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Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 29, 2012

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                     to                     

Commission File Number 001-35422

 

 

Roundy’s, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   27-2337996

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

875 East Wisconsin Avenue

Milwaukee, Wisconsin 53202

(414) 231-5000

(Registrant’s telephone number, including area code)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (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.    x  Yes    ¨  No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    x  Yes    ¨  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   ¨    Accelerated filer   ¨
Non-accelerated filer   x    Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    ¨  Yes    x  No

As of November 1, 2012, there were 45,653,761 shares of the registrant’s common stock, par value $0.01 per share, issued and outstanding.

 

 

 


Table of Contents

Roundy’s, Inc.

Quarterly Report on Form 10-Q

For the thirteen and thirty-nine week period ended September 29, 2012

Table of Contents

 

  Part I - Financial Information   

Item 1.

  Financial Statements (Unaudited)      3   
  Consolidated Statements of Comprehensive Income for the thirteen and thirty-nine weeks ended October 1, 2011 and September 29, 2012      3   
  Consolidated Balance Sheets as of December 31, 2011 and September 29, 2012      4   
  Consolidated Statements of Cash Flows for the thirty-nine weeks ended October 1, 2011 and September 29, 2012      5   
  Notes to Consolidated Financial Statements      6   

Item 2.

  Management’s Discussion and Analysis of Financial Condition and Results of Operations      11   

Item 3.

  Quantitative and Qualitative Disclosures About Market Risk      16   

Item 4.

  Controls and Procedures      16   
  Part II – Other Information   

Item 1.

  Legal Proceeding      17   

Item 1A.

  Risk Factors      17   

Item 2.

  Unregistered Sales of Equity Securities and Use of Proceeds      17   

Item 3.

  Defaults Upon Senior Securities      17   

Item 4.

  Mine Safety Disclosures      17   

Item 5.

  Other Information      17   

Item 6.

  Exhibits      17   

 

2


Table of Contents

Part I – Financial Information

Item 1. FINANCIAL STATEMENTS

Roundy’s, Inc.

Consolidated Statements of Comprehensive Income

(In thousands, except per share data)

(Unaudited)

 

     Thirteen Weeks Ended      Thirty-nine Weeks Ended  
     October 1, 2011      September 29, 2012      October 1, 2011      September 29, 2012  

Net Sales

   $ 976,881       $ 973,595       $ 2,873,262       $ 2,908,682   

Costs and Expenses:

           

Cost of sales

     713,699         722,432         2,090,086         2,133,065   

Operating and administrative

     224,455         225,907         663,808         676,022   

Interest:

           

Interest expense, net

     17,279         11,597         51,939         37,257   

Amortization of deferred financing costs

     847         574         2,632         1,840   

Loss on debt extinguishment

     —           —           —           13,304   
  

 

 

    

 

 

    

 

 

    

 

 

 
     956,280         960,510         2,808,465         2,861,488   
  

 

 

    

 

 

    

 

 

    

 

 

 

Income before Income Taxes

     20,601         13,085         64,797         47,194   

Provision for Income Taxes

     8,240         5,152         25,919         18,079   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net Income

   $ 12,361       $ 7,933       $ 38,878       $ 29,115   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net earnings per common share:

           

Basic

   $ 0.41       $ 0.18       $ 1.28       $ 0.68   

Diluted

   $ 0.41       $ 0.18       $ 1.28       $ 0.68   

Weighted average number of common shares outstanding:

           

Basic

     27,345         44,824         27,345         42,455   

Diluted

     30,395         44,976         30,395         42,884   

Dividends declared per share

   $ —         $ 0.23       $ —         $ 0.46   

Comprehensive Income

   $ 12,600       $ 8,603       $ 39,594       $ 31,126   

See notes to unaudited consolidated financial statements.

 

3


Table of Contents

Roundy’s, Inc.

Consolidated Balance Sheets

(In thousands, except per share data)

 

     December 31, 2011     September 29, 2012  
           (Unaudited)  
Assets     

Current Assets:

    

Cash and cash equivalents

   $ 87,068      $ 43,192   

Notes and accounts receivable, less allowance for losses

     32,467        34,206   

Merchandise inventories

     286,537        296,837   

Prepaid expenses

     18,880        18,788   

Deferred income taxes

     6,038        6,038   
  

 

 

   

 

 

 

Total current assets

     430,990        399,061   
  

 

 

   

 

 

 

Property and Equipment, net

     309,575        305,224   

Other Assets:

    

Other assets - net

     45,238        47,779   

Goodwill

     726,879        726,879   
  

 

 

   

 

 

 

Total other assets

     772,117        774,658   
  

 

 

   

 

 

 

Total assets

   $ 1,512,682      $ 1,478,943   
  

 

 

   

 

 

 
Liabilities and Shareholders’ Equity     

Current Liabilities:

    

Accounts payable

   $ 245,216      $ 222,164   

Accrued wages and benefits

     48,876        36,418   

Other accrued expenses

     42,089        46,407   

Current maturities of long-term debt and capital lease obligations

     10,789        11,007   

Income taxes

     4,265        4,851   
  

 

 

   

 

 

 

Total current liabilities

     351,235        320,847   
  

 

 

   

 

 

 

Long-term Debt and Capital Lease Obligations

     809,352        687,996   

Deferred Income Taxes

     66,438        69,181   

Other Liabilities

     108,482        100,714   
  

 

 

   

 

 

 

Total liabilities

     1,335,507        1,178,738   
  

 

 

   

 

 

 

Shareholders’ Equity:

    

Preferred Stock

     1,044        —     

Common stock (150,000 shares authorized, $0.01 par value, 27,072 shares and 45,654 shares at 12/31/11 and 9/29/12, respectively, issued and outstanding)

     271        457   

Additional paid-in-capital

     —          113,742   

Retained earnings

     221,365        229,500   

Accumulated other comprehensive loss

     (45,505     (43,494
  

 

 

   

 

 

 

Total shareholders’ equity

     177,175        300,205   
  

 

 

   

 

 

 

Total liabilities and shareholders’ equity

   $ 1,512,682      $ 1,478,943   
  

 

 

   

 

 

 

See notes to unaudited consolidated financial statements.

 

4


Table of Contents

Roundy’s, Inc.

Consolidated Statements of Cash Flows

(In thousands)

 

     Thirty-nine Weeks Ended  
     October 1, 2011     September 29, 2012  

Cash Flows From Operating Activities:

    

Net income

   $ 38,878      $ 29,115   

Adjustments to reconcile net income to net cash flows provided by operating activities:

    

Depreciation and amortization, including deferred financing costs

     54,147        49,832   

Gain on sale of property and equipment

     (309     (123

LIFO charges

     1,839        1,500   

Amortization of debt discount

     375        1,008   

Stock-based compensation expense

     —          1,053   

Interest earned on shareholder notes receivable

     (140     —     

Loss on debt extinguishment

     —          13,304   

Deferred income taxes

     —          392   

Changes in operating assets and liabilities:

    

Notes and accounts receivable

     (1,509     (1,739

Merchandise inventories

     (20,876     (11,800

Prepaid expenses

     (651     92   

Other assets

     370        113   

Accounts payable

     41,505        (23,052

Accrued expenses and other liabilities

     (12,190     (12,492

Income taxes

     25,547        1,171   
  

 

 

   

 

 

 

Net cash flows provided by operating activities

     126,986        48,374   
  

 

 

   

 

 

 

Cash Flows From Investing Activities:

    

Capital expenditures

     (48,578     (40,434

Proceeds from sale of property and equipment

     376        129   
  

 

 

   

 

 

 

Net cash flows used in investing activities

     (48,202     (40,305
  

 

 

   

 

 

 

Cash Flows From Financing Activities:

    

Proceeds from long-term borrowings

     —          664,875   

Payments of debt and capital lease obligations

     (8,207     (790,575

Dividends paid

     —          (20,619

Issuance of common stock, net of issuance costs

     —          112,540   

Debt issuance and refinancing fees and related expenses

     —          (18,166
  

 

 

   

 

 

 

Net cash flows used in financing activities

     (8,207     (51,945
  

 

 

   

 

 

 

Net increase (decrease) in Cash and Cash Equivalents

     70,577        (43,876

Cash and Cash Equivalents, Beginning of Period

     36,435        87,068   
  

 

 

   

 

 

 

Cash and Cash Equivalents, End of Period

   $ 107,012      $ 43,192   
  

 

 

   

 

 

 

Supplemental Cash Flow Information:

    

Cash paid for interest

   $ 53,610      $ 42,239   

Cash paid for income taxes

     372        16,516   

See notes to unaudited consolidated financial statements.

 

5


Table of Contents

ROUNDY’S, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION

Roundy’s, Inc. (“Roundy’s” or the “Company”) is a corporation formed in 2010 for the purpose of owning and operating Roundy’s Acquisition Corp. and its 100% owned subsidiary, Roundy’s Supermarkets, Inc. (“RSI”).

Roundy’s is a leading food retailer in the state of Wisconsin. As of September 29, 2012, Roundy’s owned and operated 160 retail grocery stores, of which 121 are located in Wisconsin, 32 are located in Minnesota and 7 are located in Illinois. Roundy’s also distributes a full line of food and non-food products from three wholesale distribution centers and provides services to one independent licensee retail grocery store in Wisconsin.

Initial Public Offering – On February 7, 2012, we priced the initial public offering (the “IPO”) of our common stock which began trading on the New York Stock Exchange on February 8, 2012. On February 13, 2012, we completed our offering of 22,059,091 shares of our common stock at a price of $8.50 per share, which included 14,705,883 shares sold by Roundy’s and 7,353,208 shares sold by existing shareholders. Roundy’s received approximately $125.0 million in gross proceeds from the IPO, or approximately $111.9 million in net proceeds after deducting the underwriting discount and expenses related to the offering. The net proceeds of our IPO were used to pay down our existing debt (see the Long-Term Debt footnote below).

A summary of our capitalization upon closing of the IPO is as follows (in thousands):

 

Common stock issued and outstanding at December 31, 2011

     27,072   

Conversion of preferred stock into common stock prior to IPO

     3,050   

Rounding of partial shares held prior to stock split

     (4

Sale of common stock through IPO

     14,706   
  

 

 

 

Common stock issued and outstanding at IPO, February 7, 2012

     44,824   
  

 

 

 

On January 24, 2012, the Board of Directors approved an amendment to the articles of incorporation to increase the number of shares we are authorized to issue to 150,000,000 shares of common stock and 5,000,000 shares of preferred stock, and to convert all of our outstanding preferred stock into shares of common stock on a one-for-one basis. Subsequent to the preferred stock conversion, the Board of Directors approved an approximately 292.2-for-one stock split on all common shares outstanding as of that date. In accordance with applicable accounting rules, we have restated all of the historical common share and per share amounts for the periods presented to give retroactive effect to this 292.2-for-one common stock split but have not given retroactive effect to the conversion of preferred stock into common stock. Therefore, the 10,439 shares of outstanding preferred stock at December 31, 2011 are reflected as having been converted and then subsequently split in January 2012.

2. BUSINESS AND BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information, and do not include all of the information and footnotes required for complete, audited financial statements. For further information, refer to the consolidated financial statements and footnotes included in our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2011.

The accompanying unaudited consolidated financial statements as of September 29, 2012, and for the thirteen and thirty-nine weeks ended October 1, 2011 and September 29, 2012 reflect all adjustments (consisting only of normal recurring adjustments) that are, in the opinion of management, necessary for a fair presentation of the financial position and operating results of Roundy’s, Inc. and our subsidiaries. All material intercompany accounts and transactions have been eliminated in the unaudited consolidated financial statements. The results of operations for the thirteen weeks and thirty-nine weeks ended September 29, 2012 may not necessarily be indicative of the results that may be expected for the entire fiscal year ending December 29, 2012.

Unless the context otherwise indicates, all references in these financial statements to the “Company,” “Roundy’s,” “we,” “us,” or “our” or similar words are to Roundy’s, Inc.

 

6


Table of Contents

3. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In June 2011, the Financial Accounting Standards Board (“FASB”) amended its rules regarding the presentation of comprehensive income. The objective of this amendment is to improve the comparability, consistency and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income. Specifically, this amendment requires that all non-owner changes in shareholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The new rules became effective for our first quarter 2012. Because the standard only affects the presentation of comprehensive income and does not affect what is included in comprehensive income, the standard did not have a material effect on the Company’s consolidated financial statements.

4. FAIR VALUE

The carrying values of the Company’s cash and cash equivalents, notes and accounts receivable, accounts payable, capital lease obligations and other long-term debt approximated fair values as of September 29, 2012. Based on recent open market transactions of our term loan, the fair value (Level 2) and book value of long-term debt, including current maturities, are approximately $695 million and $699 million, respectively, as of September 29, 2012.

5. INVENTORIES

We use the LIFO method for valuation of a portion of inventories. If the FIFO method had been used, inventories would have been approximately $23.6 million higher on September 29, 2012 and $22.1 million higher on December 31, 2011.

An actual valuation of inventory under the LIFO method can be made only at the end of each year based on the inventory levels and costs at that time. Accordingly, interim LIFO calculations are based on management’s estimates of expected year-end inventory levels and costs. Because these estimates are subject to many factors beyond management’s control, interim results are subject to the final year-end LIFO inventory valuation.

6. SHARE-BASED COMPENSATION

We account for share-based compensation awards in accordance with the provisions of FASB Accounting Standards Codification (“ASC”) Topic 718 – Compensation – Stock Compensation (“ASC 718”) which requires companies to estimate the fair value of share-based payment awards on the date of grant. The value of the portion of the awards ultimately expected to vest is recognized as expense over the requisite service period. The Company recognized total stock-based compensation of $0.4 million and $1.1 million for the thirteen and thirty-nine weeks ended September 29, 2012, respectively, compared to no stock-based compensation for the thirteen and thirty-nine weeks ended October 1, 2011, as operating and administrative expenses in the Company’s Consolidated Statements of Comprehensive Income.

Our 2012 Incentive Compensation Plan (the “Plan”) provides for grants of stock options, stock appreciation rights, restricted stock, other stock-based awards and other cash-based awards. The Plan is more fully described in Part III, Item 11 in our Annual Report on Form 10-K for the year ended December 31, 2011 under the caption “2012 Incentive Compensation Plan.”

 

7


Table of Contents

The Company has granted restricted stock to certain of its employees, as well as to its non-employee directors, under the Plan. The restricted stock for employees generally vests over five years and the restricted stock for our non-employee directors vests over one year. All restricted stock granted becomes fully vested upon certain changes of control of the Company. Changes in equity awards outstanding under the Plan are summarized below (in thousands, except per share data):

 

     Restricted  Shares
Outstanding
    Weighted-average
grant-date  fair value per
share
 

Outstanding, December 31, 2011

     —        $ —     

Granted

     892        8.56   

Lapsed

     —          —     

Cancelled or Expired

     (62     8.50   
  

 

 

   

Outstanding, September 29, 2012

     830      $ 8.56   
  

 

 

   

7. COMMITMENTS AND CONTINGENCIES

Various lawsuits and claims, arising in the ordinary course of business, are pending or have been asserted against the Company. While the ultimate effect of such actions cannot be predicted with certainty, management believes that their outcome will not result in a material adverse effect on the consolidated financial position, operating results or liquidity of the Company.

We contribute to four multi-employer pension plans based on obligations arising from our collective bargaining agreements covering supply chain and certain store union employees. Three of these plans are underfunded as of September 29, 2012. These plans provide retirement benefits to participants based on their service to contributing employers. The benefits are paid from assets held in trust for that purpose. Trustees are appointed by employers and unions. The trustees are responsible for determining the level of benefits to be provided to participants as well as for such matters as the investment of the assets and the administration of the plans.

Because we are one of a number of employers contributing to these plans, it is difficult to ascertain what our share of the underfunding would be, although we anticipate that our contributions to these plans may increase. If we choose to exit a plan, any adjustment for a withdrawal liability will be recorded when it is probable that a liability exists and can be reasonably determined.

In connection with the exit or sale of our independent distribution business, we have assigned leases and subleases for retail stores which expire at various dates through 2021. A remaining potential obligation exists in the event of a default under the assigned leases and subleases by the assignee. The potential obligations include rent, real estate taxes, common area costs and other sundry expenses. The future minimum lease payments are approximately $8.3 million. We believe the likelihood of a liability related to these assigned leases and subleases is remote.

8. EMPLOYEE BENEFIT PLANS

Net pension expense (income) in the thirteen and thirty-nine weeks ended October 1, 2011 and September 29, 2012 included the following components (in thousands):

 

     Thirteen Weeks Ended     Thirty-nine Weeks Ended  
     October 1, 2011     September 29, 2012     October 1, 2011     September 29, 2012  

Service cost

   $ 124      $ 137      $ 372      $ 412   

Interest cost on projected benefit obligation

     2,119        1,956        6,346        5,869   

Expected return on plan assets

     (2,887     (3,068     (8,660     (9,204

Amortization of net actuarial loss

     398        1,117        1,193        3,351   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net pension expense (income)

   $ (246   $ 142      $ (749   $ 428   
  

 

 

   

 

 

   

 

 

   

 

 

 

On April 28, 2010, we amended our agreement with the Pension Benefit Guaranty Corporation (“PBGC”) dated November 3, 2005. As a part of that amendment, we made incremental contributions (in excess of the required minimum contributions) of $7.5 million, $5 million and $2.5 million to our pension plan in April 2010, March 2011 and April 2012, respectively. In addition, we increased the amount of the letter of credit we have posted in favor of the PBGC to $12.5 million from $10 million, for the benefit of the pension plan, which will be in place until certain conditions are satisfied.

 

8


Table of Contents

We expect our total minimum pension plan contributions for the year ending December 29, 2012 to be approximately $8.9 million.

9. LONG-TERM DEBT

Long-term debt consists of the following (in thousands):

 

     December 31, 2011      September 29, 2012  

Term Loan

   $ —         $ 671,625   

First Lien Loan

     634,217         —     

Second Lien Loan

     150,000         —     

Capital Lease Obligations, 7.6% to 10%, due 2012 to 2021

     36,426         35,061   

Other long-term debt

     1,645         1,496   
  

 

 

    

 

 

 
     822,288         708,182   

Less: Unamortized discount on Term Loan

     —           9,179   

Less: Unamortized discount on Second Lien Loan

     2,147         —     

Less: Current maturities

     10,789         11,007   
  

 

 

    

 

 

 

Long-term debt, net of current maturities

   $ 809,352       $ 687,996   
  

 

 

    

 

 

 

In connection with our IPO on February 13, 2012, RSI entered into a new senior credit facility (the “Refinancing”), consisting of a $675 million term loan (the ‘‘Term Facility’’) and a $125 million revolving credit facility (the ‘‘Revolving Facility’’ and together with the Term Facility, the ‘‘New Credit Facilities”) with the Term Facility maturing in February 2019 and the Revolving Facility maturing in February 2017. We used the net proceeds from the IPO, together with borrowings under the New Credit Facilities, to refinance our existing indebtedness and to pay accrued interest thereon and related prepayment premiums.

Borrowings under the New Credit Facilities bear interest, at our option, at (i) adjusted LIBOR (subject to a 1.25% floor) plus 4.5% or (ii) an alternate base rate plus 3.5%. In addition, there is a fee payable quarterly in an amount equal to 0.5% per annum of the undrawn portion of the Revolving Facility. The terms of the New Credit Facilities contain customary provisions regarding prepayments and restrictive covenants, and are also secured by substantially all of our tangible and intangible assets.

In connection with the Refinancing, we recognized a loss on debt extinguishment of $13.3 million, which consists primarily of the write-off of $4.5 million of previously capitalized financing costs, the write-off of the remaining unamortized discount of $2.1 million on our old second lien loan that was repaid, prepayment premiums on our old first and second lien loans that were repaid and certain fees and expenses of $2.0 million related to the New Credit Facilities.

As of September 29, 2012, there were no outstanding borrowings under the Revolving Facility. Outstanding letters of credit, totaling $30.1 million on September 29, 2012, reduce availability under the Revolving Facility.

Prior to the Refinancing, our long-term debt included a first lien senior credit facility consisting of a term loan and $95 million revolving credit agreement (together, the “First Lien Credit Agreement) and a second lien credit facility (“Second Lien Credit Agreement”). Our first and second lien loans and the revolving credit facility bore interest based upon LIBOR or base rate options. Under the LIBOR option for the first lien loan and revolving credit facility, the applicable rate was LIBOR plus 5.00% (subject to a floor of 2.0%) and under the base rate option for the first lien loan and revolving credit facility, the applicable rate of interest was the base rate plus 4.00%. For the portion of our first lien loan which matured in November 2011, the applicable rate of interest was LIBOR plus 3.50% and under the base rate option, the applicable interest rate was the base rate plus 2.50%. On April 16, 2010, the Company borrowed $150 million under the Second Lien Credit Agreement to pay dividends to our preferred and common shareholders. This second lien loan was issued at a 2% discount and was to mature in April 2016. This loan bore interest based upon LIBOR or base rate options. Under the LIBOR option, the applicable rate was LIBOR plus 8.0% (subject to a floor of 2%) and under the base rate option, the applicable rate was the base rate plus 7.0%.

Our credit agreement contains various restrictive covenants which, among other things: (i) prohibit us from prepaying other indebtedness; (ii) require us to maintain specified financial ratios; and (iii) limit our capital expenditures. In addition, the credit agreement limits our ability to declare or pay dividends.

At September 29, 2012, we were in compliance with all financial covenants relating to our indebtedness.

 

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10. INCOME TAXES

We file income tax returns in the U.S. federal jurisdiction and several state jurisdictions. With few exceptions, we are no longer subject to review by U.S. federal and state tax authorities for years before 2005. The Internal Revenue Service (“IRS”) is currently examining our U.S. income tax returns for 2005 through 2011. State tax authorities are currently examining our income tax returns for fiscal years 2005 through 2008. We have state tax net operating loss carry forwards which are open for review from 2003 and subsequent years.

Our effective tax rate for the thirty-nine weeks ended September 29, 2012 was favorably impacted by the settlement of certain tax matters during 2012. Our estimated tax rate is approximately 40% before discrete items.

We expect our unrecognized tax benefits to decrease by approximately $3.3 million over the next 12 months due to the resolution of certain tax matters which are in appeals with the IRS.

11. BUSINESS SEGMENTS

The Company has determined that it has one reportable segment. The Company’s revenues are derived predominantly from the sale of food and non-food products at its stores. Non-perishable categories consist of traditional grocery, frozen and dairy products. Perishable food categories include meat, seafood, produce, deli, bakery and floral. Non-food categories include general merchandise, health and beauty supplies, pharmacy, alcohol and tobacco. The following is a summary of the percentage of sales of non-perishable, perishable, and non-food items for the thirteen and thirty-nine weeks ended October 1, 2011 and September 29, 2012:

 

     Thirteen Weeks Ended   Thirty-nine Weeks Ended
     October 1, 2011   September 29, 2012   October 1, 2011   September 29, 2012

Non-Perishable Food

   50.4%   49.2%   50.8%   49.5%

Perishable Food

   33.6%   33.9%   33.3%   33.9%

Non-Food

   16.0%   16.9%   15.9%   16.6%

12. EARNINGS PER SHARE

Prior to the conversion of our preferred stock to common stock in January 2012, the preferred stock was a participating stock security. This required the use of the two-class method for the computation of basic net earnings per share in accordance with the provisions of ASC 260-10, “Earnings per Share.” For all periods presented, basic and diluted earnings per share excludes the effect of common stock equivalents and is computed using the two-class computation method, which excludes earnings attributable to the preferred stock preferential payments from total earnings available to common shareholders. Net earnings per common share are computed separately for each period and, therefore, the sum of such quarterly per share amounts may differ from the total for the year.

The following table reflects the calculation of basic and diluted earnings per share (in thousands, except per share data):

 

     Thirteen Weeks ended      Thirty-nine Weeks ended  
     October 1,
2011
     September 29,
2012
     October 1,
2011
     September 29,
2012
 

Net earnings per common share - basic:

           

Net Income

   $ 12,361       $ 7,933       $ 38,878       $ 29,115   

Deduct: undistributed earnings allocable to convertible preferred stock

     1,240         —           3,901         35   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income attributable to common shareholders

   $ 11,121       $ 7,933       $ 34,977       $ 29,080   

Basic weighted average common shares outstanding

     27,345         44,824         27,345         42,455   

Net earnings per common share - basic

   $ 0.41       $ 0.18       $ 1.28       $ 0.68   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net earnings per common share - diluted:

           

Weighted-average shares outstanding

     27,345         44,824         27,345         42,455   

Dilutive impact of convertible preferred stock

     3,050         —           3,050         268   

Effect of dilutive securities - nonvested restricted stock

     —           152         —           161   
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted-average shares and potential dilutive shares outstanding

     30,395         44,976         30,395         42,884   

Net earnings per common share - diluted

   $ 0.41       $ 0.18       $ 1.28       $ 0.68   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Overview

We are a leading Midwest supermarket chain with a 140-year operating history. As of September 29, 2012, we operated 160 grocery stores in Wisconsin, Minnesota and Illinois under the Pick ’n Save, Rainbow, Copps, Metro Market and Mariano’s retail banners, which are served by our three strategically located distribution centers and our food processing and preparation commissary. As of September 29, 2012, these stores included 93 Pick ’n Save stores, 32 Rainbow stores, 25 Copps stores, 3 Metro Market stores and 7 Mariano’s stores.

In this section, we refer to the thirteen weeks ended September 29, 2012 as the “third quarter 2012” and we refer to the thirteen weeks ended October 1, 2011 as the “third quarter 2011.”

For the third quarter 2012, net sales were $973.6 million, compared to net sales of $976.9 million for the third quarter 2011. The decrease in net sales was primarily due to lower same-store sales, partially offset by the impact of new stores.

Earnings per basic and diluted share was $0.18 and $0.41 in the third quarter 2012 and 2011, respectively. For the thirty-nine weeks ending September 29, 2012 and October 1, 2011, earnings per basic and diluted share were $0.68 and $1.28, respectively.

Going forward, we plan to continue to maintain our market leadership and focus on growing same-store sales, opening new stores and increasing our cash flow. We intend to pursue same-store sales growth by continuing to focus on price competitiveness, improving our marketing efforts, selectively remodeling and relocating existing stores and enhancing and expanding our own brand, perishable and prepared food offerings. In addition, we intend to continue our expansion into the Chicago market with plans to open one additional store during the fourth quarter of 2012 in that market. As of September 29, 2012, we had seven stores open in the Chicago market.

RESULTS OF OPERATIONS

 

     Thirteen Weeks Ended     Thirty-nine Weeks Ended  
(Dollars in thosands)    October 1, 2011     September 29, 2012     October 1, 2011     September 29, 2012  

Net Sales

   $ 976,881         100.0   $ 973,595         100.0   $ 2,873,262         100.0   $ 2,908,682         100.0

Costs and Expenses:

                    

Cost of sales

     713,699         73.1        722,432         74.2        2,090,086         72.7        2,133,065         73.3   

Operating and administrative

     224,455         23.0        225,907         23.2        663,808         23.1        676,022         23.2   

Interest expense (including amortization of deferred financing costs)

     18,126         1.9        12,171         1.3        54,571         1.9        39,097         1.3   

Loss on debt extinguishment

     —           0.0        —           0.0        —           0.0        13,304         0.5   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 
     956,280         97.9        960,510         98.7        2,808,465         97.7        2,861,488         98.4   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Income before Income Taxes

     20,601         2.1        13,085         1.3        64,797         2.3        47,194         1.6   

Provision for Income Taxes

     8,240         0.8        5,152         0.5        25,919         0.9        18,079         0.6   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Net Income

   $ 12,361         1.3   $ 7,933         0.8   $ 38,878         1.4   $ 29,115         1.0
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Thirteen Weeks Ended September 29, 2012 Compared With Thirteen Weeks Ended October 1, 2011

Net Sales. Net sales represent product sales less returns and allowances and sales promotions. We derive our net sales primarily from the operation of retail grocery stores and to a much lesser extent from the independent distribution of food and non-food products to an independently-owned grocery store. We recognize retail sales at the point of sale. We do not record sales taxes as a component of retail revenues as we consider ourselves a pass-through conduit for collecting and remitting sales taxes.

Net sales were $973.6 million for the third quarter 2012, a decrease of $3.3 million, or 0.3% from $976.9 million for the third quarter 2011. The decrease primarily reflects a 3.6% decrease in same-store sales, partially offset by the impact of new stores. The decline in same-store sales was primarily due to a 3.0% decrease in the number of customer transactions and a 0.7% decrease in average transaction size. Our same-store sales comparisons were negatively impacted by the increased effect of competitive store openings and related pricing and promotional activity in certain of our markets as a result of the continuation of a challenging economic environment for our customers, as well as the performance of certain promotional programs which did not perform as well as last year. In addition, we did experience deflationary trends, some of which were related to pricing and promotional activity, in several key product categories that also negatively affected our same-store sales.

 

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Gross Profit. We calculate gross profit as net sales less cost of sales. Cost of sales includes product costs, inbound freight, warehousing costs, receiving and inspection costs, distribution costs, and depreciation and amortization expenses associated with our supply chain operations.

Gross profit was $251.2 million for the third quarter 2012, a decrease of $12.0 million, or 4.6%, from $263.2 million for the third quarter 2011. Gross profit, as a percentage of net sales, was 25.8% and 26.9% for the third quarter 2012 and 2011, respectively. The decrease in gross profit as a percentage of net sales primarily reflects greater price and promotional investments in certain of our markets and increased shrink as a result of warm weather conditions.

Operating and Administrative Expenses. Operating and administrative expenses consist primarily of personnel costs, sales and marketing expenses, depreciation and amortization expenses as well as other expenses associated with facilities unrelated to our supply chain network, internal management expenses and expenses for accounting, information systems, legal, business development, human resources, purchasing and other administrative departments.

Operating and administrative expenses were $225.9 million for the third quarter 2012, an increase of $1.4 million, or 0.6%, from $224.5 million for the third quarter 2011. Operating and administrative expenses, as a percentage of net sales, increased to 23.2% for the third quarter 2012 compared with 23.0% for the third quarter 2011. The increase in the rate as a percentage of net sales was primarily due to increased occupancy costs related to new and replacement stores, employee costs, incremental costs related to being a public company and reduced fixed cost leverage in our core business resulting from lower same-store sales. Included in the third quarter 2012 were $1.4 million of recruiting, relocation and severance charges related to the Company’s recently announced management changes.

Interest Expense. Interest expense (including the amortization of deferred financing costs) was $12.2 million for the third quarter 2012, a decrease of $5.9 million, or 32.6%, from $18.1 million for the third quarter 2011. The decrease was primarily due to decreased levels of indebtedness and reduced interest rates resulting from our debt refinancing in the first quarter 2012 as discussed below.

Income Taxes. Provision for income taxes was $5.2 million for the third quarter 2012, a decrease of $3.0 million from $8.2 million for the third quarter 2011. The effective income tax rate was 39.4% for the third quarter 2012 and 40.0% for the third quarter 2011.

Thirty-nine Weeks Ended September 29, 2012 Compared With Thirty-nine Weeks Ended October 1, 2011

Net Sales Net sales were $2,908.7 million for the thirty-nine weeks ended September 29, 2012, an increase of $35.4 million, or 1.2% from $2,873.3 million for the thirty-nine weeks ended October 1, 2011. The increase primarily reflects the impact of new stores, partially offset by a 3.0% decrease in same-store sales. The decline in same-store sales was due to a 2.3% decrease in the number of customer transactions and 0.7% decrease in the average transaction size. Our same-store sales were negatively impacted by the effect of competitive store openings during the last twelve months and the performance of certain promotional programs, as well as a more challenging economic and competitive environment. Same-store sales were also affected by the calendar shift of the New Year’s holiday, which is traditionally a slow sales day and fell in the first quarter of 2012.

Gross Profit. Gross profit was $775.6 million for the thirty-nine weeks ended September 29, 2012, a decrease of $7.6 million, or 1.0%, from $783.2 million for the thirty-nine weeks ended October 1, 2011. Gross profit, as a percentage of net sales, was 26.7% and 27.3% for the thirty-nine weeks ended September 29, 2012 and October 1, 2011, respectively. The decrease in gross profit as a percentage of net sales primarily reflects price and promotional investments in certain of our markets and increased shrink, offset somewhat by lower costs in our supply chain operations.

Operating and Administrative Expenses. Operating and administrative expenses were $676.0 million for the thirty-nine weeks ended September 29, 2012, an increase of $12.2 million, or 1.8%, from $663.8 million for the thirty-nine weeks ended October 1, 2011. Operating and administrative expenses, as a percentage of net sales, increased to 23.2% for the thirty-nine weeks ended September 29, 2012 compared with 23.1% for the thirty-nine weeks ended October 1, 2011. The increase was primarily due to increased occupancy costs related to new and replacement stores, employee costs, incremental costs related to being a public company and reduced fixed cost leverage in our core business resulting from lower same-store sales. Included in the thirty-nine weeks ended September 29, 2012 were $1.4 million of recruiting, relocation and severance charges related to the Company’s recently announced management changes and $0.5 million of one-time IPO expenses.

Interest Expense. Interest expense (including the amortization of deferred financing costs) was $39.1 million for the thirty-nine weeks ended September 29, 2012, a decrease of $15.5 million, or 28.4%, from $54.6 million for the thirty-nine weeks ended October 1, 2011. The decrease was primarily due to decreased levels of indebtedness resulting from our debt refinancing in the first quarter 2012 as discussed below.

 

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Loss on Debt Extinguishment. In connection with our debt refinancing in February 2012, we recognized a loss on debt extinguishment of $13.3 million.

Income Taxes. Provision for income taxes was $18.1 million for the thirty-nine weeks ended September 29, 2012, a decrease of $7.8 million from $25.9 million for the thirty-nine weeks ended October 1, 2011. The effective income tax rate was 38.3% for the thirty-nine weeks ended September 29, 2012 and 40.0% for the thirty-nine weeks ended October 1, 2011. The decrease in the effective income tax rate in the thirty-nine weeks ended September 29, 2012 was primarily due to the favorable settlement of certain open tax matters during 2012.

Liquidity and Capital Resources

Cash Flows

The following table presents a summary of our net cash provided by (used in) operating, investing and financing activities (in thousands):

 

     Thirty-nine Weeks Ended  
     October 1, 2011     September 29, 2012  

Net cash provided by operating activities

   $ 126,986      $ 48,374   

Net cash used in investing activities

     (48,202     (40,305

Net cash used in financing activities

     (8,207     (51,945
  

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

   $ 70,577      $ (43,876
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 107,012      $ 43,192   
  

 

 

   

 

 

 

Net Cash Provided by Operating Activities. Net cash provided by operating activities was $48.4 million for the thirty-nine weeks ended September 29, 2012 compared to $127.0 million for the thirty-nine weeks ended October 1, 2011. The decrease in cash provided by operating activities was due primarily to the higher use of cash for working capital in 2012, which was primarily related to the timing of accounts payable payments which were unusual in the first half of 2011 as a result of vendor payments that were made in 2010, rather than 2011, as well as lower operating income during 2012 and higher income tax payments made during 2012.

Net Cash Used in Investing Activities. Net cash used in investing activities for the thirty-nine weeks ended September 29, 2012 was $40.3 million compared to $48.2 million for the thirty-nine weeks ended October 1, 2011. Total capital expenditures for Fiscal 2012, excluding acquisitions, are estimated to be approximately $60-65 million.

Net Cash Used in Financing Activities. Net cash used in financing activities for the thirty-nine weeks ended September 29, 2012 was $51.9 million compared to $8.2 million for the thirty-nine weeks ended October 1, 2011. Net cash used in the thirty-nine weeks ended September 29, 2012 consisted of payments of debt and capital lease obligations of $790.6 million, primarily to refinance our existing indebtedness and related financing costs of $18.2 million, offset somewhat by the net proceeds from our term loan of $664.9 million and net proceeds from our initial public offering. In addition, during the thirty-nine weeks ended September 29, 2012, we paid dividends to shareholders in the amount of $20.6 million. Net cash used in financing activities in the thirty-nine weeks ended October 1, 2011 include repayments of $8.2 million on our debt and capital lease obligations.

Initial Public Offering

On February 8, 2012, we announced an initial public offering (“IPO”) of our common stock which began trading on the New York Stock Exchange. On February 13, 2012, we completed our offering of 22,059,091 shares of our common stock at a price of $8.50 per share, which included 14,705,883 new shares sold by Roundy’s and the sale of 7,353,208 shares from existing shareholders. Roundy’s received approximately $125.0 million in gross proceeds from the IPO, or approximately $111.9 million in net proceeds after deducting the underwriting discount and expenses related to the offering. The net proceeds of our IPO were used to pay down our existing debt.

New Senior Credit Facility

In connection with the completion of our IPO, Roundy’s Supermarkets, Inc. (“RSI”) entered into a new senior credit facility (the “Refinancing”), consisting of a $675 million term loan (the “Term Facility”) and a $125 million revolving credit facility (the “Revolving Facility” and together with the Term Facility, the “New Credit Facilities”) with the Term Facility maturing in February 2019 and the Revolving Facility maturing in February 2017. We used the net proceeds from the IPO, together with borrowings under the New Credit Facilities, to refinance our existing indebtedness and to pay accrued interest and related prepayment premiums.

Borrowings under the Term Facility and the Revolving Facility bear interest, at our option, at (i) adjusted LIBOR (subject to a 1.25% floor) plus 4.5% or (ii) an alternate base rate plus 3.5%. In addition, there is a fee payable quarterly in an amount equal to 0.5% per annum of the undrawn portion of the Revolving Facility.

 

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All of RSI’s obligations under the New Credit Facilities are unconditionally guaranteed (the “Guarantees”) by each of the direct and indirect subsidiaries of the Company (other than any future unrestricted subsidiaries as we may designate, at our discretion, from time to time) (the “Guarantors”).

Additionally, the New Credit Facilities and the Guarantees are secured by a first-priority perfected security interest in substantially all present and future assets of RSI and each Guarantor, including accounts receivable, equipment, inventory, general intangibles, intellectual property, investment property and intercompany notes among Guarantors; except that the security interest granted by Roundy’s Acquisition Corp. (the direct parent of RSI) is limited to its right, title and interest in and to the stock and promissory notes of RSI and general intangibles and investment property related thereto, and all proceeds, supporting obligations and products related thereto and all collateral security and guarantees given by any person with respect thereto.

Mandatory prepayments under the New Credit Facilities are required with (i) 50% of adjusted excess cash flow (which percentage may be reduced upon achievement and maintenance of certain leverage ratios); (ii) 100% of the net cash proceeds of assets sales or other dispositions of property by RSI and its restricted subsidiaries (subject to certain exceptions and reinvestment provisions); and (iii) 100% of the net cash proceeds of issuances, offerings or placements of debt obligations of RSI or its restricted subsidiaries (subject to certain exceptions).

The New Credit Facilities contain a number of customary affirmative covenants. The New Credit Facilities also contain customary negative covenants, including restrictions on (i) dividends on, and redemptions of, equity interest and other restricted payments (with a permitted basket for cash dividends on common stock in the sum of (a) 70% of excess cash flow calculated on a quarterly basis and (b) $25,000,000, plus a builder basket based on the Company’s retained portion of adjusted excess cash flow measured cumulatively, in each case, subject to pro forma compliance with financial covenants and no default or event of default being continuing,; (ii) liens and sale-leaseback transactions; (iii) loans and investments; (iv) guarantees and hedging agreements; (v) the sale, transfer or disposition of assets and businesses; (vi) transactions with affiliates; (vii) changes in business conducted by the Borrower and its subsidiaries; (viii) payment or amendment of subordinated debt and organizational documents; and (ix) maximum capital expenditures. Excess cash flow is an amount equal to Adjusted EBITDA minus capital expenditures, cash payments of interest, cash payments of taxes, mandatory loan repayments and amortization of capital leases for that period. RSI is also required to comply with the following financial covenants: (i) a maximum total leverage ratio and (ii) a minimum cash interest coverage ratio.

At September 29, 2012, we were in compliance with our financial covenants for all of our indebtedness.

Old Credit Facilities

Prior to the Refinancing, our long-term debt included a first lien senior credit facility consisting of a term loan and $95 million revolving credit agreement (together, the “First Lien Credit Agreement) and a second lien credit facility (“Second Lien Credit Agreement”).

Our term loan and the revolving credit facility bore interest based upon LIBOR or base rate options. Under the LIBOR option for the term loan and revolving credit facility, the applicable rate was LIBOR plus 5.00% (subject to a floor of 2.0%) and under the base rate option for the term loan and revolving credit facility, the applicable rate of interest was the base rate plus 4.00%. For the portion of our term loan which matured in November 2011, the applicable rate of interest was LIBOR plus 3.50% and under the base rate option, the applicable interest rate was the base rate plus 2.50%.

On April 16, 2010, the Company borrowed $150 million under the Second Lien Credit Agreement to pay dividends to our preferred and common shareholders. This loan was issued at a 2% discount and was to mature in April 2016. This loan bore interest based upon LIBOR or base rate options. Under the LIBOR option, the applicable rate was LIBOR plus 8.0% (subject to a floor of 2%) and under the base rate option, the applicable rate was the base rate plus 7.0%.

Non-GAAP Measures

We present Adjusted EBITDA, a non-GAAP measure, to provide investors with a supplemental measure of our operating performance. We believe that Adjusted EBITDA is a useful performance measure and is used by us to facilitate a comparison of our operating performance on a consistent basis from period-to-period and to provide for a more complete understanding of factors and trends affecting our business than measures under U.S. generally accepted accounting principles (“GAAP”) can provide alone. Our board of directors and management also use Adjusted EBITDA as one of the primary methods for planning and forecasting overall expected performance and for evaluating on a quarterly and annual basis actual results against such expectations, and as a performance evaluation metric in determining achievement of certain compensation programs and plans for employees, including our senior executives.

 

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We define Adjusted EBITDA as earnings before interest expense, provision for income taxes, depreciation and amortization, LIFO charges, amortization of deferred financing costs, non-cash compensation expenses arising from the issuance of stock, options to purchase stock and stock appreciation rights, costs incurred in connection with our IPO (or subsequent offerings of our Roundy’s common stock), loss on debt extinguishment and certain unusual employee related costs. Omitting interest, taxes and the other items provides a financial measure that facilitates comparisons of our results of operations with those of companies having different capital structures. Since the levels of indebtedness, tax structures, and methodologies in calculating LIFO expense that other companies have are different from ours, we omit these amounts to facilitate investors’ ability to make these comparisons. Similarly, we omit depreciation and amortization because other companies may employ a greater or lesser amount of owned property, and because in our experience, whether a store is new or one that is fully or mostly depreciated does not necessarily correlate to the contribution that such store makes to operating performance. We believe that investors, analysts and other interested parties consider Adjusted EBITDA an important measure of our operating performance. Adjusted EBITDA should not be considered as an alternative to net income as a measure of our performance. Other companies in our industry may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.

Adjusted EBITDA has limitations as an analytical tool, and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. The limitations of Adjusted EBITDA include: (i) it does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments; (ii) it does not reflect changes in, or cash requirements for, our working capital needs; (iii) it does not reflect income tax payments we may be required to make; and (iv) although depreciation and amortization are non-cash charges, the assets being depreciated and amortized often will have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements.

To properly and prudently evaluate our business, we encourage you to review our audited consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011 and the reconciliation to Adjusted EBITDA from net income, the most directly comparable financial measure presented in accordance with GAAP, set forth in the table below. All of the items included in the reconciliation from net income to Adjusted EBITDA are either (i) non-cash items or (ii) items that management does not consider in assessing our on-going operating performance. In the case of the non-cash items, management believes that investors may find it useful to assess our comparative operating performance because the measures without such items are less susceptible to variances in actual performance resulting from depreciation, amortization and other non-cash charges and more reflective of other factors that affect operating performance. In the case of the other items that management does not consider in assessing our on-going operating performance, management believes that investors may find it useful to assess our operating performance if the measures are presented without these items because their financial impact may not reflect on-going operating performance.

The following is a summary of the calculation of Adjusted EBITDA for the thirteen and thirty-nine weeks ended October 1, 2011 and September 29, 2012 (in thousands):

 

     Thirteen Weeks Ended      Thirty-nine Weeks Ended  
     October 1, 2011      September 29, 2012      October 1, 2011      September 29, 2012  

Net Income

   $ 12,361       $ 7,933       $ 38,878       $ 29,115   

Interest expense

     17,279         11,597         51,939         37,257   

Provision for income taxes

     8,240         5,152         25,919         18,079   

Depreciation and amortization expense

     17,091         15,781         51,515         47,992   

LIFO charges

     839         250         1,839         1,500   

Amortization of deferred financing costs

     847         574         2,632         1,840   

Non-cash stock compensation expense

     —           396         —           1,053   

Executive recruiting fees and relocation expenses

     —           484         —           484   

Severance to former executives

     —           904         —           904   

One-time IPO expenses

     —           —           —           519   

Loss on debt extinguishment

     —           —           —           13,304   
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted EBITDA

   $ 56,657       $ 43,071       $ 172,722       $ 152,047   
  

 

 

    

 

 

    

 

 

    

 

 

 

Our principal sources of liquidity are cash flows generated from operations and borrowings under our revolving credit facility. Our principal uses of cash are to meet debt service requirements, finance capital expenditures, make acquisitions and provide for working capital. We expect that current excess cash, cash available from operations and funds available under our revolving credit facility will be sufficient to fund our operations, debt service requirements and capital expenditures for at least the next 12 months.

Our ability to make payments on and to refinance our debt, and to fund planned capital expenditures depends on our 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 our control. We believe that, based upon current levels of operations, we will be able to meet our debt service obligations when due. Significant assumptions underlie this belief, including, among other things, that we will continue to be successful in implementing our business strategy and that there will be no material adverse developments in our business, liquidity or capital requirements. If our future cash flow from operations and other capital resources are insufficient to pay our obligations as they mature or to fund our liquidity needs, we may be forced to reduce or delay our business activities and capital expenditures, sell assets, obtain additional debt or equity capital or restructure or refinance all or a portion of our debt, on or before maturity. There can be no assurance that we 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 our existing and future indebtedness may limit our ability to pursue any of these alternatives.

 

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Critical Accounting Policies and Estimates

The preparation of our financial statements in conformity with U.S. GAAP requires us 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. We believe our 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. We identified the following critical accounting policies and estimates: inventories, income taxes, discounts and vendor allowances, allowance for losses on receivables, closed facility lease commitments, reserves for self-insurance, employee benefit plans, goodwill, and impairment of long-lived assets. For a detailed discussion of accounting policies, refer to our Annual Report on Form 10-K for the fiscal year ended December 31, 2011.

Based on our accounting policy, we evaluated the carrying value of goodwill for impairment as of the first day of the third quarter 2012 and concluded that there was no impairment of goodwill. We will continue to evaluate goodwill for impairment throughout the remainder of the year, taking into account any relevant events or circumstances that may indicate the fair value of our one financial reporting unit is below its carrying amount.

Recent Accounting Pronouncements

In June 2011, FASB amended its rules regarding the presentation of comprehensive income. The objective of this amendment is to improve the comparability, consistency and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income. Specifically, this amendment requires that all non-owner changes in shareholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The new rules became effective for our first quarter 2012. Because the standard only affects the presentation of comprehensive income and does not affect what is included in comprehensive income, the standard did not have a material effect on our consolidated financial statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

There have been no material changes in our exposure to market risk from the information provided in Item 7A. Quantitative and Qualitative Disclosures About Market Risk of our Annual Report on Form 10-K for the fiscal year ended December 31, 2011.

Item 4. Controls and Procedures

As required by Rule 13a-15 under the Exchange Act, the Chief Executive Officer and the Chief Financial Officer, together with a disclosure review committee appointed by the Chief Executive Officer, evaluated Roundy’s disclosure controls and procedures as of the quarter ended September 29, 2012, the end of the period covered by this report. Based on that evaluation, Roundy’s Chief Executive Officer and Chief Financial Officer concluded that Roundy’s disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) were effective as of the end of the period covered by this report to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under 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 our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

In connection with the evaluation described above, there was no change in Roundy’s internal control over financial reporting during the quarter ended September 29, 2012, that has materially affected, or is reasonably likely to materially affect, Roundy’s internal control over financial reporting.

 

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Part II – Other Information

Item 1. Legal Proceedings

None.

Item 1A. Risk Factors

There were no material changes in risk factors for the Company in the period covered by this report. See the discussion of risk factors in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2011.

Item 2. Unregistered Sales of Equity Securities and use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

None.

Item 6. Exhibits

Reference is made to the separate exhibit index contained on page 19 filed herewith.

 

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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 by the undersigned, thereunto duly authorized.

 

Roundy’s, Inc.

By:

 

/s/ ROBERT A. MARIANO

  Robert A. Mariano
 

Chairman, President and Chief Executive

Officer and Director

Date: November 13, 2012

By:

  /s/ DARREN W. KARST
 

 

  Darren W. Karst
  Executive Vice President, Chief Financial Officer and Assistant Secretary
Date: November 13, 2012

 

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Exhibit Index

 

Exhibit

Number

  

Description

31.1    Certification Statement of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2    Certification Statement of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1    Section 1350 Certification of Chief Executive Officer and Chief Financial Officer
101.INS    XBRL Instance Document
101.SCH    XBRL Taxonomy Extension Schema Document
101.CAL    XBRL Taxonomy Calculation Linkbase Document
101.DEF    XBRL Taxonomy Extension Definition Linkbase Document
101.LAB    XBRL Taxonomy Extension Label Linkbase Document
101.PRE    XBRL Taxonomy Extension Presentation Linkbase Document

 

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