Foodarama Supermarkets, Inc.
[LOGO]
Notice of Annual Meeting of
Shareholders, Proxy Statement
and Annual Report 1998
[PHOTOGRAPH]
A World Class Supermarket Operation
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[LOGO]
FOODARAMA SUPERMARKETS, INC.
[MAP SHOWING STORE LOCATIONS IN THE STATE OF NEW JERSEY.]
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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 on Wednesday, April 7, 1999
----------
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 Wednesday, April 7,
1999 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 23, 1999
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 ATTEND THE MEETING ARE REQUESTED TO COMPLETE 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 WILL BE PRESENT AT THE MEETING.
By Order of the Board of Directors
/s/ Richard J. Saker,
Howell, New Jersey Richard J. Saker,
March 3, 1999 Secretary
1
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FOODARAMA SUPERMARKETS, INC.
922 Highway 33
Building 6, Suite 1
Howell, New Jersey
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PROXY STATEMENT
----------
GENERAL INFORMATION
This Proxy Statement and the accompanying form of proxy are being mailed to
the 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 Wednesday, April 7, 1999 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 23, 1999 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 Annual 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 unless otherwise directed by the shareholders.
The Company's mailing address is 922 Highway 33, Building 6, Suite 1,
Freehold, New Jersey 07728 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 3, 1999.
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.
2
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FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
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PRINCIPAL
SHAREHOLDERS
The following table shows, as of February 23, 1999, the
persons known to the Company who owned directly or
beneficially more than 5% of the outstanding Common Stock of
the Company:
<TABLE>
<CAPTION>
Amount
Beneficially Percent
Name of Beneficial Owner Owned of Class
-------------------------------------------------------------------------------------
<S> <C> <C>
Joseph J. Saker (1) (2) (3) ............................. 324,287 29.0
Estate of Mary Saker (1) (3) ............................ 62,798 5.6
Richard J. Saker (1) (4) ................................ 82,809 7.4
Dimensional Fund Advisors, Inc. (5) ..................... 87,300 7.8
Arthur N. Abbey (6) ..................................... 108,000 9.7
</TABLE>
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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 Joseph J. Saker's wife
and 31,399 shares willed to him by Mary Saker.
(3) Mary Saker, deceased, was the mother of Joseph J.
Saker. One-half or 31,399 of her shares have been
willed to Joseph J. Saker.
(4) Includes 1,760 shares held by Richard J. Saker's wife
and 630 shares which are held in a trust for Mr.
Saker's son, of which Mr. Saker is the trustee. Mr.
Saker disclaims beneficial ownership of the shares
described in the preceding sentence.
(5) The address of Dimensional Fund Advisors, Inc.
("Dimensional"), a registered investment advisor, is
1299 Ocean Avenue, 11th Floor, Santa Monica, California
90401. The Company has been advised that, as of
December 31, 1998, Dimensional is deemed to have
beneficial ownership of 87,300 shares of the Company's
stock, all of which shares are held in portfolios of
DFA Investment Dimensions Group, Inc., a registered
open-end investment company (the "Fund"), or in series
of the DFA Investment Trust Company, a Delaware
business trust, the DFA Group Trust or the DFA
Participating 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 22,100
additional shares which are owned by the Fund and
13,000 shares which are owned by the Trust. Dimensional
has sole dispositive power with respect to 87,300
shares of the Company's Common Stock. Dimensional
disclaims beneficial ownership of all such shares.
Dimensional has reported 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 with respect to the shares.
3
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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 23, 1999, 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.
<TABLE>
<CAPTION>
Amount
Beneficially Percent
Name of Beneficial Owner Owned of Class
---------------------------------------------------------------------------------------------------
<S> <C> <C>
Joseph J. Saker (1) (2) ................................................. 324,287 29.0
Richard J. Saker (1) (3) ................................................ 82,809 7.4
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) .................................................... -- --
Directors and Executive Officers as a Group (9 persons)(2)(3)(4)(5) ..... 414,136 37.1
</TABLE>
(*) 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 Joseph J. Saker's wife
and 31,399 shares willed to him by Mary Saker.
(3) Includes 1,760 shares held by Richard J. Saker's wife
and 630 shares which are held in a trust for Mr.
Saker's son, of which Mr. Saker is the trustee. Mr.
Saker disclaims beneficial ownership of the shares
described in the preceding sentence.
(4) Owned jointly with Mr. Shapiro's wife.
(5) Of the 414,136 shares, 411,096 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
223,700 shares of the Company's Common Stock, 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 all voting rights with
respect to at least 35% of all of the issued and outstanding
Common Stock of the Company.
4
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PROXY STATEMENT
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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
---------------------------------------------------------------------------------------------------
<S> <C> <C>
Joseph J. Saker (70) Chairman of the Board and 1958
President of the Company
Richard J. Saker (47) Executive Vice President--Operations 1987
and Secretary of the Company
Charles T. Parton (57) President and Director of 1995
Concorde Science & Technology, Inc.,
Import Brokers
Albert A. Zager (50) Partner--Carton, Witt, Arvanitis & Bariscillo, LLC, 1995
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--Operations. He is the son of Joseph J. Saker.
Mr. Parton is the President of Concord Science and
Technology Co., Inc. and has served in that position since
May 1997. He has been a financial executive, consultant and
Certified Financial Planner for the last five years and 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.
5
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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 October 31, 1998.
The Board of Directors of the Company has appointed
Executive, Audit and Stock Option Committees. The Company
does not have a compensation committee of the Board of
Directors. Instead, the full Board of Directors acts on
matters of compensation. 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 October 31, 1998, the Audit Committee
held two meetings and there were no meetings of the Stock
Option Committee.
================================================================================
EXECUTIVE OFFICERS
OF THE COMPANY
The executive officers of the Company are as set forth
below:
<TABLE>
<CAPTION>
Name Age Capacities in Which Served
------------------------------------------------------------------------------------------
<S> <C> <C>
Joseph J. Saker (1) 70 Chairman of the Board and President
Richard J. Saker (1) 47 Executive Vice President--Operations
and Secretary
Michael Shapiro (2) 57 Senior Vice President, Chief Financial Officer
and Treasurer
Emory A. Altobelli (3) 58 Senior Vice President--Corporate Subsidiaries
and Services
Carl L. Montanaro (4) 57 Senior Vice President--Sales and Merchandising
Robert V. Spires (5) 45 Senior Vice President--Human Resources and
Labor Relations
Joseph C. Troilo (6) 65 Senior Vice President--Financial Administration,
Assistant Secretary and Assistant Treasurer
</TABLE>
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(1) See Nominees as Director 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.
(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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PROXY STATEMENT
================================================================================
EXECUTIVE
COMPENSATION
The aggregate compensation paid or accrued by the Company
during the last three fiscal years ended November 2, 1996,
November 1, 1997 and October 31, 1998 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 (the "Named
Officers") is set forth in the following table:
Summary Compensation Table
--------------------------
<TABLE>
<CAPTION>
Annual Compensation
------------------------- All Other
Name and Principal Position Year Salary Bonus Compensation
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Joseph J. Saker 1998 $330,000 $45,109(1) $ 75,297(3)(4)
President and 1997 300,000 11,538(2) 79,100(3)
Chief Executive Officer 1996 275,090 -- 54,400(3)
Richard J. Saker 1998 $325,000 $44,426(1) $246,835(3)(4)
Executive Vice President, 1997 294,615 10,961(2) 195,900(3)
Chief Operating Officer and Secretary 1996 254,808 -- 159,200(3)
Michael Shapiro 1998 $174,893 $18,195(1) $ 6,603(3)(4)
Senior Vice President, 1997 163,339 6,183(2) --
Chief Financial Officer and Treasurer 1996 161,066 -- --
Carl L. Montanaro 1998 $140,596 $13,949(1) $ 20,826(3)(4)
Senior Vice President, 1997 133,031 4,740(2) 13,200(3)
Sales and Merchandising 1996 128,680 -- 400(3)
Emory A. Altobelli 1998 $129,824 $10,420(1) $ 31,897(3)(4)
Senior Vice President, 1997 125,627 4,721(2) 26,800(3)
Corporate Subsidiaries and Services 1996 122,157 -- 21,000(3)
</TABLE>
(1) Incentive compensation paid pursuant to the Company's
Incentive Compensation Plan for Fiscal Year Ending
October 31, 1998 (the "Incentive Plan"). The Incentive
Plan was adopted by the Board in fiscal 1998 to
attract, retain and motivate non-union salaried
employees by providing incentive compensation awards in
cash. The Board administers the Incentive Plan, which
includes designating non-union salaried employees
eligible to participate in the Incentive Plan and
awarding incentive compensation to the eligible
employees, subject to the Company achieving certain
specified levels of pre-tax profit. In administering
the Incentive Plan, the Board took into account the
recommendations of the Company's executive officers,
except that determinations made with respect to the
Company's Chief Executive Officer and Chief Operating
Officer were made solely by the Company's independent
directors.
(2) 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 to certain
non-union salaried employees of the Company.
(3) Includes amounts accrued for, based on 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 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 provided by the Company 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. Such amounts are not payable until the
earlier of the death, disability or retirement of the
covered employee. The Company anticipates paying for
benefits as they become due out of then 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
plan participants. The current annual premiums for all
employees covered by this plan are approximately
$51,000.
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
================================================================================
The annual compensation accrued for, but not yet paid
to, the Named Officers for fiscal 1998 under the
Deferred Compensation Plan was as follows: Mr. Joseph
Saker--$70,100, Mr. Richard Saker--$242,100, Mr.
Shapiro--$0, Mr. Montanaro--$16,700 and Mr.
Altobelli--$26,600.
(4) Includes amounts contributed by the Company under its
401(k) Plan (the "401(k) Plan"). The Company maintains
a 401(k) Plan for all qualified non-union employees.
Employees are eligible to participate after completing
one year of service (1,000 hours) and attaining age 21.
Employee contributions are discretionary to a maximum
of 15% of eligible compensation but may not exceed
$10,000 per year. Effective October 1, 1997, the
Company may elect to match 25% of the employee's
contributions up to 6% of employee eligible
compensation not exceeding $160,000. The Company has
the right to make additional discretionary
contributions. These discretionary contributions
amounted to 2% of eligible compensation for the period
commencing October 1, 1997 and ending December 31,
1998. Amounts contributed or to be contributed by the
Company to the accounts of the Named Officers for
fiscal 1998 under the 401(k) Plan were as follows: Mr.
Joseph Saker--$5,197, Mr. Richard Saker--$4,735, Mr.
Shapiro--$6,603, Mr. Montanaro--$4,126 and Mr.
Altobelli--$5,297.
================================================================================
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 at September 30, 1997. The plan also
provides for lump sum payments. The table set forth below
specifies the estimated annual benefits payable upon normal
retirement at age 65. Pursuant to a resolution adopted by
the Board of Directors of the Company on September 24, 1997,
years of service and 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 eligible compensation of 401(k)
Plan participants; and (b) $.25 for every $1.00 contributed
to the 401(k) Plan by the participants up to 6% of the
participant's eligible compensation. Prior to October 1,
1997 the Company did not make any contributions to the
401(k) Plan.
<TABLE>
<CAPTION>
Years of Service at September 30, 1997
-------------------------------------------------
Remuneration 15 20 25 30 35
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$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
</TABLE>
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.
8
<PAGE>
PROXY STATEMENT
================================================================================
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
$11,000 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 $31,000 during the fiscal year
ended October 31, 1998 to directors who are not employees of
the Company.
================================================================================
COMPLIANCE
WITH REPORTING
REQUIREMENTS
Section 16(a) of the Exchange Act of 1934, as amended (the
"Exchange Act") requires the Company's Executive Officers
and Directors, and persons who own more than ten percent of
a registered class of the Company's equity securities, to
file reports of ownership and changes of ownership on Forms
3, 4 and 5 with the Securities and Exchange Commission
("SEC"). Executive Officers, Directors and greater than ten
percent shareholders are required by SEC regulation to
furnish the Company with copies of all Forms 3, 4 and 5 they
file.
Based solely on the Company's review of the copies of such
forms it has received, the Company believes that, during the
fiscal year ended October 31, 1998, all of its Executive
Officers, Directors and greater than ten percent beneficial
owners complied with all filing requirements applicable to
them with respect to reports required to be filed by Section
16(a) of the Exchange Act.
================================================================================
COMPENSATION
COMMITTEE
INTERLOCKS AND
INSIDER PARTICIPATION
IN COMPENSATION
DECISIONS
For the fiscal year ended October 31, 1998, the full 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. The Board of Directors acted on matters of
compensation for the Chief Executive Officer and the Chief
Operating Officer, with each of such officers abstaining
from any compensation decisions relating specifically to
them.
================================================================================
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 the
contribution of each such officer to the Company as well as
compensation paid for like positions in comparable
companies, 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 1998. 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, pursuant to the Company's
Incentive Plan and based upon the Company's achievement of
certain levels of pre-tax profit specified in the Incentive
Plan, the Board of Directors awarded cash incentive
compensation to certain non-union salaried employees of the
Company, including Mr. Joseph J. Saker and Mr. Richard J.
Saker, who received $45,109 and $44,426, respectively, under
the Incentive Plan. See "Executive Compensation--Summary
Compensation Table."
Charles T. Parton
Albert A. Zager
9
<PAGE>
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
================================================================================
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 30, 1993 and ended October
31, 1998.
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ----
Foodarama Supermarkets, Inc. 100 78 79 93 120 208
Amex 100 95 108 118 140 134
S&P 500 100 104 134 162 227 248
10
<PAGE>
PROXY STATEMENT
================================================================================
CERTAIN
TRANSACTIONS
(a) Certain Business Relationships and Related Party
Transactions
As required by the By-Laws of Wakefern Food Corporation
("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 October 31, 1998 the Company was indebted to
Wakefern in the amount of $30,525,000 for current charges in
the ordinary course of business. Wakefern presently requires
each of its shareholders to invest up to $500,000 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
October 31, 1998 the Company had a 12.6% investment in
Wakefern of $8,877,000. 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 October 31, 1998,
the Company was indebted in connection with an investment in
Wakefern. The debt of $1,113,000 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 1998 Annual Report on Form 10-K and in the notes
to the Company's 1998 financial statements.
The Company also has an investment in Insure-Rite, Ltd.,
another company affiliated with Wakefern, of $829,000 as of
October 31, 1998. Insure-Rite, Ltd. provides the Company
with its general liability and property insurance coverage.
The Company paid $3,031,000 for such insurance coverage in
fiscal 1998 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 expiring December 31, 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, 2003 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 October 31, 1998, aggregate amounts for rent
(including taxes and insurance) of $577,000, $64,000 and
$140,000 were paid by the Company to Saker Enterprises for
the supermarket, garden center and liquor store,
respectively.
The Company subleases from Wakefern a supermarket in East
Windsor, New Jersey under a sublease expiring in 2008. The
Company also subleases from Wakefern a supermarket in
Marlboro, New Jersey under a sublease expiring in 2006.
During the fiscal year ended October 31, 1998, aggregate
amounts for rent of $739,000 and $777,000 were paid by the
Company to Wakefern for the East Windsor supermarket and the
Marlboro supermarket, respectively. Upon expiration of these
subleases, the underlying leases will be assigned to and
assumed by the Company provided that certain conditions,
which include the absence of defaults by the Company in its
obligations to Wakefern and the Company's lenders, and the
maintenance of a specified level of net worth, are
satisfied. The term of the leases for the East Windsor and
Marlboro supermarkets expire in 2021 and 2018, respectively.
The Company believes that the terms of the foregoing
transactions are comparable to those available for
non-affiliated persons in the respective localities.
(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 $245,000 as of October 31, 1998 including accrued
interest at 9% per annum. The indebtedness is evidenced by
notes payable in equal quarterly installments beginning July
1, 1998 of $27,619, 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 October 31, 1998, 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 Annual
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 October 31, 1998, 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 October 31,
1998. 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 2000 annual meeting of
shareholders must submit such proposal to the Company and
such proposal must be received by the Company by November 4,
1999.
By Order of the Board of Directors,
/s/ Richard J. Saker,
Howell, New Jersey Richard J. Saker,
March 3, 1999 Secretary
12
<PAGE>
[LOGO]
FOODARAMA SUPERMARKETS, INC.
Annual Report 1998
FORWARD-LOOKING STATEMENTS
All statements, other than statements of historical fact,
included in this 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, and
Section 21E of the Securities Exchange Act of 1934, as amended.
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 the 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 relating 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
The Company operates a chain of twenty-one supermarkets located
in Central New Jersey, as well as two liquor stores and two
garden centers, all licensed as ShopRite. The Company also
operates a central food processing facility to supply its stores
with meat, various prepared salads, prepared foods and other
items, and a central baking facility which supplies its stores
with bakery products. The Company is a member of Wakefern Food
Corporation, the largest retailer owned food cooperative
warehouse in the United States and owner of the ShopRite name.
The Company has incorporated the concept of "World Class"
supermarkets into its operations. "World Class" supermarkets are
significantly larger than conventional supermarkets and feature
fresh fish-on-ice, prime meat service butcher departments,
in-store bakeries, international foods including Chinese, sushi
and kosher sections, salad bars, snack bars, bulk foods and
pharmacies. The Company has also introduced many of these
features into its conventionally sized supermarkets through
extensive renovations; these stores are considered "Mini-World
Class" supermarkets. Currently, fifteen of the Registrant's
stores are "World Class," four are "Mini-World Class" and two are
conventional supermarkets.
================================================================================
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 31, 1998 24 18-3/4
May 2, 1998 43 23-5/8
August 1, 1998 37 33-1/2
October 31, 1998 34-5/8 31-1/2
No dividends have been declared or paid on the Company's Common
Stock since October 1979. The Company has approximately 370
shareholders of record.
================================================================================
5 YEAR SUMMARY
OF OPERATIONS
<TABLE>
<CAPTION>
Fiscal Years Ended
-----------------------------------------------------------------------------------
October 31, November 1, November 2, October 28, October 29,
1998 1997 1996 (a) 1995 1994
-----------------------------------------------------------------------------------
(000's omitted except per share data)
<S> <C> <C> <C> <C> <C>
Sales ............................... $ 697,358 $ 636,731 $ 601,143 $ 586,477 $ 611,074
Cost of Sales ....................... 520,624 475,764 449,077 438,222 462,407
---------- ---------- ---------- ---------- ----------
Gross Profit ........................ 176,734 160,967 152,066 148,255 148,667
---------- ---------- ---------- ---------- ----------
Operating Expenses .................. 170,581 155,939 146,992 142,849 145,244
Interest, net ....................... 3,433 3,994 3,339 4,146 4,666
Gain on sale of stores and
real estate transactions .......... -- (656) -- (474) (549)
Extraordinary item .................. -- -- -- 1,848 --
Change in Accounting ................ -- -- -- 236 --
---------- ---------- ---------- ---------- ----------
174,014 159,277 150,331 148,605 149,361
---------- ---------- ---------- ---------- ----------
Income (loss) before
income taxes ...................... 2,720 1,690 1,735 (350) (694)
Income taxes (provision)
benefit ........................... (940) (626) (339) 159 181
---------- ---------- ---------- ---------- ----------
Net income (loss) ................... $ 1,780 $ 1,064 $ 1,396 $ (191) $ (513)
========== ========== ========== ========== ==========
Income (loss) per
common share ...................... $ 1.59 $ .90 $ 1.13 $ (.29) $ (.58)
========== ========== ========== ========== ==========
Weighted average number
of common shares
outstanding ....................... 1,117,150 1,117,150 1,118,150 1,118,150 1,118,150
========== ========== ========== ========== ==========
</TABLE>
(a) 53 weeks
14
<PAGE>
ANNUAL REPORT 1998
================================================================================
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 & 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, P.C.
125 Half Mile Road
Middletown, N.J. 07748
AUDITORS
Amper, Politziner & Mattia, P.A.
2015 Lincoln Highway
P.O. Box 988
Edison, NJ 08818-0988
TRANSFER AGENT & 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
================================================================================
LETTER TO
SHAREHOLDERS
Dear Shareholder:
The Company's results from operations continued to improve
in fiscal 1998. Sales for fiscal 1998 increased 9.5% to a
record $697,358,000 from $636,731,000 in the prior year.
This increase was the result of improved sales in existing
locations and the opening of two new World Class locations
in February and August 1998. The store opened in February
1998 in East Windsor, New Jersey replaced an older, smaller
facility in Hightstown, New Jersey. Comparable store sales
increased 4.8% in fiscal 1998. A significant increase in
promotional activities, including a variety of incentive
programs and double couponing contributed to this increase.
Income from operations increased 22% to $6,153,000 in fiscal
1998 from $5,028,000 in fiscal 1997. Net income grew to
$1,780,000 or $1.59 per share in fiscal 1998 compared to
$1,064,000 or $.90 per share in the prior year period. 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) for fiscal 1998 were $15,765,000 as
compared to $15,744,000 in fiscal 1997. Fiscal 1997 EBITDA
includes $656,000 as a result of the gain on real estate
transactions.
The Company's working capital position declined by
$6,257,000 in fiscal 1998 to a ratio of .95 to 1.00 from
1.08 to 1.00 in fiscal 1997. The Company spent $17,625,000
on numerous capital projects during fiscal 1998, including
the two new store locations, the purchase of an additional
building at, and the refurbishing of, the meat and prepared
foods processing facility in Linden, New Jersey, the
remodeling of an additional location and the expansion of
our location in West Long Branch, New Jersey. The remodeling
of the previously existing portion of the store in West Long
Branch is presently underway. Additional long-term debt of
$10,543,000 was incurred in order to finance a portion of
these projects. Additionally, the Company made principal
payments under long-term debt, excluding capitalized leases,
of $7,071,000. In order to provide additional funding, the
Company is presently renegotiating the terms and conditions
of the Credit Agreement with our primary lender. The current
Credit Agreement matures in February 2000.
The two new World Class stores in East Windsor and in Bound
Brook, New Jersey, which opened in February and in August
1998 respectively, have been very well received by our
customers and continue to exceed initial projections.
Construction has commenced on a World Class store in Wall
Township, New Jersey which is a replacement location for an
older, smaller store in Brielle, New Jersey. Additionally,
three leases have been signed for replacement locations and
plans are being finalized to expand two existing stores.
Also, negotiations with the landlord are almost concluded to
expand another existing store. All of the replacement
stores, as well as the expansion of existing locations, will
be World Class stores and should be completed over a two
year period ending in fiscal 2000.
As part of our ongoing systems upgrade, installation of the
new direct store delivery system in all stores was completed
in fiscal 1998. Additionally, during fiscal 1998 the Company
installed computer based training systems in all stores. The
system is presently being used to train all new checkout
personnel and will be used in the future to train employees
in other store level positions.
In fiscal 1997, the Company appointed a Year 2000 task force
to review all aspects of the Company's operations relating
to Year 2000 issues. The task force is participating with
Wakefern Food Corporation in the inventory and assessment of
jointly operated store systems for Year 2000 readiness. The
task force and Wakefern, where involved, have identified all
computer based systems and applications (including embedded
chip systems) which the Company uses, or which affect its
operations, that might not be Year 2000 compliant. Those
systems and equipment which are not Year 2000 compliant have
been, or will be, modified, reprogrammed or replaced. The
Company estimates that all critical systems and applications
will be Year 2000 compliant by the fourth quarter of fiscal
1999. Both the Company and Wakefern are in the process of
developing contingency plans to provide for viable
alternatives to ensure that business operations are able to
continue in the event of Year 2000 related system failures.
Additional information regarding Year 2000 compliance is
presented in "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
We want to thank our employees and vendors for their
continued dedication and hard work in satisfying our
customers' needs, and our shareholders for their continued
loyalty and support. A special thank you is extended 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 1998
================================================================================
MANAGEMENT'S
DISCUSSION AND
ANALYSIS OF
FINANCIAL CONDITION
AND RESULTS
OF OPERATIONS
FINANCIAL CONDITION AND LIQUIDITY
The Company is a party to an Amended and Restated Revolving
Credit and Term Loan Agreement (the "Credit Agreement") with
one financial institution. The Credit Agreement is secured
by substantially all of the Company's assets and provided
for a total commitment of $31,700,000, including a revolving
credit facility of up to $17,500,000 and term loans referred
to as Term Loan C in the amount of $11,000,000, the Stock
Redemption Facility in the amount of $1,700,000 and a loan
in the amount of $1,500,000, made in November 1997, to fund
the acquisition of a building in, and refurbishment of, the
Company's prepared food and meat processing facility (the
"Expansion Loan"). As of October 31, 1998 the Company owed
$5,500,000 on Term Loan C, $1,445,000 on the Stock
Redemption Facility and $1,362,500 on the Expansion Loan.
Term Loan C and the Stock Redemption Loan are to be paid
quarterly through December 31, 1999 with final payments of
$500,000 and $1,020,000, respectively, due on February 15,
2000. The revolving credit facility also matures February
15, 2000 and the Expansion Loan is payable in monthly
installments over its seven year term ending 2004 based on a
ten year amortization. Interest rates are fixed on Term Loan
C and the Stock Redemption Facility at 8.38% and on the
Expansion Loan at 9.18%. The interest rate on the revolving
credit facility floats at the Base Rate (defined below) plus
.25%. The Base Rate is the rate which is the greater of (i)
the bank prime loan rate as published by the Board of
Governors of the Federal Reserve System, or (ii) the Federal
Funds rate, plus .50%. Additionally, the Company may elect
to use the London Interbank Offered Rate ("LIBOR") plus
2.25% to determine the interest rate on the revolving credit
facility. The Credit Agreement contains certain affirmative
and negative covenants which require, among other matters,
the maintenance of a debt service coverage ratio. The
Company is presently renegotiating the terms and conditions
of the Credit Agreement.
The Company's compliance with the major financial covenant
under the Credit Agreement was as follows as of October 31,
1998:
<TABLE>
<CAPTION>
Actual
Financial Credit (As defined in the
Covenant Agreement Credit Agreement)
--------------------------------------------------------------------------------------
<S> <C> <C>
Debt Service Coverage Ratio ...... Not less than 1.00 to 1.00 .60 to 1.00
</TABLE>
Although the Debt Service Coverage Ratio (the "Ratio") is
below the level required by the Credit Agreement, the Credit
Agreement provides a second criteria, if the Ratio is not
met, before a default is deemed to have occurred. Under this
criteria, at all times when the Ratio is less than 1.00 to
1.00, the amount available and undrawn on the revolving
credit facility must equal or exceed $2,500,000 which, in
turn will mean that in order to remain in compliance with
this covenant, the Company cannot borrow the last $2,500,000
of funds available under the revolving credit facility. This
borrowing limitation was exceeded twice in the quarter ended
October 31, 1998 and once in the quarter ended January 30,
1999. This non-compliance with the covenant was waived.
After giving effect to this restriction on borrowing, the
Company had $7,184,000 of available credit at October 31,
1998, under its revolving credit facility.
Commencing in February 1995, the Company pursued an asset
redeployment program under the Credit Agreement utilizing
the proceeds from the disposition of certain assets to repay
indebtedness under the Credit Agreement. The components of
the asset redeployment program concluded in November 1997
included the sale/leaseback of a supermarket property; the
sale of two real estate partnership interests, one relating
to property in a shopping center where the Company operates
a supermarket and the other a non-supermarket property; and
the financing of two buildings owned by the Company. These
transactions resulted in the receipt of $1,500,000 from the
financing, which is referred to above as the Expansion Loan,
and $3,852,000 from the sale of properties and gains on the
sales of $1,074,000. The proceeds from the sales were used
to pay down the revolving credit facility and the proceeds
from the Expansion Loan were used to purchase a third
building for $606,000, with the balance of the proceeds used
for the remodeling and refurbishment of the meat and
prepared foods processing facility which is housed in the
three buildings.
In 1996 the 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.
In 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.
17
<PAGE>
On April 2, 1998 the Company financed the purchase of
$3,000,000 of equipment for the new store location in East
Windsor, New Jersey. The note bears interest at 7.44% and is
payable in monthly installments over its seven year term.
On October 22, 1998 the Company financed the purchase of
$4,000,000 of equipment for the new store location in Bound
Brook, New Jersey. The note bears interest at 7.26% and is
payable in monthly installments over its six year term.
On September 13, 1996 the 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.
On September 30, 1996 and November 1, 1996 the Company
financed the purchase of $4,602,000 and $1,398,000,
respectively, of equipment for the two new store locations
in Marlboro and Montgomery, New Jersey. The notes bear
interest at 9.02% and 8.74%, respectively, and are payable
in monthly installments over their eight year terms.
No cash dividends have been paid on the Common Stock since
1979, and the Company has no present intentions or ability
to pay any dividends in the near future on its Common Stock.
The Credit Agreement does not permit the payment of any cash
dividends on the Company's Common Stock.
Working Capital:
At October 31, 1998, the Company had a working capital
deficiency of $2,725,000 compared to working capital of
$3,532,000 at November 1, 1997 and $3,056,000 at November 2,
1996. Working capital in fiscal 1998 decreased primarily due
to increases in accounts payable and the current portion of
long term debt partially offset by increases in inventory
and receivables. These increases were primarily due to
increased sales from two new locations and the impact of
double coupons. Accounts receivable consist primarily of
returned checks due the 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 returned
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 in fiscal 1997 remained at approximately the
same levels as the prior year.
Working capital improved in fiscal 1996 as the result of (a)
the equipment financing completed in January 1996, with
$3,000,000 of current debt replaced by long term borrowing;
(b) the reduction in current payables relating to inventory
and store operations using proceeds of long term borrowing
under the revolving credit facility; and (c) an increase of
$1,000,000 in current related party receivables which became
due in fiscal 1997.
Working capital ratios were as follows:
October 31, 1998 ....... .95 to 1.00
November 1, 1997 ....... 1.08 to 1.00
November 2, 1996 ....... 1.07 to 1.00
Cash flows (in millions) were as follows:
1998 1997 1996
------------------------------------------------------------
From operations ............... $ 14.9 $ 9.7 $ 9.7
Investing activities .......... (17.0) .5 (6.5)
Financing activities .......... 2.3 ( 9.6) (3.5)
---------------------------
Totals ........................ $ .2 $ .6 $( .3)
===========================
Fiscal 1998 capital expenditures totaled $17,625,000 with
depreciation of $8,273,000 compared to $3,620,000 and
$8,104,000 respectively for fiscal 1997 and $13,181,000 and
$8,207,000, respectively, for fiscal 1996. In fiscal 1998
long-term debt increased $16,246,000 due to the
capitalization of a real estate lease for the Bound Brook,
New Jersey store, the financing of equipment for the two new
locations in East Windsor and Bound Brook, New Jersey, the
financing of the acquisition and refurbishing of the meat
and prepared foods processing facility in Linden, New Jersey
and financing obtained under the revolving credit facility.
These increases were partially offset by cash generated by
operations used to pay down existing debt.
18
<PAGE>
ANNUAL REPORT 1998
================================================================================
In fiscal 1997 long-term debt decreased $3,981,000, using
proceeds from the sale of assets under the asset
redeployment program and cash generated by operations which
was partially offset by financing obtained under the Stock
Redemption Facility, and the capitalization of a real estate
lease for the Aberdeen, New Jersey store.
In fiscal 1996 long-term debt increased $10,106,000 as the
result of the financing of POS equipment in two locations
and equipment in the two new locations in Marlboro and
Montgomery, New Jersey and the capitalization of a real
estate lease for the Montgomery store.
The Company had $7,184,000 of available credit, at October
31, 1998, under its revolving credit facility. The Company
is presently renegotiating the terms and conditions of the
Credit Agreement in order to more adequately meet its
operating needs, scheduled capital expenditures and debt
service for fiscal 1999.
RESULTS OF OPERATIONS
Sales:
The Company's sales were $697.4 million, $636.7 million and
$601.1 million, respectively in fiscal 1998, 1997 and 1996.
This represents an increase of 9.5 percent in 1998 and an
increase of 5.9 percent in 1997. These changes in sales
levels were the result of the opening of two new locations
in February and August 1998, the impact of significantly
increased promotional activities and expenditures and the
full year of operations in fiscal 1997 of two locations
opened in 1996. The increase in fiscal 1997 was partially
offset by sales from a 53rd week in fiscal 1996. Comparable
store sales increased 4.8% in fiscal 1998 and 1.7% in fiscal
1997 after adjusting for the 53rd week in fiscal 1996. A
significant increase in promotional activities, including a
variety of incentive programs and double couponing, in the
current year contributed to this increase.
Gross Profit:
Gross profit totaled $176.7 million in fiscal 1998 compared
to $161.0 million in fiscal 1997 and $152.1 million in
fiscal 1996. Gross profit as a percent of sales was 25.3%,
in each of the three fiscal years 1998, 1997 and 1996.
In fiscal 1998, 1997 and 1996 gross profit percentage was
positively affected by the continued improvement in product
mix and Wakefern incentive programs for the new locations.
However, this improvement was offset by price reductions
instituted to combat increased competitive pressure in the
Company's marketing area.
Patronage dividends applied as a reduction of the cost of
merchandise sold were $7,438,000, $6,633,000 and $6,905,000
for the last three fiscal years. This translates to 1.07%,
1.04% and 1.15% of sales for the respective periods.
<TABLE>
<CAPTION>
Fiscal Years Ended
--------------------------------
10/31/98 11/01/97 11/02/96
--------------------------------
(in millions)
<S> <C> <C> <C>
Sales ............................. $697.4 $636.7 $601.1
Gross profit ...................... 176.7 161.0 152.1
Gross profit percentage ........... 25.3% 25.3% 25.3%
================================
</TABLE>
Operating, General and Administrative Expenses:
Fiscal 1998 expenses totaled $170.6 million compared to
$155.9 million in fiscal 1997 and $147.0 million in fiscal
1996.
<TABLE>
<CAPTION>
Fiscal Years Ended
--------------------------------
10/31/98 11/01/97 11/02/96
--------------------------------
(in millions)
<S> <C> <C> <C>
Sales $697.4 $636.7 $601.1
Operating, General and
Administrative Expenses 170.6 155.9 147.0
% of Sales 24.5% 24.5% 24.5%
================================
</TABLE>
19
<PAGE>
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
================================================================================
Operating, general and administrative expenses as a percent
of sales remained the same in fiscal 1998 compared to fiscal
1997. Decreases in general liability insurance expense,
depreciation and amortization and corporate administrative
expense, were offset by increases in selling expense and
repairs and maintenance costs. The decrease in general
liability insurance expense was the result of final prior
year premium calls from Insure-Rite, Ltd., a Wakefern
affiliate which provided the Company with liability and
property insurance coverage, being expensed in fiscal 1997.
The increase in selling expense was the result of increased
promotional activity, including a variety of incentive
programs and double couponing, in the Company's marketing
area. As a percentage of sales, general liability insurance
costs decreased .23%, depreciation and amortization
decreased .12% and corporate administrative expense
decreased .06%. These decreases were offset by increases in
selling expense of .31% and repairs and maintenance expense
of .07%. Pre-opening costs were $702,000 in fiscal 1998.
Operating, general and administrative expenses as a percent
of sales remained the same in fiscal 1997 compared to fiscal
1996. Decreases, primarily related to the two new locations
opened in fiscal 1996, in selling expense and labor and
related fringe benefit costs, as well as reduced corporate
administrative expense, were offset by increases in general
liability insurance expense, other store expenses, which
include debit and credit card processing fees and Wakefern
support services, and the amortization of deferred pre-store
opening costs. The general liability insurance increase was
the result of premium calls from Insure-Rite, Ltd., for
policy years ended December 1, 1993 and December 1, 1994, as
previously discussed in the Commitments and Contingencies
footnote in prior years financial statements. As a
percentage of sales, selling expense decreased .27%, payroll
and related fringe benefit costs decreased .10% and
corporate administrative expense decreased .09%. These
decreases were offset by increases in general liability
insurance of .27%, other store expenses of .18% and
amortization of deferred pre-store opening costs of .04%.
Pre-opening costs were $505,000 in fiscal 1997.
Amortization expense decreased in fiscal 1998 to $1,339,000
compared to $1,956,000 in fiscal 1997 and $1,826,000 in
fiscal 1996. The decrease in fiscal 1998, as compared to
fiscal 1997, was the result of a change in accounting for
pre-store opening costs and decreased amortization of
deferred financing costs and deferred escalation rents
partially offset by increased amortization of bargain
leases. The increase in fiscal 1997, as compared to fiscal
1996, was the result of increased amortization of deferred
escalation rents and deferred pre-store opening costs
partially offset by decreased amortization of goodwill and
deferred financing costs. See Note 1 of Notes to
Consolidated Financial Statements--Pre-opening Costs.
Interest Expense:
Interest expense totaled $3.9 million in fiscal 1998
compared to $4.3 million in fiscal 1997 and $3.5 million in
fiscal 1996. The decrease in fiscal 1998, as compared to
fiscal 1997, was due to a decrease in average debt
outstanding since November 1, 1997 and lower interest rates
on the Company's credit facility. The increase in fiscal
1997, as compared to fiscal 1996, was due to an increase in
the average debt outstanding since November 2, 1996
partially offset by lower interest rates on the Company's
credit facility. Interest income was $0.4 million in fiscal
1998 compared to $0.3 million in fiscal 1997 and $0.2
million in fiscal 1996.
Income Taxes:
The Company recorded a tax provision of $0.9 million in
fiscal 1998, $0.6 million in fiscal 1997 and $0.3 million in
fiscal 1996. See Note 14 of Notes to Consolidated Financial
Statements.
Net Income:
The Company had net income of $1,780,000 or $1.59 per share
in fiscal 1998 compared to net income of $1,064,000 or $.90
per share in fiscal 1997. 1997 results included a net gain
after tax on real estate transactions of $413,000 or $.37
per share. Earnings before interest, taxes, depreciation and
amortization ("EBITDA") for fiscal 1998 were $15,765,000 as
compared to $15,744,000 in fiscal 1997. Fiscal 1997 EBITDA
includes $656,000 as a result of the gain on real estate
transactions.
Fiscal 1996 resulted in net income of $1,396,000 or $1.13
per share. EBITDA for fiscal 1996 were $15,107,000.
Shares outstanding were 1,117,150 for fiscal 1998 and fiscal
1997 and 1,118,150 for fiscal 1996. Per share amounts for
fiscal 1998, 1997 and 1996 are after Preferred Stock
dividends of $0, $57,000 and $136,000, respectively.
20
<PAGE>
ANNUAL REPORT 1998
================================================================================
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards
("SFAS") No. 130, "Reporting Comprehensive Income." This
Statement establishes standards for reporting and display of
comprehensive income and its components (revenue, expenses,
gains, and losses) in a full set of general-purpose
financial statements. This Statement requires that all items
that are required to be recognized under accounting
standards as components of comprehensive income be reported
in a financial statement that is displayed with the same
prominence as other financial statements. The 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.
In June 1998, the FASB issued SFAS 133, "Accounting for
Derivative Instruments and Hedging Activities." This
Statement establishes accounting and reporting standards for
derivative instruments, including certain derivative
instruments embedded in other contracts, (collectively
referred to as derivatives) and for hedging activities. It
requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position
and measure those instruments at fair value. The Company
does not expect a material impact from adopting the
provisions of SFAS No. 133 which becomes effective for the
Company in fiscal 2000.
Year 2000
In 1997, the Company appointed a year 2000 task force (the
"Task Force") to review all aspects of the Company's
operations relating to Year 2000 ("Y2K") issues. The Task
Force reports to the Company's Chief Financial Officer and
is staffed primarily with representatives of the Company's
Information Technology and Store Systems departments.
Reports are made regularly to the Company's Board of
Directors.
The Task Force is participating with Wakefern in the
inventory and assessment of jointly operated store systems
for Y2K readiness. The Task Force and Wakefern, where
involved, have identified all computer-based systems and
applications (including embedded chip systems) the Company
uses or that affect its operations that might not be Y2K
compliant. Those systems and equipment which are not Y2K
compliant have been, or will be, modified, reprogrammed or
replaced. The Company estimates that all critical systems
and applications will be Y2K compliant by the fourth quarter
of fiscal 1999. The costs related to the Y2K project are
included in the normal operating and capital budgets of both
the Company's and Wakefern's Information Technology
Departments' budgets and should not have any material effect
on the Company's operating results.
Both the Company and Wakefern are in the process of
developing contingency plans to provide for viable
alternatives to ensure that business operations are able to
continue in the event of Y2K related system failures. The
most significant impacts would likely be the inability to
conduct normal operations due to a power failure at store
level or at Wakefern or a systems failure in the banking
process either at the local, federal or electronic payment
level. If the Company, Wakefern or third party vendors are
unable to resolve processing issues in a timely manner, the
failure of these systems could result in the interruption of
the Company's operations, which could have a material
adverse effect on the financial condition of the Company.
21
<PAGE>
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
================================================================================
CONSOLIDATED
BALANCE SHEETS
October 31, 1998
and
November 1, 1997
(In thousands)
<TABLE>
<CAPTION>
1998 1997
---------------------------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents ....................................... $ 3,905 $ 3,678
Merchandise inventories ......................................... 37,804 33,585
Receivables and other current assets ............................ 3,382 3,576
Prepaid income taxes ............................................ 1,005 392
Related party receivables--Wakefern ............................. 6,860 5,389
Related party receivables--other ................................ 152 238
---------------------------------
53,108 46,858
---------------------------------
Property and equipment
Land ............................................................ 308 93
Buildings and improvements ...................................... 1,220 829
Leasehold improvements .......................................... 34,031 32,064
Equipment ....................................................... 75,756 65,935
Property under capital leases ................................... 32,353 19,443
---------------------------------
143,668 118,364
Less accumulated depreciation and amortization .................. 65,389 62,210
---------------------------------
78,279 56,154
---------------------------------
Other assets
Investments in related parties .................................. 9,706 9,256
Intangibles ..................................................... 4,562 5,100
Other ........................................................... 2,384 2,847
Related party receivables--Wakefern ............................. 1,370 1,191
Related party receivables--other ................................ 158 94
---------------------------------
18,180 18,488
---------------------------------
$ 149,567 $ 121,500
=================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt ............................... $ 7,812 $ 6,647
Current portion of long-term debt, related party ................ 211 66
Current portion of obligations under capital leases ............. 667 469
Deferred income tax liability ................................... 1,464 945
Accounts payable
Related party--Wakefern ....................................... 30,525 24,381
Others ........................................................ 6,446 3,763
Accrued expenses ................................................ 8,708 7,055
---------------------------------
55,833 43,326
---------------------------------
Long-term debt .................................................... 20,289 17,874
Long-term debt, related party ..................................... 916 719
Obligations under capital leases .................................. 29,451 17,325
Deferred income taxes ............................................. 3,508 3,828
Other long-term liabilities ....................................... 6,556 7,113
---------------------------------
60,720 46,859
---------------------------------
Shareholders' equity
Common stock, $1.00 par; authorized 2,500,000 shares;
issued 1,621,627 shares; outstanding 1,117,150 shares ........... 1,622 1,622
Capital in excess of par ........................................ 2,351 2,351
Retained earnings ............................................... 35,751 33,971
Minimum pension liability ....................................... (81) --
---------------------------------
39,643 37,944
Less 504,477 shares held in treasury, at cost ................... 6,629 6,629
---------------------------------
33,014 31,315
---------------------------------
$ 149,567 $ 121,500
=================================
</TABLE>
See notes to consolidated financial statements.
22
<PAGE>
ANNUAL REPORT 1998
================================================================================
CONSOLIDATED
STATEMENTS OF
OPERATIONS
Fiscal Years Ended
October 31, 1998,
November 1, 1997
and
November 2, 1996
(In thousands, except
per share data)
<TABLE>
<CAPTION>
1998 1997 1996
---------------------------------------------
<S> <C> <C> <C>
Sales ..................................................... $ 697,358 $ 636,731 $ 601,143
Cost of merchandise sold .................................. 520,624 475,764 449,077
---------------------------------------------
Gross profit .............................................. 176,734 160,967 152,066
Operating, general and administrative expenses ............ 170,581 155,939 146,992
---------------------------------------------
Income from operations .................................... 6,153 5,028 5,074
---------------------------------------------
Other (expense) income:
Gain on real estate transactions ........................ -- 656 --
Interest expense ........................................ (3,881) (4,273) (3,522)
Interest income ......................................... 448 279 183
---------------------------------------------
(3,433) (3,338) (3,339)
---------------------------------------------
Earnings before income tax provision ...................... 2,720 1,690 1,735
Income tax provision ...................................... (940) (626) (339)
---------------------------------------------
Net income ................................................ $ 1,780 $ 1,064 $ 1,396
=============================================
Per share information:
Net income per common share, basic and diluted ............ $ 1.59 $ .90 $ 1.13
=============================================
Weighted average shares outstanding ....................... 1,117,150 1,117,150 1,118,150
=============================================
</TABLE>
See notes to consolidated financial statements.
23
<PAGE>
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
================================================================================
CONSOLIDATED
STATEMENTS OF
SHAREHOLDERS'
EQUITY
Fiscal Years Ended
October 31, 1998,
November 1, 1997
and
November 2, 1996
(In thousands, except
per share data)
<TABLE>
<CAPTION>
Common Stock
--------------------- Capital Minimum Treasury Stock
Shares in Excess Retained Pension ---------------------- Total
Issued Amount of Par Earnings Liability Shares Amount Equity
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance--
October 28, 1995 ........ 1,621,627 $ 1,622 $ 2,351 $ 32,127 $ (806) (503,477) $ (6,622) $ 28,672
Net income 1996 ........... -- -- -- 1,396 -- -- -- 1,396
Preferred stock
dividends paid--
$4.11 per share ........... -- -- -- (559) -- -- -- (559)
Minimum pension liability . -- -- -- -- 806 -- -- 806
-----------------------------------------------------------------------------------------------------
Balance--
November 2, 1996 ........ 1,621,627 1,622 2,351 32,964 -- (503,477) (6,622) 30,315
Net income 1997 ........... -- -- -- 1,064 -- -- -- 1,064
Shares repurchased ........ -- -- -- -- -- (1,000) (7) (7)
Preferred stock
dividends paid--
$.42 per share ............ -- -- -- (57) -- -- -- (57)
-----------------------------------------------------------------------------------------------------
Balance--
November 1, 1997 ........ 1,621,627 1,622 2,351 33,971 -- (504,477) (6,629) 31,315
Net income 1998 ........... -- -- -- 1,780 -- -- -- 1,780
Minimum pension liability . -- -- -- -- (81) -- -- --
-----------------------------------------------------------------------------------------------------
Balance--
October 31, 1998 ........ 1,621,627 $ 1,622 $ 2,351 $ 35,751 $ (81) (504,477) $ (6,629) $ 33,014
=====================================================================================================
</TABLE>
See notes to consolidated financial statements.
24
<PAGE>
ANNUAL REPORT 1998
================================================================================
CONSOLIDATED
STATEMENTS OF
CASH FLOWS
Fiscal Years Ended
October 31, 1998,
November 1, 1997
and
November 2, 1996
(In thousands)
<TABLE>
<CAPTION>
1998 1997 1996
----------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income ...................................................... $ 1,780 $ 1,064 $ 1,396
Adjustments to reconcile net income to
net cash from operating activities
Depreciation ................................................ 8,273 8,104 8,207
Amortization, intangibles ................................... 538 375 563
Amortization, deferred financing costs ...................... 535 642 820
Amortization, deferred rent escalation ...................... 266 434 353
Amortization, other assets .................................. -- 505 90
Gain on real estate transactions ............................ -- (656) --
Deferred income taxes ....................................... 253 626 136
(Increase) decrease in
Merchandise inventories ................................... (4,219) (1,931) (3,985)
Receivables and other current assets ...................... 194 (845) 185
Prepaid income taxes ...................................... (613) 582 (974)
Other assets .............................................. 90 (78) 2,484
Related party receivables--Wakefern ....................... (1,650) 481 (1,386)
Increase (decrease) in
Accounts payable .......................................... 8,827 (1,343) 2,690
Income taxes payable ...................................... -- -- (77)
Other liabilities ......................................... 695 1,739 (774)
----------------------------------------------
14,969 9,699 9,728
----------------------------------------------
Cash flows from investing activities:
Net proceeds from real estate transactions ...................... -- 2,938 --
Cash paid for the purchase of property and equipment ............ (17,019) (3,620) (6,645)
Decrease in related party receivables--other .................... 22 1,159 95
----------------------------------------------
(16,997) 477 (6,550)
----------------------------------------------
Cash flows from financing activities:
Payment for redemption of preferred stock ....................... -- (1,700) --
Preferred stock dividend payments ............................... -- (57) (559)
Proceeds from issuance of debt .................................. 9,937 1,700 13,202
Principal payments under long-term debt ......................... (6,963) (9,213) (15,768)
Principal payments under capital lease obligations .............. (586) (91) (197)
Principal payments under long-term debt, related party .......... (108) (24) (177)
Deferred financing costs ........................................ (25) (227) --
----------------------------------------------
2,255 (9,612) (3,499)
----------------------------------------------
Net change in cash and cash equivalents ........................... 227 564 (321)
Cash and cash equivalents, beginning of year ...................... 3,678 3,114 3,435
----------------------------------------------
Cash and cash equivalents, end of year ............................ $ 3,905 $ 3,678 $ 3,114
==============================================
Supplemental disclosures of cash paid (received)
Interest ........................................................ $ 3,960 $ 4,277 $ 3,526
Income taxes .................................................... 900 (606) 1,263
</TABLE>
See notes to consolidated financial statements.
25
<PAGE>
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
================================================================================
NOTES TO
CONSOLIDATED
FINANCIAL
STATEMENTS
(Tabular dollars in thousands,
except per share amounts)
Note 1 -- Summary of Significant Accounting Policies
Nature of Operations
Foodarama Supermarkets, Inc. and Subsidiaries (the
"Company"), operate 21 ShopRite supermarkets, primarily in
central New Jersey. The Company is a member of Wakefern Food
Corporation ("Wakefern"), the largest retailer-owned food
cooperative in the United States.
Fiscal Year
The Company's fiscal year ends on the Saturday closest to
October 31. Fiscal 1998 consists of the 52 weeks ended
October 31, 1998, fiscal 1997 consists of the 52 weeks ended
November 1, 1997 and fiscal 1996 consists of the 53 weeks
ended November 2, 1996.
Principles of Consolidation
The consolidated financial statements include the accounts
of the Company and its wholly owned subsidiaries. All
significant intercompany accounts and transactions have been
eliminated.
Industry Segment
The Company operates in one industry segment, the retail
sale of food and nonfood products, primarily in the central
New Jersey region.
Reclassifications
Certain reclassifications have been made to prior years'
financial statements in order to conform to the current year
presentation.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results
could differ from those estimates.
Cash Equivalents
The Company considers all highly liquid debt instruments
purchased with an original maturity of three months or less
to be cash equivalents.
Merchandise Inventories
Merchandise inventories are stated at the lower of cost
(first-in, first-out) or market with cost being determined
under the retail method.
Property and Equipment
Property and equipment is stated at cost and is depreciated
on a straight-line basis over the estimated useful lives of
between three and ten years for equipment, the shorter of
the useful life or lease term for leasehold improvements,
and twenty years for buildings.
Property and equipment under capital leases are recorded at
the lower of fair market value or the net present value of
the minimum lease payments. They are depreciated on a
straight-line basis over the shorter of the related lease
terms or its useful life.
Investments
The Company's investment in its principal supplier,
Wakefern, is stated at cost (see Note 4).
26
<PAGE>
ANNUAL REPORT 1998
================================================================================
Intangibles
Intangibles consist of goodwill and favorable operating
lease costs. Goodwill is being amortized on a straight-line
basis over periods from 15 to 36 years. The favorable
operating lease costs are being amortized on a straight-line
basis over the terms of the related leases which range from
12 to 24 years.
Deferred Financing Costs
Deferred financing costs are being amortized over the life
of the related debt using the effective interest method.
Postretirement Benefits other than Pensions
The Company accrues for the cost of providing postretirement
benefits, principally supplemental income payments and
limited medical benefits, over the working careers of the
officers in the plan.
Postemployment Benefits
The Company accrues for the expected cost of providing
postemployment benefits, primarily short-term disability
payments, over the working careers of its employees.
Advertising
Advertising costs are expensed as incurred. Advertising
expense was $16.4, $13.2 and $14.0 million for the fiscal
years 1998, 1997 and 1996, respectively.
Pre-opening Costs
Effective November 2, 1997, the Company elected early
application of Statement of Position 98-5 ("SOP 98-5"),
"Reporting on the Cost of Start-Up Activities." In
accordance with SOP 98-5, the Company expenses costs
associated with the opening of new stores as incurred. The
Company previously amortized these costs over a period of
twelve months, commencing one month after the opening of the
store. The effect of adopting SOP 98-5 on net income for the
year ended October 31, 1998 was a decrease of $249,000 or
$.22 per share. Financial statements for the years ended
November 1, 1997 and November 2, 1996 have not been
restated.
Store Closing Costs
The costs, net of amounts expected to be recovered, are
expensed when a decision to close a store is made. It is
reasonably possible that these estimates may change in the
near term. Operating results continue to be reported until a
store is closed.
Earnings Per Share
Effective for the Company's financial statements for the
fiscal year ended October 31, 1998, the Company adopted
Statement of Financial Accounting Standards No. 128,
"Earnings per Share" ("SFAS 128"). SFAS 128 replaces the
presentation of primary earnings per share ("EPS") and fully
diluted EPS with a presentation of basic EPS and diluted
EPS, respectively. Basic EPS excludes dilution and is
computed by dividing earnings available to common
stockholders by the weighted-average number of common shares
outstanding during the period. Diluted EPS assumes
conversion of dilutive options and warrants, and the
issuance of common stock for all other potentially dilutive
equivalent shares outstanding.
All EPS data for prior periods has been restated. The
adoption of SFAS 128 did not have a material effect on the
Company's reported EPS amounts.
Employee Benefit Plan
As of November 2, 1997, the Company adopted Statement of
Financial Accounting Standards No. 132 ("SFAS 132"),
"Employers' Disclosures about Pensions and Other
Postretirement Benefits." SFAS 132 modifies the disclosure
requirements for pensions and other postretirement benefits,
but does not change the measurement or recognition of those
plans. Adoption of this statement had no effect on the
Company's financial position or results of operations.
27
<PAGE>
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
================================================================================
Note 2 -- Concentration of Cash Balance
As of October 31, 1998 and November 1, 1997, cash balances
of approximately $561,000 and $954,000, respectively, were
maintained in bank accounts insured by the Federal Deposit
Insurance Corporation (FDIC). These balances exceed the
insured amount of $100,000.
Note 3 -- Receivables and Other Current Assets
<TABLE>
<CAPTION>
October 31, November 1,
1998, 1997
--------------------------
<S> <C> <C>
Accounts receivable .............................. $2,380 $2,676
Prepaids ......................................... 1,321 1,279
Rents receivable ................................. 83 94
Less allowance for uncollectible accounts ........ (402) (473)
--------------------------
$3,382 $3,576
==========================
</TABLE>
Note 4 -- Related Party Transactions
Wakefern Food Corporation
As required by Wakefern's By-Laws, all members of the
cooperative are required to make an investment in the common
stock of Wakefern for each supermarket operated ("Store
Investment Program"), with the exact amount per store
computed in accordance with a formula based on the volume of
each store's purchases from Wakefern. The maximum required
investment per store was $450,000 at October 31, 1998 and
November 1, 1997 (See Note 22). The Company has a 12.6%
investment in Wakefern of $8,877,000 at October 31, 1998 and
$8,427,000 at November 1, 1997. Wakefern is operated on a
cooperative basis for its members. The shares of stock in
Wakefern are assigned to and held by Wakefern as collateral
for any obligations due Wakefern. In addition, the
obligations to Wakefern are personally guaranteed by
principal officers/shareholders of the Company. As of
October 31, 1998 and November 1, 1997, the Company was
obligated to Wakefern for $1,113,000 and $757,000,
respectively, for the increase in its required investment
(see Note 9 Long-term Debt, Related Party).
The Company also has an investment of approximately 13% in
Insure-Rite, Ltd., a company affiliated with Wakefern, which
was $829,000 at October 31, 1998 and November 1, 1997.
Insure-Rite, Ltd. provides the Company with liability and
property insurance coverage. As of October 31, 1998 and
November 1, 1997, the Company was obligated to Insure-Rite,
Ltd. for $14,000 and $28,000, respectively (see Note
9--Long-term Debt, Related Party).
In fiscal 1997, Insure-Rite, Ltd. made two retrospective
premium calls for the 1992/93 and the 1993/94 policy years
for $869,000 and $770,000, respectively. The premium calls
represent actuarial projections of claims to be paid in
excess of the deposit premium paid by the Company. The
Company also had a balance due in fiscal 1997 of $139,000
for premium calls for the 1991/92 policy year. After the
1993/94 policy year, Insure-Rite, Ltd. changed its policy to
provide for a fixed premium covering all insured losses and
the elimination of premium calls. The premium calls are
payable in scheduled semi-annual payments through September
1999. No interest is being charged on this obligation. At
October 31, 1998 and November 1, 1997, $1,092,000 and
$686,000 was included in accounts payable-related party,
respectively, and $1,092,000 was included in other long-term
liabilities at November 1, 1997. Insurance premiums paid to
Insure-Rite, Ltd. for fiscal years 1998, 1997 and 1996 were
$3,031,000, $2,702,000 and $2,738,000, respectively.
As a stockholder member of Wakefern, the Company earns a
share of an annual Wakefern patronage dividend. The dividend
is based on the distribution of operating profits on a pro
rata basis in proportion to the dollar volume of business
transacted by each member with Wakefern during each fiscal
year. It is the Company's policy to accrue quarterly an
estimate of the annual patronage dividend. The Company
reflects the patronage dividend as a reduction of the cost
of merchandise in the consolidated statements of operations.
For fiscal 1998, 1997 and 1996, the patronage dividends were
$7,438,000, $6,633,000 and $6,905,000, respectively.
28
<PAGE>
ANNUAL REPORT 1998
================================================================================
At October 31, 1998 and November 1, 1997, the Company has
current receivables due from Wakefern of approximately
$6,860,000 and $5,389,000, respectively, representing
patronage dividends, vendor rebates, coupons and other
receivables due in the ordinary course of business and a
noncurrent receivable representing a deposit of
approximately $1,370,000 and $1,191,000, respectively.
In September 1987, the Company and all other stockholder
members of Wakefern entered into an agreement, as amended in
1992, with Wakefern which provides for certain commitments
and restrictions on all stockholder members of Wakefern. The
agreement contains an evergreen provision providing for an
indefinite term and is subject to termination ten years
after the approval of 75% of the outstanding voting stock of
Wakefern. Under the agreement, each stockholder, including
the Company, agreed to purchase at least 85% of its
merchandise in certain defined product categories from
Wakefern and, if it fails to meet such requirements, to make
payments to Wakefern based on a formula designed to
compensate Wakefern for its lost profit. Similar payments
are due if Wakefern loses volume by reason of the sale of
one or more of a stockholder's stores, merger with another
entity or on the transfer of a controlling interest in the
stockholder.
The Company fulfilled its obligation to purchase a minimum
of 85% in certain defined product categories from Wakefern
for all periods presented. The Company's merchandise
purchases from Wakefern, including direct store delivery
vendors processed by Wakefern, approximated $494, $447 and
$416 million for the fiscal years 1998, 1997 and 1996,
respectively.
Wakefern charges the Company for, and provides the Company
with product and support services in numerous administrative
functions. These services include advertising, insurance,
supplies, technical support for communications and
electronic payment systems, equipment purchasing and the
coordination of coupon processing.
In addition to its investment in Wakefern, which carries
only voting rights, the Company's President serves as a
member of Wakefern's Board of Directors and its finance
committee. Several of the Company's officers and employees
also hold positions on various Wakefern committees.
Other
The Company has receivables from related parties that
include shareholders, directors, officers and real estate
partnerships. At October 31, 1998 and November 1, 1997,
approximately $295,000 and $307,000, respectively, of these
receivables, consist of notes bearing interest at 7% to 9%.
These receivables have been classified based upon the
scheduled payment terms. The remaining amounts are not due
upon any specified date and do not bear interest. The
Company's management has classified these loans based upon
expected payment dates.
Fair Value
Determination of the fair value of the above receivables is
not practicable due to their related party nature. As the
Company's investments in Wakefern can only be sold to
Wakefern for approximately the amount invested, it is not
practicable to estimate the fair value of such stock.
Note 5 -- Intangibles
<TABLE>
<CAPTION>
October 31, November 1,
1998 1997
---------------------------
<S> <C> <C>
Goodwill ..................................... $ 3,493 $ 3,493
Favorable operating lease costs, net ......... 4,685 4,685
---------------------------
8,178 8,178
Less accumulated amortization ................ 3,616 3,078
---------------------------
$ 4,562 $ 5,100
===========================
</TABLE>
29
<PAGE>
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
================================================================================
Note 6 -- Accrued Expenses
<TABLE>
<CAPTION>
October 31, November 1,
1998 1997
---------------------------
<S> <C> <C>
Payroll and payroll related expenses .......... $ 4,451 $ 3,579
Insurance ..................................... 417 324
Sales, use and other taxes .................... 1,020 924
Interest ...................................... 128 207
Employee benefits ............................. 673 569
Occupancy costs ............................... 1,148 964
Real estate taxes ............................. 344 276
Other ......................................... 527 212
---------------------------
$ 8,708 $ 7,055
===========================
</TABLE>
Note 7 -- Real Estate Transactions
During the fiscal year ended November 1, 1997, the Company
sold its Shrewsbury and West Long Branch, New Jersey real
estate partnership interests, which resulted in total
proceeds and a gain before income tax of $875,000. The
Company had other miscellaneous real estate transactions
that resulted in a loss before income tax of $219,000 in
fiscal year 1997.
Note 8 -- Long-term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
October 31, November 1,
1998 1997
---------------------------
<S> <C> <C>
Revolving note ................................ $ 5,816 $ 3,773
Term loan ..................................... 5,500 9,500
Stock redemption note ......................... 1,445 1,700
Expansion loan ................................ 1,363 --
Other notes payable ........................... 13,977 9,548
---------------------------
28,101 24,521
Less current portion .......................... 7,812 6,647
---------------------------
$20,289 $17,874
===========================
</TABLE>
The Company has an amended and restated Revolving Credit and
Term Loan Agreement with a financial institution (the
"Agreement"), which was last amended January 15, 1998. The
Agreement is collateralized by substantially all of the
Company's assets and provided for a total commitment of
$31,700,000. The Agreement consists of a Revolving Note, a
Term Loan, a Stock Redemption Note and an Expansion Loan.
The Revolving Note has an overall availability of
$17,500,000, not to exceed 60% of eligible inventory. The
Note bears interest at .25% over prime and matures February
15, 2000. The Agreement provides the Company with the option
to borrow a portion of the Revolving Note under a Eurodollar
loan rate based on LIBOR plus 2.25%. Interest rates on the
Eurodollar loans are fixed at the beginning of the loan
term, which cannot exceed six months. At November 1, 1997,
$1,800,000 was under a fixed Eurodollar loan rate of 8.97%,
which expired December 1997.
The prime rate at October 31, 1998 and November 1, 1997 was
8% and 8.50%, respectively.
The Company had a $2,000,000 letter of credit outstanding at
October 31, 1998 and November 1, 1997. A commitment fee of
.5% is charged on the unused portion of the Revolving Note.
Available credit under the Revolving Note was $9,684,000 and
$11,727,000 at October 31, 1998 and November 1, 1997. As of
October 31, 1998 and November 1, 1997, $5,796,000 and
$5,201,000 of cash receipts on hand or in transit were
restricted for application against the Revolving Note
balance.
30
<PAGE>
ANNUAL REPORT 1998
================================================================================
The Agreement places restrictions on dividend payments and
requires the maintenance of a debt service coverage ratio.
If the debt service coverage ratio is not met, the
availability of the Revolving Note is reduced by $2,500,000.
At October 31, 1998, the Company did not meet the debt
service coverage ratio; therefore, the Revolving Note
availability was reduced to $7,184,000.
The Term Loan is payable in quarterly principal
installments, through December 31, 1999, of $1,000,000 plus
interest at 8.38%, with the remaining balance of $500,000
due February 15, 2000. At November 1, 1997, the Term Loan
bore interest at 9.22%.
The Stock Redemption Note was used to reimburse the funding
of the redemption of the Preferred Stock on March 31, 1997.
The note is payable in quarterly principal installments of
$85,000, commencing March 31, 1998 through December 31,
1999, plus interest at 8.38%, with the remaining principal
balance of $1,020,000 due February 15, 2000. At November 1,
1997, this note bore interest at 9.22%.
On November 14, 1997, the Company obtained an Expansion Loan
of $1,500,000 which was used to purchase a building and
equipment in Linden, New Jersey. The Expansion Loan is
collateralized by the building, all improvements and
equipment. The loan is payable in monthly principal
installments of $12,500 plus interest at 9.18%, with a final
principal payment of $462,500 due December 1, 2004.
Other Notes Payable
Included in other notes payable are the following:
<TABLE>
<CAPTION>
October 31, November 1,
1998 1997
-----------------------------
<S> <C> <C>
Note payable to a financing institution, maturing
October 2004, payable at $56,000 per month plus
interest at 7.26%, collateralized by related equipment ..... $ 4,000 $ --
Note payable to a financing institution, maturing
April 2005, payable at $46,000 per month including
interest at 7.44%, collateralized by related equipment ..... 2,821 --
Note payable to a financing institution, maturing
January 2000, payable at $105,000 per month
including interest at 10.58%, collateralized by
related equipment .......................................... 1,550 2,578
Various equipment loans maturing through
November 2004, at interest rates ranging from
5.87% to 10.58%, collateralized by various equipment ....... 5,606 6,970
-----------------------------
Total other notes payable .................................. $13,977 $9,548
=============================
</TABLE>
Aggregate maturities of long-term debt are as follows:
Fiscal Year
1999 .................................. $ 7,812
2000 .................................. 11,006
2001 .................................. 2,003
2002 .................................. 2,098
2003 .................................. 2,201
Thereafter ............................ 2,981
As of October 31, 1998, the fair value of long-term debt was
approximately equivalent to its carrying value, due to the
fact that the interest rates currently available to the
Company for debt with similar terms are approximately equal
to the interest rates for its existing debt.
31
<PAGE>
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
================================================================================
Note 9 -- Long-term Debt, Related Party
As of October 31, 1998 and November 1, 1997, the Company was
indebted for an investment in Wakefern in the amount of
$1,113,000 and $757,000 and for an investment in
Insure-Rite, Ltd. in the amount of $14,000 and $28,000,
respectively (see Note 4). The debt is non-interest bearing
and payable in scheduled installments as follows:
Fiscal Year
1999 ................................... $211
2000 ................................... 208
2001 ................................... 257
2002 ................................... 261
2003 ................................... 91
Thereafter ............................. 99
Determination of the fair value of the above long-term debt
is not practicable due to its related party nature.
Note 10 -- Other Long-term Liabilities
<TABLE>
<CAPTION>
October 31, November 1,
1998 1997
----------------------------
<S> <C> <C>
Deferred escalation rent .................................. $ 4,675 $ 4,409
Insure-Rite, Ltd. retro premium, net of current portion
(Note 4) ................................................ -- 1,092
Postretirement benefit cost ............................... 975 859
Other ..................................................... 906 753
----------------------------
$ 6,556 $ 7,113
============================
</TABLE>
Note 11 -- Long-term Leases
Capital Leases
<TABLE>
<CAPTION>
October 31, November 1,
1998 1997
--------------------------
<S> <C> <C>
Real estate .................................... $32,353 $19,443
Less accumulated amortization .................. 6,385 5,406
--------------------------
$25,968 $14,037
==========================
</TABLE>
During fiscal 1997, the Company sold the Aberdeen, New
Jersey store at a sale price of $2,300,000, which resulted
in a gain of $199,000. The store was leased back for a lease
term of twenty-five years. The lease was capitalized and the
gain was deferred and is being amortized over the life of
the lease.
The following is a schedule by year of future minimum lease
payments under capital leases, together with the present
value of the net minimum lease payments, as of October 31,
1998:
<TABLE>
<CAPTION>
Fiscal Year
<S> <C>
1999 .................................................... $ 3,382
2000 .................................................... 3,382
2001 .................................................... 3,397
2002 .................................................... 3,546
2003 .................................................... 3,601
Thereafter .............................................. 46,362
-------
Total minimum lease payments ............................ 63,670
Less amount representing interest ....................... 33,552
-------
Present value of net minimum lease payments ............. 30,118
Less current maturities ................................. 667
-------
Long-term maturities .................................... $29,451
=======
</TABLE>
32
<PAGE>
ANNUAL REPORT 1998
================================================================================
Included in the above are five leases on stores, one of
which is being leased from a partnership in which the
Company had a 40% limited partnership interest at annual
lease payments of $663,000 in fiscal 1997 and $628,000 in
fiscal 1996. The 40% interest was sold in fiscal 1997.
Operating Leases
The Company is obligated under operating leases for rent
payments expiring at various dates through 2021. Certain
leases provide for the payment of additional rentals based
on certain escalation clauses and six leases require a
further rental payment based on a percentage of the stores'
annual sales in excess of a stipulated minimum. Percentage
rent expense was $229,000, $219,000, and $225,000 for the
fiscal years 1998, 1997 and 1996, respectively. Under the
majority of the leases, the Company has the option to renew
for additional terms at specified rentals.
Total rental expense for all operating leases consists of:
<TABLE>
<CAPTION>
Fiscal 1998 Fiscal 1997 Fiscal 1996
---------------------------------------
<S> <C> <C> <C>
Land and buildings .............. $10,928 $10,471 $9,824
Less subleases .................. (1,765) (1,963) (2,140)
---------------------------------------
$ 9,163 $ 8,508 $7,684
=======================================
</TABLE>
The minimum rental commitments under all noncancellable
operating leases reduced by income from noncancellable
subleases at October 31, 1998 are as follows:
<TABLE>
<CAPTION>
Income from
Land and Noncancellable Net Rental
Fiscal Year Buildings Subleases Commitment
-----------------------------------------------------------------------------------
<S> <C> <C> <C>
1999 $10,239 $1,556 $ 8,683
2000 10,181 945 9,236
2001 9,701 847 8,854
2002 9,031 475 8,556
2003 8,608 255 8,353
Thereafter 51,504 23 51,481
-----------------------------------------
$99,264 $4,101 $95,163
=========================================
</TABLE>
The Company is presently leasing one of its supermarkets, a
garden center and liquor store from a partnership in which
the president has an interest, at an annual aggregate rental
of $660,000, $645,000 and $591,000 for the fiscal years
1998, 1997 and 1996, respectively.
Note 12 -- Mandatory Redeemable Preferred Stock
In fiscal 1993, the Company received $1,700,000 for the
issuance of 136,000 shares of Preferred Stock at $12.50 par
value per share to Wakefern Food Corporation. Dividends on
the Preferred Stock were cumulative and accrued at an annual
rate of 8%. The Preferred Stock was redeemed and canceled on
March 31, 1997, at par value, for $1,700,000. As of the
redemption date, all dividends had been declared and paid.
Note 13 -- Stock Options
On May 10, 1995, the Company's shareholders approved the
Foodarama Supermarkets, Inc. 1995 Stock Option Plan, which
provides for the granting of options to purchase up to
100,000 common shares until January 31, 2005, at prices not
less than fair market value at the date of the grant.
Options granted under the plan vest over a period of three
years from the date of grant. At October 31, 1998, no
options had been granted.
33
<PAGE>
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
================================================================================
Note 14 -- Income Taxes
The income tax provisions consist of the following:
<TABLE>
<CAPTION>
Fiscal 1998 Fiscal 1997 Fiscal 1996
----------------------------------------
<S> <C> <C> <C>
Federal:
Current ...................... $638 $ -- $ --
Deferred ..................... 99 526 114
State and local:
Current ...................... 49 -- 203
Deferred ..................... 154 100 22
----------------------------------------
$940 $626 $339
========================================
</TABLE>
The following tabulations reconcile the federal statutory
tax rate to the effective rate:
<TABLE>
<CAPTION>
Fiscal 1998 Fiscal 1997 Fiscal 1996
----------------------------------------
<S> <C> <C> <C>
Tax provision at the statutory rate 34.0% 34.0% 34.0%
State and local income tax provision,
net of federal income tax 5.9% 5.9% 5.9%
Goodwill amortization not deductible
for tax purposes 1.8% 2.9% 2.8%
Adjustment to prior years tax provision (5.4)% (6.3)% (2.7)%
Adjustment to estimated tax liabilities -- -- (19.0)%
Other (1.7)% .5% (1.5)%
----------------------------------------
Actual tax provision 34.6% 37.0% 19.5%
========================================
</TABLE>
Net deferred tax assets and liabilities consist of the
following:
<TABLE>
<CAPTION>
October 31, November 1,
1998 1997
---------------------------
<S> <C> <C>
Current deferred tax assets:
Reserves ............................................ $ 663 $ 654
Other ............................................... 698 646
---------------------------
1,361 1,300
---------------------------
Current deferred tax liabilities:
Patronage dividend receivable ....................... (1,623) (1,401)
Inventories ......................................... (188) (194)
Prepaid pension ..................................... (488) (451)
Other ............................................... (526) (199)
---------------------------
(2,825) (2,245)
Current deferred income tax liability ................. $(1,464) $ (945)
===========================
Noncurrent deferred tax assets:
Alternative minimum tax credits ..................... $ -- $ 66
State loss carryforward ............................. 741 664
Lease obligations ................................... 1,691 1,532
Other ............................................... 368 380
---------------------------
2,800 2,642
---------------------------
Valuation allowance ................................... (506) (617)
---------------------------
2,294 2,025
---------------------------
Noncurrent deferred tax liabilities:
Depreciation of fixed assets ........................ (4,718) (4,606)
Pension obligations ................................. (330) (347)
Other ............................................... (754) (900)
---------------------------
(5,802) (5,853)
---------------------------
Noncurrent deferred income tax liability .............. $(3,508) $(3,828)
===========================
</TABLE>
State loss carryforwards expire October 2003 through October
2005.
34
<PAGE>
ANNUAL REPORT 1998
================================================================================
Note 15 -- Commitments and Contingencies
Legal Proceedings
The Company is involved in various legal actions and claims
arising in the ordinary course of business. Management
believes that the outcome of any such litigation and claims
will not have a material effect on the Company's financial
position or results of operations.
Guarantees
The Company remains contingently liable under leases assumed
by third parties. As of October 31, 1998, the minimum annual
rental under these leases amounted to approximately
$1,469,000, expiring at various dates through 2011. The
Company has not experienced and does not anticipate any
material nonperformance by such third parties.
Contingencies
In May 1995 the Company sold its two operating locations in
Pennsylvania. If the purchaser of these supermarkets ceases
to operate prior to May 2000, the Company may be liable for
an unfunded pension withdrawal liability. As of October 31,
1998 the potential withdrawal liability was approximately
$860,000. The Company fully anticipates that the purchaser
of these stores, a Wakefern member, will remain in operation
throughout this period.
Note 16 -- Retirement and Benefit Plans
Defined Benefit Plans
The Company sponsors two defined benefit pension plans
covering administrative personnel and members of a union.
Employees covered under the administrative pension plan
earned benefits based upon a percentage of annual
compensation and could make voluntary contributions to the
plan. Employees covered under the union pension benefit plan
earn benefits based on a fixed amount for each year of
service. The Company's funding policy is to pay at least the
minimum contribution required by the Employee Retirement
Income Security Act of 1974. The plans' assets consist
primarily of publicly traded stocks and fixed income
securities. As of October 31, 1998 and November 1, 1997, the
plans' assets included common stock of the Company with a
fair value of $1,167,000 and $688,000, respectively.
A summary of the plans funded status and the amounts
recognized in the consolidated balance sheet as of October
31, 1998 and November 1, 1997 follows:
<TABLE>
<CAPTION>
October 31, November 1,
1998 1997
-----------------------------
<S> <C> <C>
Change in benefit obligation
Benefit obligation--beginning of year ................... $(5,499) $(6,569)
Service cost ............................................ (36) (296)
Interest cost ........................................... (404) (466)
Actuarial gain (loss) ................................... (182) 1,777
Curtailment gain ........................................ -- 55
-----------------------------
Benefit obligation--end of year ......................... (6,121) (5,499)
-----------------------------
Change in plan assets
Fair value of plan assets--beginning of year ............ 6,206 5,658
Actual return on plan assets ............................ 740 675
Employer contributions .................................. 94 643
Benefits paid ........................................... (397) (770)
-----------------------------
Fair value of plan assets--end of year .................. 6,643 6,206
-----------------------------
Funded status ........................................... 522 707
Unrecognized prior service cost ......................... 311 348
Unrecognized net loss (gain) from past
experience different from that assumed .................. 394 84
Unrecognized transition asset ........................... (21) (26)
Adjustment required to recognize minimum liability ...... (188) --
-----------------------------
Prepaid pension cost ...................................... $ 1,018 $ 1,113
=============================
</TABLE>
35
<PAGE>
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
================================================================================
Pension expense consists of the following:
<TABLE>
<CAPTION>
Fiscal 1998 Fiscal 1997 Fiscal 1996
---------------------------------------------
<S> <C> <C> <C>
Service cost--benefits earned during
the period ................................... $ 36 $ 296 $ 308
Interest expense on benefit obligation ......... 404 466 445
Expected return on plan assets ................. (471) (469) (396)
Amortization of prior service costs ............ 37 37 8
Amortization of unrecognized
net loss (gain) .............................. -- 43 139
Amortization of unrecognized transition
obligation (asset) ........................... (5) (9) (12)
---------------------------------------------
Total pension expense .......................... $ 1 $ 364 $ 492
=============================================
</TABLE>
The discount rate used in determining the actuarial present
value of the projected benefit obligation ranged from 6.75%
to 7.25% at October 31, 1998 and from 7.25% to 7.5% at
November 1, 1997. The expected long-term rate of return on
plan assets was 8% at October 31, 1998 and November 1, 1997.
On September 30, 1997, the Company adopted an amendment to
freeze all future benefit accruals relating to the plan
covering administrative personnel. A curtailment gain of
$55,000 was recorded related to this amendment.
At October 31, 1998, the accumulated benefit obligation
exceeded the fair value of the plans' assets in the plan
covering members of one union. The provisions of SFAS 87,
"Employers' Accounting for Pensions," require recognition in
the balance sheet of an additional minimum liability and
related intangible asset for pension plans with accumulated
benefits in excess of plan assets; any portion of such
additional liability which is in excess of the plan's prior
service cost is reflected as a direct charge to equity, net
of related tax benefit. Accordingly, at October 31, 1998 a
liability of $188,000 is included in other long-term
liabilities, an intangible asset equal to the prior service
cost of $53,000 is included in other assets, and a charge of
$81,000 net of deferred taxes of $54,000 is reflected as a
minimum pension liability in stockholders' equity in the
Consolidated Balance Sheet.
Multi-Employer Plans
Health, welfare and retirement expense was approximately
$7,804,000 in fiscal 1998, $6,354,000 in fiscal 1997 and
$6,036,000 in fiscal 1996 under plans covering union
employees. Such plans are administered through the unions
involved. Under Federal legislation regarding such pension
plans, a company is required to continue funding its
proportionate share of a plan's unfunded vested benefits in
the event of withdrawal (as defined by the legislation) from
a plan or plan termination. The Company participates in a
number of these pension plans and may have a potential
obligation as a participant. The information required to
determine the total amount of this contingent obligation as
well as the total amount of accumulated benefits and net
assets of such plans, is not readily available. However, the
Company has no present intention of withdrawing from any of
these plans, nor has the Company been informed that there is
any intention to terminate such plans (see Note 15).
401(k)/Profit Sharing Plan
The Company maintains an employee 401(k) Savings Plan for
all qualified non-union employees. Employees are eligible to
participate in the Plan after completing one year of service
(1,000 hours) and attaining age 21. Employee contributions
are discretionary to a maximum of 15% of compensation.
Effective October 1, 1997, the Company matches 25% of the
employees' contributions up to 6% of employee compensation.
The Company has the right to make additional discretionary
contributions, which are allocated to each eligible employee
in proportion to their eligible compensation, which was 2%
for fiscal year 1998. 401(k) expense for the fiscal years
ended October 31, 1998 and November 1, 1997 was
approximately $480,000 and $12,000, respectively.
36
<PAGE>
ANNUAL REPORT 1998
================================================================================
Note 17 -- Other Postretirement and Postemployment Benefits
Postretirement Benefits
The Company provides certain current and former officers
with supplemental income payments and limited medical
benefits during retirement. The Company recorded an estimate
of deferred compensation payments to be made to the officers
based on their anticipated period of active employment and
the relevant actuarial assumptions at October 31, 1998 and
November 1, 1997, respectively. The Company purchased life
insurance to partially fund this obligation. The
participants have agreed to certain non-compete arrangements
and to provide continued service availability for consulting
services after retirement.
A summary of the plan's funded status and the amounts
recognized in the balance sheet as of October 31, 1998 and
November 1, 1997 follows:
<TABLE>
<CAPTION>
October 31, November 1,
1998 1997
------------------------------
<S> <C> <C>
Change in benefit obligation
Benefit obligation--beginning of year ................... $(1,309) $(1,240)
Service cost ............................................ (39) (18)
Interest cost ........................................... (88) (90)
Actuarial gain (loss) ................................... (481) (8)
Benefits paid ........................................... 42 47
------------------------------
Benefit obligation--end of year ........................... (1,875) (1,309)
------------------------------
Change in plan assets
Fair value of plan assets--beginning of year ............ -- --
Actual return on plan assets ............................ -- --
Employer contributions .................................. -- --
Benefits paid ........................................... -- --
------------------------------
Fair value of plan assets--end of year .................. -- --
------------------------------
Funded status ............................................. (1,875) (1,309)
Unrecognized prior service cost ........................... 15 36
Unrecognized net loss (gain) from past experience
different from that assumed ............................. 885 414
------------------------------
Accrued postretirement benefit cost ....................... $ (975) $ (859)
==============================
</TABLE>
Net postretirement benefit expense consists of the
following:
<TABLE>
<CAPTION>
Fiscal 1998 Fiscal 1997 Fiscal 1996
---------------------------------------------
<S> <C> <C> <C>
Service cost--benefits earned
during the period ............................ $ 39 $ 18 $ 16
Interest expense on benefit obligation ......... 88 90 83
Expected return on plan assets ................. -- -- --
Amortization of prior service costs ............ 2 -- --
Amortization of unrecognized
net loss (gain) .............................. 30 38 30
Amortization of unrecognized
transition obligation (asset) ................ -- -- --
---------------------------------------------
Postretirement benefit expense ................. $159 $146 $129
=============================================
</TABLE>
The assumed discount rate used in determining the
postretirement benefit obligation as of October 31, 1998 and
November 1, 1997 was 7.25% and 7.5%, respectively.
37
<PAGE>
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
================================================================================
Postemployment Benefits
Under SFAS No. 112, the Company is required to accrue the
expected cost of providing postemployment benefits,
primarily short-term disability payments, over the working
careers of its employees.
The accrued liability under SFAS No. 112 as of October 31,
1998 and November 1, 1997 was $359,000 and $384,000,
respectively.
Note 18 -- Earnings Per Share
<TABLE>
<CAPTION>
Fiscal 1998 Fiscal 1997 Fiscal 1996
-------------------------------------------
<S> <C> <C> <C>
Net income .................................. $1,780 $1,064 $1,396
Less: preferred stock dividends ............. -- (57) (136)
-------------------------------------------
Income available to common stockholders ..... $1,780 $1,007 $1,260
===========================================
Basic EPS ................................... $1.59 $.90 $1.13
===========================================
Dilutive EPS ................................ $1.59 $.90 $1.13
===========================================
Weighted average shares outstanding ......... 1,117,150 1,117,150 1,118,150
===========================================
</TABLE>
Note 19 -- Noncash Investing and Financing Activities
The Company was required to make an additional investment in
Wakefern of $450,000 for a new store opened during fiscal
1998. In conjunction with the investment, liabilities were
assumed for the same amount.
A capital lease obligation of $12,910,000 was incurred when
the Company entered into a lease for a new store in fiscal
1998.
During fiscal 1998, the Company purchased a building in
Linden, New Jersey for $606,000 and obtained financing for
$1,500,000. The additional financing of $894,000 was used to
purchase equipment at a later date.
At October 31, 1998, the Company had an additional minimum
pension liability of $188,000, a related intangible of
$53,000 and a direct charge to equity of $81,000, net of
deferred taxes of $54,000.
A capital lease obligation of $4,184,000 was incurred when
the Company entered into a lease for a store in a
sale/leaseback transaction during fiscal 1997.
During fiscal 1996, the Company acquired additional property
and equipment for $13,181,000. In conjunction with the
acquisition, liabilities were assumed as follows:
<TABLE>
<S> <C>
Cost of property and equipment acquired ............. $13,181
Cash paid ........................................... (6,645)
-------
Liabilities assumed ................................. $ 6,536
=======
</TABLE>
In addition, a capital lease obligation of $5,610,000 was
incurred in fiscal 1996 when the Company entered into a
lease for a new store.
The Company was required to make an additional investment in
Wakefern for $900,000 for the two new stores opened during
fiscal 1996. In conjunction with the investment, liabilities
were assumed for the same amount.
At November 2, 1996, the additional minimum pension
liability of $880,000, the related intangible of $74,000 and
the direct charge to equity of $806,000 were reversed since
the Company's defined benefit plans' assets exceeded the
accumulated benefit obligations.
38
<PAGE>
ANNUAL REPORT 1998
================================================================================
Note 20 -- Year 2000
The Company is currently working to resolve the potential
impact of the Year 2000 ("Y2K") problem on the processing of
date-sensitive information by the Company's computerized
information systems. The year 2000 problem is the result of
computer programs being written using two digits (rather
than four) to define the applicable year. Any of the
Company's programs that have time-sensitive software may
recognize a date using "00" as the year 1900 rather than the
year 2000, which could result in miscalculations or system
failures. The Company is currently in the process of
addressing the problem by identifying all computer-based
systems and applications, including embedded chip systems,
assessing the Y2K compliancy of the systems, upgrading or
replacing any systems that are not currently Y2K compliant,
and testing the systems. The Company is also participating
in the same process with Wakefern to determine that all
jointly operated systems will meet Y2K compliancy. The
Company estimates that all critical systems and applications
will be Y2K compliant by the end of fiscal 1999 and does not
currently expect the costs of addressing and correcting the
systems to have a material effect on the financial condition
of the Company.
The Company is also assessing the possible effects on its
operations of Y2K problems of outside suppliers and services
and is in the process of developing contingency plans to
provide alternatives to ensure that business operations are
not significantly impacted by Y2K related system failures,
whether internal or external. Since the Company cannot fully
anticipate the effects of noncompliance by outside suppliers
and services, there could be possible failure of critical
systems which could result in the interruption of the
Company's operations and have a material adverse effect on
the Company's financial position.
Note 21 -- Unaudited Summarized Consolidated Quarterly
Information
Summarized quarterly information for the years ended October
31, 1998 and November 1, 1997 was as follows:
<TABLE>
<CAPTION>
Thirteen Weeks Ended
--------------------------------------------------
January 31, May 2, August 1, October 31,
1998 1998 1998 1998
--------------------------------------------------
<S> <C> <C> <C> <C>
Sales ......................... $170,231 $166,245 $176,172 $184,710
Gross profit .................. 42,434 42,425 44,634 47,241
Net income .................... 783 258 255 484
Earnings available per
basic and diluted share ..... .70 .23 .23 .43
<CAPTION>
Thirteen Weeks Ended
--------------------------------------------------
February 1, May 3, August 2, November 1,
1997 1997 1997 1997
--------------------------------------------------
<S> <C> <C> <C> <C>
Sales ......................... $163,356 $155,986 $161,128 $156,261
Gross profit .................. 40,588 39,766 40,904 39,709
Net income .................... 176 72 245 571
Mandatory preferred stock
dividend requirement ........ (34) (23) -- --
Earnings available to
common stock ................ 142 49 245 571
Earnings available per basic
and diluted share ........... .13 .04 .22 .51
</TABLE>
Note 22 -- Subsequent Events
Effective November 19, 1998, the required investment in
Wakefern increased. The maximum required investment per
store was increased from $450,000 to $500,000. This resulted
in a total increase in the investment in Wakefern by
$1,286,000 and a related increase in the obligations due
Wakefern for the same amount. The obligation is non-interest
bearing and is payable over the next four years.
39
<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
October 31, 1998 and November 1, 1997 and the related
consolidated statements of operations, shareholders' equity
and cash flows for the fiscal years ended October 31, 1998,
November 1, 1997 and November 2, 1996. These financial
statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audits to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements
present fairly, in all material respects, the financial
position of Foodarama Supermarkets, Inc. and Subsidiaries as
of October 31, 1998 and November 1, 1997 and the results of
their operations and their cash flows for the fiscal years
ended October 31, 1998, November 1, 1997 and November 2,
1996 in conformity with generally accepted accounting
principles.
/s/ Amper, Politziner & Mattia, P.A.
January 22, 1999
Edison, New Jersey
#
40
<PAGE>
Designed by Curran & Connors, Inc.
<PAGE>
[LOGO]
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 1999 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 attorneys 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 close of business on February 23, 1999, at the 1999 Annual Meeting of
Shareholders of said Company which will be held on Wednesday, April 7, 1999 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, 1999
Please Detach and Mail in the Envelope Provided
<TABLE>
<CAPTION>
<S> <C> <C> <C>
A [X] Please mark your
votes as in this
example.
FOR WITHHELD FOR AGAINST ABSTAIN
1. Election of [ ] [ ] Nominees: Joseph J. Saker 2. The Proxy is authorized to act upon [ ] [ ] [ ]
Directors. Richard J. Saker matters which are incident to the
Charles T. Parton conduct of the meeting and to
Albert Zager transact such other business as may
properly come before the meeting.
INSTRUCTION: To withhold authority to This Proxy, when properly executed,
vote for any individual nominee, write will be voted in the manner directed
that nominee's name here: 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 [ ]
the Annual Meeting. attend the
Annual
Meeting.
SIGNATURE______________________________________ DATE____________ SIGNATURE_____________________________________ DATE _______________
(IMPORTANT): (Please sign your name exactly as your name appears on the label affixed hereto, and when signing as attorney,
executor, administrator, trustee or guardian, please give the full title as such. If the signatory is a corporation,
sign the full corporate name by a duly authorized officer, or if a partnership, sign in partnership name by an
authorized person.)
</TABLE>
