EX-13 4 ar2001b.txt EXHIBIT 13 Amounts herein have been restated. Reference is made to Note 1 of "Notes to Consolidated Financial Statements" for a further discussion of the restatements.
SELECTED FINANCIAL DATA ($000 omitted except for per share data and ratios) 2001 2000 1999 1998 1997 -------------------------- ---------- --------- ---------- ---------- --------- Net sales and service fees.................. $3,387,761 $2,930,033 $2,656,832 $2,526,405 $2,565,366 Net earnings................................ 25,784 21,105 17,609 11,898 11,204 Patronage dividends......................... 8,681 5,035 6,447 5,976 5,687 Total assets................................ 794,510 662,372 497,325 462,412 440,310 Long-term debt, including current maturities 228,549 174,402 73,298 83,458 93,615 Stockholders' equity(1)..................... 179,736 160,669 153,919 134,811 122,460 Book value per share........................ 170.20 153.60 129.95 114.80 104.35 Working capital............................. 24,940 38,771 67,937 84,743 84,074 Current ratio............................... 1.07:1 1.13:1 1.25:1 1.38:1 1.39:1 Earnings before patronage dividends as a percent of net sales and service fees..... 1.49% 1.39% 1.36% 1.03% 0.98%
(1) Includes redeemable common stock FINANCIAL & OPERATIONAL REVIEW During 2001, the Emerging Issues Task Force ("EITF") reached a consensus on EITF 01-9, "Accounting for Consideration Given by a Vendor to a Customer or a Reseller of the Vendor's Products." This pronouncement relates to the income statement classification of sales incentives and requires that the Company classify certain sales promotions offered to its retail customers as a reduction of net sales (versus cost of sales as previously recorded). The Company has adopted this pronouncement effective December 30, 2001. Net sales and service fees and cost of sales have been reduced by approximately $61.7 million, $53.7 million and $60.4 million for 2001, 2000 and 1999, respectively. Liquidity and Capital Resources ------------------------------- The year 2001 was one of challenges and changes for Roundy's. The challenges - a weakening economy, heightened competition from supercenters and another key acquisition. The changes - adapting to the increased number of Company-owned retail stores and changing market dynamics in the Greater Milwaukee area. Central to many of our challenges and changes was the acquisition of The Copps Corporation. Effective May 20, 2001, the Company purchased all of the outstanding stock of The Copps Corporation for approximately $96.2 million. This acquisition was financed with debt. The Copps Corporation owned and operated 21 retail grocery stores as well as a wholesale distribution center located in Stevens Point, Wisconsin. The acquisition represented an excellent opportunity for Roundy's to enter several markets in which it did not have stores that it owned and/or serviced. The reputation of The Copps Corporation was one of high quality perishables and strong customer service. These types of stores complimented the Company's existing retail stores, which are "value" oriented with a strong perishable presence. The acquisition was a key goal of Roundy's Corporate Strategic Plan. The management of Roundy's recognized the importance of growing its top line. This acquisition was a major step in increasing Roundy's revenue base and enabling it to better control and direct its growth through Company-owned retail stores. With the financing in place and the acquisition complete, the challenge then became one of integration. This integration was twofold - first, blending cultures and second, converting all major computerized systems to Roundy's standard systems for both wholesale and retail operations. Both were priorities, with the goal being a successful integration of all major systems by year-end. As a result of The Copps Corporation acquisition, the Company reallocated its 2001 capital expenditure budget to provide for the needed system and equipment changes at Copps. The amount expended on The Copps Corporation was $6.3 million, which included both retail and wholesale operations and included the conversion of all major computer systems to Roundy's systems by year-end. The conversion also adhered to the Company's strategic priority of maintaining standardized systems. Standardization is both an operational and strategic goal for Roundy's. Total capital expenditures were $32.6 million for 2001 and $37.7 million for 2000. In 2001, management continued its program of reinvesting in its facilities with $11.0 million invested in retail stores, $9.7 million invested in wholesale divisions and the balance invested primarily in fleet and computer systems. The Company's financial condition remains strong even with its heavy reliance on debt to finance the Copps acquisition. The Company's capital structure as of December 29, 2001 and December 30, 2000 is summarized in the following table:
Capital Structure (in millions) 2001 2000 ------------------------ --------------------- Long-term debt, including current maturities $228.5 56.0% $174.4 52.0% Stockholders' equity* 179.8 44.0% 160.7 48.0% ------------------------ --------------------- Total capital $408.3 100.0% $335.1 100.0% * Includes redeemable common stock.
Cash flows provided by operating activities were $76.3 million in 2001 compared to $81.3 million in 2000. The modest decline in net cash flows from operating activities is primarily the result of the inclusion of the $3.3 million in insurance settlement gains in the prior year. With the increase in borrowings to finance its 2001 acquisition, the Company continued to focus on quality of credit, credit terms and continued automation of the procedures surrounding the billing and collection functions. The result of all these efforts was a reduction in notes and accounts receivable, after purchase accounting adjustments, of $26.1 million in 2001 compared to a reduction of $7.7 million in 2000. Additionally, the Company's "accounts receivable days sales outstanding" improved to 7.2 days in 2001 from 7.4 days in 2000. With the Company's continued improvement in the credit quality of its notes and accounts receivable, it was not necessary to increase its allowances for losses in 2001. The Company is in the process of implementing a new standard accounts receivable and billing system in all wholesale divisions in 2002 which the Company believes will lead to even greater efficiencies in billings and collections. Accounts payable, after purchase accounting adjustments, reflected a modest decline from 2000 of $3.9 million, due to the prepaying for many of our holiday items to ensure supply. Sales at retail flourished and with the increased demand for product and product variety, it was important to ensure supply of product to these stores. Inventory control is a key objective of management and is monitored on a regular basis at both wholesale and retail levels. As we gather more data on the many changes occurring within the Company's markets, management believes it will be able to lower inventory levels, and still meet customer demands. With the acquisition of The Copps Corporation, the Company increased its average outstanding debt. Average outstanding debt in 2001 was $227.3 million compared to $161.9 million for 2000. However, it is important to note that at year-end our total debt increased only $54.1 million from the prior year even after an acquisition, which cost $96.2 million. To help finance its growth, the Company entered into a new credit agreement with various lenders, which allows the Company to borrow up to an aggregate amount of $300 million. The credit agreement provides for a $170 million revolving loan commitment and a $130 million term loan. The credit agreement includes covenants that, among others, limits stock repurchases and additional borrowing and provides for minimum net worth requirements ($166.2 million at December 29, 2001). At December 29, 2001, $101.6 million was available to the Company under its revolving credit agreement. The Company's assets are pledged as collateral under the credit agreement. The Company continued to maintain its five-year interest rate swap that it had entered into in April of 2000. The effect of the swap agreement is to fix the interest rate on $60 million of borrowings. Under the terms of the swap agreement, the Company pays a fixed rate of 7.32% and receives a floating LIBOR rate. The Company has accounted for the swap agreement in accordance with SFAS 133, "Accounting for Derivative Instruments and Hedging Activities", as amended. The impact to the financial statements in 2001 was a liability of $6.0 million of which $3.4 million, net of tax, is reflected as accumulated other comprehensive loss in stockholders' equity. This statement was not in effect in 2000. The Company believes that its cash flow from operations together with other available sources of funds will be adequate to meet its financing requirements. In the event the Company makes significant future capital expenditures or acquisitions, it may raise funds through additional borrowings. RESULTS OF OPERATIONS Net Sales and Service Fees -------------------------- Net sales and service fees for 2001 were $458 million (15.6%) greater than 2000 and $731 million (27.5%) greater than 1999. In May of 2001, the Company purchased The Copps Corporation which consisted of 21 corporate retail stores and a wholesale distribution operation. This entity contributed $362 million of the sales increase in 2001 versus 2000. The balance of the increase is primarily due to the full year effect of the 2000 acquisitions of Mega Marts and Ultra Mart. This increase is also partially the result of aggressive marketing and promotional programs by our wholesale and retail operations. The Company was able to take advantage of various competitive changes within its major markets, keyed by its frequent shopper card and enhanced perishable programs. The large increase in sales relative to 1999 is the result of acquisitions in 2001 and 2000, as noted above. The Company continues to work toward greater integration of all its wholesale divisions servicing Company-owned retail stores with the retail store management team. Gross Profits ------------- Gross profit, as a percentage of net sales and service fees, was 15.7% for 2001 versus 13.3% for 2000 and 10.0% for 1999. The increase in the gross profit percentage was due primarily to the increase in the sales mix attributable to the Company-owned retail stores. Retail sales for 2001 represented 40.6% of net sales and service fees compared to 30.4% for 2000 and 12.2% for 1999. The higher margins achieved at retail compared to wholesale continues to increase the overall gross profit percentage. Retail gross profit percentages were 22.5% in 2001, 21.5% in 2000 and 21.6% in 1999. With the competitive environment in which the Company operates, wholesale operations have not been able to increase their overall gross profit percentage to any degree. Wholesale gross profit percentages were 8.1% in 2001, 7.9% in 2000 and 7.8% in 1999. As supercenters continue to expand throughout the Company's markets and retail chain consolidations increase, the wholesale divisions must maintain their support of the independent retailer, an effort which means keeping price increases at minimum levels. The Company's strategic plan still focuses on retail operations as a primary method for continued improvement in gross profits. Operating and Administrative Expenses ------------------------------------- Operating and administrative expenses, as a percent of net sales and service fees, increased to 13.7% in 2001 compared to 11.6% in 2000 and 8.8% in 1999. This percentage increase is attributable to the Company's acquisitions in 2001 and 2000. These acquisitions were primarily of retail stores, which have a significantly higher ratio of operating costs to sales than wholesale operations. The number of people employed by the Company at year-end was 48% higher than at the end of 2000 and 139% greater than year-end 1999. As a result of the increase in personnel and the downturn in the stock market combined with a significant rise in health care costs, the cost of both pension and health care expenses, as a percent of net sales and service fees, increased to 1.0% in 2001 from 0.7% in 2000 and 0.6% in 1999. The Company continues to focus on cost containment. A key area continues to be in systems where the Company has already moved rapidly to centralize and standardize all wholesale and retail operating systems. Additionally, the retail stores have looked to head set radio technology and enhanced labor scheduling to further reduce payroll costs without impacting our customers. Based on current customer surveys, the program has been a success to date with retail customers. Interest Expense ---------------- Interest expense increased $2.2 million over 2000 and $11.2 million over 1999. As a percent of net sales and service fees, 2001 remained constant with 2000 at 0.5%, but was 0.3% greater than 1999. The reason for the increase relative to 2000 and 1999 was the increase in borrowings, which the Company incurred to finance acquisitions both in 2001 and 2000. However, as a result of a decline in our economy, overall interest rates declined in 2001 compared to 2000 and 1999. The average cost of capital was approximately 6.5% in 2001 compared to 9.4% in 2000 and 7.7% for 1999. Taxes ----- The effective income tax rates for 2001, 2000 and 1999 were 38.1%, 40.7% and 40.5%, respectively. The reason for the improvement in 2001 is due to the favorable resolution of certain prior year's state and local income tax matters. Net Earnings ------------ Net earnings, as a percent of net sales and service fees, continued on a positive trend at 0.76% for 2001 compared to 0.72% for 2000 and 0.66% for 1999. The continued improvement was keyed by the acquisitions made in 2001 and 2000, as well as the cost reductions achieved from systems standardization and enhancements. Additionally, a significant contributing factor has been the Company's ability to grow its sales base within a very competitive environment, with increased concentration levels, particularly in our Company-owned stores. Other Matters ------------- A fire destroyed the Company's Evansville warehouse in 1998. In the fourth quarter of 1998, a settlement was reached on the claim for inventory lost in the fire. In 1999, settlements were also reached with the insurance carrier on the building and equipment claims, which resulted in a gain of $5.5 million. In 2000, the Company finalized its settlement with the insurance carrier for all outstanding claims, which resulted in a $3.3 million gain. These gains were recorded in Other-net revenues. New Pronouncements ------------------ In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 142 requires that goodwill and intangible assets with indefinite useful lives recorded for acquisitions completed subsequent to June 30, 2001 no longer be amortized and the amortization of goodwill and intangible assets with indefinite useful lives recorded for acquisitions completed prior to June 30, 2001 cease upon adoption of the statement. Instead, the carrying value of goodwill and intangible assets with indefinite useful lives will be evaluated for impairment on an annual basis. The Company will adopt SFAS No. 142 on December 30, 2001. Amortization of goodwill recorded by the Company in 2001 was $6,640,800. The Company is currently evaluating the provisions of this statement with respect to impairment and has not yet determined the impact on its consolidated financial statements. Market Risk Sensitivity ----------------------- The Company is exposed to market risk relating to changes in interest rates relating to its variable rate debt. However, as disclosed in Note 5 to the Consolidated Financial Statements, the Company uses an interest rate swap to hedge its exposure to interest rate changes for $60 million of its variable rate debt outstanding. Any change in the value of the swap would be significantly offset by an inverse change in the value of the hedged debt. If interest rates on the Company's remaining variable rate debt would have averaged ten percent higher during 2001, the effect on the Company's operations would not have been material. Market risk relative to the Company's fixed rate debt relates to change in fair value. The potential loss in fair value of a hypothetical ten percent change in interest rates would not be material to the overall fair value of the debt. 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 subsidiaries as of December 29, 2001 and December 30, 2000, and the related consolidated statements of earnings, stockholders' equity and comprehensive income and cash flows for each of the three years in the period ended December 29, 2001. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Roundy's, Inc. and subsidiaries at December 29, 2001 and December 30, 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 29, 2001, in conformity with accounting principles generally accepted in the United States of America. DELOITTE & TOUCHE LLP Milwaukee, Wisconsin February 26, 2002, except for Note 1 and 15, as to which the date is May 14, 2002
STATEMENTS OF CONSOLIDATED EARNINGS For the Years Ended December 29, 2001, December 30, 2000 AND JANUARY 1, 2000 2001 2000 1999 -------------- -------------- -------------- Revenues: Net sales and service fees......... $3,387,761,500 $2,930,033,400 $2,656,832,000 Other-net.......................... 2,057,200 7,173,600 10,117,900 -------------- -------------- -------------- 3,389,818,700 2,937,207,000 2,666,949,900 -------------- -------------- -------------- Costs and Expenses: Cost of sales...................... 2,856,762,600 2,540,733,400 2,390,077,900 Operating and administrative....... 465,038,700 340,412,900 234,302,800 Interest........................... 17,697,700 15,462,700 6,503,600 -------------- -------------- -------------- 3,339,499,000 2,896,609,000 2,630,884,300 -------------- -------------- -------------- Earnings Before Patronage Dividends 50,319,700 40,598,000 36,065,600 Patronage Dividends................ 8,680,600 5,035,300 6,446,900 -------------- -------------- -------------- Earnings Before Income Taxes....... 41,639,100 35,562,700 29,618,700 -------------- -------------- -------------- Provision(Credit)for Income Taxes: Current-Federal.................... 9,593,000 12,187,000 10,544,600 -State...................... 2,967,300 3,506,500 2,407,700 Deferred........................... 3,295,200 (1,236,000) (943,000) -------------- -------------- -------------- 15,855,500 14,457,500 12,009,300 -------------- -------------- -------------- Net Earnings....................... $25,783,600 $21,105,200 $17,609,400 ============== ============== ============== See notes to consolidated financial statements.
CONSOLIDATED BALANCE SHEETS As of December 29, 2001 AND December 30, 2000 Assets 2001 2000 ------------ ------------ Current Assets: Cash and cash equivalents..................... $ 45,516,500 $ 39,893,300 Notes and accounts receivable, less allowance for losses, $7,021,400 and $5,728,800, respectively.................................. 74,783,900 83,174,300 Merchandise inventories....................... 247,567,100 197,983,900 Prepaid expenses.............................. 17,749,900 7,294,600 Deferred income tax benefits.................. 9,693,000 10,249,800 ------------ ------------ Total current assets....................... 395,310,400 338,595,900 ------------ ------------ Other Assets: Goodwill and other assets - net............... 117,406,200 113,849,400 Notes receivable, less allowance for losses, $1,300,000 and $2,129,000, respectively....... 5,686,000 5,976,600 Other real estate............................. 6,019,100 6,009,400 ------------ ------------ Total other assets............................ 129,111,300 125,835,400 ------------ ------------ Property and Equipment - At Cost: Land.......................................... 14,162,400 8,200,400 Buildings..................................... 122,906,900 97,573,400 Equipment..................................... 244,419,900 181,386,000 Leasehold improvements........................ 44,838,000 39,460,100 ------------ ------------ 426,327,200 326,619,900 Less accumulated depreciation and amortization 156,238,500 128,679,000 ------------ ------------ Property and equipment - net............... 270,088,700 197,940,900 ------------ ------------ $794,510,400 $662,372,200 ============ ============ See notes to consolidated financial statements.
Liabilities and Stockholders' Equity 2001 2000 ----------- ------------ Current Liabilities: Current maturities of long-term debt.......... $ 27,717,000 $ 7,837,700 Accounts payable.............................. 243,649,300 214,764,400 Accrued expenses.............................. 97,688,300 74,394,500 Income taxes.................................. 1,315,600 2,828,600 ----------- ------------ Total current liabilities........... 370,370,200 299,825,200 ----------- ------------ Long-Term Debt, Less Current Maturities....... 200,831,500 166,564,700 Other Liabilities............................. 42,981,600 30,504,400 Deferred Income Taxes......................... 591,000 4,809,000 ----------- ------------ Total liabilities................... 614,774,300 501,703,300 ----------- ------------ Commitments and Contingencies (Note 10) Redeemable Common Stock....................... 9,244,100 10,147,700 Stockholders' Equity: Common stock: Voting (Class A).............................. 12,600 12,200 Non-voting (Class B).......................... 1,377,800 1,366,400 ------------ ------------ Total common stock.................. 1,390,400 1,378,600 Patronage dividends payable in common stock... 5,950,000 3,475,000 Additional paid-in capital.................... 45,753,500 42,661,200 Reinvested earnings........................... 144,392,600 121,333,900 ------------ ------------ 197,486,500 168,848,700 Less: Treasury stock, at cost (145,615 Class B shares) 18,327,500 18,327,500 Accumulated other comprehensive loss.......... 8,667,000 ------------ ------------ Total stockholders' equity.......... 170,492,000 150,521,200 ------------ ------------ $794,510,400 $662,372,200 ============ ============
STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME For the Years Ended December 29, 2001, December 30, 2000 and January 1, 2000 Patronage Accumulated Common Stock Dividends Additional Other Class A Class B Payable in Paid in Comprehensive Reinvested Shares Amount Shares Amount Common stock Capital Loss Earnings --------- ------- ------- --------- ------------ ----------- ----------- ------------ Balance, January 2, 1999........ 11,900 $14,900 1,061,874 $1,327,300 $4,060,000 $31,582,600 $ 89,950,000 Net Earnings................... 17,609,400 Common stock issued............ 700 900 52,546 65,700 (4,060,000) 5,955,200 Common stock purchased......... (600) (800) (6,743) (8,400) (426,000) (1,137,600) Redeemable common stock........ (22,388) (28,000) (806,000) (2,075,400) Patronage dividends payable in common stock.............. 3,078,000 ------ ------- --------- ---------- ---------- ----------- ----------- ------------ Balance, January 1, 2000........ 12,000 15,000 1,085,289 1,356,600 3,078,000 36,305,800 104,346,400 Net earnings................... 21,105,200 Common stock issued............ 400 500 36,818 46,000 (3,078,000) 4,446,100 Common stock purchased......... (2,600) (3,300) (12,466) (15,600) (547,800) (2,227,200) Redeemable common stock........ (16,533) (20,600) (628,300) (1,890,500) Stock option expense........... 3,085,400 Patronage dividends payable in common stock.............. 3,475,000 ------ ------- --------- ---------- ---------- ----------- ----------- ------------ Balance, December 30, 2000...... 9,800 12,200 1,093,108 1,366,400 3,475,000 42,661,200 121,333,900 Net earnings................... 25,783,600 Cumulative effect of change in accounting for interest rate swap (net of tax)....... $(2,000,000) Interest rate swap (net of tax) (1,409,000) Additional pension liability (5,258,000) (net of tax)................. Common stock issued............ 500 600 30,761 38,400 (3,475,000) 4,562,900 Common stock purchased......... (200) (200) (13,078) (16,300) (1,042,100) (1,705,500) Redeemable common stock........ (8,570) (10,700) (428,500) (1,019,400) Patronage dividends payable in common stock.............. 5,950,000 ------ ------- --------- ---------- ---------- ----------- ----------- ------------ Balance, December 29, 2001...... 10,100 $12,600 1,102,221 $1,377,800 $5,950,000 $45,753,500 $(8,667,000) $144,392,600 ====== ======= ========= ========== ========== =========== =========== ============ Comprehensive Income: 2001 2000 1999 ----------- ----------- ------------ Net earnings.................... $25,783,600 $21,105,200 $17,609,400 Other comprehensive loss: Cumulative effect of change in accounting for interest rate swap................... (2,000,000) Interest rate swap............ (1,409,000) Additional pension liability.. (5,258,000) ----------- ----------- ----------- Comprehensive Income............ $17,116,600 $21,105,200 $17,609,400 =========== =========== =========== See notes to consolidated financial statements.
STATEMENTS OF CONSOLIDATED CASH FLOWS For the Years Ended December 29, 2001, December 30, 2000, and January 1, 2000 2001 2000 1999 ------------ ---------- --------- Cash Flows From Operating Activities: Net earnings.................................. $25,783,600 $21,105,200 $17,609,400 Adjustments to reconcile net earnings to net cash flows provided by operating activities: Depreciation and amortization............... 44,113,600 30,737,800 18,823,400 (Decrease)increase in allowance for losses... (8,300) (822,200) 1,596,100 (Gain)loss on sale of property and equipment. (103,700) (793,200) 426,000 Patronage dividends payable in common stock. 5,950,000 3,475,000 3,078,000 Stock option expense........................ 3,085,400 Deferred income taxes....................... 3,295,200 (1,236,000) (943,000) (Increase) decrease in operating assets net of the effects of business acquisitions and dispositions: Notes and accounts receivable............... 26,081,600 7,689,200 (9,644,100) Merchandise inventories..................... (3,312,300) (377,100) (3,723,000) Prepaid expenses............................ (3,936,200) (812,600) 6,300 Other assets................................ 526,800 (1,193,800) (269,100) Increase(decrease) in operating liabilities net of the effects of business acquisitions and dispositions: Accounts payable............................ (3,884,100) 16,679,800 9,045,300 Accrued expenses............................ (12,420,200) 4,037,500 10,009,400 Income taxes................................ (1,528,300) (3,992,800) 984,000 Other liabilities........................... (4,276,800) 3,673,800 5,732,500 ----------- ----------- ----------- Net cash flows provided by operating activities. 76,280,900 81,256,000 52,731,200 ----------- ----------- ----------- Cash Flows From Investing Activities: Capital expenditures - net of insurance proceeds.................................... (32,614,300) (37,706,300) (35,868,500) Proceeds from sale of property and equipment and other productive assets................. 4,391,800 4,861,100 1,363,000 Payment for business acquisitions net of cash acquired............................... (78,828,400) (128,615,400) (7,812,100) Other real estate............................. (9,700) (304,400) (1,623,800) Decrease(increase) in notes receivable........ 1,665,700 9,682,000 (759,600) ----------- ----------- ----------- Net cash flows used in investing activities..... (105,394,900) (152,083,000) (44,701,000) ----------- ----------- ----------- Cash Flows From Financing Activities: Proceeds from long-term borrowings............ 88,000,000 175,494,700 Reductions in debt............................ (48,055,800) (128,390,400) (10,159,700) Payments for debt issuance costs.............. (1,207,500) (1,050,000) Proceeds from sale of common stock............ 1,126,900 1,414,600 1,961,800 Common stock purchased........................ (5,126,400) (5,134,400) (3,541,000) ----------- ----------- ----------- Net cash flows provided by (used in) financing activities.......................... 34,737,200 42,334,500 (11,738,900) ----------- ----------- ----------- Net Increase(Decrease)in Cash and Cash Equivalents 5,623,200 (28,492,500) (3,708,700) Cash And Cash Equivalents, Beginning Of Year.... 39,893,300 68,385,800 72,094,500 ----------- ----------- ---------- Cash And Cash Equivalents, End Of Year.......... $45,516,500 $39,893,300 $68,385,800 =========== =========== =========== Cash Paid During The Year For: Interest...................................... $19,026,000 $13,672,100 $ 6,574,600 Income Taxes.................................. 14,006,600 19,897,900 11,965,700 Supplemental Noncash Financing Activities: Patronage Dividends Payable in Common Stock... 5,950,000 3,475,000 3,078,000 Additional Pension Liability, net of tax...... 5,258,000 Interest Rate Swap, net of tax................ 3,409,000 Liabilities Assumed in Business Acquisitions.. 95,718,300 46,703,000 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 on the Saturday nearest to December 31. The years ended December 29, 2001, December 30, 2000 and January 1, 2000 included 52 weeks. Consolidation practice - The consolidated financial statements include the accounts of the Company and its subsidiaries. Significant intercompany balances and transactions are eliminated. Revenue recognition - Wholesale revenues are recognized when product is shipped and retail revenues are recognized at the point of sale. Accounting Change -- During 2001, the Emerging Issues Task Force ("EITF") reached a consensus on EITF 01-9, "Accounting for Consideration Given by a Vendor to a Customer or a Reseller of the Vendor's Products." This pronouncement relates to the income statement classification of sales incentives and requires that the Company classify certain sales promotions offered to its retail customers as a reduction of net sales (versus cost of sales as previously recorded). The Company has adopted this pronouncement effective December 30, 2001. Net sales and service fees and cost of sales have been reduced by approximately $61.7 million, $53.7 million and $60.4 million for 2001, 2000 and 1999, respectively to retroactively restate the financial statements for the change. Use of estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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. On an ongoing basis, management reviews its estimates, including those related to allowances for doubtful accounts and notes receivable, valuation of inventories, self-insurance reserves, closed facilities reserves, purchase accounting estimates, useful lives for depreciation and amortization, valuation allowances for deferred income tax assets and litigation based on currently available information. Changes in facts and circumstances may result in revised estimates and actual results could differ from those estimates. 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, primarily 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) was amortized on a straight-line basis over 20 years. Accumulated amortization at December 29, 2001 and December 30, 2000 was $18,008,000 and $11,367,200, 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. During 2000, the Company charged $1,490,000 to operating and administrative expenses related to the closure of certain retail grocery stores. In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 142 requires that goodwill and intangible assets with indefinite useful lives recorded for acquisitions completed subsequent to June 30, 2001 no longer be amortized and the amortization of goodwill and intangible assets with indefinite useful lives recorded for acquisitions completed prior to June 30, 2001 cease upon adoption of the statement. Instead, the carrying value of goodwill and intangible assets with indefinite useful lives will be evaluated for impairment on an annual basis. The Company will adopt SFAS No. 142 on December 30, 2001. Amortization of goodwill recorded by the Company in 2001 was $6,640,800. The Company is currently evaluating the provisions of this statement with respect to impairment and has not yet determined the impact on its consolidated financial statements. 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 operating and administrative expenses in 2001 and 2000 for the present value of these remaining future liabilities approximated $0.5 million and $4.2 million, respectively. The amounts charged to operating and administrative expenses in 1999 were not significant. Income Taxes - The Company provides for 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. Related Parties - During 2001, 2000 and 1999, the Company had wholesale sales to related party retailers in the amounts of $658,728,000, $602,552,000 and $966,844,000, respectively. In addition, the Company received sublease payments from related party retailers of $8,058,700, $7,136,100 and $11,819,900 for 2001, 2000, and 1999, respectively. During 2000, the Company sold a retail grocery store to a related party for approximately $4.1 million. During 1999, the Company sold land to a related party retailer for approximately $1.5 million. Reclassification - Certain amounts previously reported have been reclassified to conform to the current presentation. 2. Acquisitions ---------------- Effective May 20, 2001, the Company acquired all of the outstanding stock of The Copps Corporation for approximately $96.2 million in cash. The Copps Corporation owned and operated 21 retail grocery stores and a wholesale distribution center. The operating results of The Copps Corporation are included in the Statements of Consolidated Earnings after the effective date. Goodwill of approximately $9.9 million resulted from the purchase. The Company financed the acquisition with the proceeds of a Credit Agreement (see Note 5). The acquisition was accounted for as a purchase and the consolidated financial statements reflect the preliminary allocation of the purchase price to the assets acquired and liabilities assumed based on their fair values. The Company anticipates finalizing the purchase price allocation in the first quarter of 2002, but does not anticipate any significant changes. On March 31, 2000, the Company acquired all of the outstanding stock of Mega Marts, Inc. ("Mega") for approximately $125.0 million in cash and notes payable. Mega owned and operated 16 retail grocery stores. Also on March 31, 2000, the Company acquired certain assets of NDC, Inc. (an affiliate of Mega) consisting of a retail grocery store known as the "Tri-City Pick 'n Save" ("TCPS") for approximately $11.2 million in cash. The acquisitions were effective at the end of the day on April 1, 2000 and the operating results of Mega and TCPS were included in the Statements of Consolidated Earnings after the effective date. Goodwill of approximately $84.8 million resulted from the purchase. The Company financed the acquisitions with the proceeds of a Credit Agreement and $39 million in promissory notes issued to the shareholders of Mega. The acquisitions were accounted for as purchases and the consolidated financial statements reflect the allocation of the purchase price to the assets acquired and liabilities assumed based on their fair values. Included in the assets of Mega were 132,330 shares of the Company's Class A and Class B common stock. A portion of the purchase price was allocated to such treasury shares acquired based on the net book value of the Company's common stock as of January 1, 2000. Unaudited pro-forma consolidated results of operations, including The Copps Corporation, Mega and TCPS as if they had been acquired at the beginning of each period follows:
For the Year Ended: --------------------------------------------------------- December 29, 2001 December 30, 2000 January 1, 2000 ----------------- ----------------- --------------- Net sales and service fees $3,621,531,800 $3,608,503,800 $3,437,676,800 Net earnings 25,049,900 17,832,600 13,432,300
Pro-forma results are not necessarily indicative of what would have occurred had the acquisitions been consummated as of the beginning of the periods. Pro-forma results include additional depreciation and the amortization of intangible assets resulting from the purchases and additional interest expense as if the funds borrowed in connection with the acquisitions had been outstanding from the beginning of each period. On February 2, 2000, the Company purchased 7 retail grocery stores for approximately $37.7 million in cash. Operating results of such stores have been included in the Statements of Consolidated Earnings since the acquisition date. Goodwill of approximately $21.5 million resulted from the purchase. The acquisition was accounted for as a purchase and the consolidated financial statements reflect the allocation of the purchase price to the assets acquired based on their fair values. The pro-forma effects of the acquisition were not material. On April 12, 1999, the Company purchased a grocery retailer for approximately $5.7 million in cash. On August 24, 1999, the Company purchased a grocery retailer for $2.1 million 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. The pro-forma effects of these acquisitions were not material. 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. The dividends are payable at least 20% in cash and the remainder in Class B common stock. Dividends for the years ended December 29, 2001, December 30, 2000 and January 1, 2000 were generally 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 totaling $2,945,200 and $2,364,000 at December 29, 2001 and December 30, 2000, respectively. The Company is exposed to credit risk with respect to accounts receivable, although it is generally limited. The Company continually monitors its receivables with customers by reviewing, among other things, credit terms, collateral and guarantees. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 5. Long-Term Debt ----------------- Long-term debt consists of the following at the respective year-ends: 2001 2000 ------------- ----------- Senior notes payable: 6.30%, due 2002 to 2007..................... $130,000,000 $ 80,000,000 Notes payable under revolving credit agreement, 4.56%, due 2006.................. 59,000,000 61,000,000 Subordinated notes payable, 8.25%, due 2002 to 2005............................ 25,350,000 33,150,000 Capital lease obligations, 7.55% to 11.00%, due 2002 to 2020............................ 13,987,100 Other long-term debt.......................... 211,400 252,400 ------------ ------------ 228,548,500 174,402,400 Current maturities............................ 27,717,000 7,837,700 ------------ ------------ Total long-term debt,less current maturities.. $200,831,500 $166,564,700 ============ ============ On May 18, 2001, the Company entered into an Amended and Restated Credit Agreement with various lenders which allows the Company to borrow up to an aggregate amount of $300,000,000. The Credit Agreement provides for a $170,000,000 revolving loan commitment and a $130,000,000 term loan. The revolving loan commitment and the term loan bear interest based upon LIBOR and Prime rates. The Credit Agreement includes covenants that, among others, limits stock repurchases and additional borrowings and provides for minimum net worth requirements ($166,169,000 at December 29, 2001). At December 29, 2001, $101,606,000 was available to the Company under its revolving credit agreement. The Company's assets are pledged as collateral to the Credit Agreement. On April 4, 2000, the Company entered into a five-year interest rate swap agreement under which the Company pays a fixed rate of 7.32% and receives a floating LIBOR rate. The effect of the swap agreement is to fix the rate on $60,000,000 of borrowings under the revolving loan commitment. For the year ended December 29, 2001, the total net cost, recorded as interest expense, of converting from floating rate to fixed rate was $1,742,300. In June 1998, the Financial Accounting Standards Board ("the FASB") issued SFAS 133, "Accounting for Derivative Instruments and Hedging Activities," subsequently amended by SFAS 137 and SFAS 138. SFAS 133 was adopted for the Company's fiscal year beginning December 31, 2000, and required the Company to record all derivatives on the balance sheet at fair value. Changes in derivative fair values are either recognized in earnings or, for cash-flow hedges, deferred and recorded as a component of other comprehensive income until the hedged transactions occur and are recognized in earnings. The ineffective portion of a hedging derivative's change in fair value is immediately recognized in earnings. For a derivative that doesn't qualify as a hedge, changes in fair value are recognized in earnings. On December 31, 2000, upon adoption of SFAS 133, the Company recognized a transition adjustment relating to the interest rate swap for approximately $2.0 million, net of tax of $1.4 million, in stockholders' equity as accumulated other comprehensive loss. The interest rate swap qualifies as a cash-flow hedge and the fair value of the Company's interest rate swap, based on the net cost to settle the transaction at December 29, 2001 was approximately $3.4 million, net of tax of $2.6 million and is recorded as accumulated other comprehensive loss in the Company's consolidated balance sheet. Repayment of principal on long-term debt outstanding is as follows: 2002............................... $27,717,000 2003............................... 34,260,900 2004............................... 34,307,000 2005............................... 28,503,300 2006............................... 85,556,500 Thereafter......................... 18,203,800 6. Fair Value of Financial Instruments --------------------------------------- The Company's financial instruments consist primarily of cash, accounts and notes receivable, accounts payable, accrued liabilities, interest rate swap and long-term debt. The carrying amounts for cash, accounts and notes receivable, accounts payable and accrued liabilities approximate their fair values. Based on the borrowing rates currently available to the Company for long-term debt with similar terms and maturities, the fair value of long-term debt, including current maturities, is approximately $229,628,000 and $173,912,000 as of December 29, 2001 and December 30, 2000, respectively. The fair value (and carrying value) of the Company's interest rate swap based on the net cost to settle the transaction at December 29, 2001 was a liability of approximately $6.0 million. The fair value of the swap at December 30, 2000 was a liability of approximately $3.4 million (no carrying value). 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 each 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 $170.20, $153.60 and $129.95 for 2001, 2000 and 1999, 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 December 29, 2001 and December 30, 2000, 54,313 and 66,066 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 19,642, 16,361, 10,144, 5,595 and 2,571 in 2002, 2003, 2004, 2005 and 2006, respectively. 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 at an exercise/base price equal to the book value of the Company's common stock as of the preceding year-end. No options or SARs may be granted under the Plan after November 30, 2001. Option and SAR transactions are as follow: Options Option Weighted Options SARs Price Average Price ------- ------ -------------- ------- Outstanding, January 2, 1999.... 50,000 21,000 $53.10-$104.35 $ 67.96 ------ ------ -------------- Outstanding, January 1, 2000.... 50,000 21,000 53.10- 104.35 67.96 Exercised..................... (400) (3,400) 94.30 94.30 Granted....................... 1,000 184 129.95 129.95 ------ ------ -------------- Outstanding, December 30, 2000.. 50,600 17,784 $53.10-$129.95 68.97 Exercised..................... (2,500) (1,450) 53.10- 94.30 77.82 Cancelled..................... (50) ------ ------ -------------- Outstanding, December 29, 2001.. 48,100 16,284 $53.10-$129.95 68.51 ====== ====== ============== Exercisable at December 29, 2001 47,766 16,222 $53.10-$129.95 68.08 ====== ====== ============== Options exercisable at December 30, 2000 and January 1, 2000 were 48,398 and 46,516 with a weighted average price of $67.17 and $65.91, respectively. The following table summarizes information concerning currently outstanding and exercisable options: Stock Options Outstanding Stock Options Exercisable ----------------------------- ------------------------- Weighted Average Weighted Weighted Number Remaining Average Number Average Range of Exercise of Contractual Exercise of Exercise Price ($) Shares Life Price Shares Price ----------------- ------- ----------- --------- --------- ------------ 50.00- 70.00 32,500 5.8 $ 57.90 32,500 $ 57.90 70.01- 90.00 8,000 9.0 77.40 8,000 77.40 90.01-110.00 6,600 10.9 100.70 6,600 100.70 110.01-130.00 1,000 13.6 129.95 666 129.95 ------ ------- ------ ------- 48,100 $ 68.51 47,766 $ 68.08 ====== ======= ====== ======= Options granted become exercisable based on the vesting rate which generally 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 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 2001, 2000 and 1999. 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. During 2000, the Company extended the term of all of its previously granted stock options resulting in a compensation charge of $3,085,400. Compensation expense was immaterial for 2001 and 1999. If the Company had elected to recognize compensation cost for the Plan based on the fair value of the options at the grant dates, consistent with the method prescribed by SFAS No. 123, pro-forma net earnings in 2001 and 1999 would have decreased by less than $100,000, while the effect on 2000 net earnings would have been an approximate increase of $685,000. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 8. Employee Benefit Plans -------------------------- Substantially all non-union employees of the Company and employees of its subsidiaries are covered by defined benefit pension plans. Benefits are based on either years of service and the employee's highest compensation during five of the most recent ten years of employment or on stated amounts for each year of service. The Company intends to annually contribute only the minimum contributions required by applicable regulations. The following tables set forth pension obligations and plan assets as of December 29, 2001 and December 30, 2000: 2001 2000 ------------ ------------ Change in benefit obligation: Benefit Obligation - Beginning of Year.. $ 59,296,700 $ 49,179,000 Service cost............................ 4,336,100 2,895,700 Interest cost........................... 5,174,800 3,916,000 Actuarial loss.......................... 3,999,700 5,055,600 Benefits paid........................... (2,264,900) (1,749,600) Business acquisition.................... 17,777,700 ------------ ------------ Benefit Obligation - End of Year........ $ 88,320,100 $ 59,296,700 ============ ============ Change in plan assets: Fair Value - Beginning of Year.......... $ 46,950,300 $ 47,949,800 Actual return on plan assets............ (4,553,300) (3,136,400) Company contribution.................... 4,811,300 3,886,500 Benefits paid........................... (2,264,900) (1,749,600) Business acquisition.................... 14,217,800 ------------ ------------ Fair Value - End of Year................ $ 59,161,200 $ 46,950,300 ============ ============ Funded status: As of year-end.......................... $(29,158,900) $(12,346,400) Unrecognized cost: Actuarial and investment losses, net.. 21,809,600 8,319,400 Prior service cost.................... 144,600 180,400 Transition asset...................... (66,100) (199,200) Additional minimum liability.......... (9,226,000) ------------ ------------ Accrued benefit cost.................... $(16,496,800) $ (4,045,800) ============ ============
2001 2000 1999 The components of pension cost are as follows: ---------- ---------- ---------- Benefits earned during the year.............. $4,336,100 $2,895,700 $3,099,300 Interest cost on projected benefit obligation 5,174,800 3,916,000 3,604,300 Expected return on plan assets............... (5,083,400) (4,393,000) (3,771,100) Net amortization and deferral: Unrecognized net loss(gain)................ 173,700 (1,100) 110,900 Unrecognized prior service cost............ 35,900 35,900 35,900 Unrecognized net asset..................... (133,200) (174,000) (174,100) ---------- ---------- ---------- Net pension cost............................. $4,503,900 $2,279,500 $2,905,200 ========== ========== ========== The assumptions used in the accounting were as 2001 2000 1999 follows: ---------- ---------- ---------- Discount rate................................ 7.25% 7.50% 8.00% 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 2001 resulted in an increase of $3,452,300 in the projected benefit obligation in 2001, and is expected to result in an increase in the 2002 pension expense of approximately $500,000. 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 $7,036,900, $5,378,000 and $5,093,900 in 2001, 2000 and 1999, respectively. The Company has a defined contribution plan covering substantially all salaried and hourly employees not covered by collective bargaining agreements. Total expense for the plan amounted to $1,920,900, $1,248,600 and $1,251,500 in 2001, 2000 and 1999, respectively. Also, the Company has a defined contribution plan covering certain hourly employees covered by a collective bargaining agreement. Total expense for the plan amounted to $732,500 and $687,400 in 2001 and 2000, respectively. 9. Income Taxes --------------- Federal income tax at the statutory rate of 35% in 2001, 2000 and 1999 and income tax expense as reported are reconciled as follows: 2001 2000 1999 ----------- ----------- ---------- Federal income tax at statutory rate. $14,573,700 $12,446,900 $10,366,500 State income taxes, net of federal tax benefits....................... 1,928,700 2,279,200 1,565,000 Resolution of prior year tax matters. (2,360,300) (620,000) Non-deductible goodwill.............. 1,813,000 1,272,600 252,100 Other - net.......................... (99,600) (921,200) (174,300) ----------- ----------- ----------- Income tax expense................... $15,855,500 $14,457,500 $12,009,300 =========== =========== ===========
The approximate tax effects of temporary differences at December 29, 2001 and December 30, 2000 are as follows: 2001 2000 ---------------------------------------- ---------------------------------------- Assets Liabilities Total Assets Liabilities Total ----------- ----------- ----------- ---------- ----------- ---------- Allowance for doubtful accounts.. $ 1,535,000 $ 1,535,000 $1,009,000 $1,009,000 Inventories...................... $(2,783,000) (2,783,000) $(2,565,200) (2,565,200) Employee benefits................ 11,416,000 11,416,000 9,603,000 9,603,000 Accrued expenses not currently deductible..................... 2,236,000 2,236,000 2,203,000 2,203,000 Other............................ (2,711,000) (2,711,000) ----------- ------------- ----------- ---------- ----------- ---------- Current.......................... 15,187,000 (5,494,000) 9,693,000 12,815,000 (2,565,200) 10,249,800 ----------- ------------- ----------- ---------- ----------- ---------- Allowance for doubtful accounts.. 527,000 527,000 860,000 860,000 Depreciation and amortization.... (26,482,000) (26,482,000) (14,136,000) (14,136,000) Employee benefits................ 9,101,000 9,101,000 4,013,000 4,013,000 Accrued expenses not currently deductible..................... 9,126,000 9,126,000 6,887,000 6,887,000 Net operating loss carryforwards. 6,200,000 6,200,000 Other............................ 937,000 937,000 (2,433,000) (2,433,000) ----------- ------------- ----------- ---------- ----------- --------- Noncurrent................... 25,891,000 (26,482,000) (591,000) 11,760,000 (16,569,000) (4,809,000) ----------- ------------- ----------- ---------- ----------- --------- Total............................ $41,078,000 $(31,976,000) $9,102,000 $24,575,000 $(19,134,200) $ 5,440,800 =========== ============= =========== =========== ============ ===========
Management believes that it is more likely than not that current and long-term deferred tax assets will be realized through the reduction of future taxable income. Significant factors considered by management in its determination include the historical operating results of the Company (approximately $105 million of United States taxable income over the past three years), and expectations of future earnings. As of December 29, 2001, the Company has federal and state net operating loss carryforwards (acquired in the Copps acquisition) of approximately $13 million and $29 million, respectively. The Company's utilization of these losses is limited under both federal and state law. If unutilized, the federal net operating loss will expire in 2020, and the state net operating losses will expire during the period of 2015 through 2020. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 10. Lease Obligations and Contigent Liabilities ------------------------------------------------ Rental payments and related subleasing rentals under operating leases are as follows: RENTAL PAYMENTS --------------------------- SUBLEASING MINIMUM CONTINGENT RENTALS ----------- ---------- ----------- 1999 ....... $30,083,100 $445,900 $23,312,300 2000 ....... 34,733,700 480,400 23,282,700 2001 ....... 40,581,200 704,000 21,818,400 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 December 29, 2001: Operating Capitalized Leases Leases ----------- ----------- 2002........................ $ 37,504,000 $ 1,564,200 2003........................ 35,273,700 1,571,600 2004........................ 33,050,800 1,575,300 2005........................ 30,978,500 1,575,300 2006........................ 30,124,800 1,575,300 Thereafter.................. 172,401,200 18,483,800 ------------ ----------- Total....................... $339,333,000 26,345,500 ============ Amount representing interest 12,358,400 ----------- Present value of net minimum lease payments............ 13,987,100 Current portion............. 375,000 ----------- Long-term portion........... $13,612,100 =========== Total minimum rentals to be received in the future under non-cancelable subleases as of December 29, 2001 are $179,382,300. 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 1998, fire destroyed the Evansville, Indiana warehouse, inventory and equipment. As of December 30, 2000, all insurance claims related to the fire had been settled. During 2000 and 1999, the Company recorded gains of $3.3 million and $5.5 million, respectively, related to the insurance settlements. These amounts are reflected in Other-net revenues in the Company's Statements of Consolidated Earnings. 13. Segment Reporting --------------------- The Company and its subsidiaries sell and distribute food and nonfood products that are typically found in supermarkets primarily located in the Midwest. The Company's wholesale distribution segment sells to both Company-owned and independent retail food stores, while the retail segment sells directly to the consumer. In 2001 and 2000, no customer accounted for over 10% of net sales and service fees. During 1999, the Company had one customer which accounted for 12.4% of the Company's net sales and service fees. Eliminations represent the activity between wholesale and Company-owned retail stores. Inter-segment revenues are recorded at amounts consistent with those charged to independent retail stores. Identifiable assets are those used exclusively by that industry segment. Corporate assets are principally cash and cash equivalents, notes receivable, transportation equipment, corporate office facilities and equipment. 2001 2000 1999 NET SALES AND SERVICE FEES -------------- -------------- -------------- Wholesale.................. $2,894,011,900 $2,628,025,700 $2,549,774,900 Retail..................... 1,377,133,300 891,666,200 323,857,300 Eliminations............... (883,383,700) (589,658,500) (216,800,200) -------------- -------------- -------------- Total................. $3,387,761,500 $2,930,033,400 $2,656,832,000 ============== ============== ============== EARNINGS BEFORE PATRONAGE DIVIDENDS, DEPRECIATION AND AMORTIZATION Wholesale.................. $ 63,014,500 $ 59,492,900 $ 58,789,500 Retail..................... 43,351,900 21,878,800 5,261,600 Corporate.................. (11,933,100) (10,035,900) (9,162,100) -------------- -------------- -------------- Total................. $ 94,433,300 $ 71,335,800 $ 54,889,000 ============== ============== ============== DEPRECIATION AND AMORTIZATION Wholesale.................. $ 9,604,000 $ 7,759,400 $ 7,432,200 Retail..................... 24,787,900 15,166,500 4,961,400 Corporate.................. 9,721,700 7,811,900 6,429,800 -------------- ------------- -------------- Total................. $ 44,113,600 $ 30,737,800 $ 18,823,400 ============== ============= ============== INTEREST Wholesale.................. $ 3,580,800 $ 1,655,200 $ 2,095,300 Retail..................... 12,179,700 8,180,000 1,069,000 Corporate.................. 1,937,200 5,627,500 3,339,300 -------------- ------------- -------------- Total................. $ 17,697,700 $ 15,462,700 $ 6,503,600 ============== ============= ============== CAPITAL EXPENDITURES Wholesale.................. $ 9,726,900 $ 8,851,100 $ 17,846,700 Retail..................... 10,960,900 14,558,100 3,365,200 Corporate.................. 11,926,500 14,297,100 14,656,600 -------------- ------------- -------------- Total................. $ 32,614,300 $ 37,706,300 $ 35,868,500 ============== ============= ============== IDENTIFIABLE ASSETS Wholesale.................. $ 366,851,300 $ 301,567,800 $ 317,858,300 Retail..................... 325,025,700 271,545,200 64,086,900 Corporate.................. 102,633,400 89,259,200 115,379,500 -------------- -------------- -------------- Total................. $ 794,510,400 $ 662,372,200 $ 497,324,700 ============== ============== ==============
14. Condensed Consolidating Financial Information -------------------------------------------------- The following presents condensed consolidating financial statements of Roundy's, Inc. and its subsidiaries. All subsidiaries are 100% owned by Roundy's, Inc. The accounting policies for all entities are consistent with those previously described herein. ---------------------------------------------------------------- Condensed Consolidating Statement of Earnings For the Year Ended December 29, 2001 ---------------------------------------------------------------- Combined Roundy's, Inc. Subsidiaries Eliminations Total -------------- -------------- ------------- -------------- Revenues: Net sales and service fees... $1,464,319,100 $2,585,671,000 $(662,228,600) $3,387,761,500 Other - net.................. 16,346,400 1,969,800 (16,259,000) 2,057,200 -------------- -------------- ------------- -------------- 1,480,665,500 2,587,640,800 (678,487,600) 3,389,818,700 -------------- -------------- ------------- -------------- Cost and Expenses: Cost of sales................ 1,346,748,900 2,161,474,000 (651,460,300) 2,856,762,600 Operating and administrative. 99,052,300 376,754,700 (10,768,300) 465,038,700 Interest..................... 17,100,400 16,856,300 (16,259,000) 17,697,700 -------------- -------------- ------------- -------------- 1,462,901,600 2,555,085,000 (678,487,600) 3,339,499,000 -------------- -------------- ------------- -------------- Earnings Before Patronage Dividends.................. 17,763,900 32,555,800 - 50,319,700 Patronage Dividends.......... 16,022,900 (7,342,300) - 8,680,600 -------------- -------------- ------------- -------------- Earnings Before Income Taxes. 1,741,000 39,898,100 - 41,639,100 -------------- -------------- ------------- -------------- Provision for Income Taxes... 658,000 15,197,500 - 15,855,500 Equity in earnings of subsidiaries............... 24,700,600 - (24,700,600) - -------------- -------------- ------------- -------------- Net Earnings................. $ 25,783,600 $ 24,700,600 $ (24,700,600) $ 25,783,600 ============== ============== ============= ==============
---------------------------------------------------------------- Condensed Consolidating Statement of Earnings For the Year Ended December 30, 2000 ---------------------------------------------------------------- Combined Roundy's, Inc. Subsidiaries Eliminations Total -------------- -------------- ------------- -------------- Revenues: Net sales and service fees... $1,374,642,600 $2,092,196,500 $(536,805,700) $2,930,033,400 Other - net.................. 12,507,000 6,673,600 (12,007,000) 7,173,600 -------------- -------------- ------------- -------------- 1,387,149,600 2,098,870,100 (548,812,700) 2,937,207,000 -------------- -------------- ------------- -------------- Cost and Expenses: Cost of sales................ 1,268,877,900 1,799,444,600 (527,589,100) 2,540,733,400 Operating and administrative. 85,784,700 263,844,800 (9,216,600) 340,412,900 Interest..................... 21,931,700 5,538,000 (12,007,000) 15,462,700 -------------- -------------- ------------- -------------- 1,376,594,300 2,068,827,400 (548,812,700) 2,896,609,000 -------------- -------------- ------------- -------------- Earnings Before Patronage Dividends.................. 10,555,300 30,042,700 - 40,598,000 Patronage Dividends.......... 9,196,400 (4,161,100) - 5,035,300 -------------- -------------- ------------- -------------- Earnings Before Income Taxes. 1,358,900 34,203,800 - 35,562,700 -------------- -------------- ------------- -------------- Provision for Income Taxes... 544,800 13,912,700 - 14,457,500 Equity in earnings of subsidiaries............... 20,291,100 - (20,291,100) - -------------- -------------- ------------- -------------- Net Earnings................. $ 21,105,200 $ 20,291,100 $ (20,291,100) $ 21,105,200 ============== ============== ============= ==============
---------------------------------------------------------------- Condensed Consolidating Statement of Earnings For the Year Ended January 1, 2000 ---------------------------------------------------------------- Combined Roundy's, Inc. Subsidiaries Eliminations Total -------------- -------------- ------------- -------------- Revenues: Net sales and service fees... $1,277,011,700 $1,551,369,100 $(171,548,800) $2,656,832,000 Other - net.................. 2,567,400 8,313,700 (763,200) 10,117,900 -------------- -------------- ------------- -------------- 1,279,579,100 1,559,682,800 (172,312,000) 2,666,949,900 -------------- -------------- ------------- -------------- Cost and Expenses: Cost of sales................ 1,178,811,200 1,379,737,400 (168,470,700) 2,390,077,900 Operating and administrative. 82,464,600 154,916,300 (3,078,100) 234,302,800 Interest..................... 7,172,300 94,500 (763,200) 6,503,600 -------------- -------------- ------------- -------------- 1,268,448,100 1,534,748,200 (172,312,000) 2,630,884,300 -------------- -------------- ------------- -------------- Earnings Before Patronage Dividends.................. 11,131,000 24,934,600 - 36,065,600 Patronage Dividends.......... 7,496,900 (1,050,000) - 6,446,900 -------------- -------------- ------------- -------------- Earnings Before Income Taxes. 3,634,100 25,984,600 - 29,618,700 -------------- -------------- ------------- -------------- Provision for Income Taxes... 1,473,500 10,535,800 - 12,009,300 Equity in earnings of subsidiaries............... 15,448,800 - (15,448,800) - -------------- -------------- ------------- -------------- Net Earnings................. $ 17,609,400 $ 15,448,800 $ (15,448,800) $ 17,609,400 ============== ============== ============= ==============
---------------------------------------------------------------- Condensed Consolidating Balance Sheet As of December 29, 2001 ---------------------------------------------------------------- Combined Roundy's, Inc. Subsidiaries Eliminations Total -------------- -------------- ------------- -------------- Assets ------ Current Asset: Cash and cash equivalents... $ 23,137,200 $ 22,379,300 $ - $ 45,516,500 Notes and accounts receivable - net.......... 25,725,000 66,360,600 (17,301,700) 74,783,900 Merchandise inventories..... 68,760,200 178,718,100 88,800 247,567,100 Prepaid expenses and other.. 12,140,200 15,302,700 - 27,442,900 ------------ ------------ ------------- -------------- Total current assets.... 129,762,600 282,760,700 (17,212,900) 395,310,400 ------------ ------------ ------------- -------------- Other Assets: Investment in subsidiaries.. 147,160,000 - (147,160,000) - Intercompany receivables.... 302,359,300 - (302,359,300) - Goodwill and other intangibles............... 2,527,100 114,879,100 - 117,406,200 Other....................... 1,224,800 10,480,300 - 11,705,100 ------------ ------------ ------------- -------------- Total other assets...... 453,271,200 125,359,400 (449,519,300) 129,111,300 ------------ ------------ ------------- -------------- Property and Equipment - At Cost................... 49,498,400 376,828,800 - 426,327,200 Less accumulated depreciation and amortization.......... 25,471,400 130,767,100 - 156,238,500 ------------ ------------ ------------- -------------- Property and equipment - net................. 24,027,000 246,061,700 - 270,088,700 ------------ ------------ ------------- -------------- $607,060,800 $654,181,800 $(466,732,200) $794,510,400 ============ ============ ============= ============== Liabilities and Stockholders' Equity ------------------------------------ Current Liabilities: Current maturities of long-term debt............ $ 27,300,000 $ 417,000 $ - $ 27,717,000 Accounts payable............ 135,341,600 118,244,800 (9,937,100) 243,649,300 Intercompany payable........ - 302,359,300 (302,359,300) - Accrued expenses............ 54,605,900 51,673,800 (7,275,800) 99,003,900 ------------ ------------ ------------- ------------ Total current liabilities 217,247,500 472,694,900 (319,572,200) 370,370,200 ------------ ------------ ------------- ------------ Long-Term Debt, Less Current Maturities.................. 187,050,000 13,781,500 - 200,831,500 Other Liabilities............ 23,027,200 20,545,400 - 43,572,600 ------------ ------------ ------------- ------------ Total liabilities....... 427,324,700 507,021,800 (319,572,200) 614,774,300 ------------ ------------ ------------- ------------ Redeemable Common Stock...... 9,244,100 - - 9,244,100 ------------ ------------ ------------- ------------ Stockholders' Equity......... 170,492,000 147,160,000 (147,160,000) 170,492,000 ------------ ------------ ------------- ------------ $670,060,800 $654,181,800 $(466,732,200) $794,510,400 ============ ============ ============= ============
---------------------------------------------------------------- Condensed Consolidating Balance Sheet As of December 30, 2000 ---------------------------------------------------------------- Combined Roundy's, Inc. Subsidiaries Eliminations Total -------------- -------------- ------------- -------------- Assets ------ Current Asset: Cash and cash equivalents... $ 21,803,000 $ 18,090,300 $ - $ 39,893,300 Notes and accounts receivable - net.......... 28,667,300 65,330,900 (10,823,900) 83,174,300 Merchandise inventories..... 60,636,100 136,587,000 760,800 197,983,900 Prepaid expenses and other.. 13,760,400 3,784,000 - 17,544,400 ------------ ------------ ------------- -------------- Total current assets.... 124,866,600 223,792,200 (10,063,100) 338,595,900 ------------ ------------ ------------- -------------- Other Assets: Investment in subsidiaries.. 122,722,600 - (122,722,600) - Intercompany receivables.... 243,017,900 - (243,017,900) - Goodwill and other intangibles............... 1,976,000 111,873,400 - 113,849,400 Other....................... 1,707,900 10,278,100 - 11,986,000 ------------ ------------ ------------- -------------- Total other assets...... 369,424,400 122,151,500 (365,740,500) 125,835,400 ------------ ------------ ------------- -------------- Property and Equipment - At Cost................... 43,954,500 282,665,400 - 326,619,900 Less accumulated depreciation and amortization.......... 21,729,000 106,950,000 - 128,679,000 ------------ ------------ ------------- -------------- Property and equipment - net................. 22,225,500 175,715,400 - 197,940,900 ------------ ------------ ------------- -------------- $516,516,700 $521,659,100 $(375,803,600) $662,372,200 ============ ============ ============= ============== Liabilities and Stockholders' Equity ------------------------------------ Current Liabilities: Current maturities of long-term debt............ $ 7,800,000 $ 37,700 $ - $ 7,837,700 Accounts payable............ 117,794,900 101,071,400 (4,101,900) 214,764,400 Intercompany payable........ - 243,017,900 (243,017,900) - Accrued expenses............ 43,030,100 40,154,200 (5,961,200) 77,223,100 ------------ ------------ ------------- ------------ Total current liabilities 168,625,000 384,281,200 (253,081,000) 299,825,200 ------------ ------------ ------------- ------------ Long-Term Debt, Less Current Maturities.................. 166,350,000 214,700 - 166,564,700 Other Liabilities............ 20,872,800 14,440,600 - 35,313,400 ------------ ------------ ------------- ------------ Total liabilities....... 355,847,800 398,936,500 (253,081,000) 501,703,300 ------------ ------------ ------------- ------------ Redeemable Common Stock...... 10,147,700 - - 10,147,700 ------------ ------------ ------------- ------------ Stockholders' Equity......... 150,521,200 122,722,600 (122,722,600) 150,521,200 ------------ ------------ ------------- ------------ $516,516,700 $521,659,100 $(375,803,600) $662,372,200 ============ ============ ============= ============
------------------------------------------------- Condensed Consolidating Statement of Cash Flows For the Year Ended December 29, 2001 ------------------------------------------------- Combined Roundy's, Inc. Subsidiaries Total -------------- -------------- -------------- Net Cash Flows From Operating Activities: $ 14,691,600 $ 61,589,300 $ 76,280,900 Cash Flows From Investing Activities: Capital expenditures - net of proceeds (7,071,200) (21,151,300) (28,222,500) Payment for business acquisitions net of cash acquired (78,828,400) - (78,828,400) Other real estate and notes receivable 647,200 1,008,800 1,656,000 ------------ ------------ ------------- Net cash flows used in investing activities (85,252,400) (20,142,500) (105,394,900) ------------ ------------ ------------- Cash Flows From Financing Activities: Proceeds from long-term borrowings 88,000,000 - 88,000,000 Reductions in debt (47,800,000) (255,800) (48,055,800) Intercompany receivables - net 36,902,000 (36,902,000) - Common stock purchased & sold and debt issuance costs (5,207,000) - (5,207,000) ------------ ------------ ------------- Net cash flows provided by (used in) financing activities 71,895,000 (37,157,800) 34,737,200 ------------ ------------ ------------- Net Increase in Cash and Cash Equivalents 1,334,200 4,289,000 5,623,200 Cash And Cash Equivalents, Beginning Of Year 21,803,000 18,090,300 39,893,300 ------------ ------------ ------------- Cash And Cash Equivalents, End Of Year $ 23,137,200 $ 22,379,300 $ 45,516,500 ============ ============ =============
------------------------------------------------- Condensed Consolidating Statement of Cash Flows For the Year Ended December 30, 2000 ------------------------------------------------- Combined Roundy's, Inc. Subsidiaries Total -------------- -------------- -------------- Net Cash Flows From Operating Activities: $ 29,566,600 $ 51,689,400 $ 81,256,000 Cash Flows From Investing Activities: Capital expenditures - net of proceeds (9,256,400) (23,588,800) (32,845,200) Payment for business acquisitions net of cash acquired (128,615,400) - (128,615,400) Other real estate and notes receivable 684,600 8,693,000 9,377,600 ------------ ------------ ------------- Net cash flows used in investing activities (137,187,200) (14,895,800) (152,083,000) ------------ ------------ ------------- Cash Flows From Financing Activities: Proceeds from long-term borrowings 175,494,700 - 175,494,700 Reductions in debt (128,359,000) (31,400) (128,390,400) Intercompany receivables - net 30,693,500 (30,693,500) - Common stock purchased & sold and debt issuance costs (4,769,800) - (4,769,800) ------------ ------------ ------------- Net cash flows provided by (used in) financing activities 73,059,400 (30,724,900) 42,334,500 ------------ ------------ ------------- Net (Decrease)Increase in Cash and Cash Equivalents (34,561,200) 6,068,700 (28,492,500) Cash And Cash Equivalents, Beginning Of Year 56,364,200 12,021,600 68,385,800 ------------ ------------ ------------- Cash And Cash Equivalents, End Of Year $ 21,803,000 $ 18,090,300 $ 39,893,300 ============ ============ =============
------------------------------------------------- Condensed Consolidating Statement of Cash Flows For the Year Ended January 1, 2000 ------------------------------------------------- Combined Roundy's, Inc. Subsidiaries Total -------------- -------------- -------------- Net Cash Flows From Operating Activities: $ 53,986,000 $ (1,254,800) $ 52,731,200 Cash Flows From Investing Activities: Acquisition of property and businesses - net of proceeds (16,600,000) (25,717,600) (42,317,600) Other 743,800 (3,127,200) (2,383,400) ------------ ------------ ------------- Net cash flows used in investing activities (15,856,200) (28,844,800) (44,701,000) ------------ ------------ ------------- Cash Flows From Financing Activities: Proceeds from long-term borrowings - - - Reductions in debt (10,125,300) (34,400) (10,159,700) Intercompany - net (25,696,200) 25,696,200 - Common stock purchased & sold and debt issuance costs (1,579,200) - (1,579,200) ------------ ------------ ------------- Net cash flows (used in) provided by financing activities (37,400,700) 25,661,800 (11,738,900) ------------ ------------ ------------- Net Increase(Decrease) in Cash and Cash Equivalents 729,100 (4,437,800) (3,708,700) Cash And Cash Equivalents, Beginning Of Year 55,635,100 16,459,400 72,094,500 ------------ ------------ ------------- Cash And Cash Equivalents, End Of Year $ 56,364,200 $ 12,021,600 $ 68,685,800 ============ ============ =============
15. Subsequent Event Disclosure -------------------------------- The Board of Directors of Roundy's, Inc. has authorized a Share Exchange Agreement between Roundy's and Roundy's Acquisition Corp. ("Buyer"), a subsidiary of Willis Stein & Partners III, L.P. pursuant to which the Buyer will acquire all of the issued and outstanding common stock of Roundy's.