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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended: January 29, 2005
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________ to _______________
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.)
Building 6, Suite 1, 922 Highway 33, Freehold, New Jersey 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 March 11, 2005
- -------- --------------
Common Stock 987,617 shares
$1 par value
1
FOODARAMA SUPERMARKETS, INC.
----------------------------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Unaudited Consolidated Condensed Balance
Sheets January 29, 2005 and October 30, 2004
Unaudited Consolidated Condensed Statements
of Operations for the thirteen weeks ended
January 29, 2005 and January 31, 2004
Unaudited Consolidated Condensed Statements
of Cash Flows for the thirteen weeks ended
January 29, 2005 and January 31, 2004
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 6. Exhibits
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, warehouse club stores and discount general merchandise
stores, economic conditions in the Company's primary markets, consumer spending
patterns, availability of capital, cost of labor, cost of goods sold including
increased costs from the Company's cooperative supplier, Wakefern Food
Corporation ("Wakefern"), and other risk factors detailed herein and in other of
the Company's Securities and Exchange Commission filings. The forward-looking
statements are made as of the date of this Form 10-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)
January 29, October 30,
2005 2004
(Unaudited) (1)
----------- -----------
ASSETS
Current assets:
Cash and cash equivalents $ 6,286 $ 6,001
Merchandise inventories 57,137 57,123
Receivables and other current assets 8,016 8,456
Prepaid and refundable income taxes 527 170
Related party receivables - Wakefern 7,665 14,799
--------- --------
79,631 86,549
--------- --------
Property and equipment:
Land 308 308
Buildings and improvements 1,220 1,220
Leasehold improvements 60,678 60,488
Equipment 162,711 161,554
Property under capital leases 152,354 152,354
Construction in progress 60 60
-------- -------
377,331 375,984
Less accumulated depreciation and
amortization 145,632 140,138
-------- -------
231,699 235,846
-------- -------
Other assets:
Investments in related parties 17,655 17,655
Goodwill 1,715 1,715
Intangible assets, net 1,446 1,493
Other 3,341 3,339
Related party receivables - Wakefern 2,076 2,039
-------- -------
26,233 26,241
-------- -------
$337,563 $348,636
======== ========
(continued)
(1) Derived from the Audited Consolidated Financial Statements for the year
ended October 30, 2004.
See accompanying notes to the consolidated condensed financial statements.
3
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
- ---------------------------------------------
Consolidated Condensed Balance Sheets
- -------------------------------------
(In thousands except share data)
January 29, October 30,
2005 2004
(Unaudited) (1)
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 8,956 $ 8,415
Current portion of long-term debt,
related party 925 867
Current portion of obligations under
capital leases 1,869 1,727
Current income taxes payable 994 408
Deferred income taxes 1,579 1,579
Accounts payable:
Related party-Wakefern 46,458 39,639
Others 10,333 14,384
Accrued expenses 13,123 15,236
------- -------
84,237 82,255
------- -------
Long-term debt 50,774 63,051
Long-term debt, related party 3,318 3,590
Obligations under capital leases 141,974 142,504
Deferred income taxes 1,851 2,292
Other long-term liabilities 13,838 13,711
------- -------
211,755 225,148
------- -------
Commitments and Contingencies
Shareholders' equity:
Common stock, $1.00 par; authorized 2,500,000 shares;
issued 1,621,767 shares; outstanding 987,617 shares 1,622 1,622
Capital in excess of par 4,168 4,168
Deferred compensation (495) (580)
Retained earnings 51,592 51,339
Accumulated other comprehensive income:
Minimum pension liability (3,140) (3,140)
--------- ---------
53,747 53,409
Less 634,150 shares, held in treasury, at cost 12,176 12,176
--------- ---------
41,571 41,233
--------- ----------
$ 337,563 $ 348,636
========== ===========
(1) Derived from the Audited Consolidated Financial Statements for the year
ended October 30, 2004.
See accompanying notes to the consolidated condensed financial statements.
4
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
- ---------------------------------------------
Consolidated Condensed Statements of Operations - Unaudited
- -----------------------------------------------------------
(In thousands - except share data)
13 Weeks Ended
--------------------------
January 29, January 31,
2005 2004
----------- -----------
Sales $ 317,589 $ 293,843
Cost of goods sold 237,482 217,615
---------- ----------
Gross profit 80,107 76,228
Selling, general and administrative expenses 75,075 70,471
---------- ----------
Earnings from operations 5,032 5,757
---------- ----------
Other income (expense):
Interest expense (4,660) (3,784)
Interest income 36 27
----------- ----------
(4,624) (3,757)
----------- ----------
Earnings before income tax provision 408 2,000
Income tax provision (155) (760)
----------- ----------
Net income $ 253 $ 1,240
=========== ==========
Per share information:
Net income per common share:
Basic $ .26 $ 1.26
========== =========
Diluted $ .24 $ 1.22
========== =========
Weighted average shares outstanding:
Basic 987,617 986,867
=========== =========
Diluted 1,035,753 1,013,049
=========== =========
Dividends per common share -0- -0-
=========== =========
See accompanying notes to the consolidated condensed financial statements.
5
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
- ---------------------------------------------
Consolidated Condensed Statements of Cash Flows - Unaudited
- -----------------------------------------------------------
(In thousands)
13 Weeks Ended
----------------------------
January 29, January 31,
2005 2004
-------- ------
Cash flows from operating activities:
Net income $ 253 $ 1,240
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation 5,494 4,685
Amortization, intangibles 47 26
Amortization, deferred financing costs 244 177
Amortization, deferred rent escalation (80) (76)
Provision to value inventory at LIFO 238 280
Deferred income taxes (441) (30)
Amortization of deferred compensation 86 124
(Increase) decrease in
Merchandise inventories (252) (814)
Receivables and other current assets (335) 261
Prepaid and refundable income taxes (357) 891
Other assets (246) (318)
Related party receivables-Wakefern 7,097 6,846
Increase (decrease) in Accounts payable 2,768 3,487
Income taxes payable 586 1,084
Other liabilities (1,907) 1,055
----------- ---------
13,195 18,918
----------- ---------
Cash flows from investing activities:
Decrease in construction advance due from landlords 775 6,061
Increase in construction advance due from landlords - (5,481)
Cash paid for the purchase of property and equipment (1,347) (3,861)
Cash paid for construction in progress - (1,258)
---------- ---------
(572) (4,539)
---------- ---------
Cash flows from financing activities:
Proceeds from issuance of debt - 2,359
Principal payments under long-term debt (11,736) (15,088)
Principal payments under capital lease obligations (388) (454)
Principal payments under long-term debt,related party (214) (268)
Deferred financing and other costs - -
---------- ----------
(12,338) (13,451)
---------- ----------
NET CHANGE IN CASH AND CASH EQUIVALENTS 285 928
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 6,001 5,252
---------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 6,286 $ 6,180
========== ==========
See accompanying notes to the consolidated condensed financial statements.
6
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited)
- ----------------------------------------------------------------
Note 1 Basis of Presentation
- -------------------------------
The unaudited Consolidated Condensed Financial Statements as of or for the
period ending January 29, 2005, 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 October 30, 2004
has been taken 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 and Form 10-K/A for the year ended October 30, 2004.
At January 29, 2005 and October 30, 2004, approximately 81% and 82%,
respectively, of merchandise inventories are valued by the Last-In-First-Out
("LIFO") method of inventory valuation while the balance of inventories is
valued by the First-In-First-Out ("FIFO") method. If the FIFO method had been
used for the entire inventory, inventories would have been $3,978,000 and
$3,740,000 higher than reported at January 29, 2005 and October 30, 2004,
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
- ---------------------------------------------
In November 2004, the FASB issued SFAS No. 151, "Inventory Costs", an amendment
of ARB No. 43, Chapter 4. SFAS No. 151 amends the guidance in ARB No. 43,
Chapter 4, "Inventory Pricing", to clarify the accounting for abnormal amounts
of idle facility expense, freight, handling costs, and spoilage. This statement
requires that those items be recognized as current period charges regardless of
whether they meet the criterion of "so abnormal" which was the criterion
specified in ARB No. 43. This pronouncement is effective for the fiscal years
beginning after June 15, 2005. The Company has not yet assessed the impact on
adopting this new standard.
In December 2004, the FASB issued SFAS No. 123 (revised 2004), "Share-Based
Payment", which is a revision of SFAS No. 123, "Accounting for Stock-Based
Compensation". SFAS No. 123(R) supersedes APB Opinion No. 25, "Accounting for
Stock Issued to Employees" and amends SFAS No. 95, "Statement of Cash Flows".
Generally, the approach in SFAS No. 123(R) is similar to the approach described
in SFAS No. 123. However, SFAS No. 123(R) requires all share-based payments to
employees, including grants of employee stock options, to be recognized in the
income statement based on their fair values. Pro forma disclosure is no longer
an alternative. The new standard will be effective for the Company in the first
interim or annual reporting period beginning after June 15, 2005, which is the
fourth quarter of fiscal 2005. The Company has not yet assessed the impact on
adopting this new standard.
In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary
Assets, an amendment of APB Opinion No. 29." SFAS No. 153 specifies the criteria
required to record a nonmonetary asset exchange using carryover basis. SFAS No.
7
153 is effective for nonmonetary asset exchanges occurring after July 1, 2005.
The Company will adopt this statement in the third quarter of fiscal 2005 and it
is not expected to have a material effect on the financial statements when
adopted.
In December 2004, the FASB issued FSP FAS 109-1, Application of FASB Statement
No. 109, "Accounting for Income Taxes," to the "Tax Deduction on Qualified
Production Activities Provided by the American Jobs Creation Act of 2004" to
provide accounting guidance on the appropriate treatment of tax benefits
generated by the enactment of the Act. The FSP requires that the manufacturer's
deduction be treated as a special deduction in accordance with SFAS 109 and not
as a tax rate reduction. The Company is awaiting final tax regulations from the
Internal Revenue Service before completing its assessment of the impact of
adopting FSP FAS 109-1 on its financial statements.
Note 3 - Stock-Based Compensation
- ---------------------------------
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," ("APB 25") and related
interpretations in accounting for its employee stock options. Under this method,
compensation cost is measured as the amount by which the market price of the
underlying stock exceeds the exercise price of the stock option at the date at
which both the number of options granted and the exercise price are known.
In accordance with SFAS 148, "Accounting for Stock-Based Compensation -
Transition and Disclosure," the effect on net income and earnings per share if
the Company had applied the fair value recognition provisions of SFAS 123,
"Accounting for Stock-Based Compensation," to stock-based employee compensation
is as follows:
Thirteen Weeks
Ended
------------------------
(In thousands, except
per share amounts)
------------------------
January 29, January 31,
2005 2004
------------------------
Net inc $ 253 $ 1,240
Add:
Stock-based employee compensation
expense included in reported net
income, net of related tax
effects 52 56
Deduct:
Adjustment to total stock-based
employee compensation expense
determined under the fair value
based method, net of related tax
effects (71) ( 76)
------------------------
Pro forma net income $ 234 $ 1,220
========================
Earnings per share:
Basic, as reported $ .26 $ 1.26
========================
Basic, pro forma $ .24 $ 1.24
========================
Diluted, as reported $ .24 $ 1.22
========================
Diluted, pro forma $ .23 $ 1.20
========================
8
Note 4 Employee Benefit Plans
- ------------------------------
The following tables summarize the components of the net periodic pension
expense for the Company sponsored defined benefit pension plans (both funded and
unfunded postretirement plans) for the 13 weeks ended January 29, 2005 and
January 31, 2004 (in thousands):
Components of Net Periodic Benefit Cost:
Pension Plans 13 Weeks Ended
- ------------- --------------
January 29, 2005 January 31.2004
---------------- ---------------
Service cost $ 123 $ 62
Interest cost 132 172
Expected return on plan assets (134) (118)
Settlement (gain) loss recognized - -
Amortization of prior service cost 11 12
Recognized net actuarial loss 95 91
------ ------
Net periodic benefit cost $ 227 $ 219
====== ======
Other Postretirement Plan 13 Weeks Ended
- ------------------------- --------------
January 29, 2005 January 31, 2004
---------------- ----------------
Service cost $ 46 $ 42
Interest cost 83 78
Amortization of prior service cost 21 20
Recognized net actuarial loss 46 51
---- ----
Net periodic benefit cost $ 196 $ 191
===== =====
As previously disclosed in the Notes to the Consolidated Financial Statements in
the Company's 2004 Annual Report on Form 10-K/A filed with the SEC on February
28, 2005, the Company's current funding policy for its qualified pension plans
is to contribute annually the amount required by regulatory authorities to meet
minimum funding requirements. The Company presently anticipates contributing
approximately $1,246,000 to its pension plans during fiscal 2005. This amount is
based on preliminary information and the actual amount contributed will be
determined based on the final actuarial calculations, plan asset performance,
possible changes in law and other factors. The Company has contributed $311,000
during the thirteen weeks ended January 29, 2005, and anticipates contributing
approximately $935,000 more for expected future benefit payments during the
remainder of fiscal 2005.
Since the Company's Other Post Retirement Plan is unfunded, the contributions to
this plan are equal to the benefit payments made during the year. There were no
benefit payments made during the 13 weeks ended January 29, 2005.
9
Part I - Item 2 Management's Discussion and Analysis of Financial Condition and
- --------------------------------------------------------------------------------
Results of Operations
- ---------------------
OVERVIEW
- --------
We operate a chain of 26 ShopRite supermarkets in Central New Jersey. We believe
it is important to maintain a modern, one stop competitive shopping environment
for our customers and therefore have invested heavily in new, expanded and
remodeled facilities. We have incorporated upscale service departments in our
World Class supermarket concept. We are the largest member of Wakefern, the
largest retailer owned food cooperative warehouse in the United States. Since we
purchase from Wakefern most of the product we sell, participate in advertising,
supply, insurance and technology programs with Wakefern, and receive 13.5% of
Wakefern's patronage dividend, our success is integrally tied to the success of
Wakefern.
We operate in a highly competitive geographic area. Certain of our competitors
are non-union and therefore may have lower labor and related fringe benefit
costs. In the past five years a non-union competitor, Wegmans, has opened five
stores in our trading area. We expect Wegmans to continue to open additional
locations in our marketing area in the future. Additionally, another non-union
operator, Wal-Mart, is expected to open Super Centers, which include extensive
food operations, in our trading area.
Certain categories of selling, general and administrative expenses have
increased disproportionately in comparison to our sales growth and to inflation
in the last three years. We have experienced substantial increases in employee
health and pension costs under union contracts and for non-union associates.
Additionally, the cost of utilities to operate our stores increased dramatically
in fiscal 2004. This trend has continued in fiscal 2005.
We look at a variety of indicators to evaluate our performance, such as same
store sales; sales per store; sales per selling square foot; percentage of total
sales by department; shrink by department and store; departmental gross profit
margins; sales per man hour; hourly labor rates; and percent of overtime.
Critical Accounting Policies and Estimates
- ------------------------------------------
Critical accounting policies are those accounting policies that management
believes are important to the portrayal of the Company's financial condition and
results 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, inventory valuation, patronage dividends earned
as a stockholder of Wakefern, pension plans and workers' compensation insurance
are described in the Company's Annual Report on Form 10-K for the year ended
October 30, 2004. As of January 29, 2005 there have been no material changes to
any of the critical accounting policies contained therein.
10
Financial Condition and Liquidity
- ---------------------------------
The Company is a party to a Third Amended and Restated Revolving Credit and Term
Loan Agreement (the "Credit Agreement") with four financial institutions. The
Credit Agreement serves as our primary funding source for working capital and
capital expenditures. The Credit Agreement is secured by substantially all of
the Company's assets and provided for a total commitment of up to $80,000,000,
including a revolving credit facility (the "Revolving Note") of up to
$35,000,000, a term loan ("the Term Loan") in the amount of $25,000,000 and a
capital expenditures facility (the "Capex Facility") of up to $20,000,000. As of
January 29, 2005 the Company owed $13,750,000 on the Term Loan and $20,000,000
under the Capex Facility.
The Company's compliance with the major financial covenants under the Credit
Agreement was as follows as of January 29, 2005:
- --------------------------------------------------------------------------------
Actual
(As defined in the
Financial Covenant Credit Agreement Credit Agreement)
- --------------------------------------------------------------------------------
Adjusted EBITDA (1) Greater than $26,000,000 $ 27,318,000
- --------------------------------------------------------------------------------
Leverage Ratio (1)(2) Less than 3.0 to 1.00 2.34 to 1.00
- --------------------------------------------------------------------------------
Debt Service Coverage
Ratio (3) Greater than 1.10 to 1.00 1.79 to 1.00
- --------------------------------------------------------------------------------
Adjusted Capex (4) Less than $4,117,000 (5) (7) $ 1,272,000 (6)
- --------------------------------------------------------------------------------
Store Project Capex Less than $27,269,000 (5) (7) $ 75,000 (6)
- --------------------------------------------------------------------------------
(1) Excludes obligations under capitalized leases, interest expense and
depreciation expense attributable to capitalized leases, non-cash write
downs and changes in the LIFO reserve.
(2) The Leverage Ratio is calculated by dividing the current and non-current
portions of Long-Term Debt and Long-Term Debt Related Party by Adjusted
EBITDA.
(3) The Debt Service Coverage Ratio is calculated by dividing Operating Cash
Flow by the sum of adjusted net interest expense, which excludes interest
on capitalized leases, the current provision for income taxes and
regularly scheduled principal payments, which exclude principal payments
on capitalized leases. Operating Cash Flow is calculated by subtracting
amounts expended for property and equipment which are not used for
projects in excess of $500,000 ($286,000 in the first quarter of fiscal
2005) from Adjusted EBITDA.
(4) Adjusted Capex is all capital expenditures other than New/Replacement
Store Project Capex.
(5) Represents limitations on capital expenditures for fiscal 2005. For fiscal
2005 the Company has budgeted $8,117,000 for capital expenditures. Any
unused amounts available under the Credit Agreement will be carried
forward to future periods.
(6) Represents capital expenditures for fiscal 2005.
(7) Includes amounts available but not used in the prior fiscal year and
available to be carried forward to fiscal 2005: $117,000 for Adjusted
Capex and $1,251,000 for Store Project Capex.
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.
11
Working Capital
- ---------------
At January 29, 2005, the Company had a working capital deficiency of $4,606,000
as compared to working capital of $4,294,000 at October 30, 2004 and a working
capital deficiency of $8,343,000 at January 31, 2004. Since the end of fiscal
2004, working capital declined and a deficiency was created as a result of the
collection of related party receivables from Wakefern related to the fiscal 2004
patronage dividend receivable and the increase in related party accounts payable
to Wakefern resulting from increased sales and the deferral of payment for
Wakefern promotional programs. Funds used to pay these accounts payable will
come from the revolving credit facility thereby increasing the Revolving Note
which is classified as long-term borrowings. This will result in a corresponding
increase in working capital.
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:
January 29, 2005 .95 to 1.0
October 30, 2004 1.05 to 1.0
January 31, 2004 .90 to 1.0
Cash flows (in millions) were as follows:
Thirteen Weeks Ended
--------------------
1/29/05 1/31/04
------- -------
Operating activities $ 13.2 $ 18.9
Investing activities (.6) (4.5)
Financing activities (12.3) (13.5)
-------- -------
Totals $ .3 $ .9
======== =======
The Company had $13,172,000 of available credit, at January 29, 2005, under its
revolving credit facility. The Company has no capital commitments for leasehold
improvements or equipment as of January 29, 2005. The amounts available under
the Credit Agreement will adequately meet our operating needs, scheduled capital
expenditures and debt service for fiscal 2005.
For the 13 weeks ended January 29, 2005 depreciation was $5,494,000 while
capital expenditures totaled $1,347,000, compared to $4,685,000 and $5,119,000,
respectively, in the prior year period. The increase in depreciation was the
result of depreciation for the equipment and leasehold improvements for the two
new locations opened in fiscal 2004 as well as the additional capitalized real
estate lease and the modified capitalized real estate lease related to these
locations. Capital expenditures in the first quarter of fiscal 2005 decreased as
compared to capital expenditures in the first quarter of fiscal 2004 when two
new locations were under construction and the remodeling and expansion of the
East Brunswick New Jersey location was substantially completed.
12
The following table summarizes our contractual obligations at January 29, 2005,
and the effect such obligations are expected to have on liquidity and cash flow
in future periods.
Payments Due By Period
- --------------------------------------------------------------------------------
Less Than 2-3 4-5 After 5
- --------------------------------------------------------------------------------
Contractual Obligations Total 1 Year Years Years Years
(Dollars In Thousands)
- --------------------------------------------------------------------------------
Long-term debt $ 59,730 $ 8,956 $24,351 $ 26,423 $ -
- --------------------------------------------------------------------------------
Interest on Long Term Debt (1) 14,295 4,345 7,035 2,915
- --------------------------------------------------------------------------------
Related party debt,
non interest bearing 4,243 925 1,804 998 516
- --------------------------------------------------------------------------------
Capital lease obligations (2) 350,296 15,957 31,470 31,768 271,101
- --------------------------------------------------------------------------------
Operating leases (2) 61,723 9,679 15,492 11,687 24,865
- --------------------------------------------------------------------------------
Other Liabilities (3) 4,614 1,043 698 1,249 1,624
- --------------------------------------------------------------------------------
Purchase obligations -
leaseholds and equipment - - - - -
- --------------------------------------------------------------------------------
Lease commitments - stores
under construction - - - - -
- --------------------------------------------------------------------------------
Total $ 494,901 $40,905 $80,850 $75,040 $298,106
========= ======= ======= ======= ========
- --------------------------------------------------------------------------------
(1) Includes interest expense at estimated interest rates of 6.50% to 7.50% on
variable rate debt of $54,311 and interest expense at interest rates of
6.20% to 6.44% on fixed rate debt of $5,419.
(2) Lease obligation figures do not include insurance, common area maintenance
charges and real estate taxes for which the Company is obligated.
(3) Other liabilities include estimated unfunded pension liabilities, and
estimated post-retirement and post-employment obligations based on
available actuarial data.
Results of Operations (13 weeks ended January 29, 2005 compared to 13 weeks
- ------------------------ ended January 31, 2004)
Sales:
- ------
Sales for the current period totaled $317.6 million as compared to $293.8
million in the prior year period. This represents an increase of 8.1%. Sales for
the current quarter included the operations of the new locations opened in April
and May 2004 in Lawrenceville and Aberdeen, New Jersey, respectfully, as well as
the location in Bordentown, New Jersey purchased from Wakefern in June 2004. The
location in Aberdeen replaced an older, smaller store in the same location.
Same store sales from the twenty three stores in operation in both periods
increased .3%. Comparable store sales increases were partially offset by
decreased sales in certain of the Company's stores affected by competitive store
openings and the impact from the opening of our new locations.
Gross Profit:
- -------------
Gross profit as a percent of sales decreased to 25.2% in the first quarter of
fiscal 2005 compared to 25.9% for the comparable period in fiscal 2004. Cost of
goods sold includes the costs of inventory sold and the related purchase,
13
inbound freight and distribution costs including those costs charged by Wakefern
for operation of warehouses, distribution and delivery of product to our stores.
Vendor allowances and rebates and Wakefern patronage dividends are reflected as
a reduction of cost of goods sold. Any costs to us related to other services
which Wakefern provides are not included in cost of goods sold.
Patronage dividends, applied as a reduction of the cost of goods sold, were $2.5
million in the current year period compared to $2.4 million in the prior year
period.
The decrease in gross profit was the result of programs implemented in certain
of the Company's stores to address competitive store openings (.36%) and an
increase in shrink (.36%). Shrink is the difference between expected gross
profit, based on the difference between the cost and expected selling price of
merchandise purchased, and actual gross profit. Shrink results from theft,
spoilage, breakage, mark ups and mark downs.
Operating Expenses:
- -------------------
Selling, general and administrative expenses totaled $75.1 million in the first
quarter of fiscal 2005 compared to $70.5 million for the comparable period in
fiscal 2004. Selling, general and administrative expenses as a percent of sales
were 23.6% versus 24.0% in the prior year period. Decreases in labor and
administration and an increase in miscellaneous income were partially offset by
increases in fringe benefits, depreciation and occupancy costs. Although labor
decreased as a percent of sales, labor expense increased from $28,212,000 to
$29,389,000. The decrease in labor as a percent of sales was due to improved
efficiency in the locations opened in fiscal 2003 and the increase in labor
expense was due to two additional locations, the replacement of a smaller store
and the enlargement of an additional location in fiscal 2004. Administration
decreased as several components increased at a slower rate than the increase in
sales and the incentive compensation accrual for administrative personnel
decreased based upon operating results for the current quarter. Administration
costs declined from $5,184,000 to $4,769,000. The increase in miscellaneous
income was due to increased baling and coupon handling income. Miscellaneous
income increased from $549,000 to $778,000. The increase in fringe benefits was
the result of contractual increases. Fringe benefits increased from$12,215,000
to $13,733,000. Depreciation increased as the result of the purchase of
equipment and leasehold improvements for two new locations opened during 2004 in
Lawrenceville and Aberdeen, New Jersey, the completion in January 2004 of the
expansion and remodeling of the East Brunswick store, the remodeling of the
Neptune location in October 2004 and the purchase of the Bordentown, New Jersey
location in June 2004, as well as the addition of one new capitalized real
estate lease and the increase in obligations under a capitalized real estate
lease for a replacement store. Depreciation increased from $4,685,000 to
$5,494,000. The increase in occupancy costs was primarily the result of
increases in utility costs, real estate tax expense and common area maintenance
expense. Occupancy increased from $8,958,000 to $10,070,000.
As a percentage of sales, labor decreased .35%, administration decreased .26%
and miscellaneous income increased .05%. These decreases were partially offset
by an increase in fringe benefits of .16%, depreciation, including depreciation
on capitalized leases, of .14% and occupancy of .12%.
Interest Expense:
- -----------------
Interest expense increased to $4,660,000 from $3,784,000, while interest income
was $36,000 compared to $27,000 for the prior year period. The increase in
interest expense for the current year period was due to a net increase in
average outstanding debt, including capitalized lease obligations, and an
increase in the average interest rate paid on debt.
14
Income Taxes:
- -------------
An income tax rate of 38% has been used in both the current and the prior year
periods. The tax rate used is based on the expected effective tax rates.
Net Income:
- -----------
Net income was $253,000 in the current year period compared to $1,240,000 in the
prior year period. Earnings before interest, taxes, depreciation and
amortization ("EBITDA") for the current period were $10,737,000 as compared to
$10,569,000 in the prior year period. Net income per common share on a diluted
basis was $.24 in the current year period compared to $1.22 in the prior year
period. Per share calculations are based on 1,035,753 shares outstanding in the
current year period and 1,013,049 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
--------------------
January 29, 2005 January 31, 2004
---------------- ----------------
Net income $ 253,000 $ 1,240,000
Add:
Interest expense, net 4,624,000 3,757,000
Income tax provision 155,000 760,000
Depreciation 5,494,000 4,685,000
Amortization 211,000 127,000
----------- -----------
EBITDA $10,737,000 $10,569,000
=========== ===========
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.
Item 4. Controls and Procedures
- -------------------------------
As required by Rule 13a-15 under the Exchange Act, as of the end of the period
covered by this quarterly report, the Company carried out an evaluation of the
effectiveness of the design and operation of the Company's disclosure controls
and procedures. This evaluation was carried out under the supervision and with
the participation of the Company's management, including the Company's President
and Chief Executive Officer along with the Company's Chief Financial Officer,
15
who concluded that the Company's disclosure controls and procedures are
effective. The Company's Director of Internal Audit and Principal Accounting
Officer also participated in this evaluation. During the Company's last fiscal
quarter, there has been no significant change in the Company's internal control
over financial reporting that has materially affected, or is reasonably likely
to materially affect, the Company's internal control over financial reporting.
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 6. Exhibits
-----------------
Exhibit 31.1 Section 302 Certification of Chief Executive
Officer
Exhibit 31.2 Section 302 Certification of Chief Financial
Officer
Exhibit 32.1 Certification of Chief Executive Officer pursuant
to 18 U.S.C. Section 1350
Exhibit 32.2 Certification of Chief Financial Officer pursuant
to 18 U.S.C. Section 1350
16
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
FOODARAMA SUPERMARKETS, INC.
-----------------------------
(Registrant)
Date: March 14, 2005 /S/ MICHAEL SHAPIRO
--------------------------
(Signature)
Michael Shapiro
Senior Vice President,
Chief Financial Officer
Date: March 14, 2005 /S/ THOMAS H. FLYNN
--------------------------
(Signature)
Thomas H. Flynn
Vice President,
Principal Accounting Officer
17
EXHIBIT 31.1
CERTIFICATION
I, Richard J. Saker, certify that:
1. I have reviewed this report on Form 10-Q of Foodarama Supermarkets, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting;
and
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal control
over financial reporting.
Date: March 11, 2005 /s/ RICHARD J. SAKER
-------------------------------
(Signature)
Richard J. Saker
Chief Executive Officer
18
EXHIBIT 31.2
CERTIFICATION
I, Michael Shapiro, certify that:
1. I have reviewed this report on Form 10-Q of Foodarama Supermarkets, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting;
and
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal control
over financial reporting.
Date: March 11, 2005 /s/ MICHAEL SHAPIRO
------------------------------
(Signature)
Michael Shapiro
Chief Financial Officer
19
EXHIBIT 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Foodarama Supermarkets, Inc.
(the "Company") on Form 10-Q for the period ended January 29, 2005 (the
"Report"), I, Richard J. Saker, Chief Executive Officer of the Company, do
hereby certify, pursuant to 18 U.S.C.ss. 1350, as adopted pursuant to ss. 906 of
the Sarbanes-Oxley Act of 2002, that to my knowledge:
(1) the Report fully complies with the requirements of ss. 13(a) or 15(d) of
the Securities Exchange Act of 1934, 15 U.S.C. ss. 78m(a) or 78o(d), and,
(2) the information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the
Company.
Date: March 11, 2005 /s/ RICHARD J. SAKER
------------------------------
(Signature)
Richard J. Saker
Chief Executive Officer
20
EXHIBIT 32.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Foodarama Supermarkets, Inc.
(the "Company") on Form 10-Q for the period ended January 29, 2005 (the
"Report"), I, Michael Shapiro, Chief Financial Officer of the Company, do hereby
certify, pursuant to 18 U.S.C.ss. 1350, as adopted pursuant to ss. 906 of the
Sarbanes-Oxley Act of 2002, that to my knowledge:
(1) the Report fully complies with the requirements of ss. 13(a) or 15(d) of
the Securities Exchange Act of 1934, 15 U.S.C. ss. 78m(a) or 78o(d), and,
(2) the information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the
Company.
Date: March 11, 2005 /s/ MICHAEL SHAPIRO
------------------------------
(Signature)
Michael Shapiro
Chief Financial Officer
21