Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
RNDY > SEC Filings for RNDY > Form 10-Q on 13-Nov-2012All Recent SEC Filings

Show all filings for ROUNDY'S, INC.

Form 10-Q for ROUNDY'S, INC.


13-Nov-2012

Quarterly Report


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.


Table of Contents

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.


Table of Contents

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.


Table of Contents

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.


Table of Contents

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 . . .

  Add RNDY to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for RNDY - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.