UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
Quarterly report pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarterly period ended May 1, 2004
Commission file number 1-5745-1
FOODARAMA SUPERMARKETS, INC.
(Exact name of Registrant as specified in its charter)
New Jersey 21-0717108
---------------------------- -----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Building 6, Suite 1, 922 Highway 33, Freehold, N.J. 07728
(Address of principal executive offices)
Telephone #732-462-4700
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes _X_ No
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes____ No _X_
Indicate the number of shares outstanding of each of the Issuer's classes of
common stock, as of the close of the latest practicable date.
OUTSTANDING AT
CLASS June 11, 2004
-------- --------------
Common Stock, 986,867 shares
$1 par value
FOODARAMA SUPERMARKETS, INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Unaudited Consolidated Condensed Balance Sheets
May 1, 2004 and November 1, 2003
Unaudited Consolidated Condensed Statements
of Operations for the thirteen weeks ended
May 1, 2004 and May 3, 2003
Unaudited Consolidated Condensed Statements
of Operations for the twenty six weeks ended
May 1, 2004 and May 3, 2003
Unaudited Consolidated Condensed Statements
of Cash Flows for the twenty six weeks ended
May 1, 2004 and May 3, 2003
Notes to the Unaudited Consolidated Condensed
Financial Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About
Market Risk
Item 4. Controls and Procedures
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
Disclosure Concerning Forward-Looking Statements
All statements, other than statements of historical fact, included in this Form
10-Q, including without limitation the statements under "Management's Discussion
and Analysis of Financial Condition and Results of Operations", are, or may be
deemed to be, "forward-looking statements" within the meaning of Section 27A of
the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Such
forward-looking statements involve assumptions, known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of Foodarama Supermarkets, Inc. (the "Company", which may be
referred to as we, us or our) to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements contained in this Form 10-Q. Such potential risks and
uncertainties, include without limitation, competitive pressures from other
supermarket operators, warehouse club stores and general merchandise stores,
economic conditions in the Company's primary markets, consumer spending
patterns, availability of capital, cost of labor, cost of goods sold including
increased costs from the Company's cooperative supplier, Wakefern Food
Corporation ("Wakefern"), and other risk factors detailed herein and in other of
the Company's Securities and Exchange Commission filings. The forward-looking
statements are made as of the date of this Form 10-Q 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.
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
-----------------------------
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
(In thousands)
May 1, November 1,
2004 2003
(Unaudited) (1)
----------- -----------
ASSETS
Current assets:
Cash and cash equivalents $ 4,370 $ 5,252
Merchandise inventories 50,602 49,224
Receivables and other current assets 11,545 12,043
Prepaid and refundable income taxes 3,036 3,404
Related party receivables - Wakefern 7,841 13,684
-------- -------
77,394 83,607
-------- -------
Property and equipment:
Land 308 308
Buildings and improvements 1,220 1,220
Leasehold improvements 57,599 49,039
Equipment
154,461 142,021
Property under capital leases 141,920 130,420
Construction in progress 5,199 6,846
-------- -------
360,707 329,854
Less accumulated depreciation and
amortization 131,638 122,339
-------- --------
229,069 207,515
-------- --------
Other assets:
Investments in related parties 16,885 16,173
Goodwill 1,715 1,715
Intangible assets, net 1,046 1,098
Other 3,457 3,264
Related party receivables - Wakefern 1,950 1,874
-------- --------
25,053 24,124
-------- --------
$331,516 $315,246
========= =========
(continued)
(1) Derived from the Audited Consolidated Financial Statements for the year
ended November 1, 2003.
See accompanying notes to consolidated condensed financial statements.
3
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
(In thousands except share data)
May 1, November 1,
2004 2003
(Unaudited) (1)
----------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 7,864 $ 7,916
Current portion of long-term debt,
related party 915 920
Current portion of obligations under
capital leases 1,513 1,622
Current income taxes payable 687 1,415
Deferred income taxes 2,162 2,162
Accounts payable:
Related party-Wakefern 37,780 37,506
Others 17,780 14,622
Accrued expenses 14,566 13,485
-------- --------
83,267 79,648
-------- --------
Long-term debt 54,521 55,335
Long-term debt, related party 3,271 3,055
Obligations under capital leases 132,934 122,159
Deferred income taxes 2,583 2,749
Other long-term liabilities 13,536 13,278
-------- --------
206,845 196,576
-------- --------
Commitments and Contingencies (Note 7)
Shareholders' equity:
Common stock, $1.00 par; authorized 2,500,000
shares; issued 1,621,767 shares;
outstanding 986,867 shares 1,622 1,622
Capital in excess of par 4,168 4,168
Deferred compensation (766) (952)
Retained earnings 51,735 49,539
Accumulated other comprehensive income:
Minimum pension liability (3,164) (3,164)
53,595 51,213
Less 634,900 shares, held in treasury, at cost 12,191 12,191
------- --------
41,404 39,022
------- --------
$ 331,516 $ 315,246
======== =========
(1) Derived from the Audited Consolidated Financial Statements for the year
ended November 1, 2003.
See accompanying notes to consolidated condensed financial statements.
4
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Operations - Unaudited
(In thousands - except share data)
13 Weeks Ended
--------------
May 1, May 3,
2004 2003
--------- ---------
Sales $ 279,043 $ 254,578
Cost of goods sold 204,632 187,995
---------- ---------
Gross profit 74,411 66,583
Selling, general and
administrative expenses 69,051 63,400
---------- ---------
Earnings from operations 5,360 3,183
---------- ---------
Other income (expense):
Interest expense (3,854) (3,010)
Interest income 37 40
----------- ----------
(3,817) (2,970)
----------- ----------
Earnings before income tax provision 1,543 213
Income tax provision (587) (85)
----------- ----------
Net income $ 956 $ 128
=========== ==========
Per share information:
Net income per common share:
Basic $ .97 $ .13
=========== ==========
Diluted $ .93 $ .13
=========== ==========
Weighted average shares outstanding:
Basic 986,867 986,867
=========== ===========
Diluted 1,026,595 1,011,948
=========== ===========
Dividends per common share -0- -0-
=========== ===========
See accompanying notes to consolidated condensed financial statements.
5
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Operations - Unaudited
(In thousands - except share data)
26 Weeks Ended
-------------------
May 1, May 3,
2004 2003
--------- --------
Sales $ 573,758 $ 511,669
Cost of goods sold 422,247 380,329
--------- ---------
Gross profit 151,511 131,340
Selling, general and
administrative expenses 140,394 125,291
--------- ---------
Earnings from operations 11,117 6,049
--------- ---------
Other income (expense):
Interest expense (7,638) (5,331)
Interest income 64 77
---------- ---------
(7,574) (5,254)
---------- ---------
Earnings before income tax provision 3,543 795
Income tax provision (1,347) (318)
---------- ----------
Net income $ 2,196 $ 477
========== ==========
Per share information:
Net income per common share:
Basic $ 2.23 $ .48
========= ==========
Diluted $ 2.15 $ .47
========= ==========
Weighted average shares outstanding:
Basic 986,867 986,710
========= ==========
Diluted 1,020,607 1,014,500
========= ==========
Dividends per common share -0- -0-
========= ==========
See accompanying notes to consolidated condensed financial statements.
6
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows - Unaudited
(In thousands)
26 Weeks Ended
--------------------
May 1, May 3,
2004 2003
-------- ------
Cash flows from operating activities:
Net income $ 2,196 $ 477
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 9,566 8,121
Amortization, intangibles 52 105
Amortization, deferred financing costs 325 234
Amortization, deferred rent escalation (150) (153)
Provision to value inventory at LIFO 525 391
Deferred income taxes (166) 190
Amortization of deferred compensation 204 165
(Increase) decrease in
Merchandise inventories (1,903) (4,328)
Receivables and other current assets 409 (158)
Prepaid and refundable income taxes 368 (1,011)
Other assets (436) (26)
Related party receivables-Wakefern 5,767 3,182
Increase (decrease) in
Accounts payable 3,432 (3,777)
Income taxes payable (728) 944
Other liabilities 1,471 418
------- --------
20,932 4,774
------- --------
Cash flows from investing activities:
Decrease in construction advance due from landlords 9,905 2,343
Increase in construction advance due from landlords (9,816) (1,738)
Cash paid for the purchase of property and equipment (15,745) (10,791)
Cash paid for construction in progress (3,875) (7,414)
-------- --------
(19,531) (17,600)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of debt 7,123 17,885
Principal payments under long-term debt (7,989) (3,734)
Principal payments under capital lease obligations (834) (771)
Principal payments under long-term debt,related party (501) (372)
Deferred financing and other costs (82) (84)
Proceeds from exercise of stock options -- 10
------- --------
(2,283) 12,934
------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS (882) 108
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 5,252 4,280
------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 4,370 $ 4,388
======= ========
See accompanying notes to consolidated condensed financial statements.
7
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited)
Note 1 Basis of Presentation
-------------------------------
The unaudited Consolidated Condensed Financial Statements as of, or for the
period ended, May 1, 2004, have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-Q and rule 10-01. The balance sheet at November 1, 2003
has been derived from the audited financial statements at that date. In the
opinion of the management of the Company, all adjustments (consisting only of
normal recurring accruals) which are considered necessary for a fair
presentation of the results of operations for the period have been made. Certain
financial information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. The reader is referred to the consolidated
financial statements and notes thereto included in the Company's annual report
on Form 10-K for the year ended November 1, 2003.
At both May 1, 2004 and November 1, 2003, approximately 81% of merchandise
inventories are valued by the Last-In-First-Out ("LIFO") method of inventory
valuation while the balance of inventories are valued by the First-In-First-Out
("FIFO") method. If the FIFO method had been used for the entire inventory,
inventories would have been $3,260,000 and $2,735,000 higher than reported at
May 1, 2004 and November 1, 2003, respectively.
Certain reclassifications have been made to prior year financial statements in
order to conform to the current year presentation.
These results are not necessarily indicative of the results for the entire
fiscal year.
Note 2 Adoption of New Accounting Standards
---------------------------------------------
In December 2003, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 132 (revised 2003), "Employers' Disclosures about Pensions and Other
Postretirement Benefits - an amendment of FASB Statements No. 87, 88, and 106"
("SFAS 132"). The revised Statement retains the disclosure requirements
contained in SFAS 132 before the amendment but requires additional disclosures
about the assets, obligations, cash flows, and net periodic benefit cost of
defined benefit pension plans and other defined benefit postretirement plans.
The annual disclosure requirements under this Statement are effective for the
Company's fiscal year ending October 30, 2004, and the quarterly disclosure
requirements are effective for the Company's interim periods beginning with the
second quarter ending May 1, 2004. The implementation of SFAS 132, as revised in
2003, did not have a material impact on the Company's consolidated financial
statements (See Note 6).
In May 2004, the staff of the FASB issued FASB Staff Position ("FSP") No. FAS
106-2, "Accounting and Disclosure Requirements Related to the Medicare
Prescription Drug, Improvement and Modernization Act of 2003," which superseded
FSP No. FAS 106-1. This FSP provides guidance on the accounting for the effects
of the Medicare Prescription Drug, Improvement and Modernization Act of 2003
(the "Act") for employers that sponsor postretirement health care plans that
provide prescription drug benefits. This FSP also requires those employers to
provide certain disclosures regarding the effect of the federal subsidy provided
by the Act (the "Subsidy"). The guidance in this FSP related to the accounting
for the Subsidy applies only to the sponsor of a single-employer defined benefit
postretirement health care plan for which (a) the employer has concluded that
prescription drug benefits available under the plan to some or all participants
for some or all future years are "actuarially equivalent" to Medicare Part D and
thus qualify for the Subsidy under the Act and (b) the expected Subsidy will
offset or reduce the employer's share of the cost of the underlying
postretirement prescription drug coverage on which the Subsidy is based. This
FSP also provides guidance for the disclosures about the effects of the Subsidy
8
for an employer that sponsors a postretirement health care benefit plan that
provides prescription drug coverage but for which the employer has not yet been
able to determine actuarial equivalency. This FSP is effective for the first
interim period beginning after June 15, 2004. We are currently investigating the
impact of FSP No. FAS 106-2`s initial recognition, measurement and disclosure
provisions on our financial statements.
Note 3 Stock-Based Compensation
---------------------------------
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," ("APB 25") and related
interpretations in accounting for its employee stock options. Under this method,
compensation cost is measured as the amount by which the market price of the
underlying stock exceeds the exercise price of the stock option at the date at
which both the number of options granted and the exercise price are known.
In accordance with SFAS 148, "Accounting for Stock-Based Compensation -
Transition and Disclosure," the effect on net income and earnings per share if
the Company had applied the fair value recognition provisions of SFAS 123,
"Accounting for Stock-Based Compensation," to stock-based employee compensation
is as follows:
Thirteen Weeks Twenty Six Weeks
Ended Ended
-------------------------------------------
(In thousands, except (In thousands, except
per share amounts) per share amounts)
-------------------------------------------
May 1, May 3, May 1, May 3,
2004 2003 2004 2003
-------------------------------------------
Net income - as reported $ 956 $ 128 $ 2,196 $ 477
Add:
Stock-based employee compensation
expense, determined under the
intrinsic value method, included in
reported net income, net of related 54 56 108 112
tax effects -------------------------------------------
Deduct:
Adjustment to total stock-based
employee compensation expense
determined under the fair value
based method, net of related tax (74) ( 76) (148) (152)
effects
-------------------------------------------
Pro forma net income $ 936 108 2,156 $ 437
===========================================
Earnings per share:
Basic, as reported $ .97 $ .13 $ 2.23 .48
===========================================
Basic, pro forma
$ .95 $ .11 $ 2.18 $ .44
===========================================
Diluted, as reported $ .93 $ .13 $ 2.15 $ .47
===========================================
Diluted, pro forma $ .91 $ .11 $ 2.11 $ .43
===========================================
9
Note 4 Goodwill and Other Intangible Assets
---------------------------------------------
The Company completed its annual impairment test prescribed by SFAS 142 and
concluded that no impairment of goodwill existed as of November 2, 2003. The
gross carrying amount and accumulated amortization of the Company's other
intangible assets as of May 1, 2004 and November 1, 2003 are as follows:
May 1, 2004 November 1, 2003
----------- ----------------
(In thousands)
Gross Gross
Carrying Accumulated Carrying Accumulated
Amount Amortization Amount Amortization
-------- ------------ -------- ------------
Amortized Intangible
Assets
Bargain Leases $3,918 $ 3,092 $3,918 $ 3,040
Unamortized Intangible
Assets
Liquor Licenses 220 - 220 -
----------------------------------------------------
Total $4,138 $ 3,092 $4,138 $ 3,040
====================================================
Amortization expense recorded on the intangible assets for the thirteen weeks
ended May 1, 2004 and May 3, 2003 was $26,000 and $53,000, respectively and was
$52,000 and $105,000 for the twenty six weeks ended May 1, 2004 and May 3, 2003,
respectively. The estimated amortization expense for the Company's other
intangible assets for the current and four succeeding fiscal years is as
follows:
Fiscal Year (In thousands)
----------- --------------
2004 $106
2005 106
2006 106
2007 106
2008 106
Thereafter 348
Note 5 Long-term Debt
-----------------------
On January 30, 2004 the Company completed the financing for the purchase of
$1,100,000 of equipment for the expanded and renovated store location in East
Brunswick, New Jersey. The note bears interest at 6.20% and is payable in
monthly installments over its five year term.
As of April 15, 2004 the Third Amended and Restated Revolving Credit and Term
Loan Agreement was amended to allow the Company to borrow under the revolving
credit facility, on any Tuesday or Wednesday, up to $5,000,000 in excess of the
availability under the borrowing base limitation of 65% of eligible inventory as
long as a like amount of cash and cash equivalents are on hand at store level or
in transit to the Company's banks. This amount is reduced to $4,000,000 on June
16, 2004 and $3,000,000 on July 16, 2004 with the provision expiring on August
16, 2004. Additionally, the amendment realigned the annual limits on Adjusted
Indebtedness, Indebtedness attributable to Capitalized Lease Obligations,
Adjusted Capex and Store Project Capex to more closely follow the timing of the
Company's new store and store remodeling program. The lending group also
consented to the purchase of a store location from Wakefern for $1,000,000.
10
Note 6 Employee Benefit Plans
------------------------------
The following tables summarize the components of the net periodic pension
expense for the Company sponsored defined benefit pension plans (both funded and
unfunded postretirement plans) for the 13 and 26 weeks ended May 1, 2004 and May
3, 2003 (in thousands):
Components of Net Periodic Benefit Cost:
Pension Plans 13 Weeks Ended 26 Weeks Ended
------------- ----------------------- --------------------------
May 1, 2004 May 3, 2003 May 1, 2004 May 3, 2003
----------- ----------- ----------- -----------
Service cost $ 85 $ 29 $ 169 $ 59
Interest cost 138 132 276 264
Expected return on plan
assets (118) (97) (235) (194)
Settlement (gain) loss
recognized - 273 - 273
Amortization of prior
service cost 11 12 22 24
Recognized net actuarial loss 99 98 198 196
------ - ---- ------ -----
Net periodic benefit cost $ 215 $ 447 $ 430 $ 622
====== ====== ====== =====
Other Postretirement Plan 13 Weeks Ended 26 Weeks Ended
------------------ ---------------------
May 1,2004 May 3,2003 May 1,2004 May 3,2003
---------- ---------- ---------- ----------
Service cost $ 42 $ 31 $ 85 $ 63
Interest cost 79 68 157 135
Amortization of prior service 19 6 40 11
cost
Recognized net actuarial loss 51 34 102 69
----- ------ ----- -----
Net periodic benefit cost $ 191 $ 139 $384 $ 278
===== ====== ===== =====
As previously disclosed in the Notes to the Consolidated Financial Statements in
the Company's 2003 Annual Report on Form 10-K filed with the SEC on January 29,
2004, the Company's current funding policy for its qualified pension plans is to
contribute annually the amount required by regulatory authorities to meet
minimum funding requirements. The Company presently anticipates contributing
approximately $892,000 to its pension plans during fiscal 2004. This amount is
based on preliminary information and the actual amount contributed will be
determined based on the final actuarial calculations, plan asset performance,
possible changes in law and other factors. The Company has contributed $237,000
in the first 26 weeks of fiscal 2004, and anticipates contributing approximately
$655,000 more for expected future benefit payments during the remainder of
fiscal 2004.
Since the Company's Other Post Retirement Plan is unfunded, the contributions to
this plan are equal to the benefit payments made during the year. There were no
benefit payments made during the twenty six weeks ended May 1, 2004.
Note 7 Commitments and Contingencies
--------------------------------------
The Company previously reported, in Item 3. Legal Proceedings and Note 14 of
Notes to Consolidated Financial Statements in its Annual Report on Form 10-K for
its fiscal year ended November 1, 2003, on the settlement of a shareholders
derivative action commenced by Melvin Jules Bukiet et. al. ( together the
"Plaintiffs" ) against the Company,as nominal defendant, and against all five
11
members of the Board of Directors, Joseph J. Saker, Richard J. Saker, Charles T.
Parton, Albert A. Zager and Robert H. Hutchins (together, the "Defendants"), in
their capacities as directors and/or officers of the Company. The Plaintiffs'
have applied for an award of legal fees of $975,000 in connection with the
settlement of the derivative action. We believe that the amount of the award of
attorneys fees sought by the Plaintiffs is unreasonable based upon the outcome
of the litigation, and are vigorously contesting the Plaintiffs' fee
application. The Company's directors and officers liability insurance carrier
has reserved its rights under the Company's directors and officers liability
insurance policy with respect to the claims made in the derivative action,
including claims for the Plaintiffs' attorneys' fees and costs of the defense,
and has preliminarily advised us that certain of the claims made in the
derivative action and related legal expenses are not, in the insurance carrier's
view, covered by the policy. The Company is awaiting the Court's decision on the
application for legal fees. It is not possible, at this juncture, to predict the
amount of fees that may be awarded or whether or to what extent any such fees
and the Company's legal expenses for defending the derivative action will be
covered by its directors and officers liability insurance policy. The Company
has not accrued in its financial statements for legal fees and expenses which
may be incurred in connection with this legal proceeding. Net income and EBITDA
in fiscal 2004 may be adversely affected to the extent that the Company's
defense costs and any legal fees that may be awarded are not covered by
directors and officers liability insurance.
Part I - Item 2 Management's Discussion and Analysis of Financial Condition and
--------------------------------------------------------------------------------
Results of Operations
---------------------
Critical Accounting Policies and Estimates
------------------------------------------
Critical accounting policies are those accounting policies that management
believes are important to the portrayal of the Company's financial condition and
results and require management's most difficult, subjective or complex
judgments, often as a result of the need to make estimates about the effect of
matters that are inherently uncertain.
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
The Company's critical accounting policies relating to the impairment of
goodwill, patronage dividends earned as a stockholder of Wakefern, pension
plans and workers' compensation insurance are described in the Company's Annual
Report on Form 10-K for the year ended November 1, 2003. As of May 1, 2004 there
have been no material changes to any of the critical accounting policies
contained therein.
Financial Condition and Liquidity
---------------------------------
The Company is a party to a Third Amended and Restated Revolving Credit and Term
Loan Agreement (the "Credit Agreement") with four financial institutions. The
Credit Agreement is secured by substantially all of the Company's assets and
provided for a total commitment of up to $80,000,000, including a revolving
credit facility (the "Revolving Note") of up to $35,000,000, a term loan ("the
Term Loan") in the amount of $25,000,000 and a capital expenditures facility
(the "Capex Facility") of up to $20,000,000. As of May 1, 2004 the Company owed
$17,500,000 on the Term Loan and $16,763,723 under the Capex Facility.
As of April 15, 2004 the Credit Agreement was amended to allow the Company to
borrow under the revolving credit facility, on any Tuesday or Wednesday, up to
$5,000,000 in excess of the availability under the borrowing base limitation of
65% of eligible inventory as long as a like amount of cash and cash equivalents
are on hand at store level or in transit to the Company's banks. This amount is
reduced to $4,000,000 on June 16, 2004 and $3,000,000 on July 16, 2004 with the
provision expiring on August 16, 2004. Additionally, the amendment realigned the
12
annual limits on Adjusted Indebtedness, Indebtedness attributable to Capitalized
Lease Obligations, Adjusted Capex and Store Project Capex to more closely follow
the timing of the Company's new store and store remodeling program. The lending
group also consented to the purchase of a store location from Wakefern for
$1,000,000.
The Company's compliance with the major financial covenants under the Credit
Agreement was as follows as of May 1, 2004:
--------------------------------------------------------------------------------
Financial Covenant Credit Agreement Actual
(As defined in the
Credit Agreement)
--------------------------------------------------------------------------------
Adjusted EBITDA (1) Greater than $24,000,000 $ 27,762,000
--------------------------------------------------------------------------------
Leverage Ratio (1)(2) Less than 3.0 to 1.00 2.40 to 1.00
--------------------------------------------------------------------------------
Debt Service Coverage
Ratio (3) Greater than 1.10 to 1.00 2.13 to 1.00
--------------------------------------------------------------------------------
Adjusted Capex (4) Less than $2,595,000 (5) $ 1,611,000 (6)
--------------------------------------------------------------------------------
Store Project Capex Less than $24,500,000 (5) $ 18,009,000 (6)
--------------------------------------------------------------------------------
(1) Excludes obligations under capitalized leases, interest expense and
depreciation expense attributable to capitalized leases and changes in the
LIFO reserve.
(2) The Leverage Ratio is calculated by dividing the current and non-current
portions of Long-Term Debt and Long-Term Debt Related Party by Adjusted
EBITDA.
(3) The Debt Service Coverage Ratio is calculated by dividing Operating Cash
Flow by the sum of adjusted net interest expense, which excludes interest
on capitalized leases, the current provision for income taxes and
regularly scheduled principal payments, which exclude principal payments
on capitalized leases. Operating Cash Flow is calculated by subtracting
amounts expended for property and equipment which are not used for
projects in excess of $500,000 ($1,144,000 for the twenty six weeks ended
May 1, 2004) from Adjusted EBITDA.
(4) Adjusted Capex is all capital expenditures other than Store Project Capex.
(5) Represents limitations on capital expenditures for fiscal 2004.
(6) Represents capital expenditures for fiscal 2004.
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 our Common Stock.
Working Capital
---------------
At May 1, 2004, the Company had a working capital deficiency of $5,873,000
compared to working capital of $3,959,000 at November 1, 2003 and $2,030,000 at
May 3, 2003. Since the end of fiscal 2003, working capital declined and a
deficiency was created as a result of the collection of related party
receivables from Wakefern related to the fiscal 2003 patronage dividend and the
increase in accounts payable to others resulting from the cost of construction
and equipment for the new locations opened in April and May 2004. Funds used to
pay these accounts payable will come from the revolving credit facility thereby
increasing the Revolving Note which is classified as long-term borrowings. This
will result in a corresponding increase in working capital.
During fiscal year 2002, the Business Tax Reform Act was passed in the State
13
of New Jersey. This legislation is effective for tax years beginning on or after
January 1, 2002 (fiscal 2003). Corporate taxpayers are subject to an Alternative
Minimum Assessment ("AMA"), which is based upon either New Jersey Gross Receipts
or New Jersey Gross Profits, if the AMA exceeds the tax based on net income. We
have included in our current tax provision the effect of the AMA. The AMA
increased our cumulative State current tax liability, net of Federal tax
benefit, by $1,873,000. This liability was funded prior to May 1, 2004.
Additionally, in March 2002 and May 2003 The Job Creation and Worker Assistance
Act of 2002 and The Jobs and Growth Tax Relief Reconciliation Act of 2003 ("Tax
Acts") were passed by the United States Congress. The accumulated Federal tax
benefit for accelerated depreciation resulting from the Tax Acts is
approximately $3,266,000 for fiscal 2003 and the first six months of fiscal 2004
and is reflected in our prepaid and refundable income taxes.
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 ratios were as follows:
May 1, 2004 .93 to 1.0
November 1, 2003 1.05 to 1.0
May 3, 2003 1.03 to 1.0
Cash flows (in millions) were as follows:
Twenty Six Weeks Ended
--------------------------
May 1, 2004 May 3, 2003
----------- -----------
Operating activities $ 20.9 $ 4.8
Investing activities (19.5) ( 17.6)
Financing activities (2.3) 12.9
------ ------
Totals $ (.9) $ .1
======= ======
The Company had $7,740,000 of available credit, at May 1, 2004, under its
revolving credit facility. The Company has capital commitments (net of landlord
contributions of $8,019,000) of $2,023,000 for leasehold improvements and
$2,420,000 for equipment related to two stores which were under construction,
one of which opened on April 28, 2004 and the other on May 19, 2004. One of
these stores is a replacement store and one is a new store. Both of these
projects are in central New Jersey and are World Class stores. The amounts
available under the Credit Agreement will adequately meet our operating needs,
scheduled capital expenditures and debt service for fiscal 2004.
For the 26 weeks ended May 1, 2004, depreciation was $9,566,000 while capital
expenditures, excluding capitalized leases, totaled $19,620,000, compared to
$8,121,000 and $19,034,000, respectively, in the prior year period. The increase
in depreciation was the result of a full twenty six weeks of depreciation for
the equipment and leasehold improvements for the four new locations opened in
fiscal 2003, the new bakery facility and the expansion and remodeling of the
East Brunswick store substantially completed in the quarter ended January 31,
2004 and the new location opened in April 2004, as well as seven additional
capitalized real estate leases. Capital expenditures in the first six months of
fiscal 2004, consisting of the acquisition of equipment and leasehold
improvements for the two locations opened in April and May 2004 and the East
Brunswick store, increased slightly as compared to capital expenditures in the
first six months of fiscal 2003 when two new locations opened and the bakery
commissary and two additional stores were under construction.
14
The table below summarizes our contractual obligations at May 1, 2004, and the
effect such obligations are expected to have on liquidity and cash flow in
future periods.
Payments Due By Period
--------------------------------------------------------------------------------
Less Than 2-3 4-5 After 5
--------------------------------------------------------------------------------
Contractual Obligations Total 1 Year Years Years Years
--------------------------------------------------------------------------------
(Dollars In Thousands)
Long-term debt $ 62,385 $ 7,864 $17,105 $ 37,416 $ -
Related party debt 4,186 915 1,735 1,165 371
Capital lease obligations 325,837 14,451 29,656 29,319 252,411
Operating leases 66,491 10,144 17,403 13,162 25,782
Purchase obligations -
leaseholds and equipment 4,443 4,443 - - -
Lease commitments - stores
under construction (1) 31,525 199 2,884 2,884 25,558
-------- ------ ------ -------- ------
Total $ 494,867 $38,016 $68,783 $ 83,946 $304,122
========= ======= ======= ======== ======
(1) Represents contractual obligations which we expect to satisfy in the
periods presented based upon the actual openings of stores in fiscal 2004
Results of Operations (13 weeks ended May 1, 2004 compared to 13 weeks ended
---------------------
May 3, 2003)
Sales:
------
Sales for the current period totaled $279.0 million as compared to $254.6
million in the prior year period. This represents an increase of 9.6 %. Sales
for the current quarter included the operations of the new locations opened in
May 2003, October 2003 and April 2004 in North Brunswick, Hamilton and
Lawrenceville, New Jersey, respectfully. The location in North Brunswick
replaced an older, smaller store.
Same store sales from the twenty two stores in operation in both periods
increased 2.7%. This increase in comparable store sales was partially offset by
decreased sales in certain of the Company's stores affected by competitive store
openings and the impact from the opening of several of our new locations.
Gross Profit:
-------------
Gross profit as a percent of sales increased to 26.7% of sales compared to 26.2%
in the prior year period. Patronage dividends, applied as a reduction of the
cost of merchandise sold, were $2.3 million in the current period compared to
$1.8 million in the prior year period. The improvement in gross profit was the
result of improved product mix, the contribution of the new locations opened in
fiscal 2003, increased patronage dividends and a reduction in Wakefern
assessment as a percentage of sales. These increases were partially offset by
programs implemented in certain of the Company's stores to address competitive
store openings.
15
Operating Expenses:
-------------------
Selling, general and administrative expenses as a percent of sales were 24.7%
versus 24.9% in the prior year period. The decrease in selling, general and
administrative expenses as a percent of sales was primarily due to decreases in
certain expense categories as a percentage of sales. As a percentage of sales,
labor and related fringe benefits decreased .14%, administrative expense
decreased .34% and supply expense decreased .04%. These decreases were partially
offset by increases in occupancy expense of .14%, depreciation, including
depreciation on capitalized leases, of .07%, selling expense of .06% and
pre-opening costs of .12%. The decrease in labor and related fringe benefits
resulted from the addition of personnel for new stores opened in the prior year
period, partially offset by contractual increases in fringe benefits. The
decrease in administrative expense was primarily the result of an increase in
the reserve for closed store expense in the prior year period, a decrease in
certain fringe benefit costs for administrative personnel and the decrease of
other administrative costs as a percentage of sales. The increase in occupancy
was related to increased cost of utilities and snow removal. Pre-opening costs
were for the new Lawrenceville, New Jersey store opened on April 28, 2004 and
the new Aberdeen, New Jersey store opened May 19, 2004.
Interest Expense:
-----------------
Interest expense increased to $3,854,000 from $3,010,000, while interest income
was $37,000 compared to $40,000 for the prior period. The increase in interest
expense for the current year period was due to an increase in average
outstanding debt, including increased capitalized lease obligations, and an
increase in the average interest rate paid on debt.
Income Taxes:
-------------
An income tax rate of 38% has been used in the current period as compared to 40%
in the prior year period. The tax rate used is based on the expected effective
tax rates.
Net Income:
----------
Net income was $956,000 in the current year period compared to $128,000 in the
prior year period. Earnings before interest, taxes, depreciation and
amortization ("EBITDA") for the current period were $10,341,000 as compared to
$7,570,000 in the prior year period. Net income per common share on a diluted
basis was $.93 in the current period compared to $.13 in the prior year period.
Per share calculations are based on 1,026,595 shares outstanding in the current
year period and 1,011,948 shares outstanding in the prior year period.
EBITDA is presented because management believes that EBITDA is a useful
supplement to net income and other measurements under accounting principles
generally accepted in the United States since it is a meaningful measure of a
company's performance and ability to meet its future debt service requirements,
fund capital expenditures and meet working capital requirements. EBITDA is not a
measure of financial performance under accounting principles generally accepted
in the United States and should not be considered as an alternative to (i) net
income (or any other measure of performance under generally accepted accounting
principles) as a measure of performance or (ii) cash flows from operating,
investing or financing activities as an indicator of cash flows or as a measure
of liquidity. The following table reconciles reported net income to EBITDA:
16
Thirteen Weeks Ended
--------------------
May 1, 2004 May 3, 2003
----------- -----------
Net income $ 956,000 $ 128,000
Add:
Interest expense, net 3,817,000 2,970,000
Income tax provision 587,000 85,000
Depreciation 4,881,000 4,289,000
Amortization 100,000 98,000
---------- ---------
EBITDA $ 10,341,000 $ 7,570,000
============ ===========
Results of Operations (26 weeks ended May 1, 2004 compared to 26 weeks ended
--------------------- May 3, 2003)
Sales:
------
Sales for the current twenty six week period totaled $573.8 million as compared
to $511.7 million in the prior year period. This represents an increase of
12.1%. Sales for the current twenty six week period included the operations of
five new locations opened in December 2002, January 2003, May 2003, October 2003
and April 2004 in Woodbridge, Ewing, North Brunswick, Hamilton and Lawrenceville
New Jersey, respectfully. The locations in Woodbridge and North Brunswick
replaced older, smaller stores.
Same store sales from the twenty stores in operation in both periods increased
3.0%. This increase in comparable store sales was partially offset by decreased
sales in certain of the Company's stores affected by competitive store openings
and the impact from the opening of several of our new locations.
Gross Profit:
-------------
Gross profit as a percent of sales increased to 26.4% of sales compared to 25.7%
in the prior year period. Patronage dividends, applied as a reduction of the
cost of merchandise sold, were $4.7 million in the current period compared to
$3.7 million in the prior year period. The improvement in gross profit was the
result of improved product mix, the contribution of the new locations opened in
fiscal 2003, increased patronage dividends and a reduction in Wakefern
assessment as a percentage of sales. This increase was offset in part by the
costs associated with programs implemented in certain of the Company's stores to
address competitive store openings.
Operating Expenses:
-------------------
Selling, general and administrative expenses as a percent of sales were 24.5% in
both the current and prior year periods. Increases in certain selling, general
and administrative expenses as a percent of sales in the current year period
were offset by decreases in other expense categories as a percentage of sales.
As a percentage of sales, administrative expense decreased .12% and pre-opening
costs decreased .09%. These decreases were offset by increases in selling
expense of .09% and depreciation, including depreciation on capitalized leases,
of .08%,. The decrease in administrative expense was the result of the decrease
of administrative costs as a percentage of sales and an increase in the reserve
for closed store expense in the prior year period. Pre-opening costs were for
the Lawrenceville store opened in April 2004 and some costs for the Aberdeen
store opened in May 2004 as compared to three locations opened in fiscal 2003.
17
Interest Expense:
-----------------
Interest expense increased to $7,638,000 from $5,331,000, while interest income
was $64,000 compared to $77,000 for the prior year period. The increase in
interest expense for the current year period was due to an increase in average
outstanding debt, including increased capitalized lease obligations, and an
increase in the average interest rate paid on debt.
Income Taxes:
-------------
An income tax rate of 38% has been used in the current period as compared to 40%
in the prior year period. The tax rate used is based on the expected effective
tax rates.
Net Income:
-----------
Net income was $2,196,000 in the current year period compared to $477,000 in the
prior year period. Earnings before interest, taxes, depreciation and
amortization ("EBITDA") for the current period were $20,910,000 as compared to
$14,356,000 in the prior year period. Net income per common share on a diluted
basis was $2.15 in the current period compared to $.47 in the prior year period.
Per share calculations are based on 1,020,607 shares outstanding in the current
period and 1,014,500 shares outstanding in the prior year period.
EBITDA is presented because management believes that EBITDA is a useful
supplement to net income and other measurements under accounting principles
generally accepted in the United States since it is a meaningful measure of a
company's performance and ability to meet its future debt service requirements,
fund capital expenditures and meet working capital requirements. EBITDA is not a
measure of financial performance under accounting principles generally accepted
in the United States and should not be considered as an alternative to (i) net
income (or any other measure of performance under generally accepted accounting
principles) as a measure of performance or (ii) cash flows from operating,
investing or financing activities as an indicator of cash flows or as a measure
of liquidity. The following table reconciles reported net income to EBITDA:
Twenty Six Weeks Ended
----------------------
May 1, 2004 May 3, 2003
----------- -----------
Net income $ 2,196,000 $ 477,000
Add:
Interest expense, net 7,574,000 5,254,000
Income tax provision 1,347,000 318,000
Depreciation 9,566,000 8,121,000
Amortization 227,000 186,000
--------- ---------
EBITDA $20,910,000 $14,356,000
=========== ===========
Item 3. Quantitative and Qualitative Disclosures About Market Risk
--------------------------------------------------------------------
Except for indebtedness under the Credit Agreement which is variable rate
financing, the balance of our indebtedness is fixed rate financing. We believe
that our exposure to market risk relating to interest rate risk is not material.
The Company believes that its business operations are not exposed to market risk
relating to foreign currency exchange risk, commodity price risk or equity price
risk.
18
Item 4. Controls and Procedures
----------------------------------
As required by Rule 13a-15 under the Exchange Act, as of the end of the period
covered by this quarterly report, the Company carried out an evaluation of the
effectiveness of the design and operation of the Company's disclosure controls
and procedures. This evaluation was carried out under the supervision and with
the participation of the Company's management, including the Company's President
and Chief Executive Officer along with the Company's Chief Financial Officer,
who concluded that the Company's disclosure controls and procedures are
effective. The Company's Vice President - Internal Audit and Principal
Accounting Officer also participated in this evaluation. During the Company's
last fiscal quarter, there has been no significant change in the Company's
internal control over financial reporting that has materially affected, or is
reasonably likely to materially affect, the Company's internal control over
financial reporting.
Disclosure controls and procedures are controls and other procedures that are
designed to ensure that information required to be disclosed in Company reports
filed or submitted under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the Securities and Exchange
Commission's rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information
required to be disclosed in Company reports filed under the Exchange Act is
accumulated and communicated to management, including the Company's Chief
Executive Officer and Chief Financial Officer as appropriate, to allow timely
decisions regarding required disclosure.
PART II OTHER INFORMATION
--------------------------
Item 6. Exhibits and Reports on Form 8-K
------------------------------------------
(a) Exhibits:
Exhibit 10.32 Amendment No.4 to the Amended and Restated Revolving
Credit and Term Loan Agreement
Exhibit 31.1 Section 302 Certification of Chief Executive Officer
Exhibit 31.2 Section 302 Certification of Chief Financial Officer
Exhibit 32.1 Certification of Chief Executive Officer pursuant to
18 U.S.C. Section 1350
Exhibit 32.2 Certification of Chief Financial Officer pursuant to
18 U.S.C. Section 1350
(b) Reports on Form 8-K:
On March 15, 2004, the Company filed a current report on Form 8-K
with the SEC, pursuant to Item 12 thereof, reporting the Company's
consolidated financial results for its first quarter ended January
31, 2004.
On April 21, 2004, the Company filed a current report on Form 8-K
with the SEC, pursuant to Item 5 thereof, reporting that the Board
of Directors of the Company unanimously adopted and approved Amended
and Restated By-Laws.
19
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FOODARAMA SUPERMARKETS, INC.
----------------------------
(Registrant)
Date: June 14, 2004 /S/ MICHAEL SHAPIRO
-----------------------------
(Signature)
Michael Shapiro
Senior Vice President
Chief Financial Officer
Date: June 14, 2004 /S/ THOMAS H. FLYNN
----------------------------
(Signature)
Thomas H. Flynn
Director of Accounting
Principal Accounting Officer
20
EXHIBIT 10.32
CONSENT AND AMENDMENT NO. 4
TO
THIRD AMENDED AND RESTATED CREDIT AND TERM LOAN AGREEMENT
THIS CONSENT AND AMENDMENT NO. 4 (this "Amendment") is entered into as of
April 15, 2004 by and among NEW LINDEN PRICE RITE, INC., a New Jersey
corporation ("New Linden"), FOODARAMA SUPERMARKETS, INC., a New Jersey
corporation ("Parent" and, together with New Linden, each a "Borrower" and
collectively, the "Borrowers"), the Guarantors signatory hereto, the lenders set
forth on the signature pages hereto (such lenders with their respective
permitted successors and assigns, each a "Lender" and collectively, the
"Lenders") and GMAC COMMERCIAL FINANCE LLC (successor by merger to GMAC Business
Credit, LLC) as agent for Lenders (in such capacity together with any successor
thereto in such capacity, the "Agent").
BACKGROUND
Borrowers, Guarantors, Agent and Lenders are parties to a Third Amended
and Restated Revolving Credit and Term Loan Agreement dated as of September 26,
2002 (as amended, restated, supplemented or otherwise modified from time to
time, the "Loan Agreement") pursuant to which Agent and Lenders provide
Borrowers with certain financial accommodations.
Borrowers have advised Agent and Lenders of Borrowers' intent to receive
an assignment from Wakefern of its rights as lessee under its current lease for
certain premises located at 622 Route 206, Bordentown, New Jersey 08565 (the
"Assignment") and to purchase certain pharmaceutical prescriptions and equipment
located at such premises from Wakefern for an aggregate cash amount of not
greater than $1,000,000 (the "Purchase").
Borrowers have requested that Agent and Lenders consent to the Purchase
and make certain amendments to the Loan Agreement, and Agent and Lenders are
willing to do so on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of any loan or advance or grant of credit
heretofore or hereafter made to or for the account of Borrowers by Agent and
Lenders, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
Definitions. All capitalized terms not otherwise defined herein shall have the
meanings given to them in the Loan Agreement.
Consent. Subject to satisfaction of the conditions precedent set forth in
Section 4 below, Agent and Lenders consent to the Assignment and the Purchase,
provided that the Assignment and the Purchase shall each be effectuated on terms
and conditions, and pursuant to documentation, satisfactory in form and
substance to Agent and its counsel.
Amendment to Loan Agreement. Subject to satisfaction of the conditions precedent
set forth in Section 4 below, the Loan Agreement is hereby amended as follows:
Section I of the Loan Agreement is amended by adding the following defined terms
in their appropriate alphabetical order to provide as follows:
"Amendment No. 4" shall mean Amendment No. 4 to this Agreement
dated as of April 15, 2004 by and among the Borrowers,
Guarantors, Agent and Lenders.
"Amendment No. 4 Effective Date" shall mean April 15, 2004.
"Amendment No. 4 Fee" shall mean a $50,000 fee payable in
immediately available funds by Borrowers to Agent, for the
ratable benefit of Lenders, as consideration for entering into
Amendment No. 4, which shall be deemed earned in full by Agent
and Lenders on the Amendment No. 4 Effective Date.
21
Section I of the Loan Agreement is amended by amending the following defined
term in its entirety to provide as follows:
"In-Transit Cash Borrowing Base Inclusion" shall mean an
amount equal to (a) on each Tuesday and Wednesday during the
period beginning on April 15, 2004 and ending on June 15,
2004, the lesser of (i) $5,000,000 and (ii) Cash on Hand of
Borrowers, (b) on each Tuesday and Wednesday during the period
beginning on June 16, 2004 and ending on July 15, 2004, the
lesser of (i) $4,000,000 and (ii) Cash on Hand of Borrowers,
(c) on each Tuesday and Wednesday during the period beginning
on July 16, 2004 and ending on August 15, 2004, the lesser of
(i) $3,000,000 and (ii) Cash on Hand of Borrowers and (d) at
all other times, $0.
Section 7.03 of the Loan Agreement is amended in its entirety to provide as
follows:
"SECTION 7.03. Indebtedness. Incur, create, assume or permit
to exist any Indebtedness other than
(i) Indebtedness secured by Liens permitted under Section
7.01; provided, however, that
(x) Adjusted Indebtedness shall not exceed the sum of
(1) Adjusted Indebtedness for the acquisition of
equipment at a single New/Replacement Store Project (the
"Alternative Capex Financing") incurred at any time during the
Capital Expenditure Facility Availability Period; provided,
however, that (a) the Alternative Capex Financing shall be
limited to the lesser of $4,000,000 and the unused principal
amount of the Total Capital Expenditure Facility Commitment;
(b) such Alternative Capex Financing shall be incurred
pursuant to documents reasonably satisfactory to Agent; (c) no
portion of such Alternative Capex Financing shall be
guaranteed by Wakefern; (d) the Agent shall be notified in
writing prior to the incurrence of any such Alternative Capex
Financing, which notice shall designate such borrowing as the
"Alternative Capex Financing" and indicate the date on which
such borrowing shall occur; (e) the Borrowers shall be
permitted to incur only one borrowing with the Alternative
Capex Financing; and (f) simultaneously with the incurrence of
such Alternative Capex Financing, the Total Capital
Expenditure Facility Commitment shall be immediately and
permanently reduced by $4,000,000 and
(2) (a) $550,000 in new Adjusted Indebtedness
incurred during Fiscal Year 1999; (b) $1,250,000 in new
Adjusted Indebtedness incurred during Fiscal Year 2000; (c)
$250,000 in new Adjusted Indebtedness incurred during Fiscal
Year 2001; (d) $0 in new Adjusted Indebtedness incurred during
Fiscal Year 2002 (provided, however, that such Indebtedness
shall be incurred in connection with no more than two store
locations and the amount of Indebtedness incurred with respect
to each individual store shall not exceed $4,000,000); (e)
$7,000,000 in new Adjusted Indebtedness incurred during Fiscal
Year 2003; (f) $1,100,000 in new Adjusted Indebtedness
incurred during Fiscal Year 2004; (g) $19,000,000 in new
Adjusted Indebtedness incurred during Fiscal Year 2005; (h)
$4,000,000 in new Adjusted Indebtedness incurred during Fiscal
Year 2006; and (i) $8,000,000 in new Adjusted Indebtedness
incurred during Fiscal Year 2007, in each case for the Parent
and its Subsidiaries, and provided, further, that to the
extent the full amount of permitted Indebtedness as set forth
in clauses (a) through (i) above is not incurred in any
particular Fiscal Year, such unused amount may be "carried
over" and utilized in the immediately succeeding Fiscal Year
only (but not in any subsequent Fiscal Year), provided,
however, that any Indebtedness incurred in such immediately
22
succeeding Fiscal Year shall first be applied to the reduction
of the regularly scheduled amount of permitted Indebtedness as
set forth in the foregoing clauses (a) through (i), as the
case may be and secondly to any such carryover amount; and
provided, further, that the Adjusted Indebtedness described in
the foregoing clause (2) shall be incurred pursuant to
documents reasonably satisfactory to Agent and
(y) Indebtedness attributable to Capitalized Lease
Obligations in connection with real estate leases shall not exceed
an aggregate amount of (a) $5,865,000 in new Indebtedness incurred
during Fiscal Year 1999; (b) $21,691,000 in new Indebtedness
incurred during Fiscal Year 2000; (c) $0 in new Indebtedness
incurred during Fiscal Year 2001; (d) $9,958,000 in new Indebtedness
incurred during Fiscal Year 2002; (e) $67,523,000 in new
Indebtedness incurred during Fiscal Year 2003; (f) $34,949,000 in
new Indebtedness incurred during Fiscal Year 2004; (g) $53,205,000
in new Indebtedness incurred during Fiscal Year 2005; (h)
$10,570,000 in new Indebtedness incurred during Fiscal Year 2006 and
(i) $21,139,000 in new Indebtedness incurred during Fiscal Year
2007, in each case for the Parent and its Subsidiaries and provided,
further, that to the extent the full amount of permitted
Indebtedness as set forth in clauses (a) through (i) above is not
incurred in any particular Fiscal Year, such unused amount may be
"carried over" and utilized in the immediately succeeding Fiscal
Year only (but not in any subsequent Fiscal Year), provided,
however, that any Indebtedness incurred in such immediately
succeeding Fiscal Year shall first be applied to the reduction of
the regularly scheduled amount of permitted Indebtedness as set
forth in the foregoing clauses (a) through (i), as the case may be
and secondly to any such carryover amount,
(ii) Indebtedness (including, without limitation, Guarantees)
existing on the date hereof and listed in Schedule 7.03
annexed hereto, but not the increase, extension, renewal or
refunding thereof if, pursuant to such increase, extension,
renewal or refunding, (x) the amount of the relevant
Indebtedness is increased, (y) the terms thereof and the
related interest rate do not fairly reflect market conditions
for companies in businesses and with credit standing similar
to the Parent or (z) such Indebtedness is more senior in rank
than that being so extended, renewed or refunded,
(iii) Indebtedness incurred hereunder and under the other Loan
Documents,
(iv) Indebtedness of the Parent to Wakefern and affiliates of
Wakefern required to be incurred under the Wakefern Shareholder
Agreement, the Certificate of Incorporation of Wakefern and/or the
bylaws of Wakefern,
(v) Guarantees constituting the endorsement of negotiable
instruments for deposit or collection in the ordinary course of
business,
(vi) Guarantees of the Obligations,
(vii) Subordinated Indebtedness, but not the increase,
extension, renewal or refunding thereof except as consented to
by Agent in writing,
(viii) Indebtedness to banks with whom Borrowers regularly
bank with respect to uncollected funds in accordance with past
practices;
(ix) Intercompany Indebtedness to the extent permitted under
Section 7.06 and
(x) Indebtedness of Borrowers as a result of Borrowers'
acquisition of certain equipment required by Wakefern, the amount of
which shall be satisfactory to Agent in its reasonable discretion
and Agent shall not unreasonably withhold its consent to such
financing."
23
Section 7.10 of the Loan Agreement is amended in its entirety to provide as
follows:
"SECTION 7.10. Capital Expenditures. Contract for, purchase
or make any expenditure or commitments for
(a) Adjusted Capex in any Fiscal Year in an aggregate amount
in excess of the following amounts for the Parent and its Subsidiaries on
a Consolidated basis:
-------------------------------------------------------------
Fiscal Year Adjusted Capex
-------------------------------------------------------------
-------------------------------------------------------------
Fiscal Year 2000 $7,446,000
-------------------------------------------------------------
Fiscal Year 2001 $12,039,000
-------------------------------------------------------------
Fiscal Year 2002 $7,800,000
-------------------------------------------------------------
Fiscal Year 2003 $5,740,000
-------------------------------------------------------------
Fiscal Year 2004 $2,595,000
-------------------------------------------------------------
Fiscal Year 2005 $6,500,000
-------------------------------------------------------------
Fiscal Year 2006 and each Fiscal Year $6,900,000
thereafter
-------------------------------------------------------------
(b) Capital Expenditures relating to New/Replacement Store
Projects (excluding Capital Expenditures for real estate assets acquired
pursuant to Capitalized Lease Obligations, hereinafter referred to as
"Store Project Capex") in any Fiscal Year in an aggregate amount in excess
of the following amounts for the Parent and its Subsidiaries on a
Consolidated basis:
--------------------------------------------------------------------
Fiscal Year Store Project Capex
--------------------------------------------------------------------
--------------------------------------------------------------------
Fiscal Year 2000 $9,303,922
--------------------------------------------------------------------
Fiscal Year 2001 $5,008,000
--------------------------------------------------------------------
Fiscal Year 2002 $24,000,000
--------------------------------------------------------------------
Fiscal Year 2003 $23,175,000
--------------------------------------------------------------------
Fiscal Year 2004 $24,500,000
--------------------------------------------------------------------
Fiscal Year 2005 $26,018,000
--------------------------------------------------------------------
Fiscal Year 2006 $14,000,000
--------------------------------------------------------------------
Fiscal Year 2007 and each Fiscal Year $7,000,000
thereafter
--------------------------------------------------------------------
provided, however, that to the extent the full amount of permitted Store
Project Capex is not utilized in any particular Fiscal Year, such unused
amount may be "carried over" and utilized in the immediately succeeding
Fiscal Year only (but not in any subsequent Fiscal Year), provided,
further, that any such Store Project Capex utilized in such immediately
succeeding Fiscal Year shall first be applied to the reduction of the
amount of permitted Store Project Capex for the fiscal year in which such
Store Project Capex is made and secondly to any such carryover amount."
24
Schedule 4.06(a) to the Loan Agreement is amended in its entirety and replaced
with Schedule 4.06(a) hereto.
Conditions of Effectiveness. This Amendment shall become effective upon the
----------------------------
receipt by Agent and Lenders of (a) five (5) originals of this Amendment, duly
executed by each Borrower and consented to by each Guarantor, (b) the Amendment
No. 4 Fee, which may be charged to Borrowers' account and (c) such other
certificates, instruments, documents, agreements and opinions of counsel as may
be required by Agent or its counsel, each of which shall be in form and
substance satisfactory to Agent and its counsel.
Representations and Warranties. Each Borrower and Guarantor hereby represents
and warrants as follows:
This Amendment and the Loan Agreement, as amended hereby, constitute the legal,
valid and binding obligations of Borrowers and Guarantors and are enforceable
against Borrowers and Guarantors in accordance with their respective terms.
Upon the effectiveness of this Amendment, each Borrower and Guarantor hereby
reaffirms all covenants, representations and warranties made in the Loan
Agreement to the extent the same are not amended hereby and agrees that all such
covenants, representations and warranties shall be deemed to have been remade as
of the effective date of this Amendment.
After giving effect to this Amendment, no Event of Default or Default has
occurred (other than the Designated Defaults, as defined in each of Consent,
Waiver and Amendment No. 2 to Loan Agreement dated January 21, 2003 and that
certain waiver letter agreement dated January 15, 2004, each among Agent,
Lenders, Borrowers and Guarantors) and is continuing or would exist.
No Borrower or Guarantor has any defense, counterclaim or offset with respect to
the Loan Agreement.
Effect on the Loan Agreement.
-----------------------------
Upon the effectiveness of Section 3 hereof, each reference in the Loan Agreement
to "this Agreement," "hereunder," "hereof," "herein" or words of like import
shall mean and be a reference to the Loan Agreement as amended hereby.
Except as specifically amended herein, the Loan Agreement, and all other
documents, instruments and agreements executed and/or delivered in connection
therewith, shall remain in full force and effect, and are hereby ratified and
confirmed.
The execution, delivery and effectiveness of this Amendment shall not operate as
a waiver of any right, power or remedy of Agent or Lenders, nor constitute a
waiver of any provision of the Loan Agreement, or any other documents,
instruments or agreements executed and/or delivered under or in connection
therewith.
Governing Law. This Amendment shall be binding upon and inure to the benefit of
--------------
the parties hereto and their respective successors and assigns and shall be
governed by and construed in accordance with the laws of the State of New York.
Headings. Section headings in this Amendment are included herein for convenience
---------
of reference only and shall not constitute a part of this Amendment for any
other purpose.
Counterparts; Facsimile. This Amendment may be executed by the parties hereto in
------------------------
one or more counterparts, each of which shall be deemed an original and all of
which when taken together shall constitute one and the same agreement. Any
signature delivered by a party by facsimile transmission shall be deemed to be
an original signature hereto.
25
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
26
IN WITNESS WHEREOF, this Amendment has been duly executed as of the day
and year first written above.
NEW LINDEN PRICE RITE, INC.,
as Borrower and as Guarantor
By:
-------------------------------------
Name:
Title:
FOODARAMA SUPERMARKETS, INC.,
as Borrower and as Guarantor
By:
-------------------------------------
Name:
Title:
GMAC COMMERCIAL FINANCE LLC
(successor by merger to GMAC Business Credit
, LLC), as Agent
By:
-------------------------------------
Name:
Title:
GMAC COMMERCIAL FINANCE LLC
(successor by merger to GMAC Business
Credit, LLC), as Lender
By:
-------------------------------------
Name:
Title:
[SIGNATURES CONTINUED ON THE FOLLOWING PAGE]
27
[CONTINUED SIGNATURES TO AMENDMENT NO. 4]
THE BANK OF NEW YORK,
as Lender
By:
-------------------------------------
Name:
Title:
CITIZENS BUSINESS CREDIT COMPANY,
as Lender
By:
-------------------------------------
Name:
Title:
NATIONAL CONSUMER COOPERATIVE BANK
(d/b/a National Cooperative Bank), as Lender
By:
-------------------------------------
Name:
Title:
CONSENTED AND AGREED TO:
SHOP RITE OF READING, INC.,
as Guarantor
By:
-------------------------------------
Name:
Title:
SHOP RITE OF MALVERNE, INC.,
as Guarantor
By:
-------------------------------------
Name:
Title:
28
Schedule 4.06(a)
Litigation
Litigation schedule intentionally left blank.
32
EXHIBIT 31.1
CERTIFICATION
I, Richard J. Saker, certify that:
1. I have reviewed this report on Form 10-Q of Foodarama Supermarkets, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our supervision,
to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting;
and
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control over
financial reporting.
Date: June 11, 2004 /s/ RICHARD J. SAKER
-------------------------------
(Signature)
Richard J. Saker
Chief Executive Officer
33
EXHIBIT 31.2
CERTIFICATION
I, Michael Shapiro, certify that:
1. I have reviewed this report on Form 10-Q of Foodarama Supermarkets, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting;
and
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control over
financial reporting.
Date: June 11, 2004 /s/ MICHAEL SHAPIRO
------------------------------
(Signature)
Michael Shapiro
Chief Financial Officer
34
EXHIBIT 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Foodarama Supermarkets, Inc.
(the "Company") on Form 10-Q for the period ended May 1, 2004 (the "Report"), I,
Richard J. Saker, Chief Executive Officer of the Company, do hereby certify,
pursuant to 18 U.S.C.ss. 1350, as adopted pursuant to ss. 906 of the
Sarbanes-Oxley Act of 2002, that to my knowledge:
(1) the Report fully complies with the requirements ofss.13(a) or 15(d)
of the Securities Exchange Act of 1934, 15 U.S.C.ss.78m(a) or 78o(d),
and,
(2) the information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the
Company.
Date: June 11, 2004 /s/ RICHARD J. SAKER
------------------------------
(Signature)
Richard J. Saker
Chief Executive Officer
35
EXHIBIT 32.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Foodarama Supermarkets, Inc.
(the "Company") on Form 10-Q for the period ended May 1, 2004 (the "Report"), I,
Michael Shapiro, Chief Financial Officer of the Company, do hereby certify,
pursuant to 18 U.S.C.ss. 1350, as adopted pursuant to ss. 906 of the
Sarbanes-Oxley Act of 2002, that to my knowledge:
(1) the Report fully complies with the requirements ofss.13(a) or 15(d) of the
Securities Exchange Act of 1934, 15 U.S.C.ss.78m(a) or 78o(d), and,
(2) the information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the
Company.
Date: June 11, 2004 /s/ MICHAEL SHAPIRO
------------------------------
(Signature)
Michael Shapiro
Chief Financial Officer
36