UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
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☒ Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 30, 2017.2023.
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☐ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from to .
Commission File Number: 000-31127
SPARTANNASH COMPANY
(Exact Name of Registrant as Specified in Its Charter)
Michigan | 38-0593940 | |
(State or Other Jurisdiction) of Incorporation or Organization) | (I.R.S. Employer Identification No.) | |
850 76th Street, S.W. P.O. Box 8700 Grand Rapids, Michigan | 49518-8700 | |
(Address of Principal Executive Offices) | (Zip Code) |
Registrant’s telephone number, including area code: (616) (616) 878-2000
Securities registered pursuant to Section 12(b) of the Securities Exchange Act:
Title of | Trading Symbol(s) | Name of | ||
Common Stock, no par value | SPTN | 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 ☐
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☒
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes☒ No ☐
Indicate by a check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File requirementrequired to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405232.405 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☒ 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. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company, (as defined” and “emerging growth company” in Rule 12b-2 of the Securities Exchange Act).Act.
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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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
Yes ☒ No ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
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 NASDAQNasdaq Global Select Market on July 14, 20172023 (which was the last trading day of the registrant’s second quarter in the fiscal year ended December 30, 2017)2023) was $955,521,432.$722,477,443.
The number of shares outstanding of the registrant’s Common Stock, no par value, as of February 23, 201826, 2024 was 36,048,591,34,618,147, all of one class.
DOCUMENTS INCORPORATED BY REFERENCE
Part III, Items 10, 11, 12, 13 and 14 | Definitive Proxy Statement for the 2024 Annual Meeting |
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Forward-Looking Statements
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” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended ("Exchange Act"), about the plans, strategies, objectives, goals or expectations of SpartanNash Company and its subsidiaries (“SpartanNash” or the “Company”). These forward-looking statements aremay be identifiable by words or phrases indicating that SpartanNashthe Company or management “expects,” “projects,” “anticipates,” “plans,” “believes,” “intends,” or “estimates,” or that a particular occurrence or event “will,” “may,” “could,” “should,” “will” or “will likely” result, occur or be pursued or “continue” in the future, that the “outlook”, “trend”, "guidance" or “trend”"target" 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”Policies and Estimates” 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. Undue reliance should not be 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 Forward-looking statements are necessarily based on estimates and assumptions that are inherently subject to other riskssignificant business, economic and competitive uncertainties described in connectionand contingencies, many of which, with the forward-looking statements contained in this Annual Report on Form 10-Krespect to future business decisions, are subject to change. These uncertainties and other periodic reports filed with the Securitiescontingencies may affect actual results and Exchange Commission (“SEC”), there are many important factors that could cause actual results to differ materially. These risks and uncertainties include general business conditions, changes in overall economic conditions that impact consumer spending, the Company’s ability to integrate acquired assets, the impact of competition and other factors which are often beyond the control of the Company, and other risks listed in Part I, “Item 1A. Risk Factors,” of this report and risks and uncertainties not presently known to the Company or that the Company currently deems immaterial.
This section and the discussions contained in Item 1A.1A “Risk Factors,” and in Item 7, subheading “Critical Accounting Policies” inFactors” of this report, both of which are incorporated here by reference,Annual Report on Form 10-K, are intended to provide meaningful cautionary statements for purposes of the safe harbor provisionsprovision 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. In addition, historical information should not be considered as an indicator of future performance.
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TABLE OF CONTENTS
Page | ||
PART I. | ||
Item 1. | 4 | |
Item 1A. | 9 | |
Item 1B. | 15 | |
Item 1C. | 15 | |
Item 2. | 16 | |
Item 3. | 17 | |
Item 4. | 17 | |
PART II. | ||
Item 5. | 18 | |
Item 6. | 19 | |
Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 20 |
Item 7A. | 31 | |
Item 8. | 32 | |
Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure | 63 |
Item 9A. | 63 | |
Item 9B. | 65 | |
Item 9C. | Disclosure Regarding Foreign Jurisdictions that Prevent Inspections | 65 |
PART III. | ||
Item 10. | 65 | |
Item 11. | 65 | |
Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 65 |
Item 13. | Certain Relationships and Related Transactions, and Director Independence | 66 |
Item 14. | 66 | |
PART IV. | ||
Item 15. | 66 | |
Item 16. | 68 | |
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PART I
Item 1. Business
Overview
SpartanNash Company (together with its subsidiaries, “SpartanNash” or the “Company”) is a Fortune 350food solutions company whosethat delivers the ingredients for a better life. Its core businesses include distributing grocery products to a diverse group of independent groceryand chain retailers, (“independent retailers”), national retailers, food service distributors, its corporate ownedcorporate-owned retail stores, and United States (“U.S.”) military commissaries and exchanges. exchanges; as well as operating a premier fresh produce distribution network and the Our Family® private label brand. SpartanNash serves customer locations in 47all 50 states and the District of Columbia, Europe, Cuba, Puerto Rico, Italy,Honduras, Iraq, Kuwait, Bahrain, Qatar, Djibouti, Korea and Egypt. ThroughJapan. The Company owns and operates 144 supermarkets and shares its Military segment, SpartanNash is a leading distributoroperational insights to drive solutions for its food retail independent customers. While the Company supports overseas commissaries and exchanges, all of grocery products to military commissariesthe Company’s sales and assets are 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. States of America.
The Company operates threetwo reportable business segments: Food Distribution, MilitaryWholesale and Retail. These reportable segments are two distinct businesses, each with a different customer base, management structure, and basis for determining budgets, forecasts, and compensation. Where applicable, segment financial information for the comparative prior year periods within this annual report has been recast to reflect our current reportable segment structure.
The Company’s fiscal year end is the Saturday closest to December 31. The following discussion isIn this report we discuss information as of and for the fiscal years ending or ended December 29, 201828, 2024 ("2018"2024"), December 30, 20172023 (“2017”2023” or “current year”), December 31, 20162022 (“2016”2022” or “prior year”) and January 2, 20161, 2022 (“2015”2021”), 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 includeusually includes the Easter holiday. The fourth quarter includes the Thanksgiving and Christmas holidays, and depending on the fiscal year end, may include the 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”) and the combined company was named SpartanNash Company. Unless the context otherwise requires, the use of the terms “SpartanNash,” and 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 differentiated business model of Food Distribution, MilitaryWholesale and Retail operations utilizesleverages the complementary nature of each segmentboth segments and enhancessupports the ability of the Company’s independent retailersretail customers to compete in the grocery industry in the long-term. The model produces operational efficiencies, helps stimulate distribution product demand, and provides sharpergreater visibility and broader business growth options. In addition,options throughout each of the diversification from Food Distribution, Military and Retail provides added flexibilitysegments.
SpartanNash has a strategic identity called Our Winning RecipeTM that activates its mission to pursuedeliver the best long-term growth opportunities in each segment.
SpartanNash’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 solutionsingredients for a variety of different sales channels.
Proactively pursue financially and strategically attractive acquisition opportunities.
Leverage the Caito 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 preferencesbetter life through a selection of private brands focusedfocus on quality, value, variety, tastecore capabilities, behaviors and convenience.
Military Segment:
Continue to partner with the Defense Commissary Agency (“DeCA”) instrategic priorities. SpartanNash has a keen focus on its private brand initiativecore capabilities which include: people, operational excellence 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’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 loyalty 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 satisfy 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 offerings in private brands and produce.
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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Supply Chain Network:
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
insights that drive solutions. The Company’s Food Distributionvision is seeing a day when its customers say, “I can’t live without them.”
Wholesale Segment
The Company’s Wholesale segment uses a multi-channel sales approach to distribute grocerynational brand and its own private brand products to independent retailers, national retailers,accounts, food service distributors, e-commerce providers, and the Company’s corporate ownedCompany's corporate-owned retail stores. The Company’s Wholesale segment also contracts with manufacturers and brokers to distribute a wide variety of grocery products to 160 U.S. military commissaries and over 400 exchanges worldwide. Together with its third-party partner, Coastal Pacific Food Distributors ("CPFD"), SpartanNash represents the only global delivery solution to service the Defense Commissary Agency ("DeCA" or "the Agency"). Total net sales from the Company’s Food DistributionWholesale segment, including sales of $1.2 billion to corporate ownedcorporate-owned retail stores that are eliminated in the consolidated financial statements, were approximately $4.9totaled $8.1 billion for 2017.2023. As of the end of 2017,2023, the Company believes it is among the sixthfive largest wholesale distributor,distributors in the nation in terms of annual revenue, to supermarketsrevenue. The Company is focused on growth in the United States.its Wholesale segment, through expanded relationships with existing customers as well as new business opportunities.
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, 2017,2023, the Company operatesoperated in 47all 50 states by leveraging a platformnetwork of 19 distribution centers, in addition to a facility on the West Coast operated by third-party partner, CPFD, as well as internal transportation fleets and third-party shipping partners, servicing the Food Distribution and Military segments, with the greatest sales concentration predominantly in the Midwest and South regions. ThisWholesale segment. The Company’s extensive geographic reach drives economies of scale, and provides opportunities for independent retailers to purchase products at competitive prices in order to effectively compete in the grocery industry in the long-term.
Through its Food Distribution segment, The Company's network also includes distribution centers strategically located among the largest concentration of military bases the Company also services national retailers, including Dollar General. Salesserves and near Atlantic ports used to Dollar General are madeship grocery products to more than 14,000 of its retail locations, with sales representing 14.0%, 11.2%,overseas commissaries and 10.7% of consolidated net sales for 2017, 2016 and 2015, respectively. exchanges.
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 DistributionWholesale segment provides a selection of approximately 60,00090,700 stock-keeping units (SKUs) of nationally brandednational brand 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, and seafood, as well as 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.pharmaceutical products. These product offerings, along with best in classbest-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 also provides a comprehensive menu of valued-addedsupport services designed to assist independent 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. Frominformed, ranging from real estate and site surveys to a full spectrumsuite of merchandising, marketing, accounting, and marketing solutions, independent retailers can find the support they need to effectively operate their businesses. information technology solutions.
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The Company provides over 100 distinct value-added services, includingalso has a diverse base of national accounts customers, who partner with the following:Company to centralize their supply across many product categories, and to leverage the Company’s broad geographic reach. Sales to one of the Company’s customers in the Wholesale segment accounted for 16%, 16% and 17% of the Company's net sales for 2023, 2022 and 2021, respectively. No other individual customer exceeded 10% of the Company's net sales in any of the years presented.
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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 worldwideprimary supplier of private brand grocery and related products to U.S. military commissaries.commissaries, a partnership with DeCA which began in fiscal 2017. The current contract to provide DeCA with private branded products extends through December 2025. 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 its worldwide strategic business partner, CPFD, to deliver the products on its behalf. There are approximately 450 SKUsThe Company is among one of private brand products currently inthe four largest distributors to the DeCA commissary system, asin terms of December 30, 2017,annual sales, that distributes products via the frequent delivery system. The remaining distributors that supply DeCA tend to be smaller regional and the Company anticipates up to 1,400 SKUs will be added under the program in 2018.local providers.
The distributed grocery products are delivered to over 160 military commissaries and over 440 exchanges located in more 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.
DeCA operates a chain of 237235 commissaries on U.S. military installations across the world that sellssell approximately $4.8$4.6 billion of grocery products annually. DeCA contracts with manufacturers to obtain grocery 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.
As of December 30, 2017,2023, the Company has approximately 250 distribution contracts representing approximately 600 manufacturers that supply products to the DeCA commissary system and various exchange systems. Generally, larger contracts or those subject to a request-for-proposal process have definitive durations, whereas smaller contracts generally have indefinite terms; 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 which 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.
The Company’s ten largest manufacturerWholesale customers represented(excluding corporate-owned retail stores) accounted for approximately 45.6%40% of the Company’s Military segmenttotal Wholesale net sales for 2017.
As commissaries need2023. Approximately 91% of Wholesale net sales 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 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 address the unique aspects of its business, and provide the Company’s manufacturer customers with a web-based, interactive means of accessing critical order, inventory and delivery information.
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Retail Segment
As of December 30, 2017, the Company operates 145 corporate owned retail stores in nine states, predominantly in the Midwest region primarily under the banners of Family Fare Supermarkets, D&W Fresh Market, VG’s Grocery, Dan’s Supermarket and Family 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 neighborhood 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 brand grocery products (see “Marketing and Merchandising – Private Brands”), 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. Private brand grocery products typically generate higher retail margins while also improving customer loyalty by offering quality products at affordable prices.
As of December 30, 2017, the Company offers pharmacy services in 87 of its corporate owned retail stores (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 31 fuel centers primarily at its corporate owned retail stores operating predominantly under the banners Family Fare Quick Stop and D&W Quick Stop. 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’s corporate owned retail stores are primarily the result of acquisitions prior to June 2015, including the merger with Nash-Finch in November 2013. The following chart details the changes in the number of corporate owned retail stores over the last five fiscal years, including the transition year ended December 28, 2013:
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| 2016 |
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| 2017 |
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Number of stores at beginning of year |
| 101 |
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| 172 |
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| 162 |
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| 163 |
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| 157 |
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Stores acquired or constructed during year |
| 78 |
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| 1 |
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| 7 |
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Stores closed or sold during year |
| 7 |
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| 11 |
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| 6 |
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| 6 |
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| 12 |
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Number of stores at end of year |
| 172 |
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| 162 |
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| 163 |
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| 157 |
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| 145 |
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During 2017, the Company completed five major remodels and also opened one new fuel center. In connection with the remodeling efforts, the Company converted three corporate owned retail stores to the Family Fare Supermarkets banner. The Company expects to continue making targeted capital investments during 2018 through remodels at select corporate owned retail stores and, if opportunities arise, by either opening additional fuel centers or entering into partnerships with existing fuel operations. The Company will continue to evaluate its store base and expects to close or sell five to seven stores in 2018 depending on circumstances and opportunities.
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Supply Chain Network
The Company continues to integrate its supply chain organization to optimize the network, increase asset utilization and leverage programs that will drive more value for its retailers, customers, and shareholders. The Company continually reviews the optimization of its network and, through doing so, has added Food Distribution operations to several facilities which were previously dedicated solely to the Military segment. The Company consolidated one warehouse during the year and 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 other 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 brokerage business by maximizing backhaul opportunities and meeting supplier needs.
The Company’s distribution network is comprised of 19 distribution centers, which are utilized to service the Food Distribution and Military segments. The distribution centers provide for approximately 8.7 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 500 over-the-road tractors, 450 dry vans, and 1,000 refrigerated trailers. Through routing optimization systems, the Company carefully manages the more than 64 million miles driven by its fleet and third party carriers annually servicing military commissaries, exchanges, independent retailers national retailers and corporate owned retail stores. During 2017, the Company substantially completed the uniform branding of all of its tractors 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 more diverse group of customers.
Reporting Segment Financial Data and Products
Refer to the segment information in the notes to consolidated financial statements for additional information about the Company’s sales by type of similar products and 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 Food Distribution and Retail operations have been recorded as discontinued operations. Discontinued operations consist of certain locations that have been closed or sold.
Marketing and Merchandising
General. The Company continues to align its marketing and merchandising strategies with current consumer behaviors by delivering initiatives centered on personalization, value beyond price, affordable wellness, local focus and 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” 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. As investments are made to remodel and/or rebanner various stores, the Company continues to roll out the “yes” program to expand its knowledge of its customers and to provide its loyalty rewards in additional markets.
The Company’s investment to further strengthen its knowledge of the consumer has continued to drive process improvements in several areas: creation of a robust self-serve data tool that enables category 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 initiatives better position the Company to deliver a shopping experience that constantly responds to the ever-changing needs of its consumers.
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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. New mobile apps specific to each Retail banner were recently launched, providing consumers with the ability to view store ads, create shopping lists, shop via Fast Lane, clip coupons, and join virtual shopping clubs, all from their mobile device. This will help the Company 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.
In addition to sharing the expertise gained in its Retail operations, the Company differentiates itself from its competitors by offering a full set of value added support services to its Food Distribution customers. 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 Company’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 certain corporate owned retail stores, and also provides consumers with fuel purchase discounts at fuel centers through its corporate owned retail stores or by partnering with third party fuel centers.
As consumers increasingly emphasize affordable wellness, the Company believes that it can be a provider and resource for products and services that will support their needs. In 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” product offerings through in-line merchandising concepts. Second, the Company established partnerships with health systems and providers to provide wellness 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 healthier food options. Finally, the Company offers a best in class pharmacy program, including $4 and $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 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 provides a best in class private brand program, 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 design and launch of its military private brands. SpartanNash believes that its private brand offerings are some of its most valuable strategic assets, demonstrated through customer loyalty and profitability. The Company continues to invest in improvements to its private brands by offering quality, value, and assortment, and believes the success of its private brands to be of vital importance. The Company’s products have been frequently recognized for excellence in packaging design and product development.
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 primary private brand is expected to be completed in the first half of 2018. Also in 2017, the Company began incorporating its own fresh-cut fruits and vegetables into the Open Acres™ private brand, which 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 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®.
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Competition
The Company’s Food Distribution, Military and Retail segments operate in a highly competitive industry, which typically results 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. accounts for 2023 are covered under supply agreements.
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 DistributionWholesale segment 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.systems. 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 itsthese customers to help them compete efficiently and effectively. The primary competitive factors in the Food DistributionWholesale business include price, service level, product quality, variety, reputation with DeCA, location of distribution centers and other value-added services.
Retail Segment
As of December 30, 2023, the Company operated 144 corporate-owned retail stores and 36 fuel centers in nine states in the Midwest, primarily under the banners of Family Fare, Martin’s Super Markets, and D&W Fresh Market. Retail banners and store counts are fully detailed in Item 2, “Properties.” The Company’s corporate owned retail stores range in size from approximately 14,000 to 90,000 square feet, or on average, approximately 44,000 square feet per store.
The Company’s convenience and community-focused strategy distinguishes its corporate-owned retail stores from supercenters and limited assortment stores. This strategy is complemented by e-commerce platforms, including Fast Lane and Groceries to GO, and third-party relationships with DoorDash, Shipt, Instacart Marketplaces, and Uber Eats, which provide online grocery shopping and curbside pickup or delivery at 140 corporate-owned retail locations as of December 30, 2023. These channels are highly valued by customers and continuing to enhance and grow e-commerce platforms is a key component of the Company’s strategy. The Company continues to make investments to support its online ordering systems, the speed and convenience of curbside pickup, and the efficiency and completeness of order fulfillment.
The Company’s corporate-owned retail stores offer nationally branded and the Company's private branded, "OwnBrands" grocery products. These stores also offer perishable food including produce, dairy, meat, delicatessen items, including store prepared “grab and go” meal options, fresh cut fruits and vegetables, bakery goods, frozen food, and seafood, as well as floral, general merchandise, beverages, health and beauty care and fuel. Sixty-five of the Company’s stores contain franchised Starbucks or Caribou Coffee shops, which enhance the customer experience and help to drive traffic. OwnBrands grocery products typically generate higher margins, while also improving customer loyalty by offering quality products at more affordable prices.
As of December 30, 2023, the Company offered pharmacy services in 91 of its corporate-owned retail stores (81 of the pharmacies are owned by the Company) and operated three pharmacy locations not associated with corporate-owned retail locations. The Company believes its overallpharmacy service level, which is defined as actual units shipped divided by actual units ordered, is among industry leaders in termsofferings are an important part of performance.
The Company is onethe consumer experience. Most of ten or fewer distributorsthe Company’s pharmacies offer low-cost generic drugs and counseling for preventative health and education for its customers. Influenza and COVID-19 vaccinations are available in the United States with annual sales topharmacies.
The following chart details the DeCA commissary systemchanges in excessthe number of $100 million that distributes products viacorporate-owned retail stores over 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, delicatessen 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 strong with respect to all of these factors within the geographic areas where it competes.last five fiscal years:
| 2019 |
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| 2020 |
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| 2021 |
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| 2022 |
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| 2023 |
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Number of stores at beginning of year |
| 139 |
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| 156 |
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| 156 |
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| 145 |
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| 147 |
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Stores acquired or constructed during year |
| 24 |
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| 1 |
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| — |
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| 3 |
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| — |
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Stores closed or sold during year |
| 7 |
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| 1 |
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| 11 |
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| 1 |
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| 3 |
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Number of stores at end of year |
| 156 |
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| 156 |
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| 145 |
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| 147 |
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| 144 |
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Despite the 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 offerings. The Company believes 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 should benefit all of the constituents of the DeCA system.
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The principal competitive factors in the retail groceryRetail business include the location and image of the store; the price, quality, variety and varietyvalue-add of the perishable products;fresh offering; 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 by providing convenience, customer experience, and the assortment consumers want. The Company monitors planned competitorcompetitive store openings and uses established proactive strategies to respond to new competition both before and after the competitive store opening.openings. Strategies to react to competition vary based on many factors, such as the competitor’s format, strengths, weaknesses, pricing and sales focus. During
Supply Chain Network
The Company’s Wholesale segment comprises 19 distribution centers, in addition to a facility on the past three fiscal years, nine competitor supercenters opened in geographic areas inWest Coast operated by CPFD. The Company warehouses product through approximately 8.9 million square feet of distribution center space. The Company operates a diverse fleet of owned and leased transportation equipment, which includes 629 over-the-road tractors, 336 dry vans and 1,213 refrigerated trailers. In addition, the Company currentlyalso operates corporate owned14 over-the-road tractors, 140 dry vans and 92 refrigerated trailers through short-term rental contracts. The Company carefully manages the approximate 65 million miles driven by its fleet and third-party carriers annually servicing military commissaries, exchanges, independent retailers, national accounts and corporate-owned retail stores with four additional openings expectedstores.
The Company continued executing against its comprehensive supply chain initiatives while evolving from a state of transformation to occur during 2018. As aone of continuous improvement. The overall initiatives are focused on executing improvements to supply chain operations across the Company’s network, which continue to result of these openings, the Company believes the majority of its supermarkets compete with one or more supercenters.in sustained efficiencies and cost reductions. The Company is making investments in people, process, and technology to support long-term growth and maximize operational efficiencies. The Company is investing in its workforce through an expansion of its onboarding, training and career development programs, and is executing several initiatives aimed at improving associate engagement, customer experience and supply chain performance.
The Company is currently optimizing its network to enable more effective and efficient operations across the supply chain. The Company continues to enhance its inventory management and control practices, while also respondingdeveloping dynamic slotting capabilities to growing competitionimprove order selection efficiency and maximize space utilization. Process improvements are also underway in other areas of warehouse operations, including enhanced labor planning tools and analytical capabilities to improve productivity.
System enhancements in the areas of forecasting and replenishment are intended to support the strategic optimization of inventory, allowing for improved service levels and warehouse capacities, while also reducing excess inventory and shrink. The Company believes that its consolidation of transportation management information systems will also streamline operations and reduce miles traveled.
Marketing and Merchandising
During 2023, the Company continued its customer-led marketing and merchandising transformation. Launched in 2022, the transformation is focused on better engaging retail store shoppers and wholesale customers, using insights to deliver improved omnichannel marketing, promotions, pricing, and assortment. Vendor relationships and customer partnerships were strengthened throughout the year through customer selling shows and expanded partnerships with key suppliers, and also included an enhanced showcase for the Company's OwnBrands. The Company had its largest and best-selling show in 2023 that included record attendance and sales, in addition to award ceremonies for new customers and vendors.
The Company continues to make investments in its consolidated portfolio of strong retail banner brands to deliver an improved overall shopping experience. The Company has focused on efficiency and effectiveness to help drive sales and margin not only within its Retail stores, but also for its Wholesale customers. This includes being a strategic partner to the Company's Wholesale customers by leveraging knowledge gained from onlineits corporate-owned Retail stores regarding best-in-class practices.
In late 2023, the Company launched a program related to streamlining assortment and non-traditional retailersstore planograms. This new approach leverages customer loyalty insights and analytics to choose the best assortment and arrangement on shelf for a better shopping experience.
The Company's OwnBrands have been a particularly important focus to meet the customer and shopper needs. The Company is well positioned to meet increasing demand for premium products at a less than premium price following the launch and continued investment in two premium and exclusive brands: Fresh & Finest, by addingOur Family, and, Finest Reserve, by Our Family. In partnership with a third party, the Company began implementation of a next generation strategic pricing tool that unlocks efficiency and allows for more effective pricing strategies, which is anticipated to drive sales growth and improve margin mix. New promotional insights have been implemented to set effective promotional prices that drive growth for both corporate-owned retail stores and Wholesale customers.
To harmonize the omnichannel brand experience, loyalty programs and digitization efforts were furthered with personalized customer content, digital coupon capability expansion, and the launch of new optionsretail banner brand e-commerce sites. The Company further increased penetration of digitally active customers through improved digital promotions and services such as Fast Lane, its new online orderingpilot programs with independent customers. New chain-wide enhanced media campaigns were also rolled out to leverage in-store and curbside pick-up service, as well as home delivery.out-of-store assets to deliver a unified customer message around key products and promotions.
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Seasonality
Seasonality
In certain geographic areas,The majority of the Company’s salesrevenues are not seasonal in nature. However, in some geographies, corporate retail stores and operating performance varies with seasonality. Many storesindependent retail customers are dependent on tourism, and therefore are mostcan be affected by seasons andseasons. The Company’s revenues may also be impacted by 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. 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 end, may include the New Year’s holiday.patterns.
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Suppliers
The Company purchases products from a large number of national, regional and local suppliers of namenational brand and private brandOwnBrands 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,trade names, and other proprietary information, some of which are of material importance to its business.
Technology
In 2017,2023, the Company focused on foundational IT hardware and digitization efforts across all business segments, including the integrationcontinued transition to Software as a Service (“SaaS”) technology, where production environments are hosted in the cloud.
Supply Chain. The Company continued its transformational effort to replace existing transportation systems, including standardization of processes and rationalization of disparate systems relatinginto a single integrated application stack. Additionally, the Company developed process automation improvements as well as data analytic solutions around workforce productivity. These automation and data analytic initiatives, combined with the workforce investments noted previously, are expected to contribute to improved hiring, retention and productivity.
Retail. The Company continued taking additional steps to modernize its retail applications footprint, which began in 2021 with a comprehensive effort to upgrade and digitize its point-of-sale (“POS”) environment. The ongoing upgrade to the Caito acquisition andPOS application includes an integrated feature set which enhances the remaining systemsretail experience both 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 2017, the Company continued to implement the standard order management system, which is expected to be completed in 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 ownedCompany's corporate-owned retail stores and is currently testing delivery in two locations. Fast Lane will continue to be deployed in additional stores in 2018.its independent customers.
Administrative Systems, Infrastructure and Security. The Company enhancedhas implemented tools to improve both the efficiency and effectiveness of internal reporting and administrative functions. A centralized cloud-based data analytics solution was implemented to consolidate the Company’s analysis and reporting platforms, which supplies the Company with advanced data analytics capabilities to provide better business insights in real-time. Additionally, the Company made several enhancements to its electronic payment systemfoundational hardware infrastructure including upgrades to support chipthe production storage environment and pin/signature cardsnetwork.
Human Capital
One of the Core Capabilities in Our Winning Recipe is People, and the Company has a keen focus on its People First culture. People First means that investing in Associates is the first investment the Company makes. As the Company cultivates an environment in which Associates can do their best work, it is building the foundation for a high performance and sustainable business. In 2023, the Company launched the People Philosophy, which is a commitment to all retail locationsof the Associates to create meaningful experiences and also implementedgrowth opportunities, inspiring careers for a new back-end processing system.better life. The Company also completed technology supportintroduced eight behavioral-based competencies that will be used for new Nutrition Labeling requirements,skill-development, selection, 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.development.
Administrative Systems and Infrastructure. In the first quarter of 2017, the Company completed the consolidation of the accounts receivable system from the Nash-Finch merger. Additionally, the general ledger, fixed asset systems, EDI processing, payroll, labor management and human resources systems were standardized as part of the Caito integration. Additional upgrades to the infrastructure in the primary and back up data centers were also completed to improve the flexibility of disaster recovery and non-stop processing.
Associates
As of December 30, 2017,2023, the Company employsemployed approximately 14,800 associates, 9,10017,000 Associates, 10,000 on a full-time basis and 5,7007,000 on a part-time basis. Approximately 1,200 associates, or 8%7% of our Associates are covered by a collective bargaining agreement representing multiple Wholesale Associates across our business.
Retention. Attracting and retaining talent is imperative to achieving Our Winning Recipe. The Company’s primary initiatives in this area include improving diversity, equity, inclusion and belonging in its workforce, ensuring a safe and secure work environment, maintaining a competitive and compelling total rewards offer and investing in leadership and associate development.
The Company's retention initiatives have resulted in a 9% decrease in the rate of turnover and a 2% increase in the 90-day new hire retention rate compared to the prior year.
Diversity, Equity, Inclusion and Belonging. The Company celebrates diversity and believes employing a diverse workforce where Associates feel like they belong is key to success. SpartanNash expects all of its Associates to reinforce the People First culture to build a diverse and inclusive workplace. As a commitment to this, all Associates are required to complete training on dignity and respect, anti-harassment and anti-discrimination.
The Company leads with inclusion and strives to create an environment where Associates are valued and empowered to support its business objectives, customers and the communities it serves, and to provide Associates connection within the organization. SpartanNash has associate resource groups (ARGs) available for young professionals, multicultural Associates, veterans, women, and additional groups continue to be evaluated.
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The Company also believes that it is best served by leaders that have diverse perspectives, education, experience, skills, gender, race, and ethnicity as demonstrated by the current executive leadership team and Board of Directors. The Company will continue to seek out and develop such candidates through its talent acquisition and development practices.
Environment, Health and Safety (EHS). At SpartanNash, focusing on improving the EHS of its Associates, and the communities it serves is an integral part of our People First culture. The Company is fully committed to conducting its operations safely and in an environmentally friendly manner. Objectives for injury prevention, natural resource conservation, energy savings and pollution prevention are achieved by identifying, assessing, and effectively addressing environmental concerns and workplace hazards, and through the integration of EHS considerations, into all relevant business activities.
The Company's goal is to be a safety leader in every industry segment that it operates. Since 2020, the Company has reduced injury rates significantly year-over-year to reach the top quartile for OSHA safety performance as of the total workforce,year ended December 30, 2023. During this same period, lost-time incidents were representedreduced by unions under collective bargaining agreements. The collective bargaining agreements covering these associates will expire between January 201976%, which includes a 20% improvement year-over-year in 2023. More than 98% of Associates worked injury-free in 2023. Additionally, as a byproduct of the Company’s effort to protect its people, workers' compensation losses were reduced by 36% since 2021.
Associate Engagement and February 2021. Training. The Company considersbelieves that engagement and education are key to ensuring the Company's Associates provide extraordinary performance. The Company conducted an associate engagement survey in 2023 to solicit feedback on its relationshuman capital practices. The resulting survey action plans will be used as the basis to further associate engagement efforts in 2024. The Company provides company-wide training on Our Winning Recipe when new Associates join the Company and role-specific training to ensure operational excellence. Targeted leadership development programs are in place for high potential and high performing managers and directors. In addition, all Associates are encouraged to participate in self-paced training curated to develop Associates in leadership and technical skill improvement.
Compensation and Benefits. The Company’s total rewards programs are designed to provide compensation and benefits packages that will attract, retain, reward, and inspire its Associates to achieve a high level of performance. Overall compensation and benefits are regularly reviewed to ensure that they remain competitive with respect to industry benchmarks. Wage investments are made to provide greater incentive pay and to recognize career development. In addition, new benefits have been offered to allow Associates tailored coverage levels. The Company's strategy is to ensure its unioncompensation is competitive in the market, equitable across levels and non-union associatesfunctions, aligned to skills and performance, and sustainable for the health of the Company.
The Compensation Committee of the Board of Directors has the full authority and responsibility to oversee and approve the Company's executive compensation philosophy and the compensation and benefits policies and programs of the Company. The Committee reviews and approves disclosures related to human capital management contained in the Compensation Discussion and Analysis section of the Company's proxy statement, annual report, and environmental, social and governance report, as applicable.
Environmental Matters
The Company may be goodresponsible for remediation of environmental conditions and may be subject to associated liabilities relating to its stores, warehouses, and other buildings and the land on which they are situated (including responsibility and liability related to its operation of its fuel centers and truck garages and the storage of petroleum products in underground storage tanks). The Company believes that it currently conducts its operations, and in the past has not had any material work stoppagesconducted its operations, in over twenty years.substantial compliance with applicable environmental laws. Also, the Company typically conducts an environmental review prior to acquiring or leasing buildings or raw land. However, the Company cannot always control or predict what environmental conditions may be found to exist at its facilities, and future changes in regulations may result in liabilities to the Company or increases in the cost of doing business.
Regulation
The Company is subject to federal, state and local laws and regulations concerning the conduct of its business, including those pertaining to theits workforce and the purchase, handling, sale and transportation of its products. Many of the Company’s products are subject to federal Food and Drug Administration (“FDA”) and United States Department of Agriculture (“USDA)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.
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Available Information
TheSpartanNash’s web address of the SpartanNash web site is www.spartannash.com. The inclusion of the Company’s websiteweb 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 sitewebsite 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”“Investor Relations” 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.website.
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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 operationsprofitability may suffer, and the trading price of the Company’s common stock could decline. We provide these risk factors for investors as permitted by and to obtain the rights and protections under the Private Securities Litigation Reform Act of 1995. It is not possible to predict or identify all such factors. Consequently, investors should not consider the following to be a complete discussion of all potential risks or uncertainties applicable to our business. 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. Manyindustry where many of the Company’s competitors are much larger and may be able to compete more effectively.
The grocery industry is highly competitive. The Company’s Food DistributionWholesale and Retail segments have many competitors, including 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. The Company’s Military segment faces competition from large national and regional food distributors and smaller distributors. Many of the Company’s competitors have greater resources than the Company.Company and may be able to compete more effectively. Additionally, rising headwinds including reduced consumer demand have further intensified the competitive environment.
Industry consolidation, alternative store formats, nontraditional competitors and e-commerce have contributed to market share losses for traditional grocery stores. The Company’s Food Distribution, MilitaryWholesale 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 not successful in effectively competing with these alternative channels, or growing sales into such channels, its business or financial results may be adversely impacted.
The Company faces competitive pressures from e-commerce activity, as consumers continue to adopt this format and do more of their shopping online. While the Company offers e-commerce services at many of its stores, some of its stores and many of its independent retailer customers do not. Other e-commerce providers may offer lower prices, superior online ordering or delivery service, or greater convenience than the Company. If the Company fails to compete successfully, it could face lower sales and may decide or be compelled to offer greater discounts to its customers, which could result in decreased profitability.
A significant portion of the Company’s sales are with major customers and the Company’s success is heavily dependent on retaining this business and on its customers’ ability to maintain and grow their business.
The Company depends heavily on its customer base which includes certain large and growing customers, and its success is dependent on its customers’ ability to maintain and grow their own business. During the current year, the Company has observed sales volume declines across its Wholesale distribution businesses, including to some of its major customers. To the extent that major customers decide to utilize alternative sources of products, whether through other distributors or self-distribution, or decide to discontinue offering certain products, the Company’s financial condition or profitability may be materially and adversely affected. Similarly, if major customers are not able to maintain or grow their business and honor the terms of its distribution agreements, the Company may be materially and adversely affected through a reduction in revenue and profitability.
Sales to one of the Company’s customers accounted for 16%, 16% and 17% of the Company’s net sales in 2023, 2022 and 2021, respectively. The Company’s ability to maintain a close, mutually beneficial relationship with major customers is an important determinant of the Company’s continued growth and profitability.
The Company may not be able to successfully integrateachieve its growth strategy through successful implementation of its transformation initiatives.
The Company’s long-term strategy includes a focus on revenue growth from new customers, market share gains, and continued expansion into value-add offerings, as well as driving incremental profitability through initiatives including supply chain transformation, merchandising transformation, changes to its go-to-market strategy, and other margin-enhancing innovations, including OwnBrands execution, automation, and retail execution.
The successful design and implementation of these initiatives may present significant challenges, many of which are beyond the assets of Caito Foods Service (“Caito”)Company's control. In addition, the initiatives may not advance the Company's business strategy as expected. Events and Blue Ribbon Transport (“BRT”),circumstances, such as financial or strategic difficulties, delays, and unexpected costs may occur that could result in the Company may incur significant costs to integrate and support these and other assets it acquires.
In January 2017,not realizing all or any of the anticipated benefits or not realizing the anticipated benefits within the expected timetable. If the Company is unable to realize the anticipated financial performance of the initiatives, its ability to fund other initiatives may be adversely affected. Any failure to implement the initiatives in accordance with expectations could adversely affect the Company's ability to achieve its long-term revenue and profitability targets.
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In addition, the complexity of the initiatives requires a substantial amount of management and operational resources. The Company's management team must successfully implement operational changes necessary to achieve the anticipated benefits of the initiatives.
These and related demands on its resources may divert the Company's attention from existing core businesses and could also have adverse effects on existing business relationships with suppliers and customers. As a result, the Company's financial condition, profitability, or cash flows may be adversely affected.
The Company may not be able to achieve its strategy of growth through acquisitions, may encounter difficulties successfully integrating acquired businesses, and may not realize the assetsanticipated benefits of Caitobusiness acquisitions.
The Company’s strategy includes growth through the acquisition of additional wholesale distribution and its affiliate, BRT. The integrationretail store operations. Given the recent consolidation activity, which has resulted in a limited number of acquired assets requires significant time and resources, andpotential acquisition targets within the food industry, the Company may not manage these processes successfully. As partbe able to identify suitable targets for acquisition or may be required to make acquisitions which do not achieve the desired level of this acquisition,profitability or sales. Additionally, future acquisitions of retail grocery stores could result in the Company acquiredcompeting with its independent retailer customers which could adversely affect existing business relationships with those customers. As a new Fresh Kitchen facility that wasresult, the Company may not be able to actively identify or pursue suitable acquisition targets in the processfuture, complete acquisitions or obtain the necessary financing all of being constructed. The Fresh Kitchen had no history of operations, and the Company experienced delays in commencing its operation and achieving efficient levels of production volume. The Company expects that the Fresh Kitchen will not be profitable in the short-term, and there is no guarantee it will be profitable in the long-term. In addition, some grocery retailers previously serviced by Caito discontinued their purchases followingwhich may adversely affect the Company’s acquisition of the Caito assets. The Company is making investments of resourcesability to 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. Ifgrow profitably. Furthermore, if the Company fails to successfully integrate these assetsbusiness acquisitions and develop new business opportunities, it may not realize planned synergies, the benefits expected from the transaction and its business may not perform to expectations. The integration of acquired businesses may also cause us to incur unforeseen costs which may prevent the Company from realizing the anticipated economic, operational, and other benefits and synergies timely and efficiently, all of which may negatively impact sales and long-term growth plans.
Disruptions to the Company’s information technology systems, including security breaches and cyber-attacks, could negatively affect the Company’s business.
-11-Vulnerabilities within the security of the Company’s information technology (“IT”) applications could create risk for the Company. The Company utilizes IT systems to conduct operations and also receive, transmit, and store many types of sensitive information, including consumers’ personal information, personal health information, information belonging to customers, vendors, business partners, and other third parties, and the Company’s proprietary, confidential, or sensitive information. Cyber threats evolve rapidly and are becoming more sophisticated, which may defeat the security programs and disaster recovery facilities and procedures implemented by the Company. As a result, the Company faces risks of security breaches, theft, espionage, inadvertent release of information, and other technology-related disruptions. 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. 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.
Availability and performance of the Company’s IT systems are vital to the Company’s business. Failure to successfully execute IT projects and have IT systems available to the business would adversely impact the Company’s operations.
The Company has a complex IT infrastructure that is vital to its business operations. The effectiveness of these applications is relevant in supporting management’s effective financial reporting and forecasting on a regular basis. Failures in the operating effectiveness of these applications could create risk for the Company. If the Company is unable to successfully modernize legacy systems in a coordinated manner across internal and external stakeholders, the Company could be subject to business interruption or reputational risk with its customers, suppliers or Associates. The failure of these systems could adversely impact the Company’s business plans and potentially impair the day-to-day business operations. In addition, the Company’s IT systems may be vulnerable to damage or interruption from circumstances beyond its control, including, power outages, computer and telecommunication failures, viruses, errors by Associates, and catastrophic events such as fires, earthquakes, tornados and hurricanes. Any debilitating failure of the Company’s critical IT systems, data centers and backup systems would require significant investments in resources to restore IT services and may cause serious impairment in the Company’s business operations including loss of business services, increased cost of moving merchandise and failure to provide service to its customers. Failure to modernize legacy systems efficiently and effectively could result in the loss of the Company’s competitive position and adversely impact its financial condition and results of operations.
Changes in relationships with the Company’s vendor base may adversely affect its business operations.
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 merchandise. The Company depends on its vendors for appropriate allocation of merchandise, assortments of products, operation of vendor-focused shopping experiences within its stores, and funding for various forms of promotional allowances. Changes in relationships with suppliers could lead to decreased product availability, changes in the Company’s assortment, and decreased promotional funding, which could impact the Company’s product offering and prices offered to customers, and lead to reduced consumer demand decreasing both revenue and profitability.
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Changes in product availability and product pricing from vendors may adversely impact the Company’s business operations and profitability.
The Company’s suppliers purchase agricultural products, including vegetables, oils and spices and seasonings, meat, poultry, packaging materials and other raw materials from growers, commodity processors, other food companies and packaging manufacturers. These products are subject to increases in price attributable to a number of factors, including changes in crop size, federal and state agricultural programs, export demand, currency exchange rates, energy and fuel costs, water supply, weather conditions during the growing and harvesting seasons, insects, plant diseases and fungi, and glass, metal and plastic prices. These increased prices, as well as other related expenses that they pass through to their customers, could result in higher costs for the products these vendors supply to the Company. Fluctuations in commodity prices can lead to retail price volatility and intensive price competition and can influence consumer buying patterns. The cost of labor, manufacturing, energy, fuel, packaging materials and other costs related to the production and distribution of the products the Company purchases from its vendors can from time to time increase significantly and unexpectedly. The Company has faced and could continue to face industry-wide cost inflation. To the extent it is unable to offset present and future cost increases, the Company's operating results could be materially and adversely affected.
Additionally, the Company faces vendor supply chain disruptions from labor availability, raw material shortages, and rising costs. These supply chain disruptions have placed and could continue to place constraints on the Company’s vendors resulting in reduced inbound fill rates and decreased product availability, which could negatively impact sales and profitability.
Changes in macroeconomic conditions may lead to reduced consumer demand and adversely affect the Company's performance.
Macroeconomic uncertainty, including rising inflation, potential economic recession, and increasing interest rates, among other negative macroeconomic conditions, could lead to reduced disposable income for the Company’s consumer base, resulting in less demand for the Company’s products and services. Reduced consumer demand could lead to lower sales and increased product shrink which could adversely affect the Company’s profitability and growth.
It may be difficult for the Company to attract and retain well-qualified Associates and effectively manage increased labor costs.
The Company has previously experienced, and may continue to experience, a shortage of qualified labor, particularly for retail store Associates, warehouse workers, and truck drivers. Such a shortage has caused upward pressure on wages. If the Company is unable to attract and retain quality Associates to meet its needs without significant changes to its compensation offering, the Company could be required to reduce staffing below optimal levels or rely more on higher-cost third-party providers, which could significantly reduce the Company’s profitability and growth.
The Company may not successfully retain or manage transitions with executive leaders and other key personnel.
The Company’s success depends upon the continued services of executive leaders and other key Associates, as well as its ability to effectively transition to their successors. The loss of such personnel may be disruptive to the Company, and if the Company is unable to execute an orderly transition and successfully integrate the new executives or personnel to successfully develop and implement strategic initiatives, the Company’s revenue, operating results and financial performance may be adversely affected. Any future changes to the executive leadership team, including hires or departures, could cause further disruption to the business and have a negative impact on operating performance, while these operational areas are in transition. The Company may not be able to timely find suitable successors to key roles as transitions occur or may not successfully integrate successors into its leadership team or the Company’s business operations. The Company’s inability to retain other key leaders or effectively transition to their successors, or any delay in filling any such critical positions, could harm its business and profitability.
The Company's business and reputation may be adversely impacted by the increasing focus on environmental, social and governance matters.
In recent years, there has been an increasing focus by various stakeholders on environmental, social and governance (“ESG”) matters. Implementation of ESG initiatives may have an adverse financial impact on the Company resulting from increased costs required to achieve desired results. Moreover, a partial or complete failure, whether real or perceived, to adequately address ESG priorities or to achieve progress on the Company's reported ESG initiatives, could adversely affect the Company’s reputation and negatively impact the Company’s financial and business operations. Conversely, taking a position, whether real or perceived, on ESG, public policy, geopolitical or similar matters could also adversely impact the reputation of the Company and its financial condition stemming from increased operational and product costs, reputational damage, and shareholder activism.
The Company may not successfully achieve its ESG-related goals, and any future investments that it makes in furtherance of achieving such goals may not produce the expected results or meet increasing stakeholder ESG expectations. Moreover, future events could lead the Company to prioritize other nearer-term interests over progressing toward current ESG-related goals based on business strategy, economic, regulatory, social or other factors. If the Company is unable to meet or properly report on the progress toward achieving the ESG-related goals, it could face adverse publicity and reactions from current or potential investors, activist groups or other stakeholders, which could result in reputational harm or other adverse effects to the Company.
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Customers to whom the Company extends credit or for whom the Company guarantees loans may fail to repay the Company.
From time to time, the Company may advance funds, extend credit and lend money to certain independent retailers and guarantee loan obligations of certain customers. The Company seeks to obtain security interest and other credit support in connection with these arrangements, but the collateral may not be sufficient to cover the Company’s exposure. Greater than expected losses from existing or future credit extensions, loans, guarantee commitments or sublease arrangements could negatively and materially impact the Company’s operating results and financial condition.
Changes in geopolitical conditions may adversely affect the Company's operations.
Changes in geopolitical conditions, including known and/or developing conflicts, such as those in eastern Europe, the Middle East, and China, could continue to disrupt supply and logistics operations and impact global margins due to increased commodity, energy, and input costs, which could negatively impact the Company's profitability. To the extent these conflicts adversely affect the Company's business, it may also have the effect of heightening other risks disclosed in this document and could further materially and adversely affect the Company's financial condition and profitability.
Threats due to the occurrence of severe weather conditions, natural disasters or other unforeseen events, all of which could become more frequent and extreme due to climate change, could harm the Company’s business.
The Company’s business could be impacted by severe weather conditions, natural disasters, or other events, all of which could become more frequent and extreme due to climate change. These events could affect the warehouse and transportation infrastructure used by the Company and its vendors to supply the Company’s corporate owned retail stores, and Wholesale customers. Insurance programs may not fully cover losses, contingency plans adopted by the Company may fail, and the damage or destruction of Company facilities could compromise its ability to distribute products and generate sales and could increase energy costs needed to operate impacted facilities. Additionally, risks associated with climate change also include the increased use of operational resources associated with complying with any new climate-related legal or regulatory requirements, including mandated use of alternative energy sources such as renewable energy or reduction of greenhouse emissions, all of which could disrupt and adversely affect the business and profitability, financial position or cash flows. Furthermore, unseasonable weather conditions that impact growing conditions and the availability of food could lead to increased product costs to the Company or decreased inventories, which could result in reduced profitability and revenue.
Disease outbreaks and associated responses, may disrupt our business by increasing costs, negatively impacting our supply chain, driving change in consumer behavior, and having an adverse impact on the Company's operations.
Disease outbreaks, such as the COVID-19 pandemic or similar communicable diseases, and responses thereto could affect our industry and our business. Risks and uncertainties related to disease outbreaks, such as duration, concerns related to the health and safety of our Associates and related labor impacts, costs associated with changes in demand, adverse supply chain impacts and impacts to third parties in which the Company relies, increased labor costs, and increased or accelerated competition, or other effects, may materially increase costs, negatively impact sales and damage the Company’s financial condition, profitability, cash flows and its liquidity position. The significance and duration of any such impacts are not possible to predict due to the overall uncertainty associated with any future pandemic.
The private brand program for U.S. military commissaries may be terminated or 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 to the Company the contract to support and supply products for the Agency’s new private brand product program. The current contract to provide DeCA with private branded products expires in December 2025. Private brand products havehad not previously been offered in the Agency’s commissaries. The Company has invested and willplans to continue to invest significant resources as it partners with DeCA to developexpand this program. However, the program may not be successful, may be discontinued or DeCA may suspend, terminate, shorten the scope or change certain terms and there is no guarantee ofconditions in its success. agreement with SpartanNash which could have a significant adverse impact on the Company’s profitability.
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 drive 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 be unable to achieve expected returns from this program, which could have a material adverse effect on the Company’s business.business and may negatively impact DeCA's willingness to continue the program. The success of the program will depend, in part, on factors beyond the Company’s control, including the unilateral actions of the Agency.DeCA.
The Company may not be able to implement its strategy of growth through acquisitions.-12-
Part of the Company’s growth strategy involves selected acquisitions of additional distribution operations, and to a lesser extent, retail grocery stores. 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 sales. 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 retailers 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 and this may adversely affect the Company’s ability to 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.
From time to time, the Company may advance funds, extend credit and lend money to certain independent retailers and guarantee loan or lease obligations of certain customers. The Company seeks to obtain security interest and other credit support in connection with these arrangements but the collateral may not be sufficient to cover the Company’s exposure. Greater than expected losses from existing or future credit extensions, loans, guarantee commitments or sublease arrangements could negatively and materially impact the Company’s operating results and financial condition.
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 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.
Disruptions to the Company’s information technology systems, including security breaches and cyber-attacks, could negatively affect the Company’s business.
The Company has complex information 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 or if the sensitive information 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 measures 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. 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.
Threats to security or the occurrence of severe weather conditions, natural disasters or other unforeseen events could harm the Company’s business.
The Company’s business could be severely impacted by severe weather conditions, natural disasters, or other events that could affect the warehouse and transportation infrastructure used by the Company and its vendors to supply the Company’s corporate owned retail stores, and Food Distribution and Military customers. While the Company believes it has adopted commercially reasonable precautions, insurance programs, and contingency plans; the damage or destruction of Company facilities could compromise its ability to distribute products and generate sales. Unseasonable weather conditions that impact growing conditions and the availability of food could also adversely affect sales, profits and asset values.
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Impairment charges for goodwill or other long-lived assets could adversely affect the Company’s financial condition and results of operations.profitability.
The Company is required to perform an annual impairment test for goodwill and other 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 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 assets. This could result in the Company recording a non-cash impairment charge for goodwill or other intangiblelong-lived assets in the period the determination of impairment is made. The Company cannot accurately predict the amount andor timing of any impairmentpotential impairments of assets. Should the value of goodwill or other assets become impaired, the Company’s financial conditionposition and results of operationsprofitability may be adversely affected.
ItRisks Related to the Company’s Indebtedness
The Company’s level of indebtedness could adversely affect its financial condition and its ability to raise additional capital or obtain financing in the future, respond to business opportunities, react to changes in its business, and make required payments on its debt.
As of December 30, 2023, the Company had outstanding indebtedness of $597.5 million (net of unamortized debt issuance costs), primarily related to its asset-based lending facility (the "Revolving Credit Facility"). Refer to Note 6 in the accompanying notes to the consolidated financial statements for further information. If the Company is not able to generate cash flow from operations sufficient to service its debt, it may need to refinance its debt, dispose of assets or issue equity to obtain necessary funds. The Company may not be able to take any of such actions on a timely basis, on satisfactory terms or at all.
Indebtedness could have significant consequences, including the following:
The Company’s level of indebtedness may further increase from time to time. Although the Company’s agreements governing indebtedness contain restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of significant qualifications and exceptions and, under certain circumstances, the amount of indebtedness, including secured debt, that could be incurred in compliance with these restrictions could be substantial. Incurring substantial additional indebtedness could further exacerbate the risks associated with the Company’s level of indebtedness.
The Company is exposed to interest rate risk due to the variable rates on its indebtedness, which may increase debt service obligations if interest rates rise.
The Company’s borrowings under the Revolving Credit Facility bear interest at variable rates and expose it to interest rate risk. The Company may not be able to accurately predict changes in interest rates or mitigate their impact. If interest rates increase, debt service obligations on the variable rate indebtedness would increase even though the amount borrowed remains the same and the Company’s profitability would decrease. Before consideration of hedging instruments, a hypothetical 0.50% increase in rates applicable to borrowings under the Revolving Credit Facility as of December 30, 2023 would increase interest expense related to such debt by approximately $2.6 million per year.
Covenants in its debt agreements restrict the Company’s operational flexibility.
The agreements governing the Revolving Credit Facility contain usual and customary restrictive covenants relating to the management and operation of the Company, including restrictions on its ability to borrow, pay dividends, or consummate certain transactions. These covenants may prevent the Company from taking actions that it believes would be in the best interest of the business and may make it difficult for the Company to attractsuccessfully execute its business strategy and retain well-qualified associates, which would adverselytransformation initiatives or effectively compete with companies that are not similarly restricted. The Company may also incur future debt obligations that might subject it to additional restrictive and financial covenants that could affect financial and operational flexibility. The Company may not be granted waivers of or amendments to these agreements if for any reason it is unable to comply with them, or the Company may not be able to refinance its debt on acceptable terms or at all. In addition, failure to comply with the covenants in the Company’s profitabilitydebt agreements could result in all of its indebtedness becoming immediately due and growth.payable.
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Legal, Regulatory and Legislative Risks
Recent low levelsChanges in government regulations may have a material adverse effect on financial results.
The Company operates in highly regulated environments. The products it distributes and sells through retail stores are subject to inspection and regulatory action by the United States Food and Drug Administration. Our warehouses and distribution centers are subject to inspection by the United States Department of unemploymentAgriculture, the United States Department of Labor Occupational and Health Administration, and various state health and workplace safety authorities, and our logistics operations are subject to regulation by the United States Department of Transportation and the United States Federal Highway Administration. The Company is also subject to the international regulations of the European Union’s Import Control System for export shipments that are ultimately made to non-domestic commissaries. Moreover, as a federal contractor, the Company must develop and maintain Affirmative Action Programs under the Rehabilitation Act, as enforced by the Office of Federal Contract and Compliance Programs, which may cause the Company to incur significant reputational and monetary damages for alleged discrimination in employment practices. In addition, there are various other international, U.S. federal, state and local laws, regulations and administrative practices to which the Company is subject, which require us to comply with numerous provisions regulating areas such as environmental, health and sanitation standards, food safety, marketing of natural or organically produced food, facilities, pharmacies, equal employment opportunity, public accessibility, employee benefits, wages and hours worked and licensing for the sale of food, drugs, tobacco and alcoholic beverages, among others. Changes in federal, state or local minimum wages and overtime laws, federal tax laws, or employee paid leave laws could result in the Company incurring significant labor costs which could have made it increasingly difficultmaterial adverse effects on the Company’s financial position and profitability. The Company employs hourly Associates who are compensated at an hourly rate lower than $15.00. If minimum wage rates increase, the Company would have to attractincrease the wages of Associates who fall below the new minimum and retain qualified associates,may need to increase the wages of Associates in close proximity above the new minimum to address wage compression. In addition, changes in federal tax regulations may result in significant increases in the Company’s current and have caused upward pressure on wages. Ifdeferred tax liabilities, and may include changes in federal tax rates and the deductibility of certain costs.Failure to comply with existing or new laws or regulations could result in significant damages, penalties and/or litigation costs for the Company.
A number of the Company’s Associates are covered by collective bargaining agreements, and unions may attempt to organize additional Associates.
Approximately 7% of the Company’s Associates are covered by collective bargaining agreements (“CBAs”) which expire between January 2025 and February 2027. 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 CBAs, work stoppages by the affected workers could occur if the Company is unable to attract and retain quality associates to meet its needs,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 CBAs, the Company may experience increased operating costs and an adverse impact on future profitability.
The Company may continue to see additional union organizing campaigns. The potential for unionization could be requiredincrease 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 compensation offering, reduce staffing below optimal levels,flexibility to run its business in the most efficient manner to remain competitive or rely more on higher-cost third-party providers, whichacquire new businesses and could adversely affect its profitability by increasing its labor costs or otherwise restricting its ability to maximize the Company’s profitability and growth. efficiency of its operations.
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.
Legal, Regulatory and Legislative Risks
The Company’s MilitaryWholesale segment is dependent upon domestic and international military 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.business.
Because the Company’s MilitaryWholesale 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 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, a change by DeCA to a self-distribution model, 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. If DeCA were to make material changes to its supply chain model, for example by limiting distribution authorization, then the Company’s MilitaryWholesale segment could be affected.
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Product recalls or other safety concerns regarding the Company’s products could harm the Company’s business.reputation as well as increase its costs.
The Company faces risks related to the safety of the food products that it distributes or sells. It is sometimes necessarymay need to recall such products for actual or alleged contamination, adulteration, mislabeling, or other safety concerns. The Company distributes fresh fruits and vegetables, as well as other fresh prepared foods. These products, and other food products that the Company sells, are at risk of contamination by disease-causing organisms such as Salmonella, E. coli, and others. These pathogens are generally found in nature, and as a result, there is a risk that they could be present in the products distributed or sold by the Company. The Company typically has little control over proper food handling before the Company’s receipt of the product or once the product has been delivered to recall unsafe, contaminated or defective products.the Company's retail customers. Recall costs can be materialmaterial. A widespread product recall could result in significant losses due to the administrative costs of a recall, the destruction of inventory, and lost sales. Recalls and other food safety concerns can also result in adverse publicity, damage to the Company might not be able to recover costs from its suppliers. Concerns regardingCompany’s reputation, and a loss of confidence in the safety and quality of food products sold by the Company could cause customers toits products. Customers may avoid purchasing certain products from the Company, or tomay 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.
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A number of the Company’s associates are covered by collective bargaining agreements, and unions may attempt to organize additional associates.
Approximately 29% and 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 January 2019 and 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 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 CBAs, the Company may experience increased operating costs and an adverse impact on future results of operations.
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(the “Central States Plan” or “the Plan”the “Plan”), a multi-employer pension plan, based on obligations arising from its CBAs with Teamsters locals 406 and 908. SpartanNash does not administer or control this Plan, and the Company has relatively littledoes not have 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 willmay 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.
The Company also maintains defined benefit retirement plans for certain of its associates that do not participate in Costs related to multi-employer pension plans. These plans are frozen. Expenses associated with the defined benefit plans may significantlycould 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 couldand adversely affect the Company’s financial position.conditions and results of operation.
Refer to Note 9 in the accompanying notes to the consolidated financial statements for further information.
Item 1B. Unresolved Staff Comments
None.
Item 1C. Cybersecurity
Management's Role
The Information Security function is led by the Chief Information Security Officer (CISO), under the direction of the Chief Information Officer (CIO). The Company’s CISO, who was appointed in August 2021, has over 20 years of experience within information security and is both a Certified Information Security Manager and a Certified Information Systems Auditor. Key responsibilities of the Information Security function include developing cybersecurity strategies; managing cybersecurity governance; performing cybersecurity risk assessments; ensuring compliance with security standards and regulatory requirements; managing identity and access; monitoring cybersecurity threats; validating cybersecurity alerts; preparing for and responding to cybersecurity incidents; business continuity and disaster recovery plans; and creating security awareness through periodic trainings of both Company leadership and Associates. The CIO, CISO and the Company’s Chief Legal Officer, who also serves as the Chief Compliance Officer, have oversight responsibilities of the Company’s cybersecurity program.
Board Oversight
The Company’s Board of Directors (Board) has appointed the Audit Committee to assist the Board in fulfilling its responsibilities with respect to the oversight of cybersecurity, data security, privacy programs, and the Company’s response to security breaches. Two Company Directors serving on the Audit Committee completed the National Association of Corporate Directors/Carnegie Mellon CERT cyber-risk oversight program along with required examinations and earned the CERT designation. The CISO provides quarterly updates to the Audit Committee, which include a current evaluation of the Company’s maturity within the National Institute of Standards and Technology (NIST) framework, including assessments against key performance indicators, updates on internal phishing campaigns, tabletop exercises conducted at various levels of the organization, and management training. The Audit Committee also reviews reports and recommendations from third parties periodically engaged by the Company to assess the cybersecurity control environment.In addition, the Company’s internal audit function periodically audits elements of the security program and reports its observations to the CISO and the Audit Committee.
-15-
Risk Management and Strategy
As a component of the Company’s overall risk management process, which is aligned with a broader Enterprise Risk Management framework, the Company has implemented a multi-layered approach to minimize cybersecurity risk and safeguard its data. The Company conducts cybersecurity risk assessments on a regular basis and responds to identified risk exposures by employing a combination of risk mitigation strategies, including the adoption of cybersecurity controls and maintaining a cybersecurity insurance policy that provides coverage for security breaches. The Company engages third party consultants periodically to evaluate elements of the cybersecurity policy, processes, procedures and controls. The CISO and other members of the Executive Leadership Team respond to applicable recommendations arising from the third-party consultants. In addition, the Company engages a Qualified Security Assessor as part of the compliance requirements for Payment Card Industry (PCI). The Company also engages with a third-party risk management provider to ensure its vendors comply with internal security and privacy requirements and that key vendors are continually monitored for security risks. The Company’s cybersecurity governance practices are based on the Company’s common control framework which incorporates elements from the NIST Cybersecurity Framework, the Center for Internet Security’s benchmark standards, and specific regulatory and industry requirements including Health Insurance Portability and Accountability Act and PCI. The CISO provides at least quarterly updates on the cybersecurity program, including the results of the cybersecurity risk assessments and the related responses, to the Company’s Security Governance Council composed of members of the Executive Leadership Team. The Company continually monitors cybersecurity threats and has a dedicated cybersecurity team in place to identify if any of the threats may lead to a cybersecurity incident. In the event of such an incident, the Company will take decisive measures to thoroughly analyze, contain, and eliminate the threat. Following an incident, a comprehensive review is performed to determine whether the incident meets qualitative or quantitative materiality thresholds, and whether the incident warrants public disclosure.
Effect of Cybersecurity Threats
As of the effective date of this filing, the Company is currently not aware of any known or potential cybersecurity threats that are reasonably likely to materially affect the Company’s business strategy, results of operations, or financial conditions. Although the Company believes it has implemented sufficient security measures to protect against cyber-attacks, unknown cyber incidents could materially disrupt the Company’s operations or compromise sensitive information.
Item 2. Properties
The following table lists the locations and approximate square footage of the Company’s distribution centers used by its Food Distribution and Military segmentsthe Company's Wholesale segment as of December 30, 2017.2023. The lease expiration dates for the distribution centers primarily servicing the Food DistributionWholesale segment range from February 20192025 to July 2020, and for the Military segment range from August 2018 to January 2028.December 2031. The Company believes that these facilities are generally well maintained and in good operating condition, have sufficient capacity, and are suitable and adequate to carry on its business for eachmajority of these segments.leases contain renewal options beyond these dates, if exercised.
Distribution Centers |
| |||||||||||
|
| Square Footage |
| |||||||||
Location |
| Leased |
|
| Owned |
|
| Total |
| |||
Grand Rapids, Michigan |
|
| — |
|
|
| 1,179,582 |
|
|
| 1,179,582 |
|
Norfolk, Virginia |
|
| 188,093 |
|
|
| 545,073 |
|
|
| 733,166 |
|
Omaha, Nebraska |
|
| 4,384 |
|
|
| 686,783 |
|
|
| 691,167 |
|
Bellefontaine, Ohio |
|
| — |
|
|
| 666,045 |
|
|
| 666,045 |
|
Oklahoma City, Oklahoma |
|
| — |
|
|
| 608,543 |
|
|
| 608,543 |
|
Lima, Ohio |
|
| — |
|
|
| 517,552 |
|
|
| 517,552 |
|
Columbus, Georgia (a) |
|
| 478,702 |
|
|
| — |
|
|
| 478,702 |
|
Bloomington, Indiana |
|
| — |
|
|
| 471,277 |
|
|
| 471,277 |
|
San Antonio, Texas |
|
| — |
|
|
| 461,544 |
|
|
| 461,544 |
|
Fargo, North Dakota |
|
| 158,135 |
|
|
| 288,824 |
|
|
| 446,959 |
|
Lumberton, North Carolina |
|
| 386,129 |
|
|
| — |
|
|
| 386,129 |
|
Landover, Maryland |
|
| 368,088 |
|
|
| — |
|
|
| 368,088 |
|
Severn, Maryland |
|
| 363,872 |
|
|
| — |
|
|
| 363,872 |
|
Pensacola, Florida |
|
| — |
|
|
| 355,900 |
|
|
| 355,900 |
|
St. Cloud, Minnesota |
|
| — |
|
|
| 329,046 |
|
|
| 329,046 |
|
Sioux Falls, South Dakota |
|
| 79,300 |
|
|
| 196,114 |
|
|
| 275,414 |
|
Menominee, Michigan |
|
| — |
|
|
| 253,021 |
|
|
| 253,021 |
|
Bluefield, Virginia |
|
| — |
|
|
| 187,531 |
|
|
| 187,531 |
|
Indianapolis, Indiana |
|
| — |
|
|
| 118,497 |
|
|
| 118,497 |
|
Total Square Footage |
|
| 2,026,703 |
|
|
| 6,865,332 |
|
|
| 8,892,035 |
|
-14-
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 |
|
-16-
|
|
|
|
|
|
|
|
-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, location and approximate square footage under each banner as of December 30, 2017.2023.
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 |
| Michigan, Minnesota, Nebraska, North Dakota, South Dakota, Iowa, Wisconsin |
| 82 |
|
|
| 3,548,492 |
|
| 13 |
|
|
| 512,961 |
|
| 95 |
|
| 4,061,453 |
| ||
Martin's Super Markets |
| Indiana, Michigan |
| 11 |
|
|
| 660,228 |
|
| 9 |
|
|
| 461,727 |
|
| 20 |
|
| 1,121,955 |
| ||
D&W Fresh Market |
| Michigan |
| 8 |
|
|
| 393,586 |
|
| 2 |
|
|
| 84,458 |
|
| 10 |
|
| 478,044 |
| ||
VG’s Grocery |
| Michigan |
| 8 |
|
|
| 363,117 |
|
| 1 |
|
|
| 38,012 |
|
| 9 |
|
| 401,129 |
| ||
Family Fresh Market |
| Minnesota, Nebraska, Wisconsin |
|
| — |
|
|
| — |
|
| 3 |
|
|
| 173,740 |
|
| 3 |
|
| 173,740 |
| |
Supermercado Nuestra Familia |
| Nebraska |
| 1 |
|
|
| 22,540 |
|
| 2 |
|
|
| 83,279 |
|
| 3 |
|
| 105,819 |
| ||
Forest Hills Foods |
| Michigan |
| 2 |
|
|
| 65,209 |
|
|
| — |
|
|
| — |
|
| 2 |
|
| 65,209 |
| |
Dillonvale IGA |
| Ohio |
| 1 |
|
|
| 25,627 |
|
|
| — |
|
|
| — |
|
| 1 |
|
| 25,627 |
| |
Fresh City Market |
| Wisconsin |
| 1 |
|
|
| 21,470 |
|
|
| — |
|
|
| — |
|
| 1 |
|
| 21,470 |
| |
Total |
|
|
| 114 |
|
|
| 5,100,269 |
|
| 30 |
|
|
| 1,354,177 |
|
| 144 |
|
| 6,454,446 |
|
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 one fuel center that is not reflected in the retail square footage above:above, a Family Fare Quick Stop in Michigan that is not included with a corporate owned retail store but is adjacent to the Company’s corporate headquarters. Also not reflected in the retail square footage above is one stand-alone pharmacyare three pharmacies not associated with corporate-owned retail locations, located in Clear Lake, Iowa.Iowa, Michigan, and Wisconsin as well as certain properties used to facilitate the stock and transfer of goods between retail stores.
The Company’s service centers areheadquarters is located in Grand Rapids, Michigan; Minneapolis, Minnesota; and Norfolk, Virginia;Michigan. The Company maintains offices in multiple states consisting of office space of approximately 286,100224,000 square feet in Company-owned buildings and 33,00024,000 square feet in leased facilities. The Company also leases two additional off-site storage facilities consisting of approximately 50,30050,000 square feet. The Company owns and leases to independent retailers seveneight stores totaling approximately 370,000372,000 square feet and owns and leases to a third partyparties one warehouse of approximately 400,000422,000 square feet and office space totaling 109,000 square feet.
The Company believes that its properties are generally well maintained and in good operating condition, have sufficient capacity, and are suitable and adequate to carry on its business as currently conducted.
Item 3. Legal Proceedings
From time-to-time, the Company is engaged 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. Legal proceedings, various lawsuits, claims, and other matters are more fully described in Note 9, Commitments and Contingencies, in the notes to consolidated financial statements, which is herein incorporated by reference.
Item 4. Mine Safety DisclosureDisclosures
Not ApplicableApplicable.
-17-
-16-
PART II
Item 5. Market for Registrant’s Common Equity, and Related Stockholder Matters and Issuer Purchases of Equity Securities
SpartanNash common stock is traded on the NASDAQNasdaq 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 eachAs of the last two fiscal years is as follows:
|
|
|
| 2017 |
| ||||||||||||||||||||||
|
|
|
| Full Year |
|
| 4th Quarter |
|
| 3rd Quarter |
|
| 2nd Quarter |
|
| 1st Quarter |
| ||||||||||
|
|
|
| (52 Weeks) |
|
| (12 Weeks) |
|
| (12 Weeks) |
|
| (12 Weeks) |
|
| (16 Weeks) |
| ||||||||||
Common stock price - High |
|
|
| $ |
| 40.33 |
|
| $ |
| 26.99 |
|
| $ |
| 27.74 |
|
| $ |
| 37.80 |
|
| $ |
| 40.33 |
|
Common stock price - Low |
|
|
|
|
| 19.85 |
|
|
|
| 19.85 |
|
|
|
| 23.26 |
|
|
|
| 25.08 |
|
|
|
| 31.54 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2016 |
| ||||||||||||||||||||||
|
|
|
| Full Year |
|
| 4th Quarter |
|
| 3rd Quarter |
|
| 2nd Quarter |
|
| 1st Quarter |
| ||||||||||
|
|
|
| (52 Weeks) |
|
| (12 Weeks) |
|
| (12 Weeks) |
|
| (12 Weeks) |
|
| (16 Weeks) |
| ||||||||||
Common stock price - High |
|
|
| $ |
| 39.96 |
|
| $ |
| 39.96 |
|
| $ |
| 33.89 |
|
| $ |
| 31.48 |
|
| $ |
| 31.01 |
|
Common stock price - Low |
|
|
|
|
| 17.66 |
|
|
|
| 27.27 |
|
|
|
| 27.96 |
|
|
|
| 25.29 |
|
|
|
| 17.66 |
|
At February 23, 2018,26, 2024, there were approximately 1,3001,200 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 SpartanNash common stock in each of the last three years:
| ||||||
|
| |||||
|
|
| ||||
|
| |||||
|
|
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 and share repurchases, do not exceed $35.0 million. Additionally, the Company is generally permitted to pay cash dividends and repurchase shares in excess of $35.0 million in any fiscal year so long as its Excess Availability, as defined in the senior revolving credit facility, is in excess of 10% of the Total Borrowing Base, as defined in the senior revolving credit facility, before and after giving effect to the repurchases and dividends.
Although the Company expects to continue to pay a quarterly cash dividend, adoption of a dividend policy does not commitOn February 24, 2022, the Board of Directors (the “Board”) to declare future dividends. Each future dividend will be considered and declared byauthorized the Board at its discretion. Whether the Board continues to declare dividends and repurchase of common shares depends onin connection with 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 authorized a five-year share repurchase program for up to $50 million program, which expires on February 22, 2027. As of SpartanNash’s common stock that expired in May 2016, after the completion of the 2016 repurchases. During the 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, $65.0December 30, 2023, $25.4 million remains available for share repurchases under these programs.the program. The Company plans to return value to shareholders through share repurchases under this program as well as continuing regular dividends.
|
|
|
|
| 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, 2016In 2023, 2022, and 2015,2021 the Company repurchased 1,367,432; 396,030;765,194, 1,046,538, and 282,363265,000 shares of common stock for approximately $35.0$18.6 million, $9.0$32.5 million and $9.0$5.3 million, respectively.
Repurchases of common stock includes shares submitted for cancellation to satisfy tax withholding obligations that occur upon the vesting of the restricted shares. The equityvalue of the shares delivered or withheld is determined by the applicable stock compensation plansplan. The following table in Part III, Item 12provides information regarding SpartanNash's purchases of this report is herein incorporated by reference.its own common stock during the 12-week period ended December 30, 2023.
Fiscal Period | Total Number of Shares Purchased |
|
| Average Price Paid per Share |
|
| Total Number of Shares Purchased as Part of Publicly Announced Programs |
|
| Maximum Dollar Value of Shares Yet to be Purchased Under the Plans or Programs |
| ||||||
October 8 - November 4, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Employee Transactions |
| — |
|
| $ |
| — |
|
| N/A |
|
|
| N/A |
| ||
Repurchase Program |
| — |
|
| $ |
| — |
|
|
| — |
|
| $ |
| 25,399 |
|
November 5 - December 2, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Employee Transactions |
| 118 |
|
| $ |
| 21.50 |
|
| N/A |
|
|
| N/A |
| ||
Repurchase Program |
| — |
|
| $ |
| — |
|
|
| — |
|
| $ |
| 25,399 |
|
December 3 - December 30, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Employee Transactions |
| — |
|
| $ |
| — |
|
| N/A |
|
|
| N/A |
| ||
Repurchase Program |
| — |
|
| $ |
| — |
|
|
| — |
|
| $ |
| 25,399 |
|
Total for quarter ended December 30, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Employee Transactions |
| 118 |
|
| $ |
| 21.50 |
|
| N/A |
|
|
| N/A |
| ||
Repurchase Program |
| — |
|
| $ |
| — |
|
|
| — |
|
| $ |
| 25,399 |
|
-17-
-18-
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 ReturnS&P SmallCap 600 Food Distributors Index and the NASDAQ Retail TradeS&P SmallCap 600 Index, over a period beginning March 30, 2013December 29, 2018 and ending on December 30, 2017.2023.
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 30, |
|
| December 28, |
|
| January 3, |
|
| January 2, |
|
| December 31, |
|
| December 30, |
| ||||||||||||
| 2013 |
|
| 2013 |
|
| 2015 |
|
| 2016 |
|
| 2016 |
|
| 2017 |
| ||||||||||||
SpartanNash | $ |
| 100.00 |
|
| $ |
| 136.96 |
|
| $ |
| 152.22 |
|
| $ |
| 130.27 |
|
| $ |
| 242.69 |
|
| $ |
| 167.78 |
|
Russell 2000 Total Return Index |
|
| 100.00 |
|
|
|
| 123.23 |
|
|
|
| 128.93 |
|
|
|
| 123.84 |
|
|
|
| 150.23 |
|
|
|
| 172.24 |
|
NASDAQ Retail Trade |
|
| 100.00 |
|
|
|
| 118.85 |
|
|
|
| 132.07 |
|
|
|
| 138.06 |
|
|
|
| 139.64 |
|
|
|
| 148.54 |
|
| December 29, |
|
| December 28, |
|
| January 2, |
|
| January 1, |
|
| December 31, |
|
| December 30, |
| ||||||||||||
| 2018 |
|
| 2019 |
|
| 2021 |
|
| 2022 |
|
| 2022 |
|
| 2023 |
| ||||||||||||
SpartanNash | $ |
| 100.00 |
|
| $ |
| 88.50 |
|
| $ |
| 114.57 |
|
| $ |
| 175.92 |
|
| $ |
| 212.19 |
|
| $ |
| 167.22 |
|
S&P SmallCap 600 |
|
| 100.00 |
|
|
|
| 123.12 |
|
|
|
| 137.42 |
|
|
|
| 174.27 |
|
|
|
| 146.22 |
|
|
|
| 169.69 |
|
S&P SmallCap 600 Food Distributors |
|
| 100.00 |
|
|
|
| 95.27 |
|
|
|
| 106.22 |
|
|
|
| 205.33 |
|
|
|
| 188.73 |
|
|
|
| 156.41 |
|
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.
-18-
Item 6. Selected Financial DataReserved
The following table provides selected historical consolidated financial information of SpartanNash for each of the five years and periods ended December 28, 2013 through December 30, 2017, all of which were 52 week years with the exception of 2014 which was a 53-week year and the 39-week transition year ended December 28, 2013.
| 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 |
|
-19-
|
|
|
|
|
|
|
|
|
|
-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.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
About SpartanNash
SpartanNash, headquartered in Grand Rapids, Michigan, is a leading multi-regional groceryfood solutions company that delivers the ingredients for a better life. As a distributor, wholesaler and grocery retailer whose core businesses include distributing grocery products towith a global supply chain network, SpartanNash customers span a diverse group of national accounts, independent groceryand chain retailers, (“independent retailers”), nationale-commerce retailers, its corporate owned retail stores, and U.S. military commissaries and exchanges. Throughexchanges, and its Military segment, SpartanNash is a leading distributor 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: Food Distribution, Military and Retail.
The 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 ownedcorporate-owned retail stores, food service distributorspharmacies and various other customers. Throughfuel centers. SpartanNash distributes grocery and household goods, including fresh produce and its Food Distribution Our Family private label brand, to locations in all 50 states. The Company's two reportable segments, Wholesale and Retail, are two distinct businesses, each with a different customer base, management structure, and basis for determining budgets, forecasts, and compensation. Where applicable, segment financial information for the comparative prior year periods within this report has been recast to reflect the Company's current reportable segment structure.
Overview of 2023
In a challenging macroeconomic environment, the Company also 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 Midwest and Southeast regions of the 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 Retail segment operated 145 corporate owned retail stores in the Midwest region primarily under the banners of Family Fare Supermarkets, D&W Fresh Markets, VG’s Grocery, Dan’s Supermarket and Family Fresh Market as of December 30, 2017. The Company also offered pharmacy services in 87 of its corporate owned stores (of which 76 pharmacies are owned) and operated 31 fuel centers as of December 30, 2017. The retail stores have a “neighborhood market” strategy that focuses on value beyond price, affordable wellness, and commitment to local products.
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. 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 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.
Overview of 2017
In 2017, the Company continued to execute on its strategyOur Winning Recipe, which continued to leveragesupport strong financial results in fiscal 2023. The plan continues to generate sustainable improvements in profitability as the Company further optimizes its supply chain network, improves value for its customers through stronger vendor relationships, and captures additional benefits, while providing exceptional customer service and additional offerings. The Company’s 2023 highlights include:
Wholesale
Retail
Other Highlights
-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 offeringsthroughput(1) rate by double digits, passed along significant benefits to its customers through the Enhanced Category Planning program, and captured $80 million in total gross benefits since 2022. These benefits helped to offset broader industry headwinds which impacted volume and profitability throughout the long-term growth of the business.
During 2023, the Company returned $48.2 million to shareholders through $29.7 million in cash dividends, or $0.86 per common share, and $18.6 million in share repurchases. In addition, the Company generated net cash from operating activities of $89.3 million in 2023.
Results of Operations
The current year results of operations are presented in comparison to the prior year within the section below. For 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 rolloutdiscussion of the private brand program began in the second quarterresults 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 thesefiscal 2022 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 continuescomparison to make targeted capital investments by remodeling select retail stores in key geographies, including the conversion of certain storesfiscal 2021, refer to the Family Fare banner. The Company also continued its store rationalization program,Management’s Discussion and in connection with overall business strategies, sold four corporate owned retail stores to newAnalysis of Financial Condition and existing Food Distribution customers, suspendedResults of Operations within 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.prior year Annual Report on Form 10-K.
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 essentialthat certain known or anticipated trends may cause future results 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.
vary from historical results. 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 thesebelieves certain initiatives including a number of other convenience and service offerings outlined below, will lead to increased customer satisfaction and loyalty as they are deployed overboth 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 brandand merchandising transformations, as well as its transition, which has gone smoothlyplans to gain market share in both the Retail and is expectedWholesale segments will favorably impact future results. The Company anticipates that additional investments in capital expenditures will be necessary to continue into 2018. Insupport these and other programs. Offsetting the second quarter, the Company began incorporating its own fresh-cut fruits and vegetables into the Open Acres™ private brand, and during the second halfCompany’s expectations 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 fromfavorable future results are macroeconomic headwinds including changes in consumer demand driven by inflation, elevated interest rates, and 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 millionreduction 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.government food assistance programs. The Company expects that its Retail stores’ comparable sales will improvealso be exposed to slightly negative to flat by the end of the yearother general commodity price changes such 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 opportunitiesutilities, insurance 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.fuel costs.
Results of Operations-20-
The following table sets forth items from the Company’s consolidated statements of operationsearnings as a percentage of net sales and the percentage change from the preceding year:
|
|
| Percentage of Net Sales |
|
| Percentage |
| ||||||||||
|
|
| 2023 |
|
| 2022 |
|
| 2021 |
|
| 2023 vs 2022 |
| ||||
Net sales |
|
| 100.0 |
|
|
| 100.0 |
|
|
| 100.0 |
|
|
| 0.9 |
| |
Gross profit |
|
| 15.3 |
|
|
| 15.5 |
|
|
| 15.7 |
|
|
| (0.8 | ) | |
Selling, general and administrative |
|
| 14.0 |
|
|
| 14.8 |
|
|
| 14.7 |
|
|
| (4.3 | ) | |
Paid time off transition adjustment |
|
| — |
|
|
| — |
|
|
| (0.2 | ) |
| ** |
| ||
Acquisition and integration, net |
|
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
| ** |
| ||
Restructuring and asset impairment, net |
|
| 0.1 |
|
|
| 0.0 |
|
|
| 0.0 |
|
| ** |
| ||
Operating earnings |
|
| 1.1 |
|
|
| 0.7 |
|
|
| 1.3 |
|
|
| 55.7 |
| |
Other expenses, net |
|
| 0.4 |
|
|
| 0.2 |
|
|
| 0.2 |
|
|
| 69.2 |
| |
Earnings before income taxes |
|
| 0.7 |
|
|
| 0.5 |
|
|
| 1.1 |
|
|
| 49.5 |
| |
Income tax expense |
|
| 0.2 |
|
|
| 0.1 |
|
|
| 0.3 |
|
|
| 44.3 |
| |
Net earnings |
|
| 0.5 |
|
|
| 0.4 |
|
|
| 0.8 |
|
|
| 51.3 |
|
|
|
| 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 | ) |
* DifferenceNote: Certain totals do not sum due to roundingrounding.
-22-
** Not meaningful
Results of Continuing Operations for 2017 Compared to 2016
Net Sales – The following table presents net sales by segment and variances in net sales between fiscal 2023 and fiscal 2022:
|
|
|
| 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 |
|
|
|
|
| Percentage of |
|
|
|
| Percentage of |
|
|
|
|
|
|
|
| ||||||||||||
|
|
|
| Total |
|
|
|
| Total |
|
|
|
|
| Percentage | ||||||||||||||
(In thousands) | 2023 |
|
| Net Sales |
| 2022 |
|
| Net Sales |
| Variance |
|
| Change | |||||||||||||||
Wholesale | $ |
| 6,919,217 |
|
|
| 71.1 |
| % |
| $ |
| 6,845,236 |
|
|
| 71.0 |
| % |
| $ |
| 73,981 |
|
|
| 1.1 |
| % |
Retail |
|
| 2,810,002 |
|
|
| 28.9 |
|
|
|
|
| 2,797,864 |
|
|
| 29.0 |
|
|
|
|
| 12,138 |
|
|
| 0.4 |
|
|
Net sales | $ |
| 9,729,219 |
|
|
| 100.0 |
| % |
| $ |
| 9,643,100 |
|
|
| 100.0 |
| % |
| $ |
| 86,119 |
|
|
| 0.9 |
| % |
Net sales increased $393.5$86.1 million, or 5.1%0.9%, to $8.13$9.73 billion in 2017 from $7.732023 compared to $9.64 billion in 2016.2022. The increase was attributable to increases in net sales in both the Wholesale and Retail segments, which were favorably impacted by higher pricing from inflationary trends and partially offset by lower volumes.
Wholesale net sales increased $74.0 million, or 1.1%, to $6.92 billion in 2023 compared to $6.85 billion in the prior year. The increase in net sales was due primarily to the inflationary impact on pricing, in addition to the acquisition of Great Lakes Foods in December 2022, which contributed $73.6 million of additional net sales in 2023. The increase in net sales was partially offset by lower case volumes due, in large part, to marketplace demand changes from a certain national account customer. Overall, case volumes for the segment were down 4.5% in the current year.
Retail net sales increased $12.1 million, or 0.4% to $2.81 billion in 2023 compared to $2.80 billion in the prior year. Comparable store sales increased 2.0% in the current year. The increase in net sales was primarily attributabledue to contributions from the Caito acquisition, organic growth of 3.7%inflationary pricing, offset by a 6.4% decline in unit volumes in the Food Distribution segment, new military commissary businesscurrent year. Additionally, lower fuel sales reduced reported net sales by 1.3% 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 priorcurrent 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. Sales are compared to the same store’s operations from the prior year period for purposes of calculation of comparable store sales. Fuel is excluded from the comparable sales calculation due to volatility in price. Comparable store sales is a widely used metric among retailers, which is useful to management and investors to assess performance. The Company’s definition of comparable store sales may differ from similarly titled measures at other companies.
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 $33.4decreased $11.9 million, or 3.0%0.8%, to $1.14$1.49 billion in 2017the current year compared to $1.11$1.50 billion in the prior year primarily due to lower volumes. As a percent of net sales, gross profit decreased from 15.5% to 15.3% primarily due to lower inflation-related price change benefits in the Wholesale segment compared to elevated levels in the prior year, partially offset by benefits realized from the merchandising transformation initiative and lower LIFO expense. LIFO expense decreased $40.7 million, or 42 basis points, compared to the prior year due to a significant decrease in inflation trends by the end of 2023.
Selling, General and Administrative Expenses – Selling, general and administrative (“SG&A”) expenses consist primarily of operating costs related to retail and supply chain operations, including salaries and wages, employee benefits, facility costs, shipping and handling, equipment rental, depreciation, and out-bound freight, in addition to corporate administrative expenses. SG&A expenses decreased $61.5 million, or 4.3%, to $1.37 billion in the current year from $1.43 billion in the prior year. As a percent of net sales, gross profitSG&A expenses decreased from 14.4%14.8% to 14.1%14.0% primarily due to several factors, most notablylower incentive compensation expense compared to the increased mix of Food Distribution salesprior year, a reduction in the supply chain expense rates as a percentageresult of total sales. The rate was also impacted by margin investments at both Retailefficiencies realized from the Company's supply chain transformation initiative, and Food Distribution,cycling costs related to shareholder activism in the cycling of a significant prior year LIFO benefit and lower fuel margins,year. These decreases were partially offset by higher margin ratesorganizational realignment costs in the Military segment.current year related to the previously announced go-to-market plan.
Selling, General-21-
Acquisition and Administrative ExpensesIntegration, net – Selling, general Acquisition 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 $1,014.7integration, net was $3.4 million in 2017 from $963.7the current year compared to $0.3 million in the prior year. Current year representing 12.5%activity includes fees associated with due diligence activities, purchase agreement negotiation and strategic advice within the Retail segment, as well as incremental costs of net salesintegration related to an acquired business in the Wholesale segment. Prior year expense primarily related to acquisitions in both years. The increase in SG&A expense was primarily attributable to higher operational expenses related to the Caito acquisition, increased healthcare costsRetail and higher transportation and occupancy costs,Wholesale segments, partially offset by lower incentive compensation and other cost savings.the reversal of a litigation accrual, which was initially established at the time of the Martin's Super Markets acquisition.
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 Impairmentnet – In 2017, $228.5the current year, $9.2 million of net restructuring and asset impairment charges were incurred, predominantly associated with goodwill and asset impairment charges.incurred. The Company recorded a non-cash goodwill impairment chargecharges were largely composed 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$8.0 million of asset impairment and restructuring charges primarilyin the Wholesale segment related to initiatives associated with continued supply chain network optimization in response to customer demand changes. Additional asset impairment charges of $3.7 million in the underlying performancecurrent year were related to two store closures in the Retail segment and impairment losses related to a distribution location that sustained storm damage in the Wholesale segment. These charges were partially offset by $2.6 million of Company’s retailgains on sales of assets in the current year primarily related to the sale of a store base andwithin the execution of its store rationalization program.Retail segment. Prior year results included $32.1$0.8 million of net restructuring and asset impairment charges, that consisted primarilywhich were largely composed of $5.1 million of asset impairment charges relatedin the Retail segment, which primarily relate 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 storesegment's e-commerce delivery model, and warehouse rationalization plan.$1.8 million of provisions for closing charges associated with lease ancillary costs. These charges in the current year were mostly offset by $6.3 million gain on sales of real property of previously closed locations within the Wholesale and Retail segments.
Operating Earnings (Loss) – The following table presents operating earnings by segment and variances in operating earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Change in | ||||||||||||||
|
|
|
| Percentage of |
|
|
|
| Percentage of |
|
|
|
|
| Percentage of | ||||||||||||||
(In thousands) | 2023 |
|
| Net Sales |
| 2022 |
|
| Net Sales |
| Variance |
|
| Net Sales | |||||||||||||||
Wholesale | $ |
| 87,701 |
|
|
| 1.3 |
| % |
| $ |
| 55,137 |
|
|
| 0.8 |
| % |
| $ |
| 32,564 |
|
|
| 0.5 |
| % |
Retail |
|
| 19,011 |
|
|
| 0.7 |
|
|
|
|
| 13,407 |
|
|
| 0.5 |
|
|
|
|
| 5,604 |
|
|
| 0.2 |
|
|
Operating earnings | $ |
| 106,712 |
|
|
| 1.1 |
| % |
| $ |
| 68,544 |
|
|
| 0.7 |
| % |
| $ |
| 38,168 |
|
|
| 0.4 |
| % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 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$106.7 million in the current year compared to $68.5 million in the prior year. The decreaseincrease of $215.1$38.2 million, or 55.7%, was primarily attributable to changes in net sales, gross profit and operating expenses discussed above.
Wholesale operating earnings increased $32.6 million, or 59.1%, to $87.7 million in the 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$55.1 million in the prior year. The decreaseincrease was primarily attributable to Caito operationsefficiencies realized from the Company's supply chain transformation initiative, lower incentive compensation, lower LIFO expense, and Fresh Kitchen start-up activities and higher LIFO expense,benefits realized from the merchandising transformation initiative. The increases in operating earnings were partially offset by net sales growth from newa decline in unit volume, the anticipated lower inflation related price change benefits compared to elevated levels in the prior year, and existing customers, lower incentive compensationincreased restructuring and lower operating expenses associated with various cost savings initiatives.asset impairment charges.
MilitaryRetail operating earnings decreased $5.1increased $5.6 million, or 41.8%, to $7.0$19.0 million in 2017 from $12.2the current year compared to $13.4 million in the prior year. The decreaseincrease in operating earnings 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.reduced asset impairment and restructuring charges, partially offset by a decline in unit volume, greater investments in store wages, and an increase in acquisition and integration costs.
Retail reported an operating loss of ($196.6)Interest Expense – Interest expense increased $17.1 million, in 2017 comparedor 75.0%, to operating earnings of $11.5$39.9 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 2017current year from $19.1$22.8 million in the prior year primarily due to increased borrowings related torising interest rates. Higher interest rates on the CaitoCompany's credit facility were driven by federal monetary policy tightening and BRT acquisition and the timing of working capital requirements.
Debt Extinguishment – A loss on debt extinguishment of $0.4accounted for approximately $13.3 million was incurred in 2017 in connection with the pay down of the termincrease in interest expense in the current year. The weighted average interest rate for all borrowings, including loan component of the senior secured credit facility. A loss onfee amortization increased 2.38% to 7.03% in 2023, compared to 4.65% in 2022. The total debt extinguishment of $0.2balance increased $93.9 million was incurredto $597.5 million in 20162023, compared to $503.6 million in connection with the amendment of the senior secured credit facility.2022.
Income Taxes –The Company’s effective income tax rates were 60.0%25.5% and 36.6%26.4% for 20172023 and 2016,2022, 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-
Differencesdifferences 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 waswere primarily due to business gains from newstate taxes 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,non-deductible expenses, partially offset by new business gainsbenefits 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 salesfederal tax credits, discrete benefits due to the closure of retail storesa changes in tax contingencies, 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, employeediscrete 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 stock compensation. In the closure of four retail stores and two distribution centers, which were part ofprior year, 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 werewas primarily due to state income taxes.taxes, and non-deductible expenses, partially offset by tax benefits associated with federal tax credits and discrete tax benefits related to stock compensation.
-22-
Non-GAAP Financial Measures
In addition to reporting financial results in accordance with GAAP,accounting principles generally accepted in the United States of America (“GAAP”), the Company also provides information regarding adjusted operating earnings, adjusted earnings from continuing operations, as well as per diluted share ("adjusted EPS"), net long-term debt to total capital, and Adjusted Earnings Before Interest, Taxes, Depreciationadjusted earnings before interest, taxes, depreciation and Amortizationamortization (“adjusted EBITDA”). These are non-GAAP financial measures, as defined below, and are used by management to allocate resources, assess performance against its peers and evaluate overall performance. The Company believes these measures provide useful information for both management and its investors. The Company believes these non-GAAP measures are useful to investors because they provide additional understanding of the trends and special circumstances that affect its business. These measures provide useful supplemental information that helps investors to establish a basis for expected performance and the ability to evaluate actual results against that expectation. The measures, when considered in connection with GAAP results, can be used to assess the overall performance of the Company as well as assess the Company’s performance against its peers. These measures are also used as a basis for certain compensation programs sponsored by the Company. In addition, securities analysts, fund managers and other shareholders and stakeholders that communicate with the Company request its financial results in these adjusted formats.
-26-
Current year adjusted operating earnings, adjusted earnings from continuing operations, and adjusted EBITDA exclude, start-upamong other items, LIFO expense, organizational realignment, severance associated with cost reduction initiatives, a non-routine settlement related to a legal matter resulting from a previously closed operation that was resolved during the year and operating and non-operating costs associated with the new Fresh Kitchen operation, expenses (incentive compensationpostretirement plan amendment and professional fees)settlement. Current year organizational realignment includes consulting and severance costs associated with tax planning strategiesthe Company's change in its go-to-market strategy as part of its long-term plan, which relates to the reorganization of certain functions. Costs related to the 2017 Tax Cutspostretirement plan amendment 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 activitiessettlement include non-operating expenses associated with testing, training,recognition of plan settlement losses and preparingamortization of the Fresh Kitchen for production, as well as incorporatingprior service credit related to the amendment of the retiree medical plan, which are adjusted out of adjusted earnings from continuing operations. Postretirement plan amendment and settlement costs also include operating expenses related operations intoto payroll taxes which are adjusted out of all non-GAAP financial measures. Each of the business,adjusted items are considered “non-operational” or “non-core” in nature. The Tax Cuts
Prior year adjusted operating earnings, adjusted earnings from continuing operations, and Jobs Act was enacted in 2017adjusted EBITDA exclude, among other items, LIFO expense, costs related to shareholder activism, operating and resulted in a significant tax benefitnon-operating costs associated with the postretirement plan amendment and settlement, non-operating costs associated with the write off of certain unamortized deferred financing costs related to the Company duedebt modification, organizational realignment, and severance associated with cost reduction initiatives. Costs related to shareholder activism include consulting, legal and other expenses incurred in relation to shareholder activism activities. Costs related to the re-measurementpostretirement plan amendment and settlement include non-operating expenses associated with recognition of deferred taxes. The Companyplan settlement losses and amortization of the prior service credit related to the amendment of the retiree medical plan, which are adjusted out of adjusted earnings from continuing operations. Postretirement plan amendment and settlement costs also incurredinclude operating expenses related to tax planning strategies aimed at maximizingpayroll taxes which are adjusted out of all non-GAAP financial measures. Prior year organizational realignment includes benefits for associates terminated as part of leadership transition plans, which do not meet the tax benefit associated withdefinition of a reduction-in-force. Each of the changeadjusted items are considered “non-operational” or “non-core” in federal tax legislation. These items arenature.
In 2021, adjusted operating earnings, adjusted earnings from continuing operations, and adjusted EBITDA also exclude the transition impact of a new paid time off plan, which is not expected to recur in the foreseeable future andfuture. Each of the adjusted items 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 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 and adjusted operating earnings by segment areis not measuresa measure of performance under accounting principles generally accepted in the United States of America (“GAAP”),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 definitionsdefinition of adjusted operating earnings and adjusted operating earnings by segment may not be identical to similarly titled measures reported by other companies.
-23-
Following is a reconciliation of operating (loss) earnings to adjusted operating earnings for 2017, 20162023, 2022 and 2015.2021.
(In thousands) | 2023 |
|
| 2022 |
|
| 2021 |
| ||||||
Operating earnings | $ |
| 106,712 |
|
| $ |
| 68,544 |
|
| $ |
| 112,200 |
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
| |||
LIFO expense |
|
| 16,104 |
|
|
|
| 56,823 |
|
|
|
| 18,652 |
|
Acquisition and integration, net |
|
| 3,416 |
|
|
|
| 343 |
|
|
|
| 708 |
|
Restructuring and asset impairment, net |
|
| 9,190 |
|
|
|
| 805 |
|
|
|
| 2,886 |
|
Organizational realignment, net |
|
| 5,239 |
|
|
|
| 1,859 |
|
|
|
| 589 |
|
Severance associated with cost reduction initiatives |
|
| 318 |
|
|
|
| 831 |
|
|
|
| 423 |
|
Legal settlement |
|
| 900 |
|
|
|
| — |
|
|
|
| — |
|
Postretirement plan amendment and settlement |
|
| 94 |
|
|
|
| 133 |
|
|
|
| — |
|
Costs related to shareholder activism |
|
| — |
|
|
|
| 7,335 |
|
|
|
| — |
|
Paid time off transition adjustment |
|
| — |
|
|
|
| — |
|
|
|
| (21,371 | ) |
Adjusted operating earnings | $ |
| 141,973 |
|
| $ |
| 136,673 |
|
| $ |
| 114,087 |
|
Wholesale: |
|
|
|
|
|
|
|
|
|
|
| |||
Operating earnings | $ |
| 87,701 |
|
| $ |
| 55,137 |
|
| $ |
| 45,229 |
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
| |||
LIFO expense |
|
| 12,388 |
|
|
|
| 48,282 |
|
|
|
| 15,755 |
|
Acquisition and integration, net |
|
| 216 |
|
|
|
| 239 |
|
|
|
| — |
|
Restructuring and asset impairment, net |
|
| 8,548 |
|
|
|
| (2,363 | ) |
|
|
| 427 |
|
Organizational realignment, net |
|
| 3,269 |
|
|
|
| 1,160 |
|
|
|
| 374 |
|
Severance associated with cost reduction initiatives |
|
| 303 |
|
|
|
| 689 |
|
|
|
| 310 |
|
Legal settlement |
|
| 900 |
|
|
|
| — |
|
|
|
| — |
|
Postretirement plan amendment and settlement |
|
| 59 |
|
|
|
| 83 |
|
|
|
| — |
|
Costs related to shareholder activism |
|
| — |
|
|
|
| 4,577 |
|
|
|
| — |
|
Paid time off transition adjustment |
|
| — |
|
|
|
| — |
|
|
|
| (10,041 | ) |
Adjusted operating earnings | $ |
| 113,384 |
|
| $ |
| 107,804 |
|
| $ |
| 52,054 |
|
Retail: |
|
|
|
|
|
|
|
|
|
|
| |||
Operating earnings | $ |
| 19,011 |
|
| $ |
| 13,407 |
|
| $ |
| 66,971 |
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
| |||
LIFO expense |
|
| 3,716 |
|
|
|
| 8,541 |
|
|
|
| 2,897 |
|
Acquisition and integration, net |
|
| 3,200 |
|
|
|
| 104 |
|
|
|
| 708 |
|
Restructuring and asset impairment, net |
|
| 642 |
|
|
|
| 3,168 |
|
|
|
| 2,459 |
|
Organizational realignment, net |
|
| 1,970 |
|
|
|
| 699 |
|
|
|
| 215 |
|
Severance associated with cost reduction initiatives |
|
| 15 |
|
|
|
| 142 |
|
|
|
| 113 |
|
Postretirement plan amendment and settlement |
|
| 35 |
|
|
|
| 50 |
|
|
|
| — |
|
Costs related to shareholder activism |
|
| — |
|
|
|
| 2,758 |
|
|
|
| — |
|
Paid time off transition adjustment |
|
| — |
|
|
|
| — |
|
|
|
| (11,330 | ) |
Adjusted operating earnings | $ |
| 28,589 |
|
| $ |
| 28,869 |
|
| $ |
| 62,033 |
|
-27-
(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 |
|
-28-
Adjusted Earnings from Continuing Operations
Adjusted earnings from continuing operations, as well as per diluted share ("adjusted EPS"), is a non-GAAP operating financial measure that the Company defines as net 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,GAAP 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.
-24-
Following is a reconciliation of (loss)net earnings from continuing operations to adjusted earnings from continuing operations for 2017, 20162023, 2022 and 2015.2021.
| 2023 |
|
| 2022 |
|
| 2021 |
| |||||||||||||||||||||
|
|
|
| per diluted |
|
|
|
|
| per diluted |
|
|
|
|
| per diluted |
| ||||||||||||
(In thousands, except per share data) | Earnings |
|
| share |
|
| Earnings |
|
| share |
|
| Earnings |
|
| share |
| ||||||||||||
Net earnings | $ |
| 52,237 |
|
| $ |
| 1.50 |
|
| $ |
| 34,518 |
|
| $ |
| 0.95 |
|
| $ |
| 73,751 |
|
| $ |
| 2.05 |
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
LIFO expense |
|
| 16,104 |
|
|
|
|
|
|
|
| 56,823 |
|
|
|
|
|
|
|
| 18,652 |
|
|
|
|
| |||
Acquisition and integration, net |
|
| 3,416 |
|
|
|
|
|
|
|
| 343 |
|
|
|
|
|
|
|
| 708 |
|
|
|
|
| |||
Restructuring and asset impairment, net |
|
| 9,190 |
|
|
|
|
|
|
|
| 805 |
|
|
|
|
|
|
|
| 2,886 |
|
|
|
|
| |||
Organizational realignment, net |
|
| 5,239 |
|
|
|
|
|
|
|
| 1,859 |
|
|
|
|
|
|
|
| 589 |
|
|
|
|
| |||
Severance associated with cost reduction initiatives |
|
| 318 |
|
|
|
|
|
|
|
| 831 |
|
|
|
|
|
|
|
| 423 |
|
|
|
|
| |||
Pension refund from annuity provider |
|
| — |
|
|
|
|
|
|
|
| (200 | ) |
|
|
|
|
|
|
| — |
|
|
|
|
| |||
Legal settlement |
|
| 900 |
|
|
|
|
|
|
|
| — |
|
|
|
|
|
|
|
| — |
|
|
|
|
| |||
Postretirement plan amendment and settlement |
|
| (3,174 | ) |
|
|
|
|
|
|
| (776 | ) |
|
|
|
|
|
|
| — |
|
|
|
|
| |||
Costs related to shareholder activism |
|
| — |
|
|
|
|
|
|
|
| 7,335 |
|
|
|
|
|
|
|
| — |
|
|
|
|
| |||
Paid time off transition adjustment |
|
| — |
|
|
|
|
|
|
|
| — |
|
|
|
|
|
|
|
| (21,371 | ) |
|
|
|
| |||
Write off of deferred financing costs |
|
| — |
|
|
|
|
|
|
|
| 236 |
|
|
|
|
|
|
|
| — |
|
|
|
|
| |||
Total adjustments |
|
| 31,993 |
|
|
|
|
|
|
|
| 67,256 |
|
|
|
|
|
|
|
| 1,887 |
|
|
|
|
| |||
Income tax effect on adjustments (a) |
|
| (8,218 | ) |
|
|
|
|
|
|
| (17,083 | ) |
|
|
|
|
|
|
| (737 | ) |
|
|
|
| |||
Total adjustments, net of taxes |
|
| 23,775 |
|
|
|
| 0.68 |
|
|
|
| 50,173 |
|
|
|
| 1.38 |
|
|
|
| 1,150 |
|
|
|
| 0.03 |
|
Adjusted earnings from continuing operations | $ |
| 76,012 |
|
| $ |
| 2.18 |
|
| $ |
| 84,691 |
|
| $ |
| 2.33 |
|
| $ |
| 74,901 |
|
| $ |
| 2.08 |
|
| 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 |
|
|
*Includes rounding
(a)
(b)Includes a $4.8 million tax benefit attributable to tax planning strategies.
-29-
Adjusted EBITDA
Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (“adjusted EBITDA”) is a non-GAAP operating financial measure that the Company defines as net earnings plus interest, discontinued operations, depreciation and amortization, and other non-cash items including deferred (stock)share-based payments (equity awards measured in accordance with ASC 718, Stock Compensation, which include both stock-based compensation to employees and stock warrants issued to non-employees) and 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.Company.
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 and adjusted EBITDA by segment are not measures of performance under accounting principles generally accepted in the United States of America,GAAP and should not be considered as a substitute for net earnings, cash flows from operating activities and other income or cash flow statement data. The Company’s definitions of adjusted EBITDA and adjusted EBITDA by segment may not be identical to similarly titled measures reported by other companies.
-25-
Following is a reconciliation of net (loss) earnings to adjusted EBITDA for 2017, 20162023, 2022 and 2015.2021.
(In thousands) | 2023 |
|
| 2022 |
|
| 2021 |
| ||||||
Net earnings | $ |
| 52,237 |
|
| $ |
| 34,518 |
|
| $ |
| 73,751 |
|
Income tax expense |
|
| 17,888 |
|
|
|
| 12,397 |
|
|
|
| 24,906 |
|
Other expenses, net |
|
| 36,587 |
|
|
|
| 21,629 |
|
|
|
| 13,543 |
|
Operating earnings |
|
| 106,712 |
|
|
|
| 68,544 |
|
|
|
| 112,200 |
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
| |||
LIFO expense |
|
| 16,104 |
|
|
|
| 56,823 |
|
|
|
| 18,652 |
|
Depreciation and amortization |
|
| 98,639 |
|
|
|
| 94,180 |
|
|
|
| 92,711 |
|
Acquisition and integration, net |
|
| 3,416 |
|
|
|
| 343 |
|
|
|
| 708 |
|
Restructuring and asset impairment, net |
|
| 9,190 |
|
|
|
| 805 |
|
|
|
| 2,886 |
|
Cloud computing amortization |
|
| 5,034 |
|
|
|
| 3,650 |
|
|
|
| 2,140 |
|
Organizational realignment, net |
|
| 5,239 |
|
|
|
| 1,859 |
|
|
|
| 589 |
|
Severance associated with cost reduction initiatives |
|
| 318 |
|
|
|
| 831 |
|
|
|
| 423 |
|
Stock-based compensation |
|
| 12,536 |
|
|
|
| 8,589 |
|
|
|
| 6,975 |
|
Stock warrant |
|
| 1,559 |
|
|
|
| 2,158 |
|
|
|
| 1,958 |
|
Non-cash rent |
|
| (2,599 | ) |
|
|
| (3,444 | ) |
|
|
| (4,059 | ) |
Loss (gain) on disposal of assets |
|
| 259 |
|
|
|
| 1,073 |
|
|
|
| (106 | ) |
Legal settlement |
|
| 900 |
|
|
|
| — |
|
|
|
| — |
|
Postretirement plan amendment and settlement |
|
| 94 |
|
|
|
| 133 |
|
|
|
| — |
|
Costs related to shareholder activism |
|
| — |
|
|
|
| 7,335 |
|
|
|
| — |
|
Paid time off transition adjustment |
|
| — |
|
|
|
| — |
|
|
|
| (21,371 | ) |
Adjusted EBITDA | $ |
| 257,401 |
|
| $ |
| 242,879 |
|
| $ |
| 213,706 |
|
Wholesale: |
|
|
|
|
|
|
|
|
|
|
| |||
Operating earnings | $ |
| 87,701 |
|
| $ |
| 55,137 |
|
| $ |
| 45,229 |
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
| |||
LIFO expense |
|
| 12,388 |
|
|
|
| 48,282 |
|
|
|
| 15,755 |
|
Depreciation and amortization |
|
| 51,535 |
|
|
|
| 47,601 |
|
|
|
| 46,487 |
|
Acquisition and integration, net |
|
| 216 |
|
|
|
| 239 |
|
|
|
| — |
|
Restructuring and asset impairment, net |
|
| 8,548 |
|
|
|
| (2,363 | ) |
|
|
| 427 |
|
Cloud computing amortization |
|
| 3,414 |
|
|
|
| 2,537 |
|
|
|
| 1,517 |
|
Organizational realignment, net |
|
| 3,269 |
|
|
|
| 1,160 |
|
|
|
| 374 |
|
Severance associated with cost reduction initiatives |
|
| 303 |
|
|
|
| 689 |
|
|
|
| 310 |
|
Stock-based compensation |
|
| 8,216 |
|
|
|
| 5,646 |
|
|
|
| 4,373 |
|
Stock warrant |
|
| 1,559 |
|
|
|
| 2,158 |
|
|
|
| 1,958 |
|
Non-cash rent |
|
| (134 | ) |
|
|
| (382 | ) |
|
|
| 811 |
|
(Gain) loss on disposal of assets |
|
| (83 | ) |
|
|
| 512 |
|
|
|
| (42 | ) |
Legal settlement |
|
| 900 |
|
|
|
| — |
|
|
|
| — |
|
Postretirement plan amendment and settlement |
|
| 59 |
|
|
|
| 83 |
|
|
|
| — |
|
Costs related to shareholder activism |
|
| — |
|
|
|
| 4,577 |
|
|
|
| — |
|
Paid time off transition adjustment |
|
| — |
|
|
|
| — |
|
|
|
| (10,041 | ) |
Adjusted EBITDA | $ |
| 177,891 |
|
| $ |
| 165,876 |
|
| $ |
| 107,158 |
|
Retail: |
|
|
|
|
|
|
|
|
|
|
| |||
Operating earnings | $ |
| 19,011 |
|
| $ |
| 13,407 |
|
| $ |
| 66,971 |
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
| |||
LIFO expense |
|
| 3,716 |
|
|
|
| 8,541 |
|
|
|
| 2,897 |
|
Depreciation and amortization |
|
| 47,104 |
|
|
|
| 46,579 |
|
|
|
| 46,224 |
|
Acquisition and integration, net |
|
| 3,200 |
|
|
|
| 104 |
|
|
|
| 708 |
|
Restructuring and asset impairment, net |
|
| 642 |
|
|
|
| 3,168 |
|
|
|
| 2,459 |
|
Cloud computing amortization |
|
| 1,620 |
|
|
|
| 1,113 |
|
|
|
| 623 |
|
Organizational realignment, net |
|
| 1,970 |
|
|
|
| 699 |
|
|
|
| 215 |
|
Severance associated with cost reduction initiatives |
|
| 15 |
|
|
|
| 142 |
|
|
|
| 113 |
|
Stock-based compensation |
|
| 4,320 |
|
|
|
| 2,943 |
|
|
|
| 2,602 |
|
Non-cash rent |
|
| (2,465 | ) |
|
|
| (3,062 | ) |
|
|
| (4,870 | ) |
Loss (gain) on disposal of assets |
|
| 342 |
|
|
|
| 561 |
|
|
|
| (64 | ) |
Postretirement plan amendment and settlement |
|
| 35 |
|
|
|
| 50 |
|
|
|
| — |
|
Costs related to shareholder activism |
|
| — |
|
|
|
| 2,758 |
|
|
|
| — |
|
Paid time off transition adjustment |
|
| — |
|
|
|
| — |
|
|
|
| (11,330 | ) |
Adjusted EBITDA | $ |
| 79,510 |
|
| $ |
| 77,003 |
|
| $ |
| 106,548 |
|
-30-
(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 |
|
-26-
-31-
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 policyestimate is considered critical if: 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 b) 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:
Inventories
Inventories are valued at the lower of cost or market, with approximately 86.9% of the Company’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 Food Distribution and Military 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 owned retail stores and independent 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. Credit Losses. The Company evaluates the collectability of its accounts and notes receivable based on a combination of factors. In most circumstances whenThe Company estimates losses using an expected loss model, by considering both historical data and future expectations, including collection experience, expectations for current credit risks, accounts receivable payment status, the customer’s financial health, as well as the Company’s collateral and creditor position. The Company becomes awarepools similar assets based on their credit risk characteristics, whereby many 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),trade receivables are pooled based on certain customer or aging characteristics. After assets are pooled, an appropriate loss factor is applied based on management’s expectations. Based on the estimated loss, the Company records a specific reservean allowance 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.expects to collect. 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 statementshealth 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 guaranteedevaluates the outstanding lease obligations of certain independent retailerslikelihood that funding will occur and the bank debt of 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 wouldexpected credit losses on commitments to 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 nofunded using an expected 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.model.
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 Note 15, Concentration of Credit Risk, in the notes to the consolidated financial statements for additional information regarding customer exposure
Goodwill and credit risk.Other Indefinite-Lived Intangible Assets
Business Combinations
The Company accounts for acquired businesses using the purchase method of accounting, which requires that the assets acquiredGoodwill 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 ofother indefinite-lived 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 year), or whenever events occur or circumstances change that would more likely than not reduceindicate an impairment exists. The quantitative impairment evaluation of these assets involves the comparison of their fair value of a reporting unit below itsto their carrying amount. For purposes of its goodwill impairment testing, thevalues.
-27-
Goodwill. The Company maintains threehas two reporting units, which are the same as the Company’s reportable segments; however, there is no goodwill recorded 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.segments. Fair values are determined based on the discounted cash flows and comparable market values of each reportingreportable segment. If thea reporting unit’s 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. Anan impairment charge is recordedrecognized for any excess ofthe amount by which the carrying value overexceeds the impliedreporting unit’s fair value.value, not to exceed the total amount of goodwill allocated to the reporting unit. The Company’s goodwill impairment analysis also includes a comparison of the aggregate estimated fair value of each reporting unitthe enterprise as a whole 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 estimates the Company’s corporate owned retail stores represent componentsfair value of itsthe Wholesale and Retail segment. Stores have been aggregated and deemed a single reporting unit as they have similar economic characteristics.
Determining market valuesunits based on the income approach using a discounted cash flow method requires thatmodel and also incorporates the market approach using observable comparable company information. Key assumptions used by the Company make significant estimates and assumptions, including long-term projections ofin preparing the fair value estimate under the discounted 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 3.0% and 2.5% long-term assumed growth rates of cash flows for periods after the three-year forecast for the Food Distribution and Retail segments, respectively. The future estimated cash flows were discounted using a rate of 10.7% and 9.2% for the Food Distribution and Retail segments, respectively. The discount rates were developed based upon the segments’ weightedflow method include:
In the third quarter of 2017, the Company recorded a non-cash goodwill impairment charge of $189.0 millionforecast may vary due to future expectations related to both product and administrative costs.
The Company compares the Retail segment. Referresults of the discounted cash flow model to Note 5, Goodwillobservable comparable company market multiples to support the appropriateness of the fair value estimates. The Company concludes whether the implied multiple is reasonable with respect to the comparable company range, and Other Intangible Assets,whether the assumptions used in the notes to the consolidated financial statements for additional information related to the full impairment of Retail goodwill. fair value estimate are supportable.
As of the date of the most recent goodwill impairment test, which utilized data and assumptions as of October 7, 2017,8, 2023, the Food DistributionWholesale and Retail reporting unitunits had a fair valuevalues that waswere substantially in excess of itstheir carrying value.values. The Company has sufficient available information, both current and historical, to support its assumptions, judgments and estimates used in the goodwill impairment test; however, if actual results for the Food Distribution segmentWholesale or Retail segments are not consistent with the Company’s estimates, it could result in the Company recording a significant non-cash impairment charge.
Other Indefinite-Lived Intangible Assets. The estimated fair value of these assets is computed by using a discounted cash flow method, such as the relief-from-royalty methodology. The Company determines future cash flows generated from the use of the asset, generally using estimated revenue growth rates and profitability rates and, in the case of the relief-from-royalty methodology, royalty rates. Discount rates are determined based on the WACC of the reporting unit in which the asset resides, consistent with the discussion above. There were no impairments of these assets in 2023, 2022 or 2021.
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$11.7 million, $15.6$5.1 million and $4.2$3.8 million for 2017, 20162023, 2022 and 2015,2021, respectively.
-34-
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, the competitive environment, real estate market conditions and inflation. If the book value of assets is determined to not be recoverable, future cash flows for the expected useful life of the asset group are discounted using a rate based on the WACC of the reportable segment in which the asset resides, consistent with the discussion above.
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.
Reserves for Closed Properties-28-
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 At December 30, 2017, reserves for closed properties for distribution center and store lease and ancillary costs totaling $17.9 million are recorded net of $0.1 million of existing sublease rentals. Based upon the current economic environment, the Company does not believe that it is likely to obtain any additional sublease rentals. A 5% increase/decrease in future estimated ancillary costs would result in a $0.6 million increase/decrease in the restructuring charge liability
Insurance Reserves
SpartanNash is 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 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 ismay be difficult to estimate.
PensionIncome Taxes
AccountingThe Company reviews deferred tax assets for defined benefit pension plans involves estimatingrecoverability and evaluates whether it is more likely than not that they will be realized. In making this evaluation, the costCompany considers positive and negative evidence associated with several factors, including the statutory recovery periods for the assets, along with available sources of benefits to befuture taxable income, including reversals of existing taxable temporary differences, tax planning strategies, history of taxable income or losses, and projections of future income or losses. A valuation allowance is provided inwhen the future,Company concludes, based on vested years of service, and attributing those costs overall available evidence, that it is more likely than not that the time period each associate works. The significant factors affectingdeferred tax assets will not be realized during 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.applicable recovery period.
-35-
Sensitivities to changes in the major assumptions for the SpartanNash Company Pension Plan and the SpartanNash Company Retiree Medical Plan as of December 30, 2017, are as follows:
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Refer to Note 11, Associate Retirement Plans, in the notes to the consolidated financial statements for additional 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 13, Income Tax, in the notes to consolidated financial statements for additional information on income taxes.
Liquidity and Capital Resources
Cash Flow Information
The following table summarizes the Company’s consolidated statements of cash flows for 2017, 20162023, 2022 and 2015:2021:
|
|
|
|
|
|
|
|
| ||||||
(In thousands) | 2023 |
|
| 2022 |
|
| 2021 |
| ||||||
Cash flow activities |
|
|
|
|
|
|
|
|
|
|
| |||
Net cash provided by operating activities | $ |
| 89,327 |
|
| $ |
| 110,350 |
|
| $ |
| 161,155 |
|
Net cash used in investing activities |
|
| (116,517 | ) |
|
|
| (100,948 | ) |
|
|
| (47,978 | ) |
Net cash provided by (used in) financing activities |
|
| 16,068 |
|
|
|
| 9,018 |
|
|
|
| (122,414 | ) |
Net (decrease) increase in cash and cash equivalents |
|
| (11,122 | ) |
|
|
| 18,420 |
|
|
|
| (9,237 | ) |
Cash and cash equivalents at beginning of year |
|
| 29,086 |
|
|
|
| 10,666 |
|
|
|
| 19,903 |
|
Cash and cash equivalents at end of year | $ |
| 17,964 |
|
| $ |
| 29,086 |
|
| $ |
| 10,666 |
|
(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 decreased during 2017 over 2016 by approximately $104.3 million. The change was primarily due toin 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 advancescurrent year decreased compared to the prior year. Shortly after the fiscal year 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 from 2015 by approximately $65.0 million. The decrease was$21.0 million, due primarily due to changes in working capital, which were largely the result of inventory management initiatives and the timing of payments in 2015.capital.
During 2017, 2016 and 2015, the Company paid $10.7 million, $35.8 million and $23.5 million, respectively, in income tax net payments.
-36-
Net cash used in investing activities. Net cash used in investing activities increased $247.2$15.6 million in 20172023 compared to 20162022 primarily due to a decrease in net proceeds received from the Caitosale of assets and BRT acquisition.In the fourth quarter of 2017, andan increase in connection with securing a long-term supply arrangement, the Company invested $14.8 millioncapital expenditures in the purchase of real property and began leasingcurrent year in line with the related assets to an independent retailer.Company's long-term plan. The Company has classified this purchase as an Other Investing cash outflow based on the nature of the arrangement.
Netincrease in cash used in investing activities decreased $27.1 million in 2016 compared to 2015 primarily due to $41.5 million of payments for 2015 acquisitions,was partially offset by $14.9 million of lower proceeds onacquisitions in both the sales of assets of previously closed facilities compared to 2015.Wholesale and Retail segments in the prior year.
The Food Distribution, MilitaryWholesale and Retail segments utilized 36.7%, 9.1%62.8% and 54.2%37.2% of capital expenditures, respectively, for 2017. Expendituresthe current year. Capital expenditures for 20172023 primarily related to retailinvestments in supply chain infrastructure, store remodels, and upgrades, which include five major store remodels, various equipment purchases, and various IT system upgrades and implementations, to better streamline processes and meetequipment upgrades. Capital expenditures were $120.3 million in the operational needs of the Company. The Company expectscurrent year and cloud computing application development spend, which is included in operating activities, was $7.0 million, compared to capital expenditures to range from $60of $97.3 million to $70and cloud computing application development spend of $4.8 million for 2018.in the prior year.
Net cash provided by (used in) financing activities. Net cash provided by (used in) financing activities increased $340.6$7.1 million during 2017 over 2016in 2023 compared to 2022 primarily due to borrowings ona decrease in share repurchases in the revolving credit facility to fund the Caito and BRT acquisition and timing of working capital requirements,current year, partially offset by a $26.0 million increaselower rate of borrowing in cash used for the repurchase of common stock.
Net cash used in financing activities decreased $23.8 million during 2016 over 2015 primarily due to the $50.0 million prepayment of the Senior Notes in 2015 and an additional $23.4 million of paymentscurrent year on the Company's senior secured credit facility in 2016.facility.
Net cash used in discontinued operations. Net cash used in discontinued operations contains the net cash flows of the Company’s Food Distribution and Retail discontinued operations and is primarily composed of facility maintenance expenditures.-29-
Debt Management
TotalLong-term debt and finance lease liabilities, including capital lease obligations andthe current maturities,portion, increased $318.9$93.9 million to $750.0$597.5 million as of December 30, 20172023 from $431.1$503.6 million at December 31, 2016.2022. The increase in total debt was driven by drawdownsadditional borrowings on the senior credit facility to financefund changes in working capital, purchases of property, plant and equipment, and share repurchases. The Company's Amended and Restated Loan and Security Agreement (the "Credit Agreement") matures on November 17, 2027. In 2023, the CaitoCompany entered into amendments (the "Amendments") to the Company's Amended and BRT acquisition.
In December 2016, SpartanNash CompanyRestated Loan and certain of its subsidiaries amended its senior secured credit facilitySecurity Agreement (the “Credit Agreement”"Credit Agreement"). The principal changesterms of the amendment were to reduce the number of tiers in the pricing grid from three to two, reset the advance rate on real estate to 75%, provide the ability to increaseAmendments included increasing the size of the term loan by $33 million, and extend the maturity dateTranche A portion of the agreement, which was set to expire on January 8, 2020, to December 20, 2021.Company's revolving credit facility by $130 million in 2023. The Credit Agreement provides for borrowingsa Tranche A revolving loan of $1.0up to $1.17 billion consisting of three tranches:and a $900 million securedTranche A-1 revolving credit facility (Tranche A), aloan with $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.capacity. The Company has the ability to increase the size ofamount borrowed under the Credit Agreement by an additional $400$195 million, subject to certain conditions in the Credit Agreement.conditions. 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.facility. As of December 30, 2017,2023, the senior secured credit facility had outstanding borrowings of $707.5$522.5 million. Additional available borrowings under the Company’s $1.0 billion Credit Agreement are based on stipulated advance rates on eligible assets, as defined in the Credit Agreement. The Credit Agreement requires that the Company maintainsmaintain Excess Availability of 10% of the borrowing base, as defined in the Credit Agreement. The Company had excess availability after the 10% requirement of $132.7$483.2 million at December 30, 2017.2023. Payment of dividends and repurchases of outstanding shares are permitted, provided that certain levels of excess availability are maintained. The credit facilityCredit Agreement provides for the issuance of letters of credit, of which $9.2$17.7 million were outstanding as of December 30, 2017.2023. The revolving credit facility matures December 20, 2021,Company anticipates that additional borrowings may be required to fund increased investments in expenditures related to both organic and is secured by substantially all ofinorganic initiatives included in the Company’s assets.long-term strategic plan. The Company believes that cash generated from operating activities and available borrowings under the Credit 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 Agreement.
-37-
The Company’s current ratio (current assets toover current liabilities) was 2.03:1.001.63:1 at December 30, 20172023 compared to 1.77:1.001.51:1 at December 31, 2016,2022, and its investment in working capital was $509.7$417.6 million at December 30, 20172023 compared to $387.5$361.4 million at December 31, 2016. Net2022. The net long-term debt to total capital ratio increased to 0.50:1.00was 0.43:1 at December 30, 2017 from 0.33:1.002023, compared to 0.38:1 at December 31, 2016.
2022. Total net long-term debt is a non-GAAP financial measure that is defined as long-term debt and capitalfinance lease obligations,liabilities, plus current maturitiesportion of long-term debt and capitalfinance lease obligations,liabilities, 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 long-term debt is not a substitute for GAAP financial measures and may differ from similarly titled measures of other companies.
Following is a reconciliation of long-term“Long-term debt and capitalfinance lease obligationsliabilities” to total net long-term debt, and capital lease obligationsa non-GAAP measure, as of December 30, 20172023 and December 31, 2016.2022.
| December 30, |
|
| December 31, |
| ||||
(In thousands) | 2023 |
|
| 2022 |
| ||||
Current portion of long-term debt and finance lease liabilities | $ |
| 8,813 |
|
| $ |
| 6,789 |
|
Long-term debt and finance lease liabilities |
|
| 588,667 |
|
|
|
| 496,792 |
|
Total debt |
|
| 597,480 |
|
|
|
| 503,581 |
|
Cash and cash equivalents |
|
| (17,964 | ) |
|
|
| (29,086 | ) |
Net long-term debt | $ |
| 579,516 |
|
| $ |
| 474,495 |
|
| December 30, |
|
| December 31, |
| ||||
(In thousands) | 2017 |
|
| 2016 |
| ||||
Current maturities of long-term debt and capital lease obligations | $ |
| 9,196 |
|
| $ |
| 17,424 |
|
Long-term debt and capital lease obligations |
|
| 740,755 |
|
|
|
| 413,675 |
|
Total debt |
|
| 749,951 |
|
|
|
| 431,099 |
|
Cash and cash equivalents |
|
| (15,667 | ) |
|
|
| (24,351 | ) |
Total net long-term debt | $ |
| 734,284 |
|
| $ |
| 406,748 |
|
-30-
Contractual Obligations
The table below presents the Company’s significant contractual obligationsmaterial cash requirements as of December 30, 2017 (a):
| Amount Committed By Period |
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| Total |
|
| Less |
|
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|
|
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| More |
| ||||||
| Amount |
|
| than 1 |
|
|
|
|
|
|
|
|
|
|
|
| than 5 |
| ||||||
(In thousands) | Committed |
|
| year |
|
| 1-3 years |
|
| 3-5 years |
|
| years |
| ||||||||||
Long-term debt (b) | $ |
| 713,464 |
|
| $ |
| 3,028 |
|
| $ |
| 1,670 |
|
| $ |
| 708,310 |
|
| $ |
| 456 |
|
Estimated interest on long-term debt |
|
| 75,615 |
|
|
|
| 21,662 |
|
|
|
| 43,128 |
|
|
|
| 10,814 |
|
|
|
| 11 |
|
Capital leases (c) |
|
| 42,904 |
|
|
|
| 6,168 |
|
|
|
| 10,494 |
|
|
|
| 5,030 |
|
|
|
| 21,212 |
|
Interest on capital leases |
|
| 19,315 |
|
|
|
| 3,030 |
|
|
|
| 4,855 |
|
|
|
| 3,780 |
|
|
|
| 7,650 |
|
Operating leases (c) |
|
| 246,655 |
|
|
|
| 53,878 |
|
|
|
| 77,296 |
|
|
|
| 47,660 |
|
|
|
| 67,821 |
|
Lease and ancillary costs of closed sites |
|
| 19,848 |
|
|
|
| 5,302 |
|
|
|
| 4,915 |
|
|
|
| 3,437 |
|
|
|
| 6,194 |
|
Purchase obligations (merchandise) (d) |
|
| 100,673 |
|
|
|
| 36,390 |
|
|
|
| 56,204 |
|
|
|
| 5,813 |
|
|
|
| 2,266 |
|
Self-insurance liability |
|
| 15,155 |
|
|
|
| 8,739 |
|
|
|
| 4,053 |
|
|
|
| 1,342 |
|
|
|
| 1,021 |
|
Total | $ |
| 1,233,629 |
|
| $ |
| 138,197 |
|
| $ |
| 202,615 |
|
| $ |
| 786,186 |
|
| $ |
| 106,631 |
|
-38-
2023 primarily include long-term debt, including the estimated interest on the long-term debt, operating and finance lease liabilities, purchase obligations, and capital expenditure commitments. For additional information related to long-term debt and lease obligations, refer to Notes 6 and 10, respectively, in the notes to the consolidated financial statements. Purchase obligations include the amount of product the Company is contractually obligated to purchase in order to earn advanced contract monies that are receivable under the contracts, the majority of which are due in the next 12 months.
Cash Dividends
|
|
|
|
|
|
|
|
The Company has also made certain commercial commitments that extend beyond 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 December 30, 2017:
| Amount Committed By Period |
| ||||||||||||||||||||||
| Total |
|
| Less |
|
|
|
|
|
|
|
|
|
|
|
| More |
| ||||||
| Amount |
|
| than 1 |
|
|
|
|
|
|
|
|
|
|
|
| than 5 |
| ||||||
(In thousands) | Committed |
|
| year |
|
| 1-3 years |
|
| 3-5 years |
|
| years |
| ||||||||||
Standby Letters of Credit (a) | $ |
| 9,205 |
|
| $ |
| 9,205 |
|
| $ |
| — |
|
| $ |
| — |
|
| $ |
| — |
|
Guarantees (b) |
|
| 1,616 |
|
|
|
| 329 |
|
|
|
| 657 |
|
|
|
| 630 |
|
|
|
| — |
|
Total Other Commercial Commitments | $ |
| 10,821 |
|
| $ |
| 9,534 |
|
| $ |
| 657 |
|
| $ |
| 630 |
|
| $ |
| — |
|
|
|
|
|
Cash Dividends
The Company paiddeclared a quarterly cash dividend of $0.165, $0.15$0.215, $0.21 and $0.135$0.20 per common share in each quarter of 2017, 2016,2023, 2022, and 2015,2021, respectively. Under the Credit Agreement, the Company is generally permitted to pay dividends in any year up to an amount such that all cash dividends, together with any cash distributions and share repurchases, do not exceed $35.0 million. Additionally, the Company is generally permitted to pay cash dividends in excess of $35.0 million in any year so long as its Excess Availability, as defined in the 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 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 at its discretion. Whether the Board 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 additional information.information related to recently adopted accounting standards, as well as the anticipated effect of any impending accounting standards.
-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 allboth 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 $707.5$522.5 million of variable rate debt as of December 30, 2017.2023. The Company may not be able to accurately predict changes in interest rates or mitigate their impact. A hypothetical 0.50% increase in rates applicable to borrowings under the Revolving Credit Facility as of December 30, 2023 would increase interest expense related to such debt by approximately $2.6 million per year. The weighted average interest rate on debt outstanding forduring the year ended December 30, 20172023 was 3.70%7.03%.
As of December 30, 2023, the Company maintained an interest rate swap agreement with a maturity date of November 17, 2027 and an aggregate notional amount totaling $150 million. The Company utilizes the interest rate swap to mitigate its exposure to changes in variable interest rates on a portion of the Company's outstanding Revolving Credit Facility. Per the terms of the swap, the Company receives one-month term Secured Overnight Financing Rate (SOFR) and pays a fixed interest rate of 3.646%. The Company's interest rate swap is designated as a cash flow hedge as defined by GAAP. Accordingly, the change in the fair value of the interest rate swap is initially reported in "Other comprehensive income" in the consolidated statements of comprehensive income and subsequently reclassified to earnings in "Interest expense, net" in the consolidated statements of earnings when the hedged transactions affect earnings. As of December 30, 2023, the fair value of the interest rate swap was recorded in "Prepaid expenses and other current assets" and "Other long-term liabilities" for $1.7 million and $1.9 million, respectively, and "Accumulated other comprehensive income" for ($0.3) million, net of tax.
At December 30, 2017 and December 31, 2016,2023 the estimated fair value of the Company’s fixed rate long-term debt including current maturities, was higher than book value by approximately $1.6 million and $1.4 million, respectively.$1.2 million. The estimated fair values werevalue was based on market quotes for instruments with similar terms and remaining maturities.
The following table sets forth the future principal payments of the Company’s outstanding debt and related weighted average interest rates for the outstanding instruments as of December 30, 2017:2023:
| December 30, 2023 |
|
| Aggregate Payments by Year |
| ||||||||||||||||||||||||||||||||||
(In thousands, except rates) | Fair Value |
|
| Total |
|
| 2024 |
|
| 2025 |
|
| 2026 |
|
| 2027 |
|
| 2028 |
|
| Thereafter |
| ||||||||||||||||
Fixed rate debt |
| ||||||||||||||||||||||||||||||||||||||
Principal payable | $ |
| 80,626 |
|
| $ |
| 79,383 |
|
| $ |
| 8,813 |
|
| $ |
| 8,693 |
|
| $ |
| 10,024 |
|
| $ |
| 7,607 |
|
| $ |
| 7,530 |
|
| $ |
| 36,716 |
|
Average interest rate |
|
|
|
|
|
|
|
|
|
| 6.54 | % |
|
|
| 6.60 | % |
|
|
| 6.67 | % |
|
|
| 6.71 | % |
|
|
| 6.68 | % |
|
|
| 6.26 | % | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Variable rate debt |
| ||||||||||||||||||||||||||||||||||||||
Principal payable | $ |
| 522,491 |
|
| $ |
| 522,491 |
|
| $ |
| — |
|
| $ |
| — |
|
| $ |
| — |
|
| $ |
| 522,491 |
|
| $ |
| — |
|
| $ |
| — |
|
Average interest rate |
|
|
|
|
|
|
|
|
|
| 7.20 | % |
|
|
| 7.20 | % |
|
|
| 7.20 | % |
|
|
| 7.20 | % |
|
| N/A |
|
|
| N/A |
|
| December 30, 2017 |
|
| Aggregate Payments by Year |
| ||||||||||||||||||||||||||||||||||
(In thousands, except rates) | Fair Value |
|
| Total |
|
| 2018 |
|
| 2019 |
|
| 2020 |
|
| 2021 |
|
| 2022 |
|
| Thereafter |
| ||||||||||||||||
Fixed rate debt |
| ||||||||||||||||||||||||||||||||||||||
Principal payable | $ |
| 50,474 |
|
| $ |
| 48,876 |
|
| $ |
| 9,196 |
|
| $ |
| 6,969 |
|
| $ |
| 5,195 |
|
| $ |
| 3,002 |
|
| $ |
| 2,846 |
|
| $ |
| 21,668 |
|
Average interest rate |
|
|
|
|
|
|
| 6.49 | % |
|
|
| 6.89 | % |
|
|
| 7.25 | % |
|
|
| 7.56 | % |
|
|
| 7.77 | % |
|
|
| 7.84 | % |
|
|
| 8.16 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable rate debt |
| ||||||||||||||||||||||||||||||||||||||
Principal payable | $ |
| 707,492 |
|
| $ |
| 707,492 |
|
| $ |
| — |
|
| $ |
| — |
|
| $ |
| — |
|
| $ |
| 707,492 |
|
| $ |
| — |
|
| $ |
| — |
|
Average interest rate |
|
|
|
|
|
|
| 3.04 | % |
|
|
| 3.04 | % |
|
|
| 3.04 | % |
|
|
| 3.04 | % |
|
|
| 3.04 | % |
|
|
| 0.00 | % |
|
|
| 0.00 | % |
-31-
-40-
Item 8. Financial Statements and Supplementary Data
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholdersshareholders of
SpartanNash Company and Subsidiariessubsidiaries
Grand Rapids, Michigan
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of SpartanNash Company and subsidiaries (the "Company") as of December 30, 20172023 and December 31, 2016,2022, the related consolidated statements of operations,earnings, comprehensive (loss) income, shareholders' equity, and cash flows, for the fiscal years ended December 30, 2017,2023, December 31, 20162022, and January 2, 2016,1, 2022, and the related notes (collectively referred to as the “financial statements”"financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 30, 20172023 and December 31, 2016,2022, and the results of its operations and its cash flows for each of the fiscal years ended December 30, 2017,2023, December 31, 20162022, and January 2, 20161, 2022, 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's internal control over financial reporting as of December 30, 2017,2023, based on criteria established in Internal Control -— Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 26, 2018,28, 2024, expressed an unqualified opinion on the Company'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.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.
Goodwill — Wholesale Reporting Unit — Refer to Notes 1 and 4 to the financial statements
Critical Audit Matter Description
The Company’s evaluation of goodwill for impairment involves the comparison of the fair value of each reporting unit to its carrying value. The Company evaluates goodwill for impairment annually during the fourth quarter, and more frequently if circumstances indicate impairment is more likely than not to have occurred. The goodwill balance was $182 million as of December 30, 2023, $181 million of which was allocated to the Wholesale reporting unit (“Wholesale”).
The estimate of the fair value of Wholesale is based on the income approach using a discounted cash flow model and also incorporates the market approach using observable comparable company information. The principal factors used in the discounted cash flow analysis requiring management judgment are the determination of the weighted average cost of capital (“WACC”), revenue growth rates, and forecasted operating profits. Under the market approach, the Company compared the results of the discounted cash flow model to observable comparable company market multiples to support the appropriateness of the fair value estimates. The Company’s goodwill impairment analysis also includes a comparison of the estimated fair value of the enterprise as a whole to the Company’s total market capitalization. The Company concluded that the fair value of Wholesale was substantially in excess of its carrying value and, therefore, no impairment was recognized.
-32-
Given the significant judgments made by management to estimate the fair value of Wholesale, performing audit procedures to evaluate the reasonableness of management’s judgments and assumptions utilized in the impairment evaluation, particularly the determination of revenue growth rates, forecasted operating profits, and the WACC, required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to revenue growth rates, forecasted operating profits, and the selection of the WACC used by management to estimate the fair value of Wholesale included the following, among others:
/s/ DELOITTE & TOUCHE LLP
Grand Rapids, Michigan
February 26, 201828, 2024
We have served as the Company’sCompany's auditor since at least 1970; however, the specifican earlier year hascould not beenbe reliably determined.
-33-
-41-
CONSOLIDATED BALANCE SHEETS
SpartanNash Company and Subsidiaries
| December 30, |
|
| December 31, |
| ||||
(In thousands) | 2023 |
|
| 2022 |
| ||||
Assets |
|
|
|
|
|
|
| ||
Current assets |
|
|
|
|
|
|
| ||
Cash and cash equivalents | $ |
| 17,964 |
|
| $ |
| 29,086 |
|
Accounts and notes receivable, net |
|
| 421,859 |
|
|
|
| 404,016 |
|
Inventories, net |
|
| 575,226 |
|
|
|
| 571,065 |
|
Prepaid expenses and other current assets |
|
| 62,440 |
|
|
|
| 62,244 |
|
Total current assets |
|
| 1,077,489 |
|
|
|
| 1,066,411 |
|
|
|
|
|
|
|
|
| ||
Property and equipment, net |
|
| 649,071 |
|
|
|
| 610,220 |
|
Goodwill |
|
| 182,160 |
|
|
|
| 182,160 |
|
Intangible assets, net |
|
| 101,535 |
|
|
|
| 106,341 |
|
Operating lease assets |
|
| 242,146 |
|
|
|
| 257,047 |
|
Other assets, net |
|
| 103,174 |
|
|
|
| 84,382 |
|
|
|
|
|
|
|
|
| ||
Total assets | $ |
| 2,355,575 |
|
| $ |
| 2,306,561 |
|
|
|
|
|
|
|
|
| ||
Liabilities and Shareholders’ Equity |
|
|
|
|
|
|
| ||
Current liabilities |
|
|
|
|
|
|
| ||
Accounts payable | $ |
| 473,419 |
|
| $ |
| 487,215 |
|
Accrued payroll and benefits |
|
| 78,076 |
|
|
|
| 103,048 |
|
Other accrued expenses |
|
| 57,609 |
|
|
|
| 62,465 |
|
Current portion of operating lease liabilities |
|
| 41,979 |
|
|
|
| 45,453 |
|
Current portion of long-term debt and finance lease liabilities |
|
| 8,813 |
|
|
|
| 6,789 |
|
Total current liabilities |
|
| 659,896 |
|
|
|
| 704,970 |
|
|
|
|
|
|
|
|
| ||
Long-term liabilities |
|
|
|
|
|
|
| ||
Deferred income taxes |
|
| 73,904 |
|
|
|
| 66,293 |
|
Operating lease liabilities |
|
| 226,118 |
|
|
|
| 239,062 |
|
Other long-term liabilities |
|
| 28,808 |
|
|
|
| 33,376 |
|
Long-term debt and finance lease liabilities |
|
| 588,667 |
|
|
|
| 496,792 |
|
Total long-term liabilities |
|
| 917,497 |
|
|
|
| 835,523 |
|
|
|
|
|
|
|
|
| ||
Commitments and contingencies (Note 9) |
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
| ||
Shareholders’ equity |
|
|
|
|
|
|
| ||
Common stock, voting, no par value; 100,000 shares |
|
| 460,299 |
|
|
|
| 468,061 |
|
Preferred stock, no par value, 10,000 shares authorized; no shares outstanding |
|
| — |
|
|
|
| — |
|
Accumulated other comprehensive income |
|
| 796 |
|
|
|
| 2,979 |
|
Retained earnings |
|
| 317,087 |
|
|
|
| 295,028 |
|
Total shareholders’ equity |
|
| 778,182 |
|
|
|
| 766,068 |
|
|
|
|
|
|
|
|
| ||
Total liabilities and shareholders’ equity | $ |
| 2,355,575 |
|
| $ |
| 2,306,561 |
|
| December 30, |
|
| December 31, |
| ||||
(In thousands) | 2017 |
|
| 2016 |
| ||||
Assets |
|
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents | $ |
| 15,667 |
|
| $ |
| 24,351 |
|
Accounts and notes receivable, net |
|
| 344,057 |
|
|
|
| 291,568 |
|
Inventories, net |
|
| 597,162 |
|
|
|
| 539,857 |
|
Prepaid expenses and other current assets |
|
| 47,400 |
|
|
|
| 37,187 |
|
Property and equipment held for sale |
|
| — |
|
|
|
| 521 |
|
Total current assets |
|
| 1,004,286 |
|
|
|
| 893,484 |
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net |
|
| 600,240 |
|
|
|
| 559,722 |
|
Goodwill |
|
| 178,648 |
|
|
|
| 322,686 |
|
Intangible assets, net |
|
| 134,430 |
|
|
|
| 60,202 |
|
Other assets, net |
|
| 138,193 |
|
|
|
| 94,242 |
|
|
|
|
|
|
|
|
|
|
|
Total assets | $ |
| 2,055,797 |
|
| $ |
| 1,930,336 |
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders’ Equity |
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
|
Accounts payable | $ |
| 376,977 |
|
| $ |
| 372,432 |
|
Accrued payroll and benefits |
|
| 65,156 |
|
|
|
| 75,333 |
|
Other accrued expenses |
|
| 43,252 |
|
|
|
| 40,788 |
|
Current maturities of long-term debt and capital lease obligations |
|
| 9,196 |
|
|
|
| 17,424 |
|
Total current liabilities |
|
| 494,581 |
|
|
|
| 505,977 |
|
|
|
|
|
|
|
|
|
|
|
Long-term liabilities |
|
|
|
|
|
|
|
|
|
Deferred income taxes |
|
| 42,050 |
|
|
|
| 123,243 |
|
Postretirement benefits |
|
| 15,687 |
|
|
|
| 16,266 |
|
Other long-term liabilities |
|
| 40,774 |
|
|
|
| 45,768 |
|
Long-term debt and capital lease obligations |
|
| 740,755 |
|
|
|
| 413,675 |
|
Total long-term liabilities |
|
| 839,266 |
|
|
|
| 598,952 |
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity |
|
|
|
|
|
|
|
|
|
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 |
|
| (15,136 | ) |
|
|
| (11,437 | ) |
Retained earnings |
|
| 239,993 |
|
|
|
| 314,860 |
|
Total shareholders’ equity |
|
| 721,950 |
|
|
|
| 825,407 |
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders’ equity | $ |
| 2,055,797 |
|
| $ |
| 1,930,336 |
|
See notes to consolidated financial statements.
-34-
-42-
CONSOLIDATED STATEMENTS OF OPERATIONSEARNINGS
SpartanNash Company and Subsidiaries
(In thousands, except per share amounts) | 2023 |
|
| 2022 |
|
| 2021 |
|
| ||||||
Net sales | $ |
| 9,729,219 |
|
| $ |
| 9,643,100 |
|
| $ |
| 8,931,039 |
|
|
Cost of sales |
|
| 8,243,663 |
|
|
|
| 8,145,625 |
|
|
|
| 7,527,160 |
|
|
Gross profit |
|
| 1,485,556 |
|
|
|
| 1,497,475 |
|
|
|
| 1,403,879 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
| |||
Selling, general and administrative |
|
| 1,366,238 |
|
|
|
| 1,427,783 |
|
|
|
| 1,309,456 |
|
|
Paid time off transition adjustment |
|
| — |
|
|
|
| — |
|
|
|
| (21,371 | ) |
|
Acquisition and integration, net |
|
| 3,416 |
|
|
|
| 343 |
|
|
|
| 708 |
|
|
Restructuring and asset impairment, net |
|
| 9,190 |
|
|
|
| 805 |
|
|
|
| 2,886 |
|
|
Total operating expenses |
|
| 1,378,844 |
|
|
|
| 1,428,931 |
|
|
|
| 1,291,679 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Operating earnings |
|
| 106,712 |
|
|
|
| 68,544 |
|
|
|
| 112,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Other expenses and (income) |
|
|
|
|
|
|
|
|
|
|
|
| |||
Interest expense, net |
|
| 39,887 |
|
|
|
| 22,791 |
|
|
|
| 13,851 |
|
|
Other, net |
|
| (3,300 | ) |
|
|
| (1,162 | ) |
|
|
| (308 | ) |
|
Total other expenses, net |
|
| 36,587 |
|
|
|
| 21,629 |
|
|
|
| 13,543 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Earnings before income taxes |
|
| 70,125 |
|
|
|
| 46,915 |
|
|
|
| 98,657 |
|
|
Income tax expense |
|
| 17,888 |
|
|
|
| 12,397 |
|
|
|
| 24,906 |
|
|
Net earnings | $ |
| 52,237 |
|
| $ |
| 34,518 |
|
| $ |
| 73,751 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Net earnings per basic common share | $ |
| 1.53 |
|
| $ |
| 0.98 |
|
| $ |
| 2.07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Net earnings per diluted common share | $ |
| 1.50 |
|
| $ |
| 0.95 |
|
| $ |
| 2.05 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
| |||
Basic |
|
| 34,211 |
|
|
|
| 35,279 |
|
|
|
| 35,639 |
|
|
Diluted |
|
| 34,901 |
|
|
|
| 36,313 |
|
|
|
| 35,943 |
|
|
(In thousands, except per share amounts) | 2017 |
|
| 2016 |
|
| 2015 |
|
| ||||||
Net sales | $ |
| 8,128,082 |
|
| $ |
| 7,734,600 |
|
| $ |
| 7,651,973 |
|
|
Cost of sales |
|
| 6,983,173 |
|
|
|
| 6,623,106 |
|
|
|
| 6,536,291 |
|
|
Gross profit |
|
| 1,144,909 |
|
|
|
| 1,111,494 |
|
|
|
| 1,115,682 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative |
|
| 1,014,665 |
|
|
|
| 963,652 |
|
|
|
| 975,572 |
|
|
Merger/acquisition and integration |
|
| 8,101 |
|
|
|
| 6,959 |
|
|
|
| 8,433 |
|
|
Goodwill impairment |
|
| 189,027 |
|
|
|
| — |
|
|
|
| — |
|
|
Restructuring charges and asset impairment |
|
| 39,432 |
|
|
|
| 32,116 |
|
|
|
| 8,802 |
|
|
Total operating expenses |
|
| 1,251,225 |
|
|
|
| 1,002,727 |
|
|
|
| 992,807 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) earnings |
|
| (106,316 | ) |
|
|
| 108,767 |
|
|
|
| 122,875 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (income) and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
| 25,343 |
|
|
|
| 19,082 |
|
|
|
| 21,820 |
|
|
Loss on debt extinguishment |
|
| 413 |
|
|
|
| 247 |
|
|
|
| 1,171 |
|
|
Other, net |
|
| (428 | ) |
|
|
| (525 | ) |
|
|
| (375 | ) |
|
Total other expenses, net |
|
| 25,328 |
|
|
|
| 18,804 |
|
|
|
| 22,616 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings before income taxes and discontinued operations |
|
| (131,644 | ) |
|
|
| 89,963 |
|
|
|
| 100,259 |
|
|
Income taxes |
|
| (79,027 | ) |
|
|
| 32,907 |
|
|
|
| 37,093 |
|
|
(Loss) earnings from continuing operations |
|
| (52,617 | ) |
|
|
| 57,056 |
|
|
|
| 63,166 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations, net of taxes |
|
| (228 | ) |
|
|
| (228 | ) |
|
|
| (456 | ) |
|
Net (loss) earnings | $ |
| (52,845 | ) |
| $ |
| 56,828 |
|
| $ |
| 62,710 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic (loss) earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings from continuing operations | $ |
| (1.41 | ) |
| $ |
| 1.52 |
|
| $ |
| 1.68 |
|
|
Loss from discontinued operations |
|
| — |
| * |
|
| — |
| * |
|
| (0.01 | ) |
|
Net (loss) earnings | $ |
| (1.41 | ) |
| $ |
| 1.52 |
|
| $ |
| 1.67 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted (loss) earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings from continuing operations | $ |
| (1.41 | ) |
| $ |
| 1.52 |
|
| $ |
| 1.67 |
|
|
Loss from discontinued operations |
|
| — |
| * |
|
| (0.01 | ) |
|
|
| (0.01 | ) |
|
Net (loss) earnings | $ |
| (1.41 | ) |
| $ |
| 1.51 |
|
| $ |
| 1.66 |
|
|
*Includes rounding.
See notes to consolidated financial statements.
-43-
-35-
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
SpartanNash Company and Subsidiaries
(In thousands) | 2023 |
|
| 2022 |
|
| 2021 |
| ||||||
Net earnings | $ |
| 52,237 |
|
| $ |
| 34,518 |
|
| $ |
| 73,751 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Other comprehensive (loss) income, before tax |
|
|
|
|
|
|
|
|
|
|
| |||
Change in interest rate swap |
|
| (412 | ) |
|
|
| — |
|
|
|
| — |
|
Postretirement liability adjustment |
|
| (2,475 | ) |
|
|
| 5,875 |
|
|
|
| 1,087 |
|
Total other comprehensive (loss) income, before tax |
|
| (2,887 | ) |
|
|
| 5,875 |
|
|
|
| 1,087 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Income tax benefit (expense) related to items of other comprehensive (loss) income |
|
| 704 |
|
|
|
| (1,441 | ) |
|
|
| (266 | ) |
|
|
|
|
|
|
|
|
|
|
|
| |||
Total other comprehensive (loss) income, after tax |
|
| (2,183 | ) |
|
|
| 4,434 |
|
|
|
| 821 |
|
Comprehensive income | $ |
| 50,054 |
|
| $ |
| 38,952 |
|
| $ |
| 74,572 |
|
(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.
-44-
-36-
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
SpartanNash Company and Subsidiaries
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
| Other |
|
|
|
|
|
|
|
|
| ||||||
| Shares |
|
| Common |
|
| Comprehensive |
|
| Retained |
|
|
|
|
| ||||||||
(In thousands) | Outstanding |
|
| Stock |
|
| (Loss) Income |
|
| Earnings |
|
| Total |
| |||||||||
Balance at January 2, 2021 |
| 35,851 |
|
| $ |
| 491,819 |
|
| $ |
| (2,276 | ) |
| $ |
| 245,506 |
|
| $ |
| 735,049 |
|
Net earnings |
| — |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 73,751 |
|
|
|
| 73,751 |
|
Other comprehensive income |
| — |
|
|
|
| — |
|
|
|
| 821 |
|
|
|
| — |
|
|
|
| 821 |
|
Dividends - $0.80 per share |
| — |
|
|
|
| — |
|
|
|
| — |
|
|
|
| (28,716 | ) |
|
|
| (28,716 | ) |
Share repurchases |
| (265 | ) |
|
|
| (5,325 | ) |
|
|
| — |
|
|
|
| — |
|
|
|
| (5,325 | ) |
Stock-based compensation |
| — |
|
|
|
| 6,868 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 6,868 |
|
Stock warrant |
| — |
|
|
|
| 1,958 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 1,958 |
|
Issuance of common stock for stock bonus plan |
| 37 |
|
|
|
| 715 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 715 |
|
Issuance of restricted stock |
| 563 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| — |
|
|
|
| — |
|
Cancellations of stock-based awards |
| (238 | ) |
|
|
| (2,252 | ) |
|
|
| — |
|
|
|
| — |
|
|
|
| (2,252 | ) |
Balance at January 1, 2022 |
| 35,948 |
|
| $ |
| 493,783 |
|
| $ |
| (1,455 | ) |
| $ |
| 290,541 |
|
| $ |
| 782,869 |
|
Net earnings |
| — |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 34,518 |
|
|
|
| 34,518 |
|
Other comprehensive income |
| — |
|
|
|
| — |
|
|
|
| 4,434 |
|
|
|
| — |
|
|
|
| 4,434 |
|
Dividends - $0.84 per share |
| — |
|
|
|
| — |
|
|
|
| — |
|
|
|
| (30,031 | ) |
|
|
| (30,031 | ) |
Share repurchases |
| (1,047 | ) |
|
|
| (32,494 | ) |
|
|
| — |
|
|
|
| — |
|
|
|
| (32,494 | ) |
Stock-based compensation |
| — |
|
|
|
| 8,353 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 8,353 |
|
Stock warrant |
| — |
|
|
|
| 2,158 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 2,158 |
|
Issuance of common stock for associate stock |
| 21 |
|
|
|
| 587 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 587 |
|
Issuance of restricted stock |
| 391 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| — |
|
|
|
| — |
|
Cancellations of stock-based awards |
| (234 | ) |
|
|
| (4,326 | ) |
|
|
| — |
|
|
|
| — |
|
|
|
| (4,326 | ) |
Balance at December 31, 2022 |
| 35,079 |
|
| $ |
| 468,061 |
|
| $ |
| 2,979 |
|
| $ |
| 295,028 |
|
| $ |
| 766,068 |
|
Net earnings |
| — |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 52,237 |
|
|
|
| 52,237 |
|
Other comprehensive loss |
| — |
|
|
|
| — |
|
|
|
| (2,183 | ) |
|
|
| — |
|
|
|
| (2,183 | ) |
Dividends - $0.86 per share |
| — |
|
|
|
| — |
|
|
|
| — |
|
|
|
| (30,178 | ) |
|
|
| (30,178 | ) |
Share repurchases |
| (765 | ) |
|
|
| (18,595 | ) |
|
|
| — |
|
|
|
| — |
|
|
|
| (18,595 | ) |
Stock-based compensation |
| — |
|
|
|
| 12,221 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 12,221 |
|
Stock warrant |
| — |
|
|
|
| 1,559 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 1,559 |
|
Issuance of common stock for associate stock |
| 54 |
|
|
|
| 1,034 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 1,034 |
|
Issuances of restricted stock |
| 448 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| — |
|
|
|
| — |
|
Cancellations of stock-based awards |
| (206 | ) |
|
|
| (3,981 | ) |
|
|
| — |
|
|
|
| — |
|
|
|
| (3,981 | ) |
Balance at December 30, 2023 |
| 34,610 |
|
| $ |
| 460,299 |
|
| $ |
| 796 |
|
| $ |
| 317,087 |
|
| $ |
| 778,182 |
|
|
|
|
|
|
|
|
|
|
| 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.
-37-
-45-
CONSOLIDATED STATEMENTS OF CASH FLOWS
SpartanNash Company and Subsidiaries
(In thousands) | 2023 |
|
| 2022 |
|
| 2021 |
| ||||||
Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
|
| |||
Net earnings | $ |
| 52,237 |
|
| $ |
| 34,518 |
|
| $ |
| 73,751 |
|
Adjustments to reconcile net earnings to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
| |||
Non-cash restructuring, asset impairment and other charges |
|
| 9,089 |
|
|
|
| 553 |
|
|
|
| 2,973 |
|
Depreciation and amortization |
|
| 98,639 |
|
|
|
| 94,180 |
|
|
|
| 92,711 |
|
Non-cash rent |
|
| (3,397 | ) |
|
|
| (4,339 | ) |
|
|
| (4,854 | ) |
LIFO expense |
|
| 16,104 |
|
|
|
| 56,823 |
|
|
|
| 18,652 |
|
Postretirement benefits (income) expense |
|
| (2,316 | ) |
|
|
| (890 | ) |
|
|
| 1,611 |
|
Deferred income taxes |
|
| 8,229 |
|
|
|
| 1,415 |
|
|
|
| 17,603 |
|
Stock-based compensation expense |
|
| 12,268 |
|
|
|
| 8,353 |
|
|
|
| 6,868 |
|
Stock warrant |
|
| 1,559 |
|
|
|
| 2,158 |
|
|
|
| 1,958 |
|
Loss (gain) on disposals of assets |
|
| 259 |
|
|
|
| 1,073 |
|
|
|
| (106 | ) |
Other operating activities |
|
| 1,741 |
|
|
|
| 2,183 |
|
|
|
| 1,262 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
| |||
Accounts receivable |
|
| (17,228 | ) |
|
|
| (38,168 | ) |
|
|
| (4,005 | ) |
Inventories |
|
| (21,925 | ) |
|
|
| (92,346 | ) |
|
|
| 320 |
|
Prepaid expenses and other assets |
|
| (14,913 | ) |
|
|
| 4,683 |
|
|
|
| (18,992 | ) |
Accounts payable |
|
| (17,478 | ) |
|
|
| 28,069 |
|
|
|
| (18,286 | ) |
Accrued payroll and benefits |
|
| (27,348 | ) |
|
|
| 16,855 |
|
|
|
| (37,331 | ) |
Current income taxes |
|
| (424 | ) |
|
|
| 4,658 |
|
|
|
| 17,475 |
|
Other accrued expenses and other liabilities |
|
| (5,769 | ) |
|
|
| (9,428 | ) |
|
|
| 9,545 |
|
Net cash provided by operating activities |
|
| 89,327 |
|
|
|
| 110,350 |
|
|
|
| 161,155 |
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
|
| |||
Purchases of property and equipment |
|
| (120,330 | ) |
|
|
| (97,280 | ) |
|
|
| (79,427 | ) |
Net proceeds from the sale of assets |
|
| 4,333 |
|
|
|
| 36,825 |
|
|
|
| 29,375 |
|
Acquisitions, net of cash acquired |
|
| (780 | ) |
|
|
| (41,429 | ) |
|
|
| — |
|
Loans to customers |
|
| (750 | ) |
|
|
| — |
|
|
|
| (180 | ) |
Payments from customers on loans |
|
| 1,298 |
|
|
|
| 1,358 |
|
|
|
| 2,317 |
|
Other investing activities |
|
| (288 | ) |
|
|
| (422 | ) |
|
|
| (63 | ) |
Net cash used in investing activities |
|
| (116,517 | ) |
|
|
| (100,948 | ) |
|
|
| (47,978 | ) |
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
|
| |||
Proceeds from senior secured credit facility |
|
| 1,359,560 |
|
|
|
| 1,468,649 |
|
|
|
| 1,374,478 |
|
Payments on senior secured credit facility |
|
| (1,282,948 | ) |
|
|
| (1,382,409 | ) |
|
|
| (1,455,016 | ) |
Proceeds from other long-term debt |
|
| 1,000 |
|
|
|
| — |
|
|
|
| — |
|
Repayment of other long-term debt and finance lease liabilities |
|
| (8,157 | ) |
|
|
| (6,849 | ) |
|
|
| (5,710 | ) |
Share repurchases |
|
| (18,527 | ) |
|
|
| (32,494 | ) |
|
|
| (5,325 | ) |
Net payments related to stock-based award activities |
|
| (3,981 | ) |
|
|
| (4,326 | ) |
|
|
| (2,252 | ) |
Dividends paid |
|
| (29,660 | ) |
|
|
| (29,708 | ) |
|
|
| (28,327 | ) |
Financing fees paid |
|
| (1,219 | ) |
|
|
| (3,845 | ) |
|
|
| (262 | ) |
Net cash provided by (used in) financing activities |
|
| 16,068 |
|
|
|
| 9,018 |
|
|
|
| (122,414 | ) |
|
|
|
|
|
|
|
|
|
|
|
| |||
Net (decrease) increase in cash and cash equivalents |
|
| (11,122 | ) |
|
|
| 18,420 |
|
|
|
| (9,237 | ) |
Cash and cash equivalents at beginning of year |
|
| 29,086 |
|
|
|
| 10,666 |
|
|
|
| 19,903 |
|
Cash and cash equivalents at end of year | $ |
| 17,964 |
|
| $ |
| 29,086 |
|
| $ |
| 10,666 |
|
(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.
-38-
-46-
SPARTANNASH COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 – Summary of Significant Accounting Policies and Basis of Presentation
Principles of Consolidation: The consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts of SpartanNash Company and its subsidiaries (“SpartanNash” or “the Company”). Intercompany accounts and transactions have been eliminated.
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, 201830, 2023 ("2018"), December 30, 2017 (“2017”2023" or “current year”), December 31, 20162022 (“2016”2022” or “prior year”) and January 2, 20161, 2022 (“2015”2021”), 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 it satisfies a performance obligation by transferring control of the promised goods and services to a customer, in an amount that reflects the consideration that it expects to receive in exchange for those goods or services. This is achieved through applying the following five-step model:
The Company generates substantially all of its revenue from contracts with customers, whether formal or implied. Sales taxes collected from customers are remitted to the appropriate taxing jurisdictions and are excluded from sales pricerevenue as the Company considers itself a pass-through conduit for collecting and remitting sales taxes, with the exception of taxes assessed during the procurement process of select inventories. Greater than 99% of the Company’s revenues are recognized at a point in time. Revenues from product sales are recognized when control of the goods is fixed or determinable, collectability is reasonably assured, andtransferred to the customer, takes possessionwhich occurs at a point in time, typically upon delivery or shipment to the customer, depending on shipping terms, or upon customer check-out in a corporate-owned retail store. Freight revenues are also recognized upon delivery, at a point in time. Other revenues, including revenues from value-added services and leases, are recognized as earned, over a period of time. All of the merchandise. The Military segment recognizesCompany’s revenues uponare domestic, as the Company has no performance obligations on international shipments subsequent to delivery of the product to the commissarydomestic port.
The Company evaluates whether it is a principal (i.e., reports revenues on a gross basis) or commissaries designated by the Defense Commissary Agency (DeCA)an agent (i.e., 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 salesreports revenues 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. basis) with respect to each contract with customers.
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 cardsCertain contracts include rebates and gift certificates; rather, a sale is recognized whenother forms of variable consideration, including up-front rebates, rebates in arrears, rebatable incentives, non-cash incentives including stock warrants, and product incentives, which may have tiered structures based on purchase volumes and which are accounted for as variable consideration. To the customer loyalty points, gift card or gift certificate are redeemed to purchase product. Sales taxes collected from customers are remitted toextent the appropriate taxing jurisdictions and are excluded from sales revenue astransaction price includes variable consideration, the Company considers itselfestimates the amount of variable consideration that should be included in the transaction price utilizing either the expected value method or the most likely amount method depending on the nature of the variable consideration. Variable consideration is included in the transaction price if, in the Company’s judgment, it is probable that a pass-through conduit for collecting and remitting sales taxes.significant future reversal of cumulative revenue under the contract will not occur.
Cost of Sales: Cost of sales represents the cost of inventory sold during the period, which for all non-production operations includes purchase costs, in-bound freight, physical inventory adjustments, markdowns and promotional 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, theThe 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 includeWholesale segment includes shipping and handling costs in the selling, general and administrative section of operating expenses onwithin the consolidated statementstatements of operations.earnings.
Cash and Cash Equivalents: Cash and cash equivalents consistconsists of cash and highly liquid investments with an original maturity of three months or less at the date of purchase.
-39-
Accounts and Notes Receivable: Accounts and notes receivable are shownpresented net of allowances for credit losses of $2.0$5.8 million and $6.7$7.0 million as of December 30, 20172023 and December 31, 2016,2022, respectively. The Company evaluatesestimates losses using an expected loss model, considering both historical data and future expectations, including collection experience, expectations for current credit risks, accounts receivable payment status, the adequacycustomer’s financial health, as well as the Company’s collateral and creditor position. The Company pools similar assets based on their credit risk characteristics, whereby many of its allowances by analyzing thetrade receivables are pooled based on certain customer or 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 thesecharacteristics. After assets are pooled, an appropriate loss factor is applied based on management’s expectations. The Company also records specific 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.losses in certain circumstances using a similar estimated loss model. Operating results include net bad debt (income) expense of $1.5$(0.4) million, $1.4$3.3 million and $2.1$(0.3) million for 2017, 20162023, 2022 and 2015,2021, respectively.
-47-Accounts and notes receivable are composed of the following:
| December 30, |
|
| December 31, |
| ||||
(In thousands) | 2023 |
|
| 2022 |
| ||||
Current notes receivable | $ |
| 2,613 |
|
| $ |
| 1,622 |
|
Customer accounts receivable |
|
| 379,208 |
|
|
|
| 375,550 |
|
Other receivables |
|
| 44,649 |
|
|
|
| 32,942 |
|
Allowance for credit losses |
|
| (4,611 | ) |
|
|
| (6,098 | ) |
Net accounts and current notes receivable | $ |
| 421,859 |
|
| $ |
| 404,016 |
|
Long-term notes receivable | $ |
| 7,369 |
|
| $ |
| 8,573 |
|
Allowance for credit losses |
|
| (1,212 | ) |
|
|
| (948 | ) |
Net long-term notes receivable | $ |
| 6,157 |
|
| $ |
| 7,625 |
|
Inventory Valuation: Inventories are valued at the lower of cost or market.net realizable value. Approximately 86.9%90.4% and 86.7%87.5% of the Company’s inventories were valued on the last-in, first-out (LIFO) method at December 30, 20172023 and December 31, 2016,2022, respectively. If replacement cost had been used, inventories would have been $50.4$154.7 million and $47.6$138.6 million higher at December 30, 20172023 and December 31, 2016,2022, respectively. The replacement cost method utilizes the most current unit purchase cost to calculate the value of inventories. During 2017, 20162023, 2022 and 2015,2021, certain inventory quantities were reduced. The reductionsreduced which resulted in the liquidation of LIFO inventory carried at lower costs prevailing in prior years, the effect of which decreased the LIFO provision in 2017, 2016 and 2015 by $0.2$4.0 million, $0.2$2.1 million and $0.6$2.1 million in 2023, 2022 and 2021, respectively. The Company accounts for its Food Distribution and MilitaryWholesale segment 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 calculateddetermined 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 recordsestimates 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.counts.
Goodwill and Other 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 reportingreportable segment. Measuring the fair value of reporting units is a Level 3 measurement under the fair value hierarchy. See Note 8, Fair Value Measurements,7, for a discussion of fair value levels.
Intangible assets primarily consist of trade names, customer relationships, favorable lease agreements, pharmacy prescription lists, franchise agreements and fees, non-compete agreements, liquor licenses and liquor licenses.franchise fees. The following assets are amortized on a straight-line basis over the period of time in which their expected benefits will be realized: favorable leases (related lease terms),customer relationships and prescription lists and customer relationships (period of expected 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 and liquor licenses 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.impairment.
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 capitalfinance 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 propertyProperty and equipment, net and amounted to $30.7totaled $45.9 million and $32.9$47.3 million as of December 30, 20172023 and December 31, 2016,2022, respectively.
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Cloud Computing Arrangements: Implementation costs for software that is accessed in hosted cloud computing arrangements is accounted for in accordance with Accounting Standards Codification (“ASC”) 350, Intangibles-Goodwill and Other. Capitalized development costs of hosted cloud computing arrangements include configuration, installation, licenses, other upfront costs and internal labor costs of employees devoted to the cloud computing software implementation project. Once a project is complete, amortization is computed using the straight-line method over the term of the associated hosting arrangement, including any options to extend the hosting arrangement that the Company is reasonably certain to exercise, generally 3 to 8 years. These costs are classified in the consolidated balance sheets in “Prepaid expenses and other current assets” or “Other assets, net” based on the term of the arrangement, and the related cash flows are presented as cash outflows from operations. The net book value of these implementation costs was $24.3 million and $21.3 million, as of December 30, 2023 and December 31, 2022, respectively.
Leases: At the commencement or modification of a contract, the Company determines whether a lease exists based on 1) the identification of an underlying asset and 2) the right to control the use of the identified asset. When the Company is a lessee, leases are classified as either operating or finance. Operating and finance lease assets represent the Company’s right to use an underlying asset for the lease term, while lease obligations represent the Company’s obligation to make lease payments arising from the lease. Most of the Company’s lease agreements include variable payments related to executory costs for property taxes, utilities, insurance, maintenance and other occupancy costs related to the leased asset. Additionally, certain of the Company’s lease agreements include rental payments based on a percentage of retail sales over contractual levels or, in the case of transportation equipment, provisions requiring payment of variable rent based upon miles driven. These variable payments are not included in the measurement of the lease liability or asset and are expensed as incurred. Leases with an initial expected term of 12 months or less are not recorded in the consolidated balance sheets and the related lease expense is recognized on a straight-line basis over the lease term.
Lease assets and obligations are recognized at the lease commencement date based on the present value of lease payments and initial direct costs incurred, less incentives, over the lease term. In the absence of stated or implicit interest rates within lease contracts, incremental borrowing rates are estimated based on the Company’s borrowing rate as of the lease commencement date to determine the present value of lease payments. Incremental borrowing rates are determined by using the yield curve based on the Company’s creditworthiness on a collateralized basis. The Company includes option periods in the assumed lease term when it is reasonably certain that the options will be exercised. Operating lease assets and liabilities are reported discretely in the consolidated balance sheets. Finance lease assets are included in Property and equipment, net and finance lease liabilities are included in Long-term debt and finance lease liabilities within the Company’s consolidated balance sheets.
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 sold or 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 Company's performance, economy, real estate market conditions and inflation. The Company evaluates definite-lived intangible asset and operating and finance lease asset impairments in conjunction with testing of the related asset groups as described above. Impairment reserves are applied proportionally as a reduction to the assets in the asset group, including lease assets.
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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.term. Future cash flows are based on historical expenses, 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 one1 to 11 years. Adjustments5 years. Subsequent adjustments to closed property reserves primarily relate to changes in subtenant income orare made when actual exit costs differingdiffer from the original estimates. AdjustmentsThese adjustments are made for changes in estimates in the period in which the changes become known. The current portion of the future leaseclosed property 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 “Long-term debt and capitalfinance lease obligations”liabilities” in the consolidated balance sheets.
Insurance Reserves: SpartanNash is self-insuredinsured 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 for its self-insurance retentions and high deductible programs. On a per claim basis, the Company’s exposure is up to $0.5$0.5 million for workers’ compensation and general liability and automobile liability and $0.5$2.0 million for automobile liability. For healthcare, perthe Company’s exposure is up to $0.6 million in annual claims for each covered life per year.individual.
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A summary of changes in the Company’s self-insurance liability is as follows:
(In thousands) | 2017 |
|
| 2016 |
|
| 2015 |
| 2023 |
|
| 2022 |
|
| 2021 |
| ||||||||||||
Balance at beginning of year | $ |
| 14,730 |
|
| $ |
| 14,466 |
|
| $ |
| 19,413 |
| $ |
| 18,157 |
|
| $ |
| 19,445 |
|
| $ |
| 16,737 |
|
Expenses |
|
| 54,748 |
|
|
|
| 49,560 |
|
|
|
| 43,851 |
|
|
| 63,722 |
|
|
|
| 64,386 |
|
|
|
| 72,101 |
|
Claim payments, net of employee contributions |
|
| (54,323 | ) |
|
|
| (49,296 | ) |
|
|
| (48,798 | ) |
|
| (63,700 | ) |
|
|
| (65,674 | ) |
|
|
| (69,393 | ) |
Balance at end of year | $ |
| 15,155 |
|
| $ |
| 14,730 |
|
| $ |
| 14,466 |
| $ |
| 18,179 |
|
| $ |
| 18,157 |
|
| $ |
| 19,445 |
|
The current portion of the self-insurance liability was $8.7$10.9 million and $8.3$10.2 million as of December 30, 20172023 and December 31, 2016,2022, respectively, and is included in “Other accrued expenses” in the consolidated balance sheets. The long-term portion was $6.5$7.3 million and $6.4$7.9 million as of December 30, 20172023 and December 31, 2016,2022, respectively, and is included in “Other long-term liabilities” in the consolidated balance sheets.
Income Taxes: Deferred income tax assets and liabilities are computed for differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future. Such deferred income tax asset and liability computations are based on enacted tax laws and rates applicable to periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amounts expected to be realized. Income tax expense is the tax payable or refundable for the period plus or minus the change during the period in deferred and other tax assets and liabilities.
Earnings per share: Earnings per share (“EPS”) is computed using the two-class method. The two-class method determines 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 ofOutstanding nonvested restricted stock in whichincentive awards under the participants have non-forfeitableCompany’s 2015 Plan contain nonforfeitable rights to dividends duringor dividend equivalents, which participate in undistributed earnings with common stock. These awards are classified as participating securities and are included in the calculation of basic earnings per share. Awards under the 2020 Plan do not contain nonforfeitable rights to dividends or dividend equivalents and are therefore not classified as participating securities. The dilutive impact of both the restricted stock awards and warrants are presented below, as applicable. Weighted average restricted stock awards that were not included in the diluted EPS calculations because they were anti-dilutive were 19,765, 2,882, and 13,614 for 2023, 2022, and 2021 respectively. Performance share unit awards are not included within the calculation of diluted EPS as the performance period. Diluted EPS includescriteria has not been met as of the effects of stock options.year ended December 30, 2023.
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The following table sets forth the computation of basic and diluted EPS for continuing operations:EPS:
(In thousands, except per share amounts) | 2023 |
|
| 2022 |
|
| 2021 |
| ||||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
| |||
Net earnings | $ |
| 52,237 |
|
| $ |
| 34,518 |
|
| $ |
| 73,751 |
|
Adjustment for earnings attributable to participating securities |
|
| (408 | ) |
|
|
| (404 | ) |
|
|
| (1,399 | ) |
Net earnings used in calculating earnings per share | $ |
| 51,829 |
|
| $ |
| 34,114 |
|
| $ |
| 72,352 |
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
| |||
Weighted average shares outstanding, including participating securities |
|
| 34,211 |
|
|
|
| 35,279 |
|
|
|
| 35,639 |
|
Adjustment for participating securities |
|
| (267 | ) |
|
|
| (413 | ) |
|
|
| (676 | ) |
Shares used in calculating basic earnings per share |
|
| 33,944 |
|
|
|
| 34,866 |
|
|
|
| 34,963 |
|
Effect of dilutive stock warrant |
|
| 584 |
|
|
|
| 847 |
|
|
|
| 225 |
|
Effect of dilutive restricted stock awards |
|
| 106 |
|
|
|
| 187 |
|
|
|
| 79 |
|
Shares used in calculating diluted earnings per share |
|
| 34,634 |
|
|
|
| 35,900 |
|
|
|
| 35,267 |
|
Basic earnings per share | $ |
| 1.53 |
|
| $ |
| 0.98 |
|
| $ |
| 2.07 |
|
Diluted earnings per share | $ |
| 1.50 |
|
| $ |
| 0.95 |
|
| $ |
| 2.05 |
|
(In thousands, except per share amounts) | 2017 |
|
| 2016 |
|
| 2015 |
| ||||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 |
|
| 37,419 |
|
|
|
| 37,483 |
|
|
|
| 37,612 |
|
Adjustment for participating securities |
|
| (646 | ) |
|
|
| (664 | ) |
|
|
| (654 | ) |
Shares used in calculating basic earnings per share |
|
| 36,773 |
|
|
|
| 36,819 |
|
|
|
| 36,958 |
|
Effect of dilutive stock options |
|
| — |
|
|
|
| 73 |
|
|
|
| 106 |
|
Shares used in calculating diluted earnings per share |
|
| 36,773 |
|
|
|
| 36,892 |
|
|
|
| 37,064 |
|
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 75,159 for 2017. There were no anti-dilutive stock options in 2016 and 2015.
Stock-Based Employee Compensation: All share-based payments to associatesAssociates are generally 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 restrictedperformance stock units. The value of the portion of awards expected to vest is recognized as expense over the requisite service period. Performance stock units require the Company to estimate expected achievement of performance targets over the performance period. This estimate involves judgment regarding future expectations of various financial performance measures. If there are changes in the Company's estimates of the level of financial performance measures expected to be achieved, the related stock-based compensation expense may be significantly increased or reduced in the period that the estimate changes.
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Stock Warrants: Stock warrants are accounted for as equity instruments and measured in accordance with ASC 718, Compensation – Stock Compensation. For awards granted to a customer which are not in exchange for distinct goods or services, the fair value of the awards earned based on service or performance conditions is recorded as a reduction of the transaction price, in accordance with ASC 606, Revenue from Contracts with Customers. To determine the fair value of the warrants in accordance with ASC 718, the Company uses pricing models based in part on assumptions for which management is required to use judgment. Based on the fair value of the awards, the Company determines the amount of warrant expense based on the customer’s achievement of vesting conditions, which is recorded as a reduction of net sales on the consolidated statement of earnings. The dilutive impact of stock warrants is determined using the treasury stock method.
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 December 30, 20172023 and December 31, 2016,2022, 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 $43.4$33.7 million, $46.6$37.6 million and $47.7$37.7 million in 2017, 20162023, 2022 and 2015,2021, respectively.
Interest Rate Swaps: The Company utilizes an interest rate swap contract to reduce its exposure to fluctuations in variable interest rates applicable to its credit facility. The Company values the interest rate swap using standard models and observable market inputs including SOFR interest rates and discount rates. The Company has designated its interest rate swap as a cash flow hedge. The change in the fair value of the interest rate swap is initially reported in "Other comprehensive (loss) income" in the consolidated statements of comprehensive income and subsequently reclassified to earnings in "Interest expense, net" in the consolidated statements of earnings when the hedged transactions affect earnings.
Accumulated Other Comprehensive (Loss) Income (Loss)(“AOCI”): The Company reports comprehensive income, (loss) thatwhich includes net income (loss)earnings and other comprehensive income (loss). income. Other comprehensive (loss) income (loss) refers to expenses, gains and losses that are not included in net earnings, such as pension and other postretirement liability adjustments and changes in the fair value of interest rate swaps, but rather are recorded directly to shareholders’ equity. These amounts are also presented in the consolidated statements of comprehensive income.
Adoption of New Accounting Standards: As of December 30, 20172023 and December 31, 2016, AOCI relatesfor the year then ended, there were no recently adopted accounting standards that had a material impact on the Company's consolidated financial statements. There were no recently issued accounting standards not yet adopted which would have a material effect on the Company's consolidated financial statements.
Note 2 – Revenue
Sources of Revenue
SpartanNash is a distributor, wholesaler and retailer with a global supply chain network. SpartanNash's customers span a diverse group of national accounts, independent and chain grocers, e-commerce retailers, U.S. military commissaries and exchanges, and the Company’s own brick-and-mortar grocery stores, pharmacies and fuel centers. SpartanNash distributes grocery and household goods, including fresh produce and its Our Family® portfolio of products, to locations in all 50 states.
The Company’s main sources of revenue include the following:
Customer Supply Agreements (“CSAs") – The Company enters into CSAs (also known as Retail Sales and Service Agreements) with many of its retailer customers. These contracts obligate the Company to supply grocery and related products upon receipt of a purchase order from its customers. The contracts often specify minimum purchases a customer is required to make, in dollars or as a percentage of their total purchases, in order to earn certain rebates or incentives. In some cases, customers are required to repay advanced or loaned funds if they fail to meet purchase minimums or otherwise exit the supply agreement. Many of these contracts include various performance obligations other than providing grocery products, such as providing store resets, shelf tags, signage, or merchandising services. The Company has determined that these obligations are not material in the overall context of the contracts, and as such has not allocated transaction prices to these obligations. Revenue is recognized under these contracts when control of the product passes to the pensioncustomer, which may happen before or after delivery depending upon specified shipping terms.
The Company’s Wholesale customer base is diverse. Sales to one customer in the Wholesale segment represented 16%, 16%, and postretirement plans.
Discontinued operations: Certain17% of the Company’s Food DistributionCompany's net sales for 2023, 2022 and Retail operations have been recorded as discontinued operations. Results2021, respectively. No other single customer exceeded 10% of discontinued operations are excluded from the accompanying notesCompany's net sales in any of the years presented.
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Contracts with Manufacturers and Brokers to supply the Defense Commissary Agency (“DeCA”) and Other Government Agencies – DeCA operates a chain of commissaries on U.S. military installations. DeCA contracts with manufacturers to obtain grocery products for the commissary system. Manufacturers either deliver the products to the consolidated financial statementscommissaries themselves or, more commonly, contract with distributors such as SpartanNash to provide products to the commissaries. Manufacturers must authorize the distributors as their official representatives to DeCA, and the distributors must adhere to DeCA’s frequent delivery system procedures governing matters such as product identification, ordering and processing, information exchange and resolution of discrepancies. The Company obtains distribution contracts with manufacturers through competitive bidding processes and direct negotiations. 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 all periods presented, unless otherwise noted. Resultsa particular commissary or exchange location, and then places a product order with that distributor under DeCA’s master contract with the applicable manufacturer. The distributor selects that product from its existing inventory, delivers it to the commissary or port (in the case of discontinued operations reportedoverseas shipments) designated by DeCA, and bills the manufacturer for the product price plus a drayage fee that is typically based on the consolidated statements of operations are reported net of tax.
Adoption of New Accounting Standards and Recently Issued Accounting Standards
In February 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-measurementpercentage of the deferred tax assets associated with AOCI. This new guidance allowspurchase price, but may in some cases be based on a dollar amount per case or pound of product sold. The manufacturer then bills DeCA under the discrete tax impactterms of this re-measurement recordedits master contract. As control of the product passes to the customer upon delivery, revenue is recognized by SpartanNash at that time.
Revenue is recognized for the full amount paid by the vendor (for product and drayage) as the Company is a principal in the consolidated statement of operations to be reclassified to properly reflect AOCI net of tax under the new statute.transaction and therefore recognizes revenue on a gross basis for these contracts. 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.
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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 screenprincipal in the transaction is centered on controlling goods before they are transferred to determine when a set of the three elements of a business – inputs, processes, and outputs – are not a business. The screen requirescustomer. Key considerations supporting that whenSpartanNash controls the goods for these contracts prior to transfer to the customer include the following: (i) the Company has the ability to obtain substantially all of the fair value ofremaining benefits from the gross assets acquired (or disposed of) is concentrated in a single identifiable asset by selling the goods and/or a group of similar identifiableby pledging the related 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 effectiveas collateral for the Company in 2018. The impact of adoption will depend on the facts and circumstances of future acquisitions, if any, and thereforeborrowings; (ii) the Company is unablerequired to estimatebear the impactrisk of adoption. Adoption will have no impact oninventory loss prior to transfer to the Company’s historical financial statements.
In March 2016,customer; (iii) the FASB issued ASU 2016-09, “Compensation – Stock Compensation: Improvements to Employee Share-Based Payment Accounting.” ASU 2016-09 provides for simplification of several aspectsCompany has shared responsibilities in the fulfillment and acceptability of the accountinggoods; and (iv) to a lesser extent, the Company has some discretion in establishing the price for share-based payment transactions including income tax consequences, classificationthe goods sold to DeCA.
Retail Sales – The corporate-owned retail stores recognize revenue at the time the customer takes possession 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 deficienciesgoods. While there are no formal contracts related to stock-based compensation are reflected in the consolidated statements of operations as a component of the provision for income taxes, whereasthese sales, 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.” ASU 2016-02 provides guidance for lease accounting 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 operations 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 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 evaluating the other effects of adoption of this ASU on its consolidated financial statements.
In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers.” The new guidance 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.ASC 606. Customer returns are not material. The standard’s core principle is thatCompany does not recognize a company will recognize revenuesale when it transfers promisedsells gift cards and gift certificates or a reduction of sales when it awards fuel discounts; rather, the impact to revenue is recognized when the customer redeems the fuel discounts, gift card or gift certificate to purchase product.
-44-
Disaggregation of Revenue
The following table provides information about disaggregated revenue by type of products and customers for each of the Company’s reportable segments:
| 2023 |
| ||||||||||||
(In thousands) | Wholesale |
|
| Retail |
|
| Total |
| ||||||
Type of products: |
|
|
|
|
|
|
|
|
|
|
| |||
Center store (a) | $ |
| 2,678,297 |
|
| $ |
| 1,081,840 |
|
| $ |
| 3,760,137 |
|
Fresh (b) |
|
| 2,153,564 |
|
|
|
| 1,048,759 |
|
|
|
| 3,202,323 |
|
Non-food (c) |
|
| 1,985,816 |
|
|
|
| 512,679 |
|
|
|
| 2,498,495 |
|
Fuel |
|
| — |
|
|
|
| 165,684 |
|
|
|
| 165,684 |
|
Other |
|
| 101,540 |
|
|
|
| 1,040 |
|
|
|
| 102,580 |
|
Total | $ |
| 6,919,217 |
|
| $ |
| 2,810,002 |
|
| $ |
| 9,729,219 |
|
Type of customers: |
|
|
|
|
|
|
|
|
|
|
| |||
Individuals | $ |
| — |
|
| $ |
| 2,808,962 |
|
| $ |
| 2,808,962 |
|
Independent retailers (d) |
|
| 2,377,036 |
|
|
|
| — |
|
|
|
| 2,377,036 |
|
National accounts |
|
| 2,218,003 |
|
|
|
| — |
|
|
|
| 2,218,003 |
|
Military (e) |
|
| 2,277,966 |
|
|
|
| — |
|
|
|
| 2,277,966 |
|
Other |
|
| 46,212 |
|
|
|
| 1,040 |
|
|
|
| 47,252 |
|
Total | $ |
| 6,919,217 |
|
| $ |
| 2,810,002 |
|
| $ |
| 9,729,219 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
| 2022 |
| ||||||||||||
(In thousands) | Wholesale |
|
| Retail |
|
| Total |
| ||||||
Type of products: |
|
|
|
|
|
|
|
|
|
|
| |||
Center store (a) | $ |
| 2,671,666 |
|
| $ |
| 1,073,765 |
|
| $ |
| 3,745,431 |
|
Fresh (b) |
|
| 2,171,906 |
|
|
|
| 1,068,240 |
|
|
|
| 3,240,146 |
|
Non-food (c) |
|
| 1,888,318 |
|
|
|
| 452,557 |
|
|
|
| 2,340,875 |
|
Fuel |
|
| — |
|
|
|
| 202,256 |
|
|
|
| 202,256 |
|
Other |
|
| 113,346 |
|
|
|
| 1,046 |
|
|
|
| 114,392 |
|
Total | $ |
| 6,845,236 |
|
| $ |
| 2,797,864 |
|
| $ |
| 9,643,100 |
|
Type of customers: |
|
|
|
|
|
|
|
|
|
|
| |||
Individuals | $ |
| — |
|
| $ |
| 2,796,858 |
|
| $ |
| 2,796,858 |
|
Independent retailers (d) |
|
| 2,363,597 |
|
|
|
| — |
|
|
|
| 2,363,597 |
|
National accounts |
|
| 2,311,114 |
|
|
|
| — |
|
|
|
| 2,311,114 |
|
Military (e) |
|
| 2,115,353 |
|
|
|
| — |
|
|
|
| 2,115,353 |
|
Other |
|
| 55,172 |
|
|
|
| 1,006 |
|
|
|
| 56,178 |
|
Total | $ |
| 6,845,236 |
|
| $ |
| 2,797,864 |
|
| $ |
| 9,643,100 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
| 2021 |
| ||||||||||||
(In thousands) | Wholesale |
|
| Retail |
|
| Total |
| ||||||
Type of products: |
|
|
|
|
|
|
|
|
|
|
| |||
Center store (a) | $ |
| 2,419,163 |
|
| $ |
| 1,001,920 |
|
| $ |
| 3,421,083 |
|
Fresh (b) |
|
| 2,027,020 |
|
|
|
| 992,897 |
|
|
|
| 3,019,917 |
|
Non-food (c) |
|
| 1,783,229 |
|
|
|
| 427,872 |
|
|
|
| 2,211,101 |
|
Fuel |
|
| — |
|
|
|
| 157,236 |
|
|
|
| 157,236 |
|
Other |
|
| 120,341 |
|
|
|
| 1,361 |
|
|
|
| 121,702 |
|
Total | $ |
| 6,349,753 |
|
| $ |
| 2,581,286 |
|
| $ |
| 8,931,039 |
|
Type of customers: |
|
|
|
|
|
|
|
|
|
|
| |||
Individuals | $ |
| — |
|
| $ |
| 2,580,277 |
|
| $ |
| 2,580,277 |
|
Independent retailers (d) |
|
| 2,197,892 |
|
|
|
| — |
|
|
|
| 2,197,892 |
|
National accounts |
|
| 2,211,458 |
|
|
|
| — |
|
|
|
| 2,211,458 |
|
Military (e) |
|
| 1,882,602 |
|
|
|
| — |
|
|
|
| 1,882,602 |
|
Other |
|
| 57,801 |
|
|
|
| 1,009 |
|
|
|
| 58,810 |
|
Total | $ |
| 6,349,753 |
|
| $ |
| 2,581,286 |
|
| $ |
| 8,931,039 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
(a) Center store includes dry grocery, frozen and beverages. |
| |||||||||||||
(b) Fresh includes produce, meat, dairy, deli, bakery, prepared proteins, seafood and floral. |
| |||||||||||||
(c) Non-food includes general merchandise, health and beauty care, tobacco products and pharmacy. |
| |||||||||||||
(d) Independent retailers include sales to manufacturers, brokers and distributors. |
| |||||||||||||
(e) Military represents the distribution of grocery products to U.S. military commissaries and exchanges, which primarily includes sales to manufacturers and brokers. |
|
-45-
Contract Assets and Liabilities
Under its contracts with customers, the Company stands ready to deliver product upon receipt of a purchase order. Accordingly, the Company has no performance obligations under its contracts until its customers submit a purchase order. The Company does not receive pre-payment from its customers or enter into commitments to provide goods or services that have terms greater than one year. As the performance obligation is part of a contract that has an original expected duration of less than one year, the Company has applied the practical expedient under ASC 606 to omit disclosures regarding remaining performance obligations.
Revenue recognized from performance obligations related to prior periods (for example, due to changes in estimated rebates and incentives impacting the transaction price) was not material in any period presented.
For volume-based arrangements, the Company estimates the amount of the advanced funds earned by the retailers based on the expected volume of purchases by the retailer, and amortizes the advances as a reduction of the transaction price and revenue earned. These advances are not considered contract assets under ASC 606 as they are not generated through the transfer of goods or services to customersthe retailers. These advances are included in an amountOther assets, net within the consolidated balance sheets.
When the Company transfers goods or services to a customer, payment is due subject to normal terms and is not conditional on anything other than the passage of time. Typical payment terms range from "due upon receipt" to due within 30 days, depending on the customer. At contract inception, the Company expects that reflects the considerationperiod of time between the transfer of goods to which the company expects to be entitled in exchangecustomer and when the customer pays for those goods or services. In August 2015, the FASB issued ASU 2015-14, “Deferral of the Effective Date,”will be less than one year, which results in the guidance being effective for the Company in the first quarter of 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 plans to adopt using a full retrospective approach beginningconsistent with the first quarter of 2018.
The Company has completed its evaluation of adopting theCompany’s standard and its impact on the consolidated financial statements. From a principal versus agent considerations perspective,payment terms. Accordingly, the Company has evaluated itselected the practical expedient to not adjust for the effects of a 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.financing component. As a result, net salesthese amounts are recorded as receivables and not contract assets. The Company had no contract assets for 2017any period presented.
The Company does not typically incur incremental costs of obtaining a contract that are contingent upon successful contract execution and 2016 willwould therefore be restated to reflect a reductioncapitalized.
Concentration of revenuesCredit Risk
In the ordinary course 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,business, the Company determined that it did not control the related goods or services before they were transferredmay advance funds to the customers,certain independent retailers (“customer advances”) 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 – Acquisitions
On January 6, 2017, the Company acquired certain assets and assumed 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.retailers primarily through achieving specified purchase volume requirements, as outlined in their supply agreements with the Company. These customer advances must be repaid if the purchase volume requirements are not met. The reduction in purchase price, if applicable, will first be appliedcollectability of customer advances is not assured.
In the ordinary course of business, the Company also subleases and assigns certain leases 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.third parties. As of December 30, 2017,2023, the Company estimates the present value of its maximum potential obligations for subleases and assigned leases to be approximately $2.9 million and $7.6 million, respectively.
The Company may also provide financial assistance in the form of loans to certain 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 three to ten years. The Company establishes reserves based upon assessments of the credit risk of specific customers, collateral value, historical trends and other information. The Company believes that adequate provision has incurred $4.9 millionbeen recorded for any uncollectable amounts. In addition, the Company may guarantee debt of total acquisition-related costs associatedindependent 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, which would be due in accordance with the transaction,underlying agreements.
Changes to the balance of which $2.7 million was incurred in 2017the allowance for credit losses were as follows:
|
| Allowance for Credit Losses |
| ||||||||||||
|
| Current Accounts |
|
| Long-term |
|
|
|
| ||||||
(In thousands) |
| and Notes |
|
| Notes |
|
| Total |
| ||||||
Balance at January 2, 2021 |
| $ |
| 6,232 |
|
| $ |
| 371 |
|
| $ |
| 6,603 |
|
Changes in credit loss estimates |
|
|
| (1,101 | ) |
|
|
| 360 |
|
|
|
| (741 | ) |
Write-offs charged against the allowance |
|
|
| (717 | ) |
|
|
| — |
|
|
|
| (717 | ) |
Balance at January 1, 2022 |
|
|
| 4,414 |
|
|
|
| 731 |
|
|
|
| 5,145 |
|
Changes in credit loss estimates |
|
|
| 2,539 |
|
|
|
| 217 |
|
|
|
| 2,756 |
|
Write-offs charged against the allowance |
|
|
| (855 | ) |
|
|
| — |
|
|
|
| (855 | ) |
Balance at December 31, 2022 |
|
|
| 6,098 |
|
|
|
| 948 |
|
|
|
| 7,046 |
|
Changes in credit loss estimates |
|
|
| (929 | ) |
|
|
| 264 |
|
|
|
| (665 | ) |
Write-offs charged against the allowance |
|
|
| (558 | ) |
|
|
| — |
|
|
|
| (558 | ) |
Balance at December 30, 2023 |
| $ |
| 4,611 |
|
| $ |
| 1,212 |
|
| $ |
| 5,823 |
|
During 2023, 2022 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 provides2021, the Company with the abilityrecognized bad debt expense of $0.3 million, $1.1 million and $0.4 million, respectively, related 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 processdirect write-offs 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.uncollectable amounts.
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.-46-
On June 16, 2015, the 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. Dan’s was 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. During the measurement period, which ended June 15, 2016, there were no material adjustments made to the initial fair values of the assets acquired and liabilities assumed as part of the Dan’s acquisition.
Note 3 – Accounts and Notes Receivable
Accounts and notes receivable are comprised of the following:
| 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 |
|
Note 43 – Property and Equipment
Property and equipment consistsconsist of the following:
| December 30, |
|
| December 31, |
| ||||
(In thousands) | 2023 |
|
| 2022 |
| ||||
Land and improvements | $ |
| 91,031 |
|
| $ |
| 91,859 |
|
Buildings and improvements |
|
| 646,707 |
|
|
|
| 612,471 |
|
Equipment |
|
| 799,721 |
|
|
|
| 724,077 |
|
Construction in progress |
|
| 59,295 |
|
|
|
| 53,443 |
|
Total property and equipment |
|
| 1,596,754 |
|
|
|
| 1,481,850 |
|
Less accumulated depreciation and amortization |
|
| 947,683 |
|
|
|
| 871,630 |
|
Property and equipment, net | $ |
| 649,071 |
|
| $ |
| 610,220 |
|
Depreciation expense was $68.0 million, $66.7 million and $65.9 million in 2023, 2022 and 2021 respectively.
| 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 |
|
-53-
Note 54 – Goodwill and Other Intangible Assets
The Company has three reportable segments; however, no goodwill has existed within the Military segment.two reporting units, Wholesale and Retail. 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) |
(In thousands) | Wholesale |
|
| Retail |
|
| Total |
| ||||||
Balance at January 1, 2022 | $ |
| 181,035 |
|
| $ |
| — |
|
| $ |
| 181,035 |
|
Acquisitions |
|
| — |
|
|
|
| 1,125 |
|
|
|
| 1,125 |
|
Balance at December 31, 2022 and December 30, 2023 | $ |
| 181,035 |
|
| $ |
| 1,125 |
|
| $ |
| 182,160 |
|
(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.impairment is more likely than not to have occurred. 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
During the first dayCompany's 2023 annual impairment review within the Wholesale reporting unit, projected cash flows were discounted based on a weighted average cost of capital ("WACC") of 9.6%. This WACC was developed from adjusted market-based and company specific factors, current interest rates, equity risk premiums, and other market-based expectations regarding expected investment returns. The development of the third quarterWACC requires estimates of 2017,an equity rate of return and a debt rate of return, which are specific to the Company early adopted ASU 2017-04,industry in 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 RetailWholesale reporting unit and performed Step 1 of the goodwill impairment test by calculatingoperates. The Company concluded that the fair value of the RetailWholesale 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.value in the annual review.
The following table reflects the components of amortized intangible assets, included in “Intangible assets, net” on the consolidated balance sheets:
|
|
| December 30, 2023 |
|
| December 31, 2022 |
| |||||||||||||||
|
|
| Gross |
|
|
|
|
|
| Gross |
|
|
|
|
| |||||||
|
|
| Carrying |
|
| Accumulated |
|
| Carrying |
|
| Accumulated |
| |||||||||
(In thousands) |
|
| Amount |
|
| Amortization |
|
| Amount |
|
| Amortization |
| |||||||||
Non-compete agreements |
|
|
| $ |
| 3,545 |
|
| $ |
| 3,190 |
|
| $ |
| 3,545 |
|
| $ |
| 2,621 |
|
Pharmacy customer prescription lists |
|
|
|
|
| 3,869 |
|
|
|
| 2,853 |
|
|
|
| 4,168 |
|
|
|
| 2,598 |
|
Customer relationships |
|
|
|
|
| 57,937 |
|
|
|
| 26,146 |
|
|
|
| 57,937 |
|
|
|
| 22,484 |
|
Franchise fees |
|
|
|
|
| 1,209 |
|
|
|
| 661 |
|
|
|
| 1,165 |
|
|
|
| 598 |
|
Total |
|
|
| $ |
| 66,560 |
|
| $ |
| 32,850 |
|
| $ |
| 66,815 |
|
| $ |
| 28,301 |
|
|
|
|
| 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, 20172023 are as follows:
Non-compete agreements | 6.4 years |
| ||||||||||||
|
| |||||||||||||
Pharmacy customer prescription lists | 8.1 years |
| ||||||||||||
Customer relationships | 16.4 years |
| ||||||||||||
| 10.0 years |
| ||||||||||||
|
|
Amortization expense for intangible assets was $5.5$4.9 million, $3.0$5.0 million and $3.3$5.2 million for 2017, 20162023, 2022 and 2015,2021, respectively.
Estimated amortization expense for each of the five succeeding fiscal years is as follows:
(In thousands) | 2018 |
|
| 2019 |
|
| 2020 |
|
| 2021 |
|
| 2022 |
| 2024 |
|
| 2025 |
|
| 2026 |
|
| 2027 |
|
| 2028 |
| ||||||||||||||||||||
Amortization expense | $ |
| 5,772 |
|
| $ |
| 5,604 |
|
| $ |
| 5,267 |
|
| $ |
| 4,620 |
|
| $ |
| 4,362 |
| $ |
| 4,587 |
|
| $ |
| 4,190 |
|
| $ |
| 3,675 |
|
| $ |
| 3,653 |
|
| $ |
| 3,645 |
|
Indefinite-livedThe Company has indefinite-lived intangible assets that are not amortized, consisting primarily of indefinite-lived trade names and liquor licenses, for the sale of alcoholic beverages, totaled $69.8 million and $34.3totaling $67.8 million as of both December 30, 20172023 and December 31, 2016, respectively.2022.
-47-
Indefinite lived intangible assets are tested for impairment at least annually, and as needed if an indicator of potential impairment exists. A qualitative assessment was performed to determine whether it is more likely than not that an indefinite lived intangible asset is impaired. If the qualitative assessment supports that it is more likely than not that the fair value of the indefinite lived intangible asset exceeds its carrying value, a quantitative impairment test is not required. If the qualitative assessment does not support the fair value of the indefinite lived intangible asset, then a quantitative assessment is performed. Indefinite lived intangible assets are measured at fair value using Level 3 inputs under the fair value hierarchy, as further described in Note 67. The fair value of indefinite lived intangible assets is determined by estimating the amount and timing of net future cash flows generated from the use of the asset, generally using estimated revenue growth rates and profitability rates and, in the case of the relief-from-royalty methodology, royalty rates. Future cash flows are discounted based on the WACC of the reporting unit in which the asset resides, determined using current interest rates, equity risk premiums, and other market-based expectations regarding expected investment returns, as well as estimates of industry-specific equity and debt rates of return. The Company concluded that it is more likely than not that the fair value of the indefinite lived intangible assets exceed their carrying value during the annual qualitative assessment.
Note 5 – Restructuring, ChargesAsset Impairment and Asset ImpairmentOther Charges
The following table provides the activity of reserves for closed properties for 2017, 20162023, 2022 and 2015.2021. 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 2, 2021 | $ |
| 3,349 |
| $ |
| 114 |
| $ |
| 3,463 |
|
Provision for closing charges |
|
| 1,509 |
|
|
| — |
|
|
| 1,509 |
|
Provision for severance |
|
| — |
|
|
| 362 |
|
|
| 362 |
|
Lease termination adjustments |
|
| (220 | ) |
|
| — |
|
|
| (220 | ) |
Changes in estimates |
|
| 2 |
|
|
| — |
|
|
| 2 |
|
Accretion expense |
|
| 91 |
|
|
| — |
|
|
| 91 |
|
Payments |
|
| (1,607 | ) |
|
| (476 | ) |
|
| (2,083 | ) |
Balance at January 1, 2022 |
|
| 3,124 |
|
|
| — |
|
|
| 3,124 |
|
Provision for closing charges |
|
| 1,837 |
|
|
| — |
|
|
| 1,837 |
|
Provision for severance |
|
| — |
|
|
| 9 |
|
|
| 9 |
|
Lease termination adjustments |
|
| (86 | ) |
|
| — |
|
|
| (86 | ) |
Changes in estimates |
|
| 28 |
|
|
| — |
|
|
| 28 |
|
Accretion expense |
|
| 67 |
|
|
| — |
|
|
| 67 |
|
Payments |
|
| (993 | ) |
|
| (9 | ) |
|
| (1,002 | ) |
Balance at December 31, 2022 |
|
| 3,977 |
|
|
| — |
|
|
| 3,977 |
|
Provision for severance |
|
| — |
|
|
| 21 |
|
|
| 21 |
|
Changes in estimates |
|
| (258 | ) |
|
| — |
|
|
| (258 | ) |
Accretion expense |
|
| 102 |
|
|
| — |
|
|
| 102 |
|
Payments |
|
| (844 | ) |
|
| (21 | ) |
|
| (865 | ) |
Balance at December 30, 2023 | $ |
| 2,977 |
| $ |
| — |
| $ |
| 2,977 |
|
|
|
|
|
|
|
|
|
|
|
| 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 |
|
-55-
Included in the liability are lease obligations recorded at the present value of future minimum lease payments and relatedlease-related ancillary costs from the date of site closure to the end of the remaining lease term, net of estimated sublease income, calculated using a risk-free interest rate.term.
-48-
Restructuring, charges and asset impairment and other charges included in the consolidated statements of operationsearnings consisted of the following:
(In thousands) |
| 2023 |
|
| 2022 |
|
| 2021 |
| ||||||
Asset impairment charges (a) |
| $ |
| 11,749 |
|
| $ |
| 5,086 |
|
| $ |
| 3,783 |
|
Provision for closing charges |
|
|
| — |
|
|
|
| 1,837 |
|
|
|
| 1,509 |
|
Gain on sales of assets related to closed facilities (b) |
|
|
| (2,614 | ) |
|
|
| (6,324 | ) |
|
|
| (2,607 | ) |
Provision for severance (c) |
|
|
| 21 |
|
|
|
| 9 |
|
|
|
| 362 |
|
Other costs associated with site closures (d) |
|
|
| 584 |
|
|
|
| 271 |
|
|
|
| 636 |
|
Lease termination adjustments (e) |
|
|
| — |
|
|
|
| (102 | ) |
|
|
| (799 | ) |
Changes in estimates (f) |
|
|
| (550 | ) |
|
|
| 28 |
|
|
|
| 2 |
|
Total |
| $ |
| 9,190 |
|
| $ |
| 805 |
|
| $ |
| 2,886 |
|
(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 |
|
(a)
Long-lived assets which 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 of identifiable cash flows that are largely independent of the cash flows of other groups of assets.
Long-lived assetsrecoverable are measured at fair value on a nonrecurring basis using Level 3 inputs under the fair value hierarchy, as further described in Note 8, Fair Value Measurements. Assets7. In the current year, long-lived assets with a book value of $20.6 million were measured at a fair value of $8.9 million, resulting in impairment charges of $11.7 million. In the prior year, long-lived assets with a book value of $5.2 million were measured at a fair value of $0.1 million, resulting in impairment charges of $5.1 million. In 2021, long-lived assets consisting primarily of property and equipment with a book value of $48.6$27.5 million were measured at a fair value of $14.9$23.7 million, resulting in an impairment chargecharges of $33.7 million in 2017. Fair$3.8 million. The fair value of long-lived assets is determined by estimating the amount and timing of net future cash flows, discounted using a risk-adjusted rate of interest. The Company estimates future cash flows based on historical results of operations, external factors expected to impact future performance, experience and knowledge of the geographic area in which the assets are located, and when necessary, usesconsultations with real estate brokers.
Note 76 – Long-Term Debt
Long-term debt consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 30, |
|
| December 31, |
| ||||
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2023 |
|
| 2022 |
| ||||
Senior secured revolving credit facility, due November 2027 | $ |
| 522,492 |
|
| $ |
| 445,880 |
| |||||||||||||||
Finance lease liabilities (Note 10) |
|
| 74,639 |
|
|
|
| 57,515 |
| |||||||||||||||
Other, 3.71% - 4.36%, due 2024 - 2033 |
|
| 4,743 |
|
|
|
| 4,813 |
| |||||||||||||||
Total debt - Principal |
|
| 601,874 |
|
|
|
| 508,208 |
| |||||||||||||||
Unamortized debt issuance costs |
|
| (4,394 | ) |
|
|
| (4,627 | ) | |||||||||||||||
Total debt |
|
| 597,480 |
|
|
|
| 503,581 |
| |||||||||||||||
Less current portion |
|
| 8,813 |
|
|
|
| 6,789 |
| |||||||||||||||
Total long-term debt and finance lease liabilities | $ |
| 588,667 |
|
| $ |
| 496,792 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 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 |
|
-49-
-56-
In December 2016, SpartanNash2023, the Company entered into amendments (the "Amendments") to the Company's Amended and certain of its subsidiaries amended its senior secured credit facilityRestated Loan and Security Agreement (the “Credit Agreement”"Credit Agreement"). The principal changesterms of the amendment were to reduce the number of tiers in the pricing grid from three to two, reset the advance rate on real estate to 75%, provide the ability to increaseAmendments included increasing the size of the term loan by $33 million, and extend the maturity dateTranche A portion of the agreement, which was set to expire on January 8, 2020, to December 20, 2021.Company's revolving credit facility by $130 million in 2023. The Credit Agreement provides for borrowingsa Tranche A revolving loan of $1.0up to $1.17 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 $60Tranche A-1 revolving loan with $40 million term loan (Tranche A-2). In 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. Thecapacity. The Company has the ability to increase the size ofamount borrowed under the Credit Agreement by an additional $400$195 million, subject to certain conditions in the Credit Agreement.conditions. 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:restrictions on the Company, including limitations on dividends and investments, 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 EurodollarSOFR loans or Base Rate loans, subject to a grid based upon Excess Availability.Availability. The interest rate terms for each of the two remainingaforementioned tranches are as follows:
Credit | Outstanding as of | ||||||||||
Facility | December 30, | ||||||||||
Tranche | (In thousands) |
| Base Rate | ||||||||
Tranche A | $ |
|
| Greater of: | (i) the Federal Funds Rate plus | ||||||
(ii) the | |||||||||||
(iii) the prime rate plus 0.25% to 0.50% | |||||||||||
Tranche A-1 | $ |
|
| Greater of: | (i) the Federal Funds Rate plus | ||||||
(ii) the | |||||||||||
(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 of 0.25%0.25%.
As of December 30, 2017 and December 31, 2016, total outstanding borrowings on the secured revolving credit facilities and term loan were $707.5 million and $386.1 million, respectively. The Credit Agreement requires that the Company maintain Excess Availability of 10%10% of the borrowing base, as defined in the Credit Agreement. The Company is in compliance with all financial covenants as of December 30, 20172023 and had Excess Availability after the 10%10% requirement of $132.7$483.2 million and $415.8$447.8 million at December 30, 20172023 and December 31, 2016,2022, respectively. The Credit Agreement provides for the issuance of letters of credit, of which $9.2 million and $9.6$17.7 million were outstanding as of December 30, 20172023 and December 31, 2016, respectively.2022.
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.
The weighted average interest rate for all borrowings, including loan fee amortization, was 3.70%7.03% for 2017.2023. Refer to Note 8 for further information on the interest rate swap.
At December 30, 2017,2023, aggregate annual maturities and scheduled payments of long-term debt are as follows:
(In thousands) | 2024 |
|
| 2025 |
|
| 2026 |
|
| 2027 |
|
| 2028 |
|
| Thereafter |
|
| Total |
| ||||||||||||||
Total borrowings | $ |
| 8,813 |
|
| $ |
| 8,693 |
|
| $ |
| 10,024 |
|
| $ |
| 530,098 |
|
| $ |
| 7,530 |
|
| $ |
| 36,716 |
|
| $ |
| 601,874 |
|
(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 87 – Fair Value Measurements
ASC 820, Fair Value Measurement, 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.
-50-
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,4 and Note 6, Restructuring Charges and Asset Impairment. 5. At December 30, 20172023 and December 31, 2016,2022, the book value and estimated fair value of the Company’s debt instruments, excluding debt financing costs, were as follows:
| December 30, |
|
| December 31, |
| December 30, |
|
| December 31, |
| ||||||||
(In thousands) | 2017 |
|
| 2016 |
| 2023 |
|
| 2022 |
| ||||||||
Book value of debt instruments, excluding debt financing costs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Current maturities of long-term debt and capital lease obligations | $ |
| 9,196 |
|
| $ |
| 17,424 |
| |||||||||
Long-term debt and capital lease obligations |
|
| 747,172 |
|
|
|
| 421,940 |
| |||||||||
Current maturities of long-term debt and finance lease liabilities | $ |
| 8,813 |
|
| $ |
| 6,789 |
| |||||||||
Long-term debt and finance lease liabilities |
|
| 593,061 |
|
|
|
| 501,419 |
| |||||||||
Total book value of debt instruments |
|
| 756,368 |
|
|
|
| 439,364 |
|
|
| 601,874 |
|
|
|
| 508,208 |
|
Fair value of debt instruments, excluding debt financing costs |
|
| 757,966 |
|
|
|
| 440,759 |
|
|
| 603,117 |
|
|
|
| 507,668 |
|
Excess of fair value over book value | $ |
| 1,598 |
|
| $ |
| 1,395 |
| |||||||||
Excess (deficit) of fair value over book value | $ |
| 1,243 |
|
| $ |
| (540 | ) |
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 prioritizesThe Company's interest rate swap agreement is considered a Level 2 instrument. The Company values the interest rate swap using standard models and observable market inputs to valuation techniques used to measure fair value intoincluding SOFR interest rates and discount rates, which are considered Level 2 inputs. The location and 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.
Certain 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 atinterest rate swap agreement in the acquisition date andconsolidated balance sheets is re-measured each reporting period, withdisclosed in Note 8.
Note 8 – Derivatives
Hedging of Interest Rate Risk
During the first quarter of 2023, the Company entered into an interest rate swap contract to mitigate its exposure to changes in variable interest rates. The Company's interest rate swap is designated as a cash flow hedge as of both the effective date, March 17, 2023, and as of December 30, 2023. The interest rate swap is reflected at its fair value recognizedin the consolidated balance sheets. Refer to Note 7 for further information on the fair value of the interest rate swap.
Details of the pay-fixed, receive-floating interest rate swap contract as income or expense within operating expensesof December 30, 2023 are as follows:
Effective Date | Maturity Date | Notional Value | Pay Fixed Rate | Receive Floating Rate | Floating Rate Reset Terms |
March 17, 2023 | November 17, 2027 | $150 | 3.646% | One-Month CME Term SOFR | Monthly |
The Company performed an initial quantitative assessment of hedge effectiveness using the change-in-variable-cash-flows method. Under this method, the Company assessed the effectiveness of the hedging relationship by comparing the present value of the cumulative change in the expected future cash flows on the variable leg of the interest rate swap with the present value of the cumulative change in the expected future interest cash flows on the variable-rate debt. The Company determined the interest rate swap to be highly effective. To assess for continued hedge effectiveness, the Company performs a retrospective and prospective qualitative assessment each quarter. The Company also monitors the credit risk of the counterparty on an ongoing basis. The change in the fair value of the interest rate swap is initially reported in "Other comprehensive income" in the consolidated statements of operations. comprehensive income and subsequently reclassified to earnings in "Interest expense, net" in the consolidated statements of earnings when the hedged transactions affect earnings.
The Company measures the assetlocation and liability on a recurring basis using Level 3 inputs.
The fair value of contingent consideration is measured using a discounted cash flow model incorporating projected payment dates, discount rates, probabilities of payment, and projected EBITDA. Projected EBITDA amounts are based on initial deal model forecasts at the time of acquisition as well as the Company’s most recent internal operational budget, and 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 recurring Level 3 fair value measurements of contingent consideration include the following significant unobservable inputs as of December 30, 2017:
|
| |
|
| |
|
| |
|
|
As of December 30, 2017, the fair value of contingent consideration receivable and payable associated with the Caito and BRT acquisition was $18.4 million and $3.4 million, respectively. The net receivable of $15 million was recorded in other assets, netinterest rate swap in the consolidated balance sheets as thereof December 30, 2023 is a rightas follows:
Derivative Fair Value | |||||
(In thousands) | Consolidated Balance Sheets Location | December 30, 2023 | |||
Cash Flow Hedge: | |||||
Interest rate swap | Prepaid expenses and other current assets | $ | 1,721 | ||
Interest rate swap | Other long-term liabilities | 1,914 | |||
Interest rate swap | Accumulated other comprehensive income | (316 | ) |
The location and amount of offset for the payable and receivable. Upon payment, the portion of the contingent consideration related to the acquisition date fair value is reported as a financing activitygains or losses recognized in the consolidated statements of cash flows. Amounts received or paid in excess ofearnings for the acquisition date fair valueinterest rate swap, presented on a pre-tax basis, are reported as an operating activity in the consolidated statements of cash flows.follows:
2023 | ||||
(In thousands) | Interest expense, net | |||
Total amounts of expense line items presented in the consolidated statements of | $ | 39,887 | ||
Gain on cash flow hedging relationships: | ||||
Gain reclassified from comprehensive income into earnings | 1,832 |
-58--51-
Note 9 – Commitments and Contingencies
The Company subleases property at certain locations and for 2017, 2016 and 2015, received rental income of $3.4 million, $4.8 million and $5.3 million, respectively. In the event of customer default, the Company would be responsible for fulfilling these lease obligations. Future payment obligations under these leases are disclosed in Note 10, Leases. Contingencies related to credit risk and collectability are disclosed in Note 15, Concentration of Credit Risk.
Unions represent approximately 8% of SpartanNash’s associates. These associates are covered by collective bargaining agreements (“CBAs”). The facilities covered by CBAs, the unions representing the covered associates and the expiration dates for each existing CBA are provided in the following table:
|
|
| ||
|
|
| ||
|
|
| ||
|
|
| ||
|
|
| ||
|
|
| ||
|
|
| ||
|
|
|
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 subleases property at certain locations and for 2023, 2022 and 2021, received rental income of $3.8 million,$3.9 million and $4.4 million, respectively. In the event of customer default, the Company would be responsible for fulfilling these lease obligations. Future payment obligations under these leases are disclosed in Note 10. Contingencies related to credit risk and collectability are disclosed in Note 2.
Unions represent approximately 7% of SpartanNash’s Associates. These Associates are covered by collective bargaining agreements (“CBAs”). The facilities covered by CBAs, the unions representing the covered Associates and the expiration dates for each existing CBA are provided in the following table:
Distribution Center Locations | Union Locals | Expiration Dates | ||
Lima, Ohio Warehouse | IBT 908 | January 2025 | ||
Lima, Ohio Drivers | IBT 908 | January 2025 | ||
Bellefontaine, Ohio GTL Truck Lines, Inc. | IBT 908 | February 2025 | ||
Bellefontaine, Ohio General Merchandise Service Division | IBT 908 | February 2025 | ||
Norfolk, Virginia | IBT 822 | April 2025 | ||
Columbus, Georgia | IBT 528 | September 2025 | ||
Grand Rapids, Michigan | IBT 406 | April 2026 | ||
Landover, Maryland | IBT 639 | February 2027 |
The Company contributes to the Central States Southeast and Southwest Pension Fund (“Central(the “Central States Plan” or “the Plan”the “Plan”), a multi-employer pension plan, based on obligations arising fromin accordance with provisions in place in collective bargaining agreements covering its CBAssupply chain operations in Bellefontaine and Lima, Ohio and Grand Rapids, Michigan covering its supply chain associates at those locations.Michigan. This Plan provides retirement benefits to participants based on their service to contributing employers. The benefits to participants under the Plan are paid from assets held in trust for that purpose. An equal number of Trustees are appointed by a combination of contributing employers and unions;the applicable union(s); however, no representative of SpartanNash is notcurrently serving as a trustee.trustee of the Plan. 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 held in trust and the overall administration of the plan. The Company currently contributesCentral States Plan implemented a rehabilitation plan on March 25, 2008.
The Company's contributions to the Central States Plan under the terms outlined in the “Primary Schedule” of Central States’ Rehabilitation Plan or those outlined in the “Default Schedule.” Both the Primary and Default schedules require varying increases in employer contributions over the previous year’s contribution. Increases are set within the CBAestablished by each applicable collective bargaining agreement and vary by location. TheHowever, required contributions may increase based on the funded status of the Plan continuesand legal requirements. On January 12, 2023, the Central States Plan received approximately $35.8 billion in Special Financial Assistance ("SFA"), inclusive of interest, which is designed to bealleviate the risk of insolvency of the Plan. On March 31, 2023, in red zone status, and according toaccordance with the Pension Protection Act (“PPA”("PPA"), isthe plan actuary certified that the Plan was considered to be in “critical and declining”"critical" zone status. Among other factors,status for the plan year beginning January 1, 2023. Due to the receipt of the SFA, the Central States Plan has stated that it expects it "will be funded well into the future". Despite the expectations of the Plan, the Company views the Plan's solvency as an ongoing risk factor.
The risk of participating in a multi-employer pension plan is different from the risk associated with single-employer plans in the “critical and declining” zone are generally less than 65% funded and are projectedfollowing respects:
Based on the most recent information available to the Company, management believes that the value of assets held in trust to pay benefits covers 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.Central States Plan. Management is not aware of any significant change in funding levels in the Plan since December 30, 2017. To reduce this underfunding, management expects meaningful increases2023. Due to uncertainty regarding future factors that could trigger a withdrawal liability, as well as the absence of specific information regarding matters such as the Plan’s current financial situations, we are unable to determine with certainty the current amount of the Plan’s funding and/or SpartanNash’s current potential withdrawal liability exposure in expense asthe event of a result of required incremental multi-employer pension plan contributions in future years.withdrawal from the Plan. Any adjustment for withdrawal liability willwould be recorded when it is probable that a liability exists and can be reasonably determined.
-52-
Note 10 – Leases
A substantial portion of the Company’s retail stores and warehouse properties are operatedwarehouses operate in leased facilities. The Company also leases small ancillary warehouse facilities, the majority of the tractors and trailers within its fleet and certain other equipment.assets. Most of the property leases contain multiple renewal options, of varying terms. Termswhich generally range from one to ten years in length. In those locations in which it is economically feasible to continue to operate, management expects that renewal options will be exercised as they come due. The terms of certain leases contain provisions requiring payment of percentagevariable 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 leasespremises or, in the case of transportation equipment, contain provisions requiring payment of percentagevariable rent based upon miles driven. Certain 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 consistedAs most of the following:
Company’s leases do not reference an implicit discount rate, the Company uses an incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
| 2017 |
|
| 2016 |
|
| 2015 |
| ||||||
Minimum rentals | $ |
| 55,159 |
|
| $ |
| 57,478 |
|
| $ |
| 57,625 |
| ||||||||||||
Contingent rent (reductions) increases |
|
| (237 | ) |
|
|
| 314 |
|
|
|
| 267 |
| ||||||||||||
Sublease rental income |
|
| (3,407 | ) |
|
|
| (4,830 | ) |
|
|
| (5,311 | ) | ||||||||||||
Total |
|
|
|
|
|
|
|
|
|
|
|
| $ |
| 51,515 |
|
| $ |
| 52,962 |
|
| $ |
| 52,581 |
|
The components of lease cost were as follows:
(In thousands) |
|
|
|
|
|
|
|
|
| 2023 |
|
| 2022 |
|
| 2021 |
| ||||||
Operating lease cost |
|
|
|
|
|
|
|
|
| $ |
| 55,807 |
|
| $ |
| 57,876 |
|
| $ |
| 58,410 |
|
Short-term lease cost |
|
|
|
|
|
|
|
|
|
|
| 8,367 |
|
|
|
| 7,576 |
|
|
|
| 8,469 |
|
Finance lease cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Amortization of assets |
|
| 8,244 |
|
|
|
| 6,134 |
|
|
|
| 4,645 |
| |||||||||
Interest on lease liabilities |
|
| 4,454 |
|
|
|
| 3,369 |
|
|
|
| 3,005 |
| |||||||||
Variable rent |
|
|
|
|
|
|
|
|
|
|
| 348 |
|
|
|
| 236 |
|
|
|
| 162 |
|
Sublease income |
|
|
|
|
|
|
|
|
|
|
| (3,845 | ) |
|
|
| (3,907 | ) |
|
|
| (4,356 | ) |
Total net lease cost |
|
|
|
|
|
|
|
|
| $ |
| 73,375 |
|
| $ |
| 71,284 |
|
| $ |
| 70,335 |
|
Supplemental balance sheet information related to leases was as follows:
|
|
|
|
|
|
|
|
|
| December 30, |
|
| December 31, |
| ||||
(In thousands) |
|
|
|
|
|
|
|
|
| 2023 |
|
| 2022 |
| ||||
Operating leases: |
|
|
|
|
|
|
| |||||||||||
Operating lease assets | $ |
| 242,146 |
|
| $ |
| 257,047 |
| |||||||||
|
|
|
|
|
|
|
| |||||||||||
Current portion of operating lease liabilities | $ |
| 41,979 |
|
| $ |
| 45,453 |
| |||||||||
Noncurrent operating lease liabilities |
|
| 226,118 |
|
|
|
| 239,062 |
| |||||||||
Total operating lease liabilities | $ |
| 268,097 |
|
| $ |
| 284,515 |
| |||||||||
Finance leases: |
|
|
|
|
|
|
| |||||||||||
Property and equipment, at cost | $ |
| 92,598 |
|
| $ |
| 73,739 |
| |||||||||
Accumulated amortization |
|
| (25,472 | ) |
|
|
| (21,727 | ) | |||||||||
Property and equipment, net | $ |
| 67,126 |
|
| $ |
| 52,012 |
| |||||||||
|
|
|
|
|
|
|
| |||||||||||
Current portion of finance lease liabilities | $ |
| 7,739 |
|
| $ |
| 5,791 |
| |||||||||
Noncurrent finance lease liabilities |
|
| 66,900 |
|
|
|
| 51,724 |
| |||||||||
Total finance lease liabilities | $ |
| 74,639 |
|
| $ |
| 57,515 |
| |||||||||
|
|
|
|
|
|
|
| |||||||||||
Weighted average remaining lease term (in years): |
|
|
|
|
|
|
| |||||||||||
Operating leases |
|
| 7.6 |
|
|
|
| 7.5 |
| |||||||||
Finance leases |
|
| 9.0 |
|
|
|
| 9.6 |
| |||||||||
|
|
|
|
|
|
|
| |||||||||||
Weighted average discount rate: |
|
|
|
|
|
|
| |||||||||||
Operating leases |
|
| 5.9 | % |
|
|
| 5.4 | % | |||||||||
Finance leases |
|
| 6.8 | % |
|
|
| 6.9 | % |
Supplemental cash flow and other information related to leases was as follows:
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
| 2023 |
|
| 2022 |
|
| 2021 |
| ||||||
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Operating cash flows used for operating leases |
| $ |
| 58,251 |
|
| $ |
| 61,103 |
|
| $ |
| 62,590 |
| |||||||||||
Operating cash flows used for finance leases |
|
|
| 4,450 |
|
|
|
| 3,372 |
|
|
|
| 3,005 |
| |||||||||||
Financing cash flows used for finance leases |
|
|
| 6,897 |
|
|
|
| 6,045 |
|
|
|
| 4,738 |
| |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Lease assets obtained in exchange for lease liabilities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Total operating lease liabilities |
|
|
| 39,018 |
|
|
|
| 23,027 |
|
|
|
| 36,867 |
| |||||||||||
Total finance lease liabilities |
|
|
| 17,833 |
|
|
|
| 21,032 |
|
|
|
| 4,238 |
|
-53-
The Company’s total future lease commitments under operating and capitalfinance leases in effect at December 30, 20172023 are as follows:
|
|
|
|
|
|
|
|
|
| Operating |
|
| Finance |
|
|
|
| ||||||
(In thousands) |
|
|
|
|
|
|
|
|
| Leases |
|
| Leases |
|
| Total |
| ||||||
2024 | $ |
| 56,296 |
|
| $ |
| 12,487 |
|
| $ |
| 68,783 |
| |||||||||
2025 |
|
| 53,105 |
|
|
|
| 12,186 |
|
|
|
| 65,291 |
| |||||||||
2026 |
|
| 46,824 |
|
|
|
| 11,467 |
|
|
|
| 58,291 |
| |||||||||
2027 |
|
| 41,147 |
|
|
|
| 10,683 |
|
|
|
| 51,830 |
| |||||||||
2028 |
|
| 31,593 |
|
|
|
| 10,086 |
|
|
|
| 41,679 |
| |||||||||
Thereafter |
|
| 108,062 |
|
|
|
| 42,671 |
|
|
|
| 150,733 |
| |||||||||
Total |
|
| 337,027 |
|
|
|
| 99,580 |
|
|
|
| 436,607 |
| |||||||||
Less interest |
|
| 68,930 |
|
|
|
| 24,941 |
|
|
|
| 93,871 |
| |||||||||
Present value of lease liabilities |
|
| 268,097 |
|
|
|
| 74,639 |
|
|
|
| 342,736 |
| |||||||||
Less current portion |
|
| 41,979 |
|
|
|
| 7,739 |
|
|
|
| 49,718 |
| |||||||||
Long-term lease liabilities | $ |
| 226,118 |
|
| $ |
| 66,900 |
|
| $ |
| 293,018 |
|
|
|
|
|
|
|
|
|
|
| Operating Leases |
|
|
|
|
|
| ||||||||||||
|
|
|
|
|
|
|
|
|
| Used in |
|
| Subleased |
|
|
|
|
| Capital |
| ||||||||
(In thousands) |
|
|
|
|
|
|
|
|
| Operations |
|
| to Others |
|
| Total |
|
| Leases |
| ||||||||
2018 |
|
|
|
|
|
|
|
|
| $ |
| 52,613 |
|
| $ |
| 1,265 |
|
| $ |
| 53,878 |
|
| $ |
| 9,198 |
|
2019 |
|
|
|
|
|
|
|
|
|
|
| 41,489 |
|
|
|
| 1,039 |
|
|
|
| 42,528 |
|
|
|
| 8,756 |
|
2020 |
|
|
|
|
|
|
|
|
|
|
| 33,951 |
|
|
|
| 817 |
|
|
|
| 34,768 |
|
|
|
| 6,593 |
|
2021 |
|
|
|
|
|
|
|
|
|
|
| 26,719 |
|
|
|
| 694 |
|
|
|
| 27,413 |
|
|
|
| 4,577 |
|
2022 |
|
|
|
|
|
|
|
|
|
|
| 19,779 |
|
|
|
| 468 |
|
|
|
| 20,247 |
|
|
|
| 4,233 |
|
Thereafter |
|
|
|
|
|
|
|
|
|
|
| 67,317 |
|
|
|
| 504 |
|
|
|
| 67,821 |
|
|
|
| 28,862 |
|
Total |
|
|
|
|
|
|
|
|
| $ |
| 241,868 |
|
| $ |
| 4,787 |
|
| $ |
| 246,655 |
|
|
|
| 62,219 |
|
|
|
|
|
|
|
|
|
|
| Interest |
|
|
|
| (19,315 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
| Present value of minimum lease obligations |
|
|
|
| 42,904 |
| ||||||||||||
|
|
|
|
|
|
|
|
|
| Current maturities |
|
|
|
| 6,168 |
| ||||||||||||
|
|
|
|
|
|
|
|
|
| Long-term capital lease obligations |
|
| $ |
| 36,736 |
|
Assets held under capital leases consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 30, |
|
| December 31, |
| ||||
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2017 |
|
| 2016 |
| ||||
Building and improvements |
| $ |
| 60,398 |
|
| $ |
| 61,831 |
| |||||||||||||
Equipment |
|
|
| 3,727 |
|
|
|
| 3,403 |
| |||||||||||||
Assets under capital leases |
|
|
| 64,125 |
|
|
|
| 65,234 |
| |||||||||||||
Less accumulated amortization and depreciation |
|
|
| 29,518 |
|
|
|
| 25,163 |
| |||||||||||||
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 in 2017, 2016 and 2015, 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 volumesrent obligations and contain renewal options. Certain of the leases contain escalation clauses.clauses and contingent rentals based upon stipulated sales volumes.
Owned assets, included in property and equipment, which are leased to others are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 30, |
|
| December 31, |
| ||||
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2023 |
|
| 2022 |
| ||||
Land and improvements | $ |
| 7,147 |
|
| $ |
| 7,154 |
| |||||||||||||||
Buildings |
|
| 27,227 |
|
|
|
| 26,623 |
| |||||||||||||||
Owned assets leased to others |
|
| 34,374 |
|
|
|
| 33,777 |
| |||||||||||||||
Less accumulated amortization and depreciation |
|
| 12,369 |
|
|
|
| 11,473 |
| |||||||||||||||
Net owned assets leased to others | $ |
| 22,005 |
|
| $ |
| 22,304 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 30, |
|
| December 31, |
| ||||
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2017 |
|
| 2016 |
| ||||
Land and improvements | $ |
| 6,515 |
|
| $ |
| 3,860 |
| |||||||||||||||
Buildings |
|
| 24,236 |
|
|
|
| 13,948 |
| |||||||||||||||
Long-term debt and capital lease obligations |
|
| 30,751 |
|
|
|
| 17,808 |
| |||||||||||||||
Less accumulated amortization and depreciation |
|
| 8,123 |
|
|
|
| 7,625 |
| |||||||||||||||
Net property | $ |
| 22,628 |
|
| $ |
| 10,183 |
|
-60-
Future minimum rentals to be received under lease obligationsleases in effect at December 30, 20172023 are as follows:
(In thousands) | 2024 |
|
| 2025 |
|
| 2026 |
|
| 2027 |
|
| 2028 |
|
| Thereafter |
|
| Total |
| ||||||||||||||
Owned property | $ |
| 4,250 |
|
| $ |
| 3,279 |
|
| $ |
| 3,033 |
|
| $ |
| 2,653 |
|
| $ |
| 2,417 |
|
| $ |
| 14,083 |
|
| $ |
| 29,715 |
|
Leased property |
|
| 3,297 |
|
|
|
| 2,389 |
|
|
|
| 1,422 |
|
|
|
| 857 |
|
|
|
| 198 |
|
|
|
| 15 |
|
|
|
| 8,178 |
|
Total | $ |
| 7,547 |
|
| $ |
| 5,668 |
|
| $ |
| 4,455 |
|
| $ |
| 3,510 |
|
| $ |
| 2,615 |
|
| $ |
| 14,098 |
|
| $ |
| 37,893 |
|
(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 11 – Associate Retirement Plans
The Company’s retirement programs include pension plans providing non-contributory benefits andCompany provides salary deferral defined contribution plans. Substantiallyplans to substantially all of the Company’s associatesAssociates not covered by CBAs are covered by a frozen non-contributory pension plan, a defined contribution plan, or both.CBAs. Associates covered by CBAs at the Company’s Columbus, Georgia; Norfolk, Virginia; and Landover, Maryland facilities all participate in the Company’sa defined contribution plan; the remaining associatesAssociates covered under CBAs participate in a multi-employer pension plan.
Defined Contribution Plans
Expense for employer matching and profit sharing contributions made to defined contribution plans totaled $7.9$12.0 million, $11.9$12.0 million and $21.1$11.8 million in 2017, 20162023, 2022 and 2015,2021, respectively.
Executive Compensation Plans
The Company has a deferred compensation plan for a select group of management personnel or highly compensated associates.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’sAssociate’s termination of employment. Earnings are based on the performance of hypothetical 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.-54-
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.
Defined Benefit Plans
The Company sponsors the SpartanNash Company Pension Plan (the “Pension Plan”), a frozen defined benefit pension 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. 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 Super Foods 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 was frozen effective January 1, 1998.
-61-
If lump sum distributions are made in an amount exceeding annual interest cost, settlement accounting is triggered and the resulting settlement expense is recorded as a component of total pension expense (income). Lump sum distributions of $2.6 million and $2.8 million were made and resulting pension settlement charges of $0.5 million and $0.7 million were incurred in 2017 and 2016, respectively.
Postretirement Medical Plans
SpartanNash Company and certain subsidiaries provide healthcare benefits to retired associatesAssociates under the SpartanNash Company Retiree Medical Plan (the “Retiree Medical Plan” or "Plan"). Former Spartan Stores, Inc. associatesAssociates hired prior to January 1, 2002 who were not covered by CBAs during their employment, and who have at least 10 years of service and have attained age 55 upon retirement qualify as “covered associates.” Covered associates thatEffective June 30, 2022, the Company has amended the Retiree Medical Plan. In connection with the amendment, the Company will make lump sum cash payments to all active and retired participants in lieu of future monthly benefits and reimbursements previously offered under the Plan. As a result of the amendment effective June 30, 2022, the Plan obligation was remeasured, resulting in a reduction to the obligation of $6.6 million and a corresponding prior service credit in AOCI, which will be amortized to March 31, 1992 receive major medical insurance with deductiblenet periodic postretirement benefit income over the remaining period until the final payment on July 1, 2024.
On July 1, 2023 and coinsurance provisions until age 65July 1, 2022, the Company made lump sum payments to retired participants totaling $1.3 million and Medicare supplemental benefits thereafter. Covered associates retiring after April 1, 1992 are eligible for monthly postretirement healthcare benefits$2.0 million, respectively. The payments constituted partial settlements of $5 multiplied by the associate’s years of service. This benefit isPlan, which resulted in the formrecognition within net periodic postretirement expense of a credit against$0.3 million and $0.7 million on July 1, 2023 and July 1, 2022, respectively, related to the monthly insurance premium.net actuarial loss within AOCI. The retiree pays the balance of the premium.remaining payment, which relates to active participants, is expected to be made on or about July 1, 2024.
The following tables set forth the actuarial present value of benefit obligations, funded status, changes in benefit obligations 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,“Other long-term liabilities,” respectively, in the consolidated balance sheets.
|
|
|
| Retiree Medical Plan |
| |||||||
|
|
|
| December 30, |
|
| December 31, |
| ||||
(In thousands, except percentages) |
|
|
| 2023 |
|
| 2022 |
| ||||
Funded Status |
|
|
|
|
|
|
|
|
|
| ||
Projected/Accumulated benefit obligation: |
|
|
|
|
|
|
| |||||
Balance at beginning of year |
|
|
| $ |
| 2,412 |
|
| $ |
| 11,031 |
|
Service cost |
|
|
|
|
| — |
|
|
|
| 76 |
|
Interest cost |
|
|
|
|
| 85 |
|
|
|
| 185 |
|
Actuarial loss |
|
|
|
|
| 23 |
|
|
|
| 30 |
|
Plan amendment |
|
|
|
|
| — |
|
|
|
| (6,614 | ) |
Benefits paid |
|
|
|
|
| (1,284 | ) |
|
|
| (2,296 | ) |
Balance at end of year |
|
|
| $ |
| 1,236 |
|
| $ |
| 2,412 |
|
|
|
|
|
|
|
|
|
|
|
| ||
Fair value of plan assets: |
|
|
|
|
|
|
|
|
|
| ||
Balance at beginning of year |
|
|
| $ |
| — |
|
| $ |
| — |
|
Company contributions |
|
|
|
|
| 1,284 |
|
|
|
| 2,296 |
|
Benefits paid |
|
|
|
|
| (1,284 | ) |
|
|
| (2,296 | ) |
Balance at end of year |
|
|
| $ |
| — |
|
| $ |
| — |
|
Unfunded status |
|
|
| $ |
| (1,236 | ) |
| $ |
| (2,412 | ) |
|
|
|
|
|
|
|
|
|
|
| ||
Components of net amount recognized in consolidated balance sheets: |
|
|
|
|
|
|
|
|
|
| ||
Current liabilities |
|
|
| $ |
| (1,236 | ) |
| $ |
| (1,270 | ) |
Noncurrent liabilities |
|
|
|
|
| — |
|
|
|
| (1,142 | ) |
Net liability |
|
|
| $ |
| (1,236 | ) |
| $ |
| (2,412 | ) |
|
|
|
|
|
|
|
|
|
|
| ||
Amounts recognized in AOCI: |
|
|
|
|
|
|
| |||||
Net actuarial loss |
|
|
| $ |
| 217 |
|
| $ |
| 743 |
|
Prior service credit |
|
|
|
|
| (1,653 | ) |
|
|
| (4,960 | ) |
Accumulated other comprehensive income |
| $ |
| (1,436 | ) |
| $ |
| (4,217 | ) | ||
|
|
|
|
|
|
|
|
|
|
| ||
Weighted average assumptions at measurement date: |
|
|
|
|
|
|
| |||||
Discount rate |
|
|
|
|
| 5.65 | % |
|
|
| 5.34 | % |
Ultimate health care cost trend rate |
|
|
|
| N/A |
|
|
| N/A |
|
|
|
|
|
|
|
| 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% |
|
-55-
-62-
| Pension Plan |
|
| Retiree Medical Plan |
| Retiree Medical Plan |
| ||||||||||||||||||||||||||||||||||||
(In thousands, except percentages) | 2017 |
|
| 2016 |
|
| 2015 |
|
| 2017 |
|
| 2016 |
|
| 2015 |
| 2023 |
|
| 2022 |
|
| 2021 |
| ||||||||||||||||||
Components of net periodic benefit cost (income): |
| ||||||||||||||||||||||||||||||||||||||||||
Components of net periodic benefit (income) cost: |
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
Service cost | $ |
| — |
|
| $ |
| — |
|
| $ |
| — |
|
| $ |
| 184 |
|
| $ |
| 187 |
|
| $ |
| 231 |
| $ |
| — |
|
| $ |
| 76 |
|
| $ |
| 187 |
|
Interest cost |
|
| 2,345 |
|
|
| 2,977 |
|
|
| 3,325 |
|
|
| 345 |
|
|
| 345 |
|
|
| 404 |
|
|
| 85 |
|
|
| 185 |
|
|
| 226 |
| |||||||
Amortization of prior service cost |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (158 | ) |
|
| (158 | ) |
|
| (158 | ) | |||||||||||||||||||
Expected return on plan assets |
|
| (3,836 | ) |
|
| (4,269 | ) |
|
| (4,923 | ) |
|
| — |
|
|
| — |
|
|
| — |
| |||||||||||||||||||
Amortization of prior service credit |
|
| (3,307 | ) |
|
| (1,653 | ) |
|
| — |
| |||||||||||||||||||||||||||||||
Recognized actuarial net loss |
|
| 221 |
|
|
|
| 706 |
|
|
|
| 827 |
|
|
|
| 59 |
|
|
|
| 42 |
|
|
|
| 174 |
|
|
| 249 |
|
|
|
| 200 |
|
|
|
| 230 |
|
Net periodic benefit (income) expense | $ |
| (1,270 | ) |
| $ |
| (586 | ) |
| $ |
| (771 | ) |
| $ |
| 430 |
|
| $ |
| 416 |
|
| $ |
| 651 |
| $ |
| (2,973 | ) |
| $ |
| (1,192 | ) |
| $ |
| 643 |
|
Settlement expense |
|
| 548 |
|
|
|
| 692 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| — |
|
|
|
| — |
|
|
| 299 |
|
|
|
| 740 |
|
|
|
| — |
|
Total (income) expense | $ |
| (722 | ) |
| $ |
| 106 |
|
| $ |
| (771 | ) |
| $ |
| 430 |
|
| $ |
| 416 |
|
| $ |
| 651 |
| ||||||||||||||
Total net periodic benefit (income) cost | $ |
| (2,674 | ) |
| $ |
| (452 | ) |
| $ |
| 643 |
| |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Weighted average assumptions used to determine net periodic benefit cost (income): |
| ||||||||||||||||||||||||||||||||||||||||||
Weighted average assumptions used to determine net periodic benefit (income) cost: |
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
Discount rate | 3.82% |
|
| 4.04% |
|
| 3.75% |
|
| 4.26% |
|
| 4.55% |
|
| 4.15% |
|
|
| 5.62 | % |
|
|
| 2.90 | % |
|
|
| 2.57 | % | ||||||||||||
Expected return on plan assets | 4.83% |
|
| 5.05% |
|
| 5.50% |
|
| N/A |
|
| N/A |
|
| N/A |
|
The net actuarial loss and prior service cost included in AOCI and expected to be recognized in net periodic benefit cost in 2018 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Retiree |
| ||||
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
| Pension Plan |
|
| Medical Plan |
| ||||
Prior service credit |
|
|
|
|
|
|
|
|
|
|
|
| $ | N/A |
|
| $ |
| (158 | ) | |
Net actuarial loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 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 Pension Plan are amortized over the average remaining life of all participants when the accumulation of such gains and losses exceeds 10% of the greater of the projected benefit obligation and the market-related value of plan assets.
Assumed healthcare cost trend rates have a significant effect on the amounts reported for the Retiree Medical Plan. Assumed current healthcare cost trend rates used to determine net periodic benefit cost (income) were as follows:
|
|
|
|
|
|
|
|
|
| 2017 |
| 2016 |
| 2015 |
Pre-65 |
|
|
|
|
|
|
|
|
| N/A |
| 7.50% |
| 7.75% |
Post-65 |
|
|
|
|
|
|
|
|
| 8.40% |
| 8.40% |
| 6.85% |
| 2023 |
| 2022 |
| 2021 |
| ||||
Post-65 |
| N/A |
|
| N/A |
|
|
| 7.00 | % |
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.
Expected Return on Assets and Investment Strategy
The Company has assumed an average long-term expected return on the Pension Plan assets of 4.84% as of 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 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 Pension Plan’s asset allocation by asset category and actual allocations as of December 30, 2017 and December 31, 2016:
| Target |
| Actual | |||||||||||
| December 30, |
| December 30, |
| December 31, | |||||||||
Asset Category | 2017 |
| 2017 |
| 2016 | |||||||||
Equity securities |
| 20.0 |
| % |
|
| 19.3 |
| % |
|
| 20.8 |
| % |
Fixed income |
| 80.0 |
|
|
|
| 79.4 |
|
|
|
| 76.9 |
|
|
Cash equivalents |
| — |
|
|
|
| 1.3 |
|
|
|
| 2.3 |
|
|
Total |
| 100.0 |
| % |
|
| 100.0 |
| % |
|
| 100.0 |
| % |
The investment policy emphasizes the following key objectives: (1) provide benefit security to participants by maximizing the return on plan assets at an acceptable risk level, (2) maintain adequate liquidity for current benefit payments, (3) avoid unexpected increases in pension expense, and (4) within the scope of the above objectives, minimize long term funding to the plan.
The fair values of the Pension Plan assets at December 30, 2017 and December 31, 2016, by asset category, are as follows:
|
|
|
| Fair Value of Assets as of December 30, 2017 |
| ||||||||||||||||||||||
(In thousands) |
|
|
| Total |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| NAV (a) |
| ||||||||||
Mutual funds |
|
|
| $ |
| 18,194 |
|
| $ |
| — |
|
| $ |
| — |
|
| $ |
| — |
|
| $ |
| 18,194 |
|
Pooled funds |
|
|
|
|
| 48,133 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 48,133 |
|
Money market fund |
|
|
|
|
| 1,037 |
|
|
|
| — |
|
|
|
| 1,037 |
|
|
|
| — |
|
|
|
| — |
|
Guaranteed annuity contract |
|
|
|
|
| 13,891 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 13,891 |
|
|
|
| — |
|
Total fair value |
|
|
| $ |
| 81,255 |
|
| $ |
| — |
|
| $ |
| 1,037 |
|
| $ |
| 13,891 |
|
| $ |
| 66,327 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Fair Value of Assets as of December 31, 2016 |
| ||||||||||||||||||||||
(In thousands) |
|
|
| Total |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| NAV (a) |
| ||||||||||
Mutual funds |
|
|
| $ |
| 14,178 |
|
| $ |
| — |
|
| $ |
| — |
|
| $ |
| — |
|
| $ |
| 14,178 |
|
Pooled funds |
|
|
|
|
| 50,506 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 50,506 |
|
Money market fund |
|
|
|
|
| 1,872 |
|
|
|
| — |
|
|
|
| 1,872 |
|
|
|
| — |
|
|
|
| — |
|
Guaranteed annuity contract |
|
|
|
|
| 15,426 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 15,426 |
|
|
|
| — |
|
Total fair value |
|
|
| $ |
| 81,982 |
|
| $ |
| — |
|
| $ |
| 1,872 |
|
| $ |
| 15,426 |
|
| $ |
| 64,684 |
|
|
|
Level 3 assets consist of guaranteed annuity contracts. A reconciliation of the beginning and ending balances for Level 3 assets is as follows:
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
| December 30, 2017 |
|
| December 31, 2016 |
| ||||
Balance at beginning of year | $ |
| 15,426 |
|
| $ |
| 16,198 |
| ||||||||||||
Purchases, sales, issuances and settlements, net |
|
| (2,222 | ) |
|
|
| (1,733 | ) | ||||||||||||
Interest income |
|
| 552 |
|
|
|
| 631 |
| ||||||||||||
Unrealized gains |
|
| 135 |
|
|
|
| 330 |
| ||||||||||||
Balance at end of year | $ |
| 13,891 |
|
| $ |
| 15,426 |
|
See Note 8 for a discussion of the levels of the fair value hierarchy. The above assets’ fair value measurement level 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 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 NAV using the amortized cost of the securities held in the fund. Since 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 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. Mutual 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 and to transact at that price. The mutual funds held by the Pension Plan are 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 NAV as a practical expedient to estimate fair value. NAVs are based on the fair value of each fund’s underlying investments, and are not 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 an amount different than the reported NAV.
Guaranteed Annuity Contracts: The guaranteed annuity contracts are immediate participation contracts held with insurance companies that act as custodian of the Pension Plan’s assets. The guaranteed annuity contracts are stated at contract values, which are determined by the custodians and 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 expects to make contributions in 2018 of $0.4 million to the Retiree Medical Plan. Although no contributions are required, the Company expects to contribute approximately $2.0 million to the Pension Plan in 2018.
The following estimatedpost-retirement medical benefit payments are expectedof $1.3 million in 2024. The Company is not currently expecting to be paid in the following fiscal years:make any future post-retirement medical benefit payments after 2024.
(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 |
|
Multi-Employer Health and Welfare Plans
In addition to the plans described above, the Company participates in the Michigan Conference of Teamsters and Ohio Conference of Teamsters Health and Welfare plans. The Company contributes to these multi-employer health and welfare plans under the terms contained in existing CBAs, and inincluding the requisite contribution amounts set forth within these agreements.such CBAs. The health and welfare plans provide medical, dental, pharmacy, vision, and other ancillary benefits to active associatesAssociates and retirees, as determined byunder the trusteesterms of the plan. TheAlthough the plans may provide certain benefits to retired employees, the Company’s only contribution obligation is to make contributions largely benefitin amounts tied to the hours worked by its active associates, and as such, mayemployees. As a result, the plan does not constitute contributions to a postretirement benefit plan. However,plan of the Company. Because the plans aggregate contributions from multiple employers, the Company is unable to separate contribution amounts fordetermine how much of its contributions are allocated to benefits paid to its active employees and those, if any, that are allocated to benefits paid to other employer’s active employees and/or postretirement benefits from contribution amounts paid for active participants in the plan.benefits. These types of plans often 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.made. The Company contributed $14.1$17.0 million, $14.3$13.4 million and $15.1$13.2 million to these plans in 2017, 20162023, 2022 and 2015,2021, 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 inAssociates, including the requisite contribution amounts set forth within these agreements. such CBAs. The Company is party to four CBAs that require contributions to the Central States Plan with expiration dates ranging from January 20192025 to February 2021.April 2026. 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.made to the Central States Plan. The Company contributed $13.4$13.1 million, $13.4$12.3 million and $12.9$13.5 million to this planthe Central States Plan in 2017, 20162023, 2022 and 2015,2021, respectively. The contributions made by the Company represent less than five percent of the Plan’s total contributions in 2017.2023.
The risk of participating in a multi-employer pension plan is different from the risk associated with single-employer plans in the following respects:
|
|
|
|
|
|
The PPA zone status of the Plan, which is based on information the Company received from the Plan and is certified by 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, plans in the “critical and declining” zone are generally less than 65% funded and projected to become insolvent within the next 15 years (or 20 years depending on the ratio of active-to-inactive participants). A rehabilitation plan has been implemented by the trustees of the Plan, and the CBAs that cover warehouse personnel and drivers in the Bellefontaine and Lima, Ohio distribution centers have permanent surcharges imposed due to the failure to adopt the trustee recommended rehabilitation plan. Refer to Note 9, Commitments and Contingencies, for further information regarding the Company’s participation in the Central States Plan. As of the date the consolidated financial statements were issued, an annual report for the Central States Plan on IRS Form 5500 was not publicly available for the plan year ended December 31, 2017.2023.
-56-
Note 12 – Accumulated Other Comprehensive Income or Loss ("AOCI")
AOCI represents the cumulative balance of other comprehensive income (loss), net of tax, as of the end of the reporting period andperiod. For the Company, the activity relates to pension and other postretirement benefit obligation adjustments.plans and an interest rate swap, including those described in Notes 11 and 8, respectively.
Changes in AOCI are as follows:
(In thousands) | 2023 |
|
| 2022 |
|
| 2021 |
| ||||||
Postretirement benefit plans: |
|
|
|
|
|
|
|
|
|
|
| |||
Balance at beginning of the year, net of tax | $ |
| 2,979 |
|
| $ |
| (1,455 | ) |
| $ |
| (2,276 | ) |
Other comprehensive income before reclassifications |
|
| 203 |
|
|
|
| 6,576 |
|
|
|
| 837 |
|
Income tax expense |
|
| (51 | ) |
|
|
| (1,614 | ) |
|
|
| (203 | ) |
Other comprehensive income, net of tax, before reclassifications |
|
| 152 |
|
|
|
| 4,962 |
|
|
|
| 634 |
|
Reclassification into net earnings (a) |
|
| (2,677 | ) |
|
|
| (701 | ) |
|
|
| 250 |
|
Income tax benefit (expense) (b) |
|
| 658 |
|
|
|
| 173 |
|
|
|
| (63 | ) |
Amounts reclassified out of AOCI, net of tax |
|
| (2,019 | ) |
|
|
| (528 | ) |
|
|
| 187 |
|
Other comprehensive (loss) income, net of tax |
|
| (1,867 | ) |
|
|
| 4,434 |
|
|
|
| 821 |
|
Balance at end of the year, net of tax | $ |
| 1,112 |
|
| $ |
| 2,979 |
|
| $ |
| (1,455 | ) |
Interest rate swap: |
|
|
|
|
|
|
|
|
|
|
| |||
Balance at beginning of the year, net of tax | $ |
| — |
|
| $ |
| — |
|
| $ |
| — |
|
Other comprehensive income before reclassifications |
|
| 1,419 |
|
|
|
| — |
|
|
|
| — |
|
Income tax expense |
|
| (332 | ) |
|
|
| — |
|
|
|
| — |
|
Other comprehensive income, net of tax, before reclassifications |
|
| 1,087 |
|
|
|
| — |
|
|
|
| — |
|
Reclassification into net earnings (c) |
|
| (1,832 | ) |
|
|
| — |
|
|
|
| — |
|
Income tax benefit (b) |
|
| 429 |
|
|
|
| — |
|
|
|
| — |
|
Amounts reclassified out of AOCI, net of tax |
|
| (1,403 | ) |
|
|
| — |
|
|
|
| — |
|
Other comprehensive loss, net of tax |
|
| (316 | ) |
|
|
| — |
|
|
|
| — |
|
Balance at end of the year, net of tax | $ |
| (316 | ) |
| $ |
| — |
|
| $ |
| — |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Total accumulated other comprehensive income (loss) | $ |
| 796 |
|
| $ |
| 2,979 |
|
| $ |
| (1,455 | ) |
(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 | ) |
|
|
|
|
|
|
-66-
Note 13 – Income Tax
The income tax provision for continuing operations is made up of the following components:
|
|
|
|
|
|
|
|
| ||||||
(In thousands) | 2023 |
|
| 2022 |
|
| 2021 |
| ||||||
Current income tax expense: |
|
|
|
|
|
|
|
|
|
|
| |||
Federal | $ |
| 6,698 |
|
| $ |
| 8,585 |
|
| $ |
| 5,436 |
|
State |
|
| 2,961 |
|
|
|
| 2,397 |
|
|
|
| 1,867 |
|
Total current income tax expense |
|
| 9,659 |
|
|
|
| 10,982 |
|
|
|
| 7,303 |
|
Deferred income tax expense: |
|
|
|
|
|
|
|
|
|
|
| |||
Federal |
|
| 6,546 |
|
|
|
| 46 |
|
|
|
| 14,877 |
|
State |
|
| 1,683 |
|
|
|
| 1,369 |
|
|
|
| 2,726 |
|
Total deferred income tax expense |
|
| 8,229 |
|
|
|
| 1,415 |
|
|
|
| 17,603 |
|
Total income tax expense | $ |
| 17,888 |
|
| $ |
| 12,397 |
|
| $ |
| 24,906 |
|
(In thousands) | 2017 |
|
| 2016 |
|
| 2015 |
| ||||||
Current income tax expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal | $ |
| 366 |
|
| $ |
| 22,936 |
|
| $ |
| 31,437 |
|
State |
|
| 528 |
|
|
|
| 3,210 |
|
|
|
| 3,144 |
|
Total current income tax expense |
|
| 894 |
|
|
|
| 26,146 |
|
|
|
| 34,581 |
|
Deferred income tax (benefit) expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
| (72,842 | ) |
|
|
| 6,509 |
|
|
|
| 3,255 |
|
State |
|
| (7,079 | ) |
|
|
| 252 |
|
|
|
| (743 | ) |
Total deferred income tax (benefit) expense |
|
| (79,921 | ) |
|
|
| 6,761 |
|
|
|
| 2,512 |
|
Total income tax (benefit) expense | $ |
| (79,027 | ) |
| $ |
| 32,907 |
|
| $ |
| 37,093 |
|
-57-
A reconciliation of the statutory federal rate to the effective rate is as follows:
|
|
|
|
|
| |||||||||
| 2023 |
| 2022 |
| 2021 | |||||||||
Federal statutory income tax rate |
| 21.0 |
| % |
|
| 21.0 |
| % |
|
| 21.0 |
| % |
Stock compensation |
| (0.9 | ) |
|
|
| (2.8 | ) |
|
|
| 0.0 |
|
|
Non-deductible expenses |
| 3.4 |
|
|
|
| 5.5 |
|
|
|
| 1.7 |
|
|
Change in tax contingencies |
| (1.3 | ) |
|
|
| (0.1 | ) |
|
|
| 0.0 |
|
|
Charitable product donations |
| (0.2 | ) |
|
|
| (0.3 | ) |
|
|
| (0.1 | ) |
|
Other, net |
| (0.3 | ) |
|
|
| 0.1 |
|
|
|
| (0.3 | ) |
|
State taxes, net of federal income tax benefit |
| 5.3 |
|
|
|
| 6.7 |
|
|
|
| 3.8 |
|
|
Tax credits |
| (1.5 | ) |
|
|
| (3.7 | ) |
|
|
| (0.9 | ) |
|
Effective income tax rate |
| 25.5 |
| % |
|
| 26.4 |
| % |
|
| 25.2 |
| % |
| 2017 |
| 2016 |
| 2015 | |||||||||
Federal statutory income tax rate |
| 35.0 |
| % |
|
| 35.0 |
| % |
|
| 35.0 |
| % |
Federal rate change effect on deferred taxes |
| 19.7 |
|
|
|
| — |
|
|
|
| — |
|
|
State taxes, net of federal income tax benefit |
| 3.1 |
|
|
|
| 2.5 |
|
|
|
| 1.6 |
|
|
Stock compensation |
| 1.0 |
|
|
|
| — |
|
|
|
| — |
|
|
Other, net |
| 0.8 |
|
|
|
| (0.6 | ) |
|
|
| 0.5 |
|
|
Charitable product donations |
| 0.4 |
|
|
|
| (0.5 | ) |
|
|
| (0.3 | ) |
|
Tax credits |
| 0.2 |
|
|
|
| — |
|
|
|
| — |
|
|
Domestic production activities deduction |
| 0.1 |
|
|
|
| (0.3 | ) |
|
|
| (0.2 | ) |
|
Non-deductible expenses |
| (0.3 | ) |
|
|
| 0.5 |
|
|
|
| 0.4 |
|
|
Effective income tax rate |
| 60.0 |
| % |
|
| 36.6 |
| % |
|
| 37.0 |
| % |
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-
Deferred tax assets and liabilities resulting from temporary differences as of December 30, 20172023 and December 31, 20162022 are as follows:
| December 30, |
|
| December 31, |
| ||||
(In thousands) | 2023 |
|
| 2022 |
| ||||
Deferred tax assets: |
|
|
|
|
|
|
| ||
Employee benefits | $ |
| 21,074 |
|
| $ |
| 27,387 |
|
Accrued workers' compensation |
|
| 2,082 |
|
|
|
| 2,126 |
|
Allowance for credit losses |
|
| 1,500 |
|
|
|
| 1,823 |
|
Restructuring |
|
| 601 |
|
|
|
| 655 |
|
Deferred revenue |
|
| 987 |
|
|
|
| 1,266 |
|
Stock warrant |
|
| 31 |
|
|
|
| 626 |
|
Lease liabilities |
|
| 82,970 |
|
|
|
| 82,284 |
|
Accrued insurance |
|
| 1,045 |
|
|
|
| 985 |
|
State net operating loss carryforwards (a) |
|
| 5,507 |
|
|
|
| 5,608 |
|
All other |
|
| 8,538 |
|
|
|
| 4,433 |
|
Total deferred tax assets |
|
| 124,335 |
|
|
|
| 127,193 |
|
Valuation allowances |
|
| (399 | ) |
|
|
| (357 | ) |
Net deferred tax assets |
|
| 123,936 |
|
|
|
| 126,836 |
|
|
|
|
|
|
|
|
| ||
Deferred tax liabilities: |
|
|
|
|
|
|
| ||
Property and equipment |
|
| 49,038 |
|
|
|
| 48,251 |
|
Lease assets |
|
| 74,472 |
|
|
|
| 73,986 |
|
Inventory |
|
| 31,618 |
|
|
|
| 33,290 |
|
Goodwill |
|
| 36,936 |
|
|
|
| 33,606 |
|
Intangible assets |
|
| 2,200 |
|
|
|
| 1,195 |
|
All other |
|
| 3,576 |
|
|
|
| 2,801 |
|
Total deferred tax liabilities |
|
| 197,840 |
|
|
|
| 193,129 |
|
Net deferred tax liability | $ |
| 73,904 |
|
| $ |
| 66,293 |
|
|
|
|
| December 30, |
|
| December 31, |
| ||||
(In thousands) |
|
|
| 2017 |
|
| 2016 |
| ||||
Deferred tax assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Employee benefits |
|
|
| $ |
| 19,311 |
|
| $ |
| 30,626 |
|
Accrued workers' compensation |
|
|
|
|
| 1,620 |
|
|
|
| 2,624 |
|
Allowance for doubtful accounts |
|
|
|
|
| 1,974 |
|
|
|
| 2,945 |
|
Intangible assets |
|
|
|
|
| 56 |
|
|
|
| 2,060 |
|
Restructuring |
|
|
|
|
| 2,322 |
|
|
|
| 6,087 |
|
Deferred revenue |
|
|
|
|
| 1,552 |
|
|
|
| 2,990 |
|
Accrued rent |
|
|
|
|
| 3,853 |
|
|
|
| 3,555 |
|
Accrued insurance |
|
|
|
|
| 921 |
|
|
|
| 1,279 |
|
All other |
|
|
|
|
| 2,725 |
|
|
|
| 4,417 |
|
Total deferred tax assets |
|
|
|
|
| 34,334 |
|
|
|
| 56,583 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment |
|
|
|
|
| 34,199 |
|
|
|
| 52,401 |
|
Inventory |
|
|
|
|
| 31,454 |
|
|
|
| 46,332 |
|
Goodwill |
|
|
|
|
| 10,083 |
|
|
|
| 79,904 |
|
All other |
|
|
|
|
| 648 |
|
|
|
| 1,189 |
|
Total deferred tax liabilities |
|
|
|
|
| 76,384 |
|
|
|
| 179,826 |
|
Net deferred tax liability |
|
|
| $ |
| 42,050 |
|
| $ |
| 123,243 |
|
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
(In thousands) | 2023 |
|
| 2022 |
| ||||
Balance at beginning of year | $ |
| 1,165 |
|
| $ |
| 1,220 |
|
Lapsed statutes of limitations |
|
| (185 | ) |
|
|
| (55 | ) |
Effectively settled |
|
| (836 | ) |
|
|
| — |
|
Balance at end of year | $ |
| 144 |
|
| $ |
| 1,165 |
|
|
|
|
| December 30, |
|
| December 31, |
| ||||
(In thousands) |
|
|
| 2017 |
|
| 2016 |
| ||||
Balance at beginning of year |
|
|
| $ |
| 2,369 |
|
| $ |
| 2,211 |
|
Gross increases - tax positions taken in prior years |
|
|
|
|
| 213 |
|
|
|
| 184 |
|
Gross decreases - tax positions taken in prior years |
|
|
|
|
| (123 | ) |
|
|
| (2 | ) |
Gross increases - tax positions taken in current year |
|
|
|
|
| 872 |
|
|
|
| 718 |
|
Lapse of statute of limitations |
|
|
|
|
| (923 | ) |
|
|
| (742 | ) |
Balance at end of year |
|
|
| $ |
| 2,408 |
|
| $ |
| 2,369 |
|
Unrecognized tax benefits of $2.0$0.1 million are set to expire prior to December 29, 2018.28, 2024. 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 $1.4$0.1 million as of December 30, 2017.2023.
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 examinations by U.S. federal state or local examinations by tax authorities for fiscal years before December 28, 2013. Income tax returns related to the former Nash-Finch Company, with few exceptions, are no longer subject to U.S. federal,year ended January 2, 2021, and state or local examinations by tax authorities.authorities for fiscal years before the year ended December 28, 2019.
-58-
-68-
Note 14 – Share-Based Payments
Stock-Based CompensationEmployee Awards
The Company hassponsors 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“2020 Plan”) that provides for the granting of stock options, stock appreciation rights, restricted stock, restricted stock units, stock awards,performance shares, performance share units, dividend equivalent rights, and other stock-based and stock-related awards to directors, officers and other key associates. Shares issued,employees, or contractors of the Company, as a resultdetermined by the Compensation Committee of stock option exercises, will be funded with the issuanceBoard of new shares.Directors. Holders of restricted stock and stock awards issued under the 2020 Plan are entitled to participate in cash dividends, and dividend equivalents.payable upon the vesting of the underlying awards. As of December 30, 2017,2023, a total of 1,947,030470,810 shares remained unissued under the 20152020 Plan.
All In the event of a "Change in Control, as defined by the Plan, all outstanding unvested stock options and unvested shares of restricted stock vest immediately, uponwhile outstanding unvested shares of performance share units vest immediately on a “Change in Control,” as defined by the Plan. The Company has not issued anypro-rata basis.
Restricted Stock
Restricted stock options since 2009 and all outstanding options are vested.
The following table summarizes stock option activity for 2017, 2016 and 2015:
|
|
|
|
|
|
|
|
|
|
| Weighted |
|
|
|
|
|
| ||
|
|
|
|
|
| Weighted |
|
| Average |
|
|
|
|
|
| ||||
|
|
|
|
|
| Average |
|
| Remaining |
|
| Aggregate |
| ||||||
| Shares |
|
| Exercise |
|
| Contractual |
|
| Intrinsic Value |
| ||||||||
| Under Options |
|
| Price |
|
| Life Years |
|
| (in thousands) |
| ||||||||
Options outstanding and exercisable at January 3, 2015 |
|
| 494,483 |
|
| $ |
| 20.61 |
|
|
|
| 3.30 |
|
| $ |
| 2,772 |
|
Exercised |
|
| (185,627 | ) |
|
|
| 19.72 |
|
|
|
|
|
|
|
|
| 1,543 |
|
Cancelled/Forfeited |
|
| (63 | ) |
|
|
| 11.50 |
|
|
|
|
|
|
|
|
|
|
|
Options outstanding and exercisable at January 2, 2016 |
|
| 308,793 |
|
|
|
| 21.15 |
|
|
|
| 2.46 |
|
|
|
| 773 |
|
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 in 2017, 2016 and 2015, respectively.
Restricted shares awarded to associatesAssociates in 2023, 2022 and 2021 vest ratably over a four-yearthree-year service period and over one year for grants to members of the Board of Directors. Restricted stock awarded to Associates prior to 2021 vest ratably over a four-year service period. Awards are subject to forfeiture and certain transfer restrictions prior to vesting. Compensation expense, representing the fair value of the stock at the measurement date of the award, is recognized over the required service period.
The following table summarizes restricted stock activity for 2017, 20162023, 2022 and 2015:2021:
|
|
|
|
|
|
|
|
|
| Weighted Average |
| |||||||||||||
|
|
|
|
|
|
|
|
|
| Grant-Date |
| Restricted |
|
| Weighted Average |
| ||||||||
|
|
|
|
|
| Shares |
|
| Fair Value |
| Stock |
|
| Grant-Date |
| |||||||||
Outstanding and nonvested at January 3, 2015 |
|
|
|
|
|
|
| 600,653 |
|
| $ |
| 23.08 |
| ||||||||||
| Awards |
|
| Fair Value |
| |||||||||||||||||||
Outstanding and nonvested at January 2, 2021 |
|
| 973,948 |
|
| $ |
| 17.72 |
| |||||||||||||||
Granted |
|
|
|
|
|
| 314,595 |
|
|
| 26.59 |
|
|
| 562,653 |
|
|
| 18.96 |
| ||||
Vested |
|
|
|
|
|
| (265,737 | ) |
|
| 23.19 |
|
|
| (388,403 | ) |
|
| 19.81 |
| ||||
Forfeited |
|
|
|
|
|
| (11,956 | ) |
|
| 23.85 |
|
|
| (116,361 | ) |
|
| 18.19 |
| ||||
Outstanding and nonvested at January 2, 2016 |
|
|
|
|
|
|
| 637,555 |
|
|
| 24.75 |
| |||||||||||
Outstanding and nonvested at January 1, 2022 |
|
| 1,031,837 |
|
|
| 17.56 |
| ||||||||||||||||
Granted |
|
|
|
|
|
| 314,944 |
|
|
| 28.34 |
|
|
| 391,334 |
|
|
| 28.63 |
| ||||
Vested |
|
|
|
|
|
| (255,156 | ) |
|
| 24.56 |
|
|
| (470,145 | ) |
|
| 17.92 |
| ||||
Forfeited |
|
|
|
|
|
| (37,200 | ) |
|
| 25.80 |
|
|
| (89,963 | ) |
|
| 20.71 |
| ||||
Outstanding and nonvested at December 31, 2016 |
|
|
|
|
|
|
| 660,143 |
|
|
| 26.48 |
| |||||||||||
Outstanding and nonvested at December 31, 2022 |
|
| 863,063 |
|
|
| 22.05 |
| ||||||||||||||||
Granted |
|
|
|
|
|
| 296,297 |
|
|
| 34.68 |
|
|
| 447,910 |
|
|
| 26.95 |
| ||||
Vested |
|
|
|
|
|
| (258,183 | ) |
|
| 25.90 |
|
|
| (432,549 | ) |
|
| 21.16 |
| ||||
Forfeited |
|
|
|
|
|
| (84,513 | ) |
|
| 29.11 |
|
|
| (58,967 | ) |
|
| 25.96 |
| ||||
Outstanding and nonvested at December 30, 2017 |
|
|
|
|
|
|
| 613,744 |
|
| $ |
| 30.32 |
| ||||||||||
Outstanding and nonvested at December 30, 2023 |
|
| 819,457 |
|
| $ |
| 24.92 |
| |||||||||||||||
|
|
|
|
|
|
|
The total fairintrinsic value of shares vested was $9.3$11.7 million, $6.6$14.3 million and $7.6$7.3 million in 2017, 20162023, 2022 and 2015,2021, respectively. As of December 30, 2023, total unrecognized compensation cost related to nonvested restricted stock awards granted under the Company's stock incentive plans is $9.0 million and is expected to be recognized over a weighted average period of 1.7 years.
-69-
Performance Share Units
Performance share units were awarded to certain officers and key Associates in 2023. The vesting of these awards is contingent upon meeting certain performance metrics over a three year period, which include adjusted EPS and return on invested capital. The quantity of shares awarded ranges from 0% to 200% of “Target,” as defined in the award agreement, based on the achievement against the performance metrics. Stock-based compensation expense is recorded over the performance period and is reevaluated at each reporting date based on the probability of the achievement of the performance metrics. The fair value of performance shares is based on the Company’s stock price on the date of grant. Performance share unit awards have a three-year cliff vest, subject to achievement of the performance metrics. Awards are subject to forfeiture and certain transfer restrictions prior to vesting.
Stock-basedThe following table summarizes performance share unit activity for 2023:
| Performance |
|
| Weighted Average |
| ||||
| Share Unit |
|
| Grant-Date |
| ||||
| Awards |
|
| Fair Value |
| ||||
Outstanding and nonvested at December 31, 2022 |
|
| — |
|
| $ |
| — |
|
Granted |
|
| 299,840 |
|
|
|
| 27.01 |
|
Forfeited |
|
| (9,530 | ) |
|
|
| 27.24 |
|
Outstanding and nonvested at December 30, 2023 |
|
| 290,310 |
|
| $ |
| 27.00 |
|
-59-
As of December 30, 2023, total unrecognized compensation cost related to nonvested performance share unit awards granted under the Company's stock incentive plans is $5.8 million and is expected to be recognized over a weighted average period of 2.0 years.
Stock-Based Compensation Expense
Stock-based compensation expense recognized and included in “Selling, general and administrative expenses” in the consolidated statements of operations,earnings, and related tax benefits were as follows:
(In thousands) |
|
|
| 2017 |
|
| 2016 |
|
| 2015 |
|
| 2023 |
|
| 2022 |
|
| 2021 |
| ||||||||||||||
Restricted stock |
|
|
| $ |
| 9,611 |
|
| $ |
| 7,936 |
|
| $ |
| 7,240 |
| |||||||||||||||||
Tax benefits |
|
|
|
|
| (3,440 | ) |
|
|
| (2,976 | ) |
|
|
| (2,758 | ) | |||||||||||||||||
Restricted stock expense |
| $ |
| 10,220 |
|
| $ |
| 8,308 |
|
| $ |
| 6,868 |
| |||||||||||||||||||
Performance share unit expense |
|
| 2,048 |
|
|
| — |
|
|
| — |
| ||||||||||||||||||||||
Income tax benefit |
|
|
| (4,199 | ) |
|
|
| (4,094 | ) |
|
|
| (1,744 | ) | |||||||||||||||||||
Stock-based compensation expense, net of tax |
|
|
| $ |
| 6,171 |
|
| $ |
| 4,960 |
|
| $ |
| 4,482 |
|
| $ |
| 8,069 |
|
| $ |
| 4,214 |
|
| $ |
| 5,124 |
|
Stock-based compensation expense is recognized net of estimated forfeitures, determined based on historical experience.
As of December 30, 2017, total unrecognized compensation cost related to non-vested share-based awards granted under the stock incentive plans was $4.0 million for restricted stock. The remaining compensation costs not yet recognized are expected to be recognized over a weighted average period of 2.3 years for restricted stock. All compensation costs related to stock options have been recognized.
The Company recognized tax deductions of $11.6$12.2 million, $8.0$14.7 million and $9.5$7.7 million related to the exercise of stock options and the vesting of restricted stock and performance share units in 2017, 20162023, 2022 and 2015,2021, respectively.
The Company hassponsored a stock bonus plan covering 300,000 shares of SpartanNash common stock. Under the provisions of this plan, certain officers and key associates mayAssociates could elect to receive a portion of their annual bonus in common stock rather than cash, and will be granted additional shareswhich was issued at 120% of common stock worth 20% of the portion of the bonus they elect to receive in stock.cash value. 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 14,726Under the plan, 15,778 shares remained unissued under thewere issued in 2021. The stock bonus plan at December 30, 2017.expired on March 31, 2021.
The Company also hassponsors an associate stock purchase plan covering 200,000300,000 shares of SpartanNash common stock. The plan provides that associatesstock and enables eligible Associates of the Company mayto purchase shares at 95%85% of the fair market value. The Company has determined this represents compensation expense in accordance with ASC 718, Compensation – Stock Compensation. As of December 30, 2017, a total of 81,5112023, 62,540 shares hadhave been issued under the plan.Plan.
Stock Warrant
Note 15 – ConcentrationOn October 7, 2020, in connection with its entry into a commercial agreement with Amazon.com, Inc. (“Amazon”), the Company issued to Amazon.com NV Investment Holdings LLC, a subsidiary of Credit Risk
Amazon, a warrant to acquire up to an aggregate of 5,437,272 shares of the Company’s common stock (the “Warrant”), subject to certain vesting conditions. Warrant shares totaling 1,087,455 shares vested upon the signing of the commercial agreement and had a grant date fair value of $5.51 per share. Warrant shares totaling up to 4,349,817 shares may vest in connection with conditions defined by the terms of the Warrant, as Amazon makes payments to the Company in connection with the commercial supply agreement, in increments of $200 million, and had a grant date fair value of $5.33 per share. Upon vesting, shares may be acquired at an exercise price of $17.7257. The Company may provide financial assistanceWarrant contains customary anti-dilution, down-round and change-in-control provisions. The right to purchase shares in connection with the Warrant expires on October 7, 2027. Non-cash share-based payment expense associated with the Warrant is recognized as vesting conditions are achieved, based on the grant date fair value of the Warrant.
The following table summarizes the Warrant activity for 2023, 2022 and 2021:
Warrant | ||||||||||
Outstanding and nonvested at January 2, 2021 | 4,349,817 | |||||||||
Vested | (434,984 | ) | ||||||||
Outstanding and nonvested at January 1, 2022 | 3,914,833 | |||||||||
Vested | (434,984 | ) | ||||||||
Outstanding and nonvested at December 31, 2022 | 3,479,849 | |||||||||
Vested | (217,492 | ) | ||||||||
Outstanding and nonvested at December 30, 2023 | 3,262,357 |
Warrant expense recognized as a reduction of “Net sales” in the formconsolidated statements of loans to certain independent retailers for inventories, store fixturesearnings, 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 ten 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,related tax benefits were 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. follows:
(In thousands) |
|
|
| 2023 |
|
| 2022 |
|
| 2021 |
| ||||||
Warrant expense |
|
|
| $ |
| 1,559 |
|
| $ |
| 2,158 |
|
| $ |
| 1,958 |
|
Tax benefits |
|
|
|
|
| (133 | ) |
|
|
| (203 | ) |
|
|
| (152 | ) |
Warrant expense, net of tax |
|
|
| $ |
| 1,426 |
|
| $ |
| 1,955 |
|
| $ |
| 1,806 |
|
As of December 30, 2017,2023, total unrecognized cost related to non-vested warrants was $17.0 million, which may be expensed as vesting conditions are satisfied over the Company has an unearned advanced amount to one independent retailer for an amount representing approximately two percentremaining term 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 assetsagreement, or 3.8 years. Warrants representing 2,174,915 shares are vested 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-
exercisable. As of December 30, 2017, the Company has guaranteed bank debt for one independent retailer in the amount of $1.5 million. This guarantee, which is secured by certain business assets and personal guarantees of the retailer, represents the maximum undiscounted payments the Company would be required to make in the event of default. The Company believes this independent retailer will be able to perform under the loan agreement and that no payments will be required and no loss will be incurred under the guarantee. The fair2023, non-vested warrant shares had an intrinsic value of the obligation assumed under the guarantee is not material. In the ordinary course of business, the Company also subleases$17.0 million, and assigns various leases to third parties. As of December 30, 2017, the Company estimates the presentvested warrant shares had an intrinsic value of its maximum potential obligations for subleases and assigned leases to be approximately $6.4 million and $13.8 million, respectively.$11.4 million.
-60-
Note 1615 – Supplemental Cash Flow Information
Supplemental cash flow information is as follows:
(In thousands) | 2023 |
|
| 2022 |
|
| 2021 |
| ||||||
Non-cash investing activities: |
|
|
|
|
|
|
|
|
|
|
| |||
Capital expenditures included in accounts payable | $ |
| 28,102 |
|
| $ |
| 25,701 |
|
| $ |
| 15,277 |
|
Other supplemental cash flow information: |
|
|
|
|
|
|
|
|
|
|
| |||
Cash paid for interest |
|
| 37,939 |
|
|
|
| 18,431 |
|
|
|
| 12,245 |
|
Income tax payments (refunds) |
|
| 11,172 |
|
|
|
| 6,513 |
|
|
|
| (10,110 | ) |
(In thousands) | 2017 |
|
| 2016 |
|
| 2015 |
| ||||||
Non-cash financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
| 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 |
|
Other supplemental cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest |
|
| 22,818 |
|
|
|
| 16,184 |
|
|
|
| 19,178 |
|
Cash paid for income taxes |
|
| 10,657 |
|
|
|
| 35,836 |
|
|
|
| 23,531 |
|
Note 1716 – ReportingReportable Segment Information
SpartanNash sells and distributes products that are typically found in supermarkets and discount stores. The Company’s 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 makerChief Operating Decision Maker is the Chief Executive 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 threetwo reportable segments: Food Distribution, MilitaryWholesale and Retail. These reportable segments are threetwo distinct businesses, each with a different customer base, management structure, and basis for determining budgets, forecasts, and executive compensation. Where applicable, segment financial information for the comparative prior year periods within this report has been recast to reflect the Company's current reportable segment structure.
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 Refer to Note 2 for information regarding the basis of 13 distribution centers as well as facilities to process fresh produce, proteins,organization and meal kits, supplies grocerytypes of products, including dry groceries, produce, dairy products, meat, delicatessen items, bakery goods, frozen food, seafood, floral products, general merchandise, beverages, tobacco products, healthservices and beauty care 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 retailers and inter-segment sales are recorded based upon both a “cost plus” model and a “variable mark-up” model,customers from 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 and also provides managed freight solutions.
-71-
derives revenue. 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, two of which are shared with the Food Distribution segment. The contracts typically specify the commissaries and exchanges to supply on behalfaccounting policies of the manufacturer,segments are the manufacturer’s products to be supplied, service and delivery requirements and pricing and payment 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 operated 145 corporate owned retail stores and 31 fuel centers, predominantlysame as those described in the Midwest region, assummary 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. The Company also offered pharmacy servicessignificant accounting policies in 87 of its corporate owned retail stores as of December 30, 2017.
Note 1. Identifiable assets represent total assets directly associated with the reportingreportable segments. Eliminations in assets identified to segments include intercompany receivables, payables and investments. Capital expenditures primarily relate to store remodels, IT upgrades and implementations, investments in supply chain infrastructure, office remodels, and equipment upgrades.
-72--61-
The following tables set forth information about the Company by reportingreportable segment:
|
|
|
|
|
|
|
|
|
|
| ||||
(In thousands) | Wholesale |
|
| Retail |
|
| Total |
| ||||||
2023 |
|
|
|
|
|
|
|
|
|
|
| |||
Net sales to external customers | $ |
| 6,919,217 |
|
| $ |
| 2,810,002 |
|
| $ |
| 9,729,219 |
|
Inter-segment sales |
|
| 1,189,438 |
|
|
|
| 1,332 |
|
|
|
| 1,190,770 |
|
Acquisition and integration, net |
|
| 216 |
|
|
|
| 3,200 |
|
|
|
| 3,416 |
|
Restructuring and asset impairment, net |
|
| 8,548 |
|
|
|
| 642 |
|
|
|
| 9,190 |
|
Depreciation and amortization |
|
| 51,535 |
|
|
|
| 47,104 |
|
|
|
| 98,639 |
|
Operating earnings |
|
| 87,701 |
|
|
|
| 19,011 |
|
|
|
| 106,712 |
|
Capital expenditures |
|
| 75,509 |
|
|
|
| 44,821 |
|
|
|
| 120,330 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
2022 |
|
|
|
|
|
|
|
|
|
|
| |||
Net sales to external customers | $ |
| 6,845,236 |
|
| $ |
| 2,797,864 |
|
| $ |
| 9,643,100 |
|
Inter-segment sales |
|
| 1,204,497 |
|
|
|
| 928 |
|
|
|
| 1,205,425 |
|
Acquisition and integration, net |
|
| 239 |
|
|
|
| 104 |
|
|
|
| 343 |
|
Restructuring and asset impairment, net |
|
| (2,363 | ) |
|
|
| 3,168 |
|
|
|
| 805 |
|
Depreciation and amortization |
|
| 47,601 |
|
|
|
| 46,579 |
|
|
|
| 94,180 |
|
Operating earnings |
|
| 55,137 |
|
|
|
| 13,407 |
|
|
|
| 68,544 |
|
Capital expenditures |
|
| 52,394 |
|
|
|
| 44,886 |
|
|
|
| 97,280 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
2021 |
|
|
|
|
|
|
|
|
|
|
| |||
Net sales to external customers | $ |
| 6,349,753 |
|
| $ |
| 2,581,286 |
|
| $ |
| 8,931,039 |
|
Inter-segment sales |
|
| 1,095,647 |
|
|
|
| 827 |
|
|
|
| 1,096,474 |
|
Acquisition and integration, net |
|
| — |
|
|
|
| 708 |
|
|
|
| 708 |
|
Restructuring and asset impairment, net |
|
| 427 |
|
|
|
| 2,459 |
|
|
|
| 2,886 |
|
Depreciation and amortization |
|
| 46,487 |
|
|
|
| 46,224 |
|
|
|
| 92,711 |
|
Operating earnings |
|
| 45,229 |
|
|
|
| 66,971 |
|
|
|
| 112,200 |
|
Capital expenditures |
|
| 46,020 |
|
|
|
| 33,407 |
|
|
|
| 79,427 |
|
|
|
|
|
|
|
|
|
|
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||
|
|
|
|
| December 30, |
|
| December 31, |
| |||||
(In thousands) |
|
|
|
| 2023 |
|
| 2022 |
| |||||
Total assets |
|
|
|
|
|
|
|
|
|
|
| |||
Wholesale |
|
|
|
| $ |
| 1,576,182 |
|
| $ |
| 1,525,760 |
| |
Retail |
|
|
|
|
|
| 779,393 |
|
|
|
| 780,801 |
| |
Total |
|
|
|
| $ |
| 2,355,575 |
|
| $ |
| 2,306,561 |
|
| Food |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
(In thousands) | Distribution |
|
| Military |
|
| Retail |
|
| Total |
| ||||||||
2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales to external customers | $ |
| 3,992,192 |
|
| $ |
| 2,144,022 |
|
| $ |
| 1,991,868 |
|
| $ |
| 8,128,082 |
|
Inter-segment sales |
|
| 885,872 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 885,872 |
|
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 |
|
| 21,397 |
|
|
|
| 11,484 |
|
|
|
| 44,365 |
|
|
|
| 77,246 |
|
Operating earnings |
|
| 85,093 |
|
|
|
| 12,160 |
|
|
|
| 11,514 |
|
|
|
| 108,767 |
|
Capital expenditures |
|
| 19,075 |
|
|
|
| 6,447 |
|
|
|
| 47,907 |
|
|
|
| 73,429 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales to external customers | $ |
| 3,305,094 |
|
| $ |
| 2,207,161 |
|
| $ |
| 2,139,718 |
|
| $ |
| 7,651,973 |
|
Inter-segment sales |
|
| 973,512 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 973,512 |
|
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 |
|
| 26,127 |
|
|
|
| 12,081 |
|
|
|
| 45,126 |
|
|
|
| 83,334 |
|
Operating earnings |
|
| 78,841 |
|
|
|
| 17,059 |
|
|
|
| 26,975 |
|
|
|
| 122,875 |
|
Capital expenditures |
|
| 17,967 |
|
|
|
| 3,768 |
|
|
|
| 57,659 |
|
|
|
| 79,394 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 30, |
|
| December 31, |
| ||||
(In thousands) |
|
|
|
|
|
|
|
|
|
| 2017 |
|
| 2016 |
| ||||
Total Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Food Distribution |
|
|
|
|
|
|
|
|
|
| $ |
| 1,085,621 |
|
| $ |
| 776,725 |
|
Military |
|
|
|
|
|
|
|
|
|
|
|
| 432,818 |
|
|
|
| 395,737 |
|
Retail |
|
|
|
|
|
|
|
|
|
|
|
| 533,912 |
|
|
|
| 754,625 |
|
Discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
| 3,446 |
|
|
|
| 3,249 |
|
Total |
|
|
|
|
|
|
|
|
|
| $ |
| 2,055,797 |
|
| $ |
| 1,930,336 |
|
-62-
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:
(In thousands, except percentages) | 2017 |
| 2016 |
| 2015 | ||||||||||||||||||||||||
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 |
|
| 352,177 |
|
|
| 4.3 |
|
|
|
|
| 356,010 |
|
|
| 4.6 |
|
|
|
|
| 310,377 |
|
|
| 4.1 |
|
|
Fuel |
|
| 126,674 |
|
|
| 1.6 |
|
|
|
|
| 110,619 |
|
|
| 1.4 |
|
|
|
|
| 122,004 |
|
|
| 1.6 |
|
|
Consolidated net sales | $ |
| 8,128,082 |
|
|
| 100.0 |
| % |
| $ |
| 7,734,600 |
|
|
| 100.0 |
| % |
| $ |
| 7,651,973 |
|
|
| 100.0 |
| % |
|
|
|
|
-73-
Note 18- Quarterly Financial Information (Unaudited)
Earnings per share amounts for each quarter are required to be computed independently and may not equal the amount computed for the total year.
| 2017 |
| ||||||||||||||||||||||
| 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 | $ |
| 8,128,082 |
|
| $ |
| 1,924,225 |
|
| $ |
| 1,906,644 |
|
| $ |
| 1,894,709 |
|
| $ |
| 2,402,504 |
|
Gross profit |
|
| 1,144,909 |
|
|
|
| 254,815 |
|
|
|
| 261,692 |
|
|
|
| 271,026 |
|
|
|
| 357,376 |
|
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 |
|
| 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 |
|
| 89,963 |
|
|
|
| 20,079 |
|
|
|
| 25,594 |
|
|
|
| 28,303 |
|
|
|
| 15,987 |
|
Earnings from continuing operations |
|
| 57,056 |
|
|
|
| 12,806 |
|
|
|
| 16,730 |
|
|
|
| 17,560 |
|
|
|
| 9,960 |
|
(Loss) earnings from discontinued operations, net of taxes |
|
| (228 | ) |
|
|
| 39 |
|
|
|
| (82 | ) |
|
|
| (76 | ) |
|
|
| (109 | ) |
Net earnings | $ |
| 56,828 |
|
| $ |
| 12,845 |
|
| $ |
| 16,648 |
|
| $ |
| 17,484 |
|
| $ |
| 9,851 |
|
Earnings from continuing operations per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic | $ |
| 1.52 |
|
| $ |
| 0.34 |
|
| $ |
| 0.45 |
|
| $ |
| 0.47 |
|
| $ |
| 0.27 |
|
Diluted |
|
| 1.52 |
|
|
|
| 0.34 |
|
|
|
| 0.45 |
|
|
|
| 0.47 |
|
|
|
| 0.27 |
|
Net earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic | $ |
| 1.52 |
|
| $ |
| 0.34 |
|
| $ |
| 0.44 |
|
| $ |
| 0.47 |
|
| $ |
| 0.26 |
|
Diluted |
|
| 1.51 |
|
|
|
| 0.34 |
|
|
|
| 0.44 |
|
|
|
| 0.47 |
|
|
|
| 0.26 |
|
Dividends | $ |
| 22,496 |
|
| $ |
| 5,623 |
|
| $ |
| 5,620 |
|
| $ |
| 5,621 |
|
| $ |
| 5,632 |
|
-74-
Item 9. Changes in and Disagreements Withwith 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 December 30, 20172023 (the “Evaluation Date”). This evaluation was performed under the supervision and with the participation of SpartanNash Company’s management, including its Chief Executive Officer (“CEO”), Chief Financial Officer (“CFO”) and Chief Accounting Officer (“CAO”).Corporate Controller. As of the Evaluation Date, SpartanNash Company’s management, including the CEO, CFO and CAO,Corporate Controller, 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 Exchange Act of 1934 is accumulated and communicated to management, including its principal executive, principal financial and principal financialaccounting 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 OfficerCEO, CFO and Chief Accounting Officer,Corporate Controller, 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 OfficerCEO, CFO, and Chief Accounting Officer,Corporate Controller, 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 StatesGAAP 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,GAAP, 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 December 30, 2017.2023.
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 December 30, 20172023 as stated in their report on the following page.
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.
-75--63-
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholdersshareholders of
SpartanNash Company and Subsidiariessubsidiaries
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 December 30, 2017,2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 30, 2017,2023, 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, 2017,2023, of the Company and our report dated February 26, 2018,28, 2024, 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’sManagement's Report on Internal ControlsControl over 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 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 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 its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ DELOITTE & TOUCHE LLP
Grand Rapids, Michigan
February 26, 201828, 2024
-64-
Item 9B. Other Information
-76-
The Company has adopted insider trading policies and procedures governing the purchase, sale, and/or other dispositions of the Company's securities by directors, officers and employees, or the Company itself, that are reasonably designed to promote compliance with insider trading laws, rules and regulations, and the listing standards of the Nasdaq Global Select Market.
None of the Company's directors or officers adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement (as defined in Item 408(c) of Regulation S-K) during the during the fourth quarter of fiscal 2023.
Changes in Internal Controls Over Financial ReportingItem 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
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.Not Applicable.
-77-
PART III
Item 10. Directors, Executive Officers and Corporate Governance
The information required by this item is here incorporated by reference from the sections titled “The Board“Board of Directors,” “SpartanNash’s Executive Officers,” “Section“Ownership of SpartanNash Stock,” “Delinquent Section 16(a) Beneficial Ownership Reporting Compliance,” “Corporate Governance Principles,Reports,” and “Transactions with Related Persons”“Corporate Governance—Code of Conduct,” in SpartanNash’s definitive proxy statement relating to its annual meeting of shareholders to be held in 2018.2024.
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 “Board of Directors—Interlocks and Insider Participation”Relationships” and “Compensation Committee Report” in SpartanNash’s definitive proxy statement relating to its annual meeting of shareholders to be held in 2018.2024.
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 2018.2024.
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 2017.2023:
EQUITY COMPENSATION PLANSPLAN INFORMATION
|
|
|
|
|
|
| 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) |
| 580,620 |
| (b) |
| — |
| (c) |
| 470,810 |
|
Equity compensation plans not approved by security holders |
| — |
|
| Not applicable |
|
|
| — |
| |
Total |
| 580,620 |
|
|
| — |
|
|
| 470,810 |
|
See Note 14 to the consolidated financial statements for additional information.
|
|
|
|
|
|
|
|
| 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 |
|
-65-
|
|
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”“Corporate Governance—Director Independence” in SpartanNash’s definitive proxy statement relating to its annual meeting of shareholders to be held in 2018.2024.
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 2018.2024.
-78-
PART IV
Item 15. Exhibits and Financial Statement Schedules
|
|
|
|
A. In Item 8.
Reports of Independent Registered Public Accounting Firm of Deloitte & Touche LLP (PCAOB ID No. 34) dated February 26, 201828, 2024
Consolidated Balance Sheets at December 30, 20172023 and December 31, 20162022
Consolidated Statements of OperationsEarnings for the years ended December 30, 2017,2023, December 31, 20162022 and January 2, 20161, 2022
Consolidated Statements of Comprehensive (Loss) Income for the years ended December 30, 2017,2023, December 31, 20162022 and January 2, 20161, 2022
Consolidated Statements of Shareholders’ Equity for the years ended December 30, 2017,2023, December 31, 20162022 and January 2, 20161, 2022
Consolidated Statements of Cash Flows for the years ended December 30, 2017,2023, December 31, 20162022 and January 2, 20161, 2022
Notes to Consolidated Financial Statements
|
|
Schedules are omitted because the required information is either inapplicable or presented in the consolidated financial statements or related notes.
|
|
The information required by this Section (a)(3) of Item 15 is set forth on the exhibit index that followsprecedes the Signatures page of this Form 10-K and is incorporated herein by reference.
-66-
-79-
EXHIBIT INDEX
Exhibit | Document | ||
| |||
| |||
| |||
| Restated Articles of Incorporation of SpartanNash Company, as amended. Previously filed as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended July 15, 2017. Incorporated herein by reference. | ||
3.2 | Bylaws of SpartanNash Company, as amended. Previously filed as an exhibit to the Company’s Current Report on Form 8-K filed on August 25, 2023. Incorporated herein by reference. | ||
4.1 | Description of Capital Stock. Previously filed as an exhibit to the Company’s Annual Report on Form 10-K for the year ended | ||
10.1 | |||
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| Form of | ||
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| 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. | ||
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| 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. | ||
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| Form of Restricted Stock Award to | ||
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10.11* | |||
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| Form of Indemnification Agreement. Previously filed as an exhibit to the Company’s Annual Report on Form 10-K for the | ||
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10.13* | Form of | ||
10.14* | Executive Separation Agreement between SpartanNash Company and Arif Dar. Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended October 8, 2022. Incorporated herein by reference. | ||
10.15* | Form of | ||
10.16 | Interest Rate Swap Agreement. Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended April 22, 2023. Incorporated herein by reference. | ||
10.17 | Transaction Agreement, by and between SpartanNash and Amazon.com NV Investments Holdings LLC, dated as of October 7, 2020. Previously filed as an exhibit to the Company’s Current Report on Form 8-K filed on October 8, 2020. Incorporated herein by reference. | ||
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10.18 | Warrant to Purchase Common Stock of SpartanNash Company, by and between SpartanNash Company and Amazon.com NV Investment Holdings LLC, dated as of October 7, 2020. Previously filed as an exhibit to the Company’s Current Report on Form 8-K filed on October 8, 2020. Incorporated herein by reference. | ||
10.19 | Lender Joinder Agreement - Associated and CoBank, dated April 17, 2023. Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter | ||
| Lender Joinder and Assignment Agreement - Bank of America and TD Bank, dated April 3, 2023. Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended April 22, 2023. Incorporated herein by reference. | ||
10.21 | Lender Joinder Agreement - AgFirst Farm Credit Bank, dated October 26, 2023. | ||
10.22* | Executive Separation Agreement between SpartanNash Company and David Sisk. | ||
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| Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | ||
101.SCH | Inline XBRL Taxonomy Extension Schema with embedded linkbases Document | ||
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* These documents are management contracts or compensation plans or arrangements required to be filed as exhibits to this Form 10-K.
Item 16. Form 10-K Summary
None.
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SIGNATURES
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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 | By | /s/ | ||||
President and Chief Executive Officer (Principal Executive Officer) |
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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 | By | * | ||||
M. Shân Atkins Director | ||||||
February | By | * | ||||
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February | By | * | ||||
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February | By | * | ||||
Director | ||||||
February | By | * | ||||
Director | ||||||
February | By | * | ||||
Director | ||||||
February | By | * | ||||
Director | ||||||
February | By | * | ||||
Director | ||||||
February | By | * | ||||
Director | ||||||
February | By | /s/ | ||||
President and Chief Executive Officer | ||||||
(Principal Executive Officer) | ||||||
February | By |
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Executive Vice President and Chief Financial Officer (Principal Financial Officer) | ||||||
February | By | /s/ | ||||
Vice President (Principal Accounting Officer) | ||||||
February | *By | /s/ | ||||
Attorney-in-Fact |
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