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SpartanNash Co - Annual Report: 2015 (Form 10-K)

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-K

 

x

Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended January 3, 2015.

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

 

SPARTANNASH COMPANY

(Exact Name of Registrant as Specified in Its Charter)

 

 

Michigan

 

38-0593940

(State or Other Jurisdiction) of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

 

 

850 76th Street, S.W.

P.O. Box 8700

Grand Rapids, Michigan

 

49518-8700

(Address of Principal Executive Offices)

 

(Zip Code)

Registrant’s telephone number, including area code: (616) 878-2000

Securities registered pursuant to Section 12(b) of the Securities Exchange Act:

 

Title of Class

 

Name of Exchange on which Registered

Common Stock, no par value

 

NASDAQ Global Select Market

Securities registered pursuant to Section 12(g) of the Securities Exchange Act: None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No  x

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 a check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File requirement to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company (as defined in Rule 12b-2 of the Securities Exchange Act).

 

Large accelerated filer

 

x

  

Accelerated filer

 

¨

 

 

 

 

Non-accelerated filer

 

¨

  

Smaller reporting company

 

¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

The aggregate market value of the registrant’s voting and non-voting common equity held by non-affiliates based on the last sales price of such stock on the NASDAQ Global Select Market on July 11, 2014 (which was the last trading day of the registrant’s second quarter in the fiscal year ended January 3, 2015) was $808,845,136.

The number of shares outstanding of the registrant’s Common Stock, no par value, as of February 27, 2015 was 37,818,417, all of one class.

DOCUMENTS INCORPORATED BY REFERENCE

 

Part III, Items 10, 11, 12, 13 and 14

  

Proxy Statement for Annual Meeting to be held June 3, 2015

 

 

 

 

 


 

Forward-Looking Statements

The matters discussed in this Annual Report on Form 10-K include “forward-looking statements” about the plans, strategies, objectives, goals or expectations of SpartanNash Company. These forward-looking statements are identifiable by words or phrases indicating that SpartanNash or management “expects,” “anticipates,” “plans,” “believes,” “estimates,” “intends,” or is “optimistic” or “confident” that a particular occurrence or event “will,” “may,” “could,” “should” or “will likely” result, occur or be pursued or “continue” in the future, that the “outlook” or “trend” is toward a particular result or occurrence, that a development is an “opportunity,” “priority,” “strategy,” “focus,” that the Company is “positioned” for a particular result, or similarly stated expectations. Accounting estimates, such as those described under the heading “Critical Accounting Policies” in Item 7 of this Annual Report on Form 10-K, are inherently forward-looking. Our asset impairment and exit cost provisions are estimates and actual costs may be more or less than these estimates and differences may be material. You should not place undue reliance on these forward-looking statements, which speak only as of the date of this Annual Report.

In addition to other risks and uncertainties described in connection with the forward-looking statements contained in this Annual Report on Form 10-K 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 achieve sales and earnings expectations; improve operating results; maintain and strengthen our retail-store performance; assimilate acquired distribution centers and stores; maintain or grow sales; respond successfully to competitors including new openings; maintain gross margin; effectively address food cost or price inflation or deflation; maintain and improve customer and supplier relationships; realize expected synergies from merger and acquisition activity; realize expected benefits of restructuring; realize growth opportunities; maintain or expand our customer base; reduce operating costs; sell on favorable terms assets held for sale; generate cash; continue to meet the terms of our debt covenants; continue to pay dividends, and successfully implement and realize the expected benefits of the other programs, initiatives, systems, plans, priorities, strategies, objectives, goals or expectations described in this Annual Report, our other reports, our press releases and our public comments 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 distribution industries, possible changes in the military commissary system, including those stemming from the redeployment of forces, congressional action, changes in funding levels, or the effects of mandated reductions in or sequestration of government expenditures, and other factors including, but not limited to, those discussed in the “Risk Factors” discussion in Item 1A of this Annual Report.

This section and the discussions contained in Item 1A, “Risk Factors,” and in Item 7, subheading “Critical Accounting Policies” in this report, both of which are incorporated here by reference, are 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 of the economic, competitive, governmental, technological and other factors that could adversely affect our expected consolidated financial position, results of operations or liquidity. Additional risks and uncertainties not currently known to SpartanNash or that SpartanNash currently believes are immaterial also may impair our business, operations, liquidity, financial condition and prospects. 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 Annual Report.

 

 

 

 


 

PART I

 

Item  1.

Business

Overview

SpartanNash Company (together with its subsidiaries, “SpartanNash” or “the Company”) is a leading multi-regional grocery distributor and grocery retailer, operating principally in the Midwest, and the largest distributor, by revenue, of grocery products to military commissaries and exchanges in the United States. The Company’s core businesses include distributing food to military commissaries and exchanges and independent and corporate-owned retail stores located in 42 states and the District of Columbia, Europe, Cuba, Puerto Rico, Bahrain, Egypt, Honduras, Afghanistan and Bosnia. We operate three reportable business segments: Military, Food Distribution and Retail. For the 53 week year ended January 3, 2015 we generated net sales of approximately $7.9 billion.

Established in 1917 as a cooperative grocery distributor, Spartan Stores Inc. (“Spartan Stores”) converted to a for-profit business corporation in 1973. In January 1999, Spartan Stores began to acquire retail supermarkets in our focused geographic regions. In August 2000, Spartan Stores common stock became listed on the NASDAQ Stock Market under the symbol “SPTN.” On November 19, 2013, Spartan Stores merged with Nash-Finch Company (“Nash-Finch”). Nash-Finch Company’s core businesses include distributing food to military commissaries and independent grocery retailers and distributing to and operating corporate-owned retail stores. Each outstanding share of the common stock of Nash-Finch was converted into 1.20 shares of the combined company’s common stock.  Spartan Stores began doing business under the assumed name of “SpartanNash Company” upon completion of the merger.  The formal name change to SpartanNash Company was approved and became effective after the annual shareholders meeting on May 28, 2014. Unless the context otherwise requires, the use of the terms “SpartanNash,” “we,” “us,” “our” and “the Company” in this Annual Report on Form 10-K refers to the surviving corporation SpartanNash Company and, as applicable, its consolidated subsidiaries.

The larger geographic reach resulting from the merger with Nash-Finch allows for increased scale as we leverage the organization to enhance the ability of our independent retailers to compete long term in the grocery industry. SpartanNash’s hybrid business model supports the close functioning of its Military, Food Distribution, and Retail operations, optimizing the natural complements of each business segment. The model produces operational efficiencies, helps stimulate distribution product demand, and provides sharper market visibility and broader business growth options. In addition, the Military, Food Distribution, and Retail diversification provides added flexibility to pursue the best long-term growth opportunities in each segment.

SpartanNash has established key management priorities that focus on the longer-term strategy of the Company, including establishing a well-differentiated market offering for our Military, Food Distribution, and Retail segments, and additional strategies designed to create value for our shareholders, retailers and customers. These priorities are:

Military:

Leverage the size and scale of the existing distribution and retail segments to attract additional customers.

Continue to partner with Coastal Pacific Food Distributors to leverage the advantage of a worldwide distribution network.

Food Distribution:

Leverage new competitive position, scale and financial flexibility to further consolidate the distribution channel.

Leverage retail competency and the capabilities of the combined distribution platform to increase business within the existing account base and potentially add new distribution categories and take advantage of current competitive market dynamics to supply new customers.

Continue to focus on increasing private brand penetration and overall purchase concentration.

Gain efficiencies in all aspects of the supply chain through optimization of the distribution center network.

Retail:

Evaluate banners to maintain a portfolio of customer-relevant offerings for the entire market continuum.

Continue to drive a lean and efficient operating cost structure to remain competitive.

Rationalize store base to maximize capital efficiency and enhance profitability.

Strategically deploy capital to modernize the store base.

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Pursue opportunistic roll-ups of existing distribution customers and/or other retailers.

Drive value by expanding consumer relationships with pharmacy, fuel and other promotional offerings.

Military Segment

Our Military segment contracts with manufacturers to distribute a wide variety of grocery products primarily to U.S. military commissaries and exchanges. We are the largest distributor, by revenue, in this market.

The products we distribute are delivered to 169 military commissaries and over 442 exchanges located in 37 states across the United States and the District of Columbia, Europe, Puerto Rico, Cuba, Egypt, Bahrain Honduras. Our distribution centers are strategically located among the largest concentration of military bases in the areas we serve and near Atlantic ports used to ship grocery products to overseas commissaries and exchanges. Our Military segment has an outstanding reputation as a distributor focused on U.S. military commissaries and exchanges, based in large measure on our excellent service metrics, which include fill rate, on-time delivery and shipping accuracy.

The Defense Commissary Agency (“DeCA”) operates a chain of commissaries on U.S. military installations throughout the world. DeCA contracts with manufacturers to obtain grocery and related products for the commissary system. Manufacturers either deliver the products to the commissaries themselves or, more commonly, contract with distributors such as us to deliver the products. Manufacturers must authorize the distributors as their official representatives to DeCA, and the distributors must adhere to DeCA’s frequent delivery system procedures governing matters such as product identification, ordering and processing, information exchange and resolution of discrepancies. We obtain distribution contracts with manufacturers through competitive bidding processes and direct negotiations.

We have approximately 600 distribution contracts with manufacturers that supply products to the DeCA commissary system and various exchange systems. The larger contracts have definitive durations whereas the smaller contracts generally have an indefinite term, but may be terminated by either party without cause upon 30 days prior written notice to the other party. The contracts typically specify the commissaries and exchanges we are to supply on behalf of the manufacturer, the manufacturer’s products to be supplied, service and delivery requirements and pricing and payment terms. Our ten largest manufacturer customers represented approximately 40% of the Military segment’s sales for the 53 week year ended January 3, 2015.

As commissaries need to be restocked, DeCA identifies each manufacturer with which an order is to be placed for additional products, determines which distributor is the manufacturer’s official representative for a particular commissary or exchange location, and places a product order with that distributor under the auspices of DeCA’s master contract with the applicable manufacturer. The distributor selects that product from its existing inventory, delivers it to the commissary or commissaries designated by DeCA, and bills the manufacturer for the product shipped. The manufacturer then bills DeCA under the terms of its master contract. Overseas commissaries are serviced in a similar fashion, except that a distributor’s responsibility is to deliver products as and when needed to the port designated by DeCA, which in turn bears the responsibility for shipping the product to the applicable commissary or overseas warehouse.

After we ship a particular manufacturer’s products to commissaries in response to an order from DeCA, we invoice the manufacturer for the product price plus a service and/or drayage fee that is typically based on a percentage of the purchase price, but may in some cases be based on a dollar amount per case or pound of product sold. Our order handling and invoicing activities are facilitated by procurement and billing systems developed specifically for the military business, which addresses the unique aspects of its business, and provides our manufacturer customers with a web-based, interactive means of accessing critical order, inventory and delivery information.

Food Distribution Segment

SpartanNash’s Food Distribution segment uses a multi-platform sales approach to distribute groceries to independent and corporate owned grocery retailers. Total net sales from our Food Distribution segment, including shipments to our corporate-owned stores, which are eliminated in the consolidated financial statements, were approximately $4.4 billion for the fiscal year ended January 3, 2015. We believe that we are the fifth largest wholesale distributor to supermarkets, based on revenues, in the United States.

Customers. Our Food Distribution segment supplies a diverse group of independent grocery store operators that range from a single store to supermarket chains with as many as 37 stores, as well as our corporate-owned stores. The Company operates in 42 states with 12 distribution centers supporting approximately 2,100 independently owned supermarkets and also supplies our corporate retail base of 162 stores. This larger geographic reach allows for increased scale as we leverage the organization to enhance the ability of our independent retailers to compete long term in the grocery industry.

-3-


 

On a national account basis, SpartanNash also services a large retailer, with certain product classes, outside of the traditional grocery supermarket industry. Food Distribution sales are made to more than 11,500 retail locations for this customer, representing more than 5% of total SpartanNash company revenue. Shipments to these locations are made both from SpartanNash food and military distribution centers. Other than this customer, our Food Distribution customer base is very diverse, with no single customer, excluding corporate-owned stores, exceeding 5% of consolidated net sales.

Our five largest Food Distribution customers (excluding corporate-owned stores) accounted for approximately 35% of our Food Distribution net sales for the 53 week year ended January 3, 2014. In addition, approximately 83% of Food Distribution net sales, including corporate-owned stores, are covered under supply agreements with our Food Distribution customers or are directly controlled by SpartanNash.

Products. Our Food Distribution segment provides a selection of approximately 55,000 stock-keeping units (SKU’s), including dry groceries, produce, dairy products, meat, deli, bakery, frozen food, seafood, floral products, general merchandise, pharmacy and health and beauty care.

Our product line includes multi-tiered families of private brands under the platforms of Spartan, Our Family and IGA. A complete variety of national brands is available in commodities including grocery, dairy, frozen, meat, seafood, produce, floral, bakery, deli, general merchandise and health and beauty care. These market leading products, along with best in class services, allow the retailer the opportunity to support the entire operation with a single supplier. Meeting consumers’ needs will continue to be our mission as we execute our hybrid model of wholesale, retail and military supply.

Food Distribution Functions. Our Food Distribution network is comprised of 12 distribution centers with approximately 5.5 million square feet of warehouse space.

We believe our distribution facilities are strategically located to efficiently serve our current customers and have the available capacity to support future growth. We are continually evaluating our inventory movement and assigning SKU’s to appropriate areas within our distribution facilities to reduce the time required to stock and pick products in order to achieve additional efficiencies.

We have several projects planned for the fiscal year ending January 2, 2016. These projects are designed to further integrate our supply chain capabilities across distribution centers and thereby increase the efficiency of both our inbound and outbound distribution operations.

Across our distribution network we operate a fleet of 340 over-the-road tractors, 335 dry vans, and 767 refrigerated trailers. Through routing optimization systems, we carefully manage the 33.4 million miles our fleet drives annually. We remain committed to the ongoing investment required to maintain a best in class fleet while focusing on low cost, environmentally friendly solutions.

Within our fleet we have 92 fifty-three foot refrigerated trailers equipped with a Carrier Vector refrigeration unit. The new Vector units have the capability to run on electric standby, offering an economical and environmentally friendly alternative to diesel fuel.

Additional Services. We also offer and provide many of our independent Distribution customers with value-added services, including:

 

●   Site identification and market analysis

  

●   Coupon redemption

●   Store planning and development

  

●   Product reclamation

●   Marketing, promotion and advertising

  

●   Graphic services

●   Technology and information services

  

●   Category management

●   Accounting, payroll and tax preparation

  

●   Real estate services

●   Human resource services

  

●   Construction management services

●   Fuel technology

  

●   Pharmacy retail and procurement services

●   Account management field sales support

  

●   Retail pricing

●   InSite Business to Business communications

  

●  Security consulting and investigation services

Retail Segment

Our neighborhood market strategy distinguishes our stores from supercenters and limited assortment stores by emphasizing convenient locations, demographically targeted merchandise selections, high-quality fresh offerings, customer service, value pricing and community involvement.

-4-


 

Our Retail segment operates 162 retail supermarkets in the Midwest which operate under banners including Family Fare Supermarkets, No Frills, Bag ‘N Save, Family Fresh Markets, D&W Fresh Markets, Sun Mart and Econo Foods.

Our retail supermarkets typically offer dry groceries, produce, dairy products, meat, frozen food, seafood, floral products, general merchandise, beverages, tobacco products, health and beauty care products, delicatessen items and bakery goods. In 79 of our supermarkets, we also offer pharmacy services. In addition to nationally advertised products, the stores carry private brand items, including flagship Spartan, including Spartan Fresh Selections, and Our Family brands; Top Care, a health and beauty care brand and Tippy Toes by Top Care, a baby brand; Full Circle and Nash Brothers Trading Company, both natural and organic brands; World Classics, a premium, unique and worldly brand; Paws, a pet supplies brand; B-leve, a premium bath and beauty brand; and Valu Time and me too!, value brands. These private brand items provide enhanced retail margins and we believe they help generate increased customer loyalty. See “Merchandising and Marketing – Corporate Brands.” Our retail supermarkets range in size from approximately 10,400 to 92,381 total square feet and average approximately 41,400 total square feet per store.

We operate 29 fuel centers primarily at our supermarket locations operating under the banners Family Fare Quick Stop, D&W Quick Stop, VG’s Quick Stop, Forest Hills Quick Stop, FTC Express Fuel and Sunmart Express Fuel. These fuel centers offer refueling facilities and in the adjacent convenience store, a limited variety of popular consumable products. Our prototypical Quick Stop stores are approximately 1,100 square feet in size and are generally located adjacent to our supermarkets. We have experienced increases in supermarket sales upon opening fuel centers and initiating cross-merchandising activities. We are planning to continue to open additional fuel centers at certain of our supermarket locations over the next few years.

Our stores are primarily the result of acquisitions from January 1999 to December 2013, including the merger with Nash-Finch. The following chart details the changes in the number of our stores over the last five fiscal years:

 

 

 

Number of Stores

 

 

Stores Acquired

 

 

Stores Closed or

 

 

Number of

 

 

 

at Beginning of

 

 

or Added During

 

 

Sold During

 

 

Stores at End

 

Fiscal Year

 

Fiscal Year

 

 

Fiscal Year

 

 

Fiscal Year

 

 

of Fiscal Year

 

March 26, 2011

 

 

96

 

 

 

1

 

 

 

-

 

 

 

97

 

March 31, 2012

 

 

97

 

 

 

-

 

 

 

1

 

 

 

96

 

March 30, 2013

 

 

96

 

 

 

5

 

 

 

-

 

 

 

101

 

December 28, 2013

 

 

101

 

 

 

78

 

 

 

7

 

 

 

172

 

January 3, 2015

 

 

172

 

 

 

1

 

 

 

11

 

 

 

162

 

During the fiscal year ended January 3, 2015, we opened one new store, completed ten major remodels and completed many limited remodels.  We also substantially completed construction on a new store and fuel center which opened in fiscal 2015.  We also converted 15 stores to the Family Fare banner.

 

We expect to continue making progress with our capital investment program during fiscal 2015 by opening one new store and fuel center in North Dakota, opening additional fuel centers or entering partnerships with existing fuel operations and completing nine major remodels primarily outside of our Michigan market.  We will continue to evaluate our store base and may close up to ten stores over the course of 2015.  We evaluate proposed projects based on demographics and competition within each market, and prioritize projects based on their expected returns on investment.  Approval of proposed capital projects requires a projected internal rate of return that meets or exceeds our policy; however, we may undertake projects that do not meet this standard to the extent they represent required maintenance or necessary infrastructure improvements.  In addition, we perform a post completion review of financial results versus our expectation on all major projects.  We believe that focusing on such measures provides us with an appropriate level of discipline in our capital expenditures process.

Products

We offer a wide variety of grocery products, general merchandise and health and beauty care, pharmacy, fuel and other items and services. Our consolidated net sales include the net sales of our Military segment, corporate-owned stores and fuel centers in our Retail segment and the net sales of our Food Distribution business, which excludes sales to affiliated stores.

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The following table presents sales by type of similar product and services:

 

 

January 3, 2015

 

 

December 28, 2013

 

 

March 30, 2013

 

(Dollars in thousands)

(53 weeks)

 

 

(39 weeks)

 

 

(52 weeks)

 

Non-perishables (1)

$

4,998,895

 

 

 

63.1

%

 

$

1,393,157

 

 

 

53.6

%

 

$

1,289,461

 

 

 

49.4

%

Perishables (2)

 

2,449,562

 

 

 

31.0

 

 

 

894,783

 

 

 

34.5

 

 

 

930,659

 

 

 

35.7

 

Fuel

 

178,111

 

 

 

2.2

 

 

 

145,631

 

 

 

5.6

 

 

 

179,012

 

 

 

6.9

 

Pharmacy

 

289,494

 

 

 

3.7

 

 

 

163,659

 

 

 

6.3

 

 

 

209,028

 

 

 

8.0

 

Consolidated net sales

$

7,916,062

 

 

 

100

%

 

$

2,597,230

 

 

 

100

%

 

$

2,608,160

 

 

 

100

%

(1)

Consists primarily of general merchandise, grocery, beverages, snacks and frozen foods.

(2)

Consists primarily of produce, dairy, meat, bakery, deli, floral and seafood.

Reporting Segment Financial Data

More detailed information about our reporting segments may be found in Note 17 to the consolidated financial statements included in Item 8, which is herein incorporated by reference. All of our sales and all of our assets are in the United States of America.

Discontinued Operations

Certain of our retail and food distribution operations have been recorded as discontinued operations. Discontinued retail operations consist of certain stores that have been closed or sold. Discontinued food distribution operations consist of our Maumee, Ohio and Toledo, Ohio distribution centers that previously serviced retail stores which have been closed or sold. Additional information may be found in Note 16 to the consolidated financial statements included in Item 8, which is herein incorporated by reference.

Marketing and Merchandising

General. We continue to align our marketing and merchandising strategies with current consumer behaviors by delivering initiatives centered on personalization, digital, value, and health and wellness. These strategies focus on delivering consumer centric programs to effectively leverage the use of loyalty card program data and category management principles to satisfy the consumer’s needs.

We believe that our over-arching focus on the consumer gives us competitive insight into purchasing and consumption behavior. This enables us the flexibility to adapt to rapidly changing market conditions by making tactical adjustments to our marketing and merchandising programs that deliver more tangible value to our customers. To further strengthen our knowledge of the consumer we have several strategic partnerships across data warehousing, analytics, and customer relationship management that will enable us to further our knowledge and understanding of the customer and provide a shopping experience that better meets the changing needs of the consumer.  

Through our numerous strategic partnerships we are able to leverage and further develop SpartanNash’s enterprise approach to customer centricity; benefiting both our Retail and Food Distribution businesses. By harnessing our proprietary data we are able to provide a set of tools and capabilities for the organization that enables us to provide our customers with a more relevant and personalized shopping experience. This effort also enables us to continue to learn more about our best customers; develop strategies to enable long-term customer and supplier loyalty; deploy a more effective and efficient marketing spend; and ultimately make better business decisions.

As we continue to build this capability, along with our other strategies to develop and leverage insights, we will continue to share our marketing and merchandising learnings and best practices across our broad wholesale customer base.  

Our “yes Rewards” program continues to play a key role in providing us with sophisticated data to understand our customers’ purchasing behavior. This information is integral to improving the effectiveness of our promotions, marketing and merchandising programs. We have continued to center our engagement with the consumer on our key value propositions: fuel promotions, in-store savings, pharmacy and digital promotions. We have seen positive increases in sales, engagement and long-term loyalty across our key customer segments. Our focus in 2014 has been on providing relevant, personalized 1:1 content across all of our marketing channels and focusing on expanding our digital, social and mobile capabilities. This will help us to further build longer-term customer loyalty, maintain efficient marketing spend and increase return on investment, improve our sales growth opportunities and further strengthen our market position.

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As we expand our service offerings, we believe that we differentiate ourselves from our competitors by offering a full set of services, from value added services in our Food Distribution segment to the inclusion of fuel centers and Starbucks Coffee or Caribou Coffee shops in some of our retail stores.

To engender loyalty with our retail customers, we provide them with discounts on fuel purchases at our fuel centers. Fuel centers have proven to be effective traffic-builders for fuel-participating customers who wish to take advantage of cross-promotions between the stores and the Quick Stop fuel centers or one of our third party fuel suppliers. Consumers are focusing on value in today’s economy and offerings such as the fuel rewards program are helping us to meet that need.

We offer pharmacy services in 79 of our supermarkets and we also operate three free-standing pharmacy locations. We believe the pharmacy service offering in our supermarkets is an important part of the consumer experience. We continue to evolve our pharmacy program by connecting with the consumer and focusing on health and wellness. In our Michigan pharmacies, we offer free medications (antibiotics, diabetic medications and pre-natal vitamins) along with generic drugs for $4 and $10 as well as food solutions for preventative health and education for our customers. We are considering the possible expansion of these programs to our pharmacies outside of Michigan.

As consumers increasingly continue to focus on their health and wellness we believe that we have the ability to be a provider and resource for products and services that will support their needs. We achieve this through several key ways. First, our Nutrition Guide tag program which provides nutrition information on shelf tags for thousands of items throughout the store. Second, we have incorporated the Food Marketing Institute’s “Facts Up Front” nutrition labeling on our Spartan and Spartan Fresh Selections private brand packages and intend to incorporate this on the Our Family brand as a 2015 initiative. Third, we provide in-store dieticians and nutritionists in our Family Fresh banner. They serve as an invaluable resource for nutrition counseling, health and wellness programs, cooking classes and an educational resource both in and out of the store. Fourth, we have substantially increased our product offering and assortment for organics and other health and wellness offerings across the store such as gluten-free, meat-free, and non-GMO. We are also proud to work with an extensive network of local farmers and vendors to provide locally grown produce and products in each of our retail markets.  

At SpartanNash, we are committed to being a consumer driven retailer. In fiscal 2009, we implemented a customer satisfaction program that gives consumers a channel for communicating their store experiences. Retail customers are randomly selected via point-of-sale receipts and invited to give us feedback by completing an online survey. Results of these surveys help us assess overall customer satisfaction and identify several opportunities to focus on to drive consumer satisfaction and loyalty. From this program, we have developed a fresh selection initiative to drive our competitive advantage. We value the opinions of our consumers and believe the best way to deliver a high quality shopping experience is to let customers tell us what they want and need. We believe this survey dialogue will better enable us to identify opportunities for continuous improvements for consistency and excellence in the overall consumer experience.

Private Brands. SpartanNash currently markets and distributes over 7,400 total private brand items and over 4,500 unique private brand items including Spartan, Spartan Fresh Selections, Our Family, IGA and Piggly Wiggly brands; Top Care, a health and beauty care brand; Tippy Toe, a baby brand; Full Circle and Nash Brothers Trading Company, both natural and organic brands; World Classics, a premium, unique and worldly brand; Paws, a pet supplies brand; B-leve, a premium bath and beauty brand; and Valu Time and me too!, both value brands. We believe that our private brand offerings are part of our most valuable strategic assets, demonstrated through customer loyalty and profitability.

We have worked diligently to develop a best in class private brand program that contains multiple labels and go-to-market strategies. We have added more than 400 total and 250 unique corporate brand products to our consumer offerings in the past year and plan to introduce approximately 500 new total items and approximately 300 new unique items in fiscal 2015. Our products have been frequently recognized for excellence in packaging design and product development. These awards underscore our continued commitment to providing the consumer with quality products at exceptional value. Our focus is and will continue to be the pursuit of new opportunities and expansion of private brand offerings to our consumers.

Competition

Our Military, Food Distribution and Retail segments operate in highly competitive markets, which typically result in low profit margins for the industry as a whole. We compete with, among others, regional and national grocery distributors, independently owned retail grocery stores, large chain stores that have integrated wholesale and retail operations, mass merchandisers, limited assortment stores and wholesale membership clubs, many of whom have greater resources than we do.

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We are one of five distributors in the United States with annual sales to the DeCA commissary system in excess of $100 million that distributes products via the frequent delivery system. The remaining distributors that supply DeCA tend to be smaller, regional and local providers. In addition, manufacturers contract with others to deliver certain products, such as baking supplies, produce, deli items, soft drinks and snack items, directly to DeCA commissaries and service exchanges. Because of the narrow margins in this industry, it is of critical importance for distributors to achieve economies of scale, which is typically a function of the density or concentration of military bases within the geographic market(s) a distributor serves, and the distributor’s share of each market. As a result, no single distributor in this industry, by itself, has a nationwide presence. Rather, distributors tend to concentrate on specific regions, or areas within specific regions, where they can achieve critical mass and utilize warehouse and distribution facilities efficiently. In addition, distributors that operate larger non-military specific distribution businesses tend to compete for DeCA commissary business in areas where such business would enable them to more efficiently utilize the capacity of their existing distribution centers. We believe the principal competitive factors among distributors within this industry are customer service, price, operating efficiencies, reputation with DeCA and location of distribution centers. We believe our competitive position is very strong with respect to all these factors within the geographic areas where we compete.

The primary competitive factors in the food distribution business include price, product quality, variety and service. We believe our overall service level, defined as actual units shipped divided by actual units ordered is among industry leading performance in our distribution segments.

The principal competitive factors in the retail grocery business include the location and image of the store; the price, quality and variety of the perishable products; and the quality and consistency of service. We believe we have developed and implemented strategies and processes that allow us to remain competitive in our Retail segment. We monitor planned store openings by our competitors and have established proactive strategies to respond to new competition both before and after the competitive store opening. Strategies to combat competition vary based on many factors, such as the competitor’s format, strengths, weaknesses, pricing and sales focus. During the past three fiscal years, fifteen competitor supercenters opened in markets in which we currently operate corporate-owned stores. Five additional openings are expected to occur during fiscal 2015 against our corporate-owned stores. As a result of these openings we believe the majority of our supermarkets compete with one, if not multiple, supercenters.

Seasonality

Many northern Michigan stores are dependent on tourism and therefore, are most affected by seasons and weather patterns, including, but not limited to, the amount and timing of snowfall during the winter months and the range of temperature during the summer months. Our first quarter consists of 16 weeks and will usually include the Easter holiday while all other quarters consist of 12 weeks each with the fourth quarter including the Thanksgiving and Christmas holidays. Fiscal year ended January 3, 2015 contained 53 weeks; therefore, the fourth quarter of fiscal 2014 consisted of 13 weeks rather than 12 weeks. The transition fiscal year ended December 28, 2013 consisted of 39 weeks; therefore, the third and final quarter of the short year consisted of 15 weeks rather than 16 weeks.

Suppliers

We purchase products from a large number of national, regional and local suppliers of name brand and private brand merchandise. We have not encountered any material difficulty in procuring or maintaining an adequate level of products to serve our customers. No single supplier accounts for more than 5.0% of our purchases. We continue to develop strategic relationships with key suppliers and we believe this will prove valuable in the development of enhanced promotional programs and consumer value perceptions.

Intellectual Property

We own valuable intellectual property, including trademarks and other proprietary information, some of which are of material importance to our business.

Technology

Over the last year the SpartanNash information technology organization has been focused on the integration of systems from the two original legacy companies, Spartan Stores and Nash Finch.  The integration strategy is based on choosing from the existing portfolio of systems from each legacy company.  This strategy allows SpartanNash to achieve operational efficiencies and  to operate as one company as efficiently as possible.  In a few cases there is a desire to replace an older system chosen; however, these will be deferred until after the corresponding function has been standardized on to a single system.  This has created a set of over 60 projects to achieve this conversion and consolidation.  These projects have been laid out in a three to four year schedule that allows SpartanNash to achieve the planned synergies and provide the best experience for our customers from the resulting systems.  During the last year there were additional projects completed which were unrelated to the integration of the two companies.

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Supply Chain. During fiscal 2014, we began the process of combining our Master Data Management systems to standardize customer, vendor and item information.  This effort is large and complex and therefore will continue into fiscal 2015. We began the process of combining the functions of our procurement systems which will continue through 2015. A number of the logistics systems were consolidated and standardized including inbound optimization, inbound scheduling and outbound routing.  We also standardized the transportation maintenance management system.  In the non-integration area, we continue to test and refine our use of Automated Guided Vehicles in our Grand Rapids Distribution center.

Retail Systems. During fiscal 2014, we upgraded and standardized the retail communication infrastructure in the legacy Nash Finch stores.  We began to standardize mechanized data and the supporting item, price and promotion systems. This work is in preparation for the roll out of standardized point-of-sale (“POS”) and in-store systems in 2015.  We also began a multi-year development effort for the major upgrade of our POS software.  In non-integration projects we began the installation of a new Electronic Payment system.  We completed the implementation of a new consumer data management system and we completed the first phase of the installation of a major new loyalty analytic system to support analysis of our customer loyalty data.

Administrative Systems. During fiscal 2014, we completed the consolidation on to a common general ledger system and fixed asset system. We completed the consolidation onto a single human resource, payroll, benefits administration system and communication system.  We made significant progress to consolidate onto a common EDI system.  

Information Technology Infrastructure. The integration plan includes consolidating from four data centers to two data centers.   Several processing, storage, and backup storage systems were upgraded in preparation for the consolidation of the processing environments.  To support the transition we added a very high capacity communication link between the two original primary data centers.

Associates

As of January 3, 2015, we employed approximately 16,100 associates, 8,500 of which are on a full-time basis and 7,600 of which are part-time. Approximately 1,300 associates, or 8%, were represented by unions under collective bargaining agreements that will expire between October 2015 through February 2017 years and consisted primarily of warehouse personnel and drivers at our Michigan, Ohio and Indiana distribution centers. We consider our relations with our union and non-union associates to be good and have not had any material work stoppages in over twenty years.

Regulation

We are subject to federal, state and local laws and regulations concerning the conduct of our business, including those pertaining to the workforce and the purchase, handling, sale and transportation of our products. Several of our products are subject to federal Food and Drug Administration regulation. We believe that we are in substantial compliance in all material respects with the Food and Drug Administration and other federal, state and local laws and regulations governing our businesses.

Forward-Looking Statements

The matters discussed in this Item 1 include forward-looking statements. See “Forward-Looking Statements” at the beginning of this Annual Report on Form 10-K.

Available Information

The address of our web site is www.spartannash.com. The inclusion of our website address in this Form 10-K does not include or incorporate by reference the information on or accessible through our website, and you should not consider information contained on or accessible through those websites as part of this Form 10-K. We make our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other reports (and amendments to those reports) filed or furnished pursuant to Section 13(a) of the Securities Exchange Act available on our web site as soon as reasonably practicable after we electronically file or furnish such materials with the Securities and Exchange Commission. Interested persons can view such materials without charge by clicking on “For Investors” and then “SEC Filings” on our web site. SpartanNash is a “large accelerated filer” within the meaning of Rule 12b-2 under the Securities Exchange Act.

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Item  1A.

Risk Factors

Our business faces many risks. If any of the events or circumstances described in the following risk factors occurs, our financial condition or results of operations may suffer, and the trading price of our common stock could decline. This discussion of risk factors should be read in conjunction with the other information in this Annual Report on Form 10-K. All of our forward-looking statements are affected by the risk factors discussed in this item and this discussion of risk factors should be read in conjunction with the discussion of forward-looking statements which appears at the beginning of this report.

We operate in an extremely competitive industry. Many of our competitors are much larger than we are and may be able to compete more effectively.

The Military segment faces competition from large national and regional food distributors as well as smaller distributors. Due to the narrow margins in the military food distribution industry, it is of critical importance for distributors to achieve economies of scale, which are typically a function of the density or concentration of military bases in the geographic markets a distributor serves and a distributor’s share of that geographic market. As a result, no single distributor in this industry, by itself, has a nationwide presence.

Our Food Distribution and Retail segments compete with, among others, regional and national grocery distributors, independently owned retail grocery stores, large chain stores that have integrated wholesale and retail operations, mass merchandisers, limited assortment stores and wholesale membership clubs, many of whom have greater resources than we do. Some of our distribution and retail competitors are substantially larger and have greater financial resources and geographic scope, lower merchandise acquisition costs and lower operating expenses than we do, intensifying competition at the wholesale and retail levels.

The effects of industry consolidation and the expansion of alternative store formats have resulted in, and continue to result in, market share losses for traditional grocery stores. These trends have produced even stronger competition for our retail business and for the independent customers of our food distribution business. To the extent our independent customers are acquired by our competitors or are not successful in competing with other retail chains and non-traditional competitors, sales by our food distribution business will be affected. If we fail to implement strategies to respond effectively to these competitive pressures, our operating results could be adversely affected by price reductions, decreased sales or margins, or loss of market share.

This competition may result in reduced profit margins and other harmful effects on us and the Food Distribution customers that we supply. Ongoing industry consolidation could result in our loss of customers that we currently supply and could confront our retail operations with competition from larger and better-capitalized chains in existing or new markets. We may not be able to compete successfully in this environment.

Our businesses could be negatively affected if we fail to retain existing customers or attract significant numbers of new customers.

Growing and increasing the profitability of our distribution businesses is dependent in large measure upon our ability to retain existing customers and capture additional distribution customers through our existing network of distribution centers, enabling us to more effectively utilize the fixed assets in those businesses. Our ability to achieve these goals is dependent, in part, upon our ability to continue to provide a high level of customer service, offer competitive products at low prices, maintain high levels of productivity and efficiency, particularly in the process of integrating new customers into our distribution system, and offer marketing, merchandising and ancillary services that provide value to our independent customers. If we are unable to execute these tasks effectively, we may not be able to attract significant numbers of new customers, and attrition among our existing customer base could increase, either or both of which could have an adverse impact on our revenue and profitability.

Growing and increasing the profitability of our retail business is dependent upon increasing our market share in the communities where our retail stores are located. We plan to invest in redesigning some of our retail stores into other formats in order to attract new customers and increase our market share. Our results of operations may be adversely impacted if we are unable to attract significant numbers of new retail customers.

Government regulation could harm our business.

Our business is subject to extensive governmental laws and regulations including, but not limited to, employment and wage laws and regulations, regulations governing the sale of pharmaceuticals, alcohol and tobacco, minimum wage requirements, working condition requirements, public accessibility requirements, citizenship requirements, environmental regulation, and other laws and regulations. A violation or change of these laws could have a material effect on our business, financial condition and results of operations.

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Like other companies that sell food and drugs, our stores are subject to various federal, state, local, and foreign laws, regulations, and administrative practices affecting our business. We must comply with numerous provisions regulating health and sanitation standards, facilities inspection, food labeling, and licensing for the sale of food, drugs, tobacco and alcoholic beverages.

We cannot predict the nature of future laws, regulations, interpretations, or applications, or determine what effect either additional government regulations or administrative orders, when and if promulgated, or disparate federal, state, local, and foreign regulatory requirements will have on our future business. They could, however, require that we recall or discontinue sale of certain products, make substantial changes to our facilities or operations, or otherwise result in substantial increases in operating expense. Any or all of such requirements could have an adverse effect on our results of operations and financial condition.

Our Military segment operations are dependent upon domestic and international military distribution.  A change in the military commissary system, or level of governmental funding, could negatively impact our results of operations and financial condition.

Because our Military segment sells and distributes grocery products to military commissaries and exchanges in the United States and overseas, any material changes in the commissary system, the level of governmental funding to DeCA, military staffing levels, or the locations of bases may have a corresponding impact on the sales and operating performance of this segment. These changes could include privatization of some or all of the military commissary system, relocation or consolidation of commissaries and exchanges, base closings, troop redeployments or consolidations in the geographic areas containing commissaries and exchanges served by us, or a reduction in the number of persons having access to the commissaries and exchanges. Mandated reductions in the government expenditures, including those imposed as a result of sequestration, may impact the level of funding to DeCA and could have a material impact on our operations.

We are subject to state and federal environmental regulations.

Under various federal, state and local laws, ordinances and regulations, we may, as the owner or operator of our locations, be liable for the costs of removal or remediation of contamination at these current or our former locations, whether or not we knew of, or were responsible for, the presences of such contamination. The failure to properly remediate such contamination may subject us to liability to third parties and may adversely affect our ability to sell or lease such property or to borrow money using such property as collateral.

Compliance with existing and future environmental laws regulating underground storage tanks may require significant capital expenditures and increased operating and maintenance costs.

The remediation costs and other costs required to clean up or treat contaminated sites could be substantial. In the future, we may incur substantial expenditures for remediation of contamination that has not been discovered at existing or acquired locations. We cannot assure you that we have identified all environmental liabilities at all of our current and former locations; that material environmental conditions not known to us do not exist; that future laws, ordinances or regulations will not impose material environmental liability on us; or that a material environmental condition does not otherwise exist as to any one or more of our locations. In addition, failure to comply with any environmental laws, ordinances or regulations or an increase in regulations could adversely affect our operating results and financial condition.

Changes in accounting standards could materially impact our results.

Generally Accepted Accounting Principles (“GAAP”) and related accounting pronouncements, implementation guidelines, and interpretations for many aspects of our business, such as accounting for insurance and self-insurance, inventories, goodwill and intangible assets, store closures, leases, income taxes and share-based payments, are highly complex and involve subjective judgments. Changes in these rules or their interpretation could significantly change or add significant volatility to our reported earnings without a comparable underlying change in cash flow from operations.

Safety concerns regarding our products could harm our business.

It is sometimes necessary for us to recall unsafe, contaminated or defective products. Recall costs can be material and we might not be able to recover costs from our suppliers. Concerns regarding the safety of food products sold by us could cause customers to avoid purchasing certain products from us, or to seek alternative sources of supply for some or all of their food needs, even if the basis for concern is outside of our control. Any loss of confidence on the part of our customers would be difficult and costly to overcome. Any real or perceived issue regarding the safety of any food or drug items sold by us, regardless of the cause, could have a substantial and adverse effect on our business.

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We may not be able to implement our strategy of growth through acquisitions.

Part of our growth strategy involves selected acquisitions of additional retail grocery stores, grocery store chains or distribution facilities. We may not be able to implement this part of our growth strategy or ultimately be successful. We may not be able to identify suitable acquisition candidates in the future, complete acquisitions or obtain the necessary financing.

Because we operate in the Food Distribution business, future acquisitions of retail grocery stores could result in us competing with our independent grocery store customers and could adversely affect existing business relationships with our Food Distribution customers.

The success of our acquisitions will depend, in part, on whether we achieve the business synergies and related cost savings that we anticipated in connection with these transactions and any future acquisitions. Accordingly, we may not achieve expected results and long-term business goals.

Our business is subject to risks from regional economic conditions, fuel prices, and other factors in our markets.

Our business is sensitive to changes in general economic conditions. In recent years, the United States has experienced volatility in the economy and financial markets due to uncertainties related to energy prices, availability of credit, difficulties in the banking and financial services sector, the decline in the housing market, diminished market liquidity, falling consumer confidence and high unemployment rates. These adverse economic conditions in our markets, potential reduction in the populations in our markets and the loss of purchasing power by residents in our markets could reduce the amount and mix of groceries purchased, could cause consumers to trade down to less expensive mix of products or to trade down to discounters, all of which may affect our revenues and profitability.

Gasoline prices may affect consumer behavior and retail grocery prices. If petroleum prices rise in the future it may prompt consumers to make different choices in how and where they shop due to the high price of gasoline. Additionally, the impact of higher fuel costs is passed through by manufacturers and distributors in the prices of goods and services provided, again potentially affecting consumer buying decisions. This could have adverse impacts on retail store traffic, basket size and overall spending at both our corporate and independent retail stores.

In addition, many of our retail grocery stores, as well as stores operated by our Food Distribution customers, are located in areas that are heavily dependent upon tourism. Unseasonable weather conditions and the economic conditions discussed above may decrease tourism activity and could result in decreased sales by our retail grocery stores and decreased sales to our Food Distribution customers, adversely affecting our business.

Economic downturns and uncertainty have adversely affected overall demand and intensified price competition, and have caused consumers to “trade down” by purchasing lower margin items and to make fewer purchases in traditional supermarket channels. Continued negative economic conditions affecting disposable consumer income such as employment levels, business conditions, changes in housing market conditions, increases in the cost of health care coverage, the availability of credit, interest rates, volatility in fuel and energy costs, food price inflation or deflation, employment trends in our markets and labor costs, the impact of natural disasters or acts of terrorism, and other matters affecting consumer spending could cause consumers to continue shifting even more of their spending to lower-priced products and competitors. The continued general reductions in the level of discretionary spending or shifts in consumer discretionary spending to our competitors could adversely affect our growth and profitability.

Disruptions to worldwide financial and credit markets could potentially reduce the availability of liquidity and credit generally necessary to fund a continuation and expansion of global economic activity. A shortage of liquidity and credit in certain markets has the potential to lead to worldwide economic difficulties that could be prolonged. A general slowdown in the economic activity caused by an extended period of economic uncertainty could adversely affect our businesses. Difficult financial and economic conditions could also adversely affect our customers’ ability to meet the terms of sale or our suppliers’ ability to fully perform their commitments to us.

Macroeconomic and geopolitical events may adversely affect our customers, access to products, or lead to general cost increases which could negatively impact our results of operations and financial condition.

The impact of events in foreign countries which could result in increased political instability and social unrest and the economic ramifications of significant budget deficits in the United States and changes in policy attributable to them at both the federal and state levels could adversely affect our businesses and customers. Adverse economic or geopolitical events could potentially reduce our access to or increase prices associated with products sourced abroad. Such adverse events could lead to significant increases in the price of the products we procure, fuel and other supplies used in our business, utilities, or taxes that cannot be fully recovered through price increases. In addition, disposable consumer income could be affected by these events, which could have a negative impact on our results of operations and financial condition.

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Inflation and deflation may adversely affect our operating results.

It is difficult to forecast whether fiscal 2015 will be a period of inflation or deflation. Food deflation could reduce sales growth and earnings, while food inflation, combined with reduced consumer spending, could reduce gross profit margins. If we experience significant inflation or deflation, especially in the context of continued lower consumer spending, then our financial condition and results of operations may be adversely affected.

Substantial operating losses may occur if the customers to whom we extend credit or for whom we guarantee loan or lease obligations fail to repay us.

In the ordinary course of business, we extend credit, including loans, to our Food Distribution customers, and provide financial assistance to some customers by guaranteeing their loan or lease obligations. We also lease store sites for sublease to independent retailers. Generally, our loans and other financial accommodations are extended to small businesses that are unrelated and may have limited access to conventional financing. As of January 3, 2015, we had loans, net of reserves, of $27.5 million outstanding to 61 of our Food Distribution customers and had guaranteed outstanding lease obligations of Food Distribution customers totaling $0.5 million. In the normal course of business, we also sublease retail properties and assign retail property leases to third parties. As of January 3, 2015, the present value of our maximum contingent liability exposure, with respect to subleases and assigned leases was $16.2 million and $5.5 million, respectively.  We have also guaranteed the bank debt of a Food Distribution customer in the amount of $2.0 million. While we seek to obtain security interest and other credit support in connection with the financial accommodations we extend, such collateral may not be sufficient to cover our exposure. Greater than expected losses from existing or future credit extensions, loans, guarantee commitments or sublease arrangements could negatively and potentially materially impact our operating results and financial condition.

We may be unable to retain our key management personnel.

Our success depends to a significant degree upon the continued contributions of senior management. The loss of any key member of our management team may prevent us from implementing our business plans in a timely manner. We cannot assure you that successors of comparable ability will be identified and appointed and that our business will not be adversely affected.

A number of our Food Distribution and Military segment associates are covered by collective bargaining agreements.

Approximately 57% and 19% of our associates in our Food Distribution and Military business segments, respectively, are covered by collective bargaining agreements which expire between October 2015 and February 2017. We expect that rising health care, pension and other employee benefit costs, among other issues, will continue to be important topics of negotiation with the labor unions. Upon the expiration of our collective bargaining agreements, work stoppages by the affected workers could occur if we are unable to negotiate an acceptable contract with the labor unions. This could significantly disrupt our operations. Further, if we are unable to control health care and pension costs provided for in the collective bargaining agreements, we may experience increased operating costs and an adverse impact on future results of operations.

Unions may attempt to organize additional employees.

While we believe that relations with our employees are good, we may continue to see additional union organizing campaigns. The potential for unionization could increase as any new related legislation or regulations are passed. We respect our employees’ right to unionize or not to unionize. However, the unionization of a significant portion of our workforce could increase our overall costs at the affected locations and adversely affect our flexibility to run our business in the most efficient manner to remain competitive or acquire new business and could adversely affect our results of operations by increasing our labor costs or otherwise restricting our ability to maximize the efficiency of our operations.

Costs related to multi-employer pension plans and other postretirement plans could increase.

We contribute to the Central States Southeast and Southwest Pension Fund (“Plan”), a multiemployer pension plan. Our participation in this Plan results from obligations contained in collective bargaining agreements with Teamsters locals 406 and 908. We do not administer nor control this Plan, and we have relatively little control over the level of contributions we are required to make. Currently, this Plan is underfunded; and as a result, contributions are scheduled to increase. Additionally, we expect that contributions to this Plan will be subject to further increases. Benefit levels and related issues will continue to create collective bargaining challenges. The amount of any increase or decrease in our required contributions to this Plan will depend upon the outcome of collective bargaining, the actions taken by the trustees who manage the Plan, governmental regulations, actual return on investment of Plan assets, the continued viability and contributions of other contributing employers, and the potential payment of withdrawal liability should we choose to exit a market, among other factors.

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Under current law, an employer that withdraws or partially withdraws from a multi-employer pension plan may incur a withdrawal liability to the plan if it is underfunded. The assessed withdrawal liability represents the portion of the plan’s underfunding that is allocable to the withdrawing employer under very complex actuarial and allocation rules. Withdrawal liability may be incurred under a variety of circumstances, including selling, closing or substantially reducing employment at a facility. Withdrawal liability could be material, and potential exposure to withdrawal liability may influence business decisions and could cause the Company to forgo business opportunities. We are currently unable to reasonably estimate such liability. On December 13, 2014, Congress passed the Multiemployer Pension Reform Act of 2014 (“MPRA”).  The MPRA is intended to address funding shortfalls in both multiemployer pension plans and the Pension Benefit Guaranty Corporation.  Because the MPRA is a complex piece of legislation, its effects on the Plan and potential implications for the Company are not known at this time.  Any adjustment for withdrawal liability will be recorded when it is probable that a liability exists and can be reasonably estimated.

We maintain defined benefit retirement plans for certain of our employees that do not participate in multi-employer pension plans. These plans are frozen. Expenses associated with the defined benefit plans may significantly increase due to changes to actuarial assumptions or investment returns on plan assets that are less favorable than projected. In addition, changes in our funding status could adversely affect our financial position.

Risks associated with insurance plan claims could increase future expenses.

We use a combination of insurance and self-insurance to provide for potential liabilities for workers’ compensation, automobile and general liability, property insurance, director and officers’ liability insurance, and employee health care benefits. The liabilities that have been recorded for these claims represent our best estimate, using generally accepted actuarial reserving methods, of the ultimate obligations for reported claims plus those incurred but not reported for all claims incurred through January 3, 2015. Any actuarial projection of losses is subject to a high degree of variability. Changes in legal trends and interpretations, variability in inflation rates, changes in the nature and method of claims settlement, benefit level changes due to changes in applicable laws, and changes in discount rates could all affect the level of reserves required and could cause future expense to maintain reserves at appropriate levels.

Costs related to associate healthcare benefits are expected to continue to increase.

We provide health benefits for a large number of associates. Our costs to provide such benefits continue to increase annually and recent legislative initiatives regarding healthcare reform have had a direct financial impact.  However, we have carefully analyzed the costs of compliance with these initiatives and believe we have mitigated much of the impact through plan design and vendor negotiations.  We will continue to stay abreast of these legislative changes and monitor their impact.  Future legislative changes could negatively impact our financial condition and results of operations.. In addition, we participate in various multi-employer health plans for our union associates, and we are required to make contributions to these plans in amounts established under collective bargaining agreements. The cost of providing benefits through such plans has escalated rapidly in recent years. The amount of any increase or decrease in our required contributions to these multi-employer plans will depend upon many factors, many of which are beyond our control. If we are unable to control the costs of providing healthcare to associates, we may experience increased operating costs, which may adversely affect our financial condition and results of operations.

Changes in vendor promotions or allowances, including the way vendors target their promotional spending, and our ability to effectively manage these programs could significantly impact our margins and profitability.

We cooperatively engage in a variety of promotional programs with our vendors. As the parties assess the results of specific promotions and plan for future promotions, the nature of these programs and the allocation of dollars among them changes over time. We manage these programs to maintain or improve margins while at the same time increasing sales for us and for the vendors. A reduction in overall promotional spending or a shift in promotional spending away from certain types of promotions that we and our distribution customers have historically utilized could have a significant impact on profitability.

We depend upon vendors to supply us with quality merchandise at the right time and at the right price.

We depend heavily on our ability to purchase merchandise in sufficient quantities at competitive prices. We have no assurances of continued supply, pricing, or access to new products and any vendor could at any time change the terms upon which it sells to us or discontinue selling to us. Sales demands may lead to insufficient in-stock positions of our merchandise.

Significant changes in our ability to obtain adequate product supplies due to weather, food contamination, regulatory actions, labor supply, strikes, labor unrest or product vendor defaults or disputes that limit our ability to procure products for sale to customers could have an adverse effect on our operating results.

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Threats to security or the occurrence of a health pandemic could harm our business.

Our business could be severely impacted by wartime activities, threats or acts of terrorism or a widespread health pandemic. Any of these events could adversely impact our business by disrupting delivery of products to our corporate stores or our independent retail customers, by affecting our ability to appropriately staff our stores and by causing customers to avoid public places.

Disruptions to our information technology systems, including security breaches and cyber-attacks, could negatively affect our business.

We have large, complex information technology systems that are important to our business operations.  We could incur significant losses due to disruptions in our systems and business if we were to experience difficulties accessing data stored in our information technology systems.

We gather and store sensitive information, including personal information about our customers and employees as well as proprietary information of our customers and vendors.  Although we have implemented security programs and disaster recovery facilities and procedures, security could be compromised and systems disruptions, data theft or other criminal activity could occur. This could result in a loss of sales or profits or cause us to incur significant costs to restore our systems or to reimburse third parties for damages.

As a merchant that accepts debit and credit cards for payment, we are subject to the Payment Card Industry Data Security Standard (“PCI DSS”), issued by the PCI Council.   PCI DSS contains compliance guidelines and standards with regard to our security involving the physical and electronic storage, processing and transmission of individual cardholder data.  By accepting debit cards for payment, we are also subject to compliance with American National Standards Institute data encryption standards, and payment network security operating guidelines.  Despite our compliance with these standards and other information security measures, we cannot be certain that all of our IT systems are able to prevent, contain or detect any cyber-attacks or security breaches from known malware or malware that may be developed in the future. To the extent that any disruption results in the loss, damage or misappropriation of information, we may be adversely affected by claims from customers, financial institutions, regulatory authorities, payment card associations and others. In addition, the cost of complying with stricter privacy and information security laws and standards could be significant to us.  

Severe weather and natural disasters could harm our business.

Severe weather conditions and natural disasters, whether a result of climate change or otherwise, could affect the suppliers from whom we purchase products or the transportation infrastructure used to supply our warehouses or used by us to supply our customers and could cause disruptions in our operations. Unseasonably adverse climatic conditions that impact growing conditions and the crops of food producers may adversely affect the availability or cost of certain products.

Damage to our facilities could harm our business.

A majority of the product we supply to our retail stores, Military and Food Distribution customers flows through our distribution centers. While we believe we have adopted commercially reasonable precautions, insurance programs, and contingency plans, the destruction of, or substantial damage to, our distribution centers due to natural disaster, severe weather conditions, accident, terrorism, or other causes could substantially compromise our ability to distribute products to our retail stores and Military and Food Distribution customers. This could result in a loss of sales, profits and asset value.

Impairment charges for goodwill or other intangible assets could adversely affect our financial condition and results of operations.

We are required to test annually goodwill and intangible assets with indefinite useful lives to determine if impairment has occurred. Additionally, interim reviews must be performed whenever events or changes in circumstances indicate that impairment may have occurred. If the testing performed indicates that impairment has occurred, we are required to record a non-cash impairment charge for the difference between the carrying value of the goodwill or other intangible assets and the implied fair value of the goodwill or other intangible assets in the period the determination is made.

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The testing of goodwill and other intangible assets for impairment requires management to make significant estimates about our future performance and cash flows, as well as other assumptions. These estimates can be affected by numerous factors, including potential changes in economic, industry or market conditions, changes in business operations, changes in competition or changes in our stock price and market capitalization. Changes in these factors, or changes in actual performance compared with estimates of our future performance, may affect the fair value of goodwill or other intangible assets, which may result in an impairment charge. We cannot accurately predict the amount and timing of any impairment of assets. Should the value of goodwill or other intangible assets become impaired, our financial condition and results of operations may be adversely affected.

The Company may be unable to successfully integrate the businesses of Spartan Stores and Nash-Finch and realize the anticipated benefits of the merger.

The merger involved the combination of two companies that formerly operated as independent public companies. The combined Company is required to devote significant management attention and resources to integrating the business practices and operations of Spartan Stores and Nash-Finch. Potential difficulties the combined company may encounter as part of the integration process include the following:

the inability to successfully combine the businesses of Spartan Stores and Nash-Finch in a manner that permits the combined company to achieve the full synergies anticipated to result from the merger;

complexities associated with managing the businesses of the combined company, including the challenge of integrating complex systems, technology, distribution channels, networks and other assets of each of the companies in a seamless manner that minimizes any adverse impact on customers, suppliers, employees and other constituencies;

integrating the workforces of the two companies while maintaining focus on providing consistent, high quality customer service; and

potential unknown liabilities and unforeseen increased expenses or delays associated with the merger, including capital expenditures and one-time costs to integrate the two companies that may exceed current estimates.

The future results of the combined company will suffer if the combined company does not effectively manage its expanded operations following the completion of the merger.

Following the completion of the merger, the size of the business of the combined company increased significantly beyond the former size of either Spartan Stores’ or Nash-Finch’s business. The combined company’s future success depends, in part, upon its ability to manage this expanded business, which will pose substantial challenges for management, including challenges related to the management and monitoring of the combined operations and associated increased costs and complexity. There can be no assurances that the combined company will be successful or that it will realize the expected operating efficiencies, cost savings and other benefits currently anticipated from the merger.

The combined company is expected to incur substantial expenses related to the continued  integration of Spartan Stores and Nash-Finch.

The combined company will continue to incur substantial expenses in connection with the  integration of Spartan Stores and Nash-Finch. There are a large number of processes, policies, procedures, operations, technologies and systems that must be integrated, including purchasing, accounting and finance, sales, payroll, pricing, revenue management, marketing and human resources/benefits. In addition, the businesses of Spartan Stores and Nash-Finch will continue to maintain an administrative presence in Grand Rapids, Michigan, Minneapolis, Minnesota and Norfolk, Virginia. While we have assumed that a certain level of expenses would be incurred, there are many factors beyond our control that could affect the total amount or the timing of the integration expenses. Moreover, many of the expenses that will be incurred are, by their nature, difficult to estimate accurately. These expenses could, particularly in the near term, exceed the savings that the combined company expects to achieve from the elimination of duplicative expenses and the realization of economies of scale and cost savings. These integration expenses likely will result in the combined company taking significant charges against earnings and the amount and exact timing of such charges are somewhat uncertain.

-16-


 

Restrictive covenants imposed by our credit facility and other factors could adversely affect our ability to borrow.

Our ability to borrow additional funds is governed by the terms of our credit facilities. The credit facilities contain financial and other covenants that, among other things, limit the Company’s ability to draw down the full amount of the facility, incur additional debt outside of the credit facility, create new liens on property, make acquisitions, or pay dividends. These covenants may affect our operating flexibility and may require us to seek the consent of the lenders to certain transactions that we may wish to effect. We are not currently restricted by these covenants. Disruptions in the financial markets have in the past resulted in bank failures. One or more of the participants in our credit facility could become unable to fund our future borrowings when needed. We believe that cash generated from operating activities and available borrowings under our credit facility will be sufficient to meet anticipated requirements for working capital, capital expenditures, and debt service obligations for the foreseeable future. However, there can be no assurance that our business will continue to generate cash flow at or above current levels or that we will maintain our ability to borrow under our credit facility. The Company may not be able to refinance its existing debt at similar terms.

The financing arrangements that the combined company entered into in connection with the merger contain restrictions and limitations that could significantly impact SpartanNash’s ability to operate its business.

SpartanNash incurred significant new indebtedness in connection with the merger. The agreements governing the indebtedness of the combined company incurred in connection with the merger contain covenants that, among other things, may, under certain circumstances, place limitations on the dollar amounts paid or other actions relating to:

payments in respect of, or redemptions or acquisitions of, debt or equity issued by the combined company or its subsidiaries, including the payment of dividends on SpartanNash common stock;

incurring additional indebtedness;

incurring guarantee obligations;

paying dividends;

creating liens on assets;

entering into sale and leaseback transactions;

making investments, loans or advances;

entering into hedging transactions;

engaging in mergers, consolidations or sales of all or substantially all of their respective assets; and

engaging in certain transactions with affiliates.

Maintaining our reputation and corporate image is essential to our business success.

Our success depends on the value and strength of our corporate name and reputation. Our name, reputation and image are integral to our business as well as to the implementation of our strategies for expanding our business. Our business prospects, financial condition and results of operations could be adversely affected if our public image or reputation were to be tarnished by negative publicity including dissemination via print, broadcast or social media, or other forms of Internet-based communications. Adverse publicity about regulatory or legal action against us could damage our reputation and image, undermine our customers’ confidence and reduce long-term demand for our products and services, even if the regulatory or legal action is unfounded or not material to our operations. Any of these events could have a negative impact on our results of operations and financial condition.

 

 

Item 1B.

Unresolved Staff Comments

None.

 

 

Item 2.

Properties

We have corporate offices that are located in Grand Rapids, Michigan, Minneapolis, Minnesota and Norfolk, Virginia consisting of approximately 304,100 square feet of office space in buildings we own, and 26,300 square feet which we lease. We also lease four additional off-site storage facilities consisting of approximately 57,800 square feet.

-17-


 

Military Segment

The table below lists the locations and sizes of our facilities used in our Military segment. Unless otherwise indicated, we own each of these distribution centers. The lease expiration dates range from August 2015 to November 2029.

 

 

 

Approx. Size

 

Location

 

(Square Feet)

 

Norfolk, Virginia (1)

 

 

759,434

 

Landover, Maryland (2)

 

 

368,088

 

Columbus, Georgia (3)

 

 

531,900

 

Pensacola, Florida

 

 

355,900

 

Bloomington, Indiana (4)

 

 

501,277

 

Junction City, Kansas

 

 

132,000

 

Oklahoma City, Oklahoma

 

 

608,543

 

San Antonio, Texas

 

 

486,820

 

Total Square Footage

 

 

3,743,962

 

(1)

Includes 188,093 square feet that we lease.

(2)

Leased facility.

(3)

Leased location requiring periodic lease payments to the holder of the outstanding industrial revenue bond. As of January 3, 2015, the outstanding industrial revenue bond associated with this location was held by SpartanNash, and upon expiration of the lease terms, SpartanNash will take title to the property upon redemption of the outstanding bond.

(4)

Includes 30,000 square feet that we lease.

We believe that our distribution facilities are generally well maintained, are generally in good operating condition, have sufficient capacity and are suitable and adequate to carry on our military business.

Food Distribution Segment Real Estate

The following table lists the approximate locations and sizes of our distribution centers primarily used in our Food Distribution operations. Unless otherwise indicated, we own each of these distribution centers. The lease expirations range from May 2015 to November 2017.  Most of the leases have additional renewal option periods available.

 

 

 

Approx. Size

 

Location

 

(Square Feet)

 

St. Cloud, Minnesota

 

 

329,046

 

Fargo, North Dakota

 

 

288,824

 

Minot, North Dakota

 

 

185,250

 

Omaha, Nebraska

 

 

686,783

 

Sioux Falls, South Dakota (1)

 

 

275,414

 

Lumberton, North Carolina (2)

 

 

336,502

 

Statesboro, Georgia (2)

 

 

230,520

 

Bluefield, Virginia

 

 

187,531

 

Bellefontaine, Ohio

 

 

666,045

 

Lima, Ohio (3)

 

 

523,052

 

Westville, Indiana

 

 

631,944

 

Grand Rapids, Michigan

 

 

1,179,582

 

Total Square Footage

 

 

5,520,493

 

 

(1)

Includes 79,300 square feet that we lease.

(2)

Includes 6,400 square feet that we lease.

(3)

Leased facility.

(4)

Includes 5,500 square feet that we lease.

We believe that our distribution facilities are generally well maintained, are generally in good operating condition, have sufficient capacity and are suitable and adequate to carry on our distribution business.

-18-


 

Retail Segment Real Estate

The following table contains the retail banner, number of stores, geographic region and approximate square footage under the banner. We own the facilities of 28 of these stores and lease the facilities of 134 of these stores.

 

Grocery Store

 

Number

 

 

 

 

 

Total

 

Retail Banner

 

of Stores

 

Geographic Region

 

 

 

Square Feet

 

Family Fare Supermarkets

 

66

 

Michigan, Minnesota and North Dakota

 

Leased

 

 

2,654,457

 

Family Fare Supermarkets

 

2

 

North Dakota

 

Owned

 

 

100,303

 

No Frills

 

17

 

Iowa and Nebraska

 

Leased

 

 

885,674

 

VG’s Food and Pharmacy

 

10

 

Michigan

 

Leased

 

 

461,698

 

VG’s Food and Pharmacy

 

1

 

Michigan

 

Owned

 

 

37,223

 

D&W Fresh Markets

 

9

 

Michigan

 

Leased

 

 

435,153

 

D&W Fresh Markets

 

2

 

Michigan

 

Owned

 

 

84,458

 

Sun Mart

 

8

 

Colorado, Minnesota and Nebraska

 

Owned

 

 

238,100

 

Sun Mart

 

3

 

Nebraska

 

Leased

 

 

81,043

 

Bag ‘N Save

 

6

 

Nebraska

 

Leased

 

 

351,182

 

Bag ‘N Save

 

3

 

Nebraska

 

Owned

 

 

188,595

 

Econofoods

 

4

 

Minnesota

 

Leased

 

 

137,533

 

Econofoods

 

4

 

Minnesota and Wisconsin

 

Owned

 

 

94,749

 

Valu Land

 

6

 

Michigan

 

Leased

 

 

135,920

 

Family Fresh Market

 

5

 

Minnesota, Nebraska and Wisconsin

 

Owned

 

 

249,904

 

Family Fresh Market

 

1

 

Minnesota

 

Leased

 

 

32,650

 

Family Thrift Center

 

3

 

South Dakota

 

Leased

 

 

127,107

 

Family Thrift Center

 

1

 

South Dakota

 

Owned

 

 

60,200

 

Supermercado Nuestra Familia

 

2

 

Nebraska

 

Owned

 

 

83,279

 

Supermercado Nuestra Familia

 

1

 

Nebraska

 

Leased

 

 

23,211

 

Forest Hills Foods

 

1

 

Michigan

 

Leased

 

 

50,791

 

Pick ‘n Save

 

1

 

Ohio

 

Leased

 

 

45,608

 

Germantown Fresh Market

 

1

 

Ohio

 

Leased

 

 

31,764

 

Prairie Market

 

1

 

South Dakota

 

Leased

 

 

32,528

 

Dillonvale IGA

 

1

 

Ohio

 

Leased

 

 

25,627

 

Madison Fresh Market

 

1

 

Wisconsin

 

Leased

 

 

21,470

 

Purdue Fresh Market

 

1

 

Indiana

 

Leased

 

 

21,622

 

Wholesale Food Outlet

 

1

 

Iowa

 

Leased

 

 

19,620

 

Total

 

162

 

 

 

 

 

 

6,711,469

 

 

We also own three additional fuel centers that are not reflected in the square footage above: a Family Fare Quick Stop in Michigan that is not included at a supermarket location but is adjacent to our corporate headquarters, FTC Express Gas in Scottsbluff, Nebraska and SunMart Express Gas in Fergus Falls, Minnesota. Also not accounted for in the tables above are stand-alone pharmacies in Cannon Falls, Minnesota, Clear Lake, Iowa and Barron, Wisconsin.

 

 

Item 3.

Legal Proceedings

We are engaged from time-to-time in routine legal proceedings incidental to our business. We do not believe that these routine legal proceedings, taken as a whole, will have a material impact on our business or financial condition. While the ultimate effect of such actions cannot be predicted with certainty, management believes that their outcome will not result in a material adverse effect on the consolidated financial position, operating results or liquidity of SpartanNash.

SpartanNash contributes to the Central States multi-employer pension plan based on obligations arising from its collective bargaining agreements in Bellefontaine, Ohio, Lima, Ohio, and Grand Rapids, Michigan covering its distribution center union associates. This plan provides retirement benefits to participants based on their service to contributing employers. The benefits are paid from assets held in trust for that purpose. Trustees are appointed by contributing employers and unions; however, SpartanNash is not a trustee. The trustees typically are responsible for determining the level of benefits to be provided to participants, as well as for such matters as the investment of the assets and the administration of the plan. SpartanNash currently contributes to the Central States, Southeast and Southwest Areas Pension Fund under the terms outlined in the “Primary Schedule” of Central States’ Rehabilitation Plan. This schedule requires varying increases in employer contributions over the previous year’s contribution. Increases are set within the collective bargaining agreement and vary by location.

-19-


 

Based on the most recent information available to SpartanNash, management believes that the present value of actuarial accrued liabilities in this multi-employer plan significantly exceeds the value of the assets held in trust to pay benefits. Because SpartanNash is one of a number of employers contributing to this plan, it is difficult to ascertain what the exact amount of the underfunding would be, although management anticipates that SpartanNash’s contributions to this plan will increase each year. Management is not aware of any significant change in funding levels since December 28, 2013. To reduce this underfunding, management expects meaningful increases in expense as a result of required incremental multi-employer pension plan contributions in future years. Any adjustment for withdrawal liability will be recorded when it is probable that a liability exists and can be reasonably determined.

Various lawsuits and claims, arising in the ordinary course of business, are pending or have been asserted against SpartanNash. While the ultimate effect of such lawsuits and claims cannot be predicted with certainty, management believes that their outcome will not result in an adverse effect on the consolidated financial position, operating results or liquidity of SpartanNash.

 

 

Item  4.

Mine Safety Disclosure

Not Applicable

 

 

 

-20-


 

 

PART II

 

Item  5.

Market for Registrant’s Common Equity and Related Stockholder Matters

SpartanNash common stock is traded on the NASDAQ Global Select Market under the trading symbol “SPTN.”

Stock sale prices are based on transactions reported on the NASDAQ Global Select Market. Information on quarterly high and low sales prices for SpartanNash common stock appears in Note 18 to the consolidated financial statements and is incorporated here by reference. At February 27, 2015, there were approximately 1,410 shareholders of record of SpartanNash common stock. SpartanNash has paid a quarterly cash dividend every quarter since the fourth quarter of fiscal 2006.

The table below outlines quarterly dividends paid on Spartan Stores and SpartanNash common stock in each of the last four fiscal years and the Board of Directors’ currently anticipated increase in the quarterly dividend:

 

 

 

Dividend per

 

Effective Quarter

 

common share

 

4th quarter Fiscal March 30, 2012

 

$

0.05

 

1st through 4th quarters Fiscal March 31, 2012

 

0.065

 

1st through 4th quarters Fiscal March 30, 2013

 

0.08

 

1st through 4th quarters Fiscal December 28, 2013

 

0.09

 

1st through 4th quarters Fiscal January 3, 2015

 

0.12

 

1st quarter Fiscal January 2, 2016

 

0.135

 

 

Under its senior revolving credit facility, SpartanNash is generally permitted to pay dividends in any fiscal year up to an amount such that all cash dividends, together with any cash distributions, prepayments of its Senior Notes and share repurchases, do not exceed $25.0 million. Additionally, SpartanNash is generally permitted to pay cash dividends in excess of $25.0 million in any fiscal year so long as its Excess Availability, as defined in the senior revolving credit facility is in excess of 15% of the Total Borrowing Base before and after giving effect to the prepayments, repurchases and dividends. Although we expect to continue to pay a quarterly cash dividend, adoption of a dividend policy does not commit the board of directors to declare future dividends. Each future dividend will be considered and declared by the Board of Directors at its discretion. The ability of the Board of Directors to continue to declare dividends will depend on a number of factors, including our future financial condition and profitability and compliance with the terms of our credit facilities. In May 2011, the Board of Directors authorized a five-year share repurchase program for up to $50 million of SpartanNash’s common stock.

During fiscal years ended January 3, 2015 and March 30, 2013, the Company repurchased 245,956 and 634,408 shares of common stock for approximately $5.0 million and $11.4 million, respectively. SpartanNash did not repurchase any shares under this program during the 39 week period ended December 28, 2013. The approximate dollar value of shares that may yet be purchased under the repurchase plan was $21.3 million as of January 3, 2015.

The equity compensation plans table in Item 12 is here incorporated by reference.

The following table provides information regarding SpartanNash’s purchases of its own common stock during the last quarter of the fiscal year ended January 3, 2015. All employee transactions are under associate stock compensation plans. These may include: (1) shares of SpartanNash common stock delivered in satisfaction of the exercise price and/or tax withholding obligations by holders of employee stock options who exercised options, and (2) shares submitted for cancellation to satisfy tax withholding obligations that occur upon the vesting of the restricted shares. The value of the shares delivered or withheld is determined by the applicable stock compensation plan.

-21-


 

 

SpartanNash Company Purchases of Equity Securities

 

 

 

Total

 

 

 

 

 

 

 

Number

 

 

Average

 

 

 

of Shares

 

 

Price Paid

 

Period

 

Purchased

 

 

per Share

 

October 5 – November 1, 2014

 

 

 

 

 

 

 

 

Employee Transactions

 

 

 

 

$

 

Repurchase Program

 

 

124,956

 

 

$

19.97

 

November 2 – November 29, 2014

 

 

 

 

 

 

 

 

Employee Transactions

 

 

 

 

$

 

Repurchase Program

 

 

 

 

$

 

November 30, 2014 – January 3, 2015

 

 

 

 

 

 

 

 

Employee Transactions

 

 

 

 

$

 

Repurchase Program

 

 

 

 

$

 

Total for Quarter ended January 3, 2015

 

 

 

 

 

 

 

 

Employee Transactions

 

 

 

 

$

 

Repurchase Program

 

 

124,956

 

 

$

19.97

 

Performance Graph

Set forth below is a graph comparing the cumulative total shareholder return on SpartanNash common stock to that of the Russell 2000 Total Return Index and the NASDAQ Retail Trade Index, over a period beginning March 26, 2010 and ending on January 3, 2015.

Cumulative total return is measured by the sum of (1) the cumulative amount of dividends for the measurement period, assuming dividend reinvestment and (2) the difference between the share price at the end and the beginning of the measurement period, divided by the share price at the beginning of the measurement period.

-22-


 

 

The dollar values for total shareholder return plotted above are shown in the table below:

 

 

 

March 26,

 

 

March 26,

 

 

March 31,

 

 

March 30,

 

 

December 28,

 

 

January 3,

 

 

 

2010

 

 

2011

 

 

2012

 

 

2013

 

 

2013

 

 

2015

 

SpartanNash

 

$

100.00

 

 

$

105.38

 

 

$

128.74

 

 

$

127.20

 

 

$

174.21

 

 

$

175.09

 

Russell 2000 Total Return Index

 

 

100.00

 

 

 

122.81

 

 

 

125.56

 

 

 

146.04

 

 

 

179.97

 

 

 

188.28

 

NASDAQ Retail Trade

 

 

100.00

 

 

 

115.40

 

 

 

150.59

 

 

 

163.64

 

 

 

194.89

 

 

 

217.82

 

 

The information set forth under the Heading “Performance Graph” shall not be deemed to be “soliciting material” or to be “filed” with the Commission or subject to Regulation 14A or 14C, or to the liabilities of Section 18 of the Exchange Act, except to the extent that the registrant specifically requests that such information be treated as soliciting material or specifically incorporates it by reference into a filing under the Securities Act or the Exchange Act.

 

 

Item 6.

Selected Financial Data

The following table provides selected historical consolidated financial information of SpartanNash. The historical information was derived from our audited consolidated financial statements as of and for each of the five fiscal years ended March 26, 2011 through January 3, 2015. Fiscal years ended January 3, 2015 and March 31, 2012 consisted of 53 weeks; the transition fiscal year ended December 28, 2013 consisted of 39 weeks and all other years presented consisted of 52 weeks. The unaudited 51 week period ended December 28, 2013 is included in the table below for comparison purposes to the 53 week fiscal year ended January 3, 2015.

 

(In thousands, except per share data)

Fiscal Year Ended

 

 

Period Ended

 

 

Fiscal Year Ended

 

 

 

 

 

 

December 28,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

January 3,

 

 

2013

 

 

December 28,

 

 

March 30,

 

 

March 31,

 

 

March 26,

 

Statements of Earnings Data:

2015

 

 

(unaudited)

 

 

2013 (A)

 

 

2013

 

 

2012

 

 

2011

 

 

53 weeks

 

 

51 weeks

 

 

39 weeks

 

 

52 weeks

 

 

53 weeks

 

 

52 weeks

 

Net sales

$

7,916,062

 

 

$

3,190,039

 

 

$

2,597,230

 

 

$

2,608,160

 

 

$

2,634,226

 

 

$

2,533,064

 

Cost of sales

 

6,759,988

 

 

 

2,570,516

 

 

 

2,110,350

 

 

 

2,062,616

 

 

 

2,078,116

 

 

 

1,976,549

 

Gross profit

 

1,156,074

 

 

 

619,523

 

 

 

486,880

 

 

 

545,544

 

 

 

556,110

 

 

 

556,515

 

Other selling, general and administrative expenses

 

1,022,387

 

 

 

546,100

 

 

 

433,450

 

 

 

482,987

 

 

 

489,650

 

 

 

488,017

 

Merger transaction and integration expenses

 

12,675

 

 

 

20,993

 

 

 

20,993

 

 

 

 

 

 

 

 

 

 

Restructuring, asset impairment and other (B)

 

6,166

 

 

 

16,877

 

 

 

15,644

 

 

 

1,589

 

 

 

(23

)

 

 

532

 

Operating earnings

 

114,846

 

 

 

35,553

 

 

 

16,793

 

 

 

60,968

 

 

 

66,483

 

 

 

67,966

 

Interest expense

 

24,414

 

 

 

12,209

 

 

 

9,219

 

 

 

13,410

 

 

 

15,037

 

 

 

15,104

 

Debt extinguishment

 

 

 

 

8,289

 

 

 

5,527

 

 

 

5,047

 

 

 

 

 

 

 

Other, net

 

(17

)

 

 

(27

)

 

 

(23

)

 

 

(756

)

 

 

(110

)

 

 

(97

)

Earnings before income taxes and discontinued

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   operations

 

90,449

 

 

 

15,082

 

 

 

2,070

 

 

 

43,267

 

 

 

51,556

 

 

 

52,959

 

Income taxes

 

31,329

 

 

 

5,914

 

 

 

841

 

 

 

15,425

 

 

 

19,686

 

 

 

20,420

 

Earnings from continuing operations

 

59,120

 

 

 

9,168

 

 

 

1,229

 

 

 

27,842

 

 

 

31,870

 

 

 

32,539

 

Loss from discontinued operations, net of taxes (C)

 

(524

)

 

 

(725

)

 

 

(488

)

 

 

(432

)

 

 

(112

)

 

 

(232

)

Net earnings

$

58,596

 

 

$

8,443

 

 

$

741

 

 

$

27,410

 

 

$

31,758

 

 

$

32,307

 

Basic earnings from continuing operations per share

$

1.57

 

 

$

0.39

 

 

$

0.05

 

 

$

1.28

 

 

$

1.40

 

 

$

1.44

 

Diluted earnings from continuing operations per share

1.57

 

 

0.39

 

 

0.05

 

 

1.27

 

 

1.39

 

 

1.43

 

Basic earnings per share

1.56

 

 

0.36

 

 

0.03

 

 

1.26

 

 

1.39

 

 

1.43

 

Diluted earnings per share

1.55

 

 

0.36

 

 

0.03

 

 

1.25

 

 

1.39

 

 

1.42

 

Cash dividends declared per share

0.48

 

 

0.35

 

 

0.27

 

 

0.32

 

 

0.26

 

 

 

0.20

 

Balance Sheet Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

$

1,932,282

 

 

$

1,983,651

 

 

$

1,983,651

 

 

$

789,667

 

 

$

763,473

 

 

$

751,396

 

Property and equipment, net

 

597,150

 

 

 

628,482

 

 

 

628,482

 

 

 

272,126

 

 

 

256,776

 

 

 

241,448

 

Working capital

 

433,200

 

 

 

398,167

 

 

 

398,167

 

 

 

13,179

 

 

 

24,684

 

 

 

47,300

 

Long-term debt and capital lease obligations

 

550,510

 

 

 

598,319

 

 

 

598,319

 

 

 

145,876

 

 

 

133,565

 

 

 

170,711

 

Shareholders’ equity

 

747,253

 

 

 

706,873

 

 

 

706,873

 

 

 

335,655

 

 

 

323,608

 

 

 

305,505

 

(A)

See Note 2 to Consolidated Financial Statements regarding the merger with Nash-Finch Company.

-23-


 

 

(B)

See Note 4 to Consolidated Financial Statements.

(C)

See Note 16 to Consolidated Financial Statements.

Historical data is not necessarily indicative of SpartanNash’s future results of operations or financial condition. See discussion of “Risk Factors” in Part I, Item 1A of this report, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of this report, and the Consolidated Financial Statements and notes thereto in Part II, Item 8 of this Annual Report on Form 10-K.

 

 

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Executive Overview

SpartanNash is headquartered in Grand Rapids, Michigan. Our business consists of three primary operating segments: Military, Food Distribution and Retail. We are a leading multi-regional grocery distributor and grocery retailer and the largest distributor, by revenue, of grocery products to military commissaries and exchanges in the United States.

On November 19, 2013, Spartan Stores, Inc. merged with Nash-Finch Company. Under the terms of the merger agreement, each share of Nash-Finch common stock was converted into 1.2 shares of Spartan Stores common stock. The results of operations of Nash-Finch are included in the accompanying consolidated financial statements from the date of merger. Following the merger, Nash-Finch Company became a wholly-owned subsidiary of SpartanNash.

Our Military segment contracts with manufacturers to distribute a wide variety of grocery products to military commissaries and exchanges located in the United States and the District of Columbia, Europe, Puerto Rico, Cuba, Egypt, Bahrain and Honduras. We have over 40 years of experience acting as a distributor to U.S. military commissaries and exchanges.

Our Food Distribution segment provides a wide variety of nationally branded and private label grocery products and perishable food products including dry groceries, produce, dairy products, meat, deli, bakery, frozen food, seafood, floral products, general merchandise, pharmacy and health and beauty care. The Food Distribution segment operates in 42 states, primarily in the Midwest, Great Lakes, and Southeast regions of the United States, with 12 distribution centers supporting approximately 2,100 independently  owned supermarkets and also supplies our corporate retail base of 162 stores.

Our Retail segment operates 162 supermarkets in the Midwest which operate primarily under the banners of Family Fare Supermarkets, No Frills, Bag ‘N Save, Family Fresh Markets, D&W Fresh Markets, Sun Mart and Econofoods. Our retail supermarkets typically offer dry groceries, produce, dairy products, meat, frozen food, seafood, floral products, general merchandise, beverages, tobacco products, health and beauty care products, delicatessen items and bakery goods. We offer pharmacy services in 79 of our supermarkets and we operate 29 fuel centers. Our retail supermarkets have a “neighborhood market” focus to distinguish them from supercenters and limited assortment stores.

Historically, our fiscal year end was the last Saturday in March. Our fiscal year end was changed to the Saturday closest to the end of December beginning with the transition year ended December 28, 2013. Fiscal years ended January 3, 2015 and March 31, 2012 consisted of 53 weeks; therefore, the fourth quarters of these fiscal years consisted of 13 weeks rather than 12 weeks. The transition fiscal year ended December, 28 2013 consisted of 39 weeks. Typically, under our December fiscal year format, all quarters are 12 weeks, except for our first quarter, which is 16 weeks and will generally include the Easter holiday. Our fourth quarter includes the Thanksgiving and Christmas holidays. Under the March fiscal year format, all quarters consisted of 12 weeks except for the third quarter which consisted of 16 weeks and included the Thanksgiving and Christmas holidays.

In certain markets, our sales and operating performance vary with seasonality. Many stores are dependent on tourism and therefore, are most affected by seasons and weather patterns, including, but not limited to, the amount and timing of snowfall during the winter months and the range of temperature during the summer months. In our Michigan market, under our new fiscal year format, our first and second quarters are typically our lowest sales quarters. Therefore, operating results are generally lower during these two quarters.

SpartanNash has established key management priorities that focus on the longer-term strategy of the Company, including establishing a well-differentiated market offering for our Food Distribution, Military and Retail segments, and additional strategies designed to create value for our shareholders, retailers and customers. These priorities are:

-24-


 

 

Military:

Leverage the size and scale of the existing distribution and retail segments to attract additional customers.

Continue to partner with Coastal Pacific Food Distributors to leverage the advantage of a worldwide distribution network.

Food Distribution:

Leverage new competitive position, scale and financial flexibility to further consolidate the distribution channel.

Leverage retail competency and the capabilities of the combined distribution platform to increase business within the existing account base and potentially add new distribution categories and take advantage of current competitive market dynamics to supply new customers.

Continue to focus on increasing private brand penetration and overall purchase concentration.

Gain efficiencies in all aspects of the supply chain through optimization of the distribution center network.

Retail:

Evaluate banners to maintain a portfolio of customer-relevant offerings for the entire market continuum.

Continue to drive a lean and efficient operating cost structure to remain competitive.

Rationalize store base to maximize capital efficiency and enhance profitability.

Strategically deploy capital to modernize the store base.

Pursue opportunistic roll-ups of existing distribution customers and/or other retailers.

·

Drive value by expanding consumer relationships with pharmacy, fuel and other promotional offerings.  

We are making progress in our work to integrate our retail, food distribution and military distribution businesses. We continue to expect synergies of approximately $35 million and $52 million in fiscal years 2015 and 2016, respectively, and integration costs of approximately $5 million and $2 million in fiscal years 2015 and 2016, respectively.

In fiscal 2015, we expect to continue to grow our business while significantly upgrading our retail systems and facilities. We will continue to leverage our strong business model and have a number of initiatives designed to drive sales and earnings across business segments. However, we expect that folding in the stores acquired in the merger with Nash Finch will create negative headwinds on our comparable stores sales and that lower center store inflation along with the very favorable winter weather in the first quarter of fiscal 2014 will result in our first quarter operational results approximating the first quarter of last year for adjusted earnings from continuing operations.   We anticipate our financial performance will improve sequentially as we cycle the favorable winter weather experienced in the first quarter last year, benefit from the remodels completed in fiscal 2014 and first half of fiscal 2015 and rollout of our merchandising, pricing and promotional programs to all stores. We plan to complete a total of nine major remodels and store re-banners in fiscal 2015, with six scheduled for the first half of the year, and anticipate these will lead to improved sales in the second half of the year. We also remain focused on improving the efficiency of our operations and intend to close up to ten stores in fiscal 2015 as part of the optimization of our overall store base. Additionally, we will consolidate one of our warehouse facilities in the first quarter.

The matters discussed in this Item 7 include forward-looking statements. See “Forward-Looking Statements” at the beginning and “Risk Factors” in Item 1A of this Annual Report on Form 10-K.

-25-


 

 

Results of Operations

The following table sets forth items from our Consolidated Statements of Earnings as a percentage of net sales and the year-to-year percentage change in dollar amounts:

 

 

Percentage of Net Sales

 

 

Percentage Change

 

 

January 3,

 

 

December 28,

 

 

December 28,

 

 

January 5,

 

 

1/3/2015 to

 

 

12/28/2013

 

 

2015

 

 

2013

 

 

2013

 

 

2013

 

 

12/28/2013

 

 

to 1/5/2013

 

(Unaudited)

(53 Weeks)

 

 

(51 Weeks)

 

 

(39 weeks)

 

 

(40 weeks)

 

 

53 vs. 51

 

 

39 vs. 40

 

Net sales

 

100.0

 

 

 

100.0

 

 

 

100.0

 

 

 

100.0

 

 

 

148.1

 

 

 

28.9

 

Gross profit

 

14.6

 

 

 

19.4

 

 

 

18.7

 

 

 

20.5

 

 

 

86.6

 

 

 

17.9

 

Merger transaction and integration expenses

 

0.1

 

*

 

0.7

 

 

 

0.8

 

 

 

-

 

 

 

(39.6

)

 

**

 

Selling, general and administrative expenses

 

12.9

 

 

 

17.1

 

 

 

16.7

 

 

 

18.4

 

 

 

87.2

 

 

 

17.0

 

Restructuring, asset impairment and other

 

0.1

 

 

 

0.5

 

 

 

0.6

 

 

 

-

 

 

 

(63.5

)

 

**

 

Operating earnings

 

1.5

 

 

 

1.1

 

 

 

0.6

 

 

 

2.1

 

 

 

223.0

 

 

 

(60.2

)

Other income and expenses

 

0.4

 

*

 

0.6

 

 

 

0.5

 

*

 

0.6

 

 

 

19.2

 

 

 

23.2

 

Earnings before income taxes and discontinued operations

 

1.1

 

 

 

0.5

 

 

 

0.1

 

 

 

1.5

 

 

 

499.7

 

 

 

(93.2

)

Income taxes

 

0.4

 

 

 

0.2

 

 

 

0.1

 

*

 

0.5

 

 

 

429.7

 

 

 

(91.9

)

Earnings from continuing operations

 

0.7

 

 

 

0.3

 

 

 

-

 

 

 

1.0

 

 

 

544.9

 

 

 

(93.8

)

Loss from discontinued operations, net of taxes

 

(0.0

)

 

 

(0.0

)

 

 

-

 

 

 

-

 

 

 

(27.7

)

 

**

 

Net earnings

 

0.7

 

 

 

0.3

 

 

 

-

 

 

 

1.0

 

 

 

594.0

 

 

 

(96.2

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

*     Difference due to rounding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

**   Percentage change is not meaningful

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted Operating Earnings

Adjusted operating earnings is a non-GAAP operating financial measure that the Company defines as operating earnings (loss) plus or minus adjustments for items that do not reflect the ongoing operating activities of the Company and costs associated with the closing of operational locations.

The Company believes that adjusted operating earnings provide a meaningful representation of its operating performance for the Company. The Company considers adjusted operating earnings as an additional way to measure operating performance on an ongoing basis. Adjusted operating earnings is meant to reflect the ongoing operating performance of all of its distribution and retail operations; consequently, it excludes the impact of items that could be considered “non-operating” or “non-core” in nature, and also excludes the contributions of activities classified as discontinued operations. Because adjusted operating earnings is a performance measure that management uses to allocate resources, assess performance against its peers and evaluate overall performance, the Company believes it provides useful information for investors. In addition, securities analysts, fund managers and other shareholders and stakeholders that communicate with the Company request its operating financial results in adjusted operating earnings format.

Adjusted operating earnings 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 operating earnings, cash flows from operating activities and other income or cash flow statement data. The Company’s definition of adjusted operating earnings may not be identical to similarly titled measures reported by other companies.

Following is a reconciliation of operating earnings (loss) to adjusted operating earnings for the fiscal year ended January 3, 2015, the 39 week period ended December 28, 2013 and the fiscal year ended March 30, 2013.  For comparison purposes we have also provided a reconciliation of operating earnings from continuing operations to adjusted operating earnings from continuing operations for the 51 weeks ended December 28, 2013.

-26-


 

 

 

 

Year Ended

 

 

Period Ended

 

 

Year Ended

 

 

January 3,

 

 

December 28,

 

 

December 28,

 

 

March 30,

 

(Unaudited)

2015

 

 

2013

 

 

2013

 

 

2013

 

(In thousands)

(53 Weeks)

 

 

(51 Weeks)

 

 

(39 weeks)

 

 

(52 weeks)

 

Operating earnings

$

114,846

 

 

$

35,553

 

 

$

16,793

 

 

$

60,968

 

Adjustments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Asset impairment and restructuring charges

 

6,166

 

 

 

16,877

 

 

 

15,644

 

 

 

1,589

 

Expenses related to merger transaction and integration

 

12,675

 

 

 

20,993

 

 

 

20,993

 

 

 

-

 

Professional fees related to tax planning

 

-

 

 

 

-

 

 

 

-

 

 

 

108

 

Acquisition related professional fees

 

-

 

 

 

-

 

 

 

-

 

 

 

396

 

Stock compensation modifications

 

-

 

 

 

4,174

 

 

 

4,174

 

 

 

-

 

Pension settlement accounting

 

1,578

 

 

 

621

 

 

 

621

 

 

 

-

 

Incremental incentive compensation on tax planning benefit

 

900

 

 

 

-

 

 

 

-

 

 

 

-

 

Gain on sale of assets

 

-

 

 

 

(1,038

)

 

 

(1,038

)

 

 

-

 

Adjusted operating earnings, including 53rd week

 

136,165

 

 

 

77,180

 

 

 

57,187

 

 

 

63,061

 

53rd week

 

(3,673

)

 

 

-

 

 

 

-

 

 

 

-

 

Adjusted operating earnings, excluding 53rd week

$

132,492

 

 

$

77,180

 

 

$

57,187

 

 

$

63,061

 

Reconciliation of operating earnings to adjusted operating earnings by segment:

 

Military:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating earnings

$

21,721

 

 

$

1,901

 

 

$

1,901

 

 

$

-

 

Adjustments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses related to merger transaction and integration

 

27

 

 

 

-

 

 

 

-

 

 

 

-

 

Pension settlement accounting

 

67

 

 

 

-

 

 

 

-

 

 

 

-

 

Incremental incentive compensation on tax planning benefit

 

87

 

 

 

-

 

 

 

-

 

 

 

-

 

Adjusted operating earnings, including 53rd week

 

21,902

 

 

 

1,901

 

 

 

1,901

 

 

 

-

 

53rd week

 

(573

)

 

 

-

 

 

 

-

 

 

 

-

 

Adjusted operating earnings, excluding 53rd week

$

21,329

 

 

$

1,901

 

 

$

1,901

 

 

$

-

 

Food Distribution:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating earnings (loss)

$

54,802

 

 

$

11,388

 

 

$

(1,328

)

 

$

23,920

 

Adjustments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Asset impairment and restructuring (gains) charges

 

(241

)

 

 

599

 

 

 

599

 

 

 

-

 

Expenses related to merger transaction and integration

 

12,644

 

 

 

20,993

 

 

 

20,993

 

 

 

-

 

Professional fees related to tax planning

 

-

 

 

 

-

 

 

 

-

 

 

 

108

 

Stock compensation modifications

 

-

 

 

 

3,961

 

 

 

3,961

 

 

 

-

 

Pension settlement accounting

 

801

 

 

 

236

 

 

 

236

 

 

 

-

 

Incremental incentive compensation on tax planning benefit

 

485

 

 

 

-

 

 

 

-

 

 

 

-

 

Adjusted operating earnings, including 53rd week

 

68,491

 

 

 

37,177

 

 

 

24,461

 

 

 

24,028

 

53rd week

 

(1,132

)

 

 

-

 

 

 

-

 

 

 

-

 

Adjusted operating earnings, excluding 53rd week

$

67,359

 

 

$

37,177

 

 

$

24,461

 

 

$

24,028

 

Retail:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating earnings

$

38,323

 

 

$

22,264

 

 

$

16,220

 

 

$

37,048

 

Adjustments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Asset impairment and restructuring charges

 

6,407

 

 

 

16,278

 

 

 

15,045

 

 

 

1,589

 

Expenses related to merger transaction and integration

 

4

 

 

 

-

 

 

 

-

 

 

 

-

 

Acquisition related professional fees

 

-

 

 

 

-

 

 

 

-

 

 

 

396

 

Stock compensation modifications

 

-

 

 

 

213

 

 

 

213

 

 

 

-

 

Pension settlement accounting

 

710

 

 

 

385

 

 

 

385

 

 

 

-

 

Incremental incentive compensation on tax planning benefit

 

328

 

 

 

-

 

 

 

-

 

 

 

-

 

Gain on sale of assets

 

-

 

 

 

(1,038

)

 

 

(1,038

)

 

 

-

 

Adjusted operating earnings, including 53rd week

 

45,772

 

 

 

38,102

 

 

 

30,825

 

 

 

39,033

 

53rd week

 

(1,968

)

 

 

-

 

 

 

-

 

 

 

-

 

Adjusted operating earnings, excluding 53rd week

$

43,804

 

 

$

38,102

 

 

$

30,825

 

 

$

39,033

 

 

-27-


 

 

Adjusted earnings from Continuing Operations

Adjusted earnings from continuing operations is a non-GAAP operating financial measure that we define as earnings (loss) from continuing operations plus or minus adjustments for items that do not reflect the ongoing operating activities of the Company and costs associated with the closing of operational locations.

We believe that adjusted earnings from continuing operations provide a meaningful representation of our operating performance for the Company. We consider adjusted earnings from continuing operations as an additional way to measure operating performance on an ongoing basis. Adjusted earnings from continuing operations is meant to reflect the ongoing operating performance of all of our distribution and retail operations; consequently, it excludes the impact of items that could be considered “non-operating” or “non-core” in nature, and also excludes the contributions of activities classified as discontinued operations. We believe that adjusted earnings from continuing operations provides useful information for our investors because it is a performance measure that management uses to allocate resources, assess performance against its peers and evaluate overall performance. In addition, securities analysts, fund managers and other shareholders and stakeholders that communicate with us request our operating financial results in adjusted earnings from continuing operations format.

Adjusted earnings from continuing operations is not a measure of performance under accounting principles generally accepted in the United States of America, and should not be considered as a substitute for net earnings, cash flows from operating activities and other income or cash flow statement data. Our definition of adjusted earnings from continuing operations may not be identical to similarly titled measures reported by other companies.

Following is a reconciliation of earnings from continuing operations to adjusted earnings from continuing operations for the fiscal year ended January 3, 2015, the 39 week period ended December 28, 2013 and the fiscal year ended March 30, 2013. For comparison purposes we have also provided a reconciliation of earnings from continuing operations to adjusted earnings from continuing operations for the 51 weeks ended December 28, 2013.

-28-


 

 

 

 

Year Ended

 

 

 

January 3, 2015

 

 

December 28, 2013

 

 

 

(53 Weeks)

 

 

(51 Weeks)

 

 

 

 

 

 

 

Earnings from

 

 

 

 

 

 

Earnings from

 

 

 

Earnings

 

 

continuing

 

 

Earnings

 

 

continuing

 

 

 

from

 

 

operations

 

 

from

 

 

operations

 

 

(Unaudited)

continuing

 

 

per diluted

 

 

continuing

 

 

per diluted

 

 

(In thousands, except per share data)

operations

 

 

share

 

 

operations

 

 

share

 

 

Earnings from continuing operations

$

59,120

 

 

$

1.57

 

 

$

9,168

 

 

$

0.39

 

 

Adjustments, net of taxes:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restructuring and asset impairment charges

 

3,827

 

 

 

0.10

 

 

 

10,460

 

 

 

0.44

 

 

Expenses related to merger transaction and integration

 

7,867

 

 

 

0.21

 

 

 

15,179

 

 

 

0.64

 

 

Stock compensation modifications

 

-

 

 

 

-

 

 

 

2,589

 

 

 

0.11

 

 

Pension settlement accounting

 

979

 

 

 

0.02

 

*

 

385

 

 

 

0.02

 

 

Gain on sale of assets

 

-

 

 

 

-

 

 

 

(644

)

 

 

(0.03

)

 

Debt extinguishment

 

-

 

 

 

-

 

 

 

5,142

 

 

 

0.22

 

 

Tax benefit related to change in state deferred tax rate

 

-

 

 

 

-

 

 

 

(2,418

)

 

 

(0.10

)

 

Unrecognized tax liability

 

-

 

 

 

-

 

 

 

595

 

 

 

0.02

 

*

Favorable settlement of unrecognized tax liability

 

(1,849

)

 

 

(0.05

)

 

 

(244

)

 

 

(0.01

)

 

Adjusted earnings from continuing operations, including 53rd week

 

69,944

 

 

$

1.85

 

 

 

40,212

 

 

$

1.70

 

 

53rd week

 

(2,022

)

 

 

(0.05

)

 

 

-

 

 

 

-

 

 

Adjusted earnings from continuing operations, excluding 53rd week

$

67,922

 

 

$

1.80

 

 

$

40,212

 

 

$

1.70

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average diluted shares outstanding

 

37,710

 

 

 

 

 

 

 

23,664

 

 

 

 

 

 

* Includes rounding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Period and Year Ended

 

 

 

December 28, 2013

 

 

March 30, 2013

 

 

 

(39 Weeks)

 

 

(52 Weeks)

 

 

 

 

 

 

 

Earnings from

 

 

 

 

 

 

Earnings from

 

 

 

Earnings

 

 

continuing

 

 

Earnings

 

 

continuing

 

 

 

from

 

 

operations

 

 

from

 

 

operations

 

 

(Unaudited)

continuing

 

 

per diluted

 

 

continuing

 

 

per diluted

 

 

(In thousands, except per share data)

operations

 

 

share

 

 

operations

 

 

share

 

 

Earnings from continuing operations

$

1,229

 

 

$

0.05

 

 

$

27,842

 

 

$

1.27

 

 

Adjustments, net of taxes:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Asset impairment and restructuring charges

 

9,702

 

 

 

0.40

 

 

 

992

 

 

 

0.05

 

 

Expenses related to merger transaction and integration

 

15,179

 

 

 

0.63

 

 

 

-

 

 

 

-

 

 

Pension settlement accounting

 

385

 

 

 

0.02

 

 

 

-

 

 

 

-

 

 

Acquisition related professional fees

 

-

 

 

 

-

 

 

 

247

 

 

 

0.01

 

 

Stock compensation modifications

 

2,589

 

 

 

0.11

 

 

 

-

 

 

 

-

 

 

Gain on sale of assets

 

(644

)

 

 

(0.03

)

 

 

(417

)

 

 

(0.02

)

 

Debt extinguishment

 

3,428

 

 

 

0.14

 

 

 

3,152

 

 

 

0.15

 

*

Tax benefit related to change in state deferred tax rate

 

(2,418

)

 

 

(0.10

)

 

 

-

 

 

 

-

 

 

Unrecognized tax liability

 

595

 

 

 

0.02

 

 

 

-

 

 

 

-

 

 

Favorable settlement of unrecognized tax liability

 

(244

)

 

 

(0.01

)

 

 

-

 

 

 

-

 

 

Impact of state tax law changes

 

-

 

 

 

-

 

 

 

(642

)

 

 

(0.03

)

 

Adjusted earnings from continuing operations

$

29,801

 

 

$

1.23

 

 

$

31,174

 

 

$

1.43

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average diluted shares outstanding

 

24,229

 

 

 

 

 

 

 

21,848

 

 

 

 

 

 

* Includes rounding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-29-


 

 

Adjusted EBITDA

Consolidated adjusted EBITDA is a non-GAAP operating financial measure that we define as operating earnings (loss) plus depreciation and amortization, and other non-cash items including deferred (stock) compensation, the LIFO provision, as well as adjustments for unusual items that do not reflect the ongoing operating activities of SpartanNash and costs associated with the closing of operational locations.

We believe that adjusted EBITDA provides a meaningful representation of our operating performance for SpartanNash as a whole and for our operating segments. We consider adjusted EBITDA as an additional way to measure operating performance on an ongoing basis. Adjusted EBITDA is meant to reflect the ongoing operating performance of all of our distribution and retail operations; consequently, it excludes the impact of items that could be considered “non-operating” or “non-core” in nature, and also excludes the contributions of activities classified as discontinued operations. Because adjusted EBITDA and adjusted EBITDA by segment are performance measures that management uses to allocate resources, assess performance against its peers, and evaluate overall performance, we believe it provides useful information for our investors. In addition, securities analysts, fund managers and other shareholders and stakeholders that communicate with us request our operating financial results in adjusted EBITDA format.

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. Our definition of adjusted EBITDA may not be identical to similarly titled measures reported by other companies.

Following is a reconciliation of net earnings to adjusted EBITDA for the fiscal year ended January 3, 2015, the 39 week period ended December 28, 2013 and the fiscal year ended March 30, 2013. For comparison purposes we have also provided a reconciliation of net earnings to adjusted EBITDA for the 51 weeks ended December 28, 2013.

-30-


 

 

 

 

Year Ended

 

 

Period Ended

 

 

Year Ended

 

 

January 3,

 

 

December 28,

 

 

December 28,

 

 

March 30,

 

(Unaudited)

2015

 

 

2013

 

 

2013

 

 

2013

 

(In thousands)

(53 Weeks)

 

 

(51 Weeks)

 

 

(39 weeks)

 

 

(52 weeks)

 

Operating earnings

$

114,846

 

 

$

35,553

 

 

$

16,793

 

 

$

60,968

 

Adjustments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIFO expense

 

5,604

 

 

 

279

 

 

 

928

 

 

 

335

 

Depreciation and amortization

 

86,994

 

 

 

46,664

 

 

 

37,082

 

 

 

39,081

 

Restructuring and asset impairment charges

 

6,166

 

 

 

16,877

 

 

 

15,644

 

 

 

1,589

 

Expenses related to merger transaction and integration

 

12,675

 

 

 

20,993

 

 

 

20,993

 

 

 

-

 

Pension settlement accounting

 

1,578

 

 

 

621

 

 

 

621

 

 

 

-

 

Acquisition related professional fees

 

-

 

 

 

-

 

 

 

-

 

 

 

396

 

Incremental incentive compensation on tax planning benefit

 

900

 

 

 

-

 

 

 

-

 

 

 

-

 

Non-cash stock compensation and other

 

5,679

 

 

 

5,957

 

 

 

5,242

 

 

 

3,964

 

Adjusted EBITDA, including 53rd week

 

234,442

 

 

 

126,944

 

 

 

97,303

 

 

 

106,333

 

53rd week

 

(3,673

)

 

 

-

 

 

 

-

 

 

 

-

 

Adjusted EBITDA, excluding 53rd week

$

230,769

 

 

$

126,944

 

 

$

97,303

 

 

$

106,333

 

Reconciliation of operating earnings to adjusted EBITDA

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    by segment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Military:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating earnings

$

21,721

 

 

$

1,901

 

 

$

1,901

 

 

$

-

 

Adjustments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIFO expense

 

1,262

 

 

 

-

 

 

 

-

 

 

 

-

 

Depreciation and amortization

 

11,350

 

 

 

1,412

 

 

 

1,371

 

 

 

-

 

Expenses related to merger transaction and integration

 

27

 

 

 

-

 

 

 

-

 

 

 

-

 

Pension settlement accounting

 

67

 

 

 

-

 

 

 

-

 

 

 

-

 

Incremental incentive compensation on tax planning benefit

 

87

 

 

 

-

 

 

 

-

 

 

 

-

 

Non-cash stock compensation and other

 

502

 

 

 

(6

)

 

 

(6

)

 

 

-

 

Adjusted EBITDA, including 53rd week

 

35,016

 

 

 

3,307

 

 

 

3,266

 

 

 

-

 

53rd week

 

(573

)

 

 

-

 

 

 

-

 

 

 

-

 

Adjusted EBITDA, excluding 53rd week

$

34,443

 

 

$

3,307

 

 

$

3,266

 

 

$

-

 

Food Distribution:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating earnings (loss)

$

54,802

 

 

$

11,388

 

 

$

(1,328

)

 

$

23,920

 

Adjustments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIFO expense (income)

 

2,893

 

 

 

(232

)

 

 

289

 

 

 

(601

)

Depreciation and amortization

 

29,816

 

 

 

9,306

 

 

 

9,547

 

 

 

8,712

 

Restructuring and asset impairment (gains) charges

 

(241

)

 

 

599

 

 

 

599

 

 

 

-

 

Expenses related to merger transaction and integration

 

12,644

 

 

 

20,993

 

 

 

20,993

 

 

 

-

 

Pension settlement accounting

 

801

 

 

 

236

 

 

 

236

 

 

 

-

 

Incremental incentive compensation on tax planning benefit

 

485

 

 

 

-

 

 

 

-

 

 

 

-

 

Non-cash stock compensation and other

 

2,969

 

 

 

3,656

 

 

 

4,913

 

 

 

1,430

 

Adjusted EBITDA, including 53rd week

 

104,169

 

 

 

45,946

 

 

 

35,249

 

 

 

33,461

 

53rd week

 

(1,132

)

 

 

-

 

 

 

-

 

 

 

-

 

Adjusted EBITDA, excluding 53rd week

$

103,037

 

 

$

45,946

 

 

$

35,249

 

 

$

33,461

 

Retail:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating earnings

$

38,323

 

 

$

22,264

 

 

$

16,220

 

 

$

37,048

 

Adjustments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIFO expense

 

1,449

 

 

 

511

 

 

 

639

 

 

 

936

 

Depreciation and amortization

 

45,828

 

 

 

35,946

 

 

 

26,164

 

 

 

30,369

 

Restructuring and asset impairment charges

 

6,407

 

 

 

16,278

 

 

 

15,045

 

 

 

1,589

 

Expenses related to merger transaction and integration

 

4

 

 

 

-

 

 

 

-

 

 

 

-

 

Pension settlement accounting

 

710

 

 

 

385

 

 

 

385

 

 

 

-

 

Acquisition related professional fees

 

-

 

 

 

-

 

 

 

-

 

 

 

396

 

Incremental incentive compensation on tax planning benefit

 

328

 

 

 

-

 

 

 

-

 

 

 

-

 

Non-cash stock compensation and other

 

2,208

 

 

 

2,307

 

 

 

335

 

 

 

2,534

 

Adjusted EBITDA, including 53rd week

 

95,257

 

 

 

77,691

 

 

 

58,788

 

 

 

72,872

 

53rd week

 

(1,968

)

 

 

-

 

 

 

-

 

 

 

-

 

Adjusted EBITDA, excluding 53rd week

$

93,289

 

 

$

77,691

 

 

$

58,788

 

 

$

72,872

 

 

-31-


 

 

Results of Continuing Operations for the 53 Week Fiscal Year Ended January 3, 2015 Compared to the Unaudited 51 Week Period Ended December 28, 2013

Net Sales. Net sales for the 53 week period ended January 3, 2015 increased $4,726.0 million, or 148.1%, from $3,190.0 million in the 51 week period ended December 28, 2013, to $7,916.1 million. The sales increase was primarily driven by the merger with Nash-Finch Company which added $4,596.4 million, the two additional weeks, and incremental sales related to new Food Distribution customers, partially offset by lost sales related to closed retail stores.  The 53rd week added $135.2 million of net sales.

Net sales for the 53 week period ended January 3, 2015 in our Military segment increased $2,026.9 million, or 815.2% from $248.6 million in the 51 week period ended December 28, 2013 to $2,275.5 million primarily due to the inclusion of only six weeks of Nash Finch operations last year and the 53rd week which contributed $36.9 million of net sales

Net sales for the 53 week period ended January 3, 2015 in our Food Distribution segment, after intercompany eliminations, increased $2,003.6 million, or 148.1%, from $1,352.7 million to $3,356.3 million primarily due to additional sales of $1,911.6 million resulting from the merger and two additional weeks of net sales.  The 53rd week contributed $56.5 million of net sales.

Net sales for the 53 week period ended January 3, 2015 in our Retail segment increased $695.5 million, or 43.8%, from $1,588.7 million to $2,284.2 million. The sales increase was primarily due to sales of $694.9 million resulting from the merger, two additional weeks of net sales and an increase in supermarket comparable store sales, partially offset by lost sales from closed and sold stores and lower fuel sales prices.  The 53rd week contributed $41.8 million of net sales.

Total retail comparable store sales, excluding fuel centers, on a 53 week basis increased approximately 0.9 percent in the 53 week period ended January 3, 2015. We define a retail store as comparable when it is in operation for 14 accounting periods (a period equals four weeks), and we include remodeled, expanded and relocated stores in comparable stores.

Gross Profit. Gross profit represents net sales less cost of sales, which include purchase costs, freight, physical inventory adjustments, markdowns and promotional 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 associated with product cost 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 profit increased by $536.6 million, or 86.6%, from $619.5 million to $1,156.1 million. The margin increase was primarily driven by the merger with Nash-Finch Company which added $526.9 million and the two additional weeks.  As a percent to net sales gross profit decreased from 19.4% to 14.6%. The gross profit rate decrease was principally driven by sales mix due to the merger with Nash-Finch.

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, shipping and handling, utilities, equipment rental, depreciation and other administrative costs.

SG&A expenses increased $476.3 million, or 87.2%, from $546.1 million to $1,022.4 million, and were 12.9% of net sales compared to 17.1% last year. The increase was due primarily to $477.8 million in expenses related to the Nash Finch operations and  the extra two weeks, partially offset by the impact of merger synergies and closed stores.  The decrease in the rate to net sales was due primarily to the change in mix of the Company’s segments, store closures and merger synergies.

Merger Transaction and Integration Expenses. Merger transaction and integration expenses consist of expenses related to consummating the merger with Nash-Finch Company on November 19, 2013 and costs to integrate the operations of the two companies.  Merger transaction and integration expenses for the 53 week period ended January 3, 2015 decreased $8.3 million, or 39.6%, from $21.0 million in the 51 week period ended December 28, 2013, to $12.7 million.

Restructuring and Asset Impairment. The 53 week period ended January 3, 2015 included charges of $6.2 million related to underperforming retail stores and costs associated with closed retail stores and a closed distribution center. The 51 week period ended December 28, 2013 included charges of $16.9 million related to underperforming retail stores, market deterioration in property held for future development and severance costs related to store closings and the closing of a distribution center.

-32-


 

 

Interest Expense. Interest expense increased $12.2 million, or 100.0%, from $12.2 million in the 51 week period ended December 28, 2013 to $24.4 million in the 53 week period ended January 3, 2015. As a percent of net sales, interest expense decreased from 0.4% to 0.3%. The increase in interest expense was due primarily to additional borrowings entered into to finance the merger with Nash-Finch Company on November 19, 2013.

Debt Extinguishment. Debt extinguishment charges of $8.3 million were incurred in the 51 week period ended December 28, 2013 in connection with amending and restating our senior secured revolving credit facility and repaying certain other debt instruments and the redemption of $57.4 million of Convertible Senior Notes.

Income Taxes. The effective income tax rates were 34.6% and 39.2% for the 53 week period ended January 3, 2015 and the 51 week period ended December 28, 2013, respectively. The difference from the statutory Federal rate in the period ended January 3, 2015 is due primarily to the favorable settlement of unrecognized tax liabilities, partially offset by state income taxes. The prior year period ended December 28, 2013 differs from the Federal statutory rate due to non-deductible merger related expenses and changes in unrecognized tax liabilities, partially offset by a reduction in the state deferred tax rate.

Results of Continuing Operations for the 53 Week Fiscal Year Ended January 3, 2015 Compared to the 39 Week Period Ended December 28, 2013

Net Sales. Net sales for the 53 week year ended January 3, 2015 increased $5,318.8 million, or 204.8%, from $2,597.2 million in the 39 week period ended December 28, 2013, to $7,916.1 million. The sales increase was primarily driven by the merger with Nash-Finch Company which added $4,596.4 million, the fourteen additional weeks which added $773.5 million, and incremental sales related to new Food Distribution customers, partially offset by lost sales from closed stores.

Net sales in our Military segment for the 53 week year ended January 3, 2015 increased $2,026.9 million, or 815.2% from $248.6 million in the 39 week period ended December 28, 2013, to $2,275.5 million.  The sales increase was primarily driven by additional sales resulting from the merger.

Net sales for the 53 week year ended January 3, 2015 in our Food Distribution segment, after intercompany eliminations, increased $2,260.6 million, or 206.3%, from $1,095.8 million in the 39 week period ended December 28, 2013 to $3,356.3 million.  The sales increase was primarily due to additional sales of $1,911.6 million resulting from the merger, 14 additional weeks which contributed $331.7 million of net sales and new business sales.

Net sales for the 53 week year ended January 3, 2015 in our Retail Distribution segment increased $1,031.4  million, or 82.3%, from $1,252.8 million in the 39 week period ended December 28, 2013 to $2,284.2 million.  The sales increase was primarily due to sales of $694.9 million resulting from the merger, an additional 14 weeks which contributed $405.0 million of net sales, partially offset by lost sales related to closed stores and lower fuel sales prices.

Gross Profit. Gross profit represents net sales less cost of sales, which include purchase costs, freight, physical inventory adjustments, markdowns and promotional 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 associated with product cost 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 profit for the 53 week year ended January 3, 2015 increased by $669.2 million, or 137.4%, from $486.9 million in the 39 week period ended December 28, 2013, to $1,156.1 million. The increase was primarily due to the merger with Nash-Finch Company which added $526.9 million and the fourteen additional weeks which added $160.9 million. As a percent of net sales, gross profit decreased from 18.7% to 14.6%. The gross profit rate decrease was principally driven by sales mix due to the merger with Nash-Finch.

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, shipping and handling, utilities, equipment rental, depreciation and other administrative costs.

-33-


 

 

SG&A expenses for the 53 week year ended January 3, 2015 increased $588.9 million, or 135.9%, from $433.5 million in the 39 week period ended December 28, 2013, to $1,022.4 million, and were 12.9% of net sales for the year ended January 3, 2015 compared to 16.7% for the 39 weeks ended December 28, 2013. The increase was primarily due to an increase of $477.8 million in expenses related to the inclusion of the Nash Finch operations for only six weeks in the prior year period, an additional 14 weeks which added $137.6 million in expenses, partially offset by the impact of merger synergies and closed stores. The decrease in the rate to net sales was due primarily to the change in mix of the Company’s segments, store closures and cost reduction efforts.

Merger Transaction and Integration Expenses. Merger transaction and integration expenses consist of expenses related to consummating the merger with Nash-Finch Company on November 19, 2013 and costs to integrate the operations of the two companies.  Merger transaction and integration expenses for the 53 week period ended January 3, 2015 decreased $8.3 million, or 39.6%, from $21.0 million in the 39 week period ended December 28, 2013, to $12.7 million.

Restructuring and Asset Impairment. The 53 week period ended January 3, 2015 included charges of $6.2 million related to underperforming retail stores and the closure of retail stores and distribution center. The 39 week period ended December 28, 2013 included charges of $15.6 million related to underperforming retail stores, market deterioration in property held for future development and costs related to the closure of retail stores and a distribution center.

Interest Expense. Interest expense increased $15.2 million, or 164.8%, from $9.2 million in the 39 week period ended December 28, 2013 to $24.4 million in the 53 week period ended January 3, 2015. As a percent of net sales, interest expense decreased from 0.4% in the period ended December 28, 2013 to 0.3% for the year ended January 3, 2015. The increase in interest expense was due primarily to additional borrowings entered into to finance the merger with Nash-Finch Company on November 19, 2013.

Debt Extinguishment. Debt extinguishment charges of $5.5 million were incurred in the 39 week period ended December 28, 2013 in connection with amending and restating our senior secured revolving credit facility and repaying certain other debt instruments.

Income Taxes. The effective income tax rates were 34.6% and 40.6% for the 53 week period ended January 3, 2015 and the 39 week period ended December 28, 2013, respectively. The difference from the statutory Federal rate in the period ended January 3, 2015 is due primarily to the favorable settlement of unrecognized tax liabilities, partially offset by state income taxes. The prior year period ended December 28, 2013 differs from the Federal statutory rate due to non-deductible merger related expenses and changes in unrecognized tax liabilities, partially offset by a reduction in the state deferred tax rate.

Results of Continuing Operations for the 39 Week Period Ended December 28, 2013 Compared to the Unaudited 40 Week Period Ended January 5, 2013

Net Sales. Net sales for the 39 week period ended December 28, 2013 increased $581.9 million, or 28.9%, from $2,015.4 million in the 40 week period ended January 5, 2013, to $2,597.2 million. The sales increase was primarily driven by the merger with Nash-Finch Company which added $563.2 million and incremental sales related to new retail stores and new Food Distribution customers, partially offset by the additional week in the 40 week period ended January 5, 2013 which accounted for $46.1 million of sales.

Net sales in our Military segment were $248.6 million from the date of the merger with Nash-Finch Company to December 28, 2013.

Net sales on a 39 week basis in our Food Distribution segment, after intercompany eliminations, increased $250.9 million, or 29.7%, from $844.8 million to $1,095.8 million primarily due to additional sales of $224.6 million resulting from the merger and new business sales. Food Distribution segment net sales for 40 weeks ended January 5, 2013 as reported were $863.7 million.

Net sales on a 39 week basis in our Retail segment increased $128.4 million, or 11.4%, from $1,124.4 million to $1,252.8 million. The sales increase was primarily due to sales of $90.0 million resulting from the merger, sales from new and acquired stores, increased fuel center sales resulting from new fuel centers (including one acquired fuel center) partially offset by lower fuel sales prices, closed stores and a decrease in supermarket comparable store sales of $5.7 million. Retail segment net sales for 40 weeks ended January 5, 2013 as reported were $1,151.6 million.

Total retail comparable store sales, excluding fuel centers, on a 39 week basis decreased approximately 0.6 percent in the 39 week period ended December 28, 2013. We define a retail store as comparable when it is in operation for 14 accounting periods (a period equals four weeks), and we include remodeled, expanded and relocated stores in comparable stores.

-34-


 

 

Gross Profit. Gross profit represents net sales less cost of sales, which include purchase costs, freight, physical inventory adjustments, markdowns and promotional 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 associated with product cost 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 profit increased by $74.0 million, or 17.9%, from $412.9 million to $486.9 million. Excluding the 40th week from the period ended January 5, 2013, and excluding the gross profit resulting from the Nash-Finch merger in the 39 week period ended December 28, 2013 of $68.9 million, gross profit increased $14.6 million, or 3.6%. As a percent of net sales, gross profit decreased from 20.5% to 18.7%. The gross profit rate decrease was principally driven by sales mix due to the merger with Nash-Finch.

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, shipping and handling, utilities, equipment rental, depreciation and other administrative costs.

SG&A expenses increased $71.9 million, or 19.9%, from $361.6 million to $433.5 million, and were 16.7% of net sales compared to 19.3% last year, when excluding the 40th week from the period ended January 5, 2013. The net increase in SG&A on a 39 week basis was due primarily to $58.2 million in expenses related to the Nash Finch operations, higher incentive compensation expense of $4.5 million, incremental expense of $4.2 million resulting from modifications to stock compensation awards and $0.6 million resulting from pension settlement accounting. SG&A expenses for 40 weeks ended January 5, 2013 as reported were $370.4 million and were 18.4% of net sales.

Merger Transaction and Integration Expenses. The 39 week period ended December 28, 2013 included $21.0 million of expenses related to executing the merger with Nash-Finch Company and related integration activities.

Restructuring and Asset Impairment. The 39 week period ended December 28, 2013 included asset impairment charges of $9.7 million related to underperforming retail stores and market deterioration in property held for future development, $4.9 million in restructuring charges related to the closure of six retail stores and $1.1 million in severance costs related to store closings and the closing of a distribution center. The 40 week period ended January 5, 2013 consisted of an asset impairment charge of $0.4 million related to an underperforming retail store.

Interest Expense. Interest expense decreased $1.2 million, or 11.5%, from $10.4 million in the 40 week period ended January 5, 2013 to $9.2 million in the 39 week period ended December 28, 2013. As a percent of net sales, interest expense decreased from 0.5% to 0.4%. The decrease in interest expense was due primarily to the exchange and redemption of the Convertible Senior Notes in the fiscal year ended March 30, 2013.

Debt Extinguishment. Debt extinguishment charges of $5.5 million were incurred in the 39 week period ended December 28, 2013 in connection with amending and restating our senior secured revolving credit facility and repaying certain other debt instruments. In the 40 week period ended January 5, 2013, debt extinguishment charges of $2.3 million were incurred in connection with the private exchange of $40.3 million and redemption of $57.4 million of Convertible Senior Notes.

Income Taxes. The effective income tax rates were 40.6% and 34.2% for the 39 week period ended December 28, 2013 and the 40 week period ended January 5, 2013, respectively. The difference from the statutory Federal rate in the period ended December 28, 2013 is due to non-deductible merger related expenses and changes in unrecognized tax liabilities, partially offset by a reduction in the state deferred tax rate. The prior year period ended January 5, 2013 differs from the Federal statutory rate due to state income taxes which included a $0.7 million net after-tax benefit due to changes in state tax laws.  

Results of Continuing Operations for the 39 Week Period Ended December 28, 2013 Compared to the Fiscal Year Ended March 30, 2013

Net Sales. Net sales for the 39 week period ended December 28, 2013 decreased $11.0 million, or 0.4%, from $2,608.2 million in the 52 week period ended March 30, 2013, to $2,597.2 million. The sales decrease was due to 13 fewer weeks and the reasons described above in the discussion of the 39 Week Period Ended December 28, 2013 Compared to the 40 Week Period Ended January 5, 2013.

Net sales for the 39 week period ended December 28, 2013 in our Military segment were $248.6 million from the date of the merger with Nash-Finch Company, November 19, 2013, to December 28, 2013.

-35-


 

 

Net sales for the 39 week period ended December 28, 2013 in our Food Distribution segment, after intercompany eliminations, decreased $24.9 million, or 2.2%, from $1,120.7 million in the 52 week period ended March 30, 2013, to $1,095.8 million.  The decrease was primarily due to 13 fewer weeks and the reasons described above in the discussion of the 39 Week Period Ended December 28, 2013 Compared to the 40 Week Period Ended January 5, 2013.

Net sales for the 39 week period ended December 28, 2013 in our Retail segment decreased $234.7 million, or 15.8%, from $1,487.5 million for the 52 week period ended March 30, 2013, to $1,252.8 million.  The decrease was primarily due to 13 fewer weeks and the reasons described above in the discussion of the 39 Week Period Ended December 28, 2013 Compared to the 40 Week Period Ended January 5, 2013.

Gross Profit. Gross profit represents net sales less cost of sales, which include purchase costs, freight, physical inventory adjustments, markdowns and promotional 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 associated with product cost 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 profit for the 39 week period ended December 28, 2013 decreased $58.6 million, or 10.8%, from $545.5 million in the 52 week period ended March 30, 2013, to $486.9 million. The gross profit decrease was primarily due to 13 fewer weeks and the reasons described above in the discussion of the 39 Week Period Ended December 28, 2013 Compared to the 40 Week Period Ended January 5, 2013.

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, shipping and handling, utilities, equipment rental, depreciation and other administrative costs.

SG&A expenses for the 39 week period ended December 28, 2013 decreased $49.5 million, or 10.3%, from $483.0 million in the 52 week period ended March 30, 2013, to $433.5 million, and were 16.7% of net sales for the 39 week period ended December 28, 2013 compared to 18.5% for the 52 week period ended March 30, 2013. The decrease in SG&A was primarily due to 13 fewer weeks and the reasons described above in the discussion of the 39 Week Period Ended December 28, 2013 Compared to the 40 Week Period Ended January 5, 2013.

Merger Transaction and Integration Expenses. The 39 week period ended December 28, 2013 included $21.0 million of expenses related to executing the merger with Nash-Finch Company and related integration activities.

Restructuring and Asset Impairment. The 39 week period ended December 28, 2013 included asset impairment charges of $9.7 million related to underperforming retail stores and market deterioration in property held for future development, $4.9 million in restructuring charges related to the closure of six retail stores and $1.1 million in severance costs related to store closings and the closing of a distribution center.  The 52 week period ended March 30, 2013 included asset impairment charges of $1.6 million related to underperforming retail stores.

Interest Expense. Interest expense for the 39 week period ended December 28, 2013 decreased $4.2 million, or 31.3%, from $13.4 million in the 52 week period ended March 30, 2013, to $9.2 million. As a percent of net sales, interest expense decreased from 0.5% for the 52 week period ended March 30, 2013, to 0.4% for the 39 week period ended December 28, 2013. The decrease in interest expense was primarily due to 13 fewer weeks and the reasons described above in the discussion of the 39 Week Period Ended December 28, 2013 Compared to the 40 Week Period Ended January 5, 2013.

Debt Extinguishment. Debt extinguishment charges of $5.5 million were incurred in the 39 week period ended December 28, 2013 in connection with amending and restating our senior secured revolving credit facility and repaying certain other debt instruments. Debt extinguishment charges of $5.0 million were incurred in the 52 week period ended March 30, 2013, in connection with the private exchange of $40.3 million and redemption of $57.4 million of Convertible Senior Notes.

Income Taxes. The effective income tax rates were 40.6% and 35.7% for the 39 week period ended December 28, 2013 and the 52 week period ended March 30, 2013, respectively. The difference from the statutory Federal rate in the period ended December 28, 2013 is due to non-deductible merger related expenses and changes in unrecognized tax liabilities, partially offset by a reduction in the state deferred tax rate. The difference from the statutory Federal rate in the period ended March 30, 2013, is due to state income taxes which included a $0.7 million net after-tax benefit due to changes in state tax laws.  

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Discontinued Operations

Certain of our retail and food distribution 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.

Critical Accounting Policies

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. 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, restructuring costs, retirement benefits, stock-based compensation and contingencies and litigation. Management bases its estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that may not be readily apparent from other sources. Based on our ongoing review, we make adjustments we consider appropriate under the facts and circumstances. This discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements. We have discussed the development, selection and disclosure of these policies with the Audit Committee of the Board of Directors.

An accounting policy is considered critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact our financial statements. We consider the following accounting policies to represent the more critical estimates and assumptions used in the preparation of our consolidated financial statements:

Inventories

Inventories are valued at the lower of cost or market, the majority of which use the last-in, first-out (“LIFO”) method. The remaining inventories are valued on the first-in, first-out (“FIFO”) method. If replacement cost had been used, inventories would have been $50.7 million and $45.1 million higher at January 3, 2015 and December 28, 2013, respectively. The replacement cost method utilizes the most current unit purchase cost to calculate the value of inventories. During the fiscal year ended January 3, 2015, 39 week period ended December 28, 2013 and the fiscal year ended March 30, 2013, certain inventory quantities were reduced. The reductions resulted in liquidation of LIFO inventory carried at lower costs prevailing in prior years, the effect of which decreased the LIFO provision in the fiscal year ended January 3, 2015, 39 week period ended December 28, 2013 and the fiscal year ended March 30, 2013 by $0.8 million, $0.1 million and $1.0 million, respectively. SpartanNash accounts for its Military and Food Distribution inventory using a perpetual system and utilizes the retail inventory method (“RIM”) to value inventory for center store products in the Retail segment. Under the retail inventory method, inventory is stated at cost with cost of sales and gross margin calculated by applying a cost ratio to the retail value of inventories. Fresh, pharmacy and fuel products are accounted for at cost in the Retail segment. We evaluate inventory shortages throughout the year based on actual physical counts in our facilities. We record allowances for inventory shortages based on the results of recent physical counts to provide for estimated shortages from the last physical count to the financial statement date.

Vendor Funds, Allowances and Credits

We receive funds from many of the vendors whose products we buy for resale in our corporate-owned stores and to our independent retail customers. Given the highly promotional nature of the retail supermarket industry, vendor allowances are generally intended to help defray the costs of promotion, advertising and selling the vendor’s products. 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. The proper recognition and timing of accounting for these items are significant to the reporting of the results of our operations. Vendor allowances are recognized as a reduction in cost of sales when the related product is sold. Lump sum payments received for multi-year contracts are amortized over the life of the contracts based on contractual terms.

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Customer Exposure and Credit Risk

Allowance for Doubtful Accounts – Methodology. We evaluate the collectability of our accounts and notes receivable based on a combination of factors. In most circumstances when we become aware of factors that may indicate a deterioration in a specific customer’s ability to meet its financial obligations to us (e.g., reductions of product purchases, deteriorating store conditions, changes in payment patterns), we record a specific reserve for bad debts against amounts due to reduce the net recognized receivable to the amount we reasonably believe will be collected. In determining the adequacy of the reserves, we analyze factors such as the value of any collateral, customer financial statements, historical collection experience, aging of receivables and other economic and industry factors. It is possible that the accuracy of the estimation process could be materially affected by different judgments as to the collectability based on information considered and further deterioration of accounts. If circumstances change (i.e., further evidence of material adverse creditworthiness, additional accounts become credit risks, store closures), our estimates of the recoverability of amounts due us could be reduced by a material amount, including to zero.  As of January 3, 2015, we have recorded an allowance for doubtful accounts reserve for our accounts and notes receivables of $5.5 million.

Guarantees of Debt and Lease Obligations of Others. We have guaranteed the debt and lease obligations of certain Food Distribution customers. In the event these retailers are unable to meet their debt service payments or otherwise experience an event of default, we would be unconditionally liable for the outstanding balance of their debt and lease obligations ($2.5 million and $1.0 as of January 3, 2015 and December 28, 2013, respectively), which would be due in accordance with the underlying agreements.

We have entered into loan and lease guarantees on behalf of certain Food Distribution customers that are accounted for under ASC Topic 460. ASC Topic 460 provides that at the time a company issues a guarantee, the company must recognize an initial liability for the fair value of the obligation it assumes under that guarantee. The maximum undiscounted payments we would be required to make in the event of default under the guarantees is $0.5 million, which is referenced above. These guarantees are secured by certain business assets and personal guarantees of the respective customers. We believe these customers will be able to perform under the lease agreements and that no payments will be required and no loss will be incurred under the guarantees. As required by ASC Topic 460, a liability representing the fair value of the obligations assumed under the guarantees is included in the accompanying consolidated financial statements.

We have also assigned various leases to certain Food Distribution customers and other third parties. If the assignees were to become unable to continue making payments under the assigned leases, we estimate our maximum potential obligation with respect to the assigned leases, net of reserves, to be approximately $5.5 million as of January 3, 2015 as compared to $7.9 million as of December 28, 2013. In circumstances when we become aware of factors that indicate deterioration in a customer’s ability to meet its financial obligations guaranteed or assigned by us, we record a specific reserve in the amount we reasonably believe we will be obligated to pay on the customer’s behalf, net of any anticipated recoveries from the customer. In determining the adequacy of these reserves, we analyze factors such as those described above in “Allowance for Doubtful Accounts – Methodology” and “Lease Commitments.” It is possible that the accuracy of the estimation process could be materially affected by different judgments as to the obligations based on information considered and further deterioration of accounts, with the potential for a corresponding adverse effect on operating results and cash flows. Triggering these guarantees or obligations under assigned leases would not, however, result in cross default of our debt, but could restrict resources available for general business initiatives. Refer to Part II, Item 8 of this report under Note 14 in the Notes to Consolidated Financial Statements for more information regarding customer exposure and credit risk.

Goodwill

At the time of our annual goodwill impairment testing, we maintained three reporting units for purposes of our goodwill impairment testing, which were the same as our reporting segments at that time. However, no goodwill currently exists within the Military segment.  Goodwill is reviewed for impairment on an annual basis (during the last quarter of the fiscal year), or whenever events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. Fair values are determined based on the discounted cash flows and comparable market values of each reporting segment. If the fair value of the reporting unit is less than its carrying value, the fair value of the implied goodwill is calculated as the difference between the fair value of the reporting unit and the fair value of the underlying assets and liabilities, excluding goodwill. An impairment charge is recorded for any excess of the carrying value over the implied fair value. Our goodwill impairment analysis also includes a comparison of the aggregate estimated fair value of each reporting unit to our total market capitalization. Therefore, a significant and sustained decline in our stock price could result in goodwill impairment charges. During times of financial market volatility, significant judgment is given to determine the underlying cause of the decline and whether stock price declines are short-term in nature or indicative of an event or change in circumstances. When testing goodwill for impairment, our retail stores represent components of our Retail operating segment. Stores have been aggregated and deemed a single reporting unit as they have similar economic characteristics.

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Determining market values using a discounted cash flow method requires that we make significant estimates and assumptions, including long-term projections of cash flows, market conditions and appropriate discount rates. Our judgments are based on the perspective of a market participant, historical experience, current market trends and other information. In estimating future cash flows, we rely on internally generated three-year forecasts for sales and operating profits, including capital expenditures and a 2.5% and 3.0% long-term assumed growth rate of cash flows for periods after the three-year forecast for the Food Distribution and Retail segments, respectively. The future estimated cash flows were discounted using a rate of 11.2% and 9.6% for the Food Distribution and Retail segments, respectively. We generally develop these forecasts based on recent sales data for existing operations and other factors. While we believe that the estimates and assumptions underlying the valuation methodology are reasonable, different assumptions could result in different outcomes. Based on our annual review during the fiscal year ended January 3, 2015, the 39 week period ended December 28, and the fiscal year ended March 30, 2013, no goodwill impairment charge was required to be recorded. No goodwill impairment charge would be required even if the estimate of future discounted cash flow was 10% lower. Furthermore, no goodwill impairment charge would be required if the discount rate was increased 0.50%. If our stock price experiences a significant and sustained decline, or other events or changes in circumstances occur, such as operating results not meeting our estimates, indicating that impairment may have occurred, we would re-evaluate our goodwill for impairment.

Impairment of Long-Lived Assets Other Than Goodwill

Long-lived assets to be held and used are evaluated for impairment when events or circumstances indicate that the carrying amount of an asset may not be recoverable. When the undiscounted future cash flows are not sufficient to recover an asset’s carrying amount, the fair value is compared to the carrying value to determine the impairment loss to be recorded. Long-lived assets are evaluated at the asset-group level, which is the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. In the fiscal year ended January 3, 2015, the 39 week period ended December 28, 2013 and the fiscal year ended March 30, 2013 asset impairments for long-lived assets totaled $7.6 million, $9.7 million and $1.7 million, respectively.

Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value, less cost to sell. Management determines fair values using independent appraisals, quotes or expected sales prices developed by internal real estate professionals. Estimates of expected sales prices are judgments based upon our experience, knowledge of market conditions and current offers received. Changes in market conditions, the economic environment and other factors can significantly impact these estimates. While we believe that the estimates and assumptions underlying the valuation methodology are reasonable, different assumptions could result in a different outcome. If the current estimate of future discounted cash flows was 10% lower no additional impairment charges would be required.

Exit Costs

We record exit costs for closed sites that are subject to long-term lease commitments based upon the future minimum lease payments and related ancillary costs from the date of closure to the end of the remaining lease term, net of estimated sublease rentals that could be reasonably expected to be obtained for the property. Future cash flows are based on contractual lease terms and knowledge of the market in which the closed site is located. These estimates are subject to multiple factors, including inflation, ability to sublease the property and other economic conditions. Internally developed estimates of sublease rentals are based upon the market in which the property is located, the results of previous efforts to sublease similar property and the current economic environment. Reserves may be adjusted in the future based upon the actual resolution of each of these factors. For any closed site reserves recorded as part of purchase accounting prior to the adoption of Accounting Standards Codification Topic 805, adjustments that decrease the liability are generally recorded as a reduction of goodwill. At January 3, 2015, exit cost liabilities for distribution center and store lease and ancillary costs totaling $14.0 million are recorded net of approximately $0.3 million of existing sublease rentals. Based upon the current economic environment we do not believe that we will be able to obtain any additional sublease rentals. A 10% increase/decrease in future estimated ancillary costs would result in a $0.6 million increase/decrease in the restructuring charge liability.

Insurance Reserves

We are primarily self-insured for costs related to workers’ compensation, general and automobile liability and health insurance. We record our self-insurance liabilities based on reported claims experience and an estimate of claims incurred but not yet reported. Workers’ compensation and general liability are actuarially determined on an undiscounted basis. We have purchased stop-loss coverage to limit our exposure on a per claim basis. On a per claim basis, our exposure is up to $0.5 million for workers’ compensation, $0.5 million for general liability, up to $0.5 million for automobile liability and $0.5 million for health care per associate per year.

-39-


 

 

Any projection of losses concerning workers’ compensation, general and automobile liability and health insurance is subject to a considerable degree of variability. Among the causes of variability are unpredictable external factors affecting future inflation rates, discount rates, litigation trends, changing regulations, legal interpretations, benefit level changes and claim settlement patterns. Although our estimates of liabilities incurred do not anticipate significant changes in historical trends for these variables, such changes could have a material impact on future claim costs and currently recorded liabilities. The impact of many of these variables is difficult to estimate.

Pension

Accounting for defined benefit pension plans involves estimating the cost of benefits to be provided in the future, based on vested years of service, and attributing those costs over the time period each employee works. The significant factors affecting our pension costs are the fair values of plan assets and the selections of management’s key assumptions, including the expected return on plan assets and the discount rate used by our actuary to calculate our liability. We consider current market conditions, including changes in interest rates and investment returns, in selecting these assumptions. Our discount rate is based on current investment yields on high quality fixed-income investments and projected cash flow obligations. The discount rates used to determine pension income/expense for the fiscal year ended January 3, 2015 were 4.35% and 4.65%. Expected return on plan assets is based on projected returns by asset class on broad, publicly traded equity and fixed-income indices, as well as target asset allocation. Our target allocation mix is designed to meet our long-term pension requirements. For the fiscal year ended January 3, 2015, our assumed rate of return was 5.70% for the Super Foods Plan and 5.95% for the cash balance pension plan. Over the ten-year period ended January 3, 2015, the average actual return was approximately 7.5% for the cash balance pension plan. While we believe the assumptions selected are reasonable, significant differences in our actual experience, plan amendments or significant changes in the fair value of our plan assets may materially affect our pension obligations and our future expense. A 75 basis point increase/decrease in the expected return on plan assets would have decreased/increased net periodic pension income by approximately $0.8 million in the fiscal year ended January 3, 2015.

As of January 3, 2015, our defined benefit plans were in a total unfunded status of $0.2 million and as of December 28, 2013, they were in a total funded status of $2.6 million. The decrease in the funded status during the fiscal year ended January 3, 2015 is a result of  interest cost and actuarial losses exceeding the market appreciation of plan assets. Plan assets decreased by $12.2 million due to benefit payments of $19.7 million, partially offset by return on plan assets of $5.1 million and company contributions of $2.4 million. Pension expense was $2.1 million in the fiscal year ended January 3, 2015, including settlement expense of $2.6 million, and pension expense was $0.2 million in the 39 week period ended December 28, 2013, including settlement expense of $0.6 million.

Income Taxes

SpartanNash is subject to periodic audits by the Internal Revenue Service and other state and local taxing authorities. These audits may challenge certain of our tax positions such as the timing and amount of income credits and deductions and the allocation of taxable income to various tax jurisdictions. We evaluate our tax positions and establish liabilities in accordance with the applicable accounting guidance on uncertainty in income taxes. These tax uncertainties are reviewed as facts and circumstances change and are adjusted accordingly. This requires significant management judgment in estimating final outcomes. Actual results could materially differ from these estimates and could significantly affect our effective income tax rate and cash flows in future years. We recognize deferred tax assets and liabilities for the expected tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts using enacted tax rates in effect for the year in which it expects the differences to reverse. Note 12 to the consolidated financial statements set forth in Item 8 of this report provides additional information on income taxes.

-40-


 

 

Liquidity and Capital Resources

The following table summarizes our consolidated statements of cash flows for the fiscal year ended January 3, 2015, the 39 week period ended December 28, 2013 and the fiscal year ended March 30, 2013.  For comparison purposes we have also provided a consolidated statement of cash flows for the 51 weeks ended December 28, 2013:

 

 

January 3,

 

 

December 28,

 

 

December 28,

 

 

March 30,

 

 

2015

 

 

2013

 

 

2013

 

 

2013

 

 

(53 Weeks)

 

 

(51 Weeks)

 

 

(39 weeks)

 

 

(52 weeks)

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash provided by operating activities

$

139,073

 

 

$

97,055

 

 

$

64,761

 

 

$

59,341

 

Net cash used in investing activities

 

(81,687

)

 

 

(65,602

)

 

 

(57,170

)

 

 

(53,056

)

Net cash used in financing activities

 

(59,962

)

 

 

(30,676

)

 

 

(4,051

)

 

 

(26,213

)

Net cash used in discontinued operations

 

(197

)

 

 

(521

)

 

 

(421

)

 

 

(451

)

Net (decrease) increase in cash and cash equivalents

 

(2,773

)

 

 

256

 

 

 

3,119

 

 

 

(20,379

)

Cash and cash equivalents at beginning of period

 

9,216

 

 

 

8,960

 

 

 

6,097

 

 

 

26,476

 

Cash and cash equivalents at end of period

$

6,443

 

 

$

9,216

 

 

$

9,216

 

 

$

6,097

 

Net cash provided by operating activities increased during the 53 week fiscal year ended January 3, 2015 over the comparable 51 week fiscal year ended December 28, 2013 by approximately $42.0 million. This increase was due primarily to the impact of the merger with Nash-Finch Company.  Net cash provided by operating activities increased during the 53 week fiscal year ended January 3, 2015 over the 39 week period ended December 28, 2013 by $74.3 million. This increase was due primarily to the impact of the merger with Nash-Finch Company and an additional 14 weeks of operations.  

During the fiscal year ended January 3, 2015, the 39 week period ended December 28, 2013 and the fiscal year ended March 30, 2013, we paid $27.4 million, $14.0 million and $10.2 million, respectively, in income tax payments.

Net cash used in investing activities increased $16.1 million in the fiscal year ended January 3, 2015 compared to the comparable 51 week period ended December 28, 2013 primarily due to capital expenditures which increased $44.7 million, partially offset by a decrease in cash paid for acquisitions of $20.6 million and an increase in proceeds from the sale of assets of $9.7 million.  Net cash used in investing activities increased $24.5 million in the fiscal year ended January 3, 2015 compared to the 39 week period ended December 28, 2013 primarily due to capital expenditures which increased $52.8 million, a decrease in cash paid for acquisitions of $20.6 million and an increase in proceeds from the sales of assets of $9.7 million.   Military, Food Distribution and Retail segments utilized 16.8%, 35.5% and 47.7% of capital expenditures, respectively, for the fiscal year ended January 3, 2015. Expenditures in the fiscal year ended January 3, 2015 were primarily related to ten major store remodels, one new store, a distribution center expansion and many minor store remodels. We expect capital expenditures to range from $75.0 million to $80.0 million for fiscal 2015.

Net cash used in financing activities includes cash paid and received related to our long-term borrowings, dividends paid, purchase of SpartanNash common stock, financing fees paid, tax benefits of stock compensation and proceeds from the issuance of common stock. The increase in cash used in financing activities in the fiscal year ended January 3, 2015 compared to the comparable 51 week period ended December 28, 2013 was primarily due to an increase in net payments on borrowings of $23.6 million, an increase of dividends paid of $10.4 million and share repurchases of $5.0 million, partially offset by a decrease in financing fees paid of $8.6 million. The increase in cash used in financing activities in the fiscal year ended January 3, 2015 compared to the 39 week period ended December 28, 2013 was primarily due to an increase in net payments on borrowings of $48.6 million, an increase of dividends paid of $12.2 million and share repurchases of $5.0 million, partially offset by a decrease in financing fees paid of $8.6 million.  The increase in dividends paid was due to an increase in the number of shares outstanding due to the merger with Nash-Finch Company as well as an increase in the dividend rate. Although we expect to continue to pay a quarterly cash dividend, adoption of a dividend policy does not commit the Board of Directors to declare future dividends. Each future dividend will be considered and declared by the Board of Directors at its discretion. Whether the Board of Directors continues to declare dividends and repurchase shares depends on a number of factors, including our future financial condition, anticipated profitability and cash flows and compliance with the terms of our credit facilities. Our current maturities of long-term debt and capital lease obligations at January 3, 2015 are $19.8 million. Our ability to borrow additional funds is governed by the terms of our credit facilities.

Net cash used in discontinued operations contains the net cash flows of our discontinued operations and consists primarily of insurance run-off claims, facility maintenance, the payment of closed store lease costs and other liabilities partially offset by sublease income.

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On November 19, 2013, Spartan Stores entered into a $1 billion Amended and Restated Loan and Security Agreement (the “Credit Agreement”) with Wells Fargo Capital Finance, LLC, as administrative agent (“Wells Fargo”), and certain lenders from time to time party thereto. The Credit Agreement was entered into contemporaneously with the closing of the merger with Nash-Finch. The Credit Agreement amends and restates in the entirety each of the previous credit agreements between Wells Fargo (or an affiliate thereof) and Spartan Stores and certain of its subsidiaries and Nash-Finch and certain of its subsidiaries, respectively.

The Credit Agreement had an original term of five years, maturing on November 19, 2018, and is a secured credit facility consisting of three tranches. Tranche A is a $900 million secured revolving credit facility; Tranche A-1 is a $40 million secured revolving credit facility; and Tranche A-2 is a $60 million term loan. Borrowings under the Credit Agreement are available for general operating expenses, working capital, merger costs, repayment of certain Nash-Finch indebtedness as of the merger date and other general corporate purposes.

On January 9, 2015, SpartanNash Company and certain of its subsidiaries entered into an amendment (the “Amendment”) to the Company’s Amended and Restated Loan and Security Agreement (the “Credit Agreement”) with Wells Fargo Capital Finance, LLC, as administrative agent, and certain lenders from time to time party to the Credit Agreement.  The Amendment amends the interest rate grid set forth in the definition of “Applicable Margin” to reduce interest rates by 0.25% for all rates established by reference to Applicable Margin. The Amendment also extends the maturity date of the Loan Agreement from November 19, 2018 to January 9, 2020.  In addition, the Amendment provides for certain other amendments to covenants and a schedule, as set forth in the Amendment.  

On December 6, 2012, we completed a private exchange and sale of $50.0 million aggregate principal amount of newly issued four year unsecured 6.625% Senior Notes due 2016 (“New Notes”) for $40.3 million aggregate principal amount of our existing Convertible Senior Notes due 2027 and $9.7 million in cash. The New Notes mature on December 15, 2016 and are senior unsecured debt and rank equally in right of payment with our other existing and future senior debt. The New Notes are effectively subordinated to our existing and future secured debt to the extent of the value of the assets securing such debt. Interest on the New Notes accrues at a rate of 6.625% per annum. Interest on the New Notes is payable semiannually on June 15 and December 15 of each year, commencing on June 15, 2013. On March 1, 2013, we redeemed all of the remaining $57.4 million aggregate principal amount of the Convertible Senior Notes. This redemption was funded by borrowings on the senior secured revolving credit facility. The completion of the redemption discharges the Indenture dated as of May 30, 2007 between SpartanNash and the Bank of New York Trust Company, N.A. as Trustee (the “Indenture”) and the Convertible Notes.

Our principal sources of liquidity are cash flows generated from operations and our senior secured credit facility which has maximum available credit of $1.0 billion. As of January 3, 2015, our senior secured revolving credit facility and senior secured term loan had outstanding borrowings of $450.2 million; additional available borrowings under our $1.0 billion credit facility are based on stipulated advance rates on eligible assets, as defined in the credit agreement. The credit agreement requires that SpartanNash maintain excess availability of 10 percent of the borrowing base as such term is defined in the credit agreement. SpartanNash had excess availability after the 10 percent covenant of $406.8 million at January 3, 2015. Payment of dividends and repurchases of outstanding shares are permitted, provided that certain levels of excess availability are maintained. The credit facility provides for the issuance of letters of credit, of which $11.5 million were outstanding as of January 3, 2015. The revolving credit facility matures January 2020, and is secured by substantially all of our assets. We believe that cash generated from operating activities and available borrowings under the credit facility will be sufficient to meet anticipated requirements for working capital, capital expenditures, dividend payments, and senior note debt redemption and debt service obligations for the foreseeable future. However, there can be no assurance that our business will continue to generate cash flow at or above current levels or that we will maintain our ability to borrow under our credit facility.

Our current ratio increased to 1.90:1.00 at January 3, 2015 from 1.76:1.00 at December 28, 2013 and our investment in working capital was $433.2 million at January 3, 2015 versus $398.2 million at December 28, 2013. Our debt to total capital ratio decreased to 0.43:1.00 at January 3, 2015 versus 0.46:1.00 at December 28, 2013.

Total net debt is a non-GAAP financial measure that is defined as long term debt and capital lease obligations plus current maturities of long-term debt and capital lease obligations less cash and cash equivalents. The Company believes investors find the information useful because it reflects the amount of long term debt obligations that are not covered by available cash and temporary investments.

-42-


 

 

Following is a reconciliation of long-term debt and capital lease obligations to total net long-term debt and capital lease obligations as of January 3, 2015 and December 28, 2013.  

 

 

January 3, 2015

 

 

December 28, 2013

 

Current maturities of long-term debt and capital lease obligations

$

19,758

 

 

$

7,345

 

Long-term debt and capital lease obligations

 

550,510

 

 

 

598,319

 

Total debt

 

570,268

 

 

 

605,664

 

Cash and cash equivalents

 

(6,443

)

 

 

(9,216

)

Total net long-term debt

$

563,825

 

 

$

596,448

 

The table below presents our significant contractual obligations as of January 3, 2015 (1):

 

 

  

Amount Committed By Period

 

(In thousands)

  

Total
Amount
Committed

 

  

Less
than 1
year

 

  


1-3 years

 

  


3-5 years

 

  

More
than 5
years

 

Long-term debt(2)

  

$

505,848

  

  

$

11,102

  

  

$

72,306

  

  

$

422,421

  

  

$

19

  

Estimated interest on long-term debt

  

 

63,815

  

  

 

20,844

  

  

 

34,941

  

  

 

8,029

  

  

 

1

  

Capital leases (3)

  

 

64,420

  

  

 

8,656

  

  

 

13,212

  

  

 

13,470

  

  

 

29,082

  

Interest on capital leases

  

 

31,510

  

  

 

4,686

  

  

 

7,916

  

  

 

5,828

  

  

 

13,080

  

Operating leases (3)

  

 

230,019

  

  

 

47,019

  

  

 

69,445

  

  

 

41,503

  

  

 

72,052

  

Lease and ancillary costs of closed sites, including imputed interest

  

 

13,988

  

  

 

4,110

  

  

 

4,843

  

  

 

4,233

  

  

 

802

  

Purchase obligations (merchandise) (4)

  

 

22,756

  

  

 

3,616

  

  

 

6,751

  

  

 

4,882

  

  

 

7,507

  

Unrecognized tax liabilities, including interest

  

 

2,314

  

  

 

801

  

  

 

94

  

  

 

1,171

  

  

 

248

  

Self-insurance liability

  

 

19,413

  

  

 

13,276

  

  

 

4,269

  

  

 

1,179

  

  

 

689

  

Total

  

$

954,083

  

  

$

114,110

  

  

$

213,777

  

  

$

502,716

  

  

$

123,480

  

(1)

Excludes funding of pension and other postretirement benefit obligations. We expect to make payments of $0.7 million to our defined benefit pension plans in fiscal 2015. Also excludes contributions under various multi-employer pension plans, which totaled $12.9 million in the fiscal year ended January 3, 2015. For additional information, refer to Note 10 to the consolidated financial statements.

(2)

Refer to Note 6 to the consolidated financial statements for additional information regarding long-term debt.

(3)

Operating and capital lease obligations do not include common area maintenance, insurance or tax payments for which we are also obligated. In the fiscal year ended January 3, 2015, these charges totaled approximately $12.8 million.

(4)

The amount of purchase obligations shown in the table represents the amount of product we are contractually obligated to purchase. The majority of our purchase obligations involve purchase orders to purchase products for resale made in the ordinary course of business, which are not included in the table above. Our purchase orders are based on our current needs and are fulfilled by our vendors within very short time horizons. These contracts are typically cancelable and therefore no amounts have been included in the table above. The purchase obligations shown in this table also exclude agreements that are cancelable by us without significant penalty, which include contracts for routine outsourced services. Also excluded are contracts that do not contain minimum annual purchase commitments but include other standard contractual considerations that must be fulfilled in order to earn $4.0 million in advanced contract monies that has been received where recognition has been deferred on the Consolidated Balance Sheet. The purchase obligations shown in this table represent the amount of product we are contractually obligated to purchase to earn $8.0 million in advanced contract monies that are receivable under the contracts. At January 3, 2015, $2.0 million in advanced contract monies has been received under these contracts where recognition has been deferred on the Consolidated Balance Sheet. If we do not fulfill these purchase obligations, we would only be obligated to repay the unearned upfront contract monies.

-43-


 

 

We have also made certain commercial commitments that extend beyond January 3, 2015. These commitments include standby letters of credit and guarantees of certain Food Distribution customer lease obligations. The following summarizes these commitments as of January 3, 2015:

 

 

  

Amount Committed By Period

 

Other Commercial Commitments

(In thousands)

  

Total
Amount
Committed

 

  

Less
than 1
year

 

  

1-3 years

 

  

3-5 years

 

  

More
than 5
years

 

Standby Letters of Credit (1)

  

$

11,479

  

  

$

11,479

  

  

$

  

  

$

  

  

$

  

Guarantees (2)

  

 

2,852

  

  

 

181

  

  

 

909

  

  

 

803

  

  

 

959

  

Total Other Commercial Commitments

  

$

14,331

  

  

$

11,660

  

  

$

909

  

  

$

803

  

  

$

959

  

(1)

Letters of credit relate primarily to supporting workers’ compensation obligations.

(2)

Refer to Part II, Item 8 of this report under Note 14 in the Notes to Consolidated Financial Statements and under the caption “Guarantees of Debt and Lease Obligations of Others” in the Critical Accounting Policies section below for additional information regarding debt guarantees, lease guarantees and assigned leases.

Cash Dividends

We paid a quarterly cash dividend of $0.12 per common share in each quarter of the fiscal year ended January 3, 2015, $0.09 in the 39 week period ended December 28, 2013 and $0.08 in the fiscal year ended March 30, 2013. Under our senior revolving credit facility, we are generally permitted to pay dividends in any fiscal year up to an amount such that all cash dividends, together with any cash distributions, prepayments of our senior notes and share repurchases, do not exceed $25.0 million. Additionally, we are generally permitted to pay cash dividends in excess of $25.0 million in any fiscal year so long as our Excess Availability, as defined in the senior revolving credit facility, is in excess of 15 percent of the Total Borrowing Base before and after giving effect to the prepayments, repurchases and dividends. Although we currently expect to continue to pay a quarterly cash dividend, adoption of a dividend policy does not commit the board of directors to declare future dividends. Each future dividend will be considered and declared by the board of directors in its discretion. Whether the board of directors continues to declare dividends depends on a number of factors, including our future financial condition and profitability and compliance with the terms of our credit facilities.

Ratio of Earnings to Fixed Charges

For purposes of calculating the ratio of earnings to fixed charges under the terms of the Senior Notes, earnings consist of net earnings, as adjusted under the terms of the Senior Notes indenture, plus income tax expense, fixed charges and non-cash charges, less cash payments relating to non-cash charges added back to net earnings in prior periods. Fixed charges consist of interest cost, including capitalized interest, and amortization of debt issue costs. Our ratio of earnings to fixed charges was 9.37:1.00 for the fiscal year ended January 3, 2015.

Recently Adopted Accounting Standards

On April 10, 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-08 “Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.” ASU No. 2014-08 changes the criteria for reporting discontinued operations and modifies related disclosure requirements. The new guidance is effective on a prospective basis for fiscal years beginning after December 15, 2014, and interim periods within those years. Adoption of this in fiscal 2015 is not expected to have a material impact on the financial statements.

On May 28, 2014, the FASB issued ASC 606, “Revenue from Contracts with Customers,” which provides guidance for revenue recognition. The new guidance contained in the ASU affects any reporting organization that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards. The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. This guidance will be effective for the Company in the first quarter of its fiscal year ending December 30, 2017. Adoption is allowed by either the full retrospective or modified retrospective approach. We are currently in the process of evaluating the impact of adoption of this ASC on our Consolidated Financial Statements

 

 

-44-


 

 

Item  7A.

Quantitative and Qualitative Disclosure About Market Risk

We are exposed to industry related price changes on several commodities, such as dairy, meat and produce that we buy and sell in all of our segments. These products are purchased for and sold from inventory in the ordinary course of business. We are also exposed to other general commodity price changes such as utilities, insurance and fuel costs.

We had $450.2 million of variable rate debt as of January 3, 2015. The weighted average interest rates on outstanding debt including loan fee amortization for the fiscal year ended January 3, 2015, the 39 week period ended December 28, 2013 and the fiscal year ended March 30, 2013 were 4.02%, 5.73% and 8.43%, respectively.

At January 3, 2015 and December 28, 2013, the estimated fair value of our long-term debt, including current maturities, was higher than book value by approximately $3.7 million and $4.0 million, respectively. The estimated fair values were based on market quotes for similar instruments.

The following table sets forth the principal cash flows of our debt outstanding and related weighted average interest rates for the outstanding instruments as of January 3, 2015:

 

 

  

January 3, 2015

 

 

Aggregate Payments by Fiscal Year

 

(In thousands, except rates)

  

Fair
Value

 

  

Total

 

 

2015

 

 

2016

 

 

2017

 

 

2018

 

 

2019

 

 

Thereafter

 

Fixed rate debt

  

 

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Principal payable

  

$

123,818

  

  

$

120,078

  

 

$

9,758

  

 

$

57,630

  

 

$

7,888

  

 

$

9,151

  

 

$

6,550

  

 

$

29,101

  

Average interest rate

  

 

 

 

  

 

6.84

 

 

6.90

 

 

7.11

 

 

7.44

 

 

7.67

 

 

7.95

 

 

8.51

Variable rate debt

  

 

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Principal payable

  

 

450,190

  

  

 

450,190

  

 

 

10,000

  

 

 

10,000

  

 

 

10,000

  

 

 

420,190

  

 

 

  

 

 

  

Average interest rate

  

 

 

 

  

 

3.93

 

 

 3.91

 

 

 3.87

 

 

 3.83

 

 

 3.80

 

 

 

 

 

 

 

 

 

 

 

-45-


 

 

Item 8.

Financial Statements and Supplementary Data

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of

SpartanNash Company and Subsidiaries

Grand Rapids, Michigan

We have audited the accompanying consolidated balance sheets of SpartanNash Company and subsidiaries (the “Company”) as of January 3, 2015 and December 28, 2013, and the related consolidated statements of earnings, comprehensive income, shareholders’ equity, and cash flows for the fiscal year ended January 3, 2015, 39 week period ended December 28, 2013 and the fiscal year ended March 30, 2013. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of SpartanNash Company and subsidiaries as of January 3, 2015 and December 28, 2013, and the results of their operations and their cash flows for the fiscal year ended January 3, 2015, 39 week period ended December 28, 2013 and the fiscal year ended March 30, 2013, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of January 3, 2015, based on the criteria established in Internal Control — Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 4, 2015 expressed an unqualified opinion on the Company’s internal control over financial reporting.

/s/ DELOITTE & TOUCHE LLP

Grand Rapids, Michigan

March 4, 2015

 

 

 

 

-46-


 

 

CONSOLIDATED BALANCE SHEETS

SpartanNash Company and Subsidiaries

(In thousands)

 

 

 

 

 

 

 

 

 

 

January 3, 2015

 

 

December 28, 2013

 

Assets

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

Cash and cash equivalents

$

6,443

 

 

$

9,216

 

Accounts and notes receivable, net

 

282,697

 

 

 

285,393

 

Inventories, net

 

577,197

 

 

 

589,497

 

Prepaid expenses and other current assets

 

31,882

 

 

 

38,423

 

 Property and equipment held for sale

 

15,180

 

 

 

440

 

Total current assets

 

913,399

 

 

 

922,969

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

 

 

 

 

 

Land and improvements

 

76,218

 

 

 

85,074

 

Buildings and improvements

 

468,236

 

 

 

464,558

 

Equipment

 

453,339

 

 

 

414,754

 

Total property and equipment

 

997,793

 

 

 

964,386

 

Less accumulated depreciation and amortization

 

400,643

 

 

 

335,904

 

Property and equipment, net

 

597,150

 

 

 

628,482

 

Goodwill

 

297,280

 

 

 

299,186

 

Other assets, net

 

124,453

 

 

 

133,014

 

 

 

 

 

 

 

 

 

Total assets

$

1,932,282

 

 

$

1,983,651

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

Accounts payable

$

320,037

 

 

$

365,584

 

Accrued payroll and benefits

 

73,220

 

 

 

81,175

 

Other accrued expenses

 

44,690

 

 

 

50,789

 

Deferred income taxes

 

22,494

 

 

 

19,909

 

Current maturities of long-term debt and capital lease obligations

 

19,758

 

 

 

7,345

 

Total current liabilities

 

480,199

 

 

 

524,802

 

 

 

 

 

 

 

 

 

Long-term liabilities

 

 

 

 

 

 

 

Deferred income taxes

 

91,232

 

 

 

86,750

 

Postretirement benefits

 

23,701

 

 

 

22,009

 

Other long-term liabilities

 

39,387

 

 

 

44,898

 

Long-term debt and capital lease obligations

 

550,510

 

 

 

598,319

 

Total long-term liabilities

 

704,830

 

 

 

751,976

 

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 8)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders’ equity

 

 

 

 

 

 

 

Common stock, voting, no par value; 100,000 shares

     authorized; 37,524 and 37,371 shares outstanding

 

520,791

 

 

 

518,056

 

Preferred stock, no par value, 10,000 shares authorized; no shares outstanding

 

 

 

 

 

Accumulated other comprehensive loss

 

(11,655

)

 

 

(8,794

)

Retained earnings

 

238,117

 

 

 

197,611

 

Total shareholders’ equity

 

747,253

 

 

 

706,873

 

 

 

 

 

 

 

 

 

Total liabilities and shareholders’ equity

$

1,932,282

 

 

$

1,983,651

 

See notes to consolidated financial statements.

 

 

 

-47-


 

 

CONSOLIDATED STATEMENTS OF EARNINGS

SpartanNash Company and Subsidiaries

(In thousands, except per share data)

 

 

Year Ended

 

 

Period Ended

 

 

Year Ended

 

 

 

 

 

 

 

 

 

 

January 5,

 

 

 

 

 

 

January 3,

 

 

December 28,

 

 

2013

 

 

March 30,

 

 

2015

 

 

2013

 

 

(40 weeks)

 

 

2013

 

 

(53 weeks)

 

 

(39 weeks)

 

 

(unaudited)

 

 

(52 weeks)

 

Net sales

$

7,916,062

 

 

$

2,597,230

 

 

$

2,015,351

 

 

$

2,608,160

 

Cost of sales

 

6,759,988

 

 

 

2,110,350

 

 

 

1,602,450

 

 

 

2,062,616

 

Gross profit

 

1,156,074

 

 

 

486,880

 

 

 

412,901

 

 

 

545,544

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Selling, general and administrative

 

1,022,387

 

 

 

433,450

 

 

 

370,337

 

 

 

482,987

 

   Merger transaction and integration

 

12,675

 

 

 

20,993

 

 

 

 

 

 

 

   Restructuring and asset impairment

 

6,166

 

 

 

15,644

 

 

 

356

 

 

 

1,589

 

Total operating expenses

 

1,041,228

 

 

 

470,087

 

 

 

370,693

 

 

 

484,576

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating earnings

 

114,846

 

 

 

16,793

 

 

 

42,208

 

 

 

60,968

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income and expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Interest expense

 

24,414

 

 

 

9,219

 

 

 

10,420

 

 

 

13,410

 

   Debt extinguishment

 

 

 

 

5,527

 

 

 

2,285

 

 

 

5,047

 

   Other, net

 

(17

)

 

 

(23

)

 

 

(752

)

 

 

(756

)

Total other income and expenses

 

24,397

 

 

 

14,723

 

 

 

11,953

 

 

 

17,701

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings before income taxes and discontinued operations

 

90,449

 

 

 

2,070

 

 

 

30,255

 

 

 

43,267

 

   Income taxes

 

31,329

 

 

 

841

 

 

 

10,352

 

 

 

15,425

 

Earnings from continuing operations

 

59,120

 

 

 

1,229

 

 

 

19,903

 

 

 

27,842

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from discontinued operations, net of taxes

 

(524

)

 

 

(488

)

 

 

(195

)

 

 

(432

)

Net earnings

$

58,596

 

 

$

741

 

 

$

19,708

 

 

$

27,410

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Earnings from continuing operations

$

1.57

 

 

$

0.05

 

 

$

0.91

 

 

$

1.28

 

   Loss from discontinued operations

 

(0.01

)

 

 

(0.02

)

 

 

(0.01

)

 

 

(0.02

)

   Net earnings

$

1.56

 

 

$

0.03

 

 

$

0.90

 

 

$

1.26

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Earnings from continuing operations

$

1.57

 

 

$

0.05

 

 

$

0.91

 

 

$

1.27

 

   Loss from discontinued operations

 

(0.02

)

*

 

(0.02

)

 

 

(0.01

)

 

 

(0.02

)

   Net earnings

$

1.55

 

 

$

0.03

 

 

$

0.90

 

 

$

1.25

 

 

*Includes rounding.

 

See notes to consolidated financial statements.

 

 

 

-48-


 

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

SpartanNash Company and Subsidiaries

(In thousands)

 

 

Year Ended

 

 

Period Ended

 

 

Year Ended

 

 

 

 

 

 

 

 

 

 

January 5,

 

 

 

 

 

 

January 3,

 

 

December 28,

 

 

2013

 

 

March 30,

 

 

2015

 

 

2013

 

 

(40 weeks)

 

 

2013

 

 

(53 weeks)

 

 

(39 weeks)

 

 

(unaudited)

 

 

(52 weeks)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings

$

58,596

 

 

$

741

 

 

$

19,708

 

 

$

27,410

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive (loss) income, before tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pension and postretirement liability adjustment

 

(4,785

)

 

 

8,316

 

 

 

 

 

 

173

 

Total other comprehensive (loss) income, before tax

 

(4,785

)

 

 

8,316

 

 

 

 

 

 

173

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax benefit (expense) related to items of other

   comprehensive income

 

1,924

 

 

 

(3,423

)

 

 

 

 

 

(67

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total other comprehensive (loss) income, after tax

 

(2,861

)

 

 

4,893

 

 

 

 

 

 

106

 

Comprehensive income

$

55,735

 

 

$

5,634

 

 

$

19,708

 

 

$

27,516

 

See notes to consolidated financial statements.

 

 

 

-49-


 

 

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

SpartanNash Company and Subsidiaries

(In thousands)

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Common

 

 

Comprehensive

 

 

Retained

 

 

 

 

 

 

Outstanding

 

 

Stock

 

 

Income (Loss)

 

 

Earnings

 

 

Total

 

Balance – March 31, 2012

 

22,215

 

 

$

155,134

 

 

$

(13,793

)

 

$

182,267

 

 

$

323,608

 

Net earnings

 

 

 

 

 

 

 

 

 

 

27,410

 

 

 

27,410

 

Other comprehensive income

 

 

 

 

 

 

 

106

 

 

 

 

 

 

106

 

Dividends - $0.32 per share

 

 

 

 

 

 

 

 

 

 

(6,899

)

 

 

(6,899

)

Share repurchase

 

(634

)

 

 

(11,381

)

 

 

 

 

 

 

 

 

(11,381

)

Repurchase of equity component of convertible debt,

   net of taxes of $587

 

 

 

 

(935

)

 

 

 

 

 

 

 

 

(935

)

Stock-based employee compensation

 

 

 

 

4,062

 

 

 

 

 

 

 

 

 

4,062

 

Issuances of common stock and related tax benefit,

   on stock option exercises and bonus plan

 

32

 

 

 

650

 

 

 

 

 

 

 

 

 

 

650

 

Issuances of restricted stock and related income

   tax benefits

 

226

 

 

 

35

 

 

 

 

 

 

 

 

 

 

35

 

Cancellations of restricted stock

 

(88

)

 

 

(1,001

)

 

 

 

 

 

 

 

 

(1,001

)

Balance – March 30, 2013

 

21,751

 

 

$

146,564

 

 

$

(13,687

)

 

$

202,778

 

 

$

335,655

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings

 

 

 

 

 

 

 

 

 

 

741

 

 

 

741

 

Other comprehensive income

 

 

 

 

 

 

 

4,893

 

 

 

 

 

 

4,893

 

Dividends - $0.27 per share

 

 

 

 

 

 

 

 

 

 

(5,908

)

 

 

(5,908

)

Stock-based employee compensation

 

 

 

 

6,951

 

 

 

 

 

 

 

 

 

6,951

 

Issuances of common stock and related tax benefit,

   on stock option exercises and bonus plan

 

29

 

 

 

(111

)

 

 

 

 

 

 

 

 

(111

)

Issuances of common stock for merger transaction

 

16,047

 

 

 

379,600

 

 

 

 

 

 

 

 

 

379,600

 

Issuances of restricted stock and related income

   tax benefits

 

228

 

 

 

(15

)

 

 

 

 

 

 

 

 

 

 

(15

)

Cancellations of restricted stock

 

(684

)

 

 

(14,933

)

 

 

 

 

 

 

 

 

(14,933

)

Balance – December 28, 2013

 

37,371

 

 

 

518,056

 

 

 

(8,794

)

 

 

197,611

 

 

 

706,873

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings

 

 

 

 

 

 

 

 

 

 

58,596

 

 

 

58,596

 

Other comprehensive loss

 

 

 

 

 

 

 

(2,861

)

 

 

 

 

 

(2,861

)

Dividends - $0.48 per share

 

 

 

 

 

 

 

 

 

 

(18,090

)

 

 

(18,090

)

Share repurchase

 

(246

)

 

 

(4,987

)

 

 

 

 

 

 

 

 

(4,987

)

Stock-based employee compensation

 

 

 

 

6,939

 

 

 

 

 

 

 

 

 

6,939

 

Issuances of common stock and related tax benefit on

   stock option exercises and stock bonus plan and

   from deferred compensation plan

 

173

 

 

 

1,824

 

 

 

 

 

 

 

 

 

1,824

 

Issuances of restricted stock and related income

   tax benefits

 

317

 

 

 

588

 

 

 

 

 

 

 

 

 

588

 

Cancellations of restricted stock

 

(91

)

 

 

(1,629

)

 

 

 

 

 

 

 

 

(1,629

)

Balance - January 3, 2015

 

37,524

 

 

$

520,791

 

 

$

(11,655

)

 

$

238,117

 

 

$

747,253

 

See notes to consolidated financial statements

 

 

 

-50-


 

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

SpartanNash Company and Subsidiaries

(In thousands)

 

 

Year Ended

 

 

Period Ended

 

 

Year Ended

 

 

 

 

 

 

 

 

 

 

January 5,

 

 

 

 

 

 

January 3,

 

 

December 28,

 

 

2013

 

 

March 30,

 

 

2015

 

 

2013

 

 

(40 weeks)

 

 

2013

 

 

(53 weeks)

 

 

(39 weeks)

 

 

(unaudited)

 

 

(52 weeks)

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings

$

58,596

 

 

$

741

 

 

$

19,708

 

 

$

27,410

 

Loss from discontinued operations, net of tax

 

524

 

 

 

488

 

 

 

195

 

 

 

432

 

Earnings from continuing operations

 

59,120

 

 

 

1,229

 

 

 

19,903

 

 

 

27,842

 

Adjustments to reconcile net earnings to net cash provided by operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restructuring and asset impairment charges

 

6,166

 

 

 

15,644

 

 

 

356

 

 

 

1,589

 

Convertible debt interest

 

 

 

 

 

 

 

2,903

 

 

 

3,282

 

Loss on debt extinguishment

 

 

 

 

5,527

 

 

 

2,285

 

 

 

5,047

 

Depreciation and amortization

 

88,475

 

 

 

37,270

 

 

 

29,434

 

 

 

38,854

 

LIFO expense

 

5,603

 

 

 

928

 

 

 

984

 

 

 

335

 

Postretirement benefits expense

 

2,686

 

 

 

1,492

 

 

 

832

 

 

 

651

 

Deferred taxes on income

 

3,537

 

 

 

(3,566

)

 

 

4,087

 

 

 

(4,121

)

Stock-based compensation expense

 

6,939

 

 

 

6,951

 

 

 

3,250

 

 

 

4,062

 

Excess tax benefit on stock compensation

 

(699

)

 

 

(178

)

 

 

(260

)

 

 

(299

)

Other, net

 

(213

)

 

 

(870

)

 

 

(333

)

 

 

(276

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable

 

(517

)

 

 

40,292

 

 

 

8,346

 

 

 

(1,941

)

Inventories

 

6,004

 

 

 

30,791

 

 

 

(33,621

)

 

 

(23,750

)

Prepaid expenses and other assets

 

13,292

 

 

 

3,787

 

 

 

2,037

 

 

 

6,936

 

Accounts payable

 

(29,231

)

 

 

(37,248

)

 

 

10,066

 

 

 

12,984

 

Accrued payroll and benefits

 

(8,401

)

 

 

(23,822

)

 

 

(5,045

)

 

 

(325

)

Postretirement benefit payments

 

(4,155

)

 

 

(2,964

)

 

 

(4,406

)

 

 

(4,514

)

Accrued income taxes

 

(3,225

)

 

 

(10,688

)

 

 

(12,352

)

 

 

(3,038

)

Other accrued expenses and other liabilities

 

(6,308

)

 

 

186

 

 

 

(1,170

)

 

 

(3,977

)

   Net cash provided by operating activities

 

139,073

 

 

 

64,761

 

 

 

27,296

 

 

 

59,341

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

(90,012

)

 

 

(37,200

)

 

 

(33,932

)

 

 

(42,012

)

Net proceeds from the sale of assets

 

11,008

 

 

 

1,330

 

 

 

2,440

 

 

 

2,440

 

Acquisitions, net of cash acquired

 

 

 

 

(20,647

)

 

 

(13,720

)

 

 

(13,720

)

Loans to customers

 

(6,429

)

 

 

(58

)

 

 

 

 

 

 

Payments from customers on loans

 

3,653

 

 

 

224

 

 

 

 

 

 

 

Other

 

93

 

 

 

(819

)

 

 

339

 

 

 

236

 

   Net cash used in investing activities

 

(81,687

)

 

 

(57,170

)

 

 

(44,873

)

 

 

(53,056

)

Cash flows from financing activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Proceeds from revolving credit facility

 

1,062,173

 

 

 

877,033

 

 

 

366,545

 

 

 

504,468

 

   Payments on revolving credit facility

 

(1,079,654

)

 

 

(812,239

)

 

 

(352,696

)

 

 

(456,818

)

   Share repurchase

 

(4,987

)

 

 

 

 

 

(11,381

)

 

 

(11,381

)

   Proceeds from long-term borrowings

 

 

 

 

 

 

 

9,679

 

 

 

9,679

 

   Repurchase of convertible notes

 

 

 

 

 

 

 

 

 

 

(57,973

)

   Repayment of other long-term debt

 

(20,353

)

 

 

(53,988

)

 

 

(4,440

)

 

 

(5,265

)

   Financing fees paid

 

(870

)

 

 

(9,437

)

 

 

(2,721

)

 

 

(2,721

)

   Excess tax benefit on stock compensation

 

699

 

 

 

178

 

 

 

260

 

 

 

299

 

   Proceeds from sale of common stock

 

1,120

 

 

 

310

 

 

 

325

 

 

 

398

 

   Dividends paid

 

(18,090

)

 

 

(5,908

)

 

 

(5,159

)

 

 

(6,899

)

   Net cash (used in) provided by financing activities

 

(59,962

)

 

 

(4,051

)

 

 

412

 

 

 

(26,213

)

Cash flows from discontinued operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Net cash used in operating activities

 

(197

)

 

 

(421

)

 

 

(351

)

 

 

(451

)

   Net cash used in discontinued operations

 

(197

)

 

 

(421

)

 

 

(351

)

 

 

(451

)

Net (decrease) increase in cash and cash equivalents

 

(2,773

)

 

 

3,119

 

 

 

(17,516

)

 

 

(20,379

)

Cash and cash equivalents at beginning of period

 

9,216

 

 

 

6,097

 

 

 

26,476

 

 

 

26,476

 

Cash and cash equivalents at end of period

$

6,443

 

 

$

9,216

 

 

$

8,960

 

 

$

6,097

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Supplemental Cash Flow Information:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash paid for interest

 

22,990

 

 

 

7,765

 

 

 

7,038

 

 

 

9,422

 

Cash paid for income taxes

 

27,429

 

 

 

13,951

 

 

 

10,240

 

 

 

10,240

 

See notes to consolidated financial statements.

 

-51-


 

 

SPARTANNASH COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

Note 1

Summary of Significant Accounting Policies and Basis of Presentation

SpartanNash Company was formerly known as Spartan Stores, Inc. which began doing business under the assumed name of “SpartanNash Company,” upon completion of the merger with Nash-Finch Company (“Nash-Finch”) on November 19, 2013. The formal name change to SpartanNash Company was approved and became effective after the annual shareholders meeting on May 28, 2014. The accompanying audited Consolidated Financial Statements (the “financial statements”) include the accounts of SpartanNash Company and its subsidiaries (“SpartanNash”).

Fiscal Year: The Company’s fiscal year end is the Saturday nearest to December 31. The fiscal year end was changed from the last Saturday in March in connection with the merger with Nash-Finch, effective beginning with the transition period ended December 28, 2013. As a result of this change, the transition period ended December 28, 2013 was a 39 week period beginning March 31, 2013. Fiscal years ended January 3, 2015 and March 30, 2013 consisted of 53 weeks and 52 weeks, respectively. Beginning with fiscal 2014 the Company’s interim quarters consist of 12 weeks except for the first quarter which consists of 16 weeks.

Principles of Consolidation: The consolidated financial statements include the accounts of SpartanNash Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated.

Use of Estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect amounts reported therein. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods might differ from those estimates.

Revenue Recognition: We recognize revenue when the sales price is fixed or determinable, collectability is reasonably assured and the customer takes possession of the merchandise. The Military segment recognizes revenues upon the delivery of the product to the commissary or commissaries designated by the Defense Commissary Agency (DeCA), or in the case of overseas commissaries, when the product is delivered to the port designated by DeCA, which is when DeCA takes possession of the merchandise and bears the responsibility for shipping the product to the commissary or overseas warehouse. Revenues from consignment sales are included in our reported sales on a net basis. The Food Distribution segment recognizes revenues when products are delivered or ancillary services are provided. Sales and excise taxes are excluded from revenue. The Retail segment recognizes revenues from the sale of products at the point of sale. Based upon the nature of the products we sell, our customers have limited rights of return which are immaterial. Discounts provided to customers by SpartanNash at the time of sale are recognized as a reduction in sales as the products are sold. SpartanNash does not recognize a sale when it awards customer loyalty points or sells gift cards and gift certificates; rather, a sale is recognized when the customer loyalty points, gift card or gift certificate are redeemed to purchase product. Sales taxes collected from customers are remitted to the appropriate taxing jurisdictions and are excluded from sales revenue as the Company considers itself a pass-through conduit for collecting and remitting sales taxes.

Cost of Sales: Cost of sales is the cost of inventory sold during the period, including purchase costs, freight, distribution costs, physical inventory adjustments, markdowns and promotional allowances. Vendor allowances and credits 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 related product is sold. Lump sum payments received for multi-year contracts are amortized over the life of the contracts based on contractual terms. The distribution segments include shipping and handling costs in the selling, general and administrative section of operating expenses on the Consolidated Statement of Earnings.

Cash and Cash Equivalents: Cash and cash equivalents consist of cash and highly liquid investments with an original maturity of three months or less at the date of purchase.

-52-

 


SPARTANNASH COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Accounts and Notes Receivable: Accounts and notes receivable are shown net of allowances for credit losses of $5.5 million and $2.0 million as of January 3, 2015 and December 28, 2013, respectively. The increase in allowances for credit losses was due to the accounts and notes receivable balances acquired in the merger with Nash-Finch realizing better than expected collections in relation to the estimated fair value as of the merger date.  SpartanNash evaluates the adequacy of its allowances by analyzing the aging of receivables, customer financial condition, historical collection experience, the value of collateral and other economic and industry factors. Actual collections may differ from historical experience, and if economic, business or customer conditions deteriorate significantly, adjustments to these reserves may be required. When SpartanNash becomes aware of factors that indicate a change in a specific customer’s ability to meet its financial obligations, we record a specific reserve for credit losses. Operating results include bad debt expense of $3.0 million, $1.3 million, and $0.9 million for fiscal year ended January 3, 2015, the 39 week period ended December 28, 2013 and fiscal year ended March 30, 2013, respectively.

Inventory Valuation: Inventories are valued at the lower of cost or market. Approximately 93.7% and 87.5% of our inventories were valued on the last-in, first-out (LIFO) method at January 3, 2015 and December 28, 2013, respectively. If replacement cost had been used, inventories would have been $50.7 million and $45.1 million higher at January 3, 2015 and December 28, 2013, respectively. The replacement cost method utilizes the most current unit purchase cost to calculate the value of inventories. During fiscal year ended January 3, 2015, the 39 week period ended December 28, 2013, and fiscal year ended March 30, 2013, certain inventory quantities were reduced. The reductions resulted in liquidation of LIFO inventory carried at lower costs prevailing in prior years, the effect of which decreased the LIFO provision in fiscal year ended January 3, 2015, 39 week period ended December 28, 2013 and fiscal year ended March 30, 2013 by $0.8 million, $0.1 million and $1.0 million, respectively. SpartanNash accounts for its Military and Food Distribution inventory using a perpetual system and utilizes the retail inventory method to value inventory for center store products in the Retail segment. Under the retail inventory method, inventory is stated at cost with cost of sales and gross margin calculated by applying a cost ratio to the retail value of inventories. Fresh, pharmacy and fuel products are accounted for at cost in the Retail segment. We evaluate inventory shortages throughout the year based on actual physical counts in our facilities. We record allowances for inventory shortages based on the results of recent physical counts to provide for estimated shortages from the last physical count to the financial statement date.

Goodwill and Intangible Assets: Goodwill represents the excess purchase price over the fair value of tangible net assets acquired in business combinations after amounts have been allocated to intangible assets. Goodwill is not amortized, but is reviewed for impairment during the last quarter of each year, or whenever events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount, using a discounted cash flow model and comparable market values of each reporting segment.  Measuring the fair value of reporting units is a Level 3 measurement under the fair value hierarchy. See Note 7 for a discussion of levels.

Intangible assets primarily consist of trade names, favorable lease agreements, pharmacy prescription lists, customer relationships, franchise agreements and fees, non-compete agreements and liquor licenses. Favorable leases are amortized on a straight-line basis over the related lease terms. Prescription lists and customer relationships are amortized on a straight-line basis over the period of expected benefit. Non-compete agreements are amortized on a straight-line basis over the length of the agreements. Franchise fees are amortized on a straight-line basis over the term of the franchise agreement. An indefinite-lived trade name is not amortized. A trade name with a definite-life is amortized over the expected life of the asset. Liquor licenses are not amortized as they have indefinite lives. Intangible assets are included in other assets in the Consolidated Balance Sheets.

Property and Equipment: Property and equipment are recorded at cost. Expenditures which improve or extend the life of the respective assets are capitalized while expenditures for normal repairs and maintenance are charged to operations as incurred. Depreciation expense on land improvements, buildings and improvements and equipment is computed using the straight-line method as follows:

 

Land improvements

 

 

15 years

 

Buildings and improvements

 

 

15 to 40 years

 

Equipment

 

 

3 to 15 years

 

Property under capital leases and leasehold improvements are amortized on a straight-line basis over the shorter of the remaining terms of the leases or the estimated useful lives of the assets. Internal use software is included in property and equipment and amounted to $17.7 million and $19.2 million as of January 3, 2015 and December 28, 2013, respectively.

-53-


SPARTANNASH COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Impairment of Long-Lived Assets: SpartanNash reviews and evaluates long-lived assets for impairment when events or circumstances indicate that the carrying amount of an asset may not be recoverable. When the undiscounted future cash flows are not sufficient to recover an asset’s carrying amount, the fair value is compared to the carrying value to determine the impairment loss to be recorded. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value, less the cost to sell. Fair values are determined by independent appraisals or expected sales prices based upon market participant data developed by third party professionals or by internal licensed real estate professionals. Estimates of future cash flows and expected sales prices are judgments based upon SpartanNash’s experience and knowledge of operations. These estimates project cash flows several years into the future and are affected by changes in the economy, real estate market conditions and inflation.

Debt Issuance Costs: Debt issuance costs are amortized over the term of the related financing agreement and are included in Other Assets in the consolidated balance sheets.

Insurance Reserves: SpartanNash is primarily self-insured for workers’ compensation, general liability, automobile liability and health care costs. Self-insurance liabilities are recorded based on claims filed and an estimate of claims incurred but not yet reported. Workers’ compensation, general liability and automobile liabilities are actuarially estimated based on available historical information. We have purchased stop-loss coverage to limit our exposure to any significant exposure on a per claim basis. On a per claim basis, our exposure is up to $0.5 million for workers’ compensation, $0.5 million for general liability, up to $0.5 million for automobile liability and $0.5 million for health care. Any projection of losses concerning workers’ compensation, general and automobile and health insurance liability is subject to a considerable degree of variability. Among the causes of this variability are unpredictable external factors affecting future inflation rates, litigation trends, legal interpretations, benefit level changes and claim settlement patterns. Although our estimates of liabilities incurred do not anticipate significant changes in historical trends for these variables, such changes could have a material impact on future claim costs and currently recorded liabilities.

A summary of changes in SpartanNash’s self-insurance liability is as follows:

 

(In thousands)

  

January 3, 2015

 

 

December 28, 2013

 

 

March 30, 2013

 

Beginning balance

  

$

22,454

  

 

$

7,167

  

 

$

5,714

  

Balance assumed in merger

  

 

  

 

 

13,248

  

 

 

  

Expense

  

 

53,297

  

 

 

25,291

  

 

 

27,955

  

Claim payments, net of employee contributions

  

 

(56,338

 

 

(23,252

 

 

(26,502

Ending balance

  

$

19,413

  

 

$

22,454

  

 

$

7,167

  

The current portion of the self-insurance liability was $13.3 million and $13.1 million as of January 3, 2015 and December 28, 2013, respectively, and is included in “Other accrued expenses” in the consolidated balance sheets. The long-term portion was $6.1 million and $9.4 million as of January 3, 2015 and December 28, 2013, respectively, and is included in “Other long-term liabilities” in the Consolidated Balance Sheets.

Income Taxes: Deferred income tax assets and liabilities are computed for differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future. Such deferred income tax asset and liability computations are based on enacted tax laws and rates applicable to periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized. Income tax expense is the tax payable or refundable for the period plus or minus the change during the period in deferred and other tax assets and liabilities.

Earnings per share: Earnings per share (“EPS”) is computed using the two-class method. The two-class method determines earnings per share for each class of common stock and participating securities according to dividends and their respective participation rights in undistributed earnings. Participating securities include non-vested shares of restricted stock in which the participants have non-forfeitable rights to dividends during the performance period. Diluted EPS includes the effects of stock options.

-54-


SPARTANNASH COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

The following table sets forth the computation of basic and diluted earnings per share for continuing operations:

 

(In thousands, except per share amounts)

  

January 3,
2015

(53 weeks)

 

 

December 28,
2013

(39 weeks)

 

 

March 30,
2013

(52 weeks)

 

Numerator:

  

 

 

 

 

 

 

 

 

 

 

 

Earnings from continuing operation

  

$

59,120

  

 

$

1,229

  

 

$

27,842

  

Adjustment for earnings attributable to participating securities

  

 

(1,015

 

 

(26

 

 

(709

Earnings from continuing operations used in calculating earnings per share

  

$

58,105

  

 

$

1,203

  

 

$

27,133

  

Denominator:

  

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding, including participating securities

  

 

37,641

  

 

 

24,137

  

 

 

21,773

  

Adjustment for participating securities

  

 

(646

 

 

(519

 

 

(554

Shares used in calculating basic earnings per share

  

 

36,995

  

 

 

23,618

  

 

 

21,219

  

Effect of dilutive stock options

  

 

69

  

 

 

92

  

 

 

75

  

Shares used in calculating diluted earnings per share

  

 

37,064

  

 

 

23,710

  

 

 

21,294

  

Basic earnings per share from continuing operations

  

$

1.57

  

 

$

0.05

  

 

$

1.28

  

Diluted earnings per share from continuing operations

  

$

1.57

  

 

$

0.05

  

 

$

1.27

  

Weighted average shares issuable upon the exercise of stock options that were not included in the earnings per share calculations because they were anti-dilutive were 322,914, 334,172, and 369,969 in fiscal year ended January 3, 2015, the 39 week period ended December 28, 2013 and fiscal year ended March 30, 2013, respectively.

Stock-Based Compensation: All share-based payments to employees are recognized in the consolidated financial statements as compensation cost based on the fair value on the date of grant. SpartanNash determined the fair value of stock option awards using the Black-Scholes option-pricing model. The grant date closing price per share of SpartanNash stock is used to estimate the fair value of restricted stock awards and restricted stock units. The value of the portion of awards expected to vest is recognized as expense over the requisite service period.

Shareholders’ Equity: SpartanNash’s restated articles of incorporation provide that the board of directors may at any time, and from time to time, provide for the issuance of up to 10 million shares of preferred stock in one or more series, each with such designations as determined by the board of directors. At January 3, 2015 and December 28, 2013, there were no shares of preferred stock outstanding.

Advertising Costs: SpartanNash’s advertising costs are expensed as incurred and are included in selling, general and administrative expenses. Advertising expenses were $41.1 million, $15.3 million and $13.6 million in fiscal year ended January 3, 2015, the 39 week period ended December 28, 2013 and fiscal year ended March 30, 2013, respectively.

Accumulated Other Comprehensive Income (Loss): We report comprehensive income (loss) that includes our net income (loss) and other comprehensive income (loss). Other comprehensive income (loss) refers to revenues, expenses, gains and losses that are not included in net earnings such as minimum pension and other post retirement liabilities adjustments and unrealized gains or losses on hedging instruments, but rather are recorded directly in the Consolidated Statements of Shareholders’ Equity. These amounts are also presented in our Consolidated Statements of Comprehensive Income (Loss). As of January 3, 2015 and December 28, 2013, the accumulated other comprehensive loss consisted of the pension and postretirement liability.

-55-


SPARTANNASH COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Recently Issued Accounting Standards

On April 10, 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-08 “Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.” ASU No. 2014-08 changes the criteria for reporting discontinued operations and modifies related disclosure requirements. The new guidance is effective on a prospective basis for fiscal years beginning after December 15, 2014, and interim periods within those years.  Adoption of this standard in fiscal 2015 is not expected to have a material impact on the Consolidated Financial Statements.

 

On May 28, 2014, the FASB issued ASC 606, “Revenue from Contracts with Customers,” which provides guidance for revenue recognition. The new guidance contained in the ASU affects any reporting organization that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards. The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. This guidance will be effective for the Company in the first quarter of its fiscal year ending December 30, 2017. Adoption is allowed by either the full retrospective or modified retrospective approach. We are currently in the process of evaluating the impact of adoption of this ASC on our Consolidated Financial Statements.

 

 

Note 2

Merger

On November 19, 2013, Spartan Stores completed a merger with Nash-Finch Company (“Nash-Finch”), a food distribution company serving military commissaries and exchanges and independent grocery retailers and an operator of retail grocery stores. The merger was pursued to create a larger, more balanced company with a broader customer base across multiple food retail and distribution businesses.

Each outstanding share of the common stock of Nash-Finch converted into 1.20 shares of Spartan Stores common stock.

Consideration paid for all of the Nash-Finch outstanding shares consisted of the following:

 

(In thousands, except share price)

  

 

 

Spartan Stores common shares issued and deferred

  

 

16,119

  

Trading price

  

$

23.55

  

Fair value of shares issued

  

 

379,600

  

Cash paid for fractional shares

  

 

14

  

 

  

$

379,614

  

The merger was accounted for under the provisions of FASB Accounting Standards Codification Topic 805, “Business Combinations.” The related assets acquired and liabilities assumed were recorded at estimated fair value on the acquisition date. The operating results of Nash-Finch are included in the consolidated results of operations beginning on November 19, 2013.

-56-


SPARTANNASH COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

The following table summarizes the fair values of the assets acquired and liabilities assumed on November 19, 2013. During the measurement period, which ended on November 18, 2014, net adjustments of $7.0 million were made to the fair values of the assets acquired and liabilities assumed with a corresponding adjustment to goodwill.  These adjustments are summarized in the table presented below.  The accompanying consolidated balance sheet as of December 28, 2013 has been retrospectively adjusted to reflect these adjustments made as of November 19, 2013 as required by the accounting guidance for business combinations.

 

 

(In thousands)

  

Initial Valuation

 

2014
Adjustments to
Fair Value

 

Final Valuation

 

Current assets

  

$

790,296

 

$

(2,866

)  

$

787,430

 

Property and equipment

  

 

369,495

 

(22,995

)  

346,500

 

Goodwill

  

 

43,584

 

(6,962

)  

36,622

 

Intangible assets

  

 

10,750

 

17,800

  

28,550

 

Other

  

 

38,160

 

-

  

38,160

 

Total assets acquired

  

 

1,252,285

 

(15,023

)  

1,237,262

 

Current liabilities

  

 

353,484

 

(11,263

)  

342,221

 

Other long-term liabilities

  

 

81,047

 

(4,516

)  

76,531

 

Long-term debt and capital lease obligations

  

 

438,140

 

756

  

438,896

 

Total liabilities assumed

  

 

872,671

 

(15,023

)  

857,648

 

Net assets acquired

  

$

379,614

 

$

-

  

$

379,614

 

During the second quarter ended July 12, 2014, management of the Company made revisions to the cash flow projections to correct the allocation between certain reporting units related to the valuation analysis completed in 2013.  Management has concluded that the purchase accounting effect of the revisions is not material to the consolidated financial statements for any period presented.  As a result of the revisions, property and equipment was decreased by $23.0 million, while intangible assets were increased by $19.3 million and goodwill was increased by $3.7 million.

The excess of the purchase price over the fair value of net assets acquired of $36.6 million was recorded as goodwill in the consolidated balance sheet and allocated to the Food Distribution segment.  The goodwill recognized is attributable primarily to expected synergies and the assembled workforce of Nash-Finch.  No goodwill is expected to be deductible for tax purposes.

Intangible assets acquired were preliminarily valued as follows:

 

(In thousands)

  

Intangible
Assets

 

  

Useful Life

 

Trade names

  

$

6,700

  

  

 

Indefinite

  

Customer lists

  

 

5,100

  

  

 

7 years

  

Customer relationships

 

 

12,100

 

 

 

20 years

 

Favorable leases

  

 

4,650

  

  

 

7 to 22 years

  

 

  

$

28,550

  

  

 

 

 

The following table provides net sales and results of operations from the acquired Nash-Finch Company included in the consolidated statements of earnings since November 19, 2013:

 

(In thousands)

 

Year Ended
January 3, 2015

 

  

Period Ended
December 28, 2013

 

Net sales

 

$

5,248,617

 

  

$

563,185

  

Net earnings

 

 

24,731

 

  

 

769

  

Included in the net earnings above are merger and integration expenses of $2.6 million and $2.0 million after-tax for the year ended January 3, 2015 and the period ended December 28, 2013, respectively; asset impairment and restructuring charges of $2.9 million and $0.4 million after-tax for the year ended January 5, 2015 and the period ended December 28, 2013, respectively; and debt extinguishment charges of $2.6 million after-tax for the period ended December 28, 2013..

The following unaudited supplemental pro forma financial information presents sales and net earnings as if the Nash-Finch Company was acquired on the first day of the fiscal year ended March 30, 2013.

-57-


SPARTANNASH COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

This pro forma information is not necessarily indicative of the results that would have been obtained if the acquisition had occurred at the beginning of the period presented or that may be obtained in the future.

 

 

  

 

 

(In thousands)

  

Period Ended
December 28, 2013
(39 weeks)

 

  

Year Ended
March 30, 2013
(52 weeks)

 

Net sales

  

$

5,896,555

  

  

$

7,428,957

  

Net earnings (loss)

  

 

24,073

  

  

 

(73,340

Non-recurring merger transaction and integration costs of $26.5 million were incurred during the 39 week period ended December 28, 2013 of which $21.0 million was included in selling, general and administrative expenses and $5.5 million was included in debt extinguishment charges. Costs associated with the new revolving credit agreement of $9.4 million were capitalized and included in other assets in the Consolidated Balance Sheet.

 

 

Note 3

Goodwill and Other Intangible Assets

Changes in the carrying amount of goodwill were as follows:

 

(In thousands)

  

Retail

 

Food
Distribution

 

Total

 

Balance at March 30, 2013:

  

 

 

 

 

 

 

 

 

 

Goodwill

  

$

238,714

  

$

94,726

  

$

333,440

  

Accumulated impairment charges

  

 

(86,600

 

  

 

(86,600

Goodwill, net

  

 

152,114

  

 

94,726

  

 

246,840

  

Merger and acquisition

  

 

17,027

  

 

36,622

  

 

53,649

  

Other

  

 

(1,303

 

  

 

(1,303

Balance at December 28, 2013:

  

 

 

 

 

 

 

 

 

 

Goodwill

  

 

254,438

  

 

131,348

  

 

385,786

  

Accumulated impairment charges

  

 

(86,600

 

  

 

(86,600

Goodwill, net

  

 

167,838

  

 

131,348

  

 

299,186

  

Other

  

 

(1,906

 

  

 

(1,906

Balance at January 3, 2015:

  

 

 

 

 

 

 

 

 

 

Goodwill

  

 

252,532

  

 

131,348

  

 

383,880

  

Accumulated impairment charges

  

 

(86,600

 

  

 

(86,600

Goodwill, net

  

$

165,932

  

$

131,348

  

$

297,280

  

The following table reflects the components of amortized intangible assets, included in “Other, net” on the Consolidated Balance Sheets:

 

 

  

January 3, 2015

 

  

December 28, 2013

 

(In thousands)

  

Gross
Carrying
Amount

 

  

Accumulated
Amortization

 

  

Gross
Carrying
Amount

 

  

Accumulated
Amortization

 

Non-compete agreements

  

$

2,528

  

  

$

1,836

  

  

$

4,566

  

  

$

3,427

  

Favorable leases

  

 

8,408

  

  

 

2,718

  

  

 

8,408

  

  

 

2,215

  

Pharmacy customer prescription lists

  

 

16,494

  

  

 

10,574

  

  

 

17,423

  

  

 

8,946

  

Customer relationships

 

 

12,100

 

 

 

684

 

 

 

12,100

 

 

 

78

 

Trade names

  

 

1,218

  

  

 

461

  

  

 

1,219

  

  

 

233

  

Franchise fees and other

  

 

514

  

  

 

184

  

  

 

370

  

  

 

129

  

Total

  

$

41,262

  

  

$

16,457

  

  

$

44,086

  

  

$

15,028

  

-58-


SPARTANNASH COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

The weighted average amortization period for amortizable intangible assets is as follows:

 

Non-compete agreements

  

 

6.0 years

  

Favorable leases

  

 

16.7 years

  

Customer lists

  

 

7.2 years

  

Customer relationships

 

 

20.0 years

 

Trade names

  

 

7.0 years

  

Franchise fees and other

  

 

8.6 years

  

Amortization expense for intangible assets was $3.7 million, $2.1 million and $2.3 million for the fiscal year ended January 3, 2015, the 39 week period ended December 28, 2013, and fiscal year ended March 30, 2013, respectively.

Estimated amortization expense for each of the five succeeding fiscal years is as follows:

 

 

 

(In thousands)

Fiscal Year

  

Amortization Expense

 

 

2015

  

$

3,172

  

 

2016

  

 

2,624

  

 

2017

  

 

2,517

  

 

2018

  

 

2,137

  

 

2019

  

 

1,836

  

Indefinite-lived intangible assets that are not amortized consist primarily of trade names and licenses for the sale of alcoholic beverages which totaled $33.0 and $33.2 million as of January 3, 2015 and December 28, 2013.

 

 

Note 4

Restructuring, Asset Impairment and Other

The following table provides the activity of restructuring costs for fiscal year ended January 3, 2015, the 39 week period ended December 28, 2013, and fiscal year ended March 30, 2013. Restructuring costs recorded in the Consolidated Balance Sheets are included in “Other accrued expenses” in Current liabilities and “Other long-term liabilities” in Long-term liabilities based on when the obligations are expected to be paid.

-59-


SPARTANNASH COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

(In thousands)

  

Lease and
Ancillary Costs

 

 

Severance

 

 

Total

 

Balance at March 31, 2012

  

11,102

  

 

  

 

11,102

  

Changes in estimates (Note 3)

  

 

(696

 

 

  

 

 

(696

) (a)

Accretion expense

  

 

384

  

 

 

  

 

 

384

  

Payments

  

 

(2,815

 

 

  

 

 

(2,815

Balance at March 30, 2013

  

 

7,975

  

 

 

  

 

 

7,975

  

Assumed with merger

  

 

8,766

  

 

 

  

 

 

8,766

  

Provision for lease and related ancillary costs, net of sublease income

  

 

4,923

  

 

 

  

 

 

4,923

  (b)

Provision for severance

  

 

  

 

 

1,061

  

 

 

1,061

  (c)

Changes in estimates (Note 3)

  

 

(1,333

 

 

  

 

 

(1,333

) (a)

Accretion expense

  

 

249

  

 

 

  

 

 

249

  

Reclassifications from deferred rent

  

 

1,104

  

 

 

  

 

 

1,104

  

Payments

  

 

(2,188

 

 

(26

 

 

(2,214

Balance at December 28, 2013

  

 

19,496

  

 

 

1,035

  

 

 

20,531

  

Provision for lease and related ancillary costs, net of sublease income

  

 

543

  

 

 

  

 

 

543

  (b)

Provision for severance

  

 

  

 

 

306

  

 

 

306

  (c)

Changes in estimates (Note 3)

  

 

(563

 

 

  

 

 

(563

) (a)

Accretion expense

  

 

841

  

 

 

  

 

 

841

  

Payments

  

 

(6,329

 

 

(1,261

 

 

(7,590

Balance at January 3, 2015

  

$

13,988

  

 

$

80

  

 

$

14,068

 

(a)

Goodwill was reduced by $1.3 million, $1.3 million and $0.6 million in fiscal year ended January 3, 2015, the 39 week period ended December 28, 2013, and fiscal year ended March 30, 2013, respectively, as a result of these changes in estimates as the initial charges for certain stores were established in the purchase price allocations for previous acquisitions.

(b)

The provision for lease and related ancillary costs represents the initial charges estimated to be incurred for store closings in the Retail segment.

(c)

The provision for severance includes $0.1 million related to a distribution center closing in the Food Distribution segment and $0.2 million related to store closings in the Retail segment.

Restructuring, asset impairment and other included in the Consolidated Statements of Earnings consisted of the following:

 

(In thousands)

  

January 3, 2015

 

 

December 28, 2013

 

 

March 31, 2013

 

Asset impairment charges (a)

  

$

7,550

  

 

$

9,691

  

 

$

1,682

  

Provision for leases and related ancillary costs, net of sublease income, related to store closings (b)

  

 

543

  

 

 

4,923

  

 

 

  

Gains on sales of assets related to closed sites

 

 

(4,518

)

 

 

 

 

 

 

Provision for severance (c)

  

 

306

  

 

 

1,061

  

 

 

  

Other costs associated with distribution center and store closings

 

 

1,504

 

 

 

 

 

 

 

Changes in estimates (d)

  

 

781

 

 

 

(31

 

 

(93

 

  

$

6,166

  

 

$

15,644

  

 

$

1,589

 

(a)

The asset impairment charges were incurred in the Retail segment due to the economic and competitive environment of certain stores and market deterioration in property held for future development. We utilize a discounted cash flow model and market approach that incorporates unobservable level 3 inputs to test for long-lived asset impairments.

(b)

The provision for lease and related ancillary costs, net of sublease income, represents the initial charges estimated to be incurred for store closings in the Retail segment.

(c)

The provision for severance related to a distribution center closing in the Food Distribution segment and store closings in the Retail segment.

(d)

The majority of the changes in estimates relate to revised estimates of lease and ancillary costs associated with previously closed facilities in the Retail and Food Distribution segments. The Retail and Food Distribution segments realized $0.6 million and $0.2, million respectively, in the fiscal year ended January 3, 2015.

-60-


SPARTANNASH COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Lease obligations for closed facilities included in restructuring costs include the present value of future minimum lease payments, calculated using a risk-free interest rate, and related ancillary costs from the date of closure to the end of the remaining lease term, net of estimated sublease income.

Long-lived assets are analyzed for impairment whenever circumstances arise that could indicate the carrying value of long-lived assets may not be recoverable. If such circumstances exist, then estimates are made of future cash flows expected to result from the use of the assets and their eventual disposition. If the sum of the expected cash flows (undiscounted and without interest charges) is less than the carrying amount of the asset, an impairment loss is recognized in the Consolidated Statements of Earnings. Measurement of the impairment loss to be recorded is equal to the excess of the carrying amount of the assets over the discounted future cash flows. When analyzing the assets for impairment, assets are grouped at the lowest level for which there are identifiable cash flows that are largely independent of the cash flows of other groups of assets.

 

 

Note 5

Accounts and Notes Receivable

Accounts and notes receivable at January 3, 2015 and December 28, 2013 are comprised of the following components:

 

(In thousands)

  

January 3, 2015

 

December 28, 2013

 

Customer notes receivable

  

$

1,944

  

$

5,198

  

Customer accounts receivable

  

 

265,976

  

 

257,947

  

Other receivables

  

 

19,554

  

 

24,285

  

Allowance for doubtful accounts

  

 

(4,777

 

(2,037

Net current accounts and notes receivable

  

$

282,697

  

 

285,393

  

Net long-term notes receivable

  

$

21,474

  

$

24,008

  

 

 

Note 6

Long-Term Debt

Long-term debt consists of the following:

 

(In thousands)

  

January 3, 2015

 

December 28, 2013

 

Senior secured revolving credit facility,
due November 2018

  

$

403,201

  

$

420,682

  

6.625% Senior Notes due December 2016

  

 

50,000

  

 

50,000

  

Senior secured term loan, due November 2018

  

 

46,989

  

 

60,000

  

Capital lease obligations (Note 9)

  

 

64,420

  

 

68,127

  

Other, 2.61% - 9.25%, due 2015 – 2020

  

 

5,658

  

 

6,855

  

 

  

 

570,268

  

 

605,664

  

Less current portion

  

 

19,758

  

 

7,345

  

Total long-term debt

  

$

550,510

  

$

598,319

  

On November 19, 2013, Spartan Stores entered into a $1 billion Amended and Restated Loan and Security Agreement (the “Credit Agreement”) with Wells Fargo Capital Finance, LLC, as administrative agent (“Wells Fargo”), and certain lenders from time to time party thereto. The Credit Agreement was entered into contemporaneously with the closing of the merger with Nash-Finch Company. The Credit Agreement amends and restates in the entirety each of the previous credit agreements between Wells Fargo (or an affiliate thereof) and Spartan Stores and certain of its subsidiaries and Nash-Finch and certain of its subsidiaries, respectively.

The Credit Agreement had a term of five years, maturing on November 19, 2018, and is a secured credit facility consisting of three tranches. Tranche A is a $900 million secured revolving credit facility; Tranche A-1 is a $40 million secured revolving credit facility; and Tranche A-2 provided for a $60 million term loan at inception. Borrowings under the Credit Agreement are available for general operating expenses, working capital, merger costs, repayment of certain existing Nash-Finch indebtedness and other general corporate purposes.

-61-


SPARTANNASH COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

The Company has the right to request an increase in the maximum amount of the Credit Agreement in such amount as would bring the aggregate loan commitments under the Credit Agreement to a total of up to $1.4 billion. The request will become effective if (a) certain customary conditions specified in the Credit Agreement are met and (b) one or more existing lenders under the Credit Agreement or other financial institutions approved by the administrative agent commit to lend the increased amounts under the Credit Agreement.

The Company’s obligations under the Credit Agreement are secured by substantially all of the personal and real property of the Company. The Company may prepay all loans at any time without penalty.

Availability under the Credit Agreement is based upon advance rates on certain asset categories owned by the Company, including, but not limited to the following: inventory, accounts receivable, real estate, prescription lists and rolling stock.

Indebtedness under the three tranches of the Credit Agreement bear interest subject to a grid based upon Excess Availability as defined in the Credit Agreement at the Company’s election as either Eurodollar loans or Base Rate loans.

The Company incurs an unused line of credit fee on the unused portion of the loan commitments at a rate ranging from 0.25% to 0.375%.

The Credit Agreement imposes certain requirements, including: limitations on dividends and investments (including distributions to subsidiaries designated as unrestricted subsidiaries); limitations on the Company’s ability to incur debt, make loans, acquire other companies, change the nature of the Company’s business, enter a merger or consolidation, or sell assets. These requirements can be more restrictive depending upon the Company’s Excess Availability as defined under the Credit Agreement.

Upon the occurrence, and during the continuance, of an event of default, including but not limited to nonpayment of principal when due, failure to perform or observe certain terms, covenants, or agreements under the Credit Agreement and the other loan documents, and certain defaults of other indebtedness, the administrative agent may terminate the obligation of the lenders under the Credit Agreement to make advances and issue letters of credit and declare any outstanding obligations under the Credit Agreement immediately due and payable. In addition, in the event of insolvency (as defined in the Credit Agreement), the obligation of each lender to make advances and issue letters of credit shall automatically terminate and any outstanding obligations under the Credit Agreement shall immediately become due and payable.

Available borrowings under our $1.0 billion credit facility are based on stipulated advance rates on eligible assets, as defined in the credit agreement. As of January 3, 2015 and December 28, 2013, our senior secured revolving credit facility and senior secured term loan had outstanding borrowings of $450.2 million and $480.7 million, respectively; additional available borrowings under our $1.0 billion credit facility are based on stipulated advance rates on eligible assets, as defined in the credit agreement. The credit agreement requires that SpartanNash maintain excess availability of 10% of the borrowing base as such term is defined in the credit agreement. SpartanNash had excess availability after the 10% covenant of $406.8 million and $406.9 million at January 3, 2015 and December 28, 2013, respectively. Payment of dividends and repurchases of outstanding shares are permitted, provided that certain levels of excess availability are maintained. The credit facility provides for the issuance of letters of credit, of which $11.5 million and $14.2 million were outstanding as of January 3, 2015 and December 28, 2013, respectively.

As of January 3, 2015, Tranche A Eurodollar loans bear interest at rates ranging from LIBOR plus 1.50% to LIBOR plus 2.00% and Tranche A Base Rate loans bear interest at rates ranging from the greatest of (i) Federal Funds Rate plus 1.00% to 1.50% (ii) the Eurodollar Rate plus 1.50% to 2.00%; or (iii) the prime rate as announced by Wells Fargo plus 0.50% to 1.00%.

As of January 3, 2015, Tranche A-1 Eurodollar loans bear interest at rates ranging from LIBOR plus 2.75% to LIBOR plus 3.25% and Tranche A-1 Base Rate loans bear interest at rates ranging from the greatest of (i) the Federal Funds Rate plus 2.25% to 2.75% (ii) the Eurodollar Rate plus 2.75% to 3.25%; or (iii) the prime rate as announced by Wells Fargo plus 1.75% to 2.25%.

As of January 3, 2015 Tranche A-2 Eurodollar loans bear interest at LIBOR plus 5.50% and Tranche A Base Rate loans bear interest at rates representing the greatest of (i) Federal Funds Rate plus 5.00% (ii) the Eurodollar Rate plus 5.50%; or (iii) the prime rate as announced by Wells Fargo plus 4.50%.

On January 9, 2015, SpartanNash Company and certain of its subsidiaries entered into an amendment (the “Amendment”) to the Company’s Amended and Restated Loan and Security Agreement (the “Credit Agreement”) with Wells Fargo Capital Finance, LLC, as administrative agent, and certain lenders from time to time party to the Credit Agreement.  The Amendment amends the interest rate grid set forth in the definition of “Applicable Margin” to reduce interest rates by 0.25% for all rates established by reference to

-62-


SPARTANNASH COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Applicable Margin. The Amendment also extends the maturity date of the Loan Agreement from November 19, 2018 to January 9, 2020.  In addition, the Amendment provides for certain other amendments to covenants and a schedule, as set forth in the Amendment.

On December 6, 2012, the Company completed a private exchange and sale of $50.0 million aggregate principal amount of newly issued four year unsecured 6.625% Senior Notes due 2016 (“New Notes”) for $40.3 million aggregate principal amount of SpartanNash’s existing Convertible Senior Notes due 2027 and $9.7 million in cash. The New Notes mature on December 15, 2016 and are senior unsecured debt and rank equally in right of payment with the Company’s other existing and future senior debt. The New Notes are effectively subordinated to the Company’s existing and future secured debt to the extent of the value of the assets securing such debt. Interest on the New Notes accrues at a rate of 6.625% per annum. Interest on the New Notes is payable semiannually on June 15 and December 15 of each year.

The Company may redeem the New Notes in whole or in part at any time on or after December 15, 2014, at the option of the Company at the following redemption prices (expressed as percentages of the principal amount), together with accrued and unpaid interest to the date of purchase:

 

Year of Redemption

  

Redemption Price

 

2014

  

 

103.31250

2015 and thereafter

  

 

101.65625

 

During the fiscal year ended March 30, 2013, the Company repurchased the remaining $97.7 million in principal amount of its convertible senior notes resulting in a loss of approximately $5.1 million. The completion of the redemption discharged the Indenture dated as of May 30, 2007 between the Company and the Bank of New York Trust Company, N.A. as Trustee and the Senior Convertible Notes.

The amount of interest expense recognized and the effective interest rate for the Company’s Convertible Senior Notes were as follows:

 

(In thousands)

  

March 30, 2013

 

Contractual coupon interest

  

$

2,687

  

Amortization of discount on convertible senior notes

  

 

3,282

  

Interest expense

  

$

5,969

  

Effective interest rate

  

 

8.125

The weighted average interest rates including loan fee amortization for fiscal year ended January 3, 2015, the 39 week period ended December 28, 2013 and fiscal year ended March 30, 2013 were 4.02%, 5.73% and 8.43%, respectively.

At January 3, 2015, long-term debt was due as follows:

 

(In thousands)

 

  

Fiscal Year

  

 

 

 

 

 

  

2015

  

 

$

19,758

  

 

 

  

2016

  

 

 

67,630

  

 

 

  

2017

  

 

 

17,888

  

 

 

  

2018

  

 

 

429,341

  

 

 

  

2019

  

 

 

6,550

  

 

 

  

Thereafter

  

 

 

29,101

  

 

 

  

 

  

 

$

570,268

  

 

 

-63-


SPARTANNASH COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Note 7

Fair Value Measurements

Financial instruments include cash and cash equivalents, accounts and notes receivable, accounts payable and long-term debt. The carrying amounts of cash and cash equivalents, accounts and notes receivable, and accounts payable approximate fair value because of the short-term maturities of these financial instruments. At January 3, 2015 and December 28, 2013 the estimated fair value and the book value of our debt instruments were as follows:

 

(In thousands)

  

January 3, 2015

 

December 28, 2013

 

Book value of debt instruments:

  

 

 

 

 

 

 

Current maturities of long-term debt and capital lease obligations

  

$

19,758

  

$

7,345

  

Long-term debt and capital lease obligations

  

 

550,510

  

 

598,319

  

Total book value of debt instruments

  

 

570,268

  

 

605,664

  

Fair value of debt instruments

  

 

574,008

  

 

609,682

  

Excess of fair value over book value

  

$

3,740

  

$

4,018

  

The estimated fair value of debt is based on market quotes for instruments with similar terms and remaining maturities (level 3 valuation technique).

ASC 820 prioritizes the inputs to valuation techniques used to measure fair value into the following hierarchy:

Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

Level 3: Unobservable inputs for the asset or liability, reflecting the reporting entity’s own assumptions about the assumptions that market participants would use in pricing.

Long-lived assets totaling $17.9 million and $13.7 as of fiscal year ended January 3, 2015 and 39 week period ended December 28, 2013, respectively, were measured at a fair value of $10.3 million and $4.0 million, respectively, on a nonrecurring basis using Level 3 inputs as defined in the fair value hierarchy. Our accounting and finance team management, who report to the chief financial officer, determine our valuation policies and procedures. The development and determination of the unobservable inputs for level 3 fair value measurements and fair value calculations are the responsibility of our accounting and finance team management and are approved by the chief financial officer. Fair value of long-lived assets is determined by estimating the amount and timing of net future cash flows, discounted using a risk-adjusted rate of interest. SpartanNash estimates future cash flows based on experience and knowledge of the market in which the assets are located, and when necessary, uses real estate brokers. See Note 4 for discussion of long-lived asset impairment charges.

 

 

Note 8

Commitments and Contingencies

SpartanNash subleases property at certain locations and received rental income of $5.0 million, $2.2 million, and $1.9 million in the fiscal year ended January 3, 2015, the 39 week period ended December 28, 2013, and fiscal year ended March 30, 2013, respectively. In the event of the customer’s default, SpartanNash would be responsible for fulfilling these lease obligations. The future payment obligations under these leases are disclosed in Note 9.

-64-


SPARTANNASH COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Unions represent approximately 8% of SpartanNash’s associates. These associates are covered by collective bargaining agreements. The facilities covered by collective bargaining agreements, the unions representing the covered associates and the expiration dates for each existing collective bargaining agreement are provided in the following table:

 

Distribution Center Locations

  

Union Locals

  

Expiration dates

Lima, Ohio

  

IBT 908

  

January, 2016

Bellefontaine, Ohio General Merchandise Service Division

  

IBT 908

  

February, 2016

Bellefontaine, Ohio GTL Truck Lines Inc.

  

IBT 908

  

February, 2017

Westville, Indiana

  

IBT 135

  

May 2016

Grand Rapids, Michigan

  

IBT 406

  

October, 2015

Norfolk, Virginia

  

IBT 822

  

April, 2016

Columbus, Ohio

  

IBT 528

  

September, 2016

We are engaged from time-to-time in routine legal proceedings incidental to our business. We do not believe that these routine legal proceedings, taken as a whole, will have a material impact on our business or financial condition. While the ultimate effect of such actions cannot be predicted with certainty, management believes that their outcome will not result in an adverse effect on the consolidated financial position, operating results or liquidity of SpartanNash.

On or about July 24, 2013, a putative class action complaint (the “State Court Action”) was filed in the District Court for the Fourth Judicial District, State of Minnesota, County of Hennepin (the “State Court”), by a stockholder of Nash-Finch Company in connection with the pending merger with Spartan Stores, Inc. The State Court Action was styled Greenblatt v. Nash-Finch Co. et al., Case No. 27-cv-13-13710. That complaint was amended on August 28, 2013, after Spartan Stores filed a registration statement with the Securities and Exchange Commission containing a preliminary version of the joint proxy statement/prospectus. On September 9, 2013, the defendants filed motions to dismiss the State Court Action. On or about September 19, 2013, a second putative class action complaint (the “Federal Court Action” and, together with the State Court Action, the “Putative Class Actions”) was filed in the United States District Court for the District of Minnesota (the “Federal Court”) by a stockholder of Nash-Finch. The Federal Court Action was styled Benson v. Covington et al., Case No. 0:13-cv-02574.

The Putative Class Actions alleged that the directors of Nash-Finch breached their fiduciary duties by, among other things, approving a merger that provided for inadequate consideration under circumstances involving certain alleged conflicts of interest; that the merger agreement included allegedly preclusive deal protection provisions; and that Nash-Finch and Spartan Stores allegedly aided and abetted the directors in breaching their duties to Nash-Finch’s stockholders. Both Putative Class Actions also alleged that the preliminary joint proxy statement/prospectus was false and misleading due to the omission of a variety of allegedly material information. The complaint in the Federal Court Action also asserted additional claims individually on behalf of the plaintiff under the federal securities laws. The Putative Class Actions sought, on behalf of their putative classes, various remedies, including enjoining the merger from being consummated in accordance with its agreed-upon terms, damages, and costs and disbursements relating to the lawsuit.

-65-


SPARTANNASH COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

The Company believed that these lawsuits were without merit; however, to eliminate the burden, expense and uncertainties inherent in such litigation, Nash-Finch and Spartan Stores agreed, as part of settlement discussions, to make certain supplemental disclosures in the joint proxy statement/prospectus requested by the Putative Class Actions in the definitive joint proxy statement/prospectus. On October 30, 2013, the defendants entered into the Memorandum of Understanding regarding the settlement of the Putative Class Actions. The Memorandum of Understanding outlined the terms of the parties’ agreement in principle to settle and release all claims which were or could have been asserted in the Putative Class Actions. In consideration for such settlement and release, Nash-Finch and Spartan Stores acknowledged that the supplemental disclosures in the joint proxy statement/prospectus were made in response to the Putative Class Actions. The Memorandum of Understanding contemplated that the parties would use their best efforts to agree upon, execute and present to the State Court for approval a stipulation of settlement within thirty days after the later of the date that the Merger was consummated or the date that plaintiffs and their counsel have confirmed the fairness, adequacy, and reasonableness of the settlement, and that upon execution of such stipulation, and as a condition to final approval of the settlement, the plaintiff in the Federal Action would withdraw the claims in and cause to be dismissed the Federal Action, with any individual claims being dismissed with prejudice. The Memorandum of Understanding provided that Nash-Finch would pay, on behalf of all defendants, the plaintiffs’ attorneys’ fees and expenses, subject to approval by the State Court, in an amount not to exceed $550,000. On February 11, 2014, the parties executed the Stipulation and Agreement Compromise, Settlement and Release (the “Stipulation of Settlement.”) to resolve, discharge and settle the Putative Class Actions. The Stipulation of Settlement was subject to customary conditions, including approval by the State Court, which would consider the fairness, reasonableness and adequacy of such settlement. On February 18, 2014, the Federal Court entered a final order dismissing the Federal Court Action with prejudice. On February 28, 2014, pursuant to the terms of the Stipulation of Settlement, the plaintiffs in the State Court Action filed an unopposed motion for preliminary approval of class action settlement, conditional certification of class, and approval of notice to be furnished to the class. On March 7, 2014, the State Court entered an order preliminarily approving the Settlement Stipulation, subject to a hearing, scheduled on May 20, 2014. At the hearing on May 20, 2014, the Settlement Stipulation was approved. On July 21, 2014, the appeals period expired and the matter is now closed.

SpartanNash contributes to the Central States multi-employer pension plan based on obligations arising from its collective bargaining agreements in Bellefontaine, Ohio, Lima, Ohio, and Grand Rapids, Michigan covering its distribution center union associates. This plan provides retirement benefits to participants based on their service to contributing employers. The benefits are paid from assets held in trust for that purpose. Trustees are appointed by contributing employers and unions; however, SpartanNash is not a trustee. The trustees typically are responsible for determining the level of benefits to be provided to participants, as well as for such matters as the investment of the assets and the administration of the plan. SpartanNash currently contributes to the Central States, Southeast and Southwest Areas Pension Fund under the terms outlined in the “Primary Schedule” of Central States’ Rehabilitation Plan. This schedule requires varying increases in employer contributions over the previous year’s contribution. Increases are set within the collective bargaining agreement and vary by location.

Based on the most recent information available to SpartanNash, management believes that the present value of actuarial accrued liabilities in this multi-employer plan significantly exceeds the value of the assets held in trust to pay benefits. Because SpartanNash is one of a number of employers contributing to this plan, it is difficult to ascertain what the exact amount of the underfunding would be, although management anticipates that SpartanNash’s contributions to this plan will increase each year. Management is not aware of any significant change in funding levels since January 3, 2015. To reduce this underfunding, management expects meaningful increases in expense as a result of required incremental multi-employer pension plan contributions in future years. Any adjustment for withdrawal liability will be recorded when it is probable that a liability exists and can be reasonably determined.    

 

 

 

Note 9

Leases

A substantial portion of our store and warehouse properties are operated in leased facilities. SpartanNash also leases small ancillary warehouse facilities, tractor and trailer fleet and certain other equipment. Most of the property leases contain renewal options of varying terms. Terms of certain leases contain provisions requiring payment of percentage rent based on sales and payment of executory costs such as property taxes, utilities, insurance, maintenance and other occupancy costs applicable to the leased premises. Terms of certain leases of transportation equipment contain provisions requiring payment of percentage rent based upon miles driven. Portions of certain property are subleased to others. Operating leases often contain renewal options. In those locations in which it makes economic sense to continue to operate, management expects that, in the normal course of business, leases that expire will be renewed or replaced by other leases.

-66-


SPARTANNASH COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Rental expense, net of sublease income, under operating leases consisted of the following:

 

(In thousands)

  

January 3, 2015

 

December 28, 2013

 

March 30, 2013

 

Minimum rentals

  

$

56,848

  

$

28,978

  

$

31,993

  

Contingent rental payments

  

 

563

  

 

541

  

 

672

  

Sublease rental income

  

 

(5,027

 

(2,157

 

(1,928

 

  

$

52,384

  

$

27,362

  

$

30,737

  

Total future lease commitments of SpartanNash under operating and capital leases in effect at January 3, 2015 are as follows:

 

 

  

Operating Leases

 

  

 

 

(In thousands)

Fiscal Year

  

Used in
Operations

 

  

Subleased
to Others

 

  

Total

 

  

Capital
Leases

 

2015

  

$

43,041

  

  

$

3,978

  

  

$

47,019

  

  

$

13,282

  

2016

  

 

35,497

  

  

 

3,164

  

  

 

38,661

  

  

 

10,762

  

2017

  

 

28,253

  

  

 

2,531

  

  

 

30,784

  

  

 

10,426

  

2018

  

 

23,206

  

  

 

2,057

  

  

 

25,263

  

  

 

10,115

  

2019

  

 

14,548

  

  

 

1,692

  

  

 

16,240

  

  

 

9,154

  

Thereafter

  

 

62,356

  

  

 

9,696

  

  

 

72,052

  

  

 

42,191

  

Total

  

$

206,901

  

  

$

23,118

  

  

$

230,019

  

  

 

95,930

  

Interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(31,510

Present value of minimum lease obligations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

64,420

  

Current maturities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8,656

  

Long-term capitalized lease obligations

 

 

 

 

 

 

 

 

 

 

 

 

 

$

55,764

  

Assets held under capital leases consisted of the following:

 

(In thousands)

  

January 3, 2015

 

December 28, 2013

 

Buildings and improvements

  

$

72,747

  

$

75,920

  

Equipment

  

 

5,695

  

 

3,272

  

 

  

 

78,442

  

 

79,192

  

Less accumulated amortization and depreciation

  

 

29,842

  

 

25,157

  

Net assets under capitalized leases

  

$

48,600

  

$

54,035

  

Amortization expense for property under capital leases was $4.4 million, $2.8 million and $3.8 million in fiscal year ended January 3, 2015, the 39 week period ended December 28, 2013 and fiscal year ended March 30, 2013, respectively.

Certain retail store facilities are leased to others. Of the stores leased to others, several are owned and others were obtained through leasing arrangements and are accounted for as operating leases. A majority of the leases provide for minimum and contingent rentals based upon stipulated sales volumes and contain renewal options. Certain of the leases contain escalation clauses.

Owned assets, included in property and equipment, which are leased to others are as follows:

 

(In thousands)

  

January 3, 2015

 

December 28, 2013

 

Land and improvements

  

$

3,327

  

$

3,770

  

Buildings

  

 

10,786

  

 

10,252

  

 

  

 

14,113

  

 

14,022

  

Less accumulated amortization and depreciation

  

 

5,187

  

 

4,710

  

Net property

  

$

8,926

  

$

9,312

  

-67-


SPARTANNASH COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Future minimum rentals to be received under lease obligations in effect at January 3, 2015 are as follows:

 

(In thousands)

Fiscal Year

  

Owned
Property

 

Leased
Property

 

Total

 

2015

  

$

3,975

  

$

4,715

  

$

8,690

  

2016

  

 

3,362

  

 

3,513

  

 

6,875

  

2017

  

 

2,340

  

 

2,981

  

 

5,321

  

2018

  

 

1,230

  

 

2,416

  

 

3,646

  

2019

  

 

984

  

 

1,965

  

 

2,949

  

Thereafter

  

 

2,204

  

 

10,194

  

 

12,398

  

Total

  

$

14,095

  

$

25,784

  

$

39,879

  

 

 

Note 10

Associate Retirement Plans

SpartanNash’s retirement programs include pension plans providing non-contributory benefits and salary reduction defined contribution plans providing contributory benefits. Substantially all of SpartanNash’s associates not covered by collective bargaining agreements are covered by either a frozen non-contributory cash balance pension plan, a frozen pension plan, a defined contribution plan or both. Associates covered by collective bargaining agreements are included in multi-employer pension plans.

Effective January 1, 2011, the Spartan Stores, Inc. Cash Balance Pension Plan (“Cash Balance Pension Plan”) was frozen and, as a result, additional service credits are no longer added to each associate’s account, however, interest credits will continue to accrue. No additional associates are eligible to participate in the Cash Balance Pension Plan after January 1, 2011. Prior to the plan freeze, the plan benefit formula utilized a cash balance approach. Under the cash balance formula, credits were added annually to a participant’s “account” based on a percent of the participant’s compensation and years of vested service at the beginning of each calendar year. At SpartanNash’s discretion, interest credits are also added annually to a participant’s account based upon the participant’s account balance as of the last day of the immediately preceding calendar year. Annual payments to the pension trust fund are determined in compliance with the Employee Retirement Income Security Act of 1976 (“ERISA”). Plan assets consist principally of common stocks and U.S. government and corporate obligations. The plan does not hold any SpartanNash stock.

One of our subsidiaries has a qualified non-contributory pension plan, Retirement Plan for Employees of Super Food Services, Inc. (“Super Foods Plan”), to provide retirement income for certain eligible full-time employees who are not covered by a union retirement plan. Pension benefits under the plan are based on length of service and compensation. Our subsidiary contributes amounts necessary to meet minimum funding requirements. This plan has been curtailed and no new associates can enter the plan. This plan is also frozen for additional service credits.

During the fiscal year ended January 3, 2015, terminated vested participants of the Cash Balance Pension Plan and the Super Foods Plan were offered a temporary opportunity to elect to receive a lump sum distribution.  As a result, distributions of $10.6 million were made and a resulting settlement accounting charge of $1.6 million was incurred.

On January 1, 2015, the Super Foods Plan was merged into the Cash Balance Pension Plan which was renamed the SpartanNash Cash Balance Pension Plan.  The merging of the plans will result in lower administrative fees and reduced cash funding.  

SpartanNash also maintains a Supplemental Executive Retirement Plan (“SERP”), which provides nonqualified deferred compensation benefits to SpartanNash key employees and executive officers. Benefits under the SERP are paid from SpartanNash’s general assets as there is no separate trust established to fund benefits.

Expense for employer matching and profit sharing contributions made to defined contribution plans totaled $13.6 million, $4.8 million and $4.8 million in fiscal year ended January 3, 2015, the 39 week period ended December 28, 2013 and fiscal year ended March 30, 2013, respectively.

We also have deferred compensation plans for a select group of management or highly compensated associates. The plans are unfunded and permit participants to defer receipt of a portion of their base salary, annual bonus or long-term incentive compensation which would otherwise be paid to them. The deferred amounts, plus earnings, are distributed following the associate’s termination of employment. Earnings are based on the performance of phantom investments elected by the participant from a portfolio of investment options.

-68-


SPARTANNASH COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

SpartanNash also has two separate trusts established for the protection of cash balances owed to participants in our deferred compensation plans. We were required to fund these trusts with 125% of our pre-merger liability to plan participants. This requirement was specified by the plan documents. We currently have cash balances in these trusts, which are administered by Wells Fargo. When we make payments to plan participants, we submit a claim to the trust for reimbursement. The corporate-owned life insurance was intended in the past to mirror our liability to participants in the deferred compensation plan. It was our intention to mirror the investments chosen by plan participants so as to minimize our risk if the phantom investments chosen by the plan participants increased in value. The net cash surrender value of approximately $5.2 million at January 3, 2015 is recorded on the balance sheet in Other Long-term Assets. These policies have an aggregate amount of life insurance coverage of approximately $66 million.

SpartanNash also holds additional variable universal life insurance policies on certain key associates intended to fund distributions under some of the deferred compensation plans referenced above. The company-owned policies have annual premium payments of $0.8 million. The net cash surrender value of approximately $4.2 and $3.3 million at January 3, 2015 and December 28, 2013, respectively, is recorded in the accompanying consolidated balance sheets in Other Long-term Assets. These policies have an aggregate amount of life insurance coverage of approximately $15 million.

SpartanNash and certain subsidiaries provide health care benefits to retired associates who were not covered by collective bargaining arrangements during their employment (“covered associates”) under the SpartanNash Company Retiree Medical Plan (“SpartanNash Medical Plan”). Former Spartan Stores associates who have at least 30 years of service or 10 years of service and have attained age 55, and who were not covered by collective bargaining arrangements during their employment qualify as covered associates. Qualified covered associates that retired prior to March 31, 1992 receive major medical insurance with deductible and coinsurance provisions until age 65 and Medicare supplemental benefits thereafter. Covered associates retiring after April 1, 1992 are eligible for monthly postretirement health care benefits of $5 multiplied by the associate’s years of service. This benefit is in the form of a credit against the monthly insurance premium. The retiree pays the balance of the premium. Associates hired after December 31, 2001 are not eligible for these benefits.

The following tables set forth the actuarial present value of benefit obligations, funded status, change in benefit obligation, change in plan assets, weighted average assumptions used in actuarial calculations and components of net periodic benefit costs for SpartanNash’s pension and postretirement benefit plans excluding multi-employer plans. The accrued benefit costs are reported in Postretirement benefits in the consolidated balance sheets.

-69-


SPARTANNASH COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

Cash Balance Pension Plan

 

 

Super Foods Plan

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SERP

 

(In thousands, except percentages)

January 3,

 

 

December 28,

 

 

January 3,

 

 

December 28,

 

 

January 3,

 

 

December 28,

 

 

2015

 

 

2013

 

 

2015

 

 

2013

 

 

2015

 

 

2013

 

Funded Status

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Projected Benefit Obligation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning of year

$

57,825

 

 

$

60,202

 

 

$

44,675

 

 

$

 

 

$

856

 

 

$

877

 

Obligation assumed in merger

 

 

 

 

 

 

 

 

 

 

44,915

 

 

 

 

 

 

 

Interest cost

 

2,225

 

 

 

1,682

 

 

 

1,998

 

 

 

234

 

 

 

35

 

 

 

24

 

Actuarial (gain) loss

 

2,579

 

 

 

(427

)

 

 

3,380

 

 

 

6

 

 

 

101

 

 

 

1

 

Benefits paid

 

(10,188

)

 

 

(3,632

)

 

 

(9,460

)

 

 

(480

)

 

 

(78

)

 

 

(46

)

End of year

$

52,441

 

 

$

57,825

 

 

$

40,593

 

 

$

44,675

 

 

$

914

 

 

$

856

 

Fair value of plan assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning of year

$

66,977

 

 

$

64,590

 

 

$

38,972

 

 

$

 

 

$

 

 

$

 

Assets assumed in merger

 

 

 

 

 

 

 

 

 

 

38,147

 

 

 

 

 

 

 

Actual return on plan assets

 

2,872

 

 

 

6,019

 

 

 

2,220

 

 

 

1,305

 

 

 

 

 

 

 

Company contributions

 

 

 

 

 

 

 

2,325

 

 

 

 

 

 

78

 

 

 

46

 

Benefits paid

 

(10,188

)

 

 

(3,632

)

 

 

(9,460

)

 

 

(480

)

 

 

(78

)

 

 

(46

)

Plan assets at fair value at measurement date

$

59,661

 

 

$

66,977

 

 

$

34,057

 

 

$

38,972

 

 

$

 

 

$

 

Funded (unfunded) status

$

7,220

 

 

$

9,152

 

 

$

(6,536

)

 

$

(5,703

)

 

$

(914

)

 

$

(856

)

Components of net amount recognized in financial position:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noncurrent assets

$

7,220

 

 

$

9,152

 

 

$

 

 

$

 

 

$

 

 

$

 

Current liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

(100

)

 

 

(91

)

Noncurrent liabilities

 

 

 

 

 

 

 

(6,536

)

 

 

(5,703

)

 

 

(814

)

 

 

(765

)

Net asset/(liability)

$

7,220

 

 

$

9,152

 

 

$

(6,536

)

 

$

(5,703

)

 

$

(914

)

 

$

(856

)

Amounts recognized in accumulated other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net unrecognized actuarial loss (gain)

$

14,557

 

 

$

14,568

 

 

$

2,015

 

 

$

(1,041

)

 

$

408

 

 

$

337

 

Weighted average assumptions at measurement date:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Discount rate

 

3.60

%

 

 

4.35

%

 

 

3.85

%

 

 

4.65

%

 

 

3.60

%

 

 

4.35

%

Expected return on plan assets

 

5.50

%

 

 

5.95

%

 

 

5.50

%

 

 

5.70

%

 

N/A

 

 

N/A

 

-70-


SPARTANNASH COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

The accumulated benefit obligation for all of the defined benefit pension plans was $93.9 million and $103.4 million at January 3, 2015 and December 28, 2013, respectively.

 

 

  

SpartanNash Medical Plan

 

(In thousands, except percentages)

  

January 3,

2015

 

 

December 28,
2013

 

Funded Status

  

 

 

 

 

 

 

 

Accumulated Benefit Obligation

  

 

 

 

 

 

 

 

Beginning of year

  

$

7,967

  

 

$

9,982

  

Service cost

  

 

186

  

 

 

194

  

Interest cost

  

 

394

  

 

 

287

  

Plan amendments

  

 

 

 

 

(582

Actuarial loss (gain)

  

 

1,593

 

 

 

(1,665

)  

Benefits paid

  

 

(235

 

 

(249

End of year

  

$

9,905

  

 

$

7,967

  

Fair value of plan assets

  

 

 

 

 

 

 

 

Beginning of year

  

$

  

 

$

  

Employer contributions

  

 

235

  

 

 

249

  

Benefits paid

  

 

(235

 

 

(249

Plan assets at fair value at measurement date

  

$

  

 

$

  

Unfunded status

  

$

(9,905

 

$

(7,967

Components of net amount recognized in financial position:

  

 

 

 

 

 

 

 

Current liabilities

  

$

(319

 

$

(323

Non-current liabilities

  

 

(9,586

 

 

(7,644

Net liability

  

$

(9,905

 

$

(7,967

Amounts recognized in accumulated other comprehensive income:

  

 

 

 

 

 

 

 

Net actuarial loss

  

$

2,554

  

 

$

981

  

Prior service credit

  

 

(724

 

 

(882

 

  

$

1,830

  

 

$

99

  

Weighted average assumption at measurement date:

  

 

 

 

 

 

 

 

Discount rate

  

 

4.15

 %

 

 

5.05

 %

Components of net periodic benefit cost (income)

 

 

  

Cash Balance Pension Plan

 

 

Super Foods Plan

 

(In thousands)

  

January 3,

2015

 

 

December 28,
2013

 

 

March 31,
2013

 

 

January 3,
2015

 

December 28,
2013

 

Interest cost

  

$

2,225

  

 

$

1,682

  

 

$

2,587

  

 

$

1,998

  

$

234

 

Expected return on plan assets

  

 

(3,547

 

 

(3,069

 

 

(4,499

 

 

(2,190

 

(258

)

Amortization of actuarial net loss

  

 

970

  

 

 

976

  

 

 

1,279

  

 

 

  

 

 

Net periodic benefit (income) cost

  

 

(352

 

 

(411

 

 

(633

)  

 

 

(192

 

(24

)

Settlement expense

  

 

2,294

  

 

 

621

  

 

 

  

 

 

294

  

 

 

Total expense (income)

  

$

1,942

  

 

$

210

 

 

$

(633

)  

 

$

102

 

$

(24

)

Weighted average assumptions at measurement date:

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Discount rate

  

 

4.35

 

 

3.90

 

 

4.50

 

 

4.65

 

4.60

%

Expected return on plan assets

  

 

5.95

 

 

6.55

 

 

7.50

 

 

5.70

 

6.00

%

-71-


SPARTANNASH COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

  

SERP

 

(In thousands)

  

January 3,

2015

 

 

December 28,
2013

 

 

March 30,
2013

 

Interest cost

  

 

35

  

 

 

24

  

 

 

39

  

Amortization of actuarial net loss

  

 

30

  

 

 

23

  

 

 

32

  

Net periodic benefit cost

  

 

65

  

 

 

47

  

 

 

71

  

Settlement expense

  

 

  

 

 

  

 

 

50

  

Total expense

  

$

65

  

 

$

47

  

 

$

121

  

Weighted average assumption at measurement date:

  

 

 

 

 

 

 

 

 

 

 

 

Discount rate

  

 

4.35

 

 

3.90

 

 

4.50

 

 

  

SpartanNash Medical Plan

 

(In thousands)

  

January 3,

2015

 

 

December 28,
2013

 

 

March 30,
2013

 

Service cost

  

$

186

  

 

$

194

  

 

$

194

  

Interest cost

  

 

394

  

 

 

287

  

 

 

404

  

Amortization of prior service credit

  

 

(158

 

 

(42

 

 

(54

Amortization of actuarial net loss

  

 

20

  

 

 

134

  

 

 

137

  

Net periodic benefit cost

  

$

442

  

 

$

573

  

 

$

681

  

Weighted average assumption at measurement date:

  

 

 

 

 

 

 

 

 

 

 

 

Discount rate

  

 

5.05

 

 

3.90

 

 

4.50

The net actuarial loss and prior service cost included in “Accumulated Other Comprehensive Income” and expected to be recognized in net periodic benefit cost during fiscal year 2015 are as follows:

 

 

  

Pension Benefits

 

  

 

 

(In thousands)

  

Cash Balance
Pension Plan

 

  

Super Foods
Plan

 

  

SERP

 

Net actuarial loss

  

$

827

  

  

$

  

  

$

42

  

 

(In thousands)

  

Spartan Stores
Medical Plan

 

Prior service credit

  

$

(158

Net actuarial loss

  

 

173

  

Prior service costs (credits) are amortized on a straight-line basis over the average remaining service period of active participants. Actuarial gains and losses for the Cash Balance Pension Plan are amortized over the average remaining service life of active participants when the accumulation of such gains and losses exceeds 10% of the greater of the projected benefit obligation and the fair value of plan assets. As a result of the continued separation of participants from the other pension plan, almost all participants are inactive. Actuarial gains and losses are recognized over the average remaining life expectancy of inactive participants.

Assumed health care cost trend rates have a significant effect on the amounts reported for the postretirement plan. Assumed health care cost trend rates were as follows:

 

 

  

January 3, 
2015

 

 

December 28,
2013

 

 

March 31,
2013

 

Pre – 65

  

 

7.75

 

 

8.00

 

 

8.50

Post – 65

  

 

6.85

 

 

7.00

 

 

7.50

The effect of a one-percentage point increase or decrease in assumed health care cost trend rates on the total service and interest components and the post-retirement benefit obligations would be less than $0.1 million.

-72-


SPARTANNASH COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

SpartanNash has assumed an average long-term expected return on Cash Balance Pension Plan assets of 5.50% as of January 3, 2015. The expected return assumption was modeled by third-party investment portfolio managers, based on asset allocations and the expected return and risk components of the various asset classes in the portfolio. Determining projected stock and bond returns and then applying these returns to the target asset allocations of the plan assets developed the expected return. Equity returns were based primarily on historical returns of the S&P 500 Index. Fixed-income projected returns were based primarily on historical returns for the broad U.S. bond market. This overall return assumption is believed to be reasonable over a longer-term period that is consistent with the liabilities. SpartanNash has assumed an average long-term expected return on the Super Foods Plan assets of 5.50% as of January 3, 2015. The expected return assumption was based on asset allocations and the expected return and risk components of the various asset classes in the portfolio. This assumption is assumed to be reasonable over a long-term period that is consistent with the liabilities.

SpartanNash has an investment policy for the Cash Balance Pension Plan with a long-term asset allocation mix designed to meet the long-term retirement obligations. The asset allocation mix is reviewed periodically and, on a regular basis, actual allocations are rebalanced to approximate the prevailing targets. The following table summarizes both the targeted allocation of the Cash Balance Pension Plan’s weighted-average asset allocation by asset category and actual allocations as of January 3, 2015 and December 28, 2013:

 

 

  

 

 

 

Cash Balance Pension Plan Assets

 

Asset Category

  


Target

 

 

January 3,
2015

 

 

December 28,
2013

 

Equity securities

  

 

15.0

 

 

14.8

 

 

63.5

Fixed income

  

 

85.0

  

 

 

84.6

  

 

 

35.8

  

Cash equivalents

  

 

0.0

  

 

 

0.6

  

 

 

0.7

  

Total

  

 

100.0

 

 

100.0

 

 

100.0

The investment policy emphasizes the following key objectives: (1) provide benefit security to participants by maximizing the return on Plan assets at an acceptable risk level (2) maintain adequate liquidity for current benefit payments (3) avoid unexpected increases in pension expense and (4) within the scope of the above objectives, minimize long term funding to the Plan.

SpartanNash has an investment policy for the Super Foods Plan with a long-term asset allocation mix designed to meet the long-term retirement obligations by investing in equity, fixed income and other securities to cover cash flow requirements of the plan and minimize long-term costs. The asset allocation mix is reviewed periodically and, on a regular basis, actual allocations are rebalanced to approximate the prevailing targets. The following table summarizes both the targeted allocation of the Super Foods Plan’s weighted-average asset allocation by asset category and actual allocations as of January 3, 2015:

 

 

  

 

 

 

Super Foods Plan Assets

 

Asset Category

  

Target
Range

 

 

January 3,
2015

 

 

December 28,
2013

 

Equity securities

  

 

55.0 - 65.0

 

 

59.0

 

 

63.7

Fixed income

  

 

35.0 - 45.0

  

 

 

41.0

  

 

 

36.3

  

Total

  

 

100.0

 

 

100.0

 

 

100.0

 

Upon the merger of the Cash Balance Pension Plan and the Super Foods Plan on January 1, 2015, a third-party fiduciary manages the plan assets under a pre-determined glide path based on funded status, interest rates, mortality tables and expected return on assets.

The fair value of the pension plans’ assets at January 3, 2015 by asset category is as follows:

 

 

  

Fair Value Measurements

 

(In thousands)

  

Total

 

  

Quoted prices in
markets for
identical assets
(Level 1)

 

  

Significant
observable
inputs
(Level 2)

 

  

Significant
unobservable
inputs
(Level 3)

 

Mutual funds

  

$

29,851

  

  

$

29,851

  

  

$

  

  

$

  

Pooled funds

 

 

45,737

 

 

 

 

 

 

45,737

 

 

 

 

Money market fund

  

 

381

  

  

 

  

  

 

381

  

  

 

  

Guaranteed annuity contract

  

 

17,749

  

  

 

  

  

 

  

  

 

17,749

  

Total fair value

  

$

93,718

  

  

$

29,851

  

  

$

46,118

  

  

$

17,749

  

-73-


SPARTANNASH COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

The fair value of the pension plans’ assets at December 28, 2013 by asset category is as follows:

 

 

  

Fair Value Measurements

 

(In thousands)

  

Total

 

  

Quoted prices in
markets for
identical assets
(Level 1)

 

  

Significant
observable
inputs
(Level 2)

 

  

Significant
unobservable
inputs
(Level 3)

 

Mutual funds

  

$

87,439

  

  

$

87,439

  

  

$

  

  

$

  

Money market fund

  

 

439

  

  

 

  

  

 

439

  

  

 

  

Guaranteed annuity contract

  

 

18,071

  

  

 

  

  

 

  

  

 

18,071

  

Total fair value

  

$

105,949

  

  

$

87,439

  

  

$

439

  

  

$

18,071

  

Level 3 assets consisted of the guaranteed annuity contracts. A reconciliation of the beginning and ending balances for Level 3 assets follows:

 

(In thousands)

  

January 3,

2015

 

 

December 28,
2013

 

Balance, beginning of year

  

$

18,071

  

 

$

3,890

  

Balance assumed in merger

  

 

  

 

 

14,324

  

Purchases, sales, issuances and settlements, net

  

 

(1,402

 

 

(578

Interest income

  

 

799

  

 

 

236

  

Realized gains

  

 

281

  

 

 

199

  

Balance, end of year

  

$

17,749

  

 

$

18,071

  

See Note 7 for a discussion of the levels of the fair value hierarchy. The assets’ fair value measurement level above is based on the lowest level of any input that is significant to the fair value measurement.

The following is a description of the valuation methods used for the plans’ assets measured at fair value in the above tables:

Cash & money market funds: The carrying value approximates fair value.

Mutual Funds: These investments are publicly traded investments, which are valued using the net asset value (NAV). The NAV of the mutual funds is a quoted price in an active market. The NAV is determined once a day after the closing of the exchange based upon the underlying assets in the fund, less the fund’s liabilities, expressed on a per-share basis. The NAV is a quoted price in an active market and classified within level 1 of the fair value hierarchy of ASC 820.

Pooled Funds:  The plan holds units of various Aon Hewitt Group Trust Funds offered through a private placement.  The units are valued daily using the net asset value (“NAV”).  The NAV’s are based on the fair value of each fund’s underlying investments.  Level 1 assets are priced using quotes for trades occurring in active markets for the identical asset.  Level 2 assets are priced using observable inputs for the asset (for example, interest rates and yield curves observable at commonly quoted intervals, volatilities, prepayment speeds, loss severities, credit risks and default rates) or inputs that are derived principally from or corroborated by observable market data by correlation or other means (market-corroborated inputs).  Level 3 assets are priced using observable inputs.

Guaranteed Annuity Contracts: The guaranteed annuitys contracts are immediate participation contracts held with insurance companies that act as custodian of the pension plans’ assets. The guaranteed annuity contracts are stated at contract value as determined by the custodians, which approximate fair values. We evaluate the general financial condition of the custodians as a component of validating whether the calculated contract value is an accurate approximation of fair value. The review of the general financial condition of the custodians is considered obtainable/observable through the review of readily available financial information the custodians are required to file with the Securities and Exchange Commission. The group annuity contracts are classified within level 3 of the valuation hierarchy of ASC 820.

The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Plan believes its valuations methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement.

SpartanNash expects to make contributions of $0.7 million to the Cash Balance Plan in the fiscal year ending January 2, 2016.  

-74-


SPARTANNASH COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

The following estimated benefit payments are expected to be paid in the following fiscal years:

 

(In thousands)

  

Pension Benefits and SERP Benefits

 

  

Post-retirement Benefits

 

2015

  

$

8,498

  

  

$

383

  

2016

  

 

8,271

  

  

 

406

  

2017

  

 

8,177

  

  

 

443

  

2018

  

 

7,639

  

  

 

485

  

2019

  

 

7,375

  

  

 

523

  

2020 to 2024

  

 

32,146

  

  

 

3,127

  

In addition to the plans described above, SpartanNash participates in the Central States Southeast and Southwest Areas pension plan and, the Michigan Conference of Teamsters and Ohio Conference of Teamsters Health and Welfare plans (collectively referred to as “multiemployer plans”) and other company sponsored defined contribution plans for most associates covered by collective bargaining agreements.

SpartanNash contributes to these multiemployer plans under the terms contained in existing collective bargaining agreements and in the amounts set forth within these agreements. The health and welfare plans provide medical, dental, pharmacy, vision, and other ancillary benefits to active employees and retirees as determined by the trustees of the plan. The vast majority of SpartanNash’s contributions benefits active employees and as such, may not constitute contributions to a postretirement benefit plan. However, SpartanNash is unable to separate contribution amounts to postretirement benefit plans from contribution amounts paid for active participants in the plan.

In regards to SpartanNash’s participation in the Central States Southeast and Southwest Areas pension plan, expense is recognized as contributions are funded and in accordance with accounting standards. SpartanNash contributed $12.9 million, $6.8 million and $8.2 million to this plan for fiscal year ended January 3, 2015, the 39 week period ended December 28, 2013 and fiscal year ended March 30, 2013, respectively. The risk of participating in a multi-employer pension plan is different from the risk associated with single-employer plans in the following respects:

a.

Assets contributed to the multi-employer plan by one employer may be used to provide benefits to employees of other participating employers.

b.

If a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers.

c.

If a company chooses to stop participating in some multi-employer plans, or makes market exits or otherwise has participation in the plan drop below certain levels, the company may be required to pay those plans an amount based on the underfunded status of the plan, referred to as a withdrawal liability.

SpartanNash’s participation in the Central States Southeast and Southwest Areas pension plan is outlined in the tables below which provide additional information about the collective bargaining agreements associated with this multi-employer plan in which SpartanNash participates. The EIN/Pension Plan Number column provides the Employee Identification Number (“EIN”) and the three-digit plan number, if applicable. Unless otherwise noted, the most recent Pension Protection Act zone status (“PPA”) available in 2014 and 2013 relates to the plans’ two most recent fiscal year-ends. The zone status is based on information that SpartanNash received from the plan and is certified by each plan’s actuary. Among other factors, red zone status plans are generally less than 65 percent funded and are considered in critical status. The FIP/RP Status Pending/Implemented column indicates plans for which a financial improvement plan (“FIP”) or a rehabilitation plan (“RP”) is either pending or has been implemented by the trustees of each plan.  On December 13, 2014, Congress passed the Multiemployer Pension Reform Act of 2014 (“MPRA”).  The MPRA is intended to address funding shortfalls in both multiemployer pension plans and the Pension Benefit Guaranty Corporation.  Because the MPRA is a complex piece of legislation, its effects on the Plan and potential implications for the Company are not known at this time.

-75-


SPARTANNASH COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

Pension

  

EIN – Pension

 

  

Plan

Month /
Day End

 

  

Pension
Protection Act
Zone Status

 

  

FIP/RP
Status
Pending/

 

  

Contributions

 

  

Surcharges

Imposed or

Amortization

 

Fund

  

Plan Number

 

  

Date

 

  

2014

 

  

2013

 

  

Implemented

 

  

2014

 

  

2013

 

  

2012

 

  

Provisions

 

Central States, Southeast and Southwest Areas Pension Fund

  

 

36-6044243-001

  

  

 

12/31

  

  

 

Red

  

  

 

Red

  

  

 

Implemented

  

  

$

12,858

  

  

$

6,822

  

  

$

8,248

  

  

 

(b)

 

 

Pension Fund

  

Total Collective
Bargaining
Agreements (a)

 

  

Expiration Date

 

  

Percentage of
Associates under
Collective Bargaining
Agreement

 

 

Over 5%
Contribution 2014

 

Central States, Southeast and Southwest Areas Pension Fund

  

4

  

  

 

10/2015 to 02/2017

  

  

 

8.0%

 

 

 

No

  

(a)

SpartanNash is party to four collective-bargaining agreements that require contributions to the Central States, Southeast and Southwest Areas Pension Plan. These agreements cover warehouse personnel and drivers in Grand Rapids, Michigan, Bellefontaine, Ohio and Lima, Ohio distribution centers. In the last contract negotiation, the Agreement covering the Bellefontaine facility warehouse employees was consolidated into the GMS Agreement.

(b)

SpartanNash is party to four collective-bargaining agreements that require contributions to the Central States, Southeast and Southwest Areas Pension Plan. The agreement that covers warehouse personnel and drivers in the Grand Rapids, Michigan distribution center has no surcharges imposed or amortization provisions while the agreements that cover warehouse personnel and drivers in the Bellefontaine, Ohio and Lima, Ohio distribution centers does have surcharges imposed or amortization provisions.

At the date the financial statements were issued, Form 5500 was generally not available for the plan year ended in 2014.

See Note 8 for further information regarding SpartanNash’s participation in the Central States, Southeast and Southwest Areas Pension Fund.

 

 

Note 11

Other Comprehensive Income or Loss

SpartanNash reports comprehensive income or loss in accordance with ASU 2012-13, “Comprehensive Income,” in the financial statements. Total comprehensive income is defined as all changes in shareholders’ equity during a period, other than those resulting from investments by and distributions to shareholders. Generally, for SpartanNash, total comprehensive income equals net earnings plus or minus adjustments for pension and other postretirement benefits. While total comprehensive income is the activity in a period and is largely driven by net earnings in that period, accumulated other comprehensive income or loss (“AOCI”) represents the cumulative balance of other comprehensive income, net of tax, as of the balance sheet date. As of January 3, 2015 and December 28, 2013 AOCI is the cumulative balance related to pension and other postretirement benefits.

During fiscal year ended January 3, 2015, $2.9 million was reclassified from the Consolidated Statement of Earnings to AOCI, of which $4.8 million decreased selling, general and administrative expenses and $1.9 million increased income taxes. During the 39 week period ended December 28, 2013, $4.9 million was reclassified from AOCI to the Consolidated Statement of Earnings, of which $8.3 million increased selling, general and administrative expenses and $3.4 million reduced income taxes. During the fiscal year ended March 30, 2013, $0.1 million was reclassified from AOCI to the Consolidated Statement of Earnings, of which $0.2 million increased selling, general and administrative expenses and $0.1 million reduced income taxes.

 

 

-76-


SPARTANNASH COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Note 12

Taxes on Income

The income tax provision for continuing operations is made up of the following components:

 

(In thousands)

  

January 3, 2015

 

December 28, 2013

 

March 31, 2013

 

Currently payable:

  

 

 

 

 

 

 

 

 

 

Federal

  

$

27,015

  

$

3,897

  

$

17,056

 

State

  

 

777

  

 

510

  

 

2,490

  

Total currently payable

  

 

27,792

  

 

4,407

  

 

19,546

  

Deferred:

  

 

 

 

 

 

 

 

 

 

Federal

  

 

3,362

  

 

531

 

 

(3,361

)  

State

  

 

175

 

 

(4,097

 

(760

)  

Total deferred

  

 

3,537

 

 

(3,566

 

(4,121

)  

Total

  

$

31,329

  

$

841

  

$

15,425

  

The effective income tax rates are different from the statutory federal income tax rates for the following reasons:

 

 

  

January 3, 2015

 

December 28, 2013

 

March 30, 2013

 

Federal statutory income tax rate

  

 

35.0

 

35.0

 

35.0

State taxes, net of federal income tax benefit

  

 

2.9

 

 

(112.7

)  

 

2.6

  

Charitable product donations

  

 

(0.4

 

(13.4

 

(0.8

Non-deductible merger expenses

  

 

-

  

 

101.3

  

 

  

Change in tax contingencies

  

 

(2.7

)  

 

36.9

  

 

0.3

  

Domestic product activities deduction

  

 

(0.2

 

(8.6

 

(0.2

Non-deductible expenses

  

 

0.9

  

 

3.8

  

 

0.5

  

Other, net

  

 

(0.9

 

(1.7

 

(1.7

Effective income tax rate

  

 

34.6

 

40.6

 

35.7

Deferred tax assets and liabilities resulting from temporary differences as of January 3, 2015 and December 28, 2013 are as follows:

 

(In thousands)

  

January 3, 2015

 

December 28, 2013

 

Deferred tax assets:

  

 

 

 

 

 

 

Employee benefits

  

$

29,842

  

$

29,417

  

Accrued workers’ compensation

  

 

3,074

  

 

4,216

  

Allowance for doubtful accounts

  

 

2,951

  

 

2,927

  

Intangible assets

  

 

1,128

  

 

1,945

  

Restructuring

  

 

1,947

  

 

2,244

  

Deferred revenue

  

 

1,843

  

 

2,401

  

Accrued rent

  

 

4,635

  

 

4,551

  

Accrued insurance

  

 

1,107

  

 

1,322

  

All other

  

 

5,627

  

 

3,776

  

Total deferred tax assets

  

 

52,154

  

 

52,799

  

Deferred tax liabilities:

  

 

 

 

 

 

 

Property and equipment

  

 

47,860

  

 

53,279

  

Inventory

  

 

51,616

  

 

50,514

  

Goodwill

  

 

53,628

  

 

44,082

  

Convertible debt interest

  

 

789

  

 

1,055

  

Leases

  

 

10,585

  

 

8,912

  

All other

  

 

1,402

  

 

1,616

  

Total deferred tax liabilities

  

 

165,880

  

 

159,458

  

Net deferred tax liability

  

$

(113,726

$

(106,659

-77-


SPARTANNASH COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

 

(In thousands)

  

January 3, 2015

 

December 28, 2013

 

Balance at beginning of year

  

$

8,805

  

$

2,648

  

Liability assumed in merger

  

 

-

  

 

1,754

  

Gross increases – tax positions taken in prior years

  

 

161

  

 

16

  

Gross decreases – tax positions taken in prior years

 

 

(5,812

)

 

(1,338)

 

Gross increases – tax positions taken in current year

 

 

650

 

 

5,725

 

Lapse of statute of limitations

 

 

(1,625

)

 

-

 

Balance at end of year

  

$

2,179

  

$

8,805

  

SpartanNash anticipates that $0.8 million of the unrecognized tax benefits will be settled prior to January 2, 2016. SpartanNash recognizes interest and penalties accrued related to unrecognized tax benefits in income tax expense. As of January 3, 2015, the balance of unrecognized tax benefits included tax positions, including interest and penalties, of $1.3 million that would reduce SpartanNash’s effective income tax rate if recognized in future periods.

SpartanNash or its subsidiaries file income tax returns with federal, state and local tax authorities within the United States. During fiscal 2014, federal tax authorities completed an audit of Nash-Finch Company’s 2010 through 2012 tax years. No adjustments that would have a substantial impact on the effective tax rate occurred. With few exceptions, we are no longer subject to U.S. federal, state or local examinations by tax authorities for fiscal years before March 27, 2010. Income tax returns related to the former Nash-Finch Company, with few exceptions, are no longer subject to U.S. federal, state or local examinations by tax authorities for the fiscal year ended January 1, 2011 and earlier.

 

 

Note 13

Stock-Based Compensation

SpartanNash has two shareholder-approved ten-year stock incentive plans covering 2,900,000 shares of SpartanNash’s common stock: the Spartan Stores, Inc. Stock Incentive Plan of 2005 (the “2005 Plan”) and the Nash-Finch Company 2009 Incentive Award Plan (the “2009 Plan”). The 2009 Plan was assumed in connection with the merger of Spartan Stores and Nash-Finch Company, and SpartanNash Company may issue shares under the 2009 Plan, but only to associates who were not employed by Spartan Stores or its affiliates at the time of the merger. The plans provide for the granting of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units, stock awards, and other stock-based awards to directors, officers and other key associates. Shares issued, as a result of stock option exercises, will be funded with the issuance of new shares. Holders of restricted stock and stock awards are entitled to participate in cash dividends and dividend equivalents. As of January 3, 2015, 449,418 shares and 483,271 shares remained unissued under the 2005 Plan and the 2009 Plan, respectively.

Stock option awards were granted with an exercise price equal to the market value of SpartanNash common stock at the date of grant, vested and became exercisable in 25 percent increments over a four-year service period and have a maximum contractual term of ten years. Upon a “Change in Control”, as defined by the Plan, all outstanding options vest immediately. The fair value of each stock option grant was estimated on the date of grant using the Black-Scholes option-pricing model. Expected volatility was determined based upon a combination of historical volatility of SpartanNash common stock and the expected volatilities of guideline companies that are comparable to SpartanNash in most significant respects to reflect management’s best estimate of SpartanNash’s future volatility over the option term. Due to certain events that were considered unusual and/or infrequent in nature, and that resulted in significant business changes during the limited historical exercise period, management did not believe that SpartanNash’s historical exercise data provided a reasonable basis upon which to estimate the expected term of stock options. Therefore, the expected term of stock options granted was determined using the “simplified” method as described in SEC Staff Accounting Bulletins that uses the following formula: ((vesting term + original contract term)/2). The risk-free interest rate was based on the U.S. Treasury yield curve in effect at the time of grant, using U.S. constant maturities with remaining terms equal to the expected term. Expected dividend yield is based on historical dividend payments. No stock options were granted in fiscal year ended January 3, 2015, the 39 week period ended December 28, 2013 and fiscal year ended March 30, 2013.

-78-


SPARTANNASH COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

The following table summarizes stock option activity for the three years ended January 3, 2015:

 

 

  

Shares
Under
Options

 

Weighted
Average
Exercise
Price

 

Weighted
Average
Remaining
Contractual
Life Years

 

Aggregate
Intrinsic Value
(In thousands)

 

Options outstanding at March 31, 2012

  

 

703,129

  

 

18.43

  

 

5.53

  

 

1,926

  

Exercised

  

 

(25,050

 

8.10

  

 

 

 

 

210

  

Cancelled/Forfeited

  

 

(24,608

 

18.64

  

 

 

 

 

 

 

Options outstanding at March 30, 2013

  

 

653,471

  

 

18.82

  

 

4.65

  

 

1,428

  

Exercised

  

 

(24,976

 

9.49

  

 

 

 

 

298

  

Cancelled/Forfeited

  

 

(41,729

 

17.71

  

 

 

 

 

 

 

Options outstanding at December 28, 2013

  

 

586,766

  

 

19.30

  

 

4.01

  

 

2,965

  

Exercised

  

 

(88,152

 

12.68

  

 

 

 

 

869

  

Cancelled/Forfeited

  

 

(4,131

 

3.25

  

 

 

 

 

 

 

Options outstanding at January 3, 2015

  

 

494,483

  

 

20.61

  

 

3.30

  

 

2,772

  

Options exercisable at March 30, 2013

  

 

619,658

  

 

19.09

  

 

4.57

  

 

1,304

  

Options exercisable at December 28, 2013

  

 

586,766

  

 

19.30

  

 

4.01

  

 

2,965

  

Options exercisable at January 3, 2015

  

 

494,483

  

$

20.61

  

 

3.30

  

$

2,772

  

Vested and expected to vest in the future at January 3, 2015

  

 

494,483

  

$

20.61

  

 

 

 

$

2,772

  

Cash received from option exercises was $1.1 million, $0.3 million and $0.2 million during fiscal year ended January 3, 2015, the 39 week period ended December 28, 2013 and fiscal year ended March 30, 2013, respectively.

Restricted shares awarded to employees vest ratably over a four-year service period and one year for grants to the Board of Directors. Awards granted to employees prior to fiscal 2012 vest ratably over a five-year service period. Awards are subject to certain transfer restrictions and forfeiture prior to vesting. All shares fully vest upon a “Change in Control” as defined by the Plan. Compensation expense, representing the fair value of the stock at the measurement date of the award, is recognized over the required service period. On December 17, 2013, the Board of Directors approved a modification to the outstanding restricted stock awards to provide for continued vesting upon retirement. As a result, incremental expense of $4.2 million was recognized to reflect the cumulative compensation expense recognized over the required service period of each restricted shareholder.

The following table summarizes restricted stock activity for fiscal year ended January 3, 2015, the 39 week period ended December 28, 2013 and fiscal year ended March 30, 2013:

 

 

  

Shares

 

 

Weighted
Average
Grant-Date
Fair Value

 

Outstanding and nonvested at March 31, 2012

  

 

580,893

  

 

 

16.48

  

Granted

  

 

215,014

  

 

 

17.78

  

Vested

  

 

(217,737

 

 

17.47

  

Forfeited

  

 

(31,988

 

 

16.52

  

Outstanding and nonvested at March 30, 2013

  

 

546,182

  

 

 

16.59

  

Granted

  

 

227,207

  

 

 

18.07

  

Vested

  

 

(225,600

 

 

16.94

  

Forfeited

  

 

(28,954

 

 

16.94

  

Outstanding and nonvested at December 28,
2013

  

 

518,835

  

 

$

23.56

  

Granted

  

 

317,827

  

 

 

22.63

  

Vested

  

 

(219,894

 

 

23.56

  

Forfeited

  

 

(16,115

 

 

23.03

  

Outstanding and nonvested at January 3, 2015

  

 

600,653

  

 

$

23.08

  

The total fair value of shares vested during fiscal year ended January 3, 2015, the 39 week period ended December 28, 2013 and fiscal year ended March 30, 2013 was $4.7 million, $3.6 million and $3.9 million, respectively.

-79-


SPARTANNASH COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Share-based compensation expense recognized and included in “Selling, general and administrative expenses” in the Consolidated Statements of Earnings and related tax benefits were as follows:

 

(In thousands)

  

January 3,

2015

 

December 28,
2013

 

March 31,
2013

 

Stock options

  

$

-

  

$

14

  

$

196

  

Restricted stock

  

 

6,939

  

 

6,937

  

 

3,866

  

Tax benefits

  

 

(2,632

 

(2,640

 

(1,572

 

  

$

4,307

  

$

4,311

  

$

2,490

  

As of January 3, 2015, total unrecognized compensation cost related to non-vested share-based awards granted under our stock incentive plans was $4.6 million for restricted stock. The remaining compensation costs not yet recognized are expected to be recognized over a weighted average period of 2.3 years for restricted stock. All compensation costs related to stock options have been recognized.

SpartanNash recognized tax deductions of $5.9 million, $4.1 million and $4.3 million related to the exercise of stock options and the vesting of restricted stock during fiscal year ended January 3, 2015, the 39 week period ended December 28, 2013 and fiscal year ended March 30, 2013, respectively.

SpartanNash has a stock bonus plan covering 300,000 shares of SpartanNash common stock. Under the provisions of this plan, certain officers and key associates of SpartanNash may elect to receive a portion of their annual bonus in common stock rather than cash and will be granted additional shares of common stock worth 30% of the portion of the bonus they elect to receive in stock. After the shares are issued the holder is not able to sell or otherwise transfer the shares until the end of the holding period which is currently 12 months. Compensation expense is recorded based upon the market price of the stock as of the measurement date. A total of 56,225 shares remained unissued under the plan at January 3, 2015.

SpartanNash has an associate stock purchase plan covering 200,000 shares of SpartanNash common stock. The plan provides that associates of SpartanNash and its subsidiaries may purchase shares at 95% of the fair market value. As of January 3, 2015, 43,469 shares had been issued under the plan. The associate stock purchase plan was suspended during the 39 week period ended December 28, 2013 in conjunction with the merger with Nash-Finch Company and cash balances were refunded to participants. The associate stock purchase plan was reinstated in April 2014.

 

 

 

Note 14

Concentration of Credit Risk

We provide financial assistance in the form of loans to some of our independent retailers for inventories, store fixtures and equipment and store improvements. Loans are generally secured by liens on real estate, inventory and/or equipment, personal guarantees and other types of collateral, and are generally repayable over a period of five to seven years. We establish allowances for doubtful accounts based upon periodic assessments of the credit risk of specific customers, collateral value, historical trends and other information. We believe that adequate provisions have been recorded for any doubtful accounts. In addition, we may guarantee debt and lease obligations of retailers. In the event these retailers are unable to meet their debt service payments or otherwise experience an event of default, we would be unconditionally liable for the outstanding balance of their debt and lease obligations, which would be due in accordance with the underlying agreements.

As of January 3, 2015, we have guaranteed outstanding lease obligations of a number of Food Distribution customers in the amount of $0.5 million. In the normal course of business, we also sublease and assign to third parties various leases. As of January 3, 2015, we estimate the present value of our maximum potential obligation, with respect to the subleases to be approximately $16.2 million and assigned leases to be approximately $5.5 million. We have also guaranteed the bank debt of a Food Distribution customer in the amount of $2.0 million.

For guarantees issued after December 31, 2002, we are required to recognize an initial liability for the fair value of the obligation assumed under the guarantee. The maximum undiscounted payments we would be required to make in the event of default under the guarantees is $0.5 million for leases and $2.0 million for debt, which are referenced above. These guarantees are secured by certain business assets and personal guarantees of the respective customers. We believe these customers will be able to perform under the lease agreements and that no payments will be required and no loss will be incurred under the guarantees. A liability representing the fair value of the obligations assumed under the guarantees is included in the accompanying consolidated financial statements.

 

-80-


SPARTANNASH COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

Note 15

Supplemental Cash Flow Information

Non-cash financing activities include the issuance of restricted stock to employees and directors of $7.2 million, $4.1 million and $3.9 million for fiscal year ended January 3, 2015, the 39 week period ended December 28, 2013 and fiscal year ended March 30, 2013, respectively, and the exchange of $40.3 million of Convertible Senior Notes for New Notes in the fiscal year ended March 30, 2013. Non-cash investing activities include capital expenditures included in accounts payable of $3.4 million, $16.5 million and $3.3 million for fiscal year ended January 3, 2015, the 39 week period ended December 28, 2013 and fiscal year ended March 30, 2013, respectively, and the issuance of common stock related to the merger with Nash-Finch Company of $379.6 million in the 39 week period ended December 28, 2013. In fiscal year ended January 3, 2015, the 39 week period ended December 28, 2013 and fiscal year ended March 30, 2013, SpartanNash entered into capital lease agreements totaling $2.4 million, $1.5 million and $4.0 million, respectively.

 

 

Note 16

Discontinued Operations

Certain of our retail and food distribution 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.

The results of discontinued operations reported on the Consolidated Statements of Earnings are reported net of tax.

Discontinued operations did not have sales for fiscal year ended January 3, 2015 and the 39 week period ended December 28, 2013. Significant assets and liabilities of discontinued operations are as follows:

 

(In thousands)

  

January 3, 2015

 

  

December 28, 2013

 

Current assets

  

$

-

  

  

$

23

  

Property, net

  

 

3,165

  

  

 

3,167

  

Other long-term assets

  

 

1,577

  

  

 

1,577

  

Current liabilities

  

 

189

  

  

 

183

  

Long-term liabilities

  

 

40

  

  

 

41

  

 

 

Note 17

Reporting Segment Information

We sell and distribute products that are typically found in supermarkets. Our operating segments reflect the manner in which the business is managed and how the Company allocates resources and assesses performance internally. SpartanNash’s chief operating decision maker is the Chief Executive Officer. Our business is classified by management into three reportable segments: Military, Food Distribution and Retail. These reportable segments are three distinct businesses, each with a different customer base and management structure. We review our reportable segments on an annual basis, or more frequently if events or circumstances indicate a change in reportable segments has occurred.

Our Food Distribution segment consists of 12 distribution centers that supply independently operated retail food stores, our corporate owned stores and other customers with dry grocery, produce, dairy, meat, delicatessen, bakery, beverages, frozen food, seafood, floral, general merchandise, pharmacy and health and beauty care items. Sales to independent retail customers and inter-segment sales are recorded based upon both a “cost plus” model and a “variable mark-up” model which varies by commodity and servicing distribution center. To supply its wholesale customers, SpartanNash operates a fleet of tractors, conventional trailers and refrigerated trailers.

The Military segment consists of eight distribution centers that distribute products primarily to military commissaries and exchanges under contracts with the manufacturers of products.

-81-


SPARTANNASH COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

The Retail segment operates 162 supermarkets in the Midwest. Our retail supermarkets are operated under banners including Family Fare Supermarkets, No Frills, Bag ‘N Save, Family Fresh Markets, D&W Fresh Markets, Sun Mart and Econo Foods. Our retail supermarkets typically offer dry groceries, produce, dairy products, meat, frozen food, seafood, floral products, general merchandise, beverages, tobacco products, health and beauty care products, delicatessen items and bakery goods. In 79 of our supermarkets, we also offer pharmacy services and 29 fuel centers were in operation as of January 3, 2015.

The allocation of intersegment profit and corporate level expenses to the reporting segments was historically performed for the legacy Spartan Stores operations and the legacy Nash-Finch Company operations using methodologies consistent with Spartan Stores’ and Nash-Finch Company’s respective historical practices. As previously disclosed, subsequent to the merger management commenced an evaluation of potential methodologies for allocating intersegment profit and corporate level expenses to the reporting segments to determine the most appropriate manner for the newly merged operations. Management completed the evaluation during fiscal 2015 and the new allocation methodology reflects the manner in which the business is now managed and how management allocates resources and assesses performance. In accordance with generally accepted accounting principles, results for the fiscal year ended January 3, 2015, the 39 week period ended December 28, 2013 and the year ended March 30, 2013 have been revised to reflect the new allocation methodologies. There was no impact to consolidated financial results.

Identifiable assets represent total assets directly associated with the reporting segments. Eliminations in assets identified to segments include intercompany receivables, payables and investments.

-82-


SPARTANNASH COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

The following tables set forth information about SpartanNash by reporting segment:

 

(In thousands)

  

Military

 

  

Food
Distribution

 

  

Retail

 

  

Total

 

Year Ended January 3, 2015 (53 weeks)

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

Net sales to external customers

  

$

2,275,512

  

  

$

3,356,331

  

  

$

2,284,219

  

  

$

7,916,062

  

Inter-segment sales

  

 

  

  

 

1,005,844

  

  

 

  

  

 

1,005,844

  

Merger transaction and integration expenses

  

 

27

  

  

 

12,644

  

  

 

4

  

  

 

12,675

  

Depreciation and amortization

  

 

11,350

  

  

 

29,816

  

  

 

45,828

  

  

 

86,994

  

Operating earnings

  

 

21,721

  

  

 

54,802

  

  

 

38,323

  

  

 

114,846

  

Capital expenditures

  

 

15,088

  

  

 

31,953

  

  

 

42,971

  

  

 

90,012

  

39 Week Period Ended December 28, 2013

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

Net sales to external customers

  

$

248,643

  

  

$

1,095,759

  

  

$

1,252,828

  

  

$

2,597,230

  

Inter-segment sales

  

 

  

  

 

533,470

  

  

 

  

  

 

533,470

  

Merger transaction and integration expenses

  

 

  

  

 

20,993

  

  

 

  

  

 

20,993

  

Depreciation and amortization

  

 

1,412

  

  

 

7,706

  

  

 

27,964

  

  

 

37,082

  

Operating earnings

 

 

1,901

  

  

 

(1,328

)  

  

 

16,220

  

  

 

16,793

 

Capital expenditures

  

 

2,246

  

  

 

13,867

  

  

 

21,087

  

  

 

37,200

  

Year Ended March 30, 2013 (52 weeks)

  

 

 

 

  

 

 

 

  

 

 

 

  

 

 

 

Net sales to external customers

  

 

 

  

  

$

1,120,650

  

  

$

1,487,510

  

  

$

2,608,160

  

Inter-segment sales

  

 

 

  

  

 

634,525

  

  

 

  

  

 

634,525

  

Depreciation and amortization

  

 

 

  

  

 

6,346

  

  

 

32,735

  

  

 

39,081

  

Operating earnings

  

 

 

  

  

 

23,920

  

  

 

37,048

  

  

 

60,968

  

Capital expenditures

  

 

 

  

  

 

8,797

  

  

 

33,215

  

  

 

42,012

  

 

 

  

January 3,

2015

 

  

December 28,
2013

 

  

March 31,
2013

 

Total Assets at Year End

  

 

 

 

  

 

 

 

  

 

 

 

Military

  

$

435,647

  

  

$

451,518

  

  

$

  

Food Distribution

  

 

763,914

  

  

 

805,468

  

  

 

254,326

  

Retail

  

 

727,979

  

  

 

721,898

  

  

 

529,840

  

Discontinued operations

  

 

4,742

  

  

 

4,767

  

  

 

5,501

  

Total

  

$

1,932,282

  

  

$

1,983,651

  

  

$

789,667

  

SpartanNash offers a wide variety of grocery products, general merchandise and health and beauty care, pharmacy, fuel and other items and services. The following table presents sales by type of similar product and services:

 

(Dollars in thousands)

  

January 3, 2015
(53 weeks)

 

 

December 28, 2013
(39 weeks)

 

 

March 30, 2013
(52 weeks)

 

Non-perishables (1)

  

$

4,998,895

  

  

 

63.1

 

$

1,393,157

  

  

 

53.6

 

$

1,289,461

  

  

 

49.4

Perishables (2)

  

 

2,449,562

  

  

 

31.0

  

 

 

894,783

  

  

 

34.5

  

 

 

930,659

  

  

 

35.7

  

Fuel

  

 

178,111

  

  

 

2.2

  

 

 

145,631

  

  

 

5.6

  

 

 

179,012

  

  

 

6.9

  

Pharmacy

  

 

289,494

  

  

 

3.7

  

 

 

163,659

  

  

 

6.3

  

 

 

209,028

  

  

 

8.0

  

Consolidated net sales

  

$

7,916,062

  

  

 

100

 

$

2,597,230

  

  

 

100

 

$

2,608,160

  

  

 

100

(1)

Consists primarily of general merchandise, grocery, beverages, snacks and frozen foods.

(2)

Consists primarily of produce, dairy, meat, bakery, deli, floral and seafood.

 

 

-83-


SPARTANNASH COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Note 18

Quarterly Financial Information (unaudited)

Earnings per share amounts for each quarter are required to be computed independently and may not equal the amount computed for the total year. Common stock prices are the high and low sales prices for transactions reported on the NASDAQ Global Select Market for each period.

 

(In thousands, except per share data)

Fiscal January 3, 2015

  

Full Year
(53 weeks)

 

4th Quarter
(13 weeks)

 

3rd Quarter
(12 weeks)

 

2nd Quarter
(12 weeks)

 

1st Quarter
(16 weeks)

 

Net sales

  

$

7,916,062

  

$

1,962,589

  

$

1,809,571

  

$

1,810,175

  

$

2,333,727

  

Gross profit

  

 

1,156,074

  

 

282,213

  

 

261,409

  

 

265,114

  

 

347,338

  

Merger transaction and integration expenses

  

 

12,675

  

 

4,547

  

 

1,379

  

 

2,581

  

 

4,168

 

Restructuring and asset impairment charges (gains)

  

 

6,166

  

 

6,233

  

 

(1,272

)  

 

1,078

  

 

127

  

Earnings from continuing operations before income taxes

  

 

90,449

  

 

15,030

  

 

28,146

  

 

27,174

  

 

20,099

  

Earnings from continuing operations

  

 

59,120

  

 

12,037

  

 

17,169

  

 

17,395

  

 

12,519

  

Discontinued operations, net of taxes

  

 

(524

 

(166

 

(73

 

(76

 

(209

Net earnings

  

58,596

  

$

11,871

  

$

17,096

  

$

17,319

  

$

12,310

  

Earnings from continuing operations per share:

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

  

$

1.57

  

$

0.32

  

$

0.46

  

$

0.46

  

$

0.33

  

Diluted

  

 

1.57

  

 

0.32

  

 

0.45

  

 

0.46

  

 

0.33

  

Net earnings per share:

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

  

$

1.56

  

$

0.32

  

$

0.45

  

$

0.46

  

$

0.33

  

Diluted

  

 

1.55

  

 

0.32

  

 

0.45

  

 

0.46

  

 

0.33

  

Dividends

  

$

18,090

  

$

4,502

  

$

4,529

  

$

4,526

  

$

4,533

  

Common stock price – High

  

 

26.89

  

 

26.89

  

 

22.50

  

 

24.68

  

 

25.74

  

Common stock price – Low

  

 

19.16

  

 

19.88

  

 

19.16

  

 

19.44

  

 

21.00

  

 

 

(In thousands, except per share data)

Fiscal December 28, 2013

  

Full Year
(39 weeks)

 

 

3rd Quarter
(15 weeks)

 

 

2nd Quarter
(12 weeks)

 

 

1st Quarter
(12 weeks)

 

Net sales

  

$

2,597,230

  

 

$

1,335,354

  

 

$

649,471

  

 

$

612,405

  

Gross profit

  

 

486,880

  

 

 

225,308

  

 

 

136,296

  

 

 

125,276

  

Merger transaction and integration expenses

  

 

20,993

  

 

 

15,519

  

 

 

3,638

  

 

 

1,836

  

Restructuring and asset impairment charges

  

 

15,644

  

 

 

14,657

  

 

 

  

 

 

987

  

Debt extinguishment

  

 

5,527

  

 

 

5,527

  

 

 

  

 

 

  

Earnings (loss) from continuing operations before income taxes

  

 

2,070

  

 

 

(21,480

 

 

15,870

  

 

 

7,680

  

Earnings (loss) from continuing operations

  

 

1,229

  

 

 

(13,670

 

 

10,115

  

 

 

4,784

  

Discontinued operations, net of taxes

  

 

(488

 

 

(322

 

 

(65

 

 

(101

Net earnings (loss)

  

$

741

  

 

$

(13,992

 

$

10,050

  

 

$

4,683

  

Earnings (loss) from continuing operations per share:

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

  

$

0.05

  

 

$

(0.49

 

$

0.46

  

 

$

0.22

  

Diluted

  

 

0.05

  

 

 

(0.49

 

 

0.46

  

 

 

0.22

  

Net earnings (loss) per share:

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

  

$

0.03

  

 

$

(0.50

 

$

0.46

  

 

$

0.21

  

Diluted

  

 

0.03

  

 

 

(0.50

 

 

0.46

  

 

 

0.21

  

Dividends

  

$

5,908

  

 

$

1,969

  

 

$

1,969

  

 

$

1,970

  

Common stock price – High

  

 

24.78

  

 

 

24.78

  

 

 

24.40

  

 

 

19.73

  

Common stock price – Low

  

 

16.10

  

 

 

21.02

  

 

 

17.90

  

 

 

16.10

  

 

 

 

-84-


SPARTANNASH COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Item 9.

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

Not applicable.

 

 

Item  9A.

Controls and Procedures

Disclosure Controls and Procedures

An evaluation of the effectiveness of the design and operation of SpartanNash Company’s disclosure controls and procedures (as currently defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) was performed as of January 3, 2015 (the “Evaluation Date”). This evaluation was performed under the supervision and with the participation of SpartanNash Company’s management, including its Chief Executive Officer (“CEO”), Chief Financial Officer (“CFO”) and Chief Accounting Officer (“CAO”). As of the Evaluation Date, SpartanNash Company’s management, including the CEO, CFO and CAO, concluded that SpartanNash’s disclosure controls and procedures were effective as of the Evaluation Date to ensure that material information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities and Exchange Act of 1934 is accumulated and communicated to management, including our principal executive and principal financial officers as appropriate to allow for timely decisions regarding required disclosure.

Management’s Report on Internal Control Over Financial Reporting

The management of SpartanNash Company, including the Chief Executive Officer, the Chief Financial Officer and Chief Accounting Officer, is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. SpartanNash Company’s internal controls were designed by, or under the supervision of, the Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer, and effected by the Company’s Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of its financial reporting and the preparation and presentation of the consolidated financial statements for external purposes in accordance with accounting principles generally accepted in the United States and includes those policies and procedures that (1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of SpartanNash Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of SpartanNash Company are being made only in accordance with authorizations of management and directors of SpartanNash Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of SpartanNash Company’s assets that could have a material effect on the financial statements.

Management of SpartanNash Company conducted an evaluation of the effectiveness of its internal controls over financial reporting based on the framework in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. This evaluation included review of the documentation of controls, evaluation of the design effectiveness of controls, testing of the operating effectiveness of controls and a conclusion on this evaluation. Through this evaluation, management did not identify any material weakness in the Company’s internal control. There are inherent limitations in the effectiveness of any system of internal control over financial reporting. Based on the evaluation, management has concluded that SpartanNash Company’s internal control over financial reporting was effective as of January 3, 2015.

The registered public accounting firm that audited the consolidated financial statements included in this Form 10-K Annual Report has issued an attestation report on the effectiveness of the Company’s internal control over financial reporting as of January 3, 2015 as stated in their report on the following page.

 

 

 

-85-


SPARTANNASH COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Shareholders of

SpartanNash Company and Subsidiaries

Grand Rapids, Michigan

 

We have audited the internal control over financial reporting of SpartanNash Company and subsidiaries (the “Company”) as of January 3, 2015, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Controls Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of January 3, 2015, based on the criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended January 3, 2015 of the Company and our report dated March 4, 2015 expressed an unqualified opinion on those financial statements.

/s/ DELOITTE & TOUCHE LLP

Grand Rapids, Michigan

March 4, 2015

 

 

 

-86-


SPARTANNASH COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Changes in Internal Controls Over Financial Reporting

During the last fiscal quarter, there was no change in SpartanNash’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, SpartanNash’s internal control over financial reporting.

 

 

Item  9B.

Other Information

None.

 

 

 

-87-


SPARTANNASH COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

PART III

 

 

Item  10.

Directors, Executive Officers and Corporate Governance

The information required by this item is here incorporated by reference from the sections titled “The Board of Directors,” “SpartanNash’s Executive Officers,” “Section 16(a) Beneficial Ownership Reporting Compliance,” “Corporate Governance Principles,” and “Transactions with Related Persons” in SpartanNash’s definitive proxy statement relating to its annual meeting of shareholders to be held in 2015.

 

 

Item 11.

Executive Compensation

The information required by this item is here incorporated by reference from the sections entitled “Executive Compensation,” “Potential Payments Upon Termination or Change in Control,” “Compensation of Directors,” “Compensation Committee Interlocks and Insider Participation” and “Compensation Committee Report” in SpartanNash’s definitive proxy statement relating to its annual meeting of shareholders to be held in 2015.

 

 

Item  12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by this item is here incorporated by reference from the section titled “Ownership of SpartanNash Stock” in SpartanNash’s definitive proxy statement relating to its annual meeting of shareholders to be held in 2015.

The following table provides information about SpartanNash’s equity compensation plans regarding the number of securities to be issued under these plans, the weighted-average exercise prices of options outstanding under these plans and the number of securities available for future issuance as of the end of fiscal 2015.

EQUITY COMPENSATION PLANS

 

 

  

Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights

 

  

Weighted-average
exercise price of
outstanding options,
warrants and rights

 

  

Number of securities
remaining available
for future issuance
under equity
compensation plans
(excluding securities
reflected in column
(a)

 

Plan Category

  

(a)

 

  

(b)

 

  

(c)

 

Equity compensation plans approved by security holders (1)

  

 

494,483

  

  

$

20.61

  

  

 

988,914

  

Equity compensation plans not approved by security holders

  

 

  

  

 

Not applicable

  

  

 

  

Total

  

 

494,483

  

  

$

20.61

  

  

 

988,914

  

(1)

Consists of the Spartan Stores, Inc. 2001 Stock Bonus Plan, and the Stock Incentive Plan of 2005. The numbers of shares reflected in column (c) in the table above with respect to the Stock Incentive Plan of 2009 (483,271), Stock Incentive Plan of 2005 (449,418 shares) and the 2001 Stock Bonus Plan (56,225 shares) represent shares that may be issued other than upon the exercise of an option, warrant or right. Each plan listed above contains customary anti-dilution provisions that are applicable in the event of a stock split or certain other changes in SpartanNash’s capitalization.

 

 

Item 13.

Certain Relationships and Related Transactions, and Director Independence

The information required by this item is here incorporated by reference from the section titled “Transactions with Related Persons” and the table captioned “Board of Directors Committee Membership” in SpartanNash’s definitive proxy statement relating to its annual meeting of shareholders to be held in 2015.

 

 

Item 14.

Principal Accountant Fees and Services

The information required by this item is here incorporated by reference from the section titled “Independent Auditors” in SpartanNash’s definitive proxy statement relating to its annual meeting of shareholders to be held in 2015.

 

 

-88-


SPARTANNASH COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

PART IV

 

 

Item  15.

Exhibits and Financial Statement Schedules

(a)

The following documents are filed as part of this Report:

1.

Financial Statements.

A. In Item 8.

Reports of Independent Registered Public Accounting Firm of Deloitte & Touche LLP dated March 4, 2015

Consolidated Balance Sheets at January 3, 2015 and December 28, 2013

Consolidated Statements of Earnings for the year ended January 3, 2015, 39 week period ended December 28, 2013, and year ended March 30, 2013.

Consolidated Statements of Comprehensive Income for the year ended January 3, 2015, 39 week period ended December 28, 2013, and year ended March 30, 2013.

Consolidated Statements of Shareholders’ Equity for the year ended January 3, 2015, 39 week period ended December 28, 2013, and year ended March 30, 2013.

Consolidated Statements of Cash Flows for the year ended January 3, 2015, 39 week period ended December 28, 2013, and year ended March 30, 2013.

Notes to Consolidated Financial Statements

2.

Financial Statement Schedules.

Schedules are omitted because the required information is either inapplicable or presented in the consolidated financial statements or related notes.

3.

Exhibits.

The information required by this Section (a)(3) of Item 15 is set forth on the exhibit index that follows the Signatures page of this Form 10-K and is incorporated herein by reference.

 

 

 

-89-


SPARTANNASH COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, SpartanNash Company (the Registrant) has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

 

 

 

SPARTANNASH COMPANY

(Registrant)

 

 

 

 

Date: March 4, 2015

 

 

 

By

 

/s/ DENNIS EIDSON

 

 

 

 

 

 

Dennis Eidson

President and Chief Executive Officer

(Principal Executive Officer)

-90-


SPARTANNASH COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of SpartanNash Company and in the capacities and on the dates indicated.

 

March 4, 2015

 

 

 

By

 

*

 

 

 

 

 

 

M. Shân Atkins

Director

 

 

 

 

March 4, 2015

 

 

 

By

 

/s/ DENNIS EIDSON

 

 

 

 

 

 

Dennis Eidson

President, Chief Executive Officer and Director

(Principal Executive Officer)

 

 

 

 

March 4, 2015

 

 

 

By

 

*

 

 

 

 

 

 

Mickey P. Foret

Director

 

 

 

 

 

 

 

March 4, 2015

 

 

 

By

 

*

 

 

 

 

 

 

Dr. Frank M. Gambino

Director

 

 

 

 

 

 

 

March 4, 2015

 

 

 

By

 

*

 

 

 

 

 

 

Douglas A. Hacker

Director

 

 

 

 

 

 

 

March 4, 2015

 

 

 

By

 

*

 

 

 

 

 

 

Yvonne R. Jackson

Director

 

 

 

 

 

 

 

March 4, 2015

 

 

 

By

 

*

 

 

 

 

 

 

Elizabeth A. Nickels

Director

 

 

 

 

 

 

 

March 4, 2015

 

 

 

By

 

*

 

 

 

 

 

 

Timothy J. O’Donovan

Director

 

 

 

 

 

 

 

March 4, 2015

 

 

 

By

 

*

 

 

 

 

 

 

Hawthorne Proctor

Director

 

 

 

 

 

 

 

March 4, 2015

 

 

 

By

 

*

 

 

 

 

 

 

Craig C. Sturken

Chairman and Director

 

 

 

 

 

 

 

March 4, 2015

 

 

 

By

 

*

 

 

 

 

 

 

William R. Voss

Director

 

 

 

 

 

 

 

March 4, 2015

 

 

 

By

 

/s/ DAVID M. STAPLES

 

 

 

 

 

 

David M. Staples

Executive Vice President and Chief Operating Officer

(Principal Financial Officer)

 

 

 

 

 

 

 

March 4, 2015

 

 

 

By

 

/s/ THOMAS A. VAN HALL

 

 

 

 

 

 

Thomas A. Van Hall

Vice President, Interim Chief Accounting Officer

(Principal Accounting Officer)

 

 

 

 

 

 

 

March 4, 2015

 

 

 

*By

 

/s/ DENNIS EIDSON

 

 

 

 

 

 

Dennis Eidson

Attorney-in-Fact

 

-91-


SPARTANNASH COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

EXHIBIT INDEX

 

Exhibit
Number

  

Document

 

 

    2.1

  

Agreement and Plan of Merger by and among the Company, Nash-Finch Company, and SS Delaware, Inc. dated July 21, 2013. Previously filed as an exhibit to the Company’s Current Report on Form 8-K filed July 22, 2013.  Here incorporated by reference.

 

 

    3.1

  

Restated Articles of Incorporation of SpartanNash Company, as amended.  Previously filed as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended July 12, 2014.   Here incorporated by reference.

 

 

    3.2

  

Bylaws of SpartanNash Company, as amended. Previously filed as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 10, 2011.  Here incorporated by reference.

 

 

    4.1

  

Indenture dated December 6, 2012 by and among SpartanNash Company, The Bank of New York Mellon Trust Company, N.A., as Trustee, and the Company’s subsidiaries as Guarantors. Previously filed as an exhibit to the Company’s Current Report on Form 8-K on December 6, 2012. Here incorporated by reference.

 

 

    4.2

  

Form of 6.625% Senior Notes Due 2016. Previously filed as an exhibit to the Company’s Current Report on Form 8-K on December 6, 2012. Here incorporated by reference.

 

 

  10.1

  

Commitment Letter dated July 21, 2013 issued by Wells Fargo Bank, National Association and Bank of America N.A. and Merrill Lynch, Pierce, Fenner & Smith Incorporated. Previously filed as an exhibit to the Company’s Current Report on Form 8-K on July 22, 2013. Incorporated herein by reference.

 

 

  10.2

  

Amended and Restated Loan and Security Agreement, among Spartan Stores, Inc. and certain of its subsidiaries, as borrowers, and Wells Fargo Capital Finance, LLC, as administrative agent, and certain lenders from time to time party thereto, dated November 19, 2013. Previously filed as an exhibit to the Company’s Current Report on Form 8-K filed November 19, 2013. Incorporated herein by reference.

 

 

  10.3*

  

SpartanNash Company Executive Cash Incentive Plan of 2010 as amended. Previously filed as an exhibit to the Company’s Transition Report on Form 10-K for the period ended December 28, 2013.  Incorporated herein by reference.  

 

 

  10.4*

  

Form of 2014 Long-Term Executive Incentive Plan Award. Previously filed as an exhibit to SpartanNash Company’s Quarterly Report on Form 10-Q for the quarter ended April 19, 2014. Incorporated herein by reference.

 

 

  10.5*

  

Form of Amended and Restated 2013 Long-Term Executive Incentive Plan Award. Previously filed as an exhibit to SpartanNash Company’s Quarterly Report on Form 10-Q for the quarter ended April 19, 2014. Incorporated herein by reference.

 

 

  10.6*

  

Form of 2012 Long-Term Executive Incentive Plan Award. Previously filed as an exhibit to SpartanNash Company’s Quarterly Report on Form 10-Q for the quarter ended June 23, 2012. Incorporated herein by reference.

 

 

  10.7*

  

SpartanNash Company Stock Incentive Plan of 2005, as amended. Previously filed as an exhibit to the Company’s Transition Report on Form 10-K for the period ended December 28, 2013.  Incorporated herein by reference

 

 

  10.8*

  

Determination of Compensation Committee pursuant to the SpartanNash Company Stock Incentive Plan of 2005. Previously filed as an exhibit to SpartanNash Company’s Current Report on Form 8-K on August 3, 2009. Incorporated herein by reference.

 

 

  10.9*

  

SpartanNash Company Supplemental Executive Retirement Plan, as amended. Previously filed as an exhibit to SpartanNash Company’s Annual Report on Form 10-K for the year ended March 27, 2010. Incorporated herein by reference.

 

 

  10.10*

  

SpartanNash Company Supplemental Executive Savings Plan. Previously filed as an exhibit to SpartanNash Company’s Form S-8 Registration Statement filed on December 21, 2001. Incorporated herein by reference.

 

 

  10.11*

  

SpartanNash Company Cash Incentive Plan of 2010 as amended. Previously filed as an exhibit to the Company’s Transition Report on Form 10-K for the period ended December 28, 2013.  Incorporated herein by reference.

 

 

  10.12*

  

SpartanNash Company 2001 Stock Incentive Plan. Previously filed as an exhibit to the Company’s Annual Report on Form 10-K for the year ended March 30, 2013. Incorporated herein by reference.

 

 

  10.13*

  

SpartanNash Company Stock Bonus Plan. Previously filed as an exhibit to the Company’s Transition Report on Form 10-K for the period ended December 28, 2013.  Incorporated herein by reference.

-92-


SPARTANNASH COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Exhibit
Number

  

Document

 

 

  10.14*

  

Nash-Finch Company 2009 Incentive Award Plan. Previously filed as an exhibit to the Company’s Registration Statement on Form S-8 filed December 6, 2013. Incorporated herein by reference.

 

 

  10.15*

  

Form of Restricted Stock Award to Executive Officers. Previously filed as an exhibit to SpartanNash Company’s Quarterly Report on Form 10-Q for the quarter ending April 19, 2014. Incorporated herein by reference.

 

 

  10.16*

  

Form of Restricted Stock Award to Non-Employee Directors. Previously filed as an exhibit to SpartanNash Company’s Quarterly Report on Form 10-Q for the quarter ending April 19, 2014. Incorporated herein by reference.

 

 

  10.17*

  

Form of Executive Employment Agreement between SpartanNash Company and certain executive officers, as amended. Previously filed as an exhibit to SpartanNash Company’s Annual Report on Form 10-K for the year ended March 31, 2012. Here incorporated by reference.

 

 

  10.18*

  

Form of Executive Employment Agreement between SpartanNash Company and certain executive officers. Previously filed as an exhibit to the Company’s Transition Report on Form 10-K for the period ended December 28, 2013.  Incorporated herein by reference.

 

 

  10.19*

  

Form of Executive Severance Agreement between SpartanNash Company and certain executive officers as amended. Previously filed as an exhibit to SpartanNash Company’s Annual Report on Form 10-K for the year ended March 31, 2012. Incorporated herein by reference.

 

 

  10.20*

  

Form of Executive Severance Agreement between SpartanNash Company and certain executive officers. Previously filed as an exhibit to the Company’s Transition Report on Form 10-K for the period ended December 28, 2013.  Incorporated herein by reference.

 

 

  10.21

 

Amendment No. 1 to Amended and Restated Loan and Security Agreement, dated January 9, 2015, among SpartanNash Company and certain of its subsidiaries, as borrowers, and Wells Fargo Capital Finance, LLC, as administrative agent, and certain lenders from time to time party thereto.  Previously filed as an exhibit to the Company's Current Report on Form 8-K filed January 12, 2015.  Incorporated herein by reference.

 

 

  21

  

Subsidiaries of SpartanNash Company.

 

 

  23

  

Consent of Independent Registered Public Accounting Firm.

 

 

  24

  

Powers of Attorney.

 

 

  31.1

  

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

  31.2

  

Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

  31.3

  

Certification of Chief Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

  32.1

  

Certification pursuant to 18 U.S.C. § 1350. This exhibit is furnished, not filed, in accordance with SEC Release Number 33-8212.

 

 

101.INS

  

XBRL Instance Document

 

 

101.SCH

  

XBRL Taxonomy Extension Schema Document

 

 

101.CAL

  

XBRL Taxonomy Extension Calculation Linkbase Document

 

 

101.DEF

  

XBRL Taxonomy Extension Definition Linkbase Document

 

 

101.LAB

  

XBRL Taxonomy Extension Label Linkbase Document

 

 

101.PRE

  

XBRL Taxonomy Extension Presentation Linkbase Document

 

*

These documents are management contracts or compensation plans or arrangements required to be filed as exhibits to this Form 10-K.

 

-93-