UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|
|
| For the quarterly period ended |
OR
o | 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
SPARTAN STORES, INC.
(Exact Name of Registrant as Specified in Its Charter)
Michigan | 38-0593940 |
|
|
850 76th Street, S.W. |
|
|
|
(616) 878-2000 |
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 X |
| No |
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act).
| Yes X |
| No |
As of January 29,July 15, 2005 the registrant had 20,515,59120,810,303 outstanding shares of common stock, no par value.
FORWARD-LOOKING STATEMENTS
The matters discussed in this Quarterly Report on Form 10-Q include "forward-looking statements"forward-looking statements about the plans, strategies, objectives, goals or expectations of Spartan Stores, Inc. (together with its subsidiaries, "Spartan Stores"). These forward-looking statements are identifiable by words or phrases indicating that Spartan Stores or management "expects," "anticipates," "projects," "plans," "believes," "estimates," "intends," is "optimistic" or "confident" that a particular occurrence "will," "may," "could," "should" or "will likely" result or that a particular event "will," "may," "could," "should" or "will likely" occur in the future, that the "outlook" or "trend" is toward a particular result or occurrence, or similarly stated expectations. Accounting estimates, such as those described under the heading "Critical Accounting Policies" in Item 2 of this Form 10-Q, are inherently forward-looking. You should not place undue reliance on these forward-looking statements, , which speak only as of the date of this Quarterly Report.
In addition to other risks and uncertainties described in connection with the forward-looking statements contained in this Quarterly Report on Form 10-Q, Spartan Stores' Annual Report on Form 10-K for the year ended March 27, 200426, 2005 and other periodic reports filed with the Securities and Exchange Commission, there are many important factors that could cause actual results to differ materially. Our ability to strengthen our retail-store performance; sustain sales growth; increase gross margin; maintain and improve customer and supplier relationships; reduce operating costs; sell on favorable terms assets classified as held for sale; generate cash; continue to meet the terms of our debt covenants; and implement the other programs, plans, strategies, objectives, goals or expectations described in this Quarterly Report will be affected by changes in economic conditions generally or in the markets and geographic areas that we serve, adverse effects of the changing food and dis tribution industries and other factors including, but not limited to, those discussed below.
Anticipated future sales are subject to competitive pressures from many sources. Our Retail and Grocery Distribution and Retail businesses compete with many warehouse discount stores, supermarkets, supercenters, pharmacies and product manufacturers. Future sales will be dependent on the number of retail stores that we own and operate, our ability to retain and add to the retail stores to whom we distribute, competitive pressures in the retail industry generally and our geographic markets specifically and our ability to successfully implement effective new marketing and merchandising programs. Competitive pressures in these and other business segments may result in unexpected reductions in sales volumes, product prices or service fees.
Our operating and administrative expenses may be adversely affected by unexpected costs associated with, among other factors: difficulties in the operation of our business segments; future business acquisitions; adverse effects on business relationships with independent retail grocery store customers; difficulties in the retention or hiring of employees; labor shortages, stoppages or disputes; business and asset divestitures; increased transportation or fuel costs; current or future lawsuits and administrative proceedings; and losses of, or financial difficulties of, customers or suppliers. Our future costs for pension and postretirement benefit costs may be adversely affected by changes in actuarial assumptions and methods, investment return and the composition of the group of employees and retirees covered. Our operating and administrative expenses, net incomeearnings and cash flow could also be adversely affected by changes in our sales mix. Our ongoing cost reduction initiativesiniti atives and changes in our marketing and merchandising programs may not be as successful as we anticipate. Acts of terrorism or war have in the past and may in the future result in considerable economic and political uncertain tiesuncertainties that could have adverse effects on consumer buying behavior, fuel costs, shipping and transportation, product imports and other factors affecting our company and the grocery industry generally. Our asset impairment and exit cost provisions are estimates and actual costs may be more or less than these estimates.
Our future interest expense and income also may differ from current expectations, depending upon, among other factors: the amount of additional borrowings; changes in our borrowing agreements; changes in the interest rate environment; and changes in the amount of fees received or paid. The availability of our secured loan agreement depends on compliance with the terms of the loan agreement.
In fiscal 2004, we completed the sales of substantially all of the assets of United Wholesale Grocery Company, L&L/Jiroch Distributing Company, J.F. Walker Company, Inc. and most Food Town stores and have closed all Food Town stores that were not sold. We believe that these actions will allow us to better focus our efforts and capital on key strategic markets where we have the strongest growth and value creation opportunities. However, we cannot assure you that these transactions will be beneficial to our company. Our asset impairment and exit cost provisions for these transactions are estimates and actual costs may be more or less than these estimates. The agreements relating to some of these transactions require us to indemnify these asset buyers for breaches of our representations and warranties contained in the agreements and certain other matters.
This section is intended to provide meaningful cautionary statements for purposes of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. This should not be construed as a complete list of all economic, competitive, governmental, technological and other factors that could adversely affect our expected consolidated financial position, results of operations or liquidity. We undertake no obligation to update or revise our forward-looking statements to reflect developments that occur or information obtained after the date of this Quarterly Report.
PART I
FINANCIAL INFORMATION
ITEM 1. | Financial Statements |
SPARTAN STORES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
| January 1, |
| March 27, |
| June 18, |
| March 26, |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents | $ | 14,576 |
| $ | 12,838 |
| $ | 13,367 |
| $ | 14,880 |
|
Accounts receivable, net |
| 40,859 |
|
| 39,732 |
|
| 45,785 |
|
| 43,445 |
|
Inventories |
| 96,229 |
|
| 97,771 |
| ||||||
Inventories, net |
| 93,150 |
|
| 95,988 |
| ||||||
Prepaid expenses and other current assets |
| 8,684 |
|
| 9,578 |
|
| 6,411 |
|
| 7,884 |
|
Deferred taxes on income |
| 5,323 |
|
| 6,353 |
|
| 5,384 |
|
| 5,396 |
|
Property and equipment held for sale |
| 3,826 |
|
| 4,051 |
|
| 5,566 |
|
| 3,855 |
|
Total current assets |
| 169,497 |
|
| 170,323 |
|
| 169,663 |
|
| 171,448 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets |
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill, net |
| 72,315 |
|
| 72,105 |
| ||||||
Goodwill |
| 72,315 |
|
| 72,315 |
| ||||||
Deferred taxes on income |
| 19,221 |
|
| 25,147 |
|
| 17,489 |
|
| 18,680 |
|
Other, net |
| 13,423 |
|
| 16,438 |
|
| 12,407 |
|
| 13,135 |
|
Total other assets |
| 104,959 |
|
| 113,690 |
|
| 102,211 |
|
| 104,130 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net |
| 106,784 |
|
| 108,437 |
|
| 105,528 |
|
| 108,879 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets | $ | 381,240 |
| $ | 392,450 |
| $ | 377,402 |
| $ | 384,457 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable | $ | 79,879 |
| $ | 75,206 |
| $ | 87,264 |
| $ | 82,391 |
|
Accrued payroll and benefits |
| 24,865 |
|
| 24,374 |
|
| 23,084 |
|
| 30,775 |
|
Insurance reserves |
| 6,508 |
|
| 7,009 |
|
| 5,371 |
|
| 5,371 |
|
Other accrued expenses |
| 19,810 |
|
| 20,291 |
|
| 21,547 |
|
| 19,805 |
|
Current maturities of long-term debt |
| 2,827 |
|
| 4,177 |
|
| 2,817 |
|
| 2,848 |
|
Total current liabilities |
| 133,889 |
|
| 131,057 |
|
| 140,083 |
|
| 141,190 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other long-term liabilities |
| 16,949 |
|
| 20,084 |
|
| 15,960 |
|
| 16,814 |
|
Postretirement benefits |
| 11,938 |
|
| 11,026 |
|
| 9,663 |
|
| 9,097 |
|
Long-term debt |
| 98,991 |
|
| 124,616 |
|
| 83,321 |
|
| 91,946 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders' equity |
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, voting, no par value; 50,000 shares |
|
|
|
|
|
| ||||||
Common stock, voting, no par value; 50,000 shares |
|
|
|
|
|
| ||||||
Preferred stock, no par value, 10,000 |
| - |
|
| - |
|
|
|
|
|
|
|
Deferred stock-based compensation |
| (768 | ) |
| (179 | ) |
| (3,516 | ) |
| (719 | ) |
Accumulated other comprehensive loss |
| (182 | ) |
| (182 | ) |
| (203 | ) |
| (203 | ) |
Retained earnings (accumulated deficit) |
| 2,391 |
|
| (10,638 | ) | ||||||
Retained earnings |
| 10,840 |
|
| 8,188 |
| ||||||
Total shareholders' equity |
| 119,473 |
|
| 105,667 |
|
| 128,375 |
|
| 125,410 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders' equity | $ | 381,240 |
| $ | 392,450 |
| $ | 377,402 |
| $ | 384,457 |
|
See accompanying notes to consolidated financial statements.
SPARTAN STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)
(Unaudited)
|
| 12 Weeks Ended |
| ||||
|
| June 18, |
| June 19, |
| ||
|
|
|
|
|
|
|
|
Net sales |
| $ | 459,320 |
| $ | 474,325 |
|
Cost of goods sold |
|
| 373,513 |
|
| 388,425 |
|
Gross margin |
|
| 85,807 |
|
| 85,900 |
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
| 79,809 |
|
| 81,023 |
|
|
|
|
|
|
|
|
|
Operating earnings |
|
| 5,998 |
|
| 4,877 |
|
|
|
|
|
|
|
|
|
Other income and expenses: |
|
|
|
|
|
|
|
Interest expense |
|
| 1,769 |
|
| 2,292 |
|
Interest income |
|
| (56 | ) |
| (47 | ) |
Other, net |
|
| 4 |
|
| 18 |
|
Total other income and expenses |
|
| 1,717 |
|
| 2,263 |
|
|
|
|
|
|
|
|
|
Earnings before income taxes and discontinued operations |
|
| 4,281 |
|
| 2,614 |
|
Income taxes |
|
| 1,466 |
|
| 915 |
|
Earnings from continuing operations |
|
| 2,815 |
|
| 1,699 |
|
|
|
|
|
|
|
|
|
Loss from discontinued operations, net of taxes |
|
| (163 | ) |
| (146 | ) |
Net earnings |
| $ | 2,652 |
| $ | 1,553 |
|
|
|
|
|
|
|
|
|
Basic earnings per share: |
|
|
|
|
|
|
|
Earnings from continuing operations |
| $ | .14 |
| $ | 0.08 |
|
Loss from discontinued operations |
|
| (.01 | ) |
| (0.00 | ) |
Net earnings |
| $ | .13 |
| $ | 0.08 |
|
|
|
|
|
|
|
|
|
Diluted earnings per share: |
|
|
|
|
|
|
|
Earnings from continuing operations |
| $ | .13 |
| $ | 0.08 |
|
Loss from discontinued operations |
|
| (.01 | ) |
| (0.00 | ) |
Net earnings |
| $ | .12 |
| $ | 0.08 |
|
|
|
|
|
|
|
|
|
Weighted average shares |
|
|
|
|
|
|
|
Basic |
|
| 20,636 |
|
| 20,253 |
|
Diluted |
|
| 21,252 |
|
| 20,468 |
|
See accompanying notes to consolidated financial statements.
SPARTAN STORES, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS(In thousands, except per share data)(Unaudited)
| 16 Weeks Ended |
| 40 Weeks Ended | ||||||||||
| January 1, |
| January 3, |
|
| January 1, |
| January 3, |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales | $ | 624,517 |
| $ | 644,119 |
|
| $ | 1,585,543 |
| $ | 1,598,059 |
|
Cost of sales |
| 507,165 |
|
| 529,035 |
|
|
| 1,287,200 |
|
| 1,305,345 |
|
Gross margin |
| 117,352 |
|
| 115,084 |
|
|
| 298,343 |
|
| 292,714 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
| 105,912 |
|
| 108,985 |
|
|
| 268,780 |
|
| 280,235 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings |
| 11,440 |
|
| 6,099 |
|
|
| 29,563 |
|
| 12,479 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (income) and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
| 2,897 |
|
| 3,668 |
|
|
| 7,466 |
|
| 10,776 |
|
Debt extinguishment |
| 561 |
|
| 8,798 |
|
|
| 561 |
|
| 8,798 |
|
Other, net |
| (939 | ) |
| (111 | ) |
|
| (910 | ) |
| (286 | ) |
Total other (income) and expenses |
| 2,519 |
|
| 12,355 |
|
|
| 7,117 |
|
| 19,288 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before income taxes and |
|
|
|
|
|
|
|
|
|
|
|
| |
Income taxes |
| 3,123 |
|
| (2,187 | ) |
|
| 7,855 |
|
| (2,380 | ) |
Earnings (loss) from continuing operations |
| 5,798 |
|
| (4,069 | ) |
|
| 14,591 |
|
| (4,429 | ) |
Loss from discontinued operations, net of taxes |
| (1,273 | ) |
| (8 | ) |
|
| (1,562 | ) |
| (3,993 | ) |
Net earnings (loss) | $ | 4,525 |
| $ | (4,077 | ) |
| $ | 13,029 |
| $ | (8,422 | ) |
|
|
|
|
|
|
|
|
|
|
|
| �� |
|
Basic earnings (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations | $ | 0.28 |
| $ | (0.20 | ) |
| $ | 0.72 |
| $ | (0.22 | ) |
Loss from discontinued operations |
| (0.06 | ) |
| (0.00 | ) |
|
| (0.08 | ) |
| (0.20 | ) |
Net earnings (loss) | $ | 0.22 |
| $ | (0.20 | ) |
| $ | 0.64 |
| $ | (0.42 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations | $ | 0.28 |
| $ | (0.20 | ) |
| $ | 0.71 |
| $ | (0.22 | ) |
Loss from discontinued operations |
| (0.06 | ) |
| (0.00 | ) |
|
| (0.08 | ) |
| (0.20 | ) |
Net earnings (loss) | $ | 0.22 |
| $ | (0.20 | ) |
| $ | 0.63 |
| $ | (0.42 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| 20,498 |
|
| 20,053 |
|
|
| 20,416 |
|
| 19,999 |
|
Diluted |
| 20,795 |
|
| 20,053 |
|
|
| 20,658 |
|
| 19,999 |
|
See accompanying notes to consolidated financial statements.
SPARTAN STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands)
(Unaudited)
|
|
|
|
|
|
| Accumulated |
| Retained |
|
|
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - March 30, 2003 | 19,999 |
| $ | 116,388 |
| $ | - |
| $ | (2,816 | ) | $ | (3,940 | ) | $ | 109,632 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss, net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for fiscal 2004 | - |
|
| - |
|
| - |
|
| - |
|
| (6,698 | ) |
| (6,698 | ) |
Unrealized gain on interest rate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
swap agreements | - |
|
| - |
|
| - |
|
| 372 |
|
| - |
|
| 372 |
|
Minimum pension liability adjustment | - |
|
| - |
|
| - |
|
| 2,383 |
|
| - |
|
| 2,383 |
|
Unrealized loss on securities | - |
|
| - |
|
| - |
|
| (121 | ) |
| - |
|
| (121 | ) |
Total comprehensive loss | - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| (4,064 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of common stock | (56 | ) |
| (164 | ) |
| - |
|
| - |
|
| - |
|
| (164 | ) |
Issuances of restricted stock | 149 |
|
| 442 |
|
| (442 | ) |
| - |
|
| - |
|
| - |
|
Amortization of restricted stock | - |
|
| - |
|
| 263 |
|
| - |
|
| - |
|
| 263 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - March 27, 2004 | 20,092 |
|
| 116,666 |
|
| (179 | ) |
| (182 | ) |
| (10,638 | ) |
| 105,667 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive earnings, net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings | - |
|
| - |
|
| - |
|
| - |
|
| 13,029 |
|
| 13,029 |
|
Total comprehensive earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 13,029 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuances of common stock | 187 |
|
| 636 |
|
| - |
|
| - |
|
| - |
|
| 636 |
|
Issuances of restricted stock | 248 |
|
| 811 |
|
| (811 | ) |
| - |
|
| - |
|
| - |
|
Cancellations of restricted stock | (25 | ) |
| (81 | ) |
| 81 |
|
|
|
|
|
|
|
| - |
|
Amortization of restricted stock | - |
|
| - |
|
| 141 |
|
| - |
|
| - |
|
| 141 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - January 1, 2005 | 20,502 |
| $ | 118,032 |
| $ | (768 | ) | $ | (182 | ) | $ | 2,391 |
| $ | 119,473 |
|
|
|
|
|
|
|
| Accumulated |
| (Accumulated |
|
|
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - March 28, 2004 | 20,092 |
| $ | 116,666 |
| $ | (179 | ) | $ | (182 | ) | $ | (10,638 | ) | $ | 105,667 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income, net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings for fiscal 2005 | - |
|
| - |
|
| - |
|
| - |
|
| 18,826 |
|
| 18,826 |
|
Minimum pension liability adjustment | - |
|
| - |
|
| - |
|
| (21 | ) |
| - |
|
| (21 | ) |
Total comprehensive income | - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 18,805 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuances of common stock | 209 |
|
| 748 |
|
| - |
|
| - |
|
| - |
|
| 748 |
|
Issuances of restricted stock | 248 |
|
| 811 |
|
| (811 | ) |
| - |
|
| - |
|
| - |
|
Cancellations of restricted stock | (25 | ) |
| (81 | ) |
| 81 |
|
| - |
|
| - |
|
| - |
|
Amortization of restricted stock | - |
|
| - |
|
| 190 |
|
| - |
|
| - |
|
| 190 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - March 26, 2005 | 20,524 |
|
| 118,144 |
|
| (719 | ) |
| (203 | ) |
| 8,188 |
|
| 125,410 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income, net of tax- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings for fiscal 2006 | - |
|
| - |
|
| - |
|
| - |
|
| 2,652 |
|
| 2,652 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuances of common stock | 27 |
|
| 218 |
|
| - |
|
| - |
|
| - |
|
| 218 |
|
Issuances of restricted stock | 252 |
|
| 2,900 |
|
| (2,900 | ) |
| - |
|
| - |
|
| - |
|
Cancellations of restricted stock | (2 | ) |
| (8 | ) |
| 8 |
|
| - |
|
| - |
|
| - |
|
Amortization of restricted stock | - |
|
| - |
|
| 95 |
|
| - |
|
| - |
|
| 95 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - June 18, 2005 | 20,801 |
| $ | 121,254 |
| $ | (3,516 | ) | $ | (203 | ) | $ | 10,840 |
| $ | 128,375 |
|
See accompanying notes to consolidated financial statements.
SPARTAN STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| 40 Weeks Ended |
| 12 Weeks Ended |
| ||||||||
| January 1, |
| January 3, |
| June 18, |
| June 19, |
| ||||
Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) | $ | 13,029 |
| $ | (8,422 | ) | ||||||
Net earnings | $ | 2,652 |
| $ | 1,553 |
| ||||||
Loss from discontinued operations |
| 1,562 |
|
| 3,993 |
|
| 163 |
|
| 146 |
|
Earnings (loss) from continuing operations |
| 14,591 |
|
| (4,429 | ) | ||||||
Adjustments to reconcile net earnings (loss) to net cash |
|
|
|
|
|
| ||||||
Earnings from continuing operations |
| 2,815 |
|
| 1,699 |
| ||||||
Adjustments to reconcile net earnings to net cash |
|
|
|
|
|
| ||||||
provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Debt extinguishment |
| 561 |
|
| 8,798 |
| ||||||
Depreciation and amortization |
| 17,627 |
|
| 22,085 |
|
| 5,218 |
|
| 5,679 |
|
Postretirement benefits |
| 912 |
|
| (1,180 | ) |
| 566 |
|
| 549 |
|
Deferred taxes on income |
| 6,896 |
|
| (4,084 | ) |
| 1,196 |
|
| 839 |
|
Other, net |
| (670 | ) |
| 185 |
| ||||||
Changes in operating assets and liabilities: |
|
|
|
|
|
| ||||||
Other |
| 496 |
|
| - |
| ||||||
Change in operating assets and liabilities: |
|
|
|
|
|
| ||||||
Accounts receivable |
| (2,535 | ) |
| (204 | ) |
| (2,382 | ) |
| (2,910 | ) |
Inventories |
| 1,121 |
|
| 6,735 |
|
| 2,838 |
|
| 5,377 |
|
Prepaid expenses and other assets |
| 3,561 |
|
| 4,949 |
|
| 1,377 |
|
| (1,172 | ) |
Refundable income taxes |
| - |
|
| 9,349 |
| ||||||
Accounts payable |
| 5,374 |
|
| (17,843 | ) |
| 5,090 |
|
| 15,017 |
|
Accrued payroll and benefits |
| 1,477 |
|
| 1,476 |
|
| (7,630 | ) |
| (3,696 | ) |
Insurance reserves |
| (1,265 | ) |
| 887 |
|
| (115 | ) |
| (155 | ) |
Other accrued expenses and other liabilities |
| 169 |
|
| (8,821 | ) |
| 1,637 |
|
| 1,786 |
|
Net cash provided by operating activities |
| 47,819 |
|
| 17,903 |
|
| 11,106 |
|
| 23,013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment |
| (17,771 | ) |
| (7,615 | ) |
| (3,487 | ) |
| (4,517 | ) |
Net proceeds from the sale of assets |
| 2,832 |
|
| 144 |
|
| - |
|
| 67 |
|
Other |
| (205 | ) |
| 403 |
|
| 302 |
|
| 104 |
|
Net cash used in investing activities |
| (15,144 | ) |
| (7,068 | ) |
| (3,185 | ) |
| (4,346 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net (payments) proceeds from revolver |
| (8,602 | ) |
| 111,040 |
| ||||||
Proceeds from long-term borrowings |
| - |
|
| 15,000 |
| ||||||
Net payments on revolver |
| (8,268 | ) |
| (17,871 | ) | ||||||
Repayment of long-term debt |
| (18,438 | ) |
| (126,773 | ) |
| (369 | ) |
| (825 | ) |
Financing fees paid |
| (492 | ) |
| (8,667 | ) | ||||||
Proceeds from sale of common stock |
| 636 |
|
| - |
|
| 218 |
|
| 460 |
|
Net cash used in financing activities |
| (26,896 | ) |
| (9,400 | ) |
| (8,419 | ) |
| (18,236 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in discontinued operations |
| (4,041 | ) |
| (6,737 | ) |
| (1,015 | ) |
| (1,033 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
| 1,738 |
|
| (5,302 | ) | ||||||
Net decrease in cash and cash equivalents |
| (1,513 | ) |
| (602 | ) | ||||||
Cash and cash equivalents at beginning of period |
| 12,838 |
|
| 23,306 |
|
| 14,880 |
|
| 12,838 |
|
Cash and cash equivalents at end of period | $ | 14,576 |
| $ | 18,004 |
| $ | 13,367 |
| $ | 12,236 |
|
See accompanying notes to consolidated financial statements.
SPARTAN STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1
Basis of Presentation and Significant Accounting Policies
The Consolidated Financial Statements include the accounts of Spartan Stores, Inc. and its subsidiaries ("Spartan Stores"). All significant intercompany accounts and transactions have been eliminated.
In the opinion of management, the accompanying consolidated financial statements, taken as a whole, contain all adjustments, which are of a normal recurring nature, necessary to present fairly the financial position of Spartan Stores as of January 1,June 18, 2005 and the results of its operations and cash flows for the interim periods presented. Interim results are not necessarily indicative of results for a full year.
Stock-Based Compensation
Spartan Stores has a stock incentive plan, which is more fully described in Note 10 of the 20042005 Annual Report on Form 10-K. Spartan Stores accounts for the plan under the recognition and measurement principles of Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and related Interpretations. No stock-based compensation cost is reflected in the Consolidated Statements of Operations,Earnings for stock options, as all options granted under the plan had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net earnings (loss) and earnings (loss) per share as if Spartan Stores had applied the fair value recognition principles of Statement of Financial Accounting Standards Statement ("SFAS") No. 123, "Accounting for Stock-Based Compensation," to stock-based employee compensation:stock options granted to employees:
(In thousands, except per share data)
| 16 Weeks Ended |
| ||||
| January 1, |
| January 3, |
| ||
|
|
|
|
|
|
|
Net earnings (loss), as reported | $ | 4,525 |
| $ | (4,077 | ) |
Deduct: Total stock-based employee compensation expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net earnings (loss) | $ | 4,434 |
| $ | (4,264 | ) |
|
|
|
|
|
|
|
Basic and diluted earnings (loss) per share - as reported | $ | 0.22 |
| $ | (0.20 | ) |
Basic earnings per share - pro forma | $ | 0.22 |
| $ | (0.21 | ) |
Diluted earnings per share - pro forma | $ | 0.21 |
| $ | (0.21 | ) |
(In thousands, except per share data)
| 40 Weeks Ended |
| ||||
| January 1, |
| January 3, |
| ||
|
|
|
|
|
|
|
Net earnings (loss), as reported | $ | 13,029 |
| $ | (8,422 | ) |
Deduct: Total stock-based employee compensation expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net earnings (loss) | $ | 12,776 |
| $ | (8,907 | ) |
|
|
|
|
|
|
|
Basic earnings (loss) per share - as reported | $ | 0.64 |
| $ | (0.42 | ) |
Diluted earnings (loss) per share - as reported | $ | 0.63 |
| $ | (0.42 | ) |
Basic earnings (loss) per share - pro forma | $ | 0.63 |
| $ | (0.45 | ) |
Diluted earnings (loss) per share - pro forma | $ | 0.62 |
| $ | (0.45 | ) |
| 12 Weeks Ended |
| ||||
| June 18, |
| June 19, |
| ||
|
|
|
|
|
|
|
Net earnings, as reported | $ | 2,652 |
| $ | 1,553 |
|
Deduct: Total stock-based employee compensation expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net earnings | $ | 2,572 |
| $ | 1,461 |
|
|
|
|
|
|
|
|
Basic earnings per share - as reported | $ | 0.13 |
| $ | 0.08 |
|
Basic earnings per share - pro forma |
| 0.12 |
|
| 0.07 |
|
|
|
|
|
|
|
|
Diluted earnings per share - as reported | $ | 0.12 |
| $ | 0.08 |
|
Diluted earnings per share - pro forma |
| 0.12 |
|
| 0.07 |
|
Reclassifications
Certain reclassifications have been made to the fiscal 20042005 consolidated financial statements to conform to the fiscal 20052006 presentation.
Note 2
New Accounting Standards
In December 2004, the Financial Accounting Standards Board ("FASB") issued SFAS No. 123(R), "Share-Based Payment" that will require compensation costs related to share-based payment transactions to be recognized in the consolidated financial statements. With limited exceptions, the amount of compensation cost will be measured based on the grant date fair value of the equity or liability instruments issued. In addition, liability awards will be remeasured each reporting period. Compensation cost will be recognized over the period that an employee provides services in exchange for the award. SFAS No. 123(R) replaces SFAS No. 123, and supercedes APB Opinion No. 25. This Statement becomes effective for Spartan Stores at the beginning of our second quarter in fiscal 2006.2007. Spartan Stores expects that the impact of adopting the FASSFAS No. 123(R) will be consistent with the pro forma expense that has been previously disclosed, adjusted for future grants, cancellations and exercises of stock options in accordance with the Stateme nt.Statement.
In May 2004, the FASB issued FSP FAS 106-2, "Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003." FSP FAS 106-2 provides guidance on the accounting, disclosure, effective date and transition rules related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003. FSP FAS 106-2 was adopted in the second quarter of fiscal 2005 and did not have a significant impact on the financial statements.
Note 3Long-Term Debt
Effective December 2004, Spartan Stores amended its existing senior secured revolving credit facility and terminated its $15.0 million supplemental secured credit facility. The amended senior secured revolving credit facility ("credit facility") increased to $215.0 million from its original $170.0 million and now matures in December 2008 rather than December 2007. A portion of the funds made available under the amended agreement were used to prepay without penalty the remaining $13.9 million due under the supplemental secured credit facility. Spartan Stores recorded a pre-tax, non-cash charge of $0.6 million for the write-off of unamortized bank fees associated with the supplemental secured credit facility during the third quarter of fiscal 2005 and this amount is recorded as Debt extinguishment on the Consolidated Statements of Operations. Available borrowings under the credit facility are based on stipulated advance rates on eligible assets, as defined in the credit agreement. The credit facility contai ns covenants that include the maintenance of minimum EBITDA and maximum capital expenditures, as defined in the credit agreement. These
covenants will not be effective as long as Spartan Stores maintains a minimum excess availability level, as defined in the credit agreement. Spartan Stores had available borrowings of $58.9 million at January 1, 2005 and maximum availability of $68.9 million, which exceeds the minimum excess availability levels. The credit facility provides for the issuance of letters of credit of which $11.3 million were outstanding and unused as of January 1, 2005. The credit facility bears interest at the London InterBank Offered Rate ("LIBOR") plus 1.75% or the prime rate (weighted average interest rate of 4.40% at January 1, 2005).
Spartan Stores' long-term debt consists of the following:
| January 1, |
| March 27, | ||
|
|
|
|
|
|
Senior secured revolving credit facility, due December 2008 | $ | 88,621 |
| $ | 97,223 |
Supplemental secured credit facility |
| - |
|
| 14,800 |
Other |
| 13,197 |
|
| 16,770 |
|
| 101,818 |
|
| 128,793 |
Less current portion |
| 2,827 |
|
| 4,177 |
Total long-term debt | $ | 98,991 |
| $ | 124,616 |
At January 1, 2005 long-term debt was due as follows:
(In thousands)
| Fiscal Year |
|
|
|
|
| 2005 |
| $ | 468 |
|
| 2006 |
|
| 2,812 |
|
| 2007 |
|
| 2,131 |
|
| 2008 |
|
| 4,131 |
|
| 2009 |
|
| 89,208 |
|
| Thereafter |
|
| 3,068 |
|
|
|
| $ | 101,818 |
|
Note 4Sale of Joint Venture
Effective December 2004, Spartan Stores sold its 65 percent ownership interest in a retail store to its former joint venture partner. Total consideration of $4.5 million from the transaction was used to reduce outstanding debt. As a result of this sale, Spartan Stores recorded a pre-tax gain of $0.8 million in the third quarter of fiscal 2005 that is included in Other, net on the Consolidated Statements of Operations. Spartan Stores' annualized retail sales and after-tax net earnings from the joint venture approximated $20.0 million and $0.3 million, respectively. Spartan Stores entered into a 10-year distribution supply agreement with the acquirer.
Note 53
Discontinued Operations
Spartan Stores' former convenience distribution operations, insurance operations and certain of its retail, grocery distribution and real estate operations have been recorded as discontinued operations. Results of the discontinued operations are excluded from the accompanying notes to the consolidated financial statements for all periods presented, unless otherwise noted.
(In thousands, except per share data)Discontinued operations had no sales during the quarters ended June 18, 2005 and June 19, 2004. The operating losses of $.2 million for 2005 and 2004 were partially offset by an income tax benefit of $.1 million in 2005 and 2004.
| 16 Weeks Ended |
| 40 Weeks Ended | ||||||||||
| January 1, |
| January 3, |
|
| January 1, |
| January 3, |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales | $ | - |
| $ | 47,872 |
|
| $ | - |
| $ | 311,766 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations | $ | (258 | ) | $ | (706 | ) |
| $ | (702 | ) | $ | (3,562 | ) |
Gain on disposal |
| - |
|
| 223 |
|
|
| - |
|
| 3,585 |
|
Provision for asset impairments and exit costs |
| (1,700 | ) |
| (28 | ) |
|
| (1,700 | ) |
| (6,615 | ) |
Tax benefit |
| 685 |
|
| 503 |
|
|
| 840 |
|
| 2,599 |
|
Loss from discontinued operations | $ | (1,273 | ) | $ | (8 | ) |
| $ | (1,562 | ) | $ | (3,993 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share | $ | (0.06 | ) | $ | (0.00 | ) |
| $ | (0.08 | ) | $ | (0.20 | ) |
Total assets of discontinued operations decreased from $8.3$6.1 million at March 27, 200426, 2005 to $6.6$6.0 million at January 1,June 18, 2005. Total liabilities of discontinued operations decreased from $16.9$14.4 million at March 27, 200426, 2005 to $14.7$14.0 million at January 1,June 18, 2005.
In accordance with Emerging Issues Task Force Issue No. 87-24, "Allocation of Interest to Discontinued Operations," interest was allocated to discontinued operations based on the debt that was required to be repaid as a result of the asset dispositions. Interest expense of $0.3 million and $1.9 million was allocated to, and is included in, Loss from discontinued operations in the Consolidated Statements of Operations for the third quarter and year-to-date period ended January 3, 2004. Interest expense is no longer allocated to discontinued operations as all related debt has been repaid as a result of the disposal of these operations.
Note 64Asset Impairments and Exit Costs
Spartan Stores recorded a provision for asset impairments and exit costs of $1.7 million during the third quarter and year-to-date period ended January 1, 2005 for a pension withdrawal liability from a multi-employer pension plan affiliated with the former discontinuedFood Town supermarkets. The liability is expected to be paid over several years and Spartan Stores does not anticipate any further pension liabilities attributable to our discontinued operations. Discontinued operations recognized pre-tax charges of $6.6 million during the year-to-date period ended January 3, 2004 for asset impairments and exit costs related to transaction costs and severance.
The following table provides the activity of exit costs for fiscal year 20042005 and the forty weeks ended January 1, 2005.first quarter of fiscal 2006. Exit costs recorded in the Consolidated Balance Sheets are included in Other accrued expenses in current liabilities and Other long-term liabilities based on when the obligations are expected to be paid.
(In thousands)
| Lease and |
|
|
|
| ||
|
|
|
|
|
|
|
|
Balance at March 30, 2003 | $ | 18,973 |
|
| $ | 3,866 |
|
Provision for lease and related ancillary costs, net of estimated |
|
|
|
|
|
|
|
Assumption of leases |
| 3,347 |
|
|
|
|
|
Provision for severance |
| - |
|
|
| 3,299 | (a) |
Payments, net of interest accretion |
| (6,560 | ) |
|
| (6,542 | ) |
Balance at March 27, 2004 | $ | 18,338 |
|
| $ | 623 |
|
Provision for pension withdrawal liability |
| 1,700 | (a) |
|
| - |
|
Payments, net of interest accretion |
| (4,164 | ) |
|
| (371 | ) |
Balance at January 1, 2005 | $ | 15,874 |
|
| $ | 252 |
|
| Lease and |
|
|
|
| ||
|
|
|
|
|
|
|
|
Balance at March 28, 2004 | $ | 18,338 |
|
|
|
|
|
Provision for lease and related ancillary costs, net of estimated |
|
|
|
|
|
|
|
Provision for pension withdrawal liability |
| 1,700 | (b) |
|
|
|
|
Payments, net of interest accretion |
| (5,918 | ) |
|
|
|
|
Balance at March 26, 2005 | $ | 15,520 |
|
|
|
|
|
Payments, net of interest accretion |
| (653 | ) |
|
|
|
|
Balance at June 18, 2005 | $ | 14,867 |
|
|
|
|
|
(a) ChargesRecorded in discontinued operations.
(b) Represents a pension withdrawal liability from a multi-employer pension plan affiliated with the former discontinued Food Town supermarkets. The liability is being paid over seven years. Charge was recorded in discontinued operationsoperations.
Note 75
Associate Retirement Plans
The following table provides the components of net periodic pension and postretirement benefit costs for the third quarterfirst quarters of fiscal 2006 and year-to-date periods ended January 1, 2005 and January 3, 2004:2005:
16 Weeks Ended | Pension Benefits |
| SERP Benefits |
| Postretirement Benefits |
| ||||||||||||
| Jan. 1, |
| Jan. 3, |
| Jan. 1, |
| Jan. 3, |
| Jan. 1, |
| Jan. 3, |
| ||||||
Service cost | $ | 798 |
| $ | - |
| $ | 5 |
| $ | - |
| $ | 57 |
| $ | 58 |
|
Interest cost |
| 651 |
|
| 854 |
|
| 9 |
|
| 11 |
|
| 97 |
|
| 100 |
|
Expected return on plan assets |
| (859 | ) |
| (965 | ) |
| - |
|
| - |
|
| - |
|
| - |
|
Net amortization and deferral |
| (137 | ) |
| (89 | ) |
| 3 |
|
| 5 |
|
| (7 | ) |
| (4 | ) |
Settlement expense |
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
Net periodic benefit cost | $ | 453 |
| $ | (200 | ) | $ | 17 |
| $ | 16 |
| $ | 147 |
| $ | 154 |
|
40 Weeks Ended | Pension Benefits |
| SERP Benefits |
| Postretirement Benefits |
| ||||||||||||||||||||||||||||||
|
| Pension Benefits |
| SERP Benefits |
|
| Postretirement Benefits |
| ||||||||||||||||||||||||||||
| Jan. 1, |
| Jan. 3, |
| Jan. 1, |
| Jan. 3, |
| Jan. 1, |
| Jan. 3, |
|
| June 18, |
| June 19, |
| June 18, |
| June 19, |
|
| June 18, |
| June 19, |
| ||||||||||
Service cost | $ | 2,642 |
| $ | - |
| $ | 15 |
| $ | - |
| $ | 171 |
| $ | 174 |
| $ | 753 |
| $ | 797 |
| $ | 4 |
| $ | 5 |
| $ | 53 |
| $ | 57 |
|
Interest cost |
| 1,953 |
| 2,562 |
|
| 26 |
|
| 33 |
|
| 291 |
|
| 300 |
|
| 577 |
| 651 |
| 8 |
| 8 |
|
| 96 |
| 97 |
| |||||
Expected return on plan assets |
| (2,577 | ) |
| (2,895 | ) |
| - |
|
| - |
|
| - |
|
| - |
|
| (723 | ) |
| (859 | ) |
| - |
| - |
|
| - |
| - |
| ||
Net amortization and deferral |
| (411 | ) |
| (267 | ) |
| 9 |
|
| 15 |
|
| (21 | ) |
| (12 | ) |
| (98 | ) |
| (137 | ) |
| 4 |
|
| 3 |
|
| (5 | ) |
| (7 | ) |
Settlement expense |
| - |
|
| - |
|
| - |
|
| 1,444 |
|
| - |
|
| - |
| ||||||||||||||||||
Net periodic benefit cost | $ | 1,607 |
| $ | (600 | ) | $ | 50 |
| $ | 1,492 |
| $ | 441 |
| $ | 462 |
| $ | 509 |
| $ | 452 |
| $ | 16 |
| $ | 16 |
| $ | 144 |
| $ | 147 |
|
Spartan Stores contributed $0.8expects to contribute $3.2 million to its defined benefit plans in fiscal 20052006 to meet the minimum funding requirements. No additional amounts are expectedhave been contributed as of June 18, 2005. In fiscal 2005, Spartan Stores contributed $.8 million to be contributed duringits defined benefit plans.
Note 6
Supplemental Cash Flow Information
Non-cash financing activities include the current fiscal year.issuance of restricted stock to employees and directors of $2.9 million.
Note 87
Operating Segment Information
The following tables set forth information about Spartan Stores by operating segment:
(In thousands)
| Grocery |
|
|
|
|
| Grocery |
|
|
|
|
| ||||||
16 Weeks Ended January 1, 2005 |
|
|
|
|
|
|
|
|
| |||||||||
12 Weeks Ended June 18, 2005 |
|
|
|
|
|
|
|
|
| |||||||||
Net sales | $ | 346,532 |
| $ | 277,985 |
| $ | 624,517 |
| $ | 256,717 |
| $ | 202,603 |
| $ | 459,320 |
|
Depreciation and amortization |
| 2,426 |
|
| 3,745 |
|
| 6,171 |
|
| 2,004 |
|
| 2,873 |
|
| 4,877 |
|
Operating earnings |
| 6,857 |
|
| 4,583 |
|
| 11,440 |
|
| 3,482 |
|
| 2,516 |
|
| 5,998 |
|
Capital expenditures |
| 2,560 |
|
| 7,001 |
|
| 9,561 |
|
| 2,101 |
|
| 1,386 |
|
| 3,487 |
|
16 Weeks Ended January 3, 2004 |
|
|
|
|
|
|
|
|
| |||||||||
12 Weeks Ended June 19, 2004 |
|
|
|
|
|
|
|
|
| |||||||||
Net sales | $ | 362,248 |
| $ | 281,871 |
| $ | 644,119 |
| $ | 260,814 |
| $ | 213,511 |
| $ | 474,325 |
|
Depreciation and amortization |
| 2,486 |
|
| 5,387 |
|
| 7,873 |
|
| 1,944 |
|
| 3,278 |
|
| 5,222 |
|
Operating earnings |
| 7,442 |
|
| (1,343 | ) |
| 6,099 |
|
| 4,739 |
|
| 138 |
|
| 4,877 |
|
Capital expenditures |
| 914 |
|
| 2,528 |
|
| 3,442 |
|
| 2,133 |
|
| 2,384 |
|
| 4,517 |
|
|
|
|
|
|
|
|
|
|
| |||||||||
40 Weeks Ended January 1, 2005 |
|
|
|
|
|
|
|
|
| |||||||||
Net sales | $ | 861,858 |
| $ | 723,685 |
| $ | 1,585,543 |
| |||||||||
Depreciation and amortization |
| 6,302 |
|
| 9,802 |
|
| 16,104 |
| |||||||||
Operating earnings |
| 18,040 |
|
| 11,523 |
|
| 29,563 |
| |||||||||
Capital expenditures |
| 5,844 |
|
| 11,927 |
|
| 17,771 |
| |||||||||
40 Weeks Ended January 3, 2004 |
|
|
|
|
|
|
|
|
| |||||||||
Net sales | $ | 873,413 |
| $ | 724,646 |
| $ | 1,598,059 |
| |||||||||
Depreciation and amortization |
| 6,727 |
|
| 13,341 |
|
| 20,068 |
| |||||||||
Operating (loss) earnings |
| 12,562 |
|
| (83 | ) |
| 12,479 |
| |||||||||
Capital expenditures |
| 2,495 |
|
| 5,120 |
|
| 7,615 |
|
| January 1, |
| March 27, |
| ||
Total assets |
|
|
|
|
|
|
Grocery Distribution | $ | 193,525 |
| $ | 202,984 |
|
Retail |
| 181,120 |
|
| 181,125 |
|
Discontinued operations |
| 6,595 |
|
| 8,341 |
|
Total | $ | 381,240 |
| $ | 392,450 |
|
| June 18, |
| March 26, |
| ||
Total assets |
|
|
|
|
|
|
Grocery Distribution | $ | 187,088 |
| $ | 191,086 |
|
Retail |
| 184,330 |
|
| 187,301 |
|
Discontinued operations |
| 5,984 |
|
| 6,070 |
|
Total | $ | 377,402 |
| $ | 384,457 |
|
ITEM 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations |
Executive Overview
Spartan Stores is a leading regional grocery distributor and grocery retailer, operating principally in Michigan and Ohio.
We currently operate two reportable business segments: Grocery Distribution and Retail. Our Grocery Distribution segment provides a full line of grocery, general merchandise, frozen and perishable items to more thanover 300 independently owned grocery stores and our 7573 corporate owned stores. Our Retail segment operates 54 retail supermarkets in Michigan under the bannersFamily Fare Supermarkets andGlen's Markets, and 2119 deep-discount food and drug stores in Ohio and Michigan under the bannerThe Pharm,and 3 fuel centers under the bannersFamily Fare Quick Stop andGlen's Quick Stop. Our retail supermarkets have a "neighborhood market" focus to distinguish them from supercenters and limited assortment stores. Our deep-discount food and drug stores offer a unique combination of full-service pharmacy, general merchandise products and basic food offerings.
In ourOur Grocery Distribution segment, we believe weand Retail segments' sales and operating performance vary with seasonality. Our first and fourth quarters are improvingtypically our partnerships withslowest sales quarters and therefore operating results are generally lower during these two quarters. Additionally, these two quarters can be affected based on the timing of the Easter holiday, which is a strong sales week. All quarters are 12 weeks, except for our customer base as we continually share best practices that are available through our combined experiencethird quarter, which is 16 weeks and offer new merchandisingincludes the Thanksgiving and promotional programs. We believe that this process will strengthen the "Spartan network." In addition, we are continually improving our private label offerings through our packaging redesign and the significant product line expansion in health and beauty care, natural and organic products and other value added categories. These expansions have been made possible due to our relatively new relationships with Damon Worldwide and Topco.
We remain focused on continually improving our Retail segment's customer shopping experience through the addition of value added services such as fuel centers and pharmacies, the better executionChristmas holidays. Most of our merchandising strategy through category managementnorthern Michigan stores are dependent on tourism and, therefore, most affected by seasons and weather patterns, including, but not limited to, the improvement of physical store appearance. We opened four new in-store pharmaciestemperature and three fuel centersrainfall during the quarter ended January 1, 2005summer months and expect to complete a major store expansion, two store remodels and one minor remodel by the end of fiscal 2005. In addition, we expect to complete two store expansions and store remodels and/or merchandise resets at another 10 to 15 stores during fiscal 2006.
We will be challenged by more supercenter competition entering our markets, but believe that the initiatives we have launched can collectively generate enough growth to offset this impact. We will fully cycle two supercenter openings in the fourth quarter and an additional twolesser extent snowfall during the second and third quarters of fiscal 2006. However, we expect an additional five supercenters to open in markets served by our corporate owned stores during fiscal 2006. We believe these openings are not likely to have the same sales effect as the four opened during fiscal 2005 as two of the openings represent conversions of existing discount stores to supercenters and all of the trade areas impacted already include a supercenter alternative. Also, all of the openings are occurring in markets that will affect primarily only one of our corporate owned stores and at least one other conventional competitor in each market. We have experienced similar historical supercenter openings and we con tinue to show positive supermarket comparable store sales despite this activity. We believe that the growth in supercenter openings will temper following fiscal 2006 and that we will benefit from the improved competitive landscape as weaker competitors exit the market.winter months.
Results of Operations
The following table sets forth items from our Consolidated Statements of OperationsEarnings as a percentage of net sales and the year-to-year percentage change in dollar amounts:
| Percentage of Net Sales |
| Percentage Change |
| ||||||||
|
|
|
|
| 16 Weeks |
| 40 Weeks |
| ||||
| Jan. 1, |
| Jan. 3, |
| Jan. 1, |
| Jan. 3, |
| Jan. 1, |
| Jan. 1, |
|
Net sales | 100.0 |
| 100.0 |
| 100.0 |
| 100.0 |
| (3.0 | ) | (0.8 | ) |
Gross margin | 18.8 |
| 17.9 |
| 18.8 |
| 18.3 |
| 2.0 |
| 1.9 |
|
Selling, general and administrative | 17.0 |
| 16.9 |
| 17.0 |
| 17.5 |
| (2.8 | ) | (4.1 | ) |
Operating earnings | 1.8 |
| 1.0 |
| 1.8 |
| 0.8 |
| 87.6 |
| 136.9 |
|
Other income and expenses, net | 0.3 |
| 0.6 |
| 0.4 |
| 0.6 |
| (45.0 | ) | (37.5 | ) |
Debt extinguishment | 0.1 |
| 1.4 |
| 0.0 |
| 0.6 |
| (93.6 | ) | (93.6 | ) |
Earnings (loss) before income taxes | 1.4 |
| (1.0 | ) | 1.4 |
| (0.4 | ) | * |
| * |
|
Income taxes | 0.5 |
| (0.4 | ) | 0.5 |
| (0.1 | ) | * |
| * |
|
Earnings (loss) from continuing | 0.9 |
| (0.6 | ) | 0.9 |
| (0.3 | ) | * |
| * |
|
Loss from discontinued operations | (0.2 | ) | (0.0 | ) | (0.1 | ) | (0.2 | ) | * |
| (60.9 | ) |
Net earnings (loss) | 0.7 |
| (0.6 | ) | 0.8 |
| (0.5 | ) | * |
| * |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* Percentage change is not meaningful |
|
|
|
|
|
|
|
|
|
|
|
|
| Percentage of Net Sales |
| Percentage Change | |||
| June 18, |
| June 19, |
| Fiscal 2006 / | |
|
|
|
|
| ||
Gross margin | 18.7 |
| 18.1 |
| (.1 | ) |
Selling, general and administrative expenses | 17.4 |
| 17.1 |
| (1.5 | ) |
Operating earnings | 1.3 |
| 1.0 |
| 23.0 |
|
Other income and expenses | 0.4 |
| 0.5 |
| (24.1 | ) |
Earnings before income taxes and discontinued operations | 0.9 |
| 0.5 |
| 63.8 |
|
Income taxes | 0.3 |
| 0.2 |
| 60.2 |
|
Earnings from continuing operations | 0.6 |
| 0.3 |
| 65.7 |
|
Loss from discontinued operations | (0.0 | ) | (0.0 | ) | 11.6 |
|
Net earnings | 0.6 |
| 0.3 |
| 70.8 |
|
Net Sales -Net sales for the quarter ended January 1,June 18, 2005 ("thirdfirst quarter") decreased $19.6$15.0 million, or 3.03.2 percent, from $644.1$474.3 million in the quarter ended January 3,June 19, 2004 ("prior year thirdfirst quarter") to $624.5 million. Net sales for the year-to-date period ended January 1, 2005 ("current year-to-date") decreased $12.5 million, or 0.8 percent, from $1,598.0 million in the prior year-to-date period ended January 3, 2004 ("prior year-to-date") to $1,585.5$459.3 million.
Net sales for the thirdfirst quarter in our Grocery Distribution segment decreased $15.7$4.1 million, or 4.31.6 percent, from $362.2$260.8 million in the prior year thirdfirst quarter to $346.5$256.7 million. Net sales for the current year-to-date period decreased $11.5 million, or 1.3 percent, from $873.4 millionThe transition of two customers to new suppliers in the prior year-to-date period to $861.9 million. Theyear second quarter resulted in a sales decrease inof approximately $5.0 million and the third quarter was primarily dueEaster holiday shift reduced sales by approximately $3.0 million. Partially offsetting these decreases were general sales increases to the following:
|
| |
|
| |
|
| |
|
|
These declines were partially offset by net new business and incremental sales from the shift in our fall private label sale. The sales decrease for the year-to-date period was due primarily to the same factors mentioned above.existing customers.
Net sales for the thirdfirst quarter in our Retail segment decreased $3.9$10.9 million, or 1.45.1 percent, from $281.9$213.5 million in the prior year first quarter to $202.6 million. The decrease was primarily due to competitive supercenter openings ($7.0 million), the sale of a single store joint venture in the third quarter to $278.0 million. Net sales forof fiscal 2005 and the year-to-date period decreased $1.0 million, or 0.1 percent, from $724.6 millionclosure of oneThe Pharm retail store ($6.0 million) and the shift in the prior year-to-date periodEaster holiday from the first quarter to $723.6 million. Sales decreases were due to
reducedthe fourth quarter of fiscal 2005 ($3.0 million). Excluding the shift in the Easter holiday sales, comparable store sales at supermarkets declined 0.5 percent during the first quarter, while comparable store sales at ourThe Pharm deep-discount food and drug stores anddeclined 5.0 percent. Excluding the sale of our joint venture in a retail store, which resulted in a sales decline of approximately $0.6 million during the third quarter and year-to-date period, partially offset by sales increases at our supermarkets.
Comparable store sales at our supermarkets increased 0.9 percent in the third quarter and 2.1 percent for the year-to-date period, despite four competitor supercenter store openings during the past four quarters. Sales increased 0.8 percent in the third quarter and 0.7 percent year-to-date due to a change in the recording of bottle deposits as a liability when sold and an asset when returned, rather than a net reduction in sales as was done in previous fiscal years, as supermarkets typically receive more returns of bottles than originally sold. This change has no impact on reported gross margin dollars. We believe this revised reporting method better reflects the true sales performance of our stores. The remaining sales increases were due primarily to continued improvements in marketing, merchandising and operations and contributions from new in-store pharmacies and fuel centers. These increases were partially offset by lower prescription sales at certain in-store pharma cies due to the UAW mail-order mandate.
Comparable store sales at our deep-discount food and drug stores decreased 8.9 percent in the third quarter and 6.6 percent year-to-date. The sales decreases were primarily due to lower prescription sales as a result of the UAW mail-order mandate and the resulting effect on front-end sales. Also contributing to the decrease were the strong sales gains recorded in the prior year's third quarter due to aggressive promotions and the cycling of customers from the previous year'sFood Town store closings. On a two-year basis, which we believe more appropriately reflects the long-term effect of our retailing strategies,Easter holiday shift, comparable store sales at our deep-discount food and drug storessupermarkets not affected by competitive openings increased 3.3 percent. Sales from a fuel center contributed 0.6 percent forto the third quarter and 2.2increase. Total retail comparable store sal es decreased 2.8 percent forwith the year-to-date period.Easter shift resulting in a decrease in comparable sales of 1.4 percent, while fuel center sales increased comparable store sales 1.0 percent.
Gross Margin- Gross margin represents sales less cost of sales, which include purchase costs and promotionalvendor allowances. Vendor allowances that relate to our 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 our merchandising costs, such as setting up warehouse infrastructure. Vendor allowances are recognized as a reduction in cost of sales when the product is sold. Lump sum payments received for multi-year contracts are amortized over the life of the contracts based on contractual terms.
Gross margin for the thirdfirst quarter increased $2.3 million, or 2.0 percent, from $115.1 million in the prior year third quarter to $117.4was relatively flat at $85.8 million. As a percent of net sales, gross margin for the thirdfirst quarter increased from 17.9 percent to 18.8 percent. Gross margin for the year-to-date period increased $5.6 million, or 1.918.7 percent from $292.7 million in the prior year-to-date period to $298.3 million. As a percent of net sales, gross margin for the year-to-date period increased from 18.3 percent to 18.818.1 percent. The gross margin rate improvement for the third quarter and the year-to-date period was partiallyprimarily due to a $2.3 million favorable supply contract settlementan improvement in inventory shrink at the Retail segment receivedsegment. This improvement was enabled by the retail inventory stock ledger and margin management tools put in place at the third quarter. This settlement increased consolidated net margin by 40 basis points and 10 basis points forbeginning of fiscal 2005 coupled with a focus on improving shrink throughout the third quarter and year-to-date period, respectively. The settlement was due to a favorable costing adjustment that accumulated during the past three years, includin g $0.6 million attributable to fiscal 2005. We believe the new contract signed in conjunction with the settlement will favorably affect future gross margin. In addition, more targeted promotional strategies at our deep-discount food and drug stores and improved merchandising execution at our Grocery Distribution segment has improved gross margin for the third quarter and year-to-date period. These increases were partially offset by gross margin declines at our supermarkets during the third quarter and year-to-date period.operations.
Selling, General and Administrative Expenses - Selling, general and administrative ("SG&A") expenses consist primarily of salaries and wages, employee benefits, warehousing costs, store occupancy costs, utilities, equipment rental, depreciation and other administrative costs.
SG&A expenses for the thirdfirst quarter decreased $3.1$1.2 million, or 2.81.5 percent, from $109.0$81.0 million in the prior year thirdfirst quarter to $105.9$79.8 million. As a percent of net sales, SG&A expenses for the first quarter was 17.4 percent versus 17.1 percent in the prior year quarter. The decrease in SG&A is primarily due to improvements in store labor efficiency resulting in a decrease in store labor expense of $1.9 million (including the divestiture of the retail store joint venture in the third quarter increased from 16.9 percent to 17.0 percent. SG&A expenses for the year-to-date period decreased $11.5 million, or 4.1 percent, from $280.2 million in the prior year-to-date period to $268.8 million. As a percent of net sales, SG&A expenses year-to-date improved from 17.5 to 17.0 percent.
fiscal 2005 of $.6 million). The decreases in SG&A are primarily due to the following:
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
These decreases arestore labor improvements were partially offset by increases in employee benefit and transportation costs, including the reinstatementasset impairment charges of service credits for the cash balance pension plan during fiscal 2005 and increased fuel costs in our Grocery Distribution segment.$.4 million.
Interest Expense - Interest expense for the thirdfirst quarter decreased $0.8$.5 million, or 21.022.8 percent, from $3.7$2.3 million in the prior year thirdfirst quarter to $2.9 million. Interest expense for the year-to-date period decreased $3.3 million, or 30.7 percent, from $10.8 million in the prior year-to-date period to $7.5$1.8 million. The decrease in interest expense is primarily due to more favorable interest rates under our current bank agreement, bank waiver fees of $1.9 million incurred in the prior year-to-date period and lower total average borrowings.borrowings and lower interest rates. Total average borrowings for the first quarter decreased $67.6$29.7 million from $182.9$119.9 million in the prior year first quarter to $115.3$90.2 million as a result of debt repayments resulting primarily from the sale of our discontinued operations and cash generatedflow from operations.
In accordance with Emerging Issues Task Force Issue No. 87-24, "Allocation of Interest to Discontinued Operations," interest was allocated to discontinued operations based on the debt that was required to be repaid as a result of the assets dispositions. Interest expense of $0.3 million and $1.9 million was allocated to, and is included in, loss on discontinued operations in the Consolidated Statements of Operations for the prior year third quarter and year-to-date period. Interest expense is no longer allocated to discontinued operations as all related debt has been repaid as a result of the disposal of these operations.
Debt Extinguishment -We recorded a $0.6 million and $8.8 million pre-tax, non-cash charge for the write-off of unamortized financing fees during the third quarter and prior year third quarter, respectively, as result of amending and/or refinancing our senior borrowing facilities during both of those quarters.
Other, net -Other, net includes interest income and gains and losses on the sale of assets.
Effective December 2004, Spartan Stores sold its 65 percent ownership interest in a retail store to its former joint venture partner. Total consideration of $4.5 million from the transaction was used to reduce outstanding debt. As a result of this sale, Spartan Stores recorded a pre-tax gain of $0.8 million in the third quarter of fiscal 2005 that is included in Other, net on the Consolidated Statements of Operations. Spartan Stores' annualized retail sales and after-tax net earnings from the joint venture approximated $20.0 million and $0.3 million, respectively. Spartan Stores entered into a 10-year distribution supply agreement with the acquirer. While future reported retail sales will be lower due to the sale, our prior comparable store sales guidance is not impacted, as sales from the joint venture were not included in our comparable store sales totals.
Discontinued Operations
Our former convenience distribution operations, insurance operations and certain of our retail, grocery distribution and real estate operations have been recorded as discontinued operations. Results of the discontinued operations are excluded from the accompanying notes to the consolidated financial statements for all periods presented, unless otherwise noted.
| 16 Weeks Ended |
| 40 Weeks Ended | ||||||||||
| January 1, |
| January 3, |
|
| January 1, |
| January 3, |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales | $ | - |
| $ | 47,872 |
|
| $ | - |
| $ | 311,766 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations | $ | (258 | ) | $ | (706 | ) |
| $ | (702 | ) | $ | (3,562 | ) |
Gain on disposal |
| - |
|
| 223 |
|
|
| - |
|
| 3,585 |
|
Provision for asset impairments and exit costs |
| (1,700 | ) |
| (28 | ) |
|
| (1,700 | ) |
| (6,615 | ) |
Tax benefit |
| 685 |
|
| 503 |
|
|
| 840 |
|
| 2,599 |
|
Loss from discontinued operations | $ | (1,273 | ) | $ | (8 | ) |
| $ | (1,562 | ) | $ | (3,993 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share | $ | (0.06 | ) | $ | (0.00 | ) |
| $ | (0.08 | ) | $ | (0.20 | ) |
Discontinued operations had no sales during the quarters ended June 18, 2005 and June 19, 2004. The operating losses of $.2 million for 2005 and 2004 were partially offset by an income tax benefit of $.1 million in 2005 and 2004.
Total assets of discontinued operations decreased from $8.3$6.1 million at March 27, 200426, 2005 to $6.6$6.0 million at January 1,June 18, 2005. Total liabilities of discontinued operations decreased from $16.9$14.4 million at March 27, 200426, 2005 to $14.7$14.0 million at January 1,June 18, 2005.
Liquidity and Capital Resources
The following table summarizes our consolidated statements of cash flows for the year-to-datefirst quarter and prior year-to-date periods:year first quarter:
| January 1, |
|
| January 3, |
|
| June 18, |
|
| June 19, |
|
| ||||
Net cash provided by operating activities | $ | 47,819 |
|
| $ | 17,903 |
|
| $ | 11,106 |
|
| $ | 23,013 |
|
|
Net cash used in investing activities |
| (15,144 | ) |
|
| (7,068 | ) |
|
| (3,185 | ) |
|
| (4,346 | ) |
|
Net cash used in financing activities |
| (26,896 | ) |
|
| (9,400 | ) |
|
| (8,419 | ) |
|
| (18,236 | ) |
|
Net cash used in discontinued operations |
| (4,041 | ) |
|
| (6,737 | ) |
|
| (1,015 | ) |
|
| (1,033 | ) |
|
Net increase (decrease) in cash and cash equivalents |
| 1,738 |
|
|
| (5,302 | ) |
| ||||||||
|
|
|
|
|
|
|
|
| ||||||||
Net decrease in cash and cash equivalents |
| (1,513 | ) |
|
| (602 | ) |
| ||||||||
Cash and cash equivalents at beginning of year |
| 12,838 |
|
|
| 23,306 |
|
|
| 14,880 |
|
|
| 12,838 |
|
|
Cash and cash equivalents at end of period | $ | 14,576 |
|
| $ | 18,004 |
|
| ||||||||
Cash and cash equivalents at end of year | $ | 13,367 |
|
| $ | 12,236 |
|
|
Net cash provided by operating activities increased during the year-to-date periodfirst quarter were less than the prior year primarily due to the significant net improvementchange in our investment in working capital due to the timing and an improvement in net earnings.composition of trade payables during the prior year first quarter.
Net cash used in investing activities increaseddecreased during the current fiscal yearfirst quarter primarily due to increaseddecreased capital expenditure activity. CapitalOur Grocery Distribution and Retail segments utilized 60% and 40%, respectively, of our capital expenditure dollarsdollars. Expenditures were used 67 percent in our Retail segment and 33 percent in our Grocery Distribution segment in the current year-to-date period and were used primarily for store refurbishments, in-store pharmacy construction, fuel center construction and purchase, new equipment, software and information technology enhancements. We expect to complete a major store expansion, two store remodels and one minor remodel by the end of fiscal 2005. Although we are not currently governed by the capital expenditure
restrictions underrefurbishments. Under the terms of our amended senior secured revolving credit facility and our supplemental secured credit facility ("credit facility"facilities"), should our available borrowings fall below certain levels, our capital expenditures would be restricted each fiscal year. We expect capital expenditures to be approximately $22.0approximate $27 million to $25.0$29 million for fiscal 2005,2006 which would be below the restriction.within these restrictions. We are not currently limited by these restrictions.
Net cash used in financing activities primarily includes cash paid and received related tofrom our long-term borrowings and the payment of financing fees associated with bank financing.borrowings. Our current maturities of long-term debt at January 1,June 18, 2005 are $2.8 million. Our ability to borrow additional funds is governed by the terms of our amended credit facility.facilities.
Net cash used in discontinued operations contains the net cash flows of our discontinued operations and consists primarily of net proceeds received on the sale of assets, net of identifiable debt repayments, the payment of store exit cost reserves and the payment of severance and related benefit accruals of employees that previously worked for discontinued operations. We expect the cash usage of our discontinued operations will be approximately $5.5$3.0 million in fiscal 20052006 for the payment of store exit costs and other liabilities.
Our principal sources of liquidity are cash flows generated from operations and our amended $215.0 million credit facility. The credit facility matures December 2008, and is secured by substantially all of our assets. We had available borrowings of $58.9$83.5 million at January 1,June 18, 2005 and maximum availability of $68.9$93.5 million, which exceeds the minimum excess availability levels, as defined in the credit agreement.agreements. We believe that cash generated from operating activities and available borrowings under the credit facilityfacilities are sufficient to support current operations.
Our current ratio was 1.27:1.21:1.00 at January 1,June 18, 2005 versus 1.30:1.00 atand March 27, 200426, 2005 and our investment in working capital decreased slightly to $35.6$29.6 million at January 1,June 18, 2005 from $39.3$30.3 million at March 27, 2004.26, 2005.
Our long-term debt to total capital ratio at January 1,June 18, 2005 was 0.46:.40:1.00 versus 0.55:.43:1.00 at March 27, 2004.26, 2005. This improvement was primarily due to reducing long-term debt by $27.0$8.7 million and the first quarter net earnings of $13.0$2.7 million.
For information on contractual obligations, see our 20042005 Annual Report on Form 10-K. At January 1,June 18, 2005, there have been no other material changes to our significant contractual obligations outside the ordinary course of business other than the amendment of our senior secured revolving credit facility and the termination of our supplemental secured credit facility. The table below presents our long-term debt maturities as of January 1, 2005:business.
| Fiscal Year |
|
|
|
|
| 2005 |
| $ | 468 |
|
| 2006 |
|
| 2,812 |
|
| 2007 |
|
| 2,131 |
|
| 2008 |
|
| 4,131 |
|
| 2009 |
|
| 89,208 |
|
| Thereafter |
|
| 3,068 |
|
|
|
| $ | 101,818 |
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New Accounting Standards
In December 2004, the Financial Accounting Standards Board ("FASB") issued SFAS No. 123(R), "Share-Based Payment" that will require compensation costs related to share-based payment transactions to be recognized in the consolidated financial statements. With limited exceptions, the amount of compensation cost will be measured based on the grant date fair value of the equity or liability instruments issued. In addition, liability awards will be remeasured each reporting period. Compensation cost will be recognized over the period that an employee provides services in exchange for the award. SFAS No. 123(R) replaces SFAS No. 123, "Accounting for Stock-Based Compensation," and supercedes APB Opinion No. 25, "Accounting for Stock Issued to Employees."25. This Statement becomes
effective for Spartan Stores at the beginning of our second quarter in fiscal 2006.2007. We expect that the impact of adopting the FASSFAS No. 123(R) will be consistent with the pro forma expense that has been previously disclosed, adjusted for future grants, cancellations and exercises of stock options in accordance withwi th the Statement.
In May 2004, the FASB issued FSP FAS 106-2, "Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003." FSP FAS 106-2 provides guidance on the accounting, disclosure, effective date and transition rules related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003. FSP FAS 106-2 was adopted in the second quarter of fiscal 2005 and did not have a significant impact on the financial statements.
Critical Accounting Policies
This discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts. On an ongoing basis, we evaluate our estimates, including those related to bad debts, inventories, intangible assets, assets held for sale, long-lived assets, income taxes, self-insurance reserves, exit costs, retirement benefits and contingencies and litigation. We base our estimates on historical experience and on various other assumptions and factors that we believe to be reasonable under the circumstances. Based on our ongoing review, we make adjustments we consider appropriate under the facts and circumstances. We have discussed the development, selection and disclosure of these estimates with the Audit Committee. The accompanying condensed consolidated financial statements are prepared using the same critical accounting policies discussed in our 20042005 Annual Report on Form 10-K; however, the sensitivity of those analyses can differ during the fiscal year based on changes in the underlying facts and circumstances used to calculate the estimates. We evaluate each of these estimates on a quarterly basis and different assumptions or additional changes in the underlying facts and circumstances may cause charges to be recorded in the future.10-K.
ITEM 3. | Quantitative and Qualitative Disclosure About Market Risk |
There were no material changes in market risk of Spartan Stores fromin the end of the latest fiscal year to the date of the balance sheet inperiod covered by this report.Quarterly Report on Form 10-Q.
ITEM 4. | Controls and Procedures |
Spartan Stores' Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of Spartan Stores' disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this Quarterly Report on Form 10-Q (the "Evaluation Date"). Based on the evaluation of those controls and procedures required by Rule 13a-15(b), they have concluded that Spartan Stores' disclosure controls and procedures were adequate and effective as of the Evaluation Date. During the last fiscal quarter there was no change in Spartan Stores' internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, Spartan Stores' internal control over financial reporting.
PART II
OTHER INFORMATION
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Various lawsuits and claims, arising in the ordinary course of business, are pending or have been asserted against Spartan Stores and its subsidiaries. While the ultimate effect of such lawsuits and claims cannot be predicted with certainty, management believes that their outcome will not result in a material adverse effect on the consolidated financial position, operating results or liquidity of Spartan Stores.
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Not applicable.
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Not applicable.
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Not applicable.
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None.
ITEM 6. | Exhibits |
| (a) | Exhibits: The following documents are filed as exhibits to this Quarterly Report on Form 10-Q: |
Exhibit Number |
| Document |
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3.1 |
| Amended and Restated Articles of Incorporation of Spartan Stores, Inc. Previously filed as Annex B to the prospectus and joint proxy statement contained in Spartan Stores' Pre-Effective Amendment No. 1 to Registration Statement on Form S-4, filed on June 5, 2000. Here incorporated by reference. |
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3.2 |
| Amended and Restated Bylaws of Spartan Stores, Inc. Previously filed as an exhibit to Spartan Stores' Quarterly Report on Form 10-Q for the quarter ended September 13, 2003. Here incorporated by reference. |
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10.1 | Spartan Stores Form 8-K/A dated May 11, 2005, and the forms of Stock Option Grant to officers, Restricted Stock Award to officers and Restricted Stock Award to outside directors filed as Exhibits 10.1, 10.2 and 10.3 to that report are here incorporated by reference. | |
31.1 |
| Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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31.2 |
| Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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32.1 |
| Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| SPARTAN STORES, INC. | |
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Date: | By | /s/ David M. Staples |
| David M. Staples |
EXHIBIT INDEX
Exhibit Number |
| Document |
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| |
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| |
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| |
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3.1 |
| Amended and Restated Articles of Incorporation of Spartan Stores, Inc. Previously filed as Annex B to the prospectus and joint proxy statement contained in Spartan Stores' Pre-Effective Amendment No. 1 to Registration Statement on Form S-4, filed on June 5, 2000. Here incorporated by reference. |
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3.2 |
| Amended and Restated Bylaws of Spartan Stores, Inc. Previously filed as an exhibit to Spartan Stores' Quarterly Report on Form 10-Q for the quarter ended September 13, 2003. Here incorporated by reference. |
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10.1 | Spartan Stores Form 8-K/A dated May 11, 2005, and the forms of Stock Option Grant to officers, Restricted Stock Award to officers and Restricted Stock Award to outside directors filed as Exhibits 10.1, 10.2 and 10.3 to that report are here incorporated by reference. | |
31.1 |
| Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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31.2 |
| Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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32.1 |
| Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |