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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
November 2, 1996 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 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 $6,134,000.
Computation is based on the closing sales price of $15.25 per share
of such stock on the American Stock Exchange on January 16, 1997.
As of January 16, 1997, the number of shares outstanding of
Registrant's Common Stock was 1,118,150.
DOCUMENTS INCORPORATED BY REFERENCE
Information contained in the 1997 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
Disclosure Concerning Forward-Looking Statements
All statements, other than statements of historical fact, included in
this Form 10-K, including without limitation the statements under
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business", are, or may be deemed to be,
"forward-looking statements" within the meaning of Section 27A of the
securities Act of 1933, as amended (the "Securities Act"), and
Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). Such forward-looking statements involve assumptions,
known and unknown risks, uncertainties and other factors which may
cause the actual results, performance or achievements of the
Registrant to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements contained in this Form 10-K. Such potential risks
and uncertainties, include without limitation, competitive pressures
from other supermarket operators and warehouse club stores, economic
conditions in the Registrant's primary markets, consumer spending
patterns, availability of capital, cost of labor, cost of goods sold,
and other risk factors detailed herein and in other of the
Registrant's Securities and Exchange Commission filings. The forward-looking
statements are made as of the date of this Form 10-K and the
Registrant assumes no obligation to update the forward-looking
statements or to update the reasons actual results could differ from
those projected in such forward-looking statements.
Item 1. Business
General
The Registrant, a New Jersey corporation formed in 1958, operates a
chain of twenty 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,
prepared foods and other items, and a central baking facility which
supplies its stores with bakery products. The Registrant is a member
of Wakefern Food Corporation ("Wakefern"), the largest retailer owned
food cooperative warehouse in the United States and owner of the
ShopRite name.
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, fourteen of the Registrant's stores are
"World Class", four are "Mini-World Class" and two are conventional
supermarkets.
On May 23, 1995, the Registrant sold its two operating Pennsylvania
stores to another member of Wakefern 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 8 of Notes to Consolidated Financial Statements.
The following table sets forth certain data relating to the Registrant's
business for the periods indicated:
Fiscal Year Ended
Nov. 2, Oct. 28 Oct. 29, Oct. 30, Oct. 31,
1996* 1995 1994 1993** 1992
Average annual sales per store
(in millions)................ $31.8 $30.9 $30.2 $27.4 $26.5
Same store sales increase
(decrease) from prior year... 2.63% 1.62% 0.84% (3.66%) 1.74%
Total store area in square feet
(in thousands)................. 1,080 954 1,072 1,106 1,170
Total store selling area in square
feet (in thousands).......... 807 710 789 823 841
Average total square feet per store
(in thousands)............... 54 53 54 53 45
Average square feet of selling area
per store (in thousands)..... 40 39 39 39 32
Annual sales per square foot of
selling area................. $789 $784 $766 $698 $819
Number of stores:
Stores remodeled (> $500,000) 1 0 0 0 0
New stores opened.......... 1 0 0 0 0
Stores replaced/expanded... 1 0 0 3 3
Stores closed/divested..... 0 2 1 6 2
Number of stores by size
(total store area):
30,000 to 39,000 sq.ft ..... 4 4 4 5 10
40,000 to 49,900 sq.ft ..... 4 4 4 4 6
Greater than 50,000 sq.ft... 12 10 12 12 10
Total stores open at period end 20 18 20 21 26
* Calculated on a 53 week basis. A like 52 week comparison would be $31.2
million in average sales per store and $781 in annual sales per square foot
of selling area.
** A strike by the New Jersey retail clerks union severely impacted sales of
fifteen stores.
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.
During the last fiscal year one new and one replacement location were
opened in Marlboro and Montgomery, New Jersey, respectively. Over the
next three years the Registrant plans to open two new and three
replacement stores and expand three existing locations. One
replacement store is presently under construction in East Windsor,
New Jersey.
Technology
Automation and computerization are important to the Registrant's
operations and competitive position. In fiscal 1996 all stores were
upgraded to IBM 4690 software for the scanning checkout systems.
These systems improve pricing accuracy, enhance productivity and
reduce checkout time for customers. 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, and the new ShopRite co-branded Master
Card. By presenting the scannable Price Plus card or
the ShopRite co-branded card, customers can receive electronic
discounts, the value of ShopRite in-ad Clip Less coupons and cash
personal checks. Additionally, customers receive a 2% future rebate
when paying with the ShopRite Master Card.
The Registrant is also using other in store computer systems.
Computer generated ordering is installed in all stores. This system
is designed to reduce inventory levels and out of stock positions,
enhance shelf space utilization and reduce labor costs. In all
stores, meat, seafood and delicatessen prices are maintained on
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. The time and attendance systems and the direct store
delivery receiving systems will be replaced in fiscal 1997.
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.
Industry Segment and Principal Products
The Registrant is engaged in one industry segment. For the last three
fiscal years, the Registrant's sales were divided approximately among
the categories listed below:
Fiscal Year Ended
Product Categories 11/02/96 10/28/95 10/29/94
Groceries 41.7% 42.6% 42.8%
Dairy & Frozen 16.1 15.9 16.1
Meats, Seafood & Poultry 11.2 11.3 11.9
Non-Foods 9.7 9.7 9.7
Produce 8.3 8.3 8.0
Appetizers & Prepared Foods 5.5 5.0 4.8
Pharmacy 3.4 3.3 3.1
Bakery 2.2 2.1 1.9
Liquor, Floral & Garden Centers 1.9 1.8 1.7
100.0% 100.0% 100.0%
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.
Wakefern Food Corporation
The Registrant owns an 13.4% interest in Wakefern, a New Jersey
corporation organized in 1946, which provides purchasing, warehousing
and distribution services on a cooperative basis to its shareholder
members, including the Registrant, who are operators of ShopRite
supermarkets. Together, Wakefern and its shareholder members operate
approximately 188 supermarkets. 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.
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 obligation to Wakefern. As of November 2, 1996 and
October 28, 1995, the Registrant's investment in Wakefern was
$8,427,000 and $7,527,000, respectively. The Registrant also has an
investment in another company affiliated with Wakefern which was
$788,000 at November 2, 1996 and October 28, 1995. 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. The Registrant fulfilled this
obligation during the 53 week period ended November 2, 1996. 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 under facilitated
stores are permitted free of the restrictions of the agreement. Also,
the restrictions of the agreement do not apply if volume lost by a
shareholder by the sale of a store is made up by such shareholder by
increased volume of new or existing stores and, in any event, the
Compensatory Payments otherwise required to be made by the
shareholder to Wakefern are not required if the sale is made to
Wakefern, another shareholder of Wakefern or to a purchaser which is
neither an owner or operator of a chain of 25 or more supermarkets in
the United States, excluding any ShopRite supermarkets in any area in
which Wakefern operates. The agreement extends for an indefinite term
and is subject to termination ten years after the approval by a vote
of 75% of the outstanding voting stock of Wakefern. 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, Edwards 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, fast food chains and convenience stores. See
Management's Discussion and Analysis-Results of Operations.
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, delicatessen departments, and prepared foods, 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, 1996, the Registrant employed approximately 4,100
persons, of whom approximately 3,700 are covered by collective
bargaining agreements. 73% of the employees are part time and almost
all of these employees 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. The
Registrant is subject to six collective bargaining agreements
expiring on various dates from April 1997 to October 2000.
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 twenty supermarkets, nineteen of which are leased,
range in size from 31,000 to 101,000 square feet with sales area
averaging 75 percent of the total area. All stores are air-conditioned, have
modern fixtures and equipment, have their own ample
parking facilities and are located in suburban areas.
The leases expire on various dates from 1999 through 2021. One lease
expires in 1999 and does not contain a renewal clause. This location
will be replaced by a new supermarket for which a lease has been
signed. All other leases contain renewal options ranging from 5 to 25
years. Six 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. Only in two locations is the minimum being
exceeded. Most leases also require the Registrant to pay for
insurance, common area maintenance and real estate taxes.
The Registrant also is subject to an additional eighteen leases
relating to locations where the Registrant no longer conducts
supermarket operations; fifteen of such locations have been sublet to
non-affiliated persons. 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 18,000 square feet in
Howell, New Jersey. The Registrant also leases 57,000 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 sell or mortgage the property it
owns. See Management's Discussion and Analysis-Financial Condition
and Liquidity.
One additional lease has been signed for a supermarket location
scheduled to open during fiscal year 1998.
Item 3. Legal Proceedings
In the ordinary course of its business, the Registrant is party to
various legal actions not covered by insurance. Although a possible
range of loss cannot be estimated, it is the opinion of management,
that settlement or resolution of these proceedings will not, in the
aggregate, have a material adverse impact on the financial condition
or results of operations of the Registrant.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Part II
Item 5. Market for Registrant's Common Stock and 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 28, 1995 and November 2,
1996.
Fiscal Quarter Ended High Low
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
January 27, 1996 13 5/8 10
April 27, 1996 18 1/4 13 3/8
July 27, 1996 21 1/2 17
November 2, 1996 17 1/2 14 1/4
(b) The approximate number of record holders of the Registrant's
Common Stock was 450 as of January 16, 1997.
(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 financial
institution. 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.
Year Ended
Nov. 2, Oct. 28, Oct. 29, Oct. 30, Oct. 31,
1996 (1) 1995 (2) 1994 1993 (3) 1992
(Dollars in thousands, except per share amounts)
Income Statement
Data:
Sales $601,143 $586,477 $611,074 $674,675 $700,578
Net income (loss) $ 1,396 $ (191) $ (513) $ (1,965) $ 712
Income (loss) per
common share $ 1.13 $ (.29) $ (.58) $ (1.84) $ .64
Cash dividends
per common share - - - - -
Balance sheet data
(at year end):
Working capital $ 3,056 $ (4,451) $ (8,674) $(30,613)(4)$ 13,169
Total assets $124,181 $110,984 $130,821 $137,440 $152,493
Long-term debt
(excluding current
portion) $ 41,243 $ 28,334 $ 37,439 $ 13,432(5) $ 63,519
Common share-
holders' equity $ 30,315 $ 28,672 $ 28,984 $ 30,182 $ 32,147
Book value per
common share $ 27.11 $ 25.64 $ 25.92 $ 27.00 $ 28.75
Tangible book value
per common share $ 22.22 $ 20.24 $ 19.21 $ 19.71 $ 19.79
(1) 53 week period.
(2) 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.
(3) 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.
(4) Includes $32.6 million of long term debt at October 30, 1993
reclassified as current.
(5) Does not include $32.6 million of long-term debt at October 30,
1993 reclassified as current due to a default of a loan covenant
under the Registrant's credit agreements which terminated
February 15, 1995. Such long-term debt was classified as a current liability
on the Registrant's balance sheet as of that date.
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
FINANCIAL CONDITION AND LIQUIDITY
The Registrant entered into a Revolving Credit and Term Loan
Agreement on February 15, 1995 ("the Credit Agreement"), which was
amended as of July 26, 1996 (the "Amended Credit Agreement"). The
Amended Credit Agreement, which was assigned by the lending group to
one financial institution on December 12, 1996, is secured by
substantially all of the Registrant's assets and provides for a total
commitment of $30,000,000, including a revolving credit facility and
term loan referred to as Term Loan C. The Amended Credit 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 ("EBITDA"), and
maintenance of (iii) fixed charge coverage and total liabilities to
net worth ratios. The Registrant was in compliance with such
covenants through November 2, 1996 except for the maximum level of
capital expenditures, which was exceeded by $188,000 or 2.9% of the
covenant limit, in connection with the opening of two new stores in
fiscal 1996. The Registrant obtained a waiver of this covenant.
The Amended Credit Agreement (a) increases the total amount available
to the Registrant under the working capital facility ("Revolving
Note") portion of the Agreement to $17,500,000 from $15,000,000,
subject to the borrowing base limitation of 60% of eligible
inventory; (b) increases the Term Loan C portion of the borrowings by
$1,825,000 to its original principal amount of $12,500,000; (c)
revises the repayment schedule for Term Loan C to provide that the
first quarterly payment becomes due on December 31, 1996, subsequent
quarterly payments are reduced in amount and a balloon payment of
$4,500,000 becomes due on February 15, 1999; (d) amends certain
definitions; (e) changes certain borrowing limitations, including a
provision which permits secured borrowing of up to $6,536,000 from
third party lenders in fiscal 1996; (f) permits capital expenditures
in fiscal 1996 and 1997 in a manner consistent with the projected
timing of such expenditures; and (g) waives technical non-compliance
by the Registrant with certain covenants of the Credit Agreement.
Other terms and conditions of the Credit Agreement previously
reported upon by the Registrant have not been modified.
The Registrant has pursued an asset redeployment program since
entering into the Credit Agreement, utilizing the proceeds from the
disposition of certain assets to repay indebtedness under the Credit
Agreement. The remaining components of the asset redeployment program
consist of the sale of real estate partnership interests in a non-supermarket
property located in Shrewsbury, New Jersey and a shopping
center in West Long Branch, New Jersey in which the Registrant
operates a supermarket and the sale/leaseback or mortgaging of
buildings owned by the Registrant and located in Linden and Aberdeen,
New Jersey.
The Amended Credit Agreement combined with the asset redeployment
plan described above strengthen the Registrant's financial condition
by increasing liquidity and providing increased working capital
through the Revolving Note.
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.
On January 25, 1996 the Registrant financed $4,068,000 of used
equipment at three existing locations. The note bears interest at
10.58% and is payable in monthly installments over its four year
term. The proceeds were used to repay existing debt.
On September 13, 1996 the Registrant financed $536,000 of POS
equipment at two existing locations. The note bears interest at 8.82%
and is payable in monthly installments over its four year term. The
proceeds were used to purchase the POS equipment.
On September 30, 1996 and November 1, 1996 the Registrant financed
the purchase of $4,602,075 and $1,397,925, respectively, of equipment
for the two new store locations in Marlboro and Montgomery, New
Jersey. The notes bear interest at 9.02% and 8.74%, respectively, and
are payable in monthly installments over their eight year terms.
The Registrant's compliance with the major financial covenants under
the Amended Credit Agreement was as follows as of November 2, 1996:
Amended Actual
Financial Credit (As defined in the
Covenant Agreement Amended Credit Agreement)
Capital Expenditures Less than $6,500,000 $ 6,688,000(1)
Net Worth Greater than $27,500,000 $33,175,000
Fixed Charge Coverage
Ratio Greater than .95 to 1.00 1.18 to 1.00
Total Liabilities to
Net Worth Ratio Less than 2.60 to 1.00 2.48 to 1.00
EBITDA Greater than $15,100,000 $15,107,000
(1) Non-compliance with this covenant was waived.
As of March 29, 1996 the Registrant and Wakefern Food Corporation,
the owner of the Registrant's Class A 8% Cumulative Convertible
Preferred Stock (the "Preferred Stock"), amended certain provisions
of the Preferred Stock to (a) extend the date after which Wakefern
shall be entitled to convert the Preferred Stock to Common Stock from
March 31, 1996 to March 31, 1997; and (b) defer the 2% increase in
the dividend rate effective March 1996 to March 1997. On May 14, 1996
the Registrant paid dividends in arrears on the Preferred Stock of
$456,980 as well as a quarterly dividend of $34,000 for the quarter
ended April 30, 1996 and on July 31, 1996 and October 31, 1996 paid
the then current quarterly dividends of $34,000. The Amended Credit
Agreement provides that quarterly dividends on the Preferred Stock
may be paid through January 31, 1997 and that the Preferred Stock may
be redeemed only if the Registrant has met or exceeded its financial
performance and debt reduction targets for the year ended November 2,
1996. The Registrant has met all of these targets and although there
can be no assurance, believes that it will be in a position and
intends to redeem the Preferred Stock prior to March 31, 1997.
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 Amended Credit 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 1996 as the result of
the Amended Credit Agreement. Working capital improved further as the
result of (a) the equipment financing completed in January 1996, with
$3,000,000 of current debt replaced by long term borrowing; (b) the
reduction in current payables relating to inventory and store
operations using proceeds of long term borrowings under the Revolving
Note; and (c) an increase of $1,000,000 in current related party
receivables which become due in fiscal 1997. At November 2, 1996, the
Registrant had working capital of $3,056,000 compared to a deficiency
of $4,451,000 at October 28, 1995 and a deficiency of $8,674,000 at
October 29, 1994. The Registrant normally requires small amounts of
working capital since inventory is generally sold at approximately
the same time that payments to Wakefern and other suppliers are due
and most sales are for cash or cash equivalents.
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 Credit Agreement.
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.
Working capital ratios were as follows:
November 2, 1996 1.1 to 1.0
October 28, 1995 .9 to 1.0
October 29, 1994 .8 to 1.0
Cash flows (in millions) were as follows:
1996 1995 1994
From operations..................... $ 9.7 $ 9.6 $ 9.9
Investing activities................ (6.5) 2.7 (5.8)
Financing activities................ (3.5) (14.4) (3.3)
Totals $( .3) $(2.1) $ 0.8
Fiscal 1996 capital expenditures totaled $13,181,000 with
depreciation of $8,207,000 compared to $3,755,000 and $8,371,000
respectively for fiscal 1995 and $5,709,000 and $9,183,000
respectively for fiscal 1994. In fiscal 1996 long-term debt increased
$10,106,000 as the result of the financing of POS equipment in two
locations and equipment in the two new locations in Marlboro and
Montgomery, New Jersey and the capitalization of a real estate lease
for the Montgomery store.
In fiscal 1995 the Registrant reduced its long-term debt by $13.0
million, using proceeds from the sale of the Pennsylvania stores and
cash generated by operations.
The Registrant had $7,691,000 of available credit, at November 2,
1996, under its revolving credit facility and believes that its
capital resources are adequate to meet its operating needs, scheduled
capital expenditures, debt service for fiscal 1997 and the redemption
of the outstanding Preferred Stock.
RESULTS OF OPERATIONS
Sales:
The Company's sales were $601.1 million, $586.5 million and $611.1
million, respectively in fiscal 1996, 1995 and 1994. This represents
an increase of 2.5 percent in 1996 and a decrease of 4.0 percent in
1995. These changes in sales levels were the result of the 53rd week
in fiscal 1996, opening of two new locations in June and July 1996,
sale of two Pennsylvania stores in May 1995 and the closing of one
store in June 1994. Comparable store sales were $571.4 million,
$556.9 million and $548.0 million in the respective three year
periods, an increase of 2.6% in fiscal 1996 and 1.6% in fiscal 1995.
Gross Profit:
Gross profit totaled $152.1 million in fiscal 1996 compared to $148.3
million in fiscal 1995 and $148.7 million in fiscal 1994. Gross
profit as a percent of sales was 25.3%, 25.3% and 24.3%,
respectively, in fiscal 1996, 1995 and 1994.
In fiscal 1996 gross profit percentage was positively affected by the
continued improvement in product mix and Wakefern incentive programs
for the two new locations. However, this improvement was offset by
price reductions instituted to combat increased competitive pressure
in the Registrant's marketing area.
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.
Patronage dividends applied as a reduction of the cost of merchandise
sold were $6,905,000, $7,246,000 and $7,745,000 for the last three
fiscal years. This translates to 1.15%, 1.24% and 1.27% of sales for
the respective periods.
Fiscal Years Ended
11/02/96 10/28/95 10/29/94
(in millions)
Sales........................ $601.1 $586.5 $611.1
Gross profit................. 152.1 148.3 148.7
Gross profit percentage...... 25.3% 25.3% 24.3%
Store Operating, General and Administrative Expenses:
Fiscal 1996 expenses totaled $147.0 million compared to $142.9
million in fiscal 1995 and $145.2 million in fiscal 1994.
Fiscal Years Ended
11/02/96 10/28/95 10/29/94
(in millions)
Sales........................ $601.1 $586.5 $611.1
Store Operating, General and
Administrative Expenses..... 147.0 142.9 145.2
% of Sales................... 24.5% 24.4% 23.8%
Store operating, general and administrative expenses increased
slightly in fiscal 1996. This increase was the result of grand
opening expenses for the two new locations, as well as increased
promotional activity in the Registrant's marketing area and a
decrease in income generated from the sale of cardboard due to a drop
in the cardboard market. As a percentage of sales, labor and related
fringe benefit costs increased .28%, selling expense increased .25%
and miscellaneous income declined .08%. These increases were
partially offset by decreases in other store expenses of .13% and
administrative expense of .29%. Pre-opening costs were $90,000 in
fiscal 1996.
The increase in store operating, general and administrative expenses
as a percentage of sales for fiscal 1995 is primarily due to increase
in supply costs of .17%, advertising of .12% and medical benefit
expense of .10%. Pre-opening costs were $129,000 in fiscal 1995.
Administrative expense as a percentage of sales, was impacted by the
operation of the Pennsylvania stores for only 30 weeks in fiscal
1995.
Amortization expense decreased in fiscal 1996 to $1,826,000 compared
to $2,954,000 in fiscal 1995 and $2,336,000 in fiscal 1994. This
decline was the result of decreased amortization of goodwill and
deferred escalation rents in fiscal 1996 as compared to fiscal 1995
which included the write off of goodwill on the sale of the
Pennsylvania stores. Fiscal 1994 includes $420,000 of pre-opening
costs.
Interest Expense:
Interest expense totaled $3.5 million in fiscal 1996 compared to $4.6
million in fiscal 1995 and $5.2 million in fiscal 1994. The decrease
in fiscal 1996 and 1995 resulted from an overall reduction in debt
levels coupled with lower rates on the Registrant's bank credit
facility. Interest income was $0.2 million in fiscal 1996 compared to
$0.4 million in fiscal 1995 and $0.6 million in fiscal 1994. 1994
includes $0.4 million accrued on prior years' tax refunds due to the
Registrant.
Income Taxes:
The Registrant recorded a tax provision of $0.3 million in fiscal
1996 and a tax benefit of $0.2 million, in both fiscal 1995 and
fiscal 1994. See Note 15 of Notes to Consolidated Financial
Statements.
Net Income:
The Registrant had net income of $1,396,000 or $1.13 per share in
fiscal 1996 compared to 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 in fiscal
1995. 1995 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.
Shares outstanding were 1,118,150 for all three years. Per share
amounts for fiscal 1996, 1995 and 1994 are after Preferred Stock
dividends of $136,000, $136,000 and $136,000, respectively.
RECENT ACCOUNTING PRONOUNCEMENTS
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
does not expect a material impact from 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 establishes a method of
accounting for stock compensation plans based on fair value of
employee stock options and similar equity instruments. Companies are
permitted to continue using the current method of accounting for
stock compensation but are required to disclose pro forma net income
and earnings per share as if the fair value method of SFAS No. 123
has been used to measure compensation cost. The Registrant does not
expect any material impact from adopting the provisions of the
Statement which becomes effective 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
As previously reported in Form 8-K filed November 1, 1996 and Form 8-K/A
filed December 4, 1996, on October 25, 1996, Amper, Politziner
and Mattia was appointed to serve as the independent public
accountants for the Registrant for the fiscal year ended November 2,
1996. Deloitte & Touche, LLP ("Deloitte") had served as the
Registrant's independent public accountants for the two (2) fiscal
years ended October 28, 1995 and until Deloitte's dismissal on
October 25, 1996. The decision to dismiss Deloitte and appoint Amper,
Politziner and Mattia was approved by the Registrant's Audit
Committee and Board of Directors.
In connection with the audits of the two (2) fiscal years ended
October 28, 1995, and the subsequent interim period through October
25, 1996, there were no disagreements with Deloitte on any matter of
accounting principles or practices, financial statement disclosure,
or auditing scope or procedures, which disagreements if not resolved
to Deloitte's satisfaction would have caused them to make reference
in connection with their opinion to the subject matter of the
disagreement. The Registrant's audit reports issued by Deloitte
contained no adverse opinions or disclaimer of opinions, and were not
qualified or modified as to uncertainty, audit scope, or accounting
principles.
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.
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 F-1-2
Foodarama Supermarkets, Inc. and
Subsidiaries Consolidated Financial
Statements:
Balance Sheets as of November 2, 1996 F-3-4
and October 28, 1995.
Statements of Operations for each of the F-5
fiscal years ended November 2, 1996,
October 28, 1995 and October 29, 1994.
Statements of Shareholders' Equity F-6
for each of the fiscal years ended
November 2, 1996, October 28, 1995
and October 29, 1994.
Statements of Cash Flows for each of the F-7
fiscal years ended November 2, 1996,
October 28, 1995 and October 29, 1994.
Notes to Consolidated Financial Statements F-8 to 26
a.2. Financial Statement Schedules
Schedules have been omitted because they are
not applicable.
a.3. Exhibits E-1 to 6
b. Reports on Form 8-K
1. November 1, 1996 - Change of Accountants
as of October 25, 1996.
* * * * * *
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
Senior Vice President,
Chief Financial Officer
/S/ Joseph C. Troilo
Joseph C. Troilo
Senior Vice President,
Principal Accounting Officer
Date: January 31, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated.
Name Title Date
/S/ Joseph J. Saker
Joseph J. Saker Chairman of the Board January 30 ,1997
of Directors and President,
Chief Executive Officer
/S/ Charles T. Parton
Charles T. Parton Director January 29 ,1997
/S/ Albert A. Zager
Albert A. Zager Director January 30,1997
/S/ Richard Saker
Richard Saker Executive Vice President, January 30,1997
Secretary and Director,
Chief Operating Officer
Schedule X
Independent Auditors' Report
Board of Directors and Shareholders
Foodarama Supermarkets, Inc.
Freehold, New Jersey
We have audited the accompanying consolidated balance sheet of
Foodarama Supermarkets, Inc. and Subsidiaries as of November 2, 1996
and the related consolidated statements of operations, shareholders'
equity and cash flows for the fiscal year ended November 2, 1996. 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of Foodarama
Supermarkets, Inc. and Subsidiaries as of November 2, 1996 and the
results of their operations and their cash flows for the fiscal year
ended November 2, 1996 in conformity with generally accepted accounting
principles.
AMPER, POLITZINER & MATTIA
January 24, 1997
Edison, New Jersey
Independent Auditors' Report
Board of Directors and Shareholders
Foodarama Supermarkets, Inc.
Freehold, New Jersey
We have audited the accompanying consolidated balance sheet of
Foodarama Supermarkets, Inc. and Subsidiaries as of October 28, 1995
and the related consolidated statements of operations, shareholders'
equity and cash flows for each of the two 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 the
results of their operations and their cash flows for each of two fiscal
years in the period ended October 28, 1995 in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
January 25, 1996
Parsippany, New Jersey
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
November 2, 1996 and October 28, 1995
Assets
1996 1995
Current assets:
Cash and cash equivalents $ 3,114,000 $ 3,435,000
Merchandise inventories 31,654,000 27,669,000
Receivables and other current
assets 2,731,000 2,916,000
Prepaid income taxes 974,000 -
Related party receivables -
Wakefern 6,032,000 4,804,000
Related party receivables - other 1,259,000 508,000
45,764,000 39,332,000
Property and equipment:
Land 1,650,000 1,650,000
Buildings and improvements 1,867,000 1,867,000
Leaseholds and leasehold
improvements 33,238,000 30,188,000
Equipment 55,805,000 45,679,000
Property and equipment under capital
leases 19,674,000 14,064,000
112,234,000 93,448,000
Less accumulated depreciation
and amortization 53,498,000 45,296,000
58,736,000 48,152,000
Other assets:
Investments in related parties 9,215,000 8,315,000
Intangibles 5,475,000 6,038,000
Other 3,730,000 7,198,000
Related party receivables - Wakefern 1,029,000 871,000
Related party receivables - other 232,000 1,078,000
19,681,000 23,500,000
$ 124,181,000 $110,984,000
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
November 2, 1996 and October 28, 1995
Liabilities and Shareholders' Equity
1996 1995
Current liabilities
Current portion of long-term debt $ 5,182,000 $ 7,715,000
Current portion of long-term debt,
related party 52,000 86,000
Current portion of obligations
under capital leases 67,000 303,000
Current income taxes payable - 77,000
Deferred income tax liability 1,261,000 1,295,000
Accounts payable
Related party 23,850,000 20,239,000
Others 5,100,000 5,753,000
Accrued expenses 7,196,000 8,315,000
42,708,000 43,783,000
Long-term debt 26,852,000 20,349,000
Long-term debt, related party 757,000 -
Obligations under capital leases 13,634,000 7,985,000
Deferred income taxes 2,886,000 2,716,000
Other long-term liabilities 5,329,000 5,779,000
49,458,000 36,829,000
Mandatory redeemable preferred stock,
$12.50 par; authorized 1,000,000
shares; issued and outstanding
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 32,964,000 32,127,000
Minimum pension liability
adjustment - (806,000)
36,937,000 35,294,000
Less 503,477 shares, held in
treasury, at cost 6,622,000 6,622,000
30,315,000 28,672,000
$ 124,181,000 $ 110,984,000
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Fiscal Years Ended November 2, 1996, October 28, 1995
and October 29, 1994
1996 1995 1994
Sales $ 601,143,000 $ 586,477,000 $ 611,074,000
Cost of merchandise
sold 449,077,000 438,222,000 462,407,000
Gross profit 152,066,000 148,255,000 148,667,000
Store operating,
general and
administrative
expenses 146,992,000 142,849,000 145,244,000
Income from
operations 5,074,000 5,406,000 3,423,000
Other (expense) income:
Gain on the sale
of stores - 474,000 549,000
Interest expense (3,522,000) (4,578,000) (5,217,000)
Interest income 183,000 432,000 551,000
(3,339,000) (3,672,000) (4,117,000)
Income (loss) before
taxes, extraordinary
item and cumulative
effect of change in
accounting 1,735,000 1,734,000 (694,000)
Income tax
(provision) benefit (339,000) (787,000) 181,000
Income (loss) before
extraordinary item
and cumulative effect
of change in
accounting 1,396,000 947,000 (513,000)
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 income (loss) $ 1,396,000 $ (191,000) $ (513,000)
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Fiscal Years Ended November 2, 1996, October 28, 1995
and October 29, 1994
(continued)
Per share information:
Income (loss) before
extraordinary item
and cumulative effect
of change in
accounting $ 1.13 $ .73 $ (.58)
Extraordinary item - (.90) -
Cumulative effect
of change in
accounting - (.12) -
Net income (loss)
per common share $ 1.13 $ ( .29) $ (.58)
Weighted average
shares outstanding 1,118,150 1,118,150 1,118,150
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
Fiscal Years Ended November 2, 1996, October 28, 1995 and October 29, 1994
Capital
Common Stock in Excess Retained
Shares Amount of Par Earnings
Balance - October 30,
1993 1,621,627 $1,622,000 $2,351,000 $32,831,000
Net loss 1994 - - - (513,000)
Minimum pension
liability adjustment - - - -
Balance - October 29,
1994 1,621,627 1,622,000 2,351,000 32,318,000
Net loss 1995 - - - (191,000)
Minimum pension
liability adjustment - - - -
Balance - October 28,
1995 1,621,627 1,622,000 2,351,000 32,127,000
Net income 1996 - - - 1,396,000
Preferred stock
dividends paid -
$4.11 per share - - - (559,000)
Minimum pension
liability adjustment - - - -
Balance - November 2,
1996 1,621,627 $1,622,000 $2,351,000 $ 32,964,000
Minimum
Pension
Liability Treasury Stock Total
Adjustment Shares Amount Equity
Balance - Oct. 30,
1993 $ - (503,477) (6,622,000) $ 30,182,000
Net Loss 1994 - - - (513,000)
Minimum pension
Liability Adj. (685,000) - - (685,000)
Balance - Oct. 29
1994 (685,000) (503,477) (6,622,000) 28,984,000
Net Loss 1995 - - - (191,000)
Minimum Pension
Liability Adj. (121,000) - - (121,000)
Balance - Oct 28,
1995 (806,000) (503,477) (6,622,000) 28,672,000
Net Income 1996 - - - 1,396,000
Preferred Stock
dividends paid
$4.11 per share - - - (559,000)
Minimum Pension
liability adj. 806,000 - - 806,000
Balance - Nov 2,
1996 - (503,477) $6,622,000) $ 30,315,000
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Fiscal Years Ended November 2, 1996, October 28, 1995 and October 29,
1994
1996 1995 1994
Cash flows from operating
activities
Net income (loss) $ 1,396,000 $(191,000) $ (513,000)
Adjustments to reconcile
net income (loss) to net
cash provided by operating
activities
Depreciation 8,207,000 8,371,000 9,183,000
Amortization, intangibles 563,000 1,440,000 637,000
Amortization, deferred
financing costs 820,000 846,000 521,000
Amortization, deferred
rent escalation 353,000 539,000 640,000
Amortization, other assets 90,000 129,000 538,000
Gain on store divestitures - (474,000) (549,000)
Deferred income taxes 136,000 (729,000) (181,000)
Loss on disposal of store
property and equipment
and other assets - 93,000 140,000
(Increase) decrease in
Merchandise inventories (3,985,000) 2,131,000 4,183,000
Receivables and other
current assets 185,000 946,000 3,134,000
Prepaid income taxes (974,000) - -
Other assets 2,484,000 1,928,000 (4,565,000)
Related party receivables -
Wakefern (1,386,000) 1,065,000 931,000
Increase (decrease) in
Accounts payable 2,958,000 (5,551,000) (2,036,000)
Income taxes payable (77,000) (168,000) (301,000)
Other liabilities (1,042,000) (623,000) (1,840,000)
Other - (121,000) -
9,728,000 9,631,000 9,922,000
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
Cash paid for the purchase
of property and equipment (6,645,000) (3,755,000) (5,709,000)
(Increase) decrease in
related party receivables -
other 95,000 (246,000) (667,000)
(6,550,000) 2,689,000 (5,797,000)
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows - (continued)
Fiscal Years Ended November 2, 1996, October 28, 1995 and October 29,
1994
Cash flows from financing
activities
Preferred stock dividend
payments (559,000) - -
Proceeds from issuance of
debt 13,202,000 35,005,000 -
Principal payments under
long-term debt (15,768,000)(46,618,000) (2,102,000)
Principal payments under
capital lease obligation (197,000) (1,380,000) (1,246,000)
Principal payments under
long-term debt, related party (177,000) - -
Debt restructuring costs - (1,434,000) -
(3,499,000)(14,427,000) (3,348,000)
Net (decrease) increase in
cash and cash equivalents (321,000) (2,107,000) 777,000
Cash and cash equivalents,
beginning of year 3,435,000 5,542,000 4,765,000
Cash and cash equivalents,
end of year $ 3,114,000 $ 3,435,000 $ 5,542,000
Supplemental disclosures of
cash paid
Interest $ 3,526,000 $ 5,105,000 $ 5,316,000
Income taxes 1,263,000 494,000 656,000
Note 1 - Summary of Significant Accounting Policies
Fiscal Year
The Company's fiscal year ends on the Saturday closest to
October 31. Fiscal 1996 consists of the 53 weeks ended
November 2, 1996 and fiscal 1995 and 1994 consist of the
52 weeks ended October 28, 1995 and October 29, 1994,
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.
Operations
The Company operates in one industry segment, the sale of
retail food and non-food products, primarily in the
central New Jersey region.
Reclassifications
Certain reclassifications have been made to prior years'
financial statements in order to conform to the current
year presentation.
Use of Estimates
The preparation of financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts
of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
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.
Note 1 - Summary of Significant Accounting Policies - (continued)
Property and equipment under capital leases is 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).
Intangibles
Intangibles consist of goodwill, favorable operating
lease costs and a covenant not to compete. Goodwill is
being amortized on a straight-line basis over periods
from 15 to 37 years. The favorable operating lease costs
are being amortized on a straight-line basis over the
initial terms of the related leases which range from 14
to 31 years. The covenant not to compete was amortized
on a straight-line basis over the contractual life of the
agreements of six years, ending March 1996.
Management assesses the recoverability of intangibles by
comparing the Company's forecast of cash flows from
future operating results, on an undiscounted basis, to
the unamortized balance of intangibles at each balance
sheet date. Cash flows from operating results represent
net income excluding depreciation and amortization. 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 intangibles as of
such time. The recoverability of intangibles 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
intangibles carrying values and useful lives continue to
be appropriate.
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
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.
Note 1 - Summary of Significant Accounting Policies - (continued)
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.
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.
Earnings (Loss) Per Share
The computation of earnings (loss) per share is based on
the weighted average number of common shares outstanding
during each year (1,118,150 shares in 1996, 1995 and
1994) and mandatory preferred stock dividend requirements
of $136,000 in fiscal 1996, 1995 and 1994. Fully diluted
net income (loss) per share has not been presented since
the amount is antidilutive.
Note 2 - Concentration of Cash Balance
As of November 2, 1996, cash balances of approximately
$683,000 and $368,000 were maintained in bank accounts
insured by the Federal Deposit Insurance Corporation
(FDIC). These balances exceed the insured amount of
$100,000.
Note 3 - Receivables and Other Current Assets
Receivables and other current assets consist of the
following:
November 2, October 28,
1996 1995
Accounts receivable $ 1,867,000 $ 2,048,000
Prepaids 979,000 760,000
Rents receivable 550,000 624,000
Less allowance for
uncollectible accounts (665,000) (516,000)
$ 2,731,000 $ 2,916,000
Note 4 - Related Party Transactions
Wakefern Food Corporation
As required by Wakefern's By-Laws, all members of the
cooperative are required to make an investment in the
common stock of Wakefern for each supermarket operated
("Store Investment Program"), with the exact amount per
store computed in accordance with a formula based on the
volume of each store's purchases from Wakefern. The
maximum required investment per store was $450,000 at
November 2, 1996 and October 28, 1995. The Company has
a 13% and 11% investment in Wakefern of $8,427,000 at
November 2, 1996 and $7,527,000 at October 28, 1995,
respectively. Wakefern is operated on a cooperative basis
for its members. The shares of stock in Wakefern are
assigned to and held by Wakefern as collateral for any
obligations due Wakefern. In addition, the obligations to
Wakefern are personally guaranteed by principal
officers/shareholders of the Company. As of November 2,
1996, the Company was obligated to Wakefern for $808,500
for the increase in its required investment (see Note 10
Long-Term Debt, Related Party).
The Company also has an investment in Insure-Rite, Ltd.,
another company affiliated with Wakefern, which was
$788,000 at November 2, 1996 and October 28, 1995.
Insure-Rite, Ltd. provides the Company with its general
liability and property insurance coverage.
As a stockholder member of Wakefern, the Company earns a
share of an annual Wakefern patronage dividend. The
dividend is based on the distribution of operating
profits on a pro rata basis in proportion to the dollar
volume of business transacted by each member with
Wakefern during each fiscal year. It is the Company's
policy to accrue quarterly an estimate of the annual
patronage dividend. The Company reflects the patronage
dividend as a reduction of the cost of merchandise in the
consolidated financial statements. For fiscal 1996, 1995
and 1994, the patronage dividends were $6,905,000,
$7,246,000 and $7,745,000, respectively.
At November 2, 1996 and October 28, 1995, the Company has
current receivables due from Wakefern of approximately
$6,032,000 and $4,804,000, respectively, representing
patronage dividends, vendor rebates, coupons and other
receivables due in the ordinary course of business and a
noncurrent receivable representing a deposit of
approximately $1,029,000 and $871,000, respectively.
Note 4 - Related Party Transactions - (continued)
Wakefern Food Corporation - (continued)
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
stockholder, including the Company, agreed to purchase at
least 85% of its merchandise in certain defined product
categories from Wakefern and, if it fails to meet such
requirements, to make payments to Wakefern based on a
formula designed to compensate Wakefern for its lost
profit. Similar payments are due if Wakefern loses
volume by reason of the sale of one or more of a
stockholder's stores, merger with another entity or on
the transfer of a controlling interest in the
stockholder. The Company fulfilled its obligation to
purchase a minimum of 85% in certain defined product
categories from Wakefern for all periods presented. The
Company's merchandise purchases from Wakefern, including
direct store delivery vendors processed by Wakefern,
approximated $416,391,000, $403,794,000 and $399,771,000
for the years ended November 2, 1996, October 28, 1995
and October 29, 1994, respectively.
Wakefern charges the Company for, and provides the
Company with product and support services in numerous
administrative functions. These services 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.
Note 4 - Related Party Transactions
Other
The Company has receivables from related parties that
include shareholders, directors, officers and real estate
partnerships. At November 2, 1996 and October 28, 1995,
approximately $840,000 and $1,141,000 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 November 2,
1996 and October 28, 1995, $1,259,000 and $508,000,
respectively, were included in current related party
receivables and $232,000 and $1,078,000, respectively,
were included in noncurrent related party receivables.
Fair Value
Determination of the fair value of the above receivables
and investments is not practicable due to their related
party nature.
Note 5 - Intangibles
Intangibles consist of the following:
November 2, October 28,
1996 1995
Goodwill $ 3,493,000 $ 3,493,000
Favorable operating lease
costs 4,685,000 4,685,000
Covenant not to compete - 5,951,000
8,178,000 14,129,000
Less accumulated amortization 2,703,000 8,091,000
$ 5,475,000 $ 6,038,000
Note 6 - Other Assets
Other assets consist of the following:
November 2, October 28,
1996 1995
Cash collateral for workers
compensation insurance $ 927,000 $ 4,012,000
Deferred financing costs 1,156,000 1,856,000
Deposits 394,000 180,000
Other 1,253,000 1,150,000
$ 3,730,000 $ 7,198,000
Note 7- Accrued Expenses
Accrued expenses consist of the following:
November 2, October 28,
1996 1995
Payroll and payroll related
expenses $ 3,263,000 $ 3,564,000
Insurance 623,000 1,097,000
Sales, use and other taxes 900,000 958,000
Interest 207,000 211,000
Employee benefits 544,000 587,000
Occupancy costs 1,058,000 1,263,000
Real estate taxes 316,000 419,000
Other 285,000 216,000
$ 7,196,000 $ 8,315,000
Note 8 - Store Divestitures
In order to repay Term Loans A and B on a timely basis
(see Note 9 Long-Term Debt), the Company 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 and a shopping center
in West Long Branch in which the Company operates a
supermarket, 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.
On May 23, 1995, the Company sold its two operating
locations in Pennsylvania to another Wakefern member (see
Note 16 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.
Note 9 - Long-term Debt
Long-term debt consists of the following:
November 2, October 28,
1996 1995
Notes payable, banks $ 20,309,000 $ 25,514,000
Notes and mortgages payable 11,725,000 2,364,000
Notes payable, covenant not
to compete - 186,000
32,034,000 28,064,000
Less current portion 5,182,000 7,715,000
$ 26,852,000 $ 20,349,000
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"),
collateralized 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 and
provide for a working capital facility ("Revolving Note")
to fund future operations and expenditures, as necessary.
The Agreement consisted of three Term Loans (A, B, and C)
and a Revolving Note. Term Loan A totaled $2,000,000, and
was due within six months from closing. Term Loan B
totaled $8,500,000, and was due within 1 year from
closing. Term Loan C totals $12,500,000 and bears
interest at 1.25% over prime. Term Loan C is payable in
quarterly installments commencing December 31, 1996
through February 15, 1999.
The Revolving Note, with a total availability, based on
60% of eligible inventory, of up to $17,500,000, bears
interest at 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 November 2, 1996 was 8.25%. The
Revolving Note matures February 15, 1999. At November 2,
1996, the Company had a $2,000,000 letter of credit
outstanding and $7,691,000 of available credit under the
Revolving Note. All cash receipts are required to be
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 November 2,
1996, $4,904,000 of cash receipts on hand or in transit
are restricted for application against the Revolving
Note balance. As of November 2, 1996, Term Loans A and
B have been fully repaid.
Note 9 - Long-term Debt - (continued)
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.
The Agreement contains certain affirmative and negative
covenants which, among other matters will, (i) restrict
capital expenditures and payment of dividends, (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.
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.
At November 2, 1996 and October 28, 1995, property and
equipment which cost approximately $20,371,000, and
$3,007,000, respectively, was pledged as collateral for
certain notes and mortgages. These notes bear interest
ranging from 5.87% to 10.58% and the due dates range from
March 1999 to November 2004.
Aggregate maturities of long-term debt are as follows:
Fiscal Year
1997 $ 5,182,000
1998 6,391,000
1999 7,782,000
2000 9,182,000
2001 771,000
Thereafter 2,726,000
As of November 2, 1996, the fair value of long-term debt
was approximately equivalent to its carrying value, due
to the fact that the interest rates currently available
to the Company for debt with similar terms are
approximately equal to the interest rates for its
existing debt.
Note 10 - Long-term Debt, Related Party
As of November 2, 1996 the Company was indebted for an
investment in Wakefern. The debt is non-interest bearing
and payable in scheduled installments as follows:
Fiscal Year
1997 $ 52,000
1998 52,000
1999 175,000
2000 182,000
2001 182,000
2002 166,000
Determination of the fair value of the above long-term
debt is not practicable due to its related party nature.
Note 11 - Other Long-Term Liabilities
Other long-term liabilities consist of the following:
November 2, October 28,
1996 1995
Deferred escalation rent $ 3,975,000 $ 3,622,000
Pension liability - 880,000
Deferred compensation 760,000 682,000
Other 594,000 595,000
$ 5,329,000 $ 5,779,000
Note 12 - Long-Term Leases
Capital Leases
Property and equipment under capital leases consists of:
November 2, October 28,
1996 1995
Real estate $ 15,259,000 $ 9,649,000
Fixtures and equipment 4,415,000 4,415,000
19,674,000 14,064,000
Less accumulated amortization 9,015,000 8,492,000
$ 10,659,000 $ 5,572,000
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
November 2, 1996:
Note 12 - Long-Term Leases - (continued)
Capital Leases - (continued)
Fiscal Year
1997 $ 1,375,000
1998 1,738,000
1999 1,738,000
2000 1,738,000
2001 1,752,000
Thereafter 19,857,000
Total minimum lease payments 28,198,000
Less amount representing interest 14,497,000
Present value of net minimum
lease payments 13,701,000
Less current maturities 67,000
Long-term maturities $ 13,634,000
Included in the above are three 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 1996, 1995 and 1994.
Operating Leases
The Company is obligated under operating leases for rent
payments expiring at various dates through 2021. Certain
leases provide for the payment of additional rentals
based on certain escalation clauses and six 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 $225,000, $206,000
and $290,000 for the fiscal years 1996, 1995 and 1994,
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 1996 Fiscal 1995 Fiscal 1994
Land and
buildings $ 9,824,000 $ 10,152,000 $ 10,265,000
Less subleases (2,140,000) (1,920,000) (1,986,000)
$ 7,684,000 $ 8,232,000 $ 8,279,000
The minimum rental commitments under all noncancellable
operating leases reduced by income from noncancellable
subleases at November 2, 1996 are as follows:
Note 12 - Long-Term Leases - (continued)
Income from
Fiscal Land and Noncancellable Net Rental
Year Buildings Subleases Commitment
1997 $ 9,665,000 $ 1,942,000 $ 7,723,000
1998 9,434,000 1,563,000 7,871,000
1999 9,385,000 1,199,000 8,186,000
2000 8,885,000 595,000 8,290,000
2001 8,406,000 506,000 7,900,000
Thereafter 75,473,000 362,000 75,111,000
$ 121,248,000 $ 6,167,000 $ 115,081,000
The Company is presently leasing one of its supermarkets,
a garden center and liquor store, from a partnership in
which the president has an interest, at an annual
aggregate rental of $591,000, $560,000 and $558,000 for
the fiscal years 1996, 1995 and 1994, respectively.
Note 13 - 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 four 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 November 2, 1996, all dividends have
been declared and paid. 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, 1997 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 November 2, 1996, 119,298 shares would be used for
conversion.
The Revolving Credit and Term Loan Agreement provides
that no Preferred Stock may be redeemed, unless the
Company has met or exceeded its financial performance and
debt reduction targets for the fiscal year ended November
2, 1996.
Note 14 - 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, at prices
not less than fair market value at the date of the grant.
Options granted under the plan vest over a period of
three years from the date of grant. At November 2, 1996,
no options had been granted. At October 29, 1994, the
prior stock option plan terminated with no options being
granted.
Note 15 - Income Taxes
The income tax provision (benefit) consists of the
following:
Fiscal 1996 Fiscal 1995 Fiscal 1994
Federal:
Current $ - $ 412,000 $ 420,000
Deferred 114,000 (699,000) (608,500)
State and local:
Current 203,000 135,000 -
Deferred 22,000 (7,000) 7,500
$ 339,000 (159,000) $ (181,000)
Deferred income taxes result primarily from temporary
differences between the tax basis of assets and
liabilities and their reported value in the financial
statements.
The following tabulations reconcile the federal statutory
tax rate to the effective rate:
Fiscal Fiscal Fiscal
1996 1995 1994
Tax provision (benefit)
at the statutory rate 34.0 % 34.0% (34.0)%
State and local income
tax provision (benefit),
net of federal income
tax 5.9 % 9.0% (9.0)%
Goodwill amortization not
deductible for tax
purposes 2.8 % - 7.1 %
Officers' life insurance
income not includable
for tax purposes (2.0)% - -
Adjustment to prior
years tax provision (2.7)% - 9.5 %
Adjustment to contingent
tax liabilities (19.0)% - -
Other .5 % 2.5% .3 %
Actual tax provision
(benefit) 19.5 % 45.5% (26.1)%
Note 15 - Income Taxes - (continued)
Net deferred tax assets and liabilities consist of the
following:
November 2, October 28,
1996 1995
Current deferred tax assets:
Reserves $ 687,000 $ 362,000
Other 581,000 26,000
1,268,000 388,000
Current deferred tax
liabilities:
Patronage dividend receivable (1,426,000) (1,231,000)
Inventories (291,000) (335,000)
Other (812,000) (117,000)
(2,529,000) (1,683,000)
Current deferred income
tax liability $(1,261,000) $(1,295,000)
Noncurrent deferred tax
assets:
Alternative minimum tax
credits $ 230,000 $ 888,000
State loss carryforward 630,000 595,000
Investment tax credits 1,089,000 1,070,000
Contribution carryover - 46,000
Lease obligations 1,233,000 1,666,000
Other 397,000 1,208,000
3,579,000 5,473,000
Noncurrent deferred tax
liabilities:
Depreciation of fixed
assets (5,285,000) (6,953,000)
Pension obligations (311,000) (311,000)
Other (869,000) (925,000)
(6,465,000) (8,189,000)
Noncurrent deferred income
tax liability $(2,886,000) $ (2,716,000)
Investment tax credits expire October 1998 through
October 2001.
Note 16 - 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 November 2, 1996, the minimum
annual rental under these leases amounted to
approximately $745,000, 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 an unfunded pension withdrawal liability. As
of November 2, 1996 the potential withdrawal liability
was approximately $860,000. The Company fully
anticipates that the purchaser of these stores, a
Wakefern member, will remain in operation throughout this
five year period.
Note 17 - 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 percentage 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 November 2, 1996 and
October 28, 1995 the plans held at fair market value
$523,000 and $422,000 in common stock of the Company.
Note 17 - Retirement and Benefit Plans - (continued)
Defined Benefit Plans - (continued)
Net pension expense consists of the following:
Fiscal 1996 Fiscal 1995 Fiscal 1994
Service cost -
benefits
earned
during the
period $ 308,000 $ 276,000 $ 288,000
Interest cost on
projected benefit
obligation 445,000 398,000 360,000
Actual return on
plan assets (621,000) (404,000) 233,000
Net amortization
and deferral 360,000 154,000 (425,000)
Net pension cost $ 492,000 $ 424,000 $ 456,000
The following table sets forth the two pension plan's
funded status and amounts recognized in the Company's
consolidated financial statements at November 2, 1996 and
October 28, 1995.
November 2, October 28,
1996 1995
Actuarial present value
of benefit obligations:
Vested benefits obligation $ 5,106,000 $ 4,694,000
Non-vested benefits
obligation 218,000 212,000
Accumulated benefit
obligations $ 5,324,000 $ 4,906,000
Projected benefit
obligations $(6,569,000) $ (6,167,000)
Plan assets at fair value 5,658,000 4,727,000
Projected benefit
obligations in excess of
plan assets (911,000) (1,440,000)
Adjustment required to
recognize minimum liability - (880,000)
Unrecognized transition asset (36,000) (48,000)
Unrecognized prior service
costs 66,000 74,000
Unrecognized loss from prior
experience, amortized over
eight and eleven years 1,660,000 2,115,000
Prepaid (accrued) pension
cost $ 779,000 $ (179,000)
Note 17 - Retirement and Benefit Plans - (continued)
Defined Benefit Plans - (continued)
The discount rates used in determining the actuarial
present value of the projected benefit obligation ranged
from 7.25% to 8.0%. 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%.
At October 28, 1995, 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, a
liability of $880,000 is included in Other Long-Term
Liabilities, an intangible asset equal to the prior
service cost of $74,000 is included in Other Assets, and
a charge of $806,000 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
$6,036,000 in fiscal 1996, $5,942,000 in fiscal 1995 and
$7,497,000 in fiscal 1994 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. (see Note 16).
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.
Note 18 - Other Postretirement and Postemployment Benefits
Postretirement Benefits
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 9%
and 10% and which grade down to 4% and 5% over five years
at November 2, 1996 and October 28, 1995, 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.
Net periodic postretirement benefit cost expense consists
of the following:
Fiscal 1996 Fiscal 1995
Service cost - benefits
earned during the period $ 16,000 $ 13,000
Interest cost 83,000 80,000
Net amortization and
deferral 30,000 35,000
Net periodic postretirement
benefit cost 129,000 $ 128,000
The net periodic postretirement benefit cost was not
material for the fiscal year ending October 29, 1994.
The following table sets forth the funded status and
amounts recognized in the Company's consolidated
financial statements at November 2, 1996 and October 28,
1995.
Actuarial present value of benefit obligation.
November 2, October 28,
1996 1995
Deferred compensation $ 1,195,000 $ 1,025,000
Medical 45,000 36,000
Accumulated postretirement
benefit obligation 1,240,000 1,061,000
Unrecognized net loss,
amortized over nine years 480,000 379,000
Accrued postretirement
benefit cost $ 760,000 $ 682,000
Note 18 - Other Postretirement and Postemployment Benefits -
(continued)
Postretirement Benefit - (continued)
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 November 2, 1996
and October 28, 1995 or the net periodic postretirement
benefit cost for fiscal 1996 and 1995. The assumed
discount rate used in determining the postretirement
benefit obligation as of November 2, 1996 and October 28,
1995 was 8%.
Postemployment Benefits
Effective October 29, 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.
The effect of this change as of October 29, 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 accrued liability under SFAS No. 112 as of November
2, 1996 and October 28, 1995 was $306,000 and $271,000,
respectively.
Note 19- Noncash Investing and Financing Activities
During the year ended November 2, 1996, the Company
acquired additional property and equipment for
$13,181,000. In conjunction with the acquisition,
liabilities were assumed as follows:
Cost of property and
equipment acquired $ 13,181,000
Cash paid (6,645,000)
Liabilities assumed $ 6,536,000
In addition, a capital lease obligation of $5,610,000 was
incurred when the Company entered into a lease for a new
store.
The Company was required to make an additional investment
in Wakefern for $900,000 for the two new stores opened
during the year ended November 2, 1996. In conjunction
with the investment, liabilities were assumed for the
same amount.
Note 19 - Noncash Investing and Financing Activities - (continued)
At November 2, 1996, the additional minimum liability of
$880,000, the related intangible of $74,000 and the
direct charge of equity of $806,000 was reversed since
the Company's defined benefit plans assets exceeded the
accumulated benefit obligations.
Note 20 - Unaudited Summarized Consolidated Quarterly Information
Summarized quarterly information for the years ended
November 2, 1996 and October 28, 1995 was as follows:
Thirteen - Fourteen Weeks Ended
January 27, April 27, July 27, November 2,
1996 1996 1996 1996
(Dollars in thousands, except per share data)
Sales $ 146,303 $ 140,815 $ 147,793 $ 166,232
Gross profit 36,540 35,525 37,756 42,245
Net income 496 374 320 206
Mandatory
preferred stock
dividend
requirement (34) (34) (34) (34)
Earnings
available to
common sk 462 340 286 172
Earnings (loss)
available per
common share .41 .31 .25 .16
Thirteen Weeks Ended January 28, April 29, July 29, October 28,
1995 1995 1995 1995
(Dollars in thousands, except per share data)
Sales $ 152,814 $ 147,432 $ 147,145 $ 139,086
Gross profit 37,318 37,212 37,160 36,565
Income before
extraordinary
item and
cumulative
effect of
change
in accounting 7 146 545 249
Extraordinary
item, early
extinguishment
of debt - (1,368) - 359
Note 20 - Unaudited Summarized Consolidated Quarterly Information -
(continued)
Thirteen Weeks Ended
January 28, April 29, July 29, October 28,
1995 1995 1995 1995
(Dollars in thousands, except per share data)
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) .45 .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 cumulative effect of
change in accounting.
Note 21- Recent Accounting Pronouncements
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 Company does not
expect a material impact from adopting the provisions of
SFAS No. 121 which becomes effective for the Company for
the fiscal year ending November 1, 1997.
In October 1995, the FASB issued SFAS No. 123,
"Accounting for Stock-Based Compensation." This
statement establishes a method of accounting for stock
compensation plans based on fair value of employee stock
options and similar equity instruments. Companies are
permitted to continue using the current method of
accounting for stock compensation but are required to
disclose proforma net income and earnings per share as of
the fair value method of SFAS No. 123 has been used to
measure compensation cost. The Company does not expect
any material impact from adopting the provisions of the
Statement which becomes effective for the fiscal year
ending November 1, 1997.
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 ofState of
the State of New Jersey on June 23,1978.
*v. Certificate of Amendment to Restated Certificate of Incorporation
filed with the Secretary State of the State of New Jersey on May 12,
1987.
*vi. Certificate of Amendment to Restated Certificate of Incorporation
filed with the Secretary of
State of the State of New Jersey on February 16,1993.
****vii.Amendment to the Certificate of Incorporation of the Registrant dated
April 4, 1996.
**viii. By-Laws of Registrant.
ix. Amendments to By-Laws of Registrant adopted
September 14,1983.
x. Amendment to By-Laws of Registrant adopted March
15, 1991 is incorporated herein by reference to the Registrant's
Annual Report on Form 10-K for the year ended November 2, 1991 filed
with the Securities and Exchange Commission on February 18, 1992.
Each of these Exhibits is incorporated herein by reference to
the Registrant's Annual Report on Form 10-K for the year ended
October 29, 1988 filed with the Securities and Exchange
Commission on February 13, 1989.
** Each of these Exhibits is incorporated herein by reference to
the Registrant's Annual Report on Form 10-K for the year ended
October 31, 1992 filed with the Securities and Exchange
Commission on February 19, 1993.
E-1
10. Material Contracts.
I. The agreeement 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 Incororation 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., and affliated 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 dated 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 of Form
10-K for the year ended October 28, 1989 filed with
the Securities and Exchange Commission on February 9,
1990.
***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 Notes Agreements, dated
as of June 1, 1989 between each such institutional
investor and the Registrant.
***xi. Form the 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 whcih are 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 Novemeber 3, 1990 filed
with the Security 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 whcih are 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 Security and Exchange Commission on February 18,
1992.
E-3
**xv. Amendment No. 4 to the Credit Agreement, dated as of
February 12, 1993, among the Registrant, each of the
Banks which are 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.
****xviiNotification 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 Cororp. 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.
E-4
xxiii. Amendment of Revolving Credit and Term Loan Agreement,
dated as of January 25, 1996, between the Registrant
and each of the banks which are signatory thereto is
incorporated herein by reference to the Registrant's
Form 10-Q for the quarterly period ended January 27,
1996, filed with the Securities and Exchange Commission
On March 12, 1996.
******xxiv. Agreement, dated as of March 29, 1996, between the
Registrant and Wakefern Food Corporation.
******xxv. Amendment of Revolving Credit and Term Loan
Agreement, dated as of May 10, 1996, between the
Registrant and each of the Banks which are signatory
thereto.
Xxvi. Waiver and Amendment of Revolving Credit and Term Loan
Agreement, dated as of July 26, 1996, between the
Registrant and each of the Banks which are signatory
thereto is incorporated herein by reference to the
Registrant's Form 10-Q for the quarterly period ended
July 27, 1996, filed with the Securities and Exchange
Commission on Septemeber 10, 1996.
***** Incorporated herein by reference to the Registrant's
Form 10-Q for the quarterly period ended April 27,
1996, filed with the Securities and Exchange Commission
on June 10, 1996.
E-5
Exhibit 21
LIST OF SUBSIDIARIES
OF FOODARAMA SUPERMARKETS, INC.
Name of Subsidiary State of
Incorporation
ShopRite of Malverne, Inc. New York
New Linden Price Rite, Inc. New Jersey
ShopRite of Reading, Inc. Pennsylvania
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