UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
Amendment No. 1
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
------------------------- ----------------------
FOODARAMA SUPERMARKETS, INC.
(Exact name of Registrant as specified in its charter)
New Jersey 21-0717108
------------------------------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Building 6, Suite 1, 922 Hwy. 33, Freehold, New Jersey 07728
(Address of principal executive offices)
Registrant's telephone number, including area code: (732) 462-4700
--------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
------------------- ----------------
Common Stock, par value $1.00 per share American Stock Exchange
--------------------------------------- -----------------------
Securities registered pursuant to Section 12(g) of the Act:
NONE
----
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes _X_ No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. _X_
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 IV
-------
EXPLANATORY NOTE
We are filing, on Form 10-K/A, this Amendment No. 1 to our Annual Report
on Form 10-K for the period ended October 30, 2004 which was filed with the
United States Securities and Exchange Commission on January 28, 2005 (the "Form
10-K") to amend and restate Item 15. Item 15, as presented in the Form 10-K,
contains certain ministerial errors in Notes 15 and 16 to our Consolidated
Financial Statements in that certain dollar amounts presented in tabular format
in Notes 15 and 16 should have been presented in thousands and were not
presented in thousands. In addition as required by Rule 12b-15, promulgated
under the Securities Exchange Act of 1934, the Registrant's principal executive
officer and principal financial officer are providing new Rule 13a-14
certifications in connection with this Form 10-K/A and are also furnishing
written statements pursuant to Title 18 United States Code Section 1350, as
added by Section 906 of the Sarbanes-Oxley Act of 2002. The Exhibit section has
also been revised to include an update to the Independent Auditor's Consent.
Except as described above no other changes have been made to the Form 10-K.
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
2
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.
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: February 25, 2005
3
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 February 25,
Directors 2005
/s/ Richard J. Saker
---------------------
Richard J. Saker Chief Executive Officer, February 25,
President and Director 2005
/s/ Charles T. Parton
----------------------
Charles T. Parton Director February 25,
2005
/s/ Albert A. Zager
--------------------
Albert A. Zager Director February 25,
2005
/s/ Robert H. Hutchins
-----------------------
Robert H. Hutchins Director February 25,
2005
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
F-1
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 expenses 290,765 256,932 231,653
----------- ------------ ----------
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
========= ======== ====== ======= ======== ======== ========= ========= ======
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) (34,756) (25,968)
-------------- ----------- ----------
Cash flows from financing activities
Proceeds from issuance of debt 16,359 27,853 22,961
Principal payments under long-term debt (8,144) (7,505) (4,742)
Principal payments under capital
lease obligations (1,484) (1,518) (1,060)
Principal payments under long-term
debt, related party (1,000) (755) (897)
Deferred financing and other costs (343) (214) (1,205)
Proceeds from exercise of stock options 15 10 20
Repurchase of common stock - - (4,524)
-------------- ----------- ----------
5,403 17,871 10,553
-------------- ----------- ----------
Net change in cash and cash equivalents 749 972 61
Cash and cash equivalents, beginning of
year 5,252 4,280 4,219
-------------- ----------- ----------
Cash and cash equivalents, end of year $ 6,001 $ 5,252 $ 4,280
============== =========== ==========
Supplemental disclosures of cash paid
Interest $ 16,286 $ 12,374 $ 8,125
Income taxes, net of refunds $ (61) $ 751 $ 2,188
See notes to consolidated financial statements
F-6
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Tabular dollars in thousands, except per share amounts)
Note 1 - Summary of Significant Accounting Policies
Nature of Operations
--------------------
Foodarama Supermarkets, Inc. and Subsidiaries (the "Company"), operate
26 ShopRite supermarkets, primarily in Central New Jersey. The Company
is a member of Wakefern Food Corporation ("Wakefern"), the largest
retailer-owned food cooperative in the United States.
Fiscal Year
-----------
The Company's fiscal year ends on the Saturday closest to October 31.
Fiscal 2004 consists of the 52 weeks ended October 30, 2004, fiscal
2003 consists of the 52 weeks ended November 1, 2003 and fiscal 2002
consists of the 52 weeks ended November 2, 2002.
Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated.
Revenue Recognition
-------------------
Revenue from the sale of products are recognized at the point of sale
to the customer. Discounts provided to customers through ShopRite
coupons at the point of sale are recognized as a reduction of sales as
the products are sold. From time to time the Company initiates customer
loyalty programs which allow customers to earn points for each purchase
completed during a specified time period. Points earned enable
customers to receive a certificate that may be redeemed on future
purchases. The Company accounts for its customer loyalty programs in
accordance with Emerging Issues Task Force (EITF) Issue No. 00-22,
"Accounting for "Points" and Certain Other Time-Based or Volume-Based
Sales Incentive Offers, and Offers for Free Products or Services to Be
Delivered in the Future". The value of points earned by our loyalty
program customers is included as a liability and a reduction of revenue
at the time the points are earned based on the percentage of points
that are projected to be redeemed.
Industry Segment
----------------
The Company operates in one industry segment, the retail sale of food
and nonfood products, primarily in the Central New Jersey region.
Use of Estimates
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
Fair Value of Financial Instruments
-----------------------------------
Cash and cash equivalents, receivables and accounts payable are
reflected in the consolidated financial statements at carrying value
which approximates fair value because of the short-term maturity of
these instruments. The fair value of long-term debt was approximately
equivalent to its carrying value, due to the fact that the interest
rates
F-7
Note 1 - Summary of Significant Accounting Policies - (continued)
Fair Value of Financial Instruments (continued)
-----------------------------------------------
currently available to the Company for debt with similar terms are
approximately equal to the interest rates for its existing debt. As the
Company's investments in Wakefern can only be sold to Wakefern for
approximately the amount invested, it is not practicable to estimate
the fair value of such stock. Determination of the fair value of
related party receivables and long-term debt - related party is not
practicable due to their related party nature.
Cash Equivalents
----------------
The Company considers all highly liquid debt instruments purchased with
an original maturity of three months or less to be cash equivalents.
Merchandise Inventories
-----------------------
Merchandise inventories are stated at the lower of cost or market. At
October 30, 2004 and November 1, 2003 approximately 82% and 81%,
respectively, of merchandise inventories, consisting primarily of
grocery and nonfood items, are valued by the LIFO (last-in, first-out)
method of inventory valuation while the remaining inventory items are
valued by the FIFO (first-in, first-out) method with cost being
determined under the retail method.
If the FIFO method had been used for the entire inventory, inventory at
October 30, 2004 and November 1, 2003 would have been $3,740,000 and
$2,735,000 higher, respectively.
Vendor Allowances and Rebates and Cost of Goods Sold
----------------------------------------------------
The Company receives vendor allowances and rebates, including amounts
received as a pass through from Wakefern, related to the Company's
buying and merchandising activities. Vendor allowances and rebates are
recognized as a reduction in cost of goods sold when the related
merchandise is sold or when the contractual requirements have been
satisfied.
Cost of goods sold includes the costs of inventory sold and the related
purchase, inbound freight and distribution costs. Cost of goods sold
excludes depreciation and amortization which is included in selling
general and administrative expenses in the consolidated statements of
operations.
Selling, General and Administrative Expense
-------------------------------------------
Selling, general and administrative expense consists primarily of
depreciation, amortization, advertising expense, payroll including
related fringe and employee benefit expenses, utilities expense, rent,
common area maintenance and other occupancy charges and other expenses.
Property and Equipment
----------------------
Property and equipment is stated at cost and is depreciated on a
straight-line basis over the estimated useful lives ranging between
three and ten years for equipment, the shorter of the useful life or
lease term for leasehold improvements, and twenty years for buildings.
Repairs and maintenance are expensed as incurred.
F-8
Note 1 -Summary of Significant Accounting Policies - (continued)
------------------------------------------
Property and Equipment (continued)
----------------------------------
Property and equipment under capital leases are recorded at the lower
of fair market value or the net present value of the minimum lease
payments. They are depreciated on a straight-line basis over the
shorter of the related lease terms or its useful life.
Investments
-----------
The Company's investments in its principal supplier, Wakefern, and in
Insure-Rite Ltd., are stated at cost (see Note 4).
Goodwill
--------
Effective November 3, 2002, the Company implemented Statement of
Financial Accounting Standards ("SFAS") No. 142, "Accounting for
Goodwill and Other Intangible Assets." Under SFAS 142, the Company
ceased amortization of goodwill and tests 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 fiscal 2004 and 2003, the Company
completed goodwill impairment tests prescribed by SFAS 142 and
concluded that no impairment of goodwill existed.
Prior to the adoption of SFAS 142, the Company amortized goodwill over
its estimated useful life and evaluated goodwill for impairment in
conjunction with its other long-lived assets.
Intangible Assets
-----------------
Other intangible assets consist of favorable operating lease costs and
liquor licenses. The favorable operating lease costs are being
amortized on a straight-line basis over the terms of the related
leases, which range from 6 to 24 years. The liquor licenses are not
amortized since they have been determined to have an indefinite useful
life. The Company reviews the value of its intangible assets for
impairment whenever events or changes in business circumstances
indicate that the carrying amount of the assets may not be fully
recoverable or that the useful lives of these assets are no longer
appropriate.
Long-Lived Assets
-----------------
The Company reviews long-lived assets, on an individual store basis for
impairment when circumstances indicate the carrying amount of an asset
may not be recoverable. Such review analyzes the undiscounted estimated
future cash flows from such assets to determine if the carrying value
of such assets are recoverable from their respective cash flows. If an
impairment is indicated, it is measured by comparing the discounted
cash flows for the long-lived asset to its carrying value. In fiscal
2004, the Company recorded a non-cash impairment charge of $1,198,000
to reduce the carrying value of leasehold improvements relating to one
store. This charge is included in Selling, General and Administrative
Expense in the accompanying consolidated statements of operations.
Factors leading to impairment were a combination of historical losses,
anticipated future losses and projected future negative cash flows for
the remaining term of the related
F-9
Note 1 - Summary of Significant Accounting Policies - (continued)
Long-Lived Assets (continued)
-----------------------------
stores' lease. The non-cash impairment charge
represents the amount necessary to write down the carrying value of the
leasehold improvements for the store to its' estimated fair value based
on the Company's best estimate of the stores' future discounted
operating cash flows. The Company did not record any impairment charges
in fiscal 2003 or fiscal 2002.
Deferred Financing Costs
------------------------
Deferred financing costs are being amortized over the life of the
related debt using the effective interest method.
Postretirement Benefits other than Pensions
-------------------------------------------
The Company accrues for the cost of providing postretirement benefits,
principally supplemental income payments and limited medical benefits,
over the working careers of the officers in the plan.
Postemployment Benefits
-----------------------
The Company accrues for the expected cost of providing postemployment
benefits, primarily short-term disability payments, over the working
careers of its employees.
Advertising
-----------
Advertising costs are expensed as incurred. Advertising expense was $
10.3, $ 9.0 and $8.6 million for the fiscal years 2004, 2003 and 2002,
respectively.
Store Opening and Closing Costs
-------------------------------
The costs of opening new stores are expensed as incurred. Costs related
to closing stores are also charged to earnings as incurred. The Company
estimates closed store liabilities, which are accrued and expensed upon
the closing of a store, which include lease payments, real estate
taxes, common area maintenance, and utility costs to be incurred over
the remaining lease term, net of estimated sublease income, at the
present value using a discount rate based on a credit adjusted
risk-free rate. Adjustments to closed store liabilities primarily
relate to changes in subtenants and actual exit costs differing from
original estimates and are expensed in the period in which the change
becomes known.
Minimum Pension Liability
-------------------------
The Company maintains two underfunded defined benefit pension plans
covering administrative personnel and members of a union. The minimum
pension liability for these plans is recorded in "Other long-term
liabilities" and the related unrealized loss, net of income tax
benefit, is included in accumulated other comprehensive income.
Comprehensive Income
--------------------
FASB Statement 130, "Reporting Comprehensive Income," establishes
standards for reporting and presentation of comprehensive income (loss)
and its components in a full set of financial statements. For fiscal
2004, 2003 and 2002, comprehensive income consists of net income
F-10
Note 1 - Summary of Significant Accounting Policies - (continued)
Comprehensive Income (continued)
--------------------------------
and the additional minimum pension liability adjustment, net of income
tax benefit.
Stock Option Plan
-----------------
The Company has elected to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees," ("APB 25") and
related interpretations in accounting for its employee stock options.
Under this method, compensation cost is measured as the amount by which
the market price of the underlying stock exceeds the exercise price of
the stock option at the date at which both the number of options
granted and the exercise price are known. Deferred compensation expense
recorded at the date of grant is amortized over the vesting period of
the related grant which approximates five years. Compensation expense
related to stock performance units(as described in Note 11 as "Units")
is measured based on the change in market price of the Company's common
stock, the number of Units outstanding and the number of Units vested
from one period to the next.
In accordance with SFAS 148, "Accounting for Stock-Based Compensation -
Transition and Disclosure," the effect on net income and earnings per
share if the Company had applied the fair value recognition provisions
of SFAS 123, "Accounting for Stock-Based Compensation," to stock-based
employee compensation is as follows:
Fiscal Year Ending
------------------
October 30, November 1, November 2,
2004 2003 2002
---- ---- ----
Net income - as reported $ 1,800 $ 2,283 $ 3,240
Add:
Stock-based employee compensation
expense included in reported net
income, net of related tax effects 221 223 223
Deduct:
Adjustment to total stock-based
employee compensation expense
determined under the intrinsic
value method for expense determined
under the fair value based method,
net of related tax effects (305) (303) (302)
------------------------------------
Pro forma net income $ 1,716 $ 2,203 $ 3,161
====================================
Earnings per share:
Basic, as reported $ 1.82 $ 2.31 $ 3.16
====================================
Basic, pro forma $ 1.74 $ 2.23 $ 3.09
====================================
====================================
Diluted, as reported $ 1.75 $ 2.26 $ 3.01
====================================
Diluted, pro forma $ 1.67 $ 2.18 $ 2.94
====================================
F-11
Note 1 - Summary of Significant Accounting Policies - (continued)
Stock Option Plan - (continued)
------------------------------
Pro forma information regarding net income and earnings per share is
required by Statement 123, and has been determined as if the Company
had accounted for its employee stock options under the fair value
method of that Statement. The fair value for these options was
estimated at $22.93 on the date of grant using the Black-Scholes
option-pricing model.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options, which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the
expected stock price volatility. Because the Company's employee stock
options have characteristics significantly different from those of
traded options, and because changes in the subjective input assumptions
can materially affect the fair value estimate, in management's opinion,
the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
The following weighted-average assumptions were used for the year ended
November 3, 2001 based on date of grant:
Risk-free interest rate 5.0%
Expected volatility 40.2%
Dividend yield 0%
Expected life 5 years
Earnings Per Share
------------------
Earnings per common share are based on the weighted average number of
common shares outstanding. Diluted earnings per share amounts are based
on the weighted average number of common shares outstanding, plus the
incremental shares that would have been outstanding upon the assumed
exercise of all diluted stock options, subject to antidilution
limitations.
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
Company's policy is in accordance with EITF 03-10. 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
F-12
Note 1 - Summary of Significant Accounting Policies - (continued)
------------------------------------------
Recent Accounting Pronouncements (continued)
--------------------------------------------
Statement are effective for the Company's fiscal year ending October
30, 2004, and the quarterly disclosure requirements were 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).
In December 2003, FASB issued a revised interpretation of FIN 46 (FIN
46 -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 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
F-13
Note 1 - Summary of Significant Accounting Policies - (continued)
------------------------------------------
Recent Accounting Pronouncements (continued)
--------------------------------------------
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).
In November 2004, the FASB issued SFAS No. 151, "Inventory Costs", an
amendment of ARB No. 43, Chapter 4. SFAS No. 151 amends the guidance in
ARB No. 43, Chapter 4, "Inventory Pricing", to clarify the accounting
for abnormal amounts of idle facility expense, freight, handling costs,
and spoilage. This statement requires that those items be recognized as
current period charges regardless of whether they meet the criterion of
"so abnormal" which was the criterion specified in ARB No. 43. This
pronouncement is effective for the fiscal years beginning after June
15, 2005. The Company has not yet assessed the impact on adopting this
new standard.
In December 2004, the FASB issued SFAS No. 123 (revised 2004),
"Share-Based Payment", which is a revision of SFAS No. 123, "Accounting
for Stock-Based Compensation". SFAS No. 123(R) supersedes APB Opinion
No. 25, "Accounting for Stock Issued to Employees" and amends SFAS No.
95, "Statement of Cash Flows". Generally, the approach in SFAS No.
123(R) is similar to the approach described in SFAS No. 123. However,
SFAS No. 123(R) requires all share-based payments to employees,
including grants of employee stock options, to be recognized in the
income statement based on their fair values. Pro forma disclosure is no
longer an alternative. The new standard will be effective for the
Company in the first interim or annual reporting period beginning after
June 15, 2005, which is the fourth quarter of fiscal 2005. The Company
has not yet assessed the impact on adopting this new standard.
Note 2 - Concentration of Cash Balance
-----------------------------
As of October 30, 2004 and November 1, 2003, cash balances of
approximately $1,103,000 and $2,547,000, respectively, were maintained
in bank accounts insured by the Federal Deposit Insurance Corporation
(FDIC). These balances exceed the insured amount of $100,000.
F-14
Note 3 - Receivables and Other Current Assets
------------------------------------
October 30, November 1,
2004 2003
---- ----
Accounts receivable $ 5,035 $ 4,198
Construction advance due from 797 5,291
Landlords
Prepaids 2,786 2,720
Rents receivable 1,204 817
Less allowance for uncollectible accounts (1,366) (983)
-------------- ----------
accounts
$ 8,456 $ 12,043
============ ==========
Note 4 - Related Party Transactions
Wakefern Food Corporation
-------------------------
As required by Wakefern's By-Laws, all members of the cooperative are
required to make an investment in the common stock of Wakefern for each
supermarket operated ("Store Investment Program"), with the exact
amount per store computed in accordance with a formula based on the
volume of each store's purchases from Wakefern. The maximum required
investment per store was $650,000 at October 30, 2004 and at November
1, 2003 and $550,000 at November 2, 2002. During fiscal 2003, the
required investment in Wakefern increased, resulting in a total
increase in the investment by $2,088,000 and a related increase in the
obligations due Wakefern for the same amount. This increase in the
obligation is non-interest bearing and is payable over three years. The
remaining increase in the investment in fiscal 2003, and obligation due
Wakefern for the same amount was due to the opening of two new stores.
The obligations related to the two new stores are non-interest bearing
and are payable over seven years. The increase in the investment in
fiscal 2004 of $1,351,000, and related obligation due Wakefern for the
same amount, was due to the opening of a new store, the replacement of
an existing store and the acquisition of a store from Wakefern. The
obligations related to the increase in the investment in fiscal 2004
are non-interest bearing and are payable over seven years. The Company
has an investment in Wakefern of $16,444,000 at October 30, 2004 and
$15,093,000 at November 1, 2003, representing a 15.5% and 15.6%
interest in Wakefern, respectively. Wakefern is operated on a
cooperative basis for its members. The shares of stock in Wakefern are
assigned to and held by Wakefern as collateral for any obligations due
Wakefern. In addition, any obligations to Wakefern are personally
guaranteed by certain of the Company's shareholders who also serve as
officers.
The Company also has an investment of approximately 8.5% in
Insure-Rite, Ltd., a company affiliated with Wakefern, which was
$1,211,000 at October 30, 2004 and $1,080,000 at November 1, 2003.
During fiscal 2003, the Company's obligation to invest in Insure-Rite,
Ltd. increased $127,000, as a result of the opening of two new stores.
This obligation is payable over three years and is non-interest
bearing. During
F-15
Note 4 - Related Party Transactions - (continued)
--------------------------
Wakefern Food Corporation - (continued)
---------------------------------------
fiscal 2004, the Company's obligation to invest in Insure-Rite, Ltd.
increased $131,000, as a result of the opening of a new store and the
acquisition of a store. This obligation is payable over three years and
is non-interest bearing. Insure-Rite, Ltd. provides the Company with a
portion of its liability insurance coverage with the balance paid
through Wakefern to private insurers. Insurance premiums paid to
Wakefern, including amounts due to Insure-Rite, Ltd., were $5,014,000,
$4,599,000 and $4,364,000 for fiscal years 2004, 2003 and 2002,
respectively. As of October 30, 2004 and November 1, 2003, the Company
was obligated to Wakefern for $4,457,000 and $3,975,000, respectively,
for increases in its required investments (see Note 8).
As a stockholder member of Wakefern, the Company earns a share of an
annual Wakefern patronage dividend. The dividend is based on the
distribution of operating profits on a pro rata basis in proportion to
the dollar volume of business transacted by each member with Wakefern
during each fiscal year. It is the Company's policy to accrue quarterly
an estimate of the annual patronage dividend. The Company reflects the
patronage dividend as a reduction of the cost of goods sold in the
consolidated statements of operations. In addition, the Company also
receives from Wakefern other product incentives and rebates. For fiscal
2004, 2003 and 2002, total patronage dividends and other product
incentives and rebates were $14,736,000, $12,404,000 and $10,706,000,
respectively.
At October 30, 2004 and November 1, 2003, the Company has current
receivables due from Wakefern of approximately $14,799,000 and
$13,684,000, respectively, representing patronage dividends, vendor
rebates, coupons and other receivables due in the ordinary course of
business and a noncurrent receivable representing a deposit of
approximately $2,039,000 and $1,874,000, respectively.
In September 1987, the Company and all other stockholder members of
Wakefern entered into an agreement with Wakefern, as amended in 1992,
which provides for certain commitments and restrictions on all
stockholder members of Wakefern. The agreement contains an evergreen
provision providing for an indefinite term and is subject to
termination ten years after the approval of 75% of the outstanding
voting stock of Wakefern. Under the agreement, each stockholder,
including the Company, agreed to purchase at least 85% of its
merchandise in certain defined product categories from Wakefern and, if
it fails to meet such requirements, to make payments to Wakefern based
on a formula designed to compensate Wakefern for its lost profit.
Similar payments are due if Wakefern loses volume by reason of the sale
of one or more of a stockholder's stores, merger with another entity or
on the transfer of a controlling interest in the stockholder.
The Company fulfilled its obligation to purchase a minimum of 85% in
certain defined product categories from Wakefern for all periods
presented. The Company's merchandise purchases from Wakefern, including
direct store delivery vendors processed by Wakefern, approximated $837,
$715 and $641 million for the fiscal years 2004, 2003 and 2002,
respectively.
F-16
Note 4 - Related Party Transactions - (continued)
--------------------------
Wakefern Food Corporation - (continued)
---------------------------------------
Wakefern charges the Company for, and provides the Company with support
services in numerous administrative functions. These services include
advertising, supplies, technical support for communications and
in-store computer systems, equipment purchasing, the coordination of
coupon processing and other miscellaneous services.
These charges were $2.3, $2.2 and $2.1 million for fiscal years 2004,
2003 and 2002, respectively.
In addition to its investment in Wakefern, which carries only voting
rights, the Company's President serves as a member of Wakefern's Board
of Directors and its finance committee. Several of the Company's
officers and employees also hold positions on various Wakefern
committees.
Note 5 - Goodwill and Other Intangible Assets
------------------------------------
Goodwill is not amortized but is tested for impairment on an annual
basis and between annual tests in certain circumstances. In accordance
with SFAS 142, which was adopted in fiscal 2003, the Company determined
it has one reporting unit. During fiscal 2004 and fiscal 2003, the
Company completed goodwill annual impairment tests prescribed by SFAS
142 and concluded that no impairment of goodwill existed.
The gross carrying amount and accumulated amortization of the Company's
other intangible assets as of October 30, 2004 and November 1, 2003 are
as follows:
October 30, 2004 November 1, 2003
---------------- ----------------
Gross Gross
Carrying Accumulated Carrying Accumulated
Amount Amortization Amount Amortization
------ ------------ ------ ------------
Amortized Intangible Assets
Bargain Leases $ 4,454 $ 3,181 $ 3,918 $ 3,040
Unamortized Intangible Assets
Liquor Licenses 220 - 220 -
-------------------------------------------
Total $ 4,674 $ 3,181 $ 4,138 $ 3,040
===========================================
Amortization expense recorded on the intangible assets for the years
ended October 30, 2004, November 1, 2003 and November 2, 2002 was
$141,000, $192,000 and $211,000, respectively. As a result of the
adoption of SFAS 142, there were no changes to amortizable lives or
amortization methods. The estimated amortization expense for the
Company's other intangible assets for the five succeeding fiscal years
is as follows:
Fiscal Year (In thousands)
----------- --------------
2005 $189
2006 189
2007 189
2008 189
2009 189
Thereafter 328
F-17
Note 5 - Goodwill and Other Intangible Assets - (continued)
--------------------------------------------------
The following tables illustrate net income available to common
shareholders and earnings per share, exclusive of goodwill amortization
expense in the prior periods:
October 30, November 1, November 2,
2004 2003 2002
---- ---- ----
Reported net income $ 1,800 $ 2,283 $ 3,240
Add: Goodwill amortization - - 211
------------ ----------- ----------
Adjusted net income $ 1,800 $ 2,283 $ 3,451
============= =========== ==========
Basic earnings per share:
Reported net income $ 1.82 $ 2.31 $ 3.16
Add: Goodwill amortization - - .21
------------ ----------- ----------
Adjusted net income $ 1.82 $ 2.31 $ 3.37
============= =========== ==========
Diluted earnings per share:
Reported net income $ 1.75 $ 2.26 $ 3.01
Add: Goodwill amortization - - .20
------------ ----------- ----------
Adjusted net income $ 1.75 $ 2.26 $ 3.21
============= =========== ==========
Note 6 - Accrued Expenses
----------------
October 30, November 1,
2004 2003
---- ----
Payroll and payroll related expenses $ 8,129 $ 7,462
Insurance 611 713
Sales, use and other taxes 1,455 1,371
Interest 253 147
Employee benefits 1,504 1,445
Occupancy cost 672 1,205
Professional fees and shareholder lawsuit
(Note 14) 879 307
Real estate taxes 1,448 618
Other 285 217
---------- ----------
$ 15,236 $ 13,485
========== ==========
F-18
Note 7 - Long-term Debt
--------------
Long-term debt consists of the following:
October 30, November 1,
2004 2003
---- ----
Revolving note $ 30,592 $ 24,592
Term loan 15,000 20,000
Capital expenditure facility 20,000 10,741
Other notes payable 5,874 7,918
------------- ------------
71,466 63,251
Less current portion 8,415 7,916
------------- ------------
$ 63,051 $ 55,335
============= ============
The Company has a revolving credit and term loan agreement, which was
amended and assigned to three financial institutions on January 7,
2000. On September 26, 2002 the Credit Agreement was further amended
and restated (as amended, the "Credit Agreement") and was last amended
October 21, 2004. The Credit Agreement is collateralized by
substantially all of the Company's assets, provides for a total
commitment of $80,000,000 and matures December 31, 2007. The Credit
Agreement provides the Company with the option to convert portions of
the debt to Eurodollar loans, as defined in the Credit Agreement, which
have interest rates indexed to LIBOR. The Credit Agreement consists of
a Revolving Note, a Term Loan and a Capital Expenditure Facility.
The Revolving Note has an overall availability of $35,000,000, not to
exceed 65% of eligible inventory, and provides for availability of up
to $4,500,000 for letters of credit. During fiscal 2004 and 2003, this
provision of the Credit Agreement was amended several times to allow
the Company the ability to borrow from $3,000,000 to $6,000,000 in
excess of the borrowing base limitation, subject to available in
transit cash, as defined. As of October 30, 2004, the Credit Agreement,
as last amended on October 21, 2004, provided the Company the ability
to borrow up to a maximum of $41,000,000 under the Revolving Note
subject to eligible inventory and in transit cash of up to $6,000,000.
This provision expired January 15, 2005 at which time overall
availability returned to $35,000,000. The Revolving Note bears interest
at prime plus 1.50% or LIBOR plus 3.25%. At October 30, 2004,
$22,000,000 of the Revolving Note was under a one-month Eurodollar rate
of 5.09% maturing November 2004, which was renewed through January 2005
at 5.60%. At November 1, 2003, $14,000,000 of the Revolving Note was
under a one-month Eurodollar rate of 4.37%.
The Company had letters of credit outstanding of $1,176,064 and
$726,004 at October 30, 2004 and November 1, 2003, respectively. A
commitment fee of .5% is charged on the unused portion of the Revolving
Note. Available credit under the Revolving Note was $1,971,000 and
$3,382,000 at October 30, 2004 and November 1, 2003.
F-19
Note 7 - Long-term Debt - (continued)
----------------------------
Subsequent to October 30, 2004 the, letters of credit outstanding were
reduced to $740,000.
The Term Loan, originally $25,000,000, is payable in quarterly
principal installments of $1,250,000 commencing January 1, 2003 through
October 1, 2007. Interest is payable monthly at prime plus 2.00% or
LIBOR plus 3.75%. At October 30, 2004 and November 1, 2003 the Company
had $15,000,000 and $20,000,000 outstanding, respectively, on the Term
Loan. At October 30, 2004, $13,750,000 was under a six month Eurodollar
rate of 5.79% maturing January 2005 and $1,250,000 was under a one
month Eurodollar rate of 5.59% maturing November 2004, which was
renewed through December 2004 at 5.81%. At November 1, 2003,
$17,500,000 of the Term Loan balance was under a six month Eurodollar
rate of 4.91% and $2,500,000 was under a one month Eurodollar rate of
4.87%.
The $20,000,000 Capital Expenditure Facility provides for a
non-restoring commitment to fund equipment purchases for five new
stores through December 31, 2004, with a maximum of $4,000,000 per
store. Interest only is due monthly at prime plus 2.00% or LIBOR plus
3.75% for any amount utilized through December 31, 2004. Amounts
borrowed through December 31, 2004 will be converted to a term loan
with interest payable monthly at rates described above and fixed
quarterly principal payments, commencing April 1, 2005, calculated on a
seven-year amortization schedule. A balloon payment is due at December
31, 2007 for amounts outstanding on the term loans. A commitment fee of
.75% is charged on the unused portion of the Capital Expenditure
Facility. At October 30, 2004 and November 1, 2003 the Company had
$20,000,000 and $10,741,000 outstanding, respectively, on the Capital
Expenditure Facility. At October 30, 2004, $20,000,000 was under a
three month Eurodollar rate of 5.79% maturing January 2005. At November
1, 2003, $9,000,000 was under a three month Eurodollar rate of 4.90%
and $1,741,000 was at prime plus 2%. At October 30, 2004 there were no
amounts available under this facility.
The Agreement places restrictions on dividend payments and requires the
maintenance of debt service coverage and leverage ratios, as well as
limitations on capital expenditures and new debt. For the years ended
October 30, 2004 and November 1, 2003 the Company exceeded the limit by
which pension plan liabilities may exceed plan assets of its defined
benefit plans (see Note 15), which was waived by the financial
institutions.
The prime rate at October 30, 2004 and November 1, 2003 was 4.75% and
4.00%, respectively.
F-20
Note 7 - Long-term Debt - (continued)
--------------
Other Notes Payable
-------------------
Included in other notes payable are the following:
October 30, November 1,
2004 2003
---- ----
Note payable to a financing institution,
matured October 2004, payable at $56,000
per month plus interest at 7.26%,
collateralized by related equipment. $ - $ 663
Note payable to a financing institution,
maturing February 2005, payable at $46,000
per month including interest at 7.44%,
collateralized by related equipment. 170 742 04
Note payable to a financing institution,
maturing January 2010, payable at $59,000
per month including interest at 6.45%,
collateralized by related equipment. 3,162 3,652
Note payable to a financing institution,
maturing October 2008, payable at $37,000
per month including interest at 6.20%,
collateralized by related equipment. 1,566 1,900
Note payable to a financing institution,
maturing January 2009, payable at $21,000
per month including interest at 6.20%,
collateralized by related equipment. 956 -
Various equipment loans maturing through
November 2004, payable at an aggregate
monthly payment of $152,000 including
interest at rates ranging from 5.79% to 9.02%,
collateralized by various equipment. 20 961
------------- -----------
Total other notes payable $ 5,874 $ 7,918
============== ===========
F-21
Note 7 - Long-term Debt - (continued)
---------------
Aggregate maturities of long-term debt are as follows:
Fiscal Year
-----------
2005 $ 8,415
2006 9,009
2007 9,084
2008 44,042
2009 740
Thereafter 176
Note 8 - Long-term Debt, Related Party
-----------------------------
As of October 30, 2004 and November 1, 2003, the Company was indebted
for investments in Wakefern in the amount of $4,457,000 and $3,975,000,
respectively. The debt is non-interest bearing and payable in scheduled
installments as follows:
Fiscal Year
2005 $ 867
2006 981
2007 969
2008 505
2009 447
Thereafter 688
Note 9 - Other Long-term Liabilities
---------------------------
October 30, November 1,
2004 2003
---- ----
Deferred escalation rent $ 3,840 $ 4,128
Minimum pension liability (Note 15) 5,442 5,516
Postretirement benefit cost (Note 16) 3,692 2,929
Other 737 705
------------ -----------
$ 13,711 $ 13,278
============ ===========
Note 10 -Long-term Leases
Capital Leases
--------------
October 30, November 1,
2004 2003
---- ----
Real estate $ 152,354 $ 130,420
Less accumulated amortization 26,655 20,594
------------ -----------
$ 125,699 $ 109,826
============ ===========
F-22
Note 10 -Long-term Leases
Capital Leases (continued)
--------------------------
The following is a schedule by year of future minimum lease payments
under capital leases, together with the present value of the net
minimum lease payments, as of October 30, 2004:
Fiscal Year
2005 $ 15,943
2006 15,998
2007 15,568
2008 15,611
2009 15,998
Thereafter 275,163
----------
Total minimum lease payments 354,281
Less amount representing interest 210,050
----------
Present value of net minimum lease payments 144,231
Less current maturities 1,727
----------
Long-term maturities $ 142,504
==========
Operating Leases
----------------
The Company is obligated under operating leases for rent payments
expiring at various dates through 2028. Certain leases provide for the
payment of additional rentals based on certain escalation clauses and
eight leases require a further rental payment based on a percentage of
the stores' annual sales in excess of a stipulated minimum. Percentage
rent expense was $26,000, $95,000 and $156,000 for the fiscal years
2004, 2003 and 2002, respectively. Under the majority of the leases,
the Company has the option to renew for additional terms at specified
rentals.
Total rental expense for all operating leases consists of:
Fiscal 2004 Fiscal 2003 Fiscal 2002
----------- ----------- -----------
Land and buildings $ 9,942 $ 10,183 $ 10,690
Less subleases (4,602) (3,586) (3,147)
------------ ----------- -----------
$ 5,340 $ 6,597 $ 7,543
=========== =========== ==========
The minimum rental commitments under all noncancellable operating
leases reduced by income from noncancellable subleases at October 30,
2004, are as follows:
Income from
Land and Noncancellable Net Rental
Fiscal Year Buildings Subleases Commitment
----------- --------- --------- ----------
2005 $ 10,160 $ 2,695 $ 7,465
2006 8,413 2,472 5,941
2007 7,497 2,072 5,425
2008 6,740 1,522 5,218
2009 5,641 885 4,756
Thereafter 25,856 697 25,159
------------ ----------- --------
$ 64,307 $ 10,343 $ 53,964
============ =========== ========
F-23
Note 10 -Long-term Leases (continued)
----------------------------
Operating Leases (continued)
----------------------------
The Company is presently leasing one of its supermarkets, a garden
center, which lease was terminated during fiscal 2004, and a liquor
store from a partnership in which the Chairman of the Board has a
controlling interest, at an annual aggregate rental of $752,000,
$753,000 and $744,000 for the fiscal years 2004, 2003 and 2002,
respectively.
Note 11 -Stock Option Plan
-----------------
On April 4, 2001, the Company's shareholders approved the Foodarama
Supermarkets, Inc. 2001 Stock Incentive Plan (the "2001 Plan"). The
2001 Plan replaces the Foodarama Supermarkets, Inc. 1995 Stock Option
Plan under which no options were granted.
The 2001 Plan originally provided for the issuance of up to 150,000
shares of Foodarama Supermarkets, Inc. Common Stock (subject to
anti-dilution adjustment). On May 8, 2002 the Company's shareholders
approved an amendment increasing the number of shares reserved for
issuance under the 2001 Plan to 215,000 shares. No more than 50,000
shares of stock may be awarded to any one participant under the 2001
plan (see Note 14).
The types of awards that the Administrator may grant under the 2001
Plan are stock options, stock appreciation rights, restricted and
non-restricted stock awards, phantom stock, performance awards, other
stock grants or any combination of these awards.
On August 8, 2001 (the "2001 Grant Date"), the Company granted 107,500
shares as stock options and 11,000 shares in the form of Stock
Performance Units (the "Units"). On September 12, 2002 (the "2002 Grant
Date"), the Company granted an additional 3,800 shares in the form of
Stock Performance Units. The Units represent deferred compensation
based upon the increase or decrease in the market value of the
Company's common stock during the grantee's employment.
The stock options consist of 50,000 shares granted to each of the
Chairman of the Board and the President of the Company and vest
quarterly from the grant date over a five-year period. The remaining
7,500 shares were granted to certain officers and elected board members
of the Company and vest, per individual, 250 shares at the Grant Date
and 250 shares each year thereafter for the next two to three years.
During fiscal 2003, the Company's Chairman of the Board returned 10,000
stock options to the Company as part of a settlement of a derivative
shareholder lawsuit (see Note 14).
The Units are payable in cash only. The Units granted on the 2001 Grant
Date were granted to certain officers and senior management of the
Company and vest, per individual, 250 units at the Grant Date and 250
units thereafter, for the next one to three years. Units granted at the
2002 Grant Date were granted to certain management personnel and vest,
per individual, between 200 and 250 units at the 2002 Grant Date with
the remaining units vesting in the next year.
The term of the stock options and Units granted expire ten years after
the grant date. The exercise price of the options and the market price
of the Company's Common Stock at the date of grant were $19.60 and
$36.50, respectively, for the options and Units granted on August 8,
2001. The exercise price and market price for the Units granted
September 12, 2002 was $25.00. At the 2001
F-24
Note 11 -Stock Option Plan - (continued)
-----------------
Grant Date, the Company recorded deferred compensation expense and a
related adjustment to capital in excess of par of $1,817,000 relating
to the stock options granted. For each of the years ended October 30,
2004, November 1, 2003 and November 2, 2002, the Company realized
compensation expense relating to the stock option plan of $372,000. For
the years ended October 30, 2004, November 1, 2003 and November 2,
2002, the Company realized compensation expense of $84,000,
compensation income of $15,000 and compensation expense of $72,000,
respectively, related to the Units granted, based on the market price
of the Company's common stock of $37.50 at October 30, 2004, $25.25 at
November 1, 2003 and $27.00 at November 2, 2002.
The following table summarizes Stock Option and Units activity:
Options Outstanding
---------------------------------------------------
Stock Options Stock Performance Units
------------- -----------------------
Stock
Options
and
Exercise Weighted Weighted Units
Price Average Exercise Average Available
Per Exercise Price Exercise for
Shares Share Price Units Per Share Price Grant
------ ----- ----- ----- --------- ----- -----
Outstanding
November 3, 2001 107,500 $19.60 $19.60 11,000 $19.60 $19.60 31,500
Additional shares
reserved 65,000
Granted - - - 3,800 25.00 25.00 (3,800)
Exercised (1,000) 19.60 19.60 (8,000) 19.60 19.60
---------------------- ---------------------------------
$19.60
Outstanding to
November 2, 2002 106,500 $19.60 19.60 6,800 $25.00 $22.62 92,700
---------------------- -- ------------------------------
Granted - - - - - - -
Returned (10,000) - - - - - 10,000
Exercised (500) 19.60 19.60 - - - -
---------------------- ---------------------------------
$19.60
Outstanding to
November 1, 2003 96,000 $19.60 19.60 6,800 $25.00 $22.62 102,700
-------------------- ---------------------------------
Granted - - - - - - -
Forfeited - - - (250) 19.60 - 250
Exercised (750) 19.60 19.60 (6,300) 19.60 22.86 -
to
25.00
---------------------- ---------------------------------
Outstanding
October 30, 2004 95,250 $19.60 19.60 250 $19.60 $19.60 102,950
====================== =================================
Options exercisable at:
November 2, 2002 23,000 19.60 $19.60 2,900 $19.60 to $25.00 $22.62
November 1, 2003 44,500 19.60 $19.60 6,550 $19.60 to $25.00 $22.62
October 30, 2004 65,250 19.60 $19.60 250 $19.60 $19.60
Following is a summary of the status of stock options outstanding at
October 30, 2004:
Outstanding Options Exercisable Options
------------------- -------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Exercise Contractual Exercise Exercise
Price Number Life Price Number Price
----- ------ ---- ----- ------ -----
$ 19.60 95,250 6.75 years $19.60 65,250 $ 19.60
F-25
Note 12 -Shareholders' Equity
--------------------
On May 11, 2001, the Board of Directors authorized the Company to
repurchase, in either open market or private transactions, up to
$3,000,000 of its common stock. During the fiscal year ended November
2, 2002 the Board of Directors increased the authorized amount of
common stock the Company could repurchase to $5,600,000. There were no
shares repurchased during the fiscal years ended October 30, 2004 and
November 1, 2003. During the fiscal year ended November 2, 2002 the
Company repurchased 102,853 shares of its common stock at an aggregate
cost of $4,523,670. During the fiscal years ended October 30, 2004,
November 1, 2003 and November 2, 2002 the Company issued 750, 500, and
1,000 shares, respectively, of common stock due to the exercise of
stock options, in accordance with the provisions of its 2001 Stock
Incentive Plan (see Note 11).
Note 13 -Income Taxes
------------
The income tax provision consist of the following:
Fiscal 2004 Fiscal 2003 Fiscal 2002
----------- ----------- -----------
Federal
Current $ (172) $ (3,000) $ 1,035
Deferred 378 3,562 688
State and local
Current 2,332 2,007 181
Deferred (1,435) (1,047) 258
------------ ------------ -----------
$ 1,103 $ 1,522 $ 2,162
============ ============ ===========
The following tabulations reconcile the federal statutory tax rate to
the effective rate:
Fiscal 2004 Fiscal 2003 Fiscal 2002
----------- ----------- -----------
Tax provision at the 34.0 % 34.0% 34.0%
statutory rate
State and local income tax
provision net of federal
income tax 5.9 % 5.9% 5.9%
Goodwill amortization not
deductible for tax purposes - - .9%
Tax credits (2.1) % (1.7)% (.3)%
Other .2 % 1.8% (.5)%
------------ ------------ ------------
Actual tax provision 38.0 % 40.0% 40.0%
============ ============ ============
F-26
Note 13 -Income Taxes - (continued)
------------
Net deferred tax assets and liabilities consist of the following:
October 30, November 1,
2004 2003
---- ----
Current deferred tax assets
Deferred revenue and gains on sale/
leaseback $ 79 $ 94
Allowances for uncollectible receivables 564 409
Unearned promotional allowance 304 -
Inventory capitalization 315 134
Closed store reserves 79 255
Vacation accrual 603 606
Federal tax credits 369 -
Accrued post-employment 217 184
Accrued post-retirement 1,495 1,186
Other 37 37
------------- ------------
4,062 2,905
------------- ------------
Current deferred tax liabilities
Prepaids (508) (417)
Patronage dividend receivable (3,977) (3,476)
Accelerated real estate taxes (214) (206)
Prepaid pension (942) (968)
------------- -------------
(5,641) (5,067)
------------- -------------
Current deferred tax liability, net $ (1,579) $ (2,162)
============= =============
Noncurrent deferred tax assets
Lease obligations $ 7,435 $ 5,581
State tax credits 2,969 1,368
Minimum pension liability 2,093 2,110
Stock options and deferred compensation 490 350
Federal and State loss carryforwards 1,177 115
------------- ------------
14,164 9,524
Valuation allowance (85) (85)
------------- ------------
14,079 9,439
------------- ------------
Noncurrent deferred tax liabilities
Depreciation (14,846) (10,845)
Pension obligations (1,176) (994)
Other (349) (349)
------------- -------------
(16,371) (12,188)
------------- -------------
Noncurrent deferred tax liability, net $ (2,292) $ (2,749)
============= =============
At October 30, 2004 and November 1, 2003, minimum pension liability of
$2,093,000 and $2,110,000, respectively, was charged against
accumulated other comprehensive income (see Note 15).
F-27
Note 13 -Income Taxes - (continued)
------------
At October 30, 2004, the Company has Federal net operating loss
carryforwards of approximately $3,135,000 expiring through October
2024. In addition, the Company has Federal tax credit carryforwards of
$369,000.
At October 30, 2004, the Company has State net operating loss
carryforwards of approximately $1,180,000 expiring through October
2012. The utilization of certain State net operating losses may be
limited in any given year. A valuation allowance has been provided for
net operating losses that are not expected to be utilized. The Company
believes the results of historical taxable income and the results of
future operations will generate sufficient taxable income to realize
the deferred tax assets.
Effective in fiscal year 2003, the Company is subject to the New Jersey
Alternative Minimum Assessment ("AMA") that was part of the Business
Tax Reform Act passed in the State of New Jersey. Taxpayers are
required to pay the AMA, which is based upon either New Jersey Gross
Receipts or New Jersey Gross Profits, if the AMA exceeds the tax based
on taxable net income. An election must be made in the first year to
use either the Gross Profits or Gross Receipts method and must be kept
in place for five years, at which time the election may be changed.
At October 30, 2004, the Company has New Jersey AMA tax credit
carryforwards of $4,386,000. The utilization of this credit may
commence in fiscal 2007 and at that time the amount of credit may be
limited based on taxable net income. In addition, the Company has other
state tax credit carryforwards of $115,000.
Note 14 -Commitments and Contingencies
-----------------------------
Legal Proceedings
-----------------
The Company is involved in various legal actions and claims arising in
the ordinary course of business. Management believes that the outcome
of any such litigation and claims will not have a material effect on
the Company's financial position or results of operations.
Shareholder Lawsuit
-------------------
On March 27, 2002, certain shareholders (the "Plaintiffs") filed a
derivative action against the Company, as nominal defendant, and
against all five members of the Board of Directors (together, the
"Defendants"), in their capacities as directors and/or officers of the
Company. The lawsuit alleged that the Defendants breached their
fiduciary duties to the Company and its shareholders and sought to
"enrich and entrench themselves at the shareholders' expense" through
their previous recommendation, implementation and administration of the
2001 Stock Incentive Plan (the "2001 Plan"), which was approved by the
Company's shareholders on April 4, 2001, and by proposing an amendment
to the 2001 Plan to increase the number of shares of Common Stock
available for issuance by 65,000 shares and an amendment to the
Company's amended and restated certificate of incorporation (the
"Certificate of Incorporation") to create a classified Board of
Directors consisting of five classes of directors, with only one class
standing for election in any
F-28
Note 14 -Commitments and Contingencies
-----------------------------
Shareholder Lawsuit - (continued)
-------------------
year for a five-year term. The shareholders of the Company approved the
amendments to the 2001 Plan and the Certificate of Incorporation on May
8, 2002 (see Note 11).
On July 23, 2003, the Superior Court of New Jersey, Middlesex County
(the "Court"), approved the settlement of the shareholder derivative
action filed by the Plaintiffs. Pursuant to the terms of the
settlement, 1) the Company's five-year classified board has been
eliminated and the Defendants have agreed not to submit any proposal to
the shareholders of the Company in connection with the implementation
of a classified board for a five year period ending on July 22, 2008;
2) the 2001 Plan was amended so that the maximum number of shares of
the Company's common stock that can be awarded to any individual
thereunder shall be 50,000; and 3) the 2001 Plan was amended to require
that the exercise price of any options or other stock based
compensation granted thereunder shall be equal to the closing market
price of the Company's common stock on the date of grant. In addition,
the company's Chairman of the Board returned to the Company 10,000
stock options previously awarded to him under the 2001 Plan.
The Plaintiffs had applied to the Court for an award of attorneys' fees
in the amount of $975,000. The Company's directors and officers
liability insurance carrier reserved its rights under the Company's
directors and officers liability insurance policy with respect to the
claims made in the derivative action, including claims for the
Plaintiffs' attorneys' fees and costs of defense, and had preliminarily
advised the Company that certain of the claims made in the derivative
action and related legal expenses were not, in the insurance carrier's
view, covered by the policy. During fiscal 2004, the Company reached a
court approved settlement with the Plaintiffs as well as a settlement
with its director and officers insurance carrier. As a result of the
settlement, the effect to the Company was a decrease in net income,
after tax effect, of $214,000.
Commitments
-----------
Employment Agreement
--------------------
On November 2, 2003 the Company entered into a two-year employment
agreement (the "Agreement") with its Chairman of the Board. The
Agreement provides for an annual salary of $325,000 in fiscal 2004 and
$275,000 in fiscal 2005. The Agreement also provides for participation
in the Company's incentive compensation plan and 401(k) plan through
the term of the Agreement. In addition, health and life insurance and
postretirement benefits will be provided during the lifetime of both
the Chairman of the Board or his spouse.
Guarantees
----------
The Company remains contingently liable under leases assumed by third
parties. As of October 30, 2004, the minimum annual rental under these
leases amounted to approximately $1,720,000 expiring at various dates
through 2011. The Company has not experienced and does not anticipate
any material nonperformance by such third parties.
F-29
Note 15 -Retirement and Benefit Plans
Defined Benefit Plans
---------------------
The Company sponsors two defined benefit pension plans covering
administrative personnel and members of a union. Employees covered
under the administrative pension plan earned benefits based upon a
percentage of annual compensation and could make voluntary
contributions to the plan. Employees covered under the union pension
benefit plan earn benefits based on a fixed amount for each year of
service. The Company's funding policy is to pay at least the minimum
contribution required by the Employee Retirement Income Security Act of
1974. The plans' assets consist primarily of publicly traded stocks and
fixed income securities.
A summary of the plans' funded status and the amounts recognized in the
consolidated balance sheets as of October 30, 2004 and November 1, 2003
follows:
October 30, November 1,
2004 2003
---- ----
Change in benefit obligation
Benefit obligation - beginning of year $ (8,886) $ (7,807)
Service cost (247) (117)
Interest cost (534) (529)
Actuarial loss (525) (1,070)
Plan amendments (16) -
Benefits paid 682 637
------------- ---------
Benefit obligation - end of year (9,526) (8,886)
------------- ---------
Change in plan assets
Fair value of plan assets -
beginning of year 5,761 4,788
Actual return on plan assets 430 303
Employer contributions 900 1,307
Benefits paid (682) (637)
Administrative expense - -
------------- ---------
Fair value of plan assets - end of year 6,409 5,761
------------- ---------
Funded status (3,117) (3,125)
Unrecognized prior service cost 209 242
Unrecognized net loss from past
experience different from that assumed 5,233 5,274
Unrecognized transition asset - -
------------- -----------
Net amount recognized-end of year $ 2,325 $ 2,391
============= ===========
Projected benefit obligation- end of year $ (9,526) $ (8,886)
============= ===========
Accumulated benefit obligation- end of year $ (9,526) $ (8,886)
============= ===========
Fair value of plan assets - end of year $ 6,409 $ 5,761
============ ===========
F-30
Note 15 -Retirement and Benefit Plans - (continued)
----------------------------
Defined Benefit Plans - (continued)
---------------------
Amounts recognized in the consolidated balance sheets consist of:
October 30, November 1,
2004 2003
---- ----
Prepaid benefit cost $ - $ -
Accrued benefit liability (3,117) (3,125)
Intangible asset 209 242
Accumulated other comprehensive income 5,233 5,274
------------- ------------
Net amount recognized-end of year $ 2,325 $ 2,391
============= =============
Components of Net Periodic Benefit Cost:
Fiscal 2004 Fiscal 2003 Fiscal 2002
----------- ----------- -----------
Service cost - benefits earned
during the period $ 247 $ 117 $ 94
Interest expense on benefit
obligation 534 529 511
Expected return on plan assets (472) (388) (475)
Settlement (gain) loss recognized 244 318 350
Amortization of prior
service costs 49 49 37
Amortization of unrecognized
net loss (gain) 364 391 197
Amortization of unrecognized
transition obligation (asset) - - (5)
------------ ------------ -----------
Net periodic benefit cost $ 966 $ 1,016 $ 709
============ ============ ===========
Additional information:
Increase (decrease) in
minimum pension liability
included in other
comprehensive income $ ( 41) $ 447 $ 1,626
============ ============ ===========
F-31
Note 15 -Retirement and Benefit Plans - (continued)
----------------------------
Defined Benefit Plans - (continued)
---------------------
Assumptions
-----------
The weighted-average economic assumptions used to determine benefit
obligations at fiscal year-end are as follows:
October 30, 2004 November 1, 2003 November 2, 2002
---------------- -------- -- ---- -------- -- ----
Discount rate
(pension) 5.75% 6.25% 7.00%
Discount rate
(post-retirement) 5.00% 5.00% 5.75%
Rate of compensation
increase N/A N/A N/A
Measurement date October 30, 2004 November 1, 2003 November 2, 2002
The weighted-average economic assumptions used to determine benefit
cost for the fiscal years ended on the dates indicated are as follows:
October 30, 2004 November 1, 2003 November 2, 2002
---------------- -------- -- ---- -------- -- ----
Discount rate
(pension) 6.25% 7.00% 7.25%
Discount rate
(post-retirement) 5.00% 5.75% 6.25%
Expected return on
plan assets 8.00% 8.00% 8.00%
Rate of
compensation
increase N/A N/A N/A
Plan Assets and Expected Returns.
---------------------------------
The investments of the defined benefit plans are managed with the
following objectives:
o To ensure that the principal of the Plan is preserved and enhanced
over the long-term, both in real and nominal terms
o To manage (control) risk exposure
o To exceed the funding requirement over a market cycle (3-5 years)
Risk is managed by investing in a broad range of asset classes, and
within those asset classes, a broad range of individual securities.
With the exception of Foodarama common stock already held by the plans,
no more than two percent (2%) of plan assets may be invested in any one
security.
The defined benefit plans' asset allocation as of October 30, 2004 and
November 1, 2003 and the target allocation of the administrative
pension plan (which accounts for approximately 70% of total pension
assets) for fiscal 2005 are as follows:
F-32
Note 15 - Retirement and Benefit Plans - (continued)
----------------------------
Defined Benefit Plans - (continued)
---------------------
Target Allocation October 30, November 1,
Asset Class Range 2004 2003
----------- ----- ---- ----
Equity securities 33% - 70% 83.3% 77.5%
Debt securities 14% - 23% 9.1% 9.1%
Real estate 0% 0.0% 0.0%
Other 7% - 13% 7.6% 13.4%
--------- ----------
Total 100.0% 100.0%
========= ==========
As of October 30, 2004 and November 1, 2003, equity securities included
37,200 shares of common stock of the Company with a fair value of
$1,395,000 and $939,000, respectively.
The Trustees of the plans monitor the plan's performance on a quarterly
basis and review the target allocation at least annually. The Trustees
will also report at least annually to the Board of Directors and the
Pension Committee on the status of the plans' assets, the performance
of the investment managers, and the absolute, relative and comparative
performance of the plans' investments.
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 and fiscal 2002. The
assumptions were net of expected plan expenses payable from the plans'
assets.
The Company estimates that a 0.50% decrease in the expected return on
pension plan assets would have increased pension expense by
approximately $29,000 during fiscal 2004.
Estimated Future Benefit Payments
---------------------------------
The following benefit payments, which reflect expected future service,
as appropriate, are expected to be paid as follows:
Defined
Benefit
Plans
-----
Fiscal Year
2005 $ 716
2006 662
2007 933
2008 574
2009 508
2010 to 2014 3,550
-----
Total $ 6,943
=====
F-33
Note 15 -Retirement and Benefit Plans - (continued)
----------------------------
Defined Benefit Plans - (continued)
-----------------------------------
Company Contributions Based on the Company's actuarial
assumptions the Company believes it will be required to make
contributions to its defined benefit pension plans of $1,253,000 in
fiscal 2005.
Additional information
----------------------
On September 30, 1997, the Company adopted an amendment to freeze all
future benefit accruals relating to the plan covering administrative
personnel. A curtailment gain of $55,000 was recorded related to this
amendment.
At October 30, 2004 and November 1, 2003, the accumulated benefit
obligation exceeded the fair value of the plans' assets in both defined
benefit plans. The provisions of Statement of Financial Accounting
Standards No. 87 ("SFAS 87"), "Employers' Accounting for Pensions,"
require recognition in the balance sheet of an additional minimum
liability and related intangible asset for pension plans with
accumulated benefits in excess of plan assets; any portion of such
additional liability which is in excess of the plan's prior service
cost is reflected as a direct charge to equity, net of related tax
benefit. Accordingly, at October 30, 2004 and November 1, 2003, a
liability of $5,442,000 and $5,516,000, respectively, was included in
other long-term liabilities, an intangible asset equal to the prior
service cost of $209,000 and $242,000, respectively, is included in
other assets, and a charge of $5,233,000 and $5,274,000, before a
deferred tax benefit of $2,093,000 and $2,110,000, respectively, is
reflected as a minimum pension liability in shareholders' equity in the
consolidated balance sheet.
Multi-Employer Plans
--------------------
Health, welfare, and retirement expense was approximately $18,159,000
in fiscal 2004, $17,230,000 in fiscal 2003 and $13,240,000 in fiscal
2002, under plans covering union employees. Such plans are administered
through the unions involved. Under federal legislation regarding such
pension plans, a company is required to continue funding its
proportionate share of a plan's unfunded vested benefits in the event
of withdrawal (as defined by the legislation) from a plan or plan
termination. The Company participates in a number of these pension
plans and may have a potential obligation as a participant. The
information required to determine the total amount of this contingent
obligation, as well as the total amount of accumulated benefits and net
assets of such plans, is not readily available. However, the Company
has no present intention of withdrawing from any of these plans, nor
has the Company been informed that there is any intention to terminate
such plans.
401(k)/Profit Sharing Plan
--------------------------
The Company maintains an employee 401(k) Savings Plan (the "Plan") for
all qualified non-union employees. Employees are eligible to
participate in the Plan after completing one year of service (1,000
hours) and attaining age 21. Employee contributions are discretionary
to a maximum of 30% of eligible compensation, to a maximum of $14,000.
The Company matches 25% of the employees' contributions up to 6% of
employee compensation. The Company has the right to make additional
discretionary contributions, which are allocated to each eligible
employee in proportion to their eligible compensation, which was 2.00%
for fiscal years 2004, 2003 and 2002. 401(k) expense for the fiscal
years 2004, 2003 and 2002 was approximately $761,000, $715,000 and
$630,000, respectively.
F-34
Note 16 -Other Postretirement and Postemployment Benefits
------------------------------------------------
Postretirement Benefits
-----------------------
The Company will provide certain current officers and provided former
officers with supplemental income payments and limited medical benefits
during retirement. The Company recorded an estimate of deferred
compensation payments to be made to the officers based on their
anticipated period of active employment and the relevant actuarial
assumptions at October 30, 2004 and November 1, 2003, respectively.
A summary of the plan's funded status and the amounts recognized in the
consolidated balance sheets as of October 30, 2004 and November 1,
2003, follows:
October 30, November 1,
2004 2003
---- ----
Change in benefit obligation
Benefit obligation - beginning of year $ (5,019) $ (4,656)
Service cost (168) (125)
Interest cost (313) (271)
Actuarial gain (loss) (230) 122
Plan amendments ( 75) (109)
Benefits paid - 20
------------- ------------
Benefit obligation - end of year (5,805) (5,019)
------------- -------------
Change in plan assets
Fair value of plan assets - - -
beginning of year
Actual return on plan assets - -
Employer contributions - 20
Benefits paid - (20)
------------- -------------
Fair value of plan assets - end of year - -
------------- ------------
Funded status (5,805) (5,019)
Unrecognized prior service cost 197 200
Unrecognized net loss from past
experience different from that assumed 1,916 1,890
------------- ------------
Accrued postretirement benefit cost $ (3,692) $ (2,929)
============= =============
Projected benefit obligation - end of year (5,805) (5,019)
============= ==============
Accumulated benefit obligation end of year (5,805) (5,019)
============= ==============
Fair value of plan assets $ - $ -
============= ==============
F-35
Note 16 -Other Postretirement and Postemployment Benefits (continued)
------------------------------------------------
Postretirement Benefits (continued)
-----------------------
Net postretirement benefit expense consists of the following:
Fiscal 2004 Fiscal 2003 Fiscal 2002
----------- ----------- -----------
Service cost - benefits earned
during the period $ 168 $ 125 $ 106
Interest expense on benefit
obligation 313 271 238
Expected return on plan assets - - -
Amortization of prior service costs 78 23 23
Amortization of unrecognized
net loss (gain) 204 137 108
Amortization of unrecognized
transition obligation (asset) - - -
------------ ------------ ------------
(asset)
Postretirement benefit expense$ 763 $ 556 $ 475
============ ============ ===========
Assumptions
-----------
The weighted-average economic assumptions used to determine benefit
obligations at fiscal year-end are as follows:
October 30, November 1, November
2004 2003 2, 2002
---- ---- ----
Discount rate 5.75% 6.25% 7.00%
Rate of compensation increase 4.00% 4.00% 4.00%
Measurement date October 30, November 1, November
2004 2003 2, 2002
The weighted-average economic assumptions used to determine benefit cost
for the fiscal years ended on the dates indicated are as follows:
October 30, November 1, November
2004 2003 2, 2002
---- ---- ----
Discount rate 6.25% 7.00% 7.25%
Expected long-term rate of
return on plan assets during
fiscal year N/A N/A N/A
Rate of compensation increase 4.00% 4.00% 5.50%
F-36
Note 16 -Other Postretirement and Postemployment Benefits (continued)
Postretirement Benefits (continued)
-----------------------
The assumed health care cost trend rates to determine benefit
obligations at fiscal year-end are as follows:
October 30, November 1, November 2,
2004 2003 2002
---- ---- ----
Health care cost trend rate
assumed for subsequent year 11.00% 12.00% 12.00%
Ultimate health care cost
trend rate 5.50% 5.50% 5.50%
Fiscal year that the ultimate
rate is reached 2010 2010 2010
Assumed health care cost trend rates have a significant effect on the
amounts reported for the postretirement plan. A 1% change in assumed
health care cost trend rates would have the following effects as of
October 30, 2004:
1% Increase 1% Decrease
----------- -----------
Total of service and interest cost
components $6 $(5)
Postretirement benefit obligation $81 $(68)
Plan Assets and Expected Returns
--------------------------------
The Postretirement Plan is unfunded and the Company plans to fund
benefits as they are due and payable. Therefore no asset allocation or
target allocation is presented.
Estimated future Benefit Payments
---------------------------------
The following benefit payments, which reflect expected future service,
as appropriate, are expected to be paid as follows:
Other Post
Retirement
Fiscal Year Plan
----------- ---------
2005 $ 36
2006 260
2007 402
2008 404
2009 405
2010 to 2014 2,165
-----
Total $3,672
======
F-37
Note 16 -Other Postretirement and Postemployment Benefits (continued)
------------------------------------------------
Postretirement Benefits (continued)
-----------------------
Company Contributions Based on the Company's actuarial assumptions, the
Company believes it will be required to make future contributions to
its postretirement benefit plan equal to the estimated future benefit
payments summarized above.
Estimated Postretirement costs for Future Years
-----------------------------------------------
Actual postretirement costs in the future will depend on changes in
discount rates, the rate of increase in compensation, health care cost
trends and various other factors related to the employees eligible in
the Company's postretirement plan.
Medicare Changes
----------------
The financial information included herein does not reflect the
anticipated financial effect of the new Medicare Prescription Drug
Improvement and Modernization Act of 2003 as the legislation is not
expected to have a significant impact on the Company's financial
statements. Changes in the postretirement benefits related to Medicare
changes will be reflected as actuarial (gains)/losses as they occur.
Postemployment Benefits
-----------------------
Under SFAS No. 112, the Company is required to accrue the expected
cost of providing postemployment benefits, primarily short-term
disability payments, over the working careers of its employees.
The accrued liability under SFAS No. 112 as of October 30, 2004 and
November 1, 2003 was $536,000 and $454,000, respectively.
Note 17 -Earnings Per Share
------------------
Fiscal 2004 Fiscal 2003 Fiscal 2002
----------- ----------- -----------
Basic EPS
---------
Net income available
to common shareholders $ 1,800 $ 2,283 $ 3,240
============ ============ ===========
Weighted average shares
outstanding 987,132 986,789 1,024,235
------------ ------------ -----------
Per share amount $ 1.82 $ 2.31 $ 3.16
============ ============ ===========
Effect of Dilutive Securities
-----------------------------
Stock Options -
Incremental
Shares 43,035 24,561 51,795
============ ============ ===========
Dilutive EPS
------------
Weighted average shares
outstanding including
incremental shares 1,030,167 1,011,350 1,076,030
------------ ------------ -----------
Per share amount $ 1.75 $ 2.26 $ 3.01
============ ============ ===========
F-38
Note 18 -Noncash Investing and Financing Activities
------------------------------------------
During fiscal 2004, 2003 and 2002, the Company retired property and
equipment with an original cost of $2,838,000, $7,280,000 and $37,000
and accumulated depreciation of $2,835,000, $7,117,000 and $33,000,
respectively.
During fiscal 2004, 2003 and 2002, the Company reclassed $6,810,000,
$12,854,000 and $4,584,000, respectively, of construction in progress
to leasehold improvements and equipment. In addition, during Fiscal
2003, the Company reclassed $829,000 from deposits on equipment to
equipment.
At October 30, 2004, the Company had an additional minimum pension
liability of $5,442,000, a related intangible asset of $209,000 and a
direct charge to equity of $3,140,000, net of deferred taxes of
$2,093,000. At November 1, 2003, the Company had an additional minimum
pension liability of $5,516,000, a related intangible asset of $242,000
and a direct charge to equity of $3,164,000, net of deferred taxes of
$2,110,000. At November 2, 2002, the Company had an additional minimum
pension liability of $5,119,000, a related intangible asset of $292,000
and a direct charge to equity of $2,896,000, net of deferred taxes of
$1,931,000.
During fiscal 2004, additional capital lease obligations of $21,934,000
were incurred when the Company entered into a lease for a new store and
a lease modification for a replacement store. During fiscal 2003,
capital lease obligations of $60,553,000 were incurred when the Company
entered into leases for four new stores and two existing stores. During
fiscal 2002, capital lease obligations of $9,958,000 were incurred when
the Company entered into a lease for one new store.
During fiscal 2004, the Company was required to make additional
investments in Wakefern of $1,351,000 and Insure-Rite, Ltd. of
$131,000, for one new store, a replacement store and the acquisition of
a store. During fiscal 2003, the Company was required to make
additional investments in Wakefern of $1,200,000 and Insure-Rite, Ltd.
of $127,000, for two new stores, which opened during fiscal 2003. In
conjunction with these investments, liabilities were assumed for the
same amount.
During fiscal 2003, the required investment in Wakefern increased from
a maximum per store of $550,000 to $650,000. This resulted in an
increase of $2,088,000 in the investment and obligations due Wakefern.
During fiscal 2002, $10,653,000 of outstanding Capital Expenditure
loans were combined into the Company's Term loan.
Note 19 -Acquisition
-----------
During fiscal 2004, the Company acquired the assets of a store,
excluding inventory, for $1,000,000 (the "Purchase Price") .The
Purchase Price was allocated $75,000 to Leasehold Improvements,
$389,000 to Equipment and $536,000 to Intangible Assets as a bargain
lease.
F-39
Note 20 -Unaudited Summarized Consolidated Quarterly Information
-------------------------------------------------------
Summarized quarterly information for the years ended October 30, 2004
and November 1, 2003 was as follows:
Thirteen Weeks Ended
--------------------------------------------
January 31, May 1, July 31, October 30,
2004 2004 2004 2004
---- ---- ---- ----
Sales $294,715 $ 279,043 $ 302,799 $ 298,642
Gross profit 77,100 74,411 80,268 78,140
Net income (loss) 1,240 956 496 (892)
Earnings (loss) available
per share:
Basic 1.26 .97 .50 (.91)
Diluted 1.22 .93 .48 (.91)
The fourth quarter ended October 30, 2004 includes a pre-tax
impairment charge of $1,198,000 (see Note 1).
Thirteen Weeks Ended
--------------------
February 1, May 3, August 2, November 1,
2003 2003 2003 2003
---- ---- ---- ----
Sales $ 257,091 $ 254,578 $ 271,333 $ 266,651
Gross profit 64,757 66,583 70,022 71,635
Net income 349 128 576 1,230
Earnings available per
share:
Basic .35 .13 .58 1.25
Diluted .34 .13 .57 1.22
F-40
Schedule II
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
Fiscal Years Ended October 30, 2004, November 1, 2003 and November 2, 2002
(In thousands)
Additions
---------
Balance Charge to Charge to Balance
at beginning costs and other at end
Description of year expenses accounts Deductions of year
----------- ------- -------- -------- ---------- -------
Fiscal year ended
October 30, 2004
Allowance for doubtful
accounts (deducted from
receivables and other
current assets). $ 983 $ 478 - $ 95 (1) $ 1,366
========= ======= ========= =========== ========
Fiscal year ended
November 1, 2003
Allowance for doubtful
accounts (deducted
from receivables and
other current assets) $ 684 $ 359 $ - $ 60 (1) $ 983
========= ======= ========= =========== ========
Fiscal year ended
November 2, 2002
Allowance for doubtful
accounts (deducted from
receivables and other
current assets) $ 873 $ 266 $ - $ 455 (1) $ 684
======== ======= ========= ============ ========
(1) Accounts deemed to be uncollectible.
S-1
INDEX TO EXHIBITS
3. Articles of Incorporation and By-Laws
*3.1. Restated Certificate of Incorporation of Registrant filed
with the Secretary of State of the State of New Jersey on May
15, 1970.
*3.2. Certificate of Merger filed with the Secretary of State of
the State of New Jersey on May 15, 1970.
*3.3. Certificate of Merger filed with the Secretary of State of
the State of New Jersey on March 14, 1977.
*3.4. Certificate of Merger filed with the Secretary of State of
the State of New Jersey on June 23, 1978.
*3.5. Certificate of Amendment to Restated Certificate of
Incorporation filed with the Secretary of State of the State
of New Jersey on May 12, 1987.
**3.6. Certificate of Amendment to Restated Certificate of
Incorporation filed with the Secretary of State of the State
of New Jersey on February 16, 1993.
****3.7. Amendment to the Certificate of Incorporation of the
Registrant dated April 4, 1996.
*3.8. By-Laws of Registrant.
*3.9. Amendments to By-Laws of Registrant adopted September 14,
1983.
3.10. Amendment to By-Laws of Registrant adopted March 15, 1991 is
incorporated herein by reference to the Registrant's Annual
Report on Form 10-K for the year ended November 2, 1991 filed
with the Securities and Exchange Commission on February 18,
1992.
3.11. Certificate of Amendment to the Amended and Restated
Certificate of Incorporation filed with the Department of the
Treasury of the State of New Jersey on May 14, 2002 is
incorporated herein by reference to the Registrant's Annual
Report on Form 10-K for the year ended November 2, 2002 filed
with the Securities and Exchange Commission on January 30,
2003.
3.12 Amended and Restated By-Laws of Registrant adopted April 14,
2004 are incorporated herein by reference to the Registrant's
Current Report on Form 8-K filed with the Securities and
Exchange Commission on April 21, 2004.
E-1
10. Material Contracts
10.1. The Agreement dated September 18, 1987 entered into by
Wakefern Food Corporation and the Registrant is incorporated
herein by reference to Exhibit A to the Registrant's Form 8-K
filed with the Securities and Exchange Commission on November
19, 1987.
***10.2. Certificate of Incorporation of Wakefern Food Corporation
together with amendments thereto and certificates of merger.
***10.3. By-Laws of Wakefern Food Corporation.
#***10.4. Form of Deferred Compensation Agreement, between the
Registrant and certain of its key employees.
#10.5. Registrant's 1987 Incentive Stock Option Plan is incorporated
herein by reference to Exhibit 4 (a) to the Registrant's Form
S-8 filed with the Securities and Exchange Commission on May
26, 1989.
10.6. Agreement, dated September 20, 1993, between the Registrant,
ShopRite of Malverne, Inc. and The Grand Union Company is
incorporated herein by reference to the Registrant's Annual
Report on Form 10-K for the year ended October 30, 1993,
filed with the Securities and Exchange Commission on February
24, 1994.
10.7. Revolving Credit and Term Loan Agreement, dated as of
February 15, 1995 between the Registrant and NatWest Bank as
agent for a group of banks is incorporated herein by
reference to the Registrant's Form 8-K filed with the
Securities and Exchange Commission on July 10, 1995.
10.8. Asset Purchase Agreement dated April 20, 1995 and Amendment
No. 1 to the Agreement dated May 24, 1995 between the
Registrant and Wakefern Food Corporation is incorporated
herein by reference to the Registrant's Form 8-K filed with
the Securities and Exchange Commission on July 27, 1995.
10.9. Amendment of Revolving Credit and Term Loan Agreement, dated
as of January 25, 1996, between the Registrant and each of
the banks which are signatory thereto is incorporated herein
by reference to the Registrant's Form 10-Q for the quarterly
period ended January 27, 1996, filed with the Securities and
Exchange Commission on March 12, 1996.
E-2
****10.10. Agreement, dated as of March 29, 1996, between the Registrant
and Wakefern Food Corporation.
****10.11. Amendment of Revolving Credit and Term Loan Agreement, dated
as of May 10, 1996, between the Registrant and each of the
Banks which are signatory thereto.
10.12. Waiver and Amendment of Revolving Credit and Term Loan
Agreement, dated as of July 26, 1996, between the Registrant
and each of the Banks which are signatory thereto is
incorporated herein by reference to the Registrant's Form
10-Q for the quarterly period ended July 27, 1996, filed with
the Securities and Exchange Commission on September 10, 1996.
10.13. Amended and Restated Revolving Credit and Term Loan
Agreement, dated as of May 2, 1997, between the Registrant
and the Financial Institution which is signatory thereto is
incorporated herein by reference to the Registrant's Form
10-Q for the quarterly period ended May 3, 1997, filed with
the Securities and Exchange Commission on June 16, 1997.
*****10.14. First Amendment to Amended and Restated Revolving Credit and
Term Loan Agreement, dated October 28, 1997, between the
Registrant and the Financial Institution which is signatory
thereto.
*****10.15. Consent and Second Amendment to Amended and Restated
Revolving Credit and Term Loan Agreement and other loan
documents, dated November 14, 1997, between the Registrant
and the Financial Institution which is signatory thereto.
*****10.16. Third Amendment to Amended and Restated Revolving Credit and
Term Loan Agreement, dated January 15, 1998, between the
Registrant and the Financial Institution which is signatory
thereto.
10.17. Amendment to the Amended and Restated Revolving Credit and
Term Loan Agreement, dated March 11, 1999, between the
Registrant and the Financial Institution which is signatory
thereto, is incorporated herein by reference to the
Registrant's Form 10-Q for the quarterly period ended May 1,
1999, filed with the Securities and Exchange Commission on
June 11, 1999.
10.18. Second Amended and Restated Revolving Credit and Term Loan
Agreement, dated as of January 7, 2000 between the Registrant
and each of the Financial Institutions which are signatory
thereto, is incorporated herein by reference to the
Registrant's Form 10-K for the year ended October 30, 1999
filed with the Securities and Exchange Commission on January
27, 2000.
E-3
#10.19. Restatement of Supplemental Executive Retirement Plan, dated
as of January 1, 1998, is incorporated herein by reference to
the Registrant's Form 10-Q for the quarterly period ended
January 29, 2000, filed with the Securities and Exchange
Commission on March 9, 2000.
#10.20. Registrant's 2001 Stock Incentive Plan is incorporated herein
by reference to Appendix B to the Registrant's Proxy
Statement filed with the Securities and Exchange Commission
on February 26, 2001.
10.21. Amendment No. 1 to Second Amended and Restated Revolving
Credit and Term Loan Agreement, dated as of May 11, 2001,
between the Registrant and each of the Financial Institutions
which are signatory thereto is incorporated herein by
reference to the Registrant's Form 10-Q for the quarterly
period ended April 28, 2001, filed with the Securities and
Exchange Commission on June 8, 2001.
10.22. Amendment No. 2 to Second Amended and Restated Revolving
Credit and Term Loan Agreement, dated as of August 7, 2001
between the Registrant and each of the Financial Institutions
which are signatory thereto is incorporated herein by
reference to the Registrant's Form 10-Q for the quarterly
period ended July 28, 2001, filed with the Securities and
Exchange Commission on September 10, 2001.
******10.23. Letter Amendment to Second Amended and Restated Revolving
Credit and Term Loan Agreement, dated as of January 30, 2002
between the Registrant and each of the Financial Institutions
which are signatory thereto.
******10.24. Letter Amendment to Second Amended and Restated Revolving
Credit and Term Loan Agreement, dated as of January 30, 2002
between the Registrant and each of the Financial Institutions
which are signatory thereto.
10.25. Letter Amendment to Second Amended and Restated Revolving
Credit and Term Loan Agreement, dated as of March 29, 2002
between the Registrant and each of the Financial Institutions
which are signatory thereto is incorporated herein by
reference to the Registrant's Form 8-K filed with the
Securities and Exchange Commission on April 5, 2002.
10.26. Third Amended and Restated Revolving Credit and Term Loan
Agreement, dated as of September 26, 2002 between the
Registrant and each of the Financial Institutions which are
signatory thereto, is incorporated herein by reference to the
Registrant's Form 8-K filed with the Securities and Exchange
Commission on September 30, 2002.
E-4
10.27. Amendment No. 1 to Third Amended and Restated Revolving
Credit and Term Loan Agreement, dated as of December 17, 2002
between the Registrant and each of the Financial Institutions
which are signatory thereto is incorporated herein by
reference to the Registrant's Form 10-K for the year ended
November 2, 2002, filed with the Securities and Exchange
Commission on January 30, 2003.
10.28. Consent, Waiver and Amendment No. 2 to Third Amended and
Restated Revolving Credit and Term Loan Agreement, dated as
of January 21, 2003 between the Registrant and each of the
Financial Institutions which are signatory thereto is
incorporated herein by reference to the Registrant's Form
10-K for the year ended November 2, 2002, filed with the
Securities and Exchange Commission on January 30, 2003.
10.29. Amendment No. 3 to Third Amended and Restated Revolving
Credit and Term Loan Agreement, dated as of July 16, 2003
between the Registrant and each of the Financial Institutions
which are signatory thereto is incorporated herein by
reference to the Registrant's Form 10-Q for the quarterly
period ended August 2, 2003, filed with the Securities and
Exchange Commission on September 16, 2003.
10.30 Amendments No. 2 and 1 to the Foodarama Supermarkets, Inc.
2001 Stock Incentive Plan are incorporated herein by
reference to the Registrant's Form 10-Q for the quarterly
period ended August 2, 2003, filed with the Securities and
Exchange Commission on September 16, 2003.
#10.31 Executive Employment Agreement, dated November 2, 2003, by
and between the Company and Joseph J. Saker is incorporated
herein by reference to the Registrant's Form 10-K for the
year ended November 1, 2003, filed with the Securities and
Exchange Commission on January 29, 2004.
#10.32 First Amendment to the Registrant's Supplemental Executive
Retirement Plan, effective November 2, 2003.
10.33 Amendment No. 4 to the Amended and Restated Revolving Credit
and Term Loan Agreement is incorporated herein by reference
to the Registrant's Form 10-Q for the quarterly period ended
May 1, 2004, filed with the Securities and Exchange
Commission on June 14, 2004.
10.34 Amendment No. 5 to the Third Amended and Restated Revolving
Credit and Term Loan Agreement, dated as of July 19, 2004,
between the Registrant and each of the Financial Institutions
which is a signatory thereto, is incorporated herein by
reference to the Registrant's Form 8-K, dated August 24,
2004, filed with the Securities and Exchange Commission on
August 30, 2004.
E-5
10.35 Amendment No. 6 to the Third Amended and Restated Revolving
Credit and Term Loan Agreement, dated as of August 24, 2004,
between the Registrant and each of the Financial Institutions
which is a signatory thereto, is incorporated herein by
reference to the Registrant's Form 8-K, dated August 24,
2004, filed with the Securities and Exchange Commission on
August 30, 2004.
10.36 Amendment No. 7 to the Third Amended and Restated Revolving
Credit and Term Loan Agreement, dated as of October 19, 2004,
between the Registrant and each of the Financial Institutions
which is a signatory thereto, is incorporated herein by
reference to the Registrant's Form 8-K, dated October 19,
2004, filed with the Securities and Exchange Commission on
October 21, 2004.
10.37 Amendment No. 8 to the Third Amended and Restated Revolving
Credit and Term Loan Agreement, dated as of October 21, 2004,
between the Registrant and each of the Financial Institutions
which is a signatory thereto, is incorporated herein by
reference to the Registrant's Form 8-K, dated October 21,
2004, filed with the Securities and Exchange Commission on
October 25, 2004.
14. Code of Conduct is incorporated herein by reference to the
Registrant's Form 10-K for the year ended November 1, 2003,
filed with the Securities and Exchange Commission on January
29, 2004.
#
Indicates a management contract or compensatory plan or
arrangement.
* Each of these Exhibits is incorporated herein by reference
to the Registrant's Annual Report on Form 10-K for the year
ended October 29, 1988 filed with the Securities and
Exchange Commission on February 13, 1989.
** Each of these Exhibits is incorporated herein by reference
to the Registrant's Annual Report on Form 10-K for the year
ended October 31, 1992 filed with the Securities and
Exchange Commission on February 19, 1993.
*** Each of these Exhibits is incorporated herein by reference to
the Registrant's Annual Report on Form 10-K for the year
ended October 28, 1989 filed with the Securities and Exchange
Commission on February 9, 1990.
**** Incorporated herein by reference to the Registrant's Form
10-Q for the quarterly period ended April 27, 1996, filed
with the Securities and Exchange Commission on June 10, 1996.
.
***** Incorporated herein by reference to the Registrant's Form
10-K for the year ended November 1, 1997 filed with the
Securities and Exchange Commission on January 29, 1998.
E-6
****** Incorporated herein by reference to the Registrant's Form
10-Q for the quarterly period ended February 2, 2002, filed
with the Securities and Exchange Commission on March 15,
2002.
E-7
EXHIBIT 10.32
FIRST AMENDMENT TO
FOODARAMA SUPERMARKETS, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
WHEREAS, Foodarama Supermarkets, Inc. (the "Employer") established the
Foodarama Supermarkets, Inc. Supplemental Executive Retirement Plan (the "Plan")
effective January 17, 1989 and last restated effective January 1, 1998; and
WHEREAS, the Employer, pursuant to Section 8.01 of the Plan, reserved the
right to amend the Plan from time to time;
WHEREAS, the Employer so desires to amend the Plan.
NOW, THEREFORE, the Plan is amended effective January 16, 2003 as to the
amendment to Section 2.12 of the Plan and November 2, 2003 as to the amendments
to Articles II and IX of the Plan as follows:
1. Section 2.12 of the Plan is amended in its entirety and shall read as
follows:
"Section 2.12 - Final Average Earnings
--------------------------------------
Shall mean the annual average of the Participant's Annual Compensation (as
defined in the following sentence) received during any sixty (60)
consecutive calendar months prior to his retirement which produces the
highest average. The term "Annual Compensation" shall mean the total
compensation paid to the Participant by the Employer during any year as
reported or reportable on Internal Revenue Service Form W-2, Box 1 or such
successor box which describes "wages, tips and other compensation,"
increased by (i) elected deferrals under the Employer's 401(k) plan; (ii)
elected deferrals under the Employer's "cafeteria plan," including,
without limitation, deferrals for medical/dental insurance premiums,
medical expenses and child care; and (iii) compensation paid pursuant to
workers' compensation or disability insurance which is not otherwise
reported on Form W-2, Box 1; and decreased by (i) income attributable to
excess employer paid life insurance; and (ii) income attributable to and
resulting from the award of any equity based incentive by the Employer to
the Participant or the sale of any such equity award by the Participant,
including, without limitation, income attributable to or resulting from
the exercise of stock options or stock performance units granted by the
Employer to the Participant or assigned to the Participant by other than
the Employer or the sale of shares of stock acquired pursuant to the
exercise of any such option. For purposes of computing the annual average
of the Participant's Annual Compensation, if compensation is prorated for
a portion of the first calendar year measured in such computation, then
any bonus or incentive compensation paid to the Participant in such year
shall be excluded for purposes of computing the Participant's prorated
Annual Compensation for such year."
By way of example, assume that a Participant has elected to retire on
October 1, 2002, and that his Annual Compensation for the ten (10) year
period preceding his retirement is as set forth below and that the
E-8
Participant was paid bonus or incentive compensation of $10,000 in each of
calendar years 1997, 1998, 1999, 2000, 2001 and 2002.
Calendar Year Annual Compensation
------------- -------------------
1991 $ 90,000
1992 94,000
1993 98,000
1994 102,000
1995 106,000
1996 110,000
1997 114,000
1998 118,000
1999 128,000
2000 132,000
2001 136,000
2002 (through 109,500
September 30, 2002)
The annual average of the Participant's Annual Compensation received
during the sixty (60) consecutive calendar months prior to his retirement
which produces the highest average is $129,900. Such amount is determined
as follows: ($26,000 for 3 months in 1997 + $118,000 + $128,000
+ $132,000 + $136,000 + $109,500) / 5 = $129,900. The prorated Annual
Compensation for 1997 is computed as follows: ($114,000-$10,000)=$104,000
x .25 = $26,000.
2. Article II of the Plan is amended by the addition of a new Section which
shall be titled Section 2.23 and will read as follows:
"Section 2.23 - Founder
Shall mean Joseph J. Saker."
3. Article IX of the Plan is amended by the addition of a new Section which
shall be titled Section 9.13 and will read as follows:
"Section 9.13 - Special Benefit Adjustments
Founder - With respect to the Founder, the following shall supersede
Sections 5.02, 6.01 and 6.02 of the Plan.
E-9
(i) Form of Distribution - The Founder shall receive his benefit,
calculated in accordance with Section 4.01, in the form of a
joint and contingent survivor pension payable to and during
the lifetime of the retired Founder with the provision that
following his death after commencement of benefits in the
Plan, such benefit shall continue to be paid to and during the
lifetime of Gloria Saker, should she survive the Founder, at
the same rate. No benefit shall be payable to any Beneficiary
or to the Founder's estate, regardless of the number of
monthly payments received by the Founder and Gloria Saker
prior to their respective deaths.
(ii) Pre-Retirement Death Benefit - If the Founder dies prior to
commencement of benefits in the Plan, then Gloria Saker,
should she survive the Founder, shall be entitled to a
pre-retirement death benefit. The amount of the benefit shall
be equal to one hundred percent (100%) of the benefit payable
under Section 4.01 that the Founder would have received if the
Founder had retired on the day immediately before his death.
For purposes of calculating the pre-retirement death benefit,
the offsets in (b), (c) and (d) in Section 4.01 shall be
calculated at the time of the Founder's death. The
pre-retirement death benefit shall commence on the first day
of the month following the Founder's death and shall be
payable to and during the lifetime of Gloria Saker. Gloria
Saker shall continue to receive the benefit provided in
Section 4.01(e) during her lifetime. In the event Gloria Saker
does not survive the Founder, no benefit shall be payable to
any Beneficiary or to the Founder's estate. Furthermore, no
benefit shall be payable to any Beneficiary or to the
Founder's estate following the death of Gloria Saker,
regardless of the number of monthly payments received by
Gloria Saker prior to her death.
IN WITNESS WHEREOF, this Amendment is adopted and effective January 16,
2003 as to the amendment to Section 2.12 of the Plan and November 2, 2003 as to
the amendments to Articles II and IX of the Plan.
ATTEST: FOODARAMA SUPERMARKETS, INC.
______________________________ By:____________________________________
Name: Name:
Title: Title:
E-10
EXHIBIT 21
LIST OF SUBSIDIARIES
OF FOODARAMA SUPERMARKETS, INC.
Name of Subsidiary State of Incorporation
ShopRite of Malverne, Inc. New York
New Linden Price Rite, Inc. New Jersey
ShopRite of Reading, Inc. Pennsylvania
E-11
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration
Statements on Forms S-8 (No. 333-65328, No. 333-108508) of Foodarama
Supermarkets, Inc. and Subsidiaries, of our report dated January 27, 2005
relating to the consolidated financial statements for the fiscal year ended
October 30, 2004, which is included in this Form 10-K/A filing. We also consent
to the reference to our firm under the heading "Experts" in the prospectus
included in the above-referenced Registration Statement and amendment thereto.
Edison, New Jersey
February 25, 2005
E-12
EXHIBIT 31.1
CERTIFICATION
I, Richard J. Saker, certify that:
I have reviewed this report on Form 10-K/A of Foodarama Supermarkets,
Inc.;
Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting;
and
The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal control
over financial reporting.
Date: February 25, 2005 /s/ RICHARD J. SAKER
--------------------
(Signature)
Richard J. Saker
Chief Executive Officer
E-13
EXHIBIT 31.2
CERTIFICATION
I, Michael Shapiro, certify that:
I have reviewed this report on Form 10-K/A of Foodarama Supermarkets,
Inc.;
Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting;
and
The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal control
over financial reporting.
Date: February 25, 2005 /s/ MICHAEL SHAPIRO
-------------------
(Signature)
Michael Shapiro
Chief Financial Officer
E-14
EXHIBIT 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Foodarama Supermarkets, Inc. (the
"Company") on Form 10-K/A for the year ended October 30, 2004 as filed with the
Securities and Exchange Commission on or about the date hereof (the "Report"),
I, Richard J. Saker, Chief Executive Officer of the Company, do hereby certify,
pursuant to 18 U.S.C.ss. 1350, as adopted pursuant to ss. 906 of the
Sarbanes-Oxley Act of 2002, that to my knowledge:
(1) the Report fully complies with the requirements of section 13(a) or 15(d)
of the Securities Exchange Act of 1934, 15 U.S.C. ss. 78m(a) or 78o(d),
and,
(2) the information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the
Company.
Date: February 25, 2005 /s/ RICHARD J. SAKER
--------------------
(Signature)
Richard J. Saker
Chief Executive Officer
E-15
EXHIBIT 32.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Foodarama Supermarkets, Inc. (the
"Company") on Form 10-K/A for the year ended October 30, 2004 as filed with the
Securities and Exchange Commission on or about the date hereof (the "Report"),
I, Michael Shapiro, Chief Financial Officer of the Company, do hereby certify,
pursuant to 18 U.S.C.ss. 1350, as adopted pursuant to ss. 906 of the
Sarbanes-Oxley Act of 2002, that to my knowledge:
(1) the Report fully complies with the requirements of section 13(a) or 15(d)
of the Securities Exchange Act of 1934, 15 U.S.C. ss. 78m(a) or 78o(d),
and,
(2) the information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the
Company.
Date: February 25, 2005 /s/ MICHAEL SHAPIRO
-------------------
(Signature)
Michael Shapiro
Chief Financial Officer
E-16