Back to GetFilings.com
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 December 28, 2002
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.
(Exact name of registrant as specified in its charter)
Wisconsin 39-0854535
- ------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
23000 Roundy Drive
Pewaukee, Wisconsin 53072
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (262)953-7999
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 June 30, 2002 and March 27, 2003 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 DECEMBER 28, 2002
TABLE OF CONTENTS
PART I PAGE
----
Item 1. Business 1
Item 2. Properties 12
Item 3. Legal Proceedings 13
Item 4. Submission of Matters to a Vote of Security Holders 13
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 13
Item 6. Selected Financial Data 14
Item 7. Management's Discussion and Analysis of Financial Condition and 16
Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 23
Item 8. Financial Statements and Supplementary Data 24
Item 9. Changes in and Disagreements with Accountants on Accounting and 55
Financial Disclosure
PART III
Item 10. Directors and Executive Officers of the Registrant 56
Item 11. Executive Compensation 59
Item 12. Security Ownership of Certain Beneficial Owners and Management 63
Item 13. Certain Relationships and Related Transactions 64
Item 14. Controls and Procedures 67
PART IV
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K 68
SIGNATURES
CERTIFICATIONS
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 facts 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") 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. In 2000 and 2001 Roundy's embarked on a strategy
of further expanding the retail store base through selective acquisitions.
Roundy's, Inc. and its subsidiaries (collectively the "Company") is a leading
food retailer in the state of Wisconsin. As of December 28, 2002, the Company
owns and operates 64 retail grocery stores, of which 56 are located in Wisconsin
and eight are located elsewhere in the Midwest. The Company distributes a full
line of food and non-food products from eight wholesale distribution centers in
four Midwestern states and provides value-added 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 Roundy's Acquisition Corporation ("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. 90% 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, Inc. 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,
Schmitt and Kitz.
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 December 29, 2001.
For purposes of the
1
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. The Company operates 64 company-owned retail grocery stores
primarily under the Pick 'n Save and Copps banners. The majority of the Pick 'n
Save and Copps 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 2002, 2001 and 2000 the stores
(including stores operated while under previous ownership) experienced annual
same store sales growth of 1.6%, 3.5% and 3.4%, respectively.
Pick 'n Save. In addition to the 39 company-owned stores, the Company also
licenses the Pick 'n Save brand name to independent retailers operating 51
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. In the
Company's markets, this low price strategy is uniquely complemented by a broad
assortment of high quality perishables and focuses 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.
Wholesale Operations. From the eight strategically located wholesale
distribution centers located in Wisconsin (3), Indiana (2), Ohio (2) and
Illinois (1), the Company supplies over 30,000 products to approximately 800
licensee and independent retail locations. 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 Roundy's and Old Time labels. The
eight wholesale distribution centers aggregate approximately 3.7 million square
feet, approximately 79% of which the Company owns. The Company believes that the
annual 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 and Copps banners. Over the past three years, the focus on expanding the
retail operations has led the Company to make selective acquisitions to increase
the store base in its markets. As a result, the number of company-owned stores
increased from 43 stores at the end of 2000 to a current store base of 74 as of
March 27, 2003.
FISCAL YEAR ENDED
AS OF -------------------------------
MARCH 27, 2003 2002 2001 2000
-------------- ---- ---- ----
Pick `n Save format stores 49 39 35 37
Copps format stores 25 25 26 6
-- -- -- -
Total Company-owned stores 74 64 61 43
== == == ==
As of December 28, 2002, 56 of the Company's stores were located in Wisconsin,
with an additional four in Michigan, two in Ohio and one each in Illinois and
Indiana. Stores range in size from 25,900 to 131,000 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
position in the Milwaukee metropolitan area. Additionally, through the Pick 'n
Save and Copps banners, the Company also maintains the number one market
positions in several of Wisconsin's other large markets, including Madison,
Appleton, Racine, Fond du Lac, Oshkosh, West Bend and Kenosha.
2
Pick 'n Save. The Company's 39 Pick 'n Save format stores operate principally in
Wisconsin (35) and are operated as high volume, EDLP retail grocery stores that
seek to provide customers with the lowest tape total in their respective market.
In these markets, this low price strategy is uniquely complemented by a broad
assortment of high quality perishables and the focus on providing the same
levels of customer service and variety found in traditional supermarkets. For
example, 16 of the Pick 'n Save stores have pharmacies that are leased and
operated by Aurora Healthcare, 26 have in-store banks that are leased and
operated by third party financial institutions, and all have full-service deli,
meat and bakery departments.
The combination of the 35 company-owned Pick 'n Save stores in Wisconsin and the
51 licensed Pick 'n Save stores, of which 48 are located in Wisconsin, makes
Pick 'n Save the largest supermarket chain operating under a single banner in
Wisconsin both in terms of number of stores and annual sales.
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. In 2002, private labels in the Pick
'n Save stores accounted for approximately 9.3% of the net retail sales.
Copps. The Company's 25 Copps format stores operate in Wisconsin (21 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 operating 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. In addition, the Company attempts to
differentiate the Copps stores from their competitors by providing an extensive
range of services and an upscale ambience. For example, 12 of the Copps stores
have full-service pharmacies operated by Aurora Healthcare, six stores in
Wisconsin have adjacent fuel centers and most stores have ATM machines and/or
in-store banks.
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 locations; and (iii) independent food retailers located principally in
Wisconsin and elsewhere in the Midwest.
Customers Served. The Company's wholesale segment distributes to (i) 64
company-owned stores; (ii) 51 licensed Pick 'n Save stores; and (iii)
approximately 700 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 the independent retailers also use the
Company as their primary supplier. The following chart illustrates the
percentage of the wholesale net sales sold to each customer group:
CUSTOMER TYPE FISCAL YEAR ENDED
------------- -------------------------------------
2002 2001 2000
------ ------ ------
Company-owned stores 32.4% 29.5% 22.0%
Licensed Pick `n Save stores 22.3 22.8 22.6
Independent retailers 45.3 47.7 55.4
----- ----- -----
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
3
independent, conventional food retailers operating one or more stores. As of
December 28, 2002, approximately 110 of the customers operated more than one
retail food store, with the largest independent customer operating 42 retail
food stores. 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
the wholesale customer base 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 2002, the Company's largest independent customer
accounted for approximately five percent of its wholesale net sales.
The Company has long-term license and supply contracts in place with
approximately 200 of the retail locations that it serves, which corresponds to
approximately $1.1 billion, or 37.3% of its total wholesale net sales for 2002.
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 private labels
that the Company controls, 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 the Company's customers, it 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 51 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 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,
Shurfine, IGA and Buyers' Choice. 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
value 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 both the Pick 'n Save format 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 the corporate and divisional
levels depending on the type of product. Branded products are typically procured
at the divisional level, based on local market demand/preferences. Certain
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 believes that further centralization of the procurement functions at the
corporate level will enable it to obtain more favorable economic terms from its
suppliers. The Company purchases products from numerous vendors, with no vendor
representing more than approximately 7% of total purchases in 2002.
Distribution Network. The Company conducts its wholesale operations through
eight distribution centers aggregating approximately 3.7 million square feet,
approximately 79% of which it owns. Distribution centers are located in
Wisconsin (3), Indiana (2), Ohio (2) and Illinois (1). On average, the
distribution centers serve a geographic radius of approximately 250 miles and
the Company's average customers are within approximately 125
4
miles of the primary distribution center serving them. The Company's
distribution network is supported by a modern fleet of 272 tractors, 770
trailers and nine delivery trucks. The average age of the tractors and trailers
is four years and seven 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, accounting and inventory control and retail training. The Company
provides the vast majority of these services to its customers at no additional
fee. Some of these services are provided by regional retail counselors and
merchandising specialists the Company employed. Their responsibilities include
(i) analyzing and recommending store facilities and equipment; (ii) developing
programs and objectives for establishing efficient methods and procedures for
receipt, handling, processing, checkout and other operations; (iii) informing
customers about the latest industry trends; and (iv) assisting and dealing with
customers' training needs.
Capital Investment in Customers. As part of the value-added services the Company
offers to retailers, it occasionally leases equipment to retailers and provides
capital to qualified customers through secured loans, becoming primarily or
secondarily obligated under 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. As of December 28, 2002, there were
$7.5 million of outstanding secured loans to Pick 'n Save licensees
and independent customers. In addition, the Company occasionally
guarantees loans and lease obligations for certain of its customers.
At December 28, 2002 the total amount of outstanding loan and lease
guarantees was $1.1 million.
- 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 2002,
2001 and 2000, the Company received aggregate sublease rentals of
$21.7 million, $21.8 million and $23.3 million, respectively, from a
diverse group of licensed Pick 'n Save licensees and independent
customers.
COMPETITION
The grocery industry, including the wholesale food distribution business, is a
competitive market. In order to compete effectively, the Company must have the
ability to meet fluctuating competitive market prices, provide a wide range of
perishable and nonperishable products, make prompt and efficient delivery and
provide the related services which are required by modern supermarket
operations.
The Company competes with a number of local and regional grocery wholesalers and
with a number of major businesses, which market their products directly to
retailers, including companies having greater financial resources than it. 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 high quality and a wide
assortment of products, low service fees and reliability of scheduled
deliveries. The Company believes that the range and quality of other business
services provided to retail store customers
5
by the wholesaler are increasingly important factors, and that success in the
wholesale food industry is dependent upon the success of its customers who are
also engaged in a competitive, low profit margin industry.
The Company believes its current properties are well maintained and, in general,
are adequately sized to house existing operations. All of its owned properties
are subject to liens under the senior credit facility.
EMPLOYEES
As of December 28, 2002, the Company had 13,151 employees, including 7,248
full-time employees and 5,903 part-time employees. The following table
illustrates the approximate allocation of the Company's employees by functional
area as of December 28, 2002:
NUMBER
OF % OF
AREA EMPLOYEES TOTAL
- ---- --------- -----
Executive, administrative and clerical 1,370 10.4%
Warehouse, processing and drivers 1,572 12.0
Retail operations 4,306 32.7
Part-time employees in all areas 5,903 44.9
------ -----
Total 13,151 100.0%
====== =====
Approximately 37% of the Company's employees are covered by 26 collective
bargaining agreements (typically having 3 to 5 year terms) negotiated with
several different local unions. Of those employees, approximately 1,000 are
currently working under the terms of union contracts which expired in 2002. The
Company is currently in the process of renegotiating these expired agreements.
As of March 27, 2003, contracts covering approximately 22% of the unionized
workforce, will expire during the year. The Company does not anticipate any
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 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 nine divisions. The Company has also installed an accounts payable,
purchasing and receiving system in its divisions that quickly reconciles these
accounts and eliminates duplicative paper work.
The Company has installed state-of-the-art inventory tracking systems in each of
its divisions. Through the use of bar codes, 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, which has helped to increase overall profitability.
6
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 51
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, Old Time and
Buyers' Choice, 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
7
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, many of whom
are the Company's customers. The market share of such alternative format stores
is expected to grow in the future. An additional 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 led to reduced margins and lower profitability
among many of its customers.
Food wholesalers also compete based on willingness to invest capital in their
customers. Some of these competitors have, and new competitors may have,
substantially greater financial and other resources than the Company has.
Furthermore, 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
primarily in and around its existing primary market of Wisconsin. In pursuing
this acquisition strategy, the Company faces risks commonly encountered with
growth through acquisition. 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 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. Realization of the anticipated benefits of a strategic
acquisition may take several years or may not occur at all.
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. 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. The Company has engaged in and continues to engage in
evaluations and discussions with respect to potential acquisitions.
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's
portfolio of loans to its licensed Pick 'n Save wholesale customers and its
independent retail customers had an aggregate balance of approximately $7.5
million at December 28, 2002, approximately $9.9 million at December 29, 2001
and approximately $10.5 million at December 30, 2000.
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. As of December 28, 2002, the Company
guaranteed approximately $1.1 million of such loans and leases of its licensed
Pick 'n Save wholesale customers and its independent retail customers. In
addition, the Company leases store sites and equipment for sublease to qualified
licensed Pick 'n Save wholesale customers and its independent retail customers.
During the fiscal years ended December 28, 2002, December 29, 2001 and December
30, 2000 the Company received aggregate rental income of $21.7 million, $21.8
million and,
8
$23.3 million, respectively from such sublease arrangements and it expects to
receive similar amounts going forward.
Subject to the provisions of the Company's indenture, the Company intends 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. However, 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 our 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
The Company currently participates in 22 union contracts covering employees in
its retail and wholesale operations. These contracts, which expire between
February 2003 and March 2006, apply to approximately 28% of the Company's
approximately 13,150 employees. In addition, approximately 1,000 of the
Company's employees are currently working under the terms of union contracts
which expired in 2002. The Company is currently in the process of renegotiating
these expired 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. The labor market is currently tight and the Company expects
the tight labor market to continue. 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.
NET SALES FROM OUR CUSTOMERS THAT WERE FORMERLY STOCKHOLDERS MAY DECLINE DUE TO
THE CESSATION OF PAYMENT OF PATRONAGE DIVIDENDS
The Company's customers that were stockholders prior to the Transactions
accounted for approximately 22% and 27% of its consolidated net sales in 2001
and 2000, respectively. The Company's by-laws required it to pay patronage
dividends to these former stockholders based upon their wholesale business
activities conducted with the Company. Because these customers are no longer
stockholders and the Company no longer operates as a cooperative, it has ceased
paying patronage dividends to them. As a result, subject to contractual
requirements, such customers may reduce the level of their wholesale purchases
from the Company, as compared to historical levels. If such a decline in
purchasing levels occurs, the Company's financial performance may be materially
adversely affected if it is unable to sufficiently increase its net sales from
new or other existing customers. Because the Company has few long-term contracts
with suppliers and it does not control the actual production of the products it
sells, the Company may be unable to obtain adequate supplies of its products.
9
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
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
10
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 90% 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 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 interests as holders of 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
Company's $300 million 8 7/8% Senior Subordinated Notes due 2012 (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.
11
ITEM 2. PROPERTIES
The Company's principal executive offices are located in Pewaukee, Wisconsin on
a seven-acre site, which is owned by Roundy's.
As of December 28, 2002, 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, except non-food products
310,000 Leased(1)
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 produce and non-food products
(two facilities) 118,000 Leased(2)
Eldorado, Illinois 375,000 Owned Dry grocery products
Evansville, Indiana 136,000 Owned Frozen food, meat and dairy products
Van Wert, Ohio 122,000 Leased(3) Non-food products
(1) Leases ending September 30, 2003. The Company may extend these leases, at
its option, for two one-year periods.
(2) Lease ending December 31, 2003. The Company may extend this lease, at its
option, for three one-year periods.
(3) Lease ending September 11, 2003.
In addition to the above, as of December 28, 2002, the Company operated 64
retail grocery stores, ranging from 25,900 to 131,000 square feet. These
facilities are primarily occupied by the Company under leases with primary terms
ending from 2003 to 2022. Of these stores, only one has a lease that expires
prior to January 1, 2004.
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
The Company's primarily owned transportation fleet for distribution operations
as of December 28, 2002 consisted of 272 tractors, 770 trailers and nine
straight delivery trucks. In addition, the Company owns or leases 30 automobiles
and 32 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 the computer systems are adequate
for the Company's operations.
12
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.
The Company does not believe the claims in this suit have any merit, and it has
vigorously contested them and will continue to do so. The same individual has
also threatened to bring other legal actions against the Company and/or its
officers or former officers. The Company's Board of Directors has evaluated
these claims, and on the basis of that evaluation has concluded that there is no
factual basis to support them. If such litigation is commenced, the Company
intends to defend it vigorously. While the Company does not believe that this
pending or threatened litigation will result in any material liability on its
part, there can be no assurance to that effect.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On October 15, 2002, RAC, Roundy's, Inc.'s sole shareholder, voted to remove
Mark P. Michaels as a director and appoint John R. Willis and L. Dick Buell as
directors of Roundy's, Inc. Jeffrey D. Beyer was elected by the Company's Board
of Directors at the October 28, 2002 board meeting. The following individuals
continue as directors of Roundy's, Inc.: Avy H. Stein and Robert A. Mariano.
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. Since the consummation of the Transactions, the Company does not
have a recent history of paying dividends and has no present intention to pay
dividends in the foreseeable future.
13
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.
SUCCESSOR PREDECESSOR
------------ ------------------------------------------------------------------------------
JUNE 7, 2002 DECEMBER 30,
TO 2001 FISCAL YEAR ENDED
DECEMBER 28, TO JUNE 6, --------------------------------------------------------------
2002 2002 2001 2000 1999 1998
----------- ----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
STATEMENT OF INCOME DATA:(1)
Revenues:
Net sales and service fees(2) $ 2,076,568 $ 1,559,469 $ 3,387,762 $ 2,930,033 $ 2,656,832 $ 2,526,405
Other-net(3) 1,207 694 2,057 7,174 10,118 2,429
----------- ----------- ----------- ----------- ----------- -----------
2,077,775 1,560,163 3,389,819 2,937,207 2,666,950 2,528,834
----------- ----------- ----------- ----------- ----------- -----------
Costs and Expenses:
Cost of sales(2) 1,728,233 1,298,447 2,855,151 2,540,733 2,390,078 2,280,484
Operating and administrative 294,724 222,210 465,564 340,012(4) 234,254 214,985
SARs and other termination costs(5) 7,400
Interest 21,015 13,765 18,784 15,864 6,553 7,342
----------- ----------- ----------- ----------- ----------- -----------
2,043,972 1,541,822 3,339,499 2,896,609 2,630,885 2,502,811
----------- ----------- ----------- ----------- ----------- -----------
Income before patronage dividends 33,803 18,341 50,320 40,598 36,065 26,023
Patronage dividends(6) 8,681 5,035 6,447 5,976
----------- ----------- ----------- ----------- ----------- -----------
Income before income taxes 33,803 18,341 41,639 35,563 29,618 20,047
Provision for income taxes(7) 13,345 7,413 15,855(8) 14,458 12,009 8,149
----------- ----------- ----------- ----------- ----------- -----------
Net income $ 20,458 $ 10,928 $ 25,784 $ 21,105 $ 17,609 $ 11,898
=========== =========== =========== =========== =========== ===========
OTHER FINANCIAL DATA:
Adjusted EBITDA(9) $ 85,804 $ 57,207 $ 112,132 $ 86,799 $ 61,392 $ 52,098
Cash provided by (used in):
Operating activities 76,538 44,844 76,271 80,950 52,731 55,618
Investing activities (601,820) (9,285) (105,385) (151,778) (44,701) (22,126)
Financing activities 665,060 (48,674) 34,737 42,335 (11,739) (13,764)
Depreciation and amortization 30,986 17,701 43,028 30,337 18,774 18,733
Capital expenditures 22,654 10,642 32,614 37,706 35,869 24,936
BALANCE SHEET DATA (AT END OF
PERIOD):
Working capital $ 94,622 $ 24,940 $ 38,771 $ 67,937 $ 84,743
Total assets 1,380,754 794,510 662,372 497,325 462,412
Total debt 562,785 228,548 174,402 73,298 83,458
Stockholders' equity 334,958 170,492 150,521 143,971 125,804
Stockholders' equity including
redeemable stock 334,958 179,736 160,669 153,919 134,811
14
(1) Fiscal 2002, 2001 and 2000 include the effects of the acquisitions of 24
Pick `n Save stores in the first quarter of 2000, 21 Copps stores and a
wholesale distribution center in May 2001, the Transactions in June 2002
and the acquisition of four Pick `n Save stores in October 2002. 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) Includes a compensation charge of $3.1 million related to a term extension
of previously granted stock options.
(5) 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 associated with
certain former officers of the predecessor company, all of which was
incurred in connection with the Transactions.
(6) 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 each of the last three fiscal years.
(7) 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.
(8) Net of a $2.4 million income tax benefit from resolution of prior year tax
matters.
(9) Adjusted EBITDA represents earnings before patronage dividends, interest,
income taxes, depreciation, amortization and SARs and other termination
costs. Adjusted EBITDA is presented because the Company believes EBITDA is
frequently used by securities analysts, investors and other interested
parties in the evaluation of companies in its industry. However, other
companies in the Company's industry may calculate Adjusted EBITDA
differently than the Company. Adjusted EBITDA may be relevant or useful to
investors as the Company understands that securities analysts and others
use measures like Adjusted EBITDA to value securities like the Company's
senior subordinated notes and therefore investors may wish to consider
Adjusted EBITDA because it is likely that the Notes are being valued in
part based on that measure. The Company uses Adjusted EBITDA primarily as
a measure of liquidity and to calculate compliance with the terms of the
covenants contained in the indenture governing the Notes and the Company's
bank credit agreement. Adjusted EBITDA is not a measurement of financial
performance under generally accepted accounting principles and should not
be considered as an alternative to cash flow from operating activities or
as a measure of liquidity or an alternative to net income as indicators of
the Company's operating performance or any other measures of performance
derived in accordance with generally accepted accounting principles.
The following table presents the reconciliation of Adjusted EBITDA for each
period presented:
SUCCESSOR PREDECESSOR
------------ ---------------------------------------------------------------------------
JUNE 7, DECEMBER 30,
2002 TO 2001 FISCAL YEAR ENDED
DECEMBER 28, TO JUNE 6, ----------------------------------------------------------
2002 2002 2001 2000 1999 1998
----------- ---------- -------- ------- ------- -------
Net income ..................... $20,458 $10,928 $ 25,784 $21,105 $17,609 $11,898
Patronage dividends ............ 8,681 5,035 6,447 5,976
Interest ....................... 21,015 13,765 18,784 15,864 6,553 7,342
Taxes .......................... 13,345 7,413 15,855 14,458 12,009 8,149
SARs and other termination costs 7,400
Depreciation and amortization .. 30,986 17,701 43,028 30,337 18,774 18,733
--------- --------- -------- ------- ------- -------
Adjusted EBITDA ................ $85,804 $57,207 $112,132 $86,799 $61,392 $52,098
========= ========= ======== ======= ======= =======
15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
2002 OVERVIEW
On April 8, 2002, Roundy's and RAC entered into a share exchange agreement
pursuant to which, among other things and subject to the terms and conditions
contained therein, RAC acquired all of the issued and outstanding capital stock
of Roundy's on June 6, 2002.
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). 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. 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 fair market value was recorded as goodwill. 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.
FISCAL YEAR ENDED
---------------------------------------------------------------------------------------
DECEMBER 28, 2002 DECEMBER 29, 2001 DECEMBER 30, 2000
----------------------- ----------------------- -----------------------
(UNAUDITED)
STATEMENT OF INCOME DATA
(DOLLARS IN THOUSANDS):
Revenues:
Net sales and service fees ..... $3,636,037 100.0% $3,387,762 100.0% $2,930,033 100.0%
Other-net ...................... 1,901 0.1 2,057 0.1 7,174 0.2
---------- ----- ---------- ----- ---------- -----
Total ............................ 3,637,938 100.1 3,389,819 100.1 2,937,207 100.2
Cost and Expenses:
Cost of sales .................. 3,026,680 83.2 2,855,151 84.3 2,540,733 86.7
Operating and administrative ... 516,934 14.2 465,564 13.7 340,012 11.6
SARs and other termination costs 7,400 0.2
Interest ....................... 34,780 1.0 18,784 0.6 15,864 0.5
---------- ----- ---------- ----- ---------- -----
Income before patronage dividends 52,144 1.4 50,320 1.5 40,598 1.4
Patronage dividends .............. 8,681 0.3 5,035 0.2
---------- ----- ---------- ----- ---------- -----
Income before income taxes ....... 52,144 1.4 41,639 1.2 35,563 1.2
Provision for income tax ......... 20,758 0.6 15,855 0.5 14,458 0.5
---------- ----- ---------- ----- ---------- -----
Net income ....................... $ 31,386 0.9% $ 25,784 0.8% $ 21,105 0.7%
========== ===== ========== ===== ========== =====
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, accounting and inventory control, store development and
financing and assistance with other aspects of store management.
16
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
-----------------------------------------------------------
DECEMBER 28, DECEMBER 29, DECEMBER 30,
2002 2001 2000
----------- ----------- -----------
(UNAUDITED)
NET SALES AND SERVICE FEES
Retail ................. $ 1,589,267 $ 1,377,133 $ 891,666
Wholesale .............. 3,027,848 2,880,981 2,628,026
Eliminations ........... (981,078) (870,352) (589,659)
----------- ----------- -----------
Total .................... $ 3,636,037 $ 3,387,762 $ 2,930,033
=========== =========== ===========
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 freight.
Operating and administrative expenses consist primarily of personnel costs,
sales and marketing expenses, 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.
SAR's and other termination costs include the costs associated with the
termination of the predecessor company's stock appreciation rights program and
the termination of employment agreements associated 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.
YEAR ENDED DECEMBER 28, 2002 COMPARED WITH DECEMBER 29, 2001
NET SALES AND SERVICE FEES
Net sales and service fees increased $248.3 million, or 7.3%, from 2001 to $3.6
billion in 2002. The increase was due in a large part to the May 2001 purchase
of Copps. This acquisition contributed $179.3 million to the sales increase in
2002 versus 2001 as 2002 sales include twenty 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 $76.7 million, or 14.4%, from 2001 to $609.4 million for
2002. The increase in gross profit in 2002 was primarily due to the purchase of
Copps. The additional twenty weeks of Copps results in 2002 contributed
approximately $59.8 million of additional gross profit. Gross profit margin for
2002 and 2001 was 16.8% and 15.7% 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 23.5% and 22.6% 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 8.2% in 2001 to 8.3% in 2002.
17
OPERATING EXPENSES
Operating and administrative expenses increased $51.4 million, or 11.0%, from
2001 to $516.9 million in 2002. Operating and administrative expenses, as a
percentage of net sales and service fees, increased from 13.7% in 2001 to 14.2%
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 20.7% of
retail sales for 2002 as compared to 20.4% for 2001. This increase was due
primarily to the acquisition of Copps retail stores, which maintained a higher
operating cost percentage that the Company's then existing company-owned stores.
Wholesale operating and administrative expenses decreased to 5.9% of wholesale
sales for 2002 as compared to 6.3% for 2001. This decrease was due to
operational and productivity improvements in the Company's wholesale operations.
INTEREST EXPENSE
Interest expense was $34.8 million for the year ended December 28, 2002, an
increase of $16.0 million, or 85.2%, from $18.8 million in 2001. The increase
was due primarily to increased borrowings associated with the Transactions
offset somewhat by lower interest rates. In addition, $7.4 million of the
increase 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.
ADJUSTED EBITDA
Adjusted EBITDA increased $30.9 million, or 27.5% from 2001 to $143.0 million in
2002. The increase was due primarily to the May 2001 purchase of Copps, which
contributed approximately $15.3 million to the adjusted EBITDA increase. Retail
adjusted EBITDA (including Copps) increased $12.7 million from 2001 to $66.9
million in 2002. Wholesale EBITDA (including Copps) increased $17.4 million from
2001 to $82.2 million in 2002. The increase in adjusted EBITDA at existing
operations was primarily due to operational improvements at both the retail and
wholesale segments.
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.
YEAR ENDED DECEMBER 29, 2001 COMPARED WITH DECEMBER 30, 2000
NET SALES AND SERVICE FEES
Net sales and services fees were $3.4 billion for 2001, a $457.7 million, or
15.6%, increase from 2000. Sales from wholesale operations increased $253.0
million, or 9.6%, from 2000 to $2.9 billion in 2001. Sales from retail
operations increased $485.4 million, or 54.4%, from 2000 to $1.4 billion in
2001. The sales increase was in large part due to the May 2001 purchase of
Copps, which consisted of 21 retail stores and a wholesale distribution
operation. This acquisition contributed $361.9 million ($52.7 million wholesale,
less eliminations and $309.2 million retail) to the sales increase in 2001
compared with 2000. Also contributing to this increase was the Company's
development, in anticipation of competitors' changing formats, of marketing and
promotional programs that helped it gain market share. This contributed to sales
increases at both the wholesale and retail operations. These programs, combined
with the benefits from the Company's frequent shopper cards and enhanced
perishable programs, allowed it to produce a 3.5% increase (including stores
operated while under previous ownership) in same store sales growth.
18
The Company's other revenues-net decreased $5.1 million from 2000 to $2.1
million in 2001. This decrease is due to a decline in interest income of $1.1
million due to lower cash available for investment and a nonrecurring insurance
gain of $3.3 million in 2000 from a finalized settlement with the Company's
insurance carriers with regard to a fire in its Evansville warehouse in 1998.
GROSS PROFIT
Gross profit increased $143.3 million, or 36.8%, from 2000 to $532.6 million in
2001. The increase in gross profit was primarily due to the increase in the
sales mix attributable to the higher profits derived from our company-owned
retail stores. Retail sales for 2001 represented 40.7% of net sales and service
fees compared to 30.4% for 2000. Retail gross profit margin was 22.6% in 2001,
as compared to 21.5% in 2000, with the increase primarily due to the acquisition
of 21 Copps retail stores in May 2001, which maintained higher gross profit
margins than the then existing company-owned stores. Wholesale gross profit
margin was 8.2% in 2001, as compared to 7.9% in 2000.
OPERATING EXPENSES
Operating and administrative expenses increased $125.6 million, or 36.9%, from
2000 to $465.6 million in 2001. Operating and administrative expenses, as a
percentage of net sales and service fees, increased to 13.7% in 2001 compared to
11.6% in 2000. This percentage increase is attributable to acquisitions of
retail stores in 2000 and 2001, which have a significantly higher ratio of
operating costs to sales than wholesale operations. Operating costs also
increased due to a rise in health care costs. Retail operating and
administrative expenses were 20.4% of retail sales for 2001 as compared to 20.0%
for 2000. This increase was primarily due to the acquisition of the Copps retail
stores, which maintained a higher operating cost percentage than the
then-existing company owned stores. Wholesale operating and administrative
expenses increased slightly to 6.3% of wholesale sales for 2001 as compared to
5.9% for 2000. This increase was primarily due to increased health care and
pension costs in 2001.
INTEREST EXPENSE
Interest expense increased $2.9 million, or 18.4%, from 2000 to $18.8 million in
2001 due to an increase in borrowings incurred to finance acquisitions in 2001.
However, overall interest rates declined in 2001 compared to 2000.
INCOME TAXES
Provision for income taxes increased $1.4 million from 2000 to $15.9 million in
2001. The effective income tax rate, however, decreased to 38.1% from 40.7%
during the same period. This improvement was due to the favorable resolution of
certain prior year's state and local income tax audits.
ADJUSTED EBITDA
Adjusted EBITDA increased $25.3 million, or 29.1% from 2000 to $112.1 million in
2001. The increase was primarily due to the May 2001 purchase of Copps, which
consisted of 21 retail stores and a wholesale distribution operation. This
acquisition contributed approximately $14.0 million to the Adjusted EBITDA
increase in 2001. The full year effect of the acquisition of 24 Pick 'n Save
retail grocery stores through the Mega Marts and Ultra Mart acquisitions in 2000
also contributed approximately $9.8 million to this Adjusted EBITDA increase.
Retail Adjusted EBITDA increased $24.1 million from 2000 to $54.2 million in
2001. This increase, as noted above, was partially due to the additional Copps
retail Adjusted EBITDA of $8.0 million and partially due to the full year effect
of the 24 Pick 'n Save retail stores acquired in 2000 of $9.0 million. Wholesale
Adjusted EBITDA increased $3.7 million from 2000 to $64.8 million in 2001. This
increase was due primarily to the additional Copps wholesale Adjusted EBITDA.
NET INCOME
Net income increased $4.7 million, or 22.2%, 2000 to $25.8 million in 2001. This
improvement was driven by the reasons discussed above.
19
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.
Cash flows provided by operating activities were $121.4 million for the year
ended December 28, 2002 compared to $76.3 million in 2001. This increase was
primarily due to (i) increased net income, (ii) increased depreciation and
amortization, (iii) increased accrued interest expense, and (iv) a reduction in
net investment in inventory (merchandise inventories less accounts payable).
The Company's principal historical uses of cash were to provide for working
capital, capital expenditures and acquisitions. Net cash flows used in investing
activities were $611.1 million in 2002 compared to $105.4 million used in 2001.
The increase is primarily due to activity related to the Transactions, which
consisted of $540.0 million of net acquisition consideration. In addition, the
increase is due to (i) the acquisition of four Milwaukee-area Pick 'n Save
supermarkets from entities owned by Robert S. Gold for approximately $26.0
million in cash plus the seller's cost of usable store level inventory and (ii)
the acquisition of three Rainbow locations from the Fleming Companies for $10.0
million in cash plus the seller's cost of usable store level inventory.
Investing activities for the same period in 2001 included the acquisition of
Copps of $78.8 million.
Total capital expenditures were $33.3 million in 2002 compared with $32.6
million in 2001. These expenditures were related to new Roundy's store
locations, remodeling of existing stores and maintenance of retail stores and
wholesale distribution network. Total capital expenditures for fiscal 2003,
excluding any acquisitions, are estimated to be approximately $60.0 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 2002 and 2001, the
Company made loans of $2.2 million and $3.5 million, respectively.
Net cash flows provided by financing activities were $616.4 million in 2002
compared to $34.7 million in 2001. 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. The cash flows in 2001 related to increased
borrowings related primarily to the acquisition of Copps.
Working capital amounted to $94.6 million at December 28, 2002, compared to
$24.9 million at December 29, 2001. The increase was primarily related to the
reduction of current maturities of long-term debt, which is a direct result of
the Transactions, and an increase in cash and cash equivalents primarily related
to the issuance of $75.0 million of Notes in December 2002.
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 $125.0
million under a revolving line of credit. There are no outstanding borrowings
under the revolving line of credit. The term loan will be repayable in 28
consecutive quarterly installments, the first 24 of which will each be in the
amount of $625,000 and the last four of which will each be in the amount of
$58.8 million. 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.
20
The Company's senior credit facility contains various restrictive covenants
which: (i) prohibits it from prepaying other indebtedness, (ii) requires 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 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, cash available from operations, combined with
funds available under its $125.0 million revolving line of credit, will be
sufficient to fund its operations, debt service 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.
CONTRACTUAL OBLIGATIONS
The following table of material debt and lease commitments at December 28, 2002
summarizes the effect these obligations are expected to have on the Company's
cash flow in the future periods set for the below (in thousands):
2003 2004 2005 2006 2007 THEREAFTER TOTAL
-------- -------- -------- -------- -------- ---------- ---------
Long-term debt, including current
maturities and capital lease obligations $ 2,961 $ 3,007 $ 3,053 $ 3,056 $ 3,091 $ 547,990 $ 563,158
Operating leases 37,420 36,698 34,592 33,923 31,981 191,203 365,817
Sublease income (17,067) (16,342) (14,551) (13,972) (12,569) (58,518) (133,019)
-------- -------- -------- -------- -------- --------- ---------
Total $ 23,314 $ 23,363 $ 23,094 $ 23,007 $ 22,503 $ 680,675 $ 795,956
======== ======== ======== ======== ======== ========= =========
The Company also has outstanding letters of credit that total approximately
$10.9 million at December 28, 2002. In addition, the Company has guaranteed
customer bank loans and leases amounting to $1.1 million at December 28, 2002.
21
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. 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 slotting are initially deferred and
recognized as a reduction to cost of sales after completion of an estimated
slotting cycle of approximately nine months. 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.
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 for sublease to qualified
independent retailers, at rates that are at least as high as the rent paid by
it. 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
commitments a retailer may no longer be financially able to satisfy as well as
those of its own 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 cost of the remaining term of the
lease, less any anticipated sublease income. Should the number of defaults by
sub lessees 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.
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 in excess of return assumptions have, in
past years, kept pension expense and cash contributions to the plans at modest
levels. Recent weaker market performance may significantly increase
22
pension expense and cash contributions in the future unless asset returns again
exceed the assumptions used. Changes in the interest rates used to determine the
discount rate may also cause volatility in pension expense and cash
contributions.
The 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. The Company is required to adopt SFAS No. 146 for all
exit and disposal activities initiated after December 31, 2002. Management
believes there will be no material effect on the Company's financial position,
results of operations or shareholders' equity resulting from its adoption.
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 disclosure requirements are effective
immediately and are provided in the financial statements. The Company does not
expect FIN No. 45 to have a material effect on the results of operations.
The Emerging Issues Task Force ("EITF") released Issue No. 02-16, "Accounting by
a Customer (including a Reseller) for Certain Consideration Received from a
Vendor" in November 2002, applicable to fiscal years beginning after December
15, 2002. Management is reviewing the accounting for the Company's vendor
consideration programs in accordance with EITF 02-16, but generally believes
such accounting is already in compliance with the new guidance. Accordingly, the
Company does not expect the new guidance will have a significant impact on the
Company's results of operations or financial position upon adoption December 29,
2002.
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 December 28, 2002, the Company had debt outstanding with a
carrying value of $563.2 million and an estimated fair value of approximately
$557.2 million.
Fixed interest rate debt outstanding as of December 28, 2002, which excludes
borrowings under the Company's credit agreement with various lenders ("Credit
Agreement") was $313.4 million, carried an average interest rate of
approximately 8.9%, and matures as follows (in thousands):
FISCAL YEAR ENDED
--------------------------------------------
2003 2004 2005 2006 2007 THEREAFTER TOTAL
---- ---- ---- ---- ---- ---------- -----
Subordinated notes $300,000 $300,000
Other long-term debt $ 461 $507 $553 $556 $591 11,115 13,783
----- ---- ---- ---- ---- -------- --------
$ 461 $507 $553 $556 $591 $311,115 313,783
===== ==== ==== ==== ==== ========
Unamortized debt discount (373)
--------
$313,410
The amount of borrowings under the Credit Agreement as of December 28, 2002 was
$249.4 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
23
Credit Agreement at December 28, 2002 bear interest at the LIBOR option, which
was effectively 4.2%.
The Company's total annual interest expense, assuming interest rates as they
would have been in effect on December 28, 2002, is approximately $38.4 million.
A 10% increase in interest rates would increase total annual interest expense,
and decrease pretax income and cash flows by $3.8 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
----
25 Report of Independent Auditors
26 Independent Auditors' Report
27 Consolidated Statements of Income
28 Consolidated Balance Sheets
29 Consolidated Statements of Cash Flows
30 Consolidated Statements of Shareholders' Equity and Comprehensive Income
32 Notes to Consolidated Financial Statements
All schedules, for which provision is made in the applicable accounting
regulations of the Security and Exchange Commission have been omitted because
they are not applicable, not required or the information has been furnished
elsewhere.
24
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Directors of Roundy's, Inc.:
We have audited the accompanying consolidated balance sheet of Roundy's, Inc.
and its subsidiaries as of December 28, 2002 and the related consolidated
statements of income, cash flows and shareholders' equity and comprehensive
income for the period from December 30, 2001 to June 6, 2002 (Predecessor) and
the period from June 7, 2002 to December 28, 2002 (Successor). 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 as of December 28, 2002 and the consolidated
results of their operations and their cash flows for the period from December
30, 2001 to June 6, 2002 (Predecessor) and the period from June 7, 2002 to
December 28, 2002 (Successor), 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.
Ernst & Young LLP
Milwaukee, Wisconsin
March 4, 2003
25
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Directors of Roundy's, Inc.:
We have audited the accompanying consolidated balance sheet of Roundy's, Inc.
and subsidiaries as of December 29, 2001 and the related consolidated statements
of income, stockholders' equity and comprehensive income and cash flows for each
of the two years in the period 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 audits.
We conducted our audits 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 audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Roundy's, Inc. and subsidiaries at
December 29, 2001 and the results of their operations and their cash flows for
each of the two years in the period 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
26
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
SUCCESSOR PREDECESSOR
----------------- -------------------------------------------------------------------
JUNE 7, 2002 TO DECEMBER 30, 2001 YEAR ENDED YEAR ENDED
DECEMBER 28, 2002 TO JUNE 6, 2002 DECEMBER 29, 2001 DECEMBER 30, 2000
----------------- --------------- ----------------- -----------------
REVENUES:
Net sales and service fees $ 2,076,568 $ 1,559,469 $ 3,387,762 $ 2,930,033
Other - net 1,207 694 2,057 7,174
-------------- ------------- ------------- -------------
2,077,775 1,560,163 3,389,819 2,937,207
-------------- ------------- ------------- -------------
COSTS AND EXPENSES:
Cost of sales 1,728,233 1,298,447 2,855,151 2,540,733
Operating and administrative 294,724 222,210 465,564 340,012
SARs and other termination costs 7,400
Interest:
Interest expense 19,413 6,144 17,698 15,463
Amortization of deferred
financing costs 1,602 969 1,086 401
Interest rate swap
termination costs 6,652
-------------- ------------- ------------- -------------
2,043,972 1,541,822 3,339,499 2,896,609
-------------- ------------- ------------- -------------
INCOME BEFORE PATRONAGE DIVIDENDS 33,803 18,341 50,320 40,598
PATRONAGE DIVIDENDS 8,681 5,035
-------------- ------------- ------------- -------------
INCOME BEFORE INCOME TAXES 33,803 18,341 41,639 35,563
PROVISION FOR INCOME TAXES 13,345 7,413 15,855 14,458
-------------- ------------- ------------- -------------
NET INCOME $ 20,458 $ 10,928 $ 25,784 $ 21,105
============== ============= ============= =============
See notes to consolidated financial statements.
27
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
SUCCESSOR PREDECESSOR
DECEMBER 28, DECEMBER 29,
2002 2001
---------- -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 139,778 $ 45,516
Notes and accounts receivable, less allowance for
losses of $5,577 and $7,021, respectively 87,344 74,784
Merchandise inventories 236,465 247,567
Prepaid expenses 9,756 17,750
Deferred income tax benefits 15,871 9,693
---------- -----------
TOTAL CURRENT ASSETS 489,214 395,310
---------- -----------
PROPERTY AND EQUIPMENT - NET 214,548 270,089
OTHER ASSETS:
Deferred income tax benefits 25,231
Notes receivable, less allowance for losses,
$1,475 and $1,300, respectively 3,523 5,686
Other assets - net 91,344 9,533
Goodwill 556,894 113,892
---------- -----------
TOTAL OTHER ASSETS 676,992 129,111
---------- -----------
TOTAL ASSETS $1,380,754 $ 794,510
========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 240,845 $ 243,649
Accrued expenses 137,416 97,688
Current maturities of long-term debt 2,961 27,717
Income taxes 13,370 1,316
---------- -----------
TOTAL CURRENT LIABILITIES 394,592 370,370
---------- -----------
LONG-TERM DEBT 559,824 200,831
OTHER LIABILITIES 91,380 42,982
DEFERRED INCOME TAXES 591
---------- -----------
TOTAL LIABILITIES 1,045,796 614,774
---------- -----------
COMMITMENTS AND CONTINGENCIES
REDEEMABLE COMMON STOCK 9,244
---------- -----------
SHAREHOLDERS' EQUITY:
Common stock:
Common stock (1,000 shares issued and
outstanding at $0.01 par value) (Successor)
Voting (Class A) (Predecessor) 12
Non-voting (Class B) (Predecessor) 1,378
---------- -----------
Total common stock 1,390
Patronage dividends payable in common stock 5,950
Additional paid-in capital 314,500 45,754
Retained earnings 20,458 144,393
---------- -----------
334,958 197,487
Less:
Treasury stock, at cost (145,615 shares) 18,328
Accumulated other comprehensive loss 8,667
---------- -----------
TOTAL SHAREHOLDERS' EQUITY 334,958 170,492
---------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,380,754 $ 794,510
========== ===========
See notes to consolidated financial statements.
28
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
SUCCESSOR PREDECESSOR
----------------- -----------------------------------------------
YEAR ENDED
----------------------------
JUNE 7, 2002 TO DECEMBER 30,2001 DECEMBER 29, DECEMBER 30,
DECEMBER 28, 2002 TO JUNE 6, 2002 2001 2000
----------------- --------------- ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 20,458 $ 10,928 $ 25,784 $ 21,105
Adjustments to reconcile net income to net cash
flows provided by operating activities:
Depreciation and amortization, including
deferred financing costs 32,588 18,670 44,114 30,738
Loss(gain) on sale of property and equipment 215 41 (104) (793)
Patronage dividends payable in common stock 5,950 3,475
Stock option expense 3,085
Deferred income taxes (1,323) (2,268) 3,295 (1,236)
Changes in operating assets and liabilities
net of the effect of business acquisitions:
Notes and accounts receivable (5,615) (7,079) 26,072 6,867
Merchandise inventories (2,349) 13,767 (3,312) (377)
Prepaid expenses 252 1,743 (3,936) (813)
Other assets (992) (1,371) 517 (1,499)
Accounts payable 24,911 (27,541) (3,884) 16,680
Accrued expenses 10,737 18,062 (12,420) 4,037
Income taxes (2,063) 19,731 (1,528) (3,993)
Other liabilities (281) 161 (4,277) 3,674
--------- -------- -------- ---------
NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES 76,538 44,844 76,271 80,950
--------- -------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (22,654) (10,642) (32,614) (37,706)
Proceeds from sale of property and equipment and
other assets 352 478 4,392 4,861
Acquisition of Roundy's, net of cash acquired (539,996)
Payment for business acquisitions net of
cash acquired (40,631) (78,829) (128,615)
Decrease in notes receivable, net 1,109 879 1,666 9,682
--------- -------- -------- ---------
NET CASH FLOWS USED IN INVESTING ACTIVITIES (601,820) (9,285) (105,385) (151,778)
--------- -------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings 549,625 88,000 175,495
Interest rate swap termination payment (6,652)
Payments of debt (166,772) (48,618) (48,056) (128,390)
Debt issuance costs (25,641) (1,208) (1,050)
Contributed capital 314,500
Proceeds from sale of common stock 1,127 1,415
Common stock purchased (56) (5,126) (5,135)
--------- -------- -------- ---------
NET CASH FLOWS PROVIDED BY (USED IN)
FINANCING ACTIVITIES 665,060 (48,674) 34,737 42,335
--------- -------- -------- ---------
NET INCREASE(DECREASE) IN CASH AND CASH EQUIVALENTS 139,778 (13,115) 5,623 (28,493)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 45,516 39,893 68,386
--------- --------- -------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 139,778 $ 32,401 $ 45,516 $ 39,893
========= ========= ======== =========
SUPPLEMENTAL CASH FLOW INFORMATION:
CASH PAID DURING THE YEAR FOR:
Interest $ 25,103 $ 6,351 $ 19,026 $ 13,672
Income taxes 8,596 1,872 14,007 19,898
SUPPLEMENTAL NONCASH FINANCING ACTIVITIES:
Patronage dividends payable in common stock 5,950 3,475
Additional pension liability, net of tax 5,258
Interest rate swap, net of tax 374 3,409
See notes to consolidated financial statements.
29
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME
FOR THE PERIOD FROM JUNE 7, 2002 TO DECEMBER 28, 2002, THE PERIOD FROM DECEMBER
30, 2001 TO JUNE 6, 2002, AND THE YEARS ENDED DECEMBER 29, 2001 AND DECEMBER 30,
2000
(DOLLARS IN THOUSANDS)
COMMON STOCK
----------------------------------------------------------
CLASS A CLASS B
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ---------- ---------- ----------
PREDECESSOR COMPANY
BALANCE, JANUARY 1, 2000 12,000 $ 15 1,085,289 $ 1,357
Net income
Common stock issued 400 36,818 46
Common stock purchased (2,600) (3) (12,466) (16)
Redeemable common stock (16,533) (21)
Stock option expense
Patronage dividends payable in common stock
---------- ---------- ---------- ----------
BALANCE, DECEMBER 30, 2000 9,800 12 1,093,108 1,366
Net income
Cumulative effect of change in accounting for
interest rate swap (net of tax)
Interest rate swap (net of tax)
Additional pension liability (net of tax)
Common stock issued 500 30,761 38
Common stock purchased (200) (13,078) (16)
Redeemable common stock (8,570) (10)
Patronage dividends payable in common stock
---------- ---------- ---------- ----------
BALANCE, DECEMBER 29, 2001 10,100 12 1,102,221 1,378
Net income
Interest rate swap (net of tax)
Common stock issued 35,115 44
Common stock purchased (200) (285) (1)
Tax benefit of options
---------- ---------- ---------- ----------
BALANCE, JUNE 6, 2002 9,900 $ 12 1,137,051 $ 1,421
========== ========== ========== ==========
TREASURY STOCK
BALANCE, JUNE 6, 2002, DECEMBER 29, 2001 AND
DECEMBER 30, 2000 145,615 $ 18,328
========== ==========
PATRONAGE ACCUMULATED
DIVIDENDS ADDITIONAL OTHER
PAYABLE IN PAID-IN COMPREHENSIVE RETAINED
COMMON STOCK CAPITAL LOSS EARNINGS
------------ ----------- ------------- ----------
PREDECESSOR COMPANY
BALANCE, JANUARY 1, 2000 $ 3,078 $ 36,306 $ 104,346
Net income 21,105
Common stock issued (3,078) 4,446
Common stock purchased (548) (2,227)
Redeemable common stock (628) (1,890)
Stock option expense 3,085
Patronage dividends payable in common stock 3,475
---------- ---------- ---------- ----------
BALANCE, DECEMBER 30, 2000 3,475 42,661 121,334
Net income 25,784
Cumulative effect of change in accounting for
interest rate swap (net of tax)
Interest rate swap (net of tax)
Additional pension liability (net of tax) $ (2,000)
Common stock issued (3,475) 4,563 (1,409)
Common stock purchased (1,042) (5,258) (1,706)
Redeemable common stock (428) (1,019)
Patronage dividends payable in common stock 5,950
---------- ---------- ---------- ----------
BALANCE, DECEMBER 29, 2001 5,950 45,754 (8,667) 144,393
Net income 10,928
Interest rate swap (net of tax) (374)
Common stock issued (5,950) 5,898
Common stock purchased (14) (34)
Tax benefit of options 7,222
---------- ---------- ---------- ----------
BALANCE, JUNE 6, 2002 $ $ 58,860 $ (9,041) $ 155,287
========== ========== ========== ==========
TREASURY STOCK
BALANCE, JUNE 6, 2002, DECEMBER 29, 2001 AND
DECEMBER 30, 2000
ACCUMULATED
ADDITIONAL OTHER
COMMON PAID-IN COMPREHENSIVE RETAINED
STOCK CAPITAL LOSS EARNINGS
------------ ----------- ------------- ----------
SUCCESSOR COMPANY
BALANCE, JUNE 6, 2002
Capital contribution $ 314,500
Net income $20,458
---------- ---------- ---------- ----------
BALANCE, DECEMBER 28, 2002 $ $ 314,500 $ $ 20,458
========== ========== ========== ==========
30
SUCCESSOR PREDECESSOR
----------------- ----------------------------------------------------------
JUNE 7, 2002 TO DECEMBER 30, 2001 Year Ended Year Ended
DECEMBER 28, 2002 TO JUNE 6, 2002 December 29, 2001 December 30, 2000
----------------- --------------- ----------------- -----------------
COMPREHENSIVE INCOME:
Net income $ 20,458 $ 10,928 $ 25,784 $ 21,105
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 $ 20,458 $ 10,554 $ 17,117 $ 21,105
======== ======== ======== ========
See notes to consolidated financial statements.
31
ROUNDY'S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIOD FROM JUNE 7, 2002 TO DECEMBER 28, 2002, PERIOD FROM DECEMBER 30, 2001
TO JUNE 6, 2002, AND YEARS ENDED DECEMBER 29, 2001 AND DECEMBER 30, 2000
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 & Partners, III,
L.P. ("Willis Stein") for the purposes of acquiring Roundy's. 90% 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:
- the purchase by the equity investors of preferred and common stock
of RAC for approximately $314.5 million in cash;
- the borrowing by Roundy's of $250.0 million under a term loan;
- the rollover of approximately $13.9 million of capital leases;
- the offering of $225.0 million in aggregate principal amount of
notes described in Note 5;
- 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 preliminarily
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. Such
allocations are subject to final adjustment, which could be material.
The preliminary 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 69,702
Goodwill 535,633
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
==========
32
General - Except with respect to the specific items discussed below, the
Company performed an analysis of the closing balance sheet in order to
identify adjustments to arrive at fair market values of net assets
acquired.
Adjustments to Fair Market Value of Property and Equipment - The fair
value of property and equipment was based on an independent valuation. The
valuation resulted in an adjustment of $51.8 million, which is included in
property and equipment in the preceding schedule.
Other Assets - Trademarks were independently valued based on the
capitalized earnings method taking into account expected royalties that
would be received by the Company from a third party for the use of the
brands. Supply contracts were independently valued based on the
capitalized earnings method taking into account the present value of the
expected earnings on the contracts.
Goodwill - The total goodwill balance of $535.6 million has been
preliminarily allocated to the retail segment ($264.9 million) and the
wholesale segment ($270.7 million) based on respective enterprise fair
values.
Adjustment to Pension Liability - The Company adjusted the pension
liability to reflect the projected benefit obligations assumed in excess
of plan assets acquired based on actuarial valuations. The adjustment
represents a $38.6 million increase to the Company's preacquisition
recorded pension liability, which is included in liabilities assumed in
the preceding schedule.
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 includes approximately
$38 million for future lease costs and approximately $17 million for
pension, employee termination and other related costs. Approximately $3
million has been paid on the obligation during the period from June 7,
2002 to December 28, 2002.
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 and Copps 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 years ended December 28, 2002,
including the Predecessor and Successor periods, December 29, 2001 ("fiscal
2001") and December 30, 2000 ("fiscal 2000") 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.
33
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 slotting are initially deferred and recognized as a reduction to
cost of sales after completion of an estimated slotting cycle of approximately
nine months (approximately three months for the predecessor company). 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.
Costs and expenses - Cost of sales includes product cost and inbound freight,
but excludes depreciation. Operating and administrative expenses consist
primarily of personnel costs, sales and marketing expenses, 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 $24.9 million, $16.7 million, $41.3 million
and $37.6 million, respectively for the periods from June 7, 2002 to December
28, 2002, December 30, 2001 to June 6, 2002, fiscal 2001 and fiscal
2000.
Advertising Expense - The Company expenses advertising costs as incurred.
Advertising expenses totaled $7.4 million, $4.9 million, $9.7 million, and $6.3
million, for the periods from June 7, 2002 to December 28, 2002, December 30,
2001 to June 6, 2002, fiscal 2001 and fiscal 2000, respectively.
Pre-opening costs - The costs associated with opening new and remodeled stores
are expensed as incurred.
Income taxes - 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 $557.2 million and $229.6 million as of December 28, 2002 and
December 29, 2001, 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 $2.5 million and $2.9 million at December
28, 2002 and December 29, 2001, 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
34
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 for approximately
72.6% and 27.4%, respectively, of the Company's inventories at December 28,
2002.
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 December 28, 2002 and concluded
there were no significant indicators of impairment.
Supply Contracts - Supply contracts are amortized on a straight-line basis over
a composite average life of 63 months. Accumulated amortization was $3.5 million
at December 28, 2002.
Deferred financing costs - Costs incurred in connection with the issuance of
debt are amortized over the term of the related debt which is generally seven to
ten years for debt incurred subsequent to the Transactions. Accumulated
amortization was $1.6 million at December 28, 2002.
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 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 and 2000 reduced net income as follows:
(In thousands)
2001 2000
------- -------
Net income as reported $25,784 $21,105
Goodwill amortization, net of tax 6,121 4,410
------- -------
Adjusted net income $31,905 $25,515
======= =======
Approximately $44.4 million of the Company's goodwill recognized for financial
reporting purposes is deductible for income tax purposes.
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 investment,
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. The amounts charged to
operating and administrative expenses for the periods from December 30, 2001 to
June 6, 2002, fiscal 2001 and fiscal 2000 for the present value of these
remaining future liabilities approximated $1.0 million, $0.5 million and $4.2
million, respectively.
Related parties - During the period from June 7, 2002 to December 28, 2002,
December 30, 2001 to June 6, 2002 and fiscal 2001 and 2000, the Company had
wholesale sales to retailers who were stockholders of the Company prior to the
Transactions in the amounts of $396.6
35
million, $283.2 million, $658.7 million, and $602.6 million, respectively. In
addition, the Company received sublease payments from retailers who were
stockholders of the Company prior to the Transactions of $4.2 million, $3.0
million, $8.1 million, and $7.1 million for the period from June 7, 2002 to
December 28, 2002, December 30, 2001 to June 6, 2002, fiscal 2001 and fiscal
2000, respectively. During 2000, the Company sold a retail grocery store to a
related party for approximately $4.1 million.
Concentrations of Risk - Certain of the Company's employees are covered by
collective bargaining agreements. The Company currently participates in 26 union
contracts covering 37% of its employees. Of these contracts, the Company is in
the process of renegotiating the terms of four union contracts. The remaining 22
contracts expire between February 2003 and March 2006.
Reclassifications - Certain amounts previously reported have been reclassified
to conform to the current presentation.
New Accounting Pronouncements - In July 2002, the 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. The Company is required to adopt SFAS No. 146 for all
exit and disposal activities initiated after December 31, 2002. Management
believes there will be no material effect on the Company's financial position,
results of operations or shareholders' equity resulting from its adoption.
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 Company does not expect FIN No. 45 to have a
material effect on the results of operations.
The Emerging Issues Task Force ("EITF") released Issue No. 02-16, "Accounting by
a Customer (including a Reseller) for Certain Consideration Received from a
Vendor", in November 2002, applicable to fiscal years beginning after December
15, 2002. Management is reviewing the accounting for the Company's vendor
consideration programs in accordance with EITF 02-16, but generally believes
such accounting is already in compliance with the new guidance. Accordingly, the
Company does not expect the new guidance will have a significant impact on the
Company's results of operations or financial position upon adoption December 29,
2002.
3. ACQUISITIONS
On February 2, 2000, the Company purchased seven retail grocery stores from
Ultra Mart for approximately $37.7 million in cash. Operating results of such
stores have been included in the consolidated statements of income since the
acquisition date. Goodwill of approximately $21.5 million resulted from the
acquisition which was accounted for as a purchase.
On March 31, 2000, the Company acquired all of the outstanding stock of Mega
Marts, Inc. ("Mega Marts") and its affiliate, NDC, Inc. ("NDC") for
approximately $136.2 million in cash and notes payable. Mega Marts and NDC
collectively owned and operated 17 retail grocery stores. The acquisitions were
effective on April 1, 2000 and the operating results of Mega Marts and NDC were
included in the consolidated statements of income after the effective date.
Goodwill of approximately $84.8 million resulted from the acquisitions which
were accounted for as purchases. The Company financed the acquisitions with the
proceeds of a credit agreement and $39 million in promissory notes issued to the
shareholders of Mega Marts. Included in the assets of Mega Marts were 132,330
shares of the Company's former Class A and Class B common stock. A portion of
the purchase price was allocated to such treasury shares acquired based on the
net book value of the Company's common stock as of January 1, 2000.
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
36
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. 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 December 18, 2002, the Company acquired three Rainbow Food stores ("Rainbow")
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. 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 Gold's and Rainbow acquisitions was not material.
In November 2002, the Company entered into a definitive agreement to acquire the
capital stock of Prescott's Supermarkets, Inc. ("Prescott's") for approximately
$47.8 million. Prescott's primarily owns and operates 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 $43.7
million is expected to result from the acquisition which was completed on
January 21, 2003.
In February 2003, the Company entered into a definitive agreement to acquire
seven Kohl's grocery stores in the Madison area from The Great Atlantic &
Pacific Tea Company, Inc. for approximately $19.0 million in cash plus the value
of certain acquired inventory. The Company will convert six stores to Copps
stores and consolidate the volume of the seventh store into an existing
company-owned Copps store. The transaction is expected to close in the second
quarter of 2003.
37
4. PROPERTY AND EQUIPMENT AND OTHER ASSETS
Property and equipment, which is recorded at cost, and other assets consisted of
the following (in thousands):
DECEMBER 28, DECEMBER 29,
2002 2001
-------- --------
Property and Equipment
Land $ 15,668 $ 14,162
Buildings 78,580 122,907
Equipment 119,844 244,420
Leasehold improvements 29,182 44,838
-------- --------
243,274 426,327
Less accumulated depreciation and amortization 28,726 156,238
-------- --------
Property and equipment, net $214,548 $270,089
======== ========
Depreciation expense for property and equipment, including amortization of
property under capital leases, was $27.4 million, $17.6 million, $36.1 million
and $25.2 million for the period from June 7, 2002 to December 28, 2002, the
period from December 30, 2001 to June 6, 2002, fiscal 2001 and fiscal 2000.
DECEMBER 28, DECEMBER 29,
2002 2001
-------- --------
Other Assets
Supply contracts-net $ 30,210
Trademarks 23,760
Debt issuance costs-net 24,038 $ 969
Favorable lease rights 5,000
Non-compete-net 450 650
Other assets 7,886 7,914
-------- --------
Total other assets $ 91,344 $ 9,533
======== ========
Amortization of other assets, excluding trademarks which have indefinite lives,
will be approximately $10.1 million in 2003 and 2004, $10.0 million in 2005,
$9.9 million in 2006 and $8.3 million in 2007.
5. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
DECEMBER 28, DECEMBER 29,
2002 2001
--------- --------
Bank term loan $249,375
Subordinated notes, net of unamortized discount of $373 299,627
Old senior notes 6.30% $130,000
Old revolving credit agreement 59,000
Old 8.25% notes 25,350
Capital lease obligations, 7.55% to 11.0%, due 2003 to 2020 13,614 13,987
Other long-term debt 169 211
--------- --------
562,785 228,548
Current maturities 2,961 27,717
--------- --------
Total long-term debt, less current maturities $ 559,824 $200,831
========= ========
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%. Under the base rate option the
applicable rate is prime plus 1.5%. All borrowings under the term loan at
December 28, 2002, bear interest at the LIBOR option which was effectively 4.2%.
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).
38
The revolving loan matures June 2007. The term loan is repayable in 28
consecutive quarterly installments, the first 24 of which will each be in the
amount of $625,000 and the last four of which will each be in the amount of
$58,750,000.
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 related to certain issuances of equity, additional
indebtedness, asset dispositions or upon reduced levels of leverage, 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) prohibits
the Company from prepaying other indebtedness, (ii) requires 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 December 28, 2002, the Company had approximately $114.1 million of unused
borrowing capacity under the revolving loan commitment after the issuance of
$10.9 million of letters of credit.
The Company also has $300 million of 8 7/8% Senior Subordinated Notes
outstanding at December 28, 2002 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 December 28, 2002, 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.
On April 4, 2000, the Company entered into a five-year interest rate swap
agreement under which the Company paid a fixed rate of 7.32% and received a
floating LIBOR rate. The effect of the swap agreement was to fix 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 floating rate to fixed rate was $1.7 million.
39
The Company adopted SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities", for the fiscal year beginning December 31, 2000 and
required the Company to record all derivatives on the balance sheet at fair
value. Changes in derivative fair values for cash-flow hedges are deferred and
recorded as a component of other comprehensive income until the hedged
transactions occur and are 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 stockholders' 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 was 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):
2003 $ 2,961
2004 3,007
2005 3,053
2006 3,056
2007 3,091
Thereafter 547,990
---------
563,158
Less unamortized discount (373)
---------
$ 562,785
=========
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.
40
The following tables set forth pension obligations and plan assets information
(in thousands):
JUNE 7, 2002 TO DECEMBER 30,2001 YEAR ENDED
DECEMBER 28, 2002 TO JUNE 6, 2002 DECEMBER 29, 2001
----------------- --------------- -----------------
CHANGE IN BENEFIT OBLIGATION:
Benefit Obligation-Beginning of Period $ 105,271 $ 88,320 $ 59,297
Service cost 3,778 2,306 4,336
Interest cost 3,851 2,719 5,175
Actuarial loss 373 11,107 3,999
Benefits paid (1,728) (1,229) (2,265)
Business acquisition and other 2,048 17,778
---------- -------- --------
Benefit Obligation-End of Period $ 111,545 $105,271 $ 88,320
========== ======== ========
CHANGE IN PLAN ASSETS:
Fair Value-Beginning of Period $ 56,677 $ 59,161 $ 46,950
Actual return on plan assets (5,408) (2,234) (4,553)
Company contribution 5,392 979 4,811
Benefits paid (1,728) (1,229) (2,265)
Business acquisition 14,218
---------- ------- --------
Fair Value-End of Period $ 54,933 $ 56,677 $ 59,161
========== ======== ========
FUNDED STATUS:
As of period-end $ (56,612) $(29,159)
Unrecognized cost:
Actuarial and investment losses, net 8,784 21,809
Prior service cost 145
Transition asset (66)
Additional minimum liability (9,226)
---------- --------
Accrued benefit cost $ (47,828) $(16,497)
========== ========
The additional minimum liability of $9,226,000, net of tax of $3,968,000, has
been reflected in other comprehensive income in fiscal 2001.
YEAR ENDED YEAR ENDED
JUNE 7, 2002 TO DECEMBER 30, 2001 TO DECEMBER 29, DECEMBER 30,
DECEMBER 28, 2002 JUNE 6, 2002 2001 2000
----------------- ------------ ---- ----
THE COMPONENTS OF PENSION COST ARE AS FOLLOWS:
Service cost $ 3,778 $ 2,306 $ 4,336 $ 2,896
Interest cost on projected benefit obligation 3,851 2,719 5,175 3,916
Expected return on plan assets (3,007) (2,286) (5,083) (4,393)
Net amortization and deferral:
Unrecognized net loss (gain) 341 173 (1)
Unrecognized prior service cost 100 36 36
Unrecognized net asset (5) (133) (174)
-------- -------- ------- -------
Net pension cost $ 4,622 $ 3,175 $ 4,504 $ 2,280
======== ======== ======= =======
YEAR ENDED YEAR ENDED
JUNE 7, 2002 TO DECEMBER 30, 2001 DECEMBER 29, DECEMBER 30,
DECEMBER 28, 2002 TO JUNE 6, 2002 2001 2000
----------------- --------------- ---- ----
THE ASSUMPTION USED IN THE ACCOUNTING
WERE AS FOLLOWS:
Discount rate 6.50% 7.25% 7.25% 7.50%
Rate of increase in compensation levels 4.00% 4.00% 4.00% 4.00%
Expected long-term rate of return of assets 9.00% 9.00% 9.00% 9.00%
The reduction in the discount rate as of June 6, 2002 resulted in an increase of
$12.2 million in the projected benefit obligation and is expected to result in
an increase in the 2003 pension expense of approximately $1.3 million.
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 $3.8 million,
$2.8 million, $7.0 million and $5.4 million for the period from June 7, 2002 to
December 28, 2002, December 30, 2001 to June 6, 2002, fiscal 2001 and fiscal
2000, 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 $1.3 million, $0.9
million, $1.9 million and $1.2 million for the period from June 7, 2002 to
December 28, 2002, December 30, 2001 to June 6, 2002, fiscal 2001 and fiscal
2000, respectively. Also, the Company has a defined contribution plan covering
certain hourly employees covered by a
41
collective bargaining agreement. Total expense for the plan amounted to $0.6
million, $0.4 million, $0.7 million and $0.7 million for the period from June 7,
2002 to December 28, 2002, December 30, 2002 to June 6, 2002, fiscal 2001 and
fiscal 2000, respectively.
7. INCOME TAXES
The provision (benefit) for income taxes consisted of the following (in
thousands):
SUCCESSOR PREDECESSOR
----------------- ----------------------------------------------
YEAR ENDED YEAR ENDED
JUNE 7, 2002 TO DECEMBER 30, 2001 DECEMBER 29, DECEMBER 30,
Current income tax provision: DECEMBER 28, 2002 TO JUNE 6, 2002 2001 2000
----------------- ---------------- ------------ ------------
Federal $ 11,990 $ 7,670 $ 9,593 $12,188
State 2,678 2,011 2,967 3,506
--------- -------- -------- -------
Total Current 14,668 9,681 12,560 15,694
Deferred income tax provision:
Federal (1,158) (1,959) 2,860 (1,072)
State (165) (309) 435 (164)
--------- -------- -------- -------
Total Deferred (1,323) (2,268) 3,295 (1,236)
--------- -------- -------- -------
Total $ 13,345 $ 7,413 $ 15,855 $14,458
========= ======== ======== =======
Federal income tax at the statutory rate of 35% for the period from June 7, 2002
to December 28, 2002, December 30, 2001 to June 6, 2002, fiscal 2001 and fiscal
2000 and income tax expense as reported are reconciled as follows (in
thousands):
SUCCESSOR PREDECESSOR
----------------- ---------------------------------------------
YEAR ENDED YEAR ENDED
JUNE 7, 2002 TO DECEMBER 30, 2001 DECEMBER 29, DECEMBER 30,
DECEMBER 28, 2002 TO JUNE 6, 2002 2001 2000
----------------- ---------------- ------------ ------------
Federal income tax at statutory rate $ 11,831 $ 6,419 $ 14,574 $12,447
State income taxes, net of federal tax benefits 1,576 998 1,929 2,279
Resolution of prior year tax audits (2,360) (620)
Non-deductible goodwill 1,813 1,273
Other-net (62) (4) (101) (921)
--------- -------- -------- -------
Income tax expense $ 13,345 $ 7,413 $ 15,855 $14,458
========= ======== ======== =======
The approximate tax effects of temporary differences as of December 28, 2002 and
December 29, 2001 are as follows (in thousands):
SUCCESSOR PREDECESSOR
--------------------------------------- --------------------------------------
DECEMBER 28, 2002 DECEMBER 29, 2001
--------------------------------------- --------------------------------------
ASSETS LIABILITIES TOTAL ASSETS LIABILITIES TOTAL
------ ----------- ----- ------ ----------- -----
Allowance for
doubtful accounts $ 2,811 $ 2,811 $ 1,535 $ 1,535
Inventories $ (901) (901) $ (2,783) (2,783)
Employee benefits 10,287 10,287 11,416 11,416
Accrued expenses
not currently
deductible 3,674 3,674 2,236 2,236
Other (2,711) (2,711)
--------- -------- --------- -------- --------- -------
Total current 16,772 (901) 15,871 15,187 (5,494) 9,693
--------- -------- --------- -------- --------- -------
Allowance for
doubtful accounts 527 527
Depreciation and
amortization (28,913) (28,913) (26,482) (26,482)
Employee benefits 22,322 22,322 9,101 9,101
Accrued expenses
not currently
deductible 29,368 29,368 9,126 9,126
Net operating loss
carryforwards 2,454 2,454 6,200 6,200
Other 937 937
--------- --------- --------- -------- --------- -------
Total noncurrent 54,144 (28,913) 25,231 25,891 (26,482) (591)
--------- --------- --------- -------- --------- -------
Total $ 70,916 $ (29,814) $ 41,102 $ 41,078 $ (31,976) $ 9,102
========= ========= ========= ======== ========= =======
42
Management believes that it is more likely than not that 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 December 28, 2002, the Company has state net operating
loss carryforwards of approximately $48 million which are due to expire
beginning 2015. Of the state net operating losses, $33 million is subject to an
annual limitation of approximately $4 million under 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 2000 $ 34,734 $ 480 $ 23,282
Fiscal 2001 40,582 704 21,818
December 30, 2001 to June 6, 2002 17,137 592 9,625
June 7, 2002 to December 28, 2002 23,887 108 12,058
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 December
28, 2002 (in thousands):
OPERATING CAPITALIZED SUBLEASE
LEASES LEASES INCOME
------ ------ ------
2003 $ 37,420 $ 1,572 $ 17,067
2004 36,698 1,575 16,342
2005 34,592 1,575 14,551
2006 33,923 1,575 13,972
2007 31,981 1,576 12,569
Thereafter 191,203 16,908 58,518
-------- -------- --------
Total $365,817 24,781 $133,019
======== ========
Amount representing interest 11,167
--------
Present value of net minimum lease payments 13,614
Current portion 414
--------
Long-term portion $ 13,200
========
Assets under capital leases, consisting of retail store sites, had a net book
value of $11.5 million, net of accumulated amortization of $0.4 million, at
December 28, 2002, and $12.2 million, net of accumulated amortization of $0.5
million, at December 29, 2001.
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 customer bank loans and leases amounting to $1.1
million as of December 28, 2002. As the Company does not expect to pay such
amounts, nothing was accrued at December 28, 2002.
43
9. PATRONAGE DIVIDENDS
Historically, 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. STOCKHOLDERS' EQUITY
Option and stock appreciation rights ("SARs") transactions were as follows:
OPTIONS
WEIGHTED
OPTIONS SARS OPTION PRICE AVERAGE PRICE
------- ---- ------------ -------------
Outstanding, January 1, 2000 50,000 21,000 $ 53.10-$104.35 $ 67.96
Exercised (400) (3,400) 94.30 94.30
Granted 1,000 184 129.95 129.95
----- ------ --------------- -------
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 applies 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
resulting in a compensation charge of $3.1 million. 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, while the effect on 2000 net income would have
been an approximate increase of $685,000.
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 and 2000. 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. EVANSVILLE FIRE
During 1998, fire destroyed the Evansville, Indiana warehouse, inventory and
equipment. As of December 30, 2000, all insurance claims related to the fire had
been settled. During 2000, the Company recorded gains of $3.3 million related to
the insurance settlements. This amount is reflected in other -- net revenues in
the Company's consolidated statements of income.
12. 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 2002, 2001 and 2000, no customer accounted for over 10% of net sales and
service fees.
44
Eliminations represent the activity between wholesale and Company-owned retail
stores. Inter-segment revenues are recorded at amounts consistent with those
charged to independent retail stores.
Identifiable assets are those used exclusively by that industry segment.
Corporate assets are principally cash and cash equivalents, notes receivable,
transportation equipment, corporate office facilities 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
----------------- -----------------------------------------------------------------
JUNE 7, 2002 TO DECEMBER 30, 2001 YEAR ENDED YEAR ENDED
DECEMBER 28, 2002 TO JUNE 6, 2002 DECEMBER 28, 2001 DECEMBER 29, 2000
----------------- --------------- ----------------- -----------------
NET SALES AND SERVICE FEES
Retail $ 942,859 $ 646,408 $1,377,133 $ 891,666
Wholesale 1,710,687 1,317,161 2,880,981 2,628,026
Eliminations (576,978) (404,100) (870,352) (589,659)
----------- ----------- ---------- ----------
Consolidated $ 2,076,568 $ 1,559,469 $3,387,762 $2,930,033
=========== =========== ========== ==========
INCOME BEFORE PATRONAGE DIVIDENDS,
DEPRECIATION AND AMORTIZATION
Retail $ 32,968 $ 21,307 $ 42,052 $ 21,879
Wholesale 45,319 33,364 61,214 59,493
Corporate (13,498) (18,629) (9,918) (10,437)
----------- ------------ --------- ----------
Consolidated $ 64,789 $ 36,042 $ 93,348 $ 70,935
=========== =========== ========== ==========
DEPRECIATION AND AMORTIZATION
Retail $ 12,980 $ 9,105 $ 24,788 $ 15,167
Wholesale 5,505 4,405 9,604 7,759
Corporate 12,501 4,191 8,636 7,411
----------- ----------- ---------- ----------
Consolidated $ 30,986 $ 17,701 $ 43,028 $ 30,337
=========== =========== ========== ==========
INTEREST
Retail $ 6,543 $ 6,132 $ 12,180 $ 8,180
Wholesale 1,342 2,146 3,581 1,655
Corporate 13,130 5,487 3,023 6,029
----------- ----------- ---------- ----------
Consolidated $ 21,015 $ 13,765 $ 18,784 $ 15,864
=========== =========== ========== ==========
CAPITAL EXPENDITURES
Retail $ 13,031 $ 5,273 $ 10,961 $ 14,558
Wholesale 4,581 1,426 9,727 8,851
Corporate 5,042 3,943 11,926 14,297
----------- ----------- ---------- ----------
Consolidated $ 22,654 $ 10,642 $ 32,614 $ 37,706
=========== =========== ========== ==========
IDENTIFIABLE ASSETS (AT YEAR END)
Retail $ 509,093 $ 325,026
Wholesale 582,807 366,851
Corporate 288,854 102,633
----------- ----------
Consolidated $ 1,380,754 $ 794,510
=========== ==========
45
13. ALLOWANCE FOR LOSSES
Allowance for losses consists of the following (In thousands):
ADDITIONS
CHARGED BALANCE
BALANCE AT (CREDITED) (RECOVERIES TO) AT END
BEGINNING TO DEDUCTIONS BUSINESS OF
DESCRIPTION OF PERIOD EXPENSES FROM RESERVE ACQUISITION PERIOD
- ----------- ---------- ---------- --------------- ----------- --------
June 7, 2002 to December
28, 2002:
Current receivables $ 6,292 (1,193) (478) $ 5,577
Notes receivable, $ 1,300 175 $ 1,475
long-term
December 30, 2001
to June 6, 2002:
Current receivables $ 7,021 (701) 28 $ 6,292
Notes receivable, $ 1,300 $ 1,300
long-term
December 29, 2001:
Current receivables $ 5,729 820 16 488 $ 7,021
Notes receivable, $ 2,129 (829) $ 1,300
long-term
December 30, 2000:
Current receivables $ 5,510 4,186 3,967 $ 5,729
Notes receivable, $ 7,137 (5,008) $ 2,129
long-term
Deductions from the reserve represent accounts written off, less recoveries.
14. 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
JUNE 7, 2002 TO DECEMBER 28, 2002 (SUCCESSOR)
(IN THOUSANDS)
COMBINED
ROUNDY'S SUBSIDIARIES ELIMINATIONS TOTAL
--------- ------------ ------------ ----------
REVENUES:
Net sales and service fees $ 881,724 $1,585,198 $(390,354) $2,076,568
Other-net 9,618 880 (9,291) 1,207
--------- ---------- --------- ----------
891,342 1,586,078 (399,645) 2,077,775
--------- ---------- --------- ----------
COSTS AND EXPENSES:
Cost of sales 811,455 1,299,804 (383,026) 1,728,233
Operating and administrative 47,211 254,841 (7,328) 294,724
Interest 20,302 10,004 (9,291) 21,015
--------- ---------- --------- ----------
878,968 1,564,649 (399,645) 2,043,972
--------- ---------- --------- ----------
INCOME (LOSS) BEFORE INCOME TAXES 12,374 21,429 33,803
PROVISION (BENEFIT) 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
========= ========== =========- ==========
46
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 $ 653,065 $1,193,445 $(287,041) $1,559,469
Other-net 6,706 745 (6,757) 694
---------- ---------- --------- ----------
659,771 1,194,190 (293,798) 1,560,163
---------- ---------- --------- ----------
COSTS AND EXPENSES:
Cost of sales 600,978 979,070 (281,601) 1,298,447
Operating and administrative 42,551 185,099 (5,440) 222,210
SARs and other termination costs 7,400 7,400
Interest 13,255 7,267 (6,757) 13,765
---------- ---------- --------- ----------
664,184 1,171,436 (293,798) 1,541,822
---------- ---------- --------- ----------
INCOME (LOSS) BEFORE INCOME TAXES (4,413) 22,754 18,341
PROVISION (BENEFIT) FOR INCOME TAXES (1,689) 9,102 7,413
EQUITY IN EARNINGS OF SUBSIDIARIES 13,652 (13,652)
---------- ---------- --------- ----------
NET INCOME $ 10,928 $ 13,652 $ (13,652) $ 10,928
========== ========== ========= ==========
47
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 $ 1,464,319 $ 2,585,671 $ (662,228) $3,387,762
Other-net 16,347 1,970 (16,260) 2,057
------------ ----------- ---------- ----------
1,480,666 2,587,641 (678,488) 3,389,819
------------ ----------- ---------- ----------
COSTS AND EXPENSES:
Cost of sales 1,346,749 2,159,864 (651,462) 2,855,151
Operating and administrative 97,966 378,365 (10,767) 465,564
Interest 18,187 16,856 (16,259) 18,784
------------ ----------- ---------- ----------
1,462,902 2,555,085 (678,488) 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
============ =========== ========== ==========
48
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 30, 2000 (PREDECESSOR)
(IN THOUSANDS)
COMBINED
ROUNDY'S SUBSIDIARIES ELIMINATIONS TOTAL
--------- ------------ ------------ ----------
REVENUES:
Net sales and service fees $ 1,374,642 $ 2,092,196 $ (536,805) $2,930,033
Other-net 12,507 6,674 (12,007) 7,174
------------ ----------- ---------- ----------
1,387,149 2,098,870 (548,812) 2,937,207
------------ ----------- ---------- ----------
COSTS AND EXPENSES:
Cost of sales 1,268,878 1,799,444 (527,589) 2,540,733
Operating and administrative 85,383 263,845 (9,216) 340,012
Interest 22,333 5,538 (12,007) 15,864
------------ ----------- ---------- ----------
1,376,594 2,068,827 (548,812) 2,896,609
------------ ----------- ---------- ----------
INCOME BEFORE PATRONAGE DIVIDENDS 10,555 30,043 40,598
PATRONAGE DIVIDENDS 9,196 (4,161) 5,035
------------ ----------- ---------- ----------
INCOME BEFORE INCOME TAXES 1,359 34,204 35,563
PROVISION FOR INCOME TAXES 545 13,913 14,458
EQUITY IN EARNINGS OF SUBSIDIARIES 20,291 (20,291)
------------ ----------- ---------- ----------
NET INCOME $ 21,105 $ 20,291 $ (20,291) $ 21,105
============ =========== ========== ==========
49
CONDENSED CONSOLIDATING BALANCE SHEETS
AS OF DECEMBER 28, 2002 (SUCCESSOR)
(IN THOUSANDS)
COMBINED
ASSETS ROUNDY'S SUBSIDIARIES ELIMINATIONS TOTAL
- ------ --------- ------------ ------------ ----------
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 63,386 173,079 236,465
Prepaid expenses and other (4,649) 30,276 25,627
---------- --------- ---------- -----------
TOTAL CURRENT ASSETS 211,587 282,143 (4,516) 489,214
---------- --------- ---------- -----------
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 $1,107,720 $ 878,043 $ (605,009) $ 1,380,754
========== ========= ========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 127,742 $ 116,147 $ (3,043) $ 240,845
Accrued expenses and other 81,314 70,944 (1,473) 150,786
Current maturities of long-term debt 2,500 461 2,961
Intercompany payable 409,761 (409,761)
---------- --------- ---------- -----------
TOTAL CURRENT LIABILITIES 211,556 597,313 (414,277) 394,592
---------- --------- ---------- -----------
LONG-TERM DEBT 546,502 13,322 559,824
OTHER LIABILITIES 14,704 76,676 91,380
---------- --------- ---------- -----------
TOTAL LIABILITIES 772,762 687,311 (414,277) 1,045,796
---------- --------- ---------- -----------
SHAREHOLDERS' EQUITY 334,958 190,732 (190,732) 334,958
---------- --------- ---------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' $1,107,720 $ 878,043 $ (605,009) $ 1,380,754
========== ========= ========== ===========
EQUITY
50
CONDENSED CONSOLIDATING BALANCE SHEETS
AS OF DECEMBER 29, 2001 (PREDECESSOR)
(IN THOUSANDS)
COMBINED
ASSETS ROUNDY'S SUBSIDIARIES ELIMINATIONS TOTAL
-------- ------------ ------------ -----
CURRENT ASSETS:
Cash and cash equivalents $ 23,137 $ 22,379 $ 45,516
Notes and accounts receivable-net 25,725 66,361 $ (17,302) 74,784
Merchandise inventories 68,761 178,718 88 247,567
Prepaid expenses and other 12,140 15,303 27,443
--------- ---------- ------------ -----------
TOTAL CURRENT ASSETS 129,763 282,761 (17,214) 395,310
--------- ---------- ------------ -----------
PROPERTY AND EQUIPMENT-NET 24,027 246,062 270,089
OTHER ASSETS:
Investment in subsidiaries 147,160 (147,160)
Intercompany receivables 302,359 (302,359)
Notes receivable 1,061 4,625 5,686
Goodwill and other assets 2,691 120,734 123,425
--------- ---------- ------------ -----------
TOTAL OTHER ASSETS 453,271 125,359 (449,519) 129,111
--------- ---------- ------------ -----------
TOTAL ASSETS $ 607,061 $ 654,182 $ (466,732) $ 794,510
========= ========== ============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 135,342 $ 118,245 $ (9,938) $ 243,649
Accrued expenses and other 54,606 51,674 (7,276) 99,004
Current maturities of long-term debt 27,300 417 27,717
Intercompany payable 302,359 (302,359)
--------- ---------- ------------- -----------
TOTAL CURRENT LIABILITIES 217,248 472,695 (319,572) 370,370
--------- ---------- ------------- -----------
LONG-TERM DEBT 187,050 13,781 200,831
OTHER LIABILITIES 23,027 20,546 43,573
--------- ---------- ------------ -----------
TOTAL LIABILITIES 427,325 507,022 (319,573) 614,774
--------- ---------- ------------ -----------
REDEEMABLE COMMON STOCK 9,244 9,244
--------- ---------- ------------ -----------
SHAREHOLDERS' EQUITY 170,492 147,160 (147,160) 170,492
--------- ---------- ------------ -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 607,061 $ 654,182 $ (466,733) $ 794,510
========= ========== ============- ===========
51
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 FROM 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 (319,624) (220,372) (539,996)
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 (366,408) (235,412) (601,820)
--------- ---------- ---------
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 (25,641) (25,641)
Contributed capital 314,500 314,500
Intercompany receivables-net (147,317) 147,317
--------- ---------- ---------
NET CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES 517,991 147,069 665,060
--------- ---------- ---------
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 FROM 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
======== ======== ========
52
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 29, 2001 (PREDECESSOR)
(IN THOUSANDS)
COMBINED
ROUNDY'S SUBSIDIARIES TOTAL
-------- ------------ -----
NET CASH FLOWS FROM 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)
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
======== ======== ========
53
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 30, 2000 (PREDECESSOR)
(IN THOUSANDS)
COMBINED
ROUNDY'S SUBSIDIARIES TOTAL
-------- ------------ -----
NET CASH FLOWS FROM OPERATING ACTIVITIES: $ 29,261 $ 51,689 $ 80,950
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures-net of proceeds (9,256) (23,589) (32,845)
Payment for business acquisitions net of cash acquired (128,615) (128,615)
Decrease in notes receivable 989 8,693 9,682
-------- -------- --------
NET CASH FLOWS USED IN INVESTING ACTIVITIES (136,882) (14,896) (151,778)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings 175,495 175,495
Payments of debt (128,359) (31) (128,390)
Debt issuance costs (4,770) (4,770)
Intercompany receivables-net 30,693 (30,693)
-------- -------- --------
NET CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES 73,059 (30,724) 42,335
-------- -------- --------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (34,561) 6,068 (28,493)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 56,364 12,022 68,386
-------- --------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 21,803 $ 18,090 $ 39,893
======== ========= ========
54
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
(a) On December 19, 2002, the Registrant filed a Current Report on Form
8-K (the "Current Report") to report the dismissal of Deloitte &
Touche LLP ("Deloitte & Touche") as the Registrant's independent
public accountants and the engagement of Ernst & Young LLP to serve
as the Registrant's independent public accountants for the fiscal
year ending December 28, 2002. As reported in the Current Report (i)
there were no disagreements between the Registrant and Deloitte &
Touche on any matter of accounting principle or practice, financial
statement disclosure, or auditing scope or procedure which, if not
resolved to Deloitte & Touche's satisfaction, would have caused
Deloitte & Touche to make reference to the subject matter in
connection with Deloitte & Touche's report on the Registrant's
consolidated financial statements for such years; and (ii) there
were no reportable events as defined in Item 304(a)(1)(v) of
Regulation S-K.
(b) Not applicable because, as disclosed under (a) above, there were no
"disagreements" or "reportable events" as defined in Item 304(a) of
regulation S-K in connection with the dismissal of Deloitte &
Touche.
55
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 52 Chairman of the Board, Chief Executive
Officer and President; Director
Darren W. Karst 43 Executive Vice President and Chief
Financial Officer
Andrew A. Abraham 39 Group Vice President of Marketing
Gary L. Fryda 50 Group Vice President, Retail Operations,
Customer Satisfaction
Donald S. Rosanova 53 Group Vice President, Supply Chain
Michael J. Schmitt 54 Group Vice President, Wholesale Development
and Real Estate
Colleen J. Stenholt 52 Group Vice President, Human Resources
Londell J. Behm 51 Vice President, Advertising
Randy T. Benz 41 Vice President and Controller
Larry C. Goddard 48 Vice President, Management Information
Systems
Edward G. Kitz 49 Vice President, Secretary and Treasurer
Michael J. Santimauro 56 Vice President, Loss Prevention and
Security
Jeffrey D. Beyer 35 Director
L. Dick Buell 52 Director
Ralph W. Drayer 58 Director
Avy H. Stein 48 Director
John R. Willis 53 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.
56
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.
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. From 1977 to 1986, Mr. Fryda served in managerial roles with
Roundy's, including Executive Vice President and Chief Operating Officer of Pick
'n Save stores and Vice President of Pick 'n Save stores.
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.
LONDELL J. BEHM has served as Vice President of Advertising since 1988. Mr. Behm
joined Roundy's in 1982 as the Advertising Manager and served as the Corporate
Director of Advertising in 1987. Prior to joining Roundy's in 1982, Mr. Behm was
the Advertising Manager at United Foods, a food wholesale distribution company,
from 1972 to 1982.
RANDY T. BENZ has served as Vice President and Controller of Roundy's, Inc.
since October 2002 and served as Corporate Controller and Financial Director
from 1996 to October 2002. Mr. Benz served as the Director of Financial Planning
and Reporting from 1989 to 1996. Prior to joining Roundy's, Mr. Benz was with
Deloitte and Touche LLP.
LARRY C. GODDARD has served as Vice President of Management Information Systems
since 2001 and served as Director of Technical Support and Operations from 1998
to 2001. Mr. Goddard was the Vice President of Sales at Allen Systems Group, a
software development and marketing company, from 1996 to 1997. Mr. Goddard
elected to spend the intervening period with his family. Prior to that time, Mr.
Goddard held various positions with Canada Trust from 1980 to 1996, most
recently as an Assistant Vice President of MIS.
EDWARD G. KITZ has served as Vice President, Secretary and Treasurer of Roundy's
since 1995. 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.
MICHAEL J. SANTIMAURO has served as Vice President, Loss Prevention and Security
since October 2002. Mr. Santimauro served as a Director of Forensic Services for
KPMG, LLP from April 1998 to October 2002. Mr. Santimauro served as a Special
Agent for the Federal Bureau of Investigation from 1971 to 1998 and served as
the Special Agent in charge of Wisconsin from 1994 to 1998.
57
JEFFERY D. BEYER has been a director of Roundy's since October 2002. Mr. Beyer
is a Principal at Willis Stein & Partners and is responsible for structuring
acquisitions, coordinating due diligence, negotiating debt financings, working
with portfolio company management teams on an ongoing basis and arranging for
the disposition of investments. Prior to joining Willis Stein in May 2002, Mr.
Beyer was a management consultant at the Boston Consulting Group. 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. Mr. Beyer
holds a B.A. degree in economics from the University of Chicago.
L. DICK BUELL has been a director of Roundy's since August 2002. Mr. Buell is
Chief Executive Officer of WS Brands, Inc., an entity formed by Willis Stein &
Partners for the purpose of acquiring a business in the food or consumer
products industry. Prior to joining WS Brands in December 2001, 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. From 1979 to 1983,
Mr. Buell was a consultant for McKinsey & Company. Prior to joining McKinsey,
Mr. Buell spent seven years with Babcock & Wilcox.
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.,
Personal Path Systems, Inc., National Veterinary Associates, Inc. and Ziff Davis
Media Inc.
58
ITEM 11. EXECUTIVE COMPENSATION
The following table shows the compensation for the past three years of our Chief
Executive Officer and the Company's next four most highly compensated executive
officers performing policy-making functions for Roundy's, including the Chief
Executive Officer, together with its former Chief Executive Officer (the six
individuals named in the table below are collectively referred to as the "named
executive officers"):
ANNUAL LONG-TERM
COMPENSATION COMPENSATION
SALARY RESTRICTED STOCK LTIP ALL OTHER
NAME AND PRINCIPAL POSITION YEAR YEAR (1) (2) BONUS AWARDS (3) PAYOUTS(3) COMPENSATION(4)
- -------------------------------- ---- ------------ ----- ---------------- ---------- ---------------
Robert A. Mariano(5) 2002 $339,230 $348,000 $ 6,862
Chairman, President and 2001 -
Chief Executive Officer 2000 -
Darren W. Karst(5) 2002 254,423 261,000 5,048
Executive Vice President and 2001 -
Chief Financial Officer 2000 -
Gary L. Fryda(6) 2002 332,500 79,967 10,449
Group Vice President of Retail 2001 332,500 - 6,440
Operations and Customer Satisfaction 2000 249,375 - 3,202
Michael J. Schmitt 2002 217,616 86,288 $ 54,124 12,903
Group Vice President - Wholesale 2001 200,000 75,250 $ 54,124 12,476
Development and Real Estate 2000 190,000 66,500 11,768
Edward G. Kitz 2002 161,000 101,350 40,678 9,181
Vice President, Secretary and 2001 150,000 56,438 40,678 8,310
Treasurer 2000 142,000 49,700 8,002
Gerald F. Lestina(7) 2002 282,692 81,950 135,139 1,366,794
Former President and Chief 2001 500,000 188,125 135,139 26,026
Executive Officer 2000 475,000 166,250 21,522
(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) "Restricted Stock Awards" for 2001 for Messrs. Schmitt, Kitz and Lestina
are dollar value of Awards under the company's 2001 Incentive Compensation
Plan. "LTIP Payouts" for 2002 are the payouts of such Awards in connection
with the Transactions.
(4) "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 2002 $ 6,862
Darren W. Karst 2002 4,069 $ 979
Gary L. Fryda 2002 4,390 5,500 $ 559
2001 976 5,250 214
2000 1,092 2,110
Michael J. Schmitt 2002 3,220 5,500 4,183
2001 3,099 5,250 4,127
2000 3,501 5,100 3,167
Edward G. Kitz 2002 2,878 4,230 2,073
2001 2,641 3,900 1,769
2000 2,851 3,960 1,191
Gerald F. Lestina (c) 2002 139,249 5,500 17,045
2001 7,802 5,250 12,974
2000 8,395 4,500 8,627
(a) Life Insurance Benefit consists of premiums on term life insurance
and the cash surrender value of a policy assigned to Mr. Lestina in
connection with the Transactions.
(b) Estimated above-market portion of interest accrued on amounts
deferred under the Company's Deferred Compensation Plan. See
"Deferred Compensation Plan" below.
(c) In addition, for Mr. Lestina, All Other Compensation includes
$105,000 paid to Mr. Lestina during 2002 under his consulting
agreement (see "Certain Relationships and Related Transactions --
Consulting Agreement") and $1.1 million under his Deferred
Compensation Agreement.
(5) Messrs. Mariano and Karst were employed by the Company beginning June 7,
2002.
(6) Mr. Fryda's employment by the Company began April 1, 2000.
(7) Mr. Lestina resigned in connection with the Transactions.
59
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.
Colleen J. Stenholt - Pursuant to a letter agreement dated September 25, 2002
between Ms. Stenholt and the Company, if Ms. Stenholt is terminated for any
reason other than cause, she will be entitled to one year of her base salary.
LIFE INSURANCE
Each of the executive officers of the Company are 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.
SEVERANCE AGREEMENTS
The Company has deferred compensation agreements with certain executive
officers, including Messrs. Kitz and Schmitt. These agreements provide generally
that the Company will pay to the employee a deferred compensation amount, if at
any time within three years after the occurrence of a change in control the
employee's employment is terminated by the Company, other than for good cause,
or upon the employee's voluntary termination of employment for
60
"good reason." If the termination date occurs within two years after the date on
which a change in control occurs, the deferred compensation amount will be equal
to their "monthly benefit amount" times 24. If the termination date occurs more
than two years, but not more than three years, after the date on which a change
in control occurs, the deferred compensation amount will be equal to the monthly
benefit amount times 24 minus the number of calendar months between the date two
years after the date on which a change of control occurs and the termination
date. The monthly benefit amount is equal to 1/12 of the employee's annual base
salary. If the employee becomes entitled to the payment of a deferred
compensation amount, the Company will continue to provide to the employee those
health and life insurance benefits to which the employee was entitled as of the
termination date for a similar period. The Transactions constituted a change in
control under these agreements. Under the terms of the share exchange agreement,
the Transactions constituted "good reason."
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. 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. For 2002, the Board of Directors
approved an annual deferral of $301,000. 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's.
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 $30,000 per year, prorated on an annual basis.
OPTION/SAR EXERCISES
The following table provides information on the named executive officers' option
and SAR exercises in 2002 and the value of unexercised options at December 28,
2002.
NUMBER OF UNEXERCISED VALUE ($) OF UNEXERCISED
SHARES (A) OPTIONS (A) OPTIONS
ACQUIRED ON (B) SARS (B) SARS
EXERCISE AT DECEMBER 28, 2002 AT DECEMBER 28, 2002
(A) OPTIONS VALUE($) ----------------------------- -----------------------------
NAME (B) SARS REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------ ------------------- --------- ----------- ------------- ----------- -------------
Robert A. Mariano (A)
(B)
Darren W. Karst (A)
(B)
Gary L. Fryda (A)
(B)
Michael J. Schmitt (A) 3,500 $1,565,500
(B) 1,500 679,600
Edward G. Kitz (A) 1,500 679,600
(B) 2,500 1,116,400
Gerald F. Lestina (A) 21,500 9,368,500
(B)
61
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 December 28, 2002, at the
age of 65:
AVERAGE ANNUAL
COMPENSATION ANNUAL PENSION AFTER SPECIFIED YEARS OF CREDITED SERVICE
DURING LAST FIVE ---------------------------------------------------------------------------------
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 34,000 51,100 68,100 85,100 93,600 102,100
200,000 34,400 51,600 68,800 86,000 94,600 103,200
225,000 34,400 51,600 68,800 86,000 94,600 103,200
250,000 34,400 51,600 68,800 86,000 94,600 103,200
300,000 34,800 54,200 73,500 92,800 103,600 114,100
400,000 35,300 57,300 79,200 101,100 114,400 127,300
450,000 35,300 57,300 79,200 101,100 114,400 127,300
500,000 35,300 57,300 79,200 101,100 114,400 127,300
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 estimated
credited years of service for each of the named executive officers is as
follows: Mr. Mariano -- 1 year; Mr. Karst -- 1 year; Mr. Fryda -- 13 years; Mr.
Schmitt -- 25 years; Mr. Kitz -- 22 years; and Mr. Lestina -- 33 years.
SUPPLEMENTAL PLAN
Mr. Lestina participates in the Company's Supplemental Employee Retirement Plan,
which is designed to supplement the retirement benefits which are payable
through the Company's Retirement Plan, so that the effects of the limitation on
compensation under the Retirement Plan due to Section 401(a)(17) of the Internal
Revenue Code are eliminated. The benefit under the Supplemental Plan is equal to
the difference between (i) 50% of the participant's final average annual
earnings for the last five years and (ii) the value of the participant's
benefits under the Retirement Plan, payable in the form of a 15 year term
certain annuity. A survivor benefit is payable to the participant's beneficiary.
The Company established a trust to hold assets to be used to pay benefits under
the Supplemental Plan, however, the rights of any participant, beneficiary or
estate to benefit under the Supplemental Plan are solely those of an unsecured
creditor of the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to the June 6, 2002 Transactions by RAC, the members of the Company's
Compensation Committee were George E. Prescott, Henry Karbiner, Jr., Gary R.
Sarner and Gerald F. Lestina. The only employee-member was Mr. Lestina (former
President and Chief Executive Officer), however, he was a non-voting member.
George E. Prescott is associated with Prescott Supermarkets, Inc., which made
total merchandise purchases of $117.6 million from the Company in 2002 and
which, prior to its acquisition by the Company, subleased land and buildings
from the Company for an aggregate annual rental of approximately $2.3 million.
The Company made payments in fiscal 2002 aggregating $3.5 million for handling,
order selecting and storage of frozen food, meat and ice cream to Total
Logistics Control, LLC, of which Mr. Sarner is Chairman.
62
The Company does not currently have a compensation committee. The compensation
arrangements for Messrs. Mariano and Karst were, and in the future the
compensation arrangements for our other executive officers will be, established
pursuant to arms-length negotiations between representatives of the equity
sponsor and each executive officer.
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 director of
Roundy's; (ii) each of Roundy's "named executive officers"; 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) 93,601.7 100.00% 10,483.3 100.00% 104,085.0 100.00%
Robert A. Mariano 4,460.0 4.76 33.3 0.32 4,493.3 4.32
Darren W. Karst 2,203.3 2.35 13.3 0.13 2,216.7 2.13
Gary L. Fryda 524.2 0.56 524.2 0.50
Michael J. Schmitt 524.2 0.56 524.2 0.50
Edward G. Kitz 524.2 0.56 524.2 0.50
Gerald F. Lestina
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) 93,601.7 100.00 10,483.3 100.00 104,085.0 100.00
John R. Willis (2) 93,601.7 100.00 10,483.3 100.00 104,085.0 100.00
All Directors and
Executive Officers
of Roundy's, Inc.
as a Group 17 Persons) 93,601.0 100.00 10,483.3 100.00 104,085.0 100.00
(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 (64.10%) 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 33,601.7 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.
63
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.
Severance Agreements
The Company has a severance agreement with Gerald F. Lestina, its former
President and Chief Executive Officer. This agreement provided that in the event
of the termination of Mr. Lestina's employment (other than for "good cause" as
defined in the agreement), or Mr. Lestina's termination of his employment for
"good reason" (as defined in the agreement), Mr. Lestina would be entitled to a
"severance benefit" equal to two years of salary and bonus.
As a result of the change in control of the Company, Mr. Lestina resigned and
collected the severance benefit. The severance benefit means the sum of the
following multiplied by two: (i) Mr. Lestina's annual base salary in effect as
of the termination date; plus (ii) the amount of any bonus paid or payable to
Mr. Lestina for the preceding fiscal year. The Company will continue to provide
to Mr. Lestina those health and life insurance benefits to which he was entitled
as of the termination date, for a period of two years. In addition, pursuant to
the terms of his severance agreement, the Company will provide coverage for Mr.
Lestina and his spouse under the employee health, medical and life insurance
plans maintained by the Company for its executive personnel, until, in addition
to other parameters, the deaths of Mr. Lestina and his spouse.
Non-Competition Agreements
In connection with the Transactions, the Company entered into a Confidentiality
and Noncompete Agreement with Mr. Lestina. Pursuant to this agreement Mr.
Lestina agreed not to disclose or use at any time the Company's Confidential
Information (as such term is defined therein) of which he becomes aware, except
(i) to the extent that such disclosure or use is authorized by the Company or
(ii) as is directly required by the performance of his duties. He further agreed
that any intellectual property generated, authored or contributed to by
64
him as part of any activities taken on the Company's behalf would become the
Company's exclusive property. In addition, pursuant to this agreement, Mr.
Lestina agreed, for the next three years, not to: (i) participate in any
business located in the States of Illinois, Indiana, Michigan, Minnesota, Ohio
or Wisconsin which engages or which proposes to engage in the business of the
wholesale distribution and retail of food, groceries, general merchandise and
other goods and services related to the wholesale or retail sale or distribution
of food or groceries; (ii) induce or attempt to induce any of the Company's
employees to leave its employment; (iii) hire anyone who was an employee of the
Company's during this three-year period; or (iv) induce or attempt to induce any
of the Company's customers, suppliers, or other business relations to cease
doing business with it.
Consulting Agreement
On July 1, 2002, the Company entered into a Consulting Agreement with Mr.
Lestina pursuant to which Mr. Lestina, acting as an independent contractor, will
provide consulting services to the Company and its management at Roundy's
Pewaukee area offices and facilities. In addition to providing his consulting
services, Mr. Lestina will cooperate with the Company and render his assistance
in any claim, demand, action or suit or proceeding pertaining to the Company,
unless Mr. Lestina shall be an adverse party in such matter. The term of this
agreement (the "Consulting Period") will be 24 months unless terminated earlier
by agreement of the parties, by Mr. Lestina's death or permanent disability, or
by the Company for cause. Mr. Lestina will receive $17,500 per month in
compensation for his services and will be entitled to reimbursement of the
reasonable out-of-pocket expenses he incurs in the course of performing his
duties during the Consulting Period. Under the terms of this agreement Mr.
Lestina has agreed not to disclose or use at any time the Company's Confidential
Information (as such term is defined therein) of which he becomes aware, except
(i) to the extent that such disclosure or use is authorized by the Company or
(ii) as is directly required by the performance of his duties. He has further
agreed that any intellectual property generated, authored or contributed to by
him as part of any activities taken on the Company's behalf would become the
Company's exclusive property.
Merchandise Purchases and Other Transactions
Acquisition of Gold's Pick `n Save Stores - 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 Gold's
for $26.0 million plus the value of certain acquired inventory. The purchase
price for these assets was determined pursuant to arm's length negotiations
between management and representatives of the Company and management and
representatives of Gold's. Several officers of the registrant, under the
direction of Robert A. Mariano, were primarily responsible for determining the
purchase price for these assets. Prior to the Transactions, Robert S. Gold,
through various corporations controlled by him, beneficially owned 4.4% of the
voting securities of Roundy's and Mr. Gold was a director of Roundy's.
Acquisition of Prescott's Supermarkets, Inc. - In December 10, 2002, the Company
entered into a definitive agreement to acquire the capital stock of Prescott's
Supermarkets, Inc. ("Prescott's") for approximately $47.8 million. Prescott's
owned and operates seven licensed Pick `n Save stores. The acquisition of
Prescott's was completed on January 21, 2003. The purchase price for the
Prescott's stock was determined pursuant to arm's length negotiations between
management and representatives of the Company and management and representatives
of Prescott's. Several officers of the registrant, under the direction of Robert
A. Mariano, were primarily responsible for determining the purchase price for
these assets. Prior to the Transactions, Prescott's beneficially owned 9.3% of
the voting securities of Roundy's and George E. Prescott, a shareholder of
Prescott's was a director of Roundy's.
65
Certain of the persons affiliated with the Company prior to the Transactions
owned and/or operated retail food stores which purchase merchandise from it. The
Company also engages in certain other transactions with such retail food stores
and other affiliates of such persons. All of such merchandise purchases are made
from the Company, and all such other transactions are engaged in, in the
ordinary course of business and on the same basis and conditions as merchandise
purchases and other similar transactions between the Company and its other
stockholders that are customers. The following table and the notes thereto set
forth certain information about such transactions (in thousands):
2002
----
Robert E. Bartels (1) $167,624
Charles R. Bonson (2) 20,103
Victor C. Burnstad (3) 18,961
Robert S. Gold (4) 60,784
Gary N. Gundlach (5) 77,618
Patrick D. McAdams/McAdams, Inc. (6) 110,139
David J. Spiegelhoff (7) 51,808
George E. Prescott/Prescott's (8) 117,585
Woodman's Food Market, Inc. 55,166
Gary R. Sarner (9) n/a
(1) Through Martin's Super Markets, Inc.
(2) Through Bonson's of Waupaca, LLC; Bonson's of Waupaca, LLC is currently
subleasing land and buildings from the Company for five years for an
annual rental of approximately $137,400. The aggregate annual rental for
the years ended December 29, 2001 and December 30, 2000 under this
sublease was approximately $137,400 for each year. In June 1998, Bonson's
Foods, Inc. issued promissory notes to the Company in the amount of
$500,000. The amounts outstanding as of December 28, 2002, December 29,
2001 and December 30, 2000 were approximately $277,800, $333,300 and
$389,000, respectively.
(3) Through Burnstad Bros., Inc.; Burnstad Bros., Inc. subleased land from the
Company for a period of approximately two years ending in 2002, for an
annual rental of approximately $44,000.
(4) Prior to the October 23, 2002 acquisition, through B. & H. Gold
Corporation, Gold's Market, Inc., Gold's, Inc., and Gold's of Mequon LLC;
B. & H. Gold Corporation, Gold's Market, Inc., Gold's, Inc., and Gold's of
Mequon LLC had been subleasing land and buildings from the Company for
periods of four to twenty-two years at four store sites, for an aggregate
annual rental of approximately $1,917,600.
(5) Through retail grocery stores owned by Mr. Gundlach as sole proprietor and
Maple Grove Supermarkets, LLC; Mr. Gundlach and Maple Grove Supermarkets,
LLC are currently subleasing land and buildings from the Company for
periods of six to 17 years at five store sites, for an aggregate annual
rental of approximately $1,481,700.
(6) Through McAdams, Inc.; McAdams, Inc. is currently subleasing land and
buildings from the Company for periods of seven and eight years at two
store sites, for an aggregate annual rental of approximately $554,800.
(7) Through Spiegelhoff's Super Food Market, Inc.; Spiegelhoff's Super Food
Market, Inc. is currently subleasing land and buildings from the Company
for periods of four to 18 years at four store sites for an aggregate
rental of approximately $1,403,800 and at one additional store site, on a
month-to-month basis for an aggregate rental of approximately $225,700.
During the years ended December 29, 2001 and December 30, 2000,
Spiegelhoff's Super Food Market, Inc. subleased land and buildings from
the Company at five store sites for an aggregate annual rental of
approximately $1,629,500.
(8) Prior to the January 21, 2003 acquisition, through Prescott's, Prescott's
had been subleasing land and buildings from the Company for periods of
three to fifteen years at five store sites, for an aggregate annual rental
of approximately $1,782,600.
(9) The Company made payments in fiscal 2002, 2001 and 2000 aggregating
$3,499,000, $3,549,000 and $2,119,000, respectively, for handling, order
selecting and storage of frozen food, meat and ice cream to Total Logistic
Control, LLC of which Mr. Sarner is Chairman.
66
ITEM 14. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures.
The Company maintains disclosure controls and procedures that
are designed to ensure that information required to be
disclosed in the Company's reports under the Securities
Exchange Act of 1934, as amended (the "Exchange Act") is
recorded, processed, summarized and reported within the time
periods specified in the SEC's rules and forms, and that such
information is accumulated and communicated to management,
including the Chief Executive Officer and Chief Financial
Officer, as appropriate, to allow timely decisions regarding
required disclosure. Management necessarily applies its
judgment in assessing costs and benefits of such controls and
procedures, which can provide only reasonable assurance
regarding management's control objectives.
Within 90 days prior to the filing date of this report (the
"Evaluation Date"), the Company carried out an evaluation,
under the supervision and with the participation of the
Company's management, including the Company's chief executive
officer and its chief financial officer, of the effectiveness
of the design and operation of the Company's disclosure
controls and procedures pursuant to Rule 15d-14 of the
Securities and Exchange Act of 1934 (the "Exchange Act").
Based upon that evaluation, the chief executive officer and
chief financial officer concluded that as of the Evaluation
Date, the Company's disclosure controls and procedures (as
defined in Rule 15d-14 under the Exchange Act) are effective
to ensure that information required to be disclosed by the
Company in reports that it files or submits under the Exchange
Act is recorded, processed, summarized and reported within the
time periods specified in Securities and Exchange Commission
rules and forms.
(b) Changes in internal controls.
There were no significant changes in the Company's internal
controls or in other factors that could significantly affect
these controls subsequent to the date of their most recent
evaluation nor were there any significant deficiencies or
material weaknesses in the Company's internal controls.
67
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 Shareholders' 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
On December 19, 2002, Roundy's filed a Current Report on Form 8-K reporting,
under Item 4 -- Changes in Registrant's Certifying Accountant, that the Board of
Directors decided to dismiss Deloitte & Touche LLP as Roundy's independent
public accountants and, to engage Ernst & Young LLP to serve as Roundy's
independent public accountants. See Item 9 of this report.
(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.
68
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 27, 2003 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 27, 2003.
/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
69
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
securityholders.
70
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF
SARBANES-OXLEY ACT
I, Robert A. Mariano, certify that:
1. I have reviewed this annual report on Form 10-K of Roundy's, Inc.;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented
in this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and Roundy's have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "Evaluation Date");
and
c) presented in this annual report the conclusions about the
effectiveness of the disclosure controls and procedures based
on the evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed,
based on the most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in
this annual report whether or not there were significant changes in
internal controls or in other factors that could significantly
affect internal controls subsequent to the date of the most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: March 27, 2003
/s/ROBERT A. MARIANO
- -----------------------------------------
Robert A. Mariano, Chairman of the Board,
Chief Executive Officer and President
71
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF
SARBANES-OXLEY ACT
I, Darren W. Karst, certify that:
1. I have reviewed this annual report on Form 10-K of Roundy's, Inc.;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented
in this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and Roundy's have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "Evaluation Date");
and
c) presented in this annual report the conclusions about the
effectiveness of the disclosure controls and procedures based
on the evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed,
based on the most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in
this annual report whether or not there were significant changes in
internal controls or in other factors that could significantly
affect internal controls subsequent to the date of the most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: March 27, 2003
/s/DARREN W. KARST
- -----------------------------------------
Darren W. Karst, Executive Vice President
and Chief Financial Officer
72
ROUNDY'S, INC.
ANNUAL REPORT ON FORM 10-K UNDER THE SECURITIES EXCHANGE ACT OF 1934
FOR THE YEAR ENDED DECEMBER 28, 2002
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 by and between the Registrant and Ultra Mart, Inc. dated December 23,
1999(5)
2.6 Stock Purchase Agreement dated March 31, 2000, by and among Roundy's, Inc. and the record and
beneficial owners of all of the issued and outstanding shares of capital stock of Mega Marts,
Inc.(6)
2.7 Asset Purchase Agreement dated March 31, 2000, by and among Roundy's, Inc., NDC, Inc. and Mega
Marts, 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)
73
EXHIBIT
NO. DESCRIPTION
--- -----------
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 Severance and Non-Competition Agreement dated April 13, 1998 between the Registrant and Gerald F.
Lestina(19)
10.7 Amendment dated June 3, 1998 to Severance and Non-Competition Agreement between the Registrant and
Gerald F. Lestina(20)
10.8 Consulting Agreement dated July 1, 2002 between the Registrant and Gerald F. Lestina(21)
10.9 Roundy's, Inc. Supplemental Employee Retirement Plan for certain executive officers including Mr.
Lestina(22)
10.10 Board of Directors Resolution dated March 19, 2002 adopting Amendment to Supplemental Employee
Retirement Plan(23)
10.11 Excerpts from Board of Directors Consent Resolution adopting Amendment to Supplemental Employee
Retirement Plan effective June 7, 2002(24)
10.12 Form of Deferred Compensation Agreement between the Registrant and certain executive officers
including Messrs. Schmitt and Kitz(25)
10.13 Amendment dated March 31, 1998 to Form of Deferred Compensation Agreement between the Registrant
and certain executive officers including Messrs. Schmitt and Kitz(26)
10.14 Second Amendment dated June 3, 1998 to Form of Deferred Compensation Agreement for certain
executive officers including Messrs. Kitz and Schmitt(27)
10.15 Directors and Officers Liability and Corporation Reimbursement Policy issued by American Casualty
Company of Reading, Pennsylvania (CNA Insurance Companies) as of June 13, 1986(28)
10.16 Declarations page for renewal through November 1, 2003 of Directors and Officers Liability and
Corporation Reimbursement Policy (FILED HEREWITH)
74
EXHIBIT
NO. DESCRIPTION
--- -----------
10.17 1991 Stock Incentive Plan, as amended October 24, 2000(29)
10.18 Form of Stock Appreciation Rights Agreement for certain executive officers including Messrs. Kitz
and Schmitt(30)
10.19 2001 Incentive Compensation Plan(31)
10.20 Employment Agreement dated June 6, 2002 between Registrant and Robert F. Mariano(32)
10.21 Employment Agreement dated June 6, 2002 between Registrant and Darren W. Karst(33)
10.22 Employment Contract between the Registrant and Gary L. Fryda dated March 31, 2000(34)
10.23 Roundy's, Inc. Deferred Compensation Plan, effective March 19, 1996(35)
10.24 Board Resolution adopting amendment to Roundy's, Inc. Deferred Compensation Plan, effective
October 23, 2001(36)
10.25 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. Lestina, Fryda, Schmitt and Kitz(37)
10.26 Excerpts from Roundy's, Inc. Board of Directors resolution adopted December 10, 1980 relating to
post- retirement health care benefits for certain officers, including Mr. Lestina(38)
10.27 Confidentiality and Noncompete Agreement dated June 6, 2002 between the Registrant and Gerald F.
Lestina(39)
10.28 Roundy's, Inc. Deferred Compensation Plan Amended and Restated August 13, 2002(40)
10.29 Board Resolution dated August 13, 2002 terminating Roundy's, Inc. 2001 Incentive Compensation
Plan(41)
10.30 Employment Agreement dated December 27, 2002 between Registrant and Donald S. Rosanova (FILED
HEREWITH)
10.31 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. (FILED HEREWITH)
10.32 First Amendment dated October 28, 2002 to Investor Rights Agreement dated June 6, 2002, including
form of Transfer Notice and Joinder Agreement (FILED HEREWITH)
21.1 Subsidiaries of the Registrant (FILED HEREWITH)
99.1 Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 (FILED HEREWITH)
99.2 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)
75
(5) Incorporated by reference to Exhibit 2.1 to Registrant's Annual Report on
Form 10-K for the fiscal year ended January 1, 2000, filed with the Commission
on March 21, 2000 (Commission File No. Form 002-94984)
(6) Incorporated by reference to Exhibit 2.2 to Registrant's Current Report on
Form 8-K filed with the Commission on April 14, 2000 (Commission File No.
002-94984)
(7) Incorporated by reference to Exhibit 2.3 to Registrant's Current Report on
Form 8-K filed with the Commission on April 14, 2000 (Commission 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 10.4 to Registrant's Registration
Statement on Form S-2 dated April 28, 1998 (Commission File No. 33-57505)
(20) Incorporated by reference to Exhibit 10.8 to Registrant's Form 10-Q for the
quarterly period ended October 3, 1998, filed with the Commission on November
10, 1998 (Commission File No. 002-94984)
76
(21) 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)
(22) Incorporated by reference to Exhibit 10.9 to Registrant's Form 10-Q for the
quarterly period ended July 3, 1999, filed with the Commission on August 9, 1999
(Commission File No. 002-94984)
(23) Incorporated by reference to Exhibit 10.8 to Registrant's Registration
Statement on Form S-4 filed with the Commission on August 2, 2002 (File No.
333-97623)
(24) Incorporated by reference to Exhibit 10.9 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 10.1 of Registrant's Registration
Statement on Form S-2 (File No. 33-57505) dated April 24, 1997
(26) 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)
(27) Incorporated by reference to Exhibit 10.9 to Registrant's Form 10-Q for the
quarterly period ended October 3, 1998, filed with the Commission on November
10, 1998 (Commission File No. 002-94984)
(28) 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)
(29) Incorporated by reference to Exhibit 10.5 to Registrant's Annual Report on
Form 10-K for the fiscal year ended December 30, 2000, filed with the Commission
on March 29, 2001 (Commission File No. 002-94984)
(30) Incorporated by reference to Exhibit 10.7 to Registrant's Form 10-Q for the
quarterly period ended October 3, 1998, filed with the Commission on November
10, 1998 (Commission File No. 002-94984)
(31) Incorporated by reference to Exhibit 10.14 to the Registrant's Annual
Report of Form 10-K for the fiscal year ended December 29, 2001 filed with the
Commission on March 27, 2002 (Commission File No. 002-94984)
(32) 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)
(33) 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)
(34) 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)
(35) Incorporated by reference to Exhibit 10.5 to Registrant's Registration
Statement on Form S-2, dated April 26, 1996 (Commission File No. 33-57505)
(36) Incorporated by reference to Exhibit 10.22 to Registrant's Registration
Statement on Form S-4 filed with the Commission on August 2, 2002 (File No.
333-97623)
77
(37) 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)
(38) Incorporated by reference to Exhibit 10.24 to Registrant's Registration
Statement on Form S-4 filed with the Commission on August 2, 2002 (File No.
333-97623)
(39) 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)
(40) 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)
(41) Incorporated by reference to Exhibit 10.28 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)
78