UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
| Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the fiscal year ended January 2, 2016.December 30, 2017.
OR
| Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from to .
Commission File Number: 000-31127
SPARTANNASH COMPANY
(Exact Name of Registrant as Specified in Its Charter)
Michigan |
| 38-0593940 |
(State or Other Jurisdiction) of Incorporation or Organization) |
| (I.R.S. Employer Identification No.) |
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850 76th Street, S.W. P.O. Box 8700 Grand Rapids, Michigan |
| 49518-8700 |
(Address of Principal Executive Offices) |
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Registrant’s telephone number, including area code: (616) 878-2000
Securities registered pursuant to Section 12(b) of the Securities Exchange Act:
Title of Class |
| Name of Exchange on which Registered |
Common Stock, no par value |
| NASDAQ Global Select Market |
Securities registered pursuant to Section 12(g) of the Securities Exchange Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨☒ No x☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨☐ No x☒
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x☒ No ¨☐
Indicate by a check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File requirement to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x☒ No ¨☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or emerging growth company (as defined in Rule 12b-2 of the Securities Exchange Act).
Large accelerated filer |
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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 x☒
The aggregate market value of the registrant’s voting and non-voting common equity held by non-affiliates based on the last sales price of such stock on the NASDAQ Global Select Market on July 18, 201514, 2017 (which was the last trading day of the registrant’s second quarter in the fiscal year ended January 2, 2016)December 30, 2017) was $1,197,681,942.$955,521,432.
The number of shares outstanding of the registrant’s Common Stock, no par value, as of February 26, 201623, 2018 was 37,285,140,36,048,591, all of one class.
DOCUMENTS INCORPORATED BY REFERENCE
Part III, Items 10, 11, 12, 13 and 14 |
| Proxy Statement for Annual Meeting to be held |
The matters discussed in this Annual Report on Form 10-K, 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”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”“should,” or “will likely” result, occur or be pursued or “continue” in the future, that the “outlook” or “trend” is toward a particular result or occurrence, that a development is an “opportunity,” “priority,” “strategy,” “focus,” that the Company is “positioned” for a particular result, or similarly stated expectations. Accounting estimates, such as those described under the heading “Critical Accounting Policies” in Item 7 of this Annual Report on Form 10-K, are inherently forward-looking. 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. YouUndue reliance should not place undue reliancebe placed on these forward-looking statements, which speak only as of the date of the Annual 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 Annual Report on Form 10-K 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.
The These risks and uncertainties include general business conditions, changes in overall economic conditions that impact consumer spending, the Company’s ability to achieve salesintegrate acquired assets, the impact of competition and earnings expectations; improve operating results; continue to realize benefitsother factors which are often beyond the control of the merger with Nash-Finch Company, (including realizationand other risks listed in Part I, “Item 1A. Risk Factors,” of synergies); maintainthis report and risks and uncertainties not presently known to the Company or strengthen retail-store performance; assimilate acquired distribution centers and stores; maintain or grow sales; respond successfully to competitors including remodels and new openings; maintain or improve gross margin; effectively address food cost or price inflation or deflation; maintain and improve customer and supplier relationships; realize expected synergies from merger and acquisition activity; realize expected benefits of restructuring; realize growth opportunities; maintain or expand its customer base; reduce operating costs; sell on favorable terms assets held for sale; generate cash; continue to meet the terms of the Company’s debt covenants; continue to pay dividends, and successfully implement and realize the expected benefits of the other programs, initiatives, systems, plans, priorities, strategies, objectives, goals or expectations described in this Annual Report, the Company’s other reports, press releases and public comments will be affected by changes in economic conditions generally or in the geographic areas that the Company serves, adverse effects of the changing food and distribution industries, adverse changes in government funded consumer assistance programs, possible changes in the military commissary system, including those stemming from the redeployment of forces, congressional action, changes in funding levels, or the effects of mandated reductions in or sequestration of government expenditures, and other factors including, but not limited to, those discussed in the “Risk Factors” discussion in Item 1A of this Annual Report.currently deems immaterial.
This section and the discussions contained in Item 1A,1A. “Risk Factors,” and in Item 7, subheading “Critical Accounting Policies” in this report, both of which are incorporated here by reference, are intended to provide meaningful cautionary statements for purposes of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. This should not be construed as a complete list of all of the economic, competitive, governmental, technological and other factors that could adversely affect 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 Annual Report.
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Item 1.Business
Overview
SpartanNash Company (together with its subsidiaries, “SpartanNash” or “the Company”the “Company”) is a leading multi-regionalFortune 350 company whose core businesses include distributing grocery distributorproducts to independent grocery retailers (“independent retailers”), national retailers, food service distributors, its corporate owned retail stores, and grocery retailerUnited States (“U.S.”) military commissaries and exchanges. SpartanNash serves customer locations in 47 states and the largestDistrict of Columbia, Europe, Cuba, Puerto Rico, Italy, Bahrain, Djibouti and Egypt. Through its Military segment, SpartanNash is a leading distributor by revenue, of grocery products to military commissaries in the United States. The Company’s core businesses include distributing groceryRetail segment operates neighborhood supermarkets that emphasize value beyond price, affordable wellness, commitment to local products to military commissaries and, exchangesas demonstrated throughout the organization, caring for their community and independent and corporate-owned retail stores primarily located in 47 states and the District of Columbia, Europe, Cuba, Puerto Rico, Bahrain, and Egypt. environment. The Company operates three reportable business segments: Military, Food Distribution, Military and Retail. For
The Company’s fiscal year end is the Saturday closest to December 31. The following discussion is as of and for the fiscal years ending or ended December 29, 2018 ("2018"), December 30, 2017 (“2017” or “current year”), December 31, 2016 (“2016” or “prior year”) and January 2, 2016 (“2015”), all of which include 52 weeks, and January 3, 2015 (“2014”), which included 53 weeks. All fiscal quarters are 12 weeks, except for the Company’s first quarter, which is 16 weeks and will generally include the Easter holiday. The fourth quarter includes the Thanksgiving and Christmas holidays, and depending on the fiscal year ended January 2, 2016,end, may include the Company generated net sales of approximately $7.7 billion.New Year’s holiday.
Established in 1917 as a cooperative grocery distributor, Spartan Stores Inc. (“Spartan Stores”) converted to a for-profit business corporation in 1973. In January 1999, Spartan Stores began to acquire retail supermarkets in its focused geographic regions. In August 2000, Spartan Stores common stock became listed on the NASDAQ Stock Market under the symbol “SPTN.” On November 19, 2013, Spartan Stores merged with Nash-Finch Company (“Nash-Finch”). Nash-Finch’s core businesses include distributing food to military commissaries and independent grocery retailers and distributing to and operating corporate-owned retail stores. Following completion of the merger, the combined company iswas named SpartanNash Company. Unless the context otherwise requires, the use of the terms “SpartanNash,” “we,” “us,” “our” and “the Company”the “Company” in this Annual Report on Form 10-K refers to the surviving corporation SpartanNash Company and, as applicable, its consolidated subsidiaries.
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On January 6, 2017, the Company acquired certain assets and assumed certain liabilities of Caito Foods Service (“Caito”) and Blue Ribbon Transport (“BRT”). Caito is a leading supplier of fresh fruit and vegetables as well as value-added fresh-cut fruits and vegetables and prepared meals to retailers and food service distributors across 21 states in the Southeast, Midwest and Eastern United States. BRT offers temperature-controlled distribution and logistics services throughout North America. The acquisition strengthened the Company’s fresh product offerings and value-added services, such as freshly-prepared centerplate and side dish categories, and also complements the Company’s existing supply chain network.
The Company’s hybriddifferentiated business model supports the close functioning of its Military, Food Distribution, Military and Retail operations optimizingutilizes the natural complementscomplementary nature of each business segment while also enhancingand enhances the ability of the Company’s independent retailers to compete long term in the grocery industry.industry long-term. The model produces operational efficiencies, helps stimulate distribution product demand, and provides sharper visibility and broader business growth options. In addition, the Military,diversification from Food Distribution, Military and Retail diversification provides added flexibility to pursue the best long-term growth opportunities in each segment.
SpartanNashSpartanNash’s long-term goal is to create value for the Company's shareholders, retailers, and customers. To support these strategies, a well differentiated product offering in its Food Distribution, Military, and Retail segments has been established, as well as, the following key management priorities and strategies:
Food Distribution Segment:
Maximize growth opportunities by leveraging the Company’s unique combination of supply chain capabilities and retail competency to exceed the expectations of current and prospective customers.
Optimize and grow the network to create a highly efficient national distribution platform that provides innovative and impactful supply chain solutions for a variety of different sales channels.
Proactively pursue financially and strategically attractive acquisition opportunities.
Leverage the longer-term strategyCaito acquisition to both expand the Company’s product offering into highly desired new categories, including fresh-cut produce and other value-added meal offerings, and to provide these prepared meals and related items to new and existing customers across the network.
Continue to build an industry leading private brand program that matches customer needs and preferences through a selection of private brands focused on quality, value, variety, taste and convenience.
Military Segment:
Continue to partner with the Defense Commissary Agency (“DeCA”) in its private brand initiative and overall goal of increasing customer traffic and business at the commissaries by offering one-stop shopping for military customers.
Leverage the size and scale of the Company, including establishing a well-differentiated product offering for its Military,Company’s Food Distribution and Retail segments to attract additional customers to the Company’s Military platform.
Continue to partner with Coastal Pacific Food Distributors (“CPFD”), the second largest military distributor of grocery products in terms of revenue, to leverage the advantage of a worldwide distribution network.
Retail Segment:
Increase customer satisfaction and additional strategies designedloyalty by providing quicker, more convenient shopping experiences through the expansion of both the Company’s Fast Lane online ordering and curbside pick-up service as well as grocery home delivery services.
Focus on high quality fresh offerings, value beyond price, customer convenience and the SpartanNash associates at corporate owned retail stores.
Provide healthy living options to createsatisfy growing customer demand for organic, gluten free, and fresh products.
Enhance the customer experience through an improved assortment of healthier for you products, convenient meal solutions and increased value for its shareholders, retailersofferings in private brands and customers. These priorities are:produce.
Military:
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Utilize the Company’s technological capabilities to personalize the customer experience and both improve and increase the number of targeted offers to better match the desires of the consumer. |
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Food Distribution:
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Retail:
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Leverage competitive position, scale and financial flexibility to further grow the distribution channel.
Gain efficiencies through productivity and efficiency initiatives, technology and by leveraging one supply chain network across segments to further realize benefits from continued investments in the optimization of the supply chain network.
Leverage the BRT acquisition to realize sales growth and cost reduction opportunities by utilizing the Company’s transportation fleet as well as inbound and outbound lanes.
Food Distribution Segment
The Company’s Food Distribution segment uses a multi-channel sales approach to distribute grocery products to independent retailers, national retailers, food service distributors, e-commerce providers, and the Company’s corporate owned retail stores. Total net sales from the Company’s Food Distribution segment, including sales to corporate owned retail stores that are eliminated in the consolidated financial statements, were approximately $4.9 billion for 2017. As of the end of 2017, the Company believes it is the sixth largest wholesale distributor, in terms of annual revenue, to supermarkets in the United States.
Customers. The Company’s Food Distribution segment supplies grocery products to a diverse group of approximately 2,100 independent retailers with operations ranging from a single store to supermarket chains with over 20 stores, food service distributors and the Company’s corporate owned retail stores. As of December 30, 2017, the Company operates in 47 states by leveraging a platform of 19 distribution centers servicing the Food Distribution and Military segments, with the greatest sales concentration predominantly in the Midwest and South regions. This extensive geographic reach drives economies of scale and provides opportunities for independent retailers to purchase products at competitive prices in order to compete in the grocery industry long-term.
Through its Food Distribution segment, the Company also services national retailers, including Dollar General. Sales to Dollar General are made to more than 14,000 of its retail locations, with sales representing 14.0%, 11.2%, and 10.7% of consolidated net sales for 2017, 2016 and 2015, respectively. The Company’s Food Distribution customer base is diverse, and no other single customer exceeded 3% of consolidated net sales in any of the years presented.
The Company’s ten largest Food Distribution customers (excluding corporate owned retail stores) accounted for approximately 52.0% of total Food Distribution net sales for 2017. Approximately 83% of Food Distribution net sales for 2017 are covered under supply agreements with independent retailers.
Products. The Company’s Food Distribution segment provides a selection of approximately 60,000 stock-keeping units (SKUs) of nationally branded and private brand grocery products (see “Marketing and Merchandising – Private Brands”) and perishable food products, including dry groceries, produce, dairy products, meat, delicatessen items, bakery goods, frozen food, seafood, floral products, general merchandise, beverages, tobacco products, health and beauty care products and pharmacy. With the acquisition of Caito, the product offering also includes fresh protein-based foods, prepared meals, and value-added products such as fresh-cut fruits and vegetables and prepared salads. These product offerings, along with best in class services, allow independent retailers the opportunity to support the majority of their operations with a single supplier. Meeting consumers’ needs will continue to be SpartanNash’s priority as it continues to leverage its complementary business model of Food Distribution, Military and Retail operations.
Valued-Added Services. The Company provides a comprehensive menu of valued-added services designed to assist retailers in becoming more profitable, efficient, competitive, and informed. The Company’s service departments are strategic partners who fill the gaps when time and resources are limited for the independent customers. From real estate and site surveys to a full spectrum of merchandising and marketing solutions, independent retailers can find the support they need to effectively operate their businesses. The Company provides over 100 distinct value-added services, including the following:
● Retail Development and Consulting |
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● Merchandising |
| ● Product Reclamation |
● Marketing and Advertising Solutions |
| ● Inventory Support |
● Shelf Management and Planograms | ● Category Management | |
● Accounting, Payroll and Tax Preparation | ● Customer Service and Order Entry | |
● Food Safety and Environmental Health | ● Pharmacy Retail and Procurement Services | |
● Asset Protection | ● Retail Pricing | |
● Supply Solutions | ● Training | |
● Information Services and Technology | ● Real Estate |
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Military Segment
The Company’s Military segment contracts with manufacturers and brokers to distribute a wide variety of grocery products, including dry groceries, beverages, meat, and frozen foods, primarily to U.S. military commissaries and exchanges. The Company’s Military segment, together with its partner, CPFD, represents the only worldwide delivery solution for providing grocery products to DeCA.
The Company is also the DeCA exclusive worldwide supplier of private brand grocery and related products to U.S. military commissaries. In accordance with its contract with DeCA, the Company procures the grocery and related products from various manufacturers and upon receiving customer orders from DeCA, either delivers the products to the U.S. military commissaries itself or engages CPFD to deliver the products on its behalf. There are approximately 450 SKUs of private brand products currently in the DeCA system as of December 30, 2017, and the Company anticipates up to 1,400 SKUs will be added under the program in 2018.
The distributed grocery products are delivered to 169over 160 military commissaries and over 442440 exchanges located in 37more than 45 states across the United States, and the District of Columbia, Europe, Cuba, Puerto Rico, Italy, Bahrain, Djibouti and Egypt. The Company’s distribution centers are strategically located among the largest concentration of military bases in the areas the Company serves and near Atlantic ports used to ship grocery products to overseas commissaries and exchanges. The Company’s Military segment has an outstanding reputation as a distributor focused on U.S. military commissaries and exchanges, based in large measure on its excellent service metrics, which include fill rate, on-time delivery and shipping accuracy.
The Defense Commissary Agency (“DeCA”)DeCA operates a chain of 237 commissaries on U.S. military installations throughoutacross the world.world that sells approximately $4.8 billion of grocery products annually. DeCA contracts with manufacturers to obtain grocery and related products for the commissary system. Manufacturers either deliver the products to the commissaries themselves or, more commonly, contract with distributors such as SpartanNash to deliver the products. Manufacturers must authorize the distributors as their official representatives to DeCA, and the distributors must adhere to DeCA’s frequent delivery system (“FDS”) procedures governing matters such as product identification, ordering and processing, information exchange and resolution of discrepancies. The Company obtains distribution contracts with manufacturers through competitive bidding processes and direct negotiations.
TheAs of December 30, 2017, the Company has approximately 250 distribution contracts representing approximately 600 manufacturers that supply products to the DeCA commissary system and various exchange systems. TheGenerally, larger contracts or those subject to a request-for-proposal process have definitive durations, whereas the smaller contracts generally have an indefinite term, but may be terminatedterms; and all contract types allow for termination by either party without cause upon 30 days prior written notice to the other party. The contracts typically specify thewhich commissaries and exchanges to supply on behalf of the manufacturer, the manufacturer’s products to be supplied, service and delivery requirements, and pricing and payment terms. terms. The Company’s ten largest manufacturer customers represented approximately 40%45.6% of the Company’s Military segment sales for the fiscal year ended January 2, 2016.2017.
As commissaries need to be restocked, DeCA identifies the manufacturer with which an order is to be placed, determines which distributor is the manufacturer’s official representative for a particular commissary or exchange location, and then places a product order with that distributor under the auspices of DeCA’s master contract with the applicable manufacturer. The distributor selects that product from its existing inventory, delivers it to the commissary or commissaries designated by DeCA, and bills the manufacturer for the product shipped. The manufacturer then bills DeCA under the terms of its master contract. Overseas commissaries are serviced in a similar fashion, except that a distributor’s responsibility is to deliver products as and when needed to the port designated by DeCA, which in turn bears the responsibility for shipping the product to the applicable commissary or overseas warehouse. Due to the unique terms of this arrangement, working capital requirements are significant.
After the Company ships a particular manufacturer’s products to commissaries in response to an order from DeCA, the Company invoices the manufacturer for the product price plus a service and/or drayage fee that is typically based on a percentage of the purchase price, but may in some cases be based on a dollar amount per case or pound of product sold. The Company’s order handling and invoicing activities are facilitated by procurement and billing systems developed specifically for the Military business, which addressesaddress the unique aspects of its business, and providesprovide the Company’s manufacturer customers with a web-based, interactive means of accessing critical order, inventory and delivery information.
Food Distribution Segment
The Company’s Food Distribution segment uses a multi-platform sales approach to distribute grocery products to independent retail locations and corporate-owned retail stores. Total net sales from the Company’s Food Distribution segment, including sales to corporate-owned retail stores that are eliminated in the consolidated financial statements, were approximately $4.3 billion for the fiscal year ended January 2, 2016. As of the end of fiscal 2015, the Company believes that it is the fifth largest wholesale distributor, by revenue, to supermarkets in the United States.
Customers. The Company’s Food Distribution segment supplies grocery products to a diverse group of independent grocery store operators ranging from a single store to supermarket chains with over 20 stores; and also supplies the Company’s corporate-owned retail stores. The Company operates in 47 states with 12 distribution centers supporting approximately 2,100 independently owned supermarkets and also supplies its 163 corporate-owned retail stores. This larger geographic reach allows for increased scale as the Company leverages the organization to enhance the ability of its independent retailers to compete long-term in the grocery industry.
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The Company services a national retailer, Dollar General, through its Food Distribution segment. Sales are made to more than 13,000 retail locations for this customer, representing 10.7% of consolidated net sales in fiscal 2015. Sales to this customer did not exceed 10% of consolidated net sales for any other year presented. The Company’s Food Distribution customer base is diverse, and no other single customer exceeded 5% of consolidated net sales in any of the years presented.
The Company’s five largest Food Distribution customers (excluding corporate-owned retail stores) accounted for approximately 39% of total Food Distribution net sales for the fiscal year ended January 2, 2016. In addition, approximately 84% of Food Distribution net sales, including intercompany sales to corporate-owned retail stores, are covered under supply agreements with independent customers or are directly controlled by SpartanNash.
Products. The Company’s Food Distribution segment provides a selection of approximately 56,000 stock-keeping units (SKUs) of nationally branded and private label grocery products (see “Marketing and Merchandising – Private Brands”) and perishable food products, including dry groceries, produce, dairy products, meat, delicatessen items, bakery goods, frozen food, seafood, floral products, general merchandise, beverages, tobacco products, health and beauty care products and pharmacy. These product offerings, along with best in class services, allow independent retailers the opportunity to support their entire operations with a single supplier. Meeting consumers’ needs will continue to be SpartanNash’s mission as it executes its hybrid business model of wholesale, retail and military supply.
Additional Services. The Company offers and provides many of its independent Food Distribution customers with value-added services, including:
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Retail Segment
The Company’s neighborhood market strategy distinguishes its corporate-owned retail stores from supercenters and limited assortment stores by emphasizing convenient locations, demographically-targeted merchandise selections, high-quality fresh offerings, customer service, value pricing and community involvement.
The Company’s Retail segmentAs of December 30, 2017, the Company operates 163 corporate-owned145 corporate owned retail stores in nine states, predominantly in the Midwest and Great Lakes which operateregion primarily under the banners of Family Fare Supermarkets, Family Fresh Markets, D&W Fresh Markets, Market, VG’s Grocery, Dan’s Supermarket and Sun MartFamily Fresh Market. Retail banners and numbers of stores are more fully detailed in Item 2, “Properties,” of this report. The Company’s corporate owned retail stores range in size from approximately 14,000 to 90,000 total square feet, or on average, approximately 42,000 total square feet per store.
The Company’s corporate-ownedneighborhood market strategy distinguishes its corporate owned retail stores from supercenters and limited assortment stores by focusing on value beyond price, affordable wellness, commitment to local products, and caring for the community and environment. The Company’s strategy is also focused on increasing customer satisfaction through quality service and convenience, and in the second quarter of 2017, the Company introduced Fast Lane, its new online ordering and curbside pick-up service. The Company now offers the service in approximately 40 corporate owned retail stores and anticipates rolling it out to up to 30 stores in 2018. The Company also began piloting home delivery services in the fourth quarter of 2017 to further improve convenience and service for its customers.
The Company’s corporate owned retail stores offer nationally branded and private labelbrand grocery products (see “Marketing and Merchandising – Private Brands”) and, as well as perishable food products including dry groceries, produce, dairy products, meat, delicatessen items, bakery goods, frozen food, seafood, floral products, general merchandise, beverages, tobacco products and health and beauty care products. The private labelPrivate brand grocery products provide enhancedtypically generate higher retail margins and are believed to help improvewhile also improving customer loyalty. Theloyalty by offering quality products at affordable prices.
As of December 30, 2017, the Company also offers pharmacy services in 9187 of its corporate-owned retail stores. The Company’s corporate-ownedcorporate owned retail stores range in size from approximately 10,400 to 92,381 total square feet, or on average, approximately 41,300 total square feet per store.
(of which 76 of the pharmacies are owned), and operates one free-standing pharmacy location. The Company believes the pharmacy service offering in its corporate owned retail stores is an important part of the consumer experience. In its Michigan pharmacies and a number of its pharmacies in Minnesota and Nebraska, the Company offers free medications (antibiotics, diabetic medications and prenatal vitamins) along with generic drugs for $4 and $10, and meal planning solutions for preventative health and education for its customers.
As of December 30, 2017, the Company operates 2931 fuel centers primarily at its supermarket locationscorporate owned retail stores operating predominantly under the banners Family Fare Quick Stop, and D&W Quick Stop, VG’s Quick Stop, Forest Hills Quick Stop and Sun Mart Express Fuel. These fuel centers offer refueling facilities and in the adjacent convenience store, a limited variety of popular consumable products. The Company’s prototypical Quick Stop stores are approximately 1,100 square feet in size. The Company has experienced increased supermarket sales upon opening fuel centers and initiating cross-merchandising activities. The Company plans, as opportunities arise, to open additional fuel centers at certain of its supermarket locations over the next few years.
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The Company’s corporate-ownedcorporate owned retail stores are primarily the result of acquisitions from January 1999prior to June 2015, including the merger with Nash-Finch in November 2013. The following chart details the changes in the number of corporate-ownedcorporate owned retail stores over the last five fiscal years, including the transition year ended December 28, 2013:
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| 172 |
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| 172 |
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| 157 |
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Stores acquired or added during year |
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| 78 |
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| 7 |
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Stores acquired or constructed during year |
| 78 |
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| 7 |
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Stores closed or sold during year |
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| 7 |
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| 11 |
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Number of stores at end of year |
| 96 |
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| 101 |
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During the fiscal year ended January 2, 2016,2017, the Company completed five major remodels and also opened one new retail store in Dickinson, North Dakota, acquired six stores in Bismarck and Mandan, North Dakota, completed seven major remodels, and completed many other limited remodels. Thefuel center. In connection with the remodeling efforts, the Company also converted six corporate-ownedthree corporate owned retail stores to the Family Fare Supermarkets banner.
The Company expects to continue making progress with itstargeted capital investment programinvestments during fiscal 20162018 through remodels at select corporate owned retail stores and, if opportunities arise, by completing 13 major remodels, and byeither opening additional fuel centers or entering into partnerships with existing fuel operations. The Company will continue to evaluate its store base and mayexpects to close three or foursell five to seven stores during the course of 2016. The Company evaluates proposed projects basedin 2018 depending on demographicscircumstances and competition within each geographic area, and prioritizes projects based on their expected returns on investment. Approval of proposed capital projects requires a projected internal rate of return that meets or exceeds the Company’s policy; however, the Company may undertake projects that do not meet this standard to the extent they represent required maintenance or necessary infrastructure improvements. In addition, the Company performs a post completion review of financial results versus its expectation on all major projects. The Company believes that focusing on such measures provides it with an appropriate level of discipline in its capital expenditures process.opportunities.
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Supply Chain Network
The Company has integratedcontinues to integrate its supply chain organization to further optimize the network, increase asset utilization and leverage programs that will drive more value for its shareholders, retailers, and customers. The Company believes its distribution facilities are strategically located to efficiently serve current customers, and also have the available capacity to support future growth. shareholders. The Company continually evaluates inventory movementreviews the optimization of its network and, assigns SKUsthrough doing so, has added Food Distribution operations to appropriate areas within its distributionseveral facilities which were previously dedicated solely to reduce the time required to stock and pick products and to achieve additional efficiencies.
Military segment. The Company has several projects planned forconsolidated one warehouse during the fiscal year ending December 31, 2016. These projects are designedand may close, open, or acquire warehouses in the future depending on needs and opportunities. The Company also made significant progress in integrating the Caito and BRT operations by rolling out Caito products to further integrateother warehouses and customers and by integrating BRT with its managed freight function to gain efficiencies and reduce costs, as well as drive growth in the Company’s supply chain capabilities across distribution centersbrokerage business by maximizing backhaul opportunities and thereby increase efficiency of both inbound and outbound distribution operations. To demonstrate the Company’s commitment across the entire network, the Company has invested in uniformly branding all tractors with a new logo that embodies the Company’s tagline, “Taking Food Places.meeting supplier needs.” Newly purchased trailers will also receive the new logo layout. Over the next two years, the Company plans to re-logo all existing trailers within the SpartanNash supply chain. This will allow the Company to increase asset utilization by sharing resources across all facility locations.
Supply Chain Functions. The Company’s distribution network is comprised of 19 distribution centers, 7 of which primarily service the Military segment and 12 of whichare utilized to service the Food Distribution segment, withand Military segments. The distribution centers provide for approximately 9.18.7 million total square feet of warehouse space. The Company has new and ongoing initiatives to improve the efficiency of its supply chain through innovation, investments in technology and automation.
The Company operates a fleet of approximately 490500 over-the-road tractors, 575450 dry vans, and 9601,000 refrigerated trailers. Through routing optimization systems, the Company carefully manages the millions ofmore than 64 million miles driven by its fleet drivesand third party carriers annually servicing its military commissaries, exchanges, independent retailers, national account locationsretailers and corporate-owned supermarkets. Thecorporate owned retail stores. During 2017, the Company has also equipped somesubstantially completed the uniform branding of all of its refrigerated trailerstractors with the SpartanNash logo and tagline “Taking Food Places.” In addition, the Company continues to add lift gates to its existing fleet in order to better service a refrigeration unit that has the capability to run on electric standby, offering an economicalmore diverse group of customers.
Reporting Segment Financial Data and environmentally friendly alternative to diesel fuel. The Company remains committedProducts
Refer to the ongoing investment requiredsegment information in the notes to maintain a best in class fleet while focusing on low cost, environmentally friendly solutions.
Products
The Company offers a wide variety of grocery products, general merchandise and health and beauty care, pharmacy, fuel and other items and services. The consolidated net sales includefinancial statements for additional information about the net sales of its Military segment, corporate-owned stores and fuel centers in its Retail segment and the net sales of its Food Distribution business, which excludes sales to affiliated stores.
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The following table presentsCompany’s sales by type of similar productproducts and services:
| January 2, 2016 |
| January 3, 2015 |
| December 28, 2013 | ||||||||||||||||||||||||
(In thousands, except percentages) | (52 Weeks) |
| (53 Weeks) |
| (39 Weeks) | ||||||||||||||||||||||||
Non-perishables (1) | $ |
| 4,845,763 |
|
|
| 63.3 |
| % |
| $ |
| 4,998,895 |
|
|
| 63.1 |
| % |
| $ |
| 1,393,157 |
|
|
| 53.6 |
| % |
Perishables (2) |
|
| 2,373,829 |
|
|
| 31.0 |
|
|
|
|
| 2,449,562 |
|
|
| 31.0 |
|
|
|
|
| 894,783 |
|
|
| 34.5 |
|
|
Pharmacy |
|
| 310,377 |
|
|
| 4.1 |
|
|
|
|
| 289,494 |
|
|
| 3.7 |
|
|
|
|
| 163,659 |
|
|
| 6.3 |
|
|
Fuel |
|
| 122,004 |
|
|
| 1.6 |
|
|
|
|
| 178,111 |
|
|
| 2.2 |
|
|
|
|
| 145,631 |
|
|
| 5.6 |
|
|
Consolidated net sales | $ |
| 7,651,973 |
|
|
| 100.0 |
| % |
| $ |
| 7,916,062 |
|
|
| 100.0 |
| % |
| $ |
| 2,597,230 |
|
|
| 100.0 |
| % |
|
|
|
|
Reporting Segment Financial Data
More detailed information about the Company’s reporting segments can be found in Note 16 to the consolidated financial statements included in Item 8, which is herein incorporated by reference.services. All of the Company’s sales and assets are in the United States of America. Consolidated net sales include the net sales of its Food Distribution business, which exclude sales to corporate owned retail stores, the net sales of its Military segment, and the net sales of its corporate owned retail store and fuel centers in its Retail segment.
Discontinued Operations
Certain of the Company’s RetailFood Distribution and Food DistributionRetail operations have been recorded as discontinued operations. Discontinued operations consist of certain locations that have been closed or sold. Additional information may be found in Note 1 to the consolidated financial statements included in Item 8, which is herein incorporated by reference.
Marketing and Merchandising
General. The Company continues to align its marketing and merchandising strategies with current consumer behaviors by delivering initiatives centered on personalization, a multi-channel experience, value beyond price, affordable wellness, local focus and health and wellness.social responsibility – all designed to deliver a superior shopping experience for customers. During 2017, the Company refreshed its brand positioning for Family Fare, its primary Retail banner, to incorporate these areas of focus. These strategies seek to use consumer data and insights to deliver products, promotions, content and experiences to satisfy the consumer’s needs.
The Company believes that data from its “yes Rewards”“yes” loyalty program gives it competitive insight into consumer shopping behavior. This gives the Company the flexibility to adapt to rapidly changing conditions by making tactical and more effective adjustments to its marketing and merchandising programs. In fiscal 2015,As investments are made to remodel and/or rebanner various stores, the Company expanded its continues to roll out the “yes Rewards” program to certain Family Fare expand its knowledge of its customers and Family Fresh Markets storesto provide its loyalty rewards in the western geographic areas and also provided a digital coupon program to its independent retailers. additional markets.
The Company’s investment to further strengthen its knowledge of the consumer has resulted in progresscontinued to drive process improvements in several areas: creation of a robust self-serve data tool that enables itcategory managers to make consumer centric merchandising and marketing decisions; continuous refinement of Key Value Items (“KVI”) analyses that align pricing for the most price sensitive items with the most price sensitive customer segments; the development of a customer strategy that will be used to guide its internal business processes and go-to market strategy; and the evolution of its customer segmentation that takes it beyond the purchase and transactional behavior to lifestyle. These accomplishments are building blocks and will ultimately enableinitiatives better position the Company to providedeliver a shopping experience that better meetsconstantly responds to the changingever-changing needs of the consumer. its consumers.
Through its numerous strategic partnerships, the Company is able to develop its enterprise approach to customer centricity; benefiting both its Retail and Food Distribution businesses. By harnessing its proprietary data, the Company is able to provide a set of tools and capabilities for the organization that enables the Company to provide its customers with a more relevant and personalized shopping experience. This effort also enables the Company to continue to learn more about its best customers; develop strategies to enable long-term customer and supplier loyalty; deploy a more effective and efficient marketing spend; and ultimately make better business decisions.-7-
The Company has been building tools and capabilities to enable relevant, personalized content across its marketing channels and focusing on expanding its digital, social and mobile capabilities. The Company also implemented a number of capabilities that enables itNew mobile apps specific to more effectively targeteach Retail banner were recently launched, providing consumers with the ability to view store ads, create shopping lists, shop via Fast Lane, clip coupons, and more efficiently develop and execute campaigns.join virtual shopping clubs, all from their mobile device. This will help the Company to further build longer-term customer loyalty through convenience and value, maintain efficient marketing spend and increase return on investment, improve its sales growth opportunities, and further strengthen its business position. As the Company continues to build these capabilities, along with its other strategies, the Company will continue to share its marketing and merchandising learnings and best practices across its wholesale customer base.
-7-
TheIn addition to sharing the expertise gained in its Retail operations, the Company also believes it can differentiatedifferentiates itself from its competitors by offering a full set of services, from value added support services into its Food Distribution segmentcustomers. These services, which are further described above, help the independent retailers to operate and compete effectively, and many of them are not offered by the inclusion ofCompany’s competition.
As the Company works to better differentiate its Retail stores and roll out its refreshed brand positioning, the Company is selectively adding products and services to better meet customers’ changing needs. For instance, the Company is adding full service meat and seafood departments which include many items handmade in store, and has added produce preparation services, smokehouses, expanded beer and wine selections, and other offerings to certain stores to enhance the customers’ experience. The Company has been adding signage and improved displays in departments such as pet products, laundry, and snacks in order to improve foot traffic in these aisles and drive sales. The Company continues to add fuel centers and Starbucks Coffee or Caribou Coffee shops in some of its corporate-ownedcertain corporate owned retail stores. The Companystores, and also provides consumers with fuel purchase discounts onat fuel purchases atcenters through its fuel centers. In 2015, the Company began offering fuel programs in the western geographic areascorporate owned retail stores or by partnering with third party fuel centers. In addition, the Company also refined its fuel promotions and executed several pilots to further enhance its program and provide value to the customer.
The Company offers pharmacy services in 91 of its supermarkets and operates three free-standing pharmacy locations. The Company believes the pharmacy service offering in its supermarkets is an important part of the consumer experience. In its Michigan pharmacies, the Company offers free medications (antibiotics, diabetic medications and pre-natal vitamins) along with generic drugs for $4 and $10, and food solutions for preventative health and education for its customers. The Company has recently expanded these programs to a number of corporate-owned retail stores that have pharmacies in Minnesota and Nebraska.
As consumers increasingly emphasize health andaffordable wellness, the Company believes that it can be a provider and resource for products and services that will support their needs. In 2015,2017, the Company continued to expand its offerings and partnerships and undertook the following key initiatives. First, the Company continued to expand its “Living Well” conceptproduct offerings through store-within-a-store concepts and expanded product offerings.in-line merchandising concepts. Second, the Company established partnerships with health systems and providers to provide dietician-ledwellness specialists-led store tours to help educate consumers to make healthier food choices. Third, the Company increased its retail product offering and assortment for organic, gluten-free, meat-free, non-GMO products and other healthhealthier food options. Finally, the Company offers a best in class pharmacy program, including $4 and wellness options. The$10 generics and free diabetic and prenatal prescriptions.
In support of its commitment to local products and caring for the community and environment, the Company is also proud to work with local farmers and vendors to provide locally grown produce and products in many of its stores. The Company offers a significant selection of local products in many of its stores, well in excess of most of its competitors’ offerings. In some of its stores the Company collects items from customers for recycling, and the Company has been recognized as a best in class recycler of its own waste. Also, in an effort to reduce costs and reduce its environmental footprint, the Company has many initiatives to reduce energy usage, including the installation of energy efficient lighting and refrigeration in its stores.
Private Brands. SpartanNash currently markets and distributes over 7,100 totalprovides a best in class private brand items primarily underprogram, offering a full line of proprietary and licensed private brands in its corporate owned retail stores and its independent retailer customers, as well as partnering with DeCA in the following labels: Spartan design and Our Family; Top Care (health and beauty care); Tippy Toes (baby); Full Circle (organic and wellness); B-leve (premium bath and beauty); PAWS Premium (pet supplies); and Valu Time (value). The Companylaunch of its military private brands. SpartanNash believes that its private brand offerings are partsome of its most valuable strategic assets, demonstrated through customer loyalty and profitability.
The Company has workedcontinues to develop a bestinvest in class private brand program. The Company has added more than 1,000 total corporate brand productsimprovements to its consumer offerings inprivate brands by offering quality, value, and assortment, and believes the past year, and as a resultsuccess of realigning its private brand programbrands to reduce the numberbe of duplicative product offerings, the Company plans to introduce approximately 500 new total items in fiscal 2016 to round out its portfolio.vital importance. The Company’s products have been frequently recognized for excellence in packaging design and product development. These awards underscore
The Company continues to enhance its private brand programs for both independent customers and corporate owned retail stores, and in 2017, launched its Our Family® private brand into its Michigan stores. The transition from the Spartan™ brand to Our Family® provides the Company with a system-wide, national brand equivalent or better quality program, as well as allows the Company to streamline its supply chain to deliver a larger variety of product offerings at a lower cost to consumers. The transition to Our Family® as the Company’s continued commitment to providing the consumer with quality products at exceptional value. The Company’s focusprimary private brand is and will continueexpected to be completed in the pursuitfirst half of new opportunities2018. Also in 2017, the Company began incorporating its own fresh-cut fruits and expansion ofvegetables into the Open Acres™ private brand, offeringswhich supports the Company’s living well offering. Additionally, Eternal Oceans™ was launched as the Company’s sustainability initiative for seafood within the Open Acres™ brand. SpartanNash also launched a product declaration “free from” initiative, with a goal of assigning brand specific bullets alerting consumers of certain undesirable ingredients that have been eliminated, creating a “cleaner” product offering. The Company expects this program to continue throughout 2018 and become core to the Company’s product development principles in all future development. The Company plans to introduce approximately 350 additional new items in 2018 throughout its customers.private brand portfolio, which includes the rollout of the Good to Go™ meal solutions program.
SpartanNash currently markets and distributes private brand items primarily under the following brands: Our Family® (national brand equivalent or better grocery products); Open Acres™ (fresh products); Top Care (health and beauty care); Tippy Toes (baby); Full Circle™ (organic and wellness); Culinary Tours™ (premium quality foods); PAWS Premium (pet supplies); and Valu Time (value). SpartanNash is also the exclusive worldwide distributor of DeCA’s private brands, Freedom’s Choice® and Home Base®.
-8-
Competition
The Company’s Military, Food Distribution, Military and Retail segments operate in a highly competitive geographic areas,industry, which typically resultresults in low profit margins for the industry as a whole. The Company competes with, among others, regional and national grocery distributors, large chain stores that have integrated wholesale and retail operations, mass merchandisers, e-commerce providers, deep discount retailers, limited assortment stores and wholesale membership clubs, many of whom have greater resources than the Company. The Company also faces competition from rapidly growing alternative retail channels, such as dollar stores, discount supermarket chains, Internet-based retailers and meal-delivery services.
Food Distribution competes directly with a number of traditional and specialty grocery wholesalers and retailers that maintain or develop self-distribution systems for the business of independent grocery retailers. In addition, the Company’s independent customers face intense competition from supercenters, deep discounters, mass merchandisers, limited assortment stores, and e-commerce providers. The Company partners with its customers to help them compete effectively. The primary competitive factors in the Food Distribution business include price, service, product quality, variety and other value-added services. The Company believes its overall service level, which is defined as actual units shipped divided by actual units ordered, is among industry leaders in terms of performance.
The Company is one of fiveten or fewer distributors in the United States with annual sales to the DeCA commissary system in excess of $100 million that distributes products via the frequent delivery system. The remaining distributors that supply DeCA tend to be smaller regional and local providers. In addition, manufacturers contract with others to deliver certain products, such as baking supplies, produce, delidelicatessen items, soft drinks and snack items, directly to DeCA commissaries and service exchanges. Because of the narrow margins in this industry, it is of critical importance for distributors to achieve economies of scale, which is typically a function of the density or concentration of military bases within the geographic area(s) a distributor serves. As a result, no single distributor in this industry, by itself, has a nationwide presence. Rather, distributors tend to concentrate on specific regions, or areas within specific regions, where they can achieve critical mass and utilize warehouse and distribution facilities efficiently. In addition, distributors that operate larger non-military specific distribution businesses tend to compete for DeCA commissary business in areas where such business would enable them to more efficiently utilize the capacity of their existing distribution centers. The Company believes the principal competitive factors among distributors within this industry are customer service, price, operating efficiencies, reputation with DeCA and location of distribution centers. The Company believes its competitive position is very strong with respect to all of these factors within the geographic areas where it competes.
The primary competitive factors inDespite the Food Distribution business include price, service,ongoing commissary sales challenges, the Company has been working diligently to realize opportunities and has expanded vendor relationships to new military bases and continues to roll out the Company’s private brand product quality, variety and other value-added services.offerings. The Company believes its overall service level,that the private brand offering, when fully executed, will drive more traffic and business into the commissaries as a whole. By providing a combination of national and private brand products, the commissaries are offering one-stop shopping for military customers, which is defined as actual units shipped divided by actual units ordered, is among industry leaders in termsshould benefit all of performance.the constituents of the DeCA system.
-8-
The principal competitive factors in the retail grocery business include the location and image of the store; the price, quality and variety of the perishable products; and the quality, convenience and consistency of service. In addition to competing with traditional grocery stores, the Company competes with supercenters, deep discounters, mass merchandisers, limited assortment stores, and e-commerce providers. The Company believes it has developed and implemented strategies and processes that allow it to be competitive in its Retail segment.segment by providing convenience, customer experience, and the assortment consumers want. The Company monitors planned competitor store openings and uses established proactive strategies to respond to new competition both before and after the competitive store opening. Strategies to react to competition vary based on many factors, such as the competitor’s format, strengths, weaknesses, pricing and sales focus. During the past three fiscal years, 13nine competitor supercenters opened in geographic areas in which the Company currently operates corporate-ownedcorporate owned retail stores with twofour additional openings expected to occur during fiscal 2016.2018. As a result of these openings, the Company believes the majority of its supermarkets compete with one or more supercenters. The Company is also responding to growing competition from online and non-traditional retailers by adding new options and services such as Fast Lane, its new online ordering and curbside pick-up service, as well as home delivery.
Seasonality
In certain geographic areas, the Company’s sales and operating performance varies with seasonality. Many northern Michigan stores are dependent on tourism, and therefore, are most affected by seasons and weather patterns, including, but not limited to, the amount and timing of snowfall during the winter months and the range of temperature during the summer months. TheAll fiscal quarters are 12 weeks, except for the Company’s first quarter, consists ofwhich is 16 weeks and will usuallygenerally include the Easter holiday while all other quarters consist of 12 weeks each with theholiday. The fourth quarter includingincludes the Thanksgiving and Christmas holidays. Fiscal year ended January 3, 2015 contained 53 weeks; therefore,holidays, and depending on the fourth quarter of fiscal 2014 consisted of 13 weeks rather than 12 weeks. The transition fiscal year ended December 28, 2013 consisted of 39 weeks; therefore,end, may include the third and final quarter of the short year consisted of 15 weeks rather than 16 weeks.New Year’s holiday.
-9-
Suppliers
The Company purchases products from a large number of national, regional and local suppliers of name brand and private brand merchandise. The Company has not encountered any material difficulty in procuring or maintaining an adequate level of products to serve its customers. No single supplier accounts for more than 5% of the Company’s purchases. The Company continues to develop strategic relationships with key suppliers and believes this will prove valuable in the development of enhanced promotional programs and consumer value perceptions.
Intellectual Property
The Company owns valuable intellectual property, including trademarks, tradenames, and other proprietary information, some of which are of material importance to its business.
Technology
The Company’s information technology (“IT”) organization continues to integrate systems fromIn 2017, the two merged companies. The plan is to consolidate onto a single set of systems. The integration has proceeded well and is approximately 60% complete. The integration will continue into fiscal 2017. During the last year there were additional projects completed which were unrelated toCompany focused on the integration of systems relating to the two companies.Caito acquisition and the remaining systems for the merger with Nash-Finch. Additionally, there have been many projects to expand and update technologies in support of various business and operational needs, such as the design and initial development of a new promotion and ad planning system for use in both the Food Distribution and Retail businesses.
Supply Chain. During fiscal 2015,2017, the Company continued to combine its Master Data Management systemsimplement the standard order management system, which is expected to standardize customer, vendor and item information. The vendor portion is complete and the customer and item integration is still in process and will be completed in fiscal 2016.2018. Standardization of the inventory management, distribution pricing and invoicing system was also initiated in 2017 with an anticipated completion date of 2019. The Company completed the implementation of a new environmental integrity monitoring system for the transportation fleet, implemented technology support associated with Food Safety Modernization Act requirements and has successfully converted more than half of the Company’s independent customers to state-of-the-art Business-to-Business technology.
Retail Systems. The Company implemented Fast Lane, a click-and-collect grocery ordering system, in approximately 40 corporate owned retail stores and is currently testing delivery in two locations. Fast Lane will continue to be deployed in additional stores in 2018. The Company enhanced its electronic payment system to support chip and pin/signature cards in all retail locations and also implemented a new back-end processing system. The Company also completed technology support for new Nutrition Labeling requirements, and is in the final testing phase of a major upgrade to its digital mobile application for customer use. The Company began the testing of a major upgrade and replacement of the computer-assisted ordering system used in the corporate retail locations, and also initiated preparations for testing a 2018 pilot of a major upgrade to the Point-of-Sale software.
Administrative Systems and Infrastructure. In the first quarter of 2017, the Company completed the consolidation of the procurementaccounts receivable system from the Nash-Finch merger. Additionally, the general ledger, fixed asset systems, EDI processing, payroll, labor management and the standardizationhuman resources systems were standardized as part of the transportation maintenance management system in fiscal 2015. The Company completed 80% of its redesign and upgrade for the communications technology in support of the distribution center network. In the non-integration area, the Company completed a number of supply chain enhancement projects to support its Food Distribution business.
Retail Systems. During fiscal 2015, the Company substantially completed the standardization of the legacy Nash-Finch retail locations with the Company’s standard point-of-sale (“POS”) and in store systems. The price modeling system was upgraded to support the addition of the legacy Nash-Finch retail stores. The Company also installed a new version of its loyalty systems in many of the remodeled legacy Nash-Finch retail locations. The Company continued with a multi-year customization effort for the major upgrade of its POS software. In the non-integration projects, the Company deployed majorCaito integration. Additional upgrades to its consumer digital properties including kiosks, web sitesthe infrastructure in the primary and mobile applications.
Administrative Systems. During fiscal 2015, the Company completed the consolidation onto a single accounts payable system and its related workflow system. The first phase of a financial reporting and planning system was installed in fiscal 2015. The Company completed the consolidation onto a single internal web based communication and workflow system during fiscal 2015. The Company is 90% complete with the consolidation onto a single electronic data interface (“EDI”) system.
Information Technology Infrastructure. The data center consolidation project (from fourback up data centers were also completed to two data centers) began in fiscal 2015improve the flexibility of disaster recovery and is now 70% complete and is expected to finish during the summer of fiscal 2016. In conjunction with this consolidation, the Company implemented major upgrades to its high performance processing and primary storage systems.non-stop processing.
-9-
As of January 2, 2016,December 30, 2017, the Company employedemploys approximately 15,20014,800 associates, 8,500 of which are9,100 on a full-time basis and 6,700 of which are part-time.5,700 on a part-time basis. Approximately 1,3001,200 associates, or 9%,8% of the total workforce, were represented by unions under collective bargaining agreements. The collective bargaining agreements thatcovering these associates will expire between April 2016January 2019 and October 2017 and consisted primarily of warehouse personnel and drivers at the Company’s Michigan, Ohio and Indiana distribution centers.February 2021. The Company considers its relations with its union and non-union associates to be good and havehas not had any material work stoppages in over twenty years.
Regulation
The Company is subject to federal, state and local laws and regulations concerning the conduct of its business, including those pertaining to the workforce and the purchase, handling, sale and transportation of its products. SeveralMany of the Company’s products are subject to federal Food and Drug Administration (“FDA”) and United States Department of Agriculture (“USDA) regulation. The Company believes that it is in substantial compliance in all material respects with the FDA, USDA and other federal, state and local laws and regulations governing its businesses.
Forward-Looking Statements
The matters discussed in this Item 1 include forward-looking statements. See “Forward-Looking Statements” at the beginning of this Annual Report on Form 10-K.
-10-
Available Information
The address of the SpartanNash web site is www.spartannash.com. The inclusion of the Company’s website address in this Form 10-K does not include or incorporate by reference the information on or accessible through the Company’s website, and the information contained on or accessible through those websites should not be considered as part of this Form 10-K. The Company makes its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other reports (and amendments to those reports) filed or furnished pursuant to Section 13(a) of the Securities Exchange Act of 1934 available on the Company’s web site as soon as reasonably practicable after the Company electronically files or furnishes such materials with the SEC. Interested persons can view such materials without charge by clicking on “For Investors” and then “SEC Filings” on the Company’s web site. SpartanNash is a “large accelerated filer” within the meaning of Rule 12b-2 under the Securities Exchange Act.
Item 1A.Risk Factors
The Company faces many risks. If any of the events or circumstances described in the following risk factors occur, the Company’s financial condition or results of operations may suffer, and the trading price of the Company’s common stock could decline. This discussion of risk factors should be read in conjunction with the other information in this Annual Report on Form 10-K. All of these forward-looking statements are affected by the risk factors discussed in this item and this discussion of risk factors should be read in conjunction with the discussion of forward-looking statements, which appears at the beginning of this report.
Business and Operational Risks
The Company operates in an extremely competitive industry. Many of itsthe Company’s competitors are much larger than the Company and may be able to compete more effectively.
The Military segment faces competition from large national and regional food distributors as well as smaller distributors. Due to the narrow margins in the military food distribution industry, it is of critical importance for distributors to achieve economies of scale, which are typically a function of the density or concentration of military bases in the geographic area(s) a distributor serves and a distributor’s share of that geographic area. As a result, no single distributor in this industry, by itself, has a nationwide presence.
The Company’s Food Distribution and Retail segments compete with, among others,have many competitors, including regional and national grocery distributors, large chain stores that have integrated wholesale and retail operations, mass merchandisers, e-Commercee-commerce providers, deep discount retailers, limited assortment stores and wholesale membership clubs, manyclubs. The Company’s Military segment faces competition from large national and regional food distributors and smaller distributors. Many of whichthe Company’s competitors have greater resources than the Company. Some of the distribution and retail competitors are substantially larger and have greater financial resources and advantages than the Company, intensifying competition at the wholesale and retail levels.
-10-
The effects of industryIndustry consolidation, and the expansion of alternative store formats, nontraditional competitors and e-commerce have resulted in, and continuecontributed to result in, market share losses for traditional grocery stores. In addition,The Company’s Food Distribution, Military and Retail segments are primarily focused on traditional retail grocery trade, which faces competition from faster growing alternative retail channels, such as dollar stores, discount supermarket chains, Internet-based retailers and meal-delivery services. The Company expects these trends to continue. If the Company is facing increasing competition from nontraditional competitors and in alternative sales channels, including e-commerce. These trends have produced even stronger competition for the Company’s Retail business and for the independent customers of the Company’s Food Distribution business. To the extent the Company’s independent customers are acquired by one of the Company’s competitors or are not successful in competing with other retail chains and non-traditional competitors,these alternative channels, or growing sales by the Company’s Food Distributioninto such channels, its business will be affected. If the Company fails to implement strategies to respond effectively to these competitive pressures, its operatingor financial results couldmay be adversely affected by price reductions, decreased sales or margins, or loss of customer base.impacted.
This competition may result in reduced profit margins and other harmful effects on the Company and the Food Distribution customers that the Company supplies. Ongoing industry consolidation could result in loss of the Company’s existing customers and could confront its retail operations with competition from larger and better-capitalized chains in existing or new geographic areas.
The Company may not be able to compete successfully in this environment.
The Company’s businesses could be negatively affected if it fails to retain existing customers or attract a significant numberintegrate the assets of new customers.
GrowingCaito Foods Service (“Caito”) and increasing the profitability of the Company’s distribution businesses is dependent in large measure upon its ability to retain existing customersBlue Ribbon Transport (“BRT”), and capture additional distribution customers through its existing network of distribution centers, which enables the Company may incur significant costs to more effectively utilizeintegrate and support these and other assets it acquires.
In January 2017, the fixedCompany acquired the assets in those businesses.of Caito and its affiliate, BRT. The Company’s ability to achieveintegration of acquired assets requires significant time and resources, and the Company may not manage these goals is dependent, inprocesses successfully. As part upon its ability to continue to provideof this acquisition, the Company acquired a high level of customer service, offer competitive products at low prices, maintain high levels of productivity and efficiency, particularlynew Fresh Kitchen facility that was in the process of integrating new customers intobeing constructed. The Fresh Kitchen had no history of operations, and the Company experienced delays in commencing its distribution system,operation and offer marketing, merchandisingachieving efficient levels of production volume. The Company expects that the Fresh Kitchen will not be profitable in the short-term, and ancillary services that provide valuethere is no guarantee it will be profitable in the long-term. In addition, some grocery retailers previously serviced by Caito discontinued their purchases following the Company’s acquisition of the Caito assets. The Company is making investments of resources to its independent customers.support the acquired Caito and BRT businesses and replace lost volume, which will result in significant ongoing operating expenses and may divert resources and management attention from other areas of the business. If the Company fails to successfully integrate these assets and develop new business opportunities, it may not realize the benefits expected from the transaction and its business may not perform to expectations.
-11-
The Company’s private brand program for U.S. military commissaries may not achieve the desired results.
In December 2016, the Defense Commissary Agency (“DeCA” or “the Agency���), which operates U.S. military commissaries worldwide, competitively awarded the Company the contract to support and supply products for the Agency’s new private brand product program. Private brand products have not previously been offered in the Agency’s commissaries. The Company has invested and will continue to invest significant resources as it partners with DeCA to develop the program, and there is no guarantee of its success. The Company expects that DeCA will face significant competition in each product category from national brands that are familiar to consumers. If the Agency is unable to execute these tasks effectively, itdrive traffic and business at the commissaries by offering one-stop shopping for military customers through a combination of both national and private brand offerings, then both DeCA and the Company may not be ableunable to attract a significant number of new customers, and attrition among its existing customer base could increase, either or both ofachieve expected returns from this program, which could have ana material adverse impacteffect on the Company’s revenue and profitability.
Growing and increasing the profitabilitybusiness. The success of the Company’s Retail business is dependent upon increasing its customer baseprogram will depend in the communities wherepart on factors beyond the Company’s corporate-owned retail stores are located. The Company plans to invest in redesigning somecontrol, including the actions of its corporate-owned retail stores into other formats in order to attract new customers. The Company’s results of operations may be adversely impacted if it is unable to attract a significant number of new retail customers.the Agency.
The Company may not be able to implement its strategy of growth through acquisitions.
Part of the Company’s growth strategy involves selected acquisitions of additional distribution operations, and to a lesser extent, retail grocery stores, grocery store chainsstores. Given the recent consolidation activity and limited number of potential acquisition targets within the food industry, the Company may not be able to identify suitable targets for acquisition and may make acquisitions which do not achieve the desired level of profitability or distribution facilities. Becausesales. Additionally, because the Company operates in the Food Distribution business, future acquisitions of retail grocery stores could result in the Company competing with its independent grocery store customersretailers and could adversely affect existing business relationships with those customers. As a result, the Company may not be able to identify suitable acquisition candidates in the future, complete acquisitions or obtain the necessary financing. Accordingly,financing and this may adversely affect the Company may not be ableCompany’s ability to implement this part of its growth strategy or achieve expected results and long-term business goals as the success of its acquisitions will depend, in part, on whether the Company achieves the business synergies and anticipated cost savings in connection with these transactions and any future acquisitions.grow profitably.
Substantial operating losses may occur if the customers to whom the Company extends credit or for whom the Company guarantees loans or lease obligations fail to repay the Company.
In the ordinary course of business,From time to time, the Company extendsmay advance funds, extend credit including loans,and lend money to its Food Distribution customers,certain independent retailers and provides financial assistance to some customers by guaranteeing theirguarantee loan or lease obligations.obligations of certain customers. The Company also leases store sites for sublease to independent retailers. Generally, the Company’s loans and other financial accommodations are extended to small businesses that are unrelated and may have limited access to conventional financing. The Company also subleases retail properties and assigns retail property leases to third parties in the ordinary course of business. While the Company seeks to obtain security interest and other credit support in connection with these arrangements but the financial accommodations the Company extends, such collateral may not be sufficient to cover itsthe Company’s exposure. Greater than expected losses from existing or future credit extensions, loans, guarantee commitments or sublease arrangements could negatively and potentially materially impact the Company’s operating results and financial condition.
-11-
Changes in relationships with the Company’s vendor base may adversely affect its business, margins, and profitability.
The Company sources the products it sells from a wide variety of vendors. The Company generally does not have long-term written contracts with its major suppliers that would require them to continue supplying it with merchandise. The Company depends on its vendors for among other things, appropriate allocation of merchandise, assortments of products, operation of vendor-focused shopping experiences within its stores, and funding for various forms of promotional allowances. There has been significant consolidation in the food industry, and this consolidation may continue to the Company’s commercial disadvantage. Such changes could have a material adverse impact on the Company’s revenues and profitability. The Company cooperatively engages in a variety of promotional programs with its vendors. The Company manages these programs to maintain or improve margins and increase sales. A reduction or change in promotional spending could have a significant impact on profitability.
The Company depends heavily on its ability to purchase merchandise in sufficient quantities at competitive prices. The Company has no assurances of continued supply, pricing, or access to new products and any vendor could at any time change the terms upon which it sells to the Company or discontinue selling to the Company. Vendor supplies can be adversely affected by weather, food contamination, regulatory actions, labor supply, strikes, labor unrest or product vendor defaults or disputes that limit the Company’s ability to procure products for sale to customers.
Disruptions to the Company’s information technology systems, including security breaches and cyber-attacks, could negatively affect the Company’s business.
The Company has large, complex ITinformation technology (“IT”) systems that are important to its business operations. The Company gathers and stores sensitive information, including personal information about its customers, vendors and associates, and other proprietary or sensitive information. The Company could incur significant losses due to disruptions in its systems and business if it were to experience difficulties accessing data stored in its IT systems.
The Company gathers and storessystems or if the sensitive information including personal information about its customers and associates as well as proprietary information of its customers and vendors. stored is compromised by third parties.
Although the Company has implemented security programs and disaster recovery facilities and procedures, cyber threats evolve rapidly and are becoming more sophisticated. Despite the Company’s efforts to secure its information and systems, cyber attackers may defeat the security could be compromisedmeasures and compromise the personal information of customers, associates, vendors and other sensitive information. Associate error, faulty password management or other problems may compromise the security measures and result in a breach of the Company’s information systems, systems disruptions, data theft or other criminal activity could occur.activity. This could result in a loss of sales or profits or cause the Company to incur significant costs to restore its systems or to reimburse third parties for damages.
As a merchant that accepts debit and credit cards for payment, the Company is subject to the Payment Card Industry (“PCI”) Data Security Standard (“DSS”), issued by the PCI Council. PCI DSS contains compliance guidelines and standards with regard to the Company’s security involving the physical and electronic storage, processing and transmission of individual cardholder data. By accepting debit cards for payment, the Company is also subject to compliance with American National Standards Institute data encryption standards, and payment network security operating guidelines. Despite the Company’s compliance with these standards and other information security measures, the Company cannot be certain that all of its IT systems are able to prevent, contain or detect any cyber-attacks or security breaches from known malware or malware that may be developed in the future. To the extent that any disruption results in the loss, damage or misappropriation of information, the Company may be adversely affected by claims from customers, financial institutions, regulatory authorities, payment card associations and others. In addition, the cost of complying with stricter privacy and information security laws and standards could be significant to the Company.
Threats to security or the occurrence of severe weather conditions, natural disasters or health pandemicsother unforeseen events could harm the Company’s business.
The Company’s business could be severely impacted by wartime activities, threats or acts of terrorism, severe weather conditions, natural disasters, or widespread health pandemics. Any of theseother events that could affect the warehouse and transportation infrastructure used by both the Company and its vendors to supply the Company’s warehouses, corporate-ownedcorporate owned retail stores, and MilitaryFood Distribution and Food DistributionMilitary customers. While the Company believes it has adopted commercially reasonable precautions, insurance programs, and contingency plans; the damage or destruction of or substantial damage to,Company facilities could compromise its distribution centers and corporate-owned retail stores due to natural disaster, severe weather conditions, accident, terrorism, or other causes could substantially compromise the Company’s ability to distribute products orand generate sales at its corporate-owned retail stores. Additionally, unseasonably adverse climaticsales. Unseasonable weather conditions that impact growing conditions and the cropsavailability of food producers could also adversely affect the availability or cost of certain products. Any of the above events could result in a loss of sales, profits and asset value.values.
-12-
Impairment charges for goodwill or other intangiblelong-lived assets could adversely affect the Company’s financial condition and results of operations.
The Company is required to perform an annual impairment test for goodwill and indefinite-livedother long-lived tangible and intangible assets in the fourth quarter of each year, or more frequently if indicators are present or changes in circumstances suggest that impairment may exist. Testing goodwill and other 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 – for goodwill – the Company’s stock price and market capitalization. Changes in these factors, or changes in actual performance compared with estimates of the Company’s future performance, may affect the fair value of goodwill or other intangible assets. This could result in the Company recording a non-cash impairment charge for the difference between the carrying value and implied fair value of the goodwill or other intangible assets in the period the determination of impairment is made. The Company cannot accurately predict the amount and timing of any impairment of assets. Should the value of goodwill or other intangible assets become impaired, the Company’s financial condition and results of operations may be adversely affected.
The CompanyIt may be difficult for the Company to attract and retain well-qualified associates, which would adversely affect the Company’s profitability and growth.
Recent low levels of unemployment have made it increasingly difficult to attract and retain qualified associates, and have caused upward pressure on wages. If the Company is unable to successfully integrateattract and retain quality associates to meet its needs, the businesses of Spartan Stores and Nash-Finch and realize the anticipated benefits of the merger.
The merger involved the combination of two companies that formerly operated as independent public companies. The combined Company continuescould be required to devote significant management attention and resources to integrating the business practices and operations of Spartan Stores and Nash-Finch. The combined company may encounter complexities associated with managing the businesses of the combined company, in a seamless manner that minimizes adverse effectsincrease its compensation offering, reduce staffing below optimal levels, or rely more on customers, suppliers, associates and other constituencies. The Company’s future success depends, in part, upon its ability to address challenges related to the management and monitoring of the integrated operations of Nash-Finch and Spartan Stores and associated increased costs and complexity. There can be no assurances that the combined company will be successful or that it will realize the expected operating efficiencies, cost savings and other benefits currently anticipated from the merger.
The Company is expected to incur substantial expenses related to the continued integration of Spartan Stores and Nash-Finch.
The Company continues to incur substantial expenses in connection with the integration of Spartan Stores and Nash-Finch. There are a large number of processes, policies, procedures, operations, technologies and systems that have been or will be integrated. The Company continues to maintain an administrative presence in Grand Rapids, Michigan; Minneapolis, Minnesota; and Norfolk, Virginia. There are many factors beyond its control that could affect the total amount or the timing of the integration expenses. Many of the expenses that will be incurred are, by their nature, difficult to estimate accurately. These integration expenses may continue to result in the combined company taking charges against earnings and the amount and exact timing of such charges are somewhat uncertain.
Restrictive covenants imposed by the Company’s credit facility and other factorshigher-cost third-party providers, which could adversely affect the Company’s ability to borrow.
The Company’s ability to borrow additional funds is governed by the terms of its credit facilities. The credit facilities contain financialprofitability and other covenants that, among other things, limit the Company’s ability to draw down the full amount of the facility, incur additional debt outside of the credit facility, create new liens on property, make acquisitions, or pay dividends. These covenants may affect the Company’s operating flexibility and may require it to seek the consent of the lenders to certain transactions that the Company may wish to effect. The Company is not currently restricted by these covenants. Disruptions in the financial markets have in the past resulted in bank failures. One or more of the participants in the credit facility could become unable to fund the Company’s future borrowings when needed. 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 its credit facility. The Company may not be able to refinance its existing debt at similar terms.
Maintaining the Company’s reputation and corporate image is essential to the Company’s business success.
The Company’s success depends on the value and strength of its corporate name and reputation. The Company’s name, reputation and image are integral to its business as well as to the implementation of its strategies for expanding its business. The Company’s business prospects, financial condition and results of operations could be adversely affected if its public image or reputation were to be tarnished by negative publicity including dissemination via print, broadcast or social media, or other forms of Internet-based communications. Adverse publicity about regulatory or legal action against the Company could damage its reputation and image, undermine its customers’ confidence and reduce long-term demand for its products and services, even if the regulatory or legal action is unfounded or not material to its operations. Any of these events could have a negative impact on the Company’s results of operations and financial condition.
-13-
The Company may be unable to retain its key management personnel.
growth. The Company’s success depends to a significant degree upon the continued contributions of senior management. The loss of any key member of the Company’s management team may prevent it from implementing its business plans in a timely manner. The Company cannot assure that successors of comparable ability will be identified and appointed and that the Company’s business will not be adversely affected.
Market Risks
The Company’s business is subject to risks from regional economic conditions, fuel prices, and other factors in its geographic areas.
The Company’s business is sensitive to changes in general economic conditions. In recent years, the United States has experienced volatility in the economy and financial markets due to uncertainties related to energy prices, availability of credit, difficulties in the banking and financial services sector, the decline in the housing market, diminished market liquidity, falling consumer confidence and high unemployment rates. These adverse economic conditions in its geographic areas, potential reduction in the populations in its geographic areas and the loss of purchasing power by residents in its geographic areas could reduce the amount and mix of groceries purchased, could cause consumers to trade down to less expensive mix of products or to trade down to discounters, all of which may affect the Company’s revenues and profitability.
Gasoline prices may affect consumer behavior and retail grocery prices. If petroleum prices rise in the future it may prompt consumers to make different choices in how and where they shop due to the high price of gasoline. Additionally, the impact of higher fuel costs is passed through by manufacturers and distributors in the prices of goods and services provided, again potentially affecting consumer buying decisions. This could have adverse impacts on retail store traffic, basket size and overall spending at both its corporate-owned and independent retail grocery stores.
In addition, many of the Company’s corporate-owned retail stores, as well as stores operated by its Food Distribution customers, are located in areas that are heavily dependent upon tourism. Unseasonable weather conditions and the economic conditions discussed above may decrease tourism activity and could result in decreased sales by the Company’s corporate-owned retail stores and decreased sales to stores operated by its Food Distribution customers, adversely affecting the Company’s revenues and profitability.
Economic downturns and uncertainty have adversely affected overall demand and intensified price competition, and have caused consumers to “trade down” by purchasing lower margin items and to make fewer purchases in traditional supermarket channels. Continued negative economic conditions affecting disposable consumer income such as employment levels, business conditions, changes in housing market conditions, increases in the cost of healthcare coverage, the availability of credit, interest rates, volatility in fuel and energy costs, food price inflation or deflation, employment trends in its geographic areas and labor costs, the impact of natural disasters or acts of terrorism, and other matters affecting consumer spending could cause consumers to continue shifting even more of their spending to lower-priced products and competitors. The continued general reductions in the level of discretionary spending or shifts in consumer discretionary spending to the Company’s competitors could adversely affect the Company’s growth and profitability.
Disruptions to worldwide financial and credit markets could potentially reduce the availability of liquidity and credit generally necessary to fund a continuation and expansion of global economic activity. A shortage of liquidity and credit in certain regions has the potential to lead to worldwide economic difficulties that could be prolonged. A general slowdown in the economic activity caused by an extended period of economic uncertainty could adversely affect the Company’s businesses. Difficult financial and economic conditions could also adversely affect its customers’ ability to meet the terms of sale or its suppliers’ ability to fully perform their commitments to the Company.
Macroeconomic and geopolitical events may adversely affect the Company’s customers, access to products, or lead to general cost increases which could negatively impact the Company’s results of operations and financial condition.
The impact of events in foreign countries, which could result in increased political instability and social unrest, and the economic ramifications of significant budget deficits in the United States and changes in policy attributable to them at both the federal and state levels, could adversely affect the Company’s businesses and customers. Adverse economic or geopolitical events could potentially reduce the Company’s access to or increase prices associated with products sourced abroad. Such adverse events could lead to significant increases in the price of the products the Company procures, fuel and other supplies used in the Company’s business, utilities, or taxes that cannot be fully recovered through price increases. In addition, disposable consumer income could be affected by these events, which could have a negative impact on the Company’s results of operations and financial condition.
-14-
Inflation and deflation may adversely affect the Company’s operating results.
It is difficult to forecast whether fiscal 2016 will be a period of inflation or deflation. Food deflation could reduce sales growth and earnings, while food inflation, combined with reduced consumer spending, could reduce gross profit margins. If the Company experiences significant inflation or deflation, especially in the context of continued lower consumer spending, then the Company’s financial condition and results of operations may be adversely affected.
Legal, Regulatory and Legislative Risks
The Company’s Military segment operations areis dependent upon domestic and international military distribution.operations. A change in the military commissary system, including its supply chain, or a change in the level of governmental funding, could negatively impact the Company’s results of operations and financial condition.
Because the Company’s Military segment sells and distributes grocery products to military commissaries and exchanges in the United States and overseas, any material changes in the commissary system, the level of governmental funding to DeCA, military staffing levels, or the locations of bases, or DeCA’s supply chain may have a corresponding impact on the sales and operating performance of this segment. These changes could include privatization of some or all of the military commissary system, relocation or consolidation of commissaries and exchanges, base closings, troop redeployments or consolidations in the geographic areas containing commissaries and exchanges served by the Company, or a reduction in the number of persons having access to the commissaries and exchanges. Mandated reductions in the government expenditures, including those imposed as a result of a sequestration, may impact the level of funding to DeCA and could have a material impact on the Company’s operations.
Government regulation could harm the Company’s business.
The Company is subject If DeCA were to extensive governmental laws and regulations including, but not limited to, employment and wage laws and regulations, regulations governing the sale of pharmaceuticals, alcohol and tobacco, minimum wage requirements, working condition requirements, public accessibility requirements, citizenship requirements, environmental regulation, and other laws and regulations. A violation or change of these laws could have amake material effect on the Company’s business, financial condition and results of operations.
Like other companies that sell food and drugs, the Company’s corporate-owned retail stores are subject to various federal, state, local, and foreign laws, regulations, and administrative practices affecting its business. The Company must comply with numerous provisions regulating health and sanitation standards, facilities inspection, food labeling, and licensing for the sale of food, drugs, tobacco, and alcoholic beverages.
The Company cannot predict the nature of future laws, regulations, interpretations, or applications, or determine what effect either additional government regulations or administrative orders, when and if promulgated, or disparate federal, state, local, and foreign regulatory requirements will have on its future business. They could, however, require that the Company recall or discontinue sale of certain products, make substantial changes to its facilities or operations, or otherwise result in substantial increases in operating expense. Any or all of such requirements could have an adverse effect onsupply chain model, for example by limiting distribution authorization, then the Company’s results of operations and financial condition.
The Company is subject to state and federal environmental regulations.
Under various federal, state and local laws, ordinances and regulations, the Company may, as the owner or operator of its locations, be liable for the costs of removal or remediation of contamination at these current or former locations, whether or not the Company knew of, or were responsible for, the presences of such contamination. The failure to properly remediate such contamination may subject the Company to liability to third parties and may adversely affect its ability to sell or lease such property or to borrow money using such property as collateral.
Compliance with existing and future environmental laws regulating underground storage tanks may require significant capital expenditures and increased operating and maintenance costs.
The remediation costs and other costs required to clean up or treat contaminated sitesMilitary segment could be substantial. In the future, the Company may incur substantial expenditures for remediation of contamination that has not been discovered at existingaffected.
Product recalls or acquired locations. The Company cannot assure that it has identified all environmental liabilities at all of its current and former locations; that material environmental conditions not known to the Company do not exist; that future laws, ordinances or regulations will not impose material environmental liability on the Company; or that a material environmental condition does not otherwise exist as to any one or more of its locations. In addition, failure to comply with any environmental laws, ordinances or regulations or an increase in regulations could adversely affect the Company’s operating results and financial condition.
-15-
Changes in accounting standards could materially impact the Company’s results.
Generally Accepted Accounting Principles (“GAAP”) and related accounting pronouncements, implementation guidelines, and interpretations for many aspects of the Company’s business, such as accounting for insurance and self-insurance, inventories, goodwill and intangible assets, store closures, leases, vendor and customer contracts, income taxes and share-based payments, are highly complex and involve subjective judgments. Changes in these rules or their interpretation could significantly change or add significant volatility to the Company’s reported earnings without a comparable underlying change in cash flow from operations.
Safetyother safety concerns regarding the Company’s products could harm the Company’s business.
It is sometimes necessary for the Company to recall unsafe, contaminated or defective products. Recall costs can be material and the Company might not be able to recover costs from its suppliers. Concerns regarding the safety of food products sold by the Company could cause customers to avoid purchasing certain products from the Company, or to seek alternative sources of supply for some or all of their food needs, even if the basis for concern is outside of the Company’s control. Any loss of confidence on the part of the Company’s customers would be difficult and costly to overcome. Any real or perceived issue regarding the safety of any food or drug items sold by the Company, regardless of the cause, could have a substantial and adverse effect on the Company’s business.
The Company’s acquisition of Caito has expanded its food production capabilities and ability to offer fresh fruits and vegetables. The Company may need to recall such products if they become adulterated or if they are mislabeled, and the Company may be liable if the consumption of its products causes injury to consumers. A widespread product recall could result in significant losses due to the costs of a recall, the destruction of inventory, and lost sales. A significant product recall or product liability claim could also result in adverse publicity, damage to the Company’s reputation, and a loss of confidence in the safety and quality of its products.
-13-
A number of the Company’s Food Distribution and Military segment associates are covered by collective bargaining agreements.agreements, and unions may attempt to organize additional associates.
Approximately 51%29% and 16%12% of the Company’s associates in its Food Distribution and Military business segments, respectively, are covered by collective bargaining agreements (“CBAs”) which expire between April 2016January 2019 and October 2017.February 2021. The Company expects that rising healthcare, pension and other employee benefit costs, among other issues, will continue to be important topics of negotiation with the labor unions. Upon the expiration of the Company’s collective bargaining agreements,CBAs, work stoppages by the affected workers could occur if the Company is unable to negotiate an acceptable contract with the labor unions. This could significantly disrupt the Company’s operations. Further, if the Company is unable to control healthcare and pension costs provided for in the collective bargaining agreements,CBAs, the Company may experience increased operating costs and an adverse impact on future results of operations.
Unions may attempt to organize additional associates.
While the Company believes that relations with its associates are good, the Company may continue to see additional union organizing campaigns. The potential for unionization could increase as any new related legislation or regulations are passed. The Company respects its associates’ right to unionize or not to unionize. However, the unionization of a significant portion of the Company’s workforce could increase the Company’s overall costs at the affected locations and adversely affect its flexibility to run its business in the most efficient manner to remain competitive or acquire new business and could adversely affect its results of operations by increasing its labor costs or otherwise restricting its ability to maximize the efficiency of its operations.
Costs related to multi-employer pension plans and other postretirement plans could increase.
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 agreementsCBAs with Teamsters locals 406 and 908. SpartanNash does not administer or control this Plan, and the Company has relatively little control over the level of contributions the Company is required to make. Currently, the Central States Plan is underfunded and in critical and declining status, and as a result, contributions are scheduled to increase. The Company expects that contributions to this Plan will be subject to further increases. Benefit levels and related issues will continue to create collective bargaining challenges. The amount of any increase or decrease in its required contributions to this Plan will depend upon the outcome of collective bargaining, the actions taken by the trustees who manage the Plan, governmental regulations, actual return on investment of Plan assets, the continued viability and contributions of other contributing employers, and the potential payment of withdrawal liability should the Company choose to exit a geographic area, among other factors.
Under current law, an employer that withdraws or partially withdraws from a multi-employer pension plan may incur a withdrawal liability to the plan if it is underfunded. The assessed withdrawal liability represents the portion of the plan’s underfunding that is allocable to the withdrawing employer under very complex actuarial and allocation rules. Withdrawal liability may be incurred under a variety of circumstances, including selling, closing or substantially reducing employment at a facility. Withdrawal liability could be material, and potential exposure to withdrawal liability may influence business decisions and could cause the Company to forgo business opportunities. The Company is currently unable to reasonably estimate such liability. On December 13, 2014, Congress passed the Multi-employer Pension Reform Act of 2014 (“MPRA”). The MPRA is intended to address funding shortfalls in both multi-employer pension plans and the Pension Benefit Guaranty Corporation. Because the MPRA is a complex piece of legislation, its effects on the Plan and potential implications for the Company are not known at this time. Any adjustment for withdrawal liability will be recorded when it is probable that a liability exists and can be reasonably estimated.
-16-
On September 25, 2015, Central States submitted a Rescue Plan to the United States Department of Treasury (“Department of Treasury”) as permitted under the provisions of the MPRA relating to plans in “critical and declining status.” Under the Rescue Plan, Trustees seek to suspend the pension benefits of retirees and actives in order to save the pension plan from future financial failure. The proposed Rescue Plan is tiered and intended to equitably distribute benefit suspensions across three participant classes: orphans, participants and UPS transfer group. Under the MPRA, the Department of Treasury has 225 days in which to consider and act on the proposed Plan. Following the Department of Treasury’s review, Plan participants will be afforded the opportunity to consider and vote on the proposed benefit suspensions. Given the Department of Treasury’s review period and the amount of time necessary for a participant vote, Central States estimates that the proposed benefit suspensions, if approved, would not take effect until July 1, 2016. The Company is currently unable to reasonably estimate the potential impact of this Rescue Plan on its withdrawal liability.
The Companyalso maintains defined benefit retirement plans for certain of its associates that do not participate in multi-employer pension plans. These plans are frozen. Expenses associated with the defined benefit plans may significantly increase due to changes to actuarial assumptions or investment returns on plan assets that are less favorable than projected. In addition, changes in the Company’s funding status could adversely affect the Company’s financial position.
Costs related to associate healthcare benefits are expected to continue to increase.
The Company provides health benefits for a large number of associates. The Company’s costs to provide such benefits continue to increase annually and recent legislative initiatives regarding healthcare reform have had a direct financial impact. However, the Company has carefully analyzed the costs of compliance with these initiatives and believes it has mitigated much of the impact through plan design and vendor negotiations. The Company will continue to stay abreast of these legislative changes and monitor their impact. Future legislative changes could negatively impact the Company’s financial condition and results of operations. In addition, the Company participates in various multi-employer health plans for its union associates, and the Company is required to make contributions to these plans in amounts established under collective bargaining agreements. The cost of providing benefits through such plans has escalated rapidly in recent years. The amount of any increase or decrease in the Company’s required contributions to these multi-employer plans will depend upon many factors, many of which are beyond its control. If the Company is unable to control the costs of providing healthcare to associates, it may experience increased operating costs, which may adversely affect the Company’s financial condition and results of operations.
Risks associated with insurance plan claims could increase future expenses.
The Company uses a combination of insurance and self-insurance to provide for potential liabilities for workers’ compensation, automobile and general liability, property insurance, director and officers’ liability insurance, and employee healthcare benefits. The liabilities that have been recorded for these claims represent the Company’s best estimate, using generally accepted actuarial reserving methods, of the ultimate obligations for reported claims plus those incurred but not reported for all claims incurred through January 2, 2016. Any actuarial projection of losses is subject to a high degree of variability. Changes in legal trends and interpretations, variability in inflation rates, changes in the nature and method of claims settlement, benefit level changes due to changes in applicable laws, and changes in discount rates could all affect the level of reserves required and could cause future expense to maintain reserves at appropriate levels.
Item 1B. Unresolved Staff Comments
None.
Item 2.Properties
The following table lists the locations and approximate square footage of the Company’s facilitiesdistribution centers used inby its Military and Food Distribution segments.and Military segments as of December 30, 2017. The lease expiration dates for the distribution centers primarily servicing the Food Distribution segment range from February 2019 to July 2020, and for the Military segment range from August 20162018 to November 2029, and for the Food Distribution segment range from July 2016 to July 2020. Most of the leases in the Food Distribution segment have additional renewal option periods available.January 2028. The Company believes that these facilities are generally well maintained are generallyand in good operating condition, have sufficient capacity, and are suitable and adequate to carry on its business for each of these segments.
-17-14-
Military Segment |
|
| Food Distribution Segment |
| ||||||||||||||||||||||
|
| Square Footage |
|
|
|
| Square Footage |
| ||||||||||||||||||
Location |
| Leased |
|
| Owned |
|
| Total |
|
| Location |
| Leased |
|
| Owned |
|
| Total |
| ||||||
Norfolk, Virginia |
|
| 188,093 |
|
|
| 545,073 |
|
|
| 733,166 |
|
| St. Cloud, Minnesota |
|
| — |
|
|
| 329,046 |
|
|
| 329,046 |
|
Landover, Maryland |
|
| 368,088 |
|
|
| — |
|
|
| 368,088 |
|
| Fargo, North Dakota |
|
| 10,400 |
|
|
| 288,824 |
|
|
| 299,224 |
|
Columbus, Georgia (1) |
|
| 531,900 |
|
|
| — |
|
|
| 531,900 |
|
| Minot, North Dakota |
|
| — |
|
|
| 185,250 |
|
|
| 185,250 |
|
Pensacola, Florida |
|
| — |
|
|
| 355,900 |
|
|
| 355,900 |
|
| Omaha, Nebraska |
|
| 4,384 |
|
|
| 686,783 |
|
|
| 691,167 |
|
Bloomington, Indiana |
|
| 30,000 |
|
|
| 471,277 |
|
|
| 501,277 |
|
| Sioux Falls, South Dakota |
|
| 79,300 |
|
|
| 196,114 |
|
|
| 275,414 |
|
Oklahoma City, Oklahoma |
|
| — |
|
|
| 608,543 |
|
|
| 608,543 |
|
| Lumberton, North Carolina |
|
| 386,129 |
|
|
| — |
|
|
| 386,129 |
|
San Antonio, Texas |
|
| — |
|
|
| 461,544 |
|
|
| 461,544 |
|
| Statesboro, Georgia |
|
| 230,520 |
|
|
| — |
|
|
| 230,520 |
|
Total Square Footage |
|
| 1,118,081 |
|
|
| 2,442,337 |
|
|
| 3,560,418 |
|
| Bluefield, Virginia |
|
| — |
|
|
| 187,531 |
|
|
| 187,531 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Bellefontaine, Ohio |
|
| — |
|
|
| 666,045 |
|
|
| 666,045 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Lima, Ohio |
|
| — |
|
|
| 517,552 |
|
|
| 517,552 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Westville, Indiana |
|
| — |
|
|
| 631,944 |
|
|
| 631,944 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Grand Rapids, Michigan |
|
| — |
|
|
| 1,179,582 |
|
|
| 1,179,582 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total Square Footage |
|
| 710,733 |
|
|
| 4,868,671 |
|
|
| 5,579,404 |
|
Distribution Centers |
| |||||||||||
|
| Square Footage |
| |||||||||
Location |
| Leased |
|
| Owned |
|
| Total |
| |||
Grand Rapids, Michigan (a) |
|
| 77,000 |
|
|
| 1,179,582 |
|
|
| 1,256,582 |
|
Norfolk, Virginia (b) |
|
| 188,093 |
|
|
| 545,073 |
|
|
| 733,166 |
|
Omaha, Nebraska (a) |
|
| 4,384 |
|
|
| 686,783 |
|
|
| 691,167 |
|
Bellefontaine, Ohio (a) |
|
| — |
|
|
| 666,045 |
|
|
| 666,045 |
|
Oklahoma City, Oklahoma (b) |
|
| — |
|
|
| 608,543 |
|
|
| 608,543 |
|
Columbus, Georgia (c) |
|
| 531,900 |
|
|
| — |
|
|
| 531,900 |
|
Lima, Ohio (a) |
|
| — |
|
|
| 517,552 |
|
|
| 517,552 |
|
Bloomington, Indiana (b) |
|
| — |
|
|
| 471,277 |
|
|
| 471,277 |
|
San Antonio, Texas (c) |
|
| — |
|
|
| 461,544 |
|
|
| 461,544 |
|
St. Cloud, Minnesota (a) |
|
| 82,869 |
|
|
| 329,046 |
|
|
| 411,915 |
|
Lumberton, North Carolina (a) |
|
| 386,129 |
|
|
| — |
|
|
| 386,129 |
|
Landover, Maryland (b) |
|
| 368,088 |
|
|
| — |
|
|
| 368,088 |
|
Pensacola, Florida (b) |
|
| — |
|
|
| 355,900 |
|
|
| 355,900 |
|
Indianapolis, Indiana (a) (d) |
|
| — |
|
|
| 309,699 |
|
|
| 309,699 |
|
Fargo, North Dakota (a) |
|
| — |
|
|
| 288,824 |
|
|
| 288,824 |
|
Sioux Falls, South Dakota (a) |
|
| 79,300 |
|
|
| 196,114 |
|
|
| 275,414 |
|
Bluefield, Virginia (a) |
|
| — |
|
|
| 187,531 |
|
|
| 187,531 |
|
Minot, North Dakota (a) |
|
| — |
|
|
| 185,250 |
|
|
| 185,250 |
|
Lakeland, Florida (a) |
|
| — |
|
|
| 42,125 |
|
|
| 42,125 |
|
Total Square Footage |
|
| 1,717,763 |
|
|
| 7,030,888 |
|
|
| 8,748,651 |
|
|
|
(b) | Distribution center services the Military segment. |
(c) | Distribution center services both the Food Distribution and Military segments. Based on utilization estimates at December 30, 2017, the Food Distribution segment utilizes 36,000 square feet and 33,365 square feet at the San Antonio and Columbus distribution centers, respectively. Also, the Columbus location requires periodic lease payments to the holder of the outstanding industrial revenue bond, which is held by the Company. Upon expiration of the lease terms, the Company will take title to the property upon redemption of the bond. |
(d) | Distribution center includes vertically-integrated food processing operations at this location, including the Company’s Fresh Kitchen. |
-15-
The following table lists the Company’s retail stores, including the adjacent fuel centers of the related stores, by retail banner, number of stores, geographic regionlocation and approximate square footage under each banner.banner as of December 30, 2017.
Retail Segment |
| |||||||||||||||||||||
|
|
|
| Leased |
|
| Owned |
|
| Total |
| |||||||||||
|
|
|
| Number |
| Square |
|
| Number |
|
| Square |
|
| Number |
| Square |
| ||||
Grocery Store Retail Banner |
| Geographic Region |
| of Stores |
| Feet |
|
| of Stores |
|
| Feet |
|
| of Stores |
| Feet |
| ||||
Family Fare Supermarkets |
| Michigan, Minnesota, Nebraska, North Dakota |
| 69 |
|
| 2,844,777 |
|
| 6 |
|
|
| 281,455 |
|
| 75 |
|
| 3,126,232 |
| |
VG’s Food and Pharmacy |
| Michigan |
| 10 |
|
| 461,698 |
|
| 1 |
|
|
| 37,223 |
|
| 11 |
|
| 498,921 |
| |
D&W Fresh Markets |
| Michigan |
| 9 |
|
| 435,153 |
|
| 2 |
|
|
| 84,458 |
|
| 11 |
|
| 519,611 |
| |
Sun Mart |
| Colorado, Minnesota, Nebraska |
| 2 |
|
| 55,333 |
|
| 8 |
|
|
| 238,100 |
|
| 10 |
|
| 293,433 |
| |
No Frills |
| Iowa, Nebraska |
| 9 |
|
| 426,881 |
|
|
| — |
|
|
| — |
|
| 9 |
|
| 426,881 |
|
Econofoods |
| Minnesota, Wisconsin |
| 4 |
|
| 137,533 |
|
| 4 |
|
|
| 94,749 |
|
| 8 |
|
| 232,282 |
| |
Dan's Super Market |
| North Dakota |
| 6 |
|
| 278,477 |
|
|
| — |
|
|
| — |
|
| 6 |
|
| 278,477 |
|
Valu Land |
| Michigan |
| 6 |
|
| 135,920 |
|
|
| — |
|
|
| — |
|
| 6 |
|
| 135,920 |
|
Bag ‘N Save |
| Nebraska |
| 5 |
|
| 308,908 |
|
| 1 |
|
|
| 92,381 |
|
| 6 |
|
| 401,289 |
| |
Family Fresh Market |
| Minnesota, Nebraska, Wisconsin |
| 1 |
|
| 32,650 |
|
| 5 |
|
|
| 249,904 |
|
| 6 |
|
| 282,554 |
| |
Family Thrift Center |
| South Dakota |
| 3 |
|
| 127,107 |
|
| 1 |
|
|
| 60,200 |
|
| 4 |
|
| 187,307 |
| |
Supermercado Nuestra Familia |
| Nebraska |
| 1 |
|
| 23,211 |
|
| 2 |
|
|
| 83,279 |
|
| 3 |
|
| 106,490 |
| |
Forest Hills Foods |
| Michigan |
| 1 |
|
| 50,791 |
|
|
| — |
|
|
| — |
|
| 1 |
|
| 50,791 |
|
Pick ‘n Save |
| Ohio |
| 1 |
|
| 45,608 |
|
|
| — |
|
|
| — |
|
| 1 |
|
| 45,608 |
|
Germantown Fresh Market |
| Ohio |
| 1 |
|
| 31,764 |
|
|
| — |
|
|
| — |
|
| 1 |
|
| 31,764 |
|
Prairie Market |
| South Dakota |
| 1 |
|
| 32,528 |
|
|
| — |
|
|
| — |
|
| 1 |
|
| 32,528 |
|
Dillonvale IGA |
| Ohio |
| 1 |
|
| 25,627 |
|
|
| — |
|
|
| — |
|
| 1 |
|
| 25,627 |
|
Madison Fresh Market |
| Wisconsin |
| 1 |
|
| 21,470 |
|
|
| — |
|
|
| — |
|
| 1 |
|
| 21,470 |
|
Purdue Fresh Market |
| Indiana |
| 1 |
|
| 21,622 |
|
|
| — |
|
|
| — |
|
| 1 |
|
| 21,622 |
|
Wholesale Food Outlet |
| Iowa |
| 1 |
|
| 19,620 |
|
|
| — |
|
|
| — |
|
| 1 |
|
| 19,620 |
|
Total |
|
|
| 133 |
|
| 5,516,678 |
|
| 30 |
|
|
| 1,221,749 |
|
| 163 |
|
| 6,738,427 |
|
Retail Segment |
| |||||||||||||||||||||
|
|
|
| Leased |
|
| Owned |
|
| Total |
| |||||||||||
|
|
|
| Number |
| Square |
|
| Number |
|
| Square |
|
| Number |
| Square |
| ||||
Grocery Store Retail Banner |
| Location |
| of Stores |
| Feet |
|
| of Stores |
|
| Feet |
|
| of Stores |
| Feet |
| ||||
Family Fare Supermarkets |
| Michigan, Minnesota, Nebraska, North Dakota, South Dakota, Iowa |
| 77 |
|
| 3,335,835 |
|
| 7 |
|
|
| 374,244 |
|
| 84 |
|
| 3,710,079 |
| |
D&W Fresh Market |
| Michigan |
| 9 |
|
| 437,860 |
|
| 2 |
|
|
| 84,458 |
|
| 11 |
|
| 522,318 |
| |
VG’s Grocery |
| Michigan |
| 8 |
|
| 365,366 |
|
| 1 |
|
|
| 37,223 |
|
| 9 |
|
| 402,589 |
| |
Family Fresh Market |
| Minnesota, Nebraska, Wisconsin |
| 1 |
|
| 32,650 |
|
| 5 |
|
|
| 247,223 |
|
| 6 |
|
| 279,873 |
| |
Dan's Supermarket |
| North Dakota |
| 6 |
|
| 278,477 |
|
|
| — |
|
|
| — |
|
| 6 |
|
| 278,477 |
|
Econofoods |
| Minnesota, Wisconsin |
| 3 |
|
| 111,278 |
|
| 4 |
|
|
| 95,635 |
|
| 7 |
|
| 206,913 |
| |
Sun Mart Foods |
| Minnesota, Nebraska |
| 1 |
|
| 31,733 |
|
| 5 |
|
|
| 150,897 |
|
| 6 |
|
| 182,630 |
| |
Valu Land |
| Michigan |
| 5 |
|
| 112,908 |
|
|
| — |
|
|
| — |
|
| 5 |
|
| 112,908 |
|
Supermercado Nuestra Familia |
| Nebraska |
| 1 |
|
| 22,540 |
|
| 2 |
|
|
| 83,279 |
|
| 3 |
|
| 105,819 |
| |
No Frills Supermarkets |
| Iowa, Nebraska |
| 3 |
|
| 61,060 |
|
|
| — |
|
|
| — |
|
| 3 |
|
| 61,060 |
|
Forest Hills Foods |
| Michigan |
| 1 |
|
| 50,791 |
|
|
| — |
|
|
| — |
|
| 1 |
|
| 50,791 |
|
Pick ‘n Save |
| Ohio |
| 1 |
|
| 45,608 |
|
|
| — |
|
|
| — |
|
| 1 |
|
| 45,608 |
|
Dillonvale IGA |
| Ohio |
| 1 |
|
| 25,627 |
|
|
| — |
|
|
| — |
|
| 1 |
|
| 25,627 |
|
Fresh City Market |
| Indiana |
| 1 |
|
| 21,622 |
|
|
| — |
|
|
| — |
|
| 1 |
|
| 21,622 |
|
Fresh Madison Market |
| Wisconsin |
| 1 |
|
| 21,470 |
|
|
| — |
|
|
| — |
|
| 1 |
|
| 21,470 |
|
Total |
|
|
| 119 |
|
| 4,954,825 |
|
| 26 |
|
|
| 1,072,959 |
|
| 145 |
|
| 6,027,784 |
|
The Company also owns two additionalone fuel centerscenter that areis not reflected in the retail square footage above: a Family Fare Quick Stop in Michigan that is not included atwith a supermarket locationcorporate owned retail store but is adjacent to itsthe Company’s corporate headquarters and Sun Mart Express Gas in Fergus Falls, Minnesota.headquarters. Also not reflected in the retail square footage above areis one stand-alone pharmaciespharmacy located in Cannon Falls, Minnesota; Clear Lake, Iowa; and Barron, Wisconsin.Iowa.
The Company’s service centers are located in Grand Rapids, Michigan; Minneapolis, Minnesota; and Norfolk, Virginia; consisting of office space of approximately 286,100 square feet in Company-owned buildings and 26,30033,000 square feet in leased facilities. The Company also leases two additional off-site storage facilities consisting of approximately 50,300 square feet. The Company owns and leases to independent retailers seven stores totaling approximately 370,000 square feet and owns and leases to a third party one warehouse of approximately 400,000 square feet.
-18-
Item 3. Legal Proceedings
TheFrom time-to-time, 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. Additionally, various lawsuits and claims, arising in the ordinary course of business, are pending or have been asserted against the Company. While the ultimate effect of such actions, lawsuits and claims cannot be predicted with certainty, management believes that their outcome will not result in a material adverse effect on the Company’s consolidated financial position, operating results or liquidity.
Various lawsuits and claims, arising in the ordinary course of business, are pending or have been asserted against the Company. While the ultimate effect of such lawsuits and claims cannot be predicted with certainty, management believes that their outcome will not result in an adverse effect on the Company’s consolidated financial position, operating results or liquidity. Legal proceedings, various lawsuits, claims, and other matters are more fully described in Note 89, Commitments and Contingencies, in the notes to the consolidated financial statements, in Item 8 of this report; this informationwhich is herein incorporated herein by reference.reference.
Item 4.Mine Safety Disclosure
Not Applicable
-19-16-
Item 5.Market for Registrant’s Common Equity and Related Stockholder Matters
SpartanNash common stock is traded on the NASDAQ Global Select Market under the trading symbol “SPTN.”
Stock sale prices are based on transactions reported on the NASDAQ Global Select Market. Information on quarterly high and low sales prices for SpartanNash common stock for each of the last two fiscal years is as follows:
| Year Ended January 2, 2016 |
|
|
|
| 2017 |
| ||||||||||||||||||||||||||||||||||||||||||||
| Full Year |
|
| 4th Quarter |
|
| 3rd Quarter |
|
| 2nd Quarter |
|
| 1st Quarter |
|
|
|
| Full Year |
|
| 4th Quarter |
|
| 3rd Quarter |
|
| 2nd Quarter |
|
| 1st Quarter |
| ||||||||||||||||||||
| (52 Weeks) |
|
| (12 Weeks) |
|
| (12 Weeks) |
|
| (12 Weeks) |
|
| (16 Weeks) |
|
|
|
| (52 Weeks) |
|
| (12 Weeks) |
|
| (12 Weeks) |
|
| (12 Weeks) |
|
| (16 Weeks) |
| ||||||||||||||||||||
Common stock price - High | $ |
| 33.89 |
|
| $ |
| 28.94 |
|
| $ |
| 33.84 |
|
| $ |
| 33.89 |
|
| $ |
| 32.73 |
|
|
|
| $ |
| 40.33 |
|
| $ |
| 26.99 |
|
| $ |
| 27.74 |
|
| $ |
| 37.80 |
|
| $ |
| 40.33 |
|
Common stock price - Low |
|
| 20.99 |
|
|
|
| 20.99 |
|
|
| 24.85 |
|
|
| 30.11 |
|
|
| 24.44 |
|
|
|
|
| 19.85 |
|
|
|
| 19.85 |
|
|
| 23.26 |
|
|
| 25.08 |
|
|
| 31.54 |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
| Year Ended January 3, 2015 |
|
|
|
| 2016 |
| ||||||||||||||||||||||||||||||||||||||||||||
| Full Year |
|
| 4th Quarter |
|
| 3rd Quarter |
|
| 2nd Quarter |
|
| 1st Quarter |
|
|
|
| Full Year |
|
| 4th Quarter |
|
| 3rd Quarter |
|
| 2nd Quarter |
|
| 1st Quarter |
| ||||||||||||||||||||
| (53 Weeks) |
|
| (13 Weeks) |
|
| (12 Weeks) |
|
| (12 Weeks) |
|
| (16 Weeks) |
|
|
|
| (52 Weeks) |
|
| (12 Weeks) |
|
| (12 Weeks) |
|
| (12 Weeks) |
|
| (16 Weeks) |
| ||||||||||||||||||||
Common stock price - High | $ |
| 26.89 |
|
| $ |
| 26.89 |
|
| $ |
| 22.50 |
|
| $ |
| 24.68 |
|
| $ |
| 25.74 |
|
|
|
| $ |
| 39.96 |
|
| $ |
| 39.96 |
|
| $ |
| 33.89 |
|
| $ |
| 31.48 |
|
| $ |
| 31.01 |
|
Common stock price - Low |
|
| 19.16 |
|
|
|
| 19.88 |
|
|
| 19.16 |
|
|
| 19.44 |
|
|
| 21.00 |
|
|
|
|
| 17.66 |
|
|
|
| 27.27 |
|
|
| 27.96 |
|
|
| 25.29 |
|
|
| 17.66 |
|
At February 26, 2016,23, 2018, there were approximately 1,3401,300 shareholders of record of SpartanNash common stock. The Company has paid a quarterly cash dividend every quarter since the fourth quarter of fiscal 2006.
The table below outlines quarterly dividends paid on Spartan Stores and SpartanNash common stock in each of the last three fiscal years as well as the Board of Directors’ currently anticipated quarterly dividend:years:
| Dividend per |
| ||||
Effective Quarter | common share |
| ||||
|
| |||||
|
|
|
| |||
| $ |
| 0.135 |
| ||
|
|
|
| 0.150 | ||
1st through 4th quarters of 2017 | 0.165 |
|
Under its 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 prepayments of the senior notes and share repurchases, do not exceed $25.0$35.0 million. Additionally, the Company is generally permitted to pay cash dividends and repurchase shares in excess of $25.0$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 prepayments, repurchases and dividends.
Although the Company expects to continue to pay a quarterly cash dividend, adoption of a dividend policy does not commit the Board of Directors (the “Board”) to declare future dividends. Each future dividend will be considered and declared by the Board of Directors at its discretion. Whether the Board of Directors continues to declare dividends and repurchase shares depends on a number of factors, including the Company’s future financial condition, anticipated profitability and cash flows, and compliance with the terms of its credit facilities. In May 2011, the Board of Directors authorized a five-year share repurchase program for up to $50 million of SpartanNash’s common stock.
stock that expired in May 2016, after the completion of the 2016 repurchases. During the fiscal years ended January 2,first quarter of 2016, the Board authorized a new five-year share repurchase program for an additional $50 million of SpartanNash’s common stock. During the fourth quarter of 2017, the Board authorized an incremental $50 million share repurchase program expiring in 2022. After the 2017 repurchases were made, $65.0 million remains available under these programs.
|
|
|
|
| Average |
| ||
| Total Number |
|
| Price Paid |
| |||
Fiscal Period | of Shares Purchased |
|
| per Share |
| |||
October 8 − November 4, 2017 |
| — |
|
| $ |
| — |
|
November 5 − December 2, 2017 |
| 192,551 |
|
|
|
| 22.46 |
|
December 3 − 30, 2017 |
| 312,739 |
|
|
|
| 26.12 |
|
Total |
| 505,290 |
|
| $ |
| 24.73 |
|
During 2017, 2016 and January 3, 2015, the Company repurchased 282,3631,367,432; 396,030; and 245,956282,363 shares of common stock for approximately $35.0 million, $9.0 million, and $5.0$9.0 million, respectively. The Company did not repurchase any shares under this program during the 39-week period ended December 28, 2013. The approximate dollar value of shares that may yet to be purchased under the repurchase plan was $12.3 million as of January 2, 2016.
The equity compensation plans table in Part III, Item 12 of this report is hereherein incorporated by reference.
There were no purchases of the Company’s own common stock during the last quarter of the fiscal year ended January 2, 2016.-17-
Performance Graph
Set forth below is a graph comparing the cumulative total shareholder return on SpartanNash common stock to that of the Russell 2000 Total Return Index and the NASDAQ Retail Trade Index, over a period beginning March 26, 201130, 2013 and ending on January 2, 2016.December 30, 2017.
-20-
Cumulative total return is measured by the sum of (1) the cumulative amount of dividends for the measurement period, assuming dividend reinvestment, and (2) the difference between the share price at the end and the beginning of the measurement period, divided by the share price at the beginning of the measurement period.
The dollar values for total shareholder return plotted above are shown in the table below:
| March 26, |
|
| March 31, |
|
| March 30, |
|
| December 28, |
|
| January 3, |
|
| January 2, |
| March 30, |
|
| December 28, |
|
| January 3, |
|
| January 2, |
|
| December 31, |
|
| December 30, |
| ||||||||||||||||||||||||
| 2011 |
|
| 2012 |
|
| 2013 |
|
| 2013 |
|
| 2015 |
|
| 2016 |
| 2013 |
|
| 2013 |
|
| 2015 |
|
| 2016 |
|
| 2016 |
|
| 2017 |
| ||||||||||||||||||||||||
SpartanNash | $ |
| 100.00 |
|
| $ |
| 122.17 |
|
| $ |
| 120.70 |
|
| $ |
| 165.32 |
|
| $ |
| 183.74 |
|
| $ |
| 157.25 |
| $ |
| 100.00 |
|
| $ |
| 136.96 |
|
| $ |
| 152.22 |
|
| $ |
| 130.27 |
|
| $ |
| 242.69 |
|
| $ |
| 167.78 |
|
Russell 2000 Total Return Index |
|
| 100.00 |
|
|
| 102.25 |
|
|
| 118.92 |
|
|
| 146.54 |
|
|
| 153.32 |
|
|
| 147.27 |
|
|
| 100.00 |
|
|
| 123.23 |
|
|
| 128.93 |
|
|
| 123.84 |
|
|
| 150.23 |
|
|
|
| 172.24 |
| |||||||||
NASDAQ Retail Trade |
|
| 100.00 |
|
|
| 130.49 |
|
|
| 141.80 |
|
|
| 168.88 |
|
|
| 188.74 |
|
|
| 198.20 |
|
|
| 100.00 |
|
|
| 118.85 |
|
|
| 132.07 |
|
|
| 138.06 |
|
|
| 139.64 |
|
|
|
| 148.54 |
|
The information set forth under the Heading “Performance Graph” shall not be deemed to be “soliciting material” or to be “filed” with the Commission or subject to Regulation 14A or 14C, or to the liabilities of Section 18 of the Exchange Act, except to the extent that the registrant specifically requests that such information be treated as soliciting material or specifically incorporates it by reference into a filing under the Securities Act or the Exchange Act.
-21--18-
Item 6. Selected Financial Data
The following table provides selected historical consolidated financial information of SpartanNash for each of the five fiscal years and periods ended March 31, 2012December 28, 2013 through January 2, 2016. For comparability purposes,December 30, 2017, all of which were 52 week years with the Company has also provided selected historical consolidated financial information forexception of 2014 which was a 53-week year and the 51-week period39-week transition year ended December 28, 2013.
| Year Ended |
|
| Period Ended |
|
| Fiscal Year Ended |
| |||||||||||||||||||||
| January 2, |
|
| January 3, |
|
| December 28, |
|
| December 28, |
|
| March 30, |
|
| March 31, |
| ||||||||||||
| 2016 |
|
| 2015 |
|
| 2013 |
|
| 2013 (A) |
|
| 2013 |
|
| 2012 |
| ||||||||||||
(In thousands, except per share data) | (52 Weeks) |
|
| (53 Weeks) |
|
| (51 Weeks) |
|
| (39 Weeks) |
|
| (52 Weeks) |
|
| (53 Weeks) |
| ||||||||||||
Statements of Earnings Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales | $ |
| 7,651,973 |
|
| $ |
| 7,916,062 |
|
| $ |
| 3,190,039 |
|
| $ |
| 2,597,230 |
|
| $ |
| 2,608,160 |
|
| $ |
| 2,634,226 |
|
Cost of sales |
|
| 6,536,291 |
|
|
|
| 6,759,988 |
|
|
|
| 2,570,516 |
|
|
|
| 2,110,350 |
|
|
|
| 2,062,616 |
|
|
|
| 2,078,116 |
|
Gross profit |
|
| 1,115,682 |
|
|
|
| 1,156,074 |
|
|
|
| 619,523 |
|
|
|
| 486,880 |
|
|
|
| 545,544 |
|
|
|
| 556,110 |
|
Selling, general and administrative expenses |
|
| 975,572 |
|
|
|
| 1,022,387 |
|
|
|
| 546,100 |
|
|
|
| 433,450 |
|
|
|
| 482,987 |
|
|
|
| 489,650 |
|
Merger integration and acquisition |
|
| 8,433 |
|
|
|
| 12,675 |
|
|
|
| 20,993 |
|
|
|
| 20,993 |
|
|
|
| — |
|
|
|
| — |
|
Restructuring charges and asset impairment (B) |
|
| 8,802 |
|
|
|
| 6,166 |
|
|
|
| 16,877 |
|
|
|
| 15,644 |
|
|
|
| 1,589 |
|
|
|
| (23 | ) |
Operating earnings |
|
| 122,875 |
|
|
|
| 114,846 |
|
|
|
| 35,553 |
|
|
|
| 16,793 |
|
|
|
| 60,968 |
|
|
|
| 66,483 |
|
Interest expense |
|
| 21,820 |
|
|
|
| 24,414 |
|
|
|
| 12,209 |
|
|
|
| 9,219 |
|
|
|
| 13,410 |
|
|
|
| 15,037 |
|
Loss on debt extinguishment |
|
| 1,171 |
|
|
|
| — |
|
|
|
| 8,289 |
|
|
|
| 5,527 |
|
|
|
| 5,047 |
|
|
|
| — |
|
Other, net |
|
| (375 | ) |
|
|
| (17 | ) |
|
|
| (27 | ) |
|
|
| (23 | ) |
|
|
| (756 | ) |
|
|
| (110 | ) |
Earnings before income taxes and discontinued operations |
|
| 100,259 |
|
|
|
| 90,449 |
|
|
|
| 15,082 |
|
|
|
| 2,070 |
|
|
|
| 43,267 |
|
|
|
| 51,556 |
|
Income taxes |
|
| 37,093 |
|
|
|
| 31,329 |
|
|
|
| 5,914 |
|
|
|
| 841 |
|
|
|
| 15,425 |
|
|
|
| 19,686 |
|
Earnings from continuing operations |
|
| 63,166 |
|
|
|
| 59,120 |
|
|
|
| 9,168 |
|
|
|
| 1,229 |
|
|
|
| 27,842 |
|
|
|
| 31,870 |
|
Loss from discontinued operations, net of taxes (C) |
|
| (456 | ) |
|
|
| (524 | ) |
|
|
| (725 | ) |
|
|
| (488 | ) |
|
|
| (432 | ) |
|
|
| (112 | ) |
Net earnings | $ |
| 62,710 |
|
| $ |
| 58,596 |
|
| $ |
| 8,443 |
|
| $ |
| 741 |
|
| $ |
| 27,410 |
|
| $ |
| 31,758 |
|
Basic earnings from continuing operations per share | $ |
| 1.68 |
|
| $ |
| 1.57 |
|
| $ |
| 0.39 |
|
| $ |
| 0.05 |
|
| $ |
| 1.28 |
|
| $ |
| 1.40 |
|
Diluted earnings from continuing operations per share |
|
| 1.67 |
|
|
|
| 1.57 |
|
|
|
| 0.39 |
|
|
|
| 0.05 |
|
|
|
| 1.27 |
|
|
|
| 1.39 |
|
Basic earnings per share |
|
| 1.67 |
|
|
|
| 1.56 |
|
|
|
| 0.36 |
|
|
|
| 0.03 |
|
|
|
| 1.26 |
|
|
|
| 1.39 |
|
Diluted earnings per share |
|
| 1.66 |
|
|
|
| 1.55 |
|
|
|
| 0.36 |
|
|
|
| 0.03 |
|
|
|
| 1.25 |
|
|
|
| 1.39 |
|
Cash dividends declared per share |
|
| 0.54 |
|
|
|
| 0.48 |
|
|
|
| 0.35 |
|
|
|
| 0.27 |
|
|
|
| 0.32 |
|
|
|
| 0.26 |
|
Balance Sheet Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets (D) | $ |
| 1,925,448 |
|
| $ |
| 1,932,282 |
|
| $ |
| 1,983,651 |
|
| $ |
| 1,983,651 |
|
| $ |
| 787,357 |
|
| $ |
| 761,891 |
|
Property and equipment, net |
|
| 583,698 |
|
|
|
| 597,150 |
|
|
|
| 628,482 |
|
|
|
| 628,482 |
|
|
|
| 272,126 |
|
|
|
| 256,776 |
|
Working capital (D) |
|
| 396,263 |
|
|
|
| 455,694 |
|
|
|
| 418,076 |
|
|
|
| 418,076 |
|
|
|
| 10,869 |
|
|
|
| 23,102 |
|
Long-term debt and capital lease obligations |
|
| 475,978 |
|
|
|
| 550,510 |
|
|
|
| 598,319 |
|
|
|
| 598,319 |
|
|
|
| 145,876 |
|
|
|
| 133,565 |
|
Shareholders’ equity |
|
| 790,779 |
|
|
|
| 747,253 |
|
|
|
| 706,873 |
|
|
|
| 706,873 |
|
|
|
| 335,655 |
|
|
|
| 323,608 |
|
| Year Ended |
|
| Period Ended |
| ||||||||||||||||||||||||
(In thousands, except per share data) | 2017 |
|
| 2016 |
|
| 2015 |
|
| 2014 |
|
| 2013 (a) |
|
| 2013 (a) |
| ||||||||||||
Statements of Operations Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales | $ |
| 8,128,082 |
|
| $ |
| 7,734,600 |
|
| $ |
| 7,651,973 |
|
| $ |
| 7,916,062 |
|
| $ |
| 3,190,039 |
|
| $ |
| 2,597,230 |
|
Gross profit |
|
| 1,144,909 |
|
|
|
| 1,111,494 |
|
|
|
| 1,115,682 |
|
|
|
| 1,156,074 |
|
|
|
| 619,523 |
|
|
|
| 486,880 |
|
Selling, general and administrative expenses |
|
| 1,014,665 |
|
|
|
| 963,652 |
|
|
|
| 975,572 |
|
|
|
| 1,022,387 |
|
|
|
| 546,100 |
|
|
|
| 433,450 |
|
Merger/acquisition and integration |
|
| 8,101 |
|
|
|
| 6,959 |
|
|
|
| 8,433 |
|
|
|
| 12,675 |
|
|
|
| 20,993 |
|
|
|
| 20,993 |
|
Restructuring charges and asset impairment (b) |
|
| 228,459 |
|
|
|
| 32,116 |
|
|
|
| 8,802 |
|
|
|
| 6,166 |
|
|
|
| 16,877 |
|
|
|
| 15,644 |
|
Operating (loss) earnings |
|
| (106,316 | ) |
|
|
| 108,767 |
|
|
|
| 122,875 |
|
|
|
| 114,846 |
|
|
|
| 35,553 |
|
|
|
| 16,793 |
|
(Loss) earnings before income taxes and discontinued operations |
|
| (131,644 | ) |
|
|
| 89,963 |
|
|
|
| 100,259 |
|
|
|
| 90,449 |
|
|
|
| 15,082 |
|
|
|
| 2,070 |
|
Income tax (benefit) expense (c) |
|
| (79,027 | ) |
|
|
| 32,907 |
|
|
|
| 37,093 |
|
|
|
| 31,329 |
|
|
|
| 5,914 |
|
|
|
| 841 |
|
(Loss) earnings from continuing operations |
|
| (52,617 | ) |
|
|
| 57,056 |
|
|
|
| 63,166 |
|
|
|
| 59,120 |
|
|
|
| 9,168 |
|
|
|
| 1,229 |
|
Net (loss) earnings | $ |
| (52,845 | ) |
| $ |
| 56,828 |
|
| $ |
| 62,710 |
|
| $ |
| 58,596 |
|
| $ |
| 8,443 |
|
| $ |
| 741 |
|
Diluted (loss) earnings from continuing operations per share |
|
| (1.41 | ) |
|
|
| 1.52 |
|
|
|
| 1.67 |
|
|
|
| 1.57 |
|
|
|
| 0.39 |
|
|
|
| 0.05 |
|
Diluted (loss) earnings per share |
|
| (1.41 | ) |
|
|
| 1.51 |
|
|
|
| 1.66 |
|
|
|
| 1.55 |
|
|
|
| 0.36 |
|
|
|
| 0.03 |
|
Cash dividends declared per share |
|
| 0.66 |
|
|
|
| 0.60 |
|
|
|
| 0.54 |
|
|
|
| 0.48 |
|
|
|
| 0.35 |
|
|
|
| 0.27 |
|
Balance Sheet Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets (d) | $ |
| 2,055,797 |
|
| $ |
| 1,930,336 |
|
| $ |
| 1,917,263 |
|
| $ |
| 1,923,455 |
|
| $ |
| 1,973,366 |
|
| $ |
| 1,973,366 |
|
Property and equipment, net |
|
| 600,240 |
|
|
|
| 559,722 |
|
|
|
| 583,698 |
|
|
|
| 597,150 |
|
|
|
| 628,482 |
|
|
|
| 628,482 |
|
Working capital (d) (e) |
|
| 509,705 |
|
|
|
| 387,507 |
|
|
|
| 396,263 |
|
|
|
| 455,694 |
|
|
|
| 418,076 |
|
|
|
| 418,076 |
|
Long-term debt and capital lease obligations (e) |
|
| 740,755 |
|
|
|
| 413,675 |
|
|
|
| 467,793 |
|
|
|
| 541,683 |
|
|
|
| 588,034 |
|
|
|
| 588,034 |
|
Shareholders’ equity |
|
| 721,950 |
|
|
|
| 825,407 |
|
|
|
| 790,779 |
|
|
|
| 747,253 |
|
|
|
| 706,873 |
|
|
|
| 706,873 |
|
|
| The operating results of Nash-Finch are included in the consolidated statements of operations beginning on November 19, 2013. The Company’s fiscal year end was changed from the last Saturday in March beginning with the 39-week transition year ended December 28, 2013. For comparability purposes, the Company has also provided selected historical consolidated financial |
| (b) | In 2017, the Company recorded a $189.0 million goodwill impairment charge related to its Retail segment and $33.7 million of asset impairment charges primarily associated with long-lived assets in the Retail segment. See Note |
| (c) | In 2017, income taxes were impacted by the revaluation of deferred tax liabilities related to the corporate tax rate reduction enacted in the Tax Cuts and Jobs Act. Refer to Note 13, Income Tax, in the notes to consolidated financial statements for further explanation. |
(d) | See Note 1, Summary of Significant Accounting Policies and Basis of Presentation, in the notes to consolidated financial statements. Due to the retrospective adoption of ASU 2015-03, “Interest – Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs” in 2016, debt issuance costs were reclassified from Other assets, net to Long-term liabilities for all periods presented. This resulted in a decrease in Total assets and Long-term debt and capital lease obligations of $8,185, $8,827 and $10,285 at January 2, 2016, January 3, 2015 and December 28, 2013, respectively. |
| (e) | See Note 1, Summary of Significant Accounting Policies and Basis of Presentation, in the notes to consolidated financial statements. Due to the retrospective adoption of ASU 2015-17, “Balance Sheet Classification of Deferred |
-19-
Historical data is not necessarily indicative of the Company’s future results of operations or financial condition. See discussion of “Risk Factors” in Part I, Item 1A of this report; “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of this report; and the consolidated financial statements and notes thereto in Part II, Item 8 of this Annual Report on Form 10-K.
-22-
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
About SpartanNash
SpartanNash, is headquartered in Grand Rapids, Michigan, and is a leading multi-regional grocery distributor and grocery retailer whose core businesses include distributing grocery products to independent grocery retailers (“independent retailers”), national retailers, its corporate owned retail stores, and the largestU.S. military commissaries and exchanges. Through its Military segment, SpartanNash is a leading distributor by revenue, of grocery products to military commissaries in the United States. The Company’s Retail segment operates neighborhood supermarkets that emphasize value beyond price, affordable wellness, commitment to local products and, as demonstrated throughout the organization, caring for their community and environment. The Company operates three reportable business segments: Military, Food Distribution, Military and Retail.
On November 19, 2013, Spartan Stores, Inc. (“Spartan Stores”) merged with Nash-FinchThe Company’s Food Distribution segment provides a wide variety of nationally branded and private brand grocery products and perishable food products to approximately 2,100 independent retailers, the Company’s corporate owned retail stores, food service distributors and various other customers. Through its Food Distribution segment, the Company (“Nash-Finch”). Underalso services national retailers, including Dollar General. Sales to Dollar General are made to more than 14,000 of its retail locations. The Food Distribution segment currently services customers in 47 states, primarily in the termsMidwest and Southeast regions of the merger agreement, each share of Nash-Finch common stock was converted into 1.2 shares of Spartan Stores common stock. The results of operations of Nash-Finch are included in the accompanying consolidated financial statements from the date of merger. Following the merger, Nash-Finch Company became a wholly-owned subsidiary of SpartanNash. United States.
The Company’s Military segment contracts with manufacturers to distribute a wide variety of grocery products, including dry groceries, beverages, meat, and frozen foods, primarily to military commissaries and exchanges located in the United States, the District of Columbia, Europe, Cuba, Puerto Rico, Italy, Bahrain, Djibouti and Egypt. The Company is also the DeCA exclusive worldwide supplier of private brand grocery and related products to U.S. military commissaries. The Company has over 40 years of experience acting as a distributor to U.S. military commissaries and exchanges.
The Company’s Food DistributionRetail segment provides a wide variety of nationally branded and private label grocery products and perishable food products to approximately 2,100 independentoperated 145 corporate owned retail locations and 163 corporate-owned retail stores. The Food Distribution segment currently conducts business in 47 states, primarilystores in the Midwest Great Lakes, and Southeast regions of the United States.
The Company’s Retail segment operates 163 supermarkets in the Midwest and Great Lakesregion primarily under the banners of Family Fare Supermarkets, Family Fresh Markets, D&W Fresh Markets, VG’s Grocery, Dan’s Supermarketand Sun MartFamily Fresh Market. as of December 30, 2017. The Company offersalso offered pharmacy services in 9187 of its supermarketscorporate owned stores (of which 76 pharmacies are owned) and also operates 29operated 31 fuel centers.centers as of December 30, 2017. The retail supermarketsstores have a “neighborhood market” focusstrategy that focuses on value beyond price, affordable wellness, and commitment to distinguish them from supercenters and limited assortment stores.local products.
The Company’s fiscal year end is the last Saturday closest to December 31. The following discussion is as of and for the end of December, which was changed from the last Saturday in March beginning with the transition yearfiscal years ending or ended December 28, 2013. The Company’s fiscal years ended29, 2018 ("2018"), December 30, 2017 (“2017” or “current year”), December 31, 2016 (“2016” or “prior year”) and January 2, 2016 and January 3, 2015 consisted(“2015”), all of which include 52 and 53 weeks, respectively. The transition fiscal year ended December 28, 2013 consisted of 39 weeks. Under the December fiscal year format, allAll fiscal quarters are 12 weeks, except for the Company’s first quarter, which is 16 weeks and will generally include the Easter holiday. The fourth quarter includes the Thanksgiving and Christmas holidays. Fiscal 2014 was comprised of 53 weeksholidays, and as a result,depending on the fourth quarter of fiscal 2014 consisted of 13 weeks.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. In the Michigan geographic area, the Company’s first and second quarters are typically its lowest sales quarters. Therefore, operating results are generally lower during these two quarters.
Overview of 20152017
In 2015,2017, the Company continued to execute on its strategy to leverage its supply chain network to drive new and existing distribution business, invest in its Retail business, expand its consumer-centric merchandisingprivate brand offerings and marketing programs,customer convenience to provide a more differentiated product and layservice offering, and make targeted investments and strategic actions to enhance the groundwork for new business opportunities in the Food DistributionCompany’s retail store portfolio and Military segments. The Company continued to benefit from merger integration and improved operational efficiencies in its distribution network and retail operations.overall profitability. Despite the challenging operating environment, the Company delivered against its initiatives, strengtheningstrengthened its foundation and core competencies, and positioning the Companyhas positioned itself for continued earnings growth in 2016 and beyond.success.
Fiscal 2015 accomplishments and highlights include:
|
|
-23-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2016 Outlook
Initiatives for fiscal 2016 include:
|
|
|
|
|
|
|
|
|
|
|
|
The Company believes that it has built a strong foundation that will be supplemented by targeted investments to support yet another year of earnings growth.
The matters discussed in this Item 7 include forward-looking statements. See “Forward-Looking Statements” which appears at the beginning of this report and “Risk Factors” in Item 1A of this Annual Report on Form 10-K.
-24--20-
The Company’s 2017 accomplishments and developments include:
Food Distribution
The Company completed the Caito and BRT acquisition in the first quarter of 2017 and continues to make progress integrating operations. The acquired businesses contributed approximately 5% of net sales in 2017. The Company now offers its own fresh-cut fruits and vegetables to a number of different customers and corporate owned retail stores, and has also begun limited production at its new Fresh Kitchen facility. While the startup of the facility has been slower than anticipated, the Company remains confident in the value of the product offerings to its customers and in the long-term growth of the business.
The Company realized sales growth in its Food Distribution segment primarily due to contributions from the Caito and BRT acquisition and organic sales growth of 3.7% over the prior year. The Company continues to focus on new business prospects to drive sales and profits, including opportunities in alternative sales channels and those in areas which the Company has a competitive advantage to address complicated logistics issues. The Company’s Food Distribution segment grew sales in the fourth quarter of 2017, marking the 8th consecutive quarter of organic sales growth for the segment, while also making continued improvements to its supply chain to further optimize its network. In connection with the sales growth and continued focus to better service its customers, the Company further integrated its supply chain by servicing both Food Distribution and Military customers from combined warehouses in 2017, increasing asset utilization and providing more opportunities for the Company to expand these efforts in 2018.
Military
In December of 2016, the Company was selected by DeCA to be the exclusive worldwide supplier of private brand grocery and related products to U.S. military commissaries. In connection with the overall arrangement, the Company leveraged its private brand capabilities and expertise to help design and develop both of DeCA’s proprietary and commissary-specific private brands. The rollout of the private brand program began in the second quarter of 2017, and as of December 30, 2017, the Company had approximately 450 SKUs of private brand products in the DeCA system. The Company looks forward to continuing its partnership with DeCA and anticipates up to 1,400 SKUs will be added under the program in 2018.
In the third quarter of 2017, the Company entered into an agreement to obtain incremental distribution business from a DeCA provider exiting these operations in the Southwest United States. This new business, together with increasing contributions from the DeCA private brand program, helped reverse the negative sales trend experienced in the first half of 2017 and helped improve the earnings trend despite elevated costs associated with hurricane weather and inefficiencies resulting from the onboarding of significant new business.
Retail
The Company continues to make targeted capital investments by remodeling select retail stores in key geographies, including the conversion of certain stores to the Family Fare banner. The Company also continued its store rationalization program, and in connection with overall business strategies, sold four corporate owned retail stores to new and existing Food Distribution customers, suspended the operations of one store, and closed seven others in connection with lease expirations and store rationalization plans during the year. The Company was also able to negotiate favorable lease terminations at two of its previously closed retail stores during the year.
At the end of the second quarter, the Company introduced Fast Lane, its online ordering and curbside pick-up service, and offers the service at approximately 40 retail stores as of December 30, 2017. The Company believes Fast Lane is essential to increasing customer satisfaction through quality service and convenience, and accordingly, anticipates rolling out the service to up to 30 additional stores by the end of 2018. Furthermore, the Company began piloting home delivery services in the fourth quarter of 2017 and expects to expand the service throughout 2018 depending on customer demand.
The Company recorded non-cash goodwill and asset impairment charges resulting from lower-than-expected operating results in the Company’s Retail segment and the anticipation of a continued competitive retail environment. Despite the impairment charges, the Company is focused on improving recent trends through a number of initiatives aimed at enhancing the consumers’ experience through an expanded assortment of better for you products, convenient meal solutions and increased value offerings in private brands and produce. The Company expects these initiatives, including a number of other convenience and service offerings outlined below, will lead to increased customer satisfaction and loyalty as they are deployed over the next year.
-21-
Other
The Company continues to enhance its private brand programs for both independent customers and corporate owned stores. In the third quarter, the Company launched the Our Family® private brand in the Michigan region. The brand replaces the Company’s Spartan™ brand and provides the Company with a system-wide, national brand equivalent or better quality product offering. The move to Our Family® also allows the Company to streamline its supply chain to deliver a larger variety of product offerings at a lower cost to consumers. The Company has been pleased with customer acceptance of the brand as well as its transition, which has gone smoothly and is expected to continue into 2018. In the second quarter, the Company began incorporating its own fresh-cut fruits and vegetables into the Open Acres™ private brand, and during the second half of 2017, continued to grow this initiative in volume and selection based on customer acceptance and demand. Lastly, the Company continues to expand its living well offering, which includes the natural and organic Full Circle® private brand line, fresh products offered through the Caito acquisition, and a significant number of new SKUs across organic produce and healthier specialty items.
In the fourth quarter of 2017, the Company re-measured its deferred tax assets and liabilities to reflect a change in the federal statutory rate from 35% to 21%, effective January 1, 2018, resulting from the Tax Cuts and Jobs Act ("Tax Act") that was enacted on December 22, 2017. Prior to enactment, the Company implemented tax planning strategies aimed at maximizing certain tax benefits that could arise from changes in the tax code, including the acceleration of certain deductions. As a result of the Tax Act and related tax planning strategies, the Company realized a provisional deferred income tax benefit of $26.0 million in the fourth quarter in connection with the re-measurement of existing deferred tax balances.
The accomplishments above helped position the Company for future earnings growth, but the competitive landscape and recent developments also present challenges to the Company and potential changes in trends that could impact 2018. For fiscal 2018, the Company anticipates year-over-year sales growth to continue in the Food Distribution segment driven primarily by incremental sales to high-growth customers as well as contributions from Caito’s Fresh Kitchen facility. New military commissary business in the Southwest, which will benefit sales comparisons for the first half of 2018, and contributions from the ongoing expansion of the DeCA private brand program should continue to drive sales growth in the Military segment. The Company expects that its Retail stores’ comparable sales will improve to slightly negative to flat by the end of the year as the stores benefit from the Company’s new positioning of its offerings. The sales outlook takes into consideration the impact of the new revenue recognition standard, which upon adoption in the first quarter of 2018 will reduce fiscal 2017 net sales by approximately $160 million as certain Food Distribution contracts that are currently reported on a gross basis will be reported on a net basis as the Company concluded that it does not control the goods or services prior to transfer to the customer. While the retail environment remains challenging, the Company is focused on capitalizing on its growth opportunities and leveraging its differentiated business model to drive sales and profitability. The Company continues to take actions that it believes will enhance the convenience and value that it provides its customers and continues to see positive results from these investments. To enhance this momentum, the Company intends to invest approximately 50% of its tax reform savings in its associates and programs designed to improve the Company’s competitive position.
Results of Operations
The following table sets forth items from the Company’s consolidated statements of earningsoperations as a percentage of net sales and the year-to-year percentage change in dollar amounts:from the preceding year:
| Percentage of Net Sales |
|
| Percentage Change |
| ||||||||||||||||||
| January 2, |
|
| January 3, |
|
| December 28, |
|
| December 28, |
|
| 1/2/2016 to |
|
| 1/3/2015 to |
| ||||||
| 2016 |
|
| 2015 |
|
| 2013 |
|
| 2013 |
|
| 1/3/2015 |
|
| 12/28/2013 |
| ||||||
| (52 Weeks) |
|
| (53 Weeks) |
|
| (51 Weeks) |
|
| (39 Weeks) |
|
| 52 vs. 53 |
|
| 53 vs. 51 |
| ||||||
Net sales |
| 100.0 |
|
|
| 100.0 |
|
|
| 100.0 |
|
|
| 100.0 |
|
|
| (3.3 | ) |
|
| 148.1 |
|
Gross profit |
| 14.6 |
|
|
| 14.6 |
|
|
| 19.4 |
|
|
| 18.7 |
|
|
| (3.5 | ) |
|
| 86.6 |
|
Merger integration and acquisition |
| 0.1 |
|
|
| 0.1 |
| * |
| 0.7 |
|
|
| 0.8 |
|
|
| (33.5 | ) |
|
| (39.6 | ) |
Selling, general and administrative expenses |
| 12.8 |
| * |
| 12.9 |
|
|
| 17.1 |
|
|
| 16.7 |
|
|
| (4.6 | ) |
|
| 87.2 |
|
Restructuring charges and asset impairment |
| 0.1 |
|
|
| 0.1 |
|
|
| 0.5 |
|
|
| 0.6 |
|
|
| 42.8 |
|
|
| (63.5 | ) |
Operating earnings |
| 1.6 |
|
|
| 1.5 |
|
|
| 1.1 |
|
|
| 0.6 |
|
|
| 7.0 |
|
|
| 223.0 |
|
Other income and expenses |
| 0.3 |
|
|
| 0.4 |
| * |
| 0.6 |
|
|
| 0.5 |
| * |
| (7.3 | ) |
|
| 19.2 |
|
Earnings before income taxes and discontinued operations |
| 1.3 |
|
|
| 1.1 |
|
|
| 0.5 |
|
|
| 0.1 |
|
|
| 10.8 |
|
|
| 499.7 |
|
Income taxes |
| 0.5 |
|
|
| 0.4 |
|
|
| 0.2 |
|
|
| 0.1 |
| * |
| 18.4 |
|
|
| 429.7 |
|
Earnings from continuing operations |
| 0.8 |
|
|
| 0.7 |
|
|
| 0.3 |
|
|
| — |
|
|
| 6.8 |
|
|
| 544.9 |
|
Loss from discontinued operations, net of taxes |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (13.0 | ) |
|
| (27.7 | ) |
Net earnings |
| 0.8 |
|
|
| 0.7 |
|
|
| 0.3 |
|
|
| — |
|
|
| 7.0 |
|
|
| 594.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* Difference due to rounding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Percentage of Net Sales |
|
| Percentage Change |
| ||||||||||||||
|
|
| 2017 |
|
| 2016 |
|
| 2015 |
|
| 2017 |
|
| 2016 |
| |||||
Net sales |
|
| 100.0 |
|
|
| 100.0 |
|
|
| 100.0 |
|
|
| 5.1 |
|
|
| 1.1 |
| |
Gross profit |
|
| 14.1 |
|
|
| 14.4 |
|
|
| 14.6 |
|
|
| 3.0 |
|
|
| (0.4 | ) | |
Selling, general and administrative expenses |
|
| 12.5 |
|
|
| 12.5 |
|
|
| 12.8 |
| * |
| 5.3 |
|
|
| (1.2 | ) | |
Merger/acquisition and integration |
|
| 0.1 |
|
|
| 0.1 |
|
|
| 0.1 |
|
|
| 16.4 |
|
|
| (17.5 | ) | |
Restructuring charges and goodwill/asset impairment |
|
| 2.8 |
|
|
| 0.4 |
|
|
| 0.1 |
|
|
| 611.4 |
|
|
| 264.9 |
| |
Operating (loss) earnings |
|
| (1.3 | ) |
|
| 1.4 |
|
|
| 1.6 |
|
|
| (197.7 | ) |
|
| (11.5 | ) | |
Other income and expenses |
|
| 0.3 |
|
|
| 0.2 |
|
|
| 0.3 |
|
|
| 34.7 |
|
|
| (16.9 | ) | |
(Loss) earnings before income taxes and discontinued operations |
|
| (1.6 | ) |
|
| 1.2 |
|
|
| 1.3 |
|
|
| (246.3 | ) |
|
| (10.3 | ) | |
Income tax (benefit) expense |
|
| (1.0 | ) |
|
| 0.5 |
| * |
| 0.5 |
|
|
| (340.2 | ) |
|
| (11.3 | ) | |
(Loss) earnings from continuing operations |
|
| (0.6 | ) |
|
| 0.7 |
|
|
| 0.8 |
|
|
| (192.2 | ) |
|
| (9.7 | ) | |
Loss from discontinued operations, net of taxes |
|
| (0.1 | ) | * |
| — |
|
|
| — |
|
|
| — |
|
|
| (50.0 | ) | |
Net (loss) earnings |
|
|
| (0.7 | ) |
|
| 0.7 |
|
|
| 0.8 |
|
|
| (193.0 | ) |
|
| (9.4 | ) |
* Difference due to rounding
-22-
Results of Continuing Operations for 2017 Compared to 2016
Net Sales
|
|
|
| Percentage of |
|
|
|
| Percentage of |
|
|
|
|
|
|
|
|
| ||||||||||
|
|
|
| Total |
|
|
|
| Total |
|
|
|
|
|
| Percentage |
| |||||||||||
(In thousands) | 2017 |
|
| Net Sales |
| 2016 |
|
| Net Sales |
| Variance |
|
| Change |
| |||||||||||||
Food Distribution | $ |
| 3,992,192 |
|
|
| 49.1 |
| % |
| $ |
| 3,454,541 |
|
|
| 44.7 |
| % |
| $ |
| 537,651 |
|
|
| 15.6 |
|
Military |
|
| 2,144,022 |
|
|
| 26.4 |
|
|
|
|
| 2,197,014 |
|
|
| 28.4 |
|
|
|
|
| (52,992 | ) |
|
| (2.4 | ) |
Retail |
|
| 1,991,868 |
|
|
| 24.5 |
|
|
|
|
| 2,083,045 |
|
|
| 26.9 |
|
|
|
|
| (91,177 | ) |
|
| (4.4 | ) |
Total net sales | $ |
| 8,128,082 |
|
|
| 100.0 |
| % |
| $ |
| 7,734,600 |
|
|
| 100.0 |
| % |
| $ |
| 393,482 |
|
|
| 5.1 |
|
Net sales increased $393.5 million, or 5.1%, to $8.13 billion in 2017 from $7.73 billion in 2016. The increase in net sales was primarily attributable to contributions from the Caito acquisition, organic growth of 3.7% in the Food Distribution segment, new military commissary business in the Southwest in the second half of the year and increased contributions from the DeCA private brand program, partly offset by lower comparable sales at DeCA operated locations and lower sales at Retail resulting from the closure and sale of retail stores and a decrease in comparable store sales.
Food Distribution net sales, after intercompany eliminations, increased $537.7 million, or 15.6%, to $3.99 billion in 2017 from $3.45 billion in the prior year. The increase was primarily due to contributions from the Caito acquisition and organic growth of 3.7% related to incremental sales volume to existing customers.
Military net sales decreased $53.0 million, or 2.4%, to $2.14 billion in 2017 from $2.20 billion in the prior year. The decrease was primarily due to lower sales at the DeCA-operated commissaries, partially offset by new business in the Southwest and contributions from the DeCA private brand program.
Retail net sales decreased $91.2 million, or 4.4%, to $1.99 billion in 2017 from $2.08 billion in the prior year. The decrease in net sales was primarily attributable to $60.8 million of lower sales resulting from the closures and sales of retail stores as well as negative comparable store sales, partially offset by the impact of higher fuel prices. Comparable store sales for the year, excluding fuel, were negative 2.4% in both years. 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. The Company’s definition of comparable store sales may differ from similarly titled measures at other companies.
Gross Profit – Gross profit represents net sales less cost of sales, which is described in further detail within Note 1, Summary of Significant Accounting Policies and Basis of Presentation, in the notes to the consolidated financial statements. Gross profit increased $33.4 million, or 3.0%, to $1.14 billion in 2017 compared to $1.11 billion in the prior year. As a percent of net sales, gross profit decreased from 14.4% to 14.1% due to several factors, most notably the increased mix of Food Distribution sales as a percentage of total sales. The rate was also impacted by margin investments at both Retail and Food Distribution, the cycling of a significant prior year LIFO benefit and lower fuel margins, partially offset by higher margin rates in the Military segment.
Selling, General and Administrative Expenses – Selling, general and administrative (“SG&A”) expenses consist primarily of salaries and wages, employee benefits, warehousing costs, store occupancy costs, shipping and handling, utilities, equipment rental, depreciation (to the extent not included in Cost of Sales), out-bound freight and other administrative expenses. SG&A expenses increased $51.0 million, or 5.3%, to $1,014.7 million in 2017 from $963.7 million in the prior year, representing 12.5% of net sales in both years. The increase in SG&A expense was primarily attributable to higher operational expenses related to the Caito acquisition, increased healthcare costs and higher transportation and occupancy costs, partially offset by lower incentive compensation and other cost savings.
Merger/Acquisition and Integration Expenses – In 2017, $8.1 million of merger/acquisition and integration expenses were incurred mainly associated with the Caito and BRT acquisition, and to a lesser extent, other acquisition-related and ongoing merger activities. Prior year results included $7.0 million of merger/acquisition and integration expenses primarily associated with the Nash-Finch merger, particularly system upgrades and implementations, as well as costs incurred in connection with 2016 and 2015 acquisitions.
-23-
Restructuring Charges and Asset Impairment, Including Goodwill Impairment – In 2017, $228.5 million of net restructuring and asset impairment charges were incurred, predominantly associated with goodwill and asset impairment charges. The Company recorded a non-cash goodwill impairment charge of $189.0 million related to the Retail segment. The impairment was driven by significantly lower than expected Retail operating results due to an increasingly competitive retail environment and the related pricing pressures that are anticipated to negatively impact gross margin, operating profit, and future cash flows. The Company also recorded $35.6 million of asset impairment and restructuring charges primarily associated with the underlying performance of Company’s retail store base and the execution of its store rationalization program. Prior year results included $32.1 million of restructuring and asset impairment charges that consisted primarily of impairment charges related to four underperforming retail stores and restructuring charges primarily related to three retail stores and two food distribution centers. The facilities were closed as part of the Company’s retail store and warehouse rationalization plan.
Operating Earnings (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Change in |
| |||||||||||
|
|
|
| Percentage of |
|
|
|
| Percentage of |
|
|
|
|
|
| Percentage of |
| |||||||||||
(In thousands) | 2017 |
|
| Net Sales |
| 2016 |
|
| Net Sales |
| Variance |
|
| Net Sales |
| |||||||||||||
Food Distribution | $ |
| 83,296 |
|
|
| 2.1 |
| % |
| $ |
| 85,093 |
|
|
| 2.5 |
| % |
| $ |
| (1,797 | ) |
|
| (0.4 | ) |
Military |
|
| 7,014 |
|
|
| 0.3 |
|
|
|
|
| 12,160 |
|
|
| 0.6 |
|
|
|
|
| (5,146 | ) |
|
| (0.2 | ) |
Retail |
|
| (196,626 | ) |
|
| (9.9 | ) |
|
|
|
| 11,514 |
|
|
| 0.6 |
|
|
|
|
| (208,140 | ) |
|
| (10.4 | ) |
Operating (loss) earnings | $ |
| (106,316 | ) |
|
| (1.3 | ) | % |
| $ |
| 108,767 |
|
|
| 1.4 |
| % |
| $ |
| (215,083 | ) |
|
| (2.7 | ) |
The Company reported an operating loss of ($106.3) million in 2017 compared to operating earnings of $108.8 million in the prior year. The decrease of $215.1 million was primarily attributable to current year non-cash goodwill and asset impairment charges of $222.7 million, predominantly related to the Retail segment, higher costs associated with Caito operations and Fresh Kitchen start-up activities, as well as increased LIFO and health care expenses, partly offset by lower incentive compensation expense and various cost savings initiatives.
Food Distribution operating earnings decreased $1.8 million, or 2.1%, to $83.3 million in 2017 from $85.1 million in the prior year. The decrease was primarily attributable to Caito operations and Fresh Kitchen start-up activities and higher LIFO expense, partially offset by net sales growth from new and existing customers, lower incentive compensation and lower operating expenses associated with various cost savings initiatives.
Military operating earnings decreased $5.1 million to $7.0 million in 2017 from $12.2 million in the prior year. The decrease was primarily due to lower sales at the DeCA-operated commissaries, higher supply chain costs associated with industry-wide transportation cost challenges, onboarding and ramping up new and high-growth lines of business and increased healthcare and LIFO expense, partially offset by growth from the new military commissary business in the Southwest and the DeCA private brand program, as well as lower incentive compensation and margin improvements.
Retail reported an operating loss of ($196.6) million in 2017 compared to operating earnings of $11.5 million in the prior year. The decrease was primarily due to goodwill and higher asset impairment charges, lower comparable store sales, investments in margin and store labor, and higher occupancy and healthcare costs, partly offset by lower costs related to incentive compensation, depreciation, merger/acquisition and integration and closed stores.
Interest Expense – Interest expense increased $6.2 million, or 32.8%, to $25.3 million in 2017 from $19.1 million in the prior year primarily due to increased borrowings related to the Caito and BRT acquisition and the timing of working capital requirements.
Debt Extinguishment – A loss on debt extinguishment of $0.4 million was incurred in 2017 in connection with the pay down of the term loan component of the senior secured credit facility. A loss on debt extinguishment of $0.2 million was incurred in 2016 in connection with the amendment of the senior secured credit facility.
Income Taxes – The effective income tax rates were 60.0% and 36.6% for 2017 and 2016, respectively. In the fourth quarter of 2017, the Company re-measured its deferred tax assets and liabilities to reflect a change in the federal statutory rate from 35% to 21%, effective January 1, 2018, resulting from the Tax Act that was enacted on December 22, 2017. As a result, the Company realized a provisional deferred income tax benefit of $26.0 million. The Company’s 2018 tax provision will be recorded at an effective rate that contemplates the new lower statutory rate, and is currently anticipated to be between 23% and 24%, depending on levels of profitability overall and between jurisdictions. Refer to Note 13, Income Tax, within the notes to the consolidated financial statements for additional information regarding the Tax Act.
-24-
Differences from the federal statutory rate are primarily due to the re-measurement of deferred taxes mentioned previously, state taxes, tax benefits related to stock-based compensation and charitable product donations in the current year and state taxes in the prior year. The Company’s effective tax rate was impacted by the stock-based compensation benefits recognized resulting from the adoption of ASU 2016-09. The tax impacts of stock-based compensation are primarily generated in the first quarter due to the timing of awards and vesting schedules.
Results of Continuing Operations for 2016 Compared to 2015
Net Sales
|
|
|
| Percentage of |
|
|
|
| Percentage of |
|
|
|
|
|
|
|
|
| ||||||||||
|
|
|
| Total |
|
|
|
| Total |
|
|
|
|
|
| Percentage |
| |||||||||||
(In thousands) | 2016 |
|
| Net Sales |
| 2015 |
|
| Net Sales |
| Variance |
|
| Change |
| |||||||||||||
Food Distribution | $ |
| 3,454,541 |
|
|
| 44.7 |
| % |
| $ |
| 3,305,094 |
|
|
| 43.2 |
| % |
| $ |
| 149,447 |
|
|
| 4.5 |
|
Military |
|
| 2,197,014 |
|
|
| 28.4 |
|
|
|
|
| 2,207,161 |
|
|
| 28.8 |
|
|
|
|
| (10,147 | ) |
|
| (0.5 | ) |
Retail |
|
| 2,083,045 |
|
|
| 26.9 |
|
|
|
|
| 2,139,718 |
|
|
| 28.0 |
|
|
|
|
| (56,673 | ) |
|
| (2.6 | ) |
Total net sales | $ |
| 7,734,600 |
|
|
| 100.0 |
| % |
| $ |
| 7,651,973 |
|
|
| 100.0 |
| % |
| $ |
| 82,627 |
|
|
| 1.1 |
|
Net sales for 2016 increased $82.6 million, or 1.1%, to $7.73 billion from $7.65 billion in 2015. The increase was primarily driven by business gains from new and existing customers in the Food Distribution and Military segments, which more than offset the negative impact of food deflation on all segments; lower sales at the DeCA-operated commissaries; and lower sales attributable to both the decrease in comparable retail store sales and the closure of retail stores.
Food Distribution net sales, after intercompany eliminations, increased $149.4 million, or 4.5%, to $3.45 billion in 2016 from $3.31 billion in 2015. The increase was primarily due to business gains from new and existing customers, which more than offset the negative impact of deflation.
Military net sales decreased $10.1 million, or 0.5%, to $2.20 billion in 2016 from $2.21 billion in 2015. The decrease was primarily due to lower sales at the DeCA-operated commissaries, partially offset by new business gains associated with the distribution of fresh products.
Retail net sales decreased $56.7 million, or 2.6%, to $2.08 billion in 2016 from $2.14 billion in 2015. Comparable store sales for the year, excluding fuel, improved to -2.4 percent from -2.9 percent in 2015. Despite four consecutive quarters of improved comparable store sales trends over the course of fiscal 2016, the ongoing deflationary environment and continued challenging economic conditions, particularly in certain western geographies, contributed to the lower sales at Retail. Specifically, the decrease in net sales was attributable to the negative comparable store sales and $40.0 million of lower sales due to the closure of retail stores and a fuel center, partially offset by $40.0 million of full-year net sales contributions from stores acquired in 2015. 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. The Company’s definition of comparable store sales may differ from similarly titled measures at other companies.
Gross Profit – Gross profit represents net sales less cost of sales, which is described in further detail within Note 1, Summary of Significant Accounting Policies and Basis of Presentation, in the notes to the consolidated financial statements. Gross profit for 2016 was $1.11 billion compared to $1.12 billion in 2015. As a percent of net sales, gross profit decreased from 14.6% to 14.4% primarily due to the mix of business operations and the impact of continued deflation.
Selling, General and Administrative Expenses – Selling, general and administrative (“SG&A”) expenses consist primarily of salaries and wages, employee benefits, warehousing costs, store occupancy costs, shipping and handling, utilities, equipment rental, depreciation (to the extent not included in Cost of Sales), out-bound freight and other administrative expenses.
SG&A expenses decreased $11.9 million, or 0.4%, to $963.7 million in 2016 from $975.6 million in 2015, and were 12.5% of net sales in 2016 compared to 12.8% in 2015. The decrease was due primarily to benefits from merger synergies and cost reduction efforts, lower depreciation associated with fully depreciated assets, and the impact of retail store closures, partially offset by higher health care and other benefit costs. The decrease in the rate to net sales was primarily due to the factors mentioned previously.
-25-
Merger/Acquisition and Integration Expenses – Merger integration and acquisition expenses consist of costs to integrate operations following the merger with Nash-Finch as well as costs incurred in connection with 2016 and 2015 acquisitions. Merger integration and acquisition expenses decreased in 2016 as a result of completing various merger integration activities and despite acquisition-related costs associated with the Caito and BRT acquisition.
Restructuring Charges and Asset Impairment – In 2016, $32.1 million in charges were recognized primarily related to the closure of four retail stores and two distribution centers, which were part of the Company’s warehouse and retail store rationalization plan, as well as asset impairment charges associated with certain underperforming retail stores. In 2015, charges of $8.8 million were recognized related to the closures of six retail stores and one distribution center, as well as asset impairment charges associated with certain underperforming retail stores.
Operating Earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Change in |
| |||||||||||
|
|
|
| Percentage of |
|
|
|
| Percentage of |
|
|
|
|
|
| Percentage of |
| |||||||||||
(In thousands) | 2016 |
|
| Net Sales |
| 2015 |
|
| Net Sales |
| Variance |
|
| Net Sales |
| |||||||||||||
Food Distribution | $ |
| 85,093 |
|
|
| 2.5 |
| % |
| $ |
| 78,841 |
|
|
| 2.4 |
| % |
| $ |
| 6,252 |
|
|
| 0.1 |
|
Military |
|
| 12,160 |
|
|
| 0.6 |
|
|
|
|
| 17,059 |
|
|
| 0.8 |
|
|
|
|
| (4,899 | ) |
|
| (0.2 | ) |
Retail |
|
| 11,514 |
|
|
| 0.6 |
|
|
|
|
| 26,975 |
|
|
| 1.3 |
|
|
|
|
| (15,461 | ) |
|
| (0.7 | ) |
Operating earnings | $ |
| 108,767 |
|
|
| 1.4 |
| % |
| $ |
| 122,875 |
|
|
| 1.6 |
| % |
| $ |
| (14,108 | ) |
|
| (0.2 | ) |
Operating earnings decreased $14.1 million, or 11.5%, to $108.8 million in 2016 from $122.9 million in 2015. The decrease was primarily due to higher restructuring and asset impairment charges of $23.3 million and the impact of food deflation, which more than offset the sales growth at Food Distribution and lower operating expenses due in part to lower depreciation and productivity and efficiency initiatives.
Food Distribution operating earnings increased $6.3 million, or 7.9%, to $85.1 million in 2016 from $78.8 million in 2015. The increase was driven by sales growth from new and existing business, and lower operating expenses associated with supply chain improvements and lower depreciation, partially offset by higher costs for warehouse closings and health care benefits, as well as the negative impact of deflation.
Military operating earnings decreased $4.9 million, or 28.7%, to $12.2 million in 2016 from $17.1 million in 2015. The decrease was primarily due to lower sales at the DeCA-operated commissaries and the negative impact of deflation, which more than offset new business gains associated with the distribution of fresh products as well as lower restructuring and asset impairment charges that did not recur in 2016.
Retail operating earnings decreased $15.5 million, or 57.4%, to $11.5 million in 2016 from $27.0 million in 2015. The decrease was primarily due to higher restructuring and impairment charges and a decrease in comparable stores sales, partially offset by favorable rebate programs, higher fuel margins, and lower occupancy costs.
Interest Expense – Interest expense decreased $2.7 million, or 12.5%, to $19.1 million in 2016 from $21.8 million in 2015. The decrease in interest expense was primarily due to lower debt levels and lower interest rates primarily due the prepayment of $50.0 million of Senior Notes in 2015.
Debt Extinguishment – A loss on debt extinguishment of $0.2 million was incurred in 2016 in connection with the amendment of the senior secured credit facility. A loss of debt extinguishment of $1.2 million was incurred in 2015 in connection with the prepayment of the Senior Notes (see Debt Management under “Liquidity and Capital Resources”).
Income Taxes – The effective income tax rates were 36.6% and 37.0% for 2016 and 2015, respectively. The difference from the federal statutory rate in both 2016 and 2015 were primarily due to state income taxes.
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. In addition, securities analysts, fund managers and other shareholders and stakeholders that communicate with the Company request its financial results in these adjusted formats.
-26-
Current year adjusted operating earnings, adjusted earnings from continuing operations, and adjusted EBITDA exclude start-up costs associated with the new Fresh Kitchen operation, expenses (incentive compensation and professional fees) associated with tax planning strategies related to the 2017 Tax Cuts and Jobs Act, and an executive retirement stock compensation award. The Fresh Kitchen is a newly constructed facility that provides the Company with the ability to process, cook, and package fresh protein-based foods and complete meal solutions. Given the Fresh Kitchen represents a new line of business for the Company, the start-up activities associated with testing, training, and preparing the Fresh Kitchen for production, as well as incorporating the related operations into the business, are considered “non-operational” or “non-core” in nature. The Tax Cuts and Jobs Act was enacted in 2017 and resulted in a significant tax benefit to the Company due to the re-measurement of deferred taxes. The Company also incurred expenses related to tax planning strategies aimed at maximizing the tax benefit associated with the change in federal tax legislation. These items are not expected to recur in the foreseeable future and are considered “non-operational” or “non-core” in nature. The retirement stock compensation award represents incremental compensation expense in connection with an executive retirement that is also considered “non-operational” or “non-core” in nature.
Adjusted Operating Earnings
Adjusted operating earnings is a non-GAAP operating financial measure that the Company defines as operating earnings (loss) plus or minus adjustments for items that do not reflect the ongoing operating activities of the Company and costs associated with the closing of operational locations.
The Company believes that adjusted operating earnings provide a meaningful representation of its operating performance for the Company 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 an adjusted operating earnings format.
Adjusted operating earnings isand adjusted operating earnings by segment are not a measuremeasures 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 definitiondefinitions of adjusted operating earnings and adjusted operating earnings by segment may not be identical to similarly titled measures reported by other companies.
Following is a reconciliation of operating earnings (loss) to adjusted operating earnings for the fiscal years ended January 2, 2016 and January 3, 2015 and for the 39-week period ended December 28, 2013. For comparability purposes, the Company has also provided a reconciliation of operating earnings to adjusted operating earnings for the 51 weeks ended December 28, 2013. 2017, 2016 and 2015.
-25--27-
Year Ended |
|
| Period Ended |
| |||||||||||||||
| January 2, |
|
| January 3, |
|
| December 28, |
|
| December 28, |
| ||||||||
| 2016 |
|
| 2015 |
|
| 2013 |
|
| 2013 |
| ||||||||
(In thousands) | (52 Weeks) |
|
| (53 Weeks) |
|
| (51 weeks) |
|
| (39 weeks) |
| ||||||||
Operating earnings | $ |
| 122,875 |
|
| $ |
| 114,846 |
|
| $ |
| 35,553 |
|
| $ |
| 16,793 |
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merger integration and acquisition |
|
| 8,433 |
|
|
|
| 12,675 |
|
|
|
| 20,993 |
|
|
|
| 20,993 |
|
Restructuring charges and asset impairment |
|
| 8,802 |
|
|
|
| 6,166 |
|
|
|
| 16,877 |
|
|
|
| 15,644 |
|
Adjustable items related to cost reduction initiatives |
|
| 549 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| — |
|
Fees and expenses related to tax planning strategies |
|
| 569 |
|
|
|
| 900 |
|
|
|
| — |
|
|
|
| — |
|
Stock compensation modifications |
|
| — |
|
|
|
| — |
|
|
|
| 4,174 |
|
|
|
| 4,174 |
|
Pension settlement charges |
|
| — |
|
|
|
| 1,578 |
|
|
|
| 621 |
|
|
|
| 621 |
|
Gain on sale of assets |
|
| — |
|
|
|
| — |
|
|
|
| (1,038 | ) |
|
|
| (1,038 | ) |
Adjusted operating earnings, including 53rd week |
|
| 141,228 |
|
|
|
| 136,165 |
|
|
|
| 77,180 |
|
|
|
| 57,187 |
|
53rd week |
|
| — |
|
|
|
| (3,673 | ) |
|
|
| — |
|
|
|
| — |
|
Adjusted operating earnings, excluding 53rd week | $ |
| 141,228 |
|
| $ |
| 132,492 |
|
| $ |
| 77,180 |
|
| $ |
| 57,187 |
|
Reconciliation of operating earnings to adjusted operating earnings by segment: |
| ||||||||||||||||||
Military: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings | $ |
| 17,059 |
|
| $ |
| 21,721 |
|
| $ |
| 1,901 |
|
| $ |
| 1,901 |
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merger integration and acquisition |
|
| — |
|
|
|
| 27 |
|
|
|
| — |
|
|
|
| — |
|
Restructuring charges and asset impairment |
|
| 1,048 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| — |
|
Adjustable items related to cost reduction initiatives |
|
| 125 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| — |
|
Fees and expenses related to tax planning strategies |
|
| 75 |
|
|
|
| 87 |
|
|
|
| — |
|
|
|
| — |
|
Pension settlement charges |
|
| — |
|
|
|
| 67 |
|
|
|
| — |
|
|
|
| — |
|
Adjusted operating earnings, including 53rd week |
|
| 18,307 |
|
|
|
| 21,902 |
|
|
|
| 1,901 |
|
|
|
| 1,901 |
|
53rd week |
|
| — |
|
|
|
| (573 | ) |
|
|
| — |
|
|
|
| — |
|
Adjusted operating earnings, excluding 53rd week | $ |
| 18,307 |
|
| $ |
| 21,329 |
|
| $ |
| 1,901 |
|
| $ |
| 1,901 |
|
Food Distribution: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings (loss) | $ |
| 78,841 |
|
| $ |
| 54,802 |
|
| $ |
| 11,388 |
|
| $ |
| (1,328 | ) |
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merger integration and acquisition |
|
| 2,037 |
|
|
|
| 12,644 |
|
|
|
| 20,993 |
|
|
|
| 20,993 |
|
Restructuring (gains) charges and asset impairment |
|
| (216 | ) |
|
|
| (241 | ) |
|
|
| 599 |
|
|
|
| 599 |
|
Adjustable items related to cost reduction initiatives |
|
| 150 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| — |
|
Fees and expenses related to tax planning strategies |
|
| 282 |
|
|
|
| 485 |
|
|
|
| — |
|
|
|
| — |
|
Stock compensation modifications |
|
| — |
|
|
|
| — |
|
|
|
| 3,961 |
|
|
|
| 3,961 |
|
Pension settlement charges |
|
| — |
|
|
|
| 801 |
|
|
|
| 236 |
|
|
|
| 236 |
|
Adjusted operating earnings, including 53rd week |
|
| 81,094 |
|
|
|
| 68,491 |
|
|
|
| 37,177 |
|
|
|
| 24,461 |
|
53rd week |
|
| — |
|
|
|
| (1,132 | ) |
|
|
| — |
|
|
|
| — |
|
Adjusted operating earnings, excluding 53rd week | $ |
| 81,094 |
|
| $ |
| 67,359 |
|
| $ |
| 37,177 |
|
| $ |
| 24,461 |
|
Retail: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings | $ |
| 26,975 |
|
| $ |
| 38,323 |
|
| $ |
| 22,264 |
|
| $ |
| 16,220 |
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merger integration and acquisition |
|
| 6,396 |
|
|
|
| 4 |
|
|
|
| — |
|
|
|
| — |
|
Restructuring charges and asset impairment |
|
| 7,970 |
|
|
|
| 6,407 |
|
|
|
| 16,278 |
|
|
|
| 15,045 |
|
Adjustable items related to cost reduction initiatives |
|
| 274 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| — |
|
Fees and expenses related to tax planning strategies |
|
| 212 |
|
|
|
| 328 |
|
|
|
| — |
|
|
|
| — |
|
Stock compensation modifications |
|
| — |
|
|
|
| — |
|
|
|
| 213 |
|
|
|
| 213 |
|
Pension settlement charges |
|
| — |
|
|
|
| 710 |
|
|
|
| 385 |
|
|
|
| 385 |
|
Gain on sale of assets |
|
| — |
|
|
|
| — |
|
|
|
| (1,038 | ) |
|
|
| (1,038 | ) |
Adjusted operating earnings, including 53rd week |
|
| 41,827 |
|
|
|
| 45,772 |
|
|
|
| 38,102 |
|
|
|
| 30,825 |
|
53rd week |
|
| — |
|
|
|
| (1,968 | ) |
|
|
| — |
|
|
|
| — |
|
Adjusted operating earnings, excluding 53rd week | $ |
| 41,827 |
|
| $ |
| 43,804 |
|
| $ |
| 38,102 |
|
| $ |
| 30,825 |
|
(In thousands) | 2017 |
|
| 2016 |
|
| 2015 |
| ||||||
Operating (loss) earnings | $ |
| (106,316 | ) |
| $ |
| 108,767 |
|
| $ |
| 122,875 |
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merger/acquisition and integration |
|
| 8,101 |
|
|
|
| 6,959 |
|
|
|
| 8,433 |
|
Restructuring charges and goodwill/asset impairment |
|
| 228,459 |
|
|
|
| 32,116 |
|
|
|
| 8,802 |
|
Expenses associated with tax planning strategies |
|
| 3,798 |
|
|
|
| — |
|
|
|
| 569 |
|
Fresh Kitchen start-up costs |
|
| 8,082 |
|
|
|
| — |
|
|
|
| — |
|
Stock compensation associated with executive retirement |
|
| 1,172 |
|
|
|
| — |
|
|
|
| — |
|
Severance associated with cost reduction initiatives |
|
| 368 |
|
|
|
| 859 |
|
|
|
| 549 |
|
Adjusted operating earnings | $ |
| 143,664 |
|
| $ |
| 148,701 |
|
| $ |
| 141,228 |
|
Reconciliation of operating earnings (loss) to adjusted operating earnings by segment: |
| |||||||||||||
Food Distribution: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings | $ |
| 83,296 |
|
| $ |
| 85,093 |
|
| $ |
| 78,841 |
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merger/acquisition and integration |
|
| 6,244 |
|
|
|
| 3,703 |
|
|
|
| 2,037 |
|
Restructuring charges (gains) and asset impairment |
|
| 1,317 |
|
|
|
| 5,068 |
|
|
|
| (216 | ) |
Fresh Kitchen start-up costs |
|
| 8,082 |
|
|
|
| — |
|
|
|
| — |
|
Stock compensation associated with executive retirement |
|
| 591 |
|
|
|
| — |
|
|
|
| — |
|
Expenses associated with tax planning strategies |
|
| 1,744 |
|
|
|
| — |
|
|
|
| 282 |
|
Severance associated with cost reduction initiatives |
|
| 342 |
|
|
|
| 229 |
|
|
|
| 150 |
|
Adjusted operating earnings | $ |
| 101,616 |
|
| $ |
| 94,093 |
|
| $ |
| 81,094 |
|
Military: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings | $ |
| 7,014 |
|
| $ |
| 12,160 |
|
| $ |
| 17,059 |
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merger/acquisition and integration |
|
| 1,522 |
|
|
|
| 1 |
|
|
|
| — |
|
Restructuring charges (gains) and asset impairment |
|
| 500 |
|
|
|
| (473 | ) |
|
|
| 1,048 |
|
Stock compensation associated with executive retirement |
|
| 147 |
|
|
|
| — |
|
|
|
| — |
|
Expenses associated with tax planning strategies |
|
| 593 |
|
|
|
| — |
|
|
|
| 75 |
|
Severance associated with cost reduction initiatives |
|
| 7 |
|
|
|
| 245 |
|
|
|
| 125 |
|
Adjusted operating earnings | $ |
| 9,783 |
|
| $ |
| 11,933 |
|
| $ |
| 18,307 |
|
Retail: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) earnings | $ |
| (196,626 | ) |
| $ |
| 11,514 |
|
| $ |
| 26,975 |
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merger/acquisition and integration |
|
| 335 |
|
|
|
| 3,255 |
|
|
|
| 6,396 |
|
Restructuring charges and goodwill/asset impairment |
|
| 226,642 |
|
|
|
| 27,521 |
|
|
|
| 7,970 |
|
Stock compensation associated with executive retirement |
|
| 434 |
|
|
|
| — |
|
|
|
| — |
|
Expenses associated with tax planning strategies |
|
| 1,461 |
|
|
|
| — |
|
|
|
| 212 |
|
Severance associated with cost reduction initiatives |
|
| 19 |
|
|
|
| 385 |
|
|
|
| 274 |
|
Adjusted operating earnings | $ |
| 32,265 |
|
| $ |
| 42,675 |
|
| $ |
| 41,827 |
|
-26-
-28-
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 also 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 (loss) earnings from continuing operations to adjusted earnings from continuing operations for the fiscal years ended January 2,2017, 2016 and January 3, 2015 and for the 39-week period ended December 28, 2013. For comparability purposes, the Company has also provided a reconciliation of earnings from continuing operations to adjusted earnings from continuing operations for the 51 weeks ended December 28, 2013.
2015.
| 2017 |
|
| 2016 |
|
| 2015 |
|
| |||||||||||||||||||||
|
|
|
| per diluted |
|
|
|
|
| per diluted |
|
|
|
|
| per diluted |
|
| ||||||||||||
(In thousands, except per share data) | Earnings |
|
| share |
|
| Earnings |
|
| share |
|
| Earnings |
|
| share |
|
| ||||||||||||
(Loss) earnings from continuing operations | $ |
| (52,617 | ) |
| $ |
| (1.41 | ) |
| $ |
| 57,056 |
|
| $ |
| 1.52 |
|
| $ |
| 63,166 |
|
| $ |
| 1.67 |
|
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merger/acquisition and integration |
|
| 8,101 |
|
|
|
|
|
|
|
|
| 6,959 |
|
|
|
|
|
|
|
|
| 8,433 |
|
|
|
|
|
|
|
Restructuring charges and goodwill/asset impairment |
|
| 228,459 |
|
|
|
|
|
|
|
|
| 32,116 |
|
|
|
|
|
|
|
|
| 8,802 |
|
|
|
|
|
|
|
Expenses associated with tax planning strategies |
|
| 3,798 |
|
|
|
|
|
|
|
|
| — |
|
|
|
|
|
|
|
|
| 569 |
|
|
|
|
|
|
|
Fresh Kitchen start-up costs |
|
| 8,082 |
|
|
|
|
|
|
|
|
| — |
|
|
|
|
|
|
|
|
| — |
|
|
|
|
|
|
|
Stock compensation associated with executive retirement |
|
| 1,172 |
|
|
|
|
|
|
|
|
| — |
|
|
|
|
|
|
|
|
| — |
|
|
|
|
|
|
|
Severance associated with cost reduction initiatives |
|
| 368 |
|
|
|
|
|
|
|
|
| 859 |
|
|
|
|
|
|
|
|
| 549 |
|
|
|
|
|
|
|
Loss on debt extinguishment |
|
| — |
|
|
|
|
|
|
|
|
| 247 |
|
|
|
|
|
|
|
|
| 1,171 |
|
|
|
|
|
|
|
Total adjustments |
|
| 249,980 |
|
|
|
|
|
|
|
|
| 40,181 |
|
|
|
|
|
|
|
|
| 19,524 |
|
|
|
|
|
|
|
Income tax effect on adjustments (a) |
|
| (92,767 | ) |
|
|
|
|
|
|
|
| (15,071 | ) |
|
|
|
|
|
|
|
| (7,374 | ) |
|
|
|
|
|
|
Impact of Tax Cuts and Jobs Act (b) |
|
| (25,992 | ) |
|
|
|
|
|
|
|
| — |
|
|
|
|
|
|
|
|
| — |
|
|
|
|
|
|
|
Tax planning strategies |
|
| — |
|
|
|
|
|
|
|
|
| — |
|
|
|
|
|
|
|
|
| (730 | ) |
|
|
|
|
|
|
Total adjustments, net of taxes |
|
| 131,221 |
|
|
|
| 3.51 |
|
|
|
| 25,110 |
|
|
|
| 0.67 |
|
|
|
| 11,420 |
|
|
|
| 0.31 |
| * |
Adjusted earnings from continuing operations | $ |
| 78,604 |
|
| $ |
| 2.10 |
|
| $ |
| 82,166 |
|
| $ |
| 2.19 |
|
| $ |
| 74,586 |
|
| $ |
| 1.98 |
|
|
-27-
*Includes rounding
Year Ended |
|
| ||||||||||||||||||
| January 2, 2016 |
|
| January 3, 2015 |
|
| ||||||||||||||
| (52 Weeks) |
|
| (53 Weeks) |
|
| ||||||||||||||
|
|
|
|
|
| Earnings from |
|
|
|
|
|
|
| Earnings from |
|
| ||||
| Earnings |
|
| continuing |
|
| Earnings |
|
| continuing |
|
| ||||||||
| from |
|
| operations |
|
| from |
|
| operations |
|
| ||||||||
| continuing |
|
| per diluted |
|
| continuing |
|
| per diluted |
|
| ||||||||
(In thousands, except per share data) | operations |
|
| share |
|
| operations |
|
| share |
|
| ||||||||
Earnings from continuing operations | $ |
| 63,166 |
|
| $ |
| 1.67 |
|
| $ |
| 59,120 |
|
| $ |
| 1.57 |
|
|
Adjustments, net of taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merger integration and acquisition |
|
| 5,286 |
|
|
|
| 0.14 |
|
|
|
| 7,867 |
|
|
|
| 0.21 |
|
|
Restructuring charges and asset impairment |
|
| 5,451 |
|
|
|
| 0.15 |
| * |
|
| 3,827 |
|
|
|
| 0.10 |
|
|
Adjustable items related to cost reduction initiatives |
|
| 340 |
|
|
|
| 0.01 |
|
|
|
| — |
|
|
|
| — |
|
|
Tax planning strategies, net of fees and expenses |
|
| (382 | ) |
|
|
| (0.01 | ) |
|
|
| — |
|
|
|
| — |
|
|
Pension settlement charges |
|
| — |
|
|
|
| — |
|
|
|
| 979 |
|
|
|
| 0.02 |
| * |
Loss on debt extinguishment |
|
| 725 |
|
|
|
| 0.02 |
|
|
|
| — |
|
|
|
| — |
|
|
Favorable settlement of unrecognized tax liability |
|
| — |
|
|
|
| — |
|
|
|
| (1,849 | ) |
|
|
| (0.05 | ) |
|
Adjusted earnings from continuing operations, including 53rd week |
|
| 74,586 |
|
|
|
| 1.98 |
|
|
|
| 69,944 |
|
|
|
| 1.85 |
|
|
53rd week |
|
| — |
|
|
|
| — |
|
|
|
| (2,022 | ) |
|
|
| (0.05 | ) |
|
Adjusted earnings from continuing operations, excluding 53rd week | $ |
| 74,586 |
|
| $ |
| 1.98 |
|
| $ |
| 67,922 |
|
| $ |
| 1.80 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average diluted shares outstanding |
|
| 37,718 |
|
|
|
|
|
|
|
|
| 37,710 |
|
|
|
|
|
|
|
* Includes rounding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Year Ended |
|
| Period Ended |
|
| ||||||||||||||
| December 28, 2013 |
|
| December 28, 2013 |
|
| ||||||||||||||
| (51 Weeks) |
|
| (39 Weeks) |
|
| ||||||||||||||
|
|
|
|
|
| Earnings from |
|
|
|
|
|
|
| Earnings from |
|
| ||||
| Earnings |
|
| continuing |
|
| Earnings |
|
| continuing |
|
| ||||||||
| from |
|
| operations |
|
| from |
|
| operations |
|
| ||||||||
| continuing |
|
| per diluted |
|
| continuing |
|
| per diluted |
|
| ||||||||
(In thousands, except per share data) | operations |
|
| share |
|
| operations |
|
| share |
|
| ||||||||
Earnings from continuing operations | $ |
| 9,168 |
|
| $ |
| 0.39 |
|
| $ |
| 1,229 |
|
| $ |
| 0.05 |
|
|
Adjustments, net of taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merger integration and acquisition |
|
| 15,179 |
|
|
|
| 0.64 |
|
|
|
| 15,179 |
|
|
|
| 0.63 |
|
|
Restructuring charges and asset impairment |
|
| 10,460 |
|
|
|
| 0.44 |
|
|
|
| 9,702 |
|
|
|
| 0.40 |
|
|
Stock compensation modifications |
|
| 2,589 |
|
|
|
| 0.11 |
|
|
|
| 2,589 |
|
|
|
| 0.11 |
|
|
Pension settlement charges |
|
| 385 |
|
|
|
| 0.02 |
|
|
|
| 385 |
|
|
|
| 0.02 |
|
|
Gain on sale of assets |
|
| (644 | ) |
|
|
| (0.03 | ) |
|
|
| (644 | ) |
|
|
| (0.03 | ) |
|
Loss on debt extinguishment |
|
| 5,142 |
|
|
|
| 0.22 |
|
|
|
| 3,428 |
|
|
|
| 0.14 |
|
|
Tax benefit related to change in state deferred tax rate |
|
| (2,418 | ) |
|
|
| (0.10 | ) |
|
|
| (2,418 | ) |
|
|
| (0.10 | ) |
|
Unrecognized tax liability |
|
| 595 |
|
|
|
| 0.02 |
| * |
|
| 595 |
|
|
|
| 0.02 |
|
|
Favorable settlement of unrecognized tax liability |
|
| (244 | ) |
|
|
| (0.01 | ) |
|
|
| (244 | ) |
|
|
| (0.01 | ) |
|
Adjusted earnings from continuing operations | $ |
| 40,212 |
|
| $ |
| 1.70 |
|
| $ |
| 29,801 |
|
| $ |
| 1.23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average diluted shares outstanding |
|
| 23,664 |
|
|
|
|
|
|
|
|
| 24,229 |
|
|
|
|
|
|
|
* Includes rounding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)The income tax effect on adjustments is computed by applying the applicable tax rate to the adjustments.
-28- (b)Includes a $4.8 million tax benefit attributable to tax planning strategies.
-29-
Adjusted EBITDAEarnings Before Interest, Taxes, Depreciation and Amortization (“adjusted EBITDA”) is a non-GAAP operating financial measure that the Company defines as operatingnet earnings (loss) 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 as a whole 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 an adjusted EBITDA format.
Adjusted EBITDA isand adjusted EBITDA by segment are not a measuremeasures 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 definitiondefinitions 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 operating earningsnet (loss) to adjusted EBITDA for the fiscal years ended January 2, 2016 and January 3, 2015 and for the 39-week period ended December 28, 2013. For comparability purposes, the Company has also provided a reconciliation of net earnings to adjusted EBITDA for the 51 weeks ended December 28, 2013.2017, 2016 and 2015.
-29-
| Year Ended |
|
| Period Ended |
| ||||||||||||||
| January 2, |
|
| January 3, |
|
| December 28, |
|
| December 28, |
| ||||||||
| 2016 |
|
| 2015 |
|
| 2013 |
|
| 2013 |
| ||||||||
(In thousands) | (52 Weeks) |
|
| (53 Weeks) |
|
| (51 Weeks) |
|
| (39 weeks) |
| ||||||||
Operating earnings | $ |
| 122,875 |
|
| $ |
| 114,846 |
|
| $ |
| 35,553 |
|
| $ |
| 16,793 |
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIFO (income) expense |
|
| (1,201 | ) |
|
|
| 5,604 |
|
|
|
| 279 |
|
|
|
| 928 |
|
Depreciation and amortization |
|
| 83,334 |
|
|
|
| 86,994 |
|
|
|
| 46,664 |
|
|
|
| 37,082 |
|
Merger integration and acquisition |
|
| 8,433 |
|
|
|
| 12,675 |
|
|
|
| 20,993 |
|
|
|
| 20,993 |
|
Restructuring charges and asset impairment |
|
| 8,802 |
|
|
|
| 6,166 |
|
|
|
| 16,877 |
|
|
|
| 15,644 |
|
Fees and expenses related to tax planning strategies |
|
| 569 |
|
|
|
| 900 |
|
|
|
| — |
|
|
|
| — |
|
Pension settlement charges |
|
| — |
|
|
|
| 1,578 |
|
|
|
| 621 |
|
|
|
| 621 |
|
Stock-based compensation |
|
| 7,240 |
|
|
|
| 6,939 |
|
|
|
| 7,763 |
|
|
|
| 6,951 |
|
Other non-cash gains |
|
| (530 | ) |
|
|
| (1,260 | ) |
|
|
| (1,806 | ) |
|
|
| (1,709 | ) |
Adjusted EBITDA, including 53rd week |
|
| 229,522 |
|
|
|
| 234,442 |
|
|
|
| 126,944 |
|
|
|
| 97,303 |
|
53rd week |
|
| — |
|
|
|
| (3,673 | ) |
|
|
| — |
|
|
|
| — |
|
Adjusted EBITDA, excluding 53rd week | $ |
| 229,522 |
|
| $ |
| 230,769 |
|
| $ |
| 126,944 |
|
| $ |
| 97,303 |
|
Reconciliation of operating earnings to adjusted EBITDA by segment: |
| ||||||||||||||||||
Military: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings | $ |
| 17,059 |
|
| $ |
| 21,721 |
|
| $ |
| 1,901 |
|
| $ |
| 1,901 |
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIFO expense |
|
| 108 |
|
|
|
| 1,262 |
|
|
|
| — |
|
|
|
| — |
|
Depreciation and amortization |
|
| 12,081 |
|
|
|
| 11,350 |
|
|
|
| 1,412 |
|
|
|
| 1,371 |
|
Merger integration and acquisition |
|
| — |
|
|
|
| 27 |
|
|
|
| — |
|
|
|
| — |
|
Restructuring charges and asset impairment |
|
| 1,048 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| — |
|
Fees and expenses related to tax planning strategies |
|
| 75 |
|
|
|
| 87 |
|
|
|
| — |
|
|
|
| — |
|
Pension settlement charges |
|
| — |
|
|
|
| 67 |
|
|
|
| — |
|
|
|
| — |
|
Stock-based compensation |
|
| 1,137 |
|
|
|
| 577 |
|
|
|
| — |
|
|
|
| — |
|
Other non-cash charges (gains) |
|
| 235 |
|
|
|
| (62 | ) |
|
|
| (6 | ) |
|
|
| (6 | ) |
Adjusted EBITDA, including 53rd week |
|
| 31,743 |
|
|
|
| 35,029 |
|
|
|
| 3,307 |
|
|
|
| 3,266 |
|
53rd week |
|
| — |
|
|
|
| (573 | ) |
|
|
| — |
|
|
|
| — |
|
Adjusted EBITDA, excluding 53rd week | $ |
| 31,743 |
|
| $ |
| 34,456 |
|
| $ |
| 3,307 |
|
| $ |
| 3,266 |
|
Food Distribution: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings (loss) | $ |
| 78,841 |
|
| $ |
| 54,802 |
|
| $ |
| 11,388 |
|
| $ |
| (1,328 | ) |
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIFO (income) expense |
|
| (1,634 | ) |
|
|
| 2,893 |
|
|
|
| (232 | ) |
|
|
| 289 |
|
Depreciation and amortization |
|
| 26,127 |
|
|
|
| 29,816 |
|
|
|
| 9,306 |
|
|
|
| 9,547 |
|
Merger integration and acquisition |
|
| 2,037 |
|
|
|
| 12,644 |
|
|
|
| 20,993 |
|
|
|
| 20,993 |
|
Restructuring (gains) charges and asset impairment |
|
| (216 | ) |
|
|
| (241 | ) |
|
|
| 599 |
|
|
|
| 599 |
|
Fees and expenses related to tax planning strategies |
|
| 282 |
|
|
|
| 485 |
|
|
|
| — |
|
|
|
| — |
|
Pension settlement charges |
|
| — |
|
|
|
| 801 |
|
|
|
| 236 |
|
|
|
| 236 |
|
Stock-based compensation |
|
| 3,337 |
|
|
|
| 3,258 |
|
|
|
| 3,581 |
|
|
|
| 4,880 |
|
Other non-cash charges (gains) |
|
| 49 |
|
|
|
| (318 | ) |
|
|
| 75 |
|
|
|
| 33 |
|
Adjusted EBITDA, including 53rd week |
|
| 108,823 |
|
|
|
| 104,140 |
|
|
|
| 45,946 |
|
|
|
| 35,249 |
|
53rd week |
|
| — |
|
|
|
| (1,132 | ) |
|
|
| — |
|
|
|
| — |
|
Adjusted EBITDA, excluding 53rd week | $ |
| 108,823 |
|
| $ |
| 103,008 |
|
| $ |
| 45,946 |
|
| $ |
| 35,249 |
|
Retail: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings | $ |
| 26,975 |
|
| $ |
| 38,323 |
|
| $ |
| 22,264 |
|
| $ |
| 16,220 |
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIFO expense |
|
| 325 |
|
|
|
| 1,449 |
|
|
|
| 511 |
|
|
|
| 639 |
|
Depreciation and amortization |
|
| 45,126 |
|
|
|
| 45,828 |
|
|
|
| 35,946 |
|
|
|
| 26,164 |
|
Merger integration and acquisition |
|
| 6,396 |
|
|
|
| 4 |
|
|
|
| — |
|
|
|
| — |
|
Restructuring charges and asset impairment |
|
| 7,970 |
|
|
|
| 6,407 |
|
|
|
| 16,278 |
|
|
|
| 15,045 |
|
Fees and expenses related to tax planning strategies |
|
| 212 |
|
|
|
| 328 |
|
|
|
| — |
|
|
|
| — |
|
Pension settlement charges |
|
| — |
|
|
|
| 710 |
|
|
|
| 385 |
|
|
|
| 385 |
|
-30-
|
| 2,766 |
|
|
|
| 3,104 |
|
|
|
| 4,182 |
|
|
|
| 2,071 |
| |
Other non-cash gains |
|
| (814 | ) |
|
|
| (880 | ) |
|
|
| (1,875 | ) |
|
|
| (1,736 | ) |
Adjusted EBITDA, including 53rd week |
|
| 88,956 |
|
|
|
| 95,273 |
|
|
|
| 77,691 |
|
|
|
| 58,788 |
|
53rd week |
|
| — |
|
|
|
| (1,968 | ) |
|
|
| — |
|
|
|
| — |
|
Adjusted EBITDA, excluding 53rd week | $ |
| 88,956 |
|
| $ |
| 93,305 |
|
| $ |
| 77,691 |
|
| $ |
| 58,788 |
|
(In thousands) | 2017 |
|
| 2016 |
|
| 2015 |
| ||||||
Net (loss) earnings | $ |
| (52,845 | ) |
| $ |
| 56,828 |
|
| $ |
| 62,710 |
|
Loss from discontinued operations, net of tax |
|
| 228 |
|
|
|
| 228 |
|
|
|
| 456 |
|
Income tax (benefit) expense |
|
| (79,027 | ) |
|
|
| 32,907 |
|
|
|
| 37,093 |
|
Other expenses, net |
|
| 25,328 |
|
|
|
| 18,804 |
|
|
|
| 22,616 |
|
Operating (loss) earnings |
|
| (106,316 | ) |
|
|
| 108,767 |
|
|
|
| 122,875 |
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIFO expense (benefit) |
|
| 2,898 |
|
|
|
| (1,919 | ) |
|
|
| (1,201 | ) |
Depreciation and amortization |
|
| 82,243 |
|
|
|
| 77,246 |
|
|
|
| 83,334 |
|
Merger/acquisition and integration |
|
| 8,101 |
|
|
|
| 6,959 |
|
|
|
| 8,433 |
|
Restructuring charges and goodwill/asset impairment |
|
| 228,459 |
|
|
|
| 32,116 |
|
|
|
| 8,802 |
|
Expenses associated with tax planning strategies |
|
| 3,798 |
|
|
|
| — |
|
|
|
| 569 |
|
Fresh Kitchen start-up costs |
|
| 8,082 |
|
|
|
| — |
|
|
|
| — |
|
Stock-based compensation |
|
| 9,611 |
|
|
|
| 7,936 |
|
|
|
| 7,240 |
|
Other non-cash gains |
|
| (515 | ) |
|
|
| (148 | ) |
|
|
| (530 | ) |
Adjusted EBITDA | $ |
| 236,361 |
|
| $ |
| 230,957 |
|
| $ |
| 229,522 |
|
Reconciliation of operating earnings (loss) to adjusted EBITDA by segment: |
| |||||||||||||
Food Distribution: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings | $ |
| 83,296 |
|
| $ |
| 85,093 |
|
| $ |
| 78,841 |
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIFO expense (benefit) |
|
| 2,036 |
|
|
|
| (1,128 | ) |
|
|
| (1,634 | ) |
Depreciation and amortization |
|
| 29,258 |
|
|
|
| 21,397 |
|
|
|
| 26,127 |
|
Merger/acquisition and integration |
|
| 6,244 |
|
|
|
| 3,703 |
|
|
|
| 2,037 |
|
Restructuring charges (gains) and asset impairment |
|
| 1,317 |
|
|
|
| 5,068 |
|
|
|
| (216 | ) |
Expenses associated with tax planning strategies |
|
| 1,744 |
|
|
|
| — |
|
|
|
| 282 |
|
Fresh Kitchen start-up costs |
|
| 8,082 |
|
|
|
| — |
|
|
|
| — |
|
Stock-based compensation |
|
| 4,457 |
|
|
|
| 3,491 |
|
|
|
| 3,337 |
|
Other non-cash charges |
|
| 310 |
|
|
|
| 152 |
|
|
|
| 49 |
|
Adjusted EBITDA | $ |
| 136,744 |
|
| $ |
| 117,776 |
|
| $ |
| 108,823 |
|
Military: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings | $ |
| 7,014 |
|
| $ |
| 12,160 |
|
| $ |
| 17,059 |
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIFO expense (benefit) |
|
| 394 |
|
|
|
| (331 | ) |
|
|
| 108 |
|
Depreciation and amortization |
|
| 11,626 |
|
|
|
| 11,484 |
|
|
|
| 12,081 |
|
Merger/acquisition and integration |
|
| 1,522 |
|
|
|
| 1 |
|
|
|
| — |
|
Restructuring charges (gains) and asset impairment |
|
| 500 |
|
|
|
| (473 | ) |
|
|
| 1,048 |
|
Expenses associated with tax planning strategies |
|
| 593 |
|
|
|
| — |
|
|
|
| 75 |
|
Stock-based compensation |
|
| 1,491 |
|
|
|
| 1,347 |
|
|
|
| 1,137 |
|
Other non-cash (gains) charges |
|
| (20 | ) |
|
|
| 261 |
|
|
|
| 235 |
|
Adjusted EBITDA | $ |
| 23,120 |
|
| $ |
| 24,449 |
|
| $ |
| 31,743 |
|
Retail: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) earnings | $ |
| (196,626 | ) |
| $ |
| 11,514 |
|
| $ |
| 26,975 |
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIFO expense (benefit) |
|
| 468 |
|
|
|
| (460 | ) |
|
|
| 325 |
|
Depreciation and amortization |
|
| 41,359 |
|
|
|
| 44,365 |
|
|
|
| 45,126 |
|
Merger/acquisition and integration |
|
| 335 |
|
|
|
| 3,255 |
|
|
|
| 6,396 |
|
Restructuring charges and goodwill/asset impairment |
|
| 226,642 |
|
|
|
| 27,521 |
|
|
|
| 7,970 |
|
Expenses associated with tax planning strategies |
|
| 1,461 |
|
|
|
| — |
|
|
|
| 212 |
|
Stock-based compensation |
|
| 3,663 |
|
|
|
| 3,098 |
|
|
|
| 2,766 |
|
Other non-cash gains |
|
| (805 | ) |
|
|
| (561 | ) |
|
|
| (814 | ) |
Adjusted EBITDA | $ |
| 76,497 |
|
| $ |
| 88,732 |
|
| $ |
| 88,956 |
|
Results of Continuing Operations for the 52 Week Fiscal Year Ended January 2, 2016 Compared to the 53 Week Fiscal Year Ended January 3, 2015
Net Sales – Net sales for the fiscal year ended January 2, 2016 (“fiscal 2015”) decreased $264.1 million, or 3.3%, from $7.92 billion in the fiscal year ended January 3, 2015 (“fiscal 2014”), to $7.65 billion. Excluding the extra week in fiscal 2014, which accounted for $135.2 million of net sales, the decrease of 1.7% was primarily due to decreases in comparable retail store sales, excluding fuel; lower sales resulting from retail store and fuel center closures; lower retail fuel prices; and lower sales at the DeCA-operated commissaries.
Net sales for fiscal 2015 in the Military segment decreased $68.4 million, or 3.0%, from $2.28 billion in fiscal 2014 to $2.21 billion. Excluding the extra week in fiscal 2014, which accounted for $36.9 million of net sales, the decrease of 1.4% was primarily due to lower sales at the DeCA-operated commissaries.
Net sales for fiscal 2015 in the Food Distribution segment, after intercompany eliminations, decreased $51.2 million, or 1.5%, from $3.36 billion in fiscal 2014 to $3.31 billion. Excluding the extra week in fiscal 2014, which accounted for $56.5 million of net sales, and despite low inflation, net sales increased 1.7% primarily due to net new business.
Net sales for fiscal 2015 in the Retail segment decreased $144.5 million, or 6.3%, from $2.28 billion in fiscal 2014 to $2.14 billion. Excluding the extra week in fiscal 2014, which accounted for $41.8 million of net sales in fiscal 2014, the decrease of 4.6% was primarily due to $71.1 million of lower sales due to the closure of retail stores and fuel centers, a 2.9% decrease in comparable stores sales, excluding fuel, and significantly lower fuel prices compared to last year, partially offset by $53.2 million of net sales from the acquired Dan’s stores.
The decline in comparable store sales reflects the low inflationary environment and increased competition primarily in the western geographic areas, as well as the unseasonably warm weather in the Michigan geographic area in this year’s fourth quarter. The Company defines a retail store as comparable when it is in operation for 14 accounting periods (a period equals four weeks), and it includes remodeled, expanded and relocated stores in comparable stores.
Gross Profit – Gross profit represents net sales less cost of sales, which include purchase costs, freight, physical inventory adjustments, markdowns and promotional allowances. Vendor allowances that relate to 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 associated with product cost are recognized as a reduction in cost of sales when the product is sold. Lump sum payments received for multi-year contracts are amortized over the life of the contracts based on contractual terms
Gross profit for fiscal 2015 was $1.12 billion compared to $1.16 billion in fiscal 2014, representing 14.6% of net sales in both years. Higher fuel margin rates in fiscal 2015 were offset by the net impact of low inflation related gains and LIFO expense, as well as a higher mix of lower margin Military and Food Distribution sales.
Selling, General and Administrative Expenses – Selling, general and administrative (“SG&A”) expenses consist primarily of salaries and wages, employee benefits, warehousing costs, store occupancy costs, shipping and handling, utilities, equipment rental, depreciation and other administrative costs.
SG&A expenses for fiscal 2015 decreased $46.8 million, or 4.6%, from $1.02 billion in fiscal 2014 to $975.6 million, and were 12.8% of net sales compared to 12.9% in fiscal 2014. Excluding the extra week in fiscal 2014, SG&A expenses decreased $31.3 million, or 3.1%, and the percent to net sales in fiscal 2014 was 12.9%. The decrease was due primarily to benefits from merger synergies, cost improvements resulting from productivity and efficiency initiatives, the impact of store closures, and lower healthcare and transportation costs. The decrease in the rate to net sales was primarily due to expense control initiatives, benefits from merger synergies and lower healthcare costs.
Merger Integration and Acquisition Expenses – Merger integration and acquisition expenses consist of costs to integrate operations following the merger with Nash-Finch as well as costs incurred in connection with fiscal 2015 acquisitions. Merger integration and acquisition expenses for fiscal 2015 decreased $4.3 million, or 33.5%, from $12.7 million in fiscal 2014 to $8.4 million.
-31-
Restructuring Charges and Asset Impairment – Fiscal 2015 consisted of $8.8 million in charges primarily related to underperforming retail stores and costs related to the closure of retail stores and distribution centers, partially offset by the gains on sales of assets related to a previously closed food distribution center and retail stores and the favorable settlements of lease terminations of previously closed stores. Fiscal 2014 included charges of $6.2 million related to underperforming retail stores and costs associated with closed retail stores and a closed distribution center.
Interest Expense – Interest expense decreased $2.6 million, or 10.6%, from $24.4 million in fiscal 2014 to $21.8 million in fiscal 2015. As a percent of net sales, interest expense was 0.3% in both years. The decrease in interest expense was primarily due to decreased borrowings and lower interest rates resulting from the amended senior secured credit agreement. On January 9, 2015, the Company amended its credit agreement which reduced the interest rate.
Debt Extinguishment – A loss on debt extinguishment of $1.2 million was incurred in fiscal 2015 in connection with the prepayment of the Senior Notes (see Debt Management under “Liquidity and Capital Resources”).
Income Taxes – The effective income tax rates were 37.0% and 34.6% for fiscal 2015 and 2014, respectively. The difference from the statutory Federal rate in fiscal 2015 was primarily due to state income taxes. The fiscal 2014 effective rate differs from the Federal statutory rate primarily due to the favorable settlement of unrecognized tax liabilities, partially offset by state income taxes.
Results of Continuing Operations for the 53 Week Fiscal Year Ended January 3, 2015 Compared to the 51-Week Period Ended December 28, 2013
Net Sales – Net sales for the fiscal year ended January 3, 2015 (“fiscal 2014”) increased $4.73 billion, or 148.1%, from $3.19 billion in the 51-week period ended December 28, 2013, to $7.92 billion. The sales increase was primarily driven by the merger with Nash-Finch Company which added $4.60 billion, the two additional weeks, and incremental sales related to new food distribution customers, partially offset by lost sales related to closed retail stores. The 53rd week added $135.2 million of net sales.
Net sales for fiscal 2014 in the Military segment increased $2.03 billion, or 815.2% from $248.6 million in the 51-week period ended December 28, 2013 to $2.28 billion primarily due to the inclusion of only six weeks of Nash-Finch operations in the 51-week period ended December 28, 2013 and the 53rd week, which contributed $36.9 million of net sales.
Net sales for fiscal 2014 in the Food Distribution segment, after intercompany eliminations, increased $2.00 billion, or 148.1%, from $1.35 billion in the 51-week period ended December 28, 2013 to $3.36 billion primarily due to additional sales of $1.91 billion resulting from the merger and two additional weeks of net sales. The 53rd week contributed $56.5 million of net sales.
Net sales for fiscal 2014 in the Retail segment increased $695.5 million, or 43.8%, from $1.59 billion in the 51-week period ended December 28, 2013 to $2.28 billion. The sales increase was primarily due to sales of $694.9 million resulting from the merger, two additional weeks of net sales and an increase in supermarket comparable store sales, partially offset by lost sales from closed and sold stores and lower fuel sales prices. The 53rd week contributed $41.8 million of net sales.
Total retail comparable store sales, excluding fuel centers, on a 53 week basis increased approximately 0.9% in fiscal 2014. The Company defines a retail store as comparable when it is in operation for 14 accounting periods (a period equals four weeks), and the Company includes remodeled, expanded and relocated stores in comparable stores.
Gross Profit –Gross profit, as described previously, increased by $536.6 million, or 86.6%, from $619.5 million to $1.16 billion. The margin increase was primarily driven by the merger with Nash-Finch Company, which added $526.9 million and the two additional weeks. As a percent of net sales, gross profit decreased from 19.4% to 14.6%. The gross profit rate decrease was principally driven by sales mix due to the merger with Nash-Finch.
Selling, General and Administrative Expenses – SG&A expenses consist primarily of salaries and wages, employee benefits, warehousing costs, store occupancy costs, shipping and handling, utilities, equipment rental, depreciation and other administrative costs.
SG&A expenses increased $476.3 million, or 87.2%, from $546.1 million to $1.02 billion, and were 12.9% of net sales compared to 17.1% last year. The increase was due primarily to $477.8 million in expenses related to the Nash-Finch operations and the extra two weeks, partially offset by the impact of merger synergies and closed stores. The decrease as a percent of net sales was due primarily to the change in mix of the Company’s segments, store closures and merger synergies.
-32-
Merger Transaction and Integration Expenses – Merger transaction and integration expenses consist of expenses related to consummating the merger with Nash-Finch on November 19, 2013 and costs to integrate the operations of the two companies. Merger transaction and integration expenses for fiscal 2014 decreased $8.3 million, or 39.6%, from $21.0 million in the 51-week period ended December 28, 2013, to $12.7 million.
Restructuring Charges and Asset Impairment – Fiscal 2014 included charges of $6.2 million related to underperforming retail stores and costs associated with closed retail stores and a closed distribution center. The 51-week period ended December 28, 2013 included charges of $16.9 million related to underperforming retail stores, market deterioration in property held for future development and severance costs related to store closings and the closing of a distribution center.
Interest Expense – Interest expense increased $12.2 million, or 100.0%, from $12.2 million in the 51-week period ended December 28, 2013 to $24.4 million in fiscal 2014. As a percent of net sales, interest expense decreased from 0.4% to 0.3%. The increase in interest expense was due primarily to additional borrowings entered into to finance the merger with Nash-Finch Company on November 19, 2013.
Debt Extinguishment – A loss on debt extinguishment of $8.3 million was incurred in the 51-week period ended December 28, 2013 in connection with amending and restating the senior secured revolving credit facility and repaying certain other debt instruments and the redemption of $57.4 million of Convertible Senior Notes.
Income Taxes – The effective income tax rates were 34.6% and 39.2% for fiscal 2014 and the 51-week period ended December 28, 2013, respectively. The difference from the statutory Federal rate in fiscal 2014 is due primarily to the favorable settlement of unrecognized tax liabilities, partially offset by state income taxes. The 51-week period ended December 28, 2013 differs from the Federal statutory rate due to non-deductible merger related expenses and changes in unrecognized tax liabilities, partially offset by a reduction in the state deferred tax rate.
Results of Continuing Operations for the 53 Week Fiscal Year Ended January 3, 2015 Compared to the 39-Week Period Ended December 28, 2013
Net Sales – Net sales for the 53 week year ended January 3, 2015 (“fiscal 2014”) increased $5.32 billion, or 204.8%, from $2.60 billion in the 39-week period ended December 28, 2013, to $7.92 billion. The sales increase was primarily driven by the merger with Nash-Finch, which added $4.60 billion, the 14 additional weeks, which added $773.5 million, and incremental sales related to new food distribution customers, partially offset by lost sales from closed stores.
Net sales for fiscal 2014 in the Military segment increased $2.03 billion, or 815.2% from $248.6 million in the 39-week period ended December 28, 2013, to $2.28 billion. The sales increase was primarily driven by additional sales resulting from the merger.
Net sales for fiscal 2014 in the Food Distribution segment, after intercompany eliminations, increased $2.26 billion, or 206.3%, from $1.10 billion in the 39-week period ended December 28, 2013 to $3.36 billion. The sales increase was primarily due to additional sales of $1.91 billion resulting from the merger, 14 additional weeks, which contributed $331.7 million of net sales and new business sales.
Net sales for fiscal 2014 in the Retail segment increased $1.03 billion, or 82.3%, from $1.25 billion in the 39-week period ended December 28, 2013 to $2.28 billion. The sales increase was primarily due to sales of $694.9 million resulting from the merger, an additional 14 weeks, which contributed $405.0 million of net sales, partially offset by lost sales related to closed stores and lower fuel sales prices.
Gross Profit – Gross profit, as described previously, for fiscal 2014 increased by $669.2 million, or 137.4%, from $486.9 million in the 39-week period ended December 28, 2013, to $1.16 billion. The increase was primarily due to the merger with Nash-Finch Company, which added $526.9 million and the 14 additional weeks, which added $160.9 million. As a percent of net sales, gross profit decreased from 18.7% to 14.6%. The gross profit rate decrease was principally driven by sales mix due to the merger with Nash-Finch.
Selling, General and Administrative Expenses –SG&A expenses consist primarily of salaries and wages, employee benefits, warehousing costs, store occupancy costs, shipping and handling, utilities, equipment rental, depreciation and other administrative costs.
-33-
SG&A expenses for fiscal 2014 increased $588.9 million, or 135.9%, from $433.5 million in the 39-week period ended December 28, 2013, to $1.02 billion, and were 12.9% of net sales for fiscal 2014 compared to 16.7% for the 39-week period ended December 28, 2013. The increase was primarily due to an increase of $477.8 million in expenses related to the inclusion of the Nash-Finch operations for only six weeks in the prior year period, an additional 14 weeks, which added $137.6 million in expenses, partially offset by the impact of merger synergies and closed stores. The decrease in the rate to net sales was due primarily to the change in mix of the Company’s segments, store closures and cost reduction efforts.
Merger Transaction and Integration Expenses –Merger transaction and integration expenses consist of expenses related to consummating the merger with Nash-Finch on November 19, 2013 and costs to integrate the operations of the two companies. Merger transaction and integration expenses for fiscal 2014 decreased $8.3 million, or 39.6%, from $21.0 million in the 39-week period ended December 28, 2013, to $12.7 million.
Restructuring and Asset Impairment – Fiscal 2014 included charges of $6.2 million related to underperforming retail stores and the closure of retail stores and distribution center. The 39-week period ended December 28, 2013 included charges of $15.6 million related to underperforming retail stores, market deterioration in property held for future development and costs related to the closure of retail stores and a distribution center.
Interest Expense – Interest expense increased $15.2 million, or 164.8%, from $9.2 million in the 39-week period ended December 28, 2013 to $24.4 million in fiscal 2014. As a percent of net sales, interest expense decreased from 0.4% in the period ended December 28, 2013 to 0.3% for fiscal 2014. The increase in interest expense was due primarily to additional borrowings entered into to finance the merger with Nash-Finch.
Debt Extinguishment – A loss on debt extinguishment of $5.5 million was incurred in the 39-week period ended December 28, 2013 in connection with amending and restating the senior secured revolving credit facility and repaying certain other debt instruments.
Income Taxes –The effective income tax rates were 34.6% and 40.6% for fiscal 2014 and the 39-week period ended December 28, 2013, respectively. The difference from the statutory Federal rate in fiscal 2014 is due primarily to the favorable settlement of unrecognized tax liabilities, partially offset by state income taxes. The prior year period ended December 28, 2013 differs from the Federal statutory rate due to non-deductible merger related expenses and changes in unrecognized tax liabilities, partially offset by a reduction in the state deferred tax rate.
Critical Accounting Policies and Estimates
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 related disclosure of contingent assets and liabilities. On an ongoing basis, the Company evaluates its estimates, including those related to bad debts, inventories, intangible assets, assets held for sale, long-lived assets, income taxes, self-insurance reserves, restructuring costs, retirement benefits, stock-based compensation, contingencies and litigation. Management bases its estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that may not be readily apparent from other sources. Based on 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 Note 1, Summary of Significant Accounting Policies and Basis of Presentation, in the notes to the consolidated financial statements should be reviewed as they are integral to 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.
An accounting policy is considered critical ifif: a) it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and ifb) different estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact the Company’s consolidated financial statements. The Company considers the following accounting policies to represent the more critical estimates and assumptions used in the preparation of its consolidated financial statements:
-34-
Inventories are valued at the lower of cost or market, with approximately 86.9% of the majority of which useCompany’s inventories valued using the last-in, first-out (“LIFO”) method. The remaining inventories are valued on the first-in, first-out (“FIFO”) method. The Company accounts for its MilitaryFood Distribution and Food DistributionMilitary inventory using a perpetual system and utilizes the retail inventory method (“RIM”) to value inventory for center store products in the Retail segment. Under the RIM, inventory is stated at cost with cost of sales and gross margin calculated by applying a cost ratio to the retail value of inventories. RIM is an averaging method that has been widely used in the retail industry. Inherent in the RIM calculations are certain significant management judgments and estimates, including inventory shortages and cost-to-retail ratios, which impact the ending inventory valuation at cost, as well as the resulting gross profit. Management consistently applies its RIM valuations by product category and believes that the Company’s RIM provides an inventory valuation that reasonably approximates cost.
Fresh, pharmacy and fuel products are accounted for at cost in the Retail segment. The Company evaluates inventory shortages throughout the year based on actual physical counts in its facilities. The Company records allowances for inventory shortages based on the results of recent physical counts to provide for estimated shortages from the last physical count to the financial statement date. The estimates and assumptions used in valuing inventories, including those used in past calculations, are reviewed and applied consistently, and as a result, the Company believes the estimates and assumptions are both reasonable and accurate. The Company does not anticipate future changes to the estimates or assumptions used in valuing inventories, but it does anticipate that inflation and/or deflation will continue to have a significant impact on the Company’s LIFO reserve as price changes represent a significant driver of the calculation.
Vendor Funds, Allowances and Credits
The Company receives funds from many of its vendors when purchasing products to sell to its corporate-ownedcorporate owned retail stores and independent retail customers.retailers. Given the highly promotional nature of the retail supermarket industry, vendor allowances are generally intended to help defray the costs of promotion, advertising and selling the vendor’s products. Vendor allowances that relate to the Company’s 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. The proper recognition and timing of accounting for these items are significant to the reporting of the results of the Company’s operations. Vendor allowances are recognized as a reduction in cost of sales when the related product is sold. Lump sum payments received for multi-year contracts are amortized over the life of the contracts based on contractual terms. The amount and timing of recognition of vendor funds as well as the amount of vendor funds to be recognized as a reduction to ending inventory requires management judgment and estimates. Management determines these amounts based on estimates of current year purchase volume using forecast and historical data and review of average inventory turnover data. These judgments and estimates impact the Company’s reported gross profit, operating earnings (loss) and inventory amounts. The Company believes its historical estimates and use of this methodology have been reliable in the past and will continue to be reliable in the future.
-32-
Customer Exposure and Credit Risk
Allowance for Doubtful Accounts – Methodology.Accounts. The Company evaluates the collectability of its accounts and notes receivable based on a combination of factors. In most circumstances when the Company becomes aware of factors that may indicate a deterioration in a specific customer’s ability to meet its financial obligations (e.g., reductions of product purchases, deteriorating store conditions, changes in payment patterns), the Company records a specific reserve to reduce the receivable to an amount the Company reasonably believes will be collected. In determining the adequacy of the reserves, the Company analyzes factors such as the value of any collateral, customer financial statements, historical collection experience, aging of receivables and other economic and industry factors. It is possible that the accuracy of the estimation process could be materially affected by different judgments as to the collectability based on information considered and further deterioration of accounts. If circumstances change (e.g., further evidence of material adverse creditworthiness, additional accounts become credit risks, store closures), the Company’s estimates of the recoverability of amounts due could be reduced by a material amount, including to zero.
Funds Advanced to Independent Retailers. From time to time, the Company may advance funds to 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 does not remain a customer for the specified time period. In the event these retailers are unable to repay these advances or otherwise experience an event of default, the Company may be unable to recover the unearned portion of the funds advanced to these independent retailers. The Company evaluates the recoverability of these advances based on a number of factors, including anticipated and historical purchase volume, the value of any collateral, customer financial statements and other economic and industry factors, and establishes a reserve for the advances as necessary. As of December 30, 2017, the Company has unearned advanced funds of approximately $80.8 million, and has established a reserve of $4.9 million for these advances.
Guarantees of Debt and Lease Obligations of Others. The Company may guarantee debt and lease obligations of independent retailers. In the event these retailers are unable to meet their debt service payments or otherwise experience an event of default, the Company would be unconditionally liable for the outstanding balance of their debt and lease obligations, which would be due in accordance with the underlying agreements.
The Company has guaranteed the outstanding lease obligations of certain independent retailers and the bank debt forof one independent retailer. These guarantees, which are secured by certain business assets and personal guarantees of the respective independent retailers, represent the maximum undiscounted payments the Company would be required to make in the event of default. The Company believes these independent retailers will be able to perform under the lease agreements and that no payments will be required and no loss will be incurred under the guarantees. A liability representing the fair value of the obligations assumed under the guarantees is included in the accompanying consolidated financial statements.
The Company also subleases and assigns various leases to third parties. In circumstances when the Company becomes aware of factors that indicate deterioration in a third party’s ability to meet its financial obligations guaranteed or assigned by SpartanNash, the Company records a specific reserve in the amount the Company reasonably believes it will be obligated to pay on the third party’s behalf, net of any anticipated recoveries from the third party. In determining the adequacy of these reserves, the Company analyzes factors such as those described above in “Allowance for Doubtful Accounts – Methodology” and “Lease Commitments.” It is possible that the accuracy of the estimation process could be materially affected by different judgments as to the obligations based on information considered and further deterioration of accounts, with the potential for a corresponding adverse effect on operating results and cash flows. Triggering these guarantees or obligations under assigned leases would not, however, result in cross default of the Company’s debt, but could restrict resources available for general business initiatives. Refer to Part II, Item 8Note 15, Concentration of this report under Note 14Credit Risk, in the notes to the consolidated financial statements for moreadditional information regarding customer exposure and credit risk.
-35-Business Combinations
The Company accounts for acquired businesses using the purchase method of accounting, which requires that the assets acquired and liabilities assumed be recorded at their estimated fair values as of the acquisition date, with any excess purchase price over the estimated fair values of the net assets acquired being recorded as goodwill.
-33-
Significant judgment is required in estimating the fair value of intangible assets and in assigning their respective useful lives. The fair value estimates are based on available historical information and on future expectations and assumptions deemed reasonable by the Company but are inherently uncertain. Also, determining the estimated useful life of an intangible asset requires judgment based on the Company’s expected use of the asset, as different types of intangible assets will have different useful lives and certain assets may even be considered to have indefinite useful lives. The Company typically utilizes the income method to estimate the fair value of intangible assets, which discounts the projected future cash flows attributable to the respective assets. Significant estimates and assumptions inherent in the valuation reflect a consideration of other marketplace competition and include the amount and timing of future cash flows (including expected growth rates and profitability) and the discount rate applied to the cash flows. Unanticipated market or macroeconomic events and circumstances may occur that could affect the accuracy or validity of the estimates and assumptions.
Goodwill
Goodwill is tested for impairment on an annual basis (during the last quarter of the fiscal year), or whenever events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. For purposes of its goodwill impairment testing, the Company maintains three reporting units, which are the same as the Company’s reportingreportable segments; however, there is no goodwill currently existsrecorded within the Military segment, and after the goodwill impairment charge taken in the third quarter of 2017, as discussed below, there is also no recorded goodwill within the Retail segment. Fair values are determined based on the discounted cash flows and comparable market values of each reporting segment. If the fair value of the reporting unit is less than its carrying value, the fair value of the implied goodwill is calculated as the difference between the fair value of the reporting unit and the fair value of the underlying assets and liabilities, excluding goodwill. An impairment charge is recorded for any excess of the carrying value over the implied fair value. The Company’s goodwill impairment analysis also includes a comparison of the aggregate estimated fair value of each reporting unit to the Company’s total market capitalization. Therefore, a significant and sustained decline in the Company’s stock price could result in goodwill impairment charges. During times of financial market volatility, significant judgment is given to determine the underlying cause of the decline and whether stock price declines are short-term in nature or indicative of an event or change in circumstances. When testing goodwill for impairment, the Company’s corporate-ownedcorporate owned retail stores represent components of its Retail segment. Stores have been aggregated and deemed a single reporting unit as they have similar economic characteristics.
Determining market values using a discounted cash flow method requires that the Company make significant estimates and assumptions, including long-term projections of cash flows, market conditions and appropriate discount rates. The Company’s judgments are based on the perspective of a market participant, historical experience, current market trends and other information. In estimating future cash flows, the Company utilizes internally generated three-year forecasts for sales and operating profits, including capital expenditures, and a 3.0% and 2.5% long-term assumed growth raterates of cash flows for periods after the three-year forecast for both the Food Distribution and Retail segments.segments, respectively. The future estimated cash flows were discounted using a rate of 10.3%10.7% and 9.6%9.2% for the Food Distribution and Retail segments, respectively. The discount rates were developed based upon the segments’ weighted average cost of capital, which incorporated current interest rates, equity risk premiums, and other market-based expectations regarding expected investment returns. The Company generally develops its forecasts based on recent sales data for existing operations and other factors. While the Company believes that the estimates and assumptions underlying the valuation methodology are reasonable, different assumptions could result in different outcomes.
Based onIn the Company’s annual review duringthird quarter of 2017, the fiscal years ended January 2, 2016 and January 3, 2015 and the 39-week period ended December 28, noCompany recorded a non-cash goodwill impairment charge was requiredof $189.0 million related to be recorded.the Retail segment. Refer to Note 5, Goodwill and Other Intangible Assets, in the notes to the consolidated financial statements for additional information related to the full impairment of Retail goodwill. As of the date of the most recent goodwill impairment test, which utilized data and assumptions as of October 7, 2017, the Food Distribution reporting unit had a fair value that was substantially in excess of its carrying value and the fair value of the Retail reporting unit, which was allocated $190.5 million of the total goodwill balance as of the assessment date, exceeded its carrying value by 6.8%. The fair value calculations contain significant judgments and estimates related to the Retail reporting unit’s projected weighted average cost of capital, future revenues and cash flows, and overall profitability. These judgments and estimates are impacted by a number of different factors, both internal and external, that could result in changes in the estimates and their related outcomes. Specifically, certain changes in economic, industry or market conditions, business operations, competition, or the Company’s performance could affect the estimates used in the fair value calculations.value. The Company has sufficient available information, both current and historical, to support its assumptions, judgments and estimates;estimates used in the goodwill impairment test; however, if actual results for the Food Distribution segment are not consistent with the Company’s estimates, it could result in the Company recording a significant non-cash impairment charge. From a sensitivity perspective, no goodwill impairment charge would be required for the Retail reporting unit even if the estimate of future discounted cash flow was 5% lower or if the discount rate increased by 30 basis points. If the Company’s stock price experiences a significant and sustained decline, or other events or changes in circumstances occur, such as operating results not meeting the Company’s estimates, indicating that impairment may have occurred, the Company would re-evaluate its goodwill for impairment.
Impairment of Long-Lived Assets Other Than Goodwill
Long-lived assets to be held and used are evaluated for impairment when events or circumstances indicate that the carrying amount of an asset may not be recoverable. When the undiscounted future cash flows are not sufficient to recover an asset’s carrying amount, the fair value is compared to the carrying value to determine the impairment loss to be recorded. Long-lived assets are evaluated at the asset-group level, which is the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. Impairments of long-lived assets were $33.2 million, $15.6 million and $4.2 million $7.6 million and $9.7 million for the fiscal years ended January 2,2017, 2016 and January 3, 2015, respectively.
-34-
Estimates of future cash flows and forexpected sales prices are judgments based upon the 39-week period ended December 28, 2013, respectively.Company’s experience and knowledge of operations. These estimates project cash flows several years into the future and are affected by changes in the economy, the competitive environment, real estate market conditions and inflation.
Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value, less cost to sell. Management determines fair values using independent appraisals, quotes or expected sales prices developed by internal real estate professionals. Estimates of expected sales prices are judgments based upon the Company’s experience, knowledge of market conditions and current offers received. Changes in market conditions, the economic environment and other factors, including the Company’s ability to effectively compete and react to competitor openings, can significantly impact these estimates. While the Company believes that the estimates and assumptions underlying the valuation methodology are reasonable, different assumptions could result in a different outcome.
-36-
Reserves for Closed Properties
The Company records reserves for closed properties that are subject to long-term lease commitments based upon the future minimum lease payments and related ancillary costs from the date of closure to the end of the remaining lease term, net of estimated sublease rentals that could be reasonably expected to be obtained for the property. Future cash flows are based on contractual lease terms and knowledge of the geographic area in which the closed site is located. These estimates are subject to multiple factors, including inflation, ability to sublease the property and other economic conditions. Internally developed estimates of sublease rentals are based upon the geographic areas in which the properties are located, the results of previous efforts to sublease similar properties, and the current economic environment. Reserves may be adjusted in the future based upon the actual resolution of each of these factors. For any closed site reserves recorded as part of purchase accounting prior to the adoption of Accounting Standards Codification (“ASC”) Topic 805, adjustments that decrease the liability are generally recorded as a reduction of goodwill.factors At January 2, 2016,December 30, 2017, reserves for closed properties for distribution center and store lease and ancillary costs totaling $14.4$17.9 million are recorded net of approximately $0.5$0.1 million of existing sublease rentals. Based upon the current economic environment, the Company does not believe that it will be ableis likely to obtain any additional sublease rentals. A 5% increase/decrease in future estimated ancillary costs would result in a $0.3$0.6 million increase/decrease in the restructuring charge liability.liability
Insurance Reserves
SpartanNash is primarily self-insured through self-insurance retentions or high deductible programs for workers’ compensation, general liability, and automobile liability, and is also self-insured for healthcare costs. Self-insurance liabilities are recorded based on claims filed and an estimate of claims incurred but not yet reported. Workers’ compensation, general liability and automobile liabilities are actuarially estimated based on available historical information on an undiscounted basis. The Company has purchased stop-loss coverage to limit its exposure on a per claim basis.basis for its self-insurance retentions and high deductible programs. On a per claim basis, the Company’s exposure is up to $0.5 million for workers’ compensation, general liability and automobile liability, and $0.5 million for healthcare per covered life per year. Refer to Note 1, Summary of Significant Accounting Policies and Basis of Presentation, in the notes to the consolidated financial statements for additional information related to self-insurance reserves.
Any projection of losses concerning insurance reserves is subject to a degree of variability. Among the causes of variability are unpredictable external factors affecting future inflation rates, discount rates, litigation trends, changing regulations, legal interpretations, benefit level changes and claim settlement patterns. Although the Company’s estimates of liabilities incurred do not anticipate significant changes in historical trends for these variables, such changes could have a material impact on future claim costs and currently recorded liabilities. The impact of many of these variables is difficult to estimate.
Pension
Accounting for defined benefit pension plans involves estimating the cost of benefits to be provided in the future, based on vested years of service, and attributing those costs over the time period each employeeassociate works. The significant factors affecting the Company’s pension costs are the fair values of plan assets and the selections of management’s key assumptions, including the expected return on plan assets and the discount rate used by the Company’s actuary to calculate its liability. The Company considers current market conditions, including changes in interest rates and investment returns, in selecting these assumptions. The discount rate is based on current investment yields on high quality fixed-income investments and projected cash flow obligations. Expected return on plan assets is based on projected returns by asset class on broad, publicly traded equity and fixed-income indices, as well as the Company’s target asset allocation, which is designed to meet the Company’s long-term pension requirements. While the Company believes the assumptions selected are reasonable, significant differences in its actual experience, plan amendments or significant changes in the fair value of its plan assets may materially affect its pension obligations and its future expense. A 75 basis point increase/decrease
-35-
Sensitivities to changes in the expected return on plan assets would have decreased/increased net periodic pension income by approximately $0.7 millionmajor assumptions for the fiscal year ended January 2, 2016. SpartanNash Company Pension Plan and the SpartanNash Company Retiree Medical Plan as of December 30, 2017, are as follows:
Percentage | Projected | 2018 | |||
Point | Benefit Obligation | Expense | |||
(In millions, except percentages) | Change | Decrease / (Increase) | Decrease / (Increase) | ||
Expected return on plan assets - SpartanNash Company Pension Plan | +/- 0.75 | N/A | $0.6 / $(0.6) | ||
Discount rate - SpartanNash Company Pension Plan | +/- 0.75 | $4.1 / $(4.5) | N/A | ||
Discount rate - SpartanNash Company Retiree Medical Plan | +/- 0.75 | $0.9 / $(1.0) | N/A |
Refer to Note 1011, Associate Retirement Plans, in the notes to the consolidated financial statements for furtheradditional information related to the assumptions used to estimate the cost of benefits and for details related to changes in the funded status of the defined benefit pension plans.
Income Taxes
SpartanNash is subject to periodic audits by the Internal Revenue Service and other state and local taxing authorities. These audits may challenge certain of the Company’s tax positions, such as the timing and amount of income credits and deductions and the allocation of taxable income to various tax jurisdictions. The Company evaluates its tax positions and establishes liabilities in accordance with the applicable accounting guidance on uncertainty in income taxes. These tax uncertainties are reviewed as facts and circumstances change and are adjusted accordingly. This requires significant management judgment in estimating final outcomes. Actual results could materially differ from these estimates and could significantly affect the Company’s effective income tax rate and cash flows in future years. The Company recognizes deferred tax assets and liabilities for the expected tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts using enacted tax rates in effect for the year in which it expects the differences to reverse. Refer to Note 1213, Income Tax, in the notes to the consolidated financial statements set forth in Item 8 of this report, providesfor additional information on income taxes.
-37-
Liquidity and Capital Resources
Cash Flow Information
The following table summarizes the Company’s consolidated statements of cash flows for the fiscal years ended January 2,2017, 2016 and January 3, 2015 and for the 39-week period ended December 28, 2013. For comparability purposes, the Company has also provided a summarized consolidated statement of cash flows for the 51 weeks ended December 28, 2013:2015:
| Year Ended |
|
| Period Ended |
| ||||||||||||||
| January 2, |
|
| January 3, |
|
| December 28, |
|
| December 28, |
| ||||||||
| 2016 |
|
| 2015 |
|
| 2013 |
|
| 2013 |
| ||||||||
(In thousands) | (52 Weeks) |
|
| (53 Weeks) |
|
| (51 Weeks) |
|
| (39 weeks) |
| ||||||||
Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities | $ |
| 219,489 |
|
| $ |
| 139,073 |
|
| $ |
| 97,055 |
|
| $ |
| 64,761 |
|
Net cash used in investing activities |
|
| (95,300 | ) |
|
|
| (81,687 | ) |
|
|
| (65,602 | ) |
|
|
| (57,170 | ) |
Net cash used in financing activities |
|
| (107,696 | ) |
|
|
| (59,962 | ) |
|
|
| (30,676 | ) |
|
|
| (4,051 | ) |
Net cash used in discontinued operations |
|
| (217 | ) |
|
|
| (197 | ) |
|
|
| (521 | ) |
|
|
| (421 | ) |
Net increase (decrease) in cash and cash equivalents |
|
| 16,276 |
|
|
|
| (2,773 | ) |
|
|
| 256 |
|
|
|
| 3,119 |
|
Cash and cash equivalents at beginning of period |
|
| 6,443 |
|
|
|
| 9,216 |
|
|
|
| 8,960 |
|
|
|
| 6,097 |
|
Cash and cash equivalents at end of period | $ |
| 22,719 |
|
| $ |
| 6,443 |
|
| $ |
| 9,216 |
|
| $ |
| 9,216 |
|
(In thousands) | 2017 |
|
| 2016 |
|
| 2015 |
| ||||||
Cash flow activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities | $ |
| 52,843 |
|
| $ |
| 157,191 |
|
| $ |
| 223,523 |
|
Net cash used in investing activities |
|
| (315,393 | ) |
|
|
| (68,227 | ) |
|
|
| (95,300 | ) |
Net cash provided by (used in) financing activities |
|
| 254,003 |
|
|
|
| (86,594 | ) |
|
|
| (111,730 | ) |
Net cash used in discontinued operations |
|
| (137 | ) |
|
|
| (738 | ) |
|
|
| (217 | ) |
Net (decrease) increase in cash and cash equivalents |
|
| (8,684 | ) |
|
|
| 1,632 |
|
|
|
| 16,276 |
|
Cash and cash equivalents at beginning of year |
|
| 24,351 |
|
|
|
| 22,719 |
|
|
|
| 6,443 |
|
Cash and cash equivalents at end of year | $ |
| 15,667 |
|
| $ |
| 24,351 |
|
| $ |
| 22,719 |
|
Net cash provided by operating activities. Net cash provided by operating activities increaseddecreased during 2017 over 2016 by approximately $104.3 million. The change was primarily due to the timing of working capital requirements, particularly higher accounts receivable and inventory balances associated with new distribution business and incremental sales to certain high-growth distribution customers. The timing of year-end payments impacting accounts payable balances also contributed to the change in cash flows, which was partly offset by lower customer advances compared to the prior year. Shortly after the fiscal year ended January 2,end, working capital improved as inventories and accounts payable balances began to return to more normalized levels.
Net cash provided by operating activities decreased during 2016 over the fiscal year ended January 3,from 2015 by approximately $80.4$65.0 million. The increasedecrease was primarily due to changes in working capital, which were largely the result of inventory management initiatives and the timing of payments in the prior year.
Net cash provided by operating activities increased during the fiscal year ended January 3, 2015 over the comparable 51 week fiscal year ended December 28, 2013 by approximately $42.0 million. This increase was due primarily to the impact of the merger with Nash-Finch.
Net cash provided by operating activities increased during the 53 week fiscal year ended January 3, 2015 over the 39-week period ended December 28, 2013 by $74.3 million. This increase was due primarily to the impact of the merger with Nash-Finch and an additional 14 weeks of operations. 2015.
During the fiscal years ended January 2,2017, 2016 and January 3, 2015, and for the 39-week period ended December 28, 2013, the Company paid $23.5$10.7 million, $27.4$35.8 million and $14.0$23.5 million, respectively, in income tax net payments.
-36-
Net cash used in investing activities. Net cash used in investing activities increased $13.6$247.2 million in 2017 compared to 2016 primarily due to the Caito and BRT acquisition.In the fourth quarter of 2017, and in connection with securing a long-term supply arrangement, the Company invested $14.8 million in the fiscal year ended January 2,purchase of real property and began leasing the related assets to an independent retailer. The Company has classified this purchase as an Other Investing cash outflow based on the nature of the arrangement.
Net cash used in investing activities decreased $27.1 million in 2016 compared to the fiscal year ended January 3, 2015 primarily due to $41.5 million of payments for 2015 acquisitions, partially offset by $10.6$14.9 million of decreased payments for capital expenditure activity and an increase of $9.9 million inlower proceeds on the sales of assets of previously closed facilities.
Net cash used in investing activities increased $16.1 million in the fiscal year ended January 3, 2015facilities compared to the 51-week period ended December 28, 2013 primarily due to cash payments for capital expenditures, which increased $44.7 million, partially offset by a decrease in cash paid for acquisitions of $20.6 million and an increase in proceeds from the sale of assets of $9.7 million.
Net cash used in investing activities increased $24.5 million in the fiscal year ended January 3, 2015 compared to the 39-week period ended December 28, 2013 primarily due to capital expenditures which increased $52.8 million, a decrease in cash paid for acquisitions of $20.6 million and an increase in proceeds from the sales of assets of $9.7 million.2015.
The Military, Food Distribution, Military and Retail segments utilized 4.8%36.7%, 22.6%9.1% and 72.6%54.2% of capital expenditures, respectively, for the fiscal year ended January 2, 2016.2017. Expenditures for the fiscal year ended January 2, 2016 were2017 primarily related to seven major retail store remodels and many other retailupgrades, which include five major store upgrades.remodels, various equipment purchases, and various IT system upgrades and implementations to better streamline processes and meet the operational needs of the Company. The Company expects capital expenditures to range from $72.0$60 million to $75.0$70 million for fiscal 2016.2018.
Net cash provided by (used in) financing activities. Net cash provided by (used in) financing activities increased $340.6 million during 2017 over 2016 primarily due to borrowings on the revolving credit facility to fund the Caito and BRT acquisition and timing of working capital requirements, partially offset by a $26.0 million increase in cash used for the repurchase of common stock.
Net cash used in financing activities. Net cash used in financing activities increased $47.7decreased $23.8 million during the fiscal year ended January 2, 2016 over the fiscal year ended January 3, 2015 primarily due to the $50.0 million prepayment of the Senior Notes.
-38-
Net cash usedNotes in financing activities during the fiscal year ended January 3, 2015 increased $29.3and an additional $23.4 million compared to the 51-week period ended December 28, 2013 primarily as a result of an increase in net payments on borrowings of $23.6 million, an increasethe senior secured credit facility in dividends paid of $10.4 million and share repurchases of $5.0 million, partially offset by a decrease in financing fees paid of $8.6 million.
The increase in cash used in financing activities in the fiscal year ended January 3, 2015 compared to the 39-week period ended December 28, 2013 was primarily due to an increase in net payments on borrowings of $48.6 million, an increase of dividends paid of $12.2 million and share repurchases of $5.0 million, partially offset by a decrease in financing fees paid of $8.6 million. The increase in dividends paid was due to an increase in the number of shares outstanding due to the merger with Nash-Finch as well as an increase in the dividend rate.2016.
Net cash used in discontinued operations. Net cash used in discontinued operations contains the net cash flows of the Company’s Retail and Food Distribution and Retail discontinued operations as well as otherand is primarily composed of facility maintenance expenditures.
Debt Management
Total debt, including capital lease obligations and current maturities, decreased $75.3increased $318.9 million to $495.0$750.0 million as of January 2, 2016December 30, 2017 from $570.3$431.1 million at January 3, 2015.December 31, 2016. The decrease resulted primarily from the prepayment of $50.0 million of Senior Notes and net paymentsincrease in total debt was driven by drawdowns on the revolving credit facility. On December 15, 2015,facility to finance the Company redeemed all of the outstanding $50.0 million aggregate principal amount of the 6.625% Senior Notes dueCaito and BRT acquisition.
In December 2016, at a cash redemption price of 101.65625% of the principal amount of the Notes, plus accrued and unpaid interest. The Company redeemed the Notes for cash using borrowings under its revolving credit facility. A loss on debt extinguishment of $1.2 million was incurred consisting of the redemption premium and the write-off of unamortized debt issuance costs. As a result of the redemption, the Company expects to reduce annual interest expense by approximately $2.0 million, assuming no future interest rate increases.
In January 2015, SpartanNash Company and certain of its subsidiaries amended its senior secured revolving credit facility.facility (the “Credit Agreement”). The principal changes of the amendment were to reduce the Basenumber of tiers in the pricing grid from three to two, reset the advance rate on real estate to 75%, provide the ability to increase the size of the term loan by $33 million, and Eurodollar interest rates by 0.25% and to extend the maturity date of the agreement, which was set to expire on November 19, 2018,January 8, 2020, to January 9, 2020.December 20, 2021. The amended credit facility (the “Credit Agreement”)Credit Agreement provides for borrowings of $1.0 billion, consisting of three tranches: a $900 million secured revolving credit facility (Tranche A);, a $40 million secured revolving credit facility (Tranche A-1);, and a $60 million term loan (Tranche A-2). In the fourth quarter of 2017, the Company paid the outstanding balance on the Senior secured term loan of $52.5 million with proceeds from its Senior secured revolving credit facility, which is expected to reduce annual interest expense through a reduction of the average interest rates paid. The Company has the ability to increase the size of the Credit Agreement by an additional $400 million, subject to certain conditions in the Credit Agreement. The Company’s obligations under the related Credit Agreement are secured by substantially all of the Company’s personal and real property. The Company may repay all loans in whole or in part at any time without penalty.
Liquidity
The Company’s principal sources of liquidity are cash flows generated from operations and its senior secured credit facility, which has maximum available credit of $1.0 billion. As of January 2, 2016,December 30, 2017, the senior secured revolving credit facility and senior secured term loan had outstanding borrowings of $429.8$707.5 million. Additional available borrowings under the Company’s $1.0 billion credit facilityCredit Agreement are based on stipulated advance rates on eligible assets, as defined in the Credit Agreement. The credit agreementCredit Agreement requires that the Company maintains excess availabilityExcess Availability of 10% of the borrowing base, as such term is defined in the Credit Agreement. The Company had excess availability after the 10% covenantrequirement of $334.3$132.7 million at January 2, 2016.December 30, 2017. 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 $11.1$9.2 million were outstanding as of January 2, 2016.December 30, 2017. The revolving credit facility matures January 2020,December 20, 2021, 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 facilityCredit Agreement 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 facility.Credit Agreement.
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The Company’s current ratio (current assets to current liabilities) was 1.81:2.03:1.00 at January 2, 2016December 30, 2017 compared to 2.00:1.77:1.00 at January 3, 2015,December 31, 2016, and its investment in working capital was $396.3$509.7 million at January 2, 2016December 30, 2017 compared to $455.7$387.5 million at January 3, 2015.December 31, 2016. Net debt to total capital ratio decreasedincreased to 0.37:0.50:1.00 at January 2, 2016December 30, 2017 from 0.43:0.33:1.00 at January 3, 2015.December 31, 2016.
Total net debt is a non-GAAP financial measure that is defined as long-term debt and capital lease obligations, plus current maturities of long-term debt and capital lease obligations, less cash and cash equivalents. The Company believes 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.
-39-
Following is a reconciliation of long-term debt and capital lease obligations to total net long-term debt and capital lease obligations as of January 2, 2016December 30, 2017 and January 3, 2015.December 31, 2016.
| December 30, |
|
| December 31, |
| |||||||||||||
(In thousands) | January 2, 2016 |
|
| January 3, 2015 |
| 2017 |
|
| 2016 |
| ||||||||
Current maturities of long-term debt and capital lease obligations | $ |
| 19,003 |
|
| $ |
| 19,758 |
| $ |
| 9,196 |
|
| $ |
| 17,424 |
|
Long-term debt and capital lease obligations |
|
| 475,978 |
|
|
|
| 550,510 |
|
|
| 740,755 |
|
|
|
| 413,675 |
|
Total debt |
|
| 494,981 |
|
|
|
| 570,268 |
|
|
| 749,951 |
|
|
|
| 431,099 |
|
Cash and cash equivalents |
|
| (22,719 | ) |
|
|
| (6,443 | ) |
|
| (15,667 | ) |
|
|
| (24,351 | ) |
Total net long-term debt | $ |
| 472,262 |
|
| $ |
| 563,825 |
| $ |
| 734,284 |
|
| $ |
| 406,748 |
|
Contractual Obligations
The table below presents the Company’s significant contractual obligations as of January 2, 2016December 30, 2017 (1)(a):
| Amount Committed By Period |
| Amount Committed By Period |
| ||||||||||||||||||||||||||||||||||||||||||||
| Total |
|
| Less |
|
|
|
|
|
|
|
|
|
|
|
| More |
| Total |
|
| Less |
|
|
|
|
|
|
|
|
|
| More |
| ||||||||||||||
| Amount |
|
| than 1 |
|
|
|
|
|
|
|
|
|
|
|
| than 5 |
| Amount |
|
| than 1 |
|
|
|
|
|
|
|
|
|
| than 5 |
| ||||||||||||||
(In thousands) | Committed |
|
| year |
|
| 1-3 years |
|
| 3-5 years |
|
| years |
| Committed |
|
| year |
|
| 1-3 years |
|
| 3-5 years |
|
| years |
| ||||||||||||||||||||
Long-term debt | $ |
| 436,382 |
|
| $ |
| 11,532 |
|
| $ |
| 24,176 |
|
| $ |
| 400,674 |
|
| $ |
| — |
| $ |
| 713,464 |
|
| $ |
| 3,028 |
|
| $ |
| 1,670 |
|
| $ |
| 708,310 |
|
| $ |
| 456 |
|
Estimated interest on long-term debt |
|
| 35,859 |
|
|
|
| 9,789 |
|
|
|
| 17,704 |
|
|
|
| 8,366 |
|
|
|
| — |
|
|
| 75,615 |
|
|
|
| 21,662 |
|
|
|
| 43,128 |
|
|
|
| 10,814 |
|
|
|
| 11 |
|
Capital leases |
|
| 58,599 |
|
|
|
| 7,471 |
|
|
|
| 14,961 |
|
|
|
| 11,483 |
|
|
|
| 24,684 |
|
|
| 42,904 |
|
|
|
| 6,168 |
|
|
|
| 10,494 |
|
|
|
| 5,030 |
|
|
|
| 21,212 |
|
Interest on capital lease |
|
| 26,996 |
|
|
|
| 4,293 |
|
|
|
| 6,948 |
|
|
|
| 4,888 |
|
|
|
| 10,867 |
| ||||||||||||||||||||||||
Interest on capital leases |
|
| 19,315 |
|
|
|
| 3,030 |
|
|
|
| 4,855 |
|
|
|
| 3,780 |
|
|
|
| 7,650 |
| ||||||||||||||||||||||||
Operating leases |
|
| 262,336 |
|
|
|
| 52,252 |
|
|
|
| 84,178 |
|
|
|
| 51,333 |
|
|
|
| 74,573 |
|
|
| 246,655 |
|
|
|
| 53,878 |
|
|
|
| 77,296 |
|
|
|
| 47,660 |
|
|
|
| 67,821 |
|
Lease and ancillary costs of closed sites, including imputed interest |
|
| 14,448 |
|
|
|
| 3,698 |
|
|
|
| 3,597 |
|
|
|
| 1,897 |
|
|
|
| 5,256 |
| ||||||||||||||||||||||||
Lease and ancillary costs of closed sites |
|
| 19,848 |
|
|
| 5,302 |
|
|
| 4,915 |
|
|
| 3,437 |
|
|
| 6,194 |
| ||||||||||||||||||||||||||||
Purchase obligations (merchandise) |
|
| 33,779 |
|
|
|
| 15,160 |
|
|
|
| 8,571 |
|
|
|
| 4,251 |
|
|
|
| 5,797 |
|
|
| 100,673 |
|
|
|
| 36,390 |
|
|
|
| 56,204 |
|
|
|
| 5,813 |
|
|
|
| 2,266 |
|
Unrecognized tax liabilities, including interest |
|
| 2,323 |
|
|
|
| 788 |
|
|
|
| 1,375 |
|
|
|
| 160 |
|
|
|
| — |
| ||||||||||||||||||||||||
Self-insurance liability |
|
| 14,466 |
|
|
|
| 8,237 |
|
|
|
| 3,860 |
|
|
|
| 1,605 |
|
|
|
| 764 |
|
|
| 15,155 |
|
|
|
| 8,739 |
|
|
|
| 4,053 |
|
|
|
| 1,342 |
|
|
|
| 1,021 |
|
Total | $ |
| 885,188 |
|
| $ |
| 113,220 |
|
| $ |
| 165,370 |
|
| $ |
| 484,657 |
|
| $ |
| 121,941 |
| $ |
| 1,233,629 |
|
| $ |
| 138,197 |
|
| $ |
| 202,615 |
|
| $ |
| 786,186 |
|
| $ |
| 106,631 |
|
-38-
| (a) | Excludes funding of pension and other postretirement benefit obligations. The Company |
| (b) | Refer to Note |
| (c) | Operating and capital lease obligations do not include common area maintenance, insurance or tax payments for which the Company is also obligated. |
| (d) | The amount of purchase obligations shown in this table represents the amount of product the Company is contractually obligated to purchase in order to earn |
-40-
The Company has also made certain commercial commitments that extend beyond January 2, 2016.December 30, 2017. These commitments include standby letters of credit and guarantees of certain Food Distribution customer lease obligations. The following summarizes these commitments as of January 2, 2016:December 30, 2017:
| Amount Committed By Period |
| Amount Committed By Period |
| ||||||||||||||||||||||||||||||||||||||||||||
| Total |
|
| Less |
|
|
|
|
|
|
|
|
|
|
|
| More |
| Total |
|
| Less |
|
|
|
|
|
|
|
|
|
| More |
| ||||||||||||||
| Amount |
|
| than 1 |
|
|
|
|
|
|
|
|
|
|
|
| than 5 |
| Amount |
|
| than 1 |
|
|
|
|
|
|
|
|
|
| than 5 |
| ||||||||||||||
(In thousands) | Committed |
|
| year |
|
| 1-3 years |
|
| 3-5 years |
|
| years |
| Committed |
|
| year |
|
| 1-3 years |
|
| 3-5 years |
|
| years |
| ||||||||||||||||||||
Standby Letters of Credit | $ |
| 11,069 |
|
| $ |
| 11,069 |
|
| $ |
| — |
|
| $ |
| — |
|
| $ |
| — |
| $ |
| 9,205 |
|
| $ |
| 9,205 |
|
| $ |
| — |
|
| $ |
| — |
|
| $ |
| — |
|
Guarantees |
|
| 2,666 |
|
|
|
| 453 |
|
|
|
| 906 |
|
|
|
| 677 |
|
|
|
| 630 |
|
|
| 1,616 |
|
|
|
| 329 |
|
|
|
| 657 |
|
|
|
| 630 |
|
|
|
| — |
|
Total Other Commercial Commitments | $ |
| 13,735 |
|
| $ |
| 11,522 |
|
| $ |
| 906 |
|
| $ |
| 677 |
|
| $ |
| 630 |
| $ |
| 10,821 |
|
| $ |
| 9,534 |
|
| $ |
| 657 |
|
| $ |
| 630 |
|
| $ |
| — |
|
| (a) | Letters of credit |
| (a) | Refer to |
Cash Dividends
The Company paid a quarterly cash dividend of $0.135$0.165, $0.15 and $0.12$0.135 per common share in each quarter of the fiscal years ended January 2,2017, 2016, and January 3, 2015, respectively, and $0.09 in each quarter of the 39-week period ended December 28, 2013.respectively. Under the senior revolving credit facility,Credit Agreement, 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 prepayments of the senior notes and share repurchases, do not exceed $25.0$35.0 million. Additionally, the Company is generally permitted to pay cash dividends in excess of $25.0$35.0 million in any fiscal year so long as its Excess Availability, as defined in the senior revolving credit facility,Credit Agreement, is in excess of 10% of the Total Borrowing Base, as defined in the Credit Agreement, before and after giving effect to the prepayments, repurchases and dividends. Although the Company currently expects to continue to pay a quarterly cash dividend, adoption of a dividend policy does not commit the Board of Directors (the “Board”) 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.
Recently Adopted Accounting Standards
Refer to Note 1, Summary of Significant Accounting Policies and Basis of Presentation, in the notes to the consolidated financial statements for furtheradditional information.
-39-
| Item 7A. Quantitative and Qualitative Disclosure About Market Risk |
The Company is exposed to industry related price changes on several commodities, such as dairy, meat and produce that it buys and sells in all of its segments. These products are purchased for and sold from inventory in the ordinary course of business. The Company is also exposed to other general commodity price changes such as utilities, insurance and fuel costs.
The Company had $429.8$707.5 million of variable rate debt as of January 2, 2016.December 30, 2017. The weighted average interest rate on outstanding debt including loan fee amortizationoutstanding for the fiscal year ended January 2, 2016December 30, 2017 was 3.90%3.70%.
At January 2,December 30, 2017 and December 31, 2016, and January 3, 2015, the estimated fair value of the Company’s long-term debt, including current maturities, was higher than book value by approximately $2.1$1.6 million and $3.7$1.4 million, respectively. The estimated fair values were based on market quotes for instruments with similar instruments.terms and remaining maturities.
-41-
The following table sets forth the future principal cash flowspayments of the Company’s outstanding debt and related weighted average interest rates for the outstanding instruments as of January 2, 2016:December 30, 2017:
| January 2, 2016 |
|
| Aggregate Payments by Fiscal Year |
| December 30, 2017 |
|
| Aggregate Payments by Year |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(In thousands, except rates) | Fair Value |
|
| Total |
|
| 2016 |
|
| 2017 |
|
| 2018 |
|
| 2019 |
|
| 2020 |
|
| Thereafter |
| Fair Value |
|
| Total |
|
| 2018 |
|
| 2019 |
|
| 2020 |
|
| 2021 |
|
| 2022 |
|
| Thereafter |
| ||||||||||||||||||||||||||||||||
Fixed rate debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Fixed rate debt |
| |||||||||||||||||||||||||||||||||||||
Principal payable | $ |
| 67,292 |
|
| $ |
| 65,157 |
|
| $ |
| 9,003 |
|
| $ |
| 8,906 |
|
| $ |
| 10,231 |
|
| $ |
| 7,537 |
|
| $ |
| 4,796 |
|
| $ |
| 24,684 |
| $ |
| 50,474 |
|
| $ |
| 48,876 |
|
| $ |
| 9,196 |
|
| $ |
| 6,969 |
|
| $ |
| 5,195 |
|
| $ |
| 3,002 |
|
| $ |
| 2,846 |
|
| $ |
| 21,668 |
|
Average interest rate |
|
|
|
|
|
| 6.88 | % |
|
| 6.96 | % |
|
| 7.13 | % |
|
| 7.59 | % |
|
| 7.92 | % |
|
|
| 8.17 | % |
|
| 8.49 | % |
|
|
|
|
|
|
| 6.49 | % |
|
|
| 6.89 | % |
|
|
| 7.25 | % |
|
|
| 7.56 | % |
|
|
| 7.77 | % |
|
|
| 7.84 | % |
|
|
| 8.16 | % | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Variable rate debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Variable rate debt |
| |||||||||||||||||||||||||||||||||||||||||||
Principal payable | $ |
| 429,824 |
|
| $ |
| 429,824 |
|
| $ |
| 10,000 |
|
| $ |
| 10,000 |
|
| $ |
| 10,000 |
|
| $ |
| 4,842 |
|
| $ |
| 394,982 |
|
| $ |
| — |
| $ |
| 707,492 |
|
| $ |
| 707,492 |
|
| $ |
| — |
|
| $ |
| — |
|
| $ |
| — |
|
| $ |
| 707,492 |
|
| $ |
| — |
|
| $ |
| — |
|
Average interest rate |
|
|
|
|
|
| 2.30 | % |
|
| 2.26 | % |
|
| 2.18 | % |
|
| 2.09 | % |
|
| 2.02 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 3.04 | % |
|
|
| 3.04 | % |
|
|
| 3.04 | % |
|
|
| 3.04 | % |
|
|
| 3.04 | % |
|
|
| 0.00 | % |
|
|
| 0.00 | % |
-42--40-
Item 8. Financial Statements and Supplementary Data
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
SpartanNash Company and Subsidiaries
Grand Rapids, Michigan
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of SpartanNash Company and subsidiaries (the “Company”"Company") as of January 2,December 30, 2017 and December 31, 2016, and January 3, 2015, and the related consolidated statements of earnings,operations, comprehensive (loss) income, shareholders’shareholders' equity, and cash flows, for the fiscal years ended December 30, 2017, December 31, 2016 and January 2, 2016, and January 3, 2015 and the 39-week period ended December 28, 2013. These consolidated financial statements arerelated notes (collectively referred to as the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States)“financial statements”). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidatedthe financial statements present fairly, in all material respects, the financial position of SpartanNashthe Company and subsidiaries as of January 2,December 30, 2017 and December 31, 2016, and January 3, 2015, and the results of theirits operations and theirits cash flows for the fiscal years ended December 30, 2017, December 31, 2016 and January 2, 2016 and January 3, 2015 and the 39-week period ended December 28, 2013, in conformity with the accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’sCompany's internal control over financial reporting as of January 2, 2016,December 30, 2017, based on the criteria established in Internal Control —- Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 2, 2016February 26, 2018, expressed an unqualified opinion on the Company’sCompany's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ DELOITTE & TOUCHE LLP
Grand Rapids, Michigan
March 2, 2016February 26, 2018
We have served as the Company’s auditor since at least 1970; however, the specific year has not been determined.
-43--41-
SpartanNash Company and Subsidiaries
(In thousands)
|
|
|
|
|
|
|
|
| December 30, |
|
| December 31, |
| |||||
| January 2, 2016 |
|
| January 3, 2015 |
| |||||||||||||
(In thousands) | 2017 |
|
| 2016 |
| |||||||||||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Cash and cash equivalents | $ |
| 22,719 |
|
| $ |
| 6,443 |
| $ |
| 15,667 |
|
| $ |
| 24,351 |
|
Accounts and notes receivable, net |
|
| 317,183 |
|
|
|
| 282,697 |
|
|
| 344,057 |
|
|
|
| 291,568 |
|
Inventories, net |
|
| 521,164 |
|
|
|
| 577,197 |
|
|
| 597,162 |
|
|
|
| 539,857 |
|
Prepaid expenses and other current assets |
|
| 22,521 |
|
|
|
| 31,882 |
|
|
| 47,400 |
|
|
|
| 37,187 |
|
Property and equipment held for sale |
|
| — |
|
|
|
| 15,180 |
|
|
| — |
|
|
|
| 521 |
|
Total current assets |
|
| 883,587 |
|
|
|
| 913,399 |
|
|
| 1,004,286 |
|
|
|
| 893,484 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net |
|
|
|
|
|
|
|
|
|
|
| 600,240 |
|
|
|
| 559,722 |
|
Land and improvements |
|
| 73,524 |
|
|
|
| 76,218 |
| |||||||||
Buildings and improvements |
|
| 483,764 |
|
|
|
| 468,236 |
| |||||||||
Equipment |
|
| 502,283 |
|
|
|
| 453,339 |
| |||||||||
Total property and equipment |
|
| 1,059,571 |
|
|
|
| 997,793 |
| |||||||||
Less accumulated depreciation and amortization |
|
| 475,873 |
|
|
|
| 400,643 |
| |||||||||
Property and equipment, net |
|
| 583,698 |
|
|
|
| 597,150 |
| |||||||||
Goodwill |
|
| 322,902 |
|
|
|
| 297,280 |
|
|
| 178,648 |
|
|
|
| 322,686 |
|
Intangible assets, net |
|
| 134,430 |
|
|
|
| 60,202 |
| |||||||||
Other assets, net |
|
| 135,261 |
|
|
|
| 124,453 |
|
|
| 138,193 |
|
|
|
| 94,242 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets | $ |
| 1,925,448 |
|
| $ |
| 1,932,282 |
| $ |
| 2,055,797 |
|
| $ |
| 1,930,336 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders’ Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable | $ |
| 353,688 |
|
| $ |
| 320,037 |
| $ |
| 376,977 |
|
| $ |
| 372,432 |
|
Accrued payroll and benefits |
|
| 71,973 |
|
|
|
| 73,220 |
|
|
| 65,156 |
|
|
|
| 75,333 |
|
Other accrued expenses |
|
| 42,660 |
|
|
|
| 44,690 |
|
|
| 43,252 |
|
|
|
| 40,788 |
|
Current maturities of long-term debt and capital lease obligations |
|
| 19,003 |
|
|
|
| 19,758 |
|
|
| 9,196 |
|
|
|
| 17,424 |
|
Total current liabilities |
|
| 487,324 |
|
|
|
| 457,705 |
|
|
| 494,581 |
|
|
|
| 505,977 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes (Note 1) |
|
| 116,600 |
|
|
|
| 113,726 |
| |||||||||
Deferred income taxes |
|
| 42,050 |
|
|
|
| 123,243 |
| |||||||||
Postretirement benefits |
|
| 16,008 |
|
|
|
| 23,701 |
|
|
| 15,687 |
|
|
|
| 16,266 |
|
Other long-term liabilities |
|
| 38,759 |
|
|
|
| 39,387 |
|
|
| 40,774 |
|
|
|
| 45,768 |
|
Long-term debt and capital lease obligations |
|
| 475,978 |
|
|
|
| 550,510 |
|
|
| 740,755 |
|
|
|
| 413,675 |
|
Total long-term liabilities |
|
| 647,345 |
|
|
|
| 727,324 |
|
|
| 839,266 |
|
|
|
| 598,952 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 8) |
|
|
|
|
|
|
|
|
| |||||||||
Commitments and contingencies (Note 9) |
|
|
|
|
|
|
|
|
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, voting, no par value; 100,000 shares authorized; 37,600 and 37,524 shares outstanding |
|
| 521,698 |
|
|
|
| 520,791 |
| |||||||||
Common stock, voting, no par value; 100,000 shares authorized; 36,466 and 37,539 shares outstanding |
|
| 497,093 |
|
|
|
| 521,984 |
| |||||||||
Preferred stock, no par value, 10,000 shares authorized; no shares outstanding |
|
| — |
|
|
|
| — |
|
|
| — |
|
|
|
| — |
|
Accumulated other comprehensive loss |
|
| (11,447 | ) |
|
|
| (11,655 | ) |
|
| (15,136 | ) |
|
|
| (11,437 | ) |
Retained earnings |
|
| 280,528 |
|
|
|
| 238,117 |
|
|
| 239,993 |
|
|
|
| 314,860 |
|
Total shareholders’ equity |
|
| 790,779 |
|
|
|
| 747,253 |
|
|
| 721,950 |
|
|
|
| 825,407 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders’ equity | $ |
| 1,925,448 |
|
| $ |
| 1,932,282 |
| $ |
| 2,055,797 |
|
| $ |
| 1,930,336 |
|
See notes to consolidated financial statements.
-44--42-
CONSOLIDATED STATEMENTS OF EARNINGSOPERATIONS
SpartanNash Company and Subsidiaries
(In thousands, except per share data)
| Year Ended |
|
| Period Ended |
| ||||||||||||||||||||||||
| January 2, 2016 |
|
| January 3, 2015 |
|
| December 28, 2013 |
| |||||||||||||||||||||
| (52 weeks) |
|
| (53 weeks) |
|
| (39 weeks) |
| |||||||||||||||||||||
(In thousands, except per share amounts) | 2017 |
|
| 2016 |
|
| 2015 |
|
| ||||||||||||||||||||
Net sales | $ |
| 7,651,973 |
|
| $ |
| 7,916,062 |
|
| $ |
| 2,597,230 |
| $ |
| 8,128,082 |
|
| $ |
| 7,734,600 |
|
| $ |
| 7,651,973 |
|
|
Cost of sales |
|
| 6,536,291 |
|
|
|
| 6,759,988 |
|
|
|
| 2,110,350 |
|
|
| 6,983,173 |
|
|
|
| 6,623,106 |
|
|
|
| 6,536,291 |
|
|
Gross profit |
|
| 1,115,682 |
|
|
|
| 1,156,074 |
|
|
|
| 486,880 |
|
|
| 1,144,909 |
|
|
|
| 1,111,494 |
|
|
|
| 1,115,682 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative |
|
| 975,572 |
|
|
|
| 1,022,387 |
|
|
|
| 433,450 |
|
|
| 1,014,665 |
|
|
|
| 963,652 |
|
|
|
| 975,572 |
|
|
Merger integration and acquisition |
|
| 8,433 |
|
|
|
| 12,675 |
|
|
|
| 20,993 |
| |||||||||||||||
Merger/acquisition and integration |
|
| 8,101 |
|
|
|
| 6,959 |
|
|
|
| 8,433 |
|
| ||||||||||||||
Goodwill impairment |
|
| 189,027 |
|
|
|
| — |
|
|
|
| — |
|
| ||||||||||||||
Restructuring charges and asset impairment |
|
| 8,802 |
|
|
|
| 6,166 |
|
|
|
| 15,644 |
|
|
| 39,432 |
|
|
|
| 32,116 |
|
|
|
| 8,802 |
|
|
Total operating expenses |
|
| 992,807 |
|
|
|
| 1,041,228 |
|
|
|
| 470,087 |
|
|
| 1,251,225 |
|
|
|
| 1,002,727 |
|
|
|
| 992,807 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings |
|
| 122,875 |
|
|
|
| 114,846 |
|
|
|
| 16,793 |
| |||||||||||||||
Operating (loss) earnings |
|
| (106,316 | ) |
|
|
| 108,767 |
|
|
|
| 122,875 |
|
| ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (income) and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
| 21,820 |
|
|
|
| 24,414 |
|
|
|
| 9,219 |
|
|
| 25,343 |
|
|
|
| 19,082 |
|
|
|
| 21,820 |
|
|
Loss on debt extinguishment |
|
| 1,171 |
|
|
|
| — |
|
|
|
| 5,527 |
|
|
| 413 |
|
|
|
| 247 |
|
|
|
| 1,171 |
|
|
Other, net |
|
| (375 | ) |
|
|
| (17 | ) |
|
|
| (23 | ) |
|
| (428 | ) |
|
|
| (525 | ) |
|
|
| (375 | ) |
|
Total other expenses, net |
|
| 22,616 |
|
|
|
| 24,397 |
|
|
|
| 14,723 |
|
|
| 25,328 |
|
|
|
| 18,804 |
|
|
|
| 22,616 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes and discontinued operations |
|
| 100,259 |
|
|
|
| 90,449 |
|
|
|
| 2,070 |
| |||||||||||||||
(Loss) earnings before income taxes and discontinued operations |
|
| (131,644 | ) |
|
|
| 89,963 |
|
|
|
| 100,259 |
|
| ||||||||||||||
Income taxes |
|
| 37,093 |
|
|
|
| 31,329 |
|
|
|
| 841 |
|
|
| (79,027 | ) |
|
|
| 32,907 |
|
|
|
| 37,093 |
|
|
Earnings from continuing operations |
|
| 63,166 |
|
|
|
| 59,120 |
|
|
|
| 1,229 |
| |||||||||||||||
(Loss) earnings from continuing operations |
|
| (52,617 | ) |
|
|
| 57,056 |
|
|
|
| 63,166 |
|
| ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations, net of taxes |
|
| (456 | ) |
|
|
| (524 | ) |
|
|
| (488 | ) |
|
| (228 | ) |
|
|
| (228 | ) |
|
|
| (456 | ) |
|
Net earnings | $ |
| 62,710 |
|
| $ |
| 58,596 |
|
| $ |
| 741 |
| |||||||||||||||
Net (loss) earnings | $ |
| (52,845 | ) |
| $ |
| 56,828 |
|
| $ |
| 62,710 |
|
| ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Earnings from continuing operations | $ |
| 1.68 |
|
| $ |
| 1.57 |
|
| $ |
| 0.05 |
| |||||||||||||||
Basic (loss) earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
(Loss) earnings from continuing operations | $ |
| (1.41 | ) |
| $ |
| 1.52 |
|
| $ |
| 1.68 |
|
| ||||||||||||||
Loss from discontinued operations |
|
| (0.01 | ) |
|
|
| (0.01 | ) |
|
|
| (0.02 | ) |
|
| — |
| * |
|
| — |
| * |
|
| (0.01 | ) |
|
Net earnings | $ |
| 1.67 |
|
| $ |
| 1.56 |
|
| $ |
| 0.03 |
| |||||||||||||||
Net (loss) earnings | $ |
| (1.41 | ) |
| $ |
| 1.52 |
|
| $ |
| 1.67 |
|
| ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Earnings from continuing operations | $ |
| 1.67 |
|
| $ |
| 1.57 |
|
| $ |
| 0.05 |
| |||||||||||||||
Diluted (loss) earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
(Loss) earnings from continuing operations | $ |
| (1.41 | ) |
| $ |
| 1.52 |
|
| $ |
| 1.67 |
|
| ||||||||||||||
Loss from discontinued operations |
|
| (0.01 | ) |
|
|
| (0.02 | ) | * |
|
| (0.02 | ) |
|
| — |
| * |
|
| (0.01 | ) |
|
|
| (0.01 | ) |
|
Net earnings | $ |
| 1.66 |
|
| $ |
| 1.55 |
|
| $ |
| 0.03 |
| |||||||||||||||
Net (loss) earnings | $ |
| (1.41 | ) |
| $ |
| 1.51 |
|
| $ |
| 1.66 |
|
|
*Includes rounding.
See notes to consolidated financial statements.
-45--43-
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
SpartanNash Company and Subsidiaries
(In thousands)
| Year Ended |
|
| Period Ended |
| |||||||||
| January 2, 2016 |
|
| January 3, 2015 |
|
| December 28, 2013 |
| ||||||
| (52 weeks) |
|
| (53 weeks) |
|
| (39 weeks) |
| ||||||
Net earnings | $ |
| 62,710 |
|
| $ |
| 58,596 |
|
| $ |
| 741 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss), before tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension and postretirement liability adjustment |
|
| 429 |
|
|
|
| (4,785 | ) |
|
|
| 8,316 |
|
Total other comprehensive income (loss), before tax |
|
| 429 |
|
|
|
| (4,785 | ) |
|
|
| 8,316 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax (expense) benefit related to items of other comprehensive income |
|
| (221 | ) |
|
|
| 1,924 |
|
|
|
| (3,423 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income (loss), after tax |
|
| 208 |
|
|
|
| (2,861 | ) |
|
|
| 4,893 |
|
Comprehensive income | $ |
| 62,918 |
|
| $ |
| 55,735 |
|
| $ |
| 5,634 |
|
See notes to consolidated financial statements.
-46-
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
SpartanNash Company and Subsidiaries
(In thousands)
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
| Other |
|
|
|
|
|
|
|
|
|
|
| ||
| Shares |
|
| Common |
|
| Comprehensive |
|
| Retained |
|
|
|
|
|
| |||||||
| Outstanding |
|
| Stock |
|
| Income (Loss) |
|
| Earnings |
|
| Total |
| |||||||||
Balance at March 30, 2013 |
| 21,751 |
|
| $ |
| 146,564 |
|
| $ |
| (13,687 | ) |
| $ |
| 202,778 |
|
| $ |
| 335,655 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
| — |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 741 |
|
|
|
| 741 |
|
Other comprehensive income |
| — |
|
|
|
| — |
|
|
|
| 4,893 |
|
|
|
| — |
|
|
|
| 4,893 |
|
Dividends - $0.27 per share |
| — |
|
|
|
| — |
|
|
|
| — |
|
|
|
| (5,908 | ) |
|
|
| (5,908 | ) |
Stock-based employee compensation |
| — |
|
|
|
| 6,951 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 6,951 |
|
Issuance of common stock and related tax benefit on stock option exercises and stock bonus plan |
| 29 |
|
|
|
| (111 | ) |
|
|
| — |
|
|
|
| — |
|
|
|
| (111 | ) |
Issuances of common stock for merger transaction |
| 16,047 |
|
|
|
| 379,600 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 379,600 |
|
Issuance of restricted stock and related income tax benefits |
| 228 |
|
|
|
| (15 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
| (15 | ) |
Cancellations of restricted stock |
| (684 | ) |
|
|
| (14,933 | ) |
|
|
| — |
|
|
|
| — |
|
|
|
| (14,933 | ) |
Balance at December 28, 2013 |
| 37,371 |
|
|
|
| 518,056 |
|
|
|
| (8,794 | ) |
|
|
| 197,611 |
|
|
|
| 706,873 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
| — |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 58,596 |
|
|
|
| 58,596 |
|
Other comprehensive loss |
| — |
|
|
|
| — |
|
|
|
| (2,861 | ) |
|
|
| — |
|
|
|
| (2,861 | ) |
Dividends - $0.48 per share |
| — |
|
|
|
| — |
|
|
|
| — |
|
|
|
| (18,090 | ) |
|
|
| (18,090 | ) |
Share repurchase |
| (246 | ) |
|
|
| (4,987 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
| (4,987 | ) |
Stock-based employee compensation |
| — |
|
|
|
| 6,939 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 6,939 |
|
Issuance of common stock and related tax benefit on stock option exercises and stock bonus plan and from deferred compensation plan |
| 173 |
|
|
|
| 1,824 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 1,824 |
|
Issuance of restricted stock and related income tax benefits |
| 317 |
|
|
|
| 588 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 588 |
|
Cancellations of restricted stock |
| (91 | ) |
|
|
| (1,629 | ) |
|
|
| — |
|
|
|
| — |
|
|
|
| (1,629 | ) |
Balance at January 3, 2015 |
| 37,524 |
|
|
|
| 520,791 |
|
|
|
| (11,655 | ) |
|
|
| 238,117 |
|
|
|
| 747,253 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
| — |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 62,710 |
|
|
|
| 62,710 |
|
Other comprehensive income |
| — |
|
|
|
| — |
|
|
|
| 208 |
|
|
|
| — |
|
|
|
| 208 |
|
Dividends - $0.54 per share |
| — |
|
|
|
| — |
|
|
|
| — |
|
|
|
| (20,299 | ) |
|
|
| (20,299 | ) |
Share repurchase |
| (282 | ) |
|
|
| (9,000 | ) |
|
|
| — |
|
|
|
| — |
|
|
|
| (9,000 | ) |
Stock-based employee compensation |
| — |
|
|
|
| 7,240 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 7,240 |
|
Issuance of common stock and related tax benefit on stock option exercises and stock bonus plan and from deferred compensation plan |
| 223 |
|
|
|
| 4,279 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 4,279 |
|
Issuance of restricted stock and related income tax benefits |
| 315 |
|
|
|
| 1,114 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 1,114 |
|
Cancellations of restricted stock |
| (180 | ) |
|
|
| (2,726 | ) |
|
|
| — |
|
|
|
| — |
|
|
|
| (2,726 | ) |
Balance at January 2, 2016 |
| 37,600 |
|
| $ |
| 521,698 |
|
| $ |
| (11,447 | ) |
| $ |
| 280,528 |
|
| $ |
| 790,779 |
|
(In thousands) | 2017 |
|
| 2016 |
|
| 2015 |
| ||||||
Net (loss) earnings | $ |
| (52,845 | ) |
| $ |
| 56,828 |
|
| $ |
| 62,710 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive (loss) income, before tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension and postretirement liability adjustment |
|
| (1,649 | ) |
|
|
| 14 |
|
|
|
| 429 |
|
Total other comprehensive (loss) income, before tax |
|
| (1,649 | ) |
|
|
| 14 |
|
|
|
| 429 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit (expense) related to items of other comprehensive income |
|
| 632 |
|
|
|
| (4 | ) |
|
|
| (221 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive (loss) income, after tax |
|
| (1,017 | ) |
|
|
| 10 |
|
|
|
| 208 |
|
Comprehensive (loss) income | $ |
| (53,862 | ) |
| $ |
| 56,838 |
|
| $ |
| 62,918 |
|
See notes to consolidated financial statements.
-47--44-
CONSOLIDATED STATEMENTS OF CASH FLOWSSHAREHOLDERS’ EQUITY
SpartanNash Company and Subsidiaries
(In thousands)
| Year Ended |
|
| Period Ended |
| |||||||||
| January 2, 2016 |
|
| January 3, 2015 |
|
| December 28, 2013 |
| ||||||
| (52 weeks) |
|
| (53 weeks) |
|
| (39 weeks) |
| ||||||
Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings | $ |
| 62,710 |
|
| $ |
| 58,596 |
|
| $ |
| 741 |
|
Loss from discontinued operations, net of tax |
|
| 456 |
|
|
|
| 524 |
|
|
|
| 488 |
|
Earnings from continuing operations |
|
| 63,166 |
|
|
|
| 59,120 |
|
|
|
| 1,229 |
|
Adjustments to reconcile net earnings to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash restructuring, asset impairment and other charges |
|
| 9,755 |
|
|
|
| 6,166 |
|
|
|
| 15,644 |
|
Loss on debt extinguishment |
|
| 1,171 |
|
|
|
| — |
|
|
|
| 5,527 |
|
Depreciation and amortization |
|
| 84,905 |
|
|
|
| 88,475 |
|
|
|
| 37,270 |
|
LIFO (income) expense |
|
| (1,201 | ) |
|
|
| 5,603 |
|
|
|
| 928 |
|
Postretirement benefits (income) expense |
|
| (41 | ) |
|
|
| 2,686 |
|
|
|
| 1,492 |
|
Deferred taxes on income |
|
| 2,512 |
|
|
|
| 3,537 |
|
|
|
| (3,566 | ) |
Stock-based compensation expense |
|
| 7,240 |
|
|
|
| 6,939 |
|
|
|
| 6,951 |
|
Excess tax benefit on stock compensation |
|
| (1,308 | ) |
|
|
| (699 | ) |
|
|
| (178 | ) |
Other, net |
|
| (22 | ) |
|
|
| (213 | ) |
|
|
| (870 | ) |
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
| (33,063 | ) |
|
|
| (517 | ) |
|
|
| 40,292 |
|
Inventories |
|
| 59,473 |
|
|
|
| 6,004 |
|
|
|
| 30,791 |
|
Prepaid expenses and other assets |
|
| (545 | ) |
|
|
| 13,292 |
|
|
|
| 3,787 |
|
Accounts payable |
|
| 30,250 |
|
|
|
| (29,231 | ) |
|
|
| (37,248 | ) |
Accrued payroll and benefits |
|
| (1,903 | ) |
|
|
| (8,401 | ) |
|
|
| (23,822 | ) |
Postretirement benefit payments |
|
| (1,013 | ) |
|
|
| (4,155 | ) |
|
|
| (2,964 | ) |
Other accrued expenses and other liabilities |
|
| 113 |
|
|
|
| (9,533 | ) |
|
|
| (10,502 | ) |
Net cash provided by operating activities |
|
| 219,489 |
|
|
|
| 139,073 |
|
|
|
| 64,761 |
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
| (79,394 | ) |
|
|
| (90,012 | ) |
|
|
| (37,200 | ) |
Net proceeds from the sale of assets |
|
| 20,928 |
|
|
|
| 11,008 |
|
|
|
| 1,330 |
|
Acquisitions, net of cash acquired |
|
| (41,517 | ) |
|
|
| — |
|
|
|
| (20,647 | ) |
Loans to customers |
|
| (1,450 | ) |
|
|
| (6,429 | ) |
|
|
| (58 | ) |
Payments from customers on loans |
|
| 1,733 |
|
|
|
| 3,653 |
|
|
|
| 224 |
|
Proceeds from company owned life insurance |
|
| 5,004 |
|
|
|
| — |
|
|
|
| — |
|
Other |
|
| (604 | ) |
|
|
| 93 |
|
|
|
| (819 | ) |
Net cash used in investing activities |
|
| (95,300 | ) |
|
|
| (81,687 | ) |
|
|
| (57,170 | ) |
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from revolving credit facility |
|
| 1,089,979 |
|
|
|
| 1,062,173 |
|
|
|
| 877,033 |
|
Payments on revolving credit facility |
|
| (1,110,344 | ) |
|
|
| (1,079,654 | ) |
|
|
| (812,239 | ) |
Share repurchase |
|
| (9,000 | ) |
|
|
| (4,987 | ) |
|
|
| — |
|
Prepayment of senior notes |
|
| (50,000 | ) |
|
|
| — |
|
|
|
| — |
|
Debt extinguishment costs |
|
| (831 | ) |
|
|
| — |
|
|
|
| — |
|
Repayment of other long-term debt |
|
| (10,157 | ) |
|
|
| (20,353 | ) |
|
|
| (53,988 | ) |
Financing fees paid |
|
| (2,013 | ) |
|
|
| (870 | ) |
|
|
| (9,437 | ) |
Excess tax benefit on stock compensation |
|
| 1,308 |
|
|
|
| 699 |
|
|
|
| 178 |
|
Proceeds from exercise of stock options |
|
| 3,661 |
|
|
|
| 1,120 |
|
|
|
| 310 |
|
Dividends paid |
|
| (20,299 | ) |
|
|
| (18,090 | ) |
|
|
| (5,908 | ) |
Net cash used in financing activities |
|
| (107,696 | ) |
|
|
| (59,962 | ) |
|
|
| (4,051 | ) |
Cash flows from discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities |
|
| (740 | ) |
|
|
| (197 | ) |
|
|
| (421 | ) |
Net cash provided by investing activities |
|
| 523 |
|
|
|
| — |
|
|
|
| — |
|
Net cash used in discontinued operations |
|
| (217 | ) |
|
|
| (197 | ) |
|
|
| (421 | ) |
Net increase (decrease) in cash and cash equivalents |
|
| 16,276 |
|
|
|
| (2,773 | ) |
|
|
| 3,119 |
|
Cash and cash equivalents at beginning of period |
|
| 6,443 |
|
|
|
| 9,216 |
|
|
|
| 6,097 |
|
Cash and cash equivalents at end of period | $ |
| 22,719 |
|
| $ |
| 6,443 |
|
| $ |
| 9,216 |
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
| Other |
|
|
|
|
|
|
|
|
|
|
| ||
| Shares |
|
| Common |
|
| Comprehensive |
|
| Retained |
|
|
|
|
|
| |||||||
(In thousands) | Outstanding |
|
| Stock |
|
| Income (Loss) |
|
| Earnings |
|
| Total |
| |||||||||
Balance at January 3, 2015 |
| 37,524 |
|
| $ |
| 520,791 |
|
| $ |
| (11,655 | ) |
| $ |
| 238,117 |
|
| $ |
| 747,253 |
|
Net earnings |
| — |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 62,710 |
|
|
|
| 62,710 |
|
Other comprehensive income |
| — |
|
|
|
| — |
|
|
|
| 208 |
|
|
|
| — |
|
|
|
| 208 |
|
Dividends - $0.54 per share |
| — |
|
|
|
| — |
|
|
|
| — |
|
|
|
| (20,299 | ) |
|
|
| (20,299 | ) |
Share repurchase |
| (282 | ) |
|
|
| (9,000 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
| (9,000 | ) |
Stock-based employee compensation |
| — |
|
|
|
| 7,240 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 7,240 |
|
Issuance of common stock and related tax benefit on stock option exercises and stock bonus plan and from deferred compensation plan |
| 223 |
|
|
|
| 4,279 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 4,279 |
|
Issuance of restricted stock |
| 315 |
|
|
|
| 1,114 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1,114 |
|
Cancellations of stock-based awards |
| (180 | ) |
|
|
| (2,726 | ) |
|
|
| — |
|
|
|
| — |
|
|
|
| (2,726 | ) |
Balance at January 2, 2016 |
| 37,600 |
|
|
|
| 521,698 |
|
|
|
| (11,447 | ) |
|
|
| 280,528 |
|
|
|
| 790,779 |
|
Net earnings |
| — |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 56,828 |
|
|
|
| 56,828 |
|
Other comprehensive income |
| — |
|
|
|
| — |
|
|
|
| 10 |
|
|
|
| — |
|
|
|
| 10 |
|
Dividends - $0.60 per share |
| — |
|
|
|
| — |
|
|
|
| — |
|
|
|
| (22,496 | ) |
|
|
| (22,496 | ) |
Share repurchase |
| (396 | ) |
|
|
| (9,000 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
| (9,000 | ) |
Stock-based employee compensation |
| — |
|
|
|
| 7,936 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 7,936 |
|
Issuance of common stock and related tax benefit on stock option exercises and stock bonus plan |
| 144 |
|
|
|
| 3,697 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 3,697 |
|
Issuance of restricted stock |
| 315 |
|
|
|
| (118 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
| (118 | ) |
Cancellations of stock-based awards |
| (124 | ) |
|
|
| (2,229 | ) |
|
|
| — |
|
|
|
| — |
|
|
|
| (2,229 | ) |
Balance at December 31, 2016 |
| 37,539 |
|
|
|
| 521,984 |
|
|
|
| (11,437 | ) |
|
|
| 314,860 |
|
|
|
| 825,407 |
|
Net loss |
| — |
|
|
|
| — |
|
|
|
| — |
|
|
|
| (52,845 | ) |
|
|
| (52,845 | ) |
Other comprehensive loss |
| — |
|
|
|
| — |
|
|
|
| (1,017 | ) |
|
|
| — |
|
|
|
| (1,017 | ) |
Reclassification of stranded tax effects in AOCI (Note 1) |
| — |
|
|
|
| — |
|
|
|
| (2,682 | ) |
|
|
| 2,682 |
|
|
|
| — |
|
Dividends - $0.66 per share |
| — |
|
|
|
| — |
|
|
|
| — |
|
|
|
| (24,704 | ) |
|
|
| (24,704 | ) |
Share repurchase |
| (1,367 | ) |
|
|
| (34,995 | ) |
|
|
| — |
|
|
|
| — |
|
|
|
| (34,995 | ) |
Stock-based employee compensation |
| — |
|
|
|
| 9,611 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 9,611 |
|
Issuance of common stock on stock option exercises and stock bonus plan |
| 172 |
|
|
|
| 3,697 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 3,697 |
|
Issuance of restricted stock |
| 296 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| — |
|
|
|
| — |
|
Cancellations of stock-based awards |
| (174 | ) |
|
|
| (3,204 | ) |
|
|
| — |
|
|
|
| — |
|
|
|
| (3,204 | ) |
Balance at December 30, 2017 |
| 36,466 |
|
| $ |
| 497,093 |
|
| $ |
| (15,136 | ) |
| $ |
| 239,993 |
|
| $ |
| 721,950 |
|
See notes to consolidated financial statements.
-48--45-
CONSOLIDATED STATEMENTS OF CASH FLOWS
SpartanNash Company and Subsidiaries
(In thousands) | 2017 |
|
| 2016 |
|
| 2015 |
| ||||||
Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings | $ |
| (52,845 | ) |
| $ |
| 56,828 |
|
| $ |
| 62,710 |
|
Loss from discontinued operations, net of tax |
|
| 228 |
|
|
|
| 228 |
|
|
|
| 456 |
|
(Loss) earnings from continuing operations |
|
| (52,617 | ) |
|
|
| 57,056 |
|
|
|
| 63,166 |
|
Adjustments to reconcile net (loss) earnings to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash restructuring, goodwill/asset impairment and other charges |
|
| 227,847 |
|
|
|
| 32,191 |
|
|
|
| 9,755 |
|
Loss on debt extinguishment |
|
| 413 |
|
|
|
| 247 |
|
|
|
| 1,171 |
|
Depreciation and amortization |
|
| 84,390 |
|
|
|
| 79,183 |
|
|
|
| 84,905 |
|
LIFO expense (income) |
|
| 2,898 |
|
|
|
| (1,919 | ) |
|
|
| (1,201 | ) |
Postretirement benefits expense (income) |
|
| 1,347 |
|
|
|
| 1,780 |
|
|
|
| (41 | ) |
Deferred taxes on income |
|
| (79,921 | ) |
|
|
| 6,761 |
|
|
|
| 2,512 |
|
Stock-based compensation expense |
|
| 9,611 |
|
|
|
| 7,936 |
|
|
|
| 7,240 |
|
Other, net |
|
| (160 | ) |
|
|
| (254 | ) |
|
|
| (22 | ) |
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
| (25,276 | ) |
|
|
| 30,537 |
|
|
|
| (33,063 | ) |
Inventories |
|
| (48,478 | ) |
|
|
| (18,456 | ) |
|
|
| 59,473 |
|
Prepaid expenses and other assets |
|
| (8,418 | ) |
|
|
| (45,506 | ) |
|
|
| (545 | ) |
Accounts payable |
|
| (24,477 | ) |
|
|
| 21,946 |
|
|
|
| 30,250 |
|
Accrued payroll and benefits |
|
| (17,253 | ) |
|
|
| 1,193 |
|
|
|
| 823 |
|
Other accrued expenses and other liabilities |
|
| (17,063 | ) |
|
|
| (15,504 | ) |
|
|
| (900 | ) |
Net cash provided by operating activities |
|
| 52,843 |
|
|
|
| 157,191 |
|
|
|
| 223,523 |
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
| (70,906 | ) |
|
|
| (73,429 | ) |
|
|
| (79,394 | ) |
Net proceeds from the sale of assets |
|
| 4,024 |
|
|
|
| 5,989 |
|
|
|
| 20,928 |
|
Acquisitions, net of cash acquired |
|
| (226,939 | ) |
|
|
| — |
|
|
|
| (41,517 | ) |
Loans to customers |
|
| (10,328 | ) |
|
|
| (1,962 | ) |
|
|
| (1,450 | ) |
Payments from customers on loans |
|
| 3,948 |
|
|
|
| 2,183 |
|
|
|
| 1,733 |
|
Proceeds from company owned life insurance |
|
| — |
|
|
|
| — |
|
|
|
| 5,004 |
|
Other |
|
| (15,192 | ) |
|
|
| (1,008 | ) |
|
|
| (604 | ) |
Net cash used in investing activities |
|
| (315,393 | ) |
|
|
| (68,227 | ) |
|
|
| (95,300 | ) |
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from senior secured credit facility |
|
| 1,461,902 |
|
|
|
| 1,341,215 |
|
|
|
| 1,089,979 |
|
Payments on senior secured credit facility |
|
| (1,140,491 | ) |
|
|
| (1,384,958 | ) |
|
|
| (1,110,344 | ) |
Share repurchase |
|
| (34,995 | ) |
|
|
| (9,000 | ) |
|
|
| (9,000 | ) |
Net payments related to stock-based award activities |
|
| (3,204 | ) |
|
|
| (2,229 | ) |
|
|
| (2,726 | ) |
Prepayment of senior notes |
|
| — |
|
|
|
| — |
|
|
|
| (50,000 | ) |
Debt extinguishment costs |
|
| — |
|
|
|
| — |
|
|
|
| (831 | ) |
Repayment of other long-term debt |
|
| (7,456 | ) |
|
|
| (9,146 | ) |
|
|
| (10,157 | ) |
Financing fees paid |
|
| (256 | ) |
|
|
| (2,498 | ) |
|
|
| (2,013 | ) |
Proceeds from exercise of stock options |
|
| 3,207 |
|
|
|
| 2,518 |
|
|
|
| 3,661 |
|
Dividends paid |
|
| (24,704 | ) |
|
|
| (22,496 | ) |
|
|
| (20,299 | ) |
Net cash provided by (used in) financing activities |
|
| 254,003 |
|
|
|
| (86,594 | ) |
|
|
| (111,730 | ) |
Cash flows from discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities |
|
| (137 | ) |
|
|
| (738 | ) |
|
|
| (740 | ) |
Net cash provided by investing activities |
|
| — |
|
|
|
| — |
|
|
|
| 523 |
|
Net cash used in discontinued operations |
|
| (137 | ) |
|
|
| (738 | ) |
|
|
| (217 | ) |
Net (decrease) increase in cash and cash equivalents |
|
| (8,684 | ) |
|
|
| 1,632 |
|
|
|
| 16,276 |
|
Cash and cash equivalents at beginning of year |
|
| 24,351 |
|
|
|
| 22,719 |
|
|
|
| 6,443 |
|
Cash and cash equivalents at end of year | $ |
| 15,667 |
|
| $ |
| 24,351 |
|
| $ |
| 22,719 |
|
See notes to consolidated financial statements.
-46-
SPARTANNASH COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 – Summary of Significant Accounting Policies and Basis of Presentation
SpartanNash Company was formerly known as Spartan Stores, Inc. (“Spartan Stores”), which began doing business under the assumed name of “SpartanNash Company” upon completion of the merger with Nash-Finch Company (“Nash-Finch”) on November 19, 2013. The formal name change to SpartanNash Company was approved and became effective after the annual shareholders meeting on May 28, 2014. The accompanying audited consolidated financial statements (the “financial statements”) include the accounts of SpartanNash Company and its subsidiaries (“SpartanNash” or “the Company”).
Fiscal Year: The Company’s fiscal year end is the Saturday nearest to December 31. The fiscal year end was changed from the last Saturday in March in connection with the merger with Nash-Finch, effective beginning with the transition period ended December 28, 2013. As a result of this change, the transition period ended December 28, 2013 was a 39-week period beginning March 31, 2013. Fiscal years ended January 2, 2016 and January 3, 2015 consisted of 52 weeks and 53 weeks, respectively. Beginning with fiscal 2014, the Company’s interim quarters consist of 12 weeks except for the first quarter, which consists of 16 weeks. For fiscal 2014, the fourth quarter consisted of 13 weeks as a result of the 53 week fiscal year.
Principles of Consolidation: The consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United StateStates of America (“GAAP”) and include the accounts of SpartanNash Company and its subsidiaries. All significant intercompanysubsidiaries (“SpartanNash” or “the Company”). Intercompany accounts and transactions have been eliminated.
Fiscal Year: The Company’s fiscal year end is the Saturday nearest to December 31. The following discussion is as of and for the fiscal years ending or ended December 29, 2018 ("2018"), December 30, 2017 (“2017” or “current year”), December 31, 2016 (“2016” or “prior year”) and January 2, 2016 (“2015”), all of which include 52 weeks. All fiscal quarters are 12 weeks, except for the Company’s first quarter, which is 16 weeks.
Use of Estimates: The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect amounts reported therein. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods might differ from those estimates.
Revenue Recognition: The Company recognizes revenue when the sales price is fixed or determinable, collectability is reasonably assured, and the customer takes possession of the merchandise. The Military segment recognizes revenues upon the delivery of the product to the commissary or commissaries designated by the Defense Commissary Agency (DeCA), or in the case of overseas commissaries, when the product is delivered to the port designated by DeCA, which is when DeCA takes possession of the merchandise and bears the responsibility for shipping the product to the commissary or overseas warehouse. Revenues from consignment sales are included in the Company’s reported sales on a net basis. The Food Distribution segment recognizes revenues when products are delivered or ancillary services are provided. Sales and excise taxes are excluded from revenue. The Retail segment recognizes revenues from the sale of products at the point of sale. Based upon the nature of the products the Company sells, its customers have limited rights of return which are immaterial. Discounts provided by the Company to customers at the time of sale are recognized as a reduction in sales as the products are sold. The Company does not recognize a sale when it awards customer loyalty points or sells gift cards and gift certificates; rather, a sale is recognized when the customer loyalty points, gift card or gift certificate are redeemed to purchase product. Sales taxes collected from customers are remitted to the appropriate taxing jurisdictions and are excluded from sales revenue as the Company considers itself a pass-through conduit for collecting and remitting sales taxes.
Cost of Sales: Cost of sales isrepresents the cost of inventory sold during the period, includingwhich for all non-production operations includes purchase costs, in-bound freight, distribution costs, physical inventory adjustments, markdowns and promotional allowances.allowancesand 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. As a result, the Company’s cost of sales and gross profit may not be identical to similarly titled measures reported by other companies. Vendor allowances and credits that relate to the Company’s 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 related product is sold. Lump sum payments received for multi-year contracts are amortized over the life of the contracts based on contractual terms. The distribution segments include shipping and handling costs in the selling, general and administrative section of operating expenses on the consolidated statement of earnings.operations.
Cash and Cash Equivalents: Cash and cash equivalents consist of cash and highly liquid investments with an original maturity of three months or less at the date of purchase.
-49-
SPARTANNASH COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Accounts and Notes Receivable: Accounts and notes receivable are shown net of allowances for credit losses of $6.8$2.0 million and $5.5$6.7 million as of January 2,December 30, 2017 and December 31, 2016, and January 3, 2015, respectively. The Company evaluates the adequacy of its allowances by analyzing the aging of receivables, customer financial condition, historical collection experience, the value of collateral and other economic and industry factors. Actual collections may differ from historical experience, and if economic, business or customer conditions deteriorate significantly, adjustments to these reserves may be required. When the Company becomes aware of factors that indicate a change in a specific customer’s ability to meet its financial obligations, the Company records a specific reserve for credit losses. Operating results include bad debt expense of $1.5 million, $1.4 million and $2.1 million $3.0 million and $1.3 million for fiscal years ended January 2,2017, 2016 and January 3, 2015, and for the 39-week period ended December 28, 2013, respectively.
-47-
Inventory Valuation: Inventories are valued at the lower of cost or market. Approximately 88.2%86.9% and 93.7%86.7% of the Company’s inventories were valued on the last-in, first-out (LIFO) method at January 2,December 30, 2017 and December 31, 2016, and January 3, 2015, respectively. If replacement cost had been used, inventories would have been $49.5$50.4 million and $50.7$47.6 million higher at January 2,December 30, 2017 and December 31, 2016, and January 3, 2015, respectively. The replacement cost method utilizes the most current unit purchase cost to calculate the value of inventories. During fiscal years ended January 2,2017, 2016 and January 3, 2015, and for the 39-week period ended December 28, 2013, certain inventory quantities were reduced. The reductions resulted in liquidation of LIFO inventory carried at lower costs prevailing in prior years, the effect of which decreased the LIFO provision in fiscal years ended January 2,2017, 2016 and January 3, 2015 and the 39-week period ended December 28, 2013 by $0.6$0.2 million, $0.8$0.2 million and $0.1$0.6 million, respectively. The Company accounts for its MilitaryFood Distribution and Food DistributionMilitary inventory using a perpetual system and utilizes the retail inventory method (“RIM”) to value inventory for center store products in the Retail segment. Under RIM, inventory is stated at cost with cost of sales and gross margin calculated by applying a cost ratio to the retail value of inventories. Fresh, pharmacy and fuel products are accounted for at cost in the Retail segment. The Company evaluates inventory shortages throughout the year based on actual physical counts in its facilities. The Company records allowances for inventory shortages based on the results of recent physical counts to provide for estimated shortages from the last physical count to the financial statement date.
Goodwill and Intangible Assets: Goodwill represents the excess purchase price over the fair value of tangible net assets acquired in business combinations after amounts have been allocated to intangible assets. Goodwill is not amortized, but is reviewed for impairment during the last quarter of each year, or whenever events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount, using a discounted cash flow model and comparable market values of each reporting segment. Measuring the fair value of reporting units is a Level 3 measurement under the fair value hierarchy. See Note 78, Fair Value Measurements, for a discussion of levels.
Intangible assets primarily consist of trade names, customer relationships, favorable lease agreements, pharmacy prescription lists, customer relationships, franchise agreements and fees, non-compete agreements and liquor licenses. The following assets are amortized on a straight-line basis over the period of time in which their expected benefits will be realized, which are as follows:realized: favorable leases (related lease terms), prescription lists and customer relationships (period of expected benefit)benefit reflecting the pattern in which the economic benefits are consumed), non-compete agreements and franchise fees (length of agreements), and trade names with definite lives (expected life of the assets). Indefinite-lived trade names are not amortized but are tested at least annually for impairment, and liquor licenses are also not amortized as they have indefinite lives. Intangible assets are included in “Other Assets, net” in the consolidated balance sheets.
Property and Equipment: Property and equipment are recorded at cost. Expenditures which improve or extend the life of the respective assets are capitalized, whereas expenditures for normal repairs and maintenance are charged to operations as incurred. Depreciation expense on land improvements, buildings and improvements, and equipment is computed using the straight-line method as follows:
Land improvements | 15 years | |||
Buildings and improvements | 15 to 40 years | |||
Equipment | 3 to 15 years |
Property under capital leases and leasehold improvements are amortized on a straight-line basis over the shorter of the remaining terms of the leases or the estimated useful lives of the assets. Internal use software is included in property and equipment and amounted to $20.3$30.7 million and $17.7$32.9 million as of January 2,December 30, 2017 and December 31, 2016, and January 3, 2015, respectively.
-50-
SPARTANNASH COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Impairment of Long-Lived Assets: The Company reviews and evaluates long-lived assets for impairment when events or circumstances indicate that the carrying amount of an asset may not be recoverable. When the undiscounted expected future cash flows are not sufficient to recover an asset’s carrying amount, the fair value is compared to the carrying value to determine the impairment loss to be recorded. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value, less the cost to sell. Fair values are determined by independent appraisals or expected sales prices based upon market participant data developed by third party professionals or by internal licensed real estate professionals. Estimates of future cash flows and expected sales prices are judgments based upon the Company’s experience and knowledge of operations. These estimates project cash flows several years into the future and are affected by changes in the economy, real estate market conditions and inflation.
-48-
Reserves for Closed Properties: The Company records reserves for closed properties that are subject to long-term lease commitments based upon the future minimum lease payments and related ancillary costs from the date of closure to the end of the remaining lease term, net of estimated sublease rentals that could be reasonably expected to be obtained for the property. Future cash flows are based on contractual lease terms and knowledge of the geographic area in which the closed site is located. These estimates are subject to multiple factors, including inflation, ability to sublease the property and other economic conditions. Internally developed estimates of sublease rentals are based upon the geographic areas in which the properties are located, the results of previous efforts to sublease similar properties, and the current economic environment. The reserved expenses are paid over the remaining lease terms, which range from one to 1211 years. Adjustments to closed property reserves primarily relate to changes in subtenant income or actual exit costs differing from original estimates. Adjustments are made for changes in estimates in the period in which the changes become known. The current portion of the future lease obligations of stores is included in “Other accrued expenses,” and the long-term portion is included in “Other long-term liabilities” in the consolidated balance sheets.
Debt Issuance Costs: Debt issuance costs are amortized over the term of the related financing agreement and are included as a direct deduction from the carrying amount of the related debt liability in “Other assets, net”“Long-term debt and capital lease obligations” in the consolidated balance sheets.
Insurance Reserves: SpartanNash is primarily self-insured through self-insurance retentions or high deductible programs for workers’ compensation, general liability, and automobile liability, and is also self-insured for healthcare costs. Self-insurance liabilities are recorded based on claims filed and an estimate of claims incurred but not yet reported. Workers’ compensation, general liability and automobile liabilities are actuarially estimated based on available historical information on an undiscounted basis. The Company has purchased stop-loss coverage to limit its exposure to any significant exposure on a per claim basis.basis for its self-insurance retentions and high deductible programs. On a per claim basis, the Company’s exposure is up to $0.5 million for workers’ compensation, general liability and automobile liability and $0.5 million for healthcare per covered life per year. Any projection of losses concerning workers’ compensation, general liability, automobile liability and healthcare costs is subject to a considerable degree of variability. Among the causes of this variability are unpredictable external factors affecting future inflation rates, discount rates, litigation trends, changing regulations, legal interpretations, benefit level changes and claim settlement patterns. Although the Company’s estimates of liabilities incurred do not anticipate significant changes in historical trends for these variables, such changes could have a material impact on future claim costs and currently recorded liabilities.
A summary of changes in the Company’s self-insurance liability is as follows:
(In thousands) | January 2, 2016 |
|
| January 3, 2015 |
|
| December 28, 2013 |
| 2017 |
|
| 2016 |
|
| 2015 |
| ||||||||||||
Balance at beginning of period | $ |
| 19,413 |
|
| $ |
| 22,454 |
|
| $ |
| 7,167 |
| ||||||||||||||
Balance assumed in merger |
|
| — |
|
|
|
| — |
|
|
|
| 13,248 |
| ||||||||||||||
Balance at beginning of year | $ |
| 14,730 |
|
| $ |
| 14,466 |
|
| $ |
| 19,413 |
| ||||||||||||||
Expenses |
|
| 43,851 |
|
|
|
| 53,297 |
|
|
|
| 25,291 |
|
|
| 54,748 |
|
|
|
| 49,560 |
|
|
|
| 43,851 |
|
Claim payments, net of employee contributions |
|
| (48,798 | ) |
|
|
| (56,338 | ) |
|
|
| (23,252 | ) |
|
| (54,323 | ) |
|
|
| (49,296 | ) |
|
|
| (48,798 | ) |
Balance at end of period | $ |
| 14,466 |
|
| $ |
| 19,413 |
|
| $ |
| 22,454 |
| ||||||||||||||
Balance at end of year | $ |
| 15,155 |
|
| $ |
| 14,730 |
|
| $ |
| 14,466 |
|
The current portion of the self-insurance liability was $8.2$8.7 million and $13.3$8.3 million as of January 2,December 30, 2017 and December 31, 2016, and January 3, 2015, respectively, and is included in “Other accrued expenses” in the consolidated balance sheets. The long-term portion was $6.2$6.5 million and $6.1$6.4 million as of January 2,December 30, 2017 and December 31, 2016, and January 3, 2015, respectively, and is included in “Other long-term liabilities” in the consolidated balance sheets.
Income Taxes: Deferred income tax assets and liabilities are computed for differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future. Such deferred income tax asset and liability computations are based on enacted tax laws and rates applicable to periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized. Income tax expense is the tax payable or refundable for the period plus or minus the change during the period in deferred and other tax assets and liabilities.
-51-
SPARTANNASH COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Earnings per share: Earnings per share (“EPS”) areis computed using the two-class method. The two-class method determines EPS for each class of common stock and participating securities according to dividends and their respective participation rights in undistributed earnings. Participating securities include non-vested shares of restricted stock in which the participants have non-forfeitable rights to dividends during the performance period. Diluted EPS includes the effects of stock options.
-49-
The following table sets forth the computation of basic and diluted EPS for continuing operations:
| January 2, 2016 |
|
| January 3, 2015 |
|
| December 28, 2013 |
| ||||||||||||||||||||
(In thousands, except per share amounts) | (52 Weeks) |
|
| (53 Weeks) |
|
| (39 Weeks) |
| 2017 |
|
| 2016 |
|
| 2015 |
| ||||||||||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations | $ |
| 63,166 |
|
| $ |
| 59,120 |
|
| $ |
| 1,229 |
| ||||||||||||||
Adjustment for earnings attributable to participating securities |
|
| (1,098 | ) |
|
|
| (1,015 | ) |
|
|
| (26 | ) | ||||||||||||||
Earnings from continuing operations used in calculating earnings per share | $ |
| 62,068 |
|
| $ |
| 58,105 |
|
| $ |
| 1,203 |
| ||||||||||||||
(Loss) earnings from continuing operations | $ |
| (52,617 | ) |
| $ |
| 57,056 |
|
| $ |
| 63,166 |
| ||||||||||||||
Adjustment for loss (earnings) attributable to participating securities |
|
| 908 |
|
|
|
| (1,011 | ) |
|
|
| (1,098 | ) | ||||||||||||||
(Loss) earnings from continuing operations used in calculating earnings per share | $ |
| (51,709 | ) |
| $ |
| 56,045 |
|
| $ |
| 62,068 |
| ||||||||||||||
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding, including participating securities |
|
| 37,612 |
|
|
| 37,641 |
|
|
| 24,137 |
|
|
| 37,419 |
|
|
| 37,483 |
|
|
| 37,612 |
| ||||
Adjustment for participating securities |
|
| (654 | ) |
|
|
| (646 | ) |
|
|
| (519 | ) |
|
| (646 | ) |
|
|
| (664 | ) |
|
|
| (654 | ) |
Shares used in calculating basic earnings per share |
|
| 36,958 |
|
|
|
| 36,995 |
|
|
|
| 23,618 |
|
|
| 36,773 |
|
|
|
| 36,819 |
|
|
|
| 36,958 |
|
Effect of dilutive stock options |
|
| 106 |
|
|
|
| 69 |
|
|
|
| 92 |
|
|
| — |
|
|
|
| 73 |
|
|
|
| 106 |
|
Shares used in calculating diluted earnings per share |
|
| 37,064 |
|
|
|
| 37,064 |
|
|
|
| 23,710 |
|
|
| 36,773 |
|
|
|
| 36,892 |
|
|
|
| 37,064 |
|
Basic earnings per share from continuing operations | $ |
| 1.68 |
|
| $ |
| 1.57 |
|
| $ |
| 0.05 |
| ||||||||||||||
Diluted earnings per share from continuing operations | $ |
| 1.67 |
|
| $ |
| 1.57 |
|
| $ |
| 0.05 |
| ||||||||||||||
Basic (loss) earnings per share from continuing operations | $ |
| (1.41 | ) |
| $ |
| 1.52 |
|
| $ |
| 1.68 |
| ||||||||||||||
Diluted (loss) earnings per share from continuing operations | $ |
| (1.41 | ) |
| $ |
| 1.52 |
|
| $ |
| 1.67 |
|
Weighted average shares issuable upon the exercise of stock options that were not included in the EPS calculations because they were anti-dilutive were 322,914 and 334,17275,159 for fiscal year ended January 3, 2015 and the 39-week period ended December 28, 2013, respectively.2017. There were no anti-dilutive stock options in fiscal year ended January 2, 2016.2016 and 2015.
Stock-Based Compensation: All share-based payments to associates are recognized in the consolidated financial statements as compensation cost based on the fair value on the date of grant. The grant date closing price per share of SpartanNash stock is used to estimate the fair value of restricted stock awards and restricted stock units. The value of the portion of awards expected to vest is recognized as expense over the requisite service period.
Shareholders’ Equity: The Company’s restated articles of incorporation provide that the Board of Directors may at any time, and from time to time, provide for the issuance of up to 10 million shares of preferred stock in one or more series, each with such designations as determined by the Board of Directors. At January 2,December 30, 2017 and December 31, 2016, and January 3, 2015, there were no shares of preferred stock outstanding.
Advertising Costs: The Company’s advertising costs are expensed as incurred and are included in Selling, general and administrative expenses. Advertising expenses were $47.7$43.4 million, $41.1$46.6 million and $15.3 million for fiscal years ended January 2,$47.7 in 2017, 2016 and January 3, 2015, and for the 39-week period ended December 28, 2013, respectively.
Accumulated Other Comprehensive Income (Loss)(“AOCI”): The Company reports comprehensive income (loss) that includes net income (loss) and other comprehensive income (loss). Other comprehensive income (loss) refers to revenues, expenses, gains and losses that are not included in net earnings, such as minimum pension and other postretirement liability adjustments, but rather are recorded directly in the consolidated statements ofto shareholders’ equity. These amounts are also presented in the consolidated statements of comprehensive income. As of January 2,December 30, 2017 and December 31, 2016, and January 3, 2015, the accumulated other comprehensive lossAOCI relates to the pension and postretirement liability.plans.
Discontinued operations: Certain of the Company’s RetailFood Distribution and Food DistributionRetail operations have been recorded as discontinued operations. Results of discontinued operations are excluded from the accompanying notes to the consolidated financial statements for all periods presented, unless otherwise noted. Results of discontinued operations reported on the consolidated statements of earningsoperations are reported net of tax.
-52-
SPARTANNASH COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Adoption of New Accounting Standards and Recently Issued Accounting Standards
In February 2016,2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-02, “Income Statement – Reporting Comprehensive Income: Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.” ASU 2018-02 allows a reclassification from AOCI to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act, as further described in Note 13, Income Tax, lowered the U.S. federal corporate tax rate, resulting in a re-measurement of the deferred tax assets associated with AOCI. This new guidance allows the discrete tax impact of this re-measurement recorded in the consolidated statement of operations to be reclassified to properly reflect AOCI net of tax under the new statute. The Company early adopted this guidance upon its release. Retrospective application of the guidance resulted in a reclassification from AOCI to retained earnings of $2.7 million in 2017.
-50-
In January 2017, the FASB issued ASU 2017-04, “Intangibles – Goodwill and Other: Simplifying the Test for Goodwill Impairment.” ASU 2017-04 simplifies the subsequent measurement of goodwill by eliminating Step 2 of the goodwill impairment test. If a reporting unit fails Step 1 of the goodwill impairment test, entities are no longer required to compute the implied fair value of goodwill following the same procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. Instead, the guidance requires an entity to perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and to recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. The Company early adopted this guidance as of the beginning of the third quarter of 2017. Refer to Note 5, Goodwill and Other Intangible Assets, for further discussion of goodwill impairment testing.
In January 2017, the FASB issued ASU 2017-01, “Business Combinations – Clarifying the Definition of a Business.” ASU 2017-01 narrows the definition of a business and provides a screen to determine when a set of the three elements of a business – inputs, processes, and outputs – are not a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. If the screen is not met, the amendments (1) require that to be considered a business, a set must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output and (2) remove the evaluation of whether a market participant could replace missing elements. The amendments provide a framework to assist entities in evaluating whether both an input and a substantive process are present. The new guidance is effective for the Company in 2018. The impact of adoption will depend on the facts and circumstances of future acquisitions, if any, and therefore the Company is unable to estimate the impact of adoption. Adoption will have no impact on the Company’s historical financial statements.
In March 2016, the FASB issued ASU 2016-09, “Compensation – Stock Compensation: Improvements to Employee Share-Based Payment Accounting.” ASU 2016-09 provides for simplification of several aspects of the accounting for share-based payment transactions including income tax consequences, classification of awards as either equity or liabilities, accounting for forfeitures, and classification on the statement of cash flows. The Company adopted the new standard in the first quarter of 2017. Accordingly, the tax benefits or deficiencies related to stock-based compensation are reflected in the consolidated statements of operations as a component of the provision for income taxes, whereas they previously were recognized in equity. As a result of the adoption, the Company recognized $1.3 million of tax benefits related to share-based payments in its provision for income taxes in 2017. Additionally, the Company’s consolidated statements of cash flows now include tax benefits as an operating activity, while cash paid on associates’ behalf related to shares withheld for tax purposes is classified as a financing activity. Retrospective application of the cash flow presentation resulted in $2.7 million and $4.0 million increases to both net cash provided by operating activities and net cash used in financing activities for 2016 and 2015, respectively. The Company’s stock compensation expense continues to reflect estimated forfeitures.
-51-
In February 2016, the FASB issued ASU 2016-02, “Leases,“Leases.” whichASU 2016-02 provides guidance for lease accounting. The new guidance contained in the ASUaccounting and stipulates that lessees will need to recognize a right-of-use asset and a lease liability for substantially all leases (other than leases that meet the definition of a short-term lease). The liability will be equal to the present value of lease payments. Treatment in the consolidated statements of earningsoperations will be similar to the current treatment of operating and capital leases. The new guidance is effective on a modified retrospective basis for the Company in the first quarter of its fiscal year ending December 28,29, 2019. The adoption of this ASU will result in a significant increase to the Company’s consolidated balance sheets for lease liabilities and right-of-use assets. The Company is currently in the process of evaluating the impactother effects of adoption of this standardASU on its consolidated financial statements.
In November 2015, FASB issued ASU 2015-17, “Balance Sheet Classification of Deferred Taxes.” ASU 2015-17 requires that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. The Company adopted ASU 2015-17 in the fourth quarter of fiscal 2015 on a retrospective basis for all periods presented. Adoption of this standard resulted in the reclassification of $22.5 million of “Deferred income taxes” from Current liabilities to Long-term liabilities as of January 3, 2015.
In September 2015, the FASB issued ASU 2015-16, “Business Combinations: Simplifying the Accounting for Measurement-Period Adjustments.” ASU 2015-16 requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the same reporting period in which the adjustments are determined. The Company adopted ASU 2015-16 in the third quarter of fiscal 2015. Adoption of this standard did not have a material impact on the consolidated financial statements as the Company has not recorded any significant measurement-period adjustments in fiscal 2015.
In April 2015, the FASB issued ASU 2015-03, “Interest - Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs.” ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. In August 2015, the FASB issued ASU 2015-15, "Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements." ASU 2015-15 supplements the requirements of ASU 2015-03 by allowing an entity to defer and present debt issuance costs related to a line of credit arrangement as an asset and subsequently amortize the deferred costs ratably over the term of the line of credit arrangement. The new guidance is effective on a retrospective basis for the Company in the first quarter of its fiscal year ending December 31, 2016. Adoption of these standards in fiscal 2016 will retroactively decrease Other long-term assets and Long-term debt. As of January 2, 2016, such amount was approximately $8.2 million.
In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers,Customers.” which provides guidance for revenue recognition. The new guidance contained in the ASU affects any reporting organization that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards. The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In August 2015, the FASB issued ASU 2015-14, “Deferral of the Effective Date,” which results in the guidance being effective for the Company in the first quarter of its fiscal year ending December 29, 2018. The adoption will include updates as provided under ASU 2016-08, “Principal versus Agent Considerations (Reporting Revenue Gross versus Net);” ASU 2016-10, “Identifying Performance Obligations and Licensing;” and ASU 2016-12, “Narrow-Scope Improvements and Practical Expedients.” Adoption is allowed by either the full retrospective or modified retrospective approach. The Company is currently in the process of evaluating the impact of adoption of this standard on its consolidated financial statements.
In April 2014, the FASB issued ASU 2014-08, “Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.” ASU 2014-08 changed the criteria for reporting discontinued operations and modified related disclosure requirements. The Company adopted ASU 2014-08 inplans to adopt using a full retrospective approach beginning with the first quarter of fiscal 2015. Adoption2018.
The Company has completed its evaluation of thisadopting the standard did not have a materialand its impact on the consolidated financial statements. From a principal versus agent considerations perspective, the Company has evaluated its significant arrangements and has determined that certain contracts in the Food Distribution segment that are currently reported on the gross basis will be reported on the net basis beginning in 2018. As a result, net sales for 2017 and 2016 will be restated to reflect a reduction of revenues of approximately $160 million and $170 million, respectively, and the corresponding cost of goods sold related to these revenues will be reduced by the same amounts. For these contracts, the Company determined that it did not control the related goods or services before they were transferred to the customers, which resulted in the change in gross to net presentation. As it pertains to the Food Distribution and Military segments, the Company determined that other than grocery products, the promised goods or services outlined in the contracts with customers are immaterial in the context of the contracts. As a result of this determination, the Company is not required to assess whether these promised goods or services are performance obligations, and therefore, revenue recognition practices will not change as there are no additional deliverables for which the transaction price will need to be allocated. Many of the Company’s contracts also include contingent amounts of variable consideration, and the Company concluded there would be no changes to the timing of revenue as the Company currently recognizes these amounts under the presumption that they are determinable and can be estimated. The Company concluded there were no significant changes to revenue recognition in its Retail segment based on how the Company currently records gift card breakage and loyalty rewards, which are immaterial to the consolidated financial statements.
In connection with adopting the standard, the Company has implemented key controls and processes related to the completeness and review of contracts, application of the guidance, tracking of performance obligations and other aspects of revenue recognition. In the first quarter of 2018, the Company will be required to make enhanced revenue disclosures, which will include relevant information about contracts with customers, disaggregated revenues, remaining performance obligations and other items requiring significant judgments and estimates used to recognize revenue. As a result, the Company has begun implementing disclosure controls and procedures related to these enhanced revenue disclosures.
Note 2 – MergerAcquisitions
On January 6, 2017, the Company acquired certain assets and Acquisitionsassumed certain liabilities of Caito Foods Service (“Caito”) and Blue Ribbon Transport (“BRT”) for $214.6 million in cash, net of $2.5 million of cash acquired. Acquired assets consist primarily of property and equipment of $76.7 million, intangible assets of $72.9 million, and working capital. Intangible assets are primarily composed of customer relationships, which will be amortized over fifteen years, and indefinite lived trade names. In connection with the purchase, the Company is providing certain earn-out opportunities that have the potential to pay the sellers an additional $27.4 million, collectively, if the business achieves certain performance targets during the first three years after acquisition. If certain performance targets are not met in the first year after acquisition, the Company will be reimbursed a portion of the initial purchase price at an amount not to exceed the sum of: a) $15.0 million, representing the funds paid into escrow, and b) any earn-out opportunities earned by the sellers. The reduction in purchase price, if applicable, will first be applied to funds paid into escrow and then as an offset against and a reduction to any payments owed on the various earn-out opportunities, with reimbursement made after the third-year anniversary of the acquisition date. The acquisition was funded with proceeds from the Company’s Credit Agreement. As of December 30, 2017, the Company has incurred $4.9 million of total acquisition-related costs associated with the transaction, of which $2.7 million was incurred in 2017 and is recorded in merger/acquisition and integration expense.
-52-
Founded in Indianapolis in 1965, Caito is a leading supplier of fresh fruits and vegetables as well as value-added meal solutions to grocery retailers and food service distributors across 21 states in the Southeast, Midwest and Eastern United States. BRT offers temperature-controlled distribution and logistics services throughout North America. Caito and BRT service customers from facilities in Indiana and Florida. Caito also has a fresh-cut fruit and vegetable facility in Indianapolis and a new 118,000 square foot Fresh Kitchen facility, also in Indianapolis. The Fresh Kitchen provides the Company with the ability to process, cook, and package fresh protein-based foods and complete meal solutions. The Company has begun production in the Fresh Kitchen facility and is in the process of ramping up to full production. The Company acquired Caito and BRT to strengthen its fresh product offerings to its existing customer base and to expand into fast-growing, value-added services, such as freshly-prepared centerplate and side dish categories.
The acquired assets and assumed liabilities were recorded at their estimated fair values based on appraised value and discounted cash flow analyses as of the acquisition date, based on preliminary estimates, and have since been finalized. The Company increased goodwill by $1.3 million as a result of certain measurement period adjustments primarily associated with updated valuations of certain acquired long-lived assets. The excess of the purchase price over the fair value of net assets acquired of $46.3 million was recorded as goodwill in the consolidated balance sheet and allocated to the Food Distribution segment. The goodwill recognized is attributable primarily to the assembled workforce of Caito and BRT and expected synergies. The Company expects that all goodwill attributable to the acquisition will be deductible for tax purposes.
On June 16, 2015, SpartanNashthe Company acquired certain assets and assumed certain liabilities of Dan’s Super Market, Inc. (Dan’s) for a total purchase price of $32.6 million, which included inventory of $3.7 million. The results of operations of the Dan’s acquisition are included in the accompanying financial statements from the date of acquisition. Dan’s iswas a six-store chain serving Bismarck and Mandan, North Dakota, and was not a customer of the SpartanNash Food Distribution segment prior to the acquisition. The Company acquired the Dan’s stores to strengthen its offering in this region from both a retail and distribution perspective. The purchased assets include inventory, equipment, trade name, favorable lease, non-compete agreements, and goodwill. The acquired assets and assumed liabilities were recorded at their estimated fair values as of the acquisition date and were based on preliminary estimates that may be subject to further adjustments withinDuring the measurement period. Goodwill of $24.6 million and $1.0 million was preliminarily assignedperiod, which ended June 15, 2016, there were no material adjustments made to the Retail and Food Distribution segments, respectively. The Company evaluated the acquired set of assets and activities, consisting primarily of long-lived assets and operational processes, and determined they represent inputs and processes that constitute a business.
-53-
SPARTANNASH COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On November 19, 2013, Spartan Stores completed a merger with Nash-Finch, a food distribution company serving military commissaries and exchanges and independent grocery retailers, and an operator of retail grocery stores. The merger was pursued to create a larger, more balanced company with a broader customer base across multiple food retail and distribution businesses. Each outstanding share of the common stock of Nash-Finch converted into 1.20 shares of Spartan Stores common stock.
Consideration paid for all of the Nash-Finch outstanding shares consisted of the following:
(In thousands, except share price) |
|
|
| |||
Spartan Stores common shares issued and deferred |
|
| 16,119 |
| ||
Trading price |
| $ | 23.55 |
| ||
Fair value of shares issued |
|
| 379,600 |
| ||
Cash paid for fractional shares |
|
| 14 |
| ||
|
| $ | 379,614 |
|
The following table summarizes the endinginitial fair values of the assets acquired and liabilities assumed on November 19, 2013.
(In thousands) |
| Fair Value |
| |
Current assets |
| $ | 787,430 |
|
Property and equipment |
| 346,500 |
| |
Goodwill |
| 36,622 |
| |
Intangible assets |
| 28,550 |
| |
Other |
| 38,160 |
| |
Total assets acquired |
| 1,237,262 |
| |
Current liabilities |
| 342,221 |
| |
Other long-term liabilities |
| 76,531 |
| |
Long-term debt and capital lease obligations |
| 438,896 |
| |
Total liabilities assumed |
| 857,648 |
| |
Net assets acquired |
| $ | 379,614 |
|
During the second quarter ended July 12, 2014, managementas part of the Company made revisions to the cash flow projections to correct the allocation between certain reporting units related to the valuation analysis completed in 2013. Management concluded that the purchase accounting effect of the revisions was not material to the consolidated financial statements for any period presented. As a result of the revisions, property and equipment decreased by $23.0 million, while intangible assets and goodwill increased by $19.3 million and $3.7 million, respectively.
The excess of the purchase price over the fair value of net assets acquired of $36.6 million was recorded as goodwill in the consolidated balance sheet and allocated to the Food Distribution segment. The goodwill recognized is attributable primarily to expected synergies and the assembled workforce of Nash-Finch. No goodwill is expected to be deductible for tax purposes.
Intangible assets acquired were valued and assigned useful lives as follows:
(In thousands) |
| Intangible |
|
| Useful Life |
| ||
Trade names |
| $ | 6,700 |
|
|
| Indefinite |
|
Customer lists |
|
| 5,100 |
|
|
| 7 years |
|
Customer relationships |
|
| 12,100 |
|
|
| 20 years |
|
Favorable leases |
|
| 4,650 |
|
|
| 7 to 22 years |
|
|
| $ | 28,550 |
|
|
|
|
|
-54-
SPARTANNASH COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The operating results of Nash-Finch are included in the consolidated results of operations beginning on November 19, 2013. The following table provides net sales and results of operations from the acquired Nash-Finch Company included in the consolidated statements of earnings for the 39-week period ended December 28, 2013 as well as unaudited supplemental pro forma financial information as if Nash-Finch was acquired on the first day of the same 39-week period.
(In thousands) |
| Period Ended (Pro Forma)(A) |
|
| Period Ended (Reported)(B) |
| ||
Net sales |
| $ | 5,896,555 |
|
| $ | 563,185 |
|
Net earnings |
|
| 24,073 |
|
|
| 769 |
|
(A) Pro forma information is not necessarily indicative of the results that would have been obtained if the acquisition had occurred at the beginning of the period presented or that may be obtained in the future.
(B) Included in net earnings above are the following after-tax charges: merger and integration expenses of $2.0 million; asset impairment and restructuring charges of $0.4 million; and a loss on debt extinguishment of $2.6 million. Non-recurring merger transaction and integration costs of $26.5 million were incurred during the 39-week period ended December 28, 2013, of which $21.0 million was included in selling, general and administrative expenses and $5.5 million was included in loss on debt extinguishment. Costs associated with the new revolving credit agreement of $9.4 million were capitalized and included in “Other assets, net” in the consolidated balance sheets.
Dan’s acquisition.
Note 3 – GoodwillAccounts and Other Intangible AssetsNotes Receivable
Changes inAccounts and notes receivable are comprised of the carrying amount of goodwill were as follows:following:
|
|
|
|
|
| Food |
|
|
|
|
|
| ||
(In thousands) | Retail |
|
| Distribution |
|
| Total |
| ||||||
Balance at December 28, 2013: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill | $ |
| 254,438 |
|
| $ |
| 131,348 |
|
| $ |
| 385,786 |
|
Accumulated impairment charges |
|
| (86,600 | ) |
|
|
| — |
|
|
|
| (86,600 | ) |
Goodwill, net |
|
| 167,838 |
|
|
|
| 131,348 |
|
|
|
| 299,186 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
| (1,906 | ) |
|
|
| — |
|
|
|
| (1,906 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 3, 2015: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
| 252,532 |
|
|
|
| 131,348 |
|
|
|
| 383,880 |
|
Accumulated impairment charges |
|
| (86,600 | ) |
|
|
| — |
|
|
|
| (86,600 | ) |
Goodwill, net |
|
| 165,932 |
|
|
|
| 131,348 |
|
|
|
| 297,280 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition (Dan's) |
|
| 24,603 |
|
|
|
| 1,019 |
|
|
|
| 25,622 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 2, 2016: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
| 277,135 |
|
|
|
| 132,367 |
|
|
|
| 409,502 |
|
Accumulated impairment charges |
|
| (86,600 | ) |
|
|
| — |
|
|
|
| (86,600 | ) |
Goodwill, net | $ |
| 190,535 |
|
| $ |
| 132,367 |
|
| $ |
| 322,902 |
|
| December 30, |
|
| December 31, |
| ||||
(In thousands) | 2017 |
|
| 2016 |
| ||||
Customer notes receivable | $ |
| 2,555 |
|
| $ |
| 3,219 |
|
Customer accounts receivable |
|
| 312,214 |
|
|
|
| 252,778 |
|
Other receivables |
|
| 31,169 |
|
|
|
| 42,142 |
|
Allowance for doubtful accounts |
|
| (1,881 | ) |
|
|
| (6,571 | ) |
Net current accounts and notes receivable | $ |
| 344,057 |
|
| $ |
| 291,568 |
|
Long-term notes receivable |
|
| 18,322 |
|
|
|
| 15,393 |
|
Allowance for doubtful accounts |
|
| (120 | ) |
|
|
| (139 | ) |
Net long-term notes receivable | $ |
| 18,202 |
|
| $ |
| 15,254 |
|
-55-
SPARTANNASH COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table reflectsNote 4 – Property and Equipment
Property and equipment consists of the components of amortized intangible assets, included in “Other assets, net” on the consolidated balance sheets:following:
| January 2, 2016 |
|
| January 3, 2015 |
| ||||||||||||||
| Gross |
|
|
|
|
|
|
| Gross |
|
|
|
|
|
| ||||
| Carrying |
|
| Accumulated |
|
| Carrying |
|
| Accumulated |
| ||||||||
(In thousands) | Amount |
|
| Amortization |
|
| Amount |
|
| Amortization |
| ||||||||
Non-compete agreements | $ |
| 1,306 |
|
| $ |
| 725 |
|
| $ |
| 2,528 |
|
| $ |
| 1,836 |
|
Favorable leases |
|
| 8,744 |
|
|
|
| 3,248 |
|
|
|
| 8,408 |
|
|
|
| 2,718 |
|
Pharmacy customer prescription lists |
|
| 7,887 |
|
|
|
| 3,441 |
|
|
|
| 16,494 |
|
|
|
| 10,574 |
|
Customer relationships |
|
| 17,542 |
|
|
|
| 1,308 |
|
|
|
| 12,100 |
|
|
|
| 684 |
|
Trade names |
|
| 1,068 |
|
|
|
| 86 |
|
|
|
| 1,218 |
|
|
|
| 461 |
|
Franchise fees and other |
|
| 559 |
|
|
|
| 205 |
|
|
|
| 514 |
|
|
|
| 184 |
|
Total | $ |
| 37,106 |
|
| $ |
| 9,013 |
|
| $ |
| 41,262 |
|
| $ |
| 16,457 |
|
| December 30, |
|
| December 31, |
| ||||
(In thousands) | 2017 |
|
| 2016 |
| ||||
Land and improvements | $ |
| 80,891 |
|
| $ |
| 76,409 |
|
Buildings and improvements |
|
| 534,835 |
|
|
|
| 483,687 |
|
Equipment |
|
| 567,123 |
|
|
|
| 529,705 |
|
Total property and equipment |
|
| 1,182,849 |
|
|
|
| 1,089,801 |
|
Less accumulated depreciation and amortization |
|
| 582,609 |
|
|
|
| 530,079 |
|
Property and equipment, net | $ |
| 600,240 |
|
| $ |
| 559,722 |
|
The weighted average amortization period for amortizable intangible assets is as follows:-53-
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Amortization expense for intangible assets was $3.3 million, $3.7 million and $2.1 million for the fiscal years ended January 2, 2016 and January 3, 2015 and the 39-week period ended December 28, 2013, respectively.
Estimated amortization expense for each of the five succeeding fiscal years is as follows:
|
|
|
|
| Amortization |
| ||||
(In thousands) |
|
|
|
| Expense |
| ||||
Fiscal Year |
|
|
|
|
|
|
|
|
|
|
2016 |
|
|
|
|
|
| $ |
| 2,921 |
|
2017 |
|
|
|
|
|
|
|
| 2,813 |
|
2018 |
|
|
|
|
|
|
|
| 2,585 |
|
2019 |
|
|
|
|
|
|
|
| 2,466 |
|
2020 |
|
|
|
|
|
|
|
| 2,069 |
|
Indefinite-lived intangible assets that are not amortized, consisting primarily of trade names and licenses for the sale of alcoholic beverages, totaled $35.1 million and $33.0 million as of January 2, 2016 and January 3, 2015, respectively.
Note 45 – Goodwill and Other Intangible Assets
The Company has three reportable segments; however, no goodwill has existed within the Military segment. Changes in the carrying amount of goodwill were as follows:
|
|
|
|
|
|
| Food |
|
|
|
|
|
|
|
|
|
|
|
|
| ||
(In thousands) |
|
|
|
|
|
| Distribution |
|
| Retail |
|
|
| Total |
|
| ||||||
Balance at January 2, 2016: |
|
|
|
|
|
| $ |
| 132,367 |
|
|
|
| 190,535 |
| (a) |
| $ |
| 322,902 |
| (a) |
Other |
|
|
|
|
|
|
|
| — |
|
|
|
| (216 | ) |
|
|
|
| (216 | ) |
|
Balance at December 31, 2016: |
|
|
|
|
|
|
|
| 132,367 |
|
|
|
| 190,319 |
| (a) |
|
|
| 322,686 |
| (a) |
Acquisitions (Note 2) |
|
|
|
|
|
|
|
| 46,281 |
|
|
|
| — |
|
|
|
|
| 46,281 |
|
|
Disposals |
|
|
|
|
|
|
|
| — |
|
|
|
| (1,292 | ) |
|
|
|
| (1,292 | ) |
|
Impairment |
|
|
|
|
|
|
|
| — |
|
|
|
| (189,027 | ) |
|
|
|
| (189,027 | ) |
|
Balance at December 30, 2017: |
|
|
|
|
|
| $ |
| 178,648 |
|
| $ |
| — |
| (b) |
| $ |
| 178,648 |
| (b) |
(a) Net of accumulated impairment charges of $86.6 million.
(b) Net of accumulated impairment charges of $275.6 million.
The Company reviews goodwill and other intangible assets for impairment annually, during the fourth quarter of each year, and more frequently if circumstances indicate the possibility of impairment. Testing goodwill and other 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. On the first day of the third quarter of 2017, the Company early adopted ASU 2017-04, which simplifies the subsequent measurement of goodwill by eliminating Step 2 of the goodwill impairment test.
In the third quarter of 2017, the Company experienced significantly lower than expected Retail operating results and, due to an increasingly competitive retail environment and the related pricing pressures that are anticipated to negatively impact gross margin, lower operating profit. As a result, the Company revised its future cash flow projections for the Retail reporting unit and performed Step 1 of the goodwill impairment test by calculating the fair value of the Retail reporting unit based on its discounted estimated future cash flows. The Company then benchmarked the calculated fair value against a market approach using the guideline public companies method. Given there had been a sustained decline in the market multiples of publicly traded peer companies, management considered this market information when assessing the reasonableness of the fair value of the reporting unit under both the income and market approaches.
Based on the factors outlined above, together with the results of the Step 1 goodwill impairment test, it was determined that the carrying value of the Retail segment exceeded its fair value. Consequently, the Company recorded a goodwill impairment charge of $189.0 million. The Company completed its impairment analysis in the fourth quarter, which did not result in any changes to the impairment recorded in the third quarter. The measurement of the fair value of the Retail segment required significant judgments and estimates regarding short- and long-term growth rates and profitability, as well as assumptions regarding the market valuation of the business. These represent Level 3 valuation inputs under the ASC 820 fair value hierarchy, as further described in Note 8, Fair Value Measurements. As of the date of the most recent goodwill impairment test, which utilized data and assumptions as of October 7, 2017, the Food Distribution reporting unit had a fair value that was substantially in excess of its carrying value.
The following table reflects the components of amortized intangible assets, included in “Intangible assets, net” on the consolidated balance sheets:
|
|
|
| December 30, 2017 |
|
| December 31, 2016 |
| ||||||||||||||
|
|
|
| Gross |
|
|
|
|
|
|
| Gross |
|
|
|
|
|
| ||||
|
|
|
| Carrying |
|
| Accumulated |
|
| Carrying |
|
| Accumulated |
| ||||||||
(In thousands) |
|
|
| Amount |
|
| Amortization |
|
| Amount |
|
| Amortization |
| ||||||||
Non-compete agreements |
|
|
| $ |
| 3,408 |
|
| $ |
| 397 |
|
| $ |
| 1,244 |
|
| $ |
| 978 |
|
Favorable leases |
|
|
|
|
| 8,251 |
|
|
|
| 4,332 |
|
|
|
| 8,744 |
|
|
|
| 3,807 |
|
Pharmacy customer prescription lists |
|
|
|
|
| 6,810 |
|
|
|
| 4,210 |
|
|
|
| 7,168 |
|
|
|
| 3,445 |
|
Customer relationships |
|
|
|
|
| 57,937 |
|
|
|
| 4,173 |
|
|
|
| 17,633 |
|
|
|
| 2,187 |
|
Trade names |
|
|
|
|
| 1,068 |
|
|
|
| 386 |
|
|
|
| 1,068 |
|
|
|
| 236 |
|
Franchise fees and other |
|
|
|
|
| 1,047 |
|
|
|
| 381 |
|
|
|
| 929 |
|
|
|
| 270 |
|
Total |
|
|
| $ |
| 78,521 |
|
| $ |
| 13,879 |
|
| $ |
| 36,786 |
|
| $ |
| 10,923 |
|
-54-
The weighted average amortization periods for amortizable intangible assets as of December 30, 2017 are as follows:
Non-compete agreements | 6.3 years | |||||||||||||
Favorable leases | 16.4 years | |||||||||||||
Pharmacy customer prescription lists | 7.5 years | |||||||||||||
Customer relationships | 16.1 years | |||||||||||||
Trade names | 7.0 years | |||||||||||||
Franchise fees and other | 9.3 years |
Amortization expense for intangible assets was $5.5 million, $3.0 million and $3.3 million for 2017, 2016 and 2015, respectively.
Estimated amortization expense for each of the five succeeding fiscal years is as follows:
(In thousands) | 2018 |
|
| 2019 |
|
| 2020 |
|
| 2021 |
|
| 2022 |
| ||||||||||
Amortization expense | $ |
| 5,772 |
|
| $ |
| 5,604 |
|
| $ |
| 5,267 |
|
| $ |
| 4,620 |
|
| $ |
| 4,362 |
|
Indefinite-lived intangible assets that are not amortized, consisting primarily of trade names and licenses for the sale of alcoholic beverages, totaled $69.8 million and $34.3 million as of December 30, 2017 and December 31, 2016, respectively.
Note 6 – Restructuring Charges and Asset Impairment
The following table provides the activity of reserves for closed properties for each of the fiscal years ended January 2,2017, 2016 and January 3, 2015 and for the 39-week period ended December 28, 2013.2015. Reserves for closed properties recorded in the consolidated balance sheets are included in “Other accrued expenses” in Current liabilities and “Other long-term liabilities” in Long-term liabilities based on when the obligations are expected to be paid.
| Lease and |
|
|
|
|
|
|
| ||||||
(In thousands) | Ancillary Costs |
|
| Severance |
|
| Total |
| ||||||
Balance at January 3, 2015 | $ |
| 13,988 |
|
| $ |
| 80 |
|
| $ |
| 14,068 |
|
Provision for closing charges |
|
| 7,200 |
|
|
|
| — |
|
|
|
| 7,200 |
|
Provision for severance |
|
| — |
|
|
|
| 395 |
|
|
|
| 395 |
|
Changes in estimates |
|
| (56 | ) |
|
|
| (80 | ) |
|
|
| (136 | ) |
Lease termination adjustments |
|
| (1,745 | ) |
|
|
| — |
|
|
|
| (1,745 | ) |
Accretion expense |
|
| 592 |
|
|
|
| — |
|
|
|
| 592 |
|
Payments |
|
| (5,531 | ) |
|
|
| (395 | ) |
|
|
| (5,926 | ) |
Balance at January 2, 2016 |
|
| 14,448 |
|
|
|
| — |
|
|
|
| 14,448 |
|
Provision for closing charges |
|
| 13,925 |
|
|
|
| — |
|
|
|
| 13,925 |
|
Provision for severance |
|
| — |
|
|
|
| 919 |
|
|
|
| 919 |
|
Changes in estimates |
|
| 689 |
|
|
|
| (40 | ) |
|
|
| 649 |
|
Lease termination adjustments |
|
| (2,437 | ) |
|
|
| — |
|
|
|
| (2,437 | ) |
Accretion expense |
|
| 675 |
|
|
|
| — |
|
|
|
| 675 |
|
Payments |
|
| (5,368 | ) |
|
|
| (879 | ) |
|
|
| (6,247 | ) |
Balance at December 31, 2016 |
|
| 21,932 |
|
|
|
| — |
|
|
|
| 21,932 |
|
Provision for closing charges |
|
| 3,852 |
|
|
|
| — |
|
|
|
| 3,852 |
|
Provision for severance |
|
| — |
|
|
|
| 624 |
|
|
|
| 624 |
|
Changes in estimates |
|
| 1,191 |
|
|
|
| (163 | ) |
|
|
| 1,028 |
|
Lease termination adjustments |
|
| (2,600 | ) |
|
|
| — |
|
|
|
| (2,600 | ) |
Accretion expense |
|
| 526 |
|
|
|
| — |
|
|
|
| 526 |
|
Payments |
|
| (7,012 | ) |
|
|
| (458 | ) |
|
|
| (7,470 | ) |
Balance at December 30, 2017 | $ |
| 17,889 |
|
| $ |
| 3 |
|
| $ |
| 17,892 |
|
-56--55-
SPARTANNASH COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Lease and |
|
|
|
|
|
|
|
| |||||||
(In thousands) | Ancillary Costs |
|
| Severance |
|
| Total |
|
| ||||||
Balance at March 30, 2013 | $ |
| 7,975 |
|
| $ |
| — |
|
| $ |
| 7,975 |
|
|
Assumed with merger |
|
| 8,766 |
|
|
|
| — |
|
|
|
| 8,766 |
|
|
Provision for closing charges |
|
| 4,923 |
|
|
|
| — |
|
|
|
| 4,923 |
| (a) |
Provision for severance |
|
| — |
|
|
|
| 1,061 |
|
|
|
| 1,061 |
| (b) |
Changes in estimates |
|
| (1,333 | ) |
|
|
| — |
|
|
|
| (1,333 | ) | (c) |
Accretion expense |
|
| 249 |
|
|
|
| — |
|
|
|
| 249 |
|
|
Reclassifications from deferred rent |
|
| 1,104 |
|
|
|
| — |
|
|
|
| 1,104 |
|
|
Payments |
|
| (2,188 | ) |
|
|
| (26 | ) |
|
|
| (2,214 | ) |
|
Balance at December 28, 2013 |
|
| 19,496 |
|
|
|
| 1,035 |
|
|
|
| 20,531 |
|
|
Provision for closing charges |
|
| 543 |
|
|
|
| — |
|
|
|
| 543 |
| (a) |
Provision for severance |
|
| — |
|
|
|
| 306 |
|
|
|
| 306 |
| (b) |
Changes in estimates |
|
| (563 | ) |
|
|
| — |
|
|
|
| (563 | ) | (c) |
Accretion expense |
|
| 841 |
|
|
|
| — |
|
|
|
| 841 |
|
|
Payments |
|
| (6,329 | ) |
|
|
| (1,261 | ) |
|
|
| (7,590 | ) |
|
Balance at January 3, 2015 |
|
| 13,988 |
|
|
|
| 80 |
|
|
|
| 14,068 |
|
|
Provision for closing charges |
|
| 7,200 |
|
|
|
| — |
|
|
|
| 7,200 |
| (a) |
Provision for severance |
|
| — |
|
|
|
| 395 |
|
|
|
| 395 |
| (b) |
Changes in estimates |
|
| (56 | ) |
|
|
| (80 | ) |
|
|
| (136 | ) | (c) |
Lease termination adjustment |
|
| (1,745 | ) |
|
|
| — |
|
|
|
| (1,745 | ) | (d) |
Accretion expense |
|
| 592 |
|
|
|
| — |
|
|
|
| 592 |
|
|
Payments |
|
| (5,531 | ) |
|
|
| (395 | ) |
|
|
| (5,926 | ) |
|
Balance at January 2, 2016 | $ |
| 14,448 |
|
| $ |
| — |
|
| $ |
| 14,448 |
|
|
|
|
|
|
|
|
|
|
Restructuring charges and asset impairment includedIncluded in the consolidated statements of earnings consisted of the following:
| January 2, 2016 |
|
| January 3, 2015 |
|
| December 28, 2013 |
| ||||||
(In thousands) | (52 Weeks) |
|
| (53 Weeks) |
|
| (39 Weeks) |
| ||||||
Asset impairment charges (a) | $ |
| 4,220 |
|
| $ |
| 7,550 |
|
| $ |
| 9,691 |
|
Provision for closing charges (b) |
|
| 7,200 |
|
|
|
| 543 |
|
|
|
| 4,923 |
|
Gains on sales of assets related to closed facilities (c) |
|
| (2,997 | ) |
|
|
| (4,518 | ) |
|
|
| — |
|
Provision for severance (d) |
|
| 395 |
|
|
|
| 306 |
|
|
|
| 1,061 |
|
Other costs associated with distribution center and store closings |
|
| 1,865 |
|
|
|
| 1,504 |
|
|
|
| — |
|
Changes in estimates (e) |
|
| (136 | ) |
|
|
| 781 |
|
|
|
| (31 | ) |
Lease termination adjustment (f) |
|
| (1,745 | ) |
|
|
| — |
|
|
|
| — |
|
| $ |
| 8,802 |
|
| $ |
| 6,166 |
|
| $ |
| 15,644 |
|
|
|
|
|
|
|
-57-
SPARTANNASH COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
Lease obligations for closed facilities included in restructuring costs includerecorded at the present value of future minimum lease payments calculated using a risk-free interest rate, and related ancillary costs from the date of closure to the end of the remaining lease term, net of estimated sublease income.income, calculated using a risk-free interest rate.
Restructuring charges and asset impairment charges included in the consolidated statements of operations consisted of the following:
(In thousands) | 2017 |
|
| 2016 |
|
| 2015 |
| ||||||
Asset impairment charges | $ |
| 33,679 |
|
| $ |
| 15,586 |
|
| $ |
| 4,220 |
|
Provision for closing charges |
|
| 3,852 |
|
|
|
| 13,925 |
|
|
|
| 7,200 |
|
Loss (gain) on sales of assets related to closed facilities |
|
| 998 |
|
|
|
| (134 | ) |
|
|
| (2,997 | ) |
Provision for severance |
|
| 624 |
|
|
|
| 919 |
|
|
|
| 395 |
|
Other costs associated with distribution center and store closings |
|
| 1,851 |
|
|
|
| 3,692 |
|
|
|
| 1,865 |
|
Changes in estimates |
|
| 1,028 |
|
|
|
| 865 |
|
|
|
| (136 | ) |
Lease termination adjustments |
|
| (2,600 | ) |
|
|
| (2,737 | ) |
|
|
| (1,745 | ) |
| $ |
| 39,432 |
|
| $ |
| 32,116 |
|
| $ |
| 8,802 |
|
Asset impairment charges were incurred on long-lived assets primarily in the Retail segment due to the economic and competitive environment of certain stores and in conjunction with the Company’s retail store rationalization plan. The changes in estimates primarily relate to revised estimates of lease turnover and ancillary costs and sublease income associated with previously closed locations, due to lost subtenants and deterioration of the condition of certain properties. The lease termination adjustments represent the benefits recognized in connection with lease buyouts negotiated related to previously closed stores.
Long-lived assets are analyzed for impairment whenever circumstances arise that could indicate the carrying value of long-lived assets may not be recoverable. If such circumstances exist, then estimates are made of future cash flows expected to result from the use of the assets and their eventual disposition. If the sum of the expected cash flows (undiscounted and without interest charges) is less than the carrying amount of the asset, an impairment loss is recognized in the consolidated statements of earnings. Measurement of the impairment loss to be recorded is equal to the excess of the carrying amount of the assets over the discounted future cash flows. When analyzing the assets for impairment, assets are grouped at the lowest level for which there areof identifiable cash flows that are largely independent of the cash flows of other groups of assets.
Long-lived assets are measured at fair value on a nonrecurring basis using Level 3 inputs under the fair value hierarchy, as further described in Note 5 – Accounts8, Fair Value Measurements. Assets consisting primarily of property and Notes Receivable
Accountsequipment with a book value of $48.6 million were measured at a fair value of $14.9 million, resulting in an impairment charge of $33.7 million in 2017. Fair value of long-lived assets is determined by estimating the amount and notes receivable at January 2, 2016timing of net future cash flows, 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 January 3, 2015 are comprisedknowledge of the following:geographic area in which the assets are located, and when necessary, uses real estate brokers.
(In thousands) | January 2, 2016 |
|
| January 3, 2015 |
| ||||
Customer notes receivable | $ |
| 2,385 |
|
| $ |
| 1,944 |
|
Customer accounts receivable |
|
| 282,153 |
|
|
|
| 265,976 |
|
Other receivables |
|
| 37,817 |
|
|
|
| 19,554 |
|
Allowance for doubtful accounts |
|
| (5,172 | ) |
|
|
| (4,777 | ) |
Net current accounts and notes receivable | $ |
| 317,183 |
|
| $ |
| 282,697 |
|
Long-term notes receivable |
|
| 21,774 |
|
|
|
| 22,224 |
|
Allowance for doubtful accounts |
|
| (1,597 | ) |
|
|
| (750 | ) |
Net long-term notes receivable | $ |
| 20,177 |
|
| $ |
| 21,474 |
|
Note 67 – Long-Term Debt
Long-term debt consists of the following:
(In thousands) | January 2, 2016 |
|
| January 3, 2015 |
| ||||
Senior secured revolving credit facility, due January 2020 | $ |
| 394,982 |
|
| $ |
| 403,201 |
|
6.625% Senior Notes due December 2016 |
|
| — |
|
|
|
| 50,000 |
|
Senior secured term loan, due January 2020 |
|
| 34,842 |
|
|
|
| 46,989 |
|
Capital lease obligations (Note 9) |
|
| 58,599 |
|
|
|
| 64,420 |
|
Other, 2.61% - 9.25%, due 2016 - 2020 |
|
| 6,558 |
|
|
|
| 5,658 |
|
|
|
| 494,981 |
|
|
|
| 570,268 |
|
Less current portion |
|
| 19,003 |
|
|
|
| 19,758 |
|
Total long-term debt | $ |
| 475,978 |
|
| $ |
| 550,510 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 30, |
|
| December 31, |
| ||||
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2017 |
|
| 2016 |
| ||||
Senior secured revolving credit facility, due December 2021 | $ |
| 707,492 |
|
| $ |
| 359,127 |
| |||||||||||||||
Senior secured term loan, due December 2021 |
|
| — |
|
|
|
| 26,954 |
| |||||||||||||||
Capital lease obligations (Note 10) |
|
| 42,904 |
|
|
|
| 48,255 |
| |||||||||||||||
Other, 2.61% - 8.75%, due 2019 - 2024 |
|
| 5,972 |
|
|
|
| 5,028 |
| |||||||||||||||
Total debt - Principal |
|
| 756,368 |
|
|
|
| 439,364 |
| |||||||||||||||
Unamortized debt issuance costs |
|
| (6,417 | ) |
|
|
| (8,265 | ) | |||||||||||||||
Total debt |
|
| 749,951 |
|
|
|
| 431,099 |
| |||||||||||||||
Less current portion |
|
| 9,196 |
|
|
|
| 17,424 |
| |||||||||||||||
Total long-term debt | $ |
| 740,755 |
|
| $ |
| 413,675 |
|
-58--56-
SPARTANNASH COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In January 2015,December 2016, SpartanNash Company and certain of its subsidiaries amended its senior secured revolving credit facility.facility (the “Credit Agreement”). The principal changes of the amendment were to reduce the Basenumber of tiers in the pricing grid from three to two, reset the advance rate on real estate to 75%, provide the ability to increase the size of the term loan by $33 million, and Eurodollar interest rates by 0.25% and to extend the maturity date of the agreement, which was set to expire on November 19, 2018,January 8, 2020, to January 9, 2020.December 20, 2021. The amended credit facility (the “Credit Agreement”)Credit Agreement provides for borrowings of $1.0 billion, consisting of three tranches: a $900 million secured revolving credit facility (Tranche A), a $40 million secured revolving credit facility (Tranche A-1), and a $60 million term loan (Tranche A-2). TheIn the first quarter of 2017, the Company borrowed $35.5 million on the senior secured term loan (Tranche A-2) in accordance with the December 2016 amendment. In the fourth quarter of 2017, the Company paid the outstanding balance on the senior secured term loan (Tranche A-2) of $52.5 million with proceeds from its senior secured revolving credit facilities, resulting in debt extinguishment costs of $0.4 million. The Company has the ability to increase the size of the Credit Agreement by an additional $400 million, subject to certain conditions in the Credit Agreement. The Company’s obligations under the related Credit Agreement are secured by substantially all of the Company’s personal and real property. The Company may repay all loans in whole or in part at any time without penalty.
Availability under the Credit Agreement is based upon advance rates on certain asset categories owned by the Company, including, but not limited to the following: inventory, accounts receivable, real estate, prescription lists, cigarette tax stamps, and rolling stock.
The Credit Agreement imposes certain requirements, including: limitations on dividends and investments, (including distributions to subsidiaries designated as unrestricted subsidiaries), limitations on the Company’s ability to incur debt, make loans, acquire other companies, change the nature of the Company’s business, enter a merger or consolidation, or sell assets. These requirements can be more restrictive depending upon the Company’s Excess Availability, as defined under the Credit Agreement.
Borrowings under the three tranches of the credit facility bear interest at the Company’s option as either Eurodollar loans or Base Rate loans, subject to a grid based upon excess availability, as Excess Availabilitydefined in the Credit Agreement. As of January 2, 2016, the. The interest rate terms for the two remaining tranches are as follows:
Credit |
| Outstanding as of |
|
|
|
|
|
| ||
Facility |
|
|
|
|
|
|
|
| ||
Tranche |
|
|
|
| Eurodollar Rate |
| Base Rate | |||
Tranche A |
| $ |
|
|
|
| LIBOR plus |
| Greater of: | (i) the Federal Funds Rate plus 1.00% to |
|
|
|
|
|
|
|
|
|
| (ii) the Eurodollar Rate plus |
|
|
|
|
|
|
|
|
|
| (iii) the prime rate plus |
Tranche A-1 |
| $ |
|
|
|
| LIBOR plus |
| Greater of: | (i) the Federal Funds Rate plus |
|
|
|
|
|
|
|
|
|
| (ii) the Eurodollar Rate plus |
|
|
|
|
|
|
|
|
|
| (iii) the prime rate plus |
|
|
|
|
|
| |||||
| ||||||||||
|
The Company also incurs an unused line of credit fee on the unused portion of the loan commitments at a rate ranging fromof 0.25% to 0.375%.
As of January 2,December 30, 2017 and December 31, 2016, and January 3, 2015,total outstanding borrowings on the secured revolving credit facilities and senior secured term loan had total outstanding borrowings of $429.8were $707.5 million and $450.2$386.1 million, respectively. The Credit Agreement requires that the Company maintain excess availabilityExcess Availability of 10% of the borrowing base, as defined in the Credit Agreement. The Company is in compliance with all financial covenants as of January 2, 2016December 30, 2017 and had excess availabilityExcess Availability after the 10% requirement of $334.3$132.7 million and $406.8$415.8 million at January 2,December 30, 2017 and December 31, 2016, and January 3, 2015, respectively. The credit facilityCredit Agreement provides for the issuance of letters of credit, of which $11.1$9.2 million and $11.5$9.6 million were outstanding as of January 2,December 30, 2017 and December 31, 2016, and January 3, 2015, respectively.
In November 2015, the Company called for redemption all of the outstanding $50.0 million aggregate principal amount of the 6.625% Senior Notes due December 2016 (the “Notes”). The Company redeemed the Notes for cash, using borrowings under its secured revolving credit facility on December 15, 2015. Notes called for redemption became due and payable on the redemption date at a cash redemption price of 101.65625% of the principal amount of the Notes, plus accrued and unpaid interest. A loss on debt extinguishment of $1.2 million was incurred consisting of the redemption premium and the write-off of unamortized issuance costs. As a result of the redemption, the Company expects to reduce annual interest expense by approximately $2.0 million, assuming no future interest rate increases.
The weighted average interest rate for all borrowings, including loan fee amortization, was 3.90%3.70% for the fiscal year ended January 2, 2016.2017.
-59-
SPARTANNASH COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At January 2, 2016,December 30, 2017, aggregate annual maturities and scheduled payments of long-term debt are as follows:
(In thousands) |
|
|
|
|
|
|
|
Fiscal Year |
|
|
|
|
|
|
|
2016 |
|
|
| $ |
| 19,003 |
|
2017 |
|
|
|
|
| 18,906 |
|
2018 |
|
|
|
|
| 20,231 |
|
2019 |
|
|
|
|
| 12,379 |
|
2020 |
|
|
|
|
| 399,778 |
|
Thereafter |
|
|
|
|
| 24,684 |
|
Total |
|
|
| $ |
| 494,981 |
|
(In thousands) | 2018 |
|
| 2019 |
|
| 2020 |
|
| 2021 |
|
| 2022 |
|
| Thereafter |
|
| Total |
| ||||||||||||||
Total borrowings | $ |
| 9,196 |
|
| $ |
| 6,969 |
|
| $ |
| 5,195 |
|
| $ |
| 710,494 |
|
| $ |
| 2,846 |
|
| $ |
| 21,668 |
|
| $ |
| 756,368 |
|
-57-
Note 78 – Fair Value Measurements
Financial instruments include cash and cash equivalents, accounts and notes receivable, accounts payable and long-term debt. The carrying amounts of cash and cash equivalents, accounts and notes receivable, and accounts payable approximate fair value because of the short-term maturities of these financial instruments. For discussion of the fair value measurements related to goodwill and long-lived asset impairment charges, refer to Note 5, Goodwill and Other Intangible Assets, and Note 6, Restructuring Charges and Asset Impairment. At January 2,December 30, 2017 and December 31, 2016, and January 3, 2015, the book value and estimated fair value of the Company’s debt instruments, excluding debt financing costs, were as follows:
| December 30, |
|
| December 31, |
| |||||||||||||
(In thousands) | January 2, 2016 |
|
| January 3, 2015 |
| 2017 |
|
| 2016 |
| ||||||||
Book value of debt instruments: |
|
|
|
|
|
|
|
|
| |||||||||
Book value of debt instruments, excluding debt financing costs: |
|
|
|
|
|
|
|
|
| |||||||||
Current maturities of long-term debt and capital lease obligations | $ |
| 19,003 |
|
| $ |
| 19,758 |
| $ |
| 9,196 |
|
| $ |
| 17,424 |
|
Long-term debt and capital lease obligations |
|
| 475,978 |
|
|
|
| 550,510 |
|
|
| 747,172 |
|
|
|
| 421,940 |
|
Total book value of debt instruments |
|
| 494,981 |
|
|
|
| 570,268 |
|
|
| 756,368 |
|
|
|
| 439,364 |
|
Fair value of debt instruments |
|
| 497,116 |
|
|
|
| 574,008 |
| |||||||||
Fair value of debt instruments, excluding debt financing costs |
|
| 757,966 |
|
|
|
| 440,759 |
| |||||||||
Excess of fair value over book value | $ |
| 2,135 |
|
| $ |
| 3,740 |
| $ |
| 1,598 |
|
| $ |
| 1,395 |
|
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).
ASC 820 prioritizes the inputs to valuation techniques used to measure fair value into the following hierarchy:
Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
Level 3: Unobservable inputs for the asset or liability, reflecting the reporting entity’s own assumptions about the assumptions that market participants would use in pricing.
Long-lived assets are measured atCertain of the Company’s business combinations involve the potential for the receipt or payment of future contingent consideration upon the shortfall or achievement of various operating thresholds, respectively. The additional consideration is generally contingent on the acquired company reaching certain performance milestones, including attaining specified EBITDA levels. An asset or liability is recorded for the estimated fair value of the contingent consideration at the acquisition date and is re-measured each reporting period, with changes in fair value recognized as income or expense within operating expenses in the consolidated statements of operations. The Company measures the asset and liability on a nonrecurringrecurring basis using Level 3 inputs as defined in the fair value hierarchy. As of the fiscal years ended January 2, 2016 and January 3, 2015, assets with a book value of $11.9 million and $17.9 were measured at ainputs.
The fair value of $7.7 millioncontingent consideration is measured using a discounted cash flow model incorporating projected payment dates, discount rates, probabilities of payment, and $10.3 million, respectively. The Company’s accounting and finance team management, who report toprojected EBITDA. Projected EBITDA amounts are based on initial deal model forecasts at the Chief Financial Officer (“CFO”), determinestime of acquisition as well as the Company’s valuation policiesmost recent internal operational budget, and procedures.include a probability weighted range of outcomes. Changes in projected EBITDA, probabilities of payment, discount rates, or projected payment dates may result in higher or lower fair value measurements. The development and determination of the unobservable inputs forrecurring Level 3 fair value measurements andof contingent consideration include the following significant unobservable inputs as of December 30, 2017:
Unobservable Input | Range | |
Discount rate | 11.80% | |
Probability of payments | 0% - 100% | |
Projected year(s) of payments | 2017 - 2019 |
As of December 30, 2017, the fair value calculations areof contingent consideration receivable and payable associated with the responsibilityCaito and BRT acquisition was $18.4 million and $3.4 million, respectively. The net receivable of $15 million was recorded in other assets, net in the consolidated balance sheets as there is a right of offset for the payable and receivable. Upon payment, the portion of the Company’s accounting and finance team management and are approved bycontingent consideration related to the CFO. Fairacquisition date fair value is reported as a financing activity in the consolidated statements of long-lived assets is determined by estimating the amount and timing of net future cash flows, discounted using a risk-adjusted rate of interest. The Company estimates future cash flows based on experience and knowledgeflows. Amounts received or paid in excess of the geographic areaacquisition date fair value are reported as an operating activity in which the assets are located, and when necessary, uses real estate brokers. See Note 4 for discussionconsolidated statements of long-lived asset impairment charges.cash flows.
-58-
Note 89 – Commitments and Contingencies
The Company subleases property at certain locations and for the fiscal years ended January 2,2017, 2016 and January 3, 2015, and for the 39-week period ended December 28, 2013, the Company received rental income of $5.3$3.4 million, $5.0$4.8 million and $2.2$5.3 million, respectively. In the event of the customer’scustomer default, the Company would be responsible for fulfilling these lease obligations. The futureFuture payment obligations under these leases are disclosed in Note 9.10, Leases. Contingencies related to credit risk and collectability are disclosed in Note 15, Concentration of Credit Risk.
-60-
SPARTANNASH COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unions represent approximately 9%8% of SpartanNash’s associates. These associates are covered by collective bargaining agreements.agreements (“CBAs”). The facilities covered by collective bargaining agreements,CBAs, the unions representing the covered associates and the expiration dates for each existing collective bargaining agreementCBA are provided in the following table:
Distribution Center Locations |
| Union Locals |
| Expiration Dates |
|
|
| ||
|
|
| ||
|
|
| ||
Lima, Ohio |
| IBT 908 |
| January, |
Bellefontaine, Ohio GTL Truck Lines, Inc. |
| IBT 908 |
| February, |
Bellefontaine, Ohio General Merchandise Service Division |
| IBT 908 |
|
|
Grand Rapids, Michigan |
|
|
| October, |
Landover, Maryland | IBT 639 | February, 2021 | ||
Norfolk, Virginia | IBT 822 | April, 2019 | ||
Columbus, Georgia | IBT 528 | September, 2019 |
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 agreementsCBAs in Bellefontaine Ohio,and Lima, Ohio and Grand Rapids, Michigan covering its distribution center unionsupply 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. This schedule requiresPlan 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 collective bargaining agreementCBA and vary by location. On December 13, 2014, Congress passed the Multi-employer Pension Reform Act of 2014 (“MPRA”). The MPRA is intendedPlan continues to address funding shortfallsbe in both multi-employer pension plansred zone status, and according to the Pension Benefit Guaranty Corporation. Because the MPRAProtection Act (“PPA”), is a complex piece of legislation, its effects on the Plan and potential implications for the Company are not known at this time. Any adjustment for withdrawal liability willconsidered to be recorded when it is probable that a liability exists and can be reasonably determined.
On September 25, 2015, Central States submitted a Rescue Plan to the United States Department of Treasury (“Department of Treasury”) as permitted under the provisions of the MPRA relating to plans in “critical and decliningdeclining” zone status.” Under Among other factors, plans in the Rescue Plan, Trustees seek“critical and declining” zone are generally less than 65% funded and are projected to suspendbecome insolvent within the pension benefits of retirees and actives in order to save the pension plan from future financial failure. The proposed Rescue Plan is tiered and intended to equitably distribute benefit suspensions across three participant classes: orphans, participants and UPS transfer group. Under the MPRA, the Department of Treasury has 225 days in which to consider and actnext 15 years (or 20 years depending on the proposed Plan. Following the Departmentratio of Treasury’s review, Plan participants will be afforded the opportunity to consider and vote on the proposed benefit suspensions. Given the Department of Treasury’s review period and the amount of time necessary for a participant vote, Central States estimates that the proposed benefit suspensions, if approved, would not take effect until July 1, 2016. The Company is currently unable to reasonably estimate the potential impact of this Rescue Plan on its withdrawal liability.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, although management anticipates that the Company’s contributions to this plan will increase each year.be. Management is not aware of any significant change in funding levels since January 2, 2016.December 30, 2017. To reduce this underfunding, management expects meaningful increases in expense as a result of required incremental multi-employer pension plan contributions in future years. Any adjustment for withdrawal liability will be recorded when it is probable that a liability exists and can be reasonably determined.
-61-
SPARTANNASH COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A substantial portion of the Company’s retail stores and warehouse properties are operated in leased facilities. The Company also leases small ancillary warehouse facilities, the tractormajority of the tractors and trailertrailers within its fleet, and certain other equipment. Most of the property leases contain renewal options of varying terms. Terms of certain leases contain provisions requiring payment of percentage rent based on sales and payment of executory costs such as property taxes, utilities, insurance, maintenance and other occupancy costs applicable to the leased premises. Terms of certain leases of transportation equipment contain provisions requiring payment of percentage rent based upon miles driven. Portions of certain propertyCertain properties or portions thereof are subleased to others. Operating leases often contain renewal options. In those locations in which it makes economic sense to continue to operate, management expects that, in the normal course of business, leases that expire will be renewed or replaced by other leases.
-59-
Rental expense, net of sublease income, under operating leases consisted of the following:
| January 2, 2016 |
|
| January 3, 2015 |
|
| December 28, 2013 |
| ||||||||||||||||||||||||||||||||
(In thousands) | (52 Weeks) |
|
| (53 Weeks) |
|
| (39 Weeks) |
|
|
|
|
|
|
|
|
|
| 2017 |
|
| 2016 |
|
| 2015 |
| |||||||||||||||
Minimum rentals | $ |
| 57,625 |
|
| $ |
| 56,848 |
|
| $ |
| 28,978 |
| Minimum rentals | $ |
| 55,159 |
|
| $ |
| 57,478 |
|
| $ |
| 57,625 |
| |||||||||||
Contingent rental payments |
|
| 267 |
|
|
| 563 |
|
|
| 541 |
| ||||||||||||||||||||||||||||
Contingent rent (reductions) increases | Contingent rent (reductions) increases |
|
| (237 | ) |
|
| 314 |
|
|
| 267 |
| |||||||||||||||||||||||||||
Sublease rental income |
|
| (5,311 | ) |
|
|
| (5,027 | ) |
|
|
| (2,157 | ) | Sublease rental income |
|
| (3,407 | ) |
|
|
| (4,830 | ) |
|
|
| (5,311 | ) | |||||||||||
| $ |
| 52,581 |
|
| $ |
| 52,384 |
|
| $ |
| 27,362 |
| ||||||||||||||||||||||||||
Total |
|
|
|
|
|
|
|
|
| $ |
| 51,515 |
|
| $ |
| 52,962 |
|
| $ |
| 52,581 |
|
The Company’s total future lease commitments under operating and capital leases in effect at January 2, 2016December 30, 2017 are as follows:
| Operating Leases |
|
|
|
|
|
|
|
|
|
|
|
|
| Operating Leases |
|
|
|
|
|
| ||||||||||||||||||||||||||
| Used in |
|
| Subleased |
|
|
|
|
| Capital |
|
|
|
|
|
|
|
| Used in |
|
| Subleased |
|
|
|
|
| Capital |
| ||||||||||||||||||
(In thousands) | Operations |
|
| to Others |
|
| Total |
|
| Leases |
|
|
|
|
|
|
|
| Operations |
|
| to Others |
|
| Total |
|
| Leases |
| ||||||||||||||||||
Fiscal Year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||
2016 | $ |
| 48,496 |
|
| $ |
| 3,756 |
|
| $ |
| 52,252 |
|
| $ |
| 11,764 |
| ||||||||||||||||||||||||||||
2017 |
|
| 41,761 |
|
|
|
| 3,205 |
|
|
|
| 44,966 |
|
|
|
| 11,110 |
| ||||||||||||||||||||||||||||
2018 |
|
| 36,459 |
|
|
|
| 2,753 |
|
|
|
| 39,212 |
|
|
|
| 10,799 |
|
|
|
|
|
|
|
| $ |
| 52,613 |
|
| $ |
| 1,265 |
|
| $ |
| 53,878 |
|
| $ |
| 9,198 |
| ||
2019 |
|
| 26,562 |
|
|
|
| 2,258 |
|
|
|
| 28,820 |
|
|
|
| 9,780 |
|
|
|
|
|
|
|
|
|
| 41,489 |
|
|
|
| 1,039 |
|
|
|
| 42,528 |
|
|
|
| 8,756 |
| ||
2020 |
|
| 20,721 |
|
|
|
| 1,792 |
|
|
|
| 22,513 |
|
|
|
| 6,591 |
|
|
|
|
|
|
|
|
|
| 33,951 |
|
|
|
| 817 |
|
|
|
| 34,768 |
|
|
|
| 6,593 |
| ||
2021 |
|
|
|
|
|
|
|
|
| 26,719 |
|
|
|
| 694 |
|
|
|
| 27,413 |
|
|
|
| 4,577 |
| |||||||||||||||||||||
2022 |
|
|
|
|
|
|
|
|
| 19,779 |
|
|
|
| 468 |
|
|
|
| 20,247 |
|
|
|
| 4,233 |
| |||||||||||||||||||||
Thereafter |
|
| 66,291 |
|
|
|
| 8,282 |
|
|
|
| 74,573 |
|
|
|
| 35,551 |
|
|
|
|
|
|
|
|
|
| 67,317 |
|
|
|
| 504 |
|
|
|
| 67,821 |
|
|
|
| 28,862 |
| ||
Total | $ |
| 240,290 |
|
| $ |
| 22,046 |
|
| $ |
| 262,336 |
|
|
|
| 85,595 |
|
|
|
|
|
|
|
| $ |
| 241,868 |
|
| $ |
| 4,787 |
|
| $ |
| 246,655 |
|
|
|
| 62,219 |
| ||
| Interest |
|
|
|
| (26,996 | ) |
|
|
|
|
|
|
| Interest |
|
|
|
| (19,315 | ) | ||||||||||||||||||||||||||
| Present value of minimum lease obligations |
|
|
|
| 58,599 |
|
|
|
|
|
|
|
| Present value of minimum lease obligations |
|
|
|
| 42,904 |
| ||||||||||||||||||||||||||
| Current maturities |
|
|
|
| 7,471 |
|
|
|
|
|
|
|
| Current maturities |
|
|
|
| 6,168 |
| ||||||||||||||||||||||||||
| Long-term capitalized lease obligations |
|
| $ |
| 51,128 |
|
|
|
|
|
|
|
| Long-term capital lease obligations |
|
| $ |
| 36,736 |
|
Assets held under capital leases consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
| December 30, |
|
| December 31, |
| ||||||||||||||||
(In thousands) | January 2, 2016 |
|
| January 3, 2015 |
|
|
|
|
|
|
|
|
|
|
|
| 2017 |
|
| 2016 |
| |||||||||||
Building and improvements | $ |
| 72,297 |
|
| $ |
| 72,747 |
| Building and improvements |
| $ |
| 60,398 |
|
| $ |
| 61,831 |
| ||||||||||||
Equipment |
|
| 5,281 |
|
|
|
| 5,695 |
| Equipment |
|
|
| 3,727 |
|
|
|
| 3,403 |
| ||||||||||||
|
|
| 77,578 |
|
|
|
| 78,442 |
| |||||||||||||||||||||||
Assets under capital leases | Assets under capital leases |
|
|
| 64,125 |
|
|
|
| 65,234 |
| |||||||||||||||||||||
Less accumulated amortization and depreciation |
|
| 31,372 |
|
|
|
| 29,842 |
| Less accumulated amortization and depreciation |
|
|
| 29,518 |
|
|
|
| 25,163 |
| ||||||||||||
Net assets under capitalized leases | $ |
| 46,206 |
|
| $ |
| 48,600 |
| |||||||||||||||||||||||
Net assets under capital leases | Net assets under capital leases |
| $ |
| 34,607 |
|
| $ |
| 40,071 |
|
Amortization expense for property under capital leases was $4.4 million, $5.2 million and $3.6 million $4.4 million and $2.8 million in fiscal years ended January 2,2017, 2016 and January 3, 2015, and for the 39-week period ended December 28, 2013, respectively.
Certain retail store facilities, either owned or obtained through leasing arrangements, are leased to others. A majority of the leases provide for minimum and contingent rentals based upon stipulated sales volumes and contain renewal options. Certain of the leases contain escalation clauses.
-62-
SPARTANNASH COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Owned assets, included in property and equipment, which are leased to others are as follows:
|
|
|
|
|
|
|
|
|
|
|
| December 30, |
|
| December 31, |
| |||||||||||||||||
(In thousands) | January 2, 2016 |
|
| January 3, 2015 |
|
|
|
|
|
|
|
|
|
|
|
| 2017 |
|
| 2016 |
| ||||||||||||
Land and improvements | $ |
| 3,508 |
|
| $ |
| 3,327 |
| Land and improvements | $ |
| 6,515 |
|
| $ |
| 3,860 |
| ||||||||||||||
Buildings |
|
| 10,640 |
|
|
|
| 10,786 |
| Buildings |
|
| 24,236 |
|
|
|
| 13,948 |
| ||||||||||||||
Long-term debt and capital lease obligations |
|
| 14,148 |
|
|
|
| 14,113 |
| Long-term debt and capital lease obligations |
|
| 30,751 |
|
|
|
| 17,808 |
| ||||||||||||||
Less accumulated amortization and depreciation |
|
| 5,890 |
|
|
|
| 5,187 |
| Less accumulated amortization and depreciation |
|
| 8,123 |
|
|
|
| 7,625 |
| ||||||||||||||
Net property | $ |
| 8,258 |
|
| $ |
| 8,926 |
| Net property | $ |
| 22,628 |
|
| $ |
| 10,183 |
|
-60-
Future minimum rentals to be received under lease obligations in effect at January 2, 2016December 30, 2017 are as follows:
| Owned |
|
| Leased |
|
|
|
| ||||||
(in thousands) | Property |
|
| Property |
|
| Total |
| ||||||
Fiscal Year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016 | $ |
| 3,535 |
|
| $ |
| 4,535 |
|
| $ |
| 8,070 |
|
2017 |
|
| 2,535 |
|
|
|
| 3,976 |
|
|
|
| 6,511 |
|
2018 |
|
| 1,421 |
|
|
|
| 3,347 |
|
|
|
| 4,768 |
|
2019 |
|
| 1,175 |
|
|
|
| 2,723 |
|
|
|
| 3,898 |
|
2020 |
|
| 824 |
|
|
|
| 2,131 |
|
|
|
| 2,955 |
|
Thereafter |
|
| 1,513 |
|
|
|
| 9,093 |
|
|
|
| 10,606 |
|
Total | $ |
| 11,003 |
|
| $ |
| 25,805 |
|
| $ |
| 36,808 |
|
(In thousands) | 2018 |
|
| 2019 |
|
| 2020 |
|
| 2021 |
|
| 2022 |
|
| Thereafter |
|
| Total |
| ||||||||||||||
Owned property | $ |
| 4,194 |
|
| $ |
| 4,044 |
|
| $ |
| 3,635 |
|
| $ |
| 3,359 |
|
| $ |
| 2,973 |
|
| $ |
| 16,768 |
|
| $ |
| 34,973 |
|
Leased property |
|
| 2,708 |
|
|
|
| 2,268 |
|
|
|
| 2,022 |
|
|
|
| 1,545 |
|
|
|
| 896 |
|
|
|
| 3,731 |
|
|
|
| 13,170 |
|
Total | $ |
| 6,902 |
|
| $ |
| 6,312 |
|
| $ |
| 5,657 |
|
| $ |
| 4,904 |
|
| $ |
| 3,869 |
|
| $ |
| 20,499 |
|
| $ |
| 48,143 |
|
Note 1011 – Associate Retirement Plans
The Company’s retirement programs include pension plans providing non-contributory benefits and salary reductiondeferral defined contribution plans providing contributory benefits.plans. Substantially all of the Company’s associates not covered by collective bargaining agreementsCBAs are covered by a frozen non-contributory pension plan, a defined contribution plan, or both. Associates covered by collective bargaining agreements are includedCBAs at the Company’s Columbus, Georgia; Norfolk, Virginia; and Landover, Maryland facilities all participate in the Company’s defined contribution plan; the remaining associates covered under CBAs participate in a multi-employer pension plans.plan.
Defined Contribution Plans
Expense for employer matching and profit sharing contributions made to defined contribution plans totaled $7.9 million, $11.9 million and $21.1 million $13.6 million and $4.8 million in fiscal years ended January 2,2017, 2016 and January 3, 2015, and for the 39-week period ended December 28, 2013, respectively.
Executive Compensation Plans
The Company has a deferred compensation plan for a select group of management personnel or highly compensated associates. The plan is unfunded and permits participants to defer receipt of a portion of their base salary, annual bonus, or long-term incentive compensation which would otherwise be paid to them. The deferred amounts, plus earnings, are distributed following the associate’s termination of employment. Earnings are based on the performance of phantomhypothetical investments elected by the participant from a portfolio of investment options.
The Company holds variable universal life insurance policies on certain key associates intended to fund distributions under the deferred compensation plan referenced above. The net cash surrender value of approximately $4.3 million and $4.2 million at December 30, 2017 and December 31, 2016, respectively, is recorded in “Other assets, net” in the consolidated balance sheets. These policies have an aggregate amount of life insurance coverage of approximately $15.0 million.
The Company had two separate trusts established for the protection of cash balances owed to participants in its deferred compensation plans. The Company was required, as specified by the plan documents, to fund these trusts at the time of the merger with 125% of its pre-merger liability to plan participants. These trusts were subsequently terminated in 2015 and the Company received cash proceeds from the liquidation of corporate owned life insurance policies of $5.0 million.
The Company also holds additional variable universal life insurance policies on certain key associates intended to fund distributions under the deferred compensation plan referenced above. The net cash surrender value of approximately $4.2 million at both January 2, 2016 and January 3, 2015, is recorded in “Other assets, net” in the consolidated balance sheets. These policies have an aggregate amount of life insurance coverage of approximately $15.0 million.
Defined Benefit Plans
The Company sponsors the SpartanNash Company Pension Plan (the “Pension Plan”), a frozen defined benefit pension plans for certain associates.plan. The pension benefits are primarily based on years of service and compensation, with some differences resulting from the nature of how benefits were calculated under the Company’s legacy defined benefit plans, as described below.
-63-
SPARTANNASH COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The On December 31, 2014, the Retirement Plan for Employees of Super Food Services, Inc. (“Super Foods Plan”) was merged into the Spartan Stores, Inc. Cash Balance Pension Plan (“Cash Balance Pension Plan”), and renamed the SpartanNash Company Pension Plan. The merging of the plans resulted in lower administrative fees and reduced cash funding. Annual payments to the pension trust fund are determined in compliance with the Employee Retirement Income Security Act of 1976 (“ERISA”). Plan assets consist principally of U.S. government and corporate obligations and common stocks. The plan does not hold any SpartanNash stock.
The Cash Balance Pension Plan, a non-contributory cash balance pension plan, was frozen effective January 1, 2011. As a result of the freeze, no additional associates were eligible to participate in the plan after January 1, 2011, and additional service credits were no longer added to each participant’s account; however, interest credits continue to accrue. Prior to the plan freeze, the plan benefit formula utilized a cash balance approach whereby credits were added annually to a participant’s account based on compensation and years of vested service, with interest credits also added to the participant’s account at the Company’s discretion.
The Retirement Plan for Employees of Super Food Services, Inc. (“Super Foods Plan”),Plan, a qualified non-contributory pension plan offered by one of the Company’s subsidiaries, provides retirement income for certain eligible full-time associates who are not covered by a union retirement plan. Pension benefits under the plan are based on length of service and compensation, and contributions meet the minimum funding requirements. This plan has been curtailed and no new associates can enter the plan. This planwas frozen effective January 1, 1998.
-61-
If lump sum distributions are made in an amount exceeding annual interest cost, settlement accounting is also frozen for additional service credits.
On December 31, 2014, the Super Foods Plan was merged into the Cash Balance Pension Plan and renamed the SpartanNash Company Pension Plan. The merging of the plans resulted in lower administrative fees and reduced cash funding. Annual payments to the pension trust fund are determined in compliance with the Employee Retirement Income Security Act of 1976 (“ERISA”). Plan assets consist principally of U.S. government and corporate obligations and common stocks. The plan does not hold any SpartanNash stock.
During the fiscal year ended January 3, 2015, terminated vested participants of the Cash Balance Pension Plantriggered and the Super Foods Plan were offeredresulting settlement expense is recorded as a temporary opportunity to elect to receive a lumpcomponent of total pension expense (income). Lump sum distribution. As a result, distributions of $10.6$2.6 million and $2.8 million were made and a resulting pension settlement chargecharges of $1.6$0.5 million wasand $0.7 million were incurred in fiscal 2014.2017 and 2016, respectively.
Postretirement Medical Plans
SpartanNash Company and certain subsidiaries provide healthcare benefits to retired associates who were not covered by collective bargaining arrangements during their employment (“covered associates”) under the SpartanNash Company Retiree Medical Plan (“SpartanNash(the “Retiree Medical Plan”). Former Spartan Stores, Inc. associates hired prior to January 1, 2002 who were not covered by CBAs during their employment and who have at least 30 years of service or 10 years of service and have attained age 55 and who were not covered by collective bargaining arrangements during their employment,upon retirement qualify as covered“covered associates. Qualified covered” Covered associates that retired prior to March 31, 1992 receive major medical insurance with deductible and coinsurance provisions until age 65 and Medicare supplemental benefits thereafter. Covered associates retiring after April 1, 1992 are eligible for monthly postretirement healthcare benefits of $5 multiplied by the associate’s years of service. This benefit is in the form of a credit against the monthly insurance premium. The retiree pays the balance of the premium. Associates hired after December 31, 2001 are not eligible for these benefits.
The following tables set forth the actuarial present value of benefit obligations, funded status, changechanges in benefit obligation, change inobligations and plan assets, weighted average assumptions used in actuarial calculations and components of net periodic benefit costs for the Company’s significant pension and postretirement benefit plans, excluding multi-employer plans. The prepaid, current accrued, and noncurrent accrued benefit costs associated with pension and postretirement benefits are reported in “Other assets, net,” “Accrued payroll and benefits,” and “Postretirement benefits,” respectively, in the consolidated balance sheets.
|
|
|
|
|
|
| Pension Plan |
|
| Retiree Medical Plan |
| ||||||||||||||
|
|
|
|
|
|
| December 30, |
|
| December 31, |
|
| December 30, |
|
| December 31, |
| ||||||||
(In thousands, except percentages) |
|
|
|
|
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||||||
Funded Status |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected/Accumulated benefit obligation: |
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Balance at beginning of year |
|
|
|
|
|
| $ |
| 80,350 |
|
| $ |
| 83,398 |
|
| $ |
| 9,663 |
|
| $ |
| 9,179 |
|
Service cost |
|
|
|
|
|
|
|
| — |
|
|
|
| — |
|
|
|
| 184 |
|
|
|
| 187 |
|
Interest cost |
|
|
|
|
|
|
|
| 2,345 |
|
|
|
| 2,977 |
|
|
|
| 345 |
|
|
|
| 345 |
|
Actuarial loss |
|
|
|
|
|
|
|
| 4,662 |
|
|
|
| 1,598 |
|
|
|
| 303 |
|
|
|
| 213 |
|
Benefits paid |
|
|
|
|
|
|
|
| (7,204 | ) |
|
|
| (7,623 | ) |
|
|
| (296 | ) |
|
|
| (261 | ) |
Balance at end of year |
|
|
|
|
|
| $ |
| 80,153 |
|
| $ |
| 80,350 |
|
| $ |
| 10,199 |
|
| $ |
| 9,663 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year |
|
|
|
|
|
| $ |
| 81,982 |
|
| $ |
| 84,753 |
|
| $ |
| — |
|
| $ |
| — |
|
Actual return on plan assets |
|
|
|
|
|
|
|
| 6,477 |
|
|
|
| 4,852 |
|
|
|
| — |
|
|
|
| — |
|
Company contributions |
|
|
|
|
|
|
|
| — |
|
|
|
| — |
|
|
|
| 296 |
|
|
|
| 261 |
|
Benefits paid |
|
|
|
|
|
|
|
| (7,204 | ) |
|
|
| (7,623 | ) |
|
|
| (296 | ) |
|
|
| (261 | ) |
Balance at end of year |
|
|
|
|
|
| $ |
| 81,255 |
|
| $ |
| 81,982 |
|
| $ |
| — |
|
| $ |
| — |
|
Funded (unfunded) status |
|
|
|
|
|
| $ |
| 1,102 |
|
| $ |
| 1,632 |
|
| $ |
| (10,199 | ) |
| $ |
| (9,663 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Components of net amount recognized in consolidated balance sheets: |
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Noncurrent assets |
|
|
|
|
|
| $ |
| 1,102 |
|
| $ |
| 1,632 |
|
| $ |
| — |
|
| $ |
| — |
|
Current liabilities |
|
|
|
|
|
|
|
| — |
|
|
|
| — |
|
|
|
| (417 | ) |
|
|
| (412 | ) |
Noncurrent liabilities |
|
|
|
|
|
|
|
| — |
|
|
|
| — |
|
|
|
| (9,782 | ) |
|
|
| (9,251 | ) |
Net asset (liability) |
|
|
|
|
|
| $ |
| 1,102 |
|
| $ |
| 1,632 |
|
| $ |
| (10,199 | ) |
| $ |
| (9,663 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in AOCI: |
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Net actuarial loss |
|
|
|
|
|
| $ |
| 18,205 |
|
| $ |
| 16,938 |
|
| $ |
| 1,678 |
|
| $ |
| 1,434 |
|
Prior service credit |
|
|
|
|
|
|
|
| — |
|
|
|
| — |
|
|
|
| (250 | ) |
|
|
| (408 | ) |
Accumulated other comprehensive loss |
| $ |
| 18,205 |
|
| $ |
| 16,938 |
|
| $ |
| 1,428 |
|
| $ |
| 1,026 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average assumptions at measurement date: |
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Discount rate |
|
|
|
|
|
| 3.45% |
|
| 3.82% |
|
| 3.72% |
|
| 4.26% |
| ||||||||
Ultimate health care cost trend rate |
|
|
|
|
|
| N/A |
|
| N/A |
|
| 5.00% |
|
| 5.00% |
|
-62-
-64-
SPARTANNASH COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SpartanNash Company Pension Plan |
|
| SpartanNash Medical Plan |
| |||||||||||||||
(In thousands, except percentages) | January 2, 2016 |
|
| January 3, 2015 * |
|
| January 2, 2016 |
|
| January 3, 2015 |
| ||||||||
Funded Status |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected/Accumulated benefit obligation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year | $ |
| 93,034 |
|
| $ |
| 102,501 |
|
| $ |
| 9,905 |
|
| $ |
| 7,967 |
|
Service cost |
|
| — |
|
|
|
| — |
|
|
|
| 231 |
|
|
|
| 186 |
|
Interest cost |
|
| 3,325 |
|
|
|
| 4,223 |
|
|
|
| 404 |
|
|
|
| 394 |
|
Actuarial (gain) loss |
|
| (4,985 | ) |
|
|
| 5,959 |
|
|
|
| (1,117 | ) |
|
|
| 1,593 |
|
Benefits paid |
|
| (7,976 | ) |
|
|
| (19,649 | ) |
|
|
| (244 | ) |
|
|
| (235 | ) |
Balance at end of year | $ |
| 83,398 |
|
| $ |
| 93,034 |
|
| $ |
| 9,179 |
|
| $ |
| 9,905 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year | $ |
| 93,718 |
|
| $ |
| 105,949 |
|
| $ |
| — |
|
| $ |
| — |
|
Actual return on plan assets |
|
| (1,639 | ) |
|
|
| 5,093 |
|
|
|
| — |
|
|
|
| — |
|
Company contributions |
|
| 650 |
|
|
|
| 2,325 |
|
|
|
| 244 |
|
|
|
| 235 |
|
Benefits paid |
|
| (7,976 | ) |
|
|
| (19,649 | ) |
|
|
| (244 | ) |
|
|
| (235 | ) |
Balance at end of year | $ |
| 84,753 |
|
| $ |
| 93,718 |
|
| $ |
| — |
|
| $ |
| — |
|
Funded (unfunded) status | $ |
| 1,355 |
|
| $ |
| 684 |
|
| $ |
| (9,179 | ) |
| $ |
| (9,905 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Components of net amount recognized in financial position: |
| ||||||||||||||||||
Noncurrent assets | $ |
| 1,355 |
|
| $ |
| 7,220 |
|
| $ |
| — |
|
| $ |
| — |
|
Current liabilities |
|
| — |
|
|
|
| — |
|
|
|
| (340 | ) |
|
|
| (319 | ) |
Noncurrent liabilities |
|
| — |
|
|
|
| (6,536 | ) |
|
|
| (8,839 | ) |
|
|
| (9,586 | ) |
Net asset/(liability) | $ |
| 1,355 |
|
| $ |
| 684 |
|
| $ |
| (9,179 | ) |
| $ |
| (9,905 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in accumulated other comprehensive income: |
| ||||||||||||||||||
Net actuarial loss | $ |
| 17,322 |
|
| $ |
| 16,572 |
|
| $ |
| 1,263 |
|
| $ |
| 2,554 |
|
Prior service credit |
|
| — |
|
|
|
| — |
|
|
|
| (566 | ) |
|
|
| (724 | ) |
| $ |
| 17,322 |
|
| $ |
| 16,572 |
|
| $ |
| 697 |
|
| $ |
| 1,830 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average assumptions at measurement date: |
| ||||||||||||||||||
Discount rate | 4.04% |
|
| 3.60%/3.85% |
|
| 4.55% |
|
| 4.15% |
| ||||||||
Expected return on plan assets | 5.05% |
|
| 5.50% |
|
| N/A |
|
| N/A |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* The amounts above reflect the combined values of the Cash Balance Pension Plan and the Super Foods Plan as of January 3, 2015. On December 31, 2014, the Super Foods Plan was merged into the Cash Balance Pension Plan and renamed the SpartanNash Company Pension Plan. At the time of merger, the accumulated benefit obligations of the Cash Balance Pension Plan and Super Foods Plan were $52.4 million and $40.6 million, respectively, and the fair value of the plan assets for the Cash Balance Pension Plan and Super Foods Plan were $59.7 million and $34.0 million, respectively.
|
|
-65-
SPARTANNASH COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The accumulated benefit obligation for the SpartanNash Company Pension Plan was $83.4 million and $93.0 million at January 2, 2016 and January 3, 2015, respectively.
Components of net periodic benefit cost (income)
| SpartanNash Company Pension Plan |
|
| SpartanNash Medical Plan |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||
| January 2, |
|
| January 3, |
|
| December 28, |
|
| January 2, |
|
| January 3, |
|
| December 28, |
| |||||||||||||||||||||||||||||||||||||||||
| 2016 |
|
| 2015 |
|
| 2013 |
|
| 2016 |
|
| 2015 |
|
| 2013 |
| Pension Plan |
|
| Retiree Medical Plan |
| ||||||||||||||||||||||||||||||||||||
(In thousands, except percentages) | (52 Weeks) |
|
| (53 Weeks) (a) |
|
| (39 Weeks) (a) |
|
| (52 Weeks) |
|
| (53 Weeks) |
|
| (39 Weeks) |
| 2017 |
|
| 2016 |
|
| 2015 |
|
| 2017 |
|
| 2016 |
|
| 2015 |
| ||||||||||||||||||||||||
Components of net periodic benefit cost (income): | Components of net periodic benefit cost (income): |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Service cost | $ |
| — |
|
| $ |
| — |
|
| $ |
| — |
|
| $ |
| 231 |
|
| $ |
| 186 |
|
| $ |
| 194 |
| $ |
| — |
|
| $ |
| — |
|
| $ |
| — |
|
| $ |
| 184 |
|
| $ |
| 187 |
|
| $ |
| 231 |
|
Interest cost |
|
| 3,325 |
|
|
| 4,223 |
|
|
| 1,916 |
|
|
| 404 |
|
|
| 394 |
|
|
| 287 |
|
|
| 2,345 |
|
|
| 2,977 |
|
|
| 3,325 |
|
|
| 345 |
|
|
| 345 |
|
|
| 404 |
| ||||||||||
Amortization of prior service cost |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (158 | ) |
|
| (158 | ) |
|
| (42 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (158 | ) |
|
| (158 | ) |
|
| (158 | ) | ||||||||||
Expected return on plan assets |
|
| (4,923 | ) |
|
| (5,737 | ) |
|
| (3,327 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3,836 | ) |
|
| (4,269 | ) |
|
| (4,923 | ) |
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||
Recognized actuarial net loss |
|
| 827 |
|
|
|
| 970 |
|
|
|
| 976 |
|
|
|
| 174 |
|
|
|
| 20 |
|
|
|
| 134 |
|
|
| 221 |
|
|
|
| 706 |
|
|
|
| 827 |
|
|
|
| 59 |
|
|
|
| 42 |
|
|
|
| 174 |
|
Net periodic benefit | $ |
| (771 | ) |
| $ |
| (544 | ) |
| $ |
| (435 | ) |
| $ |
| 651 |
|
| $ |
| 442 |
|
| $ |
| 573 |
| |||||||||||||||||||||||||||||
Net periodic benefit (income) expense | $ |
| (1,270 | ) |
| $ |
| (586 | ) |
| $ |
| (771 | ) |
| $ |
| 430 |
|
| $ |
| 416 |
|
| $ |
| 651 |
| |||||||||||||||||||||||||||||
Settlement expense |
|
| — |
|
|
|
| 2,588 |
|
|
|
| 621 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| — |
|
|
| 548 |
|
|
|
| 692 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| — |
|
|
|
| — |
|
Total expense (income) | $ |
| (771 | ) |
| $ |
| 2,044 |
|
| $ |
| 186 |
|
| $ |
| 651 |
|
| $ |
| 442 |
|
| $ |
| 573 |
| |||||||||||||||||||||||||||||
Total (income) expense | $ |
| (722 | ) |
| $ |
| 106 |
|
| $ |
| (771 | ) |
| $ |
| 430 |
|
| $ |
| 416 |
|
| $ |
| 651 |
| |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average assumptions at measurement date: |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Weighted average assumptions used to determine net periodic benefit cost (income): | Weighted average assumptions used to determine net periodic benefit cost (income): |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Discount rate | 3.75% |
|
| 4.35%/4.65% |
| (b) | 3.90%/4.60% |
| (b) | 4.15% |
|
| 5.05% |
|
| 3.90% |
| 3.82% |
|
| 4.04% |
|
| 3.75% |
|
| 4.26% |
|
| 4.55% |
|
| 4.15% |
| ||||||||||||||||||||||||
Expected return on plan assets | 5.50% |
|
| 5.95%/5.70% |
| (b) | 6.55%/6.00% |
| (b) | N/A |
|
| N/A |
|
| N/A |
| 4.83% |
|
| 5.05% |
|
| 5.50% |
|
| N/A |
|
| N/A |
|
| N/A |
| ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||
On December 31, 2014, the Super Foods Plan was merged into the Cash Balance Pension Plan and renamed the SpartanNash Company Pension Plan. |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(a) Amounts reflect the combined values of the Cash Balance Pension Plan and Super Foods Plan. |
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(b) Amounts reflect the assumptions used for the Cash Balance Pension Plan and the Super Foods Plan, respectively. |
|
The net actuarial loss and prior service cost included in “Accumulated Other Comprehensive Income”AOCI and expected to be recognized in net periodic benefit cost during fiscal year 2016in 2018 are as follows:
| SpartanNash Company |
|
| SpartanNash |
|
|
|
|
|
|
|
|
|
|
|
|
| Retiree |
| |||||||||||
(In thousands) | Pension Plan |
|
| Medical Plan |
|
|
|
|
|
|
|
|
|
| Pension Plan |
|
| Medical Plan |
| |||||||||||
Prior service credit | $ |
| — |
|
| $ |
| (158 | ) |
|
|
|
|
|
|
|
|
| $ | N/A |
|
| $ |
| (158 | ) | ||||
Net actuarial loss |
|
| 111 |
|
|
| 42 |
|
|
|
|
|
|
|
|
|
|
|
| 417 |
|
|
| 88 |
|
Prior service costs (credits) are amortized on a straight-line basis over the average remaining service period of active participants. Actuarial gains and losses for the SpartanNash Company Pension Plan are amortized over the average remaining service life of activeall participants when the accumulation of such gains and losses exceeds 10% of the greater of the projected benefit obligation and the fairmarket-related value of plan assets.
Assumed healthcare cost trend rates have a significant effect on the amounts reported for the postretirement plan.Retiree Medical Plan. Assumed current healthcare cost trend rates used to determine net periodic benefit cost (income) were as follows:
|
| January 2, 2016 |
| January 3, 2015 |
| December 28, 2013 |
|
|
|
|
|
|
| 2017 |
| 2016 |
| 2015 | ||
Pre-65 |
| 7.50% |
| 7.75% |
| 8.00% |
|
|
|
|
|
|
| N/A |
| 7.50% |
| 7.75% | ||
Post-65 |
| 8.40% |
| 6.85% |
| 7.00% |
|
|
|
|
|
|
| 8.40% |
| 8.40% |
| 6.85% |
The effect of a one-percentage point increase or decrease in assumed healthcare cost trend rates on the total service and interest components and the post-retirement benefit obligations would be less than $0.1 million.
-66-
SPARTANNASH COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Expected Return on Assets and Investment Strategy
The Company has assumed an average long-term expected return on the SpartanNash Company Pension Plan assets of 5.05%4.84% as of January 2, 2016.December 30, 2017. The expected return assumption was modeled by third-party investment portfolio managers, based on asset allocations and the expected return and risk components of the various asset classes in the portfolio. Determining projected stock and bond returns and then applying these returns to the target asset allocations of the plan assets developed the expected return. Equity returns were based primarily on historical returns of the S&P 500 Index. Fixed-income projected returns were based primarily on historical returns for the broad U.S. bond market. This overall return assumption is believed to be reasonable over a longer-term period that is consistent with the liabilities.
-63-
The Company has an investment policy for the SpartanNash Company Pension Plan with a long-term asset allocation mix designed to meet the long-term retirement obligations by investing in equity, fixed income and other securities to cover cash flow requirements of the plan and minimize long-term costs. The asset allocation mix is reviewed periodically and, on a regular basis, actual allocations are rebalanced to approximate the prevailing targets. The following table summarizes both the targeted allocation of the SpartanNash Company Pension Plan’s weighted-average asset allocation by asset category and actual allocations as of January 2, 2016December 30, 2017 and January 3, 2015:December 31, 2016:
| Target |
| Actual | ||||||||||||||||||||||||||
|
| Target * |
| Actual | December 30, |
| December 30, |
| December 31, | ||||||||||||||||||||
Asset Category |
| January 2, 2016 |
| January 2, 2016 |
| January 3, 2015 ** | 2017 |
| 2017 |
| 2016 | ||||||||||||||||||
Equity securities |
|
| 20.0 |
| % |
|
| 30.6 |
| % |
|
| 30.9 |
| % |
| 20.0 |
| % |
|
| 19.3 |
| % |
|
| 20.8 |
| % |
Fixed income |
|
| 80.0 |
|
|
|
| 68.5 |
|
|
|
| 68.7 |
|
|
| 80.0 |
|
|
|
| 79.4 |
|
|
|
| 76.9 |
|
|
Cash equivalents |
|
| — |
|
|
|
| 0.9 |
|
|
|
| 0.4 |
|
|
| — |
|
|
|
| 1.3 |
|
|
|
| 2.3 |
|
|
Total |
|
| 100.0 |
| % |
|
| 100.0 |
| % |
|
| 100.0 |
| % |
| 100.0 |
| % |
|
| 100.0 |
| % |
|
| 100.0 |
| % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
* At the end of fiscal 2015, the Company updated the target allocation of the SpartanNash Company Pension Plan investment portfolio to reduce its return-seeking equity securities to approximate a 20% allocation. The Company intends to continually evaluate financial market conditions and prudently transition the pension plan assets to the new target allocation. | |||||||||||||||||||||||||||||
** The amounts reflect the combined range of the Cash Balance Pension Plan and the Super Foods Plan as of January 3, 2015. |
The investment policy emphasizes the following key objectives: (1) provide benefit security to participants by maximizing the return on plan assets at an acceptable risk level, (2) maintain adequate liquidity for current benefit payments, (3) avoid unexpected increases in pension expense, and (4) within the scope of the above objectives, minimize long term funding to the plan.
Upon the merger of the Cash Balance Pension Plan and the Super Foods Plan on December 31, 2014, a third-party fiduciary manages the plan assets under a pre-determined glide path based on funded status, interest rates, mortality tables and expected return on assets.
The fair values of the pension planPension Plan assets at January 2,December 30, 2017 and December 31, 2016, and January 3, 2015, by asset category, are as follows:
| Fair Value of Assets as of January 2, 2016 |
|
|
|
| Fair Value of Assets as of December 30, 2017 |
| |||||||||||||||||||||||||||||||||||||||
(In thousands) | Total |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
|
|
| Total |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| NAV (a) |
| ||||||||||||||||||
Mutual funds | $ |
| 9,401 |
|
| $ |
| — |
|
| $ |
| 9,401 |
|
| $ |
| — |
|
|
|
| $ |
| 18,194 |
|
| $ |
| — |
|
| $ |
| — |
|
| $ |
| — |
|
| $ |
| 18,194 |
|
Pooled funds |
|
| 58,355 |
|
|
|
| — |
|
|
|
| 58,355 |
|
|
|
| — |
|
|
|
|
|
| 48,133 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 48,133 |
|
Money market fund |
|
| 799 |
|
|
| — |
|
|
| 799 |
|
|
| — |
|
|
|
|
|
| 1,037 |
|
|
| — |
|
|
| 1,037 |
|
|
| — |
|
|
| — |
| |||||||
Guaranteed annuity contract |
|
| 16,198 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 16,198 |
|
|
|
|
|
| 13,891 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 13,891 |
|
|
|
| — |
|
Total fair value | $ |
| 84,753 |
|
| $ |
| — |
|
| $ |
| 68,555 |
|
| $ |
| 16,198 |
|
|
|
| $ |
| 81,255 |
|
| $ |
| — |
|
| $ |
| 1,037 |
|
| $ |
| 13,891 |
|
| $ |
| 66,327 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Fair Value of Assets as of January 3, 2015 |
|
|
|
| Fair Value of Assets as of December 31, 2016 |
| |||||||||||||||||||||||||||||||||||||||
(In thousands) | Total |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
|
|
| Total |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| NAV (a) |
| ||||||||||||||||||
Mutual funds | $ |
| 29,851 |
|
| $ |
| 29,851 |
|
| $ |
| — |
|
| $ |
| — |
|
|
|
| $ |
| 14,178 |
|
| $ |
| — |
|
| $ |
| — |
|
| $ |
| — |
|
| $ |
| 14,178 |
|
Pooled funds |
|
| 45,737 |
|
|
|
| — |
|
|
|
| 45,737 |
|
|
|
| — |
|
|
|
|
|
| 50,506 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 50,506 |
|
Money market fund |
|
| 381 |
|
|
| — |
|
|
| 381 |
|
|
| — |
|
|
|
|
|
| 1,872 |
|
|
| — |
|
|
| 1,872 |
|
|
| — |
|
|
| — |
| |||||||
Guaranteed annuity contract |
|
| 17,749 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 17,749 |
|
|
|
|
|
| 15,426 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 15,426 |
|
|
|
| — |
|
Total fair value | $ |
| 93,718 |
|
| $ |
| 29,851 |
|
| $ |
| 46,118 |
|
| $ |
| 17,749 |
|
|
|
| $ |
| 81,982 |
|
| $ |
| — |
|
| $ |
| 1,872 |
|
| $ |
| 15,426 |
|
| $ |
| 64,684 |
|
-67-
SPARTANNASH COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(a) | Assets are measured at net asset value (“NAV”) (or its equivalent) on a non-active market, and therefore, have not been classified in the fair value hierarchy. |
Level 3 assets consistedconsist of the guaranteed annuity contracts. A reconciliation of the beginning and ending balances for Level 3 assets is as follows:
(In thousands) | January 2, 2016 |
|
| January 3, 2015 |
|
|
|
|
|
|
|
|
|
| December 30, 2017 |
|
| December 31, 2016 |
| |||||||||||
Balance at beginning of year | $ |
| 17,749 |
|
| $ |
| 18,071 |
| Balance at beginning of year | $ |
| 15,426 |
|
| $ |
| 16,198 |
| |||||||||||
Purchases, sales, issuances and settlements, net |
|
| (2,227 | ) |
|
| (1,402 | ) | Purchases, sales, issuances and settlements, net |
|
| (2,222 | ) |
|
| (1,733 | ) | |||||||||||||
Interest income |
|
| 680 |
|
|
| 799 |
| Interest income |
|
| 552 |
|
|
| 631 |
| |||||||||||||
Unrealized (losses) gains |
|
| (4 | ) |
|
|
| 281 |
| |||||||||||||||||||||
Unrealized gains | Unrealized gains |
|
| 135 |
|
|
|
| 330 |
| ||||||||||||||||||||
Balance at end of year | $ |
| 16,198 |
|
| $ |
| 17,749 |
| Balance at end of year | $ |
| 13,891 |
|
| $ |
| 15,426 |
|
See Note 78 for a discussion of the levels of the fair value hierarchy. The above assets’ fair value measurement level above is based on the lowest level of any input that is significant to the fair value measurement.
-64-
The following is a description of the valuation methods used for the plans’Pension Plan’s assets measured at fair value in the above tables:
Cash & money market funds: The carrying value approximates fair value. Money market funds are valued on a daily basis at the net asset value (“NAV”)NAV using the amortized cost of the securities held in the fund. BecauseSince amortized cost does not meet the criteria for an active market, money market funds are classified within Level 2 of the fair value hierarchy of ASC 820.
Mutual Funds: These investments are valued using NAV as a practical expedient to estimate fair value and are not classified in the fair value hierarchy. NAV which is determined once a day after the closing of the exchange based upon the underlying assets in the fund, less the fund’s liabilities, expressed on a per-share basis. Funds for whichMutual funds held by the Pension Plan are open end mutual funds that are registered with the Securities and Exchange Commission (“SEC”). These funds are required to publish their daily NAV is a quoted price in an active marketand to transact at that price. The mutual funds held by the Pension Plan are classified within Level 1 of the fair value hierarchy of ASC 820. Funds which are not publicly traded in an active market are classified within Level 2 of the fair value hierarchy of ASC 820.therefore deemed to be actively traded.
Pooled Funds: The plan holds units of various Aon Hewitt Group Trust Funds offered through a private placement. The units are valued daily using the NAV. The NAV’sNAV as a practical expedient to estimate fair value. NAVs are based on the fair value of each fund’s underlying investments. Level 1 assetsinvestments, and are priced using quotesnot classified in the fair value hierarchy. The practical expedient is not used when it is determined to be probable that the investment will be sold for trades occurring in active markets foran amount different than the identical asset. Level 2 assets are priced using observable inputs for the asset (for example, interest rates and yield curves observable at commonly quoted intervals, volatilities, prepayment speeds, loss severities, credit risks and default rates) or inputs that are derived principally from or corroborated by observable market data by correlation or other means (market-corroborated inputs). Level 3 assets are priced using unobservable inputs.reported NAV.
Guaranteed Annuity Contracts: The guaranteed annuity contracts are immediate participation contracts held with insurance companies that act as custodian of the pension plans’Pension Plan’s assets. The guaranteed annuity contracts are stated at contract value asvalues, which are determined by the custodians whichand approximate fair values. The Company evaluates the general financial condition of the custodians as a component of validating whether the calculated contract value is an accurate approximation of fair value. The review of the general financial condition of the custodians is considered obtainable/observable through the review of readily available financial information the custodians are required to file with the SEC. The group annuity contracts are classified within Level 3 of the valuation hierarchy of ASC 820.
The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Company believes its valuations methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement.
The Company does not expectexpects to make any contributions in 2018 of $0.4 million to the SpartanNashRetiree Medical Plan. Although no contributions are required, the Company expects to contribute approximately $2.0 million to the Pension Plan in the fiscal year ending December 31, 2016.2018.
The following estimated benefit payments are expected to be paid in the following fiscal years:
(In thousands) | Pension Benefits |
|
| Post-retirement Benefits |
| ||||
2016 | $ |
| 8,884 |
|
| $ |
| 340 |
|
2017 |
|
| 8,545 |
|
|
|
| 385 |
|
2018 |
|
| 7,780 |
|
|
|
| 431 |
|
2019 |
|
| 7,336 |
|
|
|
| 476 |
|
2020 |
|
| 6,933 |
|
|
|
| 518 |
|
2021 to 2025 |
|
| 29,704 |
|
|
|
| 3,092 |
|
(In thousands) | 2018 |
|
| 2019 |
|
| 2020 |
|
| 2021 |
|
| 2022 |
|
| 2022 to 2026 |
| ||||||||||||
Pension benefits | $ |
| 8,668 |
|
| $ |
| 8,274 |
|
| $ |
| 7,702 |
|
| $ |
| 7,843 |
|
| $ |
| 7,035 |
|
| $ |
| 26,850 |
|
Post-retirement medical benefits |
|
| 417 |
|
|
|
| 463 |
|
|
|
| 503 |
|
|
|
| 540 |
|
|
|
| 575 |
|
|
|
| 3,232 |
|
-68-
SPARTANNASH COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Multi-Employer Health and Welfare Plans
In addition to the plans described above, the Company participates in the Central States Southeast and Southwest Areas Pension Plan (“Central States Plan” or “the Plan”), 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.
plans. The Company contributes to these multi-employer plans under the terms contained in existing collective bargaining agreementsCBAs and in the amounts set forth within these agreements. The health and welfare plans provide medical, dental, pharmacy, vision, and other ancillary benefits to active associates and retirees, as determined by the trustees of the plan. The vast majority of the Company’s contributions benefitslargely benefit active associates, and as such, may not constitute contributions to a postretirement benefit plan. However, the Company is unable to separate contribution amounts tofor postretirement benefit plansbenefits from contribution amounts paid for active participants in the plan. These plans have a significant surplus of funds held in reserve in excess of claims incurred, and there is no potential withdrawal liability related to the Company’s participation in the plans. With respect to the Company’s participation in these plans, expense is recognized as contributions are funded. The Company contributed $14.1 million, $14.3 million and $15.1 million to these plans in 2017, 2016 and 2015, respectively.
-65-
Multi-Employer Pension Plan
The Company also contributes to the Central States Plan, a multi-employer plan defined previously, under the terms of CBAs that cover its union-represented associates and in the amounts set forth within these agreements. The Company is party to four CBAs that require contributions to the Plan with expiration dates ranging from January 2019 to February 2021. These CBAs cover warehouse personnel and drivers in Grand Rapids, Michigan and Bellefontaine and Lima, Ohio. With respect to the Company’s participation in the Central States Plan (EIN 36-60442343 / Pension Plan Number 001), expense is recognized as contributions are funded. The Company contributed $12.9$13.4 million, $12.9$13.4 million and $6.8$12.9 million to this plan for fiscal years ended January 2,in 2017, 2016 and January 3, 2015, and forrespectively. The contributions made by the 39-week period ended December 28, 2013, respectively. Company represent less than five percent of the Plan’s total contributions in 2017.
The risk of participating in a multi-employer pension plan is different from the risk associated with single-employer plans in the following respects:
| a. | Assets contributed to the multi-employer plan by one employer may be used to provide benefits to |
| b. | If a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers. |
| c. | If a company chooses to stop participating in |
The Company’s participation in the Central States Plan is outlined in the tables below, which provide additional information about the collective bargaining agreements associated with this multi-employer plan in which the Company participates. The EIN/Pension Plan Number column provides the Employee Identification Number (“EIN”) and the three-digit plan number, if applicable. Unless otherwise noted, the most recent Pension Protection Act (“PPA”)PPA zone status available in 2015 and 2014 relates toof the Plans’ two most recent fiscal year-ends. The zone statusPlan, which is based on information that the Company received from the Plan and is certified by each plan’s actuary.the Plan’s actuary, is “critical and declining” for the Plan’s two most recent fiscal years ending December 31, 2017 and 2016. Among other factors, redplans in the “critical and declining” zone status plans are generally less than 65% funded and are considered in critical status. The FIP/RP Status Pending/Implemented column indicates plans for which a financial improvement plan (“FIP”) or aprojected to become insolvent within the next 15 years (or 20 years depending on the ratio of active-to-inactive participants). A rehabilitation plan (“RP”) is either pending or has been implemented by the trustees of each plan. On December 13, 2014, Congress passed the Multi-employer Pension Reform Act of 2014 (“MPRA”). The MPRA is intended to address funding shortfalls in both multi-employer pension plansPlan, and the Pension Benefit Guaranty Corporation. BecauseCBAs that cover warehouse personnel and drivers in the MPRA is a complex piece of legislation, its effects onBellefontaine and Lima, Ohio distribution centers have permanent surcharges imposed due to the planfailure to adopt the trustee recommended rehabilitation plan. Refer to Note 9, Commitments and potential implications for the Company are not known at this time. See Note 8Contingencies, for further information regarding the Company’s participation in the Central States Plan.
|
|
|
|
|
|
|
|
|
|
|
| Percentage of |
|
|
| |
|
| Plan |
| Pension |
| FIP / RP |
|
|
| Associates under |
|
|
| |||
|
| Month / |
| Protection Act |
| Status |
|
|
| Collective |
|
| Over 5% | |||
EIN - Pension |
| Day End |
| Zone Status |
| Pending / |
|
|
| Bargaining |
|
| Contribution | |||
Plan Number |
| Date |
| 2015 |
| 2014 |
| Implemented |
| Expiration Dates |
| Agreement |
|
| 2015 | |
36-6044243-001 (a) |
| 12/31 |
| Red |
| Red |
| Implemented |
| 2/2017 to 10/2017 |
|
| 9% |
|
| No |
|
|
As of the date the consolidated financial statements were issued, Form 5500 was generally not available for the plan year ended in 2015.December 31, 2017.
-69-
SPARTANNASH COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1112 – Accumulated Other Comprehensive Income or Loss
Accumulated other comprehensive income (loss) (“AOCI”)AOCI represents the cumulative balance of other comprehensive income (loss), net of tax, as of the end of the reporting period and relates to pension and other postretirement benefit obligation adjustments.
Changes in AOCI are as follows:
| January 2, 2016 |
|
| January 3, 2015 |
|
| December 28, 2013 |
| ||||||
(In thousands) | (52 Weeks) |
|
| (53 Weeks) |
|
| (39 Weeks) |
| ||||||
Balance at beginning of the fiscal year, net of tax | $ |
| (11,655 | ) |
| $ |
| (8,794 | ) |
| $ |
| (13,687 | ) |
Other comprehensive (loss) income before reclassifications |
|
| (455 | ) |
|
|
| (8,195 | ) |
|
|
| 6,604 |
|
Income tax benefit (expense) |
|
| 114 |
|
|
|
| 3,138 |
|
|
|
| (2,525 | ) |
Other comprehensive income, net of tax, before reclassifications |
|
| (341 | ) |
|
|
| (5,057 | ) |
|
|
| 4,079 |
|
Amortization of amounts included in net periodic benefit cost (1) |
|
| 884 |
|
|
|
| 3,410 |
|
|
|
| 1,712 |
|
Income tax expense (2) |
|
| (335 | ) |
|
|
| (1,214 | ) |
|
|
| (898 | ) |
Amounts reclassified out of AOCI, net of tax |
|
| 549 |
|
|
|
| 2,196 |
|
|
|
| 814 |
|
Other comprehensive income (loss), net of tax |
|
| 208 |
|
|
|
| (2,861 | ) |
|
|
| 4,893 |
|
Balance at end of the fiscal year, net of tax | $ |
| (11,447 | ) |
| $ |
| (11,655 | ) |
| $ |
| (8,794 | ) |
(In thousands) | 2017 |
|
| 2016 |
|
| 2015 |
| ||||||
Balance at beginning of the year, net of tax | $ |
| (11,437 | ) |
| $ |
| (11,447 | ) |
| $ |
| (11,655 | ) |
Other comprehensive loss before reclassifications |
|
| (2,448 | ) |
|
|
| (643 | ) |
|
|
| (455 | ) |
Income tax benefit |
|
| 934 |
|
|
|
| 236 |
|
|
|
| 114 |
|
Other comprehensive loss, net of tax, before reclassifications |
|
| (1,514 | ) |
|
|
| (407 | ) |
|
|
| (341 | ) |
Amortization of amounts included in net periodic benefit cost (a) |
|
| 799 |
|
|
|
| 657 |
|
|
|
| 884 |
|
Income tax expense (b) |
|
| (302 | ) |
|
|
| (240 | ) |
|
|
| (335 | ) |
Amounts reclassified out of AOCI, net of tax |
|
| 497 |
|
|
|
| 417 |
|
|
|
| 549 |
|
Other comprehensive (loss) income, net of tax |
|
| (1,017 | ) |
|
|
| 10 |
|
|
|
| 208 |
|
Reclassification of stranded tax effects (c) |
|
| (2,682 | ) |
|
|
| — |
|
|
|
| — |
|
Balance at end of the year, net of tax | $ |
| (15,136 | ) |
| $ |
| (11,437 | ) |
| $ |
| (11,447 | ) |
| (a) | Reclassified from AOCI into Selling, general and administrative expense. Amortization of amounts included in net periodic benefit cost |
| (b) | Reclassified from AOCI into Income taxes expense. |
(c) | Refer to Note 1, Summary of Significant Accounting Policies and Basis of Presentation, for a discussion of the impact of early adoption of ASU 2018-02. |
-66-
Note 1213 – Taxes on Income Tax
The income tax provision for continuing operations is made up of the following components:
| January 2, 2016 |
|
| January 3, 2015 |
|
| December 28, 2013 |
| ||||||||||||||||||||
(In thousands) | (52 Weeks) |
|
| (53 Weeks) |
|
| (39 Weeks) |
| 2017 |
|
| 2016 |
|
| 2015 |
| ||||||||||||
Currently payable: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Current income tax expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Federal | $ |
| 31,437 |
|
| $ |
| 27,015 |
|
| $ |
| 3,897 |
| $ |
| 366 |
|
| $ |
| 22,936 |
|
| $ |
| 31,437 |
|
State |
|
| 3,144 |
|
|
|
| 777 |
|
|
|
| 510 |
|
|
| 528 |
|
|
|
| 3,210 |
|
|
|
| 3,144 |
|
Total currently payable |
|
| 34,581 |
|
|
|
| 27,792 |
|
|
|
| 4,407 |
| ||||||||||||||
Deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total current income tax expense |
|
| 894 |
|
|
|
| 26,146 |
|
|
|
| 34,581 |
| ||||||||||||||
Deferred income tax (benefit) expense: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Federal |
|
| 3,255 |
|
|
|
| 3,362 |
|
|
| 531 |
|
|
| (72,842 | ) |
|
| 6,509 |
|
|
| 3,255 |
| |||
State |
|
| (743 | ) |
|
|
| 175 |
|
|
|
| (4,097 | ) |
|
| (7,079 | ) |
|
|
| 252 |
|
|
|
| (743 | ) |
Total deferred |
|
| 2,512 |
|
|
|
| 3,537 |
|
|
|
| (3,566 | ) | ||||||||||||||
Total | $ |
| 37,093 |
|
| $ |
| 31,329 |
|
| $ |
| 841 |
| ||||||||||||||
Total deferred income tax (benefit) expense |
|
| (79,921 | ) |
|
|
| 6,761 |
|
|
|
| 2,512 |
| ||||||||||||||
Total income tax (benefit) expense | $ |
| (79,027 | ) |
| $ |
| 32,907 |
|
| $ |
| 37,093 |
|
The effective income tax rates are different fromA reconciliation of the statutory federal income tax rates forrate to the following reasons:effective rate is as follows:
| January 2, 2016 |
| January 3, 2015 |
| December 28, 2013 | |||||||||||||||||||||||
| (52 Weeks) |
| (53 Weeks) |
| (39 Weeks) | 2017 |
| 2016 |
| 2015 | ||||||||||||||||||
Federal statutory income tax rate |
| 35.0 |
| % |
|
| 35.0 |
| % |
|
| 35.0 |
| % |
| 35.0 |
| % |
|
| 35.0 |
| % |
|
| 35.0 |
| % |
Federal rate change effect on deferred taxes |
| 19.7 |
|
|
|
| — |
|
|
|
| — |
|
| ||||||||||||||
State taxes, net of federal income tax benefit |
| 1.6 |
|
|
|
| 2.9 |
|
|
|
| (112.7 | ) |
|
| 3.1 |
|
|
|
| 2.5 |
|
|
|
| 1.6 |
|
|
Stock compensation |
| 1.0 |
|
|
|
| — |
|
|
|
| — |
|
| ||||||||||||||
Other, net |
| 0.8 |
|
|
|
| (0.6 | ) |
|
|
| 0.5 |
|
| ||||||||||||||
Charitable product donations |
| (0.3 | ) |
|
|
| (0.4 | ) |
|
|
| (13.4 | ) |
|
| 0.4 |
|
|
|
| (0.5 | ) |
|
|
| (0.3 | ) |
|
Non-deductible merger expenses |
| — |
|
|
|
| — |
|
|
|
| 101.3 |
|
| ||||||||||||||
Changes in tax contingencies |
| (0.1 | ) |
|
|
| (2.7 | ) |
|
|
| 36.9 |
|
| ||||||||||||||
Tax credits |
| 0.2 |
|
|
|
| — |
|
|
|
| — |
|
| ||||||||||||||
Domestic production activities deduction |
| (0.2 | ) |
|
|
| (0.2 | ) |
|
|
| (8.6 | ) |
|
| 0.1 |
|
|
|
| (0.3 | ) |
|
|
| (0.2 | ) |
|
Non-deductible expenses |
| 0.4 |
|
|
|
| 0.9 |
|
|
|
| 3.8 |
|
|
| (0.3 | ) |
|
|
| 0.5 |
|
|
|
| 0.4 |
|
|
Other, net |
| 0.6 |
|
|
|
| (0.9 | ) |
|
|
| (1.7 | ) |
| ||||||||||||||
Effective income tax rate |
| 37.0 |
| % |
|
| 34.6 |
| % |
|
| 40.6 |
| % |
| 60.0 |
| % |
|
| 36.6 |
| % |
|
| 37.0 |
| % |
-70-On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax code, including, but not limited to reducing the U.S. federal corporate tax rate from 35 percent to 21 percent, effective January 1, 2018. Shortly after the Tax Act was enacted, the SEC issued accounting guidance, which provides a one-year measurement period during which a company may complete its accounting for the impacts of the Tax Act. To the extent a company’s accounting for certain income tax effects of the Tax Act is incomplete, the company may determine a reasonable estimate for those effects and record a provisional estimate in its financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply the provisions of the tax laws that were in effect immediately prior to the Tax Act being enacted.
In connection with initial analysis of the impact of the Tax Act, the Company recorded a discrete income tax benefit of $26.0 million in the period ending December 30, 2017 associated with the re-measurement of deferred tax assets and liabilities as a result of the reduction in the U.S. federal corporate tax rate. The Company has not completed its accounting for the income tax effects of certain elements of the Tax Act, but recorded provisional adjustments based on reasonable estimates. Those estimates may be impacted by the need for further analysis and future clarification and guidance regarding available tax accounting methods and elections, state tax conformity to federal tax changes and expected changes to U.S. Treasury regulations. The Company anticipates these estimates will be finalized on or before the due date of the federal return, which is October 15, 2018. The Company’s 2018 tax provision will be recorded at an effective rate that contemplates the new lower statutory rate, and is currently anticipated to be between 23% and 24%.
-67-
SPARTANNASH COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Deferred tax assets and liabilities resulting from temporary differences as of January 2,December 30, 2017 and December 31, 2016 and January 3, 2015 are as follows:
|
|
|
| December 30, |
|
| December 31, |
| |||||||||||||
(In thousands) | January 2, 2016 |
|
| January 3, 2015 |
|
|
|
| 2017 |
|
| 2016 |
| ||||||||
Deferred tax assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee benefits | $ |
| 29,218 |
|
| $ |
| 29,842 |
|
|
|
| $ |
| 19,311 |
|
| $ |
| 30,626 |
|
Accrued workers' compensation |
|
| 2,712 |
|
|
|
| 3,074 |
|
|
|
|
|
| 1,620 |
|
|
|
| 2,624 |
|
Allowance for doubtful accounts |
|
| 3,341 |
|
|
|
| 2,951 |
|
|
|
|
|
| 1,974 |
|
|
|
| 2,945 |
|
Intangible assets |
|
| 326 |
|
|
|
| 1,128 |
|
|
|
|
|
| 56 |
|
|
|
| 2,060 |
|
Restructuring |
|
| 732 |
|
|
|
| 1,947 |
|
|
|
|
|
| 2,322 |
|
|
|
| 6,087 |
|
Deferred revenue |
|
| 2,047 |
|
|
|
| 1,843 |
|
|
|
|
|
| 1,552 |
|
|
|
| 2,990 |
|
Accrued rent |
|
| 3,884 |
|
|
|
| 4,635 |
|
|
|
|
|
| 3,853 |
|
|
|
| 3,555 |
|
Accrued insurance |
|
| 866 |
|
|
|
| 1,107 |
|
|
|
|
|
| 921 |
|
|
|
| 1,279 |
|
All other |
|
| 6,804 |
|
|
|
| 5,627 |
|
|
|
|
|
| 2,725 |
|
|
|
| 4,417 |
|
Total deferred tax assets |
|
| 49,930 |
|
|
|
| 52,154 |
|
|
|
|
|
| 34,334 |
|
|
|
| 56,583 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment |
|
| 43,201 |
|
|
|
| 47,860 |
|
|
|
|
|
| 34,199 |
|
|
|
| 52,401 |
|
Inventory |
|
| 48,120 |
|
|
|
| 51,616 |
|
|
|
|
|
| 31,454 |
|
|
|
| 46,332 |
|
Goodwill |
|
| 62,005 |
|
|
|
| 53,628 |
|
|
|
|
|
| 10,083 |
|
|
|
| 79,904 |
|
Convertible debt interest |
|
| 524 |
|
|
|
| 789 |
| ||||||||||||
Leases |
|
| 12,279 |
|
|
|
| 10,585 |
| ||||||||||||
All other |
|
| 401 |
|
|
|
| 1,402 |
|
|
|
|
|
| 648 |
|
|
|
| 1,189 |
|
Total deferred tax liabilities |
|
| 166,530 |
|
|
|
| 165,880 |
|
|
|
|
|
| 76,384 |
|
|
|
| 179,826 |
|
Net deferred tax liability | $ |
| (116,600 | ) |
| $ |
| (113,726 | ) |
|
|
| $ |
| 42,050 |
|
| $ |
| 123,243 |
|
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
|
|
|
| December 30, |
|
| December 31, |
| |||||||||||||
(In thousands) | January 2, 2016 |
|
| January 3, 2015 |
|
|
|
| 2017 |
|
| 2016 |
| ||||||||
Balance at beginning of year | $ |
| 2,179 |
|
| $ |
| 8,805 |
|
|
|
| $ |
| 2,369 |
|
| $ |
| 2,211 |
|
Gross increases - tax positions taken in prior years |
|
| 186 |
|
|
|
| 161 |
|
|
|
|
|
| 213 |
|
|
|
| 184 |
|
Gross decreases - tax positions taken in prior years |
|
| (105 | ) |
|
|
| (5,812 | ) |
|
|
|
|
| (123 | ) |
|
|
| (2 | ) |
Gross increases - tax positions taken in current year |
|
| 660 |
|
|
|
| 650 |
|
|
|
|
|
| 872 |
|
|
|
| 718 |
|
Lapse of statute of limitations |
|
| (709 | ) |
|
|
| (1,625 | ) |
|
|
|
|
| (923 | ) |
|
|
| (742 | ) |
Balance at end of year | $ |
| 2,211 |
|
| $ |
| 2,179 |
|
|
|
| $ |
| 2,408 |
|
| $ |
| 2,369 |
|
Unrecognized tax benefits of $0.8$2.0 million are set to expire prior to December 31, 2016.29, 2018. The Company recognizes interest and penalties accrued related to unrecognized tax benefits in income tax expense. The amount of unrecognized tax benefits, including interest and penalties, that would reduce the Company’s effective income tax rate if recognized in future periods was $1.2$1.4 million as of January 2, 2016.December 30, 2017.
SpartanNash or its subsidiaries file income tax returns with federal, state and local tax authorities within the United States. With few exceptions, SpartanNash is no longer subject to U.S. federal, state or local examinations by tax authorities for fiscal years before March 26, 2011.December 28, 2013. Income tax returns related to the former Nash-Finch Company, with few exceptions, are no longer subject to U.S. federal, state or local examinations by tax authorities for the fiscal year ended December 31, 2011 and earlier.authorities.
-68-
Note 1314 – Stock-Based Compensation
The Company has a shareholder-approved 10-year stock incentive plan covering 2,500,000 shares of SpartanNash’s common stock. The SpartanNash Company Stock Incentive Plan of 2015 (the “2015 Plan”) 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,
-71-
SPARTANNASH COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
officers and other key associates. Shares issued, as a result of stock option exercises, will be funded with the issuance of new shares. Holders of restricted stock and stock awards are entitled to participate in cash dividends and dividend equivalents. As of January 2, 2016,December 30, 2017, a total of 2,497,0271,947,030 shares remained unissued under the 2015 Plan.
All outstanding unvested stock options and unvested shares of restricted stock vest immediately upon a “Change in Control,” as defined by the Plan. The Company has not issued any stock options since 2009 and all outstanding options are vested.
The following table summarizes stock option activity for the three years ended January 2, 2016:2017, 2016 and 2015:
|
|
|
|
|
|
|
|
|
| Weighted |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted |
|
|
|
|
| ||||||||
|
|
|
|
|
| Weighted |
|
| Average |
|
|
|
|
|
|
|
|
|
| Weighted |
|
| Average |
|
|
|
|
| ||||||||||
|
|
|
|
|
| Average |
|
| Remaining |
|
| Aggregate |
|
|
|
|
|
| Average |
|
| Remaining |
|
| Aggregate |
| ||||||||||||
| Shares |
|
| Exercise |
|
| Contractual |
|
| Intrinsic Value |
| Shares |
|
| Exercise |
|
| Contractual |
|
| Intrinsic Value |
| ||||||||||||||||
| Under Options |
|
| Price |
|
| Life Years |
|
| (in thousands) |
| Under Options |
|
| Price |
|
| Life Years |
|
| (in thousands) |
| ||||||||||||||||
Options outstanding at March 30, 2013 |
|
| 653,471 |
|
| $ |
| 18.82 |
|
|
|
| 4.65 |
|
| $ |
| 1,428 |
| |||||||||||||||||||
Exercised |
|
| (24,976 | ) |
|
| 9.49 |
|
|
|
|
|
|
| 298 |
| ||||||||||||||||||||||
Cancelled/Forfeited |
|
| (41,729 | ) |
|
|
| 17.71 |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Options outstanding and exercisable at December 28, 2013 |
|
| 586,766 |
|
|
| 19.30 |
|
|
| 4.01 |
|
|
| 2,965 |
| ||||||||||||||||||||||
Exercised |
|
| (88,152 | ) |
|
| 12.68 |
|
|
|
|
|
|
| 869 |
| ||||||||||||||||||||||
Cancelled/Forfeited |
|
| (4,131 | ) |
|
|
| 3.25 |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Options outstanding and exercisable at January 3, 2015 |
|
| 494,483 |
|
|
| 20.61 |
|
|
|
| 3.30 |
|
|
|
| 2,772 |
|
|
| 494,483 |
|
| $ |
| 20.61 |
|
|
| 3.30 |
|
| $ |
| 2,772 |
| ||
Exercised |
|
| (185,627 | ) |
|
| 19.72 |
|
|
|
|
|
|
|
|
| 1,543 |
|
|
| (185,627 | ) |
|
| 19.72 |
|
|
|
|
|
|
| 1,543 |
| ||||
Cancelled/Forfeited |
|
| (63 | ) |
|
|
| 11.50 |
|
|
|
|
|
|
|
|
|
|
| (63 | ) |
|
|
| 11.50 |
|
|
|
|
|
|
|
|
| ||||
Options outstanding and exercisable at January 2, 2016 |
|
| 308,793 |
|
| $ |
| 21.15 |
|
|
| 2.46 |
|
| $ |
| 773 |
|
|
| 308,793 |
|
|
| 21.15 |
|
|
| 2.46 |
|
|
| 773 |
| ||||
Vested and expected to vest in the future at January 2, 2016 |
|
| 308,793 |
|
| $ |
| 21.15 |
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Exercised |
|
| (107,338 | ) |
|
| 23.46 |
|
|
|
|
|
|
| 1,043 |
| ||||||||||||||||||||||
Cancelled/Forfeited |
|
| (938 | ) |
|
|
| 14.36 |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Options outstanding and exercisable at December 31, 2016 |
|
| 200,517 |
|
|
| 19.94 |
|
|
|
| 1.65 |
|
|
|
| 3,929 |
| ||||||||||||||||||||
Exercised |
|
| (152,589 | ) |
|
| 21.02 |
|
|
|
|
|
|
|
|
| 1,832 |
| ||||||||||||||||||||
Cancelled/Forfeited |
|
| — |
|
|
|
| — |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Options outstanding and exercisable at December 30, 2017 |
|
| 47,928 |
|
| $ |
| 16.52 |
|
|
| 1.07 |
|
| $ |
| 487 |
|
Cash received from option exercises was $3.2 million, $2.5 million and $3.7 million $1.1 million and $0.3 million during fiscal years ended January 2,in 2017, 2016 and January 3, 2015, and for the 39-week period ended December 28, 2013, respectively.
Restricted shares awarded to associates vest ratably over a four-year service period and over one year for grants to the Board of Directors. Awards are subject to forfeiture and certain transfer restrictions prior to vesting. All shares fully vest upon a “Change in Control,” as defined by the Plan. Compensation expense, representing the fair value of the stock at the measurement date of the award, is recognized over the required service period. On December 17, 2013, the Board of Directors approved a modification to the outstanding restricted stock awards to provide for continued vesting upon retirement. As a result, incremental expense of $4.2 million was recognized to reflect the cumulative compensation expense recognized over the required service period of each restricted shareholder.
The following table summarizes restricted stock activity for fiscal years ended January 2,2017, 2016 and January 3, 2015 and for the 39-week period ended December 28, 2013:2015:
|
|
|
|
|
| Weighted Average |
|
|
|
|
|
|
|
|
|
| Weighted Average |
| ||||||
|
|
|
|
|
| Grant-Date |
|
|
|
|
|
|
|
|
|
| Grant-Date |
| ||||||
| Shares |
|
| Fair Value |
|
|
|
|
|
| Shares |
|
| Fair Value |
| |||||||||
Outstanding and nonvested at March 30, 2013 |
|
| 546,182 |
|
| $ |
| 16.59 |
| |||||||||||||||
Granted |
|
| 227,207 |
|
|
| 18.07 |
| ||||||||||||||||
Vested |
|
| (225,600 | ) |
|
| 16.94 |
| ||||||||||||||||
Forfeited |
|
| (28,954 | ) |
|
| 16.94 |
| ||||||||||||||||
Outstanding and nonvested at December 28, 2013 |
|
| 518,835 |
|
|
| 23.56 |
| ||||||||||||||||
Granted |
|
| 317,827 |
|
|
| 22.63 |
| ||||||||||||||||
Vested |
|
| (219,894 | ) |
|
| 23.56 |
| ||||||||||||||||
Forfeited |
|
| (16,115 | ) |
|
| 23.03 |
| ||||||||||||||||
Outstanding and nonvested at January 3, 2015 |
|
| 600,653 |
|
|
| 23.08 |
|
|
|
|
|
|
|
| 600,653 |
|
| $ |
| 23.08 |
| ||
Granted |
|
| 314,595 |
|
|
| 26.59 |
|
|
|
|
|
|
| 314,595 |
|
|
| 26.59 |
| ||||
Vested |
|
| (265,737 | ) |
|
| 23.19 |
|
|
|
|
|
|
| (265,737 | ) |
|
| 23.19 |
| ||||
Forfeited |
|
| (11,956 | ) |
|
| 23.85 |
|
|
|
|
|
|
| (11,956 | ) |
|
| 23.85 |
| ||||
Outstanding and nonvested at January 2, 2016 |
|
| 637,555 |
|
| $ |
| 24.75 |
|
|
|
|
|
|
|
| 637,555 |
|
|
| 24.75 |
| ||
Granted |
|
|
|
|
|
| 314,944 |
|
|
| 28.34 |
| ||||||||||||
Vested |
|
|
|
|
|
| (255,156 | ) |
|
| 24.56 |
| ||||||||||||
Forfeited |
|
|
|
|
|
| (37,200 | ) |
|
| 25.80 |
| ||||||||||||
Outstanding and nonvested at December 31, 2016 |
|
|
|
|
|
|
| 660,143 |
|
|
| 26.48 |
| |||||||||||
Granted |
|
|
|
|
|
| 296,297 |
|
|
| 34.68 |
| ||||||||||||
Vested |
|
|
|
|
|
| (258,183 | ) |
|
| 25.90 |
| ||||||||||||
Forfeited |
|
|
|
|
|
| (84,513 | ) |
|
| 29.11 |
| ||||||||||||
Outstanding and nonvested at December 30, 2017 |
|
|
|
|
|
|
| 613,744 |
|
| $ |
| 30.32 |
|
-72-
SPARTANNASH COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The total fair value of shares vested during fiscal years ended January 2,was $9.3 million, $6.6 million and $7.6 million in 2017, 2016 and January 3, 2015, and for the 39-week period ended December 28, 2013 was $7.6 million, $4.7 million and $3.6 million, respectively.
Share-based-69-
Stock-based compensation expense recognized and included in “Selling, general and administrative expenses” in the consolidated statements of earnings,operations, and related tax benefits were as follows:
| January 2, 2016 |
|
| January 3, 2015 |
|
| December 28, 2013 |
| |||||||||||||||||||||||
(In thousands) | (52 Weeks) |
|
| (53 Weeks) |
|
| (39 Weeks) |
|
|
|
| 2017 |
|
| 2016 |
|
| 2015 |
| ||||||||||||
Stock options | $ |
| — |
|
| $ |
| — |
|
| $ |
| 14 |
| |||||||||||||||||
Restricted stock |
|
| 7,240 |
|
|
| 6,939 |
|
|
| 6,937 |
|
|
|
| $ |
| 9,611 |
|
| $ |
| 7,936 |
|
| $ |
| 7,240 |
| ||
Tax benefits |
|
| (2,758 | ) |
|
|
| (2,632 | ) |
|
|
| (2,640 | ) |
|
|
|
|
| (3,440 | ) |
|
|
| (2,976 | ) |
|
|
| (2,758 | ) |
| $ |
| 4,482 |
|
| $ |
| 4,307 |
|
| $ |
| 4,311 |
| |||||||||||||||||
Stock-based compensation expense, net of tax |
|
|
| $ |
| 6,171 |
|
| $ |
| 4,960 |
|
| $ |
| 4,482 |
|
As of January 2, 2016,December 30, 2017, total unrecognized compensation cost related to non-vested share-based awards granted under the stock incentive plans was $5.6$4.0 million for restricted stock. The remaining compensation costs not yet recognized are expected to be recognized over a weighted average period of 2.42.3 years for restricted stock. All compensation costs related to stock options have been recognized.
The Company recognized tax deductions of $9.5$11.6 million, $5.9$8.0 million and $4.1$9.5 million related to the exercise of stock options and the vesting of restricted stock during fiscal years ended January 2,in 2017, 2016 and January 3, 2015, and for the 39-week period ended December 28, 2013, respectively.
The Company has a stock bonus plan covering 300,000 shares of SpartanNash common stock. Under the provisions of this plan, certain officers and key associates may elect to receive a portion of their annual bonus in common stock rather than cash and will be granted additional shares of common stock worth 20% of the portion of the bonus they elect to receive in stock. After the shares are issued, the holder is not able to sell or otherwise transfer the shares until the end of the holding period, which is currently 24 months. Compensation expense is recorded based upon the market price of the stock as of the measurement date. A total of 47,92614,726 shares remained unissued under the stock bonus plan at January 2, 2016.December 30, 2017.
The Company also has an associate stock purchase plan covering 200,000 shares of SpartanNash common stock. The plan provides that associates of the Company may purchase shares at 95% of the fair market value. The associate stock purchase plan was suspended during the 39-week period ended December 28, 2013 in conjunction with the merger with Nash-Finch and cash balances were refunded to participants. The associate stock purchase plan was reinstated in April 2014. As of January 2, 2016,December 30, 2017, a total of 58,23781,511 shares had been issued under the plan.
Note 1415 – Concentration of Credit Risk
The Company providesmay provide financial assistance in the form of loans to some of itscertain independent retailers for inventories, store fixtures and equipment and store improvements. Loans are generally secured by liens on real estate, inventory and/or equipment, personal guarantees and other types of collateral, and are generally repayable over a period of five to seventen years. The Company establishes allowances for doubtful accounts based upon periodic assessments of the credit risk of specific customers, collateral value, historical trends and other information. The Company believes that adequate provisions have been recorded for any doubtful accounts. In addition, the Company may guarantee debt and lease obligations of independent retailers. In the event these retailers are unable to meet their debt service payments or otherwise experience an event of default, the Company would be unconditionally liable for the outstanding balance of their debt and lease obligations, which would be due in accordance with the underlying agreements.
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. As of January 2, 2016,December 30, 2017, the Company has an unearned advanced amount to one independent retailer for an amount representing approximately two percent of the Company’s total assets. The Company’s collateral related to the advanced funds is a security interest in select business assets of the independent retailer’s stores, including select real property assets and other collateral, including a personal guarantee, from the shareholder. Despite the collateral, the Company may be unable to realize the entire unearned portion of the funds advanced to this independent retailer, and accordingly, has established a reserve of $4.9 million related to the advance. During the fourth quarter of 2017, and in the context of a state law receivership proceeding, the customer rationalized its retail store base and entered into a new supply agreement with the Company, and assumed the obligation of the original agreement. Based on the expected cash flows generated from sales to this customer and consideration of the previously mentioned collateral, the Company believes it is adequately reserved as of December 30, 2017. However, if the customer’s future performance and related cash flows are negatively impacted by changes in economic, industry or market conditions, including changes in the business climate and competition, the Company may be unable to realize the remaining unearned portion of the advanced funds. Given the uncertainty regarding the previously mentioned factors that could impact the customer’s future performance, the Company cannot reasonably estimate the additional amount of advanced funds, if any, that should be reserved. The Company estimates that the possible range of loss related to this customer, in excess of the amount currently reserved, is between zero and $25.0 million, depending on the circumstances discussed above.
-70-
As of December 30, 2017, the Company has guaranteed the outstanding lease obligations of certain independent retailers and bank debt for one independent retailer in the amount of $0.4 million and $2.0 million, respectively. These guarantees,$1.5 million. This guarantee, which areis secured by certain business assets and personal guarantees of the respective retailers, representretailer, represents the maximum undiscounted payments the Company would be required to make in the event of default. The Company believes these retailersthis independent retailer will be able to perform under the lease agreementsloan agreement and that no payments will be required and no loss will be incurred under the guarantees. A liability representing theguarantee. The fair value of the obligationsobligation assumed under the guaranteesguarantee is included in the accompanying consolidated financial statements.not material. In the ordinary course of business, the Company also subleases and assigns various leases to third parties. As of January 2, 2016,December 30, 2017, the Company estimates the present value of its maximum potential obligations for subleases and assigned leases to be approximately $21.3$6.4 million and $17.5$13.8 million, respectively.
-73-
SPARTANNASH COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1516 – Supplemental Cash Flow Information
Supplemental cash flow information is as follows:
| January 2, 2016 |
|
| January 3, 2015 |
|
| December 28, 2013 |
| ||||||||||||||||||||
(In thousands) | (52 Weeks) |
|
| (53 Weeks) |
|
| (39 Weeks) |
| 2017 |
|
| 2016 |
|
| 2015 |
| ||||||||||||
Non-cash financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of restricted stock to associates and directors | $ |
| 8,361 |
|
| $ |
| 7,191 |
|
| $ |
| 4,106 |
| ||||||||||||||
Issuance of note payable on purchase of assets |
|
| 2,000 |
|
|
| — |
|
|
| — |
| ||||||||||||||||
Capital lease obligations |
|
| 3,236 |
|
|
| 2,423 |
|
|
| 1,493 |
| ||||||||||||||||
Issuance of note payable as consideration for acquisition | $ |
| 2,460 |
|
| $ |
| — |
|
| $ |
| 2,000 |
| ||||||||||||||
Recognition of investment in direct financing lease |
|
| 2,295 |
|
|
| — |
|
|
| — |
| ||||||||||||||||
Recognition of capital lease obligations |
|
| 588 |
|
|
| 3,536 |
|
|
| 3,236 |
| ||||||||||||||||
Derecognition of capital lease obligations |
|
| — |
|
|
| (6,068 | ) |
|
| — |
| ||||||||||||||||
Deferred gain on derecognition of capital lease obligations |
|
| — |
|
|
| 3,052 |
|
|
| — |
| ||||||||||||||||
Non-cash investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Capital expenditures included in accounts payable |
|
| 8,896 |
|
|
| 3,370 |
|
|
| 16,522 |
|
|
| 5,418 |
|
|
| 5,465 |
|
|
| 8,896 |
| ||||
Derecognition of fixed assets under direct financing lease |
|
| 2,295 |
|
|
| — |
|
|
| — |
| ||||||||||||||||
Capital lease asset additions |
|
| 588 |
|
|
| 3,536 |
|
|
| 3,236 |
| ||||||||||||||||
Capital lease asset disposals |
|
| — |
|
|
| (3,016 | ) |
|
| — |
| ||||||||||||||||
Acquisition financed through issuance of note payable |
|
| 2,460 |
|
|
| — |
|
|
| 2,000 |
| ||||||||||||||||
Receipt of notes receivable on sale of assets |
|
| 4,531 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4,531 |
| ||||
Capital lease asset additions |
|
| 3,236 |
|
|
| 2,423 |
|
|
| 1,493 |
| ||||||||||||||||
Issuance of common stock related to the Nash-Finch merger |
|
| — |
|
|
| — |
|
|
| 379,600 |
| ||||||||||||||||
Other supplemental cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cash paid for interest |
|
| 19,178 |
|
|
| 22,990 |
|
|
| 7,765 |
|
|
| 22,818 |
|
|
| 16,184 |
|
|
| 19,178 |
| ||||
Cash paid for income taxes |
|
| 23,531 |
|
|
|
| 27,429 |
|
|
|
| 13,951 |
|
|
| 10,657 |
|
|
|
| 35,836 |
|
|
|
| 23,531 |
|
Note 1617 – Reporting Segment Information
SpartanNash sells and distributes products that are typically found in supermarkets.supermarkets and discount stores. The operating segments reflect the manner in which the business is managed and how the Company allocates resources and assesses performance internally. The Company’s chief operating decision maker is the Chief Executive Officer.Officer, who determines the allocation of resources and, through a regular review of financial information, assesses the performance of the operating segments. The business is classified by management into three reportable segments: Military, Food Distribution, Military and Retail. These reportable segments are three distinct businesses, each with a different customer base, management structure, and management structure.basis for determining budgets, forecasts, and executive compensation. The Company reviews its reportable segments on an annual basis, or more frequently if events or circumstances indicate a change in reportable segments has occurred.
The Company’s Food Distribution segment, consisting of 1213 distribution centers as well as facilities to process fresh produce, proteins, and meal kits, supplies a diverse group of independent retail locations and corporate-owned retail stores withgrocery products, including dry groceries, produce, dairy products, meat, deli,delicatessen items, bakery goods, frozen food, seafood, floral products, general merchandise, pharmacy, andbeverages, tobacco products, health and beauty care items.products and pharmacy primarily to a diverse group of independent retailers, national retailers, food service distributors and the Company’s corporate owned retail stores. The Company also offers certain back office services (e.g., accounting, payroll, marketing, etc.) to its independent retail customers. These services are not material to the Company’s financial statements. Sales to independent retail customersretailers and inter-segment sales are recorded based upon both a “cost plus” model and a “variable mark-up” model, which vary by commodity and servicing distribution center. To supply its wholesale customers, the Company operates a fleet of tractors, conventional trailers and refrigerated trailers.trailers and also provides managed freight solutions.
-71-
The Military segment contracts with manufacturers and brokers to distribute a wide variety of grocery products, including dry groceries, beverages, meat, and frozen foods, primarily to U.S. military commissaries and exchanges from its 7 distribution centers.centers, two of which are shared with the Food Distribution segment. The contracts typically specify the commissaries and exchanges to supply on behalf of the manufacturer, the manufacturer’s products to be supplied, service and delivery requirements and pricing and payment terms.terms. The Company is also the DeCA exclusive worldwide supplier of private brand grocery and related products to U.S. military commissaries. The Company procures the grocery and related products from various manufacturers, and upon receiving customer orders from DeCA, either delivers the products to the U.S. military commissaries itself or partners with Coastal Pacific Food Distributors to deliver the products on its behalf.
The Retail segment operates 163 corporate-ownedoperated 145 corporate owned retail stores and 2931 fuel centers, predominantly in the Midwest and Great Lakes.region, as of December 30, 2017. The Company’s retail stores typically offer dry groceries, produce, dairy products, meat, delicatessen items, bakery goods, frozen food, seafood, floral products, general merchandise, beverages, tobacco products and health and beauty care products, delicatessen items and bakery goods. Pharmacy services areproducts. The Company also offered pharmacy services in 91 corporate-owned87 of its corporate owned retail stores.stores as of December 30, 2017.
Identifiable assets represent total assets directly associated with the reporting segments. Eliminations in assets identified to segments include intercompany receivables, payables and investments.
-74--72-
SPARTANNASH COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following tables set forth information about the Company by reporting segment:
|
|
|
|
|
| Food |
|
|
|
|
|
|
|
|
|
| Food |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
(In thousands) | Military |
|
| Distribution |
|
| Retail |
|
| Total |
| Distribution |
|
| Military |
|
| Retail |
|
| Total |
| ||||||||||||||||
Year Ended January 2, 2016 (52 Weeks): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Net sales to external customers | $ |
| 2,207,161 |
|
| $ |
| 3,305,094 |
|
| $ |
| 2,139,718 |
|
| $ |
| 7,651,973 |
| $ |
| 3,992,192 |
|
| $ |
| 2,144,022 |
|
| $ |
| 1,991,868 |
|
| $ |
| 8,128,082 |
|
Inter-segment sales |
|
| — |
|
|
| 973,512 |
|
|
|
| — |
|
|
| 973,512 |
|
|
| 885,872 |
|
|
|
| — |
|
|
| — |
|
|
| 885,872 |
| ||||
Merger integration and acquisition expenses |
|
| — |
|
|
| 2,037 |
|
|
|
| 6,396 |
|
|
| 8,433 |
| |||||||||||||||||||||
Merger/acquisition and integration |
|
| 6,244 |
|
|
|
| 1,522 |
|
|
| 335 |
|
|
| 8,101 |
| |||||||||||||||||||||
Goodwill impairment |
|
| — |
|
|
|
| — |
|
|
| 189,027 |
|
|
| 189,027 |
| |||||||||||||||||||||
Restructuring charges and asset impairment |
|
| 1,317 |
|
|
|
| 500 |
|
|
| 37,615 |
|
|
| 39,432 |
| |||||||||||||||||||||
Depreciation and amortization |
|
| 30,255 |
|
|
|
| 11,626 |
|
|
| 41,359 |
|
|
| 83,240 |
| |||||||||||||||||||||
Operating earnings (loss) |
|
| 83,296 |
|
|
|
| 7,014 |
|
|
| (196,626 | ) |
|
| (106,316 | ) | |||||||||||||||||||||
Capital expenditures |
|
| 25,990 |
|
|
|
| 6,482 |
|
|
| 38,434 |
|
|
| 70,906 |
| |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Net sales to external customers | $ |
| 3,454,541 |
|
| $ |
| 2,197,014 |
|
| $ |
| 2,083,045 |
|
| $ |
| 7,734,600 |
| |||||||||||||||||||
Inter-segment sales |
|
| 918,095 |
|
|
|
| — |
|
|
| — |
|
|
| 918,095 |
| |||||||||||||||||||||
Merger/acquisition and integration |
|
| 3,703 |
|
|
|
| 1 |
|
|
| 3,255 |
|
|
| 6,959 |
| |||||||||||||||||||||
Restructuring charges (gains) and asset impairment |
|
| 5,068 |
|
|
|
| (473 | ) |
|
| 27,521 |
|
|
| 32,116 |
| |||||||||||||||||||||
Depreciation and amortization |
|
| 12,081 |
|
|
| 26,127 |
|
|
|
| 45,126 |
|
|
| 83,334 |
|
|
| 21,397 |
|
|
|
| 11,484 |
|
|
| 44,365 |
|
|
| 77,246 |
| ||||
Operating earnings |
|
| 17,059 |
|
|
| 78,841 |
|
|
|
| 26,975 |
|
|
| 122,875 |
|
|
| 85,093 |
|
|
|
| 12,160 |
|
|
| 11,514 |
|
|
| 108,767 |
| ||||
Capital expenditures |
|
| 3,768 |
|
|
| 17,967 |
|
|
|
| 57,659 |
|
|
| 79,394 |
|
|
| 19,075 |
|
|
|
| 6,447 |
|
|
| 47,907 |
|
|
| 73,429 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended January 3, 2015 (53 weeks): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Net sales to external customers | $ |
| 2,275,512 |
|
| $ |
| 3,356,331 |
|
| $ |
| 2,284,219 |
|
| $ |
| 7,916,062 |
| $ |
| 3,305,094 |
|
| $ |
| 2,207,161 |
|
| $ |
| 2,139,718 |
|
| $ |
| 7,651,973 |
|
Inter-segment sales |
|
| — |
|
|
| 1,005,844 |
|
|
|
| — |
|
|
| 1,005,844 |
|
|
| 973,512 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 973,512 |
| ||
Merger integration and acquisition expenses |
|
| 27 |
|
|
| 12,644 |
|
|
|
| 4 |
|
|
| 12,675 |
| |||||||||||||||||||||
Depreciation and amortization |
|
| 11,350 |
|
|
| 29,816 |
|
|
|
| 45,828 |
|
|
| 86,994 |
| |||||||||||||||||||||
Operating earnings |
|
| 21,721 |
|
|
| 54,802 |
|
|
|
| 38,323 |
|
|
| 114,846 |
| |||||||||||||||||||||
Capital expenditures |
|
| 15,088 |
|
|
| 31,953 |
|
|
|
| 42,971 |
|
|
| 90,012 |
| |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Period Ended December 28, 2013 (39 Weeks): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Net sales to external customers | $ |
| 248,643 |
|
| $ |
| 1,095,759 |
|
| $ |
| 1,252,828 |
|
| $ |
| 2,597,230 |
| |||||||||||||||||||
Inter-segment sales |
|
| — |
|
|
|
| 533,470 |
|
|
|
| — |
|
|
|
| 533,470 |
| |||||||||||||||||||
Merger integration and acquisition expenses |
|
| — |
|
|
|
| 20,993 |
|
|
|
| — |
|
|
|
| 20,993 |
| |||||||||||||||||||
Merger/acquisition and integration |
|
| 2,037 |
|
|
|
| — |
|
|
|
| 6,396 |
|
|
|
| 8,433 |
| |||||||||||||||||||
Restructuring (gains) charges and asset impairment |
|
| (216 | ) |
|
|
| 1,048 |
|
|
|
| 7,970 |
|
|
|
| 8,802 |
| |||||||||||||||||||
Depreciation and amortization |
|
| 1,412 |
|
|
|
| 7,706 |
|
|
|
| 27,964 |
|
|
|
| 37,082 |
|
|
| 26,127 |
|
|
|
| 12,081 |
|
|
|
| 45,126 |
|
|
|
| 83,334 |
|
Operating earnings |
|
| 1,901 |
|
|
|
| (1,328 | ) |
|
|
| 16,220 |
|
|
|
| 16,793 |
|
|
| 78,841 |
|
|
|
| 17,059 |
|
|
|
| 26,975 |
|
|
|
| 122,875 |
|
Capital expenditures |
|
| 2,246 |
|
|
|
| 13,867 |
|
|
|
| 21,087 |
|
|
|
| 37,200 |
|
|
| 17,967 |
|
|
|
| 3,768 |
|
|
|
| 57,659 |
|
|
|
| 79,394 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 30, |
|
| December 31, |
| |||||||
(In thousands) |
|
|
|
|
| January 2, 2016 |
|
| January 3, 2015 |
|
| December 28, 2013 |
|
|
|
|
|
|
|
|
|
|
| 2017 |
|
| 2016 |
| ||||||||||
Total Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Food Distribution |
|
|
|
|
|
|
|
|
|
| $ |
| 1,085,621 |
|
| $ |
| 776,725 |
| |||||||||||||||||||
Military |
|
|
|
|
| $ |
| 416,220 |
|
| $ |
| 435,647 |
|
| $ |
| 451,518 |
|
|
|
|
|
|
|
|
|
|
|
|
| 432,818 |
|
|
|
| 395,737 |
|
Food Distribution |
|
|
|
|
|
| 754,329 |
|
|
| 763,914 |
|
|
|
| 805,468 |
| |||||||||||||||||||||
Retail |
|
|
|
|
|
| 750,412 |
|
|
| 727,979 |
|
|
|
| 721,898 |
|
|
|
|
|
|
|
|
|
|
|
|
| 533,912 |
|
|
|
| 754,625 |
| ||
Discontinued operations |
|
|
|
|
|
|
| 4,487 |
|
|
|
| 4,742 |
|
|
|
| 4,767 |
|
|
|
|
|
|
|
|
|
|
|
|
| 3,446 |
|
|
|
| 3,249 |
|
Total |
|
|
|
|
| $ |
| 1,925,448 |
|
| $ |
| 1,932,282 |
|
| $ |
| 1,983,651 |
|
|
|
|
|
|
|
|
|
|
| $ |
| 2,055,797 |
|
| $ |
| 1,930,336 |
|
The Company offers a wide variety of grocery products, general merchandise and health and beauty care, pharmacy, fuel, and other items and services. The following table presents sales by type of similar product and services:
| January 2, 2016 |
| January 3, 2015 |
| December 28, 2013 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
(In thousands, except percentages) | (52 Weeks) |
| (53 Weeks) |
| (39 Weeks) | 2017 |
| 2016 |
| 2015 | ||||||||||||||||||||||||||||||||||||||||||||||||
Non-perishables (1) | $ |
| 4,845,763 |
|
|
| 63.3 |
| % |
| $ |
| 4,998,895 |
|
|
| 63.1 |
| % |
| $ |
| 1,393,157 |
|
|
| 53.6 |
| % | |||||||||||||||||||||||||||||
Perishables (2) |
|
| 2,373,829 |
|
|
| 31.0 |
|
|
|
|
| 2,449,562 |
|
|
| 31.0 |
|
|
|
|
| 894,783 |
|
|
| 34.5 |
|
| |||||||||||||||||||||||||||||
Center store (a) | $ |
| 4,877,289 |
|
|
| 60.0 |
| % |
| $ |
| 4,908,142 |
|
|
| 63.5 |
| % |
| $ |
| 4,845,763 |
|
|
| 63.3 |
| % | |||||||||||||||||||||||||||||
Fresh (b) |
|
| 2,771,942 |
|
|
| 34.1 |
|
|
|
|
| 2,359,829 |
|
|
| 30.5 |
|
|
|
|
| 2,373,829 |
|
|
| 31.0 |
|
| |||||||||||||||||||||||||||||
Pharmacy |
|
| 310,377 |
|
|
| 4.1 |
|
|
|
|
| 289,494 |
|
|
| 3.7 |
|
|
|
|
| 163,659 |
|
|
| 6.3 |
|
|
|
| 352,177 |
|
|
| 4.3 |
|
|
|
|
| 356,010 |
|
|
| 4.6 |
|
|
|
|
| 310,377 |
|
|
| 4.1 |
|
|
Fuel |
|
| 122,004 |
|
|
| 1.6 |
|
|
|
|
| 178,111 |
|
|
| 2.2 |
|
|
|
|
| 145,631 |
|
|
| 5.6 |
|
|
|
| 126,674 |
|
|
| 1.6 |
|
|
|
|
| 110,619 |
|
|
| 1.4 |
|
|
|
|
| 122,004 |
|
|
| 1.6 |
|
|
Consolidated net sales | $ |
| 7,651,973 |
|
|
| 100.0 |
| % |
| $ |
| 7,916,062 |
|
|
| 100.0 |
| % |
| $ |
| 2,597,230 |
|
|
| 100.0 |
| % | $ |
| 8,128,082 |
|
|
| 100.0 |
| % |
| $ |
| 7,734,600 |
|
|
| 100.0 |
| % |
| $ |
| 7,651,973 |
|
|
| 100.0 |
| % |
| (a) | Consists primarily of general merchandise, grocery, beverages, snacks, tobacco products and frozen |
| (b) | Consists primarily of produce, meat, dairy, |
-75--73-
SPARTANNASH COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 17-18- Quarterly Financial Information (Unaudited)
Earnings per share amounts for each quarter are required to be computed independently and may not equal the amount computed for the total year.
| Year Ended January 2, 2016 |
| 2017 |
| ||||||||||||||||||||||||||||||||||||||||||||
| Full Year |
|
| 4th Quarter |
|
| 3rd Quarter |
|
| 2nd Quarter |
|
| 1st Quarter |
| Full Year |
|
| 4th Quarter |
|
| 3rd Quarter |
|
| 2nd Quarter |
|
| 1st Quarter |
| ||||||||||||||||||||
(In thousands, except per share amounts) | (52 Weeks) |
|
| (12 Weeks) |
|
| (12 Weeks) |
|
| (12 Weeks) |
|
| (16 Weeks) |
| (52 Weeks) |
|
| (12 Weeks) |
|
| (12 Weeks) |
|
| (12 Weeks) |
|
| (16 Weeks) |
| ||||||||||||||||||||
Net sales | $ |
| 7,651,973 |
|
| $ |
| 1,768,025 |
|
| $ |
| 1,775,401 |
|
| $ |
| 1,795,864 |
|
| $ |
| 2,312,683 |
| $ |
| 8,128,082 |
|
| $ |
| 1,924,225 |
|
| $ |
| 1,906,644 |
|
| $ |
| 1,894,709 |
|
| $ |
| 2,402,504 |
|
Gross profit |
|
| 1,115,682 |
|
|
|
| 258,345 |
|
|
|
| 259,049 |
|
|
|
| 262,042 |
|
|
|
| 336,246 |
|
|
| 1,144,909 |
|
|
|
| 254,815 |
|
|
|
| 261,692 |
|
|
|
| 271,026 |
|
|
|
| 357,376 |
|
Merger integration and acquisition |
|
| 8,433 |
|
|
|
| 1,181 |
|
|
|
| 4,417 |
|
|
|
| 151 |
|
|
|
| 2,684 |
| ||||||||||||||||||||||||
Merger/acquisition and integration |
|
| 8,101 |
|
|
|
| 1,070 |
|
|
|
| 2,392 |
|
|
|
| 622 |
|
|
|
| 4,017 |
| ||||||||||||||||||||||||
Goodwill impairment |
|
| 189,027 |
|
|
|
| — |
|
|
|
| 189,027 |
|
|
|
| — |
|
|
|
| — |
| ||||||||||||||||||||||||
Restructuring charges (gains) and asset impairment |
|
| 8,802 |
|
|
|
| 1,040 |
|
|
|
| 760 |
|
|
|
| (336 | ) |
|
|
| 7,338 |
|
|
| 39,432 |
|
|
|
| 2,799 |
|
|
|
| 35,626 |
|
|
|
| (14 | ) |
|
|
| 1,021 |
|
(Loss) earnings before income taxes and discontinued operations |
|
| (131,644 | ) |
|
|
| 12,492 |
|
|
|
| (199,897 | ) |
|
|
| 33,327 |
|
|
|
| 22,434 |
| ||||||||||||||||||||||||
(Loss) earnings from continuing operations |
|
| (52,617 | ) |
|
|
| 34,710 |
|
|
|
| (123,452 | ) |
|
|
| 21,060 |
|
|
|
| 15,065 |
| ||||||||||||||||||||||||
Loss from discontinued operations, net of taxes |
|
| (228 | ) |
|
| (103 | ) |
|
| (54 | ) |
|
| (31 | ) |
|
| (40 | ) | ||||||||||||||||||||||||||||
Net (loss) earnings | $ |
| (52,845 | ) |
| $ |
| 34,607 |
|
| $ |
| (123,506 | ) |
| $ |
| 21,029 |
|
| $ |
| 15,025 |
| ||||||||||||||||||||||||
(Loss) earnings from continuing operations per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||
Basic | $ |
| (1.41 | ) |
| $ |
| 0.94 |
|
| $ |
| (3.31 | ) |
| $ |
| 0.56 |
|
| $ |
| 0.40 |
| ||||||||||||||||||||||||
Diluted |
|
| (1.41 | ) |
|
|
| 0.94 |
|
|
|
| (3.31 | ) |
|
|
| 0.56 |
|
|
|
| 0.40 |
| ||||||||||||||||||||||||
Net (loss) earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||
Basic | $ |
| (1.41 | ) |
| $ |
| 0.94 |
|
| $ |
| (3.32 | ) |
| $ |
| 0.56 |
|
| $ |
| 0.40 |
| ||||||||||||||||||||||||
Diluted |
|
| (1.41 | ) |
|
| 0.94 |
|
|
| (3.32 | ) |
|
| 0.56 |
|
|
| 0.40 |
| ||||||||||||||||||||||||||||
Dividends | $ |
| 24,704 |
|
| $ |
| 6,055 |
|
| $ |
| 6,149 |
|
| $ |
| 6,245 |
|
| $ |
| 6,255 |
| ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||
| 2016 |
| ||||||||||||||||||||||||||||||||||||||||||||||
| Full Year |
|
| 4th Quarter |
|
| 3rd Quarter |
|
| 2nd Quarter |
|
| 1st Quarter |
| ||||||||||||||||||||||||||||||||||
(In thousands, except per share amounts) | (52 Weeks) |
|
| (12 Weeks) |
|
| (12 Weeks) |
|
| (12 Weeks) |
|
| (16 Weeks) |
| ||||||||||||||||||||||||||||||||||
Net sales | $ |
| 7,734,600 |
|
| $ |
| 1,828,183 |
|
| $ |
| 1,800,085 |
|
| $ |
| 1,827,562 |
|
| $ |
| 2,278,770 |
| ||||||||||||||||||||||||
Gross profit |
|
| 1,111,494 |
|
|
|
| 259,258 |
|
|
|
| 255,295 |
|
|
|
| 262,699 |
|
|
|
| 334,242 |
| ||||||||||||||||||||||||
Merger/acquisition and integration |
|
| 6,959 |
|
|
|
| 2,722 |
|
|
|
| 2,427 |
|
|
|
| 913 |
|
|
|
| 897 |
| ||||||||||||||||||||||||
Restructuring charges and asset impairment |
|
| 32,116 |
|
|
|
| 8,402 |
|
|
|
| 2,662 |
|
|
|
| 5,748 |
|
|
|
| 15,304 |
| ||||||||||||||||||||||||
Earnings before income taxes and discontinued operations |
|
| 100,259 |
|
|
|
| 26,813 |
|
|
|
| 24,389 |
|
|
|
| 31,926 |
|
|
|
| 17,131 |
|
|
| 89,963 |
|
|
|
| 20,079 |
|
|
|
| 25,594 |
|
|
|
| 28,303 |
|
|
|
| 15,987 |
|
Earnings from continuing operations |
|
| 63,166 |
|
|
|
| 17,164 |
|
|
|
| 15,248 |
|
|
|
| 20,307 |
|
|
|
| 10,447 |
|
|
| 57,056 |
|
|
|
| 12,806 |
|
|
|
| 16,730 |
|
|
|
| 17,560 |
|
|
|
| 9,960 |
|
(Loss) earnings from discontinued operations, net of taxes |
|
| (456 | ) |
|
|
| (435 | ) |
|
|
| 145 |
|
|
|
| (46 | ) |
|
|
| (120 | ) |
|
| (228 | ) |
|
|
| 39 |
|
|
|
| (82 | ) |
|
|
| (76 | ) |
|
|
| (109 | ) |
Net earnings | $ |
| 62,710 |
|
| $ |
| 16,729 |
|
| $ |
| 15,393 |
|
| $ |
| 20,261 |
|
| $ |
| 10,327 |
| $ |
| 56,828 |
|
| $ |
| 12,845 |
|
| $ |
| 16,648 |
|
| $ |
| 17,484 |
|
| $ |
| 9,851 |
|
Earnings from continuing operations per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic | $ |
| 1.68 |
|
| $ |
| 0.46 |
|
| $ |
| 0.41 |
|
| $ |
| 0.54 |
|
| $ |
| 0.28 |
| $ |
| 1.52 |
|
| $ |
| 0.34 |
|
| $ |
| 0.45 |
|
| $ |
| 0.47 |
|
| $ |
| 0.27 |
|
Diluted |
|
| 1.67 |
|
|
|
| 0.46 |
|
|
|
| 0.40 |
|
|
|
| 0.54 |
|
|
|
| 0.28 |
|
|
| 1.52 |
|
|
|
| 0.34 |
|
|
|
| 0.45 |
|
|
|
| 0.47 |
|
|
|
| 0.27 |
|
Net earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic | $ |
| 1.67 |
|
| $ |
| 0.44 |
|
| $ |
| 0.41 |
|
| $ |
| 0.54 |
|
| $ |
| 0.27 |
| $ |
| 1.52 |
|
| $ |
| 0.34 |
|
| $ |
| 0.44 |
|
| $ |
| 0.47 |
|
| $ |
| 0.26 |
|
Diluted |
|
| 1.66 |
|
|
|
| 0.44 |
|
|
|
| 0.41 |
|
|
|
| 0.54 |
|
|
|
| 0.27 |
|
|
| 1.51 |
|
|
|
| 0.34 |
|
|
|
| 0.44 |
|
|
|
| 0.47 |
|
|
|
| 0.26 |
|
Dividends | $ |
| 20,299 |
|
| $ |
| 5,076 |
|
| $ |
| 5,072 |
|
| $ |
| 5,059 |
|
| $ |
| 5,092 |
| $ |
| 22,496 |
|
| $ |
| 5,623 |
|
| $ |
| 5,620 |
|
| $ |
| 5,621 |
|
| $ |
| 5,632 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
| Year Ended January 3, 2015 |
| ||||||||||||||||||||||||||||||||||||||||||||||
| Full Year |
|
| 4th Quarter |
|
| 3rd Quarter |
|
| 2nd Quarter |
|
| 1st Quarter |
| ||||||||||||||||||||||||||||||||||
(In thousands, except per share amounts) | (53 Weeks) |
|
| (13 Weeks) |
|
| (12 Weeks) |
|
| (12 Weeks) |
|
| (16 Weeks) |
| ||||||||||||||||||||||||||||||||||
Net sales | $ |
| 7,916,062 |
|
| $ |
| 1,962,589 |
|
| $ |
| 1,809,571 |
|
| $ |
| 1,810,175 |
|
| $ |
| 2,333,727 |
| ||||||||||||||||||||||||
Gross profit |
|
| 1,156,074 |
|
|
|
| 282,213 |
|
|
|
| 261,409 |
|
|
|
| 265,114 |
|
|
|
| 347,338 |
| ||||||||||||||||||||||||
Merger integration and acquisition |
|
| 12,675 |
|
|
|
| 4,547 |
|
|
|
| 1,379 |
|
|
|
| 2,581 |
|
|
|
| 4,168 |
| ||||||||||||||||||||||||
Restructuring charges (gains) and asset impairment |
|
| 6,166 |
|
|
|
| 6,233 |
|
|
|
| (1,272 | ) |
|
|
| 1,078 |
|
|
|
| 127 |
| ||||||||||||||||||||||||
Earnings before income taxes and discontinued operations |
|
| 90,449 |
|
|
|
| 15,030 |
|
|
|
| 28,146 |
|
|
|
| 27,174 |
|
|
|
| 20,099 |
| ||||||||||||||||||||||||
Earnings from continuing operations |
|
| 59,120 |
|
|
|
| 12,037 |
|
|
|
| 17,169 |
|
|
|
| 17,395 |
|
|
|
| 12,519 |
| ||||||||||||||||||||||||
Loss from discontinued operations, net of taxes |
|
| (524 | ) |
|
|
| (166 | ) |
|
|
| (73 | ) |
|
|
| (76 | ) |
|
|
| (209 | ) | ||||||||||||||||||||||||
Net earnings | $ |
| 58,596 |
|
| $ |
| 11,871 |
|
| $ |
| 17,096 |
|
| $ |
| 17,319 |
|
| $ |
| 12,310 |
| ||||||||||||||||||||||||
Earnings from continuing operations per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Basic | $ |
| 1.57 |
|
| $ |
| 0.32 |
|
| $ |
| 0.46 |
|
| $ |
| 0.46 |
|
| $ |
| 0.33 |
| ||||||||||||||||||||||||
Diluted |
|
| 1.57 |
|
|
|
| 0.32 |
|
|
|
| 0.45 |
|
|
|
| 0.46 |
|
|
|
| 0.33 |
| ||||||||||||||||||||||||
Net earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Basic | $ |
| 1.56 |
|
| $ |
| 0.32 |
|
| $ |
| 0.45 |
|
| $ |
| 0.46 |
|
| $ |
| 0.33 |
| ||||||||||||||||||||||||
Diluted |
|
| 1.55 |
|
|
|
| 0.32 |
|
|
|
| 0.45 |
|
|
|
| 0.46 |
|
|
|
| 0.33 |
| ||||||||||||||||||||||||
Dividends | $ |
| 18,090 |
|
| $ |
| 4,502 |
|
| $ |
| 4,529 |
|
| $ |
| 4,526 |
|
| $ |
| 4,533 |
|
-76--74-
SPARTANNASH COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Item 9.Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Not applicable.
Item 9A.Controls and Procedures
Disclosure Controls and Procedures
An evaluation of the effectiveness of the design and operation of SpartanNash Company’s disclosure controls and procedures (as currently defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) was performed as of January 2, 2016December 30, 2017 (the “Evaluation Date”). This evaluation was performed under the supervision and with the participation of SpartanNash Company’s management, including its Chief Executive Officer (“CEO”) and, Chief Financial Officer (“CFO”) and Chief Accounting Officer (“CAO”). As of the Evaluation Date, SpartanNash Company’s management, including the CEO, CFO and CFO,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.
Management’s Report on Internal Control Over Financial Reporting
The management of SpartanNash Company, including its Chief Executive Officer, Chief Financial Officer and Chief FinancialAccounting Officer, is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. SpartanNash Company’s internal controls were designed by, or under the supervision of, the Chief Executive Officer, Chief Financial Officer and Chief FinancialAccounting Officer, and effected by the Company’s Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of its financial reporting and the preparation and presentation of the consolidated financial statements for external purposes in accordance with accounting principles generally accepted in the United States and includes those policies and procedures that (1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of SpartanNash Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of SpartanNash Company are being made only in accordance with authorizations of management and directors of SpartanNash Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of SpartanNash Company’s assets that could have a material effect on the financial statements.
Management of SpartanNash Company conducted an evaluation of the effectiveness of its internal controls over financial reporting based on the framework in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. This evaluation included review of the documentation of controls, evaluation of the design effectiveness of controls, testing of the operating effectiveness of controls and a conclusion on this evaluation. Through this evaluation, management did not identify any material weakness in the Company’s internal control. There are inherent limitations in the effectiveness of any system of internal control over financial reporting. Based on the evaluation, management has concluded that SpartanNash Company’s internal control over financial reporting was effective as of January 2, 2016.December 30, 2017.
Under guidelines established by the SEC, companies are allowed to exclude an acquired business from management's report on internal control over financial reporting for the first year subsequent to the acquisition while integrating the acquired operations. Accordingly, management has excluded the Caito Foods Service and Blue Ribbon Transport acquisition from its annual report on internal control over financial reporting as of December 30, 2017. Caito Foods Service and Blue Ribbon Transport represented 12%, 5%, and 22% of SpartanNash Company’s consolidated total assets, consolidated net sales, and consolidated net loss, respectively, as of and for the year ended December 30, 2017.
The independent registered public accounting firm that audited the consolidated financial statements included in this Form 10-K Annual Report has issued an attestation report on the effectiveness of the Company’s internal control over financial reporting as of January 2, 2016December 30, 2017 as stated in their report on the following page.
-77--75-
SPARTANNASH COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
SpartanNash Company and Subsidiaries
Grand Rapids, Michigan
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of SpartanNash Company and subsidiaries (the “Company”) as of January 2, 2016,December 30, 2017, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 30, 2017, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the fiscal year ended December 30, 2017, of the Company and our report dated February 26, 2018, expressed an unqualified opinion on those consolidated financial statements.
As described in Management’s Report on Internal Controls over Financial Reporting, management excluded from its assessment the internal control over financial reporting at Caito Foods Service and Blue Ribbon Transport, which was acquired on January 6, 2017 and whose financial statements constitute 12% of total assets, 5% of revenues, and 22% of net loss of the consolidated financial statement amounts as of and for the year ended December 30, 2017. Accordingly, our audit did not include the internal control over financial reporting at Caito Foods Service and Blue Ribbon Transport.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Controls Overover Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of theits inherent limitations, of internal control over financial reporting including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be preventedprevent or detected on a timely basis.detect misstatements. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of January 2, 2016, based on the criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended January 2, 2016 of the Company and our report dated March 2, 2016 expressed an unqualified opinion on those consolidated financial statements.
/s/ DELOITTE & TOUCHE LLP
Grand Rapids, Michigan
March 2, 2016February 26, 2018
-76-
-78-
SPARTANNASH COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Changes in Internal Controls Over Financial Reporting
During the last fiscal quarter, there was no change in SpartanNash’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, SpartanNash’s internal control over financial reporting.
Item 9B.Other Information
Effective March 2, 2016, the Company entered into Indemnification Agreements with its directors and executive officers. The Indemnification Agreements clarify and supplement indemnification provisions already contained in the Michigan Business Corporation Act and the Company’s Articles of Incorporation and Bylaws. The Indemnification Agreements generally provide that the Company shall indemnify its directors and officers to the fullest extent permitted by Michigan law, subject to certain exceptions, against expenses, judgments, fines, settlements, and other amounts actually and reasonably incurred in connection with their service as to the Company. The Indemnification Agreements also provide for rights to advancement of expenses and contribution. The form of Indemnification Agreement is attached to this Annual Report on Form 10-K as Exhibit 10.21 and is incorporated herein by reference. The foregoing brief description is not intended to be complete and is qualified by reference to the form of Indemnification Agreement.
The Company did not enter into the Indemnification Agreements in response to, or anticipation of, any claim or proceeding that is pending or, to the knowledge of the Company, threatened.
-79--77-
SPARTANNASH COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Item 10.Directors, ExecutiveExecutive Officers and Corporate Governance
The information required by this item is here incorporated by reference from the sections titled “The Board of Directors,” “SpartanNash’s Executive Officers,” “Section 16(a) Beneficial Ownership Reporting Compliance,” “Corporate Governance Principles,” and “Transactions with Related Persons” in SpartanNash’s definitive proxy statement relating to its annual meeting of shareholders to be held in 2016.2018.
Item 11.Executive Compensation
The information required by this item is here incorporated by reference from the sections entitled “Executive Compensation,” “Potential Payments Upon Termination or Change in Control,” “Compensation of Directors,” “Compensation Committee Interlocks and Insider Participation” and “Compensation Committee Report” in SpartanNash’s definitive proxy statement relating to its annual meeting of shareholders to be held in 2016.2018.
Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this item is here incorporated by reference from the section titled “Ownership of SpartanNash Stock” in SpartanNash’s definitive proxy statement relating to its annual meeting of shareholders to be held in 2016.2018.
The following table provides information about SpartanNash’s equity compensation plans regarding the number of securities to be issued under these plans, the weighted-average exercise prices of options outstanding under these plans and the number of securities available for future issuance as of the end of fiscal 2015.2017.
EQUITY COMPENSATION PLANS
|
|
|
|
|
|
|
|
| Number of securities remaining |
| |
| Number of securities to |
|
|
|
|
|
| available for future issuance |
| ||
| be issued upon exercise |
|
| Weighted-average exercise |
|
| under equity compensation |
| |||
| of outstanding options, |
|
| price of outstanding options, |
|
| plans (excluding securities |
| |||
| warrants and rights |
|
| warrants and rights |
|
| reflected in column (1) |
| |||
Plan Category | (1) |
|
| (2) |
|
| (3) |
| |||
Equity compensation Plans approved by security holders (a) |
| 47,928 |
|
|
| 16.52 |
|
|
| 1,947,030 |
|
Equity compensation plans not approved by security holders |
| — |
|
| Not applicable |
|
|
| — |
| |
Total |
| 47,928 |
|
|
| 16.52 |
|
|
| 1,947,030 |
|
|
|
|
|
|
|
|
|
| Number of securities remaining |
| |
| Number of securities to |
|
|
|
|
|
| available for future issuance |
| ||
| be issued upon exercise |
|
| Weighted-average exercise |
|
| under equity compensation |
| |||
| of outstanding options, |
|
| price of outstanding options, |
|
| plans (excluding securities |
| |||
| warrants and rights |
|
| warrants and rights |
|
| reflected in column (a) |
| |||
Plan Category | (a) |
|
| (b) |
|
| (c) |
| |||
Equity compensation Plans approved by security holders (1) |
| 308,793 |
|
|
| 21.15 |
|
|
| 2,544,953 |
|
Equity compensation plans not approved by security holders |
| — |
|
| Not applicable |
|
|
| — |
| |
Total |
| 308,793 |
|
|
| 21.15 |
|
|
| 2,544,953 |
|
| (a) | Consists of |
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this item is here incorporated by reference from the section titled “Transactions with Related Persons” and the table captioned “Board of Directors Committee Membership” in SpartanNash’s definitive proxy statement relating to its annual meeting of shareholders to be held in 2016.2018.
Item 14.Principal Accountant Fees and Services
The information required by this item is here incorporated by reference from the section titled “Independent Auditors” in SpartanNash’s definitive proxy statement relating to its annual meeting of shareholders to be held in 2016.2018.
-80--78-
SPARTANNASH COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Item 15.Exhibits and Financial Statement Schedules
| (a) | The following documents are filed as part of this Report: |
| 1. | Financial Statements. |
A. In Item 8.
Reports of Independent Registered Public Accounting Firm of Deloitte & Touche LLP dated March 2, 2016February 26, 2018
Consolidated Balance Sheets at January 2,December 30, 2017 and December 31, 2016 and January 3, 2015
Consolidated Statements of EarningsOperations for the years ended January 2,December 30, 2017, December 31, 2016 and January 3, 2015 and for the 39-week period ended December 28, 20132, 2016
Consolidated Statements of Comprehensive (Loss) Income for the years ended January 2,December 30, 2017, December 31, 2016 and January 3, 2015 and for the 39-week period ended December 28, 20132, 2016
Consolidated Statements of Shareholders’ Equity for the years ended January 2,December 30, 2017, December 31, 2016 and January 3, 2015 and for the 39-week period ended December 28, 20132, 2016
Consolidated Statements of Cash Flows for the years ended January 2,December 30, 2017, December 31, 2016 and January 3, 2015 and for the 39-week period ended December 28, 20132, 2016
Notes to Consolidated Financial Statements
| 2. | Financial Statement Schedules. |
Schedules are omitted because the required information is either inapplicable or presented in the consolidated financial statements or related notes.
| 3. | Exhibits. |
The information required by this Section (a)(3) of Item 15 is set forth on the exhibit index that follows the Signatures page of this Form 10-K and is incorporated herein by reference.
-81--79-
SPARTANNASH COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, SpartanNash Company (the Registrant) has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| ||||||
|
|
| ||||
|
-82-
SPARTANNASH COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of SpartanNash Company and in the capacities and on the dates indicated.
|
|
| ||||
| ||||||
|
|
| ||||
| ||||||
|
|
| ||||
| ||||||
|
|
| ||||
| ||||||
|
|
| ||||
| ||||||
|
|
| ||||
| ||||||
|
|
| ||||
| ||||||
|
|
| ||||
| ||||||
|
|
| ||||
| ||||||
|
|
| ||||
| ||||||
|
|
| ||||
| ||||||
|
|
| ||||
| ||||||
|
|
| ||||
|
-83-
SPARTANNASH COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Exhibit |
| Document | |
|
| ||
2.1 |
| ||
2.2 | |||
2.3 | |||
|
| ||
3.1 |
| Restated Articles of Incorporation of SpartanNash Company, as | |
|
| ||
3.2 |
| Bylaws of SpartanNash Company, as | |
|
| ||
|
| ||
|
| ||
10.1 |
| ||
|
| ||
|
|
| |
|
| ||
|
| ||
|
| ||
|
| ||
|
| ||
|
| ||
|
| ||
|
| ||
|
| ||
|
| ||
|
| ||
-84-
SPARTANNASH COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
| ||
| |||
|
| ||
|
| ||
|
| ||
|
| ||
|
| ||
|
| ||
|
| ||
| Amendment No. 1 to Amended and Restated Loan and Security Agreement, dated January 9, 2015, among SpartanNash Company and certain of its subsidiaries, as borrowers, and Wells Fargo Capital Finance, LLC, as administrative agent, and certain lenders from time to time party | ||
10.3 | Amendment No. 2 to Amended and Restated Loan and Security Agreement, dated December 20, 2016, among SpartanNash Company and certain of its subsidiaries, as borrowers, and Wells Fargo Capital Finance, LLC, as administrative agent, and certain lenders from time to time party thereto. Previously filed as an exhibit to the Company's Current Report on Form 8-K filed on December 21, 2016. Incorporated herein by reference. | ||
10.4 | |||
10.5* | Amended and Restated SpartanNash Company Executive Cash Incentive Plan of 2015. Previously filed as an exhibit to the Company’s Current Report on Form 8-K filed on June 3, 2015. Incorporated herein by reference. | ||
10.6* | Summary of 2017 Long-Term Cash Incentive Award. Previously filed as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended April 22, 2017. Incorporated herein by reference. | ||
10.7* | |||
10.8* | Form of 2016 Long-Term Executive Incentive Plan Award. Previously filed as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended April 23, 2016. Incorporated herein by reference. | ||
10.9* | Form of 2015 Long-Term Executive Incentive Plan Award. Previously filed as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended April 25, 2015. Incorporated herein by reference. | ||
10.10* | SpartanNash Company Stock Incentive Plan of 2015. Previously filed as an exhibit to the Company’s Form S-8 filed on June 4, 2015. Incorporated herein by reference. | ||
10.11* | SpartanNash Company Supplemental Executive Retirement Plan, as amended. Previously filed as an exhibit to the Company’s Annual Report on Form 10-K for the year ended March 27, 2010. Incorporated herein by reference. | ||
10.12* | SpartanNash Company Supplemental Executive Savings Plan. Previously filed as an exhibit to the Company’s Form S-8 Registration Statement filed on December 21, 2001. Incorporated herein by reference. | ||
-80-
Exhibit | Document | ||
10.13* | SpartanNash Company 2001 Stock Bonus Plan. Previously filed as an exhibit to the Company’s Transition Report on Form 10-K for the period ended December 28, 2013. Incorporated herein by reference. | ||
10.14* | |||
10.15* | Form of Restricted Stock Award to Non-Employee Directors. Previously filed as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ending April 22, 2017. Incorporated herein by reference. | ||
10.16* | |||
10.17* | Form of Executive Employment Agreement between SpartanNash Company and certain executive officers. | ||
10.18* | |||
10.19* | Form of Executive Severance Agreement between SpartanNash Company and certain executive officers. | ||
10.20* | Form of Indemnification Agreement. Previously filed as an exhibit to the Company’s Annual Report on Form 10-K for the period ended January 2, 2016. Incorporated herein by reference. | ||
10.21* | Description of Compensation Arrangements of Interim Chief Financial Officer. Previously filed as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ending July 15,. Incorporated herein by reference. | ||
|
| ||
21 |
| ||
|
| ||
23 |
| Consent of Independent Registered Public Accounting | |
|
| ||
24 |
| ||
|
| ||
31.1 |
| ||
|
| ||
31.2 |
| ||
31.3 | Certification of Chief Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||
|
| ||
32.1 |
| ||
|
| ||
101.INS |
| XBRL Instance Document | |
|
| ||
101.SCH |
| XBRL Taxonomy Extension Schema Document | |
|
| ||
101.CAL |
| XBRL Taxonomy Extension Calculation Linkbase Document | |
|
| ||
101.DEF |
| XBRL Taxonomy Extension Definition Linkbase Document | |
|
| ||
101.LAB |
| XBRL Taxonomy Extension Label Linkbase Document | |
|
| ||
101.PRE |
|
|
* | These documents are management contracts or compensation plans or arrangements required to be filed as exhibits to this Form 10-K. |
-85--81-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, SpartanNash Company (the Registrant) has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SPARTANNASH COMPANY (Registrant) | ||||||
Date: February 26, 2018 | By | /s/ David M. Staples | ||||
David M. Staples Chief Executive Officer (Principal Executive Officer) |
-82-
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of SpartanNash Company and in the capacities and on the dates indicated.
February 26, 2018 | By | * | ||||
M. Shân Atkins Director | ||||||
February 26, 2018 | By | * | ||||
Dennis Eidson Chairman and Director | ||||||
February 26, 2018 | By | * | ||||
Mickey P. Foret Director | ||||||
February 26, 2018 | By | * | ||||
Dr. Frank M. Gambino Director | ||||||
February 26, 2018 | By | * | ||||
Douglas A. Hacker Director | ||||||
February 26, 2018 | By | * | ||||
Yvonne R. Jackson Director | ||||||
February 26, 2018 | By | * | ||||
Elizabeth A. Nickels Director | ||||||
February 26, 2018 | By | * | ||||
Timothy J. O’Donovan Director | ||||||
February 26, 2018 | By | * | ||||
Hawthorne Proctor Director | ||||||
February 26, 2018 | By | /s/ David M. Staples | ||||
David M. Staples Chief Executive Officer and Director | ||||||
(Principal Executive Officer) | ||||||
February 26, 2018 | By | * | ||||
William R. Voss Director | ||||||
February 26, 2018 | By | /s/ Mark E. Shamber | ||||
Mark E. Shamber Executive Vice President and Chief Financial Officer (Principal Financial Officer) | ||||||
February 26, 2018 | By | /s/ Tammy R. Hurley | ||||
Tammy R. Hurley Vice President, Finance and Chief Accounting Officer (Principal Accounting Officer) | ||||||
February 26, 2018 | *By | /s/ David M. Staples | ||||
David M. Staples Attorney-in-Fact |
-83-