UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONN
Washington D.C. 20549
FORM 10-Q
Quarterly report pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarterly period ended May 3, 2003
Commission file number 1-5745-1
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.)
922 Highway 33, Freehold, N.J. 07728
-----------------------------------------
(Address of principal executive offices)
Telephone #732-462-4700
---------------------------
(Registrant's telephone number, including area code)
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 whether the Registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act). Yes ____ No ___X__
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the close of the latest practicable date.
OUTSTANDING AT
CLASS June 6, 2003
--------------- --------------
Common Stock 986,867 shares
$1 par value
FOODARAMA SUPERMARKETS, INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Unaudited Consolidated Condensed Balance Sheets
May 3, 2003 and November 2, 2002
Unaudited Consolidated Condensed Statements
of Operations for the thirteen weeks ended
May 3, 2003 and May 4, 2002
Unaudited Consolidated Condensed Statements
of Operations for the twenty six weeks ended
May 3, 2003 and May 4, 2002
Unaudited Consolidated Condensed Statements
of Cash Flows for the twenty six weeks ended
May 3, 2003 and May 4, 2002
Notes to the Unaudited Consolidated Condensed
Financial Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About
Market Risk
Item 4. Controls and Procedures
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 4. Submission of Matters to a Vote of
Securityholders
Item 6. Exhibits and Reports on Form 8-K
Disclosure Concerning Forward-Looking Statements
All statements, other than statements of historical fact, included in this Form
10-Q, including without limitation the statements under "Management's Discussion
and Analysis of Financial Condition and Results of Operations", 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-Q. 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-Q 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.
2
PART I FINANCIAL INFORMATION
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
(in thousands)
May 3, November 2,
2003 2002
(Unaudited) (1)
----------- -----------
ASSETS
Current assets:
Cash and cash equivalents $ 4,388 $ 4,280
Merchandise inventories 47,644 43,707
Receivables and other current assets 9,938 11,214
Prepaid and refundable income taxes 1,268 257
Related party receivables - Wakefern 5,640 8,903
-------- --------
68,878 68,361
-------- --------
Property and equipment:
Land 308 308
Buildings and improvements 1,220 1,220
Leasehold improvements 51,874 41,311
Equipment 125,762 114,077
Property under capital leases 96,565 69,867
Construction in progress 11,176 15,364
-------- --------
286,905 242,147
Less accumulated depreciation and
amortization 119,509 112,360
-------- --------
167,396 129,787
-------- --------
Other assets:
Investments in related parties 13,373 12,758
Goodwill 1,715 1,715
Intangibles, net 1,185 1,290
Other 3,621 3,743
Related party receivables - Wakefern 1,816 1,735
-------- --------
21,710 21,241
-------- --------
$257,984 $219,389
========= =========
(continued)
(1) Derived from the Audited Consolidated Financial Statements for the year
ended November 2, 2002.
See accompanying notes to consolidated condensed financial statements.
3
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
(in thousands except share data)
May 3, November 2,
2003 2002
(Unaudited) (1)
----------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 7,580 $ 7,158
Current portion of long-term debt,
related party 630 629
Current portion of obligations under
capital leases 1,304 1,140
Current income taxes payable 944 -
Deferred income taxes 1,433 1,433
Accounts payable:
Related party-Wakefern 33,580 31,935
Others 8,656 14,078
Accrued expenses 12,721 12,578
--------- ---------
66,848 68,951
--------- ---------
Long-term debt 49,474 35,745
Long-term debt, related party 928 686
Obligations under capital leases 89,369 63,606
Deferred income taxes 1,332 1,142
Other long-term liabilities 12,735 12,634
--------- ----------
153,838 113,813
--------- ----------
Shareholders' equity:
Common stock, $1.00 par; authorized
2,500,000 shares; issued 1,621,767 shares;
outstanding 986,867 shares May 3, 2003;
986,367 shares November 2, 2002 1,622 1,622
Capital in excess of par 4,168 4,168
Deferred compensation (1,138) (1,324)
Retained earnings 47,733 47,256
Accumulated other comprehensive income:
Minimum pension liability (2,896) (2,896)
---------- -----------
49,489 48,826
Less 634,900 shares May 3, 2003;
635,400 shares November 2, 2002,
held in treasury, at cost 12,191 12,201
---------- -----------
37,298 36,625
---------- ----------
$ 257,984 $ 219,389
========== ==========
(1) Derived from the Audited Consolidated Financial Statements for the year
ended November 2, 2002.
See accompanying notes to consolidated condensed financial statements.
4
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Operations - Unaudited
(in thousands - except share data)
13 Weeks Ended
-------------------------
May 3, May 4,
2003 2002
----------- ---------
Sales $ 254,578 $ 235,236
Cost of goods sold 187,995 176,353
----------- -----------
Gross profit 66,583 58,883
Selling, general and
administrative expenses 63,400 56,529
----------- ----------
Earnings from operations 3,183 2,354
----------- ----------
Other income (expense) :
Interest expense (3,010) (2,080)
Interest income 40 31
----------- ----------
(2,970) (2,049)
Earnings before income tax provision 213 305
Income tax provision (85) (122)
----------- ----------
Net income $ 128 $ 183
=========== ===========
Per share information:
Net income per common share:
Basic $ .13 $ .18
=========== ===========
Diluted $ .13 $ .17
=========== ===========
Weighted average shares outstanding:
Basic 986,867 1,045,341
=========== ==========
Diluted 1,011,948 1,101,999
=========== ==========
Dividends per common share -0- -0-
============= ============
See accompanying notes to consolidated condensed financial statements.
5
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Operations - Unaudited
(in thousands - except share data)
26 Weeks Ended
---------------------------
May 3, May 4,
2003 2002
----------- ------------
Sales $ 511,669 $ 487,263
Cost of goods sold 380,329 364,988
----------- ----------
Gross profit 131,340 122,275
Selling, general and
administrative expenses 125,291 115,941
----------- ----------
Earnings from operations 6,049 6,334
----------- ----------
Other income (expense):
Interest expense (5,331) (3,987)
Interest income 77 71
----------- ---------
(5,254) (3,916)
Earnings before income tax provision 795 2,418
Income tax provision (318) (968)
----------- ---------
Net income $ 477 $ 1,450
========= =========
Per share information:
Net income per common share:
Basic $ .48 $ 1.36
=========== ==========
Diluted $ .47 $ 1.30
=========== ==========
Weighted average shares outstanding:
Basic 986,710 1,062,509
============ =========
Diluted 1,014,500 1,118,497
============ =========
Dividends per common share -0- -0-
============= ============
See accompanying notes to consolidated condensed financial statements.
6
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows - Unaudited
(in thousands)
26 Weeks Ended
-----------------------
May 3, May 4,
2003 2002
---------- --------
Cash flows from operating activities:
Net income $ 477 $ 1,450
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation 8,121 6,852
Amortization, goodwill - 70
Amortization, intangibles 105 106
Amortization, deferred financing and other costs 234 159
Amortization, deferred rent escalation (153) (115)
Provision to value inventory at LIFO 391 240
Deferred income taxes 190 210
Amortization of deferred compensation 165 182
(Increase) decrease in
Merchandise inventories (4,328) (487)
Receivables and other current assets (158) (116)
Prepaid and refundable income taxes (1,011) (108)
Other assets (26) (528)
Related party receivables-Wakefern 3,182 3,601
Increase (decrease) in
Accounts payable (3,777) (5,826)
Income taxes payable 944 (704)
Other liabilities 418 (1,792)
------- ---------
4,774 3,194
------- ---------
Cash flows from investing activities:
Construction advance due from landlords - net 605 -
Cash paid for the purchase of property
and equipment (10,791) (5,020)
Cash paid for construction in progress (7,414) (855)
Increase in related party receivables-other - (1)
--------- ---------
(17,600) (5,876)
Cash flows from financing activities: ---------- ---------
Proceeds from issuance of debt 17,885 11,662
Principal payments under long-term debt (3,734) (2,603)
Principal payments under capital
lease obligations (771) (538)
Principal payments under long-term
debt, related party (372) (462)
Deferred financing and other costs (84) -
Proceeds from exercise of stock options 10 5
Repurchase of common stock - (4,524)
------- ---------
12,934 3,540
------- ---------
NET CHANGE IN CASH AND CASH EQUIVALENTS 108 858
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 4,280 4,219
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 4,388 $ 5,077
========= =========
See accompanying notes to consolidated condensed financial statements.
7
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited)
Note 1 Basis of Presentation
The unaudited Consolidated Condensed Financial Statements as of, or for the
period ended, May 3, 2003, have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-Q and rule 10-01. The balance sheet at November 2, 2002
has been derived from the audited financial statements at that date. In the
opinion of the management of the Company, all adjustments (consisting only of
normal recurring accruals) which are considered necessary for a fair
presentation of the results of operations for the period have been made. Certain
financial information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. The reader is referred to the consolidated
financial statements and notes thereto included in the Company's annual report
on Form 10-K for the year ended November 2, 2002.
At both May 3, 2003 and November 2, 2002, approximately 82% of merchandise
inventories are valued by the Last-In-First-Out ("LIFO") method of inventory
valuation while the balance of inventories are valued by the First-In-First-Out
("FIFO") method. Effective November 3, 2002 the Company changed from the 80%
LIFO method to the 100% LIFO method. The effect of this change on the six months
ended May 3, 2003 was to decrease net income $54,000 ($.05 per diluted share).
If the FIFO method had been used for the entire inventory, inventories would
have been $2,411,000 and $2,020,000 higher than reported at May 3, 2003 and
November 2, 2002, respectively.
Certain reclassifications have been made to prior year financial statements in
order to conform to the current year presentation.
These results are not necessarily indicative of the results for the entire
fiscal year.
Note 2 Adoption of New Accounting Standards
Accounting for Asset Retirement Obligations
Effective November 3, 2002 the Company adopted Statement of Financial Accounting
Standards No. 143 ("SFAS 143"), "Accounting for Asset Retirement Obligations".
SFAS 143 addresses financial accounting and reporting for obligations associated
with the retirement of tangible long-lived assets and the associated asset
retirement costs. There was no significant impact from the adoption of SFAS 143
in the thirteen and twenty six weeks ended May 3, 2003.
Recission of FASB Statements Nos. 4, 44 and 64, Amendment of FASB Statement
No. 13, and Technical Corrections
Effective November 3, 2002 the Company adopted Statement of Financial Accounting
Standards No. 145 ("SFAS 145"), "Recission of FASB Statements Nos. 4, 44 and 64,
Amendment of FASB Statement No. 13, and Technical Corrections". 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. There was no significant impact from the adoption of SFAS
145 in the thirteen and twenty six weeks ended May 3, 2003.
8
Accounting for Costs Associated with Exit or Disposal Activities
Effective November 3, 2002 the Company adopted Statement of Financial Accounting
Standards No. 146 ("SFAS 146"), "Accounting for Costs Associated with Exit or
Disposal Activities". 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.
There was no significant impact from the adoption of SFAS 146 in the thirteen
and twenty six weeks ended May 3, 2003.
Accounting for Stock Based Compensation - Transition and Disclosure
In December 2002, the FASB issued Statement of Financial Accounting Standards
No. 148 ("SFAS 148"), "Accounting for Stock Based Compensation - Transition and
Disclosure - an amendment of SFAS No. 123," which amends SFAS No. 123 ("SFAS
123") to provide alternative methods of transition for an entity that
voluntarily changes to the fair value method of accounting for stock based
compensation. It also amends the disclosure provisions of SFAS 123 to require
prominent disclosure about the effects on reported net income of an entity's
accounting policy decisions with respect to stock based employee compensation.
Finally, SFAS 148 amends APB Opinion No. 28, "Interim Financial Reporting", to
require disclosure of those effects in interim financial statements. SFAS 148 is
effective for fiscal years ended after December 15, 2002. Accordingly, the
Company has adopted the applicable disclosure requirements of this Statement
within this report (See Note 4). The Company continues to account for
stock-based compensation to its employees and directors using the intrinsic
value method prescribed by APB Opinion No. 25, and related interpretations.
Note 3 Goodwill and Other Intangible Assets
Effective November 3, 2002, the Company implemented Statement of Financial
Accounting Standards No. 142 ("SFAS 142"), "Accounting for Goodwill and Other
Intangible Assets." Goodwill and other intangibles that have indefinite useful
lives will not be amortized, but instead will be tested at least annually for
impairment at the reporting unit level. The Company has determined that it is
contained within one reporting unit and as such, impairment is tested at the
company level. During the first quarter of fiscal 2003, the Company completed
goodwill transition and annual impairment tests prescribed by SFAS 142 and
concluded that no impairment of goodwill existed as of November 3, 2002.
The gross carrying amount and accumulated amortization of the Company's other
intangible assets as of May 3, 2003 and November 2, 2002 are as follows:
May 3, 2003 November 2, 2002
----------- ----------------
(in thousands)
Gross Gross
Carrying Accumulated Carrying Accumulated
Amount Amortization Amount Amortization
--------------------------------------------------------
Amortized Intangible
Assets
Bargain Leases $3,918 $ 2,953 $3,918 $ 2,848
Unamortized Intangible
Assets
Liquor Licenses 220 - 220 -
--------------------------------------------------------
Total $4,138 $ 2,953 $4,138 $ 2,848
========================================================
9
Amortization expense recorded on the intangible assets for both the thirteen
weeks ended May 3, 2003 and May 4, 2002 was $53,000, and was $105,000 and
$106,000, respectively, for the twenty six weeks ended May 3, 2003 and May 4,
2002. As a result of the adoption of SFAS 142, there were no changes to
amortizable lives or amortization methods. The estimated amortization expense
for the Company's other intangible assets for each of the five succeeding fiscal
years is as follows:
Fiscal Year (In thousands)
----------- --------------
2003 $192
2004 106
2005 106
2006 106
2007 106
The following tables illustrate net income available to common shareholders and
earnings per share, exclusive of goodwill amortization expense in the prior
periods:
Thirteen Weeks Ended
--------------------------------------------------------
May 3, 2003 May 4, 2002
----------- -----------
(in thousands, except per share data)
Diluted Diluted
Basic earnings Basic earnings
Net earnings per share Net earnings per
Income per share share Income per share share
------ --------- ----- ------ --------- -----
Reported net income $128 $.13 $.13 $ 183 $ .18 $.17
Goodwill amortization - - - 35 .03 .03
---------------------------------------------------------------
Adjusted net income $128 $.13 $.13 $ 218 $.21 $.20
===============================================================
Twenty Six Weeks Ended
---------------------------------------------------------------
May 3, 2003 May 4, 2002
----------- -----------
(in thousands, except per share data)
Diluted Diluted
Basic earnings Basic earnings
Net earnings per Net earnings per
Income per share share Income per share share
---------------------------------------------------------------
Reported net income $477 $.48 $.47 $ 1,450 $ 1.36 $1.30
Goodwill amortization - - - 70 .06 .06
---------------------------------------------------------------
Adjusted net income $477 $.48 $.47 $ 1,520 $1.42 $1.36
===============================================================
Note 4 - Stock-Based Compensation
The Company accounts for stock option plans under the recognition and
measurement principles of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations. In
accordance with SFAS 148, "Accounting for Stock-Based Compensation - Transition
and Disclosure," the effect on net income and earnings per share if the Company
had applied the fair value recognition provisions of SFAS 123, "Accounting for
Stock-Based Compensation," to stock-based employee compensation is as follows:
10
Thirteen Weeks Twenty Six Weeks
Ended Ended
------------------------ ------------------------
May 3, May 4, May 3, May 4,
2003 2002 2002 2002
------------------------ ------------------------
Net income - as reported $ 128,000 $ 183,000 $ 477,000 $1,450,000
Deduct:
Adjustment to total stock-based
employee compensation expense
determined under the intrinsic
value method for expense
determined under the fair value
based method, net of related tax
effects 20,000 19,750 40,000 39,500
----------------------- ------------------------
Pro forma net income $108,000 $163,250 $437,000 $1,410,500
======================== ========================
Earnings per share
Basic, as reported $ .13 $ .18 $ .48 $ 1.36
======================== ========================
Basic, pro forma $ .11 $ .16 $ .44 $ 1.33
======================== ========================
Diluted, as reported $ .13 $ .17 $ .47 $ 1.30
======================== ========================
Diluted, pro forma $ .11 $ .15 $ .43 $ 1.26
======================== ========================
Part I - Item 2 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. The Company's critical accounting policies relating
to the impairment of goodwill, patronage dividends earned as a stockholder of
Wakefern and workers' compensation insurance are described in the Company's
Annual Report on Form 10-K for the year ended November 2, 2002. As of May 3,
2003 there have been no material changes to any of the critical accounting
policies contained therein.
11
Financial Condition and Liquidity
The Company is a party to a Third Amended and Restated Revolving Credit and Term
Loan Agreement (the "Credit Agreement") with four financial institutions. The
Credit Agreement is secured by substantially all of the Company's assets and
provided for a total commitment of up to $80,000,000, including a revolving
credit facility (the "Revolving Note") of up to $35,000,000, a term loan ("the
Term Loan") in the amount of $25,000,000 and a capital expenditures facility
(the "Capex Facility") of up to $20,000,000. As of May 3, 2003 the Company owed
$22,500,000 on the Term Loan and $5,899,621 under the Capex Facility.
On January 31, 2003 the Company financed the purchase of $4,000,000 of equipment
for the new store location in Woodbridge, New Jersey. The note bears interest at
6.45% and is payable in monthly installments over its seven year term.
The Company's compliance with the major financial covenants under the Credit
Agreement was as follows as of May 3, 2003:
Actual
Financial Credit (As defined in the
Covenant Agreement Credit Agreement)
- --------- --------- ------------------
Adjusted EBITDA (1) Greater than $17,000,000 $ 21,129,000
Leverage Ratio (1) Less than 3.5 to 1.00 2.77 to 1.00
Debt Service Coverage
Ratio Greater than 1.10 to 1.00 1.93 to 1.00
Adjusted Capex (2) Less than $5,740,000 (3)(5) $ 5,628,000 (4)
Store Project Capex Less than $23,175,000 (3)(5) $ 13,406,000 (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 2003.
(4) Represents capital expenditures for the 26 weeks ended May 3, 2003.
(5) Does not include amounts available but not used in the prior fiscal year and
available to be carried forward to fiscal 2003: $2,589,000 for Adjusted
Capex and $8,191,000 for Store Project Capex.
No cash dividends have been paid on the Common Stock since 1979, and the Company
has no present intentions or ability to pay any dividends in the near future on
its Common Stock. The Credit Agreement does not permit the payment of any cash
dividends on our Common Stock.
Working Capital
At May 3, 2003, the Company had working capital of $2,030,000 compared to
deficiencies of $590,000 at November 2, 2002 and $1,466,000 at May 4, 2002. The
12
improvement in working capital from November 2, 2002 was primarily due to an
increase in inventory, which was a result of new store openings in Woodbridge,
Ewing and North Brunswick, New Jersey, and the reduction of accounts payable
which increased the Revolving Note which is classified as long-term borrowings.
This increase in the Revolving Note was partially offset by the collection of
$3,263,000 of current related party receivables. Receivables and other current
assets include receivables due from the landlord for construction allowances for
the Woodbridge, New Jersey location. These receivables are currently in dispute
resulting in 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.
During the fiscal year 2002, the Business Tax Reform Act was passed in the State
of New Jersey. This legislation is effective for tax years beginning on or after
January 1, 2002 (fiscal 2003). Corporate taxpayers are subject to an Alternative
Minimum Assessment ("AMA"), which is based upon either New Jersey gross receipts
or New Jersey gross profits, if the AMA exceeds the tax based on net income. The
Company has reflected in its current tax provision the effect of the AMA. The
AMA increased the Company's current tax liability by $659,000.
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 ratios were as follows:
May 3, 2003 1.03 to 1.0
November 2, 2002 .99 to 1.0
May 4, 2002 .98 to 1.0
Cash flows (in millions) were as follows:
Twenty Six Weeks Ended
---------------------------------
May 3, 2003 May 4, 2002
----------- -----------
Operating activities... $ 4.8 $ 3.2
Investing activities... (17.6) ( 5.9)
Financing activities... 12.9 3.5
---------- -----------
Totals $ .1 $ .8
========== ===========
The Company had $4,950,000 of available credit, at May 3, 2003, under its
revolving credit facility. The Company has capital commitments (net of landlord
contributions) of $6,575,000 for equipment and $5,776,000 for leasehold
improvements related to four stores which are under construction, one of which
opened on May 7, 2003. Two of these are replacement stores, one is a new store
and one is an expansion and remodeling of an existing store. All of these
projects are in central New Jersey, are or will be World Class stores and have
opened or are expected to open either in the fourth quarter of fiscal 2003 or
late in fiscal 2004. The amounts available under the Credit Agreement will
adequately meet our operating needs, scheduled capital expenditures and debt
service for fiscal 2003.
13
For the 26 weeks ended May 3, 2003, depreciation was $8,121,000 while capital
expenditures, excluding capitalized leases, totaled $19,034,000, compared to
$6,852,000 and $5,875,000, respectively, in the prior year period. The increase
in depreciation was the result of the purchase of equipment and leasehold
improvements for the two new locations opened in Woodbridge and Ewing, New
Jersey in December 2002 and January 2003, respectively, as well as three
additional capitalized real estate leases. The increase in capital expenditures
was due to the acquisition of equipment and leasehold improvements for the
locations opened in the first quarter of fiscal 2003, the construction and
equipment for our new bakery commissary and two of the stores under
construction, as compared with only one new location opened in the first quarter
of fiscal 2002.
Results of Operations (13 weeks ended May 3, 2003 compared to 13
- --------------------- weeks ended May 4, 2002)
Sales:
Same store sales from the twenty one stores in operation in both periods
increased 1.7%. This increase in comparable store sales was partially offset by
the effect of the soft economy, the impact of deflation in certain product
categories and decreased sales in certain of the Company's stores affected by
competitive store openings. Sales for the current period totaled $254.6 million
as compared to $235.2 million in the prior year period. Sales for the current
quarter included the operations of the new locations opened in December 2002 and
January 2003 in Woodbridge and Ewing, New Jersey, respectfully. The location in
Woodbridge replaced an older, smaller store in the same shopping center.
Gross Profit:
Gross profit as a percent of sales increased to 26.2% of sales compared to 25.0%
in the prior year period. Patronage dividends, applied as a reduction of the
cost of merchandise sold, were $1.8 million in the current period compared to
$1.7 million in the prior year period. Gross profit as a percentage of sales
increased primarily as a result of improved product mix and the contribution of
the new Woodbridge and Ewing locations. This increase was offset in part by the
costs associated with programs implemented in certain of the Company's stores to
address competitive store openings.
Operating Expenses:
Operating, general and administrative expenses as a percent of sales were 24.9%
versus 24.0% in the prior year period. The increase in selling, general and
administrative expenses as a percent of sales was primarily due to increases in
certain expense categories as a percentage of sales. As a percentage of sales,
labor and related fringe benefits increased .23%, depreciation, including
depreciation on capitalized leases, increased .21%, administrative expense
increased .28%, selling expense increased .06%, supplies increased .05%,
pre-opening costs increased .12% and miscellaneous income decreased .04%. These
increases were partially offset by decreases in occupancy expense of .12%. The
increase in labor and related fringe benefits was the result of additional
personnel for the new Woodbridge and Ewing stores, increased sales in service
intensive departments and contractual increases in fringe benefits. The increase
in administrative expense was primarily the result of an increase in the reserve
for closed store expense and increased medical and pension costs for
administrative personnel. Pre-opening costs were for the new North Brunswick,
New Jersey store opened on May 7, 2003.
14
Interest Expense:
Interest expense increased to $3,010,000 from $2,080,000, while interest income
was $40,000 compared to $31,000 for the prior period. The increase in interest
expense for the current year period was due to an increase in average
outstanding debt, including increased capitalized lease obligations, and an
increase in the average interest rate paid on debt.
Income Taxes:
An income tax rate of 40% has been used in both the current and prior year
periods based on the expected effective tax rates.
Net Income:
Net income was $128,000 in the current year period compared to $183,000 in the
prior year period. Earnings before interest, taxes, depreciation and
amortization ("EBITDA") for the current period were $7,570,000 as compared to
$5,916,000 in the prior year period. Net income per common share on a diluted
basis was $.13 in the current period compared to $.17 in the prior year period.
Per share calculations are based on 1,011,948 shares outstanding in the current
year period and 1,101,999 shares outstanding in the prior year period.
EBITDA is presented because management believes that EBITDA is a useful
supplement to net income and other measurements under accounting principles
generally accepted in the United States since it is a meaningful measure of a
company's performance and ability to meet its future debt service requirements,
fund capital expenditures and meet working capital requirements. EBITDA is not a
measure of financial performance under accounting principles generally accepted
in the United States and should not be considered as an alternative to (i) net
income (or any other measure of performance under generally accepted accounting
principles) as a measure of performance or (ii) cash flows from operating,
investing or financing activities as an indicator of cash flows or as a measure
of liquidity. The following table reconciles reported net income to EBITDA:
Thirteen Weeks Ended
-------------------------------
May 3, 2003 May 4, 2002
----------- -----------
Net income $ 128,000 $ 183,000
Add:
Interest expense, net 2,970,000 2,049,000
Income tax provision 85,000 122,000
Depreciation 4,289,000 3,447,000
Amortization 98,000 115,000
---------- ----------
EBITDA $ 7,570,000 $ 5,916,000
=========== ===========
15
Results of Operations (26 weeks ended May 3, 2003 compared to 26 weeks
ended May 4, 2002)
Sales:
Same store sales from the twenty stores in operation in both periods decreased
..1%. This decrease in comparable store sales was primarily due to a softening in
the economy, the effect of competitive store openings and the impact of
deflation in certain product categories, partially offset by increased sales in
certain of the Company's stores. Sales for the current twenty six week period
totaled $511.7 million as compared to $487.3 million in the prior year period.
Sales for the current twenty six week period included the operations of three
new locations opened in Middletown, New Jersey in November 2001, Woodbridge, New
Jersey in December 2002 and Ewing, New Jersey in January 2003. The locations in
Middletown and Woodbridge replaced older, smaller stores in the same shopping
centers.
Gross Profit:
Gross profit as a percent of sales increased to 25.7% of sales compared to 25.1%
in the prior year period. Patronage dividends, applied as a reduction of the
cost of merchandise sold, were $3.7 million in the current period compared to
$3.4 million in the prior year period. Gross profit as a percentage of sales
increased primarily as a result of improved product mix and the contribution of
the new locations. This increase was offset in part by the costs associated with
programs implemented in certain of the Company's stores to address competitive
store openings.
Operating Expenses:
Selling, general and administrative expenses as a percent of sales were 24.5%
versus 23.8% in the prior year period. The increase in selling, general and
administrative expenses as a percent of sales was primarily due to increases in
certain expense categories as a percentage of sales. As a percentage of sales,
labor and related fringe benefits increased .24%, depreciation, including
depreciation on capitalized leases, increased .18%, administrative expense
increased .10% and pre-opening costs increased .18%. These increases were
partially offset by decreases in selling expense of .06%. The increase in labor
and related fringe benefits was the result of additional personnel for the new
Woodbridge and Ewing stores, increased sales in service intensive departments
and contractual increases in fringe benefits. The increase in administrative
expense was the result of an increase in the reserve for closed store expense
and increased medical and pension costs for administrative personnel.
Pre-opening costs were for the new Woodbridge, Ewing and North Brunswick stores
opened in December 2002, January 2003 and May 2003, respectively.
Interest Expense:
Interest expense increased to $5,331,000 from $3,987,000, while interest income
was $77,000 compared to $71,000 for the prior year period. The increase in
interest expense for the current year period was due to an increase in average
outstanding debt, including increased capitalized lease obligations, and an
increase in the average interest rate paid on debt.
16
Income Taxes:
An income tax rate of 40% has been used in both the current and prior year
periods based on the expected effective tax rates.
Net Income:
Net income was $477,000 in the current year period compared to $1,450,000 in the
prior year period. Earnings before interest, taxes, depreciation and
amortization ("EBITDA") for the current period were $14,356,000 as compared to
$13,406,000 in the prior year period. Net income per common share on a diluted
basis was $.47 in the current period compared to $1.30 in the prior year period.
Per share calculations are based on 1,014,500 shares outstanding in the current
period and 1,118,497 shares outstanding in the prior year period.
EBITDA is presented because management believes that EBITDA is a useful
supplement to net income and other measurements under accounting principles
generally accepted in the United States since it is a meaningful measure of a
company's performance and ability to meet its future debt service requirements,
fund capital expenditures and meet working capital requirements. EBITDA is not a
measure of financial performance under accounting principles generally accepted
in the United States and should not be considered as an alternative to (i) net
income (or any other measure of performance under generally accepted accounting
principles) as a measure of performance or (ii) cash flows from operating,
investing or financing activities as an indicator of cash flows or as a measure
of liquidity. The following table reconciles reported net income to EBITDA:
Twenty Six Weeks Ended
------------------------------
May 3, 2003 May 4, 2002
----------- -----------
Net income $ 477,000 $ 1,450,000
Add:
Interest expense, net 5,254,000 3,916,000
Income tax provision 318,000 968,000
Depreciation 8,121,000 6,852,000
Amortization 186,000 220,000
---------- ----------
EBITDA $14,356,000 $13,406,000
=========== ===========
Item 3. 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.
17
Item 4. 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 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.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
On May 29, 2003, the Company acknowledged and accepted service of a complaint
filed by Levin Properties, L.P. (the "Plaintiff") in the Superior Court of New
Jersey, Chancery Division, Mercer County. In its complaint, the Plaintiff
alleges that it entered into a lease with the Company providing for the
construction of a supermarket on property owned by the Plaintiff, and that the
Company has failed to comply with its contractual obligations under the lease by
refusing to negotiate open lease terms. In addition, the Plaintiff alleges that
the Company has breached its implied covenant of good faith and fair dealing by
refusing to provide construction specifications, failing to proceed with the
construction of the building, and by contemplating the operation of a
supermarket in competition with the Plaintiff.
As the action was only recently served upon the Company, the Company has not yet
filed an answer to the complaint; however, the Company expects to file an answer
denying the Plaintiff's allegations and asserting counterclaims. The Plaintiff
is seeking specific performance of the alleged lease, compensatory damages,
consequential damages, pre-judgment interest and costs. The Company expects to
vigorously defend this lawsuit; however, it is impossible to predict the outcome
of this matter at this time.
18
Item 4. Submission of Matters to a Vote of Securityholders
The Company held its 2003 Annual Meeting of Shareholders (the "Meeting") on
Wednesday, April 30, 2003. At the Meeting, shareholders were asked to vote upon
(i) the election of a Class I director; and (ii) a proposed amendment (the
"Proposed Amendment") to the Company's Restated Certificate of Incorporation, as
amended, to provide for the elimination of the classified board of directors of
the Company, subject to the satisfaction of certain conditions more specifically
described in the Company's proxy statement dated March 31, 2003 (the "Proxy
Statement"), which was distributed in connection with the Meeting.
The results of the voting were as follows: (i) 948,046 shares were voted in
favor of the election of Mr. Robert H. Hutchins as a Class I director of the
Company and authority for such election was withheld with respect to 1,165
shares; and (ii) 948,070 shares were voted in favor of the Proposed Amendment,
745 shares were voted against the Proposed Amendment and 396 shares abstained
from voting on the Proposed Amendment. Robert H. Hutchins, having received 99%
of the votes cast in his favor, was duly elected as a Class I director of the
Company to serve for a term of five years and until his successor has been
elected and qualified, and, with 99% of the votes cast in favor of the Proposed
Amendment, the Proposed Amendment was approved by the Company's shareholders.
If the conditions described in the Company's Proxy Statement are satisfied and
the Proposed Amendment becomes effective, Mr. Hutchins will serve for a one-year
term. In addition, if the Proposed Amendment becomes effective, all of the
Company's directors will be elected at the 2004 annual meeting of shareholders
to serve until the 2005 annual meeting. If the Proposed Amendment does not
become effective, Mr. Hutchins will serve for a term of five years, and the
directors representing Classes II through V will be elected in turn at the next
four annual meetings of the shareholders of the Company.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit (99.1) - Certification of Chief Executive Officer
Exhibit (99.2) - Certification of Chief Financial Officer
(b) Reports on Form 8-K.
None
19
SIGNATURES
Pursuant to the requirements 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)
Date: June 17, 2003 /S/ MICHAEL SHAPIRO
----------------------------
(Signature)
Michael Shapiro
Senior Vice President
Chief Financial Officer
Date: June 17, 2003 /S/ THOMAS H. FLYNN
----------------------------
(Signature)
Thomas H. Flynn
Director of Accounting
Principal Accounting Officer
20
CERTIFICATION
I, Joseph J. Saker, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Foodarama
Supermarkets, Inc.;
2. Based on my knowledge, this quarterly 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 quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the period presented in this
quarterly 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 quarterly
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 quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly 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
quarterly 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: June 17, 2003 /S/ JOSEPH J. SAKER, SR.
------------------------
(Signature)
Joseph J. Saker, Sr.
Chief Executive Officer
21
CERTIFICATION
I, Michael Shapiro, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Foodarama
Supermarkets, Inc.;
2. Based on my knowledge, this quarterly 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 quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the period presented in this
quarterly 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 quarterly 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
quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly 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
quarterly 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: June 17, 2003 /S/ MICHAEL SHAPIRO
-------------------
(Signature)
Michael Shapiro
Chief Financial Officer
22
EXHIBIT 99.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
In connection with the Quarterly Report of Foodarama Supermarkets, Inc.
(the "Company") on Form 10-Q for the period ended May 3, 2003 (the "Report"), I,
Joseph J. Saker, Chief Executive Officer of the Company, do hereby certify,
pursuant to 18 U.S.C. 1350, as adopted pursuant to section 906 of the
Sarbanes-Oxley Act of 2002, that to my knowledge:
(1) the Report fully complies with the requirements of section 13(a)
or 15(d) of the Securities Exchange Act of 1934, 15 U.S.C. 78m or 78o(d);
and,
(2) the information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the
Company.
Dated: June 17, 2003
/S/ JOSEPH J. SAKER, SR.
------------------------
(Signature)
Joseph J. Saker, Sr.
Chief Executive Officer
23
EXHIBIT 99.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
In connection with the Quarterly Report of Foodarama Supermarkets, Inc.
(the "Company") on Form 10-Q for the period ended May 3, 2003 (the "Report"), I,
Michael Shapiro, Chief Financial Officer of the Company, do hereby certify,
pursuant to 18 U.S.C. 1350, as adopted pursuant to section 906 of the
Sarbanes-Oxley Act of 2002, that to my knowledge:
(1) the Report fully complies with the requirements of section 13(a) or 15(d)
of the Securities Exchange Act of 1934, 15 U.S.C. 78m or 78o(d); and,
(2) the information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the
Company.
Date: June 17, 2003
/S/ MICHAEL SHAPIRO
------------------------
(Signature)
Michael Shapiro
Chief Financial Officer
24