SpartanNash (SPTN) 10-Q 2001 Q4 Quarterly report

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 December 30, 2000.

OR

[  ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from ______________ to ______________.

Commission File Number:  000-31127

SPARTAN STORES, INC.
(Exact Name of Registrant as Specified in Its Charter)

Michigan (State or Other Jurisdiction of Incorporation or Organization)	38-0593940 (I.R.S. Employer Identification No.)
850 76th Street, SW P.O. Box 8700 Grand Rapids, Michigan (Address of Principal Executive Offices)	49518 (Zip Code)
(616) 878-2000 (Registrant's Telephone Number, Including Area Code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes   X  No     

As of January 12, 2001, the registrant had 19,390,584 outstanding shares of common stock, no par value.

PART I
FINANCIAL INFORMATION

ITEM 1. Financial Statements

SPARTAN STORES, INC. AND SUBSIDIARIES Consolidated Balance Sheets (In thousands, except per share data) (Unaudited)
ASSETS		December 30, 2000		March 25, 2000
Current assets:
Cash and cash equivalents	$	64,025	$	36,422
Marketable securities		20,780		20,628
Accounts receivable, net		89,042		83,998
Inventories		196,796		105,587
Prepaid expenses		7,780		4,736
Deferred income taxes		5,367		5,409
Total current assets		383,790		256,780
Property and equipment, net		269,333		178,591
Other assets:
Goodwill, net		122,008		99,075
Other		39,335		36,127
Total other assets		161,343		135,202
Total assets	$	814,466	$	570,573
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	151,337	$	82,186
Accrued payroll and benefits		39,471		24,530
Insurance reserves		20,844		14,718
Other accrued expenses		27,179		23,036
Current maturities of long-term debt		28,660		23,862
Total current liabilities		267,491		168,332
Deferred income taxes		12,331		5,212
Other long-term liabilities		11,251		4,951
Long-term debt		307,156		266,071
Commitments and contingencies		-		-
Shareholders' equity:
Common stock, voting, no par value;
50,000 shares authorized; 19,391 shares outstanding		111,091		-
Preferred stock, non-voting, no par value;
10,000 authorized; no shares issued or outstanding		-		-
Class A common stock, voting, par value $2.00 per share;
20,000 shares authorized; 9,919 shares outstanding		-		19,838
Additional paid-in capital		-		14,240
Retained earnings		105,146		91,929
Total shareholders' equity		216,237		126,007
Total liabilities and shareholders' equity	$	814,466	$	570,573

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SPARTAN STORES, INC. AND SUBSIDIARIES Consolidated Statements of Earnings (In thousands, except per share data) (Unaudited)
		Third Quarter (16 Weeks) Ended
		December 30, 2000		January 1, 2000
Net sales	$	1,140,070	$	954,885
Cost of sales		947,304		828,684
Gross profit		192,766		126,201
Operating expenses:
Selling, general and administrative		171,609		114,736
Restructuring charge		1,000		(5,540	)
Total operating expenses		172,609		109,196
Operating income		20,157		17,005
Non-operating expense (income):
Interest expense		9,682		7,617
Interest income		(2,494	)	(2,425	)
Other losses		854		958
Total non-operating expense, net		8,042		6,150
Earnings before income taxes		12,115		10,855
Income taxes		4,812		4,064
Net earnings	$	7,303	$	6,791
Basic and diluted net earnings per share	$	0.37	$	.51
Weighted average shares outstanding:
Basic		19,498		13,320
Diluted		19,498		13,326

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SPARTAN STORES, INC. AND SUBSIDIARIES Consolidated Statements of Earnings (In thousands, except per share data) (Unaudited)
		Year-to-Date (40 Weeks) Ended
		December 30, 2000		January 1, 2000
Net sales	$	2,650,540	$	2,358,311
Cost of sales		2,238,065		2,049,257
Gross profit		412,475		309,054
Operating expenses:
Selling, general and administrative		361,845		274,285
Restructuring charge		1,000		(4,748	)
Total operating expenses		362,845		269,537
Operating income		49,630		39,517
Non-operating expense (income):
Interest expense		23,625		19,419
Interest income		(4,639	)	(4,640	)
Other gains		(2,362	)	(1,721	)
Total non-operating expense, net		16,624		13,058
Earnings before income taxes		33,006		26,459
Income taxes		12,963		9,605
Net earnings	$	20,043	$	16,854
Basic and diluted net earnings per share	$	1.20	$	1.25
Weighted average shares outstanding:
Basic		16,677		13,483
Diluted		16,678		13,489

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SPARTAN STORES, INC. AND SUBSIDIARIES Consolidated Statements of Shareholders' Equity (In thousands, except per share data) (Unaudited)
		Common Stock		Class A Common Stock		Additional Paid-In Capital		Retained Earnings
Balance - March 28, 1999	$	-	$	21,689	$	13,815	$	85,558
Class A common stock transactions:
300 shares issued		-		600		3,333		-
1,225 shares purchased		-		(2,451	)	(2,908	)	(10,320	)
Net earnings		-		-		-		17,194
Cash dividends - $0.05 per share		-		-		-		(503	)
Balance - March 25, 2000	$	-	$	19,838	$	14,240	$	91,929
Class A common stock transactions:
53 shares issued		-		105		596		-
1 shares purchased		-		(2	)	(11	)	-
Net earnings		-		-		-		20,043
Cash dividends - $0.0125 per share		-		-		-		(125	)
Stock dividend - 0.336 per share -
3,350 shares issued		-		6,701		-		(6,701	)
Conversion to no par Common Stock		41,467		(26,642	)	(14,825	)	-
Common Stock transactions -
6,264 shares issued		70,908		-		-		-
195 shares purchased		(1,284	)	-		-		-
Balance - December 30, 2000	$	111,091	$	-	$	-	$	105,146

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SPARTAN STORES, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (In thousands) (Unaudited)
		Year-to-Date (40 Weeks) Ended
		December 30, 2000		January 1, 2000
Cash flows from operating activities:
Net earnings	$	20,043	$	16,854
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization		28,699		25,809
Restructuring charge		1,000		(4,748	)
Postretirement benefits other than pensions		100		200
Deferred taxes on income		(252	)	(268	)
Other gains		(2,362	)	(1,721	)
Change in assets and liabilities, net of acquisitions:
Marketable securities		(152	)	1,889
Accounts receivable		6,040		(7,357	)
Inventories		(15,138	)	2,584
Prepaid expenses		(2,339	)	1,090
Accounts payable		8,586		(4,980	)
Accrued payroll and benefits		956		(394	)
Insurance reserves		609		869
Other accrued expenses		(5,911	)	7,964
Net cash provided by operating activities		39,879		37,791
Cash flows from investing activities:
Purchases of property and equipment		(14,725	)	(14,239	)
Proceeds from the sale of property and equipment		9,153		6,012
Decrease in restricted cash		-		78,144
Acquisitions, net of cash acquired and deposits		(51,792	)	(101,267	)
Other		1,268		2,326
Net cash used in investing activities		(56,096	)	(29,024	)
Cash flows from financing activities:
Proceeds from long-term borrowings		64,559		2,685
Repayment of long-term debt		(20,018	)	(7,448	)
Proceeds from sale of common stock		701		3,293
Class A common stock purchased		(13	)	(8,208	)
Common stock purchased		(1,284	)	-
Dividends paid		(125	)	(379	)
Net cash provided by (used in) financing activities		43,820		(10,057	)
Net increase (decrease) in cash and cash equivalents		27,603		(1,290	)
Cash and cash equivalents at beginning of period		36,422		44,112
Cash and cash equivalents at end of period	$	64,025	$	42,822

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SPARTAN STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Note 1
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.

The information contained in the consolidated financial statements is unaudited. The statements reflect all adjustments which, in the opinion of management, are necessary for a fair statement of the results of the interim periods presented. All such adjustments are of a normal, recurring nature.

The accounting policies followed in the presentation of interim financial results are the same as those followed on an annual basis. These policies are presented in Note 1 to the Consolidated Financial Statements included in Spartan Stores' Annual Report on Form 10-K for the fiscal year ended March 25, 2000, filed with the Securities and Exchange Commission on June 20, 2000.

Certain prior year amounts have been reclassified to conform to current year classifications.

Note 2
New Accounting Standards

During the third quarter of fiscal year 2001, the Company adopted Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial Statements." SAB No. 101 provides guidance on recognition, presentation, and disclosure of revenue in financial statements. The adoption of SAB No. 101 did not have a material impact on Spartan Stores' financial position and results of operations.

Note 3
Acquisitions and Divestitures

On August 1, 2000, Spartan Acquisition Corp., a wholly owned subsidiary of Spartan Stores, consummated a merger with Seaway Food Town, Inc. ("Food Town"). Upon consummation of the merger, the name of Spartan Acquisition Corp. was changed to Seaway Food Town, Inc. Food Town is a leading regional supermarket chain that operates 47 supermarkets and 26 deep discount drugstores predominantly in northwest and central Ohio and southeast Michigan.

The merger was accounted for as a purchase and, accordingly, the acquired assets and assumed liabilities are included in the accompanying consolidated balance sheet at values representing an allocation of the purchase price. On August 1, 2000, 6.7 million shares of outstanding Food Town common stock were converted into the right to receive one share of Spartan Stores common stock and $5.00 in cash. The holders of 448,835 shares of Food Town common stock provided notice of dissent from the merger. If dissenting shareholders exercise their dissenters' rights in accordance with the requirements of Ohio law, Spartan Stores will pay the fair cash value of their dissenting shares as determined by agreement or, in the absence of agreement, by a court of law. Spartan Stores incurred $63.8 million in long-term senior secured debt to finance the cash consideration portion of the merger, merger-related transaction costs and the retirement of Food Town's total debt outstanding through the acquisition facility within Spartan's senior secured bank credit facility. As of December 30, 2000, interest under this acquisition facility was at the 90-day Eurodollar rate plus 2.5%. Additionally, the

6
company assumed certain operating liabilities approximating $97.3 million. Included in these liabilities is approximately $5.6 million in severance costs. Severance costs consist of obligations to employees who were terminated or were notified of termination under a plan authorized by senior management. The excess of the purchase price over the valuation of Food Town's tangible assets and liabilities amounted to approximately $24.7 million and was assigned to goodwill. Goodwill is being amortized on a straight-line basis over the estimated period benefited of forty years.

The operations of Food Town are included in the accompanying Consolidated Statements of Earnings from the date of acquisition. The following unaudited pro forma information presents summary Consolidated Statements of Earnings data of Spartan Stores as if the acquisition of Food Town had occurred at the beginning of the earliest period presented. The pro forma information has also been adjusted to give effect to acquisitions previously made by Spartan Stores as if the transactions had occurred at the beginning of the periods presented. During the third quarter ended January 1, 2000, the Company reversed a restructuring charge accrual of $5.5 million which is included in the pro forma amounts presented below. These pro forma results have been prepared for comparative purposes only and do not purport to be indicative of results which would have actually been reported had the acquisitions taken place on the dates indicated or which may be reported in the future.

(in thousands, except per share data)		Third Quarter (16 Weeks) Ended				Year-to-Date (40 Weeks) Ended
Pro Forma		December 30, 2000		January 1, 2000		December 30, 2000		January 1, 2000
Net sales	$	1,140,070	$	1,172,206	$	2,909,374	$	2,912,531
Net earnings	$	7,303	$	8,112	$	24,292	$	20,011
Basic and diluted net
earnings per share	$	.37	$	.41	$	1.24	$	1.01

On January 12, 2001, the Company sold its insurance agency business, Shield Insurance Services, Inc., effective December 31, 2000 and anticipates a gain to be recognized during the fourth quarter. The Company still retains the underwriting, safety and claims component of Shield Insurance Services. Year-to-date revenue and net loss for Shield Insurance Services are $2.4 and $.1 million, respectively. Management continues to evaluate alternatives for its remaining insurance segment.

On January 18, 2001, the Company signed a definitive agreement to purchase all of the issued and outstanding shares of Prevo's Family Markets, Inc. ("Prevo's"). Prevo's is a leading regional supermarket chain operating ten supermarkets in northern and western Michigan. The acquisition is expected to be consummated in March 2001 and will be accounted for as a purchase.

Note 4
Restructuring Charge

During the third quarter, the convenience store distribution segment announced the closure of its Sandusky, Ohio distribution center by the end of February 2001. As of December 30, 2000, $1 million has been accrued for the write-down of certain assets as well as severance pay, benefit continuation and outplacement assistance for affected associates.

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Note 5
Impairment of Long-Lived Assets

During the third quarter ended December 30, 2000, the grocery store distribution segment recognized an impairment loss of $1.1 million on certain technology related equipment. The impairment loss is recorded in other gains and losses in the accompanying Consolidated Statements of Earnings.

Note 6
Leases

In connection with Spartan Stores' acquisition of Food Town, Spartan Stores assumed a number of operating leases. Future minimum obligations under those operating leases are as follows:

(In thousands)
Year ending March,
2001	$	7,780
2002		7,248
2003		6,382
2004		5,186
2005		3,415
Later		11,340
Total future minimum obligations	$	41,351

Rent expense for the year-to-date period ended December 30, 2000 under these leases amounted to approximately $3.2 million.

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Note 7
Operating Segment Information

The following tables set forth information required by Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosures About Segments of an Enterprise and Related Information."

		Third Quarter (16 Weeks) Ended
(In thousands)		December 30, 2000 (Unaudited)		January 1, 2000 (Unaudited)
Net sales
Retail grocery	$	433,723	$	175,162
Grocery store distribution		428,862		493,058
Convenience store distribution		271,687		280,167
Insurance		3,814		3,955
Real estate		1,984		2,543
Total	$	1,140,070	$	954,885

		Year-to-Date (40 Weeks) Ended
(In thousands)		December 30, 2000 (Unaudited)		January 1, 2000 (Unaudited)
Net sales
Retail grocery	$	823,377	$	408,798
Grocery store distribution		1,104,894		1,211,168
Convenience store distribution		705,398		718,152
Insurance		9,821		12,463
Real estate		7,050		7,730
Total	$	2,650,540	$	2,358,311

		Third Quarter (16 Weeks) Ended
(In thousands)		December 30, 2000 (Unaudited)		January 1, 2000 (Unaudited)
Earnings before income taxes
Retail grocery	$	4,116	$	(2,482	)
Grocery store distribution		4,351		10,158
Convenience store distribution		2,427		3,004
Insurance		419		744
Real estate		802		(569	)
Total	$	12,115	$	10,855

		Year-to-Date (40 Weeks) Ended
(In thousands)		December 30, 2000 (Unaudited)		January 1, 2000 (Unaudited)
Earnings before income taxes
Retail grocery	$	8,177	$	979
Grocery store distribution		12,378		15,054
Convenience store distribution		7,307		9,000
Insurance		498		1,072
Real estate		4,646		354
Total	$	33,006	$	26,459

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(In thousands)		December 30, 2000 (Unaudited)		March 25, 2000 (Unaudited)
Total assets
Retail grocery	$	434,950	$	203,270
Grocery store distribution		565,016		428,358
Convenience store distribution		87,857		80,949
Insurance		31,187		28,987
Real estate		56,839		63,374
Less - eliminations		(361,383	)	(234,365	)
Total	$	814,466	$	570,573

Note 8
Shareholders' Equity

On July 18, 2000, the shareholders approved a proposal to amend Spartan Stores' articles of incorporation and bylaws in connection with the merger of Food Town. On August 1, 2000, the date of the merger, Spartan Stores filed the amendment to its articles of incorporation with the Michigan Corporation, Securities and Land Development Bureau. Upon this filing, each outstanding share of Spartan Stores Class A common stock, $2.00 par value, was converted into one share of Spartan Stores common stock, no par value.

On August 1, 2000, 6.7 million shares of outstanding Food Town common stock were converted into the right to receive one share of Spartan Stores common stock and $5.00 in cash. The holders of 448,835 shares of Food Town common stock provided notice of dissent from the merger. In addition, Spartan Stores declared a stock split pursuant to a dividend of 0.336 shares of Spartan Stores' common stock for each share outstanding immediately prior to the merger. Accordingly, per share amounts have been restated throughout the consolidated financial statements. On August 2, 2000, Spartan Stores obtained a listing on the NASDAQ National Market under the stock-trading symbol of "SPTN" for all shares of its common stock issued and outstanding.

On September 12, 2000, the company announced that it had been authorized by its board of directors to purchase up to $5 million of the corporation's common stock over a twelve-month period. As of December 30, 2000, the Company had purchased 194,700 shares at a total cost of $1.3 million.

Note 9
Contingencies

On June 20, 2000, an amended complaint was refiled in a Tennessee state court by individual plaintiffs on behalf of the state of Tennessee and its taxpayers against the leading cigarette manufacturers operating in the United States and certain wholesalers and distributors, including J.F. Walker Company, Inc. ("J.F. Walker"), a subsidiary of Spartan Stores. This case was initially filed in May 1997, removed to the United States District Court for the Eastern District of Tennessee, and on June 16, 1998, J.F. Walker was voluntarily dismissed as a defendant. The federal district court then dismissed the case for lack of standing. The United States Court of Appeals for the Sixth Circuit affirmed the district court decision with instructions to remand the case back to state court. The plaintiffs then filed an amended complaint including J.F. Walker as a defendant. In this case, the plaintiffs are seeking compensatory, punitive and other damages, reimbursement of medical and other expenditures and equitable relief. Spartan Stores believes that J.F. Walker has valid defenses to this legal action, which is being vigorously defended. One of the cigarette manufacturers named as a defendant in this action has agreed to indemnify J.F. Walker from damages arising out of this action. Management believes that the ultimate outcome of this action should not have a material adverse effect on the consolidated financial position, results of operations or liquidity of Spartan Stores.

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ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations

The following table sets forth Spartan Stores' Consolidated Statements of Earnings as percentages of net sales:

	Third Quarter (16 Weeks) Ended				Year-to-Date (40 Weeks) Ended
	December 30, 2000 (Unaudited)		January 1, 2000 (Unaudited)		December 30, 2000 (Unaudited)		January 1, 2000 (Unaudited)
Net sales	100.0	%	100.0	%	100.0	%	100.0	%
Gross profit	16.9		13.2		15.6		13.1
Operating expenses
Selling, general and administrative	15.0		12.0		13.7		11.6
Restructuring charge	.1		(.6	)	0.0		(.2	)
Total operating expenses	15.1		11.4		13.7		11.4
Operating income	1.8		1.8		1.9		1.7
Non-operating expense (income)
Interest expense	.9		.8		.9		.8
Interest income	(.2	)	(.2	)	(.2	)	(.1	)
Other gains and losses	.1		.1		(.1	)	(.1	)
Total non-operating expense, net	.8		.7		.6		.6
Earnings before income taxes	1.0		1.1		1.3		1.1
Income taxes	.4		.4		.5		.4
Net earnings	.6	%	.7	%	.8	%	.7	%

Net Sales

Net sales for the quarter and year-to-date periods ended December 30, 2000 increased 19.4 and 12.4 percent or $185.2 and $292.2 million, respectively, compared to the quarter and year-to-date periods ended January 1, 2000.

Net sales for the quarter and year-to-date periods ended December 30, 2000 in the retail grocery segment increased 147.6and 101.4 percent or $258.6 and $414.6 million, respectively, compared to last year. The increase reflects additional sales from the acquisition of retail stores during the first and third quarters of fiscal 2000, the merger with Food Town in the second quarter of fiscal year 2001 and a 5.8 percent increase in year-to-date same store sales. Same store sales increases are the result of improved marketing programs, better in-stock positions in acquired stores, expanded hours of operations at some sites and an aggressive advertising campaign in the third quarter of fiscal year 2001. Management continues to evaluate other acquisition opportunities in the retail grocery industry and expects acquisitions to contribute to future sales growth.

Net sales for the quarter and year-to-date periods ended December 30, 2000 in the grocery distribution segment declined 13.0 and 8.8 percent or $64.2 and $106.3 million, respectively, compared to last year. The decrease primarily resulted from Spartan Stores' acquisition of grocery distribution segment customers during fiscal 2000, requiring the elimination of sales to these customers, the loss of D&W Food Centers business and declines in sales of grocery and general merchandise products due to continued competitive market conditions.

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D&W Food Centers announced on September 13, 2000 that Spartan Stores would no longer be its supplier for grocery and perishable products for all but five of its twenty-six locations effective mid-October, 2000. The five locations remaining with Spartan Stores are subject to real estate leases with Spartan Stores and require certain levels of minimum purchases. Sales of grocery and perishable products to D&W Food Centers represented less than four percent of the company's total annual revenue at the time of their announcement.

Net sales for the quarter and year-to-date periods ended December 30, 2000 in the convenience store distribution segment decreased 3.0 and 1.8 percent or $8.5 and $12.8 million, respectively, compared to January 1, 2000. The decline was primarily due to the acquisition of distribution segment customers, requiring the elimination of sales to these customers, declines in cigarette sales volume due to higher prices and the annualized impact of a customer lost in fiscal year 2000. The decline is partially offset by the cigarette price inflation and net new accounts.

Gross Profit

Gross profit, as a percentage of net sales, for the quarter and year-to-date periods ended December 30, 2000, was 16.9 and 15.6 percent, respectively, compared to 13.2 and 13.1 percent last year. The increase reflects the increased percentage of retail sales in the business mix and improvements in the gross margin of existing retail operations. This increase was partially offset by a lower convenience store distribution gross profit percentage for the year-to-date period, primarily due to increased cigarette cost passed along to customers.

As stated above, management continues to evaluate other acquisition opportunities in the retail grocery segment and expects these anticipated acquisitions to contribute to future increased gross profit margins.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the quarter and year-to-date periods ended December 30, 2000, were 15.1 and 13.7 percent of net sales, respectively, compared to 11.9 and 11.6 percent last year. The increase for the quarter was primarily due to the growth of Spartan Stores' retail grocery segment, which generates a higher selling, general and administrative expense percentage than the distribution segments and the impact of declining sales in the Company's grocery distribution segment.

For the year-to-date period, the grocery distribution segment has decreased selling, general and administrative expenses as a percentage of sales as a result of increased warehouse efficiency and a continued focus on reduction of overhead.

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Restructuring Charge

On November 27, 2000, the convenience store distribution segment announced the closure of its Sandusky, Ohio distribution center by the end of February 2001. As of December 30, 2000, $1 million has been accrued for the write-down of certain assets as well as severance pay, benefit continuation and outplacement assistance for affected associates.

On October 14, 1998, the Company's Board of Directors approved an initiative to replace the Company's Plymouth distribution center. Due to the Company's commitment to the retail grocery segment and the potential for improved productivity at its Plymouth facility, the Company reconsidered its decision to close the facility and signed a five-year lease agreement on the Plymouth distribution center. Therefore, in the third quarter of fiscal year 2000 the Company reduced the restructuring accrual by $5.5 million to reflect costs that are no longer expected to be incurred.

Interest Expense

Interest expense was .8 and .9 percent of net sales for the quarter and year-to-date periods ended December 30, 2000 compared to .8 percent for the quarter and year-to-date periods last year. The increase is primarily the result of an increase in average borrowings resulting from the merger with Food Town and interest rate increases during fiscal year 2001.

Other Gains and Losses

In the third quarter of fiscal 2001, the grocery store distribution segment recognized an impairment loss of $1.1 million on certain technology related equipment. Additionally, the real estate segment recognized a gain of $.6 million on the sale of one property. During the second quarter of fiscal 2001, the real estate segment recognized gains of $3.2 million on the sale of two properties. In the first quarter of fiscal 2000, the retail grocery segment recognized a gain of $2.6 million on the sale of an investment in the common stock of a supplier.

Management continues to evaluate its real estate portfolio and expects proceeds from real estate dispositions to be used to fund possible retail store acquisitions.

Earnings before Income Taxes

Earnings before income taxes for the quarter and year-to-date periods ended December 30, 2000 were $12.1 and $33.0 million, respectively, compared with earnings before income taxes of $10.9 and $26.5 million for the corresponding periods last year.

Current year to date earnings before income taxes were positively impacted by the merger with Food Town, retail store acquisitions in last fiscal year, improved margins in the retail grocery segment and improved efficiencies in the company's distribution operations. Additionally, current year-to-date earnings include gains of $2.5 million on the sale of three properties in the real estate segment. Offsetting these increases was a decline in gross profit in the Company's convenience store distribution segment, a $1 million restructuring charge recorded in convenience store distribution segment and a $1.1 million impairment loss on technology related equipment in the grocery distribution segment.

Last year's year-to-date earnings included a one-time gain of $2.6 million in the retail grocery segment related to the sale of an investment in the common stock of a supplier and a reversal of a restructuring charge accrual in the grocery distribution segment amounting to $4.7 million.

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Liquidity and Capital Resources

Spartan Stores' principal sources of liquidity are cash flows generated from operations and borrowings under a senior secured credit facility dated March 18, 1999. The credit facility consists of (1) a Revolving Credit Facility in the amount of $100.0 million with a term of six years, (2) a Term Loan A in the amount of $100.0 million with a term of six years, (3) an Acquisition Facility in the amount of $75.0 million with a term of seven years and (4) a Term Loan B in the amount of $150.0 million with a term of eight years. At December 30, 2000, $298.1 million was outstanding under this credit facility. Management believes that cash flows generated from operations and available borrowings under the Revolving Credit Facility will be sufficient to support operations in the foreseeable future. Available borrowings under the credit facility are based on stipulated levels of earnings before interest, taxes, depreciation and amortization as defined in the agreement.

Spartan Stores' current ratio at December 30, 2000 decreased to 1.43 to 1.00 compared with 1.53 to 1.00 at March 25, 2000. However, working capital increased 31.5 percent or $27.9 million due primarily to the merger with Food Town.

Spartan Stores' long-term debt to equity ratio at December 30, 2000 decreased to 1.42 to 1.00 compared with 2.11 to 1.00 at March 25, 2000. The decrease was due primarily to the issuance of 6.2 million shares of common stock to facilitate the Food Town merger, the lower leverage position associated with these operations, scheduled principle payments on outstanding debt and net income generated during the period. Management continues to evaluate other acquisition opportunities, which if consummated could increase Spartan Stores' leverage position.

Recent Accounting Pronouncements

During the third quarter of fiscal year 2001, the Company adopted Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial Statements." SAB No. 101 provides guidance on recognition, presentation, and disclosure of revenue in financial statements. The adoption of SAB No. 101 did not have a material impact on Spartan Stores' financial position and results of operations.

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Cautionary Statements for Purposes of the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995

The matters discussed in this Quarterly Report on Form 10-Q include "forward-looking statements" about Spartan Stores' plans, strategies, objectives, goals, expectations or projections. These forward-looking statements are identifiable by words or phrases indicating that Spartan Stores or management "expects," "anticipates," "projects," "plans" or "believes" that a particular occurrence "may result" or "will likely result" or that a particular event "may occur" or "will likely occur" in the future, or similarly stated expectations. You should not place undue reliance on these forward-looking statements, which speak only as of the date of this 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 25, 2000 and other periodic reports filed with the Securities and Exchange Commission, there are many important factors that could cause actual results to be materially different from Spartan Stores' current expectations.

Anticipated future sales are subject to competitive pressures from many sources. Spartan Stores' grocery store and convenience store retail and distribution businesses compete with many warehouse discount stores, supermarkets, pharmacies and product manufacturers. Additionally, future sales will be dependent on the number of retail stores owned and operated by Spartan Stores and competitive pressures in the retail industry. Sales volumes in Spartan Stores' convenience store distribution segment may continue to be negatively impacted by increased cigarette prices. Spartan Stores' insurance segment competes with many insurance agents and insurance companies, especially in the property and casualty insurance markets. Competitive pressures in these and other business segments may result in unexpected reductions in sales volumes, product prices or service fees.

Spartan Stores' operating and administrative expenses may be adversely affected by unexpected costs associated with, among other factors: the merger with Food Town; the integration of the business operations of the retail stores and other businesses acquired by Spartan Stores; future business acquisitions, including additional retail stores; unanticipated difficulties in the operation of the retail grocery segment, which is a new line of business; difficulties in assimilation of acquired personnel, operations, systems or procedures; inability to realize synergies in the amounts or within the time frame expected by management; adverse effects on existing business relationships with independent retail grocery store customers; unexpected difficulties in the retention or hiring of employees for the acquired businesses; unanticipated labor shortages, stoppages or disputes; business divestitures; increased transportation or fuel costs; and current or future lawsuits and administrative proceedings.

Spartan Stores' future interest expense and income also may differ from current expectations, depending upon, among other factors: the amount of additional borrowings necessary for retail store acquisitions; interest rate changes; cigarette inventory levels; retail property sales; the volume of notes receivable; and the amount of fees received on delinquent accounts.

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 Spartan Stores' expected consolidated financial position, results of operations or liquidity. Spartan Stores disclaims any obligation or intention to update its forward-looking statements to reflect events or circumstances that occur after the date of this Report.

ITEM 3.           Quantitative and Qualitative Disclosure About Market Risk

There were no material changes in market risk of the company in the period covered by this report.

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PART II

OTHER INFORMATION

ITEM 1. Legal Proceedings

For a discussion of certain litigation, see Note 9 ("Contingencies") to the Consolidated Financial Statements included in Item 1 of Part I of this Quarterly Report on Form 10-Q, which is incorporated herein by reference.

ITEM 6. Exhibits and Reports on Form 8-K

(a) Exhibits: The following documents are filed as exhibits to this Quarterly Report on Form 10-Q:

Exhibit Number	Document
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.
3.2	Amended and Restated Bylaws 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 of Form S-4, filed on June 5, 2000. Here incorporated by reference.

(b) Reports on Form 8-K:Spartan Stores filed the following Current Reports on Form 8-K during the 16 weeks ended December 30, 2000.

Date of Report	Filing Date	Item(s) Reported
September 12, 2000	September 13, 2000	This Form 8-K included a press release that reported that Spartan Stores has been authorized by its board of directors to purchase up to $5 million of the corporation's common stock over the next 12 months. Additionally, Spartan Stores announced that one of its customers, D&W Food Centers, Inc., informed the Company that it will no longer be D&W's primary supplier, effective November 1, 2000. No financial statements were included or required to be included in this Form 8-K.
August 1, 2000	September 27, 2000	This Form 8-K was an amendment to the Form 8-K filed by Spartan Stores on August 16, 2000. The amendment includes the financial statements required by Item 7 of Form 8-K with respect to Food Town and the merger with Food Town.

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October 9, 2000 October 10, 2000 This Form 8-K included a press release that stated the Company intends to issue a news release announcing its 2001 second-quarter financial results on October 10, 2000. It included a summary statement of earnings for that period and a summary balance sheet as of the end of that period.

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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.

Date: February 13, 2001 SPARTAN STORES, INC.
(Registrant)


By /s/David M. Staples     David M. Staples
    Executive Vice President, Chief Financial
       Officer and Treasurer
    (Principal Financial Officer
     and duly authorized signatory for
     Registrant)

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EXHIBIT INDEX

Exhibit Number	Document
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.
3.2	Amended and Restated Bylaws 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 of Form S-4, filed on June 5, 2000. Here incorporated by reference.