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As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 11/07/19 SpartanNash Co 10-Q 10/05/19 76:14M ActiveDisclosure/FA |
Document/Exhibit Description Pages Size
1: 10-Q Sptn Q3 2019-10-5 HTML 1.37M
2: EX-10.1 Material Contract HTML 83K
3: EX-10.2 Material Contract HTML 55K
4: EX-31.1 Certification -- §302 - SOA'02 HTML 28K
5: EX-31.2 Certification -- §302 - SOA'02 HTML 28K
6: EX-31.3 Certification -- §302 - SOA'02 HTML 28K
7: EX-32.1 Certification -- §906 - SOA'02 HTML 27K
64: R1 Document and Entity Information HTML 79K
43: R2 Condensed Consolidated Balance Sheets (Unaudited) HTML 120K
16: R3 Condensed Consolidated Balance Sheets (Unaudited) HTML 37K
(Parenthetical)
57: R4 Condensed Consolidated Statements of Operations HTML 119K
(Unaudited)
63: R5 Condensed Consolidated Statements of Comprehensive HTML 44K
(Loss) Income (Unaudited)
42: R6 Condensed Consolidated Statements of Shareholders' HTML 107K
Equity (Unaudited)
13: R7 Condensed Consolidated Statements of Shareholders' HTML 27K
Equity (Unaudited) (Parenthetical)
56: R8 Condensed Consolidated Statements of Cash Flows HTML 146K
(Unaudited)
66: R9 Summary of Significant Accounting Policies and HTML 28K
Basis of Presentation
52: R10 Adoption of New Accounting Standards and Recently HTML 30K
Issued Accounting Standards
74: R11 Revenue HTML 478K
39: R12 Acquisitions HTML 28K
29: R13 Goodwill and Other Intangible Assets HTML 46K
51: R14 Restructuring Charges and Asset Impairment HTML 181K
73: R15 Fair Value Measurements HTML 45K
37: R16 Commitments and Contingencies HTML 31K
28: R17 Leases HTML 239K
53: R18 Associate Retirement Plans HTML 32K
71: R19 Income Taxes HTML 26K
44: R20 Stock-Based Compensation HTML 112K
15: R21 Earnings Per Share HTML 126K
59: R22 Supplemental Cash Flow Information HTML 55K
65: R23 Reporting Segment Information HTML 322K
41: R24 Summary of Significant Accounting Policies and HTML 29K
Basis of Presentation (Policies)
14: R25 Revenue (Tables) HTML 473K
58: R26 Goodwill and Other Intangible Assets (Tables) HTML 47K
62: R27 Restructuring Charges and Asset Impairment HTML 180K
(Tables)
40: R28 Fair Value Measurements (Tables) HTML 39K
17: R29 Leases (Tables) HTML 243K
25: R30 Stock-Based Compensation (Tables) HTML 114K
34: R31 Earnings Per Share (Tables) HTML 126K
75: R32 Supplemental Cash Flow Information (Tables) HTML 54K
54: R33 Reporting Segment Information (Tables) HTML 324K
26: R34 Adoption of New Accounting Standards and Recently HTML 37K
Issued Accounting Standards - Additional
Information (Detail)
35: R35 Revenue - Summary of Information about HTML 82K
Disaggregated Revenue of Reportable Segments
(Detail)
76: R36 Revenue - Additional Information (Detail) HTML 27K
55: R37 Acquisitions - Additional Information (Detail) HTML 56K
24: R38 Goodwill and Other Intangible Assets - Additional HTML 32K
Information (Detail)
36: R39 Goodwill and Other Intangible Assets - Summary of HTML 30K
Changes in Carrying Amount of Goodwill (Detail)
19: R40 Goodwill and Other Intangible Assets - Summary of HTML 32K
Changes in Carrying Amount of Indefinite-Lived
Intangible Assets (Detail)
46: R41 Restructuring Charges and Asset Impairment - HTML 57K
Schedule of Activity of Reserves for Closed
Properties (Detail)
67: R42 Restructuring Charges and Asset Impairment - HTML 52K
Schedule of Restructuring Activity and Asset
Impairment (Detail)
60: R43 Restructuring Charges and Asset Impairment - HTML 46K
Additional Information (Detail)
20: R44 Fair Value Measurements - Schedule of Book Value HTML 34K
and Estimated Fair Value of Debt Instruments,
Excluding Debt Financing Costs (Detail)
47: R45 Fair Value Measurements - Additional Information HTML 28K
(Detail)
68: R46 Commitments and Contingencies - Additional HTML 48K
Information (Detail)
61: R47 Leases - Additional Information (Detail) HTML 28K
18: R48 Leases - Components of Lease Expense (Detail) HTML 40K
48: R49 Leases - Schedule of Supplemental Balance Sheet HTML 66K
Information Related to Leases (Detail)
33: R50 Leases - Schedule of Supplemental Cash Flow and HTML 38K
Other Information Related to Leases (Detail)
22: R51 Leases - Schedule of Maturities of Lease HTML 90K
Liabilities Under Operating and Finance Leases
(Detail)
50: R52 Associate Retirement Plans - Additional HTML 51K
Information (Detail)
70: R53 Income Taxes - Additional Information (Detail) HTML 27K
32: R54 Stock-Based Compensation - Summary of Allocation HTML 30K
of Stock-Based Compensation Expense in Condensed
Consolidated Statements of Operations (Detail)
21: R55 Stock-Based Compensation - Summary of Stock-Based HTML 57K
Compensation Activity (Detail)
49: R56 Stock-Based Compensation - Additional Information HTML 29K
(Detail)
69: R57 Earnings Per Share - Schedule of Computation of HTML 59K
Basic and Diluted Earnings Per Share from
Continuing Operations (Detail)
30: R58 Supplemental Cash Flow Information - Schedule of HTML 37K
Supplemental Cash Flow Information (Detail)
23: R59 Reporting Segment Information - Schedule of HTML 71K
Segment Reporting Information, by Operating
Segment (Detail)
72: XML IDEA XML File -- Filing Summary XML 137K
31: XML XBRL Instance -- sptn-10q_20191005_htm XML 3.95M
45: EXCEL IDEA Workbook of Financial Reports XLSX 71K
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11: EX-101.LAB XBRL Labels -- sptn-20191005_lab XML 1.10M
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM i 10-Q
|
i ☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended i October 5, i 2019 / .
OR
|
i ☐ |
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: i 000-31127
i SPARTANNASH COMPANY
(Exact Name of Registrant as Specified in Its Charter)
|
i Michigan |
|
i 38-0593940 |
|
(State or Other Jurisdiction of Incorporation or Organization) |
|
(I.R.S. Employer Identification No.) |
|
|
|
|
| i 850 76th Street, S.W. i P.O. Box 8700 i Grand Rapids, i Michigan |
|
i 49518 |
|
(Address of Principal Executive Offices) |
|
(Zip Code) |
( i 616) i 878-2000
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
|
Title of each class |
|
Trading Symbol(s) |
|
Name of each exchange on which registered |
|
i Common Stock, no par value |
|
i SPTN |
|
i NASDAQ Global Select Market |
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. i Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). i Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
|
Large accelerated filer |
|
☒ |
|
Accelerated filer |
|
☐ |
|
Non-accelerated filer |
|
☐ |
|
Smaller reporting company |
|
i ☐ |
|
Emerging growth company |
|
i ☐ |
|
|
|
|
|
|
|
|
|
|
|
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes i ☐ No ☒
As of November 6, 2019, the registrant had i 36,347,337 outstanding shares of common stock, no par value.
FORWARD-LOOKING STATEMENTS
The matters discussed in this Quarterly Report on Form 10-Q, in the Company’s press releases and in the Company’s website-accessible conference calls with analysts and investor presentations include “forward-looking statements” about the plans, strategies, objectives, goals or expectations of SpartanNash Company and subsidiaries (“SpartanNash” or “the Company”). These forward-looking statements are identifiable by words or phrases indicating that SpartanNash or management “expects,” “anticipates,” “plans,” “believes,” or “estimates,” or that a particular occurrence or event “will,” “may,” “could,” “should” or “will likely” result, occur or be pursued or “continue” in the future, that the “outlook” or “trend” is toward a particular result or occurrence, that a development is an “opportunity,” “priority,” “strategy,” “focus,” that the Company is “positioned” for a particular result, or similarly stated expectations. Accounting estimates, such as those described under the heading “Critical Accounting Policies” in Part I, Item 2 of this Quarterly Report on Form 10-Q, are inherently forward-looking. The Company’s asset impairment and restructuring cost provisions are estimates and actual costs may be more or less than these estimates and differences may be material. Undue reliance should not be placed on these forward-looking statements, which speak only as of the date of the Quarterly Report, other report, release, presentation, or statement.
In addition to other risks and uncertainties described in connection with the forward-looking statements contained in this Quarterly Report on Form 10-Q, SpartanNash’s Annual Report on Form 10-K for the fiscal year ended December 29, 2018 and other periodic reports filed with the Securities and Exchange Commission (“SEC”), there are many important factors that could cause actual results to differ materially. These risks and uncertainties include general business conditions, changes in overall economic conditions that impact consumer spending, the Company’s ability to integrate acquired assets, the impact of competition and other factors which are often beyond the control of the Company, and other risks listed in the “Risk Factors” discussion in Item 1A of the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2018 and risks and uncertainties not presently known to the Company or that the Company currently deems immaterial.
This section and the discussions contained in Item 1A “Risk Factors” of the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2018 and in Part I, Item 2 “Critical Accounting Policies” of the Quarterly Report on Form 10-Q, are intended to provide meaningful cautionary statements for purposes of the safe harbor provision of the Private Securities Litigation Reform Act of 1995. This should not be construed as a complete list of all the economic, competitive, governmental, technological and other factors that could adversely affect the Company’s expected consolidated financial position, results of operations or liquidity. Additional risks and uncertainties not currently known to SpartanNash or that SpartanNash currently believes are immaterial also may impair its business, operations, liquidity, financial condition and prospects. The Company undertakes no obligation to update or revise its forward-looking statements to reflect developments that occur, or information obtained after the date of this Quarterly Report.
2
PART I
FINANCIAL INFORMATION
ITEM 1. Financial Statements
SPARTANNASH COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, Unaudited)
|
|
October 5, |
|
|
|
||||||
|
|
|
|
2018 |
|
||||||
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
$ |
|
i 23,436 |
|
|
$ |
|
i 18,585 |
|
|
|
Accounts and notes receivable, net |
|
|
i 374,287 |
|
|
|
|
i 346,260 |
|
|
|
Inventories, net |
|
|
i 594,676 |
|
|
|
|
i 553,799 |
|
|
|
Prepaid expenses and other current assets |
|
|
i 52,176 |
|
|
|
|
i 73,798 |
|
|
|
Property and equipment held for sale |
|
|
i 3,968 |
|
|
|
|
i 8,654 |
|
|
|
Total current assets |
|
|
i 1,048,543 |
|
|
|
|
i 1,001,096 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net |
|
|
i 618,126 |
|
|
|
|
i 579,060 |
|
|
|
Goodwill |
|
|
i 181,035 |
|
|
|
|
i 178,648 |
|
|
|
Intangible assets, net |
|
|
i 128,351 |
|
|
|
|
i 128,926 |
|
|
|
Operating lease assets |
|
|
i 272,591 |
|
|
|
|
— |
|
|
|
Other assets, net |
|
|
i 85,900 |
|
|
|
|
i 84,182 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
$ |
|
i 2,334,546 |
|
|
$ |
|
i 1,971,912 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders’ Equity |
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
$ |
|
i 456,991 |
|
|
$ |
|
i 357,802 |
|
|
|
Accrued payroll and benefits |
|
|
i 59,472 |
|
|
|
|
i 57,180 |
|
|
|
Other accrued expenses |
|
|
i 45,667 |
|
|
|
|
i 43,206 |
|
|
|
Current portion of operating lease liabilities |
|
|
i 41,795 |
|
|
|
|
— |
|
|
|
Current portion of long-term debt and finance lease liabilities |
|
|
i 7,044 |
|
|
|
|
i 18,263 |
|
|
|
Total current liabilities |
|
|
i 610,969 |
|
|
|
|
i 476,451 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term liabilities |
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes |
|
|
i 43,734 |
|
|
|
|
i 49,254 |
|
|
|
Operating lease liabilities |
|
|
i 273,631 |
|
|
|
|
— |
|
|
|
Other long-term liabilities |
|
|
i 30,861 |
|
|
|
|
i 50,463 |
|
|
|
Long-term debt and finance lease liabilities |
|
|
i 686,055 |
|
|
|
|
i 679,797 |
|
|
|
Total long-term liabilities |
|
|
i 1,034,281 |
|
|
|
|
i 779,514 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 8) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity |
|
|
|
|
|
|
|
|
|
|
|
Common stock, voting, no par value; i i 100,000 / shares authorized; i 36,350 and i 35,952 shares outstanding |
|
|
i 489,656 |
|
|
|
|
i 484,064 |
|
|
|
Preferred stock, no par value, i i 10,000 / shares authorized; i i no / shares outstanding |
|
|
— |
|
|
|
|
— |
|
|
|
Accumulated other comprehensive loss |
|
|
( i 748 |
) |
|
|
|
( i 15,759 |
) |
|
|
Retained earnings |
|
|
i 200,388 |
|
|
|
|
i 247,642 |
|
|
|
Total shareholders’ equity |
|
|
i 689,296 |
|
|
|
|
i 715,947 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders’ equity |
$ |
|
i 2,334,546 |
|
|
$ |
|
i 1,971,912 |
|
|
See accompanying notes to condensed consolidated financial statements.
3
SPARTANNASH COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
|
|
12 Weeks Ended |
|
|
40 Weeks Ended |
|
|
||||||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
Net sales |
$ |
|
i 1,999,808 |
|
|
$ |
|
i 1,886,730 |
|
|
$ |
|
i 6,538,112 |
|
|
$ |
|
i 6,167,756 |
|
|
|
Cost of sales |
|
|
i 1,709,447 |
|
|
|
|
i 1,630,588 |
|
|
|
|
i 5,581,015 |
|
|
|
|
i 5,302,740 |
|
|
|
Gross profit |
|
|
i 290,361 |
|
|
|
|
i 256,142 |
|
|
|
|
i 957,097 |
|
|
|
|
i 865,016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative |
|
|
i 273,286 |
|
|
|
|
i 228,583 |
|
|
|
|
i 900,160 |
|
|
|
|
i 773,844 |
|
|
|
Merger/acquisition and integration |
|
|
— |
|
|
|
|
i 521 |
|
|
|
|
i 1,364 |
|
|
|
|
i 3,531 |
|
|
|
Restructuring charges and asset impairment |
|
|
i 1,296 |
|
|
|
|
i 232 |
|
|
|
|
i 10,215 |
|
|
|
|
i 5,269 |
|
|
|
Total operating expenses |
|
|
i 274,582 |
|
|
|
|
i 229,336 |
|
|
|
|
i 911,739 |
|
|
|
|
i 782,644 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings |
|
|
i 15,779 |
|
|
|
|
i 26,806 |
|
|
|
|
i 45,358 |
|
|
|
|
i 82,372 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses and (income) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
i 7,375 |
|
|
|
|
i 7,082 |
|
|
|
|
i 27,952 |
|
|
|
|
i 22,828 |
|
|
|
Loss on debt extinguishment |
|
|
i 329 |
|
|
|
|
— |
|
|
|
|
i 329 |
|
|
|
|
— |
|
|
|
Postretirement benefit expense (income) |
|
|
i 10,221 |
|
|
|
|
( i 6 |
) |
|
|
|
i 19,677 |
|
|
|
|
( i 20 |
) |
|
|
Other, net |
|
|
( i 180 |
) |
|
|
|
( i 189 |
) |
|
|
|
( i 1,071 |
) |
|
|
|
( i 635 |
) |
|
|
Total other expenses, net |
|
|
i 17,745 |
|
|
|
|
i 6,887 |
|
|
|
|
i 46,887 |
|
|
|
|
i 22,173 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings before income taxes and discontinued operations |
|
|
( i 1,966 |
) |
|
|
|
i 19,919 |
|
|
|
|
( i 1,529 |
) |
|
|
|
i 60,199 |
|
|
|
Income tax (benefit) expense |
|
|
( i 1,656 |
) |
|
|
|
i 2,374 |
|
|
|
|
( i 1,973 |
) |
|
|
|
i 12,381 |
|
|
|
(Loss) earnings from continuing operations |
|
|
( i 310 |
) |
|
|
|
i 17,545 |
|
|
|
|
i 444 |
|
|
|
|
i 47,818 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations, net of taxes |
|
|
( i 27 |
) |
|
|
|
( i 80 |
) |
|
|
|
( i 126 |
) |
|
|
|
( i 238 |
) |
|
|
Net (loss) earnings |
$ |
|
( i 337 |
) |
|
$ |
|
i 17,465 |
|
|
$ |
|
i 318 |
|
|
$ |
|
i 47,580 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic (loss) earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings from continuing operations |
$ |
|
( i 0.01 |
) |
|
$ |
|
i 0.49 |
|
|
$ |
|
i 0.01 |
|
|
$ |
|
i 1.33 |
|
|
|
Loss from discontinued operations |
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
( i 0.01 |
) |
|
|
Net (loss) earnings |
$ |
|
( i 0.01 |
) |
|
$ |
|
i 0.49 |
|
|
$ |
|
i 0.01 |
|
|
$ |
|
i 1.32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted (loss) earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings from continuing operations |
$ |
|
( i 0.01 |
) |
|
$ |
|
i 0.49 |
|
|
$ |
|
i 0.01 |
|
|
$ |
|
i 1.33 |
|
|
|
Loss from discontinued operations |
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
( i 0.01 |
) |
|
|
Net (loss) earnings |
$ |
|
( i 0.01 |
) |
|
$ |
|
i 0.49 |
|
|
$ |
|
i 0.01 |
|
|
$ |
|
i 1.32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial statements.
4
SPARTANNASH COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands, Unaudited)
|
|
12 Weeks Ended |
|
|
40 Weeks Ended |
|
||||||||||||||
|
|
|
|
|
|
|
|
|
||||||||||||
|
Net (loss) earnings |
$ |
|
( i 337 |
) |
|
$ |
|
i 17,465 |
|
|
$ |
|
i 318 |
|
|
$ |
|
i 47,580 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income, before tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension and postretirement liability adjustment |
|
|
i 10,808 |
|
|
|
|
i 83 |
|
|
|
|
i 19,824 |
|
|
|
|
i 278 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense related to items of other comprehensive income |
|
|
( i 2,624 |
) |
|
|
|
( i 20 |
) |
|
|
|
( i 4,813 |
) |
|
|
|
( i 68 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income, after tax |
|
|
i 8,184 |
|
|
|
|
i 63 |
|
|
|
|
i 15,011 |
|
|
|
|
i 210 |
|
|
Comprehensive income |
$ |
|
i 7,847 |
|
|
$ |
|
i 17,528 |
|
|
$ |
|
i 15,329 |
|
|
$ |
|
i 47,790 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial statements.
5
SPARTANNASH COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In thousands, Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
||
|
|
Shares |
|
|
Common |
|
|
Comprehensive |
|
|
Retained |
|
|
|
|
|
|
|||||||
|
|
Outstanding |
|
|
Stock |
|
|
Income (Loss) |
|
|
Earnings |
|
|
Total |
|
|||||||||
|
Balance at December 29, 2018 |
|
i 35,952 |
|
|
$ |
|
i 484,064 |
|
|
$ |
|
( i 15,759 |
) |
|
$ |
|
i 247,642 |
|
|
$ |
|
i 715,947 |
|
|
Impact of adoption of new lease standard (ASU 2016-02) |
|
|
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
( i 26,863 |
) |
|
|
|
( i 26,863 |
) |
|
Net earnings |
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
i 7,469 |
|
|
|
|
i 7,469 |
|
|
Other comprehensive income |
|
— |
|
|
|
|
— |
|
|
|
|
i 60 |
|
|
|
|
— |
|
|
|
|
i 60 |
|
|
Dividends - $ i 0.19 per share |
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
( i 6,902 |
) |
|
|
|
( i 6,902 |
) |
|
Stock-based employee compensation |
|
— |
|
|
|
|
i 5,383 |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
i 5,383 |
|
|
Issuances of common stock on stock option exercises and for stock bonus plan and associate stock purchase plan |
|
i 30 |
|
|
|
|
i 452 |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
i 452 |
|
|
Issuances of restricted stock |
|
i 444 |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
Cancellations of stock-based awards |
|
( i 107 |
) |
|
|
|
( i 1,744 |
) |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
( i 1,744 |
) |
|
Balance at April 20, 2019 |
|
i 36,319 |
|
|
$ |
|
i 488,155 |
|
|
$ |
|
( i 15,699 |
) |
|
$ |
|
i 221,346 |
|
|
$ |
|
i 693,802 |
|
|
Net loss |
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
( i 6,814 |
) |
|
|
|
( i 6,814 |
) |
|
Other comprehensive income |
|
— |
|
|
|
|
— |
|
|
|
|
i 6,767 |
|
|
|
|
— |
|
|
|
|
i 6,767 |
|
|
Dividends - $ i 0.19 per share |
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
( i 6,902 |
) |
|
|
|
( i 6,902 |
) |
|
Stock-based employee compensation |
|
— |
|
|
|
|
i 715 |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
i 715 |
|
|
Issuances of common stock for associate stock purchase plan |
|
i 8 |
|
|
|
|
i 99 |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
i 99 |
|
|
Issuances of restricted stock |
|
i 22 |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
Cancellations of stock-based awards |
|
( i 15 |
) |
|
|
|
( i 22 |
) |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
( i 22 |
) |
|
Balance at July 13, 2019 |
|
i 36,334 |
|
|
$ |
|
i 488,947 |
|
|
$ |
|
( i 8,932 |
) |
|
$ |
|
i 207,630 |
|
|
$ |
|
i 687,645 |
|
|
Net loss |
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
( i 337 |
) |
|
|
|
( i 337 |
) |
|
Other comprehensive income |
|
— |
|
|
|
|
— |
|
|
|
|
i 8,184 |
|
|
|
|
— |
|
|
|
|
i 8,184 |
|
|
Dividends - $ i 0.19 per share |
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
( i 6,905 |
) |
|
|
|
( i 6,905 |
) |
|
Stock-based employee compensation |
|
— |
|
|
|
|
i 637 |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
i 637 |
|
|
Issuances of common stock for associate stock purchase plan |
|
i 8 |
|
|
|
|
i 88 |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
i 88 |
|
|
Issuances of restricted stock |
|
i 16 |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
Cancellations of stock-based awards |
|
( i 8 |
) |
|
|
|
( i 16 |
) |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
( i 16 |
) |
|
Balance at October 5, 2019 |
|
i 36,350 |
|
|
$ |
|
i 489,656 |
|
|
$ |
|
( i 748 |
) |
|
$ |
|
i 200,388 |
|
|
$ |
|
i 689,296 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial statements.
6
SPARTANNASH COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY, CONTINUED
(In thousands, Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
||
|
|
Shares |
|
|
Common |
|
|
Comprehensive |
|
|
Retained |
|
|
|
|
|
|
|||||||
|
|
Outstanding |
|
|
Stock |
|
|
Income (Loss) |
|
|
Earnings |
|
|
Total |
|
|||||||||
|
Balance at December 30, 2017 |
|
i 36,466 |
|
|
$ |
|
i 497,093 |
|
|
$ |
|
( i 15,136 |
) |
|
$ |
|
i 239,993 |
|
|
$ |
|
i 721,950 |
|
|
Net earnings |
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
i 12,343 |
|
|
|
|
i 12,343 |
|
|
Other comprehensive income |
|
— |
|
|
|
|
— |
|
|
|
|
i 84 |
|
|
|
|
— |
|
|
|
|
i 84 |
|
|
Dividends - $ i 0.18 per share |
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
( i 6,526 |
) |
|
|
|
( i 6,526 |
) |
|
Share repurchase |
|
( i 952 |
) |
|
|
|
( i 20,000 |
) |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
( i 20,000 |
) |
|
Stock-based employee compensation |
|
— |
|
|
|
|
i 5,290 |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
i 5,290 |
|
|
Issuances of common stock for stock bonus plan and associate stock purchase plan |
|
i 24 |
|
|
|
|
i 470 |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
i 470 |
|
|
Issuances of restricted stock |
|
i 472 |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
Cancellations of stock-based awards |
|
( i 87 |
) |
|
|
|
( i 1,567 |
) |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
( i 1,567 |
) |
|
Balance at April 21, 2018 |
|
i 35,923 |
|
|
$ |
|
i 481,286 |
|
|
$ |
|
( i 15,052 |
) |
|
$ |
|
i 245,810 |
|
|
$ |
|
i 712,044 |
|
|
Net earnings |
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
i 17,772 |
|
|
|
|
i 17,772 |
|
|
Other comprehensive income |
|
— |
|
|
|
|
— |
|
|
|
|
i 63 |
|
|
|
|
— |
|
|
|
|
i 63 |
|
|
Dividends - $ i 0.18 per share |
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
( i 6,457 |
) |
|
|
|
( i 6,457 |
) |
|
Stock-based employee compensation |
|
— |
|
|
|
|
i 977 |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
i 977 |
|
|
Issuances of common stock for associate stock purchase plan |
|
i 4 |
|
|
|
|
i 104 |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
i 104 |
|
|
Issuances of restricted stock |
|
i 9 |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
Cancellations of stock-based awards |
|
( i 2 |
) |
|
|
|
( i 37 |
) |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
( i 37 |
) |
|
Balance at July 14, 2018 |
|
i 35,934 |
|
|
$ |
|
i 482,330 |
|
|
$ |
|
( i 14,989 |
) |
|
$ |
|
i 257,125 |
|
|
$ |
|
i 724,466 |
|
|
Net earnings |
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
i 17,465 |
|
|
|
|
i 17,465 |
|
|
Other comprehensive income |
|
— |
|
|
|
|
— |
|
|
|
|
i 63 |
|
|
|
|
— |
|
|
|
|
i 63 |
|
|
Dividends - $ i 0.18 per share |
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
( i 6,469 |
) |
|
|
|
( i 6,469 |
) |
|
Share repurchase |
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
Stock-based employee compensation |
|
— |
|
|
|
|
i 773 |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
i 773 |
|
|
Issuances of common stock for associate stock purchase plan |
|
i 6 |
|
|
|
|
i 98 |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
i 98 |
|
|
Issuances of restricted stock |
|
i 1 |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
Cancellations of stock-based awards |
|
( i 3 |
) |
|
|
|
( i 26 |
) |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
( i 26 |
) |
|
Balance at October 6, 2018 |
|
i 35,938 |
|
|
$ |
|
i 483,175 |
|
|
$ |
|
( i 14,926 |
) |
|
$ |
|
i 268,121 |
|
|
$ |
|
i 736,370 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial statements.
7
SPARTANNASH COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, Unaudited)
|
|
40 Weeks Ended |
|
|||||||
|
|
|
|
|
||||||
|
Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
|
Net earnings |
$ |
|
i 318 |
|
|
$ |
|
i 47,580 |
|
|
Loss from discontinued operations, net of tax |
|
|
i 126 |
|
|
|
|
i 238 |
|
|
Earnings from continuing operations |
|
|
i 444 |
|
|
|
|
i 47,818 |
|
|
Adjustments to reconcile net earnings to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
Non-cash restructuring, asset impairment, and other charges |
|
|
i 16,108 |
|
|
|
|
i 5,496 |
|
|
Loss on debt extinguishment |
|
|
i 329 |
|
|
|
|
— |
|
|
Depreciation and amortization |
|
|
i 69,588 |
|
|
|
|
i 64,457 |
|
|
Non-cash rent |
|
|
( i 5,685 |
) |
|
|
|
( i 818 |
) |
|
LIFO expense |
|
|
i 3,762 |
|
|
|
|
i 2,349 |
|
|
Pension settlement expense |
|
|
i 18,244 |
|
|
|
|
— |
|
|
Postretirement benefits expense |
|
|
i 2,837 |
|
|
|
|
i 852 |
|
|
Deferred taxes on income |
|
|
( i 1,735 |
) |
|
|
|
i 9,584 |
|
|
Stock-based compensation expense |
|
|
i 6,735 |
|
|
|
|
i 7,040 |
|
|
Postretirement benefit plan contributions |
|
|
( i 514 |
) |
|
|
|
( i 1,771 |
) |
|
Gain on disposals of assets |
|
|
( i 6,648 |
) |
|
|
|
( i 108 |
) |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
( i 26,697 |
) |
|
|
|
( i 17,852 |
) |
|
Inventories |
|
|
( i 10,813 |
) |
|
|
|
i 2,098 |
|
|
Prepaid expenses and other assets |
|
|
( i 10,911 |
) |
|
|
|
i 155 |
|
|
Accounts payable |
|
|
i 84,817 |
|
|
|
|
i 35,490 |
|
|
Accrued payroll and benefits |
|
|
( i 3,624 |
) |
|
|
|
( i 5,917 |
) |
|
Other accrued expenses and other liabilities |
|
|
i 3,797 |
|
|
|
|
( i 6,327 |
) |
|
Net cash provided by operating activities |
|
|
i 140,034 |
|
|
|
|
i 142,546 |
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
|
( i 46,905 |
) |
|
|
|
( i 52,600 |
) |
|
Net proceeds from the sale of assets |
|
|
i 16,456 |
|
|
|
|
i 6,568 |
|
|
Acquisitions, net of cash acquired |
|
|
( i 86,659 |
) |
|
|
|
— |
|
|
Loans to customers |
|
|
( i 3,384 |
) |
|
|
|
( i 948 |
) |
|
Payments from customers on loans |
|
|
i 3,327 |
|
|
|
|
i 1,456 |
|
|
Other |
|
|
( i 480 |
) |
|
|
|
( i 9 |
) |
|
Net cash used in investing activities |
|
|
( i 117,645 |
) |
|
|
|
( i 45,533 |
) |
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
|
Proceeds from senior secured revolving credit facility |
|
|
i 922,679 |
|
|
|
|
i 764,934 |
|
|
Payments on senior secured revolving credit facility |
|
|
( i 871,033 |
) |
|
|
|
( i 809,058 |
) |
|
Proceeds from other long-term debt |
|
|
i 5,800 |
|
|
|
|
— |
|
|
Repayment of other long-term debt and finance lease liabilities |
|
|
( i 66,813 |
) |
|
|
|
( i 6,461 |
) |
|
Financing fees paid |
|
|
( i 708 |
) |
|
|
|
( i 106 |
) |
|
Proceeds from resolution of acquisition contingencies |
|
|
i 15,000 |
|
|
|
|
— |
|
|
Share repurchase |
|
|
— |
|
|
|
|
( i 20,000 |
) |
|
Net payments related to stock-based award activities |
|
|
( i 1,782 |
) |
|
|
|
( i 1,630 |
) |
|
Proceeds from exercise of stock options |
|
|
i 181 |
|
|
|
|
— |
|
|
Dividends paid |
|
|
( i 20,709 |
) |
|
|
|
( i 19,452 |
) |
|
Net cash used in financing activities |
|
|
( i 17,385 |
) |
|
|
|
( i 91,773 |
) |
|
Cash flows from discontinued operations |
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities |
|
|
( i 153 |
) |
|
|
|
( i 234 |
) |
|
Net cash used in discontinued operations |
|
|
( i 153 |
) |
|
|
|
( i 234 |
) |
|
Net increase in cash and cash equivalents |
|
|
i 4,851 |
|
|
|
|
i 5,006 |
|
|
Cash and cash equivalents at beginning of period |
|
|
i 18,585 |
|
|
|
|
i 15,667 |
|
|
Cash and cash equivalents at end of period |
$ |
|
i 23,436 |
|
|
$ |
|
i 20,673 |
|
See accompanying notes to condensed consolidated financial statements.
8
SPARTANNASH COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
i
Note 1 – Summary of Significant Accounting Policies and Basis of Presentation
The accompanying unaudited condensed consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts of SpartanNash Company and its subsidiaries (“SpartanNash” or “the Company”). Intercompany accounts and transactions have been eliminated. For further information, refer to the consolidated financial statements and footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 29, 2018.
In the opinion of management, the accompanying condensed consolidated financial statements, taken as a whole, contain all adjustments, including normal recurring items, necessary to present fairly the financial position of SpartanNash as of October 5, 2019, and the results of its operations and cash flows for the interim periods presented. Interim results are not necessarily indicative of results for a full year.
The unaudited information in the condensed consolidated financial statements for the third quarter and year to date periods of 2019 and 2018 include the results of operations of the Company for the 12- and 40-week periods ended October 5, 2019 and October 6, 2018, respectively.
iNote 2 – Adoption of New Accounting Standards and Recently Issued Accounting Standards
iIn February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, “Leases.” The FASB subsequently issued ASUs 2018-01, 2018-10, 2018-11, and 2019-01, which include clarifications and provide various practical expedients and transition options related to ASU 2016-02. ASU 2016-02 provides guidance for lease accounting and stipulates that lessees need to recognize a right-of-use asset and a lease liability for substantially all leases (other than leases that meet the definition of a short-term lease). The liability is equal to the present value of future rent payments. Treatment in the consolidated statements of operations is similar to the previous treatment of operating and capital leases.
In the first quarter of 2019, the Company adopted this standard retrospectively through a cumulative-effect adjustment recorded at the beginning of 2019. The Company has elected the practical expedient available under the guidance to not adjust comparative periods presented. In addition, the Company elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allow for a carry forward of the historical lease classification. The Company elected the hindsight practical expedient to reevaluate the lease term for existing leases. The election of the hindsight practical expedient resulted in the extension or reduction of lease terms for certain existing leases and adjustments to the useful lives of corresponding leasehold improvements. In the application of hindsight, the Company estimated the expected lease term based on management’s plans, including the performance of the leased properties and the associated market dynamics in relation to the overall operational, real estate and capital planning strategies of the Company.
The adoption of the new standard resulted in the recognition of operating lease assets and liabilities of $ i 241.8 million and $ i 292.3 million, respectively, as of the beginning of 2019. The adoption of the standard also resulted in a transition adjustment to beginning of the year retained earnings of $ i 26.9 million (net of deferred tax impact of $ i 8.5 million). The transition adjustment relates to impairment of right of use assets included in previously impaired asset groups and the impact of hindsight on the evaluation of lease term. Remaining differences between lease assets and liabilities relate to the derecognition of lease-related liabilities and assets recorded under ASC 840, which were included in beginning lease liabilities or assets under ASC 842.
In June 2016, the FASB issued ASU 2016-13, “Measurement of Credit Losses on Financial Instruments”. ASU 2016-13 changes the impairment model for most financial assets and certain other instruments. Entities will be required to use a forward-looking “expected loss” model that will replace the current “incurred loss” model, which will generally result in the earlier recognition of credit losses. The Company is required to adopt this update in the first quarter of fiscal 2020. The Company is currently reviewing the provisions of the new standard and establishing revised processes and controls to estimate expected losses for trade and other receivables. The standard is not expected to have a significant impact on the Company’s consolidated financial statements.
/ /9
i
Note 3 – Revenue
Disaggregation of Revenue
iThe following table provides information about disaggregated revenue by type of products and customers for each of the Company’s reportable segments:
|
|
12 Weeks Ended October 5, 2019 |
|
|
40 Weeks Ended October 5, 2019 |
|
||||||||||||||||||||||||||||||||||
|
(In thousands) |
Food Distribution |
|
|
Military |
|
|
Retail |
|
|
Total |
|
|
Food Distribution |
|
|
Military |
|
|
Retail |
|
|
Total |
|
||||||||||||||||
|
Type of products: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Center store (a) |
$ |
|
i 280,762 |
|
|
$ |
|
i 240,531 |
|
|
$ |
|
i 220,879 |
|
|
$ |
|
i 742,172 |
|
|
$ |
|
i 904,532 |
|
|
$ |
|
i 776,972 |
|
|
$ |
|
i 711,405 |
|
|
$ |
|
i 2,392,909 |
|
|
Fresh (b) |
|
|
i 339,932 |
|
|
|
|
i 143,339 |
|
|
|
|
i 212,923 |
|
|
|
|
i 696,194 |
|
|
|
|
i 1,112,553 |
|
|
|
|
i 486,562 |
|
|
|
|
i 694,812 |
|
|
|
|
i 2,293,927 |
|
|
Non-food (c) |
|
|
i 299,480 |
|
|
|
|
i 113,666 |
|
|
|
|
i 91,116 |
|
|
|
|
i 504,262 |
|
|
|
|
i 965,517 |
|
|
|
|
i 392,296 |
|
|
|
|
i 310,129 |
|
|
|
|
i 1,667,942 |
|
|
Fuel |
|
|
— |
|
|
|
|
— |
|
|
|
|
i 36,362 |
|
|
|
|
i 36,362 |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
i 115,947 |
|
|
|
|
i 115,947 |
|
|
Other |
|
|
i 18,873 |
|
|
|
|
i 1,620 |
|
|
|
|
i 325 |
|
|
|
|
i 20,818 |
|
|
|
|
i 61,066 |
|
|
|
|
i 5,267 |
|
|
|
|
i 1,054 |
|
|
|
|
i 67,387 |
|
|
Total |
$ |
|
i 939,047 |
|
|
$ |
|
i 499,156 |
|
|
$ |
|
i 561,605 |
|
|
$ |
|
i 1,999,808 |
|
|
$ |
|
i 3,043,668 |
|
|
$ |
|
i 1,661,097 |
|
|
$ |
|
i 1,833,347 |
|
|
$ |
|
i 6,538,112 |
|
|
Type of customers: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individuals |
$ |
|
— |
|
|
$ |
|
— |
|
|
$ |
|
i 561,430 |
|
|
$ |
|
i 561,430 |
|
|
$ |
|
— |
|
|
$ |
|
— |
|
|
$ |
|
i 1,832,704 |
|
|
$ |
|
i 1,832,704 |
|
|
Manufacturers, brokers and distributors |
|
|
i 40,878 |
|
|
|
|
i 473,388 |
|
|
|
|
— |
|
|
|
|
i 514,266 |
|
|
|
|
i 142,785 |
|
|
|
|
i 1,584,266 |
|
|
|
|
— |
|
|
|
|
i 1,727,051 |
|
|
Retailers |
|
|
i 882,904 |
|
|
|
|
i 24,148 |
|
|
|
|
— |
|
|
|
|
i 907,052 |
|
|
|
|
i 2,852,064 |
|
|
|
|
i 71,564 |
|
|
|
|
— |
|
|
|
|
i 2,923,628 |
|
|
Other |
|
|
i 15,265 |
|
|
|
|
i 1,620 |
|
|
|
|
i 175 |
|
|
|
|
i 17,060 |
|
|
|
|
i 48,819 |
|
|
|
|
i 5,267 |
|
|
|
|
i 643 |
|
|
|
|
i 54,729 |
|
|
Total |
$ |
|
i 939,047 |
|
|
$ |
|
i 499,156 |
|
|
$ |
|
i 561,605 |
|
|
$ |
|
i 1,999,808 |
|
|
$ |
|
i 3,043,668 |
|
|
$ |
|
i 1,661,097 |
|
|
$ |
|
i 1,833,347 |
|
|
$ |
|
i 6,538,112 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||
|
|
12 Weeks Ended October 6, 2018 |
|
|
40 Weeks Ended October 6, 2018 |
|
||||||||||||||||||||||||||||||||||
|
(In thousands) |
Food Distribution |
|
|
Military |
|
|
Retail |
|
|
Total |
|
|
Food Distribution |
|
|
Military |
|
|
Retail |
|
|
Total |
|
||||||||||||||||
|
Type of products: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Center store (a) |
$ |
|
i 291,830 |
|
|
$ |
|
i 247,804 |
|
|
$ |
|
i 175,773 |
|
|
$ |
|
i 715,407 |
|
|
$ |
|
i 938,460 |
|
|
$ |
|
i 804,939 |
|
|
$ |
|
i 576,629 |
|
|
$ |
|
i 2,320,028 |
|
|
Fresh (b) |
|
|
i 341,846 |
|
|
|
|
i 134,612 |
|
|
|
|
i 159,444 |
|
|
|
|
i 635,902 |
|
|
|
|
i 1,132,676 |
|
|
|
|
i 448,794 |
|
|
|
|
i 535,619 |
|
|
|
|
i 2,117,089 |
|
|
Non-food (c) |
|
|
i 288,759 |
|
|
|
|
i 116,271 |
|
|
|
|
i 76,317 |
|
|
|
|
i 481,347 |
|
|
|
|
i 905,868 |
|
|
|
|
i 394,807 |
|
|
|
|
i 254,180 |
|
|
|
|
i 1,554,855 |
|
|
Fuel |
|
|
— |
|
|
|
|
— |
|
|
|
|
i 34,576 |
|
|
|
|
i 34,576 |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
i 110,018 |
|
|
|
|
i 110,018 |
|
|
Other |
|
|
i 17,748 |
|
|
|
|
i 1,535 |
|
|
|
|
i 215 |
|
|
|
|
i 19,498 |
|
|
|
|
i 60,092 |
|
|
|
|
i 4,956 |
|
|
|
|
i 718 |
|
|
|
|
i 65,766 |
|
|
Total |
$ |
|
i 940,183 |
|
|
$ |
|
i 500,222 |
|
|
$ |
|
i 446,325 |
|
|
$ |
|
i 1,886,730 |
|
|
$ |
|
i 3,037,096 |
|
|
$ |
|
i 1,653,496 |
|
|
$ |
|
i 1,477,164 |
|
|
$ |
|
i 6,167,756 |
|
|
Type of customers: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individuals |
$ |
|
— |
|
|
$ |
|
— |
|
|
$ |
|
i 446,110 |
|
|
$ |
|
i 446,110 |
|
|
$ |
|
— |
|
|
$ |
|
— |
|
|
$ |
|
i 1,476,446 |
|
|
$ |
|
i 1,476,446 |
|
|
Manufacturers, brokers and distributors |
|
|
i 44,805 |
|
|
|
|
i 479,523 |
|
|
|
|
— |
|
|
|
|
i 524,328 |
|
|
|
|
i 153,673 |
|
|
|
|
i 1,598,191 |
|
|
|
|
— |
|
|
|
|
i 1,751,864 |
|
|
Retailers |
|
|
i 881,776 |
|
|
|
|
i 19,164 |
|
|
|
|
— |
|
|
|
|
i 900,940 |
|
|
|
|
i 2,837,036 |
|
|
|
|
i 50,349 |
|
|
|
|
— |
|
|
|
|
i 2,887,385 |
|
|
Other |
|
|
i 13,602 |
|
|
|
|
i 1,535 |
|
|
|
|
i 215 |
|
|
|
|
i 15,352 |
|
|
|
|
i 46,387 |
|
|
|
|
i 4,956 |
|
|
|
|
i 718 |
|
|
|
|
i 52,061 |
|
|
Total |
$ |
|
i 940,183 |
|
|
$ |
|
i 500,222 |
|
|
$ |
|
i 446,325 |
|
|
$ |
|
i 1,886,730 |
|
|
$ |
|
i 3,037,096 |
|
|
$ |
|
i 1,653,496 |
|
|
$ |
|
i 1,477,164 |
|
|
$ |
|
i 6,167,756 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) Center store includes dry grocery, frozen and beverages. |
|
||||||||||||||||||||||||||||||||||||||
|
(b) Fresh includes produce, meat, dairy, deli, bakery, prepared proteins, seafood and floral. |
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||
|
(c) Non-food includes general merchandise, health and beauty care, tobacco products and pharmacy. |
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||
Contract Assets and Liabilities
In the ordinary course of business, the Company may advance funds to certain independent retailers which are earned by the retailers primarily through achieving specified purchase volume requirements, as outlined in their supply agreements with the Company, or in limited instances, for remaining a SpartanNash customer for a specified time period. These advances must be repaid if the purchase volume requirements are not met or if the retailer no longer remains a customer for the specified time period. For volume-based arrangements, the Company estimates the amount of the advanced funds earned by the retailers based on the expected volume of purchases by the retailer and amortizes the advances as a reduction of the transaction price and revenue earned. These advances are not considered contract assets under ASC 606 as they are not generated through the transfer of goods or services to the retailers. These advances are included in Prepaid expenses and other current assets or Other assets, net on the Company’s balance sheets.
/10
When the Company transfers goods or services to a customer, payment is due - subject to normal terms - and is not conditional on anything other than the passage of time. Typical payment terms range from due upon receipt to i 30 days, depending on the type of customer and relationship. At contract inception, the Company expects that the period of time between the transfer of goods to the customer and when the customer pays for those goods will be less than one year, which is consistent with the Company’s standard payment terms. Accordingly, the Company has elected the practical expedient under ASC 606 to not adjust for the effects of a significant financing component. As such, these amounts are recorded as receivables and not contract assets. The Company had i no contract assets for any period presented.
The Company does not typically incur incremental costs of obtaining a contract that are contingent upon successful contract execution and would therefore be capitalized.
iNote 4 – Acquisitions
On December 31, 2018, the Company acquired all of the outstanding shares of Martin’s Super Markets, Inc. (“Martin’s”) for $ i 86.7 million, net of $ i 7.8 million of cash acquired. Acquired assets consist primarily of property and equipment of $ i 55.0 million, intangible assets of $ i 20.9 million, and working capital. Intangible assets are primarily composed of an indefinite-lived trade name of $ i 17.6 million and customer lists of $ i 3.1 million which are amortized over i seven years. The acquired assets and assumed liabilities were recorded at their estimated fair values as of the acquisition date based on preliminary estimates. These estimates are subject to revision upon the finalization of the valuations of the acquired real estate, inventory and intangible assets. Any adjustments will be made prior to December 31, 2019. i No goodwill was recorded related to the acquisition. As of October 5, 2019, the Company has incurred $ i 2.4 million of merger/acquisition and integration costs related to the acquisition, of which $ i 1.2 million was incurred in 2019. The acquisition was funded with proceeds from the Company’s Credit Agreement.
Martin’s currently operates i 21 stores in Northern Indiana and Southwest Michigan with approximately i 3,500 employees. Martin’s was an independent retailer and customer of the Company’s Food Distribution segment prior to the acquisition. Subsequent to the acquisition sales from the Food Distribution segment to Martin’s stores are eliminated. The acquisition expanded the footprint of the Company’s Retail segment into adjacent geographies in northern Indiana and southwestern Michigan.
Refer to Note 8 for further information related to current year acquisitions.
/ iNote 5 – Goodwill and Other Intangible Assets
The Company has i three reporting units; however, i i no / goodwill exists within the Military or Retail reporting units. i Changes in the carrying amount of goodwill within the Food Distribution reporting unit were as follows:
|
(In thousands) |
Goodwill |
|
||
|
Balance at December 29, 2018 |
$ |
|
i 178,648 |
|
|
Acquisitions (Note 8) |
|
|
i 2,387 |
|
|
Balance at October 5, 2019 |
$ |
|
i 181,035 |
|
The Company reviews goodwill and other indefinite-lived intangible assets for impairment annually, during the fourth quarter of each year, and more frequently if circumstances indicate a risk of impairment. Testing goodwill and other indefinite-lived intangible assets for impairment requires management to make significant estimates about the Company’s future performance, cash flows, and other assumptions that can be affected by potential changes in economic, industry or market conditions, business operations, competition, or the Company’s stock price and market capitalization.
The Company has indefinite-lived intangible assets that are not amortized, consisting primarily of indefinite-lived trade names and licenses for the sale of alcoholic beverages. i Changes in the carrying amount of indefinite-lived intangible assets were as follows:
|
(In thousands) |
Indefinite-lived Intangible Assets |
|
||
|
Balance at December 29, 2018 |
$ |
|
i 69,746 |
|
|
Acquisitions (Note 4) |
|
|
i 17,632 |
|
|
Disposals |
|
|
( i 50 |
) |
|
Impairment (Note 6) |
|
|
( i 13,966 |
) |
|
Balance at October 5, 2019 |
$ |
|
i 73,362 |
|
/
11
i
Note 6 – Restructuring Charges and Asset Impairment
iThe following table provides the activity of reserves for closed properties for the 40-week period ended October 5, 2019. Reserves for closed properties recorded in the condensed consolidated balance sheets are included in “Other accrued expenses” in Current liabilities and “Other long-term liabilities” in Long-term liabilities based on the timing of when the obligations are expected to be paid.
|
|
|
|
|
Lease and |
|
|
|
|
|
|
|
|
|
|
|
||
|
(In thousands) |
|
|
|
Ancillary Costs |
|
|
Severance |
|
|
Total |
|
||||||
|
Balance at December 29, 2018 |
|
|
|
$ |
|
i 16,386 |
|
|
|
|
— |
|
|
$ |
|
i 16,386 |
|
|
Reclassification of lease liabilities |
|
|
|
|
|
( i 8,177 |
) |
|
|
|
— |
|
|
|
|
( i 8,177 |
) |
|
Lease termination adjustments |
|
|
|
|
|
( i 62 |
) |
|
|
|
— |
|
|
|
|
( i 62 |
) |
|
Provision for closing charges |
|
|
|
|
|
i 629 |
|
|
|
|
— |
|
|
|
|
i 629 |
|
|
Provision for severance |
|
|
|
|
|
— |
|
|
|
|
i 347 |
|
|
|
|
i 347 |
|
|
Changes in estimates |
|
|
|
|
|
( i 750 |
) |
|
|
|
— |
|
|
|
|
( i 750 |
) |
|
Accretion expense |
|
|
|
|
|
i 235 |
|
|
|
|
— |
|
|
|
|
i 235 |
|
|
Payments |
|
|
|
|
|
( i 3,191 |
) |
|
|
|
( i 149 |
) |
|
|
|
( i 3,340 |
) |
|
Balance at October 5, 2019 |
|
|
|
$ |
|
i 5,070 |
|
|
$ |
|
i 198 |
|
|
$ |
|
i 5,268 |
|
Included in the liability are lease-related ancillary costs from the date of closure to the end of the remaining lease term. Prior to the adoption of ASU 2016-02 (Note 2), the liability included lease obligations recorded at the present value of future minimum lease payments, calculated using a risk-free interest rate, net of estimated sublease income. Upon the adoption of ASU 2016-02, these liabilities were reclassified as a reduction of the initial measurement of operating lease assets within the consolidated balance sheets.
iRestructuring and asset impairment activity included in the condensed consolidated statements of operations consisted of the following:
|
|
12 Weeks Ended |
|
|
40 Weeks Ended |
|
||||||||||||||
|
|
October 5, |
|
|
October 6, |
|
|
October 5, |
|
|
October 6, |
|
||||||||
|
(In thousands) |
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
||||||||
|
Asset impairment charges |
$ |
|
i 1,447 |
|
|
$ |
|
i 570 |
|
|
$ |
|
i 15,512 |
|
|
$ |
|
i 2,040 |
|
|
Charge on customer advance |
|
|
— |
|
|
|
|
— |
|
|
|
|
i 1,941 |
|
|
|
|
— |
|
|
Provision for closing charges |
|
|
i 86 |
|
|
|
|
i 596 |
|
|
|
|
i 629 |
|
|
|
|
i 4,499 |
|
|
Loss (gain) on sales of assets related to closed facilities |
|
|
i 72 |
|
|
|
|
( i 171 |
) |
|
|
|
( i 6,831 |
) |
|
|
|
( i 1,578 |
) |
|
Provision for severance |
|
|
i 198 |
|
|
|
|
i 3 |
|
|
|
|
i 347 |
|
|
|
|
i 142 |
|
|
Other costs associated with distribution center and store closings |
|
|
i 330 |
|
|
|
|
i 203 |
|
|
|
|
i 1,307 |
|
|
|
|
i 799 |
|
|
Changes in estimates |
|
|
( i 539 |
) |
|
|
|
( i 969 |
) |
|
|
|
( i 750 |
) |
|
|
|
( i 633 |
) |
|
Lease termination adjustments |
|
|
( i 298 |
) |
|
|
|
— |
|
|
|
|
( i 1,940 |
) |
|
|
|
— |
|
|
|
$ |
|
i 1,296 |
|
|
$ |
|
i 232 |
|
|
$ |
|
i 10,215 |
|
|
$ |
|
i 5,269 |
|
In the 12- and 40-week periods ended October 5, 2019 and October 6, 2018, restructuring and asset impairment charges were incurred in the Food Distribution and Retail segments due to the changes in the estimates in the fair value of assets within certain of the Company’s operations and the economic and competitive environment of certain stores and in conjunction with the Company’s retail store and supply chain rationalization plans. The charge on the customer advance relates to an advance to an independent retailer customer which was not fully recoverable. The changes in estimates relate to revised estimates of lease ancillary costs associated with previously closed locations, due to favorable dispute resolutions with landlords and decreases in the amount of certain ancillary costs. Gains on sales of assets relate primarily to previously closed distribution centers in the Food Distribution and Military segments in the current 40-week period and prior year 40-week period, respectively.
In the second quarter of 2019 the Company announced a plan to reposition the Caito Fresh Production operations and to focus on traditional produce distribution and production of fresh cut produce and deli items. As a result of this plan, the Company evaluated the related indefinite-lived trade name and long-lived assets for potential impairment. The indefinite-lived trade name with a book value of $ i 35.5 million was measured at a fair value of $ i 21.5 million, resulting in an impairment charge of $ i 14.0 million. The Company concluded the long-lived assets were not impaired. Indefinite lived intangible assets are tested for impairment at least annually, and as needed if an indicator of potential impairment exists. Indefinite lived intangible assets are measured at fair value using Level 3 inputs under the fair value hierarchy, as further described in Note 7 – Fair Value Measurements. Fair value of indefinite-lived assets is determined by estimating the amount and timing of net future cash flows, discounted using a risk-adjusted rate of interest. The Company estimates future cash flows based on historical results of operations, external factors expected to impact future performance and, in the case of indefinite-lived trade name assets, estimated royalty rates.
/12
Long-lived assets are measured at fair value on a nonrecurring basis using Level 3 inputs. Assets with a book value of $ i 5.9 million were measured at a fair value of $ i 4.4 million, resulting in impairment charges of $ i 1.5 million in 2019. Assets with a book value of $ i 1.8 million were measured at a fair value of $ i 0.3 million, resulting in an impairment charge of $ i 1.5 million in 2018. Fair value of long-lived assets is determined by estimating the amount and timing of net future cash flows, discounted using a risk-adjusted rate of interest. The Company estimates future cash flows based on historical results of operations, external factors expected to impact future performance, experience and knowledge of the geographic area in which the assets are located, and when necessary, uses real estate brokers. Assets classified as held for sale in the consolidated balance sheet are valued at the expected net proceeds.
iNote 7 – Fair Value Measurements
ASC 820 prioritizes the inputs to valuation techniques used to measure fair value into the following hierarchy:
Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
Level 3: Unobservable inputs for the asset or liability, reflecting the reporting entity’s own assumptions about the assumptions that market participants would use in pricing.
Financial instruments include cash and cash equivalents, accounts and notes receivable, accounts payable and long-term debt. The carrying amounts of cash and cash equivalents, accounts and notes receivable, and accounts payable approximate fair value because of the short-term maturities of these financial instruments. See Note 6 for discussion of the fair value measurements related to long-lived asset impairment charges. i At October 5, 2019 the book value and estimated fair value of the Company’s debt instruments, excluding debt financing costs, were as follows:
|
|
October 5, |
|
||
|
(In thousands) |
2019 |
|
||
|
Book value of debt instruments, excluding debt financing costs: |
|
|
|
|
|
Current maturities of long-term debt and finance lease liabilities |
$ |
|
i 7,044 |
|
|
Long-term debt and finance lease liabilities |
|
|
i 691,794 |
|
|
Total book value of debt instruments |
|
|
i 698,838 |
|
|
Fair value of debt instruments, excluding debt financing costs |
|
|
i 704,917 |
|
|
Excess of fair value over book value |
$ |
|
i 6,079 |
|
The estimated fair value of debt is based on market quotes for instruments with similar terms and remaining maturities (Level 2 inputs and valuation techniques).
Certain of the Company’s business combinations involve the potential for the receipt or payment of future contingent consideration upon the shortfall or achievement of various operating thresholds, respectively. The additional consideration is generally contingent on the acquired company reaching certain performance milestones. An asset or liability is recorded for the estimated fair value of the contingent consideration on the acquisition date and is remeasured at each reporting period, using Level 3 inputs, with the change in fair value recognized as income or expense within operating expenses in the condensed consolidated statements of operations. As of October 5, 2019, the probability of future payment related to existing contingent consideration provisions, which extend through the end of fiscal 2019, is remote and there is no further opportunity for additional receipt of contingent consideration, therefore no assets or liabilities are recorded in the condensed consolidated balance sheet. During 2019, the Company received $ i 15.0 million related to the resolution of certain acquisition contingencies associated with the Caito Foods Service, Inc. and Blue Ribbon Transport, LLC acquisition. Upon receipt of the proceeds, the portion of the contingent consideration related to the acquisition date fair value was reported as a financing activity in the condensed consolidated statements of cash flows. Amounts received in excess of the acquisition date fair value were reported as an operating activity in the condensed consolidated statements of cash flows.
/ iNote 8 – Commitments and Contingencies
The Company is engaged from time-to-time in routine legal proceedings incidental to its business. The Company does not believe that these routine legal proceedings, taken as a whole, will have a material impact on its business or financial condition. While the ultimate effect of such actions cannot be predicted with certainty, management believes that their outcome will not result in an adverse effect on the Company’s consolidated financial position, operating results or liquidity.
13
The Company may advance funds to independent retailers which are earned by the retailers primarily through achieving specified purchase volume requirements, as outlined in their supply agreements with the Company, or in limited instances, for remaining a SpartanNash customer for a specified time period. These advances must be repaid if the purchase volume requirements are not met or if the retailer no longer remains a customer for the specified time period. The Company had previously advanced funds to i one independent retailer who subsequently defaulted on the terms of the supply agreement and went into receivership. To realize its collateral, the Company obtained the rights to acquire i five stores, of which the rights related to i three of the stores were assigned to an independent retailer in exchange for certain consideration as part of a long-term supply agreement and the Company acquired the i two remaining stores. Both the execution of the long-term supply agreement and the acquisition of i two stores occurred during the second quarter of 2019. The excess of the purchase price over the fair value of net assets acquired of $ i 2.4 million was recorded as goodwill in the consolidated balance sheet and allocated to the Food Distribution segment based on the relative value of the assets acquired and the expected cash flows between the Retail and Food Distribution segments.
The Company contributes to the Central States Southeast and Southwest Pension Fund (“Central States Plan” or “the Plan”), a multi-employer pension plan, based on obligations arising from its collective bargaining agreements (“CBAs”) in Bellefontaine, Ohio, Lima, Ohio, and Grand Rapids, Michigan covering its supply chain associates at those locations. 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 contributing employers and unions; however, SpartanNash is not a trustee. The trustees typically 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. The Company currently contributes to the Central States Plan under the terms outlined in the “Primary Schedule” of Central States’ Rehabilitation Plan or those outlined in the “Default Schedule.” Both the Primary and Default schedules require varying increases in employer contributions over the previous year’s contribution. Increases are set within the CBAs and vary by location. The Plan continues to be in red zone status, and according to the Pension Protection Act (“PPA”), is considered to be in “critical and declining” zone status. Among other factors, plans in the “critical and declining” zone are generally less than i 65% funded and are projected to become insolvent within the next i 15 years (or i 20 years depending on the ratio of active-to-inactive participants). Based on the most recent information available to the Company, management believes that the present value of actuarial accrued liabilities in this multi-employer plan significantly exceeds the value of the assets held in trust to pay benefits. Because SpartanNash is i one of a number of employers contributing to this plan, it is difficult to ascertain what the exact amount of the underfunding would be. Management is not aware of any significant change in funding levels since December 29, 2018. To reduce this underfunding, management expects increases in expense as a result of required incremental multi-employer pension plan contributions in future years. Any adjustment for withdrawal liability will be recorded when it is probable that a liability exists and can be reasonably determined.
iNote 9 – Leases
A portion of the Company’s retail stores and warehouses operate in leased facilities. The Company also leases the majority of the tractors and trailers within its fleet and certain other assets. Most of the real property leases contain multiple renewal options, which generally range from i one to i ten years. In those locations in which it is economically feasible to continue to operate, management expects that lease options will be exercised. The terms of certain leases contain provisions requiring payment of percentage rent based on sales and payment of executory costs such as property taxes, utilities, insurance, maintenance and other occupancy costs applicable to the leased premises or, in the case of transportation equipment, provisions requiring payment of variable rent based upon miles driven. Certain properties or portions thereof are subleased to others. As most of the Company’s leases do not provide an implicit discount rate, the Company uses an incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.
iThe components of lease expense were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12 Weeks Ended |
|
|
40 Weeks Ended |
|
||||
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Operating lease cost |
$ |
|
i 12,626 |
|
|
$ |
|
i 42,272 |
|
|||||||||||||||
|
Short-term lease cost |
|
|
i 1,726 |
|
|
|
|
i 5,265 |
|
|||||||||||||||
|
Finance lease cost: |
|
|
|
|
|
|
|
|
|
|||||||||||||||
|
Amortization of assets |
|
|
i 824 |
|
|
|
|
i 2,807 |
|
|||||||||||||||
|
Interest on lease liabilities |
|
|
i 683 |
|
|
|
|
i 2,378 |
|
|||||||||||||||
|
Sublease income |
|
|
( i 902 |
) |
|
|
|
( i 3,169 |
) |
|||||||||||||||
|
Total net lease cost |
$ |
|
i 14,957 |
|
|
$ |
|
i 49,553 |
|
|||||||||||||||
14
i
Supplemental balance sheet information related to leases was as follows:
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
Operating leases: |
|
|
|
|
|||||||||||||||
|
Operating lease assets |
$ |
|
i 272,591 |
|
|||||||||||||||
|
|
|
|
|
|
|||||||||||||||
|
Current portion of operating lease liabilities |
$ |
|
i 41,795 |
|
|||||||||||||||
|
Noncurrent operating lease liabilities |
|
|
i 273,631 |
|
|||||||||||||||
|
Total operating lease liabilities |
$ |
|
i 315,426 |
|
|||||||||||||||
|
Finance leases: |
|
|
|
|
|||||||||||||||
|
Property and equipment, at cost |
$ |
|
i 63,000 |
|
|||||||||||||||
|
Accumulated amortization |
|
|
( i 30,262 |
) |
|||||||||||||||
|
Property and equipment, net |
$ |
|
i 32,738 |
|
|||||||||||||||
|
|
|
|
|
|
|||||||||||||||
|
Current portion of finance lease liabilities |
$ |
|
i 5,135 |
|
|||||||||||||||
|
Noncurrent finance lease liabilities |
|
|
i 32,422 |
|
|||||||||||||||
|
Total finance lease liabilities |
$ |
|
i 37,557 |
|
|||||||||||||||
|
|
|
|
|
|
|||||||||||||||
|
Weighted average remaining lease term: |
|
|
|
|
|||||||||||||||
|
Operating leases |
|
i 9.0 years |
|
||||||||||||||||
|
Finance leases |
|
i 10.2 years |
|
||||||||||||||||
|
|
|
|
|
|
|||||||||||||||
|
Weighted average discount rate: |
|
|
|
|
|||||||||||||||
|
Operating leases |
|
|
i 5.7 |
% |
|||||||||||||||
|
Finance leases |
|
|
i 8.2 |
% |
|||||||||||||||
Supplemental cash flow and other information related to leases was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12 Weeks Ended |
|
|
40 Weeks Ended |
|
||||
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
|
|
|
|
|
|||||||||||||||
|
Operating cash flows used for operating leases |
$ |
|
i 14,229 |
|
|
$ |
|
i 47,155 |
|
|||||||||||||||
|
Operating cash flows used for finance leases |
|
|
i 664 |
|
|
|
|
i 2,347 |
|
|||||||||||||||
|
Financing cash flows used for finance leases |
|
|
i 1,404 |
|
|
|
|
i 4,864 |
|
|||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
|
Leased assets obtained in exchange for lease liabilities: |
|
|
|
|
|
|
|
|
|
|||||||||||||||
|
Total operating lease liabilities |
|
|
i 2,891 |
|
|
|
|
i 22,191 |
|
|||||||||||||||
|
Total finance lease liabilities |
|
|
i 900 |
|
|
|
|
i 900 |
|
|||||||||||||||
The Company’s maturities of lease liabilities under operating and finance leases as of October 5, 2019 are as follows:
|
|
|
|
|
|
|
|
|
|
|
Operating |
|
|
Finance |
|
|
|
|
||||||
|
(In thousands) |
|
|
|
|
|
|
|
|
|
Leases |
|
|
Leases |
|
|
Total |
|
||||||
|
2019 |
$ |
|
i 14,342 |
|
|
|
|
i 2,062 |
|
|
|
|
i 16,404 |
|
|||||||||
|
2020 |
|
|
i 56,260 |
|
|
|
|
i 7,284 |
|
|
|
|
i 63,544 |
|
|||||||||
|
2021 |
|
|
i 51,325 |
|
|
|
|
i 5,479 |
|
|
|
|
i 56,805 |
|
|||||||||
|
2022 |
|
|
i 45,123 |
|
|
|
|
i 4,891 |
|
|
|
|
i 50,014 |
|
|||||||||
|
2023 |
|
|
i 40,345 |
|
|
|
|
i 4,510 |
|
|
|
|
i 44,855 |
|
|||||||||
|
Thereafter |
|
|
i 197,210 |
|
|
|
|
i 32,195 |
|
|
|
|
i 229,405 |
|
|||||||||
|
Total |
|
|
i 404,605 |
|
|
|
|
i 56,421 |
|
|
|
|
i 461,027 |
|
|||||||||
|
Less interest |
|
|
i 89,179 |
|
|
|
|
i 18,864 |
|
|
|
|
i 108,043 |
|
|||||||||
|
Present value of lease liabilities |
|
|
i 315,426 |
|
|
|
|
i 37,557 |
|
|
|
|
i 352,984 |
|
|||||||||
|
Less current portion |
|
|
i 41,795 |
|
|
|
|
i 5,135 |
|
|
|
|
i 46,930 |
|
|||||||||
|
Long-term lease liabilities |
$ |
|
i 273,631 |
|
|
$ |
|
i 32,422 |
|
$ |
|
|
i 306,054 |
|
|||||||||
15
i
Note 10 – Associate Retirement Plans
During the 12- and 40- week periods ended October 5, 2019, the Company recognized net periodic postretirement benefit costs of $ i 10.1 million and $ i 19.3 million, respectively, related to the SpartanNash Company Pension Plan (“Pension Plan”) and $ i 0.1 million and $ i 0.3 million, respectively, related to the SpartanNash Retiree Medical Plan. During the 12- and 40- week periods ended October 6, 2018, the Company recognized net periodic pension income of $ i 0.1 million and $ i 0.3 million, respectively, and net periodic postretirement benefit costs of $ i 0.1 million and $ i 0.4 million, respectively for the aforementioned plans. Substantially all of these amounts are included in Postretirement benefit expense (income) in the condensed consolidated statements of operations.
On February 28, 2018, the Company’s Board of Directors granted approval to proceed with terminating the frozen Pension Plan. The Plan was terminated on i July 31, 2018. The Company offered participants the option to receive an annuity or lump sum distribution which may be rolled over into another qualified plan. The distribution of assets to plan participants commenced in the second quarter and was completed in the third quarter of 2019. The Company has incurred pre-tax settlement charges in the amount of $ i 18.2 million to recognize the deferred losses in AOCI upon distribution of the Plan assets, of which $ i 9.4 million was recognized in the 12 weeks ended October 5, 2019. The Company also recognized other termination expenses of $ i 1.3 million in 2019. The Company expects the Plan termination will reduce administrative fees and premium funding costs in future periods.
The Company did i not make any contributions to the Pension Plan during the 40-week period ended October 5, 2019. The remaining overfunded Plan assets will be utilized by the Company to fund obligations associated with other qualified retirement programs. The Company expects to make total contributions of $ i 0.4 million in 2019 to the Retiree Medical Plan and has made $ i 0.3 million in the year-to-date period.
The Company’s retirement programs also include defined contribution plans providing contributory benefits, as well as executive compensation plans for a select group of management personnel and/or highly compensated associates.
Multi-Employer Plans
In addition to the plans listed above, the Company participates in the Central States Southeast and Southwest Pension Fund, the Michigan Conference of Teamsters and Ohio Conference of Teamsters Health and Welfare plans (collectively referred to as “multi-employer plans”), and other company-sponsored defined contribution plans for most associates covered by collective bargaining agreements.
With respect to the Company’s participation in the Central States Plan, expense is recognized as contributions are funded. The Company’s contributions during the 12-week periods ended October 5, 2019 and October 6, 2018 were $ i 2.4 million and $ i 2.1 million, respectively. The Company’s contributions during the 40-week periods ended October 5, 2019 and October 6, 2018 were $ i 10.6 million and $ i 10.0 million, respectively. See Note 8 for further information regarding contingencies related to the Company’s participation in the Central States Plan.
/ iNote 11 – Income Taxes
The effective income tax rate was i 84.2% and i 11.9% for the 12 weeks ended October 5, 2019 and October 6, 2018, respectively. For the 40 weeks ended October 5, 2019 and October 6, 2018, the effective income tax rate was i 129.0% and i 20.6%, respectively. The difference from the federal statutory rate in the current year was primarily due to state tax benefits resulting from losses in certain tax jurisdictions as well as tax credits. In the prior year, the difference from the federal statutory rate was primarily due to the lapse of the statute of limitations for an uncertain tax position, the Federal rate change effect on the finalization of deferred taxes for 2017 related to tax reform and tax credits, partially offset by state income taxes.
/ iNote 12 – Stock-Based Compensation
The Company has a shareholder-approved stock incentive plan that provides for the granting of stock options, stock appreciation rights, restricted stock, restricted stock units, stock awards, and other stock-based and stock-related awards to directors, officers and other key associates.
iStock-based compensation expense recognized and included in “Selling, general and administrative expenses” in the condensed consolidated statements of operations, and related tax benefits were as follows:
|
|
12 Weeks Ended |
|
|
40 Weeks Ended |
|
||||||||||||||
|
(In thousands) |
|
|
|
|
|
|
|
||||||||||||
|
Restricted stock |
$ |
|
i 637 |
|
|
$ |
|
i 773 |
|
|
$ |
|
i 6,735 |
|
|
$ |
|
i 7,040 |
|
|
Tax benefits |
|
|
( i 163 |
) |
|
|
|
( i 166 |
) |
|
|
|
( i 1,148 |
) |
|
|
|
( i 1,095 |
) |
|
Stock-based compensation expense, net of tax |
$ |
|
i 474 |
|
|
$ |
|
i 607 |
|
|
$ |
|
i 5,587 |
|
|
$ |
|
i 5,945 |
|
16
i
The following table summarizes activity in the stock-based compensation plans for the 40 weeks ended October 5, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
||
|
|
Shares |
|
|
Weighted |
|
|
Restricted |
|
|
Average |
|
||||||
|
|
Under |
|
|
Average |
|
|
Stock |
|
|
Grant-Date |
|
||||||
|
|
Options |
|
|
Exercise Price |
|
|
Awards |
|
|
Fair Value |
|
||||||
|
Outstanding at December 29, 2018 |
|
i 13,052 |
|
|
$ |
|
i 13.87 |
|
|
|
i 822,819 |
|
|
$ |
|
i 23.07 |
|
|
Granted |
|
— |
|
|
|
|
— |
|
|
|
i 482,059 |
|
|
|
|
i 17.91 |
|
|
Exercised/Vested |
|
( i 13,052 |
) |
|
|
|
i 13.87 |
|
|
|
( i 346,721 |
) |
|
|
|
i 23.47 |
|
|
Cancelled/Forfeited |
|
— |
|
|
|
|
— |
|
|
|
( i 30,105 |
) |
|
|
|
i 20.19 |
|
|
Outstanding at October 5, 2019 |
|
— |
|
|
$ |
|
— |
|
|
|
i 928,052 |
|
|
$ |
|
i 20.33 |
|
As of October 5, 2019, total unrecognized compensation cost related to non-vested restricted stock awards granted under the Company’s stock incentive plans is $ i 5.5 million and is expected to be recognized over a weighted average period of i 2.6 years.
iNote 13 – Earnings Per Share
iThe following table sets forth the computation of basic and diluted earnings per share from continuing operations:
|
|
12 Weeks Ended |
|
|
40 Weeks Ended |
|
||||||||||||||
|
(In thousands, except per share amounts) |
|
|
|
|
|
|
|
||||||||||||
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings from continuing operations |
$ |
|
( i 310 |
) |
|
$ |
|
i 17,545 |
|
|
$ |
|
i 444 |
|
|
$ |
|
i 47,818 |
|
|
Adjustment for loss (earnings) attributable to participating securities |
|
|
i 8 |
|
|
|
|
( i 407 |
) |
|
|
|
( i 11 |
) |
|
|
|
( i 1,044 |
) |
|
(Loss) earnings from continuing operations used in calculating earnings per share |
$ |
|
( i 302 |
) |
|
$ |
|
i 17,138 |
|
|
$ |
|
i 433 |
|
|
$ |
|
i 46,774 |
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding, including participating securities |
|
|
i 36,340 |
|
|
|
|
i 35,934 |
|
|
|
|
i 36,248 |
|
|
|
|
i 36,033 |
|
|
Adjustment for participating securities |
|
|
( i 929 |
) |
|
|
|
( i 833 |
) |
|
|
|
( i 906 |
) |
|
|
|
( i 787 |
) |
|
Shares used in calculating basic (loss) earnings per share |
|
|
i 35,411 |
|
|
|
|
i 35,101 |
|
|
|
|
i 35,342 |
|
|
|
|
i 35,246 |
|
|
Effect of dilutive stock options |
|
|
— |
|
|
|
|
i 12 |
|
|
|
|
— |
|
|
|
|
i 12 |
|
|
Shares used in calculating diluted (loss) earnings per share |
|
|
i 35,411 |
|
|
|
|
i 35,113 |
|
|
|
|
i 35,342 |
|
|
|
|
i 35,258 |
|
|
Basic (loss) earnings per share from continuing operations |
$ |
|
( i 0.01 |
) |
|
$ |
|
i 0.49 |
|
|
$ |
|
i 0.01 |
|
|
$ |
|
i 1.33 |
|
|
Diluted (loss) earnings per share from continuing operations |
$ |
|
( i 0.01 |
) |
|
$ |
|
i 0.49 |
|
|
$ |
|
i 0.01 |
|
|
$ |
|
i 1.33 |
|
/ i
Note 14 – Supplemental Cash Flow Information
iSupplemental cash flow information is as follows:
|
|
40 Weeks Ended |
|
|||||||
|
(In thousands) |
|
|
|
||||||
|
Non-cash financing activities: |
|
|
|
|
|
|
|
|
|
|
Recognition of finance lease liabilities |
$ |
|
i 900 |
|
|
$ |
|
i 2,410 |
|
|
Non-cash investing activities: |
|
|
|
|
|
|
|
|
|
|
Capital expenditures included in accounts payable |
|
|
i 4,746 |
|
|
|
|
i 4,350 |
|
|
Finance lease asset additions |
|
|
i 900 |
|
|
|
|
i 2,410 |
|
|
Other supplemental cash flow information: |
|
|
|
|
|
|
|
|
|
|
Cash paid for interest |
|
|
i 28,401 |
|
|
|
|
i 22,768 |
|
/
17
i
Note 15 – Reporting Segment Information
iThe following tables set forth information about the Company by reporting segment:
|
(In thousands) |
Food Distribution |
|
|
Military |
|
|
Retail |
|
|
Total |
|
||||||||
|
12 Weeks Ended October 5, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales to external customers |
$ |
|
i 939,047 |
|
|
$ |
|
i 499,156 |
|
|
$ |
|
i 561,605 |
|
|
$ |
|
i 1,999,808 |
|
|
Inter-segment sales |
|
|
i 227,633 |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
i 227,633 |
|
|
Restructuring charges and asset impairment |
|
|
i 1,043 |
|
|
|
|
— |
|
|
|
|
i 253 |
|
|
|
|
i 1,296 |
|
|
Depreciation and amortization |
|
|
i 7,793 |
|
|
|
|
i 2,764 |
|
|
|
|
i 10,197 |
|
|
|
|
i 20,754 |
|
|
Operating earnings (loss) |
|
|
i 11,699 |
|
|
|
|
( i 2,646 |
) |
|
|
|
i 6,726 |
|
|
|
|
i 15,779 |
|
|
Capital expenditures |
|
|
i 8,623 |
|
|
|
|
i 1,639 |
|
|
|
|
i 4,872 |
|
|
|
|
i 15,134 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12 Weeks Ended October 6, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales to external customers |
$ |
|
i 940,183 |
|
|
$ |
|
i 500,222 |
|
|
$ |
|
i 446,325 |
|
|
$ |
|
i 1,886,730 |
|
|
Inter-segment sales |
|
|
i 195,451 |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
i 195,451 |
|
|
Merger/acquisition and integration |
|
|
i 479 |
|
|
|
|
— |
|
|
|
|
i 42 |
|
|
|
|
i 521 |
|
|
Restructuring (gains) charges and asset impairment |
|
|
( i 68 |
) |
|
|
|
i 29 |
|
|
|
|
i 271 |
|
|
|
|
i 232 |
|
|
Depreciation and amortization |
|
|
i 7,540 |
|
|
|
|
i 2,816 |
|
|
|
|
i 8,891 |
|
|
|
|
i 19,247 |
|
|
Operating earnings |
|
|
i 19,815 |
|
|
|
|
i 1,508 |
|
|
|
|
i 5,483 |
|
|
|
|
i 26,806 |
|
|
Capital expenditures |
|
|
i 7,840 |
|
|
|
|
i 950 |
|
|
|
|
i 9,214 |
|
|
|
|
i 18,004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40 Weeks Ended October 5, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales to external customers |
$ |
|
i 3,043,668 |
|
|
$ |
|
i 1,661,097 |
|
|
$ |
|
i 1,833,347 |
|
|
$ |
|
i 6,538,112 |
|
|
Inter-segment sales |
|
|
i 742,677 |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
i 742,677 |
|
|
Merger/acquisition and integration |
|
|
( i 130 |
) |
|
|
|
— |
|
|
|
|
i 1,494 |
|
|
|
|
i 1,364 |
|
|
Restructuring charges (gains) and asset impairment |
|
|
i 10,724 |
|
|
|
|
— |
|
|
|
|
( i 509 |
) |
|
|
|
i 10,215 |
|
|
Depreciation and amortization |
|
|
i 25,770 |
|
|
|
|
i 9,097 |
|
|
|
|
i 33,048 |
|
|
|
|
i 67,915 |
|
|
Operating earnings (loss) |
|
|
i 36,564 |
|
|
|
|
( i 5,806 |
) |
|
|
|
i 14,600 |
|
|
|
|
i 45,358 |
|
|
Capital expenditures |
|
|
i 16,061 |
|
|
|
|
i 4,052 |
|
|
|
|
i 26,792 |
|
|
|
|
i 46,905 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40 Weeks Ended October 6, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales to external customers |
$ |
|
i 3,037,096 |
|
|
$ |
|
i 1,653,496 |
|
|
$ |
|
i 1,477,164 |
|
|
$ |
|
i 6,167,756 |
|
|
Inter-segment sales |
|
|
i 647,163 |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
i 647,163 |
|
|
Merger/acquisition and integration |
|
|
i 3,419 |
|
|
|
|
i 4 |
|
|
|
|
i 108 |
|
|
|
|
i 3,531 |
|
|
Restructuring charges (gains) and asset impairment |
|
|
i 1,292 |
|
|
|
|
( i 801 |
) |
|
|
|
i 4,778 |
|
|
|
|
i 5,269 |
|
|
Depreciation and amortization |
|
|
i 24,398 |
|
|
|
|
i 9,257 |
|
|
|
|
i 29,836 |
|
|
|
|
i 63,491 |
|
|
Operating earnings |
|
|
i 63,060 |
|
|
|
|
i 6,120 |
|
|
|
|
i 13,192 |
|
|
|
|
i 82,372 |
|
|
Capital expenditures |
|
|
i 26,250 |
|
|
|
|
i 2,479 |
|
|
|
|
i 23,871 |
|
|
|
|
i 52,600 |
|
/
|
|
|
|
|
|
|
|
October 5, |
|
|
December 29, |
|
||||
|
(In thousands) |
|
|
|
|
|
|
2019 |
|
|
2018 |
|
||||
|
Total Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Food Distribution |
|
|
|
|
|
|
$ |
|
i 1,137,162 |
|
|
$ |
|
i 1,074,125 |
|
|
Military |
|
|
|
|
|
|
|
|
i 424,983 |
|
|
|
|
i 405,587 |
|
|
Retail |
|
|
|
|
|
|
|
|
i 769,311 |
|
|
|
|
i 489,049 |
|
|
Discontinued operations |
|
|
|
|
|
|
|
|
i 3,090 |
|
|
|
|
i 3,151 |
|
|
Total |
|
|
|
|
|
|
$ |
|
i 2,334,546 |
|
|
$ |
|
i 1,971,912 |
|
/
18
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This Management’s Discussion and Analysis of financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements contained in this Quarterly Report on Form 10-Q, the information contained under the caption “Forward-Looking Statements,” which appears at the beginning of this report, and the information in the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2018.
Overview
SpartanNash, headquartered in Grand Rapids, Michigan, is a leading multi-regional grocery distributor and grocery retailer whose core businesses include distributing grocery products to a diverse group of independent and chain retailers, its corporate owned retail stores, military commissaries and exchanges in the United States, as well as premier fresh produce distribution and fresh food processing. The Company operates three reportable business segments: Food Distribution, Military and Retail. The Company serves customers in all 50 states.
The Company’s Food Distribution segment provides a wide variety of nationally branded and private brand grocery products and perishable food products to approximately 2,100 independent grocer retail locations, the Company’s corporate owned retail stores, food service distributors, national retailers, and other customers. The Food Distribution segment primarily conducts business in the Midwest and Southeast regions of the United States. The Company processes fresh-cut fruits and vegetables and other value-added meal solutions and supplies these products to grocery retailers and food service distributors. The Company recently announced a plan to reposition its Fresh Production operations, which included the sale of the Fresh Kitchen facility and related equipment. The Company is in the process of transitioning certain operations to other facilities and expects to cease production in the Fresh Kitchen during the fourth quarter of 2019. While the Company is actively marketing the sale of these assets, not all of the required criteria have been met to present the assets as held-for-sale on the consolidated balance sheet as of October 5, 2019.
The Company’s Military segment contracts with manufacturers to distribute a wide variety of grocery products primarily to military commissaries and exchanges located in the United States, the District of Columbia, Europe, Cuba, Puerto Rico, Honduras, Bahrain, Djibouti and Egypt. The Company has over 40 years of experience acting as a distributor to U.S. military commissaries and exchanges. The Company is the exclusive worldwide supplier of private brand products to U.S. military commissaries and is continuing to partner with DeCA in the rollout of private brand products to military commissaries which began during the second quarter of fiscal 2017.
At the end of the third quarter, the Company’s Retail segment operated 158 corporate owned retail stores in the Midwest region primarily under the banners of Family Fare, Martin’s Super Markets, VG’s Food and Pharmacy, D&W Fresh Markets, Sun Mart and Family Fresh Market. The Company also offers pharmacy services in 98 of its corporate owned retail stores and operates 37 fuel centers. The retail stores have a “neighborhood market” focus to distinguish them from supercenters and limited assortment stores.
All fiscal quarters are 12 weeks, except for the Company’s first quarter, which is 16 weeks and will generally include the Easter holiday. The fourth quarter includes the Thanksgiving and Christmas holidays, and depending on the fiscal year end, may include the New Year’s holiday.
In certain geographic areas, the Company’s sales and operating performance may vary with seasonality. Many stores are dependent on tourism and therefore, are most affected by seasons and weather patterns, including, but not limited to, the amount and timing of snowfall during the winter months and the range of temperature during the summer months.
2019 Third Quarter Highlights
During the quarter ended October 5, 2019, the Company made progress on its strategic objectives and better positioned itself for long-term growth and profitability. In addition to realizing sales growth, the Company remains focused on its other top objectives for the current year, including strengthening its management team, systems and supply chain operations, generating improvements through its Project One Team initiative, and reducing its debt, working capital and financial leverage ratios, which will all contribute to improved growth in operating earnings.
Third quarter 2019 operational highlights include:
|
|
• |
The Company realized sales growth of 6.0% from the same quarter in the prior year. This growth was driven by contributions from the newly acquired Martin’s business in the Retail segment. Before the intercompany elimination of Martin’s sales, the Food Distribution segment also realized growth of 3.6%. |
|
|
• |
In connection with Project One Team, the Company remains on track to achieve a run rate of over $20 million in annual cost savings within the next 24 months. Initiatives currently in the process of being implemented include improving the systems and policies for inventory procurement and management, supply chain efficiency and execution as well as the automation of routine administrative tasks. |
19
|
|
• |
Since the third quarter of 2018, the Company has paid down over $95.0 million in debt, resulting in a $10 million reduction in the debt balance despite using approximately $87.0 million to fund the acquisition of Martin’s at the beginning of fiscal 2019. The Company also significantly reduced its working capital from the third quarter of fiscal 2018, while continuing to grow sales. The Company will continue to focus on working capital improvements and debt reduction and is targeting total working capital improvements of $30.0 million for the full fiscal year. |
For the remainder of 2019, the Company expects Food Distribution to sustain low- to mid-single digit sales growth driven by existing customers and new business. This expectation excludes the impact of the elimination of intercompany sales related to the acquisition of the Martin’s business. In the Military segment, the Company expects that new business within the segment, including continued private brand growth, will largely offset the negative DeCA comparable sales trend. Within the Retail segment, the Company expects total sales will increase due to the acquisition of Martin’s and the significant current year implementation of the Company’s brand positioning, partly offset by the impact of store rationalization plans.
Results of Operations
The following table sets forth items from the condensed consolidated statements of operations as a percentage of net sales and the year-to-year percentage change in the dollar amounts:
|
|
Percentage of Net Sales |
|
|
Percentage Change |
|
||||||||||||||||||
|
|
12 Weeks Ended |
|
|
40 Weeks Ended |
|
|
12 Weeks Ended |
|
|
40 Weeks Ended |
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
Net sales |
|
100.0 |
|
|
|
100.0 |
|
|
|
100.0 |
|
|
|
100.0 |
|
|
|
6.0 |
|
|
|
6.0 |
|
|
Gross profit |
|
14.5 |
|
|
|
13.6 |
|
|
|
14.6 |
|
|
|
14.0 |
|
|
|
13.4 |
|
|
|
10.6 |
|
|
Selling, general and administrative |
|
13.7 |
|
|
|
12.1 |
|
|
|
13.8 |
|
|
|
12.5 |
|
|
|
19.6 |
|
|
|
16.3 |
|
|
Merger/acquisition and integration |
|
— |
|
|
|
0.0 |
|
|
|
0.0 |
|
|
|
0.1 |
|
|
|
(100.0 |
) |
|
|
(61.4 |
) |
|
Restructuring charges and asset impairment |
|
0.1 |
|
|
|
0.0 |
|
|
|
0.2 |
|
|
|
0.1 |
|
|
** |
|
|
|
93.9 |
|
|
|
Operating earnings |
|
0.8 |
|
|
|
1.4 |
|
|
|
0.7 |
|
|
|
1.3 |
|
|
|
(41.1 |
) |
|
|
(44.9 |
) |
|
Other expenses and income |
|
0.9 |
|
|
|
0.4 |
|
|
|
0.7 |
|
|
|
0.4 |
|
|
|
157.7 |
|
|
|
111.5 |
|
|
(Loss) earnings before income taxes and discontinued operations |
|
(0.1 |
) |
|
|
1.1 |
|
|
|
(0.0 |
) |
|
|
1.0 |
|
|
|
(109.9 |
) |
|
|
(102.5 |
) |
|
Income tax (benefit) expense |
|
(0.1 |
) |
|
|
0.1 |
|
|
|
(0.0 |
) |
|
|
0.2 |
|
|
|
(169.8 |
) |
|
|
(115.9 |
) |
|
(Loss) earnings from continuing operations |
|
(0.0 |
) |
|
|
0.9 |
|
|
|
0.0 |
|
|
|
0.8 |
|
|
|
(101.8 |
) |
|
|
(99.1 |
) |
|
Loss from discontinued operations, net of taxes |
|
(0.0 |
) |
|
|
(0.0 |
) |
|
|
(0.0 |
) |
|
|
(0.0 |
) |
|
** |
|
|
** |
|
||
|
Net (loss) earnings |
|
(0.0 |
) |
|
|
0.9 |
|
|
|
0.0 |
|
|
|
0.8 |
|
|
|
(101.9 |
) |
|
|
(99.3 |
) |
Note: Certain totals do not sum due to rounding.
** Not meaningful
Net Sales – The following table presents net sales by segment and variances in net sales:
|
|
12 Weeks Ended |
|
|
40 Weeks Ended |
|
||||||||||||||||||||||||
|
(In thousands) |
|
|
|
|
Variance |
|
|
|
|
|
|
Variance |
|
||||||||||||||||
|
Food Distribution |
$ |
|
939,047 |
|
|
$ |
|
940,183 |
|
|
$ |
|
(1,136 |
) |
|
$ |
|
3,043,668 |
|
|
$ |
|
3,037,096 |
|
|
$ |
|
6,572 |
|
|
Military |
|
|
499,156 |
|
|
|
|
500,222 |
|
|
|
|
(1,066 |
) |
|
|
|
1,661,097 |
|
|
|
|
1,653,496 |
|
|
|
|
7,601 |
|
|
Retail |
|
|
561,605 |
|
|
|
|
446,325 |
|
|
|
|
115,280 |
|
|
|
|
1,833,347 |
|
|
|
|
1,477,164 |
|
|
|
|
356,183 |
|
|
Total net sales |
$ |
|
1,999,808 |
|
|
$ |
|
1,886,730 |
|
|
$ |
|
113,078 |
|
|
$ |
|
6,538,112 |
|
|
$ |
|
6,167,756 |
|
|
$ |
|
370,356 |
|
Net sales for the quarter ended October 5, 2019 (“third quarter”) increased $113.1 million, or 6.0%, to $2.00 billion from $1.89 billion in the quarter ended October 6, 2018 (“prior year quarter”). Net sales for the year-to-date period ended October 5, 2019 (“year-to-date period”) increased $370.4 million, or 6.0%, to $6.54 billion from $6.17 billion in the year-to-date period ended October 6, 2018 (“prior year-to-date period”). The increases were driven primarily by incremental sales from the Martin’s acquisition.
20
Food Distribution net sales decreased $1.1 million, or 0.1%, to $939.0 million in the third quarter from $940.2 million in the prior year quarter. Net sales for the year-to-date period increased $6.6 million, or 0.2%, and amount to $3.04 billion in both the current and prior year-to-date periods. Before the impact of the elimination of sales to Martin’s, following the acquisition at the beginning of 2019, sales grew 3.6% and 4.0% in the third quarter and year-to-date period, respectively, primarily due to sales growth with existing customers.
Military net sales decreased $1.1 million, or 0.2%, to $499.2 million in the third quarter from $500.2 million in the prior year quarter. Net sales for the year-to-date period increased $7.6 million, or 0.5%, from $1.65 billion in the prior year-to-date period to $1.66 billion. The decrease from the prior year quarter was due to lower comparable sales at DeCA operated locations, mostly offset by new business. The increase from the prior year-to-date period was primarily due to incremental volume from new business with an existing customer that commenced late in the fourth quarter of 2018 and growth in DeCA’s private brand program, partially offset by lower comparable sales at DeCA operated locations.
Retail net sales increased $115.3 million, or 25.8%, to $561.6 million in the third quarter from $446.3 million in the prior year quarter. Net sales for the year-to-date period increased $356.2 million, or 24.1%, from $1.48 billion in the prior year-to-date period to $1.83 billion. The increase in net sales was primarily attributable to incremental sales from the Martin’s acquisition. Comparable store sales increased 0.1% for the quarter and decreased 0.7% percent for the year-to-date period. The Company defines a retail store as comparable when it is in operation for 14 accounting periods (a period equals four weeks), regardless of remodels, expansions or relocated stores. The Company’s definition of comparable store sales may differ from similarly titled measures at other companies.
Gross Profit – Gross profit represents net sales less cost of sales, which for all non-production operations includes purchase costs, in-bound freight, physical inventory adjustments, markdowns and promotional allowances and excludes warehousing costs, depreciation and other administrative expenses. For the Company’s food processing operations, cost of sales includes direct product and production costs, inbound freight, purchasing and receiving costs, utilities, depreciation, and other indirect production costs and excludes out-bound freight and other administrative expenses. The Company’s gross profit definition may not be identical to similarly titled measures reported by other companies. Vendor allowances that relate to the buying and merchandising activities consist primarily of promotional allowances, which are generally allowances on purchased quantities and, to a lesser extent, slotting allowances, which are billed to vendors for the Company’s merchandising costs, such as setting up warehouse infrastructure. Vendor allowances are recognized as a reduction in cost of sales when the product is sold. Lump sum payments received for multi-year contracts are amortized over the life of the contracts based on contractual terms. The distribution segments include shipping and handling costs in the Selling, general and administrative section of operating expenses in the consolidated statements of operations.
Gross profit increased $34.2 million, or 13.4%, to $290.4 million in the third quarter from $256.1 million in the prior year quarter. As a percent of net sales, gross profit was 14.5% compared to 13.6% in the prior year quarter. Gross profit for the year-to-date period increased $92.1 million, or 10.6%, from $865.0 million in the prior year-to-date period to $957.1 million in the current year. As a percent of net sales, gross profit for the year-to-date period was 14.6% compared to 14.0% in the prior year-to-date period. As a percent of net sales, the third quarter and year-to-date period change in gross margin was primarily due to the acquisition of Martin’s and the resulting higher mix of Retail sales.
Selling, General and Administrative Expenses – Selling, general and administrative (“SG&A”) expenses consist primarily of salaries and wages, employee benefits, facility costs, shipping and handling, equipment rental, depreciation (to the extent not included in Cost of sales), out-bound freight and other administrative expenses.
SG&A expenses increased to $273.3 million in the third quarter from $228.6 million in the prior year quarter, representing 13.7% of net sales in the third quarter compared to 12.1% in the prior year quarter. SG&A expenses for the year-to-date period increased $126.3 million, or 16.3%, from $773.8 million in the prior year-to-date period to $900.2 million, and increased from 12.5% as a percentage of net sales in the prior year-to-date period compared to 13.8%. The increase in expenses as a rate of sales compared to the prior year quarter and year-to-date period was primarily due to an increase in the mix of Retail segment operations with the acquisition of Martin’s, higher corporate administrative expenses, including expenses associated with the CEO transition and a non-recurring, supplemental, transition incentive program for eligible associates (“Transition Costs”), and higher supply chain costs in both the Military and Food Distribution segments.
Merger/Acquisition and Integration – Third quarter results did not include any merger/acquisition and integration expenses, while prior year quarter results included $0.5 million. The year-to-date period and the prior year-to-date period results included $1.4 million and $3.5 million of merger/acquisition and integration expenses, respectively. The expenses are mainly associated with the acquisition and integration of Martin’s in the current year and the integration of Spartan Stores, Inc. and the Nash-Finch Company in the prior year.
21
Restructuring Charges and Asset Impairment – Third quarter and prior year quarter results included net charges of $1.3 million and $0.2 million, respectively, of restructuring and asset impairment activity. The year-to-date period and the prior year-to-date period results included net charges of $10.2 million and $5.3 million, respectively, of restructuring and asset impairment activity. The current year third quarter activity consists primarily of asset impairment charges to adjust non-operating real estate to its fair value, which is classified as held-for-sale. The year-to-date period includes asset impairment charges associated with the decision to reposition Fresh Production operations, which are partially offset by gains on the sale of a previously closed distribution center. The prior year-to-date amount includes charges associated with the Company’s retail store rationalization plans, partially offset by gains on sales of real estate.
Goodwill
The Company performs goodwill impairment tests on an annual basis, or whenever events or circumstances indicate that it would be more likely than not that the fair value of a reporting unit is below its carrying amount. On a quarterly basis, the Company assesses whether there are any indicators that the carrying value of the Food Distribution reporting unit, the only reporting unit which carries a goodwill balance, is in excess of its fair value. One of the considerations performed by the Company is whether the carrying value of the enterprise as a whole is greater than the market capitalization, considering a reasonable control premium. At the end of the first quarter and into the second quarter of 2019 the decline in the Company’s stock price substantially decreased market capitalization, and the decline became sustained during the second quarter. As a result of this indicator of impairment, the Company performed an interim goodwill impairment test for the Food Distribution reporting unit during the second quarter.
The Company estimates the fair value of the Food Distribution reporting unit primarily based on the income approach using a discounted cash flow model and also incorporates the market approach using observable comparable company information. In addition, the Company reconciles the fair value estimate for the Food Distribution reporting unit to the current market capitalization of the enterprise as a whole. While the Retail and Military reporting units do not carry goodwill balances, their fair values are combined with the fair value estimate of the Food Distribution reporting unit in determining the enterprise value of the total Company.
As a result of the second quarter impairment test, the Company concluded that the fair value of the Food Distribution reporting unit was substantially in excess of its carrying value and that the reconciliation between the enterprise value of the Company and market capitalization, was within the Company’s expectations based on recent market transactions. The Company will perform its annual assessment of goodwill during the fourth quarter of 2019.
Operating Earnings (Loss) – The following table presents operating earnings (loss) by segment and variances in operating earnings (loss):
|
|
12 Weeks Ended |
|
|
40 Weeks Ended |
|
||||||||||||||||||||||||
|
(In thousands) |
|
|
|
|
Variance |
|
|
|
|
|
|
Variance |
|
||||||||||||||||
|
Food Distribution |
$ |
|
11,699 |
|
|
$ |
|
19,815 |
|
|
$ |
|
(8,116 |
) |
|
$ |
|
36,564 |
|
|
$ |
|
63,060 |
|
|
$ |
|
(26,496 |
) |
|
Military |
|
|
(2,646 |
) |
|
|
|
1,508 |
|
|
|
|
(4,154 |
) |
|
|
|
(5,806 |
) |
|
|
|
6,120 |
|
|
|
|
(11,926 |
) |
|
Retail |
|
|
6,726 |
|
|
|
|
5,483 |
|
|
|
|
1,243 |
|
|
|
|
14,600 |
|
|
|
|
13,192 |
|
|
|
|
1,408 |
|
|
Total operating earnings |
$ |
|
15,779 |
|
|
$ |
|
26,806 |
|
|
$ |
|
(11,027 |
) |
|
$ |
|
45,358 |
|
|
$ |
|
82,372 |
|
|
$ |
|
(37,014 |
) |
Operating earnings decreased $11.0 million, or 41.1% to $15.8 million in the third quarter from $26.8 million in the prior year quarter. Operating earnings for the year-to-date period decreased $37.0 million, or 44.9%, to $45.4 million from $82.4 million in the prior year-to-date period. The third quarter decrease was primarily attributable to higher corporate administrative expenses, including Transition Costs, and higher supply chain costs. These items were partially offset by incremental earnings from the newly acquired Martin’s business and growth in the Food Distribution segment. The year-to-date decrease was due to the same items as well as second quarter asset impairment charges and one-time expenses associated with the Project One Team initiative.
Food Distribution operating earnings decreased $8.1 million, or 41.0%, to $11.7 million in the third quarter from $19.8 million in the prior year quarter. Operating earnings for the year-to-date period decreased $26.5 million, or 42.0%, to $36.6 million from $63.1 million in the prior year-to-date period. The decrease in operating earnings in the third quarter was due to due to higher corporate administrative expenses, including Transition Costs, as well as supply chain costs, partially offset by contributions from sales growth. The year-to-date period was also impacted by the second quarter asset impairment charges.
Military operating earnings decreased $4.2 million to a $2.6 million operating loss in the third quarter from $1.5 million in operating earnings in the prior year quarter. Operating earnings for the year-to-date period decreased $11.9 million to a $5.8 million operating loss from $6.1 million in operating earnings in the prior year-to-date period. The third quarter and year-to-date decreases were primarily attributable to higher supply chain costs and corporate administrative expenses. The year-to-date period decrease was also attributable to one-time costs associated with Project One Team, organizational realignment costs, as well as the cycling of gains related to the sale of a closed facility in the second quarter of the prior year.
22
Retail operating earnings increased $1.2 million, or 22.7% to $6.7 million in the third quarter from $5.5 million in the prior year quarter. Operating earnings for the year-to-date period increased $1.4 million, or 10.7%, to $14.6 million from $13.2 million in the prior year-to-date period. The increases in operating earnings was primarily attributable to the contribution of the acquired Martin’s stores, improvement in margin rates and the favorable impact of closing underperforming stores, partially offset by higher corporate administrative expenses, including Transition Costs. The year-to-date increase in operating earnings was also offset by the allocation of one-time costs associated with Project One Team.
Interest Expense – Interest expense increased $0.3 million, or 4.2%, to $7.4 million in the third quarter from $7.1 million in the prior year quarter. Interest expense for the year-to-date period increased $5.1 million, or 22.4% from $22.8 million in the prior year-to-date period to $28.0 million. The increase in interest expense for the year-to-date period was primarily due to an increase in interest rates compared to the prior year and incremental borrowings to fund the Martin’s acquisition. Interest rates have become more comparable to the prior year in the third quarter as a result of an early paydown of the term loan (Tranche A-2) with available borrowings from the revolving credit facility. The Company has also paid down the incremental borrowings associated with the Martin’s acquisition.
Income Taxes – The effective income tax rate was 84.2% and 11.9% for the third quarter and prior year quarter, respectively. For the year-to-date period and prior year-to-date period, the effective income tax rates were 129.0% and 20.6%, respectively. The difference from the federal statutory rate in the current year was primarily due to state tax benefits resulting from losses in certain tax jurisdictions as well as tax credits. In the prior year, the difference from the federal statutory rate was primarily due to the lapse of the statute of limitations for an uncertain tax position, the Federal rate change effect on the finalization of deferred taxes for 2017 and tax credits, partially offset by state income taxes.
Non-GAAP Financial Measures
In addition to reporting financial results in accordance with GAAP, the Company also provides information regarding adjusted operating earnings, adjusted earnings from continuing operations, and Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (“adjusted EBITDA”). These are non-GAAP financial measures, as defined below, and are used by management to allocate resources, assess performance against its peers and evaluate overall performance. The Company believes these measures provide useful information for both management and its investors. The Company believes these non-GAAP measures are useful to investors because they provide additional understanding of the trends and special circumstances that affect its business. These measures provide useful supplemental information that helps investors to establish a basis for expected performance and the ability to evaluate actual results against that expectation. The measures, when considered in connection with GAAP results, can be used to assess the overall performance of the Company as well as assess the Company’s performance against its peers. These measures are also used as a basis for certain compensation programs sponsored by the Company. In addition, securities analysts, fund managers and other shareholders and stakeholders that communicate with the Company request its financial results in these adjusted formats.
Current year adjusted operating earnings, adjusted earnings from continuing operations, and adjusted EBITDA exclude “Fresh Kitchen operating losses” subsequent to the decision to exit these operations at the beginning of the third quarter, costs associated with organizational realignment, which include significant changes to the Company’s management team, and fees paid to a third-party advisory firm associated with Project One Team, the Company’s initiative to drive growth while increasing efficiency and reducing costs. Pension termination costs, primarily related to non-operating settlement expense associated with the distribution of pension assets, are excluded from adjusted earnings from continuing operations, and to a lesser extent adjusted operating earnings. These items are considered “non-operational” or “non-core” in nature. Prior year adjusted operating earnings, adjusted earnings from continuing operations, and adjusted EBITDA exclude start-up costs associated with the Fresh Kitchen operation, which concluded during the first quarter of 2018. The Fresh Kitchen represented a new line of business for the Company.
Adjusted Operating Earnings
Adjusted operating earnings is a non-GAAP operating financial measure that the Company defines as operating earnings plus or minus adjustments for items that do not reflect the ongoing operating activities of the Company and costs associated with the closing of operational locations.
The Company believes that adjusted operating earnings provide a meaningful representation of its operating performance for the Company as a whole and for its operating segments. The Company considers adjusted operating earnings as an additional way to measure operating performance on an ongoing basis. Adjusted operating earnings is meant to reflect the ongoing operating performance of all of its distribution and retail operations; consequently, it excludes the impact of items that could be considered “non-operating” or “non-core” in nature and also excludes the contributions of activities classified as discontinued operations. Because adjusted operating earnings and adjusted operating earnings by segment are performance measures that management uses to allocate resources, assess performance against its peers and evaluate overall performance, the Company believes it provides useful information for both management and its investors. In addition, securities analysts, fund managers and other shareholders and stakeholders that communicate with the Company request its operating financial results in adjusted operating earnings format.
23
Adjusted operating earnings is not a measure of performance under accounting principles generally accepted in the United States of America (“GAAP”) and should not be considered as a substitute for operating earnings, cash flows from operating activities and other income or cash flow statement data. The Company’s definition of adjusted operating earnings may not be identical to similarly titled measures reported by other companies.
24
Following is a reconciliation of operating earnings (loss) to adjusted operating earnings for the 12 and 40 weeks ended October 5, 2019 and October 6, 2018.
|
|
12 Weeks Ended |
|
|
40 Weeks Ended |
|
||||||||||||||
|
(In thousands) |
|
|
|
|
|
|
|
||||||||||||
|
Operating earnings |
$ |
|
15,779 |
|
|
$ |
|
26,806 |
|
|
$ |
|
45,358 |
|
|
$ |
|
82,372 |
|
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merger/acquisition and integration |
|
|
— |
|
|
|
|
521 |
|
|
|
|
1,364 |
|
|
|
|
3,531 |
|
|
Restructuring charges and asset impairment |
|
|
1,296 |
|
|
|
|
232 |
|
|
|
|
10,215 |
|
|
|
|
5,269 |
|
|
Fresh Kitchen start-up costs |
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
1,366 |
|
|
Fresh Kitchen operating losses |
|
|
2,204 |
|
|
|
|
— |
|
|
|
|
2,204 |
|
|
|
|
— |
|
|
Expenses associated with tax planning strategies |
|
|
— |
|
|
|
|
225 |
|
|
|
|
— |
|
|
|
|
225 |
|
|
Costs associated with Project One Team |
|
|
— |
|
|
|
|
— |
|
|
|
|
5,428 |
|
|
|
|
— |
|
|
Organizational realignment costs |
|
|
935 |
|
|
|
|
— |
|
|
|
|
1,812 |
|
|
|
|
— |
|
|
Pension termination |
|
|
28 |
|
|
|
|
— |
|
|
|
|
48 |
|
|
|
|
— |
|
|
Severance associated with cost reduction initiatives |
|
|
43 |
|
|
|
|
50 |
|
|
|
|
484 |
|
|
|
|
668 |
|
|
Adjusted operating earnings |
$ |
|
20,285 |
|
|
$ |
|
27,834 |
|
|
$ |
|
66,913 |
|
|
$ |
|
93,431 |
|
|
Reconciliation of operating earnings (loss) to adjusted operating earnings (loss) by segment: |
|
||||||||||||||||||
|
Food Distribution: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings |
$ |
|
11,699 |
|
|
$ |
|
19,815 |
|
|
$ |
|
36,564 |
|
|
$ |
|
63,060 |
|
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merger/acquisition and integration |
|
|
— |
|
|
|
|
479 |
|
|
|
|
(130 |
) |
|
|
|
3,419 |
|
|
Restructuring charges (gains) and asset impairment |
|
|
1,043 |
|
|
|
|
(68 |
) |
|
|
|
10,724 |
|
|
|
|
1,292 |
|
|
Fresh Kitchen start-up costs |
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
1,366 |
|
|
Fresh Kitchen operating losses |
|
|
2,204 |
|
|
|
|
— |
|
|
|
|
2,204 |
|
|
|
|
— |
|
|
Expenses associated with tax planning strategies |
|
|
— |
|
|
|
|
116 |
|
|
|
|
— |
|
|
|
|
116 |
|
|
Costs associated with Project One Team |
|
|
— |
|
|
|
|
— |
|
|
|
|
2,877 |
|
|
|
|
— |
|
|
Organizational realignment costs |
|
|
495 |
|
|
|
|
— |
|
|
|
|
960 |
|
|
|
|
— |
|
|
Pension termination |
|
|
15 |
|
|
|
|
— |
|
|
|
|
26 |
|
|
|
|
— |
|
|
Severance associated with cost reduction initiatives |
|
|
31 |
|
|
|
|
66 |
|
|
|
|
392 |
|
|
|
|
517 |
|
|
Adjusted operating earnings |
$ |
|
15,487 |
|
|
$ |
|
20,408 |
|
|
$ |
|
53,617 |
|
|
$ |
|
69,770 |
|
|
Military: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) earnings |
$ |
|
(2,646 |
) |
|
$ |
|
1,508 |
|
|
$ |
|
(5,806 |
) |
|
$ |
|
6,120 |
|
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merger/acquisition and integration |
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
4 |
|
|
Restructuring charges (gains) |
|
|
— |
|
|
|
|
29 |
|
|
|
|
— |
|
|
|
|
(801 |
) |
|
Expenses associated with tax planning strategies |
|
|
— |
|
|
|
|
28 |
|
|
|
|
— |
|
|
|
|
28 |
|
|
Costs associated with Project One Team |
|
|
— |
|
|
|
|
— |
|
|
|
|
706 |
|
|
|
|
— |
|
|
Organizational realignment costs |
|
|
122 |
|
|
|
|
— |
|
|
|
|
236 |
|
|
|
|
— |
|
|
Pension termination |
|
|
3 |
|
|
|
|
— |
|
|
|
|
5 |
|
|
|
|
— |
|
|
Severance associated with cost reduction initiatives |
|
|
— |
|
|
|
|
(1 |
) |
|
|
|
9 |
|
|
|
|
69 |
|
|
Adjusted operating (loss) earnings |
$ |
|
(2,521 |
) |
|
$ |
|
1,564 |
|
|
$ |
|
(4,850 |
) |
|
$ |
|
5,420 |
|
|
Retail: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings |
$ |
|
6,726 |
|
|
$ |
|
5,483 |
|
|
$ |
|
14,600 |
|
|
$ |
|
13,192 |
|
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merger/acquisition and integration |
|
|
— |
|
|
|
|
42 |
|
|
|
|
1,494 |
|
|
|
|
108 |
|
|
Restructuring charges (gains) and asset impairment |
|
|
253 |
|
|
|
|
271 |
|
|
|
|
(509 |
) |
|
|
|
4,778 |
|
|
Expenses associated with tax planning strategies |
|
|
— |
|
|
|
|
81 |
|
|
|
|
— |
|
|
|
|
81 |
|
|
Costs associated with Project One Team |
|
|
— |
|
|
|
|
— |
|
|
|
|
1,845 |
|
|
|
|
— |
|
|
Organizational realignment costs |
|
|
318 |
|
|
|
|
— |
|
|
|
|
616 |
|
|
|
|
— |
|
|
Pension termination |
|
|
10 |
|
|
|
|
— |
|
|
|
|
17 |
|
|
|
|
— |
|
|
Severance associated with cost reduction initiatives |
|
|
12 |
|
|
|
|
(15 |
) |
|
|
|
83 |
|
|
|
|
82 |
|
|
Adjusted operating earnings |
$ |
|
7,319 |
|
|
$ |
|
5,862 |
|
|
$ |
|
18,146 |
|
|
$ |
|
18,241 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
Adjusted Earnings from Continuing Operations
Adjusted earnings from continuing operations is a non-GAAP operating financial measure that the Company defines as earnings from continuing operations plus or minus adjustments for items that do not reflect the ongoing operating activities of the Company and costs associated with the closing of operational locations.
The Company believes that adjusted earnings from continuing operations provide a meaningful representation of its operating performance for the Company. The Company considers adjusted earnings from continuing operations as an additional way to measure operating performance on an ongoing basis. Adjusted earnings from continuing operations is meant to reflect the ongoing operating performance of all of its distribution and retail operations; consequently, it excludes the impact of items that could be considered “non-operating” or “non-core” in nature, and excludes the contributions of activities classified as discontinued operations. Because adjusted earnings from continuing operations is a performance measure that management uses to allocate resources, assess performance against its peers and evaluate overall performance, the Company believes it provides useful information for both management and its investors. In addition, securities analysts, fund managers and other shareholders and stakeholders that communicate with the Company request its operating financial results in adjusted earnings from continuing operations format.
Adjusted earnings from continuing operations is not a measure of performance under accounting principles generally accepted in the United States of America and should not be considered as a substitute for net earnings, cash flows from operating activities and other income or cash flow statement data. The Company’s definition of adjusted earnings from continuing operations may not be identical to similarly titled measures reported by other companies.
26
Following is a reconciliation of earnings from continuing operations to adjusted earnings from continuing operations for the 12 and 40 weeks ended October 5, 2019 and October 6, 2018.
|
|
12 Weeks Ended |
|
|
|||||||||||||||||
|
|
|
|
|
|
||||||||||||||||
|
|
|
|
|
per diluted |
|
|
|
|
|
per diluted |
|
|
||||||||
|
(In thousands, except per share amounts) |
Earnings |
|
|
share |
|
|
Earnings |
|
|
share |
|
|
||||||||
|
(Loss) earnings from continuing operations |
$ |
|
(310 |
) |
|
$ |
|
(0.01 |
) |
|
$ |
|
17,545 |
|
|
$ |
|
0.49 |
|
|
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merger/acquisition and integration |
|
|
— |
|
|
|
|
|
|
|
|
|
521 |
|
|
|
|
|
|
|
|
Restructuring charges and asset impairment |
|
|
1,296 |
|
|
|
|
|
|
|
|
|
232 |
|
|
|
|
|
|
|
|
Fresh Kitchen operating losses |
|
|
2,204 |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
Expenses associated with tax planning strategies |
|
|
— |
|
|
|
|
|
|
|
|
|
225 |
|
|
|
|
|
|
|
|
Organizational realignment costs |
|
|
935 |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
Loss on debt extinguishment |
|
|
329 |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
Severance associated with cost reduction initiatives |
|
|
43 |
|
|
|
|
|
|
|
|
|
50 |
|
|
|
|
|
|
|
|
Pension termination |
|
|
10,159 |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
Total adjustments |
|
|
14,966 |
|
|
|
|
|
|
|
|
|
1,028 |
|
|
|
|
|
|
|
|
Income tax effect on adjustments (a) |
|
|
(3,751 |
) |
|
|
|
|
|
|
|
|
(176 |
) |
|
|
|
|
|
|
|
Impact of Tax Cuts and Jobs Act (b) |
|
|
— |
|
|
|
|
|
|
|
|
|
(494 |
) |
|
|
|
|
|
|
|
Total adjustments, net of taxes |
|
|
11,215 |
|
|
|
|
0.31 |
|
|
|
|
358 |
|
|
|
|
0.01 |
|
|
|
Adjusted earnings from continuing operations |
$ |
|
10,905 |
|
|
$ |
|
0.30 |
|
|
$ |
|
17,903 |
|
|
$ |
|
0.50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40 Weeks Ended |
|
|
|||||||||||||||||
|
|
|
|
|
|
||||||||||||||||
|
|
|
|
|
per diluted |
|
|
|
|
|
per diluted |
|
|
||||||||
|
(In thousands, except per share amounts) |
Earnings |
|
|
share |
|
|
Earnings |
|
|
share |
|
|
||||||||
|
Earnings from continuing operations |
$ |
|
444 |
|
|
$ |
|
0.01 |
|
|
$ |
|
47,818 |
|
|
$ |
|
1.33 |
|
|
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merger/acquisition and integration |
|
|
1,364 |
|
|
|
|
|
|
|
|
|
3,531 |
|
|
|
|
|
|
|
|
Restructuring charges and asset impairment |
|
|
10,215 |
|
|
|
|
|
|
|
|
|
5,269 |
|
|
|
|
|
|
|
|
Fresh Kitchen start-up costs |
|
|
— |
|
|
|
|
|
|
|
|
|
1,366 |
|
|
|
|
|
|
|
|
Fresh Kitchen operating losses |
|
|
2,204 |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
Expenses associated with tax planning strategies |
|
|
— |
|
|
|
|
|
|
|
|
|
225 |
|
|
|
|
|
|
|
|
Costs associated with Project One Team |
|
|
5,428 |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
Organizational realignment costs |
|
|
1,812 |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
Loss on debt extinguishment |
|
|
329 |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
Severance associated with cost reduction initiatives |
|
|
484 |
|
|
|
|
|
|
|
|
|
668 |
|
|
|
|
|
|
|
|
Pension termination |
|
|
19,510 |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
Total adjustments |
|
|
41,346 |
|
|
|
|
|
|
|
|
|
11,059 |
|
|
|
|
|
|
|
|
Income tax effect on adjustments (a) |
|
|
(10,166 |
) |
|
|
|
|
|
|
|
|
(2,564 |
) |
|
|
|
|
|
|
|
Impact of Tax Cuts and Jobs Act (b) |
|
|
— |
|
|
|
|
|
|
|
|
|
(494 |
) |
|
|
|
|
|
|
|
Total adjustments, net of taxes |
|
|
31,180 |
|
|
|
|
0.86 |
|
|
|
|
8,001 |
|
|
|
|
0.22 |
|
|
|
Adjusted earnings from continuing operations |
$ |
|
31,624 |
|
|
$ |
|
0.87 |
|
|
$ |
|
55,819 |
|
|
$ |
|
1.55 |
|
|
|
|
(a) |
The income tax effect on adjustments is computed by applying the effective tax rate, before discrete tax items, to the total adjustments for the period. |
|
|
(b) |
Includes a $1.1 million tax benefit attributable to tax planning strategies related to the Tax Cuts and Jobs Act. |
27
Adjusted EBITDA
Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (“adjusted EBITDA”) is a non-GAAP operating financial measure that the Company defines as net earnings plus interest, discontinued operations, depreciation and amortization, and other non-cash items including deferred (stock) compensation, the LIFO provision, as well as adjustments for items that do not reflect the ongoing operating activities of the Company and costs associated with the closing of operational locations.
The Company believes that adjusted EBITDA provides a meaningful representation of its operating performance for the Company and for its operating segments. The Company considers adjusted EBITDA as an additional way to measure operating performance on an ongoing basis. Adjusted EBITDA is meant to reflect the ongoing operating performance of all of its distribution and retail operations; consequently, it excludes the impact of items that could be considered “non-operating” or “non-core” in nature, and also excludes the contributions of activities classified as discontinued operations. Because adjusted EBITDA and adjusted EBITDA by segment are performance measures that management uses to allocate resources, assess performance against its peers and evaluate overall performance, the Company believes it provides useful information for both management and its investors. In addition, securities analysts, fund managers and other shareholders and stakeholders that communicate with the Company request its operating financial results in adjusted EBITDA format.
Adjusted EBITDA and adjusted EBITDA by segment are not measures of performance under accounting principles generally accepted in the United States of America and should not be considered as a substitute for net earnings, cash flows from operating activities and other income or cash flow statement data. The Company’s definitions of adjusted EBITDA and adjusted EBITDA by segment may not be identical to similarly titled measures reported by other companies.
Following is a reconciliation of net (loss) earnings to adjusted EBITDA for the 12 and 40 weeks ended October 5, 2019 and October 6, 2018.
|
|
12 Weeks Ended |
|
|
40 Weeks Ended |
|
||||||||||||||
|
(In thousands) |
|
|
|
|
|
|
|
||||||||||||
|
Net (loss) earnings |
$ |
|
(337 |
) |
|
$ |
|
17,465 |
|
|
$ |
|
318 |
|
|
$ |
|
47,580 |
|
|
Loss from discontinued operations, net of tax |
|
|
27 |
|
|
|
|
80 |
|
|
|
|
126 |
|
|
|
|
238 |
|
|
Income tax (benefit) expense |
|
|
(1,656 |
) |
|
|
|
2,374 |
|
|
|
|
(1,973 |
) |
|
|
|
12,381 |
|
|
Other expenses, net |
|
|
17,745 |
|
|
|
|
6,887 |
|
|
|
|
46,887 |
|
|
|
|
22,173 |
|
|
Operating earnings |
|
|
15,779 |
|
|
|
|
26,806 |
|
|
|
|
45,358 |
|
|
|
|
82,372 |
|
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIFO expense |
|
|
1,268 |
|
|
|
|
654 |
|
|
|
|
3,761 |
|
|
|
|
2,349 |
|
|
Depreciation and amortization |
|
|
20,351 |
|
|
|
|
19,247 |
|
|
|
|
67,513 |
|
|
|
|
63,272 |
|
|
Merger/acquisition and integration |
|
|
— |
|
|
|
|
521 |
|
|
|
|
1,364 |
|
|
|
|
3,531 |
|
|
Restructuring charges and asset impairment |
|
|
1,296 |
|
|
|
|
232 |
|
|
|
|
10,215 |
|
|
|
|
5,269 |
|
|
Fresh Kitchen start-up costs |
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
1,366 |
|
|
Fresh Kitchen operating losses |
|
|
2,204 |
|
|
|
|
— |
|
|
|
|
2,204 |
|
|
|
|
— |
|
|
Stock-based compensation |
|
|
638 |
|
|
|
|
773 |
|
|
|
|
6,735 |
|
|
|
|
7,040 |
|
|
Non-cash rent |
|
|
(1,082 |
) |
|
|
|
(187 |
) |
|
|
|
(4,542 |
) |
|
|
|
(818 |
) |
|
Costs associated with Project One Team |
|
|
— |
|
|
|
|
— |
|
|
|
|
5,428 |
|
|
|
|
— |
|
|
Organizational realignment costs |
|
|
935 |
|
|
|
|
— |
|
|
|
|
1,812 |
|
|
|
|
— |
|
|
Other non-cash charges |
|
|
187 |
|
|
|
|
258 |
|
|
|
|
710 |
|
|
|
|
785 |
|
|
Adjusted EBITDA |
$ |
|
41,576 |
|
|
$ |
|
48,304 |
|
|
$ |
|
140,558 |
|
|
$ |
|
165,166 |
|
28
Following is a reconciliation of operating earnings (loss) to adjusted EBITDA by segment for the 12 and 40 weeks ended October 5, 2019 and October 6, 2018.
|
|
12 Weeks Ended |
|
|
40 Weeks Ended |
|
||||||||||||||
|
(In thousands) |
|
|
|
|
|
|
|
||||||||||||
|
Food Distribution: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings |
$ |
|
11,699 |
|
|
$ |
|
19,815 |
|
|
$ |
|
36,564 |
|
|
$ |
|
63,060 |
|
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIFO expense |
|
|
639 |
|
|
|
|
245 |
|
|
|
|
1,869 |
|
|
|
|
929 |
|
|
Depreciation and amortization |
|
|
7,390 |
|
|
|
|
7,540 |
|
|
|
|
25,368 |
|
|
|
|
24,179 |
|
|
Merger/acquisition and integration |
|
|
— |
|
|
|
|
479 |
|
|
|
|
(130 |
) |
|
|
|
3,419 |
|
|
Restructuring charges (gains) and asset impairment |
|
|
1,043 |
|
|
|
|
(68 |
) |
|
|
|
10,724 |
|
|
|
|
1,292 |
|
|
Fresh Kitchen start-up costs |
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
1,366 |
|
|
Fresh Kitchen operating losses |
|
|
2,204 |
|
|
|
|
— |
|
|
|
|
2,204 |
|
|
|
|
— |
|
|
Stock-based compensation |
|
|
302 |
|
|
|
|
351 |
|
|
|
|
3,319 |
|
|
|
|
3,318 |
|
|
Non-cash rent |
|
|
147 |
|
|
|
|
41 |
|
|
|
|
353 |
|
|
|
|
115 |
|
|
Costs associated with Project One Team |
|
|
— |
|
|
|
|
— |
|
|
|
|
2,877 |
|
|
|
|
— |
|
|
Organizational realignment costs |
|
|
495 |
|
|
|
|
— |
|
|
|
|
960 |
|
|
|
|
— |
|
|
Other non-cash charges |
|
|
14 |
|
|
|
|
119 |
|
|
|
|
391 |
|
|
|
|
466 |
|
|
Adjusted EBITDA |
$ |
|
23,933 |
|
|
$ |
|
28,522 |
|
|
$ |
|
84,499 |
|
|
$ |
|
98,144 |
|
|
Military: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) earnings |
$ |
|
(2,646 |
) |
|
$ |
|
1,508 |
|
|
$ |
|
(5,806 |
) |
|
$ |
|
6,120 |
|
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIFO expense |
|
|
372 |
|
|
|
|
146 |
|
|
|
|
1,034 |
|
|
|
|
544 |
|
|
Depreciation and amortization |
|
|
2,764 |
|
|
|
|
2,816 |
|
|
|
|
9,097 |
|
|
|
|
9,257 |
|
|
Merger/acquisition and integration |
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
4 |
|
|
Restructuring charges (gains) |
|
|
— |
|
|
|
|
29 |
|
|
|
|
— |
|
|
|
|
(801 |
) |
|
Stock-based compensation |
|
|
114 |
|
|
|
|
155 |
|
|
|
|
1,091 |
|
|
|
|
1,181 |
|
|
Non-cash rent |
|
|
(80 |
) |
|
|
|
(74 |
) |
|
|
|
(283 |
) |
|
|
|
(249 |
) |
|
Costs associated with Project One Team |
|
|
— |
|
|
|
|
— |
|
|
|
|
706 |
|
|
|
|
— |
|
|
Organizational realignment costs |
|
|
122 |
|
|
|
|
— |
|
|
|
|
236 |
|
|
|
|
— |
|
|
Other non-cash (gains) charges |
|
|
(70 |
) |
|
|
|
31 |
|
|
|
|
(91 |
) |
|
|
|
57 |
|
|
Adjusted EBITDA |
$ |
|
576 |
|
|
$ |
|
4,611 |
|
|
$ |
|
5,984 |
|
|
$ |
|
16,113 |
|
|
Retail: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings |
$ |
|
6,726 |
|
|
$ |
|
5,483 |
|
|
$ |
|
14,600 |
|
|
$ |
|
13,192 |
|
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIFO expense |
|
|
257 |
|
|
|
|
263 |
|
|
|
|
858 |
|
|
|
|
876 |
|
|
Depreciation and amortization |
|
|
10,197 |
|
|
|
|
8,891 |
|
|
|
|
33,048 |
|
|
|
|
29,836 |
|
|
Merger/acquisition and integration |
|
|
— |
|
|
|
|
42 |
|
|
|
|
1,494 |
|
|
|
|
108 |
|
|
Restructuring charges (gains) and asset impairment |
|
|
253 |
|
|
|
|
271 |
|
|
|
|
(509 |
) |
|
|
|
4,778 |
|
|
Stock-based compensation |
|
|
222 |
|
|
|
|
267 |
|
|
|
|
2,325 |
|
|
|
|
2,541 |
|
|
Non-cash rent |
|
|
(1,149 |
) |
|
|
|
(154 |
) |
|
|
|
(4,612 |
) |
|
|
|
(684 |
) |
|
Costs associated with Project One Team |
|
|
— |
|
|
|
|
— |
|
|
|
|
1,845 |
|
|
|
|
— |
|
|
Organizational realignment costs |
|
|
318 |
|
|
|
|
— |
|
|
|
|
616 |
|
|
|
|
— |
|
|
Other non-cash charges |
|
|
243 |
|
|
|
|
108 |
|
|
|
|
410 |
|
|
|
|
262 |
|
|
Adjusted EBITDA |
$ |
|
17,067 |
|
|
$ |
|
15,171 |
|
|
$ |
|
50,075 |
|
|
$ |
|
50,909 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29
Liquidity and Capital Resources
Cash Flow Information
The following table summarizes the Company’s consolidated statements of cash flows:
|
|
|
|
|
40 Weeks Ended |
|
|||||||
|
(In thousands) |
|
|
|
|
|
|
||||||
|
Cash flow activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
|
$ |
|
140,034 |
|
|
$ |
|
142,546 |
|
|
Net cash used in investing activities |
|
|
|
|
|
(117,645 |
) |
|
|
|
(45,533 |
) |
|
Net cash used in financing activities |
|
|
|
|
|
(17,385 |
) |
|
|
|
(91,773 |
) |
|
Net cash used in discontinued operations |
|
|
|
|
|
(153 |
) |
|
|
|
(234 |
) |
|
Net increase in cash and cash equivalents |
|
|
|
|
|
4,851 |
|
|
|
|
5,006 |
|
|
Cash and cash equivalents at beginning of the period |
|
|
|
|
|
18,585 |
|
|
|
|
15,667 |
|
|
Cash and cash equivalents at end of the period |
|
|
|
$ |
|
23,436 |
|
|
$ |
|
20,673 |
|
Net cash provided by operating activities. Net cash provided by operating activities decreased during the current year-to-date period from the prior year-to-date period by approximately $2.5 million and was primarily due to lower cash generated from earnings, mostly offset by improvements in working capital including management of accounts payable.
Net cash used in investing activities. Net cash used in investing activities increased $72.1 million in the current year compared to the prior year primarily due to the Martin’s acquisition made in the current year quarter, partially offset by proceeds from the sale of real property for a previously closed site.
Capital expenditures were $46.9 in the current year compared to $52.6 million in the prior year. The Food Distribution, Military and Retail segments utilized 34.2%, 8.6% and 57.2% of capital expenditures, respectively, in the current year.
Net cash used in financing activities. Net cash used in financing activities decreased $74.4 million in the current year compared to the prior year primarily due to the Martin’s acquisition which reduced the funds available for the paydown of debt.
Net cash used in discontinued operations. Net cash used in discontinued operations contains the net cash flows of the Company’s Retail and Food Distribution discontinued operations and is primarily composed of facility maintenance expenditures.
Debt Management
Total debt, including finance lease liabilities, was $693.1 million and $698.1 million as of October 5, 2019 and December 29, 2018, respectively. The decrease in total debt was driven by payments, mostly offset by the current year acquisition of Martin’s.
Liquidity
The Company’s principal sources of liquidity are cash flows generated from operations and its senior secured credit facility which has maximum available credit of $1.04 billion. As of October 5, 2019, the senior secured credit facility had outstanding borrowings of $652.5 million. Additional available borrowings under the Company’s $1.04 billion credit facility are based on stipulated advance rates on eligible assets, as defined in the Credit Agreement. The Credit Agreement requires that the Company maintain excess availability of 10% of the borrowing base, as such term is defined in the Credit Agreement. The Company had excess availability after the 10% covenant of $226.1 million at October 5, 2019. Payment of dividends and repurchases of outstanding shares are permitted, provided that certain levels of excess availability are maintained. The credit facility provides for the issuance of letters of credit, of which $10.8 million were outstanding as of October 5, 2019. The revolving credit facility matures December 18, 2023 and is secured by substantially all of the Company’s assets.
The Company believes that cash generated from operating activities and available borrowings under the credit facility will be sufficient to meet anticipated requirements for working capital, capital expenditures, dividend payments, and debt service obligations for the foreseeable future. However, there can be no assurance that the business will continue to generate cash flow at or above current levels or that the Company will maintain its ability to borrow under the Credit Agreement. In the third quarter, the Company executed an early payment of its term loan (Tranche A-2) in the amount of $55.0 million with available borrowings from its revolving credit facility. The Company expects to generate interest savings of nearly $2 million annually as a result of utilizing lower rate financing.
The Company’s current ratio (current assets to current liabilities) was 1.72-to-1 at October 5, 2019 compared to 2.10-to-1 at December 29, 2018, and its investment in working capital was $437.6 million at October 5, 2019 compared to $524.6 million at December 29, 2018. Net debt to total capital ratio was 0.49-to-1 at October 5, 2019 compared to 0.49-to-1 at December 29, 2018. The current year ratios include the impact of the adoption of the new lease standard (ASU 2016-02) and therefore lack comparability to the prior year ratios.
30
Total net debt is a non-GAAP financial measure that is defined as long-term debt and finance lease liabilities, plus current maturities of long-term debt and finance lease liabilities, less cash and cash equivalents. The ratio of net debt to capital is a non-GAAP financial measure that is calculated by dividing net debt, as defined previously, by total capital (net debt plus total shareholders’ equity). The Company believes both management and its investors find the information useful because it reflects the amount of long-term debt obligations that are not covered by available cash and temporary investments. Total net debt is not a substitute for GAAP financial measures and may differ from similarly titled measures of other companies.
Following is a reconciliation of long-term debt and finance lease liabilities to total net long-term debt and finance lease liabilities as of October 5, 2019 and December 29, 2018.
|
|
October 5, |
|
|
December 29, |
|
||||
|
(In thousands) |
2019 |
|
|
2018 |
|
||||
|
Current portion of long-term debt and finance lease liabilities |
$ |
|
7,044 |
|
|
$ |
|
18,263 |
|
|
Long-term debt and finance lease liabilities |
|
|
686,055 |
|
|
|
|
679,797 |
|
|
Total debt |
|
|
693,099 |
|
|
|
|
698,060 |
|
|
Cash and cash equivalents |
|
|
(23,436 |
) |
|
|
|
(18,585 |
) |
|
Total net long-term debt |
$ |
|
669,663 |
|
|
$ |
|
679,475 |
|
For information on contractual obligations, see the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2018. At October 5, 2019, there have been no material changes to the Company’s significant contractual obligations outside the ordinary course of business.
Cash Dividends
During the quarter ended October 5, 2019, the Company returned $6.9 million to shareholders from dividend payments. A 5.6% increase in the quarterly dividend rate from $0.18 per share to $0.19 per share was approved by the Board of Directors and announced on February 28, 2019. Although the Company expects to continue to pay a quarterly cash dividend, adoption of a dividend policy does not commit the Board of Directors to declare future dividends. Each future dividend will be considered and declared by the Board of Directors at its discretion. Whether the Board of Directors continues to declare dividends depends on a number of factors, including the Company’s future financial condition, anticipated profitability and cash flows and compliance with the terms of its credit facilities.
Under the senior revolving credit facility, the Company is generally permitted to pay dividends in any fiscal year up to an amount such that all cash dividends, together with any cash distributions and share repurchases, do not exceed $35.0 million. Additionally, the Company is generally permitted to pay cash dividends and repurchase shares in excess of $35.0 million in any fiscal year so long as its Excess Availability, as defined in the senior revolving credit facility, is in excess of 10% of the Total Borrowing Base, as defined in the senior revolving credit facility, before and after giving effect to the repurchases and dividends.
Off-Balance Sheet Arrangements
The Company has also made certain commercial commitments that extend beyond October 5, 2019. These commitments consist primarily of purchase commitments (as disclosed in the Company’s Annual Report on Form 10-K for the year ended December 29, 2018), standby letters of credit of $10.8 million as of October 5, 2019, and interest on long-term debt and finance lease liabilities.
Critical Accounting Policies
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and the related disclosure of contingent assets and liabilities. On an ongoing basis, the Company evaluates its estimates, including those related to bad debts, inventories, intangible assets, assets held for sale, long-lived assets, income taxes, self-insurance reserves, restructuring costs, retirement benefits, stock-based compensation, contingencies and litigation. Management bases its estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that may not be readily apparent from other sources. Based on the Company’s ongoing review, the Company makes adjustments it considers appropriate under the facts and circumstances. This discussion and analysis of the Company’s financial condition and results of operations is based upon the Company’s consolidated financial statements. The Company believes these accounting policies and others set forth in Item 8, Note 1 to the consolidated financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2018 should be reviewed as they are integral to the understanding the Company’s financial condition and results of operations. The Company has discussed the development, selection and disclosure of these accounting policies with the Audit Committee of the Board of Directors. The accompanying financial statements are prepared using the same critical accounting policies discussed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2018.
31
Recently Issued Accounting Standards
Refer to Note 2 in the notes to the condensed consolidated financial statements for further information.
ITEM 3. Quantitative and Qualitative Disclosure about Market Risk
There have been no material changes in market risk of SpartanNash from the information provided in Part II, Item 7A, “Quantitative and Qualitative Disclosure About Market Risk,” of the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2018.
ITEM 4. Controls and Procedures
An evaluation of the effectiveness of the design and operation of SpartanNash Company’s disclosure controls and procedures (as currently defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) was performed as of October 5, 2019 (the “Evaluation Date”). This evaluation was performed under the supervision and with the participation of SpartanNash Company’s management, including its Interim Chief Executive Officer (“CEO”), Chief Financial Officer (“CFO”) and Chief Accounting Officer (“CAO”). As of the Evaluation Date, SpartanNash Company’s management, including the CEO, CFO and CAO, concluded that SpartanNash’s disclosure controls and procedures were effective as of the Evaluation Date to ensure that material information required to be disclosed in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Securities and Exchange Act of 1934 is accumulated and communicated to management, including its principal executive and principal financial officers as appropriate to allow for timely decisions regarding required disclosure. During the third quarter there was no change in SpartanNash’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, SpartanNash’s internal control over financial reporting.
32
PART II
OTHER INFORMATION
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table provides information regarding SpartanNash’s purchases of its own common stock during the 12 week period ended October 5, 2019. These may include: (1) shares of SpartanNash common stock delivered in satisfaction of the exercise price and/or tax withholding obligations by holders of employee stock options who exercised options, and (2) shares submitted for cancellation to satisfy tax withholding obligations that occur upon the vesting of the restricted shares. The value of the shares delivered or withheld is determined by the applicable stock compensation plan. For the first quarter of 2019, all shares purchased by SpartanNash related to shares submitted for cancellation to satisfy tax withholding obligations that occur upon the vesting of the restricted shares.
During the fourth quarter of 2017, the Board authorized a publicly announced $50 million share repurchase program, expiring in 2022. No repurchases were made under this program during the third quarter of 2019. At October 5, 2019 $45.0 million remains available under the program.
|
|
|
|
|
|
Average |
|
||
|
|
Total Number |
|
|
Price Paid |
|
|||
|
Fiscal Period |
of Shares Purchased |
|
|
per Share |
|
|||
|
July 14 - August 10, 2019 |
|
|
|
|
|
|
|
|
|
Employee Transactions |
|
— |
|
|
$ |
|
— |
|
|
Repurchase Program |
|
— |
|
|
$ |
|
— |
|
|
August 11 - September 7, 2019 |
|
|
|
|
|
|
|
|
|
Employee Transactions |
|
— |
|
|
$ |
|
— |
|
|
Repurchase Program |
|
— |
|
|
$ |
|
— |
|
|
September 8 - October 5, 2019 |
|
|
|
|
|
|
|
|
|
Employee Transactions |
|
1,402 |
|
|
$ |
|
11.33 |
|
|
Repurchase Program |
|
— |
|
|
$ |
|
— |
|
|
Total for quarter ended October 5, 2019 |
|
|
|
|
|
|
|
|
|
Employee Transactions |
|
1,402 |
|
|
$ |
|
11.33 |
|
|
Repurchase Program |
|
— |
|
|
$ |
|
— |
|
33
ITEM 6. Exhibits
The following documents are filed as exhibits to this Quarterly Report on Form 10-Q:
|
Exhibit |
|
Document |
|
|
|
|
|
3.1 |
|
|
|
|
|
|
|
3.2 |
|
|
|
|
|
|
|
10.1 |
|
Executive Employment Agreement between SpartanNash Company and Dennis Eidson. |
|
|
|
|
|
10.2 |
|
Phantom Stock Award Agreement between SpartanNash Company and Dennis Eidson. |
|
|
|
|
|
31.1 |
|
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
|
|
31.2 |
|
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
|
|
31.3 |
|
Certification of Chief Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
|
|
32.1 |
|
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
|
|
101.INS |
|
Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
|
|
|
|
|
101.SCH |
|
Inline XBRL Taxonomy Extension Schema Document |
|
|
|
|
|
101.CAL |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
|
|
|
101.LAB |
|
Inline XBRL Taxonomy Extension Label Linkbase Document |
|
|
|
|
|
101.PRE |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
|
|
|
|
|
101.DEF |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document |
|
|
|
|
|
104 |
|
The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended October 5, 2019, has been formatted in Inline XBRL. |
|
|
|
|
34
SIGNATURES
Pursuant to the requirements 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.
|
|
|
SPARTANNASH COMPANY (Registrant)
|
||
|
Date: November 7, 2019 |
|
By |
|
/s/ Mark E. Shamber |
|
|
|
|
|
Executive Vice President and Chief Financial Officer
|
35
| This ‘10-Q’ Filing | Date | Other Filings | ||
|---|---|---|---|---|
 | ||||
| 12/18/23 | ||||
| 12/31/19 | 11-K | |||
| 12/29/19 | ||||
| Filed on: | 11/7/19 | 4 | ||
| 11/6/19 | 8-K | |||
| For Period end: | 10/5/19 | |||
| 9/7/19 | ||||
| 8/10/19 | ||||
| 7/13/19 | 10-Q | |||
| 4/20/19 | 10-Q | |||
| 2/28/19 | ||||
| 12/31/18 | 11-K | |||
| 12/29/18 | 10-K | |||
| 10/6/18 | 10-Q | |||
| 7/31/18 | ||||
| 7/14/18 | 10-Q | |||
| 4/21/18 | 10-Q | |||
| 2/28/18 | ||||
| 12/30/17 | 10-K | |||
| List all Filings | ||||