-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EBWM1WT8y1ZX+Ikx8kdWoRoBBNqfZ12jnH++bTG5iypBqRZYHBrCy5zyJ5MEVkgg Pufb45Ml8eZU8tskl5O2Tg== 0000314423-99-000002.txt : 19990403 0000314423-99-000002.hdr.sgml : 19990403 ACCESSION NUMBER: 0000314423-99-000002 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19990102 FILED AS OF DATE: 19990401 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ROUNDYS INC CENTRAL INDEX KEY: 0000314423 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-GROCERIES & GENERAL LINE [5141] IRS NUMBER: 390854535 STATE OF INCORPORATION: WI FISCAL YEAR END: 1229 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 002-94984 FILM NUMBER: 99584850 BUSINESS ADDRESS: STREET 1: 23000 ROUNDY DR CITY: PEWAUKEE STATE: WI ZIP: 53072 BUSINESS PHONE: 4145477999 10-K405 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) (X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended January 2, 1999 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the transition period from _____________ to _______________ Commission file number: 33-57505 -------- Roundy's,Inc. ------------- (Exact name of registrant as specified in its charter) Wisconsin 39-0854535 ------------------------------ ---------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 23000 Roundy Drive Pewaukee, Wisconsin 53072 - --------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (414)547-7999 ------------- Securities registered pursuant to Section 12(b) of the Act: None. Securities registered pursuant to Section 12(g) of the Act: None. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] As of March 30, 1999, 11,700 shares of Class A (voting) Common Stock and 1,162,009 shares of Class B (non-voting) Common Stock were outstanding. All of the outstanding shares of Class A Common Stock on March 30, 1999 were held of record by the Roundy's, Inc. Voting Trust which may be deemed an affiliate of the registrant. There is no established public trading market for either class of such stock. DOCUMENTS INCORPORATED BY REFERENCE Documents Form 10-K Reference --------- ------------------- Portions of Annual Report to Part II, Items 6, 7, 8 Stockholders for the year ended January 2, 1999 PART I The discussions in this Annual Report on Form 10-K and in the Company's 1998 Annual Report to stockholders incorporated herein by reference contain forward-looking statements within the meaning of Section 27A of the Securities Exchange Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical facts included herein or therein are forward-looking statements. In particular, without limitation, terms such as "anticipate," "believe," "estimate," "expect," "indicate," "may be," "objective," "plan," "predict," "should," and "will" are intended to identify forward-looking statements. Forward-looking statements are subject to certain risks, uncertainties and assumptions which could cause actual results to differ materially from those predicted. Important factors that could cause actual results to differ materially from such expectations ("Cautionary Factors") are disclosed herein (see "Cautionary Factors" at the end of Item 1, below). Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. All subsequent written or oral forward-looking statements attributable to the Company or persons acting on behalf of the Company are expressly qualified in their entirety by the Cautionary Factors. ITEM 1. Business. --------- GENERAL ------- Roundy's, Inc. and its subsidiaries (collectively the "Company") are engaged principally in the wholesale distribution of food and nonfood products to supermarkets and warehouse food stores located in Wisconsin, Illinois, Michigan, Indiana, Ohio, Kentucky, Missouri, Arkansas, Minnesota, Pennsylvania, Tennessee and West Virginia. The Company also owns and operates 13 retail warehouse food stores under the name "Pick 'n Save" or "Park & Save," one limited assortment food store under the name "Mor For Less" and 5 conventional food stores under the names "Park & Shop", "Price Less" or "Buy Low Foods." The Company offers its retail customers a complete line of nationally-known name brand merchandise, as well as a number of its own private and controlled labels. The Company services 806 retail grocery stores. In addition to the distribution and sale of food and nonfood products, the Company provides specialized support services for retail grocers, including promotional merchandising and advertising programs, accounting and inventory control, store development and financing and assistance with other aspects of store management. The Company maintains a staff of trained retail counselors who advise and assist individual owners and managers with store operations. Roundy's, Inc. was incorporated in 1952 under the Wisconsin Business Corporation Law. The Company's executive offices are located at 23000 Roundy Drive, Pewaukee, Wisconsin 53072, and its telephone number is (414) 547-7999. Unless the context indicates otherwise, as used herein, the term "Company" refers to Roundy's, Inc. and its subsidiaries and the term "Roundy's" refers to Roundy's, Inc. without its subsidiaries. Roundy's operates on a 52 or 53 week fiscal year ending on the Saturday closest to December 31. In this report, unless the context indicates otherwise, the terms "1998" and "fiscal 1998" refer to the 52-week fiscal year ended January 2, 1999; the terms "1997" and "fiscal 1997" refer to the 53-week fiscal year ended January 3, 1998; and the terms "1996" and "fiscal 1996" refer to the 52-week fiscal year ended December 28, 1996. CAPITAL STRUCTURE/PATRONAGE DIVIDENDS ------------------------------------- As of January 2, 1999, all of Roundy's outstanding Class A (Voting) Common Stock is owned by the owners ("stockholder-customers") of 119 retail grocery stores serviced by Roundy's. These stockholder-customers, who own approximately 72% of the combined total of Class A Common and Class B Common, may receive patronage dividends from Roundy's based on the level of their purchases from Roundy's. Approximately 28% of the outstanding combined Class A Common and Class B Common Stock is held by employees or former customers of Roundy's and, although they participate in the accumulation of equity in the Company, they do not receive patronage dividends and do not own any Class A Common. Roundy's is obligated by Article 5 of its By-Laws, as amended, to pay a patronage dividend to its stockholders-customers out of and based upon the net earnings from business done by Roundy's with such stockholder-customers in any fiscal year in an amount which would reduce the net income of the Company to such amount as will result in an increase of 8% in the book value of outstanding Roundy's stock as of the close of such year (calculated after the payment of patronage dividends). In the event that such net earnings level is not reached, no patronage dividends will be paid for that year. In February 1998, the Board of Directors adopted a resolution amending the By-Laws to change the required increase in net book value per share from 10% to 8%, beginning in fiscal 1998. The patronage dividend is payable at least 20% in cash and the remainder in Class B Common. Patronage dividends for fiscal 1998, 1997 and 1996 were payable 30% in cash and 70% in Class B Common. OPERATION AS A COOPERATIVE -------------------------- Roundy's has historically operated its food wholesale business on a cooperative basis, and therefore determined its Federal income tax liabilities under Subchapter T of the Internal Revenue Code, which governs the taxation of corporations operating on a cooperative basis. Under Subchapter T of the Internal Revenue Code, patronage dividends are deducted by Roundy's in determining taxable income, and are generally taxable to the stockholder- customers (including the value of the Class B Common), for Federal income tax purposes. Roundy's anticipates that in the future it will continue to operate on a cooperative basis in substantially this manner, although it is not required to do so and its operation on this basis, as well as its practice of paying patronage dividends, could be terminated at any time by action of the Board of Directors. The applicable laws, regulations, rulings and judicial decisions affecting the determination of whether a corporation is operating on a cooperative basis for Federal income tax purposes under Subchapter T of the Internal Revenue Code are subject to interpretation. Although management believes that Roundy's qualifies as a cooperative for such purposes, Roundy's has not obtained, and does not intend to seek a ruling or other assurance from the IRS that this is the case. If the Internal Revenue Service were to successfully challenge Roundy's cooperative status, Roundy's might incur a Federal income tax liability with respect to patronage dividends previously paid to stockholder- customers during the tax years in question and which were deducted by Roundy's. Roundy's thereafter might incur significantly increased consolidated Federal income tax liabilities in future tax years. Roundy's subsidiaries do not operate as cooperatives. The customers serviced by these subsidiaries are independent grocers, operating 687 retail stores. They do not receive patronage dividends. The Company is subject to regulation by the United States Food and Drug Administration and to certain state and local health regulations in connection with the operations of its facilities and its wholesale food business. The Company has not been subject to any actions brought under such regulations in the past five years. WHOLESALE FOOD DISTRIBUTION --------------------------- The Company distributes a broad range of food and nonfood products to its customers and to corporate-owned retail stores. The Company has seven product lines: dry grocery, frozen food, fresh produce, meat, dairy products, bakery goods and nonfood products. The Company sells brand name merchandise of unrelated manufacturers, including most nationally advertised brands. In addition, the Company sells numerous products under private and controlled labels, including but not limited to "Roundy's," "Old Time," "Shurfine" and "Buyers' Choice." Private label product sales for the Company accounted for $173,339,000, $179,032,000 and $175,459,000 of the Company's sales during fiscal 1998, 1997 and 1996, respectively. The Company has no long-term purchase commitments and management believes that the Company is not dependent upon any single source of supply. No source of supply accounted for more than 9% of the Company's purchases in fiscal 1998. As described above, Roundy's, not including its subsidiaries, has historically operated on a cooperative basis with respect to its wholesale food distribution business. Roundy's cooperative operations accounted for approximately 39% of the Company's consolidated net sales and service fees for fiscal 1998, and 37% for fiscal 1997 and 1996. At January 2, 1999, Roundy's had 59 stockholder-customers actively engaged in the retail grocery business, operating a total of 119 retail grocery stores. Roundy's cooperative wholesale food business is focused primarily in Wisconsin, where all but 3 of the 119 retail grocery stores are located (3 are in Illinois). At January 2, 1999 the Company (including its subsidiaries) had 687 independent retail food store customers. Sales by the Company to the independent retail food stores accounted for 50%, 52% and 52% of the Company's consolidated net sales and service fees for fiscal 1998, 1997 and 1996, respectively. The Company's primary marketing objective is to be the principal source of supply to both its stockholder-customers and other independent retailers. In a 12 state area the Company serviced 119 retail grocery stores operated by its stockholder-customers, 687 retail stores operated by non-stockholders and 19 Company-owned and operated retail stores during fiscal 1998. Of the Company's consolidated net sales and service fees for this period, $679,498,400 or 26.4% were attributable to five customers, with one customer accounting for $294,483,400 or 11.4% of such sales. Approximately 78% or 642 retail stores purchased less than $3,000,000 each from the Company in fiscal 1998. 105 customers owned more than one retail food store, with one customer owning 17 retail food stores. Services to Customers - --------------------- Stockholder-customers are provided, and independent retailers are offered, a variety of services to help them maintain a competitive position within the retail grocery industry. These services include pricing services, ordering assistance, point-of-sale host-computer support, detailed reports of purchases, store engineering, retail accounting, group advertising, centralized bakery purchasing, merchandising, insurance, real estate services and retail training. The Company charges its stockholder-customers for some of these services, however, the income generated by such charges is not material. The foregoing services are also available to the Company's independent retailers on a fee basis. Customer Loans, Guarantees and Leases - ------------------------------------- The Company has maintained a continuous effort to assist qualified stockholder-customers and independent retailers to remodel and expand existing retail locations and to develop new retail outlets and has made various loans to these individuals and entities for such purposes. Loans outstanding as of January 2, 1999 were as follows: Outstanding Number Balance Range of Range of of Original as of Interest Maturity Loans Amount Jan. 2, 1999 Rates Dates ----- ---------- ------------ ----------- ---------- Inventory equipment Loans 111 $45,741,200 $23,385,000 Variable(1) 1999-2011 (1) Variable rates based on the Company's cost of borrowing. The Company's guarantees of customer bank loans and customer leases amounted to $106,700 and $430,100, respectively at January 2, 1999. The Company has a lease program under which it may in its discretion lease store sites and equipment for sublease to qualified customers. This enables customers to compete with large grocery store chains for store sites at favorable rates. The Company presently has such real estate and equipment leases with lease terms from 1999 to 2018. Aggregate lease rentals received under this program were $23,207,000, $21,249,900 and $21,628,300 in fiscal 1998, 1997 and 1996, respectively. Marketing and Distribution of Products - -------------------------------------- The Company generally distributes its various product lines by a fleet of 270 tractor cabs and 640 trailers and some products are shipped direct from manufacturers to customer locations. Most customers order for their stores on a weekly basis and receive deliveries from one to five days a week. Orders are generally transmitted directly to a warehouse computer center for prompt assembly and dispatch of shipments. The Company has retail counselors and merchandising specialists who serve its customers in a variety of ways, including the analysis of and recommendation on store facilities and equipment; development of programs and objectives for establishing efficient methods and procedures for receipt, handling, processing, checkout and other operations; informing customers on latest industry trends; assisting and dealing with training needs of customers; and, if the need arises, acting as liaison or problem solver between the Company and the customers. The retail counselors and specialists are assigned a specific geographic area and periodically visit each customer within their assigned area. Terms of Sales and Bad Debt Experience - -------------------------------------- The Company renders statements to its customers on a weekly basis to coincide with regular delivery schedules. Roundy's accounts of single store owners are considered delinquent if not paid on the statement date. Accounts of multiple store owners are considered delinquent if not paid within three days of the statement date. Accounts of Roundy's subsidiaries are considered delinquent if not paid within seven days of the statement date. The majority of accounts are collected via the Automated Clearing House ("ACH") system. Delinquent accounts are charged interest at the rate of prime plus 5%, computed on a daily basis. During each of the past three fiscal years, the Company's bad debt expense has been less than 0.21% of sales. In 1998, 1997 and 1996, the Company's bad debt expense was $2,189,300, $2,389,100 and $5,302,600, respectively. Roundy's stockholder-customers are required to maintain buying deposits with Roundy's equal to the greater of the average amount of a stockholder-customer's purchases over a two-week period or $20,000. The book value of Class A and Class B Common Stock of Roundy's owned by a stockholder-customer is credited against the buying deposit requirement, and Roundy's has a lien against all such stock to secure any indebtedness to Roundy's. RETAIL FOOD STORES ------------------ The Company operates three types of corporate stores (high volume-limited service retail "warehouse" stores, high value-limited assortment retail stores and conventional retail stores). The high volume-limited service warehouse stores are designated as "Pick 'n Save" or "Park & Save" which generally offer, at discount prices, complete food and general merchandise lines to the customer, emphasizing higher demand items, with stores ranging from 33,000 to 73,000 square feet per store. The high value, limited assortment retail store, designated as "Mor For Less," is 24,000 square feet and emphasizes low cost, high value lines to the customer. Conventional retail stores operated under the names "Park & Shop," "Price Less" or "Buy Low Foods", generally emphasize full service to the customer at competitive prices. These stores range from 9,000 to 42,000 square feet. The number of stores operated by the Company at the end of its three most recent fiscal years was as follows: Type of Store 1998 1997 1996 -------------- ---- ---- ---- High Value-Limited Assortment and High Volume-Limited Service Stores....................... 13 14 16 Conventional Retail Stores........... 6 7 11 Sales of Company-operated stores during the three most recent fiscal years were $284,127,500, $291,612,600 and $275,761,300 for fiscal 1998, 1997 and 1996, respectively. The additional volume of wholesale sales generated by the retail stores owned and operated by the Company helps to reduce the overhead of the business and increases the Company's return to its stockholders. EMPLOYEES --------- At January 2, 1999, the Company employed full-time 1,100 executive, administrative and clerical employees, 1,334 warehouse and processing employees and drivers and 742 retail employees, and had 2,017 part-time employees. Substantially all of the Company's warehouse employees, drivers and retail employees are represented by unions, with contracts expiring in 1999 through 2001. The Company considers its employee relations to be normal. There have been no significant work stoppages during the last five years. Substantially all full-time employees are covered by group life, accident, and health and disability insurance. COMPETITION ----------- The grocery industry, including the wholesale food distribution business, is characterized by intense competition and low profit margins. The shifting of market share among competitors is typical of the wholesale food business as competitors attempt to increase sales in any given market. In order to compete effectively, the Company must have the ability to meet rapidly fluctuating competitive market prices, provide a wide range of perishable and nonperishable products, make prompt and efficient delivery, and provide the related services which are required by modern supermarket operations. The Company competes with a number of local and regional grocery wholesalers and with a number of major businesses which market their products directly to retailers, including companies having greater assets and larger sales volume than the Company. The Company's customers and the Company's corporate stores also compete at the retail level with several chain store organizations which have integrated wholesale and retail operations. The Company's competitors range from small local businesses to large national and international businesses. The Company's success is in large part dependent upon the ability of its independent retail customers to compete with larger grocery store chains. In the Milwaukee area, the "Pick 'n Save" group, which consists of both independently-owned and Company-owned stores, continues to be the market share leader with 52% of households in the Milwaukee metropolitan statistical area purchasing "most of their groceries" from "Pick 'n Save" as reported in the Milwaukee Journal Consumer Analysis Survey taken in the fall of 1998. In competing for customers, emphasis is placed on high quality and a wide assortment of products, low service fees and reliability of scheduled deliveries. The Company believes that the range and quality of other business services provided to retail store customers by the wholesaler are increasingly important factors, and that success in the wholesale food industry is dependent upon the success of the Company's customers who are also engaged in an intensely competitive, low profit margin industry. CAUTIONARY FACTORS ------------------ This report and other documents or oral statements which have been and will be prepared or made in the future contain or may contain forward-looking statements by or on behalf of the Company. Such statements are based on management's expectations at the time they are made. In addition to the assumptions and other factors referred to specifically in connection with such statements, the following factors, among others, could cause actual results to differ materially from those contemplated. These factors are in addition to any other cautionary statements, written or oral, which may be made or referred to in connection with any such forward-looking statement. Factors that could cause actual results to differ materially from those contemplated include: Wholesale Business Risks - The Company's sales and earnings at wholesale are dependent on the Company's ability to retain existing customers and attract new customers, as well as its ability to control costs. Certain factors could adversely impact the Company's results, including: decline of its independent retailer customer base due to competition and other factors; loss of corporate retail sales due to increased competition and other risks detailed more fully below; consolidations of retailers or competitors; increased self- distribution by chain retailers; increase in operating costs; the possibility that the Company will incur additional costs and expenses due to further investment in, or consolidation of, distribution centers; entry of new or non-traditional distribution systems into the industry. Retail Business Risks - The Company's retail segment faces risks which may prevent the Company from maintaining or increasing retail sales and earnings including: competition from other retail chains, supercenters, non-traditional competitors, and emerging alternative formats; operating risks of certain strategically important retail operations;and adverse impact from the entry of other retail chains, supercenters and non-traditional or emerging competitors into markets where the Company has a retail concentration. Litigation - The Company is involved in various litigation matters arising in the normal course of business. While the Company believes that it is currently not subject to any material litigation, the costs and other effects of legal and administrative cases and proceedings and settlements are impossible to predict with certainty. The current environment for litigation involving food wholesalers may increase the risk of litigation being commenced against the Company. The Company would incur the costs of defending any such litigation whether or not any claim had merit. Year 2000 - The Company faces risks associated with potential business interruptions and other risks because of the "Year 2000" issue, including the risk that the Company's Year 2000 plan may not adequately address Year 2000 issues faced by the Company, or that the estimated cost of implementing such plan may be materially greater than expected. Certain Cautionary Factors specific to the Year 2000 issue are identified in the discussion of the Year 2000 issue contained in the Company's Annual Report under the caption "Financial Review - Year 2000" which Cautionary Factors are incorporated herein by this reference. THE FOREGOING SHOULD NOT BE CONSTRUED AS EXHAUSTIVE AND THE COMPANY DISCLAIMS ANY OBLIGATION TO UPDATE ANY FORWARD-LOOKING STATEMENTS TO REFLECT EVENTS OR CIRCUMSTANCES AFTER THE DATE OF SUCH STATEMENTS OR TO REFLECT THE OCCURRENCE OF ANTICIPATED OR UNANTICIPATED EVENTS. ITEM 2. Properties. ----------- The Company's principal executive offices are located in Pewaukee, Wisconsin. These offices are on a 5-acre site. A portion of these facilities are owned by Roundy's and the remainder are leased from a third party. Wholesale activities are conducted by the Company from the following warehouses: Approximate Warehouse Location Products Distributed Square Footage - -------------------- ------------------------- ----------------- Wauwatosa, Wisconsin All product lines, 745,000 (O) except nonfood products 192,000 (L) Mazomanie, Wisconsin Dry groceries and 225,000 (L) nonfood products Westville, Indiana All product lines, 557,000 (O) except nonfood products Lima, Ohio All product lines, 515,000 (O) (two facilities) except produce and 94,000 (L) nonfood products Eldorado, Illinois Dry groceries and 384,000 (O) dairy products Evansville, Indiana Frozen food, meat 136,000 (O) and dairy products Van Wert, Ohio Nonfood products 115,000 (L) South Bend, Indiana Frozen foods 84,000 (L) Muskegon, Michigan All product lines, 215,000 (O) except produce O = Owned L = Leased The Company believes its current properties are well maintained and, in general, are adequately sized to house existing operations. Transportation - -------------- The Company's transportation fleet for distribution operations as of January 2, 1999 consisted of 270 tractor cabs, 640 trailers and 3 straight delivery trucks. In addition, the Company owns 46 automobiles. The fleet is primarily owned by the Company. Computers - --------- The Company owns most of its computer and related peripheral equipment. The computers are used for inventory control, billing and all other general accounting purposes. The Company believes that the computer systems are adequate for the Company's operations. For information regarding the Company's Year 2000 compliance efforts, see "Managements Discussion and Analysis of Financial Condition and Results of Operation - Other Matters - Year 2000" in the Company's Annual Report. ITEM 3. Legal Proceedings. ------------------ The Company is involved in various litigation matters arising in the normal course of business. It is the view of management that the Company's recovery or liability, if any, under pending litigation is not expected to have a material effect on the Company's financial position or results of operations, although no assurance to that effect can be given. See "Cautionary Statements - Litigation" above. ITEM 4. Submission of Matters to a Vote of Security Holders. ---------------------------------------------------- No matters were submitted to a vote of security holders during the fourth quarter of fiscal 1998. PART II ITEM 5. Market for the Registrant's Common Equity and Related Stockholder Matters. ----------------------------------------------------- The transfer of shares of Roundy's Class A Common and Roundy's Class B Common is substantially restricted, and there is no established public trading market for Roundy's stock. As of January 2, 1999, all of the outstanding shares of Roundy's Class A (voting) Common Stock were held of record by the Roundy's, Inc. Voting Trust. Further information on the Voting Trust is found in Item 12 of this report. There is also no established public trading market for Roundy's Voting Trust Certificates and there were 59 holders of such Certificates on January 2, 1999. On January 2, 1999 an aggregate of 208 persons held shares of Roundy's Class B Common Stock and/or Voting Trust Certificates. Except for patronage dividends (see Item 1, Business, and Note 3 to Roundy's financial statements), no dividends have ever been paid on the Common Stock of Roundy's. There is no intention of paying dividends, other than patronage dividends, in the foreseeable future. ITEM 6. Selected Financial Data. ------------------------ The information required by this Item is incorporated by reference from the Registrant's Annual Report to Stockholders for the fiscal year ended January 2, 1999 (the "Annual Report") under the caption "Selected Financial Data." ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operation. ----------------------------------------------------------- The information required by this Item is incorporated by reference from the Annual Report under the caption "Financial and Operational Review." ITEM 7A. Quantitative and Qualitative Disclosure About Market Risk. ---------------------------------------------------------- The Company is not presenting any information concerning market risk because the Company does not engage in any foreign-currency transactions or conduct any business which is denominated in foreign currencies or outside the United States. Further, the Company does not believe that its capital structure is market-sensitive because all of its outstanding material loans bear interest at a fixed rate. ITEM 8. Financial Statements and Supplementary Data. -------------------------------------------- The required Financial Statements are incorporated by reference from the Annual Report; see response to Item 14(a)(1), of this report. The required financial statement schedules are filed with this report; see the response to Item 14(a)(2) of this report. Supplementary data is not furnished pursuant to Item 30(a)(5) of Regulation S-K. ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. ------------------------------------------------------------ None. PART III ITEM 10. Directors and Executive Officers of the Registrant. --------------------------------------------------- The Directors and Executive Officers of Roundy's are as follows: Position(s) Held with Roundy's Name Age And Business Experience - ------------------- --- -------------------------------------------- Gerald F. Lestina 56 President and Chief Executive officer since 1995; President And Chief Operating Officer 1993-1995; Director since 1991 (term expires 1999) Roger W. Alswager 50 Vice President of Real Estate since 1989 Londell J. Behm 48 Vice President of Advertising since 1987 Ralph D. Beketic 52 Vice President-Wholesale since 1996; President of Milwaukee Division 1993-1995 David C. Busch 50 Vice President of Administration since 1993 Edward G. Kitz 45 Vice President, Secretary & Treasurer since 1995; Vice President & Treasurer 1989-1994 Charles H. Kosmaler, Jr 56 Vice President Planning and Information Services since 1999; Vice President of Logistics and Planning 1993-1998 Debra A. Lawson 43 Vice President of Human Resources since 1997; Vice President Administration-Milwaukee Division 1994-1996 John E. Paterson 51 Vice President-Distribution since 1997; Vice President of Operations-Milwaukee Division 1993-1996 Robert D. Ranus 58 Vice President and Chief Financial Officer since 1987; Director since 1987 (term expires 2000) Michael J. Schmitt 50 Vice President-Sales and Development since 1995; Vice President, Northern Region 1992- 1995 Marion H. Sullivan 52 Vice President of Marketing since 1989 Robert E. Bartels 61 Director since 1994 (term expires 2000); President and Chief Executive Officer of Martin's Super Markets, Inc., South Bend, Indiana Charles R. Bonson 52 Director since 1994 (term expires 2000); President of Bonson's Foods, Inc., Eagle River, Wisconsin Robert S. Gold 56 Director since 1998 (term expires 2001); President and Stockholder of B. & H. Gold Corporation, Gold's Market, Inc., Gold's, Inc. and Gold's of Mequon, LLC in Brown Deer, Milwaukee, Grafton and Mequon, Wisconsin Gary N. Gundlach 55 Director since 1990 (term expires 1999); Owner of Pick `n Save retail grocery stores in Columbus, DeForest, McFarland, Stoughton and Sun Prairie, Wisconsin George C. Kaiser 66 Director since 1986 (term expires 2001); Chairman and Chief Executive Officer Hanger Tight Company since 1988; Chief Executive Officer, George C. Kaiser and Co. since 1988; Director of The Baird Funds, Inc. since 1992 Patrick D. McAdams 49 Director since 1995 (term expires 2001); General Manager and Treasurer of McAdams, Inc., Wales, Wisconsin Brenton H. Rupple 74 Director since 1993 (term expires 1999); Retired Chairman of Robert W. Baird & Co., Milwaukee, Wisconsin Gary R. Sarner 52 Director since 1997 (term expires 2001); Chairman, Total Logistic Control, LLC since 1996; President and Chief Operating Officer, Christiana Companies, Inc. 1992-1997 Directors of Roundy's are elected by class and generally serve three-year terms; approximately one-third of the Board of Directors is elected annually. Of the ten current members of the Board of Directors, two are currently Executive Officers of Roundy's (Messrs. Lestina and Ranus) and four are "Retailer Directors" (Messrs. Bonson, Gold, Gundlach, and McAdams). The terms of the Roundy's, Inc. Voting Trust provide that each year the Trustees will vote to elect one stockholder-customer, chosen by a plurality vote of the Voting Trust Certificate Holders, to serve a three-year term as Director; however, the Roundy's, Inc. Voting Trust provides that in every third year, Voting Trust Certificate Holders will choose two Retailer Directors. Therefore, at any time there should be four Retailer Directors serving. ITEM 11. Executive Compensation. ----------------------- The following table shows the compensation for the past three years of Roundy's five most highly compensated executive officers performing policy making functions for Roundy's, including the Chief Executive Officer (the "Named Executive Officers"). SUMMARY COMPENSATION TABLE -------------------------- Annual Compensation(2) Long-Term Compensation All Other Name and Securities Compen- Principal Underlying sation Position Year Salary (1) Bonus Options (3) - -------------------- ---- ---------- ------- ------------ ---------- Gerald F. Lestina 1998 $380,000 $114,000 4,000 $12,152 President and Chief 1997 371,058 105,120 - 9,994 Executive Officer 1996 338,000 95,316 - 8,645 Robert D. Ranus 1998 227,500 68,250 - 8,829 Vice President and 1997 221,077 62,496 - 11,409 Chief Financial 1996 213,000 60,066 - 9,812 Officer Ralph D. Beketic 1998 182,000 54,600 - 13,147 Vice President 1997 177,981 50,400 - 5,562 Wholesale 1996 137,096 38,775 - 1,937 Marion H. Sullivan 1998 172,000 51,600 - 6,993 Vice President of 1997 167,981 47,520 - 8,910 Marketing 1996 146,000 41,172 - 7,211 Michael J. Schmitt 1998 160,000 48,000 - 6,880 Vice President of 1997 157,596 44,640 - 8,580 Sales & Development 1996 138,174 39,010 - 7,093 (1) Includes amounts (if any) deferred pursuant to Roundy's Deferred Compensation Plan. (2) Pursuant to applicable SEC regulations, perquisites and other personal benefits are omitted because they did not exceed the lesser of either $50,000 or 10% of the total of salary and bonus. (3) The amounts shown in this column for 1998, 1997, and 1996, respectively, were derived from the following figures. Term life insurance premiums paid by Roundy's and Roundy's contributions to the 401(k) plan, respectively, for the named executive officers are shown below. For 1998 - Mr. Lestina: $7,152 and $5,000. Mr. Ranus: $3,829 and $5,000. Mr. Beketic: $9,347 and $3,800. Mr. Sullivan: $2,725 and $4,268. Mr. Schmitt: $3,192 and $3,688. For 1997 - Mr. Lestina: $6,819 and $3,175. Mr. Ranus: $7,861 and $3,547. Mr. Beketic: $2,670 and $2,891. Mr. Sullivan: $6,019 and $2,891. Mr. Schmitt: $6,061 and $2,518. For 1996 - Mr. Lestina: $6,270 and $2,375. Mr. Ranus: $7,732 and $2,080. Mr. Beketic: $666 and $1,271. Mr. Sullivan: $5,851 and $1,360. Mr. Schmitt: $5,911 and $1,182. Life Insurance - -------------- The executive officers of Roundy's are each covered by $250,000 of executive equity life insurance. In addition, executives are covered by a group life carve-out plan in the amount of three times salary, which is in lieu of the group term life insurance provided to substantially all nonunion employees under a Roundy's-sponsored Plan. The executive officers of Roundy's are also covered by an executive isability income insurance wrap-around plan which is in ddition to the disability income insurance provided to substantially all nonunion employees under a Roundy's-sponsored Plan. Loan Guarantees - --------------- The Board of Directors of the Company has authorized the Company to guarantee the repayment of any loans incurred by senior executives and key employees for the purpose of exercising certain stock options granted by the Company. The guarantee is limited to a total aggregate principal amount of loans of $2,000,000. There were no employee guarantees outstanding as of January 2, 1999. Change in Control - ----------------- Roundy's has Deferred Compensation Agreements with certain executive officers, including Messrs. Lestina, Ranus, Beketic, Sullivan and Schmitt. The Deferred Compensation Agreements provide generally that the Company will pay to the employee a "deferred compensation amount," if at any time within three years after the occurrence of a "change in control" of the Company, the employee's employment is terminated by the Company, other than for "good cause." If the termination date occurs within two years after the date on which a "change in control" occurs, the "deferred compensation amount" will be equal to the "monthly benefit amount" times twenty-four. If the termination date occurs more than two years, but not more than three years, after the date on which a "change of control" occurs, the "deferred compensation amount" will be equal to the "monthly benefit amount" times twenty-four minus the number of calendar months between the date two years after the date on which a "change of control" occurs and the termination date. The "monthly benefit amount" is equal to 1/12 of the employee's annual base salary. The number by which the "monthly benefit amount" is multiplied to determine the "deferred compensation amount" is defined as the "monthly multiplier." If the employee becomes entitled to the payment of a "deferred compensation amount," the Company will continue to provide to the employee those health and life insurance benefits to which the employee was entitled as of the termination date for that number of months following the termination date which is equal to the "monthly multiplier." Deferred Compensation Plan - -------------------------- The Company established a Deferred Compensation Plan (the "Plan"), applicable to Officers who have been elected by the Board of Directors, ("Elected Officers"), to assist the Elected Officers in deferring income until their retirement, death, or other termination of employment. The Plan participants may make deferral commitments that are not less than $10,000 over a period of not more than 7 years and not less than $2,000 in any one year. The aggregate annual deferral may not exceed $100,000 per calendar year for all participants combined unless the Company's Board of Director approves an amount in excess of that limit. For 1998, the Board of Directors approved an annual deferral of $136,000. Monthly interest is credited to each participant's account based on the Moody's Long Term Bond Rate in effect on January 1 of each year plus 2%. The Company established a Trust to hold assets to be used to pay benefits under the Plan, however, the rights of any participant, beneficiary or estate to benefits under the Plan are solely those of an unsecured creditor of the Company. Upon death of a participant prior to termination of employment and before any periodic payments have started, the Company will pay to the participant's Designated Beneficiary a pre-retirement death benefit equal to five times the total aggregate deferral commitment of the participant payable in equal annual installments over a ten-year period. The Company has purchased life insurance policies on the lives of the participants to fund its liabilities under the Plan. Severance and Non-Competition Agreement - --------------------------------------- Roundy's has a severance and non-competition agreement with Gerald F. Lestina. This agreement continues in effect until October 10, 2007. Upon Roundy's termination of Mr. Lestina's employment (other than for "good cause" as defined in the agreement), or Mr. Lestina's termination of his employment (for "good reason" as defined in the agreement), Roundy's will pay Mr. Lestina a "severance benefit" over a period of two years following the termination date, without interest, provided that if such termination occurs within a three year period following a "change in control," as defined in the agreement, then the entire amount of the severance benefit shall be paid in a lump sum within 30 days after the termination date. The "severance benefit" means the sum of the following multiplied by two: (i) Mr. Lestina's annual base salary in effect as of the termination date; plus (ii) the amount of any bonus paid or payable to Mr. Lestina for the preceding fiscal year. Upon a termination, Roundy's will continue to provide to Mr. Lestina those health and life insurance benefits to which he was entitled as of the termination date, for a period of two years. If Mr. Lestina ceases to be employed by Roundy's (including by reason of his death) at any time after attaining age 55 and while he is then an officer and a director of Roundy's (unless employment is terminated for "good cause"), Roundy's will provide coverage for Mr. Lestina and his spouse under the employee health, medical and life insurance plans maintained by Roundy's for its executive personnel, until, in addition to other parameters, the deaths of Mr. Lestina and his spouse. For a period of one year following the termination of Mr. Lestina's employment under circumstances giving rise to Roundy's obligation to pay the severance benefit under this agreement, Mr. Lestina agrees not to compete with Roundy's in the states of Wisconsin, Michigan, Illinois, Indiana and Ohio, plus to the extent not included in those states, the area encompassed within a radius of 400 miles of any warehouse or distribution facility operated by Roundy's, or any affiliate of Roundy's, as of the termination date. Other - ----- Pursuant to a resolution of the Board of Directors of Roundy's, if Mr. Ranus ceases to be employed by Roundy's (including by reason of his death) at any time after attaining age 55 and while he is then an officer and a director of Roundy's (unless employment is terminated for "good cause"), Roundy's will provide coverage for Mr. Ranus and his spouse under the employee health, medical and life insurance plans maintained by Roundy's for its executive personnel, until, in addition to other parameters, the deaths of Mr. Ranus and his spouse. Stock Incentive Plan - --------------------- Effective November 1, 1991, the Board of Directors adopted the 1991 Stock Incentive Plan (the "Plan") under which up to 75,000 shares of Class B Common Stock may be issued pursuant to the exercise of stock options. The Plan also authorizes the grant of up to 25,000 stock appreciation rights ("SARs"). Options and SARs may be granted to senior executives and key employees of the Company by the Executive Compen-sation Committee of the Board of Directors. No options or SARs may be granted under the Plan after November 30, 2001. Options granted become exercisable based on a vesting schedule which ranges from 20% at the date of grant to 100% eight years from the date of grant. SAR holders are entitled, upon exercise of a SAR, to receive cash in an amount equal to the excess of the fair market value, as defined in the plan, per share of the Company's common stock as of the date on which the SAR is exercised over the base price of the SAR. SARs granted become exercisable based on the vesting rate which ranges from 20% on the last day of the fiscal year of the grant to 100% eight years from the last day of the fiscal year of the grant. In the event of a change in control of the Company, all options and SARs previously granted and not exercised, become exercisable. Option/SAR Grants - ----------------- During fiscal 1998 Mr. Lestina was the only Named Executive Oficer who was granted options or SARS. The following table provides information regarding such grants.
Number of % of Potential Realizable Secuirities Total Op- Value at Assumed Underlying tions/SARS Exer- Annual Rates of Stock (A)Options Granted cise or Price Appreciation (B)SARS Employees Base Price for Option Term Name Granted(1) in 1998(2) ($/Share) Expiration Date 5%($) 10%($) - ----------------- ---------- ----------- --------- --------------- ------- ---------- Gerald F. Lestina (A) 4,000 95.2 104.35 3/31/2008 262,520 665,240 (B) - - - - - -
(1) These options become exercisable in accordance with the vesting schedule under the plan. (2) Roundy's granted options representing 4,200 shares and 800 freestanding SARs to employees in 1998. Option/SAR Exercises - -------------------- The following table provides information on the Named Executive Officers' option and SAR exercises in 1998 and the value of unexercised options at January 2, 1999.
Number of Unexercised Shares (A)Options Value ($) of Acquired (B)SARs Unexercised In-The on Exercise at 01/02/99 Money (A)Options (A)Options Value($) Exercisable/ (B)SARs at 01/02/99 Name (B)SARs Realized Unexercisable Exercisable/Unexercisable - ----------------- ----------- ---------- -------------- ------------------------- Gerald F. Lestina (A) - - 17,500/4,000 871,825 41,800 (B) - - - - - - Robert D. Ranus (A) - - 10,500/ - 597,725 - (B) - - - - - - Ralph D. Beketic (A) - - 1,900/100 78,520 5,605 (B) - - 1,600/400 75,910 20,515 Marion H. Sullivan (A) - - 1,300/200 77,950 11,775 (B) - - 2,150/350 114,045 19,230 Michael J. Schmitt (A) - - 2,700/800 147,530 41,595 (B) - - 1,300/200 77,950 11,775
Retirement Plan - ---------------- Benefits under the Roundy's, Inc. Retirement Plan are, in general, an amount equal to 50% of average compensation minus 50% of the participant's primary Social Security benefit; provided, however, that if the employee has fewer than 25 years of credited service, the monthly amount so determined is multiplied by a fraction, the numerator of which is the years of credited service and the denominator of which is 25. In addition, if credited service is greater than 25 years, the benefit is increased by 1% of average compensation for each year of credited service in excess of 25 years to a maximum of 10 additional years. The following table sets forth the estimated annual pensions (before deduction of the Social Security offset described below) which persons in specified categories would receive if they had retired on January 2, 1999, at the age of 65:
Average Annual Compensation Annual Pension After Specified During Last Years of Credited Service Five Completed Calendar Years 10 Years 15 Years 20 Years 25 Years 30 Years 35 Years - -------------- -------- -------- -------- -------- -------- -------- $100,000 $20,000 $30,000 $40,000 $ 50,000 $ 55,000 $ 60,000 125,000 25,000 37,500 50,000 62,500 68,800 75,000 150,000 29,800 44,700 59,600 74,500 82,000 89,400 175,000 30,800 46,200 61,600 77,000 84,700 92,400 200,000 31,100 46,700 62,400 78,100 86,100 93,900 225,000 33,000 50,700 68,300 85,900 95,800 104,700 250,000 35,000 54,600 74,200 93,800 105,600 115,400 300,000 37,300 59,200 81,200 103,100 117,300 128,300 400,000 37,300 59,200 81,200 103,100 117,300 128,300 450,000 37,300 59,200 81,200 103,100 117,300 130,000 500,000 37,300 59,200 81,200 103,100 122,800 130,000
All of the Named Executive Officers are covered by the Roundy's, Inc. Retirement Plan. Their average annual compensation would be the combined amount listed under Salary and Bonus shown in the Summary Compensation Table. The estimated credited years of service for each of the Named Executive Officers is as follows: Mr. Lestina: 29 years, Mr. Ranus: 12 years, Mr. Beketic: 8 years, Mr. Sullivan: 11 years, and Mr. Schmitt: 21 years. Supplemental Plan - ----------------- Messrs. Lestina, Ranus, Beketic and Sullivan participate in the Roundy's, Inc. Supplemental Employee Retirement Plan (the "Supplemental Plan") which is designed to supplement the retirement benefits which are payable through the Roundy's, Inc. Retirement Plan (the "Retirement Plan"), so that the effects of the limitation on compensation under the Retirement Plan due to Section 401(a) (17) of the Internal Revenue Code are eliminated. The benefit under the Supplemental Plan is equal to the difference between (i) 50% of the participant's final average annual earnings for the last 5 years and (ii) the value of the participant's benefits under the Retirement Plan, payable in the form of a 15 year term certain annuity. A survivor benefit is payable to the participant's beneficiary. The Company established a Trust to hold assets to be used to pay benefits under the Supplemental Plan, however, the rights of any participant, beneficiary or estate to benefits under the Supplemental Plan are solely those of an unsecured creditor of Roundy's. Roundy's has purchased life insurance policies on the lives of the participant's to fund its liabilities under the Supplemental Plan. Directors Compensation - ---------------------- Directors who are employees of Roundy's receive no fees for serving as Directors. Customer-directors each received $500 per meeting during 1998; outside Directors each received $15,000, prorated on an annual basis, plus $500 per Board of Directors meeting plus $500 per committee meeting not held the same day as a Board of Directors meeting for their services during 1998. ITEM 12. Security Ownership of Certain Beneficial Owners and Management. --------------------------------------------------------------- Roundy's is authorized by its Articles of Incorporation to issue 60,000 shares of Class A Common, $1.25 par value, and 2,400,000 shares of Class B Common, $1.25 par value. On January 2, 1999, 11,900 shares of Class A Common and 1,127,053 shares of Class B Common were outstanding. Roundy's as a Voting Trust (the "Trust") which was established in August, 1971 (was amended and restated in 1983 and was further amended in 1986 and 1995), as the successor to an initial voting trust created at the time Roundy's was organized. The Trust has an indefinite term, although it may be terminated upon the vote of the Voting Trust Certificate Holders as provided therein. The main purpose for the establishment of the Trust, and its predecessor, was to insure the stability of management necessary to obtain long-term warehouse and other financing. As of March 30, 1999, all of the outstanding shares of Roundy's Class A Common held by current stockholder-customers were on deposit in the Trust. The Voting Trust Agreement authorizes the Trustees to vote all shares deposited in the Trust, in their discretion, for the election of all but four of the Directors (there are currently ten Directors). On other matters submitted to avote of stockholders (including the election of one Retailer Director each year and two every three years), the Trustees are required to vote the shares deposited in the Trust as a block as directed by a vote of the holders of outstanding Voting Trust Certificates (with each share of Class A Common in the Trust entitling the depositor thereof to one vote). The Trustees of the Trust currently are Victor C. Burnstad, Bronson J. Haase, Edward G. Kitz, Gerald F. Lestina, David J. Spiegelhoff, and Robert R. Spitzer. Mr. Lestina is President and Chief Executive Officer of Roundy's, Inc., and is a member of Roundy's Board of Directors. Mr. Kitz is Vice President, Secretary and Treasurer of Roundy's, Inc. Mr. Burnstad is President and Stockholder of Burnstad Bros., Inc., a stockholder-customer of Roundy's. Mr. Spiegelhoff is Vice President of Portage Pick 'n Saves, Inc. and Spiegelhoff Super Food Market, Inc., stockholder-customers of Roundy's. In the event of the death, resignation, incapacity or inability of any of the Trustees, a successor Trustee may be named by a majority of the remaining Trustees. There is currently one trustee position vacant. Vacancies need not be filled, except that there must be at least three Trustees acting as such at all times, and one Trustee must always be a stockholder-customer (or a principal of an entity which is a stockholder-customer) of Roundy's. The following table sets forth the beneficial ownership of equity securities of Roundy's as of March 30, 1999, by (i) each director; (ii) each Named Executive Officer; (iii) all directors and executive officers as a group; and (iv) each person who is known to the Company to be the beneficial owner of 5% or more of either of the outstanding classes shown. Except as set forth in the table below, no other person (or group who, directly or indirectly, through any relationship , has or shares the power to vote, or to direct the voting) owns of record or is known by Roundy's to own beneficially more than 5% of the outstanding Roundy's Voting Trust Certificates representing shares of Class A Common, or Roundy's Class B Common Stock.
Beneficial Ownership (1) --------------------------------------- Class A Common Class B Common --------------------------------------- Number Percent Number Percent of of of of Shares Class Shares Class (2) (2) -------- ------- ------- -------- Woodman's Food Market, Inc. (3) 700 5.98% 104,827 9.02% McAdams, Inc. (4) 700 5.98% 76,988 6.63% Mega Marts, Inc. and NDC, Inc (5) 1,600 13.68% 126,443 10.88% Ultra Mart, Inc. (6) 700 5.98% 55,025 4.74% Gerald F. Lestina (7) -(8) -(8) 21,939 1.86% Robert D. Ranus (9) -(8) -(8) 14,875 1.27% George C. Kaiser (10) -(8) -(8) 4,167 * Brenton H. Rupple -(8) -(8) 300 * Robert E. Bartels (11) -(8) -(8) 4,916 * Gary R. Sarner -(8) -(8) 833 * George E. Prescott (12) 600 5.13% 80,798 6.95% Gary N. Gundlach (13) 500 4.27% 26,475 2.28% Robert S. Gold (18) 400 3.42% 34,340 2.96% Charles R. Bonson (14) 200 1.71% 21,027 1.81% Patrick D. McAdams (4) 700 5.98% 76,988 6.63% Ralph D. Beketic (15) -(8) -(8) 1,900 * Marion H. Sullivan (16) -(8) -(8) 1,300 * Michael J. Schmitt (17) -(8) -(8) 4,517 * All Directors and Executive 1,800 15.38% 226,827 18.80% Officers as a Group (19)
(1) Direct ownership except as otherwise noted, and except that all shares of Class A Common Stock shown in the table are owned of record by the Trustees of the Roundy's, Inc. Voting Trust. (2) Asterisk (*) denotes less than 1%. (3) Voting and investment power over the shares owned by Woodman's Food Market, Inc., whose address is 2919 North Lexington, Janesville, Wisconsin 53545, is solely held by its owner, Willard R. Woodman, Jr. (4) Voting and investment power over the shares owned by McAdams, Inc., whose address is 1807 North Wales Road, Wales, Wisconsin 53183, is solely held by its owner, John A. McAdams. The shares shown for Patrick D. McAdams reflect all shares owned by McAdams, Inc. of which Patrick D. McAdams is General Manager and Treasurer. (5) Voting and investment power over the shares owned by Mega Marts, Inc. and NDC, Inc., whose address is 150 W. Holt Avenue, Milwaukee, Wisconsin 53207, is solely held by a trust. (6) Voting and investment power over the shares owned by Ultra Mart, Inc., whose address is W173 N9170 St. Francis Drive, Menomonee Falls, Wisconsin 53051, is solely held by its owner, Robert A. Farrell. (7) Includes options for 18,833 shares that are exercisable within 60 days of March 30, 1999. (8) The Class A Common may only be held by the owners ("stockholder-customers") of retail grocery stores serviced by Roundy's. (9) Includes options for 10,500 shares that are exercisable within 60 days of March 30, 1999. (10) Includes 167 shares owned by FTC Master Profit Sharing Plan for George C. Kaiser & Company. (11) Includes 3,949 shares owned by Martin's Super Markets, Inc., of which Mr. Bartels is President and shareholder. (12) Includes 600 shares of Class A Common Stock and 52,040 shares of Class B Common Stock owned by Prescott's Supermarkets, Inc. of which Mr. Prescott is the principal shareholder; also includes 11,895 shares of Class B Common Stock owned by the George E. Prescott and Judith A. Prescott Revocable Trust of which George E. Prescott is Trustee; also includes 16,863 shares of Class B Common Stock held in certain Trusts for the benefit of certain members of Mr. Prescott's family, as to which 16,863 shares Mr. Prescott disclaims beneficial ownership. (13) Relates to shares owned by Gary N. Gundlach, as sole proprietor and of G.E.M., Inc. of which Mr. Gundlach is principal shareholder. (14) Relates to shares owned by Bonson's Foods, Inc. of which Mr. Bonson is principal shareholder. (15) Includes options for 1,900 shares that are exercisable within 60 days of March 30, 1999. (16) Includes options for 1,300 shares that are exercisable within 60 days of March 30, 1999. (17) Includes options for 2,700 shares that are exercisable within 60 days of March 30, 1999. (18) Relates to shares owned by Robert S. Gold, as a sole proprietor, and B. & H. Gold Corp., Gold's Market, Inc., Gold's, Inc. and Gold's of Mequon, LLC, of which Mr. Gold is principal shareholder. (19) The group of directors and executive officers who control stockholder-customers and therefor may beneficially own Class A Common (see Note (4)) consists of four (4) persons: Messrs. Gold, Gundlach, Bonson and McAdams. The group of directors and executive officers who own or may own Class B Common consists of twenty (20) persons. The total shown for Class B Common for the group includes options for 44,433 shares that are exercisable within 60 days of March 30, 1999, but does not include options for an additional 4,567 shares that have been granted but are not exercisable within 60 days of March 30, 1999. ITEM 13. Certain Relationships and Related Transactions. ----------------------------------------------- Messrs. Bartels, Bonson, Gold, Gundlach, and McAdams, directors of Roundy's, Messrs. Burnstad, and Spiegelhoff, Trustees of the Voting Trust, and Woodman's Food Market, Inc., Mega Marts, Inc. (and NDC, Inc.), Ultra Mart, Inc. and Prescott Supermarkets, Inc., beneficial owners of more than 5% of the outstanding Voting Trust Certificates, each own and/or operate retail food stores which purchase merchandise from the Company as a supplier in the ordinary course of business. Retail food stores owned by directors or Retailer Trustees purchase from the Company on the same basis and conditions as all other stockholder-customers of Roundy's. During the last 3 years, the aggregate amount of purchases from the Company for each of the foregoing were as follows: 1998 1997 1996 ------------ ------------ ------------ Robert E. Bartels $118,724,800 $114,306,000 $ 96,608,000 Charles R. Bonson 14,043,000 8,471,000 7,616,000 Victor C. Burnstad 20,540,000 19,320,000 19,053,000 Robert S. Gold 61,681,000 52,712,000 48,212,000 Gary N. Gundlach 48,643,000 47,514,000 46,680,000 Patrick D. McAdams 88,239,000 70,639,000 63,003,000 David J. Spiegelhoff 39,948,000 20,469,000 19,278,000 Woodman's Food Market, Inc 54,195,000 51,395,000 52,805,000 Mega Marts, Inc. and NDC,Inc. 294,483,000 271,690,000 219,310,000 Ultra Mart, Inc. 96,383,000 93,015,000 90,722,000 Prescott Supermarkets, Inc 81,668,000 78,218,000 70,757,000 Ultra Mart, Inc. agreed to sublease land and buildings from the Company for a period of five to 15 years at seven store sites, for an aggregate annual rental of approximately $2,500,000. Prescott Supermarkets, Inc. has agreed to sublease land and buildings from the Company for periods of one to 14 years at five store sites, for an aggregate annual rental of approximately $1,724,000. Gary N. Gundlach has agreed to sublease land and buildings from the Company for periods of 10 to 16 years at four store sites, for an aggregate annual rental of approximately $926,000. McAdams, Inc. agreed to sublease land and buildings from the Company for periods of 11 and 12 years at two store sites, for an aggregate annual rental of approximately $555,000. Mega Marts, Inc. agreed to sublease land and buildings from the Company for periods of one to 16 years at seven store sites and one additional storage site, for an aggregate annual rental of approximately $2,320,000. B. & H. Gold Corporation, Gold's Market, Inc., Gold's, Inc. and Gold's of Mequon, LLC, have agreed to sublease land and buildings from the Company for periods of seven to 25 years at four store sites, for an aggregate annual rental of approximately $1,206,000. Burnstad Bros., Inc. has agreed to sublease land and a building from the Company for a period of four years, for an annual rental of approximately $44,000. In November, 1997, Burnstad Bros., Inc. issued promissory notes to Roundy's, Inc. in the amount of $48,200. The amount outstanding as of February 27, 1999 was $24,000. Spiegelhoff's Super Food Market, Inc. and Portage Pick `n Save's, Inc., have agreed to sublease land and buildings from the Company for periods of eight to 18 years at four store sites, for an aggregate annual rental of approximately $1,065,000. The Company has made payments in fiscal 1998 aggregating $1,650,800 for handling, order selecting and storage of frozen food, meat and ice cream to Total Logistic Control, LLC of which Mr. Sarner is Chairman. PART IV ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. (a)(1) Financial Statements The following consolidated financial statements of the Company are incorporated by reference from its Annual Report to Stockholders for the year ended January 2, 1999, filed as an exhibit hereto: Independent Auditors' Report Statements of Consolidated Earnings for each of the three years in the period ended January 2, 1999, January 3, 1998 and December 28, 1996. Consolidated Balance Sheets at January 2, 1999 and January 3, 1998 Statements of Consolidated Stockholders' Equity for each of the three years in the period ended January 2, 1999, January 3, 1998 and December 28, 1996 Statements of Consolidated Cash Flows for each of the three years in the period ended Janaury 2, 1999, January 3, 1998 and December 28, 1996. Notes to Financial Statements (a)(2) Financial Statement Schedules as of January 2, 1999 Page Independent Auditors' Report....................... 27 Schedule VIII - Valuation and qualifying accounts........................... 28 All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or the notes thereto. (a)(3) Exhibits 3.1 Articles of Incorporation of the Registrant, as amended, incorporated herein by reference to Exhibit 4.1 of Registrant's Registration Statement on Form S- 2 (File No. 2-94485) dated December 5, 1984. 3.2 By-Laws of the Company as amended February 24, 1998, incorporated herein by reference to Exhibit 3.2 of Registrant's Annual Report on Form 10-K for fiscal year ended January 3, 1998, filed with the Commission on April 2, 1998, Commission File No. 33-57505. 4.1 Policy Relating to Redemption of Stock by Inactive Customer Shareholders and Former Employees, incorporated herein by reference to Exhibit 4.1 of the Registrant's Annual Report on Form 10-K for the fiscal year ended December 28, 1996, filed with the Commission on March 26, 1997, Commission File No. 33- 57505 (included as Exhibit D to the prospectus which forms a part of the Registration Statement). 4.2 Note Agreement dated December 15, 1991 (effective December 30, 1991), between Roundy's, Inc. and Massachusetts Mutual Life Insurance Company and United of Omaha Life Insurance Company, incorporated herein by reference to Exhibit 4.9 of Registrant's Annual Report on Form 10-K for the fiscal year ended December 28, 1991, filed with the Commission on March 26, 1992, Commission File No. 2-66296. 4.3 Note Agreement dated December 15, 1992 between Roundy's, Inc. and Connecticut Mutual Life Insurance Company, The Ohio National Life Insurance Company, Provident Mutual Life Insurance Company of Philadelphia, Providentmutual Life and Annuity Company of America, Guarantee Mutual Life Company, Woodmen Accident and Life Company and United of Omaha Life Insurance Company, incorporated herein by reference to Exhibit 4.11 of Registrant's Annual Report on Form 10-K for the fiscal year ended January 2, 1993, filed with the Commission on March 30, 1993, Commission File No. 2-66296. 4.4 Policy Regarding Issuance and Sales of Roundy's, Inc. Stock, incorporated herein by reference to Exhibit 4.11 of Registrant's Registration Statement on Form S- 2 (File No. 33-57505) filed with the Commission on January 30, 1995 (included as Exhibit E to the prospectus which forms a part of the Registration Statement). 4.5 Note Agreement dated December 22, 1993 (effective December 22, 1993), between Roundy's, Inc. and The Variable Annuity Life Insurance Company, The Life Insurance Company of Virginia, Phoenix Home Life Mutual Insurance Company, Phoenix American Life Insurance Company, Washington National Insurance Company, and TMG Life Insurance Company, incorporated herein by reference to Exhibit 4.14 of Registrant's Annual Report on Form 10-K for the fiscal year ended January 1, 1994, filed with the Commission on March 31, 1994, Commission File No. 2-66296. 4.6 Form of Subscription Agreement, incorporated by reference to Exhibit 4.14 of Registrant's Registration Statement on Form S-2 (File No. 33- 57505) filed with the Commission on January 30, 1995 (included as Exhibit A to the prospectus which forms a part of the Registration Statement). 4.7 Form of Buying Deposit Agreement, incorporated by reference to Exhibit 4.15 of Registrant's Registration Statement on Form S-2 (File No. 33- 57505) filed with the Commission on January 30, 1995 (included as Exhibit B to the prospectus which forms a part of the Registration Statement). 4.8 Article V of Registrant's By-Laws "Fiscal Year Accounting and Patronage Rebates," as amended on February 24, 1998, incorporated by reference to Exhibit 4.8 of Registrant's Registration Statement on Form S-2 (File No. 33-57505) filed with the Commission on April 28, 1998 (included as Exhibit C to the prospectus which forms a part of the Registration Statement). 4.9 First Amendment dated May 1, 1996 to Note Agreements dated December 15, 1991 and Note Agreements dated December 15, 1992 and Note Agreements dated December 22, 1993, incorporated herein by reference to Exhibit 4.16 of Registrant's Form 10-Q for the quarterly period ended June 29, 1996, filed with the Commission on August 13, 1996, Commission File No. 33-57505. 4.10 Note Agreement dated May 15, 1996 between Roundy's, Inc. and The Ohio National Life Insurance, Phoenix American Life Insurance Company, Provident Mutual Life Insurance, Providentmutual Life and Annuity Company of America, United of Omaha Life Insurance Company, John Alden Life Insurance Company, Oxford Life Insurance Company, The Security Mutual Life Insurance Company of Lincoln, Nebraska and Woodman Accident and Life Company, incorporated herein by reference to Exhibit 4.17 of Registrant's Form 10-Q for the quarterly period ended June 29, 1996, filed with the Commission on August 13, 1996, Commission File No. 33-57505. 4.11 Credit Agreement dated December 13, 1996, between Roundy's, Inc. and PNC Bank, NA (as agent), incorporated herein by reference to Exhibit 4.11 of Registrant's Annual Report on Form 10-K for the fiscal year ended December 28, 1996, filed with the Commission on March 26, 1997, Commission File No. 33- 57505. 9 Amended and Restated Voting Trust Agreement dated September 16, 1983, incorporated herein by reference to Exhibit 9 of Registrant's Annual Report on Form 10- K for the year ended December 31, 1983, filed with the Commission on March 30, 1984, Commission File No. 2-66296. 9(a) Amendments No. 1 and 2, dated April 8, 1986 to Amended and Restated Voting Trust Agreement, incorporated herein by reference to Exhibit 9(a) of Registrant's Registration Statement on Form S-2 (File No. 2-66296), dated April 29, 1986. 9(b) Amendment No. 1987-1 to Amended and Restated Voting Trust Agreement, incorporated herein by reference to Exhibit 9(b) of Registrant's Registration Statement on Form S-2 (File No. 2-66296), dated April 29, 1987. 9(c) Amendment 1995-1 to the Roundy's, Inc. Voting Trust Agreement, incorporated herein by reference to Exhibit 9(c) of Registrant's Registration Statement on Form S-2 (File No. 33-57505), dated May 1, 1995. 9(d) Amendment 1995-2 to the Roundy's, Inc. Voting Trust Agreement, incorporated herein by reference to Exhibit 9(d) of Registrant's Registration Statement on Form S-2 (File No. 33-57505), dated April 26, 1996. 10.1 Deferred Compensation Agreement between the Registrant and certain executive officers including Messrs. Ranus, Beketic, Sullivan and Schmitt, incorporated herein by reference to Exhibit 10.1, of Registrant's Registration Statement on Form S-2 (File No. 33-57505) dated April 24, 1997. 10.1(a) Amendment to Deferred Compensation Agreement between the Registrant and certain executive officers including Messrs. Ranus, Beketic, Sullivan and Schmitt, dated March 31,1998, incorporated herein by reference to Registrant's Registration Statement on Form S-2 (File No. 33-57505) filed with the Commission on April 28, 1998. 10.2 Directors and Officers Liability and Corporation Reimbursement Policy issued by American Casualty Company of Reading, Pennsylvania (CNA Insurance Companies) as of June 13, 1986, incorporated herein by reference to Exhibit 10.3 of Registrant's Annual Report on Form 10-K for the fiscal year ended January 3, 1987, filed with the Commission on April 3, 1987, Commission File No. 2-66296. 10.2(a) Declarations page for renewal through November 1, 1999 of Directors and Officers Liability and Corporation Reimbursement Policy. FILED HEREWITH. 10.3 Severance and Non-Competition Agreement dated April 13, 1998 between the Registrant and Gerald F. Lestina, incorporated herein by reference to Exhibit 10.4 of Registrant's Registration Statement on Form S- 2 dated April 28, 1998, Commission File No. 33-57505. 10.4 Roundy's, Inc. Deferred Compensation Plan, effective March 19, 1996, incorporated herein by reference to Exhibit 10.5 of Registrant's Registration Statement on Form S-2 (File No. 33-57505), dated April 26, 1996. 10.5 1991 Stock Incentive Plan, as amended June 3, 1998, incorporated herein by reference to Exhibit 10.6 of Registrant's Form 10-Q for the quarterly period ended October 3, 1998, filed with the Commission on November 10, 1998, Commission File No. 33-57505. 10.6 Form of Stock Appreciation Rights Agreement for certain executive officers including Beketic, Sullivan and Schmitt, incorporated herein by reference to exhibit 10.7 of Registrant's Form 10-Q for the quarterly period ended October 3, 1998, filed with the Commission on November 10, 1998, Commission File No. 33-57505. 10.7 Amendment to Severance and Non-Competition Agreement between the Registrant and Gerald F. Lestina, incorporated herein by reference to exhibit 10.8 of Registrant's Form 10-Q for the quarterly period ended October 3, 1998, filed with the Commission on November 10, 1998, Commission File No. 33-57505. 10.8 Form of Second Amendment to Deferred Compensation Agreement for certain executive officers including Ranus, Beketic, Sullivan and Schmitt, incorporated herein by reference to exhibit 10.9 of Registrant's Form 10-Q for the quarterly period ended October 3, 1998, filed with the Commission on November 10, 1998, Commission File No. 33-57505. 13 Portions of 1998 Annual Report to Stockholders of Roundy's, Inc. (except to the extent incorporated by reference, the Annual Report to Stockholders shall not be deemed to be filed with the Securities and Exchange Commission as part of this Annual Report on Form 10-K) 21 Subsidiaries of Roundy's, Inc. 27 Financial Data Schedule. (b) Reports on Form 8-K. There were no reports on Form 8-K filed during the last quarter of 1998. INDEPENDENT AUDITORS' REPORT To the Stockholders and Directors of Roundy's, Inc.: We have audited the consolidated financial statements of Roundy's, Inc. and its subsidiaries as of January 2, 1999 and January 3, 1998, and for each of the three years in the period ended January 2, 1999 and have issued our report thereon dated February 19, 1999; such consolidated financial statements and report are included in your 1998 Annual Report to Stockholders and are incorporated herein by reference. Our audits also included the financial statement schedule of Roundy's, Inc. listed in Item 14(a)(2). This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such consolidated financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. DELOITTE & TOUCHE LLP Milwaukee, Wisconsin February 19, 1999
SCHEDULE VIII ROUNDY'S, INC. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS COLUMN COLUMN COLUMN COLUMN COLUMN A B C D E ADDITIONS (1) (2) Balance at Charged Charged Balance Beginning To Cost To Other At End Description Of Period & Expenses Accounts Deductions(A) of Period - --------------------------- ---------- ----------- -------- ------------- ----------- YEAR ENDED January 2, 1999: Allowance for Losses: Current receivables $5,648,700 $1,473,500 $ 760,600 $6,361,600 Notes receivable, long term 5,299,000 716,000 - 6,015,000 YEAR ENDED January 3, 1998: Allowance for Losses: Current receivables: $6,314,700 $2,389,100 $3,055,100 $5,648,700 Notes receivable, long term 5,576,000 - 277,000 5,299,000 YEAR ENDED December 28, 1996: Allowance for Losses: Current receivables $8,431,300 $4,367,600 $6,484,200 $6,314,700 Notes receivable, long term 4,641,000 935,000 - 5,576,000 (A) Amounts in Column D represent accounts written off less recoveries.
SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, Roundy's, Inc. has duly caused this report to be signed on its behalf of the undersigned, thereunto duly authorized. ROUNDY'S, INC. GERALD F. LESTINA ROBERT D. RANUS - ----------------------------- -------------------- By: Gerald F. Lestina By: Robert D. Ranus (Principal Executive Officer) (Principal Financial Officer and Principal Accounting Officer) Date: March 30, 1999 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons (constituting a majority of the Board of Directors) on behalf of the Registrant and in the capacities and on the dates indicated: ROBERT E. BARTELS GERALD F. LESTINA - ------------------ ------------------- Robert E. Bartels Gerald F. Lestina March 30, 1999 March 30, 1999 (Director) (Director) PATRICK D. MCADAMS - ------------------ ------------------- Charles R. Bonson Patrick D. McAdams March 30, 1999 March 30, 1999 (Director) (Director) ROBERT S. GOLD ROBERT D. RANUS - --------------- --------------- Robert S. Gold Robert D. Ranus March 30, 1999 March 30, 1999 (Director (Director) GARY N. GUNDLACH BRENTON H. RUPPLE - ---------------- ------------------ Gary N. Gundlach Brenton H. Rupple March 30, 1999 March 30, 1999 (Director) (Director) GEORGE C. KAISER GARY R. SARNER - ---------------- --------------- George C. Kaiser Gary R. Sarner March 30, 1999 March 30, 1999 (Director) (Director) SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE ACT Registrant's annual report to securityholders for the year ended January 2, 1999 is incorporated by reference in this report. Registrant does not furnish proxy soliciting material to its securityholders. INDEX TO EXHIBITS Exhibit Description 3.1 Articles of Incorporation of the Registrant, as amended, incorporated herein by reference to Exhibit 4.1 of Registrant's Registration Statement on Form S- 2 (File No. 2-94485) dated December 5, 1984. 3.2 By-Laws of the Company as amended February 24, 1998, incorporated herein by reference to Exhibit 3.2 of Registrant's Annual Report on Form 10-K for fiscal year ended January 3, 1998, filed with the Commissiion on April 2, 1998, Commission File No. 33- 57505. 4.1 Policy Relating to Redemption of Stock by Inactive Customer Shareholders and Former Employees, incorporated herein by reference to Exhibit 4.1 of the Registrant's Annual Report on Form 10-K for the fiscal year ended December 28, 1996, filed with the Commission on March 26, 1997, Commission File No. 33- 57505 (included as Exhibit D to the prospectus which forms a part of the Registration Statement). 4.2 Note Agreement dated December 15, 1991 (effective December 30, 1991), between Roundy's, Inc. and Massachusetts Mutual Life Insurance Company and United of Omaha Life Insurance Company, incorporated herein by reference to Exhibit 4.9 of Registrant's Annual Report on Form 10-K for the fiscal year ended December 28, 1991, filed with the Commission on March 26, 1992, Commission File No. 2-66296. 4.3 Note Agreement dated December 15, 1992 between Roundy's, Inc. and Connecticut Mutual Life Insurance Company, The Ohio National Life Insurance Company, Provident Mutual Life Insurance Company of Philadelphia, Providentmutual Life and Annuity Company of America, Guarantee Mutual Life Company, Woodmen Accident and Life Company and United of Omaha Life Insurance Company, incorporated herein by reference to Exhibit 4.11 of Registrant's Annual Report on Form 10-K for the fiscal year ended January 2, 1993, filed with the Commission on March 30, 1993, Commission File No. 2-66296. 4.4 Policy Regarding Issuance and Sales of Roundy's, Inc. Stock, incorporated herein by reference to Exhibit 4.11 of Registrant's Registration Statement on Form S- 2 (File No. 33-57505) filed with the Commission on January 30, 1995 (included as Exhibit E to the prospectus which forms a part of the Registration Statement). 4.5 Note Agreement dated December 22, 1993 (effective December 22, 1993), between Roundy's, Inc. and The Variable Annuity Life Insurance Company, The Life Insurance Company of Virginia, Phoenix Home Life Mutual Insurance Company, Phoenix American Life Insurance Company, Washington National Insurance Company, and TMG Life Insurance Company, incorporated herein by reference to Exhibit 4.14 of Registrant's Annual Report on Form 10-K for the fiscal year ended January 1, 1994, filed with the Commission on March 31, 1994, Commission File No. 2-66296. 4.6 Form of Subscription Agreement, incorporated by reference to Exhibit 4.14 of Registrant's Registration Statement on Form S-2 (File No. 33- 57505) filed with the Commission on January 30, 1995 (included as Exhibit A to the prospectus which forms a part of the Registration Statement). 4.7 Form of Buying Deposit Agreement, incorporated by reference to Exhibit 4.15 of Registrant's Registration Statement on Form S-2 (File No. 33- 57505) filed with the Commission on January 30, 1995 (included as Exhibit B to the prospectus which forms a part of the Registration Statement). 4.8 Article V of Registrant's By-Laws "Fiscal Year Accounting and Patronage Rebates," as amended on December 12, 1989, incorporated by reference to Exhibit 4.16 of Registrant's Registration Statement on Form S-2 (File No. 33-57505) filed with the Commission on January 30, 1995 (included as Exhibit C to the prospectus which forms a part of the Registration Statement). 4.9 First Amendment dated May 1, 1996 to Note Agreements dated December 15, 1991 and Note Agreements dated December 15, 1992 and Note Agreements dated December 22, 1993, incorporated herein by reference to Exhibit 4.16 of Registrant's Form 10-Q for the quarterly period ended June 29, 1996, filed with the Commission on August 13, 1996, Commission File No. 33-57505. 4.10 Note Agreement dated May 15, 1996 between Roundy's, Inc. and The Ohio National Life Insurance, Phoenix American Life Insurance Company, Provident Mutual Life Insurance, Providentmutual Life and Annuity Company of America, United of Omaha Life Insurance Company, John Alden Life Insurance Company, Oxford Life Insurance Company, The Security Mutual Life Insurance Company of Lincoln, Nebraska and Woodman Accident and Life Company, incorporated herein by reference to Exhibit 4.17 of Registrant's Form 10-Q for the quarterly period ended June 29, 1996, filed with the Commission on August 13, 1996, Commission File No. 33-57505. 4.11 Credit Agreement dated December 13, 1996, between Roundy's, Inc. and PNC Bank, NA (as agent), incorporated herein by reference to Exhibit 4.11 at Registrant's Annual Report on Form 10-K for the fiscal year ended December 28, 1996, filed with the Commission on March 26, 1997, Commission File No. 33- 57505. 9 Amended and Restated Voting Trust Agreement dated September 16, 1983, incorporated herein by reference to Exhibit 9 of Registrant's Annual Report on Form 10- K for the year ended December 31, 1983, filed with the Commission on March 30, 1984, Commission File No. 2-66296. 9(a) Amendments No. 1 and 2, dated April 8, 1986 to Amended and Restated Voting Trust Agreement, incorporated herein by reference to Exhibit 9(a) of Registrant's Registration Statement on Form S-2 (File No. 2-66296), dated April 29, 1986. 9(b) Amendment No. 1987-1 to Amended and Restated Voting Trust Agreement, incorporated herein by reference to Exhibit 9(b) of Registrant's Registration Statement on Form S-2 (File No. 2-66296), dated April 29, 1987. 9(c) Amendment 1995-1 to the Roundy's, Inc. Voting Trust Agreement, incorporated herein by reference to Exhibit 9(c) of Registrant's Registration Statement on Form S-2 (File No. 33-57505), dated May 1, 1995. 9(d) Amendment 1995-2 to the Roundy's, Inc. Voting Trust Agreement, incorporated herein by reference to Exhibit 9(d) of Registrant's Registration Statement on Form S-2 (File No. 33-57505), dated April 26, 1996. 10.1 Deferred Compensation Agreement between the Registrant and certain executive officers including Messrs. Ranus, Beketic, Sullivan and Schmitt, incorporated herein by reference to Exhibit 10.1, of Registrant's Registration Statement on Form S-2 (File No. 33-57505) dated April 24, 1997. 10.1(a) Amendment to Deferred Compensation Agreement between the Registrant and certain executive officers including Messrs. Ranus, Beketic, Sullivan and Schmitt, dated March 31,1998, incorporated herein by reference to Registrant's Registration Statement on Form S-2 (File No. 33-57505) filed with the Commission on April 28, 1998. 10.2 Directors and Officers Liability and Corporation Reimbursement Policy issued by American Casualty Company of Reading, Pennsylvania (CNA Insurance Companies) as of June 13, 1986, incorporated herein by reference to Exhibit 10.3 of Registrant's Annual Report on Form 10-K for the fiscal year ended January 3, 1987, filed with the Commission on April 3, 1987, Commission File No. 2-66296. 10.2(a) Declarations page for renewal through November 1, 1998 of Directors and Officers Liability and Corporation Reimbursement Policy. FILED HEREWITH. 10.3 Severance and Non-Competition Agreement dated April 13, 1998 between the Registrant and Gerald F. Lestina, incorporated herein by reference to Exhibit 10.4 of Registrant's Registration Statement on Form S- 2 dated April 28, 1998, Commission File No. 33-57505. 10.4 Roundy's, Inc. Deferred Compensation Plan, effective March 19, 1996, incorporated herein by reference to Exhibit 10.5 of Registrant's Registration Statement on Form S-2 (File No. 33-57505), dated April 26, 1996. 10.5 1991 Stock Incentive Plan, as amended June 3, 1998, incorporated herein by reference to Exhibit 10.6 of Registrant's Form 10-Q for the quarterly period ended October 3, 1998, filed with the Commission on November 10, 1998, Commission File No. 33-57505. 10.6 Form of Stock Appreciation Rights Agreement for certain executive officers including Beketic, Sullivan and Schmitt, incorporated herein by reference to exhibit 10.7 of Registrant's Form 10-Q for the quarterly period ended October 3, 1998, filed with the Commission on November 10, 1998, Commission File No. 33-57505 10.7 Amendment to Severance and Non-Competition Agreement between the Registrant and Gerald F. Lestina, incorporated herein by reference to exhibit 10.8 of Registrant's Form 10-Q for the quarterly period ended October 3, 1998, filed with the Commission on November 10, 1998, Commission File No. 33-57505. 10.8 Form of Second Amendment to Deferred Compensation Agreement for certain executive officers including Ranus, Beketic, Sullivan and Schmitt, incorporated herein by reference to exhibit 10.9 of Registrant's Form 10-Q for the quarterly period ended October 3, 1998, filed with the Commission on November 10, 1998, Commission File No. 33-57505. 13 Portions of 1998 Annual Report to Stockholders of Roundy's, Inc. (except to the extent incorporated by reference, the Annual Report to Stockholders shall not be deemed to be filed with the Securities and Exchange Commission as part of this Annual Report on Form 10-K) 21 Subsidiaries of Roundy's, Inc. 27 Financial Data Schedule. (b) Reports on Form 8-K. There were no reports on Form 8-K filed during the last quarter of 1998. EX-10.2(A) 2 Exhibit 10.2(a) Executive Protection Policy DECLARATIONS EXECUTIVE PROTECTION POLICY Policy Number 8132-05-32C Federal Insurance Company, a stock insurance company, incorporated under the laws of Indiana, herein called the Company. Item 1. Parent Organization: ROUNDY'S, INC. 23000 ROUNDY DRIVE PEWAUKEE, WISCONSIN 53072 Item 2. Policy Period: From 12:01 A.M. on NOVEMBER 01, 1998 To 12:01 A.M. NOVEMBER 01, 2001 Local time at the address shown in Item 1. Item 3. Coverage Summary Description GENERAL TERMS AND CONDITIONS EXECUTIVE LIABILITY AND INDEMNIFICATION Item 4. Termination of Prior Policies: 8132-05-32C THE EXECUTIVE LIABILITY AND INDEMNIFICATION, FIDUCIARY LIABILITY, OUTSIDE DIRECTORSHIP LIABILITY AND EMPLOYMENT PRACTICES LIABILITY COVERAGE SECTIONS (WHICHEVER ARE APPLICABLE) ARE ALL WRITTEN ON A CLAIMS MADE BASIS. EXCEPT AS OTHERWISE PROVIDED, THESE COVERAGE SECTIONS COVER ONLY CLAIMS FIRST MADE AGAINST THE INSURED DURING THE POLICY PERIOD. PLEASE READ CAREFULLY. In witness whereof, the Company issuing this policy has caused this policy to be signed by its authorized officers, but it shall not be valid unless also signed by a duly authorized representative of the Company. FEDERAL INSURANCE COMPANY HENRY A. GULICK DEAN R. OFFURE _______________________ ______________________ Secretary President OCTOBER 15, 1998 ROBERT HAMBURGER _______________________ ---------------------- Date Authorized Representative EX-13 3 In Memoriam David A. Ulrich, Sr. will be remembered as a man of vision and determination. His innovative leadership was an asset that will be sorely missed. The energy, dedication and perseverance that marked the way he led his companies also helped change the landscape of southeastern Wisconsin. He was a community-minded individual that made immeasurable contributions in the Milwaukee area. Sadly, David Ulrich died in October 1998, after a courageous battle with cancer. From his revolutionary Pick `n Save food malls, to the industry-leading concepts for Tri City National Bank, his impact on his hometown is clearly evident. In addition, Mr. Ulrich served on the board of directors for Roundy's from 1970-72, as well as serving two terms as a Roundy's trustee. He first served from April 1986 until February 1990, and then from April 1994 until his death. David will be sadly missed by his family, friends and colleagues. Selected Financial Data -----------------------
($000 omitted except for per share data and ratios) 1998 1997 1996 1995 1994 ---------- ---------- ---------- ---------- ---------- Net sales and service fees... $2,576,222 $2,610,697 $2,579,010 $2,488,196 $2,461,510 Net earnings ................ 11,898 11,204 10,267 9,022 6,554 Patronage dividends ......... 5,976 5,687 5,568 5,129 0 Total assets ................ 462,41 440,310 434,641 407,337 404,652 Long-term debt .............. 73,298 83,458 93,615 78,850 88,227 Stockholders' equity (1)..... 134,811 122,460 109,945 100,033 90,419 Book value per share ........ 114.80 104.35 94.30 85.15 77.40 Working capital ............. 84,743 84,074 90,498 90,740 91,814 Current ratio ............... 1.36:1 1.39:1 1.42:1 1.43:1 1.43:1 Earnings before patronage dividends as a percent of net sales and service fees ...... 1.01% .97% .91% .81% .45% (1) Includes redeemable common stock
Message To Our Stockholders "There is no substitute for hard work." -Thomas Edison As I open this year's letter to the Roundy's family, the words of one of the 20th Century's greatest inventors, Thomas Edison, strike me as defining the spirit that has driven Roundy's through its 126-year history. Hard work, dedication and devotion to a cause are what drove Edison, and it is those same traits, which have made this Company a market leader. It is part of our character as a Company. Now that we are poised to enter a new millennium, it is that character which will bring us new prosperity. Throughout this Company's history, we have survived through adversity and prospered when many believed it was not possible, and we have thrived because of the spirit that makes Roundy's a unique organization of people who work together as a team. There is a lot of hard work that goes into making Roundy's the market leader, and the challenges of 1998 showed we were up to the task. I said last year that as we enter the new millennium, Roundy's is on the threshold of unbridled prosperity. The spirit that the people who make up this Company showed during 1998 has convinced me that I am not wrong in that prediction. That is because, like Edison, we believe in hard work. It is because we all believe in providing our customers with high quality at a low price. It is because we have never forgotten our roots. It is because we are active members of our community. As you review the year, I am sure that you, too, will see the same spirit that has driven this Company for 126 years. And you, too, will understand that while looking back on the challenges of 1998, we have many reasons to be grateful and enthusiastic about the future. THE YEAR IN REVIEW "It was the best of times, it was the worst of times." - Charles Dickens The opening line of Dickens' timeless book, "A Tale of Two Cities," is often used. But it could easily have been described the year 1998 for Roundy's. Indeed, 1998 represented both the best of times and the worst of times for us. But we endured. In fact, we became stronger. We closed the year in a position both to meet the challenge of the worst of times and build on the best of times. It would be entirely accurate to describe 1998 as a year of challenges. Here are but a few of the hurdles we faced during 1998: A major Chicago-based chain opened seven stores in the Milwaukee marketing area. Supercenters continued to proliferate throughout our marketing region. Two opened in Wisconsin and five more opened throughout the Midwest region. A fire destroyed our distribution facility in Evansville in February 1998 resulting in a loss of approximately $60 million in sales. The first phase of Year 2000 ("Y2K") compliance resulted in an additional expense, of approximately $4.9 million during the course of this past year. None of these developments were welcome news in 1998. But the test of any institution is its ability to endure hardships and even learn to thrive from them. I believe that Roundy's is made up of people who can rise to the occasion and overcome these issues, bringing our Company into the new millennium in an even stronger position than ever. In fact, I brought up the worst news first because the good news is so much better. In spite of the challenges we faced in 1998, this year proved to be one of the most successful in the Company's 126 -year history. For Roundy's, 1998 represented the best of times at many other levels. Here are some examples of that success: Earnings before patronage dividends were $26,022,400, which is a Company record. This amount as a percent to sales was 1.01%, which represents the highest ratio in 16 years, dating just prior to the acquisition of Scot Lad Foods. In addition to stock growth of 10.01%, we paid out a patronage dividend of $5,975,700, which is also a Company record. Net earnings reached record levels for the fourth consecutive year. For the first time in our history, a division of Roundy's, the Milwaukee Division, had revenue in excess of $1 billion. While sales decreased 1.32% to $2,576,222,100, the decrease was totally due to the Evansville fire and the fact that 1997 was a 53-week year. Operating and administrative expenses excluding depreciation and amortization decreased $5.2 million. As a percent to sales, this ratio is the lowest it has been in nineteen years. If the $4.9 million of Y2K additional expenses was omitted, it would have been another Company record. Long-term debt decreased $10.2 million. Our long-term debt to equity ratio of 0.54:1 is the lowest ratio in twenty years. As you can easily see, the setbacks of 1998, though undesirable, were overcome by a series of positive factors that I believe represent our institutional strength, and the commitment of people who have worked together as a team to ensure our continued success. Wholesale Operations Probably the most dramatic event for Roundy's in 1998 was the loss of our Evansville Perishable Center to a fire that destroyed the facility. Our Lima and South Bend Divisions were quick to respond to servicing the Evansville Division's customers by successfully taking on the extra business. The Company showed that it was able to overcome such a calamity because of the great dedication these two divisions displayed. The completely rebuilt Perishable Center in Evansville was brought into full operation in January 1999. The new facility is larger and more technologically advanced than its predecessor and will provide a tremendous tool in servicing customers in the Southern Midwest area. Improvements to the Milwaukee Distribution Center during the year included the Produce Department re-rack project. This project enabled the division to divide the area into three different temperature zones and it expanded pallet storage capacity by 20%. The second phase of this project was to expand the Dairy Department dock by 30 feet. The new dock included a safer and more sanitary work environment. The Van Wert Division experienced significant opportunities in operations. A three-year lease extension on the property was signed, which allowed the division to move forward with several re-organizational moves in order to maximize the profitability of the facility. The operations staff was upgraded and warehouse shifts were reorganized. The process of analyzing and adjusting the division's store service and delivery frequency programs began in 1998 and will continue into 1999. The Mazomanie Division doubled its sortation and loading capacity by upgrading its selection and reserve storage capabilities. Rapistan Demag, an industry leader in conveyors and sortation technology, was contracted for the project. New equipment, as well as improved management practices, resulted in record productivity levels for the facility. The warehouse management system, EXE, was installed in the Eldorado, Muskegan, Van Wert and the new Evansville Divisions to improve the productivity and merchandising control. All Roundy's distribution facilities were introduced to a new efficiency tool called, Performance Analysis Report ("PAR"). The purpose of a PAR is to measure performance and compare actual versus budgeted operating results. Every division will record their PAR results to be used for planning, improvements and budgeting. The XATA tractor monitoring system was installed in the tractor fleets of the Westville and Lima Divisions, allowing better tracking of vehicle and driver activities. These two divisions join the Milwaukee Division in utilizing this valuable tool. In addition, driver productivity increased to an all-time high since the implementation of unit compensation in the Milwaukee Division. As a result, the division did not increase the tractor or trailer fleet despite a 4.2% increase in warehouse sales. Each of our divisions experienced new business. Our Westville and Muskegon Divisions generated annualized sales totaling $44 million of which $26.1 million was related to the acquisition of six Orchard Market stores in Michigan. Our Lima Division produced fourteen new stores, equaling $48 million per year in purchases. In spite of the loss of the perishable center, our Evansville Division brought on eight new customers, totaling $12 million in purchases. Our Milwaukee Division began to service three new Pick `n Save stores located in Appleton, Sussex and Mequon. Our Van Wert General Merchandise facility began a supply agreement with a major national discount drug chain in 1998. This non-foods division now supplies approximately sixty of their stores in our general trade area with general merchandise product in approximately twenty departments or categories. The purchases from this group alone were approximately $7 million. Management Information Systems Management Information Systems continues to mature in terms of the network, open systems and people. As stated in last year's annual report, our focus in 1998 was directed at our Y2K efforts. We entered the year with a very ambitious project plan that would result in Y2K compliant code in the second quarter of 1999. Although the Evansville fire diverted and temporarily delayed these efforts in 1998, this goal should, however, be achieved. Testing, which is an important ingredient for a project of this magnitude, will continue through the change in the millennium to ensure an uninterrupted flow of product to our customers. We continued, in 1998, to install the standardized warehouse management system in the new Evansville freezer. In addition, a total replacement and upgrade of the system will be made in the Milwaukee distribution facility. By mid-1999, the software and hardware running the warehouse systems in all distribution centers will be identical. This unprecedented achievement will allow centralized management of all mission critical systems from Pewaukee via the network. As we continue to standardize, centralization will continue to play an important part in this theme. In 1999, all division mainframes will be phased out and once again, the associated processing will be done at a central location - Pewaukee. Moreover, Roundy's will be structured to take advantage of re-engineering the enterprise using a data model, which incorporates industry best practices coupled with new development tools. This will enable us to bring new business applications into production more quickly than our competition. Our first segment of business to employ this methodology will be the order entry/billing process. Coupled to this dramatic upgrade in the network and hardware is a parallel change in the skill levels required by associates to develop and use these new business applications. These new skill levels, obtained internally and externally, will enable Roundy's to execute rapid deployment of technology, at the right cost and in the right place, in order to maintain our role as leaders in our marketplace. Retail Operations With the support of its retailers, Roundy's increased its media budget and awarded Meyer Wallis, an advertising agency, a contract to create a new image for our media presentation. An aggressive campaign on "Simplified Savings" was met with enthusiasm. The days of kiosks and coupon clipping are gone and customers are much happier with simplified shopping at Pick `n Save. This new advertising campaign also focused on several new messages we wanted our customers to remember about the Pick `n Save stores. Two major messages were - we carried "USDA Choice Meat" and we carried "Name Brands" in the Pick `n Save produce departments. These two quality statements reassured our customers that Pick `n Save could be counted on to deliver the lowest prices and the best quality. Our slogan, "When you're picky about meat, shop Pick `n Save" created a message to our customers, employees and management. Outside of Wisconsin, the plan was a simple-review of under-performing stores and sell or close those locations that didn't meet the minimum return on investment requirements. In the remainder of 1999, we will continue to review the stores in the same manner. Pick `n Save began a long-term strategic process that will lead us into future years. Fueled by the success of a simplified savings program with the Pick `n Save "Advantage Card," the next step will be target marketing to our customers and to our competitors' customers. THE FUTURE "You can never plan the future by the past." -Edmund Burke Now that 1998 is behind us, we must look to the future - the next millennium. Our Company has been in business for over 126 years. New competition from alternative format stores, rapidly changing technology, changing consumer demands and the ability to attract and keep good people are hurdles which must be crossed. To meet these challenges, a company must be prepared to act decisively and have sufficient resources to move forward and not live in the past. I believe that Roundy's is poised to meet the challenges of the new millennium and forge our position as a leader in our industry. Our balance sheet is strong and we have a talented staff. More importantly, we recognized the need and we devoted a significant amount of time and resources to refine our Strategic Plan. The result is that we have a Strategic Plan that, I believe, will take Roundy's into the next millennium poised for even greater success. Our core strategy is directed at growing the Company, both through internal growth and through acquisitions. Corporate goals have been defined to support a growth strategy and all divisional plans were aligned to insure Roundy's achieves the overall growth objectives. Finally, our plan recognizes the importance of customer and associate satisfaction and how critical they are to us. We at Roundy's know that our long-term future is tied to the success of our retailers, stockholders and the support of all Roundy's associates. In crafting our Strategic Plan, our ultimate goal is to become the dominant food wholesaler within the Midwest region. With the continued support and dedication of our customers and associates, I believe we will achieve this goal. A CLOSING THOUGHT "No one can guarantee success... but only deserve it." - Winston S. Churchill Churchill made the above comment in reference to war. But it aptly describes the attitude of the people who make up this Company - we deserve success because we have worked hard. And together, we have attained it. I believe that this great Company is successful - and deservedly so - because Roundy's is made up of hard working, dedicated people at every level of the organization. We, as an institution, have never forgotten our roots, roots that include a strong work ethic that makes Roundy's a company that will not only deserve success, but will continually achieve it. We faced many challenges in 1998, and no doubt we will face them again as we enter the new millennium. But as 1998 proved, this Company will meet every challenge that is thrust upon it. I firmly believe this Company is well-poised to expand on its role as the market leader as we move into the new millennium and I want to thank everyone - stockholders, customers, associates - for helping to put us in that position. Because of you, we can look forward to the new millennium with excitement and anticipation of greater successes in the future. Sincerely, GERALD F. LESTINA Gerald F. Lestina President and Chief Executive Officer Financial & Operational Review Capital Structure (in millions) 1998 1997 -------------- -------------- Long-term debt .................... $ 73.3 35.2% $ 83.4 40.5% Stockholders' equity .............. 134.8 64.8 122.5 59.5 Total capital ..................... $208.1 100.0% $205.9 100.0% LIQUIDITY AND CAPITAL RESOURCES When we look back at fiscal 1998, it can only be described as a "Year of Opportunities." In February 1998 a fire completely destroyed the Evansville Division; throughout the year, super-centers and combination food-drugstores expanded in our markets and in 1998 the term "Y2K" became important to Management at all levels. To address these opportunities, Management established functional teams. These teams looked to the Company's long-range Strategic Plan as their roadmap for moving forward. Further, the teams engaged outside advisors to obtain independent assurance that the basic strategies being followed continued to be sound. The result was that the Company was able to make timely decisions and move expeditiously to take advantage of these opportunities. Specifically, a decision was made to rebuild the Evansville Division in the same location. New marketing and promotional programs were developed and implemented to meet the competition from alternative formats. A plan to address Year 2000 ("Y2K") issues was finalized and put into action. The new Evansville facility was built at a cost of $10.8 million. Since the Company had not finalized its insurance claim for the estimated fire loss as of January 2, 1999, a significant portion of the construction cost was financed by Roundy's through internally generated funds. Cash advances of $3.3 million were received from the insurance carrier to cover construction and debris removal costs. Total capital expenditures for 1998 including the net cost of the new Evansville facility were $24.9 million compared to $22.7 million in 1997 and $39.3 million in 1996. The bulk of the other 1998 capital expenditures were for (1) new computer hardware and software to upgrade divisional warehouse systems, (2) retail store remodels and store purchases, and (3) warehouse equipment and facility improvements. In total, 1998 capital expenditures were comparable to 1997 levels. However, they were $14.4 million below 1996 expenditures, primarily because the Company purchased the Westville Division warehouse in 1996 for approximately $20 million in addition to its normal capital expenditures. It had leased this building previously. The Company, during the past three years, has expended in excess of $99 million for new capital items including capital assets obtained through business acquisitions. Total cash flows provided from operations increased $9.9 million compared to 1997 and $19.4 million compared to 1996. There were several factors which contributed to the positive trend including (1) improved earnings, (2) improved vendor payment terms, and (3) a decrease in accounts receivable. The higher accounts payable levels were created primarily by the Company's decision to rebuild Evansville. During the period when the building was being rebuilt, Evansville customers were supplied by both the Lima and the South Bend Divisions. Inventories in these divisions increased to accommodate both the variety and supply needs of those customers. In December 1998, the Evansville replacement facility was completed and the process of stocking the warehouse began. To minimize any imposition on the Lima and South Bend customers or the Evansville retailers during this holiday period, both the Lima and South Bend Divisions continued to purchase inventory to supply the Evansville customers while the process of restocking the new facility commenced. Roundy's was able to maximize its payment terms during this period. As always, developing a quality customer base and emphasizing collectibility in accordance with terms has been a high priority of Management. Accordingly, in late 1997, the Company broadened its credit control procedures. The new control procedures were fully operational throughout fiscal 1998. This included a Corporate Finance Committee, expanded Management reports and comprehensive reviews directed at customer creditworthiness. The result was for fiscal 1998 that the Company's combined ratio of "accounts receivable days sales outstanding" averaged 8.6 days compared to 9.2 days in 1997 and 10.0 days in 1996. This resulted in a $6.9 million decline in accounts receivable. As a result of its strong cash flow, the Company was able to decrease its average outstanding debt. Average outstanding debt for 1998 was $91.9 million versus $102.1 million for 1997 and $106.1 for 1996. The Company has a $60 million borrowing line available, but none was used in 1998. With the positive trend of lower debt, Roundy's long-term debt to equity ratio declined to 0.54:1 at the end of 1998 versus 0.68:1 in 1997 and 0.85:1 in 1996. The average interest rates applicable to borrowings during 1998, 1997 and 1996 were 7.7%. With improved Management controls and positive cash flows, the Company was able to invest excess funds in various interest earning vehicles during 1998. Daily investments averaged approximately $41.9 million in 1998 versus $26.7 million in 1997. The Company's 1998 and 1997 capital structure is summarized in the table above. The Company's financial condition remains strong. We believe that our cash, other liquid assets, operating cash flows and access to capital markets, taken together, provide adequate resources to fund ongoing operating requirements and future capital expenditures related to the expansion of our existing business and the development of new projects for the coming year. RESULTS OF OPERATIONS NET SALES AND SERVICE FEES Net sales and service fees for the year were off approximately $34.5 million or 1.3% compared to 1997. The retail segment's net sales were down approximately $7.5 million in 1998 compared to 1997. This decrease was primarily due to a fewer number of retail stores and partially due to the additional week in 1997, a 53-week year. The wholesale segment decreased approximately $27 million. This decrease was primarily due to the sales lost at the Eldorado and Evansville Divisions because of the fire that destroyed the Evansville facility, and partially due to the 53rd week in 1997. A new marketing program developed to combat the growth of super centers in Roundy's markets stimulated sales and helped partially offset the sales decline due to the fire. Net sales for 1997 increased $31.7 million or 1.2% over 1996. This increase was primarily due to the additional week in 1997. GROSS PROFITS Overall 1998 gross profits were comparable to 1997 and 1996, at approximately 9.5%. The 1998 retail segment gross profits, as a percent to net sales, have continued to exceed 20%. However, due to increasing competitive pressures, the wholesale segment's 1998 gross profit has continued to decline. This gross profit, as a percent to net sales, was 7.5% in 1998 compared to 7.7% in 1997 and 7.9% in 1996. With the continued influx of competition from alternative format and food/drug combination stores throughout Roundy's markets, the Company continued to keep price increases at minimum levels. The strategy is to develop and promote value- added programs, which are competitively priced and directed at strengthening the Company's customer base. The challenge is to continue to offer such programs, keep customers financially strong and, in turn, contribute to Roundy's long-term financial success. OPERATING AND ADMINISTRATIVE EXPENSES Operating and administrative expenses, as a percent to net sales and service fees, were down to 8.3% in 1998 from 8.4% in 1997 and 8.5% in 1996. The reduction of expenses, as a percent to net sales, has been a major goal of the Company's Strategic Plan. This expense percentage, excluding depreciation and amortization, is also declining. The 1998 operating and administrative expenses, excluding depreciation and amortization, were 7.6% of net sales and service fees compared to 7.7% in 1997 and 7.8% in 1996. Several factors contributed to this downward trend. Specifically, the decline from 1997 was in large part due to efforts to consolidate functional duties in both the wholesale and non-food warehouses including procurement and transportation. During fiscal 1998, a major effort was made to reposition the fleet in an effort to maximize its longevity and productiveness without unduly increasing repairs and maintenance costs. Another initiative included programs directed to reduce workers' compensation type accidents through enhanced training, pre-work exercises and constant reminders of safety. Further, in the early part of fiscal 1998, Management undertook a major initiative to reduce costs including reduced staffing and travel and eliminating activities considered not contributing to the overall goals of the Company. These efforts helped offset the $4.9 million of Y2K costs which were incurred in 1998, while such costs were minor in 1997 and 1996. Even with a significant financial effort undertaken in 1998 to resolve Y2K issues, the Company continued to grow its business and execute its Strategic Plan. The growth in Company-owned retail operations, since 1995, has increased the overall ratio of operating and administrative expenses to sales. The retail segment, in comparison to the wholesale segment, maintains a higher wage expense and operating costs as a percent to sales. The challenge is to find quality associates for Corporate retail stores. Since this is an issue confronting many industries, the cost of wages and benefits continue to escalate. Additionally, the cost of training associates also continues to climb which in turn contributes to the increase in operating and administrative expenses in the retail segment. In total, however, the Company has been able to overcome the higher cost ratio at retail and drive costs from operations as demonstrated by the fact that the Company's ratio of sales per full-time equivalent associate has increased the past three years to $615,000 for 1998 versus $612,000 for 1997 and $603,000 for 1996. INTEREST EXPENSE The positive trend in interest expense continues both in absolute dollars and as a percent of sales. In 1998, interest expense was 0.28% of net sales and service fees compared to 0.31% in 1997 and 0.33% in 1996. As a result of the growth in cash flow generated by solid earnings and operational efficiencies, the Company has been able to reduce borrowings resulting in lower interest expense. TAXES The effective income tax rates for 1998, 1997 and 1996 were 40.7%, 42.6%, and 42.6%, respectively. The reason for the improvement is due entirely to the Company's efforts to reduce state and local taxes. EARNINGS Net earnings continued on a positive trend, achieving a record level of 0.46% of net sales and service fees compared to 0.43% for 1997 and 0.40% for 1996. Management firmly believes that its efforts in developing, executing and achieving the programs identified in its Strategic Plan are the main reasons leading to higher earnings levels. OTHER MATTERS EVANSVILLE FIRE On February 28, 1998 a fire totally destroyed the Evansville Division Warehouse. The Company serviced the Evansville customers from its Lima, Ohio and South Bend, Indiana facilities. As a result of the fire, however, the Company lost approximately $60 million in sales. A decision was made to rebuild the warehouse in the same location. As of January 2, 1999, the new facility was essentially complete and was fully operational by January 30, 1999. The Company settled its inventory claim with its insurance carrier in late 1998. However, the insurance recovery for the loss of the building and equipment, extra costs incurred to service these customers while the warehouse was being rebuilt and the business interruption portions of the claim covering the lost business have not been concluded as of year end. YEAR 2000 The Company is continuing the implementation of its comprehensive plans to address the possible impact of Year 2000 issues on operations throughout its divisions. Progress is being monitored and reported to management and to the Board of Directors on a periodic basis. On an enterprise-wide basis, as of January 2, 1999, the Company has completed the approximate percentages of its expected Year 2000 activities for its systems set forth in the following table. The table also shows the targeted date for the substantial completion of each Year 2000 activity:
Assessment Remediation Testing Implementation --------------- -------------- --------------- ---------------- System Percent Target Percent Target Percent Target Percent Target Complete Date Complete Date Complete Date Complete Date -------- ------ -------- ------ -------- ------ -------- ------ IT Systems: Procurement, including EDI Systems with product suppliers ..................... 100% - 100% - 100% - 30% 3/99 Warehouse management, order processing and distribution systems .............. 100% - 95% 2/99 80% 3/99 80% 6/99 General (includes financial reporting, billing and collection and other administrative systems ................ 100% - 100% - 90% 3/99 80% 3/99 Non-IT System: Office Systems ........................ 100% - 100% - 100% - 95% 1/99 Facilities ............................ 100% - 100% - 100% - 100% - Other Non-IT Systems .................. 100% - n/a - n/a - 85% 3/99
Efforts are continuing to contact all suppliers and service providers and coordinate appropriate measures necessary to assure the continuation of product deliveries and services. However, because there is a range of alternative suppliers for comparable products, the Company continues to focus on addressing potential problems in its critical distribution network to its customers, and is encouraging and assisting its customers in their assessment of Year 2000 issues to help them minimize disruptions at the customer level which could adversely impact the Company's ability to distribute its products. The Company's business depends upon its ability to deliver inventory to its customers in a timely fashion. The Company believes that the worst case scenario associated with the Year 2000 Issue is if, as a result of disruptions or malfunctions, the Company is unable to process and deliver customer orders consistent with the time-sensitive nature of this process. The extent of such potential impact cannot be determined with reliability at this time due, in large part, to the lack of comprehensive information as to the Year 2000 readiness of the Company's business partners (which the Company is attempting to assemble). The Company is working with key suppliers and customers to develop action and contingency plans designed to minimize the risk of such disruptions. These plans are expected to be in place approximately June 1999. Contingency plans for internal operating systems are also expected to be in place by June 1999. The Company estimates total costs to be incurred to address the Year 2000 issues will be approximately $8.8 million, of which approximately $4.9 million had been spent as of January 2, 1999. Of the total cost, approximately $6.9 million (78%) will be spent on remediation and testing, and approximately $1.3 million (15%) will be spent to upgrade packaged software applications. Incremental costs, including the costs of third- party contractors to modify existing systems and internal costs, are expensed as incurred, with the funds coming from the Company's general operations, and are included in Operating and Administrative Expenses. The Company has deferred certain IT projects as a result of its focus on Year 2000 issues; however, the deferrals are not expected to have a material impact on the Company's business or financial condition. The Company believes it is taking reasonable steps which, when fully implemented, will prevent major business interruptions and minimize the Company's risk of exposure to liability to third parties due to the Year 2000 Issue. There can be no assurance, however, that the Company will be successful in its efforts. Further, the costs of the Company's efforts to address the Year 2000 Issue and the dates on which the Company believes it will complete the projects described above are based upon Management's best estimates. There also can be no assurance that these estimates will prove to be accurate, and the actual cost and progress on these projects could differ materially from those currently anticipated. The reasonableness of the Company's efforts, and the project time lines and budgets, were derived based on information the Company believes to be reliable and by making numerous assumptions regarding future events. For additional details about the Company's Year 2000 efforts and the risks associated with Year 2000 issues, see the Company's quarterly report on Form 10-Q for the quarter ended October 3, 1998. Statements made herein or any past statements made or contained herein are deemed Year 2000 readiness statements and are subject to the Year 2000 Information and Readiness Disclosure Act. Independent Auditors' Report To the stockholders and Directors of Roundy's, Inc.: We have audited the accompanying consolidated balance sheets of Roundy's, Inc. and its subsidiaries as of January 2, 1999 and January 3, 1998 and the related statements of consolidated earnings, stockholders' equity and cash flows for each of the three years in the period ended January 2, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the companies at January 2, 1999 and January 3, 1998, and the results of their operations and their cash flows for each of the three years in the period ended January 2, 1999 in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP Milwaukee, Wisconsin February 19, 1999
Statements of Consolidated Earnings For The Years Ended January 2, 1999, January 3, 1998 and December 28, 1996 1998 1997 1996 -------------- -------------- -------------- Revenues: Net sales and service fees ........... $2,576,222,100 $2,610,696,700 $2,579,010,200 Other-net ............................ 2,428,500 3,695,700 4,494,700 -------------- -------------- -------------- 2,578,650,600 2,614,392,400 2,583,504,900 -------------- -------------- -------------- Costs and Expenses: Cost of sales ........................ 2,330,300,800 2,362,355,200 2,333,216,600 Operating and administrative ......... 215,034,300 218,610,500 218,342,700 Interest ............................. 7,293,100 8,220,900 8,479,900 -------------- -------------- -------------- 2,552,628,200 2,589,186,600 2,560,039,200 -------------- -------------- -------------- Earnings Before Patronage Dividends ..... 26,022,400 25,205,800 23,465,700 Patronage Dividends ..................... 5,975,700 5,687,000 5,568,300 -------------- -------------- -------------- Earnings Before Income Taxes ............ 20,046,700 19,518,800 17,897,400 -------------- -------------- -------------- Provision (Credit) for Income Taxes: Current-Federal ...................... 8,400,000 7,786,000 5,255,200 -State ........................ 1,539,000 1,722,300 859,800 Deferred ............................. (1,790,000) (1,193,100) 1,515,000 -------------- -------------- -------------- 8,149,000 8,315,200 7,630,000 -------------- -------------- -------------- Net Earnings ............................ $ 11,897,700 $ 11,203,600 $ 10,267,400 ============== ============== ============== See notes to consolidated financial statements.
Consolidated Balance Sheets As Of January 2, 1999 and January 3, 1998 1998 1997 ------------ ----------- Assets Current Assets: Cash and cash equivalents ............................ $ 72,094,500 $ 52,366,900 Notes and accounts receivable, less allowance for .... losses, $6,361,600 and $5,648,700, respectively ...... 78,489,000 86,998,500 Merchandise inventories .............................. 159,743,100 150,898,000 Prepaid expenses ..................................... 5,347,000 5,216,200 Future income tax benefits ........................... 6,373,800 6,227,800 ------------ ------------ Total current assets ............................ 322,047,400 301,707,400 ------------ ------------ Other Assets: Notes receivable, less allowance for losses, $6,015,000 and $5,299,000, respectively ........... 11,013,000 11,604,600 Goodwill and other assets ............................ 10,140,600 13,696,700 Other real estate .................................... 4,081,300 7,152,500 Deferred income tax benefit .......................... 4,492,000 2,848,000 ------------ ------------ Total other assets .............................. 29,726,900 35,301,800 ------------ ------------ Property and Equipment-At Cost: Land ................................................. 5,640,500 5,602,000 Buildings ............................................ 75,843,500 69,445,600 Equipment ............................................ 120,581,900 115,757,400 Leasehold improvements ............................... 12,526,400 14,715,100 ------------ ------------ 214,592,300 205,520,100 Less accumulated depreciation and amortization ....... 103,955,000 102,219,500 ------------ ------------ Property and equipment-net ...................... 110,637,300 103,300,600 ------------ ------------ $462,411,600 $440,309,800 ============ ============
1998 1997 ------------ ------------ Liabilities and Stockholders' Equity Current Liabilities: Current maturities of long-term debt ................. $ 10,159,700 $ 10,156,800 Accounts payable ..................................... 165,801,200 155,001,500 Accrued expenses ........................ ............ 56,924,600 50,148,300 Income taxes ......................................... 4,418,600 2,327,100 ------------ ------------ Total current liabilities ....................... 237,304,100 217,633,700 ------------ ------------ Long-Term Debt, Less Current Maturities ................. 73,298,100 83,457,800 Other Liabilities ....................................... 16,998,100 16,758,000 ------------ ------------ Total liabilities ............................... 327,600,300 317,849,500 ------------ ------------ Commitments and Contingencies (Note 10) Redeemable Common Stock ................................. 9,007,700 6,375,300 Stockholders' Equity: Common stock: Voting (Class A) ................................... 14,900 15,800 Non-voting (Class B) ............................... 1,327,300 1,346,600 ------------ ------------ Total common stock .............................. 1,342,200 1,362,400 Patronage dividends payable in common stock ......... 4,060,000 3,738,000 Additional paid-in capital ........................... 31,582,600 28,588,300 Reinvested earnings .................................. 89,950,000 83,527,500 ------------ ------------ 126,934,800 117,216,200 Less: Treasury stock, at cost ............................ 1,131,200 1,131,200 ------------ ------------ Total stockholders' equity ...................... 125,803,600 116,085,000 ------------ ------------ $462,411,600 $440,309,800 ============ ============ See note to consolidated financial statements.
Statements Of Consolidated Stockholders' Equity For The Years Ended January 2, 1999, January 3, 1998 and December 28, 1996 Common Stock --------------------------------------- Patronage Class A Class B Dividends Additional --------------------------------------- Paybable in Paid-in Reinvested Shares Amount Shares Amount Common Stock Capital Earnings ---------------------------------------------------------------------------------------- Balance, December 30, 1995 .......... 13,400 $16,700 1,025,897 $1,182,400 $3,405,000 $21,222,100 $66,258,500 Net earnings ..................... 10,267,400 Common stock issued .............. 600 800 51,806 64,800 (3,405,000) 4,312,900 Common stock purchased ........... (1,000) (1,200) (10,433) (13,100) (449,200) (980,300) Redeemable common stock .......... (7,090) (8,900) (165,200) (494,500) Patronage dividends payable in common stock .................. 3,779,000 --------------------------------------------------------------------------------------- Balance, December 28, 1996 .......... 13,000 16,300 1,060,180 1,325,200 3,779,000 24,920,600 75,051,100 Net earnings ..................... 11,203,600 Common stock issued .............. 1,100 1,400 51,219 64,000 (3,779,000) 4,756,700 Common stock purchased ........... (1,500) (1,900) (15,539) (19,400) (568,900) (1,332,200) Redeemable common stock .......... (18,575) (23,200) (520,100) (1,395,000) Patronage dividends payable in common stock .................. 3,738,000 --------------------------------------------------------------------------------------- Balance, January 3, 1998 ............ 12,600 15,800 1,077,285 1,346,600 3,738,000 28,588,300 83,527,500 Net earnings ..................... 11,897,700 Common stock issued .............. 500 600 50,857 63,600 (3,738,000) 5,160,900 Common stock purchased ........... (1,200) (1,500) (28,120) (35,200) (945,900) (2,364,300) Redeemable common stock .......... (38,148) (47,700) (1,220,700) (3,110,900) Patronage dividends payable in common stock .................. 4,060,000 --------------------------------------------------------------------------------------- Balance, January 2, 1999 ............ 11,900 $14,900 1,061,874 $1,327,300 $4,060,000 $31,582,600 $89,950,000 ======================================================================================= Treasury Stock, January 2, 1999, January 3, 1998 and December 28,1996 ...... 13,285 $1,131,200 ====================== See notes to consolidated financial statements.
Statements Of Consolidated Cash Flows For The Years Ended January 2, 1999, January 3, 1998 and December 28, 1996 1998 1997 1996 ----------- ----------- ----------- Cash Flows From Operating Activities: Net earnings ......................................................................... $11,897,700 $11,203,600 $10,267,400 Adjustments to reconcile net earnings to net cash flows provided by operating activities: Depreciation and amortization..................................................... 18,782,300 17,132,300 16,326,800 Allowance for losses ............................................................. 2,189,300 2,389,100 5,302,600 Loss (gain) on sale of property and equipment .................................... 2,527,300 612,900 (1,233,500) Patronage dividends payable in common stock ...................................... 4,060,000 3,738,000 3,779,000 (Increase) decrease in operating assets net of the effects of business acquisitions: Notes and accounts receivable .................................................... 6,899,000 8,975,000 (2,818,400) Merchandise inventories ......................................................... (8,398,300) 5,808,200 10,319,700 Prepaid expenses ................................................................ (129,100) (2,450,300) 2,453,500 Future income tax benefits ...................................................... (146,000) 1,589,600 679,400 Goodwill and other assets .................................................... (433,900) (76,500) (413,400) Other real estate .............................................................. 3,071,200 (2,712,800) 219,700 Deferred income tax benefit .................................................... (1,644,000) (1,087,000) (860,100) Increase (decrease) in operating liabilities: Accounts payable .............................................................. 10,804,400 (4,036,600) (7,237,800) Accrued expenses .............................................................. 6,877,200 6,092,900 1,470,600 Income taxes ................................................................... 2,091,500 1,391,000 864,300 Other liabilities .............................................................. 240,100 235,300 200,200 ----------- ----------- ----------- Net cash flows provided by operating activities .................................... 58,688,700 48,804,700 39,320,000 ----------- ----------- ----------- Cash Flows From Investing Activities: Capital expenditures - net of insurance proceeds.................................... (24,936,000) (22,726,700) (39,291,800) Proceeds from sale of property and equipment ....................................... 4,004,700 1,740,200 5,763,400 Payment for business acquisition net of cash acquired............................... (4,586,300) (3,967,400) (13,918,700) Decrease in notes receivable .................................................... 320,000 1,059,000 3,927,500 ----------- ----------- ----------- Net cash flows used in investing activities ........................................ (25,197,600) (23,894,900) (43,519,600) ----------- ----------- ----------- Cash Flows From Financing Activities: Principal payments of long-term debt ............................................... (10,159,700) (10,156,800) (10,235,600) Increase (decrease) in current maturities of long-term debt ........................ 2,900 (69,000) 6,449,300 Proceeds from sale of common stock ................................................ 1,487,100 1,043,100 973,500 Common stock purchased ......................................................... (5,093,800) (3,702,500) (4,027,300) Proceeds from long-term borrowings ................................................. 25,000,000 ----------- ----------- ----------- Net cash flows (used in) provided by financing activities .......................... (13,763,500) (12,885,200) 18,159,900 ----------- ----------- ----------- Net Increase in Cash and Cash Equivalents ............................................ 19,727,600 12,024,600 13,960,300 Cash And Cash Equivalents, Beginning Of Year .......................................... 52,366,900 40,342,300 26,382,000 ----------- ----------- ----------- Cash And Cash Equivalents, End Of Year ................................................ $72,094,500 $52,366,900 $40,342,300 =========== =========== =========== Cash Paid During The Year For: Interest ........................................................................ $ 7,487,600 $ 8,084,600 $ 8,545,900 Income Taxes ................................................................... 7,853,400 6,433,100 6,965,100 Supplemental Noncash Financing Activities-Patronage Dividends Payable in Common Stock.. 4,060,000 3,738,000 3,779,000 See notes to consolidated financial statements.
Notes To Consolidated Financial Statements 1. SIGNIFICANT ACCOUNTING POLICIES Fiscal year-The Company's fiscal year is the 52 or 53 week period ending the Saturday nearest to December 31. The years ended January 2, 1999 and December 28, 1996 included 52 weeks. The year ended January 3, 1998 included 53 weeks. Consolidation practice-The financial statements include the accounts of the Company and its subsidiaries. Significant intercompany balances and transactions are eliminated. Use of estimates-The preparation of financial statements in conformity with generally accepted accounting principles requires Management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and cash equivalents-The Company considers all highly liquid investments, with maturities of three months or less when acquired, to be cash equivalents. Inventories-Inventories are recorded at the lower of cost, on the first-in, first-out method, or market. Goodwill and long-lived assets-The excess of cost over the fair value of net assets of businesses acquired (goodwill) is being amortized on a straight-line basis over 20 years. Accumulated amortization at January 2, 1999 and January 3, 1998 was $5,714,000 and $4,267,800, respectively. The Company periodically evaluates the carrying value of long-lived assets in accordance with Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." The Company analyzes the future recoverability of the long-lived assets using the related undiscounted future cash flows of the business and recognizes any adjustments to its carrying value on a current basis. Depreciation-Depreciation and amortization of property and equipment are computed primarily on the straight-line method over their estimated useful lives, which are generally thirty-nine years for buildings, three to ten years for equipment and ten to twenty years for leasehold improvements. Closed facilities reserve-When a facility is closed the remaining investment, net of expected salvage value, is expensed. For properties under lease agreements, the present value of any remaining future liability under the lease, net of expected sublease recovery, is also expensed. The amounts charged to operations in 1998, 1997 and 1996 for the present value of these remaining future liabilities were not significant. Income Taxes-The Company provides income taxes in accordance with SFAS No. 109, "Accounting for Income Taxes," which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed annually for differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. New accounting pronouncement-In March 1998, the American Institute of Certified Public Accountants issued Statement of Position ("SOP") No 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." The SOP is effective for fiscal years beginning after December 15, 1998. The Company is in the process of evaluating the impact on the Consolidated Financial Statements. The adoption of the SOP is not expected to have a material impact on the Company's Consolidated Financial Statements. 2. ACQUISITIONS On December 8, 1998, the Company purchased a grocery retailer for $4,586,300 in cash. On September 15, 1997, the Company purchased a grocery retailer for $3,967,400 in cash. On June 22, 1996, the Company purchased all of the outstanding stock of a grocery retailer for $13,918,700 in cash. The acquisitions have been accounted for as purchases and the results of operations have been included in the Consolidated Financial Statements since the dates of acquisition. On an unaudited pro-forma basis, the effect of the acquisitions was not significant to the Company's 1998, 1997 and 1996 results of operations. 3. PATRONAGE DIVIDENDS The Company's By-Laws require that, to the extent permitted by the Internal Revenue Code, patronage dividends are to be paid out of earnings from business activities with stockholder-customers in an amount which will reduce the net earnings of the Company to an amount which will result in an 8% increase in the book value of its common stock. For years prior to 1998, a 10% increase in book value was required. The dividends are payable at least 20% in cash and the remainder in Class B common stock. Dividends for the years ended January 2, 1999, January 3, 1998 and December 28, 1996 were payable 30% in cash. 4. NOTES AND ACCOUNTS RECEIVABLE The Company extends long-term credit to certain independent retailers it serves to be used primarily for store expansion or improvements. Loans to independent retailers are primarily collateralized by the retailer's inventory, equipment, personal assets and pledges of Company stock. Interest rates are generally in excess of the prime rate and terms of the notes are up to 15 years. Included in current notes and accounts receivable are amounts due within one year totalling $6,357,000 and $7,523,400 at January 2, 1999 and January 3, 1998, respectively. The Company is exposed to credit risk with respect to accounts receivable, although it is generally limited due to short payment terms. The Company continually monitors its receivables with customers by reviewing, among other things, credit terms, collateral and guarantees. 5. LONG-TERM DEBT Long-term debt, exclusive of current maturities, consists of the following at the respective year-ends: 1998 1997 ----------- ----------- Senior unsecured notes payable 9.26%, due 2000 to 2001 ......... $5,000,000 $7,500,000 7.57% to 8.26%, due 2000 to 2008. 17,300,000 18,500,000 6.94%, due 2000 to 2003 ......... 25,714,300 32,142,900 7.86%, due 2000 to 2006 ......... 25,000,000 25,000,000 Other long-term debt ............... 283,800 314,900 ----------- ----------- Total ............................. $73,298,100 $83,457,800 =========== =========== At January 2, 1999, $60,000,000 was available to the Company under its revolving credit agreements, all of which was unused. The loan agreements include, among other provisions, minimum working capital and net worth requirements and limit stock repurchases and total debt outstanding. Repayment of principal on long-term debt outstanding is as follows: 1999 .......... $ 10,159,700 2000 .......... 24,734,400 2001 .......... 13,738,000 2002 .......... 11,242,000 2003 .......... 11,246,400 Thereafter ...... 12,337,300 6. FAIR VALUE OF FINANCIAL INSTRUMENTS The Company's financial instruments, as defined in SFAS No. 107, "Disclosures About Fair Value of Financial Instruments," consist primarily of accounts and notes receivable, accounts payable, notes payable and long- term debt. The carrying amounts for accounts and notes receivable, accounts payable and notes payable approximate their fair values. Based on the borrowing rates currently available to the Company for long-term debt with similar terms and maturities, the fair value of long-term debt, including current maturities, is approximately $83,950,000 and $93,460,000 as of January 2, 1999 and January 3, 1998, respectively. 7. STOCKHOLDERS' EQUITY The authorized capital stock of the Company is 60,000 shares of Class A common stock and 2,400,000 shares of Class B common stock with a par value of $1.25 a share. Inactive customers are required to exchange Class A voting stock held for Class B non-voting stock. The issuance and redemption of common stock is based on the book value thereof as of the preceding year-end. The year-end book value was $114.80, $104.35 and $94.30 for 1998, 1997 and 1996, respectively. The Company is obligated, upon request, to repurchase common stock held by inactive customers or employees. The amount available for such repurchases in any year is subject to limitations under certain loan agreements. Class B common stock which is subject to redemption is reflected outside of stockholders' equity. Redeemable common stock is held by inactive customers and former employees. As of January 2, 1999 and January 3, 1998, 78,464 and 61,095 shares, respectively, were subject to redemption. The Class B common stock subject to redemption is payable over a five year period based upon the book value at the preceding fiscal year end. The Company expects to repurchase shares of 24,012, 22,405, 12,863, 11,500 and 7,684 in 1999, 2000, 2001, 2002 and 2003, respectively. In conjunction with the 1996 acquisition discussed in Note 2, 13,285 shares of Class B common stock were owned by the acquired Company. The fair market value of the shares as of June 22, 1996 acquisition date has been reflected in the Consolidated Balance Sheet as treasury stock. Effective November 1991, the Board of Directors adopted the 1991 Stock Incentive Plan (the "Plan") under which up to 75,000 shares of Class B common stock may be issued pursuant to the exercise of stock options. The Plan also authorizes the grant of up to 25,000 stock appreciation rights ("SARs"). Options and SARs may be granted to senior executives and key employees of the Company by the Compensation Committee of the Board of Directors. No options or SARs may be granted under the Plan after November 30, 2001. Option and SAR transactions are as follows:
Options Weighted Options SARs Price Average Price ------- ------ --------------- --------------- Outstanding, December 30, 1995 ... 43,600 19,100 $53.10 - $77.40 $61.97 Exercised ................ (1,600) (2,266) 53.10 - 77.40 68.29 Cancelled ................ (500) (834) 77.40 77.40 ------ ------ --------------- Outstanding, December 28, 1996 ... 41,500 16,000 53.10 - 77.40 61.54 Granted .................. 4,300 4,200 94.30 94.30 ------ ------ --------------- Outstanding, January 3, 1998 ..... 45,800 20,200 53.10 - 94.30 64.62 Granted .................. 4,200 800 104.35 104.35 ------ ------ -------------- Outstanding, January 2, 1999 ..... 50,000 21,000 $53.10 -$104.35 67.96 ====== ====== =============== Excercisable at January 2, 1999 .. 43,966 17,816 $53.10 -$104.35 64.92 ====== ====== =============== Available for grant after January 2, 1999 ................ 1,000 184 ====== ======
The following table summarizes information concerning currently outstanding and excercisable options:
Stock Options Outstanding Stock Options Excercisable -------------------------------- -------------------------------- Weighted Average Weighted Weighted Number Remaining Average Number Average of Contractual Exercise Of Exercise Range of Exercise Price Shares Life Price Shares Price ----------------------- ------ ----------- -------- ------- -------- $50.00 - 65.00 24,500 3.3 $ 55.06 23,200 $ 55.00 $65.01 - 80.00 17,000 5.9 70.89 16,400 71.10 $80.01 - 95.00 4,300 8.3 94.30 4,300 94.30 $95.01 - 110.00 4,200 9.3 104.35 66 104.35 ------ --------- -------- ------- -------- 50,000 $ 67.96 43,966 $ 64.92 ====== ======== ======= ========
Options granted become exercisable based on the vesting rate which ranges from 20% at the date of grant to 100% eight years from the date of grant. SAR holders are entitled, upon exercise of an SAR, to receive cash in an amount equal to the excess of the Fair Market Value per share of the Company's common stock as of the date on which the SAR is exercised over the base price of the SAR. SARs granted become exercisable based on the vesting rate which ranges from 20% on the last day of the fiscal year of the grant to 100% eight years from the last day of the fiscal year of the grant. Compensation expense was not material in 1998, 1997 and 1996. In the event of a change in control of the Company, all options and SARs previously granted and not exercised, become exercisable. The Company has adopted the disclosure-only provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," but applies Accounting Principles Board Opinion No. 25 and related interpretations in accounting for its plans. Compensation expense was immaterial for 1998, 1997 and 1996. If the Company had elected to recognize compensation cost for the Plan based on the fair value of the options at the grant dates, consistent with the method prescribed by SFAS No. 123, the decrease in 1998, 1997 and 1996 net earnings would have been less than $80,000. 8. EMPLOYEE BENEFIT PLANS Substantially all non-union employes of the Company and employees of its subsidiaries are covered by defined benefit pension plans. Benefits are based on either years of service and the employee's highest compensation during five of the most recent ten years of employment or on stated amounts for each year of service. The Company intends to annually contribute only the minimum contributions required by applicable regulations. The Financial Accounting Standards Board ("FASB") issued SFAS 132, "Employers' Disclosures about Pension and Other Postretirement Benefits," in February 1998. The new standard does not change the measurement or recognition of costs for pension or other postretirement plans. It standardizes disclosures and eliminates those that are no longer useful. The following tables, prepared in accordance with the new standard, set forth pension obligations and plan assets as of January 2, 1999 and January 3, 1998: 1998 1997 ------------- -------------- Change in benefit obligation: Benefit Obligation - Beginning of Year ...... $45,893,300 $37,747,200 Service cost ................................ 2,811,400 2,238,700 Interest cost ............................... 3,272,400 2,937,100 Actuarial loss .............................. 2,282,200 4,522,500 Benefits paid ............................... (1,680,200) (1,552,200) ------------ ------------ Benefit Obligation - End of the Year ........ $52,579,100 $45,893,300 ============ ============ Change in plan assets: Fair Value - Beginning of Year .............. $37,631,100 $33,277,800 Actual return on plan assets ................ 3,247,100 3,916,700 Company contribution ........................ 3,323,600 1,988,800 Benefits paid ............................... (1,680,200) (1,552,200) ------------ ------------ Fair Value - End of the Year ................ $42,521,600 $37,631,100 ============ ============ Funded status: As of year end .............................. $(10,057,500) $(8,262,200) Unrecognized cost: Actuarial and investment (gains) losses, net. 7,295,700 4,840,400 Prior service cost .......................... 252,200 288,000 Transition asset ............................ (547,300) (721,400) ------------- ------------ Accrued benefit cost ........................ $ (3,056,900) $(3,855,200) ============= =============
The components of pension cost are as follows: 1998 1997 1996 ---------- ---------- ---------- Benefits earned during the year .................... $2,811,400 $2,238,700 $2,155,300 Interest cost on projected benefit obligation....... 3,272,400 2,937,100 2,608,900 Expected return on plan assets ..................... (3,444,100) (2,993,000) (2,651,500) Net amortization and deferral Unrecognized net loss............................... 23,900 1,800 Unrecognized prior service cost .................... 35,900 35,900 38,300 Unrecognized net asset ............................. (174,100) (174,100) (174,100) ---------- ---------- ---------- Net pension cost ................................... $2,525,400 $2,044,600 $1,978,700 ========== ========== ========== The assumptions used in the accounting were as follows: Discount rate ..................................... 7.00% 7.25% 7.75% Rate of increase in compensation levels ............ 4.00% 4.00% 4.00% Expected long-term rate of return on assets ........ 9.00% 9.00% 9.00%
The change in the discount rate in 1998 resulted in a $2,100,000 increase in the projected benefit obligation in 1998 and is expected to result in an increase in the 1999 pension expense of approximately $298,000. The Company and its subsidiaries also participate in various multi-employer plans which provide defined benefits to employees under collective bargaining agreements. Amounts charged to pension expense for such plans were $4,655,000, $4,530,300 and $4,296,100 in 1998, 1997 and 1996, respectively. Also, the Company has a defined contribution plan covering substantially all salaried and hourly employees not covered by a collective bargaining agreement. Total expense for the plan amounted to $1,181,400, $858,400 and $556,600 in 1998, 1997 and 1996, respectively. 9. INCOME TAXES Federal income tax at the statutory rates of 35% in 1998, 1997 and 1996 and income tax expense as reported are reconciled as follows: 1998 1997 1996 ---------- ---------- ---------- Federal income tax at statutory rates . $7,016,400 $6,831,600 $6,264,100 State income taxes, net of federal tax benefits........................ 1,000,300 1,119,500 930,700 Other-net ............................. 132,300 364,100 435,200 ---------- ---------- ---------- Income tax expense .................... $8,149,000 $8,315,200 $7,630,000 ========== ========== ========== The approximate tax effects of temporary differences at January 2, 1999 and January 3, 1998 are as follows:
1998 1997 ----------------------------------- ---------------------------------------- Assets Liabilities Total Assets Liabilities Total ---------- ----------- ---------- ---------- ------------ ---------- Allowance for doubtful accounts ............ $ 1,084,000 $ 1,084,000 $ 1,057,000 $1,057,000 Inventories ................................ $(1,419,200) (1,419,200) $(1,264,200) (1,264,200) Employee benefits .......................... 5,764,000 5,764,000 5,213,000 5,213,000 Accrued expenses not currently deductable .. 945,000 945,000 1,222,000 1,222,000 ----------- ----------- ----------- ----------- ----------- ---------- Current .................................... 7,793,000 (1,419,200) 6,373,800 7,492,000 (1,264,200) 6,227,800 ----------- ----------- ----------- ----------- ----------- ---------- Allowance for doubtful accounts ............ 2,431,000 2,431,000 2,142,000 2,142,000 Depreciation and amortization .............. (6,602,000) (6,602,000) (6,773,000) (6,773,000) Employee benefits .......................... 5,067,000 5,067,000 4,115,000 4,115,000 Accrued expenses not currently deductable .. 3,828,000 3,828,000 3,583,000 3,583,000 Other ...................................... (232,000) (232,000) (219,000) (219,000) ----------- ----------- ----------- ----------- ----------- ---------- Noncurrent ................................. 11,326,000 (6,834,000) 4,492,000 9,840,000 (6,992,000) 2,848,000 ----------- ----------- ----------- ----------- ----------- ---------- Total ...................................... $19,119,000 $(8,253,200) $10,865,800 $17,332,000 $(8,256,200) $9,075,800 =========== =========== =========== =========== =========== ========== 10. LEASE OBLIGATIONS AND CONTINGENT LIABILITIES Rental payments and related subleasing rentals under operating leases are as follows: RENTAL PAYMENTS ------------------------- SUBLEASING MINIMUM CONTINGENT RENTALS ----------- ----------- ------------ 1996 ............. $31,711,700 $ 486,600 $21,628,300 1997 ............. 28,625,700 406,600 21,249,900 1998 ............. 29,883,200 414,300 23,207,000 Contingent rentals may be paid under certain store leases on the basis of the store's sales in excess of stipulated amounts. Future minimum rental payments under long-term operating leases are as follows at January 2, 1999: 1999 ........... $29,383,600 2000 ........... 27,978,100 2001 ........... 26,208,700 2002 ........... 25,517,900 2003 ........... 24,532,100 Thereafter ..... 173,039,300 ----------- Total .......... $306,659,700 ============ Total minimum rentals to be received in the future under non-cancelable subleases as of January 2, 1999 are $236,080,300. The Company is involved in various claims and litigation arising in the normal course of business. In the opinion of Management, the ultimate resolution of these actions will not materially affect the consolidated financial position, results of operations or cash flows of the Company. 11. EARNINGS PER SHARE Earnings per share are not presented because they are not deemed meaningful. See Notes 3 and 7 relating to patronage dividends and common stock repurchase requirements. 12. EVANSVILLE FIRE During fiscal 1998, fire destroyed the Evansville, Indiana warehouse, inventory and equipment. The Division supplied frozen food and meat products to Roundy's customers in the Southern Midwest area. Discussions are in process with the insurance carrier relating to the inventory, building and equipment and estimated business interruption losses incurred. Through January 2, 1999, cash advances aggregating $7.4 million were received from the insurance carrier relative to (1) the cost of the inventory destroyed in the fire ($4.1 million), (2) a partial advance on the replacement cost of the destroyed building and equipment ($3.0 million) and (3) to cover certain costs of demolishing the building and removing debris from the site ($0.3 million). The Company elected to rebuild the facility on the existing site and completed the project in January 1999 at a cost of approximately $10.8 million. The new facility was fully operational by January 30, 1999, again supplying frozen food and meat products to Roundy's customers. The Company is in negotiations with the insurance carrier regarding an overall settlement of its claims. Due to the complexity of the loss, the Company anticipates that the final settlement may require an extended period of negotiation. However, Management believes that the Company's insurance coverage was sufficient and that the final settlement with its insurance carrier will not have a material adverse impact on the Company's future financial statements. 13. SEGMENT REPORTING In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," which the Company has adopted in the current year. The Company and its subsidiaries sell and distribute food and nonfood products that are typically found in supermarkets. The Company's wholesale distribution segment sells to both corporately and independently owned retail food stores, while the retail segment sells directly to the consumer. Gross Profit represents net sales, less cost of sales. Identifiable assets are those used exclusively by that industry segment. Corporate assets are principally cash and cash equivalents, notes receivable, corporate office facilities and equipment. 1998 1997 1996 -------------- -------------- -------------- NET SALES Wholesale ......... $2,512,268,000 $2,503,067,600 $2,483,307,100 Retail ......... 284,127,500 291,612,600 275,761,300 Eliminations ...... (220,173,400) (183,983,500) (180,058,200) -------------- -------------- -------------- Total ........... $2,576,222,100 $2,610,696,700 $2,579,010,200 ============== ============== ============== GROSS PROFIT Wholesale ......... $ 188,767,200 $ 191,931,500 $ 195,639,200 Retail ............ 60,132,300 59,048,700 52,583,000 Eliminations ...... (2,978,200) (2,638,700) (2,428,600) -------------- -------------- -------------- Total ........... $ 245,921,300 $ 248,341,500 $ 245,793,600 ============== ============== ============== IDENTIFIABLE ASSETS Wholesale ......... $ 304,332,200 $ 296,886,900 $ 313,589,800 Retail ............ 54,856,500 59,645,800 53,834,600 Corporate ......... 103,232,900 83,777,100 67,216,600 -------------- -------------- -------------- Total ............ $ 462,411,600 $ 440,309,800 $ 434,641,000 ============== ============== ============== DEPRECIATION AND AMORTIZATION Wholesale ......... $ 8,311,100 $ 7,393,000 $ 6,533,400 Retail ........... 4,296,800 4,070,700 53,680,100 Corporate ......... 6,174,400 5,668,600 66,113,300 -------------- -------------- -------------- Total ........... $ 18,782,300 $ 17,132,300 $ 16,326,800 ============== ============== ============== CAPITAL EXPENDITURES Wholesale ......... $ 12,942,400 $ 6,266,000 $ 30,109,000 Retail ............ 3,353,400 5,565,700 5,360,000 Corporate ......... 8,640,200 10,895,000 3,822,800 -------------- -------------- -------------- Total ........... $ 24,936,000 $ 22,726,700 $ 39,291,800 ============== ============== ============== Divisional Map 1. Corporate Office - Roundy's, Inc. 23000 Roundy Drive Pewaukee, WI 53072 2. Milwaukee Division 11300 W. Burleigh Street Wauwatosa, WI 53222 3. Roundy's General Merchandise Division 400 Walter Road Mazomanie, WI 53560 4. Eldorado Division Route 45 South Eldorado, IL 62930 5. Evansville Perishable Division 4501 Peters Road Evansville, IN 47711 6. Westville Division 6500 South U.S. 421 Westville, IN 46391 7. South Bend Perishable Division 2107 Western Avenue South Bend, IN 46619 8. Muskegon Division 1764 Creston Street Muskegon, MI 49443 9. Van Wert Division 1200 N. Washington Van Wert, OH 45891 10. Lima Division 1100 Prosperity Road Lima, OH 45802 BOARD OF DIRECTORS Brenton H. Rupple Milwaukee, WI Gary R. Sarner Chairman Total Logistic Control, LLC Milwaukee, WI Patrick D. McAdams McAdams, Inc Wales, WI Gerald F. Lestina President & CEO Charles R. Bonson Bonson's Foods, Inc. Eagle River, WI George C. Kaiser Milwaukee, WI Robert E. Bartels Martin's Super Markets, Inc. South Bend, IN Gary N. Gundlach Pick 'n Save - Stoughton Stoughton, WI Robert S. Gold Gold's of Mequon, LLC Mequon, WI Robert D. Ranus Vice President & Chief Financial Officer ELECTED CORPORATE OFFICERS Gerelad F. Lestina President & CEO Ralph D. Beketic Vice President - Wholesale David C. Busch Vice President of Administration Edward G. Kitz Vice President, Secretary & Treasurer Charles H. Kosmaler, Jr. Vice President - Planning and Information Services Robert D. Ranus Vice President & Chief Financial Officer Michael J. Schmitt Vice President - Sales and Development Marion H. Sullivan Vice President of Marketing Advisory Committe Kent Burnstad Burnstad's Supermarket 701 E. Clifton Street Tomah, WI 54660 Tom Czerwonka Pick 'n Save - Two Rivers 1010 22nd Street Two Rivers, WI 54241 Bob Glisch Mega Marts, Inc. 150 W. Holt Avenue Milwaukee, WI 53207 Frank Serio Pick 'n Save - Cudahy 5851 South Packard Avenue Cudahy, WI 53110 Mark Stinebrink Pick 'n Save - Lake Geneva 100 East Geneva Square Lake Geneva, WI 53147 John Stone Pick 'n Save - Baraboo 615 Highway 136 West Baraboo, WI 53913 TRUSTEES Gerald F. Lestina President & CEO Edward G. Kitz Vice President, Secretary & Treasurer Victor C. Burnstad Burnstad Bros. Inc. Tomah, WI David J. Spiegelhoff Pick 'n Save - Burlington Burlington, WI Bronson J. Haase President & CEO Wisconsin Gas Company Milwaukee, WI Robert R. Spitzer President Emeritus Milwaukee School of Engineering Milwaukee, WI
EX-21 4 EXHIBIT 21 ROUNDY'S, INC. Subsidiaries Roundy's, Inc. has twelve wholly-owned first-tier subsidiaries, each a Wisconsin corporation (except as otherwise noted) doing business under their corporate names. These subsidiaries are: Badger Assurance, Ltd.(1) Kee Wholesale, Inc. CD of Wisconsin, Inc. Midland Grocery of Michigan, Inc.(6) Holt Public Storage, Inc. Old Time, Inc. I.T.A., Inc. Ropak, Inc. Jondex Corp. Scot Lad Foods, Inc. Kee Trans, Inc. WFC Foods, Inc.(2) Six Wisconsin corporations doing business under their corporate names are wholly-owned subsidiaries of Ropak, Inc. These corporations are: Insurance Planners, Inc. Shop-Rite, Inc. Pick 'n Save Warehouse Foods,Inc. Villard Avenue Shop-Rite, Inc. Sheboygan Land Corporation Rindt Enterprises, Inc. Four corporations doing business under their corporate names are wholly- owned subsidiaries of Scot Lad Foods, Inc. These corporations are: Bonnie Baking Co., Inc.(3) Cardinal Foods, Inc. (5) Spring Lake Merchandise, Inc.(4) Scot Lad-Lima, Inc.(4) Two corporations doing business under their corporate names are wholly- owned subsidiaries of Cardinal Foods, Inc. These corporations are: Wilson's Cardinal Supermarket, Inc (4) Gardner Food Galleries, Inc.(4) One corporation doing business under its corporate name is a subsidiary of Shop-Rite, Inc. and is partially owned by Cardinal Foods, Inc. The corporation is: The Midland Grocery Company(4) One corporation doing business under its corporate name is a 50% owned subsidiary of Jondex Corp. The corporation is: Clintonville Land Co., LLC _____________ (1) A Bermuda corporation. (4) An Ohio corporation. (2) An Illinois corporation. (5) A Delaware corporation. (3) An Indiana corporation. (6) A Michigan corporation. EX-27 5
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ROUNDY'S INC. FROM 10-K405 FOR THE PERIOD ENDED 01-02-99 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. YEAR JAN-02-1999 JAN-02-1999 72,094,500 0 78,489,000 0 159,743,100 322,047,400 214,592,300 103,955,000 462,411,600 237,304,100 73,298,100 0 0 1,342,200 123,330,200 462,411,600 2,576,222,100 2,578,650,600 2,330,300,800 2,330,300,800 218,820,700 2,189,300 7,293,100 20,046,700 8,149,000 11,897,700 0 0 0 11,897,700 0 0
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