UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended Commission file number
October 30, 2004 1-5745
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FOODARAMA SUPERMARKETS, INC.
(Exact name of Registrant as specified in its charter)
New Jersey 21-0717108
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Building 6, Suite 1, 922 Hwy. 33, Freehold, New Jersey 07728
(Address of principal executive offices)
Registrant's telephone number, including area code: (732) 462-4700
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
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Common Stock, par value $1.00 per share American Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act:
NONE
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(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes _X_ No __
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.
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes __ No _X_
The aggregate market value of voting stock held by non-affiliates of the
Registrant was approximately $13,224,281. Computation is based on the closing
sales price of $37.00 per share of such stock on the American Stock Exchange on
April 30, 2004, the last business day of the Registrant's most recently
completed second quarter.
As of January 14, 2005, the number of shares outstanding of Registrant's
Common Stock was 987,617.
DOCUMENTS INCORPORATED BY REFERENCE
Information contained in the 2005 definitive Proxy Statement to be filed
with the Commission and to be delivered to security holders in connection with
the Annual Meeting is incorporated by reference into this Form 10-K at Part III.
PART I
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Disclosure Concerning Forward-Looking Statements
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All statements, other than statements of historical fact, included in this Form
10-K, including without limitation the statements under "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Business",
are, or may be deemed to be, "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended (the "Securities Act"),
and Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). Such forward-looking statements involve assumptions, known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of Foodarama Supermarkets, Inc. (the
"Company", which may be referred to as we, us or our) to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements contained in this Form 10-K. Such potential
risks and uncertainties, include without limitation, competitive pressures from
other supermarket operators, warehouse club stores and discount general
merchandise stores, economic conditions in the Company's primary markets,
consumer spending patterns, availability of capital, cost of labor, cost of
goods sold including increased costs from the Company's cooperative supplier,
Wakefern Food Corporation ("Wakefern"), and other risk factors detailed herein
and in other of the Company's Securities and Exchange Commission filings. The
forward-looking statements are made as of the date of this Form 10-K and the
Company assumes no obligation to update the forward-looking statements or to
update the reasons actual results could differ from those projected in such
forward-looking statements.
Item 1. Business
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General
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Foodarama Supermarkets, Inc., a New Jersey corporation formed in 1958, operates
a chain of twenty-six supermarkets located in Central New Jersey, as well as two
liquor stores and one garden center, all licensed as ShopRite. We also operate a
central food processing facility to supply our stores with meat, various
prepared salads, prepared foods and other items, and a central baking facility
which supplies our stores with bakery products. The Company is a member of
Wakefern, the largest retailer owned food cooperative warehouse in the United
States and owner of the ShopRite name. The Company operates in one industry
segment, the retail sale of food and non-food products, primarily in the Central
New Jersey region.
We have incorporated the concept of "World Class" supermarkets into our
operations. "World Class" supermarkets are significantly larger than
conventional supermarkets and feature fresh fish-on-ice, prime meat service
butcher departments, in-store bakeries, international foods including Chinese,
sushi and kosher sections, meals to go, salad bars, snack bars, bulk foods and
pharmacies. Currently, twenty-three of our stores are "World Class" and three
are conventional supermarkets.
2
The following table sets forth certain data relating to the Company's business
for the periods indicated:
Fiscal Year Ended
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October 30, November 1, November 2, November 3, October 28,
2004 2003 2002 2001** 2000
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Average annual sales
per store $49.5 $46.8 $44.4 $43.8 $40.7
(in millions)*......
Same store sales
increase from prior
year***............ 2.04% 1.47% 1.56% 3.77% 4.24%
Total store area in
square feet
(in thousands)..... 1,764 1,558 1,340 1,301 1,294
Total store selling
area in square feet
(in thousands)..... 1,316 1,181 1,001 973 966
Average total square
feet per store
(in thousands)..... 68 65 61 59 59
Average square feet
of selling area per
store (in thousands).. 51 49 46 44 44
Annual sales per
square foot
of selling area*.... $969 $995 $986 $992 $933
Number of stores:
Stores remodeled
(over $500,000)...... 2 1 0 2 2
New stores opened. 2 2 0 0 1
Stores replaced/
expanded.. 2 3 1 1 1
Stores closed/
divested.... 1 2 1 0 1
Number of stores by size
(total store area):
30,000 to 39,999 sq.ft 1 2 2 3 3
40,000 to 49,999 sq.ft 1 1 3 3 3
Greater than 50,000
sq.ft.. 24 21 17 16 16
Total stores open at
period end 26 24 22 22 22
* Sales for stores open less than 52 weeks have been excluded from this
calculation.
** Calculated on a 53 week basis. A like 52 week comparison would be $43.1
million in average annual sales per store and $973 in annual sales per
square foot of selling area.
***Sales from relocated and closed stores, as well as new stores opened, in the
respective periods are not included in this calculation while sales from
remodeled and expanded stores are included in this calculation.
3
Store Expansion and Remodeling
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We believe that significant capital investment is critical to our operating
strategy and we are continuing our program to upgrade our existing stores,
replace outdated locations and open new "World Class" supermarkets within our
core market area of Central New Jersey.
In fiscal year 2004, a new location was opened in Lawrenceville, New Jersey and
a replacement store was opened in Aberdeen, New Jersey. Additionally, one
existing location in East Brunswick, New Jersey was expanded and remodeled, a
location in Bordentown, New Jersey was purchased from Wakefern and a new garden
center was opened. The two existing garden centers were closed. One additional
location was remodeled. Over the next three years the Company plans to open two
replacement and three new stores and expand one existing location. All of these
stores are in Central New Jersey and will be "World Class" operations.
Technology
- ----------
Automation and computerization are important to our operations and competitive
position. All stores utilize IBM 4690 software for the scanning checkout
systems. The hardware for the point of sale ("POS") systems was replaced in our
stores in fiscal 1999 and 2000. Software enhancements are made on an ongoing
basis. These POS upgrades bring all of our stores to a state of the art level
with increased processing speed and enhanced marketing capabilities. These
systems improve pricing accuracy, enhance productivity and reduce checkout time
for customers. During fiscal 2004 automated checkout systems were installed in
four additional locations. These systems, which allow the customer to checkout
without interaction with Company personnel, are now operating in ten stores.
Automated checkout systems provide improved customer service, especially during
peak volume periods, and labor scheduling benefits to the Company. Additionally,
all stores have IBM RS/6000 processors, which were replaced with the current
version of this equipment in 1999 and subsequently enhanced as needed.
A frame relay communications network is being used for high speed transmission
and collection of data. This system replaced slower telephone lines. The
increased speed improves our ability to access, review for accuracy and analyze
data. During fiscal 2002, the infrastructure for improved wireless
communications was installed in all of our stores and ISDN circuits were
installed which serve as a back up system for the frame relay. The use of these
systems allows the Company to offer its customers debit and credit card payment
options as well as participation in Price Plus(R), ShopRite's preferred customer
program, and the ShopRite co-branded credit card. By presenting the scannable
Price Plus(R) card or the ShopRite co-branded card, customers can be given
electronic discounts, participate in customer loyalty programs, receive credit
for the value of ShopRite in-ad Clip Less coupons and cash personal checks.
Also, customers receive a 1% future rebate when paying with the ShopRite credit
card.
We are also using other in-store computer systems. Computer generated ordering
is installed in all stores. This system is designed to reduce inventory levels
and out of stock positions, enhance shelf space utilization and reduce labor
costs. In all stores, meat, seafood and delicatessen prices are maintained on
department computers for automatic weighing and pricing. In fiscal 2005 a
browser based system will be installed which will allow us to control all scales
from a central location. This system will have one master pricing file for all
scales which will improve control and accuracy, as well as the ability to
monitor scale performance. Additionally, all stores have computerized time and
attendance systems which are used for, among other things, automated labor
scheduling, and most stores have computerized energy management systems. A
browser based labor scheduling system
4
was installed in all stores in fiscal 2004. We also utilize a direct store
delivery receiving and pricing system for most items not purchased through
Wakefern in order to provide cost and retail price control over these products,
and computerized pharmacy systems which provide customer profiles, retail price
control and third-party billing. The Company has also installed computer based
training systems in all stores. The system is presently being used to train all
new checkout and produce department personnel. Modules for training bakery and
appetizing personnel are being tested in a pilot program and will be installed
in all of our stores in fiscal 2005. Training modules for other departments are
currently being developed.
In addition, all field merchandisers and operations supervisors are equipped
with personal laptop computers. This provides field personnel with current labor
and product information to facilitate making accurate and timely decisions.
Lotus Notes (R) is used to enhance communication among the Company's stores, our
executive offices and Wakefern.
Industry Segment and Principal Products
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The Company is engaged in one industry segment. For the last three fiscal years,
our sales were divided among the categories listed below:
Fiscal Year Ended
-------------------------
Product Categories 10/30/04 11/01/03 11/02/02
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Groceries & Tobacco 37.2% 37.6% 38.1%
Dairy & Frozen 16.8 16.3 16.4
Meats, Seafood & Poultry 10.5 10.3 10.1
Non-Foods 9.4 10.1 10.1
Produce 9.4 9.4 9.3
Appetizers & Prepared Foods 7.4 7.0 6.7
Pharmacy 5.3 5.4 5.4
Bakery 2.2 2.2 2.1
Liquor, Floral & Garden Centers 1.8 1.7 1.8
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100.0% 100.0% 100.0%
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Gross profit derived by the Company from each product category is not
necessarily consistent with the percentage of total sales represented by such
product category.
Wakefern Food Corporation
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The Company owns a 15.5% interest in Wakefern, a New Jersey corporation
organized in 1946, which provides purchasing, warehousing and distribution
services on a cooperative basis to its shareholder members, including the
Company, who are operators of ShopRite or alternate format supermarkets. As
required by the Wakefern By-Laws, repayment of the Company's obligations to
Wakefern is personally guaranteed by Joseph J. Saker, Richard J. Saker, Joseph
J. Saker, Jr. and Thomas A. Saker. These personal guarantees are required of any
5% shareholder of the Company who is active in the operation of the Company.
Wakefern and its 39 shareholder members operate approximately 212 supermarkets
of which Wakefern owns and operates 50 locations. Products bearing the ShopRite
label accounted for approximately 15% of the Company's total sales for the
fiscal year ended October 30, 2004. Wakefern maintains warehouses in Elizabeth,
South Brunswick and Woodbridge, New Jersey which handle a full line of
groceries, meats, frozen foods, produce, bakery, dairy and delicatessen products
and health and beauty aids, as well as a number of non-food
5
items. Wakefern also operates a grocery and perishable products warehouse in
Wallkill, New York.
Wakefern's professional advertising staff and its advertising agency develop and
place most of the Company's advertising on television, radio and in major
newspapers. We are charged for these services based on various formulas which
account for the estimated proportional benefits we receive. In addition,
Wakefern charges us for, and provides the Company with, product and support
services in numerous administrative functions. These include insurance,
supplies, technical support for communications and electronic payment systems,
equipment purchasing and the coordination of coupon processing. Additionally, we
sublease two supermarkets from Wakefern. See Item 2. Properties.
Wakefern distributes, as a patronage dividend to each of its members, a share of
its net earnings in proportion to the dollar volume of business transacted by
each member with Wakefern during each fiscal year. The Company's participation
percentage was 13.5% for fiscal 2004. See Note 4 of Notes to Consolidated
Financial Statements.
Although Wakefern has a significant in house professional staff, it operates as
a member cooperative and senior executives of the Company spend a substantial
amount of their time working on Wakefern committees overseeing and directing
Wakefern purchasing, merchandising and various other programs.
Wakefern licenses the ShopRite name to its shareholder members and provides a
substantial and extensive merchandising program for the ShopRite label. Except
for the license to use the name "ShopRite", we do not believe that the ownership
of, or rights in, patents, trademarks, licenses, franchises and concessions is
material to our business. The locations at which we may open new supermarkets
under the name ShopRite are subject to the approval of Wakefern's Site
Development Committee. Under circumstances specified in its By-Laws, Wakefern
may refuse to sell merchandise to, and may repurchase the Wakefern stock of, any
shareholder member. Such circumstances include certain unapproved transfers by a
shareholder member of its supermarket business or its capital stock in Wakefern,
unapproved acquisition by a shareholder member of certain supermarket or grocery
wholesale supply businesses, the conduct of a business in a manner contrary to
the policies of Wakefern, the material breach of any provision of the Wakefern
By-Laws or any agreement with Wakefern or a determination by Wakefern that the
continued supplying of merchandise or services to such shareholder member would
adversely affect Wakefern.
Wakefern requires each shareholder to invest in Wakefern's capital stock to a
maximum of $650,000 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. On June 19, 2003 the amount of
the per store investment was increased to its current level from the previous
amount of $550,000.
Under its By-Laws, all bills for merchandise and other indebtedness are due and
payable to Wakefern weekly and, if these bills are not paid in full, an
additional 1% service charge is due on the unpaid portion. Wakefern requires its
shareholder members to pledge their Wakefern stock as collateral for payment of
their obligations to Wakefern. The Company's investment in Wakefern was
$16,444,000 as of October 30, 2004 and $15,093,000 as of November 1, 2003. We
also have an investment in another company affiliated with Wakefern which was
$1,211,000 as of October 30, 2004 and $1,080,000 as of November 1, 2003. See
Note 4 of Notes to Consolidated Financial Statements.
Since September 18, 1987, the Company has had an agreement, amended in 1992,
with Wakefern and all other shareholders of Wakefern, which provides for certain
6
commitments by, and restrictions on, all shareholders of Wakefern. Under the
agreement, each shareholder, including the Company, agreed to purchase at least
85% of its merchandise in certain defined product categories from Wakefern. The
Company fulfilled this obligation during the 52 week periods ended October 30,
2004, November 1, 2003 and November 2, 2002. If any shareholder fails to meet
these purchase requirements, it must make payments to Wakefern (the
"Compensatory Payments") based on a formula designed to compensate Wakefern for
the profit lost by it by virtue of its lost warehouse volume. Similar payments
are due if Wakefern loses volume by reason of the sale of one or more of a
shareholder's stores, any shareholder's merger with another entity or the
transfer of a controlling interest in the shareholder. Subject to a right of
first refusal granted to Wakefern, sales of certain under facilitated stores are
permitted free of the restrictions of the agreement. Also, the restrictions of
the agreement do not apply if volume lost by a shareholder by the sale of a
store is made up by such shareholder by increased volume of new or existing
stores. 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.
The loss of, or material change in, our relationship with Wakefern (neither of
which is considered likely) could have a significant adverse impact on the
Company's business. The failure of Wakefern to fulfill its obligations or
another member's insolvency or withdrawal from Wakefern could result in
additional costs to the remaining members.
We also purchase products and items sold in our supermarkets from a variety of
sources other than Wakefern. Neither the Company nor, to the best of our
knowledge, Wakefern has experienced or anticipates experiencing any unique
material difficulties in procuring products and items in adequate quantities.
Competition
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The supermarket business is highly competitive. The Company competes directly
with a number of national and regional chains, including A&P, Pathmark, Wegmans,
Acme, Stop & Shop and Foodtown, as well as various local chains, other ShopRite
members and numerous single-unit stores. We also compete with warehouse club
stores which charge a membership fee, are non-unionized and operate larger
units. Additional competition comes from drug stores, discount general
merchandise stores, fast food chains and convenience stores. See Management's
Discussion and Analysis - Overview.
Many of the Company's competitors have greater financial resources and sales. As
most of our competitors offer substantially the same type of products,
competition is based primarily upon price, and particularly in the case of meat,
produce, bakery, delicatessen, and prepared foods, on quality. Competition is
also based on service, location, appearance of stores and on promotion and
advertising. The Company believes that its membership in Wakefern and the
ShopRite brand name allow it to maintain a low-price image while providing
quality products and the availability of a wide variety of merchandise including
numerous private label products under the ShopRite brand name. We also provide
clean, well maintained stores, courteous and quick service to the customer and
flexibility in tailoring the products offered in each store to the demographics
of the communities we service. The supermarket business is characterized by
narrow profit margins, and accordingly, our viability depends primarily on our
ability to maintain a relatively greater sales volume and more efficient
operations than our competitors.
7
Regulatory and Environmental Matters
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Our stores and facilities, in common with those of the industry in general, are
subject to numerous existing and proposed Federal, State and local regulations.
These regulations govern various matters including, but not limited to, the
discharge of materials into the environment and other aspects of environmental
protection, and occupational safety and health standards. Additionally, these
regulations govern the licensing of the Company's pharmacies and our two liquor
stores. In addition, as a company with publicly traded securities, we are
subject to the requirements of the Sarbanes-Oxley Act of 2002 signed into law on
July 30, 2002. We believe our operations are in compliance with such existing
laws and regulations and are of the opinion that compliance with these laws and
regulations has not had and will not have any material adverse effect on our
capital expenditures, earnings or competitive position.
Employees
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As of December 31, 2004, we employed approximately 7,400 persons, of whom
approximately 6,800 are covered by collective bargaining agreements. 76% of the
employees are part time and almost all of these employees are covered by the
collective bargaining agreements. Although the Company has historically
maintained favorable relations with its unionized employees, it could be
affected by labor disputes. Most of our competitors are similarly unionized. See
Management's Discussion and Analysis - Overview. The Company is a party to seven
collective bargaining agreements expiring on various dates from February 2005 to
August 2007. The bargaining agreement with the United Food and Commercial
Workers Local 56 expired in May 2004 and has been renegotiated. The new contract
expires in October 2006.
By virtue of the nature of the Company's supermarket operations, information
concerning backlog, seasonality, major customers, government contracts, research
and development activities and foreign operations and export sales is not
relevant.
Item 2. Properties
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The Company's twenty-six supermarkets, all of which are leased, range in size
from 31,000 to 101,000 square feet with sales area averaging 75 percent of the
total area. All stores are air-conditioned, have modern fixtures and equipment,
have their own ample parking facilities and are located in suburban areas.
Leases for 24 of the Company's 26 existing supermarkets expire on various dates
from 2005 through 2029. Two of our supermarkets are subleased from Wakefern and
these subleases expire in 2006 and 2008, respectively. Upon expiration of these
subleases, the underlying leases for these supermarkets will be assigned to and
assumed by us if certain conditions, which include the absence of defaults by
the Company in its obligations to Wakefern and our lenders, and the maintenance
of a specified level of net worth, are satisfied. The terms of these leases
expire in 2021 and 2018, respectively. Except for the two subleases with
Wakefern and two leases expiring in 2005, all leases contain renewal options
ranging from 5 to 25 years. With regard to the two leases expiring in 2005, the
Company is evaluating its marketing plans for the trade areas involved. Eight
leases require, in addition to a fixed rental, a further rental payment based on
a percentage of the annual sales in excess of a stipulated minimum. The minimum
has been exceeded in two of the eight locations in the last fiscal year. Most
leases also require us to pay for insurance, common area maintenance and real
estate taxes. Two additional leases have been signed for new supermarket
locations. Additionally, one new lease has been signed for an existing location
which will be expanded and remodeled. The terms of these new supermarket leases
are substantially similar to the terms of the leases for our existing
8
supermarkets. The Company has experienced delays in the opening of certain new
stores because of extensive governmental approvals required to develop new
retail properties in New Jersey.
Also, we are subject to leases covering our executive and principal
administrative offices containing approximately 18,000 square feet in Howell,
New Jersey and a 37,500 square foot facility for our bakery commissary in
Freehold, New Jersey. The Company also leases 57,000 square feet of space used
for equipment repair facilities and storage in Howell, New Jersey. The Company
owns a meat and prepared foods processing facility in Linden, New Jersey, which
is the only real property owned by us. In addition, we are a party to an
additional lease for a location where we no longer conduct supermarket
operations, which has been sublet to a non-affiliated person at terms
substantially equivalent to the Company's obligations under its prime lease. See
Notes 10 and 14 of Notes to Consolidated Financial Statements.
Item 3. Legal Proceedings
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In the ordinary course of our business, we are party to various legal actions
not covered by insurance. Although a possible range of loss cannot be estimated,
it is the opinion of management, that settlement or resolution of these
proceedings will not, in the aggregate, have a material adverse impact on the
financial condition or results of operations of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
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Not applicable.
9
Part II
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Item 5. Market for Registrant's Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
-----------------------------------------
(a) High and Low Common Stock Market Prices
The Company's Common Stock is traded on the American Stock Exchange. The
following table sets forth the high and low sales prices for the Common
Stock as reported on the American Stock Exchange for the fiscal years
ended November 1, 2003 and October 30, 2004.
Fiscal Quarter Ended High Low
-------------------- -------------------- -----------------
February 1, 2003 $ 29.20 $ 26.00
May 3, 2003 28.55 23.98
August 2, 2003 27.50 24.33
November 1, 2003 28.70 22.50
January 31, 2004 $ 32.00 $ 24.05
May 1, 2004 37.23 29.25
July 31, 2004 48.25 36.75
October 30, 2004 48.00 36.00
(b) Holders of Record
The approximate number of record holders of the Company's Common Stock was
303 as of January 14, 2005. In addition, the Company believes that as of
that date there were approximately 310 beneficial owners.
(c) Dividends
No dividends have been declared or paid with respect to the Company's
Common Stock since October 1979. We are prohibited from paying dividends
on our Common Stock by the Third Amended and Restated Revolving Credit and
Term Loan Agreement between the Company and four financial institutions.
See Management's Discussion and Analysis-Financial Condition and
Liquidity. The Company has no intention of paying dividends on its Common
Stock in the foreseeable future.
(d) Stock Repurchase Program
On June 8, 2001 the Company announced the commencement of a stock
repurchase program whereby we would seek to repurchase shares of our
Common Stock having a value of up to $3 million. This program was
increased to $5.6 million in April 2002. For the year ended November 2,
2002, the Company repurchased a total of 102,853 shares of Common Stock.
101,553 of these shares were purchased in privately negotiated
transactions and the remaining 1,300 shares were acquired in open market
transactions. 6,377 of these shares were owned by a member of the family
of Joseph J. Saker, the Company's Chairman, and were purchased for an
average of $39.52 per share. $4,523,670, or an average of $43.98 per
share, was expended for the purchase of the 102,853 shares. Since the
10
announcement of the stock repurchase program in June 2001, the Company has
repurchased 131,923 shares for $5,591,597 or an average of $42.39 per
share. See Management's Discussion and Analysis-Financial Condition and
Liquidity.
Item 6. Selected Financial Data
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The selected financial data set forth below is derived from the Company's
consolidated financial statements and should be read in conjunction with the
consolidated financial statements and related notes included elsewhere in this
Annual Report. See Management's Discussion and Analysis-Financial Condition and
Liquidity and Results of Operations.
Year Ended
----------
October 30, November 1, November 2, November 3, October 28,
2004(1) 2003 (2) 2002 (3) 2001 (4) 2000 (5)
------------------------------------------------------------
(Dollars in thousands, except per share amounts)
Income statement data:
Sales $ 1,175,199 $1,049,653 $963,611 $945,301 $866,363
Net income $ 1,800 $ 2,283 $ 3,240 $ 3,938 $ 2,382
Net income per
common share:
Basic $ 1.82 $ 2.31 $ 3.16 $ 3.54 $ 2.13
Diluted $ 1.75 $ 2.26 $ 3.01 $ 3.50 $ 2.13
Cash dividends per - - - - -
common share
Balance sheet data
(at year end):
Working capital $ 4,294 $ 3,959 $ (590) $ (6,907) $ (1,215)
(deficit)
Total assets $ 348,636 $315,246 $219,389 $194,526 $191,185
Long-term debt
(excluding current
portion) $ 209,145 $180,549 $100,037 $ 75,553 $ 82,241
Common shareholders'
equity (6) $ 41,233 $ 39,022 $ 36,625 $ 38,493 $ 37,422
Book value per
common share $ 41.75 $ 39.54 $ 37.13 $ 35.37 $ 33.49
Tangible book value
per common share $ 38.50 $ 36.69 $ 34.09 $ 32.29 $ 30.18
(1) The Company opened one new location in April 2004 and a replacement
location in May 2004. Additionally, the expansion of an existing store was
completed in January 2004 and a store was purchased from Wakefern in June
2004. A new garden center was opened in May 2004 and the two existing
garden centers were closed in May and August 2004. See Management's
Discussion and Analysis - Results of Operations - Sales.
11
(2) The Company opened two replacement stores in December 2002 and May 2003
and two new locations in January and October 2003. See Management's
Discussion and Analysis - Results of Operations - Sales.
(3) The Company opened one replacement location in November 2001. See
Management's Discussion and Analysis - Results of Operations - Sales.
(4) 53 week period.
(5) The Company opened one new and one replacement location in February and
April 2000, respectively.
(6) The Company repurchased shares of its Common Stock in fiscal 2001 and
2002. See Item 5. - Market for Registrant's Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity Securities
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operation
- --------------------
OVERVIEW
We operate a chain of 26 ShopRite supermarkets in Central New Jersey. We believe
it is important to maintain a modern, one stop competitive shopping environment
for our customers and therefore have invested heavily in new, expanded and
remodeled facilities. We have incorporated upscale service departments in our
World Class supermarket concept. We are the largest member of Wakefern, the
largest retailer owned food cooperative warehouse in the United States. Since we
purchase from Wakefern most of the product we sell, participate in advertising,
supply, insurance and technology programs with Wakefern, and receive 13.5% of
Wakefern's patronage dividend, our success is integrally tied to the success of
Wakefern.
We operate in a highly competitive geographic area. Certain of our competitors
are non-union and therefore may have lower labor and related fringe benefit
costs. In the past five years a non-union competitor, Wegmans, has opened five
stores in our trading area. We expect Wegmans to continue to open additional
locations in our marketing area in the future. Additionally, another non-union
operator, Wal-Mart, is expected to open Super Centers, which include extensive
food operations, in our trading area.
Certain categories of selling, general and administrative expenses have
increased disproportionately in comparison to our sales growth and to inflation
in the last three years. We have experienced substantial increases in employee
health and pension costs under union contracts and for non-union associates.
Additionally, the cost of utilities to operate our stores has increased
dramatically in fiscal 2004. We expect these trends to continue for fiscal 2005.
We look at a variety of indicators to evaluate our performance, such as same
store sales; sales per store; sales per selling square foot; percentage of total
sales by department; shrink by department and store; departmental gross profit
margins; sales per man hour; hourly labor rates and percent of overtime.
12
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
- ------------------------------------------
Critical accounting policies are those accounting policies that management
believes are important to the portrayal of the Company's financial condition and
results. The application of those critical accounting policies requires
management's most difficult, subjective or complex judgments, often as a result
of the need to make estimates about the effect of matters that are inherently
uncertain.
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Impairment of Goodwill
Effective November 3, 2002, the Company implemented Statement of Financial
Accounting Standards No. 142 ("SFAS 142"), "Accounting for Goodwill and Other
Intangible Assets." Goodwill and other intangibles that have indefinite useful
lives will not be amortized, but instead will be tested at least annually for
impairment at the reporting unit level. The Company has determined that it is
contained within one reporting unit and as such, impairment is tested at the
company level. During the first quarter of fiscal 2004, the Company completed
the goodwill annual impairment test prescribed by SFAS 142. The Company engaged
an independent third party appraiser with expertise in valuations of the type
contemplated to undertake the first step of Foodarama's Goodwill Impairment
Test. The carrying value of the Company's equity was compared to the fair value
of the Company's equity as of November 2, 2003 (the "Valuation Date"), the first
day of the Company's fiscal year ended October 30, 2004. The fair value was
calculated using a weighted average from the results obtained from three
widely-accepted valuation approaches:
1. discounted cash flow analysis;
2. comparable public company analysis; and
3. comparable public transaction analysis.
The appraiser excluded the market capitalization of Foodarama's publicly-traded
stock as an approach to determine fair value of equity because Foodarama's stock
is thinly traded. The Goodwill Impairment Test is comprised of several steps.
Based on the results obtained from the first step of the Goodwill Impairment
Test, which resulted in the fair value exceeding the carrying value of equity,
further analysis was not required, and Foodarama's goodwill was determined not
to be impaired. No events or circumstances occurring subsequent to the Valuation
Date have affected the valuation as of that date.
Inventory Valuation
We value our inventories at the lower of cost or market. Cost was determined
using the last-in, first-out ("LIFO") method for approximately 82% and 81% of
inventories in fiscal years 2004 and 2003, respectively. Under the LIFO method,
the cost assigned to items sold is based on the cost of the most recent items
purchased. As a result, the costs of the first items purchased remain in
inventory and are used to value ending inventory. The excess of estimated
current costs over LIFO carrying value, or LIFO reserve, was approximately
$3,740,000 and $2,735,000 at October 30, 2004 and November 1, 2003,
13
respectively. Costs for the balance of inventories are determined by the
first-in, first-out ("FIFO") method.
Cost was determined using the retail method for approximately 76% and 77% of
inventories in fiscal years 2004 and 2003, respectively. Under the retail
method, the valuation of inventories at cost and the resulting gross margins are
determined by applying a cost-to-retail ratio for various groupings of similar
items to the retail value of inventories. Inherent in the retail inventory
method calculations are certain management judgments and estimates, including
shrinkage, which could impact the ending inventory valuation at cost as well as
the resulting gross margins. Cost was determined using the item cost method for
approximately 24% and 23% of inventories in fiscal years 2004 and 2003,
respectively. This method involves counting each item in inventory, assigning
costs to each of these items based on the actual purchase costs (net of vendor
allowances) of each item and recording the actual cost of items sold. The
item-cost method of accounting allows for more accurate reporting of periodic
inventory balances and enables management to more precisely manage inventory and
purchasing levels when compared to the retail method of accounting. We believe
we have the appropriate inventory valuation controls in place to minimize the
risk that inventory values would be materially misstated.
Patronage Dividends
As a stockholder of Wakefern, the Company earns a share of Wakefern's earnings,
which is distributed as a "patronage dividend". This dividend is based on a
distribution of Wakefern's operating profits for its fiscal year, which ends the
Saturday closest to September 30, in proportion to the dollar volume of business
transacted by each member of Wakefern during that fiscal year. Patronage
dividends are recorded as a reduction of cost of goods sold. The Company accrues
estimated patronage dividends due from Wakefern quarterly, based on an estimate
of the annual Wakefern patronage dividend and an estimate of the Company's share
of this annual dividend based on the Company's estimated proportional share of
the dollar volume of business transacted with Wakefern that year. These
estimates are based on both historical patronage dividend percentages and
current volume merchandise purchased from Wakefern. A change in this estimate by
..01% would represent a change in annual gross profit dollars of approximately
$120,000.
Pension Plans and Other Postretirement Benefits
We sponsor two defined benefit pension plans covering administrative personnel
and members of a union. The plans' assets consist primarily of publicly traded
stocks and fixed income securities. Additionally, the Company will provide
certain current officers and provided former officers with supplemental income
payments and limited medical benefits during retirement. The determination of
the Company's obligation and expense for pension and other postretirement
benefits is dependent, in part, on the Company's selection of assumptions used
by actuaries in calculating those amounts. These assumptions are described in
Notes 15 and 16 of Notes to Consolidated Financial Statements and include, among
others, the discount rate, the expected long-term rate of return on plan assets
and the rate of increase in compensation costs. In accordance with generally
accepted accounting principles, actual results that differ from the Company's
assumptions are accumulated and amortized over future periods and, therefore,
generally affect recognized expense and recorded obligations in future periods.
While management believes that its assumptions are appropriate, significant
differences in actual experience or significant changes in the Company's
assumptions may materially affect pension obligations and future expense.
14
To develop the expected long-term rate of return on asset assumption, the
Company considered the historical returns and the future expectations for
returns for each asset class, as well as the target asset allocation of the
pension portfolio. Based on these factors and the asset allocation discussed
below, the Company elected to use an 8.0% expected return on plan assets in
determining pension expense for fiscal 2004. This is the same expected return on
plan assets used in determining pension expense for fiscal 2003. The assumptions
were net of expected plan expenses payable from the plans' assets. A.50%
reduction in our expected long-term rate of return on pension plan assets,
holding all other factors constant, would have increased our pension expense
during fiscal 2004 by approximately $29,000.
The Company's objective in selecting a discount rate is to select the best
estimate of the rate at which the benefit obligations could be effectively
settled on the measurement date. In making this best estimate, the Company looks
at rates of return on high-quality fixed-income investments currently available
and expected to be available during the period to maturity of the benefits. This
process includes looking at the universe of bonds available on the measurement
date with a quality rating of Aa or better. Based on the Company's review of
market interest rates, the Company lowered the discount rate that it used for
determining future pension obligations to a range from 5.75% to 6.25% for fiscal
2004 compared to a range of 6.25% to 7.00% for fiscal 2003.
Pension and postretirement benefit expense is sensitive to the discount rate and
other assumptions used. A.50% decrease in the discount rate assumption used
would increase pension and postretirement benefit expense during fiscal 2004 by
$80,000 and $48,000 respectively.
As of October 30, 2004, the pension and postretirement benefit plans had
cumulative net actuarial losses due to the difference between expected and
actual plan experience, and to changes in actuarial assumptions including the
discount rate, of approximately $5.2 million and $1.9 million, respectively.
These unrecognized net actuarial losses, to the extent not offset by future
actuarial gains, result in increases in our future pension and postretirement
benefit expense depending on several factors, including whether such gains and
losses, as recognized at each measurement date, exceed the corridor in which
gains and losses are not amortized, in accordance with SFAS No. 87, "Employers'
Accounting for Pensions".
The value of our pension plan assets has increased from $5.8 million at November
1, 2003 to $6.4 million at October 30, 2004. The investment performance returns
have slightly increased the funded status of our pension plans. We believe that,
based on our actuarial assumptions and due to the funded status of our pension
plans, we will be required to make cash contributions of $1.3 million to our
pension plans for the fiscal year ending October 29, 2005.
Workers' Compensation Insurance
From June 1, 1991 to May 31, 1997 we maintained workers' compensation insurance
with various carriers on a retrospective basis. We have established reserve
amounts based upon our evaluation of the status of claims still open as of
October 30, 2004 and loss development factors used by the insurance industry. As
of October 30, 2004, the worker's compensation reserve totaled approximately
$639,000. Such reserve amount is only an estimate and there can be no assurance
that our eventual workers' compensation obligations will not exceed the amount
of the reserve. However, we believe that any difference between the amount
recorded for our estimated liability and the costs of settling the actual claims
would not be material to the results of operations.
15
FINANCIAL CONDITION AND LIQUIDITY
- ---------------------------------
The Company is a party to a Third Amended and Restated Revolving Credit and Term
Loan Agreement (the "Credit Agreement") with four financial institutions. The
Credit Agreement serves as our primary funding source for working capital and
capital expenditures. The Credit Agreement is secured by substantially all of
the Company's assets and provided for a total commitment of up to $80,000,000,
including a revolving credit facility (the "Revolving Note") of up to
$35,000,000, a term loan ("the Term Loan") in the amount of $25,000,000 and a
capital expenditures facility (the "Capex Facility") of up to $20,000,000. The
Credit Agreement expires December 31, 2007. As of October 30, 2004 the Company
owed $15,000,000 on the Term Loan and $20,000,000 under the Capex Facility.
As of April 15, 2004 the Credit Agreement was amended to allow the Company to
borrow under the revolving credit facility, on any Tuesday or Wednesday, up to
$5,000,000 in excess of the availability under the borrowing base limitation of
65% of eligible inventory as long as a like amount of cash and cash equivalents
are on hand at store level or in transit to the Company's banks. This amount was
reduced to $4,000,000 on June 16, 2004 and $3,000,000 on July 16, 2004 with the
provision expiring on August 16, 2004. Additionally, the amendment realigned the
annual limits on Adjusted Indebtedness, Indebtedness attributable to Capitalized
Lease Obligations, Adjusted Capex and Store Project Capex to more closely follow
the timing of the Company's new store and store remodeling program. The lending
group also consented to the purchase of a store location from Wakefern for
$1,000,000.
As of August 24, 2004 the Credit Agreement was further amended to allow the
Company to borrow under the revolving credit facility, on any Tuesday and on any
Wednesday, up to $3,000,000 in excess of the availability under the borrowing
base limitation of 65% of eligible inventory as long as a like amount of cash
and cash equivalents are on hand at store level or in transit to the Company's
banks. This provision expired on January 15, 2005. This amendment is superceded
by the October 21, 2004 amendment discussed below.
As of October 21, 2004 the Credit Agreement was further amended to allow the
Company to borrow under the revolving credit facility up to $6,000,000 in excess
of the availability under the borrowing base limitation of 65% of eligible
inventory as long as a like amount of cash and cash equivalents are on hand at
store level or in transit to the Company's banks. Additionally, the total
revolving commitment was increased to $41,000,000. These provisions expired on
January 15, 2005.
As of July 19, 2004 the Credit Agreement was amended to increase the limit on
the amount of Adjusted Capex for fiscal 2004 to $5,100,000 and decrease the
limit on the amount of Adjusted Capex for fiscal 2005 to $4,000,000. The
amendment realigned the annual limits on Adjusted Capex to more closely follow
the timing of the Company's store remodeling program.
For the year ended October 30, 2004, the value of the accrued benefits under the
Company's pension plans exceeded the aggregate fair value of the assets of the
plans by $3,117,000, $117,000 more than the amount permitted under the Credit
Agreement. This event of default was waived by our lenders.
The Credit Agreement contains a number of covenants with which the Company must
comply. Non-compliance with any of such covenants could affect the availability
of funds under the Credit Agreement and have a material adverse effect on the
Company's financial condition and liquidity. The Company is in compliance with
16
the major financial covenants under the Credit Agreement as of October 30, 2004,
as follows:
Actual
(As defined in the
Financial Covenant Credit Agreement Credit Agreement)
- ------------------ ---------------- ------------------
Adjusted EBITDA (1) Greater than $26,000,000 $ 27,681,000
Leverage Ratio (1)(2) Less than 3.00 to 1.00 2.74 to 1.00
Debt Service Coverage
Ratio (3) Greater than 1.10 to 1.00 1.78 to 1.00
Adjusted Capex (4) Less than $5,100,000 (5) $ 4,983,000 (6)
Store Project Capex Less than $24,500,000 (5) $ 23,249,000 (6)
(1) Excludes obligations under capitalized leases, interest expense and
depreciation expense attributable to capitalized leases, non-cash write
downs and changes in the LIFO reserve.
(2) The Leverage Ratio is calculated by dividing the current and non-current
portions of Long-Term Debt and Long-Term Debt Related Party by Adjusted
EBITDA.
(3) The Debt Service Coverage Ratio is calculated by dividing Operating Cash
Flow by the sum of adjusted net interest expense, which excludes interest
on capitalized leases, the current provision for income taxes and
regularly scheduled principal payments, which exclude principal payments
on capitalized leases. Operating Cash Flow is calculated by subtracting
amounts expended for property and equipment which are not used for
projects in excess of $500,000 ($1,604,000 in fiscal 2004) from Adjusted
EBITDA.
(4) Adjusted Capex is all capital expenditures other than New/Replacement
Store Project Capex.
(5) Represents limitations on capital expenditures for fiscal 2004.
(6) Represents capital expenditures for fiscal 2004.
On January 29, 2004 we financed the purchase of $1,100,000 of equipment for the
expanded store location in East Brunswick, New Jersey. The note bears interest
at 6.20% and is payable in monthly installments over its five year term.
On October 15, 2003 we financed the purchase of $1,900,000 of equipment for the
expanded store location in East Brunswick, New Jersey. The note bears interest
at 6.20% and is payable in monthly installments over its five year term.
On January 31, 2003 we financed the purchase of $4,000,000 of equipment for the
new store location in Woodbridge, New Jersey. The note bears interest at 6.45%
and is payable in monthly installments over its seven year term.
During the fifty two weeks ended October 30, 2004, the Company was required to
make an additional investment in Wakefern for two new stores, which includes the
location purchased from Wakefern, and an increased assessment for a replacement
17
store. On June 19, 2003 Wakefern increased the amount that each shareholder is
required to invest in Wakefern's capital stock to a maximum of $650,000 for each
store operated by such shareholder member. Previously, the maximum was $550,000
per store. The above changes in the amounts of required investment increased our
investment in Wakefern by $3,288,000, which will be paid weekly, without
interest, over a four year period starting September 16, 2003.
Over the next three years the Company plans to open two replacement and three
new stores and expand one existing location. For fiscal years 2005, 2006 and
2007 we have budgeted $8,000,000, $32,600,000 and $25,700,000, respectively, for
these projects, store remodelings and maintenance capital expenditures.
Financing for these projects will be provided by cash flow from operations, the
Revolving Note and additional financing outside of, and which is permitted
under, the Credit Agreement. Any additional investment required by Wakefern for
new locations will be financed by Wakefern.
No cash dividends have been paid on the Common Stock since 1979, and we have no
present intentions or ability to pay any dividends in the near future on our
Common Stock. The Credit Agreement does not permit the payment of any cash
dividends on the Company's Common Stock.
Working Capital:
At October 30, 2004 the Company had working capital of $4,294,000 as compared to
working capital of $3,959,000 on November 1, 2003 and a working capital
deficiency of $590,000 on November 2, 2002. The Company normally requires small
amounts of working capital since inventory is generally sold at approximately
the same time that payments to Wakefern and other suppliers are due and most
sales are for cash or cash equivalents. Working capital improved in fiscal 2004
primarily as the result of the increase in receivables from Wakefern. This
increase relates primarily to receivables for patronage dividends and other
current amounts due us. When collected, the proceeds from these receivables will
be used to reduce the Revolving Note which is classified as long-term
borrowings. This will result in a corresponding decrease in working capital. The
balance of accounts receivables consist primarily of returned checks due the
Company, third party pharmacy insurance claims and organization charge accounts.
The terms of most receivables are 30 days or less. The allowance for
uncollectible accounts is large in comparison to the amount of accounts
receivable because the allowance consists primarily of a reserve for returned
checks which are not written off until all collection efforts are exhausted and
a reserve for payments receivable under an agreement for a formerly occupied
location. A legal action has commenced to recover the amounts due us under this
agreement.
Working capital improved in fiscal 2003 primarily as the result of the increase
in receivables from Wakefern. This increase related primarily to receivables for
patronage dividends and other current amounts due us. When collected, the
proceeds from these receivables were used to reduce the Revolving Note which is
classified as long-term borrowings. This resulted in a corresponding decrease in
working capital.
Working capital improved in fiscal 2002 primarily as the result of the increase
in receivables due from landlords for construction allowances for the Woodbridge
and Ewing, New Jersey locations. When these receivables were collected, the
proceeds were used to reduce the Revolving Note which is classified as long-term
borrowings. This resulted in a corresponding decrease in working capital.
Working capital ratios were as follows:
October 30, 2004 1.05 to 1.00
November 1, 2003 1.05 to 1.00
November 2, 2002 .99 to 1.00
18
Cash flows (in millions) were as follows:
2004 2003 2002
---- ---- ----
From operations......................... $19.6 $ 17.9 $ 15.5
Investing activities.................... (24.3) (34.8) (26.0)
Financing activities.................... 5.4 17.9 10.6
------ ------ ------
Totals $ .7 $ 1.0 $ .1
====== ====== ======
Fiscal 2004 capital expenditures totaled $28,232,000 with depreciation of
$20,634,000 compared to $34,432,000 and $17,096,000, respectively for fiscal
2003 and $21,019,000 and $14,175,000, respectively for fiscal 2002. The increase
in depreciation in fiscal 2004 was the result of the purchase of equipment and
leasehold improvements for the two new locations opened in Lawrenceville and
Aberdeen, New Jersey in April and May 2004, respectively, the completion of the
expansion and remodeling of the East Brunswick store in January 2004, the
remodeling of the Neptune location completed in November 2004 and the purchase
of the Bordentown, New Jersey location in June 2004, as well as the addition of
one new capitalized real estate lease and the increase in obligations under a
capitalized real estate lease for a replacement store and a full year of
depreciation for the four locations opened in fiscal 2003. Additionally, a
non-cash impairment charge of $1,198,000 was recorded in fiscal 2004. This
charge resulted from operating losses incurred at a location having a lease
which is expiring in fiscal 2005. There were no impairment charges recorded in
fiscal 2003 or fiscal 2002. The increase in depreciation in fiscal 2003 was the
result of the purchase of equipment and leasehold improvements for the four new
locations opened in Woodbridge, Ewing, North Brunswick and Hamilton, New Jersey
in December 2002, January 2003, May 2003 and October 2003, respectively, and the
new bakery facility, as well as six additional capitalized real estate leases.
The increase in depreciation in fiscal 2002 was the result of the purchase of
equipment and leasehold improvements, as well as the capitalized real estate
lease for the Middletown store opened in November 2001 and a full year of
depreciation for the three locations remodeled in fiscal 2001.
The number of capital projects undertaken in fiscal 2004 decreased and therefore
capital expenditures declined in fiscal 2004. Capital expenditures increased in
fiscal 2003 and fiscal 2002 as the result of the purchase of equipment and
leasehold improvements for the four new locations opened in fiscal 2003, the
construction of and equipment for our new bakery commissary, projects in process
in fiscal 2003 for two new stores which were completed in fiscal 2004 and the
expansion and remodeling of an existing location.
In fiscal 2004 long-term debt increased $29,147,000 due to the capitalization of
one new real estate lease, the increase in obligations under a capitalized real
estate lease for a replacement store, an increase in borrowings under the Credit
Agreement, financing outside of the Credit Agreement for the purchase of
equipment for one location and the issuance of notes for the additional
investments required by Wakefern for three of the new locations. Cash generated
by operations was used to pay down a portion of existing debt.
In fiscal 2003 long-term debt increased $82,043,000 due to the capitalization of
six real estate leases, an increase in borrowings under the Credit Agreement,
financing outside of the Credit Agreement for the purchase of equipment for two
locations and notes for the additional investments required by Wakefern for two
of the new locations and the increase in the required Wakefern investment for
each location. Cash generated by operations was used to pay down a portion of
existing debt.
19
In fiscal 2002 long-term debt increased $26,220,000 due to the capitalization of
a real estate lease for the location opened in the year and an increase in
borrowings under the Credit Agreement. These increases were partially offset by
cash generated by operations used to pay down existing debt.
No shares of Common Stock were purchased in fiscal 2004 or in fiscal 2003.
For the year ended November 2, 2002, the Company repurchased a total of 102,853
shares of Common Stock. 101,553 of these shares were purchased in privately
negotiated transactions and the remaining 1,300 shares were acquired in open
market transactions. 6,377 of these shares were owned by a member of the family
of Joseph J. Saker, the Company's Chairman, and were purchased for an average of
$39.52 per share. $4,523,670, or an average of $43.98 per share, was expended
for the purchase of the 102,853 shares. While it engaged in repurchasing its
stock under an announced stock repurchase program from June 2001 to April 2002,
the Company repurchased 131,923 shares for $5,591,597 or an average of $42.39
per share.
During the year ended November 3, 2001, the Company repurchased a total of
29,070 shares of Common Stock. 25,070 of these shares were purchased in
privately negotiated transactions. 7,000 of these shares were owned by the
Estate of Mary Saker, of which the Company's Chairman, Joseph J. Saker, is a
co-executor, and 18,000 shares were owned by certain members of Mr. Saker's
family. $1,067,927, or an average of $36.74 per share, was expended for the
purchase of the 29,070 shares.
At October 30, 2004, the Company had $1,971,000 of available credit, under its
revolving credit facility. The availability does not include the additional
$6,000,000 provided by the October 21, 2004 amendment to the Credit Agreement
which expired on January 15, 2005. Since no capital projects were in process,
the Company has no capital commitments for equipment and leasehold improvements
as of October 30, 2004. The Credit Agreement and permitted borrowings outside of
the Credit Agreement will adequately meet our operating needs, scheduled capital
expenditures and debt service for fiscal 2005.
During fiscal year 2002, the Business Tax Reform Act was passed in the
State of New Jersey. This legislation is effective for tax years beginning on or
after January 1, 2002 (fiscal 2003). Corporate taxpayers are subject to an
"Alternative Minimum Assessment ("AMA"), which is based upon either New Jersey
Gross Receipts or New Jersey Gross Profits, if the AMA exceeds the tax based on
net income. We have included in our current tax provision the effect of the AMA.
The AMA increased our State current tax liability, net of Federal tax benefit,
by $1,519,000 for fiscal 2004. Additionally, in March 2002 and May 2003 The Job
Creation and Worker Assistance Act of 2002 and The Jobs and Growth Tax Relief
Reconciliation Act of 2003 ("Tax Acts") were passed by the United States
Congress. The current Federal tax benefit for accelerated depreciation resulting
from the Tax Acts is approximately $1,073,000 for fiscal 2004 and is reflected
in deferred income taxes.
The table below summarizes our contractual obligations at October 30, 2004,
and the effect such obligations are expected to have on liquidity and cash flow
in future periods.
20
Payments Due By Period
----------------------------------------------
Less 2-3 4-5 After 5
Than
Contractual Obligations Total 1 Year Years Years Years
- ----------------------- ----- ------ ----- ----- -----
(Dollars In Thousands)
Long-term debt $ 71,466 $ 8,415 $ 18,093 $ 44,782 $ 176
Interest on Long Term Debt(1) 14,960 4,471 7,313 3,176 -
Related party debt,
non interest bearing 4,457 867 1,950 952 688
Capital lease obligations(2) 354,281 15,943 31,566 31,609 275,163
Operating leases(2) 64,307 10,160 15,910 12,381 25,856
Other Liabilities (3) 4,925 1,289 662 809 2,165
Purchase obligations -
leaseholds and equipment - - - - -
Lease commitments - stores
under construction - - - - -
--------- ------- ------- ------ --------
Total $ 514,396 $41,145 $75,494 $ 93,709 $304,048
========= ======= ======= ====== ========
(1) Includes interest expense at estimated interest rates of 6.00% to 7.50% on
variable rate debt of $65,594 and interest expense at interest rates of
6.44% to 8.74% on fixed rate debt of $5,874.
(2) Lease obligation figures do not include insurance, common area maintenance
charges and real estate taxes for which the Company is obligated.
(3) Other liabilities include estimated unfunded pension liabilities, and
estimated post-retirement and post-employment obligations based on
available actuarial data.
RESULTS OF OPERATIONS
- ---------------------
Sales:
The Company's sales were $1,175.2 million, $1,049.7 million and $963.6 million,
respectively in fiscal 2004, 2003 and 2002. This represents an increase of 12.0%
in 2004 and an increase of 8.9% in 2003. These changes in sales levels were the
result of the opening of one new and one replacement store, the purchase of a
supermarket and the expansion of an existing supermarket in fiscal 2004 and the
opening of two new and two replacement stores in fiscal 2003. The locations
opened in May 2004, May 2003 and December 2002 replaced smaller, older stores.
Comparable store sales increased 2.0% in fiscal 2004 and 1.5% in fiscal
2003. Sales from relocated and closed stores, as well as new stores opened, in
the respective periods are not included in this calculation while sales from
remodeled and expanded stores are included in this calculation. Comparable store
sales increases in fiscal 2004 and fiscal 2003 were partially offset by
decreased sales in certain of the Company's stores affected by competitive store
openings and the impact of several of our new and replacement locations.
Additionally, the increases in comparable store sales for 2003 were partially
offset by a softening in the economy and the impact of deflation in certain
product categories.
21
Gross Profit:
Gross profit totaled $309.9 million in fiscal 2004 compared to $273.0 million in
fiscal 2003 and $245.1 million in fiscal 2002. Gross profit as a percent of
sales was 26.4% in fiscal 2004, 26.0% in fiscal 2003 and 25.4% in fiscal 2002.
Cost of goods sold includes the costs of inventory sold and the related
purchase, inbound freight and distribution costs including those costs charged
by Wakefern for operation of warehouses, distribution and delivery of product to
our stores. Vendor allowances and rebates and Wakefern patronage dividends are
reflected as a reduction of cost of goods sold. Any costs to us related to other
services which Wakefern provides are not included in cost of goods sold.
Gross profit as a percentage of sales increased in fiscal 2004 primarily as a
result of improved product mix (.13%), the contribution of the one new and one
replacement store opened in fiscal 2004, including Wakefern incentive programs
for new locations (.25%), reduced Wakefern assessment as a percentage of sales
(.20%) and a reduction in product loss through improved shrink control (.03%).
These increases were offset in part by programs implemented in certain of the
Company's stores to address competitive store openings (.22%) and a decrease in
the Wakefern patronage dividend (.03%).
Gross profit as a percentage of sales increased in fiscal 2003 primarily as a
result of improved product mix (.53%), the contribution of the two new and two
replacement stores opened in fiscal 2003, including Wakefern incentive programs
for new locations (.32%), reduced Wakefern assessment as a percentage of sales
(.05%), an increase in the Wakefern patronage dividend (.13%) and a reduction in
product loss through improved shrink control (.03%). These increases were offset
in part by programs implemented in certain of the Company's stores to address
competitive store openings and by promotional programs for the new locations
opened in the current year period (.49%).
The increase in fiscal 2002 of gross profit as a percentage of sales was
primarily due to improved product mix (.48%), the contribution of the new
location in Middletown, New Jersey (.16%), more efficient commissary operations
(.05%), an increase in patronage dividends from Wakefern (.05%) and a reduction
in product loss through improved shrink control (.11%). These increases were
offset in part by programs implemented in certain of the Company's stores to
address competitive store openings (.19%).
Patronage dividends applied as a reduction of the cost of merchandise sold were
$9,848,000, $9,119,000 and $7,124,000 for the last three fiscal years. This
translates to .84%, .87% and .74% of sales for the respective periods.
Fiscal Years Ended
----------------------------------------
10/30/04 11/01/03 11/02/02
-------- -------- --------
(in millions)
Sales............................. $ 1,175.2 $1,049.7 $ 963.6
Gross profit...................... 309.9 273.0 245.1
Gross profit percentage........... 26.4% 26.0% 25.4%
22
Selling, General and Administrative Expenses:
Fiscal 2004 selling, general and administrative expenses totaled $290.8 million
compared to $256.9 million in fiscal 2003 and $231.7 million in fiscal 2002.
Fiscal Years Ended
-----------------------------------------
10/30/04 11/01/03 11/02/02
-------- -------- --------
(in millions)
Sales............................. $ 1,175.2 $1,049.7 $ 963.6
Selling, General and
Administrative Expenses.......... 290.8 256.9 231.7
Percent of Sales.................. 24.7% 24.5% 24.0%
Selling, general and administrative expenses increased as a percent of sales
when comparing fiscal 2004 to fiscal 2003. Increases in labor and related fringe
benefits, depreciation, impairment charges and occupancy costs were partially
offset by decreases in pre-opening costs and administration. The increase in
labor and related fringe benefits was the result of contractual increases in
fringe benefits. Labor and related fringe benefits increased from $146,006,000
to $164,280,000. Depreciation increased as the result of the purchase of
equipment and leasehold improvements for two new locations opened in
Lawrenceville and Aberdeen, New Jersey, the completion of the expansion and
remodeling of the East Brunswick store, the remodeling of the Neptune location
and the purchase of the Bordentown, New Jersey location, as well as the addition
of one new capitalized real estate lease and the increase in obligations under a
capitalized real estate lease for a replacement store and a full year of
depreciation for the four locations opened in fiscal 2003. Depreciation
increased from $17,096,000 to $20,634,000. The impairment charge relates to the
recording of a non-cash write down of the leasehold improvements resulting from
operating losses incurred at a location having a lease which is expiring in
fiscal 2005. The impairment charge was $1,198,000 as compared to no impairment
charge in fiscal 2003. The increase in occupancy was primarily the result of
increases in electric and gas rates from utility companies. Utility costs
increased from $10,024,000 to $12,929,000. Administration decreased as several
components increased at a slower rate than the increase in sales and idle
facility costs decreased as leases for several previously occupied locations
were terminated. Administration costs declined from $19,750,000 to $19,479,000.
Pre-opening costs decreased since only two new locations were opened in fiscal
2004 compared to four new stores in fiscal 2003. Pre-opening costs were
$1,154,000 in fiscal 2004 compared to $1,796,000 in fiscal 2003. As a percentage
of sales, labor and related fringe benefits increased .06%, depreciation
increased .12%, impairment charges increased .10% and occupancy increased .19%.
These increases were partially offset by decreases in pre-opening costs of .07%
and administrative expense of .22%.
Selling, general and administrative expenses increased as a percent of sales
when comparing fiscal 2003 to fiscal 2002. Increases in labor and related fringe
benefits, depreciation and pre-opening costs were partially offset by decreases
in occupancy and administration. The increase in labor and related fringe
benefits was the result of additional personnel for the new Woodbridge, Ewing,
North Brunswick and Hamilton stores, increased sales in service intensive
departments and contractual increases in fringe benefits. Labor and related
23
fringe benefits increased from $130,912,000 to $146,006,000. Depreciation
increased as the result of the purchase of equipment and leasehold improvements
for the four new locations and the new bakery facility, as well as six
additional capitalized real estate leases. Depreciation increased from
$14,175,000 to $17,096,000. Pre-opening costs were for the new Woodbridge,
Ewing, North Brunswick and Hamilton stores opened in December 2002, January
2003, May 2003 and October 2003, respectively. Pre-opening costs increased from
$246,000 to $1,796,000. The decrease in occupancy was primarily the result of
several leases which were accounted for as operating leases being replaced by
capitalized leases and the decrease in certain fixed costs as a percentage of
sales. Although occupancy costs decreased as a percentage of sales, the actual
cost increased from $40,251,000 to $42,361,000 due to the addition of two new
and two replacement locations. Administration, as a percentage of sales,
decreased as several components increased at a slower rate than the increase in
sales. Accordingly, administrative expense increased from $18,950,000 to
$19,750,000. As a percentage of sales, labor and related fringe benefits
increased .32%, depreciation increased .16% and pre-opening costs increased
..14%. These increases were partially offset by decreases in occupancy of .13%
and administrative expense of .09%.
Amortization expense increased in fiscal 2004 to $548,000 compared to $475,000
in fiscal 2003 and $463,000 in fiscal 2002. The increase in fiscal 2004, as
compared to fiscal 2003 and fiscal 2002, was the result of increased
amortization of deferred financing costs partially offset by decreased
amortization of deferred escalation rents and the discontinuance of the
amortization of goodwill as required by SFAS No. 142. See Note 1 of Notes to
Consolidated Financial Statements.
Interest Expense:
Interest expense totaled $16.4 million in fiscal 2004 compared to $12.4 million
in fiscal 2003 and $8.2 million in fiscal 2002. The increase in interest expense
for fiscal 2004 and fiscal 2003 was due to an increase in average outstanding
debt, including increased capitalized lease obligations, and an increase in the
average interest rate paid on debt.
Income Taxes:
The Company recorded a tax provision of $1.1 million in fiscal 2004, $1.5
million in fiscal 2003 and $2.2 million in fiscal 2002. See Note 13 of Notes to
Consolidated Financial Statements.
Net Income:
The Company had net income of $1,800,000 or $1.75 per diluted share in fiscal
2004 compared to net income of $2,283,000 or $2.26 per diluted share in fiscal
2003. EBITDA for fiscal 2004 were $41,534,000 as compared to $33,636,000 in
fiscal 2003. Fiscal 2002 resulted in net income of $3,240,000 or $3.01 per
diluted share. EBITDA for fiscal 2002 were $28,076,000.
Weighted average diluted shares outstanding were 1,030,167 for fiscal 2004,
1,011,350 for fiscal 2003 and 1,076,030 for fiscal 2002.
EBITDA is presented because management believes that EBITDA is a useful
supplement to net income and other measurements under accounting principles
generally accepted in the United States since it is a meaningful measure of a
company's performance and ability to meet its future debt service requirements,
fund capital expenditures and meet working capital requirements. EBITDA is not a
measure of financial performance under accounting principles generally accepted
in the United States and should not be considered as an alternative to (i) net
income (or any other measure of performance under generally accepted accounting
24
principles) as a measure of performance or (ii) cash flows from operating,
investing or financing activities as an indicator of cash flows or as a measure
of liquidity. The following table reconciles reported net income to EBITDA:
Fiscal Years Ended
--------------------------------------------------
10/30/04 11/01/03 11/02/02
-------- -------- --------
Net income $1,800,000 $ 2,283,000 $ 3,240,000
Add:
Interest expense, net 16,251,000 12,260,000 8,036,000
Income tax provision 1,103,000 1,522,000 2,162,000
Depreciation 20,634,000 17,096,000 14,175,000
Impairment loss 1,198,000 - -
Amortization 548,000 475,000 463,000
---------- ----------- -----------
EBITDA $41,534,000 $33,636,000 $28,076,000
=========== =========== ===========
RECENT ACCOUNTING PRONOUNCEMENTS
- --------------------------------
In November 2003, the Emerging Issues Task Force (the "EITF") reached a
consensus on EITF No. 03-10, "Application of Issue No. 02-16 by Resellers to
Sales Incentives Offered to Consumers by Manufacturers." This issue addresses
the accounting for manufacturer sales incentives offered directly to consumers,
including manufacturer coupons. The adoption of EITF No. 03-10 did not have any
effect on our financial position or results of operations.
In December 2003, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 132R (revised 2003), "Employers' Disclosures about Pensions and Other
Postretirement Benefits - an amendment of FASB Statements No. 87, 88, and 106"
("SFAS 132"). The revised Statement retains the disclosure requirements
contained in SFAS 132 before the amendment but requires additional disclosures
about the assets, obligations, cash flows, and net periodic benefit cost of
defined benefit pension plans and other defined benefit postretirement plans.
The annual disclosure requirements under this Statement are effective for the
Company's fiscal year ending October 30, 2004, and the quarterly disclosure
requirements are effective for the Company's interim periods beginning with the
second quarter ending May 1, 2004. The implementation of SFAS 132, as revised in
2003, did not have a material impact on the Company's consolidated financial
statements. See Note 15 of Notes to Consolidated Financial Statements.
In December 2003, FASB issued a revised interpretation of FIN 46 (FIN -R), which
supercedes FIN 46 and clarifies and expands current accounting guidance for
variable interest entities. FIN 46 and FIN 46-R are effective immediately for
all variable interest entities created after January 31, 2003, and for variable
interest entities prior to February 1, 2003, no later than the end of the first
reporting period after March 15, 2004. The adoption of FIN 46 and FIN 46-R did
not have a material impact on the Company's financial reporting and disclosure.
In March 2004, the Emerging Issues Task Force, or EITF, reached consensus on
Issue No. 03-1, "The Meaning of Other-Than-Temporary Impairment and Its
Application to Certain Investments", or EITF 03-1. EITF 03-1 provides guidance
on determining when an investment is considered impaired, whether that
impairment is other than temporary and the measurement of an impairment loss.
EITF 03-1 is applicable to marketable debt and equity securities within the
25
scope of SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities", or SFAS 115, and SFAS No. 124, "Accounting for Certain Investments
Held by Not-for-Profit Organizations", and equity securities that are not
subject to the scope of SFAS 115 and not accounted for under the equity method
of accounting. In September 2004, the FASB issued FSP EITF 03-1-1, "Effective
Date of Paragraphs 10-20 of EITF Issue No. 03-1, `The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain Investments'",
which delays the effective date for the measurement and recognition criteria
contained in EITF 03-1 until final application guidance is issued. The delay
does not suspend the requirement to recognize other-than-temporary impairments
as required by existing authoritative literature. The adoption of EITF 03-1 is
not expected to have a material impact on our results of operations and
financial position.
In May 2004, the staff of the FASB issued FASB Staff Position ("FSP") No. FAS
106-2, "Accounting and Disclosure Requirements Related to the Medicare
Prescription Drug, Improvement and Modernization Act of 2003," which superseded
FSP No. FAS 106-1. This FSP provides guidance on the accounting for the effects
of the Medicare Prescription Drug, Improvement and Modernization Act of 2003
(the "Act") for employers that sponsor postretirement health care plans that
provide prescription drug benefits. This FSP also requires those employers to
provide certain disclosures regarding the effect of the federal subsidy provided
by the Act (the "Subsidy"). The guidance in this FSP related to the accounting
for the Subsidy applies only to the sponsor of a single-employer defined benefit
postretirement health care plan for which (a) the employer has concluded that
prescription drug benefits available under the plan to some or all participants
for some or all future years are "actuarially equivalent" to Medicare Part D and
thus qualify for the Subsidy under the Act and (b) the expected Subsidy will
offset or reduce the employer's share of the cost of the underlying
postretirement prescription drug coverage on which the Subsidy is based. This
FSP also provides guidance for the disclosures about the effects of the Subsidy
for an employer that sponsors a postretirement health care benefit plan that
provides prescription drug coverage but for which the employer has not yet been
able to determine actuarial equivalency. This FSP is effective for the first
interim period beginning after June 15, 2004. The adoption of FSP FAS 106-2 did
not have a material effect on the Company's consolidated financial statements.
See Note 16 of Notes to Consolidated Financial Statements.
In November 2004, the FASB issued SFAS No. 151, Inventory Costs, an amendment of
ARB No. 43, Chapter 4. SFAS No. 151 amends the guidance in ARB No. 43, Chapter
4, Inventory Pricing, to clarify the accounting for abnormal amounts of idle
facility expense, freight, handing costs, and spoilage. This statement requires
that those items be recognized as current period charges regardless of whether
they meet the criterion of "so abnormal" which was the criterion specified in
ARB No. 43. In addition, this Statement requires that allocation of fixed
production overheads to the cost of production be based on normal capacity of
the production facilities. This pronouncement is effective for the fiscal years
beginning after June 15, 2005. The Company has not yet assessed the impact of
adopting this new standard.
In December 2004, the FASB issued SFAS No. 123 (revised 2004). Share-Based
Payment, which is a revision of SFAS No. 123, Accounting for Stock-Based
Compensation. SFAS No. 123(R) supersedes APB Opinion No. 25, Accounting for
Stock Issued to Employees and amends SFAS No. 95, Statement of Cash Flows.
Generally, the approach in SFAS No. 123(R) is similar to the approach described
in SFAS No. 123. However, SFAS No. 123(R) requires all share-based payments to
employees, including grants of employee stock options, to be recognized in the
income statement based on their fair values. Pro forma disclosure is no longer
an alternative. The new standard will be effective for the Company in the first
interim or annual reporting period beginning after June 15, 2005, which is the
26
fourth quarter of fiscal 2005. The Company has not yet assessed the impact of
adopting this new standard.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
- -------- ----------------------------------------------------------
Except for indebtedness under the Credit Agreement which is variable rate
financing, the balance of our indebtedness is fixed rate financing. We believe
that our exposure to market risk relating to interest rate risk is not material.
The Company believes that its business operations are not exposed to market risk
relating to foreign currency exchange risk, commodity price risk or equity price
risk.
Item 8. Financial Statements and Supplementary Data
- ------- -------------------------------------------
See Consolidated Financial Statements and Schedules included in Part IV, Item
15.
Item 9. Changes in and Disagreements with Accountants on Accounting and
- ------- ---------------------------------------------------------------
Financial Disclosure
- --------------------
None.
Item 9A. Controls and Procedures
- -------- -----------------------
As required by Rule 13a-15 under the Exchange Act within ninety (90) days prior
to the filing date of this report, the Company carried out an evaluation of the
effectiveness of the design and operation of the Company's disclosure controls
and procedures. This evaluation was carried out under the supervision and with
the participation of the Company's management, including the Company's President
and Chief Executive Officer along with the Company's Chief Financial Officer,
who concluded that the Company's disclosure controls and procedures are
effective. The Company's Director of Internal Audit and Principal Accounting
Officer also participated in this evaluation. There have been no significant
changes in the Company's internal controls or in other factors which could
significantly affect internal controls subsequent to the date the Company
carried out its evaluation.
Disclosure controls and procedures are controls and other procedures that are
designed to ensure that information required to be disclosed in the Company
reports filed or submitted under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the Securities and
Exchange Commission's rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that
information required to be disclosed in Company reports filed under the Exchange
Act is accumulated and communicated to management, including the Company's Chief
Executive Officer and Chief Financial Officer as appropriate, to allow timely
decisions regarding required disclosure.
Item 9B. Other Information
- --------- -----------------
None.
27
Part III
--------
Item 10. Directors and Executive Officers of the Registrant
- -------- --------------------------------------------------
The information required in response to this item is contained in the Company's
definitive proxy statement to be filed pursuant to Regulation 14A under the
captions "Nominees as a Director of the Company" and "Executive Officers of the
Company" and such information is incorporated herein by reference.
Item 11. Executive Compensation
- -------- ----------------------
The information required in response to this item is contained in the Company'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 and
- -------- ------------------------------------------------------------------
Related Stockholder Matters
- ---------------------------
The information required in response to this item is contained in the Company's
definitive proxy statement to be filed pursuant to Regulation 14A under
introductory paragraphs and under the captions "Principal Shareholders" and
"Securities Owned by Management" 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 Company's
definitive proxy statement to be filed pursuant to Regulation 14A under the
captions "Executive Compensation" and "Certain Transactions" and such
information is incorporated herein by reference.
Item 14. Principal Accountant Fees and Services
- -------- --------------------------------------
The information required in response to this item is contained in the Company's
definitive proxy statement to be filed pursuant to Regulation 14A under the
captions "Audit Fees," "Audit Related Fees," "Tax Fees" and "All Other Fees."
28
Part IV
-------
Item 15. Exhibits and Financial Statement Schedules
- -------- ------------------------------------------
a.1. Audited financial statements and
supplementary data Page No.
Report of Independent Registered Public Accounting
Firm F-1
Foodarama Supermarkets, Inc. and
Subsidiaries Consolidated Financial
Statements:
Balance Sheets as of October 30, 2004
and November 1, 2003 F-2 to F-3
Statements of Operations for each of the
fiscal years ended, October 30, 2004,
November 1, 2003 and November 2, 2002. F-4
Statements of Shareholders' Equity
for each of the fiscal years ended
October 30, 2004, November 1, 2003
and November 2, 2002. F-5
Statements of Cash Flows for each of the
fiscal years ended October 30,
2004, November 1, 2003 and November 2, 2002. F-6
Notes to Consolidated Financial Statements F-7 to F-40
a.2. Financial Statement Schedules
Schedule II S-1
Schedules other than Schedule II have been
omitted because they are not applicable.
a.3. Management Contracts and/or Compensatory Plans
Management contracts and/or compensatory plans or
arrangements have been identified in the Index to
Exhibits beginning on page E-1 herein.
b. Exhibits E-1 to E-16
Reference is made to the Index of Exhibits beginning on page E-1
herein.
29
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
FOODARAMA SUPERMARKETS, INC.
(Registrant)
/s/ Michael Shapiro
-------------------
Michael Shapiro
Senior Vice President,
Chief Financial Officer
/s/ Thomas H. Flynn
-------------------
Thomas H. Flynn
Vice President
Principal Accounting Officer
Date: January 27, 2005
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 of January 27, 2005
Directors
/s/ Richard J. Saker
- ---------------------
Richard J. Saker Chief Executive Officer, January 27, 2005
President and Director
/s/ Charles T. Parton
- ----------------------
Charles T. Parton Director January 27, 2005
/s/ Albert A. Zager
- --------------------
Albert A. Zager Director January 27, 2005
/s/ Robert H. Hutchins
- -----------------------
Robert H. Hutchins Director January 27, 2005
30
Report of Independent Registered Public Accounting Firm
-------------------------------------------------------
Board of Directors and Shareholders
Foodarama Supermarkets, Inc.
Howell, New Jersey
We have audited the accompanying consolidated balance sheets of Foodarama
Supermarkets, Inc. and Subsidiaries as of October 30, 2004 and November 1, 2003
and the related consolidated statements of operations, shareholders' equity and
cash flows for the fiscal years ended October 30, 2004, November 1, 2003 and
November 2, 2002. 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 the standards of the Public Company
Accounting Oversight Board (United States). 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 30, 2004 and November 1, 2003, and the results of
their operations and their cash flows for the fiscal years ended October 30,
2004, November 1, 2003 and November 2, 2002, in conformity with U.S. generally
accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, during the year
ended November 1, 2003 the Company changed its method of accounting for goodwill
in accordance with the adoption of SFAS 142 "Goodwill and Other Intangible
Assets."
In connection with our audits of the financial statements referred to above, we
audited the financial schedule listed under Item 14. In our opinion, the
financial schedule, when considered in relation to the financial statements
taken as a whole, presents fairly, in all material respects, the information
stated therein.
/S/ AMPER, POLITZINER & MATTIA, P.C.
------------------------------------
January 27, 2005
Edison, New Jersey
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
October 30, 2004 and November 1, 2003
(In thousands)
2004 2003
---- ----
Assets
Current assets
Cash and cash equivalents $ 6,001 $ 5,252
Merchandise inventories 57,123 49,224
Receivables and other current assets 8,456 12,043
Prepaid and refundable income taxes 170 3,404
Related party receivables - Wakefern 14,799 13,684
------------ ------------
86,549 83,607
------------ ------------
Property and equipment
Land 308 308
Buildings and improvements 1,220 1,220
Leasehold improvements 60,488 49,039
Equipment 161,554 142,021
Property under capital leases 152,354 130,420
Construction in progress 60 6,846
------------- ------------
375,984 329,854
Less accumulated depreciation and amortization 140,138 122,339
------------- ------------
235,846 207,515
------------- ------------
Other assets
Investments in related parties 17,655 16,173
Goodwill 1,715 1,715
Intangible assets, net 1,493 1,098
Other 3,339 3,264
Related party receivables - Wakefern 2,039 1,874
------------- ------------
26,241 24,124
------------- ------------
$ 348,636 $ 315,246
============= ============
See notes to consolidated financial statements.
F-2
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets - (continued)
October 30, 2004 and November 1, 2003
(In thousands)
2004 2003
----------- --------
Liabilities and Shareholders' Equity
Current liabilities
Current portion of long-term debt $ 8,415 $ 7,916
Current portion of long-term debt, related party 867 920
Current portion of obligations under capital leases 1,727 1,622
Current income taxes payable 408 1,415
Deferred income taxes 1,579 2,162
Accounts payable
Related party - Wakefern 39,639 37,506
Others 14,384 14,622
Accrued expenses 15,236 13,485
------------ ----------
82,255 79,648
------------ ----------
Long-term debt 63,051 55,335
Long-term debt, related party 3,590 3,055
Obligations under capital leases 142,504 122,159
Deferred income taxes 2,292 2,749
Other long-term liabilities 13,711 13,278
------------ ----------
225,148 196,576
------------ ----------
Commitments and Contingencies (Note 14)
- ---------------------------------------
Shareholders' equity
Common stock, $1.00 par; authorized 2,500,000
shares; issued 1,621,767 shares; outstanding
987,617 shares October 30, 2004; 986,867 shares
November 1, 2003 1,622 1,622
Capital in excess of par 4,168 4,168
Deferred compensation (580) (952)
Retained earnings 51,339 49,539
Accumulated other comprehensive income
Minimum pension liability
(3,140) (3,164)
------------- -----------
53,409 51,213
Less 634,150 shares October 30, 2004;
634,900 shares November 1, 2003, held in
treasury, at cost 12,176 12,191
------------ ----------
41,233 39,022
------------ ----------
$ 348,636 $ 315,246
============ ==========
See notes to consolidated financial statements.
F-3
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Fiscal Years Ended October 30, 2004, November 1, 2003 and November 2, 2002
(In thousands, except per share data)
2004 2003 2002
---- ---- ----
Sales $1,175,199 $ 1,049,653 $ 963,611
Cost of goods sold 865,280 776,656 718,520
----------- ------------ ----------
Gross profit 309,919 272,997 245,091
Selling, general and administrative 290,765 256,932 231,653
expenses ----------- ------------ ----------
Earnings from operations 19,154 16,065 13,438
----------- ------------ ----------
Other income (expense)
Interest expense (16,392) (12,399) (8,184)
Interest income 141 139 148
----------- ------------ ----------
(16,251) (12,260) (8,036)
----------- ------------ ----------
Earnings before income tax provision 2,903 3,805 5,402
Income tax provision (1,103) (1,522) (2,162)
----------- ------------ ----------
Net income $ 1,800 $ 2,283 $ 3,240
=========== ============ ==========
Per share information
Net income per common share
Basic $ 1.82 $ 2.31 $ 3.16
=========== ============ ==========
Diluted $ 1.75 $ 2.26 $ 3.01
=========== ============ ==========
Weighted average shares outstanding
Basic 987,132 986,789 1,024,235
=========== ============ ==========
Diluted 1,030,167 1,011,350 1,076,030
=========== ============ ==========
See notes to consolidated financial statements.
F-4
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
Fiscal Years Ended October 30, 2004, November
1, 2003 and November 2, 2002
(In thousands, except per share data)
Accumulated
Common Stock Other
---------------------- Capital Compre- Compre- Treasury Stock
Shares in Excess Deferred hensive hensive Retained --------------- Total
Issued Amount of Par Compensation Income Income Earnings Shares Amount Equity
------ ------ ------ ------------ ------ ------ -------- ------ ------ ------
Balance - November 3, 2001 1,621,767 $ 1,622 $4,168 $(1,696) $ (1,920) $ 44,016 (533,547) $ (7,697) $38,493
Amortization of deferred
compensation - - - 372 - - - - 372
Issuance of common stock - - - - - - 1,000 20 20
Repurchase of common stock - - - - - - (102,853) (4,524) (4,524)
Comprehensive income
Net income 2002 - - - - - 3,240 3,240 - - 3,240
Other comprehensive income
Minimum pension liability, net
of deferred tax - - - - (976) (976) - - - (976)
------- -------- ------ -------- ---------- -------- --------- --------- ------- ------
Comprehensive income $ 2,264
========
Balance - November 2, 2002 1,621,767 1,622 4,168 (1,324) (2,896) 47,256 (635,400) (12,201) 36,625
Amortization of deferred
compensation - - - 372 - - - - 372
Issuance of common stock - - - - - - 500 10 10
Comprehensive income
Net income 2003 - - - - - 2,283 2,283 - - 2,283
Other comprehensive income
Minimum pension liability, net
of deferred tax - - - - (268) (268) - - - (268)
------- -------- ----- ------- -------- -------- -------- ------- ------- ------
Comprehensive income $ 2,015
========
Balance - November 1, 2003 1,621,767 1,622 4,168 (952) (3,164) 49,539 (634,900) (12,191) 39,022
Amortization of deferred
compensation - - - 372 - - - - 372
Issuance of common stock - - - - - - 750 15 15
Comprehensive income
Net income 2004 - - - - - 1,800 1,800 - - 1,800
Other comprehensive income
Minimum pension liability, net
of deferred tax - - - - 24 24 - - - 24
---------- -------- -------- -------- -------- -------- -------- -------- ------- ------
Comprehensive income $ 1,824
========
Balance - October 30, 2004 1,621,767 $ 1,622 $4,168 $ (580) $(3,140) $ 51,339 (634,150) $(12,176)$41,233
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See notes to consolidated financial statements.
F-5
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Fiscal Years Ended October 30, 2004, November 1, 2003 and November 2, 2002
(In thousands)
2004 2003 2002
---- ---- ----
Cash flows from operating activities
Net income $ 1,800 $ 2,283 $ 3,240
Adjustments to reconcile net income to net
cash from operating activities
Depreciation 20,634 17,096 14,175
Non cash impairment charge 1,198 - -
Amortization, goodwill - - 140
Amortization, intangibles 141 192 211
Amortization, deferred financing costs 695 577 342
Amortization, deferred rent escalation (288) (294) (230)
Provision to value inventory at LIFO 1,005 715 397
Deferred income taxes (1,057) 2,515 946
Amortization of deferred compensation 358 357 270
(Increase) decrease in
Merchandise inventories (8,904) (6,232) (1,277)
Receivables and other current assets (907) (505) (781)
Prepaid and refundable income taxes 3,234 (3,147) (257)
Other assets (457) 227 (453)
Related party receivables - Wakefern (1,280) (4,920) (75)
Increase (decrease) in
Accounts payable 1,895 6,115 1,245
Income taxes payable (1,007) 1,415 (704)
Other liabilities 2,560 1,463 (1,713)
---------- ----------- ----------
19,620 17,857 15,476
---------- ----------- ----------
Cash flows from investing activities
Cash paid for the purchase of property
and equipment (27,744) (29,267) (7,858)
Cash paid for construction in progress (24) (4,336) (13,161)
Decrease in construction advance due from
landlords 17,127 4,975 1,932
Increase in construction advance due from
landlords (12,633) (6,128) (6,070)
Payment for purchase of acquired store
assets (1,000) - -
Deposits on equipment - - (829)
Decrease in related party receivables - other - - 18
------- ---------- ----------
(24,274)