Roundy’s,
Inc. RNDY $10.00-$12.00 18.2 million shares Underwriters:
Credit Suisse, J.P. Morgan, Jefferies, Baird, BMO Capital Markets Co-Managers: BB&T Capital
Markets, Rabo Securities Proposed trade date of 2/8 They are a leading
Roundy’s, Inc.
RNDY
Click here to view the prospectus.
http://www.sec.gov/Archives/edgar/data/1536035/000104746912000398/a2206977zs-1a.htm
Company Overview
They are a leading
Their
business is characterized by the following key elements:
Leading
Local Market Presence and Significant Regional Scale. They generate the majority of their
sales in markets where they hold the number one market share position and have
developed significant regional scale through their large, concentrated store
network. They have recently expanded into the contiguous
Compelling
Customer Value Proposition. They
offer their customers a compelling shopping experience compared to other food
retailers through a combination of competitive everyday pricing, attractive
promotions and a broad assortment of high quality nationally branded and
private label products, all complemented by their high level of customer
service.
Desirable
Locations and Attractive Store Format. Many of their stores are located in
desirable, high traffic locations in close proximity to the homes and places of
work of their target customers. Their store format enables them to offer an
expansive selection of well-displayed specialty products, such as prepared
foods, deli and bakery products, in a convenient, easy-to-shop environment. In
addition, they operated 97 full-service pharmacies within their stores as of
November 1, 2011.
They currently
intend to declare quarterly dividends of approximately $0.23 per share after
the completion of this offering. They currently expect the first quarterly
dividend will be paid after completion of the first quarter of 2012.
Retail Store Network
They operate retail grocery stores under their Pick
'n Save, Rainbow and Copps retail banners, and their
Mariano's Fresh Market and Metro Market specialty retail banners. Their store
base has grown through a combination of selective retail store acquisitions and
the opening of new stores in existing and contiguous markets. As a result, their
store count has increased from 60 at the time of their acquisition by Willis
Stein in June 2002 to 158 as of November 1, 2011. The following table
summarizes their store network as of the end of each of their last three fiscal
years and their most recently completed interim period, as well as the
comparable 2010 interim period:
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As of |
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Number
of Stores |
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January 3, 2009 |
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January 2, 2010 |
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January 1, 2011 |
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October 2, 2010 |
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October 1, 2011 |
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Pick 'n Save |
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|
94 |
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|
95 |
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|
94 |
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|
94 |
|
|
93 |
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Rainbow |
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|
31 |
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|
32 |
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|
32 |
|
|
32 |
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|
32 |
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Copps |
|
|
26 |
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|
26 |
|
|
26 |
|
|
26 |
|
|
26 |
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|
Metro Market |
|
|
1 |
|
|
1 |
|
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2 |
|
|
2 |
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3 |
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|
Mariano's Fresh Market |
|
|
— |
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— |
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1 |
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1 |
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3 |
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Total |
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152 |
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154 |
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155 |
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155 |
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157 |
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Their
Pick 'n Save, Rainbow and Copps retail banners are
operated as high volume, value oriented supermarkets that seek to offer
attractive prices and the best value among conventional food retailers in a
given market. Their value
price strategy is complemented by weekly promotions, a broad assortment of high
quality fresh produce and other perishable products, as well as a focus on
providing a high level of customer service and conveniences. Substantially
all stores have full-service deli, meat, seafood and bakery departments, and 97
stores feature full-service pharmacies.
Pick 'n Save. They
operate Pick 'n Save stores primarily in the
Rainbow. They operate Rainbow stores in the
Minneapolis/St. Paul area.
Copps. They
operate Copps stores primarily in the
Their Mariano's
Fresh Market and Metro Market specialty food retail banners combine their value
oriented conventional offering with an enhanced selection of full-service
premium perishable and prepared food departments.
Mariano's
Fresh Market. They
entered the
Metro
Market. They
opened their first Metro Market store in August 2004 primarily to serve
downtown
Products
They offer
their customers a wide variety of products, with a typical store stocking
approximately 45,000 different items. Their stores sell most nationally
advertised brands, as well as numerous products under their Roundy's Select,
Roundy's and Clear Value private label brands. Their products can broadly
be classified as non-perishable, perishable and non-food. In recent years,
they have enhanced the quality and selection of key perishable products to meet
growing customer demand due to an increased focus on healthy eating. Perishable
product sales also typically generate higher gross margins than non-perishable
products. As a result, the percentage of their net sales generated from
perishable products has increased in recent periods as illustrated by the table
below:
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Thirty-Nine Weeks Ended |
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Fiscal Year |
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October 2, 2010 |
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October 1, 2011 |
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Product
Type |
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2008 |
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2009 |
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2010 |
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Non-perishable |
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53.2 |
% |
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53.0 |
% |
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51.7 |
% |
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51.6 |
% |
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50.8 |
% |
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Perishable |
|
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31.8 |
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32.0 |
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32.3 |
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32.6 |
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33.3 |
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Non-food |
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15.0 |
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15.0 |
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16.0 |
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15.8 |
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15.9 |
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Total |
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|
100.0 |
% |
|
100.0 |
% |
|
100.0 |
% |
|
100.0 |
% |
|
100.0 |
% |
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They
generally classify their products into the following primary categories:
grocery, frozen & dairy; produce; meat & seafood; bakery;
deli, cheese & prepared foods; floral; beer, wine & spirits;
pharmacy and health & beauty care.
IPO Detail
This is the initial public offering of Roundy’s, Inc. and no public
market currently exists for its common stock. Roundy’s is offering 18,181,818
shares of common stock as described in the prospectus. The company expects the
initial public offering price of its common stock to be between $10.00 and
$12.00 per share. The company has applied to list its common stock on the New
York Stock Exchange under the symbol “RNDY.”
|
Common
stock offered by the company |
11,363,636 shares |
|
Common
stock offered by the selling shareholder |
6,818,182
shares |
|
Common
stock to be outstanding immediately after this offering |
41,481,466 shares |
Use of Proceeds
They
estimate that the net proceeds to them from their issuance and sale of
11,363,636 shares of common stock in this offering will be approximately
$111.15 million. They will not receive any of the proceeds from the sale
of shares by the selling stockholder They intend to use all of the net proceeds
that they receive from this offering, together with borrowings under their new
senior credit facility, to repay all of their outstanding borrowings under
their existing first lien credit facility and second lien credit facility,
including all accrued interest thereon and any related prepayment premiums.
Assuming they had completed this offering as of the latest balance sheet date
of October 1, 2011 and assuming net proceeds from this offering of
$111.15 million, they would have incurred borrowings of approximately
$675 million under their new senior credit facility.
As
of October 1, 2011, the outstanding indebtedness under their first lien
credit facility was $689 million and the outstanding indebtedness under
their second lien credit facility was $150 million. They used the net
proceeds from their borrowings under the second lien credit facility to fund a
dividend to their equity holders in the Recapitalization Transaction. As of
October 1, 2011, the weighted average interest rate for borrowings under
the first lien credit facility was 6.75% per annum and the interest rate for
the second lien credit facility was 10% per annum. Their outstanding borrowings
under the term loan portion of their existing first lien credit facility are
due in quarterly installments of approximately $1.7 million from December
2011 to September 2013 and a one-time payment of the remaining balance is due
in November 2013. Their outstanding borrowings under their second lien credit
facility are due in April 2016.
Competition
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Company |
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Stock Symbol |
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Exchange. |
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SUPERVALU |
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SVU |
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NYSE |
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Safeway |
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SWY |
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NYSE |
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Costco |
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COST |
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NASDAQ |
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Woodman’s Food |
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Private |
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Walmart |
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WMT |
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NYSE |
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Aldi |
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Private |
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Whole Foods |
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WFMI |
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NASDAQ |
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Market
The
Key trends impacting their markets include:
Increasing Focus on the Customer Shopping Experience. Supermarkets are focused on enhancing the
consumer's shopping experience as a point of differentiation. Many conventional
supermarkets are focusing capital expenditures on the remodeling of existing
stores, while reducing new store openings. In addition, supermarkets are
striving to be more responsive to consumer preferences through their consumer
interactions and product offerings. According to the Food Marketing
Institute, 93% of grocery stores offer prepared foods, 88% have floral
departments, 81% carry ethnic foods and 80% carry
natural and organic foods.
Growing Importance of Prepared Foods. Prepared meal solutions have become an
increasingly important offering by food retailers as consumers have reduced
their spending on meals away from home in response to recent economic
pressures. They believe, based on data in the 2011 Food Marketing Institute
study, The Food Retailing Industry Speaks, that more than two-thirds of
grocery stores have reported an increase in sales of supermarket-prepared
foods, and more than 60% of supermarkets include meal solutions in their
product offering.
Increasing Private Label Offerings. Consumers have continued to turn to private
label products as part of their focus on value. Supermarkets are
increasingly developing and promoting private label brands to distinguish
themselves from their competitors and promote customer loyalty, as well as to
enhance margins.
Focus on
Perishables. A
growing consumer focus on healthy eating has prompted food retailers to provide
an enhanced offering of fresh foods and natural and organic products.
Increased demand for perishables has led to additional supply, improving the
distribution and selection of these products.
Emphasis on Convenience. Over
the last decade, convenience of store location and format has emerged as one of
the central drivers of consumer shopping decisions. Contributing to this
effect, high fuel prices have encouraged consumers to seek shopping locations
in close proximity to their homes over long trips to more remote retailers.
Other industry trends, such as increasing demand for prepared and perishable
foods, reward convenient store locations with high frequency shopping patterns.
Regional Economic Stability. Although
the upper
Attractive
Their market positions for 2010 in each of
their core markets are summarized below:
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Core
Market |
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Number of |
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Market |
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Approximate |
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60 |
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#1 |
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55 |
% |
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15 |
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#1 |
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33 |
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6 |
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#1 |
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35 |
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5 |
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#2 |
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22 |
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Oshkosh-Neenah |
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4 |
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#1 |
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39 |
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Minneapolis/St. Paul,
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32 |
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#3 |
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12 |
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|
(1) As of November 1, 2011.
(2) Company estimate based upon data
included in the Metro Market Study; see "Market and Industry Data."
Target Markets
Maintain
Strong Operating Margins. They
intend to maintain their strong operating margins through both an aggressive
pursuit of cost-saving strategies and a continued focus on shifting their sales
mix toward higher margin products. In addition to improving profitability
and cash flow generation, future cost savings will provide them with the
flexibility to continue targeted investments to lower their everyday retail
prices as necessary to maintain or expand their market share.
Increase
Same-Store Sales. They
intend to pursue same-store sales growth by continuing to focus on price
competitiveness, improving their marketing efforts and enhancing and expanding
their private label, perishable and prepared food offerings. They also
continuously evaluate their store base for relocation and remodel
opportunities, which have historically contributed to positive sales growth.
Continue
to Expand into Contiguous
Efficiently
Allocate Capital. They
believe that a prudent and diligent approach to capital allocation can create
significant value for stockholders. While they are dedicated to maintaining
their modern store base and distribution network, and intend to continue to
expand their Mariano's Fresh Market banner and selectively open new stores in
existing markets, they believe that their significant cash flow generation
will enable them to pay dividends and reduce their indebtedness when
appropriate.
Company's Unique Strengths
Leading Market Share with Local Market Expertise. They hold leading positions in their core markets
and believe that their estimated weighted average market share of 44% across
their Wisconsin markets is among the highest regional penetration rates of
Comprehensive Product Offering. They believe their comprehensive product
offering, which features a wide array of high quality perishables and prepared
foods, distinguishes them from both smaller conventional supermarkets and
supercenters. Perishable products, particularly natural and organic
varieties, are in growing demand by customers. To capitalize on this
growing demand, they have enhanced their product quality and selection in key
perishable categories. They have also expanded their signature private label
products.
Modern Store Base and Distribution Network. They maintain a modern store base that provides
their customers with an attractive shopping experience and enhances their
ability to offer effective in-store merchandising. They have also enhanced
the efficiency of their distribution network through significant infrastructure
investments, including the construction of a 1.1 million square foot,
state-of-the-art distribution center in
Highly Productive Store Base with Strong Sales Volumes. During fiscal 2010, their average weekly net
sales per store were approximately $469,000, or approximately $24 million
per store on an annual basis, and are consistently among the highest in the
Consistent Financial Performance. Over the last decade, they have been able to
maintain stable operating margins and cash flow generation, including
throughout the recent economic downturn. The strength and
stability of their financial performance results from their value positioning,
efficient operating structure and distinctive merchandising strategies.
In addition, they continue to implement cost saving measures that support
their operating margins and cash flow generation, and have enabled them to make
targeted investments to lower their everyday retail prices over the past
several years in order to strengthen their consumer value proposition and
support sales growth.
Company's Unique Risks
The
geographic concentration of their stores creates an exposure to local economies
and regional downturns that may materially adversely affect their financial
condition and results of operations. As of
November 1, 2011, they operated 122 stores in
They may
be unable to maintain their operating margins, which could adversely affect the
price of their common stock. They intend to maintain their
operating margins in an environment of increased competition through various
initiatives, including expansion of their private label offerings, increased
sales of perishables and prepared foods, improved ordering, tracking and
allocation systems, and strategic remodels and relocations of their stores, as
well as continued cost discipline focused on improving labor productivity and
reducing shrink. If competitive pressures cause them to lower their
prices, their operating margins may decrease
They may
not be able to successfully implement their expansion into the
Their
stores rely heavily on sales of perishable products, and ordering errors or
product supply disruptions may have an adverse effect on their profitability
and operating results. They have a significant focus
on perishable products. Sales of perishable products accounted for
approximately 32% of their total sales in fiscal 2010. They rely on various
suppliers and vendors to provide and deliver their product inventory on a
continuous basis. They could suffer significant perishable product inventory
losses in the event of the loss of a major supplier or vendor, disruption of
their distribution network, extended power outages, natural disasters or other
catastrophic occurrences. They have implemented certain systems to ensure their
ordering is in line with demand. They cannot assure you, however, that their
ordering systems will always work efficiently, in particular in connection
with the opening of new stores, which have no, or a limited, ordering history.
If they were to over-order, they could suffer inventory losses, which would
negatively impact their operating results
They may
experience negative effects to their reputation from real or perceived quality
or health issues with their food products, which could have an adverse effect
on their operating results. They believe that a
reputation for providing their customers with fresh, high-quality food products
is an important component of their customer value proposition. Concerns
regarding the safety or quality of their food products or of their food supply
chain could cause consumers to avoid purchasing certain products from them, or
to seek alternative sources of food, even if the basis for the concern is
outside of their control. Food products containing contaminants could be
inadvertently distributed by them and, if processing at the consumer level does
not eliminate them, these contaminants could result in illness or death.
They have significant debt service obligations
and may incur additional indebtedness in the future which could adversely
affect their financial health and their ability to react to changes to their
business. They intend to use all of the
net proceeds that they receive from this offering, together with indebtedness
incurred pursuant to the Refinancing Transaction, to repay all of their
outstanding borrowings and other amounts owing under their existing credit
facilities. They will, however, continue to have significant debt service
obligations following the completion of this offering.
Prolonged labor
disputes with unionized employees and increases in labor costs could adversely
affect them. Their largest operating
costs are attributable to labor costs and, therefore, their financial
performance is greatly influenced by increases in wage and benefit costs,
including pension and health care costs. As a result, they are exposed to risks
associated with a competitive labor market and, more specifically, to any
disruption of their unionized work force.
As of November 1, 2011, approximately
49% of their employees were represented by unions and covered by collective
bargaining or similar agreements that are subject to periodic renegotiation.
Their renegotiation of expiring collective bargaining agreements and
negotiation of new collective bargaining agreements may not prove successful,
may result in a significant increase in labor costs, or may result in a
disruption to their operations. They expect that they would incur additional
costs and face increased competition if they lost customers during a work stoppage
or labor disturbance. As of November 1, 2011, they had an aggregate of 38
collective bargaining agreements in effect, covering 49% of their employees,
all of which are scheduled to expire between 2012 and 2016. In addition,
certain of their employees at their Rainbow stores and their
The cost
of providing employee benefits continues to increase and is subject to factors
outside of their control. They sponsor three defined
benefit pension plans, two of which are frozen with respect to benefit
accruals and the third of which is closed to new participants. Even though the
vast majority of their employees are not accruing additional pension benefits
under these plans, these pension plans are not fully funded. Their
funding requirements vary based upon plan asset performance, interest rates and
actuarial assumptions. Poorer than assumed asset performance and continuing low
interest rates would likely cause their required funding contributions to
increase in the future. As of January 1, 2011, the accumulated benefit
obligation and fair value of plan assets for these three Company-sponsored
defined benefit plans were $158 million and $140 million,
respectively. As of January 2, 2010, the accumulated benefit obligation
and fair value of plan assets for these three plans were $147 million and
$123 million, respectively
In addition, they participate in four underfunded multiemployer pension
plans on behalf of their union-affiliated employees, and they are required to
make contributions to these plans under their collective bargaining agreements. Each of these four multiemployer pension plans is currently
underfunded in part due to increases in the costs of benefits provided or paid
under these plans as well as lower returns on plan assets. The unfunded
liabilities of these four plans may result in increased future payments by them
and other participating employers. In 2009, the largest multiemployer plan
in which they participate was deemed by its plan actuary to be "critically
underfunded," prompting federally mandated increases in their
contributions to it. Going forward, their required contributions to these
multiemployer plans could increase as a result of many factors, including the
outcome of collective bargaining with the unions, actions taken by trustees who
manage the plans, government regulations, the actual return on assets held in
the plans and the payment of a withdrawal liability if they choose to exit a
plan.
Currently, they have five expired collective
bargaining agreements being negotiated, and their funding of a related
multiemployer pension plan is one of the subjects being renegotiated for one of
those agreements. Their risk of future increased payments may be greater if
other participating employers withdraw from the plan and are not able to pay
the total liability assessed as a result of such withdrawal, or if the pension
plan adopts surcharges and/or increased pension contributions as part of a rehabilitation plan. For example, in recent years
their plan underfunding has increased due to the withdrawal of participating
employers that, because of their financial distress, were unable to pay
contributions or their portion of the unfunded pension liability.
They also provide health benefits to substantially all of their full-time
employees and to certain part-time employees depending on average hours worked. Even though employees generally pay a portion of the cost, their cost of
providing these benefits has increased steadily over the last several years. They
anticipate future increases in the cost of health benefits, partly, but not
entirely, as a result of the implementation of federal health care reform
legislation.
Various
aspects of their business are subject to federal, state and local laws and
regulations. Their compliance with these regulations may require additional
capital expenditures and could materially adversely affect their ability to
conduct their business as planned.
Certain
risks are inherent in providing pharmacy services, and their insurance may not
be adequate to cover any claims against them. Pharmacies are exposed to risks inherent in the packaging and
distribution of pharmaceuticals and other healthcare products, such as risks of
liability for products which cause harm to consumers. Although they maintain
professional liability insurance and errors and omissions liability insurance,
they cannot guarantee that the coverage limits under their insurance programs
will be adequate to protect them against future claims, or that they will
be able to maintain this insurance on acceptable terms in the future, or at
all.
Upon
completion of this offering, they may be controlled by investment funds managed
by affiliates of Willis Stein, whose interests in their business may be
different from yours. Upon completion of this
offering, funds controlled by Willis Stein and Partners, LLC ("Willis
Stein") will own, or control through their Investor Rights Agreement,
approximately 23,299,648 shares, or 56.2%, of their outstanding common stock
and approximately 20,572,376 shares, or 49.6%, of their outstanding common
stock if the underwriters exercise their over-allotment option in full. As
such, affiliates of Willis Stein will have significant influence over their
reporting and corporate management and affairs, and, if they control more than
50% of their outstanding shares of common stock, will be able to control
virtually all matters requiring stockholder approval. For so long as
affiliates of Willis Stein own or control more than 50% of their outstanding
shares of common stock, they will be able to control the election of their
board of directors.
They may
be a "controlled company" within the meaning of the rules of the
Conflicts
of interest may arise because some of their directors are representatives of
their controlling stockholders. Messrs. Larson, Stein and
Willis, who are representatives of Willis Stein, serve on their board of
directors. As discussed above, Willis Stein and entities controlled by them may
hold equity interests in entities that directly or indirectly compete with
them, and companies in which they currently invest may begin competing with
them.
They
cannot assure you that they will declare dividends or have the available cash
to make dividend payments. They intend to pay
quarterly cash dividends in an amount equal to $0.23 per share following the
completion of this offering. Whether they will do so, however, and the timing
and amount of those dividends, will be subject to approval and declaration by
their board of directors and will depend upon on a variety of factors,
including the financial results, cash requirements and financial condition of
the company, their ability to pay dividends under the credit agreement
governing their new senior secured credit facilities and any other applicable
contracts, and other factors deemed relevant by their board of directors. Any
dividends declared and paid will not be cumulative.
Bottom
Line
During
fiscal 2008 (53 weeks), 2009 and 2010, they generated net sales of
approximately $3.87 billion, $3.75 billion and $3.77 billion,
respectively, and Adjusted EBITDA of approximately $239 million,
$222 million and $223 million, respectively. During the same periods,
their net income was approximately $49.4 million, $47.2 million and
$46.2 million, respectively
Roundy’s
generates the majority of their sales in markets where they hold the number one
market share position and have developed significant regional scale through
their large, concentrated store network. Many of their stores are located in
desirable, high traffic locations in close proximity to the homes and places of
work of their target customers. Their Pick 'n Save, Rainbow and Copps retail banners are operated as high volume, value
oriented supermarkets that seek to offer attractive prices and the best value
among conventional food retailers in a given market and substantially all
stores have full-service deli, meat, seafood and bakery departments, and 97
stores feature full-service pharmacies. Their Mariano's Fresh Market and Metro
Market specialty food retail banners combine their value oriented conventional
offering with an enhanced selection of full-service premium perishable and
prepared food departments.
They are
targeting real estate locations for their Mariano’s Fresh Markets in the
greater
Their stores
sell most nationally advertised brands, as well as numerous products under
their Roundy's Select, Roundy's and Clear Value private label brands. In recent
years, they have enhanced the quality and selection of key perishable products
to meet growing customer demand due to an increased focus on healthy eating.
Perishable product sales also typically generate higher gross margins than non-perishable
products.
The
Although the
upper
They have an
estimated weighted average market share of 44% across their Wisconsin markets,
which is among the highest regional penetration rates of
The
company’s geographic concentration exposes them to the danger of local and
regional economic downturn. If increased competition causes them to lower
prices, their operating margins may decrease. Their expansion into the
The
company’s largest operating cost is labor. Approximately 49% of their employees
are represented by unions and covered by collective bargaining or similar
agreements, all of which are scheduled to expire between 2012 and 2016. Some of
their employees are currently working under expired collective bargaining
agreements. They also sponsor three defined benefit pension plans, which are
all either frozen or closed to new participants, and which are not fully
funded. In addition, they participate in four underfunded multiemployer pension
plans on behalf of their union-affiliated employees, and they are required to
make contributions to these plans under their collective bargaining agreements.
Each of these four multiemployer pension plans is currently underfunded in part
due to increases in the costs of benefits provided or paid under these plans as
well as lower returns on plan assets. In
2009, the largest multiemployer plan in which they participate was deemed by
its plan actuary to be "critically underfunded," prompting federally
mandated increases in their contributions to it. Their risk of future increased
payments may be greater if other participating employers withdraw from the plan
and are not able to pay the total liability assessed as a result of such
withdrawal, or if the pension plan adopts surcharges and/or increased pension
contributions as part of a rehabilitation plan. In
recent years their plan underfunding has increased due to the withdrawal of
participating employers that, because of their financial distress, were unable
to pay contributions or their portion of the unfunded pension liability.
They also
provide health benefits to substantially all of their full-time employees and
to certain part-time employees depending on average hours worked. They
anticipate future increases in the cost of health benefits, partly, but not
entirely, as a result of the implementation of federal health care reform
legislation. In addition, as the operator of pharmacies, they are exposed to
additional liability risks, which may not be covered entirely by the coverage
limits under their errors and omissions liability insurance. Rating = 3