SpartanNash Co - Quarter Report: 2020 April (Form 10-Q)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended April 18, 2020.

☐	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 76^th Street, S.W. P.O. Box 8700 Grand Rapids, Michigan		49518
(Address of Principal Executive Offices)		(Zip Code)

(616) 878-2000

(Registrant’s Telephone Number, Including Area Code)

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

Title of each class

Trading

Symbol(s)

Name of each exchange on which registered

Common Stock, no par value

SPTN

NASDAQ Global Select Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☒

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

As of May 26, 2020, the registrant had 35,680,866 outstanding shares of common stock, no par value.

FORWARD-LOOKING STATEMENTS

The matters discussed in this Quarterly Report on Form 10-Q, in the Company’s press releases and in the Company’s website-accessible conference calls with analysts and investor presentations include “forward-looking statements” about the plans, strategies, objectives, goals or expectations of SpartanNash Company and subsidiaries (“SpartanNash” or “the Company”). These forward-looking statements are identifiable by words or phrases indicating that SpartanNash or management “expects,” “anticipates,” “plans,” “believes,” or “estimates,” or 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 Part I, Item 2 of this Quarterly Report on Form 10-Q, are inherently forward-looking. The Company’s asset impairment and restructuring cost provisions are estimates and actual costs may be more or less than these estimates and differences may be material. Undue reliance should not be placed on these forward-looking statements, which speak only as of the date of the Quarterly Report, other report, release, presentation, or statement.

In addition to other risks and uncertainties described in connection with the forward-looking statements contained in this Quarterly Report on Form 10-Q, SpartanNash’s Annual Report on Form 10-K for the fiscal year ended December 28, 2019 and other periodic reports filed with the Securities and Exchange Commission (“SEC”), there are many important factors that could cause actual results to differ materially. These risks and uncertainties include disruptions associated with the COVID-19 pandemic, general business conditions, changes in overall economic conditions that impact consumer spending, the Company’s ability to integrate acquired assets, the impact of competition and other factors which are often beyond the control of the Company, and other risks listed in the “Risk Factors” discussions in Items 1A of the Company’s Annual Report on Form 10-K for the fiscal year ended December 28, 2019 and this Quarterly Report on Form 10-Q, and risks and uncertainties not presently known to the Company or that the Company currently deems immaterial.

This section and the discussions contained in Item 1A “Risk Factors” of the Company’s Annual Report on Form 10-K for the fiscal year ended December 28, 2019 and in Item 1A “Risk Factors” and Part I, Item 2 “Critical Accounting Policies” of this Quarterly Report on Form 10-Q, are intended to provide meaningful cautionary statements for purposes of the safe harbor provision of the Private Securities Litigation Reform Act of 1995. This should not be construed as a complete list of all the economic, competitive, governmental, technological and other factors that could adversely affect the Company’s expected consolidated financial position, results of operations or liquidity. Additional risks and uncertainties not currently known to SpartanNash or that SpartanNash currently believes are immaterial also may impair its business, operations, liquidity, financial condition and prospects. The Company undertakes no obligation to update or revise its forward-looking statements to reflect developments that occur, or information obtained after the date of this Quarterly Report.

TABLE OF CONTENTS

		Page
PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements	4

	Condensed Consolidated Balance Sheets	4

	Condensed Consolidated Statements of Earnings	5

	Condensed Consolidated Statements of Comprehensive Income	6

	Condensed Consolidated Statements of Shareholder’s Equity	7

	Condensed Consolidated Statements of Cash Flows	8

	Notes to Condensed Consolidated Financial Statements	9

Item 1A.	Risk Factors	17

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	29

Item 4.	Controls and Procedures	29

PART II.	OTHER INFORMATION

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30

Item 6.	Exhibits	31

	Signatures	32

PART I

FINANCIAL INFORMATION

ITEM 1. Financial Statements

SPARTANNASH COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, Unaudited)

	April 18,			December 28,
	2020			2019
Assets
Current assets
Cash and cash equivalents	$	21,255		$	24,172
Accounts and notes receivable, net		417,684			345,320
Inventories, net		516,517			537,212
Prepaid expenses and other current assets		68,094			58,775
Property and equipment held for sale		24,706			31,203
Total current assets		1,048,256			996,682

Property and equipment, net		585,185			615,816
Goodwill		181,035			181,035
Intangible assets, net		128,654			130,434
Operating lease assets		268,370			268,982
Other assets, net		102,715			82,660

Total assets	$	2,314,215		$	2,275,609

Liabilities and Shareholders’ Equity
Current liabilities
Accounts payable	$	509,164		$	405,370
Accrued payroll and benefits		71,655			59,680
Other accrued expenses		49,574			51,295
Current portion of operating lease liabilities		42,832			42,440
Current portion of long-term debt and finance lease liabilities		6,157			6,349
Total current liabilities		679,382			565,134

Long-term liabilities
Deferred income taxes		62,849			43,111
Operating lease liabilities		264,738			267,350
Other long-term liabilities		30,457			30,272
Long-term debt and finance lease liabilities		591,097			682,204
Total long-term liabilities		949,141			1,022,937

Commitments and contingencies (Note 8)

Shareholders’ equity
Common stock, voting, no par value; 100,000 shares authorized; 35,682 and 36,351 shares outstanding		481,514			490,233
Preferred stock, no par value, 10,000 shares authorized; no shares outstanding		—			—
Accumulated other comprehensive loss		(1,520	)		(1,600	)
Retained earnings		205,698			198,905
Total shareholders’ equity		685,692			687,538

Total liabilities and shareholders’ equity	$	2,314,215		$	2,275,609

See accompanying notes to condensed consolidated financial statements.

SPARTANNASH COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(In thousands, except per share amounts)

(Unaudited)

	16 Weeks Ended
	April 18, 2020			April 20, 2019
Net sales	$	2,856,456		$	2,542,375
Cost of sales		2,432,889			2,164,646
Gross profit		423,567			377,729

Operating expenses
Selling, general and administrative		391,300			360,400
Merger/acquisition and integration		—			782
Restructuring charges (gains) and asset impairment		10,237			(5,662	)
Total operating expenses		401,537			355,520

Operating earnings		22,030			22,209

Other expenses and (income)
Interest expense		7,638			11,881
Postretirement benefit (income) expense		(799	)		635
Other, net		(242	)		(452	)
Total other expenses, net		6,597			12,064

Earnings before income taxes and discontinued operations		15,433			10,145
Income tax expense		31			2,624
Earnings from continuing operations		15,402			7,521

Loss from discontinued operations, net of taxes		—			(52	)
Net earnings	$	15,402		$	7,469

Basic and diluted earnings per share:
Earnings from continuing operations	$	0.43		$	0.21
Loss from discontinued operations		—			—
Net earnings	$	0.43		$	0.21

See accompanying notes to condensed consolidated financial statements.

SPARTANNASH COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands, Unaudited)

	16 Weeks Ended
	April 18, 2020			April 20, 2019
Net earnings	$	15,402		$	7,469

Other comprehensive income, before tax
Pension and postretirement liability adjustment		106			79

Income tax expense related to items of other comprehensive income		(26	)		(19	)

Total other comprehensive income, after tax		80			60
Comprehensive income	$	15,482		$	7,529

See accompanying notes to condensed consolidated financial statements.

SPARTANNASH COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(In thousands, Unaudited)

							Accumulated
							Other
	Shares			Common			Comprehensive			Retained
	Outstanding			Stock			Income (Loss)			Earnings			Total
Balance at December 28, 2019		36,351		$	490,233		$	(1,600	)	$	198,905		$	687,538
Impact of adoption of new credit loss standard (ASU 2016-13)		—			—			—			(1,612	)		(1,612	)
Net earnings		—			—			—			15,402			15,402
Other comprehensive income		—			—			80			—			80
Dividends - $0.1925 per share		—			—			—			(6,997	)		(6,997	)
Share repurchase		(861	)		(10,000	)		—			—			(10,000	)
Stock-based employee compensation		—			2,342			—			—			2,342
Issuances of common stock for stock bonus plan and associate stock purchase plan		21			291			—			—			291
Issuances of restricted stock		293			—			—			—			—
Cancellations of stock-based awards		(122	)		(1,352	)		—			—			(1,352	)
Balance at April 18, 2020		35,682		$	481,514		$	(1,520	)	$	205,698		$	685,692

							Accumulated
							Other
	Shares			Common			Comprehensive			Retained
	Outstanding			Stock			Income (Loss)			Earnings			Total
Balance at December 29, 2018		35,952		$	484,064		$	(15,759	)	$	247,642		$	715,947
Impact of adoption of new lease standard (ASU 2016-02)		—			—			—			(26,863	)		(26,863	)
Net earnings		—			—			—			7,469			7,469
Other comprehensive income		—			—			60			—			60
Dividends - $0.19 per share		—			—			—			(6,902	)		(6,902	)
Stock-based employee compensation		—			5,383			—			—			5,383
Issuances of common stock on stock option exercises and for stock bonus plan and associate stock purchase plan		30			452			—			—			452
Issuances of restricted stock		444			—			—			—			—
Cancellations of stock-based awards		(107	)		(1,744	)		—			—			(1,744	)
Balance at April 20, 2019		36,319		$	488,155		$	(15,699	)	$	221,346		$	693,802

See accompanying notes to condensed consolidated financial statements.

SPARTANNASH COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands, Unaudited)

	16 Weeks Ended
	April 18, 2020			April 20, 2019
Cash flows from operating activities
Net earnings	$	15,402		$	7,469
Loss from discontinued operations, net of tax		—			52
Earnings from continuing operations		15,402			7,521
Adjustments to reconcile net earnings to net cash provided by operating activities:
Non-cash restructuring, asset impairment, and other charges		9,425			893
Depreciation and amortization		28,029			26,632
Non-cash rent		(1,823	)		(2,555	)
LIFO expense		1,583			1,425
Postretirement benefits (income) expense		(224	)		948
Deferred taxes on income		3,068			4,396
Stock-based compensation expense		2,342			5,383
Postretirement benefit plan contributions		(255	)		(130	)
Loss (gain) on disposals of assets		3,911			(6,925	)
Amortization of financing fees and other		631			769
Changes in operating assets and liabilities:
Accounts receivable		(73,854	)		(27,069	)
Inventories		18,957			(10,786	)
Prepaid expenses and other assets		(5,725	)		1,388
Accounts payable		122,168			20,077
Accrued payroll and benefits		11,569			(5,191	)
Other accrued expenses and other liabilities		(5,908	)		(3,257	)
Net cash provided by operating activities		129,296			13,519
Cash flows from investing activities
Purchases of property and equipment		(17,893	)		(16,006	)
Net proceeds from the sale of assets		3,609			15,872
Acquisitions, net of cash acquired		—			(86,659	)
Loans to customers		(612	)		(1,233	)
Payments from customers on loans		946			833
Other		(1	)		(32	)
Net cash used in investing activities		(13,951	)		(87,225	)
Cash flows from financing activities
Proceeds from senior secured revolving credit facility		332,155			435,769
Payments on senior secured revolving credit facility		(423,142	)		(366,407	)
Proceeds from other long-term debt		—			5,800
Repayment of other long-term debt and finance lease liabilities		(1,957	)		(4,778	)
Financing fees paid		(62	)		(352	)
Proceeds from resolution of acquisition contingencies		—			15,000
Share repurchase		(10,000	)		—
Net payments related to stock-based award activities		(1,352	)		(1,744	)
Proceeds from exercise of stock options		—			181
Dividends paid		(13,904	)		(6,902	)
Net cash (used in) provided by financing activities		(118,262	)		76,567
Cash flows from discontinued operations
Net cash used in operating activities		—			(86	)
Net cash used in discontinued operations		—			(86	)
Net (decrease) increase in cash and cash equivalents		(2,917	)		2,775
Cash and cash equivalents at beginning of period		24,172			18,585
Cash and cash equivalents at end of period	$	21,255		$	21,360

See accompanying notes to condensed consolidated financial statements.

SPARTANNASH COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1 – Summary of Significant Accounting Policies and Basis of Presentation

The accompanying unaudited condensed consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts of SpartanNash Company and its subsidiaries (“SpartanNash” or “the Company”). Intercompany accounts and transactions have been eliminated. For further information, refer to the consolidated financial statements and footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 28, 2019.

In the opinion of management, the accompanying condensed consolidated financial statements, taken as a whole, contain all adjustments, including normal recurring items, necessary to present fairly the financial position of SpartanNash as of April 18, 2020, and the results of its operations and cash flows for the interim periods presented. The preparation of the condensed consolidated financial statements and related notes to the financial statements requires management to make estimates. Estimates are based on historical experience, where applicable, and expectations of future outcomes which management believes are reasonable under the circumstances, including but not limited to the potential impacts arising from the COVID-19 pandemic. Due to the uncertainty of the magnitude and duration of the impacts of the COVID-19 pandemic, these estimates are inherently subject to judgment and actual results could differ from those estimates. Interim results are not necessarily indicative of results for a full year.

The unaudited information in the condensed consolidated financial statements for the first quarter of 2020 and 2019 include the results of operations of the Company for the 16-week periods ended April 18, 2020 and April 20, 2019, respectively.

Note 2 – Adoption of New Accounting Standards and Recently Issued Accounting Standards

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments – Credit Losses”. The ASU changed the impairment model for most financial assets and certain other instruments. The standard requires entities to use a forward-looking “expected loss” model that replaces the previous “incurred loss” model, which generally results in the earlier recognition of credit losses.

In the first quarter of 2020, the Company adopted this standard through the modified retrospective approach, with a cumulative-effect adjustment at the beginning of the fiscal year. As a result of the adoption, the Company has established revised processes and controls to estimate expected losses for trade and other receivables in accordance with the new standard. The Company’s process for estimating losses for trade and other receivables includes an evaluation of both historical collection experience and expectations for current credit risks based on several customer and environmental factors.

The adoption of the standard resulted in a transition adjustment to beginning of the year retained earnings of $2.2 million (gross of the deferred tax impact of $0.6 million). The transition adjustment relates to incremental trade and notes receivable allowances due to the earlier recognition of expected losses under the new standard of $1.9 million and $0.3 million, respectively. Changes in the balance of the allowance for doubtful accounts were as follows:

	Allowance for Doubtful Accounts
(In thousands)	Current Accounts and Notes Receivable			Long-term Notes Receivable		Total
Balance at December 28, 2019	$	2,739		$	233	$	2,972
Impact of adoption of new credit loss standard (ASU 2016-13)		1,911			259		2,170
Provision for expected credit losses		365			—		365
Write-offs charged against the allowance		(249	)		—		(249	)
Balance at April 18, 2020	$	4,766		$	492	$	5,258

The Company evaluated the effects of the COVID-19 pandemic in performing its quarterly evaluation of the adequacy of its allowance for doubtful accounts. While the duration and impact of these affects is uncertain, the Company did not deem it necessary to record incremental allowances for doubtful accounts as no additional credit exposure was identified.

In August 2018, the FASB issued ASU 2018-14, “Compensation—Retirement Benefits—Defined Benefit Plans—General: Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans.” The amendments in this ASU remove disclosures that are no longer considered to be cost beneficial, clarify the specific requirements of disclosures, and add disclosure requirements identified as relevant. The amendments in ASU 2018-14 are effective for fiscal years ending after December 15, 2020 and will be applied on a retrospective basis to all periods presented. The adoption of this guidance is not expected to have a significant effect on the Company’s financial statements.

Note 3 – Revenue

Disaggregation of Revenue

The following table provides information about disaggregated revenue by type of products and customers for each of the Company’s reportable segments:

	16 Weeks Ended April 18, 2020
(In thousands)	Food Distribution		Retail		Military		Total
Type of products:
Center store (a)	$	451,321	$	328,326	$	340,296	$	1,119,943
Fresh (b)		467,663		295,003		195,667		958,333
Non-food (c)		424,312		125,845		166,321		716,478
Fuel		—		33,000		—		33,000
Other		26,199		394		2,109		28,702
Total	$	1,369,495	$	782,568	$	704,393	$	2,856,456
Type of customers:
Individuals	$	—	$	782,333	$	—	$	782,333
Manufacturers, brokers and distributors		38,522		—		658,940		697,462
Retailers		1,309,422		—		43,344		1,352,766
Other		21,551		235		2,109		23,895
Total	$	1,369,495	$	782,568	$	704,393	$	2,856,456

	16 Weeks Ended April 20, 2019
(In thousands)	Food Distribution		Retail		Military		Total
Type of products:
Center store (a)	$	355,471	$	270,773	$	310,410	$	936,654
Fresh (b)		428,768		262,947		197,022		888,737
Non-food (c)		362,994		126,395		162,056		651,445
Fuel		—		41,249		—		41,249
Other		22,005		403		1,882		24,290
Total	$	1,169,238	$	701,767	$	671,370	$	2,542,375
Type of customers:
Individuals	$	—	$	701,482	$	—	$	701,482
Manufacturers, brokers and distributors		60,711		—		642,636		703,347
Retailers		1,105,326		—		26,852		1,132,178
Other		3,201		285		1,882		5,368
Total	$	1,169,238	$	701,767	$	671,370	$	2,542,375

(a) Center store includes dry grocery, frozen and beverages.
(b) Fresh includes produce, meat, dairy, deli, bakery, prepared proteins, seafood and floral.
(c) Non-food includes general merchandise, health and beauty care, tobacco products and pharmacy.

Contract Assets and Liabilities

In the ordinary course of business, the Company may advance funds to certain independent retailers which are earned by the retailers primarily through achieving specified purchase volume requirements, as outlined in their supply agreements with the Company, or in limited instances, for remaining a SpartanNash customer for a specified time period. These advances must be repaid if the purchase volume requirements are not met or if the retailer no longer remains a customer for the specified time period. For volume-based arrangements, the Company estimates the amount of the advanced funds earned by the retailers based on the expected volume of purchases by the retailer and amortizes the advances as a reduction of the transaction price and revenue earned. Realizability of the advances, or collectability in event of default, is not assured and is dependent on the financial condition of the customer, economic and industry factors and the quality of the underlying collateral. No reserves related to the realizability or collectability of customer advances were necessary as of April 18, 2020. These advances are not considered contract assets under ASC 606 as they are not generated through the transfer of goods or services to the retailers. These advances are included in “Prepaid expenses and other current assets” or “Other assets, net” on the Company’s balance sheets.

When the Company transfers goods or services to a customer, payment is due - subject to normal terms - and is not conditional on anything other than the passage of time. Typical payment terms range from due upon receipt to 30 days, depending on the type of customer and relationship. At contract inception, the Company expects that the period of time between the transfer of goods to the customer and when the customer pays for those goods will be less than one year, which is consistent with the Company’s standard payment terms. Accordingly, the Company has elected the practical expedient under ASC 606 to not adjust for the effects of a significant financing component. As such, these amounts are recorded as receivables and not contract assets. The Company had no contract assets for any period presented.

The Company does not typically incur incremental costs of obtaining a contract that are contingent upon successful contract execution and would therefore be capitalized.

Note 4 – Acquisitions

On December 31, 2018, the Company acquired all of the outstanding shares of Martin’s Super Markets, Inc. (“Martin’s”) for $86.7 million, net of $7.8 million of cash acquired. Acquired assets consist primarily of property and equipment of $55.0 million, intangible assets of $23.9 million, and working capital. Intangible assets are primarily composed of an indefinite-lived trade name of $20.6 million and pharmacy customer prescription lists of $3.1 million which are amortized over seven years. The acquired assets and assumed liabilities were recorded at their estimated fair values as of the acquisition date based on preliminary estimates, which were subsequently finalized during the fourth quarter of 2019. No goodwill was recorded related to the acquisition. The Company incurred $0.9 million of merger/acquisition and integration costs related to the acquisition in the prior year quarter. The acquisition was funded with proceeds from the Company’s Credit Agreement.

Martin’s operates supermarkets in Northern Indiana and Southwest Michigan. Martin’s was an independent retailer and customer of the Company’s Food Distribution segment prior to the acquisition.

Note 5 – Goodwill and Other Intangible Assets

The Company has three reporting units; however, no goodwill exists within the Military or Retail reporting units. The carrying amount of goodwill recorded within the Food Distribution reporting unit was $181.0 million as of April 18, 2020 and December 28, 2019.

The Company reviews goodwill and other indefinite-lived intangible assets for impairment annually, during the fourth quarter of each year, and more frequently if circumstances indicate a risk of impairment. Testing goodwill and other indefinite-lived intangible assets for impairment requires management to make significant estimates about the Company’s future performance, cash flows, and other assumptions that can be affected by potential changes in economic, industry or market conditions, business operations, competition, or the Company’s stock price and market capitalization.

The Company has indefinite-lived intangible assets that are not amortized, consisting primarily of indefinite-lived trade names and licenses for the sale of alcoholic beverages. The carrying amount of indefinite-lived intangible assets was $76.3 million as of April 18, 2020 and December 28, 2019.

Note 6 – Restructuring Charges and Asset Impairment

The following table provides the activity of reserves for closed properties for the 16-week period ended April 18, 2020. Included in the liability are lease-related ancillary costs from the date of closure to the end of the remaining lease term. Reserves for closed properties recorded in the condensed consolidated balance sheets are included in “Other accrued expenses” in Current liabilities and “Other long-term liabilities” in Long-term liabilities based on the timing of when the obligations are expected to be paid. Reserves for severance are recorded in “Accrued payroll and benefits”.

	Lease
	Ancillary
(In thousands)	Costs			Severance			Total
Balance at December 28, 2019	$	4,971		$	17		$	4,988
Provision for closing charges		325			—			325
Provision for severance		—			2,198			2,198
Changes in estimates		68			—			68
Accretion expense		32			—			32
Payments		(814	)		(17	)		(831	)
Balance at April 18, 2020	$	4,582		$	2,198		$	6,780

Restructuring and asset impairment activity included in the condensed consolidated statements of earnings consisted of the following:

	16 Weeks Ended
	April 18,			April 20,
(In thousands)	2020			2019
Asset impairment charges (a)	$	6,733		$	100
Provision for closing charges		325			366
Gain on sales of assets related to closed facilities (b)		(90	)		(6,923	)
Provision for severance (c)		2,198			149
Other costs associated with site closures (d)		1,003			611
Changes in estimates (e)		68			35
	$	10,237		$	(5,662	)

(a) Asset impairment charges in the current year were incurred primarily in the Food Distribution segment and primarily relate to the exit of the Fresh Cut business.

(b) Gain on sales of assets in the prior year primarily relate to the sale of a previously closed distribution center in the Food Distribution segment.

(d) Other costs primarily relate to the Fresh Cut and store closings in the current year, and a Food Distribution warehouse and store closings in the prior year.

(e) Changes in estimates primarily relate to revised estimates for turnover and other lease ancillary costs associated with previously closed locations, due to deterioration of the condition of certain properties.

Long-lived assets are measured at fair value on a nonrecurring basis using Level 3 inputs. In connection primarily with the Company’s plan to exit the Fresh Cut operations, long-lived assets and definite-lived intangible assets were tested for recoverability. Long-lived assets with a book value of $29.1 million were measured at a fair value of $22.4 million, resulting in impairment charges of $6.7 million in 2020. Assets with a book value of $0.3 million were measured at a fair value of $0.2 million, resulting in an impairment charge of $0.1 million in 2019. Fair value of long-lived assets is determined by estimating the amount and timing of net future cash flows, including the expected proceeds from the sale of assets, discounted using a risk-adjusted rate of interest. The Company estimates future cash flows based on historical results of operations, external factors expected to impact future performance, experience and knowledge of the geographic area in which the assets are located, and when necessary, uses real estate brokers. The Company has evaluated assets held for sale as of April 18, 2020 and concluded that the Fresh Kitchen facility meets the requirements for held for sale classification. Assets classified as held for sale in the consolidated balance sheet are valued at the expected net proceeds.

Note 7 – Fair Value Measurements

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.

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. See Note 6 for discussion of the fair value measurements related to long-lived asset impairment charges. At April 18, 2020 and December 28, 2019 the book value and estimated fair value of the Company’s debt instruments, excluding debt financing costs, were as follows:

	April 18,		December 28,
(In thousands)	2020		2019
Book value of debt instruments, excluding debt financing costs:
Current maturities of long-term debt and finance lease liabilities	$	6,157	$	6,349
Long-term debt and finance lease liabilities		596,100		687,659
Total book value of debt instruments		602,257		694,008
Fair value of debt instruments, excluding debt financing costs		606,561		700,631
Excess of fair value over book value	$	4,304	$	6,623

The estimated fair value of debt is based on market quotes for instruments with similar terms and remaining maturities (Level 2 inputs and valuation techniques).

Note 8 – Commitments and Contingencies

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

The Company contributes to the Central States Southeast and Southwest Pension Fund (“Central States Plan” or “the Plan”), a multi-employer pension plan, based on obligations arising from its collective bargaining agreements (“CBAs”) in Bellefontaine, Ohio, Lima, Ohio, and Grand Rapids, Michigan covering its supply chain associates at those locations. 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. The Company currently contributes to the Central States Plan under the terms outlined in the “Primary Schedule” of Central States’ Rehabilitation Plan or those outlined in the “Default Schedule.” Both the Primary and Default schedules require varying increases in employer contributions over the previous year’s contribution. Increases are set within the CBAs and vary by location. The Plan continues to be in red zone status, and according to the Pension Protection Act (“PPA”), is considered to be in “critical and declining” zone status. Among other factors, plans in the “critical and declining” zone are generally less than 65% funded and are projected to become insolvent within the next 15 years (or 20 years depending on the ratio of active-to-inactive participants). Based on the most recent information available to the Company, 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. Management is not aware of any significant change in funding levels since December 28, 2019. To reduce this underfunding, management expects 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 – Associate Retirement Plans

During the 16-week period ended April 18, 2020, the Company recognized net periodic postretirement benefit costs of $0.2 million related to the SpartanNash Retiree Medical Plan (“Retiree Medical Plan”). The Company also realized a gain of $1.0 million related to a refund from the annuity provider associated with the final reconciliation of participant data of the terminated SpartanNash Company Pension Plan (“Pension Plan”). In addition to the remaining assets in the pension trust, these funds will be used to satisfy obligations associated with other qualified retirement programs. During the 16-week period ended April 20, 2019, the Company recognized net periodic pension expense of $0.4 million and net periodic postretirement benefit costs of $0.1 million for the Pension Plan and Medical Plan, respectively. Substantially all of these amounts are included in Postretirement benefit expense (income) in the condensed consolidated statements of earnings.

The Company expects to make total contributions of $0.5 million in 2020 to the Retiree Medical Plan and has made $0.1 million in the first quarter. The Company’s retirement programs also include defined contribution plans providing contributory benefits, as well as executive compensation plans for a select group of management personnel and/or highly compensated associates.

Multi-Employer Plans

In addition to the plans listed above, the Company participates in the Central States Southeast and Southwest Pension Fund, the Michigan Conference of Teamsters and Ohio Conference of Teamsters Health and Welfare plans (collectively referred to as “multi-employer plans”), and other company-sponsored defined contribution plans for most associates covered by collective bargaining agreements.

With respect to the Company’s participation in the Central States Plan, expense is recognized as contributions are funded. The Company’s contributions during the 16-week periods ended April 18, 2020 and April 20, 2019 were $4.6 million and $4.8 million, respectively. See Note 8 for further information regarding contingencies related to the Company’s participation in the Central States Plan.

Note 10 – Income Taxes

The effective income tax rate was 0.2% and 25.9% for the 16 weeks ended April 18, 2020 and April 20, 2019, respectively. The difference from the federal statutory rate in the current year was primarily as a result of the Coronavirus Aid, Relief and Economic Security (“CARES”) Act and federal tax credits, partially offset by state taxes and stock-based compensation. In the prior year, the difference from the federal statutory rate was primarily due to state taxes and stock-based compensation, partially offset by federal tax credits.

On March 27, 2020, the U.S. government enacted tax legislation to provide economic stimulus and support businesses and individuals during the COVID-19 pandemic, referred to as the CARES Act. In connection with initial analysis of the impact of the CARES Act, the Company recorded a net discrete income tax benefit of $4.3 million during the first quarter, associated with the additional deductibility of certain expenses combined with provisions which enable companies to carry back tax losses to years prior to the enactment of the Tax Cuts and Jobs Act, where the federal statutory income tax rate was 35%.

Note 11 – Stock-Based Compensation

The Company has a shareholder-approved stock incentive plan (the “2015 Plan”) that provides for the granting of stock options, stock appreciation rights, restricted stock, restricted stock units, stock awards, and other stock-based and stock-related awards to directors, officers and other key associates.

Stock-based compensation expense recognized and included in “Selling, general and administrative expenses” in the condensed consolidated statements of earnings, and related tax impacts were as follows:

	16 Weeks Ended
(In thousands)	April 18, 2020		April 20, 2019
Restricted stock	$	2,342	$	5,383
Income tax expense (benefit)		224		(866	)
Stock-based compensation expense, net of tax	$	2,566	$	4,517

The following table summarizes activity in the 2015 Plan for the 16 weeks ended April 18, 2020:

					Weighted
		Restricted			Average
		Stock			Grant-Date
		Awards			Fair Value
Outstanding at December 28, 2019	$		928,733		$	20.28
Granted			292,884			12.43
Exercised/Vested			(361,446	)		21.71
Cancelled/Forfeited			(15,757	)		19.10
Outstanding at April 18, 2020	$		844,414		$	16.97

As of April 18, 2020, total unrecognized compensation cost related to non-vested restricted stock awards granted under the Company’s stock incentive plan is $5.9 million and is expected to be recognized over a weighted average period of 2.7 years.

On May 20, 2020 the Company’s shareholders approved a new stock incentive plan (“the 2020 Plan”). The 2020 Plan provides for the granting of stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance share units, dividend equivalent rights, and other stock-based and stock-related awards to directors, employees, or contractors of the Company, as determined by the Compensation Committee of the Board of Directors. The number of shares of the Company’s common stock that may be issued under the 2020 Stock Plan consists of 1,635,000 newly reserved shares plus the 734,341 remaining shares available for grant under the 2015 Stock Plan.

Note 12 – Earnings Per Share

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

	16 Weeks Ended
(In thousands, except per share amounts)	April 18, 2020			April 20, 2019
Numerator:
Earnings from continuing operations	$	15,402		$	7,521
Adjustment for earnings attributable to participating securities		(385	)		(183	)
Earnings from continuing operations used in calculating earnings per share	$	15,017		$	7,338
Denominator:
Weighted average shares outstanding, including participating securities		36,172			36,121
Adjustment for participating securities		(904	)		(878	)
Shares used in calculating basic and diluted earnings per share		35,268			35,243
Basic and diluted earnings per share from continuing operations	$	0.43		$	0.21

Note 13 – Supplemental Cash Flow Information

Supplemental cash flow information is as follows:

	16 Weeks Ended
(In thousands)	April 18, 2020		April 20, 2019
Non-cash financing activities:
Recognition of operating lease liabilities	$	12,749	$	4,609
Recognition of finance lease liabilities		1,192			—
Non-cash investing activities:
Capital expenditures included in accounts payable		4,643			3,466
Operating lease asset additions		12,749			4,609
Finance lease asset additions		1,192			—
Other supplemental cash flow information:
Cash paid for interest		8,187			11,718

Note 14 – Reporting Segment Information

The following tables set forth information about the Company by reporting segment:

(In thousands)	Food Distribution			Retail			Military			Total
16 Weeks Ended April 18, 2020
Net sales to external customers	$	1,369,495		$	782,568		$	704,393		$	2,856,456
Inter-segment sales		324,127			—			—			324,127
Restructuring charges and asset impairment		9,222			1,015			—			10,237
Depreciation and amortization		10,556			13,756			3,717			28,029
Operating earnings (loss)		11,390			12,645			(2,005	)		22,030
Capital expenditures		7,019			9,594			1,280			17,893

16 Weeks Ended April 20, 2019
Net sales to external customers	$	1,169,238		$	701,767		$	671,370		$	2,542,375
Inter-segment sales		288,408			—			—			288,408
Merger/acquisition and integration		(130	)		912			—			782
Restructuring (gains) charges and asset impairment		(6,343	)		681			—			(5,662	)
Depreciation and amortization		10,233			12,802			3,597			26,632
Operating earnings (loss)		24,592			(826	)		(1,557	)		22,209
Capital expenditures		4,249			10,615			1,142			16,006

	April 18,		December 28,
(In thousands)	2020		2019
Total Assets
Food Distribution	$	1,143,165	$	1,087,307
Retail		755,305		794,413
Military		415,745		390,799
Discontinued operations		—		3,090
Total	$	2,314,215	$	2,275,609

ITEM 1A. Risk Factors

There have been no material changes in the Company's risk factors from those set forth in the Company's Annual Report on Form 10-K for the year ended December 28, 2019, except for the following risk factor which should be considered in conjunction with those previously disclosed:

Disease outbreaks, such as the COVID-19 pandemic, could have an adverse impact on the Company's operations and financial results.

On March 11, 2020, the World Health Organization characterized coronavirus (COVID-19) as a pandemic, and on March 13, 2020 the President of the United States declared a national emergency relating to the disease. In addition to the President’s declaration, state and local authorities have recommended social distancing and have imposed quarantine and isolation measures on large portions of the population, including mandatory business closures. These measures are designed to protect the overall public health, they are expected to have material adverse impacts on domestic and foreign economies and may result in the United States entering a period of recession.

While the Company is an essential business and has seen significant increases in sales volume during the pandemic, its business may be negatively impacted by the several factors associated with the disease outbreak and the related effects on the retail grocery and wholesale distribution industries. These impacts may include:

•

Increased costs due to significant increases in customer traffic and demand for grocery products, and the corresponding inability to meet demand with the existing workforce or other assets;

•

Failure of third parties on which the Company relies, including its customers, suppliers, contractors, commercial banks and other business partners to meet their obligations to the Company, which may be caused by their own financial or operational challenges;

•

Supply chain risks due to significantly increased demand, including the availability of warehouse and transportation personnel and service providers or the inability to procure adequate quantities of certain goods;

•

Reduced workforce or temporary store and distribution center closures associated with the presence of COVID-19 infections among the Company’s associates; or

•

Inability to accurately forecast financial results due to the uncertainty associated with the short- and long-term effects on the U.S. economy, consumer behavior and the unknown duration of social distancing, quarantine or isolation measures or the lasting effects that may result after such mandates have been removed.

•

Increased and accelerated competition from alternative channels, including e-commerce retailers, due to a change in consumer behavior and continued social distancing.

Any of the foregoing factors, or other effects of the pandemic that are not currently foreseeable, may materially increase costs, negatively impact sales and damage the Company’s financial condition, results of operations, cash flows and its liquidity position. The significance and duration of any such impacts are not possible to predict due to the overall uncertainty associated with the COVID-19 pandemic.

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

This Management’s Discussion and Analysis of financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements contained in this Quarterly Report on Form 10-Q, the information contained under the caption “Forward-Looking Statements,” which appears at the beginning of this report, and the information in the Company’s Annual Report on Form 10-K for the fiscal year ended December 28, 2019.

Overview

SpartanNash, headquartered in Grand Rapids, Michigan, is a leading multi-regional grocery distributor and grocery retailer whose core businesses include distributing grocery products to a diverse group of independent and chain retailers, its corporate owned retail stores, military commissaries and exchanges in the United States, as well as operating a premier fresh produce distribution network. The Company operates three reportable business segments: Food Distribution, Retail and Military. The Company serves customers in all 50 states.

The Company’s Food Distribution segment provides a wide variety of nationally branded and private brand grocery products and perishable food products to independent grocers, the Company’s corporate owned retail stores, national retailers, food service distributors, and other customers. The Food Distribution segment primarily conducts business in the Midwest and Southeast regions of the United States.

At the end of the first quarter, the Company’s Retail segment operated 155 corporate owned retail stores in the Midwest region primarily under the banners of Family Fare, Martin’s Super Markets, VG’s Grocery, D&W Fresh Market and Dan’s Supermarket. The Company also offers pharmacy services in 97 of its corporate owned retail stores and operates 37 fuel centers. The retail stores have a “neighborhood market” focus to distinguish them from supercenters and limited assortment stores. The Company’s Customer First strategy is focused on meeting changing customer needs and preferences through a data-based decision-making process, while also increasing customer satisfaction through quality service and convenience.

The Company’s Military segment contracts with manufacturers to distribute a wide variety of grocery products primarily to military commissaries and exchanges located in the United States, the District of Columbia, Europe, Cuba, Puerto Rico, Honduras, Bahrain, Djibouti and Egypt. The Company distributes grocery products to 160 military commissaries and over 400 exchanges and, together with its third-party partner, Coastal Pacific Food Distributors, represents the only delivery solution to service the Defense Commissary Agency (“DeCA”) worldwide. The Company is the exclusive worldwide supplier of private brand products to U.S. military commissaries and is continuing to partner with DeCA in the rollout of private brand products to military commissaries, which began during the second quarter of fiscal 2017.

All fiscal quarters are 12 weeks, except for the Company’s first quarter, which is 16 weeks and will generally include the Easter holiday. Fiscal 2020 will contain 53 weeks; therefore, the fourth quarter of fiscal 2020 will contain 13 weeks. The fourth quarter includes the Thanksgiving and Christmas holidays, and depending on the fiscal year end, may include the New Year’s holiday.

In certain geographic areas, the Company’s sales and operating performance may 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. Travel restrictions and other effects of the COVID-19 pandemic may also impact the performance of these stores.

2020 First Quarter Highlights

The Company’s top priority for the first quarter of 2020 was the well-being and safety of its family of associates, customers and communities during the COVID-19 pandemic. SpartanNash is incredibly proud of its family of associates for their dedication to serve local customers and communities during this unprecedented time of need and respond to the dramatic increase in demand for food, pharmacy, household and personal care products.

The Company undertook numerous initiatives to protect and serve its associates and customers in response to the pandemic, including the following:

•

Installed sneeze guards at key points of customer interaction within retail stores as well as within distribution center receiving areas.

•

Purchased facemasks and gloves for all frontline associates working in retail stores and distribution centers.

•

Promoted social distancing through signs and floor markings throughout retail stores to remind guests and associates to remain six feet apart.

•

Reserved shopping times twice per week for store guests most at risk of contracting coronavirus, including seniors, pregnant women and immunocompromised individuals.

•

Dedicated additional Fast Lane resources to accommodate the significant increase in the number of customers shopping online as well as offered free, same-day home delivery of prescription medications, where available.

•

Instructed associates to take their temperature at home before coming onsite to a SpartanNash location, as well as onsite health status screenings for all associates upon arrival.

•

Suspended certain services within retail stores, including self-serve areas, bottle returns, and product returns in accordance with CDC recommendations.

•

Increased procedures for sanitizing high-touch surfaces within retail stores, such as shopping carts and baskets, food service counters, checkout lanes, conveyor belts, fuel pump handles, pin pads and touch screens at least every 30 minutes as well as installed sanitation stations. In distribution centers, increased fogging as well as sanitizing high-touch areas including time clocks, headsets and equipment controls at least every 30 minutes.

•

Provided more than 16,000 part- and full-time hourly frontline associates with weekly appreciation bonuses, as well as an additional $2 per hour for hours worked during times of significantly increased demand.

•

Increased the associate discount in its company-owned retail stores to 20 percent off for a set period of time.

•

Extended emergency leave benefits to ensure associates who are sick or are displaying symptoms of COVID-19 are able to remain off work until they have fully recovered. SpartanNash's expanded emergency leave time now provides up to an additional 80 hours of paid leave.

•

The Company continues to provide telemedicine visits, employee assistance programs for mental and physical wellbeing as well as childcare assistance, and prescription drug coverage. Telemedicine visits and COVID-19 testing fees have been waived since the onset of the pandemic.

•

Recruited and onboarded more than 3,000 new hires since the beginning of the pandemic to support current associates and provide career opportunities to displaced workers.

Key financial highlights related to the impact of COVID-19 and other actions undertaken by the Company include the following:

•

The Food Distribution segment generated sales growth of 9.5% prior to the impact of the COVID-19 pandemic through growth with existing customers. Sales growth during the pandemic, the last 6 weeks of the quarter, was 29.7% and ended the quarter ahead of the prior year by 17.1%.

•

Retail comparable store sales, which exclude fuel, were on track to achieve the Company’s guidance of approximately flat and accelerated to an increase of 42.0% during the pandemic, ending the quarter at 15.6%.

•

The Military segment sales declined 3.2% prior to the impact of the COVID-19 pandemic. Sales growth during the pandemic was 18.1% and ended the quarter ahead of the prior year by 4.9%.

•

The Company continued to pay down debt and improve its leverage ratios through improved profitability and working capital reductions.

•

As a result of the loss of a significant customer, the Company made the decision to exit the Caito Fresh Cut operations. Wind down of the operations began in March 2020 and was complete as of the end of the first quarter. The Company incurred $10.6 million in asset impairment charges, severance costs and operating losses during the wind down period. The Company is working to sell the related facility and equipment.

•

During the first half of the quarter, the Company executed cost saving initiatives, which included a voluntary early retirement program, as well as a reduction-in-force. These actions are expected to result in longer-term cost savings, however resulted in $5.2 million in incremental expense in the quarter.

The Company has updated its outlook for the 53-week fiscal year ending January 2, 2021. The Company expects to continue to benefit from higher consumer food at home consumption related to COVID-19, however, the duration and magnitude of the impact are uncertain. As a result, although the Company believes that its sales for fiscal 2020 will materially exceed its initial 2020 guidance, the Company is unable to fully estimate the impact COVID-19 will have on the remainder of 2020. The Company has updated its annual outlook, originally provided on February 19, 2020, to reflect actual financial results experienced to-date, as well as expectations for the remainder of the fiscal year related to earnings trends. Specifically, these updates include incremental adjusted earnings per share from continuing operations for the COVID-19 impact experienced to-date, other first quarter earnings in excess of management’s initial guidance expectations, as well as the benefits associated with cost reduction initiatives and increased sales and earnings trends the Company was experiencing prior to the onset of the pandemic. The Company’s updated outlook for the second half of the year does not include any adjustment for future impacts from the COVID-19 pandemic. However, the Company currently anticipates any incremental costs related to COVID-19 will be more than offset by the improved food at home sales trend.

Results of Operations

The following table sets forth items from the condensed consolidated statements of earnings as a percentage of net sales and the year-to-year percentage change in the dollar amounts:

	Percentage of Net Sales					Percentage Change
	16 Weeks Ended					16 Weeks Ended
	April 18, 2020		April 20, 2019			April 18, 2020
Net sales		100.0		100.0			12.4
Gross profit		14.8		14.9			12.1
Selling, general and administrative		13.7		14.2			8.6
Merger/acquisition and integration		—		0.0			(100.0	)
Restructuring charges (gains) and asset impairment		0.4		(0.2	)		280.8
Operating earnings		0.8		0.9			(0.8	)
Other expenses and income		0.2		0.5			(45.3	)
Earnings before income taxes and discontinued operations		0.5		0.4			52.1
Income tax expense		0.0		0.1			(98.8	)
Earnings from continuing operations		0.5		0.3			104.8
Loss from discontinued operations, net of taxes		—		(0.0	)		100.0
Net earnings		0.5		0.3			106.2

Note: Certain totals do not sum due to rounding.

Net Sales – The following table presents net sales by segment and variances in net sales:

	16 Weeks Ended
(In thousands)	April 18, 2020		April 20, 2019		Variance
Food Distribution	$	1,369,495	$	1,169,238	$	200,257
Retail		782,568		701,767		80,801
Military		704,393		671,370		33,023
Total net sales	$	2,856,456	$	2,542,375	$	314,081

Net sales for the quarter ended April 18, 2020 (“first quarter”) increased $314.1 million, or 12.4%, to $2.86 billion from $2.54 billion in the quarter ended April 20, 2019 (“prior year quarter”). The increase was driven primarily by incremental sales related to a shift in consumer behavior associated with the COVID-19 pandemic, particularly for the last 6 weeks of the fiscal quarter, as well as growth with existing customers in the Food Distribution segment.

Food Distribution net sales increased $200.3 million, or 17.1%, to $1.37 billion in the first quarter from $1.17 billion in the prior year quarter due to incremental volume associated with the impact of COVID-19 as well as sales growth with existing customers.

Retail net sales increased $80.8 million, or 11.5%, to $782.6 million in the first quarter from $701.8 million in the prior year quarter. The increase in net sales was primarily due to incremental volume associated with the impact of COVID-19, as discussed above. Comparable store sales increased 15.6% for the quarter and were partially offset by the impact of lower fuel prices and store closures. The Company defines a retail store as comparable when it is in operation for 14 accounting periods (a period equals four weeks), regardless of remodels, expansions, or relocated stores. Acquired stores are included in the comparable sales calculation 13 periods after the acquisition date. Fuel is excluded from the comparable sales calculation due to volatility in price. Comparable store sales is a widely used metric among retailers, which is useful to management and investors to assess performance. The Company’s definition of comparable store sales may differ from similarly titled measures at other companies.

Military net sales increased $33.0 million, or 4.9%, to $704.4 million in the first quarter from $671.4 million in the prior year quarter. The increase from the prior year quarter was due to the increased volume resulting from the impact of the COVID-19 pandemic, partially offset by lower comparable sales at Defense Commissary Agency (“DeCA”) operated locations prior to the onset of the pandemic.

Gross Profit – Gross profit represents net sales less cost of sales, which for all non-production operations includes purchase costs, in-bound freight, physical inventory adjustments, markdowns and promotional allowances and excludes warehousing costs, depreciation and other administrative expenses. For the Company’s food processing operations, cost of sales includes direct product and production costs, inbound freight, purchasing and receiving costs, utilities, depreciation, and other indirect production costs and excludes out-bound freight and other administrative expenses. The Company’s gross profit definition may not be identical to similarly titled measures reported by other companies. Vendor allowances that relate to the buying and merchandising activities consist primarily of promotional allowances, which are generally allowances on purchased quantities and, to a lesser extent, slotting allowances, which are billed to vendors for the Company’s merchandising costs, such as setting up warehouse infrastructure. Vendor allowances are recognized as a reduction in cost of sales when the 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 in the consolidated statements of earnings.

Gross profit increased $45.8 million, or 12.1%, to $423.6 million in the first quarter from $377.7 million in the prior year quarter. As a percent of net sales, gross profit was 14.8% compared to 14.9% in the prior year quarter. The first quarter change in gross margin was primarily driven by the increased sales volume.

Selling, General and Administrative Expenses – Selling, general and administrative (“SG&A”) expenses consist primarily of salaries and wages, employee benefits, facility costs, shipping and handling, equipment rental, depreciation (to the extent not included in cost of sales), out-bound freight and other administrative expenses.

SG&A expenses increased to $391.3 million in the first quarter from $360.4 million in the prior year quarter, representing 13.7% of net sales in the first quarter compared to 14.2% in the prior year quarter. The decrease in expenses as a rate of sales compared to the prior year quarter was primarily due to improved operating leverage related to store labor and other operating expenses, as well as lower healthcare costs and stock compensation expense due to executive turnover and a shift in the timing of a portion of the 2020 stock award into the second quarter, partially offset by incremental incentive compensation expense related to improved overall company performance, incremental pay and bonuses for frontline associates, and severance costs associated with a voluntary early retirement program and a reduction-in-force.

Merger/Acquisition and Integration – Prior year quarter results included $0.8 million associated with the acquisition and integration of Martin’s Supermarkets in the prior year.

Restructuring Charges and Asset Impairment – First quarter results include net charges of $10.2 million and prior year quarter results included net gains of $5.7 million related to restructuring and asset impairment activity. The first quarter activity consists primarily of asset impairment charges and severance costs related to the Company’s Fresh Cut facility, as well as store closing charges. The prior year quarter includes gains on the sale of a previously closed distribution center, partially offset by store and distribution center closing charges.

Operating Earnings (Loss) – The following table presents operating earnings (loss) by segment and variances in operating earnings (loss):

	16 Weeks Ended
(In thousands)	April 18, 2020			April 20, 2019			Variance
Food Distribution	$	11,390		$	24,592		$	(13,202	)
Retail		12,645			(826	)		13,471
Military		(2,005	)		(1,557	)		(448	)
Total operating earnings	$	22,030		$	22,209		$	(179	)

Operating earnings decreased $0.2 million, or 0.8% to $22.0 million in the first quarter from $22.2 million in the prior year quarter. The first quarter decrease was primarily attributable to higher restructuring and asset impairment charges, mostly offset by the impact of increased volume, as well as the compensation related items mentioned above.

Food Distribution operating earnings decreased $13.2 million, or 53.7%, to $11.4 million in the first quarter from $24.6 million in the prior year quarter. The exit of the Caito Fresh Cut business resulted in $11.1 million in asset impairment charges, severance costs, operating losses and other costs during the wind down period. Profitability within the Food Distribution segment benefited from the increase in sales volume and was impacted by the compensation related items mentioned above.

Retail operating earnings increased $13.5 million to $12.6 million in the first quarter from a $0.8 million loss in the prior year quarter. The increase in operating earnings was primarily attributable to the increase in sales volume, improvements in labor rates as a rate of sales and lower healthcare costs, partially offset by the compensation related items mentioned above.

Military operating loss increased $0.4 million to $2.0 million in the first quarter from $1.6 million in the prior year quarter. The first quarter increase was primarily attributable to higher incentive compensation costs, partially offset by the impact of the increase in sales volume.

Interest Expense – Interest expense decreased $4.2 million, or 35.7%, to $7.6 million in the first quarter from $11.9 million in the prior year quarter. The decrease in interest expense for the quarter was due to rate decreases executed by the federal reserve during 2019 as well as during the first quarter of fiscal 2020 and, to a lesser extent, a decrease in the average debt balance.

Income Taxes – The effective income tax rates were 0.2% and 25.9% for the first quarter and prior year quarter, respectively. The difference from the federal statutory rate in the current year was primarily as a result of the Coronavirus Aid, Relief and Economic Security (“CARES”) Act and federal tax credits, partially offset by state taxes and stock-based compensation. In the prior year, the difference from the federal statutory rate was primarily due to state taxes and stock-based compensation, partially offset by federal tax credits.

Non-GAAP Financial Measures

In addition to reporting financial results in accordance with GAAP, the Company also provides information regarding adjusted operating earnings, adjusted earnings from continuing operations, and Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (“adjusted EBITDA”). These are non-GAAP financial measures, as defined below, and are used by management to allocate resources, assess performance against its peers and evaluate overall performance. The Company believes these measures provide useful information for both management and its investors. The Company believes these non-GAAP measures are useful to investors because they provide additional understanding of the trends and special circumstances that affect its business. These measures provide useful supplemental information that helps investors to establish a basis for expected performance and the ability to evaluate actual results against that expectation. The measures, when considered in connection with GAAP results, can be used to assess the overall performance of the Company as well as assess the Company’s performance against its peers. These measures are also used as a basis for certain compensation programs sponsored by the Company. In addition, securities analysts, fund managers and other shareholders and stakeholders that communicate with the Company request its financial results in these adjusted formats.

Current year adjusted operating earnings, adjusted earnings from continuing operations, and adjusted EBITDA exclude “Fresh Cut operating losses” subsequent to the decision to exit these operations during the first quarter, severance associated with cost reduction initiatives , and fees paid to a third-party advisory firm associated with Project One Team, the Company’s initiative to drive growth while increasing efficiency and reducing costs. Pension termination related to a refund from the annuity provider associated with the final reconciliation of participant data is excluded from adjusted earnings from continuing operations. These items are considered “non-operational” or “non-core” in nature. Prior year adjusted operating earnings, adjusted earnings from continuing operations, and adjusted EBITDA exclude costs associated with the organizational realignment, which include significant changes to the Company’s management team. Also excluded are the fees paid to a third-party advisory firm associated with Project One Team, the Company’s initiative to drive growth while increasing efficiency and reducing costs. Pension termination costs, primarily related to non-operating settlement expense associated with the distribution of pension assets, are excluded from adjusted earnings from continuing operations, and to a lesser extent adjusted operating earnings.

Adjusted Operating Earnings

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

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

Adjusted operating earnings is not a measure of performance under accounting principles generally accepted in the United States of America (“GAAP”) 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 (loss) for the 16 weeks ended April 18, 2020 and April 20, 2019.

	16 Weeks Ended
(In thousands)	April 18, 2020			April 20, 2019
Operating earnings	$	22,030		$	22,209
Adjustments:
Merger/acquisition and integration		—			782
Restructuring, asset impairment and other charges (gains)		10,237			(5,662	)
Fresh Cut operating losses		2,262			—
Costs associated with Project One Team		493			4,618
Organizational realignment costs		—			858
Severance associated with cost reduction initiatives		5,156			362
Adjusted operating earnings	$	40,178		$	23,167
Reconciliation of operating earnings (loss) to adjusted operating earnings (loss) by segment:
Food Distribution:
Operating earnings	$	11,390		$	24,592
Adjustments:
Merger/acquisition and integration		—			(130	)
Restructuring, asset impairment and other charges (gains)		9,222			(6,343	)
Fresh Cut operating losses		2,262			—
Costs associated with Project One Team		265			2,448
Organizational realignment costs		—			455
Severance associated with cost reduction initiatives		3,180			324
Adjusted operating earnings	$	26,319		$	21,346
Retail:
Operating earnings (loss)	$	12,645		$	(826	)
Adjustments:
Merger/acquisition and integration		—			912
Restructuring charges and asset impairment		1,015			681
Costs associated with Project One Team		164			1,570
Organizational realignment costs		—			292
Severance associated with cost reduction initiatives		1,451			29
Adjusted operating earnings	$	15,275		$	2,658
Military:
Operating loss	$	(2,005	)	$	(1,557	)
Adjustments:
Costs associated with Project One Team		64			600
Organizational realignment costs		—			111
Severance associated with cost reduction initiatives		525			9
Adjusted operating loss	$	(1,416	)	$	(837	)

Adjusted Earnings from Continuing Operations

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

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

Adjusted earnings from continuing operations is not a measure of performance under accounting principles generally accepted in the United States of America and should not be considered as a substitute for net earnings, cash flows from operating activities and other income or cash flow statement data. The Company’s 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 16 weeks ended April 18, 2020 and April 20, 2019.

	16 Weeks Ended
	April 18, 2020					April 20, 2019
				per diluted					per diluted
(In thousands, except per share amounts)	Earnings			share		Earnings			share
Earnings from continuing operations	$	15,402		$	0.43	$	7,521		$	0.21
Adjustments:
Merger/acquisition and integration		—					782
Restructuring, asset impairment and other charges (gains)		10,237					(5,662	)
Fresh Cut operating losses		2,262					—
Costs associated with Project One Team		493					4,618
Organizational realignment costs		—					858
Severance associated with cost reduction initiatives		5,156					362
Pension termination		(1,004	)				353
Total adjustments		17,144					1,311
Income tax effect on adjustments (a)		(4,095	)				(304	)
Impact of CARES Act (b)		(4,345	)				—
Total adjustments, net of taxes		8,704			0.24		1,007			0.03
Adjusted earnings from continuing operations	$	24,106		$	0.67	$	8,528		$	0.24

(a)

The income tax effect on adjustments is computed by applying the effective tax rate, before discrete tax items, to the total adjustments for the period.

(b)

Represents tax impacts attributable to the Coronavirus Aid, Relief and Economic Security (“CARES”) Act, primarily related to additional deductions and the utilization of net operating loss carryback.

Adjusted EBITDA

Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (“adjusted EBITDA”) is a non-GAAP operating financial measure that the Company defines as net earnings plus interest, discontinued operations, depreciation and amortization, and other non-cash items including deferred (stock) compensation, the LIFO provision, as well as adjustments for items that do not reflect the ongoing operating activities of the Company and costs associated with the closing of operational locations.

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

Adjusted EBITDA and adjusted EBITDA by segment are not measures of performance under accounting principles generally accepted in the United States of America and should not be considered as a substitute for net earnings, cash flows from operating activities and other income or cash flow statement data. The Company’s definitions of adjusted EBITDA and adjusted EBITDA by segment may not be identical to similarly titled measures reported by other companies.

Following is a reconciliation of net earnings to adjusted EBITDA for the 16 weeks ended April 18, 2020 and April 20, 2019.

	16 Weeks Ended
(In thousands)	April 18, 2020			April 20, 2019
Net earnings	$	15,402		$	7,469
Loss from discontinued operations, net of tax		—			52
Income tax expense		31			2,624
Other expenses, net		6,597			12,064
Operating earnings		22,030			22,209
Adjustments:
LIFO expense		1,583			1,425
Depreciation and amortization		27,656			26,632
Merger/acquisition and integration		—			782
Restructuring, asset impairment and other charges (gains)		10,237			(5,662	)
Fresh Cut operating losses		2,262			—
Stock-based compensation		2,243			5,383
Non-cash rent		(1,594	)		(1,918	)
Costs associated with Project One Team		493			4,618
Organizational realignment costs		—			858
Severance associated with cost reduction initiatives		5,156			362
Loss (gain) on disposal of assets		3,911			(3	)
Other non-cash charges (gains)		1			(17	)
Adjusted EBITDA	$	73,978		$	54,669

Following is a reconciliation of operating earnings (loss) to adjusted EBITDA by segment for the 16 weeks ended April 18, 2020 and April 20, 2019.

	16 Weeks Ended
(In thousands)	April 18, 2020			April 20, 2019
Food Distribution:
Operating earnings	$	11,390		$	24,592
Adjustments:
LIFO expense		794			703
Depreciation and amortization		10,183			10,233
Merger/acquisition and integration		—			(130	)
Restructuring, asset impairment and other charges (gains)		9,222			(6,343	)
Fresh Cut operating losses		2,262			—
Stock-based compensation		1,005			2,676
Non-cash rent		58			57
Costs associated with Project One Team		265			2,448
Organizational realignment costs		—			455
Severance associated with cost reduction initiatives		3,180			324
Loss (gain) on disposal of assets		2,140			(5	)
Other non-cash gains		(1	)		—
Adjusted EBITDA	$	40,498		$	35,010
Retail:
Operating earnings (loss)	$	12,645		$	(826	)
Adjustments:
LIFO expense		343			344
Depreciation and amortization		13,756			12,802
Merger/acquisition and integration		—			912
Restructuring charges and asset impairment		1,015			681
Stock-based compensation		750			1,853
Non-cash rent		(1,534	)		(1,853	)
Costs associated with Project One Team		164			1,570
Organizational realignment costs		—			292
Severance associated with cost reduction initiatives		1,451			29
Loss on disposal of assets		1,805			36
Other non-cash gains		—			(22	)
Adjusted EBITDA	$	30,395		$	15,818
Military:
Operating loss	$	(2,005	)	$	(1,557	)
Adjustments:
LIFO expense		446			378
Depreciation and amortization		3,717			3,597
Stock-based compensation		488			854
Non-cash rent		(118	)		(122	)
Costs associated with Project One Team		64			600
Organizational realignment costs		—			111
Severance associated with cost reduction initiatives		525			9
Gain on disposal of assets		(34	)		(34	)
Other non-cash charges		2			5
Adjusted EBITDA	$	3,085		$	3,841

Liquidity and Capital Resources

Cash Flow Information

The following table summarizes the Company’s consolidated statements of cash flows:

	16 Weeks Ended
(In thousands)	April 18, 2020			April 20, 2019
Cash flow activities
Net cash provided by operating activities	$	129,296		$	13,519
Net cash used in investing activities		(13,951	)		(87,225	)
Net cash (used in) provided by financing activities		(118,262	)		76,567
Net cash used in discontinued operations		—			(86	)
Net (decrease) increase in cash and cash equivalents		(2,917	)		2,775
Cash and cash equivalents at beginning of the period		24,172			18,585
Cash and cash equivalents at end of the period	$	21,255		$	21,360

Net cash provided by operating activities. Net cash provided by operating activities increased during the current year-to-date period from the prior year-to-date period by approximately $115.8 million and was primarily due to an increase in cash generated from earnings and changes in working capital largely associated with the COVID-19 pandemic.

Net cash used in investing activities. Net cash used in investing activities decreased $73.3 million in the current year compared to the prior year primarily due to the acquisition of Martin’s in the prior year.

Capital expenditures were $17.9 in the current year compared to $16.0 million in the prior year. The Company expects full fiscal year 2020 capital expenditures to range from $80.0 million to $90.0 million. The Food Distribution, Retail and Military segments utilized 39.2%, 53.6% and 7.2% of capital expenditures, respectively, in the current year.

Net cash used in financing activities. Net cash used in financing activities increased $194.8 million in the current year compared to the prior year primarily due to payment of debt balances in the current year, which were funded from cash provided by operating activities, and borrowings to fund the Martin’s acquisition in the prior year.

Debt Management

Total debt, including finance lease liabilities, was $597.3 million and $688.6 million as of April 18, 2020 and December 28, 2019, respectively. The decrease in total debt was due to increased payments from cash provided by operating activities.

Liquidity

The Company’s principal sources of liquidity are cash flows generated from operations and its senior secured credit facility. As of April 18, 2020, the senior secured credit facility had outstanding borrowings of $549.4 million. Additional available borrowings under the Company’s credit facility are based on stipulated advance rates on eligible assets, as defined in the Credit Agreement. The Credit Agreement requires that the Company maintain excess availability of 10% of the borrowing base, as such term is defined in the Credit Agreement. The Company had excess availability after the 10% covenant of $317.2 million at April 18, 2020. 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 $11.7 million were outstanding as of April 18, 2020. The credit facility matures December 18, 2023 and is secured by substantially all of the Company’s assets.

The Company believes 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 debt service obligations for the foreseeable future. However, there can be no assurance that the business will continue to generate cash flow at or above current levels or that the Company will maintain its ability to borrow under the Credit Agreement.

The Company’s current ratio (current assets to current liabilities) was 1.54-to-1 at April 18, 2020 compared to 1.76-to-1 at December 28, 2019, and its investment in working capital was $368.9 million at April 18, 2020 compared to $431.5 million at December 28, 2019. Net debt to total capital ratio was 0.46-to-1 at April 18, 2020 compared to 0.49-to-1 at December 28, 2019.

Net long-term debt is a non-GAAP financial measure that is defined as long-term debt and finance lease liabilities, plus current maturities of long-term debt and finance lease liabilities, less cash and cash equivalents. The ratio of net debt to capital is a non-GAAP financial measure that is calculated by dividing net debt, as defined previously, by total capital (net debt plus total shareholders’ equity). The Company believes both management and its investors find the information useful because it reflects the amount of long-term debt obligations that are not covered by available cash and temporary investments. Total net debt is not a substitute for GAAP financial measures and may differ from similarly titled measures of other companies.

Following is a reconciliation of “Long-term debt and finance lease liabilities” to Net long-term debt as of April 18, 2020 and December 28, 2019.

	April 18,			December 28,
(In thousands)	2020			2019
Current portion of long-term debt and finance lease liabilities	$	6,157		$	6,349
Long-term debt and finance lease liabilities		591,097			682,204
Total debt		597,254			688,553
Cash and cash equivalents		(21,255	)		(24,172	)
Net long-term debt	$	575,999		$	664,381

For information on contractual obligations, see the Company’s Annual Report on Form 10-K for the fiscal year ended December 28, 2019. At April 18, 2020, there have been no material changes to the Company’s significant contractual obligations outside the ordinary course of business.

Cash Dividends

During the quarter ended April 18, 2020, the Company declared $7.0 million quarterly dividends and returned $10.0 million to shareholders in the form of share repurchases. A 1.3% increase in the quarterly dividend rate from $0.19 per share to $0.1925 per share was approved by the Board of Directors and announced on February 27, 2020. Although the Company expects 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 depends on a number of factors, including the Company’s future financial condition, anticipated profitability and cash flows and compliance with the terms of its credit facilities.

Under the senior revolving credit facility, the Company is generally permitted to pay dividends in any fiscal year up to an amount such that all cash dividends, together with any cash distributions and share repurchases, do not exceed $35.0 million. Additionally, the Company is generally permitted to pay cash dividends and repurchase shares in excess of $35.0 million in any fiscal year so long as its Excess Availability, as defined in the senior revolving credit facility, is in excess of 10% of the Total Borrowing Base, as defined in the senior revolving credit facility, before and after giving effect to the repurchases and dividends.

Off-Balance Sheet Arrangements

The Company has also made certain commercial commitments that extend beyond April 18, 2020. These commitments consist primarily of purchase commitments (as disclosed in the Company’s Annual Report on Form 10-K for the year ended December 28, 2019), standby letters of credit of $11.7 million as of April 18, 2020, and interest on long-term debt and finance lease liabilities.

Critical Accounting Policies

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and the related disclosure of contingent assets and liabilities. Management bases its estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that may not be readily apparent from other sources. Based on the Company’s ongoing review, the Company makes adjustments it considers appropriate under the facts and circumstances. This discussion and analysis of the Company’s financial condition and results of operations is based upon the Company’s consolidated financial statements. The Company believes these accounting policies and others set forth in Item 7 to the consolidated financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended December 28, 2019 should be reviewed as they are integral to the understanding the Company’s financial condition and results of operations. The Company has discussed the development, selection and disclosure of these accounting policies with the Audit Committee of the Board of Directors. The accompanying financial statements are prepared using the same critical accounting policies discussed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 28, 2019.

Recently Issued Accounting Standards

Refer to Note 2 in the notes to the condensed consolidated financial statements for further information.

ITEM 3. Quantitative and Qualitative Disclosure about Market Risk

There have been no material changes in market risk of SpartanNash from the information provided in Part II, Item 7A, “Quantitative and Qualitative Disclosure About Market Risk,” of the Company’s Annual Report on Form 10-K for the fiscal year ended December 28, 2019.

ITEM 4. 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 April 18, 2020 (the “Evaluation Date”). This evaluation was performed under the supervision and with the participation of SpartanNash Company’s management, including its Interim 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 the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Securities and Exchange Act of 1934 is accumulated and communicated to management, including its principal executive and principal financial officers as appropriate to allow for timely decisions regarding required disclosure. During the fourth quarter of 2019 and the first quarter of 2020 there were no changes in SpartanNash’s internal control over financial reporting that materially affected, or were reasonably likely to materially affect, SpartanNash’s internal control over financial reporting. In response to the COVID-19 pandemic, many of the Company’s associates began working from home during the first quarter of 2020. Management has taken measures to ensure that our internal controls over financial reporting remained effective and were not materially affected during this period.

PART II

OTHER INFORMATION

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table provides information regarding SpartanNash’s purchases of its own common stock during the 16-week period ended April 18, 2020. 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. For the first quarter of 2020, all employee transactions related to shares submitted for cancellation to satisfy tax withholding obligations that occur upon the vesting of the restricted shares.

During the fourth quarter of 2017, the Board authorized a publicly announced $50 million share repurchase program, expiring in 2022. There were $10.0 million of share repurchases made under this program during the first quarter of 2020. At April 18, 2020, $35.0 million remains available under the program.

			Average
	Total Number		Price Paid
Fiscal Period	of Shares Purchased		per Share
December 30, 2019 - January 25, 2020
Employee Transactions		—	$	—
Repurchase Program		—	$	—
January 26 - February 22, 2020
Employee Transactions		—	$	—
Repurchase Program		—	$	—
February 23 - March 21, 2020
Employee Transactions		87,897	$	12.43
Repurchase Program		704,723	$	11.30
March 21 - April 18, 2020
Employee Transactions		18,768	$	13.85
Repurchase Program		156,029	$	13.04
Total for quarter ended April 18, 2020
Employee Transactions		106,665	$	12.68
Repurchase Program		860,752	$	11.62

ITEM 6. Exhibits

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

Exhibit Number		Document

3.1		Restated Articles of Incorporation of SpartanNash Company, as amended. Previously filed as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended July 15, 2017. Incorporated herein by reference.

3.2		Bylaws of SpartanNash Company, as amended. Previously filed as an exhibit to the Company’s Annual Report on Form 10-K for the year ended December 31, 2016, filed on March 1, 2017. Incorporated herein by reference.

10.1		Form of Restricted Stock Award to Non-Employee Directors.

10.2		Form of Restricted Stock Award to Executive Officers.

10.3		2020 Long-Term Incentive Plan Document.

10.4		2020 Annual Cash Incentive Plan Document.

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 Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS		Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH		Inline XBRL Taxonomy Extension Schema Document

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document

104		The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended April 18, 2020, has been formatted in Inline XBRL.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

SPARTANNASH COMPANY

(Registrant)

Date: May 28, 2020

/s/ Mark E. Shamber

Mark E. Shamber

Executive Vice President and Chief Financial Officer