Item 1. Business
General
The Registrant, a New Jersey corporation formed in 1958, operates a chain of twenty-one supermarkets located in Central New Jersey, as well as two liquor stores and two garden centers, all licensed as ShopRite. The Registrant also operates a central food processing facility to supply its stores with meat, various prepared salads, prepared foods and other items, and a central baking facility which supplies its stores with bakery products. The Registrant is a member of Wakefern Food Corporation ('Wakefern'), the largest retailer owned food cooperative warehouse in the United States and owner of the ShopRite name.
The Registrant has incorporated the concept of 'World Class' supermarkets into its operations. 'World Class' supermarkets are significantly larger than conventional supermarkets and feature fresh fish-on-ice, prime meat service butcher departments, in-store bakeries, international foods including Chinese, sushi and kosher sections, salad bars, snack bars, bulk foods and pharmacies. The Registrant has also introduced many of these features into its conventionally sized supermarkets through extensive renovations; these stores are considered 'Mini-World Class' supermarkets. Currently, fifteen of the Registrant's stores are 'World Class', four are 'Mini-World Class' and two are conventional supermarkets.
The following table sets forth certain data relating to the Registrant's business for the periods indicated: Fiscal Year Ended Oct.31, Nov. 1, Nov. 2, Oct. 28, Oct.29, 1998 1997 1996** 1995 1994
Average annual sales per store (in millions)*..................... $35.8 $31.8 $31.8 $30.9 $30.2 Same store sales increase from prior year.................... 4.79% 1.67% 2.63% 1.62% 0.84% Total store area in square feet (in thousands)..................... 1,195 1,080 1,080 954 1,072 Total store selling area in square feet (in thousands)................ 895 808 807 710 789 Average total square feet per store (in thousands)..................... 57 54 54 53 54 Average square feet of selling area per store (in thousands)........... 43 40 40 39 39 Annual sales per square foot of selling area*...................... $832 $788 $789 $784 $766 Number of stores: Stores remodeled (over $500,000). 1 0 1 0 0
New stores opened................ 1 0 1 0 0
Stores replaced/expanded......... 2 0 1 0 0
Stores closed/divested........... 0 0 0 2 1
Number of stores by size (total store area): 30,000 to 39,000 sq.ft .......... 4 4 4 4 4 40,000 to 49,900 sq.ft .......... 3 4 4 4 4 Greater than 50,000 sq.ft........ 14 12 12 10 12 Total stores open at period end.... 21 20 20 18 20
* Sales for stores open less than 52 weeks have been annualized.
** Calculated on a 53 week basis. A like 52 week comparison would be $31.2 million in average sales per store and $781 in annual sales per square foot of selling area.
Store Expansion and Remodeling
The Registrant believes that significant capital investment is critical to its operating strategy and is continuing its program to upgrade its existing stores, replace outdated locations and open new 'World Class' supermarkets within its core market area of Central New Jersey.
In fiscal year 1998, one replacement and one new store were opened in East Windsor and Bound Brook, New Jersey, respectively. During fiscal year 1996, one new and one replacement location were opened in Marlboro and Montgomery, New Jersey, respectively. Over the next three years the Registrant plans to open four replacement stores and expand three existing locations. The expansion and remodeling of one location in West Long Branch New Jersey is presently under way and construction has started on a replacement store in Wall Township New Jersey.
Technology
Automation and computerization are important to the Registrant's operations and competitive position. All stores utilize IBM 4690 software for the scanning checkout systems. These systems improve pricing accuracy, enhance productivity and reduce checkout time for customers. Additionally, all stores have IBM RS/6000 processors and satellite communications. The use of these systems allows the Registrant to offer its customers debit and credit card payment options as well as participation in Price Plus, ShopRite's preferred customer program, and the ShopRite co-branded Master Card. By presenting the scannable Price Plus card or the ShopRite co-branded card, customers can receive electronic discounts, the value of ShopRite in-ad Clip Less coupons and cash personal checks. Additionally, customers receive a 1% future rebate when paying with the ShopRite Master Card.
The Registrant is also using other in store computer systems. Computer generated ordering is installed in all stores. This system is designed to reduce inventory levels and out of stock positions, enhance shelf space utilization and reduce labor costs. In all stores, meat, seafood and delicatessen prices are maintained on department computers for automatic weighing and pricing. Additionally, all stores have new computerized time and attendance systems which are used for, among other things, automated labor scheduling and most have computerized energy management systems. The Registrant also utilizes a direct store delivery receiving and pricing system for most items not purchased through Wakefern in order to provide cost and retail price control over these products, and computerized pharmacy systems which provide customer profiles, retail price control and third-party billing. The replacement of the direct store delivery receiving systems was completed in fiscal 1998. During fiscal 1998 the Registrant installed computer based training systems in all stores. The system is presently being used to train all new checkout personnel and will be used in the future to train employees in other store level positions.
In addition, all field merchandisers and operations supervisors are equipped with laptop personal computers. This provides field personnel with current labor and product information to facilitate making accurate and timely decisions.
Year 2000
In 1997, the Registrant appointed a year 2000 task force (the 'Task Force') to review all aspects of the Registrant's operations relating to Year 2000 ('Y2K') issues. The Task Force reports to the Registrant's Chief Financial Officer and is staffed primarily with representatives of the Registrant's Information Technology and Store Systems departments. Reports are made regularly to the Registrant's Board of Directors.
The Task Force is participating with Wakefern in the inventory and assessment of jointly operated store systems for Y2K readiness. The Task Force and Wakefern, where involved , have identified all computer-based systems and applications (including embedded chip systems) the Registrant uses or that affect its operations that might not be Y2K compliant. Those systems and equipment which are not Y2K compliant have been, or will be, modified, reprogrammed or replaced. The Registrant estimates that all critical systems and applications will be Y2K compliant by the fourth quarter of fiscal 1999. The costs related to the Y2K project are included in the normal operating and capital budgets of both the Registrant's and Wakefern's Information Technology Departments' budgets and should not have any material effect on the Registrant's operating results.
Both the Registrant and Wakefern are in the process of developing contingency plans to provide for viable alternatives to ensure that business operations are able to continue in the event of Y2K related system failures. The most significant impacts would likely be the inability to conduct normal operations due to a power failure at store level or at Wakefern or a systems failure in the banking process either at the local, federal or electronic payment level. If the Registrant, Wakefern or third party vendors are unable to resolve processing issues in a timely manner, the failure of these systems could result in the interruption of the Registrant's operations, which could have a material adverse effect on the financial condition of the Registrant.
Industry Segment and Principal Products
The Registrant is engaged in one industry segment. For the last three fiscal years, the Registrant's sales were divided approximately among the categories listed below:
Fiscal Year Ended
Product Categories 10/31/98 11/01/97 11/02/96
Groceries .................................. 40.0% 40.6% 41.7% Dairy & Frozen ............................. 16.5 16.4 16.1 Meats, Seafood & Poultry ................... 10.9 11.1 11.2 Non-Foods .................................. 10.1 9.9 9.7 Produce .................................... 8.5 8.3 8.3 Appetizers & Prepared Foods ................ 6.0 5.8 5.5 Pharmacy ................................... 4.0 3.8 3.4 Bakery ..................................... 2.1 2.2 2.2 Liquor, Floral & Garden Centers ............ 1.9 1.9 1.9 100.0% 100.0% 100.0%
Gross profit derived by the Registrant from each product category is not necessarily consistent with the percentage of total sales represented by such product category.
Wakefern Food Corporation
The Registrant owns a 12.6% interest in Wakefern, a New Jersey corporation organized in 1946, which provides purchasing, warehousing and distribution services on a cooperative basis to its shareholder members, including the Registrant, who are operators of ShopRite or alternate format supermarkets. Together, Wakefern and its shareholder members operate approximately 198 supermarkets. Products bearing the ShopRite label accounted for approximately 16% of total sales for the period. Wakefern maintains warehouses in Elizabeth and South Brunswick, New Jersey which handle a full line of groceries, meats, frozen foods, produce, bakery, dairy and delicatessen products and health and beauty aids, as well as a number of non-food items. Wakefern also operates a grocery and perishable products warehouse in Wallkill, New York.
Wakefern's professional advertising staff and its advertising agency develop and place most of the Registrant's advertising on television, radio and in major newspapers. The Registrant is charged for these services based on various formulas which account for the estimated proportional benefits it receives. In addition, Wakefern charges the Registrant for, and provides the Registrant with, product and support services in numerous administrative functions. These include insurance, supplies, technical support for communications and electronic payment systems, equipment purchasing and the coordination of coupon processing. Additionally, the Registrant subleases two supermarkets from Wakefern. See Item 2.
Item 2. Properties
The Registrant's twenty one supermarkets, all of which are leased, range in size from 31,000 to 101,000 square feet with sales area averaging 75 percent of the total area. All stores are air-conditioned, have modern fixtures and equipment, have their own ample parking facilities and are located in suburban areas.
Leases for 19 of the 21 supermarkets expire on various dates from 2000 through 2022. Two of the Registrant's supermarkets are subleased from Wakefern and these subleases expire in 2006 and 2008, respectively. Upon expiration of these subleases, the underlying leases for these supermarkets will be assigned to and assumed by the Registrant if certain conditions, which include the absence of defaults by the Registrant in its obligations to Wakefern and the Registrant's lenders, and the maintenance of a specified level of net worth, are satisfied. The terms of these leases expire in 2021 and 2018, respectively. Except for the two subleases with Wakefern and one lease which expires in 2004, all leases contain renewal options ranging from 5 to 25 years. Seven leases require, in addition to a fixed rental, a further rental payment based on a percentage of the annual sales in excess of a stipulated minimum. The minimum has been exceeded in two of the seven locations in the last fiscal year. Most leases also require the Registrant to pay for insurance, common area maintenance and real estate taxes. Four additional leases have been signed for supermarket locations, all of which will be replacements for existing stores. The terms of these leases are substantially similar to the terms of the leases for the Registrants existing supermarkets.
Also, the Registrant is subject to a lease covering its executive and principal administrative offices containing approximately 18,000 square feet in Howell, New Jersey. The Registrant also leases 57,000 square feet of space used for its bakery operations and storage in Howell, New Jersey and owns meat and prepared foods processing facilities in Linden, New Jersey. As part of the Registrant's Asset Redeployment Program, the Registrant sold in 1997 its limited partnership interest in two real estate partnerships and financed the facility in Linden, New Jersey, which is the only real property owned by the Registrant. In addition, the Registrant is a party to an additional ten leases relating to locations where the Registrant no longer conducts supermarket operations; seven of such locations have been sublet to non-affiliated persons. In most instances these stores have been sublet at terms at least substantially equivalent to the Registrant's obligations under its prime lease. See Management's Discussion and Analysis-Financial Condition and Liquidity. See Notes 11 and 15 of Notes to Consolidated Financial Statements.
Item 3.
Item 3. Legal Proceedings
In the ordinary course of its business, the Registrant is party to various legal actions not covered by insurance. Although a possible range of loss cannot be estimated, it is the opinion of management, that settlement or resolution of these proceedings will not, in the aggregate, have a material adverse impact on the financial condition or results of operations of the Registrant.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Part II
Item 5.
Item 5. Market for Registrant's Common Stock and Security Holder Matters
(a) The Registrant's Common Stock is traded on the American Stock Exchange. The following table sets forth the high and low sales prices for the Common Stock as reported on the American Stock Exchange for the fiscal years ended November 1, 1997 and October 31, 1998.
Fiscal Quarter Ended High Low
February 1, 1997 ......................... 16 3/4 14 May 3, 1997 .............................. 17 3/8 14 7/8 August 2, 1997 ........................... 19 1/2 17 1/2 November 1, 1997 ......................... 18 3/4 16 7/8
January 31, 1998 ......................... 24 18 3/4 May 2, 1998 .............................. 43 23 5/8 August 1, 1998 ........................... 37 33 1/2 October 31, 1998 ......................... 34 5/8 31 1/2
(b) The approximate number of record holders of the Registrant's Common Stock was 400 as of January 15, 1999.
(c) No dividends have been declared or paid with respect to the Registrant's Common Stock since October 1979. The Registrant is prohibited from paying dividends on its Common Stock by the Revolving Credit and Term Loan Agreement between the Registrant and a financial institution. See Management's Discussion and Analysis-Financial Condition and Liquidity. The Registrant has no intention of paying dividends on its Common Stock in the foreseeable future.
Item 6.
Item 6. Selected Financial Data
The selected financial data set forth below is derived from the Registrant's consolidated financial statements and should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this Annual Report. See Management's Discussion and Analysis-Financial Condition and Liquidity and Results of Operations.
Year Ended
Oct. 31, Nov. 1, Nov. 2, Oct. 28 Oct. 29, 1998 (1) 1997 1996 (2) 1995 (3) 1994(4) (Dollars in thousands, except per share amounts) Income statement data: Sales $697,358 $636,731 $601,143 $586,477 $611,074
Net income (loss) $ 1,780 $ 1,064 $ 1,396 $ (191) $ ( 513)
Income (loss) per common share $ 1.59 $ .90 $ 1.13 $ (.29) $ (.58)
Cash dividends per common share - - - - -
Balance sheet data (at year end): Working capital $ (2,725) $ 3,532 $ 3,056 $ (4,451) $( 8,674)
Total assets $149,567 $121,500 $124,181 $110,984 $130,821
Long-term debt (excluding current portion) $ 50,656 $ 35,918 $ 41,243 $ 28,334 $ 37,439
Common share- holders' equity $ 33,014 $ 31,315 $ 30,315 $ 28,672 $ 28,984
Book value per common share $ 29.55 $ 28.03 $ 27.11 $ 25.64 $ 25.92
Tangible book value per common share $ 25.47 $ 23.47 $ 22.22 $ 20.24 $ 19.21
(1) The Registrant opened one replacement and one new location in February and August 1998, respectively. See Management's Discussion and Analysis - Results of Operations - Sales.
(2) 53 week period. The Registrant opened two new locations in June and July, 1996. See Management's Discussion and Analysis - Results of Operations - Sales.
(3) The period presented includes the results of operations of the two Pennsylvania stores for the 30 weeks prior to their sale on May 23, 1995. The net sales of these two stores for the 30 weeks of fiscal 1995 during which they were owned by the Registrant were $29.2 million.
(4) The period presented includes the results of operations of one New Jersey store for 34 weeks prior to its closing on June 25, 1994,. Net sales for this location for the 34 weeks prior to its closing were $6.0 million.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
FINANCIAL CONDITION AND LIQUIDITY
The Registrant is a party to an Amended and Restated Revolving Credit and Term Loan Agreement (the 'Credit Agreement') with one financial institution. The Credit Agreement is secured by substantially all of the Registrant's assets and provided for a total commitment of $31,700,000, including a revolving credit facility of up to $17,500,000 and term loans referred to as Term Loan C in the amount of $11,000,000, the Stock Redemption Facility in the amount of $1,700,000 and a loan in the amount of $1,500,000, made in November 1997, to fund the acquisition of a building in, and refurbishment of, the Registrant's prepared food and meat processing facility (the 'Expansion Loan'). As of October 31, 1998 the Registrant owed $5,500,000 on Term Loan C, $1,445,000 on the Stock Redemption Facility and $1,362,500 on the Expansion Loan. Term Loan C and the Stock Redemption Loan are to be paid quarterly through December 31, 1999 with final payments of $500,000 and $1,020,000, respectively, due on February 15, 2000. The revolving credit facility also matures February 15, 2000 and the Expansion Loan is payable in monthly installments over its seven year term ending 2004 based on a ten year amortization. Interest rates are fixed on Term Loan C and the Stock Redemption Facility at 8.38% and on the Expansion Loan at 9.18%. The interest rate on the revolving credit facility floats at the Base Rate (defined below) plus .25%. The Base Rate is the rate which is the greater of (i) the bank prime loan rate as published by the Board of Governors of the Federal Reserve System, or (ii) the Federal Funds rate, plus .50%. Additionally, the Registrant may elect to use the London Interbank Offered Rate ('LIBOR') plus 2.25% to determine the interest rate on the revolving credit facility. The Credit Agreement contains certain affirmative and negative covenants which require, among other matters, the maintenance of a debt service coverage ratio. The Registrant is presently renegotiating the terms and conditions of the Credit Agreement.
The Registrant's compliance with the major financial covenant under the Amended and Restated Credit Agreement was as follows as of October 31, 1998:
Actual Amended and (As defined in the Financial Restated Credit Amended and Restated Covenant Agreement Credit Agreement)
Debt Service Coverage Ratio Not less than 1.00 to 1.00 .60 to 1.00
Although the Debt Service Coverage Ratio (the 'Ratio') is below the level required by the Credit Agreement, the Credit Agreement provides a second criteria, if the Ratio is not met, before a default is deemed to have occurred. Under this criteria, at all times when the Ratio is less than 1.00 to 1.00, the amount available and undrawn on the revolving credit facility must equal or exceed $2,500,000 which, in turn will mean that in order to remain in compliance with this covenant, the Registrant cannot borrow the last $2,500,000 of funds available under the revolving credit facility. This borrowing limitation was exceeded twice in the quarter ended October 31, 1998 and once in the quarter ended January 30, 1999. This non-compliance with the covenant was waived. After giving effect to this restriction on borrowing, the Registrant had $7,184,000 of available credit at October 31, 1998, under its revolving credit facility.
Commencing in February 1995, the Registrant pursued an asset redeployment program under the Credit Agreement utilizing the proceeds from the disposition of certain assets to repay indebtedness under the Credit Agreement. The components of the asset redeployment program concluded in November 1997 included the sale/leaseback of a supermarket property; the sale of two real estate partnership interests, one relating to property in a shopping center where the Registrant operates a supermarket and the other a non-supermarket property; and the financing of two buildings owned by the Registrant. These transactions resulted in the receipt of $1,500,000 from the financing, which is referred to above as the Expansion Loan, and $3,852,000 from the sale of properties and gains on the sales of $1,074,000. The proceeds from the sales were used to pay down the revolving credit facility and the proceeds from the Expansion Loan were used to purchase a third building for $606,000, with the balance of the proceeds used for the remodeling and refurbishment of the meat and prepared foods processing facility which is housed in the three buildings.
In 1996 the Registrant financed $4,068,000 of used equipment at three existing locations. The note bears interest at 10.58% and is payable in monthly installments over its four year term. The proceeds were used to repay existing debt.
In 1995 the Registrant concluded the sale of its two operating locations in Pennsylvania for $5,700,000 plus inventory of $2,300,000 and obtained the return of its investments of $1,200,000 in Wakefern, a related party, with respect to the two stores. All proceeds were in cash and were used to reduce outstanding debt.
On April 2, 1998 the Registrant financed the purchase of $3,000,000 of equipment for the new store location in East Windsor, New Jersey. The note bears interest at 7.44% and is payable in monthly installments over its seven year term.
On October 22, 1998 the Registrant financed the purchase of $4,000,000 of equipment for the new store location in Bound Brook, New Jersey. The note bears interest at 7.26% and is payable in monthly installments over its six year term.
On September 13, 1996 the Registrant financed $536,000 of Point of Sale ('POS') equipment at two existing locations. The note bears interest at 8.82% and is payable in monthly installments over its four year term. The proceeds were used to purchase the POS equipment.
On September 30, 1996 and November 1, 1996 the Registrant financed the purchase of $4,602,000 and $1,398,000, respectively, of equipment for the two new store locations in Marlboro and Montgomery, New Jersey. The notes bear interest at 9.02% and 8.74%, respectively, and are payable in monthly installments over their eight year terms.
No cash dividends have been paid on the Common Stock since 1979, and the Registrant has no present intentions or ability to pay any dividends in the near future on its Common Stock. The Credit Agreement does not permit the payment of any cash dividends on the Registrant's Common Stock.
Working Capital:
At October 31, 1998, the Registrant had a working capital deficiency of $2,725,000 compared to working capital of $3,532,000 at November 1, 1997 and $3,056,000 at November 2, 1996. Working capital in fiscal 1998 decreased primarily due to increases in accounts payable and the current portion of long term debt partially offset by increases in inventory and receivables. These increases were primarily due to increased sales from two new locations and the impact of double coupons. Accounts receivable consist primarily of returned checks due the Registrant, coupon receivables, third party pharmacy insurance claims and organization charge accounts. The terms of most receivables are 30 days or less. The allowance for uncollectible accounts is large in comparison to the amount of accounts receivable because the allowance consists primarily of a reserve for returned checks which are not written off until all collection efforts are exhausted. The Registrant normally requires small amounts of working capital since inventory is generally sold at approximately the same time that payments to Wakefern and other suppliers are due and most sales are for cash or cash equivalents.
Working capital in fiscal 1997 remained at approximately the same levels as the prior year.
Working capital improved in fiscal 1996 as the result of (a) the equipment financing completed in January 1996, with $3,000,000 of current debt replaced by long term borrowing; (b) the reduction in current payables relating to inventory and store operations using proceeds of long term borrowing under the revolving credit facility; and (c) an increase of $1,000,000 in current related party receivables which became due in fiscal 1997.
Working capital ratios were as follows:
October 31, 1998 .95 to 1.00 November 1, 1997 1.08 to 1.00 November 2, 1996 1.07 to 1.00
Cash flows (in millions) were as follows:
1998 1997 1996
From operations..................... $14.9 $ 9.7 $ 9.7 Investing activities................ (17.0) .5 (6.5) Financing activities................ 2.3 ( 9.6) (3.5) Totals $ .2 $ .6 $( .3)
Fiscal 1998 capital expenditures totaled $17,625,000 with depreciation of $8,273,000 compared to $3,620,000 and $8,104,000 respectively for fiscal 1997 and $13,181,000 and $8,207,000, respectively, for fiscal 1996. In fiscal 1998 long-term debt increased $16,246,000 due to the capitalization of a real estate lease for the Bound Brook, New Jersey store, the financing of equipment for the two new locations in East Windsor and Bound Brook, New Jersey, the financing of the acquisition and refurbishing of the meat and prepared foods processing facility in Linden, New Jersey and financing obtained under the revolving credit facility. These increases were partially offset by cash generated by operations used to pay down existing debt.
In fiscal 1997 long-term debt decreased $3,981,000, using proceeds from the sale of assets under the asset redeployment program and cash generated by operations which was partially offset by financing obtained under the Stock Redemption Facility, and the capitalization of a real estate lease for the Aberdeen, New Jersey store.
In fiscal 1996 long-term debt increased $10,106,000 as the result of the financing of POS equipment in two locations and equipment in the two new locations in Marlboro and Montgomery, New Jersey and the capitalization of a real estate lease for the Montgomery store.
The Registrant had $7,184,000 of available credit, at October 31, 1998, under its revolving credit facility. The Registrant is presently renegotiating the terms and conditions of the Credit Agreement in order to more adequately meet its operating needs, scheduled capital expenditures and debt service for fiscal 1999.
RESULTS OF OPERATIONS
Sales:
The Company's sales were $697.4 million, $636.7 million and $601.1 million, respectively in fiscal 1998, 1997 and 1996. This represents an increase of 9.5 percent in 1998 and an increase of 5.9 percent in 1997. These changes in sales levels were the result of the opening of two new locations in February and August 1998, the impact of significantly increased promotional activities and expenditures and the full year of operations in fiscal 1997 of two locations opened in 1996. The increase in fiscal 1997 was partially offset by sales from a 53rd week in fiscal 1996. Comparable store sales increased 4.8% in fiscal 1998 and 1.7% in fiscal 1997 after adjusting for the 53rd week in fiscal 1996. A significant increase in promotional activities, including a variety of incentive programs and double couponing, in the current year contributed to this increase.
Gross Profit:
Gross profit totaled $176.7 million in fiscal 1998 compared to $161.0 million in fiscal 1997 and $152.1 million in fiscal 1996. Gross profit as a percent of sales was 25.3%, in each of the three fiscal years 1998, 1997 and 1996.
In fiscal 1998, 1997 and 1996 gross profit percentage was positively affected by the continued improvement in product mix and Wakefern incentive programs for the new locations. However, this improvement was offset by price reductions instituted to combat increased competitive pressure in the Registrant's marketing area.
Patronage dividends applied as a reduction of the cost of merchandise sold were $7,438,000, $6,633,000 and $6,905,000 for the last three fiscal years. This translates to 1.07%, 1.04% and 1.15% of sales for the respective periods.
Fiscal Years Ended 10/31/98 11/01/97 11/02/96 (in millions)
Sales ................................ $ 697.4 $ 636.7 $ 601.1 Gross profit ......................... 176.7 161.0 152.1 Gross profit percentage .............. 25.3% 25.3% 25.3%
Operating, General and Administrative Expenses:
Fiscal 1998 expenses totaled $170.6 million compared to $155.9 million in fiscal 1997 and $147.0 million in fiscal 1996.
Fiscal Years Ended 10/31/98 11/01/97 11/02/96 (in millions)
Sales........................ $697.4 $636.7 $601.1 Operating, General and Administrative Expenses...... 170.6 155.9 147.0 % of Sales................... 24.5% 24.5% 24.5%
Operating, general and administrative expenses as a percent of sales remained the same in fiscal 1998 compared to fiscal 1997. Decreases in general liability insurance expense, depreciation and amortization and corporate administrative expense, were offset by increases in selling expense and repairs and maintenance costs. The decrease in general liability insurance expense was the result of final prior year premium calls from Insure-Rite, Ltd., a Wakefern affiliate which provided the Registrant with liability and property insurance coverage, being expensed in fiscal 1997. The increase in selling expense was the result of increased promotional activity, including a variety of incentive programs and double couponing, in the Registrant's marketing area. As a percentage of sales, general liability insurance costs decreased .23%, depreciation and amortization decreased .12% and corporate administrative expense decreased .06%. These decreases were offset by increases in selling expense of .31% and repairs and maintenance expense of .07%. Pre-opening costs were $702,000 in fiscal 1998.
Operating, general and administrative expenses as a percent of sales remained the same in fiscal 1997 compared to fiscal 1996. Decreases, primarily related to the two new locations opened in fiscal 1996, in selling expense and labor and related fringe benefit costs, as well as reduced corporate administrative expense, were offset by increases in general liability insurance expense, other store expenses, which include debit and credit card processing fees and Wakefern support services, and the amortization of deferred pre-store opening costs. The general liability insurance increase was the result of premium calls from Insure-Rite, Ltd., for policy years ended December 1, 1993 and December 1, 1994, as previously discussed in the Commitments and Contingencies footnote in prior years financial statements. As a percentage of sales, selling expense decreased .27%, payroll and related fringe benefit costs decreased .10% and corporate administrative expense decreased .09%. These decreases were offset by increases in general liability insurance of .27%, other store expenses of .18% and amortization of deferred pre-store opening costs of .04%. Pre-opening costs were $505,000 in fiscal 1997.
Amortization expense decreased in fiscal 1998 to $1,339,000 compared to $1,956,000 in fiscal 1997 and $1,826,000 in fiscal 1996. The decrease in fiscal 1998, as compared to fiscal 1997, was the result of a change in accounting for pre-store opening costs and decreased amortization of deferred financing costs
and deferred escalation rents partially offset by increased amortization of bargain leases. The increase in fiscal 1997, as compared to fiscal 1996, was the result of increased amortization of deferred escalation rents and deferred pre- store opening costs partially offset by decreased amortization of goodwill and deferred financing costs. See Note 1 of Notes to Consolidated Financial Statements - Pre-opening Costs.
Interest Expense:
Interest expense totaled $3.9 million in fiscal 1998 compared to $4.3 million in fiscal 1997 and $3.5 million in fiscal 1996. The decrease in fiscal 1998, as compared to fiscal 1997, was due to a decrease in average debt outstanding since November 1, 1997 and lower interest rates on the Registrant's credit facility. The increase in fiscal 1997, as compared to fiscal 1996, was due to an increase in the average debt outstanding since November 2, 1996 partially offset by lower interest rates on the Registrant's credit facility. Interest income was $0.4 million in fiscal 1998 compared to $0.3 million in fiscal 1997 and $0.2 million in fiscal 1996.
Income Taxes:
The Registrant recorded a tax provision of $0.9 million in fiscal 1998, $0.6 million in fiscal 1997 and $0.3 million in fiscal 1996. See Note 14 of Notes to Consolidated Financial Statements.
Net Income:
The Registrant had net income of $1,780,000 or $1.59 per share in fiscal 1998 compared to net income of $1,064,000 or $.90 per share in fiscal 1997. 1997 results included a net gain after tax on real estate transactions of $413,000 or $.37 per share. Earnings before interest, taxes, depreciation and amortization ('EBITDA') for fiscal 1998 were $15,765,000 as compared to $15,744,000 in fiscal 1997. Fiscal 1997 EBITDA includes $656,000 as a result of the gain on real estate transactions.
Fiscal 1996 resulted in net income of $1,396,000 or $1.13 per share. EBITDA for fiscal 1996 were $15,107,000.
Shares outstanding were 1,117,150 for fiscal 1998 and fiscal 1997 and 1,118,150 for fiscal 1996. Per share amounts for fiscal 1998, 1997 and 1996 are after Preferred Stock dividends of $0, $57,000 and $136,000, respectively.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ('FASB') issued Statement of Financial Accounting Standards ('SFAS') No. 130, 'Reporting Comprehensive Income.' This Statement establishes standards for reporting and display of comprehensive income and its components (revenue, expenses, gains, and losses) in a full set of general-purpose financial statements. This Statement requires that all items that are required to be recognized under accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. The Registrant does not expect a material impact from adopting the provisions of SFAS No. 130 which becomes effective for the Registrant in fiscal 1999.
In June 1997, the FASB issued SFAS No. 131, 'Disclosure about Segments of an Enterprise and Related Information.' This Statement establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. It also establishes standards for related disclosures about products and services, geographic areas, and major customers. The Registrant does not expect a material impact from adopting the provisions of SFAS No. 131 which becomes effective for the Registrant in fiscal 1999.
In June 1998, the FASB issued SFAS 133, 'Accounting for Derivative Instruments and Hedging Activities.' This Statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, (collectively referred to as derivatives) and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. The Registrant does not expect a material impact from adopting the provisions of SFAS No. 133 which becomes effective for the Registrant in fiscal 2000.
Year 2000.
For information with respect to Year 2000 compliance, see Item 1. Business - Year 2000.
Item 7A.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Except for indebtedness under the Registrant's revolving credit facility which is variable rate financing, the balance of the Registrant's indebtedness is fixed rate financing. The Registrant believes that its exposure to market risk relating to interest rate risk is not material. The Registrant believes that its business operations are not exposed to market risk relating to foreign currency exchange risk, commodity price risk or equity price risk.
Item 8.
Item 8. Financial Statements and Supplementary Data
See Consolidated Financial Statements and Schedules included in Part IV, Item 14.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Part III
Item 10.
Item 10. Directors and Executive Officers of the Registrant
The information required in response to this item is contained in the Registrant's definitive proxy statement to be filed pursuant to Regulation 14A under the caption "Directors and Executive Officers of the Registrant" and such information is incorporated herein by reference.
Item 11.
Item 11. Executive Compensation
The information required in response to this item is contained in the Registrant's definitive proxy statement to be filed pursuant to Regulation 14A under the caption "Executive Compensation" and such information is incorporated herein by reference.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required in response to this item is contained in the Registrant's definitive proxy statement to be filed pursuant to Regulation 14A under introductory paragraphs and under the captions "Principal Shareholders" and "Election of Directors" and such information is incorporated herein by reference.
Item 13.
Item 13. Certain Relationships and Related Transactions
The information required in response to this item is contained in the Registrant's definitive proxy statement to be filed pursuant to Regulation 14A under the caption "Executive Compensation - Certain Transactions" and such information is incorporated herein by reference.
Part IV
Item 14.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
a.1. Audited financial statements and Page No. supplementary data
Independent Auditors' Report
Foodarama Supermarkets, Inc. and Subsidiaries Consolidated Financial Statements:
Balance Sheets as of October 31, 1998 -3 and November 1, 1997.
Statements of Operations for each of the fiscal years ended October 31, 1998, November 1, 1997 and November 2, 1996.
Statements of Shareholders' Equity for each of the fiscal years ended October 31, 1998, November 1, 1997 and November 2, 1996.
Statements of Cash Flows for each of the fiscal years ended October 31, 1998, November 1, 1997 and November 2, 1996.
Notes to Consolidated Financial Statements to 25
a.2. Financial Statement Schedules
Schedule II S-1 Schedules other than Schedule II have been omitted because they are not applicable.
a.3. Exhibits E-1 to 6
b. Reports on Form 8-K
No reports on Form 8-K were required to be filed during the fourth quarter of fiscal 1998.
* * * * * *
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
FOODARAMA SUPERMARKETS, INC. (Registrant)
/S/ Michael Shapiro Michael Shapiro Senior Vice President, Chief Financial Officer
/S/ Joseph C. Troilo Joseph C. Troilo Senior Vice President, Principal Accounting Officer
Date: January 29, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Name Title Date
/S/ Joseph J. Saker Joseph J. Saker Chairman of the Board January 28, 1999 of Directors and President, Chief Executive Officer
/S/ Charles T. Parton Charles T. Parton Director January 28, 1999
/S/ Albert A. Zager Albert A. Zager Director January 28, 1999
/S/ Richard Saker Richard Saker Executive Vice President, January 28, 1999 Secretary and Director, Chief Operating Officer
Independent Auditors' Report
Board of Directors and Shareholders Foodarama Supermarkets, Inc. Freehold, New Jersey
We have audited the accompanying consolidated balance sheets of Foodarama Supermarkets, Inc. and Subsidiaries as of October 31, 1998 and November 1, 1997 and the related consolidated statements of operations, shareholders' equity and cash flows for the fiscal years ended October 31, 1998, November 1, 1997 and November 2, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits 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 31, 1998 and November 1, 1997 and the results of their operations and their cash flows for the fiscal years ended October 31, 1998, November 1, 1997 and November 2, 1996 in conformity with generally accepted accounting principles.
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.
Amper, Politziner & Mattia P.A.
AMPER, POLITZINER & MATTIA P.A.
January 22, 1999 Edison, New Jersey
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES Consolidated Balance Sheets October 31, 1998 and November 1, 1997 (In thousands)
Assets
1998 1997 Current assets Cash and cash equivalents $ 3,905 $ 3,678 Merchandise inventories 37,804 33,585 Receivables and other current assets 3,382 3,576 Prepaid income taxes 1,005 392 Related party receivables - Wakefern 6,860 5,389 Related party receivables - other 152 238 53,108 46,858
Property and equipment Land 308 93 Buildings and improvements 1,220 829 Leasehold improvements 34,031 32,064 Equipment 75,756 65,935 Property under capital leases 32,353 19,443 143,668 118,364 Less accumulated depreciation and amortization 65,389 62,210 78,279 56,154
Other assets Investments in related parties 9,706 9,256 Intangibles 4,562 5,100 Other 2,384 2,847 Related party receivables - Wakefern 1,370 1,191 Related party receivables - other 158 94 18,180 18,488
$ 149,567 $ 121,500
See notes to consolidated financial statements.
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES Consolidated Balance Sheets October 31, 1998 and November 1, 1997 (In thousands)
Liabilities and Shareholders' Equity
1998 1997 Current liabilities Current portion of long-term debt $ 7,812 $ 6,647 Current portion of long-term debt, related party 211 66 Current portion of obligations under capital leases 667 469 Deferred income tax liability 1,464 945 Accounts payable Related party - Wakefern 30,525 24,381 Others 6,446 3,763 Accrued expenses 8,708 7,055 55,833 43,326
Long-term debt 20,289 17,874 Long-term debt, related party 916 719 Obligations under capital leases 29,451 17,325 Deferred income taxes 3,508 3,828 Other long-term liabilities 6,556 7,113 60,720 46,859
Shareholders' equity Common stock, $1.00 par; authorized 2,500,000 shares; issued 1,621,627 shares; outstanding 1,117,150 shares 1,622 1,622 Capital in excess of par 2,351 2,351 Retained earnings 35,751 33,971 Minimum pension liability (81) - 39,643 37,944 Less 504,477 shares held in treasury, at cost 6,629 6,629 33,014 31,315
$ 149,567 $ 121,500
See notes to consolidated financial statements.
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES Consolidated Statements of Operations Fiscal Years Ended October 31, 1998, November 1, 1997 and November 2, 1996 (In thousands, except per share data)
1998 1997 1996
Sales $ 697,358 $ 636,731 $ 601,143
Cost of merchandise sold 520,624 475,764 449,077
Gross profit 176,734 160,967 152,066
Operating, general and administrative expenses 170,581 155,939 146,992
Income from operations 6,153 5,028 5,074
Other (expense) income: Gain on real estate transactions - 656 - Interest expense (3,881) (4,273) (3,522) Interest income 448 279 183 (3,433) (3,338) (3,339)
Earnings before income tax provision 2,720 1,690 1,735
Income tax provision (940) (626) (339)
Net income $ 1,780 $ 1,064 $ 1,396
Per share information:
Net income per common share, basic and diluted $ 1.59 $ .90 $ 1.13
Weighted average shares outstanding 1,117,150 1,117,150 1,118,150
See notes to consolidated financial statements.
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES Consolidated Statements of Shareholders' Equity Fiscal Years Ended October 31, 1998, November 1, 1997 and November 2, 1996 (In thousands, except per share data)
See notes to consolidated financial statements.
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows Fiscal Years Ended October 31, 1998, November 1, 1997 and November 2, 1996 (In thousands)
1998 1997 1996 Cash flows from operating activities Net income $ 1,780 $ 1,064 1,396 Adjustments to reconcile net income to net cash from operating activities Depreciation 8,273 8,104 8,207 Amortization, intangibles 538 375 563 Amortization, deferred financing costs 535 642 820 Amortization, deferred rent escalation 266 434 353 Amortization, other assets - 505 90 Gain on real estate transactions - (656) - Deferred income taxes 253 626 136 (Increase) decrease in Merchandise inventories (4,219) (1,931) (3,985) Receivables and other current assets 194 (845) 185 Prepaid income taxes (613) 582 (974) Other assets 90 (78) 2,484 Related party receivables - Wakefern (1,650) 481 (1,386) Increase (decrease) in Accounts payable 8,827 (1,343) 2,690 Income taxes payable - - (77) Other liabilities 695 1,739 (774) 14,969 9,699 9,728
Cash flows from investing activities Net proceeds from real estate transactions - 2,938 - Cash paid for the purchase of property and equipment (17,019) (3,620) (6,645) Decrease in related party receivables - other 22 1,159 95 (16,997) 477 (6,550)
Cash flows from financing activities Payment for redemption of preferred stock - (1,700) - Preferred stock dividend payments - (57) (559) Proceeds from issuance of debt 9,937 1,700 13,202 Principal payments under long-term debt (6,963) (9,213) (15,768) Principal payments under capital lease obligations (586) (91) (197) Principal payments under long-term debt, related party (108) (24) (177) Deferred financing costs (25) (227) - 2,255 (9,612) (3,499)
Net change in cash and cash equivalents 227 564 (321)
Cash and cash equivalents, beginning of year 3,678 3,114 3,435
Cash and cash equivalents, end of year $ 3,905 $ 3,678 3,114
Supplemental disclosures of cash paid (received) Interest $ 3,960 $ 4,277 3,526 Income taxes 900 (606) 1,263
See notes to consolidated financial statements.
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 21 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 1998 consists of the 52 weeks ended October 31, 1998, fiscal 1997 consists of the 52 weeks ended November 1, 1997 and fiscal 1996 consists of the 53 weeks ended November 2, 1996.
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.
Industry Segment The Company operates in one industry segment, the retail sale of food and nonfood products, primarily in the central New Jersey region.
Reclassifications Certain reclassifications have been made to prior years' financial statements in order to conform to the current year presentation.
Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash Equivalents The Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents.
Merchandise Inventories Merchandise inventories are stated at the lower of cost (first-in, first-out) or market with cost being determined under the retail method.
Property and Equipment Property and equipment is stated at cost and is depreciated on a straight-line basis over the estimated useful lives of between three and ten years for equipment, the shorter of the useful life or lease term for leasehold improvements, and twenty years for buildings.
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 - (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 investment in its principal supplier, Wakefern, is stated at cost (see Note 4).
Intangibles Intangibles consist of goodwill and favorable operating lease costs. Goodwill is being amortized on a straight-line basis over periods from 15 to 36 years. The favorable operating lease costs are being amortized on a straight-line basis over the terms of the related leases which range from 12 to 24 years.
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 $16.4, $13.2 and $14.0 million for the fiscal years 1998, 1997 and 1996, respectively.
Pre-opening Costs Effective November 2, 1997, the Company elected early application of Statement of Position 98-5 ("SOP 98-5"), "Reporting on the Cost of Start-Up Activities." In accordance with SOP 98-5, the Company expenses costs associated with the opening of new stores as incurred. The Company previously amortized these costs over a period of twelve months, commencing one month after the opening of the store. The effect of adopting SOP 98-5 on net income for the year ended October 31, 1998 was a decrease of $249,000 or $.22 per share. Financial statements for the years ended November 1, 1997 and November 2, 1996 have not been restated.
Store Closing Costs The costs, net of amounts expected to be recovered, are expensed when a decision to close a store is made. It is reasonably possible that these estimates may change in the near term. Operating results continue to be reported until a store is closed.
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 - (continued) Earnings Per Share Effective for the Company's financial statements for the fiscal year ended October 31, 1998, the Company adopted Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"). SFAS 128 replaces the presentation of primary earnings per share ("EPS") and fully diluted EPS with a presentation of basic EPS and diluted EPS, respectively. Basic EPS excludes dilution and is computed by dividing earnings available to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted EPS assumes conversion of dilutive options and warrants, and the issuance of common stock for all other potentially dilutive equivalent shares outstanding.
All EPS data for prior periods has been restated. The adoption of SFAS 128 did not have a material effect on the Company's reported EPS amounts.
Employee Benefit Plan As of November 2, 1997, the Company adopted Statement of Financial Accounting Standards No. 132 ("SFAS 132"), "Employers' Disclosures about Pensions and Other Postretirement Benefits." SFAS 132 modifies the disclosure requirements for pensions and other postretirement benefits, but does not change the measurement or recognition of those plans. Adoption of this statement had no effect on the Company's financial position or results of operations.
Note 2 - Concentration of Cash Balance As of October 31, 1998 and November 1, 1997, cash balances of approximately $561,000 and $954,000, respectively, were maintained in bank accounts insured by the Federal Deposit Insurance Corporation (FDIC). These balances exceed the insured amount of $100,000.
Note 3 -Receivables and Other Current Assets October 31, November 1, 1998, 1997
Accounts receivable $ 2,380 $ 2,676 Prepaids 1,321 1,279 Rents receivable 83 94 Less allowance for uncollectible accounts (402) (473) $ 3,382 $ 3,576
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Tabular dollars in thousands, except per share amounts)
Note 4 - Related Party Transactions Wakefern Food Corporation As required by Wakefern's By-Laws, all members of the cooperative are required to make an investment in the common stock of Wakefern for each supermarket operated ("Store Investment Program"), with the exact amount per store computed in accordance with a formula based on the volume of each store's purchases from Wakefern. The maximum required investment per store was $450,000 at October 31, 1998 and November 1, 1997 (See Note 22). The Company has a 12.6% investment in Wakefern of $8,877,000 at October 31, 1998 and $8,427,000 at November 1, 1997. Wakefern is operated on a cooperative basis for its members. The shares of stock in Wakefern are assigned to and held by Wakefern as collateral for any obligations due Wakefern. In addition, the obligations to Wakefern are personally guaranteed by principal officers/shareholders of the Company. As of October 31, 1998 and November 1, 1997, the Company was obligated to Wakefern for $1,113,000 and $757,000, respectively, for the increase in its required investment (see Note 9 Long-term Debt, Related Party).
The Company also has an investment of approximately 13% in Insure-Rite, Ltd., a company affiliated with Wakefern, which was $829,000 at October 31, 1998 and November 1, 1997. Insure-Rite, Ltd. provides the Company with liability and property insurance coverage. As of October 31, 1998 and November 1, 1997, the Company was obligated to Insure-Rite, Ltd. for $14,000 and $28,000, respectively (see Note 9 - Long - term Debt, Related Party).
In fiscal 1997, Insure-Rite, Ltd. made two retrospective premium calls for the 1992/93 and the 1993/94 policy years for $869,000 and $770,000, respectively. The premium calls represent actuarial projections of claims to be paid in excess of the deposit premium paid by the Company. The Company also had a balance due in fiscal 1997 of $139,000 for premium calls for the 1991/92 policy year. After the 1993/94 policy year, Insure-Rite, Ltd. changed its policy to provide for a fixed premium covering all insured losses and the elimination of premium calls. The premium calls are payable in scheduled semi-annual payments through September 1999. No interest is being charged on this obligation. At October 31, 1998 and November 1, 1997, $1,092,000 and $686,000 was included in accounts payable-related party, respectively, and $1,092,000 was included in other long- term liabilities at November 1, 1997. Insurance premiums paid to Insure-Rite, Ltd. for fiscal years 1998, 1997 and 1996 were $3,031,000, $2,702,000 and $2,738,000, respectively.
As a stockholder member of Wakefern, the Company earns a share of an annual Wakefern patronage dividend. The dividend is based on the distribution of operating profits on a pro rata basis in proportion to the dollar volume of business transacted by each member with Wakefern during each fiscal year. It is the Company's policy to accrue quarterly an estimate of the annual patronage dividend. The Company reflects the patronage dividend as a reduction of the cost of merchandise in the consolidated statements of operations. For fiscal 1998, 1997 and 1996, the patronage dividends were $7,438,000, $6,633,000 and $6,905,000, respectively.
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Tabular dollars in thousands, except per share amounts)
Note 4 -Related Party Transactions - (continued) Wakefern Food Corporation - (continued) At October 31, 1998 and November 1, 1997, the Company has current receivables due from Wakefern of approximately $6,860,000 and $5,389,000, respectively, representing patronage dividends, vendor rebates, coupons and other receivables due in the ordinary course of business and a noncurrent receivable representing a deposit of approximately $1,370,000 and $1,191,000, respectively.
In September 1987, the Company and all other stockholder members of Wakefern entered into an agreement, as amended in 1992, with Wakefern which provides for certain commitments and restrictions on all stockholder members of Wakefern. The agreement contains an evergreen provision providing for an indefinite term and is subject to termination ten years after the approval of 75% of the outstanding voting stock of Wakefern. Under the agreement, each stockholder, including the Company, agreed to purchase at least 85% of its merchandise in certain defined product categories from Wakefern and, if it fails to meet such requirements, to make payments to Wakefern based on a formula designed to compensate Wakefern for its lost profit. Similar payments are due if Wakefern loses volume by reason of the sale of one or more of a stockholder's stores, merger with another entity or on the transfer of a controlling interest in the stockholder.
The Company fulfilled its obligation to purchase a minimum of 85% in certain defined product categories from Wakefern for all periods presented. The Company's merchandise purchases from Wakefern, including direct store delivery vendors processed by Wakefern, approximated $494, $447 and $416 million for the fiscal years 1998, 1997 and 1996, respectively.
Wakefern charges the Company for, and provides the Company with product and support services in numerous administrative functions. These services include advertising, insurance, supplies, technical support for communications and electronic payment systems, equipment purchasing and the coordination of coupon processing.
In addition to its investment in Wakefern, which carries only voting rights, the Company's President serves as a member of Wakefern's Board of Directors and its finance committee. Several of the Company's officers and employees also hold positions on various Wakefern committees.
Other The Company has receivables from related parties that include shareholders, directors, officers and real estate partnerships. At October 31, 1998 and November 1, 1997, approximately $295,000 and $307,000, respectively, of these receivables, consist of notes bearing interest at 7% to 9%. These receivables have been classified based upon the scheduled payment terms. The remaining amounts are not due upon any specified date and do not bear interest. The Company's management has classified these loans based upon expected payment dates.
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Tabular dollars in thousands, except per share amounts)
Note 4 -Related Party Transactions - (continued) Fair Value Determination of the fair value of the above receivables is not practicable due to their related party nature. 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.
Note 5 -Intangibles October 31, November 1, 1998 1997
Goodwill $ 3,493 $ 3,493 Favorable operating lease costs, net 4,685 4,685 8,178 8,178 Less accumulated amortization 3,616 3,078 $ 4,562 $ 5,100
Note 6- Accrued Expenses October 31, November 1, 1998 1997
Payroll and payroll related expenses $ 4,451 $ 3,579 Insurance 417 324 Sales, use and other taxes 1,020 924 Interest 128 207 Employee benefits 673 569 Occupancy costs 1,148 964 Real estate taxes 344 276 Other 527 212 $ 8,708 $ 7,055
Note 7 -Real Estate Transactions During the fiscal year ended November 1, 1997, the Company sold its Shrewsbury and West Long Branch, New Jersey real estate partnership interests, which resulted in total proceeds and a gain before income taxes of $875,000. The Company had other miscellaneous real estate transactions that resulted in a loss before income taxes of $219,000 in fiscal year 1997.
Note 8 -Long-term Debt Long-term debt consists of the following: October 31, November 1, 1998 1997
Revolving note $ 5,816 $ 3,773 Term loan 5,500 9,500 Stock redemption note 1,445 1,700 Expansion loan 1,363 - Other notes payable 13,977 9,548 28,101 24,521 Less current portion 7,812 6,647 $ 20,289 $ 17,874
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Tabular dollars in thousands, except per share amounts)
Note 8 -Long-term Debt - (continued) The Company has an amended and restated Revolving Credit and Term Loan Agreement with a financial institution (the "Agreement"), which was last amended January 15, 1998. The Agreement is collateralized by substantially all of the Company's assets and provided for a total commitment of $31,700,000. The Agreement consists of a Revolving Note, a Term Loan, a Stock Redemption Note and an Expansion Loan.
The Revolving Note has an overall availability of $17,500,000, not to exceed 60% of eligible inventory. The Note bears interest at .25% over prime and matures February 15, 2000. The Agreement provides the Company with the option to borrow a portion of the Revolving Note under a Eurodollar loan rate based on LIBOR plus 2.25%. Interest rates on the Eurodollar loans are fixed at the beginning of the loan term, which cannot exceed six months. At November 1, 1997, $1,800,000 was under a fixed Eurodollar loan rate of 8.97%, which expired December 1997.
The prime rate at October 31, 1998 and November 1, 1997 was 8% and 8.50%, respectively.
The Company had a $2,000,000 letter of credit outstanding at October 31, 1998 and November 1, 1997. A commitment fee of .5% is charged on the unused portion of the Revolving Note. Available credit under the Revolving Note was $9,684,000 and $11,727,000 at October 31, 1998 and November 1, 1997. As of October 31, 1998 and November 1, 1997, $5,796,000 and $5,201,000 of cash receipts on hand or in transit were restricted for application against the Revolving Note balance.
The Agreement places restrictions on dividend payments and requires the maintenance of a debt service coverage ratio. If the debt service coverage ratio is not met, the availability of the Revolving Note is reduced by $2,500,000. At October 31, 1998, the Company did not meet the debt service coverage ratio; therefore, the Revolving Note availability was reduced to $7,184,000.
The Term Loan is payable in quarterly principal installments, through December 31, 1999, of $1,000,000 plus interest at 8.38%, with the remaining balance of $500,000 due February 15, 2000. At November 1, 1997, the Term Loan bore interest at 9.22%.
The Stock Redemption Note was used to reimburse the funding of the redemption of the Preferred Stock on March 31, 1997. The note is payable in quarterly principal installments of $85,000, commencing March 31, 1998 through December 31, 1999, plus interest at 8.38%, with the remaining principal balance of $1,020,000 due February 15, 2000. At November 1, 1997, this note bore interest at 9.22%.
On November 14, 1997, the Company obtained an Expansion Loan of $1,500,000 which was used to purchase a building and equipment in Linden, New Jersey. The Expansion Loan is collateralized by the building, all improvements and equipment. The loan is payable in monthly principal installments of $12,500 plus interest at 9.18%, with a final principal payment of $462,500 due December 1, 2004.
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Tabular dollars in thousands, except per share amounts)
Note 8 -Long-term Debt - (continued) Other Notes Payable Included in other notes payable are the following: October 31, November 1, 1998 1997 Note payable to a financing institution, maturing October 2004, payable at $56,000 per month plus interest at 7.26%, collateralized by related equipment. $ 4,000 $ -
Note payable to a financing institution, maturing April 2005, payable at $46,000 per month including interest at 7.44%, collateralized by related equipment. 2,821 -
Note payable to a financing institution, maturing January 2000, payable at $105,000 per month including interest at 10.58%, collateralized by related equipment. 1,550 2,578
Various equipment loans maturing through November 2004, at interest rates ranging from 5.87% to 10.58%, collateralized by various equipment. 5,606 6,970
Total other notes payable. $ 13,977 $ 9,548
Aggregate maturities of long-term debt are as follows:
Fiscal Year
1999 $ 7,812 2000 11,006 2001 2,003 2002 2,098 2003 2,201 Thereafter 2,981
As of October 31, 1998, the fair value of long-term debt was approximately equivalent to its carrying value, due to the fact that the interest rates currently available to the Company for debt with similar terms are approximately equal to the interest rates for its existing debt.
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Tabular dollars in thousands, except per share amounts)
Note 9 -Long-term Debt, Related Party As of October 31, 1998 and November 1, 1997, the Company was indebted for an investment in Wakefern in the amount of $1,113,000 and $757,000 and for an investment in Insure-Rite, Ltd. in the amount of $14,000 and $28,000, respectively (see Note 4). The debt is non-interest bearing and payable in scheduled installments as follows:
Fiscal Year
1999 $ 211 2000 208 2001 257 2002 261 2003 91 Thereafter 99
Determination of the fair value of the above long-term debt is not practicable due to its related party nature.
Note 10 -Other Long-term Liabilities October 31, November 1, 1998 1997
Deferred escalation rent $ 4,675 $ 4,409 Insure-Rite, Ltd. retro premium, net of current portion (Note 4) - 1,092 Postretirement benefit cost 975 859 Other 906 753 $ 6,556 $ 7,113
Note 11 -Long-term Leases Capital Leases October 31, November 1, 1998 1997
Real estate $ 32,353 $ 19,443 Less accumulated amortization 6,385 5,406 $ 25,968 $ 14,037
During fiscal 1997, the Company sold the Aberdeen, New Jersey store at a sale price of $2,300,000, which resulted in a gain of $199,000. The store was leased back for a lease term of twenty-five years. The lease was capitalized and the gain was deferred and is being amortized over the life of the lease.
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Tabular dollars in thousands, except per share amounts)
Note 11 -Long-term Leases - (continued) 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 31, 1998:
Fiscal Year
1999 $ 3,382 2000 3,382 2001 3,397 2002 3,546 2003 3,601 Thereafter 46,362 Total minimum lease payments 63,670 Less amount representing interest 33,552 Present value of net minimum lease payments 30,118 Less current maturities 667 Long-term maturities $ 29,451
Included in the above are five leases on stores, one of which is being leased from a partnership in which the Company had a 40% limited partnership interest at annual lease payments of $663,000 in fiscal 1997 and $628,000 in fiscal 1996. The 40% interest was sold in fiscal 1997.
Operating Leases The Company is obligated under operating leases for rent payments expiring at various dates through 2021. Certain leases provide for the payment of additional rentals based on certain escalation clauses and six leases require a further rental payment based on a percentage of the stores' annual sales in excess of a stipulated minimum. Percentage rent expense was $229,000, $219,000, and $225,000 for the fiscal years 1998, 1997 and 1996, 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 1998 Fiscal 1997 Fiscal 1996
Land and buildings $ 10,928 $ 10,471 $ 9,824 Less subleases (1,765) (1,963) (2,140) $ 9,163 $ 8,508 $ 7,684
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Tabular dollars in thousands, except per share amounts)
Note 11 -Long-term Leases - (continued) Operating Leases - (continued) The minimum rental commitments under all noncancellable operating leases reduced by income from noncancellable subleases at October 31, 1998 are as follows:
Income from Land and Noncancellable Net Rental Fiscal Year Buildings Subleases Commitment
1999 $ 10,239 $ 1,556 $ 8,683 2000 10,181 945 9,236 2001 9,701 847 8,854 2002 9,031 475 8,556 2003 8,608 255 8,353 Thereafter 51,504 23 51,481 $ 99,264 $ 4,101 $ 95,163
The Company is presently leasing one of its supermarkets, a garden center and liquor store from a partnership in which the president has an interest, at an annual aggregate rental of $660,000, $645,000 and $591,000 for the fiscal years 1998, 1997 and 1996, respectively.
Note 12 -Mandatory Redeemable Preferred Stock In fiscal 1993, the Company received $1,700,000 for the issuance of 136,000 shares of Preferred Stock at $12.50 par value per share to Wakefern Food Corporation. Dividends on the Preferred Stock were cumulative and accrued at an annual rate of 8%. The Preferred Stock was redeemed and canceled on March 31, 1997, at par value, for $1,700,000. As of the redemption date, all dividends had been declared and paid.
Note 13 -Stock Options On May 10, 1995, the Company's shareholders approved the Foodarama Supermarkets, Inc. 1995 Stock Option Plan, which provides for the granting of options to purchase up to 100,000 common shares until January 31, 2005, at prices not less than fair market value at the date of the grant. Options granted under the plan vest over a period of three years from the date of grant. At October 31, 1998, no options had been granted.
Note 14 -Income Taxes The income tax provisions consist of the following:
Fiscal 1998 Fiscal 1997 Fiscal 1996 Federal: Current $ 638 $ - $ - Deferred 99 526 114 State and local: Current 49 - 203 Deferred 154 100 22 $ 940 $ 626 $ 339
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Tabular dollars in thousands, except per share amounts)
Note 14 -Income Taxes The following tabulations reconcile the federal statutory tax rate to the effective rate:
Fiscal 1998 Fiscal 1997 Fiscal 1996
Tax provision at the statutory rate 34.0 % 34.0 % 34.0 % State and local income tax provision, net of federal income tax 5.9 % 5.9 % 5.9 % Goodwill amortization not deductible for tax purposes 1.8 % 2.9 % 2.8 % Adjustment to prior years tax provision(5.4)% (6.3)% (2.7)% Adjustment to estimated tax liabilities - - (19.0)% Other (1.7)% .5 % (1.5)% Actual tax provision 34.6 % 37.0 % 19.5 %
Net deferred tax assets and liabilities consist of the following: October 31, November 1, 1998 1997 Current deferred tax assets: Reserves $ 663 $ 654 Other 698 646 1,361 1,300
Current deferred tax liabilities: Patronage dividend receivable (1,623) (1,401) Inventories (188) (194) Prepaid pension (488) (451) Other (526) (199)
(2,825) (2,245)
Current deferred income tax liability $ (1,464) $ (945)
Noncurrent deferred tax assets: Alternative minimum tax credits $ - $ 66 State loss carryforward 741 664 Lease obligations 1,691 1,532 Other 368 380 2,800 2,642 Valuation allowance (506) (617) 2,294 2,025 Noncurrent deferred tax liabilities: Depreciation of fixed assets (4,718) (4,606) Pension obligations (330) (347) Other (754) (900) (5,802) (5,853)
Noncurrent deferred income tax liability $ (3,508) $ (3,828)
State loss carryforwards expire October 2003 through October 2005.
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Tabular dollars in thousands, except per share amounts)
Note 15 -Commitments and Contingencies Legal Proceedings The Company is involved in various legal actions and claims arising in the ordinary course of business. Management believes that the outcome of any such litigation and claims will not have a material effect on the Company's financial position or results of operations.
Guarantees The Company remains contingently liable under leases assumed by third parties. As of October 31, 1998, the minimum annual rental under these leases amounted to approximately $1,469,000, expiring at various dates through 2011. The Company has not experienced and does not anticipate any material nonperformance by such third parties.
Contingencies In May 1995 the Company sold its two operating locations in Pennsylvania. If the purchaser of these supermarkets ceases to operate prior to May 2000, the Company may be liable for an unfunded pension withdrawal liability. As of October 31, 1998 the potential withdrawal liability was approximately $860,000. The Company fully anticipates that the purchaser of these stores, a Wakefern member, will remain in operation throughout this period.
Note 16 -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. As of October 31, 1998 and November 1, 1997, the plans' assets included common stock of the Company with a fair value of $1,167,000 and $688,000, respectively.
A summary of the plans funded status and the amounts recognized in the consolidated balance sheet as of October 31, 1998 and November 1, 1997 follows:
October 31, November 1, 1998 1997 Change in benefit obligation Benefit obligation - beginning of year $ (5,499) $ (6,569) Service cost (36) (296) Interest cost (404) (466) Actuarial gain (loss) (182) 1,777 Curtailment gain - 55 Benefit obligation - end of year (6,121) (5,499)
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Tabular dollars in thousands, except per share amounts)
Note 16 -Retirement and Benefit Plans - (continued) Defined Benefit Plans - (continued) October 31, November 1, 1998 1997 Change in plan assets Fair value of plan assets - beginning of year 6,206 5,658 Actual return on plan assets 740 675 Employer contributions 94 643 Benefits paid (397) (770) Fair value of plan assets - end of year 6,643 6,206
Funded status 522 707
Unrecognized prior service cost 311 348
Unrecognized net loss (gain) from past experience different from that assumed 394 84
Unrecognized transition asset (21) (26)
Adjustment required to recognize minimum liability (188) -
Prepaid pension cost $ 1,018 $ 1,113
Pension expense consists of the following:
Fiscal 1998 Fiscal 1997Fiscal 1996 Service cost - benefits earned during the period $ 36 $ 296 $ 308 Interest expense on benefit obligation 404 466 445 Expected return on plan assets (471) (469) (396) Amortization of prior service costs 37 37 8 Amortization of unrecognized net loss (gain) - 43 139 Amortization of unrecognized transition obligation (asset) (5) (9) (12) Total pension expense $ 1 $ 364 $ 492
The discount rate used in determining the actuarial present value of the projected benefit obligation ranged from 6.75% to 7.25% at October 31, 1998 and from 7.25% to 7.5% at November 1, 1997. The expected long-term rate of return on plan assets was 8% at October 31, 1998 and November 1, 1997.
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.
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Tabular dollars in thousands, except per share amounts)
Note 16 -Retirement and Benefit Plans - (continued) Defined Benefit Plans - (continued) At October 31, 1998, the accumulated benefit obligation exceeded the fair value of the plans' assets in the plan covering members of one union. The provisions of SFAS 87, "Employers' Accounting for Pensions," require recognition in the balance sheet of an additional minimum liability and related intangible asset for pension plans with accumulated benefits in excess of plan assets; any portion of such additional liability which is in excess of the plan's prior service cost is reflected as a direct charge to equity, net of related tax benefit. Accordingly, at October 31, 1998 a liability of $188,000 is included in other long-term liabilities, an intangible asset equal to the prior service cost of $53,000 is included in other assets, and a charge of $81,000 net of deferred taxes of $54,000 is reflected as a minimum pension liability in stockholders' equity in the Consolidated Balance Sheet.
Multi-Employer Plans
Health, welfare and retirement expense was approximately $7,804,000 in fiscal 1998, $6,354,000 in fiscal 1997 and $6,036,000 in fiscal 1996 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 (see Note 15).
401(k)/Profit Sharing Plan
The Company maintains an employee 401(k) Savings 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 15% of compensation. Effective October 1, 1997, 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% for fiscal year 1998. 401(k) expense for the fiscal years ended October 31, 1998 and November 1, 1997 was approximately $480,000 and $12,000, respectively.
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Tabular dollars in thousands, except per share amounts)
Note 17 -Other Postretirement and Postemployment Benefits Postretirement Benefits The Company provides certain current and former officers with supplemental income payments and limited medical benefits during retirement. The Company recorded an estimate of deferred compensation payments to be made to the officers based on their anticipated period of active employment and the relevant actuarial assumptions at October 31, 1998 and November 1, 1997, respectively. The Company purchased life insurance to partially fund this obligation. The participants have agreed to certain non-compete arrangements and to provide continued service availability for consulting services after retirement.
A summary of the plan's funded status and the amounts recognized in the balance sheet as of October 31, 1998 and November 1, 1997 follows:
October 31, November 1, 1998 1997 Change in benefit obligation Benefit obligation - beginning of year $ (1,309) $ (1,240) Service cost (39) (18) Interest cost (88) (90) Actuarial gain (loss) (481) (8) Benefits paid 42 47 Benefit obligation - end of year (1,875) (1,309)
Change in plan assets Fair value of plan assets - beginning of year - - Actual return on plan assets - - Employer contributions - - Benefits paid - - Fair value of plan assets - end of year - -
Funded status (1,875) (1,309)
Unrecognized prior service cost 15 36
Unrecognized net loss (gain) from past experience different from that assumed 885 414
Accrued postretirement benefit cost $ (975) $ (859)
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Tabular dollars in thousands, except per share amounts)
Note 17 -Other Postretirement and Postemployment Benefits - (continued) Postretirement Benefits - (continued) Net postretirement benefit expense consists of the following:
Fiscal 1998 Fiscal 1997 Fiscal 1996 Service cost - benefits earned during the period $ 39 $ 18 $ 16 Interest expense on benefit obligation 88 90 83 Expected return on plan assets - - - Amortization of prior service costs 2 - - Amortization of unrecognized net loss (gain) 30 s 38 30 Amortization of unrecognized transition obligation (asset) - - -
Postretirement benefit expense $ 159 $ 146 $ 129
The assumed discount rate used in determining the postretirement benefit obligation as of October 31, 1998 and November 1, 1997 was 7.25% and 7.5%, respectively.
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 31, 1998 and November 1, 1997 was $359,000 and $384,000, respectively.
Note 18 -Earnings Per Share Fiscal 1998 Fiscal 1997 Fiscal 1996
Net income $ 1,780 $ 1,064 $ 1,396
Less: preferred stock dividends - (57) (136)
Income available to common stockholders $ 1,780 $ 1,007 $ 1,260
Basic EPS $ 1.59 $ .90 $ 1.13 Dilutive EPS $ 1.59 $ .90 $ 1.13
Weighted average shares outstanding 1,117,150 1,117,150 1,118,150
Note 19- Noncash Investing and Financing Activities The Company was required to make an additional investment in Wakefern of $450,000 for a new store opened during fiscal 1998. In conjunction with the investment, liabilities were assumed for the same amount.
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Tabular dollars in thousands, except per share amounts)
Note 19- Noncash Investing and Financing Activities - (continued) A capital lease obligation of $12,910,000 was incurred when the Company entered into a lease for a new store in fiscal 1998.
During fiscal 1998, the Company purchased a building in Linden, New Jersey for $606,000 and obtained financing for $1,500,000. The additional financing of $894,000 was used to purchase equipment at a later date.
At October 31, 1998, the Company had an additional minimum pension liability of $188,000, a related intangible of $53,000 and a direct charge to equity of $81,000, net of deferred taxes of $54,000.
A capital lease obligation of $4,184,000 was incurred when the Company entered into a lease for a store in a sale/leaseback transaction during fiscal 1997.
During fiscal 1996, the Company acquired additional property and equipment for $13,181,000. In conjunction with the acquisition, liabilities were assumed as follows:
Cost of property and equipment acquired $ 13,181 Cash paid (6,645) Liabilities assumed $ 6,536
In addition, a capital lease obligation of $5,610,000 was incurred in fiscal 1996 when the Company entered into a lease for a new store.
The Company was required to make an additional investment in Wakefern for $900,000 for the two new stores opened during fiscal 1996. In conjunction with the investment, liabilities were assumed for the same amount.
At November 2, 1996, the additional minimum pension liability of $880,000, the related intangible of $74,000 and the direct charge to equity of $806,000 were reversed since the Company's defined benefit plans' assets exceeded the accumulated benefit obligations.
Note 20 -Year 2000 The Company is currently working to resolve the potential impact of the Year 2000 ("Y2K") problem on the processing of date-sensitive information by the Company's computerized information systems. The year 2000 problem is the result of computer programs being written using two digits (rather than four) to define the applicable year. Any of the Company's programs that have time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000, which could result in miscalculations or system failures. The Company is currently in the process of addressing the problem by identifying all computer-based systems and applications, including embedded chip systems, assessing the Y2K compliancy of the systems, upgrading or replacing any systems that are not currently Y2K compliant, and testing the systems. The Company is also participating in the same process with Wakefern to determine that all jointly operated systems will meet Y2K compliancy. The Company estimates that all critical systems and applications will be Y2K compliant by the end of fiscal 1999 and does not currently expect the costs of addressing and correcting the systems to have a material effect on the financial condition of the Company.
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Tabular dollars in thousands, except per share amounts)
Note 20 -Year 2000 - (continued) The Company is also assessing the possible effects on its operations of Y2K problems of outside suppliers and services and is in the process of developing contingency plans to provide alternatives to ensure that business operations are not significantly impacted by Y2K related system failures, whether internal or external. Since the Company cannot fully anticipate the effects of noncompliance by outside suppliers and services, there could be possible failure of critical systems which could result in the interruption of the Company's operations and have a material adverse effect on the Company's financial position.
Note 21 -Unaudited Summarized Consolidated Quarterly Information Summarized quarterly information for the years ended October 31, 1998 and November 1, 1997 was as follows:
Thirteen Weeks Ended
January 31, May 2, August 1, October 31, 1998 1998 1998 1998
Sales $170,231 $166,245 $176,172 $184,710 Gross profit 42,434 42,425 44,634 47,241 Net income 783 258 255 484 Earnings available per basic and diluted share .70 .23 .23 .43
Thirteen Weeks Ended
February 1, May 3, August 2, November 1, 1997 1997 1997 1997
Sales $163,356 $155,986 $161,128 $156,261 Gross profit 40,588 39,766 40,904 39,709 Net income 176 72 245 571 Mandatory preferred stock dividend requirement (34) (23) - - Earnings available to common stock 142 49 245 571 Earnings available per basic and diluted share .13 .04 .22 .51
Note 22 -Subsequent Events Effective November 19, 1998, the required investment in Wakefern increased. The maximum required investment per store was increased from $450,000 to $500,000. This resulted in a total increase in the investment in Wakefern by $1,286,000 and a related increase in the obligations due Wakefern for the same amount. The obligation is non- interest bearing and is payable over the next four years.
Schedule II
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES Valuation and Qualifying Accounts Fiscal Years Ended October 31, 1998, November 1, 1997 and November 2, 1996 (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 31, 1998: Allowance for doubtful accounts (deducted from receivables and other current assets) $ 473 $ 149 $ - $ 220 (1) $ 402
Fiscal year ended November 1, 1997: Allowance for doubtful accounts (deducted from receivables and other current assets) $ 665 $ 120 $ - $ 312 (1) $ 473
Fiscal year ended November 2, 1996: Allowance for doubtful accounts (deducted from receivables and other current assets) $ 516 $ 149 $ - $ - $ 665
(1) Accounts deemed to be uncollectible.
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Schedule X
c. Exhibits
3. Articles of Incorporation and By-Laws
*i. Restated Certificate of Incorporation of Registrant filed with the Secretary of State of the State of New Jersey on May 15, 1970.
*ii. Certificate of Merger filed with the Secretary of State of the State of New Jersey on May 15, 1970.
*iii. Certificate of Merger filed with the Secretary of State of the State of New Jersey on March 14, 1977.
*iv. Certificate of Merger filed with the Secretary of State of the State of New Jersey on June 23, 1978.
*v. Certificate of Amendment to Restated Certificate of Incorporation filed with the Secretary of State of the State of New Jersey on May 12, 1987.
**vi. Certificate of Amendment to Restated Certificate of Incorporation filed with the Secretary of State of the State of New Jersey on February 16, 1993.
*****vii. Amendment to the Certificate of Incorporation of the Registrant dated April 4, 1996.
*viii. By-Laws of Registrant.
*ix. Amendments to By-Laws of Registrant adopted September 14,1983.
x. Amendment to By-Laws of Registrant adopted March 15, 1991 is incorporated herein by reference to the Registrant's Annual Report on Form 10-K for the year ended November 2, 1991 filed with the Securities and Exchange Commission on February 18, 1992.
* Each of these Exhibits is incorporated herein by reference to the Registrant's Annual Report on Form 10-K for the year ended October 29, 1988 filed with the Securities and Exchange Commission on February 13, 1989.
** Each of these Exhibits is incorporated herein by reference to the Registrant's Annual Report on Form 10-K for the year ended October 31, 1992 filed with the Securities and Exchange Commission on February 19, 1993.
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10. Material Contracts.
i. The Agreement dated September 18, 1987 entered into by Wakefern Food Corporation and the Registrant is incorporated herein by reference to Exhibit A to the Registrant's Form 8-K filed with the Securities and Exchange Commission on November 19, 1987.
***ii. Certificate of Incorporation of Wakefern Food Corporation together with amendments thereto and certificates of merger.
***iii. By-laws of Wakefern Food Corporation.
iv. Purchase Agreement, dated March 10, 1989, by and between Hilltop Supermarkets, Inc. and the Registrant is incorporated herein by reference to Exhibit (2)(i) to the Registrant's Form 8-K filed with the Securities and Exchange Commission on April 4, 1989.
v. Agreement, dated March 10, 1989, by and between Afta Equipment Leasing Co., an affiliate of Hilltop Supermarkets, Inc., and the Registrant is incorporated herein by reference to Exhibit (2)(i) to the Registrant's Form 8-K filed with the Securities and Exchange Commission on April 4, 1989.
***vi. Agreements between the Registrant and the principals of Hilltop Supermarkets, Inc.
***vii. Credit Agreement, dated as of March 16, 1989, among the Registrant, each of the Banks which are a signatory thereto and The Chase Manhattan Bank (National Association).
***viii. Amendment No.1 to the Credit Agreement, dated as of June 16, 1989, among the Registrant, each of the Banks which are a signatory thereto and The Chase Manhattan Bank (National Association).
***ix. Note Purchase Agreements, dated as of June 1, 1989, between the Registrant and various institutional Lenders.
*** Each of these Exhibits is incorporated herein by reference to the Registrant's Annual Report on Form 10-K for the year ended October 28, 1989 filed with the Securities and Exchange Commission on February 9, 1990.
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***x. Letter Agreement, dated January 25, 1990, among the Registrant, the Banks which are parties to the Credit Agreement, dated as of March 16, 1989, and each of institutional lenders who were issued senior secured notes pursuant to the several Note Agreements, dated as of June 1, 1989 between each such institutional investor and the Registrant.
***xi. Form of Deferred Compensation Agreement, between the Registrant and certain of its key employees.
xii. Registrant's 1987 Incentive Stock Option Plan is incorporated herein by reference to Exhibit 4 (a) to the Registrant's Form S-8 filed with the Securities and Exchange Commission on May 26, 1989.
xiii. Amendment No. 2 to the Credit Agreement, dated as of January 25, 1990, among the Registrant, each of the Banks which are a signatory thereto and The Chase Manhattan Bank (National Association) is incorporated herein by reference to the Registrant's Annual Report on Form 10-K for the year ended November 3, 1990 filed with the Securities and Exchange Commission on February 20, 1991.
****xiv. Amendment No. 3 to the Credit Agreement, dated as of February 5, 1992, among the Registrant, each of the Banks which are a signatory thereto and The Chase Manhattan Bank (National Association).
**** Each of these Exhibits is incorporated herein by reference to the Registrant's Annual Report on Form 10-K for the year ended November 2, 1991, filed with the Securities and Exchange Commission on February 18, 1992.
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**xv. Amendment No. 4 to the Credit Agreement, dated as of February 12, 1993, among the Registrant, each of the Banks which are a signatory thereto and The Chase Manhattan Bank (National Association).
****xvi. Modification Letter to Note Purchase Agreement, dated as of June 1, 1989, between the Registrant and various Institutional Lenders.
****xvii. Amendment Letter to Note Purchase Agreement, dated as of August 10, 1989, between the Registrant and various Institutional Lenders.
****xviii. Modification Letter to Note Purchase Agreement, dated as of February 5, 1992, between the Registrant and various Institutional Lenders.
**xix. Modification Letter to Note Purchase Agreement, dated as of February 16, 1993, between the Registrant and various Institutional Lenders.
xx. Agreement, dated September 20, 1993, between the Registrant, ShopRite of Malverne, Inc. and The Grand Union Company 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.
xxi. Revolving Credit and Term Loan Agreement, dated as of February 15, 1995 between the Registrant and NatWest Bank as agent for a group of banks is incorporated herein by reference to the Registrant's Form 8-K filed with the Securities and Exchange Commission on July 10, 1995.
xxii. Asset Purchase Agreement dated April 20, 1995 and Amendment No. 1 to the Agreement dated May 24, 1995 between the Registrant and Wakefern Food Corp. is incorporated herein by reference to the Registrant's Form 8-K filed with the Securities and Exchange Commission on July 27, 1995.
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xxiii. Amendment of Revolving Credit and Term Loan Agreement, dated as of January 25, 1996, between the Registrant and each of the banks which are signatory thereto is incorporated herein by reference to the Registrant's Form 10-Q for the quarterly period ended January 27, 1996, filed with the Securities and Exchange Commission on March 12, 1996.
*****xxiv. Agreement, dated as of March 29, 1996, between the Registrant and Wakefern Food Corporation.
*****xxv. Amendment of Revolving Credit and Term Loan Agreement, dated as of May 10, 1996, between the Registrant and each of the Banks which are signatory thereto.
xxvi. Waiver and Amendment of Revolving Credit and Term Loan Agreement, dated as of July 26, 1996, between the Registrant and each of the Banks which are signatory thereto is incorporated herein by reference to the Registrant's Form 10-Q for the quarterly period ended July 27, 1996, filed with the Securities and Exchange Commission on September 10, 1996.
xxvii. Amended and Restated Revolving Credit and Term Loan Agreement, dated as of May 2, 1997, between the Registrant and the Financial Institution which are 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.
******xxviii. First Amendment to Amended and Restated Revolving Credit and Term Loan Agreement, dated October 28, 1997, between the Registrant and the Financial Institution which are signatory thereto.
******xxix. 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 are signatory thereto.
******xxx. Third Amendment to Amended and Restated Revolving Credit and Term Loan Agreement, dated January 15, 1998, between the Registrant and the Financial Institution which are signatory thereto.
***** 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.
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Exhibit 21
LIST OF SUBSIDIARIES OF FOODARAMA SUPERMARKETS, INC.
Name of Subsidiary State of Incorporation
ShopRite of Malverne, Inc. New York
New Linden Price Rite, Inc. New Jersey
ShopRite of Reading, Inc. Pennsylvania
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