UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the fiscal year ended Commission file number
November 2, 2002 1-5745
FOODARAMA SUPERMARKETS, INC.
(Exact name of Registrant as specified in its charter)
New Jersey 21-0717108
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Building 6, Suite 1, 922 Hwy. 33, Freehold, New Jersey 07728
(Address of principal executive offices)
Registrant's telephone number, including area code: (732) 462-4700
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
Common Stock American Stock Exchange
Par Value $1.00 per share
Securities registered pursuant to Section 12(g) of the Act:
NONE
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of voting stock held by non-affiliates of the
Registrant was approximately $16,382,000. Computation is based on the closing
sales price of $47.25 per share of such stock on the American Stock Exchange on
May 4, 2002, the last business day of the Registrant's most recently completed
second quarter.
Indicate by check mark whether the Registrant is an accelerated filer
(as defined in Rule 12b-2 of the Act). Yes____ No __x__
As of January 10, 2003, the number of shares outstanding of Registrant's
Common Stock was 986,867
..
DOCUMENTS INCORPORATED BY REFERENCE
None
1
PART I
Disclosure Concerning Forward-Looking Statements
All statements, other than statements of historical fact, included in this
Form 10-K, including without limitation the statements under Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business", are, or may be deemed to be, "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). Such forward-looking statements involve
assumptions, known and unknown risks, uncertainties and other factors which may
cause the actual results, performance or achievements of Foodarama Supermarkets,
Inc. (the "Company", which may be referred to as we, us or our) to be materially
different from any future results, performance or achievements expressed or
implied by such forward-looking statements contained in this Form 10-K. Such
potential risks and uncertainties, include without limitation, competitive
pressures from other supermarket operators and warehouse club stores, economic
conditions in the Company's primary markets, consumer spending patterns,
availability of capital, cost of labor, cost of goods sold including increased
costs from the Company's cooperative supplier, Wakefern Food Corporation
("Wakefern"), and other risk factors detailed herein and in other of the
Company's Securities and Exchange Commission filings. The forward-looking
statements are made as of the date of this Form 10-K and the Company assumes no
obligation to update the forward-looking statements or to update the reasons
actual results could differ from those projected in such forward-looking
statements.
Item 1. Business
General
Foodarama Supermarkets, Inc., a New Jersey corporation formed in 1958,
operates a chain of twenty-three supermarkets located in Central New Jersey, as
well as two liquor stores and two garden centers, all licensed as ShopRite. We
also operate a central food processing facility to supply our stores with meat,
various prepared salads, prepared foods and other items, and a central baking
facility which supplies our stores with bakery products. The Company is a member
of Wakefern, the largest retailer owned food cooperative warehouse in the United
States and owner of the ShopRite name. The Company operates in one industry
segment, the retail sale of food and non-food products, primarily in the Central
New Jersey region.
The Company has incorporated the concept of "World Class" supermarkets into
its operations. "World Class" supermarkets are significantly larger than
conventional supermarkets and feature fresh fish-on-ice, prime meat service
butcher departments, in-store bakeries, international foods including Chinese,
sushi and kosher sections, meals to go, salad bars, snack bars, bulk foods and
pharmacies. We have also introduced many of these features into our
conventionally sized supermarkets through extensive renovations; these stores
are considered "Mini-World Class" supermarkets. Currently, nineteen of our
stores are "World Class", two are "Mini-World Class" and two are conventional
supermarkets.
2
The following table sets forth certain data relating to the Company's business
for the periods indicated:
Fiscal Year Ended
Nov. 2, Nov. 3, Oct 28, Oct 30, Oct 31,
2002 2001** 2000 1999 1998
Average annual sales per store
(in millions)* .................. $43.8 $43.0 $40.5 $37.1 $35.3
Same store sales increase
from prior year ................. 1.56% 3.77% 4.24% 6.28% 4.45%
Total store area in square feet
(in thousands) .................... 1,340 1,301 1,294 1,195 1,195
Total store selling area in square
feet (in thousands) ............... 1,001 973 966 895 895
Average total square feet per store
(in thousands) .................... 61 59 59 57 57
Average square feet of selling area
per store (in thousands) .......... 46 44 44 43 43
Annual sales per square foot of
selling area* ..................... $962 $973 $923 $870 $832
Number of stores:
Stores remodeled (over $500,000) 0 2 2 1 1
New stores opened .............. 0 0 1 0 1
Stores replaced/expanded ....... 1 1 1 0 2
Stores closed/divested ......... 1 0 1 0 1
Number of stores by size
(total store area):
30,000 to 39,999 sq.ft .......... 2 3 3 4 4
40,000 to 49,999 sq.ft .......... 3 3 3 3 3
Greater than 50,000 sq.ft ....... 17 16 16 14 14
Total stores open at period end*** 22 22 22 21 21
* Sales for stores open less than 52 weeks have been annualized.
** Calculated on a 53 week basis. A like 52 week comparison would be $42.1
million in average annual sales per store and $953 in annual sales per
square foot of selling area.
*** The Company began operating a twenty-third supermarket on January 8, 2003.
3
Store Expansion and Remodeling
We believe that significant capital investment is critical to our operating
strategy and we are continuing our program to upgrade our existing stores,
replace outdated locations and open new "World Class" supermarkets within our
core market area of Central New Jersey.
In fiscal year 2002, a replacement store in Middletown, New Jersey was
opened. Additionally, after fiscal year end, a replacement store in Woodbridge,
New Jersey was opened on December 4, 2002 and on January 8, 2003 a new location
was opened in Ewing, New Jersey. Over the next three years the Company plans to
open three replacement and four new stores and expand three existing locations
as well as build a new state of the art bakery commissary. Construction has
started on one replacement store, the expansion of two locations, a new store
and the bakery commissary. All of these stores are in Central New Jersey and
will be "World Class" operations.
Technology
Automation and computerization are important to the Company's operations
and competitive position. All stores utilize IBM 4690 software for the scanning
checkout systems. The hardware for the point of sale ("POS") systems was
replaced in our stores in fiscal 1999 and 2000. This POS upgrade brought all of
our stores to a state of the art level with increased processing speed and
enhanced marketing capabilities. These systems improve pricing accuracy, enhance
productivity and reduce checkout time for customers. During fiscal 2002
automated checkout systems were installed in two locations. These systems were
also installed in the new Woodbridge and Ewing, New Jersey stores in the first
quarter of fiscal 2003. This system will provide improved customer service,
especially during peak volume periods, and labor scheduling benefits to the
Company. Additionally, all stores have IBM RS/6000 processors, which were
replaced with the current version of this equipment in 1999. A frame relay
communications network is being used for high speed transmission and collection
of data. This system replaced slower telephone lines. The increased speed
improves our ability to access, review for accuracy and analyze data. During
fiscal 2002 the infrastructure for improved wireless communications was
installed in all of our stores and ISDN circuits were installed which serve as a
back up system for the frame relay. The use of these systems allows the Company
to offer its customers debit and credit card payment options as well as
participation in Price Plus, ShopRite's preferred customer program, and the
ShopRite co-branded credit card. By presenting the scannable Price Plus card or
the ShopRite co-branded card, customers can be given electronic discounts,
receive credit for the value of ShopRite in-ad Clip Less coupons and cash
personal checks. Also, customers receive a 1% future rebate when paying with the
ShopRite credit card.
We are also using other in-store computer systems. Computer generated
ordering is installed in all stores. This system is designed to reduce inventory
levels and out of stock positions, enhance shelf space utilization and reduce
labor costs. In all stores, meat, seafood and delicatessen prices are maintained
on department computers for automatic weighing and pricing. Additionally, all
stores have computerized time and attendance systems which are used for, among
other things, automated labor scheduling, and most stores have computerized
energy management systems. We also utilize a direct store delivery receiving and
pricing system for most items not purchased through Wakefern in order to provide
cost and retail price control over these products, and computerized pharmacy
systems which provide customer profiles, retail price control and third-party
billing. The Company has also installed computer based training systems in all
stores. The system is presently being used to train all new checkout and produce
department personnel. Modules for other departments are currently being
developed.
4
In addition, all field merchandisers and operations supervisors are
equipped with laptop personal computers. This provides field personnel with
current labor and product information to facilitate making accurate and timely
decisions. Communication among the Company's stores, our executive offices and
Wakefern has been improved with the installation of Lotus Notes.
Industry Segment and Principal Products
The Company is engaged in one industry segment. For the last three fiscal years,
our sales were divided among the categories listed below:
Fiscal Year Ended
Product Categories 11/02/02 11/03/01 10/28/00
Groceries 38.1% 39.1% 39.3%
Dairy & Frozen 16.4 16.5 16.5
Meats, Seafood & Poultry 10.1 10.2 10.5
Non-Foods 10.1 10.3 10.4
Produce 9.3 8.8 8.6
Appetizers & Prepared Foods 6.7 6.4 6.4
Pharmacy 5.4 4.9 4.5
Bakery 2.1 2.0 2.0
Liquor, Floral & Garden Centers 1.8 1.8 1.8
------ ------ ------
100.0% 100.0% 100.0%
Gross profit derived by the Company from each product category is not
necessarily consistent with the percentage of total sales represented by such
product category.
Wakefern Food Corporation
The Company owns a 15.6% interest in Wakefern, a New Jersey corporation
organized in 1946, which provides purchasing, warehousing and distribution
services on a cooperative basis to its shareholder members, including the
Company, who are operators of ShopRite or alternate format supermarkets. As
required by the Wakefern By-Laws, repayment of the Company's obligations to
Wakefern is personally guaranteed by Joseph J. Saker, Richard J. Saker and
Thomas A. Saker. These personal guarantees are required of any 5% shareholder of
the Company who is active in the operation of the Company. Wakefern and its 38
shareholder members operate approximately 203 supermarkets of which Wakefern
owns and operates 51 locations. Products bearing the ShopRite label accounted
for approximately 18% of the Company's total sales for the fiscal year ended
November 2, 2002. Wakefern maintains warehouses in Elizabeth, South Brunswick
and Woodbridge, New Jersey which handle a full line of groceries, meats, frozen
foods, produce, bakery, dairy and delicatessen products and health and beauty
aids, as well as a number of non-food items. Wakefern also operates a grocery
and perishable products warehouse in Wallkill, New York.
Wakefern's professional advertising staff and its advertising agency
develop and place most of the Company's advertising on television, radio and in
major newspapers. We are charged for these services based on various formulas
which account for the estimated proportional benefits we receive. In addition,
Wakefern charges us for, and provides the Company with, product and support
services in numerous administrative functions. These include insurance,
supplies, technical support for communications and electronic payment systems,
equipment purchasing and the coordination of coupon processing. Additionally, we
sublease two supermarkets from Wakefern. See Item 2. Properties.
Wakefern distributes, as a patronage dividend to each of its members, a
share of its net earnings in proportion to the dollar volume of business
transacted by each member with Wakefern during each fiscal year. The Company's
5
participation percentage was 12.2% for fiscal 2002. See Note 4 of Notes to
Consolidated Financial Statements.
Although Wakefern has a significant in house professional staff, it
operates as a member cooperative and senior executives of the Company spend a
substantial amount of their time working on Wakefern committees overseeing and
directing Wakefern purchasing, merchandising and various other programs.
Wakefern licenses the ShopRite name to its shareholder members and provides a
substantial and extensive merchandising program for the ShopRite label. Except
for the license to use the name "ShopRite", we do not believe that the ownership
of or rights in patents, trademarks, licenses, franchises and concessions is
material to our business. The locations at which we may open new supermarkets
under the name ShopRite are subject to the approval of Wakefern's Site
Development Committee. Under circumstances specified in its By-Laws, Wakefern
may refuse to sell merchandise to, and may repurchase the Wakefern stock of, any
shareholder member. Such circumstances include certain unapproved transfers by a
shareholder member of its supermarket business or its capital stock in Wakefern,
unapproved acquisition by a shareholder member of certain supermarket or grocery
wholesale supply businesses, the conduct of a business in a manner contrary to
the policies of Wakefern, the material breach of any provision of the Wakefern
By-Laws or any agreement with Wakefern or a determination by Wakefern that the
continued supplying of merchandise or services to such shareholder member would
adversely affect Wakefern.
Wakefern requires each shareholder to invest in Wakefern's capital stock to
a maximum of $550,000 for each store operated by such shareholder member. The
precise amount of the investment is computed according to a formula based on the
volume of each store's purchases from Wakefern.
Under its By-Laws, all bills for merchandise and other indebtedness are due
and payable to Wakefern weekly and, if these bills are not paid in full, an
additional 1% service charge is due on the unpaid portion. Wakefern requires its
shareholder members to pledge their Wakefern stock as collateral for payment of
their obligations to Wakefern. The Company's investment in Wakefern was
$11,805,000 as of November 2, 2002 and November 3, 2001. We also have an
investment in another company affiliated with Wakefern which was $953,000 as of
November 2, 2002 and November 3, 2001. See Note 4 of Notes to Consolidated
Financial Statements.
Since September 18, 1987, the Company has had an agreement, amended in
1992, with Wakefern and all other shareholders of Wakefern, which provides for
certain commitments by, and restrictions on, all shareholders of Wakefern. Under
the agreement, each shareholder, including the Company, agreed to purchase at
least 85% of its merchandise in certain defined product categories from
Wakefern. The Company fulfilled this obligation during the 52 week period ended
November 2, 2002. If any shareholder fails to meet these purchase requirements,
it must make payments to Wakefern (the "Compensatory Payments") based on a
formula designed to compensate Wakefern for the profit lost by it by virtue of
its lost warehouse volume. Similar payments are due if Wakefern loses volume by
reason of the sale of one or more of a shareholder's stores, any shareholder's
merger with another entity or the transfer of a controlling interest in the
shareholder. Subject to a right of first refusal granted to Wakefern, sales of
certain under facilitated stores are permitted free of the restrictions of the
agreement. Also, the restrictions of the agreement do not apply if volume lost
by a shareholder by the sale of a store is made up by such shareholder by
increased volume of new or existing stores and, in any event, the Compensatory
Payments otherwise required to be made by the shareholder to Wakefern are not
required if the sale is made to Wakefern, another shareholder of Wakefern or to
a purchaser which is neither an owner or operator of a chain of 25 or more
supermarkets in the United States, excluding any ShopRite supermarkets in any
area in which Wakefern operates. The agreement extends for an indefinite term
and is subject to termination ten years after the approval by a vote of 75% of
the outstanding voting stock of Wakefern.
6
The loss of, or material change in, our relationship with Wakefern (neither
of which is considered likely) could have a significant adverse impact on the
Company's business. The failure of Wakefern to fulfill its obligations or
another member's insolvency or withdrawal from Wakefern could result in
additional costs to the remaining members. On November 22, 2000 Big V
Supermarkets, Inc. ("Big V"), a member of Wakefern, similar in sales volume to
the Company, filed for reorganization under Chapter 11 of the U.S. Bankruptcy
Code and indicated its intent to depart from Wakefern. Big V was unsuccessful in
its challenge to provisions in its agreements with Wakefern which require, among
other things, withdrawing members to make a payment to Wakefern to make up for
the resulting loss of volume to the cooperative. On 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 Big V stores
by Wakefern will have on the Company.
We also purchase products and items sold in our supermarkets from a variety
of sources other than Wakefern. Neither the Company nor, to the best of our
knowledge, Wakefern has experienced or anticipates experiencing any unique
material difficulties in procuring products and items in adequate quantities.
Competition
The supermarket business is highly competitive. The Company competes
directly with a number of national and regional chains, including A&P, Pathmark,
Wegmans, Acme, Stop & Shop and Foodtown, as well as various local chains, other
ShopRite members and numerous single-unit stores. We also compete with warehouse
club stores which charge a membership fee, are non-unionized and operate larger
units. Additional competition comes from drug stores, discount general
merchandise stores, fast food chains and convenience stores.
Many of the Company's competitors have greater financial resources and
sales. As most of our competitors offer substantially the same type of products,
competition is based primarily upon price, and particularly in the case of meat,
produce, bakery, delicatessen, and prepared foods, on quality. Competition is
also based on service, location, appearance of stores and on promotion and
advertising. The Company believes that its membership in Wakefern and the
ShopRite brand name allow it to maintain a low-price image while providing
quality products and the availability of a wide variety of merchandise including
numerous private label products under the ShopRite brand name. We also provide
clean, well maintained stores, courteous and quick service to the customer and
flexibility in tailoring the products offered in each store to the demographics
of the communities we service. The supermarket business is characterized by
narrow profit margins, and accordingly, our viability depends primarily on our
ability to maintain a relatively greater sales volume and more efficient
operations than our competitors.
Over the last two years many changes took place in our marketplace.
Pathmark, one of our principal competitors, completed a reorganization, exiting
Chapter 11 in September 2000. This restructuring of Pathmark is reported to have
eliminated almost one billion dollars of debt which was converted to common
stock. Edwards, another formidable competitor, has changed its name and format
to Stop & Shop, an affiliated company. Grand Union filed for bankruptcy under
Chapter 11 and sold almost all of its stores. Many of the Grand Union locations
in our trading area are now operating as Stop & Shop and Pathmark. The impact of
these changes has strengthened competition in our already highly competitive
marketplace.
Regulatory and Environmental Matters
Our stores and facilities, in common with those of the industry in general,
are subject to numerous existing and proposed Federal, State and local
regulations which regulate the discharge of materials into the environment or
7
otherwise protect the environment, establish occupational safety and health
standards and cover other matters, including the licensing of the Company's
pharmacies and two liquor stores. Additionally, as a company with publicly
traded securities, we are subject to the requirements of the Sarbanes-Oxley Act
of 2002 signed into law on July 30, 2002. We believe our operations are in
compliance with such existing regulations and are of the opinion that compliance
with the regulations has not had and will not have any material adverse effect
on our capital expenditures, earnings or competitive position.
Employees
As of December 31, 2002, the Company employed approximately 6,400 persons,
of whom approximately 5,850 are covered by collective bargaining agreements. 76%
of the employees are part time and almost all of these employees are covered by
the collective bargaining agreements. Although the Company has historically
maintained favorable relations with its unionized employees, it could be
affected by labor disputes. Most of our competitors are similarly unionized. The
Company is a party to seven collective bargaining agreements expiring on various
dates from April 2003 to August 2006. The bargaining agreement with the United
Food and Commercial Workers Local 1360 expired in February 2002 and has been
renegotiated. The new contract expires February 2006.
By virtue of the nature of the Company's supermarket operations,
information concerning backlog, seasonality, major customers, government
contracts, research and development activities and foreign operations and export
sales is not relevant.
Item 2. Properties
The Companys twenty-three supermarkets, all of which are leased, range in
size from 31,000 to 101,000 square feet with sales area averaging 75 percent of
the total area. All stores are air-conditioned, have modern fixtures and
equipment, have their own ample parking facilities and are located in suburban
areas.
Leases for 20 of the Company's 23 existing supermarkets expire on various
dates from 2003 through 2028. We are leasing one location, which will be
replaced, on a month to month basis. Two of our supermarkets are subleased from
Wakefern and these subleases expire in 2006 and 2008, respectively. Upon
expiration of these subleases, the underlying leases for these supermarkets will
be assigned to and assumed by us if certain conditions, which include the
absence of defaults by the Company in its obligations to Wakefern and our
lenders, and the maintenance of a specified level of net worth, are satisfied.
The terms of these leases expire in 2021 and 2018, respectively. Except for the
two subleases with Wakefern, one lease expiring in 2003 and the one month to
month lease, all leases contain renewal options ranging from 5 to 25 years.
Eight leases require, in addition to a fixed rental, a further rental payment
based on a percentage of the annual sales in excess of a stipulated minimum. The
minimum has been exceeded in one of the eight locations in the last fiscal year.
Most leases also require us to pay for insurance, common area maintenance and
real estate taxes. Five additional leases have been signed for supermarket
locations, two of which will be replacements for existing stores and three for
new locations. Additionally, two new leases have been signed for existing
locations which will be expanded and remodeled and a lease has been executed for
a new bakery commissary. The terms of the supermarket leases are substantially
similar to the terms of the leases for our existing supermarkets. The Company
has experienced delays in the opening of certain new stores because of extensive
governmental approvals required to develop new retail properties in New Jersey.
Also, we are subject to a lease covering our executive and principal
administrative offices containing approximately 18,000 square feet in Howell,
New Jersey. The Company also leases 57,000 square feet of space used for its
existing bakery operations and storage in Howell, New Jersey, and 50,000 square
feet of space used for storage in Lakewood, New Jersey. Upon the completion of
8
the new bakery facility under construction, the Company anticipates that the
existing bakery facility will be used for storage. The Company owns meat and
prepared foods processing facilities in Linden, New Jersey, which is the only
real property owned by us. In addition, we are a party to an additional three
leases for locations where we no longer conduct supermarket operations; two of
these locations have been sublet to non-affiliated persons. In most instances
these stores have been sublet at terms at least substantially equivalent to the
Company's obligations under its prime lease. See Notes 10 and 14 of Notes to
Consolidated Financial Statements.
Item 3. Legal Proceedings
On March 27, 2002, Melvin Jules Bukiet, on behalf of himself and acting as
trustee for the benefit of minors Madeline Bukiet, Miles Bukiet and Louisa
Bukiet (together, the "Plaintiffs"), commenced a shareholders derivative action
against the Company, as nominal defendant, and against all five members of the
Board of Directors, Joseph J. Saker, Richard J. Saker, Charles T. Parton, Albert
A. Zager and Robert H. Hutchins (together, the "Defendants"), in their
capacities as directors and/or officers of the Company. This lawsuit, which was
filed in the Superior Court of New Jersey, Middlesex County, Chancery Division
(the "Court"), alleges that the Defendants have 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.
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, Joseph J. Saker, 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 attorneys
fees, however, it is not possible to predict the amount of the fees that may be
awarded.
Additionally, in the ordinary course of our business, we are party to
various legal actions not covered by insurance. Although a possible range of
loss cannot be estimated, it is the opinion of management, that settlement or
resolution of these proceedings will not, in the aggregate, have a material
adverse impact on the financial condition or results of operations of the
Company.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
9
Part II
Item 5. Market for Registrants Common Stock and Related Security Holder Matters
(a) The Company's Common Stock is traded on the American Stock Exchange.
The following table sets forth the high and low sales prices for the
Common Stock as reported on the American Stock Exchange for the
fiscal years ended November 3, 2001 and November 2, 2002.
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
(b) The approximate number of record holders of the Companys Common
Stock was 320 as of January 10, 2003. In addition, the Company
believes that as of that date there were approximately 338
beneficial owners.
(c) No dividends have been declared or paid with respect to the Companys
Common Stock since October 1979. We are prohibited from paying
dividends on our Common Stock by the Third Amended and Restated
Revolving Credit and Term Loan Agreement between the Company and
four financial institutions. See Management's Discussion and
Analysis-Financial Condition and Liquidity. The Company has no
intention of paying dividends on its Common Stock in the foreseeable
future.
(d) On June 8, 2001 the Company announced the commencement of a stock
repurchase program whereby we would seek to repurchase shares of
our Common Stock having a value of up to $3 million. This program
was increased to $5.6 million in April 2002. For the year ended
November 2, 2002, the Company repurchased a total of 102,853 shares
of Common Stock. 101,553 of these shares were purchased in
privately negotiated transactions and the remaining 1,300 shares
were acquired in open market transactions. 6,377 of these shares
were owned by a member of the family of Joseph J. Saker, the
Company's Chairman, and were purchased for an average of $39.52 per
share. $4,523,670, or an average of $43.98 per share, was expended
for the purchase of the 102,853 shares. Since the announcement of
the stock repurchase program in June 2001, the Company has
repurchased 131,923 shares for $5,591,597 or an average of $42.39
per share. See Management's Discussion and Analysis-Financial
Condition and Liquidity.
Item 6. Selected Financial Data
The selected financial data set forth below is derived from the Company's
consolidated financial statements and should be read in conjunction with the
consolidated financial statements and related notes included elsewhere in this
Annual Report. See Management's Discussion and Analysis-Financial Condition and
Liquidity and Results of Operations.
10
Year Ended
November 2, November 3, October 28, October 30, October 31,
2002 (1) 2001 (2) 2000 (3) 1999 1998 (4)
(Dollars in thousands, except per share amounts)
Income statement
data:
Sales $963,611 $945,301 $866,363 $778,726 $687,974
Net income $ 3,240 $ 3,938 $ 2,382 $ 1,945 1,780
Net 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
Cash dividends
per common share - - - - -
Balance sheet data
(at year end):
Working capital
(deficit) $ (590) $ (6,907) $ (1,215) $ 2,507 (2,725)
Total assets $219,389 $194,526 $191,185 $156,186 $149,567
Long-term debt
(excluding current
portion) $100,037 $ 75,553 $ 82,241 $ 59,604 $ 50,656
Common share-
holders' equity (5) $ 36,625 $ 38,493 $ 37,422 $ 35,040 $ 33,014
Book value per
common share $ 37.13 $ 35.37 $ 33.49 $ 31.36 $ 29.55
Tangible book value
per common share $ 34.31 $ 32.49 $ 30.37 $ 27.93 $ 25.47
(1) The Company opened one replacement location in November 2001. See
Management's Discussion and Analysis - Results of Operations - Sales.
(2) 53 week period.
(3) The Company opened one new and one replacement location in February and
April 2000, respectively. See Management's Discussion and Analysis -
Results of Operations - Sales.
(4) The Company opened one replacement and one new location in February and
August 1998, respectively.
(5) The Company repurchased shares of its Common Stock in fiscal 2001 and
2002. See Item 5. - Market for Registrant's Common Stock and Related
Security Holder Matters.
11
Item 7. 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 worker's 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.
12
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.
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
Financial Credit (As defined in the
Covenant Agreement 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.
13
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)
====== ====== ======
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
14
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.
15
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.
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:
16
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.
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
17
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.
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.
18
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.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Except for indebtedness under the Credit Agreement which is variable rate
financing, the balance of our indebtedness is fixed rate financing. We believe
that our exposure to market risk relating to interest rate risk is not material.
The Company believes that its business operations are not exposed to market risk
relating to foreign currency exchange risk, commodity price risk or equity price
risk.
Item 8. Financial Statements and Supplementary Data
See Consolidated Financial Statements and Schedules included in Part IV, Item 15
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
19
Part III
Item 10. Directors and Executive Officers of the Registrant
Directors of the Company
The directors of the Company are as set forth below:
Year First
Elected a
Name and Age Principal Occupation Diector
--------------------------------------------------------------------------------
Joseph J. Saker (73) Chairman of the Board of the Company 1958
Richard J. Saker (51) President and Secretary of the Company 1987
Charles T. Parton (61) Chairman of the Board - Two River 1995
Community Bank, a commercial bank
Albert A. Zager (54) Member - Carton, Arvanitis, McGreevy, 1995
Argeris, Zager & Aikins, L.L.C.,
Attorneys at Law
Robert H. Hutchins (51) President and Managing Director - 2001
Hutchins, Farrell, Meyer & Allison,
P.A., Certified Public Accountants
Mr. Joseph J. Saker has served as President of the Company since its
incorporation in 1958 until October 3, 2000 and as Chairman since 1971. In
addition to his responsibilities with the Company, he is active in other
community affairs.
Mr. Richard J. Saker, a graduate of St. Joseph's University, has been
employed by the Company since 1969 and served as Senior Vice
President-Operations from 1984 until 1995, at which time he assumed the position
of Executive Vice President-Operations. On October 3, 2000, he was elected
President of the Company. He is a member of the Board of Directors of Wakefern
Food Corporation and a member of its Finance Committee. Richard J. Saker is the
son of Joseph J. Saker.
Mr. Parton is Chairman of the Board of Two River Community Bank (the
"Bank") and has served in that position since May 1, 2000. Prior to assuming
that position, he served as President and Chief Executive Officer of the Bank
from February 1, 2000 to April 30, 2000. In addition, on March 1, 1999, Mr.
Parton began serving and continues to serve as a managing member of TRB, LLC, a
financial holding company formed in connection with the incorporation of the
Bank. He formerly served as the President of Concord Science and Technology Co.,
Inc. from May 1997 until February 1999. He has been a financial executive,
consultant and Certified Financial Planner for the last nine years and is
Executive Vice President and Treasurer of The Parton Corporation. He is also a
Director of Kuehne Chemical Co., Inc. (chlorine and caustic soda products).
Mr. Zager has been a member of Carton, Arvanitis, McGreevy, Argeris, Zager
& Aikins, L.L.C. Attorneys at Law and its predecessors since 1977. He is the
Chairman of its Executive and Management Committees. He is President of the
Board of Directors of the Center for Holocaust Studies of Brookdale Community
College, a founding member of the Board of Directors of the Eastern Monmouth
Area Chamber of Commerce Educational Foundation, Inc., and outside General
Counsel for Meridian Health System, Inc.
Mr. Hutchins, CPA, has been the President and Managing Director of
Hutchins, Farrell, Meyer & Allison, P.A., a certified public accounting firm,
since he founded the firm in 1984. In addition, Mr. Hutchins has been active in
community affairs. He is a founder and Chairman of the Board of Trustees of
Ocean Housing Alliance, Inc., and has served as an elected Board Member of the
Toms River Regional School District and as an appointed member of the Ocean
County Mental Health Advisory Board. He is past Chairman of the American Cancer
Society-Ocean Unit, Co-chairperson of the American Cancer Society Eastern Region
20
Excalibur and a member of the National American Cancer Society Excalibur
Advisory Committee.
Executive Officers of the Company
The executive officers of the Company are as set forth below:
Name Age Capacities in Which Served
--------------------------------------------------------------------------------
Joseph J. Saker (1) 73 Chairman of the Board
Richard J. Saker (1) 51 President and Secretary
Michael Shapiro (2) 60 Senior Vice President, Chief Financial
Officer and Treasurer
Emory A. Altobelli (3) 62 Senior Vice President - Corporate
Subsidiaries and Services
Carl L. Montanaro (4) 61 Senior Vice President - Sales and
Merchandising
Robert V. Spires (5) 49 Senior Vice President - Human Resources and
Labor Relations
Joseph J. Saker, Jr. (6) 42 Senior Vice President - Marketing and
Advertising
Joseph C. Troilo (7) 68 Senior Vice President - Financial
Administration, Assistant Secretary and
Assistant Treasurer
(1) See "Directors of the Company" above.
(2) Mr. Shapiro joined the Company on August 15, 1994 as Senior Vice
President, Chief Financial Officer and Treasurer.
(3) Mr. Altobelli has served as Senior Vice President, Corporate Subsidiaries
and Services, since June 21, 1995. Prior to that date he served as Senior
Vice President, Administration, commencing in June 1990.
(4) Mr. Montanaro has served as Senior Vice President, Sales and
Merchandising, since June 21, 1995. From March 1988 to June 1995 he served
as Vice President of Sales and Merchandising.
(5) Mr. Spires has served as Senior Vice President, Human Resources and Labor
Relations, since June 21, 1995. From August 1991 to June 1995, he served
as Vice President of Human Resources and Labor Relations.
(6) Mr. Joseph J. Saker, Jr. has served as Senior Vice President, Marketing
and Advertising since March 1, 2002. From October 2001 to February 28,
2002 he served as a Vice President of Operations. From May 1990 to
September 2001, he served as a Director of Operations. Joseph J. Saker,
Jr. is the son of Joseph J. Saker.
(7) Mr. Troilo has served as Senior Vice President, Financial Administration,
since August 1994. From 1974 to August 1994, he served as Senior Vice
President, Finance.
21
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the Company's executive officers
and directors, and persons who own more than ten percent of a registered class
of the Company's equity securities, to file reports of ownership and changes of
ownership on Forms 3, 4 and 5 with the Securities and Exchange Commission
("SEC"). Executive officers, directors and greater than ten percent shareholders
are required by SEC regulation to furnish the Company with copies of all Forms
3, 4 and 5 they file.
Based solely on the Company's review of the copies of such forms it has
received, the Company believes that, during the fiscal year ended November 2,
2002, all of its executive officers, directors and greater than ten percent
beneficial owners complied with all filing requirements applicable to them with
respect to reports required to be filed by Section 16(a) of the Exchange Act.
Item 11. Executive Compensation
The aggregate compensation paid or accrued by the Company during the last
three fiscal years ended October 28, 2000, November 3, 2001 and November 2, 2002
to the Chief Executive Officer of the Company and to the four most highly
compensated executive officers (other than the Chief Executive Officer) whose
compensation in salary and bonus exceeded $100,000 in the last fiscal year (the
"Named Officers") is set forth in the following table:
Summary Compensation Table
Annual Compensation All Other Compensation
------------------- --------------------------
Shares
Underlying
Options/
Name and Principal Position Year Salary Bonus (1) SERP(2) 401(k)(3) SARS
--------------------------- ---- ------ -------- ------ --------- -----
Joseph J. Saker 2002 $413,200 $74,732 $150,100 $3,400
Chairman and 2001 395,553 122,176 128,500 3,400 50,000(4)
Chief Executive Officer 2000 361,201 69,893 134,400 3,400
Richard J. Saker 2002 $504,250 $90,611 $523,000 $3,400
President, Chief Operating 2001 437,118 132,188 345,000 3,400 50,000(4)
Officer and Secretary 2000 374,475 76,742 298,000 3,400
Michael Shapiro 2002 $203,857 $28,164 $102,400 $6,150
Senior Vice President, Chief 2001 189,351 39,430 88,400 5,421 1,000(4)
Financial Officer and 2000 185,827 25,934 91,700 6,023
Treasurer
Carl L. Montanaro 2002 $173,758 $22,692 $ 60,200 $6,006
Senior Vice President, 2001 169,367 31,769 53,200 5,321 1,000(4)
Sales and Merchandising 2000 153,106 20,896 27,400 5,608
Joseph J. Saker, Jr. 2002 $161,561 $21,920 - $5,856
Senior Vice President, 2001 146,555 23,700 - 5,180
Marketing and Advertising 2000 121,713 12,178 - 4,260
(1) Incentive compensation paid or accrued pursuant to the Company's Incentive
Compensation Plans (the "Incentive Plans"). The Incentive Plans were
adopted by the Company's Board of Directors ("Board of Directors" or
"Board") for each of the fiscal years presented in the table to attract,
retain and motivate non-union salaried employees by providing incentive
compensation awards in cash. The Board administers the Incentive Plans,
which includes designating non-union salaried employees eligible to
22
participate in the Incentive Plans and awarding incentive compensation to
the eligible employees, subject to the Company achieving certain specified
levels of pre-tax profit. In administering the Incentive Plans, the Board
took into account the recommendations of the Company's executive officers,
except that determinations made with respect to the Company's Chief
Executive Officer and Chief Operating Officer were made solely by the
Company's independent directors.
(2) These amounts represent the projected annual benefit at retirement as of
the end of each fiscal year for the applicable named executive officer
under the Company's Supplemental Executive Retirement Plan (the "SERP"),
which was approved by the Board on January 17, 1989. Amounts payable at
retirement under the SERP range from 40% to 50% of the employee's highest
average compensation over a five-year period less primary Social Security,
pension plan benefits and 401(k) benefits and are payable until death, but
for a minimum of 120 months.This Plan covers seven executive officers and
other key employees and is intended to supplement the Company's retirement
benefits. Such amounts are not payable until the earlier of the death,
disability or retirement of the covered employee. The Company anticipates
paying for benefits as they become due out ofcurrent operating income.
The SERP provides for a pre-retirement death benefit of one-half the
amount payable upon retirement, actuarially computed, payable to the
employee's beneficiary over 120 months. If the employee dies after
retirement, such employee's beneficiary will receive the same benefit the
employee would have received if the employee had lived for 120 months.
During fiscal 2002, the Company recorded $475,000 of deferred compensation
expense with respect to the SERP.
(3) Represents amounts contributed by the Company under its 401(k) Plan (the
"401(k) Plan"). The Company maintains a 401(k) Plan for all qualified
non-union employees. Employees are eligible to participate in the 401(k)
Plan after completing one year of service (1,000 hours) and attaining age
21. Employee contributions are discretionary to a maximum of 30% of
compensation but may not exceed $11,000 per year. The Company has elected
to match 25% of the employee's contributions up to 6% of employee
eligible compensation not exceeding $200,000. The Company may make
additional discretionary contributions. These discretionary contributions
amounted to 2% of eligible compensation for the three calendar years
ending December 31, 2002.
(4) Represents options to purchase shares of the Company's Common Stock,
granted pursuant to the Company's 2001 Stock Incentive Plan, described
more particularly in Notes (1) and (2) in the table below captioned
"Aggregated Option Exercises in the Fiscal Year Ended November 2, 2002 and
Year-End Option Values." See Item 3. "Legal Proceedings."
23
Option Grants and Exercises During Fiscal Year Ended November 2, 2002.
No options were granted in the Fiscal Year Ended November 2, 2002.
Aggregated Option Exercises in the Fiscal Year Ended November 2, 2002 and
Year-End Option Values:
Total Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at November 2, 2002 at November 2, 2002(1)
--------------------------------------------------------------------------------
Shares
Acquired
on Value Unexer-
Name (2) Exercise Realized Exercisable Unexercisable Exercisable cisable
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Joseph J.
Saker - - 10,000 40,000 $74,000 $296,000
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Richard J.
Saker - - 10,000 40,000 $74,000 $296,000
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Michael
Shapiro 500 $6,575 - 500 - $3,700
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Carl L.
Montanaro 250 $5,213 250 500 $1,850 $3,700
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Joseph J.
Saker, Jr. - - - - - -
--------------------------------------------------------------------------------
(1) This represents the difference between the closing price of the Company's
Common stock on November 1, 2002, the last trading day in Fiscal 2002
($27.00), and the exercise price of the options.
(2) All stock options were granted on August 8, 2001 (the"Grant Date") in
accordance with the Company's 2001 Stock Incentive Plan ("2001 Plan").
The stock options granted to Messrs. Joseph J. Saker and Richard J. Saker
are assignable to any of their respective children or grandchildren who
are employed by the Company at the store manager or higher level. The
options granted to Messrs. Joseph J. Saker and Richard J. Saker, which
include 10,000 shares subject to currently exercisable options, vest
quarterly from the Grant Date over a five year period. All other stock
options granted vest, per individual, 250 shares on the Grant Date and
250 shares on each anniversary of the Grant Date thereafter for the next
three years. See Item 3. "Legal Proceedings."
Pension Plan
The Company maintains a defined benefit pension plan for eligible
employees. Full vesting occurs after five years of service. Benefits upon
retirement prior to age 65 are reduced actuarially. Benefits under the plan are
determined by a formula equal to .6% times the highest five consecutive year
average of a participant's compensation from the commencement of employment
through September 30, 1997, times the total years of service at September 30,
1997. The plan also provides for lump sum payments, which are payable under
certain circumstances. The table set forth below specifies the estimated annual
benefits payable upon normal retirement at age 65. Pursuant to a resolution
adopted by the Board on September 24, 1997, years of service and benefit
accruals for participants in the plan were frozen effective September 30, 1997.
In lieu of contributions to the defined benefit pension plan for the three
calendar years ended December 31, 2002, the Board has approved contributions to
the 401(k) Plan in an amount equal to the sum of (a) two percent (2%) of the
eligible compensation of 401(k) Plan participants; and (b) $.25 for every $1.00
24
contributed to the 401(k) Plan by the participants for up to 6% of the
participant's eligible compensation. The Company did not make any contributions
to the 401(k) Plan prior to freezing benefit accruals under the defined benefit
pension plan.
Years of Service at September 30, 1997
Remuneration 15 20 25 30 35
------------ -- -- -- -- --
$ 100,000 $ 7,500 $10,000 $12,500 $15,000 $17,500
125,000 9,375 12,500 15,625 18,750 21,875
150,000 11,250 15,000 18,750 22,500 26,250
175,000 13,125 17,500 21,875 26,250 30,625
200,000 15,000 20,000 25,000 30,000 35,000
225,000 16,875 22,500 28,125 33,750 39,375
250,000 18,750 25,000 31,250 37,500 43,750
275,000 20,625 27,500 34,375 41,250 48,125
300,000 22,500 30,000 37,500 45,000 52,500
For purposes of vesting benefits under the Pension Plan, the Company has
credited Richard J. Saker with 23 years of service; Michael Shapiro with 3 years
of service; Joseph J. Saker, Jr. with 21 years of service; and Carl L. Montanaro
with 35 years of service. The highest five consecutive year average, or
pro-rated portion thereof, of compensation through September 30, 1997 for each
of the Company's Named Officers, after giving effect to applicable limitations
under the Internal Revenue Code of 1986, as amended, is as follows: Richard J.
Saker - $150,000; Michael Shapiro - $150,000, Carl Montanaro - $119,000, and
Joseph J. Saker, Jr. - $99,000.
Mr. Joseph J. Saker received a lump sum distribution of $403,878 in January
1995, representing the amount of his vested interest in the Pension Plan.
Directors' Compensation
All non-employee directors receive, in addition to reimbursement for their
reasonable expenses associated with attendance at meetings of the Board, an
annual retainer fee of $15,000 payable quarterly in advance (prior to June of
2002 the annual retainer fee was $12,000), and a participation fee of $1,000 for
each meeting of the Board attended. All non-employee members of the Audit
Committee receive, in addition to reimbursement for their reasonable expenses
associated with attendance at Audit Committee meetings, a fee of $1,000 for each
Audit Committee meeting attended if held on a day other than a day on which a
Board meeting is held, and a fee of $500 for each Audit Committee meeting
attended if held on the same day as a meeting of the Board. All non-employee
members of the Stock Option Committee receive, in addition to reimbursement for
their reasonable expenses associated with attendance at Stock Option Committee
meetings, a fee of $500 for each Stock Option Committee meeting attended if held
on a day other than a day on which a Board meeting is held.
The Company paid a total of $68,250 during the fiscal year ended November 2,
2002 to directors who are not employees of the Company.
25
Compensation Committee Interlocks and Insider Participation in Compensation
Decisions
For the fiscal year ended November 2, 2002, the full Board of Directors
performed the functions of a board compensation committee. Executive officers
who served on the Board were Mr. Joseph J. Saker, Chairman of the Board and
Chief Executive Officer, and Mr. Richard J. Saker, President, Chief Operating
Officer, and Secretary. The Board acted on matters of compensation for the Chief
Executive Officer and the Chief Operating Officer, with each of such officers
abstaining from any compensation decisions relating specifically to them.
Compensation Report of the Board of Directors
The Company's independent directors are responsible for determining the
compensation of the Company's Chief Executive Officer and its Chief Operating
Officer. These two officers do not limit their functions to the distinct
parameters typically associated with their respective titles. Instead, they
actively share the responsibilities attendant to both of these offices in their
management of the business. Accordingly, a comparative assessment of the
compensation paid for their respective positions is impracticable, because a
comparison of compensation based on mutually-exclusive job titles would not
yield results commensurate with the combined contributions of these officers.
In order to arrive at an appropriate level of compensation for the
Company's Chief Executive Officer and Chief Operating Officer for the fiscal
year ended November 2, 2002, the independent directors considered a variety of
factors presented in this report. The Company's independent directors not only
reviewed market compensation levels for chief executive officers and chief
operating officers of similarly-sized grocery retailing organizations throughout
the country, but they also considered a "management service fee" approach to
this determination. The management service fee concept uses competitive data to
evaluate appropriate relative compensation levels between a corporation's chief
executive officer and chief operating officer in circumstances where the duties
of these offices overlap. This concept more accurately recognizes the value to
the Company of the shared efforts of its senior management and the importance of
such efforts in achieving seamless management succession.
The Company's financial performance and other achievements during the
fiscal year ended November 3, 2001 were considered by the Company's independent
directors in determining compensation levels for the Company's Chief Executive
Officer and Chief Operating Officer for fiscal 2002. Sales, income from
operations, EBITDA and net income increased substantially in fiscal 2001 despite
difficult market conditions. In addition, Foodarama stock proved to be one of
the top performing securities listed on the American Stock Exchange in 2001.
In addition, during the fiscal year ended November 2, 2002, the Company's
Chief Operating Officer assumed the duties and responsibilities associated with
representing the Company with Wakefern, including serving as a member of the
Wakefern Board of Directors. These responsibilities had previously been
undertaken by the Company's Chief Executive Officer. The independent directors
took this shift of responsibility into consideration when making compensation
decisions. In addition, the independent directors considered the fact that both
the Chief Executive Officer and Chief Operating Officer of the Company have
personally guaranteed significant amounts of indebtedness owed by the Company to
Wakefern.
After careful consideration of the various factors, including, among
others, the facts referenced above, the independent directors determined that
the base salaries for both the Chief Executive Officer and Chief Operating
Officer should be increased for the fiscal year ended November 2, 2002. See
"Executive Compensation - Summary Compensation Table."
The Company's Chief Executive Officer and Chief Operating Officer make
determinations with respect to cash compensation paid to other executive
officers of the Company. In addition to considering market comparisons, salaries
paid to executive officers are based on the executive's level of responsibility,
experience in his role, and overall performance and the condition of the Company
and the economy at large.
26
The Company's Board is responsible for administration of the Company's 2002
Incentive Compensation Plan. Pursuant to the 2002 Incentive Compensation Plan,
the Company has undertaken to pay incentive compensation to designated employees
if it achieved certain adjusted pre-tax profit levels. The terms of the
Company's 2002 Incentive Compensation Plan are generally consistent with the
terms of incentive compensation plans adopted and approved by the Company for
prior fiscal years. Pursuant to the Company's 2002 Incentive Compensation Plan,
the Board awarded cash incentive compensation to certain non-union salaried
employees of the Company, including Mr. Joseph J. Saker and Mr. Richard J.
Saker. See "Executive Compensation - Summary Compensation Table."
The Stock Option Committee of the Board of Directors, which consists of its
outside directors, administers the Company's 2001 Plan. The 2001 Plan enables
the Company to grant stock-based and other forms of incentives, including stock
options, stock appreciation rights, phantom stock, and restricted stock, among
others. The Stock Option Committee may select from among these types of awards,
and may combine different types of awards within individual grants, to establish
individual grants affording long-term incentives, for the purpose of better
aligning the interests of the Company's management with those of its
shareholders. The Stock Option Committee did not grant any awards to the
Company's key executives and directors during the fiscal year ended November 2,
2002.
Section 162(m) of the Internal Revenue Code places a limit of $1,000,000
(per person) on the amount of compensation that may be deducted by a public
company in any year for compensation paid to each of a corporation's Named
Officers. Qualifying performance based compensation is not subject to the
deduction limit if certain requirements are satisfied. The grant of options to
the Named Officers in 2001, under the 2001 Plan, does not qualify as performance
based compensation. The exercise of these options could result in deductible
compensation in excess of the limit imposed by Section 162(m). The Board of
Directors may award compensation that may be non-deductible under Section 162(m)
when, in the exercise of its business judgment, such award would be in the best
interests of the Company. The Section 162(m) limitation has not yet had any
effect upon the Company and its ability to deduct, for tax purposes,
compensation paid to its Named Officers.
The Company's independent directors believe that the best interests of the
Company and its shareholders are served by the Company's current compensation
programs. The Board members will continue to review the Company's compensation
plans periodically to determine what changes, if any, should be implemented to
their structure, taking into account the Company's financial condition and
performance.
Submitted by: Charles T. Parton
Albert A. Zager
Robert H. Hutchins
Performance Analysis
Set forth below is a line graph comparing the cumulative total return of
the Company, the AMEX Wholesale & Retail Trade Index, the Standard & Poor's 500
Composite Stock Price Index and the AMEX Composite Index for the five years
commencing November 1, 1997 and ended November 2, 2002.
27
FOODARAMA SUPERMARKETS, INC.
PRICE PERFORMANCE GRAPH
[THE FOLLOWING TABLES ARE REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL]
AMEX COMPOSITE
1997 1998 1999 2000 2001 2002
--- --- --- --- --- ---
675.75 645.41 800.80 909.30 824.20 828.99
1.00 0.96 1.19 1.35 1.22 1.23
100.00 95.51 118.51 134.56 121.97 122.68
INDUSTRY (AMEX)
1997 1998 1999 2000 2001 2002
--- --- --- --- --- ---
245.86 233.07 247.94 165.20 127.19 132.11
1.00 0.95 1.01 0.67 0.52 0.54
100.00 94.80 100.85 67.19 51.73 53.73
FSM
1997 1998 1999 2000 2001 2002
--- --- --- --- --- ---
18.50 32.00 28.63 18.38 40.75 27.00
1.00 1.73 1.55 0.99 2.20 1.46
100.00 172.97 154.73 99.32 220.27 145.95
S&P 500
1997 1998 1999 2000 2001 2002
--- --- --- --- --- ---
914.62 1098.67 1362.93 1429.40 1059.78 900.96
1.00 1.20 1.49 1.56 1.16 0.99
100.00 120.12 149.02 156.28 115.87 98.51
28
Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
Principal Shareholders
The following table shows, as of December 31, 2002, the persons known to
the Company who owned directly or beneficially more than 5% of the outstanding
Common Stock of the Company:
Amount
Beneficially Percent of
Name of Beneficial Owner Owned Class
------------------------ ----- -----
Joseph J. Saker (1)(2)(3)(7) 184,576 18.4
Saker Family Corporation (1) (4) 85,000 8.6
Estate of Mary Saker (1)(3) 55,798 5.7
Richard J. Saker (1)(4)(5)(7) 194,303 19.4
Joseph J. Saker, Jr. (1)(4)(6) 107,695 10.9
Thomas A. Saker (1)(4) 114,641 11.6
Dimensional Fund Advisors, Inc.(8) 81,400 8.2
Arthur N. Abbey (9) 116,400 11.8
Trellus Management Company, LLC (10) 51,300 5.2
(1) The address of the foregoing person is c/o Foodarama Supermarkets, Inc.,
922 Highway 33, Building 6, Suite 1, Freehold, New Jersey 07728.
(2) Includes 13,378 shares held by Joseph J. Saker's wife and 31,399 shares
willed to him by Mary Saker.
(3) Mary Saker, deceased, was the mother of Joseph J. Saker. 31,399 of her
shares have been willed to Joseph J. Saker.
(4) Includes 85,000 shares held by the Joseph Saker Family Partnership, L.P.,
a Delaware limited partnership (the "Partnership"). The Saker Family
Corporation is the sole general partner (the "General Partner") of the
Partnership. Richard J. Saker owns 40% of the outstanding capital stock of
the General Partner, and each of Joseph J. Saker, Jr. and Thomas A. Saker
owns 30% of the outstanding capital stock of the General Partner. The
General Partner owns a 1% interest in the Partnership and has the sole
power to sell, transfer or otherwise dispose of the shares of Foodarama
Common Stock only upon the unanimous consent of all shareholders of the
General Partner. On other matters not involving the sale, transfer or
other disposition of such shares, the shares of Foodarama Common Stock
held by the Partnership are voted as directed by the individual
shareholders of the General Partner in accordance with their respective
ownership interests in the General Partner. Accordingly, the General
Partner votes 34,000 shares as directed by Richard J. Saker, 25,500 shares
as directed by Joseph J. Saker, Jr. and 25,500 shares as directed by
Thomas A. Saker on such other matters.
In addition to their ownership interests in the General Partner, Richard
J. Saker, Joseph J. Saker, Jr. and Thomas A. Saker are the beneficiaries
of the trust which owns a 99% interest in the Partnership (the "Limited
Partner"). Thus, each of Richard J. Saker, Joseph J. Saker, Jr. and Thomas
A. Saker also has an indirect interest in the Company's Common Stock held
29
by the Partnership by reason of their respective beneficial interests in
the Limited Partner. Their beneficial interests in the Limited Partner are
in identical proportion to their ownership interests in the General
Partner. Richard J. Saker, Joseph J. Saker, Jr. and Thomas A. Saker each
disclaim beneficial ownership of shares held by the Partnership in excess
of their pecuniary interests.
(5) Includes 1,760 shares held by Richard J. Saker's wife and 1,377 shares
which are held in a trust for Mr. Saker's son, of which Mr. Saker is
trustee. Mr. Saker disclaims beneficial ownership of the shares
described in the preceding sentence.
(6) Includes 2,754 shares which are held in two trusts for the benefit of Mr.
Saker's sons, of which trusts Mr. Saker is the trustee. Mr. Saker
disclaims beneficial ownership of the shares described in the preceding
sentence.
(7) Includes 15,000 shares subject to currently exercisable options or
options exercisable within sixty days of December 31, 2002
granted pursuant to the 2001 Plan. See Item 3. "Legal Proceedings"
(8) The address of Dimensional Fund Advisors, Inc. ("Dimensional") is 1299
Ocean Avenue, 11th Floor, Santa Monica, California 90401. Dimensional, an
investment advisor registered under Section 203 of the Investment Advisors
Act of 1940, furnishes investment advice to four investment companies
registered under the Investment Company Act of 1940, and serves as
investment manager for certain other investment vehicles, including
commingled group trusts. These investment companies and investment
vehicles are referred to collectively herein as the "Portfolios." In its
role as investment advisor and investment manager, Dimensional possesses
both voting and investment power over 81,400 shares of the Company's
Common Stock based upon a copy of Schedule 13G dated January 30, 2002. The
Portfolios own all securities reported in the table, and Dimensional
disclaims beneficial ownership of such securities.
(9) The address of Arthur N. Abbey is 212 East 39th Street, New York, New
York 10016. Based upon a copy of Schedule 13D dated October 9, 2002
Mr. Abbey has sole voting power with respect to the shares.
(10) The address of Trellus Management Company, LLC ("Trellus") is 350 Madison
Avenue, Ninth Floor, New York, New York 10017. Trellus is a Delaware
limited liability company and is a Delaware registered investment advisor
to domestic and offshore hedge funds. Adam Usdan is President of Trellus.
Based upon a copy of a Schedule 13G dated August 12, 2002, Adam Usdan and
Trellus have shared voting power with respect to these shares.
Securities Owned By Management
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of December 31, 2002 by each director
and nominee for director of the Company, the executive officers of the Company
on such date and the executive officers, nominees for director and directors as
a Group. Except as set forth in the footnotes to this table, the shareholders
have sole voting and investment power over such shares.
30
Amount Beneficially Percent of
Name of Beneficial Owner Owned Class
------------------------ ------------------- ----------
Joseph J. Saker (1)(2)(3) 184,576 18.4
Richard J. Saker (1)(2)(4)(5) 194,303 19.4
Joseph J. Saker, Jr. (1)(4)(6) 107,695 10.9
Albert A. Zager (1)(7) 2,000 *
Charles T. Parton (1)(7) 2,900 *
Robert H. Hutchins (1) 500 *
Michael Shapiro (1) (9) 500 *
Emory A. Altobelli (1)(7) 525 *
Carl L. Montanaro (1)(8) 515 *
Robert V. Spires (1)(7) 500 *
Joseph C. Troilo (1)(8) 250 *
Directors, Nominees for Director and 409,264 40.1
Executive Officers as a Group (11 persons)
(2)(3)(4)(5)(6)(7)(8)(9)(10)(11)
(*) Less than one percent.
(1) The address of the foregoing person is c/o Foodarama Supermarkets, Inc.,
922 Highway 33, Building 6, Suite 1, Freehold, New Jersey 07728.
(2) Includes 15,000 shares subject to currently exercisable options or options
exercisable within 60 days of December 31, 2002 granted pursuant to the
2001 Plan.
(3) Includes 13,378 shares held by Joseph J. Saker's wife and 31,399 shares
willed to him by Mary Saker.
(4) Includes 85,000 shares held by the Joseph Saker Family Partnership, L.P.,
a Delaware limited partnership (the "Partnership"). The Saker Family
Corporation is the sole general partner (the "General Partner") of the
Partnership. Richard J. Saker owns 40% of the outstanding capital stock of
the General Partner, and each of Joseph J. Saker, Jr. and Thomas A. Saker
owns 30% of the outstanding capital stock of the General Partner. The
General Partner owns a 1% interest in the Partnership and has the sole
power to sell, transfer or otherwise dispose of the shares of Foodarama
Common Stock only upon the unanimous consent of all shareholders of the
General Partner. On other matters not involving the sale, transfer or
other disposition of such shares, the shares of Foodarama Common Stock
held by the Partnership are voted as directed by the individual
shareholders of the General Partner in accordance with their respective
ownership interests in the General Partner. Accordingly, the General
Partner votes 34,000 shares as directed by Richard J. Saker, 25,500 shares
as directed by Joseph J. Saker, Jr. and 25,500 shares as directed by
Thomas A. Saker on such other matters.
In addition to their ownership interests in the General Partner, Richard
J. Saker, Joseph J. Saker, Jr. and Thomas A. Saker are the beneficiaries
of the trust which owns a 99% interest in the Partnership (the "Limited
Partner"). Thus, each of Richard J. Saker, Joseph J. Saker, Jr. and Thomas
A. Saker also has an indirect interest in the Company's Common Stock held
by the Partnership by reason of their respective beneficial interests in
the Limited Partner. Their beneficial interests in the Limited Partner are
in identical proportion to their ownership interests in the General
Partner. Richard J. Saker, Joseph J. Saker, Jr. and Thomas A. Saker each
disclaim beneficial ownership of shares held by the Partnership in excess
of their pecuniary interests.
31
(5) Includes 1,760 shares held by Richard J. Saker's wife and 1,377 shares
which are held in a trust for the benefit of Mr. Saker's son, of which
Mr. Saker is the trustee. Mr. Saker disclaims beneficial ownership of
the shares described in the preceding sentence.
(6) Includes 2,754 shares which are held in two trusts for the benefit of Mr.
Saker's sons, of which trusts Mr. Saker is the trustee. Mr. Saker
disclaims beneficial ownership of the shares described in the preceding
sentence.
(7) Includes 500 shares subject to currently exercisable options granted
pursuant to the 2001 Plan.
(8) Includes 250 shares subject to currently exercisable options granted
pursuant to the 2001 plan.
(9) Owned jointly with Mr. Shapiro's wife.
(10) Of the 409,264 shares, directors of the Company own or have rights to
acquire 384,279 shares.
(11) Includes 85,000 shares held by the Joseph Saker Family Partnership, L.P.,
the total number of which shares is also included both in the total number
of shares attributed to ownership by Richard J. Saker, and the total
number of shares attributed to ownership by Joseph J. Saker, Jr.
The Company's Third Amended and Restated Revolving Credit and Term Loan
Agreement provides that an event of default shall occur if Messrs. Joseph J.
Saker and Richard J. Saker together, do not own, beneficially, all voting rights
with respect to at least 27% of all of the issued and outstanding Common Stock
of the Company.
Securities Authorized for Issuance under Equity Compensation Plans
The number of stock options outstanding under our equity compensation
plans, the weighted average exercise price of outstanding options, and the
number of securities remaining available for issuance, as of November 2, 2002,
were as follows:
-------------------------------------------------------------------------------
Number of
securities
remaining
Number of available for
securities to be future issuance
issued upon Weighted-average under equity
exercise of exercise price of compensation
outstanding outstanding plans (excluding
options, warrants options, warrants securities
and rights and rights reflected in
Plan Category (a) (b) column (a))
(c)
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Equity compensation
plans approved by
security holders
113,300 $19.78 92,700
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Equity compensation
plans not approved
by securityholders
None None None
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Total 113,300 $19.78 92,700
-------------------------------------------------------------------------------
The Company has one equity incentive plan, the 2001 Plan. The 2001 Plan
provides for the issuance of incentive awards to officers, directors, employees
and consultants in the form of stock options, stock appreciation rights and
restricted stock.
32
Item 13. Certain Relationships and Related Transactions
(a)Transactions with Management and Certain Business Relationships
As required by the By-Laws of Wakefern Food Corporation ("Wakefern"), a
retailer-owned food distribution corporation which provides purchasing,
warehousing and distribution services to the Company as well as other retail
supermarket chains, the obligations owed by the Company to Wakefern are
personally guaranteed by Joseph J. Saker, Richard J. Saker and Thomas A. Saker.
As of November 2, 2002 the Company was indebted to Wakefern in the amount of
approximately $31,935,000 for current charges in the ordinary course of
business. Wakefern presently requires each of its shareholders to invest up to
$550,000 in Wakefern's non-voting capital stock for each store operated by it,
computed in accordance with a formula based on the volume of such store's
purchases from Wakefern. As of November 2, 2002, the Company had a 15.6%
investment in Wakefern of $11,805,000. As a shareholder member of Wakefern, the
Company earns a share of any annual Wakefern patronage dividend. The dividend is
based on the distribution of operating profits on a pro rata basis in proportion
to the dollar volume of business transacted by each member with Wakefern during
each fiscal year. As of November 2, 2002, the Company was indebted in connection
with an investment in Wakefern. The debt of $1,315,000 was non-interest bearing
and payable in scheduled installments over a period of up to six years.
The Company also has an investment in Insure-Rite, Ltd., another company
affiliated with Wakefern, of $953,000 as of November 2, 2002. Insure-Rite, Ltd.
provides the Company with a portion of its liability insurance coverage with the
balance paid through Wakefern to a private carrier. The Company paid $4,364,000
for such insurance coverage in fiscal 2002 and believes that such amount is
comparable to the amount that would be charged by a similarly situated
unaffiliated general liability and property insurer.
The Company leases from Joseph J. Saker, the Chairman of the Company, and
his wife, doing business as Saker Enterprises, a 57,000 square foot supermarket
in Freehold, New Jersey, under a lease which expires on December 31, 2018, and
provides for four five year extension options. The Company also leases from
Saker Enterprises a 5,200 square foot garden center building and 5,000 square
feet of yard area under a lease expiring December 31, 2003 and 9,000 square feet
of space for its liquor store under a lease expiring December 31, 2003, both of
which are located in the same shopping center as the supermarket. During the
fiscal year ended November 2, 2002, an aggregate amount for rent (including
taxes and insurance) of $891,000 was paid by the Company to Saker Enterprises
for the supermarket, garden center and liquor store.
The Company subleases from Wakefern a supermarket in East Windsor, New
Jersey under a sublease expiring in 2008. The Company also subleases from
Wakefern a supermarket in Marlboro, New Jersey under a sublease expiring in
2006. During the fiscal year ended November 2, 2002, aggregate amounts for rent
of $1,090,000 and $837,000 were paid by the Company to Wakefern for the East
Windsor supermarket and the Marlboro supermarket, respectively. Upon expiration
of these subleases, the underlying leases will be assigned to and assumed by the
Company provided that certain conditions, which include the absence of defaults
by the Company in its obligations to Wakefern and the Company's lenders, and the
maintenance of a specified level of net worth, are satisfied. The term of the
leases for the East Windsor and Marlboro supermarkets expire in 2018 and 2021,
respectively.
During the fiscal year ended November 2, 2002, in connection with the stock
repurchase program announced by the Company on June 8, 2001, the Company
repurchased a total of 102,853 shares of which 101,553 shares were repurchased
in privately negotiated 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 price per share of $39.52.
The Company believes that the terms of the foregoing transactions are
comparable to those available from non-affiliated persons under similar
circumstances.
33
(b) Indebtedness of Management
None.
Part IV
Item 14. Controls and Procedures
As required by Rule 13a-15 under the Exchange Act within ninety (90) days
prior to the filing date of this report, the Company carried out an evaluation
of the effectiveness of the design and operation of the Company's disclosure
controls and procedures. This evaluation was carried out under the supervision
and with the participation of the Company's management, including the Company's
Chairman and Chief Executive Officer along with the Company's Chief Financial
Officer, who concluded that the Company's disclosure controls and procedures are
effective. The Company's Internal Auditor and Principal Accounting Officer also
participated in this evaluation. There have been no significant changes in the
Company's internal controls or in other factors which could significantly affect
internal controls subsequent to the date the Company carried out its evaluation.
Disclosure controls and procedures are controls and other procedures that
are designed to ensure that information required to be disclosed in the Company
reports filed or submitted under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the Securities and
Exchange Commission's rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that
information required to be disclosed in Company reports filed under the Exchange
Act is accumulated and communicated to management, including the Company's Chief
Executive Officer and Chief Financial Officer as appropriate, to allow timely
decisions regarding required disclosure.
34
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
a.1. Audited financial statements and Page No.
supplementary data
Independent Auditors' Report F-1
Foodarama Supermarkets, Inc. and
Subsidiaries Consolidated Financial
Statements:
Balance Sheets as of November 2, 2002 F-2 to F-3
and November 3, 2001.
Statements of Operations for each of the
fiscal years ended November 2, 2002,
November 3, 2001 and October 28, 2000. F-4
Statements of Shareholders' Equity
for each of the fiscal years ended
November 2, 2002, November 3, 2001
and October 28, 2000. F-5
Statements of Cash Flows for each of the
fiscal years ended November 2, 2002,
November 3, 2001 and October 28, 2000. F-6
Notes to Consolidated Financial Statements F-7 to F-30
a.2. Financial Statement Schedules
Schedule II S-1
Schedules other than Schedule II have been
omitted because they are not applicable.
a.3. Exhibits E-1 to E-8
Exhibit 3.1- Certificate of Amendment to the Amended and Restated
Certificate of Incorporation
Exhibit 10.1-Amendment No.1 to Third Amended and Restated
Revolving Credit and Term Loan Agreement
Exhibit 10.2-Consent, Waiver and Amendment No. 2 to
Third Amended and Restated Revolving
Credit and Term Loan Agreement
Exhibit 21-List of Subsidiaries
Exhibit 99.1-Certification
Exhibit 99.2-Certification
Exhibit 23.1-Consent of Independent Accountant
b. Reports on Form 8-K
September 30, 2002 - The Company entered into the Third Amended and
Restated Revolving Credit and Term loan Agreement with its lenders -
the Third Amended and Restated Revolving Credit and Term Loan
Agreement was filed as an exhibit.
* * * * * *
35
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
FOODARAMA SUPERMARKETS, INC.
(Registrant)
/S/ Michael Shapiro
-------------------
Michael Shapiro
Senior Vice President,
Chief Financial Officer
/S/ Thomas H. Flynn
-------------------
Thomas H. Flynn
Principal Accounting Officer
Date: January 29, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Name Title Date
/S/ Joseph J. Saker
--------------------------------------------------
Joseph J. Saker Chairman of the Board January 24, 2003
of Directors, Chief
Executive Officer
/S/ Richard Saker
---------------------------------------------------
Richard Saker President, Secretary January 24, 2003
and Director, Chief
Operating Officer
/S/ Charles T. Parton
---------------------------------------------------
Charles T. Parton Director January 24, 2003
/S/ Albert A. Zager
---------------------------------------------------
Albert A. Zager Director January 24, 2003
/S/ Robert H. Hutchins
---------------------------------------------------
Robert H. Hutchins Director January 24, 2003
36
CERTIFICATION
I, Joseph J. Saker, certify that:
1. I have reviewed this annual report on Form 10-K of Foodarama
Supermarkets, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this annual
report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this annual report (the "Evaluation Date"); and
(c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: January 29, 2003 /S/ Joseph J. Saker
-------------------
Joseph J. Saker
Chief Executive Officer
37
CERTIFICATION
I, Michael Shapiro, certify that:
1. I have reviewed this annual report on Form 10-K of Foodarama Supermarkets,
Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual
report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
(c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: January 29, 2003 /S/ Michael Shapiro
-------------------
Michael Shapiro
Chief Financial Officer
38
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.
In connection with our audits of the financial statements referred to above, we
audited the financial schedule listed under Item 14. In our opinion, the
financial schedule, when considered in relation to the financial statements
taken as a whole, presents fairly, in all material respects, the information
stated therein.
AMPER, POLITZINER & MATTIA P.C.
January 21, 2003
Edison, New Jersey
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
November 2, 2002 and November 3, 2001
(In thousands)
2002 2001
---- ----
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
=========== ===========
See notes to consolidated financial statements.
F-2
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets - (continued)
November 2, 2002 and November 3, 2001
(In thousands)
2002 2001
---- ----
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.
F-3
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Fiscal Years Ended November 2, 2002, November 3, 2001 and October 28, 2000
(In thousands, except per share data)
2002 2001 2000
---- ---- ----
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.
F-4
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
Fiscal Years Ended November 2, 2002, November 3, 2001 and October 28, 2000
(In thousands, except per share data)
Accumulated
Common Stock Other
-------------- Capital Compre- Compre-
Shares in Excess Deferred hensive hensive Retained Treasury Stock Total
Issued Amount of Par Compensation Income Income Earnings Shares Amount Equity
--------- -------- ------ ------------ ---------- ------- -------- --------- -------- ------
Balance - October 30, 1999 1,621,767 $ 1,622 $ 2,351 $ - $ - $ 37,696 (504,477) $(6,629)$35,040
Comprehensive income
Net income 2000 - - - - - $ 2,382 2,382 - - 2,382
------- -------- ------- ------- -------- -------- --------- ------- ------- ------
Comprehensive income $ 2,382
========
Balance - October 28, 2000 1,621,767 1,622 2,351 - - 40,078 (504,477) (6,629) 37,422
Grant of stock options - - 1,817 (1,817) - - - - -
Amortization of deferred
compensation - - - 121 - - - - 121
Repurchase of common stock - - - - - - (29,070) (1,068) (1,068)
Comprehensive income
Net income 2001 - - - - - 3,938 3,938 - - 3,938
Other comprehensive income
Minimum pension liability,
net of deferred tax - - - - (1,920) (1,920) - - - (1,920)
------- -------- ------- ------- -------- -------- -------- -------- ------- -------
Comprehensive income $ 2,018
========
Balance - November 3, 2001 1,621,767 1,622 4,168 (1,696) (1,920) 44,016 (533,547) (7,697) 38,493
Amortization of deferred
compensation - - - 372 - - - - 372
Issuance of common stock - - - - - - 1,000 20 20
Repurchase of common stock - - - - - - (102,853) (4,524) (4,524)
Comprehensive income
Net income 2002 - - - - - 3,240 3,240 - - 3,240
Other comprehensive income
Minimum pension liability,
net of deferred tax - - - - (976) (976) - - - (976)
------- -------- ------ ------- ------- -------- -------- ------- ------- ------
Comprehensive income $ 2,264
========
Balance - November 2, 2002 1,621,767 $ 1,622 $4,168 $ (1,324) $ (2,896) $ 47,256 (635,400) $(12,201)$ 36,625
=========== ========= ======= ======== ======== ========= ======== ======= ======
See notes to consolidated financial statements.
F-5
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Fiscal Years Ended November 2, 2002, November 3, 2001 and October 28, 2000
(In thousands)
2002 2001 2000
---- ---- ----
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.
F-6
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Tabular dollars in thousands, except per share amounts)
Note 1 - Summary of Significant Accounting Policies
Nature of Operations
Foodarama Supermarkets, Inc. and Subsidiaries (the "Company"), operate
22 ShopRite supermarkets, primarily in Central New Jersey. The Company
is a member of Wakefern Food Corporation ("Wakefern"), the largest
retailer-owned food cooperative in the United States.
Fiscal Year
The Company's fiscal year ends on the Saturday closest to October 31.
Fiscal 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.
F-7
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Tabular dollars in thousands, except per share amounts)
Note 1 - Summary of Significant Accounting Policies - (continued)
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.
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.
F-8
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Tabular dollars in thousands, except per share amounts)
Note 1 - Summary of Significant Accounting Policies (continued)
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.
F-9
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Tabular dollars in thousands, except per share amounts)
Note 1 - Summary of Significant Accounting Policies (continued)
Recent Accounting Pronouncements - (continued)
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.
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.
F-10
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Tabular dollars in thousands, except per share amounts)
Note 2 - Concentration of Cash Balance
As of 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, November 3,
2002 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.
F-11
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Tabular dollars in thousands, except per share amounts)
Note 4 - Related Party Transactions - (continued)
Wakefern Food Corporation - (continued)
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.
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.
F-12
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Tabular dollars in thousands, except per share amounts)
Note 4 - Related Party Transactions - (continued)
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 November 3,
2002 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 November 3,
2002 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
============ ============
Note 7 - Long-term Debt
Long-term debt consists of the following:
November 2, November 3,
2002 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
============ ============
F-13
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Tabular dollars in thousands, except per share amounts)
Note 7 - Long-term Debt - (continued)
The Company has a revolving credit and term loan agreement which was
amended and assigned to three financial institutions on January 7, 2000
and 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%.
F-14
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Tabular dollars in thousands, except per share amounts)
Note 7 - Long-term Debt - (continued)
The 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.
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.
F-15
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Tabular dollars in thousands, except per share amounts)
Note 7 - Long-term Debt - (continued)
Other Notes Payable
Included in other notes payable are the following:
November 2, November 3,
2002 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
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
F-16
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Tabular dollars in thousands, except per share amounts)
Note 9 - Other Long-term Liabilities
November 2, November 3,
2002 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, November 3,
2002 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
==========
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.
F-17
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Tabular dollars in thousands, except per share amounts)
Note 10 -Long-term Leases - (continued)
Operating Leases - (continued)
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
Land and Noncancellable Net Rental
Fiscal Year 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).
F-18
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Tabular dollars in thousands, except per share amounts)
Note 11 -Stock Option Plan - (continued)
The 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.)
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.
F-19
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Tabular dollars in thousands, except per share amounts)
Note 11 - Stock Option Plan - (continued) The following table summarizes
stock option and Units activity:
Options Outstanding
--------------------------------------------------
Stock Options Stock Performance Units
------------- -----------------------
Stock
Options
and
Exercise Weighted Weighted Units
Price Average Exercise Average Avail-
Per Exercise Price Exercise ble for
Shares Share Price Units Per Share Price 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 107,500 19.60 19.60 11,000 19.60 19.60 31,500
November 3, 2001 ---------------------- ---------------------------------
Additional shares
reserved 65,000
Granted - - - 3,800 25.00 25.00 (3,800)
Exercised (1,000)$19.60 $19.60 (8,000) 19.60 19.60
---------------------- ---------------------------------
Outstanding $19.60 to
November 2, 2002 106,500 $19.60 $19.60 6,800 $25.00 $22.62 92,700
====================== =================================
Options exercisable at:
October 28, 2000 - - - - - -
November 3, 2001 2,000 $19.60 $19.60 4,750 $19.60 $19.60
November 2, 2002 23,000 $19.60 $19.60 2,900 $19.60 $22.62
to
$25.00
Following is a summary of the status of stock options outstanding at
November 2, 2002:
Outstanding Options Exercisable Options
--------------------- -------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Exercise Contractual Exercise Exercise
Price Number Life Price Number 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.
F-20
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Tabular dollars in thousands, except per share amounts)
Note 11 - Stock Option Plan - (continued)
The 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 Pro As Pro As Pro
reported Forma reported Forma reported 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
========= ========= =========
F-21
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Tabular dollars in thousands, except per share amounts)
Note 13 -Income Taxes - (continued)
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 %
======= ======= =======
Net deferred tax assets and liabilities consist of the following:
November 2, November 3,
2002 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
------------ -----------
F-22
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Tabular dollars in thousands, except per share amounts)
Note 13 - Income Taxes - (continued)
November 2, November 3,
2002 2001
---- ----
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.
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).
F-23
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Tabular dollars in thousands, except per share amounts)
Note 14 -Commitments and Contingencies - (continued)
Shareholder Lawsuit - (continued)
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.
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.
F-24
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Tabular dollars in thousands, except per share amounts)
Note 15 -Retirement and Benefit Plans - (continued)
Defined Benefit Plans - (continued)
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, November 3,
2002 2001
Change 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 Fiscal Fiscal
2002 2001 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 197 67 8
Amortization of unrecognized transition
obligation (asset) (5) (5) (5)
---------- --------- --------
Total pension expense $ 709 $ 128 $ 46
========== ========= ========
F-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 - (continued)
Defined Benefit Plans - (continued)
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.
F-26
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, November 3,
2002 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)
========== =========
F-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 - (continued)
Postretirement Benefits - (continued)
Net postretirement benefit expense consists of the following:
Fiscal Fiscal Fiscal
2002 2001 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.
Note 17 -Earnings Per Share
Fiscal Fiscal Fiscal
2002 2001 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
========= ========= =========
F-28
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Tabular dollars in thousands, except per share amounts)
Note 18 -Noncash Investing and Financing Activities
During fiscal 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.
F-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, May 4, August 3, November 2,
2002 2002 2002 2002
---- ---- ---- ----
Sales $252,027 $235,236 $241,544 $234,804
Gross profit 63,392 58,883 62,289 60,527
Net income 1,267 183 1,203 587
Earnings available per share:
Basic 1.17 .18 1.22 .59
Diluted 1.12 .17 1.15 .57
Fourteen
Weeks
Thirteen Weeks Ended Ended
------------------------------ -----
January 27, April 28, July 28, November 3,
2001 2001 2001 2001
---- ---- ---- ----
Sales $238,594 $223,926 $233,052 $249,729
Gross profit 57,829 55,625 58,356 62,399
Net income 1,168 963 1,044 763
Earnings available per share:
Basic 1.05 .86 .94 .69
Diluted 1.05 .86 .94 .66
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.
F-30
Schedule II
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
Fiscal Years Ended November 2, 2002, November 3,
2001 and October 28, 2000
(In thousands)
Additions
-------------------
Balance Charge to Charge to Balance
at beginning costs and other at end
Description of year expenses accounts Deductions of year
----------- ------- -------- -------- --------- -------
Fiscal year ended November 2,
2002
Allowance for doubtful
accounts (deducted
from receivables and other
current assets) $ 873 $ 266 $ - $ 455 (1) $ 684
======= ======= ====== ======= ======
Fiscal year ended November 3,
2001
Allowance for doubtful
accounts (deducted
from receivables and other
current assets) $ 543 $ 400 $ - $ 70 (1) $ 873
======== ======= ======== ======== =====
Fiscal year ended October 28,
2000
Allowance for doubtful
accounts (deducted
from receivables and other
current assets) $ 506 $ 143 $ - $ 106 (1) $ 543
======== ======= ======== ======= ========
(1) Accounts deemed to be uncollectible.
S-1
Schedule X
c. Exhibits
3. Articles of Incorporation and By-Laws
*i. Restated Certificate of Incorporation of Registrant
filed with the Secretary of State of the State of New
Jersey on May 15, 1970.
*ii. Certificate of Merger filed with the Secretary of
State of the State of New Jersey on May 15, 1970.
*iii. Certificate of Merger filed with the Secretary of
State of the State of New Jersey on March 14, 1977.
*iv. Certificate of Merger filed with the Secretary of
State of the State of New Jersey on June 23, 1978.
*v. Certificate of Amendment to Restated Certificate of
Incorporation filed with the Secretary of State of
the State of New Jersey on May 12, 1987.
**vi. Certificate of Amendment to Restated Certificate of
Incorporation filed with the Secretary of State of
the State of New Jersey on February 16, 1993.
****vii. Amendment to the Certificate of Incorporation of the
Registrant dated April 4, 1996.
*viii. By-Laws of Registrant.
*ix. Amendments to By-Laws of Registrant adopted
September 14, 1983.
x. Amendment to By-Laws of Registrant adopted March
15, 1991 is incorporated herein by reference to the
Registrant's Annual Report on Form 10-K for the year
ended November 2, 1991 filed with the Securities and
Exchange Commission on February 18, 1992.
xi. Certificate of Amendment to the Amended and Restated
Certificate of Incorporation filed with the Department
of the Treasury of the State of New Jersey on May 14,
2002.
* Each of these Exhibits is incorporated herein by reference to
the Registrant's Annual Report on Form 10-K for the year ended
October 29, 1988 filed with the Securities and Exchange
Commission on February 13, 1989.
** Each of these Exhibits is incorporated herein by reference to
the Registrant's Annual Report on Form 10-K for the year ended
October 31, 1992 filed with the Securities and Exchange
Commission on February 19, 1993.
E-1
10. Material Contracts.
i. The Agreement dated September 18, 1987 entered into
by Wakefern Food Corporation and the Registrant is
incorporated herein by reference to Exhibit A to the
Registrant's Form 8-K filed with the Securities and
Exchange Commission on November 19, 1987.
***ii. Certificate of Incorporation of Wakefern Food Corporation
together with amendments thereto and certificates of merger.
***iii. By-Laws of Wakefern Food Corporation.
***iv. Form of Deferred Compensation Agreement, between the
Registrant and certain of its key employees.
v. Registrant's 1987 Incentive Stock Option Plan is incorporated
herein by reference to Exhibit 4 (a) to the Registrant's Form
S-8 filed with the Securities and Exchange Commission on
May 26, 1989.
vi. Agreement, dated September 20, 1993, between the Registrant,
ShopRite of Malverne, Inc. and The Grand Union Company is
incorporated herein by reference to the Registrant's Annual
Report on Form 10-K for the year ended October 30, 1993,
filed with the Securities and Exchange Commission on
February 24, 1994.
vii. Revolving Credit and Term Loan Agreement, dated as of
February 15, 1995 between the Registrant and NatWest Bank as
agent for a group of banks is incorporated herein by reference
to the Registrant's Form 8-K filed with the Securities and
Exchange Commission on July 10, 1995.
viii. Asset Purchase Agreement dated April 20, 1995 and Amendment
No. 1 to the Agreement dated May 24, 1995 between the
Registrant and Wakefern Food Corporation is incorporated
herein by reference to the Registrant's Form 8-K filed with
the Securities and Exchange Commission on July 27, 1995.
ix. Amendment of Revolving Credit and Term Loan Agreement, dated
as of January 25, 1996, between the Registrant and each of
the banks which are signatory thereto is incorporated herein
by reference to the Registrant's Form 10-Q for the quarterly
period ended January 27, 1996, filed with the Securities and
Exchange Commission on March 12, 1996.
****x. Agreement, dated as of March 29, 1996, between the Registrant
and Wakefern Food Corporation.
--------------------------------------------------------------------------------
*** Each of these Exhibits is incorporated herein by reference to the
Registrant's Annual Report on Form 10-K for the year ended October
28, 1989 filed with the Securities and Exchange Commission on
February 9, 1990.
E-2
****xi. Amendment of Revolving Credit and Term Loan Agreement, dated
as of May 10, 1996, between the Registrant and each of the
Banks which are signatory thereto.
xii. Waiver and Amendment of Revolving Credit and Term Loan
Agreement, dated as of July 26, 1996, between the Registrant
and each of the Banks which are signatory thereto is
incorporated herein by reference to the Registrant's Form 10-Q
for the quarterly period ended July 27, 1996, filed with the
Securities and Exchange Commission on September 10, 1996.
xiii. Amended and Restated Revolving Credit and Term Loan
Agreement, dated as of May 2, 1997, between the Registrant
and the Financial Institution which are signatory thereto is
incorporated herein by reference to the Registrant's Form
10-Q for the quarterly period ended May 3, 1997, filed with
the Securities and Exchange Commission on June 16, 1997.
*****xiv. First Amendment to Amended and Restated Revolving Credit and
Term Loan Agreement, dated October 28, 1997, between the
Registrant and the Financial Institution which are signatory
thereto.
*****xv. Consent and Second Amendment to Amended and Restated Revolving
Credit and Term Loan Agreement and other loan documents, dated
November 14, 1997, between the Registrant and the Financial
Institution which are signatory thereto.
*****xvi. Third Amendment to Amended and Restated Revolving Credit and
Term Loan Agreement, dated January 15, 1998, between the
Registrant and the Financial Institution which are signatory
thereto.
xvii. Amendment to the Amended and Restated Revolving Credit and
Term Loan Agreement, dated March 11, 1999, between the
Registrant and the Financial Institution which are signatory
thereto, is incorporated herein by reference to the
Registrant's Form 10-Q for the quarterly period ended May 1,
1999, filed with the Securities and Exchange Commission on
June 11, 1999.
-------------------------------------------------------------------------------
**** Incorporated herein by reference to the Registrant's Form
10-Q for the quarterly period ended April 27, 1996, filed
with the Securities and Exchange Commission on June 10, 1996.
***** Incorporated herein by reference to the Registrant's Form
10-K for the year ended November 1, 1997 filed with the
Securities and Exchange Commission on January 29, 1998.
E-3
xviii. Second Amended and Restated Revolving Credit and Term Loan
Agreement, dated as of January 7, 2000 between the Registrant
and each of the Financial Institutions which are signatory
thereto, is incorporated herein by reference to the
Registrant's Form 10-K for the year ended October 30, 1999
filed with the Securities and Exchange Commission on January
27, 2000.
xix. Restatement of Supplemental Executive Retirement Plan, dated
as of January 1, 1998, is incorporated herein by reference to
the Registrant's Form 10-Q for the quarterly period ended
January 24, 2000, filed with the Securities and Exchange
Commission on March 9, 2000.
xx. Registrant's 2001 Stock Incentive Plan is incorporated
herein by reference to Appendix B to the Registrant's Proxy
Statement filed with the Securities and Exchange Commission on
February 26, 2001.
xxi. Amendment No. 1 to Second Amended and Restated Revolving
Credit and Term Loan Agreement, dated as of May 11, 2001,
between the Registrant and each of the Financial Institutions
which are signatory thereto is incorporated herein by
reference to the Registrant's Form 10-Q for the quarterly
period ended April 28, 2001, filed with the Securities and
Exchange Commission on June 8, 2001.
xxii. Amendment No. 2 to Second Amended and Restated Revolving
Credit and Term Loan Agreement, dated as of August 7, 2001
between the Registrant and each of the Financial Institutions
which are signatory thereto is incorporated herein by
reference to the Registrant's Form 10-Q for the quarterly
period ended July 28, 2001, filed with the Securities and
Exchange Commission on September 10, 2001.
******xxiii. Letter Amendment to Second Amended and Restated Revolving
Credit and Term Loan Agreement, dated as of January 30, 2002
between the Registrant and each of the Financial Institutions
which are signatory thereto.
******xxiv. Letter Amendment to Second Amended and Restated Revolving
Credit and Term Loan Agreement, dated as of January 30, 2002
between the Registrant and each of the Financial Institutions
which are signatory thereto.
--------------------------------------------------------------------------------
****** Incorporated herein by reference to the Registrant's Form 10-Q
for the quarterly period ended February 2, 2002, filed with
the Securities and Exchange Commission on March 15, 2002.
E-4
xxv. Letter Amendment to Second Amended and Restated Revolving
Credit and Term Loan Agreement, dated as of March 29, 2002
between the Registrant and each of the Financial Institutions
which are signatory thereto is incorporated herein by
reference to the Registrant's Form 8-K filed with the
Securities and Exchange Commission on April 5, 2002.
xxvi. Third Amended and Restated Revolving Credit and Term Loan
Agreement, dated as of September 26, 2002 between the
Registrant and each of the Financial Institutions which are
signatory thereto, is incorporated herein by reference to the
Registrant's Form 8-K filed with the Securities and Exchange
Commission on September 30, 2002.
xxvii. Amendment No. 1 to Third Amended and Restated Revolving Credit
and Term Loan Agreement, dated as of December 17, 2002 between
the Registrant and each of the Financial Institutions which
are signatory thereto.
xxviii. Consent, Waiver and Amendment No. 2 to Third Amended and
Restated Revolving Credit and Term Loan Agreement, dated as of
January 21, 2003 between the Registrant and each of the
Financial Institutions which are signatory thereto.
E-5
Exhibit 21
LIST OF SUBSIDIARIES
OF FOODARAMA SUPERMARKETS, INC.
Name of Subsidiary State of
------------------ Incorporation
-------------
ShopRite of Malverne, Inc. New York
New Linden Price Rite, Inc. New Jersey
ShopRite of Reading, Inc. Pennsylvania
E-6
Exhibit 3.1
CERTIFICATE OF AMENDMENT
TO THE AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION OF
FOODARAMA SUPERMARKETS, INC.
To: Department of the Treasury
State of New Jersey
This is to certify that the Amended and Restated Certificate of
Incorporation of Foodarama Supermarkets, Inc. (herein referred to as the
"Corporation"), which was filed and recorded with the Department of the Treasury
of the State of New Jersey on May 13, 1970, as amended by Certificates of
Amendment filed on October 17, 1986, May 12, 1987, February 16, 1993, and May
20, 1996, is hereby further amended, pursuant to the provisions of N.J. Stat.
Ann. $14A 9-2 and $14A 9-2 of the New Jersey Business Corporation Act, as
follows:
ARTICLE I NAME OF CORPORATION.
The name of the Corporation is Foodarama Supermarkets, Inc.
ARTICLE II DATE OF ADOPTION AND TEXT OF AMENDMENTS. The following amendment
(the "Amendment") to the Amended and Restated Certificate of Incorporation of
the Corporation, as amended, was adopted by the shareholders of the Corporation
(the "Shareholders") by a vote of two-thirds of the votes cast by the holders of
shares entitled to vote thereon at the Corporation's Annual Meeting of
Shareholders, which was held on May 8, 2002.
Article Sixth of the Corporation's Amended and Restated Certificate of
Incorporation is amended to read in its entirety as follows:
The number of directors of the Corporation shall be the number, not
less than three (3) nor more than eleven (11), fixed from time to time by
the Board of Directors. The Board of Directors shall be divided into five
classes, designated Class I, Class II, Class III, Class IV and Class V, as
nearly equal in number as possible, and the term of office of directors of
one class shall expire at each annual meeting of shareholders, and in
all cases as to each director until his successor shall be elected and
shall qualify (except in cases where no successor is elected due to a
reduction in the size of the Board of Directors) or until his earlier
resignation, removal from office, death or incapacity. The initial term of
office of directors of Class I shall expire at the annual meeting of
shareholders in 2003; that of Class II shall expire at the annual
meeting of shareholders in 2004; that of Class III shall expire at
the annual meeting of shareholders in 2005; that of Class IV shall
expire at the annual meeting of shareholders in 2006; and that of Class V
shall expire at the annual meeting in 2007; and in all cases as to
each director until his successor shall be elected and shall qualify
(except in cases where no successor is elected due to a reduction in the
size of the Board of Directors) or until his earlier resignation, removal
from office, death or incapacity. At each annual meeting of shareholders
after 2002, the number of directors equal to the number of directors of the
class whose term expires at the time of such meeting (or, if less, the
number of directors properly nominated and qualified for election) shall be
elected by a plurality vote of the shareholders to hold office until the
fifth succeeding annual meeting of shareholders after their election and
until their successors are elected and qualify. Additional directorships
resulting from an increase in the number of directors shall be apportioned
among the classes as equally as possible. Vacancies, including vacancies
created by an increase in the size of the Board of Directors, shall be
filled by the affirmative vote of a majority of the remaining Board of
Directors, though less than a quorum, but any such director so elected
shall hold office until the next succeeding annual meeting of shareholders.
At such annual meeting, such director or a successor to such director shall
be elected and qualified in the class to which such director is assigned to
hold office for the term or remainder of the term of such class. Directors
shall be assigned to each class in accordance with a resolution or
resolutions adopted by the Board of Directors. Any election or removal of a
director by the Corporation's shareholders shall be undertaken by a vote of
the shareholders at a meeting thereof and shall not be effected by written
consent. The directors need not be residents of the State of New Jersey and
the directors need not be shareholders of the Corporation. This subsection
(a) of this Article Sixth shall not be amended, altered or repealed except
by the affirmative vote of the holders of not less than sixty-six and
two-thirds percent (66-2/3%) of the combined voting power of the
then-outstanding shares of stock of the Corporation entitled to vote
generally in the election of directors, voting together as a single class.
ARTICLE III APPROVAL OF AMENDMENTS.
The Corporation has Nine Hundred Eighty-Five Thousand, Three Hundred
and Sixty Seven (985,367) shares of Common Stock outstanding, the holders
of which were entitled to vote to approve the Amendment. At the
Corporation's Annual Meeting of Shareholders on May 8, 2002, the
Shareholders approved the Amendments with Six Hundred Thirty-Two Thousand,
Three Hundred Sixteen (632,316) shares of Common Stock voting in favor of
the Amendment. The number of shares of the Corporation's Common Stock voted
against the Amendment was 314,745.
ARTICLE IV EFFECTIVE DATE OF AMENDMENTS.
The effective date of this Certificate of Amendment shall be the date
on it is filed by or on behalf of the New Jersey Secretary of State.
FOODARAMA SUPERMARKETS, INC.
By: /s/ Richard J. Saker
--------------------
Name: Richard J. Saker
Title: President
Date: May 13, 2002
Exhibit 10.1
GMAC BUSINESS CREDIT, LLC
461 Fifth Avenue, 21st Floor
New York, New York 100171
December 17, 2002
Mr. Michael Shapiro
Foodarama Supermarkets, Inc.
922 Highway 33
Building 6, Suite 1
Freehold, NJ 07728
Re: Amendment No. 1 to Loan Agreement
Dear Mr. Shapiro:
Reference is made to the Third Amended and Restated Revolving Credit
and Term Loan Agreement (as amended, supplemented, restated or modified
from time to time, the "Loan Agreement") dated as of the date hereof among
Foodarama Supermarkets, Inc. (the "Parent") and New Linden Price Rite, Inc.
("New Linden" and, together with the Parent, each a "Borrower" and
collectively, the "Borrowers"), the financial institutions named therein or
which hereafter become a party thereto (collectively, "Lenders") and GMAC
Business Credit, LLC ("GMACBC") as agent for the Lenders (GMACBC in such
capacity, "Agent"). All capitalized terms used herein which are not defined
shall have the meanings given to them in the Loan Agreement.
By their signatures below, the parties to the Loan Agreement hereby
agree that Sections 7.03(i)(x)(2)(e) and (f) of the Loan Agreement are
amended in their entirety to provide as follows:
"(e) $7,000,000 in new Adjusted Indebtedness incurred during Fiscal Year 2003;
(f) $15,000,000 in new Adjusted Indebtedness incurred during Fiscal Year 2004;".
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
Other than as amended hereby, the Loan Agreement remains in full force and
effect in accordance with its terms.
Very truly yours,
GMAC BUSINESS CREDIT, LLC, as Agent
By:_________________________
Name: Thomas Maiale
Title: Vice President
Agreed to by:
NEW LINDEN PRICE RITE, INC.,
as Borrower and as Guarantor
By:_______________________________
Name:
Title:
FOODARAMA SUPERMARKETS, INC., as
Borrower and as Guarantor
By:_____________________________
Name:
Title:
SHOP RITE OF READING, INC., as Guarantor
By:_____________________________
Name:
Title:
SHOP RITE OF MALVERNE, INC., as Guarantor
By:_____________________________
Name:
Title:
Exhibit 10.2
[GMACBC Letterhead]
January 21, 2003
Mr. Michael Shapiro
Foodarama Supermarkets, Inc.
922 Highway 33
Building 6, Suite 1
Freehold, NJ 07728
Re: Consent, Waiver and Amendment No. 2 to Loan Agreement
Dear Mr. Shapiro:
Reference is made to the Third Amended and Restated Revolving Credit
and Term Loan Agreement (as amended, supplemented, restated or modified from
time to time, the "Loan Agreement") dated as of September 26, 2002 among
Foodarama Supermarkets, Inc. (the "Parent") and New Linden Price Rite, Inc.
("New Linden" and, together with the Parent, each a "Borrower" and
collectively, the "Borrowers"), the financial institutions named therein or
which hereafter become a party thereto (collectively, "Lenders") and GMAC
Business Credit, LLC ("GMACBC") as agent for the Lenders (GMACBC in
such capacity, "Agent"). All capitalized terms used herein which are not
defined shall have the meanings given to them in the Loan Agreement.
Borrowers have advised us, pursuant to the correspondence that is attached
hereto as Exhibit A (the "Correspondence"), that (I) Parent's Local 1360
Employees' Retirement Plan has been amended and (II) certain Events of Default
have occurred and are continuing under the Loan Agreement (collectively, the
"Designated Defaults"), including:
(a) the Events of Default under Section VIII(a) of the Loan
Agreement resulting from the breach of the representations and warranties set
forth in Section 4.10(vi) of the Loan Agreement due to the fact that, during the
period(s) ended November 2, 2002, the value of all accrued benefits under all
Pension Plans (other than Multiemployer Plans) exceeded the aggregate fair
market value of the assets of such Plans by more than $3,000,000; and
(b) the Events of Default under Sections VIII(a) and (d)(i) of the
Loan Agreement resulting from the breach of the representations and warranties
set forth in Section 4.06 of the Loan Agreement and the covenants set forth in
Section 6.06 of the Loan Agreement, respectively, due to the litigation by
Symbol Technologies, Inc., a manufacturer of bar code and/or machine vision
equipment ("Symbol"), against Lemelson Medical, Educational & Research
Foundation Limited Partnership (the "Lemelson Foundation") in which Symbol is
seeking to invalidate certain patents held by the Lemelson Foundation, as
further described in the Correspondence.
Agent and Lenders hereby
(x) consent to the amendment of Parent's Local 1360 Employees'
Retirement Plan as described in the Correspondence, provided that such amendment
shall have been effectuated pursuant to documentation that is satisfactory in
form and substance to Agent (such documentation, the "ERISA Amendment");
(y) waive the following:
(i) any Event of Default that may have occurred and be
continuing under the Loan Agreement as a result of the ERISA Amendment;
and
(ii) the Designated Defaults, provided that the Designated
Defaults described in clause (a) above are waived solely to the extent
that, during the period(s) ended November 2, 2002, the value of all
accrued benefits under all Pension Plans (other than Multiemployer Plans)
exceeded the aggregate fair market value of the assets of such Plans by no
more than $3,020,000; and
(z) agree that the Loan Agreement is hereby amended as follows:
(i) Section 4.06 of the Loan Agreement is amended by deleting
the reference therein to "Schedule 4.04(a)" and replacing it with
"Schedule 4.06(a)"; and
(ii) Schedule 4.06(a) to the Loan Agreement is amended in its
entirety and replaced with Schedule 4.06(a) hereto.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
Except as expressly provided herein, this letter agreement shall not
constitute an amendment to, or waiver of, any provision of the Loan
Agreement or any other documents, instruments or agreements executed and/or
delivered thereunder or in connection therewith, and the Loan Agreement and all
other documents, instruments and agreements executed and/or delivered in
connection therewith shall remain in full force and effect and are hereby
ratified and confirmed.
Very truly yours,
GMAC BUSINESS CREDIT, LLC, as Lender and
Agent
By:_________________________
Name: Thomas Maiale
Title: Vice President
THE BANK OF NEW YORK, as Lender
By:_________________________
Name:
Title:
CITIZENS BUSINESS CREDIT COMPANY, as Lender
By:_________________________
Name:
Title:
NATIONAL CONSUMER COOPERATIVE BANK, d/b/a
National
Cooperative Bank, as Lender
By:_________________________
Name:
Title:
[SIGNATURES CONTINUED ON THE FOLLOWING PAGE]
[CONTINUED SIGNATURES TO CONSENT, WAIVER AND AMENDMENT NO. 2]
Agreed to by:
NEW LINDEN PRICE RITE, INC.,
as Borrower and as Guarantor
By:_______________________________
Name:
Title:
FOODARAMA SUPERMARKETS, INC., as
Borrower and as Guarantor
By:_____________________________
Name:
Title:
SHOP RITE OF READING, INC., as Guarantor
By:_____________________________
Name:
Title:
SHOP RITE OF MALVERNE, INC., as Guarantor
By:_____________________________
Name:
Title:
Exhibit A
Correspondence
Mr. Thomas Maiale January 7, 2003
GMAC Business Credit, LLP
461 Fifth Avenue, 21st Floor
New York, N.Y. 10017
Dear Tom:
As we move ahead to finalize our financial statements for fiscal 2002, there are
a few matters relating to the Loan Agreement that require attention.
Specifically, we have determined that the aggregate present value of all accrued
benefits under all Foodarama Pension Plans exceeds the aggregate fair market
value of the assets of such plans by $3,019,000, $19,000 more than permitted
under the Loan Agreement. In addition, Foodarama is obliged to make certain
amendments to the Local 1360 Pension Plan in order to conform with changes in
the law. Finally, we received a letter from Eran Zur, a Nevada attorney,
concerning certain claims of patent infringement that may be asserted by the
Lemelson Foundation against the Company.
The underfunding of the Pension Plan relates to Section 4.10(vi). With respect
to the amendment to the Pension Plan, the provisions of the Loan Agreement that
deal with ERISA and employee benefit plans are Sections 4.10, 6.07 and 7.14. The
amendments to the 1360 plan were made to conform with the Family and Medical
Leave Act of 1993, the Unemployment Compensation Amendments of 1992, the
Employee Retirement Income Security Act of 1974 and Sections 401(a) and 501(a)
of the Internal Revenue Code of 1986. The Lemelson claims relate to Section
4.06.
Inasmuch as these events necessitate a waiver of events of default, please
contact me so that we can discuss these issues as well as processing the waiver.
Thank you for your attention to this matter.
Very truly yours,
FOODARAMA SUPERMARKETS, INC.
MS:md Michael Shapiro
Senior Vice President
c: J. Aiello
See attached
Schedule 4.06(a)
Litigation
1. Foodarama v. Hilltop Supermarkets, Inc. and Franklin Center Associates.
Docket No. MID-L-3156-01. Foodarama has been named in an action regarding its
Franklin Township store. On April 26, 2002, summary judgment was entered in
favor of Foodarama. Plaintiff, Hilltop Supermarkets, Inc. has filed a motion for
reconsideration, and has hired a new attorney. The motion for reconsideration
was denied and Hilltop Supermarkets, Inc. has appealed the court's decision. The
appeal is still pending with Foodarama's brief due on February 3, 2003. The
claim against Foodarama was for approximately $450,000 and the court dismissed
the complaint. The court did, however, award Hilltop Supermarkets, Inc. the
additional rent under the lease for the months of September 2000 and October
2000, because a formal extension of the lease was negotiated for those two
months over one year prior to the lapsing of the lease term. Further, the court
found that the assignment pursuant to which Foodarama took possession of the
lease allowed for extensions of the lease, and therefore the extension obligated
Foodarama to pay the additional rent ($36,000) to Hilltop Supermarkets, Inc.
Foodarama successfully cross-moved to have this liability shifted to Franklin
Center Associates. By way of background, Foodarama took an assignment of the
lease at the Franklin Township store from the Plaintiff Hilltop Supermarkets,
Inc., and through a variety of agreements was required to pay a fee to the
Plaintiff, Hilltop Supermarkets, Inc., above and beyond the rent paid to the
landlord Franklin Center Associates. Foodarama did not renew the lease with
Franklin Center Associates as it was contemplated that it would open a new store
in North Brunswick at a different site. Although Foodarama did not renew the
lease it retained possession of the premises, and paid rent on a month-to-month
basis as a month-to-month tenant to the landlord, Franklin Center Associates.
The Plaintiff's claim against Franklin Center Associates was that it was
required and obligated to provide the Plaintiff with notice that the lease was
not renewed and allow an additional thirty (30) days for the Plaintiff to renew
the lease itself and exercise the options under the lease. Franklin Center
Associates was granted summary judgment motion on this issue.
2. Foodarama v. Unclaimed Freight, Inc. Docket No. MON-L-986-02. Unclaimed
Freight ("Unclaimed Freight") was a sublessee of property leased by Foodarama
and located in Reading, Pennsylvania. Foodarama had an ongoing dispute with the
landlord regarding Foodarama's obligation to make repairs to the roof of the
leased premises and other repairs required upon surrender of the leased
premises. Foodarama and the landlord agreed to a cost of repairs of
approximately $107,000. Foodarama believes it has a right to recover this amount
from the sub-tenant, Unclaimed Freight. Foodarama's outside counsel has filed a
lawsuit on behalf of Foodarama against Unclaimed Freight for amounts allegedly
due upon the termination of Foodarama's lease with the landlord, and its
sublease to Unclaimed Freight. The amount in controversy is approximately
$107,000. Unclaimed Freight has refused to pay the amount due which Foodarama
believes is payable pursuant to the terms of the sublease and the prime lease.
The suit alleges breach of lease/contract. The sublease came to be assigned to
an entity known as UFC, Inc., by way of an order issued from the United States
Bankruptcy Court relating to the bankruptcy of UFC, Inc.'s predecessor, Valley
Advisors, Inc. Valley Advisors, Inc. was the original sublessor. Service has
been effectuated only upon the related entity Unclaimed Freight LLC. This
defendant filed a motion to dismiss in lieu of an answer, and that motion has
been denied. Discovery is continuing.
3. Carmen J. Maggio, Chapter 7 Trustee Of Carmen Forgione & Sons, Inc. v.
Foodarama Supermarkets, Inc. Docket No. MON-L-5006-01. Carmine J. Maggio
("Maggio") Chapter 7 Trustee of Carmine Forgone & Sons, Inc. ("Forgione"), filed
a complaint against Foodarama in October, 2001, claiming that Foodarama owes
$27,709.88 for waste disposal services rendered by the bankrupt, Forgione.
Foodarama has filed an answer denying all allegations. The Company's records
show something less than $27,709.88 is due, and confirmed approximately $15,000
was due. Plaintiff has accepted 12,500. Recently, Plaintiff's counsel has
amended the complaint to add a second claim. Upon further review of the bankrupt
entities records an additional claim for unpaid invoices of $80,000 has been
made. This information has just been recently sent to Foodarama for review.
4. Melvin Jules Bukiet, et al, v. Foodarama Supermarkets, Inc. et al. Docket No.
MID-C-101-02. This lawsuit was filed in the Superior Court of New Jersey,
Middlesex County Chancery Division, alleging that the directors and the named
officers breached their fiduciary duties to the Company's shareholders through
their previous recommendation, implementation and administration of the 2001
Stock Incentive Plan, and by proposing that the shareholders adopt the
amendments to the 2001 Stock Incentive Plan and to the Company's certificate of
incorporation. The plaintiffs allege that the actions have been taken to enrich
and entrench the defendants at the shareholders' expense. The plaintiffs have
asked the court, among other things, to reverse previous grants of options to
the defendants under the 2001 Stock Incentive Plan and to enjoin the Company
from submitting the proposals described above to shareholders at the 2002 annual
meeting. A motion to dismiss the complaint was filed on June 7, 2002. On
November 1, 2002, plaintiffs filed a motion seeking leave to amend their
complaint to add additional claims. The motions have been fully briefed and,
depending on the resolution of a tentative settlement, will be argued orally.
5. Levin Properties, L.P. v. Foodarama. Levin Properties, L.P. is Foodarama's
landlord of a new store located in Woodbridge, New Jersey. The new store is
located in the same shopping center as a previous store leased from the landlord
to Foodarama. The landlord and Foodarama did not execute a new lease for the new
store. Instead, the landlord and Foodarama executed a modification of the lease
for the previous store, which, among other things, modifies the lease to demise
to Foodarama the new store in place of the previous store. On or about January
13, 2003, the landlord commenced a suit against Foodarama seeking, among other
things, a declarative determination as to various payment obligations under the
lease. The claim arises out of a dispute as to the correct commencement date for
the payment of an increased rental amount under the lease. Under the lease,
Foodarama was to construct the new store. The landlord was then required to
reimburse Foodarama for certain construction costs up to $3,400,000 upon terms
more particularly set forth in the lease. The landlord is currently withholding
payment to Foodarama of a portion of those construction funds as a setoff
against the increase in rental payments which the landlord alleges should have
commenced on January 18, 2002. The landlord alleges that the total amount of
Foodarama's delinquency in rental payments was $877,030.36 as of October 10,
2002, and further alleges that, as a result of the alleged rental delinquency,
landlord is entitled to an additional $534,186 security deposit under the lease.
Foodarama alleges that the increase in rental payments should not have commenced
before December 2002, and that, therefore, there is no material delinquency in
the payment of rent. The construction funds currently being withheld by the
landlord are approximately $850,000. Additional construction funds which are or
will become due from the landlord to Foodarama are approximately $850,000.
Foodarama intends to assert a counterclaim against the landlord to collect
payment from the landlord of funds advanced by Foodarama for the construction of
the new store.
6. Symbol Technologies, Inc. v. Lemelson Medical, Educational & Research
Foundation Limited Partnership. Symbol Technologies, Inc. ("Symbol"), is a
supplier of bar code and/or machine vision equipment. The Lemelson Medical,
Educational & Research Foundation Limited Partnership ("Lemelson") is the owner
of several patents related to bar-code and machine vision equipment. In July of
1999, seven bar code manufacturers, including Symbol, jointly filed a lawsuit in
Nevada federal court against Lemelson seeking a declaration that patents
asserted by Lemelson against end uses of bar code equipment are invalid,
unenforceable and not infringed. Symbol alleges that the suit was filed to
protect the manufacturers' customers, who have received letters from Lemelson
requesting licensing fees for use of the bar code and/or machine vision
equipment. In March of 2000, the Symbol lawsuit was combined with another suit
that was filed against Lemelson by Cognex Corporation ("Cognex"), which also was
seeking a declaration that Lemelson patents that claim to cover bar code and/or
machine vision equipment are invalid, unenforceable, and not infringed. The
trial began in the U.S. District Court of Nevada (Las Vegas), on or about
November 18, 2002, and concluded on or about January 17, 2003. Cognex has
advised that the parties will be submitting post trial briefs, which are due on
or before May 16, 2003, and that the judge is not expected to issue his decision
before the end of July 2003. Foodarama is not a party to this litigation,
however, in December of 2002, Foodarama received a letter from an attorney
representing Lemelson. In the letter, the attorney alleges that Lemelson is the
holder of certain patents related to bar code and machine vision equipment and
that the validity of the patents is the subject of the pending litigation in
Nevada. The attorney for Lemelson further alleges that, provided the validity of
the patents is upheld, Lemelson intends to pursue legal action against
Foodarama.
Exhibit 99.1
CERTIFICATION
I, Joseph J. Saker, Chief Executive Officer of Foodarama Supermarkets, Inc.
(the "Company"), do hereby certify in accordance with 18 U.S.C. 1350, as
adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that to my
knowledge the Company's foregoing Annual Report on Form 10-K for the fiscal
year ended November 2, 2002:
(1) fully complies with the requirements of section 13(a) or 15(d) of the
Securities Exchange Act of 1934, 15 U.S.C. 78m or 78o(d), and,
(2) the information contained in the periodic report fairly presents, in all
material respects, the financial condition and results of operations of
the Company.
Dated January 29, 2003
/S/ Joseph J. Saker
________________________
Joseph J. Saker
Chief Executive Officer
E-7
Exhibit 99.2
CERTIFICATION
I, Michael Shapiro, Chief Financial Officer of Foodarama Supermarkets, Inc.
(the "Company"), do hereby certify in accordance with 18 U.S.C. 1350, as adopted
pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge
the Company's foregoing Annual Report on Form 10-K for the fiscal year ended
November 2, 2002:
(1) fully complies with the requirements of section 13(a) or 15(d) of the
Securities Exchange Act of 1934, 15 U.S.C. 78m or 78o(d), and,
(2) the information contained in the periodic report fairly presents, in all
material respects, the financial condition and results of operations of
the Company.
Dated January 29, 2003 /S/ Michael Shapiro
-------------------
Michael Shapiro
Chief Financial Officer
E-8
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (Registration No. 333-65328) of Foodarama Supermarkets,
Inc., including Post-Effective Amendment No. 1 to the Registration Statement on
Form S-8, of our report dated January 21, 2003 relating to the consolidated
financial statements of Foodarama Supermarkets, Inc. which appear in the Annual
Report on Form 10-K of Foodarama Supermarkets, Inc. for the fiscal year ended
November 2, 2002. We also consent to the reference to our firm under the heading
"Experts" in the prospectus included in the above-referenced Registration
Statement and amendment thereto.
/S/AMPER, POLITZINER & MATTIA P.C.
Edison, New Jersey
January 29, 2003