UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
☒ Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 ☒
| Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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For the fiscal year ended January 2, 2021December 30, 2023.
OR
☐ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 ☐
| 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: 000-31127
SPARTANNASH COMPANY
(Exact Name of Registrant as Specified in Its Charter)
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Michigan |
| 38-0593940 |
(State or Other Jurisdiction) of Incorporation or Organization) |
| (I.R.S. Employer Identification No.) |
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850 76th Street, S.W. P.O. Box 8700 Grand Rapids, Michigan |
| 49518-8700 |
(Address of Principal Executive Offices) |
| (Zip Code) |
Registrant’s telephone number, including area code: (616) (616) 878-2000
Securities registered pursuant to Section 12(b) of the Securities Exchange Act:
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Title of each class |
| Trading Symbol(s) |
| Name of each exchange on which registered |
Common Stock, no par value |
| SPTN |
| NASDAQ Global Select Market |
Securities registered pursuant to Section 12(g) of the Securities Exchange Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐No☒
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes☒ 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). Yes☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer | ☒ | ☒Accelerated filer
| ☐ | AcceleratedNon-accelerated filer
| ☐ | ☐
| | Non-accelerated filer
| | ☐
| | Smaller reporting company | ☐ | ☐
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Emerging growth company | | ☐ | | | | | | | | | | | | |
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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
Yes ☒ No ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The aggregate market value of the registrant’s voting and non-voting common equity held by non-affiliates based on the last sales price of such stock on the NASDAQNasdaq Global Select Market on July 10, 202014, 2023 (which was the last trading day of the registrant’s second quarter in the fiscal year ended January 2, 2021)December 30, 2023) was $720,431,707.$722,477,443.
The number of shares outstanding of the registrant’s Common Stock, no par value, as of March 2, 2021February 26, 2024 was 36,135,638,34,618,147, all of one class.
DOCUMENTS INCORPORATED BY REFERENCE
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Part III, Items 10, 11, 12, 13 and 14 |
| Definitive Proxy Statement for the 2024 Annual Meeting to be held May 26, 2021 |
Forward-Looking Statements
The matters discussed in this Annual Report on Form 10-K, in the Company’s press releases, and in the Company’s website-accessible conference calls with analysts and investor presentations include “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended ("Exchange Act"), about the plans, strategies, objectives, goals or expectations of SpartanNash Company and its subsidiaries (“SpartanNash” or the “Company”). These forward-looking statements aremay be identifiable by words or phrases indicating that SpartanNashthe Company or management “expects,” “projects,” “anticipates,” “plans,” “believes,” “intends,” or “estimates,” or that a particular occurrence or event “will,” “may,” “could,” “should,” “will” or “will likely” result, occur or be pursued or “continue” in the future, that the “outlook”, “trend”, "guidance" or “trend”"target" 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 and Estimates” in Item 7 of this Annual Report on Form 10-K, 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 Annual Report, other report, release, presentation, or statement.
In addition Forward-looking statements are necessarily based on estimates and assumptions that are inherently subject to other riskssignificant business, economic and competitive uncertainties described in connectionand contingencies, many of which, with the forward-looking statements contained in this Annual Report on Form 10-Krespect to future business decisions, are subject to change. These uncertainties and other periodic reports filed with the Securitiescontingencies may affect actual results and Exchange Commission (“SEC”), there are many important factors that could cause actual results to differ materially. These risks and uncertainties include disruptions associated with the COVID-19 pandemic, 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 Part I, Item 1A. “Risk Factors,” of this report 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.1A “Risk Factors,” and in Item 7, subheading “Critical Accounting Policies and Estimates” inFactors” of this report, both of which are incorporated here by reference,Annual Report on Form 10-K, are intended to provide meaningful cautionary statements for purposes of the safe harbor provisionsprovision of the Private Securities Litigation Reform Act of 1995. This should not be construed as a complete list of all of 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 Annual Report. In addition, historical information should not be considered as an indicator of future performance.
TABLE OF CONTENTS
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PART I
Item 1. Business
Overview
SpartanNash Company (together with its subsidiaries, “SpartanNash” or the “Company”) is a Fortune 400food solutions company whosethat delivers the ingredients for a better life. Its core businesses include distributing grocery products to a diverse group of independent and chain retailers, its corporate ownedcorporate-owned retail stores, and U.S. military commissaries and exchanges. exchanges; as well as operating a premier fresh produce distribution network and the Our Family® private label brand. SpartanNash serves customer locations in all 50 United States (“U.S.”),states and the District of Columbia, Europe, Cuba, Puerto Rico, Honduras, Iraq, Kuwait, Bahrain, Qatar, Djibouti, Korea and Egypt. The Company’s Retail segment operates supermarkets that have a “neighborhood market” focus to distinguish them from supercenters and limited assortment stores. Through its Military segment, the Company is the exclusive worldwide supplier of private brand products to U.S. military commissaries. Japan. The Company owns and operates three reportable segments: Food Distribution, Retail144 supermarkets and Military.shares its operational insights to drive solutions for its food retail independent customers. While the Company supports overseas commissaries and exchanges, all of the Company’s sales and assets are in the United States of America.
The Company operates two reportable segments: Wholesale and Retail. These reportable segments are two distinct businesses, each with a different customer base, management structure, and basis for determining budgets, forecasts, and compensation. Where applicable, segment financial information for the comparative prior year periods within this annual report has been recast to reflect our current reportable segment structure.
The Company’s fiscal year end is the Saturday closest to December 31. The following discussion isIn this report we discuss information as of and for the fiscal years ending or ended January 1, 2022December 28, 2024 ("2021"2024"), January 2, 2021December 30, 2023 (“2020”2023” or “current year”), December 28, 201931, 2022 (“2019”2022” or “prior year”) and December 29, 2018January 1, 2022 (“2018”2021”), all of which include 52 weeks, with the exception of 2020, which includes 53 weeks. All fiscal quarters are 12 weeks, except for the Company’s first quarter, which is 16 weeks and will usually includeincludes the Easter holiday. Fiscal 2020 contains 53 weeks; therefore, the fourth quarter of fiscal 2020 contains 13 weeks. The fourth quarter includes the Thanksgiving and Christmas holidays, and depending on the fiscal year end, may include the New Year’s holiday.
The Company’s differentiated business model of Food Distribution,Wholesale and Retail and Military operations leverages the complementary nature of each segmentboth segments and supports the ability of the Company’s independent retailersretail customers to compete in the grocery industry in the long-term. The model produces operational efficiencies, helps stimulate distribution product demand, and provides greater visibility and broader business growth options.options throughout each of the segments.
SpartanNash’sSpartanNash has a strategic identity called Our Winning RecipeTM that activates its mission is to leveragedeliver the ingredients for a better life through a focus on core capabilities, behaviors and strategic priorities. SpartanNash has a keen focus on its expertise in food distributioncore capabilities which include: people, operational excellence and retail to develop, activate and provide impactful solutionsinsights that exceed expectations for customers, business partners and associates, and itsdrive solutions. The Company’s vision is to be “A best-in-class business that feels local, where relationships matter.” In order to support these objectives, the Company’s priorities include strategies to improve the associate experience, to enhance the product offerings toseeing a day when its customers and to improve operational efficiency through achieving sustained improvements in gross margin and service levels.say, “I can’t live without them.”
Food DistributionWholesale Segment
The Company’s Food DistributionWholesale segment uses a multi-channel sales approach to distribute grocerynational brand and its own private brand products to independent retailers, national retailers,accounts, food service distributors, e-commerce providers, and the Company’s corporate ownedCompany's corporate-owned retail stores. The Company’s Wholesale segment also contracts with manufacturers and brokers to distribute a wide variety of grocery products to 160 U.S. military commissaries and over 400 exchanges worldwide. Together with its third-party partner, Coastal Pacific Food Distributors ("CPFD"), SpartanNash represents the only global delivery solution to service the Defense Commissary Agency ("DeCA" or "the Agency"). Total net sales from the Company’s Food DistributionWholesale segment, including sales of $1.2 billion to corporate ownedcorporate-owned retail stores that are eliminated in the consolidated financial statements, totaled $5.7$8.1 billion for 2020.2023. As of the end of 2020,2023, the Company believes it is among the fifthfive largest wholesale distributor,distributors in the nation in terms of annual revenue, to supermarkets in the United States.
revenue. The Company is focused on growth in its Food DistributionWholesale segment, through expanded partnershipsrelationships with existing customers as well as new business and rounding out its assortment. The Company is also working to improve the reach and efficiency of its supply chain to drive improved profitability.opportunities.
The Company’s Food Distribution segment supplies grocery products to a diverse group of independent retailers with operations ranging from a single store to regional supermarket chains, food service distributors and the Company’s corporate owned retail stores. As of January 2, 2021,December 30, 2023, the Company operated in all 50 states by leveraging a platformnetwork of 19 distribution centers, in addition to a facility on the West Coast operated by third-party partner, CPFD, as well as internal transportation fleets and third-party shipping partners, servicing the Food Distribution and Military segments.Wholesale segment. The Company’s extensive geographic reach drives economies of scale, and provides opportunities for independent retailers to purchase products at competitive prices in order to effectively compete in the grocery industry in the long-term.
The CompanyCompany's network also services national retailers through a varietyincludes distribution centers strategically located among the largest concentration of platforms and has diversified its customer base through growth with these customers. These national retailers partner withmilitary bases the Company serves and near Atlantic ports used to centralize their supply ofship grocery products or product categories,to overseas commissaries and to leverage the Company’s broad geographic reach. Sales to one of the Company’s customers in the Food Distribution segment accounted for 17%, 17% and 16% of consolidated net sales for 2020, 2019 and 2018, respectively. No other individual customer exceeded 10% of consolidated net sales in any of the years presented.
The Company’s ten largest Food Distribution customers (excluding corporate owned retail stores) accounted for approximately 64% of total Food Distribution net sales for 2020. Approximately 89% of Food Distribution net sales for 2020 are covered under supply agreements with customers.
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exchanges.
The Company’s Food DistributionWholesale segment provides a selection of approximately 68,00090,700 stock-keeping units (SKUs) of nationally brandednational brand and private brand grocery products and perishable food products, including dry groceries, produce, dairy products, meat, delicatessen items, bakery goods, frozen food, and seafood, as well as floral products, general merchandise, beverages, tobacco products, health and beauty care products and pharmacy.pharmaceutical products. These product offerings, along with best-in-class services, allow independent retailers the opportunity to support the majority of their operations with a single supplier. The Company also provides a comprehensive menu of valued-addedsupport services designed to assist independent retailers in becoming more profitable, efficient, competitive, and informed, ranging from real estate and site surveys to a full suite of merchandising, marketing, accounting, and information technology solutions.
The Company also has a diverse base of national accounts customers, who partner with the Company to centralize their supply across many product categories, and merchandisingto leverage the Company’s broad geographic reach. Sales to one of the Company’s customers in the Wholesale segment accounted for 16%, 16% and marketing solutions. 17% of the Company's net sales for 2023, 2022 and 2021, respectively. No other individual customer exceeded 10% of the Company's net sales in any of the years presented.
The Company is committedalso the primary supplier of private brand products to sharing the expertise gainedU.S. military commissaries, a partnership with DeCA which began in its Retail operationsfiscal 2017. The current contract to provide DeCA with private branded products extends through December 2025. In accordance with its independent customers.contract with DeCA, the Company procures the grocery and related products from various manufacturers and upon receiving customer orders from DeCA, either delivers the products to the U.S. military commissaries itself or engages its worldwide strategic business partner, CPFD, to deliver the products on its behalf. The Company is among one of the four largest distributors to the DeCA commissary system, in terms of annual sales, that distributes products via the frequent delivery system. The remaining distributors that supply DeCA tend to be smaller regional and local providers.
DeCA operates a chain of 235 commissaries on U.S. military installations across the world that sell approximately $4.6 billion of grocery products annually. The Food DistributionCompany obtains distribution contracts with manufacturers through competitive bidding processes and direct negotiations. As of December 30, 2023, the Company has approximately 250 distribution contracts representing approximately 600 manufacturers that supply products to the DeCA commissary system and various exchange systems.
The Company’s ten largest Wholesale customers (excluding corporate-owned retail stores) accounted for approximately 40% of total Wholesale net sales for 2023. Approximately 91% of Wholesale net sales to independent retailers and national accounts for 2023 are covered under supply agreements.
The Wholesale segment competes directly with a number of traditional and specialty grocery wholesalers and retailers that maintain or develop self-distribution systems. In addition, the Company’s independent customers face intense competition from supercenters, deep discounters, mass merchandisers, limited assortment stores, and e-commerce providers. The Company partners with these customers to help them compete efficiently and effectively. The primary competitive factors in the Food DistributionWholesale business include price, service level, product quality, variety, reputation with DeCA, location of distribution centers and other value-added services.
Retail Segment
As of January 2, 2021,December 30, 2023, the Company operates 156 corporate ownedoperated 144 corporate-owned retail stores and 3736 fuel centers in nine states in the Midwest, primarily under the banners of Family Fare, Martin’s Super Markets, and D&W Fresh Market VG’s Grocery and Dan’s Supermarket. Retail banners and store counts are fully detailed in Item 2, “Properties”.“Properties.” The Company’s corporate owned retail stores range in size from approximately 14,000 to 90,000 total square feet, or on average, approximately 44,000 total square feet per store.
The Company’s neighborhood marketconvenience and community-focused strategy distinguishes its corporate ownedcorporate-owned retail stores from supercenters and limited assortment stores. ThroughThis strategy is complemented by e-commerce solutions,platforms, including Fast Lane and Groceries to GO, as well asand third-party providers, the Company offeredrelationships with DoorDash, Shipt, Instacart Marketplaces, and Uber Eats, which provide online grocery shopping and curbside pickup or delivery at 117 of its corporate owned140 corporate-owned retail locations as of January 2, 2021. This channel isDecember 30, 2023. These channels are highly valued by customers during the COVID-19 pandemic, and continuing to enhance and grow this platforme-commerce platforms is a key component of the Company’s strategy. The Company continues to make investments to support its online ordering systems, the speed and convenience of curbside pickup, and the efficiency and completeness of order fulfillment.
The Company’s corporate ownedcorporate-owned retail stores offer nationally branded and the Company's private brandbranded, "OwnBrands" grocery products, as well asproducts. These stores also offer perishable food products including dry groceries, produce, dairy, products, meat, delicatessen items, including store prepared “grab and go” meal options, fresh cut fruits and vegetables, bakery goods, frozen food, and seafood, as well as floral, products, general merchandise, beverages, health and beauty care products and fuel. Sixty-sevenSixty-five of the Company’s stores contain franchised Starbucks or Caribou Coffee shops, which enhance the customer experience and help to drive traffic. Private brandOwnBrands grocery products typically generate higher retail margins, while also improving customer loyalty by offering quality products at more affordable prices.
As of January 2, 2021,December 30, 2023, the Company offersoffered pharmacy services in 9791 of its corporate ownedcorporate-owned retail stores (87(81 of the pharmacies are owned)owned by the Company) and operates one free-standingoperated three pharmacy location.locations not associated with corporate-owned retail locations. The Company believes theits pharmacy service offering in its corporate owned retail stores isofferings are an important part of the consumer experience. Most of the Company’s pharmacies offer certain free medications, along with low costlow-cost generic drugs and meal planning solutionscounseling for preventative health and education for its customers. Influenza vaccinations and COVID-19 testingvaccinations are available in certainthe pharmacies. The Company’s pharmacies will also offer COVID-19 vaccinations in 2021.
The following chart details the changes in the number of corporate ownedcorporate-owned retail stores over the last five fiscal years:
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| 2019 | | | 2020 | | | 2021 | | | 2022 | | | 2023 | |
Number of stores at beginning of year | | 139 | | | | 156 | | | | 156 | | | | 145 | | | | 147 | |
Stores acquired or constructed during year | | 24 | | | | 1 | | | | — | | | | 3 | | | | — | |
Stores closed or sold during year | | 7 | | | | 1 | | | | 11 | | | | 1 | | | | 3 | |
Number of stores at end of year | | 156 | | | | 156 | | | | 145 | | | | 147 | | | | 144 | |
| 2016 | | | 2017 | | | 2018 | | | 2019 | | | 2020 | |
Number of stores at beginning of year | | 163 | | | | 157 | | | | 145 | | | | 139 | | | | 156 | |
Stores acquired or constructed during year | | — | | | | — | | | | — | | | | 24 | | | | 1 | |
Stores closed or sold during year | | 6 | | | | 12 | | | | 6 | | | | 7 | | | | 1 | |
Number of stores at end of year | | 157 | | | | 145 | | | | 139 | | | | 156 | | | | 156 | |
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Early in the first quarter of fiscal 2021, the Company made the decision to close two corporate owned retail stores in support of its initiatives related to retail store rationalization.
The principal competitive factors in the Retail business include the location and image of the store; the price, quality, variety and varietyvalue-add of the fresh offering; and the quality, convenience and consistency of service. In addition to competing with traditional grocery stores, the Company competes with supercenters, deep discounters, mass merchandisers, limited assortment stores, and e-commerce providers. The Company monitors planned competitive store openings and uses established proactive strategies to respond to new competition both before and after competitive store openings. Strategies to react to competition vary based on many factors, such as the competitor’s format, strengths, weaknesses, pricing and sales focus.
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Military Segment
The Company’s Military segment contracts with manufacturers and brokers to distribute a wide variety of grocery products, including dry groceries, beverages, meat, and frozen foods, primarily to U.S. military commissaries and exchanges. The Company’s Military segment, together with its third-party partner, Coastal Pacific Food Distributors (“CPFD”), represents the only delivery solution to service the Defense Commissary Agency (“DeCA” or “the Agency”) worldwide.
DeCA operates a chain of 236 commissaries on U.S. military installations across the world that sells approximately $4.5 billion of grocery products annually. The Company distributes grocery products to 160 military commissaries and over 400 exchanges located in 39 states across the United States and the District of Columbia, Europe, Cuba, Puerto Rico, Honduras, Bahrain, Djibouti and Egypt. The Company’s distribution centers are strategically located among the largest concentration of military bases in the areas the Company serves and near Atlantic ports used to ship grocery products to overseas commissaries and exchanges.
The Company is also the DeCA exclusive worldwide supplier of private brand grocery and related products to all U.S. military commissaries. In accordance with its contract with DeCA, the Company procures the grocery and related products from various manufacturers and upon receiving customer orders from DeCA either delivers the products to the U.S. military commissaries itself or engages CPFD to deliver the products on its behalf. There are over 1,000 SKUs of private brand products in the DeCA system as of January 2, 2021.
DeCA contracts with manufacturers to obtain nationally branded products for the commissary system. Manufacturers either deliver the products to the commissaries themselves or, more commonly, contract with distributors such as SpartanNash to deliver the products. The Company obtains distribution contracts with manufacturers through competitive bidding processes and direct negotiations. As of January 2, 2021, the Company hasapproximately 250 distribution contracts representing approximately 600 manufacturers that supply products to the DeCA commissary system and various exchange systems. Generally, larger contracts or those subject to a request-for-proposal process have definitive durations, whereas smaller contracts generally have indefinite terms; and all contract types allow for termination by either party without cause upon 30 days prior written notice to the other party. The contracts typically specify which commissaries and exchanges to supply on behalf of the manufacturer, the manufacturer’s products to be supplied, service and delivery requirements, and pricing and payment terms. The Company’s ten largest manufacturer customers represented approximately 51% of the Company’s Military segment sales for 2020.
The Company’s strategies within the Military segment are focused on improving the profitability of its operations through partnering with DeCA and its manufacturer customers to identify growth opportunities and improve gross margins. The Company is also working to improve the efficiency of its supply chain through operational improvements, including identifying opportunities to optimize ordering, routes, and delivery schedules.
The Company is one of fewer than five distributors in the United States with annual sales to the DeCA commissary system in excess of $100 million that distributes products via the frequent delivery system. The remaining distributors that supply DeCA tend to be smaller regional and local providers. In addition, manufacturers contract with others to deliver certain products, such as baking supplies, produce, delicatessen items, soft drinks and snack items, directly to DeCA commissaries and service exchanges. Because of the low margins in this industry, it is of critical importance for distributors to achieve economies of scale, which is typically a function of the density or concentration of military bases within the geographic area(s) a distributor serves. As a result, no single distributor in this industry, by itself, has a nationwide presence. Rather, distributors generally concentrate on specific regions, or areas within specific regions, where they can achieve critical mass and utilize warehouse and distribution facilities efficiently. In addition, distributors that operate larger non-military specific distribution businesses tend to compete for DeCA commissary business in areas where such business would enable them to more efficiently utilize the capacity of their existing distribution centers. The Company believes the principal competitive factors among distributors within this industry are customer service, price, operating efficiencies, reputation with DeCA and location of distribution centers.
Supply Chain Network
The Company’s distribution network is comprised ofWholesale segment comprises 19 distribution centers, which are utilizedin addition to servicea facility on the Food Distribution and Military segments.West Coast operated by CPFD. The Company warehouses product through approximately 8.48.9 million square feet of distribution center space. The Company operates a diverse fleet with 553of owned and leased transportation equipment, which includes 629 over-the-road tractors, 25 refrigerated straight trucks, 335336 dry vans and 1,1351,213 refrigerated trailers. In addition, the Company also operates 14 over-the-road tractors, 140 dry vans and 92 refrigerated trailers through short-term rental contracts. The Company carefully manages the more than 73approximate 65 million miles driven by its fleet and third-party carriers annually servicing military commissaries, exchanges, independent retailers, national retailersaccounts and corporate ownedcorporate-owned retail stores.
The Company’sCompany continued executing against its comprehensive supply chain initiatives while evolving from a state of transformation to one of continuous improvement. The overall initiatives are focused on executing improvements to supply chain operations are focused on supportingacross the Company’s network, which continue to result in sustained efficiencies and cost reductions. The Company is making investments in people, process, and technology to support long-term growth and maximizing productivitymaximize operational efficiencies. The Company is investing in its workforce through the optimizationan expansion of its networkonboarding, training and investment in technology. The Company continually evaluates its networkcareer development programs, and is contemplating or undertaking actions such as adding or consolidating locationsexecuting several initiatives aimed at improving associate engagement, customer experience and shifting volume between facilities as needed. System enhancements in the areas of forecasting and replenishment will support the strategic optimization of inventory, allowing for reductions in quantities on hand and space savings in the warehouses, while maintaining service levels and reducing shrink. The Company’s plan to consolidate transportation management information systems will also streamline operations and reduce miles traveled.
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supply chain performance.
The Company is also investing incurrently optimizing its workforcenetwork to enable more effective and has identifiedefficient operations across the areas of recruitingsupply chain. The Company continues to enhance its inventory management and training as some of the initiatives to improve supply chain performance and the overall associate experience. In the coming year, the Company plans to re-profile certain of its warehouses, and is in the process ofcontrol practices, while also developing dynamic slotting capabilities in order to improve order selection efficiency and maximize space utilization. Process improvements are also underway in other areas of warehouse operations, including refining engineeredenhanced labor standardsplanning tools and analytical capabilities to improve the productivity of the workforce.productivity.
System enhancements in the areas of forecasting and replenishment are intended to support the strategic optimization of inventory, allowing for improved service levels and warehouse capacities, while also reducing excess inventory and shrink. The Company believes that its consolidation of transportation management information systems will also streamline operations and reduce miles traveled.
Marketing and MerchandizingMerchandising
During 2020,2023, the Company leveraged datacontinued its customer-led marketing and merchandising transformation. Launched in 2022, the transformation is focused on better engaging retail store shoppers and wholesale customers, using insights to developdeliver improved omnichannel marketing, promotions, pricing, and implement strategiesassortment. Vendor relationships and customer partnerships were strengthened throughout the year through customer selling shows and expanded partnerships with key suppliers, and also included an enhanced showcase for the Company's OwnBrands. The Company had its largest and best-selling show in 2023 that included record attendance and sales, in addition to respondaward ceremonies for new customers and vendors.
The Company continues to changesmake investments in consumer behavior in relationits consolidated portfolio of strong retail banner brands to deliver an improved overall shopping experience. The Company has focused on efficiency and effectiveness to help drive sales and margin not only within its Retail stores, but also for its Wholesale customers. This includes being a strategic partner to the COVID-19 pandemic with products, meal solutions and marketing tactics in support of each of the Company’s segments. While impacts of COVID-19 are expected to be short term,Company's Wholesale customers by leveraging knowledge gained from its corporate-owned Retail stores regarding best-in-class practices.
In late 2023, the Company is proving its abilitylaunched a program related to use datastreamlining assortment and store planograms. This new approach leverages customer loyalty insights and analytics to discern changing consumer needschoose the best assortment and leverage these insightsarrangement on shelf for a better shopping experience.
The Company's OwnBrands have been a particularly important focus to drive performance.
The Company’s Customer Growth strategy is focused on meeting changingmeet the customer needs and preferences through a data-based decision-making process, while also increasing customer satisfaction through quality service and convenience.shopper needs. The Company is usingwell positioned to meet increasing demand for premium products at a less than premium price following the launch and continued investment in two premium and exclusive brands: Fresh & Finest, by Our Family, and, Finest Reserve, by Our Family. In partnership with a third party, the Company began implementation of a next generation strategic pricing tool that unlocks efficiency and allows for more effective pricing strategies, which is anticipated to drive sales growth and improve margin mix. New promotional insights gained through its collaborationhave been implemented to set effective promotional prices that drive growth for both corporate-owned retail stores and Wholesale customers.
To harmonize the omnichannel brand experience, loyalty programs and digitization efforts were furthered with dunnhumby to improve its positioning and assortment to better appeal to its customers. Key focus areas include improvement in customers’ perception of Company pricing, product assortmentpersonalized customer content, digital coupon capability expansion, and the launch of new retail banner brand e-commerce sites. The Company further increased penetration of the Company’s private brands. As the Company worksdigitally active customers through improved digital promotions and pilot programs with independent customers. New chain-wide enhanced media campaigns were also rolled out to better differentiate its Retail storesleverage in-store and implement its Customer Growth strategy, the Company has launchedout-of-store assets to deliver a new pricing strategy designed to highlight value and increaseunified customer loyalty. The Company has developed processes to measure the activation of these strategies as well as their impacts. These measures are reviewed continuously to refine and evolve the strategies. The Company will continue to share its best practices across its independent customer base within the Food Distribution segment as it gains further insights.
The Company is selectively addingmessage around key products and services to better meet customers’ changing needs and enhance their experience. During 2020, the Company undertook a complete review of the current private brand offering and go-to-market strategy. To build awareness and encourage associate engagement, the Company has transitioned from the private brands terminology to a proprietary, branded approach referred to as “OwnBrands”. This change has been executed as part of a broader plan to simplify the brand portfolio and build on the strength of the Company’s flagship brand, promotions.
Seasonality
The Company has also been building tools and capabilities to enable relevant, personalized content across its digital, social media and mobile channels, including the use of chatbots with artificial intelligence, which provide immediate responses to customers’ frequently asked questions online. Additionally, the Company continues to focus on the growth of its e-commerce platforms and development of its fulfillment capabilities, which enable a highly personalized digital shopping experience, while driving operational efficiencies. These enhancements will contribute to the Company’s ability to build longer-term customer loyalty through convenience and value, maintain efficient marketing spend, improve its growth opportunities, and further strengthen its competitive position.
Seasonality
The majority of the Company’s revenues are not seasonal in nature. However, in some geographies, corporate retail stores and independent retail customers are dependent on tourism, and therefore arecan be affected by seasons andseasons. The Company’s revenues may also be impacted by weather patterns.
Suppliers
The Company purchases products from a large number of national, regional and local suppliers of namenational brand and OwnBrandOwnBrands merchandise. No single supplier accounts for more than 5% of the Company’s purchases. The Company continues to develop strategic relationships with key suppliers and believes this will prove valuable in the development of enhanced promotional programs and consumer value perceptions.
Intellectual Property
The Company owns valuable intellectual property, including trademarks, trade names, and other proprietary information, some of which are of material importance to its business.
Technology
In 2020,2023, the Company focused on digitizingfoundational IT hardware and digitization efforts across all business segments, including the continued transition to Software as a hybrid cloud model,Service (“SaaS”) technology, where certain production environments are hosted in the cloud and disaster recovery environments are hosted in on-premise data centers. As a response to the COVID-19 pandemic, the Company supported the shift of the corporate office workforce to a work-from-home environment, while maintaining workforce productivity.cloud.
Supply Chain. The Company began making meaningful upgradescontinued its transformational effort to itsreplace existing transportation systems, including standardization of processes and rationalization of several disparate systems into a single integrated application stack. Additionally, the Company completed thedeveloped process automation of its timekeeping, scheduling,improvements as well as data analytic solutions around workforce productivity. These automation and payroll management processes across its distribution network. These automationdata analytic initiatives, combined with the workforce investments noted previously, are expected to contribute to improved hiring, retention and productivity.
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Retail. During 2020, the Company made significant progress in the financial integration of its recently acquired Martin’s business. The Company iscontinued taking additional steps to modernize its retail applications footprint, beginningwhich began in 2021 with a comprehensive effort to upgrade and digitize its point-of-sale (“POS”) environment. The upgradedongoing upgrade to the POS applications will includeapplication includes an integrated feature set which will enhanceenhances the retail experience both for SpartanNashthe Company's corporate-owned retail stores and its independent customers. Additionally, the Company completed the implementation of a fresh item management solution for its corporate retail stores. This solution incorporates automated labeling, production planning, inventory and recipe management across all locations to support the fresh food operations within the corporate retail stores.
Marketing and Merchandizing: In 2020, the Company began the implementation of a cloud-based pricing and promotion automation solution. The new technology will provide a vendor portal and workflow management for promotional activities, as well as manage associated vendor billings.
Administrative Systems, Infrastructure and Security. The Company has begun the development and implementation ofimplemented tools to improve both the efficiency and effectiveness of internal reporting and administrative functions. A centralized cloud-based data analytics solution is being developedwas implemented to consolidate the Company’s analysis and reporting platforms, introducing predictivewhich supplies the Company with advanced data analytics capabilities to provide better business insights. Robotic process automation initiatives have been implementedinsights in certain areasreal-time. Additionally, the Company made several enhancements to its foundational hardware infrastructure including upgrades to the production storage environment and additional areas are being evaluatednetwork.
Human Capital
One of the Core Capabilities in Our Winning Recipe is People, and the Company has a keen focus on its People First culture. People First means that investing in Associates is the first investment the Company makes. As the Company cultivates an environment in which Associates can do their best work, it is building the foundation for further automation,a high performance and sustainable business. In 2023, the Company launched the People Philosophy, which will result in improved efficiency in repetitive, manual processes.is a commitment to all of the Associates to create meaningful experiences and growth opportunities, inspiring careers for a better life. The Company also successfully completed the deployment of a new Human Capital Management system whichintroduced eight behavioral-based competencies that will act as the backbone of simplified digital human resources operations. During 2020, the Company also made other significant improvements to its networksbe used for skill-development, selection, and information security.development.
Human Capital
The Company’s associates are critical to supporting the organization’s mission and values. The Company’s strategies are aligned to improve associate engagement and empowerment to foster an agile, highly accountable, performance-driven culture. As of January 2, 2021,December 30, 2023, the Company employed approximately 18,000 associates, 10,80017,000 Associates, 10,000 on a full-time basis and 7,2007,000 on a part-time basis. Approximately 7% of our Associates are covered by a collective bargaining agreement representing multiple Wholesale Associates across our business.
Retention
. Attracting and retaining talent is imperative to accomplish the key initiatives of the Company.achieving Our Winning Recipe. The Company’s primary initiatives in this area include improving diversity, equity, inclusion and belonging in its workforce, ensuring a safe and desirablesecure work environment, maintaining a competitive and compelling total rewards offer and investing in leadership and associate development.
While the effects of the COVID-19 pandemicThe Company's retention initiatives have increasedresulted in a 9% decrease in the rate of turnover specificallyand a 2% increase in the retail90-day new hire retention rate compared to the prior year.
Diversity, Equity, Inclusion and distribution environments, the Company is committed to reducing turnover, with an established target reduction in the coming year.
Safety
Associate safety remains a top priority of the Company, particularly in the retail and distribution environments considering the effects of COVID-19 in the current year.Belonging. The Company maintains robust policiescelebrates diversity and supports continuousbelieves employing a diverse workforce where Associates feel like they belong is key to success. SpartanNash expects all of its Associates to reinforce the People First culture to build a diverse and inclusive workplace. As a commitment to this, all Associates are required to complete training to ensure the safety of each associateon dignity and compliance with the Occupational Safetyrespect, anti-harassment and Health Administration standards. The Company’s areas of focus include limiting incident rates, the frequency and severity of accidents and the cost of claims and settlements.anti-discrimination.
Diversity and Inclusion
The Company sponsors initiativesleads with inclusion and strives to differentiatecreate an environment where Associates are valued and empowered to support its workforce with a focus on diversitybusiness objectives, customers and inclusion, to best reflect the communities it serves, and to strengthenprovide Associates connection within the representation oforganization. SpartanNash has associate resource groups (ARGs) available for young professionals, multicultural Associates, veterans, people of color, differently abled individualswomen, and women in the workforce. The Company believes that valuing each associate’s talent and diverse perspective creates a fair and inclusive atmosphere for growth and success.additional groups continue to be evaluated.
The Company also believes that it is best served by an executive leadership team and Board of Directorsleaders that have diverse perspectives, education, experience, skills, gender, race, and ethnicity as demonstrated by the current executive leadership team and Board of Directors. The Company will endeavorcontinue to seek out and develop such candidates when searchingthrough its talent acquisition and development practices.
Environment, Health and Safety (EHS). At SpartanNash, focusing on improving the EHS of its Associates, and the communities it serves is an integral part of our People First culture. The Company is fully committed to conducting its operations safely and in an environmentally friendly manner. Objectives for new leadersinjury prevention, natural resource conservation, energy savings and directors. Ofpollution prevention are achieved by identifying, assessing, and effectively addressing environmental concerns and workplace hazards, and through the eight current membersintegration of EHS considerations, into all relevant business activities.
The Company's goal is to be a safety leader in every industry segment that it operates. Since 2020, the Company has reduced injury rates significantly year-over-year to reach the top quartile for OSHA safety performance as of the executive leadership team, one member isyear ended December 30, 2023. During this same period, lost-time incidents were reduced by 76%, which includes a person20% improvement year-over-year in 2023. More than 98% of color and three members are female. Of the ten current membersAssociates worked injury-free in 2023. Additionally, as a byproduct of the Board of Directors, two of the directors are persons of colorCompany’s effort to protect its people, workers' compensation losses were reduced by 36% since 2021.
Associate Engagement and three of the directors are female.
Engagement
Training. The Company continually evaluates associatebelieves that engagement and viewseducation are key to ensuring the associated metrics as critical to the ability to attract and retain talent, contributing to many of the broader objectives of the Company.Company's Associates provide extraordinary performance. The results from annual associate engagement surveys are used to inform the Company’s priorities and provide valuable feedback on existing associate programs. During the last annualCompany conducted an associate engagement survey completed in September,2023 to solicit feedback on its human capital practices. The resulting survey action plans will be used as the basis to further associate engagement efforts in 2024. The Company provides company-wide training on Our Winning Recipe when new Associates join the Company achieved a 70% engagement rate, well above the industry average. The Company also launched a new corporate social media applicationand role-specific training to ensure operational excellence. Targeted leadership development programs are in the current year, SpartanNash Go, as a toolplace for high potential and high performing managers and directors. In addition, all Associates are encouraged to support engagement of associates across the organization. To-date, the Company’s adoptionparticipate in self-paced training curated to develop Associates in leadership and engagement of the tool has exceeded expectations.
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technical skill improvement.
Compensation and Benefits
. The Company’s total rewards programs are designed to provide compensation and benefits packages that will attract, retain, reward, and inspire its associatesAssociates to achieve a high level of performance, to challenge convention and turn problems into possibilities.performance. Overall compensation and benefits are periodicallyregularly reviewed to ensure that they remain competitive with respect to industry benchmarks. The Company’sWage investments are made to provide greater incentive programs are designedpay and to align the associate’s financial interests with that of shareholders and other stakeholders.recognize career development. In addition, new benefits have been offered to allow Associates tailored coverage levels. The Company's strategy is to ensure its compensation is competitive in the Company periodically sponsors recognitionmarket, equitable across levels and functions, aligned to skills and performance, and sustainable for the health of the Company.
The Compensation Committee of the Board of Directors has the full authority and responsibility to oversee and approve the Company's executive compensation initiatives for retailphilosophy and distribution associates working on the front lines. Thesecompensation and benefits policies and programs are designedof the Company. The Committee reviews and approves disclosures related to recognize the efforts of these workers for their commitment to serve customers and keep them safe during the COVID-19 pandemic, as well as to recognize their other outstanding achievements. Recently, the Company implemented a new human capital management system, which represents a key investment to provide resources related to compensationcontained in the Compensation Discussion and benefits to associates.Analysis section of the Company's proxy statement, annual report, and environmental, social and governance report, as applicable.
Environmental Matters
The Company may be responsible for remediation of environmental conditions and may be subject to associated liabilities relating to its stores, warehouses, and other buildings and the land on which they are situated (including responsibility and liability related to its operation of its fuel centers and truck garages and the storage of petroleum products in underground storage tanks). The Company believes that it currently conducts its operations, and in the past has conducted its operations, in substantial compliance with applicable environmental laws. Also, the Company typically conducts an environmental review prior to acquiring or leasing buildings or raw land. However, the Company cannot always control or predict what environmental conditions may be found to exist at its facilities, and future changes in regulations may result in liabilities to the Company or increases in the cost of doing business.
Regulation
The Company is subject to federal, state and local laws and regulations concerning the conduct of its business, including those pertaining to theits workforce and the purchase, handling, sale and transportation of its products. Many of the Company’s products are subject to federal Food and Drug Administration (“FDA”) and United States Department of Agriculture (“USDA)USDA”) regulation. The Company believes that it is in compliance, in all material respects, with the FDA, USDA and other federal, state and local laws and regulations governing its businesses.
Forward-Looking Statements
The matters discussed in this Item 1 include forward-looking statements. See “Forward-Looking Statements” at the beginning of this Annual Report on Form 10-K.
Available Information
SpartanNash’s web address is www.spartannash.com. The inclusion of the Company’s web address in this Form 10-K does not include or incorporate by reference the information on or accessible through the Company’s website, and the information contained on or accessible through those websites should not be considered as part of this Form 10-K. The Company makes its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other reports (and amendments to those reports) filed or furnished pursuant to Section 13(a) of the Securities Exchange Act of 1934 available on the Company’s website as soon as reasonably practicable after the Company electronically files or furnishes such materials with the SEC. Interested persons can view such materials without charge by clicking on “For Investors”“Investor Relations” and then “SEC Filings” on the Company’s website. SpartanNash is a “large accelerated filer” within the meaning of Rule 12b-2 under the Securities Exchange Act.
Item 1A. Risk Factors
The Company faces many risks. If any of the events or circumstances described in the following risk factors occur, the Company’s financial condition or results of operationsprofitability may suffer, and the trading price of the Company’s common stock could decline. We provide these risk factors for investors as permitted by and to obtain the rights and protections under the Private Securities Litigation Reform Act of 1995. It is not possible to predict or identify all such factors. Consequently, investors should not consider the following to be a complete discussion of all potential risks or uncertainties applicable to our business. This discussion of risk factors should be read in conjunction with the other information in this Annual Report on Form 10-K. All of these forward-looking statements are affected by the risk factors discussed in this item and this discussion of risk factors should be read in conjunction with the discussion of forward-looking statements, which appears at the beginning of this report.
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Business and Operational Risks
The Company operates in an extremely competitive industry. Manyindustry where many of the Company’s competitors are much larger and may be able to compete more effectively.
The grocery industry is highly competitive. The Company’s Food DistributionWholesale and Retail segments have many competitors, including regional and national grocery distributors, large chain stores that have integrated wholesale and retail operations, mass merchandisers, e-commerce providers, deep discount retailers, limited assortment stores and wholesale membership clubs. The Company’s Military segment faces competition from large national and regional food distributors and smaller distributors. Many of the Company’s competitors have greater resources than the Company.Company and may be able to compete more effectively. Additionally, rising headwinds including reduced consumer demand have further intensified the competitive environment.
Industry consolidation, alternative store formats, nontraditional competitors and e-commerce have contributed to market share losses for traditional grocery stores. The Company’s Food Distribution, MilitaryWholesale and Retail segments are primarily focused on traditional retail grocery trade, which faces competition from faster growing alternative retail channels, such as dollar stores, discount supermarket chains, Internet-based retailers and meal-delivery services. The Company expects these trends to continue. If the Company is not successful in effectively competing with these alternative channels, or growing sales into such channels, its business or financial results may be adversely impacted.
The Company faces competitive pressures from e-commerce activity, as consumers continue to adopt this format and do more of their shopping online. While the Company offers e-commerce services at many of its stores, some of its stores and many of its independent retailer customers do not. Other e-commerce providers may offer lower prices, superior online ordering or delivery service, or greater convenience than the Company. If the Company fails to compete successfully, it could face lower sales and may decide or be compelled to offer greater discounts to its customers, which could result in decreased profitability.
A significant portion of the Company’s sales are with major customers and the Company’s success is heavily dependent on retaining this business and on its customers’ ability to maintain and grow their business.
The Company depends heavily on its customer base which includes certain large and growing customers, and its success is dependent on its customers’ ability to maintain and grow their own business. During the current year, the Company has observed sales volume declines across its Wholesale distribution businesses, including to some of its major customers. To the extent that major customers decide to utilize alternative sources of products, whether through other distributors or self-distribution, or decide to discontinue offering certain products, the Company’s financial condition or profitability may be materially and adversely affected. Similarly, if major customers are not able to maintain or grow their business and honor the terms of its distribution agreements, the Company may be materially and adversely affected through a reduction in revenue and profitability.
Sales to one of the Company’s customers accounted for 16%, 16% and 17% of the Company’s net sales in 2023, 2022 and 2021, respectively. The Company’s ability to maintain a close, mutually beneficial relationship with major customers is an important determinant of the Company’s continued growth and profitability.
The Company may not be able to achieve its growth strategy through successful implementation of its transformation initiatives.
The Company’s long-term strategy includes a focus on revenue growth from new customers, market share gains, and continued expansion into value-add offerings, as well as driving incremental profitability through initiatives including supply chain transformation, merchandising transformation, changes to its go-to-market strategy, and other margin-enhancing innovations, including OwnBrands execution, automation, and retail execution.
The successful design and implementation of these initiatives may present significant challenges, many of which are beyond the Company's control. In addition, the initiatives may not advance the Company's business strategy as expected. Events and circumstances, such as financial or strategic difficulties, delays, and unexpected costs may occur that could result in the Company not realizing all or any of the anticipated benefits or not realizing the anticipated benefits within the expected timetable. If the Company is unable to realize the anticipated financial performance of the initiatives, its ability to fund other initiatives may be adversely affected. Any failure to implement the initiatives in accordance with expectations could adversely affect the Company's ability to achieve its long-term revenue and profitability targets.
In addition, the complexity of the initiatives requires a substantial amount of management and operational resources. The Company's management team must successfully implement operational changes necessary to achieve the anticipated benefits of the initiatives.
These and related demands on its resources may divert the Company's attention from existing core businesses and could also have adverse effects on existing business relationships with suppliers and customers. As a result, the Company's financial condition, profitability, or cash flows may be adversely affected.
The Company may not be able to achieve its strategy of growth through acquisitions, may encounter difficulties successfully integrating acquired businesses, and may not realize the anticipated benefits of business acquisitions.
The Company’s strategy includes growth through the acquisition of additional wholesale distribution and retail store operations. Given the recent consolidation activity, which has resulted in a limited number of potential acquisition targets within the food industry, the Company may not be able to identify suitable targets for acquisition or may be required to make acquisitions which do not achieve the desired level of profitability or sales. Additionally, future acquisitions of retail grocery stores could result in the Company competing with its independent retailer customers which could adversely affect existing business relationships with those customers. As a result, the Company may not be able to actively identify or pursue suitable acquisition targets in the future, complete acquisitions or obtain the necessary financing all of which may adversely affect the Company’s ability to grow profitably. Furthermore, if the Company fails to successfully integrate business acquisitions and realize planned synergies, the business may not perform to expectations. The integration of acquired businesses may also cause us to incur unforeseen costs which may prevent the Company from realizing the anticipated economic, operational, and other benefits and synergies timely and efficiently, all of which may negatively impact sales and long-term growth plans.
Disruptions to the Company’s information technology systems, including security breaches and cyber-attacks, could negatively affect the Company’s business.
Vulnerabilities within the security of the Company’s information technology (“IT”) applications could create risk for the Company. The Company utilizes IT systems to conduct operations and also receive, transmit, and store many types of sensitive information, including consumers’ personal information, personal health information, information belonging to customers, vendors, business partners, and other third parties, and the Company’s proprietary, confidential, or sensitive information. Cyber threats evolve rapidly and are becoming more sophisticated, which may defeat the security programs and disaster recovery facilities and procedures implemented by the Company. As a result, the Company faces risks of security breaches, theft, espionage, inadvertent release of information, and other technology-related disruptions. Associate error, faulty password management or other problems may compromise the security measures and result in a breach of the Company’s information systems, systems disruptions, data theft or other criminal activity. This could result in a loss of sales or profits or cause the Company to incur significant costs to restore its systems or to reimburse third parties for damages.
Availability and performance of the Company’s IT systems are vital to the Company’s business. Failure to successfully execute IT projects and have IT systems available to the business would adversely impact the Company’s operations.
The Company has a complex IT infrastructure that is vital to its business operations. The effectiveness of these applications is relevant in supporting management’s effective financial reporting and forecasting on a regular basis. Failures in the operating effectiveness of these applications could create risk for the Company. If the Company is unable to successfully modernize legacy systems in a coordinated manner across internal and external stakeholders, the Company could be subject to business interruption or reputational risk with its customers, suppliers or Associates. The failure of these systems could adversely impact the Company’s business plans and potentially impair the day-to-day business operations. In addition, the Company’s IT systems may be vulnerable to damage or interruption from circumstances beyond its control, including, power outages, computer and telecommunication failures, viruses, errors by Associates, and catastrophic events such as fires, earthquakes, tornados and hurricanes. Any debilitating failure of the Company’s critical IT systems, data centers and backup systems would require significant investments in resources to restore IT services and may cause serious impairment in the Company’s business operations including loss of business services, increased cost of moving merchandise and failure to provide service to its customers. Failure to modernize legacy systems efficiently and effectively could result in the loss of the Company’s competitive position and adversely impact its financial condition and results of operations.
Changes in relationships with the Company’s vendor base may adversely affect its business operations.
The Company sources the products it sells from a wide variety of vendors. The Company generally does not have long-term written contracts with its major suppliers that would require them to continue supplying merchandise. The Company depends on its vendors for appropriate allocation of merchandise, assortments of products, operation of vendor-focused shopping experiences within its stores, and funding for various forms of promotional allowances. Changes in relationships with suppliers could lead to decreased product availability, changes in the Company’s assortment, and decreased promotional funding, which could impact the Company’s product offering and prices offered to customers, and lead to reduced consumer demand decreasing both revenue and profitability.
Changes in product availability and product pricing from vendors may adversely impact the Company’s business operations and profitability.
The Company’s suppliers purchase agricultural products, including vegetables, oils and spices and seasonings, meat, poultry, packaging materials and other raw materials from growers, commodity processors, other food companies and packaging manufacturers. These products are subject to increases in price attributable to a number of factors, including changes in crop size, federal and state agricultural programs, export demand, currency exchange rates, energy and fuel costs, water supply, weather conditions during the growing and harvesting seasons, insects, plant diseases and fungi, and glass, metal and plastic prices. These increased prices, as well as other related expenses that they pass through to their customers, could result in higher costs for the products these vendors supply to the Company. Fluctuations in commodity prices can lead to retail price volatility and intensive price competition and can influence consumer buying patterns. The cost of labor, manufacturing, energy, fuel, packaging materials and other costs related to the production and distribution of the products the Company purchases from its vendors can from time to time increase significantly and unexpectedly. The Company has faced and could continue to face industry-wide cost inflation. To the extent it is unable to offset present and future cost increases, the Company's operating results could be materially and adversely affected.
Additionally, the Company faces vendor supply chain disruptions from labor availability, raw material shortages, and rising costs. These supply chain disruptions have placed and could continue to place constraints on the Company’s vendors resulting in reduced inbound fill rates and decreased product availability, which could negatively impact sales and profitability.
Changes in macroeconomic conditions may lead to reduced consumer demand and adversely affect the Company's performance.
Macroeconomic uncertainty, including rising inflation, potential economic recession, and increasing interest rates, among other negative macroeconomic conditions, could lead to reduced disposable income for the Company’s consumer base, resulting in less demand for the Company’s products and services. Reduced consumer demand could lead to lower sales and increased product shrink which could adversely affect the Company’s profitability and growth.
It may be difficult for the Company to attract and retain well-qualified Associates and effectively manage increased labor costs.
The Company has previously experienced, and may continue to experience, a shortage of qualified labor, particularly for retail store Associates, warehouse workers, and truck drivers. Such a shortage has caused upward pressure on wages. If the Company is unable to attract and retain quality Associates to meet its needs without significant changes to its compensation offering, the Company could be required to reduce staffing below optimal levels or rely more on higher-cost third-party providers, which could significantly reduce the Company’s profitability and growth.
The Company may not successfully retain or manage transitions with executive leaders and other key personnel.
The Company’s success depends upon the continued services of executive leaders and other key Associates, as well as its ability to effectively transition to their successors. The loss of such personnel may be disruptive to the Company, and if the Company is unable to execute an orderly transition and successfully integrate the new executives or personnel to successfully develop and implement strategic initiatives, the Company’s revenue, operating results and financial performance may be adversely affected. Any future changes to the executive leadership team, including hires or departures, could cause further disruption to the business and have a negative impact on operating performance, while these operational areas are in transition. The Company may not be able to timely find suitable successors to key roles as transitions occur or may not successfully integrate successors into its leadership team or the Company’s business operations. The Company’s inability to retain other key leaders or effectively transition to their successors, or any delay in filling any such critical positions, could harm its business and profitability.
The Company's business and reputation may be adversely impacted by the increasing focus on environmental, social and governance matters.
In recent years, there has been an increasing focus by various stakeholders on environmental, social and governance (“ESG”) matters. Implementation of ESG initiatives may have an adverse financial impact on the Company resulting from increased costs required to achieve desired results. Moreover, a partial or complete failure, whether real or perceived, to adequately address ESG priorities or to achieve progress on the Company's reported ESG initiatives, could adversely affect the Company’s reputation and negatively impact the Company’s financial and business operations. Conversely, taking a position, whether real or perceived, on ESG, public policy, geopolitical or similar matters could also adversely impact the reputation of the Company and its financial condition stemming from increased operational and product costs, reputational damage, and shareholder activism.
The Company may not successfully achieve its ESG-related goals, and any future investments that it makes in furtherance of achieving such goals may not produce the expected results or meet increasing stakeholder ESG expectations. Moreover, future events could lead the Company to prioritize other nearer-term interests over progressing toward current ESG-related goals based on business strategy, economic, regulatory, social or other factors. If the Company is unable to meet or properly report on the progress toward achieving the ESG-related goals, it could face adverse publicity and reactions from current or potential investors, activist groups or other stakeholders, which could result in reputational harm or other adverse effects to the Company.
Customers to whom the Company extends credit or for whom the Company guarantees loans may fail to repay the Company.
From time to time, the Company may advance funds, extend credit and lend money to certain independent retailers and guarantee loan obligations of certain customers. The Company seeks to obtain security interest and other credit support in connection with these arrangements, but the collateral may not be sufficient to cover the Company’s exposure. Greater than expected losses from existing or future credit extensions, loans, guarantee commitments or sublease arrangements could negatively and materially impact the Company’s operating results and financial condition.
Changes in geopolitical conditions may adversely affect the Company's operations.
Changes in geopolitical conditions, including known and/or developing conflicts, such as those in eastern Europe, the Middle East, and China, could continue to disrupt supply and logistics operations and impact global margins due to increased commodity, energy, and input costs, which could negatively impact the Company's profitability. To the extent these conflicts adversely affect the Company's business, it may also have the effect of heightening other risks disclosed in this document and could further materially and adversely affect the Company's financial condition and profitability.
Threats due to the occurrence of severe weather conditions, natural disasters or other unforeseen events, all of which could become more frequent and extreme due to climate change, could harm the Company’s business.
The Company’s business could be impacted by severe weather conditions, natural disasters, or other events, all of which could become more frequent and extreme due to climate change. These events could affect the warehouse and transportation infrastructure used by the Company and its vendors to supply the Company’s corporate owned retail stores, and Wholesale customers. Insurance programs may not fully cover losses, contingency plans adopted by the Company may fail, and the damage or destruction of Company facilities could compromise its ability to distribute products and generate sales and could increase energy costs needed to operate impacted facilities. Additionally, risks associated with climate change also include the increased use of operational resources associated with complying with any new climate-related legal or regulatory requirements, including mandated use of alternative energy sources such as renewable energy or reduction of greenhouse emissions, all of which could disrupt and adversely affect the business and profitability, financial position or cash flows. Furthermore, unseasonable weather conditions that impact growing conditions and the availability of food could lead to increased product costs to the Company or decreased inventories, which could result in reduced profitability and revenue.
Disease outbreaks and associated responses, may disrupt our business by increasing costs, negatively impacting our supply chain, driving change in consumer behavior, and having an adverse impact on the Company's operations.
Disease outbreaks, such as the COVID-19 pandemic or similar communicable diseases, and responses thereto could have an adverse impact on the Company's operationsaffect our industry and financial results.
In responseour business. Risks and uncertainties related to disease outbreaks, such as duration, concerns related to the COVID-19 pandemic, national, state,health and local authorities recommended social distancingsafety of our Associates and imposed quarantinerelated labor impacts, costs associated with changes in demand, adverse supply chain impacts and isolation measures on large portions of the population, including mandatory business closures. While these measures were designedimpacts to protect the overall public health, they had material adverse impacts on domestic and foreign economies and have resultedthird parties in the United States entering a period of recession.
Whilewhich the Company is an essential businessrelies, increased labor costs, and has seen significant increases in sales volume during the pandemic, its business may be negatively impacted by several factors associated with the pandemic and any future disease outbreak and the related effects on the retail grocery and wholesale distribution industries. The effects of the COVID-19 pandemic experienced by the Company have included, and may continue to include the following impacts, which may also be characteristic of future potential disease outbreaks:
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| Increased costs due to significant increases in customer traffic and demand for grocery products, and the corresponding inability to meet demand with the existing workforceincreased or other assets;
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| Failure of third parties on which the Company relies, including its customers, suppliers, contractors, commercial banks and other business partners to meet their obligations to the Company, which may be caused by their own financial or operational challenges;
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| Supply chain risks due to significantly increased demand, including the availability of warehouse and transportation personnel and service providers or the inability to procure adequate quantities of certain goods;
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| Reduced workforce or temporary store and distribution center closures associated with the presence of COVID-19 infections among the Company’s associates;
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| Increased costs relating to compliance with public health and safety requirements for the Company’s associates and customers, including the purchase of personal protective equipment, cleaning and sanitization of retail and distribution facilities and construction and remodeling costs related to maintaining effective social distancing barriers;
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| Inability to accurately forecast financial results due to the uncertainty associated with the short- and long-term effects on the U.S. economy, consumer behavior and the unknown duration of social distancing, quarantine or isolation measures or the lasting effects that may result after such mandates have been removed; or
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| Increased and accelerated competition, from alternative channels, including e-commerce retailers, due to a change in consumer behavior and continued social distancing.
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| Closure or access restrictions at retail stores or military commissaries, which limit the consumer’s access to the products the Company sells and distributes, which negatively impact sales volumes.
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Any of the foregoing factors, or other effects, of the pandemic that are not currently foreseeable, may materially increase costs, negatively impact sales and damage the Company’s financial condition, results of operations,profitability, cash flows and its liquidity position. The significance and duration of any such impacts are not possible to predict due to the overall uncertainty associated with COVID-19 and any future pandemic.
The private brand program for U.S. military commissaries may be terminated or not achieve the desired results.
In December 2016, DeCA,the Defense Commissary Agency (“DeCA”), which operates U.S. military commissaries worldwide, competitively awarded to the Company the contract to support and supply products for the Agency’s private brand product program. The current contract to provide DeCA with private branded products expires in December 2025. Private brand products had not previously been offered in the Agency’s commissaries. The Company has invested and willplans to continue to invest significant resources as it partners with DeCA to continue to expand this program. However, the program however there is no guarantee ofmay not be successful, may be discontinued or DeCA may suspend, terminate, shorten the scope or change certain terms and conditions in its success, thatagreement with SpartanNash which could have a significant adverse impact on the program will continue or that DeCA will continue to partner with SpartanNash. Company’s profitability.
The Company expects that DeCA will face significant competition in each product category from national brands that are familiar to consumers. If the Agency is unable to drive traffic and business at the commissaries by offering one-stop shopping for military customers through a combination of both national and private brand offerings, then both DeCA and the Company may be unable to achieve expected returns from this program, which could have a material adverse effect on the Company’s business.business and may negatively impact DeCA's willingness to continue the program. The success of the program will depend, in part, on factors beyond the Company’s control, including the unilateral actions of the Agency. While the current contract with DeCA expires in December 2021, the Company hopes to continue the relationship, although there cannot be a guarantee of renewal.
The Company may not be able to implement its strategy of growth through acquisitions or successfully integrate acquired businesses.DeCA.
Part of the Company’s growth strategy involves selected acquisitions of additional distribution operations, and to a lesser extent, retail grocery stores. Given the recent consolidation activity and limited number of potential acquisition targets within the food industry, the Company may not be able to identify suitable targets for acquisition and may make acquisitions which do not achieve the desired level of profitability or sales. Additionally, future acquisitions of retail grocery stores could result in the Company competing with its independent retailer customers and could adversely affect existing business relationships with those customers. As a result, the Company may not be able to identify suitable acquisition candidates in the future, complete acquisitions or obtain the necessary financing and this may adversely affect the Company’s ability to grow profitably. If the Company fails to successfully integrate business acquisitions and realize planned synergies, the business may not perform to expectations.
Substantial operating losses may occur if the customers to whom the Company extends credit or for whom the Company guarantees loans or lease obligations fail to repay the Company.
From time to time, the Company may advance funds, extend credit and lend money to certain independent retailers and guarantee loan or lease obligations of certain customers. The Company seeks to obtain security interest and other credit support in connection with these arrangements, but the collateral may not be sufficient to cover the Company’s exposure. Greater than expected losses from existing or future credit extensions, loans, guarantee commitments or sublease arrangements could negatively and materially impact the Company’s operating results and financial condition.
A significant portion of the Company’s sales are with major customers and the Company’s success may be dependent on retaining this business and its customers’ ability to grow their business.
The Company’s customer base includes certain large and growing customers. To the extent that major customers decide to utilize alternative sources of products, whether through other distributors or self-distribution, the Company’s financial condition or results of operations may be materially and adversely affected. Similarly, if major customers are not able to grow their business, the Company may be materially and adversely affected.
Sales to one of the Company’s customers accounted for more than 15% of the Company’s net sales in 2020, 2019 and 2018. The Company’s ability to maintain a close, mutually beneficial relationship with major customers is an important determinant of the Company’s continued growth.
Changes in relationships with the Company’s vendor base may adversely affect its business, margins, and profitability.
The Company sources the products it sells from a wide variety of vendors. The Company generally does not have long-term written contracts with its major suppliers that would require them to continue supplying merchandise. The Company depends on its vendors for appropriate allocation of merchandise, assortments of products, operation of vendor-focused shopping experiences within its stores, and funding for various forms of promotional allowances. There has been significant consolidation in the food industry, and this consolidation may continue to the Company’s commercial disadvantage. Such changes could have a material adverse impact on the Company’s revenues and profitability.
-12-
Disruptions to the Company’s information technology systems, including security breaches and cyber-attacks, could negatively affect the Company’s business.-12-
The Company has complex information technology (“IT”) systems that are important to its business operations. It also employs mobile devices, social networking and other online activities to connect with customers, associates, suppliers, and business partners. The Company receives, transmits, and stores many types of sensitive information, including consumers’ personal information, information belonging to vendors, business partners, and other third parties, and the Company’s proprietary, confidential, or sensitive information. As a result, the Company faces risks of security breaches, system disruption, theft, espionage, inadvertent release of information, and other technology-related disruptions. The Company could incur significant losses due to any such event.
Although the Company has implemented security programs and disaster recovery facilities and procedures, cyber threats evolve rapidly and are becoming more sophisticated. Despite the Company’s efforts to secure its information and systems, cyber attackers may defeat the security measures and compromise the personal information of consumers, vendors, business partners, associates and other sensitive information. Associate error, faulty password management or other problems may compromise the security measures and result in a breach of the Company’s information systems, systems disruptions, data theft or other criminal activity. This could result in a loss of sales or profits or cause the Company to incur significant costs to restore its systems or to reimburse third parties for damages.
Threats to security or the occurrence of severe weather conditions, natural disasters or other unforeseen events could harm the Company’s business.
The Company’s business could be severely impacted by severe weather conditions, natural disasters, or other events that could affect the warehouse and transportation infrastructure used by the Company and its vendors to supply the Company’s corporate owned retail stores, and Food Distribution and Military customers. While the Company believes it has adopted commercially reasonable precautions, insurance programs, and contingency plans; the damage or destruction of Company facilities could compromise its ability to distribute products and generate sales. Unseasonable weather conditions that impact growing conditions and the availability of food could also adversely affect sales, profits and asset values.
Impairment charges for goodwill or other long-lived assets could adversely affect the Company’s financial condition and results of operations.profitability.
The Company is required to perform an annual impairment test for goodwill and other long-lived tangible and intangible assets in the fourth quarter of each year, or more frequently if indicators are present or changes in circumstances suggest that impairment may exist. Testing goodwill and other 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 – for goodwill – the Company’s stock price and market capitalization. Changes in these factors, or changes in actual performance compared with estimates of the Company’s future performance, may affect the fair value of goodwill or other assets. This could result in the Company recording a non-cash impairment charge for goodwill or other intangiblelong-lived assets in the period the determination of impairment is made. The Company cannot accurately predict the amount or timing of potential impairments of assets. Should the value of goodwill or other assets become impaired, the Company’s financial conditionposition and results of operationsprofitability may be adversely affected.
The Company may not successfully manage the transition associated with its chief executive officer and other senior leaders.
The Company’s success depends upon the continued services of executive officers and other key personnel, as well as its ability to effectively transition to their successors. The Company appointed a new President and Chief Executive Officer in September 2020 This transition may be disruptive to the Company, and if it is unable to execute an orderly transition and successfully integrate its new CEO into the leadership team, revenue, operating results and financial condition may be adversely affected. In addition, the Company has recently experienced turnover in other key leadership roles. Any future changes to the executive management team, including hires or departures, could cause further disruption to the business and have a negative impact on operating performance, while these operational areas are in transition. The Company can provide no assurance that it will find suitable successors to key roles as transitions occur or that any identified successor will be successfully integrated into its management team. The Company’s inability to retain other key employees or effectively transition to their successors, or any delay in filling any such positions, could harm its business and results of operations.
It may be difficult for the Company to attract and retain well-qualified associates, which would adversely affect the Company’s profitability and growth.
Recent low levels of unemployment, increased unemployment compensation benefits, and the hesitation of potential workers to work on the frontline during the pandemic have caused upward pressure on wages. If the Company is unable to attract and retain quality associates to meet its needs, the Company could be required to increase its compensation offering, reduce staffing below optimal levels, or rely more on higher-cost third-party providers, which could adversely affect the Company’s profitability and growth.
-13-
Risks Related to the Company’s Indebtedness
The Company’s level of indebtedness could adversely affect its financial condition and its ability to raise additional capital or obtain financing in the future, respond to business opportunities, react to changes in its business, and make required payments on its debt.
As of January 2, 2021,December 30, 2023, the Company had outstanding indebtedness of $486.4$597.5 million (net of unamortized debt issuance costs), primarily related to its asset-based lending facility (the "Revolving Credit Facility"). Refer to Note 76 in the accompanying notes to the consolidated financial statements for further information. If the Company is not able to generate cash flow from operations sufficient to service its debt, it may need to refinance its debt, dispose of assets or issue equity to obtain necessary funds. The Company may not be able to take any of such actions on a timely basis, on satisfactory terms or at all.
Indebtedness could have importantsignificant consequences, including the following:
| • |
reduced ability to execute the Company’s growth strategy, including merger and acquisition opportunities; |
| •
| reduced ability to invest in the Company, which may place it at a competitive disadvantage;
|
| •
| increased vulnerability to adverse economic and industry conditions;
|
| •
| exposure to interest rate increases;
|
| •
| reduced cash flow available for other purposes;
|
| •
| limited ability to borrow additional funds for working capital, capital expenditures and other investments;
|
Covenants in its debt agreements restrict the Company’s operational flexibility.
The agreements governing the Revolving Credit Facility contain usualgrowth strategy, including merger and customary restrictive covenants relatingacquisition opportunities;
•reduced ability to the management and operation ofinvest in the Company, including restrictions on itswhich may place it at a competitive disadvantage;
•increased vulnerability to adverse economic and industry conditions;
•exposure to interest rate increases;
•reduced cash flow available for other purposes; or
•limited ability to borrow pay dividends, or consummateadditional funds for working capital, capital expenditures and other investments.
The Company’s level of indebtedness may further increase from time to time. Although the Company’s agreements governing indebtedness contain restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of significant qualifications and exceptions and, under certain transactions. Failure to complycircumstances, the amount of indebtedness, including secured debt, that could be incurred in compliance with these restrictions could be substantial. Incurring substantial additional indebtedness could further exacerbate the risks associated with the covenants in the Company’s debt agreements could result in alllevel of its indebtedness becoming immediately due and payable.indebtedness.
The Company is exposed to interest rate risk due to the variable rates on its indebtedness. Debtindebtedness, which may increase debt service obligations may increase if interest rates rise.
The Company’s borrowings under the Revolving Credit Facility bear interest at variable rates and expose it to interest rate risk. The Company may not be able to accurately predict changes in interest rates or mitigate their impact. If interest rates increase, debt service obligations on the variable rate indebtedness would increase even though the amount borrowed remains the same and the Company’s profitability would decrease. ABefore consideration of hedging instruments, a hypothetical 0.50% increase in rates applicable to borrowings under the Revolving Credit Facility as of January 2, 2021December 30, 2023 would increase interest expense related to such debt by approximately $2.2$2.6 million per year.
Covenants in its debt agreements restrict the Company’s operational flexibility.
The agreements governing the Revolving Credit Facility contain usual and customary restrictive covenants relating to the management and operation of the Company, including restrictions on its ability to borrow, pay dividends, or consummate certain transactions. These covenants may prevent the Company from taking actions that it believes would be in the best interest of the business and may make it difficult for the Company to successfully execute its business strategy and transformation initiatives or effectively compete with companies that are not similarly restricted. The Company may also incur future debt obligations that might subject it to additional restrictive and financial covenants that could affect financial and operational flexibility. The Company may not be granted waivers of or amendments to these agreements if for any reason it is unable to comply with them, or the Company may not be able to refinance its debt on acceptable terms or at all. In addition, failure to comply with the covenants in the Company’s debt agreements could result in all of its indebtedness becoming immediately due and payable.
Legal, Regulatory and Legislative Risks
Changes in government regulations may have a material adverse effect on financial results.
The Company operates in highly regulated environments. The products it distributes and sells through retail stores are subject to inspection and regulatory action by the United States Food and Drug Administration. Our warehouses and distribution centers are subject to inspection by the United States Department of Agriculture, the United States Department of Labor Occupational and Health Administration, and various state health and workplace safety authorities, and our logistics operations are subject to regulation by the United States Department of Transportation and the United States Federal Highway Administration. The Company is also subject to the international regulations of the European Union’s Import Control System for export shipments that are ultimately made to non-domestic commissaries. Moreover, as a federal contractor, the Company must develop and maintain Affirmative Action Programs under the Rehabilitation Act, as enforced by the Office of Federal Contract and Compliance Programs, which may cause the Company to incur significant reputational and monetary damages for alleged discrimination in employment practices. In addition, there are various other international, U.S. federal, state and local laws, regulations and administrative practices to which the Company is subject, which require us to comply with numerous provisions regulating areas such as environmental, health and sanitation standards, food safety, marketing of natural or organically produced food, facilities, pharmacies, equal employment opportunity, public accessibility, employee benefits, wages and hours worked and licensing for the sale of food, drugs, tobacco and alcoholic beverages, among others. Changes in federal, state or local minimum wages and overtime laws, federal tax laws, or employee paid leave laws could result in the Company incurring significant labor costs which could have material adverse effects on the Company’s financial position and profitability. The Company employs hourly Associates who are compensated at an hourly rate lower than $15.00. If minimum wage rates increase, the Company would have to increase the wages of Associates who fall below the new minimum and may need to increase the wages of Associates in close proximity above the new minimum to address wage compression. In addition, changes in federal tax regulations may result in significant increases in the Company’s current and deferred tax liabilities, and may include changes in federal tax rates and the deductibility of certain costs.Failure to comply with existing or new laws or regulations could result in significant damages, penalties and/or litigation costs for the Company.
A number of the Company’s Associates are covered by collective bargaining agreements, and unions may attempt to organize additional Associates.
Approximately 7% of the Company’s Associates are covered by collective bargaining agreements (“CBAs”) which expire between January 2025 and February 2027. The Company expects that rising healthcare, pension and other employee benefit costs, among other issues, will continue to be important topics of negotiation with the labor unions. Upon the expiration of the Company’s CBAs, work stoppages by the affected workers could occur if the Company is unable to negotiate an acceptable contract with the labor unions. This could significantly disrupt the Company’s operations.
Further, if the Company is unable to control healthcare and pension costs provided for in the CBAs, the Company may experience increased operating costs and an adverse impact on future profitability.
The Company may continue to see additional union organizing campaigns. The potential for unionization could increase as any new related legislation or regulations are passed. The Company respects its Associates’ right to unionize or not to unionize. However, the unionization of a significant portion of the Company’s workforce could increase the Company’s overall costs at the affected locations and adversely affect its flexibility to run its business in the most efficient manner to remain competitive or acquire new businesses and could adversely affect its profitability by increasing its labor costs or otherwise restricting its ability to maximize the efficiency of its operations.
The Company’s MilitaryWholesale segment is dependent upon domestic and international military operations. A change in the military commissary system, including its supply chain, or a change in the level of governmental funding, could negatively impact the Company’s results of operations and financial condition.business.
Because the Company’s MilitaryWholesale segment sells and distributes grocery products to military commissaries and exchanges in the United States and overseas, any material changes in the commissary system, the level of governmental funding to DeCA, military staffing levels, or locations of bases, or DeCA’s supply chain may have a corresponding impact on the sales and operating performance of this segment. These changes could include privatization of some or all of the military commissary system, relocation or consolidation of commissaries and exchanges, base closings, troop redeployments or consolidations in the geographic areas containing commissaries and exchanges served by the Company, a change by DeCA to a self-distribution model, or a reduction in the number of persons having access to the commissaries and exchanges. Mandated reductions in the government expenditures, including those imposed as a result of a sequestration, may impact the level of funding to DeCA and could have a material impact on the Company’s operations. If DeCA were to make material changes to its supply chain model, for example by limiting distribution authorization, then the Company’s MilitaryWholesale segment could be affected.
Product recalls or other safety concerns regarding the Company’s products could harm the Company’s business.reputation as well as increase its costs.
The Company faces risks related to the safety of the food products that it distributes or sells. It may need to recall such products for actual or alleged contamination, adulteration, mislabeling, or other safety concerns. The Company distributes fresh fruits and vegetables, as well as other fresh prepared foods.These products, and other food products that the Company sells, are at risk of contamination by disease-causing organisms such as Salmonella, E. coli, and others. These pathogens are generally found in nature, and as a result, there is a risk that they could be present in the products distributed or sold by the Company. The Company typically has little control over proper food handling before the Company’s receipt of the product or once the product has been delivered to the Company's retail customers. Recall costs can be material. A widespread product recall could result in significant losses due to the administrative costs of a recall, the destruction of inventory, and lost sales. Recalls and other food safety concerns can also result in adverse publicity, damage to the Company’s reputation, and a loss of confidence in the safety and quality of its products. Customers may avoid purchasing certain products from the Company, or tomay seek alternative sources of supply for some or all of their food needs, even if the basis for concern is outside of the Company’s control. Any loss of confidence on the part of the Company’s customers would be difficult and costly to overcome. Any real or perceived issue regarding the safety of any food or drug items sold by the Company, regardless of the cause, could have a substantial and adverse effect on the Company’s business.
A number of the Company’s associates are covered by collective bargaining agreements, and unions may attempt to organize additional associates.
Approximately 7% of the Company’s associates are covered by collective bargaining agreements (“CBAs”) which expire between March 2021 and October 2022. The Company expects that rising healthcare, pension and other employee benefit costs, among other issues, will continue to be important topics of negotiation with the labor unions. Upon the expiration of the Company’s CBAs, work stoppages by the affected workers could occur if the Company is unable to negotiate an acceptable contract with the labor unions. This could significantly disrupt the Company’s operations.
Further, if the Company is unable to control healthcare and pension costs provided for in the CBAs, the Company may experience increased operating costs and an adverse impact on future results of operations.
While the Company believes that relations with its associates are good, the Company may continue to see additional union organizing campaigns. The potential for unionization could increase as any new related legislation or regulations are passed. The Company respects its associates’ right to unionize or not to unionize. However, the unionization of a significant portion of the Company’s workforce could increase the Company’s overall costs at the affected locations and adversely affect its flexibility to run its business in the most efficient manner to remain competitive or acquire new businesses and could adversely affect its results of operations by increasing its labor costs or otherwise restricting its ability to maximize the efficiency of its operations.
Costs related to multi-employer pension plans and other postretirement plans could increase.
The Company contributes to the Central States Southeast and Southwest Pension Fund (the “Central States Plan” or the “Plan”), a multi-employer pension plan, based on obligations arising from its CBAs with Teamsters locals 406 and 908. SpartanNash does not administer or control this Plan, and the Company has relatively littledoes not have control over the level of contributions the Company is required to make. Currently, the Central States Plan is underfunded and in critical and declining status, and as a result, contributions are scheduled to increase. The Company expects that contributions to this Plan will be subject to further increases. Benefit levels and related issues willmay continue to create collective bargaining challenges. The amount of any increase or decrease in its required contributions to this Plan will depend upon the outcome of collective bargaining, the actions taken by the trustees who manage the Plan, governmental regulations, actual return on investment of Plan assets, the continued viability and contributions of other contributing employers, and the potential payment of withdrawal liability should the Company choose to exit a geographic area, among other factors.
Changes in government regulations may have a material adverse effect on our financial results.
Changes in government regulation, including changes in the minimum wages or federal tax laws Costs related to multi-employer pension plans could have material adverse effects onincrease and adversely affect the Company’s financial results. The new presidential administration may propose regulations that will have a negative impact on the profitabilityconditions and results of the Company, including new tax legislation and minimum wage requirements. The Company employs a significant number of hourly associates who are compensated at an hourly rate lower than $15.00. If minimum wage rates increase, the Company will haveoperation.
Refer to increase the wages of employees who fall below the new minimum and may need to increase the wages of employees in close proximity above the new minimum to address wage compression. In addition, changes in federal tax regulations may result in significant increasesNote 9 in the Company’s current and deferred tax liabilities, and may include changes in federal tax rates andaccompanying notes to the deductibility of certain costs.consolidated financial statements for further information.
Item 1B. Unresolved Staff Comments
None.
Item 1C. Cybersecurity
Management's Role
The Information Security function is led by the Chief Information Security Officer (CISO), under the direction of the Chief Information Officer (CIO). The Company’s CISO, who was appointed in August 2021, has over 20 years of experience within information security and is both a Certified Information Security Manager and a Certified Information Systems Auditor. Key responsibilities of the Information Security function include developing cybersecurity strategies; managing cybersecurity governance; performing cybersecurity risk assessments; ensuring compliance with security standards and regulatory requirements; managing identity and access; monitoring cybersecurity threats; validating cybersecurity alerts; preparing for and responding to cybersecurity incidents; business continuity and disaster recovery plans; and creating security awareness through periodic trainings of both Company leadership and Associates. The CIO, CISO and the Company’s Chief Legal Officer, who also serves as the Chief Compliance Officer, have oversight responsibilities of the Company’s cybersecurity program.
Board Oversight
The Company’s Board of Directors (Board) has appointed the Audit Committee to assist the Board in fulfilling its responsibilities with respect to the oversight of cybersecurity, data security, privacy programs, and the Company’s response to security breaches. Two Company Directors serving on the Audit Committee completed the National Association of Corporate Directors/Carnegie Mellon CERT cyber-risk oversight program along with required examinations and earned the CERT designation. The CISO provides quarterly updates to the Audit Committee, which include a current evaluation of the Company’s maturity within the National Institute of Standards and Technology (NIST) framework, including assessments against key performance indicators, updates on internal phishing campaigns, tabletop exercises conducted at various levels of the organization, and management training. The Audit Committee also reviews reports and recommendations from third parties periodically engaged by the Company to assess the cybersecurity control environment.In addition, the Company’s internal audit function periodically audits elements of the security program and reports its observations to the CISO and the Audit Committee.
Risk Management and Strategy
As a component of the Company’s overall risk management process, which is aligned with a broader Enterprise Risk Management framework, the Company has implemented a multi-layered approach to minimize cybersecurity risk and safeguard its data. The Company conducts cybersecurity risk assessments on a regular basis and responds to identified risk exposures by employing a combination of risk mitigation strategies, including the adoption of cybersecurity controls and maintaining a cybersecurity insurance policy that provides coverage for security breaches. The Company engages third party consultants periodically to evaluate elements of the cybersecurity policy, processes, procedures and controls. The CISO and other members of the Executive Leadership Team respond to applicable recommendations arising from the third-party consultants. In addition, the Company engages a Qualified Security Assessor as part of the compliance requirements for Payment Card Industry (PCI). The Company also engages with a third-party risk management provider to ensure its vendors comply with internal security and privacy requirements and that key vendors are continually monitored for security risks. The Company’s cybersecurity governance practices are based on the Company’s common control framework which incorporates elements from the NIST Cybersecurity Framework, the Center for Internet Security’s benchmark standards, and specific regulatory and industry requirements including Health Insurance Portability and Accountability Act and PCI. The CISO provides at least quarterly updates on the cybersecurity program, including the results of the cybersecurity risk assessments and the related responses, to the Company’s Security Governance Council composed of members of the Executive Leadership Team. The Company continually monitors cybersecurity threats and has a dedicated cybersecurity team in place to identify if any of the threats may lead to a cybersecurity incident. In the event of such an incident, the Company will take decisive measures to thoroughly analyze, contain, and eliminate the threat. Following an incident, a comprehensive review is performed to determine whether the incident meets qualitative or quantitative materiality thresholds, and whether the incident warrants public disclosure.
Effect of Cybersecurity Threats
As of the effective date of this filing, the Company is currently not aware of any known or potential cybersecurity threats that are reasonably likely to materially affect the Company’s business strategy, results of operations, or financial conditions. Although the Company believes it has implemented sufficient security measures to protect against cyber-attacks, unknown cyber incidents could materially disrupt the Company’s operations or compromise sensitive information.
Item 2. Properties
The following table lists the locations and approximate square footage of the Company’s distribution centers used by its Food Distribution and Military segmentsthe Company's Wholesale segment as of January 2, 2021.December 30, 2023. The lease expiration dates for the distribution centers primarily servicing the Food DistributionWholesale segment range from February 20222025 to December 2031, and for the Military segment range from July 2023 to November 2029.2031. The majority of these leases contain renewal options beyond these dates, if exercised.
| | | | | | | | | | | | |
Distribution Centers | |
| | Square Footage | |
Location | | Leased | | | Owned | | | Total | |
Grand Rapids, Michigan | | | — | | | | 1,179,582 | | | | 1,179,582 | |
Norfolk, Virginia | | | 188,093 | | | | 545,073 | | | | 733,166 | |
Omaha, Nebraska | | | 4,384 | | | | 686,783 | | | | 691,167 | |
Bellefontaine, Ohio | | | — | | | | 666,045 | | | | 666,045 | |
Oklahoma City, Oklahoma | | | — | | | | 608,543 | | | | 608,543 | |
Lima, Ohio | | | — | | | | 517,552 | | | | 517,552 | |
Columbus, Georgia (a) | | | 478,702 | | | | — | | | | 478,702 | |
Bloomington, Indiana | | | — | | | | 471,277 | | | | 471,277 | |
San Antonio, Texas | | | — | | | | 461,544 | | | | 461,544 | |
Fargo, North Dakota | | | 158,135 | | | | 288,824 | | | | 446,959 | |
Lumberton, North Carolina | | | 386,129 | | | | — | | | | 386,129 | |
Landover, Maryland | | | 368,088 | | | | — | | | | 368,088 | |
Severn, Maryland | | | 363,872 | | | | — | | | | 363,872 | |
Pensacola, Florida | | | — | | | | 355,900 | | | | 355,900 | |
St. Cloud, Minnesota | | | — | | | | 329,046 | | | | 329,046 | |
Sioux Falls, South Dakota | | | 79,300 | | | | 196,114 | | | | 275,414 | |
Menominee, Michigan | | | — | | | | 253,021 | | | | 253,021 | |
Bluefield, Virginia | | | — | | | | 187,531 | | | | 187,531 | |
Indianapolis, Indiana | | | — | | | | 118,497 | | | | 118,497 | |
Total Square Footage | | | 2,026,703 | | | | 6,865,332 | | | | 8,892,035 | |
(a)The Company believes that these facilities are generally well maintained and in good operating condition, have sufficient capacity, and are suitable and adequateColumbus location requires periodic lease payments to carry on its business for boththe holder of these segments. Subsequent to January 2, 2021,the outstanding industrial revenue bond, which is held by the Company. Upon expiration of the lease terms, the Company commenced operations in a leased distribution center in Severn, Maryland. The distribution center is 287,502 square feet, includeswill take title to the option for further expansion, and servicesproperty upon redemption of the Food Distribution segment.bond.
Distribution Centers | |
| | Square Footage | |
Location | | Leased | | | Owned | | | Total | |
Grand Rapids, Michigan (a) | | | — | | | | 1,179,582 | | | | 1,179,582 | |
Norfolk, Virginia (b) | | | 188,093 | | | | 545,073 | | | | 733,166 | |
Omaha, Nebraska (a) | | | 4,384 | | | | 686,783 | | | | 691,167 | |
Bellefontaine, Ohio (a) | | | — | | | | 666,045 | | | | 666,045 | |
Oklahoma City, Oklahoma (b) | | | — | | | | 608,543 | | | | 608,543 | |
Lima, Ohio (a) | | | — | | | | 517,552 | | | | 517,552 | |
Columbus, Georgia (c) | | | 478,702 | | | | — | | | | 478,702 | |
Bloomington, Indiana (b) | | | — | | | | 471,277 | | | | 471,277 | |
San Antonio, Texas (c) | | | — | | | | 461,544 | | | | 461,544 | |
Lumberton, North Carolina (a) | | | 386,129 | | | | — | | | | 386,129 | |
St. Cloud, Minnesota (a) | | | 40,319 | | | | 329,046 | | | | 369,365 | |
Landover, Maryland (b) | | | 368,088 | | | | — | | | | 368,088 | |
Fargo, North Dakota (a) | | | 74,000 | | | | 288,824 | | | | 362,824 | |
Pensacola, Florida (b) | | | — | | | | 355,900 | | | | 355,900 | |
Sioux Falls, South Dakota (a) | | | 79,300 | | | | 196,114 | | | | 275,414 | |
Bluefield, Virginia (a) | | | — | | | | 187,531 | | | | 187,531 | |
Indianapolis, Indiana (a) | | | — | | | | 124,820 | | | | 124,820 | |
Newcomerstown, Ohio (a) | | | — | | | | 92,435 | | | | 92,435 | |
Lakeland, Florida (a) | | | — | | | | 42,125 | | | | 42,125 | |
Total Square Footage | | | 1,619,015 | | | | 6,753,194 | | | | 8,372,209 | |
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(a)
| Distribution center services the Food Distribution segment.
|
(b)
| Distribution center services the Military segment.
|
(c)
| Distribution center services both the Food Distribution and Military segments. Based on utilization estimates at January 2, 2021, the Food Distribution segment utilizes 36,000 square feet and 118,000 square feet at the San Antonio and Columbus distribution centers, respectively. The Columbus location requires periodic lease payments to the holder of the outstanding industrial revenue bond, which is held by the Company. Upon expiration of the lease terms, the Company will take title to the property upon redemption of the bond.
|
-16-
The following table lists the Company’s retail stores, including the adjacent fuel centers of the related stores, by retail banner, number of stores, location and approximate square footage under each banner as of January 2, 2021.December 30, 2023.
| Retail Segment | Retail Segment | | Retail Segment | |
| | | | Leased | | | Owned | | | Total | | | Leased | | | Owned | | | Total | |
| | | | Number | | | Square | | | Number | | | Square | | | Number | | Square | | | | | Number | | | Square | | | Number | | | Square | | | Number | | Square | |
Grocery Store Retail Banner | | Location | | of Stores | | | Feet | | | of Stores | | | Feet | | | of Stores | | Feet | | | Location | | of Stores | | | Feet | | | of Stores | | | Feet | | | of Stores | | Feet | |
Family Fare | | Michigan, Minnesota, Nebraska, North Dakota, South Dakota, Iowa, Wisconsin | | 77 | | | | 3,301,198 | | | 10 | | | | 483,952 | | | 87 | | | 3,785,150 | | | Michigan, Minnesota, Nebraska, North Dakota, South Dakota, Iowa, Wisconsin | | 82 | | | | 3,548,492 | | | 13 | | | | 512,961 | | | 95 | | | 4,061,453 | |
Martin's Super Markets | | Indiana, Michigan | | 12 | | | | 718,219 | | | 9 | | | | 461,727 | | | 21 | | | 1,179,946 | | | Indiana, Michigan | | 11 | | | | 660,228 | | | 9 | | | | 461,727 | | | 20 | | | 1,121,955 | |
D&W Fresh Market | | Michigan | | 8 | | | | 393,429 | | | 2 | | | | 84,458 | | | 10 | | | 477,887 | | | Michigan | | 8 | | | | 393,586 | | | 2 | | | | 84,458 | | | 10 | | | 478,044 | |
VG’s Grocery | | Michigan | | 8 | | | | 363,117 | | | 1 | | | | 37,223 | | | 9 | | | 400,340 | | | Michigan | | 8 | | | | 363,117 | | | 1 | | | | 38,012 | | | 9 | | | 401,129 | |
Dan's Supermarket | | North Dakota | | 5 | | | | 264,077 | | | | — | | | | — | | | 5 | | | 264,077 | |
Family Fresh Market | | Minnesota, Nebraska, Wisconsin | | | — | | | | — | | | 4 | | | | 192,151 | | | 4 | | | 192,151 | | | Minnesota, Nebraska, Wisconsin | | | — | | | | — | | | 3 | | | | 173,740 | | | 3 | | | 173,740 | |
Sun Mart Foods | | Nebraska | | 1 | | | | 31,733 | | | 4 | | | | 93,824 | | | 5 | | | 125,557 | |
Supermercado Nuestra Familia | | Nebraska | | 1 | | | | 22,540 | | | 2 | | | | 83,279 | | | 3 | | | 105,819 | | | Nebraska | | 1 | | | | 22,540 | | | 2 | | | | 83,279 | | | 3 | | | 105,819 | |
Valu Land | | Michigan | | 3 | | | | 70,423 | | | | — | | | | — | | | 3 | | | 70,423 | |
Forest Hills Foods | | Michigan | | 2 | | | | 65,209 | | | | — | | | | — | | | 2 | | | 65,209 | | | Michigan | | 2 | | | | 65,209 | | | | — | | | | — | | | 2 | | | 65,209 | |
No Frills Supermarkets | | Iowa, Nebraska | | 3 | | | | 61,060 | | | | — | | | | — | | | 3 | | | 61,060 | |
Pick ‘n Save | | Ohio | | 1 | | | | 45,608 | | | | — | | | | — | | | 1 | | | 45,608 | |
Dillonvale IGA | | Ohio | | 1 | | | | 25,627 | | | | — | | | | — | | | 1 | | | 25,627 | | | Ohio | | 1 | | | | 25,627 | | | | — | | | | — | | | 1 | | | 25,627 | |
Fresh City Market | | Wisconsin | | 1 | | | | 21,470 | | | | — | | | | — | | | 1 | | | 21,470 | | | Wisconsin | | 1 | | | | 21,470 | | | | — | | | | — | | | 1 | | | 21,470 | |
Econofoods | | Wisconsin | | | — | | | | — | | | 1 | | | | 16,563 | | | 1 | | | 16,563 | |
Total | | | | 123 | | | | 5,383,710 | | | 33 | | | | 1,453,177 | | | 156 | | | 6,836,887 | | | 114 | | | | 5,100,269 | | | 30 | | | | 1,354,177 | | | 144 | | | 6,454,446 | |
The Company also owns one fuel center that is not reflected in the retail square footage above, a Family Fare Quick Stop in Michigan that is not included with a corporate owned retail store but is adjacent to the Company’s corporate headquarters. Also not reflected in the retail square footage above is one stand-alone pharmacyare three pharmacies not associated with corporate-owned retail locations, located in Clear Lake, Iowa, Michigan, and Wisconsin as well as certain properties used to facilitate the stock and transfer of goods between retail stores.
The Company’s headquarters is located in Grand Rapids, Michigan. The Company maintains offices in multiple states consisting of approximately 317,000224,000 square feet in Company-owned buildings and 49,00024,000 square feet in leased facilities. The Company also leases two additional off-site storage facilities consisting of approximately 50,000 square feet. The Company owns and leases to independent retailers teneight stores totaling approximately 440,000372,000 square feet and owns and leases to third parties one warehouse of approximately 400,000422,000 square feet and office space totaling 109,000 square feet.
The Company believes that its properties are generally well maintained and in good operating condition, have sufficient capacity, and are suitable and adequate to carry on its business as currently conducted.
Item 3. Legal Proceedings
From time-to-time, the Company is engaged 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. Additionally, various lawsuits and claims, arising in the ordinary course of business, are pending or have been asserted against the Company. While the ultimate effect of such actions, lawsuits and claims cannot be predicted with certainty, management believes that their outcome will not result in a material adverse effect on the Company’s consolidated financial position, operating results or liquidity. Legal proceedings, various lawsuits, claims, and other matters are more fully described in Note 9, in the notes to consolidated financial statements, which is herein incorporated by reference.
Item 4. Mine Safety DisclosureDisclosures
Not Applicable.
PART II
Item 5. Market for Registrant’s Common Equity, and Related Stockholder Matters and Issuer Purchases of Equity Securities
SpartanNash common stock is traded on the NASDAQNasdaq Global Select Market under the trading symbol “SPTN.”
Stock sale prices are based on transactions reported on the NASDAQ Global Select Market.
At March 2, 2021,As of February 26, 2024, there were approximately 1,3001,200 shareholders of record of SpartanNash common stock.
During the fourth quarter of 2017,On February 24, 2022, the Board of Directors authorized the repurchase of common shares in connection with a $50.0$50 million share repurchase program, expiring in 2022. At January 2, 2021, $35.0which expires on February 22, 2027. As of December 30, 2023, $25.4 million remains available for share repurchases under the program. The Company plans to return value to shareholders through share repurchases under this program as well as continuing regular dividends.
In 20202023, 2022, and 2018,2021 the Company repurchased 860,752765,194, 1,046,538, and 952,108265,000 shares of common stock for approximately $10.0$18.6 million, $32.5 million and $20.0$5.3 million, respectively. The Company did not repurchase
Repurchases of common stock in 2019.
The following table provides information regarding SpartanNash’s purchases of its own common stock during the 13-week period ended January 2, 2021. 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)includes 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 2020, all employee transactions related to shares submitted for cancellation to satisfy tax withholding obligations that occur upon vestingThe following table provides information regarding SpartanNash's purchases of its own common stock during the restricted shares.12-week period ended December 30, 2023.
| | | | | | | | | | | | | | | | | |
Fiscal Period | Total Number of Shares Purchased | | | Average Price Paid per Share | | | Total Number of Shares Purchased as Part of Publicly Announced Programs | | | Maximum Dollar Value of Shares Yet to be Purchased Under the Plans or Programs
(in thousands) | |
October 8 - November 4, 2023 | | | | | | | | | | | | | |
Employee Transactions | | — | | | $ | | — | | | N/A | | | | N/A | |
Repurchase Program | | — | | | $ | | — | | | | — | | | $ | | 25,399 | |
November 5 - December 2, 2023 | | | | | | | | | | | | | |
Employee Transactions | | 118 | | | $ | | 21.50 | | | N/A | | | | N/A | |
Repurchase Program | | — | | | $ | | — | | | | — | | | $ | | 25,399 | |
December 3 - December 30, 2023 | | | | | | | | | | | | | |
Employee Transactions | | — | | | $ | | — | | | N/A | | | | N/A | |
Repurchase Program | | — | | | $ | | — | | | | — | | | $ | | 25,399 | |
Total for quarter ended December 30, 2023 | | | | | | | | | | | | | |
Employee Transactions | | 118 | | | $ | | 21.50 | | | N/A | | | | N/A | |
Repurchase Program | | — | | | $ | | — | | | | — | | | $ | | 25,399 | |
| | | | | Average | |
| Total Number | | | Price Paid | |
Fiscal Period | of Shares Purchased | | | per Share | |
October 4 - October 31, 2020 | | | | | | | | |
Employee Transactions | | 11,599 | | | $ | | 21.19 | |
Repurchase Program | | — | | | $ | | — | |
November 1 - November 28, 2020 | | | | | | | | |
Employee Transactions | | — | | | $ | | — | |
Repurchase Program | | — | | | $ | | — | |
November 29 - January 2, 2021 | | | | | | | | |
Employee Transactions | | — | | | $ | | — | |
Repurchase Program | | — | | | $ | | — | |
Total for quarter ended January 2, 2021 | | | | | | | | |
Employee Transactions | | 11,599 | | | $ | | 21.19 | |
Repurchase Program | | — | | | $ | | — | |
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The equity compensation plans table in Part III, Item 12 of this report is herein incorporated by reference.
Performance Graph
Set forth below is a graph comparing the cumulative total shareholder return on SpartanNash common stock to that of the Russell 2000 Total ReturnS&P SmallCap 600 Food Distributors Index and the NASDAQ Retail TradeS&P SmallCap 600 Index, over a period beginning January 2, 2016December 29, 2018 and ending on January 2, 2021.December 30, 2023.
Cumulative total return is measured by the sum of (1) the cumulative amount of dividends for the measurement period, assuming dividend reinvestment, and (2) the difference between the share price at the end and the beginning of the measurement period, divided by the share price at the beginning of the measurement period.
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The dollar values for total shareholder return plotted above are shown in the table below:
| January 2, | | | December 31, | | | December 30, | | | December 29, | | | December 28, | | | January 2, | |
| 2016 | | | 2016 | | | 2017 | | | 2018 | | | 2019 | | | 2021 | |
SpartanNash | $ | | 100.00 | | | $ | | 186.30 | | | $ | | 128.79 | | | $ | | 84.51 | | | $ | | 74.79 | | | $ | | 96.83 | |
Russell 2000 Total Return Index | | | 100.00 | | | | | 121.31 | | | | | 139.08 | | | | | 122.77 | | | | | 155.31 | | | | | 186.36 | |
NASDAQ Retail Trade | | | 100.00 | | | | | 101.15 | | | | | 107.60 | | | | | 107.16 | | | | | 129.87 | | | | | 154.18 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 29, | | | December 28, | | | January 2, | | | January 1, | | | December 31, | | | December 30, | |
| 2018 | | | 2019 | | | 2021 | | | 2022 | | | 2022 | | | 2023 | |
SpartanNash | $ | | 100.00 | | | $ | | 88.50 | | | $ | | 114.57 | | | $ | | 175.92 | | | $ | | 212.19 | | | $ | | 167.22 | |
S&P SmallCap 600 | | | 100.00 | | | | | 123.12 | | | | | 137.42 | | | | | 174.27 | | | | | 146.22 | | | | | 169.69 | |
S&P SmallCap 600 Food Distributors | | | 100.00 | | | | | 95.27 | | | | | 106.22 | | | | | 205.33 | | | | | 188.73 | | | | | 156.41 | |
The information set forth under the Heading “Performance Graph” shall not be deemed to be “soliciting material” or to be “filed” with the Commission or subject to Regulation 14A or 14C, or to the liabilities of Section 18 of the Exchange Act, except to the extent that the registrant specifically requests that such information be treated as soliciting material or specifically incorporates it by reference into a filing under the Securities Act or the Exchange Act.
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Item 6. Selected Financial DataReserved
The following table provides selected historical consolidated financial information of SpartanNash for each of the five years ended December 31, 2016 through January 2, 2021.
| Year Ended | |
| 2020 | | | 2019 | | | 2018 | | | 2017 | | | 2016 | |
(In thousands, except per share data) | (53 Weeks) | | | (52 Weeks) | | | (52 Weeks) | | | (52 Weeks) | | | (52 Weeks) | |
Statements of Operations Data: | | | | | | | | | | | | | | | | | | | | | | | | |
Net sales (a) | $ | | 9,348,485 | | | $ | | 8,536,065 | | | $ | | 8,064,552 | | | $ | | 7,963,799 | | | $ | | 7,561,084 | |
Gross profit | | | 1,424,965 | | | | | 1,243,830 | | | | | 1,110,406 | | | | | 1,144,909 | | | | | 1,111,494 | |
Selling, general and administrative expenses (b) | | | 1,297,740 | | | | | 1,172,401 | | | | | 997,411 | | | | | 1,015,024 | | | | | 963,235 | |
Merger/acquisition and integration | | | 421 | | | | | 1,437 | | | | | 4,937 | | | | | 8,101 | | | | | 6,959 | |
Restructuring, goodwill/asset impairment and other charges (c) | | | 24,398 | | | | | 13,050 | | | | | 37,546 | | | | | 228,459 | | | | | 32,116 | |
Operating earnings (loss) | | | 102,406 | | | | | 56,942 | | | | | 70,512 | | | | | (106,675 | ) | | | | 109,184 | |
Earnings (loss) before income taxes and discontinued operations | | | 85,364 | | | | | 3,575 | | | | | 40,698 | | | | | (131,644 | ) | | | | 89,963 | |
Income tax expense (benefit) (d) | | | 9,450 | | | | | (2,342 | ) | | | | 6,907 | | | | | (79,027 | ) | | | | 32,907 | |
Earnings (loss) from continuing operations | $ | | 75,914 | | | $ | | 5,917 | | | $ | | 33,791 | | | $ | | (52,617 | ) | | $ | | 57,056 | |
Diluted earnings (loss) from continuing operations per share | | | 2.12 | | | | | 0.16 | | | | | 0.94 | | | | | (1.41 | ) | | | | 1.52 | |
Cash dividends declared per share | | | 0.77 | | | | | 0.76 | | | | | 0.72 | | | | | 0.66 | | | | | 0.60 | |
Balance Sheet Data: | | | | | | | | | | | | | | | | | | | | | | | | |
Total assets (e) | $ | | 2,277,391 | | | $ | | 2,275,609 | | | $ | | 1,971,912 | | | $ | | 2,055,797 | | | $ | | 1,930,336 | |
Property and equipment, net | | | 577,059 | | | | | 615,816 | | | | | 579,060 | | | | | 600,240 | | | | | 559,722 | |
Working capital (e) | | | 325,186 | | | | | 431,548 | | | | | 524,645 | | | | | 509,705 | | | | | 387,507 | |
Long-term debt and finance lease liabilities | | | 481,309 | | | | | 682,204 | | | | | 679,797 | | | | | 740,755 | | | | | 413,675 | |
Shareholders’ equity (e) | | | 735,049 | | | | | 687,538 | | | | | 715,947 | | | | | 721,950 | | | | | 825,407 | |
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(a)
| Due to the adoption of Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers at the beginning of fiscal 2018, the Company determined that certain contracts in the Food Distribution segment, that were historically reported on a gross basis, are now required to be reported on a net basis. The adoption of the guidance using the full retrospective method resulted in decreases to net sales and cost of sales previously reported of $164,283 and $173,516 for 2017 and 2016, respectively.
|
(b)
| Due to the adoption of ASU 2017-07, Compensation – Retirement Benefits at the beginning of fiscal 2018, post-retirement benefit costs other than service cost, are reflected in “Other, net”, whereas they previously were recognized in “Selling, general and administrative expenses”. Retrospective application resulted in immaterial changes to “Other, net” and “Selling, general and administrative expenses” from amounts previously reported in 2017 and 2016.
|
(c)
| In 2020, the company recorded $24.4 million of net charges which primarily included asset impairment charges incurred in the Food Distribution segment and relate to the evaluation of the expected net proceeds from the Fresh Kitchen facility which is currently held-for-sale, the exit of the Fresh Cut business, and the sale of equipment related to both Fresh Kitchen and Fresh Cut facilities, which totaled $9.1 million. Impairment charges of $8.6 million were also recognized primarily due to the decision to abandon a tradename within the Food Distribution segment to better integrate with the Company’s overall transportation operations. Certain retail store assets were determined not to be recoverable, resulting in impairment charges totaling $2.1 million. In 2019, the Company recorded $13.1 million of net charges primarily associated with asset impairment charges associated with the decision to reposition Fresh Production operations and losses associated with the disposition of the Fresh Kitchen, which totaled $16.4 million. These charges were partially offset by gains on the sale of a previously closed distribution center. In 2018, the Company recorded $37.5 million of net charges associated with a $32.0 million non-cash charge related to the expected insolvency of a Food Distribution segment customer and other charges related to the Company’s retail store rationalization plans. In 2017, the Company recorded a $189.0 million goodwill impairment charge related to its Retail segment and $33.7 million of asset impairment charges primarily associated with long-lived assets in the Retail segment. In 2016, the Company recorded $32.1 million of restructuring and asset impairment charges primarily related to the closure of four retail stores and two distribution centers, as well as asset impairment charges associated with certain underperforming retail stores.
|
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(d)
| In 2020, in connection with the Coronavirus Aid, Relief and Economic Security (“CARES”) Act and related tax planning, the Company recorded net discrete income tax benefits of $9.3 million associated with the additional deductibility of certain expenses combined with provisions which enable companies to carry back tax losses to years prior to the enactment of the Tax Cuts and Jobs Act (“Tax Act”), when the federal statutory income tax rate was 35%. In 2017, income taxes were impacted by the revaluation of deferred tax liabilities related to the corporate tax rate reduction enacted in the Tax Act, which also impacted the Company’s tax rate in 2018.
|
(e)
| Due to the adoption of ASU 2016-02, Leases as of the beginning of 2019, the Company recognized operating lease assets and liabilities of $241.8 million and $292.3 million, respectively. Working capital was primarily impacted by “Current portion of operating lease liabilities” of $40.3 million, which was recognized as a result of the transition. The adoption of the standard also resulted in a transition adjustment to beginning of the year retained earnings of $26.9 million. The Company adopted this standard using a modified retrospective approach and elected the practical expedient available under the guidance to not adjust comparative periods presented.
|
Historical data is not necessarily indicative of the Company’s future results of operations or financial condition. See discussion of “Risk Factors” in Part I, Item 1A of this report; “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of this report; and the consolidated financial statements and notes thereto in Part II, Item 8 of this Annual Report on Form 10-K.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
About SpartanNash
SpartanNash, headquartered in Grand Rapids, Michigan, is a leading multi-regional groceryfood solutions company that delivers the ingredients for a better life. As a distributor, wholesaler and grocery retailer whose core businesses include distributing grocery products towith a global supply chain network, SpartanNash customers span a diverse group of national accounts, independent and chain retailers, its corporate owned retail stores, ande-commerce retailers, U.S. military commissaries and exchanges, and its corporate-owned retail stores, pharmacies and fuel centers. SpartanNash distributes grocery and household goods, including fresh produce and its Our Family private label brand, to locations in the United States.all 50 states. The Company operates three reportable segments: Food Distribution, Military and Retail. TheseCompany's two reportable segments, Wholesale and Retail, are threetwo distinct businesses, each with a different customer base, management structure, and basis for determining budgets, forecasts, and executive compensation. Where applicable, segment financial information for the comparative prior year periods within this report has been recast to reflect the Company's current reportable segment structure.
Overview of 20202023
In a challenging macroeconomic environment, the Company has continued to execute on Our Winning Recipe, which continued to support strong financial results in fiscal 2023. The plan continues to generate sustainable improvements in profitability as the Company further optimizes its supply chain network, improves value for its customers through stronger vendor relationships, and captures additional benefits, while providing exceptional customer service and additional offerings. The Company’s top priority continues to be the well-being and safety of its family of associates, customers and communities during the COVID-19 pandemic. SpartanNash recognizes its family of associates for their dedication to serve customers and support local communities during this unprecedented time of need. Collaboration across the organization and the strength and resiliency of its people drives execution in a dynamic operating environment as SpartanNash supports consumer demand related2023 highlights include:
Wholesale
•Wholesale segment net sales increased $74.0 million compared to the COVID-19 pandemic. The Company’s 2020 accomplishments and developments include:prior year due primarily to the inflationary impact on pricing, partially offset by lower unit volumes.
•Wholesale segment operating earnings of $87.7 million increased $32.6 million compared to $55.1 million in the prior year. Adjusted EBITDA of $177.9 million increased $12.0 million compared to $165.9 million in the prior year.
Food Distribution
Retail
| ●
| The Food Distribution segment realized sales growth of 14.9%, driven by sales growth with existing customers as well as increased demand associated with the impact of the COVID-19 pandemic.
|
•Retail comparable store sales increased 2.0% compared to the prior year due primarily to the inflationary impact on pricing, partially offset by lower unit volumes.
| ●
| During the first quarter, the Company made the decision to exit its Caito Fresh Cut operations, as a result of the loss of a significant customer within this business. Wind down of the operations began in March 2020 and was complete as of the end of the first quarter. The Company incurred asset impairment charges, severance costs and operating losses during the wind down period.
|
•Retail segment operating earnings of $19.0 million increased $5.6 million compared to $13.4 million in the prior year. Adjusted EBITDA of $79.5 million increased $2.5 million compared to $77.0 million in the prior year.
Retail
| ●
| Retail comparable store sales were 8.7% in the fourth quarter and 13.1% for the fiscal year, driven by impacts associated with the COVID-19 pandemic. During the year, the Company experienced growth in eCommerce of nearly 200% and realized industry-leading growth in OwnBrand sales as it continues to build on its Customer Growth strategy.
|
Military
| ●
| The Military segment continued to support DeCA in the expansion of its private brand program, which began in 2017. The Company leveraged its private brand capabilities and expertise in the design and launch of new private brand products. As of January 2, 2021, over 1,000 SKUs of private brand products have been introduced in the DeCA system. DeCA recently renewed the contract for another year and the Company looks forward to continuing its partnership with DeCA in 2021.
|
| ●
| The Military segment realized gross margin rate improvement of 7.2% despite declining sales. The Military segment has also seen an increase in DeCA private label sales of 35% in the current year compared to the prior year.
|
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Other Highlights
| •● | During the first quarter, the Company executed cost savings initiatives, which included a voluntary early retirement program, as well as a reduction-in-force. These actions are expected to result in longer-term benefits, however resulted in $5.0 million in incremental expense for the year.
|
| ●
| During 2020, the Company declared $27.7 million in cash dividends to shareholders. The Company generated net cash from operating activities of $306.7 million in 2020, compared to $180.2 million in 2019, due to increased profitability and changes in working capital.
|
| ●
| Net long-term debt decreased $197.8 million compared to the prior year as the Company continued to pay down debt. These reductions, combined with increased profitability, resulted in an improvement in net long-term debt to adjusted EBITDA from 3.7x at the end of 2019 to 2.0x at the end of 2020, calculated on a trailing thirteen period basis.
|
| ●
| During the third quarter, the Company appointed a new President and Chief Executive Officer, Tony Sarsam. Tony brings to the Company an extensive background of executive experience in the food industry. His core values, history of visionary thinking and strategic execution are in alignment with the Company’s vision and strategies.
|
| ●
| At the beginning of the fourth quarter, the Company extended its commercial agreement with Amazon. In connection with this agreement, the Company issued stock warrants to a subsidiary of Amazon, subject to certain vesting conditions over a 7 year period.
|
For fiscal 2021,The supply chain and merchandising transformation initiatives drove approximately $26 million and $29 million in benefits in 2023, respectively. Since launching the transformation work, the Company anticipates some normalization of sales trends fromhas improved its throughput(1) rate by double digits, passed along significant benefits to its customers through the levels experiencedEnhanced Category Planning program, and captured $80 million in 2020,total gross benefits since 2022. These benefits helped to offset broader industry headwinds which will be offset by continued growth with existing Food Distribution customers. While this trend is expected to result in unfavorable comparable store sales,impacted volume and profitability throughout the year.
•During 2023, the Company expects comparable salesreturned $48.2 million to be positive on a two-year stacked basis. Profitability will also be impacted by unfavorable sales comparisons, primarilyshareholders through $29.7 million in cash dividends, or $0.86 per common share, and $18.6 million in share repurchases. In addition, the Company generated net cash from operating activities of $89.3 million in 2023.
•The Company reported earnings from continuing operations for the fiscal year of $52.2 million, compared to $34.5 million in the Retail segment.prior year. The Company anticipates that savings generated through certain initiatives will be more than offset by investmentsreported adjusted EBITDA for the fiscal year of $257.4 million, compared to $242.9 million in the prior year.
(1)As a means of evaluating warehouse efficiency, the Company is making in its people and supply chain capabilities.calculates the throughput rate as cases shipped divided by warehouse labor hours worked, excluding salaried hours
Results of Operations
The current year results of operations are presented in comparison to the prior year within the section below. For a discussion of the results of fiscal 20192022 operations in comparison to fiscal 2018,2021, refer to the Management’s Discussion and Analysis of Financial Condition and Results of Operations within the prior year Annual Report on Form 10-K. Certain prior year amounts have been adjusted
The Company believes that certain known or anticipated trends may cause future results to reflect recently adopted accounting standards, whichvary from historical results. The Company believes certain initiatives including both the supply chain and merchandising transformations, as well as plans to gain market share in both the Retail and Wholesale segments will favorably impact future results. The Company anticipates that additional investments in capital expenditures will be necessary to support these and other programs. Offsetting the Company’s expectations of favorable future results are described within Note 1,macroeconomic headwinds including changes in consumer demand driven by inflation, elevated interest rates, and the notesreduction in government food assistance programs. The Company will also be exposed to the consolidated financial statements.other general commodity price changes such as utilities, insurance and fuel costs.
The following table sets forth items from the Company’s consolidated statements of earnings as a percentage of net sales and the percentage change from the preceding year:
| | | Percentage of Net Sales | | | Percentage Change | |
| | | 2020 | | | 2019 | | | 2018 | | | 2020 | | | | Percentage of Net Sales | | | Percentage
Change | |
| | | (53 Weeks) | | | (52 Weeks) | | | (52 Weeks) | | | 53 vs 52 | | | 2023 | | | 2022 | | | 2021 | | | 2023 vs 2022 | |
Net sales | Net sales | | | 100.0 | | | | 100.0 | | | | 100.0 | | | | 9.5 | | Net sales | | | 100.0 | | | | 100.0 | | | | 100.0 | | | | 0.9 | |
Gross profit | Gross profit | | | 15.2 | | | | 14.6 | | | | 13.8 | | | | 14.6 | | Gross profit | | | 15.3 | | | | 15.5 | | | | 15.7 | | | | (0.8 | ) |
Selling, general and administrative | Selling, general and administrative | | | 13.9 | | | | 13.7 | | | | 12.4 | | | | 10.7 | | Selling, general and administrative | | | 14.0 | | | | 14.8 | | | | 14.7 | | | | (4.3 | ) |
Merger/acquisition and integration | | | 0.0 | | | | 0.0 | | | | 0.1 | | | | (70.7 | ) |
Restructuring, asset impairment and other charges | | | 0.3 | | | | 0.2 | | | | 0.5 | | | | 87.0 | |
Paid time off transition adjustment | | Paid time off transition adjustment | | | — | | | | — | | | | (0.2 | ) | | ** | |
Acquisition and integration, net | | Acquisition and integration, net | | | 0.0 | | | | 0.0 | | | | 0.0 | | | ** | |
Restructuring and asset impairment, net | | Restructuring and asset impairment, net | | | 0.1 | | | | 0.0 | | | | 0.0 | | | ** | |
Operating earnings | Operating earnings | | | 1.1 | | | | 0.7 | | | | 0.9 | | | | 79.8 | | Operating earnings | | | 1.1 | | | | 0.7 | | | | 1.3 | | | | 55.7 | |
Other expenses, net | Other expenses, net | | | 0.2 | | | | 0.6 | | | | 0.4 | | | | (68.1 | ) | Other expenses, net | | | 0.4 | | | | 0.2 | | | | 0.2 | | | | 69.2 | |
Earnings before income taxes and discontinued operations | | | 0.9 | | | | 0.0 | | | | 0.5 | | | | 2,287.8 | |
Income tax expense (benefit) | | | 0.1 | | | | (0.0 | ) | | | 0.1 | | | | (503.5 | ) |
Earnings from continuing operations | | | 0.8 | | | | 0.1 | | | | 0.4 | | | | 1,183.0 | |
Earnings before income taxes | | Earnings before income taxes | | | 0.7 | | | | 0.5 | | | | 1.1 | | | | 49.5 | |
Income tax expense | | Income tax expense | | | 0.2 | | | | 0.1 | | | | 0.3 | | | | 44.3 | |
Net earnings | | Net earnings | | | 0.5 | | | | 0.4 | | | | 0.8 | | | | 51.3 | |
Note: Certain totals do not sum due to rounding.
-22-
** Not meaningful
Net Sales – The following table presents net sales by segment and variances in net sales:sales between fiscal 2023 and fiscal 2022:
| | | | | Percentage of | | | | | Percentage of | | | | | | | | | | | | Percentage of | | | | | Percentage of | | | | | |
| 2020 | | | Total | | 2019 | | | Total | | | | | | Percentage | | | | | Total | | | | | Total | | | | Percentage |
(In thousands) | (53 Weeks) | | | Net Sales | | (52 Weeks) | | | Net Sales | | Variance | | | Change | | 2023 | | | Net Sales | | 2022 | | | Net Sales | | Variance | | | Change |
Food Distribution | $ | | 4,577,178 | | | | 49.0 | | % | | $ | | 3,982,609 | | | | 46.7 | | % | | $ | | 594,569 | | | | 14.9 | |
Wholesale | | $ | | 6,919,217 | | | | 71.1 | | % | | $ | | 6,845,236 | | | | 71.0 | | % | | $ | | 73,981 | | | | 1.1 | | % |
Retail | | | 2,637,917 | | | | 28.2 | | | | | | 2,381,349 | | | | 27.9 | | | | | 256,568 | | | | 10.8 | | | | 2,810,002 | | | | 28.9 | | | | | | 2,797,864 | | | | 29.0 | | | | | | 12,138 | | | | 0.4 | | |
Military | | | 2,133,390 | | | | 22.8 | | | | | | 2,172,107 | | | | 25.4 | | | | | | (38,717 | ) | | | (1.8 | ) |
Net sales | $ | | 9,348,485 | | | | 100.0 | | % | | $ | | 8,536,065 | | | | 100.0 | | % | | $ | | 812,420 | | | | 9.5 | | $ | | 9,729,219 | | | | 100.0 | | % | | $ | | 9,643,100 | | | | 100.0 | | % | | $ | | 86,119 | | | | 0.9 | | % |
Net sales increased $812.4$86.1 million, or 9.5%0.9%, to $9.35$9.73 billion in 2020 from $8.542023 compared to $9.64 billion in 2019.2022. The increase was attributable to increases in net sales was driven primarilyin both the Wholesale and Retail segments, which were favorably impacted by continued growth with existing Food Distribution customers, increased consumer demand associated with the COVID-19 pandemic in the Retailhigher pricing from inflationary trends and Food Distribution segments, and sales of $158.9 million in the 53rd week in 2020, partially offset by the exit of the Company’s Fresh Production operations and lower comparable sales for the Military segment.volumes.
Food DistributionWholesale net sales increased $594.6$74.0 million, or 14.9%1.1%, to $4.58$6.92 billion in 2020 from $3.98 billion in the prior year. The increase was due2023 compared to sales growth with existing customers, as well as incremental volume associated with increased consumer demand related to the COVID-19 pandemic, and sales of $76.4 million in the 53rd week, partially offset by the impact of the Company’s decision to exit Fresh Production operations.
Retail net sales increased $256.6 million, or 10.8%, to $2.64 billion in 2020 from $2.38$6.85 billion in the prior year. The increase in net sales was due primarily attributable to incremental sales volume associated with increased consumer demand related to the COVID-19 pandemic and $49.1inflationary impact on pricing, in addition to the acquisition of Great Lakes Foods in December 2022, which contributed $73.6 million of additional net sales in 2023. The increase in net sales was partially offset by lower case volumes due, in large part, to marketplace demand changes from a certain national account customer. Overall, case volumes for the 53rd week.segment were down 4.5% in the current year.
Retail net sales increased $12.1 million, or 0.4% to $2.81 billion in 2023 compared to $2.80 billion in the prior year. Comparable store sales were 13.1%increased 2.0% in the current year. The increase in net sales was primarily due to inflationary pricing, offset by a 6.4% decline in unit volumes in the current year. Additionally, lower fuel sales reduced reported net sales by 1.3% in the current year. 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. Acquired storesSales are included incompared to the same store’s operations from the prior year period for purposes of calculation of comparable sales calculation 13 periods after the acquisition date.store sales. Fuel is excluded from the comparable sales calculation due to volatility in price. Comparable store sales is a widely used metric among retailers, which is useful to management and investors to assess performance. The Company’s definition of comparable store sales may differ from similarly titled measures at other companies.
Military net sales decreased $38.7 million, or 1.8%, to $2.13 billion in 2020 from $2.17 billion in the prior year. Prior to the onset of the COVID-19 pandemic, sales decreased due to the impact of lower comparable sales at DeCA operated locations. After the onset of the pandemic, base access and commissary shopping restrictions during the second through fourth quarters also led to lower sales volumes. These lower volumes were partially offset by $33.4 million of sales in the 53rd week.
Gross Profit – Gross profit represents net sales less cost of sales, which is described in further detail within Note 1, in the notes to the consolidated financial statements. Gross profit increased $181.1decreased $11.9 million, or 14.6%0.8%, to $1.42$1.49 billion in the current year compared to $1.24$1.50 billion in the prior year.year primarily due to lower volumes. As a percent of net sales, gross profit increaseddecreased from 14.6%15.5% to 15.2%15.3% primarily due to improvements in margin rates at all three segments, as well as increaseslower inflation-related price change benefits in the proportionWholesale segment compared to elevated levels in the prior year, partially offset by benefits realized from the merchandising transformation initiative and lower LIFO expense. LIFO expense decreased $40.7 million, or 42 basis points, compared to the prior year due to a significant decrease in inflation trends by the end of Retail and Food Distribution segment sales, which generate higher margin rates than the Military segment.2023.
Selling, General and Administrative Expenses – Selling, general and administrative (“SG&A”) expenses consist primarily of operating costs related to retail and supply chain operations, including salaries and wages, employee benefits, warehousing costs, store occupancyfacility costs, shipping and handling, utilities, equipment rental, depreciation, (to the extent not included in Cost of sales),and out-bound freight, and otherin addition to corporate administrative expenses. SG&A expenses increased $125.3decreased $61.5 million, or 10.7%4.3%, to $1.30$1.37 billion in the current year from $1.17$1.43 billion in the prior year. As a percent of net sales, SG&A expenses increaseddecreased from 13.7%14.8% to 13.9%, 14.0% primarily due to a higher rate oflower incentive compensation expense compared to the prior year, a reduction in the supply chain expense rates as a result of improved overall Company performance, a greater proportion of Retail sales which incur a higher rate of expense and increases inefficiencies realized from the Company's supply chain expenses whichtransformation initiative, and cycling costs related to shareholder activism in the prior year. These decreases were compounded by the effects of the COVID-19 pandemic, partially offset by improved operating leverageorganizational realignment costs in the current year related to retail store labor and other operating expenses, as well as lower healthcare costs.the previously announced go-to-market plan.
Acquisition and Integration, Expensesnet – Merger/acquisitionAcquisition and integration, expenses were $0.4net was $3.4 million in the current year compared to $1.4 $0.3 million in the prior year. The expensesCurrent year activity includes fees associated with due diligence activities, purchase agreement negotiation and strategic advice within the Retail segment, as well as incremental costs of integration related to an acquired business in the Wholesale segment. Prior year expense primarily related to acquisitions in both years are associated with the acquisitionRetail and integrationWholesale segments, partially offset by the reversal of Martin’sa litigation accrual, which was initially established at the time of the Martin's Super Markets (“Martin’s”).acquisition.
Restructuring and Asset Impairment, and Other Charges net – In the current year, $24.4$9.2 million of net restructuring asset impairment and other charges were incurred, primarily associated with asset impairment charges and severance costswere incurred. The charges were largely composed of $8.0 million of asset impairment charges in the Wholesale segment related to the restructuring of the Company’s Fresh Production business,initiatives associated with continued supply chain network optimization in response to customer demand changes. Additional asset impairment charges of $3.7 million in the current year were related to two store closures in the Retail segment and impairment losses related to a distribution location that sustained storm damage in the Wholesale segment. These charges were partially offset by $2.6 million of gains on sales of assets in the current year primarily related to the decision to abandonsale of a tradenamestore within the Food Distribution segment and retail store closing-related charges.Retail segment. Prior year results included $13.1$0.8 million of net restructuring and asset impairment and other charges, predominately as a resultwhich were largely composed of $5.1 million of asset impairment charges in the Retail segment, which primarily relate to restructuring of the segment's e-commerce delivery model, and $1.8 million of provisions for closing charges associated with lease ancillary costs. These charges in the decision to reposition Fresh Production operations and losses associated with the disposition of the Fresh Kitchen, whichcurrent year were partiallymostly offset by gains$6.3 million gain on the salesales of areal property of previously closed distribution center.locations within the Wholesale and Retail segments.
-23-
Operating Earnings – The following table presents operating earnings (loss) by segment and variances in operating earnings (loss):earnings:
| | | | | | | | | | | | | | | | Change in | | | | | | | | | | | | | | Change in |
| 2020 | | | Percentage of | | 2019 | | | Percentage of | | | | | | Percentage of | | | | | Percentage of | | | | | Percentage of | | | | Percentage of |
(In thousands) | (53 Weeks) | | | Net Sales | | (52 Weeks) | | | Net Sales | | Variance | | | Net Sales | | 2023 | | | Net Sales | | 2022 | | | Net Sales | | Variance | | | Net Sales |
Food Distribution | $ | | 45,962 | | | | 1.0 | | % | | $ | | 47,416 | | | | 1.2 | | % | | $ | | (1,454 | ) | | | (0.2 | ) |
Wholesale | | $ | | 87,701 | | | | 1.3 | | % | | $ | | 55,137 | | | | 0.8 | | % | | $ | | 32,564 | | | | 0.5 | | % |
Retail | | | 66,359 | | | | 2.5 | | | | | | 18,842 | | | | 0.8 | | | | | 47,517 | | | | 1.7 | | | | 19,011 | | | | 0.7 | | | | | | 13,407 | | | | 0.5 | | | | | 5,604 | | | | 0.2 | | |
Military | | | (9,915 | ) | | | (0.5 | ) | | | | | (9,316 | ) | | | (0.4 | ) | | | | (599 | ) | | | (0.0 | ) |
Operating earnings | $ | | 102,406 | | | | 1.1 | | % | | $ | | 56,942 | | | | 0.7 | | % | | $ | | 45,464 | | | | 0.4 | | $ | | 106,712 | | | | 1.1 | | % | | $ | | 68,544 | | | | 0.7 | | % | | $ | | 38,168 | | | | 0.4 | | % |
The Company reported operating earnings of $102.4$106.7 million in the current year compared to $56.9$68.5 million in the prior year. The increase of $45.5$38.2 million, or 55.7%, was attributable to increasedchanges in net sales, volumegross profit and improved margin rates, partially offset by changes in operating expenses discussed above, including additional compensation for frontline workers and additional sanitation measures associated with COVID-19.above.
Food DistributionWholesale operating earnings decreased $1.5increased $32.6 million, or 59.1%, to $46.0$87.7 million in the current year from $47.4 million in the prior year. The decrease was primarily attributable to higher incentive compensation, higher supply chain expense rates, asset impairment charges, and $6.5 million in non-cash charges associated with stock warrants, partially offset by an increase in sales volume and cycling of prior year operational losses in the Fresh Production business.
Retail operating earnings increased $47.5 million to $66.4 million in the current year compared to $18.8$55.1 million in the prior year. The increase was primarily dueattributable to efficiencies realized from the increaseCompany's supply chain transformation initiative, lower incentive compensation, lower LIFO expense, and benefits realized from the merchandising transformation initiative. The increases in sales volume, improvements in margin rates, including inventory shrink, and favorable leverage of fixed costs, including store labor. These favorable variancesoperating earnings were partially offset by highera decline in unit volume, the anticipated lower inflation related price change benefits compared to elevated levels in the prior year, and increased restructuring and asset impairment charges.
Retail operating earnings increased $5.6 million, or 41.8%, to $19.0 million in the current year compared to $13.4 million in the prior year. The increase in operating earnings was due to lower incentive compensation dueand reduced asset impairment and restructuring charges, partially offset by a decline in unit volume, greater investments in store wages, and an increase in acquisition and integration costs.
Interest Expense – Interest expense increased $17.1 million, or 75.0%, to improved segment performance.
Military operating loss increased $0.6 million to $9.9$39.9 million in the current year from $9.3 million in the prior year. The change was attributable to increases in the rate of supply chain expenses, as well as increases in corporate administrative expense, partially offset by improved margin rates.
Interest Expense – Interest expense decreased $16.1 million, or 46.7%, to $18.4 million in the current year from $34.5$22.8 million in the prior year primarily due to rate decreases executedrising interest rates. Higher interest rates on the Company's credit facility were driven by federal monetary policy tightening and accounted for approximately $13.3 million of the Federal Reserve as well as significant decreasesincrease in interest expense in the current year. The weighted average interest rate for all borrowings, including loan fee amortization increased 2.38% to 7.03% in 2023, compared to 4.65% in 2022. The total debt balance.balance increased $93.9 million to $597.5 million in 2023, compared to $503.6 million in 2022.
Income Taxes – The Company’s effective income tax rates were 11.1%25.5% and (65.5%)26.4% for 20202023 and 2019,2022, respectively. The differences from the federal statutory rate in the current year were primarily the result of the Coronavirus Aid, Reliefdue to state taxes and Economic Security (“CARES”) Act and related tax planning during the year, as well asnon-deductible expenses, partially offset by benefits associated with federal tax credits, partially offset by state taxes, non-deductible expenses,discrete benefits due to a changes in tax contingencies, and the impacts ofdiscrete benefits related to stock based compensation during the year.compensation. In the prior year, the difference from the federal statutory rate was primarily due to state taxes, and non-deductible expenses, partially offset by tax benefits associated with federal tax credits and tax credits.
On March 27, 2020, the U.S. government enacted tax legislation to provide economic stimulus and support businesses and individuals during the COVID-19 pandemic, referred to as the CARES Act. In connection with the CARES Act, the Company recorded net discrete income tax benefits of $9.3 million in 2020, associated with the additional deductibility of certain expenses combined with provisions which enable companiesrelated to carry back tax losses to years prior to the enactment of the Tax Cuts and Jobs Act (“Tax Reform”), when the federal statutory income tax rate was 35%.stock compensation.
Non-GAAP Financial Measures
In addition to reporting financial results in accordance with accounting principles generally accepted in the United States of America (“GAAP”), the Company also provides information regarding adjusted operating earnings, adjusted earnings from continuing operations, as well as per diluted share ("adjusted EPS"), net long-term debt to total capital, 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.
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Current year adjusted operating earnings, adjusted earnings from continuing operations, and adjusted EBITDA exclude, “Fresh Cut operating losses” subsequent to the decision to exit these operations during the first quarter,among other items, LIFO expense, organizational realignment, severance associated with cost reduction initiatives, a non-routine settlement related to a legal matter resulting from a previously closed operation that was resolved during the year and operating and non-operating costs associated with the postretirement plan amendment and settlement. Current year organizational realignment costsincludes consulting and fees paid to a third-party advisory firmseverance costs associated with Project One Team, the Company’s initiativeCompany's change in its go-to-market strategy as part of its long-term plan, which relates to drive growth while increasing efficiencythe reorganization of certain functions. Costs related to the postretirement plan amendment and reducing costs. Adjustedsettlement include non-operating expenses associated with recognition of plan settlement losses and amortization of the prior service credit related to the amendment of the retiree medical plan, which are adjusted out of adjusted earnings from continuing operationsoperations. Postretirement plan amendment and settlement costs also exclude pension termination incomeinclude operating expenses related to refunds frompayroll taxes which are adjusted out of all non-GAAP financial measures. Each of the annuity provider associated with the final reconciliation of participant data, as well as net tax benefits associated with the CARES Act. adjusted items are considered “non-operational” or “non-core” in nature.
Prior year adjusted operating earnings, adjusted earnings from continuing operations, and adjusted EBITDA exclude, “Fresh Kitchenamong other items, LIFO expense, costs related to shareholder activism, operating losses” subsequent to the decision to exit these operations at the beginning of the third quarter,and non-operating costs associated with organizational realignment, which include significant changes to the Company’s management team,postretirement plan amendment and fees paid to a third-party advisory firm associated with Project One Team. Pension terminationsettlement, non-operating costs primarily related to non-operating settlement expense associated with the distributionwrite off of pension assets,certain unamortized deferred financing costs related to the debt modification, organizational realignment, and severance associated with cost reduction initiatives. Costs related to shareholder activism include consulting, legal and other expenses incurred in relation to shareholder activism activities. Costs related to the postretirement plan amendment and settlement include non-operating expenses associated with recognition of plan settlement losses and amortization of the prior service credit related to the amendment of the retiree medical plan, which are excluded fromadjusted out of adjusted earnings from continuing operations,operations. Postretirement plan amendment and settlement costs also include operating expenses related to payroll taxes which are adjusted out of all non-GAAP financial measures. Prior year organizational realignment includes benefits for associates terminated as part of leadership transition plans, which do not meet the definition of a lesser extent adjusted operating earnings. In 2018, adjusted operating earnings, adjusted earnings from continuing operations, and adjusted EBITDA exclude start-up costs associated with the first year of Fresh Kitchen operations, which concluded during the first quarter of 2018. These measures were adjusted for the impact of the 53rd week in 2020 to provide better comparability to prior years.reduction-in-force. Each of the adjusted items are considered “non-operational” or “non-core” in nature.
In 2021, adjusted operating earnings, adjusted earnings from continuing operations, and adjusted EBITDA also exclude the transition impact of a new paid time off plan, which is not expected to recur in the foreseeable future. Each of the adjusted items are considered “non-operational” or “non-core” in nature.
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 an adjusted operating earnings format.
Adjusted operating earnings is not a measure of performance under GAAP and should not be considered as a substitute for operating earnings, and other income statement data. The Company’s definition of adjusted operating earnings may not be identical to similarly titled measures reported by other companies.
Following is a reconciliation of operating earnings to adjusted operating earnings for 2020, 20192023, 2022 and 2018.2021.
| 2020 | | | 2019 | | | 2018 | |
(In thousands) | (53 Weeks) | | | (52 Weeks) | | | (52 Weeks) | |
Operating earnings | $ | | 102,406 | | | $ | | 56,942 | | | $ | | 70,512 | |
Adjustments: | | | | | | | | | | | | | | |
Merger/acquisition and integration | | | 421 | | | | | 1,437 | | | | | 4,937 | |
Restructuring, asset impairment and other charges | | | 24,398 | | | | | 13,050 | | | | | 37,546 | |
Fresh Kitchen start-up costs | | | — | | | | | — | | | | | 1,366 | |
Fresh Kitchen operating losses | | | — | | | | | 2,894 | | | | | — | |
Expenses associated with tax planning strategies | | | 82 | | | | | — | | | | | 225 | |
Costs associated with Project One Team | | | 493 | | | | | 5,428 | | | | | — | |
Organizational realignment costs | | | 455 | | | | | 1,812 | | | | | — | |
Pension termination | | | — | | | | | 59 | | | | | — | |
Severance associated with cost reduction initiatives | | | 5,154 | | | | | 509 | | | | | 1,023 | |
Fresh Cut operating losses | | | 2,262 | | | | | — | | | | | — | |
Adjusted operating earnings | | | 135,671 | | | | | 82,131 | | | | | 115,609 | |
53rd week | | | (4,155 | ) | | | | — | | | | | — | |
Adjusted operating earnings, excluding 53rd week | $ | | 131,516 | | | $ | | 82,131 | | | $ | | 115,609 | |
| | | | | | | | | | | | | | |
(In thousands) | 2023 | | | 2022 | | | 2021 | |
Operating earnings | $ | | 106,712 | | | $ | | 68,544 | | | $ | | 112,200 | |
Adjustments: | | | | | | | | | | | |
LIFO expense | | | 16,104 | | | | | 56,823 | | | | | 18,652 | |
Acquisition and integration, net | | | 3,416 | | | | | 343 | | | | | 708 | |
Restructuring and asset impairment, net | | | 9,190 | | | | | 805 | | | | | 2,886 | |
Organizational realignment, net | | | 5,239 | | | | | 1,859 | | | | | 589 | |
Severance associated with cost reduction initiatives | | | 318 | | | | | 831 | | | | | 423 | |
Legal settlement | | | 900 | | | | | — | | | | | — | |
Postretirement plan amendment and settlement | | | 94 | | | | | 133 | | | | | — | |
Costs related to shareholder activism | | | — | | | | | 7,335 | | | | | — | |
Paid time off transition adjustment | | | — | | | | | — | | | | | (21,371 | ) |
Adjusted operating earnings | $ | | 141,973 | | | $ | | 136,673 | | | $ | | 114,087 | |
Wholesale: | | | | | | | | | | | |
Operating earnings | $ | | 87,701 | | | $ | | 55,137 | | | $ | | 45,229 | |
Adjustments: | | | | | | | | | | | |
LIFO expense | | | 12,388 | | | | | 48,282 | | | | | 15,755 | |
Acquisition and integration, net | | | 216 | | | | | 239 | | | | | — | |
Restructuring and asset impairment, net | | | 8,548 | | | | | (2,363 | ) | | | | 427 | |
Organizational realignment, net | | | 3,269 | | | | | 1,160 | | | | | 374 | |
Severance associated with cost reduction initiatives | | | 303 | | | | | 689 | | | | | 310 | |
Legal settlement | | | 900 | | | | | — | | | | | — | |
Postretirement plan amendment and settlement | | | 59 | | | | | 83 | | | | | — | |
Costs related to shareholder activism | | | — | | | | | 4,577 | | | | | — | |
Paid time off transition adjustment | | | — | | | | | — | | | | | (10,041 | ) |
Adjusted operating earnings | $ | | 113,384 | | | $ | | 107,804 | | | $ | | 52,054 | |
Retail: | | | | | | | | | | | |
Operating earnings | $ | | 19,011 | | | $ | | 13,407 | | | $ | | 66,971 | |
Adjustments: | | | | | | | | | | | |
LIFO expense | | | 3,716 | | | | | 8,541 | | | | | 2,897 | |
Acquisition and integration, net | | | 3,200 | | | | | 104 | | | | | 708 | |
Restructuring and asset impairment, net | | | 642 | | | | | 3,168 | | | | | 2,459 | |
Organizational realignment, net | | | 1,970 | | | | | 699 | | | | | 215 | |
Severance associated with cost reduction initiatives | | | 15 | | | | | 142 | | | | | 113 | |
Postretirement plan amendment and settlement | | | 35 | | | | | 50 | | | | | — | |
Costs related to shareholder activism | | | — | | | | | 2,758 | | | | | — | |
Paid time off transition adjustment | | | — | | | | | — | | | | | (11,330 | ) |
Adjusted operating earnings | $ | | 28,589 | | | $ | | 28,869 | | | $ | | 62,033 | |
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Following is a reconciliation of operating earnings by segment to adjusted operating earnings by segment for 2020, 2019 and 2018. | |
| 2020 | | | 2019 | | | 2018 | |
| (53 Weeks) | | | (52 Weeks) | | | (52 Weeks) | |
Food Distribution: | | | | | | | | | | | | | | |
Operating earnings | $ | | 45,962 | | | $ | | 47,416 | | | $ | | 48,752 | |
Adjustments: | | | | | | | | | | | | | | |
Merger/acquisition and integration | | | — | | | | | (122 | ) | | | | 3,581 | |
Restructuring, asset impairment and other charges | | | 21,085 | | | | | 14,844 | | | | | 33,056 | |
Fresh Kitchen start-up costs | | | — | | | | | — | | | | | 1,366 | |
Fresh Kitchen operating losses | | | — | | | | | 2,894 | | | | | — | |
Expenses associated with tax planning strategies | | | 44 | | | | | — | | | | | 116 | |
Costs associated with Project One Team | | | 265 | | | | | 2,877 | | | | | — | |
Organizational realignment costs | | | 245 | | | | | 960 | | | | | — | |
Pension termination | | | — | | | | | 32 | | | | | — | |
Severance associated with cost reduction initiatives | | | 3,156 | | | | | 413 | | | | | 763 | |
Fresh Cut operating losses | | | 2,262 | | | | | — | | | | | — | |
Adjusted operating earnings | | | 73,019 | | | | | 69,314 | | | | | 87,634 | |
53rd week | | | (1,300 | ) | | | | — | | | | | — | |
Adjusted operating earnings, excluding 53rd week | $ | | 71,719 | | | $ | | 69,314 | | | $ | | 87,634 | |
Retail: | | | | | | | | | | | | | | |
Operating earnings | $ | | 66,359 | | | $ | | 18,842 | | | $ | | 16,113 | |
Adjustments: | | | | | | | | | | | | | | |
Merger/acquisition and integration | | | 421 | | | | | 1,559 | | | | | 1,352 | |
Restructuring, asset impairment and other charges (gains) | | | 3,313 | | | | | (1,794 | ) | | | | 5,291 | |
Costs associated with Project One Team | | | 164 | | | | | 1,845 | | | | | — | |
Organizational realignment costs | | | 151 | | | | | 616 | | | | | — | |
Expenses associated with tax planning strategies | | | 27 | | | | | — | | | | | 81 | |
Pension termination | | | — | | | | | 21 | | | | | — | |
Severance associated with cost reduction initiatives | | | 1,445 | | | | | 86 | | | | | 153 | |
Adjusted operating earnings | | | 71,880 | | | | | 21,175 | | | | | 22,990 | |
53rd week | | | (2,760 | ) | | | | — | | | | | — | |
Adjusted operating earnings, excluding 53rd week | $ | | 69,120 | | | $ | | 21,175 | | | $ | | 22,990 | |
Military: | | | | | | | | | | | | | | |
Operating (loss) earnings | $ | | (9,915 | ) | | $ | | (9,316 | ) | | $ | | 5,647 | |
Adjustments: | | | | | | | | | | | | | | |
Merger/acquisition and integration | | | — | | | | | — | | | | | 4 | |
Restructuring, asset impairment and other gains | | | — | | | | | — | | | | | (801 | ) |
Costs associated with Project One Team | | | 64 | | | | | 706 | | | | | — | |
Organizational realignment costs | | | 59 | | | | | 236 | | | | | — | |
Expenses associated with tax planning strategies | | | 11 | | | | | — | | | | | 28 | |
Pension termination | | | — | | | | | 6 | | | | | — | |
Severance associated with cost reduction initiatives | | | 553 | | | | | 10 | | | | | 107 | |
Adjusted operating (loss) earnings | | | (9,228 | ) | | | | (8,358 | ) | | | | 4,985 | |
53rd week | | | (95 | ) | | | | — | | | | | — | |
Adjusted operating (loss) earnings, excluding 53rd week | $ | | (9,323 | ) | | $ | | (8,358 | ) | | $ | | 4,985 | |
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Adjusted Earnings from Continuing Operations
Adjusted earnings from continuing operations, as well as per diluted share ("adjusted EPS"), is a non-GAAP operating financial measure that the Company defines as net 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 also 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 GAAP and should not be considered as a substitute for net earnings, cash flows from continuing operationsoperating 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.
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Following is a reconciliation of net earnings from continuing operations to adjusted earnings from continuing operations for 2020, 20192023, 2022 and 2018.2021.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2023 | | | 2022 | | | 2021 | |
| | | | per diluted | | | | | | per diluted | | | | | | per diluted | |
(In thousands, except per share data) | Earnings | | | share | | | Earnings | | | share | | | Earnings | | | share | |
Net earnings | $ | | 52,237 | | | $ | | 1.50 | | | $ | | 34,518 | | | $ | | 0.95 | | | $ | | 73,751 | | | $ | | 2.05 | |
Adjustments: | | | | | | | | | | | | | | | | | | | | | | | |
LIFO expense | | | 16,104 | | | | | | | | | 56,823 | | | | | | | | | 18,652 | | | | | |
Acquisition and integration, net | | | 3,416 | | | | | | | | | 343 | | | | | | | | | 708 | | | | | |
Restructuring and asset impairment, net | | | 9,190 | | | | | | | | | 805 | | | | | | | | | 2,886 | | | | | |
Organizational realignment, net | | | 5,239 | | | | | | | | | 1,859 | | | | | | | | | 589 | | | | | |
Severance associated with cost reduction initiatives | | | 318 | | | | | | | | | 831 | | | | | | | | | 423 | | | | | |
Pension refund from annuity provider | | | — | | | | | | | | | (200 | ) | | | | | | | | — | | | | | |
Legal settlement | | | 900 | | | | | | | | | — | | | | | | | | | — | | | | | |
Postretirement plan amendment and settlement | | | (3,174 | ) | | | | | | | | (776 | ) | | | | | | | | — | | | | | |
Costs related to shareholder activism | | | — | | | | | | | | | 7,335 | | | | | | | | | — | | | | | |
Paid time off transition adjustment | | | — | | | | | | | | | — | | | | | | | | | (21,371 | ) | | | | |
Write off of deferred financing costs | | | — | | | | | | | | | 236 | | | | | | | | | — | | | | | |
Total adjustments | | | 31,993 | | | | | | | | | 67,256 | | | | | | | | | 1,887 | | | | | |
Income tax effect on adjustments (a) | | | (8,218 | ) | | | | | | | | (17,083 | ) | | | | | | | | (737 | ) | | | | |
Total adjustments, net of taxes | | | 23,775 | | | | | 0.68 | | | | | 50,173 | | | | | 1.38 | | | | | 1,150 | | | | | 0.03 | |
Adjusted earnings from continuing operations | $ | | 76,012 | | | $ | | 2.18 | | | $ | | 84,691 | | | $ | | 2.33 | | | $ | | 74,901 | | | $ | | 2.08 | |
| 2020 | | | 2019 | | | 2018 | | |
| (53 Weeks) | | | (52 Weeks) | | | (52 Weeks) | | |
| | | | per diluted | | | | | | per diluted | | | | | | per diluted | | |
(In thousands, except per share data) | Earnings | | | share | | | Earnings | | | share | | | Earnings | | | share | | |
Earnings from continuing operations | $ | | 75,914 | | | $ | | 2.12 | | | $ | | 5,917 | | | $ | | 0.16 | | | $ | | 33,791 | | | $ | | 0.94 | | |
Adjustments: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Merger/acquisition and integration | | | 421 | | | | | | | | | | 1,437 | | | | | | | | | | 4,937 | | | | | | | |
Restructuring, asset impairment and other charges | | | 24,398 | | | | | | | | | | 13,050 | | | | | | | | | | 37,546 | | | | | | | |
Fresh Kitchen start-up costs | | | — | | | | | | | | | | — | | | | | | | | | | 1,366 | | | | | | | |
Fresh Kitchen operating losses | | | — | | | | | | | | | | 2,894 | | | | | | | | | | — | | | | | | | |
Expenses associated with tax planning | | | 82 | | | | | | | | | | — | | | | | | | | | | 225 | | | | | | | |
Costs associated with Project One Team | | | 493 | | | | | | | | | | 5,428 | | | | | | | | | | — | | | | | | | |
Organizational realignment costs | | | 455 | | | | | | | | | | 1,812 | | | | | | | | | | — | | | | | | | |
Loss on debt extinguishment | | | — | | | | | | | | | | 329 | | | | | | | | | | — | | | | | | | |
Severance associated with cost reduction initiatives | | | 5,154 | | | | | | | | | | 509 | | | | | | | | | | 1,023 | | | | | | | |
Fresh Cut operating losses | | | 2,262 | | | | | | | | | | — | | | | | | | | | | — | | | | | | | |
Pension termination | | | (1,193 | ) | | | | | | | | | 19,557 | | | | | | | | | | — | | | | | | | |
Total adjustments | | | 32,072 | | | | | | | | | | 45,016 | | | | | | | | | | 45,097 | | | | | | | |
Income tax effect on adjustments (a) | | | (7,851 | ) | | | | | | | | | (11,022 | ) | | | | | | | | | (11,139 | ) | | | | | | |
Impact of Tax Cuts and Jobs Act (b) | | | — | | | | | | | | | | — | | | | | | | | | | (494 | ) | | | | | | |
Impact of CARES Act (c) | | | (9,292 | ) | | | | | | | | | — | | | | | | | | | | — | | | | | | | |
Total adjustments, net of taxes | | | 14,929 | | | | | 0.41 | | | | | 33,994 | | | | | 0.94 | | | | | 33,464 | | | | | 0.93 | | |
Adjusted earnings from continuing operations | | | 90,843 | | | | | 2.53 | | | | | 39,911 | | | | | 1.10 | | | | | 67,255 | | | | | 1.87 | | |
53rd week | | | (2,999 | ) | | | | (0.08 | ) | | | | — | | | | | — | | | | | — | | | | | — | | |
Adjusted earnings from continuing operations, excluding 53rd week | $ | | 87,844 | | | $ | | 2.45 | | | $ | | 39,911 | | | $ | | 1.10 | | | $ | | 67,255 | | | $ | | 1.87 | | |
The income tax effect on adjustments is computed by applying the applicable tax rate to the adjustments.
(a)
| The income tax effect on adjustments is computed by applying the applicable tax rate to the adjustments.
|
(b)
| The Company realized income tax benefits related to remeasuring its deferred tax assets and liabilities to reflect the change in the federal statutory rate resulting from the Tax Cuts and Jobs Act. Includes $1.1 million of tax benefits attributable to tax planning strategies related to the Tax Cuts and Jobs Act for 2018.
|
(c)
| Represents tax impacts attributable to the Coronavirus Aid, Relief and Economic Security (“CARES”) Act, and related tax planning, primarily related to additional deductions and the utilization of net operating loss carryback.
|
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 share-based payments (equity awards measured in accordance with ASC 718, Stock Compensation, which include both stock-based compensation to employees and stock warrants issued to non-employees) and 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.Company.
The Company believes that adjusted EBITDA provides a meaningful representation of its operating performance for the Company as a whole 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 an adjusted EBITDA format.
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Adjusted EBITDA and adjusted EBITDA by segment are not measures of performance under GAAP 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 earnings to adjusted EBITDA for 2020, 20192023, 2022 and 2018.2021.
| | | | | | | | | | | | | | |
(In thousands) | 2023 | | | 2022 | | | 2021 | |
Net earnings | $ | | 52,237 | | | $ | | 34,518 | | | $ | | 73,751 | |
Income tax expense | | | 17,888 | | | | | 12,397 | | | | | 24,906 | |
Other expenses, net | | | 36,587 | | | | | 21,629 | | | | | 13,543 | |
Operating earnings | | | 106,712 | | | | | 68,544 | | | | | 112,200 | |
Adjustments: | | | | | | | | | | | |
LIFO expense | | | 16,104 | | | | | 56,823 | | | | | 18,652 | |
Depreciation and amortization | | | 98,639 | | | | | 94,180 | | | | | 92,711 | |
Acquisition and integration, net | | | 3,416 | | | | | 343 | | | | | 708 | |
Restructuring and asset impairment, net | | | 9,190 | | | | | 805 | | | | | 2,886 | |
Cloud computing amortization | | | 5,034 | | | | | 3,650 | | | | | 2,140 | |
Organizational realignment, net | | | 5,239 | | | | | 1,859 | | | | | 589 | |
Severance associated with cost reduction initiatives | | | 318 | | | | | 831 | | | | | 423 | |
Stock-based compensation | | | 12,536 | | | | | 8,589 | | | | | 6,975 | |
Stock warrant | | | 1,559 | | | | | 2,158 | | | | | 1,958 | |
Non-cash rent | | | (2,599 | ) | | | | (3,444 | ) | | | | (4,059 | ) |
Loss (gain) on disposal of assets | | | 259 | | | | | 1,073 | | | | | (106 | ) |
Legal settlement | | | 900 | | | | | — | | | | | — | |
Postretirement plan amendment and settlement | | | 94 | | | | | 133 | | | | | — | |
Costs related to shareholder activism | | | — | | | | | 7,335 | | | | | — | |
Paid time off transition adjustment | | | — | | | | | — | | | | | (21,371 | ) |
Adjusted EBITDA | $ | | 257,401 | | | $ | | 242,879 | | | $ | | 213,706 | |
Wholesale: | | | | | | | | | | | |
Operating earnings | $ | | 87,701 | | | $ | | 55,137 | | | $ | | 45,229 | |
Adjustments: | | | | | | | | | | | |
LIFO expense | | | 12,388 | | | | | 48,282 | | | | | 15,755 | |
Depreciation and amortization | | | 51,535 | | | | | 47,601 | | | | | 46,487 | |
Acquisition and integration, net | | | 216 | | | | | 239 | | | | | — | |
Restructuring and asset impairment, net | | | 8,548 | | | | | (2,363 | ) | | | | 427 | |
Cloud computing amortization | | | 3,414 | | | | | 2,537 | | | | | 1,517 | |
Organizational realignment, net | | | 3,269 | | | | | 1,160 | | | | | 374 | |
Severance associated with cost reduction initiatives | | | 303 | | | | | 689 | | | | | 310 | |
Stock-based compensation | | | 8,216 | | | | | 5,646 | | | | | 4,373 | |
Stock warrant | | | 1,559 | | | | | 2,158 | | | | | 1,958 | |
Non-cash rent | | | (134 | ) | | | | (382 | ) | | | | 811 | |
(Gain) loss on disposal of assets | | | (83 | ) | | | | 512 | | | | | (42 | ) |
Legal settlement | | | 900 | | | | | — | | | | | — | |
Postretirement plan amendment and settlement | | | 59 | | | | | 83 | | | | | — | |
Costs related to shareholder activism | | | — | | | | | 4,577 | | | | | — | |
Paid time off transition adjustment | | | — | | | | | — | | | | | (10,041 | ) |
Adjusted EBITDA | $ | | 177,891 | | | $ | | 165,876 | | | $ | | 107,158 | |
Retail: | | | | | | | | | | | |
Operating earnings | $ | | 19,011 | | | $ | | 13,407 | | | $ | | 66,971 | |
Adjustments: | | | | | | | | | | | |
LIFO expense | | | 3,716 | | | | | 8,541 | | | | | 2,897 | |
Depreciation and amortization | | | 47,104 | | | | | 46,579 | | | | | 46,224 | |
Acquisition and integration, net | | | 3,200 | | | | | 104 | | | | | 708 | |
Restructuring and asset impairment, net | | | 642 | | | | | 3,168 | | | | | 2,459 | |
Cloud computing amortization | | | 1,620 | | | | | 1,113 | | | | | 623 | |
Organizational realignment, net | | | 1,970 | | | | | 699 | | | | | 215 | |
Severance associated with cost reduction initiatives | | | 15 | | | | | 142 | | | | | 113 | |
Stock-based compensation | | | 4,320 | | | | | 2,943 | | | | | 2,602 | |
Non-cash rent | | | (2,465 | ) | | | | (3,062 | ) | | | | (4,870 | ) |
Loss (gain) on disposal of assets | | | 342 | | | | | 561 | | | | | (64 | ) |
Postretirement plan amendment and settlement | | | 35 | | | | | 50 | | | | | — | |
Costs related to shareholder activism | | | — | | | | | 2,758 | | | | | — | |
Paid time off transition adjustment | | | — | | | | | — | | | | | (11,330 | ) |
Adjusted EBITDA | $ | | 79,510 | | | $ | | 77,003 | | | $ | | 106,548 | |
| 2020 | | | 2019 | | | 2018 | |
(In thousands) | (53 Weeks) | | | (52 Weeks) | | | (52 Weeks) | |
Net earnings | $ | | 75,914 | | | $ | | 5,742 | | | $ | | 33,572 | |
Loss from discontinued operations, net of tax | | | — | | | | | 175 | | | | | 219 | |
Income tax expense (benefit) | | | 9,450 | | | | | (2,342 | ) | | | | 6,907 | |
Other expenses, net | | | 17,042 | | | | | 53,367 | | | | | 29,814 | |
Operating earnings | | | 102,406 | | | | | 56,942 | | | | | 70,512 | |
Adjustments: | | | | | | | | | | | | | | |
LIFO expense | | | 2,176 | | | | | 5,892 | | | | | 4,601 | |
Depreciation and amortization | | | 89,504 | | | | | 87,866 | | | | | 82,634 | |
Merger/acquisition and integration | | | 421 | | | | | 1,437 | | | | | 4,937 | |
Restructuring, asset impairment and other charges | | | 24,398 | | | | | 13,050 | | | | | 37,546 | |
Fresh Kitchen start-up costs | �� | | — | | | | | — | | | | | 1,366 | |
Fresh Kitchen operating losses | | | — | | | | | 2,894 | | | | | — | |
Expenses associated with tax planning strategies | | | 82 | | | | | — | | | | | 225 | |
Fresh Cut operating losses | | | 2,262 | | | | | — | | | | | — | |
Stock-based compensation | | | 6,265 | | | | | 7,313 | | | | | 7,646 | |
Stock warrants | | | 6,549 | | | | | — | | | | | — | |
Non-cash rent | | | (4,733 | ) | | | | (5,622 | ) | | | | (962 | ) |
Costs associated with Project One Team | | | 493 | | | | | 5,428 | | | | | — | |
Organizational realignment costs | | | 455 | | | | | 1,812 | | | | | — | |
Loss on disposal of assets | | | 3,330 | | | | | — | | | | | — | |
Severance associated with cost reduction initiatives | | | 5,154 | | | | | — | | | | | — | |
Other non-cash charges | | | 297 | | | | | 933 | | | | | 916 | |
Adjusted EBITDA | | | 239,059 | | | | | 177,945 | | | | | 209,421 | |
53rd week | | | (4,246 | ) | | | | — | | | | | — | |
Adjusted EBITDA, excluding 53rd week | $ | | 234,813 | | | $ | | 177,945 | | | $ | | 209,421 | |
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Following is a reconciliation of operating earnings (loss) to adjusted EBITDA by segment for 2020, 2019 and 2018.
| 2020 | | | 2019 | | | 2018 | |
(In thousands) | (53 Weeks) | | | (52 Weeks) | | | (52 Weeks) | |
Food Distribution: | | | | | | | | | | | | | | |
Operating earnings | $ | | 45,962 | | | $ | | 47,416 | | | $ | | 48,752 | |
Adjustments: | | | | | | | | | | | | | | |
LIFO expense | | | 855 | | | | | 3,032 | | | | | 2,270 | |
Depreciation and amortization | | | 31,917 | | | | | 32,861 | | | | | 31,854 | |
Merger/acquisition and integration | | | — | | | | | (122 | ) | | | | 3,581 | |
Restructuring, asset impairment and other charges | | | 21,085 | | | | | 14,844 | | | | | 33,056 | |
Fresh Kitchen start-up costs | | | — | | | | | — | | | | | 1,366 | |
Fresh Kitchen operating losses | | | — | | | | | 2,894 | | | | | — | |
Expenses associated with tax planning strategies | | | 44 | | | | | — | | | | | 116 | |
Fresh Cut operating losses | | | 2,262 | | | | | — | | | | | — | |
Stock-based compensation | | | 3,076 | | | | | 3,603 | | | | | 3,626 | |
Stock warrants | | | 6,549 | | | | | — | | | | | — | |
Non-cash rent | | | 558 | | | | | 482 | | | | | 157 | |
Costs associated with Project One Team | | | 265 | | | | | 2,877 | | | | | — | |
Organizational realignment costs | | | 245 | | | | | 960 | | | | | — | |
Loss on disposal of assets | | | 1,482 | | | | | — | | | | | — | |
Severance associated with cost reduction initiatives | | | 3,156 | | | | | — | | | | | — | |
Other non-cash charges | | | 160 | | | | | 394 | | | | | 567 | |
Adjusted EBITDA | | | 117,616 | | | | | 109,241 | | | | | 125,345 | |
53rd week | | | (1,363 | ) | | | | — | | | | | — | |
Adjusted EBITDA, excluding 53rd week | $ | | 116,253 | | | $ | | 109,241 | | | $ | | 125,345 | |
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| 2020 | | | 2019 | | | 2018 | |
(In thousands) | (53 Weeks) | | | (52 Weeks) | | | (52 Weeks) | |
Retail: | | | | | | | | | | | | | | |
Operating earnings | $ | | 66,359 | | | $ | | 18,842 | | | $ | | 16,113 | |
Adjustments: | | | | | | | | | | | | | | |
LIFO expense | | | 301 | | | | | 1,071 | | | | | 1,101 | |
Depreciation and amortization | | | 45,199 | | | | | 43,171 | | | | | 38,812 | |
Merger/acquisition and integration | | | 421 | | | | | 1,559 | | | | | 1,352 | |
Restructuring, asset impairment and other charges (gains) | | | 3,313 | | | | | (1,794 | ) | | | | 5,291 | |
Expenses associated with tax planning strategies | | | 27 | | | | | — | | | | | 81 | |
Stock-based compensation | | | 2,134 | | | | | 2,530 | | | | | 2,776 | |
Non-cash rent | | | (4,915 | ) | | | | (5,730 | ) | | | | (796 | ) |
Costs associated with Project One Team | | | 164 | | | | | 1,845 | | | | | — | |
Organizational realignment costs | | | 151 | | | | | 616 | | | | | — | |
Severance associated with cost reduction initiatives | | | 1,445 | | | | | — | | | | | — | |
Loss on disposal of assets | | | 1,946 | | | | | — | | | | | — | |
Other non-cash charges | | | 97 | | | | | 628 | | | | | 299 | |
Adjusted EBITDA | | | 116,642 | | | | | 62,738 | | | | | 65,029 | |
53rd week | | | (2,780 | ) | | | | — | | | | | — | |
Adjusted EBITDA, excluding 53rd week | $ | | 113,862 | | | $ | | 62,738 | | | $ | | 65,029 | |
Military: | | | | | | | | | | | | | | |
Operating (loss) earnings | $ | | (9,915 | ) | | $ | | (9,316 | ) | | $ | | 5,647 | |
Adjustments: | | | | | | | | | | | | | | |
LIFO expense | | | 1,020 | | | | | 1,789 | | | | | 1,230 | |
Depreciation and amortization | | | 12,388 | | | | | 11,834 | | | | | 11,968 | |
Merger/acquisition and integration | | | — | | | | | — | | | | | 4 | |
Restructuring, asset impairment and other gains | | | — | | | | | — | | | | | (801 | ) |
Expenses associated with tax planning strategies | | | 11 | | | | | — | | | | | 28 | |
Stock-based compensation | | | 1,055 | | | | | 1,180 | | | | | 1,244 | |
Non-cash rent | | | (376 | ) | | | | (374 | ) | | | | (323 | ) |
Costs associated with Project One Team | | | 64 | | | | | 706 | | | | | — | |
Organizational realignment costs | | | 59 | | | | | 236 | | | | | — | |
Severance associated with cost reduction initiatives | | | 553 | | | | | — | | | | | — | |
Gain on disposal of assets | | | (98 | ) | | | | — | | | | | — | |
Other non-cash charges (gains) | | | 40 | | | | | (89 | ) | | | | 50 | |
Adjusted EBITDA | | | 4,801 | | | | | 5,966 | | | | | 19,047 | |
53rd week | | | (103 | ) | | | | — | | | | | — | |
Adjusted EBITDA, excluding 53rd week | $ | | 4,698 | | | $ | | 5,966 | | | $ | | 19,047 | |
Critical Accounting Policies and Estimates
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 related disclosure of contingent assets and liabilities. 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. The Company believes these accounting policies, and others set forth in Note 1, in the notes to the consolidated financial statements, should be reviewed as they are integral to 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.
An accounting estimate is considered critical if: a) it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and b) different estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact the Company’s consolidated financial statements. The Company considers the following accounting policies to represent the more critical estimates and assumptions used in the preparation of its consolidated financial statements:
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Customer Exposure and Credit Risk
Allowance for Doubtful Accounts. Credit Losses. The Company evaluates the collectability of its accounts and notes receivable based on a combination of factors. The Company estimates losses using an expected loss model, by considering both historical data and future expectations, including collection experience, expectations for current credit risks, accounts receivable payment status, the customer’s financial health, as well as the Company’s collateral and creditor position. The Company pools similar assets based on their credit risk characteristics, whereby many of its trade receivables are pooled based on certain customer or aging characteristics. After assets are pooled, an appropriate loss factor is applied based on management’s expectations. Based on the estimated loss, the Company records an allowance to reduce the receivable to an amount the Company reasonably expects to collect. It is possible that the accuracy of the estimation process could be materially affected by different judgments as to the collectability based on information considered and further deterioration of accounts. If circumstances change (e.g., further evidence of material adverse creditworthiness, additional accounts become credit risks, store closures), the Company’s estimates of the recoverability of amounts due could be reduced by a material amount, including to zero.
Funds Advanced to Independent Retailers. From time to time, 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 does not remain a customer for the specified time period. In the event these retailers are unable to repay these advances or otherwise experience an event of default, the Company may be unable to recover the unearned portion of the funds advanced to these independent retailers. The Company evaluates the recoverability of these advances based on a number of factors, including anticipated and historical purchase volume, the value of any collateral, customer financial health and other economic and industry factors, and establishes a reserve for the advances as necessary.
Guarantees of Debt and Lease Obligations of Others. The Company may guarantee debt and lease obligations of independent retailers. In the event these retailers are unable to meet their debt service payments or otherwise experience an event of default, the Company would be unconditionally liable for the outstanding balance of their debt, and lease obligations, which would be due in accordance with the underlying agreements. The Company evaluates the likelihood that funding will occur and the expected credit losses on commitments to be funded using an expected loss model.
The Company has guaranteed the outstanding lease obligations of certain independent retailers. These guarantees, which are secured by certain business assets and personal guarantees of the respective independent retailers, represent the maximum undiscounted payments the Company would be required to make in the event of default. When a loss is expected, a liability representing the fair value of the obligations assumed under the guarantees is included in the accompanying consolidated financial statements.
The Company also subleases and assigns various leases to third parties. In circumstances when the Company becomes aware of factors that indicate deterioration in a third party’s ability to meet its financial obligations guaranteed or assigned by SpartanNash, the Company records a specific reserve in the amount the Company reasonably believes it will be obligated to pay on the third party’s behalf, net of any anticipated recoveries from the third party. It is possible that the accuracy of the estimation process could be materially affected by different judgments as to the obligations based on information considered and further deterioration of accounts, with the potential for a corresponding adverse effect on operating results and cash flows. Triggering these guarantees or obligations under assigned leases would not, however, result in cross default of the Company’s debt, but could restrict resources available for general business initiatives.
Business Combinations
The Company accounts for acquired businesses using the purchase method of accounting, which requires that the assets acquired and liabilities assumed be recorded at their estimated fair values as of the acquisition date, with any excess purchase price over the estimated fair values of the net assets acquired being recorded as goodwill.
Significant judgment is required in estimating the fair value of intangible assets and in assigning their respective useful lives. The fair value estimates are based on available historical information and on future expectations and assumptions deemed reasonable by the Company but are inherently uncertain. Also, determining the estimated useful life of an intangible asset requires judgment based on the Company’s expected use of the asset, as different types of intangible assets will have different useful lives and certain assets may even be considered to have indefinite useful lives. The Company typically utilizes the income method to estimate the fair value of intangible assets, which discounts the projected future cash flows attributable to the respective assets. Significant estimates and assumptions inherent in the valuation reflect a consideration of other marketplace competition and include the amount and timing of future cash flows (including expected growth rates and profitability) and the discount rate applied to the cash flows. Unanticipated market or macroeconomic events and circumstances may occur that could affect the accuracy or validity of the estimates and assumptions.
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Goodwill and Other Indefinite-Lived Intangible Assets
Goodwill and other indefinite-lived intangible assets are tested for impairment on an annual basis (during the last quarter of the year), or whenever events occur or circumstances change that would more likely than not indicate an impairment exists. The quantitative impairment evaluation of these assets involves the comparison of their fair value to their carrying values.
Goodwill. The Company has threetwo reporting units, which are the same as the Company’s reportable segments; however, there is no goodwill recorded within the Retail or Military segments. Fair values are determined based on the discounted cash flows and comparable market values of each reportingreportable segment. If a reporting unit’s fair value is less than its carrying value, an impairment charge is recognized for the amount by which the carrying value exceeds the reporting unit’s fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The Company’s goodwill impairment analysis also includes a comparison of the estimated fair value of the enterprise as a whole to the Company’s total market capitalization. Therefore, a significant and sustained decline in the Company’s stock price could result in goodwill impairment charges. During times of financial market volatility, significant judgment is given to determine the underlying cause of the decline and whether stock price declines are short-term in nature or indicative of an event or change in circumstances.
The Company estimates the fair value of the Food DistributionWholesale and Retail reporting unit primarilyunits based on the income approach using a discounted cash flow model and also incorporates the market approach using observable comparable company information. Key assumptions used by the Company in preparing the fair value estimate under the discounted cash flow method include:
| • Weighted average cost of capital (“WACC”): The determination of the WACC incorporates current interest rates, equity risk premiums, and other market-based expectations regarding expected investment returns. The development of the WACC requires estimates of an equity rate of return and a debt rate of return, which are specific to the industry in which the reporting unit operates. •Revenue growth rates: The Company develops its forecasts based on recent sales data for existing operations and other factors, including management’s future expectations. •Operating profits: The Company uses historical operating margins as a basis for its projections within the discounted cash flow model. Margins within the forecast may vary due to future expectations related to both product and administrative costs. ●
| Weighted average cost of capital (“WACC”): The determination of the WACC incorporates current interest rates, equity risk premiums, and other market-based expectations regarding expected investment returns. The development of the WACC requires estimates of an equity rate of return and a debt rate of return, which are specific to the industry in which the reporting unit operates.
|
| ●
| Revenue growth rates: The Company develops its forecasts based on recent sales data for existing operations and other factors, including management’s future expectations.
|
| ●
| Operating profits: The Company uses historical operating margins as a basis for its projections within the discounted cash flow model. Margins within the forecast may vary due to future expectations related to both product and administrative costs.
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The Company compares the results of the discounted cash flow model to observable comparable company market multiples to support the appropriateness of the fair value estimates. The Company concludes whether the implied multiple is reasonable with respect to the comparable company range, and whether the assumptions used in the fair value estimate are supportable.
As of the date of the most recent goodwill impairment test, which utilized data and assumptions as of October 3, 2020,8, 2023, the Food DistributionWholesale and Retail reporting unitunits had a fair valuevalues that waswere substantially in excess of itstheir carrying value.values. The Company has sufficient available information, both current and historical, to support its assumptions, judgments and estimates used in the goodwill impairment test; however, if actual results for the Food Distribution segmentWholesale or Retail segments are not consistent with the Company’s estimates, it could result in the Company recording a non-cash impairment charge.
Other Indefinite-Lived Intangible Assets. The estimated fair value of these assets is computed by using a discounted cash flow method, such as the relief-from-royalty methodology. The Company determines future cash flows generated from the use of the asset, generally using estimated revenue growth rates and profitability rates and, in the case of the relief-from-royalty methodology, royalty rates. Discount rates are determined based on the WACC of the reporting unit in which the asset resides, consistent with the discussion above. Impairments of these assets were $8.6 million and $14.0 million for 2020 and 2019, respectively. There were no impairments of these assets in 2018.2023, 2022 or 2021.
Impairment of Long-Lived Assets
Long-lived assets to be held and used are evaluated for impairment when events or circumstances indicate that the carrying amount of an asset may not be recoverable. When the undiscounted future cash flows are not sufficient to recover an asset’s carrying amount, the fair value is compared to the carrying value to determine the impairment loss to be recorded. Long-lived assets are evaluated at the asset-group level, which is the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. Impairments of long-lived assets were $11.5$11.7 million, $3.9$5.1 million and $2.6$3.8 million for 2020, 20192023, 2022 and 2018,2021, respectively.
Estimates of future cash flows and expected sales prices are judgments based upon the Company’s experience and knowledge of operations. These estimates project cash flows several years into the future and are affected by changes in the economy, the competitive environment, real estate market conditions and inflation. If the book value of assets is determined to not be recoverable, future cash flows for the expected useful life of the asset group are discounted using a rate based on the WACC of the reportingreportable segment in which the asset resides, consistent with the discussion above.
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Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value, less cost to sell. Management determines fair values using independent appraisals, quotes or expected sales prices developed by internal real estate professionals. Estimates of expected sales prices are judgments based upon the Company’s experience, knowledge of market conditions and current offers received. Changes in market conditions, the economic environment and other factors, including the Company’s ability to effectively compete and react to competitor openings, can significantly impact these estimates. While the Company believes that the estimates and assumptions underlying the valuation methodology are reasonable, different assumptions could result in a different outcome.
Insurance Reserves
SpartanNash is self-insured through self-insurance retentions or high deductible programs for workers’ compensation, general liability, and automobile liability, and is also self-insured for healthcare costs. Self-insurance liabilities are recorded based on claims filed and an estimate of claims incurred but not yet reported. Workers’ compensation, general liability and automobile liabilities are actuarially estimated based on available historical information on an undiscounted basis. The Company has purchased stop-loss coverage to limit its exposure on a per claim basis for its self-insurance retentions and high deductible programs. On a per claim basis, the Company’s exposure is up to $0.5 million for workers’ compensation and general liability, $1.0 million for automobile liability, and $0.6 million for healthcare per covered life per year. Refer to Note 1, in the notes to the consolidated financial statements for additional information related to self-insurance reserves.
Any projection of losses concerning insurance reserves is subject to a degree of variability. Among the causes of variability are unpredictable external factors affecting future inflation rates, discount rates, litigation trends, changing regulations, legal interpretations, benefit level changes and claim settlement patterns. Although the Company’s estimates of liabilities incurred do not anticipate significant changes in historical trends for these variables, such changes could have a material impact on future claim costs and currently recorded liabilities. The impact of many of these variables may be difficult to estimate.
Stock Warrants
Common stock warrants may be accounted for as either liability or equity instruments depending on the terms of the warrant agreements. The stock warrants issued by the Company are accounted for as equity instruments due to the ability of the Company to settle the warrants though the issuance of available authorized shares and the absence of terms which would require liability classification, including the rights of the grantee to require cash settlement. The Company classifies stock warrants within common stock in the consolidated balance sheets.
Equity instruments are measured at their grant date fair value in accordance with Accounting Standards Codification (“ASC”) 718, Compensation – Stock Compensation. These instruments are classified within the consolidated statements of earnings in accordance with ASC 606, Revenue from Contracts with Customers, and ASU 2019-08. To determine the fair value of the warrants in accordance with ASC 718, the Company uses a binomial lattice pricing model. This model is based, in part, upon inputs for which management is required to use judgment. These inputs include the Company’s historical stock volatility and dividend rate, the risk-free interest rate, and the timeframe over which the options are expected to vest.
For awards granted to a customer which are not in exchange for distinct goods or services, the fair value of the awards earned based on vesting conditions is recorded as a reduction of the transaction price. The Company determines the amount of warrant expense based on the customer’s achievement of vesting conditions, which is recorded at grant date fair value per warrant share, as a reduction of revenue on the consolidated statement of earnings.
Income Taxes
The Company reviews deferred tax assets for recoverability and evaluates whether it is more likely than not that they will be realized. In making this evaluation, the Company considers positive and negative evidence associated with several factors, including the statutory recovery periods for the assets, along with available sources of future taxable income, including reversals of existing taxable temporary differences, tax planning strategies, history of taxable income or losses, and projections of future income or losses. A valuation allowance is provided when the Company concludes, based on all available evidence, that it is more likely than not that the deferred tax assets will not be realized during the applicable recovery period.
SpartanNash is subject to periodic audits by the Internal Revenue Service and other state and local taxing authorities. These audits may challenge certain of the Company’s tax positions, such as the timing and amount of income credits and deductions and the allocation of taxable income to various tax jurisdictions. The Company evaluates its tax positions and establishes liabilities in accordance with the applicable accounting guidance on uncertainty in income taxes. These tax uncertainties are reviewed as facts and circumstances change and are adjusted accordingly. This requires significant management judgment in estimating final outcomes. Actual results could materially differ from these estimates and could significantly affect the Company’s effective income tax rate and cash flows in future years.
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Liquidity and Capital Resources
Cash Flow Information
The following table summarizes the Company’s consolidated statements of cash flows for 2020, 20192023, 2022 and 2018:2021:
| | 2020 | | | 2019 | | | 2018 | | | | | | | |
(In thousands) | (53 Weeks) | | | (52 Weeks) | | | (52 Weeks) | | 2023 | | | 2022 | | | 2021 | |
Cash flow activities | | | | | | | | | | | | | | | | | | | | | |
Net cash provided by operating activities | $ | | 306,716 | | | $ | | 180,192 | | | $ | | 171,658 | | $ | | 89,327 | | | $ | | 110,350 | | | $ | | 161,155 | |
Net cash used in investing activities | | | (57,221 | ) | | | | (143,172 | ) | | | | (64,156 | ) | | | (116,517 | ) | | | | (100,948 | ) | | | | (47,978 | ) |
Net cash used in financing activities | | | (253,764 | ) | | | | (31,219 | ) | | | | (104,300 | ) |
Net cash used in discontinued operations | | | — | | | | | (214 | ) | | | | (284 | ) |
Net cash provided by (used in) financing activities | | | | 16,068 | | | | | 9,018 | | | | | (122,414 | ) |
Net (decrease) increase in cash and cash equivalents | | | (4,269 | ) | | | | 5,587 | | | | | 2,918 | | | | (11,122 | ) | | | | 18,420 | | | | | (9,237 | ) |
Cash and cash equivalents at beginning of year | | | 24,172 | | | | | 18,585 | | | | | 15,667 | | | | 29,086 | | | | | 10,666 | | | | | 19,903 | |
Cash and cash equivalents at end of year | $ | | 19,903 | | | $ | | 24,172 | | | $ | | 18,585 | | $ | | 17,964 | | | $ | | 29,086 | | | $ | | 10,666 | |
Net cash provided by operating activities. Net cash provided by operating activities in the current year increaseddecreased compared to the prior year by $126.5$21.0 million, due primarily due to improved profitability and changes in operating asset and liability balances partially related to the deferral of payroll taxes in connection with the CARES Act, and increases in accrued incentive compensation.working capital.
Net cash used in investing activities. Net cash used in investing activities decreased $86.0increased $15.6 million in 20202023 compared to 20192022 primarily due to a decrease in net proceeds received from the Martin’s acquisitionsale of assets and an increase in capital expenditures in the current year in line with the Company's long-term plan. The increase in cash used in investing activities was partially offset by acquisitions in both the Wholesale and Retail segments in the prior year.
The Food Distribution,Wholesale and Retail and Military segments utilized 37.2%, 50.4%62.8% and 12.4%37.2% of capital expenditures, respectively, for the current year. Capital expenditures for 20202023 primarily related to store remodels and the construction of one retail store, investments in supply chain infrastructure, andstore remodels, IT system upgrades and implementations.implementations, and equipment upgrades. Capital expenditures were $67.3$120.3 million in the current year and cloud computing application development spend, which is included in operating activities, was $11.6$7.0 million, compared to capital expenditures of $74.8$97.3 million in the prior year. The Company expects capital expenditures and cloud computing application development spend to range from $80.0 million to $90.0of $4.8 million in 2021.the prior year.
Net cash used inprovided by financing activities. Net cash used inprovided by financing activities increased $222.5$7.1 million in 20202023 compared to 20192022 primarily due to increased payment of debt balancesa decrease in share repurchases in the current year, fundedpartially offset by cash provided by operating activities, in addition to borrowings to fund the Martin’s acquisitiona lower rate of borrowing in the prior year.current year on the Company's senior credit facility.
Debt Management
Debt Management
Long-term debt and finance lease liabilities, including the current portion, decreased $202.1increased $93.9 million to $486.4$597.5 million as of January 2, 2021December 30, 2023 from $688.6$503.6 million at December 28, 2019.31, 2022. The decreaseincrease in total debt was driven by principal payments made throughout 2020.
additional borrowings on the senior credit facility to fund changes in working capital, purchases of property, plant and equipment, and share repurchases. The Company’sCompany's Amended and Restated Loan and Security Agreement (the “Credit Agreement”"Credit Agreement") matures on December 18,November 17, 2027. In 2023, the Company entered into amendments (the "Amendments") to the Company's Amended and Restated Loan and Security Agreement (the "Credit Agreement"). The principal terms of the Amendments included increasing the size of the Tranche A portion of the Company's revolving credit facility by $130 million in 2023. The Credit Agreement provides for a Tranche A revolving loan of up to $975 million$1.17 billion and a Tranche A-1 revolving loan with $40 million of capacity. The Company has the ability to increase the size ofamount borrowed under the Credit Agreement by an additional $325$195 million, subject to certain conditions. The Company’s obligations under the Credit Agreement are secured by substantially all of the Company’s personal and real property. The Company may repay all loans in whole or in part at any time without penalty.
Liquidity
The Company’s principal sources of liquidity are cash flows generated from operations and its senior secured credit facility. As of January 2, 2021,December 30, 2023, the senior secured credit facility had outstanding borrowings of $440.2$522.5 million. Additional available borrowings under the Company’s Credit Agreement are based on stipulated advance rates on eligible assets, as defined in the Credit Agreement. The Credit Agreement requires that the Company maintainsmaintain Excess Availability of 10% of the borrowing base, as defined in the Credit Agreement. The Company had excess availability after the 10% requirement of $432.4$483.2 million at January 2, 2021.December 30, 2023. Payment of dividends and repurchases of outstanding shares are permitted, provided that certain levels of excess availability are maintained. The Credit Agreement provides for the issuance of letters of credit, of which $15.6$17.7 million were outstanding as of January 2, 2021.December 30, 2023. The Company anticipates that additional borrowings may be required to fund increased investments in expenditures related to both organic and inorganic initiatives included in the long-term strategic plan. The Company believes that cash generated from operating activities and available borrowings under the Credit Agreement 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.
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The Company’s current ratio (current assets over current liabilities) was 1.47:1.63:1 at January 2, 2021December 30, 2023 compared to 1.76:1.51:1at December 28, 2019,31, 2022, and its investment in working capital was $325.2 million at January 2, 2021 compared to $431.5$417.6 million at December 28, 2019.30, 2023 compared to $361.4 million at December 31, 2022. The net long-term debt to total capital ratio was 0.39:1 at January 2, 2021, compared to 0.49:0.43:1 at December 28, 2019.30, 2023, compared to 0.38:1 at December 31, 2022. Total net long-term debt is a non-GAAP financial measure that is defined as long-term debt and finance lease liabilities, plus current portion of long-term debt and finance lease liabilities, less cash and cash equivalents. 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 long-term 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 net long-term debt, a non-GAAP measure, as of January 2, 2021December 30, 2023 and December 28, 2019.31, 2022.
| | | | | | | | | |
| December 30, | | | December 31, | |
(In thousands) | 2023 | | | 2022 | |
Current portion of long-term debt and finance lease liabilities | $ | | 8,813 | | | $ | | 6,789 | |
Long-term debt and finance lease liabilities | | | 588,667 | | | | | 496,792 | |
Total debt | | | 597,480 | | | | | 503,581 | |
Cash and cash equivalents | | | (17,964 | ) | | | | (29,086 | ) |
Net long-term debt | $ | | 579,516 | | | $ | | 474,495 | |
| January 2, | | | December 28, | |
(In thousands) | 2021 | | | 2019 | |
Current portion of long-term debt and finance lease liabilities | $ | | 5,135 | | | $ | | 6,349 | |
Long-term debt and finance lease liabilities | | | 481,309 | | | | | 682,204 | |
Total debt | | | 486,444 | | | | | 688,553 | |
Cash and cash equivalents | | | (19,903 | ) | | | | (24,172 | ) |
Net long-term debt | $ | | 466,541 | | | $ | | 664,381 | |
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Contractual Obligations
The table below presents the Company’s significant contractual obligationsmaterial cash requirements as of January 2, 2021, presentedDecember 30, 2023 primarily include long-term debt, including the estimated interest on an undiscounted basis. Funding of postretirement benefitthe long-term debt, operating and finance lease liabilities, purchase obligations, and contributions under various multi-employer pension and health and welfare plans, which totaled $14.1 million and $13.7 million, respectively, for the year ended January 2, 2021 are excluded.capital expenditure commitments. For additional information related to long-term debt and lease obligations, refer to Note 11,Notes 6 and 10, respectively, in the notes to the consolidated financial statements. Unrecognized tax liabilities are also excluded, asPurchase obligations include the amount of product the Company cannot reasonably estimateis contractually obligated to purchase in order to earn advanced contract monies that are receivable under the timingcontracts, the majority of potential cash settlement. For additional information, refer to Note 13,which are due in the notes to the consolidated financial statements.next 12 months.
| Amount Committed By Period | |
| Total | | | Less | | | | | | | | | | | | | More | |
| Amount | | | than 1 | | | | | | | | | | | | | than 5 | |
(In thousands) | Committed | | | year | | | 1-3 years | | | 3-5 years | | | years | |
Long-term debt | $ | | 446,884 | | | $ | | 1,105 | | | $ | | 442,023 | | | $ | | 1,599 | | | $ | | 2,157 | |
Estimated interest on long-term debt | | | 35,601 | | | | | 14,118 | | | | | 21,187 | | | | | 249 | | | | | 47 | |
Finance leases (a) | | | 63,848 | | | | | 6,973 | | | | | 12,400 | | | | | 11,137 | | | | | 33,338 | |
Operating leases (a) | | | 407,334 | | | | | 61,536 | | | | | 106,688 | | | | | 82,928 | | | | | 156,182 | |
Ancillary lease costs of closed sites | | | 3,789 | | | | | 1,331 | | | | | 1,179 | | | | | 756 | | | | | 523 | |
Purchase obligations (merchandise) (b) | | | 34,303 | | | | | 20,693 | | | | | 10,129 | | | | | 3,481 | | | | | — | |
Self-insurance liability | | | 16,737 | | | | | 9,989 | | | | | 4,066 | | | | | 1,452 | | | | | 1,230 | |
Total | $ | | 1,008,496 | | | $ | | 115,745 | | | $ | | 597,672 | | | $ | | 101,602 | | | $ | | 193,477 | |
(a)
| Operating and finance lease obligations do not include common area maintenance, insurance or tax payments for which the Company is also obligated. These costs totaled approximately $14.4 million in 2020.
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(b)
| The amount of purchase obligations shown in this table represents the amount of product the Company is contractually obligated to purchase in order to earn $12.2 million in advanced contract monies that are receivable under the contracts. At January 2, 2021, $1.8 million in advanced contract monies has been received under these contracts where recognition has been deferred on the consolidated balance sheet. If the Company does not fulfill these purchase obligations, it would only be obligated to repay the unearned upfront contract monies. The amount shown here does not include the following: a) purchase obligations made in the normal course of business as those obligations involve purchase orders based on current Company needs that are typically cancelable and/or fulfilled by vendors within a very short period of time; b) agreements that are cancelable by the Company without significant penalty, including contracts for routine outsourced services; and c) contracts that do not contain minimum annual purchase commitments but include other standard contractual considerations that must be fulfilled in order to earn advanced contract monies that have been received.
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The Company has also made certain commercial commitments that extend beyond January 2, 2021. These commitments include standby letters of credit and guarantees of certain customer and third-party business partner lease, debt, and vendor obligations. Refer to Note 1, and Note 3, in the notes to the consolidated financial statements for additional information regarding lease guarantees and assigned leases. The Company had $15.6 million of standby letters of credit outstanding as of January 2, 2021, which primarily support the Company’s self-insurance obligations and are due within one year.
Cash Dividends
The Company declared a quarterly cash dividend of $0.1925, $0.19$0.215, $0.21 and $0.18$0.20 per common share in each quarter of 2020, 2019,2023, 2022, and 2018,2021, respectively. Under the Credit Agreement, the Company is generally permitted to pay dividends in any 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 in excess of $35.0 million in any year so long as its Excess Availability, as defined in the Credit Agreement, is in excess of 10% of the Total Borrowing Base, as defined in the Credit Agreement, before and after giving effect to the repurchases and dividends. Although the Company currently expects to continue to pay a quarterly cash dividend, adoption of a dividend policy does not commit the Board of Directors (the “Board”) to declare future dividends. Each future dividend will be considered and declared by the Board at its discretion. Whether the Board 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.
Recently Adopted Accounting Standards
Refer to Note 1, in the notes to the consolidated financial statements for additional information related to recently adopted accounting standards, as well as the anticipated effect of any impending accounting standards.
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Item 7A. Quantitative and Qualitative Disclosure About Market Risk
The Company is exposed to industry related price changes on several commodities, such as dairy, meat and produce, that it buys and sells in allboth of its segments. These products are purchased for and sold from inventory in the ordinary course of business. The Company is also exposed to other general commodity price changes such as utilities, insurance and fuel costs.
The Company had $440.2$522.5 million of variable rate debt as of January 2, 2021.December 30, 2023. The Company may not be able to accurately predict changes in interest rates or mitigate their impact. A hypothetical 0.50% increase in rates applicable to borrowings under the Revolving Credit Facility as of January 2, 2021December 30, 2023 would increase interest expense related to such debt by approximately $2.2$2.6 million per year. The weighted average interest rate on debt outstanding during the year ended January 2, 2021December 30, 2023 was 2.95%7.03%.
As of December 30, 2023, the Company maintained an interest rate swap agreement with a maturity date of November 17, 2027 and an aggregate notional amount totaling $150 million. The Company utilizes the interest rate swap to mitigate its exposure to changes in variable interest rates on a portion of the Company's outstanding Revolving Credit Facility. Per the terms of the swap, the Company receives one-month term Secured Overnight Financing Rate (SOFR) and pays a fixed interest rate of 3.646%. The Company's interest rate swap is designated as a cash flow hedge as defined by GAAP. Accordingly, the change in the fair value of the interest rate swap is initially reported in "Other comprehensive income" in the consolidated statements of comprehensive income and subsequently reclassified to earnings in "Interest expense, net" in the consolidated statements of earnings when the hedged transactions affect earnings. As of December 30, 2023, the fair value of the interest rate swap was recorded in "Prepaid expenses and other current assets" and "Other long-term liabilities" for $1.7 million and $1.9 million, respectively, and "Accumulated other comprehensive income" for ($0.3) million, net of tax.
At January 2, 2021December 30, 2023 the estimated fair value of the Company’s fixed rate long-term debt was higher than book value by approximately $7.4$1.2 million. The estimated fair value was based on market quotes for instruments with similar terms and remaining maturities.
The following table sets forth the future principal payments of the Company’s outstanding debt and related weighted average interest rates for the outstanding instruments as of January 2, 2021:December 30, 2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 30, 2023 | | | Aggregate Payments by Year | |
(In thousands, except rates) | Fair Value | | | Total | | | 2024 | | | 2025 | | | 2026 | | | 2027 | | | 2028 | | | Thereafter | |
Fixed rate debt | |
Principal payable | $ | | 80,626 | | | $ | | 79,383 | | | $ | | 8,813 | | | $ | | 8,693 | | | $ | | 10,024 | | | $ | | 7,607 | | | $ | | 7,530 | | | $ | | 36,716 | |
Average interest rate | | | | | | | | | | | 6.54 | % | | | | 6.60 | % | | | | 6.67 | % | | | | 6.71 | % | | | | 6.68 | % | | | | 6.26 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Variable rate debt | |
Principal payable | $ | | 522,491 | | | $ | | 522,491 | | | $ | | — | | | $ | | — | | | $ | | — | | | $ | | 522,491 | | | $ | | — | | | $ | | — | |
Average interest rate | | | | | | | | | | | 7.20 | % | | | | 7.20 | % | | | | 7.20 | % | | | | 7.20 | % | | | N/A | | | | N/A | |
| January 2, 2021 | | | Aggregate Payments by Year | |
(In thousands, except rates) | Fair Value | | | Total | | | 2021 | | | 2022 | | | 2023 | | | 2024 | | | 2025 | | | Thereafter | |
Fixed rate debt | |
Principal payable | $ | | 57,764 | | | $ | | 50,339 | | | $ | | 5,135 | | | $ | | 4,614 | | | $ | | 4,557 | | | $ | | 4,450 | | | $ | | 4,104 | | | $ | | 27,479 | |
Average interest rate | | | | | | | | | | | | | 6.58 | % | | | | 6.67 | % | | | | 6.74 | % | | | | 6.81 | % | | | | 6.84 | % | | | | 6.35 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Variable rate debt | |
Principal payable | $ | | 440,177 | | | $ | | 440,177 | | | $ | | — | | | $ | | — | | | $ | | 440,177 | | | $ | | — | | | $ | | — | | | $ | | — | |
Average interest rate | | | | | | | | | | | | | 1.73 | % | | | | 1.73 | % | | | | 1.73 | % | | | N/A | | | | N/A | | | | N/A | |
-31-
Item 8. Financial Statements and Supplementary Data
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and shareholders of
SpartanNash Company and subsidiaries
Grand Rapids, Michigan
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of SpartanNash Company and subsidiaries (the "Company") as of January 2, 2021December 30, 2023 and December 28, 2019,31, 2022, the related consolidated statements of earnings, comprehensive income, shareholders' equity, and cash flows, for the fiscal years ended December 30, 2023, December 31, 2022, and January 2, 2021, December 28, 2019 and December 29, 2018,1, 2022, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of January 2, 2021December 30, 2023 and December 28, 2019,31, 2022, and the results of its operations and its cash flows for each of the fiscal years ended December 30, 2023, December 31, 2022, and January 2, 2021, December 28, 2019 and December 29, 2018,1, 2022, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of January 2, 2021,December 30, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 3, 2021,February 28, 2024, expressed an unqualified opinion on the Company's internal control over financial reporting.
Change in Accounting Principle
As discussed in Note 1 to the financial statements, in the first quarter of 2019, the Company adopted Accounting Standards Update (“ASU”) 2016-12, Leases (Topic 842), using the alternative transition method provided in ASU 2018-11, Leases (Topic 842): Targeted Improvements.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit MattersMatter
The critical audit mattersmatter communicated below are mattersis a matter arising from the current-period audit of the financial statements that werewas communicated or required to be communicated to the audit committee and that (1) relaterelates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit mattersmatter below, providing separate opinions on the critical audit mattersmatter or on the accounts or disclosures to which they relate.it relates.
-40-
Goodwill — Food DistributionWholesale Reporting Unit — Refer to Notes 1 and 54 to the financial statements
Critical Audit Matter Description
The Company’s evaluation of goodwill for impairment involves the comparison of the fair value of each reporting unit to theirits carrying value. The Company has three reporting units, which areevaluates goodwill for impairment annually during the same as the Company’s reportable segments.fourth quarter, and more frequently if circumstances indicate impairment is more likely than not to have occurred. The goodwill balance was $181$182 million as of January 2, 2021, allDecember 30, 2023, $181 million of which was allocated to the Food DistributionWholesale reporting unit (“Food Distribution”Wholesale”).
The estimate of the fair value of Food DistributionWholesale is primarily based on the income approach using a discounted cash flow model and also incorporates the market approach using observable comparable company information. The principal factors used in the discounted cash flow analysis requiring management judgment are the determination of the weighted average cost of capital (“WACC”), revenue growth rates, and forecasted operating profits. Under the market approach, the Company compared the results of the discounted cash flow model to observable comparable company market multiples to support the appropriateness of the fair value estimates. The Company’s goodwill impairment analysis also includes a comparison of the estimated fair value of the enterprise as a whole to the Company’s total market capitalization.
The Company evaluates goodwill for impairment annually, and more frequently if circumstances indicate the possibility of impairment. The Company concluded that the fair value of Food DistributionWholesale was substantially in excess of its carrying value and, therefore, no impairment was recognized.
Given the significant judgments made by management to estimate the fair value of Food Distribution,Wholesale, performing audit procedures to evaluate the reasonableness of management’s judgments and assumptions utilized in the impairment evaluation, particularly the determination of the WACC, revenue growth rates, and forecasted operating profits, and the WACC, required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to revenue growth rates, forecasted operating profits, and the selection of the WACC used by management to estimate the fair value of Food DistributionWholesale included the following, among others:
| •
| We tested the effectiveness of controls over management’s goodwill impairment evaluation, including those over the determination of the fair value of Food Distribution,•We tested the effectiveness of controls over management’s goodwill impairment evaluation, including those over the determination of the fair value of Wholesale, such as controls related to the determination of revenue growth rates and forecasted operating profits, and the selection of the WACC.
|
| •
| We evaluated management’s ability to accurately forecast by comparing actual results to management’s historical forecasts.
|
| •
| We evaluated the reasonableness of management’s determination of revenue growth rates and forecasted operating profits for Food Distribution by comparing the growth rates and forecasts to:
|
| –
| Historical revenue growth rates and operating profits.
|
| –
| Internal communications to management and the Board of Directors.
|
| –
| Forecasted information included in Company press releases as well as in analyst and industry reports for the Company and certain of its peer companies.
|
| •
| With the assistance of our fair value specialists, we evaluated the WACC for Food Distribution, which included testing the underlying source information and the mathematical accuracy of the calculations, and developing a range of independent estimates and comparing those to the WACC selected by management.
|
| •
| With the assistance of our fair value specialists, we evaluated the market approach for Food Distribution, which included evaluating the reasonableness of the selected guideline public companies and the resulting market multiples calculation, as well as benchmarking the selected multiple for Food Distribution against these guideline public companies.
|
-41-
Share-Based Payments — Stock Warrants — Refer to Notes 1 and 14 to the financial statements
Critical Audit Matter Description
On October 7, 2020, in connection with its entry into a commercial agreement with a customer, the Company issued warrants to the customer to acquire up to an aggregate of 5,437,272 shares of the Company’s common stock (the “Warrants”), subject to certain vesting conditions. Warrants equivalent to 2.5% of the Company’s outstanding and issuable shares, or 1,087,455 shares, vested upon the signing of the commercial agreement, and had a grant date fair value of $5.51 per share. Warrants equivalent to up to 10.0% of the Company’s outstanding and issuable shares, or 4,349,817 shares, may vest in connection with conditions defined by the terms of the Warrants, as the customer makes payments to the Company in connection with the commercial supply agreement, and had a grant date fair value of $5.33 per share. The Warrants are classified as equity instruments within common stock in the financial statements. Warrant expense is determined based on the customer’s achievement of vesting conditions and is recorded as a reduction of net sales in the financial statements based on the grant date fair value per warrant share. Warrant expense of approximately $6.5 million was recorded during the fiscal year ended January 2, 2021.
The fair values of the Warrants were determined as of the grant date using the binomial lattice pricing model (the “lattice model”). The selection of the valuation methodology and assumptions utilized in the lattice model are based, in part, upon assumptions for which management is required to use judgment, particularly the risk-free interest rate, volatility, and dividend yield.
We identified the valuation of the Warrants as a critical audit matter because of the significant judgments made by management to determine the grant date fair values. This required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists, when performing audit procedures to evaluate the reasonableness of management’s valuation methodology and related assumptions including the risk-free interest rate, volatility, and dividend yield.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the determination of revenue growth rates and forecasted operating profits, and the fair valuesselection of the Warrants includingWACC.
•We evaluated management’s ability to accurately forecast by comparing actual results to management’s historical forecasts.
•We evaluated the valuation methodologyreasonableness of management’s determination of revenue growth rates and related assumptions suchforecasted operating profits for Wholesale by comparing the growth rates and forecasts to:
•Historical revenue growth rates and operating profits.
•Internal communications to management and the Board of Directors.
•Forecasted information included in Company press releases as well as in analyst and industry reports for the risk-free interest rate, volatility,Company and dividend yield, consistedcertain of its peer companies.
•With the assistance of our fair value specialists, we evaluated the WACC for Wholesale, which included testing the underlying source information and the mathematical accuracy of the
following, among others: calculations and developing a range of independent estimates and comparing those to the WACC selected by management. | • With the assistance of our fair value specialists, we evaluated the market approach for Wholesale, which included evaluating the reasonableness of the selected guideline public companies and the resulting market multiples calculation, as well as benchmarking the selected multiple for Wholesale against these guideline public companies. •
| We tested the effectiveness of management’s controls over the valuation of the Warrants, including those over the determination of the valuation methodology and related assumptions including the risk-free interest rate, volatility, and dividend yield.
|
| •
| We obtained and inspected the Warrant agreements and management’s valuation analyses, including supporting schedules and related narrative information.
|
| •
| With the assistance of our fair value specialists, we evaluated management’s valuation methodology including the selection of the lattice model to determine the fair values of the Warrants.
|
| •
| With the assistance of our fair value specialists, we evaluated the reasonableness of management’s valuation assumptions and the underlying source information of significant valuation assumptions including the risk-free interest rate, volatility, and dividend yield.
|
| •
| With the assistance of our fair value specialists, we assessed whether management’s calculations of the fair values were applied in accordance with the selected methodology including testing the mathematical accuracy of the valuation analyses.
|
/s/ DELOITTE & TOUCHE LLP
Grand Rapids, Michigan
March 3, 2021February 28, 2024
We have served as the Company's auditor since at least 1970; however, an earlier year could not be reliably determined.
-42-
CONSOLIDATED BALANCE SHEETS
SpartanNash Company and Subsidiaries
| | January 2, | | | December 28, | | December 30, | | | December 31, | |
(In thousands) | 2021 | | | 2019 | | 2023 | | | 2022 | |
Assets | | | | | | | | | | | | | | | |
Current assets | | | | | | | | | | | | | | |
Cash and cash equivalents | $ | | 19,903 | | | $ | | 24,172 | | $ | | 17,964 | | | $ | | 29,086 | |
Accounts and notes receivable, net | | | 357,564 | | | | | 345,320 | | | | 421,859 | | | | | 404,016 | |
Inventories, net | | | 541,785 | | | | | 537,212 | | | | 575,226 | | | | | 571,065 | |
Prepaid expenses and other current assets | | | 72,229 | | | | | 58,775 | | | | 62,440 | | | | | 62,244 | |
Property and equipment held for sale | | | 23,259 | | | | | 31,203 | |
Total current assets | | | 1,014,740 | | | | | 996,682 | | | | 1,077,489 | | | | | 1,066,411 | |
| | | | | | | | | | | | | | | | |
Property and equipment, net | | | 577,059 | | | | | 615,816 | | | | 649,071 | | | | | 610,220 | |
Goodwill | | | 181,035 | | | | | 181,035 | | | | 182,160 | | | | | 182,160 | |
Intangible assets, net | | | 116,142 | | | | | 130,434 | | | | 101,535 | | | | | 106,341 | |
Operating lease assets | | | 289,173 | | | | | 268,982 | | | | 242,146 | | | | | 257,047 | |
Other assets, net | | | 99,242 | | | | | 82,660 | | | | 103,174 | | | | | 84,382 | |
| | | | | | | | | | | | | | | | |
Total assets | $ | | 2,277,391 | | | $ | | 2,275,609 | | $ | | 2,355,575 | | | $ | | 2,306,561 | |
| | | | | | | | | | | | | | | | |
Liabilities and Shareholders’ Equity | | | | | | | | | | | | | | | | |
Current liabilities | | | | | | | | | | | | | | | | |
Accounts payable | $ | | 464,784 | | | $ | | 405,370 | | $ | | 473,419 | | | $ | | 487,215 | |
Accrued payroll and benefits | | | 113,789 | | | | | 59,680 | | | | 78,076 | | | | | 103,048 | |
Other accrued expenses | | | 60,060 | | | | | 51,295 | | | | 57,609 | | | | | 62,465 | |
Current portion of operating lease liabilities | | | 45,786 | | | | | 42,440 | | | | 41,979 | | | | | 45,453 | |
Current portion of long-term debt and finance lease liabilities | | | 5,135 | | | | | 6,349 | | | | 8,813 | | | | | 6,789 | |
Total current liabilities | | | 689,554 | | | | | 565,134 | | | | 659,896 | | | | | 704,970 | |
| | | | | | | | | | | | | | | | |
Long-term liabilities | | | | | | | | | | | | | | | | |
Deferred income taxes | | | 45,728 | | | | | 43,111 | | | | 73,904 | | | | | 66,293 | |
Operating lease liabilities | | | 278,859 | | | | | 267,350 | | | | 226,118 | | | | | 239,062 | |
Other long-term liabilities | | | 46,892 | | | | | 30,272 | | | | 28,808 | | | | | 33,376 | |
Long-term debt and finance lease liabilities | | | 481,309 | | | | | 682,204 | | | | 588,667 | | | | | 496,792 | |
Total long-term liabilities | | | 852,788 | | | | | 1,022,937 | | | | 917,497 | | | | | 835,523 | |
| | | | | | | | | | | | | | | | |
Commitments and contingencies (Note 9) | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Shareholders’ equity | | | | | | | | | | | | | | | | |
Common stock, voting, no par value; 100,000 shares authorized; 35,851 and 36,351 shares outstanding | | | 491,819 | | | | | 490,233 | |
Preferred stock, no par value, 10,000 shares authorized; 0 shares outstanding | | | — | | | | | — | |
Accumulated other comprehensive loss | | | (2,276 | ) | | | | (1,600 | ) |
Common stock, voting, no par value; 100,000 shares
authorized; 34,610 and 35,079 shares outstanding | | | | 460,299 | | | | | 468,061 | |
Preferred stock, no par value, 10,000 shares authorized; no shares outstanding | | | | — | | | | | — | |
Accumulated other comprehensive income | | | | 796 | | | | | 2,979 | |
Retained earnings | | | 245,506 | | | | | 198,905 | | | | 317,087 | | | | | 295,028 | |
Total shareholders’ equity | | | 735,049 | | | | | 687,538 | | | | 778,182 | | | | | 766,068 | |
| | | | | | | | | | | | | | | | |
Total liabilities and shareholders’ equity | $ | | 2,277,391 | | | $ | | 2,275,609 | | $ | | 2,355,575 | | | $ | | 2,306,561 | |
See notes to consolidated financial statements.
-43-
CONSOLIDATED STATEMENTS OF EARNINGS
SpartanNash Company and Subsidiaries
| | | | | | | | | | | | | | | |
(In thousands, except per share amounts) | 2023 | | | 2022 | | | 2021 | | |
Net sales | $ | | 9,729,219 | | | $ | | 9,643,100 | | | $ | | 8,931,039 | | |
Cost of sales | | | 8,243,663 | | | | | 8,145,625 | | | | | 7,527,160 | | |
Gross profit | | | 1,485,556 | | | | | 1,497,475 | | | | | 1,403,879 | | |
| | | | | | | | | | | | |
Operating expenses | | | | | | | | | | | | |
Selling, general and administrative | | | 1,366,238 | | | | | 1,427,783 | | | | | 1,309,456 | | |
Paid time off transition adjustment | | | — | | | | | — | | | | | (21,371 | ) | |
Acquisition and integration, net | | | 3,416 | | | | | 343 | | | | | 708 | | |
Restructuring and asset impairment, net | | | 9,190 | | | | | 805 | | | | | 2,886 | | |
Total operating expenses | | | 1,378,844 | | | | | 1,428,931 | | | | | 1,291,679 | | |
| | | | | | | | | | | | |
Operating earnings | | | 106,712 | | | | | 68,544 | | | | | 112,200 | | |
| | | | | | | | | | | | |
Other expenses and (income) | | | | | | | | | | | | |
Interest expense, net | | | 39,887 | | | | | 22,791 | | | | | 13,851 | | |
Other, net | | | (3,300 | ) | | | | (1,162 | ) | | | | (308 | ) | |
Total other expenses, net | | | 36,587 | | | | | 21,629 | | | | | 13,543 | | |
| | | | | | | | | | | | |
Earnings before income taxes | | | 70,125 | | | | | 46,915 | | | | | 98,657 | | |
Income tax expense | | | 17,888 | | | | | 12,397 | | | | | 24,906 | | |
Net earnings | $ | | 52,237 | | | $ | | 34,518 | | | $ | | 73,751 | | |
| | | | | | | | | | | | |
Net earnings per basic common share | $ | | 1.53 | | | $ | | 0.98 | | | $ | | 2.07 | | |
| | | | | | | | | | | | |
Net earnings per diluted common share | $ | | 1.50 | | | $ | | 0.95 | | | $ | | 2.05 | | |
| | | | | | | | | | | | |
Weighted average shares outstanding: | | | | | | | | | | | | |
Basic | | | 34,211 | | | | | 35,279 | | | | | 35,639 | | |
Diluted | | | 34,901 | | | | | 36,313 | | | | | 35,943 | | |
See notes to consolidated financial statements.
| 2020 | | | 2019 | | | 2018 | | |
(In thousands, except per share amounts) | (53 Weeks) | | | (52 Weeks) | | | (52 Weeks) | | |
Net sales | $ | | 9,348,485 | | | $ | | 8,536,065 | | | $ | | 8,064,552 | | |
Cost of sales | | | 7,923,520 | | | | | 7,292,235 | | | | | 6,954,146 | | |
Gross profit | | | 1,424,965 | | | | | 1,243,830 | | | | | 1,110,406 | | |
| | | | | | | | | | | | | | | |
Operating expenses | | | | | | | | | | | | | | | |
Selling, general and administrative | | | 1,297,740 | | | | | 1,172,401 | | | | | 997,411 | | |
Merger/acquisition and integration | | | 421 | | | | | 1,437 | | | | | 4,937 | | |
Restructuring, asset impairment and other charges | | | 24,398 | | | | | 13,050 | | | | | 37,546 | | |
Total operating expenses | | | 1,322,559 | | | | | 1,186,888 | | | | | 1,039,894 | | |
| | | | | | | | | | | | | | | |
Operating earnings | | | 102,406 | | | | | 56,942 | | | | | 70,512 | | |
| | | | | | | | | | | | | | | |
Other (income) and expenses | | | | | | | | | | | | | | | |
Interest expense | | | 18,418 | | | | | 34,548 | | | | | 30,483 | | |
Loss on debt extinguishment | | | — | | | | | 329 | | | | | — | | |
Postretirement benefit (income) expense | | | (685 | ) | | | | 19,803 | | | | | 159 | | |
Other, net | | | (691 | ) | | | | (1,313 | ) | | | | (828 | ) | |
Total other expenses, net | | | 17,042 | | | | | 53,367 | | | | | 29,814 | | |
| | | | | | | | | | | | | | | |
Earnings before income taxes and discontinued operations | | | 85,364 | | | | | 3,575 | | | | | 40,698 | | |
Income tax expense (benefit) | | | 9,450 | | | | | (2,342 | ) | | | | 6,907 | | |
Earnings from continuing operations | | | 75,914 | | | | | 5,917 | | | | | 33,791 | | |
| | | | | | | | | | | | | | | |
Loss from discontinued operations, net of taxes | | | — | | | | | (175 | ) | | | | (219 | ) | |
Net earnings | $ | | 75,914 | | | $ | | 5,742 | | | $ | | 33,572 | | |
| | | | | | | | | | | | | | | |
Basic earnings per share: | | | | | | | | | | | | | | | |
Earnings from continuing operations | $ | | 2.12 | | | $ | | 0.16 | | | $ | | 0.94 | | |
Loss from discontinued operations | | | — | | | | | (0.00 | ) | | | | (0.01 | ) | |
Net earnings | $ | | 2.12 | | | $ | | 0.16 | | | $ | | 0.93 | | |
| | | | | | | | | | | | | | | |
Diluted earnings per share: | | | | | | | | | | | | | | | |
Earnings from continuing operations | $ | | 2.12 | | | $ | | 0.16 | | | $ | | 0.94 | | |
Loss from discontinued operations | | | — | | | | | (0.00 | ) | | | | (0.01 | ) | |
Net earnings | $ | | 2.12 | | | $ | | 0.16 | | | $ | | 0.93 | | |
-35-
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
SpartanNash Company and Subsidiaries
| | | | | | | | | | | | | | |
(In thousands) | 2023 | | | 2022 | | | 2021 | |
Net earnings | $ | | 52,237 | | | $ | | 34,518 | | | $ | | 73,751 | |
| | | | | | | | | | | |
Other comprehensive (loss) income, before tax | | | | | | | | | | | |
Change in interest rate swap | | | (412 | ) | | | | — | | | | | — | |
Postretirement liability adjustment | | | (2,475 | ) | | | | 5,875 | | | | | 1,087 | |
Total other comprehensive (loss) income, before tax | | | (2,887 | ) | | | | 5,875 | | | | | 1,087 | |
| | | | | | | | | | | |
Income tax benefit (expense) related to items of other comprehensive (loss) income | | | 704 | | | | | (1,441 | ) | | | | (266 | ) |
| | | | | | | | | | | |
Total other comprehensive (loss) income, after tax | | | (2,183 | ) | | | | 4,434 | | | | | 821 | |
Comprehensive income | $ | | 50,054 | | | $ | | 38,952 | | | $ | | 74,572 | |
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
SpartanNash Company and Subsidiaries
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Accumulated | | | | | | | | | |
| | | | | | | | Other | | | | | | | | | |
| Shares | | | Common | | | Comprehensive | | | Retained | | | | | |
(In thousands) | Outstanding | | | Stock | | | (Loss) Income | | | Earnings | | | Total | |
Balance at January 2, 2021 | | 35,851 | | | $ | | 491,819 | | | $ | | (2,276 | ) | | $ | | 245,506 | | | $ | | 735,049 | |
Net earnings | | — | | | | | — | | | | | — | | | | | 73,751 | | | | | 73,751 | |
Other comprehensive income | | — | | | | | — | | | | | 821 | | | | | — | | | | | 821 | |
Dividends - $0.80 per share | | — | | | | | — | | | | | — | | | | | (28,716 | ) | | | | (28,716 | ) |
Share repurchases | | (265 | ) | | | | (5,325 | ) | | | | — | | | | | — | | | | | (5,325 | ) |
Stock-based compensation | | — | | | | | 6,868 | | | | | — | | | | | — | | | | | 6,868 | |
Stock warrant | | — | | | | | 1,958 | | | | | — | | | | | — | | | | | 1,958 | |
Issuance of common stock for stock bonus plan
and associate stock purchase plan | | 37 | | | | | 715 | | | | | — | | | | | — | | | | | 715 | |
Issuance of restricted stock | | 563 | | | | | — | | | | | — | | | | | — | | | | | — | |
Cancellations of stock-based awards | | (238 | ) | | | | (2,252 | ) | | | | — | | | | | — | | | | | (2,252 | ) |
Balance at January 1, 2022 | | 35,948 | | | $ | | 493,783 | | | $ | | (1,455 | ) | | $ | | 290,541 | | | $ | | 782,869 | |
Net earnings | | — | | | | | — | | | | | — | | | | | 34,518 | | | | | 34,518 | |
Other comprehensive income | | — | | | | | — | | | | | 4,434 | | | | | — | | | | | 4,434 | |
Dividends - $0.84 per share | | — | | | | | — | | | | | — | | | | | (30,031 | ) | | | | (30,031 | ) |
Share repurchases | | (1,047 | ) | | | | (32,494 | ) | | | | — | | | | | — | | | | | (32,494 | ) |
Stock-based compensation | | — | | | | | 8,353 | | | | | — | | | | | — | | | | | 8,353 | |
Stock warrant | | — | | | | | 2,158 | | | | | — | | | | | — | | | | | 2,158 | |
Issuance of common stock for associate stock
purchase plan | | 21 | | | | | 587 | | | | | — | | | | | — | | | | | 587 | |
Issuance of restricted stock | | 391 | | | | | — | | | | | — | | | | | — | | | | | — | |
Cancellations of stock-based awards | | (234 | ) | | | | (4,326 | ) | | | | — | | | | | — | | | | | (4,326 | ) |
Balance at December 31, 2022 | | 35,079 | | | $ | | 468,061 | | | $ | | 2,979 | | | $ | | 295,028 | | | $ | | 766,068 | |
Net earnings | | — | | | | | — | | | | | — | | | | | 52,237 | | | | | 52,237 | |
Other comprehensive loss | | — | | | | | — | | | | | (2,183 | ) | | | | — | | | | | (2,183 | ) |
Dividends - $0.86 per share | | — | | | | | — | | | | | — | | | | | (30,178 | ) | | | | (30,178 | ) |
Share repurchases | | (765 | ) | | | | (18,595 | ) | | | | — | | | | | — | | | | | (18,595 | ) |
Stock-based compensation | | — | | | | | 12,221 | | | | | — | | | | | — | | | | | 12,221 | |
Stock warrant | | — | | | | | 1,559 | | | | | — | | | | | — | | | | | 1,559 | |
Issuance of common stock for associate stock
purchase plan and other stock-based awards | | 54 | | | | | 1,034 | | | | | — | | | | | — | | | | | 1,034 | |
Issuances of restricted stock | | 448 | | | | | — | | | | | — | | | | | — | | | | | — | |
Cancellations of stock-based awards | | (206 | ) | | | | (3,981 | ) | | | | — | | | | | — | | | | | (3,981 | ) |
Balance at December 30, 2023 | | 34,610 | | | $ | | 460,299 | | | $ | | 796 | | | $ | | 317,087 | | | $ | | 778,182 | |
See notes to consolidated financial statements.
-44-
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOMECASH FLOWS
SpartanNash Company and Subsidiaries
| 2020 | | | 2019 | | | 2018 | |
(In thousands) | (53 Weeks) | | | (52 Weeks) | | | (52 Weeks) | |
Net earnings | $ | | 75,914 | | | $ | | 5,742 | | | $ | | 33,572 | |
| | | | | | | | | | | | | | |
Other comprehensive (loss) income, before tax | | | | | | | | | | | | | | |
Pension and postretirement liability adjustment | | | (895 | ) | | | | 18,699 | | | | | (822 | ) |
| | | | | | | | | | | | | | |
Income tax benefit (expense) related to items of other comprehensive income | | | 219 | | | | | (4,540 | ) | | | | 199 | |
| | | | | | | | | | | | | | |
Total other comprehensive (loss) income, after tax | | | (676 | ) | | | | 14,159 | | | | | (623 | ) |
Comprehensive income | $ | | 75,238 | | | $ | | 19,901 | | | $ | | 32,949 | |
| | | | | | | | | | | | | | |
(In thousands) | 2023 | | | 2022 | | | 2021 | |
Cash flows from operating activities | | | | | | | | | | | |
Net earnings | $ | | 52,237 | | | $ | | 34,518 | | | $ | | 73,751 | |
Adjustments to reconcile net earnings to net cash provided by operating activities: | | | | | | | | | | | |
Non-cash restructuring, asset impairment and other charges | | | 9,089 | | | | | 553 | | | | | 2,973 | |
Depreciation and amortization | | | 98,639 | | | | | 94,180 | | | | | 92,711 | |
Non-cash rent | | | (3,397 | ) | | | | (4,339 | ) | | | | (4,854 | ) |
LIFO expense | | | 16,104 | | | | | 56,823 | | | | | 18,652 | |
Postretirement benefits (income) expense | | | (2,316 | ) | | | | (890 | ) | | | | 1,611 | |
Deferred income taxes | | | 8,229 | | | | | 1,415 | | | | | 17,603 | |
Stock-based compensation expense | | | 12,268 | | | | | 8,353 | | | | | 6,868 | |
Stock warrant | | | 1,559 | | | | | 2,158 | | | | | 1,958 | |
Loss (gain) on disposals of assets | | | 259 | | | | | 1,073 | | | | | (106 | ) |
Other operating activities | | | 1,741 | | | | | 2,183 | | | | | 1,262 | |
Changes in operating assets and liabilities: | | | | | | | | | | | |
Accounts receivable | | | (17,228 | ) | | | | (38,168 | ) | | | | (4,005 | ) |
Inventories | | | (21,925 | ) | | | | (92,346 | ) | | | | 320 | |
Prepaid expenses and other assets | | | (14,913 | ) | | | | 4,683 | | | | | (18,992 | ) |
Accounts payable | | | (17,478 | ) | | | | 28,069 | | | | | (18,286 | ) |
Accrued payroll and benefits | | | (27,348 | ) | | | | 16,855 | | | | | (37,331 | ) |
Current income taxes | | | (424 | ) | | | | 4,658 | | | | | 17,475 | |
Other accrued expenses and other liabilities | | | (5,769 | ) | | | | (9,428 | ) | | | | 9,545 | |
Net cash provided by operating activities | | | 89,327 | | | | | 110,350 | | | | | 161,155 | |
Cash flows from investing activities | | | | | | | | | | | |
Purchases of property and equipment | | | (120,330 | ) | | | | (97,280 | ) | | | | (79,427 | ) |
Net proceeds from the sale of assets | | | 4,333 | | | | | 36,825 | | | | | 29,375 | |
Acquisitions, net of cash acquired | | | (780 | ) | | | | (41,429 | ) | | | | — | |
Loans to customers | | | (750 | ) | | | | — | | | | | (180 | ) |
Payments from customers on loans | | | 1,298 | | | | | 1,358 | | | | | 2,317 | |
Other investing activities | | | (288 | ) | | | | (422 | ) | | | | (63 | ) |
Net cash used in investing activities | | | (116,517 | ) | | | | (100,948 | ) | | | | (47,978 | ) |
Cash flows from financing activities | | | | | | | | | | | |
Proceeds from senior secured credit facility | | | 1,359,560 | | | | | 1,468,649 | | | | | 1,374,478 | |
Payments on senior secured credit facility | | | (1,282,948 | ) | | | | (1,382,409 | ) | | | | (1,455,016 | ) |
Proceeds from other long-term debt | | | 1,000 | | | | | — | | | | | — | |
Repayment of other long-term debt and finance lease liabilities | | | (8,157 | ) | | | | (6,849 | ) | | | | (5,710 | ) |
Share repurchases | | | (18,527 | ) | | | | (32,494 | ) | | | | (5,325 | ) |
Net payments related to stock-based award activities | | | (3,981 | ) | | | | (4,326 | ) | | | | (2,252 | ) |
Dividends paid | | | (29,660 | ) | | | | (29,708 | ) | | | | (28,327 | ) |
Financing fees paid | | | (1,219 | ) | | | | (3,845 | ) | | | | (262 | ) |
Net cash provided by (used in) financing activities | | | 16,068 | | | | | 9,018 | | | | | (122,414 | ) |
| | | | | | | | | | | |
Net (decrease) increase in cash and cash equivalents | | | (11,122 | ) | | | | 18,420 | | | | | (9,237 | ) |
Cash and cash equivalents at beginning of year | | | 29,086 | | | | | 10,666 | | | | | 19,903 | |
Cash and cash equivalents at end of year | $ | | 17,964 | | | $ | | 29,086 | | | $ | | 10,666 | |
See notes to consolidated financial statements.
-45-
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
SpartanNash Company and Subsidiaries
| | | | | | | | | | Accumulated | | | | | | | | | | | |
| | | | | | | | | | Other | | | | | | | | | | | |
| Shares | | | Common | | | Comprehensive | | | Retained | | | | | | |
(In thousands) | Outstanding | | | Stock | | | Income (Loss) | | | Earnings | | | Total | |
Balance at December 30, 2017 | | 36,466 | | | $ | | 497,093 | | | $ | | (15,136 | ) | | $ | | 239,993 | | | $ | | 721,950 | |
Net earnings | | — | | | | | — | | | | | — | | | | | 33,572 | | | | | 33,572 | |
Other comprehensive loss | | — | | | | | — | | | | | (623 | ) | | | | — | | | | | (623 | ) |
Dividends - $0.72 per share | | — | | | | | — | | | | | — | | | | | (25,923 | ) | | | | (25,923 | ) |
Share repurchase | | (952 | ) | | | | (20,000 | ) | | | | — | | | | | — | | | | | (20,000 | ) |
Stock-based employee compensation | | — | | | | | 7,646 | | | | | — | | | | | — | | | | | 7,646 | |
Issuance of common stock on stock option exercises, stock bonus plan and associate stock purchase plan | | 54 | | | | | 956 | | | | | — | | | | | — | | | | | 956 | |
Issuance of restricted stock | | 483 | | | | | — | | | | | — | | | | | — | | | | | — | |
Cancellations of stock-based awards | | (99 | ) | | | | (1,631 | ) | | | | — | | | | | — | | | | | (1,631 | ) |
Balance at December 29, 2018 | | 35,952 | | | | | 484,064 | | | | | (15,759 | ) | | | | 247,642 | | | | | 715,947 | |
Impact of adoption of ASU 2016-02 (Note 1) | | — | | | | | — | | | | | — | | | | | (26,863 | ) | | | | (26,863 | ) |
Net earnings | | — | | | | | — | | | | | — | | | | | 5,742 | | | | | 5,742 | |
Other comprehensive income | | — | | | | | — | | | | | 14,159 | | | | | — | | | | | 14,159 | |
Dividends - $0.76 per share | | — | | | | | — | | | | | — | | | | | (27,616 | ) | | | | (27,616 | ) |
Stock-based employee compensation | | — | | | | | 7,312 | | | | | — | | | | | — | | | | | 7,312 | |
Issuance of common stock on stock option exercises, stock bonus plan and associate stock purchase plan | | 46 | | | | | 639 | | | | | — | | | | | — | | | | | 639 | |
Issuance of restricted stock | | 488 | | | | | — | | | | | — | | | | | — | | | | | — | |
Cancellations of stock-based awards | | (135 | ) | | | | (1,782 | ) | | | | — | | | | | — | | | | | (1,782 | ) |
Balance at December 28, 2019 | | 36,351 | | | | | 490,233 | | | | | (1,600 | ) | | | | 198,905 | | | | | 687,538 | |
Impact of adoption of ASU 2016-13 (Note 1) | | — | | | | | — | | | | | — | | | | | (1,612 | ) | | | | (1,612 | ) |
Net earnings | | — | | | | | — | | | | | — | | | | | 75,914 | | | | | 75,914 | |
Other comprehensive income | | — | | | | | — | | | | | (676 | ) | | | | — | | | | | (676 | ) |
Dividends - $0.77 per share | | — | | | | | — | | | | | — | | | | | (27,701 | ) | | | | (27,701 | ) |
Share repurchase | | (861 | ) | | | | (10,000 | ) | | | | — | | | | | — | | | | | (10,000 | ) |
Stock-based employee compensation | | — | | | | | 6,299 | | | | | — | | | | | — | | | | | 6,299 | |
Stock warrants, net of issuance costs of $220 | | — | | | | | 6,329 | | | | | — | | | | | — | | | | | 6,329 | |
Issuance of common stock for stock bonus plan and associate stock purchase plan | | 39 | | | | | 594 | | | | | — | | | | | — | | | | | 594 | |
Issuance of restricted stock | | 522 | | | | | — | | | | | — | | | | | — | | | | | — | |
Cancellations of stock-based awards | | (200 | ) | | | | (1,636 | ) | | | | — | | | | | — | | | | | (1,636 | ) |
Balance at January 2, 2021 | | 35,851 | | | $ | | 491,819 | | | $ | | (2,276 | ) | | $ | | 245,506 | | | $ | | 735,049 | |
-38-
See notes to consolidated financial statements.
-46-
CONSOLIDATED STATEMENTS OF CASH FLOWS
SpartanNash Company and Subsidiaries
| 2020 | | | 2019 | | | 2018 | |
(In thousands) | (53 Weeks) | | | (52 Weeks) | | | (52 Weeks) | |
Cash flows from operating activities | | | | | | | | | | | | | | |
Net earnings | $ | | 75,914 | | | $ | | 5,742 | | | $ | | 33,572 | |
Loss from discontinued operations, net of tax | | | — | | | | | 175 | | | | | 219 | |
Earnings from continuing operations | | | 75,914 | | | | | 5,917 | | | | | 33,791 | |
Adjustments to reconcile net earnings to net cash provided by operating activities: | | | | | | | | | | | | | | |
Non-cash restructuring, asset impairment and other charges | | | 22,422 | | | | | 18,653 | | | | | 37,793 | |
Loss on debt extinguishment | | | — | | | | | 329 | | | | | — | |
Depreciation and amortization | | | 89,876 | | | | | 88,401 | | | | | 82,853 | |
Non-cash rent | | | (5,550 | ) | | | | (7,276 | ) | | | | (962 | ) |
LIFO expense | | | 2,176 | | | | | 5,892 | | | | | 4,601 | |
Pension settlement expense | | | — | | | | | 18,244 | | | | | — | |
Postretirement benefits expense | | | 1,775 | | | | | 2,972 | | | | | 63 | |
Deferred taxes on income | | | 2,457 | | | | | (2,260 | ) | | | | 7,407 | |
Stock-based compensation expense | | | 6,299 | | | | | 7,312 | | | | | 7,646 | |
Stock warrants | | | 6,549 | | | | | — | | | | | — | |
Postretirement benefit plan contributions | | | (580 | ) | | | | (623 | ) | | | | (1,889 | ) |
Loss (gain) on disposals of assets | | | 3,330 | | | | | (6,458 | ) | | | | (106 | ) |
Other operating activities | | | 1,996 | | | | | 2,196 | | | | | 1,337 | |
Changes in operating assets and liabilities: | | | | | | | | | | | | | | |
Accounts receivable | | | (12,936 | ) | | | | 2,025 | | | | | (1,177 | ) |
Inventories | | | (7,030 | ) | | | | 40,971 | | | | | 38,213 | |
Prepaid expenses and other assets | | | (7,724 | ) | | | | (15,752 | ) | | | | (6,467 | ) |
Accounts payable | | | 65,197 | | | | | 14,941 | | | | | (18,358 | ) |
Accrued payroll and benefits | | | 66,722 | | | | | (3,305 | ) | | | | (8,295 | ) |
Other accrued expenses and other liabilities | | | (4,177 | ) | | | | 8,013 | | | | | (4,792 | ) |
Net cash provided by operating activities | | | 306,716 | | | | | 180,192 | | | | | 171,658 | |
Cash flows from investing activities | | | | | | | | | | | | | | |
Purchases of property and equipment | | | (67,298 | ) | | | | (74,815 | ) | | | | (71,495 | ) |
Net proceeds from the sale of assets | | | 9,201 | | | | | 18,760 | | | | | 6,901 | |
Acquisitions, net of cash acquired | | | — | | | | | (86,659 | ) | | | | — | |
Loans to customers | | | (1,847 | ) | | | | (3,535 | ) | | | | (1,123 | ) |
Payments from customers on loans | | | 2,739 | | | | | 4,074 | | | | | 2,111 | |
Other investing activities | | | (16 | ) | | | | (997 | ) | | | | (550 | ) |
Net cash used in investing activities | | | (57,221 | ) | | | | (143,172 | ) | | | | (64,156 | ) |
Cash flows from financing activities | | | | | | | | | | | | | | |
Proceeds from senior secured credit facility | | | 1,383,637 | | | | | 1,217,498 | | | | | 1,016,918 | |
Payments on senior secured credit facility | | | (1,584,293 | ) | | | | (1,177,942 | ) | | | | (1,123,557 | ) |
Proceeds from other long-term debt | | | — | | | | | 5,800 | | | | | 60,000 | |
Repayment of other long-term debt and finance lease liabilities | | | (6,510 | ) | | | | (68,460 | ) | | | | (8,175 | ) |
Proceeds from resolution of acquisition contingencies | | | — | | | | | 15,000 | | | | | — | |
Share repurchase | | | (10,000 | ) | | | | — | | | | | (20,000 | ) |
Net payments related to stock-based award activities | | | (1,636 | ) | | | | (1,782 | ) | | | | (1,630 | ) |
Dividends paid | | | (34,509 | ) | | | | (20,709 | ) | | | | (25,923 | ) |
Other financing activities | | | (453 | ) | | | | (624 | ) | | | | (1,933 | ) |
Net cash used in financing activities | | | (253,764 | ) | | | | (31,219 | ) | | | | (104,300 | ) |
Net cash used in discontinued operations | | | — | | | | | (214 | ) | | | | (284 | ) |
Net (decrease) increase in cash and cash equivalents | | | (4,269 | ) | | | | 5,587 | | | | | 2,918 | |
Cash and cash equivalents at beginning of year | | | 24,172 | | | | | 18,585 | | | | | 15,667 | |
Cash and cash equivalents at end of year | $ | | 19,903 | | | $ | | 24,172 | | | $ | | 18,585 | |
See notes to consolidated financial statements.
-47-
SPARTANNASH COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 – Summary of Significant Accounting Policies and Basis of Presentation
Principles of Consolidation: The 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.
Fiscal Year: The Company’s fiscal year end is the Saturday nearest to December 31. The following discussion is as of and for the fiscal years endingended December 30, 2023 ("2023" or ended“current year”), December 31, 2022 (“2022” or “prior year”) and January 1, 2022 (“2021”), January 2, 2021 ("2020" or “current year”), December 28, 2019 (“2019” or “prior year”) and December 29, 2018 (“2018”), all of which include 52 weeks, with the exception of 2020, which includes 53 weeks. All fiscal quarters are 12 weeks, except for the Company’s first quarter, which is 16 weeks. The fourth quarter of 53-week years include 13 weeks.
Use of Estimates: The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect amounts reported therein. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods might differ from those estimates.
Revenue Recognition: The Company recognizes revenue when it satisfies a performance obligation by transferring control of the promised goods and services to a customer, in an amount that reflects the consideration that it expects to receive in exchange for those goods or services. This is achieved through applying the following five-step model:
| • Identification of the contract, or contracts, with a customer •Identification of the performance obligations in the contract •Determination of the transaction price •Allocation of the transaction price to the performance obligations in the contract •Recognition of revenue when, or as, the Company satisfies a performance obligation ●
| Identification of the contract, or contracts, with a customer
|
| ●
| Identification of the performance obligations in the contract
|
| ●
| Determination of the transaction price
|
| ●
| Allocation of the transaction price to the performance obligations in the contract
|
| ●
| Recognition of revenue when, or as, the Company satisfies a performance obligation
|
The Company generates substantially all of its revenue from contracts with customers, whether formal or implied. Sales taxes collected from customers are remitted to the appropriate taxing jurisdictions and are excluded from sales revenue as the Company considers itself a pass-through conduit for collecting and remitting sales taxes, with the exception of taxes assessed during the procurement process of select inventories. Greater than 99%99% of the Company’s revenues are recognized at a point in time. Revenues from product sales are recognized when control of the goods is transferred to the customer, which occurs at a point in time, typically upon delivery or shipment to the customer, depending on shipping terms, or upon customer check-out in a corporate ownedcorporate-owned retail store. Freight revenues are also recognized upon delivery, at a point in time. Other revenues, including revenues from value-added services and leases, are recognized as earned, over a period of time. All of the Company’s revenues are domestic, as the Company has 0no performance obligations on international shipments subsequent to delivery to the domestic port.
The Company evaluates whether it is a principal (i.e., reportreports revenues on a gross basis) or an agent (i.e., reportreports revenues on a net basis) with respect to each contract with customers.
Based upon the nature of the products the Company sells, its customers have limited rights of return, which are immaterial. Discounts provided by the Company to customers at the time of sale are recognized as a reduction in sales as the products are sold. Certain contracts include rebates and other forms of variable consideration, including up-front rebates, rebates in arrears, rebatable incentives, non-cash incentives including stock warrants, flex funds, and product incentives, which may have tiered structures based on purchase volumes and which are accounted for as variable consideration. To the extent the transaction price includes variable consideration, the Company estimates the amount of variable consideration that should be included in the transaction price utilizing either the expected value method or the most likely amount method depending on the nature of the variable consideration. Variable consideration is included in the transaction price if, in the Company’s judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur.
-48-
Cost of Sales: Cost of sales represents the cost of inventory sold during the period, which for all non-production operations includes purchase costs, in-bound freight, physical inventory adjustments, markdowns and promotional allowancesand 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. As a result, theThe Company’s cost of sales and gross profit may not be identical to similarly titled measures reported by other companies. Vendor allowances and credits that relate to the Company’s 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 related 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 includeWholesale segment includes shipping and handling costs in the selling, general and administrative section of operating expenses within the consolidated statements of earnings.
Cash and Cash Equivalents: Cash and cash equivalents consists of cash and highly liquid investments with an original maturity of three months or less at the date of purchase.
Accounts and Notes Receivable: Accounts and notes receivable are presented net of allowances for credit losses of $6.6$5.8 million and $3.0$7.0 million as of January 2, 2021December 30, 2023 and December 28, 2019,31, 2022, respectively. The Company estimates losses using an expected loss model, considering both historical data and future expectations, including collection experience, expectations for current credit risks, accounts receivable payment status, the customer’s financial health, as well as the Company’s collateral and creditor position. The Company pools similar assets based on their credit risk characteristics, whereby many of its trade receivables are pooled based on certain customer or aging characteristics. After assets are pooled, an appropriate loss factor is applied based on management’s expectations. The Company also records specific reserves for credit losses in certain circumstances.circumstances using a similar estimated loss model. Operating results include net bad debt (income) expense of $2.7$(0.4) million, $1.5$3.3 million and $3.4$(0.3) million for 2020, 20192023, 2022 and 2018,2021, respectively.
Accounts and notes receivable are composed of the following:
| | | | | | | | | |
| December 30, | | | December 31, | |
(In thousands) | 2023 | | | 2022 | |
Current notes receivable | $ | | 2,613 | | | $ | | 1,622 | |
Customer accounts receivable | | | 379,208 | | | | | 375,550 | |
Other receivables | | | 44,649 | | | | | 32,942 | |
Allowance for credit losses | | | (4,611 | ) | | | | (6,098 | ) |
Net accounts and current notes receivable | $ | | 421,859 | | | $ | | 404,016 | |
Long-term notes receivable | $ | | 7,369 | | | $ | | 8,573 | |
Allowance for credit losses | | | (1,212 | ) | | | | (948 | ) |
Net long-term notes receivable | $ | | 6,157 | | | $ | | 7,625 | |
Inventory Valuation: Inventories are valued at the lower of cost or market.net realizable value. Approximately 81.4%90.4% and 82.8%87.5% of the Company’s inventories were valued on the last-in, first-out (LIFO) method at January 2, 2021December 30, 2023 and December 28, 2019,31, 2022, respectively. If replacement cost had been used, inventories would have been $63.1$154.7 million and $60.9$138.6 million higher at January 2, 2021December 30, 2023 and December 28, 2019,31, 2022, respectively. The replacement cost method utilizes the most current unit purchase cost to calculate the value of inventories. During 2020, 20192023, 2022 and 2018,2021, certain inventory quantities were reduced. The reductionsreduced which resulted in the liquidation of LIFO inventory carried at lower costs prevailing in prior years, the effect of which decreased the LIFO provision by $1.4$4.0 million, $1.5$2.1 million and $1.1$2.1 million in 2020, 20192023, 2022 and 2018,2021, respectively. The Company accounts for its Food Distribution and MilitaryWholesale segment inventory using a perpetual system and utilizes the retail inventory method (“RIM”) to value inventory for center store products in the Retail segment. Under RIM, inventory is stated at cost, determined by applying a cost ratio to the retail value of inventories. Fresh, pharmacy and fuel products are accounted for at cost in the Retail segment. The Company evaluates inventory shortages throughout the year based on actual physical counts in its facilities. The Company recordsestimates allowances for inventory shortages based on the results of recent physical counts to provide for estimated shortages from the last physical count to the financial statement date.counts.
Goodwill and Other Intangible Assets: Goodwill represents the excess purchase price over the fair value of tangible net assets acquired in business combinations after amounts have been allocated to intangible assets. Goodwill is not amortized, but is reviewed for impairment during the last quarter of each year, or whenever events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount, using a discounted cash flow model and comparable market values of each reportingreportable segment. Measuring the fair value of reporting units is a Level 3 measurement under the fair value hierarchy. See Note 8,7, for a discussion of fair value levels.
Intangible assets primarily consist of trade names, customer relationships, pharmacy prescription lists, non-compete agreements, liquor licenses and franchise fees. The following assets are amortized on a straight-line basis over the period of time in which their expected benefits will be realized: customer relationships and prescription lists and customer relationships (period of expected benefit reflecting the pattern in which the economic benefits are consumed), non-compete agreements and franchise fees (length of agreements), and trade names with definite lives (expected life of the assets). Indefinite-lived trade names and liquor licenses are not amortized but are tested at least annually for impairment, and liquor licenses are also not amortized as they have indefinite lives.impairment.
Property and Equipment: Property and equipment are recorded at cost. Expenditures which improve or extend the life of the respective assets are capitalized, whereas expenditures for normal repairs and maintenance are charged to operations as incurred. Depreciation expense on land improvements, buildings and improvements, and equipment is computed using the straight-line method as follows:
| Land improvements
| 15 years
Buildings andLand improvements
| 15 to 40 years |
EquipmentBuildings and improvements
| 315 to 40 years
|
Equipment | 3 to 15 years |
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Property under finance leases and leasehold improvements are amortized on a straight-line basis over the shorter of the remaining terms of the leases or the estimated useful lives of the assets. Internal use software is included in Property and equipment, net and amounted to $38.5totaled $45.9 million and $35.2$47.3 million as of January 2, 2021December 30, 2023 and December 28, 2019,31, 2022, respectively.
Cloud Computing Arrangements: Implementation costs for software that is accessed in hosted cloud computing arrangements is accounted for in accordance with Accounting Standards Codification (“ASC”) 350, Intangibles-Goodwill and Other, and with Accounting Standards Update (“ASU”) 2018-15.. Capitalized development costs of hosted cloud computing arrangements include configuration, installation, licenses, other upfront costs and internal labor costs of employees devoted to the cloud computing software implementation project. Once a project is complete, amortization is computed using the straight-line method over the term of the associated hosting arrangement, including any options to extend the hosting arrangement that the Company is reasonably certain to exercise, generally 53 to 10 years.8 years. These costs are classified in the consolidated balance sheets in “Prepaid expenses and other current assets” or “Other assets, net” based on the term of the arrangement, and the related cash flows are presented as cash outflows from operations. As of January 2, 2021, theThe net book value of these implementation costs was $13.9 million.$24.3 million and $21.3 million, as of December 30, 2023 and December 31, 2022, respectively.
Leases: At the commencement or modification of a contract, the Company determines whether a lease exists based on 1) the identification of an underlying asset and 2) the right to control the use of the identified asset. When the Company is a lessee, leases are classified as either operating or finance. Operating and finance lease assets represent the Company’s right to use an underlying asset for the lease term, while lease obligations represent the Company’s obligation to make lease payments arising from the lease. Most of the Company’s lease agreements include variable payments related to executory costs for property taxes, utilities, insurance, maintenance and other occupancy costs related to the leased asset. Additionally, certain of the Company’s lease agreements include rental payments based on a percentage of retail sales over contractual levels or, in the case of transportation equipment, provisions requiring payment of variable rent based upon miles driven.driven. These variable payments are not included in the measurement of the lease liability or asset and are expensed as incurred. Leases with an initial expected term of 12 months or less are not recorded in the consolidated balance sheets and the related lease expense is recognized on a straight-line basis over the lease term.
Lease assets and obligations are recognized at the lease commencement date based on the present value of lease payments and initial direct costs incurred, less incentives, over the lease term. In the absence of stated or implicit interest rates within lease contracts, incremental borrowing rates are estimated based on the Company’s borrowing rate as of the lease commencement date to determine the present value of lease payments. Incremental borrowing rates are determined by using the yield curve based on the Company’s creditworthiness on a collateralized basis. The Company includes option periods in the assumed lease term when it is reasonably certain that the options will be exercised. Operating lease assets and liabilities are reported discretely in the consolidated balance sheets. Finance lease assets are included in Property and equipment, net and finance lease liabilities are included in Long-term debt and finance lease obligationsliabilities within the Company’s consolidated balance sheets.
Impairment of Long-Lived Assets: The Company reviews and evaluates long-lived assets for impairment when events or circumstances indicate that the carrying amount of an asset may not be recoverable. When the undiscounted expected future cash flows are not sufficient to recover an asset’s carrying amount, the fair value is compared to the carrying value to determine the impairment loss to be recorded. Long-lived assets to be sold or disposed of are reported at the lower of carrying amount or fair value, less the cost to sell. Fair values are determined by independent appraisals or expected sales prices based upon market participant data developed by third party professionals or by internal licensed real estate professionals. Estimates of future cash flows and expected sales prices are judgments based upon the Company’s experience and knowledge of operations. These estimates project cash flows several years into the future and are affected by changes in the Company's performance, economy, real estate market conditions and inflation. The Company evaluates definite-lived intangible asset and operating and finance lease asset impairments in conjunction with testing of the related asset groups as described above. Impairment reserves are applied proportionally as a reduction to the assets in the asset group, including lease assets.
Reserves for Closed Properties: The Company records reserves for closed properties that are subject to long-term lease commitments based upon the lease ancillary costs from the date of closure to the end of the remaining lease term. Prior to the adoption of ASC 842, Leases, these reserves also included the future minimum lease payments associated with these properties. Future cash flows are based on historical expenses, contractual lease terms and knowledge of the geographic area in which the closed site is located. These estimates are subject to multiple factors, including inflation, ability to sublease the property and other economic conditions. The reserved expenses are paid over the remaining lease terms, which range from 1 to 8 years.5 years. Subsequent adjustments to closed property reserves are made when actual exit costs differ from the original estimates. These adjustments are made for changes in estimates in the period in which the changes become known. The current portion of the future closed property obligations is included in “Other accrued expenses,” and the long-term portion is included in “Other long-term liabilities” in the consolidated balance sheets.
Debt Issuance Costs: Debt issuance costs are amortized over the term of the related financing agreement and are included as a direct deduction from the carrying amount of the related debt liability in “Long-term debt and finance lease obligations”liabilities” in the consolidated balance sheets.
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Insurance Reserves: SpartanNash is self-insuredinsured through self-insurance retentions or high deductible programs for workers’ compensation, general liability, and automobile liability, and is also self-insured for healthcare costs. Self-insurance liabilities are recorded based on claims filed and an estimate of claims incurred but not yet reported. Workers’ compensation, general liability and automobile liabilities are actuarially estimated based on available historical information on an undiscounted basis. The Company has purchased stop-loss coverage to limit its exposure to any significant exposure on a per claim basis for its self-insurance retentions and high deductible programs. On a per claim basis, the Company’s exposure is up to $0.5$0.5 million for workers’ compensation and general liability $1.0and $2.0 million for automobile liability and $0.6liability. For healthcare, the Company’s exposure is up to $0.6 million in annual claims for healthcare pereach covered life per year.individual.
A summary of changes in the Company’s self-insurance liability is as follows:
| (In thousands) | 2020 | | | 2019 | | | 2018 | | 2023 | | | 2022 | | | 2021 | |
Balance at beginning of year | $ | | 16,780 | | | $ | | 14,291 | | | $ | | 15,155 | | $ | | 18,157 | | | $ | | 19,445 | | | $ | | 16,737 | |
Expenses | | | 62,999 | | | | | 69,253 | | | | | 49,532 | | | | 63,722 | | | | | 64,386 | | | | | 72,101 | |
Acquisitions | | | — | | | | | 1,894 | | | | | — | |
Claim payments, net of employee contributions | | | (63,042 | ) | | | | (68,658 | ) | | | | (50,396 | ) | | | (63,700 | ) | | | | (65,674 | ) | | | | (69,393 | ) |
Balance at end of year | $ | | 16,737 | | | $ | | 16,780 | | | $ | | 14,291 | | $ | | 18,179 | | | $ | | 18,157 | | | $ | | 19,445 | |
The current portion of the self-insurance liability was $10.0$10.9 million and $10.7$10.2 million as of January 2, 2021December 30, 2023 and December 28, 2019,31, 2022, respectively, and is included in “Other accrued expenses” in the consolidated balance sheets. The long-term portion was $6.7$7.3 million and $6.1$7.9 million as of January 2, 2021December 30, 2023 and December 28, 2019,31, 2022, respectively, and is included in “Other long-term liabilities” in the consolidated balance sheets.
Income Taxes: Deferred income tax assets and liabilities are computed for differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future. Such deferred income tax asset and liability computations are based on enacted tax laws and rates applicable to periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amounts expected to be realized. Income tax expense is the tax payable or refundable for the period plus or minus the change during the period in deferred and other tax assets and liabilities.
Earnings per share: Earnings per share (“EPS”) is computed using the two-class method. The two-class method determines EPS for each class of common stock and participating securities according to dividends and their respective participation rights in undistributed earnings. Outstanding nonvested restricted stock incentive awards under the Company’s 2015 Plan contain nonforfeitable rights to dividends or dividend equivalents, which participate in undistributed earnings with common stock. These awards are classified as participating securities and are included in the calculation of basic earnings per share. Awards under the 2020 Plan do not contain nonforfeitable rights to dividends or dividend equivalents and are therefore not classified as participating securities. The dilutive impact of theseboth the restricted stock awards isand warrants are presented below, as applicable. Weighted average restricted stock awards that were not included in the diluted EPS calculations because they were anti-dilutive were 76,654 in 2020. There were 0 anti-dilutive restricted stock19,765, 2,882, and 13,614 for 2023, 2022, and 2021 respectively. Performance share unit awards in 2019 or 2018. Dilutedare not included within the calculation of diluted EPS includesas the effectsperformance criteria has not been met as of stock options and stock warrants, as applicable. Stock warrants were anti-dilutive for 2020 and therefore did 0t impact EPS. There were no stock warrants in 2019 or 2018, and 0 anti-dilutive stock options in 2020, 2019 or 2018.the year ended December 30, 2023.
The following table sets forth the computation of basic and diluted EPS for continuing operations:EPS:
| | | | | | | | | | | | | | |
(In thousands, except per share amounts) | 2023 | | | 2022 | | | 2021 | |
Numerator: | | | | | | | | | | | |
Net earnings | $ | | 52,237 | | | $ | | 34,518 | | | $ | | 73,751 | |
Adjustment for earnings attributable to participating securities | | | (408 | ) | | | | (404 | ) | | | | (1,399 | ) |
Net earnings used in calculating earnings per share | $ | | 51,829 | | | $ | | 34,114 | | | $ | | 72,352 | |
Denominator: | | | | | | | | | | | |
Weighted average shares outstanding, including participating securities | | | 34,211 | | | | | 35,279 | | | | | 35,639 | |
Adjustment for participating securities | | | (267 | ) | | | | (413 | ) | | | | (676 | ) |
Shares used in calculating basic earnings per share | | | 33,944 | | | | | 34,866 | | | | | 34,963 | |
Effect of dilutive stock warrant | | | 584 | | | | | 847 | | | | | 225 | |
Effect of dilutive restricted stock awards | | | 106 | | | | | 187 | | | | | 79 | |
Shares used in calculating diluted earnings per share | | | 34,634 | | | | | 35,900 | | | | | 35,267 | |
Basic earnings per share | $ | | 1.53 | | | $ | | 0.98 | | | $ | | 2.07 | |
Diluted earnings per share | $ | | 1.50 | | | $ | | 0.95 | | | $ | | 2.05 | |
| 2020 | | | 2019 | | | 2018 | |
(In thousands, except per share amounts) | (53 Weeks) | | | (52 Weeks) | | | (52 Weeks) | |
Numerator: | | | | | | | | | | | | | | |
Earnings from continuing operations | $ | | 75,914 | | | $ | | 5,917 | | | $ | | 33,791 | |
Adjustment for earnings attributable to participating securities | | | (1,871 | ) | | | | (149 | ) | | | | (746 | ) |
Earnings from continuing operations used in calculating earnings per share | $ | | 74,043 | | | $ | | 5,768 | | | $ | | 33,045 | |
Denominator: | | | | | | | | | | | | | | |
Weighted average shares outstanding, including participating securities | | | 35,861 | | | | | 36,271 | | | | | 36,012 | |
Adjustment for participating securities | | | (884 | ) | | | | (912 | ) | | | | (795 | ) |
Shares used in calculating basic earnings per share | | | 34,977 | | | | | 35,359 | | | | | 35,217 | |
Effect of dilutive stock options | | | — | | | | | — | | | | | 10 | |
Effect of dilutive restricted stock awards | | | 1 | | | | | — | | | | | — | |
Effect of dilutive warrants | | | — | | | | | — | | | | | — | |
Shares used in calculating diluted earnings per share | | | 34,978 | | | | | 35,359 | | | | | 35,227 | |
Basic earnings per share from continuing operations | $ | | 2.12 | | | $ | | 0.16 | | | $ | | 0.94 | |
Diluted earnings per share from continuing operations | $ | | 2.12 | | | $ | | 0.16 | | | $ | | 0.94 | |
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Stock-Based Employee Compensation: All share-based payments to associatesAssociates are generally recognized in the consolidated financial statements as compensation cost based on the fair value on the date of grant. The grant date closing price per share of SpartanNash stock is used to estimate the fair value of restricted stock awards and restrictedperformance stock units. The value of the portion of awards expected to vest is recognized as expense over the requisite service period.
Stock Warrants: On October 7, 2020, Performance stock units require the Company and Amazon.com, Inc. (“Amazon”) entered into a Transaction Agreement (the “Transaction Agreement”),to estimate expected achievement of performance targets over the performance period. This estimate involves judgment regarding future expectations of various financial performance measures. If there are changes in which the Company has agreed to issue to Amazon.com NV Investment Holdings LLC, a wholly owned subsidiary of Amazon, warrants to acquire up to an aggregate of 5,437,272 sharesCompany's estimates of the Company’s common stock, subjectlevel of financial performance measures expected to certain vesting conditions. Warrants equivalent to 2.5% ofbe achieved, the Company’s outstanding and issuable shares, or 1,087,455 shares, vested upon the signing of the commercial agreement. Warrants equivalent to up to 10.0% of the Company’s outstanding and issuable shares, or 4,349,817 shares, may vest in connection with conditions defined by the terms of the Warrant, as Amazon makes payments to the Company in connection with the commercial supply agreement, in increments of $200 million. Upon vesting, sharesrelated stock-based compensation expense may be acquired at an exercise price of $17.7257. The right to purchase sharessignificantly increased or reduced in connection with the Warrant arrangement expires on October 7, 2027period that the estimate changes.
Stock Warrants: Stock warrants granted to Amazon are accounted for as equity instruments and measured in accordance with ASC 718, Compensation – Stock Compensation. These instruments are classified in the consolidated statements of earnings in accordance with ASC 606, Revenue from Contracts with Customers, andASU 2019-08. For awards granted to a customer which are not in exchange for distinct goods or services, the fair value of the awards earned based on service or performance conditions is recorded as a reduction of the transaction price, in accordance with ASC 606.606, Revenue from Contracts with Customers. To determine the fair value of the warrants in accordance with ASC 718, the Company uses pricing models based in part on assumptions for which management is required to use judgment. Based on the fair value of the awards, the Company determines the amount of warrant expense based on the customer’s pro-rata achievement of vesting conditions, which is recorded as a reduction of net sales on the consolidated statement of earnings. DilutiveThe dilutive impact of stock warrants is determined using the treasury stock method.
Shareholders’ Equity: The Company’s restated articles of incorporation provide that the Board of Directors may at any time, and from time to time, provide for the issuance of up to 10 million shares of preferred stock in one or more series, each with such designations as determined by the Board of Directors. At January 2, 2021December 30, 2023 and December 28, 2019,31, 2022, there were 0no shares of preferred stock outstanding.
Advertising Costs: The Company’s advertising costs are expensed as incurred and are included in Selling, general and administrative expenses. Advertising expenses were $36.6$33.7 million, $39.3$37.6 million and $40.9$37.7 million in 2020, 20192023, 2022 and 2018,2021, respectively.
Interest Rate Swaps: The Company utilizes an interest rate swap contract to reduce its exposure to fluctuations in variable interest rates applicable to its credit facility. The Company values the interest rate swap using standard models and observable market inputs including SOFR interest rates and discount rates. The Company has designated its interest rate swap as a cash flow hedge. The change in the fair value of the interest rate swap is initially reported in "Other comprehensive (loss) income" in the consolidated statements of comprehensive income and subsequently reclassified to earnings in "Interest expense, net" in the consolidated statements of earnings when the hedged transactions affect earnings.
Accumulated Other Comprehensive (Loss) Income (Loss)(“AOCI”): The Company reports comprehensive income, (loss) thatwhich includes net income (loss)earnings and other comprehensive income (loss). income. Other comprehensive (loss) income (loss) refers to expenses, gains and losses that are not included in net earnings, such as pension and other postretirement liability adjustments and changes in the fair value of interest rate swaps, but rather are recorded directly to shareholders’ equity. These amounts are also presented in the consolidated statements of comprehensive income. The Company’s pension plan was terminated, and benefit obligations were satisfied during 2019. Beginning with December 28, 2019, AOCI relates to the Company’s other postretirement plans.
Discontinued operations: Certain of the Company’s Food Distribution and Retail operations were previously classified as discontinued operations. Results of discontinued operations are excluded from the accompanying notes to the consolidated financial statements for all periods presented. Results of discontinued operations reported on the consolidated statements of earnings are reported net of tax.
Adoption of New Accounting Standards
In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02,Standards: Leases. The FASB subsequently issued ASUs 2018-01, 2018-10, 2018-11,As of December 30, 2023 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 earnings is similar to the previous treatment of operating and capital leases.
In the first quarter of 2019, the Company adopted this standard using the alternative transition method provided in ASU 2018-11, Leases (Topic 842): Targeted Improvements. Under this method an adjustment of comparative periods presented is not required. Therefore, the Company made a cumulative-effect adjustment recorded at the beginning of 2019. 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.
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The adoption of the new standard resulted in the recognition of operating lease assets and liabilities of $241.8 million and $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 $26.9 million (net of deferred taxthen ended, there were no recently adopted accounting standards that had a material impact of $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,Company's consolidated financial statements. There were no recently issued accounting standards not yet adopted which were included in beginning lease liabilities or assets under ASC 842.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers – Topic 606 (“ASC 606”). The new guidance affects any reporting organization that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards. The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. As of the beginning of 2018, the Company adopted ASC 606 and all subsequent ASUs that modified ASC 606.
From a principal versus agent perspective, the Company determined that certain contracts in the Food Distribution segment that were historically reported on a gross basis are required to be reported on a net basis under the updated guidance, resulting in a corresponding decrease to both net sales and cost of sales from what would have been recognized under previous guidance. The implementation of the guidance had no impact on gross profit, net earnings, the balance sheet, cash flows, equity, or the timing of revenue recognition in current or prior periods.
In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments. The ASU changed the impairment model for most financial assets and certain other instruments. The standard requires entities to use a forward-looking “expected loss” model that replaces the previous “incurred loss” model, which generally results in the earlier recognition of credit losses.
In the first quarter of 2020, the Company adopted this standard through the modified retrospective approach, with a cumulative-effect adjustment at the beginning of the fiscal year. As a result of the adoption, the Company estimates credit losses using an expected loss model in accordance with the new standard.
The adoption of the standard resulted in a transition adjustment to beginning of the year retained earnings of $2.2 million (gross of the deferred tax impact of $0.6 million). The transition adjustment relates to incremental trade and notes receivable allowances due to the earlier recognition of expected losses under the new standard of $1.9 million and $0.3 million, respectively.
In August 2018, the FASB issued ASU 2018-14, Compensation—Retirement Benefits—Defined Benefit Plans—General: Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans. The amendments in this ASU remove disclosures that are no longer considered to be cost beneficial, clarify the specific requirements of disclosures, and add disclosure requirements identified as relevant. The amendments in ASU 2018-14 are effective for fiscal years ending after December 15, 2020 and are applied on a retrospective basis to all periods presented. The adoption of this guidance did not have a significantmaterial effect on the Company’sCompany's consolidated financial statements.
Note 2 – AcquisitionsRevenue
On December 31, 2018, the Company acquired allSources of the outstanding sharesRevenue
SpartanNash is a distributor, wholesaler and retailer with a global supply chain network. SpartanNash's customers span a diverse group of Martin’s Super Markets, Inc. (“Martin’s”) for $86.7 million, net of $7.8 million of cash acquired. Acquired assets consist primarily of propertynational accounts, independent and equipment of $55.0 million, intangible assets of $23.9 million,chain grocers, e-commerce retailers, U.S. military commissaries and working capital. Intangible assets are primarily composed of an indefinite-lived trade name of $20.6 millionexchanges, and pharmacy customer prescription lists of $3.1 million, which are amortized over seven years. The acquired assets and assumed liabilities were recorded at their estimated fair values as of the acquisition date based on preliminary estimates, which were subsequently finalized during the fourth quarter of 2019. NaN goodwill was recorded related to the acquisition. The Company incurred $0.4 million, $1.3 million and $1.2 million of merger/acquisition and integration costs in 2020, 2019 and 2018, respectively. The acquisition was funded with proceeds from the Company’s Credit Agreement.
Martin’s operatesretailown brick-and-mortar grocery stores, pharmacies and fuel centers. SpartanNash distributes grocery and household goods, including fresh produce and its Our Family® portfolio of products, to locations in Northern Indiana and Southwest Michigan.Prior to the acquisition, Martin’s was an independent retailer and customer of the Company’s Food Distribution segment. 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.all 50 states.
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Note 3 – Revenue
Sources of Revenue
The Company’s main sources of revenue include the following:
Customer Supply Agreements (CSAs)(“CSAs") – The Company enters into CSAs (also known as Retail Sales and Service Agreements) with many of its retailer customers. These contracts obligate the Company to supply grocery and related products upon receipt of a purchase order from its customers. The contracts often specify minimum purchases a customer is required to make, - in dollars or as a percentage of their total purchases, - in order to earn certain rebates or incentives. In some cases, customers are required to repay certain advanced or loaned funds if they fail to meet purchase minimums or otherwise exit the supply agreement. Many of these contracts include various performance obligations other than providing grocery products, such as providing store resets, shelf tags, signage, or merchandising services. The Company has determined that these obligations are not material in the overall context of the contracts, and as such has not allocated transaction priceprices to these obligations. Revenue is recognized under these contracts when control of the product passes to the customer, which may happen before or after delivery depending upon specified shipping terms.
The Company’s Wholesale customer base is diverse. Sales to one customer in the Wholesale segment represented 16%, 16%, and 17% of the Company's net sales for 2023, 2022 and 2021, respectively. No other single customer exceeded 10% of the Company's net sales in any of the years presented.
Contracts with Manufacturers and Brokers to supply the Defense Commissary Agency (“DeCA”) and Other Government Agencies – DeCA operates a chain of commissaries on U.S. military installations. DeCA contracts with manufacturers to obtain grocery products for the commissary system. Manufacturers either deliver the products to the commissaries themselves or, more commonly, contract with distributors such as SpartanNash to provide products to the commissaries. Manufacturers must authorize the distributors as their official representatives to DeCA, and the distributors must adhere to DeCA’s frequent delivery system (“FDS”) procedures governing matters such as product identification, ordering and processing, information exchange and resolution of discrepancies. The Company obtains distribution contracts with manufacturers through competitive bidding processes and direct negotiations. As commissaries need to be restocked, DeCA identifies the manufacturer with which an order is to be placed, determines which distributor is the manufacturer’s official representative for a particular commissary or exchange location, and then places a product order with that distributor under the auspices of DeCA’s master contract with the applicable manufacturer. The distributor selects that product from its existing inventory, delivers it to the commissary or port (in the case of overseas shipments) designated by DeCA, and bills the manufacturer for the product price plus a drayage fee that is typically based on a percentage of the purchase price, but may in some cases be based on a dollar amount per case or pound of product sold. The manufacturer then bills DeCA under the terms of its master contract. As control of the product passes to the customer upon delivery, revenue is recognized by SpartanNash at that time.
Revenue is recognized for the full amount paid by the vendor (for product and drayage) as the Company is a principal in the transaction and therefore recognizes revenue on a gross basis for these contracts. The definition of a principal in the transaction is centered on controlling goods before they are transferred to the customer. Key considerations supporting that SpartanNash controls the goods for these contracts prior to transfer to the customer include the following: (i) the Company has the ability to obtain substantially all of the remaining benefits from the assets by selling the goods and/or by pledging the related assets as collateral for borrowings,borrowings; (ii) the Company is required to bear the risk of inventory loss prior to transfer to the customer,customer; (iii) the Company has shared responsibilities in the fulfillment and acceptability of the goods,goods; and (iv) to a lesser extent, the Company has some discretion in establishing the price for the goods sold to DeCA.
Retail Sales – The corporate ownedcorporate-owned retail stores recognize revenue at the time the customer takes possession of the goods. While there are no formal contracts related to these sales, they are within the scope of ASC 606. Customer returns are not material. The Company does not recognize a sale when it sells gift cards and gift certificates or a reduction of sales when it awards fuel discounts; rather, the impact to revenue is recognized when the customer redeems the fuel discounts, gift card or gift certificate are redeemed to purchase product.
Disaggregation of Revenue
The following table provides information about disaggregated revenue by type of products and customers for each of the Company’s reportable segments:
| | | | | | | | | | | | | | |
| 2023 | |
(In thousands) | Wholesale | | | Retail | | | Total | |
Type of products: | | | | | | | | | | | |
Center store (a) | $ | | 2,678,297 | | | $ | | 1,081,840 | | | $ | | 3,760,137 | |
Fresh (b) | | | 2,153,564 | | | | | 1,048,759 | | | | | 3,202,323 | |
Non-food (c) | | | 1,985,816 | | | | | 512,679 | | | | | 2,498,495 | |
Fuel | | | — | | | | | 165,684 | | | | | 165,684 | |
Other | | | 101,540 | | | | | 1,040 | | | | | 102,580 | |
Total | $ | | 6,919,217 | | | $ | | 2,810,002 | | | $ | | 9,729,219 | |
Type of customers: | | | | | | | | | | | |
Individuals | $ | | — | | | $ | | 2,808,962 | | | $ | | 2,808,962 | |
Independent retailers (d) | | | 2,377,036 | | | | | — | | | | | 2,377,036 | |
National accounts | | | 2,218,003 | | | | | — | | | | | 2,218,003 | |
Military (e) | | | 2,277,966 | | | | | — | | | | | 2,277,966 | |
Other | | | 46,212 | | | | | 1,040 | | | | | 47,252 | |
Total | $ | | 6,919,217 | | | $ | | 2,810,002 | | | $ | | 9,729,219 | |
| | | | | | | | | | | |
| 2022 | |
(In thousands) | Wholesale | | | Retail | | | Total | |
Type of products: | | | | | | | | | | | |
Center store (a) | $ | | 2,671,666 | | | $ | | 1,073,765 | | | $ | | 3,745,431 | |
Fresh (b) | | | 2,171,906 | | | | | 1,068,240 | | | | | 3,240,146 | |
Non-food (c) | | | 1,888,318 | | | | | 452,557 | | | | | 2,340,875 | |
Fuel | | | — | | | | | 202,256 | | | | | 202,256 | |
Other | | | 113,346 | | | | | 1,046 | | | | | 114,392 | |
Total | $ | | 6,845,236 | | | $ | | 2,797,864 | | | $ | | 9,643,100 | |
Type of customers: | | | | | | | | | | | |
Individuals | $ | | — | | | $ | | 2,796,858 | | | $ | | 2,796,858 | |
Independent retailers (d) | | | 2,363,597 | | | | | — | | | | | 2,363,597 | |
National accounts | | | 2,311,114 | | | | | — | | | | | 2,311,114 | |
Military (e) | | | 2,115,353 | | | | | — | | | | | 2,115,353 | |
Other | | | 55,172 | | | | | 1,006 | | | | | 56,178 | |
Total | $ | | 6,845,236 | | | $ | | 2,797,864 | | | $ | | 9,643,100 | |
| | | | | | | | | | | |
| 2021 | |
(In thousands) | Wholesale | | | Retail | | | Total | |
Type of products: | | | | | | | | | | | |
Center store (a) | $ | | 2,419,163 | | | $ | | 1,001,920 | | | $ | | 3,421,083 | |
Fresh (b) | | | 2,027,020 | | | | | 992,897 | | | | | 3,019,917 | |
Non-food (c) | | | 1,783,229 | | | | | 427,872 | | | | | 2,211,101 | |
Fuel | | | — | | | | | 157,236 | | | | | 157,236 | |
Other | | | 120,341 | | | | | 1,361 | | | | | 121,702 | |
Total | $ | | 6,349,753 | | | $ | | 2,581,286 | | | $ | | 8,931,039 | |
Type of customers: | | | | | | | | | | | |
Individuals | $ | | — | | | $ | | 2,580,277 | | | $ | | 2,580,277 | |
Independent retailers (d) | | | 2,197,892 | | | | | — | | | | | 2,197,892 | |
National accounts | | | 2,211,458 | | | | | — | | | | | 2,211,458 | |
Military (e) | | | 1,882,602 | | | | | — | | | | | 1,882,602 | |
Other | | | 57,801 | | | | | 1,009 | | | | | 58,810 | |
Total | $ | | 6,349,753 | | | $ | | 2,581,286 | | | $ | | 8,931,039 | |
| | | | | | | | | | | |
(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. | |
(d) Independent retailers include sales to manufacturers, brokers and distributors. | |
(e) Military represents the distribution of grocery products to U.S. military commissaries and exchanges, which primarily includes sales to manufacturers and brokers. | |
| | 53 Weeks Ended January 2, 2021 | |
(In thousands) | | Food Distribution | | | Retail | | | Military | | | Total | |
Type of products: | | | | | | | | | | | | | | | | | | | | |
Center store (a) | | $ | | 1,519,279 | | | $ | | 1,097,013 | | | $ | | 1,043,208 | | | $ | | 3,659,500 | |
Fresh (b) | | | | 1,550,813 | | | | | 1,013,657 | | | | | 610,633 | | | | | 3,175,103 | |
Non-food (c) | | | | 1,407,122 | | | | | 419,507 | | | | | 469,653 | | | | | 2,296,282 | |
Fuel | | | | — | | | | | 106,213 | | | | | — | | | | | 106,213 | |
Other | | | | 99,964 | | | | | 1,527 | | | | | 9,896 | | | | | 111,387 | |
Total | | $ | | 4,577,178 | | | $ | | 2,637,917 | | | $ | | 2,133,390 | | | $ | | 9,348,485 | |
Type of customers: | | | | | | | | | | | | | | | | | | | | |
Individuals | | $ | | — | | | $ | | 2,636,993 | | | $ | | — | | | $ | | 2,636,993 | |
Manufacturers, brokers and distributors | | | | 75,827 | | | | | — | | | | | 1,989,248 | | | | | 2,065,075 | |
Retailers | | | | 4,425,665 | | | | | — | | | | | 134,246 | | | | | 4,559,911 | |
Other | | | | 75,686 | | | | | 924 | | | | | 9,896 | | | | | 86,506 | |
Total | | $ | | 4,577,178 | | | $ | | 2,637,917 | | | $ | | 2,133,390 | | | $ | | 9,348,485 | |
| | | | | | | | | | | | | | | | | | | | |
| | 52 Weeks Ended December 28, 2019 | |
(In thousands) | | Food Distribution | | | Retail | | | Military | | | Total | |
Type of products: | | | | | | | | | | | | | | | | | | | | |
Center store (a) | | $ | | 1,209,436 | | | $ | | 928,641 | | | $ | | 1,027,661 | | | $ | | 3,165,738 | |
Fresh (b) | | | | 1,445,902 | | | | | 900,096 | | | | | 636,147 | | | | | 2,982,145 | |
Non-food (c) | | | | 1,247,964 | | | | | 402,450 | | | | | 501,642 | | | | | 2,152,056 | |
Fuel | | | | — | | | | | 148,779 | | | | | — | | | | | 148,779 | |
Other | | | | 79,307 | | | | | 1,383 | | | | | 6,657 | | | | | 87,347 | |
Total | | $ | | 3,982,609 | | | $ | | 2,381,349 | | | $ | | 2,172,107 | | | $ | | 8,536,065 | |
Type of customers: | | | | | | | | | | | | | | | | | | | | |
Individuals | | $ | | — | | | $ | | 2,380,524 | | | $ | | — | | | $ | | 2,380,524 | |
Manufacturers, brokers and distributors | | | | 179,872 | | | | | — | | | | | 2,065,919 | | | | | 2,245,791 | |
Retailers | | | | 3,739,316 | | | | | — | | | | | 99,531 | | | | | 3,838,847 | |
Other | | | | 63,421 | | | | | 825 | | | | | 6,657 | | | | | 70,903 | |
Total | | $ | | 3,982,609 | | | $ | | 2,381,349 | | | $ | | 2,172,107 | | | $ | | 8,536,065 | |
| | | | | | | | | | | | | | | | | | | | |
| | 52 Weeks Ended December 29, 2018 | |
(In thousands) | | Food Distribution | | | Retail | | | Military | | | Total | |
Type of products: | | | | | | | | | | | | | | | | | | | | |
Center store (a) | | $ | | 1,249,374 | | | $ | | 747,708 | | | $ | | 1,052,462 | | | $ | | 3,049,544 | |
Fresh (b) | | | | 1,478,142 | | | | | 688,661 | | | | | 602,023 | | | | | 2,768,826 | |
Non-food (c) | | | | 1,185,390 | | | | | 330,342 | | | | | 506,177 | | | | | 2,021,909 | |
Fuel | | | | — | | | | | 138,617 | | | | | — | | | | | 138,617 | |
Other | | | | 78,544 | | | | | 931 | | | | | 6,181 | | | | | 85,656 | |
Total | | $ | | 3,991,450 | | | $ | | 1,906,259 | | | $ | | 2,166,843 | | | $ | | 8,064,552 | |
Type of customers: | | | | | | | | | | | | | | | | | | | | |
Individuals | | $ | | — | | | $ | | 1,905,328 | | | $ | | — | | | $ | | 1,905,328 | |
Manufacturers, brokers and distributors | | | | 197,128 | | | | | — | | | | | 2,089,765 | | | | | 2,286,893 | |
Retailers | | | | 3,733,254 | | | | | — | | | | | 70,897 | | | | | 3,804,151 | |
Other | | | | 61,068 | | | | | 931 | | | | | 6,181 | | | | | 68,180 | |
Total | | $ | | 3,991,450 | | | $ | | 1,906,259 | | | $ | | 2,166,843 | | | $ | | 8,064,552 | |
| | | | | | | | | | | | | | | | | | | | |
(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. | | | | | | |
-45-
-55-
Contract Assets and Liabilities
Under its contracts with customers, the Company stands ready to deliver product upon receipt of a purchase order. Accordingly, the Company has 0no performance obligations under its contracts until its customers submit a purchase order. The Company does not receive pre-payment from its customers or enter into commitments to provide goods or services that have terms greater than one year.year. As the performance obligation is part of a contract that has an original expected duration of less than one year, the Company has applied the practical expedient under ASC 606 to omit disclosures regarding remaining performance obligations.
Revenue recognized from performance obligations related to prior periods (for example, due to changes in estimated rebates and incentives impacting the transaction price) was not material in any period presented.
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 Other assets, net within the consolidated balance sheets.
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 due upon receipt to within 30 days, depending on the customer. 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 to not adjust for the effects of a significant financing component. As a result, these amounts are recorded as receivables and not contract assets. The Company had 0no contract assets for any period presented.
Accounts and notes receivable are comprised of the following:
| January 2, | | | December 29, | |
(In thousands) | 2021 | | | 2019 | |
Customer notes receivable | $ | | 2,565 | | | $ | | 3,363 | |
Customer accounts receivable | | | 337,276 | | | | | 320,958 | |
Other receivables | | | 23,955 | | | | | 23,738 | |
Allowance for doubtful accounts | | | (6,232 | ) | | | | (2,739 | ) |
Net current accounts and notes receivable | $ | | 357,564 | | | $ | | 345,320 | |
Long-term notes receivable | $ | | 9,299 | | | $ | | 13,335 | |
Allowance for doubtful accounts | | | (371 | ) | | | | (233 | ) |
Net long-term notes receivable | $ | | 8,928 | | | $ | | 13,102 | |
The Company does not typically incur incremental costs of obtaining a contract that are contingent upon successful contract execution and would therefore be capitalized.
Changes to the balance of the allowance for doubtful accounts were as follows:
| | | | Allowance for Doubtful Accounts | |
| | | | Current Accounts | | | Long-term | | | | |
(In thousands) | | | | and Notes Receivable | | | Notes Receivable | | | Total | |
Balance at December 28, 2019 | | | | $ | | 2,739 | | | $ | | 233 | | | $ | | 2,972 | |
Impact of adoption of new credit loss standard (ASU 2016-13) | | | | | | 1,911 | | | | | 259 | | | | | 2,170 | |
Provision for expected credit losses | | | | | | 1,966 | | | | | — | | | | | 1,966 | |
Write-offs charged against the allowance | | | | | | (384 | ) | | | | (121 | ) | | | | (505 | ) |
Balance at January 2, 2021 | | | | $ | | 6,232 | | | $ | | 371 | | | $ | | 6,603 | |
During 2020, the Company also recognized bad debt expense of $0.7 million related to direct write-offs of uncollectable amounts. In performing its periodic evaluations of the adequacy of the allowance for doubtful accounts, the Company has evaluated the effects of the COVID-19 pandemic. While the duration and impact of these affects is uncertain, the Company did not deem it necessary to record incremental allowances for doubtful accounts as no additional credit exposures were identified.
-56-
Concentration of Credit Risk
In the ordinary course of business, the Company may advance funds to certain independent retailers (“customer advances”) 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.Company. These customer 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.met. The collectability of customer advances is not assured.
In the ordinary course of business, the Company also subleases and assigns certain leases to third parties. As of January 2, 2021,December 30, 2023, the Company estimates the present value of its maximum potential obligations for subleases and assigned leases to be approximately $6.5$2.9 million and $11.7$7.6 million, respectively.
The Company may also provide financial assistance in the form of loans to certain independent retailers for inventories, store fixtures and equipment and store improvements. Loans are generally secured by liens on real estate, inventory and/or equipment, personal guarantees and other types of collateral, and are generally repayable over a period of fivethree to ten years.years. The Company establishes reserves based upon assessments of the credit risk of specific customers, collateral value, historical trends and other information. The Company believes that adequate provision has been recorded for any uncollectable amounts. In addition, the Company may guarantee debt and lease obligations of independent retailers. In the event these retailers are unable to meet their debt service payments or otherwise experience an event of default, the Company would be unconditionally liable for the outstanding balance of their debt, and lease obligations, which would be due in accordance with the underlying agreements.
Changes to the balance of the allowance for credit losses were as follows:
| | | | | | | | | | | | | | | |
| | Allowance for Credit Losses | |
| | Current Accounts | | | Long-term | | | | |
(In thousands) | | and Notes
Receivable | | | Notes
Receivable | | | Total | |
Balance at January 2, 2021 | | $ | | 6,232 | | | $ | | 371 | | | $ | | 6,603 | |
Changes in credit loss estimates | | | | (1,101 | ) | | | | 360 | | | | | (741 | ) |
Write-offs charged against the allowance | | | | (717 | ) | | | | — | | | | | (717 | ) |
Balance at January 1, 2022 | | | | 4,414 | | | | | 731 | | | | | 5,145 | |
Changes in credit loss estimates | | | | 2,539 | | | | | 217 | | | | | 2,756 | |
Write-offs charged against the allowance | | | | (855 | ) | | | | — | | | | | (855 | ) |
Balance at December 31, 2022 | | | | 6,098 | | | | | 948 | | | | | 7,046 | |
Changes in credit loss estimates | | | | (929 | ) | | | | 264 | | | | | (665 | ) |
Write-offs charged against the allowance | | | | (558 | ) | | | | — | | | | | (558 | ) |
Balance at December 30, 2023 | | $ | | 4,611 | | | $ | | 1,212 | | | $ | | 5,823 | |
During 2023, 2022 and 2021, the Company recognized bad debt expense of $0.3 million, $1.1 million and $0.4 million, respectively, related to direct write-offs of uncollectable amounts.
Note 43 – Property and Equipment
Property and equipment consist of the following:
| | January 2, | | | December 28, | | December 30, | | | December 31, | |
(In thousands) | 2021 | | | 2019 | | 2023 | | | 2022 | |
Land and improvements | $ | | 89,871 | | | $ | | 90,200 | | $ | | 91,031 | | | $ | | 91,859 | |
Buildings and improvements | | | 556,518 | | | | | 555,049 | | | | 646,707 | | | | | 612,471 | |
Equipment | | | 668,872 | | | | | 640,608 | | | | 799,721 | | | | | 724,077 | |
Construction in progress | | | | 59,295 | | | | | 53,443 | |
Total property and equipment | | | 1,315,261 | | | | | 1,285,857 | | | | 1,596,754 | | | | | 1,481,850 | |
Less accumulated depreciation and amortization | | | 738,202 | | | | | 670,041 | | | | 947,683 | | | | | 871,630 | |
Property and equipment, net | $ | | 577,059 | | | $ | | 615,816 | | $ | | 649,071 | | | $ | | 610,220 | |
Depreciation expense was $64.7$68.0 million, $65.5$66.7 million and $67.0$65.9 million in 2020, 20192023, 2022 and 20182021 respectively.
Note 54 – Goodwill and Other Intangible Assets
All goodwill relates to the Food Distribution segment.The Company has two reporting units, Wholesale and Retail. Changes in the carrying amount of goodwill were as follows:
| | | | | | | | | | | | | | | (In thousands) | Wholesale | | | Retail | | | Total | | Balance at January 1, 2022 | $ | | 181,035 | | | $ | | — | | | $ | | 181,035 | | Acquisitions | | | — | | | | | 1,125 | | | | | 1,125 | | Balance at December 31, 2022 and December 30, 2023 | $ | | 181,035 | | | $ | | 1,125 | | | $ | | 182,160 | |
(In thousands)
| | | | | | | Total
| |
Balance at December 29, 2018:
| | | | | | | $
| | 178,648
| |
Acquisitions
| | | | | | | | | 2,387
| |
Balance at December 28, 2019 and January 2, 2021:
| | | | | | | $
| | 181,035
| |
The Company reviews goodwill and other intangible assets for impairment annually, during the fourth quarter of each year, and more frequently if circumstances indicate the possibility of impairment.impairment is more likely than not to have occurred. Testing goodwill and other 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.
During the Company’s 2020Company's 2023 annual impairment review within the Wholesale reporting unit, projected cash flows were discounted based on a weighted average cost of capital (“WACC”("WACC") of 10.3%9.6%. This WACC was developed from adjusted market basedmarket-based and company specific factors, current interest rates, equity risk premiums, and other market-based expectations regarding expected investment returns. The development of the WACC requires estimates of an equity rate of return and a debt rate of return, which are specific to the industry in which the Food DistributionWholesale reporting unit operates. The Company concluded that the fair value of the Food DistributionWholesale reporting unit was substantially in excess of its carrying value in the annual review.
-57-
The following table reflects the components of amortized intangible assets, included in “Intangible assets, net” on the consolidated balance sheets:
| | | | | | | | | | | | | | | | | | | | | | |
| | | December 30, 2023 | | | December 31, 2022 | |
| | | Gross | | | | | | | Gross | | | | | |
| | | Carrying | | | Accumulated | | | Carrying | | | Accumulated | |
(In thousands) | | | Amount | | | Amortization | | | Amount | | | Amortization | |
Non-compete agreements | | | | $ | | 3,545 | | | $ | | 3,190 | | | $ | | 3,545 | | | $ | | 2,621 | |
Pharmacy customer prescription lists | | | | | | 3,869 | | | | | 2,853 | | | | | 4,168 | | | | | 2,598 | |
Customer relationships | | | | | | 57,937 | | | | | 26,146 | | | | | 57,937 | | | | | 22,484 | |
Franchise fees | | | | | | 1,209 | | | | | 661 | | | | | 1,165 | | | | | 598 | |
Total | | | | $ | | 66,560 | | | $ | | 32,850 | | | $ | | 66,815 | | | $ | | 28,301 | |
| | | January 2, 2021 | | | December 28, 2019 | |
| | | Gross | | | | | | | | Gross | | | | | | |
| | | Carrying | | | Accumulated | | | Carrying | | | Accumulated | |
(In thousands) | | | Amount | | | Amortization | | | Amount | | | Amortization | |
Non-compete agreements | | | | $ | | 4,287 | | | $ | | 2,075 | | | $ | | 4,438 | | | $ | | 1,493 | |
Pharmacy customer prescription lists | | | | | | 4,233 | | | | | 1,521 | | | | | 8,200 | | | | | 4,481 | |
Customer relationships | | | | | | 57,937 | | | | | 15,160 | | | | | 57,937 | | | | | 11,497 | |
Trade names | | | | | | 1,068 | | | | | 837 | | | | | 1,068 | | | | | 687 | |
Franchise fees and other | | | | | | 1,081 | | | | | 497 | | | | | 1,114 | | | | | 422 | |
Total | | | | $ | | 68,606 | | | $ | | 20,090 | | | $ | | 72,757 | | | $ | | 18,580 | |
The weighted average amortization periods for amortizable intangible assets as of January 2, 2021December 30, 2023 are as follows:
| | | | | | | | | | | | |
Non-compete agreements |
|
|
|
|
|
|
|
|
|
| 6.4 years | | | 6.1 years
|
Pharmacy customer prescription lists |
|
|
|
|
|
|
|
|
|
| 8.1 years | | | 8.0 years
|
Customer relationships |
|
|
|
|
|
|
|
|
|
| 16.4 years | | | 16.4 years
|
Trade namesFranchise fees
|
|
|
|
|
|
|
|
|
|
| 10.0 years | | | 5.0 years
|
Franchise fees and other
| | | | | | | | | | | | | | 10.0 years
|
Amortization expense for intangible assets was $5.7$4.9 million, $5.8$5.0 million and $5.8$5.2 million for 2020, 20192023, 2022 and 2018,2021, respectively.
Estimated amortization expense for each of the five succeeding fiscal years is as follows:
| (In thousands) | 2021 | | | 2022 | | | 2023 | | | 2024 | | | 2025 | | 2024 | | | 2025 | | | 2026 | | | 2027 | | | 2028 | |
Amortization expense | $ | | 5,202 | | | $ | | 4,849 | | | $ | | 4,807 | | | $ | | 4,556 | | | $ | | 4,159 | | $ | | 4,587 | | | $ | | 4,190 | | | $ | | 3,675 | | | $ | | 3,653 | | | $ | | 3,645 | |
The Company has indefinite-lived intangible assets that are not amortized, consisting primarily of indefinite-lived trade names and liquor licenses, totaling $67.8 million as of both December 30, 2023 and December 31, 2022.
Indefinite lived intangible assets are tested for impairment at least annually, and as needed if an indicator of potential impairment exists. A qualitative assessment was performed to determine whether it is more likely than not that an indefinite lived intangible asset is impaired. If the sale of alcoholic beverages. Duringqualitative assessment supports that it is more likely than not that the third quarter of 2020, the Company made the decision to abandon a tradename within the Food Distribution segment to better integrate with the Company’s overall transportation operations, resulting in a $7.0 million impairmentfair value of the associated indefinite-lived tradename asset. Duringindefinite lived intangible asset exceeds its carrying value, a quantitative impairment test is not required. If the fourth quarterqualitative assessment does not support the fair value of 2020, the Company recognized an impairment chargeindefinite lived intangible asset, then a quantitative assessment is performed. Indefinite lived intangible assets are measured at fair value using Level 3 inputs under the fair value hierarchy, as further described in Note 7. The fair value of $1.7 million, related to a tradenameindefinite lived intangible assets is determined by estimating the amount and timing of net future cash flows generated from the use of the asset, generally using estimated revenue growth rates and profitability rates and, in the case of the relief-from-royalty methodology, royalty rates. Future cash flows are discounted based on a changethe WACC of the reporting unit in which the assumptions supportingasset resides, determined using current interest rates, equity risk premiums, and other market-based expectations regarding expected investment returns, as well as estimates of industry-specific equity and debt rates of return. The Company concluded that it is more likely than not that the fair value. Changes invalue of the carrying amount of indefinite-livedindefinite lived intangible assets were as follows:exceed their carrying value during the annual qualitative assessment.
(In thousands)
| Indefinite-lived Intangible Assets
| |
Balance at December 29, 2018
| $
| | 69,751
| |
Acquisitions
| | | 20,631
| |
Impairment
| | | (13,966
| )
|
Disposals
| | | (160
| )
|
Balance at December 28, 2019
| | | 76,256
| |
Impairment (Note 6)
| | | (8,630
| )
|
Balance at January 2, 2021
| $
| | 67,626
| |
-58-
Note 65 – Restructuring, Asset Impairment and Other Charges
The following table provides the activity of reserves for closed properties for 2020, 20192023, 2022 and 2018.2021. Reserves for closed properties recorded in the consolidated balance sheets are included in “Other accrued expenses” in Current liabilities and “Other long-term liabilities” in Long-term liabilities based on when the obligations are expected to be paid.
| | Lease and | | | | | | | Lease and | | | | | |
(In thousands) | Ancillary Costs | | Severance | | Total | | Ancillary Costs | | Severance | | Total | |
Balance at December 30, 2017 | $ | 17,889 | | $ | 3 | | $ | 17,892 | |
Balance at January 2, 2021 | | $ | | 3,349 | | $ | | 114 | | $ | | 3,463 | |
Provision for closing charges | | 4,499 | | | 153 | | | 4,652 | | | | 1,509 | | | | — | | | | 1,509 | |
Changes in estimates | | (1,181 | ) | | — | | (1,181 | ) |
Other | | 554 | | — | | 554 | |
Accretion expense | | 579 | | — | | 579 | |
Payments | | (5,954 | ) | | (156 | ) | | (6,110 | ) |
Balance at December 29, 2018 | | 16,386 | | | — | | | 16,386 | |
Provision for closing charges | | 1,299 | | | 447 | | | 1,746 | |
Reclassification of lease liabilities | | (8,177 | ) | | — | | (8,177 | ) |
Provision for severance | | | | — | | | | 362 | | | | 362 | |
Lease termination adjustments | | (62 | ) | | — | | (62 | ) | | | (220 | ) | | | — | | | | (220 | ) |
Changes in estimates | | (635 | ) | | — | | (635 | ) | | | 2 | | | | — | | | | 2 | |
Accretion expense | | 271 | | — | | 271 | | | | 91 | | | | — | | | | 91 | |
Payments | | (4,111 | ) | | (430 | ) | | (4,541 | ) | | | (1,607 | ) | | | (476 | ) | | | (2,083 | ) |
Balance at December 28, 2019 | | 4,971 | | | 17 | | | 4,988 | |
Balance at January 1, 2022 | | | | 3,124 | | | | — | | | | 3,124 | |
Provision for closing charges | | 325 | | | 2,205 | | | 2,530 | | | | 1,837 | | | | — | | | | 1,837 | |
Provision for severance | | | | — | | | | 9 | | | | 9 | |
Lease termination adjustments | | | | (86 | ) | | | — | | | | (86 | ) |
Changes in estimates | | 26 | | (228 | ) | | (202 | ) | | | 28 | | | | — | | | | 28 | |
Accretion expense | | 121 | | — | | 121 | | | | 67 | | | | — | | | | 67 | |
Payments | | (2,094 | ) | | (1,880 | ) | | (3,974 | ) | | | (993 | ) | | | (9 | ) | | | (1,002 | ) |
Balance at January 2, 2021 | $ | 3,349 | | $ | 114 | | $ | 3,463 | |
Balance at December 31, 2022 | | | | 3,977 | | | | — | | | | 3,977 | |
Provision for severance | | | | — | | | | 21 | | | | 21 | |
Changes in estimates | | | | (258 | ) | | | — | | | | (258 | ) |
Accretion expense | | | | 102 | | | | — | | | | 102 | |
Payments | | | | (844 | ) | | | (21 | ) | | | (865 | ) |
Balance at December 30, 2023 | | $ | | 2,977 | | $ | | — | | $ | | 2,977 | |
| | | | | | | | |
Included in the liability are lease-related ancillary costs from the date of site closure to the end of the remaining lease term. Prior to the adoption of ASU 2016-02 (Note 1), the liability also 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 to operating lease liabilities within the consolidated balance sheets.
-59-
Restructuring, asset impairment and other charges included in the consolidated statements of earnings consisted of the following:
| | | | | | | | | | | | | | | |
(In thousands) | | 2023 | | | 2022 | | | 2021 | |
Asset impairment charges (a) | | $ | | 11,749 | | | $ | | 5,086 | | | $ | | 3,783 | |
Provision for closing charges | | | | — | | | | | 1,837 | | | | | 1,509 | |
Gain on sales of assets related to closed facilities (b) | | | | (2,614 | ) | | | | (6,324 | ) | | | | (2,607 | ) |
Provision for severance (c) | | | | 21 | | | | | 9 | | | | | 362 | |
Other costs associated with site closures (d) | | | | 584 | | | | | 271 | | | | | 636 | |
Lease termination adjustments (e) | | | | — | | | | | (102 | ) | | | | (799 | ) |
Changes in estimates (f) | | | | (550 | ) | | | | 28 | | | | | 2 | |
Total | | $ | | 9,190 | | | $ | | 805 | | | $ | | 2,886 | |
| 2020 | | | 2019 | | | 2018 | |
(In thousands) | (53 Weeks) | | | (52 Weeks) | | | (52 Weeks) | |
Asset impairment charges (a) | $ | | 20,148 | | | $ | | 17,925 | | | $ | | 2,630 | |
Charge on customer advance (b) | | | — | | | | | 2,351 | | | | | 32,000 | |
Provision for closing charges | | | 325 | | | | | 1,299 | | | | | 4,499 | |
Gain on sales of assets related to closed facilities (c) | | | (31 | ) | | | | (8,532 | ) | | | | (1,352 | ) |
Provision for severance for closed sites (d) | | | 2,205 | | | | | 447 | | | | | 153 | |
Other costs associated with distribution center and store closings (e) | | | 1,953 | | | | | 2,135 | | | | | 797 | |
Changes in estimates (f) | | | (202 | ) | | | | (635 | ) | | | | (1,181 | ) |
Lease termination adjustments (g) | | | — | | | | | (1,940 | ) | | | | — | |
Total | $ | | 24,398 | | | $ | | 13,050 | | | $ | | 37,546 | |
(a)
| In 2020, asset impairment charges of $9.1 million were incurred in the Food Distribution segment related to the evaluation of the expected net proceeds from the Fresh Kitchen facility which is currently held-for-sale, the exit of the Fresh Cut business, and the sale of equipment related to both Fresh Cut and Fresh Kitchen. Charges of $8.6 million primarily relate to the abandonment of a tradename related to the integration of the Company’s transportation operations. Additionally, certain of the Company’s Retail assets were determined not to be recoverable based on management’s intention to close stores or sell assets related to previously closed stores, resulting in impairment charges totaling $2.1 million. In 2019, asset impairment charges primarily related to the Food Distribution segment, including the Caito trade name. In 2018, asset impairment charges were incurred primarily in the Retail segment due to the economic and competitive environment of certain stores and in conjunction with the Company’s retail store rationalization plan.
|
(b)
| The charge on customer advance relates to an advance to an independent retailer customer which was not fully recoverable.
|
(c)
| Gain on sales of assets were primarily related to the sale of a closed Food Distribution warehouse in 2019. 2018 activity related to a closed Military warehouse and closed Retail stores.
|
(d)
| In 2020, provision for severance was primarily related to the exit of the Fresh Cut business within the Food Distribution segment.
|
(e)
| Other costs associated with distribution center and store closings represent additional costs, including labor, inventory transfer and other administrative costs, incurred in connection with restructuring operations in the Food Distribution and Retail segments.
|
(f)
| Changes in estimates primarily relate to revised estimates for turnover and other lease ancillary costs associated with previously closed locations, which were generally lower than the initial estimates at certain properties in all years presented.
|
(g)
| Lease termination adjustments represent the benefits recognized in connection with early lease buyouts for previously closed sites. Payments made in connection with lease buyouts were applied to reserves for closed properties and lease liabilities, as applicable.
|
In the second quartercurrent year, asset impairment charges of 2019 the Company announced a plan to reposition the Caito fresh production operations and to close the Fresh Kitchen. As a result of this plan, the Company evaluated the Caito indefinite-lived trade name and long-lived assets for potential impairment. The indefinite-lived trade names with a book value of $35.5$8.0 million were measured at a fair value of $21.5 million, resultingincurred in an impairment charge of $14.0 millionthe Wholesale segment related to the Caito tradename. During this test,Company's continued supply chain network optimization in response to customer demand changes. Additional charges in the Company concludedcurrent year were incurred related to two store closures in the long-lived assetsRetail segment and impairment losses related to a distribution location that sustained storm damage in the Wholesale segment. Asset impairment charges in 2022 were not impaired. Duringincurred primarily in the third quarterRetail segment and relate to restructuring of 2020, the Company madeRetail segment's e-commerce delivery model and a store closure. In 2021, asset impairment charges were incurred primarily in the decisionRetail segment and relate to abandon a tradename within the Food Distribution segment to better integratestore closures, as well as site closures in connection with the Company’s overall transportation operations.supply chain transformation initiatives within the Wholesale segment.
(b)Indefinite lived intangible assets are tested for impairment at least annually, and as needed if an indicator
Gain on sales 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 8. The fair value of indefinite lived intangible assets is determined by estimating the amount and timing of net future cash flows generated from the use of the asset, generally using estimated revenue growth rates and profitability rates and, in the casecurrent year primarily relate to the sale of a store within the relief-from-royalty methodology, royalty rates. Future cash flows are discounted basedRetail segment. In 2022, gain on sales of assets primarily relates to the WACCsales of real property of previously closed locations within both the reporting unitWholesale and Retail segments. Gain on sales of assets in which2021 primarily relate to sales of pharmacy customer lists, equipment, and real estate associated with the asset resides, determined using current interest rates, equity risk premiums, and other market-based expectations regarding expected investment returns,store closings in the Retail segment, in addition to gains on sale of vacant land in the Wholesale segment.
(c)Severance charges relate to closures in the Wholesale segment as well as Retail store closings.
(d)Other costs net activity in the current year primarily relates to Retail store closings. In the prior year, activity primarily relates to restructuring activity within the Wholesale segment and Retail store closings.
(e)Lease termination adjustments represent the benefits recognized in connection with early lease buyouts for previously closed sites. Payments made in connection with lease buyouts were applied to reserves for closed properties and lease liabilities, as applicable.
(f)Changes in estimates of industry specific equityprimarily relate to revised estimates for turnover and debt rates of return.-60-
Long-lived assets which are not recoverable are measured at fair value on a nonrecurring basis using Level 3 inputs under the fair value hierarchy, as further described in Note 8. Assets7. In the current year, long-lived assets with a book value of $20.6 million were measured at a fair value of $8.9 million, resulting in impairment charges of $11.7 million. In the prior year, long-lived assets with a book value of $5.2 million were measured at a fair value of $0.1 million, resulting in impairment charges of $5.1 million. In 2021, long-lived assets consisting of property and equipment with a book value of $57.3$27.5 million were measured at a fair value of $45.8$23.7 million, resulting in impairment charges of $11.53.8 million in 2020. Fairmillion. The 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, usesconsultations with real estate brokers. The Company evaluated the assets held for sale as of January 2, 2021 and concluded that the Fresh Kitchen facility meets the requirements for held for sale classification. Assets classified as held for sale in the consolidated balance sheet are valued at the expected net proceeds and are evaluated each quarter.
Note 76 – Long-Term Debt
Long-term debt consists of the following:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | December 30, | | | December 31, | |
(In thousands) | | | | | | | | | | | | | | | | 2023 | | | 2022 | |
Senior secured revolving credit facility, due November 2027 | $ | | 522,492 | | | $ | | 445,880 | |
Finance lease liabilities (Note 10) | | | 74,639 | | | | | 57,515 | |
Other, 3.71% - 4.36%, due 2024 - 2033 | | | 4,743 | | | | | 4,813 | |
Total debt - Principal | | | 601,874 | | | | | 508,208 | |
Unamortized debt issuance costs | | | (4,394 | ) | | | | (4,627 | ) |
Total debt | | | 597,480 | | | | | 503,581 | |
Less current portion | | | 8,813 | | | | | 6,789 | |
Total long-term debt and finance lease liabilities | $ | | 588,667 | | | $ | | 496,792 | |
| | | | | | | | | | | | | | | | January 2, | | | December 28, | |
(In thousands) | | | | | | | | | | | | | | | | 2021 | | | 2019 | |
Senior secured revolving credit facility, due December 2023 | $ | | 440,177 | | | $ | | 640,409 | |
Finance lease obligations (Note 10) | | | 43,632 | | | | | 44,966 | |
Other, 2.61% - 4.36%, due 2021 - 2026 | | | 6,707 | | | | | 8,633 | |
Total debt - Principal | | | 490,516 | | | | | 694,008 | |
Unamortized debt issuance costs | | | (4,072 | ) | | | | (5,455 | ) |
Total debt - Principal | | | 486,444 | | | | | 688,553 | |
Less current portion | | | 5,135 | | | | | 6,349 | |
Total long-term debt | $ | | 481,309 | | | $ | | 682,204 | |
-49-
The Company’sIn 2023, the Company entered into amendments (the "Amendments") to the Company's Amended and Restated Loan and Security Agreement (the “Credit Agreement”"Credit Agreement"). The principal terms of the Amendments included increasing the size of the Tranche A portion of the Company's revolving credit facility by $130 matures December 18,million in 2023. The Credit Agreement provides for a Tranche A revolving loan of up to $975 million$1.17 billion and a Tranche A-1 revolving loan with $40$40 million of capacity.The The Company has the ability to increase the size ofamount borrowed under the Credit Agreement by an additional $325$195 million, subject to certain conditions. The Company’s obligations under the Credit Agreement are secured by substantially all of the Company’s personal and real property. The Company may repay all loans in whole or in part at any time without penalty.
Availability under the Credit Agreement is based upon advance rates on certain asset categories owned by the Company, including, but not limited to the following: inventory, accounts receivable, real estate, prescription lists, cigarette tax stamps, and rolling stock.
The Credit Agreement imposes certain requirements,restrictions on the Company, including limitations on dividends and investments, limitations on the Company’s ability to incur debt, make loans, acquire other companies, change the nature of the Company’s business, enter a merger or consolidation, or sell assets. These requirements can be more restrictive depending upon the Company’s Excess Availability, as defined under the Credit Agreement.
Borrowings under thecredit facility bear interest at the Company’s option as either EurodollarSOFR loans or Base Rate loans, subject to a grid based upon Excess Availability.Availability. The interest rate terms for each of the aforementioned tranches are as follows:
| | | | | | | | | | |
Credit |
| Outstanding as of |
|
|
|
|
|
|
Facility |
| January 2, 2021December 30, 2023
|
|
|
|
|
|
|
Tranche |
| (In thousands) |
|
| EurodollarSOFR Rate
|
| Base Rate |
Tranche A |
| $ |
| 409,636485,379
|
|
| LIBORSOFR plus 1.25% to 1.50%
|
| Greater of: | (i) the Federal Funds Rate plus 0.75% to 1.00% |
|
|
|
|
|
|
|
|
| | (ii) the EurodollarSOFR Rate plus 2.25%1.25% to 2.50%1.50% |
|
|
|
|
|
|
|
|
| | (iii) the prime rate plus 0.25% to 0.50% |
Tranche A-1 |
| $ |
| 30,54137,113
|
|
| LIBORSOFR plus 2.25% to 2.50%
|
| Greater of: | (i) the Federal Funds Rate plus 1.75% to 2.00% |
|
|
|
|
|
|
|
|
| | (ii) the EurodollarSOFR Rate plus 2.25% to 2.50% |
|
|
|
|
|
|
|
|
| | (iii) the prime rate plus 1.25% to 1.50% |
The Company also incurs an unused line of credit fee on the unused portion of the loan commitments at a rate of 0.25%0.25%.
The Credit Agreement requires that the Company maintain Excess Availability of 10%10% of the borrowing base, as defined in the Credit Agreement. The Company is in compliance with all financial covenants as of January 2, 2021December 30, 2023 and had Excess Availability after the 10%10% requirement of $432.4$483.2 million and $236.8$447.8 million at January 2, 2021December 30, 2023 and December 28, 2019,31, 2022, respectively. The Credit Agreement provides for the issuance of letters of credit, of which $15.6 million and $11.7$17.7 million were outstanding as of January 2, 2021December 30, 2023 and December 28, 2019.31, 2022.
The weighted average interest rate for all borrowings, including loan fee amortization, was 2.95%7.03% for 2020.2023. Refer to Note 8 for further information on the interest rate swap.
At January 2, 2021,December 30, 2023, aggregate annual maturities and scheduled payments of long-term debt are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands) | 2024 | | | 2025 | | | 2026 | | | 2027 | | | 2028 | | | Thereafter | | | Total | |
Total borrowings | $ | | 8,813 | | | $ | | 8,693 | | | $ | | 10,024 | | | $ | | 530,098 | | | $ | | 7,530 | | | $ | | 36,716 | | | $ | | 601,874 | |
(In thousands) | 2021 | | | 2022 | | | 2023 | | | 2024 | | | 2025 | | | Thereafter | | | Total | |
Total borrowings | $ | | 5,135 | | | $ | | 4,614 | | | $ | | 444,734 | | | $ | | 4,450 | | | $ | | 4,104 | | | $ | | 27,479 | | | $ | | 490,516 | |
-61-
Note 87 – Fair Value Measurements
ASC 820, Fair Value Measurement, 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. For discussion of the fair value measurements related to goodwill, and long-lived asset impairment charges, refer to Note 54 and Note 6. 5. At January 2, 2021December 30, 2023 and December 28, 2019,31, 2022, the book value and estimated fair value of the Company’s debt instruments, excluding debt financing costs, were as follows:
| | January 2, | | | December 28, | | December 30, | | | December 31, | |
(In thousands) | 2021 | | | 2019 | | 2023 | | | 2022 | |
Book value of debt instruments, excluding debt financing costs: | | | | | | | | | | | | | | |
Current maturities of long-term debt and finance lease liabilities | $ | | 5,135 | | | $ | | 6,349 | | $ | | 8,813 | | | $ | | 6,789 | |
Long-term debt and finance lease liabilities | | | 485,381 | | | | | 687,659 | | | | 593,061 | | | | | 501,419 | |
Total book value of debt instruments | | | 490,516 | | | | | 694,008 | | | | 601,874 | | | | | 508,208 | |
Fair value of debt instruments, excluding debt financing costs | | | 497,941 | | | | | 700,631 | | | | 603,117 | | | | | 507,668 | |
Excess of fair value over book value | $ | | 7,425 | | | $ | | 6,623 | |
Excess (deficit) of fair value over book value | | $ | | 1,243 | | | $ | | (540 | ) |
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 ofThe Company's interest rate swap agreement is considered a Level 2 instrument. The Company values the Company’s business combinations involvedinterest rate swap using standard models and observable market inputs including SOFR interest rates and discount rates, which are considered Level 2 inputs. The location and the potential for the receipt or payment of future contingent consideration upon the shortfall or achievement of various operating thresholds, respectively. The additional consideration was generally contingent on the acquired company reaching certain performance milestones, including attaining specified EBITDA levels. An asset or liability is recorded for the estimated fair value of the contingent consideration atinterest rate swap agreement in the acquisition date andconsolidated balance sheets is re-measured each reporting period, using Level 3 inputs, withdisclosed in Note 8.
Note 8 – Derivatives
Hedging of Interest Rate Risk
During the first quarter of 2023, the Company entered into an interest rate swap contract to mitigate its exposure to changes in variable interest rates. The Company's interest rate swap is designated as a cash flow hedge as of both the effective date, March 17, 2023, and as of December 30, 2023. The interest rate swap is reflected at its fair value recognizedin the consolidated balance sheets. Refer to Note 7 for further information on the fair value of the interest rate swap.
Details of the pay-fixed, receive-floating interest rate swap contract as income or expense within operating expensesof December 30, 2023 are as follows:
| | | | | |
Effective Date | Maturity Date | Notional Value
(in millions) | Pay Fixed Rate | Receive Floating Rate | Floating Rate Reset Terms |
March 17, 2023 | November 17, 2027 | $150 | 3.646% | One-Month CME Term SOFR | Monthly |
The Company performed an initial quantitative assessment of hedge effectiveness using the change-in-variable-cash-flows method. Under this method, the Company assessed the effectiveness of the hedging relationship by comparing the present value of the cumulative change in the expected future cash flows on the variable leg of the interest rate swap with the present value of the cumulative change in the expected future interest cash flows on the variable-rate debt. The Company determined the interest rate swap to be highly effective. To assess for continued hedge effectiveness, the Company performs a retrospective and prospective qualitative assessment each quarter. The Company also monitors the credit risk of the counterparty on an ongoing basis. The change in the fair value of the interest rate swap is initially reported in "Other comprehensive income" in the consolidated statements of earnings.
During 2019, the Company received $15.0 million relatedcomprehensive income and subsequently reclassified to the resolution of certain acquisition contingencies associated with the Caito and BRT acquisition executed at the beginning of fiscal 2017. Upon receipt of the proceeds, the portion of the contingent consideration related to the acquisition date fair value was reported as a financing activityearnings in "Interest expense, net" in the consolidated statements of cash flows. Amounts received in excessearnings when the hedged transactions affect earnings.
The location and the fair value of the acquisition date fair value were reportedinterest rate swap in the consolidated balance sheets as an operating activityof December 30, 2023 is as follows:
| | | | | |
|
| Derivative Fair Value |
|
(In thousands) | Consolidated Balance Sheets Location | December 30, 2023 |
|
Cash Flow Hedge: |
|
|
|
|
Interest rate swap | Prepaid expenses and other current assets | $ |
| 1,721 |
|
Interest rate swap | Other long-term liabilities |
|
| 1,914 |
|
Interest rate swap | Accumulated other comprehensive income |
|
| (316 | ) |
The location and amount of gains or losses recognized in the consolidated statements of cash flows.earnings for the interest rate swap, presented on a pre-tax basis, are as follows:
| | | | |
| 2023 |
|
(In thousands) | Interest expense, net |
|
Total amounts of expense line items presented in the consolidated statements of
earnings in which the effects of cash flow hedges are recorded | $ |
| 39,887 |
|
Gain on cash flow hedging relationships: |
|
|
|
Gain reclassified from comprehensive income into earnings |
|
| 1,832 |
|
Note 9 – 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.
The Company subleases property at certain locations and for 2020, 20192023, 2022 and 2018,2021, received rental income of $4.0$3.8 million, $4.0$3.9 million and $3.6$4.4 million, respectively. In the event of customer default, the Company would be responsible for fulfilling these lease obligations. Future payment obligations under these leases are disclosed in Note 10. Contingencies related to credit risk and collectability are disclosed in Note 3.2.
-62-
Unions represent approximately 7%7% of SpartanNash’s associates.Associates. These associatesAssociates are covered by collective bargaining agreements (“CBAs”). The facilities covered by CBAs, the unions representing the covered associatesAssociates and the expiration dates for each existing CBA are provided in the following table:
| | | | |
Distribution Center Locations |
| Union Locals |
| Expiration Dates |
Landover, MarylandLima, Ohio Warehouse
|
| IBT 639908 |
| March, 2021January 2025
|
Lima, Ohio Drivers |
| IBT 908 |
| January 20222025 |
Bellefontaine, Ohio GTL Truck Lines, Inc. |
| IBT 908 |
| February 20222025 |
Bellefontaine, Ohio General Merchandise Service Division |
| IBT 908 |
| February 20222025 |
Norfolk, Virginia |
| IBT 822 |
| April 20222025 |
Columbus, Georgia |
| IBT 528 |
| September 20222025 |
Grand Rapids, Michigan |
| IBT 406 |
| October 2022April 2026
|
Landover, Maryland |
| IBT 639 |
| February 2027 |
The Company contributes to the Central States Southeast and Southwest Pension Fund (“Central(the “Central States Plan” or “the Plan”the “Plan”), a multi-employer pension plan, in accordance with provisions in place in collective bargaining agreements covering its supply chain operations in Bellefontaine and Lima, Ohio and Grand Rapids.Rapids, Michigan. This Plan provides retirement benefits to participants based on their service to contributing employers. The benefits to participants under the Plan are paid from assets held in trust for that purpose. An equal number of Trustees are appointed by a combination of contributing employers and unions;the applicable union(s); however, no representative of SpartanNash is notcurrently serving as a trustee of the Plan. 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 held in trust and the overall administration of the plan. The Company currently contributesCentral States Plan implemented a rehabilitation plan on March 25, 2008.
The Company's contributions 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 negotiated withinestablished by each applicable collective bargaining agreement and vary by location. TheHowever, required contributions may increase based on the funded status of the Plan continuesand legal requirements. On January 12, 2023, the Central States Plan received approximately $35.8 billion in Special Financial Assistance ("SFA"), inclusive of interest, which is designed to bealleviate the risk of insolvency of the Plan. On March 31, 2023, in red zone status, and according toaccordance with the Pension Protection Act (“PPA”("PPA"), isthe plan actuary certified that the Plan was considered to be in “critical and declining”"critical" zone status. Among other factors,status for the plan year beginning January 1, 2023. Due to the receipt of the SFA, the Central States Plan has stated that it expects it "will be funded well into the future". Despite the expectations of the Plan, the Company views the Plan's solvency as an ongoing risk factor.
The risk of participating in a multi-employer pension plan is different from the risk associated with single-employer plans in the “critical and declining” zone are generally following respects:less than 65% funded and are projected
a.Assets contributed to become insolvent within the next 15 years (or 20 years dependingmulti-employer plan by one employer may be used to provide benefits to employees of other participating employers.
b.If a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers.
c.If a company chooses to stop participating in a multi-employer plan, makes market exits such as closing a distribution center without opening another one in the same locale, or otherwise has participation in the plan drop below certain levels, the company may be required to pay those plans an amount based on the ratiounderfunded status of active-to-inactive participants).the plan, referred to as a withdrawal liability.
Based on the most recent information available to the Company, management believes that the value of assets held in trust to pay benefits covers 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 1 of a number of employers contributing to this plan, it is difficult to estimate the amount of the underfunding.Central States Plan. Management is not aware of any significant change in funding levels in the Plan since January 2, 2021. To reduce this underfunding, management expects multi-employer pension plan contributionsDecember 30, 2023. Due to increaseuncertainty regarding future factors that could trigger a withdrawal liability, as well as the absence of specific information regarding matters such as the Plan’s current financial situations, we are unable to determine with certainty the current amount of the Plan’s funding and/or SpartanNash’s current potential withdrawal liability exposure in the event of a future years.withdrawal from the Plan. Any adjustment for withdrawal liability willwould be recorded when it is probable that a liability exists and can be reasonably determined.
Note 10 – 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 property leases contain multiple renewal options, which generally range from one to ten years.years in length. In those locations in which it is economically feasible to continue to operate, management expects that renewal options will be exercised as they come due. The terms of certain leases contain provisions requiring payment of variable 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 reference 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.
The components of lease cost were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
(In thousands) | | | | | | | | | | 2023 | | | 2022 | | | 2021 | |
Operating lease cost | | | | | | | | | | $ | | 55,807 | | | $ | | 57,876 | | | $ | | 58,410 | |
Short-term lease cost | | | | | | | | | | | | 8,367 | | | | | 7,576 | | | | | 8,469 | |
Finance lease cost | | | | | | | | | | | | | | | | | | | | |
Amortization of assets | | | 8,244 | | | | | 6,134 | | | | | 4,645 | |
Interest on lease liabilities | | | 4,454 | | | | | 3,369 | | | | | 3,005 | |
Variable rent | | | | | | | | | | | | 348 | | | | | 236 | | | | | 162 | |
Sublease income | | | | | | | | | | | | (3,845 | ) | | | | (3,907 | ) | | | | (4,356 | ) |
Total net lease cost | | | | | | | | | | $ | | 73,375 | | | $ | | 71,284 | | | $ | | 70,335 | |
| | | | | | | | | | | | | 2020 | | | 2019 | |
(In thousands) | | | | | | | | | | | | | (53 Weeks) | | | (52 Weeks) | |
Operating lease cost | $ | | 55,955 | | | $ | | 54,798 | |
Short-term lease cost | | | 8,698 | | | | | 7,131 | |
Finance lease cost | | | | | | | | | |
Amortization of assets | | | 4,045 | | | | | 3,330 | |
Interest on lease liabilities | | | 3,194 | | | | | 3,084 | |
Variable rent | | | 333 | | | | | 10 | |
Sublease income | | | (3,994 | ) | | | | (4,014 | ) |
Total net lease cost | $ | | 68,231 | | | $ | | 64,339 | |
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Rental expense, net of sublease income, under operating leases was $58.0 million in 2018.
Supplemental balance sheet information related to leases was as follows:
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | December 30, | | | December 31, | |
(In thousands) | | | | | | | | | | 2023 | | | 2022 | |
Operating leases: | | | | | | | |
Operating lease assets | $ | | 242,146 | | | $ | | 257,047 | |
| | | | | | | |
Current portion of operating lease liabilities | $ | | 41,979 | | | $ | | 45,453 | |
Noncurrent operating lease liabilities | | | 226,118 | | | | | 239,062 | |
Total operating lease liabilities | $ | | 268,097 | | | $ | | 284,515 | |
Finance leases: | | | | | | | |
Property and equipment, at cost | $ | | 92,598 | | | $ | | 73,739 | |
Accumulated amortization | | | (25,472 | ) | | | | (21,727 | ) |
Property and equipment, net | $ | | 67,126 | | | $ | | 52,012 | |
| | | | | | | |
Current portion of finance lease liabilities | $ | | 7,739 | | | $ | | 5,791 | |
Noncurrent finance lease liabilities | | | 66,900 | | | | | 51,724 | |
Total finance lease liabilities | $ | | 74,639 | | | $ | | 57,515 | |
| | | | | | | |
Weighted average remaining lease term (in years): | | | | | | | |
Operating leases | | | 7.6 | | | | | 7.5 | |
Finance leases | | | 9.0 | | | | | 9.6 | |
| | | | | | | |
Weighted average discount rate: | | | | | | | |
Operating leases | | | 5.9 | % | | | | 5.4 | % |
Finance leases | | | 6.8 | % | | | | 6.9 | % |
| | | | | | | | | | | | | | | | January 2, | | | December 28, | |
(In thousands) | | | | | | | | | | | | | | | | 2021 | | | 2019 | |
Operating leases: | | | | | | | | | |
Operating lease assets | $ | | 289,173 | | | $ | | 268,982 | |
| | | | | | | | | |
Current portion of operating lease liabilities | $ | | 45,786 | | | $ | | 42,440 | |
Noncurrent operating lease liabilities | | | 278,859 | | | | | 267,350 | |
Total operating lease liabilities | $ | | 324,645 | | | $ | | 309,790 | |
Finance leases: | | | | | | | | | |
Property and equipment, at cost | $ | | 53,932 | | | $ | | 67,206 | |
Accumulated amortization | | | (14,971 | ) | | | | (27,131 | ) |
Property and equipment, net | $ | | 38,961 | | | $ | | 40,075 | |
| | | | | | | | | |
Current portion of finance lease liabilities | $ | | 4,030 | | | $ | | 4,401 | |
Noncurrent finance lease liabilities | | | 39,602 | | | | | 40,565 | |
Total finance lease liabilities | $ | | 43,632 | | | $ | | 44,966 | |
| | | | | | | | | |
Weighted average remaining lease term (in years): | | | | | | | | | |
Operating leases | | | 8.4 | | | | | 8.9 | |
Finance leases | | | 11.3 | | | | | 9.9 | |
| | | | | | | | | |
Weighted average discount rate: | | | | | | | | | |
Operating leases | | | 5.5 | % | | | | 5.7 | % |
Finance leases | | | 7.3 | % | | | | 7.0 | % |
Supplemental cash flow and other information related to leases was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands) | | | | | | | | | | | | | 2023 | | | 2022 | | | 2021 | |
Cash paid for amounts included in the measurement of lease liabilities: | | | | | | | | | | | | |
Operating cash flows used for operating leases | | $ | | 58,251 | | | $ | | 61,103 | | | $ | | 62,590 | |
Operating cash flows used for finance leases | | | | 4,450 | | | | | 3,372 | | | | | 3,005 | |
Financing cash flows used for finance leases | | | | 6,897 | | | | | 6,045 | | | | | 4,738 | |
| | | | | | | | | | | | |
Lease assets obtained in exchange for lease liabilities: | | | | | | | | | | | | |
Total operating lease liabilities | | | | 39,018 | | | | | 23,027 | | | | | 36,867 | |
Total finance lease liabilities | | | | 17,833 | | | | | 21,032 | | | | | 4,238 | |
| | | | | | | | | | | | | | | | 2020 | | | 2019 | |
(In thousands) | | | | | | | | | | | | | | | | (53 Weeks) | | | (52 Weeks) | |
Cash paid for amounts included in the measurement of lease liabilities: | | | | | | | | | |
Operating cash flows used for operating leases | $ | | 62,008 | | | $ | | 62,455 | |
Operating cash flows used for finance leases | | | 3,173 | | | | | 3,047 | |
Financing cash flows used for finance leases | | | 4,075 | | | | | 5,453 | |
| | | | | | | | | |
Lease assets obtained in exchange for lease liabilities: | | | | | | | | | |
Total operating lease liabilities | | | 62,500 | | | | | 34,346 | |
Total finance lease liabilities | | | 3,602 | | | | | 3,679 | |
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The Company’s total future lease commitments under operating and finance leases in effect at January 2, 2021December 30, 2023 are as follows:
| | | | | | | | | Operating | | | Finance | | | | | | Operating | | | Finance | | | | |
(In thousands) | | | | | | | | Leases | | | Leases | | | Total | | | Leases | | | Leases | | | Total | |
2021 | $ | | 61,536 | | | $ | | 6,973 | | | $ | | 68,509 | |
2022 | | | 55,883 | | | | 6,390 | | | | 62,273 | |
2023 | | | 50,805 | | | | 6,010 | | | | 56,815 | |
2024 | 2024 | | | 43,708 | | | | 5,648 | | | | 49,356 | | 2024 | $ | | 56,296 | | | $ | | 12,487 | | | $ | | 68,783 | |
2025 | 2025 | | | 39,220 | | | | 5,489 | | | | 44,709 | | 2025 | | | 53,105 | | | | 12,186 | | | | 65,291 | |
2026 | | 2026 | | | 46,824 | | | | 11,467 | | | | 58,291 | |
2027 | | 2027 | | | 41,147 | | | | 10,683 | | | | 51,830 | |
2028 | | 2028 | | | 31,593 | | | | 10,086 | | | | 41,679 | |
Thereafter | Thereafter | | | 156,182 | | | | | 33,338 | | | | | 189,520 | | Thereafter | | | 108,062 | | | | | 42,671 | | | | | 150,733 | |
Total | Total | | | 407,334 | | | | | 63,848 | | | | | 471,182 | | Total | | | 337,027 | | | | 99,580 | | | | 436,607 | |
Less interest | Less interest | | | 82,689 | | | | | 20,216 | | | | | 102,905 | | Less interest | | | 68,930 | | | | | 24,941 | | | | | 93,871 | |
Present value of lease liabilities | Present value of lease liabilities | | | 324,645 | | | | | 43,632 | | | | | 368,277 | | Present value of lease liabilities | | | 268,097 | | | | 74,639 | | | | 342,736 | |
Less current portion | Less current portion | | | 45,786 | | | | | 4,030 | | | | | 49,816 | | Less current portion | | | 41,979 | | | | | 7,739 | | | | | 49,718 | |
Long-term lease liabilities | Long-term lease liabilities | $ | | 278,859 | | | $ | | 39,602 | | | $ | | 318,461 | | Long-term lease liabilities | $ | | 226,118 | | | $ | | 66,900 | | | $ | | 293,018 | |
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Certain retail store facilities, either owned or obtained through leasing arrangements, are leased to others. A majority of the leases provide for minimum rent obligations and contain renewal options. Certain of the leases contain escalation clauses and contingent rentals based upon stipulated sales volumes.
Owned assets, included in property and equipment, which are leased to others are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | December 30, | | | December 31, | |
(In thousands) | | | | | | | | | | | | | | | | 2023 | | | 2022 | |
Land and improvements | $ | | 7,147 | | | $ | | 7,154 | |
Buildings | | | 27,227 | | | | | 26,623 | |
Owned assets leased to others | | | 34,374 | | | | | 33,777 | |
Less accumulated amortization and depreciation | | | 12,369 | | | | | 11,473 | |
Net owned assets leased to others | $ | | 22,005 | | | $ | | 22,304 | |
| | | | | | | | | | | | | | | | January 2, | | | December 28, | |
(In thousands) | | | | | | | | | | | | | | | | 2021 | | | 2019 | |
Land and improvements | $ | | 7,141 | | | $ | | 7,077 | |
Buildings | | | 27,864 | | | | | 29,287 | |
Owned assets leased to others | | | 35,005 | | | | | 36,364 | |
Less accumulated amortization and depreciation | | | 11,190 | | | | | 10,895 | |
Net owned assets leased to others | $ | | 23,815 | | | $ | | 25,469 | |
Future minimum rentals to be received under leases in effect at January 2, 2021December 30, 2023 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands) | 2024 | | | 2025 | | | 2026 | | | 2027 | | | 2028 | | | Thereafter | | | Total | |
Owned property | $ | | 4,250 | | | $ | | 3,279 | | | $ | | 3,033 | | | $ | | 2,653 | | | $ | | 2,417 | | | $ | | 14,083 | | | $ | | 29,715 | |
Leased property | | | 3,297 | | | | | 2,389 | | | | | 1,422 | | | | | 857 | | | | | 198 | | | | | 15 | | | | | 8,178 | |
Total | $ | | 7,547 | | | $ | | 5,668 | | | $ | | 4,455 | | | $ | | 3,510 | | | $ | | 2,615 | | | $ | | 14,098 | | | $ | | 37,893 | |
(In thousands) | 2021 | | | 2022 | | | 2023 | | | 2024 | | | 2025 | | | Thereafter | | | Total | |
Owned property | $ | | 4,577 | | | $ | | 4,248 | | | $ | | 3,308 | | | $ | | 2,346 | | | $ | | 1,917 | | | $ | | 17,598 | | | $ | | 33,994 | |
Leased property | | | 3,744 | | | | | 3,168 | | | | | 2,760 | | | | | 2,089 | | | | | 1,291 | | | | | 4,733 | | | | | 17,785 | |
Total | $ | | 8,321 | | | $ | | 7,416 | | | $ | | 6,068 | | | $ | | 4,435 | | | $ | | 3,208 | | | $ | | 22,331 | | | $ | | 51,779 | |
Note 11 – Associate Retirement Plans
The Company provides salary deferral defined contribution plans to substantially all of the Company’s associatesAssociates not covered by CBAs. Associates covered by CBAs at the Company’s Columbus, Georgia; Norfolk, Virginia; and Landover, Maryland facilities all participate in a defined contribution plan; the remaining associatesAssociates covered under CBAs participate in a multi-employer pension plan. The Company’s former non-contributory pension plan has been terminated.
Defined Contribution Plans
Expense for employer matching contributions made to defined contribution plans totaled $12.2$12.0 million, $11.5$12.0 million and $7.0$11.8 million in 2020, 20192023, 2022 and 2018,2021, respectively.
Executive Compensation Plans
The Company has a deferred compensation plan for a select group of management personnel or highly compensated associates.Associates. The plan is unfunded and permits participants to defer receipt of a portion of their base salary, annual bonus, or long-term incentive compensation which would otherwise be paid to them. The deferred amounts, plus earnings, are distributed following the associate’sAssociate’s termination of employment. Earnings are based on the performance of hypothetical investments elected by the participant from a portfolio of investment options.
The Company holds variable universal life insurance policies on certain key associates intended to fund distributions under the deferred compensation plan referenced above. The net cash surrender value of approximately $4.3 million at both January 2, 2021 and December 28, 2019 is recorded in “Other assets, net” in the consolidated balance sheets. These policies have an aggregate amount of life insurance coverage of approximately $15.0 million.-54-
On February 28, 2018, the Company’s Board of Directors granted approval to proceed with terminating the SpartanNash Company Pension Plan (the “Pension Plan”), a frozen defined benefit pension plan. The Plan was terminated on July 31, 2018 and the distribution of assets to plan participants occurred in 2019. The remaining overfunding of the Plan will be utilized by the Company to fund obligations associated with other qualified retirement programs. In 2020, the Company realized gains of $1.2 million related to refunds from the annuity provider to the Plan associated with the final reconciliation of participant data.
In 2019, lump sum distributions and annuity payouts of $72.6 million were made resulting in pre-tax settlement charges of $18.2 million, including $18.0 million related to the Plan termination. The Company also recognized other termination expenses of $1.5 million in 2019. Lump sum distributions of $3.3 million were made in 2018, resulting in pension settlement charges of $0.8 million.
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Postretirement Medical Plans
SpartanNash Company and certain subsidiaries provide healthcare benefits to retired associatesAssociates under the SpartanNash Company Retiree Medical Plan (the “Retiree Medical Plan” or "Plan"). Former Spartan Stores, Inc. associatesAssociates hired prior to January 1, 2002 who were not covered by CBAs during their employment, who have at least1010 years of service and have attained age 55 upon retirement qualify as “covered associates.” Covered associates whoEffective June 30, 2022, the Company has amended the Retiree Medical Plan. In connection with the amendment, the Company will make lump sum cash payments to all active and retired participants in lieu of future monthly benefits and reimbursements previously offered under the Plan. As a result of the amendment effective June 30, 2022, the Plan obligation was remeasured, resulting in a reduction to the obligation of $6.6 million and a corresponding prior service credit in AOCI, which will be amortized to March 31, 1992 receive Medicare supplemental benefits. Covered associates retiring after Aprilnet periodic postretirement benefit income over the remaining period until the final payment on July 1, 1992 are eligible for monthly postretirement healthcare benefits2024.
On July 1, 2023 and July 1, 2022, the Company made lump sum payments to retired participants totaling $1.3 million and $2.0 million, respectively. The payments constituted partial settlements of $5 multiplied by the associate’s years of service. This benefit isPlan, which resulted in the formrecognition within net periodic postretirement expense of a credit against their monthly insurance premium$0.3 million and $0.7 million on July 1, 2023 and July 1, 2022, respectively, related to the net actuarial loss within AOCI. The remaining payment, which relates to active participants, is expected to be made on or Medicare supplemental insurance. The retiree pays the balance of the premium.about July 1, 2024.
The following tables set forth the actuarial present value of benefit obligations, funded status, changes in benefit obligations and plan assets, weighted average assumptions used in actuarial calculations and components of net periodic benefit costs for the Company’s significant pension and postretirement benefit plans, excluding multi-employer plans. The prepaid, current accrued, and noncurrent accrued benefit costs associated with pension and postretirement benefits are reported in “Prepaid expenses and other current assets,” “Other assets, net,” “Accrued payroll and benefits,” and “Other long-term liabilities,” respectively, in the consolidated balance sheets.
| | | | | | | | | | | | |
| | | | Retiree Medical Plan | |
| | | | December 30, | | | December 31, | |
(In thousands, except percentages) | | | | 2023 | | | 2022 | |
Funded Status | | | | | | | | | | |
Projected/Accumulated benefit obligation: | | | | | | | |
Balance at beginning of year | | | | $ | | 2,412 | | | $ | | 11,031 | |
Service cost | | | | | | — | | | | | 76 | |
Interest cost | | | | | | 85 | | | | | 185 | |
Actuarial loss | | | | | | 23 | | | | | 30 | |
Plan amendment | | | | | | — | | | | | (6,614 | ) |
Benefits paid | | | | | | (1,284 | ) | | | | (2,296 | ) |
Balance at end of year | | | | $ | | 1,236 | | | $ | | 2,412 | |
| | | | | | | | | | |
Fair value of plan assets: | | | | | | | | | | |
Balance at beginning of year | | | | $ | | — | | | $ | | — | |
Company contributions | | | | | | 1,284 | | | | | 2,296 | |
Benefits paid | | | | | | (1,284 | ) | | | | (2,296 | ) |
Balance at end of year | | | | $ | | — | | | $ | | — | |
Unfunded status | | | | $ | | (1,236 | ) | | $ | | (2,412 | ) |
| | | | | | | | | | |
Components of net amount recognized in consolidated balance sheets: | | | | | | | | | | |
Current liabilities | | | | $ | | (1,236 | ) | | $ | | (1,270 | ) |
Noncurrent liabilities | | | | | | — | | | | | (1,142 | ) |
Net liability | | | | $ | | (1,236 | ) | | $ | | (2,412 | ) |
| | | | | | | | | | |
Amounts recognized in AOCI: | | | | | | | |
Net actuarial loss | | | | $ | | 217 | | | $ | | 743 | |
Prior service credit | | | | | | (1,653 | ) | | | | (4,960 | ) |
Accumulated other comprehensive income | | $ | | (1,436 | ) | | $ | | (4,217 | ) |
| | | | | | | | | | |
Weighted average assumptions at measurement date: | | | | | | | |
Discount rate | | | | | | 5.65 | % | | | | 5.34 | % |
Ultimate health care cost trend rate | | | | | N/A | | | | N/A | |
| | | | | | | Pension Plan | | | Retiree Medical Plan | |
| | | | | | | January 2, | | | December 28, | | | January 2, | | | December 28, | |
(In thousands, except percentages) | | | | | | | 2021 | | | 2019 | | | 2021 | | | 2019 | |
Funded Status | | | | | | | | | | | | | | | | | | | | | | | | | |
Projected/Accumulated benefit obligation: | | | | | | | | | | | |
Balance at beginning of year | | | | | | | $ | | — | | | $ | | 73,275 | | | $ | | 10,783 | | | $ | | 9,443 | |
Service cost | | | | | | | | | — | | | | | — | | | | | 182 | | | | | 171 | |
Interest cost | | | | | | | | | — | | | | | 1,134 | | | | | 303 | | | | | 375 | |
Actuarial loss | | | | | | | | | — | | | | | 618 | | | | | 1,027 | | | | | 1,181 | |
Benefits paid | | | | | | | | | — | | | | | (75,027 | ) | | | | (386 | ) | | | | (387 | ) |
Balance at end of year | | | | | | | $ | | — | | | $ | | — | | | $ | | 11,909 | | | $ | | 10,783 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Fair value of plan assets: | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at beginning of year | | | | | | | $ | | 1,496 | | | $ | | 74,241 | | | $ | | — | | | $ | | — | |
Actual return on plan assets | | | | | | | | | — | | | | | 2,282 | | | | | — | | | | | — | |
Refund from annuity provider | | | | | | | | | 1,193 | | | | | — | | | | | — | | | | | — | |
Company contributions | | | | | | | | | — | | | | | — | | | | | 386 | | | | | 387 | |
Benefits paid | | | | | | | | | — | | | | | (75,027 | ) | | | | (386 | ) | | | | (387 | ) |
Balance at end of year | | | | | | | $ | | 2,689 | | | $ | | 1,496 | | | $ | | — | | | $ | | — | |
Funded (unfunded) status | | | | | | | $ | | 2,689 | | | $ | | 1,496 | | | $ | | (11,909 | ) | | $ | | (10,783 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Components of net amount recognized in consolidated balance sheets: | | | | | | | | | | | |
Current assets | | | | | | | $ | | 2,689 | | | $ | | 1,496 | | | $ | | — | | | $ | | — | |
Current liabilities | | | | | | | | | — | | | | | — | | | | | (471 | ) | | | | (466 | ) |
Noncurrent liabilities | | | | | | | | | — | | | | | — | | | | | (11,438 | ) | | | | (10,317 | ) |
Net asset (liability) | | | | | | | $ | | 2,689 | | | $ | | 1,496 | | | $ | | (11,909 | ) | | $ | | (10,783 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Amounts recognized in AOCI: | | | | | | | | | | | |
Net actuarial loss | | | | | | | $ | | — | | | $ | | — | | | $ | | 2,732 | | | $ | | 1,809 | |
Accumulated other comprehensive loss | | $ | | — | | | $ | | — | | | $ | | 2,732 | | | $ | | 1,809 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Weighted average assumptions at measurement date: | | | | | | | | | | | |
Discount rate | | | | | | | N/A | | | N/A | | | 2.57% | | | 3.26% | |
Ultimate health care cost trend rate | | | | | | | N/A | | | N/A | | | 4.50% | | | 4.50% | |
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| | Pension Plan | | | Retiree Medical Plan | | Retiree Medical Plan | |
(In thousands, except percentages) | 2020 | | | 2019 | | | 2018 | | | 2020 | | | 2019 | | | 2018 | | 2023 | | | 2022 | | | 2021 | |
Components of net periodic benefit (income) cost: | Components of net periodic benefit (income) cost: | | | | | | | | |
Service cost | $ | | — | | | $ | | — | | | $ | | — | | | $ | | 182 | | | $ | | 171 | | | $ | | 195 | | $ | | — | | | $ | | 76 | | | $ | | 187 | |
Interest cost | | | — | | | | 1,134 | | | | 2,283 | | | | 303 | | | | 375 | | | | 339 | | | | 85 | | | | 185 | | | | 226 | |
Amortization of prior service cost | | | — | | | | — | | | | — | | | | — | | | | (92 | ) | | | (158 | ) |
Expected return on plan assets | | | — | | | | (714 | ) | | | (3,631 | ) | | | — | | | | — | | | | — | |
Gain on reconciliation with annuity provider | | | (1,193 | ) | | | — | | | | — | | | | — | | | | — | | | | — | |
Amortization of prior service credit | | | | (3,307 | ) | | | (1,653 | ) | | | — | |
Recognized actuarial net loss | | | — | | | | | 691 | | | | | 417 | | | | | 104 | | | | | — | | | | | 88 | | | | 249 | | | | | 200 | | | | | 230 | |
Net periodic benefit (income) expense | $ | | (1,193 | ) | | $ | | 1,111 | | | $ | | (931 | ) | | $ | | 589 | | | $ | | 454 | | | $ | | 464 | | $ | | (2,973 | ) | | $ | | (1,192 | ) | | $ | | 643 | |
Settlement expense | | | — | | | | | 18,244 | | | | | 785 | | | | | — | | | | | — | | | | | — | | | | 299 | | | | | 740 | | | | | — | |
Total net periodic benefit (income) cost | $ | | (1,193 | ) | | $ | | 19,355 | | | $ | | (146 | ) | | $ | | 589 | | | $ | | 454 | | | $ | | 464 | | $ | | (2,674 | ) | | $ | | (452 | ) | | $ | | 643 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Weighted average assumptions used to determine net periodic benefit (income) cost: | Weighted average assumptions used to determine net periodic benefit (income) cost: | | | | | | | | |
Discount rate | N/A | | | 3.48% | | | 3.45% | | | 3.26% | | | 4.41% | | | 3.72% | | | | 5.62 | % | | | | 2.90 | % | | | | 2.57 | % |
Expected return on plan assets | N/A | | | 2.80% | | | 4.84% | | | N/A | | | N/A | | | N/A | |
Prior service costs (credits) are amortized on a straight-line basis over the average remaining service period of active participants. Actuarial gains and losses for the Pension Plan were amortized over the average remaining life of all participants when the accumulation of such gains and losses exceeded 10% of the greater of the projected benefit obligation and the market-related value of plan assets.
Assumed healthcare cost trend rates have a significant effect on the amounts reported for the Retiree Medical Plan. Assumed current healthcare cost trend rates used to determine net periodic benefit cost were as follows:
| | | | | | | | | | 2020 | | 2019 | | 2018 |
Post-65 | | | | | | | | | | 7.50% | | 7.50% | | 8.00% |
| | | | | | | | | | |
| 2023 | | 2022 | | 2021 | |
Post-65 | | N/A | | | N/A | | | | 7.00 | % |
Expected Return on Assets and Investment Strategy
Pension plan assets consisted of money market funds of $2.7 million at January 2, 2021 and $1.5 million at December 28, 2019. Money market funds are valued on a daily basis at NAV using the amortized cost of the securities held in the fund. Since amortized cost does not meet the criteria for an active market, money market funds are classified within level 2 of the fair value hierarchy of ASC 820, Fair Value Measurement. The pension plan did 0t hold any level three assets as of January 2, 2021 or December 28, 2019.
See Note 8 for a discussion of the levels of the fair value hierarchy. The fair value measurement level used is based on the lowest level of any input that is significant to the fair value measurement.
The Company expects to make contributions in 2021 of $0.5 million to the Retiree Medical Plan.
The following estimatedpost-retirement medical benefit payments are expectedof $1.3 million in 2024. The Company is not currently expecting to be paid in the following fiscal years:
(In thousands) | 2021 | | | 2022 | | | 2023 | | | 2024 | | | 2025 | | | 2026 to 2030 | |
Post-retirement medical benefits | $ | | 471 | | | $ | | 510 | | | $ | | 548 | | | $ | | 579 | | | $ | | 607 | | | $ | | 3,346 | |
make any future post-retirement medical benefit payments after 2024.
Multi-Employer Health and Welfare Plans
In addition to the plans described above, the Company participates in the Michigan Conference of Teamsters and Ohio Conference of Teamsters Health and Welfare plans. The Company contributes to these multi-employer health and welfare plans under the terms contained in existing CBAs, and inincluding the requisite contribution amounts set forth within these agreements.such CBAs. The health and welfare plans provide medical, dental, pharmacy, vision, and other ancillary benefits to active associatesAssociates and retirees, as determined byunder the trusteesterms of the plan. TheAlthough the plans may provide certain benefits to retired employees, the Company’s only contribution obligation is to make contributions largely benefitin amounts tied to the hours worked by its active associates, and as such, mayemployees. As a result, the plan does not constitute contributions to a postretirement benefit plan. However,plan of the Company. Because the plans aggregate contributions from multiple employers, the Company is unable to separate contribution amounts fordetermine how much of its contributions are allocated to benefits paid to its active employees and those, if any, that are allocated to benefits paid to other employer’s active employees and/or postretirement benefits from contribution amounts paid for active participants in the plan.benefits. These types of plans often have a significant surplus of funds held in reserve in excess of claims incurred, and there is no potential withdrawal liability related to the Company’s participation in the plans. With respect to the Company’s participation in these plans, expense is recognized as contributions are funded.made. The Company contributed $13.7$17.0 million, $13.8$13.4 million and $13.8$13.2 million to these plans in 2020, 20192023, 2022 and 2018,2021, respectively.
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Multi-Employer Pension Plan
The Company also contributes to the Central States Plan, a multi-employer plan defined previously, under the terms of CBAs that cover its union-represented associates and inAssociates, including the requisite contribution amounts set forth within these agreements. such CBAs. The Company is party to four CBAs that require contributions to the Central States Plan with expiration dates ranging from January 20222025 to October 2022.April 2026. These CBAs cover warehouse personnel and drivers in Grand Rapids, Michigan and Bellefontaine and Lima, Ohio. With respect to the Company’s participation in the Central States Plan (EIN 36-60442343 / Pension Plan Number 001), expense is recognized as contributions are funded.made to the Central States Plan. The Company contributed $14.1$13.1 million, $14.0$12.3 million and $13.3$13.5 million to this planthe Central States Plan in 2020, 20192023, 2022 and 2018,2021, respectively. The contributions made by the Company represent less than 5five percent of the Plan’s total contributions in 2020.2023.
The risk of participating in a multi-employer pension plan is different from the risk associated with single-employer plans in the following respects:
| a.
| Assets contributed to the multi-employer plan by one employer may be used to provide benefits to employees of other participating employers.
|
| b.
| If a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers.
|
| c.
| If a company chooses to stop participating in a multi-employer plan, makes market exits such as closing a distribution center without opening another one in the same locale, or otherwise has participation in the plan drop below certain levels, the company may be required to pay those plans an amount based on the underfunded status of the plan, referred to as a withdrawal liability.
|
The PPA zone status of the Plan, which is based on information the Company received from the Plan and is certified by the Plan’s actuary, is “critical and declining” for the Plan’s two most recent fiscal years ending December 31, 2020 and 2019. Among other factors, plans in the “critical and declining” zone are generally less than 65% funded and projected to become insolvent within the next 15 years (or 20 years depending on the ratio of active-to-inactive participants). A rehabilitation plan has been implemented by the trustees of the Plan, and the CBAs that cover warehouse personnel and drivers in the Bellefontaine and Lima, Ohio distribution centers have permanent surcharges imposed due to the failure to adopt the trustee recommended rehabilitation plan. Refer to Note 9, for further information regarding the Company’s participation in the Central States Plan. As of the date the consolidated financial statements were issued, an annual report for the Central States Plan on IRS Form 5500 was not publicly available for the plan year ended December 31, 2020.2023.
Note 12 – Accumulated Other Comprehensive Income or Loss ("AOCI")
Accumulated Other Comprehensive Income or Loss (“AOCI”)AOCI represents the cumulative balance of other comprehensive income (loss), net of tax, as of the end of the reporting period. For the Company, the activity relates to pension and other postretirement benefit obligation adjustments.plans and an interest rate swap, including those described in Notes 11 and 8, respectively.
Changes in AOCI are as follows:
| | | | | | | | | | | | | | |
(In thousands) | 2023 | | | 2022 | | | 2021 | |
Postretirement benefit plans: | | | | | | | | | | | |
Balance at beginning of the year, net of tax | $ | | 2,979 | | | $ | | (1,455 | ) | | $ | | (2,276 | ) |
Other comprehensive income before reclassifications | | | 203 | | | | | 6,576 | | | | | 837 | |
Income tax expense | | | (51 | ) | | | | (1,614 | ) | | | | (203 | ) |
Other comprehensive income, net of tax, before reclassifications | | | 152 | | | | | 4,962 | | | | | 634 | |
Reclassification into net earnings (a) | | | (2,677 | ) | | | | (701 | ) | | | | 250 | |
Income tax benefit (expense) (b) | | | 658 | | | | | 173 | | | | | (63 | ) |
Amounts reclassified out of AOCI, net of tax | | | (2,019 | ) | | | | (528 | ) | | | | 187 | |
Other comprehensive (loss) income, net of tax | | | (1,867 | ) | | | | 4,434 | | | | | 821 | |
Balance at end of the year, net of tax | $ | | 1,112 | | | $ | | 2,979 | | | $ | | (1,455 | ) |
Interest rate swap: | | | | | | | | | | | |
Balance at beginning of the year, net of tax | $ | | — | | | $ | | — | | | $ | | — | |
Other comprehensive income before reclassifications | | | 1,419 | | | | | — | | | | | — | |
Income tax expense | | | (332 | ) | | | | — | | | | | — | |
Other comprehensive income, net of tax, before reclassifications | | | 1,087 | | | | | — | | | | | — | |
Reclassification into net earnings (c) | | | (1,832 | ) | | | | — | | | | | — | |
Income tax benefit (b) | | | 429 | | | | | — | | | | | — | |
Amounts reclassified out of AOCI, net of tax | | | (1,403 | ) | | | | — | | | | | — | |
Other comprehensive loss, net of tax | | | (316 | ) | | | | — | | | | | — | |
Balance at end of the year, net of tax | $ | | (316 | ) | | $ | | — | | | $ | | — | |
| | | | | | | | | | | |
Total accumulated other comprehensive income (loss) | $ | | 796 | | | $ | | 2,979 | | | $ | | (1,455 | ) |
| 2020 | | | 2019 | | | 2018 | |
(In thousands) | (53 Weeks) | | | (52 Weeks) | | | (52 Weeks) | |
Balance at beginning of the year, net of tax | $ | | (1,600 | ) | | $ | | (15,759 | ) | | $ | | (15,136 | ) |
Other comprehensive (loss) income before reclassifications | | | (1,086 | ) | | | | 219 | | | | | (2,026 | ) |
Income tax benefit (expense) | | | 268 | | | | | (55 | ) | | | | 458 | |
Other comprehensive (loss) income, net of tax, before reclassifications | | | (818 | ) | | | | 164 | | | | | (1,568 | ) |
Amortization of amounts included in net periodic benefit cost (a) | | | 191 | | | | | 18,480 | | | | | 1,204 | |
Income tax expense (b) | | | (49 | ) | | | | (4,485 | ) | | | | (259 | ) |
Amounts reclassified out of AOCI, net of tax | | | 142 | | | | | 13,995 | | | | | 945 | |
Other comprehensive (loss) income, net of tax | | | (676 | ) | | | | 14,159 | | | | | (623 | ) |
Balance at end of the year, net of tax | $ | | (2,276 | ) | | $ | | (1,600 | ) | | $ | | (15,759 | ) |
Reclassified from AOCI into Other, net, or Selling, general and administrative expense. Amounts include amortization of net actuarial loss, amortization of prior service credit, and settlement expense totaling $0.4 million and $0.7 million in 2023 and 2022, respectively. There was no settlement expense in 2021.
| (b) Reclassified from AOCI into Income tax expense (benefit). (c)Reclassified from AOCI into Interest expense. | Reclassified from AOCI into Other, net, or Selling, general and administrative expense. Amounts include amortization of net actuarial loss, amortization of prior service cost, and settlement expense totaling $0.1 million, $18.4 million and $0.9 million in 2020, 2019 and 2018, respectively.
|
(b)
| Reclassified from AOCI into Income tax expense (benefit).
|
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Note 13 – Income Tax
The income tax provision for continuing operations is made up of the following components:
| | | | | | | | | | | | | | |
| | | | | | | | |
(In thousands) | 2023 | | | 2022 | | | 2021 | |
Current income tax expense: | | | | | | | | | | | |
Federal | $ | | 6,698 | | | $ | | 8,585 | | | $ | | 5,436 | |
State | | | 2,961 | | | | | 2,397 | | | | | 1,867 | |
Total current income tax expense | | | 9,659 | | | | | 10,982 | | | | | 7,303 | |
Deferred income tax expense: | | | | | | | | | | | |
Federal | | | 6,546 | | | | | 46 | | | | | 14,877 | |
State | | | 1,683 | | | | | 1,369 | | | | | 2,726 | |
Total deferred income tax expense | | | 8,229 | | | | | 1,415 | | | | | 17,603 | |
Total income tax expense | $ | | 17,888 | | | $ | | 12,397 | | | $ | | 24,906 | |
| 2020 | | | 2019 | | | 2018 | |
(In thousands) | (53 Weeks) | | | (52 Weeks) | | | (52 Weeks) | |
Current income tax expense (benefit): | | | | | | | | | | | | | | |
Federal | $ | | 1,844 | | | $ | | (899 | ) | | $ | | (1,607 | ) |
State | | | 5,149 | | | | | 817 | | | | | 1,107 | |
Total current income tax expense (benefit) | | | 6,993 | | | | | (82 | ) | | | | (500 | ) |
Deferred income tax expense (benefit): | | | | | | | | | | | | | | |
Federal | | | 5,637 | | | | | 126 | | | | | 8,370 | |
State | | | (3,180 | ) | | | | (2,386 | ) | | | | (963 | ) |
Total deferred income tax expense (benefit) | | | 2,457 | | | | | (2,260 | ) | | | | 7,407 | |
Total income tax expense (benefit) | $ | | 9,450 | | | $ | | (2,342 | ) | | $ | | 6,907 | |
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A reconciliation of the statutory federal rate to the effective rate is as follows:
| | 2020 | | 2019 | | 2018 | | | | | |
| (53 Weeks) | | (52 Weeks) | | (52 Weeks) | 2023 | | 2022 | | 2021 |
Federal statutory income tax rate | | 21.0 | | % | | | 21.0 | | % | | | 21.0 | | % | | 21.0 | | % | | | 21.0 | | % | | | 21.0 | | % |
Stock compensation | | 0.7 | | | | | 7.2 | | | | | 0.7 | | | | (0.9 | ) | | | | (2.8 | ) | | | | 0.0 | | |
Non-deductible expenses | | 1.9 | | | | 0.8 | | | | 0.6 | | | | 3.4 | | | | 5.5 | | | | 1.7 | | |
Federal rate change effect on deferred taxes | | — | | | | — | | | | (1.2 | ) | |
Change in tax contingencies | | 0.9 | | | | — | | | | (2.5 | ) | | | (1.3 | ) | | | (0.1 | ) | | | 0.0 | | |
Charitable product donations | | (0.2 | ) | | | | (5.6 | ) | | | | (0.6 | ) | | | (0.2 | ) | | | | (0.3 | ) | | | | (0.1 | ) | |
Other, net | | (1.0 | ) | | | (2.4 | ) | | | (0.9 | ) | | | (0.3 | ) | | | 0.1 | | | | (0.3 | ) | |
Federal loss carryback (a) | | (11.9 | ) | | | — | | | | — | | |
State taxes, net of federal income tax benefit | | 1.7 | | | | | (36.1 | ) | | | | 1.7 | | | | 5.3 | | | | | 6.7 | | | | | 3.8 | | |
Tax credits | | (2.0 | ) | | | | (50.4 | ) | | | | (1.8 | ) | | | (1.5 | ) | | | | (3.7 | ) | | | | (0.9 | ) | |
Effective income tax rate | | 11.1 | | % | | | (65.5 | ) | % | | | 17.0 | | % | | 25.5 | | % | | | 26.4 | | % | | | 25.2 | | % |
| (a)
| On March 27, 2020, the U.S. government enacted tax legislation to provide economic stimulus and support businesses and individuals during the COVID-19 pandemic, referred to as the Coronavirus Aid, Relief and Economic Security (“CARES”) Act. In connection with the CARES Act, the Company recorded net discrete income tax benefits of $10.1 million in 2020 associated with the additional deductibility of certain expenses combined with provisions which enable companies to carry back tax losses to years prior to the enactment of the Tax Cuts and Jobs Act (“Tax Reform”), where the federal statutory income tax rate was 35%. As a result of carrying back losses to previous tax years, the Company recorded $0.8 million in expense to reinstate tax contingencies which had previously expired, included in the “Change in tax contingencies” line in the table above.
|
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Deferred tax assets and liabilities resulting from temporary differences as of January 2, 2021December 30, 2023 and December 28, 201931, 2022 are as follows:
| | | | | | | | | |
| December 30, | | | December 31, | |
(In thousands) | 2023 | | | 2022 | |
Deferred tax assets: | | | | | | | |
Employee benefits | $ | | 21,074 | | | $ | | 27,387 | |
Accrued workers' compensation | | | 2,082 | | | | | 2,126 | |
Allowance for credit losses | | | 1,500 | | | | | 1,823 | |
Restructuring | | | 601 | | | | | 655 | |
Deferred revenue | | | 987 | | | | | 1,266 | |
Stock warrant | | | 31 | | | | | 626 | |
Lease liabilities | | | 82,970 | | | | | 82,284 | |
Accrued insurance | | | 1,045 | | | | | 985 | |
State net operating loss carryforwards (a) | | | 5,507 | | | | | 5,608 | |
All other | | | 8,538 | | | | | 4,433 | |
Total deferred tax assets | | | 124,335 | | | | | 127,193 | |
Valuation allowances | | | (399 | ) | | | | (357 | ) |
Net deferred tax assets | | | 123,936 | | | | | 126,836 | |
| | | | | | | |
Deferred tax liabilities: | | | | | | | |
Property and equipment | | | 49,038 | | | | | 48,251 | |
Lease assets | | | 74,472 | | | | | 73,986 | |
Inventory | | | 31,618 | | | | | 33,290 | |
Goodwill | | | 36,936 | | | | | 33,606 | |
Intangible assets | | | 2,200 | | | | | 1,195 | |
All other | | | 3,576 | | | | | 2,801 | |
Total deferred tax liabilities | | | 197,840 | | | | | 193,129 | |
Net deferred tax liability | $ | | 73,904 | | | $ | | 66,293 | |
| | | | January 2, | | | December 28, | |
(In thousands) | | | | 2021 | | | 2019 | |
Deferred tax assets: | | | | | | | | | | | | |
Employee benefits | | | | $ | | 33,115 | | | $ | | 17,087 | |
Accrued workers' compensation | | | | | | 1,834 | | | | | 1,632 | |
Allowance for doubtful accounts | | | | | | 1,688 | | | | | 10,870 | |
Intangible assets | | | | | | 2,203 | | | | | 1,319 | |
Restructuring | | | | | | 377 | | | | | 472 | |
Deferred revenue | | | | | | 1,679 | | | | | 1,678 | |
Stock warrants | | | | | | 1,896 | | | | | — | |
Lease liabilities | | | | | | 87,606 | | | | | 85,005 | |
Accrued insurance | | | | | | 964 | | | | | 1,007 | |
Federal net operating loss carryforwards (a) | | | | | | — | | | | | 2,332 | |
Federal credits | | | | | | — | | | | | 851 | |
State net operating loss carryforwards (a) | | | | | | 6,175 | | | | | 4,498 | |
All other | | | | | | 2,481 | | | | | 4,472 | |
Total deferred tax assets | | | | | | 140,018 | | | | | 131,223 | |
| | | | | | | | | | | | |
Deferred tax liabilities: | | | | | | | | | | | | |
Property and equipment | | | | | | 47,472 | | | | | 45,136 | |
Lease assets | | | | | | 77,673 | | | | | 73,191 | |
Inventory | | | | | | 33,531 | | | | | 33,739 | |
Goodwill | | | | | | 26,025 | | | | | 21,404 | |
All other | | | | | | 1,045 | | | | | 864 | |
Total deferred tax liabilities | | | | | | 185,746 | | | | | 174,334 | |
Net deferred tax liability | | | | $ | | 45,728 | | | $ | | 43,111 | |
As of December 30, 2023, the Company’s state net operating loss carryforwards in various taxing jurisdictions expire in tax years 2024 through 2043 if not utilized.
| (a)
| As of January 2, 2021, the Company’s state net operating loss carryforwards in various taxing jurisdictions expire in tax years 2021 through 2040 if not utilized.
|
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
| (In thousands) | | | | 2020 | | | 2019 | | 2023 | | | 2022 | |
Balance at beginning of year | | | | $ | | 1,425 | | | $ | | 1,477 | | $ | | 1,165 | | | $ | | 1,220 | |
Gross increases - tax positions taken in prior years | | | | | | 910 | | | | | 71 | |
Gross decreases - tax positions taken in prior years | | | | | | (1,000 | ) | | | | (125 | ) |
Gross increases - tax positions taken in current year | | | | | | — | | | | | 850 | |
Lapsed statutes of limitations | | | | | | (18 | ) | | | | (848 | ) | | | (185 | ) | | | | (55 | ) |
Effectively settled | | | | (836 | ) | | | | — | |
Balance at end of year | | | | $ | | 1,317 | | | $ | | 1,425 | | $ | | 144 | | | $ | | 1,165 | |
Unrecognized tax benefits of $0.2$0.1 million are set to expire prior to January 1, 2022.December 28, 2024. The Company recognizes interest and penalties accrued related to unrecognized tax benefits in income tax expense. The amount recognized due to a lapse in the statute of limitations that reduced the Company’s effective income tax rate in 2020 and 2019 was immaterial in both years. The amount of unrecognized tax benefits, including interest and penalties, that would reduce the Company’s effective income tax rate if recognized in future periods was $1.1$0.1 million as of January 2, 2021.December 30, 2023.
SpartanNash or its subsidiaries file income tax returns with federal, state and local tax authorities within the United States. With few exceptions, SpartanNash is no longer subject to examinations by U.S. federal tax authorities for fiscal years before the year ended January 3, 2015,2, 2021, and state or local tax authorities for fiscal years before the year ended December 31, 2016.28, 2019.
Note 14 – Share-Based Payments
Share-Based Payments to EmployeesStock-Based Employee Awards
The Company previously sponsoredsponsors a shareholder-approved stock incentive plan (the “2015“2020 Plan”) that provided 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. On May 20, 2020, the Company’s shareholders approved a new stock incentive plan (“the 2020 Plan”). The 2020 Plan provides for the granting of stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance share units, dividend equivalent rights, and other stock-based and stock-related awards to directors, employees, or contractors of the Company, as determined by the Compensation Committee of the Board of Directors. The 2020 Plan provided for 1,635,000 newly reserved shares plus the 736,578 shares previously available for grant under the 2015 Plan. Holders of restricted stock and stock awards issued under the 2020 Plan are entitled to participate in dividends, payable upon the vesting of the underlying awards. As of January 2, 2021,December 30, 2023, a total of470,8102,205,034 shares remained unissued under the 2020 Plan. AllIn the event of a "Change in Control, as defined by the Plan, all outstanding unvested shares of restricted stock vest immediately, uponwhile outstanding unvested shares of performance share units vest immediately on a “Change in Control,” as defined by the Plan.pro-rata basis.
There was noRestricted Stock
Restricted stock option activity in 2020. The following table summarizes stock option activity for 2019 and 2018:
| | | | | | | | | | | Weighted | | | | | | |
| | | | | | Weighted | | | Average | | | | | | |
| | | | | | Average | | | Remaining | | | Aggregate | |
| Shares | | | Exercise | | | Contractual | | | Intrinsic Value | |
| Under Options | | | Price | | | Life Years | | | (in thousands) | |
Options outstanding and exercisable at December 30, 2017 | | | 47,928 | | | $ | | 16.52 | | | | | 1.07 | | | $ | | 487 | |
Exercised | | | (20,476 | ) | | | | 13.87 | | | | | | | | | | 1,043 | |
Cancelled/Expired | | | (14,400 | ) | | | | 22.69 | | | | | | | | | | | |
Options outstanding and exercisable at December 29, 2018 | | | 13,052 | | | | | 13.87 | | | | | 0.37 | | | | | 39 | |
Exercised | | | (13,052 | ) | | | | 13.87 | | | | | | | | | | 51 | |
Options outstanding and exercisable at December 28, 2019 | | | — | | | $ | | — | | | | | — | | | $ | | — | |
Restricted shares awarded to associatesAssociates in 2023, 2022 and 2021 vest ratably over a four-yearthree-year service period and over one year for grants to members of the Board of Directors. Restricted stock awarded to Associates prior to 2021 vest ratably over a four-year service period. Awards are subject to forfeiture and certain transfer restrictions prior to vesting. Compensation expense, representing the fair value of the stock at the measurement date of the award, is recognized over the required service period.
The following table summarizes restricted stock activity for 2020, 20192023, 2022 and 2018:2021:
| | | | | | | | | | Weighted Average | |
| | | | | | | | | | Grant-Date | | Restricted | | | Weighted Average | |
| | | | | | Shares | | | Fair Value | | Stock | | | Grant-Date | |
Outstanding and nonvested at December 30, 2017 | | | | | | | | 613,744 | | | $ | | 30.32 | |
| | Awards | | | Fair Value | |
Outstanding and nonvested at January 2, 2021 | | | | 973,948 | | | $ | | 17.72 | |
Granted | | | | | | | 482,572 | | | | 17.00 | | | | 562,653 | | | | 18.96 | |
Vested | | | | | | | (260,644 | ) | | | 28.89 | | | | (388,403 | ) | | | 19.81 | |
Forfeited | | | | | | | (12,853 | ) | | | 23.52 | | | | (116,361 | ) | | | 18.19 | |
Outstanding and nonvested at December 29, 2018 | | | | | | | | 822,819 | | | | 23.07 | |
Outstanding and nonvested at January 1, 2022 | | | | 1,031,837 | | | | 17.56 | |
Granted | | | | | | | 488,063 | | | | 17.84 | | | | 391,334 | | | | 28.63 | |
Vested | | | | | | | (346,721 | ) | | | 23.47 | | | | (470,145 | ) | | | 17.92 | |
Forfeited | | | | | | | (35,428 | ) | | | 20.11 | | | | (89,963 | ) | | | 20.71 | |
Outstanding and nonvested at December 28, 2019 | | | | | | | | 928,733 | | | | 20.28 | |
Outstanding and nonvested at December 31, 2022 | | | | 863,063 | | | | 22.05 | |
Granted | | | | | | | 521,566 | | | | 15.96 | | | | 447,910 | | | | 26.95 | |
Vested | | | | | | | (396,219 | ) | | | 21.65 | | | | (432,549 | ) | | | 21.16 | |
Forfeited | | | | | | | (80,132 | ) | | | 16.48 | | | | (58,967 | ) | | | 25.96 | |
Outstanding and nonvested at January 2, 2021 | | | | | | | | 973,948 | | | $ | | 17.72 | |
Outstanding and nonvested at December 30, 2023 | | | | 819,457 | | | $ | | 24.92 | |
| | | | | | | |
The total fairintrinsic value of shares vested was $5.3$11.7 million, $6.2$14.3 million and $4.8$7.3 million in 2020, 20192023, 2022 and 2018,2021, respectively. As of December 30, 2023, total unrecognized compensation cost related to nonvested restricted stock awards granted under the Company's stock incentive plans is $9.0 million and is expected to be recognized over a weighted average period of 1.7 years.
Share-based paymentPerformance Share Units
Performance share units were awarded to certain officers and key Associates in 2023. The vesting of these awards is contingent upon meeting certain performance metrics over a three year period, which include adjusted EPS and return on invested capital. The quantity of shares awarded ranges from 0% to 200% of “Target,” as defined in the award agreement, based on the achievement against the performance metrics. Stock-based compensation expense is recorded over the performance period and is reevaluated at each reporting date based on the probability of the achievement of the performance metrics. The fair value of performance shares is based on the Company’s stock price on the date of grant. Performance share unit awards have a three-year cliff vest, subject to achievement of the performance metrics. Awards are subject to forfeiture and certain transfer restrictions prior to vesting.
The following table summarizes performance share unit activity for 2023:
| | | | | | | | | |
| Performance | | | Weighted Average | |
| Share Unit | | | Grant-Date | |
| Awards | | | Fair Value | |
Outstanding and nonvested at December 31, 2022 | | | — | | | $ | | — | |
Granted | | | 299,840 | | | | | 27.01 | |
Forfeited | | | (9,530 | ) | | | | 27.24 | |
Outstanding and nonvested at December 30, 2023 | | | 290,310 | | | $ | | 27.00 | |
As of December 30, 2023, total unrecognized compensation cost related to nonvested performance share unit awards granted under the Company's stock incentive plans is $5.8 million and is expected to be recognized over a weighted average period of 2.0 years.
Stock-Based Compensation Expense
Stock-based compensation expense recognized and included in “Selling, general and administrative expenses” in the consolidated statements of earnings, and related tax benefits were as follows:
| | | | 2020 | | | 2019 | | | 2018 | |
(In thousands) | | | | (53 Weeks) | | | (52 Weeks) | | | (52 Weeks) | | | 2023 | | | 2022 | | | 2021 | |
Restricted stock | | | | $ | | 6,299 | | | $ | | 7,312 | | | $ | | 7,646 | |
Tax benefits | | | | | | (839 | ) | | | | (1,303 | ) | | | | (2,242 | ) |
Restricted stock expense | | | $ | | 10,220 | | | $ | | 8,308 | | | $ | | 6,868 | |
Performance share unit expense | | | | 2,048 | | | | — | | | | — | |
Income tax benefit | | | | | (4,199 | ) | | | | (4,094 | ) | | | | (1,744 | ) |
Stock-based compensation expense, net of tax | | | | $ | | 5,460 | | | $ | | 6,009 | | | $ | | 5,404 | | | $ | | 8,069 | | | $ | | 4,214 | | | $ | | 5,124 | |
Stock-based compensation expense is recognized net of estimated forfeitures, determined based on historical experience.
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As of January 2, 2021, total unrecognized compensation cost related to non-vested restricted stock awards granted under the stock incentive plan was $5.7 million. The remaining compensation costs not yet recognized are expected to be recognized over a weighted average period of 2.5 years.
The Company recognized tax deductions of $5.9$12.2 million, $7.2$14.7 million and $5.6$7.7 million related to the exercise of stock options and the vesting of restricted stock and performance share units in 2020, 20192023, 2022 and 2018,2021, respectively.
The Company sponsorssponsored a stock bonus plan covering 300,000 shares of SpartanNash common stock. Under the provisions of this plan, certain officers and key associates mayAssociates could elect to receive a portion of their annual bonus in common stock rather than cash, which will bewas issued at 120%120% of cash value. After the shares are issued, the holder is not able to sell or otherwise transfer the shares until the end of the holding period, which is currently 24 months. Compensation expense is recorded based upon the market price of the stock as of the measurement date. During 2018, an additional 45,000 shares were authorized to be granted fromUnder the stock bonus plan. 3,443plan, 15,778 shares were issued in 2019 and 8,087 shares were issued in 2020 leaving 33,470 shares remaining unissued under the2021. The stock bonus plan as of January 2,expired on March 31, 2021.
The Company also sponsors an associate stock purchase plan covering 200,000300,000 shares of SpartanNash common stock. The planstock and enables associateseligible Associates of the Company to purchase shares at 95%85% of the fair market value. The Company has determined this represents compensation expense in accordance with ASC 718, Compensation – Stock Compensation. As of January 2, 2021, a total of 161,674December 30, 2023, 62,540 shares hadhave been issued under the plan.Plan.
Stock WarrantsWarrant
On October 7, 2020, in connection with its entry into a commercial agreement with Amazon.com, Inc. (“Amazon”), the Company issued to Amazon.com NV Investment Holdings LLC, a subsidiary of Amazon, warrantsa warrant to acquire up to an aggregate of 5,437,272 shares of the Company’s common stock (the “Warrants”“Warrant”), subject to certain vesting conditions. Warrants equivalent to 2.5% of the Company’s outstanding and issuableWarrant shares or totaling 1,087,455 shares vested upon the signing of the commercial agreement and had a grant date fair value of $5.51$5.51 per share. Warrants equivalent toWarrant shares totaling up to 10.0% of the Company’s outstanding and issuable shares, or 4,349,817 shares may vest in connection with conditions defined by the terms of the Warrant, as Amazon makes payments to the Company in connection with the commercial supply agreement, in increments of $200$200 million, and had a grant date fair value of $5.33$5.33 per share. Upon vesting, shares may be acquired at an exercise price of $17.7257.$17.7257. The warrants containWarrant contains customary anti-dilution, down-round and change-in-control provisions. The right to purchase shares in connection with the Warrant expires on October 7, 2027.
2027. Non-cash share-based payment expense associated with the stock warrantsWarrant is recognized as vesting conditions are achieved, based on the grant date fair value of the warrants. The fair value of the stock warrants was determined as of the grant date in accordance with ASC 718, Warrant.Compensation – Stock Compensation, using the binomial lattice pricing model (the “lattice model”). The lattice model is based, in part, upon assumptions for which management is required to use judgment. The assumptions made for purposes of estimating fair value under the lattice model for the Warrants were as follows:
| | | Selected Assumption
| | Methodology
|
Risk free interest rate
| 0.56%
| | Derived from the Constant Maturity Treasury Rate with maturity matching time to expiration of the Warrants
|
Volatility
| 47.00%
| | Based on historical equity volatility of Company stock over a period matching the assumed warrants term
|
Dividend yield
| 4.57%
| | Based on the historical dividends paid by the Company
|
The warrant shares which vested upon signing the commercial agreement have a contractual term of 7 years, whereas the warrant shares which vest upon payments made to the Company in connection with the commercial supply agreement have an estimated weighted average term of 3.6 years.
The following table summarizes stock warrantthe Warrant activity for 2020:2023, 2022 and 2021:
| | | | | | | | | | |
|
|
|
|
|
|
|
| WarrantsWarrant
|
|
Outstanding and nonvested at December 28, 2019
| | | | | | | | | —
| |
Granted
| | | | | | | | | 5,437,272
| |
Vested
| | | | | | | | | (1,087,455
| )
|
Outstanding and nonvested at January 2, 2021 |
|
|
|
|
|
|
|
| 4,349,817 |
|
Vested |
|
|
|
|
|
|
|
| (434,984 | ) |
Outstanding and nonvested at January 1, 2022 |
|
|
|
|
|
|
|
| 3,914,833 |
|
Vested |
|
|
|
|
|
|
|
| (434,984 | ) |
Outstanding and nonvested at December 31, 2022 |
|
|
|
|
|
|
|
| 3,479,849 |
|
Vested |
|
|
|
|
|
|
|
| (217,492 | ) |
Outstanding and nonvested at December 30, 2023 |
|
|
|
|
|
|
|
| 3,262,357 |
|
Share-based paymentWarrant expense recognized included as a reduction of “Net sales” in the consolidated statements of earnings, and related tax benefits were as follows:
| | | | | | | 2020
| |
| | | | | | | | | | | | | | | | | | (In thousands) | | | | 2023 | | | 2022 | | | 2021 | | Warrant expense | | | | $ | | 1,559 | | | $ | | 2,158 | | | $ | | 1,958 | | Tax benefits | | | | | | (133 | ) | | | | (203 | ) | | | | (152 | ) | Warrant expense, net of tax | | | | $ | | 1,426 | | | $ | | 1,955 | | | $ | | 1,806 | |
(In thousands)
| | | | | | | (53 Weeks)
| |
Warrants expense
| | | | | | | $
| | 6,549
| |
Tax benefits
| | | | | | | | | (2,051
| )
|
Stock-based compensation expense, net of tax
| | | | | | | $
| | 4,498
| |
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As of January 2, 2021,December 30, 2023, total unrecognized cost related to non-vested warrants was $22.6$17.0 million, which may be expensed as vesting conditions are satisfied over the remaining term of the agreement, or 6.83.8 years. Warrants representing 1,087,4552,174,915 shares are vested and exercisable. The warrantsAs of December 30, 2023, non-vested warrant shares had 0an intrinsic value as of January 2, 2021.$17.0 million, and vested warrant shares had an intrinsic value of $11.4 million.
Note 15 – Supplemental Cash Flow Information
Supplemental cash flow information is as follows:
| | | | | | | | | | | | | | |
(In thousands) | 2023 | | | 2022 | | | 2021 | |
Non-cash investing activities: | | | | | | | | | | | |
Capital expenditures included in accounts payable | $ | | 28,102 | | | $ | | 25,701 | | | $ | | 15,277 | |
Other supplemental cash flow information: | | | | | | | | | | | |
Cash paid for interest | | | 37,939 | | | | | 18,431 | | | | | 12,245 | |
Income tax payments (refunds) | | | 11,172 | | | | | 6,513 | | | | | (10,110 | ) |
| 2020 | | | 2019 | | | 2018 | |
(In thousands) | (53 Weeks) | | | (52 Weeks) | | | (52 Weeks) | |
Non-cash investing activities: | | | | | | | | | | | | | | |
Capital expenditures included in accounts payable | $ | | 15,984 | | $ | | | 16,111 | | $ | | | 4,564 | |
Non-cash acquisition | | | — | | | | | 5,363 | | | | | — | |
Non-cash financing activities: | | | | | | | | | | | | | | |
Dividends declared but unpaid | | | 99 | | | | | 6,907 | | | | | — | |
Other supplemental cash flow information: | | | | | | | | | | | | | | |
Cash paid for interest | | | 18,448 | | | | | 33,236 | | | | | 28,138 | |
Income tax payments (refunds) | | | 18,717 | | | | | (9,680 | ) | | | | 139 | |
Note 16 – ReportingReportable Segment Information
SpartanNash sells and distributes products that are typically found in supermarkets and discount stores. The Company’s operating segments reflect the manner in which the business is managed and how the Company allocates resources and assesses performance internally. The Company’s chief operating decision makerChief Operating Decision Maker is the Chief Executive Officer, who determines the allocation of resources and, through a regular review of financial information, assesses the performance of the operating segments. The business is classified by management into 3two reportable segments: Food Distribution, MilitaryWholesale and Retail. These reportable segments are threetwo distinct businesses, each with a different customer base, management structure, and basis for determining budgets, forecasts, and executive compensation. Where applicable, segment financial information for the comparative prior year periods within this report has been recast to reflect the Company's current reportable segment structure.
The Company reviews its reportable segments on an annual basis, or more frequently if events or circumstances indicate a change in reportable segments has occurred.
Refer to Note 2 for information regarding the basis of organization and types of products, services and customers from which the Company derives revenue. The Company’s Food Distribution segment, which operates 12 distribution centers, supplies grocery products, including dry groceries, produce, dairy products, meat, delicatessen items, bakery goods, frozen food, seafood, floral products, general merchandise, beverages, tobacco products, health and beauty care products and pharmacy primarily to a diverse groupaccounting policies of independent and chain retailers, food service distributors and the Company’s corporate owned retail stores. The Company’s Food Distribution customer base is diverse. Sales to one customersegments are the same as those described in the Food Distribution segment represented over 15%summary of consolidated net sales for 2020, 2019 and 2018. No other single customer exceeded 10% of consolidated net salessignificant accounting policies in any of the years presented. The Company also offers certain value-added services (e.g., accounting, payroll, marketing, etc.) to its independent retail customers. These services are not material to the Company’s financial statements. Sales to independent retailers and inter-segment sales are recorded based upon either a “cost plus” model or a “variable mark-up” model, depending on the commodity and servicing distribution center. To supply its wholesale customers, the Company operates a fleet of tractors, conventional trailers and refrigerated trailers and also provides managed freight solutions.
The Military segment contracts with manufacturers and brokers to distribute a wide variety of grocery products, including dry groceries, beverages, meat, and frozen foods, primarily to U.S. military commissaries and exchanges from its 7 distribution centers, 2 of which are also utilized by the Food Distribution segment. The contracts typically specify the commissaries and exchanges to supply on behalf of the manufacturer, the manufacturer’s products to be supplied, service and delivery requirements and pricing and payment terms. The Company is also the DeCA exclusive worldwide supplier of private brand grocery and related products to U.S. military commissaries. The Company procures the grocery and related products from various manufacturers, and upon receiving customer orders from DeCA, either delivers the products to the U.S. military commissaries itself or partners with a third party, Coastal Pacific Food Distributors, to deliver the products on its behalf.
The Retail segment operated 156 corporate owned retail stores and 37 fuel centers, predominantly in the Midwest region, as of January 2, 2021. The Company’s retail stores typically offer dry groceries, produce, dairy products, meat, delicatessen items, bakery goods, frozen food, seafood, floral products, general merchandise, beverages, tobacco products and health and beauty care products. The Company also offered pharmacy services in 97 of its corporate owned retail stores as of January 2, 2021.
Note 1. Identifiable assets represent total assets directly associated with the reportingreportable segments. Eliminations in assets identified to segments include intercompany receivables, payables and investments. Capital expenditures primarily relate to store remodels, IT upgrades and implementations, investments in supply chain infrastructure, office remodels, and equipment upgrades.
The following tables set forth information about the Company by reportingreportable segment:
| | | | | | | | | | | | | | |
| | | | | | | | | | |
(In thousands) | Wholesale | | | Retail | | | Total | |
2023 | | | | | | | | | | | |
Net sales to external customers | $ | | 6,919,217 | | | $ | | 2,810,002 | | | $ | | 9,729,219 | |
Inter-segment sales | | | 1,189,438 | | | | | 1,332 | | | | | 1,190,770 | |
Acquisition and integration, net | | | 216 | | | | | 3,200 | | | | | 3,416 | |
Restructuring and asset impairment, net | | | 8,548 | | | | | 642 | | | | | 9,190 | |
Depreciation and amortization | | | 51,535 | | | | | 47,104 | | | | | 98,639 | |
Operating earnings | | | 87,701 | | | | | 19,011 | | | | | 106,712 | |
Capital expenditures | | | 75,509 | | | | | 44,821 | | | | | 120,330 | |
| | | | | | | | | | | |
2022 | | | | | | | | | | | |
Net sales to external customers | $ | | 6,845,236 | | | $ | | 2,797,864 | | | $ | | 9,643,100 | |
Inter-segment sales | | | 1,204,497 | | | | | 928 | | | | | 1,205,425 | |
Acquisition and integration, net | | | 239 | | | | | 104 | | | | | 343 | |
Restructuring and asset impairment, net | | | (2,363 | ) | | | | 3,168 | | | | | 805 | |
Depreciation and amortization | | | 47,601 | | | | | 46,579 | | | | | 94,180 | |
Operating earnings | | | 55,137 | | | | | 13,407 | | | | | 68,544 | |
Capital expenditures | | | 52,394 | | | | | 44,886 | | | | | 97,280 | |
| | | | | | | | | | | |
2021 | | | | | | | | | | | |
Net sales to external customers | $ | | 6,349,753 | | | $ | | 2,581,286 | | | $ | | 8,931,039 | |
Inter-segment sales | | | 1,095,647 | | | | | 827 | | | | | 1,096,474 | |
Acquisition and integration, net | | | — | | | | | 708 | | | | | 708 | |
Restructuring and asset impairment, net | | | 427 | | | | | 2,459 | | | | | 2,886 | |
Depreciation and amortization | | | 46,487 | | | | | 46,224 | | | | | 92,711 | |
Operating earnings | | | 45,229 | | | | | 66,971 | | | | | 112,200 | |
Capital expenditures | | | 46,020 | | | | | 33,407 | | | | | 79,427 | |
| | | | | | | | | |
| | | | | | | | | | | |
| | | | | December 30, | | | December 31, | |
(In thousands) | | | | | 2023 | | | 2022 | |
Total assets | | | | | | | | | | | |
Wholesale | | | | | $ | | 1,576,182 | | | $ | | 1,525,760 | |
Retail | | | | | | | 779,393 | | | | | 780,801 | |
Total | | | | | $ | | 2,355,575 | | | $ | | 2,306,561 | |
| Food | | | | | | | | | | | | | | | | |
(In thousands) | Distribution | | | Retail | | | Military | | | Total | |
2020 (53 Weeks) | | | | | | | | | | | | | | | | | | | |
Net sales to external customers | $ | | 4,577,178 | | | $ | | 2,637,917 | | | $ | | 2,133,390 | | | $ | | 9,348,485 | |
Inter-segment sales | | | 1,125,112 | | | | | 359 | | | | | — | | | | | 1,125,471 | |
Merger/acquisition and integration | | | — | | | | | 421 | | | | | — | | | | | 421 | |
Restructuring, asset impairment and other charges | | | 21,085 | | | | | 3,313 | | | | | — | | | | | 24,398 | |
Depreciation and amortization | | | 32,289 | | | | | 45,199 | | | | | 12,388 | | | | | 89,876 | |
Operating earnings (loss) | | | 45,962 | | | | | 66,359 | | | | | (9,915 | ) | | | | 102,406 | |
Capital expenditures | | | 25,055 | | | | | 33,894 | | | | | 8,349 | | | | | 67,298 | |
| | | | | | | | | | | | | | | | | | | |
2019 (52 Weeks) | | | | | | | | | | | | | | | | | | | |
Net sales to external customers | $ | | 3,982,609 | | | $ | | 2,381,349 | | | $ | | 2,172,107 | | | $ | | 8,536,065 | |
Inter-segment sales | | | 976,372 | | | | | — | | | | | — | | | | | 976,372 | |
Merger/acquisition and integration | | | (122 | ) | | | | 1,559 | | | | | — | | | | | 1,437 | |
Restructuring, asset impairment and other charges (gains) | | | 14,844 | | | | | (1,794 | ) | | | | — | | | | | 13,050 | |
Depreciation and amortization | | | 33,396 | | | | | 43,171 | | | | | 11,834 | | | | | 88,401 | |
Operating earnings (loss) | | | 47,416 | | | | | 18,842 | | | | | (9,316 | ) | | | | 56,942 | |
Capital expenditures | | | 28,385 | | | | | 40,135 | | | | | 6,295 | | | | | 74,815 | |
| | | | | | | | | | | | | | | | | | | |
2018 (52 Weeks) | | | | | | | | | | | | | | | | | | | |
Net sales to external customers | $ | | 3,991,450 | | | $ | | 1,906,259 | | | $ | | 2,166,843 | | | $ | | 8,064,552 | |
Inter-segment sales | | | 842,934 | | | | | — | | | | | — | | | | | 842,934 | |
Merger/acquisition and integration | | | 3,581 | | | | | 1,352 | | | | | 4 | | | | | 4,937 | |
Restructuring, asset impairment and other charges (gains) | | | 33,056 | | | | | 5,291 | | | | | (801 | ) | | | | 37,546 | |
Depreciation and amortization | | | 32,073 | | | | | 38,812 | | | | | 11,968 | | | | | 82,853 | |
Operating earnings | | | 48,752 | | | | | 16,113 | | | | | 5,647 | | | | | 70,512 | |
Capital expenditures | | | 33,271 | | | | | 34,694 | | | | | 3,530 | | | | | 71,495 | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | January 2, | | | December 28, | |
(In thousands) | | | | | | | | | | | 2021 | | | 2019 | |
Total Assets | | | | | | | | | | | | | | | | | | | |
Food Distribution | | | | | | | | | | | $ | | 1,112,961 | | | $ | | 1,087,307 | |
Retail | | | | | | | | | | | | | 763,876 | | | | | 794,413 | |
Military | | | | | | | | | | | | | 400,554 | | | | | 390,799 | |
Discontinued operations | | | | | | | | | | | | | — | | | | | 3,090 | |
Total | | | | | | | | | | | $ | | 2,277,391 | | | $ | | 2,275,609 | |
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-74-
Note 17 – Quarterly Financial Information (Unaudited)
Earnings per share amounts for each quarter are required to be computed independently and may not sum to the amount computed for the total year.
| 2020 | |
| Full Year | | | 4th Quarter | | | 3rd Quarter | | | 2nd Quarter | | | 1st Quarter | |
(In thousands, except per share amounts) | (53 Weeks) | | | (13 Weeks) | | | (12 Weeks) | | | (12 Weeks) | | | (16 Weeks) | |
Net sales | $ | | 9,348,485 | | | $ | | 2,247,112 | | | $ | | 2,060,816 | | | $ | | 2,184,101 | | | $ | | 2,856,456 | |
Gross profit | | | 1,424,965 | | | | | 338,202 | | | | | 324,822 | | | | | 338,374 | | | | | 423,567 | |
Restructuring, asset impairment and other charges | | | 24,398 | | | | | 3,943 | | | | | 6,543 | | | | | 3,675 | | | | | 10,237 | |
Earnings before income taxes | | | 85,364 | | | | | 14,030 | | | | | 25,516 | | | | | 30,385 | | | | | 15,433 | |
Net earnings | $ | | 75,914 | | | $ | | 12,093 | | | $ | | 19,952 | | | $ | | 28,467 | | | $ | | 15,402 | |
Earnings from continuing operations per share: | | | | | | | | | | | | | | | | | | | | | | | | |
Basic | $ | | 2.12 | | | $ | | 0.34 | | | $ | | 0.56 | | | $ | | 0.80 | | | $ | | 0.43 | |
Diluted | | | 2.12 | | | | | 0.34 | | | | | 0.56 | | | | | 0.80 | | | | | 0.43 | |
Net earnings per share: | | | | | | | | | | | | | | | | | | | | | | | | |
Basic | $ | | 2.12 | | | $ | | 0.34 | | | $ | | 0.56 | | | $ | | 0.80 | | | $ | | 0.43 | |
Diluted | | | 2.12 | | | | | 0.34 | | | | | 0.56 | | | | | 0.80 | | | | | 0.43 | |
Dividends | $ | | 27,701 | | | $ | | 6,905 | | | $ | | 6,901 | | | $ | | 6,898 | | | $ | | 6,997 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| 2019 | |
| Full Year | | | 4th Quarter | | | 3rd Quarter | | | 2nd Quarter | | | 1st Quarter | |
(In thousands, except per share amounts) | (52 Weeks) | | | (12 Weeks) | | | (12 Weeks) | | | (12 Weeks) | | | (16 Weeks) | |
Net sales | $ | | 8,536,065 | | | $ | | 1,997,953 | | | $ | | 1,999,808 | | | $ | | 1,995,929 | | | $ | | 2,542,375 | |
Gross profit | | | 1,243,830 | | | | | 286,733 | | | | | 290,361 | | | | | 289,007 | | | | | 377,729 | |
Merger/acquisition and integration | | | 1,437 | | | | | 73 | | | | | — | | | | | 582 | | | | | 782 | |
Restructuring, asset impairment and other charges (gains) | | | 13,050 | | | | | 2,835 | | | | | 1,296 | | | | | 14,581 | | | | | (5,662 | ) |
Postretirement benefit expense | | | 19,803 | | | | | 126 | | | | | 10,221 | | | | | 8,821 | | | | | 635 | |
Earnings (loss) before income taxes and discontinued operations | | | 3,575 | | | | | 5,104 | | | | | (1,966 | ) | | | | (9,708 | ) | | | | 10,145 | |
Earnings (loss) from continuing operations | | | 5,917 | | | | | 5,473 | | | | | (310 | ) | | | | (6,767 | ) | | | | 7,521 | |
Loss from discontinued operations, net of taxes | | | (175 | ) | | | | (49 | ) | | | | (27 | ) | | | | (47 | ) | | | | (52 | ) |
Net earnings (loss) | $ | | 5,742 | | | $ | | 5,424 | | | $ | | (337 | ) | | $ | | (6,814 | ) | | $ | | 7,469 | |
Earnings (loss) from continuing operations per share: | | | | | | | | | | | | | | | | | | | | | | | | |
Basic | $ | | 0.16 | | | $ | | 0.15 | | | $ | | (0.01 | ) | | $ | | (0.19 | ) | | $ | | 0.21 | |
Diluted | | | 0.16 | | | | | 0.15 | | | | | (0.01 | ) | | | | (0.19 | ) | | | | 0.21 | |
Net earnings (loss) per share: | | | | | | | | | | | | | | | | | | | | | | | | |
Basic | $ | | 0.16 | | | $ | | 0.15 | | | $ | | (0.01 | ) | | $ | | (0.19 | ) | | $ | | 0.21 | |
Diluted | | | 0.16 | | | | | 0.15 | | | | | (0.01 | ) | | | | (0.19 | ) | | | | 0.21 | |
Dividends | $ | | 27,616 | | | $ | | 6,907 | | | $ | | 6,905 | | | $ | | 6,902 | | | $ | | 6,902 | |
-75-
Item 9. Changes in and Disagreements Withwith Accountants on Accounting and Financial Disclosure
Not applicable.
Item 9A. Controls and Procedures
Disclosure 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 January 2, 2021December 30, 2023 (the “Evaluation Date”). This evaluation was performed under the supervision and with the participation of SpartanNash Company’s management, including its Chief Executive Officer (“CEO”), Chief Financial Officer (“CFO”) and Chief Accounting Officer (“CAO”).Corporate Controller. As of the Evaluation Date, SpartanNash Company’s management, including the CEO, CFO and CAO,Corporate Controller, concluded that SpartanNash’s disclosure controls and procedures were effective 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 Exchange Act of 1934 is accumulated and communicated to management, including its principal executive, principal financial and principal financialaccounting officers as appropriate to allow for timely decisions regarding required disclosure.
Management’s Report on Internal Control Over Financial Reporting
The management of SpartanNash Company, including its CEO, CFO and CAO,Corporate Controller, is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. SpartanNash Company’s internal controls were designed by, or under the supervision of, the CEO, CFO, and CAO,Corporate Controller, and effected by the Company’s Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of its financial reporting and the preparation and presentation of the consolidated financial statements for external purposes in accordance with GAAP and includes those policies and procedures that (1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of SpartanNash Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of SpartanNash Company are being made only in accordance with authorizations of management and directors of SpartanNash Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of SpartanNash Company’s assets that could have a material effect on the financial statements.
Management of SpartanNash Company conducted an evaluation of the effectiveness of its internal controls over financial reporting based on the framework in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. This evaluation included review of the documentation of controls, evaluation of the design effectiveness of controls, testing of the operating effectiveness of controls and a conclusion on this evaluation. Through this evaluation, management did not identify any material weakness in the Company’s internal control. There are inherent limitations in the effectiveness of any system of internal control over financial reporting. Based on the evaluation, management has concluded that SpartanNash Company’s internal control over financial reporting was effective as of January 2, 2021.December 30, 2023.
The independent registered public accounting firm that audited the consolidated financial statements included in this Form 10-K Annual Report has issued an attestation report on the effectiveness of the Company’s internal control over financial reporting as of January 2, 2021December 30, 2023 as stated in their report on the following page.
Changes in Internal Controls Over Financial Reporting
During the last fiscal 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.
In response to the COVID-19 pandemic, many of the Company’s associates began working from home during the first quarter of 2020. Management has taken measures to ensure that the Company’s internal controls over financial reporting remain effective and were not materially affected.-63-
-76-
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and shareholders of
SpartanNash Company and subsidiaries
Grand Rapids, Michigan
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of SpartanNash Company and subsidiaries (the “Company”) as of January 2, 2021,December 30, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of January 2, 2021,December 30, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended January 2, 2021,December 30, 2023, of the Company and our report dated March 3, 2021,February 28, 2024, expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ DELOITTE & TOUCHE LLP
Grand Rapids, Michigan
March 3, 2021
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February 28, 2024
Item 9B. Other Information
The Company has adopted insider trading policies and procedures governing the purchase, sale, and/or other dispositions of the Company's securities by directors, officers and employees, or the Company itself, that are reasonably designed to promote compliance with insider trading laws, rules and regulations, and the listing standards of the Nasdaq Global Select Market.
None of the Company's directors or officers adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement (as defined in Item 408(c) of Regulation S-K) during the during the fourth quarter of fiscal 2023.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not Applicable.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
The information required by this item is here incorporated by reference from the sections titled “The Board“Board of Directors,” “SpartanNash’s Executive Officers,” “Ownership of SpartanNash Stock,” “Delinquent Section 16(a) Reports,” and “Corporate Governance Principles,Governance—Code of Conduct,” and “Transactions with Related Persons” in SpartanNash’s definitive proxy statement relating to its annual meeting of shareholders to be held in 2021.2024.
Item 11. Executive Compensation
The information required by this item is here incorporated by reference from the sections entitled “Executive Compensation,” “Potential Payments Upon Termination or Change in Control,” “Compensation of Directors,” “Compensation Committee “Board of Directors—Interlocks and Insider Participation”Relationships” and “Compensation Committee Report” in SpartanNash’s definitive proxy statement relating to its annual meeting of shareholders to be held in 2021.2024.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this item is here incorporated by reference from the section titled “Ownership of SpartanNash Stock” in SpartanNash’s definitive proxy statement relating to its annual meeting of shareholders to be held in 2021.2024.
The following table provides information about SpartanNash’s equity compensation plans regarding the number of securities to be issued under these plans, the weighted-average exercise prices of options outstanding under these plans and the number of securities available for future issuance as of the end of fiscal 2021.2023:
EQUITY COMPENSATION PLANSPLAN INFORMATION
| | | | | | | | | | | |
| | | | | | | Number of securities remaining | |
| Number of securities to | | | | | | available for future issuance | |
| be issued upon exercise | | | Weighted-average exercise | | | under equity compensation | |
| of outstanding options, | | | price of outstanding options, | | | plans (excluding securities | |
| warrants and rights | | | warrants and rights | | | reflected in column (1)) | |
Plan Category | (1) | | | (2) | | | (3) | |
Equity compensation Plans approved by security holders (a) | | 580,620 | | (b) | | — | | (c) | | 470,810 | |
Equity compensation plans not approved by security holders | | — | | | Not applicable | | | | — | |
Total | | 580,620 | | | | — | | | | 470,810 | |
(a)Consists of the Stock Incentive Plan of 2020. The numbers of shares reflected in column (3) in the table above with respect to the Stock Incentive Plan of 2020 represent shares that remain available for future issuance under the plan other than upon the exercise of outstanding options, warrants or rights. The plan contains customary anti-dilution provisions that are applicable in the event of a stock split or certain other changes in SpartanNash’s capitalization.
(b)This amount reflects the outstanding restricted stock and the maximum number of shares that may be issued under outstanding performance share units; however, the actual number of shares which may be issued will be determined based on the satisfaction of certain conditions, and therefore may be significantly lower.
(c)The weighted average exercise price excludes performance units, as there is no exercise price associated with these awards. The only outstanding options, warrants or rights are performance units. All equity awards were granted under our Stock Incentive Plan.
See Note 14 to the consolidated financial statements for additional information.
| | | | | | | | | Number of securities remaining | |
| Number of securities to | | | | | | | available for future issuance | |
| be issued upon exercise | | | Weighted-average exercise | | | under equity compensation | |
| of outstanding options, | | | price of outstanding options, | | | plans (excluding securities | |
| warrants and rights | | | warrants and rights | | | reflected in column (1)) | |
Plan Category | (1) | | | (2) | | | (3) | |
Equity compensation Plans approved by security holders (a) | | — | | | | — | | | | 2,205,034 | |
Equity compensation plans not approved by security holders | | — | | | Not applicable | | | | — | |
Total | | — | | | | — | | | | 2,205,034 | |
-65-
(a)
| Consists of the Stock Incentive Plan of 2020. The numbers of shares reflected in column (3) in the table above with respect to the Stock Incentive Plan of 2020 represent shares that may be issued other than upon the exercise of an option, warrant or right. The plan contains customary anti-dilution provisions that are applicable in the event of a stock split or certain other changes in SpartanNash’s capitalization.
|
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this item is here incorporated by reference from the section titled “Transactions with Related Persons” and the table captioned “Board of Directors Committee Membership”“Corporate Governance—Director Independence” in SpartanNash’s definitive proxy statement relating to its annual meeting of shareholders to be held in 2021.2024.
Item 14. Principal Accountant Fees and Services
The information required by this item is here incorporated by reference from the section titled “Independent Auditors” in SpartanNash’s definitive proxy statement relating to its annual meeting of shareholders to be held in 2021.2024.
-78-
PART IV
Item 15. Exhibits and Financial Statement Schedules
| (a) The following documents are filed as part of this Report: (a)
| The following documents are filed as part of this Report:
|
A. In Item 8.
Reports of Independent Registered Public Accounting Firm of Deloitte & Touche LLP (PCAOB ID No. 34) dated March 3, 2021February 28, 2024
Consolidated Balance Sheets at January 2, 2021December 30, 2023 and December 28, 201931, 2022
Consolidated Statements of Earnings for the years ended December 30, 2023, December 31, 2022 and January 2, 2021, December 28, 2019 and December 29, 20181, 2022
Consolidated Statements of Comprehensive Income for the years ended December 30, 2023, December 31, 2022 and January 2, 2021, December 28, 2019 and December 29, 20181, 2022
Consolidated Statements of Shareholders’ Equity for the years ended December 30, 2023, December 31, 2022 and January 2, 2021, December 28, 2019 and December 29, 20181, 2022
Consolidated Statements of Cash Flows for the years ended December 30, 2023, December 31, 2022 and January 2, 2021, December 28, 2019 and December 29, 20181, 2022
Notes to Consolidated Financial Statements
| 2. Financial Statement Schedules. 2.
| Financial Statement Schedules.
|
Schedules are omitted because the required information is either inapplicable or presented in the consolidated financial statements or related notes.
The information required by this Section (a)(3) of Item 15 is set forth on the exhibit index that followsprecedes the Signatures page of this Form 10-K and is incorporated herein by reference.
-79-
EXHIBIT INDEX
| | |
Exhibit
Number |
| Document |
| |
2.1
| | Asset Purchase Agreement dated November 3, 2016 by and among SpartanNash Company, Caito Foods Service, Inc., Blue Ribbon Transport, Inc., and Matthew Caito as Seller’s Representative. Previously filed as an exhibit to the Company’s Current Report on Form 8-K filed on November 4, 2016. Incorporated herein by reference.
|
| |
2.2
| | Amendment to Asset Purchase Agreement dated January 6, 2017 by and among SpartanNash Company, Caito Foods Service, Inc., Blue Ribbon Transport, Inc., and Matthew Caito as Seller’s Representative. Previously filed as an exhibit to the Company’s Current Report on Form 8-K filed on January 9, 2017. Incorporated herein by reference.
|
3.1 | |
3.1
|
| Restated Articles of Incorporation of SpartanNash Company, as amended. Previously filed as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended July 15, 2017. Incorporated herein by reference. |
|
|
3.2 |
| Bylaws of SpartanNash Company, as amended. Previously filed as an exhibit to the Company’s Current Report on Form 8-K filed on August 25, 2023. Incorporated herein by reference. |
|
|
4.1 |
| Description of Capital Stock. Previously filed as an exhibit to the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.January 2, 2021. Incorporated herein by reference. |
| |
4.1
| | Description of Capital Stock.
|
| |
10.1
| | Amended and Restated Loan and Security Agreement, among Spartan Stores, Inc. and certain of its subsidiaries, as borrowers, and Wells Fargo Capital Finance, LLC, as administrative agent, and certain lenders from time to time party thereto, dated November 19, 2013. Previously filed as an exhibit to the Company’s Current Report on Form 8-K filed on November 19, 2013. Incorporated herein by reference.
|
10.1 | |
10.2
|
| Amendment No. 1 to Amended and Restated Loan and Security Agreement, dated January 9, 2015, among SpartanNash Company and certain of its subsidiaries, as borrowers, and Wells Fargo Capital Finance, LLC, as administrative agent, and certain lenders from time to time party thereto. Previously filed as an exhibit to the Company's Current Report on Form 8-K filed on January 12, 2015. Incorporated herein by reference. |
| |
10.3
| | Amendment No. 2 to Amended and Restated Loan and Security Agreement, dated December 20, 2016, among SpartanNash Company and certain of its subsidiaries, as borrowers, and Wells Fargo Capital Finance, LLC, as administrative agent, and certain lenders from time to time party thereto. Previously filed as an exhibit to the Company's Current Report on Form 8-K filed on December 21, 2016. Incorporated herein by reference.
|
| |
10.4
| | Amendment No. 36 to Amended and Restated Loan and Security Agreement, dated November 21, 2017,17, 2022, among SpartanNash Company and certain of its subsidiaries, as borrowers, and Wells Fargo Capital Finance, LLC, as administrative agent, and certain lenders from time to time party thereto. Previously filed as an exhibit to the Company's Annual Report on Form 10-K for the year ended December 30, 2017.31, 2022. Incorporated herein by reference.
|
| |
10.5
| | Amendment No. 4 to Amended and Restated Loan and Security Agreement, dated December 18, 2018, among SpartanNash Company and certain of its subsidiaries, as borrowers, and Wells Fargo Capital Finance, LLC, as administrative agent, and certain lenders from time to time party thereto. Previously filed as an exhibit to the Company's Current Report on Form 8-K filed on December 19, 2018. Incorporated herein by reference.
|
10.2* | | |
10.6
|
| Amendment No. 5 to Amended and Restated Loan and Security Agreement, dated March 22, 2019, among SpartanNash Company and certainForm of its subsidiaries, as borrowers, and Wells Fargo Capital Finance, LLC, as administrative agent, and certain lenders from time to time party thereto.SPTN Long-Term Incentive Plan Document. Previously filed as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended April 20, 2019.22, 2023. Incorporated herein by reference.
|
|
|
|
10.7*10.3*
|
| Amended and Restated SpartanNash Company ExecutiveForm of SPTN Annual Cash Incentive Plan of 2015Document. Previously filed as an exhibit to the Company’s CurrentQuarterly Report on Form 8-K filed on June 3, 2015.10-Q for the quarter ended April 22, 2023. Incorporated herein by reference.
|
|
|
|
10.8*10.4*
|
| Form of 20202021 Long-Term Incentive Plan. Previously filed as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended April 18, 2020.24, 2021. Incorporated herein by reference. |
| | |
10.9*
| | Form of 2020 Annual Cash Incentive Plan. Previously filed as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended April 18, 2020. Incorporated herein by reference.
| |
| | |
10.10*
| | Form of 2019 Long-Term Incentive Plan. Previously filed as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended April 20, 2019. Incorporated herein by reference.
| |
| |
10.11*
| | Form of 2019 Annual Cash Incentive Plan. Previously filed as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended April 20, 2019. Incorporated herein by reference.
|
10.5* | |
10.12*
| | Form of 2018 Long-Term Cash Incentive Award. Previously filed as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended April 21, 2018. Incorporated herein by reference.
|
-80-
Exhibit
Number
| | Document
|
| | |
10.13*
| | Form of 2017 Long-Term Executive Incentive Plan Award. Previously filed as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended April 22, 2017. Incorporated herein by reference.
|
| |
10.14*
| | SpartanNash Company Stock Incentive Plan of 2020. Previously filed as an exhibit to the Company’s Form S-8 filed on May 29, 2020. Incorporated herein by reference. |
|
|
10.15*10.6*
|
| SpartanNash Company Supplemental Executive RetirementStock Incentive Plan as amendedof 2015. Previously filed as an exhibit to the Company’s Annual ReportForm S-8 filed on Form 10-K for the year ended March 27, 2010.June 4, 2015. Incorporated herein by reference. |
|
|
|
10.16*10.7*
|
| SpartanNash Company Supplemental Executive Savings Plan. Previously filed as an exhibit to the Company’s Form S-8 Registration Statement filed on December 21, 2001. Incorporated herein by reference. |
|
|
10.17*10.8*
|
| SpartanNash Company 2001Form of SPTN Restricted Stock BonusAward Plan Document (Non-Employee Directors).. Previously filed as an exhibit to the Company’s TransitionQuarterly Report on Form 10-K10-Q for the yearquarter ended December 28, 2013.April 23, 2022. Incorporated herein by reference.
|
|
|
|
10.18*10.9*
|
| Form of Restricted Stock Award to Executive Officers. Previously filed as an exhibit to SpartanNashthe Company’s Quarterly Report on Form 10-Q for the quarter ending April 18,ended July 11, 2020. Incorporated herein by reference. |
|
|
|
10.19*10.10*
|
| Form of SPTN Restricted Stock Award to Non-Employee Directors.Plan Document (Associates). Previously filed as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter endingended April 18, 2020.23, 2022. Incorporated herein by reference. |
| | |
10.11* | | |
10.20*
| | Form of Restricted Stock Award to Senior Leadership Team. Previously filed as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ending July 11, 2020. Incorporated herein by reference.
|
| | |
10.21*
| | Form of Restricted Stock Award to Associates.
|
| | |
10.22*
| | Form of Restricted Stock Award to Interim CEO.
|
| | |
10.23*
| | Form of Restricted Stock Award to Corporate Counsel.
|
| |
10.24*
| | Form of Executive Employment Agreement between SpartanNash Company and certain executive officers. Previously filed as an exhibit to the Company’s Annual Report on Form 10-K for the year ended December 28, 2019. Incorporated herein by reference.
|
| |
10.25*
| | Form of Executive Severance Agreement between SpartanNash Company and certain executive officers, as amended. Previously filed as an exhibit to the Company’s Annual Report on Form 10-K for the year ended December 30, 2017. Incorporated herein by reference.
|
| |
10.26*
| | Form of Executive Severance Agreement between SpartanNash Company and certain executive officers. Previously filed as an exhibit to the Company’s Annual Report on Form 10-K for the year ended December 30, 2017. Incorporated herein by reference.
|
| |
10.27*
| | Form of Indemnification Agreement. Previously filed as an exhibit to the Company’s Annual Report on Form 10-K for the year ended January 2, 2016. Incorporated herein by reference. |
|
|
|
10.28*10.12*
|
| Executive Employment Agreement between SpartanNash Company and Tony B. Sarsam. Previously filed as an exhibit to the Company’sCompany's Annual Report on Form 10-K for the year ended January 1, 2022. Incorporated herein by reference. |
|
|
|
10.13* |
| Form of Executive Employment Agreement between SpartanNash Company and certain executive officers. Previously filed as an exhibit to the Company's Annual Report on Form 10-K for the year ended January 1, 2022. Incorporated herein by reference. |
|
|
|
10.14* |
| Executive Separation Agreement between SpartanNash Company and Arif Dar. Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter endingended October 3, 2020.8, 2022. Incorporated herein by reference. |
|
|
|
10.29*10.15*
|
| Retention Bonus Agreement between SpartanNash Company and Senior Leadership.Form of SPTN Restricted Stock Award Plan Document (Attorneys). Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended April 22, 2023. Incorporated herein by reference.
|
|
|
|
10.3010.16
|
| Interest Rate Swap Agreement. Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended April 22, 2023. Incorporated herein by reference. |
|
|
|
10.17 |
| Transaction Agreement, by and between SpartanNash and Amazon.com NV Investments Holdings LLC, dated as of October 7, 2020. Previously filed as an exhibit to the Company’s Current Report on Form 8-K filed on October 8, 2020. Incorporated herein by reference. |
|
|
|
| | |
10.3110.18
|
| Warrant to Purchase Common Stock of SpartanNash Company, by and between SpartanNash Company and Amazon.com NV Investment Holdings LLC, dated as of October 7, 2020. Previously filed as an exhibit to the Company’s Current Report on Form 8-K filed on October 8, 2020. Incorporated herein by reference. |
|
|
2110.19
|
| Lender Joinder Agreement - Associated and CoBank, dated April 17, 2023. Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended April 22, 2023. Incorporated herein by reference. |
|
|
|
10.20 |
| Lender Joinder and Assignment Agreement - Bank of America and TD Bank, dated April 3, 2023. Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended April 22, 2023. Incorporated herein by reference. |
|
|
|
10.21 |
| Lender Joinder Agreement - AgFirst Farm Credit Bank, dated October 26, 2023. |
|
|
|
10.22* |
| Executive Separation Agreement between SpartanNash Company and David Sisk. |
|
|
|
19 |
| Insider Trading Policy. |
|
|
|
21 |
| Subsidiaries of SpartanNash CompanyCompany. |
.
|
|
23 | |
23
|
| Consent of Independent Registered Public Accounting Firm. |
|
|
24 |
| Powers of AttorneyAttorney.. |
| |
-81-
* These documents are management contracts or compensation plans or arrangements required to be filed as exhibits to this Form 10-K.
Item 16. Form 10-K Summary
None.
SIGNATURES
*
| These documents are management contracts or compensation plans or arrangements required to be filed as exhibits to this Form 10-K.
|
-82-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, SpartanNash Company (the Registrant) has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | | | | |
|
|
|
| SPARTANNASH COMPANY (Registrant) |
|
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|
|
Date: March 3, 2021February 28, 2024 |
|
|
| By |
| /s/ Tony B. Sarsam |
|
|
|
|
|
| Tony B. Sarsam President and Chief Executive Officer (Principal Executive Officer) |
-83-
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of SpartanNash Company and in the capacities and on the dates indicated.
| | | | | | |
March 3, 2021February 28, 2024
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| By |
| * |
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| M. Shân Atkins Director |
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March 3, 2021February 28, 2024
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| By |
| * |
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| Dennis EidsonFred Bentley, Jr.
Director |
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February 28, 2024 |
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| By |
| * |
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| Douglas A. Hacker Chairman of the Board |
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March 3, 2021February 28, 2024
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| By |
| * |
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| Dr. Frank M. GambinoKerrie D. MacPherson
Director |
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March 3, 2021February 28, 2024
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| By |
| * |
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| Douglas A. HackerJulien R. Mininberg
Director |
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March 3, 2021February 28, 2024
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| By |
| * |
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| Yvonne R. JacksonJaymin B. Patel
Director |
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March 3, 2021February 28, 2024
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| By |
| * |
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| Matthew MannellyHawthorne L. Proctor
Director |
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March 3, 2021February 28, 2024
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| By |
| * |
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| Elizabeth A. NickelsPamela S. Puryear, PhD
Director |
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March 3, 2021February 28, 2024
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| By |
| * |
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| Hawthorne ProctorWilliam R. Voss
Director |
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March 3, 2021February 28, 2024
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| | | | | | William R. Voss
Director
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March 3, 2021
| | | | By
| | /s/ Tony B. Sarsam |
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| Tony B. Sarsam President and Chief Executive Officer |
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| (Principal Executive Officer) |
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March 3, 2021February 28, 2024
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| By |
| /s/ Mark E. ShamberJason Monaco |
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| Mark E. ShamberJason Monaco
Executive Vice President and Chief Financial Officer (Principal Financial Officer) |
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February 28, 2024 |
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| By |
| /s/ R. Todd Riksen |
March 3, 2021
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| By
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| /s/ Tammy R. HurleyTodd Riksen
Vice President and Corporate Controller (Principal Accounting Officer) |
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| Tammy R. Hurley
Vice President, Finance and Chief Accounting Officer
(Principal Accounting Officer)
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February 28, 2024 |
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| *By |
| /s/ Jason Monaco |
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March 3, 2021
| | | | *By
| | /s/ Mark E. Shamber
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| | | | | | Mark E. ShamberJason Monaco
Attorney-in-Fact |
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