Roundy's (RNDY) 10-Q 2015 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended July 4, 2015

OR

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

For the transition period from                 to                 

Commission File Number 001-35422

Roundy’s, Inc.

(Exact name of registrant as specified in its charter)

Delaware	27-2337996
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

875 East Wisconsin Avenue

Milwaukee, Wisconsin 53202

(414) 231-5000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     x  Yes    ¨  No

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

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

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

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

As of August 3, 2015, there were 49,388,867 shares of the registrant’s common stock, par value $0.01 per share, issued and outstanding.

Roundy’s, Inc.

Quarterly Report on Form 10-Q

For the thirteen and twenty-six week periods ended July 4, 2015

Table of Contents

Part I - Financial Information
Item 1.	Financial Statements (Unaudited)	3
	Consolidated Statements of Comprehensive Loss for the thirteen and twenty-six weeks ended June 28, 2014 and July 4, 2015	3
	Consolidated Balance Sheets as of January 3, 2015 and July 4, 2015	4
	Consolidated Statements of Cash Flows for the twenty-six weeks ended June 28, 2014 and July 4, 2015	5
	Notes to Unaudited Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	28
Item 4.	Controls and Procedures	28
Part II – Other Information
Item 1.	Legal Proceedings	29
Item 1A.	Risk Factors	29
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	29
Item 3.	Defaults Upon Senior Securities	29
Item 4.	Mine Safety Disclosures	29
Item 5.	Other Information	29
Item 6.	Exhibits	29
	Signatures	30

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Part I – Financial Information

Item 1. FINANCIAL STATEMENTS

Roundy’s, Inc.

Consolidated Statements of Comprehensive Loss

(In thousands, except per share data)

(Unaudited)

	Thirteen Weeks Ended				Twenty-six Weeks Ended
	June 28, 2014		July 4, 2015		June 28, 2014		July 4, 2015
Net Sales	$	942,906	$	998,257	$	1,805,596	$	1,980,189
Costs and Expenses:
Cost of sales		693,951		734,566		1,326,139		1,454,892
Operating and administrative		239,141		252,135		457,249		500,925
Asset impairment charge		5,050		-		5,050		-
Interest:
Interest expense, net		13,193		13,303		26,341		26,658
Amortization of deferred financing costs		541		554		1,132		1,108
Loss on debt extinguishment		-		-		8,576		-
		951,876		1,000,558		1,824,487		1,983,583
Loss from Continuing Operations before Income Taxes		(8,970)		(2,301)		(18,891)		(3,394)
Income Taxes		(4,014)		(910)		(8,440)		(1,616)
Net Loss from Continuing Operations		(4,956)		(1,391)		(10,451)		(1,778)
Loss from Discontinued Operations, Net of Tax		(22,709)		(124)		(21,731)		(2,068)
Net Loss	$	(27,665)	$	(1,515)	$	(32,182)	$	(3,846)
Basic and diluted net loss per common share:
Continuing operations	$	(0.10)	$	(0.03)	$	(0.22)	$	(0.04)
Discontinued operations	$	(0.47)	$	(0.00)	$	(0.46)	$	(0.04)
Weighted average number of common shares outstanding:
Basic and diluted		48,123		48,436		47,301		48,335
Comprehensive Loss	$	(27,408)	$	(646)	$	(31,585)	$	(2,154)

See notes to accompanying unaudited consolidated financial statements.

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Roundy’s, Inc.

Consolidated Balance Sheets

(In thousands, except per share data)

	January 3, 2015		July 4, 2015
			(Unaudited)
Assets
Current Assets:
Cash and cash equivalents	$	58,576	$	39,861
Notes and accounts receivable, less allowance for losses		39,009		39,087
Merchandise inventories		275,457		293,158
Prepaid expenses		21,536		23,887
Income taxes receivable		14,818		-
Deferred income taxes		4,439		4,439
Current assets of discontinued operations		6,518		6,606
Total current assets		420,353		407,038
Property and Equipment, net		320,263		323,861
Other Assets:
Other assets, net of amortization of certain intangible assets		53,244		50,596
Long-term assets of discontinued operations		27,971		26,641
Goodwill		297,523		297,523
Total other assets		378,738		374,760
Total assets	$	1,119,354	$	1,105,659
Liabilities and Shareholders’ Deficit
Current Liabilities:
Accounts payable	$	234,572	$	227,609
Accrued wages and benefits		37,141		39,407
Other accrued expenses		51,861		54,342
Current maturities of long-term debt and capital lease obligations		1,459		1,521
Income taxes payable		-		3,105
Current liabilities of discontinued operations		20,135		14,348
Total current liabilities		345,168		340,332
Long-term Debt and Capital Lease Obligations		641,197		645,386
Deferred Income Taxes		40,444		39,822
Other Liabilities		106,940		108,367
Long-term Liabilities of Discontinued Operations		71,993		58,025
Total liabilities		1,205,742		1,191,932
Commitments and Contingencies
Shareholders’ Deficit:
Preferred Stock (5,000 shares authorized at 1/3/15 and 7/4/15, respectively, $0.01 par value, 0 shares at 1/3/15 and 7/4/15, respectively, issued and outstanding)		-		-
Common stock (150,000 shares authorized, $0.01 par value, 49,334 shares and 49,389 shares at 1/3/15 and 7/4/15, respectively, issued and outstanding)		493		494
Additional paid-in-capital		140,004		142,823
Accumulated deficit		(172,804)		(177,201)
Accumulated other comprehensive loss		(54,081)		(52,389)
Total shareholders’ deficit		(86,388)		(86,273)
Total liabilities and shareholders’ deficit	$	1,119,354	$	1,105,659

See notes to accompanying unaudited consolidated financial statements.

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Roundy’s, Inc.

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

		Twenty-six Weeks Ended
		June 28, 2014		July 4, 2015
Cash Flows From Operating Activities:	��
Net loss		$	(32,182)	$	(3,846)
Adjustments to reconcile net loss to net cash flows provided by operating activities:
Asset impairment charges			16,193		-
Multi-employer pension withdrawal charges			25,796		1,195
Depreciation of property and equipment and amortization of intangible assets			34,267		32,567
Amortization of deferred financing costs			1,183		1,108
Gain on lease terminations related to discontinued operations			-		(2,739)
Gain on sale of property and equipment and other assets			(79)		(244)
LIFO charge			443		11
Deferred income taxes			(1,043)		2,103
Loss on debt extinguishment			9,048		-
Amortization of debt discount			1,160		1,234
Stock-based compensation expense			2,074		2,821
Changes in operating assets and liabilities:
Notes and accounts receivable			(2,405)		213
Merchandise inventories			(26,197)		(17,712)
Prepaid expenses			(1,357)		557
Other assets			(2,111)		(285)
Accounts payable			128		(10,800)
Accrued expenses and other liabilities			14,089		2,958
Income taxes			(22,450)		11,593
Net cash flows provided by operating activities(1)			16,557		20,734
Cash Flows From Investing Activities:
Capital expenditures			(42,504)		(33,435)
Proceeds from sale of property and equipment			90		385
Net cash flows used in investing activities(1)			(42,414)		(33,050)
Cash Flows From Financing Activities:
Dividends paid to common shareholders			(149)		(100)
Payments of withholding taxes for vesting of restricted stock shares			(711)		(627)
Borrowings on revolving credit facility			326,500		208,250
Payments made on revolving credit facility			(291,500)		(204,500)
Proceeds from long-term borrowings			450,800		-
Payments of debt and capital lease obligations			(519,181)		(1,539)
Payments of lease obligation terminations			-		(7,883)
Issuance of common stock, net of issuance costs			19,302		-
Debt issuance and refinancing fees and related expenses			(5,615)		-
Net cash flows used in financing activities (1)			(20,554)		(6,399)
Net decrease in Cash and Cash Equivalents			(46,411)		(18,715)
Cash and Cash Equivalents, Beginning of Period (2)			82,178		58,576
Cash and Cash Equivalents, End of Period(2)		$	35,767	$	39,861
Supplemental Cash Flow Information:
Cash paid for interest		$	27,596	$	26,196
Cash paid (refunded) for income taxes			1,338		(11,972)

⁽¹⁾ Includes activities from continuing operations and discontinued operations.

⁽²⁾ Includes cash and cash equivalents included in assets of discontinued operations.

See notes to accompanying unaudited consolidated financial statements.

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ROUNDY’S, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information, and do not include all of the information and footnotes required for complete, audited financial statements. For further information, refer to the consolidated financial statements and footnotes included in the consolidated financial statements included in the Annual Report on Form 10-K for the year ended January 3, 2015.

The accompanying unaudited consolidated financial statements as of July 4, 2015, and for the thirteen and twenty-six weeks ended June 28, 2014 and July 4, 2015 reflect all adjustments (consisting only of normal recurring adjustments) that are, in the opinion of management, necessary for a fair presentation of the financial position and operating results of Roundy’s, Inc. and its subsidiaries. All material intercompany accounts and transactions have been eliminated in the unaudited consolidated financial statements. The results of operations for the thirteen and twenty-six weeks ended July 4, 2015 may not necessarily be indicative of the results that may be expected for the entire fiscal year ending January 2, 2016.

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

2. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In May 2014, the FASB issued ASU No. 2014-08, “Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity” (“ASU No. 2014-08”). ASU No. 2014-08 changed the criteria for reporting discontinued operations and requires additional disclosures about discontinued operations. ASU No. 2014-08 is effective on a prospective basis for all disposals of components of an entity that occur within annual periods beginning on or after December 15, 2014, and interim periods within those years. The Company chose not to adopt ASU 2014-08 early for the Rainbow Store Sale transaction and the closure of the remaining nine Rainbow stores, and as such, this standard did not have a material impact on its consolidated financial statements.

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers” (“ASU No. 2014-09”). ASU No. 2014-09 provides guidance for revenue recognition for companies that either enter into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards. The core principle of the new guidance is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The new guidance is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Early adoption is not permitted. The Company is currently assessing the potential impact of ASU No. 2014-09 on its consolidated financial statements.

In April 2015, the FASB issued ASU No. 2015-03, “Simplifying the Presentation of Debt Issuance Costs” (“ASU No. 2015-03”). ASU No. 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. Debt issuance costs are currently required to be capitalized and presented in the balance sheet as deferred charges or assets. The recognition and measurement for debt issuance costs are not affected by ASU No. 2015-03. The new guidance is effective for annual reporting periods beginning after December 15, 2015, including interim periods within that reporting period. As of July 4, 2015, the Company has recognized these types of costs on its balance sheet which are related to its 2014 Credit Facilities. These costs will be reclassified from other assets to long-term debt liabilities when the Company adopts ASU No. 2015-03.

In April 2015, the FASB issued ASU 2015-04, “Compensation – Retirement Benefits (“ASU No. 2015-04”). ASU No. 2015-04 permits companies with fiscal year ends that do not coincide with a calendar month to make an accounting policy election to measure defined benefit plan assets and obligations using the month-end date that is closest to the company’s fiscal year-end. The guidance is effective for annual reporting periods beginning after December 15, 2015 and early adoption is permitted. The Company expects to elect to measure its defined benefit plan assets and obligations using December 31, 2015 as the measurement date. The Company does not expect that this policy change will have a material effect on its consolidated financial statements.

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3. OFFERING OF COMMON STOCK

On February 12, 2014, the Company completed a public offering of 10,170,989 shares of its common stock at a price of $7.00 per share, which included 2,948,113 shares sold by Roundy’s and 7,222,876 shares sold by existing shareholders. The Company received approximately $20.6 million in gross proceeds from the offering, or approximately $19.3 million in net proceeds after deducting the underwriting discount and expenses related to the offering. The net proceeds were used for general corporate purposes, including funding working capital and operating expenses as well as capital expenditures related to the eleven Dominick’s stores acquired from Safeway during the fourth quarter of 2013 in the Chicago Stores Acquisition.

On May 22, 2015, the Company completed a secondary offering of 4,025,000 shares of its common stock at a price of $3.50 per share (the “Secondary Offering”). All shares offered during the Secondary Offering were sold by existing shareholders. The Company did not receive any proceeds from the Secondary Offering.

4. ACQUISITION

On December 20, 2013, the Company acquired eleven Dominick’s stores from Safeway in a $36 million cash transaction (the “Chicago Stores Acquisition”). As a result of the transaction, the Company assumed the operating leases for ten of the stores and a capital lease liability for one store. The Company re-opened all of these stores under the Company’s Mariano’s banner during Fiscal 2014. The transaction enabled the Company to expand its presence in the Chicago market and accelerate the number of Mariano’s locations, the Company’s growth banner. The Company paid an amount in excess of the fair value of the assets acquired and recorded goodwill of approximately $4.3 million. The amount of goodwill recorded in connection with the transaction is deductible for tax purposes over a 15-year period.

The transaction was accounted for as a business combination under Accounting Standards Codification 805. As such, the purchase price was allocated based on a fair value appraisal by a third party valuation firm. The fair value calculations of property under capital lease and the favorable lease rights were based on estimated market rents for those leased properties, which the Company considers to be Level 2 within the fair value hierarchy. The fair value calculations of the customer lists were based on the estimated profitability of the sales associated with the acquired customers. The fair value calculations of the equipment and leasehold improvements were based on the estimated replacement cost. The Company considers the inputs used in the fair value calculations of the equipment, leasehold improvements and customer lists to be Level 3 within the fair value hierarchy.

The purchase price was allocated as follows (in thousands):

Consideration
Purchase price	$	36,000
Capital lease liability assumed		7,765
Total Consideration	$	43,765
Assets Acquired
Equipment	$	9,706
Leasehold improvements		6,859
Property under capital lease		8,608
Intangible assets:
Favorable lease rights		11,216
Customer lists		3,116
Goodwill		4,260
Fair Value of Assets Acquired	$	43,765

The favorable lease rights will be amortized over the lease term of the acquired stores. The customer lists will be amortized over an expected life of 5 years. Other than the capital lease liability assumed, there were no other liabilities assumed in the transaction.

During the third quarter of Fiscal 2014, the Company recognized a net of tax loss of $0.3 million related to the write-off of certain Dominick’s equipment which the Company did not deploy.

5. DISCONTINUED OPERATIONS

During the second quarter of Fiscal 2014, the Company entered into definitive agreements to sell 18 Rainbow stores in the Minneapolis / St. Paul market to a group of local grocery retailers (“Buyers”), including SUPERVALU INC. (“Rainbow Store Sale”). The aggregate sale price for the 18 Rainbow stores was $65 million in cash plus the proceeds from inventory that was sold to the Buyers at the closing of the Rainbow Store Sale. In addition, as part of the transaction, the Buyers assumed the lease obligations and certain multi-employer pension liabilities related to the acquired stores. The total proceeds received from the Rainbow Store Sale were $76.9 million, resulting in a gain of $1.7 million, which was recognized in the third quarter of Fiscal 2014.

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As a condition to the sale agreement, the Company entered into sublease agreements for four of the 18 Rainbow stores for a five year period. The amount of the sublease rent payments that will be received from the Buyers are less than the minimum lease payments for these stores. The sublease payments are not considered significant to the operations of these stores, and as such, the Company does not have significant continuing cash flows.

In addition, during the second quarter of Fiscal 2014, the Company announced its intention to exit the Minneapolis / St. Paul market entirely. The remaining nine Rainbow stores not included in the Rainbow Store Sale were closed during the third quarter of Fiscal 2014. The Company recorded a non-cash impairment charge of $11.1 million in the third quarter of Fiscal 2014 related to the assets of the nine Rainbow stores that were closed. The Company also recorded a $10.0 million closed facility charge during the third quarter of Fiscal 2014 related principally to the lease agreements for the nine closed store locations. During the first quarter of Fiscal 2015, the Company paid $7.9 million to terminate the obligations related to the capital leases of two Rainbow stores that were closed during the third quarter of Fiscal 2014, resulting in a pre-tax gain of $2.7 million.

The Company incurred severance expense of approximately $2.2 million to the employees of the Rainbow stores that were sold or closed during the third quarter of Fiscal 2014.

As a result of the Rainbow Store Sale and the exit from the Minneapolis / St. Paul market, the Company expects to incur a withdrawal liability related to the multi-employer pension plans in which the affected employees participate. During Fiscal 2014, the Company recorded a charge of $49.7 million for the estimated multi-employer pension withdrawal liability, which represented the Company’s best estimate absent withdrawal liability notices from the multi-employer plans. When withdrawal liability notices from the impacted multi-employer pension plans are received the ultimate withdrawal liability is updated. Charges are recorded in the period when the change in the final withdrawal liability is identified. The Company expects the liability will be paid out in quarterly installments, which vary by plan, over a period of up to 20 years. The net present value of the liability was determined using a risk free interest rate. During the fourth quarter of Fiscal 2014, the Company received a preliminary notice from one of the plans, which required the Company to make the first quarterly installment during the fourth quarter of 2014, and these quarterly installments will continue for 20 years. The amount of the payment was consistent with the Company’s estimates when the initial charge was recorded. During the second quarter of Fiscal 2015, the Company received a withdrawal liability notice from one of the plans, which required the Company to make the first quarterly installment during the second quarter of Fiscal 2015, and these quarterly installments will continue until the fourth quarter of Fiscal 2017. The withdrawal liability notice called for installment payments greater that the Company’s estimates when the initial charge was recorded which resulted in the Company increasing the multi-employer pension plan withdrawal liability by $1.2 million. The present value of the payments expected to be made within the next twelve months is included within current liabilities of discontinued operations, and the remainder of the liability for the estimated multi-employer pension withdrawal is included within long-term liabilities of discontinued operations as presented in the table below.

Also in connection with the sale of the 18 Rainbow stores, the Company has assigned leases and subleases for these stores which expire at various dates through 2026. A remaining potential obligation exists in the event of a default under the assigned leases and subleases by the assignee. The potential obligations would include rent, real estate taxes, common area costs and other sundry expenses. As of July 4, 2015, the future minimum lease payments are approximately $35.6 million. The Company believes the likelihood of a liability related to these assigned leases and subleases is remote.

The Company has accounted for the 27 Rainbow stores that were either included in the Rainbow Store Sale or closed during the third quarter of Fiscal 2014 as discontinued operations. The Consolidated Statement of Comprehensive Loss for the thirteen and twenty-six weeks ended June 28, 2014 has been reclassified to conform with this presentation.

The Company has included all direct costs and an amount of allocated interest expense (including amortization of deferred financing costs and loss on debt extinguishment charges) for the 27 Rainbow stores within net loss from discontinued operations. Interest was allocated based on the ratio of the net assets of the 27 Rainbow stores as of the end of the period to the net assets of the total Company. The Company recorded $0.9 million and $2.6 million of interest in discontinued operations for the thirteen and twenty-six weeks ended June 28, 2014, respectively. The Company recorded $0.4 million and $0.9 million of interest in discontinued operations for the thirteen and twenty-six weeks ended July 4, 2015, respectively.

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Loss from discontinued operations, net of tax, as presented in the Consolidated Statements of Comprehensive Loss for the thirteen and twenty-six weeks ending June 28, 2014 and July 4, 2015 is as follows (in thousands):

	Thirteen Weeks Ended				Twenty-six Weeks Ended
	June 28, 2014		July 4, 2015		June 28, 2014		July 4, 2015
Net Sales	$	132,847	$	-	$	272,374	$	-
(Loss) income from discontinued operations, before income taxes:	$	(37,290)	$	(872)	$	(35,445)	$	1,272
Income taxes on discontinued operations		(14,581)		(748)		(13,714)		3,340
Loss from discontinued operations, net of tax	$	(22,709)	$	(124)	$	(21,731)	$	(2,068)

The assets and liabilities of discontinued operations as of January 3, 2015 and July 4, 2015 include the following:

	January 3, 2015		July 4, 2015
Assets of discontinued operations:
Notes and accounts receivable	$	374	$	83
Prepaid expenses		914		833
Income taxes receivable		-		820
Deferred income taxes, current		4,750		4,750
Deferred income taxes, non-current		27,971		26,641
Property and equipment, net		480		120
Total assets of discontinued operations	$	34,489	$	33,247
Current assets of discontinued operations	$	6,518	$	6,606
Long-term assets of discontinued operations	$	27,971	$	26,641
Liabilities of discontinued operations:
Accounts payable	$	1,060	$	-
Estimated multi-employer liability, current		4,554		6,088
Other accrued expenses		9,036		6,676
Current maturities of capital lease obligations		2,500		1,584
Income taxes payable		2,985		-
Long-term capital lease obligations		13,807		3,764
Estimated multi-employer liability, non-current		45,078		43,436
Other long-term liabilities		13,108		10,825
Total liabilities of discontinued operations	$	92,128	$	72,373
Current liabilities of discontinued operations	$	20,135	$	14,348
Long-term liabilities of discontinued operations	$	71,993	$	58,025

6. STEVENS POINT

On July 1, 2014 the Company announced the closure of its Stevens Point distribution facility (“Stevens Point Warehouse”). As a result of these actions, the Company evaluated the recoverability of this long-lived asset group and recorded a non-cash impairment charge of $5.1 million for the assets at the Stevens Point Warehouse during the second quarter of Fiscal 2014. The fair value of the long-lived asset group was calculated using level 2 market data inputs.

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The Company consolidated its supply chain operations previously performed at the Stevens Point Warehouse into its Oconomowoc distribution facility and closed the Stevens Point Warehouse during the third quarter of Fiscal 2014. During the fourth quarter of Fiscal 2014, the Company sold the Stevens Point Warehouse, which resulted in a gain of approximately $10.1 million ($6.5 million, net of income taxes).

The Company recorded severance and other one-time charges of $2.0 million related to the closure of the Stevens Point Warehouse during the Fiscal 2014. Other one-time charges included costs to transfer inventory and equipment from the Stevens Point Warehouse to the Oconomowoc warehouse, as well as miscellaneous expenses required to prepare the Stevens Point Warehouse for sale.

7. FAIR VALUE

Fair value measurements are categorized into one of three levels as defined by US GAAP. The three levels are defined as follows:

Level 1 – Unadjusted quoted prices are available in active markets for identical assets or liabilities that can be accessed at the measurement date;

Level 2 – Inputs other than quoted prices included in Level 1 that are directly or indirectly observable for the asset or liability;

Level 3 – Unobservable inputs for which little or no market activity exists.

The Company has one item carried at (or adjusted to) fair value in the consolidated financial statements as of July 4, 2015, which is an interest rate swap liability of $0.5 million, compared to a liability of $0.6 million as of January 3, 2015. Interest rate derivatives are valued using forward curves and volatility levels as determined on the basis of observable market inputs when available and on the basis of estimates when observable market inputs are not available. These forward curves are classified as Level 2 within the fair value hierarchy.

The carrying values of the Company’s cash and cash equivalents, notes and accounts receivable, accounts payable and revolving credit facility debt approximated fair value as of July 4, 2015.

Based on estimated market rents for those leased properties which are recorded as capital leases, the fair value of capital lease obligations is approximately $24.3 million and $15.7 million, as of January 3, 2015 and July 4, 2015, respectively. Included in the fair value of capital lease obligations are $11.3 million and $3.7 million as of January 3, 2015 and July 4, 2015, respectively, related to the capital lease obligations for the nine Rainbow stores that were closed during the third quarter of Fiscal 2014 and are included in liabilities of discontinued operations on the Consolidated Balance Sheet. The Company considers the fair value of the capital leases to be Level 2 within the fair value hierarchy.

Based on recent open market transactions of the Company’s 2014 Credit Facilities and the 10.25% Senior Secured Notes due in 2020 (the “2020 Notes”), the fair value of long-term debt, including current maturities, is approximately $600.9 million and $608.0 million as of January 3, 2015 and July 4, 2015, respectively. The Company considers the fair value of the New Term Facility and 2020 Notes to be Level 2 within the fair value hierarchy.

8. INVENTORIES

The Company uses the LIFO method of valuation for a portion of its inventories. If the FIFO method had been used, inventories would have been approximately $21.2 million higher on January 3, 2015 and on July 4, 2015.

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

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9. LONG-TERM DEBT

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

	January 3, 2015		July 4, 2015
Term loan	$	444,700	$	444,700
2020 Notes		200,000		200,000
Revolving credit facility		-		3,750
Capital lease obligations, 7.6% to 10%, due 2015 to 2031		11,849		11,243
Other long-term debt		1,042		914
		657,591		660,607
Less: Unamortized discount on term loan		9,815		9,011
Less: Unamortized discount on 2020 Notes		5,120		4,689
Less: Current maturities		1,459		1,521
Long-term debt, net of current maturities	$	641,197	$	645,386

On March 3, 2014, Roundy’s Supermarkets, Inc. (“RSI”), the wholly owned operating subsidiary of the Company, refinanced its existing credit facilities (the “2014 Refinancing”), and entered into two new credit facilities, a $460 million term loan (the “New Term Facility”) and a $220 million asset-based revolving credit facility (the “New Revolving Facility”, together with the New Term Facility, the “2014 Credit Facilities”). The Company used the proceeds from the New Term Facility, together with existing cash, to repay the Company’s existing term loan, including all accrued interest thereon and related costs, fees and expenses. The New Term Facility was issued with a 2.0% discount, which will be amortized over the seven year term of the New Term Facility. The New Term Facility has a maturity date of March 3, 2021 that will accelerate to September 15, 2020 if the 10.25% Senior Secured Notes due in 2020 (the “2020 Notes”) are not refinanced in full prior to September 15, 2020. The New Revolving Facility has a maturity date of March 3, 2019.

The New Term Facility bears an interest rate, at the Company’s option, at (i) adjusted LIBOR (subject to a minimum floor of 1.00%) plus 4.75% or (ii) a base rate plus 3.75%.

Mandatory prepayments under the New Term Facility are required with (i) 50% of adjusted excess cash flow (which percentage shall be reduced to 25% and to 0% upon achievement of certain leverage ratios); (ii) 100% of the net cash proceeds of assets sales or other non-ordinary course dispositions of certain property by RSI and its restricted subsidiaries (subject to certain exceptions and reinvestment provisions); and (iii) 100% of the net cash proceeds of issuances, offerings or placements of certain indebtedness not otherwise permitted to be incurred under the New Term Facility credit agreement.

During the fourth quarter of Fiscal 2014, the Company made a $13.0 million prepayment of the New Term Facility with the net cash proceeds of the sale of its Stevens Point Warehouse.

Borrowings under the New Term Facility are guaranteed, subject to certain exceptions, by the Company and certain of the Company’s direct and indirect, wholly owned domestic restricted subsidiaries and are secured by substantially all of RSI’s and such guarantors’ assets (subject to certain exceptions) on a first-priority basis, except that with respect to New Revolving Facility Priority Collateral (defined below) such assets are secured on a second-priority basis, in each case subject to certain exceptions and to the terms of the First Lien Intercreditor Agreement described below.

The New Revolving Facility bears an interest rate, at the Company’s option, of (i) adjusted LIBOR plus a margin of 1.50%-2.00% per annum or (ii) base rate plus a margin of 0.50% - 1.00% per annum. In either case, the margin is based on RSI’s utilization of the New Revolving Facility. In addition, there is a quarterly fee payable in an amount equal to either 0.25% or 0.375% per annum of the undrawn portion of the New Revolving Facility. The Company may use borrowings under the New Revolving Facility for ongoing working capital and general corporate purposes and any other use not prohibited by the revolving credit agreement. Borrowing availability under the New Revolving Facility at any time is based on the value of certain eligible inventory, accounts receivable and pharmacy prescription files and is subject to additional reserves and other adjustments.

Borrowings under the New Revolving Facility are guaranteed, subject to certain exceptions, by the Company and certain of the Company’s direct and indirect, wholly owned domestic restricted subsidiaries and are secured by substantially all of RSI’s and such guarantors’ assets (subject to certain exceptions), in the case of certain assets designated as New Revolving Facility priority collateral including accounts, inventory, cash, deposit accounts, certain payment intangibles and other related assets (“New Revolving Facility Priority Collateral”) on a first-priority basis, and on a second-priority basis with respect to other assets, in each case subject to certain exceptions and to the terms of the First Lien Intercreditor Agreement described below.

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On March 3, 2014, RSI and the Company entered into a First Lien Intercreditor Agreement (the “First Lien Intercreditor Agreement”), which establishes the relative lien priorities and rights of the secured parties under the New Revolving Facility and the New Term Facility. Pursuant to the First Lien Intercreditor Agreement, the obligations under the New Revolving Facility are secured with a first priority lien on the New Revolving Facility Priority Collateral and a second priority lien on the other assets constituting collateral, and the obligations under the New Term Facility are secured with a second priority lien on the New Revolving Facility Priority Collateral and a first priority lien on all other collateral (in each case, subject to certain exceptions and limitations).

In connection with the 2014 Refinancing, the Company recognized a loss on debt extinguishment of $9.0 million (of which $8.6 million is related to continuing operations), which consisted primarily of the write-off of $4.8 million of previously capitalized financing costs, the $3.6 million write-off of a portion of the unamortized discount on the 2012 Term Loan, and certain fees and expenses of $0.6 million related to the New Term Facility. The Company capitalized $4.1 million and $0.9 million of financing costs related to the New Revolving Facility and New Term Facility, respectively, both of which will be amortized over the term of the respective term of each credit facility.

The terms of the 2014 Credit Facilities contain customary affirmative covenants and are also secured by substantially all of RSI’s tangible and intangible assets. The terms of the 2014 Credit Facilities also contain customary negative covenants, including restrictions on (i) dividends on, and redemptions of, equity interest and other restricted payment; (ii) liens and sale-leaseback transactions; (iii) loans and investments; (iv) guarantees and hedging agreements; (v) the sale, transfer or disposition of assets and businesses; (vi) transactions with affiliates; (vii) negative pledges and restrictions on subsidiary distributions; and (viii) optional payments and modifications of certain debt instruments.

At July 4, 2015, the Company was in compliance with all covenants relating to its indebtedness.

On July 4, 2015, there were outstanding letters of credit, totaling $33.6 million, which reduce borrowing availability under the New Revolving Facility. As of July 4, 2015, the total unused availability under the New Revolving Facility was $165.9 million.

Prior to the 2014 Refinancing, the Company’s long-term debt included a senior credit facility consisting of a $675 million term loan (the ‘‘2012 Term Loan’’) and a $125 million revolving credit facility (the ‘‘2012 Revolving Facility’’ and together with the 2012 Term Loan, the ‘‘2012 Credit Facilities”). Borrowings under the 2012 Credit Facilities bore interest, at the Company’s option, at (i) adjusted LIBOR (subject to a 1.25% floor) plus 4.5% or (ii) an alternate base rate plus 3.5%.

On December 20, 2013, RSI completed the private placement of $200 million of the 2020 Notes that mature on December 15, 2020. The Company pays interest at a rate of 10.25% on the 2020 Notes semiannually, commencing on June 15, 2014. The 2020 Notes were issued with a 3.01% discount, which is being amortized over the seven year term of the 2020 Notes. The Company capitalized $4.6 million of financing costs related to the issuance of the 2020 Notes which is also being amortized over the seven year term of the 2020 Notes.

The 2020 Notes are unconditionally guaranteed, jointly and severally, on a senior basis, by (i) RSI’s indirect parent company Roundy’s, Inc., (ii) RSI’s direct parent company Roundy’s Acquisition Corp. and (iii) each of RSI’s domestic restricted subsidiaries owned on the date of original issuance of the 2020 Notes, and are secured by a second priority security interest in substantially all of RSI’s and the guarantors’ assets, which security interests rank junior to the security interests in such assets that secure our 2014 Credit Facilities. The 2020 Notes and the guarantees thereof are secured by a second priority lien on substantially all the assets owned by RSI and the guarantors, subject to permitted liens and certain exceptions. These liens are junior in priority to the first-priority liens on the same collateral securing the 2014 Credit Facilities (as well as certain hedging and cash management obligations owed to lenders thereunder or their affiliates) and to certain other permitted liens under the indenture.

At any time prior to December 15, 2016, the Company may redeem up to 35% of the 2020 Notes with the net cash proceeds received by the Company from any equity offering at a price of 110.25% of the principal amount of the 2020 Notes, plus accrued and unpaid interest.

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At any time and from time to time on or after December 15, 2016, the Company may redeem the 2020 Notes, in whole or in part, at the following redemption prices (expressed as percentages of the principal amount) plus accrued and unpaid interest:

12-month period commencing on December 15 in year
2016	107.688%
2017	105.125%
2018	102.563%
2019 and thereafter	100%

10. DERIVATIVE FINANCIAL INSTRUMENTS

The Company accounts for derivatives in accordance with the provisions of FASB ASC Topic 815 “Derivatives and Hedging” (“ASC 815”). ASC 815 requires companies to recognize all of its derivative instruments as either an asset or liability in the balance sheet at fair value. Changes in the fair value of derivative instruments designated as cash flow hedges, to the extent the hedges are highly effective, are recorded in other comprehensive income, net of tax effects, and are reclassified into earnings in the period in which the hedged transaction affects earnings. Ineffective portions of cash flow hedges, if any, are recognized in current period earnings.

The Company is exposed to market risk from interest rate fluctuations. In order to manage this risk from interest rate fluctuations, on August 27, 2013, the Company entered into two one-year forward starting interest rate swaps, which will mature on August 27, 2016, to hedge cash flows related to interest payments on $75 million notional amount related to its 2012 Term Loan (the “Swap”). The Swap involves the receipt of floating interest rate amounts in exchange for fixed rate interest payments over the duration of the Swap without an exchange of the underlying principal amount. In accordance with ASC 815, the Company has designated the Swap as a cash flow hedge. The Company has not entered into any other hedging instruments.

As of July 4, 2015, the Company has recorded $0.5 million in other liabilities in the Company’s Consolidated Balance Sheet, which represents the fair value of the Swap on that date. As of July 4, 2015, the Company has $0.3 million in accumulated other comprehensive loss recorded on the Company’s Consolidated Balance Sheet, which represents a loss on the effective portion of the Swap, net of tax. The Company reclassifies interest payments on the Swap to earnings as the interest payments are made. The Company does not expect the amount of losses that will be reclassified into earnings over the next twelve months to be material. During the thirteen and twenty-six weeks ended June 28, 2014 and July 4, 2015, amounts reclassified into current period earnings were not material. The fair value of the Swap as of January 3, 2015 was a liability of $0.6 million.

On March 3, 2014, the Company completed the 2014 Refinancing. Due to a change in certain of the critical terms of the New Term Facility, specifically the change in the interest rate floor, a certain portion of the Swap was deemed ineffective for the thirteen weeks ended June 28, 2014 and July 4, 2015. The amount is considered immaterial.

11. EMPLOYEE BENEFIT PLANS

Net pension income from continuing operations in the thirteen and twenty-six weeks ended June 28, 2014 and July 4, 2015 included the following components (in thousands):

	Thirteen Weeks Ended				Twenty-six Weeks Ended
	June 28, 2014		July 4, 2015		June 28, 2014		July 4, 2015
Service cost	$	-	$	-	$	-	$	-
Interest cost on projected benefit obligation		2,039		2,017		4,078		4,034
Expected return on plan assets		(3,563)		(3,548)		(7,127)		(7,096)
Amortization of net actuarial loss		607		1,361		1,214		2,722
Net pension income from continuing operations	$	(917)	$	(170)	$	(1,835)	$	(340)

As of July 4, 2015, the Company had a letter of credit posted in favor of the Pension Benefit Guaranty Corporation in the amount of $10 million.

The Company expects its pension plan contributions for the fiscal year ending January 2, 2016 to be approximately $0.3 million.

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12. INCOME TAXES

The Company’s effective tax rate for continuing operations for both the thirteen and twenty-six weeks ended June 28, 2014 was a tax benefit of (44.7%). The Company’s effective tax rate for continuing operations for the thirteen and twenty-six weeks ended July 4, 2015 is a tax benefit of (39.5%) and (47.6%), respectively. The provision for income taxes and effective tax rate for the twenty-six weeks ended July 4, 2015 reflects the reduction of amounts due for federal income taxes as a result of the filing of the Company’s 2014 federal income tax return.

13. COMMITMENTS AND CONTINGENCIES

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

The Company contributes to one multi-employer pension plan based on obligations arising from its collective bargaining agreement covering certain supply chain employees. This plan is underfunded as of July 4, 2015. This plan provides retirement benefits to participants based on their service to contributing employers. The benefits are paid from assets held in trust for that purpose. Trustees are appointed by employers and unions. The trustees are responsible for determining the level of benefits to be provided to participants as well as for such matters as the investment of the assets and the administration of the plan.

Because the Company is one of a number of employers contributing to this plan, it is difficult to ascertain what its share of the underfunding would be, although the Company anticipates that its contributions to this plan may increase. If the Company chooses to exit the plan, any adjustment for a withdrawal liability will be recorded when it is probable that a liability exists and can be reasonably determined.

As discussed in Note 5, during Fiscal 2014, the Company exited three multi-employer plans as a result of the Rainbow Store Sale and the exit from the Minneapolis / St. Paul market.

In connection with the exit or sale of its independent distribution business in prior years, the Company has assigned leases and subleases for retail stores which expire at various dates through 2037. A remaining potential obligation exists in the event of a default under the assigned leases and subleases by the assignee. The potential obligations include rent, real estate taxes, common area costs and other sundry expenses. The future minimum lease payments for continuing operations are approximately $23.0 million. The Company believes the likelihood of a liability related to these assigned leases and subleases is remote.

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14. ACCUMULATED OTHER COMPREHENSIVE LOSS

The Company’s accumulated other comprehensive loss is comprised of the adjustments for employee benefit plans and derivatives. During the thirteen and twenty-six weeks ended June 28, 2014 and July 4, 2015, amounts reclassified from accumulated other comprehensive loss to net pension income are included within operating and administrative expenses and amounts reclassified from accumulated other comprehensive loss related to derivatives are included within interest expense in the Company’s Consolidated Statements of Comprehensive Loss.

The change in accumulated other comprehensive loss by component for the thirteen weeks ended June 28, 2014 consisted of the following (in thousands):

	Derivatives		Defined Benefit Pension Plans		Total
Balance at March 29, 2014	$	(288)	$	(27,832)	$	(28,120)
Other comprehensive loss before reclassifications		(179)		-		(179)
Income taxes		72		-		72
Net other comprehensive loss before reclassifications		(107)		-		(107)
Amounts reclassified from accumulated other comprehensive loss		-		607		607
Income taxes		-		(243)		(243)
Net amounts reclassified from accumulated comprehensive loss		-		364		364
Other comprehensive income (loss)		(107)		364		257
Balance at June 28, 2014	$	(395)	$	(27,468)	$	(27,863)

The change in accumulated other comprehensive loss by component for the twenty-six weeks ended June 28, 2014 consisted of the following (in thousands):

	Derivatives		Defined Benefit Pension Plans		Total
Balance at December 28, 2013	$	(264)	$	(28,196)	$	(28,460)
Other comprehensive loss before reclassifications		(219)		-		(219)
Income taxes		88		-		88
Net other comprehensive loss before reclassifications		(131)		-		(131)
Amounts reclassified from accumulated other comprehensive loss		-		1,214		1,214
Income taxes		-		(486)		(486)
Net amounts reclassified from accumulated comprehensive loss		-		728		728
Other comprehensive income (loss)		(131)		728		597
Balance at June 28, 2014	$	(395)	$	(27,468)	$	(27,863)

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The change in accumulated other comprehensive loss by component for the thirteen weeks ended July 4, 2015 consisted of the following (in thousands):

	Derivatives		Defined Benefit Pension Plans		Total
Balance at April 4, 2015	$	(338)	$	(52,920)	$	(53,258)
Other comprehensive loss before reclassifications		(24)		-		(24)
Income taxes		10		-		10
Net other comprehensive loss before reclassifications		(14)		-		(14)
Amounts reclassified from accumulated other comprehensive loss		111		1,361		1,472
Income taxes		(44)		(545)		(589)
Net amounts reclassified from accumulated comprehensive loss		67		816		883
Other comprehensive income		53		816		869
Balance at July 4, 2015	$	(285)	$	(52,104)	$	(52,389)

The change in accumulated other comprehensive loss by component for the twenty-six weeks ended July 4, 2015 consisted of the following (in thousands):

	Derivatives		Defined Benefit Pension Plans		Total
Balance at January 3, 2015	$	(344)	$	(53,737)	$	(54,081)
Other comprehensive loss before reclassifications		(117)		-		(117)
Income taxes		47		-		47
Net other comprehensive loss before reclassifications		(70)		-		(70)
Amounts reclassified from accumulated other comprehensive loss		215		2,722		2,937
Income taxes		(86)		(1,089)		(1,175)
Net amounts reclassified from accumulated comprehensive loss		129		1,633		1,762
Other comprehensive income		59		1,633		1,692
Balance at July 4, 2015	$	(285)	$	(52,104)	$	(52,389)

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15. EARNINGS PER SHARE

The Company had one class of common stock as of July 4, 2015.

For the thirteen and twenty-six weeks ended June 28, 2014, there were 124,932 and 205,463 restricted shares outstanding, respectively, that were excluded from the calculation of diluted earnings per share because their inclusion would have had an anti-dilutive effect on earnings per share. For the thirteen and twenty-six weeks ended July 4, 2015, there were 234,113 and 478,023 restricted shares outstanding, respectively, that were excluded from the calculation of diluted earnings per share because their inclusion would have had an anti-dilutive effect on earnings per share.

As of June 28, 2014 and July 4, 2014, there were 1,041,337 and 777,345 contingently issuable shares, respectively, excluded because their issuance was not considered probable.

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

	Thirteen Weeks Ended				Twenty-six Weeks Ended
	June 28, 2014		July 4, 2015		June 28, 2014		July 4, 2015
Net loss per common share - basic:
Net loss from continuing operations	$	(4,956)	$	(1,391)	$	(10,451)	$	(1,778)
Net loss from discontinued operations		(22,709)		(124)		(21,731)		(2,068)
Net Loss	$	(27,665)	$	(1,515)	$	(32,182)	$	(3,846)
Basic and diluted weighted average common shares outstanding		48,123		48,436		47,301		48,335
Net loss per common share from continuing operations- basic and diluted	$	(0.10)	$	(0.03)	$	(0.22)	$	(0.04)
Net loss per common share from discontinued operations- basic and diluted	$	(0.47)	$	(0.00)	$	(0.46)	$	(0.04)

16. SHARE-BASED COMPENSATION

The Company’s 2012 Incentive Compensation Plan (“2012 Plan”) and 2015 Incentive Compensation Plan (“2015 Plan”) provide for grants of stock options, stock appreciation rights, restricted stock, other stock-based awards and other cash-based awards. The 2015 Plan was approved on May 15, 2015 at the Company’s 2015 Annual Meeting of Stockholders. An aggregate 5,470,000 shares of common stock were registered for issuance under the 2015 Plan. The remaining shares under the 2012 Plan are no longer available for issuance except those shares that are forfeited due to employee terminations or failure to meet performance metrics. As of July 4, 2015 there were 3,949,438 remaining shares available for issuance under the 2015 Plan, which assumes that all of the 2015 restricted stock unit grants discussed below vest at the maximum amount.

The Company accounts for share-based compensation awards in accordance with the provisions of FASB ASC Topic 718, “Compensation – Stock Compensation” which requires companies to estimate the fair value of share-based payment awards on the date of grant. The value of the portion of the awards ultimately expected to vest is recognized as expense over the requisite service period. The Company recognized total stock-based compensation of $1.2 million and $2.1 million for the thirteen and twenty-six weeks ended June 28, 2014, respectively, compared to $1.6 million and $2.8 million for the thirteen and twenty-six weeks ended July 4, 2015, as operating and administrative expenses in the Company’s Consolidated Statements of Comprehensive Loss. The Company paid dividends on restricted stock that vested during the thirteen and twenty-six weeks ended June 28, 2014 of $0.1 million and $0.1 million, respectively, compared to no dividends and $0.1 million of dividends on restricted stock during the thirteen and twenty-six weeks ended July 4, 2015, respectively.

The Company has granted restricted stock to certain employees, as well as to non-employee directors, under the 2012 Plan and the 2015 Plan. The time-based restricted stock that was granted to employees in 2012 vests over five years. The time-based restricted stock granted to non-employee directors in 2014 and 2015 vests over one year.

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During the second quarter of 2013, the Company granted 770,366 shares of restricted stock that will vest upon the achievement of certain market performance metrics (the “2013 Market Awards”) and 452,725 shares of stock (the “2013 Time-Based Awards”) that will vest based upon the passage of time, in each case to certain employees under the 2012 Plan. The 2013 Time-Based restricted stock vests ratably over three years for employees from the date of the grant. The 2013 Market Awards will vest after three years if certain specified market conditions are met. The market-based condition is a comparison of the total shareholder return (“TSR”) of the Company’s stock with the TSR of its peer group over the corresponding three year period as determined by the Compensation Committee of the Company’s Board of Directors. These 2013 Market Awards also include a modifier based on the performance of the Company’s operating income as compared to its peer group. The number of shares ultimately vesting will be determined based on the TSR metric and operating income results at the conclusion of the third year. The fair value of the 2013 Market Awards was determined to be $3.02, which was determined using a Monte Carlo simulation model, which utilizes multiple input variables to determine the probability of the Company meeting the market-based condition. These inputs include a stock price volatility assumption that is the weighted average between the Company’s volatility since the IPO and the peer group average volatility for the 1.5 year period prior to the Company’s IPO and a 2.7 year risk-free interest rate of 0.33%. The fair value of the 2013 Time-Based Awards was determined based on the stock price as of the date of the grant.

The unvested restricted shares granted under the 2012 Plan generally have all the rights of a shareholder, including the right to receive dividends and the right to vote the shares. All of the unvested restricted stock granted under the 2012 Plan vests upon certain changes of control of the Company.

The change in the number of restricted stock shares outstanding consisted of the following:

	Restricted Shares Outstanding (in thousands)		Weighted-average grant-date fair value per share
Outstanding, January 3, 2015		1,165		$5.36
Granted		-		-
Vested		(213)		7.70
Cancelled or Expired		(14)		5.24
Outstanding, July 4, 2015		938		4.83

During the first quarter of 2014, the Company granted 990,540 restricted stock units that will convert to common stock upon vesting. Of the total units granted, 543,180 units will vest based upon the passage of time (the “2014 Time-Based Awards”), 212,175 units (with a maximum of 424,350 shares of common stock issuable) will vest based upon certain market performance metrics related to TSR (the “2014 Market Awards”) and 235,185 units (with a maximum of 470,370 shares of common stock issuable) will vest based upon certain operating income performance metrics (the “2014 Performance Awards”). The 2014 Time-Based Awards vest over three years for employees and one year for non-employee directors. The 2014 Market Awards will vest after three years if certain specified market conditions are met based on the TSR performance of the Company as compared to a peer group. The number of 2014 Market Awards that will ultimately convert from units to shares will be determined based on the TSR metric at the conclusion of the third year and could be up to 200% of the number of units originally granted. The number of 2014 Performance Awards that will ultimately convert from units to shares is 75.5% of the number of units originally granted based on the operating income performance metrics during Fiscal 2014 and will vest at the conclusion of the third year. The fair value of the 2014 Market Awards was determined to be $6.85 per unit (or $3.43 per share for the maximum 424,350 shares of common stock issuable), which was determined using a Monte Carlo simulation model, which utilizes multiple input variables to determine the probability of the Company meeting the market based condition. These inputs include a stock price volatility assumption that is the weighted average between the Company’s volatility over the 2.1 years following the IPO and the peer group average volatility for the 0.7 year period prior to the IPO and a 2.8 year risk-free interest rate of 0.82%. The fair value of the 2014 Time-Based and 2014 Performance Awards was determined based on the stock price as of the date of the grant.

During the first quarter of Fiscal 2015, the Company granted 1,665,642 restricted stock units that will convert to common stock upon vesting. All the units granted during the first quarter of 2015 will vest based on the passage of time. The Company granted 891,705 units that will vest over three years for employees and one year for non-employee directors. The Company also granted 773,937 additional units to certain executive level employees, which will vest over four years. The fair value of these awards was determined based on the stock price as of the date of the grant.

During the first quarter of 2015, the Compensation Committee of the Company’s Board of Directors awarded 760,281 performance-based restricted stock units to certain employees and executive officers that will vest in the first quarter of Fiscal 2018 based on operating income performance metrics (“2015 Performance Awards”). The number of these awards that will ultimately convert from

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units to shares will be based on the operating income metrics during Fiscal 2015, Fiscal 2016 and Fiscal 2017 and will vest at the conclusion of the third year and could be up to 200% of the number of units originally awarded. The 2015 Performance Awards were granted under the 2015 Plan that was approved by the Company’s shareholders during the second quarter of Fiscal 2015. The 2015 Performance Awards that are based on Fiscal 2015 operating income were granted during the second quarter of Fiscal 2015 and are therefore included in the table below. The 2015 Performance Awards that are based on Fiscal 2016 and Fiscal 2017 operating income will be granted when the operating income metrics are determined and therefore are not included in the table below.

The unvested restricted stock units granted under the 2012 Plan and the 2015 Plan have the right to receive dividends, but not the right to vote. All of the unvested restricted stock units granted under the 2015 Plan vest upon the termination of participants in certain situations following certain changes of control of the Company.

The change in the number of restricted stock units outstanding consisted of the following:

	Restricted Units Outstanding (in thousands) (1)		Weighted-average grant-date fair value per unit
Outstanding, January 3, 2015		808		$6.44
Granted		1,919		4.52
Vested		(189)		6.33
Cancelled or Expired		(53)		6.33
Outstanding, July 4, 2015		2,485		4.97

(1) Represents the number of restricted stock units granted. For the 2014 Market Awards, the 2014 Performance Awards and the 2015 Performance Awards, actual shares issued could be up to 200% of the units granted.

17. BUSINESS SEGMENTS

The Company has determined that it has one reportable segment. The Company’s revenues are derived predominantly from the sale of food and non-food products at its stores. Non-perishable categories consist of traditional grocery, frozen and dairy products. Perishable food categories include meat, seafood, produce, deli, bakery and floral. Non-food categories include general merchandise, health and beauty supplies, pharmacy, alcohol and tobacco.

The following is a summary of the percentage of sales from continuing operations of non-perishable, perishable, and non-food items for the thirteen and twenty-six weeks ended June 28, 2014 and July 4, 2015:

	Thirteen Weeks Ended		Twenty-six Weeks Ended
	June 28, 2014	July 4, 2015	June 28, 2014	July 4, 2015
Non-Perishable Food	43.1%	42.0%	44.8%	43.3%
Perishable Food	39.3%	40.5%	37.9%	39.6%
Non-Food	17.6%	17.5%	17.3%	17.1%

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

Overview

We are a leading Midwest supermarket chain founded in 1872. As of July 4, 2015, we operated 150 grocery stores in Wisconsin and Illinois under the Pick ’n Save, Mariano’s, Copps and Metro Market retail banners, which are served by our two distribution facilities and our food processing and preparation commissary. The following table represents our store network as of the end of each of the periods below:

	6/28/2014	9/27/2014	1/3/2015	4/4/2015	7/4/2015
Pick ’n Save	93	93	90	90	89
Mariano’s	24	27	29	30	32
Copps	25	25	25	25	25
Metro Market	4	4	4	4	4
Rainbow	27	-	-	-	-
Total Company-owned stores	173	149	148	149	150

In this section, we refer to the thirteen weeks ended July 4, 2015 as the “second quarter 2015” and we refer to the thirteen weeks ended June 28, 2014 as the “second quarter 2014.”

For the second quarter 2015, net sales from continuing operations were $998.3 million, compared to net sales from continuing operations of $942.9 million for the second quarter 2014. The increase in net sales was primarily due to the impact of new stores, partially offset by a decrease in same-store sales.

Net loss per basic and diluted share from continuing operations was $0.03 for the second quarter 2015, compared to net loss per basic and diluted share of $0.10 in the second quarter 2014. Results for the second quarter of 2015 include a closed facility charge of $0.6 million ($0.3 million, net of income tax). Results for the second quarter 2014 included an asset impairment charge of approximately $5.1 million ($3.0 million, net of income tax) incurred in connection with the closure of the Stevens Point distribution facility during the third quarter of 2014 and employee severance costs of $1.2 million ($0.7 million, net of income tax). For the twenty-six weeks ended July 4, 2015, net loss per basic and diluted share from continuing operations was $0.04, compared to net loss per basic and diluted share of $0.22 for the twenty-six weeks ended June 28, 2014. Results for the twenty-six weeks ended July 4, 2015 include a closed facility charge of $0.6 million ($0.3 million, net of income tax). Results for the twenty-six weeks ended June 28, 2014 included an asset impairment charge of approximately $5.1 million ($3.0 million, net of income tax) incurred in connection with the closure of the Stevens Point distribution facility during the third quarter of 2014, employee severance costs of $1.2 million ($0.7 million, net of income tax) and a loss on debt extinguishment of approximately $8.6 million ($4.7 million, net of income tax) incurred in connection with the debt refinancing in the first quarter 2014.

Going forward, we plan to continue to maintain our market leadership and focus on growing same-store sales, opening new stores and increasing our cash flow. We intend to pursue same-store sales growth by continuing to focus on price competitiveness, improving our marketing efforts, selectively remodeling and relocating existing stores and enhancing and expanding our own brand, perishable and prepared food offerings, as well as improving the customer shopping experience through excellent customer service and better in-stock positions. In addition, we intend to continue our expansion into the Chicago market. During the second quarter of 2015, we opened two additional Mariano’s store in the Chicago market. As of July 4, 2015, we had 32 stores open in the Chicago market.

Unless otherwise noted, the disclosures in this Management’s Discussion and Analysis of Financial Condition and Results of Operations relate to our continuing operations.

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RESULTS OF CONTINUING OPERATIONS

(Dollars in thousands)	Thirteen Weeks Ended						Twenty-six Weeks Ended
	June 28, 2014			July 4, 2015			June 28, 2014			July 4, 2015
Net Sales	$	942,906	100.0%	$	998,257	100.0%	$	1,805,596	100.0%	$	1,980,189	100.0%
Costs and Expenses:
Cost of sales		693,951	73.6		734,566	73.6		1,326,139	73.4		1,454,892	73.5
Operating and administrative		239,141	25.4		252,135	25.3		457,249	25.3		500,925	25.3
Asset impairment charge		5,050	0.5		-	-		5,050	0.3		-	-
Interest expense (including amortization of deferred financing costs)		13,734	1.5		13,857	1.4		27,473	1.5		27,766	1.4
Loss on debt extinguishment		-	-		-	-		8,576	0.5		-	-
		951,876	101.0		1,000,558	100.2		1,824,487	101.0		1,983,583	100.2
Loss from Continuing Operations before Income Taxes		(8,970)	(1.0)		(2,301)	(0.2)		(18,891)	(1.1)		(3,394)	(0.2)
Income Taxes		(4,014)	(0.4)		(910)	(0.1)		(8,440)	(0.5)		(1,616)	(0.1)
Net Loss from Continuing Operations	$	(4,956)	(0.5%)	$	(1,391)	(0.1%)	$	(10,451)	(0.6%)	$	(1,778)	(0.1%)

Thirteen Weeks Ended July 4, 2015 Compared With Thirteen Weeks Ended June 28, 2014

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

Net sales were $998.3 million for the second quarter 2015, an increase of $55.4 million, or 5.9%, from $942.9 million for the second quarter 2014. Same-store sales decreased 3.9% due to a 4.9% decrease in the number of customer transactions, partially offset by a 1.0% increase in the average transaction size. Same-store sales comparisons were negatively impacted by the Easter holiday calendar shift from the second quarter of 2014 into the first quarter of 2015. Adjusted for the effect of the Easter holiday calendar shift, same-store sales decreased 2.4%.

Net sales for the Wisconsin markets were $648.2 million for the second quarter 2015, a decrease of $23.5 million, or 3.5%, from $671.7 million for the second quarter 2014. The decrease primarily reflects the closure of three stores during the fourth quarter of 2014, a decrease in same-store sales and the Easter holiday calendar shift, partially offset by the benefit of a new store. Same-store sales decreased 2.9% due to a 4.0% decrease in the number of customer transactions, partially offset by a 1.1% increase in the average transaction size. Adjusted for the effect of the Easter holiday calendar shift, same-store sales declined 1.4%. Same-store sales in our Wisconsin markets continue to be negatively impacted by competitive store openings.

Net sales for the Illinois market were $350.1 million for the second quarter 2015, an increase of $78.9 million, or 29.1%, from $271.2 million for the second quarter 2014. The increase primarily reflects the benefit of new and acquired stores in Illinois, partially offset by a 6.4% decrease in same-store sales. The decrease in same-store sales was due to a 7.3% decrease in the number of customer transactions, partially offset by a 0.9% increase in the average transaction size. Adjusted for the effect of the Easter holiday calendar shift, same-store sales declined 4.9%. Same-store sales were negatively impacted by the cannibalization effect of new and acquired store openings in the Illinois market. In addition, same-store sales have been negatively impacted by the reopening of a significant number of Dominick’s stores that were initially closed in early 2014 and are now operated by other competitors.

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

Gross profit was $263.7 million for the second quarter 2015, an increase of $14.7 million, or 5.9%, from $249.0 million for the second quarter 2014. Gross profit, as a percentage of net sales, was flat at 26.4% for the second quarter 2015 and 2014.

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

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Operating and administrative expenses were $252.1 million for the second quarter 2015, an increase of $13.0 million, or 5.4%, from $239.1 million for the second quarter 2014. The increase was primarily due to increased occupancy and labor costs in new or acquired Illinois stores. Operating and administrative expenses, as a percentage of net sales were 25.3% and 25.4% for the second quarter 2015 and 2014, respectively.

Asset Impairment Charge. During the second quarter of 2014, the Company recognized a non-cash asset impairment charge of $5.1 million related to adjustments to the carrying value of the property and equipment at the Stevens Point distribution facility which closed during Fiscal 2014.

Interest Expense.Interest expense (including the amortization of deferred financing costs) was $13.9 million for the second quarter 2015, compared to $13.7 million for the second quarter 2014.

Income Taxes.Income tax benefit was $0.9 million for the second quarter 2015, a decrease of $3.1 million from a benefit of $4.0 million for the second quarter 2014. The effective income tax rate was a benefit of (39.5%) for the second quarter 2015 and a benefit of (44.7%) for the second quarter 2014.

Twenty-six Weeks Ended July 4, 2015 Compared With Twenty-six Weeks Ended June 28, 2014

Net Sales.Net sales were $1,980.2 million for the twenty-six weeks ended July 4, 2015, an increase of $174.6 million, or 9.7%, from $1,805.6 million for the twenty-six weeks ended June 28, 2014. Same-store sales decreased 2.8%, due to a 3.5% decrease in the number of customer transactions, partially offset by a 0.7% increase in the average transaction size.

Net sales for the Wisconsin markets were $1,294.9 million for the twenty-six weeks ended July 4, 2015, a decrease of $40.3 million, or 3.0%, from $1,335.2 million for the twenty-six weeks ended June 28, 2014. The decrease primarily reflects the closure of three stores during the fourth quarter of 2014 and a decrease in same-store sales, partially offset by the benefit of a new store. Same-store sales decreased 1.5%, due to a 2.5% decrease in the number of customer transactions, partially offset by a 1.0% increase in the average transaction size. Same-store sales in our Wisconsin markets continue to be negatively impacted by competitive store openings.

Net sales for the Illinois market were $685.3 million for the twenty-six weeks ended July 4, 2015, an increase of $214.9 million, or 45.7%, from $470.4 million for the twenty-six weeks ended June 28, 2014. The increase primarily reflects the benefit of new and acquired stores in Illinois, partially offset by a 6.4% decrease in same-store sales. The decrease in same-store sales was due to a 6.6% decrease in the number of customer transactions, partially offset by a 0.2% increase in the average transaction size. Same-store sales were negatively impacted by the cannibalization effect of new and acquired store openings in the Illinois market. In addition, same-store sales have been negatively impacted by the reopening of a significant number of Dominick’s stores that were initially closed in early 2014 and are now operated by other competitors.

Gross Profit. Gross profit was $525.3 million for the twenty-six weeks ended July 4, 2015, an increase of $45.8 million, or 9.6%, from $479.5 million for the twenty-six weeks ended June 28, 2014. Gross profit, as a percentage of net sales, was 26.5% and 26.6% for the twenty-six weeks ended July 4, 2015 and June 28, 2014, respectively. The decrease in gross profit as a percentage of net sales primarily reflects increased shrink and distribution costs, partially offset by decreased promotional investments and an increased perishable sales mix.

Operating and Administrative Expenses. Operating and administrative expenses were $500.9 million for the twenty-six weeks ended July 4, 2015, an increase of $43.7 million, or 9.6%, from $457.2 million for the twenty-six weeks ended June 28, 2014. The increase was primarily due to increased occupancy and labor costs in new or acquired Illinois stores. Operating and administrative expenses, as a percentage of net sales were 25.3% for both the twenty-six weeks ended July 4, 2015 and June 28, 2014.

Interest Expense.Interest expense (including the amortization of deferred financing costs) was $27.8 million for the twenty-six weeks ended July 4, 2015, compared to $27.5 million for the twenty-six weeks ended June 28, 2014.

Loss on Debt Extinguishment. In connection with our debt refinancing in the first quarter of Fiscal 2014, we recognized a loss on debt extinguishment of $9.0 million, of which $8.6 million is related to continuing operations.

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Income Taxes.Income tax benefit was $1.6 million for the twenty-six weeks ended July 4, 2015, a decrease of $6.8 million from a benefit of $8.4 million for the twenty-six weeks ended June 28, 2014. The effective income tax rate was a benefit of (47.6%) for the twenty-six weeks ended July 4, 2015 and a benefit of (44.7%) for the twenty-six weeks ended June 28, 2014. The provision for income taxes and effective tax rate for the twenty-six weeks ended July 4, 2015 reflects the reduction of amounts due for federal income taxes as a result of the filing of our 2014 federal income tax return.

DISCONTINUED OPERATIONS

We have accounted for the 27 Rainbow stores that were either sold or closed during the third quarter of Fiscal 2014 as discontinued operations. The Consolidated Statement of Comprehensive Loss for the thirteen and twenty-six weeks ended June 28, 2014 has been reclassified to conform with this presentation. See Note 5 to our unaudited consolidated financial statements for further discussion of our discontinued operations.

We have included all direct costs and an amount of allocated interest expense (including amortization of deferred financing costs and loss on debt extinguishment charges) for the 27 Rainbow stores within net loss from discontinued operations. Interest was allocated based on the ratio of the net assets of the 27 Rainbow stores as of the end of the period to the net assets of the total Company. We recorded $0.9 million and $2.0 million of interest in discontinued operations for the thirteen and twenty-six weeks ended June 28, 2014, respectively. We recorded $0.4 million and $0.9 million of interest in discontinued operations for the thirteen and twenty-six weeks ended July 4, 2015, respectively. During the first quarter of Fiscal 2015, we paid $7.9 million to terminate the obligations related to the capital leases of two Rainbow stores that were closed during the third quarter of Fiscal 2014, resulting in a gain of $2.7 million. During the second quarter of Fiscal 2015, we recorded an increase to our estimated multi-employer pension withdrawal liability of $1.2 million as a result of receiving a withdrawal liability notice from one of the affected plans.

Loss from discontinued operations, net of tax, as presented in the Consolidated Statements of Comprehensive Loss for the thirteen and twenty-six weeks ending June 28, 2014 and July 4, 2015 is as follows (in thousands):

	Thirteen Weeks Ended				Twenty-six Weeks Ended
	June 28, 2014		July 4, 2015		June 28, 2014		July 4, 2015
Net Sales	$	132,847	$	-	$	272,374	$	-
(Loss) income from discontinued operations, before income taxes:	$	(37,290)	$	(872)	$	(35,445)	$	1,272
Income taxes on discontinued operations		(14,581)		(748)		(13,714)		3,340
Loss from discontinued operations, net of tax	$	(22,709)	$	(124)	$	(21,731)	$	(2,068)

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Liquidity and Capital Resources

Cash Flows

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

	Twenty-six Weeks Ended
	June 28, 2014		July 4, 2015
Net cash provided by operating activities (1)	$	16,557	$	20,734
Net cash used in investing activities (1)		(42,414)		(33,050)
Net cash used in financing activities(1)		(20,554)		(6,399)
Net decrease in cash and cash equivalents	$	(46,411)	$	(18,715)
Cash and cash equivalents at end of period (2)	$	35,767	$	39,861

⁽¹⁾ Includes activities from continuing operations and discontinued operations.

⁽²⁾ Includes cash and cash equivalents included in assets of discontinued operations.

Net Cash Provided By Operating Activities.Net cash provided by operating activities was $20.7 million for the twenty-six weeks ended July 4, 2015 compared to $16.6 million for the twenty-six weeks ended June 28, 2014. The increase in cash provided by operating activities was due primarily to refunds for income taxes and reduced inventory purchases partially offset by increased accounts payable payments.

Net Cash Used in Investing Activities.Net cash used in investing activities for the twenty-six weeks ended July 4, 2015 was $33.1 million compared to $42.4 million for the twenty-six weeks ended June 28, 2014. The decrease is primarily due to lower capital expenditures related to our acquired Dominick’s stores. Total capital expenditures for Fiscal 2015, excluding acquisitions, are estimated to be approximately $68-73 million.

Net Cash Used in Financing Activities.Net cash used in financing activities for the twenty-six weeks ended July 4, 2015 was $6.4 million compared to $20.6 million for the twenty-six weeks ended June 28, 2014. Net cash used in the twenty-six weeks ended July 4, 2015 primarily consisted of payments of $7.9 million to terminate two leases associated with discontinued operations and scheduled capital lease payments, partially offset by net borrowings on our revolving credit facility of $3.8 million. Net cash used in the twenty-six weeks ended June 28, 2014 primarily consisted of payments of debt and capital lease obligations of $519.2 million primarily to refinance our existing indebtedness and related financing costs of $5.6 million, offset somewhat by the net proceeds from our term loan of $450.8 million, net proceeds from our common stock offering of $19.3 million and net borrowings on our revolving credit facility of $35.0 million.

Offering of Common Stock

On February 12, 2014, we completed a public offering of 10,170,989 shares of our common stock at a price of $7.00 per share, which included 2,948,113 shares sold by Roundy’s and 7,222,876 shares sold by existing shareholders. The Company received approximately $20.6 million in gross proceeds from the offering, or approximately $19.3 million in net proceeds after deducting the underwriting discount and expenses related to the offering. The net proceeds were used for general corporate purposes, including funding working capital and operating expenses as well as capital expenditures related to the eleven Dominick’s stores acquired from Safeway during the fourth quarter of 2013 in the Chicago Stores Acquisition.

On May 22, 2015, we completed a secondary offering of 4,025,000 shares of our common stock at a price of $3.50 per share (the “Secondary Offering”). All shares offered during the Secondary Offering were sold by existing shareholders. We did not receive any of the proceeds from the Secondary Offering.

2014 Credit Facilities

On March 3, 2014, Roundy’s Supermarkets, Inc. (“RSI”), the wholly owned operating subsidiary of the Company, refinanced its existing credit facilities (the “2014 Refinancing”), and entered into two new credit facilities, a $460 million term loan (the “New Term Facility”) and a $220 million asset-based revolving credit facility (the “New Revolving Facility”, together with the New Term Facility, the “2014 Credit Facilities”). We used the proceeds from the New Term Facility, together with existing cash, to repay our existing term loan, including all accrued interest thereon and related costs, fees and expenses. The New Term Facility has a maturity date of March 3, 2021; provided that the maturity date will accelerate to September 15, 2020 if our 10.25% Senior Secured Notes due in 2020 (the “2020 Notes”) are not refinanced in full prior to such date. The New Revolving Facility has a maturity date of March 3, 2019.

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The New Term Facility bears an interest rate, at our option, of (i) adjusted LIBOR (subject to a minimum floor of 1.00%) plus 4.75% or (ii) a base rate plus 3.75%.

The New Revolving Facility bears an interest rate, at our option, of (i) adjusted LIBOR plus a margin of 1.50%-2.00% per annum or (ii) a base rate plus a margin of 0.50%-1.00% per annum. In either case, the margin is based on RSI’s utilization of the New Revolving Facility. In addition, there is a quarterly fee payable in an amount equal to either 0.25% or 0.375% per annum of the undrawn portion of the New Revolving Facility. We may use borrowings under the New Revolving Facility for ongoing working capital and general corporate purposes and any other use not prohibited by the credit agreement governing the New Revolving Facility. Borrowing availability under the New Revolving Facility at any time is based on the value of certain eligible inventory, accounts receivable and pharmacy prescription files and is subject to additional reserves and other adjustments.

Mandatory prepayments under the New Term Facility are required with (i) 50% of adjusted excess cash flow (which percentage shall be reduced to 25% and to 0% upon achievement of certain leverage ratios); (ii) 100% of the net cash proceeds of assets sales or other non-ordinary course dispositions of certain property by RSI and its restricted subsidiaries (subject to certain exceptions and reinvestment provisions); and (iii) 100% of the net cash proceeds of issuances, offerings or placements of certain indebtedness not otherwise permitted to be incurred under the New Term Facility credit agreement.

The terms of the 2014 Credit Facilities contain customary affirmative covenants. The terms of the 2014 Credit Facilities also contain customary negative covenants, including restrictions on (i) dividends on, and redemptions of, equity interest and other restricted payment; (ii) liens and sale-leaseback transactions; (iii) loans and investments; (iv) guarantees and hedging agreements; (v) the sale, transfer or disposition of assets and businesses; (vi) transactions with affiliates; (vii) negative pledges and restrictions on subsidiary distributions; and (viii) optional payments and modifications of certain debt instruments.

2020 Notes

On December 20, 2013, RSI completed the private placement of $200 million of 2020 Notes that mature on December 15, 2020. The Company will pay interest at a rate of 10.25% on the 2020 Notes semiannually, commencing on June 15, 2014. The 2020 Notes were issued with a 3.01% discount, which will be amortized over the seven year term of the 2020 Notes. The Company capitalized $4.6 million of financing costs related to the issuance of the 2020 Notes which will be also amortized over the seven year term of the 2020 Notes.

The 2020 Notes are unconditionally guaranteed, jointly and severally, on a senior basis, by (i) RSI’s indirect parent company Roundy’s, Inc., (ii) RSI’s direct parent company Roundy’s Acquisition Corp. and (iii) each of RSI’s domestic restricted subsidiaries owned on the date of original issuance of the 2020 Notes, and are secured by a second priority security interest in substantially all of our and the guarantors’ assets, which security interests rank junior to the security interests in such assets that secure our 2014 Credit Facilities. The 2020 Notes and the guarantees thereof are secured by a second priority lien on substantially all the assets owned by RSI and the guarantors, subject to permitted liens and certain exceptions. These liens are junior in priority to the first-priority liens on the same collateral securing the 2014 Credit Facilities (as well as certain hedging and cash management obligations owed to lenders thereunder or their affiliates) and to certain other permitted liens under the indenture.

The indenture governing the 2020 Notes generally provides that RSI can pay dividends and make other distributions to its parent companies in an amount not to exceed (i) 50% of RSI’s consolidated net income for the period beginning September 29, 2013 and ending as of the end of the last fiscal quarter before the proposed payment for which financial statements are available, plus (ii) 100% of the aggregate amount of cash and the fair market value of any assets or property received by RSI after December 20, 2013 from the issuance and sale of equity interests of RSI (subject to certain exceptions), plus (iii) 100% of the aggregate amount of cash and the fair market value of any assets or property contributed to the capital of RSI after December 20, 2013, plus (iv) 100% of the aggregate amount received in cash and the fair market value of assets or property received after December 20, 2013 from the sale of certain investments or the sale of certain subsidiaries, provided that certain conditions are satisfied, including that RSI has a consolidated interest coverage ratio of greater than 2.0 to 1.0. The restrictions on dividends and other distributions contained in the indenture are subject to certain exceptions, including (i) the payment of dividends to permit any of its parent companies to pay taxes, general corporate and operating expenses, customary compensation of officers and employees of such parent companies and costs related to an offering of such parent company’s equity and (ii) dividends and other distributions in an aggregate amount not to exceed $10.0 million in any calendar year, with unused amounts being carried forward to future periods.

Prior Credit Facilities

Prior to the 2014 Refinancing, our long-term debt included a senior credit facility consisting of a $675 million term loan (the ‘‘2012 Term Loan’’) and a $125 million revolving credit facility (the ‘‘2012 Revolving Facility’’ and together with the 2012 Term Loan, the ‘‘2012 Credit Facilities”). Borrowings under the 2012 Credit Facilities bore an interest rate, at our option, of (i) adjusted LIBOR (subject to a 1.25% floor) plus 4.5% or (ii) an alternate base rate plus 3.5%.

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Non-GAAP Measures

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

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

To properly and prudently evaluate our business, we encourage you to review our audited consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended January 3, 2015 and the reconciliation to Adjusted EBITDA from net income, the most directly comparable financial measure presented in accordance with GAAP, set forth in the table below. All of the items included in the reconciliation from net income from continuing operations to Adjusted EBITDA are either (i) non-cash items or (ii) items that management does not consider in assessing our on-going operating performance. In the case of the non-cash items, management believes that investors may find it useful to assess our comparative operating performance because the measures without such items are less susceptible to variances in actual performance resulting from depreciation, amortization and other non-cash charges and more reflective of other factors that affect operating performance. In the case of the other items that management does not consider in assessing our on-going operating performance, management believes that investors may find it useful to assess our operating performance if the measures are presented without these items because their financial impact may not reflect on-going operating performance.

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The following is a summary of the calculation of Adjusted EBITDA for the thirteen and twenty-six weeks ended June 28, 2014 and July 4, 2015 (in thousands):

	Thirteen Weeks Ended
	June 28, 2014						July 4, 2015
	Continuing     Operations		Discontinued     Operations		Total		Continuing Operations		Discontinued Operations		Total
Net loss	$	(4,956)	$	(22,709)	$	(27,665)	$	(1,391)	$	(124)	$	(1,515)
Interest expense		13,193		900		14,093		13,303		371		13,674
Income taxes		(4,014)		(14,581)		(18,595)		(910)		(748)		(1,658)
Depreciation and amortization expense		16,088		1,318		17,406		16,501		-		16,501
LIFO benefit		(47)		-		(47)		(72)		-		(72)
Amortization of deferred financing costs		541		18		559		554		-		554
Non-cash stock compensation expense		1,213		-		1,213		1,589		-		1,589
Gain on lease terminations		-		-		-		-		-		-
Closed facility charges		-		-		-		550		-		550
Employee severance costs		1,167		-		1,167		-		-		-
Asset impairment charges		5,050		11,143		16,193		-		-		-
Loss on disposition of assets		-		1,356		1,356		-		-		-
Multi-employer pension withdrawal charges		-		25,796		25,796		-		1,195		1,195
Adjusted EBITDA	$	28,235	$	3,241	$	31,476	$	30,124	$	694	$	30,818
	Twenty-six Weeks Ended
	June 28, 2014						July 4, 2015
	Continuing Operations		Discontinued Operations		Total		Continuing Operations		Discontinued Operations		Total
Net loss	$	(10,451)	$	(21,731)	$	(32,182)	$	(1,778)	$	(2,068)	$	(3,846)
Interest expense		26,341		2,046		28,387		26,658		900		27,558
Income taxes		(8,440)		(13,714)		(22,154)		(1,616)		3,340		1,724
Depreciation and amortization expense		30,794		3,473		34,267		32,567		-		32,567
LIFO charge		443		-		443		11		-		11
Amortization of deferred financing costs		1,132		51		1,183		1,108		-		1,108
Non-cash stock compensation expense		2,074		-		2,074		2,821		-		2,821
Gain on lease terminations		-		-		-		-		(2,739)		(2,739)
Closed facility charges		-		-		-		550		-		550
Loss on debt extinguishment		8,576		472		9,048		-		-		-
Employee severance costs		1,167		-		1,167		-		-		-
Asset impairment charges		5,050		11,143		16,193		-		-		-
Loss on disposition of assets		-		1,356		1,356		-		-		-
Multi-employer pension withdrawal charges		-		25,796		25,796		-		1,195		1,195
Adjusted EBITDA	$	56,686	$	8,892	$	65,578	$	60,321	$	628	$	60,949

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

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

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Critical Accounting Policies and Estimates

The preparation of our financial statements in conformity with U.S. GAAP requires us to make estimates, assumptions and judgments that affect amounts of assets and liabilities reported in the consolidated financial statements, the disclosure of contingent assets and liabilities as of the date of the financial statements and reported amounts of revenues and expenses during the year. We believe our estimates and assumptions are reasonable; however, future results could differ from those estimates under different assumptions or conditions.

Critical accounting policies are policies that reflect material judgment and uncertainty and may result in materially different results using different assumptions or conditions. We identified the following critical accounting policies and estimates: inventories, income taxes, discounts and vendor allowances, closed facility lease commitments, reserves for self-insurance, employee benefit plans, goodwill and impairment of long-lived assets. For a detailed discussion of accounting policies, refer to our Annual Report on Form 10-K for the fiscal year ended January 3, 2015.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

There have been no material changes in our exposure to market risk from the information provided in Item 7A. Quantitative and Qualitative Disclosures About Market Risk of our Annual Report on Form 10-K for the fiscal year ended January  3, 2015.

Item 4. Controls and Procedures

As required by Rule 13a-15 under the Securities Exchange Act of 1934 (“Exchange Act”), the Chief Executive Officer and the Chief Financial Officer, together with a disclosure review committee appointed by the Chief Executive Officer, evaluated Roundy’s disclosure controls and procedures as of July 4, 2015, the end of the period covered by this report. Based on that evaluation, Roundy’s Chief Executive Officer and Chief Financial Officer concluded that Roundy’s disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) were effective as of the end of the period covered by this report to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

In connection with the evaluation described above, there were no changes in our internal control over financial reporting during the quarter ended July 4, 2015, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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Part II – Other Information

Item 1. Legal Proceedings

None.

Item 1A. Risk Factors

There were no material changes in risk factors for the Company in the period covered by this report. See the discussion of risk factors in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended January 3, 2015.

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

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

Results of Operations and Financial Condition.

On August 12, 2015, the Company issued a press release announcing financial information for its second quarter ended July 4, 2015. A copy of the press release is furnished herewith as Exhibit 99.1. This information shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933.

Item 6. Exhibits

Reference is made to the separate exhibit index contained on page 31 filed herewith.

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Signatures

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Roundy’s, Inc.
By:	/s/ ROBERT A. MARIANO
	Robert A. Mariano
	Chairman, President and Chief Executive Officer and Director
Date: August 12, 2015
By:	/s/ MICHAEL P. TURZENSKI
	Michael P. Turzenski
	Group Vice President and Chief Financial Officer
Date: August 12, 2015

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Exhibit Index

Exhibit Number	Description
4.1	Roundy’s, Inc. 2015 Incentive Compensation Plan (incorporated by reference to Exhibit 4.4 to the registrant’s Registration Statement on Form S-8 dated May 15, 2015 in Commission File No. 333-204221)
10.1	Form of 2015 Performance-Based Restricted Stock Unit Agreement (incorporated by reference to Exhibit 99.3 to Amendment No. 1 to the registrant’s Current Report on Form 8-K dated March 12, 2015 in Commission File No. 001-35422)
31.1	Certification Statement of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification Statement of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Section 1350 Certification of Chief Executive Officer and Chief Financial Officer
99.1	Press Release dated August 12, 2015
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

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