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Foodarama Supermarkets, Inc.
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Growing With The Needs Of Our Market
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1997 Annual Report
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[LOGO]
Foodarama Supermarkets, Inc.
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Designed by Curran & Connors, Inc.
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FOODARAMA SUPERMARKETS, INC.
922 Highway 33
Building 6, Suite 1
Howell, New Jersey
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held April 7, 1998
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The Annual Meeting of Shareholders (the "Meeting") of Foodarama
Supermarkets, Inc. (the "Company") will be held at the offices of the Company,
922 Highway 33, Building 6, Suite 1, Howell, New Jersey, on April 7, 1998 at
10:30 A.M. (local time), for the following purposes:
1. To elect a Board of four Directors; and
2. To transact such other business as may properly come before the
Meeting and any adjournment thereof.
The Board of Directors has fixed the close of business on February 24, 1998
as the record date for determining the shareholders entitled to notice of and to
vote at the Meeting or any adjournment thereof. A list of shareholders as of the
record date will be available to shareholders at the Meeting.
YOU ARE CORDIALLY INVITED TO ATTEND THE MEETING. SHAREHOLDERS WHO DO NOT
EXPECT TO BE ABLE TO ATTEND THE MEETING ARE REQUESTED TO FILL IN, DATE, SIGN AND
RETURN THE ENCLOSED PROXY CARD IN THE ENCLOSED ENVELOPE, WHICH DOES NOT REQUIRE
ADDITIONAL POSTAGE IF MAILED IN THE UNITED STATES. THIS WILL NOT PREVENT YOU
FROM VOTING IN PERSON IF YOU CAN BE PRESENT AT THE MEETING.
By Order of the Board of Directors,
/s/ Richard J. Saker
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Howell, New Jersey Richard J. Saker,
March 4, 1998 Secretary
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FOODARAMA SUPERMARKETS, INC.
922 Highway 33
Building 6, Suite 1
Howell, New Jersey
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PROXY STATEMENT
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GENERAL INFORMATION
This Proxy Statement and the accompanying form of proxy are being mailed to
shareholders of Foodarama Supermarkets, Inc. (the "Company") in connection with
the solicitation, by and on behalf of the management of the Company, of proxies
to be voted at the Annual Meeting of Shareholders (the "Annual Meeting") to be
held at the offices of the Company, 922 Highway 33, Building 6, Suite 1, Howell,
New Jersey, on April 7, 1998 at 10:30 A.M. (local time) and at all postponements
or adjournments thereof.
The securities entitled to vote at the Annual Meeting consist of shares of
Common Stock of the Company with each share of Common Stock entitling its owner
to one vote on an equal basis. The number of outstanding shares of Common Stock
on February 24, 1998 was 1,117,150. Only shareholders of record on the books of
the Company at the close of business on that date will be entitled to vote at
the meeting. The holders of a majority of the outstanding shares of Common
Stock, present in person or by proxy and entitled to vote, will constitute a
quorum at the meeting. The affirmative vote of a plurality of the shares present
in person or represented by proxy and entitled to vote is required for the
election of Directors. The proxy card provides space for a shareholder to
withhold votes for any or all nominees for the Board of Directors. All votes
will be tabulated by the inspector of election appointed for the Annual Meeting
who will separately tabulate affirmative votes, authority withheld for any
nominee for Director and any abstentions or broker non-votes. Authority withheld
will be counted toward the tabulation of total votes cast in the election of
Directors and will have the same effect as a negative vote. Any proxy submitted
and containing an abstention or a broker non-vote is not counted as a vote cast
on any matter to which it relates and will only be counted for purposes of
determining whether a quorum is present at the meeting.
All shares of Common Stock represented by properly executed proxies will be
voted at the Annual Meeting, unless such proxies have previously been revoked.
Unless otherwise instructed, the shares of Common Stock represented by such
proxies will be voted "for" the election of management's nominees for Director.
Management does not know of any other matter to be brought before the Annual
Meeting, but it is intended that, as to any such other matter, votes may be cast
pursuant to the proxies in accordance with the judgment of the person or persons
acting thereunder.
The Company's address is 922 Highway 33, Building 6, Suite 1, Howell, New
Jersey and its telephone number is (732) 462-4700. The notice, proxy statement
and enclosed form of proxy are being mailed to shareholders on or about March 4,
1998.
Any shareholder who executes and delivers a proxy may revoke it at any time
prior to its use by (a) delivering written notice of such revocation to the
Secretary of the Company at its offices; (b) delivering to the Secretary of the
Company a duly executed proxy bearing a later date; or (c) appearing at the
Annual Meeting and requesting the return of his or her proxy.
YOU ARE REQUESTED TO COMPLETE AND SIGN THE ACCOMPANYING PROXY AND RETURN IT
PROMPTLY IN THE ENVELOPE PROVIDED FOR THAT PURPOSE.
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FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
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PRINCIPAL
SHAREHOLDERS
The following table shows, as of February 24, 1998, the persons known to the
Company who owned directly or beneficially more than 5% of the outstanding
Common Stock of the Company:
Amount
Beneficially Percent of
Name of Beneficial Owner Owned Class
------------------------ ------------ ----------
Joseph J. Saker(1)(2)(3)............................. 334,327 29.9
Estate of Mary Saker(1)(3)........................... 63,298 5.7
Richard J. Saker(1)(4)............................... 81,549 7.3
Dimensional Fund Advisors, Inc.(5)................... 87,000 7.8
Arthur N. Abbey(6)................................... 108,000 9.7
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(1) The address of the foregoing person is c/o Foodarama Supermarkets, Inc.,
922 Highway 33, Building 6, Suite 1, Freehold, New Jersey 07728.
(2) Includes 13,378 shares held by his wife and 31,649 shares willed to him by
Mary Saker.
(3) Mary Saker, deceased, was the mother of Joseph J. Saker. One-half or 31,649
of her shares have been willed to Joseph J. Saker.
(4) Includes 1,760 shares held by his wife, of which shares Mr. Richard J.
Saker disclaims beneficial ownership.
(5) The address of Dimensional Fund Advisors, Inc. ("Dimensional"), a
registered investment advisor, is 1299 Ocean Avenue, 11th Floor, Santa
Monica, California 90401. Based upon a copy of Schedule 13G dated February
9, 1998 and filed with the Securities and Exchange Commission, Dimensional
is deemed to have beneficial ownership of 87,000 shares, all of which
shares are held in portfolios of DFA Investment Dimensions Group Inc. (the
"Fund"), a registered open-end investment company, or in series of the
DFAInvestment Trust Company, a Delaware business trust, the DFA Group Trust
or the DFA Participation Group Trust (collectively the "Trusts"),
investment vehicles for qualified employee benefit plans, all of which
Dimensional serves as investment manager. Dimensional has sole voting power
with respect to 52,200 shares and persons who are officers of Dimensional
also serve as officers of the Fund and Trusts and in such capacity such
persons vote the remaining 34,800 shares. Dimensional disclaims beneficial
ownership of all such shares. Dimensional has reported in its Schedule 13G
that these shares are owned by advisory clients of Dimensional, no one of
which, to the knowledge of Dimensional, owns more than 5% of the Common
Stock.
(6) The address of Arthur N. Abbey is 212 East 39th Street, New York, N.Y.
10016. Based upon a copy of schedule 13D dated October 8, 1996 and filed
with the Securities and Exchange Commission on October 8, 1996, Mr. Abbey
has sole voting power.
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FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
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SECURITIES OWNED
BY MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of February 24, 1998, by each
director of the Company, the executive officers of the Company on such date and
the executive officers and directors as a group. Except as set forth in the
footnotes to this table, the shareholders have sole voting and investment power
over such shares.
Amount
Beneficially Percent of
Name of Beneficial Owner Owned Class
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Joseph J. Saker(1)(2)................................ 334,327 29.9
Richard J. Saker(1)(3)............................... 81,549 7.3
Albert A. Zager(1)................................... 1,500 *
Charles T. Parton(1)................................. 2,500 *
Michael Shapiro(1)(4)................................ 2,000 *
Emory A. Altobelli(1)................................ 25 *
Carl L. Montanaro(1)................................. 15 *
Robert V. Spires(1).................................. 1,000 *
Joseph C. Troilo(1)(5)............................... 1,902 *
Directors and Executive Officers as a group
(9 persons)(2)(3)(4)(5)(6) 424,818 38.0
(*) Less than one percent.
(1) The address of the foregoing person is c/o Foodarama Supermarkets, Inc.,
922 Highway 33, Building 6, Suite 1, Freehold, New Jersey 07728.
(2) Includes 13,378 shares held by his wife and 31,649 shares willed to him by
Mary Saker.
(3) Includes 1,760 shares held by his wife, of which shares Mr. Richard J.
Saker disclaims beneficial ownership.
(4) Owned jointly with Mr. Shapiro's wife.
(5) Includes an aggregate of 250 shares held by Mr. Troilo's wife and son, of
which shares he disclaims beneficial ownership.
(6) Of the 424,818 shares, 419,876 are owned by the directors of the Company.
Joseph J. Saker has obtained loans in connection with personal investments and
other obligations and has pledged 228,700 shares of the Company's CommonStock,
beneficially owned by him, to secure such loans. All of such loans were made for
varying terms and interest rates by the respective lenders pursuant to routine
promissory notes and agreements, under which the material events of default
consist of nonpayment of principal or interest when due, adverse change in the
financial condition of the borrower, material impairment of the collateral and
death.
The Company's Revolving Credit and Term Loan Agreement (the "Loan Agreement"),
provides that an event of default shall occur if Messrs. Joseph J. Saker and
Richard J.Saker together, do not own, beneficially and all voting rights with
respect to at least 35% of all of the issued and outstanding capital Common
Stock of the Company.
In 1993, the Company sold to Wakefern Food Corporation ("Wakefern") 136,000
shares of 8% Cumulative Convertible Preferred Stock, par value $12.50 per share
(the "Preferred Stock"), for a total of $1,700,000. The Preferred Stock was
convertible into shares of the Company's Common Stock at any time after March
31, 1997 and, subject to the Company's compliance with certain requirements
contained in its Amended and Restated Credit Agreement, redeemable at par value
plus accrued and unpaid dividends. The Preferred Stock was redeemed and
cancelled on March 31, 1997, at par value, for $1,700,000. As of the redemption
date, all dividends on the Preferred Stock had been declared and paid.
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ANNUAL REPORT 1997
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NOMINEES AS
DIRECTORS
OF THE COMPANY
It is intended that the shares of the Company's Common Stock represented by
proxies solicited hereby will be voted for the four nominees listed below. If
for any reason any of the said nominees should be unable or unwilling to serve,
which is not now anticipated, the proxies will be voted for a substitute nominee
who will be designated by the Board of Directors. The Directors will be elected
to hold office until the next annual meeting and until their respective
successors are duly elected and qualified.
<TABLE>
<CAPTION>
Year First
Elected a
Name and Age Principal Occupation Director
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<S> <C> <C>
Joseph J. Saker (69)............................. Chairman of the Board and 1958
President of the Company
Richard J. Saker (46)............................ Executive Vice President -- 1987
Operations and Secretary
of the Company
Charles T. Parton (56)........................... President and Director 1995
of Concorde Science
& Technology, Inc.,
Import Brokers
Albert A. Zager, Esquire (49).................... Partner -- Carton, Witt, 1995
Arvanitis & Bariscillo, LLC,
Attorneys
</TABLE>
Mr. Joseph J. Saker has been President of the Company since its incorporation in
1958 and Chairman since 1971. In addition to his responsibilities with the
Company, he serves on the Board of Governors of the Food Marketing Educational
Foundation of St. Joseph's University (Philadelphia); is a member of the Board
of Directors of Wakefern Food Corporation, and is active in other community
affairs.
Mr. Richard J. Saker, a graduate of St. Joseph's University, has been employed
by the Company since 1969, and has served as Senior Vice President - Operations
from 1984 until 1995 at which time he assumed the position of Executive Vice
President of Operations. He is the son of Joseph J. Saker.
Mr. Parton has been a financial executive, consultant and Certified Financial
Planner for the last five years. He is Executive Vice President and Treasurer of
The Parton Corporation. He is also a Director of Kuehne Chemical Co., Inc.
(chlorine and caustic soda products).
Mr. Zager has been a member of Carton, Witt, Arvanitis & Bariscillo, LLC since
1977. He is President of the Board of Directors of the Center for Holocaust
Studies of Brookdale College and outside General Counsel for Meridian Health
System, Inc.
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FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
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DIRECTORS MEETINGS
AND COMMITTEES
The Company held seven meetings of its Board of Directors during the fiscal year
ended November 1, 1997.
The Board of Directors of the Company has appointed Executive, Audit and Stock
Option Committees. The Board of Directors performs the functions of a board
compensation committee. The Executive Committee, which consists of Messrs.
Joseph J. Saker and Richard J. Saker, generally holds weekly meetings. The Audit
and Stock Option Committees both consist of Messrs. Parton and Zager. The Audit
Committee is responsible for recommending a firm of independent auditors for the
Company each year and reviews the results of the annual audit with the auditors.
During the fiscal year ended November 1, 1997, the Audit Committee held two
meetings and there were no meetings of the Stock Option Committee.
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EXECUTIVE OFFICERS
OF THE COMPANY
The executive officers of the Company are as set forth below:
<TABLE>
<CAPTION>
Name Age Capacities in Which Served
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<S> <C> <C>
Joseph J. Saker (1)..................... 69 Chairman of the Board and President
Richard J. Saker (1).................... 46 Executive Vice President -- Operations,
and Secretary
Michael Shapiro (2)..................... 56 Senior Vice President, Chief Financial
Officer and Treasurer
Emory A. Altobelli (3).................. 57 Senior Vice President -- Corporate
Subsidiaries and Services
Carl L. Montanaro (4)................... 56 Senior Vice President -- Sales and
Merchandising
Robert V. Spires (5).................... 44 Senior Vice President -- Human
Resources and Labor Relations
Joseph C. Troilo (6).................... 64 Senior Vice President -- Financial
Administration, Assistant Secretary
and Assistant Treasurer
</TABLE>
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(1) See Nominees as Directors of the Company.
(2) Mr. Shapiro joined the Company on August 15, 1994 as Senior Vice President,
Chief Financial Officer and Treasurer. Prior to that he was Vice President,
Finance and Operations of Apex One, Inc. from January 1992 to April 1994.
From August 1989 to January 1992 he was Vice President Finance of Fidelity
Land Development Corporation.
(3) Mr. Altobelli has served as Senior Vice President - Corporate Subsidiaries
and Services since June 21, 1995. Prior to such date he served as Senior
Vice President - Administration since June 1990.
(4) Mr. Montanaro was promoted to Senior Vice President on June 21, 1995. From
March 1988 to such date he served as Vice President of Sales and
Merchandising.
(5) Mr. Spires was promoted to Senior Vice President on June 21, 1995. From
August 1991 to such date, he served as Vice President of Human Resources
and Labor Relations.
(6) Mr. Troilo has served as Senior Vice President - Financial Administration
since August 1994. From 1974 to such date, he served as Senior Vice
President - Finance.
6
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ANNUAL REPORT 1997
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EXECUTIVE
COMPENSATION
The aggregate compensation paid or accrued by the Company during the last three
fiscal years ended October 28, 1995, November 2, 1996 and November 1, 1997 to
the Chief Executive Officer of the Company and to the four most highly
compensated executive officers (other than the Chief Executive Officer) whose
compensation in salary and bonus exceeded $100,000 in the last fiscal year is
set forth in the following table.
<TABLE>
<CAPTION>
Summary Compensation Table
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Annual Compensation All Other
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Name and Principal Position Year Salary Bonus Compensation
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<S> <C> <C> <C> <C>
Joseph J. Saker ................................ 1997 $300,000 $11,538(1) $ 79,100(3)
President and Chief Executive Officer 1996 275,090 54,400(3)
1995 224,900 45,000(2) 54,500(3)
Richard J. Saker ............................... 1997 294,615 10,961(1) 195,900(3)
Executive Vice President, 1996 254,808 159,200(3)
Chief Operating Officer and Secretary 1995 227,453 40,000(2) 176,000(3)
Michael Shapiro ................................ 1997 163,339 6,183(1) --
Senior Vice President, Chief Financial Officer 1996 161,066 --
and Treasurer 1995 144,977 --
Carl L. Montanaro .............................. 1997 133,031 4,740(1) 13,200(3)
Senior Vice President -- 1996 128,680 400(3)
Sales and Merchandising 1995 117,388 1,400(3)
Emory A. Altobelli ............................. 1997 125,627 4,721(1) 26,800(3)
Senior Vice President -- 1996 122,157 21,000(3)
Corporate Subsidiaries and Services 1995 115,328 21,600(3)
</TABLE>
(1) Bonuses paid pursuant to a resolution adopted by the Board of Directors of
the Company on December 19, 1997 to award one-time bonus compensation in
the aggregate amount of $116,000 to certain non-union salaried employees of
the Company.
(2) Bonuses of $45,000 and $40,000 were paid to Joseph J. Saker and Richard J.
Saker, respectively, pursuant to a fiscal 1995 bonus program adopted by the
Board of Directors of the Company on May 30, 1995 for the Company's
President and Chief Executive Officer and Executive Vice President and
Chief Operating Officer (the "Bonus Program"). Under the Bonus Program,
Joseph J. Saker and Richard J. Saker were awarded $22,500 and $20,000,
respectively, contemporaneously with the Board's adoption of the Bonus
Program in recognition of their efforts in connection with the Company's
refinancing of its outstanding institutional indebtedness in February,
1995. The remaining bonus amounts of $22,500 and $20,000 were earned based
upon the achievement of certain corporate goals specified in the Bonus
Program.
(3) The amount set forth in this column represents annual compensation accrued
for, based on current compensation and certain actuarial assumptions, but
not paid to, the applicable named executive officer under the Company's
Deferred Compensation Plan, which was approved by the Board of Directors on
January 17, 1989. Amounts payable at retirement under the Deferred
Compensation Plan range from 40% to 50% of the employee's highest average
compensation over a five-year period less primary Social Security, pension
plan benefits and 401k benefits and are payable until death, but for a
minimum of 120 months. This Plan covers six executive officers and other
key employees and is intended to supplement the Company's retirement
benefits. Amounts payable under the Deferred Compensation Plan are not
payable until the earlier of the death or retirement of the covered
employee. The Company anticipates paying for benefits as they become due
out of current operating income, but expects over the long term that such
payments will be recouped out of proceeds of life insurance purchased by
the Company on the lives of the Deferred Compensation Plan's beneficiaries.
The current annual premiums for all employees covered by this plan are
approximately $55,000.
The Deferred Compensation Plan provides for a pre-retirement death benefit
of one-half the amount payable upon retirement, actuarially computed,
payable to the employee's beneficiary over 120 months. If the employee dies
after retirement, such employee's beneficiary will receive the same benefit
the employee would have received if the employee had lived for 120 months.
7
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FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
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PENSION PLAN
The Company maintains a defined benefit pension plan for eligible employees.
Full vesting occurs after five years of service. Benefits upon retirement prior
to age 65 are reduced actuarially. Benefits under the plan are determined by a
formula equal to .6% times the highest five consecutive year average of a
participant's compensation times the total years of service. The following sets
forth the estimated annual benefits payable upon normal retirement at age 65.
The plan also provides for lump sum payments. Pursuant to a resolution adopted
by the Board of Directors of the Company on September 24, 1997 future benefit
accruals for participants in the plan were frozen effective September 30, 1997.
In lieu of contributions to the defined benefit pension plan, the Board of
Directors of the Company on September 24, 1997 adopted a resolution whereby the
Company shall contribute to the 401(k) plan, for the period commencing October
1, 1997 and ending December 31, 1998, an amount equal to the sum of (a) two
percent (2%) of the compensation of 401(k) plan participants; and (b) $.25 for
every $1.00 contributed to the 401(k) plan by the participants for up to the
first 6% of the participant's compensation. Prior to October 1, 1997 the Company
did not make any contributions to the 401(k) plan.
Years of Service
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Remuneration 15 20 25 30 35
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$100,000...................... $ 7,500 $10,000 $12,500 $15,000 $17,500
125,000...................... 9,375 12,500 15,625 18,750 21,875
150,000...................... 11,250 15,000 18,750 22,500 26,250
175,000...................... 13,125 17,500 21,875 26,250 30,625
200,000...................... 15,000 20,000 25,000 30,000 35,000
225,000...................... 16,875 22,500 28,125 33,750 39,375
250,000...................... 18,750 25,000 31,250 37,500 43,750
275,000...................... 20,625 27,500 34,375 41,250 48,125
300,000...................... 22,500 30,000 37,500 45,000 52,500
For purposes of vesting benefits under the Pension Plan, the Company has
credited Joseph J. Saker with 39 years of service; Richard J. Saker with 23
years of service; Michael Shapiro with 3 years of service; Emory A. Altobelli
with 14 years of service; and Carl L. Montanaro with 35 years of service.
Mr. Joseph J. Saker received a lump sum distribution of $403,878 in January
1995, representing the amount of his vested interest in the Pension Plan.
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DIRECTORS
COMPENSATION
All non-employee directors receive, in addition to reimbursement for their
reasonable expenses associated with attendance at Board Meetings, an annual
retainer fee of $10,000 payable quarterly in advance, and a participation fee of
$1,000 for each meeting of the Board attended. All non-employee members of the
Audit Committee receive, in addition to reimbursement for their reasonable
expenses associated with attendance at Audit Committee Meetings, a fee of $1,000
for each Audit Committee meeting attended if held on a day other than a day on
which a Board meeting is held. All non-employee members of the Stock Option
Committee receive, in addition to reimbursement for their reasonable expenses
associated with attendance at Stock Option Committee Meetings, a fee of $500 for
each Stock Option Committee meeting attended if held on a day other than a day
on which a Board Meeting is held.
The Company paid a total of $31,500 during the fiscal year ended November 1,
1997 to directors who are not employees of the Company.
8
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ANNUAL REPORT 1997
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COMPLIANCE WITH
REPORTING
REQUIREMENTS
The Company believes that, during the fiscal year ended November 1, 1997, all
filing requirements under Section 16(a) of the Securities Exchange Act of 1934,
as amended, applicable to its officers, directors and greater than ten percent
beneficial owners were complied with on a timely basis.
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COMPENSATION
COMMITTEE
INTERLOCKS AND
INSIDER PARTICIPATION
IN COMPENSATION
DECISIONS
For the fiscal year ended November 1, 1997, the Board of Directors performed the
functions of a board compensation committee. Executive Officers who served on
the Board of Directors were Mr. Joseph J. Saker, Chairman of the Board,
President and Chief Executive Officer, and Mr. Richard J. Saker, Executive Vice
President, Chief Operating Officer, and Secretary.
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COMPENSATION
REPORT OF THE
BOARD OF DIRECTORS
The Board of Directors has acted as a Compensation Committee of the Board and
has acted upon the compensation paid to the Company's Chairman, President and
Chief Executive Officer and its Executive Vice President and Chief Operating
Officer. After evaluation of several factors, including compensation paid for
like positions in comparable companies and the minimal level of salary increases
for these positions over several years, the independent members of the Board of
Directors approved an increase in the salary paid to each of Mr. Joseph J.
Saker, President and Chief Executive Officer of the Company, and Mr. Richard J.
Saker, Executive Vice President and Chief Operating Officer of the Company, in
fiscal 1997. The independent members of the Board of Directors believe that the
compensation paid to these executive officers was below that for like positions
in comparable companies. In addition, based on the Company's performance in
fiscal 1997, the Board of Directors awarded a one-time bonus to certain
non-union salaried employees of the Company, including Mr. Joseph J. Saker and
Mr. Richard J. Saker who received $11,538 and $10,961, respectively. See
"Executive Compensation--Summary Compensation Table."
9
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FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
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PERFORMANCE
ANALYSIS
Set forth below is a line graph comparing the cumulative total return of the
Company, the AMEX Market Value Index and the Standard &Poor's 500 Composite
Stock Price Index for the five years commencing October 31, 1992 and ended
November 1, 1997.
[THE FOLLOWING TABLE WAS REPRESENTED AS A LINE GRAPH IN THE PRINTED MATERIAL.]
FOODARAMA SUPERMARKETS, INC.
PRICE PERFORMANCE GRAPH
Foodarama Amex Market S&P 500
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1992 ........... $100 $100 $100
1993 ........... $ 98 $126 $113
1994 ........... $ 76 $120 $117
1995 ........... $ 77 $137 $152
1996 ........... $ 90 $149 $183
1997 ........... $117 $177 $257
10
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ANNUAL REPORT 1997
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CERTAIN
TRANSACTIONS
(a) Certain Business Relationships and Related Party Transactions
As required by the By-Laws of Wakefern, a retailer-owned food distribution
corporation which provides purchasing, warehousing and distribution services to
the Company as well as other retail supermarket chains, the obligations owed by
the Company to Wakefern are personally guaranteed by Joseph J. Saker and Richard
J. Saker. As of February 7, 1998 the Company was indebted to Wakefern in the
amount of approximately $24,762,000 for current charges in the ordinary course
of business. Wakefern presently requires each of its shareholders to invest up
to $450,000 in Wakefern's non-voting capital stock for each store operated by
it, computed in accordance with a formula based on the volume of such store's
purchases from Wakefern.
As of November 1, 1997 the Company had a 12.9% investment in Wakefern of
$8,427,000. As a shareholder member of Wakefern, the Company earns a share of an
annual Wakefern patronage dividend. The dividend is based on the distribution of
operating profits on a pro rata basis in proportion to the dollar volume of
business transacted by each member with Wakefern during each fiscal year.
As of November 1, 1997, the Company was indebted in connection with an
investment in Wakefern. The debt of $757,000 was non-interest bearing and
payable in scheduled installments over a period of up to six years. Additional
information with respect to the Company's relationship with Wakefern is
contained in the Company's 1997 Annual Report on Form 10-K and in the notes to
the Company's 1997 financial statements.
The Company also has an investment in Insure-Rite, Ltd., another company
affiliated with Wakefern, which was $829,000 and $788,000 at November 1, 1997
and November 2, 1996, respectively. Insure-Rite, Ltd. provides the Company with
its general liability and property insurance coverage. The Company paid
$2,702,000 for such insurance coverage in fiscal 1997 and believes that such
amount is comparable to the amount that would be charged by a similarly situated
unaffiliated general liability and property insurer.
The Company leases from Joseph J. Saker, the President of the Company, and his
wife, doing business as Saker Enterprises, a 57,000 square foot supermarket in
Freehold, New Jersey, under a lease terminating in 2003. The Company also leases
from Saker Enterprises a 5,200 square foot garden center building and 5,000
square feet of yard area under a lease expiring December 31, 1998 and 9,000
square feet of space for its liquor store under a lease expiring December 31,
2003, both of which are located in the same shopping center as the supermarket.
During the fiscal year ended November 1, 1997, aggregate amounts for rent
(including taxes and insurance) of $557,000, $112,000 and $144,000 were paid by
the Company to Saker Enterprises for the supermarket, garden center and liquor
store, respectively.
The Company believes that the terms of the foregoing transactions are comparable
to those available for non-affiliated persons in the respective localities.
See "Securities Owned by Management" for information with respect to the
redemption of Preferred Stock held by Wakefern.
(b) Indebtedness of Management
Joseph J. Saker, President of the Company, and doing business as Saker
Enterprises, is indebted to the Company for advances made for construction on
the South Freehold shopping center and other advances, which in total aggregated
$277,000 as of November 1, 1997 including accrued interest at 9% per annum. The
indebtedness is evidenced by notes payable in equal quarterly installments
beginning July 1, 1998 of $28,629, which payments include interest at 9% per
annum.
11
<PAGE>
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
================================================================================
INDEPENDENT
CERTIFIED PUBLIC
ACCOUNTANTS
The firm of Amper, Politziner & Mattia P.A., Independent Certified Public
Accountants, was retained as auditors to the Company for the year ended November
1, 1997, as recommended by the Audit Committee. The selection of the independent
public accountants for the Company is made by the Board of Directors. A
representative of Amper, Politziner & Mattia P.A. will be present at the meeting
to make a statement, if desired, and to respond to appropriate questions.
================================================================================
ANNUAL REPORT
The Company's Annual Report to shareholders for the fiscal year ended November
1, 1997, including financial statements, which Annual Report is not part of this
proxy solicitation material, is being mailed to shareholders with the proxy
solicitation. On written request, the Company will provide without charge to
each record or beneficial holder of the Company's Common Stock, a copy of the
Company's Annual Report on Form 10-K as filed with the Securities and Exchange
Commission for the fiscal year ended November 1, 1997. Requests should be
addressed to Mr. Joseph C. Troilo, Senior Vice President-Financial
Administration, Foodarama Supermarkets, Inc., 922 Highway 33, Building 6, Suite
1, Freehold, New Jersey 07728.
================================================================================
OTHER BUSINESS
Management is not aware at this time of any other matters to be presented for
action. If however, any other matters properly come before the Annual Meeting,
unless otherwise directed, the persons named on the proxy intend to vote in
accordance with their judgment on the matters presented.
================================================================================
PROXY
SOLICITATION
The cost of solicitation of proxies will be borne by the Company. Such
solicitation will be made by mail and may also be made by the Company's
directors, officers, or regular employees personally or by telephone or
telegraph. Brokerage houses, nominees, fiduciaries and other custodians will be
requested to forward soliciting materials to beneficial owners of shares and
will be reimbursed by the Company for their reasonable expenses. The Company
does not expect to pay any compensation to third parties for the solicitation of
proxies, unless such solicitation has been requested by the Company.
================================================================================
SHAREHOLDER
PROPOSALS
A shareholder of the Company who wishes to present a proposal for action at the
Company's 1999 annual meeting of shareholders must submit such proposal to the
Company and such proposal must be received by the Company by November 4, 1998.
By Order of the Board of Directors,
/s/ Richard J. Saker
Howell, New Jersey Richard J. Saker,
March 4, 1998 Secretary
12
<PAGE>
- --------------------------------------------------------------------------------
[LOGO]
FOODARAMA SUPERMARKETS, INC.
Annual Report 1997
All statements, other than statements of historical fact, included in this
Annual Report To Shareholders (the "Annual Report"), including without
limitation the statements under "Management's Discussion and Analysis of
Financial Condition and Results of Operations" are, or may be deemed to be,
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended (the "Securities Act"), and Section 21E of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). Such
forward-looking statements involve assumptions, known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of the Company to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements contained in this Annual Report. Such potential risks
and uncertainties, include without limitation, competitive pressures from other
supermarket operators and warehouse club stores, economic conditions in the
Company's primary markets, consumer spending patterns, availability of capital,
cost of labor, cost of goods sold, year 2000 issues related to computer
applications and other risk factors detailed herein and in other of the
Company's Securities and Exchange Commission filings. The forward-looking
statements are made as of the date of this Annual Report and the Company assumes
no obligation to update the forward-looking statements or to update the reasons
actual results could differ from those projected in such forward-looking
statements.
- --------------------------------------------------------------------------------
<PAGE>
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
================================================================================
THE COMPANY
Operating 20 supermarkets in central New Jersey, Foodarama Supermarkets, Inc. is
a member of the ShopRite group. In addition, the Company operates two liquor
stores and two garden centers. The Company also operates meat and bakery
commissaries. Foodarama stores offer shoppers a wide assortment of food and
non-food items, in modern, attractive stores with ample parking immediately
adjacent. Chief products sold include groceries, meat, fish, poultry, produce,
dairy products, fresh fruits and vegetables, bakery products, frozen foods,
delicatessen, prepared foods and appetizer goods. Non-foods include health and
beauty aids, housewares and prescription drugs. Stores stock nationally
advertised brands as well as products sold under the ShopRite label.
================================================================================
ROSTER OF
STORES
Aberdeen (Matawan) Edison (Oak Tree Road) Middletown
Belmar Franklin Montgomery
Bricktown Freehold Neptune
Brielle Hazlet (Keyport) Piscataway
East Brunswick Hightstown Sayreville
Edison Lakewood West Long Branch
Marlboro Woodbridge
================================================================================
STOCK PRICE AND
DIVIDEND
INFORMATION
The Common Stock of Foodarama Supermarkets, Inc. is traded on the American Stock
Exchange under the ticker symbol "FSM." High and low stock prices were as
follows:
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 27, 1996.................................. 13-5/8 10
April 27, 1996.................................... 18-1/4 13-3/8
July 27, 1996..................................... 21-1/2 17
November 2, 1996.................................. 17-1/2 14-1/4
No dividends have been declared or paid on the Company's Common Stock since
October 1979. The Company has approximately 435 shareholders of record.
================================================================================
5 YEAR
SUMMARY OF
OPERATIONS
<TABLE>
<CAPTION>
Fiscal Years Ended
-----------------------------------------------------------------
November 1 November 2, October 28, October 29, October 30,
1997 1996(a) 1995 1994 1993
------------------------------------------------------------------
(000's omitted except per share data)
<S> <C> <C> <C> <C> <C>
Sales ........................ $ 636,731 $ 601,143 $ 586,477 $ 611,074 $ 674,675
Cost of sales ................ 475,764 449,077 438,222 462,407 516,095
---------- ---------- ---------- ---------- ----------
Gross profit ................. 160,967 152,066 148,255 148,667 158,580
---------- ---------- ---------- ---------- ----------
Operating expenses ........... 155,939 146,992 142,849 145,244 166,158
Interest, net ................ 3,994 3,339 4,146 4,666 6,479
Gain on sale of stores and
real estate transactions ... (656) -- (474) (549) (11,199)
Extraordinary item ........... -- -- 1,848 -- --
Change in accounting ......... -- -- 236 -- --
---------- ---------- ---------- ---------- ----------
159,277 150,331 148,605 149,361 161,438
---------- ---------- ---------- ---------- ----------
Income (loss) before
income taxes ............... 1,690 1,735 (350) (694) (2,858)
Income taxes (provision)
benefit .................... (626) (339) 159 181 893
---------- ---------- ---------- ---------- ----------
Net income (loss) ............ $ 1,064 $ 1,396 $ (191) $ (513) $ (1,965)
========== ========== ========== ========== ==========
Income (loss) per
common share ............... $.90 $1.13 $(.29) $(.58) $(1.84)
========== ========== ========== ========== ==========
Weighted average number
of common shares
outstanding ................ 1,117,150 1,118,150 1,118,150 1,118,150 1,118,150
========== ========== ========== ========== ==========
</TABLE>
(a) 53 weeks
14
<PAGE>
ANNUAL REPORT 1997
================================================================================
OFFICERS AND
DIRECTORS
DIRECTORS
+Joseph J. Saker
Chairman of the Board and President
Foodarama Supermarkets, Inc.
+Richard J. Saker
Executive Vice President
Foodarama Supermarkets, Inc.
*Albert A. Zager
Partner
Carton, Witt, Arvanitis & Bariscillo, LLC, Attorneys
*Charles T. Parton
President,
Concorde Science & Technology, Inc.
Import Brokers
* Member, Audit and Stock Option Committees
+ Member, Executive Committee
EXECUTIVE OFFICERS
Joseph J. Saker
Chairman of the Board and President
Richard J. Saker
Executive Vice President Operations,
and Secretary
Michael Shapiro
Senior Vice President,
Chief Financial Officer and Treasurer
Emory A. Altobelli
Senior Vice President,
Corporate Subsidiaries and Services
Carl L. Montanaro
Senior Vice President,
Sales and Merchandising
Robert V. Spires
Senior Vice President,
Human Resources and Labor Relations
Joseph C. Troilo
Senior Vice President,
Financial Administration,
Assistant Secretary and
Assistant Treasurer
GENERAL COUNSEL
Giordano, Halleran & Ciesla, PC
125 Half Mile Road
Middletown, N.J. 07748
AUDITORS
Amper, Politziner & Mattia P.A.
2015 Lincoln Highway
P.O. Box 988
Edison, N.J. 08818-0988
TRANSFER AGENT AND REGISTRAR
American Stock Transfer Company
40 Wall Street
New York, N.Y. 10005
CORPORATE OFFICES
922 Highway 33
Building 6, Suite 1
Howell, New Jersey 07731
(732) 462-4700
FORM 10-K REPORT
A copy of the Company's Form 10-K Annual
Report, as filed with the Securities and
Exchange Commission, is available to
shareholders without charge upon written
request to Mr. Joseph C. Troilo, Senior Vice
President, Foodarama Supermarkets, Inc.,
922 Highway 33, Building 6, Suite 1,
Freehold, New Jersey 07728.
15
<PAGE>
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
================================================================================
PRESIDENT'S
MESSAGE
Dear Shareholder:
The Company's financial condition remained strong in fiscal 1997. Working
capital increased $500,000 and our working capital ratio remained at 1.1 to 1.0.
Long-term debt, excluding capitalized leases, decreased $6.3 million dollars in
fiscal 1997. The Preferred Stock of $1.7 million was redeemed March 31, 1997.
The Credit Agreement with our primary lender was amended several times in the
past year giving the Company improved terms, increased borrowing capacity and
lower interest rates. A new loan facility for $1.7 million was created, the term
of the agreement was extended for one year to February 15, 2000, all major
financial covenants were eliminated except for the fixed charge coverage ratio
which was redefined and renamed the debt service coverage ratio and interest
rates were first reduced on all loans covered by the Credit Agreement and then
fixed at 8.38% on the Term Loan C and Stock Redemption Facility components of
the credit facility. The asset redeployment program was completed with the
sale/leaseback of a supermarket property, the sale of the Company's interest in
two real estate partnerships and the financing of two buildings owned by the
Company. The net proceeds from these transactions were used to pay down the
revolving credit facility.
Sales for fiscal 1997 increased 5.9% to $636,731,000 from $601,143,000 in the
prior year. This increase was the result of improved sales in comparable stores
and the opening of two new locations in June and July 1996 partially offset by
the 53rd week in fiscal 1996. Same store sales increased 1.7% year to year after
adjusting for the 53rd week in the prior year.
Net income declined to $1,064,000 or $.90 per share in fiscal 1997 compared to
$1,396,000 or $1.13 per share in fiscal 1996. 1997 results included a net gain
on real estate transactions of $413,000 or $.37 per share.
Earnings before interest, taxes, depreciation and amortization (EBITDA)
increased to $15,744,000 from $15,107,000 in the prior year period. Fiscal 1997
EBITDA includes $656,000 as a result of the gain on real estate transactions.
The two new World Class stores in Marlboro and Montgomery, New Jersey opened in
June and July 1996 continue to improve and have been well received by our
customers. Another World Class store was opened successfully on February 25,
1998 in East Windsor, New Jersey which is a replacement for an older, smaller
facility in Hightstown, New Jersey. Construction has commenced on a World Class
store in Bound Brook, New Jersey and the expansion of our location in West Long
Branch is also underway. Additionally, three leases have been signed for
replacement locations and plans are being finalized to expand one existing
store. Also, negotiations are taking place to expand another existing store. All
of the new or replacement stores as well as the expansion of existing locations
will be World Class stores and should be completed over a three year period
ending in fiscal 2000.
As part of our ongoing systems upgrade, installation of the new time and
attendance system in all stores was completed in fiscal 1997. Additionally, a
new direct store delivery system was installed in four stores in fiscal 1997.
Installation of this system was completed in the remaining stores in the
beginning of fiscal 1998. The Company is also using information obtained through
its point of sale systems to supplement our advertising efforts with target
marketing programs for specific customer groups. Both the Company and Wakefern
Food Corporation have undertaken projects to address any year 2000 issues in our
computer applications and store systems. At this time the Company does not
anticipate any material costs or adverse consequences relative to year 2000
issues.
At this time, we want to extend our appreciation to our employees, shareholders
and vendors for their continued loyalty and support. We also wish to express our
gratitude to our customers for their continued patronage of the Foodarama
ShopRite stores.
/s/ Joseph J. Saker /s/ Richard J. Saker
Joseph J. Saker Richard J. Saker
President and Executive Vice President
Chief Executive Officer and Chief Operating Officer
16
<PAGE>
ANNUAL REPORT 1997
================================================================================
MANAGEMENT'S
DISCUSSION AND
ANALYSIS OF
FINANCIAL CONDITION
AND RESULTS
OF OPERATIONS
FINANCIAL CONDITION AND LIQUIDITY
The Company entered into a Revolving Credit and Term Loan Agreement on February
15, 1995 ("the Credit Agreement"), which was amended as of July 26, 1996 (the
"Amended Credit Agreement"). The Amended Credit Agreement was assigned by the
lending group to one financial institution on December 12, 1996, and was further
amended as of May 2, 1997, October 28, 1997, November 14, 1997 and January 15,
1998 (the "Amended and Restated Credit Agreement"). The Amended and Restated
Credit Agreement is secured by substantially all of the Company's assets and
provides for a total commitment of $30,200,000, 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 and the Stock Redemption Facility in the amount of
$1,700,000. The Amended and Restated Credit Agreement contains certain
affirmative and negative covenants which, among other matters will require the
maintenance of a debt service coverage ratio. The Company was in compliance with
such covenants through November 1, 1997.
The Amended and Restated Credit Agreement (a) provides for a Stock Redemption
Facility of $1,700,000 which the Company is required to use to repay the
revolving credit facility for the monies used to redeem the Preferred Stock held
by Wakefern on March 31, 1997; (b) revises the repayment schedule for Term Loan
C to provide for a quarterly payment schedule through December 31, 1999 and a
final payment of $500,000 on February 15, 2000; (c) amends certain definitions;
(d) changes certain borrowing limitations, including a provision which permits
secured borrowing of up to $1,500,000 from third party lenders in fiscal 1997;
(e) eliminates all the major financial covenants except the fixed charge
coverage ratio which was redefined and renamed the debt service coverage ratio;
(f) reduces interest rates on the revolving credit facility by 1.00% and on Term
Loans by .75% to the Base Rate (defined below) plus .25% and .50%, respectively;
and (g) redefines Term Loan C and the Stock Redemption Facility as Fixed Rate
Loans. The interest rate on the Fixed Rate Loans is 8.38%. The Base Rate is the
rate which is the greater of the (i) 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 Company has the ability to use the London
Interbank Offered Rate ("LIBOR") to determine the interest rate. Other terms and
conditions of the Credit Agreement previously reported upon by the Company have
not been modified.
The Company has pursued an asset redeployment program since entering into the
Credit Agreement, utilizing the proceeds from the disposition of certain assets
to repay indebtedness under the Credit Agreement. The program was completed
November 14, 1997. The components of the asset redeployment program completed in
1997 were the sale/leaseback of a supermarket property in Aberdeen, New Jersey
on February 3, 1997 for $2.3 million which resulted in a deferred gain of
$199,000; the sale of a real estate partnership interest in a shopping center in
West Long Branch, New Jersey in which the Company operates a supermarket on
October 6, 1997 resulting in a gain of $140,000 and the receipt of $677,000 in
payment of accounts receivable owed by the partnership to the Company; the sale
of a real estate partnership interest in a non-supermarket property located in
Shrewsbury, New Jersey on October 8, 1997 for $735,000 which resulted in a gain
of the same amount; and the financing of two buildings owned by the Company and
located in Linden, New Jersey on November 14, 1997. The proceeds from the
financing, $1.5 million, were used to purchase a third building in the complex
for $600,000, with the balance of the proceeds to be used for the remodeling and
refurbishment of the meat and prepared foods processing facility which is housed
in the three buildings. The note bears interest at 9.18% and is payable in
monthly installments over its seven year term based on a ten year amortization.
The Amended and Restated Credit Agreement combined with the completion of the
asset redeployment plan described above strengthened the Company's financial
condition by increasing liquidity and providing increased working capital
through the Revolving Note.
On May 23, 1995 the Company 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 January 25, 1996 the Company financed $4,068,000 of used equipment at three
existing locations. The note bears interest at 10.58% and is payable in monthly
installments over its four year term. The proceeds were used to repay existing
debt.
On September 13, 1996 the Company 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.
17
<PAGE>
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
================================================================================
On September 30, 1996 and November 1, 1996 the Company financed the purchase of
$4,602,075 and $1,397,925, respectively, of equipment for the two new store
locations in Marlboro and Montgomery, New Jersey. The notes bear interest at
9.02% and 8.74%, respectively, and are payable in monthly installments over
their eight year terms.
The Company's compliance with the major financial covenant under the Amended and
Restated Credit Agreement was as follows as of November 1, 1997:
<TABLE>
<CAPTION>
Actual
Amended and (As defined in the
Financial Restated Credit Amended and Restated
Covenant Agreement Credit Agreement)
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Debt Service Coverage Ratio ................ Not less than 1.00 to 1.00 1.26 to 1.00
</TABLE>
As of March 29, 1996 the Company and Wakefern Food Corporation ("Wakefern"), the
owner of the Company's Class A 8% Cumulative Convertible Preferred Stock (the
"Preferred Stock"), amended certain provisions of the Preferred Stock to (a)
extend the date after which Wakefern shall be entitled to convert the Preferred
Stock to Common Stock from March 31, 1996 to March 31, 1997; and (b) defer the
2% increase in the dividend rate effective March 1996 to March 1997. On May 14,
1996 the Company paid dividends in arrears on the Preferred Stock of $456,980 as
well as a quarterly dividend of $34,000 for the quarter ended April 30, 1996 and
since then has paid dividends of $34,000 per quarter. The Amended Credit
Agreement provides that the Preferred Stock may be redeemed only if the Company
has met or exceeded its financial performance and debt reduction targets for the
year ended November 2, 1996. The Company met all of these targets and redeemed
all of the outstanding Preferred Stock on March 31, 1997. The pro-rata portion
of the dividend due, $22,667, was also paid at that time.
No cash dividends have been paid on the Common Stock since 1979, and the Company
has no present intentions or ability to pay any dividends in the near future on
its Common Stock. The Amended and Restated Credit Agreement does not permit the
payment of any cash dividends on the Company's Common Stock.
Working Capital:
At November 1, 1997, the Company had working capital of $3,518,000 compared to
$3,056,000 at November 2, 1996 and a deficiency of $4,451,000 at October 28,
1995. Working capital in fiscal 1997 remained at approximately the same levels
as the prior year. Accounts receivable consist primarily of bad checks due the
Company, 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
bad checks which are not written off until all collection efforts are exhausted.
The Company normally requires small amounts of working capital since inventory
is generally sold at approximately the same time that payments to Wakefern and
other suppliers are due and most sales are for cash or cash equivalents.
Working capital improved in fiscal 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 borrowings under the Revolving
Note; and (c) an increase of $1,000,000 in current related party receivables
which become due in fiscal 1997.
Changes in working capital components for fiscal 1995 were primarily
attributable to the sale of assets in Pennsylvania, the accelerated application
of cash receipts against the Revolving Note and the improved liquidity resulting
from the Credit Agreement.
18
<PAGE>
ANNUAL REPORT 1997
================================================================================
Working capital ratios were as follows:
November 1, 1997 ................... 1.1 to 1.0
November 2, 1996 ................... 1.1 to 1.0
October 28, 1995 ................... .9 to 1.0
Cash flows (in millions) were as follows:
1997 1996 1995
------------------------------------
From operations ......................... $ 10.1 $ 9.7 $ 9.6
Investing activities .................... .5 (6.5) 2.7
Financing activities .................... (10.0) (3.5) (14.4)
------------------------------------
Totals .................................. $ .6 $ (.3) $ (2.1)
====================================
Fiscal 1997 capital expenditures totaled $3,620,000 with depreciation of
$8,104,000 compared to $13,181,000 and $8,207,000 respectively for fiscal 1996
and $3,755,000 and $8,371,000 respectively for fiscal 1995. In fiscal 1997
long-term debt decreased $2,231,000, 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, the
capitalization of a real estate lease for the Aberdeen, New Jersey store and
increased debt as the result of the Insure-Rite, Ltd. premium calls.
In fiscal 1996 long-term debt increased $10,106,000 as the result of the
financing of POS equipment in two locations and equipment in the two new
locations in Marlboro and Montgomery, New Jersey and the capitalization of a
real estate lease for the Montgomery store.
In fiscal 1995 the Company reduced its long-term debt by $13.0 million, using
proceeds from the sale of the Pennsylvania stores and cash generated by
operations.
The Company had $11,727,000 of available credit, at November 1, 1997, under its
revolving credit facility and believes that its capital resources are adequate
to meet its operating needs, scheduled capital expenditures and debt service for
fiscal 1998.
RESULTS OF OPERATIONS
Sales:
The Company's sales were $636.7 million, $601.1 million and $586.5 million,
respectively in fiscal 1997, 1996 and 1995. This represents an increase of 5.9
percent in 1997 and an increase of 2.5 percent in 1996. These changes in sales
levels were the result of the 53rd week in fiscal 1996, opening of two new
locations in June and July 1996 and the sale of two Pennsylvania stores in May
1995. Comparable store sales were $581.1 million, $571.5 million and $556.9
million in the respective three year periods, an increase of 1.7% in fiscal 1997
and 2.6% in fiscal 1996 after adjusting for the 53rd week in fiscal 1996.
Gross Profit:
Gross profit totaled $161.0 million in fiscal 1997 compared to $152.1 million in
fiscal 1996 and $148.3 million in fiscal 1995. Gross profit as a percent of
sales was 25.3%, in each of the three fiscal years 1997, 1996 and 1995.
In both fiscal 1997 and 1996 gross profit percentage was positively affected by
the continued improvement in product mix and Wakefern incentive programs for the
two new locations. However, this improvement was offset by price reductions
instituted to combat increased competitive pressure in the Company's marketing
area.
The increase in gross profit percentage in fiscal 1995, when compared to the
gross profit percentage of 24.3% for fiscal 1994, was primarily due to improved
product mix and the ability of the Company to maintain full inventory levels in
its stores. The ability to maintain full inventory levels is the result of
improved liquidity under the new financing obtained on February 15, 1995. The
exclusion of results of the two Pennsylvania stores sold on May 23, 1995 would
not have had any material impact on gross profit percentages when comparing
fiscal 1995 results to the prior year results.
19
<PAGE>
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
================================================================================
Patronage dividends applied as a reduction of the cost of merchandise sold were
$6,633,000, $6,905,000 and $7,246,000 for the last three fiscal years. This
translates to 1.04%, 1.15% and 1.24% of sales for the respective periods.
Fiscal Years Ended
-----------------------------------
11/01/97 11/02/96 10/28/95
-----------------------------------
(in millions)
Sales ...................................... $636.7 $601.1 $586.5
Gross profit ............................... 161.0 152.1 148.3
Gross profit percentage .................... 25.3% 25.3% 25.3%
===================================
Operating, General and Administrative Expenses:
Fiscal 1997 expenses totaled $155.9 million compared to $147.0 million in fiscal
1996 and $142.9 million in fiscal 1995.
Fiscal Years Ended
-----------------------------------
11/01/97 11/02/96 10/28/95
-----------------------------------
(in millions)
Sales ...................................... $636.7 $601.1 $586.5
Operating, General and
Administrative Expenses .................. 155.9 147.0 142.9
% of Sales ................................. 24.5% 24.5% 24.4%
===================================
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.
Operating, general and administrative expenses increased slightly in fiscal 1996
compared to fiscal 1995. This increase was the result of grand opening expenses
for the two new locations, as well as increased promotional activity in the
Company's marketing area and a decrease in income generated from the sale of
cardboard due to a drop in the cardboard market. As a percentage of sales, labor
and related fringe benefit costs increased .28%, selling expense increased .25%
and miscellaneous income declined .08%. These increases were partially offset by
decreases in other store expenses of .13% and administrative expense of .29%.
Pre-opening costs were $90,000 in fiscal 1996.
Amortization expense increased in fiscal 1997 to $1,956,000 compared to
$1,826,000 in fiscal 1996 and $2,954,000 in fiscal 1995. 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. The decline
in fiscal 1996 was the result of decreased amortization of goodwill and deferred
escalation rents as compared to fiscal 1995 which included the write-off of
goodwill on the sale of the Pennsylvania stores.
Interest Expense:
Interest expense totaled $4.3 million in fiscal 1997 compared to $3.5 million in
fiscal 1996 and $4.6 million in fiscal 1995. 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 Company's
credit facility. The decrease in fiscal 1996, as compared to fiscal 1995,
resulted from an overall reduction in debt levels coupled with lower rates on
the Company's bank credit facility. Interest income was $0.3 million in fiscal
1997 compared to $0.2 million in fiscal 1996 and $0.4 million in fiscal 1995.
20
<PAGE>
ANNUAL REPORT 1997
================================================================================
Income Taxes:
The Company recorded a tax provision of $0.6 million in fiscal 1997 and $0.3
million in fiscal 1996 and a tax benefit of $0.2 million in fiscal 1995. See
Note 15 of Notes to Consolidated Financial Statements.
Net Income:
The Company had net income of $1,064,000 or $.90 per share in fiscal 1997
compared to net income of $1,396,000 or $1.13 per share in fiscal 1996. 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 1997 were $15,744,000 as compared to $15,107,000 in fiscal
1996. Fiscal 1997 EBITDA includes $656,000 as a result of the gain on real
estate transactions.
Fiscal 1995 resulted in a net loss of $191,000 or $.29 per share after an
extraordinary charge of $1,009,000 or $.90 per share for the write off of
expenses related to the early extinguishment of debt and a charge for the
cumulative effect of a change in accounting for post-employment benefits of
$129,000 or $.12 per share in fiscal 1995. 1995 results included a net gain on
real estate transactions of $259,000 or $.23 per share. Excluding the net loss
from the sale of, and operating losses from, the two Pennsylvania stores sold on
May 23, 1995, income before the extraordinary item and the change in accounting
would have been $1,802,000 or $1.49 a share for fiscal 1995. EBITDA for fiscal
1995 were $17,205,000 after the gain of $474,000 on real estate transactions.
Shares outstanding were 1,117,150 for fiscal 1997 and 1,118,150 for fiscal 1996
and fiscal 1995. Per share amounts for fiscal 1997, 1996 and 1995 are after
Preferred Stock dividends of $56,667, $136,000 and $136,000, respectively.
RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the FASB issued SFAS No. 128, "Earnings per Share." This
Statement establishes standards for computing and presenting earnings per share
and applies to entities with publicly held common stock or potential common
stock. This Statement simplifies the standards for computing earnings per share
and makes them comparable to international EPS standards. It replaces the
presentation of primary EPS with a presentation of basic EPS. It also requires
dual presentation of basic and diluted EPS on the face of the income statement
for all entities with complex capital structures and requires a reconciliation
of the numerator and denominator of the basic EPS computation to the numerator
and denominator of the diluted EPS computation. The Company does not expect a
material impact from adopting the provisions of SFAS No. 128 which becomes
effective for the Company in the first quarter of fiscal 1998.
In June 1997, the FASB issued 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 Company does not expect a
material impact from adopting the provisions of SFAS No. 130 which becomes
effective for the Company 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 Company does not expect a material impact from adopting the provisions of
SFAS No. 131 which becomes effective for the Company in fiscal 1999.
21
<PAGE>
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
================================================================================
CONSOLIDATED
BALANCE SHEETS
November 1, 1997
and
November 2, 1996
<TABLE>
<CAPTION>
1997 1996
---------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ............................. $ 3,678,000 $ 3,114,000
Merchandise inventories ............................... 33,585,000 31,654,000
Receivables and other current assets .................. 3,576,000 2,731,000
Prepaid income taxes .................................. 392,000 974,000
Related party receivables--Wakefern ................... 5,389,000 6,032,000
Related party receivables--other ...................... 238,000 1,259,000
---------------------------
46,858,000 45,764,000
---------------------------
Property and equipment:
Land .................................................. 93,000 1,650,000
Buildings and improvements ............................ 829,000 1,867,000
Leasehold improvements ................................ 32,064,000 33,238,000
Equipment ............................................. 65,935,000 62,314,000
Property under capital leases ......................... 19,443,000 15,259,000
---------------------------
118,364,000 114,328,000
Less accumulated depreciation and amortization ........ 62,210,000 55,592,000
---------------------------
56,154,000 58,736,000
---------------------------
Other assets:
Investments in related parties ........................ 9,256,000 9,215,000
Intangibles ........................................... 5,100,000 5,475,000
Other ................................................. 2,847,000 3,730,000
Related party receivables--Wakefern ................... 1,191,000 1,029,000
Related party receivables--other ...................... 94,000 232,000
---------------------------
18,488,000 19,681,000
---------------------------
$121,500,000 $124,181,000
===========================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt ..................... $ 6,647,000 $ 5,182,000
Current portion of long-term debt, related party ...... 738,000 589,000
Current portion of obligations under capital leases ... 469,000 67,000
Deferred income tax liability ......................... 945,000 1,261,000
Accounts payable:
Related party-Wakefern .............................. 23,723,000 23,850,000
Others .............................................. 3,763,000 5,100,000
Accrued expenses ...................................... 7,055,000 6,659,000
---------------------------
43,340,000 42,708,000
---------------------------
Long-term debt .......................................... 17,874,000 26,852,000
Long-term debt, related party ........................... 1,797,000 757,000
Obligations under capital leases ........................ 17,325,000 13,634,000
Deferred income taxes ................................... 3,828,000 2,886,000
Other long-term liabilities ............................. 6,021,000 5,329,000
---------------------------
46,845,000 49,458,000
---------------------------
Mandatory redeemable preferred stock,
$12.50 par; authorized 1,000,000 shares;
issued and outstanding -0- shares November 1, 1997;
136,000 shares November 2, 1996 ....................... -- 1,700,000
---------------------------
Shareholders' equity:
Common stock, $1.00 par; authorized 2,500,000 shares;
issued 1,621,627 shares ............................. 1,622,000 1,622,000
Capital in excess of par .............................. 2,351,000 2,351,000
Retained earnings ..................................... 33,971,000 32,964,000
---------------------------
37,944,000 36,937,000
Less 504,477 shares November 1, 1977; 503,477 shares
November 2, 1996, held in treasury, at cost ......... 6,629,000 6,622,000
---------------------------
31,315,000 30,315,000
---------------------------
$121,500,000 $124,181,000
===========================
</TABLE>
See notes to consolidated financial statements.
22
<PAGE>
ANNUAL REPORT 1997
================================================================================
CONSOLIDATED
STATEMENTS OF
OPERATIONS
Fiscal Years Ended
November 1, 1997,
November 2, 1996
and October 28, 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------------------------------------------
<S> <C> <C> <C>
Sales .................................... $636,731,000 $601,143,000 $586,477,000
Cost of merchandise sold ................. 475,764,000 449,077,000 438,222,000
----------------------------------------------
Gross profit ............................. 160,967,000 152,066,000 148,255,000
Operating, general and
administrative expenses ................ 155,939,000 146,992,000 142,849,000
----------------------------------------------
Income from operations ................... 5,028,000 5,074,000 5,406,000
----------------------------------------------
Other (expense) income:
Gain on the sale of stores ............. -- -- 474,000
Gain on real estate transactions ....... 656,000 -- --
Interest expense ....................... (4,273,000) (3,522,000) (4,578,000)
Interest income ........................ 279,000 183,000 432,000
----------------------------------------------
(3,338,000) (3,339,000) (3,672,000)
----------------------------------------------
Income before taxes, extraordinary
item and cumulative effect of change
in accounting .......................... 1,690,000 1,735,000 1,734,000
Income tax provision ..................... (626,000) (339,000) (787,000)
----------------------------------------------
Income before extraordinary item
and cumulative effect of change
in accounting .......................... 1,064,000 1,396,000 947,000
Extraordinary item:
Early extinguishment of debt (net of tax
benefit of $839,000) ................. -- -- (1,009,000)
Cumulative effect of change in accounting
(net of tax benefit of $107,000) ....... -- -- (129,000)
----------------------------------------------
Net income (loss) ........................ $ 1,064,000 $ 1,396,000 $ (191,000)
==============================================
Per Share Information:
Income before extraordinary item
and cumulative effect of change
in accounting .......................... $ .90 $ 1.13 $ .73
Extraordinary item ....................... -- -- (.90)
Cumulative effect of change
in accounting .......................... -- -- (.12)
----------------------------------------------
Net income (loss) per common share ....... $ .90 $ 1.13 $ (.29)
==============================================
Weighted average shares outstanding ...... 1,117,150 1,118,150 1,118,150
==============================================
</TABLE>
See notes to consolidated financial statements.
23
<PAGE>
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
================================================================================
CONSOLIDATED
STATEMENTS OF
SHAREHOLDERS'
EQUITY
Fiscal Years Ended
November 1, 1997,
November 2, 1996
and October 28, 1995
<TABLE>
<CAPTION>
Minimum
Capital Pension
Common Stock In Excess Retained Liability Treasury Stock Total
Shares Amount of Par Earnings Adjustment Shares Amount Equity
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance--October 29, 1994 ...... 1,621,627 $1,622,000 $2,351,000 $ 32,318,000 $(685,000) (503,477) $(6,622,000) $28,984,000
Net loss 1995 .................. -- -- -- (191,000) -- -- -- (191,000)
Minimum pension liability
adjustment ................... -- -- -- -- (121,000) -- -- (121,000)
---------------------------------------------------------------------------------------------------
Balance--October 28, 1995 ...... 1,621,627 1,622,000 2,351,000 32,127,000 (806,000) (503,477) (6,622,000) 28,672,000
Net income 1996 ................ -- -- -- 1,396,000 -- -- -- 1,396,000
Preferred stock dividends paid -
$4.11 per share .............. -- -- -- (559,000) -- -- -- (559,000)
Minimum pension liability
adjustment ................... -- -- -- -- 806,000 -- -- 806,000
---------------------------------------------------------------------------------------------------
Balance--November 2, 1996 ...... 1,621,627 1,622,000 2,351,000 32,964,000 -- (503,477) (6,622,000) 30,315,000
Net income 1997 ................ -- -- -- 1,064,000 -- -- -- 1,064,000
Shares repurchased ............. -- -- -- -- -- (1,000) (7,000) (7,000)
Preferred stock dividends paid -
$.42 per share ............... -- -- -- (57,000) -- -- -- (57,000)
---------------------------------------------------------------------------------------------------
Balance--November 1, 1997 ...... 1,621,627 $1,622,000 $2,351,000 $ 33,971,000 $ -- (504,477) $(6,629,000) $31,315,000
===================================================================================================
</TABLE>
See notes to consolidated financial statements.
24
<PAGE>
ANNUAL REPORT 1997
================================================================================
CONSOLIDATED
STATEMENTS OF
CASH FLOWS
Fiscal Years Ended
November 1, 1997,
November 2, 1996
and October 28, 1995
<TABLE>
<CAPTION>
1997 1996 1995
---------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ..................................... $ 1,064,000 $ 1,396,000 $ (191,000)
Adjustments to reconcile net income (loss)
to net cash from operating activities:
Depreciation ...................................... 8,104,000 8,207,000 8,371,000
Amortization, intangibles ......................... 375,000 563,000 1,440,000
Amortization, deferred financing costs ............ 642,000 820,000 846,000
Amortization, deferred rent escalation ............ 434,000 353,000 539,000
Amortization, other assets ........................ 505,000 90,000 129,000
Gain on real estate transactions .................. (656,000) -- (474,000)
Deferred income taxes ............................. 626,000 136,000 (729,000)
Loss on disposal of store property and
equipment and other assets ...................... -- -- 93,000
(Increase) decrease in
Merchandise inventories ......................... (1,931,000) (3,985,000) 2,131,000
Receivables and other current assets ............ (845,000) 185,000 946,000
Prepaid income taxes ............................ 582,000 (974,000) --
Other assets .................................... (78,000) 2,484,000 1,928,000
Related party receivables--Wakefern ............. 481,000 (1,386,000) 1,065,000
Increase (decrease) in
Accounts payable ................................ (1,464,000) 2,958,000 (5,551,000)
Income taxes payable ............................ -- (77,000) (168,000)
Other liabilities ............................... 2,286,000 (1,042,000) (623,000)
Other ........................................... -- -- (121,000)
---------------------------------------------------------
10,125,000 9,728,000 9,631,000
---------------------------------------------------------
Cash flows from investing activities:
Net proceeds from the sale of
property and equipment .............................. -- -- 41,000
Net proceeds from the sale of stores .................. -- -- 6,649,000
Net proceeds from real estate transactions ............ 2,938,000 -- --
Cash paid for the purchase of property
and equipment ....................................... (3,620,000) (6,645,000) (3,755,000)
(Increase) decrease in related party
receivables--other .................................. 1,159,000 95,000 (246,000)
---------------------------------------------------------
477,000 (6,550,000) 2,689,000
---------------------------------------------------------
Cash flows from financing activities:
Payment for redemption of preferred stock ............. (1,700,000) -- --
Preferred stock dividend payments ..................... (57,000) (559,000) --
Proceeds from issuance of debt ........................ 1,700,000 13,202,000 35,005,000
Principal payments under long-term debt ............... (9,213,000) (15,768,000) (46,618,000)
Principal payments under
capital lease obligations ........................... (91,000) (197,000) (1,380,000)
Principal payments under long-term debt,
related party ....................................... (450,000) (177,000) --
Deferred financing costs .............................. (227,000) -- --
Debt restructuring costs .............................. -- -- (1,434,000)
---------------------------------------------------------
(10,038,000) (3,499,000) (14,427,000)
---------------------------------------------------------
Net change in cash and cash equivalents ................. 564,000 (321,000) (2,107,000)
Cash and cash equivalents,
beginning of year ..................................... 3,114,000 3,435,000 5,542,000
---------------------------------------------------------
Cash and cash equivalents, end of year .................. $ 3,678,000 $ 3,114,000 $ 3,435,000
=========================================================
Supplemental disclosures of cash paid (received)
Interest ............................................ $ 4,277,000 $ 3,526,000 $ 5,105,000
Income taxes ........................................ (606,000) 1,263,000 494,000
</TABLE>
See notes to consolidated financial statements.
25
<PAGE>
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
================================================================================
NOTES TO
CONSOLIDATED
FINANCIAL
STATEMENTS
Note 1 -- Summary of Significant Accounting Policies
Nature of Operations
Foodarama Supermarkets, Inc. and Subsidiaries operate 20 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
1997 consists of the 52 weeks ended November 1, 1997, fiscal 1996 consists of
the 53 weeks ended November 2, 1996 and fiscal 1995 consists of the 52 weeks
ended October 28, 1995.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiaries. All significant intercompany accounts and transactions have
been eliminated.
Industry Segment
The Company operates in one industry segment, the retail sale of food and
non-food products, primarily in the central New Jersey region.
Reclassifications
Certain reclassifications have been made to prior years' financial statements in
order to conform to the current year presentation.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash Equivalents
The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents.
Merchandise Inventories
Merchandise inventories are stated at the lower of cost (first-in, first-out) or
market with cost being determined under the retail method.
Property and Equipment
Property and equipment is stated at cost and is depreciated on a straight-line
basis 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.
Property and equipment under capital leases is recorded at the lower of fair
market value or the net present value of the minimum lease payments. 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, favorable operating lease costs and a covenant
not to compete. Goodwill is being amortized on a straight-line basis over
periods from 15 to 37 years. The favorable operating lease costs are being
amortized on a straight-line basis over the terms of the related leases which
range from 14 to 31 years. The covenant not to compete was amortized on a
straight-line basis over the contractual life of the agreements of six years,
ending March 1996.
26
<PAGE>
ANNUAL REPORT 1997
================================================================================
Deferred Financing Costs
Deferred financing costs are being amortized over the life of the related debt
using the effective interest method.
Postretirement Benefit other than Pensions
The Company accrues for the cost of providing Postretirement benefits,
principally supplemental income payments and limited medical benefits, over the
working careers of the officers in the plan.
Postemployment Benefits
Effective October 30, 1994, the Company adopted Statement of Financial
Accounting Standards No. 112, "Employers' Accounting for Postemployment
Benefits" (SFAS No. 112). In accordance with SFAS No. 112, the Company accrues
for the expected cost of providing postemployment benefits, primarily short-term
disability payments, over the working careers of its employees. The Company
previously expensed the cost of these benefits as claims were paid.
Advertising
Advertising costs are expensed as incurred. Advertising expense was $13,204,000,
$14,028,000 and $12,776,000, for the fiscal years 1997, 1996 and 1995,
respectively.
Preopening Costs
Costs associated with the opening of new stores are amortized over a period of
twelve months commencing one month after the opening of the store.
Store Closing Costs
The costs, net of amounts expected to be recovered, are expensed when a decision
to close a store is made. Until a store is closed, operating results continue to
be reported.
Earnings (Loss) Per Share
The computation of earnings (loss) per share is based on the weighted average
number of common shares outstanding during each year (1,117,150 shares in 1997
and 1,118,150 shares in 1996 and 1995) and mandatory preferred stock dividend
requirements of $57,000 in fiscal 1997 and $136,000 in fiscal 1996 and 1995.
Fully diluted net income (loss) per share has not been presented since the
amount would be antidilutive or would not result in a material dilution of net
income (loss) per share.
Note 2 -- Concentration of Cash Balance
As of November 1, 1997 and November 2, 1996 cash balances of approximately
$854,000 and $1,051,000, 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
November 1, November 2,
1997 1996
-----------------------------
Accounts receivable ..................... $ 2,676,000 $ 1,867,000
Prepaids ................................ 1,279,000 979,000
Rents receivable ........................ 94,000 550,000
Less allowance for uncollectible accounts (473,000) (665,000)
-----------------------------
$ 3,576,000 $ 2,731,000
=============================
Note 4 -- Related Party Transactions
Wakefern Food Corporation
As required by Wakefern's By-Laws, all members of the cooperative are required
to make an investment in the common stock of Wakefern for each supermarket
operated ("Store Investment Program"), with the exact amount per store computed
in accordance with a formula based on the volume of each store's purchases from
Wakefern. The maximum required investment per store was $450,000 at November 1,
1997 and November 2, 1996. The Company has a 13% investment in Wakefern of
$8,427,000 at November 1, 1997 and November 2, 1996. 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
27
<PAGE>
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
================================================================================
are personally guaranteed by principal officers/shareholders of the Company. As
of November 1, 1997 and November 2, 1996, the Company was obligated to Wakefern
for $757,000 and $809,000, respectively, for the increase in its required
investment (see Note 10 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 November 1, 1997 and
$788,000 at November 2, 1996. Insure-Rite, Ltd. provides the Company with
liability and property insurance coverage.
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 members. The Company also has a balance due
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 November 1, 1997 and November
2, 1996, $686,000 and $537,000 was included in current portion of long-term
debt, respectively, and $1,092,000 was the long-term portion at November 1,
1997. Insurance premiums paid to Insure-Rite, Ltd. for fiscal years 1997 and
1996 was $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 financial statements. For fiscal 1997, 1996
and 1995, the patronage dividends were $6,633,000, $6,905,000 and $7,246,000,
respectively.
At November 1, 1997 and November 2, 1996, the Company has current receivables
due from Wakefern of approximately $5,389,000 and $6,032,000, 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 $1,191,000 and $1,029,000, 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 $444,000,000, $416,000,000 and
$404,000,000 for the fiscal years 1997, 1996 and 1995, 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.
28
<PAGE>
ANNUAL REPORT 1997
================================================================================
Other
The Company has receivables from related parties that include shareholders,
directors, officers and real estate partnerships. At November 1, 1997 and
November 2, 1996, approximately $307,000 and $840,000, 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.
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 at amounts that approximate the Company's cost, it is not
practicable to estimate the fair value of such stock.
Note 5 -- Intangibles
November 1, November 2,
1997 1996
---------------------------
Goodwill ................................ $3,493,000 $3,493,000
Favorable operating lease costs ......... 4,685,000 4,685,000
---------------------------
8,178,000 8,178,000
Less accumulated amortization ........... 3,078,000 2,703,000
---------------------------
$5,100,000 $5,475,000
===========================
Note 6 -- Other Assets
November 1, November 2,
1997 1996
---------------------------
Cash collateral for workers
compensation insurance ................ $905,000 $927,000
Deferred financing costs ................ 696,000 1,156,000
Deposits ................................ 560,000 394,000
Other ................................... 686,000 1,253,000
---------------------------
$2,847,000 $3,730,000
===========================
Note 7 -- Accrued Expenses
November 1, November 2,
1997 1996
---------------------------
Payroll and payroll related expenses .... $3,579,000 $3,263,000
Insurance ............................... 324,000 86,000
Sales, use and other taxes .............. 924,000 900,000
Interest ................................ 207,000 207,000
Employee benefits ....................... 569,000 544,000
Occupancy costs ......................... 964,000 1,058,000
Real estate taxes ....................... 276,000 316,000
Other ................................... 212,000 285,000
---------------------------
$7,055,000 $6,659,000
===========================
Note 8 -- Real Estate Transactions
In order to repay indebtedness under the Revolving Credit and Term Loan
agreement on a timely basis (see Note 9 Long-Term Debt), the Company developed
an Asset Redeployment Program. This program consists of the sale of the assets
of two supermarkets, located in Bethlehem and Whitehall, Pennsylvania, the sale
of a real estate partnership interest in a non-supermarket property located in
Shrewsbury, New Jersey and a shopping center in West Long Branch in which the
Company operates a supermarket, the sale/leaseback or mortgaging of buildings
owned by the Company and located in Linden and Aberdeen, New Jersey and the
financing of equipment at three operating locations in Neptune, Piscataway and
Sayreville, New Jersey.
On October 8, 1997, the Company sold its Shrewsbury, New Jersey real estate
partnership interest, which resulted in proceeds and a gain of $735,000.
29
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FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
================================================================================
On October 6, 1997, the Company sold its West Long Branch, New Jersey real
estate partnership interest, which resulted in proceeds and a gain of $140,000.
On April 10, 1997, the Company sold its lessee interest in a Colonia, New Jersey
location to the subtenant. The sale provided proceeds and a gain of $245,000.
On February 26, 1997, the Company bought out its lease on the East Northport,
New York location for $331,000, which resulted in a net loss of $342,000 after
the write off of related fixed assets and expenses.
On February 3, 1997, the Company bought out its lease on the Oakhurst, New
Jersey location for $218,000 and had a loss on fixed assets written off $67,000.
The transaction was reserved for in previous years in the amount of $261,000,
therefore the transaction resulted in a net loss of $24,000.
The Company had other miscellaneous transactions that resulted in a net loss of
$97,000 in fiscal year 1997.
On May 23, 1995, the Company sold its two operating locations in Pennsylvania to
another Wakefern member (see Note 16 Commitments and Contingencies). The sale
provided proceeds to the Company of $5,700,000 plus merchandise inventory of
$2,300,000 and the return of its investment in Wakefern of $1,200,000. The
proceeds were used to reduce outstanding debt as follows: $2,000,000 repaid Term
Loan A, $3,000,000 was applied against Term Loan B, $1,200,000 of equipment
leases were fully repaid, $900,000 repaid debt due to Wakefern and the balance
of the proceeds was applied against accounts payable and the Revolving Note. The
sale resulted in a loss of $96,000.
On February 3, 1995, the Company sold an owned location in Neptune, New Jersey
which had been operated as a supermarket until September 1993. The sale provided
net proceeds of $949,000 and resulted in a gain of $570,000.
Note 9 -- Long-term Debt
Long-term debt consists of the following:
November 1, November 2,
1997 1996
----------------------------
Term loan C............................... $ 9,500,000 $12,500,000
Stock redemption note..................... 1,700,000 --
Revolving note............................ 3,773,000 7,809,000
Other notes payable....................... 9,548,000 11,725,000
----------------------------
24,521,000 32,034,000
Less current portion...................... 6,647,000 5,182,000
----------------------------
$17,874,000 $26,852,000
============================
On February 15, 1995, the Company entered into a Revolving Credit and Term Loan
Agreement ("the Agreement"), which was assigned to a financial institution and
amended and restated as of May 2, 1997 and had an additional amendment as of
October 28, 1997 ("the Amended Agreement"). The Amended Agreement is
collateralized by substantially all of the Company's assets and provides for a
total commitment of $30,200,000. The Amended Agreement provides the Company with
the option to borrow any of the loan amounts in the agreement under a Eurodollar
loan rate based on LIBOR. Eurodollar loans must be borrowed in multiples of
$1,000,000, no more than three Eurodollar loans can be outstanding at any one
time, and the Eurodollar loan term cannot exceed six months. Interest rates on
the Eurodollar loans are fixed for that loan term based on the borrowing terms.
The Agreement consisted of three Term Loans (A, B, and C) and a Revolving Note.
The Amended Agreement consists of the remaining Term Loan C, a Stock Redemption
Note and a Revolving Note. Term Loan A totaled $2,000,000, and was due within
six months from closing. Term Loan B totaled $8,500,000, and was due within 1
year from closing. As of November 2, 1996, Term Loans A and B have been fully
repaid.
Term Loan C totaled $12,500,000 and bore interest at 1.25% over prime under the
original Agreement. Under the Amended Agreement dated May 2, 1997, Term Loan C
totaled $11,000,000, bears interest at .5% over prime or 2.50% over LIBOR, and
is payable in quarterly installments through February 15, 2000. At November 1,
1997, the principal balance due on Term Loan C was $9,500,000 and the full
balance was under a Eurodollar loan rate, expiring December 1997, with a fixed
interest rate of 9.21875%.
30
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ANNUAL REPORT 1997
================================================================================
The Stock Redemption Note totaled $1,700,000 and was used to reimburse the
funding of the redemption of the Preferred Stock on March 31, 1997. The Stock
Redemption Note bears interest at .5% over prime or 2.50% over LIBOR, and is
payable in quarterly installments commencing March 31, 1998 through February 15,
2000. At November 1, 1997, the entire Stock Redemption Note was under a
Eurodollar loan rate, expiring December 1997, with a fixed interest rate of
9.21875%.
The Revolving Note, with a total availability, based on 60% of eligible
inventory, of up to $17,500,000, bears interest at .25% over prime (1.25% over
prime under the original Agreement) or 2.25% over LIBOR. A commitment fee of 1/2
of 1 percent is charged on the unused portion of the Revolving Note. At November
1, 1997, $1,800,000 of the revolving note was under a Eurodollar loan rate,
expiring December 1997, with a fixed interest rate of 8.96875%. The remaining
principal balance of $1,973,000 was at a rate of 8.75% (prime plus .25%). The
prime rate on November 1, 1997 was 8.50% and on November 1, 1996 was 8.25%.
The Revolving Note matures February 15, 2000. The Company had a $2,000,000
letter of credit outstanding at November 1, 1997 and November 2, 1996 and
available credit under the revolving note was $11,727,000 and $7,691,000,
respectively. All cash receipts are required to be deposited each day and
applied against the Revolving Note balance. Disbursements are charged as they
are paid and increase the Revolving Note balance. As of November 1, 1997 and
November 2, 1996, $5,201,000 and $4,904,000 of cash receipts on hand or in
transit were restricted for application against the Revolving Note balance.
The Amended Agreement contains certain affirmative and negative covenants which,
among other matters, restrict payment of common dividends, and require the
maintenance of a debt service ratio.
Pursuant to the provisions of loan agreements which terminated on February 15,
1995, the Company was required to pay a special premium totaling $1,100,000.
Additionally, the Company paid the new lenders a facility fee of $1,000,000 and
an annual administrative fee of $150,000. The Company recorded an extraordinary
write-off of $1,848,000 in 1995 on the early extinguishment of debt.
On January 25, 1996, the Company financed, and pledged as collateral, equipment
which cost approximately $9,942,000. The note for $4,068,000 bears interest at
10.58% and is payable in monthly installments over its four year term. At
November 1, 1997 and November 2, 1996, the balance outstanding on this loan was
$2,578,000 and $3,503,000, respectively and is included in other notes payable.
Term Loan B was fully repaid from the proceeds of this equipment financing and
from the collection of other non-operating assets.
The balance of other notes payable consists of various equipment loans. These
notes bear interest ranging from 5.87% to 10.58% and the due dates range from
March 1999 to November 2004. At November 1, 1997 and November 2, 1996, property
and equipment which cost approximately $20,371,000, was pledged as collateral
for these notes.
Aggregate maturities of long-term debt are as follows:
Fiscal Year
1998 ..................................................... $6,647,000
1999 ..................................................... 6,619,000
2000 ..................................................... 7,756,000
2001 ..................................................... 772,000
2002 ..................................................... 843,000
hereafter ................................................ 1,884,000
As of November 1, 1997, 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.
31
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FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
================================================================================
Note 10 -- Long-term Debt, Related Party
As of November 1, 1997 the Company was indebted for an investment in Wakefern in
the amount of $757,000 and to Insure-Rite, Ltd. in the amount of $1,778,000 (see
Note 4). The debt is non-interest bearing and payable in scheduled installments
as follows:
Fiscal Year
1998 ..................................................... $ 738,000
1999 ..................................................... 1,263,000
2000 ..................................................... 182,000
2001 ..................................................... 182,000
2002 ..................................................... 170,000
Determination of the fair value of the above long-term debt is not practicable
due to its related party nature.
Note 11 -- Other Long-term Liabilities
November 1, November 2,
1997 1996
----------------------------
Deferred escalation rent ................ $ 4,409,000 $ 3,975,000
Deferred compensation ................... 859,000 760,000
Other ................................... 753,000 594,000
----------------------------
$ 6,021,000 $ 5,329,000
============================
Note 12 -- Long-term Leases
Capital Leases
November 1, November 2,
1997 1996
----------------------------
Real estate ............................. $19,443,000 $15,259,000
Less accumulated amortization ........... 5,406,000 4,600,000
----------------------------
$14,037,000 $10,659,000
============================
On February 3, 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 will be amortized over the life of the lease.
The following is a schedule by year of future minimum lease payments under
capital leases, together with the present value of the net minimum lease
payments, as of November 1, 1997:
Fiscal Year
1998 ............................................ $ 2,087,000
1999 ............................................ 2,087,000
2000 ............................................ 2,087,000
2001 ............................................ 2,101,000
2002 ............................................ 2,251,000
Thereafter ...................................... 26,605,000
-----------
Total minimum lease payments .................... 37,218,000
Less amount representing interest ............... 19,424,000
-----------
Present value of net minimum lease payments ..... 17,794,000
Less current maturities ......................... 469,000
-----------
Long-term maturities ............................ $17,325,000
===========
Included in the above are four leases on stores, one of which is being leased
from a partnership in which the Company has a 40% limited partnership interest
at annual lease payments of $663,000 in fiscal 1997, and $628,000 in fiscal 1996
and 1995. The 40% interest was sold on October 6, 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
32
<PAGE>
ANNUAL REPORT 1997
================================================================================
stores' annual sales in excess of a stipulated minimum. Percentage rent expense
was $219,000, $225,000 and $206,000 for the fiscal years 1997, 1996 and 1995,
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 Fiscal Fiscal
1997 1996 1995
-------------------------------------------
Land and buildings ........ $ 10,471,000 $9,824,000 $ 10,152,000
Less subleases ............ (1,963,000) (2,140,000) (1,920,000)
-------------------------------------------
$ 8,508,000 $7,684,000 $ 8,232,000
===========================================
The minimum rental commitments under all noncancellable operating leases reduced
by income from noncancellable subleases at November 1, 1997 are as follows:
Income from
Land and Noncancellable Net Rental
Fiscal Year Buildings Subleases Commitment
--------------------------------------------
1998 ...................... $ 9,389,000 $1,538,000 $ 7,851,000
1999 ...................... 9,385,000 1,199,000 8,186,000
2000 ...................... 8,885,000 595,000 8,290,000
2001 ...................... 8,406,000 506,000 7,900,000
2002 ...................... 7,734,000 201,000 7,533,000
Thereafter ................ 67,739,000 161,000 67,578,000
--------------------------------------------
$111,538,000 $4,200,000 $107,338,000
============================================
The Company is presently leasing one of its supermarkets, a garden center and
liquor store, from a partnership in which the president has an interest, at an
annual aggregate rental of $645,000, $591,000 and $560,000 for the fiscal years
1997, 1996 and 1995, respectively.
Note 13 -- Mandatory Redeemable Preferred Stock
As of February 16, 1993, the Company received $1,700,000 for the issuance of
136,000 shares of Preferred Stock at $12.50 par value per share to Wakefern Food
Corporation. These securities were issued partially to fund capital expenditures
made in fiscal 1992.
Dividends on the Preferred Stock are cumulative, accrue at an annual rate of 8%
for the first four years and increase by 2% per year thereafter until redeemed,
and are payable when and as declared by the Company's board of directors. 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 14 -- Stock Options
On May 10, 1995, the Company's shareholders approved the Foodarama Supermarkets,
Inc. 1995 Stock Option Plan which provides for the granting of options to
purchase up to 100,000 common shares until January 31, 2005, at prices not less
than fair market value at the date of the grant. Options granted under the plan
vest over a period of three years from the date of grant. At November 1, 1997,
no options had been granted.
Note 15 -- Income Taxes
The income tax provision (benefit) consists of the following:
Fiscal Fiscal Fiscal
1997 1996 1995
-------------------------------------------
Federal:
Current ............... $ -- $ -- $ 412,000
Deferred .............. 526,000 114,000 (699,000)
State and local:
Current ............... -- 203,000 135,000
Deferred .............. 100,000 22,000 (7,000)
-------------------------------------------
$ 626,000 $ 339,000 $(159,000)
===========================================
33
<PAGE>
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
================================================================================
The following tabulations reconcile the federal statutory tax rate to the
effective rate:
Fiscal Fiscal Fiscal
1997 1996 1995
----------------------------
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% 9.0%
Goodwill amortization not
deductible for tax purposes ............. 2.9% 2.8% --
Officers' life insurance income
not includable for tax purposes ......... (0.1)% (2.0)% --
Adjustment to prior years tax provision ... (6.3)% (2.7)% --
Adjustment to contingent tax liabilities .. -- (19.0)% --
Other ..................................... 0.6% .5% 2.5%
----------------------------
Actual tax provision ...................... 37.0% 19.5% 45.5%
============================
Net deferred tax assets and liabilities consist of the following:
November 1, November 2,
1997 1996
----------------------------
Current deferred tax assets:
Reserves ........................... $ 654,000 $ 687,000
Other .............................. 646,000 581,000
----------------------------
1,300,000 1,268,000
----------------------------
Current deferred tax liabilities:
Patronage dividend receivable ...... (1,401,000) (1,426,000)
Inventories ........................ (194,000) (291,000)
Prepaid pension .................... (451,000) (316,000)
Other .............................. (199,000) (496,000)
----------------------------
(2,245,000) (2,529,000)
----------------------------
Current deferred income tax liability .......... $ (945,000) $(1,261,000)
============================
Noncurrent deferred tax assets:
Alternative minimum tax credits .... $ 66,000 $ 230,000
State loss carryforward ............ 664,000 630,000
Investment tax credits ............. -- 1,089,000
Lease obligations .................. 1,532,000 1,233,000
Other .............................. 380,000 397,000
----------------------------
2,642,000 3,579,000
----------------------------
Noncurrent deferred tax liabilities:
Depreciation of fixed assets ....... (4,606,000) (5,285,000)
Pension obligations ................ (347,000) (311,000)
Other .............................. (1,517,000) (869,000)
----------------------------
(6,470,000) (6,465,000)
----------------------------
Noncurrent deferred income tax liability ....... $(3,828,000) $(2,886,000)
============================
Note 16 -- Commitments and Contingencies
Legal Proceedings
The Company is involved in various legal actions and claims arising in the
ordinary course of business. Management believes that the outcome of any such
litigation and claims will not have a material effect on the Company's financial
position or results of operations.
Guarantees
The Company remains contingently liable under leases assumed by third parties.
As of November 1, 1997, the minimum annual rental under these leases amounted to
approximately $428,000, expiring at various dates through 2000. The Company has
not experienced and does not anticipate any material nonperformance by such
third parties.
34
<PAGE>
ANNUAL REPORT 1997
================================================================================
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 November 1,
1997 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 17 -- 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 earn benefits based upon percentage of annual compensation and may
make voluntary contributions to the plan. Employees covered under the union
pension benefit plan earn benefits based on a fixed amount for each year of
service. The Company's funding policy is to pay at least the minimum
contribution required by the Employee Retirement Income Security Act of 1974.
The plans' assets consist primarily of publicly traded stocks and fixed income
securities. As of November 1, 1997 and November 2, 1996, the plans held at fair
market value $688,000 and $523,000 in common stock of the Company.
Net pension expense consists of the following:
Fiscal Fiscal Fiscal
1997 1996 1995
----------------------------------------
Service cost--benefits
earned during
the period ................. $ 296,000 $ 308,000 $ 276,000
Interest cost on projected
benefit obligation ......... 466,000 445,000 398,000
Actual return on
plan assets ................ (675,000) (621,000) (404,000)
Net amortization
and deferral ............... 277,000 360,000 154,000
----------------------------------------
Net pension cost ............. $ 364,000 $ 492,000 $ 424,000
========================================
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 relating to this amendment.
The following table sets forth the two pension plan's funded status and amounts
recognized in the Company's consolidated financial statements at November 1,
1997 and November 2, 1996.
November 1, November 2,
1997 1996
------------------------------
Actuarial present value of benefit
obligations:
Vested benefits obligation ............ $ 5,162,000 $ 5,106,000
Non-vested benefits obligation ........ 336,000 218,000
------------------------------
Accumulated benefit obligations ......... $ 5,498,000 $ 5,324,000
==============================
Projected benefit obligations ........... $(5,498,000) $(6,569,000)
Plan assets at fair value ............... 6,206,000 5,658,000
------------------------------
Plan assets in excess of
projected benefit obligations ......... 708,000 --
Projected benefit obligations in
excess of plan assets ................. -- (911,000)
Unrecognized transition asset ........... (27,000) (36,000)
Unrecognized prior service costs ........ 348,000 381,000
Unrecognized loss from prior experience,
amortized over eleven and eight years . 84,000 1,345,000
------------------------------
Prepaid pension cost .................... $ 1,113,000 $ 779,000
==============================
35
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FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
================================================================================
The discount rate used in determining the actuarial present value of the
projected benefit obligation ranged from 7.25% to 7.5% at November 1, 1997 and
was 7.5% at November 2, 1996. The expected long-term rate of return on plan
assets was 8% at November 1, 1997 and November 2, 1996. The rate of increase in
future compensation levels was 4% at November 1, 1997 and November 2, 1996.
Multi-Employer Plan
Health, welfare and retirement expense was approximately $6,354,000 in fiscal
1997, $6,036,000 in fiscal 1996 and $5,942,000 in fiscal 1995 under plans
covering union employees. Such plans are administered through the unions
involved. Under U.S. legislation regarding such pension plans, a company is
required to continue funding its proportionate share of a plan's unfunded vested
benefits in the event of withdrawal (as defined by the legislation) from a plan
or plan termination. The Company participates in a number of these pension plans
and may have potential obligation as a participant. The information required to
determine the total amount of this contingent obligation, as well as the total
amount of accumulated benefits and net assets of such plans, is not readily
available. However, the Company has no present intention of withdrawing from any
of these plans, nor has the Company been informed that there is any intention to
terminate such plans (see Note 16).
401(k)/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 compensation. 401(k) expense for the fiscal year ended
November 1, 1997 was approximately $12,000.
Note 18 -- Other Postretirement and Postemployment Benefits
Postretirement Benefits
The Company provides certain current and former officers with supplemental
income payments and limited medical benefits during retirement. The Company
recorded an estimate of deferred compensation payments to be made to the
officers based on their anticipated period of active employment and the relevant
actuarial assumptions at November 1, 1997 and November 2, 1996. The Company
purchased life insurance to partially fund this obligation. The participants
have agreed to certain non-compete arrangements and to provide continued service
availability for consulting services after retirement.
Net periodic postretirement benefit cost expense consists of the following:
Fiscal Fiscal Fiscal
1997 1996 1995
------------------------------------
Service cost--benefits
earned during
the period .................... $ 18,000 $ 16,000 $ 13,000
Interest cost ................... 90,000 83,000 80,000
Net amortization
and deferral .................. 38,000 30,000 35,000
------------------------------------
Net periodic postretirement
benefit cost .................. $146,000 $129,000 $128,000
====================================
36
<PAGE>
ANNUAL REPORT 1997
================================================================================
The following table sets forth the funded status and amounts recognized in the
Company's consolidated financial statements at November 1, 1997 and November 2,
1996.
November 1, November 2,
1997 1996
-----------------------------
Accumulated postretirement
benefit obligation .................... $ 1,309,000 $ 1,240,000
Unrecognized net loss, amortized over
eleven and nine years ................. (414,000) (480,000)
Unrecognized prior service cost,
amortized over ten years .............. (36,000) --
-----------------------------
Accrued postretirement benefit cost ..... $ 859,000 $ 760,000
=============================
The assumed discount rate used in determining the postretirement benefit
obligation as of November 1, 1997 and November 2, 1996 was 7.5% and 8%,
respectively.
Postemployment Benefits
Effective October 29, 1994, the Company adopted SFAS No. 112. Under SFAS No.
112, the Company is required to accrue the expected cost of providing
postemployment benefits, primarily short-term disability payments, over the
working careers of its employees. The Company previously expensed the cost of
these benefits as claims were paid.
The effect of this change as of October 29, 1994 resulted in a charge to income
of $129,000, net of an income tax benefit of $107,000, and has been presented as
a cumulative effect of a change in accounting method in the accompanying
consolidated statement of operations for fiscal 1995.
The accrued liability under SFAS No. 112 as of November 1, 1997 and November 2,
1996 was $384,000 and $306,000, respectively.
Note 19-- Noncash Investing and Financing Activities
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 the year ended
November 1, 1997.
During the year ended November 2, 1996, the Company acquired additional property
and equipment for $13,181,000. In conjunction with the acquisition, liabilities
were assumed as follows:
Cost of property and equipment acquired ............. $ 13,181,000
Cash paid ........................................... (6,645,000)
------------
Liabilities assumed ................................. $ 6,536,000
============
In addition, a capital lease obligation of $5,610,000 was incurred 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 the year ended November 2, 1996.
In conjunction with the investment, liabilities were assumed for the same
amount.
At November 2, 1996, the additional minimum 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.
37
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FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
================================================================================
Note 20 -- Unaudited Summarized Consolidated Quarterly Information
Summarized quarterly information for the years ended November 1, 1997 and
November 2, 1996 was as follows:
Thirteen Weeks Ended
------------------------------------------------
February 1, May 3, August 2, November 1,
1997 1997 1997 1997
------------------------------------------------
(Dollars in thousands, except per share data)
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
common share .................. .13 .04 .22 .51
Thirteen-Fourteen Weeks Ended
------------------------------------------------
January 27, April 27, July 27, November 2,
1996 1996 1996 1996
------------------------------------------------
(Dollars in thousands, except per share data)
Sales ....................... $ 146,303 $ 140,815 $ 147,793 $ 166,232
Gross profit ................ 36,540 35,525 37,756 42,245
Net income .................. 496 374 320 206
Mandatory preferred stock
dividend requirement ...... (34) (34) (34) (34)
Earnings available to
common stock .............. 462 340 286 172
Earnings available per
common share ................ .41 .31 .25 .16
Note 21 -- Subsequent Events
On November 14, 1997, the Company obtained additional financing on the Revolving
Credit and Term Loan Agreement (Note 9) of $1,500,000. This additional financing
("Expansion loan") was used to purchase a building in Linden, New Jersey at a
cost of $600,000 on November 14, 1997. The remaining balance of the loan will be
used to renovate the building and add additional equipment. The expansion loan
is collateralized by the building, all improvements and equipment. The note will
be payable in monthly installments of $12,500 plus interest at a fixed rate of
9.18%, maturing December 1, 2004.
The Revolving Credit and Term Loan Agreement was amended January 15, 1998. The
amendment adjusted the interest rate for the Term Loan C and the stock
redemption loan to a fixed rate of 8.38% for the remaining term of the loans.
38
<PAGE>
================================================================================
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 November 1, 1997 and November 2, 1996
and the related consolidated statements of operations, shareholders' equity and
cash flows for the fiscal years ended 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. The consolidated statements of operations, shareholders' equity
and cash flows of Foodarama Supermarkets Inc. and Subsidiaries for the fiscal
year ended October 28, 1995 were audited by other auditors whose report dated
January 25, 1996 expressed an unqualified opinion on those statements.
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 November 1, 1997 and November 2, 1996 and the results of
their operations and their cash flows for the fiscal years ended November 1,
1997 and November 2, 1996 in conformity with generally accepted accounting
principles.
/s/ Amper, Politziner & Mattia, P.A.
January 23, 1998
Edison, New Jersey
39
<PAGE>
================================================================================
INDEPENDENT
AUDITORS'
REPORT
Board of Directors and Shareholders
Foodarama Supermarkets, Inc.
Freehold, New Jersey
We have audited the accompanying consolidated statements of operations,
shareholders' equity and cash flows for the fiscal year ended October 28, 1995
of Foodarama Supermarkets, Inc. and Subsidiaries. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the results of operations and cash flows of Foodarama
Supermarkets, Inc. and Subsidiaries for the fiscal year ended October 28, 1995
in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
January 25, 1996
Parsippany, New Jersey
40
<PAGE>
[LOGO] SHOP RITE
FOODARAMA SUPERMARKETS, INC.
922 Highway 33, Building 6, Suite 1, Howell, New Jersey 07731
(732) 462-4700
<PAGE>
For Shares of Common Stock
FOODARAMA SUPERMARKETS, INC.
PROXY FOR 1998 ANNUAL MEETING OF SHAREHOLDERS
This Proxy is Solicited on behalf of the Board of Directors
The undersigned hereby constitutes and appoints Joseph J. Saker and Richard
J. Saker and each of them, the attorney and proxies of the undersigned with full
power of substitution to appear and to vote all of the shares of Common Stock of
FOODARAMA SUPERMARKETS, INC. registered in the name of the undersigned at the
1998 Annual Meeting of Shareholders of said Company which will be held on April
7, 1998 at 922 Highway 33, Building 6 suite 1, Howell, New Jersey at 10:30 a.m.,
local time, or any adjournment or adjournments thereof, for the purposes more
fully described in the accompanying Proxy Statement, and in their discretion, on
other matters which properly come before the meeting. The Board of Directors
recommends a vote "FOR" such proposals.
(Continued and to be Signed on the Reverse Side)
<PAGE>
Please date, sign and mail your
proxy card back as soon as possible!
Annual Meeting of Shareholders
FOODARAMA SUPERMARKETS, INC.
April 7, 1998
Please Detach and Mail in the Envelope Provided
A |X| Please mark your votes as in this example.
1. Election of Directors.
Nominees: Joseph J. Saker
Richard J. Saker
Charles T. Parton
Albert Zager
FOR |_| WITHHELD |_|
INSTRUCTION: To withold authority to vote for any individual nominee, write that
nominee's name here:
________________________________________________________________________________
SIGNATURE ___________________________________ DATE _______________
2. The Proxy is authorized to transact such other business as may properly
come before the meeting.
FOR |_| AGAINST |_| ABSTAIN |_|
This Proxy, when properly executed, will be voted in the manner directed
herein by the undersigned stockholder. Unless otherwise indicated above or
unless this Proxy is revoked, the shares represented by this Proxy will be voted
for the slate on Directors, and in the discretion of said Proxy on any other
matter which may properly come before the meeting or any adjournments thereof.
I will attend I will not attend
the Annual Meeting. |_| the Annual Meeting. |_|
SIGNATURE ___________________________________ DATE _______________
