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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the fiscal year ended
Commission file number
October 28, 1995
1-5745
FOODARAMA SUPERMARKETS, INC.
(Exact name of registrant as specified in its charter)
New Jersey 21-0717108
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Building 6, Suite 1, 922 Hwy. 33, Freehold, New Jersey 07728
(Address of principal executive offices)
Registrant's telephone number, including area code: (908) 462-4700
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
Common Stock American Stock Exchange
Par Value $1.00 per share
Securities registered pursuant to Section 12(g) of the Act:
NONE
(Title of class)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 12 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months and (2) has been
subject to such filing requirements for the past 90 days.
Yes x No
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [X]
The aggregate market value of voting stock held by non-affiliates
of the Registrant was approximately $4,038,000. Computation is based on the
closing sales price of $12.125 per share of such stock on the American
Stock Exchange on January 19, 1996.
As of January 19, 1996, the number of shares outstanding of
Registrant's Common Stock was 1,118,150.
DOCUMENTS INCORPORATED BY REFERENCE
Information contained in the 1996 definitive Proxy Statement to be
filed with the Commission and to be delivered to security holders in
connection with the Annual Meeting are incorporated by reference into this
Form
10-K at Part III.
PART I
Item 1. Business.
General
The Registrant, a New Jersey corporation formed in 1958, operates a chain
of eighteen supermarkets, located in Central New Jersey, as well as, two
liquor stores and two garden centers, all licensed as ShopRite. The
Registrant also operates a central food processing facility to supply its
stores with meat, various prepared salads and other items, and a central
baking facility which supplies its stores with bakery products.
The Registrant has incorporated the concept of "World Class" supermarkets
into its operations. "World Class" supermarkets are significantly larger
than conventional supermarkets and feature fresh fish-on-ice, prime meat
service butcher departments, in-store bakeries, international cheese cases,
salad bars, snack bars, bulk foods and pharmacies. The Registrant has also
introduced many of these features into its conventionally sized
supermarkets through extensive renovations; these stores are considered
"Mini-World Class" supermarkets. Currently, twelve of the Registrant's
stores are "World Class", four are "Mini-World Class" and two are
conventional supermarkets.
On October 18, 1993, the Registrant sold its five operating New York stores
located in Long Island, New York to The Grand Union Company for $16.1
million plus inventory of $2.2 million. The net sales for these five
stores, for the 50 weeks of fiscal 1993 during which they were owned by the
Registrant, were $85 million. See Management's Discussion and Analysis -
Results of Operations and Note 2 of Notes to Consolidated Financial
Statements.
On May 23, 1995, the Registrant sold its two operating Pennsylvania stores
to another member of the Wakefern Food Corporation ("Wakefern"), a
cooperative in which the Registrant is a member, for $5.7 million plus
inventory of $2.3 million. The net sales of these two stores, for the 30
weeks of fiscal 1995 during which they were owned by the Registrant, were
$29.2 million. See Management's Discussion and Analysis - Results of
Operations and Note 2 of Notes to Consolidated Financial Statements.
I - 1
The following table sets forth certain data relating to the Registrant's
business for the period indicated:
Stores in Operation throughout each Period
(dollars in thousands)
Number of Sales per Net Income
Stores Open Store Open Total Net (Loss) as
at End of Throughout Sales of Income Percent
Period Period(1) Period (2) all Stores (Loss) of Sales
52 weeks
ended
November
2, 1991 27 $26,238 $695,306 $(553) (.08)
52 weeks
ended
October
31, 1992 26 $26,501 $695,157 $712 .10
52 weeks
ended
October
30, 1993 21 $28,375 $670,180 $(1,965) (.29)
52 weeks
ended
October
29, 1994 20 $30,025 $606,508 $(513) (.08)
52 weeks
ended
October
28, 1995 18 $30,696 $581,752 $(191) (.03)
(1) Stores in Stores Stores in
Operation Stores Closed Operation
at beginning Opened Sold During at end
of Period During Period Period of Period
1991 26 1 0 27
1992 27 1 2 26
1993 26 1 6 21
1994 21 0 1 20
1995 20 0 2 18
(2) Sales of stores open for the full fiscal year divided by number of
stores open the full fiscal year.
I-2
Refinancing
On February 15, 1995, the Registrant entered into a Revolving Credit and
Term Loan Agreement with a consortium of banks providing for a total
commitment of $38,000,000 secured by substantially all of the Registrant's
assets. The proceeds from this financing were utilized to repay the
Registrant's senior notes and bank debt which totaled $33,200,000 at
February 15, 1995. See Management's Discussion and Analysis - Financial
Condition and Liquidity.
Store Expansion and Remodeling
The Registrant believes that significant capital investment is critical to
its operating strategy and is continuing its program to upgrade its
existing stores, replace outdated locations and open new "World Class"
supermarkets within its core market area of central New Jersey.
Over the next three years the Registrant plans to open three new and three
replacement stores and expand two existing locations. Two locations are
presently under construction in Marlboro and Montgomery New Jersey.
Technology
Automation and computerization are important to the Registrant's operations
and competitive position. All stores have IBM 4680 or 4690 scanning
checkout systems which improve pricing accuracy, enhance productivity and
reduce checkout time for customers. In fiscal 1996 all stores will be
upgraded to IBM 4690 software. Additionally, all stores have IBM RS/6000
processors and satellite communications. The use of these systems allows
the Registrant to offer its customers debit and credit card payment options
as well as participation in Price Plus, ShopRite's preferred customer
program. By presenting the scannable Price Plus card, customers can receive
electronic discounts, the value of ShopRite in-ad Clip Less coupons and
cash personal checks.
The Registrant is also using other in store computer systems. Computer
generated ordering is installed in most stores, and this system will be
installed in the Registrant's remaining stores in fiscal 1996. This system
is designed to reduce inventory levels and out of stock positions, enhance
shelf space utilization and reduce labor costs. In all stores, meat,
seafood and delicatessen prices are maintained on computer for automatic
weighing and pricing. Additionally, all stores have computerized time and
attendance systems and most have computerized energy management systems.
The Registrant also utilizes a direct store delivery receiving and pricing
system for most items not purchased through Wakefern in order to provide
cost and retail price control over these products, and computerized
pharmacy systems which provide customer profiles, retail price control and
third-party billing.
In addition, all field merchandisers and operations supervisors are
equipped with laptop personal computers. This provides field personnel with
current labor and product information to facilitate making accurate and
timely decisions.
I-3
Industry Segment and Principal Products. The Registrant is engaged in one
industry segment. For the last five fiscal years, the Registrant's sales
were divided approximately among the categories listed below:
Products
Groceries Dairy Deli- Liquor
(including catessen, Meats, Stores
Bakery and Frozen Seafood and
Non-Food Food and and Garden
Items) Appetizers Poultry Produce Centers
(-----------------------% of Total Sales---------------)
52 weeks
ended
November
2, 1991 58.2 20.5 12.4 7.6 1.3
52 weeks
ended
October
31, 1992 58.2 21.0 11.9 7.6 1.3
52 weeks
ended
October
30, 1993 57.7 20.9 12.0 8.0 1.4
52 weeks
ended
October
29, 1994 58.1 20.3 11.9 8.0 1.7
52 weeks
ended
October 28,
1995 57.7 20.9 11.3 8.3 1.8
Gross profit derived by the Registrant from each product category is not
necessarily consistent with the percentage of total sales represented by
such product category.
I-4
Wakefern Food Corporation
The Registrant owns an 11% interest in Wakefern Food Corporation
("Wakefern"), a New Jersey corporation organized in 1946, which provides
purchasing, warehousing and distribution services on a cooperative basis to
its shareholder members, including the Registrant, who are operators of
ShopRite Supermarkets. Together, Wakefern and its shareholder members
operate approximately 183 supermarkets. The Registrant fulfilled its
obligation to purchase a minimum of 85% of the products offered by Wakefern
during the 52 weeks ended October 28, 1995. Products bearing the ShopRite
label accounted for approximately 16% of total sales for the period.
Wakefern maintains warehouses in Elizabeth and South Brunswick, New Jersey
which handle a full line of groceries, meats, frozen foods, produce,
bakery, dairy and delicatessen products and health and beauty aids, as well
as a number of non-food items. Wakefern also operates a grocery and
perishable products warehouse in Wallkill, New York.
Wakefern's professional advertising staff and its advertising agency
develop and place most of the Registrant's advertising on television, radio
and in major newspapers. The Registrant is charged for these services based
on various formulas which account for the estimated proportional benefits
it receives. In addition, Wakefern charges the Registrant for, and
provides the Registrant with, product and support services in numerous
administrative functions. These include insurance, supplies, technical
support for communications and electronic payment systems, equipment
purchasing and the coordination of coupon processing.
Wakefern distributes, as a patronage dividend to each of its members, a
share of its net earnings in proportion to the dollar volume of business
transacted by each member with Wakefern during each fiscal year.
Although Wakefern has a significant in house professional staff, it
operates as a member cooperative and senior executives of the Registrant
spend a substantial amount of their time working on Wakefern committees
overseeing and directing Wakefern purchasing, merchandising and various
other programs.
Wakefern licenses the ShopRite name to its shareholder members and provides
a substantial and extensive merchandising program for the ShopRite label.
The locations at which the Registrant may open new supermarkets under the
name ShopRite are subject to the approval of Wakefern's Site Development
Committee. Under circumstances specified in its By-Laws, Wakefern may
refuse to sell merchandise to, and may repurchase the Wakefern stock of,
any shareholder member. Such circumstances include certain unapproved
transfers by a shareholder member of its supermarket business or its
capital stock in Wakefern, unapproved acquisition by a shareholder member
of certain supermarket or grocery wholesale supply businesses, the conduct
of a business in a manner contrary to the policies of Wakefern, the
material breach of any provision of Wakefern By-Laws or any agreement with
Wakefern or a determination by Wakefern that the continued supplying of
merchandise or services to such shareholder member would adversely affect
Wakefern.
In August 1994, Wakefern increased the amount each shareholder is required
to invest in Wakefern's capital stock to a maximum of $450,000 for each
store operated by such shareholder member. The precise amount of the
investment is computed according to a formula based on the volume of each
store's purchases from Wakefern.
I-5
Under its By-Laws, all bills for merchandise and other indebtedness are due
and payable to Wakefern weekly and, in the event that such bills are not
paid in full, an additional 1% service charge is due on the unpaid portion.
Wakefern requires its shareholder members to pledge their Wakefern stock
certificates with it as collateral for payment of their obligations to
Wakefern. As of October 28, 1995 and October 29, 1994, the Registrant's
investment in Wakefern was $7,527,000 and $8,427,000, respectively. The
Registrant also has an investment in another company affiliated with
Wakefern which was $788,000 at October 28, 1995 and October 29, 1994. See
Note 4 of Notes to Consolidated Financial Statements.
Since September 18, 1987, the Registrant has had an agreement with
Wakefern and all other shareholders of Wakefern, which provides for
certain commitments and restrictions on all shareholders of Wakefern.
Under the agreement, each shareholder, including the Registrant, agreed to
purchase at least 85% of its merchandise in certain defined product
categories from Wakefern. If any shareholder fails to meet such purchase
requirements, it must make payments to Wakefern (the "Compensatory
Payments") based on a formula designed to compensate Wakefern for the
profit lost by it by virtue of its lost warehouse volume. Similar payments
are due if Wakefern loses volume by reason of the sale of one or more of a
shareholder's stores, any shareholder's merger with another entity or the
transfer of a controlling interest in the shareholder. Subject to a right
of first refusal granted to Wakefern, sales of certain underfacilitated
stores are permitted free of the restrictions of the agreement. Also, the
restrictions of the agreement do not apply if volume lost by a shareholder
by the sale of a store is made up by such shareholder by increased volume
of new or existing stores and, in any event, the Compensatory Payments
otherwise required to be made by the shareholder to Wakefern are not
required if the sale is made to Wakefern, another shareholder of Wakefern
or to a purchaser which is neither an owner or operator of a chain of 25 or
more supermarkets in the United States, excluding any ShopRite supermarkets
in any area in which Wakefern operates. The agreement extends for an
indefinite term and is subject to termination ten years after the approval
by a vote of 75% of the outstanding voting stock of Wakefern. See
Management's Discussion and Analysis - Financial Condition and Liquidity
for a discussion of Preferred Stock issued by the Registrant to Wakefern.
The loss of, or material change in, the Registrant's relationship with
Wakefern (neither of which is considered likely) could have a significant
adverse impact on the Registrant's business. The failure of Wakefern to
fulfill its obligations or another member's insolvency or withdrawal from
Wakefern could result in additional costs to the remaining members.
The Registrant also purchases products and items sold in the Registrant's
supermarkets from a variety of sources other than Wakefern. Neither the
Registrant nor, to the best of the Registrant's knowledge, Wakefern has
experienced or anticipates experiencing any unique material difficulties in
procuring products and items in adequate quantities.
Competition
The supermarket business is highly competitive. The Registrant competes
directly with a number of national and regional chains, including A&P,
Pathmark, Grand Union, Acme and Foodtown, as well as various local chains
and numerous single-unit stores. The Registrant also competes with
warehouse club stores which charge a membership fee, are non-unionized and
operate larger units. Additional competition comes from drug stores,
discount general merchandise stores and convenience stores.
I-6
Many of the Registrant's competitors have greater financial resources and
sales. As most of the Registrant's competitors offer substantially the
same type of products, competition is based primarily upon price, and
particularly in the case of the meat, produce and delicatessen departments,
on quality. Competition is also based on service, the location and
appearance of stores and on promotion and advertising. The Registrant
believes that its membership in Wakefern and ShopRite allows it to maintain
a low-price image while providing quality products and the availability of
a wide variety of merchandise including numerous private label products
under the ShopRite brand name. The Registrant also provides clean, well
maintained stores, courteous and quick service to the customer and
flexibility in tailoring the products offered in each store to the
demographics of the communities it services. The supermarket business is
characterized by narrow profit margins, and accordingly, the Registrant's
viability depends primarily on its ability to maintain a relatively greater
sales volume and more efficient operations than its' competitors.
Regulatory and Environmental Matters
The Registrant's stores and facilities, in common with those of the
industry in general, are subject to numerous existing and proposed Federal,
State and local regulations which regulate the discharge of materials into
the environment or otherwise protect the environment, establish
occupational safety and health standards
and cover other matters, including the licensing of the Registrant's
pharmacies and two liquor stores. The Registrant believes its operations
are in compliance with such existing regulations and is of the opinion that
compliance therewith has not had and will not have any material adverse
effect upon the Registrant's capital expenditures, earnings or competitive
position.
Employees
As of December 31, 1995, the Registrant employed approximately 3,550
persons, of whom approximately 3,200 are covered by collective bargaining
agreements. 72% of the employees are part time and almost all of these are
covered by the collective bargaining agreements. The Registrant has
historically maintained favorable relations with its unionized employees.
However, a strike of Retail Clerk Union Local 1262 workers occurred in May
1993 against the Registrant and three other New Jersey supermarket chains
and continued for three weeks until it was satisfactorily settled. See
Management's Discussion and Analysis-Results of Operations. The Registrant
is subject to six collective bargaining agreements expiring on various
dates from April 1997 to February 1999.
By virtue of the nature of the Registrant's supermarket operations,
information concerning backlog, patents, trademarks, licenses and
concessions, seasonality, major customers, government contracts, research
and development activities and foreign operations and export sales is not
relevant.
Item 2. Properties .
The Registrant's eighteen supermarkets, seventeen of which are leased,
range in size from 26,000 to 101,000 square feet with sales area averaging
75 percent of the total area. All stores are air-conditioned, have modern
fixtures and equipment, have their own ample parking facilities and are
located in suburban areas.
The leases expire on various dates from 1996 through 2018. Two leases
expire in 1996 and one in September 1999, none of which contain renewal
clauses. All of these locations will be replaced by or incorporated into
the trading areas of new supermarkets for which leases are presently under
negotiation. Where possible the existing leases will be extended on a short
term basis until the new sites are opened. All other leases contain renewal
options ranging from 5 to 25 years. Three leases require, in addition to a
fixed rental, a further rental payment based on a percentage of the annual
sales in excess of a stipulated minimum. Most leases also require the
Registrant to pay for insurance and real estate taxes.
I-7
The Registrant also is subject to an additional fourteen leases relating to
locations where the Registrant no longer conducts supermarket operations;
eleven of such locations have been sublet to non-affiliated persons,
including the four stores sold to the Grand Union Company. In most
instances these stores have been sublet at terms at least substantially
equivalent to the Registrant's obligations under its prime lease. In
addition, the Registrant also is subject to a lease covering its
executive and principal administrative offices containing approximately
14,000 square feet in Howell, New Jersey. The Registrant also leases
40,000 square feet of space used for its bakery operations and storage in
Howell, New Jersey and owns and leases meat and prepared foods processing
facilities in Linden, New Jersey. The Registrant is also a limited
partner in three partnerships, one of which owns a shopping center in which
one of the registrant's leased supermarkets is located. As part of the
Registrant's Asset Redeployment Program the Registrant may sell its
partnership interests and mortgage the property it owns. See Management's
Discussion and Analysis-Financial Condition and Liquidity.
Two additional leases have been signed for supermarket locations scheduled
to open during fiscal year 1996.
Item 3. Legal Proceedings.
In the ordinary course of its business, the Registrant is party to various
legal actions. Although a possible range of loss cannot be estimated, it is
the opinion of management, that settlement or resolution of these
proceedings will not, in the aggregate, have a material adverse impact on
the financial condition or results of operations of the Registrant.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
I-8
Part II
Item 5. Market for Registrant's Common Stock and Related Security
Holder Matters.
(a) The Registrant's Common Stock is traded on the American Stock
Exchange. The following table sets forth the high and low sales prices for
the Common Stock as reported on the American Stock Exchange for the fiscal
years ended October 29, 1994 and October 28, 1995.
Fiscal Quarter Ended High Low
January 29, 1994 15 1/8 13 3/4
April 30, 1994 14 12 1/8
July 30, 1994 13 7/8 10 1/2
October 29, 1994 12 1/4 11
January 28, 1995 12 10
April 29, 1995 10 7/8 10
July 29, 1995 11 9 3/4
October 28, 1995 13 10 3/4
(b) The approximate number of record holders of the Registrant's
Common Stock was 500 as of January 19, 1996.
(c) No dividends have been declared or paid with respect to the
Registrant's Common Stock since October 1979. The Registrant is prohibited
from paying dividends on its Common Stock by the Revolving Credit and Term
Loan Agreement between the Registrant and a consortium of banks. In
addition, the terms of the Preferred Stock held by Wakefern contain
limitations on the payment of cash dividends on the Common Stock. See
Management's Discussion and Analysis - Financial Condition and Liquidity.
The Registrant has no intention of paying dividends on its Common Stock in
the foreseeable future.
Item 6. Selected Financial Data.
The selected financial data set forth below is derived from the
Registrant's consolidated financial statements and should be read in
conjunction with the consolidated financial statements and related notes
included elsewhere in this Annual Report. See Management's Discussion and
Analysis - Financial Condition and Liquidity and Results of Operations.
II-1
Year Ended
October 28, October 29, October 30, October 31, November 2,
1995 (1) 1994 1993 (2) 1992 1991
(Dollars in thousands, except per share amounts)
Income Statement
data:
Sales $ 581,752 $ 606,508 $ 670,180 $ 695,157 $ 695,306
Net(loss)income $ (191) $ (513) $ (1,965)$ 712 $ (553)
(Loss) income per
common share $ (.29) $ (.58) $ (1.84) $ .64 $ (.49)
Cash dividends
per common share - - - - -
Balance sheet data
(at year end):
Working capital $ (4,722) $ (8,674) $ (30,613)(3)$ 13,169 $ 16,786
Total assets $ 110,984 $ 130,821 $ 137,440 $ 152,493 $ 145,057
Long-term debt
(excluding current
portion) $ 28,334 $ 37,439 $ 13,432(4)$ 63,519 $ 68,743
Common share-
holders' equity $ 28,672 $ 28,984 $ 30,182 $ 32,147 $ 31,435
Book value per
common share $ 25.64 $ 25.92 $ 27.00 $ 28.75 $ 28.12
(1) The period presented includes the results of operations of the
two Pennsylvania stores for the 30
weeks prior to their sale on May 23, 1995.
(2) The period presented includes the results of operations of the
five New York stores for the 50 weeks prior to their sale on
October 18, 1993.
(3) Includes $32.6 million of long term debt at October 30, 1993
reclassified as current.
(4) Does not include $32.6 million of long-term debt at October 30,
1993 reclassified as current due to default under the
Registrant's credit agreements which terminated February 15,
1995. See Management's Discussion and Analysis-Financial
Condition and Liquidity. Such long-term debt was classified as
a current liability on the Registrant's balance sheet as of that
date.
II-2
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
FINANCIAL CONDITION AND LIQUIDITY
On February 15, 1995, the Registrant entered into a Revolving Credit and
Term Loan Agreement ("the Agreement") with a consortium of banks providing
for a total commitment of $38,000,000, secured by substantially all of the
Registrant's assets. The proceeds from this financing were utilized to
repay the Registrant's senior notes and bank debt which totaled
$33,200,000. The Agreement provides a working capital facility ("Revolving
Note") to fund future operations and capital expenditures.
The Agreement consists of three Term Loans (A, B and C) and a Revolving
Note. Term Loan A totals $2,000,000, bears interest at 2% over prime, and
was due August 15, 1995. Term Loan B totals $8,500,000, bears interest at
2% over prime and is due February 15, 1996. Term Loans A and B are required
to be repaid from asset sales or equipment refinancing. Term Loan C totals
$12,500,000 and bears interest at 2% over prime until Term Loans A and B
are repaid, at which time interest is reduced to 1.25% over prime. Term
Loan C is payable in quarterly installments commencing March 31, 1996
through December 31, 1998. The Revolving Note, with a total availability,
based on 60% of eligible inventory, of $15,000,000, bears interest at 1.5%
over prime until Term Loan A and B are repaid, at which time interest is
reduced to 1.25% over prime. A commitment fee of 1/2 of 1 percent is
charged on the unused portion of the Revolving Note.
Pursuant to the provisions of the terminated loan agreements, the
Registrant was required to pay a special premium totaling $1,100,000.
Additionally, the Registrant paid the new lenders a facility fee of
$1,000,000 and an annual administrative fee of $150,000. The Registrant
wrote off, in the second quarter of 1995, expenses of $1,848,000
($1,009,000 after taxes), including the special premium related to the
early extinguishment of debt.
The Agreement contains certain affirmative and negative covenants which,
among other matters will,
(i) restrict capital expenditures, (ii) require the maintenance of
certain levels of net worth and earnings before interest, taxes,
depreciation and amortization, and maintenance of (iii) fixed charge
coverage and total liabilities to net worth ratios. The Registrant was in
compliance with such covenants as of October 28, 1995.
The new Agreement combined with an asset redeployment plan described below
strengthens the Registrant's financial condition by reducing outstanding
debt, lowering interest cost and providing working capital through the
Revolving Note.
In order to repay Term Loans A and B on a timely basis, the Registrant has
developed an Asset Redeployment Program. This program consists of the sale
of the assets of two supermarkets, located in Bethlehem and Whitehall,
Pennsylvania, the sale of a real estate partnership interest in a non-
supermarket property located in Shrewsbury, New Jersey, the sale/leaseback
or mortgaging of buildings owned by the Registrant and located in Linden
and Aberdeen, New Jersey and the financing of equipment at three operating
locations in Neptune, Piscataway and Sayreville, New Jersey. Other than
the sale of the two supermarkets in Pennsylvania, it is not anticipated
that the Asset Redeployment Program will have any impact on the
Registrant's sales, gross margins or net income. As of October 28, 1995
Term Loan A had been fully repaid and the outstanding balance on Term Loan
B was $4,700,000. Except for the sale of the assets of the two
Pennsylvania supermarkets and the financing of equipment at three operating
locations, other aspects of the Asset Redeployment Program remain to be
completed.
II-3
On May 23, 1995 the Registrant concluded the sale of its two operating
locations in Pennsylvania for $5,700,000 plus inventory of $2,300,000 and
obtained the return of its investment of $1,200,000 in Wakefern, a related
party, with respect to the two stores. All proceeds were in cash and were
used to reduce outstanding debt. Proceeds of $2,000,000 were used to repay
Term Loan A, $3,000,000 was applied against Term Loan B, $1,200,000 of
equipment leases were fully repaid, $900,000 repaid debt due to Wakefern
and the balance of the proceeds was applied against accounts payable and
the Revolving Note.
On January 19, 1996, $700,000 of Term Loan B was repaid from the proceeds
of a worker's compensation insurance deposit which was returned to the
Registrant.
On January 25, 1996 the Registrant financed the equipment at the three
locations discussed above. The note bears interest at 10.58 % and is
payable in monthly installments over its four year term. $4,000,000 of the
proceeds were applied against Term Loan B with the balance of $68,000 used
to repay existing equipment financing in two of the stores. This payment
completed the repayment of Term Loan B.
The Registrant's compliance with the major financial covenants under the
Agreement was as follows for the fifty-two weeks ended October 28, 1995:
Actual
Financial (As defined in the
Covenant Agreement Agreement)
Capital Expenditures Less than $7,653,000 $ 3,755,000
Net Worth Greater than $27,500,000 $ 30,973,000
Fixed Charge Coverage
Ratio Greater than .8 to 1.00 1.59 to 1.00
Total Liabilities to
Net Worth Ratio Less than 3.30 to 1.00 2.48 to 1.00
EBITDA Greater than $13,100,000 $ 16,731,000
Under the terminated loan facility, the Registrant was not in compliance
with interest coverage and cash flow coverage covenants since the quarter
ended July 31, 1993. Additionally, the Registrant was in default of the
current ratio and working capital covenants since the quarter ended October
30, 1993. The Registrant was also in violation of the net worth provision
for the quarters ended July 31, 1993, April 30, 1994, July 30, 1994 and
October 29, 1994 and was in default of the capital expenditures covenant
for the year ended October 30, 1993.
These covenant violations were primarily the result of the losses incurred
in the quarter ended July 31, 1993 when the Registrant was impacted by a
strike of its employees in Local 1262.
As a result of the refinancing, the Registrant's financial statements as of
October 29, 1994 have reclassified the terminated loan facility debt
according to the original payment schedule whereas as of October 30, 1993,
the Registrant classified the entire outstanding balance of $32,629,000 as
a current liability.
On February 16, 1993, in order to partially fund capital expenditures made
in fiscal 1992 and also to induce the senior lenders to amend the loan
agreements, the Registrant sold to Wakefern Food Corporation 136,000 shares
of duly authorized Class A 8% Cumulative Convertible Preferred Stock (the
"Preferred Stock") par value $12.50 per share, for $1.7 million, the
aggregate par value of such shares. The Preferred Stock bears a
preferential cumulative dividend at the rate of 8% per annum for three
years, increasing at the rate of 2% per annum each 12 months thereafter.
As of October 28, 1995 the Registrant is in arrears on the payment of
Preferred dividends in the amount of $369,000.
II-4
The Preferred Stock is redeemable by the Registrant in whole or in part at
any time and must be redeemed by the earlier of (i) June 8, 1999, (ii)
consummation of the sale of all or substantially all of the Registrant's
assets or upon entering into the first of a related series of transactions
for the purpose of selling all or substantially all of the Registrant's
assets, (iii) the changing of shares of the Common Stock of the Registrant
into, or the exchange of such shares for, the securities of any other
corporation, or (iv) a "Change of Control" (as such term is defined in the
Registrant's Certificate of Incorporation) of its equity voting securities
by way of merger, consolidation or otherwise. The Preferred Stock is
convertible by Wakefern at any time after March 31, 1996 into shares of the
Common Stock of the Registrant at the then market value of such shares at a
conversion value of $12.50 per share of Preferred Stock but with the
provision that no more than 1,381,850 shares (representing the total of the
Registrant's unissued and treasury shares) may be issued on conversion of
all of the Preferred Stock. The Agreement provides that no dividends may be
paid on nor may any Preferred Stock be redeemed unless the Registrant has
met or exceeded its financial performance and debt reduction targets for
the year ended October 28, 1995. As of January 25, 1996 all of these
targets have been met. Although there can be no assurance, the Registrant
believes that it will be in a position and intends to redeem the Preferred
Stock prior to March 31, 1996.
No cash dividends have been paid since 1979, and the Registrant has no
present intentions or ability to pay any dividends in the near future on
its Common Stock. The Agreement does not permit the payment of any cash
dividends on the Registrant's Common Stock.
Working Capital:
Working capital continued to improve in fiscal 1995 with the new financing
arrangement and the sale of assets in Pennsylvania. Working capital
improved further as the result of the equipment financing completed in
January 1996 with $3,000,000 of current debt replaced by long term
borrowings. The Registrant normally requires small amounts of working
capital since inventory is generally sold prior to the time that payments
to Wakefern and other suppliers are due.
Changes in working capital components for fiscal 1995 were primarily
attributable to the sale of assets in Pennsylvania, the accelerated
application of cash receipts against the Revolving Note and the improved
liquidity resulting from the new financing arrangement.
During fiscal 1994, expenditures of $2.8 million of additional cash
collateral for worker's compensation insurance, $1.2 million for financial
advisory services and an increase in the current portion of long-term debt
of $3.9 million, caused a working capital deficiency as of October 29,
1994.
As a result of covenant violations under agreements with its senior
lenders, the Registrant classified total debt due such lenders as a current
liability of $32,629,000 as of October 30, 1993. Such reclassification
caused a working capital deficiency of $30,613,000 as of October 30, 1993.
Working capital ratios were as follows:
October 28, 1995 .9 to 1.0
October 29, 1994 .8 to 1.0
October 30, 1993 .6 to 1.0
Cash flows (in millions) were as follows:
1995 1994 1993
From operations........................ $ 9.4 $ 9.2 $ 8.5
Investing activities................... 2.9 ( 5.1) 5.6
Financing activities................... (14.4) ( 3.3) (17.7)
Totals $( 2.1) $ 0.8 $(3.6)
II-5
Fiscal 1995 capital expenditures totaled $3,755,000 with depreciation of
$8,371,000 compared to $5,709,000
and $9,183,000 respectively for fiscal 1994 and $ 9,260,000 and $10,251,000
respectively for fiscal 1993. In fiscal 1995 and 1994 the Registrant
reduced its long-term debt by $13.0 million and $3.3 million, respectively.
During fiscal 1993, the Registrant paid down $17.4 million of its debt to
its senior lenders of which $10.5 million represented proceeds from the
sale of its New York stores, and also paid $5.7 million on other debt.
The Registrant had $6,685,000 of available credit, at October 28, 1995,
under its revolving credit facility and believes that its capital resources
are adequate to meet its operating needs, scheduled capital expenditures
and debt service for fiscal 1996.
RESULTS OF OPERATIONS
Sales:
The Company's sales were $581.8 million, $606.5 million and $670.2
million, respectively in fiscal 1995, 1994 and 1993. This represents a
decrease of 4.1 percent in 1995 and 9.5 percent in 1994. These decreases
are the result of the sale of two Pennsylvania stores in May 1995, closing
of one store in June 1994 and the sale of five New York stores in October
1993. In addition, a strike by the New Jersey retail clerks union adversely
affected fifteen of the Company's stores in May 1993. Sales for the 18
stores, including replacement stores, open during all of the last three
fiscal years totaled $552.6 million, $544.0 million and $516.9 million,
respectively. Comparable store sales were $512.5 million, $501.8 million
and $498.1 million in the respective three year periods.
Fiscal Years Ended
10/28/95 10/29/94 10/30/93
(in millions)
Stores open all periods......... $552.6 $544.0 $516.9
Stores closed or sold........... 29.2 62.5 153.3
$581.8 $606.5 $670.2
Gross Profit:
Gross profit totaled $149.3 million in fiscal 1995 compared to $149.9
million in fiscal 1994 and $159.9 million in fiscal 1993. Gross profit as
a percent of sales was 25.7%, 24.7% and 23.9%, respectively, in fiscal
1995, 1994 and 1993.
The increase in gross profit percentage in fiscal 1995 was primarily due to
improved product mix and the ability of the Registrant to maintain full
inventory levels in its stores. The ability to maintain full inventory
levels is the result of improved liquidity under the new financing obtained
on February 15, 1995. The exclusion of results of the two Pennsylvania
stores sold on May 23, 1995 would not have had any material impact on gross
profit percentages when comparing fiscal 1995 results to the prior year
results.
Fiscal 1994 was negatively impacted by a major reduction in inventory
levels and curtailment of buying programs undertaken to improve liquidity.
Inventory levels were reduced through price reductions and return of
product to Wakefern at a discounted price, thereby reducing gross profit.
II-6
Fiscal 1993 was severely impacted by the New Jersey Clerks Union strike in
May 1993 which changed consumer buying habits coupled with an increase in
pilferage. Additionally, the delayed closing on the sale of the New York
stores finalized on October 18, 1993 instead of August 31, 1993, as
expected, caused a further decline in gross profit of approximately $1.5
million.
Patronage dividends applied as a reduction of the cost of merchandise sold
were $7,246,000, $7,745,000 and $8,047,000 for the last three fiscal years.
This translates to 1.25%, 1.28% and 1.20% of sales for the respective
periods.
Fiscal Years Ended
10/28/95 10/29/94 10/30/93
(in millions)
Sales............................ $ 581.8 $ 606.5 $ 670.2
Gross profit..................... 149.3 149.9 159.9
Gross profit percentage............ 25.7% 24.7% 23.9%
Store Operating, General and Administrative Expenses:
Fiscal 1995 expenses totaled $143.9 million compared to $146.5 million in
fiscal 1994 and $167.5 million in fiscal 1993.
Fiscal Years Ended
10/28/95 10/29/94 10/30/93
(in millions)
Sales............................ $581.8 $606.5 $670.2
Store Operating, General and ....
Administrative Expenses......... 143.9 146.5 167.5
% of Sales....................... 24.7% 24.2% 25.0%
The increase in store operating, general and administrative expenses as a
percentage of sales for fiscal 1995 is primarily due to increases in supply
costs of .17%, advertising of .12% and medical benefit expense of .10%.
Pre-opening costs were $129,000 in fiscal 1995. Administrative expenses as
a percentage of sales, were impacted by the operation of the Pennsylvania
stores for only 30 weeks in fiscal 1995.
Amortization expense increased in fiscal 1995 to $2,954,000 from $2,336,000
in fiscal 1994 as the result of the write off of goodwill on the sale of
the Pennsylvania stores. In fiscal 1993 amortization expense was
$3,443,000 which included the write off of goodwill on the sale of the New
York stores.
Fiscal 1994 includes $420,000 of pre-opening costs.
The New York division's expenses totaled $21.3 million in fiscal 1993.
Non-recurring items in fiscal 1993 include a reserve for future rent
payments on three closed properties and the write off of equipment in
closed stores totaling $900,000, a bad debt reserve and write down of joint
venture operations of $600,000 and strike related costs of $500,000. Also
included in fiscal 1993 are pre-opening costs of $1,100,000.
II-7
Interest Expense:
Interest expense totaled $4.6 million in fiscal 1995 compared to $5.2
million in fiscal 1994 and $6.7 million in fiscal 1993. The decrease in
fiscal 1995 and 1994 resulted from an overall reduction in debt levels
coupled with lower rates on the Registrant's bank credit facility.
Interest income was $0.4 million in fiscal 1995 compared to $0.6 million in
fiscal 1994 and $0.2 million in fiscal 1993. 1994 includes $0.4 million
accrued on prior years' tax refunds due to the Registrant.
Income Taxes:
The Registrant recorded a tax benefit of $0.2 million, $0.2 million and
$0.9 million in fiscal 1995, fiscal 1994 and fiscal 1993, respectively.
See Note 12 to financial statements. The Financial Accounting Standards
Board issued SFAS No. 109 (which superseded SFAS No. 96) "Accounting for
Income Taxes", which required the Registrant to change its method of
accounting for income taxes. SFAS No. 109 was adopted in the Registrant's
first quarter of fiscal 1994 and had no material effect.
Net Income:
In fiscal 1995 the Registrant had a net loss of $191,000 or $.29 per share
after an extraordinary charge of $1,009,000 or $.90 per share for the write
off of expenses related to the early extinguishment of debt and a charge
for the cumulative effect of a change in accounting for post-employment
benefits of $129,000 or $.12 per share. These results included a net gain
on real estate transactions of $259,000 or $.23 per share.
Excluding the net loss from the sale of, and operating losses from, the two
Pennsylvania stores sold on May 23, 1995, income before the extraordinary
item and the change in accounting would have been $1,802,000 or $1.49 a
share for fiscal 1995 compared with income of $382,000 or $.22 a share in
fiscal 1994.
Fiscal 1994 resulted in a net loss of $513,000 or $.58 per share after a
net gain of $.25 per share on real estate transactions.
Fiscal 1993 produced a net loss of $1,965,000 or $1.84 per share after the
gain of $11,199,000 or $10.01 per share on the sale of the five store New
York Division sold on October 18, 1993. Due to the elongated closing
process, the division suffered excessive operating losses estimated at $2.7
million in the quarter ended October 30, 1993.
The strike by the Retail Clerks Union in May 1993, affecting 15 of the
Registrant's New Jersey stores, adversely affected sales and gross profits
and added additional costs as noted in discussions above. The Registrant's
two Pennsylvania stores were also adversely affected by reason of media
coverage of the strike.
Shares outstanding were 1,118,150 for all three years. Per share amounts
for fiscal 1995, 1994 and 1993 are after Preferred dividends of $136,000,
$136,000 and $97,000, respectively.
RECENT ACCOUNTING PRONOUNCEMENTS
SFAS No. 107, "Disclosure about Fair Value of Financial Instruments," and
SFAS No. 119, "Disclosure about Derivative Financial Instruments and Fair
Value of Financial Instruments," requires the disclosure of the fair value
of financial instruments, both assets and liabilities recognized and not
recognized in the statement of financial position, for which it is
practicable to estimate the fair value. The additional disclosures
required by these Statements become effective for the Registrant for the
fiscal year ending November 2, 1996. The Registrant is currently in the
process of evaluating the impact of these Statements.
II-8
In March 1995, the FASB issued SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." This
Statement establishes accounting standards for the impairment of long-lived
assets, certain identifiable intangibles and goodwill related to those
assets. This Statement requires that an asset to be held and used by an
entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The Registrant has not yet determined the impact of adopting
the provisions of SFAS No. 121 which becomes effective for the Registrant
for the fiscal year ending November 1, 1997.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." This Statement requires expanded disclosures of stock-based
compensation arrangements with employees. The Registrant is currently
evaluating whether or not it will change to the recognition provisions of
SFAS No. 123. The Registrant has not yet determined the financial statement
impact of applying the provisions of the Statement which becomes effective
for the Registrant for the fiscal year ending November 1, 1997.
Item 8. Financial Statements and Supplementary Data.
See Consolidated Financial Statements and Schedules included in Part IV,
Item 14.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
II-9
Part III
Item 10. Directors and Executive Officers of the Registrant.
The information required in response to this item is contained in the
Registrant's definitive proxy statement to be filed pursuant to Regulation
14A under the caption "Directors and Executive Officers of the Registrant"
and such information is incorporated herein by reference.
Item 11. Executive Compensation.
The information required in response to this item is contained in the
Registrant's definitive proxy statement to be filed pursuant to Regulation
14A under the caption "Executive Compensation" and such information is
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and
Management.
The information required in response to this item is contained in the
Registrant's definitive proxy statement to be filed pursuant to Regulation
14A under introductory paragraphs and under the captions "Principal
Shareholders" and "Election of Directors" and such information is
incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions.
The information required in response to this item is contained in the
Registrant's definitive proxy statement to be filed pursuant to Regulation
14A under the caption "Executive Compensation - Certain Transactions" and
such information is incorporated herein by reference.
III-1
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
a. 1. Audited financial statements and Page No.
supplementary data
Independent Auditors' Report 1
Foodarama Supermarkets, Inc. and
Subsidiaries Consolidated Financial
Statements:
Balance Sheets as of October 28, 1995 2-3
and October 29, 1994.
Statements of Operations for each of the 4-5
fiscal years ended October 28, 1995,
October 29, 1994 and October 30, 1993.
Statements of Shareholders' Equity 6
for each of the fiscal years ended
October 28, 1995, October 29, 1994
and October 30, 1993.
Statements of Cash Flows for each of the 7
fiscal years ended October 28, 1995,
October 29, 1994 and October 30, 1993.
Notes to Consolidated Financial Statements 8 to 23
a.2. Financial Statement Schedules
Schedules have been omitted because they are
not applicable.
b. Reports on Form 8-K
No reports on Form 8-K were filed during
the fourth quarter of fiscal 1995.
IV-1
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
Foodarama Supermarkets, Inc.
Freehold, New Jersey
We have audited the accompanying consolidated balance sheets of Foodarama
Supermarkets, Inc. and Subsidiaries as of October 28, 1995 and October 29,
1994 and the related consolidated statements of operations, shareholders'
equity and cash flows for each of the three fiscal years in the period
ended October 28, 1995. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Foodarama Supermarkets,
Inc. and Subsidiaries as of October 28, 1995 and October 29, 1994 and the
results of their operations and their cash flows for each of three fiscal
years in the period ended October 28, 1995 in conformity with generally
accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, effective
October 31, 1993, the Company changed its method of accounting for income
taxes to conform with Statement of Financial Accounting Standards No. 109
and effective October 30, 1994, changed its methods of accounting for
postemployment benefits to conform with Statement of Financial Accounting
Standards No.112.
/S/ Deloitte & Touche LLP
Parsippany, New Jersey
January 25, 1996
-1-
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
OCTOBER 28, 1995 AND OCTOBER 29, 1994
ASSETS 1995 1994
CURRENT ASSETS:
Cash and cash equivalents $ 3,435,000 $ 5,542,000
Merchandise inventories 27,669,000 29,800,000
Receivables and other current assets 2,916,000 3,862,000
Related party receivables - Wakefern 4,804,000 5,869,000
Related party receivables - other 508,000 262,000
Total current assets 39,332,000 45,335,000
PROPERTY AND EQUIPMENT:
Land 1,650,000 1,762,000
Buildings and improvements 1,867,000 2,132,000
Leaseholds and leasehold improvements 30,188,000 33,146,000
Equipment 45,679,000 50,860,000
Property and equipment under capital leases 14,064,000 16,789,000
93,448,000 104,689,000
Less accumulated depreciation and amortization 45,296,000 45,612,000
48,152,000 59,077,000
OTHER ASSETS:
Investments in related parties 8,315,000 9,215,000
Intangibles 6,038,000 7,508,000
Other 7,198,000 7,240,000
Related party receivables - Wakefern 871,000 826,000
Related party receivables - other 1,078,000 1,620,000
23,500,000 26,409,000
$110,984,000 $130,821,000
(Continued)
See notes to consolidated financial statements.
-2-
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
OCTOBER 28, 1995 AND OCTOBER 29, 1994
LIABILITIES AND SHAREHOLDERS' EQUITY 1995 1994
CURRENT LIABILITIES:
Current portion of long-term debt $7,715,000 $10,830,000
Current portion of long-term debt, related party 86,000 349,000
Current portion of obligations under capital leases 303,000 813,000
Current income taxes payable 77,000 245,000
Deferred income tax liability 1,295,000 2,010,000
Accounts payable:
Related party 20,239,000 20,538,000
Others 5,753,000 11,005,000
Accrued expenses 8,315,000 8,219,000
Total current liabilities 43,783,000 54,009,000
LONG-TERM DEBT 20,349,000 27,817,000
LONG-TERM DEBT, RELATED PARTY - 767,000
OBLIGATIONS UNDER CAPITAL LEASES 7,985,000 8,855,000
DEFERRED INCOME TAXES 2,716,000 2,730,000
OTHER LONG-TERM LIABILITIES 5,779,000 5,959,000
Total long-term liabilities 36,829,000 46,128,000
COMMITMENTS AND CONTINGENCIES
MANDATORY REDEEMABLE PREFERRED STOCK,
$12.50 par; authorized 1,000,000 shares;
issued 136,000 shares 1,700,000 1,700,000
SHAREHOLDERS' EQUITY:
Common stock, $1.00 par; authorized 2,500,000 shares;
issued 1,621,627 shares 1,622,000 1,622,000
Capital in excess of par 2,351,000 2,351,000
Retained earnings 32,127,000 32,318,000
Minimum pension liability adjustment (806,000) (685,000)
35,294,000 35,606,000
Less 503,477 shares, held in treasury, at cost 6,622,000 6,622,000
Total shareholders' equity 28,672,000 28,984,000
$110,984,000 $130,821,000
See notes to consolidated financial statements.
-3-
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FISCAL YEARS ENDED OCTOBER 28, 1995, OCTOBER 29, 1994 AND OCTOBER 30, 1993
1995 1994 1993
SALES $ 581,752,000 $606,508,000 $670,180,000
COST OF MERCHANDISE SOLD 432,429,000 456,634,000 510,276,000
Gross profit 149,323,000 149,874,000 159,904,000
STORE OPERATING, GENERAL AND
ADMINISTRATIVE EXPENSES 143,917,000 146,451,000 167,482,000
INCOME (LOSS) FROM OPERATIONS 5,406,000 3,423,000 (7,578,000)
OTHER (EXPENSE) INCOME:
Gain on the sale of stores 474,000 549,000 11,199,000
Interest expense (4,578,000) (5,217,000) (6,698,000)
Interest income 432,000 551,000 219,000
(3,672,000) (4,117,000) 4,720,000
INCOME (LOSS) BEFORE TAXES,
EXTRAORDINARY ITEM AND
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING
1,734,000 (694,000) (2,858,000)
INCOME TAX (PROVISION) BENEFIT (787,000) 181,000 893,000
INCOME (LOSS) BEFORE EXTRAORDINARY
ITEM AND CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING
947,000 (513,000) (1,965,000)
EXTRAORDINARY ITEM:
Early extinguishment of debt (net of tax benefit
of $839,000)
(1,009,000) - -
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING
(net of tax benefit of $107,000) (129,000) - -
NET LOSS $ (191,000) $(513,000) $(1,965,000)
(continued)
-4-
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FISCAL YEARS ENDED OCTOBER 28, 1995, OCTOBER 29, 1994 AND OCTOBER 30, 1993
(continued)
1995 1994 1993
PER SHARE INFORMATION:
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM AND
CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING
$.73 $(.58) $(1.84)
EXTRAORDINARY ITEM (.90) - -
CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING (.12) - -
NET LOSS PER COMMON SHARE $( .29) $( .58) $(1.84)
WEIGHTED AVERAGE
SHARES OUTSTANDING 1,118,150 1,118,150 1,118,150
See notes to consolidated financial statements.
-5-
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FISCAL YEARS ENDED OCTOBER 28, 1995, OCTOBER 29, 1994 AND OCTOBER 30, 1993
1995 1994 1993
Common Stock:
Shares 1,621,627 1,621,627 1,621,627
Amount $1,622,000 $1,622,000 $1,622,000
Capital in Excess of Par 2,351,000 2,351,000 2,351,000
Retained Earnings (beginning) 32,318,000 32,831,000 34,796,000
Net (loss)
1995 (191,000) - -
1994 - (513,000) -
1993 - - (1,965,000)
Retained Earnings (ending) 32,127,000 32,318,000 32,831,000
Minimum Pension Liability
adjustment (806,000) (685,000) -
Treasury Stock
Shares (503,477) (503,477) (503,477)
Amount (6,622,000) (6,622,000) (6,622,000)
TOTAL $28,672,000 $28,984,000 $30,182,000
See notes to consolidated financial statements.
-6-
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FISCAL YEARS ENDED OCTOBER 28, 1995, OCTOBER 29, 1994 AND OCTOBER 30, 1993
1995 1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (191,000) $ (513,000) $ (1,965,000)
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 8,371,000 9,183,000 10,251,000
Amortization, intangibles 1,440,000 637,000 1,564,000
Amortization, deferred financing costs 846,000 521,000 523,000
Amortization, escalation rents 539,000 640,000 551,000
Amortization, other assets 129,000 538,000 805,000
Gain on store divestitures (474,000) (549,000) (11,199,000)
Deferred income taxes (729,000) (181,000) (1,647,000)
Loss on disposal of store property
and equipment and other assets 93,000 140,000 667,000
Changes in assets and liabilities:
Decrease in inventories 2,131,000 4,183,000 5,601,000
Decrease in receivables and other
current assets 946,000 3,134,000 11,000
Decrease (increase) in other assets 1,928,000 (4,565,000) 234,000
Decrease (increase) in related party
receivables - Wakefern 1,065,000 931,000 (926,000)
(Increase) decrease in related party
receivables - other (246,000) (667,000) 234,000
(Decrease) increase in accounts
payable (5,551,000) (2,036,000) 5,100,000
(Decrease) increase income taxes
payable (168,000) (301,000) 42,000
(Decrease) in other liabilities (623,000) (1,840,000) (927,000)
Other (121,000) - (362,000)
Net cash provided by operating activities9,385,000 9,255,000 8,557,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Net proceeds from the sale of property
and equipment 41,000 30,000 -
Net proceeds from the sale of stores 6,649,000 549,000 14,827,000
Purchase of property and equipment (3,755,000) (5,709,000) (9,260,000)
Net cash provided by (used in)
investing activities 2,935,000 (5,130,000) 5,567,000
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of redeemable preferred stock - - 1,700,000
Proceeds from issuance of debt 35,005,000 - 2,000,000
Principal payments underlong-term debt(46,618,000) (2,102,000) (19,579,000)
Principal payments under capital lease
obligations (1,380,000) (1,246,000) (1,828,000)
Debt restructuring costs (1,434,000) - -
Net cash used in financing activities (14,427,000) (3,348,000) (17,707,000)
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS (2,107,000) 777,000 (3,583,000)
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 5,542,000 4,765,000 8,348,000
CASH AND CASH EQUIVALENTS, END OF YEAR $3,435,000 $5,542,000 $4,765,000
See notes to consolidated financial statements.
-7-
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fiscal Year - The Company's fiscal year ends on the Saturday closest to
October 31. Fiscal 1995, 1994 and 1993 consist of the 52 weeks ended October
28, 1995, October 29, 1994 and October 30, 1993, respectively.
Principles of Consolidation - The consolidated financial statements include
the accounts of the Company and its subsidiaries. All significant
intercompany accounts and transactions have been eliminated. The Company
operates in one industry segment, the sale of retail food and non-food
products.
Reclassifications - Certain reclassifications have been made to prior years'
financial statements in order to conform to the current year presentation.
Cash Equivalents - The Company considers all highly liquid debt instruments
purchased with an original maturity of three months or less to be cash
equivalents.
Merchandise Inventories - Merchandise inventories are stated at the lower of
cost (first-in, first-out) or market with cost being determined under the
retail method.
Property and Equipment - Property and equipment is stated at cost and is
depreciated on a straight-line basis for financial reporting purposes over
the estimated useful lives of between three and ten years for equipment, the
shorter of the useful life or lease term for leasehold and leasehold
improvements, and twenty years for buildings.
Property and equipment under capital leases are recorded at the lower of
fair market value or the net present value of the minimum lease payments.
Investments - The Company's investment in its principal supplier, Wakefern
Food Corporation ("Wakefern"), is stated at cost (see Note 4).
Goodwill - Goodwill resulted partly from acquisitions prior to November 1,
1970 which were accounted for as purchases. The balance of goodwill resulted
from the acquisition of assets during fiscal 1989. Goodwill is amortized on a
straight-line basis over periods from 8 to 29 years.
Management assesses the recoverability of goodwill by comparing the Company's
forecast of cash flows from future operating results, on an undiscounted
basis, to the unamortized balance of goodwill at each balance sheet date.
Cash flows from operating results represent net income excluding depreciation
and amortization expense. If the results of such comparison indicate that an
impairment may be likely, the Company will recognize a charge to operations
at that time based upon the difference between the present value of the
expected cash flow from future operating results (utilizing a discount rate
equal to the Company's average cost of funds at the time), and the balance
sheet value of goodwill as of such time. The recoverability of goodwill is at
risk to the extent the Company is unable to achieve its forecast assumptions
regarding cash flows from operating results. Management believes, at this
time, that the goodwill carrying values and useful lives continue to be
appropriate.
-8-
Favorable Operating Leases - This amount is amortized on a straight-line
basis over the remaining terms of the related leases for periods from 8 to 29
years.
Covenant Not to Compete - This amount is amortized on a straight-line basis
over the contractual life of the agreements of six years.
Deferred Financing Costs - Deferred financing costs are being amortized over
the life of the related debt using the effective interest method.
Postretirement Benefit other than Pensions - Effective October 31, 1993, the
Company adopted Statement of Financial Accounting Standards No. 106,
"Employers' Accounting for Postretirement Benefits other than Pensions" (SFAS
No. 106). In accordance with SFAS No.106, the Company accrues for the cost of
providing postretirement benefits, principally supplemental income payments
and limited medical benefits, over the working careers of the officers in the
plan. Previously, the Company expensed the cost of these benefits as
incurred.
Postemployment Benefits - Effective October 30, 1994, the Company adopted
Statement of Financial Accounting Standards No. 112, "Employers' Accounting
for Postemployment Benefits" (SFAS No. 112). In accordance with SFAS No. 112,
the Company accrues for the expected cost of providing postemployment
benefits, primarily short-term disability payments, over the working careers
of its employees. The Company previously expensed the cost of these benefits
as claims were paid.
Income Taxes - Effective October 31, 1993, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 109 "Accounting for Income Taxes",
which requires an asset and liability approach for accounting for income
taxes. Deferred taxes have been recorded for the differences between the
financial reporting and tax basis of the Company's assets and liabilities.
Preopening Costs - Costs associated with the opening of new stores are
amortized over a period of twelve
months commencing one month after the opening of the store.
Store Closing Costs - The costs, net of amounts expected to be recovered, are
expensed when a decision to
close a store is made. Until a store is closed operating results continue to
be reported.
Supplemental Cash Flow Information - Cash payments for interest amounted to
approximately $5,105,000, $5,316,000 and $6,963,000 for the years ended
October 28, 1995, October 29, 1994 and October 30, 1993, respectively. During
the years ended October 28, 1995, October 29, 1994 and October 30, 1993, the
Company paid approximately $494,000, $656,000 and $600,000 in income taxes,
respectively.
2. STORE DIVESTITURES
In order to repay Term Loans A and B on a timely basis (see Note 6 Long-Term
Debt), the Company has developed an Asset Redeployment Program. This program
consists of the sale of the assets of two supermarkets, located in Bethlehem
and Whitehall, Pennsylvania, the sale of a real estate partnership interest
in a non-supermarket property located in Shrewsbury, New Jersey, the
sale/leaseback or mortgaging of buildings owned by the Company and located in
Linden and Aberdeen, New Jersey and the financing of equipment at three
operating locations in Neptune, Piscataway and Sayreville, New Jersey.
-9-
On May 23, 1995, the Company sold its two operating locations in Pennsylvania
to another Wakefern member (see Note 14 Commitments and Contingencies). The
sale provided proceeds to the Company of $5,700,000 plus merchandise
inventory of $2,300,000 and the return of its investment in Wakefern of
$1,200,000. The proceeds were used to reduce outstanding debt as follows:
$2,000,000 repaid Term Loan A, $3,000,000 was applied against Term Loan B,
$1,200,000 of equipment leases were fully repaid, $900,000 repaid debt due to
Wakefern and the balance of the proceeds was applied against accounts payable
and the Revolving Note. The sale resulted in a loss of $96,000.
On February 3, 1995, the Company sold an owned location in Neptune, New
Jersey which had been operated as a supermarket until September 1993. The
sale provided net proceeds of $949,000 and resulted in a gain of $570,000.
On September 2, 1994, the Company sold a leasehold interest in the Roxborough
location, which provided net proceeds of $549,000 and resulted in a pre tax
gain in a like amount.
On October 18, 1993, the Company sold certain assets of its five operating
New York stores to the Grand Union Company for $16,100,000 plus merchandise
inventory of approximately $2,200,000. (See Note 14 Commitments and
Contingencies). This sale provided $14,827,000 of net proceeds and resulted
in a gain of $11,199,000, after deducting estimated N.Y. State Transfer Tax
of $561,000 and transaction expenses of $712,000. Concurrent with this
transaction, the Company repaid approximately $10,500,000 to its senior
lenders and approximately $650,000 to pay off equipment leases. Subsequent
payments were also made for professional fees, severance payments and trade
vendors aggregating approximately $2,300,000.
3. MANDATORY REDEEMABLE PREFERRED STOCK
As of February 16, 1993, the Company received $1,700,000 for the issuance of
136,000 shares of Preferred Stock at $ 12.50 par value per share to Wakefern
Food Corporation. These securities were issued partially to fund capital
expenditures made in fiscal 1992.
Dividends on the Preferred Stock are cumulative, accrue at an annual rate of
8% for the first three years and increase by 2% per year thereafter until
redeemed, and are payable when and as declared by the Company's board of
directors. As of October 28, 1995, cumulative dividends on preferred shares
that have not been declared are in arrears in the amount of approximately
$369,000. The Preferred Stock is redeemable on June 8, 1999, and is subject
to mandatory earlier redemption on the occurrence of certain events,
including a change of control, as defined, in the Company.
The Preferred Stock is convertible at any time after March 31, 1996 into
shares of the common stock of the Company at the then market value of such
common stock at a conversion value of $12.50 per share. The maximum number of
common shares which can be issued upon conversion is 1,381,850 shares
(representing the sum of all of the Company's unissued and treasury shares).
Based on the market price per share of the Common Stock on January 19, 1996,
140,206 shares would be used for conversion.
The Revolving Credit and Term Loan Agreement provides that no dividends may
be paid on, nor may any Preferred Stock be redeemed, unless the Company has
met or exceeded its financial performance and debt reduction targets for the
year ended October 28, 1995. As of January 25, 1996 all of these targets
have been met.
-10-
4. RELATED PARTY TRANSACTIONS
Wakefern Food Corporation - As required by Wakefern's By-Laws, all members of
the cooperative are required to make an investment in the common stock of
Wakefern for each supermarket operated ("Store Investment Program"), with the
exact amount per store computed in accordance with a formula based on the
volume of each store's purchases from Wakefern. The maximum required
investment per store was $450,000 at October 28, 1995 and October 29, 1994.
The Company has an 11% investment in Wakefern of $7,527,000 at October 28,
1995 and $8,427,000 at October 29, 1994. Wakefern is operated on a
cooperative basis for its members. The shares of stock in Wakefern are
assigned to and held by Wakefern as collateral for any obligations due
Wakefern. In addition, the obligations to Wakefern are personally guaranteed
by principal officers/shareholders of the Company. As of October 29, 1994,
the Company was obligated to Wakefern for $939,750 for the increase in its
required investment (see Note 7 Long-Term Debt, Related Party) which was
fully paid on May 23, 1995 from part of the proceeds from the sale of the two
operating Pennsylvania stores (see Note 2 Store Divestitures).
The Company also has an investment in Insure-Rite, Ltd., another company
affiliated with Wakefern, which was $788,000 at October 28, 1995 and October
29, 1994. Insure-Rite, Ltd. provides the Company with its general liability
and property insurance coverage.
As a shareholder member of Wakefern, the Company earns a share of an annual
Wakefern patronage dividend. The dividend is based on the distribution of
operating profits on a pro rata basis in proportion to the dollar volume of
business transacted by each member with Wakefern during each fiscal year. It
is the Company's policy to accrue quarterly an estimate of the annual
patronage dividend. The Company reflects the patronage dividend as a
reduction of the cost of merchandise sold in the consolidated statement of
operations. For fiscal 1995, 1994 and 1993, the patronage dividends were
$7,246,000, $7,745,000 and $8,047,000, respectively.
At October 28, 1995 and October 29, 1994, the Company has current receivables
due from Wakefern of approximately $4,804,000 and $5,869,000, respectively,
and noncurrent receivables of approximately $871,000 and $826,000,
respectively, representing patronage dividends, vendor rebates, coupons and
other receivables due in the ordinary course of business.
In September 1987, the Company and all other stockholder members of Wakefern,
entered into an agreement with Wakefern which provides for certain
commitments and restrictions on all stockholder members of Wakefern. The
agreement contains an evergreen provision providing for an indefinite term
and is subject to termination ten years after the approval of 75% of the
outstanding voting stock of Wakefern. Under the agreement, each shareholder,
including the Company, agreed to purchase at least 85% of its merchandise in
certain defined product categories from Wakefern and, if it fails to meet
such requirements, to make payments to Wakefern based on a formula designed
to compensate Wakefern for its lost profit. Similar payments are due if
Wakefern loses volume by reason of the sale of all of a stockholder's stores,
merger with another entity or on the sale of an individual store. The Company
fulfilled its obligation to purchase a minimum of 85% in certain defined
product categories from Wakefern for all periods presented. The Company's
merchandise purchases from Wakefern, including direct store delivery vendors
processed by Wakefern, approximated $403,794,000, $399,771,000 and
$446,650,000 for the years ended October 28, 1995, October 29, 1994 and
October 30, 1993, respectively.
Wakefern charges the Registrant for, and provides the Registrant with product
and support services in numerous administrative functions. These include
advertising, insurance, supplies, technical support for communications and
electronic payment systems, equipment purchasing and the coordination of
coupon processing.
In addition to its investment in Wakefern, which carries only voting rights,
the Company's President serves as a member of Wakefern's Board of Directors
and its finance committee. Several of the Company's officers and employees
also hold positions on various Wakefern committees.
-11-
Other - The Company has receivables from related parties that include
shareholders, directors, officers and real estate partnerships. At October
28, 1995 and October 29, 1994, approximately $1,141,000 and $437,000
respectively, of these receivables, consist of notes bearing interest at 7%
to 9%. These receivables have been classified based upon the scheduled
payment terms. The remaining amounts are not due upon any specified date and
do not bear interest. The Company's management has classified these loans
based upon expected payment dates. At October 28, 1995 and October 29, 1994,
$508,000 and $262,000, respectively, were included in related party
receivables and $1,078,000 and $1,620,000, respectively, were included in
noncurrent related party receivables.
5. INTANGIBLES
Intangibles consist of the following: October 28, October 29,
1995 1994
Goodwill $ 3,493,000 $ 4,298,000
Covenant not to compete 5,951,000 5,951,000
Favorable operating leases 4,685,000 4,685,000
14,129,000 14,934,000
Less accumulated amortization 8,091,000 7,426,000
$ 6,038,000 $ 7,508,000
6. LONG-TERM DEBT
Long-term debt consists of the following:
October 28, October 29,
1995 1994
12.40% senior secured notes $ - $19,049,000
Notes payable, banks 25,514,000 15,834,000
Notes and mortgages payable 2,364,000 3,096,000
Notes payable, covenant not to compete 186,000 668,000
28,064,000 38,647,000
Less current portion 7,715,000 10,830,000
$20,349,000 $27,817,000
On February 15, 1995, the Company entered into a Revolving Credit and Term
Loan Agreement (" the Agreement") with a consortium of banks providing for a
total commitment of $38,000,000 (the "Refinancing"), secured by substantially
all of the Company's assets. The proceeds from the Refinancing were used to
repay the Company's senior notes and bank debt which at October 29, 1994
totaled $34,883,000 and provide for a working capital facility ("Revolving
Note") to fund future operations and expenditures, as necessary. The Company
was in default under the old loan agreements at October 29, 1994 and October
30, 1993.
The Agreement consists of three Term Loans (A, B, and C) and a Revolving
Note. Term Loan A totals $2,000,000, bears interest at 2% over prime, and was
due within six months from closing. Term Loan B totals $8,500,000, bears
interest at 2% over prime and is due within 1 year from closing. Term Loan C
totals $12,500,000 and bears interest at 2% over prime until Term Loans A and
B are repaid, at which time interest is reduced to 1.25% over prime. Term
Loan C is payable in quarterly installments commencing March 31, 1996 thru
December 31, 1998.
-12-
The Revolving Note, with a total availability, based on 60% of
eligible inventory, of up to $15,000,000, bears interest at 1.5% over prime
until Term Loans A and B are repaid, at which time interest is reduced to
1.25% over prime. A commitment fee of 1/2 of 1 percent is charged on the
unused portion of the Revolving Note. The prime rate on October 28, 1995 was
8.75%. The Revolving Note matures February 15, 1999. At October 28, 1995, the
Company had $6,685,000 of available credit under the Revolving Note. All
cash receipts are deposited each day and applied against the Revolving Note
balance. Disbursements are charged as they are paid and increase the
Revolving Note balance. As of October 28, 1995, $4,200,000 of cash receipts
on hand or in transit are restricted for application against the Revolving
Note balance.
As of October 28, 1995, Term Loan A had been fully repaid and Term
Loan B was reduced to $4,700,000. On January 25, 1996, the Company financed,
and pledged as collateral, equipment which cost approximately $9,942,000. The
note for $4,068,000 bears interest at 10.58% and is payable in monthly
installments over its four year term. Term Loan B was fully repaid from the
proceeds of this equipment financing and from the collection of other non-
operating assets.
Pursuant to the provisions of loan agreements which terminated on February
15, 1995, the Company was required to pay a special premium totaling
$1,100,000. Additionally, the Company paid the new lenders a facility fee of
$1,000,000 and an annual administrative fee of $150,000. The Company recorded
an extraordinary write off of $1,848,000 in the second quarter of 1995 on the
early extinguishment of debt.
The Agreement contains certain affirmative and negative covenants which,
among other matters will, (i) restrict capital expenditures, (ii) require the
maintenance of certain levels of net worth and earnings before interest,
taxes, depreciation and amortization, and maintenance of (iii) fixed charge
coverage and total liabilities to net worth ratios. The Company was in
compliance with such covenants through fiscal 1995.
In June 1989, the Company entered into a note purchase agreement with several
institutions providing for the purchase of $31,000,000 of the Company's
12.40% senior secured notes (the "Senior Note Agreement"). These notes were
secured by the capital stock of the Company's subsidiaries. The outstanding
balance on these notes on February 15, 1995 was repaid from the proceeds of
the Refinancing.
In March 1989, the Company entered into a long-term credit agreement with a
syndicate of banks for commitments totaling $65,000,000 (Notes payable,
banks) to be used for the acquisition of stores and to fund the Company's
capital expansion program. The interest rate on this debt was .75% over prime
(7.75% at October 29, 1994). The credit agreement provided for a staged
reduction of the commitment through 1996. The bank commitment was reduced by
the $31,000,000 borrowing under the Senior Note Agreement. The outstanding
balance on these notes on February 15, 1995 was repaid from the proceeds of
the Refinancing.
The outstanding balance at October 29, 1994 under the old loan agreements has
been classified according to the original payment schedule as the Company
refinanced these borrowings on a long term basis.
At October 28, 1995 and October 29, 1994, property and equipment which cost
approximately $3,007,000, and $7,500,000, respectively, was pledged as
collateral for certain notes and mortgages. These notes bear interest
ranging from prime to 9.53% and the due dates range from December 1995 to
October 2000.
On April 15, 1989, in connection with the acquisition of four
supermarkets, the Company issued notes in exchange for agreements not to
compete. The notes are payable in varying monthly installments through March
1996 including interest of 11% per annum.
-13-
Aggregate maturities of long-term debt are as follows:
Fiscal Year
1996 $ 7,715,000
1997 4,742,000
1998 5,534,000
1999 9,936,000
2000 137,000
The Company has not completed the process of evaluating the impact that will
result from adopting Statement of Financial Accounting Standards No. 107 and
119, "Disclosure about Fair Value of Financial Instruments" and "Disclosure
about Derivative Financial Instruments and Fair Value of Financial
Instruments," respectively. These Statements require the disclosure of the
fair value of financial instruments, both assets and liabilities recognized
and not recognized in the statement of financial position, for which it is
practicable to estimate fair value. The additional disclosures required by
these Statements become effective for the fiscal year ending November 2,
1996.
7. LONG-TERM DEBT, RELATED PARTY
As of October 29, 1994 the Company was indebted for an investment in
Wakefern and a Wakefern affiliate. The debt is non-interest bearing and
payable in scheduled installments over a period of up to four years. The
debt due Wakefern was fully repaid on May 23, 1995 from part of the proceeds
from the sale of the two operating Pennsylvania stores (see Note 2 Store
Divestitures).
8. LONG-TERM LEASES
Capital Leases - Property and equipment under capital leases consists of:
October 28, October 29,
1995 1994
Real estate $ 9,649,000 $9,649,000
Fixtures and equipment 4,415,000 7,140,000
14,064,000 16,789,000
Less accumulated amortization 8,492,000 9,780,000
$ 5,572,000 $7,009,000
The following is a schedule by year of future minimum lease payments under
capital leases, together with the present value of the net minimum lease
payments, as of October 28, 1995:
Fiscal Year
1996 $ 1,159,000
1997 1,218,000
1998 1,238,000
1999 1,238,000
2000 1,238,000
Thereafter 8,303,000
Total minimum lease payments 14,394,000
Less amount representing interest 6,108,000
Present value of net minimum lease payments $ 8,286,000
-14-
Included in the above are two leases on stores, one of which is being leased
from a partnership in which the Company has a 40% limited partnership
interest at annual lease payments of $628,000 in fiscal 1995, 1994 and 1993.
Operating Leases - The Company is obligated under operating leases for rent
payments expiring at various dates through 2018. Certain leases provide for
the payment of additional rentals based on certain escalation clauses and
four leases require a further rental payment based on a percentage of the
stores annual sales in excess of a stipulated minimum. Percentage rent
expense was $206,000, $290,000 and $360,000 for the fiscal years 1995, 1994
and 1993, respectively. Under the majority of the leases, the Company has
the option to renew for additional terms at specified rentals.
Total rental expense for all operating leases consists of:
Fiscal 1995 Fiscal 1994 Fiscal 1993
Land and buildings $10,152,000 $10,265,000 $9,799,000
Less subleases (1,920,000) (1,986,000) (1,188,000)
$ 8,232,000 $ 8,279,000 $8,611,000
The minimum rental commitments under all noncancellable operating leases
reduced by income from noncancellable subleases at October 28, 1995 are as
follows:
Income from
Fiscal Land and Noncancellable Net Rental
Year Buildings Subleases Commitment
1996 $ 9,294,000 $1,849,000 $ 7,445,000
1997 9,700,000 1,766,000 7,934,000
1998 9,457,000 1,389,000 8,068,000
1999 9,404,000 979,000 8,425,000
2000 8,912,000 450,000 8,462,000
Thereafter 93,934,000 703,000 93,231,000
$ 140,701,000 $ 7,136,000 $ 133,565,000
The Company is presently leasing one of its supermarkets, a garden center and
liquor store, from a partnership in which the president and chairman of the
board has an interest, at an annual aggregate rental of $560,000, $558,000
and $539,000 for the fiscal years 1995, 1994 and 1993, respectively .
9. ACCRUED EXPENSES
Accrued expenses consist of the following:
October 28, October 29,
1995 1994
Payroll and payroll related expenses $3,564,000 $ 3,386,000
Insurance 1,097,000 1,400,000
Sales, use and other taxes 958,000 869,000
Interest 211,000 738,000
Employee benefits 587,000 907,000
Occupancy costs 1,263,000 545,000
Real estate taxes 419,000 322,000
Other 216,000 52,000
$8,315,000 $8,219,000
-15-
10. RETIREMENT AND BENEFIT PLANS
Defined Benefit Plans - The Company sponsors two defined benefit pension plans
covering administrative
personnel and members of one union. Employees covered under the
administrative pension plan earn benefits based upon percentages of annual
compensation and may make voluntary contributions to the plan. Employees
covered under the union pension benefit plan earn benefits based on a fixed
amount for each year of service. The Company's funding policy is to pay at
least the minimum contribution required by the Employee Retirement Income
Security Act of 1974. The plans' assets consist primarily of publicly traded
stocks and fixed income securities. As of October 28, 1995 and October 29,
1994 the plans held at fair market value $422,000 and $361,000 in common
stock of the Company.
Net pension expense consists of the following:
Fiscal1995 Fiscal1994Fiscal 1993
Service cost - benefits earned during the period $276,000 $288,000 $306,000
Interest cost on projected benefit obligation 398,000 360,000 400,000
Actual return on plan assets (404,000) 233,000 (127,000)
Net amortization and deferral 154,000 (425,000)(197,000)
Net pension cost $ 424,000 $ 456,000$ 382,000
The following table sets forth the two pension plan's funded status and
amounts recognized in the Company's consolidated financial statements at
October 28, 1995 and October 29, 1994.
Actuarial present value of benefit obligations:
1995 1994
Vested benefits obligation $ 4,694,000 $4,524,000
Non-vested benefits obligation 212,000 72,000
Accumulated benefit obligations $ 4,906,000 $4,596,000
Projected benefit obligations $ (6,167,000) $(5,508,000)
Plan assets at fair value 4,727,000 4,407,000
Projected benefit obligations in excess of
plan assets
(1,440,000) (1,101,000)
Adjustment required to recognize minimum liability (880,000) (767,000)
Unrecognized transition asset (48,000) (60,000)
Unrecognized prior service costs 74,000 82,000
Unrecognized loss from prior experience 2,115,000 1,657,000
Accrued pension cost (prepaid) $(179,000) $(189,000)
The discount rates used in determining the actuarial present value of the
projected benefit obligation ranged from 7.0% to 7.5%. The expected long-
term rates of return on plan assets ranged from 7.0% to 8.0%. The rates of
increase in future compensation levels was 4.0%.
-16-
At October 28, 1995 and October 29, 1994, the accumulated benefit obligation
exceeded the fair value of the plans' assets. The provisions of SFAS 87,
"Employers' Accounting for Pensions," require recognition in the balance
sheet of an additional minimum liability and related intangible asset for
pension plans with accumulated benefits in excess of plan assets; any portion
of such additional liability which is in excess of the plan's prior service
cost is reflected as a direct charge to equity, net of related tax benefit.
Accordingly, at October 28, 1995 and October 29, 1994, respectively, a
liability of $880,000 and $767,000 is included in Other Long-Term
Liabilities, an intangible asset equal to the prior service cost of $74,000
and $82,000 is included in Other Assets, and a charge of $806,000 and
$685,000 is reflected as a Minimum Pension Liability Adjustment in
stockholders' equity in the Consolidated Balance Sheet.
Multi-Employer Plan - Health, welfare and retirement expense was
approximately $5,942,000 in fiscal 1995, $7,497,000 in fiscal 1994 and
$7,058,000 in fiscal 1993 under plans covering union employees. Such plans
are administered through the unions involved. Under U.S. legislation
regarding such pension plans, a company is required to continue funding its
proportionate share of a plan's unfunded vested benefits in the event of
withdrawal (as defined by the legislation) from a plan or plan termination.
The Company participates in a number of these pension plans and may have
potential obligation as a participant. The information required to determine
the total amount of this contingent obligation, as well as the total amount
of accumulated benefits and net assets of such plans, is not readily
available. However, the Company has no present intention of withdrawing from
any of these plans, nor has the Company been informed that there is any
intention to terminate such plans.
401(k) Savings Plan - The Company sponsors an employee 401(k) savings plan
for all non-union employees. Contributions to the plan are in the form of
employee salary deferrals.
11. OTHER POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS
Deferred Compensation Agreements - The Company provides certain current and
former officers with supplemental income payments and limited medical
benefits during retirement. The Company recorded an estimate of deferred
compensation payments to be made to the officers based on their anticipated
period of active employment, the relevant actuarial assumptions and the
health-care cost trend rates which are projected at 10.0% and which grade
down to 5.0% over five years, which amounted to $682,000 and $504,000 at
October 28, 1995 and October 29, 1994, respectively. The Company purchased
life insurance to partially fund this obligation. The participants have
agreed to certain non-compete arrangements and to provide continued service
availability for consulting services after retirement. The cumulative
effect of adopting SFAS No. 106 in fiscal 1994 was immaterial. The net
postretirement benefit cost was not material for the fiscal year ending
October 29, 1994 and consisted of the following components for the fiscal
year ending October 28, 1995:
Service Cost $ 13,000
Interest Cost 80,000
Amortization of unrecognized loss 35,000
Net Postretirement benefit cost $ 128,000
The effect of a 1% change in the assumed cost trend rate would not have a
material impact on the accumulated postretirement benefit obligation as of
October 28, 1995 or the net periodic postretirement benefit cost for fiscal
1995. The assumed discount rate used in determining the postretirement
benefit obligation as of October 28, 1995 was 8.0%.
Effective October 30, 1994, the Company adopted SFAS No. 112. Under SFAS No.
112, the Company is required to accrue the expected cost of providing
postemployment benefits, primarily short-term disability payments, over the
working careers of its employees. The Company previously expensed the cost of
these benefits as claims were paid.
-17-
The effect of this change as of October 30, 1994 resulted in a charge to
income of $129,000, net of an income tax benefit of $107,000, and has been
presented as a cumulative effect of a change in accounting method in the
accompanying consolidated statement of operations for fiscal 1995. The
transition obligation was determined by applying the provisions of the plan
and was recorded at its present value utilizing a discount rate of 7.0 %.
The accumulated postemployment benefit obligation as of October 28, 1995 was
$271,000.
The net postemployment benefit cost consisted of the following components for
the fiscal year ending October 28, 1995:
Service cost $ 34,000
Interest cost 16,000
Prior year experience gain (13,000)
Net postemployment benefit cost $ 37,000
The net postemployment benefit costs, recorded by the Company on a pay-as-you-
go basis, for the periods ended October 29, 1994 and October 30, 1993 were
not material.
12. STOCK OPTIONS
On May 10, 1995, the Company's shareholders approved the Foodarama
Supermarkets, Inc. 1995 Stock Option Plan which provides for the granting of
options to purchase up to 100,000 common shares until January 31, 2005,
exercisable over a period of three years at prices not less than fair market
value at the date of the grant. At October 28, 1995, no options had been
granted. At October 29, 1994, the prior stock option plan terminated with no
options being granted.
13. INCOME TAXES
The income tax benefit consists of the following:
Fiscal 1995 Fiscal 1994 Fiscal 1993
Federal:
Current $412,000 $420,000 $ 354,000
Deferred (699,000) (608,500)(1,448,000)
State and local:
Current 135,000 - 400,000
Deferred (7,000) 7,500 (199,000)
$ (159,000)$ (181,000)$ (893,000)
Deferred income taxes result primarily from temporary differences between the
tax basis of assets and liabilities and their reported value in the financial
statements.
-18-
During fiscal 1993 the deferred income tax provision resulted primarily from
accelerated tax depreciation, differences in basis of assets sold, bad debt,
leasing, accrued expenses, net operating loss carry forwards and alternative
minimum tax credit carry forwards.
The following tabulations reconcile the federal statutory tax rate to the
effective rate:
Fiscal Fiscal Fiscal
1995 1994 1993
Tax benefit at the statutory rate (34.0)% (34.0)% (34.0)%
State and local income tax benefit,
net of federal income tax (9.0) (9.0) -
Goodwill amortization not deductible for
tax purposes - 7.1 1.4
Adjustment to prior year tax provision - 9.5 -
Other (2.5) .3 1.4
Actual tax benefit (45.5)% (26.1)% (31.2)%
Net deferred tax assets and liabilities consist of the following:
October 28, October 29,
1995 1994
Current deferred tax assets:
Reserves $ 362,000 $ 303,000
Other 26,000 19,000
$ 388,000 $ 322,000
Current deferred tax liabilities:
Dividend receivable $(1,231,000) $(1,553,000)
Inventories (335,000) (523,000)
Other (117,000) (256,000)
(1,683,000) (2,332,000)
Current deferred income tax liability $(1,295,000) $(2,010,000)
-19-
Non-Current deferred tax assets:
Federal loss carryforward $ - $1,987,000
Alternative minimum tax credits 888,000 1,461,000
State loss carryforward 595,000 698,000
Investment tax credits 1,070,000 809,000
Contribution carryover 46,000 479,000
Lease obligations 1,666,000 1,429,000
Other 1,208,000 1,266,000
5,473,000 8,129,000
Non-Current deferred tax liabilities:
Depreciation of fixed assets (6,953,000) (8,328,000)
Pension obligations (311,000) (437,000)
Other (925,000) (2,094,000)
(8,189,000)(10,859,000)
Non current deferred income tax liability $ (2,716,000) (2,730,000)
In the fiscal quarter ended January 29, 1994, the Company adopted statement
of Financial Accounting Standards No. 109. "Accounting for Income Taxes". The
effect of adopting SFAS No. 109 on the Company's financial statements was
immaterial.
Investment tax credits expire October 1998 through October 2001.
14. COMMITMENTS AND CONTINGENCIES
Legal Proceedings - The Company is involved in various legal actions and
claims arising in the ordinary course of business. Management believes that
the outcome of any such litigation and claims will not have a material effect
on the Company's financial position or results of operations.
Guarantees - The Company remains contingently liable under leases assumed by
third parties in the event of nonperformance by these assignees. As of
October 28, 1995, the minimum annual rental under these leases amounted to
approximately $1,062,000, expiring at various dates through 2000. The
Company has not experienced and does not anticipate any material
nonperformance by these assignees.
Contingencies - The Company's general liability insurer, Insure-Rite, Ltd.,
can make premium calls up to a maximum of 45% of premiums paid for the policy
year ended December 1, 1993 and 38% for the policy year ended December 1,
1994. Such a call could be approximately $850,000 per year. The insurer
advises that current loss information does not allow them to determine if a
call will be necessary for either policy year.
In May, 1995 the Company sold its two operating locations in Pennsylvania.
If the purchaser of these supermarkets ceases to operate prior to May, 2000
the Company may be liable for unfunded pension withdrawal liability. As of
October 28, 1995 the potential withdrawal liability was approximately
$700,000. The Company fully anticipates that the purchaser of these stores
will remain in operation throughout this five year period.
-20-
15. EARNINGS (LOSS) PER SHARE
The computation of earnings per share is based on the weighted average number
of common shares outstanding during each year (1,118,150 shares in 1995, 1994
and 1993) and mandatory preferred stock dividend requirements of $136,000 in
fiscal 1995 and 1994 and $97,000 in fiscal 1993. Fully diluted net loss per
share has not been presented since the amount is antidilutive.
16. RECEIVABLES AND OTHER CURRENT ASSETS
Receivables and other current assets consist of the following:
October 28, October 29,
1995 1994
Accounts receivable $2,048,000 $1,762,000
Prepaids 760,000 757,000
Rents receivable 624,000 1,424,000
Tax refund receivable - 698,000
Less allowance for uncollectable
accounts (516,000) ( 779,000)
$2,916,000 $ 3,862,000
17. OTHER ASSETS
Other assets consist of the following:
October 29, October 29,
1995 1994
Collateral for workers compensation
insurance $4,012,000 $3,698,000
Deferred financing costs 1,856,000 1,685,000
Prepaids 284,000 496,000
Deposits 180,000 905,000
Other 866,000 456,000
$ 7,198,000 $7,240,000
18. OTHER LONG-TERM LIABILITIES
Other long-term liabilities consist of the following:
October 28, October 29,
1995 1994
Deferred escalation rent $3,622,000 $3,857,000
Pension liability 880,000 767,000
Deferred compensation 682,000 599,000
Other 595,000 736,000
$5,779,000 $5,959,000
-21-
19. UNAUDITED SUMMARIZED CONSOLIDATED QUARTERLY INFORMATION
Summarized quarterly information for the years ended October 28, 1995 and
October 29, 1994 was as follows:
Thirteen Weeks Ended
January 28, April 29, July 29, October 28,
1995 1995 1995 1995
(Dollars in thousands, except per share data)
Sales $151,748 $146,266 $145,891 $137,847
Gross profit 37,624 37,537 37,391 36,771
Income before extraordinary
item and cumulative effect of
change in accounting 7 146 545 249
Extraordinary item, early
extinguishment of debt - (1,368) - 359
Cumulative effect of change in
accounting (175) - - 46
Net income (loss) (168) (1,222) 545 654
Mandatory preferred stock dividend
requirement (34) (34) (34) (34)
Earnings (loss) available to common
stock (202) (1,256) 511 620
Earnings (loss) available per common
share before extraordinary item
and cumulative effect of change in
accounting (.02) .10 .45 .20
Extraordinary item, early
extinguishment of debt - (1.22) - .32
Cumulative effect of change in
accounting (.16) - - .04
Earnings (loss) available per common
share (.18) (1.12) 5 .56
In the second quarter of fiscal 1995, $259,000 or $.23 per share of net
income was attributable to a gain on a real estate transaction. During the
fourth quarter ended October 28, 1995, the Company revised its effective tax
rate based upon the expected rate for the entire fiscal year ended October
28, 1995 which resulted in an adjustment to the extraordinary loss on the
early extinguishment of debt and the cummulative effect of change in
accounting.
Thirteen Weeks Ended
January 29, April 30, July 30, October 29,
1994 1994 1994 1994
(Dollars in thousands, except per share data)
Sales $157,491 $151,546 $150,791 $146,680
Gross profit 38,702 36,133 38,406 36,633
Net income (loss) 40 (1,301) 384 364
Mandatory preferred stock
dividend requirement (34) (34) (34) (34)
Earnings (loss) available
to common stock 6 (1,335) 350 330
Earnings (loss) available
per common share .01 (1.19) .31 .29
The net loss in the second quarter of fiscal 1994 was primarily attributable
to the effects of an inventory reduction program undertaken to improve
liquidity. Inventory levels were reduced through price reductions and
manufacturer returns, reducing overall gross margins. Sales and gross profit
declines of 1.63% and .73%, respectively, were the direct results of this
program.
-22-
In the fourth quarter of fiscal 1994 $406,000 or $.36 per share of net income
was attributable to a net gain on real estate transactions.
* * * * * *
-23-
Schedule X
c. Exhibits
3. Articles of Incorporation and By-Laws
*i. Restated Certificate of Incorporation of Registrant filed
with the Secretary of State of the State of New Jersey on
May 15, 1970.
*ii. Certificate of Merger filed with the Secretary of State of
the State of New Jersey on May 15, 1970.
*iii. Certificate of Merger filed with the Secretary of State of
the State of New Jersey on March 14, 1977.
*iv. Certificate of Merger filed with the Secretary of State of
the State of New Jersey on June 23, 1978.
*v. Certificate of Amendment to Restated Certificate of
Incorporation filed with the Secretary of State of the
State of New Jersey on May 12, 1987.
**vi. Certificate of Amendment to Restated Certificate of
Incorporation filed with the Secretary of State of the
State of New Jersey on February 16, 1993.
**vii. By-Laws of Registrant.
*viii. Amendments to By-Laws of Registrant adopted
September 14,1983.
ix. Amendment to By-Laws of Registrant adopted March
15, 1991 is incorporated herein by reference to the
Registrant's Annual Report on Form 10-k for the year
ended November 2, 1991 filed with the Securities and
Exchange Commission on February 18, 1992.
* Each of these Exhibits is incorporated herein by reference to
the Registrant's Annual Report on Form 10-K for the year ended
October 29, 1988 filed with the Securities and Exchange
Commission on February 13, 1989.
** Each of these Exhibits is incorporated herein by reference to
the Registrant's Annual Report on Form 10-K for the year ended
October 31, 1992 filed with the Securities and Exchange
Commission on February 19, 1993.
IV-2
10. Material Contracts.
i. The Agreement dated September 18, 1987 entered into by
Wakefern Food Corporation and the Registrant is incorporated
herein by reference to Exhibit A to the Registrant's Form 8-K
filed with the Securities and Exchange Commission on November
19, 1987.
***ii. Certificate of Incorporation of Wakefern Food Corporation
together with amendments thereto and certificates of merger.
***iii. By-laws of Wakefern Food Corporation.
iv. Purchase Agreement, dated March 10, 1989, by and between
Hilltop Supermarkets, Inc. and the Registrant is incorporated
herein by reference to Exhibit (2) (I) to the Registrant's Form
8-K filed with the Securities and Exchange Commission on
April 4, 1989.
v. Agreement, dated March 10, 1989, by and between Afta Equipment
Leasing Co., an affiliate of Hilltop Supermarkets, Inc., and the
Registrant is incorporated herein by reference to Exhibit (2)
(I) to the Registrant's Form 8-K filed with the Securities and
Exchange Commission on April 4, 1989.
***vi. Agreements between the Registrant and the principals of Hilltop
Supermarkets, Inc.
***vii. Credit Agreement, dated as of March 16, 1989, among the
Registrant, each of the Banks which are a signatory thereto and
The Chase Manhattan Bank (National Association).
***viii. Amendment No.1 to the Credit Agreement, dated as of June 16,
1989, among the Registrant, each of the Banks which are a
signatory thereto and The Chase Manhattan Bank (National
Association).
***ix. Note Purchase Agreements, dated as of June 1, 1989, between the
Registrant and various institutional Lenders.
*** Each of these Exhibits is incorporated herein by reference to the
Registrant's Annual Report on Form 10-K for the year ended
October 28, 1989 filed with the Securities and Exchange
Commission on February 9, 1990.
IV-3
***x. Letter Agreement, dated January 25, 1990, among the Registrant,
the Banks which are parties to the Credit Agreement, dated
as of March 16, 1989, and each of institutional lenders who
were issued senior secured notes pursuant to the several Note
Agreements, dated as of June 1, 1938, between each such
institutional investors and the Registrant.
***xi. Form of Deferred Compensation Agreement, between the Registrant
and certain of its key employees.
xii. Registrant's 1987 Incentive Stock Option Plan is incorporated
herein by reference to Exhibit 4 (a) to the Registrant's Form
S-8 filed with the Securities and Exchange Commission on
May 26, 1989.
xiii. Amendment No. 2 to the Credit Agreement, dated as of January
25, 1990, among the Registrant, each of the Banks which are a
signatory thereto and The Chase Manhattan Bank (National
Association) is incorporated herein by reference to the
Registrant's Annual Report on Form 10-K for the year ended
November 3, 1990 filed with the Securities and Exchange
Commission on February 20, 1991.
****xiv. Amendment No. 3 to the Credit Agreement, dated as of February
5, 1992, among the Registrant, each of the Banks which are a
signatory thereto and The Chase Manhattan Bank (National
Association).
**** Each of these Exhibits is incorporated herein by reference to
the Registrant's Annual Report on Form 10-K for the year ended
November 2, 1991, filed with the Securities and Exchange
Commission on February 18, 1992.
IV-4
**xv. Amendment No. 4 to the Credit Agreement, dated as of February
12, 1993, among the Registrant, each of the Banks which are a
signatory thereto and The Chase Manhattan Bank (National
Association).
****xvi. Modification Letter to Note Purchase Agreement, dated as of
June 1, 1989, between the Registrant and various
Institutional Lenders.
****xvii. Amendment Letter to Note Purchase Agreement, dated as of
August 10, 1989, between the Registrant and various
Institutional Lenders.
****xviii. Modification Letter to Note Purchase Agreement, dated as of
February 5, 1992, between the Registrant and various
Institutional Lenders.
**xix. Modification Letter to Note Purchase Agreement, dated as of
February 16, 1993, between the Registrant and various
Institutional Lenders.
*****xx. Agreement, dated September 20, 1993, between the Registrant,
ShopRite of Malverne, Inc. and The Grand Union Company.
xxi. Revolving Credit and Term Loan Agreement, dated as of
February 15, 1995 between the Registrant and NatWest Bank as
agent for a group of banks is incorporated herein by
reference to the Registrant's Form 8-K filed with the
Securities and Exchange Commission on July 10, 1995.
xxii. Asset Purchase Agreement dated April 20, 1995 and Amendment
No. 1 to the Agreement dated May 24, 1995 between the
Registrant and Wakefern Food Corp. is incorporated herein
by reference to the Registrant's Form 8-K filed with the
Securities and Exchange Commission on July 27, 1995.
***** Incorporated herein by reference to the Registrant's Annual
Report on Form 10-K for the year ended October 30, 1993, filed
with the Securities and Exchange Commission on February 24,
1994.
IV-5
Exhibit 21
LIST OF SUBSIDIARIES
OF FOODARAMA SUPERMARKETS, INC.
State of
Name of Subsidiary Incorporation
ShopRite of Malverne, Inc. New York
New Linden Price Rite, Inc. New Jersey
ShopRite of Reading, Inc. Pennsylvania
IV-6
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the
Securities Act of 1934, the Registrant has duly caused this Report to be
signed on its behalf by the undersigned, thereunto duly authorized.
FOODARAMA SUPERMARKETS, INC.
(Registrant)
/S/ Michael Shapiro
Michael Shapiro
(Chief Financial Officer)
/S/ Joseph C. Troilo
Joseph C. Troilo
(Chief Accounting Officer)
Date: February 5, 1996
Pursuant to the requirements of the Securities Exchange Act of
1934, this Report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
Name Title Date
/S/ Joseph J. Saker
Joseph J. Saker Chairman of the Board February 1, 1996
of Directors and President
(principal executive officer)
/S/ Charles T. Parton
Charles T. Parton Director January 31, 1996
/S/ Albert A. Zager
Albert A. Zager Director January 31, 1996
/S/ Richard Saker
Richard Saker Chief Operating Officer, February 1, 1996
Secretary and Director