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 January 27, 2001
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.)
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 the filing requirements for at least the
past 90 days.
Yes X No
------ ------
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 March 2, 2001
------------ ---------------
Common Stock 1,117,290 shares
$1 par value
FOODARAMA SUPERMARKETS, INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Unaudited Consolidated Condensed Balance
Sheets January 27, 2001 and October 28, 2000
Unaudited Consolidated Condensed Statements
of Operations for the thirteen weeks ended
January 27, 2001 and January 29, 2000
Unaudited Consolidated Condensed Statements
of Cash Flows for the thirteen weeks ended
January 27, 2001 and January 29, 2000
Notes to the Unaudited Consolidated Condensed
Financial Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
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 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 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
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
(in thousands)
January 27, October 28,
2001 2000
(Unaudited) (1)
ASSETS
Current assets:
Cash and cash equivalents $ 9,683 $ 3,977
Merchandise inventories 43,622 42,765
Receivables and other current assets 5,475 4,959
Prepaid income taxes - 398
Related party receivables - Wakefern 5,358 8,557
Related party receivables - other 49 15
-------- -------
64,187 60,671
-------- -------
Property and equipment:
Land 308 308
Buildings and improvements 1,220 1,220
Leasehold improvements 37,092 36,931
Equipment 97,566 96,452
Property under capital leases 59,909 59,909
Construction in progress 1,619 1,513
---------- -------
197,714 196,333
Less accumulated depreciation and
amortization 90,542 87,487
--------- -------
107,172 108,846
--------- -------
Other assets:
Investments in related parties 12,758 12,758
Intangibles 3,399 3,487
Other 3,200 3,469
Related party receivables - Wakefern 1,838 1,782
Related party receivables - other 181 172
-------- ------
21,376 21,668
------- -------
$192,735 $191,185
======== ========
(continued)
(1) Derived from the Audited Consolidated Financial Statements for the year
ended October 28, 2000.
See accompanying notes to consolidated condensed financial statements.
3
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
(in thousands except share data)
January 27, October 28,
2001 2000
(Unaudited) (1)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 4,602 $ 4,918
Current portion of long-term debt,
related party 891 880
Current portion of obligations under
capital leases 706 664
Current income taxes payable 181 -
Deferred income tax liability 1,114 1,114
Accounts payable:
Related party-Wakefern 39,484 34,051
Others 7,766 7,781
Accrued expenses 11,700 12,478
--------- ---------
66,444 61,886
---------- ----------
Long-term debt 20,179 24,181
Long-term debt, related party 1,987 2,212
Obligations under capital leases 55,649 55,848
Deferred income taxes 2,767 2,585
Other long-term liabilities 7,119 7,051
---------- ----------
87,701 91,877
---------- ----------
Shareholders' equity:
Common stock, $1.00 par; authorized
2,500,000 shares; issued 1,621,767
shares; outstanding 1,117,290 shares 1,622 1,622
Capital in excess of par 2,351 2,351
Retained earnings 41,246 40,078
---------- ----------
45,219 44,051
Less 504,477 shares held
in treasury, at cost 6,629 6,629
---------- ----------
38,590 37,422
---------- ----------
$ 192,735 $ 191,185
========== ==========
(1) Derived from the Audited Consolidated Financial Statements for the year
ended October 28, 2000.
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
January 27, January 29,
2001 2000
------------- -------------
Sales $ 238,594 $ 211,541
Cost of merchandise sold 180,493 161,073
---------- ----------
Gross profit 58,101 50,468
Operating, general and
administrative expenses 54,149 47,865
----------- -----------
Income from operations 3,952 2,603
----------- -----------
Other (expense) income:
Interest expense (2,083) (1,374)
Interest income 79 78
----------- -----------
(2,004) (1,296)
----------- -----------
Earnings before income tax provision 1,948 1,307
Income tax provision (780) (523)
---------- -----------
Net income $ 1,168 $ 784
========== ===========
Per share information:
Net income per common share, basic
and diluted $ 1.05 $ .70
========== ==========
Weighted average number of common
shares outstanding 1,117,290 1,117,290
========== ==========
Dividends per common share -0- -0-
========== ==========
See accompanying notes to consolidated condensed financial statements.
5
FOODARAMA SUPERMARKETS, INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows - Unaudited (in thousands)
13 Weeks Ended
January 27, January 29,
2001 2000
------------- --------------
Cash flows from operating activities:
Net income $ 1,168 $ 784
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 3,056 2,692
Amortization, intangibles 88 88
Amortization, deferred financing costs 64 71
Amortization, deferred rent escalation (15) 21
Provision to value inventory at LIFO 142 166
Deferred income tax (benefit) 182 (186)
(Increase) decrease in
Merchandise inventories (999) (2,201)
Receivables and other current assets (516) 220
Prepaid income taxes 398 -
Other assets 213 1,046
Related party receivables-Wakefern 3,143 3,547
Increase (decrease) in
Accounts payable 5,418 8,738
Income taxes payable 181 (342)
Other liabilities (695) 503
---------- --------
11,828 15,147
---------- --------
Cash flows from investing activities:
Cash paid for the purchase of property
and equipment (1,284) (756)
Cash paid for construction in progress (106) (6,191)
(Increase) decrease in related party
receivables-other (43) 8
----------- --------
(1,433) (6,939)
----------- --------
Cash flows from financing activities:
Proceeds from issuance of debt - 11,400
Principal payments under long-term debt (4,318) (15,498)
Principal payments under capital
lease obligations (157) (119)
Principal payments under long-term
debt, related party (214) (126)
Deferred financing costs - (877)
---------- --------
(4,689) (5,220)
---------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS 5,706 2,988
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 3,977 4,094
---------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 9,683 $ 7,082
========== =========
See accompanying notes to consolidated condensed financial statements.
6
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited)
Note 1 Basis of Presentation
The unaudited Consolidated Condensed Financial Statements as of or for the
period ending January 27, 2001, 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 October 28, 2000
has been taken 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 October 28, 2000.
At both January 27, 2001 and October 28, 2000, approximately 82% 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 $865,000 and $723,000 higher than reported at
January 27, 2001 and October 28, 2000, 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
Accounting for Certain Sales Incentives
Effective October 29, 2000 the Company adopted the Emerging Issues Task Force
Issue No. 00-14 ("EITF 00-14"), "Accounting for Certain Sales Incentives." EITF
00-14 provides guidance on the accounting for certain sales incentives offered
by companies to their customers, such as discounts, coupons, rebates and free
products or services. In accordance with the provisions of EITF 00-14 the
Company recorded those sales incentives covered by EITF 00-14 as a reduction of
sales, resulting in a corresponding reduction in operating, general and
administrative expenses, with no impact on the Company's net income. Prior year
amounts have been reclassified to conform with the current year presentation.
Sales incentives, relating to this change in presentation, amounted to
$5,472,000 and $4,681,000 for the quarters ended January 27, 2001 and January
29, 2000, respectively.
Accounting for Derivative Instruments and Hedging Activities
Effective October 29, 2000 the Company adopted Statement of Financial Accounting
Standards No. 133 ("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, and for hedging activities. SFAS 133 requires the
7
recognition of all derivatives as either assets or liabilities on the balance
sheet and measures those instruments at fair value. The Company does not
currently engage in any hedging activity or hold any derivative instruments.
Therefore, there was no significant impact from adopting the provisions of SFAS
133 in the quarter ended January 27, 2001.
Revenue Recognition in Financial Statements
Effective October 29, 2000 the Company adopted the Securities and Exchange
Commission Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition
in Financial Statements." This bulletin provides additional guidance on revenue
recognition as well as criteria for when revenue is generally realized and
earned and also requires the deferral of incremental costs. There was no
significant impact from adopting the provisions of SAB 101 in the quarter ended
January 27, 2001.
Part I - Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations
Financial Condition and Liquidity
The Company is a party to a Second Amended and Restated Revolving Credit and
Term Loan Agreement (the "Credit Agreement") with three financial institutions.
The Credit Agreement is secured by substantially all of the Company's assets and
provided for a total commitment of up to $55,000,000, including a revolving
credit facility (the "Revolving Note") of up to $25,000,000, a term loan ("the
Term Loan") in the amount of $10,000,000 and a capital expenditures facility
(the "Capex Facility") of up to $20,000,000. As of January 27, 2001 the Company
owed $8,000,000 on the Term Loan and $7,757,628 under the Capex Facility. The
Term Loan is to be paid in quarterly principal payments of $500,000 through
December 31, 2004. The revolving credit facility also matures December 31, 2004
and the Capex facility provides for the payment of interest only on its
outstanding balance, an unused facility fee of .50% for the first two years of
this loan and fixed quarterly principal payments thereafter based on a seven
year amortization schedule with a balloon payment due December 31, 2004.
Interest rates float on the revolving credit facility, Term Loan and Capex
Facility at the Base Rate (defined below) plus .50%, .75% and .75%,
respectively. 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 has
the ability to use the London Interbank Offered Rate ("LIBOR") plus 2.50% to
determine the interest rate on the revolving credit facility and LIBOR plus
2.75% to determine the interest rate on the Term Loan and Capex Facility. The
Credit Agreement contains certain affirmative and negative covenants which,
among other matters, will (i) restrict capital expenditures and the amount of
additional indebtedness that the Company may incur, (ii) require the maintenance
of certain levels of earnings before interest, taxes, depreciation and
amortization less rent payments for capitalized lease locations ("Adjusted
EBITDA") and (iii) require debt service coverage and leverage ratios to be
maintained.
8
The Company's compliance with the major financial covenants under the Credit
Agreement was as follows as of January 27, 2001:
Actual
Financial Credit (As defined in the
Covenant Agreement Credit Agreement)
--------- --------- ---------------------
Adjusted EBITDA (1) Greater than $13,500,000 $ 19,545,000
Leverage Ratio (1) Less than 3.5 to 1.00 1.42 to 1.00
Debt Service Coverage
Ratio Greater than 1.20 to 1.00 1.47 to 1.00
Adjusted Capex (2) Less than $9,250,000 (3) $ 1,284,000 (4)
Store Project Capex Less than $29,096,000 (3) $ 106,000 (4)
(1) Excludes obligations under capitalized leases and interest expense and
depreciation expense attributable to capitalized leases.
(2) Adjusted Capex is all capital expenditures other than New/Replacement Store
Project Capex.
(3) Represents limitations on capital expenditures for fiscal 2001.
(4) Represents capital expenditures for the quarter ended January 27, 2001.
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 January 27, 2001, the Company had a working capital deficiency of $2,257,000
compared to deficiencies of $1,215,000 at October 28, 2000 and $6,743,000 at
January 29, 2000. Cash and cash equivalents improved as the result of the
collection of the fiscal 2000 patronage dividend receivable from Wakefern and
the deferral of accounts payable relating to promotional programs. As the
deferred payables are paid in the second quarter, cash and cash equivalents will
return to historical levels.
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:
January 27, 2001 97 to 1.0
October 28, 2000 .98 to 1.0
January 29, 2000 .89 to 1.0
Cash flows (in millions) were as follows:
Thirteen Weeks Ended
1/27/01 1/29/00
Operating activities... $11.8 $ 15.1
Investing activities... (1.4) (6.9)
Financing activities... (4.7) (5.2)
------ -----
Totals $ 5.7 $ 3.0
====== ======
9
The Company had $21,700,000 of available credit, at January 27, 2001, under its
revolving credit facility. The amounts available under the Credit Agreement will
adequately meet our operating needs, scheduled capital expenditures and debt
service for fiscal 2001.
For the 13 weeks ended January 27, 2001 depreciation was $3,056,000 while
capital expenditures totaled $1,390,000, compared to $2,692,000 and $6,947,000
respectively in the prior year period. The increase in depreciation was the
result of the purchase of equipment and leasehold improvements for the two new
locations opened in fiscal 2000, as well as two additional capitalized real
estate leases. The decline in capital expenditures was due to the acquisition in
fiscal 2000 of equipment and leasehold improvements for the two locations opened
in the second quarter of fiscal 2000 with no comparable expenditures in fiscal
2001.
Results of Operations (13 weeks ended January 27, 2001 compared to 13 weeks
ended January 29, 2000)
Sales:
Sales for the current period totaled $238.6 million as compared to $211.5
million in the prior year period. Same store sales from the twenty stores in
operation in both periods increased 3.5%.
Sales for the current quarter included the operations of two new locations
opened in February and April 2000. The location opened in April 2000 replaced an
older, smaller store.
Gross Profit:
Gross profit as a percent of sales increased to 24.4% of sales compared to 23.9%
in the prior year period. Patronage dividends, applied as a reduction of the
cost of merchandise sold, were $1.6 million in the current year period compared
to $1.4 million in the prior year period. Gross profit as a percentage of sales
increased primarily as a result of improved product mix and the contribution of
the two new locations.
Operating Expenses:
Operating, general and administrative expenses as a percent of sales were 22.7%
versus 22.6% in the prior year period. The increase in operating, general and
administrative expenses as a percent of sales was primarily due to increases in
certain expense categories as a percentage of sales. As a percentage of sales,
labor and related fringe benefits increased .49%, occupancy increased .05%,
other store expenses, which included Wakefern support services and sanitation
expense, increased .09% and supplies increased .05%. These increases were
partially offset by decreases in selling expense of .16%, corporate
administrative expense of .24% and pre-opening costs of .17%. Pre-opening costs
were for the new Branchburg, New Jersey store opened in February 2000.
10
Interest Expense:
Interest expense increased to $2,083,000 from $1,374,000, while interest income
was $79,000 compared to $78,000 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 40% has been used in both the current and prior year
periods based on the expected effective tax rates.
Net Income:
Net income was $1,168,000 in the current year period compared to $784,000 in the
prior year period. Earnings before interest, taxes, depreciation and
amortization ("EBITDA") for the current period were $7,145,000 as compared to
$5,475,000 in the prior year period. Net income per common share, both basic and
diluted, was $1.05 in the current period compared to $.70 in the prior year
period. Per share calculations are based on 1,117,290 shares outstanding in both
periods.
11
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit (27) - Financial Data Schedule
(b) Reports on Form 8-K
December 4, 2000 - Foodarama Supermarkets, Inc. issues
a press release discussing the bankruptcy filing of
Big V Supermarkets, Inc., a member of Wakefern Food
Corporation - press release dated November 29, 2000
filed as an exhibit.
12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
FOODARAMA SUPERMARKETS, INC.
(Registrant)
Date: March 9, 2001 /S/ MICHAEL SHAPIRO
-----------------------------
(Signature)
Michael Shapiro
Senior Vice President
Chief Financial Officer
Date: March 9, 2001 /S/ THOMAS H. FLYNN
----------------------------
(Signature)
Thomas H. Flynn
Director of Accounting
Principal Accounting Officer
13