EXHIBIT 99.1
For Immediate Release |
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Investor Contact: Dave Staples | Media Contact: Jeanne Norcross |
Spartan Stores Announces Fiscal 2011
Second-Quarter Financial Results
Reduces Net Long-Term Debt by $37 Million;
Year-to-Date Cash From Operations Increases More Than 10 Percent to $45 Million
GRAND RAPIDS, MICHIGAN-October 13, 2010-Spartan Stores, Inc., (Nasdaq:SPTN) today reported financial results for its 12-week second quarter ended September 11, 2010.
Second-Quarter Results
Consolidated net sales for the 12-week second quarter were $602.1 million compared with $610.2 million in the same period last year. The net sales decline was due primarily to lower retail sales attributed to economic and competitive conditions, partially offset by higher fuel sales.
Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (Adjusted EBITDA) for the quarter were $30.0 million, or 5.0 percent of net sales, a six basis point improvement in the percentage of net sales compared to the year-ago period.
Second-quarter operating earnings were $22.1 million compared with $21.0 million in the year-ago period. Excluding a $1.2 million pretax net benefit related to the Company's warehouse consolidation initiative, adjusted second-quarter operating earnings were $20.9 million.
"We continue to be encouraged by the improvement in our business trends," stated Dennis Eidson, Spartan's President and Chief Executive Officer. "As anticipated, our trend in retail comparable store sales has improved on a sequential basis for the past two quarters. In addition, our second-quarter operating earnings are one of the highest second-quarter levels that we have reported in the past five years and, year-to-date, we generated more than $45 million in net cash from operations. We are particularly pleased with our operating expense management, inventory reduction and efficiency improvements in our Distribution Segment. These initiatives have allowed us to reduce our net long-term debt by approximately $37 million compared with the same period last year. Although the economy and competitive environment remain challenging, we are working very hard to improve our sales trend, raise our operational efficiency, contain
operating costs, and drive even better values for the consumer. We have the experienced management team, associates and capabilities to meet the challenge."
Second-quarter earnings from continuing operations were $11.3 million, or $0.50 per diluted share, an 8.1 percent increase compared with the prior year's earnings of $10.5 million, or $0.47 per diluted share. Excluding the previously mentioned net benefit related to the warehouse consolidation, adjusted earnings from continuing operations for the quarter were $10.6 million.
Second-quarter gross profit margin increased 20 basis points to 22.5 percent from 22.3 percent in the same period last year. The increase was due to improved retail margins and a $1.5 million pretax LIFO inventory valuation credit from the lower inventory levels related to the Company's warehouse consolidation initiative, partially offset by a higher mix of distribution and fuel center sales and lower procurement related gains.
Operating expenses totaled $113.1 million, or 18.8 percent of sales, compared with $115.0 million, or 18.8 percent of sales in the year-ago quarter. The second-quarter operating expenses included a pretax restructuring charge of $0.2 million related to the warehouse consolidation project and a loss on the sale of assets of $0.1 million. Excluding these charges, the operating expense ratio improved almost 10 basis points over the prior year due to improved store labor productivity, overall cost containment initiatives and distribution operating efficiency gains, despite higher debit/credit card fees, utility costs and employee benefit expenses.
Operating Segments
Distribution Segment
Distribution segment net sales for the second quarter of $248.6 million were comparable to the year-ago period.
Second-quarter distribution segment operating earnings were $10.7 million compared with $10.6 million in the same period last year. Excluding the previously mentioned net pretax benefit totaling $1.2 million, adjusted operating earnings were $9.5 million. The segment adjusted operating earnings were affected by lower procurement gains due to reduced inventory levels and higher employee benefit expenses, partially offset by improved operating efficiency and better expense leverage.
Retail Segment
Second-quarter retail segment net sales were $353.5 million compared to $360.2 million in the same period last year. The sales decline was due primarily to lower comparable store sales and the loss of $5.8 million in sales related to the three stores that were closed or sold since last year's first quarter. The segment sales decline was partially offset by an increase in the number of fuel centers in operation, a higher average retail fuel price per gallon sold, and benefits from the Company's capital investment program. Comparable store sales for the quarter, excluding fuel centers, declined 4.7 percent, which represented a 1.4 percent improvement over the prior quarter's results.
Second-quarter retail operating earnings were $11.4 million compared with $10.4 million in the prior year period. The operating earnings improvement was primarily the result of higher fuel and supermarket margins and better store labor productivity, partially offset by reopening costs related to a remodeled store and higher credit/debit card fees and utility costs.
Balance Sheet and Cash Flow
Year-to-date net cash provided by operating activities was $45.5 million compared with $40.9 million during the same period last year. The improvement was due mainly to better working capital management related to the Company's ongoing inventory reduction initiative and benefits related to the Company's warehouse consolidation efforts. Inventory investment declined by $14.7 million as of September 11, 2010 compared with the year-ago period, with approximately $7.8 million of the amount attributable to the warehouse consolidation project.
As of September 11, 2010, total net long-term debt (including current maturities and capital lease obligations net of cash and cash equivalents) decreased approximately $37.0 million from the year-ago period. The Company's financial position continued to improve with a total net long-term debt-to-capital ratio of 0.34 to 1.00 at the end of the second quarter and a net long-term debt-to-Adjusted EBITDA ratio on an annual Adjusted EBITDA basis of 1.47 to 1.00.
"We continue to make steady progress," said Mr. Eidson. "Our warehouse consolidation initiative is producing the operating efficiencies and leverage that we anticipated, further enhancing our position as a highly efficient and effective grocery distributor with distinct value-added capabilities. The initiative, along with our ongoing inventory reduction efforts, lowered our overall inventory investment by more than 10 percent as of the quarter end. We are also pleased with the ongoing cost reductions gained through various containment initiatives currently underway.
"In retail, we completed a remodel project during the second quarter, converting a store to a Family Fare," continued Mr. Eidson. "The store was reopened late in the second quarter, and we are quite pleased with the initial customer acceptance. We are continuing to gain even more valuable knowledge about consumer purchasing and preferences through our loyalty card program. We are using this understanding to develop more tailored and effective marketing and merchandising programs and to further enhance our consumer value proposition. Product price deflation at the retail level appears to be moderating while we are experiencing a modest level of cost inflation in certain center store product categories and in our fresh departments. Our fuel center business strategy continues to perform well, as it materially adds to our overall consumer value proposition."
Outlook
"Data suggests that the Michigan economy appears to have stabilized, giving us somewhat more confidence than this time last year; however, the consumer remains cautious and the competitive environment is still challenging," said Mr. Eidson. "We made many enhancements to our business operations during the past several years that have allowed us to sustain profitability in a
slower growth economic climate, and we expect to realize additional benefits from these changes when the economy returns to a more normal growth rate.
"From a competitive standpoint, two new competitive openings will affect our third-quarter performance; however, we will have cycled the majority of the previous store openings by the end of the fiscal year. At this point, we are not expecting a material number of new competitive openings during fiscal 2012.
"We plan to further enhance our consumer value offering by introducing more than 200 new private brand products during the second half of the fiscal year with approximately one half in center store and one half in fresh product categories under the new "Fresh Selection" brand. In addition, we are planning to roll out our customer loyalty card program to another retail store banner during the last half of the fiscal year and will work even more aggressively to improve our overall retail sales performance. From a capital perspective, early in the third quarter, we completed the relocation and conversion of a Felpausch location to a new Family Fare store.
"During the remainder of the fiscal year, we expect retail comparable store sales (excluding fuel centers) to improve relative to the second-quarter results, with a modest improvement in the third quarter. Distribution sales for the third quarter are expected to approximate the year-ago levels.
"From an earnings perspective we anticipate that third-quarter net earnings will approximate or slightly exceed last year's performance and that fiscal 2011's full-year performance will approximate or slightly exceed fiscal 2010's.
"We expect capital expenditures for fiscal 2011 to range from $33 million to $35 million with depreciation and amortization ranging from $35.5 million to $37.0 million and total interest expense to approximate $15.0 million to $15.5 million," concluded Mr. Eidson.
Conference Call
A telephone conference call to discuss the Company's second-quarter financial results is scheduled for 9:00 a.m. Eastern Time, Thursday, October 14, 2010. A live webcast of this conference call will be available on the Company's website, www.spartanstores.com. Simply click on "For Investors" and follow the links to the live webcast. The webcast will remain available for replay on the Company's website for approximately ten days.
About Spartan Stores
Grand Rapids, Michigan-based Spartan Stores, Inc., (Nasdaq:SPTN) is the nation's eleventh largest grocery distributor with 1.4 million square feet of warehouse, distribution, and office space located in Grand Rapids, Michigan. The Company distributes more than 40,000 corporate and national brand products to approximately 370 independent grocery stores in Michigan, Indiana and Ohio. Spartan Stores also owns and operates 97 retail supermarkets in Michigan, including Family Fare Supermarkets, Glen's Markets, D&W Fresh Markets, Felpausch Food Centers and VG's Food and Pharmacy.
Forward-Looking Statements
This press release contains forward-looking statements. Forward-looking statements are identifiable by words or phrases such as "anticipate", "initiative", "opportunities", "trends", "outlook", or "strategy"; that an event or trend "will" or "should" occur or "continue" or is "likely" or that Spartan Stores or its management "anticipates", "believes", "expects", "plans" or is "confident" of a particular result. These forward-looking statements are subject to a number of factors that could cause actual results to differ materially. Our ability to successfully realize growth opportunities, expand our customer base, effectively implement and achieve the expected benefits of capital investments, warehouse consolidation and store openings, successfully respond to the weak economic environment and changing consumer behavior, anticipate and successfully respond to openings of competitors' stores, achieve expected sales, cash flows, operating efficiencies and earnings, implement plans, programs and strategies, re duce debt, and continue to pay dividends is not certain and depends on many factors, not all of which are in our control. Additional information about the risk factors to which Spartan Stores is exposed and other factors that may adversely affect these forward-looking statements is contained in Spartan Stores' reports and filings with the Securities and Exchange Commission. Other risk factors exist and new risk factors may emerge at any time. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as predictions of future results. Spartan Stores undertakes no obligation to update or revise any forward-looking statements to reflect developments or information obtained after the date of this press release.
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SPARTAN STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands, except per share data)
(Unaudited)
| Second Quarter Ended |
| Year-to-Date |
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| (12 weeks) |
| (12 weeks) |
| (24 weeks) |
| (24 weeks) |
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Net sales | $ | 602,056 |
| $ | 610,222 |
| $ | 1,179,293 |
| $ | 1,206,249 |
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Cost of sales | 466,858 |
| 474,209 |
| 917,406 |
| 939,222 |
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Gross margin | 135,198 |
| 136,013 |
| 261,887 |
| 267,027 |
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Operating expenses |
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Selling, general and administrative | 104,921 |
| 106,850 |
| 210,348 |
| 214,637 |
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Depreciation and amortization | 8,071 |
| 8,138 |
| 15,906 |
| 16,150 |
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(Gain) loss on disposal of assets | 117 |
| (14 | ) | 197 |
| 110 |
| ||||
Total operating expenses | 113,109 |
| 114,974 |
| 226,451 |
| 230,897 |
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Operating earnings | 22,089 |
| 21,039 |
| 35,436 |
| 36,130 |
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Non-operating expense (income) |
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Interest expense | 3,504 |
| 3,727 |
| 6,933 |
| 7,390 |
| ||||
Other, net | (4 | ) | (30 | ) | (54 | ) | (53 | ) | ||||
Total non-operating expense, net | 3,500 |
| 3,697 |
| 6,879 |
| 7,337 |
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Earnings before income taxes and discontinued |
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Income taxes | 7,244 |
| 6,845 |
| 11,137 |
| 11,452 |
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Earnings from continuing operations | 11,345 |
| 10,497 |
| 17,420 |
| 17,341 |
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(Loss) earnings from discontinued operations, net of |
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Net earnings | $ | 11,239 |
| $ | 10,434 |
| $ | 17,226 |
| $ | 17,293 |
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Basic earnings per share: |
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Earnings from continuing operations | $ | 0.50 |
| $ | 0.47 |
| $ | 0.77 |
| $ | 0.78 |
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(Loss) earnings from discontinued operations | - |
| - |
| (0.01 | ) | (0.01 | ) | ||||
Net earnings | $ | 0.50 |
| $ | 0.47 |
| $ | 0.76 |
| $ | 0.77 |
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Diluted earnings per share: |
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Earnings from continuing operations | $ | 0.50 |
| $ | 0.47 |
| $ | 0.77 |
| $ | 0.77 |
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(Loss) earnings from discontinued operations | - |
| (0.01 | ) | (0.01 | ) | - |
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Net earnings | $ | 0.50 |
| $ | 0.46 |
| $ | 0.76 |
| $ | 0.77 |
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Weighted average number of shares outstanding: |
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Basic | 22,627 |
| 22,432 |
| 22,577 |
| 22,364 |
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Diluted | 22,692 |
| 22,496 |
| 22,650 |
| 22,435 |
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SPARTAN STORES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(Unaudited)
| Sept. 11, |
| Mar. 27, |
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ASSETS |
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Current assets |
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Cash and cash equivalents | $ | 25,124 |
| $ | 9,170 |
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Accounts receivable, net |
| 54,848 |
|
| 54,529 |
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Inventories |
| 128,623 |
|
| 117,514 |
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Other current assets |
| 10,432 |
|
| 14,982 |
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Total current assets |
| 219,027 |
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| 196,195 |
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Other assets |
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Goodwill, net |
| 247,779 |
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| 247,916 |
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Other, net |
| 60,773 |
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| 61,409 |
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Total other assets |
| 308,552 |
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| 309,325 |
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Property and equipment, net |
| 246,391 |
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| 247,961 |
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Total assets | $ | 773,970 |
| $ | 753,481 |
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LIABILITIES AND SHAREHOLDERS' EQUITY |
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Current liabilities |
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Accounts payable | $ | 131,933 |
| $ | 114,549 |
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Accrued payroll and benefits |
| 30,325 |
|
| 31,983 |
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Other accrued expenses |
| 17,866 |
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| 20,838 |
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Current portion of restructuring costs |
| 7,211 |
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| 8,877 |
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Current maturities of long-term debt and capital lease obligations |
| 4,167 |
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| 4,209 |
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Total current liabilities |
| 191,502 |
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| 180,456 |
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Long-term liabilities |
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Other long-term liabilities |
| 97,044 |
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| 90,993 |
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Restructuring costs |
| 25,873 |
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| 27,061 |
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Long-term debt and capital lease obligations |
| 170,188 |
|
| 181,066 |
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Total long-term liabilities |
| 293,105 |
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| 299,120 |
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Shareholders' equity |
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Common stock, voting, no par value; 50,000 shares authorized; |
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Preferred stock, no par value, 10,000 shares authorized; no |
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Deferred stock-based compensation |
| (9,731 | ) |
| (8,352 | ) |
Accumulated other comprehensive loss |
| (13,437 | ) |
| (12,973 | ) |
Retained earnings |
| 143,618 |
|
| 128,653 |
|
Total shareholders' equity |
| 289,363 |
|
| 273,905 |
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Total liabilities and shareholders' equity | $ | 773,970 |
| $ | 753,481 |
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SPARTAN STORES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
| Year-to-Date |
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| (24 weeks) |
| (24 weeks) |
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Net cash provided by operating activities | $ | 45,459 |
| $ | 40,868 |
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Net cash used in investing activities | (14,977 | ) | (23,997 | ) | ||
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Net cash used in financing activities | (13,733 | ) | (15,073 | ) | ||
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Net cash used in discontinued operations | (795 | ) | (1,571 | ) | ||
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Net increase in cash and cash equivalents | 15,954 |
| 227 |
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Cash and cash equivalents at beginning of period | 9,170 |
| 6,519 |
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Cash and cash equivalents at end of period | $ | 25,124 |
| $ | 6,746 |
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SPARTAN STORES, INC. AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL DATA
(in thousands)
(Unaudited)
| Second Quarter Ended |
| Year-to-Date | ||||||||
| (12 weeks) |
| (12 weeks) |
| (24 weeks) |
| (24 weeks) | ||||
Retail Segment: |
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Net Sales | $ | 353,452 |
| $ | 360,195 |
| $ | 685,414 |
| $ | 702,855 |
Operating Earnings | $ | 11,366 |
| $ | 10,427 |
| $ | 16,728 |
| $ | 17,753 |
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Distribution Segment: |
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Net Sales | $ | 248,604 |
| $ | 250,027 |
| $ | 493,879 |
| $ | 503,394 |
Operating Earnings | $ | 10,723 |
| $ | 10,612 |
| $ | 18,708 |
| $ | 18,377 |
SPARTAN STORES, INC. AND SUBSIDIARIES
RECONCILIATION OF OPERATING EARNINGS TO EARNINGS BEFORE INTEREST,
TAXES, DEPRECIATION AND AMORTIZATION (A NON-GAAP FINANCIAL MEASURE)
(in thousands)
(unaudited)
| Second Quarter Ended |
| Year-to-Date |
| ||||||||
| Sept. 11, |
| Sept. 12, |
| Sept. 11, |
| Sept. 12, |
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Consolidated: |
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Net earnings | $ | 11,239 |
| $ | 10,434 |
| $ | 17,226 |
| $ | 17,293 |
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Plus: |
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Discontinued operations | 106 |
| 63 |
| 194 |
| 48 |
| ||||
Income Taxes | 7,244 |
| 6,845 |
| 11,137 |
| 11,452 |
| ||||
Non-operating expense | 3,500 |
| 3,697 |
| 6,879 |
| 7,337 |
| ||||
Operating earnings | 22,089 |
| 21,039 |
| 35,436 |
| 36,130 |
| ||||
Plus: |
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Depreciation and amortization | 8,071 |
| 8,138 |
| 15,906 |
| 16,150 |
| ||||
LIFO (income) expense | (1,400 | ) | 9 |
| (3,208 | ) | (81 | ) | ||||
Restructuring and asset impairments costs | 183 |
| - |
| 2,765 |
| 601 |
| ||||
Non-cash stock compensation and other charges | 1,045 |
| 823 |
| 2,123 |
| 2,134 |
| ||||
Adjusted EBITDA | $ | 29,988 |
| $ | 30,009 |
| $ | 53,022 |
| $ | 54,934 |
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Retail Segment: |
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Operating earnings | $ | 11,366 |
| $ | 10,427 |
| $ | 16,728 |
| $ | 17,753 |
|
Plus: |
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Depreciation and amortization | 6,128 |
| 6,088 |
| 12,092 |
| 11,946 |
| ||||
LIFO expense | 100 |
| 109 |
| 200 |
| 219 |
| ||||
Restructuring and asset impairments costs | 3 |
| - |
| 153 |
| 601 |
| ||||
Non-cash stock compensation and other charges | 56 |
| (110 | ) | 126 |
| (142 | ) | ||||
Adjusted EBITDA | $ | 17,653 |
| $ | 16,514 |
| $ | 29,299 |
| $ | 30,377 |
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Distribution Segment: |
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Operating earnings | $ | 10,723 |
| $ | 10,612 |
| $ | 18,708 |
| $ | 18,377 |
|
Plus: |
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| ||||
Depreciation and amortization | 1,943 |
| 2,050 |
| 3,814 |
| 4,204 |
| ||||
LIFO income | (1,500 | ) | (100 | ) | (3,408 | ) | (300 | ) | ||||
Restructuring and asset impairments costs | 180 |
| - |
| 2,612 |
| - |
| ||||
Non-cash stock compensation and other charges | 989 |
| 933 |
| 1,997 |
| 2,276 |
| ||||
Adjusted EBITDA | $ | 12,335 |
| $ | 13,495 |
| $ | 23,723 |
| $ | 24,557 |
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Notes: Consolidated Adjusted EBITDA is a non-GAAP financial measure that is defined under the terms of our credit facility as Net earnings from continuing operations plus depreciation and amortization, and other non-cash charges including imputed interest, deferred (stock) compensation, LIFO expense and costs associated with the closing of operational locations, plus interest expense, the provision for income taxes to the extent deducted in the computation of Net Earnings. Adjusted EBITDA is not a measure of performance under accounting principles generally accepted in the United States of America, and should not be considered as a substitute for net earnings, cash flows from operating activities and other income or cash flow statement data. The Adjusted EBITDA information has been included as one measure of the Company's operating performance and historical ability to service debt. The Company believes investors find the information useful because it reflects the resources available for strategic investments including, for example, capital needs of the business, strategic acquisitions and debt service. Our definition of Adjusted EBITDA may not be identical to similarly titled measures reported by other companies. |