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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the fiscal year ended January 3, 2004
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from _____________ to _______________
Commission file number: 002-94984
Roundy's, Inc.
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(Exact name of registrant as specified in its charter)
Wisconsin 39-0854535
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
875 E. Wisconsin Avenue
Milwaukee, Wisconsin 53202
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (414)231-5000
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Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act: None.
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 (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
Indicate by checkmark whether the Registrant is an accelerated filer (as defined
in Exchange Act Rule 12b-2) Yes No X
As of March 26, 2004 there were 1,000 shares of the Registrant's common stock
outstanding, all of which were held by Roundy's Acquisition Corporation ("RAC").
RAC is controlled by the Willis Stein Funds (as defined in Item 1. BUSINESS) and
certain associated investors, and approximately 100% of RAC's common stock may
be deemed to be beneficially owned by certain officers and directors of the
Registrant, all of whom may be deemed to be affiliates of the Registrant. There
is no established public trading market for such stock.
DOCUMENTS INCORPORATED BY REFERENCE
None
Roundy's, Inc.
Form 10-K
For the fiscal year ended January 3, 2004
TABLE OF CONTENTS
PART I Page
Item 1. Business 1
Item 2. Properties 13
Item 3. Legal Proceedings 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters 14
Item 6. Selected Financial Data 15
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 17
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 25
Item 8. Financial Statements and Supplementary Data 26
Item 9. Changes In and Disagreements With Accountants on Accounting
and Financial Disclosure 60
Item 9a. Controls and Procedures 60
PART III
Item 10. Directors and Executive Officers of the Registrant 61
Item 11. Executive Compensation 65
Item 12. Security Ownership of Certain Beneficial Owners and
Management 68
Item 13. Certain Relationships and Related Transactions 69
Item 14. Principal Accountant Fees and Services 70
PART IV
Item 15. Exhibits, Financial Statement Schedules and Reports on
Form 8-K 70
SIGNATURES
EXHIBIT INDEX
PART I
Forward-Looking Statements
This Annual Report on Form 10-K contains forward-looking statements within the
meaning of Section 27A of the Securities Exchange Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. All statements,
other than statements of historical fact included herein or therein are
forward-looking statements. In particular, without limitation, terms such as
"anticipate," "believe," "estimate," "expect," "goal," "indicate," "may be,"
"objective," "plan," "predict," "should," "will" or similar words are intended
to identify forward-looking statements. Forward-looking statements are subject
to certain risks, uncertainties and assumptions which could cause actual results
to differ materially from those predicted. Important factors that could cause
actual results to differ materially from such expectations ("Risk Factors") are
disclosed herein (see "Risk Factors" at the end of Item 1). Although the Company
believes that the expectations reflected in such forward-looking statements are
reasonable, it can give no assurance that such expectations will prove to have
been correct. All subsequent written or oral forward-looking statements
attributable to the Company or persons acting on behalf of the Company are
expressly qualified in their entirety by the Risk Factors. Additional
information concerning factors that could cause actual results to differ
materially from those in the forward-looking statements is contained from time
to time in the Company's SEC filings, including, but not limited to information
under the caption "Risk Factors" contained in the prospectus filed on February
6, 2003 forming a part of the Company's Registration Statement on Form S-4 under
the Securities Act of 1933 (Registration No. 333-102779).
ITEM 1. BUSINESS
Background
Roundy's, Inc. ("Roundy's," and together with its subsidiaries, the "Company")
wholesale operations date back to 1872, when Roundy, Peckham & Dexter, a
privately owned wholesaling company, was formed. In 1952, Roundy, Peckham &
Dexter was sold to certain of its customers and the company was incorporated as
Roundy's, Inc. Through the 1970s, Roundy's continued to operate as a
retailer-owned cooperative, with food wholesaling operations largely focused in
Wisconsin. In the early 1980s, Roundy's initiated a strategic plan to grow the
wholesale operations by strategically acquiring food wholesalers both within and
around Wisconsin. Roundy's opened the first Pick 'n Save store in 1975 and built
a base of Company-owned and operated retail stores throughout the 1980s and
1990s.
From 2000 through 2003, Roundy's embarked on a strategy of further expanding its
retail store base through selective acquisitions. Roundy's is a leading food
retailer in the state of Wisconsin. As of January 3, 2004, the Company owns and
operates 115 retail grocery stores, of which 77 are located in Wisconsin, 31 are
located in Minnesota and seven are located elsewhere in the Midwest. The Company
distributes a full line of food and non-food products from seven wholesale
distribution centers in four Midwestern states and provides services to
approximately 800 licensee and independent retail locations in Wisconsin and
throughout the Midwest.
On June 6, 2002, all of the issued and outstanding capital stock of Roundy's was
purchased by RAC from its former owners. This purchase is referred to throughout
this report as the "Transactions."
RAC is a corporation formed at the direction of Willis Stein & Partners III,
L.P. ("Willis Stein") for the purposes of acquiring Roundy's. 89% of RAC's
common and preferred stock is owned by investment funds controlled by Willis
Stein (the "Willis Stein Funds") and certain associated equity investors. The
remaining RAC common and preferred stock is owned by certain members of
management (see "ITEM 12. Security Ownership of Certain Beneficial Owners and
Management"), including Messrs. Mariano and Karst (who purchased RAC stock in
connection with the Transactions - see ITEM 13. Certain Relationships and
Related Transactions - Equity Arrangements) and Messrs. Fryda, Rosanova and
Abraham.
For purposes of comparison, the results of operations for the period from June
7, 2002 to December 28, 2002 will be combined with the results of operations of
Roundy's for the period from December 30, 2001 to June 6, 2002 and then compared
with the results of operations of Roundy's for the year ended January 3, 2004.
For purposes of the financial statement presentation, the Predecessor Company
refers to the Company prior to the consummation of the Transactions and
Successor Company refers to the Company after the consummation of the
Transactions.
Retail Operations. As of January 3, 2004, the Company operated 115 Company-owned
retail grocery stores primarily under the Pick 'n Save, Copps and Rainbow Foods
banners. Approximately half of the Pick 'n Save, Copps and Rainbow Foods stores
are combination food and drug stores, offering all of the products and services
typically found in a traditional supermarket as well as a pharmacy, a broad line
of health and beauty care products and a large selection of seasonal
merchandise. During fiscal years 2003, 2002 and 2001 the stores (including
stores operated while under previous ownership) experienced annual same store
sales growth of 2.7%, 1.6% and 3.5%, respectively.
Pick 'n Save. In addition to the 52 Company-owned stores, the Company also
licenses the Pick 'n Save brand name to independent retailers operating 43
locations primarily in Wisconsin. The Pick 'n Save stores are operated as high
volume, everyday low price ("EDLP") retail grocery stores that seek to provide
customers with the lowest tape total in their respective market. This low price
strategy is uniquely complemented by a broad assortment of high quality
perishables and a focus on providing the same level of customer service and
variety found in traditional supermarkets. For example, many Pick 'n Save stores
have pharmacies, in-store banks and full service deli, meat and bakery
departments.
Copps. The majority of the Copps stores are operated as combination food and
drug stores, with the remainder operated as traditional supermarkets. The
Company believes that the Copps stores have developed a reputation within their
markets for providing a high level of customer service and quality perishables.
Rainbow Foods. The Company acquired 31 Rainbow Foods stores in the greater
Minneapolis/St. Paul metropolitan area from Fleming Companies, Inc. ("Fleming")
in June 2003. The majority of the Rainbow Foods stores are operated as
combination food and drug stores, with the remainder operated as traditional
supermarkets.
Wholesale Operations. From seven strategically located wholesale distribution
centers in Wisconsin (3), Indiana (2), Ohio (1) and Illinois (1), the Company
supplies over 30,000 products to approximately 800 licensee and independent
retail locations in addition to its Company-owned stores. The Company's customer
base includes Company-owned stores, licensed Pick 'n Save locations and single
and multi-location independent retailers. The Company is a full-service
distributor with a broad product line that includes dry grocery, frozen food,
fresh produce, meat, dairy products, bakery goods and nonfood products offered
under both national brands and private labels, including the Company's
"Roundy's" and "Old Time" labels. The seven wholesale distribution centers
aggregate approximately 3.6 million square feet, approximately 82% of which the
Company owns. The Company believes that the size of its wholesale net sales
volume provides it with economies of scale and substantial purchasing power.
Retail Operations
Company-owned retail grocery stores are operated primarily under the Pick 'n
Save, Copps and Rainbow Foods banners. Over the past four years, the Company has
grown its retail operations through several selective retail store acquisitions
in the Company's existing and contiguous markets. As a result, the number of
Company-owned stores has increased from 61 at the end of 2001 to 119 as of March
26, 2004.
As of Fiscal Year Ended
March 26, 2004 2003 2002 2001
-------------- ---- ---- ----
Pick 'n Save format stores 56 52 39 36
Copps format stores 32 32 25 25
Rainbow Foods format stores 31 31 -- --
--- --- -- --
Total Company-owned stores 119 115 64 61
=== === == ==
As of January 3, 2004, the Company's retail stores were located in Wisconsin
(77), Minnesota (31), Michigan (four), Ohio (two) and Illinois (one). The
Company's stores range in size from 25,900 to 130,000 square feet.
The Company has focused on leveraging its strong brand names, high level of
customer service, high quality perishables and strategically located stores, to
increase market share. The Pick 'n Save banner maintains the number one market
share position in the Milwaukee metropolitan area. Additionally, through the
Pick 'n Save and Copps banners, the Company also maintains the number one market
share position in several other large Wisconsin markets, including Madison,
Appleton, Racine, Fond du Lac, Oshkosh, West Bend and Kenosha.
Pick 'n Save. The Company's 52 Pick 'n Save format stores are located primarily
in Wisconsin (49) and are operated as high volume, EDLP retail grocery stores
that seek to provide customers with the lowest tape total in their respective
markets. This low price strategy is uniquely complemented by a broad assortment
of high quality perishables and a focus on providing the same level of customer
service and variety found in traditional supermarkets. For example, 21 Pick 'n
Save stores have full-service pharmacies operated by Aurora Healthcare, 35 have
in-store banks that are leased and operated by third party financial
institutions, and substantially all have full-service deli, meat and bakery
departments.
Pick 'n Save format stores are generally large, modern and situated in high
traffic areas. These stores follow a merchandising strategy in which they
provide high quality perishables while maintaining everyday low prices. The Pick
'n Save format stores also carry approximately 2,250 private label products
under both the Roundy's and Old Time labels.
Copps. The Company's 32 Copps format stores operate in Wisconsin (28 stores
operate under the Copps banner) and in Michigan (four stores operate under the
Orchard Foods banner). The majority of the Copps stores operate as combination
food and drug stores, with the remainder operated as traditional supermarkets.
The Company believes that the Copps stores have developed a reputation within
their respective markets for providing a high level of customer service and high
quality perishables. In addition, the Copps stores operate under a
promotion-driven pricing strategy through weekly advertising circulars.
A typical Copps store consists of a center section featuring dry grocery
products (including frozen foods), general merchandise and health and beauty
care products. This center section is bordered by specialty departments that are
carefully managed with respect to product presentation, size, decor and
appearance. The peripheral areas typically include produce (with a nearby
natural foods section), meat and seafood, bakery, deli, dairy, liquor and video
departments.
Copps stores seek to be service leaders in their given markets with a broad
range of high quality products. The Company's Copps stores provide an extensive
range of services in a modern and attractive store environment. In addition, 17
of the Copps stores have full-service pharmacies operated by Aurora Healthcare
and most stores have ATM machines and/or in-store banks.
Rainbow Foods. The majority of the Company's 31 Rainbow Foods format stores
operate as combination food and drug stores, with the remainder operated as
traditional supermarkets.
The Rainbow Foods stores are large facilities and are generally located in
high-traffic areas of the Minneapolis/St. Paul metropolitan market. A typical
Rainbow Foods store consists of a center section featuring dry grocery products
(including frozen foods), general merchandise and health and beauty care
products. This center section is bordered by specialty departments that are
carefully managed with respect to product presentation, size, decor and
appearance. The peripheral areas typically include produce (with a nearby
natural foods section), meat, seafood, bakery, deli and dairy departments.
Rainbow Foods stores seek to provide strong perishable department offerings and
competitive prices across all departments. These stores also offer a broad range
of services, including full-service, Company-operated pharmacies in 17 stores
and ATM machines and/or in-store banks in the majority of the stores.
Wholesale Operations
The Company's wholesale operations sell and distribute a broad range of food and
non-food products to (i) Company-owned retail stores; (ii) licensed Pick 'n Save
stores; and (iii) independent food retailers located principally in Wisconsin
and elsewhere in the Midwest.
Customers Served. The Company's wholesale segment distributes to (i) 115
Company-owned stores; (ii) 43 licensed Pick 'n Save stores; and (iii)
approximately 780 independent retail locations. Roundy's is the primary supplier
for all of the Company-owned stores and licensed Pick 'n Save stores and the
Company believes that the majority of its independent retail customers also use
the Company as their primary supplier. The following chart illustrates the
percentage of the Company's wholesale net sales sold to each customer group:
Customer Type Fiscal Year Ended
2003 2002 2001
---- ------ -----
Company-owned stores 42.3% 32.4% 29.5%
Licensed Pick 'n Save stores 16.1 22.3 22.8
Independent retailers 41.6 45.3 47.7
----- ----- -----
Total 100.0% 100.0% 100.0%
===== ===== =====
The Company believes it has a balanced customer base that ranges from small,
conventional grocery store operators to large, modern superstores. The majority
of its customers are independent, conventional food retailers operating one or
more stores. As of January 3, 2004, approximately 130 of the customers operated
more than one retail food store. However, on an aggregate dollar basis, the
majority of the Company's net sales are derived from sales to Company-owned
stores and to licensed Pick 'n Save stores. The Company believes that this
diversification of its wholesale customer base, including the concentration of
sales in its Company-owned stores, provides it with a wholesale revenue stream
that is not dependent upon any single customer or group of customers. In
addition, the Company believes it has been successful at building long-term
relationships with its broad base of customers. In 2003, the Company's largest
independent customer accounted for approximately 5.0% of the Company's net
wholesale sales.
The Company has long-term license and supply contracts in place with
approximately 180 of the retail locations that it serves, which corresponds to
approximately $1.0 billion, or 30.0%, of its total wholesale net sales for 2003.
These license and supply contracts contain numerous provisions that serve to
strengthen customer relationships, including, in many cases, (i) license of the
Pick 'n Save banner; (ii) sublease of the real property and associated
buildings; (iii) long term duration (current remaining average duration of over
five years); (iv) minimum purchase amounts; (v) the supply of the Company's
private labels, including the Roundy's and Old Time labels; (vi) the Company's
right of first refusal to purchase licensed Pick 'n Save locations; and (vii)
other value-added services provided by the Company. As a result of the license
and supply agreements in place with several of its customers, the Company
believes that it has created strong economic incentives for both its licensed
customers and its other independent customers under supply contracts to maintain
their relationship with and maximize their purchases from the Company.
Licensees. In addition to Company-owned stores, the Company also licenses the
Pick 'n Save brand name to 43 independent retail stores located primarily in
Wisconsin. Under the terms of each licensing agreement, the Company allows the
licensees to use the Pick 'n Save banner free of charge in exchange for entering
into supply agreements in which the licensees agree to purchase a majority of
their product requirements from the Company.
Products. The Company offers customers over 30,000 products across seven
different primary product categories, including dry grocery, frozen food, fresh
produce, meat, dairy products, bakery goods and non-food products. The Company
sells most nationally advertised brands as well as numerous products under its
private and controlled labels.
Private Labels. Private and controlled labels include Roundy's, Old Time and
IGA. The Company developed the Roundy's brand private label in the late 1800s,
and today, the label consists of over 2,000 items. The Company attempts to
position these items as being of equal or better quality than the comparable
branded product, but offered at a lower price. The Company also owns the Old
Time brand which consists of approximately 250 items and is positioned as a
value alternative to the Roundy's brand. Roundy's and Old Time are the primary
private labels in the Company-owned Pick 'n Save and Rainbow Foods stores and
substantially all of the Company's independent retail customers' stores. IGA is
the primary private label in the Copps format stores.
Procurement. The Company believes it has developed economies of scale and
substantial purchasing power with respect to its suppliers. The Company believes
that its ability to procure products at the best available prices provides it
with a competitive advantage by allowing it to sell its merchandise to customers
at competitive prices.
The Company conducts product procurement at both corporate and divisional levels
depending on the type of product. Products that are based on local market
demand/preferences are typically procured at the divisional level. Other
products such as milk, bread, spices, ice cream and certain meats, as well as
private label products, are purchased centrally at the corporate level. The
Company intends to further centralize the procurement functions at the corporate
level which it believes will enable it to be more efficient. The Company
purchases products from numerous vendors, with no vendor representing more than
approximately 7% of total purchases in 2003.
Distribution Network. The Company conducts its wholesale operations through
seven distribution centers aggregating approximately 3.6 million square feet,
approximately 82% of which it owns. Distribution centers are located in
Wisconsin (3), Indiana (2), Ohio (1) and Illinois (1). On average, the
distribution centers serve a geographic radius of approximately 250 miles and
most customers are within approximately 125 miles of the primary distribution
center serving them. The Company's distribution network is supported by a modern
fleet of 268 tractors, 762 trailers and 10 delivery trucks. The average age of
the tractors and trailers is three years and five years, respectively.
Value-Added Services. In an effort to both help its customers compete more
effectively and to enhance and solidify the relationships with its customers,
the Company offers certain value-added services to Pick 'n Save licensees and
its independent customers. These services include market analysis, business
development and inventory control and retail training. The Company provides the
vast majority of these services to its customers at minimal or no additional
fee. Many of these services are provided by Company-employed regional retail
counselors and merchandising specialists.
Capital Investment in Customers. As part of the value-added services the Company
offers to retailers, it occasionally leases equipment to retailers, provides
capital to qualified customers through secured loans and becomes primarily or
secondarily obligated under customer store leases. In making credit and
investment decisions, the Company considers many factors, including estimated
return on capital and assumed risks and benefits (including its ability to
secure long-term supply contracts with these customers).
- - Secured Loans and Lease Guarantees. The Company selectively makes
loans to customers for store expansions or improvements. The Company
has a corporate finance committee that carefully analyzes each loan
application according to strict written standards. These loans are
typically secured by inventory and store fixtures, have personal
guarantees, bear interest at rates above the prime rate and are for
terms of five to seven years. The Company's portfolio of loans to its
wholesale customers had an aggregate balance of approximately $4.4
million at January 3, 2004 and approximately $7.5 million at
December 28, 2002. In addition, the Company occasionally
guarantees loans and lease obligations for certain of its customers.
As of January 3, 2004, the Company guaranteed approximately $0.3
million of a lease obligation of one of its independent retail
customers.
- - Store and Equipment Leases. On an individual basis, the Company
occasionally subleases store sites and equipment to qualified
customers, generally at a premium to its cost of the primary lease.
This enables these customers to be more economically competitive with
larger grocery store chains and allows them to bid on store sites at
favorable rates. In exchange, the Company receives tangible benefits
from these activities as it requires customers to direct a majority of
its purchasing activities to its wholesale operations during the term
of the sublease, and the Company gains a right of first refusal on the
store in the event it is sold. In Fiscal 2003, 2002 and 2001, the
Company received aggregate sublease rental income of $17.4 million,
$21.7 million and $21.8 million, respectively, from a diverse group
of Pick 'n Save licensees and independent customers.
Competition
The grocery and wholesale food distribution industries are highly competitive.
In order to compete effectively, the Company must have the ability to meet
fluctuating competitive market prices, provide a wide variety of perishable and
nonperishable products, deliver product promptly and efficiently and provide the
related services which are required by modern supermarket operations.
The Company competes with companies having greater financial resources than it
including: regional and national grocery wholesalers and with a number of other
businesses which market their products directly to retailers. The Company's
wholesale customers and its Company-owned stores also compete at the retail
level with several chain store organizations, which also have integrated
wholesale and retail operations. The Company's competitors range from small
local businesses to large national businesses. The Company's success is in large
part dependent upon the ability of its Company-owned retail stores and wholesale
customers to compete with larger grocery store chains.
In competing for customers, emphasis is placed on quality and assortment of
products, competitive product cost, low service fees and reliability of
scheduled deliveries. The Company believes that success in the wholesale food
industry is dependent upon the success of its retail store customers who are
also engaged in a competitive, low profit margin industry.
Employees
As of January 3, 2004 the Company had 19,999 employees, including 9,356
full-time employees and 10,643 part-time employees. The following table
illustrates the approximate allocation of the Company's employees by functional
area as of January 3, 2004:
Number
of % of
Area Employees Total
- ---- --------- -----
Executive, administrative and clerical 1,451 7.3%
Warehouse, processing and drivers 1,658 8.3
Retail operations 6,247 31.2
Part-time employees in all areas 10,643 53.2
------ -----
Total 19,999 100.0%
====== =====
Approximately 8,000, or 40%, of the Company's employees are covered by 28
collective bargaining agreements (typically having three to five year terms)
negotiated with several different local unions. Approximately 1,000 and 700 of
the unionized employees are currently working under the terms of union contracts
which expired in 2002 and 2003, respectively and the Company is currently in the
process of renegotiating these expired agreements. Another 1,500 unionized
employees are working under contracts that will expire during 2004, and the
remainder are under contracts that will expire in 2005 through 2007. The Company
does not anticipate difficulty in renegotiating these contracts. The Company
believes that its relationships with its employees are good.
Management Information Systems
The Company maintains state-of-the-art management information systems in order
to realize greater operating efficiencies and customer service and to minimize
its cost of operations. The Company believes that the installation of buying,
inventory tracking and receiving systems has resulted in significant cost
savings.
The Company operates a centralized financial reporting system that automatically
pulls general ledger, accounts payable, fixed assets and payroll data from each
of its divisions. The Company has also installed an accounts payable, purchasing
and receiving system in each of its divisions that quickly reconciles these
accounts and eliminates duplicative paperwork.
The Company has installed state-of-the-art inventory tracking systems in each of
its divisions. Through the use of these systems, the Company can monitor and
control the flow of inventory in its warehouses from delivery to dispatch. While
in the warehouse, the system can identify both the location and quantity of
inventory and can formulate the most efficient route for the product to be
pulled to fill a customer order. As a result of the implementation of these
systems, the Company has reduced warehouse shrinkage, inventory spoilage and
delivery scratch rates, all of which have helped to increase overall
profitability.
Trade Names, Service Marks and Trademarks
The Company uses a variety of trade names, service marks and trademarks. The
Company owns the Pick 'n Save name and licenses it to retailers operating 43
stores. These licensees pay no licensing fees and substantially all have
executed a license and supply agreement which requires them to purchase the
majority of their products from the Company. The Company also has trademarks,
registered or otherwise, including Roundy's, Pick 'n Save, Copps, Rainbow and
Old Time, which it uses in the ordinary course of business.
Governmental Regulation
The Company is subject to regulation by a variety of governmental agencies,
including, but not limited to the U.S. Food and Drug Administration, the U.S.
Department of Agriculture and state and local health departments and other
agencies.
Environmental Regulation
The Company is subject to increasingly stringent federal, state and local laws,
regulations and ordinances that (i) govern activities or operations that may
have adverse environmental effects, such as discharges to air and water, as well
as handling and disposal practices for solid and hazardous wastes and (ii)
impose liability for the costs of cleaning up, and certain damages resulting
from, sites of past spills, disposals or other releases of hazardous materials.
These laws include the Federal Clean Air Act, the Clean Water Act, the Resource
Conservation and Recovery Act, the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, and analogous state laws. The Company
may be responsible for remediation of environmental conditions and may be
subject to associated liabilities (including liabilities resulting from lawsuits
brought by private litigants) relating to its facilities and the land on which
the facilities are situated, regardless of whether it leases or owns the
facilities or land in question and regardless of whether such environmental
conditions were created by it or by a prior owner or tenant. Although the
Company typically conducts a limited environmental review prior to acquiring or
leasing new facilities or undeveloped land, there can be no assurance that known
or unknown environmental conditions relating to prior, existing or future
facility sites or its activities or the activities of its predecessor in
interest will not have a material adverse effect on it. It is difficult to
predict future environmental costs as the costs of environmental compliance vary
significantly depending on the extent, source and location of the contamination,
geological and hydrological conditions, available reimbursement by state
agencies, the enforcement policies of regulatory agencies and other factors.
RISK FACTORS
This report and other documents or oral statements which have been and will be
prepared or made in the future contain or may contain forward-looking statements
by or on behalf of the Company (see "Forward-Looking Statements" on page one).
Such statements are based on management's expectations at the time they are
made. In addition to the assumptions and other factors referred to specifically
in connection with such statements, the following factors, among others, could
cause actual results to differ materially from those contemplated. These factors
are in addition to any other cautionary statements, written or oral, which may
be made or referred to in connection with any such forward-looking statement.
Factors that could cause actual results to differ materially from those
contemplated include:
Highly competitive industry
The wholesale food distribution and retail grocery industries are highly
competitive and characterized by relatively high inventory turnover at
relatively low profit margins. A significant portion of the Company's sales are
made at prices based on the cost of products it sells plus a percentage markup.
As a result, the Company's profit levels may be negatively impacted if it is
forced to respond to competitive pressure by reducing prices.
This level of competition has caused the Company's industry to undergo changes
as participants seek to lower costs, further increasing pressure on the
industry's already low profit margins. In addition to price competition, food
wholesalers also compete with regard to quality, breadth and availability of
products offered, strength of private label brands offered, schedules and
reliability of deliveries and the range and quality of services provided.
Similarly, in the retail arena, participants also compete with regard to quality
and assortment, store location and format, sales promotions, advertising,
availability of parking, hours of operation and store appeal. As a result of
these pressures, alternative format food stores such as warehouse stores and
supercenters, benefiting from concentrated buying power and low-cost
distribution technology, have increasingly gained market share at the expense of
traditional supermarket operators, including independent operators, some of whom
are the Company's customers. The market share of such alternative format stores
is expected to grow in the future. Another result of these pressures can be seen
in vendors increasingly directing their efforts to large retail supermarket
chains that are capable of purchasing directly from producers and distributing
products to their supermarkets for sale to consumers. The Company believes that
these changes have contributed to lower profitability levels for many of its
customers.
Food wholesalers also compete based on willingness to invest capital in their
customers. Some of the Company's competitors have, and its new competitors may
have, substantially greater financial and other resources than the Company.
Further consolidation in the industry, heightened competition among the
Company's suppliers, new entrants and trends toward vertical integration could
create additional competitive pressures that reduce margins and adversely affect
the Company's business, financial condition and results of operations.
Growth management and integration of the Company's acquisitions
As part of the Company's long-term strategy, the Company intends to pursue
strategic acquisition opportunities in the retail grocery store industry in and
around its existing primary market of Wisconsin. The Company has engaged in and
continues to engage in evaluations and discussions with respect to potential
acquisitions.
The Company faces risks commonly encountered with a "growth through acquisition"
strategy. These risks include, but are not limited to, incurring significantly
higher than anticipated financing related risks and operating expenses; failing
to assimilate the operations and personnel of acquired businesses; failing to
adequately assess unknown environmental conditions; failing to install and
integrate all necessary systems and controls; losing customers; entering markets
in which the Company has no or limited experience; disrupting its ongoing
business; and dissipating its management resources.
The Company's acquisition strategy may place a significant strain on its
management, operational, financial and other resources. The success of the
Company's acquisition strategy will depend on many factors, including its
ability to: identify suitable acquisition opportunities; successfully close
acquisitions at valuations that will provide anticipated returns on invested
capital; quickly and effectively integrate acquired operations in order to
realize operating synergies; obtain necessary financing on satisfactory terms;
and make the payments on the substantial indebtedness that the Company might
incur as a result of these acquisitions. Realization of the anticipated benefits
of a strategic acquisition may take several years or may not occur at all. The
Company may not be able to successfully execute its acquisition strategy, and
any failure to do so could have a material adverse effect on the Company's
business, financial condition and results of operations.
Loans to independent retailers
From time to time, the Company extends secured loans to its licensed Pick 'n
Save wholesale customers and its independent retail customers to assist them in
remodeling and expanding existing retail locations and to develop new retail
outlets. Such loans are generally extended to small businesses in the normal
course of business and are unrated and generally illiquid.
The Company also provides from time to time in the normal course of business
financial assistance to its licensed Pick 'n Save wholesale customers and its
independent retail customers by guaranteeing customer loans and leases entered
into by them directly with lessors. In addition, the Company leases store sites
and equipment for sublease to qualified licensed Pick 'n Save wholesale
customers and its independent retail customers.
Subject to the provisions of the Company's indenture, the Company has the
ability to continue, and possibly increase, the amount of loans, guarantees and
subleases to its licensed Pick 'n Save wholesale customers and its independent
retail customers. Credit losses from existing or future loans or commitments may
have a material adverse effect on the Company's business, financial condition
and results of operations.
Loss of the services of any member of senior management team affects our
business
The Company depends on the services of its senior management team. The loss or
interruption of the continued full-time services of certain key personnel
including Robert A. Mariano, Chairman, President and Chief Executive Officer,
and Darren W. Karst, Executive Vice President and Chief Financial Officer, could
have a material adverse effect on the Company's business and there can be no
assurance that it will be able to find replacements with equivalent skills or
experience at acceptable salaries. The Company does not maintain key man life
insurance for any of the members of its senior management team other than Robert
A. Mariano and it does not have employment agreements with any members of its
senior management team other than Robert A. Mariano, Darren W. Karst, Gary L.
Fryda and Donald S. Rosanova.
Labor
Approximately 40% of the Company's employees in its retail and wholesale
operations are covered by collective bargaining agreements. The Company's
relations with the unionized portion of its workforce may not remain positive
and its workforce may initiate a strike, work stoppage or slowdown in the
future. In the event of such an action, the Company's business, financial
condition and results of operations could be negatively affected, and it may not
be able to adequately meet the needs of its customers utilizing its remaining
workforce. In addition, the Company may have similar actions with its
non-unionized workforce.
The Company's continued success depends on its ability to attract and retain
qualified personnel in all areas of its business. The Company competes with
other businesses in its markets with respect to attracting and retaining
qualified employees. A shortage of qualified employees may require the Company
to continue to enhance its wage and benefits package in order to compete
effectively in the hiring and retention of qualified employees or to hire more
expensive temporary employees. The Company's labor costs may continue to
increase and such increases may not be recoverable through increased prices
charged to customers. Any significant failure by the Company to attract and
retain qualified employees, to control its labor costs or to recover any
increased labor costs through increased prices charged to customers could have a
material adverse effect on the Company's business, financial condition and
results of operations.
Lack of supplier long-term contracts
Suppliers may not provide the food products and supplies the Company needs in
the quantities requested for a variety of reasons such as job actions or strikes
by their employees and transportation interruptions. Similarly, because the
Company does not control the actual production of the products it sells, it is
also subject to delays caused by interruptions in production based on conditions
outside of its control including weather, crop conditions and catastrophic
events. The Company's inability to obtain adequate supplies of its food products
as a result of any of the foregoing factors, or otherwise, could mean that the
Company might not be able to fulfill its obligations to its customers, and as a
result, the Company's customers may turn to other distributors.
Exposure to product liability claims and adverse publicity
The packaging, marketing and distribution of food products purchased from others
entails an inherent risk of product liability, product recall and resultant
adverse publicity. Such products may contain contaminants that may be
inadvertently redistributed by the Company. These contaminants may, in certain
cases, result in illness, injury or death if the contaminants are not eliminated
by processing at the food service or consumer level. Even an inadvertent
shipment of adulterated products is a violation of law and may lead to an
increased risk of exposure to product liability claims. Such claims may be
asserted against the Company and it may be obligated to perform such a recall in
the future. If a product liability claim is successful, the Company's insurance
may not be adequate to cover all liabilities it may incur, and the Company may
not be able to continue to maintain such insurance, or obtain comparable
insurance at a reasonable cost, if at all. The Company generally seeks
contractual indemnification and insurance coverage from parties supplying its
products, but this indemnification or insurance coverage is limited by the
creditworthiness of the indemnifying party, and their insurance carriers, if
any, as well as the insured limits of any insurance provided by suppliers. If
the Company does not have adequate insurance or contractual indemnification
available, product liability claims relating to defective products could have a
material adverse effect on its ability to successfully market its products and
on the Company's business, financial condition and results of operations. In
addition, even if a product liability claim is not successful or is not fully
pursued, the negative publicity surrounding any assertion that the Company's
products caused illness or injury could have a material adverse effect on its
reputation with existing and potential customers and or the Company's business,
financial condition and results of operations.
Government regulation
The Company's distribution and retail facilities are subject to various federal,
state and local workplace regulations including, but not limited to, the laws,
rules and regulations pertaining to liquor licensing. Failure to comply with all
applicable laws and regulations could subject the Company to civil remedies,
including fines, injunctions, recalls, seizures and criminal sanctions, which
could have a material adverse effect on the Company's business, financial
condition and results of operations. However, compliance with current or future
laws or regulations could require the Company to make material expenditures or
otherwise adversely affect the way the Company operates its business and its
results of operations and financial condition.
Environmental regulation
The Company is subject to increasingly stringent federal, state and local laws,
regulations and ordinances that (i) govern activities or operations that may
have adverse environmental effects, such as discharges to air and water, as well
as handling and disposal practices for solid and hazardous wastes and (ii)
impose liability for the costs of cleaning up, and certain damages resulting
from, sites of past spills, disposals or other releases of hazardous materials.
In particular, under applicable environmental laws, the Company may be
responsible for remediation of environmental conditions and may be subject to
associated liabilities (including liabilities resulting from lawsuits brought by
private litigants) relating to its facilities and the land on which the Company
facilities are situated, regardless of whether the Company leases or owns the
facilities or land in question and regardless of whether such environmental
conditions were created by it or by a prior owner or tenant. For example, under
applicable environmental laws the Company may incur expenses with regard to the
operation of fuel centers at certain locations. Known or unknown environmental
conditions relating to prior, existing or future facility sites, the Company's
activities or the activities of its predecessor in interest may have a material
adverse effect on the Company. It is difficult to predict future environmental
costs as the costs of environmental compliance vary significantly depending on
the extent, source and location of the contamination, geological and
hydrological conditions, available reimbursement by state agencies, the
enforcement policies of regulatory agencies and other factors.
Vulnerability to certain national and regional events, trends and conditions
The food industry is sensitive to national and economic conditions. The
Company's results of operations also are sensitive to, and may be materially
adversely impacted by, among other things, competitive pricing pressures, vendor
selling programs, increasing interest rates and food price deflation. One or
more of these factors may have a material adverse effect on the Company's
business, financial condition or results of operations. Moreover, as the
Company's operations are concentrated in Wisconsin and elsewhere in the
Midwestern region of the United States, increased competition in this region
from other national and regional supermarket chains, warehouse club stores,
discount stores and other local retailers, changes in local consumer
preferences, inclement weather or a general economic downturn in the region
could materially adversely affect the Company's sales, lead to lower earnings or
losses and materially adversely affect the Company's future growth and
operations.
Principal stockholders may have interests in conflict with the interests of
noteholders
The Willis Stein Funds and associated investors own approximately 89% of the
equity of RAC, the Company's parent Company and the sole stockholder of
Roundy's. Under the terms of a security holders agreement, all of the
stockholders of RAC have agreed to vote in favor of those individuals designated
by the Willis Stein Funds to serve on the board of directors of RAC and
Roundy's, Inc. and the Willis Stein Funds have the right to appoint a majority
of the directors. As a result, the Willis Stein Funds have the ability to
control the policies and operations of the Company. Circumstances may occur in
which the interests of the Willis Stein Funds, as the principal stockholders of
the parent, could be in conflict with the interests of holders of the Company's
$300 million 8 7/8% Senior Subordinated Notes due 2012 (the "Notes"). In
addition, equity investors may have an interest in pursuing acquisitions,
divestitures and other transactions that, in their judgment, could enhance their
equity investment, even though such transactions might involve risks to holders
of the Notes.
Available Information
The Company is subject to the periodic reporting requirements of the Exchange
Act. The Company has agreed that, whether or not required to do so by the rules
and regulations of the SEC, as long as any of the Notes remain outstanding, the
Company will furnish to the holders of the Notes and file with the SEC, unless
the SEC will not accept the filing, (1) all quarterly and annual financial
information that would be required to be contained in a filing with the SEC on
Forms 10-Q and Form 10-K and (2) all current reports that would be required to
be filed with the SEC on Form 8-K if the Company was required to file such
reports. A copy of any of the reports filed with the SEC can be obtained from
the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C.
20549. A copy may also be obtained by calling the SEC at 1-800-SEC-0330. All
reports filed with the SEC will be available on the SEC's web site at
http://www.sec.gov. As long as the Notes remain outstanding, the Company has
agreed to make available to any prospective purchaser or beneficial owner of the
Notes in connection with any sale of the Notes, the information required by Rule
144A(d)(4) under the Securities Act.
ITEM 2. PROPERTIES
The Company's principal executive offices are located in Milwaukee, Wisconsin.
The Company's 15-year lease is for approximately 115,000 square feet of office
space. The former corporate headquarters located in Pewaukee, Wisconsin and
owned by the Company is actively being marketed for sale.
As of January 3, 2004, the Company conducted wholesale activities in the
following warehouses:
Approximate
Square Type of
Location Footage Interest Products Distributed
Wauwatosa, Wisconsin 784,000 Owned All product lines,
310,000 Leased(1) except non-food products
Mazomanie, Wisconsin 225,000 Leased Dry groceries and
non-food products
Stevens Point, Wisconsin 446,000 Owned All product lines,
except non-food products
Westville, Indiana 656,000 Owned All product lines,
except non-food products
Lima, Ohio 515,000 Owned All product lines, except
(two facilities) 118,000 Leased(2) produce and non-food
products
Eldorado, Illinois 375,000 Owned Dry grocery products
Evansville, Indiana 136,000 Owned Frozen food, meat and
dairy products
(1) Leases ending December 31, 2004 and September 30, 2005.
(2) Lease ending December 31, 2004. The Company may extend this lease, at its
option, for two one-year periods.
In addition to the above, as of January 3, 2004, the Company operated 115 retail
grocery stores, ranging from 25,900 to 130,000 square feet. These facilities are
primarily occupied by the Company under leases with primary terms ending from
2004 to 2024. Of these stores, only two have leases that expire prior to January
1, 2005.
The Company believes its current properties are well maintained and, in general,
are adequately sized to house existing operations. All of the Company's owned
properties are subject to liens under its senior credit facility.
Transportation
As of January 3, 2004, the Company's primarily owned transportation fleet for
distribution operations consisted of 268 tractors, 762 trailers and 10 straight
delivery trucks. In addition, the Company owns or leases 40 automobiles and 37
vans.
Computers
The Company owns most of its computer and related peripheral equipment. The
computers are used for inventory control, billing and all other general
accounting purposes. The Company believes that its computer systems are adequate
for the Company's operations.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to various litigation, claims and disputes, some of which
are for substantial amounts, arising in the ordinary course of business. While
the ultimate effect of such actions cannot be predicted with certainty, the
Company expects that the outcome of these matters will not result in a material
adverse effect on its business, financial condition or results of operations.
The Company is involved in litigation with a former officer and employee of
Roundy's stemming from the termination of such employee's employment in 2001. In
2003 a judgment was issued in the suit in favor of the Company. The plaintiff
has filed a timely appeal. The Company does not believe that the plaintiff will
prevail through the appeal process. However, if the plaintiff is successful
through the appeal process, the Company believes that such a decision will not
result in any material liability on its part.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
All of the Company's common stock is held by RAC and there is no established
public trading market therefor. Prior to the consummation of the Transactions on
June 6, 2002, the Company was operated as a cooperative and had a history of
paying patronage dividends to its stockholders who were members of the
cooperative. On June 6, 2002, the Company entered into a Credit Agreement that
contains various restrictive covenants which prohibit it from declaring or
paying any dividends. The Company has no present intention to pay dividends in
the foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA
The following table presents selected historical consolidated statements of
income, balance sheet, and other data for the Company for the periods presented
and should only be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the audited
consolidated financial statements of the Company and the related notes thereto.
(Dollars in thousands) Successor Predecessor
----------------------------------- --------------------------------------------------------------
Fiscal Year Ended June 7, 2002 to December 30, 2001 Fiscal Year Ended
-------------------------------------------------
January 3, 2004 December 28, 2002 to June 6, 2002 2001 2000 1999
----------------- ----------------- ------------- ------------ ------------ --------
Statement of Income Data:(1)
Revenues:
Net sales and service fees(2) $ 4,381,078 $ 2,076,568 $ 1,559,469 $ 3,387,762 $ 2,930,033 $ 2,656,832
Other-net(3) 2,188 1,207 694 2,057 7,174 10,118
----------- ----------- ----------- ----------- ----------- -----------
4,383,266 2,077,775 1,560,163 3,389,819 2,937,207 2,666,950
----------- ----------- ----------- ----------- ----------- -----------
Costs and Expenses:
Cost of sales(2) (4) 3,502,219 1,709,900 1,285,050 2,825,954 2,514,314 2,368,673
Operating and administrative(4) 743,524 313,057 235,607 494,761 366,431(5) 255,659
SARs and other termination costs(6) 7,400
Interest 45,573 21,015 13,765 18,784 15,864 6,553
----------- ----------- ----------- ----------- ----------- -----------
4,291,316 2,043,972 1,541,822 3,339,499 2,896,609 2,630,885
----------- ----------- ----------- ----------- ----------- -----------
Income before patronage dividends 91,950 33,803 18,341 50,320 40,598 36,065
Patronage dividends(7) 8,681 5,035 6,447
----------- ----------- ----------- ----------- ----------- -----------
Income before income taxes 91,950 33,803 18,341 41,639 35,563 29,618
Provision for income taxes(8) 37,302 13,345 7,413 15,855(9) 14,458 12,009
----------- ----------- ----------- ----------- ----------- -----------
Net income $ 54,648 $ 20,458 $ 10,928 $ 25,784 $ 21,105 $ 17,609
=========== =========== =========== =========== =========== ===========
Other Financial Data:
Cash provided by (used in):
Operating activities $ 159,475 $ 76,538 $ 44,844 $ 76,271 $ 80,950 $ 52,731
Investing activities (203,983) (605,503) (9,285) (105,385) (151,778) (44,701)
Financing activities (5,264) 668,743 (48,674) 34,737 42,335 (11,739)
Depreciation and amortization 49,598 30,986 17,701 43,028 30,337 18,774
Capital expenditures 57,654 22,654 10,642 32,614 37,706 35,869
Balance Sheet Data
(at end of period):
Working capital $ 11,754 $ 94,622 $ 24,940 $ 38,771 $ 67,937
Total assets 1,530,390 1,370,754 794,510 662,372 497,325
Total debt and capital lease
obligations 601,979 562,785 228,548 174,402 73,298
Stockholders' equity 389,606 334,958 170,492 150,521 143,971
Stockholders' equity including
redeemable stock 389,606 334,958 179,736 160,669 153,919
(1) The Company has acquired various retail locations since 2000 and applied
purchase accounting to the June 2002 acquisition of the Company in the
Transactions. As a result, period-to-period data may not be comparable due
to the effects of these acquisitions.
(2) Amounts for all periods have been restated to reflect the adoption by the
Company, effective December 30, 2001, of Emerging Issues Task Force (EITF)
Issue No. 01-9, "Accounting for Consideration Given by a Vendor to a
Customer or a Reseller of the Vendor's Products." The effect of the
adoption of EITF 01-9 was to classify certain sales promotions offered to
retail customers as a reduction of sales (versus including them in cost of
sales as previously recorded), with a corresponding reduction in cost of
goods sold. As a result, the adoption of this accounting principle had no
effect on the Company's gross profit.
(3) Includes insurance settlement gains of $5.5 million and $3.3 million in
fiscal 1999 and 2000, respectively.
(4) The Company has adopted Emerging Issues Task Force No. 02-16("EITF 02-16"),
"Accounting by a Customer (including a Reseller) for Certain Consideration
Received from a Vendor." Accordingly, certain vendor-funded advertising and
other allowances have been reclassified in the 2003 consolidated statements
of income and prior periods have been consistently reclassified.
Specifically, vendor reimbursements previously classified as offsets to
advertising and other expenses, have now been reflected as reductions in
cost of sales pursuant to EITF 02-16.
(5) Includes a compensation charge of $3.1 million related to a term extension
of previously granted stock options.
(6) Stock appreciation rights ("SARs") and other termination costs include the
costs associated with the termination of the predecessor company's SARs
program and the termination of employment agreements with certain former
officers of the predecessor company, all of which was incurred in
connection with the Transactions.
(7) Prior to the Transactions, a significant portion of the Company's common
stock was beneficially owned by the owners of 99 retail grocery stores
serviced by the Company. These former stockholders received patronage
dividends from the Company based on the level of their wholesale purchases
from the Company. The Company was obligated by its by-laws to pay a
patronage dividend to its former stockholders out of and based upon the net
earnings from wholesale business done by the Company with such former
stockholders in any fiscal year in an amount which would reduce its net
income to such amount as would result in an increase of eight percent in
the book value of its outstanding stock as of the close of such year
(calculated after the payment of patronage dividends). In the event that
such net earnings level was not reached, no patronage dividends were paid
for that year. The patronage dividend was payable at least 20% in cash and
the remainder in the Company's common stock, with an average of
approximately 30% paid in cash during fiscal year 2002, 2001 and 2000.
(8) Prior to the Transactions, the Company historically operated a portion of
its wholesale business on a cooperative basis, and therefore determined its
federal income tax liabilities under Subchapter T of the Internal Revenue
Code, which governs the taxation of corporations operating on a cooperative
basis. Under Subchapter T of the Internal Revenue Code, patronage dividends
were deducted by Roundy's in determining its taxable income, and were
generally taxable to the Company's former stockholders (including the value
of the common stock) for federal income tax purposes.
(9) Net of a $2.4 million income tax benefit from resolution of prior year tax
matters.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
2003 Overview
The increase in retail sales in 2003 was primarily due to the effect of six
acquired store groups, consisting of 53 stores in total, that were operated
under the Company's ownership as of January 3, 2004 (collectively, the "Acquired
Stores"). The Acquired Stores include: (i) 31 Rainbow Foods ("Rainbow") retail
grocery stores in the Minneapolis-St. Paul area acquired from Fleming in June
2003 and reopened immediately by Roundy's under the Rainbow banner; (ii) 16 Pick
'n Save retail grocery stores acquired in four separate transactions; and (iii)
six Copps Foods stores in Madison, Wisconsin acquired from the Great Atlantic &
Pacific Tea Company, Inc. ("A&P") in April 2003 and reopened in late May and
early June 2003 (the "Copps Madison Acquisition"). An additional five former
Kohl's Food Stores ("Kohl's") acquired from A&P in October 2003 will reopen in
2004 under the Pick 'n Save banner.
Results of Operations
The following table sets forth each category of statement of income data as a
percentage of net sales and service fees. The results of operations for the year
ended December 28, 2002 includes the results of the Company for the period from
December 30, 2001 through June 6, 2002 (predecessor) and the period from June 7,
2002 through December 28, 2002 (successor).
On April 8, 2002, Roundy's and RAC entered into a share exchange agreement
pursuant to which RAC acquired all of the issued and outstanding capital stock
of Roundy's on June 6, 2002. As part of the Transactions, the Company entered
into various financing arrangements described herein, and as a result, the
Company now has a different capital structure and increased indebtedness. In
addition, as a result of the Transactions, the Company's assets and liabilities
were adjusted to reflect their estimated fair market values, and the purchase
price in excess of the fair market value of identifiable tangible and intangible
assets was recorded as goodwill. Specific implications of the Transactions
include: (i) net property and equipment was written down by approximately $50.0
million and certain useful lives were adjusted, which impacted successor period
depreciation and amortization; (ii) the Company allocated $33.7 million to
supply contracts, which will be amortized over approximately five years; (iii)
the Company incurred $22.0 million of debt issuance costs, which is being
amortized over the life of the related debt; and (iv) indebtedness was increased
to finance the Transactions, which will increase interest expense in the
successor periods. Accordingly, the results of operations for periods subsequent
to the consummation of the Transactions and related financing transactions will
not necessarily be comparable to prior periods of the predecessor company.
Fiscal Year Ended
-------------------------------------------------------------------
January 3, 2004 December 28, 2002 December 29, 2001
--------------------- ----------------------- ------------------
(Unaudited)
Statement of Income Data
(Dollars in thousands):
Revenues:
Net sales and service fees $4,381,078 100.0% $3,636,037 100.0% $3,387,762 100.0%
Other-net 2,188 0.1 1,901 0.1 2,057 0.1
---------- ----- ---------- ----- ---------- -----
Total 4,383,266 100.1 3,637,938 100.1 3,389,819 100.1
Cost and Expenses:
Cost of sales 3,502,219 80.0 2,994,950 82.3 2,825,954 83.4
Operating and administrative 743,524 17.0 548,664 15.1 494,761 14.6
SARs and other termination costs 7,400 0.2
Interest 45,573 1.0 34,780 1.0 18,784 0.6
---------- ----- ---------- ----- ---------- -----
Income before patronage dividends 91,950 2.1 52,144 1.4 50,320 1.5
Patronage dividends 8,681 0.3
---------- ----- ---------- ----- ---------- -----
Income before income taxes 91,950 2.1 52,144 1.4 41,639 1.2
Provision for income tax 37,302 0.9 20,758 0.6 15,855 0.5
---------- ----- ---------- ----- ---------- -----
Net income $ 54,648 1.2% $ 31,386 0.9% $ 25,784 0.8%
========== ===== ========== ===== ========== =====
Net Sales and Service Fees
Net sales and service fees represent product sales less returns and allowances
and sales promotions. The Company derives its net sales and service fees from
the operation of retail grocery stores and the wholesale distribution of food
and non-food products. In addition, the Company provides specialized support
services for retail grocers, which include promotional merchandising and
advertising programs, inventory control, store development and financing and
assistance with other aspects of store management.
The table below indicates the portion of the Company's net sales and service
fees attributable to retail sales and wholesale distribution for the periods
indicated. Eliminations represent the intercompany activity between the
Company's wholesale operations and its Company-owned retail stores (in
thousands):
Fiscal Year Ended
January 3, December 28, December 29,
2004 2002 2001
------------ ------------ -------------
(Unaudited)
Net Sales and Service Fees
Retail $ 2,457,346 $ 1,589,267 $ 1,377,133
Wholesale 3,319,927 2,996,034 2,871,003
Eliminations (1,396,195) (949,264) (860,374)
----------- ----------- -----------
Total $ 4,381,078 $ 3,636,037 $ 3,387,762
=========== =========== ===========
Costs and Expenses
Costs and expenses consist of cost of sales, operating and administrative
expenses, SARs and other termination costs and interest expense.
Cost of sales includes product costs and inbound freight.
Operating and administrative expenses consist primarily of personnel costs,
sales and marketing expenses, warehousing and distribution costs, the internal
costs of purchasing, receiving and inspecting products for resale, depreciation
and amortization expenses, expenses associated with the Company's facilities,
internal management expenses, business development expenses and expenses for
finance, legal, human resources and other administrative departments. Certain
retailers may include some of these costs (including warehousing and
distribution costs, and the internal costs of purchasing, receiving and
inspecting products for resale) in cost of sales, which may result in the
Company's presentation being incomparable to such retailers.
SAR's and other termination costs were $7.4 million for the year ended December
28, 2002 ($0 in all other periods) and included the costs associated with the
termination of the predecessor company's stock appreciation rights program and
the termination of employment agreements with certain former officers of the
predecessor company, all of which was incurred in connection with the
Transactions.
Interest expense includes interest on the Company's outstanding indebtedness and
amortization of deferred financing costs. In the predecessor company, interest
expense also includes interest rate swap termination costs and the write off of
deferred financing costs.
In the remainder of this section, "Fiscal 2003" or "2003" refers to the
Company's fiscal year ended January 3, 2004. "Fiscal 2002" or "2002" refers to
the fiscal year ended December 28, 2002 (combined results of the Predecessor and
the Company as noted above); and "Fiscal 2001" or "2001" refers to the
Predecessor's fiscal year ended December 29, 2001.
Fiscal 2003 Compared With Fiscal 2002
Net Sales and Service Fees
Net sales and service fees were $4,381.1 million for Fiscal 2003, a $745.1
million, or 20.5%, increase from $3,636.0 million for Fiscal 2002. Fiscal 2003
was a 53-week year and the extra week (the week ending January 3, 2004)
contributed $100.5 million of the sales increase ($59.9 million of retail sales,
$61.3 million of wholesale sales, and $20.7 million of eliminations). The
following fiscal year variance discussion compares the 53-week Fiscal 2003 to
the 52-week Fiscal 2002.
Retail sales were $2,457.3 million for 2003, an $868.0 million, or 54.6%,
increase from $1,589.3 million for 2002. This increase in retail sales was
primarily due to the effect of the Acquired Stores which contributed
approximately $781.6 million of the increase. 2003 same store sales at the
Company's retail stores (including acquired Pick 'n Save licensed stores
operated in 2002 by their prior owners) improved 2.7% over 2002. Because Fiscal
2003 was a 53-week year, sales for the week ending January 3, 2004 are excluded
from the same store sales comparison to Fiscal 2002.
Wholesale sales were $3,319.9 million for 2003, a $323.9 million, or 10.8%,
increase from $2,996.0 million for 2002. This increase was primarily due to
increased sales to Company-owned stores served by the Company's Wisconsin
wholesale divisions and new independent customers supplied by the Company's
wholesale divisions.
Gross Profit
Gross profit was $878.9 million for 2003, a $237.8 million, or 37.1% increase
from $641.1 million for 2002. The increase in gross profit in 2003 was primarily
due to the Acquired Stores and increased wholesale sales. Gross profit, as a
percent of net sales and service fees, for 2003 and 2002 was 20.1% and 17.6%,
respectively. The increase in gross profit percentage was primarily due to the
increase in the sales mix attributable to Company-owned retail stores, which
have a higher gross profit percentage than the wholesale segment. Retail sales
in 2003 represented 56.1% of net sales and service fees compared with 43.7% in
2002. The retail gross profit percentage was 24.8% and 24.4% for 2003 and 2002,
respectively. This increase was primarily due to an increased concentration of
perishable department sales which have a higher gross profit percentage than
non-perishable department sales. The wholesale gross profit margin was 8.9% and
9.0% for 2003 and 2002, respectively.
Operating Expenses
Operating and administrative expenses were $743.5 million for 2003, a $194.8
million, or 35.5% increase from $548.7 million for 2002. Operating and
administrative expenses, as a percentage of net sales and service fees,
increased to 17.0% for 2003 compared with 15.1% for 2002. The percentage
increase was attributable to the Acquired Stores and the resulting increased
concentration of sales in the Company's retail segment in 2003, which has a
significantly higher ratio of operating costs to sales than its wholesale
segment. Retail operating and administrative expenses increased to 21.4% of
retail sales for 2003 compared with 21.0% for 2002. This increase was primarily
due to pre-opening expenses and continuing store-level service investments
associated with certain of the Acquired Stores. Wholesale operating and
administrative expenses decreased to 5.9% of wholesale sales for 2003 as
compared with 6.5% for 2002. This decrease was due to operational and
productivity improvements in the Company's wholesale operations as well as
increased leverage of fixed costs over a higher wholesale sales base. In
addition, corporate and other operating expenses (exclusive of depreciation and
amortization) were $30.9 million for 2003 compared with $16.2 million for 2002.
The increase was primarily attributable to increased unallocated corporate
marketing and administrative expenses and increased professional fees.
Interest Expense
Interest expense (excluding the amortization of deferred financing costs and
interest rate swap termination costs) was $42.3 million for 2003, a $16.7
million increase from $25.6 million for 2002. The increase was primarily due to
increased borrowings associated with the purchase of the Company's stock by RAC
in June 2002.
Income Taxes
Provision for income taxes was $37.3 million for 2003, an increase of $16.5
million from $20.8 million for 2002. The effective income tax rates for 2003 and
2002 were 40.6% and 39.8%, respectively. The higher effective income tax rate
for 2003 is primarily attributable to the 9.8% Minnesota state income tax rate
which the Company became subject to as a result of the Rainbow Minneapolis
Acquisition.
Net Income
Net income was $54.6 million for 2003, a $23.2 million increase from $31.4
million for 2002. In 2002, the Company recorded pre-tax one-time charges of $6.7
million relating to the termination of an interest rate swap and $7.4 million
relating to the termination of the predecessor Company's SARs program and
employment agreements associated with certain former officers of the predecessor
company. The net income margin improved from 0.86% for 2002 to 1.25% for 2003.
Fiscal 2002 Compared With Fiscal 2001
Net Sales and Service Fees
Net sales and service fees increased $248.3 million, or 7.3%, from 2001 to
$3,636.0 million in 2002. The increase was due in a large part to the May 2001
purchase of The Copps Corporation, which contributed $179.3 million to the sales
increase in 2002 versus 2001 as 2002 sales included 20 additional weeks of Copps
sales compared to 2001. Sales also increased at the Company's existing retail
and wholesale segments by $30.7 million and $48.6 million, respectively,
primarily as a result of increased same store sales and newly opened or acquired
stores. Same store sales improved 1.6% (including stores owned under previous
ownership) for 2002 as compared with 2001. This improvement in same store sales
was offset somewhat by the sale and/or closing of five Company-owned retail
stores, which accounted for decreased retail sales of approximately $27.4
million for 2002 versus 2001.
Gross Profit
Gross profit increased $79.3 million, or 14.1%, from 2001 to $641.1 million for
2002. The increase in gross profit in 2002 was primarily due to the purchase of
Copps. The additional 20 weeks of Copps' results in 2002 contributed
approximately $61.9 million of additional gross profit. Gross profit margin for
2002 and 2001 was 17.6% and 16.6% respectively, with the increase primarily due
to the sales mix of higher profits derived from Company-owned retail stores.
Retail sales in 2002 represented 43.7% of net sales and service fees compared
with 40.7% in 2001. The retail gross profit margin was 24.4% and 23.7% for 2002
and 2001, respectively. This increase was primarily due to the acquisition of 21
Copps stores in May 2001, which maintained higher gross profit margins than the
Company's then-existing Company-owned stores. The wholesale gross profit margin
improved from 8.7% in 2001 to 9.0% in 2002.
Operating Expenses
Operating and administrative expenses increased $53.9 million, or 10.9%, from
2001 to $548.7 million in 2002. Operating and administrative expenses, as a
percentage of net sales and service fees, increased from 14.6% in 2001 to 15.1%
for 2002. This percentage increase was attributable to the Company's
acquisitions and the increased concentration in Company-owned stores in 2002,
which have a significantly higher ratio of operating costs to sales than
wholesale operations. Retail operating and administrative expenses were 21.0% of
retail sales for 2002 as compared to 20.6% for 2001. This increase was due
primarily to the acquisition of Copps retail stores, which maintained a higher
operating cost percentage than the Company's existing Company-owned stores.
Wholesale operating and administrative expenses decreased to 6.5% of wholesale
sales for 2002 as compared to 6.8% for 2001. This decrease was due to
operational and productivity improvements in the Company's wholesale operations.
Interest Expense
Interest expense (excluding the amortization of deferred financing costs and
interest rate swap termination costs) was $25.6 million for the year ended
December 28, 2002, an increase of $7.9 million, or 44.6%, from $17.7 million in
2001. The increase was due primarily to increased borrowings associated with the
Transactions offset somewhat by lower interest rates. In addition, $7.6 million
of the 2002 total interest expense was due to the one-time charges related to
termination of the interest rate swap and write off of deferred financing costs
of the predecessor company.
Income Taxes
Provision for income taxes increased from $15.9 million in 2001 to $20.8 million
for 2002. The effective income tax rate increased from 38.1% in 2001 to 39.8% in
2002. The reason for the lower rate in 2001 was due to a favorable resolution of
certain state and local tax matters from prior years.
Net Income
Net income increased $5.6 million, or 21.7% from 2001 to $31.4 million for 2002.
The net income margin improved from 0.76% in 2001 to 0.86% in 2002.
Effect of Inflation
The Company's primary costs, inventory and labor, are affected by a number of
factors that are beyond its control, including the availability and price of
merchandise, the competitive climate and general and regional economic
conditions. As is typical of the food distribution industry, the Company has
generally been able to maintain gross profits by adjusting its retail prices,
but competitive conditions may from time to time render it unable to do so while
maintaining market share. The Company does not believe that inflation had a
material affect on the results of operations during the periods presented.
However, there can be no assurance that the Company's business will not be
affected in the future.
Liquidity and Capital Resources
The Company's principal sources of cash are operating activities and borrowings.
The Company's cash and cash equivalents totaled $90.0 million at January 3,
2004, compared with $139.8 million at December 28, 2002. Cash flows provided by
operating activities were $159.5 million for the year ended January 3, 2004,
compared with $121.4 million in 2002. The increase was primarily due to
increased net income and the net reduction in working capital.
The Company's principal historical uses of cash were to provide for working
capital, capital expenditures and acquisitions. Net cash used in investing
activities was $204.0 million in Fiscal 2003 compared with $614.8 million used
in Fiscal 2002. Fiscal 2003 includes business acquisition cash consideration of
$148.5 million, consisting primarily of (i) the acquisition of Rainbow for
approximately $64.5 million, (ii) the acquisition of Prescott's Supermarkets,
Inc. ("Prescott's") for approximately $47.8 million and (iii) the acquisition of
14 stores from A&P in two separate transactions for approximately $29.0 million.
Fiscal 2002 includes the activity related to the Transactions, which consisted
of $543.7 million of net acquisition consideration as well as other business
acquisitions of $40.6 million.
Total capital expenditures were $57.7 million in 2003 compared with $33.3
million in 2002. These expenditures were related to Roundy's new store
locations, remodeling of existing stores and maintenance of retail stores and
the wholesale distribution network. Total capital expenditures for Fiscal 2004,
excluding any acquisitions, are estimated to be approximately $100 million.
From time to time, the Company provides long-term debt financing to certain
independent retailers it serves to aid them in store expansion or improvements.
Such loans are primarily secured by the retailer's inventory, equipment,
personal assets, and other forms of guarantees. During 2003 and 2002, the
Company made loans of $1.6 million and $2.2 million, respectively.
Net cash flows used in financing activities were $5.3 million compared with
$620.1 million net cash flows provided by financing activities in 2002. The cash
flows provided by financing activities in 2002 were primarily due to net
increased borrowings of approximately $334.2 million and the contribution of
approximately $314.5 million of equity capital to fund the Transactions, offset
somewhat by costs associated with the Transactions.
Working capital amounted to $11.8 million at January 3, 2004, compared with
$94.6 million at December 28, 2002. The decrease was primarily related to a
reduction of cash of $49.8 million, which was used to fund acquisition activity
in Fiscal 2003, and the increase in accounts payable, offset somewhat by the
increase in inventory.
As a result of the Transactions, the Company has significant debt service
obligations, including interest, in future years. On June 6, 2002, in connection
with the Transactions, the Company entered into a credit agreement with various
lenders, allowing it to borrow $250.0 million under a term loan, and up to
$125.0 million under a revolving line of credit. There are no outstanding
borrowings under the revolving line of credit. The term loan is repayable in
quarterly installments of $625,000 through June 30, 2008 followed by four
quarterly payments of $58.8 million through June 30, 2009. In addition, the
Company issued $300.0 million in aggregate principal amount of 8 7/8% Senior
Subordinated Notes due 2012 of which $225.0 million was issued as of the date of
the Transactions and $75.0 million was issued in December 2002.
The Company's senior credit facility contains various restrictive covenants
which: (i) prohibit it from prepaying other indebtedness, (ii) require it to
maintain specified financial ratios, such as (a) a minimum fixed charge coverage
ratio, (b) a maximum ratio of senior debt to EBITDA and (c) a maximum ratio of
total debt to EBITDA; and (iii) require it to satisfy financial condition tests
including limitations on capital expenditures. In addition, the senior credit
facility prohibits the Company from declaring or paying any dividends and
prohibits it from making any payments with respect to the Notes if the Company
fails to perform its obligations under or fails to meet the conditions of, the
senior credit facility or if payment creates a default under the senior credit
facility.
The indenture governing the Notes, among other things, (i) restricts the
Company's ability and the ability of its subsidiaries to incur additional
indebtedness, issue shares of preferred stock, incur liens, pay dividends or
make certain other restricted payments and enter into certain transactions with
affiliates; (ii) prohibits certain restrictions on the ability of certain of its
subsidiaries to pay dividends or make certain payments to it; and (iii) places
restrictions on the Company's ability and the ability of its subsidiaries to
merge or consolidate with any other person or sell, assign, transfer, lease,
convey or otherwise dispose of all or substantially all of its assets.
The Company's principal source of liquidity is cash flow generated from
operations and borrowings under its revolving credit facility. The Company's
principal use of cash is to meet debt service requirements, finance its capital
expenditures, make acquisitions and provide for working capital. The Company
expects that current excess cash and cash available from operations, and funds
available under its $125.0 million revolving line of credit, will be sufficient
to fund its operations, debt service requirements and capital expenditures for
at least the next 12 months.
The Company's ability to make payments on and to refinance its debt, and to fund
planned capital expenditures will depend on its ability to generate sufficient
cash in the future. This, to some extent, is subject to general economic,
financial, competitive and other factors that are beyond the Company's control.
The Company believes that, based upon current levels of operations, it will be
able to meet its debt service obligations when due. Significant assumptions
underlie this belief, including, among other things, that the Company will
continue to be successful in implementing its business strategy and that there
will be no material adverse developments in its business, liquidity or capital
requirements. If the Company's future cash flow from operations and other
capital resources are insufficient to pay its obligations as they mature or to
fund its liquidity needs, it may be forced to reduce or delay its business
activities and capital expenditures, sell assets, obtain additional debt or
equity capital or restructure or refinance all or a portion of its debt, on or
before maturity. There can be no assurance that the Company would be able to
accomplish any of these alternatives on a timely basis or on satisfactory terms,
if at all. In addition, the terms of the Company's existing and future
indebtedness may limit its ability to pursue any of these alternatives. Also see
Part I - "Forward-Looking Statements."
Contractual Obligations
The following table of material debt and lease commitments at January 3, 2004
summarizes the effect these obligations are expected to have on the Company's
cash flow in the future periods as set forth in the table below (in thousands):
2004 2005 2006 2007 2008 Thereafter Total
-------- -------- -------- -------- --------- --------- -----------
Long-term debt, including current
maturities and capital lease
obligations $ 4,229 $ 4,410 $ 4,555 $ 4,777 $ 121,355 $ 462,986 $ 602,312
Operating leases 59,623 57,860 56,549 54,650 51,474 365,137 645,293
Sublease income (15,451) (13,881) (13,210) (11,744) (9,981) (41,665) (105,932)
-------- -------- -------- -------- --------- --------- -----------
Total $ 48,401 $ 48,389 $ 47,894 $ 47,683 $ 162,848 $ 786,458 $ 1,141,673
======== ======== ======== ======== ========= ========= ===========
The Company's purchase obligations are cancelable and therefore are not included
in the above table.
The Company has outstanding letters of credit that total approximately $11.7
million at January 3, 2004. In addition, the Company has guaranteed a customer
lease amounting to $0.3 million at January 3, 2004.
The Company is required to make contributions to its defined benefit plans.
These contributions are required under the minimum funding requirements of
Employee Retirement Pension Plan Income Security Act ("ERISA"). The Company's
estimated 2004 minimum required contributions to its defined benefit plans are
approximately $16.9 million. Due to uncertainties regarding significant
assumptions involved in estimating future required contributions to its defined
benefit plans, such as interest rate levels, the amount and timing of asset
returns and the impact of proposed legislation, the Company is not able to
reasonably estimate its future required contributions beyond 2004.
Critical Accounting Policies and Estimates
The preparation of the Company's financial statements in conformity with
accounting principals generally accepted in the United States require the
Company to make estimates, assumptions and judgments that affect amounts of
assets and liabilities reported in the consolidated financial statements, the
disclosure of contingent assets and liabilities as of the date of the financial
statements and reported amounts of revenues and expenses during the year. The
Company believes its estimates and assumptions are reasonable; however, future
results could differ from those estimates under different assumptions or
conditions.
Critical accounting policies are policies that reflect material judgment and
uncertainty and may result in materially different results using different
assumptions or conditions. The Company identified the following critical
accounting policies and estimates; discounts and vendor allowances, allowance
for losses on receivables, closed facility lease commitments, reserves for
self-insurance and pension costs, and impairment of long-lived assets. For a
detailed discussion of accounting policies, please refer to the notes to the
consolidated financial statements.
Discounts and Vendor Allowances
Purchases of product at discounted pricing are recorded in inventory at the
discounted price until sold. Volume and other program allowances are accrued as
a receivable when it is reasonably assured they will be earned and reduce the
cost of the related inventory for product on hand or cost of sales for product
already sold. Vendor monies received for new product slotting are initially
deferred and recognized as a reduction to cost of sales after completion of an
estimated new product slotting cycle of approximately nine months at which time
the Company has fully performed its obligations. Vendor allowances received to
fund advertising and certain other expenses are recorded as a reduction of the
Company's expense or expenditure for such related advertising or other expense,
if such vendor allowances reimburse the Company for specific, identifiable and
incremental costs incurred by the Company in selling the vendor's product. Any
excess reimbursement over the Company's cost is classified as a reduction to
cost of sales.
Allowances for Losses on Receivables
Management makes estimates of the uncollectibility of its accounts and notes
receivable portfolios. In determining the adequacy of the allowances, management
analyzes the value of the collateral, customer financial statements, historical
collection experience, aging of receivables and other economic and industry
factors. It is possible that the accuracy of the estimation process could be
materially impacted by different judgments as to collectibility based on the
information considered and further deterioration of accounts.
Closed Facility Lease Commitments
The Company has historically leased store sites which it has subleased to
qualified independent retailers at rates that are at least equal to the rent
paid by the Company. The Company also leases store sites for its retail segment.
Under the terms of the original lease agreements, the Company remains primarily
liable for any properties that are subleased as well as its own retail stores.
Should a retailer be unable to perform under the sublease or should the Company
close underperforming Company-owned stores, it would record a charge to earnings
for the discounted cost of the remaining term of the lease, less any anticipated
sublease income. Should the number of defaults by sublessees or Company-owned
store closures increase, or the actual sublease income be less than estimated,
the remaining lease commitments the Company must record could have a material
adverse effect on operating results and cash flows. Early settlements of lease
obligations with the landlord and the discount rate used to calculate the
estimated liability will also impact recorded balances or future results.
Reserves for Self-Insurance
The Company is primarily self-insured for workers' compensation. It is the
Company's policy to record its workers' compensation liability based on claims
filed and an estimate of claims incurred but not yet reported. Any projection of
losses concerning workers' compensation is subject to a considerable degree of
variability. Among the causes of this variability are unpredictable external
factors affecting future inflation rates, litigation trends, legal
interpretations, benefit level changes and claim settlement patterns.
Pension Costs
Many of the Company's employees are covered by noncontributory defined benefit
pension plans. The Company accounts for these costs in accordance with Statement
of Financial Accounting Standards ("SFAS") No.87, "Employer's Accounting for
Pensions" which requires it to calculate pension expense and liabilities using
actuarial assumptions, including a discount rate and long-term returns on
assets. Actual returns on plan assets and changes in the interest rates used to
determine the discount rate may significantly impact pension expense and cash
contributions in the future. The reduction in the discount rate in 2003 resulted
in an increase of $5.1 million in the projected benefit obligation and is
expected to result in an increase in pension expense for 2004 of approximately
$0.6 million.
Impairment of Long-Lived Assets
The Company reviews long-lived assets for impairment annually or whenever an
event, indicates the carrying value of the asset may not be recoverable. The
Company uses judgment when applying the impairment rules to determine when an
impairment test is necessary. Factors the Company considers that could trigger
an impairment review include significant underperformance relative to historical
or forecasted operating results, a significant decrease in the market value of
an asset and significant negative industry or economic trends. The Company
historically has not experienced any significant impairment of long-lived assets
except for the asset writedowns recorded in conjunction with the Transactions.
Senior management of the Company has discussed the development and selection of
the above critical accounting policies with the audit committee of the Company's
board of directors.
Recently Issued Accounting Standards
In July 2002, the Financial Accounting Standards Board ("FASB") issued SFAS No.
146, "Accounting for Costs Associated with Exit or Disposal Activities," which
addresses financial accounting and reporting associated with exit or disposal
activities. Under SFAS No. 146, costs associated with an exit or disposal
activity shall be recognized and measured at their fair value in the period in
which the liability is incurred rather than at the date of a commitment to an
exit or disposal plan. SFAS No. 146 was effective for all exit and disposal
activities initiated after December 31, 2002. The adoption of SFAS No. 146 did
not have a material effect on the Company's financial position, results of
operations or shareholder's equity but will impact the accounting for future
closing costs if incurred.
In November 2002, the FASB issued Financial Interpretation Number ("FIN") No.
45, "Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others." FIN No. 45 requires a
guarantor to recognize, at the inception of a guarantee, a liability for the
fair value of the obligation undertaken in issuing the guarantee. FIN No. 45
also expands the disclosures required to be made by a guarantor about its
obligations under certain guarantees that it has issued. Initial recognition and
measurement provisions of FIN No. 45 are applicable on a prospective basis to
guarantees issued or modified. The adoption of FIN No. 45 did not have a
material effect on the Company's financial position or results of operations.
In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable Interest
Entities." FIN No. 46 requires that companies that control another entity
through interests other than voting interests should consolidate the controlled
entity. FIN No. 46 is effective for variable interest entities ("VIEs") created
after January 31, 2003 and to any variable interest entities in which the
Company obtains an interest after that date. FIN No. 46, as revised, provides
for various effective dates of adoption depending upon the date of creation of
the VIEs and their nature. FIN No. 46 has not had, and is not expected to have,
a significant effect on the Company's consolidated financial position or the
results of operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's market risk sensitive instruments do not subject the Company to
material market risk exposures, except for risks related to interest rate
fluctuations. As of January 3, 2004, the Company had debt outstanding with a
carrying value of $602.0 million and an estimated fair value of approximately
$620.3 million.
Fixed interest rate debt outstanding as of January 3, 2004, which excludes
borrowings under the Company's credit agreement with various lenders ("Credit
Agreement") was $355.7 million, carried an average interest rate of
approximately 8.8%, and matures as follows (in thousands):
Fiscal Year Ended
2004 2005 2006 2007 2008 Thereafter Total
---- ---- ---- ---- ---- ---------- -----
Subordinated notes $300,000 $300,000
Other long-term debt $1,739 $1,901 $2,055 $2,277 $2,605 45,485 56,062
------ ------ ------ ------ ------ -------- --------
$1,739 $1,901 $2,055 $2,277 $2,605 $345,485 356,062
====== ====== ====== ====== ====== ========
Unamortized debt discount (333)
--------
$355,729
The amount of borrowings under the Credit Agreement as of January 3, 2004 was
$246.3 million. For purposes of calculating interest, borrowings under the
Credit Agreement are at the election of the Company, based upon LIBOR or base
rate options, or a combination thereof. Under the LIBOR option the applicable
rate is LIBOR plus 2.5%. Under the base rate option the applicable rate is the
prime rate plus 1.5%. All borrowings under the Credit Agreement at January 3,
2004 bear interest at the LIBOR option, which was effectively 3.7%.
Assuming interest rates and borrowing levels in place on January 3, 2004 do not
change, the Company's total annual interest expense would be approximately $41.5
million. A 10% increase in interest rates would increase total annual interest
expense, and decrease pretax income and cash flows by approximately $4.1
million.
For further information regarding the Company's indebtedness, see Part II, Item
7. "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Note 5 to the accompanying consolidated financial statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated financial statements
Page
27 Report of Independent Auditors
28 Independent Auditors' Report
29 Consolidated Statements of Income
30 Consolidated Balance Sheets
31 Consolidated Statements of Cash Flows
32 Consolidated Statements of Shareholder's Equity and
Comprehensive Income
34 Notes to Consolidated Financial Statements
All schedules, for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission have been omitted because
they are not applicable, not required or the information has been furnished
elsewhere.
REPORT OF INDEPENDENT AUDITORS
To the Shareholder and Directors of Roundy's, Inc.:
We have audited the accompanying consolidated balance sheets of Roundy's, Inc.
and its subsidiaries as of January 3, 2004 and December 28, 2002 and the related
consolidated statements of income, cash flows and shareholder's equity and
comprehensive income for the fiscal year ended January 3, 2004, and the period
from June 7, 2002 to December 28, 2002 (Successor), and the period from December
30, 2001 to June 6, 2002 (Predecessor). These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Roundy's, Inc. and subsidiaries at January 3, 2004 and December 28, 2002 and the
consolidated results of their operations and their cash flows for the fiscal
year ended January 3, 2004, and the period from June 7, 2002 to December 28,
2002 (Successor), and the period from December 30, 2001 to June 6, 2002
(Predecessor), in conformity with accounting principles generally accepted in
the United States.
As discussed in Note 2 to the consolidated financial statements, the Company
adopted Statement of Accounting Standards No. 142, "Goodwill and Other
Intangible Assets," on December 30, 2001 and Emerging Issues Task Force No.
02-16, "Accounting by a Customer (including a Reseller) for Certain
Consideration Received from a Vendor," effective December 29, 2002.
Ernst & Young LLP
Milwaukee, Wisconsin
February 23, 2004,
except for Note 14
as to which the date
is March 29, 2004
INDEPENDENT AUDITORS' REPORT
To the Shareholder and Directors of Roundy's, Inc.:
We have audited the accompanying consolidated statements of income,
stockholder's equity and comprehensive income and cash flows of Roundy's, Inc.
and subsidiaries for the year ended December 29, 2001. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the results of operations and cash flows of Roundy's, Inc.
and subsidiaries for the year ended December 29, 2001, in conformity with
accounting principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Milwaukee, Wisconsin
February 26, 2002
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands)
Successor Predecessor
Year Ended June 7, 2002 to December 30, 2001 Year Ended
January 3, 2004 December 28, 2002 to June 6, 2002 December 29, 2001
--------------- ----------------- ---------------- -----------------
Revenues:
Net sales and service fees $4,381,078 $2,076,568 $1,559,469 $3,387,762
Other - net 2,188 1,207 694 2,057
---------- ---------- ---------- ----------
4,383,266 2,077,775 1,560,163 3,389,819
---------- ---------- ---------- ----------
Costs and Expenses:
Cost of sales 3,502,219 1,709,900 1,285,050 2,825,954
Operating and administrative 743,524 313,057 235,607 494,761
SARs and other termination costs 7,400
Interest:
Interest expense 42,294 19,413 6,144 17,698
Amortization of deferred
financing costs 3,279 1,602 969 1,086
Interest rate swap
termination costs 6,652
---------- ---------- ---------- ----------
4,291,316 2,043,972 1,541,822 3,339,499
---------- ---------- ---------- ----------
Income Before Patronage Dividends 91,950 33,803 18,341 50,320
Patronage Dividends 8,681
---------- ---------- ---------- ----------
Income Before Income Taxes 91,950 33,803 18,341 41,639
Provision for Income Taxes 37,302 13,345 7,413 15,855
---------- ---------- ---------- ----------
Net Income $ 54,648 $ 20,458 $ 10,928 $ 25,784
========== ========== ========== ==========
See notes to consolidated financial statements.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
January 3, December 28,
Assets 2004 2002
----------- -----------
Current Assets:
Cash and cash equivalents $ 90,006 $ 139,778
Notes and accounts receivable, less allowance for
losses of $5,012 and $5,577, respectively 81,929 87,344
Merchandise inventories 251,888 226,465
Prepaid expenses 12,429 9,756
Deferred income tax benefits 17,745 15,871
---------- ----------
Total current assets 453,997 479,214
---------- ----------
Property and Equipment - Net 320,149 214,548
Other Assets:
Deferred income tax benefits 28,161 25,231
Notes receivable, net of allowance for
losses of $1,475 in 2002 2,877 3,523
Other assets - net 85,211 87,661
Goodwill 639,995 560,577
---------- ----------
Total other assets 756,244 676,992
---------- ----------
Total assets $1,530,390 $1,370,754
========== ==========
Liabilities and Shareholder's Equity
Current Liabilities:
Accounts payable $ 296,733 $ 240,845
Accrued expenses 129,499 127,416
Current maturities of long-term debt and capital
lease obligations 4,229 2,961
Income taxes 11,782 13,370
---------- ----------
Total current liabilities 442,243 384,592
---------- ----------
Long-Term Debt and Capital Lease Obligations 597,750 559,824
Other Liabilities 100,791 91,380
---------- ----------
Total liabilities 1,140,784 1,035,796
---------- ----------
Commitments and Contingencies
Shareholder's Equity:
Common stock (1,500 shares authorized, 1,000
issued and outstanding at $.01 par value)
Additional paid-in capital 314,500 314,500
Retained earnings 75,106 20,458
---------- ----------
Total shareholder's equity 389,606 334,958
---------- ----------
Total liabilities and shareholder's equity $1,530,390 $1,370,754
========== ==========
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Successor Predecessor
------------------------------ --------------------------------
Year Ended Year Ended
January 3, June 7, 2002 to December 30,2001 December 29,
2004 December 28, 2002 to June 6, 2002 2001
--------- ---------------- --------------- -----------
Cash Flows From Operating Activities:
Net income $ 54,648 $ 20,458 $ 10,928 $ 25,784
Adjustments to reconcile net income to net cash
flows provided by operating activities:
Depreciation and amortization, including
deferred financing costs 52,877 32,588 18,670 44,114
Loss(gain) on sale of property and equipment 211 215 41 (104)
Patronage dividends payable in common stock 5,950
Deferred income taxes 8,249 (1,323) (2,268) 3,295
Changes in operating assets and liabilities
net of the effect of business acquisitions:
Notes and accounts receivable 6,821 (5,615) (7,079) 26,072
Merchandise inventories 6,244 (12,349) 13,767 (3,312)
Prepaid expenses (2,250) 252 1,743 (3,936)
Other assets 3,288 (992) (1,371) 517
Accounts payable 46,187 24,911 (27,541) (3,884)
Accrued expenses (3,414) 20,737 18,062 (12,420)
Income taxes (9,204) (2,063) 19,731 (1,528)
Other liabilities (4,182) (281) 161 (4,277)
--------- --------- --------------- ---------
Net cash flows provided by operating activities 159,475 76,538 44,844 76,271
--------- --------- --------------- ---------
Cash Flows From Investing Activities:
Capital expenditures (57,654) (22,654) (10,642) (32,614)
Proceeds from sale of property and equipment and
other assets 1,554 352 478 4,392
Acquisition of Roundy's, net of cash acquired (543,679)
Payment for business acquisitions, net of
cash acquired (148,529) (40,631) (78,829)
Decrease in notes receivable, net 646 1,109 879 1,666
--------- --------- --------------- ---------
Net cash flows used in investing activities (203,983) (605,503) (9,285) (105,385)
--------- --------- --------------- ---------
Cash Flows From Financing Activities:
Proceeds from long-term borrowings 549,625 88,000
Interest rate swap termination payment (6,652)
Payments of debt (4,163) (166,772) (48,618) (48,056)
Debt issuance costs (1,101) (21,958) (1,208)
Contributed capital 314,500
Proceeds from sale of common stock 1,127
Common stock purchased (56) (5,126)
--------- --------- --------------- ---------
Net cash flows (used in) provided by
financing activities (5,264) 668,743 (48,674) 34,737
--------- --------- --------------- ---------
Net (Decrease) Increase in Cash and Cash Equivalents (49,772) 139,778 (13,115) 5,623
Cash And Cash Equivalents, Beginning Of Period 139,778 45,516 39,893
--------- --------- --------------- ---------
Cash And Cash Equivalents, End Of Period $ 90,006 $ 139,778 $ 32,401 $ 45,516
========= ========= =============== =========
Supplemental Cash Flow Information:
Cash Paid During The Year For:
Interest $ 44,910 $ 25,103 $ 6,351 $ 19,026
Income taxes 38,302 8,596 1,872 14,007
Supplemental Noncash Financing Activities:
Patronage dividends payable in common stock 5,950
Additional pension liability, net of tax 5,258
Interest rate swap, net of tax 374 3,409
Capital lease liabilities assumed as a result of
business acquisitions 43,355 14,201
See notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY AND COMPREHENSIVE INCOME
For the year ended January 3, 2004, the period from June 7, 2002 to December 28,
2002, the period from December 30, 2001 to June 6, 2002, and the year ended
December 29, 2001
(Dollars in thousands)
Common Stock
Patronage Accumulated
Class A Class B Dividends Additional Other
------------- ---------------------- Payable in Paid-in Comprehensive Retained
Shares Amount Shares Amount Common Stock Capital Loss Earnings
------ ------ ------------ ------ ------------ ------- ------------ --------
Predecessor Company
Balance, December 30, 2000 9,800 $12 1,093,108 $ 1,366 $ 3,475 $42,661 $ 121,334
Net income 25,784
Cumulative effect of change in
accounting for interest
rate swap (net of tax) $(2,000)
Interest rate swap (net of tax) (1,409)
Additional pension liability
(net of tax) (5,258)
Common stock issued 500 30,761 38 (3,475) 4,563
Common stock purchased (200) (13,078) (16) (1,042) (1,706)
Redeemable common stock (8,570) (10) (428) (1,019)
Patronage dividends payable in
common stock 5,950
------- --- --------- ------- ------- ------- -------- --------
Balance, December 29, 2001 10,100 12 1,102,221 1,378 5,950 45,754 (8,667) 144,393
Net income 10,928
Interest rate swap (net of tax) (374)
Common stock issued 35,115 44 (5,950) 5,898
Common stock purchased (200) (285) (1) (14) (34)
Tax benefit of options 7,222
------- --- ---------- ------- ------- ------- --------- --------
Balance, June 6, 2002 9,900 $12 1,137,051 $ 1,421 $ $58,860 $(9,041) $155,287
======= ==== ========== ======= ======= ======= ========= ========
Treasury Stock
Balance, June 6, 2002
and December 29, 2001 145,615 $18,328
========== =======
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Additional
Paid-in Retained
Capital Earnings
Successor Company
Balance, June 6, 2002
Capital contribution $314,500
Net income $20,458
-------- -------
Balance, December 28, 2002 314,500 20,458
-------- -------
Net income 54,648
-------- -------
Balance, January 3, 2004 $314,500 $75,106
======== =======
Successor Predecessor
------------------------------------- --------------------------------------
Year Ended June 7, 2002 to December 30, 2001 Year Ended
January 3, 2004 December 28, 2002 to June 6, 2002 December 29, 2001
--------------- ----------------- --------------- -----------------
Comprehensive Income:
Net income $ 54,648 $ 20,458 $10,928 $25,784
Other comprehensive loss:
Cumulative effect of change in accounting for
interest rate swap (2,000)
Interest rate swap (374) (1,409)
Additional pension liability (5,258)
-------- -------- ------- -------
Comprehensive Income $ 54,648 $ 20,458 $10,554 $17,117
======== ======== ======= =======
See notes to consolidated financial statements.
ROUNDY'S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED JANUARY 3, 2004,
PERIOD FROM JUNE 7, 2002 TO DECEMBER 28, 2002,
PERIOD FROM DECEMBER 30, 2001 to JUNE 6, 2002
AND YEAR ENDED DECEMBER 29, 2001
1. TRANSACTIONS
Transactions - On June 6, 2002, all of the issued and outstanding capital stock
of Roundy's, Inc. ("Roundy's" or the "Company") was purchased by Roundy's
Acquisition Corporation ("RAC") from its former owners. This purchase is
referred to throughout these financial statements as the "Transactions."
RAC is a corporation formed at the direction of Willis Stein for the purposes of
acquiring Roundy's. 89% of RAC's common and preferred stock is owned by
investment funds controlled by Willis Stein (the "Willis Stein Funds") and
certain associated equity investors. The remaining RAC common and preferred
stock is owned by certain members of Roundy's management. The Transactions and
related financing transactions consisted of the following:
o the purchase by the equity investors of preferred and common stock
of RAC for approximately $314.5 million in cash;
o the borrowing by Roundy's of $250.0 million under a term loan;
o the rollover of approximately $13.9 million of capital leases;
o the offering of $225.0 million in aggregate principal amount of notes
described in Note 5;
o the acquisition of all of the issued and outstanding capital stock of
Roundy's by RAC, resulting in Roundy's becoming a wholly owned
subsidiary of RAC, and the payment of the acquisition consideration in
connection therewith and the payment of related fees and expenses.
Purchase Accounting - The acquisition of Roundy's was accounted for as a
purchase. As a result, all financial statements for periods subsequent to June
6, 2002, the date the Transactions were consummated, will reflect the new
reporting entity after adjustment of the carrying value of assets and
liabilities to their fair values as of June 7, 2002.
Predecessor/Successor - For purposes of the financial statement presentation set
forth herein, the Predecessor Company refers to the Company prior to the
consummation of the Transactions and Successor Company refers to the Company
after the consummation of the Transactions.
Allocation of Purchase Price - The total purchase price was allocated to the
tangible and intangible assets and liabilities acquired in amounts equivalent to
their respective fair values as of the closing date of the Transactions based
upon third party valuations and Company analyses.
The allocation of the net purchase price to the fair value of net assets
acquired is as follows (in thousands):
Inventories $ 233,311
Other current assets 91,424
Property and equipment 209,818
Other assets 66,019
Goodwill 539,316
Deferred income tax benefits 54,289
----------
1,194,177
----------
Accounts payable and other current liabilities 369,866
Other liabilities 97,212
Long-term debt 187,103
----------
654,181
----------
Total consideration, net of cash acquired $ 539,996
==========
Exit Liabilities - Prior to June 6, 2002, new management began to formulate
plans to exit certain business operations which will include the involuntary
termination of employees and the closing of certain facilities. In conjunction
with such plans, the Company recorded an estimated liability of approximately
$55 million, which is included in current and long-term liabilities. This
liability included approximately $38 million for future lease costs and
approximately $17 million for pension, employee termination and other related
costs. The remaining balance at January 3, 2004 was $43.4 million.
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation - The accompanying financial statements include the
accounts of Roundy's and its subsidiaries, all of which are wholly owned.
All significant intercompany accounts and transactions have been eliminated in
consolidation.
Business Description - The Company and its subsidiaries sell and distribute food
and nonfood products that are typically found in supermarkets primarily located
in the Midwest. The Company has two segments - wholesale and retail. The
Company's retail segment sells directly to the consumer. Company-owned retail
grocery stores are operated primarily under the Pick 'n Save, Copps and Rainbow
banners. The Company's wholesale operations sell and distribute a broad range of
food and non-food products to Company-owned retail stores; licensed Pick 'n Save
locations; and independent food retailers located principally in Wisconsin and
elsewhere in the Midwest.
Fiscal Year - The Company's fiscal year is the 52 or 53 week period ending on
the Saturday nearest to December 31. The year ended January 3, 2004 ("Fiscal
2003") included 53 weeks and the year ended December 28, 2002, including the
Predecessor and Successor periods, ("Fiscal 2002") and December 29, 2001
("Fiscal 2001") included 52 weeks.
Use of Estimates - The preparation of financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities, disclosure of contingent assets and liabilities at the
date of the financial statements, and the reported amounts of revenues and
expenses during the reporting period. On an ongoing basis, management reviews
its estimates, including those related to allowances for doubtful accounts and
notes receivable, valuation of inventories, self-insurance reserves, closed
facilities reserves, purchase accounting estimates, useful lives for
depreciation and amortization, valuation allowances for deferred income tax
assets and litigation based on currently available information. Changes in facts
and circumstances may result in revised estimates and actual results could
differ from those estimates.
Revenue Recognition - Retail revenues are recognized at the point of sale.
Wholesale revenues are recognized, net of any estimated returns and allowances,
when product is shipped.
Discounts and Promotional Allowances - Purchases of product at discounted
pricing are recorded in inventory at the discounted price until sold. Volume and
other program allowances are accrued as a receivable when it is reasonably
assured they will be earned and reduce the cost of the related inventory for
product on hand or cost of sales for product already sold. Vendor monies
received for new product slotting are initially deferred and recognized
as a reduction to cost of sales after completion of an estimated new product
slotting cycle of approximately nine months at which time the Company has fully
performed its obligation. Vendor allowances received to fund advertising and
certain other expenses are recorded as a reduction of the Company's expense or
expenditure for such related advertising or other expense if such vendor
allowances reimburse the Company for specific, identifiable and incremental
costs incurred by the Company in selling the vendor's product. Any excess
reimbursement over the Company's cost is classified as a reduction to cost of
sales.
Costs and Expenses - Cost of sales includes product costs and inbound freight,
but excludes depreciation. Operating and administrative expenses consist
primarily of personnel costs, sales and marketing expenses, warehousing costs
and distribution costs, the internal costs of purchasing, receiving and
inspecting products for resale, depreciation and amortization expenses, expenses
associated with the Company's facilities, internal management expenses, business
development expenses, and expenses for finance, legal, human resources and other
administrative departments. Interest expense includes interest on the Company's
outstanding indebtedness, amortization of deferred financing costs and interest
rate swap costs. The Company classifies shipping and handling costs as an
operating and administrative expense which totaled $45.3 million, $24.9 million,
$16.7 million and $41.3 million, for Fiscal 2003, the period from June 7, 2002
to December 28, 2002, the period from December 30, 2001 to June 6, 2002, and
Fiscal 2001, respectively.
Advertising Expense - The Company expenses advertising
costs as incurred. Advertising expenses totaled $21.0 million, $7.4 million,
$4.9 million and $9.7 million, for Fiscal 2003, the period from June 7, 2002 to
December 28, 2002, the period from December 30, 2001 to June 6, 2002, and Fiscal
2001, respectively.
Pre-opening Costs - The costs associated with opening new and remodeled stores
are expensed as incurred.
Income Taxes - The Company is included in the federal and state tax returns of
RAC. The provision for federal and state income tax is computed as if the
Company filed separate tax returns. The Company provides for income taxes in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 109,
"Accounting for Income Taxes," which requires an asset and liability approach to
financial accounting and reporting for income taxes. Deferred income tax assets
and liabilities are computed for differences between the financial statement and
tax bases of assets and liabilities that will result in taxable or deductible
amounts in the future based on enacted tax laws and rates applicable to the
periods in which the differences are expected to affect taxable income.
Cash Equivalents - The Company considers all highly liquid investments with
maturities of three months or less when acquired to be cash equivalents. These
investments are carried at cost, which approximates market.
Fair Value of Financial Instruments - The Company's financial instruments
consist primarily of cash, cash equivalents, accounts and notes receivable,
accounts payable, accrued liabilities, and long-term debt. The carrying amounts
for cash, cash equivalents, accounts and notes receivable, accounts payable and
accrued liabilities approximate their fair values. Based on the borrowing rates
currently available to the Company for long-term debt with similar terms and
maturities, the fair value of long-term debt, including current maturities, is
approximately $620.3 million and $557.2 million as of January 3, 2004 and
December 28, 2002, respectively.
Notes and Accounts Receivable - The Company extends long-term credit to certain
independent retailers it serves to be used primarily for store expansion or
improvements. Loans to independent retailers are primarily collateralized by the
retailer's inventory, equipment, personal assets and pledges of Company stock.
Interest rates are generally in excess of the prime rate and terms of the notes
are up to 15 years. Included in current notes and accounts receivable are
amounts due within one year totaling $1.5 million and $2.5 million at January 3,
2004 and December 28, 2002, respectively.
The Company is exposed to credit risk with respect to accounts receivable,
although it is generally limited. The Company continually monitors its
receivables with customers by reviewing, among other things, credit terms,
collateral and guarantees. The Company evaluates the collectibility of accounts
receivable based on a combination of factors, namely aging and historical
trends. An allowance for doubtful accounts is recorded based on the customer's
ability and likelihood to pay based on management's review of the facts.
Inventories - Inventories are recorded at the lower of cost or market. Cost is
calculated on a first-in-first-out and last-in-first-out basis (LIFO) for
approximately 73.2% and 26.8%; and 72.6% and 27.4% of the Company's inventories
at January 3, 2004 and December 28, 2002, respectively. The LIFO reserve was
$2.1 million and $0.06 million at January 3, 2004 and December 28, 2002,
respectively.
Property and Equipment - Property and equipment are stated at cost and are
depreciated on the straight-line method for financial reporting purposes
and by use of accelerated methods for income tax purposes. Depreciation and
amortization of property and equipment are expensed over their estimated useful
lives, which are generally 39 years for buildings, three to ten years for
equipment and ten to 20 years for leasehold improvements.
Long Lived Assets - The Company annually considers whether indicators of
impairment of long-lived assets held for use (including favorable lease rights)
are present and determines if such indicators are present whether the sum of the
estimated undiscounted future cash flow attributed to such assets is less than
their carrying amounts. The Company evaluated the ongoing value of its property
and equipment and other long-lived assets on January 3, 2004 and December 28,
2002 and concluded there were no significant indicators of impairment.
Supply Contracts - Supply contracts are being amortized over the life of the
related contracts of approximately five years.
Deferred Financing Costs - Deferred financing costs are being amortized over the
life of the related debt.
Goodwill - The excess of cost over the fair value of net assets of businesses
acquired (goodwill) was amortized on a straight-line basis over 20 years through
December 29, 2001. In June 2001, the Financial Accounting Standards Board
("FASB") issued SFAS No. 142, "Goodwill and Other Intangible Assets," which the
Company adopted on December 30, 2001. SFAS No. 142 requires that goodwill and
intangible assets with indefinite useful lives no longer be amortized. Instead,
the carrying value of goodwill and intangible assets with indefinite useful
lives will be evaluated for impairment on an annual basis. The Company completed
the transitional impairment test as of the adoption date and the annual
impairment review for 2002 and 2003 as of June 30 of each year and concluded
there was no impairment of goodwill. In accordance with SFAS No. 142, the
Company ceased amortization of its goodwill effective December 30, 2001.
Amortization of goodwill recorded by the Company in 2001 reduced net income
as follows:
(In thousands)
2001
________
Net income as reported $25,784
Goodwill amortization, net of tax 6,121
-------
Adjusted net income $31,905
=======
Trademarks - Trademarks, which have indefinite lives, are not amortized but are
evaluated annually for impairment in accordance with SFAS No. 142.
Closed Facilities Reserve - When a facility is closed, the remaining net book
value of the property, net of expected salvage value, is expensed. For
properties under lease agreements, the present value of any remaining future
liability under the lease, net of expected sublease recovery, is also expensed
at the time use of the property is discontinued. The amounts charged to
operating and administrative expenses for the period from December 30, 2001 to
June 6, 2002 and Fiscal 2001 for the present value of these remaining future
liabilities approximated $1.0 million and $0.5 million, respectively. The closed
facility reserve was $62.6 million and $55.3 million at January 3, 2004 and
December 28, 2002, respectively.
Related Parties - During the period from December 30, 2001 to June 6, 2002 and
Fiscal 2001, the Company had wholesale sales to retailers who were stockholders
of the Company prior to the Transactions in the amounts of $283.2 million and
$658.7 million, respectively. In addition, the Company received sublease
payments from retailers who were stockholders of the Company prior to the
Transactions of $3.0 million and $8.1 million for the period from December 30,
2001 to June 6, 2002 and Fiscal 2001, respectively.
Concentrations of Risk - Certain of the Company's employees are covered by
collective bargaining agreements. The Company currently participates in 28 union
contracts covering approximately 40% of its employees. Of these contracts, the
Company is in the process of renegotiating the terms of nine union contracts.
The remaining 19 contracts expire through May 2007.
Reclassifications - Certain amounts previously reported have been reclassified
to conform to the current presentation.
New Accounting Pronouncements - In July 2002, the Financial Accounting Standards
Board ("FASB") issued SFAS No. 146, "Accounting for Costs Associated with Exit
or Disposal Activities," which addresses financial accounting and reporting
associated with exit or disposal activities. Under SFAS No. 146, costs
associated with an exit or disposal activity shall be recognized and measured at
their fair value in the period in which the liability is incurred rather than at
the date of a commitment to an exit or disposal plan. SFAS No. 146 was effective
for all exit and disposal activities initiated after December 31, 2002. The
adoption of SFAS No. 146 did not have a material effect on the Company's
financial position, results of operations or shareholder's equity but will
impact the accounting for future closing costs if incurred.
In November 2002, the FASB issued Financial Interpretation Number ("FIN") No.
45, "Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others." FIN No. 45 requires a
guarantor to recognize, at the inception of a guarantee, a liability for the
fair value of the obligation undertaken in issuing the guarantee. FIN No. 45
also expands the disclosures required to be made by a guarantor about its
obligations under certain guarantees that it has issued. Initial recognition and
measurement provisions of FIN No. 45 are applicable on a prospective basis to
guarantees issued or modified. The adoption of FIN No. 45 did not have a
material effect on the Company's financial position or results of operations.
The Company has applied Emerging Issues Task Force No. 03-10 ("EITF 03-10"),
"Application of EITF Issue No. 02-16, "Accounting by a Customer (including a
Reseller) for Certain Consideration Received from a Vendor," by Resellers to
Sales Incentives Offered to Customers by Manufacturers" to its 2003 results
which is consistent with its original 2002 presentation. Pursuant to EITF 03-10,
vendor-funded coupon reimbursements can be considered part of net sales at the
point of sale. This pronouncement in EITF 03-10 reverses an accounting policy
that the Company adopted on December 29, 2002 pursuant to Emerging Issues Task
Force No. 02-16 ("EITF 02-16"), "Accounting by a Customer (including a Reseller)
for Certain Consideration Received from a Vendor," that required such
vendor-funded coupon reimbursements to be reflected as a reduction to net sales
and cost of sales.
With the exception of the vendor-funded coupon reimbursements mentioned above,
EITF 03-10 confirms the requirements in EITF 02-16 related to other types of
vendor consideration. Accordingly, certain vendor-funded advertising and other
program reimbursements have been reclassified in the Fiscal 2003 consolidated
statements of income and prior periods have been consistently classified. Vendor
allowances received to fund advertising and certain other expenses are recorded
as a reduction of the Company's expenditure for such related advertising or
other expense, if such vendor allowances reimburse the Company for specific,
identifiable and incremental costs incurred by the Company in selling the
vendor's product. Any excess reimbursement over the Company's cost is classified
as a reduction to cost of sales. In addition, vendor allowances for other
programs which are not reimbursements of specific, identifiable and incremental
costs of the Company are classified as reductions to inventory and related cost
of goods sold. Accordingly $44.9 million, $18.3 million, $13.4 million and $29.2
million of such reimbursements for Fiscal 2003, the period from June 7, 2002 to
December 28, 2002, the period from December 30, 2001 to June 6, 2002 and Fiscal
2001, respectively, have been classified as a reduction in cost of sales with a
corresponding increase in operating and administrative expenses.
In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable Interest
Entities." FIN No. 46 requires that companies that control another entity
through interests other than voting interests should consolidate the controlled
entity. FIN No. 46 is effective for VIEs created after January 31, 2003 and to
any variable interest entities in which the Company obtains an interest after
that date. FIN No. 46, as revised, provides for various effective dates of
adoption depending on the date of creation of the VIEs and their nature. FIN No.
46 has not had, and is not expected to have, a significant effect on the
Company's consolidated financial position or the results of operations.
3. ACQUISITIONS
Effective May 20, 2001, the Company acquired all of the outstanding stock of The
Copps Corporation ("Copps") for approximately $96.2 million in cash. Copps owned
and operated 21 retail grocery stores and a wholesale distribution center. The
operating results of Copps are included in the consolidated statements of income
after the effective date. Goodwill of approximately $9.9 million resulted from
the acquisition which was accounted for as a purchase.
The unaudited pro-forma results of operations, including the Transactions and
the Copps acquisition, as if they had been acquired at the beginning of each
period follows (in thousands):
For the Year Ended
------------------------------------------------
December 28, 2002 December 29, 2001
----------------- -----------------
Net sales and service fees $3,636,037 $3,616,517
Net income 33,922 17,252
Pro-forma results are not necessarily indicative of what would have occurred had
the Transactions and the Copps acquisition been consummated as of the beginning
of the periods. Pro forma results include additional depreciation and the
amortization of intangible assets resulting from the acquisitions and additional
interest expense as if the funds borrowed in connection with the acquisitions
had been outstanding from the beginning of each period. The above pro-forma
results also include an assumption to exclude nonrecurring costs related to the
Transactions totaling $9.1 million, net of tax, consisting of expenses related
to the SARs, other termination costs, write-off of deferred financing costs and
interest rate swap termination costs.
On October 23, 2002, the Company acquired the assets of four licensed Pick 'n
Save stores located in and around the greater Milwaukee, Wisconsin metropolitan
area from entities owned by Robert S. Gold ("Gold's") for $26.0 million in cash
plus the value of certain acquired inventory. The operating results of Gold's
are included in the consolidated statements of income after the acquisition
date. Goodwill of approximately $19.8 million resulted from the acquisition
which was accounted for as a purchase.
On December 18, 2002, the Company acquired three Rainbow stores from the Fleming
Companies, Inc. for $10.0 million plus the value of certain acquired inventory.
All stores are located in southeastern Wisconsin. The stores were closed for
remodeling upon acquisition and opened in Fiscal 2003. Goodwill of $1.5 million
resulted from the acquisition which was accounted for as a purchase.
In November 2002, the Company entered into a definitive agreement to acquire the
capital stock of Prescott's Supermarkets, Inc. for approximately $47.8 million
(the "Prescott's Acquisition"). Prescott's primarily owned and operated seven
licensed Pick 'n Save stores located in the Wisconsin cities of Fond du Lac
(three stores), Oshkosh (two stores) and West Bend (two stores). Goodwill of
approximately $43.4 million resulted from the acquisition, which was accounted
for as a purchase. The transaction closed on January 21, 2003 and the operating
results of Prescott's are included in the consolidated statements of income
after this date.
In April 2003, the Company acquired seven Kohl's grocery stores in the Madison,
Wisconsin area from A&P for approximately $20.0 million in cash (the "Copps
Madison Acquisition"). Goodwill of approximately $16.0 million resulted from the
acquisition, which was accounted for as a purchase. In May 2003, the Company
converted six stores to Copps stores and consolidated the volume of the seventh
store into an existing Company-owned Copps store. The Company established a
closed store reserve of $9.9 million for such store in connection with the
purchase. These six new Copps stores opened in late May and early June 2003. The
consolidated financial statements reflect the preliminary allocation of the
purchase price to the assets acquired and liabilities assumed based on their
fair values.
In June 2003, the Company acquired 32 Rainbow stores from Fleming. The Company
paid approximately $107.9 million, net of the sale transaction discussed below,
consisting of (i) $64.5 million in cash and (ii) the assumption of $43.4 million
of capitalized leases. The Company sold the one store located outside the
Minneapolis-St. Paul metropolitan area (located near Wausau, Wisconsin) to an
independent licensed Pick 'n Save operator in the area. Collectively these
transactions are referred to throughout these financial statements as the
"Rainbow Minneapolis Acquisition." Goodwill of approximately $15.5 million
resulted from the acquisition, which was accounted for as a purchase. The
Rainbow Minneapolis Acquisition closed on a rolling schedule from June 7 to June
27, 2003 and the operating results of each acquired store are included in the
consolidated statements of income after each store's respective opening date.
The consolidated financial statements reflect the preliminary allocation of the
purchase price to the assets acquired and liabilities assumed based on their
fair values.
On October 17, 2003, the Company completed the acquisition of the equipment,
fixtures and leasehold interests of seven former Kohl's grocery stores from A&P
for approximately $9.0 million plus the assumption of an estimated $3.7 million
closed store liability (the "Kohl's Acquisition"). Six of these stores are
located in the Milwaukee area while the seventh store is located in the Racine,
Wisconsin area. The Company reopened two of these stores in the fourth quarter
of 2003 and plans to reopen the five remaining stores in 2004. All seven of
these stores will reopen under the Pick 'n Save banner. Goodwill of
approximately $2.5 million resulted from the acquisition which was accounted for
as a purchase. The consolidated financial statements reflect the preliminary
allocation of the purchase price to the assets acquired and liabilities assumed
based on their fair values.
The pro forma effect of the October 2002 and subsequent acquisitions was not
material.
4. PROPERTY AND EQUIPMENT AND OTHER ASSETS
Property and equipment, which is recorded at cost and other assets, consisted of
the following (in thousands):
January 3, December 28,
Property and Equipment 2004 2002
- ---------------------- ---------- ------------
Land $ 14,258 $ 15,668
Buildings 73,804 78,580
Equipment 205,833 107,935
Property under capital leases 42,060 11,909
Leasehold improvements 52,985 29,182
-------- --------
388,940 243,274
Less accumulated depreciation and amortization 68,791 28,726
-------- --------
Property and equipment, net $320,149 $214,548
======== ========
Depreciation expense for property and equipment, including amortization of
property under capital leases, was $42.8 million, $26.9 million, $17.6 million
and $36.1 million for Fiscal 2003, the period from June 7, 2002 to December 28,
2002, the period from December 30, 2001 to June 6, 2002 and Fiscal 2001,
respectively.
January 3, 2004 December 28, 2002
------------------------------ ------------------------
Other Assets Accumulated Accumulated
Gross Amortization Net Gross Amortization Net
-------- ------------ ------ ------- ------------ --------
Supply contracts $ 33,716 $ 9,866 $23,850 $33,716 $3,506 $30,210
Trademarks 23,760 23,760 23,760 23,760
Deferred financing costs 23,068 4,881 18,187 21,958 1,603 20,355
Favorable lease rights 5,000 279 4,721 5,000 5,000
Assets held for sale 10,237 10,237 4,121 4,121
Other assets 5,195 739 4,456 4,767 552 4,215
-------- ------- ------- ------- ------ -------
Total other assets $100,976 $15,765 $85,211 $93,322 $5,661 $87,661
======== ======= ======= ======= ====== =======
Amortization expense (including deferred financing costs) was $10.1 million,
$5.7 million, $1.1 million and $8.0 million for Fiscal 2003, the period from
June 7, 2002 to December 28, 2002, the period from December 30, 2001 to June 6,
2002 and Fiscal 2001, respectively.
Amortization of other assets, excluding trademarks which have indefinite lives,
will be approximately $9.5 million in 2004, $9.4 million in 2005, $9.3 million
in 2006, $7.8 million in 2007 and $3.0 million in 2008.
5. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
January 3, December 28,
2004 2002
---------- ------------
Bank term loan $246,250 $249,375
Subordinated notes, net of unamortized
discount of $333 and $373, respectively 299,667 299,627
Capital lease obligations, 7.55% to 11.0%,
due 2004 to 2020 55,939 13,614
Other long-term debt 123 169
-------- --------
601,979 562,785
Current maturities 4,229 2,961
-------- --------
Total long-term debt, less current
maturities $597,750 $559,824
======== ========
On June 6, 2002, the Company entered into a credit agreement with various
lenders (the "Credit Agreement") which provides the Company with an aggregate
credit facility of $375 million. The Credit Agreement provides for a $125
million revolving loan commitment, $20 million of which is available for letters
of credit, and a $250 million term loan. The revolving loan commitment and the
term loan bear interest based upon LIBOR and prime rate options. Under the LIBOR
option the applicable rate is LIBOR plus 2.5% for the term loan and LIBOR plus
2.75% for the revolving loan. Under the base rate option the applicable rate is
prime plus 1.5% for the term loan and LIBOR plus 1.75% for the revolving loan.
All borrowings under the term loan at January 3, 2004, bear interest at the
LIBOR option which was effectively 3.7%. There were no outstanding borrowings on
the revolving loan at January 3, 2004. Commitment fees of 0.75% accrue on the
unutilized portion of the revolving loan when 50% or less of the revolving loan
is utilized (0.50% at any other time).
The revolving loan matures June 2007. The term loan is repayable in installments
of $625,000 through June 30, 2008 followed by four quarterly payments of
$58,750,000 through June 30, 2009.
Voluntary prepayments of principal outstanding under the term and revolving
loans are permitted at any time without premium or penalty, upon proper notice
as defined. In addition, the Company is required to prepay amounts outstanding
under the Credit Agreement in the event of certain issuances of equity, issuance
of additional indebtedness, asset dispositions or in the event of excess levels
of cash flow, all as defined in the Credit Agreement.
The loans and obligations under the Credit Agreement are guaranteed by RAC and
each of the Company's direct and indirect present and future domestic
subsidiaries. The Credit Agreement is also secured by substantially all tangible
and intangible assets of the Company as well as a pledge of its stock and that
of all its domestic subsidiaries.
The Credit Agreement contains various restrictive covenants which: (i) prohibit
the Company from prepaying other indebtedness, (ii) require it to maintain
specified financial ratios, such as (a) a minimum fixed charge coverage ratio,
(b) a maximum ratio of senior debt to EBITDA, and (c) a maximum ratio of total
debt to EBITDA; and (iii) requires it to satisfy financial condition tests
including limitations on capital expenditures. In addition, the Credit Agreement
prohibits the Company from declaring or paying any dividends and prohibits it
from making any payments with respect to the Notes as defined below, if the
Company fails to perform its obligations under or fails to meet the conditions
of the Credit Agreement or if payment creates a default under the Credit
Agreement.
On January 3, 2004, the Company had approximately $113.3 million of unused
borrowing capacity under the revolving loan commitment after the issuance of
$11.7 million of letters of credit.
The Company also has $300 million of 8 7/8% Senior Subordinated Notes
outstanding at January 3, 2004 which mature June 15, 2012 (the "Notes"). The
Notes are general unsecured obligations of the Company and are subordinated in
right of payment to all existing and future senior debt of the Company. Interest
is payable semi-annually in arrears on June 15 and December 15. The Notes are
guaranteed on a joint and several basis by all of the Company's domestic
subsidiaries.
At any time prior to June 15, 2005, the Company may, on any one or more
occasions, redeem up to 35% of the aggregate principal amount of Notes at a
redemption price of 108.875% of the principal amount, plus accrued and unpaid
interest and liquidated damages, if any, to the redemption date, with the net
cash proceeds of one or more equity offerings. After June 15, 2007, the Company
may redeem all or a part of the Notes at redemption prices of 104.438% in 2007,
102.958% in 2008, 101.479% in 2009, and at 100% of the principal amount
thereafter.
Upon a change in control, as defined, the Notes holders may require the Company
to repurchase all of the Notes in cash at 101% of aggregate principal amounts
plus accrued and unpaid interest and liquidated damages.
The indenture governing the Notes, among other things, (i) restricts the
Company's ability and the ability of its subsidiaries to incur additional
indebtedness, issue shares of preferred stock, incur liens, pay dividends or
make certain other restricted payments and enter into certain transactions with
affiliates; (ii) prohibits certain restrictions on the ability of certain of its
subsidiaries to pay dividends or make certain payments to it; and (iii) places
restrictions on the Company's ability and the ability of its subsidiaries to
merge or consolidate with any other person or sell, assign, transfer, lease,
convey or otherwise dispose of all or substantially all of its assets.
At January 3, 2004, the Company and its subsidiaries were in compliance with the
financial covenants of all of its indebtedness, including obligations under the
Credit Agreement and the Notes.
During 2001 the Company had a swap agreement which fixed the rate on $60.0
million of borrowings under the old revolving loan commitment. For the year
ended December 29, 2001, the total net cost, recorded as interest expense, of
converting from a floating rate to a fixed rate was $1.7 million.
The Company adopted SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities", for the fiscal year beginning December 31, 2000 which
required the Company to record all derivatives on the balance sheet at fair
value. Changes in derivative fair values for cash-flow hedges were deferred and
recorded as a component of other comprehensive income until the hedged
transactions occur and were then recognized in earnings.
On December 31, 2000, upon adoption of SFAS No. 133, the Company recognized a
transition adjustment relating to the recording of the interest rate swap for
approximately $2.0 million, net of tax of $1.4 million, in stockholder's equity
as accumulated other comprehensive loss as the interest rate swap qualified as a
cash-flow hedge. The fair value of the Company's interest rate swap, based on
the net cost to settle the transaction at December 29, 2001, was approximately
$3.4 million, net of tax of $2.6 million and was recorded as a liability and
accumulated other comprehensive loss in the Company's consolidated balance
sheet.
The fair value of the interest rate swap was $3.8 million, net of tax of $2.9
million, at June 6, 2002. Accordingly the increase in the fair value of the
interest rate swap (the net cost to settle the transaction) was reflected as an
additional other comprehensive loss during the period December 30, 2001 to June
6, 2002. Concurrent with the Transactions, the interest rate swap was terminated
and the related debt and the interest rate swap were paid off. As a result, the
Company expensed the interest rate swap termination cost of $6,652,000 during
the period from December 30, 2001 to June 6, 2002.
Repayment of principal on long-term debt outstanding is as follows (in
thousands):
2004 $ 4,229
2005 4,410
2006 4,555
2007 4,777
2008 121,355
Thereafter 462,986
---------
602,312
Less unamortized discount (333)
---------
$ 601,979
=========
6. EMPLOYEE BENEFIT PLANS
Substantially all non-union employees of the Company and employees of its
subsidiaries are covered by defined benefit pension plans. Benefits are based on
either years of service and the employee's highest compensation during five of
the most recent ten years of employment or on stated amounts for each year of
service. The Company intends to annually contribute only the minimum
contributions required by applicable regulations.
The benefit obligation and related assets under all plans have been measured as
of December 31, 2003, the plans' measurement date. The following tables set
forth pension obligations and plan assets information (in thousands):
Year Ended June 7, 2002 to December 30,2001
January 3, 2004 December 28, 2002 To June 6, 2002
--------------- ----------------- ----------------
Change in benefit obligation:
Benefit Obligation-Beginning of Period $ 111,545 $ 105,271 $ 88,320
Service cost 6,549 3,778 2,306
Interest cost 7,068 3,851 2,719
Actuarial loss 2,335 373 11,107
Benefits paid (3,137) (1,728) (1,229)
Business acquisition and other 2,048
--------- --------- ---------
Benefit Obligation-End of Period $ 124,360 $ 111,545 $ 105,271
========= ========= =========
Change in plan assets:
Fair Value-Beginning of Period $ 54,933 $ 56,677 $ 59,161
Actual return on plan assets 12,186 (5,408) (2,234)
Company contribution 5,544 5,392 979
Benefits paid (3,137) (1,728) (1,229)
--------- --------- ---------
Fair Value-End of Period $ 69,526 $ 54,933 $ 56,677
========= ========= =========
Funded status:
As of period-end $ (54,834) $ (56,612)
Unrecognized cost - actuarial and investment
losses, net 4,016 8,784
--------- ---------
Accrued benefit cost $ (50,818) $ (47,828)
========= =========
The additional minimum liability of $9.2 million, net of tax of $4.0 million,
has been reflected in other comprehensive income in Fiscal 2001.
Year Ended
Year Ended June 7, 2002 to December 30, 2001 December 29,
January 3, 2004 December 28, 2002 to June 6, 2002 2001
--------------- ----------------- ---------------- ------------
The components of pension cost are as follows:
Service cost $ 6,549 $ 3,778 $ 2,306 $ 4,336
Interest cost on projected benefit obligation 7,068 3,851 2,719 5,175
Expected return on plan assets (5,039) (3,007) (2,286) (5,083)
Net amortization and deferral:
Unrecognized net (gain) loss (45) 341 173
Unrecognized prior service cost 100 36
Unrecognized net asset (5) (133)
------- ------- ------- -------
Net pension cost $ 8,533 $ 4,622 $ 3,175 $ 4,504
======= ======= ======= =======
Year Ended June 7, 2002 to December 30, 2001 Year Ended
January 3, 2004 December 28, 2002 to June 6, 2002 December 29, 2001
--------------- ----------------- --------------- -----------------
The weighted-average assumptions used
to determine net periodic benefit
costs were as follows:
Discount rate 6.50% 6.50% 7.25% 7.25%
Rate of increase in compensation
levels 4.00% 4.00% 4.00% 4.00%
Expected long-term rate of
return on plan assets 9.00% 9.00% 9.00% 9.00%
January 3, 2004 December 28, 2002
--------------- -----------------
The weighted-average assumptions
used to determine the benefit
obligation at year-end were as
follows:
Discount rate 6.25% 6.50%
Rate of increase in compensation
levels 4.00% 4.00%
For future periods, the expected long-term rate of return on plan assets is
8.5%.
The return on plan assets reflects the weighted-average of the expected
long-term rates of return for the broad categories of investments held in the
plan. The expected long-term rate of return is adjusted when there are
fundamental changes in expected returns on the plan investments.
The asset allocation for the Company's pension plans as of January 3, 2004,
December 28, 2002 and the target allocation for 2004, by asset category, follow.
Target Allocation January 3, December 28,
for 2004 2004 2002
----------------- ----------- ------------
Equity securities 70% 74% 71%
Fixed income securities 30% 26% 29%
--- --- ---
Total 100% 100% 100%
=== === ===
The Company has an administrative committee that oversees the investment of the
assets of the plans and has created a target allocation investment policy for
the assets as noted above.
The reduction in the discount rate in 2003 resulted in an increase of $5.1
million in the projected benefit obligation and is expected to result in an
increase in pension expense for 2004 of approximately $0.6 million. The
reduction in the discount rate as of June 6, 2002 resulted in an increase of
$12.2 million in the projected benefit obligation.
The plans' accumulated benefit obligation as of January 3, 2004 and December 28,
2002 was $104.1 million and $91.6 million, respectively.
The Company's estimated 2004 minimum required contributions to its defined
benefit pension plans are approximately $16.9 million. Due to uncertainties
regarding significant assumptions involved in estimating future required
contributions to its defined benefit pension plans, such as interest rate
levels, the amount and timing of asset returns and the impact of proposed
legislation, the Company is not able to reasonably estimate its future required
contributions beyond 2004.
The Company and its subsidiaries also participate in various multi-employer
plans which provide defined benefits to employees under collective bargaining
agreements. Amounts charged to pension expense for such plans were $8.0 million,
$3.8 million, $2.8 million and $7.0 million for Fiscal 2003, the period from
June 7, 2002 to December 28, 2002, the period from December 30, 2001 to June 6,
2002 and Fiscal 2001, respectively. The Company has a defined contribution plan
covering substantially all salaried and hourly employees not covered by
collective bargaining agreements. Total expense for the plan amounted to $2.7
million, $1.3 million, $0.9 million and $1.9 million for Fiscal 2003, the period
from June 7, 2002 to December 28, 2002, the period from December 30, 2001 to
June 6, 2002 and Fiscal 2001, respectively. Also, the Company has a defined
contribution plan covering certain hourly employees covered by a collective
bargaining agreement. Total expense for the plan amounted to $1.3 million, $0.6
million, $0.4 million, and $0.7 million for Fiscal 2003, the period from June 7,
2002 to December 28, 2002, the period from December 30, 2002 to June 6, 2002 and
Fiscal 2001, respectively.
7. INCOME TAXES
The provision (benefit) for income taxes consisted of the following (in
thousands):
Successor Predecessor
-------------------------------------- ------------------------------------
Year Ended Year Ended
January 3, June 7, 2002 to December 30, 2001 December
2004 December 28, 2002 to June 6, 2002 29, 2001
---------- ----------------- ---------------- -------------
Current income tax provision:
Federal $21,298 $ 11,990 $ 7,670 $ 9,593
State 7,755 2,678 2,011 2,967
------- -------- ------- -------
Total Current 29,053 14,668 9,681 12,560
Deferred income tax provision:
Federal 8,062 (1,158) (1,959) 2,860
State 187 (165) (309) 435
------- -------- ------- -------
Total Deferred 8,249 (1,323) (2,268) 3,295
------- -------- ------- -------
Total $37,302 $ 13,345 $ 7,413 $15,855
======= ======== ======= =======
Federal income tax at the statutory rate of 35% for Fiscal 2003, the period from
June 7, 2002 to December 28, 2002, the period from December 30, 2001 to June 6,
2002 and Fiscal 2001 and income tax expense as reported are reconciled as
follows (in thousands):
Successor Predecessor
-------------------------------------- ---------------------------------
Year Ended Year Ended
January 3, June 7, 2002 to December 30, 2001 December
2004 December 28, 2002 to June 6, 2002 29, 2001
------------ ----------------- ----------------- --------
Federal income tax at statutory rate $ 32,183 $ 11,831 $ 6,419 $ 14,574
State income taxes, net of federal tax
benefits 4,848 1,576 998 1,929
Resolution of prior year tax audits (2,360)
Non-deductible goodwill 1,813
Other-net 271 (62) (4) (101)
-------- -------- ------- --------
Income tax expense $ 37,302 $ 13,345 $ 7,413 $ 15,855
======== ======== ======= ========
The approximated tax effects of temporary differences as of January 3, 2004 and
December 28, 2002 are as follows (in thousands):
January 3, 2004 December 28, 2002
-------------------------------------- ---------------------------------------
Assets Liabilities Total Assets Liabilities Total
------ --------------- ----- ------ ----------------- -----
Allowance for
doubtful accounts $ 2,003 $ 2,003 $ 2,811 $ 2,811
Inventories 2,809 $ (2,397) 412 $ (901) (901)
Employee benefits 13,845 13,845 10,287 10,287
Accrued expenses
not currently
deductible 3,231 (1,746) 1,485 3,674 3,674
-------- -------- -------- --------- -------- --------
Total current 21,888 (4,143) 17,745 16,772 (901) 15,871
-------- -------- -------- --------- -------- --------
Depreciation and
amortization (31,683) (31,683) (28,913) (28,913)
Employee benefits 21,325 21,325 22,322 22,322
Accrued expenses
not currently
deductible 36,745 (53) 36,692 29,368 29,368
Net operating loss
carryforwards 1,827 1,827 2,454 2,454
Total noncurrent 59,897 (31,736) 28,161 54,144 (28,913) 25,231
-------- -------- -------- --------- --------- ---------
Total $ 81,785 $(35,879) $ 45,906 $ 70,916 $ (29,814) $ 41,102
======== ======== ======== ========= ========= =========
Management believes that it is more likely than not that the net current and
long-term deferred tax assets will be realized through the reduction of future
taxable income. Significant factors considered by management in its
determination include the historical operating results of the Company and
expectations of future earnings. As of January 3, 2004, the Company has state
net operating loss carryforwards of approximately $37 million which are due to
expire beginning 2015. Of the state net operating losses, $22 million is subject
to an annual limitation of approximately $5 million under state regulations
similar to Section 382 of the Internal Revenue Code of 1986, as amended.
8. LEASE OBLIGATIONS AND CONTINGENT LIABILITIES
Rental expense and related subleasing income under operating leases are as
follows (In thousands):
Rental Expense
------------------------------ Subleasing
Period Minimum Contingent Income
- ------ ----------- ------------ ----------
Fiscal 2003 $49,540 $271 $17,418
June 7, 2002 to December 28, 2002 24,606 108 12,058
December 30, 2001 to June 6, 2002 17,974 592 9,625
Fiscal 2001 42,363 704 21,818
In addition, many of the store leases obligate the Company to pay real estate
taxes, insurance and maintenance costs, and contain multiple renewal options,
exercisable at the Company's option, that generally range from one additional
five-year period to four additional five-year periods. Those items are not
included in the rent expenses listed above.
Contingent rentals may be paid under certain store leases on the basis of the
store's sales in excess of stipulated amounts.
Future minimum rental payments under long-term leases are as follows at January
3, 2004 (in thousands):
Operating Capitalized Sublease
Leases Leases Income
--------- ----------- --------
2004 $ 59,623 $ 6,393 $ 15,451
2005 57,860 6,399 13,881
2006 56,549 6,430 13,210
2007 54,650 6,485 11,744
2008 51,474 6,605 9,981
Thereafter 365,137 68,202 41,665
-------- -------- --------
Total $645,293 100,514 $105,932
======== ========
Amount representing interest 44,575
--------
Present value of net minimum
lease payments 55,939
Current portion 1,688
--------
Long-term portion $ 54,251
========
Of the operating lease commitments disclosed above, approximately $43.2 million
has been accrued in the closed facility reserve at January 3, 2004.
Sublease income to be received relates primarily to subletting of retail store
locations, for which the Company is the primary obligor, to third party retail
operators typically supplied by the Company's wholesale operations.
Assets under capital leases, consisting of retail store sites, had a net book
value of $39.9 million, net of accumulated amortization of $2.2 million, at
January 3, 2004 and $11.5 million, net of accumulated amortization of $0.4
million, at December 28, 2002.
The Company is involved in various claims and litigation arising in the normal
course of business. In the opinion of management, the ultimate resolution of
these actions will not materially affect the consolidated financial position,
results of operations or cash flows of the Company.
The Company has guaranteed a customer lease amounting to $0.3 million at January
3, 2004. As the Company does not expect to pay such amount, nothing was accrued
at January 3, 2004.
9. PATRONAGE DIVIDENDS
Prior to June 7, 2002, the Company's common stock was beneficially owned by the
owners of 99 retail grocery stores serviced by Roundy's. These former
stockholders received patronage dividends from the Company based on the level of
their purchases. Subsequent to the Transactions, such patronage dividends are no
longer payable.
10. STOCKHOLDER'S EQUITY
Option and stock appreciation rights ("SARs") transactions were as follows:
Options
Weighted
Options SARs Option Price Average Price
------- ----- --------------- -------------
Outstanding, December 30, 2000 50,600 17,784 $ 53.10-$129.95 $ 68.97
Exercised (2,500) (1,450) 53.10- 94.30 77.82
Cancelled (50)
------- ------ -------------- ---------
Outstanding, December 29, 2001 48,100 16,284 $ 53.10-$129.95 $ 68.51
======= ======= =============== =========
Options exercisable at December 29, 2001 were 47,766 with a weighted average
price of $68.08. All options became exercisable on June 6, 2002 and were
exercised in connection with the Transactions.
The Company adopted the disclosure-only provisions of SFAS No. 123, "Accounting
for Stock-Based Compensation" but has applied Accounting Principles Board
Opinion No. 25 and related interpretations in accounting for its plans. During
2000, the Company extended the term of all of its previously granted stock
options. Compensation expense was immaterial for 2001. If the Company had
elected to recognize compensation cost for the Plan based on the fair value of
the options at the grant dates, consistent with the method prescribed by SFAS
No. 123, pro-forma net income in Fiscal 2001 and the period from December 30,
2001 to June 6, 2002 would have decreased by less than $100,000.
SAR holders were entitled, upon exercise of a SAR, to receive cash in an amount
equal to the excess of the fair market value per share of the Company's common
stock as of the date on which the SAR is exercised over the base price of the
SAR. Compensation expense was not material in 2001. With the change in control
of the Company, SARs previously granted and not exercised became exercisable,
and were exercised on June 6, 2002 and resulted in $5.2 million of expense
recorded in the period from December 30, 2001 to June 6, 2002.
11. SEGMENT REPORTING
The Company and its subsidiaries sell and distribute food and nonfood products
that are typically found in supermarkets primarily located in the Midwest. The
Company has two reportable segments - wholesale and retail. The Company's retail
segment sells directly to the consumer while the wholesale distribution segment
sells to both Company-owned and independent retail food stores. The accounting
policies of the reportable segments are the same as those described in Note 2.
In 2003, 2002 and 2001, no customer accounted for over 10% of net sales and
service fees.
Eliminations represent the activity between wholesale and Company-owned retail
stores. Intersegment revenues are recorded at amounts consistent with those
charged to independent retail stores.
Identifiable assets are those used exclusively by that reportable segment.
Corporate assets are principally cash and cash equivalents, supply contracts,
trademarks, deferred financing costs, and certain property and equipment.
Reportable segments, as defined by SFAS No. 131, "Disclosure about Segments of
an Enterprise and Related Information," are components of an enterprise about
which separate financial information is available that is evaluated regularly by
the chief operating decision-maker in deciding resource allocation and assessing
performance.
(In thousands)
Successor Predecessor
---------------------------------------- ---------------------------------------
Year Ended June 7, 2002 to December 30, 2001 Year Ended
January 3, 2004 December 28, 2002 to June 6, 2002 December 29, 2001
--------------- ----------------- ----------------- -----------------
NET SALES AND SERVICE FEES
Retail $2,457,346 $ 942,859 $ 646,408 $1,377,133
Wholesale 3,319,927 1,692,699 1,303,335 2,871,003
Eliminations (1,396,195) (558,990) (390,274) (860,374)
---------- ----------- ----------- ----------
Consolidated $4,381,078 $ 2,076,568 $ 1,559,469 $3,387,762
========== =========== =========== ==========
INCOME BEFORE PATRONAGE DIVIDENDS,
DEPRECIATION AND AMORTIZATION
Retail $ 92,012 $ 39,105 $ 25,273 $ 53,546
Wholesale 105,336 45,319 33,364 61,214
Corporate (55,800) (19,635) (22,595) (21,412)
---------- ----------- ------------ ----------
Consolidated $ 141,548 $ 64,789 $ 36,042 $ 93,348
========== =========== =========== ==========
DEPRECIATION AND AMORTIZATION
Retail $ 27,533 $ 12,980 $ 9,105 $ 24,788
Wholesale 6,121 5,505 4,405 9,604
Corporate 15,944 12,501 4,191 8,636
---------- ----------- ----------- ----------
Consolidated $ 49,598 $ 30,986 $ 17,701 $ 43,028
========== =========== =========== ==========
INTEREST
Retail $ 18,529 $ 6,543 $ 6,132 $ 12,180
Wholesale 2,171 1,342 2,146 3,581
Corporate 24,873 13,130 5,487 3,023
---------- ----------- ----------- ----------
Consolidated $ 45,573 $ 21,015 $ 13,765 $ 18,784
========== =========== =========== ==========
CAPITAL EXPENDITURES
Retail $ 37,420 $ 13,031 $ 5,273 $ 10,961
Wholesale 5,494 4,581 1,426 9,727
Corporate 14,740 5,042 3,943 11,926
---------- ----------- ----------- ----------
Consolidated $ 57,654 $ 22,654 $ 10,642 $ 32,614
========== =========== =========== ==========
IDENTIFIABLE ASSETS (at year-end)
Retail $ 713,406 $ 513,299
Wholesale 618,537 599,602
Corporate 198,447 257,853
---------- -----------
Consolidated $1,530,390 $ 1,370,754
========== ===========
GOODWILL (at year-end)
Retail $ 319,052 $ 287,330
Wholesale 320,943 273,247
---------- -----------
Consolidated $ 639,995 $ 560,577
========== ===========
12. ALLOWANCE FOR LOSSES
Allowance for losses consists of the following (in thousands):
Additions
Charged Recoveries
Balance at (Credited) to Balance
Beginning to (Deductions Business at End
Description of Period Expenses From) Reserve Acquisition of Period
- ----------------------------------- --------- -------- ------------- ----------- ---------
January 3, 2004:
Current receivables $5,577 (428) (137) $5,012
Notes receivable, long-term $1,475 (1,475)
June 7, 2002 to December 28, 2002:
Current receivables $6,292 (1,193) 478 $ 5,577
Notes receivable, long-term $1,300 175 $ 1,475
December 30, 2001 to June 6, 2002:
Current receivables $7,021 (701) (28) $ 6,292
Notes receivable, long-term $1,300 $ 1,300
December 29, 2001:
Current receivables $5,729 820 (16) 488 $ 7,021
Notes receivable, long-term $2,129 (829) $ 1,300
Deductions from the reserve represent accounts written off, less recoveries.
13. CONDENSED CONSOLIDATING INFORMATION
The following presents condensed consolidating financial statements of Roundy's
and its subsidiaries. All subsidiaries are 100% owned by Roundy's. All of the
domestic subsidiaries are guarantors of the Notes. The accounting policies for
all entities are consistent with those previously described herein.
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
For the Year Ended January 3, 2004 (Successor)
(In thousands)
Combined
Roundy's Subsidiaries Eliminations Total
---------- ------------ ------------ ---------
Revenues:
Net sales and service fees $1,665,138 $ 3,629,710 $ (913,770) $4,381,078
Other-net 942 1,246 2,188
---------- ----------- ----------- ----------
1,666,080 3,630,956 (913,770) 4,383,266
---------- ----------- ----------- ----------
Costs and Expenses:
Cost of sales 1,496,912 2,900,536 (895,229) 3,502,219
Operating and administrative 136,158 625,907 (18,541) 743,524
Interest 22,290 23,283 45,573
---------- ----------- ----------- ----------
1,655,360 3,549,726 (913,770) 4,291,316
---------- ----------- ----------- ----------
Income Before Income Taxes 10,720 81,230 91,950
Provision for Income Taxes 8,565 28,737 37,302
Equity in earnings of subsidiaries 52,493 (52,493)
---------- ----------- ----------- ----------
Net Income $ 54,648 $ 52,493 $ (52,493) $ 54,648
========== =========== =========== ==========
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
June 7, 2002 to December 28, 2002 (Successor)
(In thousands)
Combined
Roundy's Subsidiaries Eliminations Total
----------- ------------ ------------ ----------
Revenues:
Net sales and service fees $ 867,590 $ 1,585,198 $ (376,220) $2,076,568
Other-net 327 880 1,207
---------- ----------- ----------- ----------
867,917 1,586,078 (376,220) 2,077,775
---------- ----------- ----------- ----------
Costs and Expenses:
Cost of sales 789,272 1,289,448 (368,820) 1,709,900
Operating and administrative 55,260 265,197 (7,400) 313,057
Interest 11,011 10,004 21,015
---------- ----------- ----------- ----------
855,543 1,564,649 (376,220) 2,043,972
---------- ----------- ----------- ----------
Income Before Income Taxes 12,374 21,429 33,803
Provision for Income Taxes 4,885 8,460 13,345
Equity in earnings of subsidiaries 12,969 (12,969)
---------- ----------- ----------- ----------
Net Income $ 20,458 $ 12,969 $ (12,969) $ 20,458
========== =========== =========== ==========
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
December 30, 2001 to June 6, 2002 (Predecessor)
(In thousands)
Combined
Roundy's Subsidiaries Eliminations Total
----------- ------------ ------------ ----------
Revenues:
Net sales and service fees $ 642,969 $ 1,193,445 $ (276,945) $1,559,469
Other-net (51) 745 694
----------- ----------- ----------- ----------
642,918 1,194,190 (276,945) 1,560,163
----------- ----------- ----------- ----------
Costs and Expenses:
Cost of sales 584,157 972,470 (271,577) 1,285,050
Operating and administrative 49,276 191,699 (5,368) 235,607
SARs and other termination costs 7,400 7,400
Interest 6,498 7,267 13,765
----------- ----------- ----------- ----------
647,331 1,171,436 (276,945) 1,541,822
----------- ----------- ----------- ----------
Income (Loss) Before Income Taxes (4,413) 22,754 18,341
Provision (Benefit) for Income Taxes (1,783) 9,196 7,413
Equity in earnings of subsidiaries 13,558 (13,558)
----------- ----------- ----------- ----------
Net Income $ 10,928 $ 13,558 $ (13,558) $ 10,928
=========== =========== =========== ==========
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
For the Year Ended December 29, 2001 (Predecessor)
(In thousands)
Combined
Roundy's Subsidiaries Eliminations Total
---------- ------------ ------------ ----------
Revenues:
Net sales and service fees $1,442,820 $ 2,585,671 $ (640,729) $3,387,762
Other-net 87 1,970 2,057
---------- ----------- ----------- ----------
1,442,907 2,587,641 (640,729) 3,389,819
---------- ----------- ----------- ----------
Costs and Expenses:
Cost of sales 1,311,621 2,144,296 (629,963) 2,825,954
Operating and administrative 111,594 393,933 (10,766) 494,761
Interest 1,928 16,856 18,784
---------- ----------- ----------- ----------
1,425,143 2,555,085 (640,729) 3,339,499
---------- ----------- ----------- ----------
Income Before Patronage Dividends 17,764 32,556 50,320
Patronage Dividends 16,023 (7,342) 8,681
---------- ----------- ----------- ----------
Income Before Income Taxes 1,741 39,898 41,639
Provision for Income Taxes 658 15,197 15,855
Equity in earnings of subsidiaries 24,701 (24,701)
---------- ----------- ----------- ----------
Net Income $ 25,784 $ 24,701 $ (24,701) $ 25,784
========== =========== =========== ==========
CONDENSED CONSOLIDATING BALANCE SHEETS
As of January 3, 2004 (Successor)
(In thousands)
Combined
Roundy's Subsidiaries Eliminations Total
----------- ------------- ------------ ---------
Assets
Current Assets:
Cash and cash equivalents $ 49,059 $ 40,947 $ 90,006
Notes and accounts receivable-net 33,129 59,004 $ (10,204) 81,929
Merchandise inventories 53,363 198,525 251,888
Prepaid expenses 4,532 7,897 12,429
Deferred income tax benefits (3,160) 20,905 17,745
----------- ----------- --------- ----------
Total current assets 136,923 327,278 (10,204) 453,997
----------- ----------- --------- ----------
Property and Equipment-Net 19,784 300,365 320,149
Other Assets:
Investment in subsidiaries 249,422 (249,422)
Intercompany receivables 476,528 (476,528)
Deferred income tax benefits 28,161 28,161
Notes receivable 615 2,262 2,877
Goodwill and other assets 266,722 458,484 725,206
----------- ----------- --------- ----------
Total other assets 1,021,448 460,746 (725,950) 756,244
----------- ----------- --------- ----------
Total assets $ 1,178,155 $ 1,088,389 $(736,154) $1,530,390
=========== =========== ========= ==========
Liabilities and Shareholder's Equity
Current Liabilities:
Accounts payable $ 150,376 $ 154,087 $ (7,730) $ 296,733
Accrued expenses 60,387 71,586 (2,474) 129,499
Current maturities of long-term debt and
capital lease obligations 2,500 1,729 4,229
Intercompany payable 476,528 (476,528)
Income taxes 12,221 (439) 11,782
----------- ----------- --------- ----------
Total current liabilities 225,484 703,491 (486,732) 442,243
----------- ----------- --------- ----------
Long-Term Debt and Capital Lease Obligations 543,417 54,333 597,750
Other Liabilities 19,648 81,143 100,791
----------- ----------- --------- ----------
Total liabilities 788,549 838,967 (486,732) 1,140,784
Shareholder's Equity 389,606 249,422 (249,422) 389,606
----------- ----------- --------- ----------
Total liabilities and shareholder's equity $ 1,178,155 $ 1,088,389 $(736,154) $1,530,390
=========== =========== ========= ==========
CONDENSED CONSOLIDATING BALANCE SHEETS
As of December 28, 2002 (Successor)
(In thousands)
Combined
Roundy's Subsidiaries Eliminations Total
----------- ------------ ------------ ----------
Assets
Current Assets:
Cash and cash equivalents $ 117,307 $ 22,471 $ 139,778
Notes and accounts receivable-net 35,543 56,317 $ (4,516) 87,344
Merchandise inventories 53,386 173,079 226,465
Prepaid expenses 3,816 5,940 9,756
Deferred income tax benefits (8,465) 24,336 15,871
----------- --------- --------- ----------
Total current assets 201,587 282,143 (4,516) 479,214
----------- --------- --------- ----------
Property and Equipment-Net 10,873 203,675 214,548
Other Assets:
Investment in subsidiaries 190,732 (190,732)
Intercompany receivables 409,761 (409,761)
Deferred income tax benefits 25,231 25,231
Notes receivable 640 2,883 3,523
Goodwill and other assets 258,896 389,342 648,238
----------- --------- --------- ----------
Total other assets 885,260 392,225 (600,493) 676,992
----------- --------- --------- ----------
Total assets $ 1,097,720 $ 878,043 $(605,009) $1,370,754
=========== ========= ========= ==========
Liabilities and Shareholder's Equity
Current Liabilities:
Accounts payable $ 127,742 $ 116,146 $ (3,043) $ 240,845
Accrued expenses 63,486 65,403 (1,473) 127,416
Current maturities of long-term debt
and capital lease obligations 2,500 461 2,961
Intercompany payable 409,761 (409,761)
Income taxes 7,828 5,542 13,370
----------- --------- --------- ----------
Total current liabilities 201,556 597,313 (414,277) 384,592
----------- --------- --------- ----------
Long-Term Debt and Capital Lease Obligations 546,502 13,322 559,824
Other Liabilities 14,704 76,676 91,380
----------- --------- --------- ----------
Total liabilities 762,762 687,311 (414,277) 1,035,796
----------- --------- --------- ----------
Shareholder's Equity 334,958 190,732 (190,732) 334,958
----------- --------- --------- ----------
Total liabilities and shareholder's equity $ 1,097,720 $ 878,043 $(605,009) $1,370,754
=========== ========= ========= ==========
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
For the year ended January 3, 2004 (Successor)
(In thousands)
Combined
Roundy's Subsidiaries Total
--------- ------------ ---------
Net Cash Flows From Operating Activities $ 30,439 $ 129,036 $ 159,475
--------- --------- ---------
Cash Flows From Investing Activities:
Capital expenditures-net of proceeds (12,764) (43,336) (56,100)
Payment for business acquisitions net of cash acquired (148,529) (148,529)
Notes receivable 25 621 646
--------- --------- ---------
Net cash flows used in investing activities (161,268) (42,715) (203,983)
--------- --------- ---------
Cash Flows From Financing Activities:
Payments of debt (3,085) (1,078) (4,163)
Debt issuance costs (1,101) (1,101)
Contributed capital
Intercompany receivables-net 66,767 (66,767)
--------- --------- ---------
Net cash flows (used in) provided by financing activities 62,581 (67,845) (5,264)
--------- --------- ---------
Net Decrease in Cash and Cash Equivalents (68,248) 18,476 (49,772)
Cash And Cash Equivalents, Beginning Of Period 117,307 22,471 139,778
--------- --------- ---------
Cash And Cash Equivalents, End Of Period $ 49,059 $ 40,947 $ 90,006
========= ========= =========
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
For the period from June 7, 2002 to December 28, 2002 (Successor)
(In thousands)
Combined
Roundy's Subsidiaries Total
--------- ------------ ---------
Net Cash Flows Provided by (Used in) Operating Activities $ (34,276) $ 110,814 $ 76,538
--------- --------- ---------
Cash Flows From Investing Activities:
Capital expenditures-net of proceeds (6,256) (16,046) (22,302)
Acquisition of Roundy's (323,307) (220,372) (543,679)
Payment for business acquisitions net of cash acquired (40,631) (40,631)
Notes receivable 103 1,006 1,109
--------- --------- ---------
Net cash flows used in investing activities (370,091) (235,412) (605,503)
--------- --------- ---------
Cash Flows From Financing Activities:
Proceeds from long-term borrowings 549,625 549,625
Interest rate swap termination payment (6,652) (6,652)
Payments of debt (166,524) (248) (166,772)
Debt issuance costs (21,958) (21,958)
Contributed capital 314,500 314,500
Intercompany receivables-net (147,317) 147,317
--------- --------- ---------
Net cash flows provided by financing activities 521,674 147,069 668,743
--------- --------- ---------
Net Increase in Cash and Cash Equivalents 117,307 22,471 139,778
Cash And Cash Equivalents, Beginning Of Period
--------- --------- ---------
Cash And Cash Equivalents, End Of Period $ 117,307 $ 22,471 $ 139,778
========= ========= =========
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
For the period from December 30, 2001 to June 6, 2002 (Predecessor)
(In thousands)
Combined
Roundy's Subsidiaries Total
-------- ------------ --------
Net Cash Flows Provided by (Used in) Operating Activities $ (5,495) $ 50,339 $ 44,844
-------- -------- --------
Cash Flows From Investing Activities:
Capital expenditures-net of proceeds (4,008) (6,156) (10,164)
Notes receivable 318 561 879
-------- -------- --------
Net cash flows used in investing activities (3,690) (5,595) (9,285)
-------- -------- --------
Cash Flows From Financing Activities:
Payments of debt (48,450) (168) (48,618)
Debt issuance costs (56) (56)
Intercompany receivables-net 39,916 (39,916)
-------- -------- --------
Net cash flows used in financing activities (8,590) (40,084) (48,674)
-------- -------- --------
Net (Decrease)Increase in Cash and Cash Equivalents (17,775) 4,660 (13,115)
Cash And Cash Equivalents, Beginning Of Period 23,137 22,379 45,516
-------- -------- --------
Cash And Cash Equivalents, End Of Period $ 5,362 $ 27,039 $ 32,401
======== ======== ========
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
For the Year Ended December 29, 2001 (Predecessor)
(In thousands)
Combined
Roundy's Subsidiaries Total
-------- ----------- --------
Net Cash Flows Provided by Operating Activities $ 14,692 $ 61,579 $ 76,271
-------- -------- --------
Cash Flows From Investing Activities:
Capital expenditures-net of proceeds (7,071) (21,151) (28,222)
Payment for business acquisitions net of cash acquired (78,829) (78,829)
Other 647 1,019 1,666
-------- -------- --------
Net cash flows used in investing activities (85,253) (20,132) (105,385)
-------- -------- --------
Cash Flows From Financing Activities:
Proceeds from long-term borrowings 88,000 88,000
Payments of debt (47,800) (256) (48,056)
Common stock purchased, sold and debt issuance costs (5,207) (5,207)
Intercompany receivables-net 36,902 (36,902)
-------- -------- --------
Net cash flows provided by (used in) financing activities 71,895 (37,158) 34,737
-------- -------- --------
Net Increase in Cash and Cash Equivalents 1,334 4,289 5,623
Cash And Cash Equivalents, Beginning Of Year 21,803 18,090 39,893
-------- -------- --------
Cash And Cash Equivalents, End Of Year $ 23,137 $ 22,379 $ 45,516
======== ======== ========
14. SUBSEQUENT EVENT
On March 29, 2004, the Company closed on an amendment to its Credit Agreement
which lowered the applicable rates for the term loan by 0.5%. Subsequent to this
amendment, the applicable rate under the LIBOR option and the base rate option
is LIBOR plus 2.0% and prime plus 1.0%, respectively.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
ITEM 9A. CONTROLS AND PROCEDURES
The Company's Chief Executive Officer and Chief Financial Officer performed an
evaluation of the Company's disclosure controls and procedures, which have been
designed to permit the Company to effectively identify and disclose important
information timely. The Company concluded that the controls and procedures were
effective as of January 3, 2004 to ensure material information was accumulated
and communicated to the Company's management, including the Chief Executive
Officer and Chief Financial Officer, as appropriate to allow timely decisions
regarding required disclosure. During the fourth quarter ended January 3, 2004,
the Company made no change in its internal controls over financial reporting
that materially affected, or is reasonably likely to materially affect, internal
controls over financial reporting.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Directors and Executive Officers of Roundy's are as follows:
Name Age Position(s) Held with Roundy's
Robert A. Mariano 53 Chairman of the Board, Chief Executive
Officer and President; Director
Darren W. Karst 44 Executive Vice President and Chief
Financial Officer
Andrew A. Abraham 40 Group Vice President, Marketing
John W. Boyle 46 Group Vice President, Information
Technology and Business Process
Gary L. Fryda 51 Group Vice President, Retail
Operations, Customer Satisfaction
Edward G. Kitz 50 Group Vice President, Legal, Risk and
Treasury, Corporate Secretary
Robin S. Michel 49 Group Vice President, Merchandising
and Procurement
Donald S. Rosanova 54 Group Vice President, Supply Chain
Michael J. Schmitt 55 Group Vice President, Wholesale
Development and Real Estate
Colleen J. Stenholt 53 Group Vice President, Human Resources
Jeffrey D. Beyer 36 Director
L. Dick Buell 53 Director
Ralph W. Drayer 59 Director
Avy H. Stein 49 Director
John R. Willis 54 Director
Robert A. Mariano has been the Chairman of the Board, Chief Executive Officer,
President and a director of RAC and Roundy's since June 2002. Mr. Mariano was
self-employed as a consultant from November 1998 through June 2002. Prior to
this, Mr. Mariano served as the President and a Director of Dominick's
Supermarkets, Inc. from March 1995 and Chief Executive Officer from January 1996
until Dominick's sale to Safeway Inc. in 1998. Mr. Mariano also served as Chief
Operating Officer of Dominick's from March 1995 until January 1996. Mr. Mariano
joined Dominick's in 1972.
Darren W. Karst has been the Executive Vice President and Chief Financial
Officer of RAC and Roundy's since June 2002. From 2000 until May 2002, Mr. Karst
served as Executive Vice President and Chief Financial Officer of Alliance
Entertainment Corp., a distributor of music and video products. Mr. Karst served
as Executive Vice President, Finance and Administration of Dominick's from March
1996, and Senior Vice President, Chief Financial Officer, Secretary and a
Director from March 1995 until its sale in 1998. From 1991 to 2002, Mr. Karst
was a partner at The Yucaipa Companies, a private equity investment firm.
Andrew A. Abraham has served as Group Vice President Marketing since February
2003. Mr. Abraham served as Vice President of Product Marketing at Radio Shack
Corporation from April 2001 to February 2003. From June 1989 to March 2001, Mr.
Abraham held various positions in brand management at Procter & Gamble Company.
John W. Boyle has served as Group Vice President, Information Technology and
Business Process since October 2003. From May 2003 until October 2003 Mr. Boyle
served as Vice President, Business Process Excellence. From May 2002 until May
2003 Mr. Boyle performed independent consulting including seven months at
Roundy's. From 1999 until February 2002 Mr. Boyle held various management
positions at Storage Networks, Inc. Mr. Boyle served as Group Vice President,
Information Technology and Store Planning at Dominick's from March 1996 and Vice
President, Administration from January 1995 until its sale in 1998. From 1992
until 1995 Mr. Boyle served as Vice President, Information Technology at Food 4
Less Supermarkets, Inc.
Gary L. Fryda has served as Group Vice President, Retail Operations and Customer
Satisfaction since October 2002. From 2000 to October 2002, Mr. Fryda served as
Vice President of Corporate Retail. From 1987 to 2000, Mr. Fryda served as the
President and Chief Executive Officer of Mega Marts, Inc., which was acquired by
Roundy's in March 2000. From 1986 to 1987, Mr. Fryda worked for Cardinal Foods,
a grocery wholesale and retail company, initially as Vice President and Chief
Operating Officer of Cardinal's retail division and later as President of the
retail division.
Edward G. Kitz has served as Corporate Secretary and Group Vice President Legal,
Risk and Treasury since September 2003 and served as Vice President, Secretary
and Treasurer of Roundy's from 1995 to September 2003. Mr. Kitz joined Roundy's
in 1980 as the Corporate Controller and was promoted to Vice President in 1985.
In 1989, Mr. Kitz assumed the additional responsibilities of Treasurer. Prior to
joining Roundy's, Mr. Kitz was with Deloitte & Touche LLP.
Robin S. Michel has served as Group Vice President, Merchandising and
Procurement since September 2003. From 2002 to September 2003, Ms. Michel served
as Vice President-Merchandising for 7-Eleven, Inc. From 1990 to 2002 Ms. Michel
held various positions at H.E. Butt Grocery Company, most recently as Group Vice
President-Drug Store Procurement & Merchandising. Ms. Michel held various
merchandising positions with The Kroger Company from 1978 to 1990.
Donald S. Rosanova has served as Group Vice President of Supply Chain since
October 2002. Prior to this position, Mr. Rosanova was Vice President of
Operations from 1999 to 2002 with Edward Don & Company, a provider of food
service supplies and equipment. Prior to that, Mr. Rosanova served as Group Vice
President of Operations at Dominick's from 1994 to November 1998 and held
various management positions within Dominick's from 1971 to 1994.
Michael J. Schmitt has served as Group Vice President Wholesale Development and
Real Estate since October 2002. From 1994 to October 2002, Mr. Schmitt served as
Vice President of Sales and Development. Prior to this position, Mr. Schmitt was
the Vice President, North Central Region from 1992 to 1994 and General Manager,
Milwaukee Division from 1990 to 1991. Mr. Schmitt joined Roundy's in 1977.
Colleen J. Stenholt has served as Group Vice President of Human Resources since
October 2002. Prior to this position, Ms. Stenholt was Senior Vice President of
Human Resources from 1996 to 2002 with Metavante, Inc. a subsidiary of M&I
Corporation, a technology solutions company. From 1983 to 1996 she served in
various human resource management roles with Northwestern Mutual and GE Medical
Systems.
Jeffery D. Beyer has been a director of Roundy's since October 2002. Mr. Beyer
is a Principal at Willis Stein & Partners. Prior to joining Willis Stein in
May 2002, Mr. Beyer was a management consultant at the Boston Consulting Group
from 1998 to 2002. Prior to joining Boston Consulting Group, Mr. Beyer attended
Stanford University's Graduate School of Business from September 1996 to
June 1998, where he received an M.B.A. degree. Mr. Beyer served as Vice
President in the mergers and acquisitions group of Bear Stearns from July 1989
to August 1996.
L. Dick Buell has been a director of Roundy's since August 2002. Mr. Buell has
been Chief Executive Officer of WS Brands, Inc. since December 2001. Prior to
that, Mr. Buell served as President and Chief Operating Officer of Foodbrands
America, Inc., a maker of branded and private-label processed perishable foods
for delicatessens, food-service distributors, restaurant chains and retail and
wholesale clients, from March 2000 to November 2001. From 1989 to 2000, Mr.
Buell held senior management positions at Griffith Laboratories, a developer and
manufacturer of value-added flavor and texture systems for food and food
products, including serving as President and Chief Executive Officer from 1993
to 2000. From 1983 to 1989, Mr. Buell was a Vice President at Kraft Food
Company.
Ralph W. Drayer has been a director of Roundy's since October 2002. Mr. Drayer
is Founder and Chairman of Supply Chain Insights, LLC, a supply chain strategy
consultancy. Prior to founding Supply Chain Insights, LLC in 2001, Mr. Drayer
was with Procter and Gamble for 32 years from 1962 to 2001. Mr. Drayer held a
number of distribution, logistics, customer service and customer business
development positions with Procter and Gamble, both domestically and
internationally most recently as Vice President--Efficient Customer
Response--Worldwide.
Avy H. Stein has been a director of RAC and Roundy's since June 6, 2002. Mr.
Stein is a Managing Director of Willis Stein & Partners L.P. Prior to the
formation of Willis Stein in 1994, Mr. Stein served as a Managing Director of
CIVC Partners from 1989 to 1994. From 1984 to 1985, Mr. Stein was President of
Cook Energy Corporation and Vice President of Corporate Planning and Legal
Affairs at Cook International, Inc. From 1980 through 1983, Mr. Stein was an
attorney with Kirkland & Ellis. Mr. Stein has also served as a special
consultant for mergers and acquisitions to the Chief Executive Officer of NL
Industries, Inc. and as the Chief Executive Officer of Regent Corporation. He
currently serves as a Director of several companies, including Ziff Davis Media,
Inc., Racing Champions Corporation, Tremont Corporation and other Willis Stein
portfolio companies.
John R. Willis has been the Vice President and Secretary and a director of RAC
and a director of Roundy's since October, 2002. Mr. Willis is a Managing
Director of Willis Stein Partners L.P. Prior to the formation of Willis Stein in
1994, Mr. Willis served as President and a director of CIVC Partners from 1989
to 1994. In 1988, he founded the Continental Mezzanine Investment Group and was
its manager through 1990. Mr. Willis currently serves as a director of several
companies, including Aurum Technology, Inc., Aavid Thermal Technologies, Inc.,
PersonalPath Systems, Inc., National Veterinary Associates, Inc. and Ziff Davis
Media Inc.
Code of Ethics
The Company has adopted a Code of Business Conduct and Ethics (the "Code")
within the meaning of Item 406(b) of Regulation S-K. The Code applies to our
principal executive officer, principal financial officer, principal accounting
officer or controller, persons performing similar functions and all employees.
The Code is publicly available on the Company's website at
http://www.roundys.com.
Audit Committee
The Company's Board of Directors has an Audit Committee comprised of Messrs.
Buell and Beyer. Mr. Buell is the Chairman of the Committee. The Company has
identified Mr. Beyer as the Audit Committee's "financial expert" as defined by
applicable SEC rules. As a Principal at Willis Stein, Mr. Beyer is responsible
for overseeing and assessing the financial performance of several Willis Stein
portfolio companies and actively supervises the chief financial officers of
certain of those companies. Roundy's has determined that Mr. Beyer is not
"independent" as defined for purposes of the SEC rules because he is an employee
of Willis Stein, the majority owner of RAC, Roundy's parent company.
ITEM 11. Executive Compensation
The following table shows the compensation for the past three years of the
Company's Chief Executive Officer and the next four most highly compensated
executive officers performing policy-making functions for Roundy's, Inc. The
five individuals named in the table below are collectively referred to as the
"named executive officers":
Annual
Compensation
Salary All Other
Name and Principal Position Year (1) (2) Bonus Compensation(3)
- --------------------------- ---- --------- ----- ---------------
Robert A. Mariano(4) 2003 $611,539 $600,000 $9,399
Chairman, President and 2002 339,230 348,000 6,862
Chief Executive Officer 2001
Darren W. Karst(4) 2003 458,654 450,000 10,134
Executive Vice President and 2002 254,423 261,000 5,048
Chief Financial Officer 2001
Gary L. Fryda 2003 348,773 171,238 11,363
Group Vice President of Retail 2002 332,500 79,967 10,449
Operations and Customer Satisfaction 2001 332,500 6,440
Donald S. Rosanova(5) 2003 295,577 145,000 6,427
Group Vice President - Supply Chain 2002 55,769 36,250
2001
Andrew A. Abraham(6) 2003 253,077 128,333 6,441
Group Vice President - Marketing 2002
2001
(1) Includes amounts (if any) deferred pursuant to the Company's Deferred
Compensation Plan.
(2) Pursuant to applicable SEC regulations, perquisites and other personal
benefits are omitted because they did not exceed the lesser of either $50,000
or 10% of the total of salary and bonus.
(3) "All Other Compensation" includes the following:
Company
Life Contributions Deferred
Insurance to Compensation
Name Year Benefit(a) 401(k)Plans Plan (b)
- ------------------- ---- ---------- ----------- ------------
Robert A. Mariano 2003 $9,399
2002 6,862
2001
Darren W. Karst 2003 4,134 $6,000
2002 4,069 979
2001
Gary L. Fryda 2003 4,501 6,000 $862
2002 4,390 5,500 559
2001 976 5,250 214
Donald S. Rosanova 2003 1,279 5,148
2002
2001
Andrew A. Abraham 2003 2,079 4,362
2002
2001
(a) Life Insurance Benefit consists of premiums on term life insurance.
(b) Estimated above-market portion of interest accrued on amounts
deferred under the Company's Deferred Compensation Plan. See
"Deferred Compensation Plan" below. Only Mr. Fryda participated
in the Deferred Compensation Plan during the periods indicated.
(4) Messrs. Mariano and Karst were employed by the Company beginning June 7,
2002.
(5) Mr. Rosanova's employment by the Company began October 21, 2002.
(6) Mr. Abraham's employment by the Company began February 10, 2003.
Executive Agreements
Robert A. Mariano. In connection with the Transactions, the Company entered into
an Executive Agreement with Mr. Mariano, which governs the terms of Mr.
Mariano's employment with it. In his Executive Agreement, Mr. Mariano agreed to
serve as the Chairman of the Board, Chief Executive Officer and President until
he resigns or until the Company terminates his employment. While employed by the
Company, Mr. Mariano will receive an annual base salary of $600,000, subject to
increase by the Company's Board of Directors. Mr. Mariano is also eligible for a
bonus of up to 100% of his base salary based upon the achievement of certain
financial goals. In addition, he is entitled to customary benefits for which
senior executives of the Company are generally eligible. Mr. Mariano's
employment will continue until his death or incapacity, termination by the
Company, with or without cause, or his resignation for any reason. His Executive
Agreement provides for an initial term of employment of five years. If Mr.
Mariano's employment is terminated by the Company prior to that time without
cause, or if he resigns with good reason (each as defined in the Executive
Agreement), he will be entitled to one year of his base salary and employee
benefits through the first anniversary of his termination. Mr. Mariano's
Executive Agreement also contains customary noncompetition provisions. Mr.
Mariano's Executive Agreement also provides for the purchase by him of shares of
RAC common stock in exchange for a promissory note. The RAC common stock he
purchased under the Executive Agreement is subject to time vesting provisions,
which will vest ratably over a five year period.
Darren W. Karst. Mr. Karst entered into an Executive Agreement on substantially
similar terms to those contained in Mr. Mariano's Executive Agreement, except
that his base salary is $450,000.
Donald S. Rosanova. The Company has an employment agreement with Mr. Rosanova
which provides for an initial term of three years. The agreement requires Mr.
Rosanova to perform certain services for the Company and provides an annual base
salary of $290,000, subject to increase by the Company's Chief Executive
Officer. If Mr. Rosanova's employment is terminated by the Company prior to that
time without cause, or if he resigns with good reason (each as defined in the
agreement), he will be entitled to one year of his base salary and employee
benefits through the first anniversary of his termination. Mr. Rosanova's
agreement also contains customary noncompetition provisions.
Gary L. Fryda. The Company has an employment agreement with Mr. Fryda, which
expires on April 1, 2005. The agreement requires Mr. Fryda to perform certain
services for the Company and provides Mr. Fryda with an annual salary of
$332,500 for the term of the agreement. Mr. Fryda is also entitled to
participate in certain employee benefit programs, which the Company makes
generally available to its executives from time to time. During the employment
period and for a period of two years after termination of employment (under
certain circumstances), Mr. Fryda agrees not to compete with the Company based
on certain terms described in the agreement.
Life Insurance
- --------------
Each of the executive officers of the Company is covered by $250,000 of
executive equity life insurance. In addition, executives are covered by a group
life carve-out plan in the amount of three times salary, which is in lieu of the
group term life insurance provided to substantially all nonunion employees under
a Company-sponsored plan. In addition, the executive officers of the Company are
covered by an executive disability income insurance wrap-around plan which is in
addition to the disability income insurance provided to substantially all
nonunion employees under a Company-sponsored plan.
Deferred Compensation Plan
- --------------------------
The Company maintains a deferred compensation plan, applicable to officers who
have been elected by the Board of Directors, to assist those officers in
deferring income until their retirement, death or other termination of
employment. Of the named executive officers, only Mr. Fryda participates in the
Deferred Compensation Plan. The plan participants may make deferral commitments
that are not less than $10,000 over a period of not more than seven years and
not less than $2,000 in any one year. The aggregate annual deferral may not
exceed $100,000 per calendar year for all participants combined unless the Board
of Directors approves an amount in excess of that limit. Monthly interest is
credited to each participant's account based on the Moody's Long Term Bond Rate
in effect on January 1 of each year plus 2%. Upon death of a participant prior
to termination of employment and before any periodic payments have started, the
Company will pay to the participant's designated beneficiary a pre-retirement
death benefit equal to five times the total aggregate deferral commitment of the
participant payable in equal annual installments over a 10 year period. The
Company has purchased life insurance policies on the lives of the participants
to fund its liabilities under the plan. The Company established a trust to hold
assets to be used to pay benefits under the deferred compensation plan, however,
the rights of any particular beneficiary or estate to benefits under the
deferred compensation plan are solely those of an unsecured creditor of the
Company.
Board of Directors Compensation
- -------------------------------
A formal Board compensation policy was adopted on March 18, 2003. Directors who
are employees or principals of Roundy's or Willis Stein will receive no fees for
serving as directors, and other Directors (Messrs. Buell and Drayer) will
receive $30,000 per year, prorated on an annual basis.
Retirement Plan
- ---------------
Benefits under the Company's retirement plan are, in general, an amount equal to
50% of average compensation minus 50% of the participant's primary Social
Security benefit; provided, however, that if the employee has fewer than 25
years of credited service, the monthly amount so determined is multiplied by a
fraction, the numerator of which is the years of credited service and the
denominator of which is 25. In addition, if credited service is greater than 25
years, the benefit is increased by one percent of average compensation for each
year of credited service in excess of 25 years to a maximum of 10 additional
years. The following table shows the estimated annual pensions (before deduction
of the Social Security offset described above) that persons in specified
categories would have received if they had retired on January 3, 2004, at the
age of 65:
Average Annual
Compensation
During Last Five Annual Pension After Specified Years of Credited Service
Completed Calendar Years 10 Years 15 Years 20 Years 25 Years 30 Years 35 Years
------------------------ -------- -------- -------- -------- -------- --------
$100,000 $20,000 $30,000 $40,000 $ 50,000 $ 55,000 $ 60,000
125,000 25,000 37,500 50,000 62,500 68,800 75,000
150,000 30,000 45,000 60,000 75,000 82,500 90,000
175,000 35,000 52,500 70,000 87,500 96,250 105,000
200,000 38,800 58,200 77,600 97,100 106,800 116,500
225,000 40,000 60,000 80,000 100,000 110,000 120,000
All of the named executive officers are covered by the Company's retirement
plan. Their average annual compensation would be the combined amount listed
under salary and bonus shown in the Summary Compensation Table. The current
executive officers are subject to a $200,000 annual limit on covered
compensation. The estimated credited years of service for each of the named
executive officers is as follows: Mr. Mariano--2 years; Mr. Karst--2 years;
Mr. Fryda--14 years; Mr. Rosanova-2 years; and Mr. Abraham-1 year.
Compensation Committee
- ----------------------
The members of the Compensation Committee of the Board of Directors of the
Company are Mssrs. Beyer, Drayer and Stein, all of whom are non-employee
directors of Roundy's.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management.
All of the common stock of Roundy's is owned by RAC. Set forth below is
information concerning the ownership of RAC common and preferred stock, and the
combined voting power of such stock represented thereby, by (i) each Roundy's
director; (ii) each "named executive officer"; and (iii) all of Roundy's
directors and executive officers as a group.
Combined Voting
RAC Common Stock RAC Preferred Stock Power (1)
---------------------------- ----------------------------- -----------------------
Amount and Amount and Amount and
Nature of Nature of Nature of
Name of Beneficial Percent of Beneficial Percent of Beneficial Percent of
Beneficial Owner Ownership Class Ownership Class Ownership Class
- --------------------- --------- --------- --------- --------- --------- ---------
Willis Stein Entities (2) 95,436.2 100.00% 10,483.3 100.00% 105,919.6 100.00%
Robert A. Mariano 4,460.0 4.67 33.3 0.32 4,493.3 4.24
Darren W. Karst 2,203.3 2.31 13.3 0.13 2,216.7 2.09
Gary L. Fryda 524.2 0.55 524.2 0.49
Donald S. Rosanova 524.2 0.55 524.2 0.49
Andrew A. Abraham 524.2 0.55 524.2 0.49
Jeffrey D. Beyer
L. Dick Buell 150.0 0.16 150.0 0.14
Ralph W. Drayer 150.0 0.16 150.0 0.14
Avy H. Stein (2) 95,436.2 100.00 10,483.3 100.00 105,919.6 100.00
John R. Willis (2) 95,436.2 100.00 10,483.3 100.00 105,919.6 100.00
All Directors and
Executive Officers
(including two non-
executive officers) of
Roundy's, Inc., (as a
group 17 persons) 95,436.2 100.00 10,483.3 100.00 105,919.6 100.00
(1) Each share of RAC Common Stock and each share of RAC Preferred Stock
has one vote. See "Item 13 Certain Relationships and Related
Transactions - Equity Arrangements." Under the terms of an investor
rights agreement, all of the stockholders of RAC agreed to vote in
favor of those individuals designated by Willis Stein Funds to serve on
the board of directors of RAC and Roundy's, Inc. and the Willis Stein
Funds have the right to appoint a majority of the directors. See "Item
1. BUSINESS - Risk Factors - Principal stockholders may have interests
in conflict with interest of noteholders."
(2) Includes 60,000 shares of common stock (62.87%) and 7,500 shares of
preferred stock (71.54%) held by Willis Stein & Partners III, L.P.,
Willis Stein & Partners Dutch III-A, L.P., Willis Stein & Partners
Dutch III-B, L.P., and Willis Stein & Partners III-C, L.P.
(collectively, the "Willis Stein Entities"). Also includes 35,436.2
shares of common stock and 2,983.3 shares of preferred stock held by
the stockholders executing the investor rights agreement. Such
stockholders have agreed pursuant to the terms of the investor rights
agreement to vote their shares as directed by the Willis Stein Entities
in certain matters. As a result of the foregoing, the Willis Stein
Entities may be deemed to have beneficial ownership with respect to the
shares held by the stockholders executing the investor rights
agreement. The Willis Stein Entities disclaim beneficial ownership of
such shares held by such stockholders. Messrs. John R. Willis and Avy
H. Stein are Managing Directors of each of the ultimate general
partners of the Willis Stein Entities, and, as a result, may be deemed
to have beneficial ownership with respect to the shares held by and
deemed to be beneficially owned by the Willis Stein Entities. Each
disclaims beneficial ownership of such shares held by and deemed to be
beneficially owned by such funds. The address for Willis Stein and
Messrs. Willis and Stein is One North Wacker Drive, Suite 4800,
Chicago, Illinois 60606.
ITEM 13. Certain Relationships and Related Transactions
Equity Arrangements
In connection with the Transactions, Willis Stein, Messrs. Mariano and Karst and
certain other investors purchased shares of common stock and preferred stock of
RAC.
Common Stock - The holders of common stock are entitled to receive dividends out
of legally available funds, payable when, as and if declared by RAC's board of
directors and are entitled to one vote per share held.
Preferred Stock - The holders of preferred stock are entitled to receive
cumulative dividends, accruing on a daily basis at the rate of 12% per annum,
out of legally available funds, payable when, as and if declared by the Board of
Directors. Dividends compound to the extent not paid on any quarterly dividend
payment date. The holders of preferred stock also participate with the holders
of common stock with respect to any other yields or distributions.
In the event of any liquidation, dissolution or winding up of RAC, the holders
of preferred stock will be entitled to receive, in preference to the holders of
common stock, an amount payable in cash equal to the original purchase price for
the preferred stock plus declared and unpaid dividends. Thereafter, holders of
the common stock and the preferred stock will share the remaining net assets of
RAC.
RAC must redeem the preferred stock on September 30, 2012.
In addition, in connection with a change in control transaction or a sale of all
or substantially all of RAC's assets on a consolidated basis upon the request of
the majority of the holders of the preferred stock, the holders of preferred
stock will be entitled to receive an amount payable in cash equal to the
original purchase price for the preferred stock plus declared and unpaid
dividends.
Prior to an initial public offering, upon the request of the holders of a
majority of the preferred stock, the preferred stock will either be redeemed for
cash or converted into shares of common stock.
The holders of preferred stock are entitled to one vote per share held.
Item 14. Principal Accountant Fees and Services
Audit Fees. Fees for professional services provided for Fiscal 2003 and 2002,
were $665,200 and $536,500, respectively. Audit fees consist primarily of the
annual audit and quarterly reviews of the consolidated financial statements,
assistance with and review of documents filed with the SEC, work performed by
tax professionals in connection with the annual audit and quarterly reviews, and
accounting and financial reporting consultations and research work necessary to
comply with generally accepted auditing standards.
Audit-Related Fees. Fees for audit-related professional services provided during
Fiscal 2003 were $65,300. Audit-related fees consist primarily of audits of the
Company's benefit plans.
Tax Fees. Fees for tax-related professional services provided during Fiscal 2003
were $316,600. Tax fees include professional services provided for review of tax
returns prepared by the Company, deferred tax analysis, tax provision review,
purchase accounting, acquisition matters and tax advice, exclusive of tax
services rendered in connection with the audit.
There were no other fees incurred by the Company during Fiscal 2003 and 2002.
The Company's Board of Directors appoints the independent auditors and
pre-approves the fee arrangements with respect to the annual audit, quarter
reviews of the Company's Form 10-Q filings, audit of the Company's benefit plans
and tax compliance services and other services as required. All of the services
described under audit, audit-related and tax fees have been approved by the
Audit Committee.
PART IV
ITEM 15. Exhibits, Financial Statement Schedules and Reports
on Form 8-K
(a)(1) Financial Statements
Included in Item 8 of Part II of this Form 10-K are the following: Report of
Independent Auditors, Independent Auditors' Report, Consolidated Statements of
Income, Consolidated Balance Sheets, Consolidated Statements of Cash Flows,
Consolidated Statements of Shareholder's Equity and Comprehensive Income and
Notes to Consolidated Financial Statements.
(a)(2) Financial Statement Schedules:
Schedules not included have been omitted because they are not applicable.
(b) Reports on Form 8-K
Date Filed Date of Report Item
- ---------------- --------------- -------
November 12, 2003 November 6, 2003 The Company reported (and filed
as an Exhibit a press release
announcing) financial results for
the nine months ended September
27, 2003.
(c) Exhibits:
The Exhibits filed or incorporated by reference herein are as specified in the
Exhibit Index following the signature page (and accompanying certificates) to
this report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf of the undersigned, thereunto duly authorized.
ROUNDY'S, INC.
------------------------
Registrant
March 29, 2004 By: /s/ROBERT A. MARIANO
- -------------- ----------------------
Robert A. Mariano
Chairman of the Board,
Chief Executive Officer
And President
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the Registrant and
in the capacities indicated on March 29, 2004.
/s/ROBERT A. MARIANO Chairman of the Board of
- -------------------- Directors, Chief Executive
Robert A. Mariano Officer and President (Principal
Executive Officer)
/s/DARREN W. KARST Executive Vice President and
- ------------------ chief Financial Officer
Darren W. Karst (Principal Financial and
Accounting Officer)
/s/JEFFREY D. BEYER Director
- -------------------
Jeffrey /D. Beyer
/s/L. DICK BUELL Director
- ------------------
L. Dick Buell
/s/RALPH W. DRAYER Director
- ------------------
Ralph W. Drayer
/s/AVY H. STEIN Director
- ---------------
Avy H. Stein
/s/JOHN R. WILLIS Director
- -----------------
John R. Willis
SUPPLEMENTAL INFORMATION TO BE
FURNISHED WITH REPORTS FILED
PURSUANT TO SECTION 15(d)
OF THE ACT BY REGISTRANTS
WHICH HAVE NOT REGISTERED SECURITIES
PURSUANT TO SECTION 12 OF THE ACT
Registrant does not furnish an annual report on proxy-soliciting material to its
security holders.
Roundy's, Inc.
Annual Report on Form 10-K under the Securities Exchange Act of 1934
for the year ended January 3, 2004
EXHIBIT INDEX
The following exhibits to the Annual Report are filed herewith or, where noted,
are incorporated by reference herein:
Exhibit
No. Description
2.1 Stock Purchase Agreement by and among Roundy's, Inc. and the Shareholders of Prescott's
Supermarkets, Inc. dated as of December 10, 2002 (1)
2.2 Asset Purchase Agreement dated October 18, 2002, by and among B&H Gold Corporation, Gold's, Inc.,
Gold's Market, Inc., Gold's of Mequon, LLC, Mega Marts, Inc. and Roundy's, Inc. (2)
2.3 Share Exchange Agreement dated April 8, 2002 by and between Roundy's Acquisition Corp. and
Roundy's, Inc.(3)
2.4 Share Exchange Agreement dated May 18, 2001, by and between Roundy's, Inc. and The Copps
Corporation(4)
2.5 Asset Purchase Agreement dated February 21, 2003 among Roundy's, Inc., The Copps Corporation,
Kohl's Food Stores, Inc. and The Great Atlantic & Pacific Tea Company, Inc. (5)
2.6 Asset Purchase Agreement dated May 2, 2003, by and between Fleming Companies, Inc., Rainbow Foods
Group, Inc., RBF Corp., and Roundy's, Inc. (6)
2.7 First Amendment dated June 4, 2003 to Asset Purchase Agreement dated May 2, 2003 by and between
Fleming Companies, Inc., Rainbow Foods Group, Inc., RBF Corp., and Roundy's, Inc. (7)
3.1 Roundy's, Inc. Amended and Restated Articles of Incorporation(8)
3.2 Amended and Restated By-Laws of Roundy's, Inc.(9)
4.1 Indenture of Trust dated June 6, 2002 between Roundy's, Inc. and BNY Midwest Trust Company, as
Trustee(10)
4.2 Form of $225,000,000 Roundy's, Inc. 8 7/8% Senior Subordinated Notes due 2012(11)
4.3 Form of $75,000,000 Roundy's, Inc. 8 7/8% Senior Subordinated Notes due 2012(11)
4.4 Form of Guaranty issued by Cardinal Foods, Inc., Holt Public Storage, Inc., Insurance Planners,
Inc., I.T.A., Inc., Jondex Corp., Kee Trans, Inc., Mega Marts, Inc., Midland Grocery of Michigan,
Inc., Pick 'n Save Warehouse Foods, Inc., Ropak, Inc., Rindt Enterprises, Inc., Scot Lad Foods,
Inc., Scot Lad-Lima, Inc., Shop-Rite, Inc., Spring Lake Merchandise, Inc., The Copps Corporation,
The Midland Grocery Company, Ultra Mart Foods, Inc., and Village Market, LLC as Guarantors of the
Registrant's $225,000,000 Roundy's, Inc. 8 7/8% Senior Subordinated Notes due 2012 and $75,000,000
Roundy's, Inc. 8 7/8% Senior Subordinated Notes due 2012(12)
10.1 A/B Exchange Registration Rights Agreement dated as of June 6, 2002 by and among Roundy's, Inc. as
Issuer, the subsidiary guarantors of Roundy's, Inc. listed on Schedule A thereto, and Bear,
Stearns & Co. Inc., CIBC World Markets Corp. as Initial Purchasers(13)
10.2 A/B Exchange Registration Rights Agreement dated as of December 17, 2002 by and among Roundy's,
Inc. as Issuer, the subsidiary guarantors of Roundy's, Inc. listed on Schedule A thereto, and
Bear, Stearns & Co. Inc., CIBC World Markets Corp. as Initial Purchasers(14)
10.3 $375,000,000 Credit Agreement among Roundy's Acquisition Corp., Roundy's, Inc., as Borrower, The
Several Lenders from Time to Time Parties Hereto, Bear Stearns Corporate Lending Inc., as
Administrative Agent, Canadian Imperial Bank of Commerce, as Syndication Agent Bank One,
Wisconsin, Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A., "Rabobank Nederland", New York
Branch, LaSalle Bank National Association, Associated Bank, N.A., Harris Trust and Savings Bank,
M&I Marshall & Ilsley Bank, U.S. Bank, National Association, as Documentation Agents Dated as of
June 6, 2002(15)(16)
10.4 First Amendment to the Credit Agreement, dated as of December 10, 2002, among Roundy's Acquisition
Corp., Roundy's Inc., as Borrower, the several banks, financial institutions and other entities
from time to time parties thereto, Bear Stearns & Co. Inc., as sole lead arranger and sole
bookrunner, Bear Stearns Corporate Lending Inc., as administrative agent, Canadian Imperial Bank
of Commerce, as syndication agent, and the institutions listed in the Credit Agreement as
documentation agents (17)
10.5 Guarantee and Collateral Agreement made by Roundy's Acquisition Corp., Roundy's, Inc. and certain
of its Subsidiaries in favor of Bear Stearns Corporate Lending Inc., as Administrative Agent Dated
as of June 6, 2002(18)
10.6 Consulting Agreement dated July 1, 2002 between the Registrant and Gerald F. Lestina(19)
10.7 Form of Deferred Compensation Agreement between the Registrant and certain executive officers
including Messrs. Schmitt and Kitz(20)
10.8 Amendment dated March 31, 1998 to Form of Deferred Compensation Agreement between the Registrant
and certain executive officers including Messrs. Schmitt and Kitz(21)
10.9 Second Amendment dated June 3, 1998 to Form of Deferred Compensation Agreement for certain
executive officers including Messrs. Kitz and Schmitt(22)
10.10 Directors and Officers Liability and Corporation Reimbursement Policy issued by American Casualty
Company of Reading, Pennsylvania (CNA Insurance Companies) as of June 13, 1986(23)
10.11 Declarations page for renewal through May 1, 2004 of Directors and Officers Liability and
Corporation Reimbursement Policy (FILED HEREWITH)
10.12 Employment Agreement dated June 6, 2002 between Registrant and Robert F. Mariano(24)
10.13 Employment Agreement dated June 6, 2002 between Registrant and Darren W. Karst(25)
10.14 Employment Contract between the Registrant and Gary L. Fryda dated March 31, 2000(26)
10.15 Employment Agreement dated December 27, 2002 between Registrant and Donald S. Rosanova (27)
10.16 Excerpts from Roundy's, Inc. Board of Directors resolution adopted March 19, 2002 relating to
group term carve-out, executive extension on COBRA continuation rights and professional
outplacement services for Company Officers, including Messrs. Fryda, Schmitt and Kitz(28)
10.17 Confidentiality and Noncompete Agreement dated June 6, 2002 between the Registrant and Gerald F.
Lestina(29)
10.18 Roundy's, Inc. Deferred Compensation Plan Amended and Restated August 13, 2002(30)
10.19 Investor Rights Agreement dated June 6, 2002 by and among Roundy's Acquisition Corp., Willis Stein
& Partners III, L.P., Willis Stein & Partners III-C, L.P., Willis Stein & Partners Dutch III-A,
L.P., and Willis Stein & Partners Dutch III-B, L.P., the investors listed on the Schedule of
Coinvestors, and certain executive employees of Roundy's, Inc. (31)
10.20 First Amendment dated October 28, 2002 to Investor Rights
Agreement dated June 6, 2002, including form of Transfer
Notice and Joinder Agreement (32)
10.21 Second Amendment dated May 12, 2003 to $375,000,000 Credit
Agreement dated as of June 6, 2002 among Roundy's Acquisition
Corp., Roundy's Inc., as Borrower, The Several Lenders from
Time to Time Parties Hereto, Bear Stearns Corporate Lending
Inc., as Administrative Agent, Canadian Imperial Bank of
Commerce, as Syndication Agent, Bank One, Wisconsin,
Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A.,
"Rabobank Nederland", New York Branch, LaSalle Bank National
Association, Associated Bank, N.A., Harris Trust and Savings
Bank, M&I Marshall & Ilsley Bank, U.S. Bank, National
Association, as Documentation Agents dated as of June 6, 2002.
(33)
10.22 Third Amendment dated March 29, 2004, to $375,000,000 Credit Agreement dated as of June 6, 2002 and amended as of
December 10, 2002 and May 12, 2003 among Roundy's Acquisition Corp., Roundy's, Inc. as Borrower,
the several banks, financial institutions and other entities from time to time parties thereto,
Bear Stearns & Co., Inc., as sole lead arranger and sole bookrunner, Bear Stearns Corporate
Lending, Inc., as administrataive agent, Canadian Imperial Bank of Commerce, as syndication agent,
and the institutions listed in the Credit Agreement as documentation agents (FILED HEREWITH)
21.1 Subsidiaries of the Registrant (FILED HEREWITH)
31.1 Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002 (FILED HEREWITH)
31.2 Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002 (FILED HEREWITH)
32.1 Certification of Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 (FILED HEREWITH)
32.2 Certification of Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 (FILED HEREWITH)
- ------
(1) Incorporated by reference to Exhibit 2.1 to Registrant's Registration
Statement on Form S-4 filed on January 28, 2003 (Commission File No. 333-102779)
(2) Incorporated by reference to Exhibit 2.2 to Registrant's Registration
Statement on Form S-4 filed on January 28, 2003 (Commission File No. 333-102779)
(3) Incorporated by reference to Exhibit 2.1 to Registrant's Registration
Statement on Form S-4 filed on August 2, 2002 (Commission File No. 333-97623)
(4) Incorporated by reference to Exhibit 2.4 to Registrant's Current Report on
Form 8-K filed with the Commission on June 1, 2001 (Commission File No.
002-94984)
(5) Incorporated by reference to Exhibit 2.5 to Registrant's Quarterly Report on
Form 10-Q for the period ended March 29, 2003 filed with the Commission on May
9, 2003 (Commission File No. 002-94984)
(6) Incorporated by reference to Exhibit 2.9 to Registrant's Current Report on
Form 8-K filed with the Commission on June 23, 2003 (File No. 002-94984)
(7) Incorporated by reference to Exhibit 2.10 to Registrant's Current Report on
Form 8-K filed with the Commission on June 23, 2003 (File No. 002-94984)
(8) Incorporated by reference to Exhibit 3.1 to Registrant's Registration
Statement on Form S-4 filed with the Commission on August 2, 2002 (File No.
333-97623)
(9) Incorporated by reference to Exhibit 3.2 to Registrant's Registration
Statement on Form S-4 filed with the Commission on August 2, 2002 (File No.
333-97623)
(10) Incorporated by reference to Exhibit 4.1 to Registrant's Registration
Statement on Form S-4 filed with the Commission on August 2, 2002 (File No.
333-97623)
(11) Incorporated by reference to Exhibits A-1 and A-2 to the Indenture of
Trust, Exhibit 4.1 to Registrant's Registration Statement on Form S-4 filed with
the Commission on August 2, 2002 (File No. 333-97623)
(12) Incorporated by reference to Exhibit E to the Indenture of Trust, Exhibit
4.1 to Registrant's Registration Statement on Form S-4 filed with the Commission
on August 2, 2002 (File No. 333-97623)
(13) Incorporated by reference to Exhibit 10.1 to Registrant's Registration
Statement on Form S-4 filed with the Commission on August 2, 2002 (File No.
333-97623)
(14) Incorporated by reference to Exhibit 10.1 to Registrant's Registration
Statement on Form S-4 filed with the Commission on January 28, 2003 (Commission
File No. 333-102779)
(15) Incorporated by reference to Exhibit 10.2 to Registrant's Registration
Statement on Form S-4 filed with the Commission on August 2, 2002 (File No.
333-97623)
(16) The Exhibits listed on page v of the Credit Agreement, Exhibit 10.2,
consist of the form of Guarantee and Collateral Agreement and the exhibits
thereto which are included as part of Exhibit 10.5.
(17) Incorporated by reference to Exhibit 10.3 to Registrant's Registration
Statement on Form S-4 filed with the Commission on January 28, 2003 (File No.
333-102779)
(18) Incorporated by reference to Exhibit 10.3 to Registrant's Registration
Statement on Form S-4 filed with the Commission on August 2, 2002 (File No.
333-97623)
(19) Incorporated by reference to Exhibit 10.6 to Registrant's Registration
Statement on Form S-4 filed with the Commission on August 2, 2002 (File No.
333-97623)
(20) Incorporated by reference to Exhibit 10.1 of Registrant's Registration
Statement on Form S-2 (File No. 33-57505) dated April 24, 1997
(21) Incorporated by reference to Exhibit 10.1(a) to Registrant's Registration
Statement on Form S-2 filed with the Commission on April 28, 1998 (Commission
File No. 33-57505)
(22) Incorporated by reference to Exhibit 10.9 to Registrant's Quarterly Report
on Form 10-Q for the period ended October 3, 1998, filed with the Commission on
November 10, 1998 (Commission File No. 002-94984)
(23) Incorporated by reference to Exhibit 10.3 to Registrant's Annual Report on
Form 10-K for the fiscal year ended January 3, 1987, filed with the Commission
on April 3, 1987 (Commission File Nos. 002-66296 and 002-94984)
(24) Incorporated by reference to Exhibit 10.18 to Registrant's Registration
Statement on Form S-4 filed with the Commission on August 2, 2002 (File No.
333-97623)
(25) Incorporated by reference to Exhibit 10.19 to Registrant's Registration
Statement on Form S-4 filed with the Commission on August 2, 2002 (File No.
333-97623)
(26) Incorporated by reference to Exhibit 10.11 to Registrant's Form 8-K dated
April 14, 2000, filed with the Commission on April 14, 2000 (Commission File No.
002-94984)
(27) Incorporated by reference to Exhibit 10.30 to Registrant's Annual Report on
Form 10-K for the fiscal year ended December 28, 2002 filed with the Commission
on March 27, 2003 (Commission File No. 002-94984)
(28) Incorporated by reference to Exhibit 10.23 to Registrant's Registration
Statement on Form S-4 filed with the Commission on August 2, 2002 (File No.
333-97623)
(29) Incorporated by reference to Exhibit 10.25 to Registrant's Registration
Statement on Form S-4 filed with the Commission on August 2, 2002 (File No.
333-97623)
(30) Incorporated by reference to Exhibit 10.27 to Amendment No. 1 to
Registrant's Registration Statement on Form S-4 filed with the Commission on
October 18, 2002 (File No. 333-97623)
(31) Incorporated by reference to Exhibit 10.31 to Registrant's Annual Report on
Form 10-K for the fiscal year ended December 28, 2002 filed with the Commission
on March 27, 2003 (Commission File No. 002-94984)
(32) Incorporated by reference to Exhibit 10.32 to Registrant's Annual Report on
Form 10-K for the fiscal year ended December 28, 2002 filed with the Commission
on March 27, 2003 (Commission File No. 002-94984)
(33) Incorporated by reference to Exhibit 10.24 to Registrant's Current Report
on Form 8-K filed with the Commission on June 23, 2003 (File No. 002-94984)