 31, 2007 (previously
matured December 31, 2004). 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 Credit Agreement (a) increases the total amount available to the Company
under the Revolving Note to $35,000,000 from $28,000,000, subject to the
borrowing base limitation of 65% of eligible inventory; (b) increases the amount
of permitted new indebtedness throughout the term of the Credit Agreement to
more closely meet the Company's projected borrowing needs; (c) increases the
amount of indebtedness attributable to capitalized lease obligations over the
term of the Credit Agreement to more closely track new real estate lease
obligations; (d) increases capital expenditures ("Capex") relating to
New/Replacement Store Projects over the term of the Credit Agreement; (e)
increases capital expenditures relating to Adjusted Capex over the term of the
Credit Agreement; (f) restores amounts available under the Capex Facility to
$20,000,000 from the $8,000,000 available prior to September 26, 2002 and
extends the expiration date of the period during which the Company may borrow
against the Capex Facility to December 31, 2004 from June 30, 2002. In addition
the balance outstanding on the Capex Facility of $10,652,662 (the "Capex
Loans"), which included $4,000,000 borrowed during fiscal 2002, was combined
with the Term Loan; (g) the Term Loan was increased to $25,000,000 by combining
the then outstanding Term Loan of $5,000,000 with the Capex Loans plus an
additional funding amount of $9,347,338; (h) allows the Company to repurchase an
additional $1,000,000 of its common stock subject to certain conditions and
limitations, previously the Company was permitted and it utilized $5,600,000
(this amount was increased from $5,000,000 to $5,600,000 as part of the
amendments dated January 25, 2002 and March 29, 2002) to repurchase its' common
stock (see Note 12); (i) allows for loans to employees not to exceed $50,000 in
the aggregate; (j) increases the interest rate on the Revolving Note from prime
plus .50% or LIBOR plus 2.50% to prime plus 1.50% or LIBOR plus 3.25%, increases
the interest rate on the Term Loan and Capex Facility from prime plus .75% or
LIBOR plus 2.75% to prime plus 2.00% or LIBOR plus 3.75%; and (k) amends certain
definitions. Other terms and conditions of the Credit Agreement previously
reported upon by the Company have not been modified.
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. The Revolving Note bears interest at prime plus 1.50% or
LIBOR plus 3.25%.
The Company had a letter of credit outstanding of $497,004 and $1,012,004 at
November 2, 2002, and November 3, 2001, respectively. A commitment fee of .5% is
charged on the unused portion of the Revolving Note. Available credit under the
Revolving Note was $10,000,000 and $18,691,000 at November 2, 2002 and November
3, 2001. As of November 2, 2002 and November 3, 2001, $7,264,000 and $7,475,000
of cash receipts on hand or in transit were restricted for application against
the Revolving Note balance.
18
2002 ANNUAL REPORT
Notes to Consolidated Financial Statements
(Tabular dollars in thousands, except per share amounts)
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 (prior to
September 26, 2002, the Term Loan was payable in quarterly principal
installments of $500,000). Interest is payable monthly at prime plus 2.00% or
LIBOR plus 3.75%. At November 2, 2002, $22,500,000 was under a six month
Eurodollar rate of 5.41% maturing April 2003 and $2,500,000 was under a one
month Eurodollar rate of 5.55% maturing November 2002, of which $1,250,000 was
renewed through February 2003 at 5.19%. At November 3, 2001, $6,000,000 of the
Term Loan balance was under a one month Eurodollar rate of 5.39%.
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. The Company had no amounts
outstanding at November 2, 2002 and $7,306,000 outstanding as of November 3,
2001. At November 2, 2002 and November 3, 2001 the Company had $20,000,000 and
$12,000,000 available, respectively, under this facility. At November 3, 2001,
$7,000,000 of the Capital Expenditure facility was under a one month Eurodollar
rate of 5.31%.
Subsequently, on November 27, 2002 the Company drew down $1,595,274 on the
Capital Expenditure Facility.
The Agreement places restrictions on dividend payments and requires the
maintenance of debt service coverage and leverage ratios and other financial
ratios, as well as limitations on capital expenditures and new debt. For the
year ended November 2, 2002, the Company exceeded the limit by which 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 2, 2002 and November 3, 2001 was 4.75% and 5.50%,
respectively.
Other Notes Payable
Included in other notes payable are the following:
November 2, 2002 November 3, 2001
----------------------------------
Note payable to a financing institution, maturing October 2004, payable at $56,000
per month plus interest at 7.26%, collateralized by related equipment .................... $1,330 $1,996
Note payable to a financing institution, maturing April 2005, payable at $46,000
per month including interest at 7.44%, collateralized by related equipment ............... 1,204 1,642
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 1,989 3,474
------------------------
Total other notes payable .................................................................. $4,523 $7,112
========================
Aggregate maturities of long-term debt are as follows:
Fiscal Year
--------------------------------------------------------------------
2003 ............................................ $ 7,158
2004 ............................................ 7,091
2005 ............................................ 5,274
2006 ............................................ 5,000
2007 ............................................ 5,000
Thereafter ...................................... 13,380
19
FOODARAMA 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 2, 2002 and November 3, 2001, the Company was indebted for an
investment in Wakefern in the amount of $1,315,000 and $2,212,000, respectively.
The debt is non-interest bearing and payable in scheduled installments as
follows:
Fiscal Year
---------------------------------------------------------------------------
2003 ................................................................ $629
2004 ................................................................ 341
2005 ................................................................ 182
2006 ................................................................ 107
2007 ................................................................ 56
NOTE 9--OTHER LONG-TERM LIABILITIES
November 2, 2002 November 3, 2001
-----------------------------------
Deferred escalation rent .......... $ 4,422 $ 4,652
Minimum pension liability (Note 15) 5,119 3,399
Postretirement benefit cost ....... 2,393 1,965
Other ............................. 700 867
--------------------------
$12,634 $10,883
==========================
NOTE 10--LONG-TERM LEASES
Capital Leases
November 2, 2002 November 3, 2001
-----------------------------------
Real estate ....................... $69,867 $59,909
Less accumulated amortization..... 16,029 12,922
--------------------------
$53,838 $46,987
==========================
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 2, 2002:
Fiscal Year
----------------------------------------------------------------------
2003 ............................................ $ 7,311
2004 ............................................ 7,383
2005 ............................................ 7,496
2006 ............................................ 7,565
2007 ............................................ 7,320
Thereafter ...................................... 105,925
--------
Total minimum lease payments .................... 143,000
Less amount representing interest ............... 78,254
--------
Present value of net minimum lease payments ..... 64,746
Less current maturities ......................... 1,140
--------
Long-term maturities ............................ $ 63,606
========
20
2002 ANNUAL REPORT
Notes to Consolidated Financial Statements
(Tabular dollars in thousands, except per share amounts)
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 $156,000, $268,000 and $264,000
for the fiscal years 2002, 2001 and 2000, 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 2002 Fiscal 2001 Fiscal 2000
-----------------------------------------
Land and buildings .. $ 10,690 $ 11,020 $ 10,828
Less subleases ...... (3,147) (3,089) (2,641)
--------------------------------------
$ 7,543 $ 7,931 $ 8,187
======================================
The minimum rental commitments under all noncancellable operating leases reduced
by income from noncancellable subleases at November 2, 2002, are as follows:
Income from
Noncancellable Net Rental
Fiscal Year Land and Buildings Subleases Commitment
-------------------------------------------------------------------------------
2003 .......... $ 11,202 $ 2,415 $ 8,787
2004 .......... 10,979 1,954 9,025
2005 .......... 10,887 1,482 9,405
2006 .......... 9,513 1,102 8,411
2007 .......... 8,618 704 7,914
Thereafter .... 78,280 1,139 77,141
------------------------------------------------
$129,479 $ 8,796 $120,683
================================================
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 $744,000, $736,000 and
$719,000 for the fiscal years 2002, 2001 and 2000, respectively.
NOTE 11--STOCK OPTION PLAN
On April 4, 2001, the Company's shareholders approved the Foodarama
Supermarkets, Inc. 2001 Stock Incentive Plan (the "2001 Plan"). The 2001 Plan
replaces the Foodarama Supermarkets, Inc. 1995 Stock Option Plan under which no
options were granted.
The 2001 Plan provides for the issuance of up to 150,000 shares of Foodarama
Supermarkets, Inc. Common Stock (subject to anti-dilution adjustment). 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. The maximum
number of shares of stock that may be covered by the awards granted to any one
participant for the life of the 2001 Plan shall be equal to one-third of the
shares reserved for issuance under the 2001 Plan (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 "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 (see Note 14).
21
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Tabular dollars in thousands, except per share amounts)
The Units are payable in cash only, were granted to certain officers and senior
management of the Company and vest, per individual, 250 units at the Grant Date
and 250 units thereafter, for the next one to three years. 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 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 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 2, 2002 and November 3, 2001, the Company realized
compensation expense relating to the stock option plan of $372,000 and $121,000,
respectively. For the years ended November 2, 2002 and November 3, 2001, the
Company realized 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 $27.00 at November 2, 2002 and $40.75 at November 3, 2001,
respectively.
The following table summarizes stock option and Units activity:
Options Outstanding
--------------------------------------------------------------------------------
Stock Options Stock Performance Units
------------------------------------- ------------------------------------
Stock
Weighted Weighted Options
Exercise Average Exercise Average and Units
Price Exercise Price Exercise Available
Shares Per Share Price Units Per 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
------------------------------------- --------------------------------------------------
$19.60 to
Outstanding November 2, 2002 106,500 $ 19.60 $ 19.60 6,800 $25.00 $ 22.62 92,700
===================================== ==================================================
Options exercisable at:
October 28, 2000 ......... -- -- -- -- -- --
November 3, 2001 ......... 2,000 $ 19.60 $ 19.60 4,750 $ 19.60 $ 19.60
$19.60 to
November 2, 2002 ......... 23,000 $ 19.60 $ 19.60 2,900 $25.00 $ 22.62
Following is a summary of the status of stock options outstanding at November 2,
2002:
Outstanding Options Exercisable Options
------------------------------------------------- ------------------------
Weighted Average
Remaining Weighted Average Weighted Average
Exercise Price Number Contractual Life Exercise Price Number Exercise Price
----------------------------------------------------------------------------------------------------------------------------------
$19.60..................................... 106,500 8.75 years $19.60 23,000 $19.60
Pro forma information regarding net income and earnings per share is required by
Statement 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method of that Statement. The fair
value for these options was estimated at $22.93 on the date of grant using the
Black-Scholes option-pricing model.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options, which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
22
2002 ANNUAL REPORT
Notes to Consolidated Financial Statements
(Tabular dollars in thousands, except per share amounts)
The following weighted-average assumptions were used for the year ended November
3, 2001:
Risk-free interest rate .................................. 5.0%
Expected volatility ...................................... 40.2%
Dividend yield ........................................... 0%
Expected life ............................................ 5 years
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information follows:
Fiscal 2002 Fiscal 2001 Fiscal 2000
------------------------ ------------------------ ------------------------
As reported Pro forma As reported Pro forma As reported Pro forma
------------------------ ------------------------ ------------------------
Net income ........... $ 3,240 $ 3,161 $ 3,938 $ 3,915 $ 2,382 $ 2,382
Earnings per share
Basic .............. $ 3.16 $ 3.09 $ 3.54 $ 3.52 $ 2.13 $ 2.13
Diluted ............ $ 3.01 $ 2.94 $ 3.50 $ 3.48 $ 2.13 $ 2.13
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. The Company repurchased 102,853 and 29,070 shares of its common
stock at an aggregate cost of $4,523,670 and $1,067,927 for the years ended
November 2, 2002 and November 3, 2001, respectively. During the fiscal year
ended November 2, 2002 the Company issued 1,000 shares 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 2002 Fiscal 2001 Fiscal 2000
---------------------------------------
Federal
Current ............................. $ 1,035 $ 2,247 $ 1,621
Deferred ............................ 688 (212) (411)
State and local
Current ............................. 181 518 541
Deferred ............................ 258 73 (163)
----------------------------------
$ 2,162 $ 2,626 $ 1,588
==================================
The following tabulations reconcile the federal statutory tax rate to the
effective rate:
Fiscal 2002 Fiscal 2001 Fiscal 2000
---------------------------------------
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% 1.3%
Tax credits ................................................... (.3)% (.2)% (.7)%
Adjustment to prior years tax provision ....................... (2.9)% .5% (1.0)%
Other ......................................................... 2.4% (1.2)% .5%
--------------------------------
Actual tax provision .......................................... 40.0% 40.0% 40.0%
================================
23
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Tabular dollars in thousands, except per share amounts)
Net deferred tax assets and liabilities consist of the following:
November 2, 2002 November 3, 2001
---------------- ----------------
Current deferred tax assets
Deferred revenue and gains on sale/leaseback .. $ 144 $ 230
Allowances for uncollectible receivables ...... 293 461
Inventory capitalization ...................... 11 9
Closed store reserves ......................... 279 430
Vacation accrual .............................. 669 433
Accrued post-employment ....................... 162 159
Accrued post-retirement ....................... 969 796
Other ......................................... 37 37
---------------------------
2,564 2,555
---------------------------
Current deferred tax liabilities
Prepaids ...................................... (326) (280)
Patronage dividend receivable ................. (2,603) (2,278)
Accelerated real estate taxes ................. (217) (212)
Prepaid pension ............................... (851) (864)
---------------------------
(3,997) (3,634)
---------------------------
Current deferred tax liability .................. $(1,433) $(1,079)
===========================
Noncurrent deferred tax assets
Lease obligations ............................. $ 4,348 $ 3,558
Minimum pension liability ..................... 1,931 1,280
Stock options and deferred compensation ....... 207 104
State loss carryforward ....................... 85 72
---------------------------
6,571 5,014
Valuation allowance ............................. (85) (72)
---------------------------
6,486 4,942
---------------------------
Noncurrent deferred tax liabilities
Depreciation .................................. (6,529) (5,453)
Pension obligations ........................... (750) (341)
Other ......................................... (349) (349)
---------------------------
(7,628) (6,143)
---------------------------
Noncurrent deferred tax liability ............... $(1,142) $(1,201)
===========================
At November 2, 2002 and November 3, 2001, Minimum pension liability of
$1,931,000 and $1,280,000, respectively, was charged against accumulated other
comprehensive income (see Note 15).
State loss carryforwards of approximately $860,000 expire through October 2011.
24
2002 ANNUAL REPORT
Notes to Consolidated Financial Statements
(Tabular dollars in thousands, except per share amounts)
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). Taxpayers would pay an "Alternative Minimum
Assessment" ("AMA"), which would be based upon either New Jersey Gross Receipts
or New Jersey Gross Profits, if the AMA exceeds the tax based on 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. The Company is evaluating the impact that this
legislation will have on its results of operations, financial position and cash
flow for fiscal 2003.
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).
The parties to the litigation have tentatively agreed on a settlement proposal,
subject to, among other things, approval by the Court and by the Company's
director and officer liability insurance carrier. Pursuant to the terms of the
proposed settlement, 1) the Company's five-year classified board will be
eliminated and the Defendants will agree 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 will be 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 will be amended to require that the exercise price of any options
or other stock based compensation granted thereunder following the date of final
approval of the settlement shall be equal to the closing market price of the
Company's stock on the date of grant. In addition, the Chairman and Chief
Executive Officer of the Company, will return to the Company 10,000 stock
options previously awarded to him under the 2001 Plan. The Plaintiffs have also
informed the Defendants that they intend to seek an award of attorney's fees,
however, it is not possible to predict at this time the amount of fees that may
be awarded.
Commitments
At November 2, 2002 the Company had capital commitments (net of landlord
contributions) of $5,268,000 for leasehold improvements and $15,443,000 for
equipment.
Guarantees
The Company remains contingently liable under leases assumed by third parties.
As of November 2, 2002, the minimum annual rental under these leases amounted to
approximately $1,697,000 expiring at various dates through 2011. The Company has
not experienced and does not anticipate any material nonperformance by such
third parties.
25
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Tabular dollars in thousands, except per share amounts)
NOTE 15--RETIREMENT AND BENEFIT PLANS
Defined Benefit Plans
The Company sponsors two defined benefit pension plans covering administrative
personnel and members of a union. Employees covered under the administrative
pension plan earned benefits based upon a percentage of annual compensation and
could make voluntary contributions to the plan. Employees covered under the
union pension benefit plan earn benefits based on a fixed amount for each year
of service. The Company's funding policy is to pay at least the minimum
contribution required by the Employee Retirement Income Security Act of 1974.
The plans' assets consist primarily of publicly traded stocks and fixed income
securities. As of November 2, 2002, and November 3, 2001, the plans' assets
included common stock of the Company with a fair value of $1,004,000 and
$1,516,000, respectively.
A summary of the plans' funded status and the amounts recognized in the
consolidated balance sheets as of November 2, 2002 and November 3, 2001 follows:
November 2, 2002 November 3, 2001
---------------- ----------------
hange in benefit obligation
Benefit obligation--beginning of year .............................. $(7,178) $(5,772)
Service cost ....................................................... (94) (63)
Interest cost ...................................................... (511) (454)
Actuarial gain (loss) .............................................. (625) (1,517)
Benefits paid ...................................................... 601 628
---------------------------
Benefit obligation--end of year .................................... (7,807) (7,178)
---------------------------
Change in plan assets
Fair value of plan assets--beginning of year ....................... 5,913 6,174
Actual return (loss) on plan assets ................................ (995) 145
Employer contributions ............................................. 675 402
Benefits paid ...................................................... (601) (628)
Administrative expense ............................................. (204) (180)
---------------------------
Fair value of plan assets--end of year ............................. 4,788 5,913
---------------------------
Funded status ........................................................ (3,019) (1,265)
Unrecognized prior service cost ...................................... 292 199
Unrecognized net loss from past experience different from that assumed 4,827 3,205
Unrecognized transition asset ........................................ -- (5)
Adjustment required to recognize minimum liability ................... (5,119) (3,399)
---------------------------
Accrued pension cost ................................................. $(3,019) $(1,265)
===========================
Pension expense consists of the following:
Fiscal 2002 Fiscal 2001 Fiscal 2000
-----------------------------------------------
Service cost--benefits earned during the period .......... $ 94 $ 63 $ 63
Interest expense on benefit obligation ................... 511 454 449
Expected return on plan assets ........................... (475) (488) (506)
Settlement (gain) loss recognized ........................ 350 -- --
Amortization of prior service costs ...................... 37 37 37
Amortization of unrecognized net loss (gain) ............. 197 67 8
Amortization of unrecognized transition obligation (asset) (5) (5) (5)
------------------------------------------
Total pension expense .................................... $ 709 $ 128 $ 46
=========================================
26
2002 ANNUAL REPORT
Notes to Consolidated Financial Statements
(Tabular dollars in thousands, except per share amounts)
The discount rate used in determining the actuarial present value of the
projected benefit obligation ranged from 7.00% to 7.25% at November 2, 2002, and
7.25% to 8.00% at November 3, 2001. The expected long-term rate of return on
plan assets was 8% at November 2, 2002 and November 3, 2001.
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 2, 2002 and November 3, 2001, the accumulated benefit obligation
exceeded the fair value of the plans' assets in both defined benefit plans. The
provisions of Statement of Financial Accounting Standards No. 87 ("SFAS 87"),
"Employers' Accounting for Pensions," require recognition in the balance sheet
of an additional minimum liability and related intangible asset for pension
plans with accumulated benefits in excess of plan assets; any portion of such
additional liability which is in excess of the plan's prior service cost is
reflected as a direct charge to equity, net of related tax benefit. Accordingly,
at November 2, 2002 and November 3, 2001, a liability of $5,119,000 and
$3,399,000, respectively, was included in other long-term liabilities, an
intangible asset equal to the prior service cost of $292,000 and $199,000,
respectively, is included in other assets, and a charge of $2,896,000 and
$1,920,000 net of deferred taxes of $1,931,000 and $1,280,000, 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 $13,240,000 in fiscal
2002, $10,440,000 in fiscal 2001 and $9,155,000 in fiscal 2000, under plans
covering union employees. Such plans are administered through the unions
involved. Under federal legislation regarding such pension plans, a company is
required to continue funding its proportionate share of a plan's unfunded vested
benefits in the event of withdrawal (as defined by the legislation) from a plan
or plan termination. The Company participates in a number of these pension plans
and may have a potential obligation as a participant. The information required
to determine the total amount of this contingent obligation as well as the total
amount of accumulated benefits and net assets of such plans, is not readily
available. However, the Company has no present intention of withdrawing from any
of these plans, nor has the Company been informed that there is any intention to
terminate such plans.
401(k)/Profit Sharing Plan
The Company maintains an employee 401(k) Savings Plan (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 compensation, to
a maximum of $11,000. 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% for fiscal years 2002,
2001 and 2000. 401(k) expense for the fiscal years 2002, 2001 and 2000 was
approximately $630,000, $607,000 and $507,000, respectively.
27
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Tabular dollars in thousands, except per share amounts)
NOTE 16--OTHER POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS
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 2, 2002 and
November 3, 2001, respectively.
A summary of the plan's funded status and the amounts recognized in the balance
sheets as of November 2, 2002 and November 3, 2001, follows:
November 2, 2002 November 3, 2001
---------------- ----------------
Change in benefit obligation
Benefit obligation--beginning of year .............................. $(3,380) $(2,630)
Service cost ....................................................... (106) (103)
Interest cost ...................................................... (238) (214)
Actuarial gain (loss) .............................................. (979) (480)
Benefits paid ...................................................... 47 47
---------------------------
Benefit obligation--end of year .................................... (4,656) (3,380)
---------------------------
Change in plan assets
Fair value of plan assets--beginning of year ....................... -- --
Actual return on plan assets ....................................... -- --
Employer contributions ............................................. 47 47
Benefits paid ...................................................... (47) (47)
---------------------------
Fair value of plan assets--end of year ............................. -- --
---------------------------
Funded status ........................................................ (4,656) (3,380)
Unrecognized prior service cost ...................................... 113 137
Unrecognized net loss from past experience different from that assumed 2,150 1,278
---------------------------
Accrued postretirement benefit cost .................................. $(2,393) $(1,965)
===========================
Net postretirement benefit expense consists of the following:
Fiscal 2002 Fiscal 2001 Fiscal 2000
-------------------------------------------
Service cost--benefits earned during the period .......... $106 $103 $ 89
Interest expense on benefit obligation ................... 238 214 174
Expected return on plan assets ........................... -- -- --
Amortization of prior service costs ...................... 23 23 2
Amortization of unrecognized net loss (gain) ............. 108 92 149
Amortization of unrecognized transition obligation (asset) -- -- --
------------------------------------
Postretirement benefit expense ........................... $475 $432 $414
====================================
The assumed discount rate used in determining the postretirement benefit
obligation was 7.25% and 8% as of November 2, 2002 and November 3, 2001,
respectively. The weighted average rate of compensation increase was 5.50% at
November 2, 2002 and 4% at November 3, 2001.
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 2, 2002 and November 3,
2001 was $399,000 and $393,000, respectively.
28
2002 ANNUAL REPORT
Notes to Consolidated Financial Statements
(Tabular dollars in thousands, except per share amounts)
NOTE 17--EARNINGS PER SHARE
Fiscal 2002 Fiscal 2001 Fiscal 2000
-------------------------------------------
Basic EPS
Net income available to common shareholders .................... $ 3,240 $ 3,938 $ 2,382
==========================================
Weighted average shares outstanding ............................ 1,024,235 1,111,727 1,117,290
------------------------------------------
Per share amount ............................................... $ 3.16 $ 3.54 $ 2.13
==========================================
Effect of Dilutive Securities
Stock Options--Incremental Shares .............................. 51,795 12,465 --
==========================================
Dilutive EPS
Weighted average shares outstanding including incremental shares 1,076,030 1,124,192 1,117,290
------------------------------------------
Per share amount ............................................... $ 3.01 $ 3.50 $ 2.13
==========================================
NOTE 18--NONCASH INVESTING AND FINANCING ACTIVITIES
During fiscal 2002 and 2001, the Company retired property and equipment with an
original cost of $37,000 and $2,173,000 and accumulated depreciation of $33,000
and $2,109,000, respectively.
During fiscal 2002, the Company reclassed $4,584,000 of construction in progress
to leasehold improvements and equipment. During fiscal 2000, the Company
reclassed $1,911,000 of construction in progress to leasehold improvements and
equipment.
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 2001, the Company recorded an increase in capital in excess of par
and deferred compensation expense of $1,817,000 in accordance with its stock
option plan.
During fiscal 2002 and 2000, capital lease obligations of $9,958,000 and
$21,691,000, were incurred when the Company entered into leases for one and two
new stores, respectively.
During fiscal 2002, $10,653,000 of outstanding Capital Expenditure loans were
combined into the Company's Term loan.
During fiscal 2000, the required investment in Wakefern increased from a maximum
per store of $500,000 to $550,000. This resulted in an increase of $1,039,000 in
the investment and obligations due Wakefern.
The Company was required to make an additional investment in Wakefern of
$500,000 and $103,000 for a new store and a replacement store, respectively,
which opened during fiscal 2000. In conjunction with the investment, liabilities
were assumed for the same amount.
During fiscal 2000, the Company was required to invest an additional $124,000 in
Insure-Rite, Ltd. In conjunction with the investment, liabilities were assumed
for the same amount.
During fiscal 2000 the Company financed equipment purchased for $1,527,000.
29
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Tabular dollars in thousands, except per share amounts)
NOTE 19--UNAUDITED SUMMARIZED CONSOLIDATED QUARTERLY INFORMATION
Summarized quarterly information for the years ended November 2, 2002 and
November 3, 2001 was as follows:
Thirteen Weeks Ended
----------------------------------------------------------------------
February 2, 2002 May 4, 2002 August 3, 2002 November 2, 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
Fourteen Weeks
Thirteen Weeks Ended Ended
---------------------------------------------------- ----------------
January 27, 2001 April 28, 2001 July 28, 2001 November 3, 2001
----------------------------------------------------------------------
Sales ....................... $238,594 $223,926 $233,052 $249,729
Gross profit ................ 57,829 55,625 58,356 62,399
Net income .................. 1,168 963 1,044 763
Earnings available per share:
Basic ..................... 1.05 .86 .94 .69
Diluted ................... 1.05 .86 .94 .66
Dilutive earnings per share amounts by quarter do not equal dilutive earnings
per share amounts for the year ended November 3, 2001 due to the stock option
plan being adopted in the fourth quarter.
NOTE 20--SUBSEQUENT EVENTS
On December 4, 2002, the Company opened a new store in Woodbridge, New Jersey.
This store replaced an existing store at the same location. On January 8, 2003
the Company opened a new store in Ewing, New Jersey. Capital lease obligations
of $20,068,000 were incurred relating to these new stores, as well as an
increase in property under capitalized leases in the same amount.
30
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 2, 2002 and November 3, 2001,
and the related consolidated statements of operations, shareholders' equity and
cash flows for the fiscal years ended November 2, 2002, November 3, 2001 and
October 28, 2000. 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 2, 2002 and November 3, 2001, and the results of
their operations and their cash flows for the fiscal years ended November 2,
2002, November 3, 2001 and October 28, 2000 in conformity with accounting
principles generally accepted in the United States of America.
/s/ AMPER, POLITZINER & MATTIA, P.C.
AMPER, POLITZINER & MATTIA, P.C.
January 21, 2003
Edison, New Jersey
31
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